In addition to obtaining the reports from Milliman detailed elsewhere in this preamble and in the April 2002 preamble, and the interaction with stakeholders detailed previously, the Commission conducted extensive research and analysis of data and information, and considered the relevant facts and assumptions and policies that are set out throughout the April 2002 preamble. Although the April 2002 preamble included only excerpts from these sources, the sources themselves are rather voluminous. See List Of References.

III. Factors, Data, Considerations, And Conclusions.

A. Statutory Mandates.

The numerous, complex, and sometimes conflicting statutory mandates regarding medical fee guidelines are set out in detail in the April 2002 preamble, at 27 TexReg 4048 - 4049. In general, they require:

* fair and reasonable guidelines;

* guidelines designed to ensure the quality of medical care;

* guidelines designed to achieve effective medical cost control;

* guidelines that do not provide for payment of a fee in excess of the fee charged for similar treatment of an injured individual of an equivalent standard of living and paid by that individual or by someone acting on that individual's behalf;

* consideration of the increased security of payment afforded by the Texas Workers' Compensation Act (the Act);

* use of health care reimbursement policies and guidelines that reflect the standardized reimbursement structures found in other health care delivery systems, with minimal modifications to meet occupational injury requirements;

* adoption of the most current reimbursement methodologies, models, and values or weights used by the federal Health Care Financing Administration (HCFA) to achieve standardization, including applicable payment policies relating to coding, billing, and reporting, with modification of documentation requirements as necessary to meet the requirements of §413.053 of the Act (relating to Standards of Reporting and Billing);

* development of conversion factors or other payment adjustment factors, taking into account economic indicators in health care;

* reasonable fees for the evaluation and management of care; and

* conversion factors or other payment adjustment factors that are not based solely on those factors as developed by the HCFA.

B. Standardization Through Adoption of Medicare Payment Policies Is Required and Appropriate.

As set out previously, the statute requires the Commission to use policies and guidelines that reflect standardized reimbursement structures, with minimal modifications, and to adopt CMS methodologies, etc., to achieve standardization. As noted by TMA, the adoption of standard payment policies will result in a net reduction in the administrative costs of compliance for Texas physicians. "As a consequence, it will also result in an increase in access for injured workers, or at least mitigate the current erosion in access to physician services. Many of the physicians who are currently refusing to treat injured workers cite the administrative complexity as a causative factor." (Correspondence from TMA to Executive Director, November 1, 2001)

To achieve standardization it is necessary to use the Medicare billing and reimbursement policies as they are modified by CMS. Adoption of policies in effect on a particular date would require participants in the Texas workers' compensation system to bill and reimburse in a manner different from the current Medicare system and other healthcare reimbursement systems. That would undermine or eliminate the positive impact of the standardization required by the statute, including reduced administrative costs as discussed in the April 2002 preamble and the Supplemental Preamble. Therefore, the rule, in compliance with the statute, requires the use of the Medicare policies in effect on the day that a service is provided. §134.202(a)(5).

C. Use of RBRVS Is Required and Appropriate.

The statute, as amended by HB 2600, requires the use of the Centers for Medicare and Medicaid Services (CMS) Resource Based Relative Value Scale (RBRVS). RBRVS is the result of an extensive development effort that began a decade ago and has been updated and refined annually since then. The RBRVS development process is open to public comment, is thoroughly reviewed by provider groups representing virtually all specialties, and is documented in the Federal Register annually. The RBRVS uses three components to establish the total relative value units (RVUs) for a particular code: work, practice expense, and malpractice insurance, and the RVUs are adjusted by Geographical Practice Cost Indices (GPCIs) to reflect geographical differences.

RBRVS values services according to the relative resources required to provide them, recognizing skill, practice cost, and risk. These relative value units represent national standards assigned to medical treatments and services. Use of Centers for Medicare and Medicaid Services (CMS) RBRVS aligns the basis for workers' compensation reimbursement with nationally recognized standards of relative values used in other health care delivery systems, and takes into account economic indicators in health care

The Milliman study found that RBRVS is increasingly becoming the standard used by commercial payers, as well as Medicare, to set reimbursement levels. A reimbursement methodology based on RBRVS is internally consistent with a majority of prevailing commercial payments, and is easier to compare against such fee schedules as noted in the April 2002 preamble, 27 TexReg 4052. Use of RBRVS complies with statutory standardization and Medicare methodologies requirements.

