TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-02-00803-CV
All Saints Health System, et al., Appellants
v.
Texas Workers’ Compensation Commission, et al., Appellees
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT
NO. GN201300, HONORABLE LORA J. LIVINGSTON, JUDGE PRESIDING
OPINION
All Saints Health System and other hospitals (“the Hospitals”)1 appeal a declaratory
judgment entered in favor of the Texas Workers’ Compensation Commission (“the Commission”)
and several insurance companies and school districts (“the Insurers”) regarding the substantive law
to be applied to claims for additional reimbursement based on services which the Hospitals rendered
to workers’ compensation claimants under a 1992 hospital fee guideline, which this Court
invalidated in 1995. Texas Hosp. Ass’n v. Texas Workers’ Comp. Comm’n, 911 S.W.2d 884 (Tex.
App.—Austin 1995, writ denied). In this appeal, we must determine what standards to apply to the
Hospitals’ additional reimbursement requests. The Hospitals would have us resurrect an expired
temporary rule, which they argue was the last standard in place before the 1992 fee guideline’s
1
The complete list of parties can be found in the appendix to this opinion.
adoption. The Insurers argue that the Commission should base its reimbursement decisions primarily
on the terms of the Hospitals’ managed care contracts in existence during the reimbursement period.
While we do not accept either party’s position, we will affirm the trial court’s declaratory judgment.
BACKGROUND
The story of this epic legal dispute can be traced back to 1987, when the Legislature
directed the Commission to establish and maintain “a guideline of fair and reasonable fees and
charges” that health-care facilities might collect for their treatment of workers’ compensation
patients. Act of June 19, 1987, 70th Leg., R.S., ch. 1118, § 5, 1987 Tex. Gen. Laws 3825, 3832
(since repealed). In response, the Commission promulgated a rule setting compensation at a fixed
percentage of each hospital’s stated prices for each service. Until that time, health care providers
had been entitled to “fair and reasonable compensation” for medical services rendered to injured
workers. See Act of Mar. 28, 1917, 35th Leg., R.S., ch. 103, § 1, 1917 Tex. Gen. Laws 269, 273
(since repealed). Various hospitals challenged the fee guideline on the ground that it had been
improperly adopted, and this Court vacated it for not meeting the applicable procedural
requirements. Methodist Hosps. v. 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.
2
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;2 see John Montford, Will Barber & Robert Duncan, A Guide to Texas Workers’ Comp
Reform, Introduction at 8 (1991). The overall statutory framework was intended to ensure quick
distribution of benefits and decrease the need to litigate relatively small claims. See 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
2
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.
3
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 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);3 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.
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
3
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.
4
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)).4 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.5 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
4
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.
5
The Hospitals sought, but did not obtain, an injunction preventing enforcement of the 1992
Fee Guideline pending the outcome of the declaratory judgment challenge.
5
the reasoned justification requirement.6 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.
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,
6
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.).
6
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.
7
While discovery issues were being litigated in the SOAH proceedings, the Hospitals
filed this declaratory judgment action against the Commission and the Insurers in a Travis County
district court, asking that the trial court hold the Commission in contempt and order that all hospitals
be reimbursed at what the Hospitals claimed to be the standard in 1992—at between 85% and 100%
of their billed charges.7 The SOAH proceedings were accordingly abated. The trial court granted
summary judgment in the Commission’s and Insurers’ favor, ruling that the reimbursement decisions
would be governed by the statutory standards now laid out in Texas Labor Code section 413.011(d).8
The Administrative Rules
This case revolves around the statute and the Commission’s application of its rules
implementing both its medical service fee guidelines and the dispute-resolution process. The
Commission rule governing “Use of the Fee Guidelines” provides that:
7
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.).
8
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.
8
(a) The ground rules and the medical service standards and limitations as
established by the fee guidelines shall be used to properly calculate the
payments due to the health care providers
....
(c) Reimbursement for services not identified in an established fee guideline shall
be reimbursed at fair and reasonable rates as described in the Texas Workers’
Compensation Act, § 413.011 until such period that specific fee guidelines are
established by the commission.
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
9
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.
10
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.9 874 S.W.2d at 147. However,
9
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
11
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.
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.”10 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
for reimbursement at those rates.
10
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.
12
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).
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.
13
§ 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,
14
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.
15
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.
16
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.11
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
11
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.
17
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.
__________________________________________
Mack Kidd, Justice
Before Justices Kidd, Yeakel and Patterson
Affirmed
Filed: July 24, 2003
18