The Texas Workers' Compensation Commission (the commission) adopts new §134.402 concerning the Ambulatory Surgical Center Fee Guideline with changes to the proposed text published in the October 31, 2003, issue of the Texas Register (28 TexReg 9405). The Ambulatory Surgical Center Fee Guideline is one of several rules that will comprise Subchapter E, regarding Health Facility Fees.

As required by the Government Code §2001.033(1), the commission's reasoned justification for this rule is set out in this order, which includes the preamble, which in turn includes the rule. This preamble contains a summary of the factual basis of the rule, a summary of comments received from interested parties, names of those groups and associations who commented and whether they were in support or opposition to adoption of the rule, and the reasons why the commission disagrees with some of the comments and recommendations.

Changes made to the proposed rule are in response to public comment received in writing and at a public hearing held on December 17, 2003, and are described in the summary of comments and responses section of this preamble. Other changes are made for consistency or upon further consideration and clarification as a result of concepts shared through public comments.

This new rule is adopted to comply with numerous and complex statutory mandates in Texas Labor Code §413.011. House Bill 2600 (HB-2600), adopted during the 2001 Texas Legislative Session, amended §413.011 of the Texas Workers' Compensation Act (the Act) to add new requirements for commission reimbursement policies and guidelines. The statute requires the commission to balance the rigorous, and often competing, statutory requirements in setting reimbursement levels and guidelines for medical services. The commission's mandate is to:

* Establish fees that are fair and reasonable and sufficiently high to ensure the quality of medical care and sufficiently low to achieve effective medical cost control;

* Establish fees that do not exceed those paid by or on behalf of individuals with an equivalent standard of living to that of injured employees;

* Consider the increased security of payment afforded by the Act in establishing the fee guidelines;

* Use health care reimbursement policies and guidelines that reflect the standardized reimbursement structures found in other health care delivery systems with minimal modifications to those reimbursement methodologies as necessary to meet occupational injury requirements;

* Adopt 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;

* Modify documentation requirements as necessary to meet the requirements of §413.053 of the Act (relating to Standards of Reporting and Billing; and

* Develop conversion factors or other payment adjustment factors in determining appropriate fees, taking into account economic indicators in health care.

Prior to adoption of this guideline, the Texas workers' compensation system did not have a fee schedule for healthcare provided in outpatient settings, which includes ambulatory surgical centers (ASCs). Therefore, those services were reimbursed on a case-by-case determination of what is fair and reasonable under section §134.1 of this title (relating to Use of the Fee Guidelines). Reimbursements for all reasonable and medically necessary medical and/or surgical inpatient services are currently covered by §134.401 of this title (relating to Acute Care Inpatient Hospital Fee Guideline). Professional medical services are covered in §134.202 of this title (relating to Medical Fee Guideline) and Chapter 134, Subchapter F (relating to Pharmaceutical Benefits) of the commission rules.

Section 413.011 of the Act states that it does not adopt the Medicare fee schedule; it states, further, that the commission shall not adopt conversion factors or other payment adjustment factors based solely on those factors as developed by HCFA (now the Centers for Medicare and Medicaid Services (CMS)). Consistent with these statutory directives, the reimbursement levels and fee guideline established by the adopted rule use the Medicare reimbursement structure as a baseline, or reference point, for the proposed maximum allowable reimbursement (MAR) calculations for services provided in an ASC health care facility. However, the commission does not adopt the Medicare fee schedule nor are MARs based solely on the Medicare reimbursements. The commission's adoption of the ASC PAF is based upon due consideration of all of the statutory requirements for fee guidelines. These statutory criteria, found in §413.011, are different from the Medical Economic Index (MEI), the Sustainable Growth Rate (SGR) factors and other indices that Medicare is required by federal law to consider in establishing its reimbursement rates. 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. MedPAC Report to Congress, Medicare Payment Policy (March 2002, p.77). The adjustments made each year reflect the previous year's changes in the prices of the needed goods and services. In general, the reimbursement rate will increase in relation to changes in the prices of such goods and services as measured by the MEI. The SGR formula serves as a restraint on price increases driven by inflation in that it ties overall expenditures to a target based on the real level of growth in the gross domestic product. Additionally, Medicare considers the Consumer Price Index - Urban (CPI-U) in ambulatory surgery reimbursement rate updates. Thus, Medicare considers economic factors in establishing reimbursement rates.

