Court Opinion

ID: 3105822
Source: CourtListenerOpinion
Date Created: 2015-10-16 05:50:45.279769+00
Date Added: 2024-06-11T11:44:43.566465
License: Public Domain

NO. 07-09-0348-CV

                                       IN THE COURT OF APPEALS

                                  FOR THE SEVENTH DISTRICT OF TEXAS

                                             AT AMARILLO

                                               PANEL A

                                            AUGUST 24, 2011

                   COVENANT HEALTH SYSTEM D/B/A COVENANT MEDICAL CENTER, APPELLANT

                                                  V.

                        DEAN FOODS COMPANY, A CERTIFIED SELF-INSURED, APPELLEE

                            FROM THE 72ND DISTRICT COURT OF LUBBOCK COUNTY;

                            NO. 2005-532,532; HONORABLE RUBEN REYES, JUDGE

Before CAMPBELL AND HANCOCK and PIRTLE, JJ.

                                          MEMORANDUM OPINION

      Appellant, Covenant Health System d/b/a Covenant Medical  Center,  appeals  the  trial  court's
order granting the plea to the jurisdiction filed by Appellee, Dean Foods Company, in  a  suit  filed
by an injured employee alleging bad faith and Insurance Code violations in connection with  the  non-
payment of workers' compensation benefits.   In a single issue,  Covenant  asserts  the  trial  court
erred in dismissing its claims related to the non-payment of medical expenses  for  lack  of  subject
matter jurisdiction.  We reverse and remand.

                                              Background

      Covenant intervened in an action filed by Daniel Jara, an employee of Dean  Foods,  to  recover
its medical expenses incurred during Jara's treatment for a work-related injury.  On  June  2,  2000,
Jara injured his right knee while employed by Dean Foods and underwent knee surgery.  The injury  was
compensable under the Texas Workers Compensation Act (Act).[1]   In  April  2004,  Jara  underwent  a
second knee operation at Covenant to treat a staph infection that developed in his right knee.  As  a
result, Jara incurred approximately $600,000 in medical expenses.

      In July 2004, Covenant submitted Jara's medical bills to Dean Foods for payment.  Dean  Foods's
third party administrator, Crawford & Company (Crawford), audited  Covenant's  bills  for  compliance
with the Act's medical fee guidelines  and  assessed  deductions.   Of  the  $599,364.54  in  medical
expenses submitted by  Covenant,  Crawford  concluded  $301,928.31  was  payable.   In  August  2004,
Covenant requested that Dean Foods reconsider its decision and, in  September,  Dean  Foods  affirmed
its deductions and denied Covenant any  payment  asserting  Jara's  second  knee  operation  was  not
compensable under the Act.

      Jara disputed Dean Foods's determination that his injury was non-compensable before  the  Texas
Workers’ Compensation Commission (TWCC) and a Contested- Case Hearing was held to  determine  whether
Jara's compensable injury in June 2000 extended  to  his  staph  infection.   Covenant  joined  as  a
subclaimant.[2]  In April 2005, the Contested-Case  Hearing  Officer  issued  a  Decision  and  Order
wherein he determined "[Jara's] compensable injury sustained on June 2, 2000 [did] not include  [his]
staph infection."  Jara appealed the Hearing  Officer's  Decision  to  the  TWCC  Appeals  Panel  who
affirmed the Hearing Officer's Decision.

      In August 2005, Jara filed an action in Lubbock County District Court seeking  judicial  review
of the TWCC Appeals Panel's decision and asserted Dean Foods breached its duties of  good  faith  and
fair dealing, and fair settlement practices in violation  of  the  Texas  Insurance  Code  and  Texas
Deceptive Trade Practices Act (judicial  review  suit).   Covenant  subsequently  intervened  seeking
payment of its medical bills and asserted claims against Dean Foods for bad faith and Insurance  Code
violations.  In July 2006, the trial court severed and abated all claims for bad faith and  Insurance
Code violations, and assigned Cause Number 2005-532-049-A (bad  faith  suit)  to  those  claims.   In
January 2007, the trial court entered an order granting Dean Foods's Plea to the Jurisdiction in  the
judicial review suit and dismissed Covenant  for  failure  to  exhaust  its  administrative  remedies
"without prejudice to the refiling of same."

