Vista Medical Center Hospital Vista Healthcare, Inc. And Surgery Specialty Hospital, Inc.// State Office of Risk Management v. State Office of Risk Management// Vista Medical Center Hospital Vista Healthcare, Inc. And Surgery Specialty Hospital, Inc.

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-17-00352-CV

Appellants, Vista Medical Center Hospital;
Vista Healthcare, Inc.; and Surgery Specialty Hospital, Inc.//
Cross-Appellant, State Office of Risk Management,

v.

Appellee, State Office of Risk Management//
Cross-Appellees, Vista Medical Center Hospital;
Vista Healthcare, Inc.; and Surgery Specialty Hospital, Inc.

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 419TH JUDICIAL DISTRICT
NO. D-1-GN-14-002807, HONORABLE KARIN CRUMP, JUDGE PRESIDING

MEMORANDUM OPINION

These cross-appeals arise from a dispute over the proper reimbursement, under Texas

workers’ compensation statutes, for medical services provided by affiliates and subsidiaries of Vista

Healthcare, Inc., to injured employees covered by policies issued by the State Office of Risk

Management (SORM). The district court rendered judgment affirming 23 administrative orders

requiring SORM to make additional payments to Vista. The parties raise various challenges to the

judgment and its underlying orders. We will affirm the judgment as amended herein.

BACKGROUND

This is the latest in a long-running series of suits between Vista and carriers of Texas

workers’ compensation policies over the reimbursement of covered medical expenses. In 1989, the
Legislature required the Workers’ Compensation Commission to begin promulgating reimbursement

guidelines to ensure injured employees would have access to quality medical care without

unnecessary expense to insurance carriers. See Act of Dec. 13, 1989, 71st Leg., 2d C.S., ch. 1,

§ 8.01, 1989 Tex. Gen. Laws 1, 68 (current version at Tex. Lab. Code § 413.011). Once the

Commission adopts a guideline addressing a certain type of medical care, insurance carriers must

compensate the provider of that care in a manner consistent with the guideline. Tex. Lab. Code

§ 413.016(b). If no fee guideline or contract provision applies, the Commission requires carriers to

provide a “fair and reasonable reimbursement amount” for the care provided. 28 Tex. Admin. Code

§ 134.1(e)(3). Reimbursement is fair and reasonable if it is sufficient “to ensure the quality of

medical care and achieve effective medical cost control,” and “to ensure that similar procedures

provided in similar circumstances receive similar reimbursement.” See, respectively, Tex. Lab.

Code § 413.011(d); 28 Tex. Admin. Code § 134.1(f).

From 2003 to 2007, Vista provided certain outpatient surgical services to injured

employees covered by SORM’s workers’ compensation policies. Vista submitted 23 claims seeking

reimbursement for these services, but there was no applicable fee guideline at the time and the

parties could not agree on fair and reasonable reimbursement. To calculate reimbursement of

outpatient providers like Vista, SORM had developed a methodology based on a 1997 guideline

for acute inpatient care, resulting in reimbursement of $1,453.40 per claim for the services at issue

here. Vista insisted on full reimbursement at its higher billed rate, but SORM refused to remit

the difference.

Vista filed a fee dispute with the Division of Workers’ Compensation, proposing

70% of its billed rate as fair and reasonable compensation for the services rendered. SORM

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maintained its position that the reimbursement already remitted under its own rate was sufficient,

and the Division concluded Vista had not satisfied its burden to show additional reimbursement due.

Vista appealed the decision to the State Office of Administrative Hearings. See Tex.

Lab. Code § 413.0311(a)–(c), (e). By this time, the Workers’ Compensation Commission had

adopted a fee guideline to address the outpatient services at issue here. See 33 Tex. Reg. 400,

400–25 (January 11, 2008). That guideline took effect on March 1, 2008, and, if applied retroactively,

would require SORM to provide additional compensation for Vista’s services at a rate even higher

than Vista had originally proposed as fair and reasonable.

