The Texas Workers' Compensation Commission (the commission) proposes amendments to §134.502 concerning Pharmaceutical Services. The proposed amendments remove the requirement that an insurance carrier request a Statement of Medical Necessity (SMN) from the prescribing doctor before denying reimbursement for prescription or over the counter medications. However, the commission proposes retaining the requirement that prohibits billing or reimbursing for providing SMNs from subsection (e) and moving the requirement to what is currently subsection (g). Additionally, the commission proposes amending what is currently subsection (f) to allow the carrier to request the SMN (the current subsection only covers employees and pharmacists). Finally the commission also proposes amending what is currently subsection (h), which requires the carrier to send a copy of the Explanation of Benefits (EOB) to the injured employee (employee), the pharmacy, and the prescribing doctor.

House Bill 2600 (HB-2600), adopted during the 2001 Texas Legislative Session, amended §408.028 of the Texas Labor Code. In addition to previous requirements, the revised statute requires: that physicians and doctors order over the counter alternatives to prescription medications when clinically appropriate and applicable in accordance with state law; the commission to develop by rule an open formulary that requires the use of generic pharmaceutical medications and clinically appropriate over the counter alternatives to prescription medications; and the commission to adopt rules to allow an injured employee to obtain reimbursement for over the counter medications prescribed or ordered and purchased by the employee.

Sections 134.500, 134.502, 134.503, 134.504, and 134.506, relating to Pharmaceutical Benefits, were adopted at the December 13, 2001 public meeting. Section 134.502 addressed prescribing, billing and dispensing of medications. This rule also introduced the SMN. The SMN was intended to assist pharmacists in the resolution of medical necessity disputes, as well as, to assist injured employees when seeking reimbursement for out of pocket expenses for medications.

The commission expected this requirement to benefit system participants by improving the overall process for reimbursement for medications. However, five months of experience under the new rule has shown that there were unintended consequences to the SMN requirement. The rule required a carrier to request an SMN before denying a pharmacy bill based upon its belief that the medication was not reasonable or medically necessary and gave doctors 14 working days from receipt of a request to provide the statement. However, under Texas Labor Code §408.027, insurance carriers have only 45 days from the date that a properly completed bill is received to evaluate the bill for payment.

Many insurance carriers are unable to perform a complete medical review within the first few days after the date the bill is received. They may be able to do little more than start the administrative process necessary to review the bill. At this point, the insurance carrier does not yet know whether it might later find that a prescription is not medically necessary. Depending on when the insurance carrier makes the request for a SMN, the insurance carrier might not receive the SMN early enough to be able to meet its 45-day deadline for processing a bill.

Given the requirements of the rule to request the SMN before denying based upon reasonableness or medical necessity and the general timeframes of the statute and rule for processing medical bills, at least one carrier began requesting the SMNs on the vast majority of their pharmacy bills ostensibly to protect their right to timely deny the bill based on reasonableness and medical necessity. These requests were being made not because the carrier had determined that the medication was not medically necessary, but because it had not yet reviewed the bill and made the determination. System participants who were receiving the requests for SMN believed them to signal that the carrier was challenging the medical necessity of the medication. However, the carrier ultimately denied only a relatively small percentage of the bills for which the SMNs were requested. This practice cost system participants time and postage related to the requests and responsive SMNs that were being requested.

To address this issue, the commission proposes deleting the provisions of subsection (e) of §134.502 that require the carrier to request an SMN prior to denying a pharmacy bill based upon reasonableness or medical necessity. This change is intended to redirect system participants to §133.304 of this title (relating to Medical Payments and Denials) which requires that an insurance carrier take final action on a medical bill not later than the 45th day after the date the insurance carrier received a complete medical bill. The provisions of subsection (e) that prohibits a doctor from billing for and a carrier from reimbursing the provision of an SMN is proposed to be moved to subsection (g) which is proposed to be renumbered as subsection (f). The remaining subsections are proposed to be renumbered. Additionally, the commission proposes adding the insurance carrier to the list of parties who can request a SMN located in subsection (f) which is proposed to be renumbered as subsection (g).

