The Chattanooga-Hamilton County Hospital Authority, D/B/A Erlanger Health System , 475 S.W.3d 746 ( 2015 )

IN THE SUPREME COURT OF TENNESSEE
AT NASHVILLE
February 4, 2015 Session
THE CHATTANOOGA-HAMILTON COUNTY HOSPITAL
AUTHORITY, D/B/A ERLANGER HEALTH SYSTEM
V.
UNITEDHEALTHCARE PLAN OF THE RIVER
VALLEY, INC., D/B/A AMERICHOICE
Appeal by Permission from the Court of Appeals, Middle Section
Chancery Court for Davidson County
No. 091253II Carol L. McCoy, Chancellor
No. M2013-00942-SC-R11-CV – Filed November 5, 2015
We granted permission to appeal to address whether exhaustion of administrative
remedies is required in this lawsuit brought by a hospital against a TennCare managed
care organization (MCO). The hospital alleged in its complaint that the MCO had not
paid the hospital all of the monies due for emergency services provided to the MCO‟s
TennCare enrollees. In its answer, the MCO asserted that it had paid the hospital in
accordance with TennCare regulations; the MCO also filed a counterclaim regarding
overpayments made pursuant to the TennCare regulations. The MCO filed a motion for
partial summary judgment. It argued that the hospital‟s allegations implicitly challenged
the applicability and/or validity of the TennCare regulations, so the Uniform
Administrative Procedures Act (UAPA) required the hospital to exhaust its administrative
remedies by bringing those issues to TennCare prior to filing suit. Absent exhaustion of
administrative remedies, the MCO argued, the trial court was without subject matter
jurisdiction to hear the case. The trial court agreed; it dismissed the hospital‟s lawsuit for
lack of subject matter jurisdiction and dismissed the MCO‟s counterclaim as well. The
Court of Appeals reversed; it concluded that the hospital‟s lawsuit was simply a dispute
regarding the interpretation of statutes and regulations, over which the trial court had
jurisdiction. The MCO appeals. Looking at the substance of the parties‟ dispute rather
than simply the face of the hospital‟s complaint, we hold that the UAPA requires
exhaustion of administrative remedies in this matter to the extent that resolution of the
parties‟ claims would necessarily require the trial court to render a declaratory judgment
concerning the validity or applicability of TennCare regulations. While the UAPA
1
prohibits the trial court from rendering such declaratory relief absent exhaustion of
administrative remedies, it does not address claims for damages. In this case, both parties
have asserted damage claims that hinge on the issues to be addressed in the
administrative proceedings. Under these circumstances, we reverse the dismissal of the
complaint and the counterclaim and remand the case to the trial court with directions to
hold the parties‟ damage claims in abeyance pending resolution of administrative
proceedings regarding the validity or applicability of the TennCare regulations at issue.
Tenn. R. App. P. 11 Appeal by Permission; Judgment of the Court of Appeals
Reversed, Judgment of the Trial Court Affirmed in Part and Reversed in Part,
and Case Remanded For Further Proceedings
HOLLY KIRBY, J., delivered the opinion of the Court, in which SHARON G. LEE, C.J., and
CORNELIA A. CLARK, GARY R. WADE, and JEFFREY S. BIVINS, JJ., joined.
J. Mark Tipps, John C. Hayworth, and Erin Palmer Polly, Nashville, Tennessee, for the
appellant, UnitedHealthcare Plan of the River Valley, Inc., d/b/a AmeriChoice.
Herbert H. Slatery, III, Attorney General and Reporter; Andrée S. Blumenstein, Solicitor
General; Linda A. Ross, Deputy Attorney General; Carolyn E. Reed, Assistant Attorney
General; and Sue A. Sheldon, Senior Counsel, for the intervenor-appellant, Tennessee
Attorney General.
Steven A. Riley and James N. Bowen, Nashville, Tennessee, for the appellee, The
Chattanooga-Hamilton County Hospital Authority, d/b/a Erlanger Health System.
