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State Office of Risk Management

The State Office of Risk Management, created by the 1997 Legislature, administers the State Employees Workers’ Compensation program, which excludes employees from the Texas Department of Transportation, the University of Texas System and the Texas A&M University System, as well as independent contractors, volunteers and prisoners, who are covered by federal workers’ compensation.[6]

The legislation combined the Office of the Attorney General’s (OAG) Workers’ Compensation Division and the Risk Management Division of the Texas Workers’ Compensation Commission (TWCC) to form SORM. OAG provides SORM administrative support and facilities, but SORM’s operations are independent of OAG’s direction. A six-member board appointed by the governor has authority over SORM. An organization chart of SORM is in Appendix C.2.

As the state employees workers’ compensation insurance carrier for Texas, SORM:

  1. investigates all reported injury claims made by state employees who are injured or who become ill due to their work,
  2. processes the claims, and
  3. pays medical bills and lost income benefits to state employees who qualify.

The Texas Labor Code and the TWCC governs the benefits deemed reasonable, necessary and related to an injury. To help the carriers process health care bills and reimburse injured employees, TWCC provides guidelines for medical services, charges and payments in Chapter 134 of Title 28 Insurance in the Texas Administrative Code. These guidelines identify medical policies along with medical, dental, acute inpatient hospital and pharmaceutical services and fees.[7] These guidelines were used to determine overpayment errors in this study and in the January 2001 study.

SORM Financing and Expenditures
On September 1, 2001, SORM implemented an allocation program each state agency must use to pay for workers’ compensation claims and risk management services. The program was mandated by House Bill (H.B.) 2976. This bill removed a prior provision that required the Legislature to appropriate enough money to SORM to cover 75 percent of all compensation claims. The state agencies paid the remaining 25 percent. This appropriation was based on an estimated payout instead of the actual costs of the claims, which usually resulted in a deficit because of the rising medical costs. In the 1990s, appropriations often ran short in the second year of each biennium, requiring an emergency appropriation to keep SORM solvent.

H.B. 2976 makes agencies more responsible for their workers’ compensation costs. SORM created an assessment program for allocating costs among state agencies based on the number of claims the agency usually has, the current and projected size of each agency’s work force, each agency’s payroll, the costs of administering claims and other factors.[8]

SORM created the assessment program to give agencies an incentive for reducing the number of injuries to state workers. The program also offers a number of significant advantages over the previous system. The new assessment process gives agencies greater control over the budgets by making workers’ compensation costs more predictable through assessments; cushions the effects of catastrophic losses on individual state agencies by pooling risks; and provides agencies with incentives for promoting work place safety.

Because H.B. 2976 was passed at the same time as the 2002-03 budget, the budget did not take into account the allocation change in compensation costs. As a result, the existing allocation format is still in effect through August 31, 2003. Beginning in fiscal 2004, SORM will not receive appropriations for workers’ compensation claims.

Before implementing the assessment program, SORM formed an interagency workgroup to help create the assessment plan. The workgroup included representatives from a diverse group of agencies and universities, who all had the opportunity to shape and comment on the program rules. The assessment program for fiscal 2002 allocated the costs of workers’ compensation among agencies based upon payroll (20 percent), injury frequency rate (40 percent) and actual cash basis claims costs (40 percent). The assessments were based upon an actuarial projection of claim payments of $73,459,000 and an administrative appropriation for risk management services of $1,707,709 for a total of $75,166,709.

The actuarial study performed in December, 2000, by Rudd and Wisdom, Inc. was the most recent report available for the fiscal 2002 assessment calculations. SORM plans to contract for mid-year actuarial updates to get the most recent projections possible. Actual claim costs from this fund were $67,244.227 in fiscal 2002 and an additional $3,677,387 was paid in fiscal 2003 for medical bills received before the end of fiscal 2002, for a total of $70,921,613. The remaining $2,537,387 will be used to reduce the funds needed in 2003.

During fiscal 2002, SORM staff met with many of the agencies to explain the assessment program and to address agency’s concerns with the increased financial assessments. Many agencies believe that an individual agency’s assessment should be tied more closely to the claim payments specific to their agency. SORM created another workgroup to study the program and assessment formula that resulted in a modified formula addressing the proposals submitted by the agencies.

For fiscal 2003, the factors and weighting were modified to include payroll (12.5 percent), the number of full-time equivalents (12.5 percent), the number of claims (15 percent) and actual cash basis claim costs (60 percent). The total of $71,515,322 to be assessed includes an actuarial projection performed in November 2002 of $72,345,000, the amount carried forward from fiscal 2002, which was $2,537,387, and an administrative appropriation for risk management services of $1,707,709.

