Texas Mutual Insurance Company// Eckerd Corporation H.E. Butt Grocery Company Third-Party Solutions, Inc. Wal-Mart Stores, Inc. Apollo Enterprises, Inc. And Walgreen Company v. Eckerd Corporation H.E. Butt Grocery Company Third-Party Solutions, Inc. Wal-Mart Stores, Inc. Apollo Enterprises, Inc. And Walgreen Company//Cross-Appellee,Texas Mutual Insurance Company

• Court: Court of Appeals of Texas
• Decided: January 21, 2005
• Docket: 03-03-00704-CV
• Status: Published

Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-03-00704-CV

Appellant, Texas Mutual Insurance Company//Cross-Appellants, Eckerd Corporation; H.E. Butt Grocery Company; Third Party Solutions, Inc.; Wal-Mart Stores, Inc.; Apollo Enterprises, Inc.; and Walgreen Company

v.

Appellees, Eckerd Corporation; H.E. Butt Grocery Company; Third Party Solutions, Inc.; Wal-Mart Stores, Inc.; Apollo Enterprises, Inc.; and Walgreen Company// Cross-Appellee, Texas Mutual Insurance Company

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 261ST JUDICIAL DISTRICT NO. GN-103641, HONORABLE DARLENE BYRNE, JUDGE PRESIDING

OPINION

This case involves cross appeals by the plaintiffs and defendants below. Both hinge

on whether an insurance company, when it alleges that a health care provider has overcharged it for

prescription drugs dispensed under the Texas Workers’ Compensation Act (the Act), must first

exhaust remedies provided in the Act before bringing suit in court.

Appellant and plaintiff below, Texas Mutual Insurance Company (Texas Mutual),

appeals the district court’s grant of partial summary judgment in favor of appellees and defendants

below, Eckerd Corp., H.E. Butt Grocery Co., Third Party Solutions, Inc., Wal-Mart Stores, Inc., Apollo Enterprises, Inc., and Walgreen Co. (collectively, Defendants).1 The partial summary

judgment dismissed Texas Mutual’s claims for negligent misrepresentation and for money had and

received regarding amounts it alleges Defendants over-billed for prescription drugs dispensed to

workers’ compensation claimants. The parties filed a joint motion to dismiss all remaining claims

to obtain a final, appealable judgment.

Defendants appeal the district court’s denial of their motion to dismiss Texas

Mutual’s claims for lack of subject matter jurisdiction. Defendants argue that the Act grants the

Texas Workers’ Compensation Commission (the Commission) exclusive jurisdiction over workers’

compensation medical fee claims. Therefore, Defendants argue, the courts lack jurisdiction over

such claims until the aggrieved party exhausts the administrative remedies established by the

Commission. For the reasons stated below, we will reverse and render judgment that the trial court

lacked jurisdiction. Accordingly, we need not address Texas Mutual’s appeal that its claims should

be reinstated.

BACKGROUND

Under the workers’ compensation system, pharmacies fill prescriptions at no charge

to the injured worker. 28 Tex. Admin. Code § 134.502(d)(3) (2003). The pharmacies then bill the

1 Plaintiff is a workers’ compensation insurance carrier. Defendants are four retail chain stores that operate pharmacies throughout Texas and two third-party billing companies that processed and submitted bills to Texas Mutual on behalf of some of the defendant pharmacies.

2 workers’ compensation insurance carrier, which reimburses the pharmacy according to a

Pharmaceutical Fee Guideline promulgated by the Commission.2

According to the Pharmaceutical Fee Guideline, the maximum allowable

reimbursement is generally the provider’s “usual and customary charge for same or similar service.”

The parties dispute the meaning of this standard. Texas Mutual interprets “usual and customary

charge for same or similar service” to mean that pharmacies may not charge workers’ compensation

insurers more for drugs dispensed to injured workers than the amount charged to customers outside

the workers’ compensation system.3 Texas Mutual alleges that Defendants have routinely submitted

bills to Texas Mutual that grossly exceed the prices charged to the pharmacies’ retail customers for

2 In 1989, the Texas legislature enacted a new workers’ compensation act, created the Texas Workers’ Compensation Commission and granted it broad powers to implement and enforce the Act. Texas Workers’ Comp. Comm’n v. Patient Advocates of Tex., 136 S.W.3d 643, 646-47 (Tex. 2004); see Tex. Lab. Code Ann. § 402.061 (West 1996). By legislative mandate, the Commission promulgated the Texas Workers’ Compensation Commission Medical Fee Guideline 1996, which included standards to assess the maximum allowable reimbursement (MAR) for prescription drugs. According to the Pharmaceutical Fee Guideline, the MAR shall be the lesser of:

(1) the provider’s usual and customary charge for same or similar service; or

(2) a formula based on the “Average Wholesale Price” for the pharmaceuticals.

