All Saints Health System v. Texas Workers' Compensation Com'n

Court of Appeals of Texas,

Austin.

ALL SAINTS HEALTH SYSTEM, et al., Appellants,

v.

TEXAS WORKERS’ COMPENSATION COMMISSION, et al., Appellees.

No. 03–02–00803–CV.

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July 24, 2003.

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Dissent on Overruling of Rehearing

Dec. 4, 2003.

Attorneys & Firms

*97 Michael L. Eagan, Dallas, for Appellants.

Dewey E. Helmcamp, III, Assistant Attorney General, Administrative Law Division, Austin, for Texas Workers’ Compensation Commission.

*98 Mary Nichols, Texas Mutual Insurance Company, Austin, for Texas Mutual Insurance Company.

John D. Pringle, Law Offices of John D. Pringle, Austin, for Ace USA.

W. Jon Grove, Law Offices of Harris & Harris, Austin, for Argonaut Southwest Insurance Company.

James A. Itkin, Bradley D. McClellan, Assistant Attorneys General, Tort Litigation Division, Austin, for State Office of Risk Management.

Christopher H. Trickey, Graves, Dougherty, Hearon & Moody, PC, Austin, for Liberty Mutual Insurance Company and Employers Insurance Company of Wausau.

James M. Loughlin, Wilson Grosenheider Moore & Jacobs, LLP, Austin, for Continental Casualty Company, et al.

Before Justices YEAKEL and PATTERSON.

OPINION

MACK KIDD, Justice.

All Saints Health System and other hospitals (“the Hospitals”)¹ appeal a declaratory judgment entered in favor of the Texas Workers’ Compensation Commission (“the Commission”) and several insurance companies and school districts (“the Insurers”) regarding the substantive law to be applied to claims for additional reimbursement based on services which the Hospitals rendered to workers’ compensation claimants under a 1992 hospital fee guideline, which this Court invalidated in 1995. Texas Hosp. Ass’n v. Texas Workers’ Comp. Comm’n, 911 S.W.2d 884 (Tex.App.-Austin 1995, writ denied). In this appeal, we must determine what standards to apply to the Hospitals’ additional reimbursement requests. The Hospitals would have us resurrect an expired temporary rule, which they argue was the last standard in place before the 1992 fee guideline’s adoption. The Insurers argue that the Commission should base its reimbursement decisions primarily on the terms of the Hospitals’ managed care contracts in existence during the reimbursement period. While we do not accept either party’s position, we will affirm the trial court’s declaratory judgment.

BACKGROUND

The story of this epic legal dispute can be traced back to 1987, when the Legislature directed the Commission to establish and maintain “a guideline of fair and reasonable fees and charges” that health-care facilities might collect for their treatment of workers’ compensation patients. Act of June 19, 1987, 70th Leg., R.S., ch. 1118, § 5, 1987 Tex. Gen. Laws 3825, 3832 (since repealed). In response, the Commission promulgated a rule setting compensation at a fixed percentage of each hospital’s stated prices for each service. Until that time, health care providers had been entitled to “fair and reasonable compensation” for medical services rendered to injured workers. See Act of Mar. 28, 1917, 35th Leg., R.S., ch. 103, § 1, 1917 Tex. Gen. Laws 269, 273 (since repealed). Various hospitals challenged the fee guideline on the ground that it had been improperly adopted, and this Court vacated it for not meeting the applicable procedural requirements. Methodist Hosps. v. Texas Industrial Accident Bd., 798 S.W.2d 651, 659 (Tex.App.-Austin 1990, writ dism’d w.o.j.) (by omitting to restate rule’s factual bases *99 and reasons for disagreeing with comments, Commission failed to meet reasoned-justification requirement).

In response to the invalidation of this initial fee guideline, the Commission adopted an emergency rule extending an identical fee guideline until January 1, 1991. See 17 Tex. Reg. 2039, 3173 (1991). Then, on December 21, 1990, the Commission adopted Rule 134.400 on an emergency basis, effective January 1, 1991, and expiring on June 30, 1991. See 16 Tex. Reg. 78 (1991) (28 Tex. Admin. Code § 134.400, since expired) (“the 1991 Emergency Fee Guideline”). Because the 1991 Emergency Fee Guideline continued to apply substantially the same substantive provisions, several hospitals again challenged the Commission’s actions. This Court held that our order invalidating the Commission’s initial fee guideline was the law of the case for any subsequent challenge to the readoption of the same substantive provisions. Methodist Hosps. v. Texas Workers’ Comp. Comm’n, 874 S.W.2d 144, 147 (Tex.App.-Austin 1994, no writ). However, because both the extension and the emergency rule had already expired, this Court declared that any request for an injunction against the rules’ enforcement was moot after the date of expiration. See id. (“Having expired, no rule exists for the trial court to enjoin the Commission from enforcing.”).

