the state of the texas workers’ compensation system 2011 · the state of the texas workers’...

A Copyrighted Publication of the Insurance Council of Texas

THE STATE OF THE TEXAS WORKERS’

COMPENSATION SYSTEM – 2011

State of the System: Very Good

A Copyrighted Publication of the Insurance Council of Texas December 27, 2011

2

This Page Intentionally Left Blank


3

STATE OF THE TEXAS WORKERS’ COMPENSATION SYSTEM – 2011

The State of the Texas Workers’ Compensation System, published by the Insurance Council of Texas

(ICT), is an annual publication that reports on the state of and developments in the Texas workers’

compensation system. This publication includes articles written by Insurance Council of Texas staff and

contributing authors who have extensive experience with the Texas workers’ compensation system. The

views expressed in articles that have been contributed to this publication do not necessarily reflect the

views, opinions, or position of ICT or its member companies.

Geoff Billings, Editor and Senior Regulatory Analyst, Insurance Council of Texas

Contributing Authors:

Joe R. Anderson, Founding Partner at Burns Anderson Jury & Brenner, L.L.P.

Anna Ansari, Associate, Burns Anderson Jury & Brenner, L.L.P.

Albert Betts, General Counsel of the Insurance Council of Texas and Partner at Thompson, Coe

Cousins & Irons, L.L.P.

Geoff Billings, Senior Regulatory Analyst, Insurance Council of Texas

Nick Canady III, Attorney, Downs Stanford, P.C.

Stuart Colburn, Shareholder, Downs Stanford, P.C.

Robert Graves, Partner at Burns Anderson Jury & Brenner, L.L.P.

W. Jon Grove, Jr., Of Counsel with Downs Stanford, P.C.

Bill Kidd, Central Bureau Chief, WorkCompCentral

Gregory Krohm, Executive Director, IAIABC

Joe Lawless, President, E-Health Data Systems

James Loughlin, Partner at Stone Loughlin & Swanson, L.L.P.

Steve Nichols, Manager, Workers’ Compensation Services, Insurance Council of Texas

Julie Shank, R.N., Owner, J Shank Consulting

Mark H. Sickles, Associate, Burns Anderson Jury & Brenner, L.L.P.

Robert Stokes, J.D., Shareholder Partner, Flahive Ogden & Latson, P.C.

Jane Stone, Partner at Stone Loughlin & Swanson, L.L.P.

Comments and Inquiries: Please send all comments or inquiries to Steve Nichols at the following

address, telephone number, or via [email protected]:

Insurance Council of Texas

P.O. Box 15

Austin, Texas 78767-0015

Phone 512/ 444-9611 - Fax 512/ 444-0734

Available as an electronic publication only.

mailto:[email protected]


4



5

Table of Contents

Title

Page Number

Introduction by Rick Gentry, Executive Director, Insurance Council of

Texas

Executive Summary: The State of the Texas Workers‘ Compensation

System – 2011

About the Insurance Council of Texas

Bordelon Reports Texas Workers‘ Comp System Performing Very Well

The State of the Texas Workers‘ Compensation System: Very Good

Key Stakeholders Weigh In on the State of the Texas Workers‘

Compensation System

Architect of House Bill 7 Workers‘ Comp Reforms Not Seeking Re-

Election

Effects of the 2005 Reforms on the Workers‘ Compensation Insurance

Market

TDI Study on Cost to Employers and Insurers Published

A.M. Best Reports Workers‘ Compensation Underwriting Performance

Continues to Weaken

The Workers Compensation Insurance Industry in the Aftermath of the

Great Recession

Employer Participation in the Texas Workers‘ Compensation System

A Perspective on the ABA Journal‘s Article ―Insult to Injury:

Texas Workers‘ Comp System Denies, Delays Medical Help‖

2011 Texas Legislative Regular Session Ends, DWC and TDI Sunset

Bills Passed

9

11

19

23

27

30

34

35

47

48

49

54

69

77

Navigating This Publication Is Easy

Did you know that you can navigate this publication by clicking on the page

number associated with the article you want to read that is located in the articles

table of contents?


6

Title Page Number

DWC Sunset Legislation Passed by Texas Legislature and Signed by

Gov. Rick Perry

Sunset Legislation Continuing TDI, OPIC and OIEC Passed by Texas

Legislature

Pharmacy Fee Discounts Legislation Passed by Texas Legislature,

Signed by Governor

Legislation Allowing Recoupment of Overpayment of Income Benefits

Passed; Rules Implementing Legislative Change Adopted by Workers‘

Compensation Commissioner

Legislation Extending the Deadline for Filing a Lawsuit at the

Conclusion of the Medical Dispute Resolution Process Passed; Bill

Signed by Gov. Rick Perry

Legislation that Tackles Doctor Shopping and the Diversion of Narcotic

Drugs Passed

Physician Dispensing Bill Dies, 2 Prescription Drug Bills Advanced

Texas Supreme Court Decision in Texas Mutual Insurance

v. Ruttiger Strengthens State‘s Workers‘ Comp Law

Rule-Making Process Initiated by DWC to Implement 2011 Legislative

Changes

New Pharmacy Fee Guideline Adopted By Commissioner Bordelon

Complaints in the Texas Workers‘ Compensation System Continue to

Fluctuate

Workers‘ Compensation Enforcement: ―Too Much Stick and Not

Enough Carrot‖

Trends in Complaints Filed with the Division of Workers‘

Compensation

DWC Announces 2011 Performance Based Oversight Results for

Doctors and Wraps Up Planning for 2012 Insurance Carrier PBO

Assessment

Medical Quality Review in the Texas Workers‘ Compensation System

New Medical EDI Reporting Rules Adopted by Commissioner Bordelon

Commissioner Bordelon Adopts Amendments to Benefit Review

Conference and Appeals Panel Rules

80

83

84

86

87

88

89

91

95

97

101

107

117

119

123

131

132


7

Title

Workers‘ Comp Commissioner Adopts New and Amended Enforcement

Rules

An Overview of Texas Workers‘ Compensation Indemnity Dispute

Resolution Process: Yesterday and Today

Evolution of the Benefit Review Conference in Texas

The Contested Case Hearing in the Texas Workers‘ Compensation

System

HB 2605 Statutory Changes to the Medical Dispute Resolution CCH

Process

The Role of the Appeals Panel in the Texas Workers‘ Compensation

Dispute Resolution System: A Survey of the History of and Evolution of

the Appeals Process

2011 Appeals Panel Update; ―I Hear The Train A Comin‖

The Year in Medical Disputes - An Overview

Overview of Benefits Under the Texas Workers‘ Compensation System

Medical Costs and Utilization of Care in the Texas Workers‘

Compensation System

Workers‘ Compensation Research Institute (WCRI) Reports An Increase

in Medical Costs

2011 TDI Network Report Card: A Review and Discussion

Summary of Findings of the Texas Department of Insurance, Workers‘

Compensation Research and Evaluation Group 2011 Workers‘

Compensation Report Card Results

TDI Reports on Access to Medical Care: Doctor Participation Stable and

Improving

Prescription Drug Abuse: A Growing National Problem

WCRI Releases Report on Interstate Variations in Use of Narcotics

The Case for Addressing Prescription Drug Abuse in Workers‘

Compensation

Prescription Drug Abuse Spurs Plans for Coalition, Control Measures

Page Number

133

137

146

153

159

160

165

174

182

189

221

223

231

234

241

250

252

255


8

Title

Update on the Implications of the Patient Protection and Affordable Care

Act for Workers‘ Compensation: Macroeconomic Case for Health

Reform

House Bill 528 – Informal and Voluntary Networks for Pharmaceutical

Services

Has the Era of E-Claims Portals Arrived?

Page Number

259

269

274


9

Rick Gentry

Executive Director

The State of the Texas Workers’ Compensation System – 2011

The Insurance Council of Texas (ICT) is pleased to present its State

of the Texas Workers’ Compensation System. This is our annual

report on the Texas system for the benefit of our membership. It

contains commentary and articles from our staff and a group of

authors who are considered experts in their field of workers‘

compensation insurance.

The report looks at a variety of related issues and concludes that on

the whole, the Texas system is working well in the aftermath of past

and recent legislative reforms.

Readers are reminded that since the publication of last year‘s report, another session of the Texas

Legislature has come and gone. The Texas Department of Insurance‘s Division of Workers‘

Compensation (DWC), now headed by Commissioner Rod Bordelon, went through the Sunset

Review process and was continued. The Texas Legislature once again passed legislation aimed at

improving the dynamic Texas system. Commissioner Bordelon and the staff of the DWC have

implemented the agencies rule-making process. System stakeholders can expect the rule-making

activity to continue on into the summer of 2012.

ICT General Counsel Albert Betts, a former DWC Commissioner, contributes his insights on the

2011 legislative session and other issues impacting the Texas system.

This year‘s report takes a look at the state of the Texas workers‘ compensation system as viewed

by Commissioner Bordelon, the Insurance Council of Texas, Texas Association of Business, and

Texas AFL-CIO. This report also looks at insurance fraud, system regulatory activities, enforce-

ment, income benefit adequacy, medical cost and utilization of care in the Texas system.

Additionally, this report includes commentary on access to health care, employer participation,

medical dispute resolution, complaint trends, the performance of the certified workers‘ health

care networks, and the latest return-to-work data.

We hope you find the information contained in this report useful and that it will assist you with

making important business decisions as your organization continues to navigate the Texas

workers‘ compensation system.

Respectfully,

Rick Gentry Rick Gentry

Executive Director


10



11

Executive Summary

The following are key findings about the state of the Texas workers‘ compensation system in

2011 noted by the Insurance Council of Texas:

There has been significant improvement in the performance of the Texas workers’ compensa-

tion system.

Workers‘ Compensation Commissioner Bordelon has reported that the Texas workers‘

compensation system is performing very well with insurance carriers reducing rates, fewer

disputes at the Division of Workers' Compensation (DWC), reductions in claims frequency and

improving accident frequency rates. (Page 23)

An indicator of how well the Texas system is performing is the increase in workers‘ compensation

insurance subscription rates among Texas employers. There are more employers purchasing

workers‘ compensation insurance policies and we have seen a significant increase in the

subscription rate. The subscription rate of employers is now at 68 percent with 83 percent of

employees in this state covered by workers‘ compensation. (Page 23)

Injured employee return-to-work outcomes in the Texas workers‘ compensation system have

improved significantly with 81 percent returning to work within 6 months post injury. In 2005

75% of injured employees returned to work within 6 months post injury. The return-to-work rate

increased 14 percent from 2005 to 2009. Long term return-to-work rates (1 year to 3 years post

injury) have gradually increased by 6 percent from 2005 to 2009. (Page 23)

Access to health care has improved in the Texas workers‘ compensation system. The improved

access to health care is due, in part, to an increase in the number of doctors who are willing to

take workers‘ compensation patients. The number of doctors treating injured employees has

increased from 16,702 to 17,687. The average number of injured employees per doctor has

decreased from 22.1 patients per participating physician in 1999 to 16.5 patients per physician in

2008 – a 25% decrease. (Page 25)

The number of workers‘ compensation claims has declined during the period of 2006 – 2010.

There were 116,775 injuries reported in 2006 compared with 99,116 in 2010. (Page 25)

The number of indemnity dispute resolution proceedings has declined from 43,000 in 2006 to

approximately 29,400 in 2010. Medical dispute cases have declined from 7,731 filed with the

DWC in 2006 to 4,471 filed in 2010. (Page 26)

The state of the Texas workers‘ compensation system is ― Very Good. System performance

data and current trends indicate that the Texas system is performing better than it has in quite

some time. (Page 27)

Workers‘ compensation insurance rates have decreased approximately 40 percent since 2003.

The decrease in insurance rates is good news for employers. (Page 28)


12

In 2009, more than 260 insurance companies had positive direct written premium for workers‘

compensation insurance. The total direct written premium for the workers‘ compensation

insurance market was about $2.18 billion in Texas. (Page 35)

The last seven years have been profitable for the workers‘ compensation insurance industry

which has responded by lowering rates, increasing schedule rating credits, and providing

discounts for participation in certified networks. The end result is that average premiums charged

to employers have come down. (Page 46)

Non-subscription is at a historic low of 32%, down from a high of 44% in 1993 and 38% in

2004. 68% of all Texas employers carry a workers‘ compensation insurance policy or have been

certified to self-insure. (Page 28)

The percentage of Texas employers that are nonsubscribers to the workers‘ compensation system

decreased from 37 percent in 2006 to 32 percent in 2010– the lowest percentage since 1993 (an

estimated 106,137 employers in 2010). However, in terms of employees covered, an estimated

17 percent of Texas employees (representing approximately 1.7 million non-public employees in

2010) worked for non-subscribing employers – the lowest percentage since 2001 when it was

16%. (Page 56)

The Texas Legislature met during its regular 2011 legislative session and passed legislation

that generally impacts the Texas workers’ compensation system in a positive manner.

The 82nd

Texas Legislature convened on Tuesday, January 11, 2011 and ended its regular session

on May 30, 2011 after having considered over 5000 bills. (Page 77)

The Texas Legislature passed sunset legislation – House Bill (HB) 2605 authored by Rep. Larry

Taylor (R-League City) – that continues the operations of the DWC until 2017. (Page 77)

HB 2605 incorporated many of the issues included in the Sunset Advisory Commission

decisions, such as statutory changes to the DWC designated doctor process, changes to the

administrative violation penalty provisions and DWC authority, changes to the medical dispute

process, benefit dispute resolution, and the DWC Medical Quality Review Panel. (Page 77)

The Texas Legislature passed the TDI Sunset bill, House Bill 1951, during the final hours of the

session. (Page 77)

The Texas Legislature passed House Bill 1774 continuing the Office of Injured Employee

Counsel until 2017. (Page 78)

The Texas Legislature passed Senate Bill 647 continuing the Office of Public Insurance Counsel

until 2017. (Page 78)

The Texas Legislature passed other workers‘ compensation legislation that included bills that

allow insurers to continue to use discount contracts for pharmaceutical care in workers‘ comp-

ensation; require staff leasing companies who provide workers‘ compensation coverage to


13

provide certain information upon request of a client company; amend the Texas Labor Code to

provide for the resolution of an overpayment or underpayment of income benefits under the

workers' compensation program; amend the Texas Labor Code to allow the workers‘ compen-

sation commissioner to contract with a data collection agent to fulfill certain data collection

requirements of the Texas Workers' Compensation Act; and amend the Texas Labor Code to

provide that a party to a medical dispute may file suit not later than the 45th day after the date on

which the division of workers' compensation of the Texas Department of Insurance mailed the

party the hearing officer's decision. (Page 78)

Several of the workers‘ compensation bills that were passed will require rulemaking and the

DWC sunset bill, HB 2605, has specific dates by which rules must be enacted for some of the

changes. Stakeholders can expect a significant amount of rule-making activity by the DWC

extending into the summer of 2012. (Page 79)

The Texas Legislature passed House Bill 2089 and amended the Texas Labor Code to provide

for the resolution of an overpayment or underpayment of income benefits. The legislation allows

the commissioner of workers‘ compensation to establish procedures to require an overpayment

of income benefits to be recouped from future income benefit payments and underpayments to be

paid in a future income benefit payment. (Page 86)

The Texas Legislature passed Senate Bill (SB) 809, authored by Sen. Kel Seliger (R-Amarillo).

SB 809 amends the Texas Labor Code to require a party that has exhausted its administrative

remedies under the act and is seeking judicial review of a hearing officer's final decision in a

contested case hearing regarding certain medical disputes must file suit not later than the 45th

day after the date on which the Division of Workers' Compensation mailed the party the hearing

officer's decision. (Page 87)

The Texas Legislature passed SB 158 and bolstered the fight against prescription drug abuse and

the diversion of narcotic drugs onto the streets of Texas. The legislation is a response to the

abuse of prescription drugs in Texas. (Page 88)

The Texas Department of Insurance’s Division of Workers’ Compensation (DWC) has been

very active with rule-making and enforcement activities. Insurance industry representatives

have expressed concerns about the DWC’s enforcement program.

The end of the 2011 legislative session signaled the beginning of a year or more of rule-making

by the Division of Workers‘ Compensation (DWC). The post-legislative session rule-making

process began in earnest on June 20, 2011 with the adoption of new medical state reporting rules.

The adoption of the medical state reporting rules was quickly followed by the proposal and

adoption of an amended pharmacy fee guideline rule. (Page 95)

DWC staff proposed and Commissioner Rod Bordelon adopted new rules and rule amendments

that include amended enforcement rules, rules that implement HB 2089 and provide a process for

addressing the recoupment of overpaid and payment of underpaid income benefits, and amended

benefit review conference (BRC) rules regarding the canceling and rescheduling of a BRC.

(Page 95)


14

DWC staff is currently preparing amended designated doctor rules that address training, testing

and eligibility to serve as a designated doctor, non-subscriber reporting rules, amended medical

dispute resolution rules that incorporate the venue change of HB 2605 and amended accident

prevention services rules. (Page 97)

The number of complaints received by DWC has fluctuated during the past few years. While

DWC received a total of 7,433 complaints in 2004, that number fell to 3,850 in 2006, but

increased to 8,613 in 2008. DWC received 6,520 complaints in 2009 and 6,472 in 2010.

(Page 101)

During Calendar Year 2010, the DWC received 342 medical reimbursement complaints as

compared to 501 in 2009. The DWC received 327 complaints regarding injured employees being

billed by health care providers. (Page 104)

In 2010 the DWC received 463 complaints related to the medical billing and payment process

and 81 complaints regarding preauthorization. (Page 104)

Historically, the workers‘ compensation enforcement process has been penalty driven since the

early 1990s when Senate Bill 1, a significant workers‘ compensation reform legislation, was

passed during the second session of the Texas Legislature in 1989. The penalty driven enforce-

ment process was a feature of the Texas workers‘ compensation system until House Bill (HB) 7

was passed in 2005. HB 7 introduced a performance-based oversight (PBO) linked to regulatory

outcomes. The DWC has incorporated the PBO concept of system oversight into its compliance

audit program, but has not consistently applied the PBO concept to its enforcement process.

Immediately after passage of HB 7, the agency appeared to be attempting to implement the PBO

concept in its enforcement program. Unfortunately, this trend disappeared after the 2008

changes in the structure of the enforcement program. (Page 108)

Many stakeholders believe that the enforcement portion of the oversight process has failed to be

shifted from a penalty driven process to a regulatory approach that fully incorporates a

performance based system that includes incentives for high performance and focuses compliance

efforts on poor performers in the system. (Page 108)

Some stakeholders, who do not believe adequate incentives have been put in place and are

concerned about the fact that the PBO concept does not carry over into the enforcement arena,

have recently started questioning the future of the PBO process. The stakeholders have cited

several examples of instances where the PBO ranking of an insurer made no difference in the

enforcement process and the TDI Enforcement Division has continued to pursue minor violations

rather than follow a performance based oversight approach to enforcement. (Page 112)

The Commissioner of Workers‘ Compensation has mandated a quarterly independent review

process for the Medical Quality Review Program. The review process is taken in consultation

with the DWC‘s Internal Audit program area. The purpose of the review process is to ensure

adherence to the medical quality review process. Any deviations from approved MQRP

procedures will be documented and reported to the Commissioner for appropriate corrective

action. This process will also be used to recommend improvements to the process and increase

accountability and transparency. (Page 130)


15

The dispute resolution system has evolved over time, faced several legislative changes and is

performing in an effective manner at this time.

The 82nd

Texas Legislature amended the provisions regarding benefit review conference

preparedness and requests to reschedule. Failure to appear at a BRC may result in forfeiture of

the right to attend a BRC. DWC has to adopt rules. In addition, the Appeals Panel can now

affirm a decision of a hearings officer in certain instances-case of first impression, involving a

recent change in law, incorrect conclusions of law, among others. (Page 144)

HB 2605, the sunset legislation that continued the DWC, amended the appellate process parties

must follow when appealing medical fee dispute cases adjudicated by the DWC and medical

necessity decisions issued by independent review organizations (IROs). (9)

Some system stakeholders feel the Appeals Panel has morphed from an independent judicial

body (as it was intended and implemented in 1991) to a more policy driven regulator. That is, the

current Appeals Panel is carrying out the DWC policy instead of acting independent and separate

from the regulator. (Page 162)

The Appeals Panel has drafted significant decisions changing the understanding of the maximum

medical improvement (MMI) provisions of the Texas Labor Code. In a recent Appeals Panel

Decision, the Appeals Panel felt it was immaterial that ―the claimant actually recovered or

improved during the period at issue, but whether, based on reasonable medical probability,

material recovery, or lasting improvement could reasonably be anticipated.‖ (Page 162)

The Appeals Panel is slowly adopting the Texas courts‘ understanding of causation. The Texas

Supreme Court has defined producing cause as a ―substantial factor bringing about an injury or

death, and without which the injury or death would not have occurred.‖ (Page 162)

The Appeals Panel has again chosen to create waiver not found in the statute or rules. Many feel

the latest effort to create waiver will ultimately lead to the same result – the rejection of this

practice by Texas courts. Texas courts have rejected the three previous attempts by the Appeals

Panel to ―write‖ waiver into the statute through its decisions. (Page 163)

The new Appeals Panel-created waiver will undoubtedly be challenged, perhaps by both

employer/carriers and claimants. If the Appeals Panel‘s previous attempts to create waiver are

any indication, the courts will strike down efforts to create waiver by Appeals Panel decision

when neither the statute nor rule authorize such a penalty. (Page 164)

The Appeals Panel has issued 102 to 114 decisions in the past three years. The Appeals Panel

has issued several significant decisions during the course of 2011. (Page 166)

As of October 21, 2011, there were 6,980 medical fee disputes pending at the Division of

Workers‘ Compensation (DWC). The single biggest category of disputes continues to be Afair

and reasonable@ disputes. (Page 174)


16

Disputes pending at the DWC are comprised of the following categories: professional fee,

contract, pharmacy, work comp specific, hospital fee, compensability/extent, 95-day, Section

409.0091 disputes, Ambulatory Surgical Center fee, preauthorization, and employee

reimbursement. (Page 174)

For reviews by an IRO commenced on or after June 1, 2012, parties to a network medical dispute

who disagree with an IRO's decision will be entitled to a contested case hearing to challenge the

decision. (Page 175)

For reviews conducted by the DWC on or after June 1, 2012, hearings on all medical necessity

disputes (both prospective and retrospective) will be heard at the DWC field offices. There will

no longer be hearings on medical necessity disputes at the State Office of Administrative

Hearings (SOAH). (Page 175)

In 2011, fair and reasonable and Stop-Loss disputes were by far the two largest categories of

disputes, with thousands of disputes and tens of millions of dollars at stake. These disputes will

continue to play center stage for the next several years that it will take to finally resolve all of

these legacy disputes. (Page 180)

Workers' compensation is a no-fault system wherein an injured employee can collect benefits

even if he or she is responsible for their accidental injury, as long as the injury is work related.

Workers' compensation is the exclusive legal remedy for employees who suffer workplace

injuries, except in cases of gross negligence resulting in the death of the employee. (Page 182)

Workers‘ compensation benefits are not intended to be a complete income replacement nor are

the benefits levels intended to compensate for any extra damages. The income benefit amount is

determined by law and is usually 70 to 75 percent of the injured worker's wages at the time of the

injury, depending upon the type of income benefit. (Page 182)

During the 2009 legislative session and interim legislative hearings prior to the 2011 legislative

session there was significant discussion about income benefit levels and their adequacy as

income replacement. Much of the discussion dealt with high wage earners or catastrophic

injuries and whether the current benefit structure was sufficient to address all injury situations.

This was done as part of House and Senate interim studies on third-party liability issues in

workers‘ compensation. Representatives of labor and the trial lawyer bar testified on the

inadequacy of the benefits when compared to recovery available in the civil trial system. Despite

this intense discussion, there was very little mention of this issue during the 2011 session and

only a few bills introduced to increase income benefit levels. (Page 184)

The increase in benefit levels has resulted in fewer workers reaching the maximum benefit

allowed by law. According to the Workers‘ Compensation Research and Evaluation Group‘s

(WCREG) 2010 report on Income Replacement Adequacy in the Texas Workers’ Compensation

System, the increase in maximum average weekly wage had resulted in a decrease in the percent-

age of injured workers reaching the maximum level. (Page 185)

Weekly maximum TIBs payment remained virtually unchanged from 2000 to 2006 (from $531

to $540), resulting in an increase in the percentage of injured workers capped at the maximum


17

benefit (from 15% to 23%). The weekly maximum TIBs payment increased in 2006 and in 2007

(to $674 and $712 respectively) resulting in a decrease in the percentage of injured workers

capped at the maximum benefit (from 23% to 16%). (Page 185)

System medical costs are down with the decrease attributed to reductions in injury rates and

increased scrutiny by insurance carriers of compensability and medical necessity issues.

According to a December 2010 report published by TDI‘s Workers‘ Compensation Research and

Evaluation Group (WCREG) and titled Setting the Standard: An Analysis of the Impact of the

2005 Legislative Reforms on the Texas Workers’ Compensation System, 2010 Results, the Texas

workers‘ compensation system has just begun to fully realize the effects of the various legislative

and regulatory reforms enacted by HB 2600. Some of the 2005 HB 7 provisions are beginning to

take effect, especially the implementation of treatment guidelines and certified health care

networks. (Page 189)

Average medical costs per claim decreased significantly from the peak in 2002 until 2006, but

they are in an increasing trend since 2006. Stabilized costs and the substantial reduction in

utilization of care since 2001 are directly related to various reform measures of HB 2600 and HB

7, especially the passage of the 2003 professional services fee guidelines and the expanded

preauthorization requirement for physical medicine services. Over this same time period, much

of the reduction in total medical payments occurred due to reductions in injury rates and the total

number of reportable claims filed with the DWC accounts. However, increased scrutiny by

insurance carriers in terms of compensability and medical necessity issues as well as changes in

reimbursement amounts, the adoption of the Medicare payment policies in 2003, and the added

preauthorization requirements for physical medicine services have also helped reduce

overutilization and medical cost inflation in Texas. (Page 220)

After reviewing preliminary data from the initial stages of network implementation, TDI‘s

WCREG has concluded that it appears that injured workers are receiving as much medical care,

and in some cases more medical care, than non-network claims with similar types of injuries.

(Page 220)

While it is too early to fully evaluate the impact of networks on medical costs and utilization of

care in Texas, it is clear that with the exception of hospital services, networks‘ attempts to lower

medical costs through the negotiation of lower fees with health care providers have not produced

lower medical costs, but rather increases in the amount of certain types of medical care being

billed by network providers. Increased hospital costs for networks appear to be driven by higher

fees for these services compared to the DWC‘s fee guidelines. (Page 220)

It has been over five years since the first Texas workers‘ compensation network was certified

and began enrolling and treating injured employees. Calculating the actual cost and indirect

positive rewards or negative consequences of the networks has been on-going throughout this

time. The most recent network report card, as with most studies, has resulted in more questions

being raised and the call for more in-depth research. As claims mature and lessons are learned, it

is certain that the network landscape will continue to evolve. (Page 230)


18

A report by TDI‘s Workers‘ Compensation Research and Evaluation Group (WCREG) indicate

that the total number of physicians participating in the Texas workers‘ compensation system is

increasing and is stable. (Page 234)

The report noted that overall physician retention rate is high and stable with 80 percent annual

retention rate for all workers‘ compensation participants. (Page 235)

The workers‘ compensation health care market is highly specialized due to the nature of

occupational injuries, the reimbursement and review process, regulatory rules, and the initial

investment costs for the providers that include training for exams and reports, adapting to rules

and procedures, special devices and so forth. (Page 235)

The Texas workers‘ compensation system has ―pockets‖ of areas in the state – mainly rural areas

– where injured employees are experiencing access to care issues. In such instances, it has been

reported that injured employees are required to travel a significant distance to obtain treatment

from specialists. (Page 240)

Texas has one of the highest average number of pills per prescription with 53 pills per prescript-

tion – California tops the list with 68 pills per prescription. Texas has the second highest number

(10,432) of non-surgical cases with narcotic drugs prescribed in the first quarter post injury that

received narcotic drugs in subsequent quarters – California was the highest with 14,455.

(Page 251)

10% of Texas claims involved the long-term use of narcotic drugs. Compared with what was

typical of the 17 states in a recent WCRI study, physicians in Texas are more likely to prescribe

narcotic drugs to treat pain and the average injured employee who had narcotic drugs received a

higher amount of narcotic drugs per claim despite the fact that stronger Schedule II narcotic

drugs were rarely used in the state. (Page 251)

There is an urgent need for the adoption of a rule that establishes a pharmaceutical case manage-

ment process that would focus on the most ―at risk‖ claims where prescription drug abuse exists.

Without the adoption of such a rule, physicians and insurers will continue to struggle with

addressing prescription drug abuse in the Texas workers' compensation system. (Page 255)

The Texas Association of Business, which is the state's largest business organization, is

concerned about the prescription drug abuse issue and is working to form a coalition to tackle the

problem. (Page 258)

During the 2011 regular legislative session, the 81st Texas Legislature passed House Bill 528

(HB 528), which was signed by Governor Perry and became law effective June 17, 2011

allowing carriers or their authorized agents to continue to contract with voluntary and informal

networks for discounted pharmacy reimbursement contracts. The bill also established

requirements for contract disclosure and contract reporting to the Texas Department of

Insurance, Division of Workers‘ Compensation (DWC). (Page 269)


19

ABOUT THE INSURANCE COUNCIL OF TEXAS

The Insurance Council of Texas (ICT) was created when the Texas Insurance Advisory Association

and Texas Automobile Insurance Services Office merged effective September 1, 1996. For over 70

years, these two Texas-based associations had been the principal property and automobile insurance

associations for companies operating in Texas.

The merger of these two organizations created a stronger and more efficient trade association through

which insurers can collectively represent their interests in the regulatory process and stay abreast of

those events that affect the business of insurance in Texas. Importantly, the Council does not seek to

compete with national trade associations, but rather to work in harmony with them. The ICT has a

staff of 41 employees who work under the guidance of its Executive Director – Rick Gentry.

Membership in the ICT is open to all property and casualty insurance companies operating in Texas.

At present, our ranks include some 500 companies that are diverse in size, product line, and method

of distribution. The diversity in membership is reflected in the composition of our board of directors

which in turn strengthens the leadership of the association.

The ICT represents its members at regulatory hearings effecting residential property and private

passenger and commercial auto, and workers‘ compensation insurance.

ICT‘s committee members and board of directors play an active role in developing regulatory

proposals as well as our responses to issues affecting the member companies.

ICT staff attends hearings and other insurance related meetings of the Texas Department of Insurance

(TDI) and TDI‘s Division of Workers‘ Compensation (DWC) and provides prompt and accurate

reports of the proceedings to the membership.

ICT publishes a monthly newsletter, Texas Insurance Newsletter, which reports on important

legislative, judicial and regulatory events. We also publish the Texas Workers’ Compensation

Update newsletter and numerous bulletins reporting on the ever changing workers‘ compensation

rules and related public policy.

ICT hosts the Annual Mid-Year Property and Casualty Insurance Symposium and the Annual

Workers‘ Compensation Conference that provides persons interested in the Texas insurance industry

with an update on important issues. ICT also holds workers‘ compensation seminars around the state

that provide continuing education opportunities for insurance professionals, adjusters, attorneys, and

others who work within the Texas industry.

ICT‘s Workers‘ Compensation Services program is managed by Steve Nichols who has over 20

years experience in the Texas workers‘ compensation system. Geoff Billings, ICT‘s Senior Workers‘

Compensation Regulatory Analyst, serves as the editor of ICT‘s workers‘ compensation newsletter

and manuals. Billings and Nichols rely upon direction from the members of ICT‘s Workers‘

Compensation Committee and effectively represent the interests of ICT‘s membership before TDI

and the DWC.

http://www.insurancecouncil.org/committees.asp#13


20



21

STATE OF THE WORKERS’ COMPENSATION SYSTEM


22



23

Bordelon Reports Texas Workers’ Comp System Performing Very Well

Commissioner Rod Bordelon

The Commissioner of Workers‘ Compensation, Rod Bordelon,

delivered the keynote speech at the Insurance Council of

Texas‘ annual workers‘ compensation conference held on

September 8, 2009 in Austin, Texas. Commissioner Bordelon

reported that the Texas workers‘ compensation system is

performing very well with insurance carriers reducing rates,

fewer disputes at the Division of Workers' Compensation

(DWC), reductions in claims frequency and improving

accident frequency rates.

Bordelon reported that the DWC had just gone through the

Sunset Review process and the agency had been continued for

6 years until 2017. The commissioner said HB 2605 by Rep.

Larry Taylor (R-League City) also made several changes to the

Texas Labor Code and that DWC staff is preparing to imple-

ment the legislative changes through the agency‘s rule-making

process.

Commissioner Bordelon said, ―The many past legislative reforms made to the Texas workers‘

compensation system have been successful and the system is strong and vibrant.‖

Bordelon reported that there is currently $1.92 billion worth of workers‘ compensation premiums

written by 265 insurance carriers. The commissioner said there has been a steady decline in

premium rates which started in 2003 and that this is a good development for Texas employers.

Bordelon added that the Top 10 workers‘ compensation insurance carriers have filed an average

rate decrease of 8 percent. He noted that there has been a 41.2 percent drop in premium rates

indicating that the system is doing very well.

Commissioner Bordelon said another indicator of how well the Texas system is performing is the

increase in workers‘ compensation insurance subscription rates among Texas employers. ―There

are more employers purchasing workers‘ compensation insurance policies and we have seen a

significant increase in the subscription rate,‖ said Bordelon. ―The subscription rate of employers is

now at 68 percent with 83 percent of employees in this state covered by workers‘ compensation.‖

Bordelon added that injured employee return-to-work outcomes in the Texas workers‘

compensation system have improved significantly with 81 percent returning to work within 6

months post injury and that the increase in return-to-work is very good news.

A 2011 return-to-work outcomes report published by the Texas Department of Insurance‘s (TDI)

Workers‘ Compensation Research and Evaluation Group noted that in 2005 75% of injured

employees returned to work within 6 months post injury. The return-to-work rate increased 14

percent from 2005 to 2009. Long term return-to-work rates (1 year to 3 years post injury) have

gradually increased by 6 percent from 2005 to 2009.

http://www.legis.state.tx.us/BillLookup/History.aspx?LegSess=82R&Bill=HB2605

http://www.tdi.texas.gov/reports/wcreg/documents/RTW_2011_0906201.pdf


24

Percent of Injured Employees Back at Work for the First Time, 6 Months to 3 Years Post

Injury (2005 – 2009)

Percent of Injured Employees Back at Work and Remaining Employed for 3

Consecutive Quarters, 6 Months to 3 Years Post Injury, Injury Years 2005 – 2009


25

Access to Health Care Has Improved

Commissioner Bordelon reported that access to health care has improved in the Texas workers‘

compensation system. Bordelon said the improved access to health care is the result of an

increase in the number of doctors who are willing to take workers‘ compensation patients.

The number of doctors treating injured employees has increased from 16,702 to 17,687. The

commissioner noted that the average number of injured employees per doctor has decreased from

22.1 patients per participating physician in 1999 to 16.5 patients per physician in 2008 – a 25%

decrease.

Number of Claims Have Decreased, Concern Exists About On-the-Job Fatalities

Bordelon reported that the number of workers‘ compensation claims has declined during the

period of 2006 – 2010. He noted that there were 116,775 injuries reported in 2006 compared

with 99,116 in 2010. The commissioner noted that the decrease is due, in part, to employers

doing a better job making the workplace safer.


26

Commissioner Bordelon said that while the number of claims is down, he is concerned about an

increase in the number of on-the-job fatalities. The commissioner said that while there has been a

drop of fatalities from 528 in 2007 to 456 in 2010 he believes the number of fatalities is still

much too high.

Fewer Disputes

Commissioner Bordelon reported that disputes are down. The number of indemnity dispute

resolution proceedings has declined from 43,000 in 2006 to approximately 29,400 in 2010.

Medical dispute cases have declined from 7,731 filed with the DWC in 2006 to 4,471 filed in

2010.

Number of Requests for Medical Dispute Resolution, Calendar Years 2006 – 2010

Source: Texas Department of Insurance, Division of Workers' Compensation

DWC Enforcement Back Log Addressed; Fines Doubled

Commissioner Bordelon said the DWC and TDI workers‘ compensation enforcement program

has faced some challenges in the recent past. He noted that the DWC was not doing a very good

job moving enforcement cases in the past but that steps have been taken to improve the

performance of the enforcement team.

Bordelon reported that he had merged the DWC‘s Enforcement Team with TDI‘s Enforcement

Division and that an internal performance measure has been implemented to require all enforce-

ment cases be acted upon within 180 day of receiving a referral for possible enforcement action.

He noted that prior to the changes, there were 660 enforcement cases back logged in the DWC

Enforcement Section and that action has been taken to significantly reduce the back log.


27

The commissioner reported that 130 enforcement orders have been issued thus far in 2011. Fines

have doubled from $1.05 million in 2010 to $1.92 million thus far in 2011. He noted that the

increase of fines was due to the timely prosecution of enforcement cases.

Looking Ahead

Commissioner Bordelon reported that the DWC is moving ahead with several rule-making

initiatives that implement the changes made to the Texas Labor Code and Texas workers‘

compensation system by the Texas Sunset Review legislation – HB 2605. He noted that all HB 7

rule-making had been completed by the end of 2010 with 50 major rule-making actions.

The commissioner said once all of the legislative changes are implemented by rule, he hopes

system stakeholders and the DWC can catch their collective breath and see how the system

performs in the wake of the many changes made to it.

Bordelon noted that he does not anticipate any major changes being made to the Texas workers‘

compensation system in 2013.

Commissioner Bordelon concluded his keynote speech by noting that many states look to Texas

when it comes to reforming their respective workers‘ compensation systems and would not be

surprised if those states follow Texas‘ lead going forward.

The State of the Texas Workers’ Compensation System: Very Good

By Steve Nichols, Insurance Council of Texas

After carefully analyzing system performance data

obtained from the Texas Department of Insurance

(TDI), TDI‘s Division of Workers‘ Compensation,

Workers‘ Compensation Research Institute and

National Council on Compensation Insurance the

Insurance Council of Texas (ICT) has concluded

that the state of the Texas workers‘ compensation

system is ― Very Good. System performance data

and current trends indicate that the Texas system is

performing better than it has in quite some time.

The improved performance of the Texas system is

evident throughout the various processes and

programs that system stakeholders interface with

on a daily basis.

ICT‘s conclusion that the Texas workers‘ compensation system is working very well is

supported by system performance data. Additionally, many stakeholders believe that the state of

the system is significantly improved.

System

https://wwwapps.tdi.state.tx.us/inter/perlroot/wc/systemreports/index.html


28

The following statistics back up ICT‘s conclusion:

● The number of claims is down – 116,785 in 2006 as compared to 97,075 in 2010.

● In 2006, 7,955 out of 116,785 claims had a dispute resolution proceeding held (7%).


● In 2006, there were 7,731 medical disputes filed with the DWC as compared to only

4,471 filed in 2010.

● According to a Texas Department of Insurance (TDI) report to the Texas Legislature, as

of November 2010, workers‘ compensation insurance rates have decreased approximately

40 percent since 2003.

● According to a 2010 TDI report on participation of Texas employers in the Texas system,

the number of employers who have chosen to non-subscribe is at a historic low of 32%,

down from a high of 44% in 1993 and 38% in 2004.

The number of disputes – indemnity and medical – has declined dramatically since the passage

of House Bill 7 by the Texas Legislature in 2005. System medical costs are down and there is a

focus on the delivery of quality health care through certified workers‘ compensation health care

networks and in the non-network treatment setting. Outcome based treatment guidelines have

been adopted and provide physicians, health care providers and insurance carriers with good

guidance about what is appropriate health care treatment.

Return-to-work outcomes continue to improve. Insurance premiums paid for workers‘ compen-

sation insurance coverage have continued their downward trend. Perhaps one of the key

indicators that the Texas system is performing well is the fact that there are fewer employers who

have elected not to purchase workers‘ compensation insurance coverage.

Is the Texas Workers’ Compensation System Perfect?

The simple answer to the question ―Is the system perfect?‖ is No. No workers‘ compensation

system is perfect. However, it is worth pointing out that state leadership, the Texas Legislature,

system stakeholders and the state‘s regulatory agencies have all worked hard to fix problems in

the Texas system and improve it for all stakeholders. Texas‘ lawmakers, regulators and stake-

holders continue to be committed to improving the workers‘ compensation system.

The Texas system does have critics who believe that problems exist that warrant a ―fix.‖ The

critics of the Texas workers‘ compensation system most often cite the following issues as being

unresolved issues within the Texas system that need attention:

● Income benefit levels are inadequate for most injured employees;

● Income benefit levels for high salaried employees are inadequate;

http://www.tdi.texas.gov/reports/wcreg/documents/Setting_the_Standard.pdf

http://www.tdi.texas.gov/reports/wcreg/documents/Non-sub%202010.pdf


29

● Attorney fees are too low and have resulted in fewer and fewer attorneys practicing

workers‘ compensation law and representing injured employees;

● Workers‘ compensation medical benefits delivery should be more like group health

insurance;

● Fees for doctors, facilities and other health care providers are too low;

● The system is full of ―hassle factors‖ that drive good physicians out of workers‘

compensation;

● The deck is stacked against an injured employee who cannot find an attorney to represent

their interests in both the dispute resolution process and Texas courts;

● There are too many disputes raised by insurance carriers;

● The workers‘ compensation enforcement program is penalty driven and does not

follow the performance based concept set out in the Texas Labor Code that awards high

performers and focuses audits and enforcement resources on poor performers ; and

● The Texas system is too complex and over-regulated.

Those issues have been the basis for legislation filed during several past legislative sessions.

Without doubt, it is fair to say these same issues are expected to be the subject of future

legislation.

The Bottom Line

While there may be some issues that need to be

addressed by public policy-makers, the Texas

system is performing very well. It is important for

regulators and stakeholders to keep a watchful eye

on current and future trends so as to monitor the

system‘s performance and be in a good position to

address developments that could lead the system in

the wrong direction.

ICT does not doubt for a moment that the state‘s

leadership, Texas Legislature, system stakeholders

and the state‘s regulatory agencies will monitor the

performance of the Texas workers‘ compensation

system and take appropriate action to maintain, if

not improve, the system‘s performance. One can

only hope that a year from now ICT will either

once again report that the system is performing

very well or – even better – that there has been

further improvement in system performance.


30

Key Stakeholders Weigh In on the State of the Texas Workers’ Compensation System

By Steve Nichols, Manager, Workers‘ Compensation Services, Insurance Council of Texas

The key stakeholders in the Texas workers‘

compensation system – employees and

employers – both feel that the Texas workers‘

compensation is much improved as compared

to the state of the system in the late 1980s.

However, both feel that there is room for

improvement in the Texas system.

The Texas AFL-CIO and Texas Association of

Business are often on the opposite sides of an

issue. For example, the Texas AFL-CIO favors

mandatory workers‘ compensation insurance.

The Texas Association of Business supports

optional workers‘ compensation insurance

coverage that allows employees to determine

whether or not they will purchase coverage.

To obtain the perspectives of labor and

business on the state of the Texas workers‘

compensation system, ICT reached out to

Richard Levy, Legal and Education Director of the Texas AFL-CIO and Cathy Stoebner DeWitt ,

Vice President of Governmental Affairs at the Texas Association of Business, and invited each to

share their organizations view on the state of the Texas system.

Texas AFL-CIO Concerned about Benefit Levels and Non-Subscription

The Texas AFL-CIO is concerned about what they view as issues that threaten the viability and

integrity of the system.

Richard Levy

―The prevailing notion is that everything is just swell with the

Texas workers‘ compensation system,‖ said Richard Levy,

the Texas AFL-CIO‘s Legal Director. ―While it is

undeniable that legitimate progress has been made in recent

times, there remain issues that threaten the viability and

integrity of the system.‖

Levy said, ―Benefit inadequacy is becoming more and more

problematic, particularly for more seriously injured

claimants. We almost need to notify the Environmental

Protection Agency because Supplemental Income Benefit

payments are rapidly becoming an endangered species.‖

―Labor, along with everyone else and in the spirit of compromise and shared sacrifice, put their

shoulder to the wheel of reform and worked collaboratively to make the system work better for


31

everyone. Now that the benefits of that reform have begun to be realized, we need to make sure

that workers too share in the gains,‖ said Levy.

Texas AFL-CIO Says Non-Subscription is an Ominous Issue

Levy said that a second and even more

ominous issue is non-subscription.

―Almost one third of all employees in Texas

now work without the protection of workers‘

compensation insurance,‖ said Levy. ―Large

non-subscribers, and many smaller ones as

well, increasingly use sophisticated measures

such as mandatory arbitration, ERISA plans

and so forth to deny workers access to the

court house when they are hurt in a workplace

not covered by workers‘ compensation.‖

Levy reported that anecdotally, the Texas AFL-CIO hears reports of workers who present for

care at public hospitals, who lose their jobs with no benefits at all, who have to move forward in

their lives without any coverage from their employer whatsoever.

―For employers that participate in the workers‘ compensation system, you are able to see exactly

how many employees are hurt, what income benefits they receive, how long they were off work,

the cost of their medical care, the cost of premiums, the quality of their medical care, and more,‖

said Levy. ―You also know, importantly, that taxpayers are not footing the bill for medical care

for workers who are injured at work. In short, you have the data you need to determine whether

the system is working properly for workers and employers in this state.‖

Levy noted that for non-subscribers, on the other hand, public policy-makers and system

stakeholders know absolutely none of this information. ―Less than ten percent of non-

subscribers even bother to comply with their minimal obligation under current law to even report

the injury. Even for those that do, however, we have absolutely no information as to any of data

that you have invested so heavily in collecting from employers who do carry workers‘

compensation to protect their workers, said Levy. ―Amazingly, we don‘t even know how much

of injured workers‘ medical care is paid for by the taxpayers in the form of uncompensated

emergency care.‖

Levy said that by not requiring the reporting of non-subscribers workers‘ compensation data,

there is an ever increasing perverse incentive in this state for employers to not carry workers‘

compensation insurance. If employers carry workers‘ compensation, we collect their data,

mandate what we determine to be sufficient benefit levels, enforce at least minimal standards of

fairness in adjudicating claims, maintain administrative and judicial oversight of their behavior,

etc. We evaluate success and failure.

Non-Subscription


32

For the non-subscriber, public policy-makers and system stakeholders turn their heads and allow

virtually whatever the employer chooses to do. ―We unfortunately force employers who do carry

workers‘ compensation insurance, to compete with those who shirk this responsibility, and what‘s

more, to subsidize those who do not by increasing their taxes to pay for the uncompensated

medical care non-covered workers must seek when they are hurt,‖ said Levy. ―We allow them to

employ such legal tactics as mandatory arbitration, post-injury waivers, and termination of injured

employees to avoid responsibility for their actions.‖

Levy noted that the balance is precarious and asked at what point do enough employers decide to

strike out on their own that the very existence of the Texas workers‘ compensation system is

threatened?

The Texas AFL-CIO has long been a proponent of mandatory workers‘ compensation for all

employers and employees in this state.

We believe that no worker who is injured at work should be left at the mercy of the employer‘s

largesse, or lack thereof,‖ said Levy. ―This state has at least an obligation to at least look

squarely at the facts of the situation and collect the data necessary to at least fairly evaluate the

merits of the current arrangement. To do less is simply irresponsible in terms of our obligation

to injured workers and their families, employers and taxpayers who too often are left with the

bill.‖

Texas Association of Business Pleased With the State of the Texas System But Concerned

About Prescription Drug Abuse and Addiction

The Texas Association of Business (TAB) is currently pleased with the state of the Texas

Workers' Compensation System and believes the system is performing very well.

Cathy Stoebner DeWitt

―The 2005 reforms have definitely made a positive impact

on costs as well as the functionality of the system,‖ said

Cathy DeWitt. ―While tweaks are always necessary in

such a complex system, TAB firmly believes that few

changes need to be made or should be made so the

reforms can firmly take hold. With this being said, there

is one area of reform that cannot wait -- the over usage

of prescription drugs, mainly opiates.‖

DeWitt noted that health officials say that enough

prescription painkillers were prescribed last year to

medicate every adult every four hours for an entire month,

and this type of drug abuse is costing insurance

companies up to $72.5 million each year. Just a few

months ago, the Center of Disease Control (CDC)

reported that nearly 1 million people in the United States

are currently addicted to some type of opiates.


33

―While the cost is of concern, even more concerning is that inappropriately used prescription

pain medications kill 15,000 people in the United States each year, according to a report released

by the Center for Disease Control (CDC),‖ said DeWitt. ―Simply put, prescription narcotics

prescribed kill 40 people per day.‖

DeWitt said TAB is concerned about what has been called a national epidemic wherein

prescription drugs are being abused and illegally diverted to our nation‘s streets and the streets of

Texas cities and towns.

―According to the CDC, prescription drugs,

including opioids and antidepressants, are

responsible for more overdose deaths than

―street drugs‖ such as cocaine, heroin, and

amphetamines,‖ said DeWitt. ―To tackle this

critical issue, TAB is currently putting together

a coalition to promote responsible prescription

drug use.‖

DeWitt noted that this is one area of reform that

must be tackled next session in the area of

workers' compensation as well as in Texas as a

whole.

―TAB will be inviting all stakeholders and

interested parties to take part in this group as

input from all parties will be needed for there to

be real change,‖ concluded DeWitt.

Conclusion

It is not surprising that both labor and business agree that the Texas workers‘ compensa-tion

system is much improved. It is equally not surprising that both key stakeholders believe that

there are issues that must be tackled to continue to improve the state of the Texas workers‘ com-

pensation.

System stakeholders can expect to see the issues raised by the Texas AFL-CIO and Texas

Association of Business discussed at future legislative hearings. It is even possible that those

issues may result in legislation being filed to address what the two key system stakeholders view

as being major issues of concern. Until that time, stay tuned as the Texas workers‘ compensation

moves forward.

Be Part of the Solution. Help Stop Prescription Drug

Abuse in the Texas Workers’ Compensation System

Report Prescription Drug Abuse and Illegal Prescriptions

http://www.justice.gov/dea/contactus/houston_contact.html


34

Architect of House Bill 7 Workers’ Comp Reforms Not Seeking Re-Election

Rep. Burt Solomons (R-Carrollton)

The architect of the House Bill (HB) 7 reforms

that represented a significant change in the

Texas workers‘ compensation landscape will not

seek re-election to the Texas House of

Representatives. Rep. Burt Solomons (R-

Carrollton) announced his decision to not seek

re-election on December 17, 2011.

―After much reflection, I have decided not to

seek re-election in the 2012 Republican primary,

but rather to leave office when my current ninth

term expires in January 2013,‖ said Rep.

Solomons. ―After what will be eighteen years of

public service in the Texas House, both my wife

and I feel it‘s time for me to see what new

adventures, opportunities, and challenges life

may have in store.‖

Solomons‘ exit from the political stage has left many Texas workers‘ compensation system

stakeholders wondering who will step up to safeguard the HB 7 reforms.

Solomons authored HB 7 – the omnibus workers‘ compensation reform legislation passed during

the 2005 session of the Texas Legislature – which made major changes in the Texas workers'

compensation system. HB 7 abolished the Texas Workers' Compensation Commission and

replaced the agency with the Division of Workers' Compensation (DWC). The DWC is an

independent division of the Texas Department of Insurance with its own commissioner who is

appointed by the Governor of Texas. HB 7 also provides insurance carriers with the authority to

contract with certified health care networks for the delivery of health care benefits.

Since the passage and implementation of HB 7, Solomons has served as the ―guardian‖ of

reforms that have been credited with significantly improving the performance of the Texas

workers‘ compensation system. The nine-term legislator has also passed other legislation to

address issues associated with the Texas workers‘ compensation system.

During the most recent regular session of the Texas Legislature – Solomons introduced and

passed legislation that allowed insurance carriers to continue to use pharmacy discount

agreements. He also passed legislation requiring the release of workers' compensation data by

staff leasing companies.

In a message to his colleagues, Solomons expressed his thanks to his wife, his constituents and

fellow legislators in the House and Senate, and to his long-time chief of staff, Bonnie Bruce, and

acknowledged their intelligence and hard work over the years that helped him pass many pieces

of positive legislation addressing many different, important issues.


35

Effects of the 2005 Reforms on the Workers’ Compensation Insurance Market

By TDI‘s Workers‘ Compensation Research & Evaluation Group

House Bill (HB) 7, passed by the Texas

Legislature in 2005, requires the Insurance

Commissioner to report on the affordability

and availability of workers‘ compensation

insurance for employers of Texas. This

article looks at the effects of the HB 7

reforms on market competetion and

insurance carrier financial solvency. A

review of the workers‘ compensation

insurance market‘s concentration and

profitability and insurers‘ rate filings and

use of competitive rating tools to better

price individual risk variations helps in evaluating the affordability and availability of coverage

for Texas employers.

Market Concentration

In 2009, more than 260 insurance companies had positive direct written premium for workers‘

compensation insurance. The total direct written premium for the workers‘ compensation

insurance market was about $2.18 billion in Texas. While the number of companies writing

workers‘ compensation insurance has not changed much, the direct written premium is down

from $2.58 billion in 2008 – a 16 percent drop. This drop is a likely a byproduct of the recession

as it impacted employer payrolls which are the exposure used to price workers‘ compensation

insurance.

The top 10 groups write a little more than 80 percent of the market and the top writer, Texas

Mutual Insurance Company, has 29 percent of the market based on its 2009 direct written

premium. Texas Mutual Insurance Company (Texas Mutual), formerly The Texas Workers‘

Compensation Fund, wrote over $634 million in direct written premium, or 29 percent of the

market, in 2009. Texas Mutual was created by the Legislature in 1991 to serve as a competitive

force in the marketplace, to guarantee the availability of workers‘ compensation insurance in

Texas, and to serve as an insurance company of last resort. While Texas Mutual is the insurer of

last resort, it predominately writes voluntary business, competing with the rest of the workers‘

compensation insurance market. Less than a quarter of one percent of the workers‘ compensation

insurance market is written in the involuntary market1, which attests to the wide availability of

coverage in the voluntary market.

Table 1 shows the historic market shares for the top 25 insurance company groups, based on

each group‘s ranking in 2009. These groups wrote over 90 percent of the direct written premium

for workers‘ compensation insurance in 2009. The market share for these same groups is shown

1 The involuntary market is written by Texas Mutual and is placed in their START program.


36

going back to 2005, even though they may not have all been in the top 25 or at the same rank

during those years. Additionally, some groups which may have been top writers historically but

are no longer active or a top 25 writer in 2009 would not be represented in the table.

Table 1: 2005 - 2009 Market Share by Insurance Company Group

One indicator of a competitive market is a lack of concentration by those participants in

the market. A commonly accepted economic measure of market concentration is the

Herfindahl-Hirschman Index, or HHI, which considers the relative size and distribution

of firms, or insurers, in a market. An HHI index between 1000 and 1800 is considered

moderately concentrated and HHI indices above 1800 are considered concentrated. The

HHI based on insurance company group market shares for Texas is 1,242.


37

Profitability

Two important measures of the financial health of the Texas workers‘ compensation

insurance market are the loss ratio and the combined ratio. The loss ratio is the

relationship between premium collected and the losses incurred (amounts already paid

out plus amounts set aside to cover future payments) by the insurance companies. The

combined ratio is similar to the loss ratio, except that it compares the premiums collected

with both the losses and expenses incurred by the insurance company.

Each year the Texas Department of Insurance (TDI) analyzes historical loss ratios and combined

ratios on an accident year basis. In an accident year analysis, the losses are tied back to the year

in which the accident occurred, regardless of when they are reported or actually paid. For

example, accident year 2004 would reflect claims or losses from all accidents that happened in

2004 even if, for example, a loss was initially reported in 2005 and/or paid at an even later date.

In other words, all payments associated with a particular accident are associated with the year in

which the accident occurred, in this case 2004, regardless of when the loss payments are actually

made.

The loss ratio used in the analysis equals the projected direct ultimate incurred losses divided by

the direct earned premium. This ratio is a widely accepted tool that gauges underwriting results

by comparing losses to premium. Ultimate incurred losses are used in the TDI‘s analysis and are

the estimate of what claims from a given accident year will cost when finally settled. It may take

many years for a claim to be settled because there may be ongoing payments for medical treat-

ment or income benefits. As the name implies, loss ratios focus on the impact of losses; accord-

ingly, it is necessary to factor in other types of expenses to ascertain overall profitability.

The combined ratio literally combines the loss ratio with the expense ratio to gauge overall

profitability, before consideration of the investment earnings of insurance companies. The

expense ratio includes loss adjustment expenses, other types of expenses, and policyholder

dividends. Loss adjustment expenses are those costs incurred in processing, investigating, and

settling claims. Other types of expenses include insurance company administrative overhead,

commissions, and taxes, licenses, and fees. Policyholder dividends may be thought of as profit-

sharing in the form of a return of a percentage of the premiums to policyholders.

A combined ratio of less than 100 percent indicates that the insurance company earned a profit

on its insurance operations (also called an underwriting profit). A ratio greater than 100 percent

indicates a loss on insurance operations, although this loss may be more than offset by earnings

on investments. For example, if the projected ultimate combined ratio is 110.0 percent, then for

every $1.00 in premium that is collected by the insurance company it is projected that $1.10 will

be used to pay losses and expenses incurred by the insurance company. The insurance company

will need to find other sources to pay the 10 cents that is not covered by the premium. This may

be earnings from investments or even a direct charge against the insurance company‘s surplus. In

2009, the projected accident year combined ratio was 87.0 percent. This means that for every

dollar collected by the insurance company, it is estimated that they will pay 87.0 cents to cover

losses and expenses. The insurance company will keep the remaining approximately 13 cents as

profit.


38

Table 2 (and Figure A) shows the loss ratio and the combined ratio, both of which reflect that the

last seven years have been very profitable. In 2008 and 2009 the accident year combined ratios

deteriorated relative to the prior five years, but still remain very profitable.

Table 2: Projected Ultimate Calendar/Accident Year Loss and Combined Ratios

Figure A: Projected Ultimate Calendar/Accident Year Loss and Combined Ratios

Note that these ratios exclude the experience for large deductible policies, which prior to

the application of the deductible credit represent about half of the market in terms of

premium. Additionally, recent rate changes taken by insurers are not yet reflected in the

ratios shown in Table 2 and Figure A. Reflection of the rate changes in the recent past

would increase the loss ratios and combined ratios since the average rate change has been

downward, but the results would still be profitable.


39

Another measure of industry profitability is the return on net worth. The return on net worth is

the ratio of net income after taxes to net worth and indicates the return on equity. It includes

income from all sources, including investment income, and reflects all federal taxes. The

combined ratio reflects only the income from the insurance operations and does not reflect

investment income or federal taxes. The return on net worth can also be used to compare

insurance companies with firms in other industries. Table 3 shows the return on net worth for

workers‘ compensation insurance for Texas and countrywide along with the return on net worth

based on Fortune‘s Industrial and Service sectors.

Table 3: Return of Net Worth

Another difference between the combined ratios shown in this report and the return on net worth

is the way the data is collected. The combined ratio used in this report is on an accident year

basis while the return on equity is on a calendar year basis. Unlike the accident year analysis

above, calendar year analysis includes all activity during the calendar year.

Rate Filings

Figure B shows the number of workers‘ compensation rate filings, by range of average rate

change, effective from 2006 through November 1, 2010. These rate filings are those where the

insurance company revised its filed deviation. Insurers have continued to file more rate decreases

than rate increases. Rate activity peaked in 2008 with 117 rate decreases that became effective,

and 15 rate increases. In 2009, there were 69 rated decreases effective and 7 rate increases. In

2010, there were 40 rate decreases, and 4 increases.

These numbers do not include the additional couple hundred or more workers‘ compensation rate

filings received by TDI that were revenue neutral, such as those for schedule rating plans or the

introduction of a network premium credit, or filings that merely adopted the classification

relativities.


40

Figure B: Rate Filings Effective From 1/1/2006 through 11/1/2010 by Amount of Change

Source: Insurance company rate filings received by the Texas Department of Insurance. The figure does not

include filings that were revenue neutral or adopted the classification relativities with no change in the

insurance company’s filed deviation.

Since 2003, rates have come down about 40 percent. This number includes both changes in

companies‘ deviations as well as overall changes in the classification relativities established by

the TDI. Usually TDI revises the classification relativities each year so that on average, the

change in relativities is revenue neutral, even though a particular class‘ relativity may change by

+/-25 percent. TDI has however, lowered the classification relativities a few times in the last

several years. Effective 1/1/2005 the relativities were lowered by 7.1 percent; effective 1/1/2008,

they were lowered another 7.7 percent; and effective May 1, 2009, the relativities were lowered

by 10 percent. These reductions in the class relativities are included in the cumulative rate

decrease of 40 percent which we‘ve seen since 2003. Figure C shows the historical changes in

the classification relativities.

Figure C: Cumulative Changes in Classification Relativity

Source: Texas Department of Insurance, Setting the Standard: An Analysis of the 2005 Legislative Reforms on

the Texas Workers’ Compensation System, 2010 Results, P. 15.


41

In preparation for the 2010 biennial rate hearing on workers‘ compensation insurance, insurance

companies were required to provide their ―rate indications‖ in August 2010. A company‘s

indication is the actuarial determination of how its rate or premium level should change going

forward. Actuarial indications, unlike the loss and combined ratios, but similar to the return on

net worth, reflect investment income in determining appropriate premium levels, and will reflect

estimates of future income needs. They also reflect current rate and premium levels.

While some of the indications in the rate filings received suggested the need to increase rate

and/or premium levels, the majority of the insurance companies‘ indications suggest that

premium levels should come down. The range of individual insurance company indications is

very broad. For companies with reasonably credible data, the companies‘ indications generally

range from about -40 percent to near +40 percent. These indications are based on the insurance

companies‘ calculations, using their assumptions, and do not reflect any judgments or

assumptions made by TDI.

TDI received 210 insurance company rate filings with indications. Figure D shows how many of

these companies had indications within the specified ranges shown. For example, there were 17

companies that filed indications that were between –20 percent and –10 percent. If a group of

companies filed an indication based on the group‘s experience, this group indication is reflected

for each individual insurance company within the group. For example, a group with 3 companies

may have filed indications of -16 percent. In this histogram, they would contribute 3 counts in

the category for rate filings with indications between -20 percent and -10 percent. There were 34

companies that filed information but did not submit indications. These companies were generally

small or wrote only large deductible policies.

Figure D: Summary of Insurance Companies Indications Filed in August 2010 Based on

Experience Through 12/31/2009

Source: Insurance company rate filings received by the Texas Department of Insurance in response to a request for

rate filings for the 2010 biennial rate hearing (Commissioner’s Bulletin B-0021-10).


42

For the 210 companies that filed indications, the average premium-weighted indication is -7.3

percent. This suggests that premium levels, on average, can be lowered by 7.3 percent. As noted

earlier, the indications vary significantly by company and reflect the companies‘ assumptions.

Even though the companies‘ indications suggest some change is warranted on average, few

companies proposed a rate change with their filing, and of these, only one filed a rate increase;

the others were for rate decreases of varying amounts.

Average Premium

While the rate changes filed by the companies in the last few years and the indications filed in

August 2010 show how much rates have come down and could conceivably come down further,

the rates are just the start of the workers‘ compensation pricing process. What employers actually

pay, the premium, reflects not only rates but also mandated rating programs such as experience

rating and premium discounts, but also optional rating tools, such as schedule rating plans and

negotiated experience modifiers, to recognize individual risk variations. These rating tools can be

used to modify rate changes, or can be used in lieu of them, to achieve desired premium levels. A

review of the average premium per $100 of payroll can be used to determine how the rate

changes filed by companies together with rating tools have combined to determine what is paid

by employers.

Figure E shows the average premium per $100 of payroll for policy years 2000 through 2009,

reflecting year-to-year changes in premiums charged. This information is on a policy year basis,

which is different than the calendar year and accident year data discussed earlier. In a policy

year, the premiums and losses are tied back to the year in which the policy was effective.

Average premiums increased, from $2.07 per $100 of payroll in policy year 2000 to $2.85 per

$100 of payroll in policy year 2003. It was during most of these years that the industry suffered

underwriting losses.

With policy year 2004, the average premium per $100 of payroll began to decrease as insurance

companies lowered their rates and increased the usage of rating tools, such as schedule rating.

The drop in the average premium per $100 of payroll has continued through 2009, where it is

down to $1.47 per $100 of payroll. This drop coincides with the average rate reductions that have

taken place, resulting in employers seeing the benefits of the insurance companies‘ filed rate

decreases. The reduction in average premium that is seen at the overall industry level is also

generally seen at the insurance company‘s group level.

Continued on Next Page…

Did You Know?

The Insurance Council of Texas (ICT) publishes an Appeals Panel Decisions Digest that includes

summaries of significant decisions. The electronic manual, prepared in conjunction with the Austin-based

law firm of Burns, Anderson Jury Brenner, L.L.P., is available to ICT‘s membership as a members only

benefit.

If you are employed by a member company of ICT, contact Steve Nichols to obtain access to the manual at

[email protected].

http://www.insurancecouncil.org/ElectronicViewing/Docs/Demos/DemoAppealsPanel.pdf

http://www.bajb.com/index.html



43

Figure E: Average Premium per $100 of Payroll by Policy Year

Source: The Texas Workers’ Compensation Financial Data Call and the Department’s 2010 Classification

Relativity Study.

It is important to note that the average premiums reflect insurance companies‘ manual rate

deviations, experience rating, schedule rating, expense constants, the effect of retrospective

rating and premium discounts. They do not reflect network premium credits, the effect of

discounts due to deductible policies, or policyholder dividends. Additionally, since workers‘

compensation is an audit line, that is, premiums are based on audited payrolls, the average

premiums may change over time, especially for the most recent years.

