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FOLIO CLIENT NEWSLETTER BY FLAHIVE, OGDEN & LATSON

SUNSET COMMISSION HEARING SETS STAGE FOR 2011 SESSION A PRIVILEGED ATTORNEY—CLIENT COMMUNICATION BY FLAHIVE, OGDEN & LATSON

T he Sunset Advisory Commission held a public hearing last month laying the groundwork for legisla-tion during the 2011 session to continue the existence of the Texas Department of Insurance, Division of Workers’ Compensation, and the Office of Injured Em-ployee Counsel. The Commissioners heard testimony from Sunset Commission staff, agency regulators and members of the general public on a variety of sub-jects, such as whether medical dispute hearings should continue to be conducted before the State Of-fice of Administrative Hearings and whether the Divi-sion’s medical quality review panel should continue to oversee health care providers in the system.

The Commission members received testimony from Workers’ Compensation Commissioner Rod Bordelon, Insurance Commissioner Mike Geeslin, Public Injured Employee Counsel Norman Darwin and nearly a dozen injured workers and a number of other system stake-holders.

Initially, sunset staff summarized its April 2010 staff

report. That report recommended that the Division

increase efforts to require non-subscriber injury re-

porting. This recommendation drew sharp comments

from several Commission members, who questioned

whether the recommendation exceeded the scope of

the Sunset process.

In the first of many questions throughout the hearing, several members questioned the staff recommenda-tion to remove SOAH from medical dispute cases. Staff offered a weak rationale for the recommenda-tion. This proved to be the only testimony in favor of removing the hearings from SOAH, while many wit-nesses from different stakeholder constituencies rec-ommended maintaining SOAH’s involvement.

Sunset staff has also recommended extending the

Commissioner of Workers’ Compensation’s authority

to approve or modify a proposed SOAH decision in

cases involving enforcement actions. Commissioner

Rod Bordelon testified that many state agencies have

similar statutory provisions. Several Sunset Commis-

sioners questioned the wisdom of implementing such

a change, suggesting that the Commissioner, who is

responsible for setting enforcement policy, should

not also have ultimate authority over the final deci-

sion of a contested hearing that may affect that pol-

icy.

Commissioners sharply rebuked staff for recommend-ing designated doctors be required to pay a certifica-tion fee to the Division in order to finance education and training of designated doctors. No other witness testified in favor or opposition to the proposal.

Although the subject of the preauthorization process did not make its way into the sunset staff report, more than one Commissioner questioned whether that process was effective. Staff promised to examine the process further in anticipation of the Commis-sion’s next meeting.

Continued on Page. 4

In This Issue…

On the Cusp of the PBO………………………… p. 3

Division of Workers Compensation—

Rule Status Chart……………………………….…. p. 21

2010—Flahive, Ogden & Latson MAY & JUNE 2010 - VOLUME 15, NO. 5

FOLIO CLIENT NEWSLETTER BY FLAHIVE, OGDEN & LATSON 2

Division Requests AG Opinion on PBMs

after January 1, 2010

Flahive, Ogden & Latson, a 22 lawyer firm, defends

contested workers’ compensation cases statewide every day. The firm has represented insurance compa-

nies and employers before the Texas Workers’ Compen-sation agency for more than 50 years. For general ques-

tions concerning the newsletter call: (512) 435-2234.

Flahive, Ogden & Latson

P.O. Box 13367

Austin, TX 78711

If you are interested in receiving FOLIO by email, please let us know. FOLIO is prepared for the exclusive use of

Flahive, Ogden & Latson clients only. It contains privi-

leged communications and further sharing of this news-letter (in either hard copy or electronic format) outside

your company without the express written consent of Flahive, Ogden & Latson is not permitted.

FO&L OFFICE HOURS

Monday—Friday

8:15 a.m.—4:45 p.m.

If you need to call after 4:45 p.m. please call Patsy Shel-

ton at (512) 435-2234. She will be on duty until 6:00 p.m. daily.

Don’t wait until the last hour of the day for deadline filing. Any faxes with information due must be received

by 3:30 p.m. for any deadline handling for same day delivery to the Division, and faxed according to the fax

directory listed on the last page of FOLIO. Furthermore, if you have a last minute deadline, call our office by

3:00 p.m. and speak with Sally Matthews or Patsy Shel-ton to advise that a last minute filing is necessary to

meet a deadline. We will be watching and waiting for

the fax. Otherwise, last minute faxes could delay re-ceipt. Our last daily run to the Division will be at 4:00

p.m., in order to get across town to meet their 5:00 p.m. closing time.

T he Texas Division of Workers’ Compensation has

requested that the Texas Attorney General provide the

agency with an opinion regarding the status of phar-

macy benefit managers after January 1, 2011. Flahive,

Ogden & Latson filed a brief with the Texas Attorney

General’s office which demonstrates that after January

1, 2011 insurance carriers may agree with pharmacies

to discount reimbursement through informal or volun-

tary networks.

The Commissioner asked that the AG address two spe-

cific questions. First, the Commissioner asked whether

a workers’ compensation insurance carrier may, after

January 1, 2011, contract with health care providers to

pay for a “prescription drug, medicine, or other rem-

edy” at a lower fee rate than the fee rates allowed un-

der the Texas Department of Insurance, Division of

Workers’ Compensation's Fee Guidelines. If so, the

Commissioner asked whether insurance carriers may

contract with informal or voluntary networks, as de-

fined by TEX. LAB. CODE ANN. §413.0115 to obtain those

contractual agreements.

In a separate article of this FOLIO we have summarized

the points contained in that brief. Authorities for each

of these points is provided in the brief, but have been

largely omitted from that summary.

The Attorney General has posted a summary of the

Commissioner’s opinion request on its website. A copy

of that request can be found at http://

www.oag.state.tx.us/opinions/opinions/50abbott/

rq/2010/pdf/RQ0891GA.pdf.

Continued on pg. 4


ON THE CUSP OF THE PBO

PROCESS

T he Division is expected to begin the 2010

Performance Based Oversight process for

insurance carriers in July 2010. This year 132 insur-

ance carriers have been selected for PBO assess-

ment. The selection field includes 80 commercial

carriers, three state entities, 43 self-insurers and

six certified self-insurers.

The Division will assess the same carrier measures

in 2010 that it assessed in 2009: timely payment of

TIBs (40%); timely medical bill processing (40%);

timely EDI submission of initial payment data

(10%); and timely EDI submission of medical bill

processing data (10%).

Now is the time to take final steps to assure that

your medical billing data elements are accurate. If

you have identified inaccurate medical billing data

elements through the self audit process, you may

be able to correct them through EDI resubmission

reporting. If such inaccurate data elements are

corrected and resubmitted on or before June 30,

2010 the correct data will be picked up in the PBO

process.

The Division should issue its initial findings by mid

July 2010. After carriers have reviewed the Divi-

sion’s initial findings, they will be permitted to

submit a management response refuting the initial

findings, with supporting documentation. This will

occur between September and October 2010.

In considering these management responses, carriers

must understand the following:

Carrier data elements cannot be changed in the EDI

reporting. If refuting initial findings, carriers must send

documentation to support the inaccurate data ele-

ment in response to the preliminary findings.

Denied Claims (Disputes) – Both an EDI 148-04

and a PLN-1 must be filed with DWC to be

considered a timely dispute. If a claim has a

148-04 annotation, then that claim is removed

from the review.

