American Eyecare Vs. Department Of Human Services

IN THE SUPREME COURT OF IOWA
No. 07–1698
Filed July 17, 2009
AMERICAN EYECARE,
Appellant,
vs.
DEPARTMENT OF HUMAN SERVICES,
Appellee.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Lee County,
Michael Schilling, Judge.
Provider of eyecare services challenges the Department of Human
Services’ finding it upcoded eye examinations. DECISION OF COURT
OF APPEALS VACATED; DISTRICT COURT JUDGMENT REVERSED
AND CASE REMANDED.
David A. Hirsch, Des Moines, for appellant.
Thomas J. Miller, Attorney General, and Diane M. Stahle, Special
Assistant Attorney General, for appellee.
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STREIT, Justice.
American Eyecare billed Medicaid for comprehensive eye
examinations it performed on its patients. The Department of Human
Services (DHS) determined the exams should have been billed as
intermediate exams because the services rendered did not meet the
definition of “comprehensive ophthalmological services.” DHS demanded
American Eyecare repay the overpayment. Because DHS’s interpretation
of “comprehensive ophthalmological services” is erroneous and because
its determination that neither of the sample cases met the definition of
“comprehensive ophthalmological services” is not supported by
substantial evidence, we vacate the court of appeals and reverse the
district court.
I. Facts and Prior Proceedings.
American Eyecare is a provider of optometric goods and services.
From 2000 to 2002, American Eyecare submitted separate billings to
DHS for comprehensive ophthalmological services provided to Medicaid-
covered patients. Comprehensive examinations warrant a higher rate of
reimbursement under the DHS payment schedule than intermediate
examinations. The fee schedule for physicians is based on the
definitions of medical and surgical procedures set forth in the American
Medical Association Physicians’ Current Procedural Terminology (CPT).
See Iowa Admin. Code r. 441—79.1(7) (2009).
In 2005, Iowa Medicaid’s fiscal agent performed an audit of
American Eyecare’s records, pursuant to Iowa Code section 249A.7
(2005) and Iowa Administrative Code rule 441—79.4(3). The fiscal agent
concluded American Eyecare had charged for a higher level of services, or
upcoded eye examinations; although it submitted billings for
comprehensive examinations, American Eyecare’s services only qualified
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as intermediate examinations because there was no documentation
supporting initiation of a diagnostic and treatment program. Based on a
small sample of American Eyecare’s patients (two patients), DHS
determined American Eyecare had routinely upcoded such examinations.
Accordingly, DHS sought reimbursement with respect to all of the
services for 964 patients, assuming American Eyecare had made the
same error in each case. See Iowa Admin. Code r. 441—79.4(3)(e)
(permitting “the use of random sampling and extrapolation”). The
services provided in the audited cases included, among other things, a
general evaluation of the complete visual system and refraction. DHS
sent American Eyecare an Official Notice of Denial of Claims, demanding
American Eyecare repay the overpayment ($26,095.52) within thirty
days. The notice concluded “the documentation in your records did not
support the level of these codes.”
American Eyecare appealed the denial of claims, arguing its
optometrists did perform comprehensive examinations. On April 29,
2005, a contested case hearing was held before an administrative law
judge. At the hearing, a DHS representative stated that DHS interprets
“comprehensive ophthalmological services” as requiring all treatments
listed under the definition of “initiation of a diagnostic and treatment
program” be performed in order to be reimbursed at the higher rate. The
administrative law judge, who affirmed the agency’s finding of upcoding
from intermediate to comprehensive examinations, concluded “[t]he
record did not show that any of these procedures were initiated in the
[sample] cases.”
American Eyecare filed a petition for judicial review. American
Eyecare asserted the exams in question were comprehensive and
involved “the initiation of diagnostic and treatment program[s].” The
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district court affirmed, giving deference to the agency’s interpretation of
the CPT and concluding substantial evidence supported the agency’s
decision. American Eyecare appealed, and we transferred the case to the
court of appeals. The court of appeals affirmed.
II. Scope of Review.
We review a final agency action for correction of errors at law.
Houck v. Iowa Bd. of Pharmacy Exam’rs, 752 N.W.2d 14, 16 (Iowa 2008).
“We review the district court decision by applying the standards of the
[Iowa] Administrative Procedure Act to the agency action to determine if
our conclusions are the same reached by the district court.”
Locate.Plus.Com, Inc. v. Iowa Dep’t of Transp., 650 N.W.2d 609, 612 (Iowa
2002). We are bound by the agency’s findings so long as they are
supported by substantial evidence. Univ. of Iowa Hosps. & Clinics v.
