Summary
In All Saints, that remedy was provided through the medical dispute resolution procedures under section 413.031 of the labor code, whereby the hospitals had the right to seek adjudication of reimbursement claims for which insurers “denied payment or paid a reduced amount for the medical service rendered,” first within the agency, then through a contested-case hearing before SOAH if still aggrieved, with a right to judicial review thereafter.
Summary of this case from Texas Health & Human Servs. Comm'n v. El Paso Cnty. Hosp. Dist.Opinion
No. 03-02-00803-CV.
Filed: July 24, 2003. Dissent on Overruling of Rehearing December 4, 2003.
Appeal from the District Court of Travis County, 200th Judicial District No. GN201300, Honorable Lora J. Livingston, Judge Presiding.
Affirmed.
C. Dean Davis, Paul Matthew O'Neil, Davis Davis, P.C., Austin, Gregory P. Blaies, Grant D. Blaies, Blaies Hightower, LLP, Fort Worth, Carl D. Bresch, San Antonio, Michael L. Eagan, Dallas, for Appellants.
Dewey E. Helmcamp, III, Assistant Attorney General Administrative Law Division, Austin, for Texas Workers' Compensation Commission.
Dudley D. McCalla, Heath, Davis McCalla, PC, Mary Nichols, Texas Mutual Insurance Company, Austin, for Texas Mutual Ins. 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.
P.M. Schenkkan, Thomas B. Hudson, Jr., William G. Christian, Christopher H. Trickey, Graves, Dougherty, Hearon Moody, PC, Austin, for Liberty Mutual Ins. Co. and Employers Ins. Co. of Wausau.
Jane Lipscomb Stone, James M. Loughlin, Wilson Grosenheider Moore Jacobs, LLP, Austin, for Continental Casualty Company, et al.
Before Justices KIDD, YEAKEL and PATTERSON.
OPINION
All Saints Health System and other hospitals ("the Hospitals") 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.
The complete list of parties can be found in the appendix to this opinion.
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. 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 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 Worker's 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; 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 Texas Workers' Comp. Comm'n v. Garcia, 893 S.W.2d 504, 513, 521 (Tex. 1995). The standard for establishing the new fee guidelines gave the Commission the "daunting task" of balancing all of the policy goals written into the new workers' compensation act. See Patient Advocates v. Workers' Comp. Comm'n, 80 S.W.3d 66, 72 (Tex.App.-Austin 2002, pet. granted).
The Legislature codified the workers' compensation act into the Labor Code in 1993. Act of May 22, 1993, 73d Leg., R.S., ch. 269, § 1, 1993 Tex. Gen. Laws 987 (codified at Tex. Lab. Code Ann. §§ 401.001-417.004 (West 1996 Supp. 2003)). Prior to the codification, the act had been located at Tex. Rev. Civ. Stat. Ann. arts 8306-8309i.
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.
Tex. Lab. Code Ann. § 413.011(d) (West 1996); see Act of Dec. 3, 1989, 71st Leg., 2d C.S., ch. 1, 1989 Tex. Gen. Laws 1, 70-72 (amended 1993) (codified as amended at Tex. Lab. Code Ann. § 413.011 (West 1996)). Thus, the statute gives the Commission the burden of designing a fee guideline that provides fair and reasonable reimbursements, ensures the quality of medical care, and simultaneously achieves effective medical cost control. See 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.
Because section 413.011(d) is essentially identical to section 413.011(b) as originally codified, we will refer to the current version for convenience.