Meanwhile, in 1989, the Texas Legislature completely rewrote the workers’ compensation act, directing the Commission to set new reimbursement guidelines as part of a completely new benefits system. Act of Dec. 13, 1989, 71st Leg., 2d C.S., ch. 1, 1989 Tex. Gen. Laws 1, 70–71, amended by Act of May 22, 1993, 73d Leg., R.S., ch. 269, § 1, 1993 Tex. Gen. Laws 987, 1223;² see John Montford, Will Barber & Robert Duncan, A Guide to Texas Workers’ Comp Reform, Introduction at 8 (1991). The overall statutory framework was intended to ensure quick distribution of benefits and decrease the need to litigate relatively small claims. See Patient Advocates v. Texas Workers’ Comp. Comm’n, 80 S.W.3d 66, 72 (Tex.App.-Austin 2002, pet. granted).

The standard for establishing fee guidelines provides:

Guidelines for medical services fees must be fair and reasonable and designed to ensure the quality of medical care and to achieve effective medical cost control. The guidelines may not provide for payment of a fee in excess of the fee charged for similar treatment of an injured individual of an equivalent standard of living and paid by that individual or by someone acting on that individual’s behalf. The [C]ommission shall consider the increased security of payment afforded by this subtitle in establishing these fee guidelines.

Patient Advocates, 80 S.W.3d at 72. Relying exclusively on the Commission’s promulgated fee guidelines, the 1989 act does not specifically provide for reimbursement determinations to be made in individual cases without the use of an existing fee guideline.

Following the expiration of the 1991 Emergency Fee Guideline on June 30, the Commission no longer had a fee guideline under which to reimburse the Hospitals. The Commission promulgated a new rule providing that in the absence of a valid fee guideline the Commission would provide for adequate reimbursement of medical and hospital services rendered under the workers’ compensation program based on the statutory definition of “fair and reasonable.” See 16 Tex. Reg. 5210 (1991), amended in part by 27 Tex. Reg. 4047 (2002) (codified at Tex. Gov’t Code Ann. § 2001.039 (West 2000) (1999 amendment confirms that court may invalidate rule for good cause, effective date of court’s order). Additionally, this Court enjoined the Commission from enforcing the 1992 Fee Guideline. For almost two years, until our mandate finally issued, the Commission continued to reimburse the Hospitals on the basis of the 1992 Fee Guideline.

*101 Effective August 1, 1997, the Commission adopted a second fee guideline based on a per diem compensation scheme almost identical to that of the 1992 Fee Guideline. See 22 Tex. Reg. 6264 (July 4, 1997) (“the 1997 Fee Guideline”). Some hospitals initially challenged the 1997 Fee Guideline, but later abandoned that suit. Thus, only payments made between the effective date of the 1992 Fee Guideline, September 1, 1992, and the effective date of the 1997 Fee Guideline, August 1, 1997, remained in contention. The Hospitals again sued the Commission, seeking a declaratory judgment that their claims should be reevaluated under a direct application of the statutory standards. See Texas Hosp. Ass’n v. Brown, No. 97–07492 (250th Dist. Co., Travis County, Tex. filed June 27, 1997). The parties settled this lawsuit by agreeing that any requests for additional compensation would be decided based upon the statutory criteria of section 413.011. By the end of 1998, the Hospitals had filed approximately 20,000 claims for additional payment seeking approximately $168 million.

The Medical Review Division is a Commission body empowered to monitor health care providers, insurance carriers, and workers’ compensation claimants who receive medical services to ensure compliance with the Commission’s medical policies and fee guidelines. section 413.011(d) of the Texas Labor Code. Based on these threshold rulings, the ALJ selected five test cases from the consolidated docket to be resolved individually.