      In July 2007, Jara's judicial review suit was tried before a jury who  found  in  Jara's  favor
and the trial court entered a final  judgment  that  Jara's  compensable  injury  of  June  2,  2000,
included the staph infection.  Neither party appealed and the trial court reinstated  the  bad  faith
suit.  In April 2008, Covenant intervened in the bad faith suit again seeking to recover its  medical
expenses.   In May 2009, Dean Foods moved to dismiss Covenant from the bad faith  suit  for  lack  of
subject matter jurisdiction, asserting Covenant failed to exhaust its administrative  remedies  under
the Act.  The trial court granted Dean Foods's Plea to the Jurisdiction.[3]  This appeal followed.

                                              Discussion

      Covenant asserts the trial court erred in dismissing its claims  for  lack  of  subject  matter
jurisdiction due to a failure to exhaust its administrative remedies.  In support, Covenant  contends
that it was not required to join Jara's appeal of either the Hearing Officer's or  the  TWCC  Appeals
Panel's decisions because it is a subclaimant and, as such, its claim is derivative of Jara's  claim.
 Covenant also asserts that it was  not  required  to  undergo  medical  dispute  resolution  because
Covenant did  not  dispute  the  reduced  amount  that  Dean  Foods  determined  was  payable,  i.e.,
$301,928.31.  Dean Foods, on the other hand, asserts that Covenant was required  to  join  in  Jara's
appeals to preserve its claim for medical expenses and, because Dean Foods offered to pay  less  than
the full amount requested by Covenant for Jara's treatment, Covenant's claim was required to  undergo
medical dispute resolution.

      I.    Standard of Review

      Subject matter jurisdiction is essential to the authority of a court to decide  a  case.   Tex.
Ass'n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 443 (Tex. 1993).  Whether a trial  court  has
subject matter jurisdiction is a question of law; Tex. Dep't of Parks  &  Wildlife  v.  Miranda,  133
S.W.3d 217, 226 (Tex. 2004), that appellate courts review de novo.  Mayhew v. Town of Sunnyvale,  964
S.W.2d 922, 928 (Tex. 1998).  When conducting a de novo review, the  appellate  court  exercises  its
own judgment and redetermines each legal issue, giving no deference to the  trial  court's  decision.
Quick v. City of Austin, 7 S.W.3d 109,  116  (Tex.  1999)  (op.  on  reh'g).   When  a  plea  to  the
jurisdiction  challenges  the  pleadings,  we  determine  if  the  pleader  has  alleged  facts  that
affirmatively demonstrate the court's jurisdiction to hear the case.  Combined Specialty Ins. Co.  v.
Deese, 266 S.W.3d 653, 657 (Tex.App.--Dallas  2008,  no  pet.).   Where,  as  here,  a  plea  to  the
jurisdiction challenges the existence of jurisdictional facts,  we  consider  the  relevant  evidence
submitted by the parties to determine if a fact issue exists.  Id.  The  standard  of  review  for  a
jurisdictional plea based on evidence "generally mirrors that of a summary judgment under Texas  Rule
of Civil Procedure 166a(c)."  Id. (quoting Tex. Dep't of Parks & Wildlife, 133 S.W.3d  at  228).   In
reviewing a plea to the jurisdiction, an appellate court does not look to the merits of the case  but
considers only the pleadings and evidence relevant to the  jurisdictional  inquiry.   Tex.  Dep't  of
Parks & Wildlife, 133 S.W.3d at 227.

