Carolinas Med. Center v. Employers

Citation616 S.E.2d 588
Decision Date16 August 2005
Docket NumberNo. COA04-707.,COA04-707.
PartiesCAROLINAS MEDICAL CENTER, Duke Medical Center, Forsyth Memorial Hospital, High Point Regional Hospital, Mission-St Joseph's Health System, Inc., Moses H. Cone Memorial Hospital, The North Carolina Baptist Hospitals, Inc., University Hospital, Wake Medical Center, and Wesley Long Community Hospital, Medical Providers, Plaintiff-Appellants, v. EMPLOYERS AND CARRIERS LISTED IN EXHIBIT A, Defendant-Appellees.
CourtUnited States State Supreme Court of North Carolina

Ott Cone & Redpath, P.A., by Laurie S. Truesdell, Wendell H. Ott, and Melanie M. Hamilton, Greensboro, for plaintiff-appellants.

Charles R. Hassell, Jr., Root and Root, P.L.L.C., by Allan P. Root, Waeverville, Young Moore and Henderson P.A., by Dawn D. Raynor, Raleigh, for defendant-cross appellants.

STEELMAN, Judge.

The North Carolina Industrial Commission entered an order on 18 December 2003 declaring that the provisions of N.C. Gen.Stat. § 97-26(b) as they existed from 1 July 1995 to 1 April 1996 were unconstitutional. We hold that the North Carolina Industrial commission is without authority to declare statutes of the State unconstitutional and vacate its order.

Factual Background

On 6 May 1994, the North Carolina Supreme Court filed its decision in the Case of Charlotte-Mecklenburg Hosp. Auth. v. North Carolina Indus. Comm'n, 336 N.C. 200, 443 S.E.2d 716 (1994), declaring that the North Carolina Industrial Commission did not have authority under N.C. Gen.Stat. § 97-26 to require hospitals to accept payment for medical services on a per diem basis. In response to the questions surrounding its authority to set hospital rates leading up to the Charlotte-Mecklenburg decision, the Industrial Commission sought additional authority from the North Carolina General Assembly. The result of these efforts was an amendment to N.C. Gen.Stat. § 97-26. Act of April 19, 1993, ch. 679, sec. 2.3, 1993 N.C. Sess. Laws 398. As amended N.C. Gen.Stat. § 97-26(b), effective 1 October 1994, read as follows: "Hospital Fees. — Payment for medical compensation rendered by a hospital participating in the State Plan shall be equal to the payment the hospital receives for the same treatment and services under the State Plan."

At the time of this amendment to N.C. Gen.Stat. § 97-26(b), the State Plan utilized a complex diagnostic related grouping-based reimbursement system (DRG) to compute amounts due to hospitals for treatment of patients under N.C. Gen.Stat. § 135-40.4. Hospitals compute patient charges on a standard UB-92 form, which states the amount that a patient is expected to pay for hospital services. However, under the DRG reimbursement system, the actual charges set forth in the UB-92 form are modified, based upon how efficiently a hospital provides services for patients. To the extent that a patient is hospitalized for a shorter period of time, the DRG will reward that hospital with a greater payment. Conversely, if the patient is hospitalized for a greater period of time, that hospital is penalized. The result of the DRG system is that for some patients the hospital is reimbursed more than the UB-92 amount, and in some cases, the hospital is reimbursed less than the UB-92 amount.

As the DRG system was implemented, the Administrator of the Industrial Commission began to receive complaints from the worker's compensation insurance carriers that the amount of payments approved by the Industrial Commission was exceeding the amount shown on the UB-92 forms. At some point, the Administrator directed the Industrial Commission to stop approving payments to hospitals in excess of the amounts shown on the UB-92 form. Prior to this decision, a number of payments to hospitals were approved by the Industrial Commission for an amount in excess of the amount shown on form UB-92.

Plaintiffs are hospitals that provided services to workers whose injuries were covered under the North Carolina Worker's Compensation Act (Chapter 97 of the North Carolina General Statutes). Defendants are the employers of the injured workers, or their worker's compensation insurance carriers. The parties have stipulated that all workers suffered injuries that were compensable under Chapter 97, and received treatment from the hospitals for those injuries. There was a further stipulation that in each case, the Industrial Commission approved payment to the hospital in an amount in excess of the amount shown on form UB-92. Finally, defendants stipulated that they would not challenge that

the payment amount approved by the Industrial commission is the amount the hospital would have received under the DRG reimbursement system as implemented by the administrators of the State Health Plan for the services described by the UB-92 claims form, if those had been covered by the State Health Plan.

