State of Minnesota Medical Services Review Board Oct. 16, 2003 443 Lafayette Road N. St.

Paul, MN MSRB members present: Lynn Ayers Beth Baker, M.D. Barbara Baum Sharon Ellis Gregory Hynan, D.C. Debra Olson Andrea Trimble Hart Jon Talsness, M.D. Bruce VanDyne, M.D. Ellen Velasco-Thompson Philip Bachman, M.D. Jeffrey Bonsell, D.C. Paul Crowe, M.D. Sean Flood, M.D. Chad Hendricksen, D.C. William Martin Michael McGrail Jr., M.D. Andrew Schmidt, M.D. Beth Hargarten Keith Keesling Sandra Keogh William Lohman, M.D. Terry Mueller Marlana Nierengarten Others present: Judy Hawley, Minnesota Chapter, American Physical Therapy Association Louise Montague, MOTA/North Memorial Occupational Health Clinic Erin Sexton, MMA-MOS 1. Call to order, introductions, announcements Chairperson Baker called the meeting to order at 4:13 p.m. Members introduced themselves to newcomers in the group. 2. Approval of minutes – action item Dr. VanDyne made a motion to approve the minutes from the May 15, 2003 meeting. Ellen Velasco-Thompson seconded the motion. Motion carried. 3. Overview of medical costs task-force Assistant Commissioner Hargarten introduced herself and gave some history about the Workers’ Compensation Medical Costs Task-force. The task force will submit a report to the Workers' Compensation Advisory Council by January 2004. The council will then make recommendations to the state Legislature regarding medical cost containment. Hargarten also reiterated the current administration's decision to reinstate most advisory boards.

MSRB members excused:

Staff members present:

3A. Dr. Lohman’s presentation Dr. Lohman presented an abbreviated version of the information given to the Medical Costs Task-force. The complete version is included on the department Web site at Lohman gave a history of rising workers' compensation costs that resulted in cost control legislation in 1992. Because of the 1992 legislation, costs initially decreased, but then began to rise after 1994. Lohman explained that part of the increase is due to a statutory provision that has increased payments at the same rate as the growth in the statewide average weekly wage. There have also been changes in the distribution and rate of growth in charges among providers and services. Even after adjusting for inflation, there is a developing problem due in part to the increasing cost of service, more types of services and a new mix of services including expensive, high-tech options. The department has asked the Medical Costs Task-force to consider cost containment in the following areas: Pharmaceutical costs The pharmaceutical cost of the average claim has jumped from $60.13 in 1996, to $161.62 in 2003. This increase is attributed to new and more expensive drugs, increase in wholesale drug costs and an increase in the length of drug therapies. The task force received the following cost-control options to review. 1. Fee schedule – Currently, drug payments are 100 percent of the average wholesale price (AWP) plus a $5.14 dispensing fee. The department recommends bringing workers' compensation costs to a level comparable to HMOs. This would set the maximum payment at 86 percent of AWP plus a $2.21 dispensing fee. 2. Pharmacy network – This would restrict patients to using specified outlets to fill their prescriptions. This allows insurance companies and employers to negotiate rates with providers. The department recommended this option provided there were mileage parameters to ensure reasonable access. 3. Drug formularies – Minnesota workers' compensation rules already cover the use of substituting generic drugs for name brands. Physician compliance with this is more than 90 percent. The problem stems from the fact that many drugs do not have a generic substitute. Of the top 10 drugs prescribed for workers' compensation injuries, only three have a generic counterpart. To counter this, the department recommends treatment parameters. Almost all drugs prescribed for worker's compensation injuries fall into one of three categories: muscle relaxers, nonsteroidal anti-inflammatories and narcotics. Physicians should be encouraged to change their mindset about prescribing drugs and persuaded to substitute a less expensive drug in the same class, providing it would have no adverse effect on the patient. Lohman gave the example of substituting ibuprofen for Celebrex when the patient does not have a history of gastrointestinal bleeding. Another aspect of this is prior authorization that includes putting limits on the number of doses a physician can prescribe and limiting drugs that are expensive or have a potential for misuse. The department's recommendation is to use treatment parameters to put time and quantity limits on selected drugs in specific situations. Lohman used the example of musculoskeletal injuries. Since many of these resolve within two weeks, only two weeks worth of drugs should be given at the first appointment. Certified managed care Studies have shown managed care can save money in three ways. They can change the mix of providers from higher cost to lower cost. Prices can also be negotiated and treatment can be limited to what is necessary. By statute, managed care plans must provide peer review, utilization review, dispute resolution and case management. The question was put to the task force whether insurers and employers should be allowed to contract just for networks without the other components. Some insurance companies already have a sophisticated system that addresses issues such as utilization review. Furthermore, there are noncertified care plans in place that provide workers' compensation insurance at negotiated rates. These put certified managed care plans at a disadvantage, because they do not have to address things such as access requirements. The department recommended the aforementioned components be optional for managed care. However, the department did not make a recommendation concerning the patient's ability to use a provider outside the network. Estimates give a 7 to 10 percent cost-reduction if employees were required to stay within the network. Ellen Velasco-Thompson agreed employers and insurers should be able to create a network and opt out of the components. She also recommended setting additional limits to provider access outside the network. She further commented that if all services are within the network, operations run more smoothly, because everyone knows the system.

