Does An Insurance Carrier Have A Right To A Hearing In A Medical Dispute?

Saturday, April 8, 2006 | 0

By John D. Pringle, Law Offices of John Pringle

The Senate Select Interim Committee on Workers' Compensation reported (hereinafter Report) to the 79th Legislature that concerns were expressed about the length, cost and "hassle" of the medical dispute resolution appeal process to the State Office of Administrative Hearings. According to the Report most stakeholders to the workers' compensation system favored a rapid yet efficient dispute resolution process. Sunset Commission staff recommended the elimination of the contested case hearing at the State Office of Administrative Hearings by an Administrative Law Judge who was presumed to have no medical expertise. The Report suggested to the Legislature the elimination of the contested case hearing at the State Office of Administrative Hearings.

The reader may recall that a bill was offered in both chambers to reform the Texas workers' compensation system. House Bill No. 7 was filed on February 9, 2005, by Representative Burt Solomons. Senator Todd Staples, filed Senate Bill No. 5 on January 13, 2005. Both bill eliminated the right of appeal to the State Office of Administrative Hearings. House Bill No. 7 was the legislation that passed both chambers and was signed by the Governor on June 1, 2005, to be effective on September 1, 2005.

In Section 3.245 of House Bill 7, Texas Labor Code Section 413.031 (k) was amended to eliminate the appeal to the State Office of Administrative Hearings for a contested case hearing. Subsection (k) was amended as set out below.

(k) Except as provided by Subsection (l), a party to a medical dispute that remains unresolved after a review of the medical service under this section [is entitled to a hearing. The hearing shall be conducted by the State Office of Administrative Hearings within 90 days of receipt of a request for a hearing in the manner provided for a contested case under Chapter 2001, Government Code (the administrative procedure law). A party who has exhausted the party's administrative remedies under this subtitle and who is aggrieved by a final decision of the State Office of Administrative Hearings] may seek judicial review of the decision. The division and the department are not considered to be parties to the medical dispute for purposes of this subsection. Judicial review under this subsection shall be conducted in the manner provided for judicial review of contested cases under Subchapter G, Chapter 2001, Government Code.

Subsection (k) now reads:

Except as provided by Subsection (l), a party to a medical dispute that remains unresolved after a review of the medical service under this section may seek judicial review of the decision. The division and the department are not considered to be parties to the medical dispute for purposes of this subsection. Judicial review under this subsection shall be conducted in the manner provided for judicial review of contested cases under Subchapter G, Chapter 2001, Government Code.

Judicial review under the amended Subsection (k) shall be conducted in the manner provided for judicial review of contested cases under Subchapter G, Chapter 2001, Government Code (hereinafter "APA"). Judicial review of contested cases under the APA, is conducted by a reviewing court on an administrative record compiled in the manner provided by Sections 2001.051-.053 and 2001.056-.062 of the APA. The "record" is to include the items specified in Section 2001.060 of the APA, to wit:

(a) each pleading, motion, and intermediate ruling;

(b) evidence received or considered;

(c) a statement of matters officially noticed;

(d) questions and offers of proof, objections, and rulings on them;

(e) proposed findings and exceptions;

(f) each decision, opinion, or report by the officer presiding at the hearing; and

(g) all staff memoranda or data submitted to or considered by the hearing officer or members of the agency who are involved in making the decision.

Texas Labor Code Section 401.021 provides that a proceeding, hearing or judicial review of an agency decision is governed by, among others, Subchapter D of the APA. Subchapter D includes application of rules of evidence, right to cross examine, testimony of witnesses taken under oath, issuance of subpoenas, discovery, and other due process safeguards.

Texas Labor Code Section 413.031(a) provides that "[a] party, including a health care provider is entitled to a review of a medical service provided or for which authorization of payment is sought if a health care provider is:

(1) denied payment or paid a reduced amount for the medical service rendered;

(2) denied authorization for the payment for the service requested or performed if authorization is required or allowed by this subtitle or commissioner rules;

(3) ordered by the commissioner to refund a payment received; or

(4) ordered to make a payment that was refused or reduced for a medical service rendered.