See 28 Tex. Admin. Code § 134.201 (2003) (adopting the guideline). The Commission has since revised the fee guideline, adding a third factor to the MAR, a “negotiated or contract amount,” that is not at issue here. See id. § 134.503. 3 Defendants argue that the phrase “same or similar service” distinguishes the standard from their “usual and customary charge,” because providing drugs to injured workers and then billing the insurance company involves a different service with higher costs than simply filling prescriptions for retail customers.

3 the same prescription drugs.4 On November 1, 2001, Texas Mutual brought suit in district court to

recover amounts it allegedly overpaid Defendants, plus interest, attorney’s fees, and other damages

and penalties allowed by law.5 Texas Mutual requested declaratory and injunctive relief and asserted

two common-law causes of action: money had and received, and negligent misrepresentation.6

Defendants moved to dismiss on grounds that the Commission has exclusive

jurisdiction over all medical fee disputes between workers’ compensation insurers and health care

providers and that Texas Mutual must exhaust its administrative remedies before bringing suit.

Additionally, Defendants moved for partial summary judgment on Texas Mutual’s negligent

misrepresentation and money had and received claims. The district court denied the motion to

dismiss but granted Defendants’ motion for partial summary judgment without stating the grounds

for its ruling. The parties agreed to dismiss their remaining claims to obtain a final judgment for the

purposes of appeal.

DISCUSSION

Because subject matter jurisdiction is a threshold issue affecting the power of this

court to reach the merits of Texas Mutual’s appeal, we first address Defendants’ plea to the

4 Texas Mutual alleges that Defendants billed up to four times the amount they charged retail cash customers. 5 Although Texas Mutual claims that it needs discovery to quantify the total overpayments, it believes that the total overpayments exceed $1 million. 6 Texas Mutual requested an injunction to prevent Defendants from submitting claims for reimbursement that exceeded the maximum allowed by the Pharmaceutical Fee Guideline and a declaration that the maximum reimbursement amount was the lesser of a pharmacy’s “cash price” that a pharmacy charges customers not covered by workers’ compensation insurance or the amount derived from the formula established in the TWCC Medical Fee Guideline (1996).

4 jurisdiction. See Texas Ass’n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 443 (Tex. 1993)

(subject-matter jurisdiction is essential to court’s authority to decide case). We must decide whether

the Texas Workers’ Compensation Act vests the Commission with exclusive jurisdiction over

payment disputes arising under the Act. If it does, a claimant must first exhaust its administrative

remedies before a trial court has subject matter jurisdiction. Subaru of Am., Inc. v. David McDavid

Nissan, Inc., 84 S.W.3d 212, 221 (Tex. 2002) (op. on reh’g). Determining whether a statute grants

exclusive jurisdiction to an administrative agency requires statutory construction and raises

jurisdictional issues. Id. at 222. An administrative agency has exclusive jurisdiction when the

legislature gives the agency sole authority to make the initial determination in a dispute. Id. at 221

(citing Cash Am. Int’l, Inc. v. Bennett, 35 S.W.3d 12, 15 (Tex. 2000)). The issue of jurisdiction is

a question of law that we review de novo. Id. at 222.

Our Court recently held that the Commission has exclusive jurisdiction over medical

fee disputes between providers and insurers and that a party to such a dispute must first exhaust its

administrative remedies before bringing suit in court. Howell v. Texas Workers’ Comp. Comm’n,

143 S.W.3d 416, 437-38 (Tex. App.—Austin 2004, no pet. h.).7 In so holding, we relied on the

standard established in Subaru: an agency has exclusive jurisdiction “when a pervasive regulatory

scheme indicates that the legislature intended for the regulatory process to be the exclusive means

of remedying the problem to which the regulation is addressed.” Id. at 435 (quoting Subaru, 84

7 The trial court did not have the benefit of our ruling in Howell when it denied Defendants’ motion to dismiss for lack of jurisdiction.

