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TWCC Audit and Dispute Rules
By Kevin McGillicuddy - Parker & Associates

Claims Software

Re: Texas Workers’ Compensation Commission v. Patient Advocates of Texas and Allen J. Meril, M.D.

On May 28, 2004, the Texas Supreme Court issued a decision in the above referenced case. The opinion can be found at 2004 WL 1194131. The opinion is not yet released for publication and is subject to revision, however the opinion covers a number of important issues. This will provide a brief summary of the Court’s holdings on those issues.

Patient Advocates of Texas (PAT) and Allen J. Meril, M.D. filed suit claiming that the TWCC did not follow statutorily required rulemaking procedures when it adopted its medical dispute and audit rules. It also claimed that the TWCC exceeded its rulemaking authority by setting a ceiling on a number of medical fees and by limiting the time for a party to seek medical dispute resolution to one year from the date of service. The plaintiffs also argued that by permitting carriers to audit medical bills, the TWCC illegally delegated its audit and fee-setting authority to private carriers.

In this opinion the Court holds that the TWCC substantially complied with statutory requirements in adopting the 1996 medical fee guidelines for medical treatments and services. The Court also held that the TWCC did not exceed its statutory authority to establish medical policies and guidelines by setting maximum amounts (MARs) that health care providers could be reimbursed for treating injured workers. The Court also held that The TWCC did not improperly delegate its audit and fee-setting authority to private entities such as insurance carriers. The Court also upheld the one-year time limit for providers to request dispute resolution at the TWCC. Finally, the Court held that the fee guidelines and one-year time limitation did not violate the Texas Constitution.

The TWCC adopted the 1996 Medical Fee Guideline when it adopted Rule 134.201. The dispute and audit rules are contained in §§133.301 through 133.305, and although those rules have been amended since their adoption, the Court considered the amendments adopted in 2000 in rendering its opinion.

Compliance with the APA - PAT challenged the Medical Fee Guideline on the basis that the TWCC did not substantially comply with rulemaking procedures contained in the Administrative Procedure Act (APA), specifically by not providing a reasoned justification for the rule, failing to republish the rule after amending it, failing to make a copy of the proposed rule available to the public, and failing to provide a statement of reasons for or against adopting the rule.

The Court holds that the TWCC did provide factual evidence, policy objectives and legal rationale for the rule, as well as a summary of written comments from interested parties and the TWCC’s responses. Therefore, the TWCC substantially complied with the reasoned justification requirement.

The Court also holds that the TWCC was not required to republish the proposed rule after it modified the durable medical equipment section of the rule in response to public comment. The rule that was finally adopted did not raise new subjects or affect different persons than those previously given notice of the proposed rule. All parties affected by the rule were given fair notice of the issues to be addressed in the rule and were able to participate in the rulemaking process in a meaningful and informed manner. The final rule was a logical outgrowth of the proposed rule, since both the proposed and final rules addressed durable medical equipment, even though the TWCC changed its approach to determining reimbursement rates.

In addition, the Court holds that the TWCC did make the proposed guideline available at a specific location (in this case through the TWCC), which an agency may do under the APA if it would be too cumbersome, expensive or inexpedient to publish the entire proposal in the Texas Register. Since the proposed rule was in excess of 400 pages, the TWCC complied with the requirement to make copies of the proposal available to the public.

The Court also holds that PAT did not timely request a statement of reasons for or against the adoption of the rule, as required by the APA. The Court holds that the date of adoption of the rule, not the rule’s effective date, governs the 30-day deadline that interested parties have in order to request a statement of reasons from the agency. In either case, the Court holds, PAT was late in making its request.

Maximum Allowable Reimbursements – The Court further rejected PAT’s challenge to the MAR portion of the rule, holding that §413.011 of the Texas Labor Code required the TWCC to establish medical policies and guidelines relating to fees charged or paid for medical services, “including guidelines relating to payment of fees for specific medical treatments or services.” The Legislature mandated that these policies and guidelines be “fair and reasonable and designed…to achieve effective medical cost control.” Although the Legislature did not instruct the TWCC to set maximum allowable reimbursement amounts, the Legislature did instruct the TWCC to adopt policies and guidelines designed to achieve effective medical cost control, and the Court holds that the establishment of MAR amounts was a reasonable method for doing so.

Dispute and Audit Rules – The Court also outlines the process for seeking dispute resolution and, reversing the Austin Court of Appeals on this issue, holds that the TWCC did not improperly delegate to private insurance carriers the authority to set fees. The Legislature may delegate certain powers to private entities “if the legislative purpose is discernible and there is protection against the arbitrary exercise of power.“ While the Labor Code vests the TWCC with the power to audit insurance carriers and health care providers, the dispute and audit rules set out in great detail the procedures carriers must follow when conducting audits. Carriers have no power to set public policy or to adopt rules to accomplish that policy. Here, the TWCC retained all of the powers delegated to it by the Legislature, so the dispute and audit rules did not delegate the TWCC’s audit authority to private carriers, but rather are a means for the TWCC to fulfill its statutory duties.

Likewise, in those instances where the TWCC has not set a specific fee, carriers are required to develop a methodology to determine reimbursement amounts. Carriers must (1) apply a methodology in a consistent manner to determine fair and reasonable reimbursement amounts that are uniformly applied, (2) explain and document the methodology in the claim file, and (3) explain any deviation from the usual method for calculating fees. A “fair and reasonable” reimbursement was determined in the rule to mean a reimbursement that meets the standards set out in §413.011 of the Labor Code, that is, that is designed to ensure the quality of medical care and to achieve effective medical cost control. In addition, the Court points out that carriers do not make the final decision on proper payment amounts, as their decisions are subject to review by the TWCC. Any party dissatisfied with the payment amount ordered by the TWCC may seek review through the State Office of Administrative Hearings (SOAH) and the courts.

One-Year Limitation – The Court also writes that the TWCC was given the authority to establish a dispute resolution process, and any such process “must have a beginning and an end.” With little discussion, the Court holds that the one-year limitation is consistent the duties that the Legislature conferred upon the TWCC.

Constitutional Challenge – The Court also rejects PAT’s argument that the establishment of MARs and a one-year limitation period violate PAT’s due process rights. The TWCC’s rules protect the procedural due process rights that health care providers have by providing a dispute resolution process, and also protect health care providers’ substantive due process rights, as the TWCC did not act arbitrarily in its adoption of the challenged rules. Rather, its rules were properly designed to carry out the Legislature’s mandate contained in §§413.011 and 413.013.

Submitted by:

J.T. Parker & Associates, L.L.C.

1341 W. Mockingbird Ln., Suite 300W

Dallas, TX 75247


214.631.3700 Fax

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