IN THE SUPREME COURT OF IOWA

No. 07–1698

Filed July 17, 2009

AMERICAN EYECARE,

Appellant,

vs.

DEPARTMENT OF HUMAN SERVICES,

Appellee.

On review from the Iowa Court of Appeals.

Appeal from the Iowa District Court for Lee County, 

Michael Schilling, Judge.

Provider of eyecare services challenges the Department of Human 

Services’ finding it upcoded eye examinations. DECISION OF COURT 

OF APPEALS VACATED; DISTRICT COURT JUDGMENT REVERSED 

AND CASE REMANDED.

David A. Hirsch, Des Moines, for appellant.

Thomas J. Miller, Attorney General, and Diane M. Stahle, Special 

Assistant Attorney General, for appellee.
2

STREIT, Justice.

American Eyecare billed Medicaid for comprehensive eye 

examinations it performed on its patients. The Department of Human 

Services (DHS) determined the exams should have been billed as 

intermediate exams because the services rendered did not meet the 

definition of “comprehensive ophthalmological services.” DHS demanded 

American Eyecare repay the overpayment. Because DHS’s interpretation 

of “comprehensive ophthalmological services” is erroneous and because

its determination that neither of the sample cases met the definition of 

“comprehensive ophthalmological services” is not supported by 

substantial evidence, we vacate the court of appeals and reverse the 

district court.

I. Facts and Prior Proceedings.

American Eyecare is a provider of optometric goods and services. 

From 2000 to 2002, American Eyecare submitted separate billings to 

DHS for comprehensive ophthalmological services provided to Medicaidcovered patients. Comprehensive examinations warrant a higher rate of 

reimbursement under the DHS payment schedule than intermediate 

examinations. The fee schedule for physicians is based on the 

definitions of medical and surgical procedures set forth in the American 

Medical Association Physicians’ Current Procedural Terminology (CPT). 

See Iowa Admin. Code r. 441—79.1(7) (2009).

In 2005, Iowa Medicaid’s fiscal agent performed an audit of 

American Eyecare’s records, pursuant to Iowa Code section 249A.7 

(2005) and Iowa Administrative Code rule 441—79.4(3). The fiscal agent 

concluded American Eyecare had charged for a higher level of services, or 

upcoded eye examinations; although it submitted billings for 

comprehensive examinations, American Eyecare’s services only qualified 
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as intermediate examinations because there was no documentation 

supporting initiation of a diagnostic and treatment program. Based on a 

small sample of American Eyecare’s patients (two patients), DHS 

determined American Eyecare had routinely upcoded such examinations.

Accordingly, DHS sought reimbursement with respect to all of the 

services for 964 patients, assuming American Eyecare had made the 

same error in each case. See Iowa Admin. Code r. 441—79.4(3)(e)

(permitting “the use of random sampling and extrapolation”). The 

services provided in the audited cases included, among other things, a 

general evaluation of the complete visual system and refraction. DHS 

sent American Eyecare an Official Notice of Denial of Claims, demanding 

American Eyecare repay the overpayment ($26,095.52) within thirty 

days. The notice concluded “the documentation in your records did not 

support the level of these codes.”

American Eyecare appealed the denial of claims, arguing its

optometrists did perform comprehensive examinations. On April 29, 

2005, a contested case hearing was held before an administrative law 

judge. At the hearing, a DHS representative stated that DHS interprets 

“comprehensive ophthalmological services” as requiring all treatments 

listed under the definition of “initiation of a diagnostic and treatment 

program” be performed in order to be reimbursed at the higher rate. The 

administrative law judge, who affirmed the agency’s finding of upcoding 

from intermediate to comprehensive examinations, concluded “[t]he 

record did not show that any of these procedures were initiated in the

[sample] cases.”

American Eyecare filed a petition for judicial review. American 

Eyecare asserted the exams in question were comprehensive and 

involved “the initiation of diagnostic and treatment program[s].” The 
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district court affirmed, giving deference to the agency’s interpretation of 

the CPT and concluding substantial evidence supported the agency’s 

decision. American Eyecare appealed, and we transferred the case to the 

court of appeals. The court of appeals affirmed.

II. Scope of Review.

We review a final agency action for correction of errors at law. 

Houck v. Iowa Bd. of Pharmacy Exam’rs, 752 N.W.2d 14, 16 (Iowa 2008). 

“We review the district court decision by applying the standards of the 

[Iowa] Administrative Procedure Act to the agency action to determine if 

our conclusions are the same reached by the district court.” 

Locate.Plus.Com, Inc. v. Iowa Dep’t of Transp., 650 N.W.2d 609, 612 (Iowa 

2002). We are bound by the agency’s findings so long as they are 

supported by substantial evidence. Univ. of Iowa Hosps. & Clinics v. 