OPINION
FACTUAL AND PROCEDURAL BACKGROUND
Overview
Defendant/Appellant UnitedHealthcare Plan of the River Valley, Inc., d/b/a
AmeriChoice (“AmeriChoice”), is a for-profit MCO in Tennessee‟s Medicaid system,
TennCare. Plaintiff/Appellee The Chattanooga-Hamilton County Hospital Authority
d/b/a Erlanger Health System (“Erlanger”) is a not-for-profit tertiary care hospital based
in Chattanooga, Tennessee. Through December 31, 2008, Erlanger and AmeriChoice
had a contract for Erlanger to provide healthcare services to AmeriChoice enrollees, and
AmeriChoice paid Erlanger for its services in accordance with the parties‟ contract.
When the contract expired on January 1, 2009, Erlanger and AmeriChoice did not renew
it.1
1
The contract was renewed in a few respects, but none are relevant to the issues in this appeal.
2
Despite the failure to renew the parties‟ contract, Erlanger continued to provide
emergency services to AmeriChoice enrollees. As addressed more fully below, Erlanger
was required to provide such emergency services under the federal Emergency Medical
Treatment and Active Labor Act, 42 U.S.C. § 1395dd (2011).
This appeal centers on a dispute between Erlanger and AmeriChoice over the rate
AmeriChoice must pay Erlanger for the emergency services provided to AmeriChoice
enrollees in the absence of a contract between the parties. A brief review of the
TennCare system, the relevant statutes and regulations, and the nomenclature is helpful to
an understanding of the issue on appeal.
TennCare
TennCare is Tennessee‟s managed-care system for citizens eligible for Medicaid.2
Under TennCare, the State of Tennessee enters into risk agreements with private MCOs.
Under the risk agreements, the MCO arranges for the provision of healthcare services to
eligible TennCare recipients who choose to enroll with that MCO (“enrollees”).3 The
State, in turn, pays the MCO a monthly payment, known as a “capitation payment,” for
each enrollee. River Park Hosp. v. BlueCross BlueShield of Tenn., Inc., 173 S.W.3d 43,
48 (Tenn. Ct. App. 2002).
To facilitate the provision of healthcare services for its enrollees, each MCO
develops a “network” of healthcare providers. The healthcare providers in the MCO‟s
network are called “participating” providers, and the participating providers comprise the
MCO‟s “provider network.”4 An MCO will generally aim to reduce costs by negotiating
with the healthcare providers in its network to accept discounted rates for the services
provided to the MCO‟s enrollees. Id. Healthcare providers that do not have a contract
with an MCO but nevertheless provide services to the MCO‟s enrollees are referred to as
2
Medicaid was established by the federal government in 1965 to provide health coverage for
low-income individuals by using state and federal funds. River Park Hosp. v. BlueCross BlueShield of
Tenn., Inc., 173 S.W.3d 43, 47 & n.2 (Tenn. Ct. App. 2002); State ex rel. Pope v. Xantus Healthplan of
Tenn., Inc., No. M2000-00120-COA-R10-CV, 2000 WL 630858, at *1 (Tenn. Ct. App. May 17, 2000).
Generally, the federal government sets certain standards for state Medicaid programs; if those standards
are met, it provides partial funding for those programs. The states then supply the balance of the
necessary funding and are responsible for delivery of covered services to eligible individuals. River Park
Hosp., 173 S.W.3d at 47 n.2.
3
Eligible TennCare recipients are free to enroll with the MCO of their choice.
4
An MCO may charge its enrollees less for using “in-network” providers.
3
“non-participating” or “non-contract” providers. Overall, “[i]f the MCO pays less in
provider fees than the total amount received in capitation payments, it earns a profit. If
the amount spent on care exceeds the capitation payments, the MCO bears the loss.” Id.
Thus, under this system, the MCOs, and not the State, sustain “the financial risk involved
in the administration of healthcare services to persons eligible for TennCare.”5 Id.
