TITLE 28.INSURANCE

Part 1. TEXAS DEPARTMENT OF INSURANCE

Chapter 1. GENERAL ADMINISTRATION

Subchapter D. EFFECT OF CRIMINAL CONDUCT ON LICENSES

The Commissioner of Insurance adopts the repeal of Subchapter D, §1.501 and §1.502, concerning the effect of criminal conduct on licenses. The repeal is adopted without changes to the proposal as published in the February 27, 2004, issue of the Texas Register (29 TexReg 1840) and will not be republished.

The repeal of these sections was necessary to allow the department to adopt new rules that address the department's determination of a person's fitness for holding a license, authorization, or registration, or a person's fitness to have the ability to control licensed and authorized entities.

The purpose of this repeal is to allow the department to adopt new rules that clarify and more fully describe the department's policies and procedures and also eliminate obsolete references to licenses which no longer exist or have changed. Simultaneous to this repeal, adopted new Subchapter D, §1.501 and §1.502, is published elsewhere in this issue of the Texas Register .

No comments were received regarding adoption of the repeal.

The repeal of Subchapter D, §1.501 and §1.502, is adopted under the Occupations Code, Government Code, and Insurance Code. Insurance Code §§801.101, 801.102, and 801.151 - 801.155 authorize the commissioner to review the fitness and reputation of officers, directors and persons in control of insurance companies and to refuse or revoke a certificate of authority to any company based on a determination that such officer, director or controlling person is not worthy of public confidence. Articles 9.37 (B), 9.44 §2, and 9.56 §8 authorize the commissioner to deny or revoke the license of a title insurance agent or direct operation, escrow officer, or title attorney if the person has been guilty of fraudulent or dishonest practices. Article 21.01 §3 and §4 provide that, except as otherwise provided by the Insurance Code, the provisions of Insurance Code, Chapter 21, Subchapter A, apply to the persons licensed under the provisions listed in Section (3) and authorize the commissioner to adopt rules necessary to implement Insurance Code, Chapter 21, Subchapter A. The listed provisions include the following Insurance Code license, certificate and registration types: surplus lines agent, §981.202; general life, accident, and heath agent, Article 21.07-1 §2; limited life, accident, and health agent, Article 21.07-1 §4; funeral prearrangement life insurance agent, Article 21.07-1 §5; life insurance not exceeding $15,000 agent, Article 21.07-1 §6; life and health insurance counselor, Article 21.07-2; managing general agent, Article 21.07-3; adjuster, Article 21.07-4; public insurance adjuster, Article 21.07-5; third party administrator, Article 21.07-6; reinsurance intermediary manager and broker, Article 21.07-7; specialty license, Article 21.09; nonresident agent applicants, Article 21.11; general property and casualty agent, Article 21.14 §2; limited property and casualty agent, Article 21.14 §6; insurance service representative, Article 21.14 §8; full-time home office employee, Article 21.14 §7; county mutual agent, Article 21.14 §9; risk manager, Article 21.14-1; agricultural agent, Article 21.14-2. Each of these license, certification and registration types is subject, in addition to the provisions of Insurance Code Chapter 82, to the provisions of Article 21.01-2 §3A (a) and (c), which provide that the department may revoke or deny a license or registration subject to that article of a person who has been convicted of a felony or engaged in fraudulent or dishonest activities. Further, Article 21.07 §2(f), (i), (n), (o), and (s) require the department to find that an applicant for an agent's license or the applicant's officers, directors, partners and other persons with a right to control the applicant have not committed an act for which licensure can be denied or revoked under Article 21.01-2 §3A. Article 21.07-2 §5(a) states that life and health insurance counselors are subject to the same licensing requirements as are applicable to agents under Insurance Code, Chapter 21, Subchapter A. Article 21.07-4 §7 and §17 also require adjusters to be trustworthy and authorize the department to discipline licensed adjusters and deny adjuster license applications under the applicable insurance laws of this state, which includes Article 21.01-2 §3A. Article 21.07-5 §§5, 5A, 15, 15A, 16, and 30 authorize the department to deny public insurance adjuster license and training certificate applications and revoke issued licenses and certificates based on a felony conviction or engaging in fraudulent of dishonest activities. Article 21.11 §1(e) authorizes the department to use the criminal history records of nonresident license applicants to determine eligibility for licensure in accordance with Texas law. Section 1111.005(a) (1), (5) and (8) provide that the commissioner may deny or revoke a viatical or life settlement registration if the commissioner finds the applicant, individually or through any officer, director, or shareholder of the registrant or applicant, has been convicted of a felony or has been convicted of a misdemeanor involving moral turpitude or fraud. Article 21.58A §3 and §13 authorize the commissioner to adopt rules regarding the certification of utilization review agents. Article 21.58C §2(a)(1) authorize the commissioner to adopt rules and standards for the certification, suspension and revocation of independent review organizations. Article 5.43-1 §8(a) and (b) authorize the commissioner to establish rules and evaluate the qualifications of persons and firms applying for licensure and permits for the design, installation and testing of fire extinguishing equipment. Article 5.43-2 §6(a) provides that the commissioner may adopt rules for licensees involved with fire alarm or fire detection devices or systems. Article 5.43-3 §7(a)(2) provides that the commissioner may establish the qualifications of applicants for certificates of registration and licenses regarding fire sprinkler systems. Occupations Code §2154.051(1) and (3) authorize the commissioner to establish qualifications for fireworks licenses and permits and pyrotechnic operators. Government Code §417.005 provides that the Commissioner of Insurance may adopt rules to guide the State Fire Marshal in the performance of duties for the commissioner. Insurance Code §36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on April 12, 2004.

TRD-200402464

Gene C. Jarmon

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: May 2, 2004

Proposal publication date: February 27, 2004

For further information, please call: (512) 463-6327

Subchapter D. EFFECT OF CRIMINAL CONDUCT

28 TAC §1.501, §1.502

The Commissioner of Insurance adopts new Subchapter D, §1.501 and §1.502, concerning the effect of criminal conduct. The sections are adopted without changes to the proposed text as published in the February 27, 2004, issue of the Texas Register (29 TexReg 1841) and will not be republished.

The adopted sections address the consequences prior criminal conduct and fraudulent and dishonest activity will have on persons seeking or holding licenses, registrations, or authorizations issued by the department under the Texas Insurance Code and Occupations Code, including agents; adjusters; those persons regulated by the State Fire Marshal's Office; the officers, directors, partners, and controlling shareholders of licensed insurance agencies and entities engaging in licensed and authorized activities; and officers and directors of insurance companies subject to Insurance Code Chapter 801.

The adopted sections are necessary to maintain effective regulation of the insurance industry by identifying to whom the provisions apply; the types of criminal offenses that the department considers to be of such a serious nature as to be of prime importance in determining a person's fitness for licensure or authorization or fitness for control of a licensed or authorized entity; the standards the department will use in evaluating criminal histories; and the procedures that will apply to persons affected by these criteria. These adopted sections will also work to further ensure that those persons receiving licensure and authorizations, the officers, directors, partners, and controlling shareholders of insurance agencies and other entities, and the officers and directors of insurance companies, are honest, trustworthy, reliable, and fit to hold those positions. The adopted sections update references and restate existing rules and department policy and procedure and, as such, should not affect the current license status of any person who has made a full disclosure of all past criminal conduct.

Adopted §1.501 identifies the persons to whom these sections apply. Section 1.502 identifies: the special relationship that persons engaging in licensed and authorized insurance and related activities have with the public; the criminal offenses the department considers to be of such a serious nature that they are of prime importance in determining a person's fitness to be licensed or authorized, or to control a licensed or authorized entity; the factors the department will consider in determining whether to permit the affected person to engage in the insurance industry in Texas; and the procedure the department will use to revoke, suspend or deny the license, registration or authorization of any person or entity affected by these sections.

Simultaneous to this adoption, the department is adopting the repeal of existing Subchapter D, §1.501 and §1.502, published elsewhere in this issue of the Texas Register .

No comments were received regarding the new sections.

The new sections are adopted under the Occupations Code, Government Code, and Insurance Code. Occupations Code Chapter 53 states the general procedure a licensing authority must employ when considering the consequences of a criminal record on granting or continuing a person's license, registration or authorization. Occupations Code §53.025 authorizes a licensing authority to issue guidelines relating to its practice under Chapter 53. Insurance Code §§801.101, 801.102, and 801.151 - 801.155 authorize the commissioner to review the fitness and reputation of officers, directors and persons in control of insurance companies and to refuse or revoke a certificate of authority to any company based on a determination that such officer, director or controlling person is not worthy of public confidence. Articles 9.37 (B), 9.44 §2, and 9.56 §8 authorize the commissioner to deny or revoke the license of a title insurance agent or direct operation, escrow officer, or title attorney if the person has been guilty of fraudulent or dishonest practices. Article 21.01 §3 and §4 provide that, except as otherwise provided by the Insurance Code, the provisions of Insurance Code, Chapter 21, Subchapter A, apply to the persons licensed under the provisions listed in Article 21.01 §3 and authorize the commissioner to adopt rules necessary to implement Insurance Code, Chapter 21, Subchapter A. The listed provisions include the following Insurance Code license, certificate and registration types: surplus lines agent, §981.202; general life, accident, and heath agent, Article 21.07-1 §2; limited life, accident, and health agent, Article 21.07-1 §4; funeral prearrangement life insurance agent, Article 21.07-1 §5; life insurance not exceeding $15,000 agent, Article 21.07-1 §6; life and health insurance counselor, Article 21.07-2; managing general agent, Article 21.07-3; adjuster, Article 21.07-4; public insurance adjuster, Article 21.07-5; third party administrator, Article 21.07-6; reinsurance intermediary manager and broker, Article 21.07-7; specialty license, Article 21.09; nonresident agent applicants, Article 21.11; general property and casualty agent, Article 21.14 §2; limited property and casualty agent, Article 21.14 §6; insurance service representative, Article 21.14 §8; full-time home office employee, Article 21.14 §7; county mutual agent, Article 21.14 §9; risk manager, Article 21.14-1; agricultural agent, Article 21.14-2. Each of these license, certification and registration types is subject, in addition to the provisions of Insurance Code Chapter 82, to the provisions of Article 21.01-2 §3A (a) and (c), which provide that the department may revoke or deny a license or registration subject to that article of a person who has committed a felony or misdemeanor, or engaged in fraudulent or dishonest activities. Further, Article 21.07 §2(f), (i), (n), (o), and (s) require the department to find that an applicant for an agent's license or the applicant's officers, directors, partners and other persons with a right to control the applicant have not committed an act for which licensure can be denied or revoked under Article 21.01-2 §3A. Article 21.07-2 §5(a) states that life and health insurance counselors are subject to the same licensing requirements as are applicable to agents under Insurance Code, Chapter 21, Subchapter A. Article 21.07-4 §7 and §17 also require adjusters to be trustworthy and authorize the department to discipline licensed adjusters and deny adjuster license applications under the applicable insurance laws of this state, which includes Article 21.01-2 §3A. Article 21.07-5 §§5, 5A, 15, 15A, 16, and 30 authorize the department to deny public insurance adjuster license and training certificate applications and revoke issued licenses and certificates based on a felony conviction or engaging in fraudulent of dishonest activities. Article 21.11 §1(e) authorizes the department to use the criminal history records of nonresident license applicants to determine eligibility for licensure in accordance with Texas law. Section 1111.005(a)(1), (5) and (8) provide that the commissioner may deny or revoke a viatical or life settlement registration if the commissioner finds the applicant, individually or through any officer, director, or shareholder of the registrant or applicant, has been convicted of a felony or has been convicted of a misdemeanor involving moral turpitude or fraud. Article 21.58A §3 and §13 authorize the commissioner to adopt rules regarding the certification of utilization review agents. Article 21.58C §2(a)(1) authorize the commissioner to adopt rules and standards for the certification, suspension and revocation of independent review organizations. Article 5.43-1 §8(a) and (b) authorize the commissioner to establish rules and evaluate the qualifications of persons and firms applying for licensure and permits for the design, installation and testing of fire extinguishing equipment. Article 5.43-2 §6(a) provides that the commissioner may adopt rules for licensees involved with fire alarm or fire detection devices or systems. Article 5.43-3 §7(a)(2) provides that the commissioner may establish the qualifications of applicants for certificates of registration and licenses regarding fire sprinkler systems. Occupations Code §2154.051(1) and (3) authorize the commissioner to establish qualifications for fireworks licenses and permits and pyrotechnic operators. Government Code §417.005 provides that the Commissioner of Insurance may adopt rules to guide the State Fire Marshal in the performance of duties for the commissioner. Insurance Code §36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on April 12, 2004.

TRD-200402465

Gene C. Jarmon

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: May 2, 2004

Proposal publication date: February 27, 2004

For further information, please call: (512) 463-6327

Part 2. TEXAS WORKERS' COMPENSATION COMMISSION

Chapter 114. SELF-INSURANCE

28 TAC §§114.1 - 114.7, 114.9 - 114.12, 114.14, 114.15

The Texas Workers' Compensation Commission (commission) adopts amendments to §§114.1 - 114.7, 114.9 - 114.12, and 114.14 - 114.15, concerning the self-insurance program for large private companies in Texas without changes to the proposed text published in the January 9, 2004 issue of the Texas Register (29 TexReg 312) and will not be republished.

As required by the Government Code §2001.033(1), the commission's reasoned justification for these rules are 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 for or against adoption of the rule, and the reasons why the commission disagrees with some of the comments and proposals.

There are no changes between the proposed text and the adopted text.

The adopted amendments make technical and procedural changes that are needed to ensure the continued efficiency and effectiveness of the program. In several of the adopted rules, the statutory cite is changed from the Texas Civil Statutes to the Texas Labor Code in order to reflect the current correct cite.

Throughout the adopted rules, the word, "certified," is added to the term, "self-insurer," to refer only to those entities that are certified to be self-insured pursuant to Chapter 407 of the Texas Labor Code and to bring the provision into conformity with the term, "certified self-insurer," as it is used in that chapter. This change also distinguishes between employers who have properly applied to and been authorized by the commission, pursuant to Chapter 407 of the Texas Labor Code, to be self-insured for any workers' compensation obligations they may incur and those who are not authorized by the commission to self-insure but who claim "self-insured" status because they have not elected to obtain workers' compensation insurance coverage.

Certain minor grammatical, punctuation and formatting changes have also been made in these adoptions. In addition, the adopted amendments are summarized as follows:

§114.1 - Purpose

Updates statutory references from the Texas Civil Statutes to the Texas Labor Code, in order to provide the current cite.

§114.2 - Definitions

Adds a new subsection (b)(1), which defines the term, "applicant," as an entity that applies for either an initial or any subsequent certificate of authority to self-insure for clarification purposes.

Re-designates subsection (b)(1) as subsection (b)(2), to reflect the new definition of the term, "applicant."

Re-designates subsection (b)(3) as subsection (b)(5) and adds the word, "regulation," to that subsection to more accurately identify the name of the division of self-insurance regulation.

Re-designates subsection (b)(5) as subsection (b)(7) and clarifies the definition of the term, "retention," in that subsection by indicating that these payments are to be made in order for an excess insurance policy to respond to a loss.

Deletes subsection (b)(6), which defines the term, "self-insurer." This reflects the addition of the word, "certified," to the term, "self-insurer," and the resulting re-designation of the term as a new subsection (b)(3), which clarifies that the term, "certified self-insurer," includes private employers who have been certified in the past, as well as those currently certified.

Re-designates all other paragraphs within subsection (b) to reflect the appropriate numbering as a result of the changes made to this subsection.

§114.3 - Initial Application Form and Financial Information Requirements

Amends the rule title by deleting the word "initial," to eliminate any perceived distinction between the requirements for initial and subsequent applications.

Clarifies, in subsection (a), certain requirements for filing application forms. Also clarifies the meaning of independently audited financial statements, requiring them to be conducted according to Generally Accepted Auditing Standards of the American Institute of Certified Public Accountants. Compliance with these audit standards prohibits a certified public accountant who is an employee from issuing audited financial statements for their employer.

Adds a new subsection (c), which provides that an incomplete application may be treated as voluntarily withdrawn if the applicant fails to respond to any request for information by the director for more than 90 days from the date the request is deemed received by the applicant, as provided by commission rule. Currently, §102.5(d) of this title (regarding General Rules for Written Communications to and from the Commission) provides for when a communication sent by the commission is deemed received. This provision addresses companies that file an application but do not complete the application process.

Re-designates subsection (c) as subsection (d) and amends that provision to indicate that the affidavit required on any self-insurance application or other document requiring a sworn affidavit also applies to all of the attachments, additions, and any subsequent amendments to those documents.

Re-designates subsection (d) as subsection (e) and changes the term, "report," to "financial statements," to be consistent with the term as it is used in subsection (a)(2).

Re-designates a portion of subsection (e) as subsection (f) and updates the statutory authority cite from the Texas Civil Statutes to the Texas Labor Code. This subsection is also amended to clarify that an applicant must ensure that a credit or debt rating and an analysis of that rating have been prepared by a recognized credit or debt reporting agency.

Re-designates the remainder of subsection (e) as subsection (g); deletes the ratios identified in subsections (g)(2), (5), and (6); and re-designates the remaining paragraphs within subsection (g). The deleted ratios are not meaningful in relation to an evaluation of an applicant's financial strength and are not mentioned in accounting texts or used by recognized credit/debt rating firms or other states in the regulation of self-insurers.

§114.4 - Security Requirements

Amends the title and subsections (a), (c), (d), and (g) by adding the term, "deposit," bringing the term into conformity with the term as it is used in the Texas Labor Code §§407.064 - 407.065, concerning Security Requirements.

Amends subsection (a)(1) by inserting the words, "must be," clarifying that the requirements of that provision are mandatory, not permissive.

Changes the reference, in subsection (a)(3), to the "Financial Institutions Rating" publication by Standard & Poor's Corporation to the "Global Ratings Handbook," the current Standard & Poor's publication.

Deletes language from subsection (e) that allows a potential guarantor of security to submit a letter indicating that security will be provided within 10 working days after the commission's issuance of a certificate of authority to self-insure and replaces it with language indicating that the commission will not issue a certificate before the guarantor of the security has submitted to the commission a security deposit that meets the requirements of this section. Requiring an applicant to provide a letter in advance does not add any value to the application process, since companies that meet the program's size and financial qualification will not normally have any problem in obtaining a security deposit. Additionally, prudent regulatory policy dictates that the security deposit should be received before a certificate of authority is issued.

§114.5 - Excess Insurance Requirements

Amends subsection (a) by removing the words, "accident or," to clarify that the application of excess insurance to the aggregate cost is associated with a single event, thereby aligning the rule with the language of the Texas Labor Code §407.067(b).

Adds a new subsection (c), which provides that the commission will not issue a certificate before the excess insurance carrier has submitted to the commission evidence of a qualifying excess insurance policy that meets the requirements of this section. This new provision will ensure that excess insurance coverage will be in effect when the certificate of authority is issued.

Re-designates subsection (c) as subsection (d).

§114.6 - Safety Program Requirements

Section 114.6, as currently written, incorporates some requirements of §164.4 of this title (regarding Formulation of Accident Prevention Plan for Public Employers), to which these rules are unrelated. The adopted amendments remove references to the requirements of the hazardous employer program and replace them with provisions that better allow the commission to determine whether an applicant has demonstrated the existence of an effective safety program, as required by Texas Labor Code §407.061(d). The adopted changes to §114.6 are described in the following paragraphs.

Amends subsection (a) by changing the reference from "accident prevention plans," which are not required by the statute for certified self-insurers to qualify for certification, to "safety programs," thereby aligning the rule with the language of Texas Labor Code §407.061(d).

Deletes subsection (a)(1), which incorporates by reference certain requirements of §164.4 of this title (regarding Formulation of Accident Prevention Plan for Public Employers), which is unrelated to the certified self-insurance program. Certified self-insurers are, by definition, private employers to which §164.4 does not apply.

Deletes subsection (a)(2), which requires a plan for the promotion of industrial health. Support for rehabilitation of the occupationally injured, encouragement of personal health maintenance, and the facilitation of the placement of individuals according to their physical capacities are unrelated to safety program management. These are medical management issues with no direct link to the development and/or management of a safety program.

Deletes subsection (a)(3), which requires a plan for the periodic evaluation and monitoring of worker exposures to substances or work practices that may lead to occupational illness or disease. The adopted amendment does not eliminate this requirement, however; it is included in new subsection (a)(5), as part of a required inspection component, which is described more fully below.

Deletes subsection (a)(4), which requires a drug policy that meets the requirements of §169.1 of this title (regarding Notification of Drug Abuse Policy) and §169.2 of this title (regarding Required Elements of Drug Abuse Policy). Those rules already require a drug policy of employers, including those that are certified self-insurers, with 15 or more employees; therefore, this provision is deleted to eliminate unnecessary redundancy in the commission's rules.

Deletes subsection (a)(5), which requires a system for receiving and addressing safety-related complaints from employees. The adopted amendments do not eliminate this requirement from the rule; instead, it is included in adopted new paragraph (1)(C), as part of a required management component, described more fully below.

Deletes subsection (b), which requires a certified self-insurer to employ at least one qualified employee or independent contractor to oversee implementation of the safety program and requires that this individual have the authority to communicate directly with the employer's top management regarding health and safety issues. The adopted amendments do not eliminate this oversight requirement from the rule; instead, it is included in adopted new paragraph (1)(B), as part of a required management component, described more fully below.

While the oversight requirement is retained, the adopted amendments eliminate the requirement that a certified self-insurer retain the services of a TWCC Approved Professional Safety Source. This is a requirement of §164.3 of this title (regarding Safety Consultations for Public Employers); because certified self-insurers are, by definition, private employers, they are not subject to this requirement. In most cases, the background and experience of the safety personnel employed by certified self-insurers equal or exceed the background and experience requirements of an Approved Professional Safety Source. However, if a review of one or more of the six required components (described below) indicates any need for further review or improvement, the certified self-insurer may be required to take necessary action, including the use of properly trained personnel, to demonstrate the effectiveness of its safety program.

Adds a new paragraph (1), which requires a management component to be included in a certified self-insurer's safety program. This component must include, at a minimum, a clearly written safety policy disseminated to all employees; assignment of safety responsibilities and authority; a method for receiving, evaluating, and responding to employee input regarding workplace health and safety; and a component to ensure review and revision of the safety program when changes in processes, procedures, operations, or equipment, are implemented or anticipated, to ensure continued effectiveness of the safety program.

Adds a new paragraph (2), which requires a certified self-insurer's safety program to include an analysis component that facilitates the recognition of injury and illness trends and facilitates the focus of corrective action on identified trends.

Adds a new paragraph (3), which requires a records component that documents (A) analysis results and any consequent improvement effort or corrective action; (B) employee safety training, including the training topic and date trained; (C) internal and/or external safety audits or inspections including facilities, equipment, and safety-related practices and procedures; (D) accident investigations; (E) safety committee meeting minutes, if such a committee is present in the workplace; and (F) any other safety-related records deemed appropriate by the applicant.

Adds a new paragraph (4), which requires an employee safety-training component that provides employees with initial and recurring training on all topics required to perform assigned duties safely.

Adds a new paragraph (5), which requires periodic inspections of facilities, equipment, and safety-related practices and procedures and periodic monitoring of industrial hygiene exposures.

Adds a new paragraph (6), which requires an accident investigation component that focuses on the identification and mitigation of causal factors.

§114.7 - Certification Process

Amends subsection (a) by updating the method by which the director requests review and approval of application packages by the Texas Certified Self-Insurer Guaranty Association (Association), because a process has developed that involves providing the Association with a summary of the relevant application information for efficiency purposes. Any application information is available to the Association upon request.

Amends subsection (c) to provide that failure of the Association to respond within 120 days after the Association's receipt of the information provided for in subsection (a) will be deemed as the Association's approval of certification of the applicant. This change reflects the current practice of the Association and recognizes that the Association may not meet within 40 days of the time it receives the director's recommendation of approval.

Removes the requirement, in subsection (d), that the director provide the commission with a complete copy of all supporting documentation on each applicant. Such supporting documentation is extensive, making reproduction and provision to six commissioners time-consuming, costly, and generally impractical. Historically, the director has presented to the commission an analysis report regarding each applicant in a public meeting. Any application information is available to the commissioners upon request.

Because the commission is only required to meet quarterly, subsection (d) is amended to provide that an application will be presented to the commission for approval or denial at a public meeting for self-insurance business (generally quarterly) that follows the completion of an application and the approval process described in subsection (c).

Deletes subsection (e) because the Association does not meet on a monthly or bi-monthly basis.

§114.9 - Required Initial Safety Program Inspection

Amends the title by deleting the word, "initial," to clarify that the rule addresses all safety inspections, not just initial inspections.

The first sentence of the prior rule adopted as a new subsection (a) and amended to provide that an employer seeking to obtain a certificate of authority shall have its safety program reviewed and/or inspected by the commission before the issuance of its initial certificate and thereafter, as appropriate, to demonstrate the existence of an effective safety program for each location. This change is consistent with the requirements of Texas Labor Code §407.061(d).

The second sentence of the prior rule is adopted as a new subsection (b) and is amended to clarify that the process referred to is the review or inspection process. The provision is also amended to provide that unreasonable refusal to provide access to the required information or facilities may be considered as either a submission of an incomplete application or grounds for revocation of a certificate, as well as a Class A administrative violation, with each day of noncompliance constituting a separate violation.

Adds a new subsection (c), which provides that unless there are significant deficiencies noted in a safety program review or inspection, the commission is not required to issue a review or inspection report, because such a report is included in the division's analysis report provided to the Association and the commission as a part of the approval process.