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 28 Tex. Admin. Code § 134.1 (2003)). Despite this rule, the Commission apparently continued to make fee-for-service reimbursements based on the 1991 Emergency Fee Guideline. Reimbursements were made in the absence of a controlling fee guideline for more than a year, until the Commission adopted a completely different type of fee guideline in 1992. See 17 Tex. Reg. 4949 (1992) ("the 1992 Fee Guideline"). While earlier guidelines had reimbursed the Hospitals at a fixed percentage of their billed fee-for-service, the 1992 Fee Guideline divided medical service into broad categories, such as surgical or intensive care, and assigned a fixed per diem reimbursement for any treatment in these categories at any hospital in the state. Also, by contrast to the earlier fee guidelines, the 1992 Fee Guideline did not take into account geographic differences in the cost and quality of medical services throughout the state. See Texas Hosp. Ass'n v. Texas Workers' Comp. Comm'n, 911 S.W.2d 884, 886 (Tex.App.-Austin 1995, writ denied). Several hospitals challenged the 1992 Fee Guideline on procedural and substantive grounds. Because the Commission failed to justify adequately its adoption of a flat per diem reimbursement schedule, this Court invalidated the rule as failing to meet the reasoned justification requirement. Id. at 888; see Tex. Gov't Code Ann. § 2001.033(a) (West 2000) ("the APA"); see also 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.
Except for the references to the uncodified statute, the cited sections of Rule 134.1 are not substantively different from those in the original Rule 134.1. For convenience, we will continue to reference the version contained in the current edition of the administrative code.
The Hospitals sought, but did not obtain, an injunction preventing enforcement of the 1992 Fee Guideline pending the outcome of the declaratory judgment challenge.
The reasoned justification requirement under which the 1992 Fee Guideline was adopted has been amended. See Act of Jan. 18, 1999, 76th Leg., R.S., ch. 558, § 2, 1999 Tex. Gen. Laws 9, 3090 (current version at Tex. Gov't Code Ann. § 2001.033 (West 2000). The revised statute does not materially change reasoned justification analysis. Reliant Energy v. Public Util. Comm'n, 62 S.W.3d 833, 840 (Tex.App.-Austin 2001, no pet.).
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 labor code section 413.011. Based on this agreement, the Hospitals nonsuited their case and filed their claims with the Commission's Medical Review Division under the authority 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. Tex. Lab. Code Ann. § 413.002 (West 1996). The Medical Review Division evaluates claims based on evidence submitted by the hospital claiming additional reimbursement. See Tex. Admin. Code § 133.307(n) (2003). Under the parties' settlement agreement, the contested reimbursement claims were to be reviewed by the Medical Review Division. Beginning in 1998, the division began issuing decisions denying individual hospital-reimbursement claims. Each decision stated that the hospital in question had "failed to provide sufficient documentation in accordance with the criteria of Texas Labor Code [section] 413.011(b) to support a need for a change in the reimbursement." While some hospitals abandoned their claims at this point, others requested a de novo evidentiary hearing at the State Office of Administrative Hearings (SOAH) before an Administrative Law Judge (ALJ). The ALJ consolidated fifty-three of the Hospitals' additional reimbursement claims in an attempt to resolve the threshold legal issues, including determination of the legal standards that would properly govern the adequacy of reimbursement. In December 1999, the ALJ determined, among other things, that reimbursement would be governed by the statutory standards contained in 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. The SOAH proceedings 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).
The same proceedings were also to determine what limitations period would apply to the Hospitals' claims. These two questions were severed into two different causes, and this Court denied the Hospitals' request for writ of mandamus to reverse the trial court's severance ruling. In re All Saints' Health Sys., et al., No. 03-02-00229CV (Tex.App.-Austin May 16, 2002) (orig. proceeding). This Court subsequently decided the limitations period issue in Hospitals Hospital Systems v. Continental Casualty Co., No. 03-02-00429-CV, 2003 Tex. App. LEXIS 4609 (Austin May 30, 2003, no pet. h.).
