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Section IV. State Employees Workers' Compensation Study

Overview of the Texas Workers' Compensation Program


Workers' compensation is a state-regulated insurance program that pays medical bills and replaces some lost wages for employees who are injured at work or who have work-related diseases or illnesses. Texas first enacted workers' compensation legislation in 1913. This legislation has been revised many times over the past 92 years, most recently in 2003.

Since January 1, 1991, workers' compensation benefits have been administered under the authority of Title 5, Subtitle A of the Texas Labor Code. This law is intended to ensure that injured workers, including those working for state agencies, are compensated fairly and appropriately for workplace injuries. The act provides for:

  • voluntary employer participation;
  • workplace heath and safety programs;
  • a dispute resolution process with an ombudsman to provide legal assistance to injured workers;
  • guidelines for medical fees and treatment to control medical costs; and
  • oversight by the Research and Oversight Council (ROC). [1]

The 2001 Legislature made a significant change to the reimbursement policy for carriers participating in the workers' compensation program. by House Bill (H.B.) 2600, approved in 2001, changed the wording of Section 413.011 (a) of the Texas Labor Code to read:

The commission shall use health care reimbursement policies and guidelines that reflect the standardized reimbursement structures found in other health care delivery systems with minimal modifications to those reimbursement methodologies as necessary to meet occupational injury requirements. To achieve standardization, the commission shall adopt the most current reimbursement methodologies, models, and values or weights used by the federal Health Care Financing Administration, including applicable payment policies relating to coding, billing, and reporting, and may modify documentation requirements as necessary to meet the requirements of Section 413.053. [2]

This section requires the Texas Workers' Compensation Commission (TWCC) to adopt medical guidelines from the federal government's payment policies. It also abolished existing TWCC treatment guidelines.

TWCC's Medical Review Division is responsible for developing and administering the agency's medical policies and fee and utilization guidelines. The Medical Advisory Committee (MAC), which includes representatives of health care specialties, labor, business, insurance and the general public, assists this division. [3]

Fraud and Abuse in Texas Workers' Compensation

According to TWCC, fraud costs the Texas workers' compensation system and Texas employers millions of dollars each year. Employers, employees, health care providers, attorneys, insurance agents and others commit such fraud.

TWCC's Office of Investigations works with a number of other investigators from state and federal law enforcement, other regulatory agencies and insurance carriers to prosecute those who commit fraud. The agency includes a list of fraud indicators on its Web site for the use of employers, employees, attorneys and health care providers. The commission's Office of Investigations maintains a hotline to receive information on fraudulent activity. The office evaluates these reports to determine which are appropriate for further investigation. [4]

TWCC Definition of Fraud

TWCC defines fraud as occurring when:

...a person knowingly or intentionally conceals, misrepresents, and makes a false statement to either deny or obtain workers' compensation benefits or insurance coverage, or otherwise profit from the deceit. The key to conviction is proving in court that the misrepresentation or concealment occurred knowingly or intentionally. [5]

Premium fraud and benefit fraud are the most common types of workers' compensation fraud. Benefit fraud usually is committed by:

  • workers who work full time at an unreported job and draw benefits when they are supposed to be unable to work;
  • workers who fake an injury; and
  • health care providers or attorneys who assist a worker in fraudulent schemes, participate in double billing or submit bills for services not provided. [6]

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. [7]

The 1997 legislation combined the Office of the Attorney General's (OAG's) Workers' Compensation Division and TWCC's Risk Management Division to form SORM. OAG provides SORM with administrative support and facilities, but its operations are independent of OAG's direction. A six-member board appointed by the governor has authority over SORM. [8] Appendix D.2 provides an organizational chart of SORM.

