The commission's Medical Advisory Committee (MAC) was presented with general historical commission medical claims data, current commission and Medicare reimbursement methodologies, and information regarding guideline development. The MAC provided feedback concerning issues and potential impact through discussion and individual written responses. The MAC also formed a facility fee guideline workgroup consisting of MAC members and external interested parties, which provided additional input to the commission.

The commission is authorized by Texas Labor Code §413.011 to apply additions or exceptions necessary for adaptation of the Medicare system to the Texas workers' compensation system. Medicare payment policies may retroactively alter payment amounts of previously paid claims and require the Medicare system participants to re-adjudicate claims and reconcile payments. The commission determined that such retroactive payment policies would create undue administrative burden if applied to the Texas workers' compensation system. Consequently, the proposed rule requires the use of the most current Medicare policies in effect when the services were provided, with the exception of retroactive payment policies.

The Act requires provision of all medical services that are medically necessary to cure or relieve the effects of a work-related injury. Medical necessity must be established prospectively through preauthorization or concurrent review for non-emergency healthcare provided in an ASC. While the proposed rule incorporates the broad terms of site-specific limitations for ambulatory surgical centers contained in the Medicare payment policies, alternative settings can be used if approved through preauthorization or concurrent review.

Texas Labor Code §413.011 requires the commission to adopt necessary conversion factors or payment adjustment factors (PAF) to establish fair and reasonable reimbursement in the Texas workers' compensation system. Additionally, the commission must take into account economic indicators in health care and the requirements found in subsection (d) of §413.011. The statute also states that the commission shall not adopt a payment adjustment factor (PAF) based solely on those payment adjustment factors developed by the Centers for Medicare and Medicaid Services (formerly HCFA). The commission is proposing a multiplier or PAF of 230% of Medicare reimbursement rates for the reimbursement of ambulatory surgical center facility services.

In considering subsection (d) of section §413.011, the rate proposed establishes fair and reasonable reimbursement that is designed to ensure continued access to quality care, along with appropriate medical cost control. Ingenix also stated that in certain instances, going outside the recommended range to meet statutory requirements would be appropriate. Given the data available for analysis, Ingenix indicated that anywhere down to 90% of the low endpoint and up to 110% of the high endpoint of the recommended ASC range would be appropriate. Ingenix noted that points in the extended range satisfactorily balance the complex statutory objectives. The commission's proposed rate of 230% of Medicare is within this extended range. However, to further address cost containment efforts provided by the statute, reimbursement is limited to not exceed the amount established by the commission in a fee guideline for the same or similar service provided in either an inpatient or outpatient hospital setting.

The proposed PAF multiplier for ASCs is considerably higher than the 125% multiplier provided in §134.202, the commission's Medical Fee Guideline, which covers reimbursement of professional medical services provided within the Texas workers' compensation system. There are several reasons for this. Unlike professional medical services, whose cost inputs are continuously updated by CMS, Medicare has not significantly revised ASC cost inputs since 1994. Moreover, the percentage of Medicare patients who receive ASC services (surgeries) is significantly less than the percentage of Medicare patients who receive professional medical services (typically, physician services). Finally, Medicare reimbursements for professional medical services are generally within the range of payments made by commercial payers; however, Medicare reimbursements for ASC services are well below the range of payments made by most commercial payers for those services. Thus, while the resulting multipliers are different in the two contexts, they are consistent with one another to the extent that the commission has determined that reimbursement for the two types of services is appropriate at the low end of the range of reimbursement provided within the commercial market.

The commission may in the future propose fee guidelines for outpatient facility services, and amendments to the current inpatient fee guideline. TWCC inpatient hospital services are currently reimbursed under the existing TWCC rules that provide for per diem payments. Ingenix has noted that the current inpatient methodology is reasonably standardized, but does not reflect the recent statutory requirement to use Medicare reimbursement methodologies. Ingenix also noted that outpatient hospital and ASC payments are currently not standardized in the TWCC system or the market in general and the lack of detail in the available data makes it difficult to determine the current mix of services that are being delivered. Consequently, Ingenix has recommended that the commission adopt a single Payment Adjustment Factor (PAF) for each setting; e.g., inpatient, outpatient, and ASC. Because the relationship of the Medicare reimbursement to the commercial market varies between inpatient, outpatient, and ASC services, it is likely that the PAF proposed for inpatient and outpatient may differ from the PAF proposed for ASCs in this rule.

Proposed new §134.402 establishes reimbursements for ambulatory surgical center health facility services provided on or after the effective date of the new rule. The proposed new rule provides a standardized reimbursement method and billing procedures by aligning the workers' compensation reimbursement structure with the structure used by the CMS.

