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House Bill 2600 Brings Major Changes to the Texas Workers' Compensation System

Prior to the convening of the 77th Legislature, many observers predicted a session without major reforms to the Texas workers' compensation system. The redrawing of House and Senate districts and other issues were expected to command much of policymakers' attention, leaving limited time and energy available for addressing workers' compensation issues.

At the same time, however, calls continued from many workers' compensation system stakeholders for an examination of possible legislative changes. In 1999, the 76th Legislature had asked the Research and Oversight Council on Workers' Compensation (ROC) to conduct studies related to the cost and quality of medical care provided in the system as well as ways to improve both safety and return-to-work outcomes.

The medical cost studies found that while the cost of care in the Texas workers' compensation system was higher than those in other comparable states and other health care delivery models, injured workers in Texas were no more satisfied with the care they received and less likely to return to work after their injury.1 These studies pointed to the overutilization of many health care services such as physical medicine, diagnostic tests and surgery as the primary cost driver in Texas. Additionally, the studies found that a small, but concentrated group of health care providers accounted for the bulk of these health care services. Other important study findings included growing frustrations by both health care providers and insurance carriers over regulatory and administrative inefficiencies in the system. These frustrations centered on the widespread perception that the workers' compensation medical regulatory structure in Texas differed greatly from other health care delivery models, creating confusion and adding additional and unnecessary administrative burdens for all system participants.

These studies tended to support a growing contention that workers' compensation medical costs in Texas could be better controlled, and that the quality of medical care delivered to injured workers could be better monitored to improve outcomes. Looming also for the coming years was the possibility of a double-digit annual increase in workers' compensation insurance premiums for Texas employers.

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 its initial form, the bill contained six articles focused on those basic goals, with provisions 1) increasing the Texas Workers' Compensation Commission's (TWCC's) monitoring of doctors in the system; 2) establishing voluntary regional networks for workers' compensation medical services with built-in incentives for injured workers to utilize the networks; 3) improving communication about return-to-work issues; 4) increasing the use of designated doctor examinations to resolve disputes; 5) improving medical dispute resolution; and 6) changing fee and treatment guidelines.

Given the omnibus scope of the bill and the interest of workers' compensation system stakeholders (i.e., employees, employers, insurance carriers and medical providers) in its provisions, a working group was formed in an attempt to craft a bill with broad-based support. Hours of negotiation and discussion, along with modifications before the House Committee on Business and Industry, the full House, the Senate Committee on Business and Commerce and, finally, the full Senate, led to the creation of a more comprehensive workers' compensation reform bill. While the central tenets of the bill relating to the cost and quality of medical care in the system remained, a variety of other provisions were added, including more equitable income benefits for employees with multiple jobs, the payment of attorney's fees, a prohibition on certain employee waivers by employers who do not purchase workers' compensation insurance, and the allocation of workers' compensation and risk management costs among state agencies.

In the end, the version of HB 2600 approved by both the House and Senate, and signed on June 17, 2001 by Governor Rick Perry, represents by far the most sweeping change in the Texas workers' compensation system since the reforms of 1989.

The final bill contained 17 articles, many of which were originally filed as separate bills and later attached to the omnibus. This article will first describe the components of HB 2600 by broad subject matter and then address the remaining components of the bill.

Medical Cost and Quality Control

The first two articles of HB 2600 directly address concerns about escalating medical costs and the lack of control over the quality of care provided to injured employees.

The provisions of Article 1 establish a registration process for doctors who participate in the system - including those who provide care to injured workers as treating doctors, serve as required medical examination doctors or designated doctors, provide care on referral from a treating doctor, or who perform utilization review services for insurance carriers. Requiring registration for those doctors wishing to participate in the system is intended to help make TWCC's Approved Doctor's List (ADL), which includes all of the approximately 80,000 doctors currently and previously licensed to practice medicine in the state, much more manageable.

In addition, TWCC is required to develop, by rule, appropriate training and quality of care monitoring requirements for doctors in the system. With the exception of designated doctors, doctors were not previously subject to workers' compensation-specific training or quality monitoring requirements. These new training provisions under Article 1 now provide TWCC with the tools to ensure that injured workers receive quality medical care in an efficient manner.