In the section of their appellate brief headed "Prayer," the Hospitals apparently request a writ of mandamus. Mandamus will issue only when there is no other adequate remedy at law. CSR Ltd. v. Link, 925 S.W.2d 591, 596 (Tex. 1996). This appeal itself and the administrative process provided by the Commission constitute a remedy at law. See Employees Ret. Sys. v. McDonald, 551 S.W.2d 534, 536 (Tex.Civ.App.-Austin 1977, writ ref'd n.r.e.) (availability of administrative remedies precludes mandamus). This Court would have no jurisdiction to issue a mandamus under these facts.
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
. . . .
(b) 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.
28 Tex. Admin. Code § 134.1(a), (c) (emphasis added). Thus, Rule 134.1 provides, in effect, that all cost determinations regarding medical fee reimbursements, whether integrated into the fee guideline adoption process or determined on a case-by-case basis, will be decided according to 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 provides that reimbursement will only be made pursuant to a validly promulgated fee guideline, these reimbursement determinations can only be made under the last valid fee guideline in place before the adoption of the invalidated 1992 Fee Guideline. At the time the 1992 Fee Guideline was adopted, the Commission was issuing reimbursements based on the already expired 1991 Emergency Fee Guideline. The Hospitals argue that the result of our opinion invalidating the 1992 Fee Guideline is to reinstate the 1991 Emergency Fee Guideline as the governing standard for the reimbursement decisions at issue. In response, the Insurers contend that it is appropriate to evaluate each reimbursement claim separately under the fee guideline statute as provided for by the Commission's rules. Additionally, the Insurers suggest that, under 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.
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. Gulf, C. S. F. Ry. Co. v. American Sugar Ref. Co., 130 S.W.2d 1030, 1034 (Tex.Civ.App.-Austin 1939, no writ); see also In re Johnson, 554 S.W.2d 775, 787 (Tex.App.-Corpus Christi 1977), aff'd, 569 S.W.2d 883 (Tex. 1978) (invalidated statute "leaves the question that it purports to settle just as it was prior to its ineffectual enactment"); 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. 130 S.W.2d at 1034. However, we also agree with the Insurers that, at the time the 1992 Fee Guideline was adopted, no validly enacted fee guideline was in place. The 1991 Emergency Fee Guideline had lapsed by its own terms. Emergency Rules may only be adopted for 120 days and renewed again for no longer than 60 days. Tex. Gov't Code Ann. § 2001.034(c) (West 2000). This rule prevents administrative agencies from using the less stringent requirements for adopting an emergency rule and then prolonging the application of that rule ad infinitum. See id. § 2001.034(b) (identical rule may be adopted through regular notice and comment procedures after emergency rule expires). As this Court held in Methodist Hospitals, from the time the 1991 Emergency Fee Guideline expired, there existed no fee guideline. 874 S.W.2d at 147. However, a legal standard for evaluating hospital reimbursements did exist at the time the 1992 fee guideline was adopted — Rule 134.1. Rule 134.1 calls for a case-by-case determination of "fair and reasonable" reimbursement for cases in which there is no controlling hospital fee guideline. Therefore, the result our 1995 decision was that each hospital reimbursement should be evaluated according to section 413.011(d)'s definition of "fair and reasonable" fee guidelines as implemented by Rule 134.1 for case-by-case determinations.
No finding has been made that the 1991 Emergency Fee Guideline was uniformly applied during the period in question. The appellate record at most indicates that some hospitals received compensation at the rate provided for under the 1991 Emergency Fee Guideline when they applied for reimbursement at those rates.