Proposed subsection (a) of the rule establishes the applicability of the guideline for reimbursements for health care provided in an ASC on or after June 1, 2004, other than professional medical services. The policies and reimbursement methodologies in effect for Medicare on the date a service is provided are the policies and reimbursement methodologies to be used in the Texas workers' compensation system. Subsection (a) requires use of the most recent payment policies adopted by the Medicare program for compliance with commission rules, decisions, and orders. This will prevent the Texas workers' compensation system from falling out of synchronization with Medicare and will achieve the standardization goals established in Texas Labor Code §413.011. Specific provisions contained in the workers' compensation Act and commission rules shall take precedence over any conflicting provision adopted or utilized by CMS in administering the Medicare program.

Proposed subsection (b) of the rule requires system participants to utilize the Medicare reimbursement methodologies, models, and values or weights, including its coding, billing, and reporting payment policies for coding, billing, reporting, and reimbursement of health facility services provided in the Texas workers' compensation system. This allows for the basic Medicare program provisions to be applied with any additions or exceptions necessary for adaptation to the Texas workers' compensation system. The Medicare program is not a static system. Medicare policies change frequently. 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 that makes some policies retroactive. Therefore, the proposed rule, in compliance with the statute, requires the use of the Medicare policies in effect on the day that a service is provided.

Proposed subsection (c) establishes the method to be used for determining the maximum allowable reimbursement (MAR) for ambulatory surgical center health facility services in the Texas workers' compensation system. In establishing the PAF for the rule, the commission considered the statutory requirements and objectives and utilized Medicare data, current commission reimbursement levels, and available commercial payer information.

Proposed §134.402, Ambulatory Surgical Center (ASC) Fee Guideline, establishes a facility specific reimbursement amount by setting a PAF to apply to the Medicare reimbursement. Although Ingenix initially provided analysis based on 2003 projection, the final Ingenix analysis and report is based on 2004 projections. This 2004 review estimated that ASC reimbursement under current TWCC rules (requiring fair and reasonable reimbursement) equals approximately 320% of 2004 Medicare reimbursement. Additionally, this review estimated commercial (HMO/PPO/POS/Indemnity) payer reimbursement equal to a range of 168% to 564%. This commercial range produces a weighted average of approximately 274% (not including indemnity plans) to 293% (including indemnity plans) of Medicare reimbursement. With Medicare added to the commercial market, the weighted average for ASC services trended to 2004 is 237% (not including indemnity plans) to 264% (including indemnity plans) of Medicare reimbursement.

Proposed subsection (c) additionally provides directions for a system of payment that allows a carrier to reimburse a fair and reasonable amount for services for which neither Medicare nor the commission establishes a payment amount. The amount may be based on nationally recognized published studies, published commission medical dispute decisions, and/or reimbursements for health care involving similar work and resource commitments which are consistent with both the facts and the standards of §134.1.

Proposed subsection (d) provides that the reimbursement for ASC services is the lesser of the MAR as established by the rule; or the facility's and payer's workers' compensation negotiated and/or contracted amount that applies to the billed service(s). To further address cost containment efforts provided by the statute, reimbursement is limited to not exceed the amount established by the commission in a fee guideline for the same or similar service provided in either an inpatient or outpatient hospital setting.

Proposed subsection (e) addresses the exceptions and minimal modifications to the Medicare payment policies. In the Medicare system, at times reimbursement is adjusted after initial payment. Providers sometimes receive additional reimbursement while in other situations the Medicare fiscal intermediary (carrier), which is generally the sole fiscal intermediary for each ASC, recoups previously reimbursed amounts. This Medicare payment policy is too complex and unduly burdensome to administer in the Texas workers' compensation system, in which there are numerous carriers that could potentially reimburse an ASC. Therefore, as stated in (e), a retroactive Medicare payment policy that would result in a payment adjustment will not apply to services already provided.

Medicare payment policies restrict the setting in which certain services may be performed. As stated in subsection (e), these restrictions apply unless an alternative setting has been approved through the commission's process for preauthorization, concurrent review, or voluntary certification.

Proposed subsection (f) provides that the invalidation of any terms or parts of a section or its application to any person or circumstance by a court of competent jurisdiction does not affect other provisions or applications of the section that can be given effect without the invalidated provision or application.

Judy Bruce, Director of the Medical Review Division, has determined the following fiscal impact on state and local governments as a result of enforcing or administering the proposed rule for the first five-year period the proposed rule is in effect. With regard to enforcement and administration of the rule by state government, the commission will experience increased costs in some areas and decreased costs in others. Increased costs may include expenses associated with the preparation of training materials, purchase of related software, and presentation of training classes for commission staff and system participants, and costs associated with monitoring the Medicare payment policies.