Waters, 674 N.W.2d 92, 95 (Iowa 2004).

“Substantial evidence” means the quantity and quality 

of evidence that would be deemed sufficient by a neutral, 

detached, and reasonable person, to establish the fact at 

issue when the consequences resulting from the 

establishment of that fact are understood to be serious and 

of great importance.

Iowa Code § 17A.19(10)(f)(1).1

The nature of our review of DHS’s interpretation depends on

whether the legislature has clearly vested the agency with the discretion 

to interpret the rule at issue. See Id. § 17A.19(10)(c), (l). “When an 

agency has not clearly been vested with the discretion to interpret the 

pertinent statute, the court gives no deference to the agency’s 

interpretation of the statute.” Iowa Ass’n of Sch. Bds. v. Iowa Dep’t of 

Educ., 739 N.W.2d 303, 306 (Iowa 2007). In that situation, we will 

reverse where the interpretation is based on “an erroneous 

 1All references to the Iowa Administrative Procedure Act are to the 2009 code.
5

interpretation” of the law. Iowa Code § 17A.19(10)(c). However, if the 

legislature has clearly vested the agency with the authority to interpret 

its rules and regulations, then we grant the agency’s interpretation 

“appropriate deference,” and we will only reverse when the interpretation 

is “irrational, illogical, or wholly unjustifiable.” Id. § 17A.19(11)(c), (10)(l). 

We disavow the concept of limited deference for agency interpretations 

within the agency’s expertise as set forth in Madrid Home for the Aging v. 

Iowa Department of Human Services, 557 N.W.2d 507, 510–11 (Iowa 

1996). See Iowa Assoc. of Sch. Bds., 739 N.W.2d at 306–07. That 

concept is no longer viable under the current version of the Iowa 

Administrative Procedure Act. See Arthur E. Bonfield, Amendments to 

Iowa Administrative Procedure Act, Report on Selected Provisions to Iowa 

State Bar Association and Iowa State Government 61–63 (1998).

Iowa Code section 249A.4 empowers the director of DHS to adopt 

rules regarding reimbursement for medical and health services for 

Medicaid patients. DHS argues because the legislature has given them 

broad or sole authority to run the Medicaid program, it has the power to 

interpret its rules and regulations. However, the statute does not clearly

give DHS the authority to interpret its rules and regulations. See State v. 

Pub. Employment Relations Bd., 744 N.W.2d 357, 360 (Iowa 2008) 

(finding the power to enact, implement, and administer rules and 

regulations is not the same as the power to interpret them); Mosher v. 

Dep’t of Inspections & Appeals, 671 N.W.2d 501, 509 (Iowa 2003) (finding 

“general regulatory authority . . . does not qualify as a legislative 

delegation of discretion” to the agency). As the legislature has not clearly 

vested DHS with the authority to interpret its rules and regulations, we 

will not defer to DHS’s interpretation. Therefore, our review of DHS’s 
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interpretation of its rules and regulations is for correction of errors at 

law. Iowa Code § 17A.19(10)(c).

III. Merits.

Iowa’s Medicaid program is governed by Iowa Code chapter 249A. 

Section 249A.4(9) empowers the director of DHS to “[a]dopt rules 

pursuant to chapter 17A in determining the method and level of 

reimbursement for all medical and health services.” Under Iowa 

Administrative Code rule 441—79.1(7), physicians are reimbursed 

according to a “fee schedule . . . based on the definitions of medical and 

surgical procedures given in the most recent edition of Physician’s 

Current Procedural Terminology (CPT).” The 2001 CPT provides the 

following definitions of intermediate and comprehensive ophthalmological 

services:

Intermediate ophthalmological services describes an 

evaluation of a new or existing condition complicated with a 

new diagnosis or management problem not necessarily 

relating to the primary diagnosis, including history, general 

medical observation, external ocular and adnexal 

examination and other diagnostic procedures as indicated; 

may include the use of mydriasis for ophthalmoscopy.

. . .

Comprehensive ophthalmological services describes a general 

evaluation of the complete visual system. The 

comprehensive services constitute a single service entity but 

need not be performed at one session. The service includes 

history, general medical observation, external and 

ophthalmoscopic examinations, gross visual fields and basic 

sensorimotor examination. It often includes, as indicated: 

biomicroscopy, examination with cycloplegia or mydriasis 

and tonometry. It always includes initiation of diagnostic and 

treatment programs.

(Emphasis added).

The point of contention here is the phrase “it always includes 

initiation of diagnostic and treatment programs,” which distinguishes 
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comprehensive services from intermediate services. According to the 

CPT, the “initiation of diagnostic and treatment program includes the 

prescription of medication, and arranging for special ophthalmological 

diagnostic or treatment services, consultations, laboratory procedures 

and radiological services.” The CPT lists the determination of refractive 

state as an example of special ophthalmological services.