As the state employee workers' compensation insurance carrier for Texas, SORM is responsible for:

  • operating a self-insured workers' compensation program in harmony with the Texas Labor Code and TWCC regulations;
  • receiving and investigation reports of injury filed on behalf of state employees;
  • determining whether claims are compensable;
  • paying income and medical benefits as due;
  • reviewing medical bills to determine reasonableness, necessity and compliance with TWCC fee guidelines;
  • appearing as an adversary before TWCC and the courts and defending the workers' compensation program;
  • preparing reports for the Legislature on workers' compensation claims information; and
  • providing workers' compensation training for state agencies. [9]

Chapter 134 of Title 28 Insurance in the Texas Administrative Code provides guidelines for medical services, charges and payments that insurance carriers must follow in processing health care bills and reimbursing injured employees. These guidelines identify medical policies as well as medical, dental, acute inpatient hospital and pharmaceutical services and fees. [10] This study, as well as those issued in January 2001 and March 2003, used these guidelines to determine overpayment errors.

SORM Financing and Expenditures

On October 8, 2001, SORM implemented an allocation program that state agencies must use to pay for workers' compensation claims and risk management services. Before this date, SORM received legislative appropriations to cover 75 percent of all compensation claims; state agencies paid the remaining 25 percent. This appropriation was based on an estimated payout instead of the actual costs of the claims, and usually resulted in a deficit due to 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.

Under the new allocation program, SORM calculates the total amount it must collect from covered agencies to pay the aggregate costs of: workers' compensation losses and SORM's risk management program. SORM bases this amount on an annual actuarial study intended to estimate the amount needed to pay for expected losses. This figure is the total of:

  • projected workers' compensation costs for the following plan year;
  • any amount that SORM borrowed in the previous plan year to pay workers' compensation costs, or any carryover of funds from the previous plan year (expressed as a negative amount); and
  • the administrative cost of SORM's risk management program. [11]

SORM created the allocation program to provide covered agencies with an incentive to reduce the number of injuries experienced by state workers. The program also gives agencies greater control over their budgets by making workers' compensation costs more predictable, and cushions the effects of catastrophic losses on individual state agencies by pooling risks.

Table IV-1 shows SORM's workers compensation costs for fiscal 2004. [12]

Table IV-1: Fiscal 2004 Costs for SORM

SORM's Workers' Compensation Payments Amounts
Workers' Compensation Miscellaneous Claims $23,108,217
Medical and Attorney Costs $33,272,936
Total Workers' Compensation Payments $56,381,152
Source: Uniform Statewide Accounting System.

State Employee Workers' Compensation Program

SORM operates as an insurance carrier in processing state employee workers' compensation claims and medical bills. Like all other workers' compensation carriers in Texas, SORM must follow TWCC's administrative rules as included in the Texas Administrative Code. These rules include fee guidelines and medical service standards and limitations to be used in calculating payments due to health care providers. Providers, in turn, must bill insurance carriers for all compensable injuries in accordance with the fee guidelines.

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. These benefits are without limit on dollar amount or length of time, as 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 with an occupational injury 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, TWCC-1S, for this process. [13] This form is used to set up a claim. The employer has five calendar days to submit the form after the first notice of injury is reported. [14] Each state agency has a claims coordinator who is the primary point of contact between the SORM adjuster and the agency. An adjuster must review the claim and determine if the injury or illness is work-related and covered under the workers' compensation rules. The adjuster contacts the claims coordinator to verify the report information, determine if any third-party liability is involved and verify if and when the employee returned to work. [15]

For the state employee program, a "claim" refers to an 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

When a claim is opened, SORM enters the related health care bills into its claim system and tracks them with the injury claim. As an insurance carrier operating under the Texas Labor Code, SORM must pay all health care bills related to a worker's claim after it receives the bill unless it disputes the payment. SORM may deny or reduce medical bills if the service has not been provided according to TWCC guidelines, or 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 deny or reduce a claim, SORM must send a report explaining its action to TWCC, the health care provider and the injured employee. The employee or provider then may request a hearing before TWCC. [16]

During the sample period of this study, bills were submitted to SORM's medical cost-containment vendor, Argus Services Corporation, for payment processing. As of September 1, 2004, CorVel Corporation became the new vendor.

