The New Workers' Compensation: Will It Solve the Problem?

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Cover Story - October 2005  

By   Ken Ortolon
Senior Editor  

For years, physicians, employers, and injured workers begged lawmakers to reform a state workers' compensation system that was costly, full of hassles, and didn't seem to get workers back on the job very quickly. Now they've gotten their wish. But the question is, will they be satisfied with the changes made by the legislature?

On Sept. 1, a new law abolished the Texas Workers' Compensation Commission (TWCC) and transferred the bulk of its duties to the Texas Department of Insurance (TDI). The new law also made substantial changes in how health care will be delivered to workers injured on the job.

It is intended to make workers' compensation insurance more like traditional group health coverage. While stakeholders in the workers' compensation system applauded the reform, it is yet to be determined how happy they will be with the new product.

San Antonio pathologist David Henkes, MD, chair of the Texas Medical Association Ad Hoc Committee on Workers' Compensation, says TMA is concerned about provisions of the law that introduce managed care-style provider networks into the workers' compensation system. Still, he says, the association remains "cautiously optimistic" that the reforms eventually will mean fewer hassles and better pay for doctors and better health outcomes for patients.

But, as with any legislation, the devil is always in the details, and many of the details of the new system were left to TDI to determine through rulemaking. As of mid-August, TDI was working furiously to get rules in place so insurance carriers could begin offering new workers' compensation products early next year.

Dr. Henkes says the final rules are as important as the law itself in determining how successful the new system will be. TMA will keep a close eye on that rulemaking process, he adds.

In the meantime, Dr. Henkes says physicians previously driven out of workers' compensation by low pay and burdensome administrative hassles are reserving judgment about the new system.

"I have not gotten the sense that physicians are enthusiastic yet about returning to workers' comp," Dr. Henkes said. "The ones that dropped out may be watching the process, but there's still a long way to go. There's going to have to be something in the rulemaking process or within the specific carriers that go into these networks to draw the doctors back into the system." 

Caught in the Crosshairs  

TWCC was under intense legislative scrutiny even before the Texas Legislature convened in January. First, the agency was up for "sunset" review, which meant it underwent an exhaustive review by the Sunset Advisory Commission throughout 2004. Plus, the House Business and Industry Committee and a Senate Select Committee on Workers' Compensation both conducted separate interim studies of the agency.

A myriad of problems within the workers' compensation system spurred all of that scrutiny, says Michael Reed, director of TMA's Managed Care Delivery Systems Department.         

First, employers were unhappy because they paid some of the highest workers' compensation premiums in the country. Overutilization of services was a problem. Despite high costs, Texas had the country's worst track record in getting injured workers back on the job.

Meanwhile, physicians fled the system in droves nearly two years ago after TWCC set the payment schedule at 125 percent of Medicare rates. Greg Herzog, assistant director of legislative affairs for TMA, says that roughly 30,000 doctors were on the workers' compensation Approved Doctor List in 2000. That number is now down to just over 11,000; only about 8,000 of those physicians actually billed the system during 2004.

Rep. Burt Solomons (R-Carrollton), who chairs the Sunset Advisory Commission and authored the bill that abolished TWCC, says it was obvious to just about everyone involved that a "massive bureaucratic virus" was running through the workers' compensation system.

"There were cost factors in premiums. There was overutilization," Representative Solomons said. "There were medical problems, bureaucratic hassles every time you turned around. You [doctors] couldn't get paid promptly. The dispute resolution process was a disgrace. The structure of the agency did not allow for anything to be done very well even though there were some good people over there."

The Sunset Commission simply decided that "almost nothing we do could bandage it enough," he said. "Basically it boiled down to everybody from the governor on down thought the system was just breaking apart at the seams. It was in crisis and there was some feeling that we had to do something more than just minor bandages."

The Sunset Commission recommended eliminating TWCC and transferring its functions to TDI. Representative Solomons filed House Bill 7, which sailed through the House.

The Senate, however, was reluctant to take such drastic action. It passed its own bill, authored by Sen. Todd Staples (R-Palestine), which would have left the commission in place. For a while, it appeared that a stalemate over which bill would be the ultimate vehicle for workers' compensation reform could doom the entire effort. In the end, though, a compromise was reached. Gov. Rick Perry ultimately signed HB 7 into law. 

