The Texas Workers' Compensation Commission (the commission) proposes new §134.402 concerning the Ambulatory Surgical Center Fee Guideline, one of several rules that will comprise Subchapter E, regarding Health Facility Fees.

This new rule is proposed 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 to add new requirements for commission reimbursement policies and guidelines. The statute 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. Several research reports (discussed below) have shown that Texas workers' compensation medical costs exceed those in other states and in other health care delivery systems.

Section 413.011 also states 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. The commission must consider the increased security of payment afforded by the Texas Workers' Compensation Act (the Act) in establishing the fee guidelines.

The revised statute also requires 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;

* 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, and may 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.

Section 413.011 states that this section of the law does not adopt the Medicare fee schedule, and conversion factors or other payment adjustment factors (PAFs) developed by HCFA should not be the sole basis for any such factors adopted by the commission.

Currently, the Texas workers' compensation system does not have a fee schedule for healthcare provided in outpatient settings, which includes ambulatory surgical centers (ASCs). Therefore, those services are 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 established 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 subchapter F (relating to Pharmaceutical Benefits) of Chapter 134 of the commission rules.

The proposed rule establishes a reimbursement methodology for services provided by an ASC health care facility. The proposed rule uses the required Medicare methodology for determining reimbursement in the Texas workers' compensation system to comply with the new provisions in Texas Labor Code §413.011. The proposed rule provides standardization of reimbursement methods and billing procedures by aligning the workers' compensation reimbursement structures with the structures used by the Centers for Medicare and Medicaid Services (CMS), formerly HCFA.

The commission has recently 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 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 an ASC fee guideline is adopted, the commission issued Advisory 2003-09, which outlines the types of information the commission evaluates in determining whether a particular fee for ASC services meets the statutory requirements. This proposed ASC fee guideline establishes maximum allowable reimbursement rates for the majority of 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.

The commission is confident that this rule proposal for ASC maximum allowable reimbursement will 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 fewer ASC dispute requests and decreased probability of ongoing or new litigation associated with ASC services.

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 Medicare reimbursement system has primarily progressed from a retrospective fee for service reimbursement system to a prospective payment system (PPS). Under the Medicare PPS, facilities receive a fixed amount for treating patients in certain diagnostic and/or procedural categories. Reimbursement is based on specific diagnostic and/or procedural groupings, resource utilization, national and regional averages, and costs specific to the facility.

Complete information concerning all Medicare reimbursement methodologies for facilities can be found at the CMS website (www.cms.hhs.gov), Code of Federal Regulations, and the Federal Register. Currently for ASC services, primarily surgeries, Medicare reimburses using the ASC case rate methodology. Payment is determined based on the surgeries performed, the associated grouping(s), and the geographic wage index of the facility.

In June 2001, the commission entered into a professional services agreement with Ingenix, Inc., (Ingenix), a professional firm specializing in actuarial and health care information services, to assist the commission in developing new fee guidelines to address fees for health care services provided in inpatient and outpatient facilities and ambulatory surgical centers. Ingenix reviewed Medicare payment policies and reimbursement methodologies in reference to the Texas workers' compensation system to achieve standardization and to adopt the most current reimbursement methodologies, models, and values or weights used by the CMS, including applicable payment policies relating to coding, billing, and reporting as mandated by Texas Labor Code §413.011.

Ingenix analyzed inpatient, outpatient and Ambulatory Surgical Center (ASC) services separately. In general, the following steps were performed for each service type. The specific process used, as well as the methodology, data, and data sources is detailed in the Ingenix Final Report, which is available for review from the commission.

Development of the recommended range required the following steps:

* Estimate the number of covered lives and utilization for Medicare and for each type of commercial insurance contract;

* Determine historical Texas payment levels for Medicare and for commercial insurance by type of contract;

* Adjust the Medicare and commercial contract history to a workers' compensation mix of services;

* Trend forward the historical payment levels;

* Project the 2004 payment level currently in place for TWCC payers; and

* Establish a recommended range for reimbursement as a percent of Medicare.

Additionally, Ingenix reviewed and analyzed the current market using Medicare, commercial and commission historical medical claims reimbursement information. Ingenix also looked at other states' workers' compensation facility reimbursement in comparison to Medicare reimbursement, but was unable to develop comparisons because each state approached their reimbursement methodology differently. Taking into account health care economic indicators, Ingenix made recommendations concerning Medicare reimbursement methodologies and PAFs to be used in determining appropriate reimbursement and estimated system impact. Ingenix further provided recommendations regarding minimal modifications to Medicare reimbursement methodologies and payment policies necessary to meet occupational injury requirements.