Full Salary – Remember to report “FS” in the

EDI transaction if the employer is paying full

salary. Full salary transactions are excluded

from the review.

Intermittent Lost Time (ILT) and Delayed Lost

Time – Must send documentation in response

to the preliminary findings that supports how

the accrual date (eighth day of disability) was

arrived.

Knowledge of Disability – PBO review does not

consider knowledge date of disability when

calculating the timeliness of the initial pay-

ment of TIBs. This is because there aren’t any

current statute or rule provisions that allow

for a calculation based on the knowledge of

disability date. If a carrier is going to refute a

late payment based on knowledge of disabil-

ity, it should provide as much documentation

and explanation that fully explains the issue,

as in some cases, the payment may be timely

based on inaccurate data reporting.

The Division will review carrier management re-

sponses and prepare a summary of changes for distri-

bution to the carriers.

Continued on pg. 5


Joe Woods, testifying on behalf of the Property Casu-alty Insurers’ Association of America, stated that the DWC loss control program replicated a similar program administered by the Department of Insurance. Mr. Woods suggested that the Commission use the Sunset process to consolidate the Division’s loss control pro-gram into the Department of Insurance’s loss control program.

Norman Darwin, Public Counsel for the Office of Injured Employee Counsel, described OIEC’s ongoing efforts to improve the agency’s performance. Mr. Darwin testi-fied that OIEC agrees with the recommendations of the Sunset staff. He did not receive any questions from the Commissioners. The Sunset Commission will reconvene on July 6, 2010 to vote on its recommendations to the legislature for both DWC and OIEC. Those recommen-dations are likely to become the foundation for the Sunset bill during the 2011 legislative session.

Division Requests AG Opinion on PBMs after January 1, 2011

Continued from pg. 2

Note that briefs or other public comment should be

filed with the AG’s office on or before July 9, 2010. In-

terested persons can direct any public comments to the

following addressee:

The Honorable Greg Abbott Attorney General of Texas c/o Nancy S. Fuller, Chair Opinion Committee P.O. Box 12548 Austin, TX 78711-2548

The Attorney General requests that any filings on this

matter reference the following opinion request tracking

number: RQ-0890-GA.

If you have questions regarding this issue, please con-

tact Steve Tipton, James Sheffield or Bobby Stokes in

our office.

Sunset Commission Hearing Sets Stage for 2011 Session Continued from pg 1

Commissioner Bordelon provided Commission mem-bers with a statistical review of the performance of the workers’ compensation system. That testimony was supplemented by a post-testimony letter from the Commissioner, which has also been included in this issue of FOLIO.

Commissioner Bordelon then focused his testimony on Sunset Staff’s recommended changes to the Medi-cal Quality Review Program. The Commissioner sum-marized how the agency reviews medical data and uses complaints to determine which healthcare pro-viders should be reviewed. This drew questions from Commissioners concerning recent press reports sug-gesting that the agency may have inappropriately dis-missed enforcement proceedings against nine health care providers. Commissioner Bordelon testified that he dismissed the enforcement proceedings because of his concerns over how the doctors had been se-lected and then reviewed by Division staff.

Commissioner Bordelon’s testimony was contrasted

by the testimony of former DWC employees – Dr. Ken

Ford and Cathy Lockhart, a former staff attorney in

the enforcement section. The former employees ex-

pressed their disagreement with the decision to halt

the medical review cases. Dr. Ford explained how the

Medical Advisor’s office selected doctors for review

and noted that the doctors he reviewed were re-

ferred to the DWC as complaints about quality of

healthcare. Ms. Lockhart described her frustration

and concerns with the agency’s enforcement proce-

dures.

Commissioner Bordelon advised the Sunset Commis-sion that he has requested that the state auditor’s office review the medical quality review program and processes. The state auditor is already in the process of reviewing the agency’s enforcement program.

The chairman of the House Business and Industry Committee, Rep. Joe Deshotel (D-Beaumont), has announced his intent to conduct a hearing on the agency’s handling of these enforcement actions after the state auditor releases his report. That should hap-pen sometime later this summer.


REMINDER: VOLUNTARY

NETWORKS MUST BECOME

CERTIFIED NEXT YEAR

On the Cusp of the PBO Process

Continued from pg. 3

The final results will be published on the Division

website after the results have been shared with each

carrier respectively. The Division anticipates the pub-

lication of final PBO results for carriers in late De-

cember 2010.

As in past years, the Division will place carriers into

three regulatory tiers that distinguish among poor,

average and high performers in the system. The tiers

will be based on pre-determined performance stan-

dards as follows:

High Tier: 95 or greater

Average Tier: 80.00 through 94.99

Poor Tier: 79.99 or less

The Division will provide a number of incentives to

carriers who achieve high tier standing, including: a

limited audit exemption, modified penalties, publica-

tion of results, authority to market using a high per-

former logo, and reduced penalties for self-

disclosure of non-compliance.

The Division’s emphasis is on early detection of non-

compliance and informal discussions to resolve any

noncompliant issues. The agency will initiate en-

forcement actions, including warning letters and the

assessment of penalties when appropriate and nec-

essary to ensure compliance and to deter future

noncompliance. The Division will consider a carrier’s

Performance Based Oversight ranking in determining

an appropriate enforcement action.

The Division’s full explanation of the 2010 carrier

requirements has been posted on the agency’s web-

site at http://www.tdi.state.tx.us/wc/pbo/

index.html.

We continue to monitor PBO issues closely. If you

have questions concerning this issue, please contact

Bobby Stokes or James Sheffield in our office.

In 2007 the legislature passed H.B. 473, which

amended the Texas Labor Code to require that

informal and voluntary networks be certified as

workers’ compensation health care networks un-

der Texas Insurance Code Chapter 1305 no later

than January 1, 2011.

Non-HCN system participants, who have relied upon

the “PPO discount” offered by informal and voluntary

networks will no longer see those discounts taken af-

ter January 1, 2011.

An "informal network" is a health care provider

network as described in Texas Labor Code (TLC)

§413.011(d-1) that has been established by con-

tract(s) between health care providers and insur-

ance carriers. A "voluntary network" is a volun-

tary workers' compensation health care delivery

network established by an insurance carrier un-

der TLC. Both "informal" and "voluntary net-

works" (informal networks) use specific fee

schedules.

If you have questions about this important and up-

coming change to the Texas medical bill payment

process, please contact Steve Tipton, James Sheffield

or Bobby Stokes in our office.


In addition, by applying well settled rules of statu-

tory construction, the Attorney General should con-

clude that the legislative mandate that voluntary or

informal networks must become certified as work-

ers’ compensation health care networks under Chap-

ter 1305 of the Code on or before January 1, 2011,

when viewed in connection with the provision of the

Insurance Code that prohibits the delivery of phar-

macy benefits under Chapter 1305, must be read to

mean that voluntary or informal networks must be-

come certified as workers’ compensation health care

networks only if they can become certified as work-

ers’ compensation health care networks.

Insurance carriers may continue to contract for dis-

counts

Agreed discounts of pharmacy reimbursement are

authorized by TEXAS LAB. CODE ANN. §408.028(g)

which permits pharmacy discounts independently of

any other provision in the Act. Although other parts

of the Act change on January 1, 2011, §408.028(g) is

unchanged.

Section 408.028(g) requires payment to pharmacies

at the fee schedule or at "rates negotiated by con-

tract." This language can only mean the fee schedule

or a rate "different from" the fee schedule - there is

simply no other way to interpret it. The plain lan-

guage meaning of "different from" means reim-

bursement at higher or lower rates since both are

"different from" a prescribed rate.

