Covenant Health System D/B/A Covenant Medical Center v. Dean Foods Company, a Certified Self-Insured ( 2011 )

NO. 07-09-0348-CV
IN THE COURT OF APPEALS
FOR THE SEVENTH DISTRICT OF TEXAS
AT AMARILLO
PANEL A
AUGUST 24, 2011
COVENANT HEALTH SYSTEM D/B/A COVENANT
MEDICAL CENTER, APPELLANT
V.
DEAN FOODS COMPANY, A CERTIFIED SELF-INSURED,
APPELLEE
FROM THE 72ND DISTRICT COURT OF LUBBOCK COUNTY;
NO. 2005-532,532; HONORABLE RUBEN REYES, JUDGE
Before CAMPBELL AND HANCOCK and PIRTLE, JJ.
MEMORANDUM OPINION
Appellant, Covenant Health System d/b/a Covenant Medical Center, appeals the
trial court's order granting the plea to the jurisdiction filed by Appellee, Dean Foods
Company, in a suit filed by an injured employee alleging bad faith and Insurance Code
violations in connection with the non-payment of workers' compensation benefits. In a
single issue, Covenant asserts the trial court erred in dismissing its claims related to the
non-payment of medical expenses for lack of subject matter jurisdiction. We reverse
and remand.
Background
Covenant intervened in an action filed by Daniel Jara, an employee of Dean
Foods, to recover its medical expenses incurred during Jara's treatment for a work-
related injury. On June 2, 2000, Jara injured his right knee while employed by Dean
Foods and underwent knee surgery. The injury was compensable under the Texas
Workers Compensation Act (Act).1 In April 2004, Jara underwent a second knee
operation at Covenant to treat a staph infection that developed in his right knee. As a
result, Jara incurred approximately $600,000 in medical expenses.
In July 2004, Covenant submitted Jara's medical bills to Dean Foods for
payment. Dean Foods's third party administrator, Crawford & Company (Crawford),
audited Covenant's bills for compliance with the Act's medical fee guidelines and
assessed deductions. Of the $599,364.54 in medical expenses submitted by Covenant,
Crawford concluded $301,928.31 was payable. In August 2004, Covenant requested
that Dean Foods reconsider its decision and, in September, Dean Foods affirmed its
deductions and denied Covenant any payment asserting Jara's second knee operation
was not compensable under the Act.
1
See Texas Lab. Code Ann. §§ 401.001-506.002 (West 2006 and West Supp. 2010). For convenience,
provisions of the Texas Labor Code will be cited throughout the remainder of this opinion as "section
____" and "§ ____."
2
Jara disputed Dean Foods's determination that his injury was non-compensable
before the Texas Workers’ Compensation Commission (TWCC) and a Contested- Case
Hearing was held to determine whether Jara's compensable injury in June 2000
extended to his staph infection. Covenant joined as a subclaimant.2 In April 2005, the
Contested-Case Hearing Officer issued a Decision and Order wherein he determined
"[Jara's] compensable injury sustained on June 2, 2000 [did] not include [his] staph
infection." Jara appealed the Hearing Officer's Decision to the TWCC Appeals Panel
who affirmed the Hearing Officer's Decision.
In August 2005, Jara filed an action in Lubbock County District Court seeking
judicial review of the TWCC Appeals Panel's decision and asserted Dean Foods
breached its duties of good faith and fair dealing, and fair settlement practices in
violation of the Texas Insurance Code and Texas Deceptive Trade Practices Act
(judicial review suit). Covenant subsequently intervened seeking payment of its medical
bills and asserted claims against Dean Foods for bad faith and Insurance Code
violations. In July 2006, the trial court severed and abated all claims for bad faith and
Insurance Code violations, and assigned Cause Number 2005-532-049-A (bad faith
suit) to those claims. In January 2007, the trial court entered an order granting Dean
2
The Act states as follows:
A person may file a written claim with the division as a subclaimant if the person has:
(1) provided compensation, including health care provided by a health care insurer,
directly or indirectly, to or for an employee or legal beneficiary; and
(2) sought and been refused reimbursement from the insurance carrier.
§ 409.009.
3
Foods's Plea to the Jurisdiction in the judicial review suit and dismissed Covenant for
failure to exhaust its administrative remedies "without prejudice to the refiling of same."
