American Eyecare Vs. Department Of Human Services

• Court: Supreme Court of Iowa
• Decided: July 17, 2009
• Docket: 07–1698
• Status: Published

Opinion

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 Medicaid-

covered 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 3

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 4

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 6

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 7

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). 8

DHS’s interpretation offered in the administrative hearing is

contrary to the rules of statutory construction. 2 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.”

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

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. 9

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 all-

embracing 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 10

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.