Additionally, §413.011(d-1) which is currently in ef-

fect but will expire on January 1, 2011 expressly per-

mits contracts with providers "for fees different from

fee guidelines." Everyone concedes §413.011(d-1)

currently permits reimbursement at greater than or

lesser than fee guidelines.

Because both sections are part of the same Act, and

both deal with reimbursement of health care, and

the implied language "different from" in §408.028(g)

is identical to the express language in §413.011(d-1),

the meaning of both sections must be identical.

Other parts of the Act do not modify these terms. There is

no current section of the Act that limits §413.011(d-1) to

preclude discounts - everyone agrees on this point. No

new section becomes effective on January 1, 2011. There-

fore, nothing elsewhere in the Act circumscribes the op-

eration of §408.028(g).

Certification of informal networks does not prohibit

pharmacy informal networks

Informal networks have not been prohibited or abolished.

They simply must be certified by the Department of Insur-

ance as a Workers' Compensation Health Care Network

on or before January 1, 2011. Because pharmacy benefits

cannot be delivered through a certified network, the two

statutes are in conflict, and in the event of a conflict, the

insurance code prevails.

The only construction of both codes in a manner to give

effect to both is to determine that §413.0115 only re-

quires certification of those informal or voluntary net-

works that can be certified.

Although the repeal of §413.011(d-1) on January 1, 2011

permits carriers to retain the discount agreements with

non-pharmacy health care providers by transitioning the

informal networks to certification, the only equivalent

provision to retain discount agreements for pharmacy

benefits is §408.028(g).

The Act expressly permits pharmacy processing agents

under §413.0111 to "process" pharmacy billings. The lack

of any language prohibiting informal pharmacy networks

coupled with specific authorization for pharmacy process-

ing agents to process claims makes clear that informal

networks providing pharmacy related services only are

expressly permitted by the Act after January 1, 2011.

This interpretation is good public policy

All parties to a pharmacy transaction benefit from a phar-

macy processing agent negotiating discounts and process-

ing claims. Pharmacies obtain an electronic system similar

to group health and Medicare with which they are famil-

iar and reduce their accounts receivable costs.


DIVISION OF WORKERS’ COMPENSATION

ISSUES/RECOMMENDATIONS

The Texas Sunset Commission Staff has recom-

mended that the Commission address seven issues

regarding the workers’ compensation system during

the sunset process. These seven issues are the sub-

ject of Sunset Commission hearings and delibera-

tions.

1 The Division’s Complicated Dispute Resolu-

tion Process Often Fails to Provide a

Quicker, More Accessible Alternative

to the Courts

2 The Division’s Medical Quality Review

Process Needs Improvement to En-

sure Thorough and Fair Oversight of

Workers’ Compensation Medical

Care

3 The Division Cannot Always Take Timely

and Efficient Enforcement Actions to

Protect Workers’ Compensation Sys-

tem Participants

4 The Division’s Oversight of Designated

Doctors Does Not Effectively Ensure

Meaningful Use of Expert Medical

Opinions in Dispute Resolution

5 The Division’s Responsibility for Making

Some Individual Claims Decisions

Conflicts with Its Oversight and Dis-

pute Resolution Duties

6 Employers outside the Workers’ Compen-

sation System Are Failing to Report

Information the Legislature Needs to

Evaluate the Health of the System

7 Texas Has a Continuing Need for the Division of

Workers’ Compensation

Flahive, Ogden & Latson has filed a brief with the Texas

Attorney General in connection with the Commissioner of

Workers’ Compensation’s request for an opinion regard-

ing the status of pharmacy benefit managers after Janu-

ary 1, 2011. The brief argues that such entities may con-

tinue to operate in Texas after January 1, 2011 and that

they may pay pharmacies at rates lower than fee sched-

ule rates. We have summarized those arguments below.

There are two questions inherent in the Commissioner’s

request. The first is whether the January 1, 2011 repeal of

a workers’ compensation insurance carrier’s general au-

thority to reimburse health care at an agreed discounted

rate prohibits carriers from reimbursing pharmacy ser-

vices at contractually discounted rates. The second is

whether a statutory requirement that voluntary or infor-

mal networks must become certified as workers’ compen-

sation health care networks under Chapter 1305 of the

Code on or before January 1, 2011, when coupled with a

provision in the Insurance Code that prohibits the deliv-

ery of pharmacy benefits under Chapter 1305 acts to pro-

hibit insurance carriers from negotiating agreed or con-

tract pharmacy discounts through informal networks or

pharmacy benefit managers acting as processing agents.

A review of the relevant authorities demonstrates that

the legislature’s repeal of a carrier’s authority to reim-

burse health care at contractually discounted rates did

not repeal the statutory provision that independently au-

thorizes carriers to reimburse pharmacy benefits at con-

tractually discounted rates.

A SUMMARY OF FO&L’S BRIEF TO THE AG ON

PBMS NEXT YEAR


Insurance carriers obtain a discount on pharmacy

payments owed. And injured workers benefit by de-

creasing delays in filling prescriptions.

Different treatment of pharmacy informal networks

is consistent with the fact that pharmacy benefits

are already uniquely treated under the Act. Even the

Division acknowledged that fact in their preamble to

pharmacy rule 133.240(m) where it noted that phar-

macy agents and reimbursement policies "differ

from those applicable to all other health care pro-

vider agents."

Adopting an interpretation that recognizes phar-

macy-only informal networks or pharmacy process-

ing agents is consistent with what the Legislature

said it intended to do in its statement of goals and

intent contained in §402.021. That section mandates

that the system:

Provide timely medical

benefits;

Provide cost effective

medical benefits; and

Take maximum advan-

tage of technology.

To conclude otherwise advances no legislative goal,

it creates confusion and transition costs by requiring

a different work process, and it jeopardizes timely

delivery of pharmacy benefits to injured workers.

Finally, to conclude otherwise increases state costs

to state agencies' workers' compensation budgets

when the agencies can ill afford any additional finan-

cial burdens in the coming budget year.

The Commissioner of Workers’ Compensation re-

cently announced the resolution of 10 enforcement

actions directed against health care providers prac-

ticing in the Texas workers’ compensation system.

Eight medical doctors and two chiropractors were

sanctioned as a result of the agency’s enforcement

process.

The penalties imposed by the Commissioner against

these health care providers include monetary penal-

ties as high as $30,000 and non-remunerative pen-

alties that include removal from the designated

doctor list and prohibitions against practicing in the

workers’ compensation arena for up to 10 years.

The cases reflect the Commissioner’s renewed focus

on enforcing the act against all system stake-

holders, and not simply insurance carriers.

As an example, the Commissioner fined an Austin

medical doctor $10,000 and required him to imple-

ment a compliance action plan based upon the doc-

tor’s failure to timely file letter of clarification (two

instances); failure to timely file DWC Form-069 with

the TDI-DWC (four instances); failure to timely no-

tify injured employee of appointment changes; and

failure to timely conduct re-examination pursuant

to letter of clarification request.

The Commissioner also fined a medical doctor

$30,000 and ordered him to develop and adhere to

a compliance action plan based upon the doctor’s

failure to timely file letter of clarification (two in-

stances);

DIVISION STEPS UP

ENFORCEMENT ACTIONS AGAINST HEALTH CARE

PROVIDERS

failure to timely file DWC Form-069 with the

TDI-DWC (four instances); failure to timely no-

tify injured employee of appointment changes;

and failure to timely conduct re-examination

pursuant to letter of clarification request.