Argus processed the bill payments and consulted with a licensed vocational nurse to determine the medical necessity of each treatment. Argus sent completed explanation-of-benefit statements to SORM on each workday.

SORM employs adjusters who monitor and settle all injury and illness claims and bills. In summer 2002, in response to a Comptroller's January 2001 study recommendation, SORM Claims Operations created a Medical Management Review Team. This team consists of a senior adjuster, emergency medical technicians, adjusters and a registered nurse or licensed vocational nurse. When SORM receives notice that a state employee has been injured, the adjusters contact the employee, his or her physicians and the employing agency to verify the claim information. The review team also identifies and handles claims that may have involved excessive medical treatment compared to the injury; treatments not related to the injury; and instances of potential fraud or abuse.

In April 2002, SORM created a customer service call center staffed by adjusters who perform administrative functions, such as correcting claim information, and assist claimants with problems related to their claims.

Argus was also paid to process pre-authorization requests and provide clinical oversight and case management services. Argus employed licensed nurses at its Dallas headquarters to perform pre-authorization requests for medical services that must be approved prior to delivery, by the providers. Argus nursing staff in Houston performed case management services to ensure that state workers received the care they needed in a cost-effective manner. These services focused on cases with catastrophic injuries, spinal cord injuries and costly injuries. Argus provided 1,000 hours of case management service annually.

Provider Reimbursement

Health care providers submitting statements for health care services are paid according to TWCC's fee guidelines for medical, dental, inpatient and outpatient hospital, ambulatory surgical centers and pharmaceutical services. These guidelines became effective August 1, 2003, and were used for the study medical review. TWCC uses the Medicare program reimbursement methods, models and weights as the standard for the professional provider's coding, billing, reporting and reimbursement of medical services. These services are paid according to a maximum allowable reimbursement (MAR) policy based on Medicare's payment policies, with some modifications. TWCC multiplies the Medicare reimbursement amount by 125 percent.

In all cases, provider reimbursement is the least of the:

  • MAR amount as established by rules §134.1 through §134.900;
  • the health care provider's usual and customary charge; or
  • the health care provider's negotiated or contracted workers' compensation amount that applies to the billed services. [17]

TWCC lists several resources for providers to obtain the Medicare reimbursement amounts on the TWCC website. These include the Centers for Medicare and Medicaid Services (CMS), Trailblazer Health Enterprises (the Texas Medicare carrier) and the National Correct Coding Initiative (NCCI). The NCCI is a set of policies developed by CMS that defines the codes to be used for specific medical or surgical procedures.

TWCC uses the following resources for providers to bill for medical services:

  • The American Medical Association's Current Procedural Terminology (CPT) manual; and
  • The latest version of the Healthcare Common Procedure Coding System (a numeric coding system to identify medical services, supplies and products) [18]

Medicare reimbursement policies include a National Correct Coding Initiative (CCI), National Coverage Determinations (NCD) and Local Coverage Determinations (LCD).

LCDs are medical policy decisions by a Medicare contractor (in Texas, Trailblazer Health Enterprises), to cover a particular service on a contractor-wide basis, such as the state of Texas, in accordance with Section 1862(a)(1)(A) of the Social Security Act. Trailblazer maintains separate LCDs for several states besides Texas. [19]

The CCI and NCD policies and procedures were developed by the Centers for Medicare and Medicaid Services (CMS). CMS developed CCIs to promote correct coding methodologies and control improper coding that leads to inappropriate payment in Medicare claims. CMS's coding policies are based on the CPT manual, national and local policies and edits, coding guidelines developed by national societies, analyses of standard medical and surgical practice and CMS's review of current coding practice. [20] The NCD manual describes whether specific medical items, services, treatment procedures or technologies can be paid for under Medicare. [21] The manuals and updates are available on the CMS Web site (

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 IV-2 provides a summary of the strategies SORM listed in its Annual Report on Cost Containment - Fiscal Year 2004[22] .