Table III-1 shows SORM’s costs for fiscal 2002 and 2003.[9]

Table III-1: Fiscal 2002 and 2003 Costs for SORM

SORM's Costs Amounts
Fiscal 2002 Projected Claim Payments (as of 12/00) $73,459,000
Risk Management Fiscal 2002 Appropriation $ 1,707,709
Total Fiscal 2002 Assessments $75,166,709
Actual Fiscal 2002 Claim Payments $70,921,613
Risk Management Fiscal 2002 Expenditures $ 1,707,709
Total Fiscal 2002 Actual Costs $72,629,322
Fiscal 2002 Excess $ 2,537,387
Projected Fiscal 2003 Claim Payments (as of 11/02) $72,345,000
Fiscal 2002 Collected Overage ($ 2,537,387)
Risk Management Fiscal 2003 Appropriation $ 1,707,709
Total Fiscal 2003 Assessments $71,515,322

Texas State Employees Workers’ Compensation Program
SORM operates as an insurance carrier in processing the state employees workers’ compensation illness or injury claims and medical bills. Similar to other workers’ compensation carriers in Texas, SORM must follow the Texas Workers’ Compensation Commission’s (TWCC) administrative rules regarding the administration of the workers’ compensation program in Texas. These rules, published by TWCC, are part of the Texas Administrative Code. These rules include fee guidelines that provide ground rules and medical service standards and limitations used to properly calculate the payments due to the health care providers. The health care providers must bill the insurance carriers for all compensable injuries in accordance with the commission’s fee guidelines.[10]

Medical Injury Claim Process
The Texas Labor Code entitles state employees who sustain work-related injuries or illnesses to receive the medical benefits they need for the rest of their lives. The medical benefits have no limit on either the dollar amount in benefits paid or the length of time, so long as medical care is reasonable, necessary and related to the injury.

When state workers are initially injured, for example by fracturing a bone during a fall, or become ill from occupational injuries, such as carpal tunnel syndrome, they must report it to their employer within 30 days from the date of injury or illness. SORM uses a form, a TWCC-1S, for this process. This form is used to set up a claim. An adjuster must review the claim and determine if the injury or illness is work-related and covered (compensable) under the workers’ compensation rules within seven days of receiving the TWCC-1S form.[11]

For the State Employees Workers’ Compensation program, a “claim” refers to the state employees workers’ compensation injury or illness claim made to SORM, while a “bill” refers to the medical bills submitted by providers to SORM for reimbursement.

Medical Bill Processing
Once the claim is opened, the health care bills related to this injury are entered into the SORM claim system and are tracked with the injury claim. As an insurance carrier operating under the Texas Labor Code, SORM is required to pay all health care bills related to a worker’s injury or illness claim by the 45th day after the agency receives the bill unless SORM disputes the payment. SORM may deny or reduce medical bills when the service has not been provided according to the TWCC treatment guidelines, the service is unrelated to the claim injury or illness, the care is considered medically unnecessary or the individual is not entitled to the service under the TWCC rules. To take these actions, SORM must send a report explaining the reduction or denial of payment to TWCC, the health care provider and the injured employee. The employee or the provider may request a hearing with TWCC following this action.[12]

Bills are submitted to SORM’s Medical Cost Containment Vendor, Argus Services Corporation, to process for payment. Analysts in Austin process the bill payments and consult with a Licensed Vocational Nurse to determine the medical necessity of each treatment. During a tour of Argus on September 13, 2002, the Comptroller's office project team was told by Argus staff that the bill processing analysts do not use the TWCC treatment guidelines when reviewing the medical bills for payment. Only the TWCC fee guideline’s maximum payment limits are coded into the Argus bill processing system to set the allowable payment. Argus sends completed explanation of benefit statements to SORM on each work day.

SORM employs adjusters who monitor and adjust all injury and illness claims and bills. The adjusters contact employees, the employee’s physicians and the employing agencies when SORM receives notice that a state employee has been injured. In the summer of 2002, in response to a Comptroller’s January 2001 Health Care Claims study recommendation, SORM Claims Operations management implemented a Medical Management Review Team. This team consist of a claims supervisor, a senior adjuster, two registered nurses, one licensed vocational nurse and one medical technician. The review team identifies and handles claims that may have excessive medical treatments compared to the injury, treatments not related to the injury or potential fraud or abuse. In April 2002, SORM created a Customer Service Call Center staffed by administrative technicians who perform functions such as correcting claim information and assist claimants with issues, such as finding an appropriate physician or therapist, related to state employee’s injury claims. These technicians are adjuster trainees.

Argus is also paid to process pre-authorization requests and provides claimant’s clinical oversight or case management. Argus employs licensed nurses at their Dallas headquarters to perform the pre-authorization requests by the providers. Nursing staff in Houston perform case management services to ensure that state workers receive the care they need in a cost-effective manner. These services are focused on cases with catastrophic injuries, spinal cord injuries and costly injuries. Argus provides 1,000 hours of case management service.