Current subsection (h), proposed to be renumber as subsection (g), requires the carrier to send a copy of the EOB to the employee, the pharmacist, and prescribing doctor whenever the carrier "reduces or denies" a pharmacy bill. It is very important to send the EOB to all three parties when the bill is denied, as all three need to know about the potential that the carrier will no longer approve the medication. Section 133.304 of this title (relating to Medical Payments and Denials) requires that an insurance carrier send a copy of the EOB to the sender of the bill at the time the carrier makes or denies payment on a bill. As the sender of the bill, a pharmacy will always receive the EOB. However, when the carrier is reducing the bill (e.g., to the maximum allowable reimbursable amount specified by rule or because of a contract) there is no reason to send a copy of the EOB to the prescribing doctor or the employee. Therefore, the commission is proposing to delete the requirement to send the EOB to the prescribing doctor or the employee when reducing the bill (note that a "reduction to $0 is a denial, which requires filing with all three parties). The commission previously identified this problem with the rule and issued Advisory 2002-06, delaying implementation of part of this requirement. Adopting the amendment will allow the system to avoid a significant increase in costs by ensuring that carriers do not have to file three times as many EOBs on reduced pharmacy bills.

Judy Bruce, Director of Medical Review, has determined that for the first five-year period the proposed amended rule is in effect there will be minimal fiscal implication for state or local government as a result of enforcing or administering the amended rule. The added clarification provided by this rule amendment should result in a reduction of disputes thereby possibly decreasing the cost of enforcement or administration by the commission. Any reduction in costs to the commission cannot be quantified.

No local government will be involved in enforcing or administering the rule as proposed. Local government and state government as covered regulated entities will be impacted in the same manner as other regulated entities.

Ms. Bruce has also determined that for each year of the first five years the proposed amendment to the rule is in effect the public benefit and the probable economic costs anticipated as a result of enforcing the amendment will be reduced costs to pharmacies and prescribing doctors associated with obtaining payment for pharmacy services and reduced costs to carriers for processing pharmacy bills. The system participants are: injured employees, employers, insurance carriers and health care providers, including pharmacists. The removal of the requirement for a SMN before denial should improve the consistency and delivery of appropriate medical care to employees, and reduce concerns regarding obtaining required documentation within tight timeframes.

The process in the rule as adopted in December 2001 was intended to promote prompt provision of medications to injured employees by decreasing the likelihood that a pharmacy would not get paid for medications provided to the injured employee. The opposite occurred, however. Employees and pharmacies will benefit from a return to the process that does not require a SMN prior to denial.

The benefit to insurance carriers as a result of the proposed amendment is that the carrier should not request SMN to preserve the right to deny the medical bill. In addition, carriers should save money on associated mail and document handling costs, potentially including staff-related costs.

The benefit to prescribing doctors is a reduction in the number of requests for SMNs to document the need for prescription drugs and over the counter medication alternatives. This reduction should make it easier for doctors to provide quality statements to carriers as they will have fewer to prepare. In addition, doctors should save money on associated mail and document handling costs relating to providing the statements.

There will be minimal anticipated economic costs to persons who are required to comply with the proposed amendment and there should be cost savings.

There will be no adverse economic impact on small businesses or on micro-businesses as a result of the rule as proposed to be amended. There will be no difference in the cost of compliance for small businesses and micro-businesses as compared to large businesses because the same basic processes and procedures apply to all entities regardless of size.

Comments on the proposed amended rule must be received by 5:00 p.m., October 16, 2002. You may comment via the Internet by accessing the commission's website at www.twcc.state.tx.us and then clicking on "Proposed Rules." This medium for commenting will help you organize your comments by rule chapter. You may also comment by emailing your comments to RuleComments@twcc.state.tx.us or by mailing or delivering your comments to Nell Cheslock, Legal Services, Mailstop #4-D, Texas Workers' Compensation Commission, Southfield Building, 4000 South IH-35, Austin, Texas 78704-7491.

Commenters are requested to comment only on the amended portion of the rule. The commission may not be able to respond to comments that cannot be linked to a particular proposed rule. Along with your comment, it is suggested that you include the reasoning for the comment in order for commission staff to fully evaluate your recommendations.

