DECISION AND ORDER

Facility Insurance Corporation (the Carrier) appealed the Findings and Decision issued by the Medical Review Division (MRD) of the Texas Workers’ Compensation Commission (the Commission) in a fee dispute involving an interpretation of the Commission’s hospital fee guideline. The decision ordered the Carrier to reimburse Rio Grande Regional Hospital (the Hospital) an additional $23,654.06 by calculating the reimbursement using stop-loss methodology. The Carrier argued its reimbursement of $16,797.79 was correctly calculated for four days of hospitalization with additional reimbursement for implantables based on the per diem methodology. The Commission’s attorney agreed the stop-loss provision is not applicable in this case. The Administrative Law Judge (ALJ) finds that the per diem methodology is the correct methodology to use for reimbursement. Although the Carrier does not owe an additional $23,654.06, the reimbursement should be adjusted to account for pharmaceuticals.

I.

PROCEDURAL HISTORY, JURISDICTION, AND NOTICE

On July 23, 2001, ALJ Georgie B. Cunningham convened the hearing at the Stephen F. Austin Building, 1700 North Congress Avenue, Austin, Texas. Attorney Charles C. Finch represented the Carrier, and Attorney Margaret Susan Goggan represented the Commission (Staff).^[1] Gracie Valdez and Maribel Solis, Hospital employees, represented the Hospital via telephone.^[2] Notice and jurisdiction were not contested and will be addressed in the findings of fact and conclusions of law. Following the presentation of evidence, the ALJ closed the hearing on July 23, 2001.^[3]

II. DISCUSSION

A. Introduction

________ sustained a compensable workers’ compensation injury on_________. On April 26, 2000, ________ was admitted to the Hospital in McAllen, Texas, where he had knee replacement surgery. The Hospital submitted a bill to the Carrier for $53,935.80 for the four-day inpatient stay and surgical procedure. The Carrier reimbursed the Hospital $16,797.79 calculated on the per diem provision of the Commission’s 1997 Acute Care Inpatient Hospital Fee Guideline (the Guideline) adopted as 28 Tex. Admin. Code ‘ 134.401.

After the Hospital requested medical dispute resolution, MRD ordered the Carrier to pay an additional $23,654.06. The decision stated that once a bill has reached the minimum stop-loss threshold of $40,000, the Hospital shall be reimbursed for 75 percent of the bill under the stop-loss provision of the Guideline. The Carrier, asserting that the bill should be calculated under the per diem methodology, timely filed its request for a hearing on the matter. At the hearing, the Carrier presented the testimony of Julie Shank, consultant and former MRD director, and a copy of the Hospital’s responses to its requests for admissions. Staff presented a certified copy of the MRD record, but the Hospital did not offer any additional evidence.

B. Reimbursement Methodology

Summary of the Guideline Provisions

In 1992 and again in 1997, the Commission adopted a fee guideline for hospital charges under the authority of Section 413.011 of the Texas Workers’ Compensation Act (the Act). The 1992 Guideline was subsequently invalidated because of procedural irregularities in its adoption and was repealed in 1997.^[4] According to Ms. Shank, the Guidelines were adopted primarily to ensure that injured workers receive quality health care when needed and to achieve effective medical cost control.

Section 134.401(b)(2) of the Guideline provides that the reimbursement for acute care hospital inpatient services shall be the lesser of a negotiated rate between the hospital and the carrier, the hospital’s usual and customary charges, or reimbursement as set out in the subsection related to reimbursement. The section further provides that additional reimbursement for specified high-cost services is determined on a case-by-case basis. According to Subsection (b)(2)(C), all charges submitted are subject to audit as described in Commission rules.

The reimbursement methodology is set forth in Section 134.401(c). Subsection (c)(1) specifies that a surgical admission is reimbursed at $1,118 per day, and Subsection (c)(2) addresses the method of reimbursement. Subsection (c)(2) states, AAll inpatient services provided by an acute care hospital for … surgical admissions will be reimbursed using a service related standard per diem

mount. According to Subsection (c)(2)(C), independent reimbursement is allowed on a case-by-case basis if the particular case exceeds the stop-loss threshold stated in Subsection (c)(6)(A)(i). Subsection (c)(3) describes the calculation in which the applicable per diem amount for the admission category is multiplied by the length of stay to determine the reimbursement. The items listed in Subsection (c)(4) are reimbursed in addition to the normal per diem amount for bills that do not reach the stop-loss threshold. Implantables, at issue here, are reimbursed at cost to the hospital plus 10 percent.