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. Lone Star Gas Co., 656 S.W.2d 421, 425 (Tex. 1983). We agree with the Hospitals that the law prohibits agencies from making "a retrospective inquiry to determine whether a prior rate was reasonable and imposing a surcharge when rates were too low or a refund when rates were too high." State v. Public Util. Comm'n, 883 S.W.2d 190, 199 (Tex. 1994); see also Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 207-08 (1980) (agency could not adopt completely new regulatory framework to dispose retroactively of medicare compensation claims). However, the Commission has not adopted a retroactive rule in this case; rather, the Medical Review Division has consistently determined that the Hospitals have not provided sufficient evidence that they are entitled to supplemental reimbursement. Once a record is developed at SOAH and challenged at the district court, such determinations may present a case for substantial evidence review. However, there is no indication on this record that those decisions constitute the retroactive adoption of the invalidated 1992 Fee Guideline. To date, none of the contested case proceedings regarding the division's decisions has been finalized. We cannot evaluate the merits of the Hospitals' claims until they have exhausted their administrative remedies by completing the SOAH proceedings and properly bringing an administrative appeal for judicial review. See 16 Tex. Admin. Code § 133.307(p)(3) (2003); 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).
Although this is not a ratemaking case in the traditional sense, the Workers' Compensation Commission's role in determining the fee guidelines is analogous to the rate-setting functions of the Railroad Commission and the Public Utility Commission.
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 section 413.011(d) would govern the reimbursement amounts at issue. In the abated SOAH proceedings, the ALJ has already found that managed care beneficiaries constitute an equivalent economic income group to workers' compensation recipients. Focusing on section 413.011(d)'s requirement that the fee for services not exceed "the fee charged for similar treatment of an injured individual of an equivalent standard of living," the Insurers suggest that the managed care contracts entered into by the Hospitals will, in effect, act as a cap on the amount of additional reimbursement available. See Tex. Lab. Code Ann. § 413.011(d). The Insurers contend that, because our 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 section 413.011's provisions, such information will be important to the final reimbursement determinations. However, while we do not agree with the Hospitals that the managed care contracts are irrelevant, we reject the Insurers' argument that they are per se determinative. Workers' compensation reform was one of the most contentious issues ever addressed by the Texas Legislature, requiring most of a regular session and two special sessions. See Montford, Barber, Duncan, Foreword at 1-2. The statute as revised burdens the Commission with the difficult task of assuring adequate quality care while controlling overall medical costs. See Patient Advocates, 80 S.W.3d at 72. The reimbursement fee guidelines, and by extension any reimbursement decision made in the absence of a validly enacted fee guideline, must take all of the statutory requirements into account. Thus, to be "fair and reasonable" within the meaning of section 413.011(d), the Commission's reimbursement decisions must take into account all of the statutory factors, guaranteeing both cost control and quality of care. Section 413.011(d) does not specifically set managed care contracts as a cap on reimbursement. See Montford, Barber, Duncan at 8A-14. Instead, it states generically that the fees shall not exceed those charged based on similar services rendered to similarly situated individuals. See 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 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.
Texas Hosp. Ass'n, 911 S.W.2d at 888 (internal citations omitted). In short, our decision was predicated on our perception that the Commission had failed adequately to justify its decision to adopt the policy of applying a per diem fee guideline, as opposed to the fee-for-service guidelines used in the past. Thus, we invalidated not only the fee guideline, but also the policy of reimbursing claims on a per diem basis. Because our decision invalidated the per diem reimbursement model, we hold that the Commission must determine whether the Hospitals have received fair and reasonable reimbursement based on a fee-for-service model, as it would have done prior to the 1992 Fee Guideline's adoption. This is consistent with the purpose of the reasoned justification requirement, which serves to "provide meaningful public participation in the rulemaking procedure, to allow opponents of the rule to formulate specific challenges, and to ensure that the agency considers and analyzes a rule before adopting it." National Ass'n of Indep. Insurers v. Dep't of Ins., 925 S.W.2d 667, 670 (Tex. 1996). For the same reasons that an improperly adopted agency rate cannot be enforced retroactively, when an agency makes a policy change, the reasoned justification requirement ensures that no policy will be enacted without adequate consideration. See Motor Veh. Manufacturers Ass'n v. State Farm Mutual, 463 U.S. 29, 42 (1983); see also Gulf Ry., 130 S.W.2d at 1034. This does not mean that the policy can never be adopted, only that it will not be a valid policy until promulgated according to the APA's requirements. 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) control. Because section 413.011(d) applied at the time the 1992 Fee Guideline was adopted, the trial court's determination fulfilled both requests. However, for purposes of determining "fair and reasonable" reimbursement, the requirements 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.