Waters, 674 N.W.2d 92, 95 (Iowa 2004).
“Substantial evidence” means the quantity and quality
of evidence that would be deemed sufficient by a neutral,
detached, and reasonable person, to establish the fact at
issue when the consequences resulting from the
establishment of that fact are understood to be serious and
of great importance.
Iowa Code § 17A.19(10)(f)(1). 1
The nature of our review of DHS’s interpretation depends on
whether the legislature has clearly vested the agency with the discretion
to interpret the rule at issue. See Id. § 17A.19(10)(c), (l). “When an
agency has not clearly been vested with the discretion to interpret the
pertinent statute, the court gives no deference to the agency’s
interpretation of the statute.” Iowa Ass’n of Sch. Bds. v. Iowa Dep’t of
Educ., 739 N.W.2d 303, 306 (Iowa 2007). In that situation, we will
reverse where the interpretation is based on “an erroneous
1All references to the Iowa Administrative Procedure Act are to the 2009 code.
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interpretation” of the law. Iowa Code § 17A.19(10)(c). However, if the
legislature has clearly vested the agency with the authority to interpret
its rules and regulations, then we grant the agency’s interpretation
“appropriate deference,” and we will only reverse when the interpretation
is “irrational, illogical, or wholly unjustifiable.” Id. § 17A.19(11)(c), (10)(l).
We disavow the concept of limited deference for agency interpretations
within the agency’s expertise as set forth in Madrid Home for the Aging v.
Iowa Department of Human Services, 557 N.W.2d 507, 510–11 (Iowa
1996). See Iowa Assoc. of Sch. Bds., 739 N.W.2d at 306–07. That
concept is no longer viable under the current version of the Iowa
Administrative Procedure Act. See Arthur E. Bonfield, Amendments to
Iowa Administrative Procedure Act, Report on Selected Provisions to Iowa
State Bar Association and Iowa State Government 61–63 (1998).
Iowa Code section 249A.4 empowers the director of DHS to adopt
rules regarding reimbursement for medical and health services for
Medicaid patients. DHS argues because the legislature has given them
broad or sole authority to run the Medicaid program, it has the power to
interpret its rules and regulations. However, the statute does not clearly
give DHS the authority to interpret its rules and regulations. See State v.
Pub. Employment Relations Bd., 744 N.W.2d 357, 360 (Iowa 2008)
(finding the power to enact, implement, and administer rules and
regulations is not the same as the power to interpret them); Mosher v.
Dep’t of Inspections & Appeals, 671 N.W.2d 501, 509 (Iowa 2003) (finding
“general regulatory authority . . . does not qualify as a legislative
delegation of discretion” to the agency). As the legislature has not clearly
vested DHS with the authority to interpret its rules and regulations, we
will not defer to DHS’s interpretation. Therefore, our review of DHS’s
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interpretation of its rules and regulations is for correction of errors at
law. Iowa Code § 17A.19(10)(c).
III. Merits.
Iowa’s Medicaid program is governed by Iowa Code chapter 249A.
Section 249A.4(9) empowers the director of DHS to “[a]dopt rules
pursuant to chapter 17A in determining the method and level of
reimbursement for all medical and health services.” Under Iowa
Administrative Code rule 441—79.1(7), physicians are reimbursed
according to a “fee schedule . . . based on the definitions of medical and
surgical procedures given in the most recent edition of Physician’s
Current Procedural Terminology (CPT).” The 2001 CPT provides the
following definitions of intermediate and comprehensive ophthalmological
services:
Intermediate ophthalmological services describes an
evaluation of a new or existing condition complicated with a
new diagnosis or management problem not necessarily
relating to the primary diagnosis, including history, general
medical observation, external ocular and adnexal
examination and other diagnostic procedures as indicated;
may include the use of mydriasis for ophthalmoscopy.
...
Comprehensive ophthalmological services describes a general
evaluation of the complete visual system. The
comprehensive services constitute a single service entity but
need not be performed at one session. The service includes
history, general medical observation, external and
ophthalmoscopic examinations, gross visual fields and basic
sensorimotor examination. It often includes, as indicated:
biomicroscopy, examination with cycloplegia or mydriasis
and tonometry. It always includes initiation of diagnostic and
treatment programs.
(Emphasis added).
The point of contention here is the phrase “it always includes
initiation of diagnostic and treatment programs,” which distinguishes
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comprehensive services from intermediate services. According to the
CPT, the “initiation of diagnostic and treatment program includes the
prescription of medication, and arranging for special ophthalmological
diagnostic or treatment services, consultations, laboratory procedures
and radiological services.” The CPT lists the determination of refractive
state as an example of special ophthalmological services.
