Texas Appeals Court Overturns Ruling on Hospital Fee Guideline

November 17, 2008

Texas Mutual Insurance Company and several other insurers say they won a substantial victory Nov. 13 in a Texas appeals court case challenging an abusive pattern of questionable hospital bills for injured workers covered by workers’ compensation insurance.

Texas Mutual said Austin Court of Appeals overturned a Travis County District Court ruling about the interpretation of a Texas Division of Workers’ Compensation guideline dealing with hospital fees.

“This Court of Appeals ruling puts a stop to questionable billing practices of certain hospitals in Texas that inflate costs in the workers’ compensation system and ultimately drive up premiums for Texas employers,” Russell Oliver, president of Texas Mutual Insurance, said.

The guideline allowed an exception to the general rule that hospitals be paid on a per diem basis for treatment of injuries involving workers’ compensation claims. The so-called “stop-loss exception,” dating back to 1997, dictated that hospital bills exceeding $40,000 in instances when services were deemed “unusually extensive” and “unusually costly” would be reimbursed at 75 percent of the billed charges.

Vista Medical Center Hospital in Pasadena, Texas, and CHRISTUS Health Gulf Coast of Houston, Texas — including CHRISTUS St. Catherine Hospital in Katy, Texas, and CHRISTUS St. John Hospital in Nassau Bay, Texas — had argued in court that they did not need to demonstrate anything more than that a bill exceeded the $40,000 threshold. The Travis County District Court agreed with the hospitals.

On Nov. 13, however, a three-judge panel of the Austin Court of Appeals unanimously overruled the lower court. The court stated that the hospitals did, in fact, need to show that a hospital stay is “unusually extensive” and “unusually costly” before it can receive a 75 percent reimbursement.

In its opinion, the Court of Appeals noted that the lower court’s interpretation of this matter led to “the absurd and unreasonable result” that reimbursement under the stop-loss exception had replaced the per diem standard.

Texas Mutual successfully argued that a system that put no restraints on hospital charges and allowed hospitals to receive 75 percent any time they chose to charge workers’ compensation insurers $40,000 or more would not be adhering to medical cost controls mandated by Texas lawmakers in 1989. Texas Mutual’s co-appellants in this case were Liberty Mutual Insurance Company, Zenith Insurance Company and Zurich American Insurance Company.

Source: Texas Mutual Insurance Company

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