While discovery issues were being litigated in the SOAH proceedings, the Hospitals filed this declaratory judgment action against the Commission and the Insurers in a Travis County district court, asking that the trial court hold the Commission in contempt and order that all hospitals be reimbursed at what the Hospitals claimed to be the standard in 1992—at between 85% and 100% of their billed charges.⁷ The SOAH proceedings *102 were accordingly abated. The trial court granted summary judgment in the Commission’s and Insurers’ favor, ruling that the reimbursement decisions would be governed by the statutory standards now laid out in Texas Labor Code section 413.011(d).⁸

The Administrative Rules

This case revolves around the statute and the Commission’s application of its rules implementing both its medical service fee guidelines and the dispute-resolution process. The Commission rule governing “Use of the Fee Guidelines” provides that:

(a) The ground rules and the medical service standards and limitations as established by the fee guidelines shall be used to properly calculate the payments due to the health care providers

....

(c) Reimbursement for services not identified in an established fee guideline shall be reimbursed at fair and reasonable rates as described in the Texas Workers’ Compensation Act, § 413.011 until such period that specific fee guidelines are established by the commission.

section 413.011’s definition of “fair and reasonable” compensation. Although all parties agree as an abstract principle that reimbursement must be made at “fair and reasonable” rates, they cannot agree on a definition for that criterion.

Contentions of the Parties

The Hospitals argue that, because section 413.011(d)’s indication that reimbursement shall not exceed the fee charged for similar services to similar patients, the fees provided for in the Hospitals’ managed care contracts, in effect, constitute a cap on the amount to be reimbursed.

*103 DISCUSSION

The Emergency Rule

This Court has held that, under the old Railroad Commission Act, services rendered under an invalid rate will be recompensed at the validly enacted rate in place at the time the invalid rate was adopted. Genzer v. Fillip, 134 S.W.2d 730, 733 (Tex.Civ.App.-Austin 1939, writ dism’d) (effect of invalidated statute). Based primarily on this authority, the Hospitals contend that our order invalidating the 1992 Fee Guideline automatically reinstated the reimbursement scheme in effect immediately before its adoption. At that time, the 1991 Emergency Fee Guideline had already expired by its terms. The Commission had continued, however, to reimburse at least some hospitals at the rates provided for in the 1991 Emergency Fee Guideline. Accordingly, the Hospitals conclude that they are entitled to reimbursement under the 1991 Emergency Fee Guideline because it was, for practical purposes, the applicable standard at the time of the 1992 Fee Guideline’s adoption.

The Insurers respond that, between the expiration of the 1991 Emergency Fee Guideline and the adoption of the 1992 Fee Guideline, no valid Fee Guideline governed reimbursements. Consequently, according to the Insurers, because we must return to the situation as it existed at the time of the 1992 Fee Guideline’s adoption, any reimbursement determinations must be made on a case-by-case basis pursuant to Rule 134.1 as it interprets section 413.011(d) of the labor code.

We agree that the appropriate remedy following the invalidation of an administrative rule under the APA is to return to the last validly adopted legal standard existing at the time of the rule’s promulgation. As we reasoned in Gulf Railway, this rule is appropriate because it prevents agencies from retroactively imposing regulations not originally adopted in compliance with the APA’s requirements. section 413.011(d)’s definition of “fair and reasonable” fee guidelines as implemented by Rule 134.1 for case-by-case determinations.

The Hospitals do not contest Rule 134.1’s validity or applicability to these reimbursements. Rather, the Hospitals attempt to bolster their argument by arguing that, by denying all additional-reimbursement requests to this point, the Commission has engaged in “retroactive rulemaking.” Agency rules and rates are set for the future, and not for the past. Railroad Comm’n v. WBD Oil & Gas, 104 S.W.3d 69, 77–78 (Tex.2003) (contested case proceedings serve different purpose from rulemaking and must be reviewed according to the applicable APA procedural provisions).

Because no formally adopted fee guideline existed at the time the 1992 Fee Guideline was enacted, we overrule the Hospitals’ issue. We will now turn to the parameters of “fair and reasonable” reimbursement in dealing with the Insurers’ contentions.

The Managed Care Contracts

The trial court held that the provisions of Tex. Lab.Code Ann. § 413.011(d). The Insurers contend that, because our *105 decision invalidated the 1992 Fee Guideline on the basis of a procedural defect rather than a substantive challenge under the statute, no judicial parameters have yet been set on the reimbursement review proceedings. Further, because the reimbursements are to be determined on a case-by-case basis under the statutory guidelines, the Insurers conclude that only these managed care contracts, which provide similar services to those provided under the workers’ compensation system, can establish the state of the market for similar services during the period in which the 1992 Fee Guideline was being applied to the Hospitals’ claims. The Hospitals respond that the contracts are irrelevant to any case-by-case determination because they are based on a different cost model and economic incentives from workers’ compensation reimbursements.