Hospital costs Currently, there is a disparity between the way large hospitals and small hospitals are paid. Inpatient costs at large hospitals are capped at 85 percent of the provider charge. Outpatient fees are capped by either the fee schedule or 85 percent of the cost for services not on the fee schedule. Small hospitals, defined as those with fewer than 100 licensed beds, are paid at 100 percent for both inpatient and outpatient care. Since 1993, hospital costs – especially at small hospitals – have grown faster than other provider services. Moreover, large hospitals provide almost equal amounts of both inpatient and outpatient care. On the other hand, small hospitals provide outpatient care 82 percent of the time. In both cases, workers' compensation claims pay at a higher rate than both Medicare and nonprofit commercial care. The department believes it could reduce costs if large hospitals were reimbursed at the average payment-to-charge ratio for all payment systems, plus five percent. The department would update this annually with Department of Health data. Workers' compensation cases typically average about 2 percent of hospital costs. Because of this factor, hospital revenues would only decrease an estimated 1.1 percent. The choices for small hospitals are more complicated. The Legislature clearly intended to help small hospitals, but is this help still necessary? The department concluded some hospitals would be at-risk if inpatient reimbursement levels changed. Lynn Ayers echoed the same concern that this might reduce the ability to provide quality service in those facilities that are already struggling. Possible policy options for small hospitals include: 1. Continue to pay small hospitals 100 percent for all services. 2. Treat all hospitals as large hospitals. 3. Pay small hospitals 100 percent for inpatient care and reduce outpatient costs to the same rate as large hospitals. After reviewing the options, the department recommended to keep the inpatient rate at 100 percent and pay all other services according to the fee schedule or, if not applicable, at the large-hospital rate. Fee schedules Legislation passed in 1992 addressed the need to reduce fee schedule payments by 15 percent. Fees were set according to a relative-value scale developed by Medicare. A conversion factor was calculated that reflected the 15 percent fee-reduction. Furthermore, the law allowed for distinctions in payment by dividing services into the following four categories and paying each at a different rate: • medical/surgical; • pathology and laboratory; • physical medicine and rehabilitation; and • chiropractic. Initially, medical costs went down. However, since 1992, costs have risen 44 percent. This increase is, in part, due to an annual conversion adjustment based on the statewide average weekly wage. The department questioned whether the conversion factor was rising too quickly and looked at alternative indicators. Other possibilities included the consumer price index (CPI) that uses the average change in prices over time and the product price index (PPI) that uses the average change in producer revenues. The department concluded the PPI-P (physicians) should replace the statewide average weekly wage for future adjustments. Under this recommendation, DLI would reduce the existing conversion factor to what it would have been if PPI-P had been used from the beginning. Future adjustments would also be made according to the PPI-P. Reducing the conversion factor would have a minimal impact on hospitals, but would decrease workers' compensation medical costs by 5.4 percent and systems costs by 2 percent. If this were combined with the hospital proposals, respective costs would decrease by 26 percent and 9.5 percent. Baker added the need to address treatments not listed on the treatment parameters, such as massage therapy. Lohman also commented about the need to review the effectiveness of new, expensive technologies.

Several members of the group discussed the scaling factor. According to Lohman, department studies indicate that without scaling factors, workers' compensation costs would increase 3 percent. Currently, the fee schedule reimburses physicians at a higher rate than physical medicine providers, even for the same modality or treatment. Baker stated whether the task force had looked at this issue. They had to decide if there are equal services and, if so, how to reimburse them. After hearing testimony, the task force made a compromise. They eliminated the distinction for physical medicine, but kept the reimbursement distinction for radiology. Hyman responded that the Minnesota Chiropractic Association would not accept this compromise. He referenced a Texas study that concluded no other state makes the distinction between physical medicine and radiology. He also agreed to provide Baker a copy of this study. Lohman concluded his presentation by inviting each board member to make their own recommendations. He stated the department's recommendations were only a means to jump-start debate about these issues. 4. Decision-making Dr. Baker asked how the task force would reach a decision. Would it be by vote or consensus? Hargarten answered that Commissioner Brener was not inclined to have a vote about individual ideas. The task force will compile a report that lists all options and how many members agreed with each one. Hargarten also clarified the MSRB role in decision-making. Because Baker is a member of both groups, she will act as a conduit to bring ideas to the task force. Baker stated the task force would begin making decisions in early December; any comments should be made before then. The task force must make a report for the Workers' Compensation Advisory Council by Jan. 9, 2003. The council will make recommendations to the Legislature that may result in law changes. The MSRB will be involved with rule-making connected to any changes in the law. 5. Meeting schedule Hargarten stated she would like to see the board meet on a quarterly basis. Traditionally, meetings have been from 4 to 6 p.m. on the third Thursday of the month. There was consensus among the members that this was an appropriate schedule. The following meeting dates (pending availability of the Minnesota Room) were set for 2004: • Jan. 15 • April 15 • July 15 • Oct. 21 6. New business Hargarten explained the open appointment process to the board. She stated all alternates terms would expire Jan. 1, 2004. Barbara Baum was the only full-member whose term would expire on that date. Applications are available on the Secretary of State's Web site at 7. Old business None. 8. Adjourn – action item Dr. Hynan made a motion to adjourn the meeting. Dr. VanDyne seconded the motion. Motion carried. Meeting adjourned at 6:10 p.m. Respectfully submitted, Marlana Nierengarten Executive Secretary