Section 134.401(c)(6) addresses the stop-loss provision, which is an independent reimbursement methodology to ensure fair and reasonable compensation to hospitals for unusually costly and extensive services. This methodology is used in place of and not in addition to the per-diem based reimbursement system. The total audited charges must exceed $40,000 to be eligible for stop-loss reimbursement. According to Subsection (c)(6)(A)(v), audited charges are those charges that remain after a carrier’s bill review. Audited charges multiplied by the stop-loss factor of 75 percent yield the reimbursement amount.

The Audit

As the MRD director from 1991 to 1996, Ms. Shank was familiar with the development of the stop-loss provision to ensure hospitals were fairly reimbursed for unusually complex cases or unusually long admissions. In her opinion, the operation in the present case was not uncommon, the services rendered were not unusually costly or extensive, and the admission was for only four days.

According to Ms. Shank, it is the Commission’s policy, enunciated in its rules, to allow a carrier to audit all bills. She summarized the steps a carrier could take in auditing a hospital bill. Ms. Shank observed that carriers have not necessarily been consistent in handling audits and items identified for additional reimbursement.

Ms. Shank reviewed the record focusing on the Hospital’s bills, the doctor’s progress notes, and the Carrier’s audit. She found evidence the Hospital billed for items not used in the surgery and inflated the price of other items. She testified that the Hospital billed for nine stems for a total charge of $33,990, although the doctor’s records indicate two stems were used. Ms. Shank explained that one stem is inserted into the upper part of the leg and one in the lower part. Even though Ms. Shank did not perform the audit, she believed that the Carrier audited the itemized charges, deducted the reimbursement due for the implantables, and determined that the audited charges were less than the stop-loss threshold of $40,000. She conceded that the Carrier may have erred in not providing additional reimbursement to the Hospital for pharmaceuticals charged at more than $250 per dose.

III.

ANALYSIS

Based on Section 134.401(c)(6)(A)(i) and (iii), the Commission’s dispute resolution officer concluded that the bill, which exceeded the minimum stop-loss threshold of $40,000, should be paid using the stop-loss factor of 75 percent. The dispute resolution officer further concluded that the only charges that the Carrier could deduct are those for personal items and those not related to the compensable injury, as specified in Subsection (c)(6)(A)(v).

The ALJ agrees with the Carrier’s argument that it is entitled to perform a more comprehensive audit pursuant to Commission rules. According to Section 134.401(b)(2)(C), all charges submitted are subject to audit as described in the Commission’s rules. Section 133.301, in effect when the Carrier conducted the audit, provided that a carrier shall be responsible for making appropriate payment of charges for medical services.^[5] The rule has since been amended to provide that a carrier shall retrospectively review all medical bills and pay for or deny payment in accordance with the Act, rules, and appropriate fee and treatment guidelines.^[6] Clearly, the Commission recognizes auditing as an important component in the workers’ compensation system.

Section 134.401(b)(2)(C) specifies all charges submitted are subject to audit; however, according to the dispute resolution officer’s decision, a carrier would have to ignore all items it could otherwise audit. The language of Subsection (c)(6)(A)(v) does not state that the list is an exclusive list of the items that may be deducted. The permissive verb “may” is used, suggesting the items listed are examples rather than an exclusive list. That a carrier would be required to ignore a hospital’s charges for unnecessary or unreasonable treatments or services, upcoding, unbundling, duplicate billing, treatment not provided pursuant to treatment guidelines, and undocumented charges for services is unreasonable.

Under the interpretation set forth by the dispute resolution officer’s decision, if the charges exceeded the stop-loss threshold, then the carrier would have to reimburse the hospital for 75 percent of the billed charges regardless of how exorbitant the charges might be. Under the dispute resolution officer’s approach, a carrier could audit small bills under $40,000 but not audit bills over that amount. Here, for example, the Hospital charged $33,990 for nine stems. Requiring the Carrier to reimburse the Hospital for nine stems when only two can be used in knee replacement surgery defeats the Commission’s cost containment objective. Thus, the ALJ concludes the Carrier may deduct charges in addition to the examples provided in Section 134.401(c)(6)(A)(v).

The Carrier’s auditor reduced the charge to $12,325.79 and inserted a footnote that the amount was fair and reasonable. Subsequently, the Carrier reimbursed the Hospital at that amount. In its brief, Staff asserted that when a carrier receives a hospital bill, it should review the bill to ensure the charges represent the usual and customary charge by providers of similar experience for a specific treatment in the geographic area where the service was provided. Staff further asserted that the stop-loss provision is based on reimbursement of the usual and customary charges.