§114.10 - Claims Contractor Requirements

Adds a new subsection (c), which requires an applicant to ensure that a current signed claims administration contract remain on file with the division at all times, to ensure compliance with the statutory requirements of Texas Labor Code §407.061(e).

Re-designates subsection (c) as subsection (d).

§114.11 - Audit and Inspection Program

The rule title and subsection (a) are amended by deleting references to inspection. However, inspection requirements have not been eliminated from the commission's rules; instead, the commission has more clearly separated its rules concerning audits from those concerning inspections and moved certain provisions related to inspections to §114.9 of this title (relating to Required Initial Safety Program Inspection), and further amended that section.

Amends subsection (b)(1) by deleting the language, "initial or renewal" and by adding the language, "or in an annual report required by §114.15(b) of this title (relating to Revocation of Certificate of Authority to Self-Insure)," which refers to an annual report filed by a certified self-insurer that no longer holds a certificate of authority to be self-insured but is still responsible for payment of claims that arose during the period of time when it was authorized by the commission to be self-insured.

Amends subsection (b)(6) by deleting safety programs from the list of items that may be covered by an audit. Safety program inspections are more fully addressed in adopted amendments to §114.9 of this title (relating to Required Initial Safety Program Inspections).

Re-designates subsections (b)(7) and (8) as subsections (b)(6) and (7), respectively, to reflect the deletion of subsection (b)(6).

§114.12 - Required Annual Reports

Changes title from "Required Annual Reports" to "Required Reporting" to reflect that the rule addresses required actions rather than a single specific document.

Amends subsection (a) by deleting certain references to dates and format requirements; by adding a reference to annual reports required by §114.15(b) of this title (relating to Revocation of Certificate of Authority to Self-Insure); and by adding language providing that the reporting requirements are to follow a schedule established by the director. This provision is also amended by adding language that gives the director discretion to determine the extent of information necessary, depending on the safety record of an applicant or, in the case of an annual report filed pursuant to §114.15(b), depending on the current obligations of the company.

Deletes subsection (a)(2)(A), which requires a certified self-insurer to file with the division a summary of the safety and health training provided to management, supervisors, and employees. This deletion is adopted because training capabilities, practices, and documentation will be thoroughly reviewed during required periodic on-site safety program inspections conducted by the division pursuant to §114.9 of this title (relating to Required Safety Program Inspections).

Re-designates the subparagraphs in subsection (a)(2), necessitated by the deletion of subsection (a)(2)(A).

Amends subsection (a)(3) by deleting the requirement that a certified self-insurer file financial reports and replacing this language with a requirement that the certified self-insurer file independently audited financial statements according to Generally Accepted Auditing Standards of the American Institute of Certified Public Accountants.

Adds a new subsection (a)(4), which requires a certified self-insurer to report any substantive changes in its safety program policy or procedure.

Amends subsection (b) to refer to "information required by this section," rather than an "interim report," because some of the information requested by the division is not required in the form of a report. Also amends subsection (b) by adding language to clarify that information that is more than six months old may be considered incomplete, which may, in turn, cause the director to require updated information.

Amends subsection (c) by deleting the word, "renewal," to eliminate any perceived distinction between an initial application and any subsequent applications. Also amends subsection (c) by adding a reference to documents other than applications, including annual reports required by §114.15(b) of this title (relating to Revocation of Certificate of Authority to Self-Insure); and by adding language clarifying that those documents consist not only of the documents themselves but also any required attachments or updated information.

§114.14 - Impaired Employer

Amends paragraph (1) by providing more general language regarding the placement of an impaired employer's security deposit in an account, rather than specifying that it will be placed in the Association's trust fund account. This broader language gives the commission discretion to determine whether or not the payment of benefits and claims administration should be made through the Association, as provided in Texas Labor Code §407.127.

Amends paragraph (2) to provide that the director will notify the Association or another entity designated by the commission to assume liabilities of the impaired employer and to begin paying benefits out of the impaired employer's account. This provision is also amended to provide that the director will, if necessary due to a deficiency in an individual employer's account, notify the Association to begin paying benefits out of its trust fund.

§114.15 - Revocation of Certificate of Authority to Self-Insure

Amends the title by adding the language, "or Suspension," to reflect the inclusion of a new subsection that addresses grounds for the commission to suspend a certificate of authority to self-insure.

Amends subsection (a) by adding language to clarify that the commission may revoke the certificate of a certified self-insurer who fails to comply with certain statutory and regulatory requirements or conditions, including those enumerated therein. The clarification brings the rule into conformity with Texas Labor Code §407.046, which does not limit the grounds for revocation to those currently listed in the rule.

Amends subsection (a)(4) by changing the term, "security," to "security deposit," to be consistent with changes adopted to §114.4 of this title (relating to Security Requirements).

Amends subsection (a)(6) by changing the term, "report," to "information," to be consistent with changes adopted to §114.12. This provision is also amended by changing the reference to the title of §114.12 from "Required Annual Reports" to "Required Reporting," to be consistent with the adopted change to the title of that rule.

Amends subsection (a)(7) by changing the reference to the title of §114.11 from "Audit and Inspection Program" to "Audit Program," to be consistent with the adopted change to the title of that rule.

Adds a new subsection (b), which provides that the commission may suspend or revoke the certificate of a certified self-insurer due to the certified self-insurer's failure to pay an assessment as required by Texas Labor Code §407.124(b) and §407.125. This new provision implements Texas Labor Code §407.133.

Re-designates subsection (b) as subsection (c) and amends that provision to indicate that a certified self-insurer whose certificate has been revoked, suspended, withdrawn, or denied must file an annual report in a form and manner prescribed by the director. The reference to "denial" in this provision is not a reference to the denial of an initial application to self-insure; it only refers to the denial of a subsequent application submitted by a company that was previously authorized by the commission to self-insure. The provision applies explicitly to a certified self-insurer, which the commission has defined, in adopted §114.2(3), as "an employer that has been granted authority to self-insure, either currently or for a prior period."

Re-designates subsection (c) as subsection (d) and amends that provision to state that the director shall continue to audit the claims of any certified self-insurer whose certificate has been revoked, suspended, withdrawn, or denied. As discussed above, with respect to subsection (b), this provision only refers to the denial of a subsequent application submitted by a company previously authorized by the commission to self-insure, not the denial of an initial application to self-insure.

Re-designates subsection (d) as subsection (e) and amends that provision to clarify that, prior to revoking a certificate, the commission shall refer the matter to the State Office of Administrative Hearings, which shall hold a hearing to determine if the certificate should be revoked. This change more closely aligns the rule with the requirements of Texas Labor Code §407.046, concerning Revocation of Certificate of Authority.

No comments were received regarding the proposed amendments during the public comment period.

The amendments are adopted under: Texas Labor Code, §§401.011, 407.001, 401.024, 402.042, 402.061, 407.041, 407.044, 407.045, 407.046, 407.061, 407.062, 407.063, 407.064, 407.065, 407.067, 407.081, 407.082, 407.124.

The previously cited sections of the Texas Labor Code are affected by this adopted rule action. No other code or statute is affected by this rule action.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on April 19, 2004.

TRD-200402580

Susan Cory

General Counsel

Texas Workers' Compensation Commission

Effective date: May 9, 2004

Proposal publication date: January 9, 2004

For further information, please call: (512) 804-4287

Chapter 134. BENEFITS--GUIDELINES FOR MEDICAL SERVICES, CHARGES, AND PAYMENTS

Subchapter E. HEALTH FACILITY FEES

28 TAC §134.402

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)

* In claims from 2001, the average medical payment paid per claim in Texas was $9,314, which is 38.3% higher than the median for the 12 states mentioned above. (WCRI, February 2004)

* Medical costs and the quantity of medical care in Texas were among the highest of the four states studied. Despite that, outcomes achieved by Texas workers, who received more medical care, were much lower than the outcomes achieved by workers in Massachusetts and Pennsylvania where average medical costs per claim were 58% and 31% lower respectively than in Texas. (WCRI, Outcomes for Injured Workers in California, Massachusetts, Pennsylvania and Texas , December 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. The Medicare ASC reimbursement methodology prospectively establishes a set payment amount for each type of facility service that CMS has determined may be reimbursed in an ASC setting; each of these services falls into one of nine specific categories, or ASC groups.

Currently for ASC services (which are primarily surgeries and items incident to surgery), Medicare reimburses using the ASC case rate methodology. Payment is determined based on the surgeries performed, the associated grouping(s), payment rates for each surgery, and the geographic wage index of the facility. The adopted rule applies this Medicare ASC grouping reimbursement methodology for ASC facility services within the Texas workers' compensation system.

Medicare reimburses ASCs for the facility fee when a covered surgical procedure is billed. The coverable surgical procedures are approved by CMS. In general, items that are bundled or integral to the service performed are included in the facility fees and are not reimbursed separately. A single payment is made to an ASC that encompasses all "facility services" furnished by the ASC, as published by CMS in its Medicare Carriers' Manual. However, additional reimbursement is made for a number of items and services covered under other Medicare fee schedules. Examples of such "non-facility" items and services include certain prosthetic devices (whether implanted, inserted, or otherwise applied by a covered surgical procedure), physician services, and certain durable medical equipment items. Further, Medicare sets both ASC locality specific (specific to a facility's geographic location, in accordance with Medicare payment policy) and other Part B fee schedule reimbursement amounts, such as Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) and the physician's fee schedule. In order to remain consistent with the Medicare reimbursement policy DMEPOS Part B schedule, certain prosthetics devices would be appropriately reimbursed according to the commission's corresponding §134.202, 2002 Medical Fee Guideline , which applies a 125% of Medicare multiplier.

Medicare applies the uniform Healthcare Common Procedure Coding System (HCPCS) for reporting professional services, procedures and supplies, which are separately reimbursable. Most services, procedures and supplies have a corresponding HCPCS code, that are specific and available for ASC facilities to use to bill the items for separately reimbursable items. There may be a few miscellaneous HCPCS codes available for ASC facilities to use to bill the items that do not have a code specifically describing the item, and Medicare allows reimbursement of 100% of the cost with an invoice submitted upon bill submission. These are addressed by the commission's 2002 MFG.

The term "benchmarking" as used with respect to fees in the health care industry is often misunderstood. As commonly used in the industry, and in this preamble, a benchmark is nothing more than a relevant point of reference. Saying that something is a benchmark does not mean that it is the standard or goal which one should strive to achieve. Nor does it mean that it, in and of itself, establishes the presumptive starting point, without evaluation of relevant similarities and differences.

There has been considerable discussion related to whether use of Medicare fees as a benchmark in workers' compensation is appropriate. The commission has determined that it is, for several reasons. Because of HB-2600's extensive emphasis on the Medicare system, it is appropriate to benchmark to the Medicare reimbursement system. HB-2600 requires the commission to 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; the commission may modify documentation requirements as necessary to meet the requirements of §413.053 of the Act (relating to Standards of Reporting and Billing). The statute also states that this section of the law does not adopt the Medicare fee schedule, and that the commission shall not adopt conversion factors or other payment adjustment factors based solely on those factors as developed by the federal HCFA. Use of Medicare as a benchmark, or point of reference, does not violate these statutory provisions. As required by the statute, the commission has considered economic indicators in health care and the requirements of §413.011(d).

Although the Medicare system was established primarily to serve the needs of the elderly population, the program is a main component of the national health care system and has become a standard and benchmark for development and operation for many commercial and governmental health care programs. Medicare's payment policies largely define "main stream medicine." Furthermore, as noted by WCRI, workers' compensation policymakers have been showing increased interest in Medicare as a benchmark. (WCRI: Benchmarks for Designing Workers' Compensation Medical Fee Schedules , 1995-96, May 1996)

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.

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 ASCs. Ingenix reviewed Medicare payment policies and reimbursement methodologies in reference to the Texas workers' compensation system to make recommendations to the commission for achieving standardization and adoption of 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 also considered the additional statutory mandates of §413.011, which are described in the Introduction section of this preamble.

Ingenix analyzed hospital inpatient and 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 has been and remains available for review from the commission.

Ingenix considered certain economic indicators in health care, which it took into account in developing its recommendations concerning conversion factors or payment adjustment factors to be adopted by the commission. Ingenix recognized that the Medicare system reviews cost inputs in the overall health care industry, including ASCs, and updates ASC reimbursement on an annual basis. Further, in defining the market, Ingenix utilized commercial payer information that is reflective of the current reimbursement for the various payer types such as health maintenance organizations, preferred provider organizations, point of service plans, and traditional fee for service health plans (indemnity). Commercial reimbursement reflects, for the most part, negotiated rates based on both carriers' and providers' business plans. The combined Medicare market data and commercial market data reflects the actual reimbursement for services provided in the health care market; Ingenix considered all of these economic indicators of health care in its analysis and resulting recommendations.

To ensure that its recommended payment adjustment factors would not result in fees that exceed those paid by or on behalf of individuals with an equivalent standard of living to that of injured employees, Ingenix interpreted the statutory term, "equivalent standard of living," as including families with working or self-employed individuals and families that include Medicare enrollees. Medicaid enrollees were excluded since eligibility for Medicaid coverage generally occurs because of a significantly lower economic circumstance. This interpretation is supported by "A Standard of Living Comparison Between the Working Population, the Medicare Population, and the Managed Care Population," published in March of 1997 (addendum to report April 2001) and previously considered by the commission in establishing reimbursement levels. The commission has recognized that Medicare recipients have a similar standard of living as the general working population. In the study prepared by Research and Planning Consultants, the standard of living of the population covered by the Medicare program was found to exceed that of the population covered by the Act. The study further found that the standard of living of the population covered by managed care plans was at least as high as the population covered by the Act. Consequently, Medicare reimbursement is an appropriate standard for comparison to workers' compensation reimbursement.

Although Medicare is an appropriate benchmark, the commission has also used other benchmarks in setting the fees in this adopted fee schedule. As required by the statute, the commission has developed conversion factors or other payment adjustment factors in determining appropriate fees, taking into account economic indicators in health care. This includes the commercial private payer market and the median of that market. As stated by WCRI, it would be difficult to justify a fee schedule as a major cost containment tool if it exceeded what providers elect to receive, on average, in the free market.

Reimbursement rates used in the market to pay providers include an additional amount to account for the fact that providers are not always reimbursed fully for all services. Ingenix stated, that because of the workers' compensation benefit structure and the financial stability of workers' compensation payers, providers are expected to receive payment of the proper reimbursement amounts for their goods and services that are medically necessary for the treatment of injured employees and this security of payment alleviates the need to increase reimbursement rates for possibilities of non-payment in the market.

Recognizing the statutory mandate that the commission establish guidelines that provide the assurance of quality medical care together with achieving effective medical cost control, Ingenix observed that "reimbursement levels must therefore must be sufficiently high to ensure access to quality care, sufficiently low to achieve medical cost control, and not in excess of fees paid by or on behalf of individuals with an equivalent standard of living." Ingenix's recommended range for ASC reimbursement within the Texas workers' compensation system successfully achieves these goals.

In developing the recommended range, Ingenix used the following process:

* 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 reviewed other states' workers' compensation facility reimbursement in comparison to Medicare reimbursement, but was unable to develop comparisons because each state approached its reimbursement methodology differently. Taking into account relevant health care economic indicators, Ingenix made recommendations concerning Medicare reimbursement methodologies and payment adjustment factors (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 by Ingenix in the development of its analysis included:

* Commission historical claims data available for the years 1999 through 2002;

* The Mercer/Foster Higgins National Survey of Employer-Sponsored Health Plan 2001, which 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 for the years 1999, 2000 and 2001;

* 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, from 2001 data;

* National Center for Health Statistics and Bureau of the Census data to estimate the covered lives in the 2002 Texas commercial insurance/managed care market;

* Data published in 2001 by InterStudy Publications, which provided national commercial managed care reimbursement rates;

* Data published by the American Hospital Association from 1997-2001, which provided hospital outpatient charges per service;

* Source Book of Health Insurance Data for 2002; and

* Medicare reimbursement amounts, from 1999 for hospital outpatients and 2001 for ASCs.

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 ASC 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 commercial 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, indicating that commercial indemnity payments are atypical of the commercial market experience.

* 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.

Although commercial indemnity plans provide coverage for individuals with standards of living similar to the rest of the commercial market, including the data from these 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 market share currently represents a small, decreasing fraction of the overall market, with payment levels far exceeding those in other commercial policy types, suggesting that they are uncharacteristic of the commercial market and, therefore, should be excluded. 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 ASC reimbursement. However, Ingenix's recommended reimbursement range did not contain an explicit reduction for security of payment or for extraordinary encouragement of medical cost control related to reimbursement rates.. Consequently, Ingenix indicated that if the commission were to choose a different balance of the statutory objectives, implementation of the ASC rule with PAFs outside the recommended ranges ( i.e , 90% of the 237% low endpoint, up to 110% of the 264% of the high endpoint within the ASC recommended range) would be appropriate and meet the statutory standards.

In developing the proposal for the Health Facility Fees, one of which is this adopted rule, commission staff met and discussed issues with various stakeholders, including hospitals, ASCs, 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. The commission held four HB-2600 Legislative Stakeholder meetings to discuss, in part, the facility fee guidelines, which included this ASC rule. Stakeholder participation included discussion of Medicare reimbursement policies and identification of any areas of concern and also included an informal comment process where stakeholders were given a conceptual presentation of the rule and an opportunity to provide input to commission staff.

The commission's Medical Advisory Committee (MAC) was presented with general historical commission medical claims data, current commission and Medicare reimbursement methodologies, and information regarding guideline development. The MAC provided feedback concerning issues and potential impact through discussion and individual written responses.

Draft rules were presented at a November 2002 meeting of the MAC. In early 2003, the MAC formed a facility fee guideline (FFG) workgroup, which met three times in February and March of 2003, to study and provide feedback to the commission on the draft facility fee guidelines (ASC, hospital outpatient, and hospital inpatient). In addition to the draft rules, commission staff provided the workgroup with educational materials related to Medicare reimbursement methodology, historical TWCC medical billing and payment information, and a copy of the Ingenix November 2002 report.

At the March 28, 2003 MAC meeting, the FFG workgroup presented information concerning the development of the health facility fee guidelines. The workgroup presented concerns regarding perceived administrative and operational burdens anticipated by utilizing Medicare fee schedules, including:

* The Medicare inpatient fee schedule (Diagnosis Related Groups (DRG)) is very complex but could be administered by system participants,

* The Medicare outpatient fee schedule (Ambulatory Payment Classifications (APC)), which is new to Medicare, would be very complex and difficult to administer,

* Potentially variable (and therefore, inaccurate) amounts paid for the same procedure by the hundreds of payers within the workers' compensation system,

* Additional costs to the system involving collection and fee disputes, and

* Carriers' ability to stay up to date with the various Medicare methodologies.

The workgroup also expressed concern about the potential inaccuracy of the financial impact on facilities raised by the Ingenix report indicated that the hospital inpatient data was reliable but certain hospital outpatient information was limited. Additionally, the workgroup was concerned that facilities may elect not to participate in the workers' compensation system due to concerns regarding decreased reimbursement amounts, creating access to care issues. The administrative complexities of multiple procedures was also a concern, as well as procedures that are not on the ASC List of Medicare Approved Procedures, based on an estimated 60% of workers' compensation patients who receive multiple procedures. The lack of clarity regarding how carriers will determine which procedure is the primary, and which is the secondary, for reimbursement purposes, using Medicare's multiple procedure rule was another concern. Finally, the workgroup expressed concern that the commercial managed care data considered by Ingenix was outdated.

The workgroup recommended further study regarding how Medicare based fee guidelines would be administered by carriers and the possible implementation of a pilot program; creating stronger incentives for carriers to accurately administer payments; further research concerning outpatient and ASC data, which was limited; the acquisition of more current commercial market data; consideration of utilization management policies to address cost containment; consideration of reimbursement of a percent of charges or, if relying on the Medicare group rate methodology, consideration of reimbursement for implants and other high cost procedures.

The commission considered all information presented and subsequent discussion of the FFG workgroup and the MAC. As a result of this input, the commission requested updated information from Ingenix in the area of the commercial market information used in the analysis of the PAFs. The commission subsequently decided to propose an ASC fee guideline initially, instead of three facility fee guidelines at once, to phase in the use of Medicare reimbursement methodologies for system participants. This is expected to ease the administrative challenges of implementing numerous methodologies simultaneously, as relayed by the FFG workgroup. It will also standardize the reimbursement of ASCs in the Texas workers' compensation system, for which there is currently no fee guideline and which has an inordinate number of disputes. However, due to existing statutory requirements and the existence of other rules addressing carrier compliance, not all MAC recommendations were implemented.

The commission is required by Texas Labor Code §413.011 to apply exceptions or minimal modifications necessary for adaptation of the Medicare system to the Texas workers' compensation system. Medicare payment policies may retroactively alter payment amounts of previously paid claims and require the Medicare system participants to re-adjudicate claims and reconcile payments. The commission determined that such retroactive payment policies would create undue administrative burdens if applied to the Texas workers' compensation system. Consequently, the adopted rule requires the use of the most current Medicare policies in effect when the services were provided, including Medicare's site of service restrictions, with the exception of retroactive payment policies.

Texas Labor Code §413.011 requires the commission to adopt necessary conversion factors or PAFs to take the diverse statutory requirements into account in establishing a fee guideline that uses the federal Medicare reimbursement methodology. Additionally, the commission must take into account economic indicators in health care and the requirements found in subsection (d) of §413.011. The statute also states that the commission shall not adopt a payment adjustment factor based solely on those payment adjustment factors developed by CMS. The commission is adopting a multiplier, or PAF, of Medicare reimbursement rates for the reimbursement of ASC facility services to satisfy the statutory requirements.

The rate adopted establishes fair and reasonable reimbursement that is designed to ensure continued access to quality care, along with appropriate medical cost control. Ingenix also stated that in certain instances, going outside the recommended range to meet statutory requirements would be appropriate. Given the data available for analysis, Ingenix indicated that anywhere down to 90% of the low endpoint and up to 110% of the high endpoint of the recommended ASC range would be an appropriate "extended range." Ingenix noted that points in the extended range satisfactorily balance the complex statutory objectives, and the rate adopted in this rule is within the Ingenix extended range. To further address cost containment efforts provided by the statute, the commission's adopted PAF remains within the extended range.

The PAF multiplier for ASCs is considerably higher than the 125% multiplier provided in §134.202, the commission's Medical Fee Guideline, which covers reimbursement of professional medical services provided within the Texas workers' compensation system. There are several reasons for this. Unlike professional medical services, whose cost inputs are continuously updated by CMS, Medicare has not significantly revised ASC cost inputs since 1994. Moreover, the percentage of Medicare patients who receive ASC services (surgeries) is significantly less than the percentage of Medicare patients who receive professional medical services (typically, physician services). Finally, Medicare reimbursements for professional medical services are generally within the range of payments made by commercial payers; however, Medicare reimbursements for ASC services are well below the range of payments made by most commercial payers for those services. Thus, while the resulting multipliers are different in the two contexts, they are consistent with one another to the extent that the commission has determined that reimbursement for the two types of services is appropriate at the low end of the range of reimbursement provided within the commercial market.

The commission will in the future propose fee guidelines for outpatient facility services, and amendments to the current inpatient fee guideline. TWCC inpatient hospital services are currently reimbursed under the existing TWCC rules that provide for per diem payments. Ingenix has noted that the current inpatient methodology is reasonably standardized but does not reflect the recent statutory requirement to use Medicare reimbursement methodologies. Ingenix also noted, at the time of its October 2003 report, that outpatient hospital and ASC payments were not standardized in the TWCC system, or the market in general, and the lack of detail in the available data makes it difficult to determine the current mix of services that are being delivered.

Consequently, Ingenix has recommended that the commission adopt a separate Payment Adjustment Factor (PAF) for each setting (inpatient hospital, outpatient hospital, and ASC), based on Medicare reimbursement methodology and policies in accordance with the statutory mandates, resulting in standardization of all three facility fee guidelines, once adopted or revised. Because the relationship of the Medicare reimbursement to the commercial market varies between inpatient, outpatient, and ASC services, it is likely that the PAF proposed for the inpatient hospital and outpatient hospital facility fee guidelines will differ from the PAF adopted for ASCs in this rule.

In setting the ASC fees in this rule, the commission has used Medicare fees as a reference and has considered commercial market payments as indicative of economic indicators in health care, as required by the statute. The commission determines "fair and reasonable" is not based solely on the market value of services provided to injured employees. Fair and reasonable compensation in the Texas workers' compensation system is a balance of all the required components of the Act. These are rigorous statutory requirements, which are not easily balanced. In balancing the statutory mandates and objectives, the commission considered numerous issues, with the goal of establishing fair and reasonable fees that will assist in achieving effective medical cost control.

Adopted new §134.402 establishes reimbursements for ASC health facility services provided on or after the effective date of the new rule. The new rule provides a standardized reimbursement method and billing procedures by aligning the workers' compensation reimbursement structure with the structure used by the CMS.

