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December 2022


The Stop-Loss Litigation May Finally be Nearing the End After Almost 20 Years

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. 

Hearings Happenings

We were advised by the Division earlier this month that the Zoom meeting IDs used to access benefit review conferences and other remote meetings were being changed starting in January. Instead of the usual 10-digit meeting ID assigned to each Benefit Review Officer, which we have been using since remote BRCs became the norm during COVID, the new meeting IDs are 11-digit numbers beginning with either 160 or 161. 

Some of us were exposed to the new system a bit early on December 19, when we called in to attend our BRCs using the usual Zoom call-in number. Upon entering the new 160 or 161 meeting ID to access our BRCs we received a recorded message to the effect that the meeting ID was not authorized. We were eventually able to access and participate via the internet by accessing the Division’s Zoom site ( and entering the 11-digit meeting ID listed in the BRC notification. 

We were later advised that BRCs may still be accessed by telephone but the call-in number has also been changed. The new dial-in number is 551-285-1373.

Copyright 2023, Stone Loughlin & Swanson, LLP 

Contested Case Hearings at the Barbara Jordan Building—Part II

Readers will recall the article in last month’s Compendium concerning the adventure of attending a CCH at the new Barbara Jordan Building in the Capital Complex at 1601 Congress Avenue. That article included the shortcut to a YouTube video produced by the Division containing instructions for parking and attending a hearing.

This month the Division released additional information calculated to address some of the confusion surrounding availability of parking while attending a hearing. You may find the Division’s latest instructions here: TDI website

A few of the high points:
1)    Mobility-impaired participants may park in the garage beneath the Barbara Jordan Building if they have a valid handicap parking permit and contact DWC.

2)    The Division does provide a limited number of parking spaces for hearing participants, however, you must contact DWC at least 5 working days prior to the hearing to request a parking pass which will be emailed to you. Print the parking pass and place it on your vehicle’s front window. If you wish a parking pass mailed to you, contact the Division at least 10 working days prior to the hearing. 

3)    Visitors to the DWC offices must park in Garage B, on the top floor in a space that is not marked “reserved.” To make parking and visiting the DWC offices easier, the Division has provided the following handy map:

Copyright 2023, Stone Loughlin & Swanson, LLP 

DWC Releases Biennial Report to the 88th Legislature

On December 1, 2022, Commissioner Jeff Nelson released DWC’s biennial report to the 88th legislature providing an update on the Texas workers’ compensation system including legislative recommendations.

The Commissioner’s first recommendation is in response to the Comptroller of Public Accounts’ October 20, 2022 Private Letter Ruling stating that designated doctor examinations performed pursuant to Labor Code §408.0041 are considered “insurance services” and are subject to Texas sales and use tax. DWC already struggles with a dearth of qualified designated doctors and the Commissioner recognizes that other specialty examinations performed within the workers’ compensation system may also be considered taxable insurance services. For such reason and in an effort to attract and retain more doctors, the Commissioner recommends amendment of the Tax Code §151.0039(b) to exempt from sales and use tax any medical examination or service performed to determine the appropriate level of benefits under the Workers’ Compensation Act. 

In his second recommendation, the Commissioner seeks amendment of Labor Code Chapter 410 to add a limited public information exception for working papers and electronic communications for DWC administrative law judges and Appeals Panel judges. The Commissioner indicates that such an amendment will empower DWC ALJ’s and Appeals Panel judges to remain impartial fact finders and afford them the same protections as ALJs at the State Office of Administrative Hearings (SOAH). 

The Commissioner’s recommendation makes a good argument, however, the Division is very different from SOAH. SOAH ALJs are in an agency completely separate from the agencies whose proceedings come before them. The Division, on the other hand, acts as the executive, legislative and judicial functionary in all things related to workers’ compensation. There is no separation of power. This potentially opens the door to inside influences such as direction from agency personnel in different sections of the Division which could very well influence an ALJ’s duty as a fact finder to render a decision based solely on the law and the evidence admitted. 