The parties presented arguments and evidence to two administrative law judges

(ALJs) who ultimately used the 2008 guideline to conclude that SORM’s reimbursement for Vista’s

services did not satisfy the fair-and-reasonable standard. They ordered SORM to provide additional

reimbursement in each of the 23 disputed claims “together with all interest as required by law.” See

Tex. Lab. Code § 413.019 (allowing award of prejudgment interest). SORM then sought review of

the order in district court, which rendered final judgment affirming SOAH’s order and the award of

additional reimbursement. The district court, however, denied the prejudgment interest Vista had

been awarded in the administrative order. The parties perfected timely cross-appeals.

DISCUSSION

SORM’s Challenge

SORM asks this Court to reverse the district court’s final judgment and render a

take-nothing judgment against Vista. SORM recognizes that we may do so only “if substantial

rights of the appellant have been prejudiced because the administrative findings, inferences,

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conclusions, or decisions are: (a) in violation of a constitutional or statutory provision; (b) in excess

of the agency’s statutory authority; (c) made through unlawful procedure; (d) affected by other error

of law; (e) not reasonably supported by substantial evidence considering the reliable and probative

evidence in the record as a whole; or (f) arbitrary or capricious or characterized by abuse of

discretion or clearly unwarranted exercise of discretion.” Tex. Gov’t Code § 2001.174.

Evidence regarding SORM’s reimbursement model

SORM first argues there is insufficient evidence to support the district court’s

conclusion that Vista had satisfied its threshold burden of proving SORM’s original reimbursement

for the outpatient services unfair or unreasonable. To obtain relief from SOAH, Vista had the burden

to demonstrate by a preponderance of the evidence that SORM’s reimbursement was insufficient

and that Vista’s proposed methodology would result in fair and reasonable reimbursement. See Vista

Healthcare, Inc. v. Texas Mut. Ins. Co., 324 S.W.3d 264, 268 (Tex. App.—Austin 2010, pet.

denied). SOAH concluded Vista had satisfied this burden, and the district court affirmed that

determination under the substantial-evidence standard of review. See Vista Med. Ctr. Hosp. v.

Texas Mut. Ins. Co., 416 S.W.3d 11, 18 (Tex. App.—Austin 2013, no pet.). Thus, we must

determine whether the record includes substantial evidence that Vista had met its burden.

“Although substantial evidence is more than a mere scintilla, the evidence in the

record actually may preponderate against the decision of the agency and nonetheless amount to

substantial evidence.” Texas Health Facilities Comm’n v. Charter Med.-Dall., Inc., 665 S.W.2d

446, 452 (Tex. 1984) (citing Lewis v. Metropolitan Sav. & Loan Ass’n, 550 S.W.2d 11, 13 (Tex.

1977); Alamo Express, Inc. v. Union City Transfer, 309 S.W.2d 815, 823 (Tex. 1958)). “The true

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test is not whether the agency reached the correct conclusion, but whether some reasonable basis

exists in the record for the action taken by the agency.” Id. (citing Gerst v. Nixon, 411 S.W.2d 350,

354 (Tex. 1966)). “A reviewing court is not bound by the reasons given by an agency in its order,

provided there is a valid basis for the action taken by the agency.” Id. (citing Railroad Comm’n v.

City of Austin, 524 S.W.2d 262, 279 (Tex.1975)). “Thus, the agency’s action will be sustained if the

evidence is such that reasonable minds could have reached the conclusion that the agency must

have reached in order to justify its action.” Id. (citing Suburban Util. Corp. v. Public Util. Comm’n,

652 S.W.2d 358, 364 (Tex.1983)).

Vista’s evidence includes records revealing that SORM’s proposed reimbursement

was less than half the billed rate, was inconsistent with reimbursement provided by other patients

and their carriers, and did not cover the actual cost of performing most of the procedures at issue.

These facts are not alone sufficient to demonstrate the fairness or unfairness of the reimbursement

rate, but they are relevant considerations. See In re North Cypress Med. Ctr. Operating Co., ___

S.W.3d ___, ___, No. 16-0851, 2018 WL 1974376, at *6 (Tex. Apr. 27, 2018) (providing non-

exclusive list of factors); Haygood v. De Escabedo, 356 S.W.3d 390, 393 (Tex. 2011) (explaining

that reasonableness of hospital’s charges can no longer be evaluated “based on the provider’s costs

and profit margin” alone). Indeed, a rate that does not cover actual costs seems unlikely to ensure

the availability of quality medical care to individuals covered by these policies, as is required by the

statute. Tex. Lab. Code § 413.011(d).