Rating Tools Recognizing Individual Risk Variations

One of the revisions made to the workers‘ compensation statutes as a result of the enactment of

HB 7 was that insurance companies shall consider the effect on premiums of individual risk

variations based on loss or expense considerations when setting rates.

Additionally, the revisions to the statutes state that neither rates, nor premiums, may be

excessive, inadequate, or unfairly discriminatory. The evaluation of insurance company‘s

rates and premiums in light of this is based in part on the rate filings made by the insurance

companies, and, equally important, on the use of available rating tools used to reflect individual

risk variations. Since the effects of these rating tools were not filed with insurance companies‘

rate filings prior to HB 7, TDI issued periodic data calls to gather information on their use. The

Texas Workers‘ Compensation Financial Data Call also provides information which TDI uses in

gauging the effect of these tools.

Once an insurance company determines an employer‘s rate based on its classification (which

depends on the type of business such as office, construction, manufacturing, etc.), and the

employer‘s loss experience, the insurance company can further modify the policy‘s premium

through the use of rating tools such as schedule rating and negotiated experience modifiers.

Schedule rating reflects characteristics of the employer which may not be fully reflected in the

employer‘s actual past experience. The general categories that are often used in schedule rating


44

include: the care and condition of the premises; classification peculiarities; medical facilities;

safety devices; selection, training, and supervision of employees; and management‘s cooperation

with the insurance company and safety organization.

A credit or debit can be applied to the premium based on the underwriter‘s evaluation of the

insured relative to each of these categories (or other categories in the insurance company‘s

schedule rating plan which is filed with TDI) up to an aggregate maximum modification,

generally plus or minus 40 percent. 2 Application of schedule rating to an employer can result in

significant changes in the premiums charged even though there has been no change in the

insurance company‘s filed rate. Based on the filings received for the biennial rate hearing, the

average schedule rating adjustment in 2009 was a credit of 13.0 percent. Since 2003, the average

schedule rating adjustment has been a credit that has increased gradually each year; therefore,

lowering premiums each year to a greater extent, all else equal. Market forces often drive

schedule rating and the size of credits or debits given may be influenced by conditions in the

market, as opposed to being formula-based. Current rules are that the insurance company must

be able to support, with documentation maintained by the insurance company, the schedule

ratings it uses in calculating premiums for employers.

Figure F shows two of the principle drivers of premium levels which are filed rate changes and

schedule rating and how their relative level compares to the average premium over the same time

frame. To put all this on the same scale, the changes in each of these items through 2009 is

shown relative to 2003. Since 2003, the average premium has dropped by almost 50 percent; the

average schedule rating factor has decreased almost 10 percent; and the average rate level change

has been about -40 percent. This shows us that both rates and premiums have come down

significantly since 2003, and even since 2005 when HB 7 was enacted.

Figure F: Comparison of Relative Change in Average Premiums, Schedule Rating Factors

and Rate Levels

Source: NCCI Financial Data Call and insurance company rate filings.

2 In the case of Texas Mutual Insurance Company‘s START program, the aggregate maximum

modification is plus or minus 75 percent.


45

Another rating tool used to reflect individual risk variations in pricing is a negotiated experience

modifier. Experience modifiers reflect an employer‘s past losses. The greater the losses, the

higher the employer‘s experience modifier will be, thus producing a higher charged premium,

and vice versa. A negotiated experience modifier is a tool which allows an employer and its

insurance company to negotiate a lower experience modification, and thus a lower premium, for

the employer. This tool appears to be used sparingly today with only a few relatively small

insurance companies reporting that they use it frequently enough to have a noticeable effect on

their average experience modifiers. The use of negotiated experience modifiers is not having a

significant impact on premiums for the industry.

Another cost saving tool, which is not reflected in the earlier analyses of loss ratios, combined

ratios, and average premiums, but which is worth mentioning for completeness, is a deductible,

wherein the employer assumes responsibility for all or part of a given loss. There are two types

of deductible options for use by Texas employers. There are small promulgated deductible plans

and negotiated deductibles. 3 The small promulgated deductible plans are a mix of deductible

choices at a per accident or per aggregate level. Negotiated deductible credits are available for

employers with larger policies or larger deductibles that effectively allow the employer to self-

insure. These negotiated deductibles are popular, with about half the premium prior to the

application of the deductible credit. Figure G shows the average premium credit for employers

with a negotiated deductible.

Certified Healthcare Networks Can Help Employer Reduce Premiums

Another way for employers to reduce their premiums is through participation in a TDI certified

health care network, the cornerstone of the HB 7 reforms. These networks are designed to

improve the quality of medical care received by injured workers at a reasonable cost for Texas

employers and to improve outcomes from injuries.

For those employers that elect to participate in one of these networks, they receive a credit or

discount on their premium. Credits filed with TDI range up to 20%. These credits were initially

established based on judgment, rather than being experience based. Based on a review of

aggregated data for all companies, of undeveloped loss ratios, it appears that, on average, the

credits are reasonable. The average dollar savings per policy, for those policies receiving a

network discount, is about $2,100, but ranges significantly by company.

As the use of the network system expands and more loss experience emerges, the filed premium

credits can be evaluated to determine whether the savings due to networks are being passed

through to employers. At present, insufficient experience or actuarial data exists to develop

experience-based credits to an ultimate level so these premium credits represent the best initial

estimates, as determined by insurance companies, of the likely impact of networks on costs.

3 Large deductible policies are excluded from the Texas Workers‘ Compensation Financial Data Call.

Losses for all other deductible policies are reported on a gross basis. That is, if the total loss is $20,000 and

the employer has a deductible of $5,000, the amount reported in the Department‘s Financial Data call is

$20,000, even though the insurance company ultimately pays only $15,000 of the loss. The direct earned

premium is the amount of premium actually earned prior to the payment of policyholder dividends and the

application of credits for deductible policies.


46

As experience emerges, the loss ratios can be reviewed to determine whether the premium

credits are appropriate or if they should be greater or lesser. Figures G and H show the

undeveloped indemnity and medical loss ratios for the most recent four half accident years for

insurance companies that reported their experience in networks under the semi-annual network

data call.

The loss ratios are determined using premium before application of the network credit. The

accident half-year loss ratios for claims in a network have better results than for claims outside a

network. This is generally the case for both medical and indemnity, however as expected the

impact on medical is greater than the impact on indemnity. Even though the data is not fully

developed yet, the network premium credits seem reasonable at this time.

Figure G: Indemnity Undeveloped Incurred Figure H: Medical Undeveloped Incurred

Loss Ratios for Network and Non-Network Loss Rations for Network and Non-Network

Experience Experience

Source: TDI’s semi-annual network data call. Source: TDI’s semi-annual network data call.

Assessments Regarding Insurance Company Solvency

The workers‘ compensation market looks stable and financially healthy. Loss ratios and

combined ratios suggest that insurance companies are writing profitably in the market.

Assessments regarding insurance company solvency are favorable and there are no adverse

trends which indicate that HB 7 or the economy in general, are having an adverse effect on the

workers‘ compensation market.

Summary

The last seven years have been profitable for the workers‘ compensation insurance industry

which has responded by lowering rates, increasing schedule rating credits, and providing

discounts for participation in certified networks. The end result is that average premiums charged

to employers have come down. However, based on the rate indications filed by insurance

companies in August 2010 for the biennial rate hearing, which was held November 10, 2010,


47

rates and premiums could come down even further. Consideration of the information in this

report, along with information from the biennial hearing on workers‘ compensation rates and

premiums, will form the basis for possible action plans to be considered by TDI.

Editor’s Note: This article was originally published by the Texas Department of Insurance’s

Workers’ Compensation Research and Evaluation Group as part of the December 1, 2010 report

to the Texas Legislature titled “Setting the Standard: An Analysis of the Impact of the 2005

Legislative Reforms on the Texas Workers’ Compensation System, 2010 Results. The article was

edited for inclusion in this publication.

TDI Study on Cost to Employers and Insurers Published

Costs Decreasing But Still Higher Than Other States

By Geoff Billings, Senior Regulatory Analyst, Insurance Council of Texas

The Texas Department of Insurance‘s Workers‘

Compensation Research Group (WCREG) has

published a study titled Cost and Efficiences in

the Texas Workers‘ Compensation System that

looks at costs to employers and insurance

carriers. The study looks at the costs incurred

employers who subscribe to the workers‘

compensation system and the insurance

industry‘s expenses to determine efficiencies in

the Texas system.

According to the WCREG, the study is one way

to measure system efficiency. However, the

WCREG also reported that they need additional

data to measure the effects of experience modi-

fiers on cost and preimum dollar amount that

may cause some employers to non-subscribe.

The WCREG reported that ―estimates show that the average insurance carrier in Texas workers‘

compensation insurance is operating at about 80 percent efficiency of the most efficient firm.‖

The WCREG also reported that they ―calculated the Malmquist Index and it showed

deterioration in efficiency since 2000—an eleven percent decrease in the overall productivity.‖

The study noted that workers‘ compensation insurance premiums have been declining in Texas,

but not at the rate in other states. The WCREG reported that Texas is ranked as the 12th

most

expensive state in the nation in which to buy workers‘ compensation insurance and that ―high

costs may encourage large employers to the leave the system.‖

Steve Nichols, manager of workers‘ compensation services at the Insurance Council of Texas,

said the report appears to be incomplete due to the WCREG not having access to non-

subscription data that would allow for a comparison between workers‘ compensation and non-

subscription costs.


48

Trey Gillespie, senior workers‘ compensation director at Property and Casualty Insurers

Association of America (PCI) said, ―Due to data limitations, it appears that broad-based

conclusions cannot be made.‖

Gillespie took issue with the study‘s general observation that the high level of administrative

costs in the Texas workers‘ compensation system may be an incentive for large employers to opt

out the system.

―The lack of information on non-subscriber plans makes it hard to determine if non-subscription

plans are more efficient than workers‘ compensation insurance or if non-subscribers are realizing

savings by offering lower benefits,‖ said Gillespie. ―It would be good to know if the non-

subscriber efficiencies can be incorporated in the workers‘ compensation system.‖

The WCREG‘s report noted, ―To evaluate the costs and benefits of participating in the Texas

workers‘ compensation system, we need data not only on subscribers but also on

nonsubscribers.‖

The researchers reported that ―unfortunately, available data is limited to those who subscribe.‖

The report noted that the researcher‘s ability to conduct more detailed analysis was impeded by

limitations in the data sets currently available and the way they are collected, managed, and used.

The WCREG said this may be due to the nature of data collection and reporting in workers‘

compensation.

Steve Nichols said, ―The report may serve as the foundation for future studies that will hopefully

include a detailed analysis of non-subscriber costs and efficiencies to determine how efficient

workers‘ compensation insurers are.‖

The complete report can be found on the Texas Department of Insurance‘s website.

A.M. Best Reports Workers’ Compensation Underwriting Performance Continues to Weaken

Insurance Information Institute Reports P&C Industry Profits and Profitability Has Tumbled

On October 4, 2011, A.M. Best reported some bad news for the workers‘ compensation line of

insurance. ―While the U.S. property/casualty industry recovered from the global financial crisis

in 2009, the workers' compensation segment's underwriting performance continued to weaken,‖

said A.M. Best. ―The deterioration was driven primarily by the downward spiral in premium

volume as the economy continued to take its toll on exposure levels and competitive pricing

remained wide-spread.‖

-- The A.M. Best Co.'s workers' compensation composite's net premiums written (NPW) plunged

14.6% to $12.3 billion in 2009, its lowest level since 1999. The composite's top line has fallen

for five straight years, decreasing approximately 41% since reaching its high of $21.0 billion in

2004.

-- The composite's combined ratio deteriorated 8.8 percentage points to 120.0 in 2009,

http://www.tdi.texas.gov/reports/wcreg/documents/Employers_costs.pdf

http://www3.ambest.com/Frames/Frameserver.asp?site=press&Tab=1&altsrc=2&RefNum=65494654775046496651


49

representing the highest combined ratio posted by the composite since it recorded a 118.6 in

2002.

-- The composite's net income plunged 61% to $0.3 billion in 2009, representing the fourth

consecutive year of deteriorating operating results.

-- A.M. Best data show that NPW in the workers' compensation line of business fell for the

fourth consecutive year in 2009, declining 11.6% to $36.2 billion from $41.0 billion in 2008.

-- The workers' compensation line of business' results deteriorated sharply with a reported

calendar year combined ratio of 111.2 in 2009, up nearly seven percentage points from 104.6

posted in 2008.

As the economy moves slowly from recession to recovery, the consensus anticipates a jobless

recovery; and therefore, sluggish premium growth, meaning the workers' compensation

segment's underwriting performance is not expected to rebound over the near term.

Access a copy of this Special Report. BestWeek subscribers can download a PDF copy of all

special reports as well as the associated spreadsheet data. Non-subscribers can access an excerpt

of each special report and purchase individual reports and spreadsheet data.

News about the deterioration of the performance of the workers‘ compensation line of insurance

was followed by the Insurance Information Institute‘s announcement that property and casualty

insurers‘ profits and profitability tumbled in the first half of 2011 as catastrophes ravaged

underwriting results.

Driving the declines in insurers‘ net income and overall rate of return, net losses on underwriting

grew to $24.1 billion in first-half 2011 from $5.1 billion in first-half 2010. The combined ratio

— a key measure of losses and other underwriting expenses per dollar of premium —

deteriorated to 110.5 percent for first-half 2011 from 101.7 percent for first-half 2010, according

to ISO and the Property Casualty Insurers Association of America (PCI).

The deterioration in underwriting results is largely attributable to a spike in net losses and loss

adjustment expenses (LLAE) from catastrophes. ISO estimates that insurers‘ net LLAE from

catastrophes in first-half 2011 totaled $23.9 billion, up from $8 billion in first-half 2010.

The Workers Compensation Insurance Industry in the Aftermath of the Great Recession

By Robert P. Hartwig, PhD, CPCU

President and Economist, Insurance Information Institute

Last year—with the nation‘s unemployment rate at a painfully high 10%—I bid a hearty ―good-

bye and good riddance‖ to 2009 and the Great Recession. A year later—with the unemployment

rate having barely budged—it would be easy to dismiss 2010 as another lost year for the

American economy and its workers—not to mention workers compensation insurers.

http://www3.ambest.com/bestweek/purchase.asp?record_code=178548&AltSrc=26

http://www.iii.org/press_releases/iso-property-casualty-insurers-profits-and-profitability-tumbled-in-first-half-2011-as-catastrophes-ravaged-underwriting-results.html


50

Through much of 2010, the economic gloom was nearly as impenetrable as it was during the

prior two calamitous years, especially with respect to the labor market. Indeed, 2010 was a year

with one foot still firmly planted in the economic turmoil originating with the global financial

crisis. Commercial insurance premium growth, including workers compensation, languished for

much of the year as demand for most types of coverage remained slack and insurance buyers

continued to pinch pennies—or went out of business altogether.

But a closer look suggests all is not lost. As it turns out, 2010 was also a bridge—a transition

year—to the post-crisis world. The era of mass commercial exposure destruction was, at long

last, over. By year‘s end, with the economy clearly on the mend—consistent private sector job

creation, expanding payrolls, and a strong stock market performance—the property/casualty

insurance industry and workers compensation insurers specifically could only benefit. Indeed,

one of the earliest signs of recovery is the fact that the property/casualty insurance industry

recorded positive premium growth in 2010 for the first time in four years.

Labor Market Conditions—Digging Out From a Very Deep Hole

It may seem incredible to suggest that workers‘ compensation is one of the earliest beneficiaries

of the economic recovery. A quick survey of the unemployment situation seems to paint a bleak

picture. As 2010 drew to a close, 15 million people were without jobs. Initial claims for

unemployment still totaled some 400,000 per month, and more than 1,500 businesses each month

announced mass layoffs. The most widely followed statistic—the national unemployment rate—

never dropped below 9.4% in 2010 and ranged as high as 9.8%. In fact, the unemployment rate

has exceeded 9% every month since the official end of the recession in June 2009—the longest

interval above that level since the Great Depression. By year‘s end, 10 states still had double-

digit unemployment rates, including large states such as California, Florida, and Michigan.

Worse still, when the underemployed and people who have stopped looking for work purely out

of discouragement are included in the statistics (U-6), the figure rises to more than 17%, on

average, in 2010. This means that about one in six workers last year was idle or underutilized. In

addition to being a tremendous waste of human productive resources and a drag on the economy,

the toll on the workers‘ compensation exposure base is staggering, amounting to hundreds of

billions of dollars—and billions in lost premium.

1

Unemployment and Underemployment Rates: Rocketed Up in 2008-09; Stabilized in 2010

2

4

6

8

10

12

14

16

18

Jan

00

Jan

01

Jan

02

Jan

03

Jan

04

Jan

05

Jan

06

Jan

07

Jan

08

Jan

09

Jan

10

Traditional Unemployment Rate U-3

Unemployment + Underemployment Rate U-6

Dec.

10

Unemployment rate fell to 9.4%

in November

Unemployment peaked at 10.1%

in Oct. 2009, highest monthly rate since 1983.

Peak rate in the last 30 years: 10.8% in Nov -

Dec 1982

Source: US Bureau of Labor Statistics; Insurance Information Institute.

U-6 went from 8.0% in March

2007 to 17.5% in Oct 2009; Stood at 16.7% in Nov.

2010

January 2000 through December 2010, Seasonally Adjusted (%)

Recession ended in

November 2001

Unemployment kept rising for

19 more months

Recession began in

December 2007

Figure 1. Workers’ Compensation: An Early Beneficiary of the Economic and Labor Market Recovery


51

It comes as a surprise to many, but signs of recovery in the labor markets are actually every-

where and have been evident for some time. As Figure 1 clearly shows, the unemployment rate

peaked in 2009, flattened out in 2010, and gives every indication of falling to about 9% or less

by late 2011. Although 10 states still suffered double-digit unemployment in late 2010, that‘s

down from 15 in late 2009. And while 1,500 mass layoff announcements per month is

unacceptably high—about 20% above the pre-crisis average—it‘s nonetheless down by nearly

half from the crisis peak in early 2009.

Last year‘s stubbornly high unemployment gives the misimpression that no progress has been

made in reducing joblessness. In reality, as shown in Figure 2, private sector jobs were created

every month in 2010, for a total of 1.3 million net new jobs. While job creation so far is at a pace

too slow to bring down the overall jobless rate, it remains an extraordinary reversal from the

hemorrhaging of jobs and associated payrolls in the two prior years. At the height of the crisis in

early 2009, private employers were shedding more than 700,000 jobs per month. Private

employers eliminated a staggering 4.7 million jobs in 2009 and 3.8 million in 2007. The

unemployment rate remains high today in part because workers, sensing improving labor market

conditions, are streaming back into the labor force.

18

67

92

13

65 1

27

42

15

-10

9-1

46

5 97

23

-12

-85

-58

-16

1-2

53

-23

0-2

57

-34

7-4

56

-54

7-7

34 -66

7-8

06 -7

07

-74

4 -64

9-3

34

-45

2-2

97 -2

15

-18

6-2

62

75

-83

16 6

2

24

15

1 61 1

17

14

31

12 1

93

79 1

13

15

8

(1,000)

(800)

(600)

(400)

(200)

0

200

400

Ja

n-0

7F

eb

-07

Ma

r-0

7A

pr-

07

Ma

y-0

7Ju

n-0

7Ju

l-0

7A

ug

-07

Se

p-0

7O

ct-

07

No

v-0

7D

ec-0

7Ja

n-0

8F

eb

-08

Ma

r-0

8A

pr-

08

Ma

y-0

8Ju

n-0

8Ju

l-0

8A

ug

-08

Se

p-0

8O

ct-

08

No

v-0

8D

ec-0

8Ja

n-0

9F

eb

-09

Ma

r-0

9A

pr-

09

Ma

y-0

9Ju

n-0

9Ju

l-0

9A

ug

-09

Se

p-0

9O

ct-

09

No

v-0

9D

ec-0

9Ja

n-1

0F

eb

-10

Ma

r-1

0A

pr-

10

Ma

y-1

0Ju

n-1

0Ju

l-1

0A

ug

-10

Se

p-1

0O

ct-

10

No

v-1

0D

ec-1

0

Monthly Change in Private Employment

January 2008 through December 2010* (Thousands)

Private Employers Added 1.346 million Jobs in 2010 After Having Shed 4.66 Million Jobs in 2009 and 3.81 Million in 2008

Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute

Monthly Losses in Dec. 08–Mar. 09 Were

the Largest in the Post-WW II Period

Private employers added jobs in every month in 2010

113,000 private sector jobs were created in November

Figure 2. Private Sector Job Growth


52

Of course, commercial insurance exposure is as much about preservation of existing business as

it is about new growth. On that account, too, there is also good news. One of the major contri-

butors to the mass destruction of commercial insurance exposure—workers‘ compensation

payrolls included—has been the soaring business bankruptcy rate. Business bankruptcy filings

tripled from just under 20,000 in 2006 to nearly 61,000 in 2009. When a business goes bankrupt,

its entire commercial insurance program is lost. Fortunately, business bankruptcy filings appear

likely to drop by at least 5% to 6% in 2010, based on data through the first three quarters of the

year. Not only will fewer bankruptcies preserve more jobs and associated payroll, but

commercial insurers should also see less property and liability premium disappear from their

books.

But what about payrolls—the exposure base for workers‘ compensation premium? In fact, a

recovery is under way there as well. Figure 3 shows that wage and salary disbursements (a proxy

for payrolls), which dropped by $332 billion, or 5% from their pre-recession peak to recessionary

trough, are resuming a growth trajectory after a two-year decline. The latest data indicates that

aggregate wage and salary disbursements have recouped about half what was lost during the

recession. It is quite likely that those losses will be fully recouped by the second half of 2011.

3

Wage & Salary Disbursement (Private Employment) vs. WC NWP ($ Billions)

Wage & Salary Disbursements (Payroll Base) vs. Workers Comp Net Written Premiums

* Average Wage and Salary data as of 7/1/2010. Shaded areas indicate recessions. **Estimated “official” end of recession June 2009.

Source: US Bureau of Economic Analysis; Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; I.I.I. Fact Books

Weakening Payrolls Have Eroded $2B+ in Workers Comp Premiums; Nearly 29% of NPW Has Been Eroded Away by the Soft Market and Weak Economy

7/90-3/91 3/01-11/01

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10*

$0

$10

$20

$30

$40

$50

$60

Wage & SalaryDisbursements

WC NPW

WC net premiums written were down $13.7B or 28.7%

to $34.1B in 2009 after peaking at $47.8B in 2005

12/07-6/09

Figure 3. Wage and Salary Are Resuming a Growth Trajectory


53

It’s Not Just the Economy, Stupid!

The economy will clearly exert a major influence on workers‘ compensation insurers‘ growth

opportunities in 2011 and beyond. But Figure 3 suggests that other factors are playing an

important, if not dominant, role when it comes to explaining the precipitous 29% drop in

premium written over the past several years. Workers‘ compensation premium began to fall in

early 2006, long before the start of the Great Recession in December 2007. Aggressive pricing,

along with the increased popularity of large deductible programs, captives, and self-insurance

alternatives have all taken their toll, as have a surge in return premium. The loss of exposure due

to the economy was actually one of the more recent contributors to the fall. On net, pricing is

likely responsible for about half the decline.

The Bottom Line

The economy will be a major influence on workers‘ compensation insurers‘ top lines in 2010,

but the bottom line is something altogether different. In the long run, underwriting performance,

not the economy, is the most important driver of bottom line results. Indeed, with an estimated

combined ratio approaching 115 in 2010, workers‘ compensation insurers find themselves badly

in need of premium—but only on risks that can be written profitably. Improved underwriting

performance, not growth, is necessarily the industry‘s imperative in 2011. The pressure on

underwriting is acute given persistently low yields on fixed-income securities (which account for

two-thirds of industry investments). Long-tailed lines such as workers‘ compensation are

especially vulnerable to low interest rates and the resulting reduction in investment income

available to offset underwriting losses. According to A.M. Best, a 1% reduction in yield on an

insurer‘s investment portfolio requires a 5.7-point improvement in the workers‘ compensation

combined ratio in order to maintain the same return on equity.

Final Thoughts

The year ahead will present an array of opportunities and challenges for workers‘ compensation

insurers. The recovering economy, continued improvements in labor market conditions, and the

associated expansion in payrolls means that growth opportunities will be more abundant than at

any time in the past four years. At the same time, the recent sharp deterioration in underwriting

profitability means that new and renewal business will need to be priced to better reflect the

actual risk assumed. In the absence of a general hard market—and none appear likely to emerge

anytime soon—profitable growth could well remain elusive for many workers‘ compensation

insurers in 2011.

Editor’s Note: The author of this article, Robert P. Hartwig, PhD, CPCU, is the president of the

Insurance Information Institute. Dr. Hartwig previously served as director of economic research

and senior economist with NCCI. He has also worked as a senior economist for the Swiss

Reinsurance Group and as senior statistician for the US Consumer Product Commission. The

article was first published in NCCI’s 2011 Issue Report. The article has been republished with

the permission of NCCI and Dr. Hartwing.

https://www.ncci.com/nccimain/IndustryInformation/IndustryReports/Pages/IssuesReport-2011.aspx


54

Employer Participation in the Texas Workers’ Compensation System

By TDI‘s Workers‘ Compensation Research & Evaluation Group

Since the Texas workers‘ compensation law was

first enacted in 1913, private sector employers have

been allowed to either obtain workers‘ compensation

coverage or opt out of the Texas workers‘ compen-

sation system. 4 Prior to the 1970‘s, many states had

elective workers‘ compensation laws. Since the

1972 publication of the National Commission on

State Workmen‘s Compensation Laws‘ essential

recommendations, 22 states have made workers‘

compensation coverage mandatory for most private-

sector employers. Several states with mandatory

workers‘ compensation laws provide statutory

to allow small employers or employers from select industries to opt out of their workers‘

compensation systems. 5

Texas is the only state that permits private-sector employers (regardless of employer size or

industry) the option of not obtaining workers‘ compensation coverage and thus, becoming ―non-

subscribers‖ to the workers‘ compensation system. 6 Employers who do not choose to obtain

workers‘ compensation coverage (either through purchasing an insurance policy or becoming a

certified self-insured employer or a member of a certified self-insurance group of employers)

lose the protection of statutory limits on liability and may be sued for negligence by their injured

workers.

Since 1993, the state has periodically monitored the percentage of employers that are nonsub-

scribers and the percentage of employees employed by nonsubscribers, as well as the types of

alternative occupational benefit programs utilized by nonsubscribers and the reasons employers

choose or do not choose to participate in the Texas workers‘ compensation system. Non-

subscription rates remain an important indicator of the relative ―health‖ of the workers‘ compen-

sation system since these roughly measure employers‘ perspectives regarding whether the

benefits of participating in the workers‘ compensation system are greater than the costs of

obtaining coverage. For this reason, the 79th

Texas Legislature required the Texas Department of

Insurance to monitor and report the effect of HB 7 on employer participation in the Texas

workers‘ compensation system as part of this biennial report.

4 Texas governmental entities, including the state and its political subdivisions are currently required to

provide workers‘ compensation insurance coverage to their employees. 5 Florida, for example, exempts non-construction employers with less than four employees. New Mexico

exempts non-construction employers with less than three employees, but allows some service and ranch

employers the option to purchase coverage. 6 In New Jersey all employers are required to have coverage or be self-insured. Non-compliant employers

are fined and their injured employees receive income and medical benefits through the Uninsured

Employers‘ Fund.


55

The first study of employer participation in the Texas workers‘ compensation system was

published in 1993 by Texas A&M University for the Texas Workers‘ Compensation Research

Center. In 1996, the Research Center‘s successor agency, the Research and Oversight Council on

Workers‘ Compensation (ROC) assumed the responsibility of calculating nonsubscription rates

using the same methods. In 2004, the Department acquired this responsibility and currently

manages the survey.

Survey Design and Data Collection

A random probability sample, stratified by industry and employment size, was drawn from all

year-round private-sector employers in the state using the Texas Workforce Commission‘s

Unemployment Insurance database. 7

To address changing issues in the workers‘ compensation

system, the original survey instrument designed by the Research Center has been modified

slightly over the years. Specifically, TDI‘s Workers‘ Compensation Research and Evaluation

Group (WCREG) included questions in the 2010 survey to measure employer perceptions of the

HB 7 legislative reforms and the impacts of these reforms on business decisions affecting

economic development as well as questions to collect information about the use of arbitration

agreements by non-subscribing employers.

During the months of July through August 2010, the Public Policy Research Institute (PPRI) at

Texas A&M University, on behalf of the Department, surveyed more than 2,500 Texas

employers. The results of the survey serve as the basis for the estimates provided in this report. 8

This report presents highlights of the findings from this survey, including: 9

● Overall employer non-subscription rates and the percentage of Texas employees

employed by nonsubscribers;

● The reasons employers gave for purchasing workers‘ compensation coverage or

becoming nonsubscribers to the workers‘ compensation system;

● Texas employers‘ recent experiences with workers‘ compensation premium costs;

● Employer satisfaction levels for subscribers and nonsubscribers; and

● Employers‘ knowledge of the HB 7 legislative workers‘ compensation reforms, including

employer perceptions regarding the impact of these reforms on economic development.

7 For the purposes of this study, ―year-round‖ employers are employers with reported wages for four

consecutive quarters. Employers with only seasonal employees were excluded from this analysis. 8 The response rate for this survey was 41 percent.

9 Additional findings from this survey, including information regarding the types of alternative

occupational benefit programs offered by nonsubscribers, can be viewed on the Department‘s website at

http://www.tdi.state.tx.us/reports/report9.html.


56

Employer Participation and Employee Coverage

The percentage of Texas employers that are

nonsubscribers to the workers‘ compensation

system decreased from 37 percent in 2006 to

32 percent in 2010– the lowest percentage

since 1993 (an estimated 106,137 employers

in 2010). However, in terms of employees

covered, an estimated 17 percent of Texas

employees (representing approximately 1.7

million non-public employees in 2010)

worked for nonsubscribing employers – the

lowest percentage since 2001 when it was

16% (See Figure 1).

Figure 1 – Percentage of Texas Employers That Are Nonsubscribers and the Percentage

of Texas Employees That Are Employed by Nonsubscribers

Source: Survey of Employer Participation in the Texas Workers’ Compensation System, 1993 and 1995 esti-

mates from the Texas Workers’ Compensation Research Center and the Public Policy Research Institute (PPRI)

at Texas A&M University; 1996 and 2001 estimates from the Research and Oversight Council on Workers’

Compensation and PPRI; and 2004- 2010 estimates from the Texas Department of Insurance, Workers’

Compensation Research and Evaluation Group and PPRI.


57

Results from the 2004 through 2008 employer surveys highlighted the trend of larger employers

choosing to opt out of the Texas workers‘ compensation system for reasons that centered

primarily on high workers‘ compensation premium costs and the ability to adequately control

medical costs for their injured workers.

However this trend for large employers reversed after 2008. An increased percentage of large

employers, especially those with more than 500 employees, chose to purchase workers‘ compen-

sation coverage in 2010. This led to a reduction in their non-subscription rates from 26 percent in

2008 to 15 percent in 2010 (see Table 1). Medium-sized employers increased their coverage

rates moderately, while small employers stabilized at the 2008 levels.

The decline in non-subscription rates for large employers in 2010 coincides with a significant

economic downturn, and is also at the lowest level since the 2001 recession when the non-

subscription rate was 14 percent. It is possible that tight economic conditions play an influential

role in large employers‘ decisions to purchase coverage in the Texas workers‘ compensation

system.

Table 1: Percentage of Texas Employers that Are Nonsubscribers by Employment Size,

1995-2010

Source: Survey of Employer Participation in the Texas Workers’ Compensation System, 1995 estimates from the

Texas Workers’ Compensation Research Center and the Public Policy Research Institute (PPRI) at Texas A&M

University; 1996 and 2001 estimates from the Research and Oversight Council on Workers’ Compensation and

PPRI; and 2004-2010 estimates from the Texas Department of Insurance, Workers’ Compensation Research and

Evaluation Group and PPRI.

Nonsubscription Rates by Industry

Four of the eight primary industry sectors experienced reductions in their nonsubscription rates

in 2010. The Mining/Utilities/Construction industry sector had the steepest drop from 28 percent

of employers reporting that they were nonsubscribers in 2008 to 19 percent in 2010, the lowest

nonsubscription rate of all the sectors (see Table 2). They were followed by the Health Care/

Educational Services sector, with a decrease from 39 percent nonsubscription rate in 2008 to 32

percent in 2010. Other Services (excluding Public Administration) increased their nonsubscrip-

tion rate from 36 percent in 2008 to 42 percent in 2010, the highest nonsubscription rate among

the industry sectors.


58

Table 2: Percentage of Texas Employers that Are Nonsubscribers by Industry, 2004 –

2010 Estimates

Editor’s Note: The data in Table 2 can be found in the Survey of Employer Participation in the

Texas Workers’ Compensation System, Public Policy Research Institute at Texas A&M University

and TDI’s Workers’ Compensation Research and Evaluation Group, 2010.

Industry classifications were based on the 2002 North American Industry Classification System

(NAICS) developed by the governments of the U.S., Canada and Mexico, which replaced the

Standard Industrial Classification (SIC) system previously used in the U.S. As a result of this

change in industry classifications, industry nonsubscription rates for 2004-2010 cannot be

compared to previous years.

Reasons Employers Opt Out of the Workers’ Compensation System

The most frequent reason (32 percent) non-subscribing employers gave in 2010 for not

purchasing workers‘ compensation coverage was their perception that the cost of workers‘

compensation premiums was too high. This was lower than in 2006 (35 percent), but higher than

in 2008 (26 percent). Other primary reasons given by nonsubscribers, included their perception

that they had too few employees (25 percent), that they were not required to have workers‘

compensation insurance by law (13 percent), and that they had few-on-the-job injuries (12

percent)(see Table 3). When these reasons were examined by employer size, the importance of

individual reasons varied. For example, 50 percent of large employers with more than 500

employees reported that the primary reason for opting out of the system was because they felt

that premiums were too high. Given the fact that many large employers within the workers‘

compensation system have large deductible policies or are certified self-insurers, these

employers‘ concerns regarding high premiums can most likely be associated with their overall

concerns about the general cost of participating in the Texas workers‘ compensation system.

Another reason given by 28 percent of these large employers included their perception that they

could do a better job than the Texas workers‘ compensation system at ensuring that injured

employees receive appropriate benefits.


59

Table 3: Most Frequent Reasons Non-subscribing Employers Said They Did Not Purchase

Workers’ Compensation Coverage

Source: Survey of Employer Participation in the Texas Workers’ Compensation System, Public Policy Research

Institute at Texas A&M University and the Texas Department of Insurance, Workers’ Compensation Research and

Evaluation Group, 2010.

Reasons Employers Gave for Purchasing Workers’ Compensation Coverage

The most frequent reason cited (27 percent) by Texas employers for participating in the Texas

workers‘ compensation system was because the employer was able to participate in a health care

network (see Table 4). For large employers (i.e., those with 500 or more employees), the ability

to participate in a workers‘ compensation health care network was the primary reason given in

2008 and in 2010 for participating in the Texas workers‘ compensation system. This finding

indicates a level of employer interest in workers‘ compensation health care networks, which may

impact employers‘ decisions to remain a subscriber, enter, or re-enter the Texas workers‘

compensation system. Other key reasons subscribers gave for purchasing workers‘ compensation

coverage included concern about law-suits (18 percent), workers‘ compensation coverage was

required for government contracts (6 percent), and lower workers‘ compensation insurance rates

(2 percent).

Table 4: Most Frequent Reasons Subscribing Employers Said They Purchased Workers’

Compensation Coverage

Source: Survey of Employer Participation in the Texas Workers’ Compensation System, Public

Policy Research Institute at Texas A&M University and the Texas Department of Insurance,

Workers’ Compensation Research and Evaluation Group, 2010.


60

Other Types of Insurance Coverage Carried by Texas Employers

Although employer participation in the Texas workers‘ compensation system is the focus of this

section of the report, it is important to note that there may be a general difference in the

propensity of certain employers to carry various types of insurance coverage than other types of

employers. As Table 9.5 indicates, in 2010 a higher percentage of large subscribers than large

nonsubscribers (i.e., employers with 500 or more employees) reported offering disability and

commercial auto insurance benefits to their employees. However, this is in sharp contrast to 2008

when a higher percentage of large subscribers than large nonsubscribers offered each of the

insurance coverage to their employees. Industry differences (such as the high non-subscription

rate in the Arts/entertainment/accommodation/food services and Other services sectors) affect

the likelihood of an employer offering certain insurance benefits to employees or purchasing

various types of insurance coverage, but it is important to note that employers‘ decisions to be

non-subscribers are likely part of broader decisions these employers make regarding their

insurance needs in a variety of areas.

Modest Premium Pressure in 2010

There are indications that in 2010 Texas employers faced modest premium pressures when

compared to the declines between 2004 and 2008. While higher percentages of subscribing

employers of all sizes experienced decreases or no changes in their premiums than those with

increases (see Table 2), the percentage of those with increases grew after 2008. As Table 3

shows, 26 percent of subscribing employers of all sizes experienced premium increases in 2010,

compared to moderately lower percentages for those employers in 2008. Overall, more than 74

percent of all subscribers experienced either decreases or no changes in their premium, higher

than they reported in 2004 and 2006. It‘s not clear from the survey what factors led to the

premium changes; however, since mid-2006, some insurance companies started offering

premium credits for participating in their workers‘ compensation health care network.

Table 5: Other Types of Insurance Coverage Carried by Large Texas Employers (i.e., 500

or More Employees)





61

Figure 2: Percentage of Subscribers That Experienced an Increase, Decrease, or No

Change in Their Premium, by Employer Size




PPRI; and 2004-2010 estimates from the Texas Department of Insurance, Workers’ Compensation Research and

Evaluation Group and PPRI.

Figure 3: Percentage of Subscribing Employers That Experienced an Increase in Their

Workers' Compensation Premiums Compared to Previous Policy Years, by Employer Size




PPRI; and 2004-2010 estimates from TDI’s Workers’ Compensation Research and Evaluation Group and PPRI.


62

Employers’ Knowledge about the HB 7 Reforms

Employer knowledge of HB 7 reforms has flattened since 2008, with a significant majority of

Texas employers still reporting that they have no knowledge of these reforms. Generally, the

percentage reporting that they were very knowledgeable about most of the reforms have not

changed since 2008, but those reporting no knowledge about any of the main reforms actually

increased (see Table 6).

When asked about their degree of knowledge regarding the option of employers to participate in

networks, or the requirement for an injured worker to see a network treating doctor, the

percentage of employers who were very knowledgeable increased by one percentage point. The

percentages for those who were very knowledgeable of the other aspects of the reforms remain

unchanged from 2008. However the range of percentages of those who reported that they had no

knowledge of the reforms increased from a range of 53-68 percent in 2008 to 56-72 percent in

2010.

Knowledge of HB 7 Reforms and Employers’ Perceptions on Economic Development in

Texas

A required element of TDI‘s evaluation of the impact of the HB 7 reforms on the affordability

and availability of workers‘ compensation insurance is an analysis of the reforms‘ effect on

economic development.

However, given the low level of employer knowledge about these reforms, it is not surprising

that an overwhelming majority (between 87 and 92 percent) of Texas employers in 2010 said the

reforms had no impact on their business decisions (see Table 7). While TDI will continue to

monitor the impact of the HB 7 reforms on employers‘ business decisions in future reports,

recent survey results indicate that expanded employer education efforts about key aspects of the

HB 7 reforms are needed.

Despite the low level of employer knowledge of the HB 7 reforms, twice the percentage of

employers report that the reforms had a positive impact on their decisions to hire more

employees, expand their operations in Texas, or purchase workers‘ compensation coverage than

those who reported negative impacts on those decisions. The economic development impact of

the HB 7 reforms appears to be primarily dependent on employer knowledge about the key

component of these reforms – workers‘ compensation health care networks.

Employers who reported that they were extremely knowledgeable about the availability of

workers‘ compensation health care networks under HB 7 were much more likely to report that

they would be more willing to hire more employees, expand business operations in Texas, and

purchase or maintain workers‘ compensation coverage than employers who were somewhat or

not knowledgeable at all about the workers‘ compensation health care network provisions in HB

7.


63

Table 6: Employer Knowledge about the HB 7 Workers’ Compensation Reforms


Institute at Texas A&M University and the Texas Department of Insurance Workers’ Compensation Research and



64

Table 7: Impact of the 2005 Workers’ Compensation Reforms on Texas Employers’

Business Decisions


Institute at Texas A&M University and the Texas Department of Insurance, Workers’ Compensation Research

and Evaluation Group, 2010.

Since a significant percentage of Texas employers (60 percent) are not knowledgeable about the

availability of workers‘ compensation health care networks, it is possible that, with increased

employer education and increased insurance carrier marketing of networks, the HB 7 reforms

may improve employers‘ perceptions about the Texas workers‘ compensation system.

Nonsubscribers’ and Subscribers’ Satisfaction with Their Programs

Overall, non-subscribing employers continue to report higher satisfaction levels with their

alternative occupational benefit programs than employers with workers‘ compensation coverage.

However, the gap in overall satisfaction levels between nonsubscribers and subscribers seems to

have closed slightly since 2006 (see Table 8).

Specific areas with measurable narrowing of the satisfaction gaps between subscribers and non-

subscribers are with employer perceptions that their occupational benefits plan is a good value

for their company and with the adequacy of those plans to their injured workers. Yet, even for

those areas of improvement for subscribers, nonsubscribers continue to hold a 6-17 percentage

satisfaction advantage. 10

Continued on next page…

10

Complete results from the Employer Participation in the Texas Workers’ Compensation System: 2010 Estimates

are available at http://www.tdi.state.tx.us/reports/report9.html.


65

Table 8: Percentage of Employers That Indicated That They Were Extremely or

Somewhat Satisfied




Overall, employer satisfaction levels vary by employer size. Gaps in satisfaction between

nonsubscribers and subscribers become more pronounced as the size of the employer increases.

Eighty-two percent of large nonsubscribers with 100 or more employees indicated that they were

extremely or somewhat satisfied with their experience as nonsubscribing employers, compared to

only 57 percent of large subscribers (see Figure 4). Despite this satisfaction gap between large

nonsubscribers and large subscribers, a significant percentage of large previously nonsubscribing

employers seemed to have opted into the workers‘ compensation system since 2008 (see Table

1). Satisfaction alone may not be the overriding factor in employers‘ decisions to be subscribers

or nonsubscribers in the workers‘ compensation system.

Summary

The 2010 employer survey indicates major subscription rate changes in the Texas workers‘

compensation system since 2008, possibly due to the availability of health care networks under

HB 7, low premium changes, and tightening economic conditions in recent years. A higher

percentage (83 percent) of Texas‘ private sector employees are covered by workers‘ compen-

sation now than for any of the study years except 2001. One reason is that a higher percentage

(68 percent) of employers participated in the workers‘ compensation system in 2010 than in any

other year, but the key reason is that a higher percentage of large employers (85 percent) are

subscribers to the system than in any of the past nine years. These employers cite the option to

participate in workers‘ compensation networks as their primary reason for opting into the system.

While 50 percent of nonsubscribers cite high premiums as their primary reason for opting out, a

significant majority (74 percent) of subscribing employers continue to experience either

premium decreases or no premium changes from previous years.


66

While subscribers report that the network option under HB 7 was their primary reason for sub-

scribing, less than ten percent of Texas employers are knowledgeable about the 2005 legislative

reforms, including the availability of workers‘ compensation health care networks. There is some

evidence that employers knowledgeable about the reforms view them as having a positive impact

on their decisions to hire more employees, expand business operations in Texas, and purchase or

obtain workers‘ compensation coverage.

Given the uncertain economic climate and federal health care reforms that employers face, it is

difficult to isolate fully the impact of the recent HB 7 reforms on employer decisions to obtain

workers‘ compensation coverage or opt out of the system. Yet, subscribing employers report

favorably on the network option and their satisfaction levels with key areas has improved since

2006. However, it is also important to note that nonsubscriber employers‘ satisfaction levels

(particularly on their ability to manage medical and wage replacement costs) remain high

compared to subscribers.

Overall, until Texas employers acquire a functional knowledge base on HB 7, conclusions about

their impact on their business decisions would be limited to the experience of the less than ten

percent of Texas employers who are very knowledgeable about the reforms.

Figure 4: Percentage of Employers That Indicated That They Were Extremely or

Somewhat Satisfied, by Employer Size





67

Coverage Comparison for Subscribers v. Non-Subscribers

Workers´

Compensation "Alternative" Policy

Unauthorized

Policy

No

Coverage

Who determines benefit

levels?

Texas law Court Court Court

Who pays medical and

lost-income benefits?

Insurance carrier Insurance company

up to policy limits;

employer pays rest

Depends on the

policy

Employer

Who pays employer's

legal fees?

Insurance

company

Governed by policy Depends on the

policy

Employer

Are benefits protected

by a guaranty

association?

Yes Limited No No

Can aninjured worker

win judgments for pain

and suffering and

punitive damages?

No Yes, up to certain

limits

Yes, up to

certain limits

Yes, up to

certain

limits

Source: Texas Department of Insurance, Information for Workers' Compensation Nonsubscribers,

http://www.tdi.texas.gov/pubs/consumer/cb007.html. Note: Policy terms may be unenforceable on unauthorized

policies.

Being a Nonsubscriber

Employers who choose not to purchase workers‘ compensation insurance or who choose to self-

insure without obtaining approval from TDI forfeit several common-law defenses if sued

because of a work-related injury. These employers may not argue that the employee‘s own

negligence or the negligence of another worker contributed to the accident and the employee

knew the risk of injury and voluntarily assumed it .

In addition to forfeiting these legal defenses, a court could order the employer to pay judgments

for pain and suffering and punitive damages.

If a court determines that an employer was negligent in any way – even if the employee‘s

negligence played a greater role in causing the injury – the employer will likely be held fully

financially responsible. The employer also must pay defense-related legal expenses, such as

attorney fees.

The following case illustrates the potential cost to a business without workers‘ compensation

insurance:

An employee of a manufacturer without workers‘ compensation insurance slipped and fell at her

workstation. The employee sued, alleging that the employer‘s negligence had caused her injury.

The employer had taken some steps to provide a safe workplace but did not hold safety meetings

http://www.tdi.texas.gov/pubs/consumer/cb007.html


68

or give specific safety instructions to its employees. The court ruled that the employer had a

duty to provide safety rules and regulations to employees and to ensure that they followed the

rules.

Because the employer did not have workers‘ compensation insurance, it was barred from using

common-law defenses in court. A jury awarded the injured employee damages, and a Texas

court of appeals later upheld the verdict.

If the employer had maintained workers‘ compensation insurance, the Texas Workers‘

Compensation Act would have prohibited the injured employee from suing. The employee‘s

exclusive remedy would have been the medical and income benefits prescribed by law.

Alternative Coverages are Not Substitutes

Some Texas employers purchase accident and health policies, employer indemnification agree-

ments, and disability policies as cheaper alternatives to workers‘ compensation. Even though

these policies may provide benefits to an injured employee, Texas law does not recognize them

as substitutes for a standard workers‘ compensation insurance policy. TDI rules prohibit

insurance companies from representing alternative coverages as substitutes for workers‘ compen-

sation insurance.

Employers who buy alternative coverages may be sued by their injured employees and lose their

right to use key common-law defenses in court. Many alternative policies also don‘t cover court

judgments for pain and suffering, punitive damages, and legal fees.

Unlike workers‘ compensation policies, alternative policies typically have specific policy limits

on medical benefits for each covered employee. In addition, alternative policies usually base

disability payments on the employee‘s salary and have shorter maximum payment periods than

those provided by the state‘s workers‘ compensation laws.

Unauthorized Companies

The Texas Workers‘ Compensation Act does not recognize policies issued by unlicensed

companies, including those legally doing business in Texas on a surplus lines basis. Surplus lines

insurance is coverage that is legally placed with eligible non-admitted carriers when coverage

through licensed admitted carriers is unavailable. Employers with policies from unlicensed

companies may be sued by injured employees. They also forfeit their common-law defenses.

The Texas Property and Casualty Insurance Guaranty Association, which pays policyholder

claims against licensed companies that become insolvent, does not cover unlicensed companies.

Claims against unlicensed companies will likely go unpaid if the company becomes insolvent.

Editor’s Note: This article was originally published by the Texas Department of Insurance’s

Workers’ Compensation Research and Evaluation Group as part of the December 1, 2010 report

to the Texas Legislature titled “Setting the Standard: An Analysis of the Impact of the 2005

Legislative Reforms on the Texas Workers’ Compensation System, 2010 Results”. The article

was edited for inclusion in this publication.


69

A Perspective on the ABA Journal’s Article ―Insult to Injury:

Texas Workers’ Comp System Denies, Delays Medical Help‖

By Steve Nichols, Insurance Council of Texas

An article published in the October 2011 edition of the

ABA Journal has stirred passionate debate about the

state of the Texas workers‘ compensation system. The

article – Insult to Injury: Texas Workers’ Comp System

Denies, Delays Medical Help – ―paints‖ a picture of a

workers‘ compensation system where most injured

workers‘ have their claims denied, medical benefits

denied and disputes are raised by insurance carriers

who are attempting to avoid paying or who wish to

delay the payment of claims.

The ―picture‖ painted by the article is far from the

reality that exists in a workers‘ compensation system

that is performing well after several recent reform

efforts. The Texas system may not be perfect, but it

is much improved as compared to what Texas employers and employees faced in the late 1980s

and more recently when reform legislation was passed in 2005 to address major issues of

concern raised by system stakeholders.

The ABA Journal article leads off with the story of Jefferson County Deputy Sheriff Ed Martin

who received a shotgun blast to his chest at point-blank range while answering a 911 call in

China, Texas on June of 2006. Deputy Martin was flown by helicopter to a hospital in Beaumont

where he underwent life-saving surgery. The third-party administrator for Jefferson County

would later ask if the $7,300 helicopter flight was medically necessary and subsequently paid the

bill for the life-saving helicopter flight. However, the initial questioning of the bill left Deputy

Martin with concern about how first responders are treated in the Texas workers‘ compensation

system. During the 2011 legislative session, Deputy Martin testified before a Texas House of

Representatives Committee in support of legislation that requires workers‘ compensation

insurers and the Division of Workers‘ Compensation to expedite the handling of medical claims

for first responders.

Unfortunately, the article includes several unfounded and untrue claims about the Texas

Department of Insurance, insurers and the Texas workers‘ compensation system. The following

are examples of some of the unfounded and untrue claims made in the article followed by a fair

and objective response to each:

(1) ―…in 2005 workers‟ comp was brought into the Texas Department of Insurance—a

regulatory agency long considered by critics as being too cozy with the insurance

industry…‖;

(2) ―…insurance companies deny claims and medical treatment over and over, disputing

claims carte blanche…‖;

http://www.insurancecouncil.org/images/InsulttoInjury.pdf


70

(3) ―…Sometimes…[insurance carriers]…just create a controversy as to whether they

owe on a claim…‖

(4) The Subsequent Injury Fund ―gives incentive for insurance carriers to battle medical

claims all the way through judicial review…‖;

(5) ―carriers can game the fund in both directions, not only receiving money from it

when they shouldn‘t, but also not paying into it when they should. They can deny a

death was work-related; and if no survivors challenge it, the carriers often don‘t have

to pay into the fund…‖; and

(6) ―…prolonged battles over medical denials have led to suicides in recent years.‖

Myth #1 – TDI Cozy with Insurers

The Texas Department of Insurance (TDI) is anything but cozy with the insurance industry. TDI

and the Division of Workers‘ Compensation (DWC) regulate the insurance industry as required

by law. In fact, the DWC assessed a little over $2 million dollars in fines against workers‘

compensation insurers during 2010 alone. That does not include fines assessed against insurance

carriers by TDI for non-workers‘ compensation insurance matters. With that fact noted, it is hard

to see how the agency‘s relationship with the insurance industry could ever be described as cozy.

Insurers have consistently been fined for what are often ―no foul, no harm‖ unintentional acts of

non-compliance that often result from a clerical error, e.g. late payment of a medical bill or

income benefit, not filing claims data with the DWC in a timely fashion, etc.

A complete list of disciplinary orders and enforcement actions taken by the DWC against system

stakeholders can also be found on the agency‘s website.

Myth #2 – Insurers Deny Most Claims

The article‘s contention that insurance companies deny claims and medical treatment over and

over again, and create controversy so as to dispute claims carte blanche is not true. DWC data

indicates that the majority of claims proceed through the Texas workers‘ compensation system

without a single dispute. The data collected by the DWC indicates that less than half a percent of

medical bills are disputed. Additionally, the number of disputes – indemnity and medical – has

declined to historic lows. The number of complaints against insurance carriers received by the

DWC has also declined significantly.

The Texas Labor Code provides for a dispute resolution process for both indemnity and medical

disputes. The dispute resolution system is both efficient and robust. DWC data for 2010 indicates

that injured employees were represented by counsel in a dispute resolution proceeding 53% of

the time while Office of Injured Employee Counsel Ombudsman assisted injured employees 40%

of the time.

DWC system data indicates that in 2006, insurance carriers paid doctors and other non-facility

health care providers $559,768,076 as compared to $567,787,215 in 2010. In 2006, there were

2,917,762 medical bills with 8,450,308 billed lines. 2,447,967 of the medical bills were paid

without question. That number represents payment of 83% of all professional medical bills in

https://wwwapps.tdi.state.tx.us/inter/asproot/commish/da/dwcclips2011.asp


https://wwwapps.tdi.state.tx.us/inter/perlroot/wc/systemreports/hdr/body.html#IDX

https://wwwapps.tdi.state.tx.us/inter/perlroot/wc/systemreports/hdr/body6.html#IDX6

https://wwwapps.tdi.state.tx.us/inter/perlroot/wc/systemreports/bills/body.html#IDX


71

2006. In 2011, there were 2,604,876 medical bills with 6,901,078 billed lines. 2,294,362 medical

bills were paid without a dispute. That number represents payment of 88% of all professional

medical bills in 2010.

For health care institutions, e.g. hospitals, that system data indicates that there were 194,077

medical bills with 1,264,120 billing lines billed for in 2006. 158,315 of the medical bills were

paid without question. That number represents payment of 81% of all institutions medical bills in

2006. In 2010, there were 190,144 medical bills with 1,332,325 billing lines. 162,456 medical

bills were paid without a dispute. That number represents payment of 85% of all medical bills in

2010.

For pharmacies, the system data indicates that there were 1,092,986 pharmacy bills with

1,774,311 lines billed in 2006. 1,008,291 of the pharmacy bills were paid without question. That

number represents payment of 92% of all pharmacy bills in 2006. In 2010, there were 996,017

pharmacy bills with 1,382,148 billing lines. 954,360 pharmacy bills were paid without a dispute.

That number represents payment of 95% of all pharmacy bills in 2010.

The assertion that insurance carriers file dispute after dispute is not backed up by the DWC‘s

system data.

Myth #3 – SIF Gives Insurers Incentive for Not Paying Claims

The article reported that the Subsequent Injury Fund (SIF) gives incentive for insurance carriers

to battle medical claims all the way through judicial review. The article also reported that

insurance carriers can game the fund in both directions, not only receiving money from it when

they shouldn‘t, but also not paying into it when they should. This claim is not accurate and lacks

any supporting data or verifiable information.

The article fails to explain the purpose of the SIF. As such, the reader is left with an inaccurate

understanding of the role the SIF plays in the Texas workers‘ compensation system. Second

Injury Funds, the SIF in the case of Texas, became a fixture in workers‘ compensation systems

around the United States after World War II to provide incentives for employers to hire

injured/disabled veterans. Typically, these funds served to facilitate the hiring of workers with

pre-existing injuries by paying benefits when a subsequent on-the-job injury qualified the worker

for permanent total disability (also known as Lifetime Income Benefits in Texas). This was the

case in Texas until passage of the 1989 workers‘ compensation reform which created the SIF and

authorized the use of SIF monies to reimburse insurance carriers for the overpayment of benefits

in certain situations. 11

The SIF has nothing to do with a carrier‘s decision to legitimately dispute

a medical bill.

In addition, insurers do not receive funds from the SIF when they are not entitled to it. The law

is very clear as to when a carrier is eligible to be reimbursed from the SIF and also when a carrier

must pay into the SIF. The DWC is very diligent about monitoring the appropriateness of

reimbursement from the SIF.

11

An Evaluation of the Texas Subsequent Injury Fund, Texas Monitor, Summer 1999 Edition, Research and

Oversight Council on Workers‘ Compensation, retrieved from the Texas Department of Insurance website on

October 3, 2011.

https://wwwapps.tdi.state.tx.us/inter/perlroot/wc/systemreports/bills/body.html#IDX1

https://wwwapps.tdi.state.tx.us/inter/perlroot/wc/systemreports/bills/body.html#IDX3


72

Myth #4 – Prolonged Battles Over Medical Denials Have Led to Suicides in Recent Years

The article repeats a claim that has often been made and not substantiated over the past decade –

prolonged battles over medical denials have led to suicides in recent years. No data or case

examples have been produced that indicates or suggests that a single injured worker has

committed suicide because their medical benefits had been denied. By law, insurance carriers are

supposed to pay only for medically necessary health care treatment and services. They also have

the duty to make sure that the health care being provided to injured employees is appropriate and

quality care.

Insurance carriers routinely assign ―at risk‖ claims to a case manager for enhanced monitoring

and claims management. Many of the those claims involve the use of excessive amounts of

dangerous narcotics. In the end analysis, it can be said that insurance carriers are only required to

pay for necessary medical care and to prevent unnecessary and inappropriate medical treatment.

It can also be said that insurance carriers do their best to look out for the well-being of injured

employees. That part of the rest of the story is unfortunately never told by the media.

What is the Real Story About the Texas Workers’ Compensation System?

The Texas workers‘ compensation system is working very well, a statement that is supported by

system performance data. Many stakeholders believe that the state of the system is significantly

improved.

The following statistics back up their conclusion:

● The number of claims is down – 116,785 in 2006 as compared to 97,075 in 2010.



● In 2006, there were 7,731 medical disputes filed with the DWC as compared to only

4,471 filed in 2010.

● According to a Texas Department of Insurance (TDI) report to the Texas Legislature, as

of November 2010, workers‘ compensation insurance rates have decreased approximately

40 percent since 2003.

● According to a 2010 TDI report on participation of Texas employers in the Texas system,

the number of employers who have chosen to non-subscribe is at a historic low of 32%,

down from a high of 44% in 1993 and 38% in 2004.

The DWC‘s data supports the contention that the Texas system is performing very well. The

number of disputes – indemnity and medical – has declined dramatically since the passage of

House Bill 7 by the Texas Legislature in 2005. System medical costs are down and there is a

focus on the delivery of quality health care through certified workers‘ compensation health care

networks and in the non-network treatment setting. Outcome based treatment guidelines have

been adopted and provide physicians, health care providers and insurance carriers with good

guidance about what is appropriate health care treatment – keep in mind it is only a guideline.

https://wwwapps.tdi.state.tx.us/inter/perlroot/wc/systemreports/index.html


http://www.tdi.texas.gov/reports/wcreg/documents/Non-sub%202010.pdf


73

Return-to-work outcomes continue to improve. Insurance premiums paid for workers‘ compen-

sation insurance coverage have continued their downward trend. Perhaps one of the key

indicators that the Texas system is performing well is the fact that there are fewer employers who

have elected not to purchase workers‘ compensation insurance coverage.

Is the Texas Workers’ Compensation System Perfect?

The simple answer to the question ―Is the system perfect?‖ is No. No workers‘ compensation

system is perfect.

However, it is worth pointing out that state leadership, the Texas Legislature, system

stakeholders and the state‘s regulatory agencies have all worked hard to fix problems in the

Texas system and improve it for all stakeholders. Texas‘ lawmakers, regulators and stakeholders

continue to be committed to improving the workers‘ compensation system. The debate that has

arisen in the aftermath of the publication of the ABA Journal‘s article centers around perceived

imperfections about how well the Texas workers‘ compensation system takes care of injured

employees. I would be remiss in my duty to write a balanced article if I failed to mention the

concerns of the critics of the Texas workers‘ compensation system. As such, I have attempted to

provide a high level summary of each concern that has been noted by the critics of the system.

The critics of the Texas workers‘ compensation system most often cite the following issues as

being unresolved issues within the Texas system that need attention:

● Income benefit levels are inadequate for most injured employees;

● Income benefit levels for high salaried employees are inadequate;

● Attorney fees are too low and have resulted in fewer and fewer attorneys practicing

workers‘ compensation law and representing injured employees;

● Workers‘ compensation medical benefits delivery should be more like group health

insurance;

● Fees for doctors, facilities and other health care providers are too low;

● The system is full of ―hassle factors‖ that drive good physicians out of workers‘

Compensation;

● The deck is stacked against an injured employee who cannot find an attorney to represent

their interests in both the dispute resolution process and Texas courts;

● There are too many disputes raised by insurance carriers; and

● The Texas system is too complex and over-regulated.


74

Those issues have been the basis for legislation filed during several past legislative sessions.

Without doubt, it is fair to say these same issues are expected to be the subject of future

legislation.

Without Doubt, The Debate Will Continue – Where We Go Is Up to Stakeholders

The debate about the state of the Texas workers‘ compensation system and how well it does or

does not perform will go on. Hopefully, the complete and accurate story will be told and not one

that neglects the truth in order to support a stakeholder‘s position.

The bottom line and the truth is that at this time the Texas workers‘ compensation system is

working well. There is no doubt more can be done to improve the system and how it performs.

But there can also be no doubt that the system is performing better than it has in long, long time.

One can only hope that the drama injected into the system by articles such as that of the ABA

Journal and the sour grapes of past legislative and regulatory battles can be put aside so that

stakeholders can work together and focus on continuing to improve the Texas system as we

move forward into the future.

System Performance Data from TDI’s Division of Workers’ Compensation

Table of Number of Claims by Calendar Year of Injury, CY 2006 – 2010

2006 2007 2008 2009 2010

116,785

112,044

107,634

96,724

97,075

Claims with a Workers' Compensation Dispute Proceeding by Calendar Year of Injury

Calendar Year

of Injury

Total Number

of Claims

Number of Claims

With a Proceeding

Percent of Claims

With a Proceeding

2006

116,785

7,955

7%

2007

112,044

7,709

7%

2008

107,634

7,191

7%

2009

96,724

5,601

6%

2010

97,075

3,850

4%

Source: Division of Workers’ Compensation, 2011


75

LEGISLATIVE UPDATE


76



77

2011 Texas Legislative Regular Session Ends, DWC and TDI Sunset Bills Passed

By Albert Betts, Partner at Thompson Coe and General Counsel of Insurance Council of Texas

The 82nd

Texas Legislature convened on Tuesday,

January 11, 2011 and ended its regular session on

May 30, 2011 after having considered over 5000

bills. Much of the legislature‘s attention during the

regular session was focused on emergency items

named by Governor Perry and attempts to resolve the

state‘s budget shortfall. The Texas Legislature also

worked on legislation associated with federal

healthcare reforms, windstorm insurance reform,

education funding, immigration-related issues, and

the ―sunset reviews‖ of 28 state agencies including

the Texas Department of Insurance (TDI), TDI‘s

Division of Workers‘ Compensation (DWC), Office

of Public Insurance Counsel (OPIC), and Office of Public Injured Employee Counsel (OIEC).

This was the first sunset review of the DWC since the 2005 reforms (HB 7, 2005 Session) and

the first ever sunset review of the OIEC which was created in 2005 as part of HB 7.

The DWC sunset legislation was HB 2605 by Rep. Larry Taylor (R-League City) and SB 658,

filed by Sen. Joan Huffman (R-Southside Place) and Sen. Glenn Hegar (R-Katy). HB 2605

ended up being the bill considered in both the House and Senate to continue the operations of the

DWC.

The Texas Legislature also considered OIEC sunset legislation – HB 1774 by Rep. Larry Taylor

and SB 651 filed by Senators Huffman and Hegar and TDI sunset legislation – HB 1951 by Rep.

Larry Taylor and SB 644 by Sen. Glenn Hegar. The Texas Legislature passed HB 1774 and HB

1951.

DWC Sunset Legislation Incorporates Sunset Decisions

HB 2605 continues the Division of Workers‘ Compensation (DWC) for 6 years until 2017. The

legislation includes many of the issues included in the Sunset Advisory Commission decisions,

such as statutory changes to the DWC designated doctor process, changes to the administrative

violation penalty provisions and DWC authority, changes to the medical dispute process, benefit

dispute resolution, and the DWC Medical Quality Review Panel. The bill includes late

amendments that add an additional possible designated doctor review and an expedited medical

dispute process for certain emergency responders. See the Insurance Council of Texas‘

Workers‘ Compensation Bulletin 2011-13 for a detailed summary of the legislation.

TDI Sunset Legislation Passed During Final Hours of the Legislative Session

The Texas Legislature passed the TDI Sunset bill, House Bill 1951, during the final hours of the

session. The bill had been sent to a conference committee after differing versions passed the

House and Senate after both bills had significant differences in the various amendments added on

the respective house floors.


http://www.legis.state.tx.us/BillLookup/History.aspx?LegSess=82R&Bill=SB658

http://www.legis.state.tx.us/BillLookup/history.aspx?LegSess=82R&Bill=HB1774

http://www.legis.state.tx.us/BillLookup/history.aspx?LegSess=82R&Bill=SB651



http://www.insurancecouncil.org/membersonly/docs/2011/06011wc.pdf


78

The conference committee issued its report during the final weekend of the session and the bill

was passed with many of the amendments removed from the final version. See the Insurance

Council of Texas‘ TDI Legislative Bulletin for a detailed summary of the legislation.

