Eyecare v. Department of Human Services

• Decision Date: 17 July 2009
• Docket Number: No. 07-1698.,07-1698.
• Parties: American EYECARE, Appellant, v. DEPARTMENT OF HUMAN SERVICES, Appellee.
• Court: Iowa Supreme Court

770 N.W.2d 832

American EYECARE, Appellant, v. DEPARTMENT OF HUMAN SERVICES, Appellee.

No. 07-1698.

Supreme Court of Iowa.

July 17, 2009.

Rehearing Denied August 27, 2009.

David A. Hirsch, Des Moines, for appellant.

Thomas J. Miller, Attorney General, and Diane M. Stahle, Special Assistant Attorney General, for appellee.

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 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 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 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 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 diagnositic 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 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...