D. Commission Rules And Actions Should Address Fee Amounts and Utilization.

Some stakeholders argue that the Commission should achieve effective medical cost control through means other than a reduction in fees, such as preauthorization revisions, revision of the requirements for inclusion on the ADL, and development of the Medical Quality Review Panel (MQRP) which will identify and monitor utilization levels. The Commission has concluded that these other methods to target over-utilization should be used together with the fee structure in the 2002 MFG to address cost containment, for reasons detailed in the April 2002 MFG, including:

* Under the 1996 MFG, the relationship to the Medicare conversion factor varies widely not only between medical services groups, but also within each group; some within each group were reimbursed far above or far below the median of the data. (Texas Workers' Compensation Commission Rate Comparisons, April 16, 1997, Health Care Solutions, Inc., Greg Guidroz)

* The lower cost of many individual medical treatments in group health widens the cost gap between Texas workers' compensation and Texas group health systems. The reimbursement established in the MFG is a necessary component of cost containment.

* The ROC recommended adoption of a comprehensive plan to address the price of individual treatments and services in workers' compensation, as well as the over-utilization of medical services. (ROC, January 2001)

* Dr. Harris, one of the authors of Striking the Balance, has repeated that conclusion and noted that price adjustments can promote changes in utilization relatively quickly and with relatively little regulatory resources required. Many other remedies for over-utilization require much more time and staff resources to implement, including monitoring and regulation of providers to remove those with poor quality outcomes, etc. (Statement of Jeff Harris, M.D.)

E. Adoption of the 2002 MFG Will Not Cause An Increase In Utilization of Services.

Some stakeholders also argue that health care providers whose incomes are reduced by the fee changes will increase the volume and intensity of medical services furnished, and thus prevent any cost control through regulation of fees. The Commission has concluded that control of medical costs through the fee guideline is appropriate and necessary. Over-utilization will not result from reduced workers' compensation fees, for reasons detailed in the April 2002 preamble, including:

* In the Medicare system, the use of RBRVS has reduced the number of surgeries provided under Medicare in spite of Medicare price cuts for those services. WCRI: The RBRVS as a Model, 1996) citing (Physician Payment Review Commission, 1994))

* Physicians in the workers' compensation system should respond even less to workers' compensation fee reductions because that will have less of an impact on total physician income for most physicians. ((WCRI: The RBRVS as a Model, 1996) citing (Physician Payment Review Commission, 1994))

* Health care providers in the system have the responsibility to provide health care that is medically reasonable and necessary, so the realignment of reimbursements consistent with the RBRVS should not result in greater utilization of services in workers' compensation.

* A WCRI study analyzed the results of three types of "transitional strategies" for state workers' compensation to move from a schedule that is not RBRVS to an RBRVS schedule. The impact on general medicine, radiology, surgery, and physical medicine was analyzed. In an overall price-neutral conversion to RBRVS, fees for physical medicine do not change much, but general medicine rises considerably, and radiology and surgery decline considerably. This is the same impact that is seen when conversion to RBRVS is combined with a reduction in fees. WCRI therefore concluded that foregoing the cost-savings opportunity stemming from a reduction in overall fees would not avoid important negative impacts on some groups of providers. (WCRI, The RBRVS As a Model for Workers' Compensation Medical Fee Schedule: Pros and Cons., Dr. Phillip L. Burstein, July 1996)

* The 1996 Medical Fee Guideline did not correlate pricing directly to any relative value unit system and this aspect of the 1996 Medical Fee Guideline contributed to the current over-utilization in the areas like surgery where pricing was generally high. This conclusion is supported by the WCRI article that noted the efforts of the RBRVS system to shift the service mix away from surgery and imaging procedures, as noted on page 4051 of the April 2002 preamble.

F. Benchmarking.

The term "benchmarking" as used with respect to fees in the health care industry is often misunderstood. As commonly used in the industry, and in the April 2002 preamble, a benchmark is nothing more than a relevant point of reference. Saying that something is a benchmark does not mean that it is the standard or goal which one should strive to achieve. Nor does it mean that it, in and of itself, establishes the presumptive starting point, without evaluation of relevant similarities and differences.

G. Medicare as a Benchmark.

As detailed in the April 2002 preamble, the Commission has recognized that Medicare recipients have a similar standard of living as the general working population, and therefore injured employees. Medicare is an appropriate point of reference for workers' compensation fees for reasons detailed in the April 2002 preamble, including:

* HB 2600's extensive emphasis on the Medicare system and requirement that the Commission adopt the most current reimbursement methodologies, models, and values or weights used by Medicare;

* Medicare recipients have a similar standard of living as the general working population. Study prepared by Research and Planning Consultants (A Standard of Living Comparison Between the Working Population, the Medicare Population, and the Managed Care Population, March 1997; addendum to report, April 2001)

* Medicare is a main component of the national health care system and has become a standard and benchmark for development and operation for many commercial and governmental health care programs; Medicare pays for a larger percentage of health care services in the United States than any other third party payer.