      II.   TWCC's Exclusive Jurisdiction

      The TWCC has exclusive jurisdiction to determine compensability; In re Tyler Asphalt  &  Gravel
Co., Inc., 107 S.W.3d 832, 839 (Tex.App.--Houston [14th  Dist.]  2003,  no  pet.)  (citing  Henry  v.
Dillard Dep't Stores, Inc., 70 S.W.3d 808, 809 (Tex. 2002)), as well as disputes related  to  medical
fees; Howell v. Tex. Workers' Comp. Comm'n, 143 S.W.3d 416, 435 (Tex.App.--Austin 2004, pet.  denied)
(citing Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W.3d 212, 221  (Tex.  2002)  (op.  on
reh'g), prior to any judicial review.[4]  A party's failure to exhaust their administrative  remedies
provided under the Act deprives the trial court of jurisdiction over a party's request  for  judicial
review.  § 410.251; Cont'l Cas. Co. v. Rivera, 124 S.W.3d 705,  712  (Tex.App.--Austin  2003,  pet.
denied).

      When compensability is disputed,  judicial  review  is  permitted  only  after  the  party  has
exhausted administrative review through a contested-case  hearing  or  arbitration,  followed  by  an
appeal to a TWCC Appeals Panel.  §§ 410.251;  410.302(b).   See  Combined  Specialty  Ins.  Co., 266
S.W.3d at 658.  If there is a dispute between a health  care  provider  and  a  compensation  carrier
regarding a medical expense, the health care provider is entitled to review of the  medical  service;
§ 413.031(a),[5] and must exhaust administrative review through the TWCC's medical  review  division;
28 Tex. Admin. Code § 133.307 (2011),[6] and a contested-case hearing  before  the  State  Office  of
Administrative Hearings (SOAH); 28 Tex. Admin. Code § 133.307(f)(1), before seeking  judicial  review
of the decision in a Travis County District Court as governed  by  Chapter  2001  of  the  Government
Code.  28 Tex. Admin. Code § 133.307(f)(2)(F) (medical fee disputes); see  Tex.  Gov't  Code  Ann.  §
2001.176(b)(1) (West 2008) (requiring request for judicial  review  to  be  filed  in  Travis  County
unless provided by statute).

      A.    Compensability

      We agree with Covenant that its claim for medical  expenses  was  derivative  of  Jara's  claim
seeking compensability and, as such, Covenant was not required to join  Jara's  appeal  of  the  non-
compensability determinations made by the Hearing Officer and the TWCC  Appeals  Panel  in  order  to
participate in the bad faith suit.

      As a provider of medical services to Jara, or as a subclaimant, Covenant's  claim  for  payment
is contingent on Jara's ability to receive workers' compensation benefits  under  the  statute,  i.e,
Covenant's claim is derivative  of  Jara's  claim.   See  Tex.  Mutual  Ins.  Co.  v.  Sonic  Systems
International, Inc., 214 S.W.3d 469, 483-84 (Tex.App.--Houston [14th Dist.] 2006, pet.  denied)  (op.
on reh'g).  As such, it is unnecessary for Covenant to  perfect  an  appeal  of  either  the  Hearing
Officer's or the TWCC Appeals Panel's decisions because its expenses are a  part  of  Jara's  overall
workers' compensation claim.  See Latham v. Security Ins. Co. of Hartford,  491 S.W.2d 100,  105-06
(Tex. 1972) (op. on reh'g) ("The person whose standing is derivative to that of  the  employee  would
not be entitled to enforce the award, and he need not be made a party in a  suit  to  set  aside  the
award."); City of Bridgeport v. Barnes, 591 S.W.2d 939, 942 (Tex.App.--Fort Worth  1979,  writ  ref'd
n.r.e.) (medical provider need not perfect an appeal of an adverse administrative ruling because  its
expenses were part of the employee's  claim).   In  addition,  although  such  medical  expenses  are
usually a part of the injured employee's claim, health care providers such as Covenant have a  direct
cause of action against a compensation carrier  under  the  Act.   See  Latham, 491 S.W.2d  at  106
("Medical expenses may be recovered in a direct  action  by  the  physician  and  others,  but  these
expenses too are part of the injured employee's claim."); City of Bridgeport, 591 S.W.2d at 942.