Creating Networks  

HB 7 replaces the old six-member commission with a single commissioner who will run the TDI Division of Workers' Compensation. That commissioner will be appointed by the governor and report directly to him and Insurance Commissioner Michael Geeslin. The bill also creates an Office of Injured Employee Counsel to guide injured workers and give them a voice within the new system.

Experts say there are wins and losses for all stakeholders in the new law. One of the biggest wins for physicians is a guarantee of payment for services rendered, up to a maximum of $7,000, if a carrier later determines an injury was not a work-related, compensable injury.

Beaumont orthopedic surgeon David Teuscher, MD, a member of TMA's Ad Hoc Workers' Compensation Committee, says that's a huge victory for physicians who routinely were left holding the bag when insurance companies retrospectively denied payment based on noncompensability.

But the biggest change for both physicians and patients in the new law may be the creation of provider networks through which most health care will be delivered.

Under the old system, an injured worker could see any health care professional - be it a physician, chiropractor, or other provider - on the Approved Doctor List. Few limits were placed on the number of visits a patient could have as long as they were determined to be medically necessary.

Mr. Reed says HB 7 does not eliminate the old system but adds the managed care networks on top of it. TDI estimates 80 percent of employers will opt for the new network-based system because they likely will ratchet down utilization and costs. Some small employers and employers in rural areas that do not have the population or physician supply to support networks are expected to continue in the old system.

Under HB 7, TDI has been charged with coming up with a new payment schedule based on multiple conversion factors to replace the current rate of 125 percent of Medicare. That is not likely to happen, however, until some time next year.

Physicians within the networks will have the ability to negotiate their own fees, but how effective those negotiations will be and how earnestly the carriers will want to deal is yet to be seen. Experts expect that physicians in solo and small group practices will have more difficulty negotiating than those in large group practices with greater market leverage.

Mr. Reed says physicians who have practiced within HMOs and preferred provider organizations likely will be more comfortable with the new system than those physicians who haven't.

And, some physicians and others who historically have been labeled high utilizers by insurance companies could find themselves out of workers' compensation altogether as networks seek to control utilization and lower costs. Chiropractors likely will be among the prime targets for elimination by the networks.

"Certainly the chiropractors have been a target, and the numbers were compelling that the utilization of chiropractic services was multiples higher than the national average here in Texas," Dr. Teuscher said.

Attempts to contact the chiropractors association for a comment were unsuccessful.

While the current price per service paid to providers in Texas' workers' compensation system is at or below the national median, utilization is substantially higher than other states. The nonprofit Workers Compensation Research Institute (WCRI) examined average number of services per workers' compensation claim in 12 states between October 2000 and September 2001 and found that Texas was nearly twice as high as the median of all 12 states. And, WCRI data showed Texas chiropractors provided more than three times the number of services per claim than the median. 

No Silver Bullet  

TMA was not enthusiastic about creating workers' compensation networks but supported the reforms after lawmakers granted physicians the ability to negotiate fees within the networks and subjected the fees to similar prompt pay and patient protection provisions that govern other group health plans.

Still, some physicians are skeptical that networks will fix all of the problems with workers' compensation.

"I don't think networks by themselves are a panacea," Dr. Teuscher said.

Bernard T. "Buddy" Swift Jr., DO, MPH, is chief executive officer of Texas MedClinic, a group of 45 physicians who provide occupational medicine and urgent care services at eight clinics in San Antonio. He says his group, which performs about 100,000 occupational medicine visits annually, is trying to figure out how the networks will impact their continued participation in workers' compensation. He's not encouraged.

"What I'm seeing so far, as I predicted prior to the law passing, is the carriers are screening us to be in their network based on our willingness to take a discount off the fee schedule," Dr. Swift said. "The carriers appear to be reverting to their historic predatory behavior."

Dr. Swift says his group has been offered workers' compensation contracts by at least two would-be carriers, including Aetna, substantially below the current fee schedule, with fees as low as 75 and 85 percent of Medicare. He says those offers simply aren't realistic.