OIEC and OPIC Sunset Legislation Passed

The Texas Legislature passed HB 1774 – which continues the OIEC for 6 years until 2017. The

legislation requires the OIEC to develop a system to respond to complaints and changes OIEC‘s

access to workers‘ compensation claims information to be the same as a party to a claim. The

legislation also requires the DWC to provide OIEC with identity and contact information for

claimants.

The Texas Legislature also passed SB 647 and continues the OPIC for 6 years until 2017.

Other Legislation Passed

The Texas Legislature passed other workers‘ compensation legislation that included:

HB 528 Allows insurers to continue to use discount contracts for pharmaceutical care in

workers‘ compensation;

HB 625 Requires staff leasing companies who provide workers‘ compensation coverage to

provide certain information upon request of a client company;

HB 2089 Amends the Texas Labor Code to provide for the resolution of an overpayment or

underpayment of income benefits under the workers' compensation program;

HB 2093 Defines a consolidated insurance program as providing liability and workers‘

compensation insurance coverage to covered entities. The legislation also provides for the

regulation of consolidated insurance programs and prohibits indemnification provisions in

construction contracts subject to certain limited exceptions;

SB 800 Amends the Texas Labor Code to allow the workers‘ compensation commissioner

to contract with a data collection agent to fulfill certain data collection requirements of the

Texas Workers' Compensation Act;

SB 809 Amends the Texas Labor Code to provide that a party to a medical dispute may file

suit not later than the 45th day after the date on which the division of workers'

compensation of the Texas Department of Insurance mailed the party the hearing officer's

decision;

SB 1714 Amends the Texas Labor Code for the purpose of making certain common-law

defenses inapplicable in an action to recover damages for personal injuries or death

sustained by an employee in the course and scope of the employment when the employee is

not covered by workers' compensation insurance obtained through a licensed insurance

company or through self-insurance












79

The Texas Legislature also passed SB 158 that amends the Health and Safety Code and Penal

Code as they relate to the fraudulent obtaining of a controlled substance from a practitioner and

creates criminal penalties for ―doctor shopping‖ and improper diversion of prescription drugs.

Legislative Update to Be Presented at ICT’s Annual Workers’ Compensation Conference

A detailed overview of the workers‘ compensation legislation considered and passed by the

Texas Legislature was presented by the author of this article, Albert Betts, at ICT‘s Annual

Workers‘ Compensation Conference which was held in Austin, Texas on September 8, 2011.

What’s Next?

Several of the workers‘ compensation bills that were passed will require rulemaking and the

DWC sunset bill, HB 2605, has specific dates by which rules must be enacted for some of the

changes. System stakeholders can expect an intense round of rule-making by the Division of

Workers‘ Compensation, including rules for pharmacy fee guidelines. Further, in 2010, the

DWC sought stakeholder input on possible implementation of a new impairment rating

guideline and this issue may be considered in the future. In the past, the DWC has published a

rulemaking schedule and stakeholders are urged to see if a new schedule is published in the near

future.

Albert Betts

Editor’s Note: The author of this article is Albert Betts. Betts is a

partner with the law firm of Thompson, Coe, Cousins & Irons and ICT’s

General Counsel. He served as the first full-time workers’ compensation

commissioner from September 1, 2005 through August 31, 2008.

Betts has extensive experience as a lawyer and public policy adminis-

trator including representing the Texas Department of Insurance in

litigation and the state’s workers' compensation carrier – the State Office

of Risk Management – in administrative proceedings.

Betts has advised the state risk management board, the commissioner of

insurance, and political leadership on insurance and workers’

compensation matters.

Since 1951, Thompson Coe has been the litigation firm of choice for one of the most sophis-

ticated buyers of legal services in American business–the insurance industry. Building on this

strong foundation of handling major case litigation and regulatory challenges, Thompson Coe

works with clients in other industries to move their companies forward–through trial experience,

alternative fee structures and fast case resolution.

Thompson Coe assists insurers with any aspect of their business that is subject to regulatory or

legislative action. Thompson Coe has a national practice helping insurance companies achieve

their legislative initiatives and resolve their regulatory issues, enhanced by their established

relationships with key legislators and regulators in Texas and throughout the Southwest.


http://www.insurancecouncil.org/WorkersComp/WCAgenda.asp?ID=53

http://www.insurancecouncil.org/WorkersComp/WCAgenda.asp?ID=53

http://www.thompsoncoe.com/default.aspx?ID=182&tabid=162&page=Bio

http://www.thompsoncoe.com/


80

DWC Sunset Legislation Passed by Texas Legislature and Signed by Gov. Rick Perry

On May 30, 2011, the Texas Legislature passed House Bill (HB)

2605 that continues the Division of Workers‘ Compensation for 6

years until 2017. HB 2605 was filed by Rep. Larry Taylor (R-League

City) and incorporates the Texas Sunset Advisory Commission‘s

(Sunset Commission) recommendations to amend the Texas Labor

Code to address several issues considered by the Sunset

Commission.

The issues addressed in HB 2605 include amending the statute to

provide that IRO decision appeals are to be heard by Division of

Workers‘ Compensation (DWC) contested case hearings and then

subject to judicial review, amending the designated doctor provisions

of the Texas Labor Code to require the DWC to select designated doctors whose credentials are

appropriate for the ―area of the body affected by the injury, requiring the DWC to develop a

certification process for designated doctors and adopt rules to include guidelines for certification

training programs and a host of other issues.

Gov. Rick Perry signed HB 2605 on June 17, 2011. The legislation became effective that same

day.

Highlights of HB 2605:

Administrative ---

DWC continued for 6 years until 2017.

DWC is required to adopt a policy on complaint processing and develop procedures for

analyzing complaints.

Medical Necessity Disputes ---

Appeals from IRO decisions are to be heard by DWC contested case hearings (CCHs)

and then subject to judicial review. Currently IRO decision appeals go directly to district

court.

Designated Doctors ---

Amends designated doctor laws and requires DWC to select designated doctors whose

credentials are appropriate for the ―area of the body affected by the injury‖.

Employee can request an additional medical exam if dissatisfied with the first designated

doctor opinion on impairment rating and maximum medical improvement.

http://www.capitol.state.tx.us/BillLookup/History.aspx?LegSess=82R&Bill=HB2605

http://www.house.state.tx.us/members/member-page/?district=24

http://www.governor.state.tx.us/about/


81

Requires DWC to develop a certification process for designated doctors and adopt rules.

Rules must contain certain requirements, including guidelines for certification training

programs.

DWC can authorize an independent training and testing provider to conduct the

certification program.

Designated doctors have to remain with a claim once assigned to it unless otherwise

authorized by DWC. DWC has to adopt rules.

DWC allowed to revoke or deny renewal of a designated doctor certificate.

DWC required to adopt designated doctor certification rules no later than January 1,

2013. Amendments to disciplinary acts against designated doctors apply on or after

January 1, 2013. Amendments to designated doctor medical exam provisions also apply

on or after January 1, 2013.

Benefit Dispute Resolution ---

Amends laws regarding benefit review conference (BRC) preparedness and requests to

reschedule. Failure to appear at a BRC may result in forfeiture of right to attend a BRC.

DWC must adopt rules.

Appeals Panel can affirm a decision of a hearings officer in certain instances-case of first

impression, involving a recent change in law, incorrect conclusions of law, among others.

Medical Fee Disputes ---

Medical Fee Disputes are heard by State Office of Administrative Hearings (SOAH).

At a BRC for medical fee disputes, the parties cannot agree to a fee different from the fee

guideline. The parties can elect arbitration after a fee dispute BRC.

If the issue at SOAH involves interpretation of a fee guideline, DWC can participate at

SOAH but are not parties to the dispute.

Non-prevailing party reimburses DWC for the costs of the SOAH hearing; if the non-

prevailing party is the injured employee, the insurance carrier reimburses.

Medical Quality Review Panel (MQRP) ---

Requires Medical Advisor to consider lists of doctors maintained by provider licensing

agencies when selecting doctors for MQRP.

DWC required to develop criteria for MQRP process. Process has to include handling of

complaint based reviews and selection of providers for audits and review. The process

has to be made available on the DWC website.

Medical Advisor required to establish a Quality Assurance Panel.


82

DWC has to adopt rules for operation of the MQRP panel, including qualifications for

panel and composition of the panel among other requirements. DWC also has to develop

a training program for MQRP members.

Enforcement and Compliance ---

Authorizes the Commissioner of Workers‘ Compensation to review the proposal for

decision from the SOAH administrative judge in enforcement cases. The commissioner

will then issue the final order. Currently, the SOAH judge issues final decisions in

enforcement cases. This authority would be similar to that given the Insurance

Commissioner under the Insurance Code. Changes to commissioner‘s authority to review

SOAH judge decision applies to hearings conducted after the bill‘s effective date.

Amends sections of the Labor Code regarding administrative violations of workers‘

compensation provisions to remove references to classes of administrative violations.

Amends Labor Code Ch. 415 provisions to remove references to classes of violation.

Repeals numerous provisions, including provisions referencing classes of violation,

§§415.0035(c)(d) and (f), 415.0036(c), 415.008(b), and 415.022. Also repeals §415.004.

Amends §409.021(e) to remove specific penalty amounts for failure to timely initiate

benefits or issue notice of denial.

Moves Labor Code Ch. 402 provisions regarding Commissioner‘s ability to impose

sanctions to Labor Code Ch. 415.

Authorizes DWC to conduct on-site compliance inspections. DWC has to adopt rules.

Requires administrative penalties collected to be deposited into the state‘s general

revenue fund.

Gives workers‘ compensation commissioner emergency cease and desist authority for

violation of statute or rule, or order, if he believes the conduct will result in harm to the

health, safety, and welfare of another person. A person who is subject to an emergency

cease and desist order is entitled to request a hearing within 30 days of receipt of the

order. The hearing has to be held within 10 days of receipt of the request for a hearing

unless parties agree to a later hearing date. Similar to authority of the Insurance

Commissioner under the Insurance Code.

Review of commissioner‘s order regarding sanctions is subject to substantial evidence

review.

The Division of Workers‘ Compensation has begun its rule-making process to enact rules that

implement the changes made to the Texas Labor Code by HB 2605.


83

Sunset Legislation Continuing TDI, OPIC and OIEC Passed by Texas Legislature

The Texas Legislature passed Sunset Legislation

during its regular 2011 legislative session that ended

on May 30, 2011 that continues the operations of the

Texas Department of Insurance (TDI), Office of

Public Insurance Counsel (OPIC) and Office of

Injured Employee Counsel (OIEC).

The Sunset Review process (Sunset) is the regular

assessment of the continuing need for a state agency to

exist. The Sunset process works by setting a date on

which an agency will be abolished unless legislation is

passed to continue its functions. This creates a unique

opportunity for the Legislature to look closely at each

agency and make fundamental changes to an agency's

mission or operations if needed.

The Sunset process is guided by a 12-member body appointed by the Lieutenant Governor and

the Speaker of the House of Representatives. Assisting the Commission is a staff whose reports

provide an assessment of an agency's programs, giving the Legislature the information needed to

draw conclusions about program necessity and workability.

The TDI Sunset Legislation, HB 1951, continues the Texas Department of Insurance for 6 years

until 2017. The 82nd Legislature passed HB 1951 during the final hours of the session. The bill

had been sent to a conference committee after differing versions passed the House and Senate.

Both bills had significant differences in the various amendments added on the respective house

floors. The bill had over seventy amendments added between the House and Senate. The

conference committee issued its report late Friday, May 27, 2011, and failed to adopt many of

the amendments adopted in the House and Senate. See ICT‘s TDI Legislative Bulletin for a

detailed summary of the legislation. HB 1951 was signed by Gov. Perry on June 17, 2011 with

an effective date of September 1, 2011.

The OPIC Sunset Legislation, SB 647, continues the Office of Public Insurance Council for 12

years until 2023. The legislation requires OPIC to develop and encourage the use of appropriate

alternative dispute resolution procedures. SB 647 was signed by Gov. Perry on June 17, 2011

with an effective date of September 1, 2011.

The OIEC Sunset Legislation, HB 1774, continues the OIEC for 6 years. The legislation requires

OIEC to develop a system to respond to complaints. HB 1774 changes access to workers‘

compensation claims information to limit the OIEC to same access as party to a claim. The

legislation also requires the DWC to provide OIEC with identity and contact information for

claimants. HB 1774 was signed by Gov. Perry on June 17, 2011 with an effective date of

September 1, 2011.






84

Pharmacy Fee Discounts Legislation Passed by Texas Legislature, Signed by Governor

Legislation that provides for the continued use of discount

contracts for pharmaceutical care by insurers in the workers‘

compensation system was passed by the Texas Legislature

during its regular 2011 legislative session.

House Bill 528, filed by Rep. Burt Solomons (R-Carrollton),

clarifies the authority of workers‘ compensation carriers to

contract for discounts below rates set by the Division of

Workers‘ Compensation‘s (DWC) fee schedule, and to use

pharmacy benefit managers (PBMs) to obtain such discounts.

Sen. Leticia Van de Putte (D-San Antonio), Senate sponsor of

the legislation, said the bill would clarify that a carrier in the workers‘ compensation system may

contract for a fee different from the fee schedule established by the DWC and may use an

authorized agent, including using a voluntary network to achieve the discount. She described it

as a ―workers‘ comp PBM cleanup bill.‖

Gov. Rick Perry signed the legislation on June 17, 2011. HB 528 became effective immediately

upon being signed by Gov. Perry.

DWC Issued Commissioner’s Bulletin to Announce Effective Date of Legislation and Provide

Stakeholders with Guidance on Reimbursement of Pharmacy Bills

On June 21, 2011, Workers‘ Compensaiton Commissioner Rod Bordelon issued Commissioner‘s

Bulletin #B-0027-1 reminding Texas workers‘ compensation system stakeholders of the fact that

HB 528 imposes specific requirements on reimbursement for pharmaceutical services for

network and non-network claims in the Texas workers‘ compensation system.

Commissioner Bordelon reminded system stakeholders that the amendments to Rule 134.503

adopted by the DWC on an emergency basis on December 17, 2010 and extended on April 11,

2011 will expire on June 29, 2011. No permanent rule was adopted prior to the expiration of the

emergency rule.

The commissioner said that after the expiration of the emergency rule, insurance carriers must

reimburse health care providers for pharmaceutical services in accordance with the DWC‘s prior

reimbursement methodology set forth in Rule 134.503 (DWC‘s Pharmacy Fee Guideline) until

the commissioner adopts a new pharmacy fee guideline rule. Rule 134.503 was in place prior to

the adoption of the emergency rule in January 2011.

The bulletin notes that insurance carriers may also reimburse health care providers for

pharmaceutical services at rates inconsistent with the DWC‘s Pharmacy Fee Guideline, meaning

at rates greater than or less than those fee guidelines, if the insurance carrier has a contract with

that health care provider that includes a specific fee schedule.

http://www.capitol.state.tx.us/BillLookup/History.aspx?LegSess=82R&Bill=HB528

http://www.house.state.tx.us/members/member-page/?district=65

http://www.senate.state.tx.us/75r/Senate/members/dist26/dist26.htm

../../geoff/Local%20Settings/Documents%20and%20Settings/betta/Local%20Settings/Temporary%20Internet%20Files/OLKC1/Commissioner’s%20Bulletin#B-0027-1

../../geoff/Local%20Settings/Documents%20and%20Settings/betta/Local%20Settings/Temporary%20Internet%20Files/OLKC1/Commissioner’s%20Bulletin#B-0027-1

http://www.tdi.state.tx.us/wc/rules/adopted/documents/ao134503ph1210.pdf

http://info.sos.state.tx.us/pls/pub/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=28&pt=2&ch=134&rl=503


85

Commissioner Bordelon said insurance carriers or their authorized agents may use a pharmacy

informal or voluntary network, as defined in Section 408.0281(a) of the Texas Labor Code, to

obtain the contractual agreements with pharmacies. If an insurance carrier chooses to use a

pharmacy informal or voluntary network, there must be:

(1) a contractual arrangement between the insurance carrier or its agent and the pharmacy

informal or voluntary network authorizing the network to contract with health care

providers for pharmaceuticals on the insurance carrier‘s behalf; and

(2) a contract between the network and the health care providers that includes a specific fee

schedule and complies with the health care provider notice requirements of Section

408.0281(d)-(e) of the Texas Labor Code as added by HB 528.

Notification of Pharmacy Requirements

The bulletin also addresses the requirement that insurance carriers, an insurance carrier‘s

authorized agent or the pharmacy informal or voluntary network, as appropriate, must notify

each pharmacy, at least quarterly of any person, other than the injured employee, to which the

network‘s contractual fee arrangements with the health care providers are sold, leased,

transferred or conveyed. The pharmacy notice must contain certain information listed in Sections

408.0281(d)-(e) of the Texas Labor Code and the delivery of the notice must be documented.

Failure to Notify Pharmacy is an Administrative Violation

Commissioner Bordelon informed system stakeholders that the failure to comply with the

provisions of Section 408.0281 of the Texas Labor Code, including health care provider notice

requirements, is an administrative violation. The commissioner said insurance carriers are

responsible for any sanction imposed for these violations, regardless of whether the insurance

carrier or its authorized agent committed the act or acts of noncompliance.

Pharmacy Informal and Voluntary Network Registration Requirement

The commissioner reminded system stakeholders that Section 408.0282(a) of the Texas Labor

Code requires that each informal or voluntary network that has contracts in effect on June 17,

2011 must report the information required by Section 408.0282(a)(1)-(5) of the Texas Labor

Code to the DWC no later than July 17, 2011.

The commissioner emphasized that pharmacy informal or voluntary networks that previously

registered with the DWC pursuant to the provisions of Section 413.0115(c) of the Texas Labor

Code must register again under Section 408.0282 of the Texas Labor Code in order to be in

compliance. Furthermore, the commissioner noted that all pharmacy informal or voluntary

networks established after June 17, 2011 must register with the DWC not later than thirty days

after the network is established. All pharmacy informal or voluntary networks must report any

changes in information previously reported to the DWC within thirty days of the change.

Commissioner Bordelon said pharmacy informal and voluntary networks must report the

information required by Section 408.0282 of the Texas Labor Code to the DWC through its

online reporting system that can be found through the TDI website. The failure by a pharmacy

https://wwwapps.tdi.state.tx.us/inter/perlroot/sasweb9/cgi-bin/broker.exe?_service=wcExt&_program=progext.pharm_networkreg.sas


86

informal or voluntary network to comply with the registration requirements will result in an

administrative violation.

For further information on the registration process, system participants should refer to the

DWC‘s Frequently Asked Questions on this topic found on the TDI website.

Other Issues Addressed by the Commissioner’s Bulletin

The bulletin also addresses the delivery of prescription medications or services by a Political

Subdivision or Certified Workers‘ Compensation Health Care Network.

Commissioner Bordelon emphasized that the bulletin does not address all the provisions of HB

528 and recommended that system participants refer to the bill itself for full information on its

requirements.

Legislation Allowing Recoupment of Overpayment of Income Benefits Passed; Rules

Implementing Legislative Change Adopted by Workers’ Compensation Commissioner

Rep. John T. Smithee

The Texas Legislature passed legislation that amends the Texas

Labor Code to provide for the resolution of an overpayment or

underpayment of income benefits. HB 2089, authored by Rep. John

T. Smithee (R-Amarillo), was passed by the legislature on May 30,

2011. Gov. Rick Perry signed the legislation on June 17, 2011 with

an effective date of September 1, 2011.

The legislation allows the commissioner of workers‘ compensation to

establish procedures to require an overpayment of income benefits to

be recouped from future income benefit payments and underpayments

to be paid in a future income benefit payment. The legislation

requires the procedure to include a process for notification to the

injured employee of the underpayments and overpayments and a

methodology for payment and recoupment by the insurance carrier.

HB 2089 enacted §408.0815 of the Texas Labor Code which requires the Commissioner of

Workers‘ Compensation to adopt rules to establish a procedure by which an insurance carrier

may recoup an overpayment of income benefits from future income benefit payments, and shall

pay an underpayment of income benefits, including interest on accrued by unpaid benefits. The

rules required by HB 2089 must be adopted by January 1, 2012.

DWC Has Proposed and Adopted Rules to Implement HB 2089

The Texas Department of Insurance‘s Division of Workers‘ Compensation (DWC) has proposed

rules to implement the provision of HB 2089. The rules – proposed new 28 Texas Administrative

Code (TAC) §126.15 and §126.16 and proposed amendments to 28 TAC §128.1. The proposed

new rules and amendments establish procedures that insurance carriers and injured employees

must follow when resolving an overpayment or underpayment of income benefits.

http://www.tdi.state.tx.us/wc/pharmacy/index.html#faqs



87

The proposed rules apply to income benefits only and do not affect the DWC's authority to

identify and take action on underpayments and overpayments on its own motion.

The DWC has also informally proposed a sample notice, Notice of Underpayment of Income

Benefits, injured employees may use when providing the insurance carrier with written notice of

an underpayment.

A public hearing on the proposed rules was held on November 14, 2011.

The rules implementing HB 2089 were adopted on December 12, 2011.

Legislation Extending the Deadline for Filing a Lawsuit at the Conclusion of

the Medical Dispute Resolution Process Passed; Bill Signed by Gov. Rick Perry

Sen. Kel Seliger

The Texas Legislature passed Senate Bill (SB) 809 during the

regular legislative session. SB 809, authored by Sen. Kel

Seliger (R-Amarillo), amends the Texas Labor Code to require

a party that has exhausted its administrative remedies under the

act and is seeking judicial review of a hearing officer's final

decision in a contested case hearing regarding certain medical

disputes must file suit not later than the 45th day after the date

on which the Division of Workers' Compensation mailed the

party the hearing officer's decision.

Prior to the passage of SB 809, the period for appealing most

administrative decisions in district court generally was 30 days.

Until recently, however, an injured employee appealing an

administrative decision regarding income benefits under the

state's workers' compensation law had 40 days to file an appeal.

HB 724, passed by the 80th Texas Legislature in 2007, reintroduced an administrative hear-

ing process to resolve workers' compensation disputes regarding medical benefits. However,

the new legislation did not adequately provide for a timeframe to appeal administrative

decisions regarding medical benefits to district court. As such, in 2008, the Austin Court of

Appeals in Hartford Inc. Co v. Crain held that parties had 40 days, rather than 30 days as

established in Chapter 2001 (Administrative Procedure), Government Code, to appeal an

administrative medical dispute decision into a district court. The court of appeals held that

the 40-day judicial review deadline for challenging an appeals panel decision, expressly

stated in Section 410.252 (Time for Filing Petition; Venue), Labor Code, applies to medical

disputes, not just indemnity disputes, and trumps the 30-day time frame set out in the

Government Code.

Subsequent to the Hartford decision, HB 4545, passed by the 81st Texas Legislature in

2009, amended the timeframe in Section 410.252 of the Texas Labor Code to appeal income

benefit administrative decisions from 40 to 45 days to give injured employees more time to


http://www.senate.state.tx.us/75r/senate/members/dist31/dist31.htm

http://www.senate.state.tx.us/75r/senate/members/dist31/dist31.htm


88

find attorney representation, in hopes that default judgments against injured employees who

could not find legal representation would decrease. Unfortunately, HB 4545 failed to address

or offer a codified timeframe for parties appealing medical disputes in district court.

SB 809 amended Chapter 413 of the Texas Labor Code to give a party the same timeframe

to appeal an administrative medical dispute decision as an indemnity dispute decision.

Specifically, a party should be provided 45 days to appeal a medical dispute decision into

district court.

―The change benefits all workers' compensation system participants by establishing a clear

timeframe to file an appeal in district court, regardless of the workers' compensation benefits

at issue,‖ said Sen. Seliger.

SB 809 also made a technical correction conforming a reference to the period in which a suit

seeking judicial review in a workers' compensation dispute other than a medical dispute is

initially filed to the actual period otherwise defined by the deadline for filing specified in

statute.

Legislation that Tackles Doctor Shopping and the Diversion of Narcotic Drugs Passed

On May 30, 2011, the Texas Legislature

passed Senate Bill (SB) 158 and bolstered the

fight against prescription drug abuse and the

diversion of narcotic drugs onto the streets of

Texas. The legislation is a response to the

abuse of prescription drugs in Texas.

SB 158, authored by Sen. Tommy Williams

(R-The Woodlands), amends the Health and

Safety Code by making it a criminal offense to

obtain or attempt to obtain from a practitioner

a controlled substance or a prescription for a

controlled substance by misrepresentation,

fraud, forgery, deception, subterfuge, or

concealment of a material fact.

The legislation creates criminal penalties for patients who visit multiple practitioners and do not

disclose that they are already receiving controlled substances. SB 158 provides that a person

commits an offense if they have intent to obtain controlled substances that are not medically

necessary for the person using misrepresentation, fraud, forgery, deception, subterfuge, or

concealment of a material fact.



89

Sen. Tommy Williams

The legislation also provides for trying defendants in ―pill mill‖

cases under criminal organization statutes. Operating a ―pill

mill‖ will be considered organized criminal activity.

Gov. Rick Perry signed SB 158 on June 17, 2011. The legislation

will be effective on September 1, 2011.

Sen. Williams passed SB 911 during the 2009 legislative session

requiring pain management clinics to be certified by the Texas

Medical Board (TMB). The legislation also provided TMB

the needed tools to investigate and regulate pain management

clinics. The legislation also requires that the clinics must be

owned and operated by a licensed physician.

Physician Dispensing Bill Dies, 2 Prescription Drug Bills Advanced

By Bill Kidd, Central Bureau Chief, WorkCompCentral

A controversial bill to allow doctors to dispense

drugs from their offices died in the House of

Representatives while two Senate-passed

measures targeting prescription drug problems

advanced, one of which later passed.

Sen. Robert Deuell, R-Greenville, a family

practice physician, won Senate approval (17-13)

of Senate Bill 546, his physician-dispensing bill,

on May 6, 2011 sending the bill to the Texas

House of Representatives.

However, Sen. Deuell first amended the bill to

provide that it would not apply to workers‘ compensation patients, and removing authority for

physicians to dispense controlled substances on schedules II through V of the federal Drug

Enforcement Agency.

Opponents of the bill, including representatives of workers‘ compensation carriers, said they

were pleased with the modifications to SB 546, but continued to argue the proposal was bad

public policy. Sen. Leticia Van de Putte (D-San Antonio) said the bill constituted a substantial

change in the scope of practice allowed doctors.

Sen. Van de Putte also argued the bill appeared to be unnecessary, since doctors in counties with

populations less than 30,000 are able to dispense drugs to patients when there is no

pharmacy in the area.

SB 546 was referred to the House Committee on Public Health and was scheduled for a public

hearing on May 18. But prior to the hearing, Sen. Deuell requested that the bill not be heard.

http://www.capitol.state.tx.us/BillLookup/History.aspx?LegSess=81R&Bill=SB911


90

A committee staff member, who asked not to be named, who was contacted by WorkComp

Central was not aware of any specific reason for Sen. Deuell‘s request. However, no House

sponsor had been selected to carry the bill.

WorkCompCentral requested comments from Sen. Deuell but did not receive a response from

the senator at the time the article went to press.12

A member of the senator‘s staff, who asked not

to be identified, said Sen. Deuell might request the issue of physician dispensing be studied

during the interim before the next regular session of the Texas Legislature in 2013.

Some carrier representatives expressed concern that SB 546, as originally introduced, could

undermine efforts to control ―pill mills‖ that dispense prescription drugs to individuals

with little or no medical oversight – and which also create markets for improperly diverted

prescription drugs.

In 2009, lawmakers passed legislation by Sen. Tommy Williams (R-The Woodlands) to require

pain management clinics to register with the Texas Medical Board as part of the initiative to

control the pill mills.

Sen. Williams also won Senate passage of two other bills aimed at ―doctor shopping‖ – which

involves individuals obtaining prescriptions from multiple health care providers for

non-therapeutic purposes and diversion or theft of prescription drugs by individuals with access

to those drugs because of their work (such as pharmacy technicians or warehouse operators).

Both bills failed to win approval in the House because of a dispute between Republicans and

Democrats over voter identification legislation, which prevented numerous bills from being

considered in the session‘s final days.

Sen. Williams reintroduced the measures this year as SB 158, on doctor shopping, and SB 159,

regarding the illegal diversion of drugs, both of which passed the Senate by 31-0 votes on March

30, 2011.

The House Committee on Public Health held a public hearing on the two bills on May 11, 2011.

No one testified at the committee hearing against either bill. Representatives of the Texas Pain

Society, Bexar County District Attorney‘s Office and Harris County District Attorney‘s Office

registered in support of SB 158. The Texas Pain Society also registered in favor of SB 159.

The Texas Medical Board‘s (TMB) website shows it has issued 368 pain management clinic

licenses since it began registering the clinics last September 1, 2011 under the authority of Sen.

Williams‘ 2009 legislation.

12

Sen. Deuell contacted Bill Kidd of WorkCompCentral to discuss the issue after the article went to print.


91

In its May 2010 newsletter, TMB said its initiative to shut down pill mill operations is

continuing. The board reported it has suspended or canceled 11 pain clinic licenses and taken

action against ―scores of individuals‖ for ―pain pill-related violations,‖ such as non-therapeutic

prescribing or prescribing to a known addict.

The most recent high profile crackdown was the arrest in March of 2011 of Dr. Gerald Ratinov

of Houston, and 18 alleged co-conspirators announced by the Drug Enforcement Agency (DEA).

The DEA alleged Ratinov was the top prescriber of Hydrocodone in the state.

The newsletter also featured an interview with a board investigator who described Houston as

―the hub‖ of pill mill operations.

Editor’s Note: This article was authored by Bill Kidd of WorkCompCentral and was originally

published by WorkCompCentral on May 23, 2011. The article has been republished and edited

for the purpose of being included in this publication with the expressed permission of

WorkCompCentral.

Texas Supreme Court Decision in Texas Mutual Insurance

v. Ruttiger Strengthens State’s Workers’ Comp Law

On August 26, 2011, The Supreme Court of Texas

issued a decision in Texas Mutual Insurance Company

v. Timothy J. Ruttiger that strengthens a law affecting

millions of Texans—the Workers‘ Compensation Act.

The Court reversed the Houston Court of Appeals and

rendered judgment that Mr. Ruttiger take nothing on

his Insurance Code and Texas Deceptive Trade

Practices Act claims.

Justice Phil Johnson wrote in strong terms that a bad

faith cause of action is inconsistent with the current

workers‘ compensation system.

―[If the plaintiff were to prevail, the precedent would build] additional costs into the system by

increasing litigation expense to employees, insurers and employers,‖ Justice Johnson wrote. ―The

way the dispute was resolved after Ruttiger initiated the dispute resolution process is the way the

Act is designed to function.‖

Lawsuits claiming ―bad faith‖ on the part of all insurance carriers, Texas Mutual included, were

on the increase when the Ruttiger case first came to the courts. In 2004, Texas Mutual disputed

Mr. Ruttiger‘s claim for an on-the-job injury because his employer reported that he was hurt at a

non-work related softball game. Texas Mutual ultimately entered into a compromise agreement

with Mr. Ruttiger over the claim. In 2006, a trial court found that the company‘s adjuster had

acted in ―bad faith‖ by believing the employer instead of Mr. Ruttiger. The court awarded money

to Mr. Ruttiger in excess of the amounts Texas Mutual had already paid him to cover his medical

http://ww3.workcompcentral.com/

http://www.tdi.texas.gov/wc/act/index.html


92

costs and replace his wages. He was also awarded extra money for his ―mental anguish over

having his claim disputed.‖

The First Court of Appeals in Houston upheld the original decision, and Texas Mutual appealed

to the Supreme Court.

―The Texas Supreme Court has today given careful consideration to the many speedy remedies

and protections that the Legislature has granted to injured workers,‖ Mary Barrow Nichols,

General Counsel and Senior Vice President for Texas Mutual, said. ―It found that permitting an

injured worker to additionally recover with a lawsuit of this kind is inconsistent with these

remedies and protections. This decision is a significant victory for Texas employers.‖

To see the full text of the decision, please visit www.supreme.courts.state.tx.us.

Pledge Your Support of the Scholarship Program Today

Together We can Make a Difference

Information about the Insurance Council of Texas Education

Foundation and how you can become a contributor is available on our website.

http://www.supreme.courts.state.tx.us/

http://www.insurancecouncil.org/education/default.asp


93

Update


94



95

Rule-Making Process Initiated by DWC to Implement 2011 Legislative Changes

It is a new day in Texas. The 82nd

Texas

Legislature convened on Tuesday, January 11,

2011 and ended its regular session on May 30,

2011 after having considered over 5,000 bills.

The end of the 2011 legislative session signaled

the beginning of a year or more of rule-making by

the Texas Department of Insurance‘s Division of

Workers‘ Compensation (DWC).

The post-legislative session rule-making process

began in earnest on June 20, 2011 with the

DWC‘s adoption of new medical state reporting

rules. The adoption of the medical state reporting

rules was quickly followed by the July 1, 2011

proposal of an amended pharmacy fee guideline

that is intended to implement legislative changes

made by House Bill (HB) 528. HB 528 allows insurance carriers to continue to utilize pharmacy

fee discount contracts and the service of prescription benefit management companies.

The Pharmacy Fee Guideline rule proposal was followed by the proposal of rules described by

the DWC companion rules to TDI‘s proposed utilization review agent (URA) rules. The DWC‘s

URA companion rules were intended to harmonize the rules with TDI‘s proposed rules. On

November 18, 2011, TDI and the DWC withdrew the proposed URA and URA companion rules

citing a need to simplify the rules.

The DWC‘s proposal of URA companion rules was followed by the proposal of new and

amended Chapter 180 enforcement rules. The proposed amended and news rules are intended to

implement statutory amendments to §§402.072, 402.073, 414.005 and new §§415.0211 and

415.0215 of the Texas Labor Code added by HB 2605. The new and amended statute was

effective September 1, 2011. The proposed amendments and new rules address the monitoring

and enforcement activities conducted by the DWC, specifically compliance audits, on-site visits,

proposals for decision, informal dispositions by default, and ex parte emergency cease and desist

orders.

On August 2, 2011, Brent Hatch, the DWC‘s Director of Return to Work Outreach & Special

Initiatives, announced a series of informal work group meetings to seek input from system

stakeholders, on the agency‘s development of a procedure, by rule, that will allow that an

insurance carrier may recoup overpayment of income benefits and shall pay an underpayment of

income benefits. Informal draft rules were posted on the DWC website on September 22, 2011.

The procedure and rule is required by HB 2089 which was passed during the regular session of

the 82nd

Texas Legislature.

On August 26, 2011, the DWC proposed amendments to Rules 141.2, 141.3 and 143.2 regarding

canceling or rescheduling a Benefit Review Conference (BRC), failure to attend a BRC and

http://www.tdi.texas.gov/wc/rules/adopted/documents/aomsrmemo611.pdf

http://www.tdi.texas.gov/wc/rules/adopted/documents/aomsrmemo611.pdf

http://www.tdi.texas.gov/wc/rules/proposedrules/documents/prrxfg611memo.pdf

http://www.tdi.texas.gov/rules/2011/documents/URA-PRO.pdf

http://www.tdi.texas.gov/wc/rules/proposedrules/documents/pr180m911.pdf

http://www.tdi.texas.gov/wc/carrier/documents/infhb2089.pdf

http://www.tdi.texas.gov/wc/rules/documents/dr2089m0911.pdf

http://www.tdi.texas.gov/wc/rules/proposedrules/documents/prbrc0811m.pdf


96

issuance of decisions by the Appeals Panel, respectively. The proposed rule amendments are

intended to implement provisions of HB 2605 that require the Commissioner of Workers‘

Compensation to, by rule, define "good cause" for rescheduling a benefit review conference and

to set deadlines for rescheduling those conferences. The legislation also requires the commis-

sioner to adopt rules regarding the new statutory provision that allows the Appeals Panel to

affirm the decision of the hearings officer.

After starting the rule-making process to implement legislative changes made to the benefit

review conference and to adopt rules to implement HB 2089 regarding the recoupment of

overpayment of benefits and payment of underpaid benefits, the DWC moved on to another rule-

making project – the proposal of amendments of existing Chapter 180 enforcement rules and

adoption of new rules associated with monitoring and enforcement activities that include

compliance audits, on-site visits, proposals for decision, informal dispositions by default, and ex

parte emergency cease and desist orders. The DWC posted the proposed rule amendments and

new rules on its website on September 21, 2011 and has scheduled a public hearing for October

17, 2011 to take testimony on the rule proposal.

TDI in the Process of Adopting New Utilization Review Agent Rules

The DWC is not the only agency that has proposed rules that will have a significant impact on the

Texas workers‘ compensation system. The Texas Department of Insurance (TDI) has proposed

new rules to implement HB 4290 (passed by the Texas Legislature during its 2009 legislative

session). HB 4290 revises the definitions of ―adverse determination‖ and ―utilization review‖ in

Chapter 4201 of the Insurance Code to include retrospective reviews and determinations

regarding the experimental or investigational nature of a service. The proposed new rules also

represent a major overhaul and modernization of TDI‘s utilization review agent (URA) rules.

Prior to proposing the new URA rules, Insurance Commissioner Mike Geeslin convened a

Utilization Review Advisory Committee that provided advice to TDI staff responsible for

drafting the new URA rules. TDI incorporated most, but not all, of the Utilization Review

Committee‘s recommendations.

A public hearing on the rules was held on September 15, 2011 and attracted testimony that often

focused on an attempt by TDI staff to insert group health insurance concepts into the workers‘

compensation system. Steve Nichols, manager of workers‘ compensation services at the

Insurance Council of Texas, said the TDI rules should be required to be harmonized with the

DWC‘s rule and the Texas Labor Code instead of the opposite.

Workers’ Compensation is Different from Group Healthcare Insurance

Trey Gillespie of the Property Casualty Insurers Association of America (PCI) also spoke on the

issue of blurring group health insurance with that of workers‘ compensation insurance.

―It appears that one of the drafting goals for the Department was to make workers‘ compensation

look more like group health insurance,‖ said Gillespie. ―The draft rules submitted to the

Utilization Review Advisory Committee and, to a lesser extent, the current public draft rules

http://www.tdi.texas.gov/wc/rules/proposedrules/documents/pr180911.pdf

http://www.tdi.texas.gov/rules/2011/documents/URA-PRO.pdf


97

attempt to incorporate group health insurance standards and terms into the workers‘

compensation system for the review of medical care.‖

Gillespie added, ―This may be a well intentioned goal but may have adverse consequences.

Workers‘ compensation is different from health insurance.‖ Gillespie noted that to the extent

that the proposed rules attempt to blur those differences, the result may be more medical disputes

and not fewer medical disputes.

More Rule-Making Expected

The Division of Workers‘ Compensation (DWC) has published a rules project chart that lists

several rule-making projects scheduled for the near future. Senior DWC staff have reported

that system stakeholders can expect rule-making activity well into next year – 2012.

The DWC rules project chart lists the following additional rule-making projects anticipated to be

started in the latter part of this year or early next year:

● Designated Doctor Rules addressing designated doctor eligibility, testing and

examination Procedures;

● Non-Subscriber Reporting Rules that provide clarity to parties about reporting

non-subscription, proof of coverage, employer notices to employees and employer

reporting of injury;

● Medical Dispute Resolution Rules that implement the changes made to the venue for

particular types of medical disputes; and

● Accident Prevention Services Rules that clarify current DWC accident prevention

services related processes.

The rules project chart is available on the DWC‘s website.

New Pharmacy Fee Guideline Adopted By Commissioner Bordelon

On September 30, 2011, Commissioner of Workers‘ Compensation Rod Bordelon adopted

amendments to the Pharmacy Fee Guideline – 28 Texas Administrative Code (TAC) §134.503

and §134.504 – with an effective date of October 23, 2011. The amended rules, which can be

found on the Division of Workers‘ Compensation (DWC) website, govern the payment of

pharmacy bills and pharmaceutical expenses incurred by an injured employee.

The purpose of the rule adoption is to effect a pharmacy fee guideline under §408.028(f) of the

Texas Labor Code. The adoption also implements new §408.0281 of the Texas Labor Code and

other legislative amendments set out in House Bill 528 (HB 528), enacted by the 82nd

Legislature during its regular session earlier this year, that impact the reimbursement of

pharmacy and pharmaceutical services provided in the Texas workers‘ compensation system.

The requirements adopted under HB 528 became effective on June 17, 2011.

http://www.tdi.texas.gov/wc/rules/documents/rulechart201108.pdf

http://www.tdi.texas.gov/wc/rules/adopted/documents/aopfg1011.pdf



98

Overview of the Adopted Amended Pharmacy Fee Guideline Rules

§134.503, Pharmacy Fee Guideline

Adopted §134.503(a) provides that the pharmacy fee guideline applies to prescription drugs

and nonprescription drugs or over-the-counter medications as defined in §134.500 of this title

(relating to Definitions) for outpatient use in the Texas workers‘ compensations system. The

pharmacy fee guideline applies to both claims subject to a certified network and claims not

subject to a certified network, including claims that are handled by a political subdivision or pool

under Labor Code §504.053(b)(2). It does not apply to parenteral drugs.

Under Adopted §134.503(b), system participants shall apply the provisions of Chapter 133 and

Chapter 134 of the DWC‘s rule regarding general medical provisions and benefits and guidelines

for medical services, charges, and payments, respectively, for coding, billing, and reimbursement

of prescription and non-prescription drugs or over-the-counter medications.

Adopted §134.503(c) is the pharmacy fee guideline for prescription drugs. Subsection (c)(1)(A)

and (B) establish the reimbursement formulas for prescription drugs which are consistent with

the previous version of this rule. Additional language has been added to subsection (c)(1)(A) and

(B) to clarify that the $4.00 dispensing fee is per prescription. Subsection (c)(1)(C) clarifies that

when compounding, a single compounding fee of $15 per prescription shall be added to the

calculated total for either generic or brand name drugs. Subsection (c)(2) states that notwith-

standing §133.20(e)(1) of the DWC‘s rules regarding the submission of a medical bill by a health

care provider, the amount billed will be the amount that is billed to the insurance carrier by the

health care provider. If the health care provider has not previously billed the insurance carrier for

the prescription drug, and the pharmacy processing agent is billing on behalf of the health care

provider, the amount billed will be the amount that is billed to the insurance carrier by the

pharmacy processing agent.

In its rule adoption preamble, the DWC said that determining the amount billed under subsection

(c)(2) is an objective inquiry based solely on the amount shown on that particular bill to the

insurance carrier by the health care provider or pharmacy processing agent. In other words,

when an insurance carrier receives a bill for pharmaceutical services from a health care provider

or pharmacy processing agent, the ―amount billed‖ that will be compared to the formula amount

for generic drugs or brand name drugs will be the specific amount shown on that particular bill.

Insurance carriers may not substitute any other billed amount. Adopted subsection (c)(2) replaces

―usual and customary charge‖ with amount billed.

Adopted §134.503(d) is the DWC‘s pharmacy fee guideline for nonprescription drugs or over-

the-counter medications. The subsection provides that reimbursement for nonprescription drugs

or over-the-counter medications shall be the retail price of the lowest package quantity

reasonably available that will fill the prescription.

Adopted §134.503(e) is the DWC pharmacy fee guideline when an amount cannot be determined

under subsection (c)(1) or (d), as applicable, and no contract amount exists. The subsection

provides that, except as provided by subsection (f) of §134.503, reimbursement shall be an

amount that is consistent with the criteria listed in §408.028(f) of the Texas Labor Code,

http://info.sos.state.tx.us/pls/pub/readtac$ext.ViewTAC?tac_view=5&ti=28&pt=2&ch=133&sch=A&rl=Y

http://info.sos.state.tx.us/pls/pub/readtac$ext.ViewTAC?tac_view=4&ti=28&pt=2&ch=134

http://www.statutes.legis.state.tx.us/Docs/LA/htm/LA.408.htm#408.028


99

including providing for reimbursement rates that are fair and reasonable. The rules require

insurance carriers to develop reimbursement methodologies for determining reimbursement

under this subsection, maintain in reproducible format documentation of the insurance carrier‘s

methodologies for establishing an amount, apply the reimbursement methodologies consistently

among health care providers in determining reimbursements under this subsection, and upon

request by the DWC, provide copies of such documentation to the DWC. Reimbursement under

this subsection is determined on a case-by-case basis and depends on the facts and circumstances

surrounding the particular pharmaceutical service.

Adopted §134.503(f) provides that notwithstanding the provisions of this section, prescription

medication or services, as defined by §401.011(19)(E) of the Texas Labor Code, may be

reimbursed at a contract rate that is inconsistent with the fee guidelines as long as the contract

complies with the provisions of §408.0281 of the Texas Labor Code and applicable DWC rules.

This subsection of the rule conforms to the statutory provisions of HB 528 that allow insurance

carriers and health care providers to contract for fees that are inconsistent with the DWC‘s

pharmacy fee guideline in an amount greater or less than the fee guideline. Contractual

reimbursements under this section are not part of the DWC‘s pharmacy fee guideline.

Adopted §134.503(g) governs how health care providers are to be reimbursed under this section

when the prescribing doctor has written a prescription for a generic drug or a prescription that

does not require the use of a brand name. These provisions were located in subsection (b) of the

previous

Pharmacy Fee Guideline rule. The adopted amendments to this subsection make clarifications in

nomenclature, which are not substantive amendments. The adopted amendments also conform

references in this subsection to other parts of the rule.

The amendments to Adopted §134.503(h) make changes in nomenclature and conforming

changes in references to other parts of this rule. The adopted amendments are not substantive.

The adopted amendments in Adopted §134.503(i) also make changes in nomenclature. The

adopted amendments also permit the DWC to require the insurance carrier to disclose the source

of the nationally recognized pricing reference used to calculate the reimbursement. The adopted

amendment conforms to current nomenclature.

Adopted §134.503(j) states that where any provision of this rule is determined by a court

of competent jurisdiction to be inconsistent with any statutes of Texas, or to be unconstitutional,

the remaining provisions of this rule shall remain in effect.

§134.504, Pharmaceutical Expenses Incurred by the Injured Employee

Adopted §134.504 governs pharmaceutical expenses incurred by the injured employee. The

adopted amendments to §134.504 are conforming amendments to correct references in the rule to

§134.503 in light of the amendments to §134.503.

Adopted §134.504(a) provides that if it becomes necessary for an injured employee to purchase

prescription drugs or over-the-counter alternatives to prescription drugs prescribed or ordered by


http://www.capitol.state.tx.us/tlodocs/82R/billtext/html/HB00528F.htm


100

the treating doctor or referral health care provider the injured employee may request

reimbursement from the insurance carrier by submitting to the insurance carrier a letter

requesting reimbursement along with a receipt indicating the amount paid and documentation

concerning the prescription.

The letter should include information to clearly identify the claimant such as the claimant's name,

address, date of injury, and social security number. Documentation for prescription drugs

submitted with the letter from the employee must include the prescribing health care provider's

name, the date the prescription was filled, the name of the drug, employee's name and dollar

amount paid by the employee. As examples, this information may be provided on an information

sheet provided by the pharmacy, or the employee can ask the pharmacist for a print out of work

related prescriptions for a particular time period. Cash register receipts alone are not acceptable.

This section of the rule provides that the insurance carrier shall make appropriate payment to the

injured employee in accordance with §134.503 or notify the injured employee of a reduction or

denial of the payment within 45 days of receipt of the request for reimbursement from the injured

employee.

The rule provides that if the insurance carrier does not reimburse the full amount requested, or

denies payment the carrier shall include a full and complete explanation of the reason(s) the

insurance carrier reduced or denied the payment and shall inform the injured employee of his or

her right to request medical dispute resolution in accordance with §133.305 of the DWC rules

regarding Medical Dispute Resolution. The statement shall include sufficient claim-specific

substantive information to enable the employee to understand the insurance carrier's position

and/or action on the claim. A general statement that simply states the carrier's position with a

phrase such as "not entitled to reimbursement" or a similar phrase with no further description of

the factual basis does not satisfy the requirements of this section.

Adopted §134.504(b) provides that an injured employee may choose to receive a brand name

drug rather than a generic drug or over-the-counter alternative to a prescription medication that is

prescribed by a health care provider. In such instances, the injured employee shall pay the

difference in cost between generic drugs and brand name drugs. The transaction between the

employee and the pharmacist is considered final and is not subject to medical dispute resolution

by the DWC. In addition, the employee is not entitled to reimbursement from the insurance

carrier for the difference in cost between generic and brand name drugs.

The rule provides that the injured employee shall notify the pharmacist of their choice to pay the

cost difference between generic and brand name drugs. An employee's payment of the cost

difference constitutes an acceptance of the responsibility for the cost difference and an

agreement not to seek reimbursement from the insurance carrier for the cost difference.

The rule also provides that the pharmacist shall determine the costs of both the brand name and

generic drugs under §134.503, and notify the injured employee of the cost difference amount,

collect the cost difference amount from the injured employee in a form and manner that is

acceptable to both parties, submit a bill to the insurance carrier for the generic drug that was

prescribed by the doctor and not bill the injured employee for the cost of the generic drug if the

insurance carrier reduces or denies the bill.


http://info.sos.state.tx.us/pls/pub/readtac$ext.ViewTAC?tac_view=5&ti=28&pt=2&ch=133&sch=D&rl=Y


101

The rule further provides that the insurance carrier shall review and process the bill from the

pharmacist in accordance with the DWC‘s Chapter 133 and Chapter 134 rules regarding general

medical provisions and benefits and guidelines for medical services, charges, and payments,

respectively, for coding, billing, and reimbursement of prescription and non-prescription drugs or

over-the-counter medications.

The new pharmacy fee guideline rule was effective on October 23, 2011.

Complaints in the Texas Workers’ Compensation System Continue to Fluctuate

The Texas Department of Insurance‘s (TDI) Division of

Workers‘ Compensation (DWC) has established a

compliant resolution process that seeks to encourage

communications and assists Texas workers‘ compensa-

tion system participants in resolving complaints. The

DWC has reported that the complaint resolution process

routinely results in additional claims payments to system

participants.

In this process, DWC staff examines complaints for

compliance with the Texas Labor Code and DWC Rules

and makes referrals to the Audit and Investigations

Section of System Monitoring and Oversight when

appropriate.

The Audit and Investigations Section conducts compliance and performance audits of workers‘

compensation system participants and prepares justified complaints for enforcement action by

TDI‘s Enforcement Division.

The number of complaints received by DWC has fluctuated during the past few years. While

DWC received a total of 7,433 complaints in 2004, that number fell to 3,850 in 2006, but

increased to 8,613 in 2008. DWC received 6,520 complaints in 2009 and 6,472 in 2010.

2009 Complaints

Of the complaints received in 2009, 3,178 (almost 50 percent) of which were ―record only,‖

meaning that the DWC did not investigate the complaint for a violation of the Texas Labor Code

or DWC Rules but did send a letter to the party that was the subject of the complaint (generally

the insurance carrier) asking them to resolve the complaint and provide documentation to DWC

that the issue is resolved; 1,742 (27 percent) were ―unjustified,‖ meaning that there was not a

violation of the Texas Labor Code or DWC Rules or a violation could not be substantiated; and

the remaining 23 percent were either ―justified‖ complaints that were violations of the Texas

Labor Code or DWC Rules and warranted further investigation or inquiries from system

participants wanting specific information about statutory or regulatory requirements.

The most frequent types of complaints received by the DWC in 2009 include complaints about

communication (2,392), complaints from health care providers about medical bill reimbursement

(1,010) and medical bill processing (861). Other complaints came from injured workers about

http://info.sos.state.tx.us/pls/pub/readtac$ext.ViewTAC?tac_view=5&ti=28&pt=2&ch=133&sch=A&rl=Y

http://info.sos.state.tx.us/pls/pub/readtac$ext.ViewTAC?tac_view=4&ti=28&pt=2&ch=134


102

timeliness issues such as late payment of income benefits, untimely filings of and incompleteness

of the DWC-69 impairment rating or maximum medical improvement (MMI) form and other

required forms.

Overall, TDI has received relatively few complaints about certified workers‘ compensation

networks since 2005 (275 total complaints – of which 89, or 29 percent, were deemed justified)

given that almost 142,214 injured workers have been treated in networks as of February 1, 2010.

The most frequent types of complaints raised by health care providers were complaints about

rejections of provider applications to participate in networks, complaints about network fees or

payment of medical bills and complaints from providers who said they were improperly listed as

being network providers.

The most frequent types of complaints about networks raised by injured workers in 2009

included complaints about the employer‘s failure to provide a copy of the network‘s

requirements, complaints about the availability and/or types of network doctors who were

willing to accept new patients, and concerns about not receiving an up-to-date and complete

directory of network providers. Chapter 1305, Insurance Code, as well as the Department‘s

network rules (Chapter 10 of the Texas Administrative Code) require certified networks to

resolve complaints, including disputes over network fees, internally and to maintain a detailed

complaint log that is subject to the TDI examination.

2010 Complaints

On January 16, 2011, the DWC held a Quarterly Carrier Compliance Meeting and provided an

update on 2010 compliant and other data. Teresa Carney, the DWC‘s Director of System

Monitoring & Oversight, provided an update on complaints received and acted upon by the

DWC during Calendar Year 2010. Carney reported that the DWC received 6,472 complaints

during Calendar Year 2010 compared to 6,520 complaints in 2009.

Source: TDI Division of Workers’ Compensation, Jan. 16, 2011 Quarterly Carrier Meeting


103

Carney also reported on the number of complaints received per category during CY 2010:

Source: Division of Workers’ Compensation, Jan. 16, 2011

Carney noted that the number one complaint type received in 2010 involved communication

issues, e.g. timely filing of required forms and reports. She added that medical reimbursement

complaints were the second most often received type of complaint.

The DWC received 300 designated doctor letters of clarification complaints in 2010. She

reported that in 2010 the DWC received 400 complaints regarding the late filing of the DWC

Form 69, Report of Medical Evaluation. Carney also reported that the DWC received 233 com-

plaints about the failure of an employer to either file or timely file a DWC Form 5, Employer

Notice of No Coverage or Termination of Coverage.



104

During 2010, the DWC received and addressed 1,469 complaints regarding the duties of the

designated doctor in 2010. The DWC received the following designated doctor related

complaints:

(1) Refusal of Appointment as Designated Doctor: 15 in 2010 compared with 15 in

2009;

(2) Untimely Rescheduling of Designated Doctor Appointment: 1,067 in 2010

compared with 579 in 2009; and

(3) Untimely notification of appointment: 326 in 2010 compared with 238 in 2009.


During Calendar Year 2010, the DWC received 342 medical reimbursement complaints as

compared to 501 in 2009. The DWC received 327 complaints regarding injured employees being

billed by health care providers.


In 2010 the DWC received 463 complaints related to the medical billing and payment process

and 81 complaints regarding preauthorization. In an attempt to reduce the number of complaints


105

received about injured employees being billed by health care providers, the DWC‘s field offices

have been contacting health care providers to inform them that they should not be billing injured

employees.


The DWC closed 2,387 complaints in 2010 – 1,104 justified, 1,282 unjustified and 1 inquiry

only. 3,039 complaints were closed as ―record only – monitoring‖ cases.


Insurance Carrier Performance on Key Performance Measures

During 2010, insurance carriers compliance rate with the timely payment of initial temporary

income benefits measure ranged from 80.65% to 83.20%. The 2011 performance of insurance

carriers has followed the same trend.

Another key performance measure tracked by the DWC is the timely reporting of electronic data

interchange (EDI) data by insurance carriers. 86 percent of EDI reporting of initial temporary

income benefits payment was timely reported in January 2010 with 92.80 percent reported in a

timely fashion in December 2010.


106

DWC staff has noted that the EDI reporting of initial temporary income benefits payment has

improved significantly over the past five years. However, DWC staff has also noted that

insurance carriers need to closely monitor vendor performance related to EDI reporting as there

tends to be problems from time to time with the timely and accurate reporting of EDI data.


Insurance carriers have consistently processed medical bills and submitted EDI data associated

with medical billing data in a timely fashion. In 2010, insurance carriers continued to pay

medical bills in a timely fashion 98 percent of the time while timely reporting EDI medical

billing data 93% of the time.


Additional information about complaints received by the DWC and insurance carrier compliance

rates in Calendar Year 2010 is available on the TDI website.

http://www.tdi.texas.gov/wc/pbo/documents/cy10scores.pdf


107

Calendar Year 2011 Complaint Numbers Tracking with Expectations of DWC

As of October 1, 2011, the DWC has received a total of 4,827 complaints. 1,408 of those

complaints were determined to be unjustified. 711 complaints were found to have been justified

and 2,014 of the complaints were closed as ―record only-monitoring‖ complaints. DWC staff has

reported that they expect to receive a total of 6,300 complaints for Calendar Year 2011.

Workers’ Compensation Enforcement: ―Too Much Stick and Not Enough Carrot‖


Despite the efforts of many workers‘ compensation

insurers to comply with the various laws and

regulations in the workers‘ compensation system, there

are times that companies will be subject to allegations

that they have not complied with the law. In these

instances, companies want to be sure that the regulatory

compliance process is fair, even-handed, and that any

penalties levied are appropriate for the alleged viola-

tions. Given the multitude of transactions and forms

that are processed each day in workers‘ compensation,

companies also hope that each and every misstep is not

cause for an administrative penalty. Over the years, the

Division of Workers‘ Compensation (DWC) and the

former Texas Workers‘ Compensation Commission

(TWCC) have had to struggle with the administering a

fair and reasonable enforcement process.

Over the last few months, members of the Insurance Council of Texas (ICT) and other industry

trade associations have engaged the DWC in discussions about concerns many workers‘

compensation insurers have about the current system oversight and enforcement process. These

discussions began because ICT member companies had shared their concerns with the ICT that

the Texas Department of Insurance‘s Division of Workers‘ Compensation (DWC) has not, as

required by statute, moved from a penalty driven oversight and enforcement model to one that

utilizes a performance based model.

Many ICT‘s members point to specific examples of enforcement actions that appear to not have

taken into consideration the Performance Based Oversight (PBO) ranking of high performing

insurers. Some members of ICT have also expressed concerns about the penalty levels being

assessed to high and average performers for minor, ―no foul, no harm‖ unintentional acts of non-

compliance.

This article is intended to provide an update on the status of ongoing discussions with the DWC

and highlight the various enforcement laws that impact member companies, as well as the

legislative history that was intended to move the agency to a performance based model. The

article highlights the concern by many in the insurance industry about the DWC enforcement

practices and what many insurers consider to be a lack of change in an enforcement philosophy

that remains penalty driven and inconsistent with the performance based concept and linked to


108

regulatory outcomes as required by the Texas Labor Code. As noted, insurance industry

representatives are currently involved with the DWC in discussions on the enforcement process

and possible ways to address industry concerns.

The Concerns of the Workers’ Compensation Insurance Industry

Many in the insurance industry consider the Texas workers‘ compensation enforcement process

to be penalty driven with a focus on what many would characterize as ―low hanging fruit‖

compliance issues. The compliance issues being pursued by the DWC enforcement process focus

on unintended acts of non-compliance with one of the many workers‘ compensation payment or

form deadlines. Most of these acts of non-compliance result from simple isolated mistakes out of

the handling of hundreds or thousands of transactions. Insurers believe the enforcement focus

does nothing to improve overall system performance. Insurers also believe that the current focus

seems to be reversing prior efforts to move away from the Pre-House Bill 7 (2005, 79th

Legislature) TWCC practice of identifying each and every violation of the letter of the law,

whether isolated or part of a larger system participant problem, and assessing penalties.

As background, the 2004 recommendations of the Texas Sunset Advisory Commission, House

Bill 7 and appropriate sections of the Texas Labor Code, all mandate the DWC, the successor

agency to the former TWCC, to move away from a penalty driven enforcement model and to a

performance based enforcement system. Such a process must include enhanced incentives that

reward high performers, oversight initiatives and actions that incentivize average performers to

improve their performance, and incentivizes low performers to improve their performance.

History of Enforcement in the Texas Workers’ Compensation System and Legislative Action

Historically, the workers‘ compensation enforcement process has been penalty driven since the

early 1990s when Senate Bill 1 was passed during the second special session of the Texas

Legislature in 1989. HB 7 introduced a performance-based oversight (PBO) linked to regulatory

outcomes. The DWC has incorporated the PBO concept of system oversight into its compliance

audit program, but has not consistently applied the PBO concept to its enforcement process.

Immediately after passage of HB 7, the agency appeared to be attempting to implement the PBO

concept in its enforcement program. Unfortunately, over the last couple of years, the effort to

apply a PBO model has largely disappeared.

The 2005 Sunset review of the workers‘ compensation program highlighted the shortcomings of

a penalty driven enforcement approach. During the sunset review of TWCC, the Sunset

Commission commented that TWCC‘s regulatory approach was inefficient and did not

emphasize or reward overall performance. In its April 2004 Sunset Staff Report, the Texas

Sunset Advisory Commission (Sunset Commission) recommended that TWCC provide

incentives for overall compliance and emphasize performance-based oversight linked to

regulatory outcomes.

Subsequently, the Sunset Commission made findings, along with subsequent legislation, that

should be guiding the enforcement efforts of the current DWC. Insurers feel this is especially

true given the fact that the Sunset Commission concluded that the TWCC regulatory efforts were

DWC


109

not improving the performance of the workers‘ compensation system and the agency did not

provide regulatory incentives to improve overall compliance, or system performance.

The staff report and subsequent Sunset Commission hearings resulted in decisions designed to

improve the workers‘ compensation enforcement approach. 13

Among the highlights of the

Sunset decisions, the former TWCC was required to provide incentives for overall compliance

and emphasize performance-based oversight linked to regulatory outcomes. This included

requiring the agency to develop key regulatory goals to provide for assessing performance of

insurance carriers and medical providers.

The Sunset Commission also recommended that the agency develop regulatory tiers distinguish-

ing between poor performers, average performers, and high performers. Most importantly, under

this approach, the agency would focus its regulatory oversight towards poor performers. The

Sunset Commission recommendations also included examples of regulatory incentives such as

modified penalties, self-audits, or flexibility based on performance.

The findings and recommendations of the Sunset Commission became part of House Bill (HB) 7,

the workers‘ compensation reform bill passed by the 79th

Texas Legislature in 2005. A signifi-

cant portion of that reform bill was crafted as an attempt to reform the TWCC‘s – and

subsequently the DWC‘s – approach to system oversight and enforcement. 14

The following provides a brief overview of the statutory changes made by HB 7 relating to a

performance based approach for enforcement.

Statutory Provisions for a Performance Based Oversight and Compliance Process

HB 7 added new Section 402.075 to the Texas Labor Code and required the Commissioner of

Workers‘ Compensation to adopt by rule a system oversight process that provide incentives for

overall compliance in the workers' compensation system of this state and emphasize

performance-based oversight linked to regulatory outcomes.

Section 402.075 of the Texas Labor Code requires the Commissioner of Workers‘ Compensation

to develop key regulatory goals to be used in assessing the performance of insurance carriers and

health care providers. The goals adopted under this subsection must align with the general regu-

latory goals of the DWC as established by the statute. The DWC is required to, at least bien-

nially, assess the performance of insurance carriers and health care providers in meeting the key

regulatory goals.

Based on the biennial performance assessments conducted under Section 402.075, the DWC is

required to develop regulatory tiers that distinguish among insurance carriers and health care

providers who are poor performers, who generally are average performers, and who are

consistently high performers. The DWC is thereafter required to focus its regulatory oversight on

insurance carriers and health care providers identified as poor performers.

13

See Issue 7 that found TWCC‘s regulatory approach inefficient on Page 9 of the 2004 TWCC Sunset Report.

http://www.sunset.state.tx.us/79threports/twcc/twcc.pdf. 14

House Bill 7 abolished the Texas Workers‘ Compensation Commission and replaced it with the Division of

Workers‘ Compensation.


http://www.sunset.state.tx.us/79threports/twcc/twcc.pdf


110

Subsection (e) of Section 402.075 of the Texas Labor Code requires the commissioner to, by

rule, develop incentives within each tier that promote greater overall compliance and perfor-

mance. The statute provides that the regulatory incentives may include modified penalties, self-

audits, or flexibility based on performance.

DWC Statutory Duty to Monitor Compliance and Administrative Violation Process

The Division of Workers‘ Compensation has a statutory duty to monitor system participants for

compliance with the Texas Labor Code and agency rules. Section 414.003 of the Texas Labor

Code requires the DWC to compile and maintain statistical and other information as necessary to

detect practices or patterns of conduct by persons subject to monitoring who violate the Texas

Labor Code, commissioner rules, a commissioner order or decision, or otherwise adversely affect

the workers' compensation system. The statute also provides that the commissioner shall use the

information compiled under Section 414.003 to impose appropriate penalties and other sanctions

under Chapters 415 and 416 of the Texas Labor Code.

The insurance industry believes that the DWC‘s statutory duty set forth by Section 414.003 must

be implemented in conjunction with the implementation of Section 402.075 of the Texas Labor

Code as it related to performance based oversight. Insurer representatives have met with the

DWC to discuss whether the agency has appropriately implemented the performance based

oversight provisions of Section 402.075.

DWC’s Performance Based Oversight Rule and Initial Implementation of the PBO Process

On December 21, 2007, former Commissioner Albert Betts adopted Rule 180.19 regarding

performance based oversight incentives with an effective date of January 16, 2008. The rule

established incentives and emphasized performance-based oversight that is tied to regulatory

outcomes.

The rule focuses on the following regulatory outcomes: the provision of timely and accurate

income and medical benefits; increased timely and accurate communications among system

participants; encouraging safe and timely return of injured employees to productive roles; the

promotion of safe and healthy workplaces; ensuring that each injured employee has access to

prompt, high-quality, cost-effective medical care; and limiting disputes to those appropriate and

necessary.