In July 2007, Jara's judicial review suit was tried before a jury who found in Jara's
favor and the trial court entered a final judgment that Jara's compensable injury of June
2, 2000, included the staph infection. Neither party appealed and the trial court
reinstated the bad faith suit. In April 2008, Covenant intervened in the bad faith suit
again seeking to recover its medical expenses. In May 2009, Dean Foods moved to
dismiss Covenant from the bad faith suit for lack of subject matter jurisdiction, asserting
Covenant failed to exhaust its administrative remedies under the Act. The trial court
granted Dean Foods's Plea to the Jurisdiction.3 This appeal followed.
Discussion
Covenant asserts the trial court erred in dismissing its claims for lack of subject
matter jurisdiction due to a failure to exhaust its administrative remedies. In support,
Covenant contends that it was not required to join Jara's appeal of either the Hearing
Officer's or the TWCC Appeals Panel's decisions because it is a subclaimant and, as
such, its claim is derivative of Jara's claim. Covenant also asserts that it was not
required to undergo medical dispute resolution because Covenant did not dispute the
reduced amount that Dean Foods determined was payable, i.e., $301,928.31. Dean
3
Dean Foods's Traditional and No Evidence Motion for Summary Judgment and Plea to the Jurisdiction
Against Intervenor Covenant Health System d/b/a Covenant Medical Center also asserted that Covenant
lacked standing because there was no contractual or special relationship between Covenant and Dean
Foods that would impose a duty of good faith and fair dealing on Dean Foods. Because the trial court's
order granted only Dean Foods's Plea to the Jurisdiction and dismissed Covenant for lack of subject
matter jurisdiction, we decline Dean Foods's invitation to address whether it owed any duty of good faith
and fair dealing to Covenant in this appeal in the context of a challenge to Covenant's standing.
4
Foods, on the other hand, asserts that Covenant was required to join in Jara's appeals
to preserve its claim for medical expenses and, because Dean Foods offered to pay
less than the full amount requested by Covenant for Jara's treatment, Covenant's claim
was required to undergo medical dispute resolution.
I. Standard of Review
Subject matter jurisdiction is essential to the authority of a court to decide a case.
Tex. Ass'n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 443 (Tex. 1993). Whether
a trial court has subject matter jurisdiction is a question of law; Tex. Dep't of Parks &
Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004), that appellate courts review de
novo. Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 928 (Tex. 1998). When
conducting a de novo review, the appellate court exercises its own judgment and
redetermines each legal issue, giving no deference to the trial court's decision. Quick v.
City of Austin, 7 S.W.3d 109, 116 (Tex. 1999) (op. on reh'g). When a plea to the
jurisdiction challenges the pleadings, we determine if the pleader has alleged facts that
affirmatively demonstrate the court's jurisdiction to hear the case. Combined Specialty
Ins. Co. v. Deese, 266 S.W.3d 653, 657 (Tex.App.--Dallas 2008, no pet.). Where, as
here, a plea to the jurisdiction challenges the existence of jurisdictional facts, we
consider the relevant evidence submitted by the parties to determine if a fact issue
exists. Id. The standard of review for a jurisdictional plea based on evidence "generally
mirrors that of a summary judgment under Texas Rule of Civil Procedure 166a(c)." Id.
(quoting Tex. Dep't of Parks & Wildlife, 133 S.W.3d at 228). In reviewing a plea to the
jurisdiction, an appellate court does not look to the merits of the case but considers only
5
the pleadings and evidence relevant to the jurisdictional inquiry. Tex. Dep't of Parks &
Wildlife, 133 S.W.3d at 227.
II. TWCC's Exclusive Jurisdiction
The TWCC has exclusive jurisdiction to determine compensability; In re Tyler
Asphalt & Gravel Co., Inc., 107 S.W.3d 832, 839 (Tex.App.--Houston [14th Dist.] 2003,
no pet.) (citing Henry v. Dillard Dep't Stores, Inc., 70 S.W.3d 808, 809 (Tex. 2002)), as
well as disputes related to medical fees; Howell v. Tex. Workers' Comp. Comm'n, 143
S.W.3d 416, 435 (Tex.App.--Austin 2004, pet. denied) (citing Subaru of Am., Inc. v.