"They're just trying to fill up their network with physicians who are willing to take a discount without regard to quality of care," he said.

Dr. Teuscher says he has had preliminary discussions with some carriers, but has not been offered any contracts at rates that low. Any such offer would go into the "circular file," he says.

San Marcos orthopedic surgeon Stephen Norwood, MD, who also served on the TMA ad hoc committee and is president of the Texas Orthopaedic Association, says he anticipated the health plans would attempt to low-ball physicians. That, he says, will not bring good doctors back into the workers' compensation system.

Since fees were set at 125 percent of Medicare, he says, the percentage of the state's orthopedic surgeons who actively participate in the system has dropped from 70 percent to 30 percent.

"If our group walked away at 125 percent I don't think they are going to come back in at 75 or 80 percent of Medicare," Dr. Norwood said. "That's not going to solve the problem."

Dr. Swift says Texas MedClinic has determined the rates it is willing to accept, and those rates are above the current fee schedule. If the carriers continue to offer low-ball contracts, his group will drop out of workers' compensation and look to increase the urgent care side of the practice, he says.

"I won't like it, I won't be happy about it, but we know where our costs are and we know how much effort and time and money it takes to see these patients," Dr. Swift said.   "The carriers are fooling themselves if they think they're going to get any quality care at a level equal to or below the existing 125 percent." 

Jumping the Gun  

Dr. Norwood says these offers are really premature. No networks have yet been certified to offer workers' compensation coverage in the state. In fact, TDI is still in the process of drafting rules to govern the operation of such networks.

Representative Solomons also says the carriers are "getting ahead of themselves," and he has complained about the attempts to low-ball provider fees.

"The goal of HB 7 was to make workers' comp insurance just like group health insurance as closely as possible," he said. "We even have provisions in there that say you couldn't try to low-ball those kinds of deals. Certainly that was not the intent of HB 7, and I don't think it will be the intent of TDI to allow them to come in and treat injured workers as second-class citizens to someone who's sick."

TDI submitted network rules to stakeholders for comment on Aug. 5. Margaret Lazaretti, deputy commissioner for the HMO Division of TDI, says final rules will not be in place until Dec. 1. TDI will begin accepting applications to certify networks on Jan. 1, 2006. That means networks likely will not be up and running until March or April of next year.

"Technically, if we get in a perfect application with absolutely everything in place, we could approve that in a very short length of time," Ms. Lazaretti said. "We have up to 60 days to do so."

In its comments on the proposed rules, TMA urged TDI to use "existing tried and tested managed care definitions consistent with other delivery systems." Specifically, TMA expressed concern that the definition of adverse determination in the proposed rules is inconsistent with existing managed care terms, that definitions of medical emergency in various places are inconsistent, and that fraud is not clearly defined.

TMA also says that rules that require networks to establish lists of treatments and services that require preauthorization did not address how physicians were to obtain that preauthorization, and that the rules did not address the process for how carriers will pay nonparticipating providers. 

Getting It Right  

Dr. Teuscher says his group significantly cut its participation in workers' compensation over the past several years because of the hassles and "pitiful" reimbursement. But the group, which includes 17 physicians, is watching the rulemaking process closely and hopes to expand its workers' compensation practice under the new system.

"This is a critical phase as we make the rules and determine what is and what isn't going to be required of people who are making the networks," he said. "If everybody concentrates on what's going to get people well fast and back to work as rapidly as possible, then we're probably going to eliminate a lot of the overutilization and a lot of the cost in the system. And people who are providing health care services are going to be happy to be a part of that if they're treated with respect, allowed to do their job as a professional, and then fairly reimbursed." But, he added, "if they just want to have a system where they can find low-budget doctors, then they're going to get what they pay for."

Ken Ortoloncan be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by email at  Ken Ortolon.  


Physician-Owned Start-Up Looking to Enter Workers' Compensation Arena

San Marcos orthopedic surgeon Stephen Norwood, MD, says the state's new workers' compensation reforms could be a double-edged sword for physicians.