Article 1 also requires TWCC to improve its coordination of regulatory activities with health care provider licensing boards and the Texas Department of Insurance. The specific monitoring criteria are to be determined by TWCC rule. Article 1 also allows progressive sanctions to be imposed on either a doctor or an insurance carrier for rule violations.

This article of the bill not only gives TWCC more authority to apply appropriate sanctions, but also rewards to doctors in the system. For example, just as a doctor can be required under the article to submit to more stringent preauthorization of medical care, preauthorization requirements can also be lessened for doctors with a record of providing quality, cost-effective care. Article 1 also requires TWCC to collect information on return-to-work outcomes, patient satisfaction, and the cost and utilization of health care, so that these factors can be considered in the monitoring of medical care.

In addition, Article 1 formalizes the role of TWCC's Medical Advisor, who will serve an important function in creating monitoring requirements and related rules under this article and others in the bill. The advisor will be assisted by a Medical Quality Review Panel of doctors created under this article, solidifying the in-house medical expertise that TWCC had lacked in the past.

While Article 1 addresses medical care provided in the workers' compensation system in general, Article 2 allows for the creation of a new model for the delivery of care. Article 2 introduces the concept of regional medical networks into the Texas workers' compensation system. The article calls for a feasibility study on the creation of regional workers' compensation health care delivery networks and creates a Governor-appointed Health Care Network Advisory Committee (HNAC) to set the standards for health care provided through these regional networks. The committee will also be responsible for establishing a network report card that will measure employee satisfaction and return-to-work outcomes. Under Article 2, the ROC is required to report on the progress of establishing these regional networks biennially. The networks created under Article 2 would be required to meet the minimum standards established under state law for Preferred Provider Organizations (PPOs), along with any other standards set by the HNAC.2 A network will be created for a particular region only if it is found to be feasible; if feasible, at least one regional network is required to be established by Dec. 31, 2002.

If a network is created in a region, insurance carriers writing workers' compensation policies in that region will have the option to participate. In turn, employees of companies covered by participating insurance carriers would have the choice of receiving medical care for on-the-job injuries through the network. The employee's voluntary election to participate is on a "per-injury" basis; this and the other voluntary aspects of the networks provide a direct incentive for the medical networks to provide high quality care and increase patient satisfaction.

Those employees who choose to receive medical care through the network would receive care under a different model than that of the workers' compensation system in general. An injured worker in the network would retain the right to choose his or her own treating doctor, but would be required to choose one from a list of doctors provided by the network. Prior to the employee's election to enter the network, the employee would also be provided with information on the network's performance, including patient satisfaction information and other topics. As an added incentive to utilize the medical networks, some employees who participate in the networks will also be eligible for increased income benefits: 1) the cap on weekly temporary income benefits (TIBs) payments would be raised by 50 percent; and 2) participating employees will receive income benefits for their first week of lost time after two weeks rather than four weeks of lost time.

It should be noted that many insurance carriers currently have voluntary contract arrangements with certain networks to provide care to injured workers; however, injured workers are not required to use the networks and can choose or change their own doctor at any time. As part of the work group compromise, Article 2 allows insurance carriers to continue operating their own health care networks; however, it does place carrier networks under the same minimum standards as the regional networks established by the HNAC.

Articles 1 and 2 are designed to work together to improve medical care outcomes and decrease costs in the system. Article 1 focuses on the system as a whole, establishing certain baseline requirements for participation in the system and implementing a progressive monitoring structure. Article 2, in turn, creates an optional medical delivery model with a higher level of monitoring. Because of the substantial differences between the network contracted care model enacted under this article, and the traditional system of workers' compensation health care delivery in Texas, Article 2 was the most closely-examined and most controversial provision in HB 2600.

Prohibition on Certain Waivers

Another frequently discussed element of HB 2600 was a prohibition on certain kinds of waivers in the workers' compensation system. Under Texas' non-mandatory workers' compensation system, in which employers may choose to purchase or not purchase coverage, some companies that chose not to be covered by workers' compensation insurance have, in turn, asked their employees to sign waivers of their common law right to sue in the event of a work-related injury or death. Workers' compensation law in Texas already extends this protection from suit to employers who do subscribe to the system, and many have argued that this protection is one of the most compelling incentives to purchase workers' compensation insurance.