The Commissioner also fined a medical doctor

$30,000 and ordered him to develop and ad-

here to a compliance action plan because of his

failure to timely file the DWC Form-069 with

the TDI-DWC (94 instances) as well as his fail-

ure to file the DWC Form-069 with the insur-

ance carrier via facsimile or electronic trans-

mission (88 instances).

One medical doctor was suspended from the

designated doctor list for 18 months because of

his failure to timely file the DWC Form-069

with the insurance carrier (44 instances) and

his failure to file the DWC Form-069 with the

insurance carrier via facsimile or electronic

transmission (50 instances).

Another medical doctor was fined $5,000 and

suspended from the designated doctor’s list for

six months based on her failure to timely file

the DWC Form-069 with the TDI-DWC (five in-

stances).

One medical doctor was suspended from the

designated doctor list for 90 days and was or-

dered to implement a compliance action plan

for his failure to timely file letter of clarifica-

tion; failure to timely file DWC Form-069 with

insurance carrier (10 instances); and his failure

to file DWC Form-069 with the insurance car-

rier via facsimile or electronic transmission

(three instances).

The Commissioner fined another medical doc-

tor $6,500 and ordered him to develop a com-

pliance action plan for his failure to timely file the

DWC Form-069 with the insurance carrier (23 in-

stances) and his failure to file DWC Form-069 with

the insurance carrier via facsimile or electronic

transmission (23 instances).

Two medical doctors were removed from the desig-

nated doctor list or barred from reapplying to re-

turn to the list for one year (respectively) for the

first doctor’s actions in failing to file a letter of

clarification in a timely manner (two instances); fail-

ing to timely conduct an examination after a can-

celled appointment; failing to timely file DWC Form-

069 with the TDI-DWC (two instances) and the sec-

ond doctor’s actions failure to timely file letter of

clarification (three instances); failure to timely file

DWC Form-069 with the insurance carrier (10 in-

stances); failure to timely notify TDI-DWC of re-

scheduled designated doctor appointment; and fail-

ure to schedule or perform four designated doctor

appointments within 90 days.

A Texas chiropractor was ordered to cease and de-

sist from practicing before the Division as a health

care practitioner for 10 years because of her failure

to timely file required medical records as well as

her failure to timely comply with TDI-DWC order to

produce medical records.

A second chiropractor was fined $2,500 and or-

dered to adhere to a compliance action plan for his

failure to timely file DWC Form-069 with the insur-

ance carrier (14 instances) as well as his failure to

file DWC Form-069 with the insurance carrier via

facsimile or electronic transmission (14 instances).

These final actions each related to violations of the

Texas Labor Code and rules promulgated by the Di-

vision. The Commissioner’s orders are subject to

appeal to state district court within 30 days after

being issued.









ADVISORY NO. 457

TOPIC: DIVISION CLARIFIES RECENT WARNING LETTER PROCEDURES

Recently, the Division of Workers’ Compensation Enforcement staff distributed a series of warning letters to carriers who were alleged to have inappropriately paid health care providers. The letters contended that such carriers had reimbursed such providers even though they had been denied admission to the agency’s approved doctor list. The statute prohibits a carrier from providing direct or indirect reimbursement in cases where pro-viders have been so denied or removed, and where the providers were not reinstated to the list before Septem-ber 1, 2007.

We met with Division of Workers’ Compensation and Department of Insurance staff to raise concerns regard-ing how carriers can identify health care providers who should not be reimbursed pursuant to TEXAS LAB. CODE ANN. §408.023 and 28 TEX. ADMIN. CODE §180.20. See FO&L Advisory No. 456 dated May 6, 2010. On May 14, 2010, Agency staff provided some helpful clarification in this regard. Section 408.023 expressly prohibits a carrier from directly or indirectly reimbursing prohibited providers. We called to the Division's at-tention the difficulty in identifying such providers because of the varied ways in which a carrier can be pre-sented with such a bill.

For example, we observed that a carrier might receive a bill that identifies a prohibited doctor in Box Number 31 of CMS-1500, but that does not identify the prohibited doctor in Box Number 33. Instead, Box Number 33 may identify another entity in which the prohibited doctor may have a financial interest. Under such circum-stances, a carrier who pays such a bill may be providing an indirect remuneration to a prohibited doctor, thereby violating TEXAS LAB. CODE ANN. §408.023.

Recognizing the difficulties that carriers can face in preventing indirect remuneration to prohibited doctors, and that there is no fail proof method for resolving such issues, the Division has, nevertheless, offered the fol-lowing guidance:

1. If a prohibited doctor’s name is listed on the bill in Box Number 31 and/or Box Number 33, the carrier is prohibited from paying the bill as this would be a direct remuneration to a prohibited doctor.

2. If a carrier suspects, but cannot verify, that by paying the bill a prohibited doctor would be receiving indirect remuneration, the carrier should pay the bill and then report the


instance to the Division as a complaint. The Division will then investigate the complaint and determine if a violation has occurred and if sanctions are appropriate.

3. If a carrier has knowledge that a prohibited doctor would be receiving indirect remuneration if the car-rier pays the bill, the carrier should verify this knowledge with any relevant evidence (e.g. financial dis-closures of the prohibited doctor) and deny payment accordingly.

The Division has acknowledged that there may be other variations of how prohibited doctors may receive indi-rect remuneration. The agency encourages carriers to follow the general guidance outlined above in their ef-forts to prevent such occurrences.

We recommend that this guidance be shared with your medical bill processing vendors.

If you have questions concerning this Advisory, please contact James Sheffield, Steve Tipton or Bobby Stokes in our office.

ADVISORY NO. 458

TOPIC: INITIAL PAYMENT OF TIBS VIOLATION REFERRALS

In the last month we have seen a sharp increase in the number of violation referrals at the Complaint Resolu-tion level. It is the Complaint Resolution unit of System Monitoring & Oversight that is charged with sending violation referrals to the system participants. The violation referrals are for the alleged failure of Carriers to timely issue its initial payment of TIBs.

FO&L has now received confirmation that the violation referrals are internal. The Monitoring & Analysis Unit of DWC’s System Monitoring & Oversight Unit track EDI filings. Based upon those filings, Monitoring & Analysis can identify late initial payments of TIBs. This is significant for carriers for several reasons, not the least of which is that the initial payment of TIBs represents a PBO measure that accounts for forty percent (40%) of the carrier’s PBO rating. The next PBO rating for carriers is scheduled to be posted December 2010, and is based upon the carrier’s actions between January 1, 2010 and June 30, 2010.

The carrier’s duties with respect to the payment of initial TIBs and/or denial of TIBs (refusal to pay benefits) is governed by §409.021 of the Texas Labor Code and 28 TAC §124.3.

Carriers should create procedures to eliminate this type of violation, and during the PBO time frames, the car-riers should be monitoring its adjusters’ actions and those of its EDI vendors concerning initial pay.

If you have any questions concerning this Advisory, please contact James Sheffield.


ADVISORY NO. 459

TOPIC: TEXAS SUPREME COURT DENIES HOSPITALS' PETITION

IN STOP LOSS TEST CASE

This morning, May 28, 2010, the Texas Supreme Court denied the hospitals' petition for review in Cause No. 09-0162, Vista Community Medical Center, LLP and Christus Health Gulf Coast v. Texas Mutual Insurance Company, et al., the so-called Stop Loss Test Case. Justice O'Neill and Justice Guzman did not participate in the decision. In doing so, the Court has let stand the Austin Court of Appeals' decision at 275 S.W.3d 538.