Vista also provided expert testimony that SORM’s reimbursement model was derived

from a 1997 per-diem rate used for reimbursement of inpatient care. See 28 Tex. Admin. Code

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§ 134.401 (1997). Yet the Commission has explained why inpatient rates generally cannot be used

to adequately reimburse providers for outpatient surgical care:

The underlying reasons for provision of services in an inpatient setting are
significantly different from those supporting a hospital outpatient or ambulatory
surgical center option. . . . [The inpatient] per diem rate was designed to reflect the
average reimbursement across an entire length of stay and is not weighted to reflect
the services provided on any particular day. Moreover, the per diem [rate] does not
directly relate to the cost of surgery and is a blend of surgical and medical services
averaged over a length of a surgical stay.

29 Tex. Reg. 4191, 4199 (Apr. 30, 2004). In other words, reimbursement based on a generic

inpatient per-diem rate will often result in undercompensation of outpatient providers. Moreover,

the inpatient rate SORM used as the basis for its methodology has since been repealed, in part

because it did not adjust with inflation. See 33 Tex. Reg. 5319, 5319 (July 4, 2008). In short,

SORM was relying on a fixed per-diem rate designed to compensate inpatient providers in 1997 to

reimburse outpatient providers in 2007. We agree with the district court that substantial evidence

supports SOAH’s conclusion that SORM’s original reimbursement rate was not fair or reasonable.

Evidence regarding Vista’s methodology

We now turn to Vista’s second burden—to propose a reimbursement rate that satisfies

the fair-and-reasonable standard. As a predicate matter, SORM argues that the ALJs erred by

allowing Vista to propose a reimbursement methodology that had not first been considered by the

Division, and that the district court erred by affirming the resulting final decision. As SORM

describes it, the district court “permitted Vista to change the issue of this dispute while already on

appeal.” But the “issue of this dispute” is whether SORM provided fair and reasonable compensation

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for Vista’s outpatient services. That question was addressed first by the Division and then by the

ALJs at SOAH. The fact that the ALJs considered additional evidence and arrived at a different

conclusion does not change the nature of the dispute. It only reflects their statutory mandate to

conduct a de novo review of the matter. See Tex. Gov’t Code §§ 2001.051, .058; Tex. Lab. Code

§§ 410.163–.168, 413.0312(e); Vista, 416 S.W.3d at 17–18.

Nor did the ALJs err or act arbitrarily by considering the now-applicable fee

guideline as part of the calculation of fair and reasonable reimbursement. See 28 Tex. Admin. Code

§ 134.403. SORM argues that because the applicable guideline was not promulgated until 2008, and

because that guideline is expressly limited to services provided on or after March 1, 2008, id., the

ALJs should not have applied that guideline to the services at issue here, which were provided from

2003 through 2007. But SORM mischaracterizes the final decision, which did not apply the

2008 guideline to these 23 claims. The ALJs instead used the rationale and evidence underlying

the promulgation of that guideline to inform their analysis. See 33 Tex. Reg. 400, 400–25

(January 11, 2008). Of particular import was the fact that much of the market data used in the

promulgation process were from the very years at issue here. Id. The Commission published a

lengthy discussion of its research and reasoning in the preamble to the guideline, and the Legislature

expressly authorizes judges to consider a preamble when construing statutory and regulatory text,

like the “fair and reasonable” clause at issue here. See Tex. Gov’t Code § 311.023 (allowing use of

preamble when construing statutes); Rodriguez v. Service Lloyds Ins. Co., 997 S.W.2d 248, 254

(Tex. 1999) (“We construe administrative rules, which have the same force as statutes, in the same

manner as statutes.”).