The legality and fairness of these types of waivers have been at issue for some time (see Texas Monitor, Spring 2000). Concern about this issue led Senator Robert Duncan to file Senate Bill 624, which would have prohibited and made void any waivers of the common law right to sue by an employee of a non-subscriber prior to an injury or death. The issue took on added emphasis when, in mid-session, the Texas Supreme Court ruled in a case involving the legality of waivers that Texas' workers' compensation laws did not specifically address the issue, and that absent a clear prohibition in the law, waivers of this type were not necessarily illegal.

Once HB 2600 passed the House, Duncan, the Senate sponsor, attached the waiver prohibition to the omnibus bill as Article 16. The addition of this section and the immediate effect of the bill means that as of June 17, 2001, waivers of the right to sue by employees of non-subscribing employers are void and unenforceable.

Benefit Enhancements

Although much of HB 2600's focus is on the delivery of medical benefits to injured employees, portions of the bill also make significant changes to the la w regarding other medical and income benefits.

Article 10 of the bill addresses income benefits for injured employees who have more than one job. Under existing law, an employee injured on the job is only eligible for income benefits based on the wages earned from that job. Wages the employee may also earn at other jobs are not considered, even though the injury may prevent the employee from working at those jobs, as well. The changes in this article will allow injured employees to claim income benefits based on wages from all their IRS-reportable employment, rather than only the wages at the job where they are injured. This article also stipulates that insurance carriers that pay additional income benefits based on an employee's other employment may seek reimbursement for those benefits. These reimbursements will be paid from the Subsequent Injury Fund (SIF), a special fund paid into by insurance carriers in death claims for which no beneficiary exists. Article 10 is substantively identical to HB 2613 by Representative Scott Hochberg.

Article 9 adds a new condition to the injuries that can make an employee eligible for Lifetime Income Benefits (LIBs). Existing law allowed for LIBs eligibility only in cases involving the loss of use of at least two of either the hands or feet, loss of sight in both eyes, a spinal cord injury resulting in paralysis, or incurable insanity or imbecility. The changes under Article 9 will add to the eligibility for LIBs third-degree burns that cover at least 40 percent of the body and require grafting, or third-degree burns covering the majority of either both hands or one hand and the face. Article 9 is substantively identical to HB 2445 by Representative John Davis.

Another direct medical benefit to injured employees relates to coverage for pharmaceuticals in the period immediately following an injury. A portion of Article 4 stipulates that TWCC may, by rule, require insurance carriers to be responsible for the payment for prescription drugs sufficient for the first seven days after an injury, provided that the health care provider receives verification of coverage and verbal confirmation of an injury from either the employer or insurance carrier. This provision is intended to minimize uncertainty immediately after an injury as to the existence of an injury or of workers' compensation insurance coverage. Such uncertainty can make it difficult for injured employees to get needed medications. The article also stipulates that if an injury is eventually found not to be compensable, an insurance carrier may seek reimbursement from the SIF for the cost of pharmaceuticals paid under this provision.

Changes to TWCC Medical Dispute Resolution and Medical Guidelines, Policies

Several items in HB 2600 relate to this broad category. One significant change included in Article 6 of the bill requires TWCC to utilize Independent Review Organizations (IROs). These entities have been used for some time to resolve medical necessity disputes involving Health Maintenance Organizations (HMOs). IROs are utilized to produce decisions with greater medical expertise in a more efficient manner than TWCC's current in-house medical review process. The cost of review by an IRO would be paid by the insurance carrier in disputes involving services that require preauthorization; otherwise, the cost would be paid by the entity (e.g., insurance carrier or medical provider) who fails to prevail in the dispute. Article 6 also requires TWCC to publish its medical dispute and IRO decisions on its Internet website, including decisions of the State Office of Administrative Hearings (SOAH).

In addition, Article 6 requires TWCC to adopt a fee schedule based on the reimbursement methodologies, models, and values or weights used by the federal Heath Care Financing Administration (HCFA), with minimal modifications necessary to meet occupational injury requirements. The intent of this provision is to bring the reimbursement structure in the Texas workers' compensation system into closer alignment with the structures used in other health care delivery systems. The actual reimbursement amounts will be determined by TWCC rule and are not adopted in full from any other delivery system.

Another related element of Article 6 requires TWCC to adopt an open formulary requiring the use of generic pharmaceuticals unless specified otherwise by the prescribing doctor. It also adds coverage for clinically appropriate over-the-counter alternatives to prescription medications. TWCC is also to adopt rules allowing an employee to purchase and obtain reimbursement for over-the-counter alternatives prescribed or ordered by a doctor.