In establishing a reimbursement methodology for services provided by ASC facilities, the adopted rule uses the required Medicare methodology for determining reimbursement in the Texas workers' compensation system, providing standardization of reimbursement structures by aligning the workers' compensation reimbursement methods and billing procedures with those used by CMS. As an exception and minimal modification to this standardization, the rule specifically does not adopt Medicare retroactive payment policy changes for services already provided within the Texas workers' compensation system.

The challenge for the commission has been to find a payment adjustment factor (PAF) that takes the diverse Texas statutory factors into account and provides an appropriate fee guideline for the Texas workers' compensation system. The statutory criteria of §413.011 establish a range within which the commission is directed to exercise administrative discretion to select conversion factors. The statutory requirement, "ensures quality of medical care," requires that fees not be set so low as to deprive covered workers of access to qualified providers. While the statutory criterion does not require that fees be set high enough to induce all physicians to participate, or to prevent every single individual physician from deciding to stop participating, it does require consideration of potential impacts on participation by providers generally. The statutory requirement that workers' compensation not pay more than payers on behalf of patients from populations with equivalent standards of living address a cap on workers' compensation fees, except and to the extent that special features of workers' compensation require higher fees. It therefore permits consideration of any special features of workers' compensation and what additional payment, if any, they warrant. The statutory requirement to take account of the increased security of workers' compensation payment permits consideration of what offsetting reductions in payments, compared with other payer systems that do not pay 100%, is warranted. Within these limits, the commission must consider how payments may be set to control medical costs without lowering the access to quality of medical care to injured workers that would affect quality care. The commission has adopted the Medicare reimbursement methodology and adopted an appropriate PAF that meets the statutory requirements, taking into account all pertinent information and giving full consideration to public comment received.

"The underlying question in most state public policy debates about fee schedules is 'What is the optimal fee level?' Studies to date in either workers' compensation or Medicare have yet to determine the optimal fee level." A review of the literature reveals "Conceptually, most would agree that the optimal fee level is one that provides access to quality care in the most cost-efficient manner. According to the economic model, it is the price that would induce health care providers to supply services that characterize 'good quality care' -- not too much, not too little, and only those services that produce positive outcomes whose benefits are more valuable than the costs paid for the services. The optimal fee level, then, is one that minimizes incentives to over treat or treat with more costly services, even though less expensive, equally effective services exist. If, for example, complex surgeries provide relatively high profit margins (and therefore greater financial incentives), the optimal balance between cost and quality would not be achieved. On the other hand, if reimbursements do not provide a fair and competitive rate of return to providers, access to particular services would be hampered by financial disincentives, thereby jeopardizing access to care." WCRI August 2002, p. 5.

The statutory requirements mirror these factors, concerns, and objectives (access, quality, outcomes, utilization, cost) and the commission has considered each in its evaluation, analysis, and adoption of the PAF for ASCs in the workers' compensation system.

The commission has received several hundred disputes regarding reimbursement for ASC medical services. To make a determination regarding each of these disputes in the absence of an established guideline, commission rule 134.1 provides that, "reimbursement for services not identified in an established fee guideline shall be reimbursed at fair and reasonable rates as described in the Texas Workers' Compensation Act, §413.011 until such period that specific fee guidelines are established by the commission." Varying methodologies of determining fair and reasonable ASC reimbursement utilized by carriers have produced widely divergent results in ASC reimbursement rates. Many ASC medical fee dispute decisions issued by the commission have been appealed to the State Office of Administrative Hearings (SOAH), which currently has on its docket numerous ASC disputes to be heard. In addition, commission rule 134.1 has been challenged in court by some ASCs.

In an effort to provide further clarification regarding ASC reimbursement until the commission adopted an ASC fee guideline, the commission issued Advisory 2003-09, which outlined the types of information the commission evaluates in determining whether a particular fee for ASC services meets the statutory requirements. Even with this clarification, it is in the best interest of all parties that rules be promulgated to standardize its ASC reimbursement methodology. Moreover, the Texas Legislature has instructed the commission to adopt fee guidelines. This adopted ASC fee guideline establishes maximum allowable reimbursement rates for medical services within the ASC setting, eliminating the potentially inconsistent results that can occur when the general statutory standards are used on a case-by-case basis.

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, most likely resulting from the new payment method and 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. Fewer fee disputes should, in turn, ultimately result in decreased costs to the commission 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 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 standardized Medicare methodology, including the enforcement of Medicare's site of service restrictions for ASCs, is expected to essentially eliminate or significantly reduce the number of fee disputes involving a fair and reasonable methodology.

