On December 28, 2022, the Third Court of Appeals in Austin issued its latest decision in the seemingly never-ending litigation over the stop-loss exception to the Division’s 1997 Inpatient Hospital Fee Guideline.    

The court of appeals affirmed the trial court’s judgment which affirmed the State Office of Administrative Hearings (SOAH) Decision and Order holding that the “stop-loss” exception to the Division’s 1997 Inpatient Hospital Fee Guideline did not apply to 528 inpatient hospital admissions.  These admissions took place at three hospitals, two in Houston and one in Dallas, named Vista Medical Center Hospital, Specialty Hospital of America, Southeast Houston, and Vista Hospital of Dallas (collectively, Vista).  Most of these admissions took place between 2001 and 2007.  A conservative estimate of the average amount sought by Vista for each admission is fifty thousand dollars for a combined total of over twenty-six million dollars at issue in the court of appeals decision plus thirty million dollars in interest due to the age of the disputes and the current interest rate on delayed payment of medical benefits.  

The court of appeals made short work of Vista’s arguments challenging SOAH’s decision.  To sum up Vista’s arguments, the method SOAH used to determine whether an admission involved unusually costly and extensive services wasn’t fair because relatively few of the admissions qualified for stop-loss reimbursement.  However, the court of appeals held that SOAH’s decision was not arbitrary and capricious and is reasonably supported by substantial evidence.  Vista has the right to file a motion for rehearing with the court of appeals and it can also petition the Texas Supreme Court to review the court of appeals decision. However, the courts surely have stop-loss fatigue by this point and the odds of Vista getting the decision reversed are about the same as a SIBs applicant finding a job.

The History of Stop-Loss

As we hopefully near the end of the stop-loss saga, now is a good time to look back on how we got here.  The stop-loss litigation began shortly after the Texas Workers’ Compensation Commission (now the Division of Workers’ Compensation) adopted its 1997 Inpatient Hospital Fee Guideline.  The guideline had a giant loophole in it.  It seemed to say that if the hospital’s billed charges for an admission exceeded $40,000, the hospital was entitled to 75% of that amount. This gave hospitals a windfall because of their grossly inflated billed charges.  The stop-loss exception led many enterprising hospitals to make sure that their billed charges for an admission exceeded $40,000.  This was most often done with large mark-ups on spinal hardware and this was at the point in time when spinal fusions were all the rage and seemingly everyone who complained of back pain got a fusion whether they needed it or not.  Vista actually seems to have been founded on the stop-loss exception.  It focused almost exclusively on spinal surgeries for injured workers covered by the stop-loss exception using questionable doctors who would later have their medical licenses revoked. See, e.g., Eric “The Red” Scheffey, M.D.

SLS was heavily involved in the stop-loss litigation from the beginning.  James Loughlin of the Firm, along with Ron Luke, PhD, and Nick Huestis met with TWCC staff early on to educate them on how the stop-loss provision should be interpreted.  On behalf of various clients, SLS sent a letter to TWCC Executive Director Bob Shipe on December 6, 2004 asking the Commission to take action to address the stop-loss problem by issuing an advisory that would clarify the Commission’s interpretation of its rule.  Mr. Shipe responded by letter a short time later stating that the Division was suspending the issuance of decisions in stop-loss cases while staff reviewed the application and interpretation of the stop-loss provision.  The Commission then issued its Staff Report on February 17, 2005 clarifying that the stop-loss exception is a two-part test meaning that in order for the stop-loss exception to apply, a hospital must demonstrate not only that its audited charges exceed $40,000 but also that the services it provided were unusually extensive and costly. Following the Staff Report, the Commission began deciding stop-loss cases by determining whether the services provided during the admission were unusually extensive and costly. 

On January 12, 2007, an en banc panel of nine SOAH ALJs rejected the Staff Report’s two-pronged interpretation in a 7-2 decision and the trial court upheld SOAH’s decision.  However, in a decision issued on November 13, 2008, the Third Court of Appeals reversed the trial court and held that the two-pronged interpretation of the stop-loss provision is correct.  That decision became final when the Texas Supreme Court denied the hospitals’ motion for rehearing of their petition for review on December 3, 2010.  SOAH was now required to apply the stop-loss exception as a two-pronged test.  

SOAH subsequently consolidated all of the Vista cases for hearing and decision. A two-day hearing was held before a five-judge panel on February 23 and 24, 2016 to take evidence in the cases.  The carriers offered testimony from Dr. Luke.  Following post-hearing briefing, SOAH ultimately issued its consolidated decision on June 24, 2019 finding that only 14 of the 542 disputed admissions qualified for reimbursement under the stop-loss exception.  Vista filed suit for judicial review of SOAH’s decision.  The trial court issued its decision on May 13, 2021 affirming SOAH’s decision which Vista then appealed to the Third Court of Appeals.

In the Third Court of Appeals latest Vista decision, it cites at length from Dr. Luke’s testimony at SOAH.  The court notes that the ALJs did not explicitly adopt one of the proposed methodologies but adopted a two-part analysis that shares certain features with Dr. Luke’s analysis.  In response to Vista’s arguments that SOAH should have used one of its proposed formulaic methods, the court reiterated its earlier holding that what constitutes “unusually costly and unusually extensive” services in any particular fee dispute is “a fact-intensive inquiry best left to the Division’s determination on a case-by-case basis.” 

What Next?

The carriers have been on a winning streak since the Third Court of Appeals’ first decision in 2008 with Vista appealing every adverse decision since then.  If history is any guide, Vista will appeal again by petitioning the Texas Supreme Court for review although it must know that doing so is likely to be in vain and will only delay the inevitable.  If and when the Third Court of Appeals’ decision becomes final, the 528 individual cases it disposed of will become final.  There remain a currently unknown number of Vista stop-loss cases pending at the Division, SOAH, or the trial court which must still be resolved. 

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A Travis County District Court this month convicted HSC International, Ltd. of a second-degree felony in its scheme to defraud Texas Mutual Insurance Company.

The court found that between September, 2014 and December, 2016 the janitorial service company owned by Hyong Su Choi, provided false payroll numbers to avoid paying proper premiums for workers’ compensation coverage. The company pleaded guilty and will pay $180,000.00 in restitution.