DTCI: Synopsis of House Enrolled Act 1320

By Aubrey K. Noltemeyer

By Amanda E. Bushemi

On May 11, 2013, Indiana Gov. Michael Pence signed into law House Enrolled Act 1320, a bill authored by Rep. Matt Lehman, R-Berne, and co-authored by Rep. Ed Soliday, R-Valparaiso. The workers’ compensation reform legislation, effective July 1, 2013, not only increases benefit amounts to injured workers, but also, most notably, imposes a fee schedule for the reimbursement of medical service facilities based upon Medicare’s reimbursement rates. The significant changes to the Indiana Worker’s Compensation Act are discussed below, along with comparable provisions from the workers’ compensation statutes of surrounding states.

Reimbursement to medical service facility based on Medicare’s reimbursement rate

HEA 1320 enacts legislation governing payments made under the Act by an employer or an employer’s insurance carrier to a medical service facility beginning July 1, 2014. Under the Act, medical service facility is defined as only the following: (1) a hospital (as defined in Ind. Code § 16-18-2-179); (2) a hospital-based health facility (as defined in Ind. Code § 16-18-2-180); or (3) a medical center (as defined in Ind. Code § 16-18-2-223.4). Ind. Code § 22-3-6-1(j). The new legislation imposes a fee schedule that places a cap on reimbursement at 200 percent of Medicare’s reimbursement rate for treatments or procedures by a medical service facility to a workers’ compensation claimant. Id. at § 22-3-3-5.2(b)(2); see also § 22-3-6-1(k)(2)(B) (defining pecuniary liability). Such fee schedule is applicable unless the amount of reimbursement is otherwise negotiated between the medical service facility and any of the following: (1) the employer; (2) the employer’s insurance carrier; (3) a billing review service on behalf of the employer or the employer’s insurance carrier; or (4) a direct provider network that has contracted with the employer or the employer’s insurance carrier. Id. at § 22-3-3-5.2(b)(1); see also § 22-3-6-1(k)(2)(A) (defining pecuniary liability).

Even after this new reimbursement rate takes effect July 1, 2014, medical service providers, such as physicians, will continue to be reimbursed pursuant to the 80th percentile reimbursement rate that is already established by the Act. Based on the law, medical service provider is now defined as “a person or entity that provides services or products to an employee under IC 22-3-2 through IC 22-3-6.” Id. at § 22-3-6-1(i). The relevant portion of the Act reads:

This subdivision applies before July 1, 2014, to all medical service providers, and after June 30, 2014, to a medical service provider that is not a medical service facility. Payment of the charges in a defined community, equal to or less than the charges made by medical service providers at the eightieth percentile in the same community for like services or products.

Id. at § 22-3-3-5.2(a)(3); see also § 22-3-6-1(k)(1) (defining pecuniary liability).

The following is a brief analysis of the reimbursement rates implemented by surrounding states to compare with Indiana’s new legislation:

Kentucky

Kentucky’s fee schedule is longstanding and consists of two separate fee schedules: one for hospitals and one for physicians. While many states base fee schedules on Medicare or Medicaid’s rate and apply a flat rate, the applicable hospital fee schedule in Kentucky varies by the location of the facility. See 803 Ky. Admin. Regs. 25:091 (2013). The applicable percentage, unique to that facility’s physical address, is applied to the hospital’s bill to determine the maximum reimbursement for the treatment of an injured worker. Id. On the other hand, reimbursement to physicians in Kentucky does not vary by the health care provider’s location. Rather, a standard rate is applied to the particular procedure, resulting in the maximum fee allowed for the service. See id. at 25:089. It should be noted that Kentucky prohibits balance billing, and thus physicians and hospitals are prohibited from attempting to collect reimbursement in excess of that provided under the fee schedule. Ky. Rev. Stat. Ann. § 342.035(2) (2013).

