New §134.203 and §134.204 are based on and address the same subject matter as the current §134.202 medical fee guidelines; however, the new sections apply to medical services provided on or after March 1, 2008, and contain changes that provide for fair and reasonable reimbursement in the current health care market. Section 134.202 will remain in effect for reimbursements related to professional medical services provided between August 1, 2003 and March 1, 2008. Rather than modifying §134.202, two new sections (§134.203 and §134.204) are adopted to create a separation of the conversion factors for Medicare-based fee schedules from workers' compensation specific services and reimbursements that are currently combined in §134.202. With two separate sections, any future amendments will be easier for the Division to manage and for system participants to implement. New §134.203 relates to medical fees for reimbursements predominantly based on conversion factors and Medicare. New §134.204 relates to medical fees for reimbursement of workers' compensation specific codes, services, and programs that, for the most part, are needed in the Texas workers' compensation system but are not as dependant on the RBRVS system and the Medicare methodologies.

HB 7, enacted by the 79th Texas Legislature, Regular Session, effective September 1, 2005, added new duties for designated doctors to Labor Code §408.0041. The adopted rules, specifically §134.204(i) and (k), are required in order to reflect the new duties, provide appropriate modifiers to be used in billing for the new duties, and to structure reimbursement to take into account the new duties.

At the time the 2002 MFG rules were adopted, there was no statutory provision for more than one conversion factor. With the passage of HB 7, the Labor Code was amended at §413.011(b) to direct the Commissioner to develop one or more conversion factors taking into account economic indicators in health care and the requirements of subsection (d), which requires that reimbursement be fair and reasonable and designed to ensure the quality of medical care. In place of the single conversion factor provided by §134.202, new §134.203 adopts two conversion factors. The two conversion factors are established in consultation with the Medical Advisor pursuant to Labor Code §413.0511(b)(1) and in consideration of the amendments made by HB 7.

The conversion factor of $52.83 for calendar year 2008 is to be used for all professional service categories, with the exception of surgical procedures when performed in a facility setting, such as a hospital or an ambulatory surgical center (ASC). This "non-facility" conversion factor is based on the Medicare Economic Index (MEI) used by CMS to develop its adopted 2008 conversion factor. Labor Code §413.011 requires that reimbursement be fair and reasonable. In 2003, the Texas court of appeals validated the conversion factor of 125 percent of Medicare in the 2002 MFG. In reaching that decision, the court said, "the Commission was not required to demonstrate that 125% is the only reasonable or factually defensible policy alternative. Rather, it needed only to demonstrate that there is a rational connection between its conversion factor and the factual material it has received or otherwise considered, and that 125% is a legitimate and factually defensible choice that complies with the multiple statutory requirements of the labor code." TMA v. TWCC II at 355. That conversion factor was adopted and has been used for setting reimbursement since the 2002 MFG became effective on August 1, 2003. A review by the Division shows that erosion of the value of reimbursement over the past four years due to yearly practice expense increases has caused the 125 percent conversion factor to not fully recognize changes in the economic indicators of health. This reimbursement is no longer fully consistent with the requirements of Labor Code §413.011. Rather than continue using 125 percent of the most current Medicare conversion factor, the adopted §134.203 establishes a conversion factor that reflects the aggregate changes in the MEI since the baseline year of 2002. The MEI is a weighted average of price changes for goods and services used to deliver physician services. The goods and services include physician time and effort as well as practice expenses. The MEI is a portion of Medicare's Sustainable Growth Rate (SGR). The other components of the SGR serve as major price restraints necessary to comply with Medicare's budget neutrality requirements, and do not directly relate to workers' compensation reimbursements. This change updates the 125 percent conversion factor to essentially reflect the changes in the cost of providing the covered goods, services, and practice expenses that have occurred over the prior four years. The adopted conversion factor of $52.83 for calendar year 2008 begins with the 125 percent multiplier developed for §134.202, and applying the annual MEI adjustment year-to-year beginning with the baseline year of 2002. In 2002, the reimbursement amount was $45.25. The MEI increased 3.0 percent for 2003, 2.9 percent for 2004, 3.1 percent for 2005, 2.8 percent for 2006, 2.1 percent for 2007, and 1.8 percent for 2008. In order to minimize the need for rulemaking activity and to provide predictability to system participants, the Division adopts, as part of §134.203, a provision that will automatically update the conversion factor each year based on the MEI. The Division will monitor the resulting change to ensure that the conversion factor is reflective of the mandatory statutory factors. This approach is analogous to the approach that was upheld in the 2002 MFG suit where the plaintiffs complained that use of the Medicare conversion factor to develop a conversion factor was an improper delegation of agency duty; however, the court found that there was no delegation. TMA v. TWCC II, 137 S.W.3d at 348. The section that was challenged stated, "The 2002 fee guidelines provide that fees for certain services are to be calculated by using the 'effective conversion factor adopted by CMS multiplied by 125%.'" TMA v. TWCC II, 137 S.W.3d at 348. In finding that there was no delegation, the court stated, "Changes to the Medicare conversion factor are historically announced several months before they become effective. See, e.g., 42 C.F.R. §414.4 (2003) (CMS announces proposed changes in Federal Register and provides opportunity for public comments prior to publication of final changes); 67 Fed. Reg. 79,966 (Dec. 31, 2002) (2003 conversion factor published on December 31, 2002, to be effective on March 1, 2003). Thus, the Commission will have an opportunity to make any necessary changes to the Texas multiplier prior to the date the Medicare conversion factor becomes effective. Indeed, the Commission has already adjusted the Texas conversion factor to 125%, up from 120%, after the Medicare conversion factor for 2002 was reduced. Supp. Preamble 12,335; see also 66 Fed. Reg. 55,320 (Nov. 1, 2001). Even without the Commission's statement in the Supplemental Preamble, the Commission has the ongoing statutory duty to review and revise the fee guidelines to ensure they are in compliance with the statutory factors. See Tex. Lab. Code Ann. §413.012 (Commission is to review and revise guidelines at least every two years). Appellants' contention that the adjustment to the Texas conversion factor is "automatic" is thus overstated. The Commission will have the ultimate authority, and the ongoing duty, to make adjustments to the Texas conversion factor to keep it reflective of the mandatory statutory factors." TMA v. TWCC II, 137 S.W.3d at 349.