Texas Labor Code Section 413.031(d) provides that "[a] review of the medical necessity of a health care service requiring preauthorization under Section 413.014 or commissioner rules under that section or Section 413.011(g) shall be conducted by an independent review organization under Article 21.58C, Insurance Code, in the same manner as reviews of utilization review decisions by health maintenance organizations. It is a defense for the insurance carrier if the carrier timely complies with the decision of the independent review organization."

Texas Insurance Code, Article 21.58C(2)(b)(3), provides that health care providers or physicians make the review determinations for independent review organizations. In most cases the independent review organization is to make its determination (1) not later than the earlier of: (A) the 15th day after the date the independent review organization receives the information necessary to make the determination; or (B) the 20th day after the date the independent review organization receives the request that the determination be made. The key word in the foregoing subsection is "information". The health care provider or physician is to make his or her determination based on information. Section 2001.060(2) of the APA requires the decision be based on the evidence.

Department of Insurance Rule 12.208(a) provides that "[a]n independent review organization shall preserve the confidentiality of individual medical records, personal information, and any proprietary information provided by payors. Personal information shall include, at a minimum, name, address, telephone number, social security number and financial information." This confidentiality provision conflicts with Section 2001.060(2) of the APA.

Texas Labor Code Section 413.031(e) provides that "[e]xcept as provided by Subsections (d), (f), and (m), a review of the medical necessity of a health care service provided under this chapter or Chapter 408 shall be conducted by an independent review organization under Article 21.58C, Insurance Code, in the same manner as reviews of utilization review decisions by health maintenance organizations. It is a defense for the insurance carrier if the carrier timely complies with the decision of the independent review organization." This subsection of Section 413.031 has the same conflict with the APA as does subsection (d).

Texas Labor Code Section 413.031(e-1) provides that "[i]n performing a review of medical necessity under Subsection (d) or (e), the independent review organization shall consider the division's health care reimbursement policies and guidelines adopted under Section 413.011. If the independent review organization's decision is contrary to the division's policies or guidelines adopted under Section 413.011, the independent review organization must indicate in the decision the specific basis for its divergence in the review of medical necessity."

Texas Labor Code Section 413.011(e) provides that "[t]he commissioner by rule shall adopt treatment guidelines and return-to-work guidelines and may adopt individual treatment protocols. Treatment guidelines and protocols must be evidence-based, scientifically valid, and outcome-focused and designed to reduce excessive or inappropriate medical care while safeguarding necessary medical care." (Emphasis added). As stated above, Texas Labor Code Section 401.021(1)(D) provides that Government Code Section 2001.141(c) applies to Division proceedings, hearings, judicial review, or enforcement of commissioner orders or decisions. Government Code Section 2001.141(c) provides that "[f]indings of fact may be based only on the evidence and on matters that are officially noticed." Section 2001.141(c) of the APA requires that administrative decisions include findings of fact "based only on the evidence and on matters that are officially noticed." Agency rules are matters that must be officially noticed. "We believe the duty is also mandatory, even in the absence of a request under Rule 204, respecting administrative agency regulations published in the Texas Register and Texas Administrative Code. Such regulations "are to be judicially noticed." "This requirement is designed to protect the fundamental due process rights of parties in the administrative process."

Texas Labor Code Section 413.031(l) provides that "[a] party to a medical dispute regarding spinal surgery that remains unresolved after a review by an independent review organization as provided by Subsections (d) and (e) is entitled to dispute resolution as provided by Chapter 410." Texas Labor Code Section 408.026 provides that "[e]xcept in a medical emergency, an insurance carrier is liable for medical costs related to spinal surgery only as provided by Section 413.014 and commissioner rules." Chapter 410 of the Texas Labor Code provides for the adjudication of disputes through contested case hearings. Texas Department of Insurance, Division of Workers' Compensation Rule 133.308(v) provides that "[a] party to a prospective necessity dispute regarding spinal surgery may appeal the IRO decision by requesting a Contested Case Hearing ('CCH')." Clearly an insurance carrier has a right to a hearing in a spinal surgery dispute.