The new law promises physicians the ability to bolster their payment rates and cut administrative hassles within the workers' compensation system, he says. But it also holds the threat that commercial health plans, which will play a much larger role in delivery of care under the new system, could run roughshod over physicians, forcing them to accept all-products-type contracts and low fees.

"My concern is that doctors may end up in a worse situation than the current crisis," Dr. Norwood said.

So he took the bull by the horns and, along with two other partners, formed a new physician-sponsored network, Physicians Cooperative of Texas (PCT), to compete head-to-head with insurance company-owned networks for workers' compensation business.

They intend to create a network that will help good physicians improve their clinical outcomes and achieve quicker and more efficient return-to-work results, and reward them with better reimbursement models. It also will reduce overutilization of services and get doctors back into the workers' compensation system, they say.

"The emphasis of what we are building is something that is provider-oriented and more cooperative with all the stakeholders," Dr. Norwood said. "Physician-sponsored networks are some of the most productive and most successful managed care organizations today."

Creg Parks, PCT's chief executive officer and cofounder along with Dr. Norwood and Mark Quigley, president of the Texas Medical Group Management Association, says PCT is modeled after other highly successful provider-sponsored networks with proven track records in other workers' compensation and medical group health markets.

"When you have that type of model, everyone's focused on better clinical outcomes and more efficient return-to-work results," Mr. Parks said. Physicians who participate in PCT will have a say in the development of treatment guidelines and protocols and other network policies relevant to patient care, he adds.

"It gives physicians a comfort level to come back into the workers' comp system," he said. "If they just sign a contract with some network, they have no say whatsoever. They're told what the policies are, they don't share in the success of that entity, and it's the same old adversarial-type relationship."

Dr. Norwood says developing a full-blown insurance product would be quite difficult with reserve requirements and other hurdles that would have to be cleared. So PCT will focus its efforts as a delegated network that will market its physician network and efficient network services to other carriers, payers, and employers.

They have begun by successfully reaching out to orthopedic surgeons and eventually will bring in primary care, occupational medicine, and other necessary specialists to fill out a comprehensive statewide provider panel.

Dr. Norwood says their goal is to target 10 percent to 15 percent of the workers' compensation business in the state. PCT is very selective about the physicians it invites into the network, he says. "In general, our network is going to be focused around a better reimbursement system for providers than the competitors in exchange for being very, very selective about our providers, which will control the biggest problem in the current workers' compensation system, which is overutilization with poor clinic outcomes and low return-to-work results," he said.

Mr. Parks says PCT also is evaluating provider reimbursement incentive models that are successful in other markets, rewarding physicians who provide superior clinical outcomes and return-to-work results, saving the payer and employer money.

"The better the provider performs and treats those injured workers and gets them back to work quickly, it saves everybody money," he said. "We want a little portion of that savings, a fair portion, to go back to PCT to keep us solvent and also to reward the provider for doing such a good job."

Dr. Norwood says there are still several concerns with the Texas Department of Insurance (TDI) rulemaking process that could jeopardize physician-owned networks within workers' compensation. One is the possibility that TDI will impose high reserve requirements on such networks.

"If a fledgling physician-sponsored network were required to have $6 million in reserve assets, we're just not going to make it," he said. "This burden typically is placed on the claims payer, not the delegated network."

Dr. Norwood hopes to have a large enough network in place to roll out pilot programs in the Austin-San Antonio corridor, Corpus Christi, Houston, and the Dallas-Fort Worth area when TDI begins certifying workers' compensation networks in January. PCT also is making headway in recruiting physicians in rural markets, such as Longview. Eventually, PCT hopes to have an adequate panel of qualified providers to have a statewide network.

Dr. Norwood foresees success for PCT because of its focus on current successful models. Whether or not it's successful, however, Dr. Norwood says the process of bringing providers together in a cooperative effort to build such a network is well worth it, and it's important that physicians preserve the right to have an ownership stake in the new workers' compensation system.

"At the end of the day, what may have happened is that we threw ourselves in front of the train so that physician-sponsored networks could exist in the future," he said. "We may or may not be successful, but at least we're out their fighting in the rulemaking process trying to get it where that can occur." 

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