The following incentives were adopted as part of the provisions of Rule 180.19 for insurance

carriers and doctors placed into a regulatory tier by DWC:

(1) limited audit exemption for insurance carriers and health care providers placed in the

average and high performers regulatory tiers, while reserving the DWC's discretion to

audit an average or high performer if deemed necessary;

(2) penalties which may be lower than normally assessed for insurance carriers and health

care providers who have been placed in the high performer regulatory tier;

(3) penalties which may be reduced for insurance carriers and health care providers in any

regulatory tier who self-disclose non-compliance;







111

(4) flexibility for audits and inspections based on performance and placement in any

regulatory tier; and

(5) any other incentive the Commissioner may deem appropriate.

Rule 180.19 was adopted following the first round of PBO assessments of insurers and doctors.

The first PBO assessment resulted in an outcry from insurers and doctors who did not anticipate

the number of insurers and doctors placed in the poor tier. The second and subsequent PBO

assessments were better received by system stakeholders.

Performance Based Oversight and DWC Audits

The Texas Labor Code clearly sets out the requirement that the PBO oversight and enforcement

process determine the focus of DWC compliance audits. The following is an overview of the

statutory provisions of the Texas Labor Code regarding DWC compliance audits.

Section 414.004 of the Texas Labor Code provides that DWC shall review the workers' compen-

sation records of insurance carriers on a regular basis and as required to ensure compliance with

the Texas Labor Code and commissioner rules. Section 402.075(d) of the Texas Labor Code

specifically directs the DWC to focus its regulatory oversight on insurance carriers and health

care providers identified as poor performers in the Performance-Based Oversight (PBO)

program.

The DWC fulfills the statutory duty imposed upon the agency under Section 414.004 by main-

taining a Monitoring & Analysis (M&A) Section that monitors complaints, disputes, the quality

and quantity of system participants‘ data submissions. The M&A Section‘s objectives are

achieved through the monitoring of electronic data submitted to and complaints received by the

DWC.

The M&A Section‘s Audits & Investigation Team conducts compliance and performance audits

of workers‘ compensation system participants and refers justified complaints for enforcement

action by the DWC and TDI‘s Enforcement Division. 15

ICT‘s analysis of the DWC audit

activities have led us to conclude that, for the most part, the focus of the audit resources of the

agency is on poor performers.

ICT‘s reviewed the current system oversight and enforcement process and it appears that insurers

and doctors who are not included in the PBO assessment process are also not able to be

considered a high performer or average performer for purposes of compliance.

Annual Audit Plans Provide a Focus to DWC Audit Activity

Each year, the Commissioner of Workers‘ Compensation adopts an annual audit plan. The audit

plan provides focus to and directs the audit activity of the DWC.

15 DWC staff has reported that there are justified complaints and negative audit findings that are not forwarded to

TDI‘s Enforcement Division based on the fact that the insurer or doctor has been tiered as high performers.

http://www.tdi.texas.gov/wc/pbo/pbo.html

http://www.tdi.texas.gov/wc/pbo/pbo.html



http://www.tdi.texas.gov/wc/pbo/index.html#ai


112

The DWC‘s Fiscal Year 2011 Audit Plan selected and audited insurance carriers and health care

providers who were identified as poor performers by the PBO program or had serious compli-

ance issues identified. The DWC audit process affords health care providers and insurers who are

audited an opportunity to respond to the DWC audit report prior to the report being finalized.

Table 1 provides an overview of the 2010 – 2012 DWC oversight plans and number of audits

completed.

Table 1: DWC Regulatory Oversight Audit Plans and Results, 2010 – 2012

DWC Regulatory Oversight Audit Plans and Results

Fiscal Year 2012 Audit Plan 74 Audits Planned (24 health provider audits/50

Insurance carrier audits)

Fiscal Year 2011 Audit Plan 74 Audits Conducted (10 health care provider audits/64

insurance carrier audits)

Fiscal Year 2010 Audit Results 70 Audits Conducted (10 health care provider audits/70

insurance carrier audits)

The Fiscal Year 2011 and 2012 audit plans projected audit related revenue for the DWC

totaling $103,275 with all revenue derived from insurance carrier audits ($42,075 for Fiscal

Year 2012 and $61,200 for Fiscal Year 2011). It is not known what amount of revenue was

actually realized from the audits conducted in 2011. The revenue does not include penalty

amounts assessed to the audited parties.

Source: DWC FY 2012 and FY 2011 Audit Results from http://www.tdi.texas.gov/wc/pbo/index.html#ai

Why is the Insurance Industry Concerned About the Current System Oversight and

Enforcement Process?

As you can see, this is a process that requires the DWC to move away from business as usual

when determining how to approach a potential compliance issue. Many in the insurance

industry are concerned the current system oversight and enforcement process for insurers as well

as doctors indicates that the performance based oversight concept has not been fully

implemented by DWC and TDI‘s Enforcement Division. For example, in several instances,

insurers who have been ranked by the DWC as a high performer through the PBO assessment

process have been assessed the same penalty level for the same compliance issue as low

performers. This has occurred even if the alleged violation is an isolated issue. It is our

understanding that the same is true for doctors who have been ranked as a high performer.

Additionally, the DWC recently amended its Chapter 180 rules and made an insurance carrier‘s

or doctor‘s PBO ranking merely a ―mitigating‖ factor, appearing to back away from the earlier

PBO incentive rule that discussed lower penalties for high performers. 16

Some in the insurance

industry believe the rule promulgates an approach to system oversight and enforcement that does

not incorporate the statutorily mandated move from a penalty driven approach to a performance

based system.

16

Response to comment to DWC‘s Chapter 180 rules regarding enforcement that was adopted December 20, 2010.

See page 17 of comments. The response to the comment is contrary to the mandate of the Texas Legislature.

http://www.tdi.texas.gov/wc/pbo/documents/auditplan11.pdf


http://www.insurancecouncil.org/images/DWCauditplan12.pdf

http://www.insurancecouncil.org/images/DWCauditplan11.pdf

http://www.insurancecouncil.org/images/DWC10auditresults.pdf

http://www.tdi.texas.gov/wc/pbo/index.html#ai


113

Stakeholders Question Future Utilization of PBO

During the current discussions on the enforcement process, insurance industry representatives and

other system stakeholders questioned the future of the PBO process and whether it will be applied

as anticipated after the 2005 reforms. Many stakeholders question the continuation of a process

that may be administratively costly if the regulatory outcome remains unchanged.

The following enforcement actions have been shared with ICT as examples of instances where the

PBO ranking of an insurer did not appear to change the agency‘s enforcement decision:

Table 2: Examples of Enforcement Actions Taken Against High Performers by the DWC

TASB Risk Management Fund of Austin

Order Number: DWC-110036

Date of Order: 3/3/2011

Action Taken: Fined $5,000

Violation: Failed to timely pay income

benefits to injured employee.

City of Houston of Houston

Order Number: DWC-11-0077



Violation: Failed to timely pay income

benefits to injured employee; Failed to

accurately report benefit data to TDI-DWC or

accurately submit benefit data by electronic

data interchange.

Commerce and Industry Insurance

Company of New York City, NY




Violation: Failed to timely process medical

bills; Failed to sufficiently explain reasons for

the reduction or denial of payment for health

care services; Failed to timely pay TIBs; Failed

to timely comply with a Medical Dispute

Resolution order; Failed to timely comply with

a Contested Case Hearing order.

Dallas Area Rapid Transit of Austin




Violation: Failed to timely pay TIBs; Failed

to submit accurate data to TDI-DWC; Failed

to timely take final action on a request for

reconsideration of a medical bill.

Source: TDI Division of Workers‘ Compensation Disciplinary Orders web page, Nov. 2011.

Overall, many ICT members have expressed concerns about the level of penalties assessed by the

TDI Enforcement Division. They have noted that the penalties far exceed the impact on the Texas

system of the alleged acts of non-compliance. Insurers have argued that the TDI‘s Enforcement

Division does not take into account the fact that there has been little or no financial impact on the

system or system stakeholders. Table 3 sets out examples of the types of enforcement actions

insurers believe have resulted in excessive penalties given the facts and circumstances.

Unnecessarily high penalties do not incentivize a higher level of performance but instead create

additional friction and an unnecessary regulatory burden.



114

Table 3: Example of Enforcement Actions Unnecessarily High Penalties

Enforcement Taken On

Amount of Penalty

Author’s Comments

Failure to timely forward IRO

requests to TDI x 200.

Unintentional acts occurred 2007 –

2009 with enforcement action

taken in 2010.

$250,000

TDI‘s deadline for forwarding

requests for an IRO is one

working day. The deadline is

some times hard to meet given

the amount of information the

insurance carrier must add to

the IRO request form.

Failure to timely pay medical

dispute resolution order.

One unintentional act occurring

in 2008 with enforcement action

taken in 2010.

$5,000

Payment of $161.40 made 421

days late.

Failure to timely pay medical

dispute resolution order.

One unintentional act occurring

in 2008 with enforcement action

taken in 2010.

$3,500

Payment of $441.47 made 21

days late.

Doctor failed to timely file the

DWC Form-69; Failed to timely

file and accurately complete the

DWC Form-73.

$7,000

Required to attend

compliance training for

doctors and medical

office staff.

One of several instances where

TDI‘s Enforcement Division

took action against a doctor

who did not commit a serious

act of non-compliance.

Source: Analysis of Division of Workers’ Compensation Enforcement Orders and Data for 2010.

Related to the excessive fines for insurers, there is also the issue of excessive fines against doctors

who did not commit a serious act of non-compliance or harm a injured worker. It is our

understanding that some doctors may be considering to refuse to treat workers‘ compensation

patients because of the excessive fines. This combined with doctors concerns about the complexity

of regulations currently in place in the Texas workers‘ compensation system may drive more

doctors out of the workers‘ compensation system.


115

In short, stakeholders expected a very different approach to enforcement in the Texas workers‘

compensation after passage of HB 7 and its focus on overhauling the system and providing for a

new approach to system compliance – performance based oversight. The expected change in the

enforcement process has not fully materialized.

Insurance Industry Concerns Have Been Shared with the Commissioner of Workers’

Compensation

The American Insurance Association (AIA), Insurance Council of Texas (ICT), Property and

Casualty Insurers Association of America (PCI), representatives of certified self-insured employers

and political sub-divisions have begun a dialogue with Workers‘ Compensation Commission Rod

Bordelon and his enforcement staff on the insurance industry‘s concerns. AIA, ICT, PCI and other

concerned payor representatives recently met with the agency and anticipate future discussions.

During the industry‘s meeting, Commissioner Rod Bordelon and DWC staff discussed additional

incentives that could be offered to high performers. The commissioner has also noted he is

willing to consider increasing transparency on how the DWC applies the PBO concept to

justified complaints that result in a finding that insurers and doctors have failed to comply with

the Texas Labor Code and/or a DWC rule.

What Exactly is the Insurance Industry and Other System Stakeholders Seeking?

Stakeholders who have weighed in on the current

enforcement process issue, the insurance industry included,

want a process that emphasizes performance-based

oversight linked to regulatory outcomes as required by the

statute. Such a system would provide for real, measurable

incentives that make the performance based oversight

concept and assessment process mean something other than

a method to label doctors and insurance carriers as high,

average or low performers.

Some stakeholders have suggested an alternative oversight

model, best described as a hybrid version of the Florida

Performance-based oversight system that sets a performance standard of 95 percent 17

compliance, by rule, for all categories of performance measures and key regulatory outcomes

and blends that concept with Texas PBO set out in the Texas Labor Code.

Those stakeholders view such an approach as one that would take a more reasonable and

measured approach to enforcement and would represent a departure from the penalty driven

enforcement process that is currently in place in the Texas workers‘ compensation system.

Under this concept, stakeholders believe that any doctor or insurance carrier who has either been

placed in the high performer tier by the PBO assessment process or, independent of the PBO

assessment process, are found to have achieved high performance would not be accessed a

17

Some system stakeholders have recommended that the performance standard for a high performer be set at 90

percent compliance. Others have advocated leaving the high performance tier cut off at 95 percent.


116

financial penalty if the doctor or insurance carrier has continued to demonstrate that they continue

to be high performers. High performers would be notified of potential violations and instructed to

take corrective action and report the action taken to the DWC within a reasonable time period.

Exceptions to such a policy would include instances where an insurer or doctor has committed an

egregious act, e.g. a doctor billing an injured employee, a doctor or an insurance carrier has

refused or failed to comply with a DWC order, or an insurance carrier has prospectively denied an

injured employee workers‘ compensation benefits in a manner that does not comply with Texas

Labor Code. Such an approach is workable under the current statutory structure. These are only

suggestions for discussion and as these discussions continue there may be new ideas that are

offered by the insurance industry to the agency.

The insurance industry also believes that a much more reasonable approach needs to be taken in

regards to the oversight and enforcement that targets average performers. For example, average

performers could be subjected to less audit scrutiny and lower penalties as compared to low

performers.

Obviously there are going to be times when an administrative penalty is warranted. However,

the penalties should not be excessive and should serve to incentivize better performance and not

to merely punish non-egregious acts of non-compliance as is the case today. Insurers note that

there is a difference between an insurance carrier and doctor who makes a mistake and one who

disregards the law and rules or repeatedly violates the law after having been told to take

corrective action by the DWC. The current enforcement model does not take that fact into

account.

All system stakeholders agree that the Texas Labor Code requires the Division of Workers‘

Compensation and TDI‘s Enforcement Division to focus their audit and enforcement resources

on poor performers. However, these same stakeholders believe that the DWC and TDI oversight

efforts for poor performers should be geared toward improving their performance and not merely

punishing the poor performers.

Conclusion

AIA, ICT and PCI have committed to continuing to pursue this issue with Commissioner

Bordelon and DWC staff with the goal of achieving a change in TDI‘s and DWC‘s approach to

system oversight and enforcement that results in an oversight system that emphasizes

performance-based oversight linked to regulatory outcomes. As appropriate, ICT will provide

updates on any progress made in that regard.


117

FY 2011 18

Texas Department of Insurance, Division

of Workers’ Compensation Enforcement Actions

FY 2011 Enforcement Orders- Monetary Penalties Assessed and

Collected by System Participant Type

System Participant Amount Assessed

Insurance Carriers $1,715,750

Employers (Subscribers and

Non-Subscribers)

$5,000

Health Care Providers $381,250

WC Health Care Network $7,000

Totals $2,109,000

FY 2011 DWC Enforcement Cases Closed by System Participant Type

System Participant Number

Insurance Carriers 359

Employers (Subscribers and

Non-Subscribers)

45

Health Care Providers 136

Other* 11

Total 551 *Other may include attorneys, workers‘ compensation networks, etc.

FY 2011 DWC Enforcement Cases Closed by Disposition

Commissioner‘s Order* 294

Warning Letter 168

No Action 76

Other** 13

Total 551 *May include contested case, consent and default orders.

*Other may include attorneys, workers‘ compensation networks, etc.

Source: Texas Department of Insurance, Division of Workers‘ Compensation, 2011.

Trends in Complaints Filed with the Division of Workers’ Compensation

By Geoff Billings, Senior WC Regulatory Analyst, Insurance Council of Texas

The Division of Workers‘ Compensation (DWC) accepts and investigates complaints filed by

system stakeholders. The complaint process feeds stakeholder issues of concerns and complaints

into the DWC‘s system oversight program area. A review of the Texas workers‘ compensation

system as it relates to complaints noted that while the number of workers‘ compensation claims

decreased measurably since the passage of House Bill 7 in 2005, the number of complaints

received by DWC has not followed the same trend.

18

Fiscal Years for State of Texas is September 1st to August 31

st.


118

The number of complaints has fluctuated during the past few years. While the DWC received a

total of 7,433 complaints in 2004, that number fell to 3,850 in 2006, but increased to 8,613 in

2008. DWC received 6,516 complaints in 2009 and 6,008 complaints in 2010. As of October 26,

2011, the DWC had received a total of 4,836 complaints in 2011. The DWC has projected

receiving as many as 6,300 complaints in 2011.

CY 2011 Complaints As of October 26, 2011

Source: Texas Department of Insurance‘s Division of Workers‘ Compensation, 2011

As of October 26, 2011, the DWC closed a total of 4,135 complaints with 711 complaints found

to be justified, 1,408 complaints found to be unjustified, and 2.014 closed as ―record only –

monitoring‖ complaints.

Complaints Received in 2011 and Closed (As of October 26, 2011)


The DWC has reported the following insurance carrier performance for the following key

performance measures for 2011 that impact the number of internal complaints:

● The system compliance rate for the timely payment of initial temporary income benefits

(TIB) has fluctuated from 81.73 percent (Jan. 2011) to 85.03 percent (Sep. 2011);

System Performance for Timely Payment of Initial TIBs (As of October 26, 2011)


● The system compliance rate for the timely EDI reporting of initial TIBs has ranged from

92.15 percent (Jan. 2011) to 94.74 percent (Sep. 2011);

System Performance of Timely EDI Reporting of Payment of Initial TIBs (As of Oct 26, 2011)


● The system compliance rate for the processing and timely reporting of medical bills has

remained fairly consistent with the exception of the reporting of medical bills during

the initial part of the fourth quarter;


119

System Performance for Timely Payment and Reporting of Medical Bills (As of Oct 26, 2011)


● The 86.22 percent compliance rate during the initial part of CY 2011 Fourth Quarter is

the result of the submission of corrected data. Insurance carriers have historically

reported medical billing data to the DWC in a timely fashion – an average compliance

of a 96 percent.

The DWC tracks system performance as part of their statutory duties under the Texas Labor

Code and provides quarterly updates to insurance carriers. An insurer may seek the most current

performance data from the DWC by contacting Teresa Carney, the DWC‘s Director of System

Monitoring & Oversight at [email protected].

DWC Announces 2011 Performance Based Oversight Results for Doctors and

Wraps Up Planning for 2012 Insurance Carrier PBO Assessment

On October 17, 2011, the Texas Department of Insurance‘s

Division of Workers‘ Compensation (DWC) released the

results of the 2011 Health Care Provider PBO assessment.

For 2011, health care providers were assessed on their

performance in one of three categories:

● Timely filing of the DWC Form-069, Report of

Medical Evaluation; or

● Timely release to return to work and completeness of

the DWC Form-073, Work Status Report; or

● Usage of magnetic resonance imaging.

The DWC is statutorily required to monitor system participants‘ compliance with the Texas

Workers‘ Compensation Act and DWC rules and to take actions to correct noncompliant

behavior. The DWC assesses the performance of insurance carriers and health care providers as

a part of a biannual Performance Based Oversight (PBO) assessment.

Of the 99 health care providers reviewed for the timeliness of filing the Report of Medical

Evaluation, 87 health care providers had scores placing them in the high performer tier, 10 health

care providers were in the average performer tier, and 2 health care providers had scores placing

them in the poor performer tier.

Of the 100 health care providers reviewed for the timely release to return to work and

completeness of the Work Status Report, 49 health care providers had scores placing them in the

high performer tier, 34 health care providers were in the average performer tier, and 17 health

care providers had scores placing them in the poor performer tier.

Performance

Based

Oversight



120

Of the 41 health care providers reviewed for the usage of magnetic resonance imaging, 32 health

care providers had scores placing them in the high performer tier, 9 health care providers were in

the average performer tier, and no health care providers had scores placing them in the poor

performer tier. This category was a pilot measure and individual results will not be made public.

The DWC uses Performance Based Oversight, data monitoring, complaint handling, audits,

enforcement actions and referrals to law enforcement, when appropriate, to achieve its

compliance objectives. The DWC will focus its regulatory oversight on the poor performers

while offering incentives for high performers in order to promote improved performance and

greater overall compliance with the Workers‘ Compensation Act and DWC rules.

The results of the 2011 Health Care Provider PBO Assessment and a list of the health care

providers assessed are posted on the TDI website. The omission of a health care provider from

the list does not imply that a health care provider participating in the Texas workers‘ compen-

sation system is exempt from the requirement to comply with the Workers‘ Compensation Act

and DWC rules. Further information regarding PBO and the 2011 assessments may be found on

the TDI website at http://www.tdi.texas.gov/wc/pbo/hcppbo.html.

Start of the 2012 Insurance Carrier PBO Assessment Process is Right Around the Corner

DWC recently concluded the PBO Working

Group meetings for the 2012 Insurance Carrier

PBO Assessment. 122 insurance carriers can

expect the 2012 Insurance Carrier PBO

Assessment process to begin in December 2011 as

the DWC notifies insurance carriers of their

selection to participate in the 2012 PBO

Assessment process.

The 122 insurance carriers selected for the 2012

PBO assessment include:

● 76 commercial carriers;

● 39 self-insured government entities,

including 2 state entities – the State Office

of Risk Management and University of

Texas System); and

● 7 certified self-insured employers.

The insurance carriers selected for the 2012 PBO assessment each have a volume of 20 or more

initial payment of Temporary Income Benefit transactions between January 1, 2011 and June 30,

2011.

The DWC has said the initial PBO findings will be distributed to the respective insurance carrier

entities in July 2012. The insurance carriers will be given an opportunity to review these initial

findings and, if any findings are refuted, the insurance carrier will be able to submit a manage-

ment response and applicable evidence. DWC PBO staff will review all management responses

http://www.tdi.texas.gov/wc/pbo/hcppbo.html


121

during the September – October 2012 timeframe and will then prepare a summary of changes

document which will indicate whether the initial finding is changed and, if so, the reason for the

change.

The final results of the 2012 PBO carrier assessments will be published on the DWC website

approximately three weeks after the results have been shared with each of the respective

insurance carriers. The DWC anticipates the publication of the results in late December 2012.

DWC staff has recommended to Workers‘ Compensation Commissioner Borderlon that

insurance carriers selected for the 2012 PBO assessment be assessed on the following measures:

1. Timely payment of initial Temporary Income Benefits (TIBs) by the insurance carrier – 40%

weight;

2. Timely processing of initial medical bills by the insurance carrier – 40% weight;

3. Timely submission of Initial Payment of TIBs data via Electronic Data Interchange (EDI) –

10% weight; and

4. Timely submission of Medical Bill Processing data via EDI – 10% weight.

DWC staff announced that data from January 1, 2012 to June 30, 2012 will be used to conduct

the 2012 Insurance Carrier Assessment.

The DWC will have three regulatory tiers that distinguish among poor, average, and high

performers in the system. Insurance carriers who are assessed have been deemed by the DWC to

have an impact on the system due to their volume of filings or initiation of benefit payments. It

is important to note that the DWC is not asserting that high volume has a negative impact on the

system. The DWC has noted that those insurance carriers who are not assessed due to low

volume are not absolved from regulatory duties or regulatory oversight when necessary.

In placing the selected entities into regulatory tiers, the DWC will conduct several steps to place

each insurance carrier into an overall tier. The first step is to calculate the performance score

(percentage) for each measure. Next, the performance score for each measure will be multiplied

by the assigned weight value – the value is rounded up. This calculation of two percentages will

then be multiplied by 100 to obtain a weighted value – the value is rounded up. The weighted

value of each measure will then be added together to calculate the final score – no rounding. The

final score will identify the overall performance standard for the assessed entity. The overall

performance standard is defined below.

The final scores will be placed into three regulatory tiers based on pre-determined performance

standards that distinguish among poor, average, and high performers in the system.

The performance standards are:

High Tier: 95 or greater

Average Tier: 80.00 through 94.99

Poor Tier: 79.99 or less


122

DWC staff has announced that the regulatory agency will afford the following incentives to

insurance carriers who are tiered as high performers:

1. Limited audit exemption –DWC will propose its annual audit plan around those insurance

carriers assessed as poor performers. If a situation arises, such as an increase in

complaints, DWC reserves the discretion to audit average and high performers as deemed

necessary.

2. Modified penalties the DWC will consider the PBO assessment in determining whether to

impose sanctions, and if so, the severity of the sanctions to impose as set forth in 29

Texas Administrative Code 180.26.

3. Publication of all tiers/results – tier results will be published on DWC‘s Web site.

4. High Performer logo - for use as a marketing tool by those participants in the high

performing tier.

5. Reduced penalties for self-disclosure of non-compliance.

All of the proposed PBO incentives are intended for the

continuation of a penalty driven enforcement process and

do not reflect the statutorily mandated performance based

oversight model linked to key regulatory goals as

mandated by the Texas Legislature. The Insurance

Council of Texas, American Insurance Association,

Property Casualty Insurers Association of America and

other insurance industry representatives have asked the

DWC to adopt a performance based oversight incentive

model rather than the current penalty driven incentive

model.

Time will tell if Workers‘ Compensation Commissioner

Bordelon and his staff adjust the PBO incentives to reflect

a move away from the penalty driven enforcement system.

Editor’s Note: At the time of the publication of this article and ICT’s 2011 State of the Texas

Workers’ Compensation System, representatives of the insurance industry were in the midst of

active discussion with Workers’ Compensation Commissioner Bordelon on a host of issues

related to the performance based oversight (PBO) process, PBO incentives and enforcement.

Commissioner Bordelon has indicated a willingness to consider enhancing PBO incentives for

high performers and introducing increased transparency to the enforcement process. Insurance

industry representatives are specifically asking that the system oversight process move from one

that is penalty driven to one that is performance based as required by the Texas Labor Code. The

dialogue with the commissioner and DWC staff is expected to continue on into 2012.


123

Medical Quality Review in the Texas Workers’ Compensation System


Sections 413.0511 and 413.0512 of the Texas Labor

Code require the Texas Department of Insurance‘s

(TDI) Division of Workers‘ Compensation (DWC) to

review the quality of health care provided in the

workers‘ compensation system and take appropriate

action as needed. In addition to reviewing health care

providers that deliver services, the Texas Labor Code

also requires the DWC to review actions of peer review

doctors, designated doctors, utilization review agents,

and independent review organizations.

The DWC‘s Medical Advisor, who advises the

Commissioner of Workers‘ Compensation and DWC

staff on matters regarding the adoption of rules and

policies, is responsible for reviewing complaints on

quality of care received through the TDI Complaint

Resolution and Customer Services section and serves as chair of the Medical Quality Review

Panel (MQRP). The panel reviews the actions of doctors, other health care providers, insurance

carriers, utilization review agents, and independent review organizations in the workers'

compensation system.

This article provides an overview of the role of the Medical Quality Review Panel, the history of

the MQRP process and the current MQRP review procedures. The article includes an overview

of the MQRP controversy that came to light in early 2010 and steps taken by Commissioner Rod

Bordelon to address concerns about procedural matters related to the review of health care

quality issues.

Role of the Medical Advisor and DWC Health Care Quality Review Staff

The Medical Advisor assists in the DWC‘s efforts to implement provisions of the Texas Labor

Code related to health care for injured employees, ensures the quality of health care provided in

the system, and recommends sanctions when indicated. The Medical Advisor also provides feed-

back and recommendations to the DWC through the medical quality review process with the

assistance of the MQRP.

The DWC has a Health Care Quality Review (HCQR) staff that reports to the Medical Advisor.

The HCQR staff is comprised of a director, nurse investigators, and administrative staff who

assist in the implementation of the DWC‘s medical quality review process. The director and

administrative staff of HCQR provide the Medical Advisor and Associate Medical Advisors with

administrative support.




124

The HCQR‘s nurse investigators initiate the evaluation of quality of care complaints received

from system participants or the public regarding medical services provided to injured employees

in the workers‘ compensation system. The nurse investigator may seek assistance from an

Associate Medical Advisor as part of the evaluation and to make a recommendation of disposi-

tion for a complaint. During the quality review process, the nurse investigator serves as the point

of contact for the Experts and the subject under review.

Quality Assurance Committee Serves as a Back Stop to the HCQR

The Medical Advisor appoints a Quality Assurance Committee (QAC). The QAC provides a

level of quality assurance when a nurse investigator makes a recommendation to close a com-

plaint or review with no further action. The QAC oversight ensures that actions are appropriate,

consistent, and fair to system participants.

A DWC Associate Medical Advisor chairs and participates on the QAC along with a DWC

Executive Deputy Commissioner and a TDI Enforcement attorney. The QAC meets on a regular

basis and makes recommendations to the Medical Advisor on whether a complaint should be

closed with no further action or continue to be reviewed within the medical quality review

process.

Role, Qualifications of, and Section Process for the Medical Quality Review Panel

Section 413.0512(a) of the Texas Labor Code requires the DWC‘s Medical Advisor to establish

a medical quality review panel of health care providers to assist the Medical Advisor in perform-

ing the duties required under Section 413.0511 of the Texas Labor Code discussed above in the

opening paragraph of this article.

As part of an effort to carry on the duties of the Medical Advisor under Section 413.0511, the

Office of the Medical Advisor (OMA) solicits qualified individuals (or ―Applicants‖) through a

Request for Qualifications (RFQ). A RFQ is a solicitation document requesting submittal of

qualifications or specialized medical expertise in response to the scope of services required.

Pursuant to the provisions of Section 413.0512(b) of the Texas Labor Code, the Medical Advisor

seeks input for MQRP candidates from the Texas Medical Board, the Texas Board of

Chiropractic Examiners, and their respective professional associations. The Medical Advisor also

seeks MQRP candidate input from labor, business, and insurance organizations. The Medical

Advisor is empowered to determine the need for additional health care providers in certain

specialties.

The RFQ solicitation is posted on the TDI website, on at least a biennial basis, to seek responses

from applicants interested in providing professional services to the DWC. When reviewing

applications, the Medical Advisor will consider an applicant‘s training, education and experi-

ence; previous participation in the Texas workers‘ compensation system; whether the panel

needs the applicant‘s expertise; any sanctions or other disciplinary actions taken by the appli-

cant‘s licensing board or the DWC; and feedback from system participants when making

decisions about selecting a health care provider to serve on the MQRP.


125

The OMA offers a contract to all selected applicants. All MQRP contracts must be approved by

the Commissioner of Workers‘ Compensation. Once the Expert‘s contract is approved, a MQRP

orientation/operations manual is provided to the Expert.19

All Experts must participate in a

MQRP orientation conducted by the Medical Advisor and HCQR staff prior to any reviews being

assigned.

Experts conduct clinical reviews of medical case files to assess the medical necessity and

appropriateness of the medical care provided to injured employees. Experts also perform reviews

of utilization and peer review decisions, Independent Review Organization medical dispute

decisions, as well as reviews of doctors who perform designated doctor and required medical

examinations.

As a basis for determining appropriate care or medical decisions, Experts use their professional

expertise, knowledge, and:

● the treatment guidelines adopted by the DWC (the Official Disability Guidelines;

Treatment in Work Comp published by the Work Loss Data Institute);

● the return-to-work guidelines adopted by the DWC (the Medical Disability Advisor,

Workplace Guidelines for Disability Duration published by the Reed Group) for return-

to-work outcomes;

● nationally recognized, evidence-based medicine standards of medical care; and

● the American Medical Association Guides to the Evaluation of Permanent Impairment,

4th edition (AMA Guides).

The Experts may recommend to the Medical Advisor appropriate action regarding doctors, other

health care providers, insurance carriers, utilization review agents, and independent review organ-

izations pursuant to Section 413.0512(b) of the Texas Labor Code. The Medical Advisor provides

the Experts with the status on the number and types of final dispositions of enforcement cases

originating from medical quality reviews.

The Quality Assurance Panel

The Quality Assurance Panel (QAP) 20

is an independent body, required by Section 413.05121 of

the Texas Labor Code, comprised of MQRP Experts selected by the Medical Advisor based on

their medical expertise, specialty backgrounds, and their experience in utilization review and

quality assurance. QAP members (Arbiters) 21

are also selected to ensure that the panel is

comprised of health care professionals from diverse health care backgrounds.

19

Expert is the term used by the DWC for doctors who are selected to serve on the MQRP. 20

House Bill 2605, passed by the Texas Legislature during its regular session in 2011, established a requirement that

The DWC‘s medical advisor is required to establish a quality assurance panel within the MQRP to provide an

additional level of evaluation in medical case reviews and assist the medical advisor in performing his or her duties

under Section 413.0511(b)(6) of the Texas Labor Code and the MQRP in performing its duties under Section

413.0512 of the Texas Labor Code. 21

The term assigned by the DWC to doctors who serve as a member of the Quality Assurance Panel.


126

Once the Arbiter‘s contract is approved, an orientation/operations manual is provided to the

Arbiter. All Arbiters must participate in an orientation conducted by the DWC‘s Medical

Advisor and HCQR staff prior to any duties being assigned.

The Arbiters may provide to the Medical Advisor the following professional services:

● serve as a representative for the Medical Advisor in informal settlement conferences;

● provide input from experiences in the informal settlement conferences;

● guidance on medical trends in the workers‘ compensation system; and

● an additional level of medical expertise and quality assurance.

Arbiters may serve on the panel for a period of two years and may be appointed for additional

terms at the Medical Advisor‘s discretion. Arbiter meetings will be held at least on a quarterly

basis. The Arbiter meeting is presided over by the Medical Advisor. The Medical Advisor will

provide the Arbiters with status on the number and types of final dispositions of enforcement

cases originating from medical quality reviews.

Arbiters do not routinely conduct medical quality reviews. However, the Medical Advisor may

appoint an Arbiter to perform a quality review if no other Expert is available in a specific area of

expertise. In these unique situations the Arbiter would be recused from sitting on the informal

settlement conference for the subject the Arbiter reviewed.

The Current MQRP Review Process

Under the current procedures for the MQRP review process, medical quality reviews may be

initiated from either a complaint, a plan-based audit, or monitoring resulting from a consent

order. The TDI-DWC‘s Medical Advisor oversees the medical quality review process conducted

by the Medical Quality Review Panel (MQRP). Experts and Arbiters comprise the MQRP.

Medical quality reviews performed by the MQRP Experts (Expert) aid the DWC both to monitor

compliance with the Texas Labor Code and DWC rules and to help ensure that injured

employees in the workers‘ compensation system receive medically necessary and appropriate

health care that is timely and cost-effective, and facilitates functional recovery and appropriate

return-to-work outcomes. The Arbiters represent the Medical Advisor in Informal Settlement

Conferences and make recommendations for proposed consent orders.

The DWC‘s MQRP Procedure provides that all complaints must be in writing and may not be

anonymous. The procedure states that all complaints regarding the medical necessity or approp-

riateness of care as well as other quality of care issues will be directed to the DWC‘s System

Monitoring and Oversight (SMO) Section. Once received, SMO logs all complaints into the TDI

Complaint Inquiry System (CIS) database for tracking purposes. The complaint is then referred

to the Office of the Medical Advisor (OMA) for evaluation and possible investigation. Upon

receipt of the complaint, OMA provides the complainant and subject with an acknowledgement

letter.

http://www.tdi.texas.gov/wc/hcprovider/documents/omamqrocedure1210.pdf


127

Once the acknowledgement letter has been sent to the complainant and subject, a nurse investi-

gator evaluates each quality of care complaint to determine whether a potential violation has

occurred. An investigation can be initiated for several different reasons.

An investigation may be initiated based on a determination that the complaint is of an egregious

nature, e.g. sexual misconduct, criminal activity, or imminent danger to the public. The OMA

may also open an investigation based upon a determination that the information and evidence

gathered is sufficient to support that a quality of care violation of the Texas Labor Code or DWC

rules has occurred, including but not limited to failure to follow adopted guidelines where appli-

cable or failure to practice according to the generally accepted standard of care.

The OMA may also initiate an investigation if the complaint is of a behavioral nature

(inappropriate non-egregious behavior or unprofessional conduct) not involving standard of care

issues and the subject has had repeated behavioral nature complaints within the previous 12-

months from the receipt of the complaint. Additionally, the OMA may initiate an investigation

based upon the complaint and disciplinary history of the subject (for health care practitioners

only) maintained by his/her licensing board.

A complaint may be closed from the OMA based on the following:

● The complaint is not of a quality of care nature. The complaint will be referred back to

the SMO for investigation.

● The subject (for health care practitioners only) is not licensed in Texas and services were

rendered outside Texas. This subject may be referred to his/her state licensing board.

● The complaint is of a behavioral nature and the subject has no prior history or repeated

complaints (non-egregious complaints) in the previous 12-months from the receipt of the

complaint.

● Documentation provided with the complaint or obtained through a complaint investiga-

tion supports that the standard of care has been met.

During the course of the investigation by the nurse investigator, additional information and/or

documentation may be requested from the complainant, subject, or other relevant persons or

entities, e.g. insurance carrier, hospital, other health care providers and etc. Additionally, at any

time during the complaint investigation process, a nurse investigator may consult with an

Associate Medical Advisor or DWC staff member to assist in the determination of whether a

violation of the Texas Labor Code, DWC rule(s), or other applicable statutes has occurred. If the

complaint involves an active dispute, the nurse investigator may consult with DWC Medical

Dispute Resolution staff to determine the appropriate action for the complaint.

When a subject – health care provider or insurance carrier – is selected for a medical quality

review, the OMA sends a notification letter to the health care provider or other system parti-

cipant chosen for a medical quality review. The notification letter informs the subject of the

review and the basis upon which the review was initiated, e.g. complaint, monitoring, or audit.


128

Subjects of a medical quality review are encouraged to communicate with the OMA regarding

the review and/or the selected cases at any time during the course of the review. Subjects may

provide OMA with any information the subject believes is relevant to the review. All

documentation or information provided by the subject will be considered by OMA.

OMA may request relevant records and other information from non-subject parties such as

insurance carriers or other health care providers. Information obtained from non-subject parties

will be reviewed and considered during the course of the medical quality review. The request for

records letter will require the non-subject(s) to complete an enclosed business record affidavit

and provide the completed affidavit along with the requested medical records. The letter will

include a specified amount of time to provide the requested information.

If requested records or information are not provided or are not provided timely, OMA will issue

a Commissioner‘s Order that requires the subject or non-subject to produce the requested

information. If the subject or non-subject fails to comply with the order, OMA will refer the

failure to comply with the order to produce the document to TDI‘s Enforcement Division. TDI‘s

Enforcement Division will initiate the enforcement process against the subject(s) who fails to

comply with the order.

Once all required documentation is available, a nurse investigator will select and assign an

Expert (reviewing doctor) to perform the medical quality review. The Expert may request the

nurse investigator to obtain or provide any other information that the Expert believes is relevant

and necessary in order to conduct the medical quality review.

Upon completion of the review, the Expert provides the nurse investigator with an Expert

Report that includes responses to the review questions. The Expert provides recommendations

responsive to review questions posed by the Medical Advisor.

The Expert recommendation process involves the review of the quality review matters by as

many as three Experts. After the first Expert assigned to review the quality review matters

completes his review and determines that a violation to the Act or rules has occurred, then the

nurse investigator is required to select a second Expert to conduct an additional review. If the

first two Experts reach the same conclusion at the end of their respective reviews, the case will

be processed for proper disposition. If the Experts do not concur, the nurse investigator will refer

the matter to a third Expert.

The third Expert will be provided with all of the information the two previous Experts received,

plus the reports of the first two Experts. The third Expert will review the matters before him or

her and formulate a decision, agreeing with one or the other original Experts. The two Experts in

agreement are thereafter required to negotiate the wording of the Expert report. Once the Expert

report has been completed, the report will be submitted to the nurse investigator. The Experts‘

final recommendation may include the closure of the review with no action or to proceed with

possible enforcement action.

If the Experts recommend proceeding with possible enforcement action, the completed Expert

report will be sent to the subject stipulating that the subject has an opportunity to respond to the


129

report. If the written response does not change the initial recommendation, the Expert report will

be forwarded to the Medical Advisor for his or her recommended action which may include

closure with no action or proceeding with possible enforcement action.

An Expert may recommend expanding the scope of a review independent of a decision to close a

review with no further action or refer the subject to TDI‘s Enforcement Division for possible

enforcement action. A recommendation to expand the scope of a review must be in writing and

this initiates a separate complaint that starts the medical quality review process from the initial

intake phase of the review.

Prior to taking final action on a medical quality review case, the case will be reviewed by the

statutorily mandated Quality Assurance Committee (QAC). The QAC will issue written

recommendations for consideration by the DWC‘s Medical Advisor.

The Medical Advisor is required to consider the Experts‘ recommendation(s) in formulating a

final case disposition. In formulating the final recommendation, the Medical Advisor may

consult with a DWC attorney, nurse investigator, and any other DWC staff member, as the

Medical Advisor deems necessary. The case disposition action recommendations by the Medical

Advisor may include: closure of the review with no further action (this may include an education

letter), proceeding with possible enforcement action; referral of the subject to the appropriate

medical licensing board, or expanding the scope of investigation.

TDI‘s Enforcement Division is responsible for handling any and all enforcement actions that

arise out of a medical quality review. If the Medical Advisor or TDI‘s Enforcement Division

determines or suspects that fraud has occurred, TDI‘s Enforcement Division is required to refer

the matter to TDI‘s Fraud Unit for further investigation. A fraud investigation may run

concurrent to a medical quality review.

At this point, subjects may be afforded the opportunity to participate in an Informal Settle

Conference (ISC). The ISC provides the subject with an opportunity to discuss the review and

associated matters with two physician Arbiters who represent the Medical Advisor.

The subject may be represented at the ISC by legal counsel. The subject has the opportunity at

the ISC to show compliance with applicable laws and to present any evidence or information that

the subject believes is relevant to the complaint or review. At the conclusion of the ISC, the

DWC may offer the subject a proposed consent order regarding the issues under review.

If the subject agrees with the consent order, then the consent order is signed and returned to

TDI‘s Enforcement Division for final action. When a consent order requires further monitoring

of a subject, OMA will conduct a medical quality review in accordance with the terms of the

order. The review will be conducted in the same manner as the medical quality review process

except where inconsistent with the terms of the order. OMA will coordinate with TDI‘s

Enforcement Division on the results of the monitoring review and provide TDI‘s Enforcement

Division with recommendations on any appropriate action(s).

If the DWC and subject cannot agree on a resolution to the enforcement case, the Medical

Advisor will make the final recommendation for further enforcement proceedings. If appropriate,

the DWC may close a case with no further action after holding an ISC.


130

The subject of the medical quality review enforcement action can appeal any enforcement taken

against him or her. The appeal will be heard by an Administrative Law Judge (ALJ) at the State

Office of Administrative Hearings. At the conclusion of the hearing on the subject‘s appeal, the

ALJ will issue a recommended decision that the Commissioner of Workers‘ Compensation can

either affirm or change. An adverse action taken by the Commissioner of Workers‘ Compen-

sation against a subject can be appealed to a Travis County District Court for judicial review.

Accountability and Transparency of the MQRP Process

The Commissioner of Workers‘ Compensation has mandated a quarterly independent review

process for the Medical Quality Review Program. The review process is taken in consultation

with the DWC‘s Internal Audit program area. The purpose of the review process is to ensure

adherence to the medical quality review process. Any deviations from approved MQRP

procedures will be documented and reported to the Commissioner for appropriate corrective

action. This process will also be used to recommend improvements to the process and increase

accountability and transparency.

Conclusion

The current MQRP procedures and process were put into place in January of 2011 in response to

a controversy that arose over Commissioner Bordelon having dismissed, in January 2010, nine

medical quality review enforcement cases due to staff having failed to follow internal procedures

on how to select doctors for MQRP audit reviews. The controversy prompted a hearing before

the Texas House of Representatives‘ Business & Industry Committee at which former DWC

staff claimed ―powerful doctors‖ who were able to get their legislators to pressure the Division

of Workers‘ Compensation to halt the MQRP process. Commissioner Bordelon refuted the claim

that he dismissed the reviews due to intervention by legislators.

Workers‘ Compensation Commissioner Rod Bordelon subsequently ordered the DWC‘s Medical

Advisor, Donald Patrick, M.D. , J.D., and Office of the Medical Advisor staff to prepare written

procedures for the medical quality review process. The medical quality review procedures were

approved by Commissioner Bordelon on December 31, 2010.

The Texas Sunset Advisory Commission (Sunset Commission) subsequently included

recommendations for statutory changes to the Medical Quality Review Process (MQRP). The

Sunset Commission found that the MQRP program needed improvements to ensure thorough and

fair oversight of workers‘ compensation medical care.

The Sunset Commission issued the following decisions regarding the DWC‘s MQRP program:

● Require the Division of Workers‘ Compensation (DWC) to develop criteria, subject to

the Commissioner‘s approval, to further improve the medical quality review process. In

developing such guidelines, require the DWC to consult with the Medical Advisor and

consider input from key stakeholders. The DWC should make the adopted process for

conducting both complaint-based and audit-based reviews available to stakeholders on its

website.

http://www.tdi.texas.gov/wc/hcprovider/documents/omamemo1210.pdf

http://www.tdi.texas.gov/wc/hcprovider/documents/omamemo1210.pdf

http://www.tdi.texas.gov/wc/hcprovider/documents/omamqrocedure1210.pdf

http://www.sunset.state.tx.us/82ndreports/wcd/wcd_fr.pdf


131

● Establish the Quality Assurance Panel (QAP) in statute and require the DWC to hold

QAP meetings as a means to assist the Medical Advisor and the Medical Quality Review

Panel, while providing a second level evaluation of all reviews.

● The Commissioner should adopt procedures, subject to input from the Medical Advisor,

to further define the QAP‘s role in the medical quality review process and establish the

frequency of QAP meetings.

● Require the Commissioner, subject to input from the Medical Advisor, to adopt rules

outlining clear prerequisites to serve as a MQRP expert reviewer, including necessary

qualifications and training requirements. In developing these policies, the DWC can use

the Texas Medical Board‘s expert reviewer process as a guide.

● The DWC, in consultation with the Medical Advisor, should be required to work with

health licensing boards, beyond just the Texas Medical Board and the Texas Board of

Chiropractic Examiners, as necessary, to expand the pool of health care providers

available as expert reviewers.

House Bill 2605, the Sunset Review legislation for the Division of Workers‘ Compensation,

incorporated the decisions of the Sunset Commission. Stakeholders anticipate that the

Commissioner of Workers‘ Compensation will instruct the staff of the DWC‘s Office of Medical

Advisor to start work on the implementation of the statutory changes to the MQRP process in

2012.

New Medical EDI Reporting Rules Adopted by Commissioner Bordelon


On June 20, 2011, Commissioner of Workers‘ Compensation Rod Bordelon adopted amended

insurance carrier medical electronic data interchange (EDI) reporting rules – amended Rule

134.802 and new Rules134.800, 134.801, and 134.803 – 134.808. The adopted rules were

effective September 1, 2011.

The purpose of the adopted rules is to implement the requirements of Sections 413.007 and

413.008 of the Texas Labor Code and improve insurance carriers‘ understanding of the

requirements associated with reporting medical charges and payment data pursuant to these

statutes. Section 413.007 of the Texas Labor Code requires the Texas Department of Insurance‘s

Division of Workers‘ Compensation (DWC) to maintain a statewide data base of medical

charges, actual payments, and treatment protocols to be used to adopt medical policies and fee

guidelines and administer the medical policies, fee guidelines, or rules. The adopted rules require

insurance carriers to submit information to the DWC to populate the data base. The adopted rules

codify the existing DWC medical EDI reporting requirements with minimal changes to the

current technical infrastructure associated with medical EDI reporting.

The rules adopt by reference the IAIABC EDI Implementation Guide for Medical Bill Payment

Records, Release 1.0, dated July 4, 2002 which is published by the International Association of


132

Industrial Accident Boards and Commissions. The rules also adopt by reference the Texas EDI

Medical Difference Table, Texas EDI Medical Data Element Edit Table, and Texas EDI Medical

Data Element Requirement Table. These tables are published by the DWC and are available

along with the adoption on the TDI website.

The DWC also has adopted two new forms that are associated with the EDI reporting process –

the DWC EDI-02 (Insurance Carrier or Trading Partner Medical EDI Profile) and EDI-03

(Medical EDI Compliance Coordinator and Trading Partner Notification). An insurance carrier

or trading partner sending the medical EDI transmission must send to the DWC a completed

DWC EDI-02 at least five working days prior to sending its first test transaction under the

adopted rules. An insurance carrier must send to the DWC a completed DWC EDI-03 at least

five working days prior to sending its first transaction under the adopted rules. Both forms are

available on the agency website at http://www.tdi.state.tx.us/forms/form20.html and should be

sent to DWC at the address indicated at the top of each form.

EDI Compliance Coordinator Required

Rule 134.808(b) requires each insurance carrier, including those using external trading partners,

to designate one individual to the division as the EDI Compliance Coordinator and provide the

individual‘s name, working title, mailing address, email address, and telephone number to the

DWC by submitting an EDI-03 form. The EDI Compliance Coordinator must be a centrally-

located employee of the insurance carrier who has the responsibility for EDI reporting, receiving

and appropriately dispersing data reporting information received from the division, and serving

as the central compliance control for data reporting under this subchapter.

Commissioner Bordelon Adopts Amendments to

Benefit Review Conference and Appeals Panel Rules


On October 31, 2011, Commissioner of Workers‘ Compensation Rod Bordelon adopted

amendments to Rules 141.2 and 141.3 that govern the canceling or rescheduling of a benefit

review conference (BRC), the failure to attend a BRC and describes the appeal proceeding. The

amended rules were effective November 20, 2011.

The amended rules implement provisions of House Bill 2605 – the Sunset legislation for the

Division of Workers‘ Compensation that was passed during the 2011 regular legislative session –

that require the Commissioner of Workers‘ Compensation by rule to define "good cause" for

rescheduling a BRC and establish deadlines for requesting that a BRC be rescheduled. The

adopted amendments also establish procedures for requesting to reschedule a BRC when a party

has failed to attend the BRC.

These new provisions and other amendments to these rules will apply to a request for a BRC that

is filed on or after December 1, 2011. The provisions in previous rules – Rules 141.2 and 141.3 –

will continue to apply to a request for a BRC that is filed before December 1, 2011.

http://www.tdi.texas.gov/wc/edi/index.html#med911

http://www.tdi.texas.gov/wc/rules/adopted/documents/aoap1111.pdf


133

The adopted amendments to Rule 143.2 implement legislative changes made by HB 2605 to

Sections 410.203 and 410.204 of the Texas Labor Code. The legislative changes authorize the

Division of Workers‘ Compensation‘s (DWC) Appeals Panel to affirm the decision of the

hearings officer in certain cases.

Section 410.204(a-1) of the Texas Labor Code authorizes the Appeals Panel to issue a written

decision affirming the decision of a hearings officer if the case is a case of first impression,

involves a recent change in law, or involves errors at the contested case hearing that require

correction, but do not affect the outcome of the hearing. The adopted amendments incorporate

the new statutory provisions into existing DWC rules that govern the Appeals Panel.

Workers’ Comp Commissioner Adopts New and Amended Enforcement Rules


On December 20, 2010, Commissioner of Workers‘ Compensation Rod Bordelon adopted

amendments to Rules 180.1-180.3, 180.8, 180.22, 180.24, 180.25, 180.27, and 180.28 and new

Rules 180.26 and 180.50. The rules govern the Division of Workers‘ Compensation (DWC)

enforcement process and were effective January 9, 2011.

Commissioner Bordelon also repealed Rules 180.1-180.3, 180.8, 180.22, 180.24, 180.25, 180.27,

and 180.28 regarding sanctions and enforcement and Rules 180.6, 180.7, 180.10 - 180.18,

180.20, and 180.26 regarding guidelines for establishing evidence of patterns of practice, the

schedule of administrative penalties for violations, warning letters, and the Approved Doctors

List.

The rules outline the method for filing a complaint with the DWC, explain what constitutes a

frivolous complaint, sets out the DWC process for compliance audits, and establish the DWC‘s

procedures for issuing notices of violation, notices of hearing, and processing default judgments.

The rules also describe and set forth health care provider roles and responsibilities, the DWC‘s

financial disclosure requirements for health care providers, the acts that the DWC deems to be

improper inducements, attempts to influence or threaten, and violations of applicable federal

standards by system participants that are administrative violations.

Rule 180.26 sets forth the criteria for imposing, recommending and determining sanctions or

other remedies, and establishes the use and purpose of warning letters.

Rule 180.27 sets forth the procedure for the Commissioner to modify, amend, or change a

recommended finding of fact or conclusion of law or order of the ALJ and the procedure for

doctors to apply for restoration of practice privileges removed by the DWC.

Rule 180.28 sets forth requirements for peer review reports, requests for peer review, mainte-

nance of records related to peer reviews by insurance carriers and peer reviewers, sanctions

against health care providers performing peer review, submission of peer review reports, and

submission of medical records to doctors providing peer review.

http://www.tdi.texas.gov/wc/rules/adopted/documents/ao180enf1210.pdf


134

One of the more controversial provisions of the rules is the provision set forth in Rule 180.26(e)

(1) which provides that when determining which sanction to impose against a system participant

and the severity of that sanction, the DWC shall consider the Performance Based Oversight

(PBO) assessment of the participant. This provision essentially makes the PBO assessment

ranking of a system participant a mere factor to be considered when determining the amount of

penalties to be assessed in an enforcement case. That approach preserves the penalty driven

enforcement process that HB 7 and the Texas Legislature instructed the DWC to replace with a

Performance Based Oversight process.

As of the publication of this article, insurance industry representatives are in the midst of a

discussion about the DWC‘s approach to system monitoring. The insurance industry believes

that the DWC has merely ―dressed up‖ the old penalty driven process and made the PBO

assessment of a system participant a matter to be considered when the statute clearly directs the

DWC to replace the penalty driven process with one that is performance based. Meanwhile,

DWC staff believes that they have taken adequate steps to incorporate the PBO concept into their

enforcement process. The fact remains that a penalty driven system is still in place. Additionally,

any doctor and insurance carrier who are not part of the most recent PBO assessment derives no

benefit from being a high performer if their actual performance demonstrates that they are

performing at the high performer tier level.

Time will tell whether or not the DWC accepts the fact that they must abandon the penalty

driven ―gotcha‖ enforcement system and move to one that is performance based. Until that time,

the insurance industry will continue to engage Workers‘ Compensation Commissioner Rod

Bordelon and DWC staff in a dialogue regarding this issue.

―The lack of a transition from a penalty driven oversight process to one that is performance

based is a deficiency that the insurance industry will not overlook,‖ said Steve Nichols, Manager

of Workers‘ Compensation Services at the Insurance Council of Texas. ―We will continue

pursuing this issue until such time appropriate steps are taken to fully implement a performance

based oversight system in which high performers are incentivized, average performers are treated

differently than low performers and the focus of DWC audits and enforcement is on low

performers.‖

Workers’ Compensation Enforcement Actions, 2007 – 2011

Workers‘ compensation enforcement actions taken against insurance carriers, doctors and other

system participants have focused on what most stakeholders call ―low hanging fruit‖, minor

unintentional acts of non-compliance that generally caused no harm to injured employees or any

other system stakeholders.

A summary of the enforcement actions taken from 2007 – 2011 can be found on the DWC website

at: https://wwwapps.tdi.state.tx.us/inter/asproot/commish/da/dwcclips2011.asp.



135

Dispute Resolution in the

Texas Workers’ Compensation System

Benefit Review Conference

Contested Case Hearing


136



137

An Overview of Texas Workers’ Compensation

Indemnity Dispute Resolution Process: Yesterday and Today

By Robert D. Stokes, Partner, Flahive Odgen & Latson, P.C.

The Texas workers‘ compensation system will turn 99 next year. There have always been

disagreements between injured workers and insurance carriers over what constitutes a

compensable injury and how indemnity benefits should be allocated within the system.

In 2008, the date most recent data is available, the Division of Workers‘ Compensation (DWC)

took an average of 116 days to resolve indemnity disputes through dispute resolution

proceedings. Approximately 67.62 days passed from the request for benefit review conference to

the conclusion of the benefit review conference. On average, the agency took 84.61 days from a

party‘s initial request for a contested case hearing to a final distribution of the decision.

As the following chronology will show, dispute resolution in the Texas system has not always

been this prompt, or this efficient.

1913

In 1913, President William Howard Taft was succeeded by

President Woodrow Wilson. The average American salary

was $750 per year while a Ziegfeld girl earned up to $75

per week. The country was headed toward World War I.

Meanwhile Texas enacted its first workers‘ compensation

law. The act was passed to prevent common law suits

against employers and to provide certain, but limited

benefits to injured workers who were otherwise forced to

endure lengthy litigation to resolve their cases against their

employers. The system had no effective dispute resolution

process whatsoever.

1917

By 1917 with the country on the cusp of prohibition, and

fully engaged in a world war the Texas legislature created

the Industrial Accident Board (IAB) to administer the

workers‘ compensation laws. The IAB constituted the basic framework for the state workers‘

compensation system for the next 75 years. The board conducted no formal hearings, but did

approve settlements between the parties and issue awards of benefits to injured workers. If a case

could not be settled, or if the parties were dissatisfied with a board award, the case could be tried

in the same manner as general civil litigation.



138

1969

In 1969 Neil Armstrong and Buzz Aldrin

became the first men to walk on the moon.

Radio continued to be the primary means of

listening to music. The major development

was a change from primarily AM to FM radio

where Texans grooved to the tune of such rock

and roll songs as Aquarius/Let the Sunshine In

by the Fifth Dimension.

By the end of the 60s Texas employees had

encountered increasing difficulty in resolving

workers‘ compensation disputes. The forty

year old system was perceived to be anti-

quated. So, in a wave of reform, the 1969

Texas legislature established a pre-hearing system to resolve disputes. This created an informal

dispute resolution process and gave rudimentary regulatory authority to the Board over workers‘

compensation claims. Cases were negotiated in informal ―pre-hearing conferences‖ which often

resulted in settlements on compromise settlement agreements (―CSAs‖). Such agreements

generally resulted in lump payments of disputed claims with reduced future medical entitlement

for the injured worker.

1987

In 1987 Vincent Van Gogh's 'Sunflowers' brought $39.9 million while his painting 'Irises"

brought $53.9 million dollars. Three Men and a Baby, starring Tom Selleck, Ted Danson, and

Steve Guttenberg was the top box office movie, followed closely by Michael Douglas and Glenn

Close in Fatal Attraction. Married men came to know what it was like for a woman ―not to be

ignored.‖

By this time, employers became disenchanted by the regulatory system as reflected by the nearly

20-year-old prehearing system. Many employers felt that their insurance carriers were compelled

by the cost of litigation to settle cases where no benefits were due. Some employer groups

believed that their truly injured employees were not provided adequate medical care through the

compromise settlement process. The complaints became so vociferous that the Texas Legislature

appointed a Joint Select Committee on Workers‘ Compensation Insurance to study the state

workers‘ compensation system and make recommendations for change. The work of this

committee provided the framework for the major reforms that would come two years later. The

Joint Select Committee on Workers‘ Compensation reported: more claim disputes were resolved

in the courts; therefore, settlements sometimes were inequitable or inappropriate for the injury.



139

1989

Then Rep. Rick Perry with Rep. Pete Laney and Rep. Ron

Lewis the floor of the Texas House during the 71st

Legislative session, April 13, 1989.

In May 1989, Sue Ellen planned to

produce a tell-all movie on J.R. Ewing,

with hopes of making him "the

laughingstock of Texas," in the season

finale of Dallas. Seinfield debuted on NBC

that summer. Future Texas Governor Ann

Richards first came to national attention as

the state treasurer of Texas, when she

delivered the keynote address at the 1988

Democratic National Convention.

But Ms. Richards wasn‘t governor yet, and

Bill Clements, the first Republican

governor of Texas since reconstruction still

had work to do on the Texas comp system.

To alleviate inequities that were described

in the Joint Select Committee‘s report,

Gov. Clements pushed the 1989 legislature

to enact reforms including the creation of the Texas Workers‘ Compensation Commission

(TWCC) and eliminated the IAB. The legislature also established a program to allow disputes to

be resolved informally and to assist unrepresented injured employees and other participants

through an ombudsman system administered by the TWCC. Finally the legislature established a

multi-level administrative system designed to resolve disputes without litigation and eliminate

the use of compromise settlement agreements.

Shortly after the 1989 Act was passed by the Legislature, the Texas AFL-CIO, the Texas Legal

Services Union Local No. 2 and three Texas employees filed a lawsuit (the Garcia case)

challenging its constitutionality on several grounds.

1991

1991 doesn‘t seem so long ago in the workers‘ comp world, but it was the year that Tim Berners-

Lee opened the World Wide Web to the public and CERN released the first publicly available

Web server. It was also the first year of the ―new law‖ comp system in Texas.

The 1989 reforms became effective January 1, 1991. The new law created several steps in the

dispute resolution process in a workers‘ compensation claim: Benefit Review Conference;

Arbitration or Contested Case Hearing; Appeals Panel and Judicial Review. Most of the dispute

resolution procedures that were put in place with this system remain in effect today.

The BRC is an informal meeting held at a local TDI-DWC office where, you will meet with

someone from the insurance company to discuss the disputed issues in front of a TDI-DWC

Benefit Review Officer. If the dispute is resolved, an agreement may be written and signed by

you and the insurance carrier.


140

If the dispute was not resolved at the BRC, the injured employee and other parties to the dispute

may agree to resolve the dispute through arbitration instead of proceeding to a contested case

hearing. At arbitration an independent arbitrator chosen by TDI-DWC hears both sides of a

dispute and makes a decision. The decision of the arbitrator is final and cannot be appealed.

Arbitration is a very rarely used tool for dispute resolution in the Texas system.

Following a BRC, if all of the parties do not choose arbitration, a CCH is the next level of

dispute resolution. A CCH is a formal hearing conducted by a TDI-DWC Hearing Officer who

makes a decision about the disputed issue(s) that were not resolved at the BRC. A Benefit

Contested Case Hearing Officer will issue a written decision and order several days after the

conclusion of the CCH.

After the CCH, any party that disagreed with the Hearing Officer‘s decision is entitled to request

review of that decision by the agency‘s Appeals Panel. Instead of holding a hearing, the parties

submit written statements describing their position that are reviewed by the Appeals Panel along

with the Hearing Officer‘s decision and the record from the CCH. The Appeals Panel would

issue a written decision, which is the final step in the agency-level dispute resolution process.

A decision of the appeals panel regarding benefits is final in the absence of a timely appeal for

judicial review. Moreover, unlike the pre-1989 act, a decision of the appeals panel regarding

benefits is binding during the pendency of an appeal.

A party may challenge the decision of the appeals panel by judicial review. Judicial review is the

fourth tier of the system for disposition of claims by the DWC. This suit for judicial review can

result in a jury trial is the case involves a question of entitlement to or the amount of benefits

available. If the question involves a question other than entitlement to or the amount of benefits

available, the suit for judicial review is much more restrictive.

Thus, the Act provides a dispute resolution process consisting of four possible steps. A party is

not required to continue through every step; the provisions of the Act contemplate that disputes

may be resolved at any level.

1994

In 1994, In Detroit, Michigan, figure skater Nancy Kerrigan was clubbed on the right leg by an

assailant, under orders from her rival Tonya Harding's ex-husband.

Also that year, the TWCC issued its biennial report to the legislature noting that system costs

were declining and benefits for injured workers had increased. The TWCC underwent its first

interim ―new law‖ Sunset review by the Texas Sunset Advisory Commission in 1994. The

recommendations from that review would form part of the legislative reforms proposed in the

1995 session.


141

1995

In 1995, Green Bay Packers quarterback Brett Favre

won the first of his three Associated Press MVP

awards. Favre led the Packers to an 11–5 record,

Green Bay's best record in nearly thirty years. He

passed for a career high of 4,413 yards, 38

touchdowns, and recorded a quarterback rating of

99.5, the highest of his career. The Packers advanced

to the NFC Championship Game after upsetting the

San Francisco 49ers in the NFC Divisional Game.

But the Packer‘s post-season ended with a loss in the

NFC Championship game to the Dallas Cowboys,

marking the third year in a row the Packers season

was ended by the Cowboys in the playoffs.

Meanwhile, in Texas comp, the Garcia challenge to

the constitutionality of the new law ended as well.

The Texas Supreme Court overturned the decision of

the 4th Court of Civil Appeals in San Antonio and

declared the new law to be constitutional.

As a result of the 1994 interim Sunset review process, the Legislature enacted HB 1089 in 1995,

which continued the agency‘s existence until 2007. In 1995 the legislature also amended the Act

to require the Commission to establish training guidelines and continuing education requirements

for ombudsmen and to require that an ombudsman meet privately with an unrepresented claimant

for at least 15 minutes before a hearing

1999

In March 1999 the Dow Jones Industrial Average made history when it closed over 10,000 for

the first time ever. Also that year Cathy O'Dowd, a South African mountaineer, becomes the first

woman to summit Mount Everest from both the north and south sides. Finally in 1999 Texas

Governor George W. Bush announces he will seek the Republican Party nomination for

President of the United States.

The 1999 Texas legislature passed amendments to the Workers‘ Compensation Act to improve

the efficiency of the workers‘ compensation dispute resolution system. Legislation was approved

to allow benefit review officers and hearing officers to issue interlocutory orders for payment of

part or all medical and income benefits.

The 1999 legislature also required insurance carriers to continue paying temporary income

benefits to an injured employee for at least 14 days from the date the carrier notifies TWCC and

the employee of the intent to suspend benefits based on a medical report arising out of a carrier

RME; and to require TWCC to set a BRC within 10 days of receiving notice of the carrier‘s

intent to suspend to determine whether an interlocutory order to continue benefits should be

entered.


142

2001

2001 began with former Texas Gov. Bush

taking the presidential oath of office and

ended with the country reeling from the

September 11th

attacking on the nation.

Locally, the Texas legislature addressed a

growing contention that workers' com-

pensation medical costs should be more

closely controlled, and that the quality of

medical care delivered to injured workers

could be better monitored to improve

outcomes. The call to address rising costs

and increase quality monitoring of medical

benefits - coupled with specific research

findings identifying key problem areas - led

to the filing of House Bill 2600 by

Representative Kenneth "Kim" Brimer.

In addition to medical benefit issues, the bill focused on improving communication about return-

to-work issues in the dispute resolution process as well as in avoiding benefit dispute resolution

process entirely through the increased use of designated doctor examinations to resolve disputes.

Separately, the 2001 legislature advanced the TWCC Sunset review date from Sept. 1, 2007 to

Sept. 1, 2005.