Texas Labor Code Section 413.031( n) provides that "[t]he commissioner by rule may prescribe an alternate dispute resolution process to resolve disputes regarding medical services costing less than the cost of a review of the medical necessity of a health care service by an independent review organization. The cost of a review under the alternate dispute resolution process shall be paid by the nonprevailing party." The Texas Workers' Compensation Commission adopted Rule 133.309 in August 2004, to be effective September 12, 2004. The Insurance Council of Texas challenged Rule 133.309 in Cause No. GN 403210, Insurance Council of Texas v. Texas Workers' Compensation Commission, 345th Judicial District Court, Travis County, Texas. District Court Judge Suzanne Covington ruled in favor of the Insurance Council of Texas in its lawsuit against the Texas Workers' Compensation Commission. At present this author is unaware of any effort on the part of the Division of Workers' Compensation to adopt a rule under Subsection (n) of Section 413.031.

Texas Labor Code Section 401.021(1) and (2) provide: "[e]xcept as otherwise provided by this subtitle:

(1) a proceeding, hearing, judicial review, or enforcement of a commissioner order, decision, or rule is governed by the following subchapters and sections of Chapter 2001, Government Code: (A) Subchapters A, B, D, E, G, and H, excluding Sections 2001.004(3) and 2001.005;
(B) Sections 2001.051, 2001.052, and 2001.053;
(C) Sections 2001.056 through 2001.062; and
(D) Section 2001.141(c);

(2) a proceeding, hearing, judicial review, or enforcement of a commissioner order, decision, or rule is governed by Subchapters A and B, Chapter 2002, Government Code, excluding Sections 2002.001(2) and 2002.023..."

The term "proceeding" is not defined in the Labor Code. However, it is used in conjunction with the terms "hearing" and "judicial review". The rule of ejusdem generic provides that when words of a general nature are used in connection with the designation of particular objects or classes of persons or things, the meaning of the general words will be restricted to the particular designation. Therefore, the term "proceeding" in the author's opinion probably does not include a medical dispute.

Texas Labor Code Section 402.073(b) provides that "[i]n a case in which a hearing is conducted by the State Office of Administrative Hearings under Section 413.055 or 415.034, the administrative law judge who conducts the hearing for the State Office of Administrative Hearings shall enter the final decision in the case after completion of the hearing." Texas Labor Code Section 413.055 governs interlocutory orders for the payment of all or part of a medical benefit. Subsection (c) of Section 413.055 provides that a party that disputes an order entered under Subsection (a) is entitled to a hearing. Texas Labor Code Section 415.034 concerns hearings in administrative violation cases.

Texas Labor Code Section 408.027(e) provides that "[i]f an insurance carrier disputes the amount of payment or the health care provider's entitlement to payment, the insurance carrier shall send to the division, the health care provider, and the injured employee a report that sufficiently explains the reasons for the reduction or denial of payment for health care services provided to the employee. The insurance carrier is entitled to a hearing as provided by Section 413.031(d)." However, Texas Labor Code Section 413.031(d) makes no mention of a hearing. Instead Subsection (d) provides only that "[a] review of the medical necessity of a health care service requiring preauthorization under Section 413.014 or commissioner rules under that section or Section 413.011(g) shall be conducted by an independent review organization under Article 21.58C, Insurance Code, in the same manner as reviews of utilization review decisions by health maintenance organizations." Thus there is a conflict between Texas Labor Code Sections 401.021(1) and 413.031(d). When two statutes conflict, the later enacted provision controls.

It is well settled under Texas law that there is no right to judicial review of an administrative order unless a statute provides a right or unless the order adversely affects a vested property right or otherwise violates a constitutional right. When the Legislature denies a right of judicial review of administrative decisions nevertheless the decisions may be attacked in court if they adversely affect a vested property right. The right to challenge an administrative action can be made by an original lawsuit filed in district court on the basis that such action unconstitutionally deprived the plaintiff of a vested property right. The right to one's money is a vested property right. Therefore, an insurance carrier has a right to judicial review of an agency's decision or order depriving it of its money. However, the Legislature has not denied the insurance carrier a right of judicial review. What the Legislature has done is denied the carrier a right to a contested case hearing before the insurance carrier seeks judicial review.

