* "Recommendation for Relative Value Unit Methodology," April 5, 2001

* "Technical Analysis of Relative Value Units," April 5, 2001

* "Ground Rules Documentation," May 3, 2001

* "Project Summary," June 13, 2001

* "Market Analysis," June 20, 2001

- "Conversion Factors Recommendation for Professional Fees," June 20, 2001

- "DME Fee Schedule Recommendation," June 22, 2001

All these reports were released to the public when the 2002 MFG was proposed for public comment.

II. A 2001 Legislative Mandate (A Call To Action).

A. HB 2600.

With this background of information and reports, the 77th Texas Legislature (2001) addressed the statutory provisions regarding fee guidelines and revised §413.011 of the Texas Labor Code. House Bill 2600 (HB 2600), adopted during the 2001 Texas Legislative Session, extensively amended §413.011 to add new requirements for reimbursement policies and guidelines adopted by the Commission. (These provisions are set out in detail in the April 2002 preamble, 27 TexReg 4049). HB 2600 required the Commission to adopt new fee guidelines that complied with the new statutory requirements, by May 1, 2002. Again, the amendments and the May 2002 deadline sent a strong message that the steps taken by the Commission in this area must differ markedly from past Commission action.

B. Commission MFG Action.

The Commission had been working on a revised Medical Fee Guideline (MFG) for some time prior to and continuing during the 2001 legislative session. As noted previously and in the April 2002 preamble, the Commission signed a professional services agreement for a market analysis of reimbursements in February 2001. The Commission's work also included numerous staff reports to the Commissioners in public meetings advising the Commissioners and the public that the Commission was considering moving to an RBRVS system.

This new rule, §134.202, was adopted to comply with the numerous and complex statutory mandates in the Texas Labor Code, §413.011. As noted at 27 TexReg 4049 of the April 2002 preamble, Commission staff repeatedly met and discussed Medical Fee Guideline (MFG) issues with stakeholders (identified at 27 TexReg 4049) and repeatedly asked for cost data or information. The following Stakeholder Input Chronology details those actions.

C. Stakeholder Input Chronology - 2001 and 2002 Prior to April 2002 Preamble.

The Court in this case expressed concern over the lack of data and studies in the April 2002 preamble regarding the differential costs of providing medical services in the workers' compensation system. TI Hearing, p. 31. In response to the Judge's question as to whether anyone had thought about collecting data regarding incremental costs for workers' compensation versus Medicare, versus the rest of the population, a Commission employee/witness testified that one of the problems for professional services is the lack of a standard reporting system for reporting costs such as the one that exists and is required for hospitals.

The Commission's repeated meetings with stakeholders and repeated requests for cost data and information, as well as the responses received, are therefore set out in detail later.

On June 18, 2001, the Interim Executive Director of the Commission received a letter from TMA that stated:

"Thank you for inviting our representatives to meet with your staff last week concerning your planned fee schedule revisions. We appreciate your request for input on the fee schedule design..."

"In an effort to provide you with realistic suggestions, we are currently constructing a database to model potential impacts on physicians of various specialties. Once we have completed our model and performed some analysis, we will be able to provide you the advice that you have requested. We urge you to delay the finalization of your plan until we are able to provide our input." Thank you for including us in your planning process. (Note: no model or analysis or advice provided prior to September 2002)."

On June 21, 2001, the Commission received a letter from the Texas Orthopaedic Association (TOA) which stated in part:

"The Texas Orthopaedic Association has been studying the Workers' Compensation system and how it currently impacts orthopaedists. We are gathering information regarding practice expense, frustration level of physician and staff, impact to patient care, and how these changes affect the future decisions all physicians will have to make as small business owners. (Note: no model or analysis or advice provided prior to September 2002)"

On June 21, 2001, the Commissioners voted to propose a revised MFG.

On July 13, 2001, the Commission received a letter from TMA requesting an extension of the comment period and a later date for the public hearing. The letter stated in part:

"Our Association appreciates the cooperation of the Commission and its staff for the providing of information concerning the updating of the fee guideline. We have just received on Tuesday our data request and have previously received the Milliman USA report."

On July 19, 2001, in response to letters from TMA, Texas Osteopathic Medical Association (TOMA), and Texas Association of Business and Chamber of Commerce, now Texas Association of Business (TAB) seeking a delay, the Commissioners voted at public meeting to reschedule the August 15th public hearing on the MFG proposal to September 19, 2001, and extended the public comment period to the close of business on September 19, 2001. The Commissioners stated that they were open to discussion of constructive ideas offered during the rulemaking process.

On September 19, 2001, a public hearing on the June 2001 MFG proposal was held. Approximately 2050 issue comments were received from approximately 422 commenters in response to the June 2001 MFG proposal.