The Insurers seek sanctions against the Hospitals' counsel, asserting that their appeal is "objectively frivolous," Tex.R.App.P. 45, and lacking in candor. Tex. Disciplinary R. Prof'l Conduct 3.03(a)(1), reprinted in Tex. Gov't Code Ann., tit. 2, subtit. G. app. A (West 1988). We will deny the request for sanctions.
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 ATTACHMENT 1 TO DOCKETING STATEMENT LIST OF APPELLANT HOSPITAL AND HOSPITAL SYSTEMS AND COUNSEL
Counsel for the following Hospitals and Hospital Systems:
C. Dean Davis State Bar No. 05464000 Paul Matthew O'Neil State Bar No. 00795955 Davis Davis, P.C. P.O. Box 1588 Austin, Texas 78767 Telephone: (512) 343-6248 Facsimile (512) 343-0121
All Saints Health System — Owns and/or operates: All Saints Episcopal Hospital/Fort Worth All Saints Episcopal Hospital/Cityview Baptist Health System — Owns and/or operates: Baptist Medical Center North Central Baptist Hospital Northeast Baptist Hospital St. Luke's Baptist Hospital Southeast Baptist Hospital Baylor Health Care System — Owns and/or operates: Baylor University Medical Center Baylor Medical Center at Grapevine Baylor University Medical Center at Richardson Baylor Medical Center at Irving Bexar County Hospital District D/B/A University Health System Hospital District — Owns and/or operates: University Hospital Christus Health (Formerly The Sisters of Charity of the Incarnate Word Health Care System) — Owns and/or operates: St. Elizabeth Hospital — Beaumont, TX St. John Hospital — Nassau Bay, TX St. Joseph Hospital — Houston, TX St. Joseph's Health System — Paris, TX St. Mary's Hospital — Port Arthur, tX Santa Rosa Health Care System — San Antonio, TX Schumpert Health System — Shreveport, LA Spohn Health System — Corpus Christi, TX Columbia/HCA Healthcare Corporation — Owns and operates hospitals in various states, through wholly-owned subsidiaries, joint-ventures and other business entities. The Texas hospitals include: Alice Physicians Surgeons Hospital also known as alice Regional Hospital) Alice Alvin Community Hospital Houston Bay Area Medical Center Corpus Christi Bayshore Medical Center Pasadena Beaumont Medical Surgical Hospital Beaumont (also know as Beaumont Medical Center) Bellair Medical Center Houston Brownwood Regional Medical Center Brownwood Columbia Clear Lake Medical Center Webster Columbia East Houston Medical Center Houston Columbia Fort Bend Medical Center Missouri City Columbia Gulf Coast Medical Center Wharton Columbia Mainland Medical Center Texas City Columbia Medical Arts Hospital of Dallas (Closed) Dallas Columbia Medical Center — Brazos College Station Columbia Medical Center of El Paso — East El Paso Columbia Medical Center of El Paso — West El Paso Columbia Medical Center at Lancaster Lancaster Columbia Medical Center of Lewisville Lewisville Columbia Medical Center of Plano Plano Columbia Medical Center of San Angelo San Angelo Columbia Medical Center of Terrell Terrell Columbia Medical City Dallas Hospital Dallas Columbia Metropolital Methodist Hospital San Antonio Columbia North Hills Hospital North Richaland Hills Columbia San Antonio Community Hospital San Antonio Columbia Specialty Hospital of Houston Houston Columbia Spring Branch Medical Center Houston Columbia Balley Regional Medical Center Brownsville Community Medical Center — Sherman Conroe Medical Center Conroe Dallas Southwest Medical Center Dallas Denton