* The Medicare fee schedule is the lowest in common use; because effective medical cost containment is a statutory goal, it is appropriate for Texas to consider the Medicare fee schedule. (WCRI: Benchmarks for Designing Workers' Compensation Medical Fee Schedules, 1995-96, May 1996)

* The Medicare fee schedule corrects a typical bias of traditional reimbursement systems that overcompensate providers for expensive invasive high-technology procedures and under compensate providers for less expensive noninvasive low-technology procedures. (WCRI: Benchmarks for Designing Workers' Compensation Medical Fee Schedules, 1995-96, May 1996)

* Medicare fee schedules differ across states according to carefully researched measures of differences in the three elements of the costs of producing medical services; (WCRI: Benchmarks for Designing Workers' Compensation Medical Fee Schedules, 1995-96, May 1996)

* Medicare's payment policies largely define "main stream medicine." These policies have been developed and refined over many years in the public area with extensive involvement of health care providers. The Commission could not independently duplicate this work.

* For a given medical service, there is no reason payment policies for group health or workers' compensation should differ from Medicare. Even if the number or volume of services differs, those differences do not substantially change the work or practice expenses required to perform the same medical treatment or service.

Adoption of Medicare payment policies should lead to reduced administrative costs, a reduced number of medical disputes and a reduction in unproductive costs for medical services because of high use in the industry and because of the standardization that use of it will bring to the workers' compensation system. (Contained in correspondence from TAB to the Executive Director, November 1, 2001 and correspondence from TMA to the Executive Director on November 1, 2001)

Workers' compensation policymakers have been showing increased interest in Medicare as a benchmark. (WCRI: Benchmarks for Designing Workers' Compensation Medical Fee Schedules, 1995-96, May 1996)

H. Commercial Market Economic Indicators.

Reimbursement in the commercial managed care market is one of a number of economic indicators of the health care market that may be considered by the Commission in establishing fees for workers' compensation medical services, for reasons detailed in the April 2002 preamble, including:

* The standard of living of the population covered by managed care plans is at least as high as the population covered by the workers' compensation Act; Study prepared by Research and Planning Consultants (A Standard of Living Comparison Between the Working Population, the Medicare Population, and the Managed Care Population, March 1997; addendum to report, April 2001)

* Both the ROC and the Texas Medical Association (TMA) advocate that the methodologies of an RBRVS system should be used with the conversion factor drawn from statewide data for commercial medical charges and actual payments in Texas;

* Commercial plans typically represent a negotiated fair market value for medical treatments and services.

I. Other States As Benchmarks.

Workers' compensation fees in other states should also be considered by the Commission in establishing fees for workers' compensation medical services, for reasons detailed in the April 2002 preamble, including:

* Studies that evaluate workers' compensation fees for medical services routinely compare fees between states as a means of studying and learning the impact various levels of fees may have on issues important to the workers' compensation system such as access to quality care and effective cost control;

* Comparison of the 1996 MFG amounts to workers' compensation fees in other states allows the Commission to make certain conclusions on those same important issues, e.g. given the level of compensation in a particular state and the level of access for workers' compensation claimants in that state, what does that portend for future access for workers' compensation claimants in Texas under various levels of reimbursement?

J. Use Of A Single Conversion Factor

A single conversion factor should be adopted for reasons detailed in the April 2002 preamble, including:

* The RBRVS system used by Medicare values services according to the relative resources required to provide them, recognizing skill, practice cost, and risk. The relative value units reflect the relationship between the resources necessary to provide a professional medical service relative to resources necessary to provide other professional medical services.

* Use of a single conversion factor is necessary to maintain consistency in the utilization controls and incentives designed into the RBRVS system. If the numbers of relative value units assigned to each procedure by Medicare are retained, but markedly different conversion factors are used for the various medical sectors, this results in the loss of some of the benefits of the Medicare RBRVS, because relative prices do not fully reflect relative costs and so the service mix does not fully adjust.

* As already noted, the 1996 MFG did not correlate pricing directly to any relative value unit system and that aspect of the 1996 MFG likely contributed to the current over-utilization in the areas like surgery, where pricing was generally high.

* Adoption of a single conversion factor is required to remove the treatment bias (for high-priced items) and to provide incentives for primary care physicians to provide objective management of the medical recovery of injured workers.

* Adopting a single conversion factor will improve the quality of medical care for many injured workers by reducing an incentive for unnecessary treatment.

* Use of more than a single conversion factor would not follow the statutory intent of HB 2600 with respect to use of Medicare methodologies and standardization.

K. Spreadsheet.

Commission staff prepared and gave the Commissioners a "spreadsheet" prior to the December 2001 public meeting at which the 2002 MFG was proposed. That spreadsheet used a single conversion factor, and showed the estimated payments in the workers' compensation system for the different AMA CPT code groupings for the calendar year 2000, the estimated reimbursement for the individual CPT code groupings at different conversion factors (levels of multipliers of Medicare), and the estimated percentage change for each CPT code grouping that would result from the various conversion factors shown. Factors from 100% of Medicare to 140% of Medicare were shown in 5% increments.