The Texas Workers' Compensation Commission (the commission) adopts amendments to §134.402, concerning the Ambulatory Surgical Center Fee Guideline with changes to the proposed text published in the December 3, 2004, issue of the Texas Register (29 TexReg 11257). 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 January 6, 2005, and are described in the summary of comments and responses section of this preamble.

The commission proposed the amendments to address information received by the commission subsequent to the April 15, 2004 adoption of this rule concerning certain impacts of the new rule guideline on participants in the Texas workers' compensation system.

The Texas Workers' Compensation Act (Act) requires that guidelines for medical services fees be fair and reasonable and designed to ensure the quality of medical care and to achieve effective medical cost control. 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. The commission must consider the increased security of payment afforded by the Act in establishing the fee guidelines (see Texas Labor Code §413.011(d)).

More recent statutory requirements added to §413.011(a) of the Texas Labor Code also require that the commission 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. The statute additionally requires the commission to adopt the most current reimbursement methodologies, models, and values or weights used by the federal Health Care Financing Administration (HCFA), (now called the Centers for Medicare and Medicaid Services (CMS)), to achieve standardization, including applicable payment policies relating to coding, billing, and reporting, and may modify documentation requirements as necessary to meet the requirements of §413.053 of the Act (relating to Standards of Reporting and Billing).

Under Texas Labor Code §413.011(b), the commission is required to develop conversion factors or other payment adjustment factors (PAFs) in determining appropriate fees when writing these guidelines, taking into account economic indicators in health care by not adopting conversion factors or other PAFs based solely on those factors as developed by the CMS. The subsection further states that it does not directly itself adopt the Medicare fee schedule into Texas law.

This rule applies to facility services provided by an ambulatory surgical center (ASC), other than professional medical services. An "ambulatory surgical center" means such a center that is properly licensed by the Texas Department of Health under the Texas Ambulatory Surgical Center Licensing Act, which was first enacted in 1985 by the 69th Texas Legislative Session. Further information can be obtained at http://www.tdh.state.tx.us/hfc/asc.htm. ASCs located outside the state of Texas should be licensed by that jurisdiction's licensing body, if such licensing exists, when providing services to Texas injured workers under the Act.

At the request of, and based on some preliminary information provided by some system participants, the commission re-examined two specific areas within §134.402, regarding the Ambulatory Surgical Center Fee Guideline, for potential amendment. The two specific areas explored were: (1) amending the ASC List of Medicare Approved Procedures (Medicare's List) for the inclusion/exclusion of procedures with appropriate ASC group payment; and (2) exploring reimbursement options for implantable devices.

The commission requested information on procedures not on Medicare's List by procedure code to include number of cases, charged and paid amounts by commercial insurance groups, Medicare, Medicaid and worker's compensation in all settings (i.e., physician office, ASC, hospital outpatient and inpatient) for 2003. The commission also requested specific information for implantable devices by procedure code to include number of cases, charged and paid amounts by commercial insurance groups, Medicare, Medicaid and workers' compensation in all settings, and a description of the reimbursement methodologies used for 2003.

The commission received a limited amount of information in response to this request. The information provided showed that changes in technology and other developments in the health care industry have resulted in some procedures safely being provided to injured workers in ASCs and that continuing to allow some of these procedures to be provided in ASCs is safe and appropriate, and could in some instances, be cost-effective. These amendments proposed for adoption are based on this information, discussions held with, and information from, ASC Focus Group members, public comment and research and analysis by the commission staff, including the commission's Medical Advisor. The amendments also address concerns raised by system participants and members of the ASC Focus Group regarding whether the current case rate reimbursement adequately reimburses for devices integral to the surgery.

To help in understanding the full picture, the commission has addressed the background and basis for the rule, and requirements of the current rule, including those parts and issues that are not the subject of this rulemaking.

This rule was initially adopted in April 2004 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 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 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 PAFs in determining appropriate fees, taking into account economic indicators in health care.

Prior to adoption of §134.402, the Texas workers' compensation system did not have a fee schedule for healthcare provided in outpatient settings, which includes 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 PAFs based solely on those factors as developed by CMS. Consistent with these statutory directives, the reimbursement levels and fee guideline established by the original rule use the Medicare reimbursement structure as a baseline, or reference point, for the maximum allowable reimbursement (MAR) calculations for services provided in an ASC health care facility. However, the commission did not adopt the Medicare fee schedule nor were MARs based solely on the Medicare reimbursements. The commission's adoption of the ASC PAF was 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, reimbursement rates would 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. Although these factors have been considered in setting Medicare's reimbursement rates, the Medicare Modernization Act impacted these adjustments. As a result, Medicare ASC group rates have been rolled back and frozen at the 2002 rates.

In establishing a reimbursement methodology for services provided by ASC facilities, the current 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 did not adopt Medicare retroactive payment policy changes for services already provided within the Texas workers' compensation system.

The challenge in this rule amendment has been for the commission to establish reimbursement rates, including the PAF, which take the diverse Texas statutory factors into account and provide 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 and 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 pay 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 compromising access to quality medical care to injured workers. The commission adopted the Medicare reimbursement methodology and adopted an appropriate PAF that meets the statutory requirements, taking into account all pertinent information and having given full consideration to public comment received at the time.

"The underlying question in most state public policy debates about fee schedules is 'What is the optimal fee level?'" Studies at the time of the rule's adoption, and to date, in either workers' compensation or Medicare have yet to determine the optimal fee level. A review of the literature revealed, "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 the factors, concerns, and objectives (access, quality, outcomes, utilization, cost) mentioned above. The commission considered each in its initial adoption of the rule and in this adoption of amendments to the rule.

In developing this rule, and in this subsequent amendment, 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 amend 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 of the relevant comments received pertaining to the proposed amendments, 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)