As with the Medicare conversion factor, the annual MEI is published in the Federal Register each November for the following year. Estimates of the MEI are available throughout the year prior to November. The Commissioner, exercising his ultimate authority and his statutory duty to review and revise, has the opportunity to implement any necessary changes to the reimbursement rate prior to its effective date.

Using the estimates and the final annual MEI also provides an element of stability and predictability to the system. Insurance carriers can anticipate changes in the conversion factor well in advance of their implementation. Also, in the past, there have been situations where Medicare has lowered the Medicare conversion factor below the then current year and Congress has stepped in to maintain the conversion factor at the prior rate. On at least one occasion, the congressional action occurred well after January 1 effective date of the change, which meant that the congressional action was retroactive and caused reimbursement and billing problems for both carriers and health care providers (HCPs). With the adoption of the rule, this will no longer be a problem since the change is tied to the MEI rather than to the Medicare conversion factor.

The adopted section establishes a second conversion factor of $66.32 for calendar year 2008 to be used for surgical procedures when performed in a facility setting, such as a hospital or ASC. This conversion factor is based on the average reimbursement differential between reimbursement rates for surgical services and overall services of those state workers' compensation systems using the Resource Based Relative Value Scale (RBRVS) as listed in Benchmarks for Designing Workers' Compensation Medical Fee Schedules: 2006 (Workers' Compensation Research Institute, 2006). This WCRI Report also states that for surgical services, 23 of the states that use RBRVS, set their workers' compensation fee schedule more than double the state's Medicare fee schedule; about half of the states have fee schedules that range from 30-65 percent above the state's Medicare rates; and the interstate differences are greatest for surgical and specialty care, and smallest for primary care and physical medicine services. This Division conversion factor also takes into consideration the limited availability of HCPs with the specialized expertise necessary to provide those services. As reported by the Texas Medical Association in their 2006 Survey of Texas Physicians Research Findings, there has been a dramatic loss of access to surgical specialties by injured employees since the adoption of §134.202. As a result of stakeholder input received in response to the posting of the informal working draft sections and in consultation with the Medical Advisor, the $66.32 conversion factor applies only to surgical services when performed in a facility setting, rather than the earlier suggestion of specialty surgical procedures distinguished by CPT codes. Use of specific CPT codes would result in an increased administrative burden due to the changing nature of the CPT codes. Current billing practices allow the designation of the setting where the surgical procedure was performed (i.e., office versus facility). Medicare now allows site of service preference deemed by the physician as long as the procedure may be performed safely in that setting. Under the adopted conversion factors, the HCP will generally be paid at a higher rate for services when performed in a facility than a comparable service when performed in the HCP's office. The relative value units (RVUs) for professional services provided in the facility are generally less than RVUs for comparable services provided in an office, because the doctor does not encumber the overhead costs of the facility.

In order to clarify and improve billing procedures, new billing modifiers are added. The new modifiers are for coding the examinations performed by designated doctors and for the identification of treating doctors performing their case management functions. Those new modifiers are set out in §§134.204(e), 134.204(i), and 134.204(n). Proper use of the modifiers in conjunction with eBilling will decrease the administrative burden on both the HCP and the carrier in submitting, processing, and paying bills.