In DHS’s denial of claims notice, it concluded “there was no
documentation to support initiation of a diagnostic and treatment
program which is always included in a comprehensive exam.” At the
administrative hearing, a DHS representative argued that all services and
procedures listed in the definition of “initiation of diagnostic and
treatment programs” must be performed in order for the exam to qualify
as comprehensive. Under that interpretation, a comprehensive exam
must include (1) the prescription of medication, (2) arranging special
ophthalmological diagnostic or treatment services, (3) consultations,
(4) laboratory procedures, and (5) radiological services. American
Eyecare asserts DHS’s interpretation of the CPT, requiring all services
listed to be performed, is illogical, as the services listed in the definition
are just examples of the types of services that would be included in a
comprehensive examination.
The administrative law judge determined American Eyecare did not
initiate a diagnostic and treatment program in the two sample cases, as
“[t]he record did not show that any of [the] procedures [listed in the CPT
definition of initiation of diagnostic and treatment program] were
initiated in the [sample] cases.” On judicial review, the district court
gave deference to the agency’s interpretation and affirmed. The district
court erred in granting the agency deference. See Iowa Ass’n of Sch.
Bds., 739 N.W.2d at 306; Iowa Code § 17A.19(10)(c).
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DHS’s interpretation offered in the administrative hearing is
contrary to the rules of statutory construction. 2 In interpreting a statute,
rule, or regulation, we “look to the plain language . . . to establish . . .
intent.” TLC Home Health Care, L.L.C. v. Iowa Dep’t of Human Servs.,
638 N.W.2d 708, 713 (Iowa 2002). The CPT defines “initiation of
diagnostic and treatment program” as follows: “initiation of diagnostic
and treatment program includes the prescription of medication, and
arranging for special ophthalmological diagnostic or treatment services,
consultations, laboratory procedures and radiological services.” The
question is whether all of the services following the word “includes” are
required in order to qualify as “initiation of diagnostic and treatment
program.”
When a statutory definition uses the word “includes” as opposed to
“means,” as the case is here, the term is “more susceptible to extension
of meaning by construction than where the definition declares what a
term ‘means.’ ” 2A Norman J. Singer & J.D. Shambie Singer, Sutherland
Statutory Construction § 47:7, at 305 (7th ed. 2007). The word “includes”
can be used as a term of enlargement or as a word of limitation or
restriction. TLC Home Health Care, 638 N.W.2d at 713. Generally, “the
verb ‘includes’ imports a general class, some of whose particular
instances are those specified in the definition.” Helvering v. Morgan’s,
Inc., 293 U.S. 121, 126 n.1, 55 S. Ct. 60, 62 n.1, 79 L. Ed. 232, 235 n.1
(1934). As federal and state courts have recognized, “ ‘[i]ncludes’ has
various shades of meaning, and its interpretation ‘depends upon the
2Although neither the administrative law judge nor district court ruled directly
on the statutory interpretation that would mandate all services and treatments listed
under “initiation of diagnostic and treatment program” be performed, the State’s brief
certainly relies upon such interpretation in its contention that American Eyecare failed
to prove it performed services necessary to be compensated for a comprehensive eye
exam. However, the State also takes the alternate position that American Eyecare failed
to perform any of the services listed.
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context’ in which the term is used.” Liverpool v. Baltimore Diamond
Exch., Inc., 799 A.2d 1264, 1274 (Md. 2002) (quoting Housing Auth. v.
Bennett, 754 A.2d 367, 375–76 (Md. 2000)). “[W]here a general term is
followed by the word ‘including,’ which is itself followed by specific terms,
the intent may be one of limitation.” State Pub. Defender v. Iowa Dist.
Ct., 633 N.W.2d 280, 283 (Iowa 2001).
The debate over the word “includes” is whether the terms that
follow “includes” are simply illustrative of the types of services or whether
the terms are an exhaustive (and restricted) list of permissible items, not
whether all of the terms following “includes” are required to meet the
definition of the term. See, e.g., Fed. Land Bank of St. Paul v. Bismarck
Lumber Co., 314 U.S. 95, 100, 62 S. Ct. 1, 4, 86 L. Ed. 65, 70 (1941)
(under certain circumstances “the term ‘including’ is not one of all-
embracing definition, but connotes simply an illustrative application of
the general principle”); TLC Home Health Care, 638 N.W.2d at 713(determining the phrase “home health services include the following
services and items” to restrict or limit the class of covered services).