It is anticipated that the number of medical fee disputes filed with the commission may increase during the first twelve months after implementation of this rule, resulting from new payment method and the utilization of Medicare billing and payment policies. Due to this potential increase, the commission anticipates increased costs for processing and resolution of those fee disputes.

However, after system participants become familiar with the policies and the commission's administration of these policies, the use of standardized coding, billing, and methodology is expected to result in fewer disputes regarding medical reporting, billing and reimbursement because use of:

* a standardized reimbursement structure found in other health care delivery systems should reduce the number of disputes, in part because of familiarity with other reimbursement systems, and in part because of the predictability of reimbursement amounts;

* the most current Medicare program reimbursement methodologies, models and weights or values is expected to eliminate some disputes because changes in Medicare reimbursement system will be reflected in the Texas workers' compensation system as they become effective, keeping the system current and therefore reducing the number of disputes relating to the amount of reimbursement;

* standardized components of the Medicare system should decrease the cost and time required for the commission to review or revise the fee schedules; and

* the number of fee disputes involving a fair and reasonable methodology is expected to decrease significantly due to the adoption of the standardized methods used by Medicare.

Fewer fee disputes should ultimately decrease costs to the commission.

There may be some increase in revenue to the commission as a result of enforcing or administering the rule due to an initial increase in disputes processed by the commission. Although the fees from the increase in this activity will increase revenue, these fees generally cover expenses only and are expected to reflect an initial increase and a subsequent decrease in dispute activity compared to the current number of disputes.

There will be no fiscal impact on local government as a result of enforcing or administering the rule, as local governments do not have regulatory authority with respect to this rule. Local governments and state governmental entities as regulated entities will be impacted in the same manner as other persons required to comply with the rule as proposed. Aggregate medical costs should decrease in the system. The commission cannot predict if local governments will experience a decrease in their premium costs if the local government's workers' compensation coverage is provided by an insurance company. Any local government that is self-insured will likely experience a cost decrease if utilization and injury experience remain unchanged.

Ms. Judy Bruce has also determined that for each year of the first five years the proposed rule is in effect, the public benefits anticipated as a result of the proposed rule include use of a reimbursement system with a well-known, standardized structure for delivery of quality medical care with effective cost control, that will provide positive benefits to all participants in the system: injured employees, employers, insurance carriers, and health care providers. Aggregate medical costs should decrease in the system, as this rule establishes a reimbursement methodology and amount for services that are currently reimbursed in the aggregate at higher fees, under the fair and reasonable standard established by the statute. Adoption of the Medicare payment policies should ultimately lead to the reduction of administrative costs and the number of medical disputes, benefiting all system participants. There will, however, be initial start-up costs for carriers to convert their automated system to a Medicare based methodology. These costs are difficult to quantify since each carrier has unique processing systems and internal controls. For ASCs, the reimbursement method used by Medicare is relatively simple and has been in use for some time. The administrative cost to convert to this reimbursement system should be small.

The commission estimates that the proposed rule will result in an aggregate reduction in ASC facility payments when applied to historical workers' compensation system claim costs. The commission projects a similar impact on future aggregate claim costs, assuming that there is not a significant shift in the distribution of claims. A number of other factors could affect the impact including frequency of injury, severity of injury, changes in the practice of medicine for injured workers in Texas, distribution of services provided, current billing practices, and random fluctuations.

Because the value assigned to the case rate reimbursement methodology is also based on the relative costs required to provide a service, reimbursements under the proposed rule are more closely related to the resources required to provide the services. The re-alignment of these case rate systems makes the Texas workers' compensation system more comparable to other health care systems and should discourage over utilization of services that have been subject to a fair and reasonable reimbursement methodology. This will benefit injured employees by preventing unnecessary treatment and delayed return to work. A decrease in medical costs may result in a decrease in workers' compensation insurance premiums, which in turn may increase the number of employers who elect to provide workers' compensation coverage, ultimately benefiting injured employees.

Due to the lack of reimbursement standardization for ASCs in the current workers' compensation system, it is difficult to predict the related change in facility specific reimbursement. Generally, ASCs will experience a reduction in payments. However, the impact of the new fee schedule may vary for each ASC. The level of variation will depend on the services provided by the ASCs, the amounts previously billed by ASCs for those services, and the mix of carriers and various reimbursement methodologies used for reimbursement under the current fair and reasonable standard. Because the commission data does not have sufficient detail to indicate what services were provided and what carriers provided reimbursement for those services at a particular ASC, it is difficult, if not impossible, to predict the impact of the new schedule on individual ASCs.