5 S.W.3d at 221).8 The supreme court indicated that this determination depends on statutory

interpretation. Subaru, 84 S.W.3d at 221. In construing a statute to determine the legislature’s

intent, we consider “the language of the statute along with the statute’s history, purposes and the

consequences of alternate constructions.” Cash Am. Int’l, 35 S.W.3d at 16.

In Howell, we looked at the history, purpose and statutory language of the Workers’

Compensation Act and held that the Act constitutes a “pervasive regulatory scheme” that

demonstrates the legislature’s intent to grant the Commission exclusive jurisdiction over provider

fee disputes. Howell, 143 S.W.3d at 437. We noted that the legislature, in enacting the new

workers’ compensation system, intended to “strengthen the enforcement and adjudicatory powers

of the Commission.” Id. at 436 (quoting Texas Workers’ Comp. Comm’n v. Garcia, 893 S.W.2d

504, 514 (Tex. 1995)). We considered the express language of the Act, which established mandatory

reimbursement procedures and a system implemented by the Commission to review and resolve

medical fee disputes. Id. at 436-37; Tex. Lab. Code Ann. § 413.031(c) (West 1996) (“In resolving

8 Texas Mutual argues that the legislature gave the Commission primary, not exclusive, jurisdiction over provider fee disputes. The judicially created primary jurisdiction doctrine allocates power between courts and agencies when both have authority to make initial determinations in a dispute. Howell v. Texas Workers’ Comp. Comm’n, 143 S.W.3d 416, 435 (Tex. App.—Austin 2004, no pet. h.). Texas Mutual argues that Subaru stands for the proposition that the legislature only confers exclusive jurisdiction on an agency to handle disputes arising under the statute if it evinces this intent through express language. See Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W.3d 212, 220 (Tex. 2002) (op. on reh’g) (administrative agencies may exercise only those powers conferred upon them by clear and express statutory language). Because the Act does not use the words “exclusive jurisdiction” in describing the Commission’s adjudicatory power over medical fee disputes, Texas Mutual argues that the legislature did not intend to grant sole authority over such disputes in the Commission. We note, however, that Texas Mutual’s reading of Subaru has been foreclosed by Howell, which determined that legislative intent to vest sole authority in the Commission was clear from the “pervasive scheme” established by the Act.

6 disputes over the amount of payment . . . , the role of the commission is to adjudicate the payment

given the relevant statutory provisions and commission rules.”) (emphasis added). These procedures

expressly condition a party’s access to the courts on first exhausting its administrative remedies: “A

party who has exhausted the party's administrative remedies under this subtitle and who is aggrieved

by a final decision of the State Office of Administrative Hearings may seek judicial review of the

decision.” Tex. Lab. Code Ann. § 413.031(k) (West 1996) (emphasis added). As in Howell, this

medical fee dispute9 falls within the exclusive jurisdiction of the Commission. Because the Act’s

pervasive scheme indicates that the legislature intended the Commission to serve as the sole

authority to adjudicate disputes arising under the Act, the district court did not have jurisdiction to

hear Texas Mutual’s claims until Texas Mutual had exhausted its administrative remedies.

In addition to arguing that the lack of “clear and express” language does not evince

legislative intent to vest sole authority in the Commission over medical fee disputes, Texas Mutual,

citing Cash America, argues that the legislature did not intend to abrogate its common law claims

when it authorized the Commission to develop administrative fee dispute procedures. See Cash

America, 35 S.W.3d at 16 (legislature did not intend to abolish claims existing at common law when

9 Pharmaceuticals are among the health care services regulated by fee guidelines that calculate payments due health care providers. See Tex. Admin. Code §§ 134.201 (governing medical fee guidelines as applied to pharmaceuticals), 134.500 et seq. (“Guidelines for Medical Services, Charges, and Payments, Subchapter F. Pharmaceutical Benefits”) (2004). The administrative code also repeatedly refers to pharmacists as health care providers and distinguishes them from doctors. See id. §§ 134.501(a) (“[I]f, prior to providing the pharmaceutical services, the health care provider (HCP) obtains . . .”), (a)(3) (“[E]ven if the HCP provided pharmaceutical services beyond the first seven days. . . ,”), (d) (“[T]he HCP may dispense prescription or nonprescription medications in the amount ordered by the doctor. . . ”). A dispute between a health care provider and an insurance carrier regarding proper payment is a medical fee dispute. See id. § 133.307(b) (2004) (Tex. Workers’ Comp. Comm’n, Medical Dispute Resolution of a Medical Fee Dispute).

