The commission agrees that effective control of medical costs should be achieved through a combination of management of the approved doctor list (ADL), utilization management, and establishment of fee schedules consistent with §413.011(d). HB-2600 requires the commission to make better use of all of these tools. (Contained in correspondence from Texas Association of Business Chambers of Commerce (TABCC) to the Executive Director of the commission on March 6, 2002.) Other features in the HB-2600 legislation such as preauthorization revisions, and revision of the requirements for inclusion on the ADL, were designed to target over-utilization of health care treatments and services. These new features will work together with the fee structure in the MFG to address cost containment including utilization of services in the system.

The ROC and WCRI studies indicate over-utilization as a significant component in the excessive costs per claim exhibited by the Texas workers' compensation system. Healthcare utilization is also being addressed by the inclusion of current Medicare payment policies and correct coding initiatives (CCI edits), which consistently and appropriately bundle/unbundle codes.

In addition, the commission is developing the Medical Quality Review Panel (MQRP) through the office of the Medical Advisor, which will address over-utilization by monitoring to ensure quality care is provided in the system. The Medical Advisor and the Division of Compliance & Practices are also developing methodologies to identify and monitor utilization levels, tracking services billed by provider types and by individual health care providers and when appropriate take disciplinary action or administer penalties to participants that violate commission rules.

A WCRI article notes the following about the possibility that providers whose incomes are injured by the fee changes will increase the volume and intensity of medical services furnished. This reaction would undermine the efforts of the Resource Based Relative Value Scale (RBRVS) system to shift the service mix away from surgery and imaging procedures and would increase system costs. There has been an intensive debate in the literature on the extent to which this kind of physician demand creation occurs, but we do know that RBRVS has been successful in reducing the number of surgeries provided under Medicare in spite of the price cuts for these services. Physician response to less important payers such as workers' compensation should be even more restrained, since theory asserts that demand creation is due to efforts to protect total physician income rather than a typical market response to relative price changes. ((WCRI: The RBRVS as a Model, 1996) citing (Physician Payment Review Commission, 1994)) Doctors in the workers' compensation system should facilitate injured employees' recovery and return to work. It is also the responsibility of health care providers in the system to provide health care that is medically reasonable and necessary. The realignment of reimbursements consistent with the RBRVS should not result in greater utilization of services in workers' compensation.

The use of a different relative value unit system, the RBRVS, by itself results in a significant realignment of reimbursements among CPT groupings. WCRI has analyzed three "transitional strategies" for state workers' compensation to move from a schedule that is not RBRVS to an RBRVS schedule: the "Medicare plus markup" (which will result in a fairly sharp drop in overall fees), the "overall price-neutral" (which does not affect the overall level of fees), and the "hold-harmless" (in which none of the types of medicine suffer a price reduction). The study analyzed the impact on general medicine, radiology, surgery, and physical medicine. In the Medicare plus transition, the drop in overall fees is not evenly distributed among the CPT groups. General medicine is basically unaffected; the other three types of services suffer important reductions. In the 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. Thus foregoing the cost-savings opportunity stemming from a cut in overall fees is not sufficient to avoid important negative impacts on some groups of providers. The source of this problem goes back to the reason why Medicare developed the RBRVS in the first place. The traditional charge-based fee schedule diverges so much from real relative costs that getting fees and costs back in the proper proportion requires major changes. (WCRI, The RBRVS As a Model for Workers' Compensation Medical Fee Schedule: Pros and Cons., Dr. Phillip L. Burstein, July 1996) For this reason, and those discussed above regarding costs, the commission decided not to use an overall price-neutral phase-in, as was done in 1996. Going to an RBRVS system as required by the statute, and having decided to implement price reductions, the commission identified some benchmarks, or relevant points of reference.