On October 1, 2001, based upon public comments from stakeholders and others, the Executive Director of the Commission gave stakeholders a copy of a Medical Review Division white paper and requested written comments on it. The issues included the applicability of Medicare ground rules, Medicare coverage issues, CCI edits, medical dispute resolution, minimal modifications, system complexity, and carrier inexperience. The stakeholders were representatives of TMA, TOMA, Alliance of American Insurers (AAI), Liberty Mutual Insurance Association, AFL/CIO, American Insurance Association (AIA), Texas Chiropractors Association (TCA), TAB, The Hartford, Texas Mutual Insurance Company, and Texas Association of School boards (TASB). The Commission's Medical Advisor was, also, consulted as noted in the April 2002 preamble at 27 TexReg 4049.

Responses were received from: TMA, AAI, Liberty Mutual, AIA, TCA, TAB, The Hartford, Texas Mutual Insurance Company, Zenith Insurance Company, and TASB. Most respondents strongly argued that the use of multiple conversion factors instead of a single conversion factor, did not comply with the statutory requirements. After discussion with Representative Brimer, input and discussion with stakeholders, and discussion and review with Commission staff, the Executive Director concluded that the June 2001 MFG proposal did not properly reflect the intent of HB 2600.

On October 10, 2001, the Executive Director recommended that the Commissioners withdraw the June 2001 MFG proposal. He also instructed Commission staff to formulate and develop a new MFG proposal that would properly reflect the intent of HB 2600, including adoption of HCFA/Medicare ground rules.

On October 18, 2001, the Commissioners voted to withdraw the MFG that had been proposed for comment in June of 2001.

On October 26, 2001, the Executive Director sent a draft MFG rule and some specific questions to the same stakeholders requesting written comments, data, and input.

A Cost/Benefit analysis was specifically requested as follows:

* With respect to the use of Medicare reimbursement methodologies and payment policies, provide an analysis of the following:

- will costs to the Commission for enforcing or administering these rules increase? Why?

- would they decrease? Why?

- would there be any impact on revenue to the Commission (increased or decreased)?

* What public benefits would result from these rules?

-for injured employees?

-for employers?

-for hcps?

-for carriers?

-for the wc systems as a whole?

* What economic impact would result from the requirement to comply with these rules?

-for injured employees? (increase costs? why/why not? decrease costs? why/why not?)

-for employers? (increase costs? why/why not? decrease costs? why/why not?)

-for hcps? (increase costs? why/why not? decrease costs? why/why not?)

-for carriers? (increase costs? why/why not? decrease costs? why/why not?)

-for the wc system as a whole? (increase costs? why/why not? decrease costs? why/why not?)

* Would the rule have an adverse economic effect on small businesses or micro-businesses?

Provide an analysis of the cost of compliance with the rule for small businesses or micro-businesses.

Provide a comparison of the cost of compliance for small businesses or micro-businesses, with the cost of compliance for the largest businesses affected by the rule:

-- (A) based on the cost for each employee;

-- (B) based on the cost for each hour of labor; and (C) based on the cost for each $100 of sales.

* What types of costs might vary for small or micro-businesses v. larger businesses? why? Micro-business" means a legal entity, including a corporation, partnership, or sole proprietorship, that (A) is formed for the purpose of making a profit; (B) is independently owned and operated; and (C) has not more than 20 employees. "Small business" means a legal entity, including a corporation, partnership, or sole proprietorship, that (A) is formed for the purpose of making a profit; (B) is independently owned and operated; and (C) has fewer than 100 employees or greater than $1 million in annual gross receipts

Responses were received from TMA, TCA, and a consolidated group comprised of TAB, Liberty Mutual, TASB, Texas Mutual, Forte Managed Care, Zenith, AIA, ICT, Texas Self-Insurance Association, and The Hartford.

The November 1, 2001, TMA response included the following:

"We appreciate the opportunity to comment on your working draft of the new fee guideline rule. In the short time available, we have only been able to review some of the issues in question, but we want to give you this partial response now, and we will investigate the other issues as soon as possible."

"Economic Impact and Public Benefits"

"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 physicians who are currently refusing to treat injured workers cite the administrative complexity as a causative factor. This rule takes some steps toward standardizing the payment policies, but needs further improvements to attain that goal. It should be noted that physician practices are primarily small or micro-businesses. It should also be noted that any administrative simplification that is accomplished in this rule may lead to no net improvement in administrative burden if other rules add new administrative costs for physicians."

On November 13, 2001, the Commission held a stakeholder meeting on the MFG.

On December 13, 2001, the Commissioners voted to propose a MFG at 120% of Medicare, and including Medicare "ground rules." The comment period was extended to the end of February at the request of stakeholders. Approximately 1600 issue comments were received from approximately 417 commenters in response to the December 2001 MFG proposal.

In February of 2002, the Executive Director sought meetings with the TMA and the TAB because they represent the two primary stakeholders with regard to the MFG - health care providers who are reimbursed under the MFG, and employers who pay the premiums. On setting the meeting, the Executive Director specifically asked TMA and TAB to provide the economic staff that could speak to the MFG proposal, and these persons were named and attended.