Case management fees have previously been a part of §134.202, but the reimbursement was left to the carriers to determine a fair and reasonable amount since Medicare does not place a value on the relevant CPT codes. In §134.204, the Division has set the case management fees to eliminate the multiple fair and reasonable determinations and to provide for uniform reimbursement for HCPs performing case management activities. The established fees are derived from the 2007 Ingenix publication of The Essential RBRVS for determining the gap-filled, non-facility value, and then multiplied by the Division's 2007 conversion factor used during the early 2007 calendar year rule adoption stage. In developing these fees, the Division considered Labor Code §413.011(b) that indicates that the Commissioner may also provide for reasonable fees for the evaluation and management of care as required by §408.025(c) and Division rules. Adopted §134.204(e) also establishes set fees, which are 25 percent of the total provided to treating doctors, when a referral health care provider contributes to the case management activity.

In developing these rules concerning the MFG, the Division has carefully and fully analyzed all of the statutory and policy mandates and objectives and all the facts and evidence gathered and submitted, as well as all informal and formal system participants' input and comments received throughout the development process. The Division has utilized the information gathered and submitted, along with its expertise and experience, to develop these guidelines in a way that best balances the statutory mandates, including the mandate to ensure that injured employees receive the quality health care reasonably required by the nature of their injury, the mandate to ensure that fee guidelines are fair and reasonable, and the mandate to achieve effective medical cost control.

The Division considered all the factors put forth by the Legislature over the past decade. These rules take into consideration not only the specific provisions of §413.011 but the overall intent of the Legislature to bring about reform to the workers' compensation system in Texas.

The following summary provides a few examples of how these adopted new and amended MFG rules, as well as other Division rules and policy, address and implement some of these key factors as well as the statutory requirements of §413.011:

* For effective medical treatment utilization: The Disability Management Concepts of Chapter 137 are anticipated to reduce costs in the Texas workers' compensation systems, as they have resulted in reduced system cost when implemented in other settings, such as group health and other states' workers' compensation systems. Reduced costs benefit all system participants through the potential for reduced premiums and an option for reallocation of savings to other system needs.

* For fair and reasonable reimbursements: Reimbursement modifications in these adopted MFG rules, including conversion factor increases, which are reflective of the increased costs as identified through the MEI for the provision of medical services, more accurately reflect the increases in costs of providing health care than the previous index to Medicare. Licensed home health agencies, as providers, will benefit from clarification as to reimbursement for home health services provided to injured employees; and designated doctors will benefit from a more streamlined and tiered reimbursement structure for non-Maximum Medical Improvement (MMI) and Impairment Rating (IR) designated doctor examinations.

* For standardized reimbursement structures, as found in other health care delivery systems with minimal modifications to meet occupational injury requirements: The continued use of standardized and current Medicare methodologies, models, and value units, and use of standardized reporting, billing, and coding requirements, in addition to considering economic indicators in health care, will benefit all system participants. Additional benefits to all system participants include the specification of the tired reimbursement structure for the non-MMI and IR designated doctor examinations, as well as guidance on the coding and billing for licensed home health services, and the new modifiers, all of which lend certainty and stability to the system.

* For reasonable and timely access to medical care: Injured employees in underserved areas will benefit from the inducement to providers created by the provisions for an additional 10 percent reimbursement to health care providers who provide services in designated shortage areas represented by specific ZIP Codes. Increased reimbursement rates may encourage additional providers to participate in the Texas workers' compensation system.

* For reasonable fees for the evaluation and management of care: Treating doctors that perform the majority of evaluation and management codes and functions, will benefit from the set reimbursement amounts for case management as these activities become increasingly important in the Texas workers' compensation disability management model. The Division acknowledged during the adoption process of the Chapter 137 Disability Management Rules that the treating doctor will assume an essential role in the coordination of care on behalf of the injured employee. In accordance with Labor Code §408.023(l) and §408.025(c), the responsibility of a treating doctor to effectively medically case manage and maintain efficient utilization of health care is fulfilled through the process of treatment planning. Medical case management fosters a framework for the treating doctor to facilitate and improve communications among injured employees, health care providers, employers, insurance carriers, and the Division. The Division expects case management, including the treatment planning process, to lead to consensus between the treating doctor and insurance carrier regarding health care to be provided. Additionally, clarifications and specificities associated with this change in reimbursement methodology will allow providers to be more consistently reimbursed for case management responsibilities, and this change further supports the responsibilities of the treating doctor and contributing health care providers to fulfill the disability management objectives of the Division.

The amendments to §134.1 address rule name changes and the addition of the new §§134.2, 134.203 and 134.204, clarify when fair and reasonable reimbursement applies, correct grammatical inconsistencies in the section, and define MAR.