2004

2004 was a year where we saw country singer Tim McGraw make his major motion picture

debut in "Friday Night Lights," while wife and fellow country superstar Faith Hill made her

movie debut in the remake of "The Stepford Wives." Reba McEntire continued to be a major

force on TV with her hit sitcom, Reba. On the touring front, Kenny Chesney and Shania Twain

were at the top of the sales charts for all genres of music.

Also that year, the legislature drafted two interim study reports recommending the insertion of

independent medical expertise into an evaluation of frequently disputed issues such as the extent

of an employee‘s injury and the employee‘s ability to work through a review by a TWCC

Designated Doctor.

The courts became more active in addressing benefit dispute issues in the Texas system. In 2004

a Houston Court of Appeals held that even when the agency‘s Appeals Panel does not address

the merits of a party‘s appeal, no mechanism in the Texas Workers‘ Compensation Act allows

trial court to remand back to the Appeals Panel. Tex. Workers’ Comp. Comm’n. v. Harris

County, 132 S.W.3d 139 (Tex. App. – Houston 2004, no pet.). In addition, in Krueger v.

Atascosa County, 155 S.W.3d 614 (Tex. App. – San Antonio 2004, no pet.) the Court found that

a party seeking judicial review of an adverse administrative dispute decision on a particular issue

must first appeal that adverse ruling to the agency‘s Appeals Panel.


143

2005

In 2005, Former State Sen. Barack Obama took

office as the Junior Senator from Illinois. Also

that year Singer Carrier Underwood won the

American Idol competition, while Bo Brice

was runner up in the popular TV series.

As the result of a review by the Texas Sunset

Advisory Commission, in 2005 the 79th Texas

Legislature abolished the TWCC and created

the Division of Workers‘ Compensation within

the Texas Department of Insurance with a

Commissioner of Workers‘ Compensation

appointed by the Governor to serve as

Executive Authority for the Division.

This legislation streamlined the process for

determination of compensable injury and the

process for insurance carriers to either accept

or dispute the findings of the treating doctor regarding the scope of the compensable injury.

At the same time, the Texas Legislature established the Office of Injured Employee Counsel

(OIEC) to be administered by a Public Counsel appointed by the Governor.

2007

2007 was a year for Kings and Queens at the Academy Awards. Producer Graham King‘s The

Departed walked away with Best Picture award from the Academy in 2007. Forest Whitaker

took the best actor award for The Last King of Scotland, while Helen Mirren won best actress for

The Queen.

Also that year, during the 80th Legislative Session legislators passed thirteen workers‘

compensation bills, some of which reinstated the authority of the benefit review officer who

presides over a Benefit Review Conference to consider a request for interlocutory order for the

payment or suspension of benefits, allowed the opposing party the opportunity to respond before

issuance of an interlocutory order, and allowed the benefit review officer to issue an interlocu-

tory order if determined to be appropriate. Another bill authorized an OIEC ombudsman to

request and receive from a health care provider at no cost the medical records of an injured

employee.

2008

In 2008 Congress approved the production and marketing of foods derived from cloned animals.

Fidel Castro stepped down as president of Cuba after almost 50 years in power and computer

manufacturer Apple released its new ultra-thin MacBook Air notebook. The laptop, less than an

inch thick turned on the moment it was opened.


144

In Texas comp, in 2008 the Dallas court of appeals ruled that a party must timely appeal an

agency‘s hearing officer‘s adverse decision to the agency‘s Appeals Panel and an appeal notice is

timely if mailed within the 15-day period after receipt of the hearing officer‘s decision and the

faxed copy is received within the20-day period after receipt of the decision. Combined Specialty

Insur. Co. v. Deese, 266 S.W.3d 653 (Tex. App. – Dallas 2008, no pet.).

2009

The death of the King of Pop, Michael Jackson, in the spring of 2009 brought worldwide

outpourings of grief. Jackson was the most successful entertainer of all time. His career began in

1964 as the lead singer and youngest member of The Jackson 5. His 1982 album Thriller remains

the best-selling album of all time.

Only a handful of workers‘ compensation bills passed the legislature in 2009. One bill affected

dispute resolution by extending the deadline for filing suit for judicial review following a

Division decision.

2011

As 2011 winds to a close, and the

Texas workers‘ compensation system

closes its 99th

year of existence, it is

hard to say what will be the most

memorable events. Will it be in

politics, the arts, social commentary,

or some other area?

At any rate, there has been more than

enough happening in the Texas

workers‘ compensation dispute

resolution process this year. The 82nd

Texas Legislature amended the

provisions regarding benefit review

conference preparedness and requests

to reschedule. Failure to appear at a

BRC may result in forfeiture of right

to attend a BRC. DWC has to adopt

rules. In addition, the Appeals Panel

can now affirm a decision of a hearings officer in certain instances-case of first impression,

involving a recent change in law, incorrect conclusions of law, among others.

The Legislature also amended the Labor Code to provide for dispute resolution of an

overpayment or underpayment of income benefits payments and to establish procedures to

require an overpayment of income benefits to be recouped from future income benefit payments

and underpayments to be paid in a future income benefit payment. The legislation requires the

procedure to include a process for notification to the injured employee of the underpayments and

overpayments and a methodology for payment and recoupment by the insurance carrier.


145

Finally, Legislature amended the Labor Code to require a party that has exhausted its adminis-

trative remedies under the act and is seeking judicial review of a hearing officer's final decision

in a contested case hearing regarding certain medical disputes to file suit not later than the 45th

day after the date on which the Division of Workers' Compensation mailed the party the hearing

officer's decision. The legislation specifies that, for purposes of this requirement, the mailing

date is considered to be the fifth day after the date the decision was issued by the State Office of

Administrative Hearings.

Summary

After nearly a century of development, the present workers‘ compensation dispute resolution

system provides expedient dispute resolution. It also provides a number of mechanisms to force

insurance carriers to pay benefits pending final resolution of claims.

Editor’s Note: The author of the article, Robert D. Stokes, is a Partner and attorney with the law

firm of Flahive, Ogden & Latson. Stokes received his Bachelors degree from Abilene Christian

University in 1979 and his law degree from Baylor University in 1982. He has served as the Editor

of The Ohio Workers' Compensation Deskbook, Managing Editor of the Baylor Law Review in

1982, and as a briefing attorney for the Honorable Justice Earl W. Smith of the Third Court of

Appeals from 1982 to1983. Stokes is a member of the Travis County Bar Association and State

Bar of Texas. He is a Board Member of the Texas Board of Legal Specialization; Board of

Certified Personal Injury Trial Law and Civil Appellate Law, Texas Board of Legal

Specialization; Life Fellow, Texas Bar Foundation; and the Ohio State Bar Association. Stokes

is Board Certified in Personal Injury Trial Law and Civil Appellate Law and is certified by the

Texas Board of Legal Specialization.

For the last sixty years, Flahive, Ogden & Latson, P.C. (FOL) has defended workers' compen-

sation claims before three state agencies and state courts at every level. FOL’s practice is

limited to workers' compensation defense throughout the State of Texas. Nineteen lawyers in the

firm have been designated as board certified specialists in workers' compensation law by the

Texas Board of Legal Specialization.

FOL’s insurance carrier clients include six of the largest workers’ compensation insurance

groups in Texas: The American International Group, The Hartford Insurance Companies, The

Liberty Mutual Insurance Companies, The Travelers Insurance Companies, Texas Mutual

Insurance Company and The Zurich Insurance Companies. FOL also represents a large number

of mid-size as well as small carriers, many third party administrators, three self-insured groups,

thirty-four certified self insurers, and approximately 2,500 cities, school districts, and other

governmental self-insureds.

Four of the firm's lawyers were honors graduates, three were editors of their respective law

school Law Reviews, three were selected by the Texas Court of Appeals to prestigious judicial

clerkships, and one served as a clerk to a Justice on the Texas Supreme Court. Two of the firm's

attorneys were members of their respective law school national competition teams (mock trial,

moot court, or negotiation), and five are certified specialists in fields other than workers’

compensation (personal injury law, appellate law, and administrative law).

http://fol.com/Default.asp


146

Evolution of the Benefit Review Conference in Texas

By: Brandi M. Prejean, Associate

Thornton, Biechlin, Segrato, Reynolds & Guerra, L.C.

Since 1991, the Texas workers‘ compensation system

has used a three-level administrative review process

designed to reduce litigation and settle disputes among

the system participants as early as possible in the

dispute resolution process. The Benefit Review

Conference (BRC) is the first of the three

administrative processes, followed by a Contested Case

Hearing and a review by the Appeals Panel, if

necessary. A party aggrieved by the final decision of

the Appeals Panel may seek judicial review.

The Benefit Review Conference resembles the Pre-

Hearing Conference (PHC) that was conducted by the

Industrial Accident Board (IAB) under the original

Texas Workers‘ Compensation Act established in 1913

and supplemented by a Texas Workmen‘s Law passed in 1917. A PHC was presided over by a

Pre-Hearing Officer and was an informal meeting of the parties. Witnesses were not sworn nor

were any records maintained. If a disputed issue was resolved, the parties could enter into a

binding settlement.

By the 1980s, many employees, employers and insurance carriers believed that the Texas

workers‘ compensation system had become too expensive for employers and paid inadequate

benefits to injured employees. In 1987, the Legislature created the Joint Select Committee on

Workers‘ Compensation Insurance to study the system and propose changes. The Committee

confirmed that the cost of workers‘ compensation insurance in Texas was among the highest in

the nation. Businesses began to move out of Texas to avoid the state‘s workers‘ compensation

system.

In an effort to overhaul the system, the Texas Legislature passed a new Texas Workers‘

Compensation Act that was signed on December 13, 1989. The Industrial Accident Board was

discontinued on April 1, 1990, and a newly established Texas Workers‘ Compensation

Commission (TWCC) was authorized to assume the duties of the Board and enforce the new law

which took effective January 1, 1991.

Among the provisions of the 1991 Act was a three step administrative process that sought to

replace the high level of litigation with an administrative process. That process begins with the

Benefit Review Conference (BRC). The BRC was designed to be a nonadversarial, informal

dispute resolution proceeding to explain the rights of the respective parties, discuss the facts of

the claim and mediate and resolve disputed issues by agreement of the parties.

A Benefit Review Officer (BRO) presides over the hearing and may direct questions to the

parties but does not take testimony or make a formal record. The BRO prepares a written report


147

of issues not resolved at the BRC, notes the position of each party and the Benefit Review

Officer‘s recommendation for resolving each issue. The parties may then proceed to the second

administrative level, the Contested Case Hearing.

Under the 1991 Act, the medical costs in the Texas system continued to increase and became

among the highest in the nation. Additionally, the return to work results were among the worst

of all the states. In 2004, two interim committees of the Texas Legislature, the Senate Select

Interim Committee on Workers‘ Compensation and a committee named by the House Business

and Industry Committee, were formed to study the Texas system.

In addition to the Legislative interim studies, the Texas Workers‘ Compensation Commission

underwent review by the Texas Sunset Advisory Commission (SAC) in 2004. The SAC review

is a process to determine if a state agency should be continued and, if so, make recommendations

for the operation of the agency. The Sunset Advisory Commission found ten issues with the

workers‘ compensation system requiring attention. Issue four was: TWCC’s Process for

Resolving Workers’ Compensation Benefit Disputes is Cumbersome and Discourages Early

Resolution.

The SAC found that the TWCC attempts to resolve income benefit disputes through several

informal and formal steps. The evaluation of the income dispute resolution process found that the

TWCC did not encourage efficient, appropriate or timely resolutions. Specifically, the TWCC

did not ensure that participants had tried to resolve disputes themselves and allows for several

informal conferences (BRCs) to be conducted by the staff without the standard mediation

training needed for appropriate and timely resolution of disputes.

The key findings of the Commission related to income dispute resolution were:

The TWCC allows system participants to file disputes without first trying to resolve the

dispute themselves. This unnecessarily increases the number of disputes in the process,

The TWCC‘s informal Benefit Review Conference does not offer true mediation of

disputes, and

The TWCC had not established incentives and requirements to encourage more timely,

appropriate and efficient resolution.

Although the form to request a BRC requires the parties to ―certify‖ that a good faith effort had

been made to resolve the issues in dispute, the TWCC did not provide any guidance or definition

as to what constitutes a good faith effort. There was no effort by the TWCC to determine if any

effort was made. Other than this pro forma certification, the parties are not required to resolve

the dispute between themselves.

The Sunset Advisory Commission found that although the Benefit Review Officers act as

mediators in the conference, they were not adequately trained and did not meet state mediation

standards. According to the State Office of Administrative Hearings (SOAH), state employees

administering mediation processes should complete basic training standards that include a


148

minimum of 40 classroom hours of training in dispute resolution techniques22

. The Commission

found that the Benefit Review Officers did not operate in accordance with the Texas Alternative

Resolution Act or SOAH guidelines.

Additionally, the TWCC did not limit the number of BRCs conducted to resolve disputes. While

the total number of disputes was decreasing, the number of BRCs with multiple settings had

steadily increased since fiscal year 1998. In fiscal year 2003, 68 percent of concluded BRCs had

more than one Benefit Review Conference set, and 30 percent had more than one conference

actually held. For each BRC concluded, the TWCC conducted 1.41 sessions. Of those with more

than one BRC, 42 percent proceeded to a Contested Case Hearing (CCH)23

. The SAC determined

that the general practice was to allow three BRCs prior to scheduling a CCH, but there was no

such provision in the law or rules.

The TWCC regularly rescheduled BRCs when participants, primarily the injured employee, did

not have the information necessary to resolve the disputes at the conference. However, the

TWCC did not provide participants with a list of basic information needed to resolve the dispute

at the BRC. Rescheduling of BRCs limited the TWCC‘s ability to timely schedule and hold

BRCs and CCHs within the required timeframe. In fiscal year 2003, the TWCC scheduled about

8 percent of the BRCs and 25 percent of the CCHs outside the required timeframe.

The Sunset Advisory Commission recommended four changes to the workers‘ compensation

statute:

Require the parties involved in an income benefit dispute to attempt to resolve the dispute

themselves before filing for a dispute at the TWCC,

Require all Benefit Review Officers to meet SOAH‘s basic training requirements for state

employees administering mediation processes,

Prohibit the TWCC from holding more than two BRCs for each dispute before

proceeding to a Contested Case Hearing, and

Require the TWCC to provide participants with a list of information that participants may

need at a BRC and CCH.

In 2005, the 79th

Regular Legislative Session enacted House Bill 7 (HB 7), the Sunset Advisory

Commission bill, to reform the administration of the workers‘ compensation system and

implement major changes to the delivery of benefits to injured employees. HB 7 was effective

September 1, 2005. It abolished the TWCC and created the Division of Workers‘ Compensation

(Division) as a division within the Texas Department of Insurance to administer and operate the

workers‘ compensation system of Texas. The Division would be overseen by a full-time

Commissioner of Workers‘ Compensation appointed by the Governor. This was the first time

that the head of the agency responsible for the operation of the workers‘ compensation system in

Texas was a full-time professional.

22

The Legislature encourages all state agencies to use alternative dispute resolution (ADR) procedures and has

given SOAH broad authority to issue model guidelines for the use of ADR. 23

A Benefit Contested Case Hearing is the administrative level immediately after a BRC.


149

The bill implemented many of the SAC‘s recommendations. HB 7 required the Division to

determine the type of information that was most useful to parties at a BRC to help resolve

disputes regarding income benefits. The list was published in the appropriate media, including

the Division‘s website. The list was also to be sent to each party to a BRC at the time the

conference was scheduled.

HB 7 established requirements for Benefit Review Officers and required that they be trained in

the principles and procedures of dispute mediation. They were required to provide

documentation that evidenced the completion of at least 40 classroom hours of training in dispute

resolution techniques from an alternative dispute resolution organization recognized by the

Commissioner.

In another addition to the statute, HB 7 provided that the Division must require the party

requesting the BRC to provide documentation of efforts made to resolve the disputed issues

before the request was submitted. The Commissioner was required to adopt guidelines regarding

the type of information necessary to satisfy this requirement.

HB 7 also added a provision providing that a Benefit Review Officer may schedule an additional

Benefit Review Conference if (1) the Benefit Review Officer determines that any information

pertinent to the resolution of the disputes issues was not produced at the initial BRC and (2) a

second BRC had not already been conducted.

Even though the changes made to the Benefit Review Conference process by HB 7 were

effective September 1, 2005, the rules to implement the changes were not adopted until October

10, 2010. These were 28 Texas Administrative Code (TAC) §141.1, §141.2, §141.4 and §141.7.

Rule 141.1 required that prior to requesting a Benefit Review Conference, the disputing party

must have notified the other party or parties of the nature of the dispute and attempt to resolve

the dispute. A request for a BRC must include the details and supporting documentation of

efforts made to resolve the issue. This rule provided that an incomplete request for a BRC would

be denied.

Under Rule 141.2, a request to cancel or reschedule a Benefit Review Conference must be made

by notifying the Division within 10 days of the date the notice of the setting was received. A

request outside of this 10 day period required a showing of good cause.

Pertinent information as defined in Rule 141.4 was required to be exchanged. Generally, this

included reports regarding the compensable injury, the injured employee‘s wage records and

medical records.

If all issues were resolved at a Benefit Review Conference, the agreement was reduced to writing

and signed by each party and the Benefit Review Officer under the provisions of Rule 141.7. If

all issues were not resolved at the first BRC, the Benefit Review Officer could set a second BRC

or send the case to a Contested Case Hearing.


150

Starting in 2006, the total number of claims filed in Texas steadily declined as have the number

and percent of claims with a hearing proceeding24

:

Injury Year Total Claims Number w. Proceeding Percent w. Proceeding

2006 116,785 7955 7%

2007 112,044 7709 7%

2008 107,634 7191 7%

2009 96,724 5601 6%

2010 97,075 3850 4%

However, even with the HB 7 changes to the statute plus a steady decline in the total number of

claims with a dispute proceeding, the percent of claims requiring multiple Benefit Review

Conferences increased from 2006 to 2010:

Concluded BRCs 2006 2007 2008 2009 2010

Concluded w one BRC25

42% 39% 40% 41% 39%

Concluded w > 1 BRC 57% 60% 59% 58% 60%

The Division‘s System Data Report further reveals a decline in percent of the total Benefit

Review Conferences concluded by calendar year. The percent of total claims not resolved at a

BRC increased from 38% in 2006 to 44% in 2010:

Year 2006 2007 2008 2009 2010

Resolved 45% 46% 45% 43% 44%

Not Resolved 38% 36% 39% 42% 44%

Mixed 16% 16% 15% 13% 11%

The measures taken in 2005 by HB 7 did not result in an increase in claims being concluded with

only one or more than one Benefit Review Conference. In fact, the percent of claims concluded

with one BRC declined from 42% in 2006 to 39% in 2010, and the percent of claims requiring

more than one conference increased.

The Sunset Advisory Committee again reviewed the Division of Workers‘ Compensation in

2011. This was the first SAC review since the 2005 reforms in House Bill 7. Issue one was: The

Division’s Complicated Dispute Resolution Process Often Fails to Provide a Quicker, More

Accessible Alternative to the Courts.

The Sunset Advisory Commission found that changes were needed to the dispute resolution

process to make it less formal, less confusing and less costly. Such changes would be consistent

with the design and purpose of having an administrative process at the Division. It also found

24

Source: Texas Department of Insurance, Division of Workers‘ Compensation System Data Report 25

Rounding resulted in the percents not totaling 100%.


151

that such changes would make it more likely that system participants would have their disputes

resolved promptly, fairly and with more consistent decisions.

The Key Finding related to the income dispute resolution process was: Unprepared Parties to a

Mediation Waste Valuable Time and Staff Resources and Hamper the Opportunities for an Early

Dispute Resolution.

The Recommendation was a change in the statute to require parties to a dispute to prove

preparedness as a prerequisite to a Benefit Review Conference. It included a provision that

parties to a dispute would be required to provide notice to the Division before rescheduling a

Benefit Review Conference. The Division would be required to develop circumstances in which

rescheduling a BRC would be authorized for good cause as well as specific timeframes by which

a request to reschedule must occur. Failure to abide by the Division approved system for

rescheduling would result in forfeiture of the opportunity to attend a Benefit Review Conference

on the issue in dispute. Parties who reach the statutory two BRC limit could resolve their dispute

themselves or proceed to a formal Contested Case Hearing.

During the 82nd

Regular Legislative Session that began on January 11, 2011, and adjourned on

May 30, 2011, House Bill 2605, the Sunset Advisory Commission workers‘ compensation bill,

extended the existence of the Division of Workers‘ Compensation for six years or until

September 1, 2017. It also made changes to the Benefit Review Conference process, though

substantially fewer changes than House Bill 7 enacted six years earlier.

HB 2605 requires the Commissioner of Workers‘ Compensation to adopt a rule that would

establish a process through which the Division evaluates the sufficiency of the documentation

provided to establish an attempt to settle the dispute prior to requesting a BRC. It also gives the

Division the authority to deny a BRC if the party requesting the hearing does not provide the

documentation required. The bill also requires that a request to reschedule a BRC be submitted to

and evaluated by the Division in the same manner as an initial request.

HB 2605 also requires the Commissioner to define by rule what constitutes ―good cause‖ for

cancelling or rescheduling a Benefit Review Conference. It also requires the Commissioner to

define the term ―good cause‖ as it applies to failure to attend a scheduled BRC. The bill provides

that a party who fails to request that a Benefit Review Conference be rescheduled in the time

required by rule or fails to attend a BRC without ―good cause‖ as defined by the Commissioner‘s

rule, forfeits the entitlement to attend a BRC on the issue in dispute. However, the party remains

eligible to attend a scheduled Contested Case Hearing on the issue. The Commissioner is

required to adopt rules necessary to implement and enforce all of the new rules.

The Division has proposed 28 TAC §141.2 and §141.3 to comply with the statutory amendments

to Section 410.028, Texas Labor Code, in HB 2605 requiring the Commissioner to adopt certain

rules. These amendments are contained in Section 15 of the bill.

Rule 141.2 deals with cancelling or rescheduling a BRC, and Rule 141.3 addresses the failure of

a party to attend a BRC. Both rules contain a provision continuing the current rule for hearings


152

requested before December 1, 2011, and new rules for hearings requested on or after December

1, 2011. The following addresses both rules for requests made on or after December 1st. Rule

142.2 provides that ―good cause" for cancelling or rescheduling a BRC will be determined at the

discretion of the Benefit Review Officer on a case-by-case basis, including consideration of

prejudice to parties, and means objective facts beyond the control of a party, which reasonably:

Prevent a party from attending the Benefit Review Conference; or

Would prevent the Benefit Review Conference from accomplishing its purpose; or

Objective facts which make the Benefit Review Conference unnecessary.

Similarly, Rule 141.3 provides that ―good cause‖ for failure to attend a Benefit Review

Conference will be determined at the discretion of the Benefit Review Officer on a case-by-case

basis, and means objective facts beyond the control of a party, which reasonably:

Prevented the party from attending the Benefit Review Conference;

Prevented the party from requesting the division to cancel or reschedule in advance of the

Benefit Review Conference; and

If applicable, prevented the party from filing a request to reschedule within the third

business day after failing to attend the scheduled Benefit Review Conference and justifies

the subsequent delay in filing the request to reschedule.

It appears likely that the Benefit Review Conference will be addressed in the next legislative

session beginning in January of 2013. Representative Joe Deshotel, Chair of the House

Committee on Business and Industry, has filed a request with the Speaker of the House to

conduct an interim study of the dispute resolution process in the Texas Workers‘ Compensation

System. The evolution of the Benefit Review Conference in Texas will apparently continue.

Editor’s Note: The author of this article, Brandi Prejean, is an Associate with the Austin office of

Thornton, Biechlin, Segrato, Reynolds & Guerra, L.C. Prejean, who was admitted to the Texas

Bar in 2002, earned a Bachelor of Arts Degree from Louisiana State University in1998 and

completed her legal education at the Louisiana State University's Paul Hebert School of Law

with a Doctorate of Jurisprudence and Bachelor of Civil law in 2002.

She is a member of the American Bar Association; Travis County Bar Association; Austin Young

Lawyers Association; Travis County Women Lawyers’ Association and a faculty member of the

National Alliance for Insurance Education and Research.

Prejean practices law in the field of insurance defense, with a primary focus on workers'

compensation and employer's liability. She is a frequent speaker at educational seminars

regarding workers' compensation and legislative changes. Thornton, Biechlin, Segrato, Reynolds

& Guerra, L.C. is a full service litigation firm. Their clients range from individuals and

entrepreneurial companies to Fortune 500 corporations.

http://www.thorntonfirm.com/attorneys/austin/associates/brandi-prejean.html

http://www.thorntonfirm.com/index.html

http://www.thorntonfirm.com/practice-areas/workers-compensation.html

http://www.thorntonfirm.com/practice-areas/workers-compensation.html


153

Number of Benefit Review Conferences Concluded by Number of Sessions and Calendar Year

Concluded

Benefit

Review

Conferences

2006

2007

2008

2009

2010

Concluded

with One

Session

5,697 42% 4,469 39% 3,975 40% 3,749 41% 3,133 39%

Concluded

with Multiple

Sessions

7,665 57% 6,817 60% 5,755 59% 5,333 58% 4,797 60%

Total 13,362 100% 11,286 100% 9,730 100% 9,082 100% 7,930 100%


Notes: Workers' Compensation claim data updated through June 2011. Concluded means that all issues were either

resolved at the BRC or forwarded to the next level of resolution.

Number of Benefit Review Conferences Concluded by Resolution and Calendar Year

Resolution

2006

2007

2008

2009

2010

Resolved 6,017 45% 5,288 46% 4,381 45% 3,979 43% 3,504 44%

Not Resolved 5,142 38% 4,165 36% 3,858 39% 3,876 42% 3,549 44%

Mixed 2,203 16% 1,833 16% 1,491 15% 1,227 13% 877 11%

Total 13,362 100% 11,286 100% 9,730 100% 9,082 100% 7,930 100%



resolved at the BRC or forwarded to the next level of resolution. Resolved includes BRCs in which all issues were

agreed on by the parties. Not resolved includes BRCs in which all issues were forwarded to a CCH. Mixed includes

BRCs in which some issues were agreed on by the parties and some issues were forwarded to CCH.

The Contested Case Hearing in the Texas Workers’ Compensation System

By Joe R. Anderson, Senior Partner, Burns Anderson Jury & Brenner, L.L.P.

The Contested Case Hearing (CCH) process exists in the Texas workers‘ compensation system

to provide for an administrative hearing process for disputed issues not resolved during the

course of a Benefit Review Conference (BRC). After a BRC, the parties may elect by agreement


154

to engage in arbitration for all issues that remain unresolved. This procedure is used only to

resolve disputed benefit issues and is an alternative to a CCH. This process is rarely invoked.

If the parties fail to elect arbitration after a BRC in which not all disputed issues are resolved, a

party is eligible to proceed directly to a CCH. Issues that were not raised at a BRC or resolved

at a BRC may not be considered unless (1) the parties consent; or (2) if the issue is not raised the

Division of Workers‘ Compensation (DWC) determines good cause exists for not raising the

issue at the BRC. This is the process commonly utilized by parties in the system.

The Role of the CCH Hearing Officer

The CCH Hearing Officer presides over contested case hearings and is the sole decision maker

on contested issues. The Hearing Officer is authorized to: (1) issue subpoenas; (2) rule on a

request; (3) issue orders; (4) use summary procedures as provided by Rule 142.8; (5) direct

parties to appear at prehearings to resolve evidentiary/procedural issues; (6) establish time limits

for conducting a hearing; (7) administer oaths; (8) rule on admissibility of evidence; (9) deter-

mine relevancy, materiality, weight and credibility of evidence; (10) request additional evidence;

(11) take official notice of the law of Texas and jurisdiction, as well as facts within the DWC‘s

specialized knowledge; (12) examine parties‗ witnesses permitting examination and cross-

examination of parties and witnesses; (13) recess, postpone or dismiss a hearing; and (14) take

any other action as authorized by law that may facilitate the orderly conduct and disposition of a

hearing.

Ex parte contact with the hearing officer by a party is strictly prohibited. As described in section

410.167 of the Texas Labor Code, ex parte communications are prohibited unless all parties to

the hearing are present, and a separate communication is written and delivered to all parties as

provided by Rule 142.4 (regarding delivery of copies to all parties). A hearing officer, however,

may communicate ex parte with any other Division employee for the purpose of utilizing special

skills or knowledge in evaluating the evidence.

Contested Case Hearings

It is important to note that the DWC schedules a CCH in accordance with the Texas Labor Code

and will only grant a continuance if the DWC determines upon written request by a party there is

good cause.

In certain situations, the parties may proceed directly to a CCH without attending a BRC if the

DWC determines that (1) mediation would not prove effective to resolve the dispute; (2)

necessary evidence cannot be obtained without subpoena; or (3) the situation of the parties or the

nature of the facts or law is such that the overall policy of the Act would be advanced by

proceeding directly to a CCH. For a represented party, such a request shall be made in writing

and signed by the requestor, describe the disputed issues, set the reason for requesting a hearing,

presented to the DWC and copies delivered to all parties. For an unrepresented claimant, a

request for a hearing shall be made by contacting the DWC in any manner. The DWC will

notify the parties regarding its decision whether it will grant the request for notice of hearing. A

ruling denying the request may include a Notice of Benefit Review Conference. Any response to

a request for hearing shall be submitted in the same manner as a request for a hearing is to the

DWC.


155

The DWC is required to set a CCH to be held (1) not later than sixty days from the date of the

BRC, or (2) if the DWC determines an expedited setting is appropriate not later than thirty days

from the date of the BRC. For settings prior to a BRC, the DWC may set the CCH on its

own motion at the request of a party not later than sixty days from the receipt of a request or if

the DWC determines an expedited setting is appropriate, not later than thirty days from the

DWC‘s receipt of the request. After a hearing is set, the DWC furnishes to the parties by first

class mail or personal delivery written notice of the hearing. A notice will be furnished

at the same time the notice for the BRC is given not later than 45 days before the CCH is

scheduled or, if the CCH is to be heard on an expedited basis, not later than ten days before

such hearing date.

Discovery in a CCH is limited to (1) deposition upon written questions to a healthcare provider;

(2) depositions of witnesses permitted by the hearing officer for good cause; and (3) interroga-

tories as prescribed by the DWC. The DWC, by and through its adopted rules, prescribes the

standard form sets of interrogatories for use by injured workers‘ and insurance carriers. Upon

good cause, a party may obtain permission from the Hearing Officer to conduct additional

discovery if necessary.

The parties to a CCH are required by rule to exchange the following information: (1) all

medical reports or reports of expert witnesses called to testify at the hearing; (2) medical records;

(3) witness statements; (4) identity and location of witnesses known to the parties to have

knowledge of relevant facts; and (5) photographs or other documents that a party intends to offer

into evidence at the hearing. If a party fails to disclose information pursuant to the rules, it may

not introduce the evidence at any subsequent proceeding before the DWC or court on a claim

unless good cause is shown for not having disclosed the information earlier.

Rule 142.13(c) requires the exchange of information to be no later than 15 days after the BRC.

Thereafter, parties shall exchange additional documentary evidence as it becomes available.

Additionally, a hearing officer may grant a party permission to conduct discovery beyond

discovery described in the rules upon a showing of good cause at a hearing held fully for this

purpose.

In addition to the discovery described and permitted in Sections 410.158 and 410.160 of the

Texas Labor Code, parties are able to obtain evidence relating to the disputed issues from other

parties and witnesses. If the evidence is not produced voluntarily, the party may request a

subpoena.

Providing copies to all parties must be accomplished by presenting in person, mailing by first

class mail, or transmitting by fax machine the information being provided.

In order to expedite the presentation of a case, a hearing officer may allow the following

summary procedures: (1) sworn witness statements; (2) summaries of evidence; (3) medical

reports; (4) agreements; and (5) stipulations. The hearing officer may allow the use of such

summary procedures based upon its own motion or the request of a party. In addition, at any time

before or during a hearing, the parties may enter into stipulations, resolve one or more benefit

disputes by agreement, or resolve all benefit disputes by settlement.


156

CCH Decision and Appeals of CCH Decisions

Upon concluding a CCH, the Hearing Officer will issue a written decision that includes (1)

finding of fact and conclusions of law; (2) determination of whether benefits are due; and (3) an

award of benefits, if appropriate. The hearing officer may enter an interlocutory order for the

payment of all or part of medical benefits or income benefits. The order may address accrued

benefits, future benefits, or both accrued benefits and future benefits. This order is binding

during the pendency of an appeal to the Appeals Panel.

A decision by a hearing officer regarding benefits is final in the absence of a timely-filed appeal

by a party and is binding during the pendency of an appeal to the Appeals Panel. The following

article, authored by Stuart Colburn of Downs Stanford, provides an overview of the role of the

Appeals Panel in the Texas workers‘ compensation system‘s dispute resolution system.

In order to appeal the decision of a hearing officer, a party must file a written request for appeal

with the Appeals Panel not later than the fifteenth day after the date in which the decision of the

hearing officer is received and shall on the same date serve a copy of the request for appeal on

the other party. A respondent shall file a written response with the Appeals Panel, not later than

the fifteenth day after the date on which the copy of the request for appeal is served and shall on

the same date serve a copy of the response on the appellant. A request for appeal or response

must clearly and concisely rebut or support the decision of the hearing officer on each issue on

which review is sought.

Editor’s Note:

The author of this article, Joe R Anderson, is a partner with the Austin law firm of Burns

Anderson Jury & Brenner, LLP. His primary focus is on issues relating to workers’ compen-

sation. Since the "old law" days of the workers' compensation system, Joe has used his sharp wit

and attention to detail to win cases, often salvaging unpromising situations for his insured

clients. Since the inception of "new law" in 1991, Joe has been expanding the scope of his

expertise to include representing insurance carriers before the Texas Department of Insurance

Division of Workers' Compensation (DWC), and providing training to adjusters, employers and

DWC ombudsmen across Texas.

Joe has also proposed and drafted legislation for his clients. Anderson is a frequent lecturer and

author on workers’ compensation for insurers, employers and various trade associations. He

received his Doctor of Jurisprudence from Baylor University and his Bachelor of Arts Degree in

History, with Honors, from Texas Tech University.

http://www.bajb.com/attorneys/joe-r-anderson

http://www.bajb.com/

http://www.bajb.com/


157

Number of Contested Case Hearings Concluded by Number of Sessions and Calendar Year

Concluded

Contested Case

Hearings

2006

2007

2008

2009

2010

Concluded with

One Session

4,613 74% 3,697 68% 2,998 66% 2,988 65% 2,771 67%

Concluded with

Multiple Sessions

1,575 25% 1,675 31% 1,529 33% 1,594 34% 1,309 32%

Total 6,188 100% 5,372 100% 4,527 100% 4,582 100% 4,080 100%


Notes: Workers' Compensation claim data updated through June 2011. Concluded means that the TDI-DWC

Hearing Officer rendered a decision.

Number of Benefit Review Conferences Concluded by Resolution and Calendar Year

Resolution

2006

2007

2008

2009

2010

Resolved 6,017 45% 5,288 46% 4,381 45% 3,979 43% 3,504 44%

Not Resolved 5,142 38% 4,165 36% 3,858 39% 3,876 42% 3,549 44%

Mixed 2,203 16% 1,833 16% 1,491 15% 1,227 13% 877 11%

Total 13,362 100% 11,286 100% 9,730 100% 9,082 100% 7,930 100%



resolved at the BRC or forwarded to the next level of resolution.

Resolved includes BRCs in which all issues were agreed on by the parties.

Not resolved includes BRCs in which all issues were forwarded to a CCH.

Mixed includes BRCs in which some issues were agreed on by the parties and some issues were forwarded to CCH.


158

Top 10 Issues for Contested Case Hearings Concluded in Calendar Year 2010


Top 10 Issues for Contested Case Hearings Concluded in Calendar Year 2010

Concluded Issue Number of Issues Percent of

Issues

I03 - Disability/Existence/Duration of Disability 1,632 21%

C07 - Extent of Injury 1,579 20%

C06 - Existence of Compensable Injury 969 12%

I11 - Designated Doctor Impairment Rating 558 7%

I10 - Designated Doctor Maximum Medical Improvement Date 415 5%

C17 - Timely Reporting to Employer 322 4%

C14 - Compensability of an Occupational Disease 173 2%

C05 - Date of Injury 169 2%

I12 - Impairment Rating Finality-90 Day Disputes 110 1%

I39 - SIBS-9th & Subsequent Quarters 104 1%

Z01 - All Other Issues 1,711 22%

Total 7,742 100%



159

Editor’s Note: Additional dispute resolution data is available on the Division of Workers’

Compensation website. The information found on the DWC website about dispute resolution

proceedings is based on the outcome of the dispute at each level of the dispute resolution

process. Proceedings shown are those involving questions on issues such as compensability/

extent of injury, maximum medical improvement, impairment rating, etc.

HB 2605 Statutory Changes to the Medical Dispute Resolution CCH Process

Appeals from IRO Medical Necessity

decisions are to be heard by Division of

Workers‘ Compensation (DWC)

contested case hearings (CCHs) and will

then be subject to judicial review.

Currently IRO decision appeals go

directly to district court.

Medical Fee Disputes are heard by State

Office of Administrative Hearings

(SOAH).

DWC has published informal draft rules that amend the agency‘s medical dispute resolution

rules – specifically 28 Texas Administrative Code (TAC) §133.307, §133.308, §§144.1–144.7,

and §§144.9–144.16. The informal working draft rules implement the portions of House Bill

(HB) 2605, enacted by the 82nd Texas Legislature during its regular session, that relate to

appeals in medical fee and medical necessity dispute cases. Specifically, HB 2605 amended the

appellate process parties must follow when appealing medical fee dispute cases adjudicated by

the DWC and medical necessity decisions issued by independent review organizations (IROs).

The informal working draft rules incorporate the new appellate processes enacted by HB 2605

into existing DWC rules governing medical dispute resolution and arbitration. The informal

draft rules include provisions providing for accelerated review of medical disputes for first

responders.

The informal working draft makes other amendments to the DWC‘s rules governing medical

dispute resolution that are intended to provide clarity in medical dispute resolution processes.

This includes clarifying who may be a requestor in a medical fee dispute resolution case, what

information must be included in a request for and the response to medical fee dispute

resolution, and when the TDI-DWC may dismiss a medical fee dispute resolution case.

https://wwwapps.tdi.state.tx.us/inter/perlroot/wc/systemreports/hdr_toc.html#links


160

The Role of the Appeals Panel in the Texas Workers’ Compensation Dispute Resolution

System: A Survey of the History of and Evolution of the Appeals Process

By Stuart Colburn, Downs Stanford, P.C.

It is difficult to overstate the role of the Appeals

Panel in the Texas Workers‘ Compensation dispute

system. At the individual case level, the Appeals

Panel considers a party‘s appeal of a hearing

officer‘s decision and order. But at a macro level,

the Appeals Panel can and actually does create law.

The Texas Legislature purposely modeled the

Appeals Panel on an appellate court reviewing a

lower court‘s ruling. A three judge panel considers

the record and the written submissions (akin to a

brief). The panel can affirm, reverse and render, or

reverse and remand the decision (but may not

remand more than once). This article briefly covers

the history of the Appeals Panel history and the

current role of the important appeals tribunal in the

Texas workers‘ compensation system.

Structure of the Appeals Panel and Decisions from 1991 through 2005

The Appeals Panel enforced their authority from the beginning. Originally, nine Appeals Panel

judges served on panels consisting of three judges. In discharging its duty, the Appeals Panel

wrote a detailed decision including a review of the facts and the law. The Appeals Panel

approach was a robust review, sometimes critical of the Texas Workers‘ Compensation

Commission‘s (TWCC) Hearing Officers. Each panel was independent. A more ―conservative‖

panel would reach a different conclusion than a ―liberal panel.‖ Some decisions were

inconsistent with other decisions. At times, the Appeals Panel judges disagreed with each other

and issued dissenting opinions. The result of the decision could often be predicted based on

which panel of judges authored the decision. Some system stakeholders criticized the Appeals

Panel as an activist tribunal that substituted their decision for that of the fact finder.

In truth, the statute as it existed during this time period did not fully explain the duties of the

Appeals Panel. The statute provided that the Appeals Panel ―shall review each request and issue

a written decision.‖ The statute was silent as to whether the Appeals Panel may simply act as an

appellate body or something else. The only apparent limitation is found in Tex Labor Code §

410.165 which holds the ―hearing officer is the sole judge of the relevance and materiality of the

evidence offered and of the weight and credibility to be given to the evidence.‖

The job of the Appeals Panel was not as glamorous as one would expect. Contested Case

Hearings (CCH) was re-coded on cassette tape. Appeals Panel judges struggled listening to poor

quality tapes as they reviewed the numerous appeals they received from disputing parties.


161

In discharging its statutory duties, the Appeals Panel developed a body of case law. With that

being the case, Appeals Panel judges cited previous Appeals Panel decisions as precedent

supporting the decision under review. An Appeals Panel ―common law‖ developed that was

equally as important as the statute or rules. Eventually, the Appeals Panel created new law not

found in the statute or rules. District and appellate courts also cited AP decisions when setting

forth their decisions.

Parties in a dispute resolution system prefer an appellate procedure to ensure the decision-maker

is fair and the decision follows the law. The Appeals Panel fulfilled this function. But, the

Appeals Panel came under scrutiny for their inconsistent decisions. Hearing Officers often

complained the Appeals Panel was likely to step into their role as the sole judge of the weight

and credibility to be given to the evidence. Attorneys for injured employees and insurers both

constantly complained there were Appeals Panel decisions on both sides of an issue depending

upon which panel heard the case.

The criticism reached a new height when the Appeals Panel-creation of ―law‖ was challenged in

the courts. The Texas Supreme Court in Rodriguez v. Service Lloyds Ins. Co., 997 S.W. 2d 248

(Tex 1999) believed the Appeals Panel improperly created exceptions to the 90-day rule. The

Court in the Southwestern Bell Tel. Co. LP v Mitchell, 276 S.W. 3d 433 (Tex 2008) thought the

Appeals Panel created waivers where the statute was silent. Most recently, the Texas Supreme

Court in SORM v. Lawton, 295 S.W. 2d 646 (Tex. 2009) felt the Appeals Panel created waiver

for extent of the injury when the statute did not so provide. Thus, the courts might cite AP

decisions, but they also consistently struck down Appeal Panel efforts to create their own law.

2005 to the Present

In 2004, the Sunset Commission recommended numerous changes. TWCC adopted many of the

Sunset changes before the 2005 Sunset legislation – House Bill (HB) 7 was even drafted. For

example, the number of Appeals Panel judges was reduced and other structural changes were

made. Currently, three judges serve on the Appeals Panel and draft the majority of decisions

(although at least 6 judges have signed decisions in the last 12 months).

The Division of Workers‘ Compensation (DWC) – the TWCC‘s successor – focused their efforts

on providing consistent Appeals Panel decisions. More consistent decisions were the result of

the change in structure discussed above. Now, instead of multiple, independent panels, one

regulator, reporting to the commissioner, manage a limited number of Appeals Panel judges (and

reviewers) that answer to the manager. The result is fewer decisions. The Texas Legislature also

required the DWC to create an Appeals Panel Precedent Manual which was then largely a

production of the then-Director of Hearings.

The DWC also instituted several policy changes allowing hearing officers to send their proposed

decisions at their discretion for potential review before they were published to the parties. It is

unclear how often this internal procedure was used. Some parties cried fowl believing the

independence of the Hearing Officer was threatened by this practice. This practice was soon

disbanded.


162

Some of the original draft versions of HB 7 proposed eliminating the Appeals Panel. Many of

the criticisms leveled by the parties over the previous 14 years were reflected in the Sunset

Commission report and most notably in the initial drafts of legislation. HB7 limited decisions to

reversals – no decisions affirming the Hearing Officer‘s decision. In 2011, the Texas

Legislature reversed course and allowed the Appeals Panel to write a decision even if the

Appeals Panel affirmed a decision in limited instances.

Many critics of the Appeals Panel accuse the appeals tribunal of dodging or refusing to address

what they feel are clear errors made by Hearing Officers. Obviously, any party who loses at a

CCH becomes a potential critic of the Appeals Panel for not reviewing the decision. Many

parties feel the need to have a ―day in court‖ which generally includes an effective appellate

procedure. Whether justified or not, parties feel their issues were not being addressed. Statistics

show the Appeals Panel reverses less (about half) than they did the previous decade. Since 2005,

the reversal rate has remained consistent (around 4-5%) from year to year. The number of

stakeholder criticisms for inconsistent decisions declined. Following the 2005 and 2011

statutory changes, many hearing officers reported that they felt they had more latitude to draft

decisions without interference from the Appeals Panel.

Some system stakeholders feel the Appeals Panel has morphed from an independent judicial

body (as it was intended and implemented in1991) to a more policy driven regulator. That is, the

current Appeals Panel is carrying out the DWC policy instead of acting as an independent and

separate from the regulator. The Appeals Panel certainly speaks now with one voice. Some

recent trends have emerged.

Current Trends in Appeals Panel Decisions

Maximum Medical Improve

The Appeals Panel has drafted significant decisions changing the understanding of the

maximum medical improvement (MMI) provisions of the Texas Labor Code. In Appeals Panel

Decision (APD) 101567, the Appeals Panel felt it was immaterial that ―the claimant actually

recovered or improved during the period at issue, but whether, based on reasonable medical

probability, material recovery, or lasting improvement could reasonably be anticipated.‖

In this case, two designated doctors and one treating doctor certified maximum medical

improvement in 2008 but did not consider certain conditions waived (based upon the Appeals

Panel-created doctrine on waiver of extent of injury before Lawton.) The Appeals Panel went on

to state, ―It is of no moment that the treatment did not ultimately prove successful in providing

material recovery or lasting improvement in the Claimant‘s condition, whereas here, the recovery

and improvement could reasonably be anticipated according to the designated doctor.‖ The

Hearing Officer erred in the case because the Appeals Panel felt the ―Hearing Officer did not

consider potential further recovery and improvement with additional treatment which might

reasonably be anticipated.‖ Claimant attorneys rejoiced believing the AP quite properly

interpreted the statute. Carriers complained one needed a crystal ball to certify MMI. But the

focus is what treatment could have produced lasting improvement or material recovery – not if

the claimant actually experienced such recovery or improvement.

http://www.tdi.texas.gov/appeals/2010cases/101567r.pdf

http://www.lexisnexis.com/community/workerscompensationlaw/blogs/workerscompensationlawblog/archive/2010/02/17/texas-supreme-court-in-sorm-v.-lawton-decides-the-60_2d00_day-waiver-period-for-extent-of-injury-disputes-does-not-apply.aspx


163

Causation

The Appeals Panel is slowly adopting the Texas courts understanding of causation. In Crump,

the Texas Supreme Court defined producing cause as a ―substantial factor bringing about an

injury or death, and without which the injury or death would not have occurred.‖ Crump also

required expert medical evidence to establish causation. The Appeals Panel did issue several

decisions reversing hearing officer‘s findings of causation without an expert medical report. In

APD decision 101945, the Appeals Panel stated a treating doctor is not automatically qualified as

an expert on every medical question just because he has a medical degree. The Appeals Panel

further stated that ―bare, baseless opinions would not support a judgment even if there is no

objection to their admission in evidence.‖ The Appeals Panel has held mere recitation in a

report, especially if it‘s in the history section of the report, is insufficient evidence of causation.

(APD 110054, 110701, 110387, 110481, 110404, 110719).

The Appeals Panel also reversed a line of cases and now states that a diagnosis found on an MRI,

without an explanation of how the condition may be related, does not establish compensability.

APD 101323-S. The Appeals Panel is requiring a more detailed explanation of causation in

more difficult cases. (APD 101178 required an expert to discuss the gap of ten years in

treatment; APD 101604 required the designated doctor to explain how the injury aggravated a

pre-existing bipolar condition; APD 101811 required expert evidence documenting that claimant

sustained an infection requiring a repeat surgery). Finally, the Appeals Panel in APD 110464

stated a popping in the knee alone is ―not sufficient evidence explaining how the compensable

injury or treatment for the compensable injury resulted in an injury to the right knee consisting of

osteoarthritis of the patella or an aggravator of the clients pre-existing osteoarthritis of the

patella.‖ Claimant attorneys feel these decisions make it difficult if not impossible to meet their

burden of proof. Employer and carrier attorneys feel the Appeals Panel is finally requiring at

least minimal evidence of causation required by the Texas Supreme Court and enjoyed by non-

subscribers.

Appeals Panel Created Waiver

The Appeals Panel has again chosen to create waiver not found in the statute or rules. Many feel

this latest effort to create waiver will ultimately lead to the same result – the rejection of this

practice by Texas courts. The courts have rejected the three previous attempts by the Appeals

Panel to ―write‖ waiver into the statute through its decisions.

In APD 111006-S, an insurance carrier filed a DWC – 45 to dispute the impairment rating.

Pursuant to accepted practice at that time, the carrier stated on the DWC – 45 it did not want the

Benefit Review Conference scheduled. Pursuant to the then accepted practice and procedure,

parties (mostly injured workers) would file the DWC – 45 to ―make its request‖ to dispute the

impairment rating but did not want to proceed to the CCH at that time. The DWC issued a CS –

80 informing the carrier the impairment rating was already disputed. To ensure compliance, the

carrier contacted the DWC and was told to file a new, more detailed DWC – 45. The carrier

complied but the DWC denied the second request for failure to document efforts to resolve the

case with the injured worker. The Appeals Panel held, ―In this case, the carrier failed to establish

a dispute of the first valid certification of MMI/IR because it‘s DWC – 45 specifically requested

that the Division not set a BRC. Such a request fails to establish a dispute under Rule 141.1, and

http://www.supreme.courts.state.tx.us/historical/2010/aug/090005.htm








http://www.tdi.texas.gov/appeals/2010cases/101323sr.pdf







164

therefore, does not comply with Rule 130.12.‖ Neither rule states a party waives its right to

dispute the first certification of MMI/IR because DWC denied the request for the BRC. The

Appeals Panel cited the preamble to the rule; specifically, they quote DWC‘s rejection of a

commentator‘s suggesting that merely filing an incomplete request for BRC is sufficient. Thus,

the DWC did not give any advance notice to the parties that the procedure it had accepted for the

previous six years would no longer be valid (unless one accepts that a one paragraph response to

a comment in a proposed rule would be sufficient guidance to all parties).

Texas Labor Code Section 408.125 makes final a MMI/IR certification if it is ―not disputed‖

timely. Rule 130.12 requires a dispute by requesting a DD or under Rule 141.1. Again, neither

statute nor rule punishes a party if a DWC employee decides to deny that party‘s request for a

BRC. Public policy considerations certainly favor the correct MMI/IR being adopted; not

creating a bureaucratic gotcha for stakeholders.

In APD 111189-S, a DWC – 45 was denied because the carrier allegedly failed to sufficiently

describe the disputed issue. The Appeals Panel cites Rule 141.1 and it‘s previously issued APD

111006-S (and the aforementioned preamble). The Appeals Panel holds a denied DWC – 45

means the carrier waived its right to dispute Supplemental Income Benefits (SIBS). Again,

nothing in the statute or rule provides the punitive measure of waiver when the DWC rejects the

parties request for a BRC.

In APD 111238, the insurance carrier timely filed a DWC – 45 and PLN-11 disputing SIBS.

DWC denied the BRC for failure to specify the efforts to resolve the SIBS dispute (as if the

claimant who just filed his SIBS application suddenly agrees to non-entitlement.) The Hearing

Officer wrote the ―prescribing penalty for filing an incomplete DWC – 45‘s to deny a BRC, not

carrier waiver of the right to dispute.‖ The Appeals Panel disagreed stating ―the penalty is to not

only deny the request for a BRC but a denied request does not constitute a dispute proceeding.‖

The Appeals Panel reasons that without ―dispute proceeding‖, the carrier waives its right to

dispute SIBS without further explanation.

The new Appeals Panel-created waiver will undoubtedly be challenged, perhaps by both

employer/carriers and claimants. If the Appeals Panel‘s previous attempts to create waiver are

any indication, the courts will strike down efforts to create waiver by Appeals Panel decision

when neither the statute nor rule authorize such a penalty.

Conclusion

The Appeals Panel provides several important functions. First, it provides a check and balance

to hearing officers. Second, consistent decisions create a precedent allowing the parties to

understand the DWC‘s interpretation of the law and its rules. Third, injured workers and

subscribing employers receive the intended benefits of the workers‘ compensation system.

Fourth, the appeals process gives the participants a due process vehicle delivering the experience

of having your day in court.

Editor’s Note: Stuart D. Colburn, an Attorney and Shareholder with Downs Stanford, P.C., is the

author of the article. Mr. Colburn manages the Austin, Texas office of Downs Stanford, P.C.,

where the firm maintains a Texas Workers' Compensation Commission Austin Board Service. He





http://www.downsstanford.com/sdcolburn.html

http://www.downsstanford.com/index.html


165

is board certified in Workers' Compensation Law by the Texas Board of Legal Specialization.

Mr. Colburn is the firm's representative at Workers' Compensation Commission meetings and

for any legislative endeavors. Specializing in Workers' Compensation, Mr. Colburn has extensive

experience in all phases of dispute resolution before the Texas Workers' Compensation

Commission and in district courts across the state. He is extremely active in the education of

both adjusters and employers, and is certified by the Texas Department of Insurance as a

continuing education provider. A sought-after speaker, Mr. Colburn has delivered more than a

hundred speeches regarding Workers' Compensation and related issues. He is also a member of

the Texas Association of Business’ Coalition for the Responsible Prescribing and Use of

Prescription Drugs in Workers’ Compensation.

2011 Appeals Panel Update; ―I Hear The Train A Comin‖ 26

By Robert R. (Bob) Graves, Mark Sickles and Anna Ansari 27

The Texas Department of Insurance‘s Division of

Workers‘ Compensation‘s Appeals Panel is a

creation of the Texas Labor Code and is governed by

Labor Code sections 410.201 to 410.204. Appeals

judges are organized in three-member panels and

conduct administrative reviews of hearing officer‘s

decisions. The appeals judge must be licensed to

practice law in Texas, and must not have conducted

the benefit review conference or contested case

hearing in the underlying case.

To appeal the decision of a hearing officer, a party

must file a written request for appeal with the

Appeals Panel not later than the 15th day28

after the

date on which the hearing officer‘s decision is

received from the Division. Similarly, the

respondent must file a written response with the

Appeals Panel not later than the 15th day after the date on which the appeal is received. A

request for appeal, or a response, must clearly and concisely rebut or support the decision of the

hearing officer on each issue on which review is sought.

The Appeals Panel considers the record developed at the contested case hearing and the request

for appeal and response. Following the review, within 45 days after the date the response was

filed, the Appeals Panel may issue a decision that: (1) reverses the decision of the hearing officer

26

―I hear the train a comin'‖ is the opening line for Johny Cash‘s "Folsom Prison Blues." Mr. Cash was inspired to

write this song after seeing the movie Inside the Walls of Folsom Prison (1951) while serving in West Germany in

the United States Air Force. 27

Bob Graves is a partner with the Austin law firm, Burns Anderson Jury and Brenner, L.L.P. Mark Sickles and

Anna Ansari are also attorneys with Burns Anderson Jury and Brenner, L.L.P. 28

Saturdays and Sundays and holidays listed in Section 662.003, Government Code, and are not included in the

computation of the time in which a request for an appeal.


166

and renders a new decision; or (2) reverses the decision of the hearing officer and remands the

case to the hearing officer for further consideration and development of evidence.29

As a result

of recent legislation, the Appeals Panel may also issue a decision when it agrees with the hearing

officer‘s decision. This can be done if the case: (1) is a case of first impression, (2) involves a

recent change in law, or (3) involves errors at the contested case hearing that require correction

but do not affect the outcome of the hearing, including findings of fact for which insufficient

evidence exists, incorrect conclusions of law, findings of fact or conclusions of law regarding

matters that were not properly before the hearing officer, and legal errors not otherwise described

by this subdivision. If the Appeals Panel does not issue a decision within 45 days of receipt of

the response, the decision of the hearing officer becomes final and is adopted as the final

decision of the Appeals Panel.

The Appeals Panel has issued 102 to 114 decisions in the past three years. This article attempts

highlight some of the more important decisions issued by the Appeals Panel in 2011.

Compensability

In Appeal No. 110404 – filed May 31, 2011, the claimant was working inside a dump truck in

the employer‘s garage. Space heaters were filled with kerosene, and while working on a truck,

the claimant stated that he became dizzy and had difficulty standing up. The claimant went

outside for air and got sick. The Employer‘s First Report of Injury or Illness (DWC-1) listed the

nature of the injury as carbon monoxide poisoning. The claimant‘s doctors noted various

assessments: acute carbon monoxide poisoning, accidental poisoning by other specified gases

and vapors, and exposure to noxious fumes. The claimant also provided medical records from his

doctors indicating the following: ―In my professional opinion, with a reasonable degree of

medical probability, the aforementioned diagnoses are causally and proximately related to a

work-related injury. The mechanism of injury and a description of the incident are consistent. It

is more likely than not that the diagnoses are a result of the work-related injury.‖ The hearing

officer concluded that the claim was compensable.

On appeal, the Appeals Panel reversed and rendered, noting that exposure to toxic chemicals

through inhalation and the results and effects on the body are matters beyond common

experience and medical evidence should be submitted which establishes a connection, as a matter

of reasonable medical probability, as opposed to possibility, speculation, or guess. The Appeals

Panel indicated that there were no medical records explaining how fumes may have caused the

claimant‘s complaints. Although there were medical records that gave a history of the claimant‘s

exposure to carbon monoxide and other gases and vapors, the claimant‘s blood test taken on the

date of the incident revealed no abnormal levels of carbon monoxide. In addition, the employer‘s

senior risk and safety specialist testified that the garage in which the claimant worked had carbon

monoxide detectors set far below the level at which fumes would affect an individual, that the

garage doors had carbon monoxide sensors that automatically opened the doors if fumes are

detected, and that an investigation revealed the sensors were working properly on the date of the

claimant‘s incident.

29

The Appeals Panel may not remand a case more than once.


167

Extent of Injury

Appeal No. 101945 – filed February 22, 2011, examined whether expert medical evidenced was

required to address whether a compensable injury extended to include a cervical herniated disc.

The Appeals Panel reversed a hearing officer‘s decision indicating that a compensable injury

included such a condition. While medical records reflected a diagnosis of a C5-6 disc herniation,

the claimant‘s doctor never provided any expert evidence explaining how the claimant‘s fall at

work caused or aggravated a C5-6 disc herniation, which after the date of injury was actually

reduced in size. This case noted there is an attenuation factor in that there were no documented

neck complaints immediately after the work accident. The Appeals Panel concluded that under

the facts of this case, whether the fall and striking of the head would cause or aggravate a C5-6

disc herniation was a matter beyond common knowledge or experience and required expert

medical evidence to establish a causal correlation. As no such evidence was offered, the Appeals

Panel reversed the hearing officer‘s decision and rendered a decision that the compensable injury

would not include the herniation.

Appeal No. 110054 – filed March 21, 2011, addressed a hearing officer‘s determination that the

compensable injury extended to include: right shoulder partial thickness rotator cuff tear with

post-traumatic degenerative arthritis of the glenohumeral joint, articular surface particular

thickness tears involving the supraspinatus and infraspinatus tendons, tendinosis of the

subscapularis tendon, joint effusion, and acute exacerbation of degenerative changes. The

Appeals Panel held that the hearing officer‘s determination as to extent was so against the great

weight and preponderance of the evidence as to be clearly wrong and manifestly unjust. The

Appeals Panel commented that although the claimed conditions were listed in the records, there

was no explanation of causation for the claimed conditions. The Appeals Panel held that the

mere recitation of the claimed conditions in medical records, without explanation how those

conditions may be related to the compensable injury, does not establish that those conditions are

related to the compensable injury within a reasonable degree of medical probability.

Appeal No. 110108 – filed March 31, 2011, also addressed the necessity of expert medical

evidence. In this case, the claimant was performing normal duties as clerk in the justice of the

peace court when she began having left leg pain. The pain intensified and later that afternoon she

felt a ―pop‖ in her left leg. Her left leg gave out and she fell to the floor. She was diagnosed with

a pathologic fracture of the left mid distal femur with trauma. A medical history indicated the

claimant described a ―lymphoma with some tumor involved in the left lower thigh or leg that

responded to radiation‖ some years before. The claimant proceeded on the theory that walking at

work was a producing cause of the fractured femur. The hearing officer determined that ―the

claimant‘s walking put weight and stress on her left leg and was a significant producing cause of

the femur fracture, without which the femur fracture would not have occurred.‖ In overturning

the hearing officer‘s decision, the Appeals Panel noted that no doctor‘s report expressed that

opinion. Additionally, the Appeals Panel held that ―none of the medical evidence constituted

expert medical evidence within a reasonable degree of medical probability sufficient to establish

that walking can produce stress on a radiation-devitalized bone to cause a femur fracture and

non-union of the fracture.‖ Therefore, the Appeals Panel reversed the hearing officer‘s decision.

Similarly, in Appeal No. 110215 – filed April 7, 2011, the Appeals Panel reviewed a hearing

officer‘s decision that the employee‘s compensable injury extended to tendinopathy, partial tears

of the subscapularis tendons, and a ―SLAP type II lesion‖ of the right shoulder. Carrier appealed


168

the extent of injury determination, claiming that there was insufficient medical evidence

establishing a causal connection between the work injury and the claimed EOI conditions. The

Appeals Panel noted that although right shoulder tendinopathy and partial tears of the

subscapularis tendons are listed as impressions in the right shoulder MRI, and in a letter written

by the treating doctor, there is no explanation of causation for these two claimed conditions in

the record. The designated doctor appointed on extent of injury did not believe that the

compensable injury included right shoulder tendinopathy and partial tears of the subscapularis

tendons. The Appeals Panel held that under the facts of this case, the mere recitation of the

claimed conditions in the treating doctor‘s medical records, without explanation how those two

conditions, right shoulder tendinopathy and partial tears of the subscapularis tendons, may be

related to the compensable injury, is not preponderance of the evidence contrary to the

designated doctor‘s opinion regarding the extent of the compensable injury. Accordingly, the

Appeals Panel reversed the hearing officer‘s decision and, based on the designated doctor‘s

opinion, rendered a decision that the compensable injury did not include the conditions.

In Appeal No. 110209 – filed April 18, 2011, the Appeals Panel addressed the necessity of

expert evidence in a traumatic carpal tunnel syndrome (CTS) case. The claimant contended that

she slipped and fell at work, hurting her left foot, left hand, and left shoulder. The hearing officer

determined that the compensable injury extended to include left CTS. Citing Guevara v.

Ferrer,30

the Appeals Panel found that the conclusion that a slip and fall injury would cause CTS

is a matter beyond common knowledge or experience and in this specific unusual situation would

require expert medical evidence. As no such evidence existed, the Appeals Panel reversed the

hearing officer‘s decision.

In Appeal No. 110701 – filed July 18, 2011, the Appeals Panel addressed a case where a

claimant contended that his work injury extended to include a torn right bicep. However, initially

following the injury there were no documented right biceps muscle complaints. The Appeals

Panel held that lay testimony was insufficient to establish causal correlation and expert medical

evidence was required to establish a causal connection between the compensable injury and the

torn bicep. As there was no such evidence, the Appeals Panel reversed the hearing officer‘s

decision to the contrary and rendered a decision that the compensable injury did not extend to

include the diagnosis of torn right biceps muscle.

Waiver and Extent of Injury

In Appeal No. 101676-s – filed January 14, 2011, a claimant contended that the carrier waived

its right to dispute the claimed conditions on the basis that the carrier did not dispute the

conditions within 45 days of receiving the medical bill in accordance with Rule 124.3(e). The

Appeals Panel indicated that even if the claimant were to establish that the carrier failed to file a

notice of dispute of extent of injury no later than the earlier of the date the carrier denied the

medical bill, or the due date for the carrier to pay or deny the bill as provided in Chapter 133, as

is required in Rule 124.3(e), such failure by the carrier would not result in the carrier‘s waiver of

the ability to dispute the underlying conditions that were treated in an extent of injury dispute.

The Appeals Panel reiterated that Labor Code section 409.021 and Rule 124.3(a) do not apply to

30

247 S.W.3d 662 (Tex. 2007).


169

disputes of extent of injury and that the carrier may have waived its ability to dispute the

particular medical bill, but it did not waive its right to dispute the conditions as an extent of

injury dispute.

Maximum Medical Improvement

In Appeal No. 101902 – filed February 14, 2011, the Appeals Panel addressed a case where the

DD gave an amended opinion regarding MMI and IR without examining the claimant. The

hearing officer afforded presumptive weight to and adopted the designated doctor‘s amended

opinion. The Appeals Panel reversed the hearing officer‘s decision, reiterating past decisions

holding that an amended certification of MMI without a medical examination violates Rule

130.1(b)(4)(B), which requires a certifying doctor to perform a complete medical examination of

the injured employee for the explicit purposes of determining MMI.

In Appeal No. 110267 – filed April 19, 2011, the Appeals Panel reviewed a case where the DD

failed to rate the entire compensable injury because he did not address the claimant‘s thumb

injury, even though there may be no impairment related to the thumb injury. The Appeals Panel

reversed the hearing officer‘s decision that adopted the opinion of the designated doctor. In his

opinion, the designated doctor listed only the right shoulder rotator cuff tear as a ratable

diagnosis and did not give a range of motion measurement for the right thumb. The other doctor

involved in this case, Dr. E, assigned an 11 percent IR based on loss of range of motion of the

shoulder and a 4 percent upper extremity loss of range of motion for the right thumb. The

Appeals Panel reversed and rendered a decision that that the claimant‘s IR is 11 percent as

assigned by Dr. E because the DD did not rate the entire compensable injury. The Appeals Panel

noted that in assessing an IR, the designated doctor was still required to rate the right thumb,

even though there may be no permanent IR. Dr. E‘s 11 percent IR was adopted pursuant to Texas

Labor Code 408.125(c), which states if the preponderance of the medical evidence contradicts

the DD‘s IR, the Division shall adopt the IR of one of the other doctors.