Table IV-2: SORM Fiscal 2004 Cost Containment Strategies

Strategy Description
Medical Bill Audits In conformity with TWCC rules, SORM's contracted cost containment vendor audits bills submitted by providers to reduce the billed amounts to the maximum allowable rates (MARs) under the appropriate fee schedule. The difference between the providers' usual and customary charges and the MAR under the fee schedule represent savings to both SORM and the employer.
Pre-authorization of Medical Services TWCC requires health care providers to obtain "preauthorization" of certain medical procedures, such as psychiatric care or non-emergency hospitalization, before performing the service. Preauthorization savings represent the avoidance of expenses related to unreasonable or unnecessary procedures.
Peer Reviews and Required Medical Exams SORM utilizes peer reviews of medical and pharmaceutical services and required medical exams as an additional cost-control strategy. Physicians conduct independent exams to verify the medical necessity and reasonableness of prescribed pharmaceuticals and treatments and determine if the services are related to compensable injuries, to ensure the injured employee receives quality medical care while avoiding costs for unreasonable or unnecessary medical treatment.
Preferred Provider Organizations Since May 2000, Argus (the cost-containment vendor) and SORM offered a pharmaceutical preferred provider to all workers' compensation claimants needing prescribed medications. This is a voluntary program for injured workers that continues with the new vendor Forte. SORM receives a discount below the pharmaceutical fee guideline for every prescription billed through this program.
SORM and Argus also provided a preferred provider organization (PPO), an independent network of physicians available to treat injured workers for negotiated fees. The difference between non-PPO charges and the PPO negotiated fees represented savings to SORM.
Medical Case Management Medical case management involves the use of a certified medical case manager to serve as a liaison between the injured employee, his or her provider and SORM. Savings from case management come from the avoidance of unnecessary or prolonged medical treatment and decreased income benefit payments in the future. SORM's contract with Argus for fiscal 2004 included 1,000 hours per year of case management services, however, the 1,000 hours proved insufficient to meet SORM's caseload needs.
Review of Impairment Ratings SORM uses claims adjusters, in-house medical staff, and/or external independent physicians to review impairment ratings. These procedures ensure the accuracy of the assigned rating and in many cases reduce income benefits.
Fraud Detection and Investigation SORM employs two full-time staff members to investigate fraud and abuse as part of a fraud detection program. SORM investigates both the claimant and provider for potential fraud. SORM also has a committee of representatives from Claims Operations, Medical Cost Containment, Information Resources and its investigative staff to identify trends in abuse and fraud.
Subrogation Recoveries Subrogation is the legal assignment of the rights of the insured to recover losses from an entity legally liable for the loss to an insurer following payment for a loss. SORM focuses on early identification of claims with third-party liability (TPL), such as automobile liability insurance. Subrogation reduces SORM's costs both by direct reimbursement of a portion of money paid by the TPL and the avoidance of future expenses equal to the injured workers' direct TPL recovery.
Claims Operations Claims Operations uses a Medical Management Review Team to target claims that require additional scrutiny because of significant or ongoing medical treatment. SORM has improved criteria for case closures, refined practices for the effective maintenance of claims and emphasized ongoing professional training of claims staff.
Risk Assessment and Loss Prevention Services SORM has risk management specialists that assist state agencies in conducting risk assessments and developing risk management programs to control losses through accident prevention. The specialists emphasize policies, programs and procedures that promote workplace safety and employee wellness, accident prevention and loss control.

Source: State Office of Risk Management's Annual Report on Cost Containment - Fiscal Year 2004

State Employees Workers' Compensation Health Care Claims Study


The Comptroller's study measures the incidence of potential overpayments, including occurrences of fraud and abuse, in the state employee workers' compensation program. An overpayment is a payment for a service that does not follow or exceeds the program's published rules or guidelines.