Subsection (a) of the adopted rule provides for the reimbursement of health care facility services, as defined by the Centers for Medicare and Medicaid Services, other than professional medical services, provided in an ASC on or after September 1, 2004. The effective date of September 1, 2004, is a change to the text of subsection (a) as proposed, made in response to public comments received by the commission, which raised concerns about carriers' ability to implement the new reimbursement system by June 1, 2004, the originally proposed effective date. Subsection (a) also provides that the policies and reimbursement methodologies in effect for Medicare on the date a service is provided are the policies and reimbursement methodologies to be used in the Texas workers' compensation system. Subsection (a) requires use of the most recent payment policies adopted by the Medicare program for compliance with commission rules, decisions, and orders is required. This will prevent the Texas workers' compensation system from falling out of synchronization with Medicare and will achieve the standardization goals established in Texas Labor Code §413.011. However, specific provisions contained in the Act and commission rules shall take precedence over any conflicting provision adopted or utilized by CMS in administering the Medicare program. Pursuant to §408.021 of the Texas Labor Code, injured employees are entitled to all health care reasonably required by the nature of the injury as and when needed, to cure or relieve the effect naturally resulting from the compensable injury, promote recovery or enhance the ability of the employer to return to or retain employment. To the extent that this entitlement may differ from the entitlement of the Medicare recipients, the decision of the commission through its dispute resolution process must take precedence over the provisions adopted or utilized by CMS in administering the Medicare program. Subsection (a)(3) states that: "Specific provisions contained in the Texas Workers' Compensation Act (Act), or Texas Workers' Compensation Commission (commission) rules, including this rule, shall take precedence over any conflicting provision adopted by utilized by CMS in administering the Medicare program. Exceptions to Medicare payment policies for medical necessity may be provided by commission rule. Independent Review Organization (IRO) decisions regarding medical necessity are made on a case-by-case basis. The commission will monitor IRO decisions to determine whether commission rulemaking action would be appropriate."

There are no changes to subsection (b) from proposal. Subsection (b) requires system participants to utilize the Medicare reimbursement methodologies, models, and values or weights, including its coding, billing, and reporting payment policies for coding, billing, reporting, and reimbursement of health facility services provided in the Texas workers' compensation system. This allows for the basic Medicare program provisions to be applied with any additions or exceptions necessary for the adaptation to the Texas workers' compensation system. The Medicare program is not a static system. Medicare policies change frequently. To achieve standardization it is necessary to use the Medicare billing and reimbursement policies as they are modified by CMS. Adoption of policies in effect on a particular date would require participants in the Texas workers' compensation system to bill and reimburse in a manner different from the current Medicare system and the standardization required by the statute would be eliminated. However, Medicare also makes some policies retroactive. As discussed elsewhere in this preamble, this is not workable for the workers' compensation system, which has approximately 250 insurance carriers. Therefore, the adopted rule, in compliance with the statute, does not adopt the retroactivity aspect of Medicare payment policies, and instead requires the use of the Medicare policies in effect on the day that a service was provided.

There are changes from the text of subsection (c) as proposed. Subsection (c) establishes the method to be used for determining the maximum allowable reimbursement (MAR) for ASC health facility services in the Texas workers' compensation system. In establishing the PAF for the rule, the commission considered the statutory requirements and objectives and utilized Medicare data, current commission reimbursement levels, and available commercial payer information.

The rule as proposed would have established a facility specific reimbursement amount in (c)(1) by setting a PAF of 230% to apply to the Medicare reimbursement amount. The adopted PAF has been changed from proposal, now subsection (c) of the rule. The change to the adopted PAF of 213.3% of Medicare results from concerns expressed in public comments received by the commission in response to the rule as proposed, the continued high medical cost per claim in Texas, and the significant change from proposed subsection (d)(3), related to payment limitations. The adopted PAF is the low limit of the extended range of acceptable fair and reasonable reimbursements included in the Ingenix report and reflects the commission's statutory responsibility related to effective medical cost control and fair and reasonable reimbursement. The adopted PAF remains in the range of commercial reimbursement. Ingenix estimated that 2004 ASC reimbursement under current TWCC rules (requiring fair and reasonable reimbursement) equals approximately 320% of 2004 Medicare reimbursement. Additionally, Ingenix estimated commercial (HMO/PPO/POS/Indemnity) payer reimbursement equal to a range of 168% to 564%. This commercial range produces a weighted average of approximately 274% (not including indemnity plans) to 293% (including indemnity plans) of Medicare reimbursement. With Medicare added to the commercial market, the weighted average for ASC services trended to 2004 is 237% (not including indemnity plans) to 264% (including indemnity plans) of Medicare reimbursement. This identified range (237%-264%) is extended in the Ingenix report to 213.3% - 290.4% to recognize the potential for the commission to emphasize a different balance of the statutory objectives than that emphasized by Ingenix.

Subsection (c)(1) of the rule as proposed has been deleted and incorporated into subsection (c).

Subsection (c)(2) of the proposed rule provided direction for a system of payment that allows a carrier to reimburse a fair and reasonable amount for services for which neither Medicare nor the commission establishes a payment amount. This subsection is unnecessary because only services on the ASC List of Medicare Approved Procedures may be reimbursed when performed in an ASC setting in the Texas workers' compensation system. Services included on the ASC List of Medicare Approved Procedures are assigned a group with a specific Medicare reimbursement amount for each group. Consequently, a fair and reasonable reimbursement provision is unnecessary and has been removed from the rule as adopted.

There are changes from the text of subsection (d) as proposed. Proposed subsection (d) would have provided that the reimbursement for ASC services is the lesser of the MAR as established by the adopted rule or the facility's and payer's workers' compensation negotiated and/or contracted amount that applies to the billed service(s). In addition, subsection (d)(3) as proposed attempted to address cost containment efforts provided by the statute with a reimbursement limitation so that an ASC payment could not exceed the amount established by the commission in a fee guideline for the same or similar service provided in either an inpatient or outpatient hospital setting.

In an attempt to establish the appropriate reimbursement relationship of facility services provided in various settings, the commission included subsection (d)(3) of the proposed rule. The general concept in the reimbursement hierarchy is that inpatient hospital services are reimbursed more than hospital outpatient services, which are reimbursed more than ASCs, for the same or similar services. However, as a result of public comment and further research, the commission determined that there were significant issues with subsection (d)(3) as proposed. Some of the following issues are examples of the factors considered as related to proposed subsection (d)(3) of the rule.

For same or similar services, it is difficult to establish that services provided on an inpatient basis are the same services provided in an outpatient or ASC setting. Although the same basic procedures may be performed in all three settings, the underlying reasons for provision of services in an inpatient setting are significantly different from those supporting a hospital outpatient or ASC option. For example, co-morbidities such as diabetes or obesity could direct a service to an inpatient setting requiring a multiple day length of stay rather than the surgery being performed on an outpatient/ASC basis. One-day surgical stays in an inpatient hospital setting are rare.

The commission's current surgical per diem rate was designed to reflect the average reimbursement across an entire length of stay (LOS), and is not weighted to reflect the services provided on any particular day. Moreover, the per diem does not directly relate to the cost of surgery and is a blend of surgical and medical services averaged over a length of a surgical stay.

Commenters stated that it was unclear from the proposed rule how or if the LOS would relate to this portion of the proposed "lesser of" clause, and further suggested that LOS would be mis-applied and the MAR would ultimately be a single surgical per diem capitation of $1,118, regardless of the commission's intent. In effect, with this interpretation, all services in ASC groups 3 through 9 would be paid $1,118 - no more and no less. This is a strained reading of the proposed text, however, because the intent was to limit ASC reimbursement to no more than would be paid in total for an inpatient stay or outpatient health care for the same or similar service. Because there are no one-day inpatient stays, there really is no same or similar service that is provided in an ASC and in an inpatient setting. Even if that premise is not followed, the comparable inpatient fee would have to take into account the number of days a person receiving such a service would remain in inpatient care.

In turn, in order to determine what would be the appropriate LOS if the service were provided in an inpatient setting, the carrier must determine the appropriate Diagnosis Related Group (DRG), because LOS data is tied to DRGs. The current inpatient fee for workers' compensation is a "per diem" rate that does not use DRGs in setting fees. The insurance carrier would therefore have to make an additional determination not now required in workers' compensation (what the correct DRG is). There are approximately 500 DRGs, and the components of one DRG vs. the next may be a single variation in one factor of many. Requiring the workers' compensation insurance carriers to determine DRGs and then LOS to determine what would be paid in an inpatient setting would most likely result in fee disputes based upon differences of opinion as to what the appropriate DRG is in each instance. DRGs are not used in the Medicare reimbursement methodology for ASCs. Thus, the commission and system participants would be trading fee disputes over "fair and reasonable" ASC rates for fee disputes regarding selection of the appropriate DRG. This would diminish the benefits gained for standardization and cost containment.

Regarding pass through and carve-outs, it was unclear to commenters whether the $1,118 (or $1,118 x LOS) cap would allow for the reimbursement of items in addition to the case rate.

Also, numerous commenters elaborated on the concept of the hierarchal reimbursement, indicating the overhead costs in maintaining full hospital services (inpatient and outpatient) are much greater than such costs for ASCs. Because of these issues, commenters for the most part stated that subsection (d)(3) of the proposed rule did not reflect parallel, cost-related reimbursement.

Finally, there were concerns regarding inconsistency in application of TWCC reimbursement methodologies. The Act requires the development of Medicare reimbursement methodologies for hospital inpatient, hospital outpatient, and ASC services. The Medicare methodologies generally maintain the hierarchal reimbursement structure. The commission has yet to adopt rules that apply these Medicare reimbursement structures in all settings for reasons discussed elsewhere in this preamble. Consequently, attempting to place a cap on the ASC reimbursement using an unrelated, non-Medicare inpatient per diem, or a yet to be proposed hospital outpatient fee guideline, appears confusing, inconsistent, difficult to apply, and suggested more inconsistencies in the ultimate reimbursement based on subsection (d)(3) of the proposed ASC rule than intended.

To determine what the outpatient fee would be for a same or similar service, the insurance carrier would have to determine what the Medicare APC rate would be. The current APC Medicare methodology has been in place since 2000 and is still in flux.

The Medicare methodologies and rates for inpatient, outpatient, and ASCs are all different, as are the payment policies that govern conditions and bundling and whether there are any separate additional reimbursements allowed. Implementation would be difficult, especially given that the commission has not yet adopted a Medicare methodology fee guideline for inpatient or outpatients services. The Medicare APC methodology has over 500 bundling combinations; one outpatient visit may include multiple APCs and corresponding reimbursement; there is additional reimbursement for pass though items in some situations in an outpatient facility. The additional knowledge and work, and possibly software programs, required to determine the comparable rates would most likely result in exchanging fee disputes based upon fair and reasonable fees for ASCs, for fee disputes regarding what the comparable outpatient fee would be. Again, this would diminish the benefits gained in standardization and cost containment.

Based upon public comments received and further review, the commission determined it was necessary to delete proposed subsection (d)(3) from the adopted rule. Doing so eliminated the cost savings the commission expected to achieve with the proposed (d)(2) limitation. The commission's evaluation of what the ASC PAF should be took this into consideration, along with the other statutory objectives and requirements, and other comments and information provided to the commission in response to the proposed rule. The loss of the cost containment that would have been realized from (d)(3) is a factor in the commission's adopting a lower PAF for ASCs than the PAF that was proposed.

Proposed (e)(3) would have allowed health care to be provided in an ASC and reimbursed in the workers' compensation system even if that health care was not on the ASC List of Medicare Approved Procedures, if the insurance carrier and the health care provider agreed to the facility setting and on the amount that would be reimbursed for the service. Again, it was anticipated that this provision would result in cost savings to the workers' compensation system. However, after public comment and further review by the commission, the commission determined that allowing this exception to Medicare policies would cause complications in other aspects of billing and reimbursement for health care. For example, the commission had envisioned that workers' compensation participants would use the preauthorization process to reach agreement between the health care provider and the insurance carrier, as all services performed in an ASC require preauthorization. Upon further reflection, this would not be a reasonable process because denial of a preauthorization request triggers many procedural steps and deadlines, such as a request for reconsideration, review by a doctor prior to denial, and availability of appeal to an Independent Review Organization (IRO). None of this process would fit well, as it was built and premised upon a dispute as to medical necessity for certain health care, not for disputes as to sites of service or the amount of fees. Based upon public comments received and further review, the commission determined it was necessary to delete proposed subsection (d)(3) from the adopted rule.

The adopted rule does not allow a service to be provided in an ASC unless it is on the ASC List of Medicare Approved Procedures. Each service that is performed in (and reimbursable in) an ASC will therefore have an established Medicare fee amount, and there is no need for subsection (c)(2) of the proposed rule, which would have provided direction on determining fair and reasonable reimbursement for services for which a fee has not been set by either Medicare or the commission. Based upon public comments received and further review, the commission determined it was necessary to delete proposed subsection (c)(2) from the adopted rule.

There are changes from the text of subsection (e) as proposed. Subsection (e) sets forth an exception and minimal modification to the Medicare payment policies, previously found in subsection (e)(1) of the rule as proposed. At times in the Medicare system, reimbursement is adjusted after initial payment. Providers sometimes receive additional reimbursement, while in other situations the Medicare fiscal intermediary (carrier), which is generally the sole fiscal intermediary for each ASC, recoups previously reimbursed amounts. This Medicare payment policy is too complex and unduly burdensome to administer in the Texas workers' compensation system, in which there are numerous carriers that could potentially reimburse an ASC. Therefore, subsection (e) of the adopted rule provides that a retroactive Medicare payment policy that would result in a payment adjustment will not apply to services already provided.

Medicare payment policies restrict the setting in which certain services may be performed. Subsection (e)(2) of the proposed rule contained a provision for the application of these restrictions unless an alternative setting had been approved and agreed to by the insurance carrier through the process for preauthorization, concurrent review, or voluntary certification. As proposed, an agreement between a carrier and provider to suspend the Medicare site of service restriction would likely increase the number of preauthorization disputes because of confusion regarding the voluntary certification process and its relationship to medical dispute resolution and the IRO process. The commission further reviewed and recognized the scrutiny and clinical appropriateness that CMS applies to the development of the ASC List of Medicare Approved Procedures, and determined the proposed language would compromise the Medicare standardization goals of HB-2600. Consequently, the commission determined that fully adopting Medicare's site of service restrictions would assure appropriate standardization and quality of care for injured employees, with efficient utilization and cost containment, all of which are requirements of the Act. Therefore, proposed subsection (e)(2) of the rule has been deleted.

There were no changes to subsection (f) from proposal. Subsection (f) provides that the invalidation of any terms or parts of a section or its application to any person or circumstance by a court of competent jurisdiction does not affect other provisions or applications of the section that can be given effect without the invalidated provision or application.

Comments generally supporting new §134.402 as proposed were received from the following groups: Great West Healthcare; HCA Ambulatory Surgery Division; Liberty Mutual Group; Surgical and Diagnostic Centers, LP; Texas Association of Business; and Texas Mutual Insurance Company.

Comments generally opposing or concerned with new §134.402 as proposed were received from the following groups: Alliance of American Insurers; American Insurance Association; EBI; Federated Ambulatory Surgery Association; Foundation Surgery Affiliates, Inc.; HCA Ambulatory Surgery Division; Healthsouth Conroe Surgery Center; Healthsouth Fort Worth Surgery Center; Healthsouth Hospital for Specialized Surgery; Healthsouth San Antonio Surgery Center; Healthsouth Surgery Center at Pasteur Plaza; Healthsouth Surgery Center of Dallas; Healthsouth Surgery Center of Forest Park; Healthsouth Surgery Center of Mesquite; Healthsouth Surgical Hospital of Pecan Valley; Healthsouth Waco Surgery Center; Insurance Council of Texas; Liberty Mutual Group; Lone Star; Metrocrest Surgery Center, LP; Museum District Aesthetic Surgery Center; Orthofix, Inc.; RGOI Association, LTD Ambulatory Surgery Center; State Office of Risk Management; Surgical and Diagnostic Center LP; Texas Association of Business; Texas Hospital Association; Texas Mutual Insurance Company; Texas Orthopedics Sports & Rehabilitation Associates, PA; Texas Orthopedic Surgery Center; Texas Surgical Center; The San Antonio Orthpaedic Group, LLP; The Spine Hospital of South Texas; and United Surgical Partners International.

Comments neither generally supporting nor opposing new §134.402 as proposed, but suggesting changes or asking questions were received from the following groups: Alliance of American Insurers; American Insurance Association; EBI; Federated Ambulatory Surgery Association; Healthsouth; Healthsouth Arlington Day Surgery; Healthsouth Conroe Surgery Center; Healthsouth Fort Worth Surgery Center; Healthsouth Hospital for Specialized Surgery; Healthsouth San Antonio Surgery Center; Healthsouth Surgery Center at Pasteur Plaza; Healthsouth Surgery Center of Dallas; Healthsouth Surgery Center of Forest Park; Healthsouth Surgery Center of Mesquite; Healthsouth Surgical Hospital of Pecan Valley; Healthsouth Waco Surgery Center; Insurance Council of Texas; Liberty Mutual Group; Lone Star; Medtronic Neurological; Orthofix, Inc.; RGOI ASC, LTD Ambulatory Surgery Center; State Office of Risk Management; Surgical and Diagnostic Center LP; Texas Association of Business; Texas Hospital Association; Texas Orthopedic Surgery Center; Texas Mutual Insurance Company; The San Antonio Orthopaedic Group, LLP; The Spine Hospital of South Texas; and United Surgical Partners International.

Summaries of the comments and commission responses are as follows:

General

COMMENT: Commenters supported the rule making effort of an ASC fee guideline as much needed, a step in the right direction, and as a tool to use in the continuing effort to control and reduce unnecessary medical costs.

RESPONSE: The commission agrees.

COMMENT: Commenter supported the rule proposal and stated a set fee guideline for workers' compensation payers to follow would result in significant improvement over the current system of carrier determination of fair and reasonable reimbursement.

RESPONSE: The commission agrees.

COMMENT: Commenter supported the rule proposal and stated it was well outlined by Ingenix and the position of a 230% of Medicare multiplier, or payment adjustment factor (PAF), was well defended.

RESPONSE: The Commission agrees that the proposed multiplier was developed through a systematic well-explained process and within the range reported by Ingenix. However, as a result of public comment, the continued high medical costs in Texas, and other revisions to the adopted rule, the commission has adopted a PAF of 213.3% of Medicare ASC reimbursement to meet the requirements of the Act with appropriate focus on the mandate for effective cost control.

Texas is the only state that allows most private employers to choose whether or not to subscribe to workers compensation. As a result, Texas has a stronger interest than other states in effective medical cost control. Higher premiums discourage subscription. Non-subscription increases the number of Texas workers with no coverage at all for treatment of workplace injuries or with coverage voluntarily provided by the employer that is often less in dollar amount, time duration, and scope than workers compensation. In Texas, alone of the 50 states, lower medical costs are more necessary to hold restrain premium increases and ensure greater worker access to medical care for workplace injuries. Controlling the high costs per claim experienced in Texas is important; high costs per claim impact premium costs and the availability of coverage to Texas employers. In fact, almost half (48%) of current subscribers indicated that they would consider dropping coverage if premiums increased by some increment up to 20%. (ROC, A Study of Nonsubscription to the Texas Workers' Compensation System (February 2002)).

Texas Mutual Insurance Company (Texas Mutual) provided input in a letter to the Executive Director dated October 11, 2002. Texas Mutual is the largest workers' compensation insurer in the state, writing approximately 20% of all policies. It is a true mutual company, i.e. it is owned by its policyholders, which are Texas employers. Texas Mutual offers only workers' compensation insurance and only in Texas. Texas Mutual has reported that insurance premiums for workers' compensation insurance are rising sharply and such increases encourage nonsubscription, which in turn tends to decrease employee access to medical care.

COMMENT: Commenters stated various concerns that the rule would result in a decline in the number of doctors participating in the system, which will, in turn, result in a decrease in the availability of ASC services for workers' compensation patients. Similarly, commenters suggested that the proposed fees will prevent adequate choices from a pool of experienced, qualified, competent physicians.

RESPONSE: The commission disagrees that the rule will cause doctors to opt out of the system, because their reimbursement for providing a surgical service is the same regardless of whether it is performed in an inpatient or outpatient hospital setting or in an ASC, as long as the procedure is performed in accordance with Medicare's site of service restrictions. ASC reimbursement rates will not impact the amount a doctor is reimbursed through the 2002 MFG for services provided in an ASC. ASC reimbursement only impacts a doctor when that doctor is an owner of an ASC.

COMMENT: Commenters raised concerns that orthopedic surgeons and other health care providers may be unable to remain profitable due to an expected decline in the number of surgery centers that are willing to accept workers' compensation surgical cases once this rule is implemented. One such commenter observed that a simple anterior cruciate ligament (ACL) reconstruction surgical procedure would reach the reimbursement capitation, thus causing the continued decline in physician and facility participation. Commenters opined the proposed rule would impose a financial hardship on ASCs, suggesting the consequences would be that injured employees will be treated in hospitals, where the real costs exist.

RESPONSE: The commission agrees with commenter's observation that it is possible an ACL reconstruction surgical procedure might have been subject to the limitations in proposed subsection (d)(3) of the rule. As a result of this public comment and others, as well as review by the commission as previously discussed in this preamble, subsection (d)(3) has been deleted. The adopted PAF is well within the range of commercial reimbursements and there is no indication that access to care is limited in the commercial market as a result of the commercial reimbursement levels. Additionally, the Medicare Payment Advisory Committee (MedPAC) reports that in the Medicare system, minor musculoskeletal services and ambulatory surgical services - musculoskeletal have experienced growth rates of 28.9% and 18.8% respectively, between 2001 and 2002, (Medicare Payment Policy report to Congress, March 2004). This would indicate that even at Medicare reimbursement, access and utilization of these services in the Medicare system is increasing. Based on this information, there is no reason to believe that the adopted PAF, which is higher than the Medicare rate and within the range of commercial reimbursement, would limit access to care. Finally, commenters provided no documentary support for the assertion that there will be access to care problems.

The commission disagrees that surgical services will only be provided in a hospital setting as a result of the adoption of this rule. The PAF is within the range of commercial reimbursements, and ASCs continue to provide services at reimbursement rates significantly less than the adopted PAF. The commission recognizes that there will be a significant decrease in overall ASC reimbursement within the Texas workers' compensation system; however, impact for any specific ASC will be based on service and payer mix and the cost structure of the facility. Additionally, there are other advantages to a health care provider providing health care in an ASC setting.

The commission disagrees that the patient choice of treating doctor is unlimited; instead, it is limited to doctors who choose to participate in the workers' compensation system. Additionally, site of service is limited by the nature of the procedure, the preference of the treating doctor, any applicable co-morbidities, and facility availability.

COMMENT: Commenters stated the proposed rule contradicts the intent of §408.0221 of the Act because it would reduce patient choice and limit access to medical care due to the anticipated reduction of ASCs willing to accept workers' compensation patients.

RESPONSE: The commission does not agree that the intent of §408.0221 of the Act conflicts with this adopted rule, which sets ASC reimbursement. Section 408.0221 does not relate to reimbursement of ASCs; instead, it relates to the implementation of a regional health care delivery network applicable to a full range of health care services, not just ambulatory surgical services. Because commenters did not elaborate on the reasons for the assertion that the rule as proposed conflicted with the legislative intent of §408.0221, the commission is unable to more fully address that comment.

COMMENT: Commenters expressed concerns regarding the availability of quality medical care. Commenters observed that access to quality, cost-effective care may be jeopardized if providers are required to perform these services at the proposed reimbursement rate, rather than at a rate that commenters would find acceptable and purportedly in the best of interest of the patient. Commenters stated that the proposed rule will cause ASCs, like physicians, to opt out of the system.

RESPONSE: The commission disagrees with commenters' stated concerns that quality of care may be jeopardized by the adopted ASC rule. As stated above, the PAF is well within the range of commercial market reimbursement levels for ASCs, and there is no indication that there are issues of access to quality medical care within the ASC commercial market.

Individual ASC provider impact is based on the individual cost structure (e.g., purchasing agreements, overhead, staffing, etc.), and business practices unique to the facility and is consequently not readily predictable by the commission. The potential impact on individual ASC health care facilities will be unique to the provider's cost structure, business organization and familiarity with the Medicare payment policies.

Expensive care does not necessarily mean quality care. Texas, the second-highest state in Medicare per-capita spending, ranks in the bottom 20% with regard to quality care for Medicare beneficiaries. The recommended reimbursement system will not result in a reduction in the quality of care provided to injured workers in Texas. Quality indicators have shown the implementation of strict utilization control, assessment, review mechanisms and quality control initiatives are efficacious, even while medical services in general have undergone monetary devaluation. The adopted workers' compensation reimbursement rates are reflective of market driven health care economics and will not suppress access to care.

The Commission will monitor the effects that these many changes in the workers' compensation system may have on access to care and quality of care, to determine if adjustments should be made. If the Commission determines that these ASC fees cause problems of access or quality for injured employees in Texas, because of the change in the Medicare conversion factor, or for other reasons, the Executive Director would recommend a change in the fees to the Commissioners. The Commission can reconsider the conversion factor at any time and make a change on an emergency or expedited basis under certain circumstances. The Commission must consider the fees every two years at a minimum, and must consider revisions in response to a petition for rulemaking that can be submitted by anyone at anytime.

COMMENT: Commenter expressed concern as to the availability of care for the injured employee if ASCs experience a decrease in utilization because of the proposed rule. Commenter stated the rule as proposed would decrease the level of care provided to injured employees, thereby increasing their return to work days and income benefits. Commenter stated the proposed rule does not address the needs of the injured employee when ASCs will no longer be able to serve them. Commenter was concerned about the prolonged wait for an injured employee to receive non-emergent (elective) care in a hospital setting if the number of ASCs decreases.

RESPONSE: The commission disagrees that the adopted rule will negatively impact availability of care, timely return to work, or income benefits. The adopted reimbursements are well within the range of commercial market reimbursements and the commission is unaware of any access problems due to commercial reimbursement rates. Return to work should not be impacted since the adopted rule encourages service delivery in the most appropriate setting which may include re-direction of services to a physician's office or hospital outpatient setting. The commission disagrees that elective procedures will be delayed as a result of the rule because reimbursement is well within the commercial market and there is no indication that commercial patients have diminished access to care or excessive waits for elective surgery.