7 it created administrative remedy for disputes over pledged property). We first note that Texas

Mutual’s position has been foreclosed by our holding in Howell. We further note that Texas

Mutual’s reliance on Cash America is misplaced. Unlike the dispute in Cash America, Texas

Mutual’s claims are “common law” in name only.10 Only through creative pleading has Texas

Mutual transformed Defendants’ alleged violations of the Workers’ Compensation Act fee

provisions into claims sounding in tort and equity. Texas Mutual alleges that Defendants

overcharged it and negligently misrepresented to Texas Mutual that they were charging the correct

amount. Both of these claims derive from the statutory provision setting the maximum allowable

reimbursement for pharmaceuticals. At common law, there is no standard or duty to charge a

particular amount for prescription drugs; only the statute provides a standard for determining whether

Defendants charged Texas Mutual an excessive amount.11 Therefore, the supreme court’s concern

in Cash America for preserving consumers’ common law claims is inapposite to the context of this

case, where we have two claims that cannot be adjudicated without also adjudicating the proper

10 In Cash America, a pledgor sued a pawnshop alleging common law claims for conversion, negligence, and gross negligence after the property she had pledged was stolen. Cash Am. Int’l, Inc. v. Bennett, 35 S.W.3d 12, 14-15 (Tex. 2000). The supreme court ruled that the Pawnshop Act did not supplant her common law rights, which existed prior to and independent of the statute. Id. at 16. 11 See Bone v. Utica Nat’l Ins. Co. of Tex., No. 02-02-00209-CV, 2003 Tex. App. LEXIS 6833, at *14 (Tex.App.—Fort Worth August 7, 2003, pet. denied) (not designated for publication) (citing American Motorists Ins. Co. v. Fodge, 63 S.W.3d 801, 804 (Tex. 2001)) (health care provider could not pursue tort claims against workers’ compensation insurer without exhausting administrative remedies when claims required adjudication of matters solely within Commission’s jurisdiction).

8 meaning of the “maximum allowable reimbursement” provided in the Pharmaceutical Fee

Guideline.12

Because the Commission has exclusive jurisdiction over this statutory provision and

the claims that arise from it, Texas Mutual must exhaust its administrative remedies before bringing

these claims in court. See Burgess v. Gallery Model Homes, Inc., 101 S.W.3d 550, 558 (Tex.

App.—Houston [1st District] 2003, pet. denied) (quoting Mingus v. Wadley, 285 S.W.1084, 1087

(Tex. 1926)) (“The general rule is that where the cause of action and remedy for its enforcement are

derived not from the common law but from the statute, the statutory provisions are mandatory and

exclusive, and must be complied with in all respects or the action is not maintainable.”). We sustain

the Defendants’ issue on appeal.

CONCLUSION

Because the Texas Workers’ Compensation Act’s pervasive scheme indicates the

legislature’s intent to grant the Commission exclusive jurisdiction over medical fee disputes, we

reverse the district court’s judgment denying the Defendant’s motion to dismiss and render judgment

12 Texas Mutual asked the court to award it money and interest from the Defendants and to provide injunctive and declaratory relief. The Act gives the Commission the power to grant these remedies. It can order providers to refund payments that exceed amounts permitted by the Fee Guideline and pay interest on money refunded, and can enforce sanctions on providers who commit administrative violations, including “a reduction or denial of fees” or “restriction, suspension, or revocation of the right to receive reimbursement.” See Tex. Lab. Code Ann. §§ 413.016(a), 413.019, 415.023(b)(1), (4) (West 1996 & Supp. 2004). The ability of the Commission to fully compensate an injured party, to sanction parties that violate the Act, and to establish and enforce the Act’s provisions further demonstrates the legislature’s intent to grant the Commission exclusive jurisdiction over these claims. C.f. Cash America, 35 S.W.3d at 15 (only administrative remedy available under Pawnshop Act was “like-kind replacement” of lost property).

9 dismissing Texas Mutual’s claims for lack of jurisdiction. Having held that the trial court lacked

jurisdiction, we need not address Texas Mutual’s claims for money had and received and for

negligent misrepresentation.

__________________________________________

David Puryear, Justice

Before Chief Justice Law, Justices Patterson and Puryear

Reversed and Rendered

Filed: January 21, 2005