      Dean Foods contends that, because Covenant participated as a "subclaimant"  in  the  contested-
case hearing, Covenant was required to appeal the Hearing Officer's non-compensability  determination
to the TWCC Appeals Panel to preserve  any  claim  based  on  Jara's  medical  expenses.   Covenant's
appearance in the contested-case hearing was gratuitous[7] because section 409.009 indicates  that  a
person qualifying  as  a  subclaimant  may  participate  by  filing  a  written  claim.   §  409.009.
Regardless whether Covenant filed a claim as a "subclaimant," its claim  for  reimbursement  remained
contingent upon Jara's ability to receive benefits under the statute;  Sonic  Systems  International,
Inc., 214 S.W.3d at 477, and Covenant's gratuitous participation did not  give  the  Hearing  Officer
any power to adjudicate Covenant's claim for reimbursement of its medical expenses.  Hooks,  Inc.  v.
Pena, 313 F.2d 696, 702 (5th Cir.  1963)  (interpreting  Texas's  Workmen's  Compensation  Act);  see
Latham, 491 S.W.2d at 106 ("The inclusion of other names in the [TWCC's] award usually does  no  more
than provide a detail of payment by the  insurer  for  the  benefit  of  the  principal  compensation
claimant.")  In addition, there is a separate and distinct administrative process  to  handle  claims
for medical expenses such as Covenant's and, other than referring to  Covenant  as  a  "subclaimant,"
the Hearing Officer's Decision and Order makes no mention of any claim for medical expenses.[8]

      That Covenant does not qualify under the Act  to  appeal  the  TWCC  Appeals  Panel's  decision
supports this determination.  The Act permits an appeal from an appeals panel decision  in  the  form
of judicial review if a party has exhausted its administrative remedies and "is aggrieved by a  final
decision."  § 410.251.  "[A] party is aggrieved by a final decision of the [TWCC]  appeals  panel  if
the injury or loss resulting from the final decision is  actual  and  immediate;  a  possible  future
injury or loss as a consequence of the panel decision is not sufficient  to  show  an  aggrievement."
Insurance Co. of the State of Pa. v. Orosco, 170 S.W.3d 129,  133  (Tex.App.--San  Antonio  2005,  no
pet.).  When an appeals panel decision finds the employee's claim is non-compensable, as here,  there
is no immediate or actual  loss  to  the  health  care  provider  because  the  adverse  decision  of
compensability by the appeals panel merely indicates that the employee's injury  is  not  covered  by
the Act, i.e., the health care  provider  never  had  the  legal  right  to  reimbursement  from  the
compensation carrier under the Act.  His legal right to recover payment in full  from  the  employee,
however, remains viable.  See § 413.042(a)(1) ("A health care  provider  may  not  pursue  a  private
claim against a workers' compensation claimant . . . unless: (1) the injury  is  finally  adjudicated
not compensable under this subtitle.")  See also Smith v.  Stephenson,  641 S.W.2d 900,  902  (Tex.
1982) ("We do agree the employee maintains a contractual obligation to the provider . . .  [and]  may
even become liable for all medical expenses if the injury is found to be non-compensable.").

      Accordingly, we find the trial court did not lack subject matter jurisdiction  over  Covenant's
intervention in Jara's bad faith suit due to any failure by Covenant to  exhaust  any  administrative
remedies in Jara's contested-case appeal to the Appeals  Panel  or  his  subsequent  judicial  review
suit.

      B.     Medical Expenses

         Covenant asserts that it  was  not  required  to  undergo  a  Chapter  413  medical  dispute
resolution because it did not  dispute  the  amount  that  Crawford  determined  was  payable,  i.e.,
$301,928.31.  Dean Foods, on the other  hand,  asserts  Covenant  was  required  to  request  medical
dispute resolution to preserve its claim for medical expenses because Dean Foods offered to pay  less
than the full amount requested by Covenant.

      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."  § 408.021(a).[9]  "A  party,  including  a
health care provider, is entitled to review of a medical service provided for which authorization  of
payment is sought if a health care provider is:  denied payment or paid  a  reduced  amount  for  the
medical service rendered . . . ."  § 413.031(a)(1).  "A request for medical dispute resolution  of  a
medical fee dispute must be timely filed with the TWCC's Medical Review Division."   28  Tex.  Admin.
Code § 133.307(c).[10]  Otherwise, a person or entity that fails to timely file a request for  review
waives their right to dispute resolution.  Id.  It is undisputed  that  Covenant  did  not  file  for
medical dispute resolution regarding Dean Foods’s reduction of its medical bills  submitted  in  July
of 2004.