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 We find equally unpersuasive the argument that in absence of an existing guideline

“it was impossible for SORM to have known what the Division’s future policy judgment would have

been” and thus that it is unfairly prejudicial to include the 2008 guideline in the reimbursement

analysis. Although it is true that SORM could not have foreseen the applicable fee guideline itself,

SORM nevertheless could have recognized that its own model would not satisfy the statutory

standard. In 2001, the Legislature clarified that all fee guidelines must rely on “the most current

reimbursement methodologies, models and values or weights used by the federal Centers for

Medicare and Medicaid Services, including applicable payment policies relating to coding, billing,

and reporting . . . .” Tex. Lab. Code § 413.011(a). Until an applicable guideline was promulgated,

the Commission required carriers to provide fair and reasonable compensation, which in turn was

defined in terms of the same standards set forth in section 413.011. See 28 Tex. Admin. Code

§ 134.1 (2003). The Commission has repeatedly emphasized that “similar services provided in

similar circumstances [must] receive similar reimbursement.” Id. § 133.304. And by 2004, the

Commission had explained at some length why inpatient rates cannot be used as a basis for

calculating fair reimbursement of outpatient services. 29 Tex. Reg. 4191, 4199 (Apr. 30, 2004).

Yet notwithstanding this guidance—all of which suggested SORM’s model would

not result in fair compensation for Vista’s services—SORM continued to advocate its increasingly

outdated inpatient methodology for the disputed reimbursement. And the ALJs ultimately found the

model had resulted in undercompensation of over $40,000 for these 23 claims. Thus, at an average

additional reimbursement of $1,730 per claim, SORM had paid Vista less than half of the reasonable

rate calculated by the ALJs. So although we agree that a revision to SORM’s methodology under

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existing guidance would probably not have resulted in the same reimbursement derived from the

2008 rule, such a revision might have led SORM to provide additional reimbursement sufficient to

satisfy the statutory standard. Its failure to do so is the result of its own decision not to incorporate

existing guidance into its methodology—not the result of any shortcoming on the part of the

Commission or the ALJs.

Because this record reflects a reasonable basis for SOAH’s final decision and its order

requiring SORM to provide additional reimbursement to Vista, and because SORM has not

identified any error of law or arbitrary reasoning sufficient to warrant reversal, the district court was

correct to affirm the order. Tex. Gov’t Code § 2001.174. We overrule SORM’s challenges to the

district court’s final judgment.

Vista’s Challenge

In its sole issue on cross-appeal, Vista contends the district court erred by failing to

award prejudgment interest. We agree. Section 413.019 of the Labor Code provides, “Interest on

an unpaid fee or charge that is consistent with the fee guidelines accrues at the rate provided by

Section 401.023 beginning on the 60th day after the date the health care provider submits the bill to

an insurance carrier until the date the bill is paid.” Tex. Lab. Code § 413.019(a) (emphasis added).

There was no fee guideline applicable to the unpaid fees and charges at issue here, but that alone

does not render these fees and charges inconsistent with any guideline. Courts must interpret

statutory provisions in light of the “statutory scheme, taken as a whole.” Texas Workers’ Comp.

Comm’n v. Garcia, 893 S.W.2d 504, 523 (Tex. 1995) (citations and emphasis omitted). These fees

and charges were determined under the “fair and reasonable” standard set forth in Rule 134.1. See

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28 Tex. Admin. Code § 134.1. That same rule requires “fair and reasonable reimbursement [to] be

consistent with” Section 413.011 of the Labor Code, which governs all fee guidelines. See id. §

134.1(f)(1). Therefore, given our conclusion that the reimbursement in the final judgment is fair and

reasonable under Rule 134.1, that reimbursement is also “consistent with the fee guidelines” such

that Vista is entitled to prejudgment interest beginning 60 days after Vista billed SORM for each

claim. We sustain Vista’s challenge and amend the district court’s judgment to award the

prejudgment interest required by the statute. See Tex. R. App. P. 43.2(b).

CONCLUSION

Having addressed the parties’ arguments on appeal, we affirm the district court’s

final judgment as amended herein.

_________________________________________
Jeff Rose, Chief Justice

Before Chief Justice Rose, Justices Pemberton and Goodwin

Modified, and as Modified, Affirmed

Filed: August 22, 2018

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