EMTALA
In 1986, Congress enacted the federal Emergency Medical Treatment and Active
Labor Act (EMTALA), 42 U.S.C. § 1395dd, as part of the Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA) (codified in various places in Title 42 of the United
States Code). The purpose of EMTALA was to prohibit “patient dumping,” that is, “the
practice of a hospital that, despite its capability to provide needed medical care, either
refuses to see or transfers a patient to another institution because of the patient‟s inability
to pay.” Baber v. Hosp. Corp. of Am., 977 F.2d 872, 873 n.1 (4th Cir. 1992); see also
Beller v. Health and Hosp. Corp. of Marion Cnty., Ind., 703 F.3d 388, 390 (7th Cir.
2012). To this end, when a person without the ability to pay for medical services presents
to a hospital‟s emergency room, EMTALA requires the hospital to first provide screening
to ascertain whether the person has an “emergency medical condition.”6 If the hospital
determines that the person has an emergency medical condition, the hospital must
provide such treatment as is necessary to either stabilize the patient or transfer the patient
to another facility. Beller, 703 F.3d at 390.
DRA
Almost twenty years after it enacted EMTALA, the federal government enacted
the Deficit Reduction Act of 2005 (DRA). The DRA included a provision entitled
5
The purpose of implementing this type of system was to control spiraling healthcare costs while
broadening the covered population. River Park Hosp., 173 S.W.3d at 48 n.3.
6
EMTALA defines “emergency medical condition” as:
(A) a medical condition manifesting itself by acute symptoms of sufficient severity
(including severe pain) such that the absence of immediate medical attention could
reasonably be expected to result in--
(i) placing the health of the individual . . . in serious jeopardy,
(ii) serious impairment to bodily functions, or
(iii) serious dysfunction of any bodily organ or part . . . .
42 U.S.C. § 1395dd(e)(1)(A).
4
“Assuring coverage to emergency services.” This provision addressed how non-contract
providers of EMTALA-mandated emergency services are to be compensated for those
services:
Any provider of emergency services that does not have in effect a contract
with a Medicaid managed care entity that establishes payment amounts for
services furnished to a beneficiary enrolled in the entity‟s Medicaid
managed care plan must accept as payment in full no more than the
amounts (less any payments for indirect costs of medical education and
direct costs of graduate medical education) that it could collect if the
beneficiary received medical assistance under this subchapter other than
through enrollment in such an entity. In a State where rates paid to
hospitals under the State plan are negotiated by contract and not publicly
released, the payment amount applicable under this subparagraph shall be
the average contract rate that would apply under the State plan for general
acute care hospitals or the average contract rate that would apply under
such plan for tertiary hospitals.
42 U.S.C. § 1396u-2(b)(2)(D) (emphasis added). Thus, in Tennessee, where the “rates
paid to hospitals under the State plan are negotiated by contract,” the DRA provides that
non-contract providers must accept “the average contract rate that would apply under the
State plan” as the payment amount for EMTALA-mandated services.
Two years later, in response to this DRA provision, the Tennessee General
Assembly enacted Tennessee Code Annotated section 71-5-108, entitled “State plan
amendment; payment methodology.” This statute provides:
The TennCare bureau is directed to submit a state plan amendment to the
centers for medicare and medicaid services that sets out a payment
methodology for medicaid enrollees who are not also enrolled in medicare,
consistent with provisions in § 6085 of the federal Deficit Reduction Act of
2005, regarding emergency services furnished by noncontract providers for
managed care enrollees. The payment amount shall be the average
contract rate that would apply under the state plan for general acute care
hospitals. A tiered grouping of hospitals by size or services may be utilized
to administer these payments. The payment methodology developed
pursuant to this section shall be budget neutral for the state fiscal year
2007-2008 when compared to the actual experience for emergency services
furnished by non-contract providers for medicaid managed care enrollees
prior to January 1, 2007. It is the intent that this section only applies to the
5
emergency services furnished by non-contract providers for medicaid
managed care enrollees.