The ALJ finds insufficient record development in this particular case to draw conclusions about usual and customary charges. Although the ALJ considered Ms. Shank’s testimony to be credible, it appeared that she was speculating about the Carrier’s methodology in performing its review. Ms. Shank confirmed she did not audit the bill, did not review the Carrier’s actual audit, and did not confer with the person responsible for the audit. The Hospital presented no evidence at the hearing to dispute the Carrier’s audit methodology, but admitted that the cost of the implantables was $10,462.12. The ALJ cannot accept as credible evidence that the Hospital’s charge of $34,950.50 for items costing $10,462.12 is the usual and customary charge for these items.^[7]

The stop-loss methodology is used to ensure fair and reasonable compensation for unusually costly services or unusually extensive services. The evidence presented here establishes that the services were neither unusually costly nor unusually extensive. By inflating the charge for the implantables from $10,462.12 to $34,950.50, the Hospital attempted to make itself eligible for stop-loss reimbursement. The Hospital provided no justification during the dispute resolution process or at the hearing to explain the charges or to argue that the charges were the hospitals’ usual and customary charges. Once the Carrier reduced the Hospital’s charges of $53,935.80 by approximately $26,436 for the seven stems that may have been billed inadvertently, the charges fell below the $40,000 stop-loss threshold. The analysis need go no further.

The parties did not establish the Hospital’s cost of the drugs. Evidence established only that the Hospital’s charges exceeded the stop loss amount for pharmaceuticals pursuant to Section 134.401(c)(4)(C).

Based on the evidence presented in this case, the Carrier showed by a preponderance of the evidence that the Hospital should be reimbursed based on the per diem methodology of the Guideline. The steps used in calculating the appropriate reimbursement appear as conclusions of law. Based on the evidence in the record, the Hospital is entitled to reimbursement of $15,980.33 and the cost of the pharmaceuticals plus 10 percent of that total. The Carrier reimbursed the Hospital $16,797.79. A subsequent adjustment may need to be made; however, the Carrier does not owe an additional reimbursement of $23,654.06 to the Hospital.

IV.

FINDINGS OF FACT

1. _______ sustained a compensable workers’ compensation injury on________.
2. Facility Insurance Corporation (the Carrier) provided workers’ compensation insurance to _________’s employer.
3. On April 26, 2000, _________ was admitted to Rio Grande Regional Hospital (the Hospital) in McAllen, Texas.
4. The Hospital submitted an itemized bill to the Carrier for $53,935.80 for ________’s four-day inpatient stay for knee replacement surgery.
5. The Carrier reimbursed the Hospital $16,797.79.
6. The Hospital requested dispute resolution services from the Medical Review Division (MRD) of the Texas Workers’ Compensation Commission (the Commission).

7 On December 15, 2000, MRD issued Findings and a Decision ordering the Carrier to remit an additional $23,654.06 to the Hospital based on the stop-loss provision of the Acute Care Inpatient Hospital Fee Guideline (the Guideline) issued by the Commission in 1997.

8 On January 2, 2001, the Carrier filed a request for a hearing on MRD’s decision.

9 The Commission sent notice of the hearing to the parties on January 23, 2001, and a statement of matters asserted on July 12, 2001. The notices informed the parties of the matter to be determined, the right to appear and be represented by counsel, the time and place of the hearing, and the statutes and rules involved.

10 The Carrier audited the bill submitted by the Hospital.

11 The Carrier calculated reimbursement on the per diem methodology of the Guideline.

12 The Carrier reimbursed the Hospital $4,472.00 for four days of inpatient care at $1,118 per day.

13 The Hospital submitted a charge of $34,950.50 to the Carrier for the implantables.

14 The Carrier reimbursed the Hospital $12,325.79 based on the cost of supplies and implantables from vendors.

15 The Hospital’s actual cost of supplies and implantables plus 10 percent was $11,508.33.

16 No evidence was offered to establish the Hospital’s cost of the pharmaceutical for which the Hospital charged $2,280.00 for two doses.

V.