Illinois

Illinois’ basic fee schedule provides for payment of a percentage of the 80th percentile cost of any given procedure, treatment or service. 820 Ill. Comp. Stat. 305/8.2(a) (2011). “The maximum allowable payment shall be 90 percent of the 80th percentile of charges and fees as determined by the Commission utilizing information provided by the employers’ and insurers’ national databases” for compensable treatment rendered on or after Feb. 1, 2006. Id. For treatment rendered on or after Sept. 1, 2011, the maximum allowable payment is 70 percent of the fee schedule amount. Id. at 305/8.2(a-2). The fee schedules make cost modifications based upon geographic location, similar to Kentucky. See id. at 305/8.2(a-1)(a). Nonhospital fee schedule amounts are grouped into four regions by county, and hospital fee schedule amounts are grouped into 14 county-specific regions. Id. If the treatment is extraordinary, it can be reviewed to determine whether an additional adjustment to the maximum reimbursement is necessary. Id. at 305/8.2(c).

Michigan

In general, Michigan’s reimbursement rate to a health facility or health care provider is the lesser of either: (1) the maximum fee by a health facility or health care provider established in the localized fee schedule; or (2) the customary charge that the attending health facility or health care provider typically charges for such treatment. Mich. Comp. Laws Ann. § 418.315(2) (2013); see also Mich. Admin. Code R. 418.10101(1)(b), (k) (2013). Similar to the fee schedule for physicians in Kentucky, the maximum allowable payment is derived from use of a relative value unit and a conversion factor. See Mich. Admin. Code R.418.101002a(1). Michigan uses the Medicare Resource-Based Relative Value Scale to determine the relative value unit, which takes into account the resources used to provide each service as well as the geographic location, thus enabling Michigan prices to be more accurately reflected. Id. at R. 418.10106(3). As in Indiana, there are instances when Michigan’s fee schedule is deemed inapplicable, including when a carrier and provider have a contractual agreement providing for alternative reimbursement below that which the fee schedule would provide. Id. at R. 418.10101(4).

Wisconsin

In Wisconsin, the reimbursement standard for fees charged to an employer or its insurer by health service providers is not based upon an established fee schedule but rather is based upon “reasonableness” in relation to comparable services. See Wis. Stat. Ann. § 102.42 (2013).

Disputes as to the reasonableness of a fee charged by a health service provider for medical services provided to an injured employee who claims benefits under Wisconsin’s Worker’s Compensation Act are resolved by the Wisconsin Department of Workforce Development. Id. at § 102.16(1m)(a), (2)(a); see also id. at § 102.18(bg)(1). When the reasonableness of reimbursement is disputed, the employer or its insurer must provide the Department of Workforce Development with information about fees charged by other health service providers for comparable services, obtained from a database certified by the department. Id. at § 102.16(2)(c). The standard used by the department in its reasonableness determination is the following: “a disputed fee is reasonable … if that fee is at or below the mean fee for the health service procedure for which the disputed fee was charged, plus 1.2 standard deviations from that mean, as shown by data from a database that is certified by the department.” Id. at § 102.16(2)(d). Thus, anything below the mean fee plus 1.2 standard deviations is deemed reasonable unless the health service provider proves, as in Illinois, that a higher fee is justified because the relevant treatment was unusually difficult or complicated. Id.

Reimbursement for implant furnished to employee

Leaving our neighbors aside, the following is an expansion on the additional implications of HEA 1320, which deals also with pecuniary liability for medical implants furnished to injured workers. The Act now places a cap on the price of implants using the actual cost to the medical service provider. Payment to a medical service provider for an implant furnished to an injured employee under the Act may not exceed the invoice amount paid by the medical service provider plus 25 percent. Ind. Code § 22-3-3-5.2(c).

Reimbursement for repackaged prescription drug furnished to employee

In response to the rapidly increasing costs of physician-dispensed prescription drugs for injured workers, HEA 1320 also provides new regulations regarding the reimbursement amounts for repackaged prescription drugs. The new law states that whenever a prescription covered under the Act is filled using a repackaged (as defined in Ind. Code § 25-26-14-9.3) legend drug (as defined in Ind. Code § 25-26-14-7), the maximum reimbursement amount for the repackaged legend drug is computed using the average wholesale price set by the original manufacturer. Ind. Code § 22-3-3-4.5(c). Thus, such drugs cannot be sold for a price higher than the average wholesale price established by the original manufacturer. It should be noted that this is not applicable to a retail or mail order pharmacy. Id. The additions to the Act also provide that if the National Drug Code for a legend drug cannot be determined from the medical service provider’s statement or billing, then the maximum reimbursement amount for the repackaged legend drug is the lowest cost generic for that legend drug. Id. at § 22-3-3-4.5(d).