The case involves the application of an exception to the default per diem method of reimbursement under the Acute Care Inpatient Fee Guideline (former DWC Rule 134.401), effective for admissions from August 1, 1997 through February 29, 2008 The Court of Appeals decision below authorizes the Division (and subsequent fact finders at SOAH or district court) to require the hospitals to show the total audited charges are $40,000 or more, AND that the admission involved unusually costly and unusually extensive services (the so-called "two-prong test") in order to be entitled to reimburse-ment under the stop loss exception (75% of audited charges).

It is expected that the hospitals will file a motion for rehearing at the Texas Supreme Court. It may take several months for the Court to dispose of that motion. It is unlikely the Court would grant such a motion as the case has been very thor-oughly briefed by both sides. However, the mandate from the Austin Court of Appeals will not be issued until the Su-preme Court does rule on the motion for rehearing.

The expected outcome is that the stop loss cases now pending in district court that were decided under the so-called "one-prong test" will likely be remanded to the DWC for application of the two-prong test. Others may be re-tried at SOAH which mostly applied the one-prong test. In that event, the DWC can also move to decide those stop loss cases that have been abated by the DWC pending final resolution of the Test Case. In any event, the Court's action today is a giant step to resolving these disputes based upon a true application of the intent of the Rule.

FO&L will, of course, be involved in and keep you advised of the events of this dispute as it proceeds to its final resting place. Please contact Steve Tipton at [email protected] or (512) 435-2162 if you have any questions.


receipt of a request to issue his opinion to a state agency.

We are hopeful that the Attorney General's office will

expedite this opinion, given the looming deadline.

PHARMACY ISSUES:

WHAT’S THE STATUS?

This has been the year of pharmacy issues in the Texas workers’ compensation system. Currently, the Division is dealing with three major pharmacy issues: developing a closed formulary; developing a new pharmacy fee guideline; and considering the future of pharmacy benefits managers after January 1, 2011. Below, we have summarized the status of these three important issues.

The Division estimates that the formulary rule will be published in the Texas Register sometime in July 2010. That means that it will be on track to take ef-fect January 1, 2011. There have been so many delays with this rule that I will believe it when I see it.

The fee guideline is estimated to be informally posted sometime before the end of June 2010. Informal posting is the Division's way of securing public input and developing policy when a rule is being developed. It is a precursor to the formal rule development. We know that the Division does not intend to formally post the fee guideline rule until after it has passed the formulary rule. But we don't know how quickly they will get to the fee guideline rule after the formulary rule is passed.

The Division has asked the Attorney General to weigh in on the pharmacy benefits manager controversy. Recall that there is a question whether PBMs will be permitted to operate in the Texas workers' compen-sation system on and after January 1, 2011. This is because they may be considered to be informal or voluntary networks, which must become certified as HCNs on or before January 1, 2011. But PBMs cannot become certified as HCNs because the Healthcare Network Act prohibits the delivery of pharmacy bene-fits in an HCN setting. The Commissioner has asked the Attorney General to address whether PBMs can continue to operate after the first of the year and, if so, whether they can reimburse pharmacies at nego-tiated contract rates. The Attorney General has ac-cepted the opinion request and has set a deadline of July 9, 2010 for the public to comment on the issue. Generally, the Attorney General has 180 days from




Q: The carrier received notice of a child sup-port lien. The carrier is currently paying impair-ment income benefits (IIBs). Does the child sup-port lien apply to IIBs?

A: Yes. Section 408.203 of the Texas Labor Code provides that all income and death benefits are subject to child support liens.

____________________________

Q: The carrier obtained a peer review report that stated that no further medical treatment is nec-essary. Even though the carrier has such a report, isn’t an injured worker still entitled to office visits with the treating doctor? If so, how frequently would the injured worker be allowed to see the treating doctor? If the treating doctor is a chiro-practor, would the injured worker’s visit with the medical doctor at the same clinic for medications be considered part of the treating doctor’s examina-tion?

A: This question brings up a very im-portant point: The Division has specifically stated that “a peer review cannot be a review for all future treatment.” 31 TEX. REG. 6375. Thus the question presumes something that simply is not allowed. Further, in 2009 the legislature amended the Labor Code to define Utilization Review as including ret-rospective review. Rule 180.22(g) provides that a peer review whose report is to be the basis of re-view of medical bill must be a URA, unless it is another URA that is reviewing the particular bill. There is simply no provision in the statute or rules for a carrier (without the involvement of a URA) to

deny a medical bill based upon a prospective review of medical treatment that does not require preauthori zation. Nevertheless, an office visit with a treating doctor is subject to the same review for medical necessity as any other type of health care. To determine whether an of-fice visit is medically necessary depends upon the par-ticular circumstances of the claim. That is, §408.021 of the Texas Labor Code provides that 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. The Act also defines “health care” as all reasonable and necessary medical aid, medical ex-aminations, medical treatment, medical diagnoses, medical evaluations and medical services. See Tex. Lab. Code §408.011(19).

The status of “treating doctor” is assigned to a particu-lar doctor, not a clinic. If the treating doctor is a chiro-practor and he sends the injured worker to the medical doctor within the same clinic for medications, then the medical doctor is considered a referral doctor. Both examinations are subject to prospective or retrospective medical necessity review depending upon whether such examinations are consistent with the ODG Treatment Guidelines.

Q: The injured worker went to his primary care physician for an initial non-emergency evaluation. During the exam, the injured worker tells his doctor that he suffered a work-related injury. The doctor ex-plains that he does not handle workers’ compensation patients, but nonetheless completes the exam,

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refers the injured worker for an MRI, and provides an off work slip. Is the carrier liable for the MRI expenses and income benefits to the injured worker since the referral and off work slip. Is the carrier liable for the MRI expenses and income benefits to the injured worker since the referral and off work slip were provided by a physician who does not ac-cept workers’ compensation patients?

A: It is a pervasive myth that benefits are to be initiated only upon an opinion of a treating doctor. A claimant may demonstrate the existence of disability by his testimony alone, if credible. As with an opinion by a treating doctor, the off work slip provided by the non-treating physician is some evidence of disability. The carrier will have to evaluate this off work slip, along with any other facts, to determine whether income benefits are owed. The fact that the off work slip came from a non-treating physician does not, by itself, allow the carrier to set it aside without consideration. Simi-larly, had the off-work slip come from a treating doctor, that fact alone does not require the carrier to initiate benefits.

DWC Advisory 2003-12 provided that if a non-approved doctors list (non-ADL) physician refers an injured worker to a facility for reasonable and necessary evaluation for a work-related injury, then the facility should be reimbursed under the medical fee guidelines. Also keep in mind that since Sep-tember 1, 2007, the Division no longer has the Ap-proved Doctors List (ADL).

If the MRI facility submits a bill for reimburse-ment, then the carrier must review the bill to deter-

mine if it was provided for a work-related injury and if it was medically necessary, consistent with the ODG Treatment Guidelines.

Many MRIs ordered on Texas workers’ compensation cases are not consistent with the ODG and are therefore subject to preauthorization, regardless of whether it is the initial testing. If the testing was subject to preau-thorization, and if such was not obtained, then the bill should be denied on the basis that it was not medically necessary and that preauthorization was not obtained. The determination of whether the testing was consistent with the ODG, and thus subject to preauthorization, is utilization review and should be performed by a utiliza-tion review agent.