Reports to Congress show that there is no access problem with respect to Medicare patients receiving health care in an ASC setting. The Medicare Payment Advisory Commission (MedPAC) is an independent federal body established by the federal Balanced Budget Act of 1997 (P.L. 105-33) to advise the U.S. Congress on issues affecting the Medicare program. The commission's statutory mandate includes advising Congress on payments in Medicare's traditional fee-for-service program. MedPAC is also tasked with analyzing access to care, quality of care, and other issues affecting Medicare. MedPAC issues two reports to Congress, published in March and June of each year. A portion of the Medicare Payment Policy Report to the Congress March 2004 assessed payment adequacy and updating of payments for ASC services.

As stated by MedPAC, the goal of Medicare payment policy is to align payments with efficient providers' costs of furnishing health care and in doing so maintain beneficiaries' access to high-quality services. Achieving this goal involves setting the base payment rate (for services of average complexity) at the right level, developing payment adjustments that accurately reflect cost differences among types of services and for varying market conditions and types of patients, and then annually considering the need for a payment update. MedPAC makes payment recommendations for the major fee-for-service Medicare providers. Because the goal of Medicare payment policy is to align payments with efficient providers' costs of furnishing health care, and in so doing maintain beneficiaries' access to high-quality services, MedPAC measures are both beneficiary-focused (access to care and quality of care) and provider-focused (providers' access to capital and payments and costs for 2004).

Because there is no recent data on the cost of providing ASC services to Medicare beneficiaries, MedPAC analyzes the adequacy of current Medicare payments for ASC services based upon market factors, such as entry and exit of providers, changes in the volume of services, and providers' access to capital.

The Report concluded the following:

* Current Medicare payments for ambulatory surgical center (ASC) services are at least adequate to cover the projected increase in ASCs' per service costs in the coming year, less an adjustment for productivity growth.

* Beneficiaries have good access to ambulatory surgical services.

* The number of ASC facilities and the volume of ASC services received by Medicare beneficiaries have increased significantly over the last several years.

* In addition, ASCs have sufficient access to capital.

The number of Medicare-certified ASCs more than doubled between 1991 and 2001. From 1997 through 2001, an average of over 270 new facilities per year entered the market, while an average of 52 ASCs per year closed or merged with other facilities. MedPAC Report. Almost 40% of Medicare-certified ASCs are concentrated in four states that account for 25% of beneficiaries. Texas is one of those four states. All ASCs that are licensed by the Texas Department of Health are Medicare-certified at this time. With no access problem at 100% of Medicare, there will be no access problem for Texas workers' compensation patients at a reimbursement rate of 213.3% of Medicare for ASCs.

Recent legislation requires CMS to revise the ASC payment system. MedPAC has recommended that CMS should align the ASC payment system with the outpatient prospective payment system and base the conversion factor on recent ASC cost data and, if necessary, should use such data to refine the relative weights for ASC services. MedPAC recommends that Medicare should pay no more for the same service in an ASC than an outpatient department (accounting for differences in the bundle of services). At this time, this is only a recommendation in a Report to Congress. It is unclear what CMS will do with respect to revising the ASC reimbursement methodology, and even more unclear when any revisions might become effective. Given the high medical costs in the Texas workers' compensation system, cost containment is needed now, and it would be inappropriate for the commission to wait until CMS has gathered and analyzed additional data and issued new reimbursement methods and rates for ASCs.

COMMENT: Commenters opposed the rule as proposed and stated a single conversion factor, or PAF, contradicts §413.011(b) of the Act and does not take into account the economic indicators in health care nor requirements of §413.011(d) of the Act.

RESPONSE: The commission disagrees that adopted §134.402 contradicts subsection 413.011(b) of the Act, and disagrees that it does not take into account the economic indicators in health care nor the requirements of §413.011(d). The commission agrees in part that one of the commission's objectives in setting reimbursement rates is to consider rates that are similar to what other major purchasers of medical services actually pay for the same or similar service; however, that is not the single objective. In determining whether the payment adjustment factor (PAF) takes into account the economic indicators in health care and the requirements of §413.011(d), the commission considered not only whether the reimbursement levels are "fair and reasonable," but also (1) whether they are designed to ensure the quality of medical care and to achieve effective medical cost control; (2) whether they 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; and (3) the increased security of payment afforded by the Act in establishing the fee guidelines. This is reflected in the Ingenix report and recommendations and is more fully described elsewhere in this preamble.

COMMENT: Commenters stated the rule as proposed is not a fair and reasonable reimbursement, and reduces the amount paid to below the cost of providing the services. Commenter stated this leaves no doubt that Medicare is the overriding basis for the proposed reimbursement, and questioned why the commission proposed doing so at a time when Medicare ASC surgical fees were reduced in August 2003. Commenter asserted that it was the intent of the Legislature that all workers' compensation medical services be compensated at a rate that is similar to what other major purchasers of medical services actually pay for the same service.

RESPONSE: The commission disagrees with commenters' statements that the rule as proposed is not a fair and reasonable reimbursement and reduces the amount paid to below the cost of providing the services. The adopted PAF is the result of careful analysis by Ingenix and consideration by the commission. The commission considered the requirements of the Act in adopting the PAF by thoroughly analyzing Medicare reimbursement and commercial reimbursement for ambulatory surgery center services. This included both the reimbursement rates and market share. These factors combined allowed Ingenix to provide the commission with an appropriate range of PAFs. The PAF is well within the range of reimbursements accepted by ambulatory surgery centers in the commercial market. Additionally, the PAF is within the estimated range of payments currently made within the Texas workers' compensation system.

COMMENT: Commenter stated no minimal modifications to the CMS reimbursement methodologies have been undertaken in the rule as necessary to meet occupational injury requirements.

RESPONSE: The commission disagrees with commenter's assertion that no minimal modifications to the CMS reimbursement methodologies are included in the rule, as necessary to meet occupational injury requirements. Subsection (e) of the rule specifically provides for such an exception and minimal modification, and the commission considered others, such as regrouping all the Medicare ASC procedures and the allowance of non-ASC list procedures.

COMMENT: Commenters expressed concern that the commission should be addressing over-utilization rather than reducing reimbursement rates for ASCs. Commenters stated that to target ASCs only is discriminatory and there is evidence that ASCs provide better, more cost effective services for ambulatory surgery patients. Commenter recommended the best way to control cost is to limit the duration of medical care and return the healthy patient back to work.

RESPONSE: The commission disagrees that utilization should be addressed instead of a reduction in reimbursement rates for ASCs. While utilization plays a part in cost containment, 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. 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 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) The reimbursement established in this rule is a necessary component of cost containment.

The statute, which does not target only ASCs, requires that fee 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 reimbursement established in this adopted rule is a necessary component of cost containment. The commission has utilized fee guidelines as a component of cost control since the early 1990's. Those guidelines initially focused on physician reimbursement and inpatient hospital services. Adding an ASC reimbursement methodology complies with the Act and is not discriminatory.

COMMENT: Commenter was concerned that the commission, by standardizing the ASC reimbursements, anticipates a reduced workload. Commenter stated the workload would be reduced if the commission applied its own rules in a consistent manner.

RESPONSE: The commission clarifies that with consistency in the reimbursement methodology, the number of fee disputes should ultimately decrease. The commission is confident that this rule adoption for ASC maximum allowable reimbursement will ultimately reduce the number of disputes 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.

COMMENT: Commenters stated the proposed rule would increase costs for system participants, and would do so without commensurate benefit at the proposed PAF. Commenter stated all employers and insurers would experience increased costs, resulting in businesses either going without workers' compensation coverage, or relocating out of state. Commenter further opined Texas state agencies, state employees, and the state fund for workers' compensation would experience the same cost increases at a time when the state is attempting to reduce appropriations and control costs in an already over-burdened system.

RESPONSE: The commission acknowledges that costs may increase for some system participants initially, as described in the proposal preamble. However, the adopted rule standardizes billing, coding and reimbursement as required by the Act and establishes reimbursement consistency with a defined reimbursement methodology. Thus, to the extent that there is any increase in operating costs, this will be offset by cost savings and timesavings through the use of a standardized and streamlined process, resulting in no adverse economic impact. These factors should lead to increased efficiencies and fewer disputes for providers. Overall, there will be a substantial reduction in the fees paid to ASCs in the workers' compensation system.

COMMENT: Commenter stated that the commission will not be able to assess the impact of this rule proposal.

RESPONSE: The commission disagrees, noting that it sought to estimate the impact of the change from the commission's current application of the "fair and reasonable" standard of §413.011(d) of the Act and §134.1 of the commission's rules, to a fee guideline. In reviewing the impact of a new reimbursement system the commission considered the analysis completed by Ingenix, as explained more fully earlier in this preamble. Although there are currently many variables in the reimbursement methodology, application of the standardized Medicare billing, coding, and reporting policies along with the standardization of payment will allow the commission to monitor system impact and react as necessary.

COMMENT: Commenter stated the rule as proposed will not reduce medical disputes and will increase the chances of litigation in order to resolve the many unanswered questions inherent in the rule proposal.

RESPONSE: The commission disagrees the rule as adopted will not reduce medical disputes and would increase litigation. The commission clarifies that with consistency in the reimbursement methodology, the number of fee disputes and opportunity for litigation should ultimately decrease.

Prior to adoption of this rule, there were only general fair and reasonable requirements regarding the reimbursement of all ASC services. Adoption of §134.402 establishes a specific reimbursement methodology, a PAF, and payment policies for Medicare ASC approved services, as reflected in the ASC List of Medicare Approved Procedures, published by CMS. The commission agrees with commenters' statement that not having an established set rate or percentage methodology would allow each carrier to establish different rates that will cause disputes to rise. The rule language establishes a methodology and reimbursement amount for all ASC List of Medicare Approved Procedures. This structure provides certainty in the system and consequently should reduce disputes.

COMMENT: Commenters opposed using Medicare's formula, or using Medicare as the basis for reimbursement, because many of the workers' compensation patients are orthopedic patients, whereas typical Medicare patients receive a variety of treatments in an ASC setting. Commenters described the Medicare system as designed for a retired, non-employed, non-working, and elderly population, and further asserted that a workers' compensation system overlaid in a Medicare system will not work. Commenters cited the grouping of procedures and corresponding payment amounts in the Medicare system as being specifically developed for treatment of patients over the age of 65. Commenters stated such procedures do not equate to the more commonly performed procedures for an injured employee, such as knee and shoulder arthroscopies, and carpal tunnel surgeries, which for a senior population would entail more risks. Commenter further described the population difference by noting that injured employees need to be treated expeditiously and returned safely to work, and such is not a consideration for the Medicare population.

RESPONSE: The commission disagrees with commenter's opposition to the use of Medicare as the basis for reimbursement. Section 413.011 of the Act requires the commission to adopt the most current Medicare program reimbursement, methodologies, models, and values or weights, including its coding, billing, and reporting payment policies. Use of the Medicare system also provides system standardization and enhances consistency in the billing and reimbursement processes. The commission disagrees that the use of the current Medicare ASC groupings will not work for a workers' compensation system because Medicare ASC grouping methodology is already in place in several other states' workers' compensation systems.

Additionally, the commission agrees that Medicare patients receive a wide variety of services in ASCs, including some that are not frequently necessary for workers' compensation patients. However, the current Medicare ASC reimbursement methodology includes payment for orthopedic patients. The Medicare ASC reimbursement methodology groups procedures by intensity and use of resources (weighting).

The commission clarifies that no additional provisions are required to distinguish between the Medicare and the workers' compensation populations. Any differences in the populations are adequately addressed through the increased reimbursement from Medicare provided by this adopted rule.

The commission disagrees that adoption of this rule will prevent expeditious and safe return to work because the adopted rule encourages service delivery in the most appropriate setting, which may include re-direction of services to a physician's office or hospital outpatient setting. The commission disagrees that elective procedures will be delayed as a result of the rule because reimbursement is well within the commercial market and there is no indication that commercial patients have diminished access to care or excessive waits for elective surgery.

COMMENT: Commenters opposed using Medicare payment systems as a basis for reimbursement for reasons related to technology and administrative complexities. Commenter stated as technology continues to develop, a system is needed that easily adapts to trends in technology and is financially responsive. Commenter asserted that the Medicare system methodology for ASC reimbursement is based on a cost survey conducted in 1986, and takes a long time to approve and reflect technological advances in outpatient, invasive surgery. Commenter stated that due to the number of Medicare's administrative complexities, workers' compensation insurance carriers would also have to become familiar with Medicare. Commenters opined that in the Medicare system, the anticipated reimbursement amount may appear simple, but it is more difficult and complex to determine what is being paid in given circumstances, especially when researching past Medicare payment policies in effect at the time of a date of service. Commenter stated the reason freestanding ASCs and outpatient surgery departments are not getting paid correctly is due to the inability of health plans to properly administer the Medicare grouper system. Commenter further stated that significant problems have occurred within this Medicare payment system, which has impeded Medicare beneficiaries' access to ASC services, and made it difficult for ASCs to provide services.

RESPONSE: The commission disagrees that use of Medicare payment systems as a basis for establishing reimbursements in the Texas workers' compensation system is inappropriate. The Act mandates that the commission use the Medicare reimbursement structure as a reference point for the maximum allowable reimbursement (MAR) calculations for services provided in an ASC health care facility. However, as is also required by the Act, the commission does not adopt the Medicare fee schedule nor are MARs based solely on the Medicare reimbursements. As discussed in detail previously in this preamble, the adopted rule uses the required Medicare methodology for determining reimbursement in the Texas workers' compensation system to comply with the new provision in §413.011 of the Act. The adopted rule provides standardization of reimbursement methods and billing procedures by aligning the workers' compensation reimbursement structures with the structures used by CMS. In addition, commercial market and economic indicators impact the amounts to be added to or subtracted from the baseline reimbursements. The commission further clarifies that reimbursement in the Texas workers' compensation system is benchmarked to that used in the Medicare system, but is based on a weighted average of commercial and Medicare reimbursement in order to meet the requirements of §413.011 of the Act.

The commission agrees that workers' compensation carriers will have to become familiar with Medicare ASC payment policies. The commission further clarifies that a carrier's failure to pay claims in accordance with the rule on or after September 1, 2004, the adopted implementation date, is a potential violation that should be reported to the commission's Compliance and Practices Division, which has the responsibility to investigate complaints and enforce as appropriate. Although the Act requires adoption of the most current Medicare system, the commission is unaware of and has not been presented any information that would substantiate access to care issues in ASCs. Additionally, the adopted multiplier is well within the range of commercial reimbursements for ASC services. The commission is unaware of and has not been provided reliable information that would indicate any access to care problems at the adopted reimbursement rate.

COMMENT: Commenters expressed concerns that the Medicare payment system for ASCs is antiquated, and is anticipated to be changing in the next few years, which would make the proposed system obsolete and require the commission to overhaul the system again. Additionally, there are differing opinions of what the updates will be. Commenters opposed using such a system that has not been updated for numerous years, with consequences including the detriment to injured employees, and the probable increase in medical fee disputes. Commenter stated Medicare's current reimbursement payment system for ASCs is based on outdated research standards and old data, such as procedures limited to those that generally do not exceed 90 minutes of operating time and four hours of recovery time. Commenter observed Medicare additionally has an obsolete requirement that a procedure must be performed over 20% of the time on an inpatient basis for it to be eligible for inclusion on the ASC List of Medicare Approved Procedures. Commenter expressed concern that no provisions have been cited in the rule proposal for such Medicare restrictions that, commenter believes, are not in the injured employees' best interest. For example, technically involved orthopedic surgical cases typically go beyond 90 minutes, and workers' compensation surgical cases are often orthopedic.

RESPONSE: The commission disagrees that future changes in the Medicare reimbursement system should prevent the commission from adopting the most current Medicare reimbursement system as required by the Act. ASC reimbursement in the Texas workers' compensation system is based on that used in the Medicare system, but uses a weighted average of commercial and Medicare reimbursement in order to meet the requirements of §413.011 of the Act. The commission disagrees that there is a need to modify the ASC List of Medicare Approved Procedures. The criteria for including procedures on this list reflect appropriate standards of care to assure patient safety.

COMMENT: Commenter opposed using Medicare payment systems as a basis for reimbursement because the process used by CMS to evaluate additions to the ASC List of Medicare Approved Procedures provides little or no opportunity for debate or discussion. Commenter additionally stated that Medicare freezes ASC payments at whatever rate is implemented until 2009, or the timeframe designated for system revision. Commenter opined that such frozen payment rates until 2009 are unacceptable for health care providers and recommended reconsideration of an appropriate conversion factor before then. Commenter recommended a higher PAF for this rule that takes into consideration the fact that current federal law freezes the Medicare rates until 2009.

RESPONSE: The commission disagrees that there is little opportunity to comment on changes in the Medicare system. CMS has an open process that includes input from stakeholders, including health care providers, with opportunities for public comment on any proposed rules. Health care providers have had extensive involvement through CMS advisory committees and the political process. The claim edits and other policies are open to public scrutiny and are known to all participants. Many millions of dollars annually are spent to maintain and update the payment system. The commission could not independently duplicate this work. The Texas workers' compensation system as a whole will benefit by bringing its payment policies and unit costs in line with mainstream medicine. The frequency distribution of services may differ between group health, Medicare and workers' compensation beneficiaries. However, for a given medical service, there is no good reason why the payment policies should differ. Adoption of Medicare payment policies should lead to reduced administrative costs, a reduced number of medical disputes and a reduction in unproductive costs for medical services.

Most providers are already familiar with the Medicare policies; the use of standardized coding, billing, and methodology should facilitate office operations, eliminating the need to maintain a significantly different workers' compensation billing system. Other than the retroactivity of payment policies, the commission is adopting Medicare payment policies. This standardization should allow facility practices to achieve consistency in their workers' compensation and all other health care billing practices, thereby reducing time and administrative costs, and resulting in a net reduction in the administrative costs of compliance for Texas physicians. Medicare payment policies lead to a consistency of payment and will ultimately lead to reduced disputes and administrative costs. There should therefore be an increase in access for injured workers.

The commission clarifies that ASC reimbursement in the Texas workers' compensation system is based on Medicare methodologies and policies relating to coding, billing, and reporting, but the PAF reflects a weighted average of commercial and Medicare reimbursement. Ingenix and the commission have determined that this rate adjustment is a minimal modification to the Medicare reimbursement amount necessary to meet occupational injury requirements, taking into consideration the other factors the statute requires the commission to evaluate. The commission, therefore, also disagrees that a higher PAF is warranted. To the extent that Medicare ASC reimbursement methodologies or reimbursement rates change in the future, the commission will, in accordance with §413.012, re-evaluate the adopted rule for possible revision at that time. In any event, reimbursement must meet the requirements of the Act, regardless of the Medicare reimbursement amount or changes in the Medicare system; it would be inappropriate for the commission to follow commenter's suggestion and implement a higher PAF at this time, based on the Medicare rates that it appears may be in effect in 2009.

COMMENT: Commenter's stated concern and ongoing problem with the Medicare ASC List of Medicare Approved Procedures is the need to modify it each January to reflect CPT code changes. Some changes are missed causing some procedures to no longer be performed in ASCs.

RESPONSE: The commission agrees that Medicare and CPT coding are dynamic systems requiring coordination that sometimes results in clerical omissions. Although Medicare will address these omissions retroactively, the commission has determined to avoid undue administrative burden; subsection (e) eliminates any retroactive payments as a result of Medicare payment policy changes.

COMMENT: Commenter recommended if the reimbursement methodology for ASCs remains tied to that of the Medicare system, a delay in this rule proposal is advised until such time that the Medicare system implements its anticipated new payment methodology for ASCs. Commenter stated that to implement the changes now only subjects the workers' compensation system to more time being spent on resolving issues related to Medicare policies, and training carriers.

RESPONSE: The commission disagrees. Delay is contrary to the requirements of the Act and would continue the uncertainty that surrounds current ASC reimbursement. The Act requires that the commission adopt the most current Medicare methodologies for coding billing and payment. Implementation of an ASC reimbursement system is especially important now since a standardized reimbursement framework is not currently in place. Although the commission believes that delaying the implementation until there is a new Medicare process is counterproductive, it has determined that the implementation of this adopted rule should be delayed until September 1, 2004, for purposes of allowing system participants time for the transition.

COMMENT: Commenters expressed concern and questioned the proposed rule's provisions for the reimbursement of prosthetics; orthotics; durable medical equipment and supplies; specifically implants, screws, external fixators, lenses, bone cements, bone substitutes, and donor tissues; overnight stays; the number of procedures considered; and grouped and non-grouped procedures. Commenters requested clarification, observing that the rule as proposed did not discuss a plan for the reimbursement of these types of items. Commenters stated that Medicare does not allow for reimbursement of many implantables in an ASC setting, with payment policies for reimbursement only if the services are provided in an inpatient setting. Commenter questioned why such policies needed to be followed in the workers' compensation system. Commenter stated that the Medicare allowable on implantables, such as infusion pumps and neurostimulators, is below the actual cost of the implant, and questioned how the commission would reimburse. Commenters were concerned that currently the commission rules allow for payments of such items as do managed care contracts; however, Medicare does not. Commenter observed that to encumber the workers' compensation system with Medicare's outdated methodology is taking steps backward, not forward. Commenter questioned whether the proposed rule for implants in an ASC setting will remain at cost plus 10% in addition to the per diem rate.

RESPONSE: The commission clarifies that, consistent with the requirements of the Act (§413.011), some items, such as pins, screws, plates and rods are not generally reimbursed separately from the ASC rate, as any item that is integral to the surgery is not separately reimbursable. Further, the commission clarifies that prosthetics that are implanted (but not all) are reimbursed separately and are addressed by the §134.202, The Medical Fee Guideline's Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) fee schedule. Medicare's Texas carrier, Trailblazer Health Enterprises, published Newsletter 03-038 in August 2003, listing HCPCS codes that are separately reimbursable in an ASC setting.

Some miscellaneous HCPCS codes, which currently include E1399, L8699, and V2785, are codes available for ASC facilities to use in Medicare to bill the items that do not have a code specifically describing the item, and Medicare allows reimbursement of 100% of the cost with an invoice submitted upon bill submission. These items are reimbursed according to the 2002 MFG.

COMMENT: Commenter raised questions about reimbursement for surgical implantable products associated with procedures performed in an ASC setting, as compared with procedures performed in an inpatient hospital setting. Commenter referenced information provided at a Medical Advisory Committee (MAC) meeting in May of 2002, and questioned an understanding of commission plans to propose a diagnosis related group (DRG) reimbursement methodology for implants. Commenter recommended that the commission consider current DRG values that do not support the cost parameters of the technology of implantable surgical products, and consider that hospitals may experience economic hardship by allowing the patient access to the latest health care advancements and technologies. Commenter further recommended the creation of a separate billing and reimbursement methodology for implantable products, which will assure adequate reimbursement above the DRG reimbursement amount when used in a hospital setting, and will achieve effective medical cost control. Commenter recommended that implantables be given special provisions as has been done in California and Oklahoma, and offered some publications in support of these concerns and recommendations.

RESPONSE: The commission clarifies that the adopted rule does not utilize a DRG reimbursement methodology for prosthetic devices that are implanted. Instead, the commission has adopted the Medicare reimbursement methodologies for ASCs, and to the extent that Medicare generally provides for reimbursement of implants under the Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS), these items that are not covered under the Medicare DRG reimbursement methodology should be reimbursed according to the commission's 2002 MFG.

COMMENT: Commenter stated the Medicare Carriers' Manual is clear about items (e.g., implants) that are not included in the facility fee but can be paid for in addition to the facility fee. Commenter opined that the ASC facility fee in the proposed rule is not intended to cover most implants used today.

RESPONSE: The commission agrees that many items are not included in the Medicare ASC facility fee and that many implants are reimbursed by Medicare under other fee schedules such as the DMEPOS. These items will also be reimbursed in the Texas workers' compensation system, using the 2002 MFG.

COMMENT: Commenter recommended the commission continue to solicit technical recommendations from health care providers and others regarding the correct implementation of the payment system. Commenter recommended the need for a provision for procedures requiring additional supplies and equipment. Commenter recommended the adoption of a list of major items of pharmaceuticals and supplies consumed before, during, and in recovery from surgery that should be reimbursed based upon cost, to include the cost of the item plus shipping and handling. Commenter recommended that given the frequency and importance of implants in procedures frequently performed for injured employees, it is essential that administrative difficulties ASCs encounter in receiving Medicare reimbursement not occur in the Texas workers' compensation system.

RESPONSE: The commission agrees that on-going communication regarding the implementation of ASC guidelines is important. The commission will actively solicit input regarding the implementation of this fee guideline and any educational requirements. The commission clarifies that current Medicare reimbursement methodologies include additional reimbursement for certain items provided in an ASC, such as those items found on the DMEPOS, and therefore, the commission sees no need to adopt an additional list of major items as recommended. The commission agrees that proper application of the Medicare coding, billing, reporting and reimbursement policies is required by statute and is a prime component of effective operation of the system.

COMMENT: Commenters asserted that many (some commenters reported approximately 20%) of the procedures performed on injured workers on a daily basis in their facility are not approved by Medicare. Commenter stated that adopting a Medicare based system would create problems. Commenter stated of an estimated 2,400 CPT codes, only 44 codes make up the 80% of workers' compensation utilization at ASCs, and 25% are not assigned to a Medicare grouper. Commenter was concerned that Medicare also excludes from the ASC List of Medicare Approved Procedures those procedures that are performed more than 50% of the time in a physician's office. Commenter opined that the procedures important to the commission are unlikely to get sufficient attention by CMS officials, and further opined that they are irrationally and inappropriately grouped. Commenters observed, for instance, that arthroscopy is included in a relatively low group within the Medicare grouping system, as compared with ASC costs associated with that procedure performed on injured employees. Commenters opposed its placement in the group in which Medicare has placed it, because a considerable number of procedures and implants are included in that group and corresponding reimbursement amount, and are not typically performed on the Medicare patient population.