Increased benefit amounts for injured workers

The enactment of HEA 1320 also increases the benefit amounts for injured workers covered under the Act with regard to dollars per degree for permanent partial impairment and the maximum amount of nonmedical compensation. In addition, the maximum and minimum average weekly wages are increased.

First, the amended legislation includes graduated percentage increases to the compensation schedule for impairment benefits over a three-year period, beginning July 1, 2014. The dollars per degree will increase as follows:

For injuries on and after July 1, 2014, and before July 1, 2015:

1-10 degrees of PPI: $1,517 per degree

11-35 degrees of PPI: $1,717 per degree

36-50 degrees of PPI: $2,862 per degree

51+ degrees of PPI: $3,687 per degree

For injuries on and after July 1, 2015, and before July 1, 2016:

1-10 degrees of PPI: $1,633 per degree

11-35 degrees of PPI: $1,835 per degree

36-50 degrees of PPI: $3,024 per degree

51+ degrees of PPI: $3,873 per degree

For injuries on and after July 1, 2016:

1-10 degrees of PPI: $1,750 per degree

11-35 degrees of PPI: $1,952 per degree

36-50 degrees of PPI: $3,186 per degree

51+ degrees of PPI: $4,060 per degree

Ind. Code § 22-3-3-10(j)(13)-(15).

In addition, the maximum amount of nonmedical compensation, including temporary and permanent disability and impairment benefits, paid to injured workers will increase beginning July 1, 2014. For injuries occurring on and after July 1, 2014, and before July 1, 2015, the maximum amount of compensation, exclusive of medical benefits, may not exceed $347,000. Id. at § 22-3-3-22(t)(11). For injuries on and after July 1, 2015, and before July 1, 2016, the maximum amount of nonmedical benefits paid under the Act is $368,000. Id. at § 22-3-3-22(t)(12). For injuries that occur on and after July 1, 2016, the maximum amount of nonmedical compensation that can be paid to an injured worker is $390,000. Id. at § 22-3-3-22(t)(13).

Finally, the amended legislation increases the average weekly wages used in computing compensation for temporary total or temporary partial disability as well as total permanent disability. The maximum and minimum average weekly wages for injured workers are amended as follows:

For injuries on and after July 1, 2009, and before July 1, 2014: maximum, $975; minimum, $75

For injuries on and after July 1, 2014, and before July 1, 2015: maximum, $1,040; minimum, $75

For injuries on and after July 1, 2015, and before July 1, 2016: maximum, $1,105; minimum, $75

For injuries on and after July 1, 2016: maximum, $1,170; minimum: $75

Id. at § 22-3-3-22(j)(10)-(13).

Confidentiality provisions for data collected by the Worker’s Compensation Bureau

New legislation regarding the confidentiality of information filed with the Indiana Worker’s Compensation Bureau was also enacted when HEA 1320 became law. The bureau may collect data from its members, including the following: (1) claims data; (2) policy data such as policy number, policy term, and employer and employee identification information; and (3) proof of coverage data such as employer identification information, classification information, carrier information, agency identification information, premium information and payroll data. Ind. Code § 27-7-2-40. However, all data collected by the bureau are subject to this new privacy provision and are deemed confidential. Id. Such information “shall not be disclosed or disseminated to third parties” unless consented to by the bureau or specifically stated otherwise in the Act. Id.

Conclusion

Overall, HEA 1320 is an effort by our state to control and contain the ever-increasing costs of medical care for those covered under the Indiana Worker’s Compensation Act. Whereas Indiana previously ranked as one of the highest states in reimbursement rates but one of the lowest in benefits to injured workers, the new legislation makes changes that favor both ends of the spectrum. Not only is there increased transparency and cost containment with regard to reimbursement to medical service facilities, but benefits to injured workers are also increased. The portions of the legislation highlighted in this article curb problems that are still in the forefront of the workers’ compensation systems of many other states. Thus, with the enactment of HEA 1320, Indiana has provided long-awaited reform to our system that helps ensure that injured workers receive adequate health care but, at the same time, provides its medical service facilities with increased incentive to provide workers’ compensation treatment.•

Ms. Noltemeyer is a partner and Ms. Bushemi is an associate in the Indianapolis office of Kightlinger & Gray. They are both members of the Defense Trial Counsel of Indiana. The opinions expressed in this article are those of the authors.