CONCLUSIONS OF LAW

1. The Texas Workers’ Compensation Commission has jurisdiction to decide the issue presented, pursuant to Tex. Lab. Code Ann. ‘ 413.031 (Vernon 2000).
2. The State Office of Administrative Hearings has jurisdiction over matters related to the hearing in this proceeding, including the authority to issue a decision and order, pursuant to Tex. Lab. Code Ann. ” 402.073 and 413.031(d) and Tex. Gov’t Code Ann. ch. 2003 (Vernon 2000).
3. The Carrier timely filed notice of appeal, as specified in 28 Tex. Admin. Code (TAC) ‘ 148.3.
4. Proper and timely notice of the hearing was effected upon the parties according to Tex. Gov’t Code Ann. ch. 2000 (Vernon 2001) and 28 TAC ‘ 148.4(b).
5. The Carrier had the burden of proving the case by a preponderance of the evidence, pursuant 28 TAC ‘ 148.21(h) and (i).
6. The Carrier audited the Hospital’s bill, as provided by 28 TAC ” 133.301 and 134.401(b)(2)(C).
7. The total audited charges did not exceed the stop-loss threshold of $40,000, pursuant to 28 TAC ‘ 134.401(c)(6)(A)(i).
8. Based on Conclusion of Law No. 7, the bill does not qualify for the stop-loss method of reimbursement, pursuant to 28 TAC ‘ 134.401(c)(2)(C).
9. As specified in 28 TAC ‘ 134.401(c)(2), all inpatient services provided by an acute care hospital for a surgical admission will be reimbursed using a standard per diem amount.
10. The standard per diem amount for a surgical admission is $1,118, as set forth in 28 TAC ‘ 134.401(c)(1).
11. As specified in 28 TAC ‘ 134.401(c)(3), the formula for calculating reimbursement using per diem methodology is as follows: Length of Stay x Standard Per Diem Amount = the Workers’ Compensation Reimbursement Amount.
12. Based on the cost to the hospital plus 10 percent, an additional reimbursement of $11,508.33 shall be provided to the per diem reimbursement for medically necessary implantables, according to 28 TAC ” 134.401(b)(2)(B) and (c)(4)(A).
13. Based on the cost to the hospital plus 10 percent, an additional reimbursement to be determined shall be provided to the per diem reimbursement for pharmaceuticals greater than $250 per dose, according to 28 TAC ” 134.401(b)(2)(B) and (c)(4)(C).
14. By applying the formula specified in Conclusion of Law No. 11 and adding the additional reimbursement, as specified in Conclusion of Law No. 12, the Hospital’s bill should be calculated as follows: 4 days x $1,118 = $4,472.00; $4,472.00 + $11,508.33 = $15,980.33.
15. The Carrier owes the Hospital a total reimbursement of $15,980.33 as specified in 28 TAC ‘ 134.401(c)(2)(A)(B), (3), and (4).
16. As specified in Finding of Fact No. 4, the Carrier reimbursed the Hospital $16,797.79.
17. As specified in Conclusion of Law No. 13, an additional adjustment shall be made for reimbursement of pharmaceuticals.
18. Based on the foregoing findings of fact and conclusions of law, the Carrier established by a preponderance of the evidence that its appeal should be granted.

ORDER

It is hereby ordered that the appeal of Facility Insurance Corporation is granted. Pursuant to 28 Tex. Admin. Code ‘ 134.401(c)(4), Facility Insurance Corporation does not have to remit an additional reimbursement of $23,654.06 to Rio Grande Regional Hospital as ordered in the MRD decision. The parties are directed, however, to establish the actual cost of the pharmaceutical at

issue. Thereafter, Facility Insurance Corporation shall reimburse Rio Grande Regional Hospital for the pharmaceutical at cost plus 10 percent less $817.46 it has overpaid.

This decision is final on the date when the party is notified of the decision according to 28 Tex. Admin. Code ‘ 148.22(h). If the decision is mailed, a party or the party’s representative is presumed to have been notified on the date on which the notice was sent.

Signed this 6^th day of September, 2001.

GEORGIE B. CUNNINGHAM
Administrative Law Judge
State Office of Administrative Hearing

1. Commission Attorney Yvonne Williams and the Carrier’s witness Julie Shank were present also.↑
2. The Hospital representatives did not file a request to appear via telephone as instructed in the hearing notice. The Hospital is advised that in any subsequent hearing at the State Office of Administrative Hearings, it should file such a request and provide the telephone number where its representative can be reached.↑
3. Subsequently, Staff filed a written request to submit a post-hearing brief of the legal issues. The ALJ granted the request and permitted the other parties an opportunity to reply to the brief. The Carrier filed a response. Staff did not request that the hearing be reopened to present additional evidence or to change its recommendation.↑
4. References are to the 1997 Guideline unless otherwise specified.↑
5. 28 Tex. Admin. Code ‘ 133.301(a) (2000).↑
6. The amendment was effective July 15, 2000.↑
7. The Hospital charged for items in addition to the stems.↑