RESPONSE: The commenters' assertions regarding the various percentage of procedures performed on injured workers not on the ASC List of Medicare Approved Procedures cannot be verified in the Texas workers' compensation system, because the commission's medical billing database does not contain detailed ASC procedure coding. The Act requires that the commission adopt the most current Medicare program reimbursement, methodologies, models, and values or weights, including its coding, billing, and reporting payment policies. The ASC grouping methodology is the most current Medicare ASC reimbursement methodology and has been adopted by the commission as required by statute. Procedures previously performed in ASCs, but not on the current ASC List of Medicare Approved Procedures, will no longer be considered a valid preauthorization ASC surgical request, and should be rejected and returned to the ASC by the carrier. Such a rejection is not considered by the commission to be a denial of preauthorization and, therefore, is not eligible for Medical Dispute Resolution.

The commission disagrees that adopting the statutorily required Medicare reimbursement methodologies will create a problem since the methodology is already in use by many commercial payers and other states' workers' compensation systems.

The commission disagrees that Medicare irrationally and inappropriately groups procedures. Although individual providers or organizations may disagree regarding ASC groupings, the procedure is neither irrational nor inappropriate. The grouping system attempts to organize procedures requiring similar resource requirements and expertise into similar categories. The least complex procedures are generally compensated at the lower end of the range, while more complex procedures are reimbursed at the higher end of the range. This approach is quite logical and appropriate. The grouping of procedures process that takes place includes written public comment and public testimony, with final recommendations to CMS made by medical professionals who serve on various CMS provider committees and who are familiar with the medical or surgical procedures. Additionally, public comment and testimony are integral components of each level of the Medicare approval process. For these reasons, the commission disagrees that procedures are improperly grouped.

COMMENT: One commenter provided CPT codes for 5 procedures that are not on the ASC List of Medicare Approved Procedures and stated that these services represent a significant volume of ASC services that are currently being provided to workers' compensation patients in an ASC setting.

RESPONSE: The commission cannot verify the accuracy of the statement because the billing form used by ASCs in workers' compensation does not include CPT information. However, the Texas Mutual Insurance Company submitted a response to that statement. TMIC asserts that those CPT codes should be performed in a physician setting, and in fact are rarely done in ASCs The data provided to the commission seems to bear that out. TMIC used its billing and payment records and the result should be fairly representative of the Texas workers' compensation system generally, given TMIC's large market share.

COMMENT: Commenters recommended nationally recognized published studies as the basis for the payment amounts for procedures not included on the Medicare list, and recommended that the commission publish those payment amounts prior to implementing this rule proposal. Commenter recommended the codes be revisited in order to reflect the costs incurred as the codes are utilized.

RESPONSE: Because the commission has deleted (c)(2) of the proposed rule, for reasons discussed elsewhere in this preamble, there will not be any health care provided in an ASC that is not on the ASC List of Medicare Approved Procedures, and there is no need to establish specific reimbursement rates for those procedures on that are not on the ASC List of Medicare Approved Procedures.

COMMENT: Commenter was concerned with the preamble statement, "Ingenix excluded the indemnity experience at the lower end of the range and included it at the higher end of the range," stating it appears to be incorrect. Commenter further stated that to reach a PAF that is 230% of Medicare, Ingenix would have had to do the opposite. Commenter questioned how the commission decided upon 230% of Medicare when Ingenix data supports a reimbursement of 237% to 264% of Medicare in 2004. Commenter indicated that other states' fees provide access to quality medical care at PAFs less than 230% of Medicare, with no reported limitations on access to quality medical care, and opined that it is appropriate to compare other states' Medicare based ASCs with the proposed rule, even if methodologies used to arrive at those fees differ.

RESPONSE: The commission clarifies that Ingenix removed indemnity reimbursement, which was extraordinarily high as compared to commercial reimbursement generally, from the calculation. Removing this potential aberration resulted in a decrease at the lower end of the PAF. The commission clarifies that the adopted PAF falls within the acceptable range of reimbursements recommended by Ingenix. Additionally, Ingenix suggested that the commission could use its discretion to consider a different balance of the statutory objectives -- for instance, by placing greater emphasis on cost containment or increased security of payment within the Texas workers' compensation system -- and deviate up to 10% at either end of the recommended range. In response to the high medical costs per claim in Texas and the desire by the Legislature and the commission to reverse the cost per claim trends, the commission adopted an appropriate PAF. The commission agrees that it is appropriate to review other states' ASC reimbursement methodologies; however, due to each state's unique system requirements, those methodologies are not determinative of reimbursement in Texas. Analysis of Medicare reimbursement methodologies in other states showed PAFs to be within a range from at or near the Medicare rate to over 250% of the Medicare rate. Commission staff surveyed several other states that use the Medicare ASC reimbursement methodology. The reimbursement in those states as a percentage of Medicare ranged from 100% to 255%. The adopted PAF is well within this range of other states' reimbursement for ASCs.

COMMENT: Commenter was concerned that Ingenix gathered its data for making recommendations to the commission on PAF levels from HMOs that no longer exist. Commenter further opined that a PAF based upon extinct health plans does not accurately represent the percentage of HMOs that receive Medicare reimbursements for ASC services. Commenter stated the Ingenix analysis was based on what the PPOs are being paid in the current market, and opposed this because PPOs guarantee volume, whereas no such volume guarantees exist in workers' compensation.

RESPONSE: The commission agrees that data availability is an important factor in establishing the PAFs. Due to concerns expressed by the MAC Facility Fee Guideline Workgroup, the commission requested that Ingenix update the commercial market information in its analysis to support fees paid by managed care plans. The October 2003 Ingenix report utilized the most current information available, which was reflective of the market at the time the information was gathered. The commission disagrees that the fees paid by PPOs should be excluded from the commercial market because PPOs represent a significant portion of the overall health care market, regardless volume discounts. Ingenix then trended the data forwarded to 2003 and later, at the urging of the commission, to 2004. As with any industry, the market is dynamic with re-organization, consolidation, and entry and exit by organizations on a continual basis. Additionally, when queried for more current or appropriate information, stakeholders could not provide a better resource than that used by Ingenix.

COMMENT: Commenter was concerned that the commission and Ingenix discounted the use of commercial indemnity as an outlier, thereby excluding it as part of the PAF formula recommendation. Commenter urged the commission to include commercial indemnity insurance because it represents an equivalent standard of living to workers' compensation patients and should not be discounted simply because it pays higher reimbursements. Commenter asserted that removing the commercial indemnity experience from the PAF amounted to "backing into higher fees for providers."

RESPONSE: The commission disagrees that commercial indemnity was not included as part of the recommendation; on the contrary, it was included in one portion of the recommended range which yielded the 264% PAF. When indemnity reimbursement is excluded from the weighted market calculation, the lower limit of the Ingenix recommendation becomes 237% of Medicare. The indemnity market share currently represents a small, decreasing fraction of the overall market, with payment levels far exceeding those in other commercial policy types, suggesting that they are uncharacteristic of the commercial market. 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 recommended, and the commission agreed, that it was appropriate to exclude the indemnity experience at the lower end of the range and include it at the higher end of the range.

The commission disagrees that it backed into higher fees for providers. The adopted PAF provides for a significant reduction from previous average reimbursement, without such radical change or decrease as to negatively impact access to care.

COMMENT: Commenter opposed the commission's choice of the commercial health care market, rather than Medicare, as the starting point for determining reimbursement for ASC services.

RESPONSE: The commission disagrees that the commission inappropriately utilized the commercial health care market to establish the PAF. The commission developed the adopted PAF after careful analysis by Ingenix, commission review of the Ingenix reports, the requirements of the Act, and review of public comment received in coordination with other adopted rule changes. The PAF considers the Medicare benchmark and the weighted average of reimbursement for Medicare and commercial insured patients who have been determined by the commission to have a similar standard of living as supported by "A Standard of Living Comparison Between the Working Population, the Medicare Population, and the Managed Care Population," published in March of 1997 (addendum to report April 2001).

Like Medicare, commercial payors pay for treatments of patients from a population with an equivalent standard of living. Also like Medicare, commercial payors pay at levels that providers choose voluntarily to accept as sufficient. Managed care contract rates are fair and reasonable in the sense that they are not so low as to risk access to quality care because health care providers have voluntarily accepted them, and health care providers expect them to more than cover the marginal costs of services and make a contribution to overhead or they would not accept the contracts.

Thus the lower large-scale commercial payor levels are, absent demonstrations of other factors, strong indicators of the fairness and reasonableness of such payments for workers' compensation treatments, and of the likelihood that enough providers will continue to participate in Texas workers' compensation to ensure adequate patient access.

Like Medicare, but unlike Texas workers' compensation, commercial payors pay less than the full amount the provider is entitled to collect. The rest, in the form of deductibles and/or co-payments, the provider must collect from the patients. Thus, the increased security of payment factor the Commission is required by statute to consider works as an offset.

COMMENT: Commenter asserted that the use of historical payment levels in commercial health, Medicare payment policies, and the Texas workers' compensation system are unreliable, and consequently should not have been used.

RESPONSE: The commission disagrees. The use of commission historical medical claims reimbursement information was primarily to determine case mix information and estimated system impact.

COMMENT: Commenter stated the Ingenix methodology does not appropriately balance the statutory criteria for fee guidelines, and commercial payer ranges are only one economic factor for consideration. Commenter asserted the commission must also balance the statutory goals of achieving medical cost control and ensuring access to quality medical care, and stated the Ingenix methodology failed to achieve that balance.

RESPONSE: The commission agrees that it must balance a number of different statutory goals, and commercial payer ranges are only one factor to be considered by the commission, in establishing a PAF. However, the commission does not agree that the Ingenix methodology does not appropriately balance the statutory criteria for fee guidelines. The commission clarifies that while data availability is an important factor in establishing a PAF; the Ingenix report utilized the most current information that was reflective of the market at the time the information was gathered. Ingenix then trended the data forward until 2003, and later at the urging of the commission, to 2004. The commission additionally clarifies that although ASC reimbursement in the Texas workers' compensation system utilizes the Medicare ASC reimbursement methodology, the PAF is based on a weighted average of commercial and Medicare reimbursement in order to meet the requirements of §413.011 of the Act. The statute also states that the commission shall not adopt a PAF based solely on those PAFs developed by CMS, and the commission has not done so. As described more fully elsewhere in this preamble, Ingenix recommended PAF ranges believed to be a satisfactory balance of the complex statutory objectives, while allowing the commission to exercise discretion in ultimately selecting a PAF. The adopted PAF, which is within the range of commercial reimbursements as determined by Ingenix, meets the statutory objectives. The adopted rule provides effective medical cost control and assures access to quality medical care by aligning reimbursement with those in the commercial market and providing consistent reimbursement standards for providers and carriers.

COMMENT: Commenter disagreed with the statement, in the proposal preamble, that "several research reports have shown that Texas workers' compensation medical costs exceed those in other states and in other health care delivery systems," stating it is not true. Commenter indicated that California's costs were almost twice that of Texas, and additionally the 1997 ROC report found that it is not the cost of the individual service that drives up the costs, but the frequency and quantity of care.

RESPONSE: The commission disagrees. WCRI research reports have consistently shown the medical costs per claim in Texas are some of the highest in the major workers' compensation states. The information provided in these reports is well researched, critically analyzed, and the facts of these reports speak for themselves. Similarly, NCCI studies continue to show Texas as a high medical cost per claim state. Although frequency and quantity of care (utilization) are important components of medical costs, reimbursement and fee guidelines are also cost drivers in the system. Utilization is a primary component in the high per claim cost in the Texas workers' compensation system. Utilization in the ASC fee guideline is addressed by the inclusion of current Medicare payment policies, such as site of service restrictions, which consistently and appropriately provide standards. The commission recognizes, through the adoption of this ASC fee guideline, its obligation to address, wherever possible, Texas' high costs per claim as compared to other states' workers' compensation costs per claim. Utilization is also addressed in other commission rules.

COMMENT: Commenter stated it is unclear from the rule as proposed on which commercial indemnity and managed care plans Ingenix based their reimbursement data studies. Commenter questioned whether the Ingenix report was based on analysis of APC reimbursement established by Medicare for outpatient surgical services performed in acute care hospitals. Commenter observed the data does not appear to include cost of performing such surgeries or the carve-outs of medical devices, medications, and surgical appliances from the rate. Commenter further asserted that data published by the hospital outpatient charges should have little bearing on how fees are established for ASCs since reimbursement in a hospital setting will differ from an independent ASC. Commenter stated hospital outpatient settings have the capability to charge and be reimbursed for medical devices in a "pass through" system.

RESPONSE: The commission clarifies that the Ingenix report summarizes the Ingenix Employer Group (IEG) outpatient and ASC summary data by payer type. Ingenix relied upon Ingenix Texas data from IEG for the HMO, POS, PPO, and Indemnity contracting levels. The commission further clarifies that Ingenix, when determining historical payment levels for Medicare, utilized ASC reimbursement data, not APC reimbursement as used for hospital outpatient departments.

The commission agrees that detailed cost data for ambulatory surgical services is not available for commission review. No standardized cost reporting format exists, nor is such cost information available to the commission or the general public; consequently, if any cost information were available it would be anecdotal and subject to the individual business practices of ASCs. Additionally, ASCs have not produced any verifiable cost information for review or analysis by Ingenix or the commission.

Medicare ASC reimbursement methodology has attempted to review costs and base reimbursement on those costs. Although this cost information is dated, Medicare has included inflation factors on a regular basis to adjust ASC reimbursement. Ingenix review and analysis of Medicare reimbursement and commercial market reimbursement provides an appropriate range for reimbursement. Considering the fact that ASCs have voluntarily accepted both Medicare and commercial reimbursement, and the adopted PAF is within that range of appropriate reimbursements, the adopted PAF should provide fair and reasonable reimbursement.

The commission agrees that until a direct relationship is established between hospital outpatient costs and ASC costs, hospital outpatient charges should not have major impacts on how fees are established for ASCs. Although reimbursement in a hospital setting will differ from reimbursement in an independent ASC, it is important for the commission to review reimbursement in both settings to meet the requirements of the Act regarding quality medical care, fair and reasonable reimbursement, and effective cost control. The commission further clarifies that payments and charges in both the hospital outpatient and ASC settings are included in the IEG data utilized by Ingenix. Although Ingenix was unable to separate this data, it was validated by Ingenix using proprietary data specific to ASC orthopedic activity; this data was ultimately utilized to establish ASC payment to charge ratios. Ingenix stated in its report, "the Texas IEG data was for all outpatient services and includes ASC services. The detail behind the data does not contain reliable information as to whether the payment is for outpatient or ASC services, and therefore, Ingenix needed to rely on the combined data as a proxy for both." The commission agrees that in the current Medicare system, hospital outpatient settings are reimbursed for certain "pass through" items, such as certain pharmaceuticals. The adopted rule applies current Medicare reimbursement methodologies, which allow separate reimbursement for some non-facility services. For example, some non-facility services, such as durable medical equipment, will continue to be reimbursed according to the commission's 2002 Medical Fee Guideline , §134.202.

COMMENT: Commenter recommended that the commission establish categories other than those established for the Medicare system, arranged so that they are comparable in complexity and costs, with [a] fixed fees that reflect the true cost of providing each procedure rather than based on a Medicare multiplier.

RESPONSE: The commission disagrees that different or additional categories are required. The Act requires that the commission adopt the most current Medicare program reimbursement methodologies, models, and values or weights, including its coding, billing, and reporting payment policies. The ASC grouping methodology, which already includes cost and complexity, is the most current Medicare ASC reimbursement methodology and has been adopted by the commission as required by statute. Although CMS recognizes the grouping system should be updated, the services included on the ASC List of Medicare Approved Procedures change, with almost 300 additions and 140 deletions in March of 2003. As Medicare improves the grouping process the commission will use the revised component as outlined in subsection (a)(4) of the adopted rule. As CMS revises the Medicare program the notices and explanatory information provided by CMS will also be applicable to the Texas workers' compensation system. This alleviates the necessity for the commission to provide explanation except where necessary for special features of the workers' compensation system.

A request for reimbursement for a procedure previously performed in ASCs, but not on the current ASC List of Medicare Approved Procedures, will no longer be considered a valid preauthorization ASC surgical request, and should be rejected and returned to the requestor by the carrier. Such a rejection is not considered by the commission to be a denial of preauthorization and, therefore, is not eligible for Medical Dispute Resolution.

COMMENT: Commenter was concerned the proposal preamble contained several pages of statistical data supporting that medical claims are significantly higher than the rest of the nation, and cautioned that none of the cited statistics represent surgical costs.

RESPONSE: The commission disagrees. While the proposal preamble reflected high medical costs per claim in Texas, these included all medical services, including surgical costs. The ROC studies and WCRI do not explicitly break down their analyses of costs per claim based on specific service settings or service types; however, both the ROC and WCRI studies indicate that surgery, in general, was and still is an important factor in Texas' medical costs per claim. In a comparison of nine other states' workers' compensation systems, Texas had the highest or second highest utilization rate for surgery, physical medicine and diagnostic testing. Striking the Balance: An Analysis of the Cost and Quality of Medical Care in the Texas Workers' Compensation System by the ROC and Med-FX, LLC, was published by the ROC in January 2001. The report recognized a significant problem of over-utilization of surgery in Texas (for four of the six most frequent injuries, the report showed Texas has the highest average number of surgeries per injured worker who received surgery). In a comparison of treatment of Texas state employees and treatment for the same injury mix in group health, the state employees treated through workers' compensation had higher surgery, physical medicine and diagnostic testing utilization than those in group health. Moreover, Ingenix analysis estimated 2004 Texas workers' compensation ASC reimbursement at 320% of Medicare, which is higher than the weighted average of 264% and significantly higher than reimbursement rates in other states' workers' compensation systems.

COMMENT: Commenters were concerned with the differing methodologies between those used for the commission's rule 134.202, the 2002 Medical Fee Guideline, and the Ingenix methodology recommended in this rule proposal. Commenter expressed concern regarding increased litigation if methodologies differ in commission fee guidelines. Commenters observed that the commission properly established the reimbursement rates for physicians, with appropriate benchmark analysis, at 125% of Medicare, and to be consistent with the Medicare program for ASCs and physicians, the physicians would need to be paid 125% of the non-facility rate for procedures not on the ASC List of Medicare Approved Procedures.

RESPONSE: The commission agrees that differing methodologies were used for the commission's rule 134.202, the 2002 Medical Fee Guideline (MFG), and this adopted rule. The adopted PAF multiplier for ASCs is considerably higher than the 125% multiplier provided in the MFG, which covers reimbursement of professional medical services provided within the Texas workers' compensation system. There are several reasons for this. Unlike professional medical services, whose cost inputs are continuously updated by CMS, Medicare has not significantly revised ASC cost inputs since 1994. Moreover, the percentage of Medicare patients who receive ASC services (surgeries) is significantly less than the percentage of Medicare patients who receive professional medical services (typically, physician services). Medicare reimbursements for professional medical services are generally within the range of payments made by commercial payers; however, Medicare reimbursements for ASC services are well below the range of payments made by most commercial payers for those services. The methodology used by Ingenix (as previously described in this preamble) in developing its recommendation stands alone and is not dependent on the methodologies used in previous reimbursement guidelines. The Medicare rate is the benchmark on which the reimbursement rate is built, but is neither a ceiling nor a floor. Development of the PAF is a balance of all the components of the Act. Thus, while the resulting multipliers are different in the two contexts, they are consistent with one another to the extent that the PAF adopted by the commission in each context is at the low end of the range of reimbursement provided within the commercial market.

The commission has adopted Medicare site of service restrictions. When combined with the commission's preauthorization process, only services on the ASC List of Medicare Approved Procedures may be reimbursed when provided in an ASC. Therefore, to address the commenter's concerns regarding physician reimbursement for a preauthorized ASC procedure, the commission clarifies that the physician is to be reimbursed according to the 2002 MFG.

COMMENT: Commenter recommended the commission adopt a 125% of Medicare PAF for the ASC fee guideline, asserting that the 230% of Medicare PAF violates the intention of the Act. Commenter observed that to set the PAF at 230% of Medicare would raise ASC fees above hospital inpatient fees for the same surgeries, and would raise the fees above those levels presently paid by carriers under the commission's rule 134.1.

RESPONSE: The commission disagrees that 125% of Medicare is the appropriate PAF. The commission also disagrees with commenters' recommended reasons for lowering the reimbursement rates, as more fully discussed elsewhere in this preamble. The adopted PAF has changed from proposal, however, and is the result of careful analysis by Ingenix, which confirmed a significant misalignment of ASC reimbursement in the Texas workers' compensation system, and the desire of the commission to enhance its cost control efforts. The Ingenix analysis thoroughly analyzed Medicare reimbursement and commercial reimbursement for ambulatory surgery center services. This included both the reimbursement rates and market share, which is the estimated number of covered lives and utilization. These factors, when combined, allowed Ingenix to provide the commission with a recommended acceptable range of PAFs. The commission carefully considered: the Ingenix analysis and recommendation; the requirements of the Act; public comment; the continued high medical cost per claim in Texas; the change and deletion of proposed subsection (d)(3), related to payment limitations.

The adopted PAF is the lower limit of the extended range of acceptable and reasonable reimbursements included in the Ingenix report and reflects the commission's statutory responsibility related to effective medical cost control and fair and reasonable reimbursement. Additionally, the adopted PAF remains in the range of commercial reimbursement. Further, the commission clarifies the methodology used by Ingenix (as previously described in this preamble) to develop its recommendation stands alone and is not dependent on the methodologies used in previous reimbursement guidelines. The Medicare rate is the benchmark on which the reimbursement rate is built, but is neither a ceiling nor a floor. Development of the PAF is a balance of all the components of the Act.

COMMENT: Commenter asserted that the proposal preamble and rule did not contain any justification or reasons why ASC reimbursement should be driven downward. Commenter additionally stated the proposal preamble and rule did not contain any analysis of the effect the proposed rule will have on injured employees. Commenter questioned if clarification is required regarding whether Geographic Practice Cost Indices (GPCI) and Wage Index for Urban Areas are used to increase or decrease the Medicare Base Rate to compensate for high or low labor costs. Commenter suggested this promotes a balance for health care providers in identified markets.

RESPONSE: The commission disagrees that the proposal preamble did not contain any justification as to why ASC rates should be "driven downward." The commission outlined the high costs per claim of medical care in the Texas workers' compensation system. The proposal preamble cited numerous WCRI and ROC research reports, which document the high medical costs per claim in Texas. Additionally, since proposal, WCRI issued, Compscope Benchmarks: Multistate Comparisons, 4th Edition , February 2004 which shows Texas medical costs per claim continue to be approximately 40% higher than the 12 state median. Furthermore, Ingenix estimated that the current Texas workers' compensation reimbursement significantly exceeded the weighted average market reimbursement for ASC services. Ingenix estimated TWCC ASC reimbursement at 320% of Medicare, which is higher than the market's weighted average reimbursement, and significantly higher than reimbursement rates in other states' workers' compensation systems. These factors, combined with the cost containment and "pay no more" requirements of the Act, justify the adopted PAF.

The commission also disagrees that the proposal preamble did not contain information regarding the effect the proposed rule had on injured employees. The proposal preamble stated in part:

The re-alignment of these case rate systems makes the Texas workers' compensation system more comparable to other health care systems and should discourage over utilization of services that have been subject to a fair and reasonable reimbursement methodology. This will benefit injured employees by preventing unnecessary treatment and delayed return to work. A decrease in medical costs may result in a decrease in workers' compensation insurance premiums, which in turn may increase the number of employers who elect to provide workers' compensation coverage, ultimately benefiting injured employees.

Regarding commenter's question whether GPCI and Wage Index for Urban Areas are to be used, the commission clarifies that ASC facility services are to be paid under a prospectively determined rate that varies depending on service locality as determined by CMS. GPCIs are geographic practice cost indices and are used in other Medicare reimbursement methodologies. The service localities consider geographic cost differences, as does GPCI for other services.

COMMENT: Commenter stated that in the May 4, 2001 Federal Register , The California Division of Workers' Compensation notified HCFA of a possible problem with DRGs 496-500. Commenter further indicated that California hospitals and orthopedists have reported that certain spinal surgery DRGs may involve different types of care and/or technologies than those in use at the time these groups were formulated. As a short term response to these concerns, the California Division of Workers' Compensation is exempting the costs of hardware and instrumentation from the global fee of the fee schedule for DRGs.

RESPONSE: The commission disagrees. The State of California Inpatient DRG and implantable law has no direct relation to the application of adopted Texas workers' compensation reimbursement methodology.

COMMENT: Commenter questioned why the proposed rule was not presented to the established MAC workgroup prior to the proposal of the rule and whether the workgroup's contributions were taken into consideration.

RESPONSE: The commission disagrees that the draft rule was not presented to the MAC workgroup prior to the proposal. The commission clarifies that a draft rule was presented at the November 15, 2002 MAC meeting. In early 2003, the MAC formed a workgroup to study and provide feedback on the draft ASC facility fee guideline. In addition, to the draft rule, commission staff provided the workgroup with educational materials related to Medicare reimbursement methodology, historical TWCC medical billing and payment information and a copy of the Ingenix October 2002 report. At the March 28, 2003 MAC meeting the workgroup presented their majority consensus findings, which were taken into consideration by the commission. These are more fully described in the "Input" section of the preamble to this adopted rule.