Tenn. Code Ann. § 71-5-108 (2012) (emphasis added). In short, the statute directs
TennCare to submit to the Centers for Medicare and Medicaid Services (CMS) 7 for
approval an amendment to the State Medicaid plan that “sets out a payment methodology
. . . consistent with [the DRA], regarding emergency services furnished by non-contract
providers for managed care enrollees.” Id. The statute provides, “The payment amount
shall be the average contract rate that would apply under the state plan for general acute
care hospitals.” Id.
Pursuant to the directive in Section 71-5-108, TennCare submitted to CMS a State
plan amendment regarding outpatient emergency services.8 The amendment specified
that the rate at which non-contract hospitals “shall be reimbursed” for providing
outpatient emergency services to TennCare enrollees is “74% of the 2006 Medicare rates
for those services.” This State plan amendment was approved by CMS. Thereafter,
effective May 11, 2009, TennCare promulgated a regulation to implement the State plan
amendment:
1200-13-13-.08 PROVIDERS
(2) Non-Participating Providers.
....
(b) Covered medically necessary outpatient emergency services, when
provided to Medicaid managed care enrollees by non-contract hospitals in
accordance with Section 1932(b)(2)(D) of the Social Security Act (42
U.S.C.A. § 1396u–2(b)(2)(D)), shall be reimbursed at seventy-four percent
(74%) of the 2006 Medicare rates for these services. . . .
Tenn. Comp. R. & Regs. ch. 1200-13-13-.08(2)(b). This regulation is referred to as “the
74% Rule.”
Subsequently, TennCare submitted to CMS a second State plan amendment, this
one regarding inpatient hospital admissions required as a result of emergency outpatient
7
CMS, previously known as the Health Care Financing Administration, is a federal agency
within the Department of Health and Human Services that works in partnership with state governments to
administer the Medicaid program and other programs.
8
TennCare must submit amendments to the State Medicaid plan to CMS for approval. 42 C.F.R.
§§ 430.10 to 430.25.
6
services. This second amendment specified that the rate at which non-contract hospitals
“shall be reimbursed” for such inpatient services for TennCare enrollees is “57% of the
2008 Medicare Diagnostic Related Groups (DRG) rates.” This State plan amendment
was also approved by CMS. Thereafter, effective March 17, 2010, TennCare
promulgated a regulation to implement this second State plan amendment:
Covered medically necessary inpatient hospital admissions required as the
result of emergency outpatient services, when provided to Medicaid
managed care enrollees by non-contract hospitals in accordance with
Section 1932(b)(2)(B) of the Social Security Act (42 U.S.C.A. § 1396u–
2(b)(2)(B)), shall be reimbursed at 57 percent of the 2008 Medicare
Diagnostic Related Groups (DRG) rates (excluding Medical Education and
Disproportionate Share components) determined in accordance with 42
CFR § 412 for those services. For DRG codes that are adopted after 2008,
57 percent of the rate from the year of adoption will apply. Such an
inpatient stay will continue until no longer medically necessary or until the
patient can be safely transported to a contract hospital or to another contract
service, whichever comes first. . . .
Tenn. Comp. R. & Regs. ch. 1200-13-13-.08(2)(c) (emphasis added). This regulation is
referred to as “the 57% Rule.” Thus, both the 74% Rule and the 57% Rule pertain to
compensation for non-contract providers who furnish EMTALA-mandated healthcare
services to TennCare enrollees.
Parties’ Dispute
Meanwhile, in accordance with EMTALA, Erlanger continued to provide
EMTALA-mandated services to AmeriChoice enrollees, even after the contract between
Erlanger and AmeriChoice expired on December 31, 2008. Erlanger provided to those
enrollees both of the types of services addressed by the two State plan amendments---
outpatient emergency services and inpatient services required as a result of the
emergency outpatient services. During the time in which Erlanger was a participating
provider in the AmeriChoice provider network, the amount AmeriChoice paid to Erlanger
for those services was the agreed amount set forth in the parties‟ contract. For services
Erlanger provided after the parties‟ contract expired, Erlanger billed AmeriChoice its
standard charges for non-contract services. AmeriChoice made some payments to
Erlanger but refused to pay Erlanger‟s standard rates. The resulting dispute set the stage
for this lawsuit.
