The Texas Workers' Compensation Commission (the commission) adopts new §134.202 concerning the Medical Fee Guideline with changes to the proposed text published in the December 28, 2001 issue of the Texas Register (26 TexReg 10786).

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 of or in opposition to adoption of the rule, and the reasons why the commission disagrees with some of the comments and proposals.

Changes made to the proposed rule are in response to public comment received in writing and at a public hearing held on January 24, 2002, and are described in the summary of comments and responses section of this preamble. Other changes were made for consistency or to correct typographical or grammatical errors.

This new rule is adopted to comply with numerous and complex statutory mandates in the 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.

In addition to the previous requirements, 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);

* develop conversion factors or other payment adjustment factors in determining appropriate fees, taking into account economic indicators in health care; and

* provide for reasonable fees for the evaluation and management of care as required by §408.025(c) and commission rules.

Section 413.011 states that this section of the law does not adopt the Medicare fee schedule, and the commission shall not adopt conversion factors or other payment adjustment factors based solely on those factors as developed by the HCFA.

Finally, the statute mandates that this section of the law may not be interpreted in a manner that would discriminate in the amount or method of payment or reimbursement for services in a manner prohibited by Section 3(d), Article 21.52, Insurance Code, or as restricting the ability of chiropractors to serve as treating doctors as authorized by this subtitle.

Previously, reimbursements for specified medical treatments and services were established by §134.201 of this title (regarding Medical Fee Guideline for Medical Treatments and Services Provided Under the Texas Workers' Compensation Act) and §134.302 of this title (regarding Dental Fee Guideline). The Medical Fee Guideline (MFG) provides maximum allowable reimbursement (MAR) amounts for health care providers treating injured employees in Texas. This new rule uses the required Medicare methodologies, models, and values or weights for determining reimbursement in the Texas workers' compensation system to comply with the new provisions in Texas Labor Code §413.011.

In developing the MFG, 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 MFG 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.

Commission staff met and discussed issues with the primary HB-2600 Legislative Stakeholders. This Legislative Stakeholder 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 & Chambers of Commerce Technical Work Group (including, Liberty Mutual; Texas Association of Compensation Consumers, Texas Association of School Boards, Texas Association of Business & Chambers of Commerce, Texas Mutual Insurance Company, Forte Managed Care, The Zenith, American Insurance Association, Insurance Council of Texas, Texas Self-Insurance Association, and The Hartford); the Texas Chiropractic Association; the Texas Medical Association; and the Texas Osteopathic Medical Association. Input from this group was carefully considered in developing this rule.

STATUTORY AND MFG RULE HISTORY

The National Academy of Social Insurance has noted that the medical care share of workers' compensation benefits increased steadily during the 1980s and into the early 1990s. Some analysts believe that part of the rise in medical benefits was due to cost shifting between regular health insurance and workers' compensation. An incentive to shift costs existed because medical care not associated with workers' compensation was experiencing a rise in managed care during this period. In the 1990s, partially as a response to escalating costs, workers' compensation programs began adopting managed health care. (National Academy of Social Insurance, Workers' Compensation: Benefits, Coverage, and Costs, 1999 New Estimates and 1996-1998 Revisions, May 2001) This is similar to the findings of the Joint Select Committee on Workers' Compensation Insurance, December 9, 1988, A Report to the 71st Texas Legislature: "Workers' compensation is one of the few remaining public or private insurance plans providing full payments of medical costs with few cost containment mechanisms. The use of cost containment methods in other medical care programs may encourage doctors and hospital administrators to devise strategies to shift costs to less constrained environments, such as workers' compensation." The workers' compensation system is still dealing with the results of that cost-shifting and workers' compensation should no longer be subsidizing the provision of non-workers' compensation medical care, including that which is subject to managed care.

Prior to the development of the 1996 MFG, an extensive research program and review of the relevant literature and the 1991 MFG was undertaken by the commission to assist in evaluating the strengths and deficiencies of the 1991 MFG. In December 1993, the Workers' Compensation Research Institute (WCRI) released an extensive analysis of the workers' compensation medical fee guidelines in 27 states. The results of WCRI's analysis revealed that Texas, through the 1991 MFG, reimbursed at 9% above the median fee guideline level compared to the other states and that variations in reimbursements among the states were apparently not related to variations in costs between the states. Both the WCRI study and the commission's own analysis indicated the Texas workers' compensation system reimbursed 65% above Medicare reimbursements. (WCRI, Benchmarks for Designing Workers' Compensation Medical Fee Schedules, November 1993) Consequently, the objectives for the 1996 MFG were to move Texas MFG reimbursements towards a median position in comparison with other states and more towards a market-based system. The commission also elected to switch from the California Relative Value System, to the more widely used and recognized McGraw-Hill Relative Values for Physicians.