Finally, the Commissioner noted an emerging issue concerning shortfalls in the maintenance tax generated under Labor Code §403.002 which funds DWC and the Office of Injured Employee Counsel (OIEC). Specifically, tax collections are not adequate to match the amount appropriated by the legislature to fund operations of DWC and OIEC resulting in a $9.4 million shortfall in fiscal year 2023. 

The Commissioner indicates TDI has tools to accommodate this shortfall in the near term, however, the current 2% statutory cap on the maintenance tax is unlikely to generate sufficient revenues in the future.  

Copyright 2023, Stone Loughlin & Swanson, LLP 

Janitorial Company’s Fraudulent Efforts to “Clean Up” Backfires

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.

More Shenanigans Revealed in CA Doctor’s Wild Spinal Surgery Scam

A California federal judge has sentenced neurosurgeon, Lokesh Tantuwaya, to five years in prison for his part in a multimillion dollar, 15-year-long fraud scheme that used bribes and kickbacks to funnel thousands of patients to now-defunct Pacific Hospital for overcharged invasive spinal surgeries. 

Tantuwaya, who raked in $3.3 million for his part in the scheme, is just the latest to be convicted and sentenced in the scam which was led by the former owner of Pacific Hospital who paid kickbacks of $15,000.00 per lumbar fusion and $10,000.00 per cervical fusion and then inflated the costs of implanted medical devices to insurers, many of which were workers’ compensation carriers. 

Reportedly, many of Tantuwaya’s patients are now agonizing over the quality of their implants as well as whether they even needed the surgery in the first place.

Government Code Sections 607.002(1) and (2) Suspension Lifted

Kara Mace, Deputy Commissioner, Legal Services announced this month that suspension of Government Code sections 607.002(1) and (2) implemented on March 30, 2020 in response to the COVID-19 pandemic has been lifted effective December 21, 2022. Section 607.002 relates to reimbursement for disease prevention.  

Section 607.002 provides that a public safety employee who is exposed to a contagious disease is entitled to reimbursement from the employing governmental agency for reasonable medical expenses incurred in treatment for the prevention of the disease if (1) the disease is not an ordinary disease of life as that term is used in the context of a workers’ compensation claim; and (2) the exposure to the disease occurs during the course of the employment.

Governor Abbott suspended §§607.002 (1) and (2) to ensure that public safety employees who were likely to have been exposed to COVID-19 while in the course and scope of their employment were entitled to reimbursement from their employer for reasonable medical expenses related to such exposure. 

Division Releases Its Annual Report on Fatal Occupational Injuries in Texas

The Division this month released its annual report on fatal occupational injuries in Texas. In 2021 there were 533 fatal occupational injuries, a 12% increase over 2020 and a 12% decrease when compared to fatal injuries in 2019. The highest number of fatalities (182) was in the transportation and warehousing industry followed by 127 fatalities in the constructions industry. The occupations with the highest number of fatalities were driver/sales workers and truck drivers with 147. You may review the report in its entirety here: report

Firm News

Santa paid a visit and David Swanson won 1st place in the annual SLS Christmas Tree-Topper competition for 2022 with this design:


Speaking of Santa . . . 

A common refrain of late is that nobody seems to want to work anymore.  While that’s nothing new for those of us in workers’ comp, we were surprised to hear that even the beloved CEO of Jolly St. Nick, Inc. (JSN) experienced significant difficulty this past year obtaining a sufficient number of qualified workers to manufacture the toys necessary for him to complete his annual task.  The shortage of qualified staff appears to be linked in part to post-pandemic preferences many workers hold for working from home rather than in the Far North. There were also some recruiting snafus . . .

We are hopeful that personnel matters improve for the big guy next year . . .

Best Wishes for the New Year from all of us at Stone Loughlin and Swanson, LLP!    


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