In Appeal No. 110614 – filed July 6, 2011, the Appeals Panel addressed the calculation of

impairment associated with causalgia and reflex sympathetic dystrophy (RSD). The Appeals

Panel explained that impairment secondary to causalgia and RSD is derived under the AMA

Guides as follows: (1) rate the upper extremity impairment due to the loss of motion of each

joint involved; (2) rate the sensory deficit or pain impairment; (3) rate the motor deficit

impairment of the injured peripheral nerve (if applicable); (4) the appropriate impairment percent

for loss of motion, pain sensory deficits, and motor deficits are combined using the combined

values chart. As none of the doctors fully complied with this methodology, the Appeals Panel

remanded the case so clarification could be obtained from the designated doctor.

In Appeal No. 110670 – filed July 8, 2011, the Appeals Panel addressed a designated doctor‘s

certification of MMI. The Appeals Panel reversed the hearing officer‘s decision adopting a

designated doctor‘s certification of MMI. Additionally, the Appeals Panel found that physical

therapy and chronic pain management, performed after the date the designated doctor certified

MMI, resulted in further material recovery from or lasting improvement to the compensable

injury. Accordingly, the Appeals Panel found that the claimant reached MMI on a later date.

The Appeals Panel had similar findings in Appeal No. 110896 – filed August 18, 2011, where a

surgery resulted in improvement of the claimant‘s condition.


170

90-Day Rule

In Appeal No. 110527 – filed June 3, 2011, the Appeals Panel addressed the improper or

inadequate treatment exception to the 90-day rule. Claimant contended that the fact the June 29,

2010 certification of MMI and IR was issued prior to his return to work in August 2010, was

compelling medical evidence that he had inadequate and improper treatment for the compensable

injury prior to the June 29, 2010 certification, because it was unknown whether he would be able

to return to work. The Appeals Panel reversed the hearing officer‘s decision that the 90-day

deadline to dispute the first certification of MMI and IR did not apply because there had been

improper or inadequate treatment. The Appeals Panel explained that in order to apply the

exception to finality under section 408.123(f)(1)(C), there must be compelling medical evidence

of improper or inadequate treatment before the date of certification or assignment. In this case,

no doctor opined that the claimant received improper or inadequate treatment for his injury.

Additionally, there was no compelling medical evidence that the claimant received improper or

inadequate treatment for his injury before the initial certification of MMI and assigned IR.

In Appeal No. 110670 – filed July 8, 2011, the Appeals Panel reviewed a designated doctor‘s

certification of MMI. The Appeals Panel reversed the hearing officer‘s decision adopting the

designated doctor‘s certification of MMI. The Appeals Panel found that physical therapy and

chronic pain management, performed after the date the designated doctor certified MMI, resulted

in further material recovery from or lasting improvement to the compensable injury.

Accordingly, the Appeals Panel found that the claimant reached MMI on a later date.

In Appeals Panel No. 111006-s – decided September 15, 2011, the Appeals Panel addressed

whether the carrier‘s actions were sufficient to constitute a dispute of a certification of MMI and

impairment within the 90 day deadline. A designated doctor determined that the claimant was

not at MMI. Following the designated doctor‘s exam, the treating doctor placed the claimant at

MMI and assigned an IR. The carrier filed two Requests for Benefit Review Conferences (DWC-

45s) within the 90 days, but on both requests the carrier noted that it did not want a BRC to be

scheduled. The hearing officer's decision that the carrier timely disputed the first certification of

MMI and impairment was reversed and the Appeals Panel cited the preamble to the Rule as

justification. The Appeals Panel wrote that the ―Division‘s preamble to Rule 141.1 states that

only after a complete request is submitted, approved, and a BRC scheduled has a party

established a dispute of the first valid certification of MMI and/or IR, effective the date the party

filed the request, in accordance with Section 408.123(e)."

Designated Doctor

Appeal No. 101676-s – filed January 14, 2011, addressed a case where there were multiple

designated doctors on overlapping issues. Two DDs, Dr. D and Dr. M, were appointed, and the

Division approved both examinations. The Appeals Panel stated that both Dr. D. and Dr. M. at

the time of their respective examinations were properly appointed as a DD to resolve the issues

asked of them. The Appeals Panel held that there can only be one DD that is given presumptive

weight for each issue in dispute and the last properly appointed DD on any given issue shall be

given presumptive weight on that specific issue. The Appeals Panel further explained that the

first DD‘s opinions on the overlapping issues are still valid and should be considered, but such

opinions would not be entitled to presumptive weight. For an issue that is not overlapping, the

DD appointed for that specific issue would have presumptive weight.


171

Appeal No. 101803-s – filed March 31, 2011, addressed the appointment of DD‘s in a lifetime

income benefits (LIBs) case. The main dispute on appeal concerned a report from a DD who, in

an amended report, addressed whether the claimant sustained the loss of use of both feet at or

above the ankle. The DD responded that the claimant had loss of the left foot at or above the

ankle (below the knee amputation) but the claimant had not sustained loss of the right foot at or

above the ankle (due to non-union fractures which were due to Charcot arthropathy). There was a

concern that the appointment of a DD in this case was inappropriate as the issue addressed by the

DD was not specifically listed under Labor Code section 408.0041. The Appeals Panel held that,

while the recited list under section 408.0041 for DDs does not specifically provide for

appointment of a DD to resolve the question of loss of use of both feet at or above the ankle, this

section which provides for appointment of a DD for ―issues similar to those described by

subsections (1)-(5)‖31

can include a question to determine loss of use of both feet at or above the

ankle.

In Appeal No. 110687 – filed July 18, 2011, the Appeals Panel addressed a designated doctor‘s

disqualifying association. The Appeals Panel found that where the claimant was required to seek

treatment with a provider that had contracted with a self-insured, and the designated doctor also

performed work for the provider, this association could reasonably be perceived as having the

potential to influence the conduct or decision of the designated doctor. Accordingly, the Appeals

Panel found that the designated doctor had a disqualifying association under Division Rule

180.21.

In Appeal No. 110741 – filed July 25, 2011, the Appeals Panel addressed a case where the

hearing officer used the AMA Guides Casebook to determine that the designated doctor‘s

opinion was not entitled to presumptive weight. The Appeals Panel found that this was improper

and reversed the hearing officer‘s decision.

Supplement Income Benefits (SIBs)

In Appeal No. 101913 – filed February 18, 2011, the Appeals Panel addressed the claimant‘s

participation with DARS during the qualifying period. The claimant‘s theory of entitlement for

the sixth quarter was active participation in a vocational rehabilitation program through DARS.

The qualifying period began on May 28, 2010 and ended on August 26, 2010. The claimant

completed 12 credit hours in the spring school semester, which began on January 11, 2010 and

ended on May 12, 2010; and on July 21, 2010, the claimant registered online for twelve credit

hours in the 2010 fall semester, which began on August 23, 2010 and ended December 15, 2010.

Claimant‘s IPE indicated she was actively participating with DARS from May 28 through

August 27, 2010 and that DARS did not require its consumers to attend summer school.

Correspondence from a DARS representative noted that an IPE was developed for the claimant

and that DARS does not require its consumers to attend summer school or to seek employment

during the summer when she is not in school. It further stated that the claimant reported to her

counselor that she spent her summer sharpening her math skills in preparation for the fall school

31

TEX. LAB. CODE § 408.0041(a) provides that ―at the request of an insurance carrier or an employee, or on the

commissioner's own order, the commissioner may order a medical examination to resolve any question about: (1)

the impairment caused by the compensable injury; (2) the attainment of maximum medical improvement; (3) the

extent of the employee's compensable injury; (4) whether the injured employee's disability is a direct result of the

work-related injury; (5) the ability of the employee to return to work; or (6) issues similar to those described by

Subdivisions (1)-(5).‖


172

semester. The claimant also testified she did not look for work or attend summer school during

the qualifying period because her DARS counselor did not require it. The Appeals Panel

determined, contrary to the hearing officer, that the Claimant was not entitled to SIBs. The

Appeals Panel noted that the claimant‘s IPE covered the entire qualifying period and that the

only activity the claimant performed each week of the qualifying period was self-study of a math

workbook which was not part of her IPE. However, the Appeals Panel could not agree that

because DARS did not require the claimant to attend summer school or look for employment

during the summer that the claimant had reasonable grounds for failing to meet the work search

requirements of Rule 130.102. Accordingly, the Appeals Panel found that the claimant was not

entitled to SIBs.

In Appeal No. 110547 – filed June 15, 2011, the Appeals Panel addressed a total inability to

work case. Claimant contended he was entitled to SIBs because he had a total inability to work.

The hearing officer found that the claimant was unable to perform any type of work in any

capacity, and noted in the background information section of the decision that the claimant‘s

inability to work is reflected in the medical records of Dr. H., Dr. P., and the testimony from a

doctor. The Appeals Panel disagreed with the hearing officer and found that the Claimant was

not entitled to SIBs. The Appeals Panel noted that two records from the claimant‘s doctors noted

that the claimant continues to have worsening cognitive function, has difficulty retaining

information, has balance and vestibular problems, that they were waiting for approval for

neuropsychological testing, and that the claimant is not able to return to competitive employment

now or in the future. However, the Appeals Panel held that these letters failed to specifically

explain how the compensable injury caused a total inability to work. Accordingly, neither letter

was sufficient to constitute a narrative report explaining how the claimant had a total inability to

work, as required by Rule 130.102(d) (4). Therefore, the claimant was not entitled to SIBs.

Lifetime Income Benefits (LIBs)

In Appeal No. 101803-s – filed March 31, 2011, the issue was whether the claimant was entitled

to LIBs based on a loss of use of both feet at or above the ankle as of April 22, 2010. The

decision noted that ―total loss of use‖ of a member of the body means that such member no

longer possesses any substantial utility as a member of the body, or the condition of the injured

worker is such that the injured worker cannot get and keep employment requiring the use of such

member. This is often called the Seabolt test, based on Travelers Ins. Co. vs. Seabolt, 361

S.W.2d 204 (Tex. 1962) and also APD 1100384. The Appeals Panel has held that the Seabolt test

is disjunctive, and that a claimant need only satisfy one prong of the test to establish entitlement

to LIBs. In this case, it was undisputed that the prior below-the-knee left lower extremity

amputation constituted a loss of one foot at or above the ankle. The main dispute was a report

from a DD who was initially requested to address MMI, IR, and RTW. In the DD‘s amended

report, he was asked to determine if the claimant sustained the loss of use of both feet at or above

the ankle. The DD responded that the claimant had loss of the left foot at or above the ankle

below the knee amputation but the claimant had not sustained loss of the right foot at or above

the ankle due to non-union fractures which were due to Charcot arthropathy. The Appeals Panel

held that, while the recited list under subsection 408.0041 for DDs does not specifically provide

for appointment of a DD to resolve the question of loss of use of both feet at or above the ankle,


173

this section which provides for appointment of a DD for ―issues similar to those described by

subsections (1)-(5)‖ can include a question to determine loss of use of both feet at or above the

ankle.

Death Benefits

Appeal No. 110391 -- filed June 2, 2011, addressed a carrier‘s waiver of the right to dispute the

compensability of an employee‘s death, where the claimant suffered a compensable injury and

died sometime later. The claimant sustained a compensable injury to his head and neck. He later

died, and his wife argued the cause of death was due to the seizures the deceased experienced

after the compensable injury. The hearing officer determined that the compensable injury did not

result in the Claimant‘s death, but determined that the carrier waived its right to deny liability

for death benefits because it did not timely file notice denying the death claim pursuant to Rule

132.17(a) and (b). The carrier appealed and asserted that the Act does not provide for a ―death

penalty‖ waiver when a carrier does not dispute a death which allegedly resulted two years after

the compensable injury and was not associated with the compensable injury.

The Appeals Panel noted that under Rule 132.17(a), upon being notified of a death resulting

from an injury, the carrier must investigate the compensability of the death, and its liability for

the death. Under Rule 132.17(b), if the carrier believes it is not liable for the death, or that the

death was not compensable, the carrier must file a notice of denial in the form and manner

required by Rule 124.2 within 60 days. The Appeals Panel noted that while the evidence

supports the factual determination that the deceased‘s death was not the result of the

compensable injury, the carrier‘s failure to timely file a notice of denial of the claim prevents the

carrier from disputing an issue of compensability or liability for the death. Accordingly, the

Appeals Panel rendered a decision that the compensable injury included the death of the

deceased by virtue of carrier waiver.

So far, in 2011 the Appeals Panel has issued a number of interesting decision clarifying the

application the Texas Workers‘ Compensation Act and Division‘s rules. It will be interesting to

see how these cases are interpreted and applied in the future.

Editor’s Note: The article was written by Robert R. (Bob) Graves, Mark Sickles and Anna Ansari

of Burns Anderson Jury & Brenner, L.L.P. (BAJB). Bob Graves is a partner at BAJB and Mark

Sickles and Anna Ansari are associates with the firm. They are members of the firm’s workers’

compensation practice.

Burns Anderson Jury & Brenner, LLP is a law firm rooted in shared expertise and shared vision.

Professionalism and ethics are a priority, ingenuity and know-how are respected.

The firm has a diverse statewide practice, representing clients from the conference room to the

courthouse. Experienced in traditional and alternative dispute resolution, administrative

hearings, trial and appellate courts, BAJB attorneys and staff serve their clients from business

formation and deal-making to dispute resolution.

A full range of individuals, professionals, businesses and entrepreneurs, including insurance

carriers, railroads and manufacturers count on BAJB for guidance toward superior results

throughout the continued life of their business.

http://www.bajb.com/index.html

http://www.bajb.com/rg.jsp

http://www.bajb.com/ms.jsp

http://www.bajb.com/ms.jsp

http://www.bajb.com/ar.jsp

http://www.bajb.com/wcomp.html

http://www.bajb.com/wcomp.html


174

The Year in Medical Disputes - An Overview

By James Loughlin and Jane Stone, Partners, Stone Loughlin & Swanson, L.L.P.

As of October 21, 2011, there were 6,980 medical fee

disputes pending at the Division of Workers‘

Compensation (DWC). The single biggest category of

disputes continues to be Afair and reasonable@ disputes.

At issue in these disputes is the amount of reimburse-

ment for ASC facility services, hospital outpatient

facility services, and inpatient hospital services

provided between 1992 and 1997.

Of the 6,980 pending fee disputes as of October 21,

2011, 2,270, or approximately one-third, were fair

and reasonable disputes. There were also 4,281 fair and reasonable disputes closed by the DWC

between January 1, 2011 and October 21, 2011. Most of these disputes have been appealed to the

State Office of Administrative Hearings (SOAH).

The second biggest category of fee disputes remains the stop-loss exception disputes. At issue in

these cases is whether the facility services provided by the hospital were unusually costly and

unusually extensive so as to justify reimbursement under the stop-loss exception to the former

inpatient hospital fee guideline.

There were 1,243 stop-loss disputes still pending at the DWC as of October 21, 2011. The DWC

recently began reviewing stop-loss disputes again and so far it has closed 31 in 2011. Most of

these decisions were appealed to SOAH. There are also around 700 stop-loss disputes in district

court. Most of these will eventually end up back at the DWC.

There will not be any new stop-loss disputes or fair and reasonable disputes involving

ambulatory surgical center or hospital outpatient facility services because the DWC changed the

law that created those disputes. However, it will probably be years before all of these disputes

are finally litigated through SOAH and the court system.

The remainder of the disputes pending at the DWC are comprised of the following categories:

professional fee, contract, pharmacy, work comp specific, hospital fee, compensability/extent,

95-day, 409.0091, ASC Fee, preauthorization, and employee reimbursement.

The DWC continues to reduce its backlog of fee disputes. It is expected that it will have

reviewed all of the fair and reasonable disputes by the end of 2012. However, the stop-loss

disputes will probably stretch into 2013. The DWC is also reducing its backlog by processing

disputes more quickly. For new disputes, the average time from filing to a decision is around 90

days.

The number of newly filed medical fee disputes continues to go down. As of October 21, 2011,

there were 3,796 new disputes docketed for the year. In 2010, there were a total of 4,471.

Historically, the numbers have been much higher due to large blocks of disputes. Absent a


175

change in the law that spawns a new category of fee dispute, it is expected that the number of

new disputes will continue to decrease. This is due in part to the parties= increased familiarity

with, and proper application of, the fee guidelines.

The number of new fee disputes appealed to SOAH is expected to decrease. This is because in

many cases the amount in dispute and the issues at stake to do not justify the cost. The number of

appeals may also be reduced by a new provision which takes effect June 1, 2012 and requires the

losing party at SOAH (other than the claimant) to pay for the cost of the services provided by

SOAH.

Statutory Changes in 2011

Appeals of network medical disputes to go to hearing

For reviews by an IRO commenced on or after June 1, 2012, parties to a network medical dispute

who disagree with an IRO's decision now will be entitled to a contested case hearing to challenge

the decision. Tex. Ins. Code ' 1305.356. Previously, a party that was dissatisfied with the IRO's

decision regarding care in a network was required to file a law suit in district court. Now, the

party will be able to request a contested case hearing at the DWC in both network and non-

network cases. All medical necessity disputes now to be heard at the DWC

For reviews conducted by the DWC on or after June 1, 2012, hearings on all medical necessity

disputes (both prospective and retrospective) will be heard at the DWC field offices. There will no

longer be hearings on medical necessity disputes at SOAH. Tex. Lab. Code ' 413.0311. Previously,

retrospective medical necessity disputes for services with billed charges of $3,000 or more were

heard at SOAH.

All medical fee disputes now to be heard at SOAH

For reviews conducted by the DWC on or after June 1, 2012, hearings on all medical fee disputes

will be heard at SOAH. Tex. Lab. Code ' 413.0312. There will no longer be hearings on fee disputes

at the DWC for disputes under $2,000. It appears that the DWC will require a Benefit Review

Conference before setting a hearing. The non-prevailing party will be ordered to reimburse the DWC

for the cost of services provided by SOAH. But if an injured employee is the non-prevailing party,

the insurance carrier will be required to reimburse the DWC.

Parties now have 45 days to appeal all medical dispute SOAH and CCH decisions

Effective September 1, 2011, a party seeking judicial review in a medical dispute of any type must

file suit in district court no later than the 45th day after the date on which the SOAH or CCH decision

is mailed. Tex. Lab. Code ' 413.031(k-1). Previously, the deadline was generally considered to be 30

days pursuant to the APA which provides the manner of review for these cases. This change makes

the deadline for filing suit in medical disputes consistent with the deadline for benefits disputes.

By the Numbers Here is a breakdown by category of the 6,980 medical fee disputes pending at the DWC as of

October 21, 2011. A discussion of each follows.


176

Medical Disputes Pending Before the DWC as of October 21, 2011

Category Number

Fair & Reasonable 2,270

Stop Loss 1,243

Professional Fee 925

Contract 636

Pharmacy 399

Work Comp Specific 389

Hospital Fee 319

Extent Issues 205

95-Day 170

Other 129

Sec. 409.0091 116

ASC Fee 100

Pre-Authorization 67

Injured Employee 12

Grand Total 6,980

Source: Texas Department of Insurance, Division of Workers‘ Compensation

Fair and Reasonable Disputes - Includes ASC Facility Services, Hospital Outpatient

Facility Services, and Inpatient Hospital Services Provided Between 1992 and 1997

At the start of 2011, the DWC began issuing decisions in fair and reasonable disputes. The DWC

had put an informal hold on these disputes pending a decision from the Texas Third Court of

Appeals in Vista Healthcare, Inc. v. Texas Mutual Ins. Co. That case involved a challenge by

Vista to the standards for determining Afair and reasonable@ reimbursement.

The court issued its decision in that case on August 26, 2010, rejecting Vista=s legal challenge.

At that time, there were 7,370 fair and reasonable disputes pending before the DWC. The

average amount in dispute in those cases was $13,110.00, making the total amount sought by the

providers in excess of ninety-six million dollars, excluding claims for interest. The court of

appeals= decision became final on March 11, 2011 when the Texas Supreme Court denied Vista=s

petition for review.

Since the beginning of the year, the DWC has issued decisions in 4,281 fair and reasonable

disputes and most of these have been appealed to SOAH where they are now pending. SOAH

has abated all of these cases with the exception of several small groups which are moving

forward. The first group of Vista ASC cases is set for hearing at SOAH in March of 2012. It is

the SOAH ALJ=s intent that this first group of cases will serve as test cases for the remainder of

the cases.

The idea is that these test cases will help the parties identify the issues and evidence and

streamline the process for the thousands of other fair and reasonable disputes. The decisions in

these first cases may even help to establish a reasonable settlement value if it is clear the other


177

cases will be decided similarly. Therefore, it is unlikely that any other Vista ASC cases will be

set for hearing until after this first group of test cases is decided.

It is expected that most of the fair and reasonable disputes remaining at the DWC will be

reviewed before June 1, 2012 and will the effect of the new Aloser pays@ SOAH costs provision.

This may also avoid the issue of how the non-prevailing party will be determined if SOAH

awards some additional reimbursement but less than the amount sought by the provider.

1992 Inpatient Hospital Fee Guideline Cases - A Subset of Fair and Reasonable

Many of the fair and reasonable cases still pending at the DWC were 1992 fee guideline

disputes. To recap, the saga of the 1992 Hospital Fee Guideline litigation began in 1995 when

the Austin Court of Appeals invalidated the 1992 Hospital Fee Guideline promulgated by the

Texas Workers= Compensation Commission, which is now the Division of Workers= Compensation (DWC).

The court invalidated the 1992 Hospital Fee Guideline on procedural grounds because the

agency did not provide an adequate reasoned justification for the rule as required by the Texas

Administrative Procedure Act.

Thereafter, virtually every hospital in Texas sought additional reimbursement for the difference

between the amount they were paid under the fee guideline and their billed charges. This

difference was often significant due to the hospitals= inflated Ausual and customary@ charges.

Despite the invalidation of the guideline, carriers continued to pay the guideline=s per diem rates

on the grounds that it was Afair and reasonable.@ Ultimately, there were around twenty thousand

disputes filed for hospital admissions that occurred between 1992 and 1997 when a new hospital

fee guideline was adopted. These claims were estimated to total 350 million dollars with interest.

Of the original twenty thousand disputes, about sixteen thousand of those were held to be

time-barred based on the Hospitals v. Continental Casualty Company case regarding the proper

application of the one-year statute of limitations for filing medical fee disputes. The court of

appeals issued its decision in that case in 2003 and it became final in July of 2004 when the

Texas Supreme Court denied the hospitals= petition for review.

In 2006 an Administrative Law Judge for the State Office of Administrative Hearings issued a

comprehensive decision and order in a number of Atest@ cases. The decision was intended to

provide rulings on the major questions of fact and law for those cases that were not time-barred.

The disputes came to SOAH on appeal by the hospitals from adverse decisions issued by the

Division of Workers= Compensation.

The SOAH decision was intended to provide guidance in the remaining cases at SOAH. The

ALJ held that the hospitals failed to provide any persuasive evidence that the amounts paid under

the 1992 fee guideline were unfair or unreasonable and that they were entitled to any additional

reimbursement. The ALJ further held, as a matter of law that the hospitals would not be entitled

to interest on any additional reimbursement found to be owed.


178

In 2010, another 1,406 disputes in which decisions had been issued adverse to the hospitals were

held to have become final because the hospitals did not timely file individual appeals in those

cases. The case that decided those 1,406 disputes was HCA Healthcare Corporation v. Texas

Department of Insurance. The court of appeals= decision in that case was issued December 18,

2009. The hospitals did not further appeal the decision and it became final in early 2010.

In December 2010, the DWC issued a memo requesting updated contact information from the

hospital representatives. As of that date, there were 1,269 open cases at the DWC. The DWC

requested updated contact information for the hospital representatives because so much time has

passed since the filing of the disputes. The last time the DWC issued decisions in these cases it

used the addresses listed for the hospital representatives when the disputes were originally filed.

As a result, many of the decisions were returned undeliverable.

The remaining 1,269 1992 Hospital Fee Guideline disputes are all Afair and reasonable@ disputes

meaning the hospital has the burden of proof to show that the amount it seeks meets the statutory

standards for Afair and reasonable@ reimbursement. Based on the DWC's decisions in these cases

so far, it is expected that few, if any, of these cases will be decided in favor of the hospitals.

It remains to be seen whether the hospitals will appeal any adverse decisions to the State Office

of Administrative Hearings. SOAH=s decision in the Atest@ cases should discourage the hospitals

from expecting to recover at SOAH in these cases.

Stop-Loss Exception Disputes

On December 3, 2010, the Texas Supreme Court denied the Motion for Rehearing filed by Vista

Community Medical Center and Christus Health Gulf Coast in the declaratory judgment lawsuit

to determine the proper interpretation and application of the stop-loss exception to the 1997

Inpatient Hospital Fee Guideline. This brought to an end the long fight over the proper

interpretation of the stop-loss exception.

The Supreme Court=s denial of the hospitals= motion for rehearing caused the court of appeals

decision in favor of the carriers and the DWC to become final. The Texas Third Court of

Appeals agreed with the carriers and the DWC that the Stop-Loss exception is a two part test

meaning that in order for the Stop-Loss exception to apply, a hospital must demonstrate not only

that its audited charges exceed $40,000 but also that the services it provided were unusually

extensive and costly.

As of October 22, 2010, there were still 1,246 Stop-Loss disputes pending at the DWC and

approximately 700 more in Travis County District Court for a total of 1,946 disputes. The

average amount in controversy per case is roughly $50,000. Therefore, the total amount in

controversy is at least $97,300,000, although some estimates have put the figure much higher.

This figure also does not include any applicable interest. Now that the court of appeals= decision

is final, the individual Stop-Loss disputes are moving forward again. Some of the Stop-Loss

cases in district court have already been remanded to the DWC by agreement of the parties

because the wrong interpretation of the Stop-Loss exception was applied (i.e., the one-prong test)

or because there was no administrative hearing provided. In other cases, the trial court has issued

a summary judgment ordering the hospital to refund the money paid by the carrier pending


179

appeal and remanding the case to the DWC. In many of those cases, the hospital has appealed the

trial court=s judgment to the court of appeals so these cases have not gone back to the DWC yet.

So far, it appears that whether the cases will be remanded by agreement to the DWC depends

largely on whether the carrier paid pending appeal.

Once the Stop-Loss cases pending in district court are remanded to the DWC, they will be

processed along with the Stop-Loss cases already pending at the DWC. The DWC will decide

these cases by applying the two-prong interpretation of the Stop-Loss exception affirmed by the

court of appeals. The DWC has so far decided 31 Stop-Loss cases in 2011. In the earlier Stop-

Loss cases decided by the DWC that applied the two-prong standard, approximately 10 - 12% of

admissions were held to meet the unusually extensive and costly standard.

Due to the amount in controversy, many of the decisions in Stop-Loss cases are likely to be

appealed to SOAH by the losing party. Unlike the fair and reasonable disputes, many of the

Stop-Loss cases will probably not be reviewed by the DWC until after June 1, 2012 and will be

subject to the new Aloser pays@ SOAH costs provision. This is an additional consideration that

will have to be taken into account by the parties in evaluating these cases. At this point, it is

difficult to estimate what these costs will average.

All Other Disputes

The third biggest category of fee disputes is Professional Fee, totaling 925 as of October 21,

2011. These are generally disputes regarding entitlement to or the amount of reimbursement

owed under the fee guideline for professional services at rule 134.203.

The category of contract disputes (636) involves cases where the DWC has identified that a

discount was potentially taken under an informal/involuntary network discount. In these cases,

the DWC will often examine the facts more closely requesting additional information from the

parties. The DWC has generally taken the position that it does not have jurisdiction to process

contract disputes. Therefore, if it determines that reimbursement is governed by a contract, that

dispute will normally be dismissed. Most of these are older cases since informal networks have

been illegal since January 1, 2011. If an informal network discount was taken after January 1,

2011, that would constitute an administrative violation so the DWC may make a referral. If the

dispute involves a certified network, that dispute will also be dismissed since that is a contract

dispute that would be resolved through the network=s dispute resolution process or ultimately in

court.

Pharmacy disputes (399) often involve disputes with pharmacy processing agents or companies

that have purchased a pharmacy=s accounts receivables and are seeking reimbursement at the fee

guideline rate. Other disagreements involve Average Wholesale Price (AWP) calculations.

Workers= compensation specific disputes (389) involve disputes arising under the fee guideline

for workers= compensation specific services found at rule 134.204. Many of these disputes are

over disagreements or misunderstandings about how to calculate reimbursement for maximum

medical improvement or impairment rating examinations.


180

Hospital fee disputes (319) involve disputes over inpatient and outpatient facility services. The

most common issue is disputes over APC calculations for outpatient services.

Extent disputes (205) involve cases where reimbursement was denied based on extent/compen-

sability. These medical disputes are held in abeyance and are not processed unless the claimant

prevails on the extent/compensability dispute.

Ninety-five day disputes (170) involve cases where payment was denied because the bill was not

presented to the carrier within 95 days from the date of service. There are a number of exceptions

to this denial such as presenting the bill to the claimant=s health care insurer within 95 days from

the date of service.

The remaining categories of fee disputes include Aother@ (129), health care insurer

reimbursement requests under section 409.0091 (116), ASC fee (100), cases where payment is

denied for lack of preauthorization (67), and injured employee reimbursement requests, usually

for prescription medications (12).

Medical Necessity Disputes

From the beginning of the year through the end of October 2011, there were 409 IRO reviews

completed for network claims and 2,051 IRO reviews completed for non-network claims. The

denial was upheld 72% of the time for the network claims and 75% of the time for the non-

network claims. There has been a steady increase in the number of IRO reviews over time while

the percentage of denials upheld has been fairly constant. A small percentage IRO decisions are

appealed. In the vast majority of these cases, the IRO decision is upheld on appeal. In order to

have a realistic chance of overturning an IRO decision, the appealing party must be able to show

that the IRO did not follow the ODG. The other way would be to show that there is other

evidence-based medicine more persuasive than the ODG but that will rarely be possible as the

ODG is updated regularly. Chronic pain programs seem to stand out as producing more medical

necessity disputes than others, with the possible exception of discograms and spinal fusions.

Summary

In 2011, fair and reasonable and Stop-Loss disputes were by far the two largest categories of

disputes, with thousands of disputes and tens of millions of dollars at stake. These disputes will

continue to play center stage for the next several years that it will take to finally resolve all of

these legacy disputes. However, the good news is that there will be no more of these types of

disputes and the number of new disputes continues to go down with much shorter average turn-

around times from filing to decision. The current DWC administration has also done an

admirable job reducing the backlog. In short, we are progressing to a much healthier medical

dispute resolution system.

Editor=s Note: This article was written by James Loughlin and Jane Stone, partners in the Austin

law firm of Stone Loughlin & Swanson, LLP.

Mr. Loughlin represents workers' compensation insurance carriers and other system

participants in all areas of workers' compensation law. He is board-certified in workers'

http://slsaustin.com/loughlin.html

http://slsaustin.com/stone.html

http://slsaustin.com/


181

compensation law by the Texas Board of Legal specialization and is a member of the Texas

Board of Legal Specialization Workers' Compensation Law Advisory Commission. He is AV

rated by Martindale-Hubbell Law Directory and has been selected for inclusion in Super

Lawyers-Rising Stars Edition, 2007 - 2010. Mr. Loughlin obtained his undergraduate degree

from Texas A&M University and his law degree from Baylor University, where he was senior

class president and an editor of the Baylor Law Review.

Ms. Stone=s practice focuses on all aspects of Texas workers= compensation law. She has been

nominated to the national College of Workers= Compensation Attorneys for induction in 2012,

and is recognized in Martindale-Hubbell=s Bar Register of Preeminent Women Lawyers. Her

firm was selected as the Texas representative for the National Workers= Compensation Defense

Network, a nationally recognized group of AV rated law firms. She served as vice-chair of the

Texas Board of Legal Specialization Advisory Committee for Workers= Compensation and

remains on the advisory council of the State Bar of Texas Workers= Compensation Section. She

is board certified in workers= compensation law by the Texas Board of Legal specialization.

Along with partners James Loughlin and David Swanson, she founded the firm of Stone Loughlin

and Swanson in 2005.

Stone Loughlin & Swanson, LLP’s passion is administrative law. The firm has distinguished

itself as a "go to" law firm in the areas of health and workers' compensation insurance

regulation. Stone Loughlin & Swanson, LLP’s innovative challenges to agency action have saved

their clients millions of dollars and changed the regulatory landscape for all system participants.

Stone Loughlin & Swanson, LLP has five attorneys, a registered nurse, and a dedicated support

staff all focused on the same area of practice, day in and day out. Martindale Hubbell, the

nation's premier rating group for lawyers, has rated the firm "AV" which is their highest

distinction. In addition, the firm is the only law firm in Texas chosen to be a member of the

National Workers' Compensation Defense Network.

Workers‘ compensation insurance fraud steals money from the workers‘

compensation system and employers.

The Texas Department of Insurance (TDI), Texas Committee on Insurance

Fraud and insurers work hard to stamp it out, but we need your help.

Report workers‘ compensation insurance fraud to TDI at 1-888-327-8818

or online at http://www.tdi.state.tx.us/fraud/frsiufrrpt.html.

http://www.tdi.state.tx.us/fraud/frsiufrrpt.html


182

Overview of Benefits Under the Texas Workers’ Compensation System

By Albert Betts, Partner, Thompson Coe Cousins and Irons, LLP

Workers' compensation is a no-fault system

wherein an injured employee can collect

benefits even if he or she is responsible for

their accidental injury, as long as the injury is

work related. Workers' compensation is the

exclusive legal remedy for employees who

suffer workplace injuries, except in cases of

gross negligence resulting in the death of the

employee. What this means is that injured

employees cannot sue their employers to

collect any sort of damages resulting from a

workplace injury and the employee does not

have to prove negligence by the employer.

Conversely, the employee is not subject to

any defense by the employer that he or she is

partially or wholly responsible for the accident. Part of this ―trade-off‖ between workers and

employers is that the worker receives certain defined income benefits as defined by the Workers‘

Compensation Act.

Currently, the Texas workers‘ compensation system uses a structured set of income benefits for

injured workers. The current income benefit structure has been in place since the 1989 system-

wide reforms. The type and duration of workers‘ compensation income benefits is dependent

upon:

The period of disability for the injured worker;

The level of impairment as determined by either a healthcare provider or as determined

through the DWC administrative hearing process;

For injured workers with a certain impairment level, the ability of the injured worker to

return to pre-injury wages after some period of disability;

Whether the worker suffered certain disabling injuries as defined by statute; or

The injury results in death.

The workers‘ compensation benefits are not intended to be a complete income replacement nor

are the benefits levels intended to compensate for any extra damages. The income benefit

amount is determined by law and usually is 70 to 75 percent of the injured worker's wages at the

time of the injury, depending upon the type of income benefit. The following is a brief

description of each benefit type.



183

Temporary Income Benefits

Temporary income benefits (TIBs) are payable once an injured worker has missed more than

seven days of work. This does not have to be consecutive days or even a full day. If the

disability continues for more than two weeks, the benefits are retroactive to the date the disability

began. The total duration of temporary, impairment, and supplemental income benefits is 401

weeks.

TIBs are payable at 70% of the injured workers‘ average weekly wage (this average wage is

calculated based upon the preceding 13 weeks of wages earned by the worker) or 75% for the

first 26 weeks of disability for employees earning less than $8.50 per hour. TIBs extend until the

injured worker is determined to be have reached maximum medical improvement (MMI) or has

received 104 weeks of temporary income benefits, whichever comes first.

Impairment Income Benefits

Impairment income benefits (IIBs) are payable when the injured worker has been determined to

be at ―maximum medical improvement‖ either after 104 weeks of time off due to the injury or

when determined by a healthcare provider, whichever is earlier. The maximum IIBs benefit is

70% of the state average weekly wage. The injured worker is evaluated for an impairment

rating, which is based on an impairment rating guide adopted by the Division of Workers‘

Compensation. (impairment evaluations are currently based on the Guides to the Evaluation of

Permanent Impairment, 4th Edition, published by the American Medical Association). In 2010,

stakeholders provided input on whether the impairment rating guide should be changed to the

current 6th

edition or as some stakeholders argued, the prior 5th

edition. This issue is still

pending with the DWC and the 4th

edition remains in use in Texas.

The impairment rating represents a percentage of impairment resulting from the injury as

determined by the guide. The injured worker is then entitled to income benefits for a period

equal to three times the impairment rating. For example, a 10% impairment rating means 30

weeks (3 x 10) of impairment income benefits. These are paid regardless of whether the injured

worker is able to work.

Supplemental Income Benefits

The next level of income benefits are supplemental income benefits (SIBs). An injured worker is

eligible for SIBs if his or her impairment rating is greater than or equal to 15% and IIBs have

ended. An injured worker who has not returned to work or who has returned to work but is

making less than 80% of their pre-injury wages may be eligible for SIBs. An injured worker has

to apply for SIBs on quarterly basis and if the injured worker has the ability to work, their

eligibility is dependent upon the injured worker‘s good faith efforts to obtain work. Eligibility

for SIBs ends at the conclusion of 401 weeks of benefits after the date of injury.

According to 2008 report from the Texas Department of Insurance (TDI) Workers‘

Compensation Research and Evaluation Group (WCREG), the total number of injured workers

receiving IIBS and SIBS has declined over time. The report identified certain factors that may

account for the decrease, including declining injury rates and fewer employees covered by


184

workers‘ compensation, improved return to work rates since 2001, changes in the impairment

rating guide, limiting the time period to dispute an impairment rating to 90 days, and changes to

doctor qualification for determining impairment rating

Lifetime Income Benefits

Injured workers who suffer certain injuries, such as loss of an arm, leg, or specified injuries to

the hand, and head, are entitled to lifetime income benefits (LIBs). An injured worker is eligible

for LIBS when the work-related injuries result in: total and permanent loss of sight in both eyes;

loss of both feet at or above the ankle; loss of both hands at or above the wrist; loss of one foot at

or above the ankle and the loss of one hand at or above the wrist; certain spinal injuries that

result in paralysis; a physically traumatic brain injury; or third degree burns over 40% of the

body, or third degree burns covering the majority of either both hands or one hand and the face.

See Labor Code § 408.161 for a complete listing of LIBs eligible injuries.

LIBS are not subject to any finite period or any work search ability. These benefits are paid at

75% of the employee‘s average weekly wage. Benefits are increased 3.0% each year.

Death Benefits

Death benefits (DIBs) are payable to the spouse or dependents, as defined in statute, of a

deceased worker. The employee's spouse and/or dependents are entitled to death benefits of up

to 75% of the employee's wages. Workers' compensation also provides for a burial allowance of

$6,000. During the 2007 legislative session the eligibility for death benefits was expanded to

include the parents of a deceased worker.

Benefit Levels Have Increased

Overall, Texas income benefit levels have increased over time due to changes in the law. In

2005, HB 7 tied the maximum benefit level to 88% of the average weekly wage for Texas

workers as determined by the Texas Workforce Commission. This has resulted in the maximum

average weekly wage increasing from $540 in 2005 to $787 in 2011.

Maximum benefit levels for each type of income benefits are either 70% or 100% of the average

weekly wage. The maximum for each is listed below.

Weekly TIBs, LIBS, DIBs payments may not exceed 100 % of the state average weekly

wage.

Weekly IIBs and SIBs payments may not exceed 70 % of the state average weekly wage.

During the 2009 legislative session and interim legislative hearings prior to the 2011 legislative

session, there was significant discussion about income benefit levels and their adequacy as

income replacement. Much of the discussion dealt with high wage earners or catastrophic

injuries and whether the current benefit structure was sufficient to address all injury situations.

This was done as part of House and Senate interim studies on third-party liability issues in

workers‘ compensation. The DWC provided testimony on income benefit levels and changes to

benefit levels over the years. Representatives of labor and the trial lawyer bar testified on the


185

inadequacy of the benefits when compared to recovery available in the civil trial system. Despite

this intense discussion, there was very little mention of this issue during the 2011 session and

only a few bills introduced to increase income benefit levels.

The increase in benefit levels has resulted in fewer workers reaching the maximum benefit

allowed by law. According to the Workers‘ Compensation Research and Evaluation Group‘s

(WCREG) 2010 report on Income Replacement Adequacy in the Texas Workers’ Compensation

System, the increase in maximum average weekly wage had resulted in a decrease in the percent-

age of injured workers reaching the maximum level. Also according to the report, the weekly

maximum TIBs payment remained virtually unchanged from 2000 to 2006 (from $531 to $540),

resulting in an increase in the percentage of injured workers capped at the maximum benefit

(from 15% to 23%). The weekly maximum TIBs payment increased in 2006 and in 2007 (to

$674 and $712 respectively) resulting in a decrease in the percentage of injured workers capped

at the maximum benefit (from 23% to 16%).

Despite the increase in maximum benefit levels over the last few years, stakeholders should

anticipate that there will be additional discussion about workers‘ compensation benefit levels in

the future. Some stakeholders are unhappy that benefit levels do not make allowances for higher

wage earners or loss of future earning capacity. Any decisions on these issues will have to be

made by the legislature with consideration for the structure and history of the current income

benefit system.

Editor’s Note: The author of this article is Albert Betts. Betts is a partner with the law firm of

Thompson, Coe, Cousins & Irons and ICT’s General Counsel. He served as the first full-time

workers’ compensation commissioner from September 1, 2005 through August 31, 2008.

Betts has extensive experience as a lawyer and public policy administrator including represent-

ting the Texas Department of Insurance in litigation and the state’s workers' compensation

carrier – the State Office of Risk Management – in administrative proceedings. He has advised

the state risk management board, the commissioner of insurance, and political leadership on

insurance and workers’ compensation matters.

http://www.tdi.texas.gov/reports/wcreg/documents/Income_benefit_adequ.pdf




186



187

Medical Benefits in the Texas

Workers’ Compensation System


188



189

Medical Costs and Utilization of Care in the Texas Workers’ Compensation System

Edited by Geoff Billings, Senior Workers‘ Compensation Analyst, Insurance Council of Texas

System stakeholders in the Texas Workers‘

Compensation System pay close attention to

system medical costs and the quality of health

care provided to injured employers in the

Texas system. To properly monitor develop-

ments related to medicals and utilization of

treatment, stakeholders must have an account-

ing of the cost of medical benefits being

provided to injured employees and utilization

of care trends. System costs trends usually

paint an accurate picture of medical costs and

utilization.

In December of 2010 the Texas Department of

Insurance‘s Workers‘ Compensation Research

and Evaluation Group (WCREG) prepared

and published a report titled Setting the Standard: An Analysis of the Impact of the 2005

Legislative Reforms on the Texas Workers’ Compensation System, 2010 Results. The report is

statutorily mandated and must present a biennial update on the impact of the House Bill 7

reforms on the affordability and availability of workers‘ compensation insurance for Texas

employers and the impact of certified workers‘ compensation health care networks on return-to-

work outcomes, medical costs, quality of care issues and medical dispute resolution. The report

paints a generally positive picture of the performance and state of the Texas workers‘ compen-

sation system.

Medical Costs in the Texas Workers’ Compensation System

The system has just begun to fully realize the effects of the various legislative and regulatory

reforms enacted by HB 2600, and some of the 2005 HB 7 provisions are beginning to take effect,

especially the implementation of treatment guidelines and certified health care networks. This

section of the report will focus on how medical costs and utilization of care trends have changed

in the system over time, as well as some of the factors influencing these cost trends.

Medical Cost Trend

Occupational injury rates have declined steadily during the last two decades, both

nationally and for Texas (see Figure 1). 32

On the other hand, medical costs of treating

worksite injuries have fluctuated significantly.

32

Changes to the OSHA recordkeeping logs in 2002 and the transition from the Standard Industrial

Classification (SIC) system to the North American Industry Classification System (NAICS) in 2003

may limit comparability of pre-2003 data series.



190

Figure 1: Texas and U.S. Nonfatal Occupational Injury and Illness Rates Per 100 Full-time

Employees (1996-2009)

Source: Texas Department of Insurance, Division of Workers' Compensation and U.S. Department

of Labor, Bureau of Labor Statistics, Annual Survey of Occupational Injuries and Illnesses, 2010.

Figure 2 shows the average cost of

professional and hospital services by

injury year evaluated at 6, 12, 18, and 24

months after the injury. Since the majority

of claims last less than 6 months, medical

costs for longer maturities consist of far

fewer numbers of claims. But these claims

with a more severe injury account for the

majority of total medical costs. 33

Costs

have continued to decline since 2003 due

to a variety of factors, including fewer

claims being filed and reductions in

medical reimbursement amounts as well

as the amount of care being rendered for

new claims. 34 Figure 2 shows that the

average costs were increasing rapidly

peaking in 2002.

33

In Figure 2 and all subsequent graphs, the data comes from the statewide database of medical charges,

payments and treatment protocols collected by the Division of Workers‟ Compensation according to the

Texas Labor Code §413.007. The 2004 figures show an average of 2003 and 2005 due to incomplete data

unless it is noted otherwise. Also, 2009 data should be considered preliminary due to data reporting lags. 34

On August 1, 2003, the systems first Medicare-based professional service fee guideline took effect.

While this fee guideline increased reimbursement for some categories of services, including primary care,

reimbursements for specialty surgery services were significantly reduced. On the whole, the reimbursement

rates for professional medical services in the Texas workers compensation system went from

approximately 140 percent of Medicare to approximately 125 percent of Medicare.


191

Since then, costs were decreasing until 2006. This decline coincides with the passage of HB

2600 in 2001. However, more recent data indicates that the average medical costs are once again

increasing, albeit at a slower rate than the double-digit increases that the system was

experiencing in the late 1990s.

Comparing various maturities, Figure 2 also indicates that costs for more mature claims (i.e., 18

and 24 months post-injury) showed the biggest impact from the adoption of the 2003 Medicare-

based professional services fee guideline. When medical costs are examined separately for

professional services (i.e., those services performed by individual health care providers) and

hospital services (i.e., those services provided by facilities, including inpatient and outpatient

hospital services and ambulatory surgical centers), professional service costs show significant

impacts from reform measures in 2003, 2006, and 2007 (see Figures 3 and 4 and Tables 1 and 2).

Since 2007, however, professional service costs are increasing at an annual rate of 5 percent to

10 percent.

Hospital costs also decreased in 2002 and 2003, but they increased steadily since 2005. For the

whole analysis period, the average hospital payments evaluated at 6 months maturity increased

by 77 percent from 1998 to 2008. For longer maturities with more severe injuries (evaluated at

18 months and 24 months), average costs peaked in 2002, decreased substantially in 2003, and

then continued to increase. The increase in hospital costs is likely due to the fact that prior to

March 1, 2008, the system did not have an outpatient hospital services fee guideline and the

inpatient hospital fee guideline in place was significantly outdated (adopted in 1997), causing an

increasing number of inpatient hospital services to be paid at ―fair and reasonable‖ levels, which

resulted in a significant number of medical fee disputes between insurance carriers and hospitals

in recent years. However, 2008 and 2009 cost data in Figure 4 indicate that the new hospital fee

guideline may be taking effect in moderating the growth in hospital service costs.

Figure 2: Average Medical Costs per Claim (Professional and Hospital), Injury Years 1998-2009 35

35

An injury year refers to the calendar year in which a work-related injury occurred. Treatments for injured

workers may continue for several years after the injury year, but payments for these services are included in

the injury year. Medical costs are evaluated at different intervals (maturity) following an injury. For

example, the 2007 injury year data with 24 months maturity include all injuries occurring between January

1, 2007 and December 31, 2007, showing all associated treatments and payments up to December 31, 2009

for these injuries. Source of Figure data is TDI, Workers‘ Compensation Research and Evaluation Group.


192

Table 1: Average Medical Cost per Claim (Professional and Hospital), Injury Years 1998 -

2009

Source: Texas Department of Insurance, Workers’ Compensation Research and Evaluation Group, 2010.

Figure 3: Average Professional Medical Costs per Claim, Injury Years 1998-2009



193

Table 2: Average Professional Medical Cost per Claim, Injury Years 1998-2009


Figure 4: Average Hospital Costs per Claim, Injury Years 1998-2009



194

Average Cost per Claim by Service Group

The adoption of the 2003 professional services fee guideline not only changed the reimburse-

ment amounts for individual categories of services, but also adopted by reference Medicare‘s

billing rules and payment policies, which affected how insurance carriers reviewed the medical

necessity of certain types of treatments. As a result, the cost impact of the 2003 fee guideline

varied considerably for individual categories of services. Figures 5 through 15 examine the

average costs per claim for specific categories of professional services.

For certain categories of professional services, such as evaluation and management services (e.g.,

doctor‘s visits), nerve conduction studies, other surgical services, pathology and laboratory

services and other professional services, increased costs appear to be the result of two factors:

(1) an increase in fees for these services (the case for evaluation and management services)

as a result of the 2003 fee guideline adoption; or

(2) an increase in the amount of services provided to injured workers (the case for nerve

conduction studies) or both (the case for other surgical services, pathology and laboratory

services and other professional services). For other types of services, such as physical

medicine services (e.g., physical therapy and chiropractic treatment), CT and MRI scans,

other diagnostic testing services, and spinal surgery services, lower costs per claim were

the result of lower fees for these services under the fee guideline. Additionally, lower

costs per claim for certain physical medicine services and diagnostic tests were also the

result of a combination of fee decreases as well as a decrease in the amount of services

provided to injured workers which is discussed in a later section.

Table 3: Average Hospital Cost per Claim, Adjusted, Injury Years 1998-2009 Injury

Year 6 Months Post Injury 12 Months Post Injury 18 Months Post Injury 24 Months Post Injury

1998 $1,538 $1,857 $2,046 $2,185

1999 $1,631 $1,975 $2,174 $2,331

2000 $1,704 $2,078 $2,377 $2,618

2001 $1,833 $2,325 $2,664 $2,889

2002 $1,991 $2,481 $2,763 $2,928

2003 $2,108 $2,508 $2,585 $2,538

2004 $2,138 $2,627 $2,637 $2,688

2005 $2,168 $2,746 $2,689 $2,838

2006 $2,410 $2,725 $2,928 $3,068

2007 $2,682 $3,010 $3,233 $3,382

2008 $2,715 $3,100 $3,339 n/a

2009 $2,575 n/a n/a n/a



195

More recent data indicates a trend toward increasing average costs. From 2007, nine out of 11

service groups showed an increase in costs. Pathology and laboratory services in particular

showed a high overall rate of increase and a rapid increase in more mature claims.

Figure 5: Average Cost per Claim for Evaluation and Management Services, Injury Years 1998 -

2009


Figure 6: Average Cost per Claim for Physical Medicine Modalities, Injury Years 1998-2009



196

Figure 7: Average Cost per Claim for Other Physical Medicine Services, Injury Years 1998-2009


Figure 8: Average Cost per Claim for CT Scans, Injury Years 1998-2009



197

Figure 9: Average Cost per Claim for MRIs, Injury Years 1998-2009


Figure 10: Average Cost per Claim for Nerve Conduction Studies, Injury Years 1998-2009



198

Figure 11: Average Cost per Claim for Other Diagnostic Testing, Injury Years 1998-2009


Figure 12: Average Cost per Claim for Spinal Surgery Services, Injury Years 1998-2009



199

Figure 13: Average Cost per Claim for Other Surgery Services, Injury Years 1998-2009


Figure 14: Average Cost per Claim for Pathology and Laboratory Services, Injury Years 1998 –

2009



200

Figure 15: Average Cost per Claim for Other Professional Services, Injury Years 1998-2009


Injury Rates and Claim Frequency Impacts System Medical Costs

When examining the total medical costs in the Texas workers‘ compensation system, it is

important to note that these cost trends are significantly affected by fluctuations in injury

rates and claim frequency. More claims being filed in the system will generally raise the

total system costs, and vice versa. The number of claims filed with the Division of Workers‘

Compensation (DWC) climbed rapidly in the late 1990s and peaked in 2000, but it continued to

decrease since then. These numbers are shown in Figure 16 along with the numbers of claims in

the medical billing data that are used for this report. Numbers reported to the DWC include

fatalities, occupational diseases, and injuries with at least one day of lost time. Claims in

the medical billing data include any claim with at least one payment for medical service,

thus they contain medical-only claims that are not required to be reported to the DWC.

Figure 16: Number of Workers' Compensation Claims Reported to the Division of Workers'

Compensation and in Medical Billing Data, Injury Years 1998-2009



201

The decline since 2000 in the overall number of reportable claims filed with the DWC

mirrors the trend in the non-fatal occupational injury and illness rates collected and

reported to the Bureau of Labor Statistics for the Survey of Occupational Injuries and

Illnesses (SOII), as shown in Figure 5.1. Between 2000 and 2008, the nonfatal

occupational injury and illness rate in Texas decreased by 34 percent from 4.7 to 3.1

injuries per 100 full-time employees. Compared with the rest of the nation, the injury rate

in Texas has been consistently below the national average (see Figure1).

Similarly, the number of workers‘ compensation claims actually reported to the DWC

has declined by 35 percent in the same period. The number of claims reported to the

DWC and that of SOII are not exactly comparable since they have different reporting

requirements. For example, SOII figures include all workplace injuries and illnesses

regardless of compensability. Claims including medical-only cases declined also from

1998 to 2009, but they were relatively stable and even increased slightly between 2003

and 2008. The share of medical-only claims decreased from 63 percent of total claims in

1998 to 39 percent in 2000 when more injuries were reported for lost time and income

benefits, and then steadily increased to 54 percent in 2009. Since medical-only claims

have lower average costs per claim than those with income benefits or lost time, more

medical-only claims tend to lower the overall average cost. The effects of changing injury

and claim types on medical costs are discussed in more detail below.

The reasons for these declines in the number of claims, both nationally and in Texas,

consist of a variety of factors, including increased safety awareness among employers

and employees, enhanced health and safety outreach and monitoring efforts at the federal

and state level, improvements in technology, globalization, increased use of independent

contractors, and the possibility of under-reporting of workplace injuries and illnesses.

The net effect of a decreasing number of injuries and claims is a lower total medical cost

if the average cost per claim remains stable. Figure 17 shows the trend in total and

average costs for the last 12 years. 36

Total costs for new injuries in injury year at 6 months

maturity decreased since 2002 but at a much lower rate than the number of claims (18

percent compared to 35%). While the number of claims decreased rapidly, the average

medical cost per claim was in an increasing trend, which resulted in a less drastic

reduction in total costs.

Workplace Safety Resources

The DWC provides health and safety resources to employers, employees and other entities that

support the Texas workforce to eliminate the occurrence of occupational injuries and hazardous

exposures. Through its Workplace Safety Programs, the DWC helps employers, employees,

insurance carriers that write workers' compensation insurance, and the policyholders of such

carriers with workplace safety and health issues. Additional information is available here.

36

2009 injury year with 6 months maturity is evaluated with all medical treatments up to June 30, 2010.

Although medical bills are updated by this date, some bills and payments may have not been settled and

reported. The low total cost for 2009 should be considered preliminary subject to future updates. Average

cost is similarly affected by the data limit, but the effect of missing bills will be relatively minimal.

http://www.tdi.texas.gov/wc/safety/index.html


202

Figure 17: Total and Average Medical Costs for New Injuries, 1998 – 2009, at 6 Months Maturity


Total and average medical costs can fluctuate up or down depending on a variety of

factors, including frequency and intensity in service utilization, expenses associated with

disputes and denials, medical fees, use of managed care arrangements and changes in

injury and claim types. The remainder of this section examines these factors influencing

medical costs in the Texas workers compensation system. But it is worthy to note some

limitations of cost analysis. Medical costs represent a substantial portion of the total costs

of the Texas workers compensation system but they make up only a third of the total

system cost measured by the premiums paid by employers. In 2001, insurance carriers

paid out to injured workers 76 cents out of every $1 premium for indemnity and medical

benefits. From 2002 to 2007, the share of benefit costs in the overall system cost fell to

between 40 cents and 55 cents of a dollars premium. This metric – benefits paid to

injured workers divided by premiums paid by employers – is called a loss ratio in the

insurance industry and discussed in Section 2 earlier. Direct benefits to injured workers

consist of medical benefits that account for about 50 percent to 60 percent of the total and

indemnity (or income) benefits that account for the rest. As a result, medical costs alone

accounted for about 20 percent to 33 percent of the total premiums paid by employers

during the six year period. 37

Medical cost analysis needs to be viewed within the context

of the overall cost that includes other non-medical cost data.

Utilization of Care in the Texas Workers’ Compensation System

Medical costs are affected not only by the fees for individual units of service, but also by the

amount of medical care provided to injured workers (also known as the utilization of medical

37

Indemnity benefits, defense and cost containment expenses, commissions and brokerage expenses, taxes

and license fees account for the rest of the premiums. The difference between these costs and the premiums

plus investment interests and expenses constitute the insurance industry‘s profits.


203

care). Previous studies indicated that higher medical costs in Texas were primarily the result of

an overutilization of certain types of medical services provided to injured workers in Texas

compared with other states. Specifically, Texas injured workers received more physical medicine

services, surgical services and diagnostic testing than similarly injured workers in other states.

Since the adoption of the 2003 professional services fee guideline (which adopted by reference

the Medicare billing rules and payment policies), there have been significant changes in the

amount of certain types of medical services provided to injured workers in Texas.

The amount of medical care provided to injured workers can be measured by examining both the

percentage of injured workers receiving certain types of medical services, as well as the amount

of those services received per injured worker. Table 4 shows that overall, there has been little

change over time in terms of the percentage of injured workers receiving professional or hospital

services for their work-related injuries.

Table 4: Percentage of Injured Workers Receiving Professional and Hospital Services, Adjusted,

One Year Post-Injury, Injury Years 1998-2006

Injury Year Professional Services Hospital Services

1998 95.7% 36.4%

1999 95.1% 37.2%

2000 95.5% 35.4%

2001 95.2% 37.3%

2002 96.0% 38.7%

2003 96.9% 38.6%

2004 97.1% 35.5%

2005 97.3% 32.3%

2006 96.6% 34.2%

2007 96.6% 35.2%

2008 96.8% 34.9% Source: Texas Department of Insurance, Workers’ Compensation Research and Evaluation Group, 2010.

Looking at the various categories of professional services in more detail, it appears that the

percentage of injured workers receiving services such as evaluation and management services,

pathology and laboratory services, other physical medicine services, and other surgery services

has not significantly changed over time. However, a significantly lower percentage of workers

injured in 2008 received physical medicine modalities (i.e., physical agents that are applied to

the body to produce therapeutic changes) (12.1 percent), compared to workers injured in 1998

(26 percent). This reduction is likely due to the adoption of the Medicare payment policies in

2003 since the Medicare system generally limits the amount and type of these services that are

reimbursable. Similarly decreasing shares of patients in 2008 received spinal surgery, other

diagnostic tests, and nerve conduction studies than in 1998, but the reduction for these services

was more moderate. In comparison, the percentage of injured workers receiving CT scans and

MRIs has increased since 1998 by over 50 percent (see Table 5).

In terms of the actual amount of per patient services provided to injured workers in Texas,

Figures 18 through 28 and Appendix A present more detailed information about the utilization of

care per claim for injury years 1998 – 2007. Appendix A also contains detailed utilization

information for specific physical medicine services. These figures show that there have been


204

significant reductions in the utilization of physical medicine services, CT scans and other types

of diagnostic testing services since the adoption of the 2003 professional services fee guidelines.

Physical medicine services have declined in per-patient utilization as well as in the overall share

of patients receiving such services (as discussed earlier). On the other hand, CT scans are

provided at a lower intensity per claim but they are provided to more patients (see Table 5 and

Figure 20).

However, since 2003, the amount of nerve conduction studies, surgical services (including spinal

surgery and other types of surgery) and other professional services (i.e., all other professional

services that do not fall into the specific categories of professional services listed in this report)

provided per injured worker who received these services has continued to increase. While the

more recent data show a decreasing trend in these services, pathology and laboratory services

show a particularly strong trend toward increasing utilization. Utilization in spinal surgery

services decreased in 2008, but its 6-month maturity data indicates that the utilization of these

services may be increasing (see Figure 24).

Table 5: Percentage of Injured Workers Receiving Certain Professional Services, One Year Post-

Injury, Injury Years 1998-2008


205


Figure 18: Average Number of Evaluation and Management Services Billed per Claim, Injury

Years 1998-2009



206

Figure 19: Average Number of Physical Medicine Modality Services Billed per Claim,

Injury Years 1998-2009


Figure 20: Average Number of Other Physical Medicine Services Billed per Claim, Injury Years

1998-2009



207

Figure 21: Average Number of CT Scan Services Billed per Claim, Injury Years 1998-2009


Figure 22: Average Number of MRI Services Billed per Claim, Injury Years 1998-2009



208

Figure 23: Average Number of Nerve Conduction Services Billed per Claim, Injury Years 1998-

2009


Figure 24: Average Number of Other Diagnostic Services Billed per Claim, Injury Years 1998-2009



209

Figure 25: Average Number of Spinal Surgery Services Billed per Claim, Injury Years 1998-2009

Figure 26: Average Number of Other Surgery Services Billed per Claim, Injury Years 1998-2009



210

Figure 27: Average Number of Pathology and Lab Services Billed per Claim, Injury Years 1998-

2009


Figure 28: Average Number of Other Professional Services Billed per Claim, Injury Years 1998-

2009



211

Impact of Denial of Health Care and Disputes on System Medical Costs

One possible reason why medical costs have begun to

stabilize in Texas can be found by examining insurance

carrier denials of both workers‘ compensation claims and

medical services over time. Since 2001, both the percentage

of reportable claims and the percentage of professional

medical services initially denied/disputed have increased

(See Figures 31 and 32). In particular, denials of professional

medical services increased significantly after the adoption of

a new Medicare-based medical fee guideline in August 2003,

which included the adoption, by reference, of the Medicare

billing rules and payment policies into the Texas workers‘

compensation system.

The effects of denials and disputes on medical costs may be

larger than the billing data show since these professional

medical denials represent only the denials for medical

treatments and services that have already been rendered.

Preauthorization denials are not included in these numbers since denied services at the pre-

authorization stage will not have bills submitted, and their effects would have further reduced

medical costs.

It is important to note that both claim and medical service denials have decreased in recent years.

In fact, the DWC received 4,604 medical payment disputes in Calendar Year 2010 and closed

3,588 of those disputes. 9,569 medical disputes were filed with the DWC in Calendar Year 2009.

The 4,965 drop in the number of requests for medical dispute resolution is significant. Figure 29

provides an overview of the number and types of medical disputes received in Calendar Years

2009 and 2010.

Figure 29: Comparison of Medical Disputes Received by the DWC in Calendar Years 2009 and 2010



212

The DWC has reported a big drop off of ―usual & customary‖ disputes in 2010. 38

In 2009, the

DWC received 3,307 ―usual & customary‖ disputes as compared with only 164 in 2010. It was

noted that there was significant decline in the number of ―subclaimant‖ disputes received – 603

in 2009 compared with 44 in 2010. It was also noted that there were 163 ―fair & reasonable‖

disputes in 2009 and only 1 in 2010.

The DWC has reported the following breakdown of dispute types received in 2010:

Figure 30: Number of Medical Payment Disputes Received 2007 – 2010


38

During the course of the Division of Workers‘ Compensation Quarterly Insurance Carrier Meeting held on Jan.

26, 2011, DWC staff reported that there has been a significant drop in the number of medical payment disputes the

regulatory agency has been receiving. The update included an overview of the types of number of disputes received

in 2010 and how that compared to 2009.


213

Figure 31: Percentage of Reportable Claims That Are Initially Denied/Disputed for the Top 25

Workers’ Compensation Insurance Carriers, Injury Years 1998-2007 39


Note 1: The 2006 figures should be interpreted with caution since the data is incomplete.

Note 2: HB 2600, a reform bill aimed at reducing medical costs, was passed in 2001.

Figure 32: Percentage of Professional Medical Services Denied for the Top 25 Workers’ Compensation

Insurance Carriers, Service Years 1998-2009


39

The top 25 insurance carriers represented over 90 percent of the workers‘ compensation premiums in 2006 and

accounted for 60-70 percent of the total amount of medical payments made during 1998-2004. For the purpose of

this analysis, the same 25 insurance carriers were used in each year to calculate both the claim and medical billing

denial rates.


214

Impact of the ODG Treatment Guidelines on Medical Disputes

Evidence-based treatment guidelines, The Official Disability Guideline – Treatment in Workers’

Comp (ODG) published by the Work Loss Data Institute, were adopted and became effective in

May, 2007. The adoption of official treatment guidelines can potentially affect treatment

patterns, health and return-to-work outcomes, preauthorization and bill review processes, and the

procedure, cost and efficiency of medical necessity disputes. Main legislative intents are to

control medical costs and improve health care results for injured workers by reducing excessive

and/or inappropriate medical services. In this section, we evaluate the guidelines‘ impact on the

health care utilization pattern and costs. Since the guidelines have been in effect for less than

three years, any analysis of their effects remains preliminary.

Treatment guidelines suggest treatment plans or paths based on broad diagnostic features of

injuries, and make recommendations on what procedures should or should not be used for those

diagnoses. All procedures that conflict with those recommendations or that are not discussed in

the guidelines are subject to preauthorization requirements. Their primary target users are health

care providers and utilization review agents. Available data suggest that only a small percentage

of health care providers are aware of, or subscribing to, the ODG treatment guidelines. However,

the provider market for workers‘ compensation medical care appears to be highly concentrated

as only 4,000 or so providers account for 80 percent of all services and payments. If the above

small number of providers included these top providers, the guidelines would have a sufficient

rate of penetration.