Q: If the injured worker saw a doctor immediately after the date of injury and wanted to see another doctor a few days later, would the injured worker have to file a written request (a DWC-53) with the Division to get approval to change doctors?

A: It depends. The carrier must first deter-mine whether this is a non-healthcare-network claim. If it is, then the carrier must determine whether the claimant made an initial choice of doctor pursuant to Rule 126.9. Rule 126.9(c) provides that the first doctor who provides healthcare to an injured worker shall be known as the initial choice of treating doctor, unless: (1) the first doctor is a doctor salaried by the employer; (2) the first doctor is recommended by the employer or carrier unless the injured worker continues, without good cause, to receive treatment from the doctor for a period of more than 60 days; or (3) the first doctor pro-

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vided emergent care with immediate follow-up care. If the injured worker did make an initial choice of treating doctor, then he would be required to obtain approval from the Division to change treating doctors.

Q: The injured worker obtained a DME unit that cost less than $500 so preauthorization was not required. The injured worker, however, receives monthly supplies to be used with the DME. Once the cost of the ongoing monthly supplies exceeds $500, is preauthorization required to continue the supplies?

A: First, the question is based upon a faulty premise. Preauthorization for a DME unit that costs less than $500 is subject to preauthoriza-tion unless it is consistent with the ODG Treatment Guidelines. This is true, too, of ongoing supplies.

Assuming, however, that both the initial DME unit and the ongoing supplies are consistent with the ODG, there is authority for considering each com-ponent piece to determine whether the $500 thresh-old was met. See SOAH decision No. 453-03-2744.M5 (rendered in 2004). That case addressed the preauthorization question for a situation where the individual components of cryotherapy were less than $500, but the cumulative cost was more than $500. The ALJ found that there were different opin-ions on how to address this situation, but she found that the majority view is as noted. The carrier should not evaluate the purchase of supplies cumu-

latively over the course of several months. In your sce-nario, as none of the component pieces exceeded $500, no preauthorization is required. Of course, the fact that preauthorization is not required does not mean that the treatments are reasonably necessary and required by the compensable injury; the treatment can (and should) be reviewed retrospectively and paid or denied accord-ingly.

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T he Texas Supreme Court has issued another opinion confirming that the sixty-day period for challenging compen-

sability does not apply to a dispute over extent of injury. In Zenith Ins. Co. v. Ayala, No. 09-0292 (Tex. June 11, 2010)

the court applied the holding for last year’s opinion in State Office of Risk Mgmt. v. Lawton, 295 S.W.3d 646, 649-50

(Tex. 2009) to reverse the court of appeals’ judgment and remand this case to the trial court for further proceedings.

The court noted that Zenith’s extent-of-injury dispute “mirrors the Division’s conception of an extent of injury dispute

as well as the facts of Lawton”. The court rejected Ayala’s argument that the case was distinguishable from Lawton be-

cause, Zenith had preauthorized the epidural steroid injection to treat Ayala. In so doing, the court wrote:

Ayala also asserts that this case is distinguishable from Lawton because, here, Zenith preauthorized the epidu-

ral steroid injection to treat Ayala. We disagree. Under Division rules, a “carrier shall approve or deny requests

[for preauthorization] based solely upon the medical necessity of the health care required to treat the injury,

regardless of: (1) unresolved issues of compensability, extent of or relatedness to the compensable injury; (2)

the carrier’s liability for the injury; or (3) the fact that the employee has reached maximum medical improve-

ment.” 28 TEX. ADMIN. CODE § 134.600(h). Preauthorization does not, in and of itself, make the carrier liable.

See id. § 134.600(d) (“The carrier is not liable . . . if there has been a final adjudication that the injury is not

compensable or that the health care was provided for a condition unrelated to the compensable injury.”). In-

stead, preauthorization merely precludes a carrier from later disputing the medical necessity of the treatment.

See TEX. LAB. CODE § 413.014(e). A carrier, upon receipt of the bill for preauthorized treatment, may still ar-

gue that the condition treated is not related to the compensable injury. See 28 TEX. ADMIN. CODE § 134.600

(d). As the Division explains:

Preauthorization decisions are to be made entirely based upon medical necessity of the treatment of

the condition proposed to be treated. Issues associated with extent of injury, compensability of the

injury, or liability for the claim are separate from the issue of whether a given treatment or service is

medically necessary. That is why approval of a preauthorization request does not make a carrier liable

for payment if the carrier successfully challenges the extent of injury/compensability/liability issue.

25 Tex. Reg. at 2101. Thus, Zenith’s preauthorization does not preclude Zenith from disputing extent of injury

in this case.

The decision properly observed that an insurance carrier “has up to forty-five days from the date it receives a complete

medical bill to dispute whether [the] treatment [for a disputed condition] was necessary”. The court does not suggest

in its opinion that the consequence of missing such a deadline is a waiver of extent of injury.

We anticipate that Ayala will file a motion for rehearing before the decision will be finally acted upon by the court.

SUPREME COURT ISSUES SECOND

EXTENT OF INJURY WAIVER OPINION


TEXAS DIVISION OF WORKERS’

COMPENSATION APPEAL NO. 100234 Under the Guides to the Evaluation of Permanent Impairment, 4th edition (AMA Guides), page 3/75, when the com-

pensable injury is a lumbar spine injury, and gait derangement is attributed to the lumbar spine injury, without any di-

agnosis to the lower extremities, impairment for gait derangement cannot be assessed in combination with the Lum-

bosacral DRE Category impairment.

Facts: Claimant sustained a lumbar spine injury that resulted in surgery, and complications after spinal surgery. Dr. S was appointed as the designated doctor to determine the claimant’s IR. Claimant reached statutory maximum medical improvement (MMI) on November 5, 2007. Dr. S examined the claimant in October 2008, and noted that claimant had no sensation in his lower leg and his lateral foot, “which would be L4-5 and L5-S1.” Dr. S noted that the claimant had a severe altered gait and used a cane to walk. Additionally, Dr. S noted that claimant had radiculopathy with atrophy in his left leg. The only diagnosis listed by Dr. S in his narrative report was status post lumbar fusion. Using the Guides to the Evaluation of Permanent Impairment, fourth edition (AMA Guides), Dr. S placed the claimant in Diagnosis-Related Estimate (DRE) Lumbosacral Category III: Radiculopathy, assessing 10% impairment for the lumbar spine. Dr. S also as-sessed 20% impairment for moderate gait derangement under Table 36, Lower Limb Impairment from Gait Derange-ment, page 3/76, noting the claimant had to use a cane for his lower extremity. Dr. S then combined the lumbar spine 10% and the gait derangement 20%, resulting in 28% impairment. Dr. S certified that the claimant reached MMI statu-torily on November 5, 2007, with a 28% IR. Dr. S explained that claimant had a severe back injury and had to use a cane to walk so therefore, his lower extremity and his lumbosacral spine would be two different impairment ratings. Dr. S related the altered gait condition to the claimant’s injury to his lumbar spine. No diagnosis was given for a lower extremity condition. Post-designated doctor (Dr. B) examined the claimant in December 2008, and certified claimant reached statutory MMI on November 5, 2007, with a 10% IR, based upon DRE Lumbosacral Category III: Radiculopathy in the AMA Guides. Dr. B noted that using the strict criteria from Table 36, the claimant did not qualify for impairment for gait derangement. Subsequently, in February and March 2009, Dr. S was sent letters of clarification regarding the use of Table 36 to rate gait derangement. Dr. S did not change his impairment rating. A Contested Case Hearing was held on the sole issue of the claimant’s IR. In evidence were the two assignments of IR: one from Dr. S, the designated doctor and one from Dr. B, the required medical examination (RME) doctor. There was no allegation at the CCH that the claimant injured either of his lower extremities as a result of the compensable injury. The hearing officer found that the IR assigned by Dr. S was supported by a preponderance of the evidence and resolved the disputed issue by deciding that the claimant’s impairment rating (IR) was 28%. The carrier appealed, disputing the hearing officer’s IR determination.