David McDavid Nissan, Inc., 84 S.W.3d 212, 221 (Tex. 2002) (op. on reh'g), prior to any
judicial review.4 A party's failure to exhaust their administrative remedies provided
under the Act deprives the trial court of jurisdiction over a party's request for judicial
review. § 410.251; Cont'l Cas. Co. v. Rivera, 124 S.W.3d 705, 712 (Tex.App.--Austin
2003, pet. denied).
When compensability is disputed, judicial review is permitted only after the party
has exhausted administrative review through a contested-case hearing or arbitration,
followed by an appeal to a TWCC Appeals Panel. §§ 410.251; 410.302(b). See
Combined Specialty Ins. Co., 266 S.W.3d at 658. If there is a dispute between a health
4
When a carrier denies liability for payment of medical benefits on the basis that the injury is not
compensable ("compensability disputes"), the general dispute resolution procedures of Chapter 410 of
the Texas Labor Code apply. § 410.023. Disputes concerning the denial of payment or the payment of a
reduced amount based on the medical necessity of treatment or the reasonableness of the fees are
"medical disputes" governed by the dispute resolution procedures of Chapter 413. § 413.031; Continental
Cas. Ins. Co. v. Functional Restoration Associates, 19 S.W.3d 393, 396 & n.2 (Tex. 2000).
6
care provider and a compensation carrier regarding a medical expense, the health care
provider is entitled to review of the medical service; § 413.031(a),5 and must exhaust
administrative review through the TWCC's medical review division; 28 Tex. Admin.
Code § 133.307 (2011),6 and a contested-case hearing before the State Office of
Administrative Hearings (SOAH); 28 Tex. Admin. Code § 133.307(f)(1), before seeking
judicial review of the decision in a Travis County District Court as governed by Chapter
2001 of the Government Code. 28 Tex. Admin. Code § 133.307(f)(2)(F) (medical fee
disputes); see Tex. Gov't Code Ann. § 2001.176(b)(1) (West 2008) (requiring request
for judicial review to be filed in Travis County unless provided by statute).
A. Compensability
We agree with Covenant that its claim for medical expenses was derivative of
Jara's claim seeking compensability and, as such, Covenant was not required to join
Jara's appeal of the non-compensability determinations made by the Hearing Officer
and the TWCC Appeals Panel in order to participate in the bad faith suit.
As a provider of medical services to Jara, or as a subclaimant, Covenant's claim
for payment is contingent on Jara's ability to receive workers' compensation benefits
5
Generally speaking, there are two types of "review of a medical service" that can be conducted under
section 413.031(a). The first is a review of the "medical necessity" of a health care service, which is
currently performed by an independent review organization (IRO). See § 413.031(d)-(e-3), (g)-(i). The
other type of review concerns "disputes over the amount of payment due for services determined to be
medically necessary and appropriate for treatment of a compensable injury," commonly termed "medical
fee disputes." § 413.031(c). In resolving medical fee disputes, "the role of the division is to adjudicate the
payment given the relevant statutory provisions and commissioner rules." Id.
6
We cite to the current administrative code provisions having found no material variance between the
relevant provisions of the current code and the code as it existed during the relevant time period.
7
under the statute, i.e, Covenant's claim is derivative of Jara's claim. See Tex. Mutual
Ins. Co. v. Sonic Systems International, Inc., 214 S.W.3d 469, 483-84 (Tex.App.--
Houston [14th Dist.] 2006, pet. denied) (op. on reh'g). As such, it is unnecessary for
Covenant to perfect an appeal of either the Hearing Officer's or the TWCC Appeals
Panel's decisions because its expenses are a part of Jara's overall workers'
compensation claim. See Latham v. Security Ins. Co. of Hartford, 491 S.W.2d 100,
105-06 (Tex. 1972) (op. on reh'g) ("The person whose standing is derivative to that of
the employee would not be entitled to enforce the award, and he need not be made a
party in a suit to set aside the award."); City of Bridgeport v. Barnes, 591 S.W.2d 939,
942 (Tex.App.--Fort Worth 1979, writ ref'd n.r.e.) (medical provider need not perfect an
appeal of an adverse administrative ruling because its expenses were part of the
employee's claim). In addition, although such medical expenses are usually a part of
the injured employee's claim, health care providers such as Covenant have a direct
cause of action against a compensation carrier under the Act. See Latham, 491 S.W.2d
at 106 ("Medical expenses may be recovered in a direct action by the physician and
others, but these expenses too are part of the injured employee's claim."); City of
Bridgeport, 591 S.W.2d at 942.
