Austin, Texas
                    FISCAL NOTE, 76th Regular Session
                              March 30, 1999
          TO:  Honorable Judith Zaffirini, Chair, Senate Committee on
               Human Services
        FROM:  John Keel, Director, Legislative Budget Board
       IN RE:  SB1590  by Zaffirini (Relating to the investigation and
               prosecution of fraud in the workers' compensation program
               for state employees; providing administrative
               penalties.), As Introduced
*  Estimated Two-year Net Impact to General Revenue Related Funds for    *
*  SB1590, As Introduced:  positive impact of $194,823 through the       *
*  biennium ending August 31, 2001.                                      *
*                                                                        *
*  The bill would make no appropriation but could provide the legal      *
*  basis for an appropriation of funds to implement the provisions of    *
*  the bill.                                                             *
General Revenue-Related Funds, Five-Year Impact:
          *  Fiscal Year  Probable Net Positive/(Negative)   *
          *               Impact to General Revenue Related  *
          *                             Funds                *
          *       2000                              $52,189  *
          *       2001                              142,634  *
          *       2002                              142,634  *
          *       2003                              142,634  *
          *       2004                              142,634  *
All Funds, Five-Year Impact:
*Fiscal        Probable             Probable        Change in Number of  *
* Year    Savings/(Cost) from  Savings/(Cost) from State Employees from  *
*        General Revenue Fund General Revenue Fund        FY 1999        *
*                0001                 0001                               *
*  2000             $(507,187)             $559,376                  9.0 *
*  2001              (416,742)              559,376                  9.0 *
*  2002              (416,742)              559,376                  9.0 *
*  2003              (416,742)              559,376                  9.0 *
*  2004              (416,742)              559,376                  9.0 *
Fiscal Analysis
The bill requires the State Office of Risk Management (SORM) to conduct
reviews of claims for medical benefits periodically.  Specifically, SORM
would be required to conduct a claim review on claims involving the
receipt of psychiatric services or apparent inappropriate prescription
drug use.  In addition, the bill requires an annual audit of claims for
medical benefits, including the performance of a prepayment audit. SORM
would also be required to conduct annual training classes to assist
state agencies in identifying potential misrepresentation of workers
compensation claims.  Lastly, this bill requires the agency to
investigate all complaints alleging fraud made by a claimant, a health
care provider, or state agency and create an administrative penalty
system for health care providers or claimants who commit a fraudulent
The agency estimates that the provisions for periodic claims reviews
would require the employment of two nurses and one administrative
technician to assist in performing periodic reviews of claims for medical
benefits, in addition to conducting a claim review on every claim that
involves the use of psychiatric services or inappropriate prescription
drug use.  An additional claims adjuster would be necessary to discuss
and resolve disputes with medical providers over claims identified as
potentially fraudulent.  SORM would incur costs estimated at $50,000 in
fiscal year 2000 to reprogram their claims management system to begin to
withhold payments from medical providers. The required annual claims
audit would be contracted out at a cost of $25,000 per year.

SORM would also incur costs, estimated at $8,000 a year, to create and
provide training classes for state agencies who process workers'
compensation claims in order to identify potential misrepresentation.
The agency estimates that two new investigators and one administrative
technician would be required in order to investigate and take action on
complaints alleging a fraudulent act made by a claimant, a health care
provider, or a state agency.   The agency also estimates that one
additional attorney and one administrative technician would be needed to
create and administer the administrative penalty system.

Other parts of the bill, including the requirements for a toll-free
number for reporting fraud, for prepayment audits, and for a study of the
use of fraud detection software could be performed within current

Possible savings from this bill have been estimated by SORM as
approximately two percent of the medical benefit expenditures from the
Workers' Compensation Claim Fund.  Based on fiscal year 1998
expenditures of $27,968,809, the savings would equal approximately
$559,376 per year.  The agency did not provide an estimate for revenue
that would result from the creation of an administrative penalty system.
Local Government Impact
No fiscal implication to units of local government is anticipated.
Source Agencies:   
LBB Staff:         JK, TP, PH, SC