Subsection (a)

COMMENT: Commenters recommended the delay of the implementation date for this rule, stating a date of June 1, 2004 is too soon. Commenters stated that time must be given for the commission to publish reimbursement rates that are fair and reasonable for those procedures that are not covered by Medicare in an ASC setting. A recommendation was made to allow for a period of at least six months after the adoption of the rule for the commission to resolve certain software issues and train insurers to process claims under the new policies and rates.

RESPONSE: The commission agrees that the June 1, 2004 implementation date may be too soon for system participants to make necessary preparations for the implementation of this new commission fee guideline. The commission has set an implementation date of September 1, 2004 in order to best address the needs of the system allowing time to initiate the standardization and certainty of payment that accrue with the implementation of the ASC fee schedule. The commission will remain active and involved in clarifying this and other rules through ongoing education and if necessary, through the rule making process. However, the commission disagrees that additional time is necessary to publish rates for services not covered in the ASC setting by Medicare. According to subsection (b) of the adopted rule, the Medicare sites of service restrictions apply; therefore, no additional list development by the commission is required.

COMMENT: Commenter recommended the delay of promulgating the rule until such time that all the relevant facts, methodologies, statistics, and studies concerning the ASC fee guideline rule proposal are made available for review, and until such time as more input is provided by system stakeholders.

RESPONSE: The commission agrees in part regarding the recommended delay with respect to the rule. As previously stated, the commission has set an implementation date of September 1, 2004. However, the commission disagrees that additional research or meeting with stakeholders is necessary for effective rule implementation. The commission has studied ASC reimbursement for almost three years and held approximately four meetings with the HB-2600 Legislative Stakeholders group, five meetings with the Medical Advisory Committee (MAC), three meetings with the Medical Advisory Committee Facility Fee Guideline Workgroup, two meetings with ASC facility representatives, and one meeting with the carrier focus group. As with any rule, the commission will actively monitor the impact of the new rule and make changes as required based on the best available information.

COMMENT: Commenter recommended the delay of implementation until after the federal changes occur within the Centers for Medicare and Medicaid Services (CMS) regarding a new Medicare reimbursement system for ASCs that is to be based upon the hospital outpatient department payment system. Commenter opined that it would be more prudent to propose an ASC fee guideline after Medicare changes to its new system, which is anticipated to occur between 2006 and 2008.

RESPONSE: The commission disagrees with commenter's reasons for delay of implementation. Delaying implementation of an ASC fee guideline specifically until Medicare adopts a new reimbursement methodology would be inconsistent with the commission's statutory requirement to adopt the most current Medicare reimbursement methodologies, models, and values or weights, with minimal modifications as necessary to meet occupational injury requirements. Although Medicare methodologies may change in the future, the system now in place is the most current. If the Medicare ASC reimbursement system significantly changes its reimbursement structure, the commission will consider the then applicable Medicare system in determining whether and to what extent the ASC fee guideline requires modification at that time, as contemplated by the statute.

COMMENT: Commenter recommended the commission withdraw and re-propose an ASC fee guideline rule using the 100% of Medicare reimbursement rates for ASCs as the appropriate PAF multiplier.

RESPONSE: The commission disagrees that the rule should be withdrawn and reproposed with a 100% of Medicare PAF. The commission has adopted the revised PAF because it balances the rigorous and complex statutory requirements as set forth in §413.011 of the Act. Additionally, the system needs to establish standardized billing, coding and reporting practices and a standardized reimbursement methodology; these concerns far outweigh any suggestion to further delay adoption of the rule.

COMMENT: Commenter stated insurance carriers will not have adequate time for implementation of a Medicare reimbursement methodology for ASC services, and expressed concern that penalties may be assessed if the carrier is not ready by June 1, 2004. Commenter questioned what type of guarantee ASCs will have that their reimbursement will be provided by insurance carriers in a timely manner, and recommended the commission clarify what the consequences will be for a carrier in the event the carrier is unable to process claims by the proposed June 1, 2004, implementation date. Commenter is concerned that the proposed implementation date will not give insurance carriers adequate time to implement a Medicare reimbursement methodology for ASC services, and asked whether penalties would be assessed if the carrier is not ready by June 1, 2004. Commenter recommended that the commission's preamble must contain a definitive time for carriers to complete this period of transitioning to a new ASC reimbursement system, and that it clarify how claims will be processed in the interim period of transition. Commenter recommended the commission establish penalties for a carrier's failure to comply with the rule.

RESPONSE: The commission agrees that there should be a time frame, other than what was originally proposed as an implementation date of June 1, 2004, for a carrier to transition to a new ASC reimbursement system. As previously stated, the commission has set an implementation date of September 1, 2004 in order to best address the needs of the system allowing time to initiate the standardization and certainty of payment that accrue with the implementation of the ASC fee schedule. However, in response to commenter's questions regarding consequences for a carrier's failure to pay claims in accordance with the rule on or after the implementation date, the commission clarifies that payments for services provided must adhere to the requirements of the Act and commission rules in effect at the time the services are provided. Failure to comply with these mandates is a potential violation that should be reported to the commission's Compliance and Practices Division, which has the responsibility to investigate complaints, assess applicable penalties for failure to abide by the rules, and enforce as appropriate.

COMMENT: Commenter requested clarification regarding proposed subsection (a)(3) of the rule, which pertains to conflicting Medicare payment policies with the Texas Workers' Compensation Act (Act) or commission rules. Commenter questioned how the commission will determine when exceptions to Medicare payment policies will be considered appropriate, which Medicare payment policies conflict with the Act or commission rules and are not to be applied, and requested clarification as to how the ASC community and insurance carriers will learn of these exceptions. More specifically, commenter asked whether provisions would be considered to conflict only when the two systems require something that is different, thus making it impossible to comply with both; or whether it would be considered a conflict if commission rules are permissive and the Medicare policies require a particular action, or vice versa.

RESPONSE: The commission is actively seeking opportunities to standardize its policies with Medicare policies and amend rules or policies as necessary, to align commission policies with Medicare, thus eliminating potential conflicts to the extent possible and appropriate under the statutory standards for the workers' compensation system. However, commission implementation activities will include educating system participants on the fee guideline, during which time clarification will be offered. For instance, during implementation of the commission's adopted §134.202, 2002 Medical Fee Guideline , educational tools were developed and posted on the commission's website. Such tools included, the "General Information," "General Principals Regarding Reimbursement," and the "Online MFG Training Module." As with any rule, the commission will actively monitor the impact of the new rule and make changes as required based on the best available information.

COMMENT: Commenter requested clarification as to whether an independent review organization (IRO) will be willing to review documentation that substantiates the added cost of relatively expensive procedures, such as lithotripsy, that are routinely carved out of commercial contracts and paid at a percentage of the amount billed.

RESPONSE: The commission clarifies that the IRO review process in the Texas workers' compensation context addresses only the medical necessity of treatment or services, not whether a procedure is properly reimbursed by a carrier. The commission also clarifies that the IRO process is not a process for substantiating reimbursement. Requests for reimbursement are subject to the commission's fee guidelines and medical fee dispute resolution rules.

Subsection (b)

COMMENT: Commenters raised concerns regarding proposed subsection (b), which requires the application of Medicare coding, billing, and payment policies, requesting that the commission continue to allow use of ICD9CM3 procedural codes and the acceptance of bills on UB-92 claim forms. Commenters noted that Medicare requires the use of a CMS-1500 (previously known as the HCFA-1500) form, which only allow for billing related to professional services, not facility services.

Commenter indicated that the type of form required depends on whether an ASC is free-standing or part of a hospital, noting that a free-standing ASC would be required to bill on a CMS-1500 form, while an ASC that is part of a hospital would be required to bill on a UB-92 form. In addition, commenter pointed out some differences between current commission billing procedures and the two CMS forms that could create problems for a carrier in determining which form is required in a given situation. Commenter recommended that the commission require that the providers include the group number on billing forms in order for carriers to determine whether the healthcare provider submitted the correct billing form.

Also in support of continuing to allow use of the UB-92 claim form, commenters observed that the use of the UB-92 claim form guarantees that no other charges may be submitted from a facility at a later date for a particular date of service, while the use of a CMS-1500 form allows a facility to submit additional charges at a later date that were missed at the time of the initial submission.

RESPONSE: The commission disagrees that the use of the UB-92 claim form should be continued for ASC facility services. It is not entirely accurate that ASCs have two separate claim form filing requirements, depending on whether they are free-standing or part of a hospital. While services provided by these two types of facilities are, indeed, submitted on the two separate forms identified by the commenter, CMS consider a facility to be a true ASC if it is a separately identifiable entity that is physically, administratively, and financially independent and distinct from other operations of the hospital. If the surgical services provided do not meet these specifications, then the facility is considered part of the hospital outpatient department. Hence, the UB-92 claim form requirement for such services. The rule, which only addresses true ASC services, will track the CMS requirement that claims for ASC services be submitted by the facility through a CMS-1500 claim form.

The commission is addressing provider billing procedures for ASCs, including claim form requirements and Medicare instructions (such as commenter's recommendation that providers include the group number), through a separate rule proposal. The separate rule proposal should address the concerns regarding the submission of appropriate claim form and completion instructions. The commission disagrees that the use of the UB-92 claim form guarantees that no other charges may be submitted at a later date. Any late charges will be reimbursed according to the adopted Medicare coding, billing, reporting and reimbursement policies, which include use of both CPT and ICD9CM3 codes.

COMMENT: Commenters recommended the commission require providers to bill using the CMS-1500 claim form for ASC services, and to use the appropriate billing modifiers "SG" and "24" for place of service notation, so that carriers may re-price accurately. Commenters stated that without this method of billing on the part of health care providers, carriers might reimburse based on the physician fee schedule, for the surgery procedure instead of the ASC reimbursement rate. Commenter observed that if the commission is required to use Medicare reimbursement rates as a baseline, then it also makes sense to require the use of Medicare's coding, billing, and reporting requirements. Commenter also recommended that the commission develop a mechanism to convey accurate and complete billing and coding information.

RESPONSE: The commission agrees that accurate coding, billing and reporting are important factors in implementing a new reimbursement system. Further, the commission believes these factors are addressed by subsection (b) of the rule, which requires the use of Medicare billing, coding and reporting policies, including use of appropriate modifiers and place of service codes. As previously stated, the commission is addressing provider billing procedures, including claim form requirements and instructions by Medicare for ASCs, through a separate rule proposal. The separate rule proposal should address the commenter's concerns regarding the appropriate use of billing modifiers for place of service codes. The commission maintains active communication with system participants through information and training available on the commission's website and other efforts to educate system participants on the proper application of the rule and its requirements.

Subsection (c)

COMMENT: Commenters recommended that provisions be added to the rule regarding reimbursements that will reflect the frequency and types of treatment given to injured employees as opposed to the Medicare population of the disabled and elderly. As an example, commenters cited a Medicare provision that limits the types of procedures that can be provided in an ASC setting to those that do not generally exceed 90 minutes of operating time and four hours of recovery room time. Commenters indicated that the rule fails to account for the fact that a number of orthopedic surgical procedures provided on injured workers exceed these time limits is inconsistent with the statutory requirement that the commission make minimal modifications necessary to meet occupational injury requirements.

RESPONSE: The commission disagrees that additional provisions are required to distinguish between the Medicare and the workers' compensation populations. The Act requires that the commission adopt the most current Medicare program reimbursement, methodologies, models, and values or weights, including its coding, billing, and reporting payment policies. The ASC grouping methodology, which already includes cost and complexity, is the most current Medicare ASC reimbursement methodology and has been adopted by the commission as required by statute. Although CMS recognizes the grouping system should be updated, the services included on the ASC List of Medicare Approved Procedures change, with almost 300 additions and 140 deletions in March of 2003. As Medicare improves the grouping process the commission will use the revised component as outlined in subsection (a)(4) of the adopted rule. Procedures previously performed in ASCs that may be lengthier for injured employees, but not on the current ASC List of Medicare Approved Procedures, are to be moved to another appropriate setting according to the current Medicare site of service restrictions.

COMMENT: Commenters questioned how reimbursement for regions will be determined, how that determination will affect the reimbursement rates, and how often such determinations will be reviewed. Commenter stated that the proposed rule is unclear as to whether the reimbursement calculation for a procedure will be the national Medicare rate, or the rate for the specific regional area.

RESPONSE: The commission clarifies that the Texas workers' compensation system will utilize the most current CMS reimbursement methodologies, including any regional reimbursement adjustments. Any adjustments in the Medicare reimbursement methodologies are applicable in the Texas workers' compensation system, as outlined in subsection (a)(4), except for retroactivity of reimbursement amounts.

COMMENT: Commenter expressed concern that since Medicare rates are based on the political strength of federal lobbyists, tying TWCC reimbursement rates to Medicare would mean treating injured workers in Texas based on the political needs of Washington.

RESPONSE: The commission disagrees that reimbursement is based on the political strength of federal lobbyists. The commission clarifies that reimbursement in the Texas workers' compensation system is benchmarked to that used in the Medicare system, but is based on a weighted average of commercial and Medicare reimbursement in Texas in order to meet the requirements of §413.011 of the Act.

COMMENT: Commenters opposed the proposed reimbursement rates because the discount is deeper than most commercial preferred provider organizations, which contractually bring business volume to the health care providers, and that the reimbursement rates are set too low and below costs.

RESPONSE: The commission disagrees that the proposed or adopted PAF is too low. The adopted PAF, which is lower than the proposed PAF, was carefully analyzed by the commission and further reviewed by Ingenix, and confirmed a significant misalignment of ASC reimbursement in the Texas workers' compensation system. The change to the adopted PAF, which resulted from public comment, recognizes the continued high medical cost per claim in Texas and the deletion of subsection (d)(3) from the rule as proposed. The adopted PAF is the lower limit of the extended range of acceptable fair and reasonable reimbursements included in the Ingenix report and reflects the commission's statutory responsibility related to effective medical cost control and fair and reasonable reimbursement. The adopted PAF remains in the range of commercial reimbursement. Ingenix estimated that 2004 ASC reimbursement under current TWCC rules (requiring fair and reasonable reimbursement) equals approximately 320% of 2004 Medicare reimbursement. Additionally, this review estimated commercial (HMO/PPO/POS/Indemnity) payer reimbursement equal to a range of 168% to 564%. This commercial range produces a weighted average of approximately 274% (not including indemnity plans) to 293% (including indemnity plans) of Medicare reimbursement. With Medicare added to the commercial market, the weighted average for ASC services trended to 2004 is 237% (not including indemnity plans) to 264% (including indemnity plans) of Medicare reimbursement. This identified range (237%-264%) is extended in the Ingenix report to 213.3% - 290.4% in recognition of the commission's discretion and obligation to use its judgment to adopt a balance of the statutory objectives.

COMMENT: Commenters had varying recommendations for reconsidering and raising the reimbursement rates from the proposal of 230% of Medicare. Commenter stated based on the proposal rate, a sharp decline will occur in access to ASCs. Commenter recommended 300% of Medicare with appropriate carve-outs, implants, and appropriate concern for technology, including lasers. Commenter recommended the multiplier be changed to 264% based on the 2004 Ingenix recommendation. Commenter recommended, at a minimum, that the multiplier be set at comparable levels to current reimbursement, including the cost of usual medical inflation.

RESPONSE: The commission disagrees that there will be a sharp decline in access to ASC services. The adopted reimbursement rate, which changed from proposal, is within the range of rates paid in the commercial market and well above the Medicare rates. There is no indication of an access problem to ASC services in either the Medicare or the commercial systems. The commission also disagrees that 264% or 300% of Medicare with additional reimbursement modifications is warranted. The adopted multiplier is well within the range of commercial reimbursement for ambulatory service in the commercial market and as such there is currently no need to increase the rate from that which is adopted. Additionally, the estimated average reimbursement paid prior to the adoption of this rule contributed to the cost per claim in Texas. In order to effect medical cost control, the commission must take steps to reduce system costs. Adoption of this rule adds stability and certainty to the reimbursement system and an effort to control costs and provide fair and reasonable reimbursement.

COMMENT: Commenter stated a reimbursement rate of 230% of Medicare will not be enough to cover the costs of a specific procedure and the associated supplies, nor will it allow for any profit.

RESPONSE: The commission disagrees that reimbursement at 230% of Medicare will not allow ambulatory surgery centers to recover their costs. However, the commission has adopted a different PAF, which, like the proposed 230% PAF, reflects a balance between cost containment and unconstrained market reimbursement. The impact on individual ASCs will vary based on the services provided and the carriers that currently reimburse for those services under divergent fair and reasonable methodologies. The 230% proposed rate and the adopted rate are much greater than the Medicare rate and the HMO rates (168%). Because ambulatory surgery centers provide services to each of these categories of patients and continue to operate, the commission considers the adopted PAF to be fair and reasonable and consistent with all of the applicable statutory factors.

COMMENT: Commenters opposed the proposed reimbursement rates with varying reasons suggesting they are too high. Commenter stated that while the proposed 230% PAF may bring stability and consistency to the system, it will also increase system costs without commensurate benefit. Commenters opined that a PAF of 230% of Medicare would fail to achieve necessary reductions and would create incentives to utilize ASC resources unnecessarily.

RESPONSE: The commission agrees in part, but for reasons different from those stated by commenter. The PAF has been lowered by the commission on adoption of this rule, for reasons previously stated in this preamble. The commission disagrees that the adopted PAF will increase system costs without commensurate benefit. The adoption of the new reimbursement methodology and PAF, which are based on current Medicare reimbursement rates and market share, will likely reduce payments on the whole within the system. Moreover, adoption of the Medicare site of service restrictions, combined with the existing preauthorization process, is designed to prevent the inappropriate use of resources in the system. In addition, fewer disputes will decrease costs for all participants in the workers' compensation system.

COMMENT: Commenter asserted that, due to Medicare's failure to update 1994 cost data, the commission is without sufficient support for proposing ASC reimbursement rates at 230% of Medicare. Commenter further offered that a recent study shows that Medicare fees are not too low, and may be too high. Commenter also stated that basing a 230% PAF on payments made by commercial payers and percent of billed charges, is essentially proposing a reimbursement method based on percentage of billed charges.

RESPONSE: The commission clarifies the Medicare cost data was not the only information considered by the commission in adopting the PAF. Medicare reimbursement, commercial market reimbursement, and the historical reimbursement rates of the Texas workers' compensation system combined with the requirements of the Act were all important factors considered by the commission in the adoption of the PAF. The commission also disagrees the PAF is based in any part on billed charges. Although the Ingenix analysis related some commercial reimbursement to billed charges, the recommended reimbursement rates and the rate adopted by the commission are not in any way impacted by billed charges.

COMMENT: Commenters recommended 125% of Medicare as the appropriate PAF, and stated the reasons provided in the proposal preamble are flawed for not utilizing a similar multiplier methodology as was used in adopting §134.202, the commission's 2002 Medical Fee Guideline (MFG). Commenters recommended 100% of Medicare as the correct baseline from which to calculate an appropriate ASC reimbursement PAF, and that an increase from 100% to 230% of Medicare is not a minimal modification.

RESPONSE: The commission disagrees for reasons previously stated in this preamble that 125% of Medicare is the appropriate PAF. The commission also disagrees that the rationale used in developing the ASC PAF is flawed. The methodology used by Ingenix (as previously described in this preamble) to develop their recommendation stands alone and is not dependent on the methodologies used in previous reimbursement guidelines. The Medicare rate is the reference point from which the reimbursement rate is built, but is neither a ceiling nor a floor. Development of the PAF is a balance of all the components of the Act.

COMMENT: Commenter suggested that a 230% of Medicare PAF is overcompensating ASC services, and will give impetus to the creation of an upward shift in costs from 2002 MFG services that will undermine that guideline, in turn leading to higher system costs and an increase in fee disputes and litigation. Commenter further stated Medicare fees are fair and reasonable because health care providers voluntarily choose to accept Medicare fee levels, and ensure access to quality care. Commenter stated Medicare fees achieve effective medical cost control and are the lowest fees in common use for a population with an equivalent standard of living, which studies prove are similar standards of living to workers' compensation patients. Commenter also stated the security of payment afforded by the Texas workers' compensation system is greater than the security of payment afforded by Medicare and, consequently, current Medicare payments to ASCs are more than adequate. Commenter offered that the methodology for establishing ASC reimbursement rates should be the same as the methodology for establishing the 2002 MFG reimbursement rates, because Medicare ASC fees meet the same statutory criteria for workers' compensation fee guidelines. Commenter stated the administrative burden factors used to determine the reimbursement rate in the 2002 MFG support a lower reimbursement rate for ASC services. Commenter recommended using 100% of Medicare as a baseline and increasing it slightly to account for administrative burdens.

RESPONSE: The commission disagrees with commenters' recommendations and varying reasons for lowering the reimbursement rates to 100% of Medicare and also disagrees that the PAF is too high. The adopted PAF, which is lower than the proposed PAF, is the result of careful analysis by Ingenix, which confirmed a significant misalignment of ASC reimbursement in the Texas workers' compensation system. The change to the adopted PAF, which in part resulted from public comment and the deletion of subsection (d)(3) from the rule as proposed, recognizes the continued high medical cost per claim in Texas. The adopted PAF is the lower limit of the extended range of acceptable fair and reasonable reimbursements included in the Ingenix report and reflects the commission's statutory responsibility related to effective medical cost control and fair and reasonable reimbursement. The adopted PAF remains in the range of commercial reimbursement. Ingenix estimated that 2004 ASC reimbursement under current TWCC rules (requiring fair and reasonable reimbursement) equals approximately 320% of 2004 Medicare reimbursement. Additionally, this review estimated commercial (HMO/PPO/POS/Indemnity) payer reimbursement equal to a range of 168% to 564%. This commercial range produces a weighted average of approximately 274% (not including indemnity plans) to 293% (including indemnity plans) of Medicare reimbursement. With Medicare added to the commercial market, the weighted average for ASC services trended to 2004 is 237% (not including indemnity plans) to 264% (including indemnity plans) of Medicare reimbursement. This identified range (237%-264%) is extended in the Ingenix report to 213.3% - 290.4% to recognize the potential for the commission to place special emphasis on the requirements of the Act. The adopted rate is well within the range of commercial reimbursements at which ASCs provide services and, consequently, no access problems are anticipated.

The Ingenix analysis thoroughly analyzed Medicare reimbursement and commercial reimbursement for ambulatory surgery center services. This included both the reimbursement rates and market share by payer type for persons with a similar standard of living, and allowed Ingenix to provide the commission with a recommended acceptable range of PAFs. This Ingenix recommendation reflects the weighted average reimbursement for individuals with a similar standard of living. The commission carefully considered the Ingenix analysis and recommendation and the requirements of the Act in adopting the PAF, which is well within the range of reimbursements accepted by ambulatory surgery centers in the commercial market and within the "fair and reasonable" reimbursements currently accepted by ASCs participating in the Texas workers' compensation system. Further, the commission clarifies that the methodology Ingenix used (as previously described in this preamble) to develop its recommendation stands alone and is not dependent on the methodologies used in previous reimbursement guidelines proposed or adopted by the commission. The Medicare rate is the reference point from which the reimbursement rate is built, but is neither a ceiling nor a floor. Development of the PAF is a balance of all the components of the Act. Ingenix concluded that, if there are additional administrative burdens for facilities, they are more than offset and accounted for in the rates within the Ingenix range.

COMMENT: Commenters recommended adopting a weighted multiplier as opposed to a single multiplier. Commenters stated that the single multiplier is not sensitive to substantial differences in complexity and supply item consumption between the Medicare levels. Commenters provided a recommended tiered modifier system whereby the multiplier or PAF increases as the procedure complexity increases, and noted that the commission's proposed methodology is not sensitive to both the complexity, including length of time in surgery and recovery, and consumption of specialized equipment or supply costs. Commenters further recommended the alternate weighted multiplier methodology, stating that the Medicare diagnostic or procedural groupings include procedures that are inappropriately grouped and procedures that vary widely in procedure length and direct costs.

RESPONSE: The commission disagrees that a weighted multiplier rather than a single PAF is appropriate. Section 413.011 of the Act requires the commission to adopt the most current Medicare program reimbursement, methodologies, models, and values or weights, including its coding, billing, and reporting payment policies; in doing so, the commission is addressing system standardization and enhancing consistency in the billing and reimbursement processes. The commission notes that differences in complexity of various procedures are already a component of the Medicare ASC grouping methodology and, consequently, the reimbursement. Also, the prospective payment concept encourages the efficient use of time and resources in delivery of a service. Adopted §134.402 fulfills these statutory requirements.

COMMENT: Commenter recommended a methodology that has been used by the State Office of Risk Management and utilize Medicare payment policies or the Hospital Outpatient Payment System (HOPS) as the baseline for reimbursement with a multiplier that is consistent with the current commission rule 134.401, Acute Care Inpatient Hospital Fee Guideline .

RESPONSE: The commission disagrees that the commenter's recommended methodology should replace the required Medicare methodology. The recommended methodology is a derivative of the current §134.401, Acute Care Inpatient Hospital Fee Guideline , which does not follow the Medicare methodology as required by the statute.

COMMENT: Commenters expressed concern that the proposed rule did not explain how multiple procedures and extended recovery stays will be considered. Commenter questioned how multiple procedures would be adjusted under this rule, and also questioned if they would be capped at three procedures, and paid at 100%, 50%, and 25% respectively.

RESPONSE: The commission disagrees that multiple procedures are not addressed. Subsection (b) of the adopted rule specifically provides that details of the Medicare coding, billing, and reporting payment policies are applicable. This includes the multiple procedure rules of the Medicare ASC reimbursement system. In accordance with those provisions (for example), if a Group 1, a Group 2, and a Group 3 procedure were all performed in the same operative session, the ASC payment would be based on 100% of the wage adjusted Group 3 rate, plus 50% of the wage adjusted Group 1 rate, plus 50% of the wage adjusted Group 2 rate.