Pre-Billing Effects of the Adoption of the ODG Treatment Guideline: Overall Reduction in

Excessive Utilization

If health care providers are utilizing the treatment guidelines in their provision of services, there

will be identifiable changes in the way injured workers are treated. If excessive or inappropriate

services are avoided, this will result in the ―absence‖ of bills for such services. The DWC calls

this impact the ―pre-billing effects.‖ Pre-billing effects refer to excessive and inappropriate

services that were voluntarily avoided by health care providers or rejected in the preauthorization

process.

The DWC‘s analyses are based on the Texas medical EDI data that contain information about

health care procedures billed by providers, and utilization review/payment actions made by

carriers, covering service years from 2005 to 2008. During this period, the number of claims

receiving medical treatments increased slightly in 2006 but decreased in 2007 and 2008. Total

costs for professional services declined by 27 percent in the four year period while hospital costs

increased by 18 percent. Combining professional, hospital and pharmacy costs, the average total

cost per claim decreased by 4 percent. The decrease was attributable mainly to the 19 percent

decrease in the average cost for professional services.

This sizable decrease in services by physicians and other professionals was not universal to all

types of providers. Although there was an overall consistent trend since 2003 toward a lower

utilization, partly due to new Medicare-based fee schedules and to the expanding requirements

for preauthorization, the decrease was most prominent in 2006. The greater part of this decline in

service utilization occurred in physical medicine services that became subject to preauthorization

requirements in 2005. Most notably, cost shares of chiropractors decreased significantly. The


215

data show that chiropractors lowered the frequency by 38 percent and the intensity by 17 percent

in 2006. The frequency of visits per claim underwent continuous decline in the four years while

the intensity decreased mostly in 2006.

This decline in utilization due to preauthorization requirements is assumed to continue after

2006, albeit at a much lower rate. Therefore, the decline in utilization in 2007 and 2008 could be

a result of both preauthorization requirements and the adoption of treatment guidelines. Our

analyses indicate that services provided by MD/DO group began to decrease in 2007. These

services provided by MD/DO group account for the majority of services and payments in

workers‘ compensation, and they were increasing in 2006 as no significant cost control measures

were effective for these services. But they began to decrease in 2007, and again in 2008. The

decreasing utilization and costs in MD/DO services are the best indication that the adoption of

treatment guidelines is having effects on reducing excessive services. However, preauthorization

requirements and the decreasing number of claims are also responsible for this decline.

For all professional services, the average cost per claim declined by 12 percent in 2006, mainly

due to the decline in chiropractic service utilization. The average cost declined by 5 percent in

2007 with a minor decrease in 2008, which may have been affected by new higher fees that went

into effect in March, 2008. Thus, it can be reasonably argued that the average cost per claim

declined at an annual rate of 5 percent in 2007 and 2008 as a result of 15 percent decrease in

service utilization. The majority of these decreases can be attributed to factors other than

preauthorization requirements.

But the analyses also indicate that the decrease in utilization was wide-ranging, not specific to

certain procedures as it would be expected if the changes were due to treatment guidelines. Also,

the decrease in utilization occurred more noticeably in frequency than in intensity. In other

words, the number and pattern of services billed for one visit has remained stable while the

number of service visits decreased steadily. This type of decrease occurred in all services with

little indication that these changes are related to the treatment guidelines‘ recommendations.

Post-Billing Effects: Less Medical Necessity Denials

Post-billing effects of the guideline adoption refer to actions by carriers and their agents for

utilization reviews. If providers ignored treatment guidelines and/or preauthorization require-

ments, carriers could still deny payments for some services. These actions are contained in the

medical 837 data as claim adjustment reason codes, and data show that denial rates are declining

while bill reviewers are more focused on fee adjustments and disputes related to

preauthorization. In other words, carriers are accepting more bills on the basis of medical

necessity, which is certainly one of the intended results of adopting treatment guidelines. The

bills, if they are denied, are more likely to be those of MD/DO providers than those of

chiropractors, unlike in 2006 when most denied bills were of chiropractors.

But this increased confidence in the part of carriers and utilization reviewers about the appro-

priateness of the bills is not a direct evidence of health care providers utilizing treatment

guidelines. Carriers may be accepting these bills after examining their appropriateness in the

context of treatment guidelines, or they may do so simply because the decreasing cost trend has

made scrutinizing bills‘ medical necessity unnecessary. Evidence points to the latter reason.


216

Treatment Pattern Analysis: No Significant Change

Comparative studies of utilization patterns before and after the adoption indicate that service

utilization has decreased overall but with a minimal change in treatment patterns. To evaluate

changes in specific treatment procedures, the DWC compared utilization patterns of two groups

selected from pre-adotion and post-adoption periods. All claims in the samples had soft tissue

low-back injuries. The DWC selected four services (office visits, X-Ray services, MRI services,

and surgeries) and compared actual service patterns with those recommended by the ODG

treatment guideline to be consistent with the diagnosis. Given the complexity of evaluating

service patterns, we used a similarity analysis of two cumulative distribution functions. Distri-

bution functions are constructed for a utilization measure (the number of services provided) and

a timing measure (the number of days between the date of injury and the first date of service) for

each of the four services chosen for analysis (see Tables 6 and 7).

Comparing 24,607 pre-adoption claims with 22,921 post-adoption claims, about 90 percent of

the post-adoption cases received the same number of evaluation and management services as that

for pre-adoption cases. The median number of days since injury did not change in 70 percent of

the cases. However, statistical tests indicate that their distribution patterns are statistically

different. The difference is mainly in the service patterns for top 5 percent or 1 percent of the

population.

According to the ODG-TWC, X-Rays for soft-tissue injuries are not recommended except for

rare and special cases. But the data show that over 47.4 percent of these cases received at least

one X-Ray service prior to the guideline adoption. If service providers consulted treatment

guidelines in any way, there would have been some changes. But 45.8 percent of the post-

adoption claims received X-Ray services and half of them on the first day they visited a

physician. In other words, in half of the cases, X-Ray was conducted as a routine procedure on

the first day. And this pattern has not changed after the guideline‘s adoption.

MRI and surgery services are not much different from the above services. Service delivery

patterns remain similar while significant changes occurred for the top 5 percent of the claims.

Service reductions in the top 1 percent or 5 percent of the cases may be attributed to a general

awareness among health care providers about the need to lower overall utilization, but not to any

specific treatment guideline being followed. This may very well change as more health care

providers are aware of the adopted treatment guidelines and reflect them in their treatment

planning process in the future, or if carriers begin to scrutinize submitted bills for inappropriate

services. Currently available data indicate only that health care providers are paying some

attention to utilization levels in extreme cases but general treatment pathways have not yet

changed significantly in the post-adoption period.


217

Table 6: Distribution Functions and Similarity Test Results for Utilization Measure


*= Bold numbers indicate that the difference between the two groups is statistically significant.

Table 7: Distribution Functions and Similarity Test Results for Timing Measure


*= Bold numbers indicate that the difference between the two groups is statistically significant.


218

Changes in Injury and Claim Characteristics

Multiple factors affect the average medical cost. While factors such as fee schedules, utilization,

billing practices and efficiencies in medical care delivery are main variables that determine cost

levels, other factors external to the workers‘ compensation system also contribute to the cost

increase. One factor that is often considered to be external to the system is the change in case

mix. For example, the average cost in one year may be higher due to an uncharacteristic increase

in the number of expensive injury or claim type. To the extent this change in case mix is due to

external factors, a part of the cost increase that is attributable to case mix changes may overstate

or understate actual cost increases due to systemic variables.

However, one needs to determine whether these external factors are truly external to the workers‘

compensation system. For example, medical price inflation may be internal in situations where

providers increase per service charges in response to a restricted number of services allowed.

Removing this effect of price inflation may result in underreporting cost increases. Case mix

distribution may also be responsive to changes in system measures. In such a case, case mix

adjusted costs may understate or overstate true costs. Case mix adjustment is often preferred

when average costs are compared across different states since differences in case mix among

states may be influenced by non-systemic factors and the purpose of a multistate comparison

is often to highlight the differences in medical care delivery and other internal factors only.

Nevertheless, there is much to gain in isolating the effects of case mix changes on average cost.

Table 8 shows relative shares of different injury and claim types in the Texas workers‘ compen-

sation system for selected years. Claims are distinguished into three types: a group that received

medical and income benefits, another group that received medical care only but reported some

lost time, and a third group that received medical care only without any lost time or income

benefits. Injury types are also separated into three groups: nerve compression, soft tissue, and

other type of injuries. Nerve compression injuries often require more costly treatment than soft

tissue injuries (e.g. sprains and strains) and other type of injuries. The average cost for 1998 is

shown in the third column.

The most common claim types are either relatively low cost (medical only claims with

soft tissue or other type of injury) or relatively high cost (income benefit recipients with

soft tissue or other type of injury). Noticeable in the relative distribution of these cases is

the upward tick in 2002 for income benefit claims with soft tissue injuries. There is a

corresponding downward tick in the medical only claims with other injury types for that

same year. It is expected that some of the high cost in 2002 would be attributable to this

peculiarity in injury and claim types.

The 2002 case mix of more high-cost and less low-cost claims contributes to its higher

average costs. But how much of 2002 cost is attributable to its case mix? To answer that ques-

tion, we have adjusted average costs by calculated weights using each year‘s relative distri-

bution of case types in relation to 1998. Figure 33 shows both unadjusted and weight adjusted

average costs. The difference between unadjusted and adjusted numbers represents cost increases

solely due to differences in the case mix.


219

Table 8: Relative Shares of Claims by Injury Type and Claim Type in Selected Years, One Year

Maturity


Figure 33 shows that cost increases attributable to changes in injury and claim types are signi-

ficant, but they are not dominant enough to obscure the overall trend in cost increases and

decreases. The average cost increased by 57 percent from 1998 to 2002. The increase is by 44

percent after controlling for injury and claim type effects, which accounted for about 23 percent

of the total cost increase. Secondly, the effects of changing case mix were highest in 2002 and

disappeared almost completely by 2005. In other words, when other cost factors are driving the

cost upward, the case mix factor is also working in the same manner. This is an indication that

the effects are not external to other factors that determine costs. Rather, the case mix effects are

very much linked to other internal cost factors, and thus they should be treated as internal factors.

Figure 33: Unadjusted and Case Mix Adjusted Average Costs by Injury Year, One Year Maturity



220

Changes in injury type may be internal and systemic to the extent that they respond to internal

factors such as changes in fee schedule and reimbursement policies. Claim types are also

potentially affected by changes in income benefit policies, changes in employer policies in

response to changes in premium and other costs, and by changes in coverage and treatment

practices. In such cases, removing these effects may result in presenting a partial analysis of cost

increases. A more detailed study may help in determining the endogeneity of case mix variables

and the extent of their effects on medical costs. At the same time, other cost factors, to the extent

that data is available, may also be identified and evaluated through regression and other analyses

of cost data, which will enable policy makers to isolate and better estimate the effect of a

particular reform.

Summary

In general, average medical costs per claim decreased significantly from the peak in 2002 until

2006, but they are in an increasing trend since 2006. Stabilized costs and the substantial

reduction in utilization of care since 2001 are directly related to various reform measures of HB

2600 and HB 7, especially the passage of the 2003 professional services fee guidelines and the

expanded preauthorization requirement for physical medicine services. Over this same time

period, much of the reduction in total medical payments occurred due to reductions in injury

rates and the total number of reportable claims filed with the DWC accounts. However, increased

scrutiny by insurance carriers in terms of compensability and medical necessity issues as well as

changes in reimbursement amounts, the adoption of the Medicare payment policies in 2003, and

the added preauthorization requirements for physical medicine services have also helped reduce

overutilization and medical cost inflation in Texas.

During the 2005 legislative session as well as during the adoption of network rules and

certification processes at the Texas Department of Insurance, there was a lot of concern from

various system participants about whether the implementation of new ―managed care‖ health

care delivery model in the Texas workers‘ compensation system would result in workers

receiving significantly less medical care and/or poor quality medical care. After reviewing

preliminary data from the initial stages of network implementation, it appears that injured

workers are receiving as much medical care, and in some cases more medical care, than non-

network claims with similar types of injuries. While it is too early to fully evaluate the impact of

networks on medical costs and utilization of care in Texas, it is clear that with the exception of

hospital services, networks‘ attempts to lower medical costs through the negotiation of lower

fees with health care providers have not produced lower medical costs, but rather increases in the

amount of certain types of medical care being billed by network providers. Increased hospital

costs for networks appear to be driven by higher fees for these services compared to the DWC‘s

fee guidelines.

Editor’s Note: This article incorporates the excellent work product of the Texas Department of

Insurance’s Workers’ Compensation Research and Analysis Group (WCREG) as it appeared in

their publication titled “Setting the Standard: An Analysis of the Impact of the 2005 Legislative

Reforms on the Texas Workers’ Compensation System, 2010 Results”. The Insurance Council of

Texas (ICT) supplemented the WCREG’s article text with detailed information about the

decrease in medical disputes. ICT does not claim copyright for the WCREG’s work product.



221

Workers’ Compensation Research Institute (WCRI) Reports An Increase in Medical Costs


WCRI‘s publication titled Monitoring the

Impact of Reforms in Texas: CompScope™

Medical Benchmarks, 11th

Edition, published in

May of 2011, noted that 2008 medical costs per

claim in Texas grew 8 percent, the first year

showing an increase since 2002. WCRI reported

that the increases in medical costs were likely

related to increases in payments to physicians

and hospitals included in revised fee guidelines

adopted in 2008. The report also noted that from

2002 to 2007, medical payments per claim in

Texas was falling or stable, driven in a large

part by decreases in payments per claim to

chiropractors and physical/occupational

therapists. By contrast, the report noted that

payments to hospitals were rising, particularly

for patient treatment. 40

WCRI attributes the 2002 to 2007 decreases in payment per claim in Texas to House Bill (HB)

2600, passed in 2001, and HB 7, passed in 2005, and increased payor focus and effort on

managing medical care. The report noted that prior to 2001, medical costs in Texas were the

highest among the 13 study states. 41

2008 claims – evaluated in 2009 – revealed that Texas

medical costs per claim were 17 percent lower than the typical state for claims with more than

seven days of lost time. These findings represented a dramatic shift in medical costs.

WCRI reported that a lower fee schedule – the result of the passage and implementation of HB

2600 – led to decreased reimbursement rates for most non-hospital services. The decrease was a

major factor in the drop in Texas medical costs per claim. WCRI noted that from 2002 to 2008,

reimbursement rates for non-hospital services fell 2 percent in Texas, while most study states

experienced growth of 10 to 15 percent. 42

WCRI reported that the increase in the 2008 Medical

Fee Guideline conversion factors and the separate conversion factor for surgery likely played a

key role in increased system medical costs associated with payments for professional services.

The increased rate of reimbursement associated with the 2008 revision of the Medical Fee

Guideline was intended by the Division of Workers‘ Compensation to reflect and compensate

doctors and non-hospital health care providers for increased practice costs that had occurred

40

Carol A. Telles, CompScope™ Medical Benchmarks for Texas, 11th Edition (Workers‘ Compensation Research

Institute, 2011), 3. 41

WCRI‘s CompScope™ Medical Benchmarks Study examines medical and related system costs of Florida,

Illinois, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, North Carolina, Pennsylvania,

Texas, and Wisconsin. 42

Carol A. Telles, CompScope™ Medical Benchmarks for Texas, 11th Edition (Workers‘ Compensation Research

Institute, 2011), 3.

http://www.wcrinet.org/result/csmed11_TX_result.html


222

since 2002. 43

WCRI noted that reimbursement rates increased for major surgery, office visits

and emergency services. Even with the increased reimbursement rates, Texas reimbursement

rates for medical services is mostly lower than in the typical fee schedule state. 44

Earlier WCRI studies found that the higher medical costs per claim prior to the passage of HB

2600 were driven by high utilization of medical services by non-hospital providers. This was

particularly true for chiropractic care. WCRI reported that while utilization of health care has

decreased significantly for important non-hospital health care providers, Texas was still higher

than the typical study state in 2008 for utilization of these services. 45

WCRI reported that utilization of medical care by non-hospital providers was much lower in

2008, reflecting the impact of HB 2600 and HB 7, along with increased payor focus on managing

medical care. For example, the average number of chiropractor visits per claim was cut by 63

percent from 2001 to 2008 (dropping from nearly 40 visits to 15). However, the number of chiro-

practor visits per claim in Texas was still slightly higher compared to the typical study state. The

report also noted that the percentage of claims with chiropractic care fell by 10 points from 2005

to 2007, but is still the highest among the 16 study states in 2008. 46

WCRI‘s report also noted the following significant findings:

● Utilization for most non-hospital services was increasing or stable in Texas from 2007 to

2008 with the exception of pain management injection services which declined.

● The number of office visits per claim fell from 11 pre-HB 2600 reform to 8 in 2006 with

little change in 2007 and 2008 – Texas still has more office visits per claim than is typical

among the 16 study states.

● The number of diagnostic tests per claim fell between 2005 and 2008, however, the utili-

zation of neurological testing is higher than typical.

● Payments per claim for hospital care in Texas were lower than typical for both

outpatient and inpatient services. However, medical payments per claim to hospitals

for inpatient care were the main driver of growth in Texas hospital payments per claim

increasing 7.5 percent per year from 2001 to 2007 and 40 percent in 2008. The cost

increases for this category of health care is likely driven by changes in the reimburse-

ment rates of the DWC‘s hospital fee guideline.

43

Prior to the adoption of a revised Medical Fee Guideline in 2008, the reimbursement rates for non-hospital

services had not been adjusted since 2002 in the wake of the passage of HB 2600. HB 2600 mandated the adoption

of a Medical Fee Guideline that was based on the Centers for Medicare and Medicaid fee guideline and

reimbursement methodologies. As noted in the article, the 2008 Medical Fee Guideline actually cut the

reimbursement rate for several categories of health care treatment. 44

Benchmarks for Designing Workers’ Compensation Medical Fee Schedules: 2009 as noted in CompScope™

Medical Benchmarks for Texas, 11th Edition (Workers‘ Compensation Research Institute, 2011), 3. 45


Medical Benchmarks for Texas, 11th Edition (Workers‘ Compensation Research Institute, 2011), 3.

46


Medical Benchmarks for Texas, 11th Edition (Workers‘ Compensation Research Institute, 2011), 3.


223

● The share of total medical payments per claim paid to hospitals rose, especially in 2005,

with payments for inpatient care becoming a larger component.

● Payments per service showed a significant increase for some outpatient services. The

increase is likely related to the new fee schedule adopted in 2008. At 200 percent of

Medicare, Texas was highest among states that use the Ambulatory Payment

Classification (APC) methodology.

● Outpatient physical medicine services showed a decline in both payment per service

(11.5 percent) and services per claim (14 percent) from 2007 to 2008.

A detailed summary of the major findings of WCRI‘s publication titled Monitoring the Impact of

Reforms in Texas: CompScope™ Medical Benchmarks, 11th

Edition is available in the Summary

of Major Findings for Texas section of the publication.

The study may be obtained by WCRI members and associate members from WCRI‘s website.

Non-members can purchase the report for $45 from WCRI.

Editor’s Note: This article incorporates the summary of findings of WCRI’s publication titled

Monitoring the Impact of Reforms in Texas: CompScope™ Medical Benchmarks, 11th

Edition as

edited for inclusion in this publication. ICT does not claim copyright over WCRI’s material or

work.

2011 TDI Network Report Card: A Review and Discussion

By Julie Shank, RN, BSN, J Shank Consulting

In late September 2011, the Texas Department of Insurance

(TDI) Workers‘ Compensation Research and Evaluation

Group (REG) published their fifth annual report card on the

performance of the Workers‘ Compensation Health Care

Networks. 47

As with the last two report cards, the 2011 report card

compared three categories (non-network, certified networks

(described in Chapter 1305 of Texas Insurance Code), and

public entity/political subdivision networks (described in

Chapter 504 of Texas Labor Code)). The first two network

report cards (published in 2007 and 2008) compared non-

network claims with certified networks claims only. Public entities/political subdivision

networks were included in 2009.

47

Texas Department of Health, Workers’ Compensation Research and Evaluation Group

2011 Workers’ Compensation Report Card Results, Summary of Findings (pages 5 and 6 in the report)

can be found at the end of this article.

http://www.wcrinet.org/result/csmed11_TX_result.html


224

It is important to compare and contrast all three categories because of the variability in statutory

and administrative rule requirements. Taking into consideration the performance of individual

certified networks and the differences between non-network and certified networks aids private

employers in deciding which avenue is best for them. Comparing and contrasting all the

categories helps stakeholders review ‗best practices‘ and assists policymakers in making any

necessary changes. And, as with most studies, carefully reading the 2011 report card brings

more questions to mind. And it shows the need for further study regarding what policies and

practices are making the most positive impact for the employee and employer in the state of

Texas.

Three categories and twelve groups

As noted in the previously, there are three categories in this report card. Those three categories

are further divided into twelve groups to compare, including eleven network categories and one

‗non-network‘ category.

1. Non-network claims

2. Certified network claims:

a. Eight networks with enough injured employees treated during the study period to

have their results analyzed separately:

i. Corvel

ii. Coventry

iii. First Health

iv. IMO

v. Liberty

vi. Travelers

vii. Texas Star

viii. Zurich

b. Other Network: Sixteen remaining certified networks too small (in terms of

number of injured employees treated in each network) to have results analyzed

separately.

3. Public entities and political subdivision networks, broken into two categories:

a. 504-Alliance, a partnership of five political subdivisions:

i. Texas Association of Counties Risk Management Pool

ii. Texas Association of School Boards Risk Management Fund

iii. Texas Municipal League Intergovernmental Risk Pool

iv. Texas Council Risk Management Fund

v. Texas Water Conservation Association Risk Management Fund

b. 504 – Others, which comprises of Dallas County schools and the Trinity

Occupational Program (Fort Worth Independent School District)


225

Numbers of Injured Employees

The report card examines only new claims and excludes legacy claims from the analysis.

Twenty-six percent (57,27348

) of all injured employees were treated within a network during the

study period of June 2009 through May 2010.

Mandated Areas of Study

A variety of measures are used to compare networks and non-networks, including:

1. Health care costs

2. Utilization

3. Satisfaction of care

4. Access to care

5. Return-to-work

6. Health outcomes.

Improvements

Over the last couple years, the networks have seen steady improvements in numerous areas. As

TDI Division of Workers‘ Compensation‘s Special Deputy Commissioner for Policy and

Research, Amy Lee wrote in her e-mail announcing this latest report card:

―Overall, several networks certified by TDI showed improvements in a variety of

measures, including medical costs, return-to-work outcomes, and health outcomes

compared to previous report cards. However, non-network claims continued to have lower

medical costs and better satisfaction with medical care than network claims.‖

Health Care Costs

Even though for the first six months after the injury, non-network claims had less medical costs

than most networks, the scenario changes with a more mature claim. With an additional twelve

months of data, the average per-claim cost for non-network injured employees increased by 41%,

while the average for networks increased 27%. Though this difference may sound small, another

way to calculate it is that there was a 52% difference in the increase of medical cost average per

claim between non-network and network claims.

Spinal Surgery: Eight of the eleven networks had lower average spinal surgery costs than non-

network. Since spinal surgery has related hospital costs, recovery, disability, and pharmaceutical

costs, reviewing the use of spinal surgery is important and significant. It would be interesting to

drill down to see if there were less spinal surgical procedures performed and, if so, what type of

surgeries. In particular, spinal fusions have been under scrutiny for a long time for its necessity

48

The number of injured employees treated in networks has increased each year. In 2009, there were 39,385 and in

2010 there were 47,340 injured employees treated in the networks.


226

and use.49

Besides the question of medical necessity and use, fusions also have increased costs

post-operatively versus other types of spinal surgeries.

In-patient hospitalization: Seven of the eleven networks had lower average medical costs in

hospital in-patient settings than non-network. This is important to note because of the high cost

of in-patient hospitalizations and the anecdotes regarding difficult contract negotiations between

hospitals and networks in contrast to the use of the DWC Inpatient Hospital Fee Guideline in the

non-network setting.

Pharmaceutical: Eight out of eleven networks had lower average pharmaceutical costs than non-

network in the use of mood stabilizers. (Mood stabilizers include medications in the

classifications of anti-depressant and anti-anxiety). But, it is interesting to note that when mood

stabilizers are used in a claim, they are the highest average cost per claim of any pharmacy drug

types (6 months post injury) for all twelve groups (networks and non-networks). This finding

should encourage adjusters and case managers to closely watch the prescription use of these

medications and the length of time they are prescribed.

Utilization and Cost

Physical Medicine: All eleven of the networks had lower utilization of physical medicine

modalities than non-network. (Nine of the eleven network also had lower cost in physical

medicine modalities than non-networks). Modalities are considered passive treatments such as

ultrasound and electrical stimulation. Besides being a cost factor, numerous studies have shown

when a patient receives active exercises versus passive modalities as the major part of the

physical medicine program, the outcomes are more positive.50

Access and Satisfaction

As part of the injured employee survey conducted, the injured employees enrolled in a network

had lower levels of satisfaction with their care and lower levels of access to their care. These

survey results regarding access did not correlate with the medical data which showed that all

networks provided faster non-emergency medical services to their injured employees than non-

network.

49

Official Disability Guidelines, online Procedure Summary – Low Back, ―Fusion, spinal‖ Lumbar fusion in

workers' comp patients: In cases of workers' compensation, patient outcomes related to fusion may have other

confounding variables that may affect overall success of the procedure, which should be considered. Until further

research is conducted there remains insufficient evidence to recommend fusion for chronic low back pain in the

absence of stenosis and spondylolisthesis, and this treatment for this condition remains ―under study.‖ It appears that

workers‘ compensation populations require particular scrutiny when being considered for fusion for chronic low

back pain, as there is evidence of poorer outcomes in subgroups of patients who were receiving compensation or

involved in litigation. 50

Official Disability Guidelines, online Procedure Summary – Low Back, ―Physical Therapy (PT)‖ Active

Treatment versus Passive Modalities: The use of active treatment modalities instead of passive treatments is

associated with substantially better clinical outcomes. In a large case series of patients with acute low back pain

treated by physical therapists, those adhering to guidelines for active rather than passive treatments incurred fewer

treatment visits, cost less, and had less pain and less disability. The overall success rates were 64.7% among those

adhering to the active treatment recommendations versus 36.5% for passive treatment


227

Return-to-Work

In A Physician’s Guide to Return to Work, the

authors list consensus statements from the

Canadian Medical Association, the American

College of Occupational and Environmental

Medicine, and the American Academy of

Orthopaedic Surgeons stating the detrimental

effects of prolonged absences from work. One

example follows:

―Prolonged absence from one‘s

normal roles, including absence

from the workplace, is detrimental

to a person’s mental, physical,

and social well-being [italics

added]. Physicians should

therefore encourage a patient‘s

return to function and work as

soon as possible after an illness or

injury…‖51

A Physician’s Guide continues with a review of literature that shows research agrees with the

above consensus statement. The research also goes further saying that unemployment actually

can decrease the length of your life.

―…the mortality experience of 30,000 Swedes followed for 10 to 17 years; conclude[ed] that

unemployment increased the risk of death by nearly 50%...‖52

Because of the above information and many other studies, return-to-work is a priority for injured

employees and a very important area to track and research.

In January 2001, the Texas Research and Oversight Council on Workers‘ Compensation (ROC)

published a seminal report for the 77th

Texas Legislature entitled, Striking the Balance: An

Analysis of the Cost and Quality of Medical Cost in the Texas Workers’ Compensation System

(“Striking the Balance”). In the injured employee surveys for both Striking the Balance report

as well as for this report card, injured employees were asked: ―Are you currently working?‖ In

2001, the number of injured employees surveyed who said they were working was 64%.

Eight years later, when TDI‘s Research and Evaluation Group published the 2009 report card,

Non-network injured employees and several certified network injured employees results and

51

A Physician’s Guide to Return to Work, editors James B. Talmage, MD and J. Mark Melhorn, MD, AMA Press,

2005, page 2. 52

Talmage and Melhorn, page 4.


228

several networks were less than the 2001 result of 64%. The network results vary between 58%

and 77% and follow:

Survey of injured employees: “Are you currently working?”

2001 2009

TDI Report

Card

2011

TDI Report

Card

“Striking the Balance” 2001

Study

64%

Non-network 58% 69%

504-Alliance 77% 80%

504-Others 59%

Corvel 75% 77%

Coventry 62% 61%

First Health 64%

IMO 84%

Liberty 63% 70%

Travelers 67% 73%

Texas Star 58% 71%

Zurich 72%

Other networks53

63% 76%

Physical and Mental Functioning

In Striking the Balance, the research staff measured outcomes of care by looking at both physical

and mental functioning. As noted in the report, “Physical functioning is used to measure

whether an injured worker gets better or recovers physically after the injury, while mental

functioning is used to measure whether an injured worker is likely to experience depression or

alienation after injury.54

Physical and mental functioning for the representative US

population is a mean score of 50.00.55

The injured worker surveys for the 2009 Network Report Card

showed a positive trend in both physical and mental func-

tioning, especially in the network setting, in comparison to

both the non-network setting and the 2001 Striking the Balance

surveys. In the 2011 Report Card, the Physical Functioning

positive trend continued with all but two networks increasing

their numbers from two years ago.

53

The certified networks included in ‗other networks‘ category is not the same network from 2009 and 2011, hence

it is difficult to compare the two years for ‗other networks‘ 54

Striking the Balance, page 59 55

Striking the Balance ―…mean score of 50…representative sample of US population. Thus, scores greater than 50

represent above-average health status…‖, page 59


229

Physical Functioning

2001 2009

TDI Report

Card

2011

TDI Report

Card

US Population 50.00 50.00 50.00


Study

37.63

Non-network 42.1 45.5

504-Alliance 45.6 46.9

504-Others* 43.4

Corvel 45.5 47.2

Coventry 43.9 42.7

First Health* 43.4

IMO* 49.2

Liberty 44.2 42.7

Travelers 44.7 46.5

Texas Star 44.1 45.6

Zurich 45.5

Other networks56

43.1 43.9 *These certified networks were not listed in the 2009 Network Report Card; hence they have no scoring

in this table for that year.

As noted earlier, mental functioning is used to measure whether an injured worker is likely to

experience depression or alienation after injury’. The cost in absenteeism and

‗presenteeism‘(loss of productivity while at work) are major issues for both employers and

employees. As noted in A Physician’s Guide to Return to Work:

―…the total cost of lost production time due to depressive disorders in the US

workforce has been estimated at $21.4 billion for major depression, $12.8 billion

for dysthymia (mild chronic depression), and $9.8 billion for partially remitted

major depression. The average loss of productive time from major depression is

estimated at 8.4 hours per week. This phenomenon, ‗presenteeism,‘ or lack of

productivity while at work, is much more of a problem than absenteeism from

work in individuals who are depressed.‖57

Obviously, mental functioning is very important to track in workers‘ compensation.

In the 2009 TDI Report Card, all scores for mental functioning were higher than the 2001 score

in Striking the Balance. As noted in the table below, the positive trend continued in all of the

network (as well as the Non-network) scores in the 2011 Network Report Card. In fact, in seven

of the twelve groups, the score was higher than the US population score.

56


it is difficult to compare the two years for ‗other networks‘ 57

A Physician’s Guide to Return to Work, Talmage and Melhorn, page 306


230

Mental Functioning

2001 2009

TDI Report

Card

2011

TDI Report Card

US Population 50.00 50.00 50.00


Study

44.4

Non-network 47.4 51.3

504-Alliance 51.0 51.9

504-Others* 52.3

Corvel 49.2 51.0

Coventry 45.9 47.1

First Health* 48.4

IMO* 52.1

Liberty 47.0 47.8

Travelers 47.7 51.3

Texas Star 47.2 49.3

Zurich* 49.6

Other networks58

47.5 50.7

*These networks were not listed in the 2009 Network Report Card; hence they have no scoring

in this table for that year.

Final Words

It has been over five years since the first Texas workers‘ compensation network was certified

and began enrolling and treating injured employees. Calculating the actual cost and indirect

positive rewards or negative consequences of the networks has been on-going throughout this

time. This report card, as with most studies, more questions are raised and more in-depth

research is needed. As claims mature and lessons are learned, it is certain that the network

landscape will continue to evolve.

Editor’s Note: The author of this article, Julie Shank, BSN, is the owner of J Shank Consulting.

Shank, a registered nurse, was the Texas Workers’ Compensation Commission’s (TWCC)

Director of Medical Review from 1991 to 1996. She is a highly sought after workers’ compen-

sation consultant, speaker and educator. Shank has served as a consultant to numerous certified

health care networks and helped the networks prepare and file their applications to be certified

as a workers’ compensation network. She has also served as an expert witness before the State

Office of Administrative Hearings and provides consultation services to health care providers,

insurers, networks, and employers.

Shank can be contacted at [email protected].

58


it is difficult to compare the two years for ‗other networks‘



231

Summary of Findings of the Texas Department of Insurance, Workers’ Compensation

Research and Evaluation Group 2011 Workers’ Compensation Report Card Results

The following is a summary of the findings of

the 2011 Workers‘ Compensation Report Card

results prepared by Julie Shank, RN, BSN, J

Shank Consulting for the Insurance Council of

Texas:

Health Care Costs

• Overall, 504-Alliance and Zurich injured

employees had lower average medical costs

than non-network injured employees for the

first six months after the injury.

• When an additional twelve months of data

are added to the 2010 results, the average per-

claim cost for non-network injured employees

increased by 41%, while the average for

networks increased by 27%.

• Alliance‘s average medical costs were lower than Non-network in 15 of 19 medical categories.

• Texas Star and IMO‘s average medical costs were lower than Non-network in 13 of 19

categories, including all pharmacy groups.

• Zurich and Traveler‘s average medical costs were lower than Non-network in 10 of 19

categories.

• 504-Others‘ average medical costs were lower than Non-network in 9 of 19 categories.

• Liberty, First Health and Other Network‘s average medical costs were lower than Non-network

in 6 of the 19 categories.

• Coventry‘s average medical costs were lower than Non-network in 5 and Corvel in 3 of the 19

categories.

• Nine network entities (504-Alliance, 504-Others, Corvel, First Health, Liberty, Travelers,

Texas Star, and Zurich) had lower average medical costs than Non-network in Physical Medicine

Modalities.

• Nine network entities (504-Alliance, 504-Others, Corvel, Coventry, First Health, IMO, Liberty,

Other Networks, and Texas Star) had lower average medical costs than Non-network in Nerve

Conduction Diagnostic Testing.

• Eight network entities (504-Alliance, 504-Others, First Health, IMO, Liberty, Other Networks,

Texas Star, and Zurich) had lower average Spinal Surgery costs than Non-network.


232

• Seven network entities (504-Others, First Health, IMO, Liberty, Texas Star, Travelers, and

Zurich) had lower average medical costs than Non-network in Path. & Lab services.

• 504-Alliance, IMO and Zurich had lower average hospital medical costs than Non-network.

• Seven network entities (504-Alliance, 504-Others, Corvel, IMO, Liberty, Texas Star, and

Zurich) had lower average medical costs than Non-network in hospital in-patient services.

• 504-Alliance, Travelers and Texas Star had lower average pharmacy medical costs than Non-

network.

• Eight network entities (504-Alliance, 504-Others, Coventry, First Health, IMO, Travelers,

Texas Star, and Other Networks) had lower average pharmaceutical costs than Non-network in

the use of mood stabilizers.

Medical Utilization (Percentage of Injured Employees receiving each type of service)

• Overall, networks tended to have lower utilization of hospital services than Non-network, but

higher utilization of professional and pharmacy services.

• 504-Alliance‘s average utilization rates were lower than Non-network in 11 of 18 categories.

Medical Utilization (Average number of services per injured employee for each type of

service)

• 504-Alliance‘s average utilization rates were lower than Non-network in 14 of 16 service

categories.

• IMO‘s average utilization rates were lower than Non-network in 10 of 16 categories.

• 504-Others‘ average utilization rates were lower than Non-network in 8 of 16 categories.

• Coventry, Travelers and Zurich‘s average utilization of services was lower than Non-network

in 7 of the 16 categories.

• First Health and Other Networks‘ average utilization of services was lower than Non-network

in 5, Texas Star in 3, Corvel and Liberty in 1 of the 16 categories.

All the networks had lower utilization of PM-Modalities services than Non-network.

• Seven network entities (504-Alliance, 504-Others, Coventry, First Health, IMO, Other

Networks, and Texas Star) had lower utilization of DT-MRI services than Non-network.

Access to Care and Satisfaction with Care

• Overall, network injured employees reported lower levels of access to, and satisfaction with

care. However medical data show that all networks provided faster non-emergency services to

their injured employees than Non-network.


233

• Injured employees from First Health and Alliance reported higher or equal levels of receiving

quick care as compared to Non-network injured employees.

• Zurich‘s injured employees reported higher overall satisfaction with care and with treating

doctor in comparison with Non-network injured employees.

Return-to-Work

• Injured employees from eight network entities (504-Alliance, Corvel, IMO, Liberty, Travelers,

Texas Star, Zurich and Other networks) reported higher return-to-work rates than Non-network

injured employees.

• Injured employees from five networks (504-Alliance, 504-Others, IMO, Travelers, and Other

Networks) reported lower number of weeks off from work.

Health Outcomes

• The SF-12 survey was used to calculate the physical and mental health status of injured

employees at the time of the survey.

• The average scores in the U.S population for both outcomes are 50 and scores that are more

than 10 points higher or lower than this reference point are considered statistically significant.

• Five networks (504-Alliance, Corvel, IMO, Travelers and Texas Star) had higher physical

functioning scores among their injured employees than Non-network injured employees.

• Three networks (504-Alliance, 504-Others and IMO) had higher mental functioning scores

among their injured employees than Non-network injured employees and the U.S. population.

• Travelers and Non-network injured employees had equal level of mental functioning scores

which were higher than the score of U.S. population.

Workers’ Compensation Health Care Networks Resources

TDI Workers‘ Compensation Health Care Networks Webpage:

http://www.tdi.texas.gov/wc/wcnet/indexwcnet.html

TDI Workers‘ Compensation Health Care Network Report Card for 2011:

http://www.tdi.texas.gov/reports/wcreg/documents/2011%20report%20card%20-%20final.pdf

List of Certified Workers' Compensation Networks:

http://www.tdi.texas.gov/wc/wcnet/wcnetworks.html

Workers‘ Compensation Health Care Network Rules:

http://www.tdi.texas.gov/rules/2005/document/1115a-059.pdf

Source: Texas Department of Insurance, 2011

http://www.tdi.texas.gov/wc/wcnet/indexwcnet.html

http://www.tdi.texas.gov/reports/wcreg/documents/2011%20report%20card%20-%20final.pdf

http://www.tdi.texas.gov/wc/wcnet/wcnetworks.html

http://www.tdi.texas.gov/rules/2005/document/1115a-059.pdf


234

TDI Reports on Access to Medical Care: Doctor Participation Stable and Improving

On June 20, 2010, the Texas Department of Insurance‘s

(TDI) Workers‘ Compensation Research and Evaluation

Group (WCREG) released the findings of the Access to

Health Care in Texas Workers‘ Compensation study. The

WCREG‘s study findings indicate that the total number of

physicians participating in the Texas workers‘ compensa-

tion system is increasing and is stable. The study reviewed

data from 1998 through 2008.

D.C. Campbell, director of TDI‘s Workers‘ Compensation

Research and Evaluation Group, spoke at the 20th annual

Texas Workers‘ Compensation Educational Conference

and noted that the Texas system has witnessed measurable

achievements across the board in recent years.

Campbell, who presented research findings on key areas of the workers‘ compensation system‘s

performance, reported that the decrease in the number of primary care physicians treating injured

employees has been offset by an increase in the number of emergency medicine specialists who

have stepped in to treatment of occupational injuries.

―The percentage of primary care physicians has fallen from 63.7 percent of primary care

physicians in 1999 to 45.7 percent in 2008,‖ said Campbell. ―Meanwhile, participation by

emergency medicine specialists has increased from 70 percent in 1999 to 90 percent in 2008.‖

Campbell reported that the number of doctors participating in the Texas workers‘ compensation

system is relatively stable. ―Overall, 47% of all Texas physicians participate in the Texas

system,‖ said Campbell.

Other findings of the study included:

● Emergency Medicine physicians‘ participation is low relative to others, but growing

fastest.

● Radiology/Pathology, Anesthesiology, and Orthopedic surgeons are increasing.

● 90 percent of active Orthopedic and Emergency Medicine physicians were WC

participants in 2008.

● Primary care physicians‘ participation rate decreased from 64 percent in 1999 to 46

percent in 2008. This decrease is somewhat compensated by Emergency Medicine

specialists.

● Percentage of claims treated by EM specialists almost doubled from 4.5 percent in 1999

to 8.7 percent in 2008.

● The total number of participating primary care physicians is stable.

http://www.tdi.state.tx.us/reports/wcreg/documents/Access_to_Care_2010.pdf


235

● Access measure for spinal surgery (patients per surgeon) is stable.

Doctor Retention Rate is High and Stable

The report noted that overall physician retention rate is high and stable with 80 percent annual

retention rate for all workers‘ compensation participants. The ―Top 20 percent‖ of physicians in

terms of claim volume have higher participation and retention rates – 98 percent or better annual

retention rate. The ―Top 20 percent‖ of physicians account for more than 80 percent of total

workers‘ compensation medical doctor and doctor of osteopathic medicine patients and costs.

The report noted that the ―Top 20 percent‖ doctor participation rate as a whole appears

unaffected by changes in fee schedule and rules. Approximately 83 percent to 86 percent of the

―Top 20 percent‖ remain in the ―Top 20 percent‖ year after year.

Orthopedic surgeons maintained the highest retention rate until 2006, but their participation rate

remains above 90 percent. Overall, physicians have an 80 percent retention rate. The remaining

20 percent who have stopped taking workers‘ compensation patients did so primarily due to

normal attrition rate among physicians, e.g. retirement, death, change in practice type, migration

and so forth.

The report noted that the workers‘ compensation health care market is highly specialized due to

the nature of occupational injuries, the reimbursement and review process, regulatory rules, and

the initial investment costs for the providers that include training for exams and reports, adapting

to rules and procedures, special devices and so forth.


236

Some doctors elect to specialize in the treatment of occupational injuries while others are willing

to treat occupational injuries as part of a more generalized practice of medicine. Other doctors

elect to specialize in other areas of medicine and do not develop a practice model that includes

the treatment of occupational injuries, e.g. pediatrics, family medicine and so forth.

Geographical Location Plays a Role in Availability of and Access to Specialists and Doctors

Geographical differences and locations play a role in

the availability of specialists and number of doctors

who treat occupational injuries. Some non-metro areas

and border regions have higher physician workers‘

compensation participation rates than in metro areas,

but also a higher number of workers‘ compensation

patients per physician.

The report noted that any lack of physician access is

primarily due to the low total number of physicians

practicing in these areas rather than a low workers‘

compensation participation rate.

The report analyzed the geographical access to

physicians by reviewing participation in the Texas

workers‘ compensation system by analyzing physician

participation in 22 of the 24 Hospital Referral Regions for Texas.

Hospital Referral Regions (HRRs) are based on The Dartmouth Atlas of Health Care. HRRs are

constructed using Medicare hospitalization records and patient referral patterns, closely

resembling the pattern of medical care and access. HRRs roughly correspond to major metro

areas, but more relevant to medical care. There are 24 HRRs in Texas. 2 HRRs were removed

from analysis: ―Texarkana‖ and ―Shreveport‖ HRRs are primarily located in Arkansas and

Louisiana.

The WCREG report noted that there are a total of 44,267 doctors active in the Texas workers‘

compensation system within the 22 HRRs reviewed as part of the access study. Other findings

from the study regarding the geographical access to physicians in the Texas workers‘

compensation system include the following:

● Overall, 47% of active Texas physicians participate in the workers‘ compensation

system.

● 72 percent of the doctors who participate in the Texas system are located in the five

largest metro areas in the state – Houston, Dallas, Fort Worth, San Antonio and Austin.

● 71 percent of all workers‘ compensation claims in Texas are in the same five metro areas.

● Participation rates are generally lower in larger metro areas as there are more doctors in

these areas.


237

Hospital Referral Regions in Texas

Source: Texas Department of Insurance, Workers‘ Compensation Research and Evaluation Group, Access to

Medical Care in the Texas Workers‘ Compensation System: 1998 -2008, 2010

Source: Texas Department of Insurance


238

Timeliness of Care Has Improved

The WCREG reviewed the timeliness of medical care that Texas injured employees are

receiving.

Overall, initial access (timeliness of care) measures show that WC patients are getting treatments

faster in 2008 than in 1998. Injured employees received non-emergency treatments faster in 2008

than in 1998. 81.5 percent of injured employees received initial care in 7 days or less in 2008, up

from 75.1 percent in 1998.

The report noted that compensability and extent of injury denials and/or initial disputes tend to

be associated with delayed initial care. However, the report noted 66.2 percent of disputed cases

received initial care in 7 days or less in 2007, up from 55.1 percent in 1998.

The WCREG‘s report also noted that approximately 45 percent – 55 percent of patients saw a

primary care physician on their first treatment day. The report also noted that the share of

Occupational/Physical Medicine specialists on the first day of treatment is consistently around 15

percent although they account for less than 4 percent of total MD/DO participants.

The report found that the timeliness trends are similar for physicians in primary care, emergency

medicine, and occupational/physical medicine. The report also noted that the average number of

days from injury date to first visit with an orthopedic surgeon decreased from 32 days in 2001 to

22.5 days in 2008.


239

Initial Access by Days

Percentage of claims with ―same day‖ visits declined in 1998-2001, but improved to 40 percent

by 2008. ―Same day‖ and the ―1 to 7 days‖ groups accounted for 75.1 percent of claims in 1998,

and 81.5 percent in 2008 – an 8.5 percent increase. The largest decrease was in the share of

extreme delays (29 days or more) that decreased from 10.3 percent to 6.1 percent.

Initial Access by HRR

Health Care Networks and Timeliness of Care

The WCREG evaluated the timeliness of care for medical care provided to injured employees

within a certified health care network. The report noted that initial access for health care network

patients is slightly better than non-network patients.

Physician participation in health care networks is greater than originally anticipated. Among

participating physicians in a 2007 provider survey, 57 percent of the physicians who said they

were not likely to join a network treated workers‘ compensation network patients in 2008.

Among non-participating physicians in the 2007 survey, 13% of the physicians who said they

were not likely to join a network treated workers‘ compensation network patients in 2008.

The WCREG reported that initial access to medical care in networks is better than that in non-

network workers‘ compensation claims. While access worsened in 2008 in non-network claims,

all networks except the Political Subdivision Workers' Compensation Alliance (Alliance)

improved the measure.


240

The Alliance is a direct-contracting program for political subdivisions and inter-governmental

risk pools that provides an alternative to the traditional statutory scheme and allows political

subdivisions and intergovernmental risk pools to directly contract with health care providers for

treatment of public employees who are injured on the job.

The report noted that the share of patients with critical delays (29+ days) is the lowest in

Alliance. The report also noted that other than Texas Star and Alliance, ―other networks‖ do not

show much improvement over non-network.

Are There Areas of the State Where There Are Access Problems?

The Texas workers‘ compensation system has ―pockets‖ of areas in the state – mainly rural areas

– where injured employees are experiencing access to care issues. In such instances, it has been

reported that injured employees are required to travel a significant distance to obtain treatment

from specialists.

Texas as a whole has attracted an influx of new doctors from other states since the 2003 medical

tort reform, while the number of treating doctors in the workers‘ compensation system remained

stable. The stable number of treating doctors as a percentage of a growing number of all active

Texas doctors results in lower participation rates. In the past, this declining participating rate has

been interpreted as declining availability of doctors for injured workers. It should be noted that

the injury rate and the number of injured workers have declined over the past several years. The

decline in the rate of injuries and number of injured employees has resulted in the improvement

in the injured worker to doctor ratio cited in the study results. The TDI study shows that over the

10-year period, the ratio of injured workers to treating doctors improved from 22 per treating

doctor to 16.5 per treating doctor.


241

Prescription Drug Abuse: A Growing National Problem

By Stuart D. Colburn, Attorney and Shareholder, Downs Stanford, P.C.

We are killing our children. And we are killing their parents.

When we are not successful killing our citizens, we destroy

their lives and the lives of their families. The weapon is legal:

prescription drugs.

Hyperbole aside, no one intends such damage on our citizens.

America‘s prescription drug abuse (PDA) problem is not

nearly as well known as our War on Drugs. No war has been

declared and yet American lives are being lost.

American citizens make up 4% of the world‘s population.

Yet, we consume 66% of the world‘s legal drugs. Americans

consume:

99% of hydrocodone

80% of opiates

71% of oxycodone

An estimated 7 million Americans abuse prescription drugs: more than the number of Americans

abusing cocaine, heroin, hallucinogens, ecstasy, and inhalants combined.

The Center for Disease Control estimated 11,500 people die a year from opiates, twice as many

as cocaine and five times as many as heroin. Deaths have quadrupled over the last decade. We

are fighting the wrong war.


242

In 1991, doctors wrote 40 million prescriptions for opioids. In 2007, the number of prescriptions

rose to 180 million. Hospital admissions increased a staggering 400% from 1998 to 2008 with a

200% increase in the number of deaths. Two Americans die every hour from prescription

drug abuse.

Source: Centers for Disease Control and Prevention

Prescription drug abuse is also regional. The federal government identified three primary hubs:

southern California, southern Florida, and Harris County (Houston area), Texas. In fact, one out

of six Houston-area deaths is attributed to prescription drugs. In 2010, 734 million hydrocodone

pills were prescribed in Houston – enough for every man, woman, and child to consume 30

doses.

Nationally, the number of deaths from prescription drug abuse surpassed the number of deaths

caused by alcohol and firearms. Recently, prescription drug abuse deaths exceeded the number

of deaths caused by motor vehicle accidents in such states as Ohio. In Michigan, prescription

drug overdose is the second leading cause of unintentional deaths. Perhaps more troubling is that

25% of those seeking medical care were younger than age 25.

Prescription drug abuse also strikes our military forces. In 2009, our fighting forces were

prescribed four times the number of pain medications they were prescribed 2001. In fact, 25% of

soldiers admitted abusing prescription drugs in the last twelve months.

Although the federal government has not declared war on prescription drugs, the White House

did announce a policy on April 21, 2011, calling the prescription drug epidemic ―our Nation‘s

fastest drug problem.‖ The White House plan includes expanding prescription drug monitoring

programs, educating doctors and patients, and expanding prosecution of pill mills.


243

Why Prescription Drug Abuse Problem is Different than Illicit Drugs

Prescription drugs are qualitatively and quantitatively different than illegal drugs. First, abusers

of prescription drugs have more access to scheduled narcotics than illegal drugs. Prescription

drugs are more plentiful than their illegal counterparts. Prescription drugs are not prohibited,

although they are controlled and regulated by the federal government. Manufacturers can legally

make - and citizens can legally take - drugs prescribed by a doctor. There is less social stigma

attached to the abuse of prescription drugs. In comparison, illegal drugs are in limited supply.

Second, abusers have greater access to not only drugs but also higher quality drugs. Large

companies manufacture prescription drugs in a clean and safe facility with consistent dose and

strength monitored by governmental agencies. Prescription drugs are taken orally with no risk of

HIV and hepatitis B or C. The quality of illegal drugs such as cocaine or heroin is circumspect

with no enforcement or regulatory safeguards. Illegal drug makers can dilute their product to

expand profits without threat of regulatory sanctions or lawsuits. Deaths occur due to impurities.

Many drugs can be abused. The current favorite drugs that are abused are:

Oxycontin

Hydrocodone

Oxycodone

Methadone

Morphine

The public‘s appetite for prescription drugs leads to a lucrative secondary market. The typical

prescription drug abuser personally uses the drugs for nonmedical purposes. Drug diversion

occurs when the prescription holder gives or sells drugs to others. For example, oxycontin has

been known to sell for $40 a pill. MScontin fetched as much as $70 per pill. A fetanyl patch

was good for $50. Even vicodin was worth $1-$4 per pill. One study revealed 85% of

respondents received drugs from someone who had a prescription.

Young adults are generally the buyers and sellers in the secondary market. Kids steal from their

parents‘ medicine cabinets to feed their own habit or sell to others. The easy access to

prescription drugs provides an adequate supply chain keeping the purchase price relatively low

for other kids to enter the market. Peer pressure and addiction creates the demand. PDA moves

from outcasts to the ―in‖ kids. Soon, it is accepted and ―cool‖ to get high with prescription

drugs. Kids throw ―pharm parties‖ where partygoers swallow handfuls of pills often not

knowing what they are taking and ignorant of drug interactions. Alcohol is often the chaser.

These actions can result in dangerous self-destructive behavior, injury, and death.

Who Are The Stakeholders?

Drug Manufacturers

Unlike illegal drug manufacturers, the pharmaceutical industry includes Fortune 500 companies

who are well-respected in their communities. Drug makers spend billions in research,

development, and testing. They truly make miracle drugs that save lives. Numerous pain


244

management medications have also improved the quality of life for millions of Americans.

Pharmaceutical companies must make a profit and create value for their shareholders. Like any

good capitalist, they must create products people want. To reach their target audience and ―hit

their number,‖ they market drugs to their potential customers first using attractive drug reps

visiting doctor‘s offices and later directly to consumers. Profit motive leads to better drugs but

can also lead to some perversions.

Doctors

Physicians are held in high regard and command significant salaries. Like others, doctors can

often be influenced by relationships and business opportunities. For example, one study of

physicians found the following:

94% had a relationship with pharmaceutical companies;

83% receive food or drinks in the workplace from pharmaceutical companies;

78% receive drug samples;

35% receive reimbursement to attend meetings including continuing medical education,

usually at plush resorts; and

28% receive payment for consulting, speaking, or enrolling patients in clinical trials.

Physicians are both healers and entrepreneurs. Many in the profession view themselves as more

than a provider of medical services to their patients but rather as business professionals.

Prescription drugs are one profit center.

And like any good capitalists, many doctors continually look to expand their profit centers. One

company marketed on LinkedIn how doctor‘s offices could expand their profit margin by dispen-

sing drugs. Physician dispensing is a hot topic across the nation. Studies show that physician

dispensing increases the number of prescriptions and the cost of those prescriptions in the states

that allow it. For example, payers reimburse doctors 148% more for ibuprofen in Florida and

464% more for Soma. Louisiana doctors were reimbursed 81% more than a retail pharmacy for

ibuprofen and ―only‖ 268% for soma.

State Ibuprofen Soma

Florida 148% 464%

Illinois 142% 384%

Louisiana 181% 268%

Maryland 163% 318%


245

Closely associated with physician dispensing is repackaging. Repackagers deliver bulk medi-

cations to physician offices. The packages are then divided into smaller amounts for dispensing

to patients. Drugs are reimbursed at higher amounts per pill. An April 2011 study by California

Workers‘ Compensation Institute noted that 80% of the drugs and costs in the California

workers‘ compensation system are prescribed by 20% of the doctors. The study focused on a

breakdown of the top 10% of doctors who prescribe opiod drugs to injured workers. For

example, the top 10% of physicians prescribed 79% of all Schedule II opioid prescriptions and

87% of opioid morphine equivalents. Worse, the top 1% of California physicians are responsible

for a whopping 33% of all Schedule II opiod prescriptions and 41% of all Schedule II opiod

morphine equivalents.

The business of some medical providers is supply-

ing pain medications. Some of these providers and

businesses have come to be known as ―pill mills.‖

States are choosing to regulate the business of pre-

scribing drugs. For example, Texas recently began

regulating pain management facilities.

The Texas legislature heard horror stories of pill

mills popping up in strip centers around town with

long lines and accepting little or no insurance. The

―Houston Cocktail‖ was a prescription for three

drugs that should never be prescribed together:

hydrocodone, valium, and xanex. From January

2009 to March 2010, one Houston doctor wrote more than 43,000 prescriptions for the Houston

Cocktail. In 2009, 70% of the 144,000 prescriptions of the Houston Cocktail were in fact from

Houston.

http://www.cwci.org/press_release.html?id=209


246

After Esther Scarborough‘s son died of an overdose after his first visit to a Houston-area pain

clinic, she said, ―These doctors are using our loved ones as cash cows or ATM machines. They

make a lot of money off these drugs.‖ The pill mill bill requires facilities and their owners to

register if they derive 50% or more of its business from writing pain prescriptions. All facilities

must be owned by a doctor who spends at least 33% of his time treating patients at the facility.

After the pill mill bill became law, there was a 45% drop in scheduled narcotics prescribed in

Houston compared with the same time the year before.

Dr. Gerald Ratinov was the largest prescriber of hydrocodone in the State of Texas. Prosecutors

and law enforcement successfully used the pill mill bill to crack down against doctors improperly

prescribing or diverting scheduled narcotics. Dr. Ratinov is now in jail.

The pill mill bill author, Senator Williams (R-The Woodlands), successfully passed a new law

(SB 158) in 2011 that makes it a crime for individuals, including patients and people in the

industry, to divert drugs. A patient may no longer conceal a material fact when seeking or filling

a prescription. Concealment of a material fact is defined as follows: ―For purposes of this

subsection, a material fact includes whether the person has an existing prescription for a

controlled substance issued for the same period of time by another practitioner.‖ The addict or

diverter who attempts to fill a prescription for a drug, while already receiving that drug for the

same period from a different source, commits a crime.

Few doctors receive education and training about drug addiction and drug diversion. This is

especially true for more mature doctors.

Pharmacies

Pharmacies make money dispensing pharmaceu-

ticals. But pharmacies have also become victims.

More pharmacies report robberies. In fact, there

has been an 81% increase in robberies since 2006

resulting in 1.3 million pills stolen. Some

robberies have turned lethal.

In Long Island, NY, a robber shot the pharmacist,

teenage store clerk, and two customers in her

pursuit of hydrocodone. An Idaho man dressed in

a suit and tie threatened ―to light this place up‖ if

not provided oxycontin.

Robbers are taking some extreme measures

including squeezing into air-conditioning shafts, using an electric saw to cut off a door knob, and

in one instance, a woman attempted to break in a Walgreens drive thru window with a crowbar.

Some pharmacies are posting signs saying they do not carry oxycontin or oxycodone.


247

The Payers

Insurers pay 80% of the nation‘s $230 billion drug bill and are therefore the main financiers and

enablers of drug diversion. The Coalition Against Insurance Fraud has reported that prescription

drug abuse costs $72.5 billion per year. In 2006, almost one half of Aetna‘s member fraud

investigations involved prescription drug benefits.

Prescription drug costs are rising faster than inflation and the medical CPI (medical inflation).

Payers are implementing strategies to combat the high cost and higher utilization of scheduled

narcotics. A cottage industry of prescription benefit managers (PBM) has developed to combat

utilization and costs of prescription drugs. Each payer is developing internal procedures to

identify potential drug abuse or diversion. But each state has different laws and attitudes towards

prescription drug abuse complicating their efforts.

The Patient (Injured Worker in Workers’ Compensation Claims)

Patients are being prescribed and are taking more pain medications. More frequent prescriptions

and more pills inevitably lead to more addicts. Addicts rob, steal, and lie. Their addiction

affects those they love, destroying families.

One judge recently explained the cycle: ―The addict soon breaks the law and either steals or

diverts the drugs to fund the drug habit. Eventually, the addict is arrested for violation of a state

or federal law leaving his family to pick up the pieces.

Patients do not choose the addiction but the statistics of the lives affected do not lie.‖ Some

patients trust the physician. Others may have ulterior motives. Detoxication programs are not a

failsafe cure and often administered after so many lives are destroyed. They are costly when

compared to strategies to stop the addiction from ever taking hold of the patient.

Strategies

Government Regulation

Prescription drug abuse and diversion is a problem requiring close interaction between the public

and private sectors. Stakeholders must work together using tools at their disposal in a coordi-

nated effort to fight ―supply and demand‖. The most successful action the government can take

in partnership with other stakeholders is establishing an effective, real-time or near real-time

prescription drug monitoring program (PDMP). Some states have created their own programs

with varying degrees of success. A model program includes:

Scheduled and other highly abusive substances;

Real time data transmission between stakeholders;

A requirement for doctors to check the PDMP database before writing a

prescription;

A requirement for pharmacies to check the PDMP database before dispensing

narcotics; and

Integration with neighboring states.


248

A PDMP must be mandatory for use by doctors and pharmacies. In order to be effective, a

PDMP must be in real time or near real-time (very little delay in prescription data being added to

the tracking system). No comprehensive strategy will be successful without it. The front line

suppliers – doctors who prescribe and the pharmacies who fill – will instantly know if the patient

is taking prescription drugs from another source reducing supply. The PDMP protects the front

line suppliers from charges of creating an addict. Regulators can monitor the prescribing habits

of outlier doctors for more education or oversight.

Provide for Early Intervention Opportunities in Health Care

Public policy makers, legislators and regulatory agencies, should provide for, by law or rule,

a program that allows physicians and payers to interface through a pharmaceutical case manage-

ment process that is aimed at address prescription drug abuse, addiction and the diversion of

narcotic drugs.

Require Continuing Education of Physicians on the Prescription of Narcotic Drugs

The White House Office of National Drug Control Policy has stated that a crucial first step in

tackling the problem of prescription drug abuse is to educate parents, youth, and patients about

the dangers of abusing prescription drugs, while requiring prescribers to receive education on the

appropriate and safe use, and proper storage and disposal of prescription drugs. There is also a

need to require all physicians to complete continuing education courses in prescribing narcotics

and controlled drugs as a condition of licensure renewal. Several states are actually considering

legislation to enhance physician training that focuses on the prescribing of narcotic drugs and

controlled substances. Such effort should be undertaken in all states.

Physicians Mandatory Use of PDMP Database

The public has an unreasonable view of the knowledge base of healthcare providers. Although

every doctor graduated from medical school, knowledge itself comes from specialized training.

Scheduled narcotics should only be prescribed by doctors with the requisite training and

experience. Those doctors granted the additional license to prescribe scheduled narcotics would

be subject to additional regulation.

Physicians should be required to check with the PDMP database before writing a prescription for

dangerous drugs. A doctor who fails to comply risks prescription license forfeiture and possible

lawsuits. A physician who does verify using the database should enjoy immunity from lawsuits.

Prescribers of narcotics should enter into drug contracts with their patients. Routine and random

monitoring of the patient‘s urine will confirm the drugs are being taken (to avoid drug diversion)

and at the right levels (to avoid abuse). Violations of the drug contract should be reported to the

PDMP database.


249

Drug dispensing by physicians does have some benefits. 59

Critics argue physician dispensing

can result in abuse by the inevitable bad actors statistically present in every large group. Indeed,

the cost to human life and dollars are staggering even if only 1% of all providers were problem

dispensers. If physician dispensing is allowed, the reimbursement rate should be no higher than

the retail pharmacy removing the profit motive to dispense more drugs or stronger, more

addicting (and expensive) drugs. The physician dispenser should be allowed to bill extra for

drug contracts and urine testing.

Pharmacies Mandatory Use of PDMP Database

Pharmacies should be required to participate in a prescription drug monitoring program for

scheduled narcotics before dispensing scheduled narcotics.

Pharmaceutical Companies

Pharmaceutical companies should design drugs to deter abuse. Drug companies employ manu-

facturing techniques making it more difficult or impossible for drugs to be ground up into a

powder. Pharmaceutical companies should not be allowed to market scheduled narcotics for off-

label use. For example, Fetanyl, an end-stage cancer pain drug, marketed for low back pain. The

off-label use of Fetanyl has resulted in the abuse of that drug with tragic consequences to the

abusers.

Consumers

Public education about prescription drug abuse should be paramount on billboards and in our

school systems. Every day, 7,000 young people abuse prescription narcotics for the first time.

Patients who receive a prescription or scheduled narcotics should also undergo approved

education and information.

Payers

Payers should implement strategies designed to identify addicts, diversion of drugs and outlier

prescribing physicians. Payers should also urge policy makers to establish and adopt an effective

PDMP and common sense laws giving regulators the information and power necessary to fight

prescription drug abuse. Payers have ever more increasing sophisticated software able to

perform advanced predictive modeling and performance analytics that can identify outlier

doctors and possible addicts. Payers should undertake communication with other stakeholders

early in the process both as preventive education and as proactive identification of prescription

drug abuse sooner rather than later. It is important to note that the use of pharmacy benefit

managers and drug formularies are currently available for implementation.

59

The dispensing of drugs by physicians in Texas is allowed on a very limited basis. The author and ICT are not

advocating for the expansion of physician dispensing of drugs in Texas.


250

Conclusion

Many people believe America is losing (or has lost) the War on Drugs. Winning the War on

Drugs is important. It is important to note that prescription drug abuse kills more people and

causes more family destruction than all illegal drugs. All stakeholders should be collectively

engaged in the search for solutions to prescription drug abuse and when necessary demand

action. Doing nothing creates addicts and destroys families. Doing nothing makes us part of the

problem.

Editor’s Note: Stuart D. Colburn, an Attorney and Shareholder with Downs Stanford, P.C., is the

author of the article. Mr. Colburn manages the Austin, Texas office of Downs Stanford, P.C.,

where the firm maintains a Texas Workers' Compensation Commission Austin Board Service. He

is board certified in Workers' Compensation Law by the Texas Board of Legal Specialization.

Mr. Colburn is the firm's representative at Workers' Compensation Commission meetings and

for any legislative endeavors. Specializing in Workers' Compensation, Mr. Colburn has extensive

experience in all phases of dispute resolution before the Texas Workers' Compensation

Commission and in district courts across the state. He is extremely active in the education of

both adjusters and employers, and is certified by the Texas Department of Insurance as a

continuing education provider. A sought-after speaker, Mr. Colburn has delivered more than a

hundred speeches regarding Workers' Compensation and related issues. He is also a member of

the Texas Association of Business’ Coalition for the Responsible Prescribing and Use of

Prescription Drugs in Workers’ Compensation.