In June 2009, Erlanger filed a complaint against AmeriChoice in the Chancery
Court for Davidson County. In count 1, Erlanger sought a declaratory judgment that
7
Tennessee Code Annotated § 29-14-102 requires AmeriChoice to pay Erlanger (i) “at the
rate equal to the prevailing average contract rate payable by TennCare MCOs” for
EMTALA-mandated services and (ii) “at a reasonable rate of reimbursement for”
services provided to patients after they are stabilized, which are not mandated by
EMTALA. Erlanger‟s complaint also included a breach of contract claim (count 2) and
an unjust enrichment claim (count 3), both seeking damages for the two categories of
services described in count 1. Citing Tennessee Code Annotated section 71-5-108,
Erlanger alleged that AmeriChoice was obligated to pay at least the “average contract
rate” payable for EMTALA-mandated services. It also sought payment based on the
reasonable value of non-emergency services provided after stabilization of emergency
patients. Thus, in its complaint, Erlanger sought both declaratory relief and damages.
In August 2009, AmeriChoice filed its answer, claiming that it had paid Erlanger
all that was due under applicable law. AmeriChoice asserted that TennCare regulations
governed the rate at which it was required to reimburse Erlanger for EMTALA-mandated
services and maintained that it had satisfied its obligations under the regulations.
AmeriChoice also asserted in its answer that, because Erlanger had relied on
Section 71-5-108 instead of the relevant TennCare regulations regarding payments for
EMTALA-mandated services, its complaint, in effect, challenged the applicability and/or
validity of those TennCare regulations. AmeriChoice argued that Section 4-5-225(b) of
the Uniform Administrative Procedures Act requires a complainant who seeks to
challenge the validity or applicability of a statute or regulation to first petition the agency
for a declaratory order. Tenn. Code Ann. § 4-5-225(b) (Supp. 2014).9 Under this
provision, AmeriChoice contended, Erlanger was required to seek a declaratory order
from TennCare regarding the agency‟s interpretation of its regulations before filing a
complaint in court against AmeriChoice regarding the parties‟ dispute.
In August 2012, the trial court granted AmeriChoice permission to file an
amended answer and counterclaim. In its amended answer and counterclaim,
AmeriChoice asserted that it had paid Erlanger for non-contract EMTALA-mandated
services in a manner “at least consistent with, and in numerous times in excess of, the
applicable rates required by law to be paid for the provision of the non-contract medical
services at issue in this case.” AmeriChoice estimated that it had overpaid Erlanger by
about $6 million. In light of these overpayments, AmeriChoice asserted the defense of
setoff and recoupment in its amended answer. In the counterclaim, it sought recovery of
those alleged overpayments.
9
That subsection of the UAPA provides: “A declaratory judgment shall not be rendered
concerning the validity or applicability of a statute, rule or order unless the complainant has petitioned the
agency for a declaratory order and the agency has refused to issue a declaratory order.” Tenn. Code Ann.
§ 4-5-225(b).
8
Motion for Partial Summary Judgment
Thereafter, AmeriChoice filed a motion for partial summary judgment seeking
dismissal of Erlanger‟s complaint. AmeriChoice repeated its argument that Section 4-5-
225(b) required Erlanger to first seek declaratory relief from the TennCare Bureau before
pursuing relief in court, because the TennCare regulations set the rates at which
AmeriChoice was required to reimburse Erlanger for the EMTALA-mandated services.
Because Erlanger challenged the TennCare regulations applicable to the reimbursement
rate for EMTALA-mandated services, AmeriChoice argued, the trial court lacked subject
matter jurisdiction to adjudicate Erlanger‟s complaint. Thus, AmeriChoice maintained, it
was entitled to summary judgment on those claims.
In response to the motion for partial summary judgment, Erlanger insisted that
AmeriChoice was required to pay Erlanger the “average contract rate,” as specified in the
DRA. It argued that the only issue before the trial court was “the factual question of
whether AmeriChoice has actually paid Erlanger at [the average contract] rate.”