To accomplish these objectives and because no reference point or benchmarking against market based charges was done during the development of the 1991 MFG, in developing the 1996 MFG, the commission determined that it was appropriate to obtain data from outside sources to use in evaluating what changes in reimbursements were necessary. The data supplied from an outside source was commercial market data, and included conversion factors for every 10th percentile starting at the 20th percentile and ending at the 90th percentile. This revealed that the lack of benchmarking in 1991 resulted in some medical services groups being reimbursed around the 10th percentile when compared to the commercial market data, while other groups were reimbursed above the 90th percentile. In addition, some of the individual codes within each group were reimbursed far above or far below the median of the data. As noted in Congressional Budget Office testimony: a charge-based reimbursement system gives physicians the incentive to increase their charges from year to year to boost their revenues; this leads to spiraling expenditures. (Statement of Dan L. Crippen, Director, Congressional Budget Office, Testimony Before the Subcommittee on Health of the House Committee on Ways and Means, Hearing on Physician Payments, February 28, 2002.)

The conversion factors for the 1996 MFG were derived by dividing the sum of all charges for each American Medical Association (AMA) Current Procedural Terminology (CPT) category group by the sum of the relative value units for each charge in the same group. At this point in developing the 1996 MFG the commission was concerned that a full shift away from the 1991 MFG could destabilize the system. Therefore, the goal of establishing a 1996 MFG that produced the same level of total expenditures as the 1991 MFG was identified as an alternative to a fully market based system. Thus, the move to a fully market based system was restricted by commission goals to maintain the same level of expenditure overall, and as much as possible in each individual service category. Adjustment restrictions per procedure were also established to avoid extreme changes. Conversion factors for services categories ranged from the 20th to the 60th percentiles. In essence, this methodology retained the reimbursement relationships established in the 1991 MFG so that the 1996 MFG still did not reflect median or average commercial reimbursements. As an example, the average Texas workers' compensation 1996 surgical fee varied from 113% to 193% of managed care reimbursement and from 222% to 261% of Medicare reimbursement. (Texas Workers' Compensation Commission Rate Comparisons, April 16, 1997, Health Care Solutions, Inc., Greg Guidroz) Expenditures in Texas had spiraled.

In developing the 1996 MFG, the commission's expenditure goals would also keep reimbursements for medical services in Texas relatively stable so that the effects of inflation and changes in other states' medical fee guidelines would help move Texas towards a median position. The 1996 MFG was thus a transitional step to the commission's stated intent to review and revise the MFG on a regular basis in developing a market-based system. These assumptions were not fully realized because medical inflation during the late 1990's was much less intense than in the previous decade, there was significant realignment in reimbursement structures in both the commercial and Medicare systems, and other states' compensation systems began to adjust their fee schedules accordingly.

The commission is now revising its medical fee guideline to adjust to these changes in the healthcare reimbursement system. These factors, in addition to the transitional implementation of the McGraw-Hill relative value system, and the overall restriction in total system reimbursement, are resulting in significant realignment and for some services significant reduction of reimbursements in the 2002 MFG.

Since adoption of the 1996 MFG, 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)

* In addition to overall cost differences, the cost of individual medical treatments is lower under the group health system due to the impact of PPO discounts as well as the impact of co-payments and deductibles. For example, the average medical payment for a manipulation, CPT code 97260, was $17.50 in this group health system compared to $35 under the 1996 MFG. It is estimated that PPO discounts under this group health system result in a savings of approximately 10% on office visits and physical medicine and 15% on diagnostic tests. (ROC, January 2001)

* In general, the amount of medical treatment (often called treatment utilization) and the length of medical treatment (often called treatment duration) provided to Texas injured workers account for the majority of these cost differences between other state workers' compensation systems and other health care delivery systems. Additional differences between Texas workers' compensation and Texas group health systems also widen the cost gap. These differences include the lower cost of many individual medical treatments in group health (due to the PPO or other negotiated discounts), the existence of pharmaceutical formularies in the group health system, and in the case of workers' compensation, the inclusion of costly and questionable medical services (e.g., work hardening/conditioning). (ROC, January 2001)

The January 2001 ROC report concluded that Texas policymakers and system regulators should consider developing a comprehensive plan to address:

* the amount of medical care provided to injured workers;

* the price of individual treatments and services in workers' compensation;

* the method by which the system resolves disputes; and

* the method by which the system regulates doctors and insurance carrier utilization review agents.

With this background of information and reports, the 77th Texas Legislature addressed the statutory provisions regarding fee guidelines and revised §413.011 of the Texas Labor Code as previously stated.

UTILIZATION AND PRICE REDUCTIONS

Utilization plays a part in cost containment, but the reimbursement levels established in the MFG are not the primary means for addressing over-utilization. Likewise, it would be inappropriate for the commission to choose to address medical cost containment only by utilization control, and not by the fees that are reimbursed for workers' compensation services. 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. Also, as noted in the January 2001 ROC study, the cost of individual medical treatments is lower under the group health system in Texas, e.g., the average medical payment for a manipulation, CPT code 97260, was $17.50 in this group health system compared to $35 under the current commission MFG. The lower cost of many individual medical treatments in group health widens the cost gap between Texas workers' compensation and Texas group health systems. The reimbursement established in the MFG is a necessary component of cost containment.

Although the ROC's comments on the rule as proposed state that the driving force in higher Texas workers' compensation medical costs is the amount of medical treatment provided, rather than the price of individual medical treatments and services, the ROC report includes a recommendation that the policymakers and system regulators should consider developing a comprehensive plan to, among other things, address the price of individual treatments and services in workers' compensation. (ROC, January 2001)