Holding: Reversed and rendered. The Appeals Panel noted that the AMA Guides on page 3/75 states gait derangement is a component of many different types of lower extremity impairments and specifies that impairment for gait derange-ment does not apply to abnormalities based only on subjective factors, such as pain or sudden giving-way, as with, for example, a patient with low-back discomfort who chooses to use a cane to ease walking. The Appeals Panel noted that no diagnosis was given to the lower extremity, and that the designated doctor attributed the altered gait condition to the claimant’s lumbar spine injury. The Appeals Panel held that the hearing officer erred in adopting the IR assessed by Dr. S, the designated doctor, be-

cause Dr. S assigned impairment for gait derangement although the compensable injury was to the lumbar spine only.

Both Dr. B and Dr. S agreed that the claimant’s impairment for the lumbar spine was 10% under Lumbosacral DRE Cate-

gory III: Radiculopathy. The only other IR in evidence was the 10% assigned by Dr. B. The Appeals Panel therefore re-

versed the hearing officer’s determination that the claimant’s IR is 28% and rendered a new decision that the claim-ant’s IR was 10%. Texas Division of Workers’ Compensation Appeal No. 100229-s

The required documentation of Work Search Efforts under Rule 130.102(f), can include either job applications or the work search contacts established by TWC. If an applicant can show that he met the minimum number of work search efforts by providing detailed job search listings, he demonstrates an active work effort to obtain employment within his ability to work.

Facts: Claimant applied for the 10th quarter of SIBs, based upon an active work search effort every week of the quali-

fying period in dispute. The qualifying period for the 10th quarter of SIBs began on July 22, 2009, and continued

through October 20, 2009. The minimum number of weekly work search efforts for the employee’s county is 5.

At a CCH on the issue of entitlement to SIBs for the 10th quarter, evidence included the claimant’s Application for SIBs

(DWC-52) for the 10th quarter of SIBs, which listed 5 work searches for each week, totaling 65 work searches within

the 10th quarter. This included a detailed job search listing that showed the employer’s name and telephone number

for each of the 65 work searches for the qualifying period in dispute. The claimant testified that out of the 65 work

searches with potential employers he listed on his DWC-52, he made about 4 to 5 job applications with potential em-

ployers.

The hearing officer determined that the claimant is not entitled to SIBs for the 10th quarter. In the Decision, the hear-ing officer stated that the claimant had an ability to work, did not return to work, did not actively participate in a voca-tional rehabilitation program, and did not document his active work search efforts by job applications. The hearing offi-cer noted that the Claimant’s search for work was limited to talking with 65 potential employers (5 each week) and leaving an application for work with only 5 employers. The hearing officer found that the claimant failed to demon-strate an active effort to obtain employment during the qualifying period for the 10th quarter of SIBs. The claimant ap-pealed, contending that based on documentary evidence, he demonstrated an active work effort to obtain employ-ment within his ability to work by making the minimum work effort searches each week of the qualifying period in dis-pute. The carrier responded, urging affirmance.

Holding: Reversed and rendered. The Appeals Panel noted the work search compliance standards set forth in §408.1415, and the Division’s compliance standards for SIBs recipients set forth in Rules 130.100-130.109, for a qualify-ing period that begins on or after July 1, 2009. To become eligible for SIBs, under §408.1415(a)(3), an applicant must provide evidence satisfactory to the Division of active work search efforts documented by job applications submitted by the recipient. Under Rule 130.102(f), an injured employee shall provide documentation sufficient to establish that he or she has, each week during the qualifying period, made the minimum number of job applications and or work search contacts consistent with the work search contacts established by the Texas Workforce Commission (TWC). The preamble to Rule 130.102 discusses the required documentation of Work Search Efforts outlined in Rule 130.102(f), and states an injured employee’s work search efforts would be consistent with job applications or the work search contacts established by TWC. The Appeals Panel noted that in the instant case the hearing officer’s believed the claimant made 65 work search ef-

forts, based upon the hearing officer’s statements in the Background Information section. Due to the preamble’s clari-

fication that the Rule 130.102(d)(1)(D) “work search efforts” encompasses both job applications and work search con-

tacts as described by TWC rules, the Appeals Panel found the hearing officer’s comment that the claimant only com-

pleted 5 job applications, to be of no consequence. The Appeals Panel found that the claimant met the work search

efforts requirement by making job applications and work search contacts for each week during the entire qualifying

period in dispute, and accordingly, reversed the hearing officer’s decision that the claimant is not entitled to SIBs for

the 10th quarter and rendered a new decision that the claimant is entitled to SIBs for the 10th quarter.


Texas Mutual Ins. Co. v. Boetsch, No. 05-08-00749-CV, 2010 WL 779310

(Tex. App.—Dallas March 9, 2010, no pet. h.).

An impairment rating based on the now-invalid Advisories 2003-10 and 2003-10b is not valid and cannot stand. The

court adopted the impairment rating as it would be without the application of the advisories.

Facts: Boetsch had a work-related injury that included the neck and back. In recovery from surgery, he had a seizure.

He asserted that the ongoing seizure disorder was due to the surgery; the carrier disagreed. The designated doctor

assigned a 37% impairment rating based on the neck, back, and seizure disorder. The designated doctor noted that if

he had not taken Advisories 2003-10 and 2003-10b into account, the impairment rating would be 27%. After exhaust-

ing its administrative remedies, Texas Mutual filed suit on extent of injury and on the impairment rating. The trial

court found in Boetsch’s favor on the issues of whether the injury included seizure disorder and whether the neck and

back impairment was properly calculated. Texas Mutual asserted on appeal that the impairment rating was invalid be-

cause it was based on advisories that were adverse to the Labor Code provisions.

Holding: Reversed and rendered regarding the impairment rating and remanded regarding attorney’s fees. The court

explained that the AMA Guides instruct how to rate injuries and that they prohibit an impairment to be based on loss

of motion caused by spinal fusion. The Division adopted the advisories to correct a perceived gap in the AMA Guides,

but Advisories 2003-10 and 2003-10b were deemed in valid in Texas Department of Insurance v. Lumbermens, 212

S.W.3rd 870 (Tex. App.—Austin 2006, pet. denied). These were the advisories that the designated doctor relied on to

rate the neck and back.

There was no evidence that the impairment rating should be 36% without using the advisories. The 27% rating is ap-propriate without the advisories, but only if the seizure disorder is included in the compensable injury. The court re-viewed the complained-of jury charge on this issue and concluded that it did not constitute error, so the finding regard-ing extent was affirmed and the 27% impairment rating was adopted.

The court also addressed the issue of whether the trial court erred in not submitting the question of the claimant’s at-torney’s fees to the jury. It found that the issue is to be decided by the trial court, not the jury, but that the court needed to revisit the issue. Where there are multiple issues on appeal and the carrier wins some, but not all of them, the trial court should apportion the award of fees to the claimant’s attorney only for the issues on which the claimant prevailed.