COMMENT: Commenters opposed proposed subsection (c)(2). Commenters stated this provision implements a system that already is in place, which, commenters asserted, is based on a fair and reasonable payment that is left up to the insurance carriers and the commission to decide on a case-by-case basis. Commenters asserted that this leaves too much room for arbitrary decisions and is not effective enough to anticipate the expected reimbursement amount. Commenters stated that health care providers need to know this prior to incurring the costs, so that they may make the best business determination of whether it is cost effective for them to perform the services. Commenters further stated that not having an established set rate or percentage methodology would allow each carrier to establish different rates that will cause the number of disputes to rise. Commenter questioned the need for the "fair and reasonable" provision as proposed in paragraph (c)(2), if the goal of House Bill 2600 was to standardize reimbursement. Commenter asserted that in order to achieve successful and systematic standardization of reimbursement, fair and reasonable provisions must be clearly defined.

Commenter stated the rule allows an insurance carrier to reimburse an ASC based on "usual and customary payment" for a service for which Medicare does not provide for reimbursement. Commenter asserted that what is fair and reasonable must also be what is usual and customary, recommending that the commission make the two phrases synonymous. Commenters also stated that the "usual and customary" concept is what created the backlog of commission medical fee disputes, and the future curtailment of these types of disputes should have been one of the primary reasons for the new fee guideline proposal.

RESPONSE: The commission agrees that subsection (c)(2) should be removed from the rule. This will eliminate the current process of allowing ASC reimbursements to be determined on a case-by-case basis under the fair and reasonable standard. It will also address the standardization issue raised by commenters and eliminate disputes concerning whether "fair and reasonable" is equivalent to "usual and customary" within the ASC reimbursement system. Prior to adoption of this rule, there were only general fair and reasonable requirements regarding the reimbursement of all ASC services. Adoption of §134.402 establishes a specific reimbursement methodology and amount for Medicare ASC approved services. Further, subsection (b) of the rule implements all Medicare policies (with the exception of the Medicare policy concerning retroactive payment policy changes, addressed in subsection (e) of the adopted rule), including the site of service restrictions that define what services are reimbursable. This structure provides certainty in the system and, consequently, should significantly reduce the number of disputes.

COMMENT: Commenters asserted that the commission should have established what constitutes "fair and reasonable" in implementing subsection (c)(2) of the rule.

RESPONSE: For reasons stated above, the commission has deleted subsection (c)(2) from the adopted rule; therefore, the commission need not address this concern.

COMMENT: Commenters recommended numerous methodologies in lieu of carrier determination of fair and reasonable. Commenter recommended the commission prepare and publish a schedule that reflects the estimated 28% reduction in payments by individual services and ASC. Commenter recommended an established 80% of billed charges as the default reimbursement, as opposed to the carrier's individual determination of fair and reasonable. Commenter recommended the Medicare ASC list be abandoned and ASCs be reimbursed for any procedure not on the Medicare inpatient only list as is currently the procedure in hospital outpatient departments. Commenters recommended the commission review the specific CPT codes utilized by ASCs for workers' compensation claims, and make modification to the Medicare groupings, or create new categories or groupings, according to facilities' identified costs, or according to surgical procedures performed for injured employees. Commenters stated the reason there is a problem with workers' compensation costs in Texas is because of the lack of set reimbursements and because there is a large disparity between what is charged by different surgery centers. Consequently, commenter recommended that fee guidelines be based on actual costs that are incurred in providing the service.

RESPONSE: The commission disagrees with commenters' numerous recommended methodologies, and disagrees with the recommendation to publish a schedule that reflects the estimated payments by individual services and ASCs. The commission is unable to determine specific impacts by provider due to a lack of detailed billing information. The 28% reduction, as stated in the proposal preamble, is based on the estimated average reimbursement for services and may vary substantially for each facility based on the services provided and mix of carriers' various reimbursement methodologies used under the previous "fair and reasonable" standard. The commission has deleted the "fair and reasonable" provision of proposed subsection (c)(2) because the rule is also amended from proposal by the deletion of proposed subsection (e)(2), which permitted the provider and the carrier to mutually agree to an ASC setting for procedures that are not included on the ASC List of Medicare Approved Procedures. By removing subsection (e)(2) from the adopted rule, the commission adopts Medicare's site of service provisions, which provide set MARs for all ASC List of Medicare Approved Procedures. As a result of this amendment, the commission further determined that there is no need for the proposed "fair and reasonable" provision of subsection (c)(2). Additionally, by adopting the most current Medicare program reimbursement, methodologies, models, and values or weights, including its coding, billing, and reporting payment policies, the commission is addressing system standardization and enhancing consistency in the billing and reimbursement processes. This methodology provides consistency in reimbursement that has previously been missing from ASC reimbursement schemes.

COMMENT: Commenter recommended addressing the necessary disparity in Medicare and workers' compensation procedures prior to implementation. Commenter stated that one company's data reflects five out of 25 frequently performed workers' compensation procedures that are not on Medicare's list, whereas another company's data reflects more than 400 procedures per year that are performed on Texas injured employees that are not on the Medicare ASC list.

RESPONSE: The commission rejects the recommendation to specifically address the perceived disparity between the Medicare and workers' compensation procedures. The commission recognizes that procedures that are commonly performed on injured employees may not be the most commonly performed procedures within the Medicare population; however, the adopted rule methodology should not limit the employee's access to medically necessary procedures in a safe and appropriate setting. The ASC List of Medicare Approved Procedures, which consists of approximately 2,400 procedures, includes some commonly performed workers' compensation procedures. As a cost containment feature, site of service policies provide standardization for carriers and providers.

COMMENT: Commenters stated that reimbursement should be the same for an identical procedure whether performed in a surgery center or hospital outpatient setting. Commenter further asserted that overhead costs are less in an ASC setting than in a hospital outpatient surgery department.

RESPONSE: The commission disagrees that reimbursement for ASC and outpatient hospital settings should be identical. The Act requires reimbursement to be fair and reasonable regardless of the setting. Considering the underlying cost structures for facilities, as noted by commenter, it is unlikely that reimbursement for the same service in different settings will be identical.

COMMENT: Commenters questioned whether services that do not fall into a Medicare grouping would be determined as a flat rate. Commenter acknowledged that proposed subsection (c)(2) refers to the commission's setting such rates, but questioned the lack of details provided as to how the commission will accomplish this. Commenters further stated that such non-grouped services would require preauthorization approval.

RESPONSE: The commission clarifies that Medicare's site of service provisions have been adopted; therefore, the commission has not provided direction for procedures not on the ASC List of Medicare Approved Procedures. The commission has deleted proposed subsection (c)(2) from the adopted rule, as it is no longer necessary. By adopting the most current Medicare program reimbursement, methodologies, models, and values or weights, including its coding, billing, and reporting payment policies, the commission is addressing system standardization and enhancing consistency in the billing and reimbursement processes. The commission agrees with commenters' opinion that ASC procedures require preauthorization approval. However, preauthorization requests for ASC non-list procedures will not be processed as such; instead, they are to be rejected and returned to the ASC by the carrier. Such a rejection is not considered by the commission to be a denial of preauthorization and, therefore, is not eligible for Medical Dispute Resolution.

COMMENT: Commenters did not support subsection (c)(2) of the proposed rule because current Medicare group numbers one through eight are not appropriate for injured employees, and are acknowledged by CMS as being outdated. Commenters also questioned whether the Medicare groups are considered by the commission as being group numbers one through eight, or one through nine. Commenters requested lithotripsy and other similar and costly procedures that are not generally a part of commercial contracts, be paid at a percentage of billed charges.

RESPONSE: The commission agrees that proposed subsection (c)(2) is unnecessary, and it has been deleted for reasons previously stated, which are different from the reasons given by commenter. Section 413.011 of the Act requires the commission to adopt the most current Medicare program reimbursement, methodologies, models, and values or weights, including its coding, billing, and reporting payment policies, the commission is addressing system standardization and enhancing consistency in the billing and reimbursement processes. Adopted rule 134.402 fulfills these requirements. Additionally, the commission clarifies that the adopted reimbursement methodology includes Medicare's current nine groupings. These methodologies provide a consistency in reimbursement that has previously been missing from ASC reimbursement schemes. For these reasons the commission disagrees that an alternative reimbursement as a percentage of billed charges should be added to the rule.

COMMENT: Commenters recommended that provisions be made to reimburse ASCs for x-rays, pre-operative lab work, EKGs and pathology services, since Medicare does not allow an ASC to be reimbursed for the provision of these services. Commenters further stated that the State of Texas licensing entity for ASCs also prohibits an ASC from performing these services on their premises, which is unlike a hospital outpatient setting where all such pre-operative testing services may be performed from within the facility.

RESPONSE: The commission disagrees with commenters' recommendation to reimburse ASCs for diagnostic tests differently from the current Medicare reimbursement methodology. Section 413.011 of the Act requires the commission to adopt the most current Medicare program reimbursement, methodologies, models, and values or weights, including its coding, billing, and reporting payment policies. With respect to diagnostic tests, many ASCs perform simple tests just before surgery, which are generally included in their facility services. Diagnostic tests performed by the ASC other than those generally included in the facility services are not covered and are not to be billed as diagnostic tests. If the ASC has its laboratory certified as meeting the regulatory conditions, the laboratory itself bills for the tests performed. The commission considers this reimbursement methodology to be consistent with State of Texas licensing requirements.

COMMENT: Commenter recommended the commission issue advisories under its authority to clarify those exceptions to the Medicare payment policies necessary to identify what may not be covered in an adopted ASC fee guideline. Commenter additionally recommended that the commission seek input of those actually performing these types of procedures when issuing such advisories. Commenter supported this recommendation by stating, for example, that while only "non-emergent" (elective) care is generally provided in an ASC, Medicare does not require preauthorization approval for ASC services as is done by some managed care plans and in accordance with commission rule 134.600. Commenter further elaborated that medical guidelines are often used to determine generally accepted standards of practice for noted procedures, surgeries, etc.

RESPONSE: The commission agrees that it has the authority to clarify, when necessary, provisions of the rule through advisories and/or other means of education and communication. The commission will utilize the appropriate resources in developing and communicating these clarifications.

COMMENT: Commenter stated that it appears that the commission intends that ASCs will continue to provide procedures that are not on the Medicare list. Commenter recommended that a provision be included in the rule to maintain access to services currently available in ASCs.

RESPONSE: The commission clarifies that although the proposed rule contained a provision in (e)(2) for the provision of services not on the ASC List of Medicare Approved Procedures, it has been deleted from the adopted rule. Therefore, the commission clarifies that it does not intend for this adopted rule to provide reimbursement to ASCs for procedures not on the ASC List of Medicare Approved Procedures. The commission has determined that access to services will not be reduced, and the commission disagrees with the commenter's recommended additional provision.

Subsection (d)

COMMENT: Commenters questioned why ASCs should be reimbursed less than hospitals for the same or similar treatment. Commenter also stated that ASCs eliminate delays and provide far more efficient care than other settings and, therefore, should not be reimbursed less. Other commenters stated that because ASCs eliminate multiple secondary costs that drive up system pricing and ASCs operating costs are generally lower than hospital operating costs, ASCs should be paid less than hospitals.

RESPONSE: As discussed elsewhere in this preamble, the commission clarifies that, as a result of public comment and further research, the commission determined that there were significant issues with subsection (d)(3) as proposed and, as a result, subsection (d)(3) is deleted from the rule as adopted. The commission has yet to adopt rules that apply these Medicare reimbursement structures in all settings. Consequently, attempting to place a cap on the ASC reimbursement using an unrelated, non-Medicare inpatient per diem rate, or a yet to be proposed hospital outpatient fee guideline, would be confusing, inconsistent, difficult to apply. In addition, this approach would likely lead to more inconsistencies in the ultimate reimbursement based on subsection (d)(3) of the proposed ASC rule than intended.

COMMENT: Commenters questioned whether the proposed method of reimbursement is based on ASC or APC payment methodology. Commenter questioned whether the rule provides for caps on individual procedures based on MAR values.

RESPONSE: The commission clarifies that this adopted rule is an ASC Fee Guideline and is based on use of the Medicare reimbursement methodology for ASC facility services, which currently is the ASC grouping methodology. At this time, the commission has not adopted the APC reimbursement methodology, which is applicable to reimburse hospital outpatient departments. The Medicare ASC reimbursement methodology prospectively establishes a set payment amount for each type of facility service that CMS has determined can be provided in an ASC setting; each of these services falls into one of nine specific categories, or ASC groups. The commission has adopted a PAF to be applied to each such payment amount, as a cost containment measure rather than the "lesser of" provisions proposed in subsection (d)(3), which has been deleted.

COMMENT: Commenter believes that, overall, the proposed reimbursement rate would not be greater than reimbursement in hospital inpatient and outpatient settings but could produce inconsistencies in reimbursement rates as a result of three different payment systems.

RESPONSE: The commission agrees that, overall, reimbursements for an ASC surgical service might be greater if performed and reimbursed in a hospital inpatient or outpatient setting for the same or similar service. The commission clarifies, however, as discussed elsewhere in this preamble, as a result of public comment and further research, the commission determined that there were significant issues with subsection (d)(3) as proposed and, as a result, subsection (d)(3) is deleted from the rule as adopted. The commission has yet to adopt rules that apply these Medicare reimbursement structures in all settings. Consequently, attempting to place a cap on the ASC reimbursement using an unrelated, non-Medicare inpatient per diem, or a yet to be proposed hospital outpatient fee guideline, would be confusing, inconsistent, difficult to apply. In addition, this approach would likely lead to more inconsistencies in the ultimate reimbursement based on subsection (d)(3) of the proposed ASC rule than intended.

COMMENT: Commenter requested that language be added to the rule to clarify that it does not apply to hospital outpatient units.

RESPONSE: The commission disagrees that the rule needs additional language to further define applicability. The commission has adopted Medicare coding, billing, reporting and reimbursement of facility services in this rule. Thus, the commission will recognize ASCs in the same manner as Medicare does, and the facility will be reimbursed pursuant to the Medicare ASC reimbursement methodology within the Texas Workers' Compensation Commmission system. The Medicare ASC reimbursement methodology does not apply to hospital outpatient units or hospital based ASCs; it only applies to separately identifiable entities that are physically, administratively, and financially independent and distinct from other operations of the hospital. If the surgical services provided do not meet these specifications, then the facility is considered part of the hospital outpatient department.

COMMENT: Commenter stated that setting rates at 230% of Medicare would create an environment of disparate reimbursement based on facility type, asserting that the ASC fee schedule and rules should not create incentives to move medical care to settings to take advantage of a higher facility-specific reimbursement rate.

Conversely, another commenter stated that placing a cap on ASC reimbursement would negate the benefit ASCs can provide to the workers' compensation system because the reimbursement amount would not cover the cost of providing the service.

RESPONSE: The commission agrees that similar services may be reimbursed at different rates based on site of service. The primary goal in establishing ASC reimbursement rates is to create a reimbursement amount that meets the requirements of the Act including a fair and reasonable reimbursement for the ASC setting. Although there is likely a relationship between services provided in various settings, the costs and reimbursement factors are unique to each setting. However, the commission has a significant cost containment responsibility and reasonably should require services to be provided in a medically appropriate setting and reimbursed in a cost-effective manner. Consequently, the commission has deleted subsection (d)(3) as proposed.

COMMENT: Commenter stated that the payment for an identical procedure performed in a surgery center and hospital outpatient setting should be the same if you have the same patient with the same circumstances and access to care. Commenter opined that based on Ingenix's methodology, ASCs would be paid more than hospitals for the same surgery.

RESPONSE: The commission clarifies that each service setting has a unique cost structure and economic indicators that dictate reimbursement. In the Medicare system there is generally a hierarchal reimbursement relationship with ASCs being reimbursed at the lower end and hospital inpatient services reimbursed at the higher end of the scale. Since the commission has not yet adopted hospital outpatient or inpatient reimbursement methodologies based on Medicare, it is premature to attempt to compare this adopted rule with a yet to be proposed methodology.

COMMENT: Commenters recommended that subsection (d) be amended to read, "in all cases, reimbursement shall be the greater of..." instead of "lesser of ...". Commenters suggested that an ASC should be able to negotiate a payment that is greater than what is allowed by the rule, and stated that the "lesser of" provisions in the proposed rule appear to favor the carriers.

RESPONSE: The commission disagrees with commenters' recommended language substitution, which would be contrary to the cost containment requirements of the Act and would likely exacerbate the already high medical costs in the Texas workers' compensation system. Additionally, the proposed subsection (d)(3) has been deleted from the adopted rule for reasons previously stated.

COMMENT: Commenter stated that it will be difficult for carriers to determine the amount established by the commission in a fee guideline for the same or similar service provided in either an inpatient or outpatient hospital setting and requested that this language be removed from the proposed rule.

RESPONSE: The commission agrees that it was unclear how the same or similar services would be determined in proposed subsection (d)(3) of the rule. Therefore, the commission has deleted subsection (d)(3) of the rule.

COMMENT: Commenter elaborated that if the goal of subsection (d)(3) is to require care to be provided in the least costly setting, the provision should work both ways, and only the lowest rate would be paid unless there is justification for a higher rate. Absent such balance, commenter asserted, the intent would seem is punitive. Commenter further elaborated that due to the differing Medicare rates, conditions, bundles and services, the Medicare rate is higher in the ASC for some services. Commenter also stated that implementation of the rule as proposed would be administratively burdensome. Commenter requests clarification on how the rule will be implemented and believes the rule as proposed will increase disputes.

RESPONSE: The commission disagrees that subsection (d)(3) was punitive as proposed; instead, it was designed to assure appropriate reimbursement to reflect the cost containment needs of the system. Reimbursement amounts were carefully developed to comply with the requirements of the Texas Labor Code as set out in detail elsewhere in this preamble. This rule addresses the fees for ASCs, while Medicare payment policies and other commission rules are more directly aimed at utilization and quality. These rules work together to address cost control. This rule adopts a standardized consistent method for determining reimbursements. It is not meant to target particular services or healthcare providers.

However, the commission, for reasons previously stated, has removed the inpatient and outpatient comparison. The commission agrees that subsection (d)(3) as proposed, and in the absence of commission-adopted Medicare-based hospital inpatient and outpatient reimbursement guidelines, was confusing for system participants and increased the possibility for disputes. Consequently, subsection (d)(3) of the proposed rule has been deleted from the adopted rule.

COMMENT: Commenter supports the proposed reimbursement for ASCs, as long as there is a cap on the rate, as it provides an appropriate transition mechanism until ASC fees are re-examined in the near future as required by federal legislation. The proposed ASC reimbursement rates should provide adequate access to quality medical care, effectively control some of the costs and reduce the impact of anomalous results presented in the Ingenix methodology.

RESPONSE: The commission disagrees that there is need for an additional cap on the adopted rates. The adopted rates reflect maximum allowable reimbursement, which is a cap; additionally, the rates reflect fair and reasonable reimbursement that meets the requirements of the Act. The commission disagrees that the adopted rates are an interim step or transition to future ASC rates. The commission is committed to meeting the review requirements for fee guidelines, as required by §413.012 the Act. Standardization of methodology should assist in meeting this effort.

Subsection (e)

COMMENT: Commenters questioned what steps ambulatory surgery centers must take to obtain preauthorization and requested clarification on how ASCs will be reimbursed for emergency situations that arise during routine surgery that are not approved for reimbursement by Medicare if they are performed in an ASC setting. Commenters recommended that provisions be added to the rule for procedures that are performed but were not preauthorized.

RESPONSE: The commission disagrees that the rule should address emergency procedures performed in an ASC but not preauthorized, for several reasons. First, §134.600 of the commission's rules provides instruction for obtaining preauthorization for ASC services, and the rule does not require preauthorization for medically reasonable and necessary services in an emergency situation, as that term is defined in §133.1. Reimbursement for services provided in ASCs is based on the applicable Medicare payment policies, which include the ASC List of Medicare Approved Procedures. Non-emergency list procedures provided in an ASC require preauthorization. Items not on the ASC List of Medicare Approved Procedures are not eligible for preauthorization.

COMMENT: Commenter recommended deleting the language, "unless an alternative setting and payment has been approved through preauthorization, concurrent review, or voluntary certification." Commenter recommended amendments to §134.600 to clarify that carriers could reject preauthorization requests for procedures performed in an ASC that CMS does not allow. Commenter also recommended that the commission revise billing procedures 60 days before the effective date of the proposed rule.

RESPONSE: The commission agrees with commenter's recommended language deletion and has removed it (and the remainder of proposed subsection (e)(2)) from the adopted rule, for reasons more fully discussed in the "Description of the Rule, Including Changes from Proposal" section of this preamble. The commission clarifies that, by deleting proposed subsection (e)(2) while retaining subsection (b) in the adopted rule, it has adopted the Medicare site of service restrictions. Addressing commenter's recommendation to revise its billing procedures, the commission notes that, through a separate rule proposal, it has proposed provider-billing procedures that include claim form requirements and instructions by Medicare for ASCs.

COMMENT: Commenter recommended deleting subsection (e) of the proposed rule, which provides for certain exceptions and minimal modifications to Medicare payment policies. Commenter noted that, without this provision, payment for services would be governed by proposed subsection (c)(2), which provided that an ASC shall be reimbursed a fair and reasonable amount for services for which neither Medicare nor the commission has established a payment amount. Commenter's objections to subsection (e) included the following: (1) allowing for preauthorization, concurrent review, and voluntary certification is neither efficient nor effective; (2) instead, the rule should allow procedures currently being performed in ASCs to continue; (3) failure to do so will cause carriers to make decisions on a case by case basis, producing different results for different patients; and (4) this will result in increased administrative costs, decreased access, and increased uncertainty.

RESPONSE: The commission agrees in part with commenter's recommended language deletion and has deleted proposed subsection (e)(2) from the adopted rule. The Medicare site of service restrictions are needed to avoid unnecessary preauthorization and medical fee disputes and to assure appropriate standardization and quality of care with efficient utilization and cost containment. The commission notes that subsection (c)(2), discussed by commenter, has also been removed from the rule as adopted, as a result of the deletion of proposed subsection (e)(2). This amendment is more fully discussed elsewhere in this preamble.

COMMENT: Commenters recommended the proposed rule be amended to clearly state that only services and procedures performed in ASCs and eligible for reimbursement under Medicare may be reimbursed in within the Texas workers' compensation system. Observing that Medicare has valid reasons why certain services are not eligible for reimbursement if performed in an ASC setting, commenter asserted that the commission should include those same provisions in the adopted rule, specifically allowing for preauthorization rejection based on Medicare policy. Commenter noted that failure to follow the Medicare site provisions would result in numerous disputes.

RESPONSE: The commission agrees, for reasons previously stated, that only those services and procedures eligible for reimbursement under Medicare should be reimbursable within the Texas workers' compensation system, and clarifies that the Medicare site of service restrictions are specifically adopted in subsection (b) of the rule. While the commission does not agree that the rule should be amended to explicitly provide for preauthorization rejection based on Medicare policy, the commission agrees with commenter's position that a preauthorization request related to a procedure that is not included on the current ASC List of Medicare Approved Procedures should be rejected. Such a request should not be considered a valid preauthorization ASC surgical request but should, instead, be rejected and returned to the requestor by the carrier. Such a rejection shall not be treated as a denial of preauthorization and, therefore, is not eligible for Medical Dispute Resolution.

COMMENT: Commenter recommended that the rule clearly define "facility specific reimbursement," including the amount to be multiplied by 230%, the group payment rate, and the device reimbursement under the DMEPOS fee schedule.

RESPONSE: The commission disagrees that the rule should be amended as commenter recommends. The commission clarifies, however, that the Medicare ASC grouping reimbursement, as listed in subsection (c) of the adopted rule, is the commission established MAR. Further, the commission clarifies that Medicare (CMS) defines both ASC locality specific and DMEPOS Part B fee schedule reimbursement amounts. Consistent with the Medicare reimbursement policy DMEPOS Part B schedule, certain prosthetics devices are to be reimbursed according to the commission's corresponding Medical Fee Guideline , which applies a 125% of Medicare multiplier.

COMMENT: Commenters stated that the commission did not discuss a plan for the reimbursement of implants, overnight stays, the number of procedures that will be considered or allowed, and procedures or services that do not fall within one of the nine Medicare groups. Commenters questioned whether rates for overnight stays begin at day one or two.

RESPONSE: The commission clarifies that non-facility services correspond with Medicare's DMEPOS Part B fee schedule, and should be reimbursed separately in accordance with the commission's Medical Fee Guideline, §134.202. The commission also clarifies that the rule adopts Medicare payment policies, which outline the procedures that are included on the ASC List of Medicare Approved Procedures and are reimbursed in one of nine ASC Medicare groups. Further, the commission clarifies that overnight stays are not components of an ambulatory surgical services because the commission recognizes most ASCs have transfer procedures for unanticipated medical circumstances that warrant a patient's hospitalization after an ASC surgical procedure. Consequently, this rule does not require a plan for reimbursing ASCs for overnight stays.

COMMENT: Commenter asserted that if the intent of the rule is to limit payments for procedures on the Medicare ASC List of Medicare Approved Procedures, then injured workers' access to ASCs will be reduced.

RESPONSE: While it may be true that the adopted site of service restrictions limit the circumstances in which an injured worker can receive services in an ASC, the commission does not agree that this equates to a reduction in injured employees' access to quality medical care, as commenter seems to imply. The commission is required by the Act to ensure access to quality medical care, not access to services in a particular setting. As discussed more fully elsewhere in this preamble, the commission has concluded that the adopted rule will not cause any problems of access to quality medical care.