Based upon various considerations, including comments received and the staff's or commissioners' review of those comments, or based upon the commissioners' action at the public meeting, the rule as adopted may be revised from the rule as proposed in whole or in part. Persons in support of the rule as proposed, in whole or in part, may wish to comment to that effect

A public hearing on this proposal will be held on October 16, 2002, at the Austin central office of the commission (Southfield Building, 4000 South IH-35, Austin, Texas). Those persons interested in attending the public hearing should contact the commission's Office of Communication and Public Information at (512) 804-4430 to confirm the date, time, and location of the public hearing for this proposal. The public hearing schedule will also be available on the commission's website at www.twcc.state.tx.us.

The amended rule is proposed under the following statutes: the Texas Labor Code §402.042, that authorizes the Executive Director to enter orders as authorized by the statute as well as to prescribe the form and manner and procedure for transmission of information to the commission; the Texas Labor Code §402.061, which authorizes the commission to adopt rules necessary to administer the Act; the Texas Labor Code §406.010, that authorizes the commission to adopt rules necessary to specify the requirements for carriers to provide claims service and establishes that a person commits a violation if the person violates a rule adopted under this section; the Texas Labor Code §408.021(a), that states an employee who sustains a compensable injury is entitled to all health care reasonably required by the nature of the injury as and when needed; the Texas Labor Code §408.025, that requires the commission to specify by rule what reports a health care provider is required to file; the Texas Labor Code §408.028, as passed by the 77th Texas Legislature, that requires health care practitioners providing care to an employee to prescribe any necessary prescription drugs in accordance with applicable state law; the Texas Labor Code §413.002, that requires the commission to monitor health care providers and insurance carriers to ensure compliance with commission rules relating to health care including medical policies and fee guidelines; the Texas Labor Code §413.011, as passed by the 77th Texas Legislature, that requires the commission by rule to establish medical policies and guidelines relating to necessary treatments for injuries, and fees, designed to ensure the quality of medical care and to achieve effective medical cost control; the Texas Labor Code §413.012, that requires the commission to review and revise medical policies and fee guidelines at least every two years to reflect current medical treatment and fees that are reasonable and necessary; the Texas Labor Code §413.013 (1) (2) and (3), that require the commission by rule to establish a program for prospective, concurrent, and retrospective review and resolution of a dispute regarding health care treatments and services; a program for the systematic monitoring of the necessity of the treatments administered and fees charged and paid for medical treatments or services including the authorization of prospective, concurrent or retrospective review under the medical policies of the commission to ensure the medical policies and guidelines are not exceeded; and a program to detect practices and patterns by insurance carriers in unreasonably denying authorization of payment for medical services requested or performed if authorization is required by the medical policies of the commission; the Texas Labor Code §413.0141, as passed by the 77th Texas Legislature, regarding initial pharmaceutical coverage; the Texas Labor Code §413.017, that establishes presumption of reasonableness of medical services; the Texas Labor Code §413.031, as passed by the 77th Texas Legislature, that entitles a party, including a health care provider, to a review of a medical service for which authorization for payment has been denied or reduced; the Texas Labor Code §415.002, that establishes an administrative violation for an insurance carrier to: unreasonably dispute the reasonableness and necessity of health care, to violate a commission rule or to fail to comply with the Act; the Texas Labor Code §415.003, as passed by the 77th Texas Legislature, that establishes an administrative violation for a health care provider to: administer improper, unreasonable, or medically unnecessary treatment or services, to violate a commission rule, or to fail to comply with the act; and the Texas Labor Code §415.0035, that establishes an administrative violation for an insurance carrier to deny preauthorization in a manner that is not in accordance with commission rules.

The amended rule is proposed under the following statutes: the Texas Labor Code §§402.042, 402.061, 406.010, 408.021(a), 408.025, 408.028, 413.002, 413.011, 413.012, 413.013 (1) (2) and (3), 413.0141, 413.017, 413.031, 415.002, 415.003, 415.0035.

No other statute, code or article is affected by this proposal.