BILL ANALYSIS Ó SB 923 Page 1 Date of Hearing: August 17, 2011 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair SB 923 (De Leon) - As Amended: May 31, 2011 Policy Committee: InsuranceVote:8 - 3 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill requires the Administrative Director (AD) of the Division of Workers' Compensation (DWC) to adopt a resource-based relative value scale (RBRVS) for physician services. Specifically, this bill: 1)Requires the AD to adopt an Official Medical Fee Schedule (OMFS) for physician services based on the RBRVS by January 1, 2013. 2)Requires the AD to adopt and revise the OMFS for physician services no less frequently than every two years. 3)Defines resource-based relative value scale as the relative value scale created by the federal Centers for Medicare and Medicaid Services and set forth in the Federal Register for each calendar year. FISCAL EFFECT 1)Administrative costs associated with this legislation would be minor and absorbable as the AD has been studying the feasibility of adopting an RBRVS-based schedule for at least five years and is already statutorily required to periodically update the OMFS for physician services. 2)Unknown, potentially significant increase in workers' compensation costs to the extent the requirements of this bill establish higher physician services rates. California, as an employer would have higher costs, a portion of which would be General Fund. SB 923 Page 2 The state's share of medical spending for workers compensation is in excess of $200 million per year. If this legislation results in a one percent increase in those costs due to an increase in provider rates, it would cost the state approximately $2 million per year (general fund and various special funds). COMMENTS 1)Rationale . This bill is intended to accelerate the adoption of an RBRVS fee scale for workers compensation. According to the sponsors of the bill, U.S. Health Works Medical Group, SB 923 will implement nearly 10 years of study by the DWC to bring the California workers' compensation fee schedule into the 21st century. In particular, an RBRVS system would compensate primary care physicians at a higher level, a result most observers agree is appropriate. 2)Background . The Resource-Based Relative Value Scale was created in 1985. The goal of the scale was to assign each procedure a relative value, which would then be adjusted by geographic cost differences, in order to reimburse procedures done through Medicare by their actual cost and value. The scale was adopted in 1992 by President George H.W. Bush for the purposes of reimbursing Medicare physician services. To date, over 30 states have adopted RBRVS-based reimbursement systems for workers' compensation. With RBRVS, each service, which is defined by the Current Procedural Terminology (CPT) code, is assigned three relative value units (RVU). The three relative value units are the work done, the medical practice expense, and medical liability insurance. This way, if the procedure takes a long period of time or is especially dangerous, the reimbursement rate will be higher, or the reimbursement rate may be lower if the procedure is quick and relatively low-risk. During the last years of the Schwarzenegger Administration, the DWC attempted to revise the OMFS for physician services based on RBRVS. In doing this, the DWC was following the lead of studies done in 2002 that suggested significant cost savings for employers by switching to an RBRVS-based system. Those studies have been supported by newer studies, such as the 2010 Lewin Group study. SB 923 Page 3 3)Lewin Group Study . A budget-neutral conversion to RBRVS, as estimated in a study by Lewin, would result in overall reimbursement that is 11.4 % above Medicare. Preliminary information indicates the current reimbursement is 18 % above Medicare. However, with a budget neutral single conversion factor, some service categories may experience substantial reduction. For example, surgery may decrease approximately 20 % and radiology may decrease approximately 31 %, raising concerns about potential access problems which the AD must address. This bill does not set rates as it does not mandate any particular conversion factor. A physician fee schedule based on RBRVS could be adopted in a budget neutral fashion, or could add money to the system to increase reimbursement. 4)Opposition . The California Society of Industrial Medicine and Surgery (CSIMS) and the California Society of Physical Medicine and Rehabilitation (CSPMR) argue that adopting an RBRVS system could result in a decrease in the reimbursement rates for specialists, which has the potential to drive those doctors out of the system, thus creating an access problem for workers who have been injured and need treatment by specialists for their injuries. Analysis Prepared by : Julie Salley-Gray / APPR. / (916) 319-2081