      We agree with Covenant that the trial court erred  in  finding  there  was  no  subject  matter
jurisdiction over Covenant's claim for payment of its medical bills in  the  amount  of  $301,928.31.
Although Covenant submitted medical bills totaling $599,364.54, Dean Foods audited  Covenant's  bills
for compliance with the Act's medical payment guidelines  and  assessed  reductions  of  $297,436.23.
Because Covenant did not dispute these reductions in a timely manner, any recovery of this amount  by
Covenant was waived per regulation.  However, given that the trial  court  issued  a  final  judgment
finding Jara's injury compensable, the amount determined by Dean Foods to  be  payable,  $301,928.31,
remains owing to Covenant.

      Dean Foods contends that, whenever a compensation carrier  reduces  a  health  care  provider's
bill, whether or not the health care provider agrees with the reduction,  the  health  care  provider
must request medical dispute resolution.  We disagree.  The Act's language regarding  a  health  care
provider's participation in medical dispute resolution is not mandatory, but permissive, i.e.,  where
a compensation carrier denies payment or pays a reduced amount for the medical services rendered,  "a
health care provider, is entitled to review of a medical service . . . ."  § 413.031(a)(1)  (emphasis
added).  When the health care provider agrees to the  compensation  carrier's  reductions  or  waives
review through inaction, the health care provider can bring a direct action against the  compensation
carrier for the balance due for medical expenses incurred in the treatment of a  compensable  injury.
See Latham, 491 S.W.2d at 109; City of Bridgeport, 591 S.W.2d at 942.

      Moreover, under the applicable regulations, once the  health  care  provider  who  has  made  a
request informs the Medical Review Division (MRD), or the MRD otherwise determines,  the  dispute  no
longer exists, the MRD can dismiss the  health  care  provider's  request  for  medical  fee  dispute
resolution.  28 Tex. Admin.  Code  §  133.307(e)(3)(A).   This  language  clearly  indicates  that  a
"dispute" is necessary before a request need be filed or reviewed by  the  MRD.[11]   Here,  Covenant
either agreed with, or waived review of, Dean Foods's reductions.  Accordingly,  we  find  the  trial
court erred in its finding  that  it  lacked  subject  matter  jurisdiction  over  Covenant's  claims
asserted in the bad faith suit.  Appellant's single issue is sustained.

                                              Conclusion

      We reverse the judgment of the trial court and remand for further proceedings  consistent  with
this opinion.

                                       Patrick A. Pirtle
                                             Justice

-----------------------
[1]See Texas Lab. Code Ann. §§ 401.001-506.002 (West 2006 and West  Supp.  2010).   For  convenience,
provisions of the Texas Labor Code will  be  cited  throughout  the  remainder  of  this  opinion  as
"section ____" and "§ ____."

[2]The Act states as follows:

      A person may file a written claim with the division as a subclaimant if the person has:

      (1) provided compensation, including health care provided by a health care insurer, directly or
      indirectly, to or for an employee or legal beneficiary; and

      (2) sought and been refused reimbursement from the insurance carrier.

§ 409.009.

[3]Dean Foods's Traditional and No Evidence Motion for Summary Judgment and Plea to the  Jurisdiction
Against Intervenor Covenant Health System d/b/a Covenant Medical Center also asserted  that  Covenant
lacked standing because there was no contractual or special relationship between  Covenant  and  Dean
Foods that would impose a duty of good faith and fair dealing  on  Dean  Foods.   Because  the  trial
court's order granted only Dean Foods's Plea to the Jurisdiction and dismissed Covenant for  lack  of
subject matter jurisdiction, we decline Dean Foods's invitation to address whether it owed  any  duty
of good faith and fair dealing to  Covenant  in  this  appeal  in  the  context  of  a  challenge  to
Covenant's standing.