TWCC considers it fraud when a person knowingly or intentionally conceals information or makes a false statement either to deny or obtain workers' compensation benefits or insurance coverage, or to otherwise profit from the deceit. Both the claimant and the provider can commit fraud. [23]

The last three Comptroller's studies show that the majority of overpayments are not due to intentional fraud. The results of this study indicate that SORM has made significant improvements in cost avoidance through its Medical Management Review Team, physician peer reviews, case management and medical bill audits. Appendix D.3 compares this study with those from 1998 through 2004.

State Employees Workers' Compensation Sample

Sample Selection

As in the last three studies, the study sample was selected using Statistical Application Sampler (SAS) software. The sample consisted of 200 claimants with paid medical bills from September 1 through November 30, 2003. As in the Medicaid fee-for-service (FFS) study, the medical bills were selected based on a sample date within the sample timeframe. All related bills on the sample date for the claimant were included in the sample. As the sample was selected, a reserve sample was selected using the same SAS application and selection process. This selection was performed in January 2004. The State Auditor's Office validated the sample for representation of the total population.

Following the selection process, the sample was separated into three healthcare categories, as in the March 2003 study, by bill type, including hospital, medical and pharmacy bills.

Table IV-3 illustrates the distribution for the March 2005 study sample.

Table IV-3: State Employees Workers' Compensation Sample Distribution

Categories Number of
Sample Days
Number of
Sample Bills
Amount Paid
For Sample Bills
Number of SORM Bills
For 9/1/03 - 11/30/03
Amount Paid for SORM Bills
For 9/1/03 - 11/30/03
Hospital 0 32 $ 13,452 1,900 $ 2,161,994
Medical 145 534 $ 36,224 18,290 $ 4,136,580
Pharmacy 45 166 $ 17,320 8,633 $ 1,470,531
Totals 200 732 $66,996 28,823 $7,769,105

Since each worker's claim is unique to a specific injury or illness, the 200 sample days for the 200 claimants also represented 200 unique injury claims.

Study Review Methods

This study relies on two of the three review methods previously used in these studies: online claim reviews and medical record reviews. The claimant telephone interview was eliminated as an unreliable method for identifying fraud or abuse. In both the January 2001 and March 2003 studies, only 30 percent of sample clients were successfully contacted. The majority of these could not remember the services they received.

In this study, the project team secured all but a few of the medical records for the services in the sample. The tools used for the review methods are included in Appendices D.4 and D.5.

Because the workers' compensation program has specific rules and guidelines, the criteria for selecting a medical review consultant required a registered nurse with knowledge of the Texas program. This nurse consultant performed both the online claim and medical record reviews.

Online Claim Review

The consultant reviewed all injury claims and associated medical bills for the sample claimants using copies from the SORM claim processing database. The injury claim and all case notes from the adjusters and case managers were reviewed along with all medical bills for each claim. These case notes provided information on surgery dates, treatments and return-to-work plans in addition to notes on decisions, service denials or controversial statements on a claimant's medical treatment.

Medical Record Review

In August 2003, TWCC changed its treatment guidelines to reflect the requirement in S.B. 2600 to use federal payment policies. (These are described in the provider reimbursement section.) The study's medical record review was performed using Medicare CCI edits and NDC policies, the Trailblazer LCDs, the TWCC guidelines and the American Medical Association's CPT manual.

The majority of errors concerned procedure codes not allowed by the CCI edits and services exceeding the LCDs.

Medical Record Review Process

The review consultant, a professional nurse with expertise in the Texas Workers' Compensation program, reviewed all the medical records for the study sample, using a standardized review worksheet. Appendix D.4 provides an example of this worksheet. The review criteria were classified into distinct types of potential errors and listed in a State Employees Workers' Compensation Discrepancy Error Code Table (Appendix D.5).

Review Findings

Of the two review types used, medical record reviews continue to be the most useful in uncovering payment discrepancies. The findings from each review are summarized below.

Online Claim Review Results

In the majority of sample claims, information on the claimant's treatment plan, progress and healthcare status was detailed and was entered into the computer system as soon as the event took place by the SORM staff.