This article also makes TWCC's creation of treatment guidelines optional rather than mandatory. If treatment guidelines are adopted, the bill requires them to be "nationally-recognized, scientifically valid and outcome-based." TWCC's current treatment guidelines are abolished effective January 1, 2002.

Article 4 of HB 2600 also makes changes to the process by which spinal surgery is approved. The current spinal surgery second opinion process has been eliminated; under the new law, spinal surgery requests will be subject to preauthorization by insurance carriers. If preauthorization is denied, a review will be conducted by an IRO, and claimants still denied a request for surgery at the IRO level would have access to TWCC's dispute resolution process under Chapter 410 of the Labor Code. The changes should expedite decisions regarding spinal surgery while ensuring that qualified medical experts conduct those reviews.

Along with spinal surgery, Article 4 also requires preauthorization for certain other medical procedures. These include work-hardening or work-conditioning services provided by a health care facility not credentialed by an organization recognized by TWCC rule; inpatient hospitalization; outpatient or ambulatory surgical services; and any investigational or experimental services identified by TWCC rule. This list of preauthorizations reflects only those specifically required in the statute and does not prohibit TWCC from requiring by rule preauthorization of other services.

Return-to-Work Communication

The interim HB 3697 studies by the ROC also indicated that return-to-work rates in Texas were lower than those in comparable states - that fewer Texas injured workers returned to employment after they were injured, and that in general, they earned less after they returned to work.

Article 3 of the bill attempts to improve return-to-work outcomes and communication about return-to-work issues. This article requires employers to provide, upon request, information about whether they offer modified duty opportunities or modified-duty return-to-work programs to transition injured employees back to work. Insurance carriers are also required, with the consent of an employer, to provide return-to-work coordination services including analyses of job requirements, assessments of job modifications to facilitate return to work, and case management.

The article also requires TWCC to use return-to-work experts to train its staff on the coordination of return-to-work services and to report twice a year to the ROC on the implementation and outcome of return-to-work initiatives.

Other Provisions of HB 2600

A number of other changes to the law are included in the bill:

o Article 5 changes the process by which injured employees undergo required medical examinations (RMEs). Under existing law, insurance carriers are allowed to request that an injured employee have an examination by a carrier-selected doctor to evaluate issues related to the employee's medical condition every 180 days, with certain exceptions. This article changes that process by stipulating that for issues involving the assignment of impairment ratings or attainment of maximum medical improvement (which constitute a significant percentage of RME exams), injured workers will b e sent not to a doctor chosen by the insurance carrier, as under current law, but first to an independent doctor selected from TWCC's list of designated doctors. Designated doctors are already used by TWCC to provide independent medical evaluations and help resolve disputes, and the opinions of designated doctors carry "presumptive weight" (i.e., they are presumed in a dispute to be correct unless the great weight of the medical evidence is to the contrary). The intent of this change is to bring an independent medical evaluation into the RME process quicker and minimize the number of physical examinations for injured employees. This article is substantively identical to the House Committee Substitute to HB 1579 by Representative Dawnna Dukes.

o Article 8 changes the law relating to payment of an injured employee's attorney fees. The change requires an insurance carrier to pay an appropriate portion of an employee's attorney fees if the carrier appeals a TWCC decision to district court and the employee prevails. This article is substantively similar to HB 1324, also by Representative Brimer.

o Portions of HB 2600 address TWCC's assessment of administrative violations. Article 6 requires TWCC to establish a schedule of specific monetary penalties for specific violations of workers' compensation statutes and establishes that violations of rules, orders or decisions of TWCC, after notice, are subject to monetary penalty.

o Articles 1 and 6 require health care providers in the workers' compensation system to disclose any financial interests in other health care providers. Article 6 also requires TWCC to adopt the federal definition of "financial interest" and federal anti-kickback provisions as they relate to self-referrals and providers who have such financial interests. However, this provision does not prohibit self-referrals that do not involve kickbacks.