The new rule is adopted under the Texas Labor Code §§ 402.061, 408.021, 413.002, 413.007, 413.011, 413.012, 413.013, 413.014, 413.015, 413.016, 413.017, 413.019, and 413.031.

The previously cited sections of the Texas Labor Code are affected by this rule action. No other code, statute, or article is affected by this rule action.

§134.402.Ambulatory Surgical Center Fee Guideline.

(a) Applicability of this rule is as follows:

(1) This section applies to facility services provided by an ambulatory surgical center, other than professional medical services.

(2) This section applies to facility services provided by an ambulatory surgical center on or after September 1, 2004.

(3) Specific provisions contained in the Texas Workers' Compensation Act (Act) or Texas Workers' Compensation Commission (commission) rules, including this rule, shall take precedence over any conflicting provision adopted or utilized by the Centers for Medicare and Medicaid Services (CMS) in administering the Medicare program. Exceptions to Medicare payment policies for medical necessity may be provided by commission rule. Independent Review Organization (IRO) decisions regarding medical necessity are made on a case-by-case basis. The commission will monitor IRO decisions to determine whether commission rulemaking action would be appropriate.

(4) Whenever a component of the Medicare program is revised and effective, use of the revised component shall be required for compliance with commission rules, decisions and orders for services rendered on or after the effective date of the revised component.

(b) For coding, billing, reporting, and reimbursement of facility services covered in this rule, Texas workers' compensation system participants shall apply the Medicare program reimbursement methodologies, models, and values or weights including its coding, billing, and reporting payment policies in effect on the date a service is provided with any additions or exceptions in this section.

(c) To determine the maximum allowable reimbursement (MAR) for a particular service, system participants shall apply the Medicare payment policies for these services and the Medicare ASC reimbursement amount multiplied by 213.3%.

(d) In all cases, reimbursement shall be the lesser of the:

(1) MAR amount established by this rule regardless of billed amount; or

(2) facility's and payer's workers' compensation negotiated and/or contracted amount that applies to the billed service(s).

(e) Notwithstanding Medicare payment policies, whenever Medicare requires a retroactive payment policy change, the change shall not apply to services already provided.

(f) Where any terms or parts of this section or its application to any person or circumstance are determined by a court of competent jurisdiction to be invalid, the invalidity does not affect other provisions or applications of this section that can be given effect without the invalidated provision or application.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on April 19, 2004.

TRD-200402581

Susan Cory

General Counsel

Texas Workers' Compensation Commission

Effective date: May 9, 2004

Proposal publication date: October 31, 2003

For further information, please call: (512) 804-4287

Chapter 143. DISPUTE RESOLUTION REVIEW BY THE APPEALS PANEL

28 TAC §§143.1, 143.3 - 143.5

The Texas Workers' Compensation Commission (the commission) adopts amendments to §143.1 (Definitions), §143.3 (Requesting the Appeals Panel to Review the Decision of the Hearing Officer), §143.4 (Responding to a Request for Review by the Appeals Panel), and §143.5 (Decision by the Appeals Panel) with changes to the proposed text published in the January 2, 2004, issue of the Texas Register (29 TexReg 51).

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 for or against adoption of the rule, and the reasons why the commission disagrees with some of the comments and proposals.

Changes were made to the proposed rules in response to public comment. No request for public hearing was received. Public comment closed February 2, 2004.

None of the adopted amendments place a duty or requirement on the commission that is not already in place by statute or rules, or through existing practice by the commission. The adopted rule amendments, however, clarify several procedural matters:

* Timeliness of Filing a Request for Review - how the commission will address the timeliness of a filing for an appeals panel review that is timely received in a commission location other than the Chief Clerk of Proceedings, such as a local field office of the commission; the adopted text stresses that filing documents directly with the commission's Chief Clerk of Proceedings will prevent delays that could reduce the time available for the appeals panel to review the documents and issue a decision, and that the appeals panel is without jurisdiction to consider an appeal that is not timely filed or to issue a decision after the 30-day time frame has expired.

* Service of the Request for Review on Other Parties - direction on how to serve a copy of the request on other parties, how to certify that a copy of the request has been served on other parties as required, and how the commission will attempt to confirm service.

* Conditional Requests for Review - how the commission will process and handle conditional requests for review.

* Counting Days - how the commission counts days and determines the date of "deemed receipt" that may trigger time deadlines for response and commission action, including the counting of Saturdays, Sundays and certain holidays.

* Identification of Registered Agents for Insurance Carriers - that the true corporate name of the insurance carrier and the name and address of its registered agent for service of process is included in a separate paragraph in each final decision of the appeals panel as required by statute.

These clarifications should eliminate confusion and errors on procedural matters and prevent disagreements regarding compliance with procedural matters. This should benefit all parties in the workers' compensation system, including the commission.

Adopted Amendments to §143.1. Definitions.

The adopted rule deletes the definition of "served on a party" because of new language in the amendments to §143.3 and §143.4. These sections better explain what constitutes service of a request for review and response to request for review on the other party or parties and how to certify that proper service was made. In response to comment, the commission has also in §143.3(a)(5) and §143.4(a)(5) expanded the methods of service that are appropriate, as discussed elsewhere in the preamble.

Adopted Amendments to §143.3. Requesting the Appeals Panel to Review the Decision of the Hearing Officer

The new language in §143.3(a)(3) clarifies that a request for review of a hearing officer's decision by the appeals panel filed anywhere in the commission tolls the 15-day deadline for filing a request for review. By statute, if the appeals panel does not issue its decision within 30 days from the date on which the written response to the request for appeal is filed, the decision of the hearing officer becomes final and is the final decision of the appeals panel. The amended language stresses that filing documents directly with the commission's Chief Clerk of Proceedings will prevent delays that could reduce the time available for the appeals panel to review the documents and issue a decision. The appeals panel is without jurisdiction to consider an appeal that is not timely filed or to issue a decision after the 30-day time frame has expired.

New §143.3(a)(5) provides clearer direction regarding how to certify that a copy of the request has been served on the other party or parties, and how that service must be accomplished. The commission believes that this provision will better assist parties in properly serving copies of requests on the other parties and in properly certifying that service was accomplished. The information formerly in §143.3(b) is now included in §143.3(a)(5).

New §143.3(b) explains that, where it is not clear that the appeal was properly served on the other party or parties, the hearings division will determine whether service has been accomplished and, if not, will provide a copy of the appeal to the other party. This language essentially puts into the rule the actual practice that has developed in the hearings division to ascertain that appeals filed (most commonly by unrepresented claimants, but occasionally by represented parties) are properly and timely provided to the other party.

New §143.3(c) describes a practice that has developed which addresses how the commission treats requests for review by the appeals panel, which are filed by parties on a "conditional" basis. Occasionally, a party who has received a decision that is generally favorable will file a request for review that the party only wants considered in the event the other party files a request for review. The provision makes it clear that the appeals panel will not consider such a filing as an appeal unless a timely request for review is received from the other party. In the event the other party does file a timely request for review, the appeals panel will treat the conditional appeal as the second appeal received and label it as the cross-appeal in the case. If no timely request for review is filed by the other party, the decision of the hearing officer becomes final.

New §143.3(d)(1)-(4) incorporates the rules that the commission uses to determine the date of receipt of the hearing officer's decision in order to calculate the timeliness of an appeal. Because there has been some confusion regarding the application of the provisions of §102 of the commission rules to the receipt of a hearing officer's decision, this provision provides the relevant information within this rule to be more clear and user-friendly for all parties.

The addition of §143.3(f) incorporates legislation enacted by the 77th Texas Legislature. House Bill 2600 amended Texas Labor Code, §410.202(d) to expressly exclude Saturdays and Sundays and holidays listed in Section 662.003, Texas Government Code from the computation of the time in which a request for appeal under §410.202(a) or a response under §410.202(b) must be filed. This rule incorporates the statutory language to provide consistent guidance to parties seeking to appeal. This amendment to the rule is not a change from how the commission has interpreted the rules in conjunction with the statute since June 17, 2001, the effective date of the provision. Adding this statutory language to the rule makes the information more easily available to system participants. The appeals panel has noted numerous errors in calculation resulting from parties consulting the rule without reviewing the statute. It should be noted that these were the only time computation provisions that were addressed in this regard by HB 2600. The statute did not exclude Saturdays, Sundays, or Section 662.003 holidays from the computation of the 30 days for the appeals panel to issue its written decision, or from the computation of the 41st day after the date the appeal decision is filed or deemed filed with the director of the hearings division.

Adopted Amendments to §143.4. Responding to a Request for Review by the Appeals Panel

The amendments to §143.4(a)(3) and (5), and §143.4(b) and (d) parallel the provisions for §143.3(a)(3) and (5), and §143.3(b) and (f) and pertain to responses to appeals.

Adopted Amendments to §143.5. Decisions of the Appeals Panel

The amendments to §143.5(a) incorporate legislation enacted by the 77th Texas Legislature. House Bill 2600 amended Texas Labor Code, §410.204(d) to require the true corporate name of the insurance carrier and the name and address of its registered agent for service of process in a separate paragraph in each final decision of the appeals panel. Although this is currently being done in compliance with the statute, the amended rule incorporates the statutory language.

Amendment to §143.5(d) updates the citation to the Texas Workers' Compensation Act to reflect its location in the Texas Labor Code.

The following groups submitted comments making recommendations, and/or supporting portions and opposing portions: Roy Leatherberry, Flahive, Ogden & Latson; and Susan Kelley, Hammerman & Gainer.

Summaries of the comments and commission responses are as follows:

§143.3

Comment:

Commenter comments that although a hearing officer's decision is deemed received five days after being sent to the claimant, clearly claimants receive these decisions much earlier. There should be an affirmative requirement for both parties to indicate the actual date of receipt as opposed to the deemed date, in order to ensure that the jurisdiction of the appeals panel is properly invoked.

Response:

The commission understands that the commenter wants an affirmative requirement for both parties to indicate actual date of receipt as opposed to using the deemed receipt date. Generally, carriers give the commission the actual date received, because the commission's copy of the decision is date stamped showing when the carrier received their copy through the carrier's representative box. Claimants frequently use the commission-generated form for appeals and put down the date they actually got the decision, often less than 5 days. When this occurs, the appeals panel uses the date provided. There may be instances where a party may get a spare few days because they omit any reference to the actual date of receipt, and use the 5-day deemed receipt rule to their advantage. The commission thinks these few instances and the short period of time that may be allowed as a result are inconsequential and do not justify building in an additional technicality that must be complied with.

Comment:

Commenter suggests that proposed §§143.3(a)(3) and 143.4(a)(3) are contrary to the 1989 Act by allowing appeals and responses to be submitted to field offices. Section 410.202 requires appeals and responses to be filed "with the appeals panel," not "with the commission." The appeals panel sits only in Travis County (§410.005(c)), not in field offices. There is no authority to vary from the unambiguous statutory language. The rule should clearly state that appeals and responses can ONLY be filed with the Chief Clerk of Proceedings in Austin.

Response:

The commission disagrees. The commission does not share the commenter's construction of statutory provisions. The idea proposed by the commenter (that the rule should clearly state that timely appeals and responses can ONLY be filed with the Chief Clerk of Proceedings in Austin) is similar to language that was considered and rejected by commission staff who believed it to be too restrictive and in conflict with commission policy. The proposed language, as further explained in the preamble, stresses the importance of filing an appeal or response with the Chief Clerk of Proceedings, but recognizes that appeals and responses are occasionally submitted to field offices where staff know to forward the documents to the Chief Clerk.

Comment:

It is bad public policy to accept appeals and responses throughout the state. Doing so rewards claimants or carriers who are negligent as to important details of their cases. The instruction letter is clear as to where, how, and when to send an appeal or response. Allowing claimants or carriers to not follow such instructions will lead to confusion and delay, and raise questions about the due dates for appeals panel decisions.

Response:

The commission disagrees. While the instruction letter is clear, and appeals and responses are usually submitted directly to the Chief Clerk of Proceedings pursuant to the instruction letter, it is the unrepresented claimant who most often files his or her appeal or response in a field office, as that is the only point of contact most unrepresented claimants have had with the commission. It is expected that carriers and claimants who are represented by attorneys will continue to file documents with the Chief Clerk of Proceedings.

Comment:

Allowing filings at field offices will greatly increase such filings, overburden field office staffs, and greatly increase the likelihood for error. Attorneys and carriers will opt for the more convenient and less expensive course of filing at the field office, especially at those field offices that are co-located in buildings with workers' compensation attorneys.

Response:

The commission disagrees. The first sentence of each provision provides that the appeal or response shall "be filed with the Chief Clerk of Proceedings in the commission's central office in Austin . . ." This is the preferred method of filing. The filing of the appeal or response at a field office is not expected to occur in any more instances than it does already, and the Rule warns that this method may result in delays in processing of the appeals or the responses. Additionally, the commission utilizes a co-location restriction clause in all new field office leases in order to eliminate co-location with regulated parties.

Comment:

Commenter suggests that subsection (d) need not reiterate those provisions already included in §102.5, but should simply reference the other rule, and that subsection (e) should more clearly incorporate or reference subsection (f).

Response:

Regarding subsection (d), the commission disagrees. As indicated in the proposal preamble, the commission put the necessary references within the rule so that common mistakes seen by the appeals panel can be avoided. Regarding subsection (e), the commission disagrees. The provision (e) does not need to include a reference to subsection (f), which follows immediately after (e).

Comment:

Commenter comments that this provision indicates that the service of request for review or response seems to be limited to personal delivery or delivery by certified mail, that it fails to account for other methods of delivery such as priority mail with delivery confirmation, fax, or email. In amending other rules recently the commission has considered delivery by "verifiable means" §130.1(d)(3)(B). §126.5(h) discusses various options, all of which should be available for delivery of the request or response.

Response:

The commission agrees. §143.1(5) of the former rule defined proper service on a party as "presented to a party in person, or mailed by certified mail, return receipt requested". In recent rule adoptions, the commission has expanded the methods of service to include others that afford verification of receipt. The commission agrees that this rule should not limit service method to only personal delivery or certified mail. The rule for adoption is modified at §143.3(a)(5) to make this change. The appeals panel has for quite some time been accepting faxes and email submissions of appeals and responses, both of which are easily "verifiable" from a timeliness standpoint, and will now also allow service of these documents on the parties by each other by these means as well.

§143.4

Comment:

Commenter suggests that, similar to §143.3, this provision provides that the service of request for review or response seems to be limited to personal delivery or delivery by certified mail, that it fails to account for other methods of delivery such as priority mail with delivery confirmation, fax, or email. In amending other rules recently the commission has considered delivery by "verifiable means" §130.1(d)(3)(B). §126.5(h) discusses various options, all of which should be available for delivery of the request or response.

Response:

The commission agrees. §143.1(5) of the former rule defined proper service on a party as "presented to a party in person, or mailed by certified mail, return receipt requested". In recent rule adoptions, the commission has expanded the methods of service to include others that afford verification of receipt. The commission agrees that this rule should not limit service method to only personal delivery or certified mail. The rule for adoption is modified at §143.4(a)(5) to make this change. The appeals panel has for quite some time been accepting faxes and email submissions of appeals and responses, both of which are easily "verifiable" from a timeliness standpoint, and will now also allow service of these documents on the parties by each other by these means as well.

Comment:

Commenter suggests that subsection (c) should more clearly incorporate or reference subsection (d).

Response:

The commission disagrees. The provision (c) does not need to include a reference to subsection (d), which follows immediately after (c).

§143.5

Comment:

Commenter suggests that although §143.3 contemplates situations where the request for review has not actually been served on the responding party (in which case the hearings division will forward a copy to the party), §143.5 should address the situation where the opposing party did not actually receive a copy of the request for review, and the hearings division was unable to discover that fact. In those cases, the responding party is unable to present its position, resulting in an unfair advantage to the requesting party. Since the deadline for issuing a decision by the appeals panel is triggered, not by the filing of the request but rather the filing of the response, the rules should provide that in the event that the appeals panel issues a decision and the responding party asserts that it never received the request for review, the requesting party must present verifiable proof (similar to §126.5(h)) that the request for review was delivered to the responding party. If the requesting party is unable to do so, then the appeals panel decision should be withdrawn and the responding party should be given its statutory time to respond. The appeals panel would then issue a second decision after having the opportunity to consider the party's response. Commenter believes that the appeals panel has historically inconsistently followed this procedure in "reconsiderations".

Response:

The commission disagrees. The process suggested is overly cumbersome, with little or no benefit to the parties. The commission is not in the position to be able to contact every requestor and potential respondent to confirm delivery of the request. Also, it is not uncommon for the opposing party to decide to not file a response to the appeal. The apparent concern is that a claimant will appeal to the appeals panel, not copy the carrier appropriately, and the carrier will be denied the opportunity to respond to the appeal. The commission believes that the carrier is in the best position to mark a case for follow-up regarding whether the claimant appealed after the carrier has received the hearing officer's decision and determined not to appeal it. Additionally, the commission does not believe that the statute contemplates the appeals panel issuing, then withdrawing decisions, and then reissuing new decisions after the opportunity to respond has been confirmed. Regarding the appeals panel's issuance of reconsiderations, the commission clarifies there are no secondary decisions issued as reconsiderations. The appeals panel has on occasion issued a letter explaining why there is no authority for the practice similar to motion for rehearing at the appeal level at the commission. These might have been in response to requests to reconsider, however, these should not be considered a decision in response to a motion for reconsideration.

Comment:

Commenter thinks that this rule should be clarified to indicate that it is improper to not review the case on the issue appealed simply because the requesting party was not aggrieved by the overall decision from the hearing officer.

Response:

The commission disagrees. The appeals panel considers every issue that the requesting party appeals, and if the overall decision is not adverse to the party filing the appeal, if the complained-of findings of fact are supported by evidence, the appeals panel will issue a short affirmance. To go into detail regarding issues raised in an appeal of a decision where the appealing party has prevailed is a waste of commission resources.

Comment:

The commenter thinks that the rule should specifically note that the appeals panel has the inherent authority to reform a finding of fact or conclusion of law to correct a clear clerical error on its own motion or at the request of a party to reflect current practice. This will reconcile the current practice with §140.5 and avoid the situation where a party has to file two requests, one with the appeals panel and the other (clerical correction request) with the Executive Director.

Response:

The commission disagrees. In reviewing the decision of the hearing officer, the appeals panel occasionally finds a clerical error that may or may not have been requested by a party already to be corrected through §410.206. If the correction to the hearing officer's decision is necessary to assure the resulting appeals panel decision is clear, the appeals panel will note the correction as a part of their decision to affirm, reverse and render, or reverse and remand. The commission does not agree that the rule needs to be clarified to formalize this process.

The amendments are adopted under Texas Labor Code, §402.061, which authorizes the commission to adopt rules necessary to administer the Act; Texas Labor Code, Chapter 410, Subchapter E, which sets out the requirements, powers, and duties of the appeals panel and the procedures for appeals panel review; and Texas Government Code §662.003 which sets out holidays recognized by the state of Texas for government offices.

§143.1.Definitions.

The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Appellant--A party to a benefit contested case hearing who is dissatisfied with the decision of the hearing officer, and files a request for review of that decision by the appeals panel.

(2) Request--The appellant's written appeal for review of the decision of a hearing officer.

(3) Respondent--The other party to a benefit contested case hearing who must file a response to the appellant's request.

(4) Response--The respondent's written answer to the appellant's request.

§143.3.Requesting the Appeals Panel to Review the Decision of the Hearing Officer.

(a) A party to a benefit contested case hearing who is dissatisfied with the decision of the hearing officer may request the appeals panel to review that decision. The request shall:

(1) be in writing;

(2) clearly and concisely rebut each issue in the hearing officer's decision that the appellant wants reviewed, and state the relief the appellant wants granted;

(3) be filed with the Chief Clerk of Proceedings in the commission's central office in Austin not later than the 15th day after receipt of the hearing officer's decision. Requests that are timely submitted to a commission location other than the Chief Clerk of Proceedings, such as a local field office of the commission, will be considered timely filed and forwarded to the commission's appeals panel for consideration, but this may result in delay in the processing of the request. Untimely requests, regardless of whether they are filed with the Chief Clerk of Proceedings in the commission's central office or in a different commission office, do not invoke the jurisdiction of the appeals panel and will not be reviewed by the appeals panel;

(4) be served on the other party on the same day filed with the commission; and

(5) contain a statement certifying that a copy has been served on the other party or parties in person, mailed by certified mail, return receipt requested, or transmitted by verifiable means. A certificate in substantially the following form shall be used: "I hereby certify that I have on this ____ day of ____________, _____ , served a copy of the attached request for appeal on _______________________________ (state the name of the other party or parties on whom a copy was served) by _______________________________ (state the manner of service)." _______________________________ Signature

(b) If it is not clear from the request for review that the party has properly served a copy of the request on the other party or parties, the hearings division shall attempt to contact the other party or parties and, if the contact indicates that the other party or parties have not received a copy of the request, provide a copy of the request expeditiously.

(c) A party may make a conditional request for review by the appeals panel even if the overall contested case hearing decision is favorable. A timely request that indicates that the filing party seeks consideration only if the opposing party files a request for review will not be treated as a request for review unless an opposing party timely files a request. If an opposing party does file a timely request, the conditional request will be treated as a cross-appeal.

(d) The commission shall deem that the parties received the hearing officer's decision:

(1) five days after the date the commission's letter was mailed to the parties, unless the great weight of evidence indicates otherwise;

(2) the first working day after the date the written communication was placed in a carrier's Austin representative box located at the commission's main office in Austin unless the great weight of evidence indicates otherwise;

(3) the working day that it was faxed by the commission, if faxed during normal business hours as defined in §102.3(c); otherwise, the next working day after the date faxed; or

(4) the working day that it was electronically transmitted by the commission, if transmitted during normal business hours as defined in §102.3(c); otherwise, the next working day after the date electronically transmitted.

(e) A request made under this section shall be presumed to be timely filed or timely served if it is:

(1) mailed on or before the 15th day after the date of receipt of the hearing officer's decision, as provided in subsection (a) of this section; and

(2) received by the commission or other party not later than the 20th day after the date of receipt of the hearing officer's decision.

(f) Saturdays and Sundays and holidays listed in Section 662.003, Government Code, are not included in the computation of the time in which a request for an appeal must be filed.

§143.4.Responding to a Request for Review by the Appeals Panel.

(a) The other party shall respond to the appellant's request. The response shall:

(1) be in writing;

(2) clearly and concisely support each issue in the hearing officer's decision that the appellant has rebutted in the request, and state why the appellant's relief should not be granted;

(3) be filed with the Chief Clerk of Proceedings in the commission's central office in Austin not later than the 15th day after the request was received by the respondent. Responses that are timely submitted to a commission location other than the Chief Clerk of Proceedings, such as a local field office of the commission, will be considered filed timely and forwarded to the commission's appeals panel for consideration, but this may result in delay in the processing of the response. Untimely responses, regardless of whether they are filed with the Chief Clerk of Proceedings or in a different commission office, will not be reviewed by the appeals panel;

(4) be served on the appellant on the same day filed with the commission; and

(5) contain a statement certifying that a copy has been served on the other party or parties in person, mailed by certified mail, return receipt requested, or transmitted by verifiable means. A certificate in substantially the following form shall be used: "I hereby certify that I have on this ____ day of ____________, _____ , served a copy of the attached response to a request for appeal on _______________________________ (state the name of the other party or parties on whom a copy was served) by _______________________________ (state the manner of service)." _______________________________ Signature

(b) If it is not clear from the response that the party has properly served a copy of the response on the other party or parties, the hearings division shall attempt to contact the other party or parties and, if the contact indicates that the other party or parties have not received a copy of the response, provide a copy of the response expeditiously.

(1) mailed on or before the 15th day after the date of receipt of the appellant's request, as provided in subsection (a) of this section; and

(2) received by the commission or other party not later than the 20th day after the date of receipt of the appellant's request.

(d) Saturdays and Sundays and holidays listed in Section 662.003, Government Code, are not included in the computation of the time in which a response must be filed.

§143.5.Decision of the Appeals Panel.

(a) Not later than the 30th day after the date the response was filed with the commission, the appeals panel will issue its written decision, concluding with a separate paragraph stating words to the effect: "The true corporate name of the insurance carrier is (NAME IN BOLD PRINT) and the name and address of its registered agent for service of process is (NAME AND ADDRESS IN BOLD PRINT)", and file a copy with the director of the hearings division.

(b) If the appeals panel does not issue a written decision by the 30th day after the date the response was filed with the commission, the hearing officer's decision becomes final, constitutes the decision of the appeals panel, and, for the purpose of establishing the time for seeking judicial review, is deemed filed with the director of the hearings division on that day.

(c) Not later than the seventh day after the appeals panel files its decision with the director of the hearings division, or a decision is deemed filed, as provided in subsection (b) of this section, the division shall send to each party a copy of the decision, or a notice that the hearing officer's decision has become final and constitutes the decision of the appeals panel.

(d) A decision of the appeals panel that is not appealed for judicial review, as provided by the Texas Labor Code §410.251, et seq., becomes final on the 41st day after the date the decision was filed, or deemed filed, with the director of the hearings division. Failure to comply with a final decision or order within 20 days of its becoming final is a Class A administrative violation, with a penalty not to exceed $10,000.

(e) A decision of the appeals panel that is appealed for judicial review is binding on the parties for the duration of the judicial review.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on April 19, 2004.

TRD-200402582

Susan Cory

General Counsel

Texas Workers' Compensation Commission

Effective date: May 9, 2004

Proposal publication date: January 2, 2004

For further information, please call: (512) 804-4287