WCRI Releases Report on Interstate Variations in Use of Narcotics

Texas Identified As State Where Patients Use Narcotic Drugs on Longer-Term Basis

The overuse of narcotics is a major national public health problem. Medical treatment guidelines

recommend that patients who receive ongoing narcotics prescriptions be actively monitored by

the physician using urine tests and given psychological evaluations.

However, many physicians who prescribed narcotics to injured workers were not using the

recommended tools to monitor use, abuse, and diversion, according to a new study, Interstate

Variations in Use of Narcotics, by the Workers‘ Compensation Research Institute (WCRI).

WCRI‘s study also identified certain states where patients who began treatment with narcotics

were more likely to end up using narcotics on a longer-term basis—California, Louisiana,

Massachusetts, New York, North Carolina, Pennsylvania, and Texas.

The study is based on non-surgical workers‘ compensation claims that had more than seven days

of lost time and received prescription pain medications. The data covers injuries in 2006 and

prescriptions filled through March 2008. The reader should be cautioned that the data, based on

an average 24 months of experience, is not necessarily sufficient to capture the full utilization of

narcotics.

The states included in the study are: California, Florida, Illinois, Indiana, Iowa, Louisiana,

Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina,

Pennsylvania, Tennessee, Texas, and Wisconsin.

http://www.downsstanford.com/sdcolburn.html

http://www.downsstanford.com/index.html


251

Major Findings:

● The amount of narcotics per claim was the highest in Louisiana, Massachusetts, New

York, and Pennsylvania among the 17 states studied. ● In the other 13 states, there were large differences in the amount of narcotics received

by injured workers.

● A higher than typical percentage of claims that received narcotics may signal overuse

of narcotics for some states. ● The proportion of non-surgical cases with narcotics that were identified as longer-term

users of narcotics was substantially higher than typical in California, Louisiana,

Massachusetts, New York, North Carolina, Pennsylvania, and Texas.

● All patients should be screened for potential drug and alcohol abuse problems and

psychological issues since patients with abuse problems are less likely to succeed with

chronic pain management and need close monitoring. Few longer-term users of

narcotics received the recommended services for monitoring, contrary to medical

guideline recommendations.

● There has been very limited evidence in the effectiveness of narcotic drug therapy in

treating chronic pain.

● Longer term use of narcotic drugs has a greater potential for overuse, abuse and

diversion, and also puts the injured employee at higher risk of disability, work loss, and

death from prescription drug overdose.

Texas Specific Findings:

● Texas has one of the highest average number of pills per prescription with 53 pills per

prescription – California tops the list with 68 pills pre prescription.

● Texas has the second highest number (10,432) of non-surgical cases with narcotic drugs

prescribed in the first quarter post injury that received narcotic drugs in subsequent

quarters – California was the highest with 14,455.

● 10% of Texas claims involved the long-term use of narcotic drugs.

● Compared with what was typical of the 17 states in the study, physicians in Texas are

more likely to prescribe narcotic drugs to treat pain and the average injured employee

who had narcotic drugs received a higher amount of narcotic drugs per claim despite

the fact that stronger Schedule II narcotic drugs were rarely used in the state.

The report represents WCRI‘s first look at national variations in the use of narcotic drugs in

workers‘ compensation claims. The report has been well received by Texas workers‘ compen-

sation insurers who look forward to future updates of the study.

The report is available for purchase on WCRI‘s website.

http://www.wcrinet.org/result/use_narcotics_result.html


252

The Case for Addressing Prescription Drug Abuse in Workers’ Compensation


Anecdotal evidence in the Texas workers‘

compensation system shared with the Insurance

Council of Texas by several workers‘ compen-

sation insurers indicates that prescription drug

abuse is a major problem in the Texas system.

Several insurers have also reported concerns about

illegal diversion of narcotic drugs. Workers‘

compensation insurers are becoming more and

more alarmed about the amount of dangerous

narcotic drugs being prescribed to and consumed

by injured employees.

Prescription drug abuse is the nation‘s fastest-

growing drug problem. While there has been a

marked decrease in the use of some illegal drugs like cocaine, data from the National Survey on

Drug Use and Health (NSDUH) show that nearly one-third of people aged 12 and over who used

drugs for the first time in 2009 began by using a prescription drug non-medically.

The Texas Department of Insurance‘s Workers‘ Compensation Research & Evaluation Group‘s

(WCREG) 2007 Pharmaceutical Descriptive Analysis report indicated that in 2006 49% of

injured employees were receiving prescription drugs. The WCREG reviewed data from injury

years 1991 to 2006 and prescriptions from 2005 and 2006 to conduct their study on drug costs

and utilization in the Texas workers‘ compensation.

The 2007 WCREG report indicated that injured employees injured between 1991 and 2004

accounted for 28 percent of all injured employees who were prescribed drugs in 2005/2006. 13

percent of those injured employees were injured between 1991 and 2000. This group of injured

employees accounted for 61 percent of all of the prescriptions written to injured employees in

2005/2006.

The WCREG Pharmaceutical Descriptive Analysis report has recently been updated and reveals

that legacy claims (injury years 1991-2005) have significantly higher average pharmacy costs

than more recent claims. The 2011 WCREG report noted that approximately 76% of the pre-

scriptions for Schedule II drugs are for injury years 1991 – 2005. That translates to a significant

injured employee population taking prescription drugs long after they were injured. Giving the

fact that most, if not all, of the prescriptions for that group of injured employees are well outside

of the treatment parameters of the ODG treatment guideline, that is an alarming statistic

Prescription Drug Abuse is a Problem in Texas

Prescription drug abuse is a problem in Texas and has emerged as a major challenge facing

workers‘ compensation insurers. The insurance industry professionals and advocates are not the

only persons sounding the alarm about prescription drug abuse. Sen. Tommy Williams (R-The

Woodlands) has also spoken out about prescription drug abuse.

http://www.tdi.texas.gov/reports/wcreg/documents/Pharmaceutical_Prese1.ppt

http://www.tdi.texas.gov/reports/wcreg/documents/Pharmacy_Report1.pdf


253

―Prescription drug abuse is a deadly problem crossing all age groups, races and income levels —

and right now, it‘s a big problem in Texas,‖ said Sen. Williams in a newsletter his office

published on April 20, 2009.

―We know too well the problems associated with illicit drugs like marijuana, cocaine and heroin.

However, law enforcement now reports prescription drug abuse is our fastest growing narcotics

problem.‖

Williams reported that more Texans are dying from the overdose of prescription drugs than

from crack cocaine and methamphetamines combined.

During the 2009 legislative session, Sen. Williams introduced Senate Bills (SB) 911, 912, and

1281. SB 911 was passed and become law. SB 912 and 1281 did not pass.

SB 911 required pain management clinics to be certified by the Texas Medical Board (TMB) and

gave TMB the tools needed to investigate and regulate pain management clinics. The legislation

also required the clinics to be owned and operated by a licensed physician.

SB 912 would have created an offense if an individual by nature of their profession or

employment diverts prescription drugs for personal use or the use of another. The bill was filed

in response to Sen. Williams having been told by the Texas Department of Public Safety that

much of the prescription drugs from the black market are stolen by people who are employed in

doctors‘ offices and pharmacies.

Under SB 1281 stricter criminal penalties would have been created for patients who visit

multiple practitioners and do not disclose the receipt of controlled substances from other sources.

The bill provided that a person would be committing a criminal offense if they intentionally

obtained controlled substances by using misrepresentation, fraud, forgery, deception, subterfuge,

or concealment of a material fact.

Legislation Addressing Prescription Drug Abuse Passed During 2011 Legislative Session

Sen. Williams authored Senate Bill 158 during the 2011 legislative session. The legislation was

passed and signed into law by Gov. Rick Perry.

SB 158 amends the Health and Safety Code and Penal Code as they relate to the fraudulent

obtaining of a controlled substance from a practitioner and creates criminal penalties for ―doctor

shopping‖ and improper diversion of prescription drugs. The legislation amends the Health and

Safety Code by making it a criminal offense to obtain or attempt to obtain from a practitioner a

controlled substance or a prescription for a controlled substance by misrepresentation, fraud,

forgery, deception, subterfuge, or concealment of a material fact. The legislation also provides

for trying defendants in ―pill mill‖ cases under criminal organization statutes. Operating a ―pill

mill‖ will be considered organized criminal activity.

SB 158 will provide Texas law enforcement agencies and district attorneys with an effective tool

to tackle prescription drug abuse and ―pill mill‖ operations.

http://www.williams.senate.state.tx.us/pdf/TW_eNewsletter_5.pdf

http://www.capitol.state.tx.us/BillLookup/History.aspx?LegSess=82R&Bill=SB158


254

Insurers Attempting to Address Prescription Drug Abuse

Workers‘ compensation insurers recognize the fact that prescription drug abuse is a problem in

the Texas workers‘ compensation system. In fact, many insurers have implemented internal

claims handling procedures in an attempt to address suspected and confirmed drug abuse in

claims deemed to be at risk due to the excessive use of prescription drugs.

The most common ―tool‖ used by insurers to case manage the ―most at risk‖ claims is the

requirement that prescription drugs that fall outside of the treatment parameters of the Official

Disability Guidelines (ODG) treatment guidelines require preauthorization. Insurers‘ attempts to

case manage the ―most at risk‖ claims have met with mixed results.

Several insurers have reported some success in getting injured employees‘ doctors to work with

them in addressing suspected and confirmed drug addiction. However, insurers have also

reported that most doctors refuse to cooperate with the insurer‘s medical advisor and assistant

medical advisors on the issue of managing excessive prescription drug use. In some instances,

physicians have not responded to repeated attempts by insurers seeking to initiate a dialogue

about ―at risk‖ claims.

Preauthorization Requirement for Drugs That Exceed ODG Is in Question

The Division of Workers‘ Compensation (DWC) has reported that insurers can no longer rely

upon the fact that prescription drugs that fall outside of the treatment parameters of the ODG

treatment guidelines are subject to preauthorization as a tool to combat prescription drug abuse.

The pharmacy formulary rules adopted in December of 2010 provides that the only prescription

drugs that require preauthorization are the ―N‖ drugs found in the ODG treatment guidelines

drug formulary chapter.

Given that there is language in the current preauthorization providing that all treatment that falls

outside of the treatment parameters of the ODG treatment guidelines is subject to preauthori-

zation, some system stakeholders question whether there is no ability to require preauthorization

of prescription drugs that fall outside of the treatment parameters of the ODG treatment guide-

lines. 60

This is an issue that will require clarification in future rule-making projects by the DWC.

Insurers may want to consider pushing for preauthorization to be an option when prescription

drugs that fall outside of the treatment parameters of the ODG treatment guidelines.

The loss of the preauthorization "tool" for prescription drugs that fall outside of the treatment

parameters of the ODG treatment guidelines will force insurers to deal with prescription drug

abuse on a retrospective manner or use voluntary precertification as a tool to attempt to address

prescription drug abuse.

Section 413.014(f) of the Texas Labor Code provides that the Division of Workers‘

Compensation (DWC) may not prohibit an insurance carrier and a health care provider from

voluntarily discussing health care treatment and treatment plans and pharmaceutical services,

60

Subsection (p)(12) of Rule 134.600 provides that all treatments and services that exceed or are not addressed by

the Commissioner's adopted treatment guidelines or protocols and are not contained in a treatment plan

preauthorized by the carrier.

http://www.tdi.state.tx.us/wc/rules/adopted/documents/aorx1210.pdf



255

either prospectively or concurrently, and may not prohibit an insurance carrier from certifying or

agreeing to pay for health care consistent with those agreements. Section 413.014(f) also

provides that an insurance carrier is liable for health care treatment and treatment plans and

pharmaceutical services that are voluntarily preauthorized and may not dispute the certified or

agreed-on health care treatment, treatment plans and pharmaceutical services at a later date.

An Effective Tool Needed to Address Prescription Drug Abuse

Physicians and insurers need an effective tool that provides for an effective means to address

prescription drug abuse in the Texas workers‘ compensation system.

The prescription drug formulary rules adopted on December 3, 2010 by Commissioner of

Workers‘ Compensation Rod Bordelon are viewed by most system stakeholders as a major step

in the right direction aimed at facilitating the delivery of medically necessary and appropriate

pharmaceutical drug benefits to injured employees. The rules are effective on September 1, 2011.

While the prescription drug formulary rules include provisions for the issuance of a medical

interlocutory order to safe guard the delivery of medications to injured employees in certain

situations, the rules do not provide for an effective process to case manage claims in which an

excessive amount of prescriptions drugs are being prescribed to and consumed by injured

employees. In fact, legacy claims, defined by the DWC as claims with dates of injury prior to

September 1, 2011, will not fall under the drug formulary rules until September 1, 2013.

Conclusion

There is an urgent need for the adoption of a rule that establishes a pharmaceutical case manage-

ment process that would focus on the most ―at risk‖ claims where prescription drug abuse exists.

Without the adoption of such a rule, physicians and insurers will have to continue to struggle

with addressing prescription drug abuse in the Texas workers' compensation system.

Prescription Drug Abuse Spurs Plans for Coalition, Control Measures

By Bill Kidd, Central Bureau Chief, WorkCompCentral

Prescription drug abuse – and its effects on the Texas workers‘ compensation system – drew

attention last week at a conference in Austin, and will come in for more scrutiny by a coalition

being organized to study the problem.

A spokesman for the Property Casualty Insurance Association of America (PCI) ranks the issue

as ―probably the number one claims issue‖ facing workers‘ compensation insurers.

Austin attorney Stuart Colburn of the Downs and Stanford law firm, in a presentation to the

Insurance Council of Texas' 2011 Workers‘ Compensation Conference, reported the Coalition

Against Insurance Fraud calculates that prescription drug abuse costs $72.5 billion annually. And

since insurers pay 80% of the nation‘s $230 billion drug bill for health care and workers'

compensation, carriers are picking up part of the tab for prescription drug abuse, Colburn said.


256

Cathy DeWitt, who monitors workers' compensation issues for the Texas Association of

Business, told WorkCompCentral that the association, which is the state's largest business

organization, is concerned about the prescription drug abuse issue and is working to form a

coalition to tackle the problem.

"We're talking to people about it, and we expect to announce something fairly soon," DeWitt

said. "It (abuse) is certainly something we're concerned about," she said. ―The problem is a

concern to employers not only because of its implications for workers' compensation cost, but

also health insurance,‖ DeWitt said. ―Prescription drug abuse can affect how quickly an injured

worker is able to return to his or her job, and that is a considerable concern for employers,‖

DeWitt said.

Other system participants are looking at the problem – and suggesting possible actions.

Trey Gillespie, workers' compensation director for PCI, said it is ―fair to say‖ that prescription

drug abuse is the top concern ―in general‖ for claims handlers at present. The statistics on abuse

are ―alarming," he commented.

Requiring preauthorization for opioid (narcotic) painkillers could be one approach to reducing

abuse, Gillespie suggested.

Gillespie said a bill introduced in North Dakota (but which failed to pass this year) would have

required preauthorization for any prescription for an opioid more than 60 days after an injury or

surgery, and the creation of specific treatment plans for weaning injured workers off of narcotics

in instances where prescriptions are provided for longer periods. The legislation, House Bill

1054, introduced by the Workers‘ Compensation Review Committee, passed the House of

Representatives but died in the Senate.

―Such preauthorization is one approach that should be evaluated, Gillespie said. ―Positive

approaches need to be taken within the workers‘ compensation system, instead of just passive

restrictions,‖ he said.

Colburn said he wants lawmakers and regulators to consider adopting a prescription drug-

monitoring program, which would provide information "in real time" on drugs which are being

prescribed or dispensed – and to make use of the program mandatory for both doctors and

pharmacies. Such a program could help users determine whether drugs are being properly

prescribed and dispensed -- or possibly abused, Colburn said.

Colburn said the plan should include drugs that are "scheduled" by the U.S. Drug Enforcement

Administration (DEA) and "other highly abused substances," and allow users to access such

information from neighboring states. Texas currently has a voluntary prescription drug

monitoringprogram, which covers only drugs on the DEA's Schedules II through V, Colburn

said.

Steve Nichols, workers' compensation manager for the Insurance Council of Texas (ICT), agreed

that the prescription drug abuse problem "far transcends workers' compensation, but is definitely


257

a problem in workers' compensation," in Texas and other states. "Exactly how much of a

problem it is, we don't know," Nichols said.

Nichols said ICT was pleased that the Workers' Compensation Research and Evaluation Group at

the Texas Department of Insurance has been studying the use of prescription drugs in the state's

workers' compensation system. Preliminary findings from that study, reported at ICT‘s

conference on Sept. 7, indicate that there are problems with so-called "legacy claims," which

involve long-running prescriptions of opioids for injured workers.

Nichols said carriers hope to work with the Division of Workers' Compensation and other system

participants to develop ways to evaluate whether those legacy claims involve workers who have

become addicted to or dependent on medications and may need to be weaned off of those drugs.

The DWC's new closed formulary for prescription drugs became effective Sept. 1 for new

claims, but will not apply to legacy claims until September 1, 2013.

Colburn said the Workers‘ Compensation Research Institute has reported injured workers in the

Texas system are 30% more likely than average to receive prescription drugs, and receive 16%

more morphine equivalents than average. The study also reported Texas has a 44% higher

prescription payment per claim than average for the states studied, Colburn said. The benchmark

study of 17 states was issued in July.

―The division‘s new formulary may help control prescription drug abuse for new claims, since it

requires approval for use of so-called ―N‖ drugs – those not recommended for use under the

Official Disability Guidelines (ODG),‖ Colburn reported.

But Nichols and other system participants say that the formulary doesn‘t tackle (at least

immediately) the issue of legacy claims, which may involve injured workers who may have been

using opioids for years, or even decades.

Colburn, in his presentation to the Insurance Council of Texas conference, commented that the

prescription drug abuse problem is different from the problem of illicit drugs.

Abusers of prescription drugs have more access to scheduled narcotics than to illegal drugs, and

to drugs of ―higher quality‖ and purity, Colburn said. ―But either form of abuse can lead to

similar outcomes,‖ Colburn said. ―Lives are being lost,‖ he said. ―All stakeholders should be

collectively engaged in the search for solutions. Doing nothing creates addicts and destroys

families,‖ he concluded.

Editor’s Comment: The article titled “Prescription Drug Abuse Spurs Plans for Coalition,

Control Measures” was authored by Bill Kidd, Central Bureau Chief for WorkComp Central,

and was originally published by WorkCompCentral on September 12, 2011. The article has been

republished by the Insurance Council of Texas, after having been edited for inclusion in this

publication , with the permission of WorkCompCentral.

https://ww3.workcompcentral.com/


258

Did You Know?

A national crisis has taken root in Texas --- Prescription Drug Abuse and Overdoses.

Overdose deaths are an emerging public health epidemic. Nationwide, they more than doubled

between 2000 and 2006. More people died in the U.S. from overdose in 2006 than from HIV/AIDS

or homicide.

Nationally, accidental drug overdose – from both legal and illegal drugs – now ranks second only to

auto collisions among leading causes of accidental death in the United States, having surpassed

deaths due to firearms in 2005. In 2006, the last year for which national data is available, over 26,000

people died from accidental overdose.

Data from the Centers for Disease Control and Prevention (CDC) showed that, for the first time, in

2005 more people aged 35 to 54 died of drug overdoses than in motor-vehicle accidents; drug over-

dose became the number two injury-related killer among young adults ages 15-34; among adults ages

35-54, overdose is the number one injury-related cause of death; and among young adults ages 15-34

it is number two.

The overdose crisis in Texas is startling. Between 1999 and 2007, overdose deaths in Texas increased

by more than two and a half times.

This serious but largely overlooked national crisis has taken root in Texas – and the numbers are

startling. Between 1999 and 2007, overdose deaths increased by more than 150 percent.

Overdose affects every community in Texas, but some cities and counties have been particularly hard

hit. For instance, in 2007 more people died from accidental overdose in Houston than from car

crashes.

Legal prescription opioid drugs such as oxycodone and hydrocodone were identified in 50% of all

accidental overdose deaths between 2005 and 2009 in Houston, claiming more lives than all illegal

drugs combined.

Prescription opiates are the major driver of the overdose epidemic in Dallas, as elsewhere in the state.

Returning veterans in Texas and across the country are also falling victim to the overdose epidemic

after coming home from tours of duty. Two Iraq war veterans, one from Austin and another from San

Antonio, died from accidental drug overdoses according to the Brooke Army Medical Center.

Prescription drug abuse is a problem in the Texas workers‘ compensation system.

The Texas Association of Business has recently announced that it is forming a workers‘ compensa-

tion prescription drug abuse coalition to attempt to address drug abuse in the Texas workers‘

compen-sation system.

Editor’s Note: The statistics about prescription drug abuse are from the Drug Policy Alliance’s

November 2010 report about prescription drug abuse in Texas.

http://www.drugpolicy.org/resource/overdose-national-crisis-taking-root-texas


259

Update on the Implications of the Patient Protection and Affordable Care Act

for Workers’ Compensation: Macroeconomic Case for Health Reform

By Gregory Krohm, Executive Director of the IAIABC

This is a class case for a vitally important issue

being ignored because it has no sure, perceptible

impacts in the next few years. The cost of finan-

cing health care in the US is already the most

expensive in the world and growing rapidly.

According to CMS, the US spends 16% of its GDP

on health care services, which compares to about

10% for European Union nations. The office of the

actuary at CMS, in its 2010 annual report, paints a

somber future for US health expenditures. Two

things are worth focusing on:

■ The share of health expenditures are expected to rise to nearly 20% by 2020.

■ The per capita expenditures are projected to increase by 5.3%/year after the

implementation of the insurance requirements in ACA in 2014 through 2020.

Expert warnings that this will have a ruinous cost to the US have so far fallen on deaf ears.

Abstractions will not mobilize voters as much as the pocketbook effect of the rising cost of

insurance and out-of -pocket payments for ordinary heath care. In this regard, legislation with

much more potential than ACA will be needed in the not too distant future. The continued rise in

expenditures on health insurance and out-of-pocket costs will force a more effective cost

containment solution for business and households.

Uninsured Population

The central goal of reform, broadly accepted by both political parties, was to dramatically reduce

the ranks of the uninsured among legal US residents. The latest US Census data for 2009

indicates that medically uninsured have risen to 50 million, or 16.7% of the population. During

the debate over the passage of ACA, the Congressional Budget Office (CBO) estimated that 59

million people would be uninsured by 2019 under conditions prior to the reform, and that ACA

would provide health insurance coverage to 32 million of these people.61

This estimate by the

CBO is the gold standard for projecting the impact of the ACA on the uninsured. However, I

have not seen an independent confirmation of this forecasted impact, nor has CBO publically

altered its estimate to reflect events since the passage of the ACA. The Office of the Actuary at

the Centers for Medicare and Medicaid Services (CMS) has recently projected the ranks of the

uninsured to be 26.4 million in 2019 62

versus 23 million by the CBO.

61

Congressional Budget Office, Health Care, found August 2011 at:

http://www.cbo.gov/publications/collections/health.cfm 62

See Office of the Actuary, National Health Expenditures: 2010-2020, CMS, found August 2011 at:

http://www.cms.gov/NationalHealthExpendData/downloads/proj2010.pdf


260

Whether or not this 32 million estimate is achieved depends on how individuals respond to the

law. Smart money is betting that many young males with average incomes will not buy insurance

and pay the penalty as a cheaper option. Also, the current ranks of the uninsured includes

millions of people that are eligible for Medicaid but for whatever reason choose not to be

covered. Since one third of the 32 million to be covered will get that insurance from Medicaid, it

seems likely that this denial of coverage may cause some slippage from the policy goal.

A survey released in 2008 found that being uninsured impacts American consumers' health in the

following ways:

More of the uninsured chose not to see a doctor when were sick or hurt (53%) vs. 46% of

the insured. Fewer of the uninsured (28%) report currently undergoing treatment or

participating in a program to help them manage a chronic condition; 37% of the insured are

receiving such treatment.21% of the uninsured, vs. 16% of the insured, believe their overall

health is below average for people in their age group.

Assuming, for the sake of this discussion, that the CBO estimate is correct, workers‘

compensation may be affected in any of three ways:

1) Cost shifting from inappropriate workers‘ compensation claims may diminish if most

employees have medical insurance coverage.

2) Universal coverage might result in a healthier workforce, which in turn might mean fewer

workers‘ compensation claims.

3) The existing shortage of doctors in primary and occupational medicine will grow worse, and

this in turn will create problems of access and quality of care for injured workers.

Dubious Injury Claims

The ―Monday morning un-witnessed injury‖ is classic gripe that circulates among workers‘

comp managers. Fraud experts commonly say it is a ―red flag‖ for closer claim scrutiny. 63

From

my personal research on the topic and review of the literature, I know convincing there is

evidence of a spike in Monday morning claims or post holiday claims. By no means is this

conclusive proof that shifting of responsibility to workers‘ comp doesn‘t occur. It just means that

the number of dubious Monday morning claims is not all that plentiful.

I could find no direct evidence or study of the prevalence of abusive claims by medically

uninsured workers. The only published study on the Monday morning effect dismisses it as

evidence of the medically uninsured filing workers‘ compensation claims. 64

One anecdotal

63

Among the dozens of websites that caution about the Monday morning claim surge, is the Colorado Division of

Workers‘ Compensation. It lists as one of six signs of fraudulent claims: ―A "Monday morning" injury - The injury

is reported early on the first work day of the week.‖ 64

David Card and Brian McCall, ―Is Workers Compensation Covering Uninsured Medical Costs? Evidence from

the Monday Morning Effect‖ Industrial and Labor Relations Review, July 1996, found on Jestor at:

http://www.jstor.org/pss/2524517

http://en.wikipedia.org/wiki/Health_insurance_coverage_in_the_United_States#cite_note-28


261

account that is directly on point: claims experience by one major workers‘ compensation insurer

in Massachusetts did not detect any change in claims after the implementation of the universal

health coverage law in 2009. 65

Healthier Workforce

It seems possible that a healthier workforce might lead to fewer work injuries. A much greater

causal link would connect better health and faster recovery from injuries that did occur. But, the

connection between health insurance and health, as distinct from treatment for ill-health, is not at

all clear.

Clearly, the prevailing opinion and majority of research says that the medically insured have a

lower death rate, ceteris paribus, than the insured population. The IOM observed that insurance

especially matters for adults with chronic illness, who comprise 40 percent of the uninsured:

―health insurance is clearly most beneficial for adults who need medical attention, particularly

for adults with common chronic conditions or acute conditions for which effective treatments are

available.‖ Both IOM reports cited abundant research finding that the uninsured with chronic

health problems receive later diagnoses and less care, so a lack of insurance coverage

substantially increases mortality rates among cancer patients, heart disease patients, older adults,

and hospitalized patients in general. But, I believe that it would be unlikely that 32 million

formerly uninsured people would suddenly have the same health as the rest of the country by

virtue of their acquired insurance.

Health is body and mental wellbeing, and healthy lifestyles proactively reduce the causes of

disease. Health insurance is not consistently and reliably a source of health or healthy lifestyle,

especially for people most at risk.

The standard individual and group policy has heavy co-payments and deductibles which inhibit

consumers from seeking routine preventative care. A major system change is that ACA will

require all insurers and Medicare to offer basic preventive services without consumer co-

payments. This may produce results in early detection of disease, but there is no overwhelming

evidence that this will produce healthier lifestyles and prevent poor health.

Wellness programs that have become popular with larger, well financed firms do seem to have

some payback to employers in terms of a more productive workforce. Why else would

investments in wellness be growing in popularity among intelligent managers? But health

insurance is typically not a match for a wellness program. The dominant form of health insurance

does not offer meaningful weight control, hypertension prevention, and substance abuse

counseling as a covered benefit. If so, it comes with cost sharing, which deters use.

There is an element of insurance coverage that should be a direct and rather certain benefit to

workers‘ compensation: reduction in, and treatment of, co-morbidity for workers‘ comp

claimants. Chief among the conditions that complicate workers‘ comp claims are: obesity,

hypertension, diabetes, and depression.

65

Personal communication with a claims manager November 2009 and December 9, 2010 reported that the

company had not seen any change in claims frequency that was notable or attributable to more widespread health

coverage.


262

Obesity in the US leads the world as a percentage of the population, 66

and is becoming more

severe each year. 67

Obesity is often associated with a variety of serious health conditions, such

as:

■ High blood pressure

■ Type 2 diabetes

■ Stroke

■ Heart attack (myocardial infarctionI)

■ Heart failure (congestive heart failure)

■ Cancer (certain forms such as cancer of the prostate and cancer of the colon and

rectum)

■ Gallstones and gall bladder disease

■ Gout and gouty arthritis

■ Osteoarthritis (degenerative arthritis) of the knees, hips, and the lower back

■ Sleep apnea (failure to breath normally during sleep, lowering blood oxygen)

Given these co-morbidities, it is not surprising that Duke University Medical Center found:

―…obese workers filed twice the number of workers' compensation claims, had seven times

higher medical costs from those claims, and lost 13 times more days of work from work injury or

work illness than did non obese workers.‖ 68

To the extent that general health insurance addresses these conditions, the handling of an

ordinary low back, shoulder or knee claim will be made easier.

A recent report by Coventry presents startling data on the costs of co-morbidity to workers‘

compensation. 69

Among the findings of that study:

66

Obesity is defined as a Body Mass Index (BMI) >30. According to a 2005 OECD report, found at:

http://www.nationmaster.com/graph/hea_obe-health-obesity 67

According to research of the Trust for America‘s Health Foundation: ―Adult obesity rates increased in 28 states in

the past year, and declined only in the District of Columbia (D.C.), according to F as in Fat: How Obesity Threatens

America's Future 2010, a report from the Trust for America's Health (TFAH) and the Robert Wood Johnson

Foundation (RWJF). More than two-thirds of states (38) have adult obesity rates above 25 percent. In 1991, no state

had an obesity rate above 20 percent. ― See: http://healthyamericans.org/reports/obesity2010/ 68

Duke Medicine News and Communications, ―Obesity Increases Workers‘ Compensation Costs,‖ April 23, 2007,

found at: http://www.dukehealth.org/health_library/news/10044 69

Coventry Workers‘ Compensation Service, ―The Impact of Comorbid Conditions on Workers‘ Compensation

Medical Costs, ‖ December 2, 2010-WorkCompWire.com, found at: http://www.linkedin.com/news?viewArticle=

&articleID=281971915&gid=1328307&type=member&item=36887794&articleURL=http%3A%2F%2Fwww%2E

workcompwire%2Ecom%2F2010%2F12%2Fimpact-of-comorbid-conditions-on-workers-compensation-medical-

costs-2%2F&urlhash=fSdp


263

■ The median medical allowed for a claim with a complicating condition was always

higher than those without, regardless of injury type.

■ The utilization for claims with complicating conditions was at least 100% higher than

those without (as measured by bill volume within the claim).

Besides health coverage for obese people and mandatory screenings and counseling without cost

sharing, the ACA has created a score of initiatives to advance preventive care for obesity and

other chronic health problems plaguing Americans.

To the extent that good health insurance coverage and educational initiatives to combat

widespread controllable health problems reduce co-morbidities, the workers‘ compensation

system will have lower medical costs and possibly less indemnity costs because of earlier return

to work. This would be a great gain for workers‘ compensation. However, given the magnitude

and persistence of these so-called ―lifestyle‖ health problems (obesity, smoking, substance

abuse), it would be unrealistic to expect the ACA to produce any material change in the

prevalence of these public health scourges.

Shortage of Medical Providers

Prior to the reform law, there was a well documented shortage of primary care providers

(doctors, physician assistants, and nurses). The shortage is especially pronounced in rural areas

and some impoverished city neighborhoods.

The addition of anything close to 32 million insured lives, particularly coupled with the

requirement that private insurers and Medicare fully cover preventive care, may explode the

number of primary care services demanded.

This will worsen the shortage of primary care providers. This doctor shortage in primary

medicine is expected to persist for at least ten years. Swiss Re sees an analogous situation after

the universal health insurance program instituted by the State of Massachusetts in 2008.

The sudden increased demand for services compared to the relatively fixed supply of doctors and

nurses caused payment to providers to get bid up.

However, there is some reason to doubt that 2014 will bring a tsunami of patients to doctors‘

offices. First, both CMS and the CBO agree that the coverage of the uninsured will be slowly

phased in after 2014. Second, there continues to be some debate over the unmet health care needs

of the medically uninsured. One survey released in 2008 found surprising small differences in

the ways that being uninsured impacts American consumers' health:

■ More of the uninsured chose not to see a doctor when were sick or hurt (53%) vs. 46%

of the insured;

■ Fewer of the uninsured (28%) report currently undergoing treatment or participating in

a program to help them manage a chronic condition; 37% of the insured are receiving

such treatment;


264

■ 21% of the uninsured, vs. 16% of the insured, believe their overall health is below

average for people in their age group.

A study published in August 2008 in Health Affairs found that covering all of the uninsured in

the US would increase national spending on health care by $122.6 billion, which would represent

a 5% increase in health care spending and 0.8% of GDP. The impact on government spending

could be higher, depending on the details of the plan used to increase coverage and the extent to

which new public coverage crowded out existing private coverage. Massachusetts' law forcing

everyone to buy insurance has reportedly caused costs there to increase faster than in the rest of

the country.

For a number of complex reasons, the number of occupational medicine specialists has also been

declining in recent years. Nothing in the ACA addresses this decline. However, there are

incentives built into the ACA to encourage primary medicine and the number of providers.

More funding for medical training was included in the law, and payments for office visits under

Medicare were increased by 10%. This would indirectly benefit occupational medicine because

doctors with this specialty bill disproportionately for office visits as opposed to diagnostics and

procedures. Most state fee schedules 70

do nothing to promote primary care medicine or

occupational medicine because they contain much higher allowable fees for surgical, radiological

and other specialty providers.

The bottom line for workers‘ comp is that injured workers in underserved areas will have more

difficulty seeing primary care providers, especially physicians, without waits or traveling longer

distances. As the Swiss Re report notes, workers‘ compensation payers will be at a disadvantage

in negotiating fees where demand greatly exceeds supply of providers. This shortage will

become worse after 2014 when the ACA coverage mandate begins and continue as the ranks of

the insured grow.

Bending the Curve

President Obama‘s budget director is famous for coining the phrase ―bending the curve‖ to

describe the goal and benefit of health care reform on the rapid growth in US health

expenditures. That catchy phrase needs to be parsed into its possible meanings. It could refer to

aggregate expenditure, in which case the ACA is going to bend the curve upward as the

medically uninsured have access to coverage. However, if one takes this to mean reducing the

cost of treating medical conditions or the unit cost of office or hospital visits then the ACA

should be evaluated on what it promises to do for improving efficiency and effectiveness in

medical care delivery.

Medicare Changes

Medicare pays for about 13% of US medical costs, and accounts for nearly a 4% share of the US

GDP. As a result, Medicare reimbursement system, including relative values and rules for billing

70

The notable exception being states like Texas, that use a straight percentage of Medicare to compute the amount

payable for workers‘ comp treatments.




265

specific treatments, have become the starting point for how many private and public systems pay

for medical services, Over half the states base their workers‘ compensation medical fee

schedules on some variant of the Medicare physician reimbursement schedule.

Medicare will undergo several significant changes because of ACA. The most significant for

workers‘ comp will be:

■ Changes in physician payment, both overall payments and relative values for specific

treatments; and

■ Promotion of new incentive structures to reward doctors and hospitals for better

outcomes.

Physician payment changes will have two sub-effects. The first through fee schedules and the

second through provider cost shifting. Twenty three states use fee schedules that are based on

some variant of Medicare Resource-Based Relative Value Scale (RBRVS) payment system (56%

of state fee schedule). 71

To the extent that a doctor‘s practice includes more billings for

―Evaluation and Management‖ CPT codes (the stock and trade of primary medicine and occu-

pational medicine) those provides will benefit financially from the additional 10% boost in

payment codes for primary care and general surgery contained in the ACA.

Also, another potential Medicare effect may come from the Medicare Income Conversion factor

taking its scheduled cut per the Sustainable Growth Formula. For the states with a ―percentage of

Medicare‖ approach in their fee schedules, the maximum payment for workers‘ comp would

have taken a massive 29% drop on January 1, 2011 if the mandatory cuts under the Sustainable

Growth formula were allowed to take place. Since Congress has overridden the formula for the

past several years, there is reason to believe that it will again move to freeze payments at their

current levels for most treatments.

The second way Medicare physician payment will affect workers‘ compensation is through cost

shifting. Doctors have long complained that Medicare pays them less than their cost of oper-

ations. This seems to be corroborated by unbiased research. In assessing the implications of

wringing savings out of Medicare, Swiss Re notes ―to the extent that cost containment ends up

meaning the government starves the provider community, insurers could face cost shifting into

the workers‘ compensation system.‖ 72

New Delivery Models

The one big delivery model change that is getting all the attention is the promotion of

Accountable Care Organizations (ACO). The ACA directs the Centers for Medicare and

Medicaid Services to create a national voluntary program for ACOs by January 2012. These

organizations are supposed to coordinate care to eliminate wasteful testing and direct patients to

71

Eccleston and Liu, Benchmarks for Designing Workers’ Compensation Medical Fee Schedules, WCRI, 2002,

2006. 72

Swiss Re, ―The Impact of U.S. Health Care Reform on Workers‘ Compensation and Other Casualty Lines,‖ Swiss

Re, Armonk, NY, 2010.


266

the appropriate medical resources. They have been described as ―value driven‖ meaning that

payments and rewards should be measured by the value of care and cost savings produced by the

various parts of the organization. Features include:

■ Patient-centered primary care ―homes‖ with a physician responsible for coordinating

care with other providers as patients are referred to other parts of the ACO.

■ Coordinating networks of specialists, ancillary providers and hospitals that are use the

same goals and rules for improving outcomes.

If they work as envisioned ACOs can be a force for efficiency, but they can also be a source of

market power for consolidated systems of hospitals and physicians. A recent ―perspective‖ in the

New England Journal of Medicine applauded this, echoing the words of the eminent economic

historian Joseph Shumpeter:

Under this law, the next few years will be a period of what economists call ―creative

destruction‖: our fragmented, fee-for-service health care delivery system will be

transformed into a higher-quality, higher-productivity system with strong incentives for

efficient, coordinated care. 73

The speed and scope of mergers is beginning to concern purchasers of services and the US

Department of Justice‘s anti-trust watchdogs. According to the New York Times, ―…eight

months into the new law there is a growing frenzy of mergers involving hospitals, clinics and

doctor groups eager to share costs and savings, and cash in on the incentives.‖ 74

Cities like

Albany and Baltimore may end up with one massive health system serving all the major clients

in the metropolitan area. In addition, the New York Times reports, ―… the country‘s biggest

insurers are promoting affordable plans with reduced premiums that require participants to use a

narrower selection of doctors or hospitals.‖ 75

At present ACOs operating under Medicare rules would only treat Medicare patients. However,

if successful, the model should have applicability to general health care and workers‘

compensation. The prospect of workers‘ compensation insurers dealing with one exclusive

provider in most areas will be a change in business. For one thing, the current PPO networks

used by WC carriers may be obsolete. If the majority of medical providers and the only hospital

in town are part of one coordinated network, that may be good for coordinating care, but it would

be bad news for the network provider trying to negotiate discounted fees for workers‘

compensation cases.

Apart from the potential future loss of leverage on fees, the style of practice by the exclusive

provider may not be sympathetic to the needs of workers‘ compensation payers because it will

build systems to accommodate and work with general health and government insurance. Thus,

73

Robert Kocher, MD and Nikhil R. Sahni, BS, ―Physicians versus Hospitals as Leaders of Accountable Care

Organizations,‖ November 10, 2010, (10.1056/NEJMp1011712) found December 9, 2010 at:

http://www.nejm.org/doi/full/10.1056/NEJMp1011712?viewType=Print&& 74

Robert Pear, ―Consumer Risks Feared as Health Law Spurs Mergers,‖ New York Times, November 21, 2010,

page A1, found at: http://www.nytimes.com/2010/11/21/health/policy/21health.html?_r=1&src=mv 75

Reed Abelson, ―Insurers Push Plans That Limit Health Choices,‖ New York Times, July 18, 2010, page A1


267

workers‘ compensation treatment guidelines and utilization review procedures might not be

accepted or resisted.

For all the rhetoric about ―bending the curve‖ there is little in ACA that we can reliably point

to—at this time-- as reducing the cost of treatment or the per capita cost of maintaining health.

Hopefully, the new delivery models will prove to be popular with providers and patients. Maybe

the new pricing strategies, such as CMS‘s ―Bundled Payment for Care Improvement,‖ will

provide incentives for efficiency. There are many hopeful experiments but no evidence of major

reforms that are working across the country. Moreover, most of the ACA initiatives focus on

Medicare and Medicaid.

Workers‘ compensation medical delivery is in great need of more efficiency. If new models from

Medicare or other public insurers create new and effective delivery techniques these may have

spillover effects on workers‘ compensation. But, given the huge institutional inertia in workers‘

compensation to deploy efficiency enhancing delivery changes and the Medicare focus of ACA

efficiency efforts, there is little room for optimism that health reform at its best will improve

workers‘ compensation medicine.

Skunk in the Garden

Of course the skunk in the garden party is the potential for a Supreme Court invalidation of the

heart of the reform bill, namely the mandate to insurer. So far individual federal judges and two

appellate courts have almost evenly split on the constitutional issue. The matter will certainly be

decided by the Supreme Court. Depending on White House strategy on appealing the unfavor-

able decision on August 11, 2011 by the 11th Circuit, the Supreme Court decision on the matter

would be expected in the June to November 2012 period. Vegas odd makers will find it hard to

make book on this decision.

Regardless of any Supreme Court ruling on the individual mandate, many popular provisions of

the law will probably be ruled valid. In particular, the ban on lifetime insurance caps, preexisting

condition limitations and other coverage enhancements. The insurance exchanges are likely to

pass constitutional muster as well.

Regardless of how the court decides, the US House of Representatives is bound to try cutting

funds for the implementation of the ACA. Shortly after the change in majority control in January

2011, the House voted 245 to 189 in favor of repeal of ACA. This vote had no chance of

affecting the law since the Democrats controlled the Senate and Presidency. Yet, it is a clear

signal of opposition that will probably continue in the development of the next federal budget.

The legal and legislative uncertainties are huge. Health care reform may end up looking far

different than originally envisioned when the ACA passed last year. Even if ruled constitutional,

the likelihood of weakened administration of ACA‘s state run health insurance exchanges might

hurt the cause of reducing the uninsured.

Summary and Conclusions

The ACA created a massive shift in rules and incentives for business and households. It was

passed in amidst unprecedented partisan divide. In principle, the American voter wants major

health insurance. it should be reformed or repealed.


268

Businesses are already beginning to adjust their health benefit plans to minimize the cost of the

law. As with every major element of the law, forecasters are divided on how things will look in

2014 when the ACA is fully implemented. Some credible estimates are that employer supplied

health care will drop significantly for smaller employers employing predominantly low wage

workers. For workers’ compensation, score this: “doesn’t matter much.”

Setting aside the possibility of a Constitutional prohibition by the Supreme Court, in 2014 when

the individual mandate takes effect, millions of people will be making choices on coverage

options and whether to seek insurance at all. There is reason to believe that young (especially

male) and healthy workers may elect to pay the tax penalty for failure to insure. .It remains to be

seen how this will all sort out and how the ranks of the medically uninsured will diminish. For

workers‘ compensation, score this: ―mildly negative.‖

The direct impacts of the ACA on workers compensation are quite narrow. It is possible that

rules for ―administrative simplification‖ coming from the US Dept. of Health and Human

Services draw workers‘ compensation into HIPAA like privacy and security requirements. For

workers‘ compensation, score this: ―potentially disruptive and costly.‖

Over half the states have their fee schedules tied to one degree or another to Medicare relative

values and payment rules. States like Texas are closely tied to Medicare, others are not. But, it is

not at all clear how reimbursement and payment rules for Medicare will be altered.

Compensation rules will open the door for more cost shifting to workers‘ compensation. For

workers‘ compensation, score this: ―potentially disruptive to affected states.‖

The biggest indirect impacts for workers‘ compensation will be hinge on how the following open

issues play out:

■ Will the workforce be materially healthier

■ Will access to primary care be hurt by supply shortages

■ Will the reorganization of medical care delivery improve efficiency and effectiveness of

care for injuries and disease from work

Finally, the imperative to control the per capita cost of medical treatment has not been signifi-

cantly addressed by ACA. Without a remedy to this problem the economy will be weakened with

slower growth in jobs and real incomes. Stay tuned for more reform legislation to address the

cost problem.

Editor’s Note: Gregory Krohm, the Executive Director of the Association of Industrial Accident

Boards and Commissions (IAIABC), is the author of this article. ICT has republished this article

with the expressed permission of IAIABC. Krohm has served as the Executive Director of the

IAIABC since August 2000. Prior to accepting his current position, he was a self employed

insurance consultant. Between 1992 and 1998 he served as the Division Administrator for the

Wisconsin Division of Workers' Compensation. From 1988 to 1992 he served in various

capacities with the Wisconsin Insurance Commission, most recently as the Deputy

Commissioner. During these years, he chaired numerous committees for the IAIABC and

National Association of Insurance Commissioners.Krohm has recently retired from his position

as an adjunct faculty member in the School of Business, University of Wisconsin-Madison. He

http://www.iaiabc.org/i4a/pages/index.cfm?pageid=1


269

has published numerous articles on insurance and workers' compensation, and appeared as an

expert witness and speaker on these subjects. Krohm has frequently taught courses and seminars

on workers' compensation topics.Krohm has a Ph.D. in Economics (1973) from Virginia Tech.

He is also active in the CPCU Society and serves on the Workers' Compensation Committee of

the National Academy of Social Insurance and the Board of the Insurance Data Management

Association.

House Bill 528 – Informal and Voluntary Networks for Pharmaceutical Services

By Albert Betts, Partner, Thompson Coe Cousins and Irons, LLP

This is a brief overview and update on recent legislation establishing certain requirements for

workers‘ compensation insurers contracts for pharmaceutical services. During the 2011 regular

legislative session, the 81st Texas Legislature passed House Bill 528 (HB 528), which was signed

by Governor Perry and became law effective June 17, 2011 allowing carriers or their authorized

agents to continue to contract with voluntary and informal networks for discounted pharmacy

reimbursement contracts. The bill also established requirements for contract disclosure and

contract reporting to the Texas Department of Insurance, Division of Workers‘ Compensation

(DWC). In order to fully understand the impetus for this legislation, you need to understand the

background and reasons for it.

Networks, Pharmaceutical Services and Discounted Fee Contracts

As background, in 2005, the 79th Legislature enacted House Bill 7 (HB 7), which, among many

other reforms, abolished the former Texas Workers‘ Compensation Commission, moved its

regulatory functions to the Texas Department of Insurance, and directed the formation of health

care networks for the delivery of workers‘ compensation health care services beginning on

January 1, 2006, to be regulated by the Texas Department of Insurance subject to Texas

Insurance Code Chapter 1305. HB 7 also specifically prohibited the delivery of pharmacy

services through these certified workers‘ compensation health care networks.

In 2007 the 80th Legislature passed HB 473, which required all voluntary and informal workers‘

compensation networks to be registered with DWC by January 1, 2011, to have written contracts

for fee discounts, and to submit their contracts to DWC upon request. These contracts also had

certain disclosures that had to be made to the contracting provider. HB 473 required these

informal and voluntary networks to register with the TDI and if not registered by January 1,

2011, they could not continue to contract for services at rates less than the TDI-DWC adopted

fee guideline.

After implementation of HB 473 began, stakeholders, in late 2009, began to ask if the HB 473

changes affected whether carriers could continue to contract for pharmaceutical services at rates

less than the adopted pharmacy fee guidelines. HB 473 attempted to make sure all informal or

voluntary networks were registered but, pursuant to HB 7, pharmaceutical service had been

excluded from certified networks under Texas Insurance Code section 1305.101.


270

In addition, HB 7 amended chapter 408 of the Labor Code by adding §408.028(f) and (g) which

had specific language regarding pharmaceutical services reimbursement. Labor Code

§408.028(f) required the commissioner to adopt a fee schedule for pharmacy and pharmaceutical

services and §408.028(g) allowed insurance carriers to reimburse at rates based on the fee

schedule or contracted rates. These provisions existed when HB 473 was adopted. HB 473,

however, did not specifically reference the pharmacy services provisions referenced above.

Given the various statutory provisions and apparent confusion, stakeholders approached the TDI-

DWC in early 2010 and requested clarification on permissible reimbursement for pharmaceutical

services. In response, the agency determined that it should request an opinion from the Attorney

General.

In a request dated May 20, 2010, the Commissioner of Workers‘ Compensation requested an

opinion from the Texas Attorney General on whether:

An insurance carrier may, after January 1, 2011, contract with health care

providers to pay for a ―prescription drug, medicine, or other remedy‖

(prescriptions) at a lower fee rate than the fee rates allowed under the Texas

Department of Insurance, Division of Workers‘ Compensation‘s (the Division)

fee guidelines. If so, this letter (from the Commissioner of Workers‘

Compensation) also requests your opinion as to whether insurance carriers may

contract with informal or voluntary networks, as defined by Texas Labor Code

§413.0115, to obtain these contractual arrangements.

The opinion request discussed the passage of HB 473 and its requirements for informal and

voluntary networks. See TEXAS LABOR CODE §413.0115 for the specific requirements.

Although Labor Code §413.0115(b) requires informal and voluntary networks to become

certified as a workers‘ compensation network, the Insurance Code, chapter 1305, prohibits

pharmaceutical services from being delivered through a workers‘ compensation certified

network. Texas Insurance Code §1305.101 states that

(c) Notwithstanding any other provision of this chapter, prescription medication or services,

as defined by Section 401.011(19)(E), Labor Code, may not be delivered through a

workers' compensation health care network. Prescription medication and services shall be

reimbursed as provided by the Texas Workers' Compensation Act and applicable rules of the

commissioner of workers' compensation. (emphasis added)

In the event of a conflict between the network provisions and Workers‘ Compensation Act, the

network provisions in Insurance Code chapter 1305 prevail. Texas Insurance Code §1305.003(b)

provides that:

(b) In the event of a conflict between Title 5, Labor Code, and this chapter as to

the provision of medical benefits for injured employees, the establishment and

regulation of fees for medical treatments and services, the time frames for

payment of medical bills, the operation and regulation of workers' compensation

health care networks, the regulation of health care providers who contract with


271

those networks, or the resolution of disputes regarding medical benefits provided

through those networks, this chapter prevails.

Further, Texas Labor Code §408.031(b) contains a similar provision regarding conflicts between

the Insurance Code‘s network provisions and the Workers‘ Compensation Act. The §408.031(b)

reads as follows:

―In the event of a conflict between this title and Chapter 1305, Insurance Code, as

to the provision of medical benefits for injured employees, the establishment and

regulation of fees for medical treatments and services, the time frames for

payment of medical bills, the operation and regulation of workers' compensation

health care networks, the regulation of the health care providers who contract with

those networks, or the resolution of disputes regarding medical benefits provided

through those networks, Chapter 1305, Insurance Code, prevails.‖

The Attorney General answered the TDI-DWC‘s request in Opinion No. GA-0828 issued in

December 2010. The AG Opinion stated in the opinion summary:

―Sections 408.027, 408.028, and 413.011 of the Texas Labor Code do not establish a

minimum allowable rate at which workers' compensation insurance carriers may pay for a

prescription drug, medicine, or other remedy. A workers' compensation insurance carrier may

contract with a workers' compensation health care network to obtain a contract with a health

care provider to pay for a prescription drug, medicine, or other remedy at negotiated rates

that are permitted by law.‖

Despite the opinion from the Attorney General, many stakeholders felt that the legislature needed

to clarify the issue and outline how these contractual relationships should be structured. Thus,

HB 528 attempted to provide final guidance on how carriers could continue to contract for

pharmaceutical services and under what circumstances those contracts could be for

reimbursement less than the fee guideline.

What Does HB 528 Do?

The new law, House Bill 528 allows workers' compensation carriers to continue to have

contractual fee discounts for pharmaceutical services and to use a voluntary or informal network

to provide pharmaceutical services subject to certain requirements.

HB 528 amends the Workers‘ Compensation Act, Labor Code Chapter 408, Subchapter B, to

establish requirements relating to the provision of pharmaceutical services through informal and

voluntary networks. As noted earlier, pharmaceutical services cannot be part of a certified

network contract. HB 528 defines an informal network a contract between a carrier and a

pharmacy provider that included a specific fee schedule. See Labor Code §408.0281(a)(1). The

bill defines a voluntary network as a network for pharmacy services that was established under

previous workers‘ compensation law. See Labor Code §408.0281(a)(2).


272

The new law permits a carrier, or its authorized agent, to pay a health care provider fees for

pharmaceutical services that are inconsistent with the fee guidelines adopted by the

commissioner only if the carrier has a contract with the health care provider for pharmaceutical

services that includes a specific fee schedule and includes certain specified notice requirements.

If a carrier or the authorized agent used an informal or voluntary network, a contractual

agreement would have to exist between the carrier and the network that authorizes the network to

contract with pharmacy providers on the carrier‘s behalf. There also has to be a contract between

the network and the pharmacy provider that specified the fee schedule.

From a practical standpoint, pharmacy benefit managers (PBMs) and pharmacies routinely enter

into contracts for workers‘ compensation pharmaceutical services. Generally, the idea is that this

helps to reduce administrative costs for pharmacies associated with filing and processing

workers‘ compensation claims. Workers‘ compensation carriers, or their third party

administrators (TPAs) often also contract with PBMs to handle their workers‘ compensation

pharmacy claims. This means that the PBMs can be considered to be the informal or voluntary

network for discounted pharmacy contracts and thus many have registered as a informal or

voluntary network under the new law.

The bill imposes reporting requirements on informal and voluntary networks and establishes an

administrative violation for carriers and networks that violate the provisions of the new law.

Among the notifications required by the bill, the network or the carrier has to notify the

contracted pharmacy providers if the fee arrangements are sold, leased, transferred, or otherwise

conveyed. The new law also sets out other requirements concerning the information,

documentation, and method of delivery of the notice.

The bill also requires a carrier to provide copies of each contract to DWC when requested by the

agency. According to the bill, and testimony by the agency during legislative hearings, the

contracts would be considered confidential and not subject to disclosure. However, if the

contract is not provided to DWC when requested or if the contract terms are not consistent with

the HB 528 requirements, the carrier can be required to pay DWC fee guideline amounts to

pharmacies.

Pursuant to Texas Labor Code §408.0282(a), each informal or voluntary network that had

contracts in effect on June 17, 2011 had to report certain information listed to the TDI-DWC

within 30 days of the network being established. This includes:

the name of the informal or voluntary network and federal employer identification

number;

an executive contact for official correspondence for the informal or voluntary network;

a toll-free telephone number by which a health care provider may contact the informal or

voluntary network;

a list of each insurance carrier with whom the informal or voluntary network contracts,

including the carrier's federal employer identification number; and

a list of, and contact information for, each entity with which the informal or voluntary

network has a contract or other business relationship that benefits or is entered into on

behalf of an insurance carrier, including an insurance carrier's authorized agent or a

subsidiary or other affiliate of the network. See Texas Labor Code §408.0282(a)(1)-(5).


273

For those in existence on that date, that meant by July 17, 2011. The TDI-DWC also emphasized

that pharmacy informal or voluntary networks that previously registered with the TDI-DWC

pursuant to HB 473 had to register again under the new law in order to be in compliance.

Furthermore, all pharmacy informal or voluntary networks established after June 17, 2011 have

to register with the TDI-DWC not later than thirty days after the network is established.

Hopefully all networks that were required to register have already done so. If you are not sure if

your informal or voluntary network has registered or needs to register, please consult with legal

counsel

DWC Bulletin

On June 21, 2011, the TDI-DWC issued Commissioner‘s Bulletin B-0027-11 reminding

stakeholders of the requirements on reimbursement for pharmaceutical services for network and

non-network claims in the Texas workers‘ compensation system.

The bulletin reminded stakeholders that:

• Pursuant to Texas Labor Code §408.0281(b), insurance carriers must reimburse health care

providers in accordance with the TDI-DWC‘s pharmacy fee or at a contracted rate.

• Insurance carriers may also reimburse health care providers for pharmaceutical services at

rates inconsistent with the TDI-DWC‘s pharmacy fee guideline, meaning at rates greater

than or less than those fee guidelines, if the insurance carrier has a contract with that health

care provider that includes a specific fee schedule.

• Insurance carriers or their authorized agents may use a pharmacy informal or voluntary

network, as defined in Texas Labor Code §408.0281(a), to obtain these contractual

agreements with health care providers.

• An insurance carrier, its authorized agent or the pharmacy informal or voluntary network,

as appropriate, must notify each health care provider, at least quarterly of any person, other

than the injured employee, to which the network‘s contractual fee arrangements with the

health care providers are sold, leased, transferred or conveyed. The notice must contain

certain information listed in Texas Labor Code §408.0281(d)-(e) and the delivery of the

notice must be documented.

• Failure to comply with the provisions of Texas Labor Code §408.0281, including health

care provider notice requirements, is an administrative violation. Insurance carriers are

responsible for any sanction imposed for these violations, regardless of whether the

insurance carrier or its authorized agent committed the act or acts of noncompliance.

For a more thorough review of the new law, see HB 528.

Editor’s Note: The author of this article is Albert Betts. Betts is a partner with the law firm of

Thompson, Coe, Cousins & Irons and ICT’s General Counsel.





274

Has the Era of E-Claims Portals Arrived?

How Texas Could Benefit From an E-Claims Portal

By Joe Lawless, President, E-Health Data Systems

What would it mean to the state of Texas to have an E-

claims portal utilized within their Workers‘ Compen-

sation System? What is involved in developing such a

system and what benefits can be gained from moving

to an E-Claims portal system?

These questions, and many others relating to this topic,

proved to be quite thought provoking, as I listened to a

recent pre-conference symposium at the National

Workers Compensation and Disability Conference.

I concluded that a well-designed software suite

utilizing an E-Claims web portal application could

create huge savings, and simultaneously provide

substantial gains in efficiencies. Within the current

system, a substantial amount of time is spent working

in a cumbersome manual process. This is preventing

involved parties from working cohesively without.

duplicating efforts. This current system causes missed timeframes resulting in delayed

management of claims

Texas is a leader in how it manages its‘ Workers Compensation system. It now seems appro-

priate to capitalize on available technology and truly enhance the service deliveries within the

Texas Workers‘ Compensation system.

Supporting my thoughts, were comments from a recent Workers Compensation IT survey

indicating that there is a strong interest in the industry for new technology. The survey further

documented how important an efficient claims IT system is within the Workers‘ Compensation

System. Systems directly affect such things as productivity, compliance, medical costs, litigation

rates, expenses and outcomes, just to name a few. Additional costs affected include

administrative expenses, claims costs, employee retention and satisfaction, and ultimately

growth, revenues, and profitability.

Price Waterhouse Coopers Health Research Institute (2008) estimated that 88 billion of the 1.2

trillion wasted health dollars can be attributed to ineffective use of technology.

The E-Claims portal allows insurers and other system stakeholders to take advantage of

technologies that are already being utilized throughout the various states and group health

environments; e.g. EDI, Document Management, Data Mining, and incorporation of state forms

and etc. Additionally, Electronic Medical Records could be integrated and readily available to

all authorized parties. Workflows could be redesigned, allowing all stakeholders to capitalize on


275

both workforce savings as well as enhanced efficiencies. Transparency within the system would

allow for accountability as well as real time communication.

In the traditional model, the Clearing House is responsible for the processing of electronic claims

from providers and meeting the X12 ANSI 837 reporting guidelines as specified by the DWC

and TDI. The Clearing House is responsible for capturing the data from the CMS 1500s and UB

04s in a prescribed format and sends the data and the supporting documentation to the medical

bill review/audit company.

The E-Claims portal is a clearinghouse, data repository, and EDI bridge all in one. It utilizes

industry standard data storage and server functionality, layering the additional tools of the next

generation: Cloud computing collaboration. This Cloud will make accessible all aspects of the

data, handle tracking, document management, and analytics intuitively available for all aspects

of a claim and o participants resulting in a more effective process flow. These technologies are

utilized to convert a paper driven manual process to a comprehensive electronic system.

By using EDI, information can be securely transmitted and shared by the approved stakeholders.

A claim could be initiated by filing the first report of injury via an E-Claims portal. This would

ensure that proper notice is received by the insurer and regulatory agency. Providers can submit

E-bills through the web portal and know instantly that an 837 clean bill has been submitted.

Supporting documentation can also be uploaded to the system. The web portal allows E-filing

and tracking of all DWC forms, which can be automated. The portal enables carriers to upload

claims data and enables stakeholders the ability to send and receive information from other

sources.

As a data repository for claims, the software application can manage E-bill attachments and,

create an electronic medical record that can be sorted by document type, date of service, and

provider. This creates an accurate summary of the injured worker‘s medical history and allows

the reviewer the ability to view the medical record in different view sets. The E-Claims portal

securely accesses the repository, exposing all medical records, reports, bills and other pertinent

data related to an individual‘s claim. This information is available to all authorized stakeholders

who meet security protocols.

The software application allows the stakeholders to file and track all DWC forms. The forms are

time and date stamped to insure data integrity. Time sensitive information can be managed

efficiently through this historical tracking system. Upon form submission, distribution to all

authorized stakeholders is automated. Document management of state forms is an opportunity to

improve communication among all of the stakeholders. An example would be preparation and

submission of the DWC 69 (impairment rating report) and DWC 73 (work status report). Filing

of forms such as these through the portal would ensure that all stakeholders are informed in a

timely manner. The software application has the ability to data mine the DWC 73, DWC 69, and

other DWC forms. This enables users to extract valid data for scorecards and reporting.

Through improved workflows, accountability tracking, and status updates, many benefits can be

achieved. The status updates on time sensitive DWC issues could be viewed by the approved

parties, thus creating accountability and transparencies for all of the stakeholders. Some

examples would be the ability to track the status of income benefit payments and disputes,


276

allowing disputing parties to file a request for a Benefit Review Conference through the portal

and request the assignment of a Designated Doctor. Additionally, status updates on contested

case hearings and appeals of CCH decisions could be provided. Plain language notices could

also be filed and tracked. Some other examples of how the E-Claims portal and associated

system could improve the flow of information and data is the filing and exchange of bona fide

offers of employment and the exchange of documents prior to a Benefit Review Conference and

Contested Case Hearing.

The E-Claims portal could have an immediate positive impact on the Designated Doctor process.

Because the software application automates many manual processes and creates better

efficiencies, information can be shared among approved stakeholders. Some examples would be

the ability to request a DWC 32 online and track its progress through the approval process.

Stakeholders would then have the ability to view the DWC 32 and EES 14 ensuring the validity

of the request. The carrier and treating physician could upload the medical records, which could

then be retrieved and reviewed by the designated doctor. The Letter of Clarification process

would also benefit from this enhanced communication.

For insurance carriers, integration with an E-Claims Portal needs to be optional and incremental.

The E- Claims Portal has a variety of levels of integration as befits the level of functionality

granted by each insurance carrier. An insurance carrier that does not interconnect with the portal

would still be able to view its claims being processed, albeit the stages of work would move

more slowly due to following paper protocols. An insurance carrier that is fully bridged to the

portal with EDI would see fewer delays as data would not be stalled in paper transformations.

The implementation of a E-Claims Portal for Texas workers‘ compensation claims would also

improve system communications. Keep in mind that the largest group of complaints filed in the

Texas workers‘ compensation system involves communication complaints. In addition to

improving communications among system stakeholders, the E-Claims Portal would provide the

Division of Workers‘ Compensation with an enhanced ability to perform its system oversight

duties.

I leave you with this one question – with all that you know, is it time to move towards an E-

Claim Portal system in Texas?

Editor’s Note: The author of this article is Joe Lawless Jr. Lawless has extensive experience with

developing and managing claims management systems for payors. Together with Anthony Jucha

and Joe Lawless Sr., Lawless founded E-Health Data Systems for the purpose of providing the

insurance industry with solutions to automate workers’ compensation business processes. The

company has decades of workers’ compensation and technology experience that has streamlined

the business processes of many clients. Microsoft technology is at the core of their platform.

Their expertise lies in their ability to create and integrate new and existing infrastructures, to

facilitate solving the business problems of disparate agencies. Their portfolio includes web

portals, EDI, data repositories, data warehousing, reporting, dashboards, metrics, key

performance indicators, production of state forms, medical document sorting, electronic medical

records, practice management, accounting, business workflow automation, fax and scanning

automation, call center operations, task management and accountability. Mr. Lawless can be

contacted at (713) 400-0226.



277

Editor’s Notice of Copyright

December 27, 2001 ● Austin, Texas

The State of the Texas Workers’ Compensation System, which is published by the Insurance

Council of Texas (ICT), is an annual publication that reports on the state of and developments in

the Texas workers‘ compensation system. This publication includes articles written by Insurance

Council of Texas staff and contributing authors who have extensive experience with the Texas

workers‘ compensation system. The views expressed in articles that have been contributed to this

publication do not necessarily reflect the views, opinions, or position of ICT or its member

companies.

This is a copyrighted publication. ICT claims copyright over all written and other materials

prepared by ICT staff.

ICT does not claim copyright over any work product attributed to this publication by an author.

The authors of contributed articles retain all copyrights over their material. ICT does not claim

copyright over any material or articles obtained from Texas Department of Insurance publications

and reports.

Geoff Billings, Editor and Senior Regulatory Analyst, Insurance Council of Texas

Comments and Inquiries: Please send all comments or inquiries to Steve Nichols at the

following address, telephone number, or via [email protected], or at:

Insurance Council of Texas

P.O. Box 15

Austin, Texas 78767-0015

Phone 512/ 444-9611 - Fax 512/ 444-0734

Available as an electronic publication only.

Navigating This Publication Is Easy

Did you know that you can navigate this publication by clicking on the page

number associated with the article you want to read that is located in the articles

table of contents?