On February 13, 2002, the Executive Director met with Rich Johnson, Michael Cushman, and Alfred Gilchrist of the TMA, Ron Luke representing TAB, Dr. Bill Nemeth, the Commission's Medical Advisor, and Chris Voegele, TWCC. During the meeting, several issues were discussed based upon a handout provided by the Executive Director, including what factors to consider in determining a fair and reasonable workers' compensation MFG. In the materials and the discussion the Executive Director specifically named the following as factors: quality of care availability, return to work objectives, AMA Impairment Guide requirements, commercial market consideration, increased security of payment, and TWCC system administrative burden ("a major factor"). He asked that TMA and TAB provide written input on how to quantify differences in physician practice expense that would justify paying some or all physicians in the workers' compensation system more than 100% of the Medicare conversion factor.

On February 25, 2002, the Executive Director received a letter from TMA that stated in part that TMA was then "in the process of gathering data to provide additional analysis and input, with the hope that a meaningful and constructive stakeholder process will be forthcoming." Additionally, the letter stated:

"A stakeholder group should develop an accounting of costs, based upon an audit of costs attributable to workers' compensation in selected practices, as opposed to assigning arbitrary values to such costs absent any analysis of actual practice expense data. Such an accounting should be the basis for quantifying the TWCC system administrative burden."

"Physicians should be reimbursed for their costs of doing business attributable to the factors listed above, as they would be in a true commercial market setting. Stand-alone fees for such costs or a cost value blended into conversion factors would accomplish that objective."

"The factors that were listed above were:

- Excess amount of phone calls

- Physician must document Medical Necessity

- Reports required specific to TWCC

- Minimum training requirements

- Medical dispute process (fees and necessity)

- Multiple carriers

- Pre-authorization requirements

- Records and coding systems requirements

- Additional documentation routing to and from"

On February 26, 2002, the Executive Director held a follow-up meeting with Rich Johnson and Connie Barron from the TMA.

On March 1, 2002, the Executive Director received a letter from Ron Luke on behalf of TAB, responding to the TMA letter. The letter stated:

"The factors identified as relevant to fair and reasonable reimbursements, were:

- managed care payment rates

- determination of coverage and compensability

- utilization review

- reporting requirements

- electronic claims processing

- days accounts receivable

- dispute resolution

- availability of physicians by region and specialty"

On March 4, 2002, the Executive Director provided the Ron Luke letter to TMA and requested their response.

On March 6, 2002, the Executive Director received a letter from Ron Luke on behalf of TAB, commenting on the TMA letter of February 25, 2002. The letter included the following:

"Thank you for the opportunity to continue our discussion of the factors that should be considered in establishing the conversion factor for the 2002 Medical fee guideline.... Your invitation to me and to Mr. Johnson was to provide you with data and analysis on factors that we thought TWCC should consider in setting the conversion factor higher or lower than Medicare's. TMA has known since June 2001 that it would be necessary to identify and quantify factors they wished to present as justification for setting the conversion factor higher than Medicare's... TMA's request that TWCC convene a group limited to physicians to further study the conversion factor is a request for delay, not for deliberation. Had it a serious desire for fact-finding and analysis TMA could have used the eight months since HB 2600 became law for those activities."

On March 7, 2002, the Executive Director held a follow-up meeting with Richard Evans, for TAB, who brought Ron Luke.

On March 11, 2002, the Executive Director received a letter from TMA in response to Ron Luke's letter of March 1, 2002 (that was on behalf of TAB). The TMA response included the following:

"... the data we have cited and recommendations we have and will make to you regarding a fair and reasonable fee guideline for the Workers' Compensation program are now and will be in the future objectively grounded in fact, data, and valid survey methodologies."

"There are significant differences in the eligibility issues for Medicare beneficiaries with which physicians must deal, contrasted with the compensability and coverage issues presented by the workers' compensation injured worker population. The workers' compensation program issues can be much more complex and resource intensive from an administrative standpoint. Mr. Luke's assertion to the contrary is simply without basis in fact in the typical physician's office practice setting."

"The mix of reporting requirements coupled with their increasing complexity justify further consideration of payments for such reports, if not some sort of additional or surcharge."

"90% of Medicare Part B claims are now electronically submitted and processed in Texas. There is no reason that carriers in the WC program in Texas shouldn't be required to adopt the same capability."

On March 22, 2002, at the request of the Governor's office, the Executive Director invited representatives of physician organizations to meet with him. Those invited to attend included doctors identified by TMA as representatives of all the medical specialty societies that routinely treat injured workers: orthopedic surgery, family practice, occupational medicine, neurosurgery, physical medicine and rehabilitation, hand surgery, anesthesiology, pathology, ophthalmology, radiology, and psychiatric physicians. The agenda sent out in advance of the meeting included "How to quantify the difference between Medicare and workers' comp in regard to a conversion factor." Approximately ten physicians, primarily specialists, attended. At this meeting, the Commission Medical Advisor was provided an excerpt from the Brinker study, a two-page list of additional time involved in treatment of workers' compensation patients in Louisiana, compiled from a survey of four orthopaedic surgeons, and a page and a half of tasks specific to the workers' compensation system.

D. Commission Research and Analysis - 2001 and 2002 Prior to April 2002 Preamble.