o Articles 11 and 12 incorporate two provisions related to TWCC's dispute resolution process. Article 11 requires an insurance carrier, at any contested case hearing before TWCC, to provide in writing the true corporate name of its company to both TWCC and the injured worker. The insurance carrier is also required to provide a name and address for its registered agent for the service of process. Both provisions are intended to clarify the identity of an insurance carrier. Article 12 establishes that Saturdays, Sundays and holidays do not count toward the timeframe in which an appeal of a contested case hearing decision must be filed. Articles 11 and 12 are substantively identical to HBs 1382 and 2566, respectively, by Representative Jim Dunnam.

o Article 13, which is substantively identical to HB 3102 by Representative Carl Isett, requires TWCC to conduct a study on drug-free workplace issues. It also requires TWCC to report to the legislature on its findings by February 1, 2003 and make recommendations for related legislative changes and a possible drug-free workplace premium discount for employers with workers' compensation insurance. The ROC will participate in this study as well.

o In addition to a new average weekly wage (AWW) calculation for injured workers with more than one employer, Article 10 also changes the process for calculating the AWW for school district employees. The article stipulates that for those employees the AWW, which determines the weekly amount of benefits paid, be computed based on the wages earned in a week rather than wages paid in a week. This change is intended to minimize inconsistencies in workers' compensation benefits for school district employees based on the variable contract lengths (i.e., 12 vs. 10-month contracts) of these employees. The "wages earned" AWW calculation applies only to temporary income benefits; for impairment income benefits, supplemental income benefits, lifetime income benefits and death benefits, the AWW will be computed by dividing the wages earned by the employee in the previous 12 months by 5 0. This portion of Article 10 incorporates the substantive elements of HB 2126 by Representative Dale Tillery.

o A provision in Article 6 clarifies that insurance carriers may use separate, third-party entities to forward payments for medical services. A carrier is responsible for the actions of such an entity. This provision is substantively identical to HB 2644, also by Representative Brimer.

o Article 14 changes the method by which the State of Texas allocates its workers' compensation and risk management costs under Chapter 501 of the Labor Code. It establishes a "risk-reward" allocation process for costs paid by the State Office of Risk Management (SORM). Under this process, the cost of workers' compensation and risk management services will be allocated to each state agency in proportion with that agency's claims experience and other factors. This article is substantively identical to HB 2976, also by Representative Dukes, which passed both houses and was signed by the Governor.

o Another portion of Article 14 relates to the use of sick or annual leave by employees of the Texas Department of Transportation (TxDOT). It allows TxDOT employees injured on the job to use sick or annual leave before receiving workers' compensation income benefits, but stipulates that if that leave is used, it must be exhausted before the employee can receive workers' compensation income benefits. This article is substantively identical to SB 453 by Senator Ken Armbrister, which also passed both houses and was signed by the Governor.

o A conforming change in Article 14 corrects an outdated reference to the Code of Criminal Procedure relating to when a peace officer employed by a political subdivision is considered an employee of the state for purposes of workers' compensation coverage.

o Article 15 authorizes TWCC to use the treasury constant maturity rate as a baseline for the computation of interest rates. The use of the constant maturity rate replace s the use of a discontinued rate.

HB 2600 took effect upon the signature of Governor Perry on June 17, 2001, although several of its provisions do not take effect until TWCC rules are approved to implement them. The full text of the enrolled version of the bill is available online at www.house.state.tx.us, the Texas House of Representatives website. In addition, Table 1 (beginning on page 4) provides a handy reference to the relevant provisions of HB 2600, implementation timeframes, and other information.

The ROC research agenda for the interim will be dedicated to assisting TWCC in implementing the provisions of HB 2600. The ROC will also continue to be involved with the HB 2600 work group to facilitate the inclusion of all system stakeholders in the rule development process.


1 See Striking the Balance: An Analysis of the Cost and Quality of Medical Care in the Texas Workers' Compensation System, Research and Oversight Council on Workers' Compensation and Med-FX, LLC, 2001.

2 See Article 3.70-3C, Texas Insurance Code.

3 See Returning to Work: An Examination of Existing Disability Duration Guidelines and Their Application to the Texas Workers' Compensation System, Research and Oversight Council on Workers' Compensation and Med-FX, LLC, 2001; and Recommendations for Improvements in Texas Workers' Compensation Safety and Return-to-Work Programs, Research and Oversight Council on Workers' Compensation and Research and Planning Consultants, L.P., 2001.

This page was last updated on December 9, 2002.

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