Because the managed care contracts entered into by the Hospitals reveal the amount paid by certain classes of individuals under certain economic circumstances for specific medical services, we cannot say that they are irrelevant. In light of Tex. Lab.Code Ann. § 413.011(d). Thus, any reimbursement decision made by the Commission under Rule 413.1 must take into account all of the statutory factors, keeping in mind that although the managed care contracts may be evidence of the amount that would otherwise have been charged, they do not as a matter of law set a ceiling on reimbursement.

The Insurers make much of the assertion that our earlier decision was “only procedural,” because the Hospitals abandoned their “substantive” claims. Our opinion, however, explicitly states that the 1992 Fee Guideline was invalidated because it did not adequately describe the Commission’s reasons for abandoning the former fee-for-service model and adopting the statewide per diem model. In commenting on the adoption order for the 1992 Fee Guideline, we stated that:

The Commission has decided to reimburse very different medical services at the same rate because they fall into the same broad category. The Commission cannot justify such an action without providing, or more thoroughly describing, the data it used. A terse reference to “empirical billing” data is not enough to provide a factual basis for the rule. The brief comments offered by the Commission *106 do not even begin to explain the data or reasoning that compel the conclusion that a few per diem rates can cover very different medical procedures in the many and diverse communities of Texas.

National Ass’n of Indep. Ins., 925 S.W.2d at 670–71. Therefore, when a rule adopting a new policy is declared invalid, that policy cannot be applied until a new, properly adopted rule becomes effective. In this case, the Hospitals’ “fair and reasonable” reimbursements must be predicated on a fee-for-service model rather than a per diem basis.

In their respective motions for summary judgment on the declaratory judgment action, the Hospitals asked the trial court to declare that the same reimbursement standards prior to the adoption of the 1992 Fee Guideline control, while the Insurers asked the trial court to declare that the statutory provisions of section 413.011(d) must be interpreted in light of Commission policy as it existed at the time of the 1992 Fee Guideline: on a fee-for-service basis. Although the Hospitals’ managed care contracts are relevant to the reimbursement determinations, they are not by themselves a cap on all reimbursement. To this point, the Hospitals’ requests for additional reimbursement have been denied because there was insufficient evidence to suggest that the Hospitals were entitled to additional funds. As the SOAH proceedings continue, the Hospitals’ right to reimbursement must be evaluated in light of the Commission’s 1992 policies. We overrule the Hospitals’ second issue.¹¹

*107 CONCLUSION

When a rule is invalidated based on the APA’s reasoned justification requirement, both its specific provisions and any concomitant policy changes revert to the standard in place at the time of the rule’s adoption. In this case, the determination of “fair and reasonable” reimbursement must be made under the statutory requirements of section 413.011(d) as provided for in Rule 314.1 in a manner appropriate to Commission policy in 1992. This means that reimbursement must be calculated on a fee-for-service basis taking into account both cost-savings and quality of care, and that the Hospitals’ managed care contracts, although relevant, do not per se constitute a cap on reimbursement. The trial court’s decision is affirmed.

APPENDIX

JAN P. PATTERSON, Justice, dissenting on motion for rehearing.

Because the reasoning underlying our resolution of the important issue presented by this appeal has implications for thousands of claims, and the original opinion unwittingly complicates the future proceedings in this case and others, I would grant the appellees’ motion for rehearing. The Court’s opinion acknowledges the critical procedural posture of this case: The administrative law judge abated the test cases—while discovery issues were being litigated—because the Hospitals filed a suit for declaratory judgment. It was this discovery dispute that spawned in part this litigation.

The unassailable narrow ground for decision in this case, as appellees correctly observe, is that rule 134.1(c) requires that *113 reimbursement decisions be governed by the basic statutory standards set out in Texas Labor Code section 413.011(d). This coincides with what the Hospitals and the Commission agreed to in the 1997 compromise settlement agreement when the Hospitals nonsuited and dismissed with prejudice their claims against the Commission. Any finer parsing of the standard is premature and must await discovery and completed administrative hearings. Accordingly, I would grant appellees’ motion for rehearing to clarify the issues and resolve this dispute. Because the Court does not, I respectfully dissent.