The adjuster and case manager documentation was easier to read due to a reduced use of acronyms and a better flow of information.

Medical Record Review Results

Out of 732 medical services provided, 138 featured discrepancies. The majority of these involved fees that did not match the TWCC medical fee guidelines. Another common problem was services exceeding those allowed in the NDC and LCD policies. Table IV-4 illustrates the distribution of errors found in the study.

Table IV-4: Distribution of Medical Record Review Discrepancy Findings

Type of Discrepancy (Error) Number of Errors
Identified in the
Hospital Services
Number of Errors
Identified in the
Medical Services
Number of Errors
Identified in the Pharmacy Services
Service exceeds the national or local coverage determinations for a physician. 0 6 0 6
Service exceeds the national or local coverage determinations for a chiropractor 0 33 0 33
Service billed is incorrect according to the Medicare Correct Coding Initiative edit 1 5 0 6
Unbundled services (services billed separately that should be billed together such as global surgical services) 1 1 0 2
Not according to medical fee guidelines (i.e., incorrect procedure coding) 3 52 1 56
No documentation for services 0 15 0 15
Duplicate payment 0 2 0 2
Clerical/billing error 0 0 0 0
Global charge to procedure 0 0 0 0
Not according to administrative rule (non-covered service) 0 0 0 0
Service is unrelated to the injury 0 1 0 1
Not medically necessary 0 0 17 17
Exceeds pharmacy fee guidelines 0 0 0 0
Preauthorization issue 0 0 0 0
Totals 5 115 18 138

Before designating a discrepancy as an overpayment error, the project team provided the sample records with discrepancy review findings to SORM. Their staff, including a nurse, reviewed the documentation. The final overpayment results represent the opinions of both the review team and SORM.

Types of Errors Found

  • Exceeding the national or local coverage determinations by a physician:

    A total of six services billed at $212 exceeded the local coverage determinations. An example was a claimant receiving seven months of physical therapy for a knee sprain without a treatment plan showing the necessity of treatment continued beyond the LCD limit.

  • Exceeding the national or local coverage determinations by a chiropractor:

    A total of 33 services billed for $1,629 exceeded the local coverage determinations. Example of theses were:

    • two passive manual therapies billed seven years after a lumbar soft tissue injury―the LCD allows for only two weeks without a treatment plan to justify more therapy;
    • two diathermy treatments for muscle spasm two years following the injury date. This claimant had returned to full duty and had no medical treatment for a year prior to this bill; and
    • three billings for passive physical therapy two years after a back injury that the LCD specified should not exceed 18 sessions over two weeks.
  • Incorrect billing per the Medicare Correct Coding Initiative Edits:

    Six services were billed incorrectly according to CCI requirements. In most cases, the error involved billing an addition code (service) that was considered part of the primary service code. For example, a range-of-motion measurement report and manual muscle test cannot be billed with a chiropractic manipulation.

  • Unbundling procedures:

    Unbundling occurs when providers bill for procedures separately when they should be billed as a panel or global service. Two services were identified as unbundled services for a total of $162. One was a surgical procedure that is part of a global surgery code and the other was electrode lead wires that are considered part of the apnea monitor charge.

  • Services not according to Medical Fee Guidelines:

    This error accounted for the largest share of errors identified-41 percent (56 out of 138 errors), for a total of $4,498. These errors are the result of providers billing for procedures without appropriate documentation or modifier (code) as required by TWCC guidelines. Some specific examples include:

    • billing for non-professional surgical assistants that the guideline designates as not allowed;
    • using modifiers incorrectly for services, resulting in higher payments;
    • billing incorrect codes for procedures; and
    • billing for services past the coverage period allowed by the guidelines-up to seven years afterward, in one bill.
  • No Documentation of Services Billed:

    In the case of 17 services in the study that involved a total of $650.89, the provider's medical records lacked documentation that the service was actually provided. These represented 12 percent of all errors found. This type of error is the most problematic, because detection requires the review of the medical records for every service billed, an activity that would be both labor-intensive and cost-prohibitive for most agencies or carriers. Most carriers use targeted or random post-payment reviews to identify such errors and determine whether a particular provider is responsible for enough to warrant legal action. SORM's Medical Cost Containment Unit handles this responsibility.