Provider Reimbursement
Through August 31, 2002, health care providers submitting statements for health care services were paid according to the Texas Workers’ Compensation Commission’s Medical Fee Guideline 1996, which became effective on April 1, 1996. These guidelines used the procedure codes published in the Physician’s Current Procedural Terminology, (CPT) Fourth Edition, Copyright 1994 by the American Medical Association (AMA). TWCC also incorporated the AMA’s 1995 procedure codes in these 1996 guidelines before publication.[13]

Following is a list of some of the information provided in the guidelines:

  • general instructions that cover the usage of the procedure codes, documentation of services, pre-authorization requirements, reimbursement and TWCC procedure billing modifiers;
  • descriptions of the health care services allowed for each type of eligible health care provider; and
  • the maximum reimbursements for each of the services described.

The AMA developed the Physician’s Current Procedural Terminology in 1966 and updates it annually to include new technology and practice changes.[14]

Beginning on September 1, 2002, the health care providers were reimbursed according to the federal government’s payment policies, as outlined in H.B. 2600.

SORM Fraud and Abuse Prevention
SORM uses several strategies to contain costs and prevent fraud and abuse in the state employees workers’ compensation program. Table III-2 provides a summary of the strategies SORM listed in their Annual Report on Cost Containment – Fiscal Year 2002.[15]

Table III-2: SORM Fiscal 2002 Cost Containment Strategies

Strategy Description
Medical Bill Audits Argus audited 200,456 medical bills for medical necessity, relationship to the com-pensable injury and compliance with TWCC medical fee guidelines.
Pre-authorization of Medical Services Denying unreasonable or unnecessary procedures prior to treatment. Argus reported savings to SORM as estimates. SORM is working with Argus to develop a more accurate methodology for tracking and reporting these as true savings instead of estimates.
Peer Reviews and Required Medical Exams SORM adjusters use peer reviews from chiropractors, orthopedic surgeons and other specialists and medical exams to verify the medical necessity and reasonableness of the health care services billed prior to payment.
Preferred Provider Organizations In May 2000, SORM and Argus implemented a pharmaceutical preferred provider program through Scripnet, a pharmaceutical network. State employees with workers' com-pensation claims receive a prescription card that if presented to a participating pharmacy provides a discount to SORM to reduce the expense of the drug claim. After the discount, the drugs cost SORM less than the prices listed in the TWCC Pharmaceutical Fee Guideline.
Medical Case Management Argus performs 1,000 hours of medical case management for SORM. (In the past, SORM has not used all these hours. In December 2002, the SORM Claims Operations staff made a concerted effort to use all these hours in the future to reduce their medical costs.)
Review of Impairment Ratings SORM uses designated doctors to perform impairment ratings as a means to decrease inflated ratings and reduce impairment income benefits. (The impairment ratings estab-lish the degree of physical disability of an injured worker. These ratings determine how much money an injured worker will receive as compensation for an injury. Under TWCC rules, workers' compensation insurance carriers can refute a rating set by a claimant's physician with a rating from a physician approved by TWCC to perform an impairment rating.)
Fraud Detection and Investiga-tion SORM employs two full-time staff members who investigate potential fraud and abuse suspected by either a claimant or a provider. SORM plans to develop internal computer programs that will help identify instances of fraud.
Subrogation Recoveries SORM recovers money from third party payors or other insurance companies that should pay a claimant's medical bills prior to SORM. (Example: if a worker is injured in a car accident that was the fault of another driver/vehicle covered by an auto insurance policy, the auto insurance company should pay the claimant's medical bills first before a pro-vider or claimant sends them to SORM. In these cases, SORM pays only the amount not covered by the auto insurance company.)
Claims Operations Medical Management Teams consisting of a supervisor/senior adjuster, registered nurse and skilled adjustors review claims with high numbers of medical bills. These teams look for excessive use of medical treatments, treatments not related to the injury and potential fraud or abuse.
Risk Assessment and Loss Prevention Services Consultants from SORM are available to perform risk assessments for state agencies and to develop risk management programs to prevent accidents. SORM concentrates on agencies with the highest rates of accidents and injuries.
State Agency Training and Education SORM assists state agencies with training and developing policies and procedures that promote workplace safety, accident prevention and employee wellness.


[6] V.T.C.A., Labor Code §501.024.

[7] Texas Administrative Code, Title 28 Insurance, Chapter 134, Benefits – Guidelines for Medical Services, Charges, and Payments. Subchapters A, C, E, F and G. (Austin, Texas), (Last visited January 16, 2003.)

[8] Texas H.B. 2976, 77th Leg., Reg. Sess. (2001).

[9] E-mail document from Stuart B. Cargile, Director of Fund Accounting, Texas State Office of Risk Management, Austin, Texas, January 6, 2003.

[10] 28 T.A.C., §134.1.

[11] 28 T.A.C. §124.1.

[12] V.T.C.A., Labor Code §408.027.

[13] Texas Workers’ Compensation Commission, Medical Fee Guideline 1996, (Austin, Texas, April 1, 1996).

[14] American Medical Association, “CPT (Current Procedural Terminology).” (Last visited January 16, 2003.)

[15] State Office of Risk Management, “Annual Report on Cost Containment – Fiscal Year 2002,” (Austin, Texas, October 15, 2002), (Last visited January 16, 2003).