Defendants refused to pay the amounts approved by the Industrial Commission in excess of the amounts shown on form UB-92. Plaintiffs sought payment for the full amount approved by the Industrial Commission. A large number of cases, involving hospital treatment provided between 1 July 1995 and 1 April 1996, were consolidated for hearing before the Industrial Commission.

In the conclusions of law of its opinion and award, the Industrial Commission ultimately concluded that the "changes to N.C. Gen.Stat. § 97-26 enacted in 1994 did not reasonably or rationally relate to the purpose of the statute and were patently unfair to the employers and their carriers who were subject to the Worker's Compensation Act, [and therefore] the statute violated the due process clause of the Constitution. U.S. CONST. amend. XIV; 16B Am Jur 2d, Constitutional Law § 912." The Commission based this ultimate conclusion on additional conclusions of law in which they determined that under the provisions of N.C. Gen.Stat. § 97-26(b) they were required to authorize payments according to the State Health Plan, and that these mandated payments were fundamentally unfair in that they were "not directly related to the actual cost of the care provided." They further concluded that the system as mandated by statute included no adequate remedy to address the individual situations where employers or their insurance carriers were required under the system to pay out "sums which were not otherwise due as payment for relevant hospital treatment and services[,]" and therefore N.C. Gen.Stat. § 97-26(b), as it was then written, "deprived employers and their carriers of property without due process of law."

The Commission ordered that "plaintiff hospitals are not entitled to receive the additional amounts approved by the Industrial Commission over and above the actual hospital charges." Commissioner Pamela T. Young dissented, asserting that the Industrial Commission had no authority to determine the constitutionality of acts of the General Assembly.

From this opinion and award, plaintiffs appeal, asserting that the Industrial Commission lacked authority to declare an act of the General Assembly unconstitutional, and erred in doing so. Defendants purported to cross-appeal asserting additional bases that would support the Commission's decision in favor of defendants.

Discussion of Legal Issues Presented

In plaintiffs' first argument they contend that the Full Commission erred in ruling that it had the authority to decide the constitutionality of former N.C. Gen.Stat. § 97-26(b). We agree.

The Industrial Commission is not a court of general jurisdiction, it is an administrative agency of the State, created by statute. Hogan v. Cone Mills Corp., 315 N.C. 127, 137, 337 S.E.2d 477, 483 (1985). It is a "well-settled rule that a statute's constitutionality shall be determined by the judiciary, not an administrative board." Meads v. North Carolina Dep't of Agric., Food & Drug Protection Div., Pesticide Sec. (In re Pesticide Bd. File Nos. IR94-128, IR94-151, IR94-155), 349 N.C. 656, 670, 509 S.E.2d 165, 174 (1998); see also State ex rel. Utilities Comm'n v. Carolina Util. Customers Ass'n, 336 N.C. 657, 673-674, 446 S.E.2d 332, 341-342 (1994); Gulf Oil Corp. v. Clayton, 267 N.C. 15, 20, 147 S.E.2d 522, 526 (1966); Great Am. Ins. Co. v. Gold, 254 N.C. 168, 173, 118 S.E.2d 792, 796 (1961). The Industrial Commission had no authority to pass on the constitutionality of N.C. Gen.Stat. § 97-26(b)(1994).

We note that there were at least two avenues available to defendants to properly challenge the constitutionality of the statute in a lower tribunal. They could have brought an action under the Uniform Declaratory Judgment Act, N.C. Gen.Stat. § 1-253 et seq. (2004). Woodard v. Carteret County, 270 N.C. 55, 60, 153 S.E.2d 809, 813 (1967) ("A petition for a declaratory judgment is particularly appropriate to determine the constitutionality of a statute when the parties desire and the public need requires a speedy determination of important public interests involved therein.") (citation omitted). Alternatively, pursuant to N.C. Gen.Stat. § 97-86 the Industrial Commission of its own motion could have certified the question of the constitutionality of the statute to this Court before making its final decision.

The Industrial Commission acknowledged this option in its decision in Carter v. Flowers Baking Co., 1996 N.C. Wrk. Comp. LEXIS 5284, in which it held that "the Commission does not have the authority to find that enactments of the Legislature are unconstitutional[,]" and that:

If the Commissioners feel strongly that a statute is unconstitutional and that it would clearly offend their oath to apply it, or that applying it would cause irreparable prejudice, or that the question would not otherwise be reviewed in the courts, etc., the Commission "may certify questions of law to the Court of Appeals for decision and determination" [pursuant to N.C....

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