  • Duplicate Payment of Services:

    SORM made duplicate payments on two services for a total of $124. Claim processing edits can identify these types of errors.

  • Service Unrelated to the Injury:

    One service for $30 was identified with this error. A provider billed for a chiropractic manipulation of the left knee performed on a claimant with an injury of the right knee.

  • Services Not Medically Necessary:

    Seventeen pharmaceutical drugs for nine claimants at a total cost of $1,386 were identified as medically unnecessary, both by the Comptroller's project team and SORM. Some examples of included:

    • two claimants received antidepressants, analgesics, anti-inflammatory and muscle relaxants for back strain injuries that occurred 11 years previously;
    • another claimant received muscle relaxants for a knee contusion two years after the injury; and
    • yet another claimant received anti-inflammatory and pain medications for 15 months following a neck injury without positive diagnostic tests or surgery.

Summary of the Medical Record Review Findings

With the major change to the provider reimbursement structure implemented by H.B. 2600, the errors identified in this 2005 study are not directly comparable to those identified in the January 2001 and March 2003 studies. The project team noted, however, significant improvements in SORM's claim case notes and in the number of errors found overall compared to previous studies.

SORM's implementation of the Medical Management Review Team, Argus' enhanced claim processing edits and audits and a concentration on the education and training of adjusters appear to have spurred these improvements. Given that the majority of errors (64 percent) were due to coding errors, SORM's continued cost-containment efforts should be able to reduce the incidence of such errors to below the Medicare national net error rate (9.3 percent for fiscal 2004). [24]

Measuring Potential Overpayments

The overpayment calculation performed by the State Auditor's Office (SAO) used the same method applied in the March 2003 study. To determine the amount of overpayments, SAO divided the amount of potential overpayments for state employee workers' compensation medical services by the amount paid for the sample services. For example:

State Employees Workers' Compensation Study Overpayment Calculation
Potential overpayment amount $9,190.97
Paid amount of sample $66,996.97
= 13.7 percent overpayment rate

Appendix D.6 contains tables with the statistical information and overpayment

Dollars at Risk

The overpayment measurement can be applied to SORM's annual medical expenditures by the overpayment error rate to determine the "dollars at risk" in the state employee workers' compensation program. The term "dollars at risk" is used because the amount cannot be recovered unless all of the questionable claims are identified. That is not possible given the size of the state's program and the size of SORM's staff. Even so, SORM can use the findings in this study to continue to improve its current cost containment efforts.

According to the study, $5 million was at risk in 2003. This figure was computed by multiplying the overpayment measurement rate of 13.72 percent by $36.8 million of the program medical expenditures for calendar year 2003. This represents $3 million in potential savings compared to the March 2003 study risk findings.

Recommendations for the State Employees Workers' Compensation Program

State Office of Risk Management

  1. SORM should continue the Medical Management Review Team's responsibilities for:
    • targeted reviews of procedures and providers to identify abusive billing practices;
    • periodic evaluation of the appropriateness of prior authorizations issued by the cost containment vendor; and
    • timely identification of cases that should be managed medically to ensure the claimant receives appropriate treatment and care.
  2. SORM should consider asking its new cost-containment vendor, CorVel, to add claim processing edits and/or audits to target the most common coding errors, including the coding errors found in this study, such as:
    • billing code 97110, for diagnoses not covered in Trailblazer Health Enterprises' LCD;
    • billing for services exceeding the LCD's time limits without proof of need;
    • invalid codes such as 97014; and
    • billing procedure codes such as 64483 (epidural injection) or 95851 (range of motion measurement report) that are not allowed when billed with certain procedure codes as specified in the Medicare Correct Billing Initiative edits.

Fiscal Impact

These recommendations can be implemented with current agency appropriations.