The commission is confident that this rule adoption for ASC maximum allowable reimbursement will ultimately reduce the number of dispute requests and any associated appeals of commission decisions to the SOAH level. With an established fee guideline, reimbursement for all system participants should be predictable and consistent. The commission anticipates that aggregate medical costs will decrease in the system, and there will be fewer ASC dispute requests and decreased probability of ongoing or new litigation associated with ASC services, as well as a reduction in unproductive costs for medical services because of high use within the industry and because of the standardization that use of it will bring to the workers' compensation system.

In developing this rule, the commission 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 comments received. The commission utilized all of this, and its expertise and experience, including recommendations from the commission's Medical Advisor to develop this rule which balances the statutory mandates, including those to ensure that injured workers receive the quality health care reasonably required by the nature of their injury as and when needed and to ensure that fee guidelines are fair and reasonable, with the statutory mandate to achieve effective medical cost control. Full and objective analysis and consideration were given to all comments received, as evidenced by the revisions made from the rule as proposed and the commission's responses to comments in this preamble.

Several research reports have shown that Texas workers' compensation medical costs continue to exceed those in other states and other health care delivery systems.

* Policy year 1995 data show that the average medical cost per claim in Texas exceeds the national average by almost 80% ($4,912 in Texas compared to $2,735 nationwide). (Texas Research and Oversight Council (ROC) on Workers' Compensation and Med-FX, LLC., Striking the Balance: An Analysis of the Cost and Quality of Medical Care in the Texas Workers' Compensation System, A Report to the 77th Texas Legislature, January 2001, citing National Council on Compensation Insurance (NCCI), Annual Statistical Bulletin, 1999.)

* The average medical payment (paid and incurred) per claim with more than seven days' lost-time in Texas was the highest of the eight states analyzed (California, Connecticut, Florida, Georgia, Massachusetts, Minnesota, Pennsylvania, and Texas). Together these states account for at least 40% of the nation's workers' compensation benefits. (WCRI, Benchmarking the Performance of Workers' Compensation Systems: CompScope Multistate Comparisons, July 2000.)

* In claims from 1996, the average medical payment per claim in Texas was $6,495, which is 35% higher than the states' average. (WCRI, July 2000)

* The average of medical payments in Texas per claim with seven or more days lost time was the highest of the states in the analysis (33% higher than the states' average and 36% higher than the states' median). (WCRI, The Anatomy of Workers' Compensation Medical Costs and Utilization: A Reference Book, December 2000)

* The average of medical payments in Texas for all claims was 47% higher than the states' average and 53% higher than the states' median. (WCRI, December 2000)

* Of nine states analyzed (California, Colorado, Florida, Georgia, Kentucky, Minnesota, New Jersey, Oregon, and Texas), Texas has the highest average medical costs per claim (more than 20% higher than the second-highest state, New Jersey, and more than 2.5 times higher than the lowest-cost state, Kentucky). (ROC, January 2001)

* When similar types of injuries were compared in the group health and workers' compensation systems, Texas had higher than average medical costs for the top five types of injuries. (ROC, January 2001)

* When compared with group health (a State of Texas employee Preferred Provider Organization (PPO) group health plan), average workers' compensation medical costs for State of Texas injured employees were approximately six times higher per worker ($578 per worker in this group health system compared to $3,463 per worker in the Texas workers' compensation system, 18 months post-injury). (ROC, January 2001)

* Texas continues to have the highest average medical payment per claim among the study states -- 78 percent higher than the 12-state median for all claims and 39 percent higher than the 12-state median for claims with more than seven days of lost time for 1999/2000. (WCRI, The Anatomy of Workers' Compensation Medical Costs and Utilization: Trends and Interstate Comparisons, 1996-2000, July 2003)

* Texas continues to have the highest average medical payment per claim among the study states -- 29 percent higher than the 12-state average for claims with more than seven days of lost time for 1999/2000. (WCRI, The Anatomy of Workers' Compensation Medical Costs and Utilization: Trends and Interstate Comparisons, 1996-2000, July 2003)

* Texas continues to have the highest average medical payment per claim among the study states -- 57.2 percent higher than the 12-state average for all claims for 1999/2000. (WCRI, The Anatomy of Workers' Compensation Medical Costs and Utilization: Trends and Interstate Comparisons, 1996-2000, July 2003)

* The average medical payment paid per claim for 2001 claims with more than seven days' lost-time in Texas was the highest of the twelve states analyzed (California, Connecticut, Florida, Illinois, Indiana, Louisiana, Massachusetts, North Carolina, Pennsylvania, Tennessee, Wisconsin and Texas). Medical payments per claim have been growing at double digit-rates since 1998/1999. (WCRI, Compscope Benchmarks: Multistate Comparisons, 4th Edition, February 2004)