Historical commission medical claims data provided a Texas workers' compensation mix of services for use in the analysis. This utilization pattern was applied to the commercial market (health maintenance organization, preferred provider organization, point of service, and indemnity plans) and Medicare reimbursement levels, establishing an estimated reimbursement for a workers' compensation case mix. This reimbursement was expressed as a percent of charges and as a percent of Medicare reimbursement. Information considered in the development of the analysis included:

* Commission historical claims data;

* The Mercer/Foster Higgins National Survey of Employer-Sponsored Health Plan 2001 (formerly the Harkey Report on Texas Managed Care) that summarized enrollment and market share information for commercial managed care plans in Texas;

* Texas commercial indemnity and managed care reimbursement rates from Ingenix Employer Group;

* Ingenix proprietary national managed care payer data regarding volume of services, charged and allowed reimbursement amounts to estimate the level of ASC business compared to outpatient, and ASC allowed-to-charge ratios compared to outpatient allowed-to-charge ratios;

* National Center for Health Statistics and Bureau of the Census data to estimate the covered lives in the Texas commercial insurance/managed care market;

* Data published by Interstudy that provided national commercial managed care reimbursement rates;

* Data published by the American Hospital Association that provided hospital outpatient charges per service;

* Source Book of Health Insurance Data; and

Medicare reimbursement amounts.

ASC market reimbursement percentages were based on a mix of services that were equivalent to the Texas workers' compensation mix of services and reimbursement rates trended forward to 2003, and ultimately 2004. Ingenix also trended forward the Medicare ASC reimbursement rates to 2004. Ingenix concluded, as a result of its market analysis, that if current reimbursement trends continue, in 2004 Texas workers' compensation ambulatory surgical center claims will be reimbursed at approximately 320% of 2004 Medicare reimbursement. Ingenix also projected that 2004 commercial market reimbursement for the same mix of claims would be approximately 274% (not including indemnity plans) to 293% (including indemnity plans) of 2004 Medicare reimbursement.

In setting the recommended PAF range, Ingenix considered whether to include indemnity experience in the market experience. While Ingenix found no difference in standards of living between people with commercial indemnity experience and injured workers, there are several reasons to consider excluding indemnity experience:

* Commercial indemnity represents only about 4% to 5% of the combined Medicare and commercial market. Removing commercial indemnity from the analysis removes experience that is higher than 95% of the payment levels for people of a similar standard of living.

* Payments for commercial indemnity plans are disproportionately higher than payments for the rest of the market, essentially making commercial indemnity payments outliers.

* Statutory requirements set forth in §413.011 mandate that payment be made no higher than would be paid by or for people with similar standards of living.

* No cost controls are in place in the commercial indemnity market, and the Texas workers' compensation law mandates that in setting the fee structure, consideration be given to cost control.

Commercial indemnity plans provide coverage for individuals with standards of living similar to the rest of the commercial market, suggesting indemnity plans be included in the PAF range calculations. Including indemnity plans would increase the PAF because more weight would be placed on commercial reimbursement rates, thus reducing the impact of the lower Medicare payments.

In contrast, the indemnity payment levels are outliers, suggesting that they be excluded. Indemnity plans reimburse at a considerably higher rate than other commercial payers. Indemnity is a very small portion of the commercial market. Excluding indemnity plans would decrease the PAF because less weight would be placed on commercial reimbursement rates, thus increasing the impact of the lower Medicare payments.

In order to provide the most comprehensive range of fair and reasonable reimbursement rates, and address the statutory requirement for cost control and prohibition against paying higher than would be paid by or for persons with similar standards of living, Ingenix excluded the indemnity experience at the lower end of the range and included it at the higher end of the range.

Ingenix initially recommended a 2003 range of 230% (not including indemnity plans) to 250% (including indemnity plans). Upon the commission's request for 2004 projections, Ingenix recommended the 2004 PAF range of 237% (not including indemnity plans) to 264% (including indemnity plans) of Medicare for ambulatory surgical center reimbursement, as a proper balance of the complex statutory objectives.

In developing the proposal for the Health Facility Fees, one of which is this proposed rule, commission staff met and discussed issues with various stakeholders, including hospitals, ambulatory surgical centers, specialty care facilities, the Texas Hospital Association, the Texas Workers' Compensation Research and Oversight Council and the primary HB-2600 Legislative Stakeholders group. The HB-2600 Legislative Stakeholders group included: a delegation of employers, insurance carriers, utilization review organizations, and other interested parties working together under the umbrella name, Texas Association of Business Technical Work Group; Texas Chiropractic Association; Texas Osteopathic Medical Association; and the Texas Medical Association. Stakeholder participation included discussion of Medicare reimbursement policies and identification of any areas of concern and also included an informal comment period where stakeholders were given a conceptual presentation of the rule and an opportunity to provide input to the commission.