Regional Medical Center Denton De Tar Hospital Victoria Doctors Hospital — Airline Houston Doctors Hospital of Loredo Loredo Doctors Regional Medical Center Corpus Christi Katy Mecial Center Katy Kingwood Medical Center Kingwood Longview Regional Medical Center Longview Medical Center at Terrell Terrell Methodist Ambulatory Surgery Hospital San Antonio Navarro Regional Hospital Corsicana North Austin Medical Center (formerly known as Austin Diagnostic Hopsital) Austin North Bay Hospital Aransas Pass North Houston Medical Center (includes North Houston — Parkway campus) Houston North Central Mecial Center (formerly Medical Center of McKinney) (formerly North Texas Medical Center) McKinney Northeast Methodist Hospital San Antonio Northwest Regional Hospital Corpus Christi Panhandle Surgical Hospital Amarillo Plaza Medical Center — Fort Worth Fort Worth Rehabilitation Hospital of South Texas Corpus Christi Rio Grande Regional Hospital McAllen Rosewood Medical Center Houston Round Rock Medical Center Round Rock St. David's Medical Center Austin Sam Houston (closed S. Branch) Houston Silsbee Doctor's Hospital Silsbee South Austin Medical Center Austin Southwest Texas Methodist Hospital San Antonio Texas Orthopedic Hospital Houston Top's Specialty Hospital Houston Westbury Hospital Houston West Houston Medical Center Houston Woodland Heights Medical Center Houston Covenant Health System — Owns and/or operates: Methodist Hospital — Lubbock Methodist Hospital — Levelland St. Mary's of the Plains — Lubbock Dallas Specialty Hospital East Texas Mecial Center-Tyler — Owns and/or operates the main hospital in Tyler, Texas and 12 other facilities throughout East Texas. Hendrick Medical Center Hillcrest Baptist Medical Center Medical Arts Hospital Mercy Regional Medical Center Methodist Healthcare System — Owns and/or operates: The Methodist Hospital — Houston, TX San Jacinto Methodist Hospital — Baytown, TX Osteopathic Medical Center Of Texas Shannon Health System — Owns and/or operates: Shannon Medical Center d/b/a Shannon West Texas Memorial Hospital Texoma Medical Center Trinity Mother Frances Health System United Regional Health Care System — (Formerly Bethania Regional Health Care Center, Wichita General Hospital — Merged 10-15-97) Valley Baptist Medial Center
Counsel for the following Hospitals and Hospital Systems:
Gregory P. Blaies State Bar No. 02412650 Grant D. Blaies State Bar No. 00783669 Blaies Hightower, LLP 301 Commerce Street, Suite 1501 Fort Worth, Texas 76102 Telephone: (817) 334-0800 Facsimile: (817) 334-0574
Texas Health Resources, Inc. — Owns and Operates: Harris Continued Care Hospital Texas Health System, Inc. — Owns and/or operates and/or does business as: Presbyterian Hopsital — Winnsboro Presbyterian Hopsital — Kaufman Presbyterian Hopsital — Plano Harris Methodist Erath County Harris Methodist — Fort Worth Harris Methodist Northwest Harris Methodist H-E-B Harris Methodist Southwest St. Paul Medical Center Walls Regional Hospital
Counsel for the following Hospital System:
Carl D. Besch State Bar No. 02260000 GPM Life Building — North Tower 800 N.W. Loop 410, Suite 580 San Antonio, Texas 78216 Telephone: (210) 377-1000 Facsimile: (210) 377-1125
Accord Medical Management d/b/a Nix Health Care System
Counsel for the following Hopital:
Michael L. Eagan State Bar No. 06332600 11520 N. Central Expy., Suite 202 Dallas, Texas 75243 Telephone: (214) 221-4121 Facsimile: (214) 221-4123 (Telecopy)