In DHS’s denial of claims notice, it concluded “there was no 

documentation to support initiation of a diagnostic and treatment 

program which is always included in a comprehensive exam.” At the 

administrative hearing, a DHS representative argued that all services and 

procedures listed in the definition of “initiation of diagnostic and 

treatment programs” must be performed in order for the exam to qualify 

as comprehensive. Under that interpretation, a comprehensive exam 

must include (1) the prescription of medication, (2) arranging special 

ophthalmological diagnostic or treatment services, (3) consultations, 

(4) laboratory procedures, and (5) radiological services. American 

Eyecare asserts DHS’s interpretation of the CPT, requiring all services 

listed to be performed, is illogical, as the services listed in the definition 

are just examples of the types of services that would be included in a 

comprehensive examination.

The administrative law judge determined American Eyecare did not 

initiate a diagnostic and treatment program in the two sample cases, as 

“[t]he record did not show that any of [the] procedures [listed in the CPT 

definition of initiation of diagnostic and treatment program] were 

initiated in the [sample] cases.” On judicial review, the district court 

gave deference to the agency’s interpretation and affirmed. The district 

court erred in granting the agency deference. See Iowa Ass’n of Sch. 

Bds., 739 N.W.2d at 306; Iowa Code § 17A.19(10)(c).
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DHS’s interpretation offered in the administrative hearing is 

contrary to the rules of statutory construction.2

When a statutory definition uses the word “includes” as opposed to 

“means,” as the case is here, the term is “more susceptible to extension 

of meaning by construction than where the definition declares what a 

term ‘means.’ ” 2A Norman J. Singer & J.D. Shambie Singer, Sutherland

Statutory Construction § 47:7, at 305 (7th ed. 2007). The word “includes” 

can be used as a term of enlargement or as a word of limitation or 

restriction. TLC Home Health Care, 638 N.W.2d at 713. Generally, “the 

verb ‘includes’ imports a general class, some of whose particular 

instances are those specified in the definition.” Helvering v. Morgan’s, 

Inc., 293 U.S. 121, 126 n.1, 55 S. Ct. 60, 62 n.1, 79 L. Ed. 232, 235 n.1 

(1934). As federal and state courts have recognized, “ ‘[i]ncludes’ has 

various shades of meaning, and its interpretation ‘depends upon the 

 In interpreting a statute, 

rule, or regulation, we “look to the plain language . . . to establish . . . 

intent.” TLC Home Health Care, L.L.C. v. Iowa Dep’t of Human Servs., 

638 N.W.2d 708, 713 (Iowa 2002). The CPT defines “initiation of 

diagnostic and treatment program” as follows: “initiation of diagnostic 

and treatment program includes the prescription of medication, and 

arranging for special ophthalmological diagnostic or treatment services, 

consultations, laboratory procedures and radiological services.” The 

question is whether all of the services following the word “includes” are 

required in order to qualify as “initiation of diagnostic and treatment 

program.”

 2Although neither the administrative law judge nor district court ruled directly 

on the statutory interpretation that would mandate all services and treatments listed 

under “initiation of diagnostic and treatment program” be performed, the State’s brief 

certainly relies upon such interpretation in its contention that American Eyecare failed 

to prove it performed services necessary to be compensated for a comprehensive eye 

exam. However, the State also takes the alternate position that American Eyecare failed 

to perform any of the services listed.
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context’ in which the term is used.” Liverpool v. Baltimore Diamond 

Exch., Inc., 799 A.2d 1264, 1274 (Md. 2002) (quoting Housing Auth. v. 

Bennett, 754 A.2d 367, 375–76 (Md. 2000)). “[W]here a general term is 

followed by the word ‘including,’ which is itself followed by specific terms, 

the intent may be one of limitation.” State Pub. Defender v. Iowa Dist. 

Ct., 633 N.W.2d 280, 283 (Iowa 2001).

The debate over the word “includes” is whether the terms that 

follow “includes” are simply illustrative of the types of services or whether 

the terms are an exhaustive (and restricted) list of permissible items, not 

whether all of the terms following “includes” are required to meet the 

definition of the term. See, e.g., Fed. Land Bank of St. Paul v. Bismarck 

Lumber Co., 314 U.S. 95, 100, 62 S. Ct. 1, 4, 86 L. Ed. 65, 70 (1941) 

(under certain circumstances “the term ‘including’ is not one of allembracing definition, but connotes simply an illustrative application of 

the general principle”); TLC Home Health Care, 638 N.W.2d at 713 

(determining the phrase “home health services include the following 

services and items” to restrict or limit the class of covered services).