[1] Texas Workers' Compensation Commission, "History of Workers' Compensation in Texas," (Last visited January 10, 2005).

[2] Texas Legislature Online, Texas Statutes, Labor Code, Title 5: Worker's Compensation, Chapter 413. Medical Review, (Last visited January 10, 2005).

[3] Texas Workers' Compensation Commission, "Medical Advisory Committee Procedures and Standards," (Last visited January 10, 2005).

[4] Texas Workers' Compensation Commission, "TWCC is Dedicated to Eliminating Workers' Compensation Fraud in Texas" (Austin, Texas), (Last visited January 10, 2005).

[5] Texas Workers' Compensation Commission, "TWCC is Dedicated to Eliminating Workers' Compensation Fraud in Texas?" (Last visited January 10, 2005).

[6] Texas Workers' Compensation Commission, "TWCC is Dedicated to Eliminating Workers' Compensation Fraud in Texas"

[7] State Office of Risk Management, "The Texas State Employees' Workers' Compensation System," Claims Coordinator's Handbook (Austin, Texas), (Last visited January 10, 2005)

[8] State Office of Risk Management, "Strategic Plan 2003 - 2007", p. 4, available in pdf format at (Last visited January 10, 2005).

[9] State Office of Risk Management, "Strategic Plan 2003 - 2007", p. 6.

[10] 28 Tex. Admin. Code, Chapter 134, Subchapters A, C, E, F and G, (Last visited January 10, 2005).

[11] 26 Tex. Admin. Code, Part 4, Chapter 251, Subchapter E, Rule §251.505,$ext.TacPage?sl=T&app=9&p_dir=P&p_rloc=97411&p_tloc=&p_ploc=1&pg=9&p_tac=&ti=28&pt=4&ch=251&rl=505/. (Last visited January 10, 2005)

[12] Texas Comptroller of Public Accounts, 2004 Texas Annual Cash Report (Austin, Texas, August 31, 2004), Table 15, p. 77, (Last visited January 10, 2005).

[13] 28 Tex. Admin. Code, Chapter 134,$ext.ViewTAC?tac_view=4&ti=28&pt=2&ch=134. (Last visited January 10, 2005).

[14] State Office of Risk Management, "Workers' Compensation: Employer's First Report of Injury or Illness" (TWCC-1S) (Last visited January 10, 2005.)

[15] State Office of Risk Management, Claims Coordinator Handbook, "Claims Coordinator Responsibilities," (Last visited January 10, 2005)

[16] 28 Tex. Admin. Code, Chapter 134,$ext.ViewTAC?tac_view=4&ti=28&pt=2&ch=134. (Last visited January 10, 2005).

[17] 28 Texas Administrative Code, Chapter 134, Subchapters A, B, C, D, E and F,$ext.ViewTAC?tac_view=4&ti=28&pt=2&ch=134. (Last visited January 10, 2005).

[18] Texas Workers' Compensation Commission, "General Information Medical Fee Guideline 28 T.A.C. 134.202," (Last visited January 10, 2005)

[19] TrailBlazer Health Enterprises, LLC, "LCD Development Process," (Last visited January 12, 2005).

[20] Centers for Medicare and Medicaid Services, " National Correct Coding Policy Manual for Part B Medicare Carriers, Version 10.3, October 1, 2004," (Last visited January 12, 2005.)

[21] Centers for Medicare and Medicaid Services, " National Coverage Determination (NCD): Current Perception, ―available in pdf format at (Last visited January 12, 2005)

[22] State Office of Risk Management, Annual Report on Cost Containment― Fiscal Year 2004 (Austin, Texas, October 15, 2004), available in pdf format at (Last visited January 11, 2005).

[23] Texas Workers' Compensation Commission, "TWCC is Dedicated to Eliminating Workers' Compensation Fraud in Texas."

[24] HCPro, "CMS to Increase Oversight of Contractor's Payment Error Rates," (Last visited January 13, 2005).