Dean Foods contends that, because Covenant participated as a "subclaimant" in
the contested-case hearing, Covenant was required to appeal the Hearing Officer's non-
compensability determination to the TWCC Appeals Panel to preserve any claim based
on Jara's medical expenses. Covenant's appearance in the contested-case hearing
8
was gratuitous7 because section 409.009 indicates that a person qualifying as a
subclaimant may participate by filing a written claim. § 409.009. Regardless whether
Covenant filed a claim as a "subclaimant," its claim for reimbursement remained
contingent upon Jara's ability to receive benefits under the statute; Sonic Systems
International, Inc., 214 S.W.3d at 477, and Covenant's gratuitous participation did not
give the Hearing Officer any power to adjudicate Covenant's claim for reimbursement of
its medical expenses. Hooks, Inc. v. Pena, 313 F.2d 696, 702 (5th Cir. 1963)
(interpreting Texas's Workmen's Compensation Act); see Latham, 491 S.W.2d at 106
("The inclusion of other names in the [TWCC's] award usually does no more than
provide a detail of payment by the insurer for the benefit of the principal compensation
claimant.") In addition, there is a separate and distinct administrative process to handle
claims for medical expenses such as Covenant's and, other than referring to Covenant
as a "subclaimant," the Hearing Officer's Decision and Order makes no mention of any
claim for medical expenses.8
That Covenant does not qualify under the Act to appeal the TWCC Appeals
Panel's decision supports this determination. The Act permits an appeal from an
appeals panel decision in the form of judicial review if a party has exhausted its
7
Dean Foods contends Covenant was a "party" to the proceedings, not a "subclaimant." However, the
Hearing Officer's Decision indicates Covenant was participating as a "subclaimant." "Claimant appeared
and was represented . . . Subclaimant, Covenant Medical Center, was represented."
8
Under Chapter 410, claims are first decided by a Hearing Officer, then appealed to the TWCC Appeals
Panel and finally heard before a district court. § 410.302(b). See Combined Specialty Ins. Co., 266
S.W.3d at 658. In a Chapter 413 proceeding, the fee bill dispute is first considered by the medical review
division; 28 Tex. Admin. Code § 133.307, then decided by SOAH in a contested-case hearing; 28 Tex.
Admin. Code 133.307(f)(1), before being finally heard by a district court in Travis County. § 413.031(k)-(l).
Here, the Hearing Officer's Decision and Order indicates Jara's case was decided under " [Chapter 410
of] the Texas Workers' Compensation Act . . . and [the applicable regulations]."
9
administrative remedies and "is aggrieved by a final decision." § 410.251. "[A] party is
aggrieved by a final decision of the [TWCC] appeals panel if the injury or loss resulting
from the final decision is actual and immediate; a possible future injury or loss as a
consequence of the panel decision is not sufficient to show an aggrievement."
Insurance Co. of the State of Pa. v. Orosco, 170 S.W.3d 129, 133 (Tex.App.--San
Antonio 2005, no pet.). When an appeals panel decision finds the employee's claim is
non-compensable, as here, there is no immediate or actual loss to the health care
provider because the adverse decision of compensability by the appeals panel merely
indicates that the employee's injury is not covered by the Act, i.e., the health care
provider never had the legal right to reimbursement from the compensation carrier
under the Act. His legal right to recover payment in full from the employee, however,
remains viable. See § 413.042(a)(1) ("A health care provider may not pursue a private
claim against a workers' compensation claimant . . . unless: (1) the injury is finally
adjudicated not compensable under this subtitle.") See also Smith v. Stephenson, 641
S.W.2d 900, 902 (Tex. 1982) ("We do agree the employee maintains a contractual
obligation to the provider . . . [and] may even become liable for all medical expenses if
the injury is found to be non-compensable.").
Accordingly, we find the trial court did not lack subject matter jurisdiction over
Covenant's intervention in Jara's bad faith suit due to any failure by Covenant to
exhaust any administrative remedies in Jara's contested-case appeal to the Appeals
Panel or his subsequent judicial review suit.
10
B. Medical Expenses
Covenant asserts that it was not required to undergo a Chapter 413 medical
dispute resolution because it did not dispute the amount that Crawford determined was
payable, i.e., $301,928.31. Dean Foods, on the other hand, asserts Covenant was
required to request medical dispute resolution to preserve its claim for medical
expenses because Dean Foods offered to pay less than the full amount requested by
Covenant.
