Methodist Hospitals of Dallas v. Texas Indus. Acc. Bd.

• Decision Date: 28 November 1990
• Docket Number: No. 3-90-052-CV,3-90-052-CV
• Citation: 798 S.W.2d 651
• Court: Texas Court of Appeals
• Parties: METHODIST HOSPITALS OF DALLAS, et al., Appellants, v. TEXAS INDUSTRIAL ACCIDENT BOARD, et al., Appellees.

Page 651

798 S.W.2d 651

METHODIST HOSPITALS OF DALLAS, et al., Appellants, v. TEXAS INDUSTRIAL ACCIDENT BOARD, et al., Appellees.

No. 3-90-052-CV.

Court of Appeals of Texas,

Austin.

Nov. 28, 1990.

Rehearing Overruled Jan. 9, 1991.

Peter Clarke, James B. Harris, Thompson & Knight, Dallas, for appellants.

Jim Mattox, Atty. Gen., George Warner, Asst. Atty. Gen., Dudley D. McCalla, Heath, Davis & McCalla, P.C., Charles M. Babb, Charles M. Babb, P.C., Austin, for appellees.

Before POWERS, GAMMAGE and CARROLL, JJ.

POWERS, Justice.

Methodist Hospitals of Dallas, together with numerous other hospitals, sued the Industrial Accident Board ¹ to restrain by temporary and permanent injunctions the enforcement of a Board rule alleged to be invalid. ² The hospitals appeal from the trial court's interlocutory order denying their application for temporary injunction. Tex.Civ.Prac. & Rem.Code Ann. § 51.014(4) (Supp.1990). We will affirm the trial-court order.

THE CONTROVERSY

In 1987, the Legislature directed the Board to establish and maintain "a guideline of fair and reasonable fees and charges" that hospitals may collect for their treatment of workers-compensation patients. Tex.Rev.Civ.Stat.Ann. art. 8306, § 7b(c)(1) (Supp.1990) (to be repealed January 1, 1991). In response, the Board adopted its Rule 42.110. 28 Tex.Admin.Code § 42.110 (Supp.1990).

The present litigation centers around two limitations that Rule 42.110 imposes upon a hospital's fees and charges. After requiring that each hospital state on a "chargemaster" the price of each service and article for which it charges its patients, the rule requires that the stated prices be discounted for workers-compensation patients at a rate calculable under the rule. ³ Next, the Rule forbids a hospital to increase its "chargemaster" prices except within a "Maximum Allowable Rate of Increase" (MARI) fixed by the Board. For the year 1990, the Board has fixed the MARI at seven percent. While the hospitals aver that the two limitations--the required discount and the MARI--do not permit the hospitals to recover their costs in caring for workers-compensation patients, the hospitals do not challenge the validity of Rule 42.110 except on the statutory ground that the Rule is the product of unlawful procedure. ⁴

The hospitals refer to § 5 of the Texas Administrative Procedure and Texas Register Act (APTRA), Tex.Rev.Civ.Stat.Ann. art. 6252-13a (Supp.1990). Section 5 establishes procedures the Board was bound to observe in adopting Rule 42.110, and § 5(e) declares that no agency rule is valid unless adopted in "substantial compliance" with those procedures.

The hospitals allege that Rule 42.110 was not adopted in substantial compliance with § 5 for two reasons: (1) the Board did not include in its notice initiating the rule-making proceeding a sufficient "public benefit-cost note," as required by § 5(a)(5); and (2) the Board did not include in its order finally adopting Rule 42.110 a sufficient statement of the Board's "reasoned justification" for the rule, as required by § 5(c-1)(1).

THE MEANING OF "SUBSTANTIAL COMPLIANCE"

Before discussing the hospitals' assignments of error, we should state our view as to the meaning of "substantial compliance" as that expression is used in APTRA § 5(e) to measure the validity of an agency rule.

It is customary to say, of course, that "substantial compliance" does not mean literal and exact compliance with every requirement of a statute, but simply "compliance" with the "essential" requirements of the statute. Santos v. Guerra, 570 S.W.2d 437, 440 (Tex.Civ.App.1978, writ ref'd n.r.e.); Wentworth v. Medellin, 529 S.W.2d 125, 128 (Tex.Civ.App.1975, no writ); Fitzgibbons v. Galveston Electric Co., 136 S.W. 1186, 1187 (Tex.Civ.App.1911, no writ). This begs the question, however, because it leaves undefined the controlling factors: What statutory requirements are "essential" and what constitutes "compliance" with them?