RESOURCE BASED RELATIVE VALUE SCALE

In February 2001, the commission signed a professional services agreement with Milliman & Robertson, Inc., now Milliman USA (Milliman), a professional firm specializing in actuarial and health care services, to assist the commission in developing and implementing a new MFG. Milliman conducted a market analysis of reimbursements from the 1996 MFG, commercial payers in Texas, workers' compensation systems from other states, and 2001 Medicare allowed fees in Texas, comparing the reimbursement level for corresponding services. Milliman provided the commission with written reports of their findings and recommendations. As noted in the Milliman report, RBRVS is the result of an extensive development effort that began a decade ago with the work done by the Harvard School for Public Health. The RBRVS methodology has been updated and refined annually since then. The development is documented in the Federal Register annually. The RBRVS development process is open to public comment. The proposed reimbursement methodology is thoroughly reviewed by provider groups representing virtually all specialties. Because Medicare represents a significant proportion of the total expenditures for healthcare services, the proposed methodology receives significant scrutiny. In addition, 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 will be easier to compare against such fee schedules.

The RBRVS uses three components to establish the total relative value units for a particular code: work, practice expense, and malpractice insurance. RBRVS relative value units are also adjusted by Geographical Practice Cost Indices (GPCIs) to reflect geographical differences. The rule requires system participants to use these components and adjustments of relative values. 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. "As part of our site visits to 12 communities, we conduct interviews with health plans and physician groups. From those interviews, we have found an extensive use of the Medicare relative value scale by private health plans and have also found that Medicare payment methods have had a large influence on the private sector. In fact, many health plans explicitly set their payments as a percentage of what Medicare pays." (Excerpt from statement of Paul B. Ginsburg, Ph.D., President of the Center for Studying Health System Change, Testimony Before the Subcommittee on Health of the House committee on Ways and Means, Hearing on Medicare Physician Payment, February 28, 2002)

USE OF MEDICARE AS A BENCHMARK

A revision of the MFG that meets the rigorous statutory criteria and uses the most current reimbursement methodologies, models, and values or weights used by HCFA (now CMS) including applicable payment policies relating to coding, billing, and reporting (sometimes referred to as ground rules) is the goal of this new rule. The commission is now revising its medical fee guideline to incorporate the changes that the commission had recognized as necessary (but did not fully implement) when adopting the 1996 MFG. The Act mandates fair and reasonable reimbursements, which are not optimally established by usual and customary charges. The commission has determined that benchmarking to payments, rather than charges, reflects healthcare reimbursement patterns and is a more consistent tool in meeting effective medical costs control as well as other mandates of the Act. These factors, in addition to the 1996 transitional implementation of the McGraw-Hill relative value system, and the overall restrictions in total system reimbursement, are resulting in significant realignment and for some services significant reduction of reimbursements in the 2002 MFG.

There has been considerable discussion related to whether use of Medicare fees as a benchmark in workers' compensation is appropriate. The commission has determined that it is, for several reasons. Because of HB-2600's extensive emphasis on the Medicare system, it is appropriate to benchmark to the Medicare reimbursement system. HB-2600 requires the commission to adopt the most current reimbursement methodologies, models, and values or weights used by the federal HCFA to achieve standardization, including applicable payment policies relating to coding, billing, and reporting; the commission may modify documentation requirements as necessary to meet the requirements of §413.053 of the Act (relating to Standards of Reporting and Billing). The statute also states that this section of the law does not adopt the Medicare fee schedule, and that the commission shall not adopt conversion factors or other payment adjustment factors based solely on those factors as developed by the federal HCFA. Use of Medicare as a benchmark, or point of reference, does not violate these statutory provisions. As required by the statute, the commission has considered economic indicators in health care and the requirements of §413.011(d).

Although the Medicare system was established primarily to serve the needs of the elderly population, the program 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. Furthermore, as noted by WCRI, 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)

At this date, 17 states have Medicare-based fee schedules of some sort for workers' compensation programs in place. WCRI has identified three reasons for using the Medicare physician's payment system as a guide to help design workers' compensation fee schedules. First, 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 this. Second, 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. The Texas 1996 MFG reflects that very bias. Third, Medicare fee schedules differ across states according to carefully researched measures of differences in the three elements of the costs of producing medical services: physicians' time and effort, practice expenses, and malpractice insurance premiums.

Medicare pays for a larger percentage of health care services in the United States than any other third party payer. The Medicare physician payment system is a mature system and the Medicare payment system and payment policies have been adopted by many group health payers. The RBRVS system used by Medicare 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. 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. Resource-based relative value units have the advantage of representing the work and skill required to perform the service, rather than the historical billing practices of providers. The RBRVS neutralizes the incentives for providers to practice medicine in an unnecessarily costly and invasive manner by setting relative values according to the cost to providers for producing the services. The relative weights are updated at least every five years. Health Care Procedural Coding System (HCPCS) codes and conversion factors are updated annually. Use of a single conversion factor maintains consistency in the utilization controls and incentives designed into the RBRVS system.