An employee "who sustains a compensable injury is entitled to all health care
reasonably required by the nature of the injury as and when needed." § 408.021(a).9
"A party, including a health care provider, is entitled to review of a medical service
provided for which authorization of payment is sought if a health care provider is:
denied payment or paid a reduced amount for the medical service rendered . . . ." §
413.031(a)(1). "A request for medical dispute resolution of a medical fee dispute must
be timely filed with the TWCC's Medical Review Division." 28 Tex. Admin. Code §
133.307(c).10 Otherwise, a person or entity that fails to timely file a request for review
waives their right to dispute resolution. Id. It is undisputed that Covenant did not file for
9
Regarding payment of medical bills and related disputes, the Act speaks in mandatory terms when an
employee's claim is compensable. Howell v. Tex. Workers Comp. Comm'n, 143 S.W.3d 416, 436-37
(Tex.App.--Austin 2004, pet. denied). See §§ 408.027(a), 408.027(b), 408.027(b), (1 & (2), 408.027(b).
10
"Medical fee disputes involve disputes over the amount of payment for . . . health care rendered to an
injured employee (employee) that has been determined to be medically necessary and appropriate for
treatment of that employee's compensable injury." 28 Tex. Admin. Code § 133.305(a)(2). A "medical fee
dispute" does not include disputes pertaining to compensability. See 28 Tex. Admin. Code §
133.307(e)(3)(H) ("[If] the carrier has raised a dispute pertaining to compensability . . . , the Division shall
notify the parties of the review requirements pursuant to § 124.2 of this title, and will dismiss the request
until those disputes have been resolved by a final decision, inclusive of appeals.")
11
medical dispute resolution regarding Dean Foods’s reduction of its medical bills
submitted in July of 2004.
We agree with Covenant that the trial court erred in finding there was no subject
matter jurisdiction over Covenant's claim for payment of its medical bills in the amount
of $301,928.31. Although Covenant submitted medical bills totaling $599,364.54, Dean
Foods audited Covenant's bills for compliance with the Act's medical payment
guidelines and assessed reductions of $297,436.23. Because Covenant did not dispute
these reductions in a timely manner, any recovery of this amount by Covenant was
waived per regulation. However, given that the trial court issued a final judgment finding
Jara's injury compensable, the amount determined by Dean Foods to be payable,
$301,928.31, remains owing to Covenant.
Dean Foods contends that, whenever a compensation carrier reduces a health
care provider's bill, whether or not the health care provider agrees with the reduction,
the health care provider must request medical dispute resolution. We disagree. The
Act's language regarding a health care provider's participation in medical dispute
resolution is not mandatory, but permissive, i.e., where a compensation carrier denies
payment or pays a reduced amount for the medical services rendered, "a health care
provider, is entitled to review of a medical service . . . ." § 413.031(a)(1) (emphasis
added). When the health care provider agrees to the compensation carrier's reductions
or waives review through inaction, the health care provider can bring a direct action
against the compensation carrier for the balance due for medical expenses incurred in
12
the treatment of a compensable injury. See Latham, 491 S.W.2d at 109; City of
Bridgeport, 591 S.W.2d at 942.
Moreover, under the applicable regulations, once the health care provider who
has made a request informs the Medical Review Division (MRD), or the MRD otherwise
determines, the dispute no longer exists, the MRD can dismiss the health care
provider's request for medical fee dispute resolution. 28 Tex. Admin. Code §
133.307(e)(3)(A). This language clearly indicates that a "dispute" is necessary before a
request need be filed or reviewed by the MRD.11 Here, Covenant either agreed with, or
waived review of, Dean Foods's reductions. Accordingly, we find the trial court erred in
its finding that it lacked subject matter jurisdiction over Covenant's claims asserted in
the bad faith suit. Appellant's single issue is sustained.
Conclusion
We reverse the judgment of the trial court and remand for further proceedings
consistent with this opinion.
Patrick A. Pirtle
Justice
11
A "dispute" requires two parties who disagree, oppose or call into question the payable amount of the
medical fee owed to one who provided medical services for an injured employee. See Merriam-Webster's
Collegiate Dictionary 362 (11th Ed. 2003). Once the medical provider has waived his dispute by failing to
timely file a claim or agrees with the compensation carrier's audit of his medical bills, there is no dispute.
13