[4]When a carrier denies liability for payment of medical benefits on the basis that  the  injury  is
not compensable ("compensability disputes"), the general dispute  resolution  procedures  of  Chapter
410 of the Texas Labor Code apply. § 410.023. Disputes  concerning  the  denial  of  payment  or  the
payment of a reduced amount based on the medical necessity of treatment or the reasonableness of  the
fees are "medical disputes" governed by the dispute resolution procedures of Chapter 413. §  413.031;
Continental Cas. Ins. Co. v. Functional Restoration Associates,  19 S.W.3d 393,  396  &  n.2  (Tex.
2000).

[5]Generally speaking, there are two types of "review of a medical service"  that  can  be  conducted
under section 413.031(a).  The first is a  review  of  the  "medical  necessity"  of  a  health  care
service, which is currently performed by an independent review organization (IRO).  See § 413.031(d)-
(e-3), (g)-(i).  The other type of review concerns "disputes over  the  amount  of  payment  due  for
services determined to be  medically  necessary  and  appropriate  for  treatment  of  a  compensable
injury," commonly termed "medical fee disputes."  § 413.031(c).  In resolving medical  fee  disputes,
"the role of the division is to adjudicate the payment given the relevant  statutory  provisions  and
commissioner rules."  Id.

[6]We cite to the current administrative code provisions having found no  material  variance  between
the relevant provisions of the current code and the code as  it  existed  during  the  relevant  time
period.

[7]Dean Foods contends Covenant was a "party" to the proceedings, not a "subclaimant."  However,  the
Hearing Officer's Decision indicates  Covenant  was  participating  as  a  "subclaimant."   "Claimant
appeared and was represented . . . Subclaimant, Covenant Medical Center, was represented."

[8]Under Chapter 410, claims are first decided by a  Hearing  Officer,  then  appealed  to  the  TWCC
Appeals Panel and finally heard before a district court.  § 410.302(b).  See Combined Specialty  Ins.
Co., 266 S.W.3d at 658.  In a Chapter 413 proceeding, the fee bill dispute  is  first  considered  by
the medical review division; 28 Tex. Admin. Code § 133.307, then decided by SOAH in a  contested-case
hearing; 28 Tex. Admin. Code 133.307(f)(1), before being finally heard by a district court in  Travis
County. § 413.031(k)-(l).  Here, the Hearing Officer's Decision and Order indicates Jara's  case  was
decided under " [Chapter 410 of] the Texas Workers' Compensation  Act  .  .  .  and  [the  applicable
regulations]."

[9]Regarding payment of medical bills and related disputes, the Act speaks in  mandatory  terms  when
an employee's claim is compensable.  Howell v. Tex. Workers Comp.  Comm'n,  143 S.W.3d 416,  436-37
(Tex.App.--Austin 2004,  pet.  denied).   See  §§  408.027(a),  408.027(b),  408.027(b),  (1  &  (2),
408.027(b).

[10]"Medical fee disputes involve disputes over the amount of payment for . . . health care  rendered
to an injured employee (employee) that has been determined to be medically necessary and  appropriate
for treatment of that employee's compensable injury."   28  Tex.  Admin.  Code  §  133.305(a)(2).   A
"medical fee dispute" does not include disputes pertaining to compensability.   See  28  Tex.  Admin.
Code § 133.307(e)(3)(H) ("[If] the carrier has raised a dispute pertaining to compensability . . .  ,
the Division shall notify the parties of the review requirements pursuant to § 124.2 of  this  title,
and will dismiss the request until those disputes have been resolved by a final  decision,  inclusive
of appeals.")

[11]A "dispute" requires two parties who disagree, oppose or call into question  the  payable  amount
of the medical fee owed to one who provided medical services for an injured employee.   See  Merriam-
Webster's Collegiate Dictionary 362 (11th Ed. 2003).   Once  the  medical  provider  has  waived  his
dispute by failing to timely file a claim or agrees with the  compensation  carrier's  audit  of  his
medical bills, there is no dispute.