Subsection (k) of Section 413.031 provides that judicial review "shall be conducted in the manner provided for judicial review of contested cases under Subchapter G, Chapter 2001, Government Code." Subchapter G of the APA begins with Section 2001.171 which provides that "[a] person who has exhausted all administrative remedies available within a state agency and who is aggrieved by a final decision in a contested case is entitled to judicial review under this chapter." However, there are two methods of judicial review found in Subchapter G of Chapter 2001 of the Government Code. The first method is found in Section 2001.173 of the Government Code which provides that:

(a) If the manner of review authorized by law for the decision in a contested case that is the subject of complaint is by trial de novo, the reviewing court shall try each issue of fact and law in the manner that applies to other civil suits in this state as though there had not been an intervening agency action or decision but may not admit in evidence the fact of prior state agency action or the nature of that action except to the limited extent necessary to show compliance with statutory provisions that vest jurisdiction in the court.

(b) On demand, a party to a trial de novo review may have a jury determination of each issue of fact on which a jury determination could be obtained in other civil suits in this state.

The second method is found in Section 2001.174 of the Government Code which provides that:

If the law authorizes review of a decision in a contested case under the substantial evidence rule or if the law does not define the scope of judicial review, a court may not substitute its judgment for the judgment of the state agency on the weight of the evidence on questions committed to agency discretion but:

(1)may affirm the agency decision in whole or in part; and

(2)shall reverse or remand the case for further proceedings if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:

(A)in violation of a constitutional or statutory provision;

(B)in excess of the agency's statutory authority;

(C)made through unlawful procedure;

(D)affected by other error of law;

(E)not reasonably supported by substantial evidence considering the reliable and probative evidence in the record as a whole; or

(F)arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.

Since money is a vested property right, before it can be taken, a person is entitled to notice and hearing. The right to cross examine adverse witnesses and to examine and rebut all evidence is not confined to court trials, but applies also to administrative hearings.

The test of whether an order is supported by substantial evidence is where the order of the agency under attack involves the exercise of the sound judgment and discretion of the agency in a matter committed to it by the Legislature, the court will sustain the order if the action of the agency in reaching such conclusion is reasonably supported by substantial evidence. This does not mean that a mere scintilla of evidence will suffice, nor does it mean that the court is bound to select the testimony of one side, with absolute blindness to that introduced by the other. After all, the court is to render justice in the case. The record is to be considered as a whole and it is for the court to determine what constitutes substantial evidence.

The court is not to substitute its discretion for that committed to the agency by the Legislature, but is to sustain the agency if it is reasonably supported by substantial evidence before the court. If the evidence as a whole is such that reasonable minds could not have reached the conclusion that the agency must have reached in order to justify its action, then the order must be set aside. Under the presumption of validity, the evidence which the court may consider includes proof made at the trial of facts in existence at the time the order was entered.

Evidence means items presented to prove the existence or nonexistence of a fact. Exclusion of evidence is defined as: "[t]he action by the trial judge in which he excludes from consideration by the trier of fact whatever he rules is not admissible as evidence. Because judicial review shall be conducted in the manner provided for judicial review of contested cases it follows that a contested case hearing must be held.

If the agency refuses to conduct a contested case hearing, then a party can ask the court to remand a case to the agency to conduct the hearing or order the agency to hear the evidence. Jack Latson with the law firm of Flahive, Ogden & Latson has been kind enough to share a letter with me from the Legal Services Manager of the Division of Workers' Compensation, dated November 22, 2005, wherein DWC contends the Legislative intent is to deny a contested case hearing. The DWC states in the letter that the Division "will not grant any request for a formal contested case hearing for medical necessity and fee disputes (with the exception of disputes regarding the medical necessity of spinal surgery)."

The answer to the question, after House Bill 7, does an insurance carrier have a right to a hearing in a medical dispute is "yes". Since the Division will not grant a request for hearing then the remedy is to ask the court in the appeal seeking judicial review to order the agency to conduct the hearing or order the agency to hear the evidence. An insurance carrier could also challenge the constitution-ality of Section 3.245 of House Bill 7.

The author of this article, John D. Pringle J.D., of the Austin-based Law Offices of John D. Pringle, provides legal representation to insurers, businesses and individuals in the field of administrative law for over 20 years.

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