McDonald v. Albright, No. 09-09-00011-CV, 2010 WL 1087516

(Tex. App.—Beaumont March 11, 2010, no pet. h.).

Recovery of workers’ compensation benefits is the exclusive remedy of an injured worker who is covered by workers’

compensation insurance against an employer or an agent of the employer under Texas Labor Code § 408.001(a).

Facts: McDonald sued Albright, who was an indirect supervisor, and Port Iron for injuries while he worked as a tempo-

rary employee. He alleged that he was left unattended and his finger was caught in a wire stripper. Defendants’ sum-

COURT OF APPEALS

OPINION SUMMARIES


summary judgment motion was granted on the basis that the Texas Workers’ Compensation Act was the exclusive rem-edy. McDonald’s cross-motion for summary judgment on the grounds that he was a borrowed employee was denied.

Holding: Affirmed. McDonald’s cross motion for summary judgment asserted that he was the defendants’ borrowed employee, which was an admission that he was indeed an employee of Port Iron. McDonald contended that Port Iron did not establish a valid workers’ compensation policy, but a copy of the policy for the relevant timeframe was at-tached to its summary judgment motion. He also asserted on appeal that the policy was not valid due to policy en-dorsements being unsigned. He cannot assert that new argument for the first time on appeal. The exclusive remedy provision applies here.

Celadon Trucking Servs. v. Martinez, No. 08-07-00313-CV, 2010 WL 1055156

(Tex. App.—El Paso March 24, 2010, no pet. h.).

The claimant’s failure to exhaust his administrative remedies in another jurisdiction barred recovery in Texas courts.

Facts: Martinez was a truck driver for Celadon. He was hired in El Paso, but Celadon’s headquarters are located in Indi-ana. Martinez had his orientation in Indiana and signed a document agreeing that the principal location of employ-ment was in Indiana. The agreement provided that any workers’ compensation claims would fall under Indiana law. Martinez was injured in an accident and proceeded to have medical treatment and received benefit checks under Indi-ana law. His claim progressed and he received a 7% impairment rating. He was to receive a lump sum payment; Cela-don’s workers’ compensation manager told him that if he failed to sign the agreement that he would receive nothing. He signed it and the Indiana Workers’ Compensation Board approved the settlement. Celadon is self-insured in Indi-ana, but not in Texas. Martinez then sued Celadon in Texas for non-subscriber negligence, wrongful termination, and fraud. He never presented any claims against the Indiana Workers’ Compensation Board or the Texas Division of Work-ers’ Compensation. A Texas jury found in Martinez’s favor.

Holding: Reversed and rendered. If an agency has exclusive jurisdiction to resolve a dispute, a party must first exhaust all administrative remedies before a court has subject matter jurisdiction. Celadon argued that the Indiana Board had exclusive jurisdiction; Martinez submitted that the Indiana statute does not apply. The court rejected Martinez’s argu-ments, noting that Celadon did attempt to request that Indiana law apply, even through a mandamus action. Further, subject matter jurisdiction cannot be waived and can be raised for the first time on appeal. Martinez also used an ex-pert witness to show that Indiana had no jurisdiction over the claim, but the appellate court rejected the argument, noting no citation of Indiana law against the principal location agreement and citing the Texas Labor Code provision that does allow such agreements. Martinez’s other arguments were also rejected. He was required to present his claims before the Indiana Workers’ Compensation Board before filing suit because of its exclusive remedy provision.

Garriga v. Ace American Ins. Co., No. 11-08-00300-CV, 2010 WL 1490022 (Tex. App.—Eastland April 15, 2010, no pet. h.).

A party should not benefit from wrongfully receiving a settlement in contravention of a carrier’s subrogation rights. The carrier is entitled to the first money paid to the employee or his representatives until the carrier is paid in full, but the carrier is not entitled to the full amount of the compensation benefits it has paid where the third-party settlement amount is less than the total amount paid by the carrier.

Facts: Two people, Barrigan and Hickman, were involved in a car accident. Barrigan was in the course and scope of his employment at the time. State Farm provided auto insurance to Hickman. Attorney Garriga represented Barrigan in a


third-party lawsuit against the other driver. Garriga negotiated with State Farm and made a settlement agreement for $12,600.00. Barrigan’s workers’ compensation claim progressed and Ace paid benefits to him. Ace sent a letter to Gar-riga informing him of its subrogation rights and that it would assert a future credit against all medical and indemnity benefits. Ace then sued Garriga, Barrigan, Hickman and State Farm Insurance for wrongful settlement to recover its workers’ compensation lien, which was $44,287.90. The trial court granted Ace’s summary judgment motion and awarded the full amount of the lien to Ace.

Holding: Reversed and rendered; Ace should recover $12,600.00 on its claim, which was the amount of the third-party settlement, but Ace cannot receive damages in excess of the $12,600.00 third-party settlement proceeds.

Under Texas Labor Code §§ 417.001 and 417.002, the first money paid to an employee or his representatives belongs to the workers’ compensation carrier until its lien is paid in full. When an injured worker and a tortfeasor reach an agreement without regard to the carrier’s rights, they each become jointly and severally liable to the carrier. In the injured worker’s attorney accepts settlement funds in contravention of the carrier’s rights, he too is liable to the car-rier, but only up to the settlement amount.

Pacific Employers Ins. Co. v. Twelve Oaks Medical Ctr., No. 03-08-00059-CV, 2010 WL 1511753

(Tex. App.—Austin April 16, 2010, no pet. h.).

Once the time for filing suit has passed, a plaintiff must use due diligence to procure service regardless of reasons it might have for not wanting to commence the lawsuit.

Facts: Twelve Oaks filed suit following an adverse determination in a medical dispute within 30 days of its receipt of the agency decision. However, Pacific Employers was not served with suit for 13 months. Pacific Employers alleged that Twelve Oaks failed to practice due diligence in serving process, and thus did not timely perfect its suit for judicial review. Pacific Employers filed a plea to the jurisdiction and a motion for summary judgment. Twelve Oaks replied that its delay in serving the defendant was because it was awaiting the outcome of other similar litigation before pro-ceeding. The trial court denied Pacific Employers’ motion for summary judgment but did not explicitly rule on the juris-dictional issue. Pacific Employers challenged the summary judgment denial.

Holding: Vacated and dismissed for want of jurisdiction. In denying summary judgment, the trial court denied the plea to the jurisdiction; this appeal determines whether the trial court erred in so doing. Once a defendant shows that ser-vice of process occurred after the applicable filing period, then the burden shifts to the plaintiff to explain the delay. If that explanation raises a material fact regarding the diligence of the effort to serve the defendant, then the burden shifts back to the defendant. Here, the explanation given by Twelve Oaks for its delay in serving Pacific Employers did not raise a fact issue with regard to due diligence. Twelve Oaks’ petition for review was not timely filed and thus the district court lacked jurisdiction to do anything other than dismiss the case. A plaintiff must use due diligence to pro-cure service of process no matter the reasons it may have for not wanting to serve a party right away.

The dissent in this case agreed that due diligence did not occur, but concluded that Twelve Oaks’ suit was actually barred by limitations, not by jurisdiction. Limitations is an affirmative defense; filing suit within 30 days in this instance is mandatory. Thus, the dissent noted that the district court’s order should have been reversed and rendered in favor of Pacific Employers, but for a different reason than the majority cited.


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