Tomball Regional Hospital
ATTACHMENT 2 TO DOCKETING STATEMENT LIST OF APPELLEES AND COUNSEL
Appellees/Trial Court Plaintiffs:
Continental Casualty Company Texas Association of School Boards Risk Management Fund Mid-Century Insurance Co. Truck Insurance Exchange Farmers Insurance Exchange Argonaut Soputhwest Insurance Company Colonial Casualty Insurance Company City of San Antonio city of Houston Houston Independent School District Irving Independent School District Northside Independent School district KMart Corporations City of San Angelo City of El Paso Association Casualty Insurance Company Fire and Casualty Company Fire and Casualty Company of Connecticut Pacific Indemnity Insurance Company Security Insurance Company Security Insurance Company of Hartford
Counsel:
Jane Lipscomb Stone, Esq. State Bar No. 19295300 James M. Loughlin, Esq. State Bar No. 00795489 WILSON, GROSENHEIDER, MOORE JACOBS, P.O. Box 1584 Austin, Texas 78767-1584 Telephone: (512) 478-1657 Facsimile: (512) 478-9016and
W. Jon Grove, Esq. State Bar No. 05298200 LAW OFFICES OF HARRIS HARRIS 5300 Bee Cave Road Building 3, Suite 200 Austin, Texas 78746 Telephone: (512) 346-5533 Facsimile: (512) 346-2539
Appellees/Trial Court Defendant:
Texas Workers' Compensation Commission
Counsel:
Dewey Helmcamp, III State Bar No. 09389000 Assistant Attorney General OFFICE OF ATTORNEY GENERAL P.O. Box 12548, Capitol Station Austin, Texas 78711-2548 Telephone: (512) 475-4300 Facsimile: (512) 320-0167
Appellee/Trial Court Intervenor:
State Office of Risk Management
Cousel:
James A. Itkin State Bar No. 24032461 Assistant Attorney General Bradley D. McClellan State Bar No. 13395980 Assistant Attorney General Tort Litigation Division OFFICE OF THE ATTORNEY GENERAL P.O. Box 12548 Austin, Texas 78711-2548 Telephone: (512) 463-2197 Facsimile: (512) 463-2224
Appellees/Trial Court Intervenors:
ACE USA, and its memebers Ace American Lloyds Insurance Company Ace Fire Underwriters Insurance Company Ace Property and Casualty Company Century Reinsurance Company Westchester Fire Insurance Company Pacific Employers Insurance Company Industrial Underwriters Insurance Company Insurance Company of north America Ace Insurance Company of Texas Ace American Reinsurance Company Century Indemnity Company Bankers Standard Fire and Marine Company Bankers Standard Insurance Company Indemnity Insurance Company of North America Ace Indemnity Insurance Company
Counsel:
John D. Pringle State Bar No. 16330300 LAW OFFICES OF JOHN D. PRINGLE The Vaughn Building 807 Brazos, Suite 78701 Telephone: (512) 472-8742 Facsimile: (512) 472-8745
Appelle/Trial Court Intervenor:
Texas Mutual Insurance Company
Counsel:
Mary Nichols State Bar No. 01831600 TEXAS MUTUAL INSURANCE COMPANY 221 West 6th Street, Suite 300 Austin, Texas 78701 Telephone: (512) 433-2723 Facsimile: (512) 436-3214and
Dudley D. McCalla State Bar No. 13354000 HEALTH, DAVIS McCALLA, P.C. 200 Perry brooks Building Austin, Texas 78701 Telephone: (512) 478-5671 Facsimile: (512) 476-1451
Appellees/Trial Court Intervenors:
Liberty Mutual Insurance Company of Wausau
Counsel:
P.M. Schenkkan State Bar No. 17741500 GRAVES, DOUGHERTY, HEARON MOODY 515 Congress Avenue, Suite 2300 Austin, Texas 78701 Telephone: (512) 480-5600 Facsimile: (512) 478-1976
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 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.