Medicare's payment policies largely define "main stream medicine." These policies have been developed and refined over many years in the public area. Health care providers have had extensive involvement through CMS advisory committees and the political process. The claim edits and other policies are open to public scrutiny and are known to all participants. Many millions of dollars annually are spent to maintain and update the payment system. The commission could not independently duplicate this work. The Texas workers' compensation system as a whole will benefit by bringing its payment policies and unit costs in line with mainstream medicine. The frequency distribution of services may differ between group health, Medicare and workers' compensation beneficiaries. However, for a given medical service, there is no good reason why the payment policies should differ. 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. (Contained in correspondence from TABCC to the Executive Director, November 1, 2001 and correspondence from TMA to the Executive Director on November 1, 2001)

The commission has recognized that Medicare recipients have a similar standard of living as the general working population. In a 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) the standard of living of the population covered by the Medicare program was found to exceed that of the population covered by the Act. The study further found that the standard of living of the population covered by managed care plans was at least as high as the population covered by the Act. Consequently, Medicare reimbursement is an appropriate standard for comparison to workers' compensation reimbursement. Analysis by commission staff estimates 1996 MFG reimbursement as approximately 140% of 2002 Medicare reimbursement. According to Milliman, 1996 MFG reimbursement is at the high end of fair and reasonable when compared to other states and the Texas commercial market. These ratios allow the commission to establish the high end of the range of fair and reasonable reimbursements at 140% of 2002 Medicare reimbursements. Reimbursement at this level has resulted in a cost per claim in Texas that is estimated to be approximately 50% higher than the states average or the states median. (WCRI, The Anatomy of Workers' Compensation Medical Costs and Utilization: A Reference Book, December 2000)

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 the 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. (WCRI, The RBRVS As a Model for Workers' Compensation Medical Fee Schedule: Pros and Cons., Dr. Phillip L. Burstein, July 1996)

COMMERCIAL MARKET AND OTHER STATES WORKERS' COMPENSATION

Although Medicare is an appropriate benchmark, the commission has also used other benchmarks in setting the fees in this adopted fee schedule. As required by the statute, the commission has developed conversion factors or other payment adjustment factors in determining appropriate fees, taking into account economic indicators in health care. This includes the commercial private payer market and the median of that market. As stated by WCRI, it would be difficult to justify a fee schedule as a major cost containment tool if it exceeded what providers elect to receive, on average, in the free market.

Comments and input from the ROC and from the Texas Medical Association (TMA) state that commercial market fees should be considered and the methodologies of an RBRVS system should be used with the conversion factor drawn from statewide data for commercial medical charges and actual payments for health care services in Texas. TMA states that this also ties back well into §413.011(d) which provides that the guidelines may 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. TMA suggests fair and reasonable fees are those utilizing an RBRVS system with conversion factors drawn from and based on commercial rates in Texas. (Contained in correspondence from TMA to the Executive Director of the commission, February 25, 2002 and March 21, 2002) These commercial plans typically represent a fair market value for medical treatments and services in exchange for an increased volume of patients for participating health care providers. (Comments regarding June 2001 proposed MFGs received from the ROC dated September 19, 2001)

Milliman conducted a market analysis of reimbursements from the 1996 MFG, commercial payers in Texas, workers' compensation systems from other states, and 2001 Medicare allowed fees in Texas, comparing the reimbursement level for corresponding services. With respect to commercial payers in Texas, Milliman drew the following conclusions as a result of the market analysis:

* commercial reimbursement rates in Texas show variations that are wider than can be explained by geographic differences, and the 1996 MFG reimbursement levels fell within this broad range;

* the estimated commercial median in Texas was 38.7% greater than the 2001 Medicare conversion factor;

* the composite conversion factor for the 1996 MFG was higher than the median value for the commercial payers for surgery; and

* the 1996 MFG reimbursement levels for Evaluation and Management (E/M) services is lower than the reimbursement level of any of the 10 commercial payers analyzed.