Here, a DHS representative argued in the administrative hearing
that all services listed after the word “includes” must be provided in
order to meet the definition of the word preceding “includes.” The court
of appeals, in affirming the district court and the administrative law
decision, concluded “the words ‘includes’ and the conjunctive use of,
‘and,’ indicate multiple types of services listed must be performed to
qualify as the initiation of a diagnostic and treatment program and thus
must be performed to be billed as a comprehensive exam.” Although
“[o]rdinarily, the word ‘and’ is used as a conjunctive, requiring
satisfaction of both listed conditions,” Casteel v. Iowa Dep’t of Transp.,
395 N.W.2d 896, 898 (Iowa 1986), the term “and” is often used in
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definitions and courts generally do not interpret all of the terms following
“including” to be required if the word “and” connects them. See Tribbitt
v. State, 943 A.2d 1260, 1271 (Md. 2008) (determining Maryland Code
Criminal Law section 3-602(a)(4)(ii), “ ‘sexual abuse’ includes [1] incest;
[2] rape; [3] sexual offense in any degree; [4] sodomy and; [5] unnatural
or perverted sexual practices,” does not limit “sexual abuse” to the
crimes enumerated). Further, we have, on occasion, interpreted the use
of the word “and” as disjunctive rather than conjunctive. See Ness v.
H.M. Iltis Lumber Co., 256 Iowa 588, 593, 128 N.W.2d 237, 239–40
(1964) (interpreting “direct and proximate cause” to mean the same thing
as “direct or proximate cause”).
In Commission on Hospitals & Health Care v. Lakoff, 572 A.2d 316(Conn. 1990), the Connecticut Supreme Court addressed a similar issue,
whether an MRI center met the statutory definition of health care facility,
as “any facility or institution engaged primarily in providing services for
the prevention, diagnosis and treatment of human health conditions.”
Lakoff, 572 A.2d at 319 (emphasis added). The MRI center only provided
diagnostic services and did not offer treatment services. Id. Determining
the facility in question met the statutory definition of a “health care
facility,” the court construed the word “and” to mean “or” “[i]n order to
achieve a reasonable and rational result that is harmonious with the
broad socially ameliorative purposes of the statute . . . .” Id. at 321.
A similar interpretation is necessary here. American Eyecare
asserts only very few examinations would meet the statutory definition of
comprehensive examination if the optometrist was required to prescribe
medication, arrange for special ophthalmological diagnostic or treatment
services, consultations, laboratory procedures, and radiological services.
It argues that, because examinations where all treatments are performed
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are highly uncommon, DHS’s interpretation is “erroneous, illogical, and
unsupported.”
If DHS had intended to require all listed services be performed in
order to qualify as “initiation of diagnostic and treatment program,” it
could have done so expressly. It could have used the phrase “must
include all of the following” or the word “requires” instead of “includes.”
See, e.g., 42 C.F.R. § 440.70(b) (2009) (“Home health services include the
following services and items. Those listed in paragraphs (b)(1), (2), and
(3) of this section are required services; those in paragraph (b)(4) of this
section are optional.”).
We determine the interpretation of “initiation of diagnostic and
treatment program,” requiring all services listed to be performed in order
to meet the definition, is erroneous. See Iowa Code § 17A.19(10)(c) (court
will reverse agency’s action where it was “[b]ased upon an erroneous
interpretation of a provision of law whose interpretation has not clearly
been vested by a provision of law in the discretion of the agency”).
Further, the agency’s conclusion that “[t]he record did not show
that any of [the] procedures [listed in the CPT definition of initiation of
diagnostic and treatment program] were initiated in the [sample] cases”
is not supported by substantial evidence. American Eyecare performed
refraction in both sample cases, in addition to a general evaluation of the
complete visual system. The CPT lists the determination of refractive
state as an example of special ophthalmological services, which is one of
the treatments that satisfies the definition of “initiation of diagnostic and
treatment program.” As American Eyecare initiated a diagnostic and
treatment program and performed a general evaluation of the complete
visual system in both sample cases, both of these cases meet the
definition of “comprehensive ophthalmological services” listed in the CPT.
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The agency’s determination is not supported by substantial evidence. We
vacate the court of appeals and reverse the district court.
IV. Conclusion.
The agency’s interpretation of “initiation of diagnostic and
treatment program” is erroneous. Further, the agency’s determination
that neither of the sample cases met the definition of comprehensive
ophthalmological services is not supported by substantial evidence. We
vacate the court of appeals, reverse the district court, and remand for
entry of judgment in conformance with this opinion.
DECISION OF COURT OF APPEALS VACATED; DISTRICT
COURT JUDGMENT REVERSED AND CASE REMANDED.