We shall employ hereafter what we believe is a better sense of the expression "substantial compliance." We think the question of "substantial compliance" with a statutory requirement has two parts: Do the acts tendered in satisfaction of a statutory requirement (1) secure the legislative objectives that underlie the requirement and (2) come fairly within the character and scope of each action or thing explicitly required by the statute in terms that are concise, specific, and unambiguous? See Beal, The Scope of Judicial Review of Agency Rulemaking: The Interrelationship of Legislating and Rulemaking in Texas, 39 Baylor L.Rev. 597, 646-47 (1987). While not perfect, perhaps, we believe this formulation to be superior to the more opaque usage mentioned previously.

The foregoing indicates the great importance of the legislative objectives that underlie any statutory requirement when a party claims that the actions taken thereunder fall short of "substantial compliance." In the discussion that follows, we must therefore set out our views concerning what those objectives were in the Legislature's enactment of APTRA § 5(a)(5) and § 5(c-1)(1).

THE "PUBLIC BENEFIT-COST NOTE"

Where APTRA governs an agency's rule-making procedures, § 5(a) requires that the agency file with the secretary of state a "notice" of the proposed rule, for publication by that officer in the Texas Register. ⁵ The notice must include certain items as specified in § 5(a). Section 5(a)(5) describes one such item as follows a public benefit-cost note showing the name and title of the officer or employee responsible for preparing or approving it and stating for each year for the first five years that the rule will be in effect: (A) the public benefits to be expected as a result of adoption of the proposed rule; and (B) the probable economic cost to persons who are required to comply with the rule.

Section 5(a)(5) results from a 1981 amendment to APTRA; a "public benefit-cost note" was not theretofore required to be included in the notice. The basic logic of the required comparison should be indisputable. An assessment of the public benefits and probable cost of compliance associated with a proposed rule, and a comparison between them, is simply rational administration. ⁶

Before the 1981 amendment, an agency might have voluntarily made the assessments and comparison but in a superficial, vague, or intuitive way, as it concentrated on the necessity for a proposed rule, its objectives, the text necessary to achieve those objectives, and the procedures that must be followed in adopting a rule under APTRA § 5. The central objective behind the 1981 amendment was to force the agency to engage in a conscious assessment and comparison of the expected public benefits and economic cost of compliance before the agency finally arrives at the text of a proposed rule to be included in the notice filed with the secretary of state, utilizing the agency's own expertise, information, and facilities, which would ordinarily be superior and result in the best assessments and comparison.

Several collateral objectives suggest themselves as well. The required public benefit-cost note alerts affected persons of the likely effects of the proposed rule, and encourages meaningful participation in the public-comment period contemplated in § 5(c). The agency is able intelligently to make the best trade-off between competing affected interests and to save the cost of wasted effort and expenditures associated with contemplated rules that are determined subsequently to be impractical in light of the assessments and comparison. The public has more confidence in agency rules, knowing the assessments and comparison have been made. The agency is kept within the bounds and purposes of any controlling statutes, as in the present case where the statutory directive that the Board establish guidelines for "fair and reasonable" fees and charges requires, rather plainly, the assessments and comparison. And a reviewing court is informed of an important consideration in the court's construction of the rule after its adoption, should that be necessary. See generally O'Reilly, Administrative Rulemaking § 9.05, at 184-87 (1983).

With the foregoing legislative objectives in mind, we turn to the hospitals' complaint that the Board's notice, initiating the proceeding that led to the adoption of Rule 42.110, was not in substantial compliance with APTRA § 5(a)(5).

The notice described the public benefits as follows:

For each year of the first five years ... the public benefit anticipated ... will be provision of a uniform standard for fair and reasonable fees and charges for health facility goods and services that should result in: (1) improved delivery and quality of health facility goods and services to claimants; and (2) reduced premiums for employers.... ⁷

The notice described the probable economic cost of compliance as follows [P]ublic health facilities should experience impact on revenue resulting from the combined effects of the following factors: (1) a maximum allowable rate of increase (MARI) in total charges for compensable health care, established annually by the board (7.0% for the first year the proposed section will be in effect); (2) carrier application of a facility's unique payment ratio, ranging from .85 to 1.00, to the facility's billed charges to determine a fair and reasonable payment for compensable health care; (3) administrative costs incurred in preparing and filing the required ratio report and monitoring compliance with the MARI....

The hospitals contend the foregoing statements fail for two reasons to supply the substance of the public benefit-cost note required by § 5(a)(5): (1) the statements omit to assign any monetary amount to the expected public benefits and the economic costs of compliance; and (2) the statements consist of bare and quite general conclusions unsupported by any statements demonstrating that the Board actually made an assessment of public benefits and the...