38 P.3d 1218 (Ariz.App. Div. 1 2002), 1-CA-CV 01-0029, Arizona Soc. of Pathologists v. Arizona Health Care Cost Containment System Admin.

Docket Nº:1-CA-CV 01-0029.
Citation:38 P.3d 1218, 201 Ariz. 553
Opinion Judge:[8] The opinion of the court was delivered by: Ryan, Judge
Party Name:ARIZONA SOCIETY OF PATHOLOGISTS, an Arizona corporation; Mallon-Alvarez Pathology Group, P.C., an Arizona corporation, Plaintiffs-Appellants, v. ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION, a State agency; Phyllis Biedess, in her official capacity as Director of AHCCCS, Defendants-Appellees.
Attorney:[7] Gammage & Burnham, P.L.C. Phoenix By John R. Dacey Cameron C. Artigue Attorneys for Plaintiffs-Appellants. Johnston & Kelly, P.L.C. Phoenix By Logan T. Johnston Attorneys for Defendants-Appellees. Snell & Wilmer, L.L.P. Phoenix By Barry D. Halpern Andrew F. Halaby Attorneys for Amicus Curiae ...
Case Date:January 22, 2002
Court:Court of Appeals of Arizona
 
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Page 1218

38 P.3d 1218 (Ariz.App. Div. 1 2002)

201 Ariz. 553

ARIZONA SOCIETY OF PATHOLOGISTS, an Arizona corporation; Mallon-Alvarez Pathology Group, P.C., an Arizona corporation, Plaintiffs-Appellants,

v.

ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION, a State agency; Phyllis Biedess, in her official capacity as Director of AHCCCS, Defendants-Appellees.

No. 1-CA-CV 01-0029.

Court of Appeals of Arizona, First Division, Department C.

Jan. 22, 2002.

Page 1219

[201 Ariz. 554] Gammage & Burnham, P.L.C. By John R. Dacey,Cameron C. Artigue, Phoenix, Attorneys for Plaintiffs-Appellants.

Johnston & Kelly, P.L.C. By Logan T. Johnston, Phoenix, Attorneys for Defendants-Appellees.

Snell & Wilmer, L.L.P. By Barry D. Halpern, Andrew F. Halaby, Phoenix, Attorneys for Amicus Curiae Arizona Medical Association.

Sidley Austin Brown & Wood By Jack R. Bierig, Richard D. Raskin, Chicago, IL, Attorneys for Amicus Curiae College of American Pathologists.

OPINION

RYAN, Judge.

¶ 1 This litigation concerns Arizona Health Care Cost Containment System's ("AHCCCS") 1 compensation of hospital-based pathologists for "indirect services." We conclude that AHCCCS did not have a lawful basis through a specific, applicable statute or properly promulgated rule for denying coverage of indirect pathology service claims. We therefore reverse the trial court's grant of summary judgment to AHCCCS on the claims of the Arizona Society of Pathologists ("Society") 2 and Mallon-Alvarez Pathology Group, P.C. ("Mallon-Alvarez"). 3

BACKGROUND

¶ 2 Pathologists are physicians who specialize in the analysis of bodily fluids and tissues. Pathology sometimes requires a physician's personal examination of a specimen or test result. Such examinations are considered "direct services." But pathologists who direct hospital laboratories also perform a variety of "indirect services" to ensure that test results are timely and reliable, such as medical direction and supervision, quality assurance, and consultation.

¶ 3 Billing for indirect services (or "professional component billing") is a practice accepted by some private insurers as an administrative convenience. Under this method, pathologists bill a nominal fixed fee for each lab test, regardless of the amount of time the pathologist devotes to that particular test. This type of billing spreads costs across all patients. It avoids the need to keep records for billing purposes about which single test results required, for example, further testing to determine the reason for an anomaly.

Page 1220

[201 Ariz. 555] Professional component billing essentially allows pathologists to charge a portion of their overhead to all patients.

¶ 4 AHCCCS circulates a newsletter called Claims Clues to those in the field of billing for health care claims. The June 1999 issue of Claims Clues contained an AHCCCS policy statement announcing that AHCCCS followed Medicare guidelines with respect to the reimbursement of pathology claims. 4 The Medicare guidelines allow pathologists to bill for direct services, but not indirect services. 42 U.S.C. § 1395xx(a)(1) (1994); 42 C.F.R. § 405.515 (2000).

¶ 5 Applying these Medicare guidelines, a 1998 AHCCCS audit of hospital-based pathologists' claims revealed more than $1 million in "erroneous" pathology payments made by AHCCCS health plans to pathologists from January 1994 through December 1997. AHCCCS recommended that its health plans recoup payments for indirect services, stop paying future claims for indirect services, and refer cases in which pathologists sought payment for indirect services for civil monetary penalties or possible criminal prosecution. Four AHCCCS health plans subsequently initiated administrative actions or litigation against various pathologists, including Mallon-Alvarez.

¶ 6 Plaintiffs maintained that AHCCCS had improperly changed its policy regarding payment of pathology claims and that claims for indirect services were fully reimbursable. In September 1999, Plaintiffs filed a Petition for Rulemaking and Review of Substantive Policy Statement with AHCCCS in accordance with Arizona Revised Statutes ("A.R.S.") section 41-1033 (1999). 5 The petition asked AHCCCS to "[r]eview the substantive Policy Statement ... regarding pathology claims for clinical laboratory services, and determine that such Policy Statement constitutes a rule that has not been promulgated as such, and is therefore null and void." Plaintiffs also asked AHCCCS to "[m]ake a final rule specific to pathology fees ... that prescribes under what circumstances, if any, AHCCCS will follow Medicare criteria."

¶ 7 The AHCCCS Director denied Plaintiffs' petition. AHCCCS concluded that the Policy Statement merely applied existing law to the facts particular to pathology services rendered in a hospital setting. Specifically, AHCCCS stated that indirect services could not be compensated because A.R.S. § 36-2918(A) (1993) made it unlawful to bill AHCCCS for services not provided, and Arizona Administrative Code ("A.A.C.") Rule R9-22-712(A)(2) (1997) deemed the services in question provided by the hospital, not the physician.

¶ 8 Plaintiffs appealed this decision to the Governor's Regulatory Review Council ("GRRC") 6 under A.R.S. § 41-1033. Plaintiffs asked GRRC to determine that the Policy Statement was an improperly promulgated rule. AHCCCS opposed this appeal arguing, among other things, that the Policy Statement was merely an interpretation of A.R.S. § 36-2918.

¶ 9 GRRC reversed AHCCCS's decision, finding that the Policy Statement and "the AHCCCS practice of following Medicare guidelines" was a "rule" as defined by A.R.S. §...

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