Here, a DHS representative argued in the administrative hearing

that all services listed after the word “includes” must be provided in 

order to meet the definition of the word preceding “includes.” The court 

of appeals, in affirming the district court and the administrative law 

decision, concluded “the words ‘includes’ and the conjunctive use of, 

‘and,’ indicate multiple types of services listed must be performed to 

qualify as the initiation of a diagnostic and treatment program and thus 

must be performed to be billed as a comprehensive exam.” Although 

“[o]rdinarily, the word ‘and’ is used as a conjunctive, requiring 

satisfaction of both listed conditions,” Casteel v. Iowa Dep’t of Transp.,

395 N.W.2d 896, 898 (Iowa 1986), the term “and” is often used in 
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definitions and courts generally do not interpret all of the terms following 

“including” to be required if the word “and” connects them. See Tribbitt 

v. State, 943 A.2d 1260, 1271 (Md. 2008) (determining Maryland Code 

Criminal Law section 3-602(a)(4)(ii), “ ‘sexual abuse’ includes [1] incest; 

[2] rape; [3] sexual offense in any degree; [4] sodomy and; [5] unnatural 

or perverted sexual practices,” does not limit “sexual abuse” to the 

crimes enumerated). Further, we have, on occasion, interpreted the use 

of the word “and” as disjunctive rather than conjunctive. See Ness v. 

H.M. Iltis Lumber Co., 256 Iowa 588, 593, 128 N.W.2d 237, 239–40 

(1964) (interpreting “direct and proximate cause” to mean the same thing 

as “direct or proximate cause”).

In Commission on Hospitals & Health Care v. Lakoff, 572 A.2d 316 

(Conn. 1990), the Connecticut Supreme Court addressed a similar issue, 

whether an MRI center met the statutory definition of health care facility, 

as “any facility or institution engaged primarily in providing services for 

the prevention, diagnosis and treatment of human health conditions.” 

Lakoff, 572 A.2d at 319 (emphasis added). The MRI center only provided 

diagnostic services and did not offer treatment services. Id. Determining 

the facility in question met the statutory definition of a “health care 

facility,” the court construed the word “and” to mean “or” “[i]n order to 

achieve a reasonable and rational result that is harmonious with the 

broad socially ameliorative purposes of the statute . . . .” Id. at 321.

A similar interpretation is necessary here. American Eyecare

asserts only very few examinations would meet the statutory definition of 

comprehensive examination if the optometrist was required to prescribe 

medication, arrange for special ophthalmological diagnostic or treatment 

services, consultations, laboratory procedures, and radiological services. 

It argues that, because examinations where all treatments are performed 
11

are highly uncommon, DHS’s interpretation is “erroneous, illogical, and 

unsupported.”

If DHS had intended to require all listed services be performed in 

order to qualify as “initiation of diagnostic and treatment program,” it 

could have done so expressly. It could have used the phrase “must 

include all of the following” or the word “requires” instead of “includes.” 

See, e.g., 42 C.F.R. § 440.70(b) (2009) (“Home health services include the 

following services and items. Those listed in paragraphs (b)(1), (2), and 

(3) of this section are required services; those in paragraph (b)(4) of this 

section are optional.”).

We determine the interpretation of “initiation of diagnostic and 

treatment program,” requiring all services listed to be performed in order 

to meet the definition, is erroneous. See Iowa Code § 17A.19(10)(c) (court 

will reverse agency’s action where it was “[b]ased upon an erroneous 

interpretation of a provision of law whose interpretation has not clearly 

been vested by a provision of law in the discretion of the agency”).

Further, the agency’s conclusion that “[t]he record did not show 

that any of [the] procedures [listed in the CPT definition of initiation of 

diagnostic and treatment program] were initiated in the [sample] cases”

is not supported by substantial evidence. American Eyecare performed 

refraction in both sample cases, in addition to a general evaluation of the 

complete visual system. The CPT lists the determination of refractive 

state as an example of special ophthalmological services, which is one of 

the treatments that satisfies the definition of “initiation of diagnostic and 

treatment program.” As American Eyecare initiated a diagnostic and 

treatment program and performed a general evaluation of the complete 

visual system in both sample cases, both of these cases meet the 

definition of “comprehensive ophthalmological services” listed in the CPT. 
12

The agency’s determination is not supported by substantial evidence. We 

vacate the court of appeals and reverse the district court.

IV. Conclusion.

The agency’s interpretation of “initiation of diagnostic and 

treatment program” is erroneous. Further, the agency’s determination 

that neither of the sample cases met the definition of comprehensive 

ophthalmological services is not supported by substantial evidence. We 

vacate the court of appeals, reverse the district court, and remand for 

entry of judgment in conformance with this opinion.

DECISION OF COURT OF APPEALS VACATED; DISTRICT 

COURT JUDGMENT REVERSED AND CASE REMANDED.