(Emphasis in original). Erlanger acknowledged that TennCare enacted the 74% Rule and
the 57% Rule to address the amounts owed to non-contract providers of emergency
services. However, it “dispute[d] that the 74% and 57% Rules are consistent with the
DRA.” Erlanger added that, even if its argument could be considered a challenge to the
TennCare Rules, the issue was properly before the trial court because “[c]ourts regularly
decide the applicability of state rules and regulations to the actions of private parties . . .
.”
The parties attempted to mediate their dispute, to no avail. They then filed joint
stipulations regarding AmeriChoice‟s motion for partial summary judgment.
In September 2012, the trial court conducted a hearing on the motion for partial
summary judgment. At the conclusion of the hearing, the trial court denied the motion
but invited AmeriChoice to file a revised motion for partial summary judgment as to the
applicable rates governing Erlanger‟s claims for reimbursement. Soon thereafter,
AmeriChoice filed a new motion for partial summary judgment; this one asked the trial
court for a holding that the 74% Rule and the 57% Rule established “the proper rate of
reimbursement payable to [Erlanger]” for EMTALA-mandated services.
In response to this second motion for partial summary judgment, Erlanger argued
that TennCare promulgated the 74% and 57% Rules to establish a “floor” for payments to
non-contract providers of EMTALA-mandated services. In other words, the Rules set
forth the method for calculating the minimum amount that an MCO had to reimburse a
service provider; they do not set the maximum amount that a non-contract provider must
9
accept from the MCO. Erlanger claimed that AmeriChoice‟s interpretation, construing
the Rules as determining the “ceiling” or maximum amount of payment, sidestepped the
“carefully crafted language” in the Rules. AmeriChoice‟s interpretation, Erlanger
maintained, “would result in a regulation that is contrary to the strictures of Federal and
state law” and would require the trial court to find that the Rules are “in direct conflict
with and preempted by the DRA, as well as in conflict with Tenn. Code Ann. § 71-5-
108.”
In November 2012, the trial court held a hearing on AmeriChoice‟s second motion
for partial summary judgment. At the hearing, the trial judge orally ruled in favor of
AmeriChoice. The trial court held: “[I]t would appear that the reimbursement rate is set
at a 74 percent and 57 percent rule, and that the motion for partial summary judgment is
well-taken.”
Before the trial judge entered a written order, however, Erlanger filed a “Motion
for Additional Argument” on Americhoice‟s motion for partial summary judgment,
urging the trial judge to reconsider her stated position. Erlanger asserted that the 74%
and 57% Rules “do not govern the rate that Erlanger must accept” for EMTALA-related
services. The trial court‟s oral ruling, Erlanger argued, was contrary to the DRA and
Section 71-5-108 and to the Tennessee and federal constitutions as well. Erlanger
asserted: “[I]f the Court enters an order based on its announced view that the 74% and
57% Rules control Erlanger‟s right to reimbursement and the set rate that Erlanger must
accept, its order would violate both the Tennessee and U.S. Constitutions.”
At this point, Erlanger sent notice to Tennessee‟s Attorney General, pursuant to
Tennessee Code Annotated section 29-14-107(b) and Rule 24.04 of the Tennessee Rules
of Civil Procedure, that the constitutionality of the 74% and 57% Rules had been “drawn
into question before the Chancery Court.” The notice included a copy of Erlanger‟s
“Motion for Additional Argument.”
Upon receiving Erlanger‟s notice, the Attorney General gave notice of
intervention for the purpose of addressing Erlanger‟s constitutional challenges to the
Rules. Pursuant to the above-cited statute and rule, the Attorney General participated in
the action. The Attorney General‟s position was aligned with that of AmeriChoice; the
Attorney General argued that the “threshold obstacle to this Court rendering a judgment
concerning the validity of [the 74% and 57% Rules]” was that “Erlanger has failed to
raise its challenge by petitioning TennCare for a declaratory order concerning the validity
of” those Rules.
10
Trial Court Ruling
In December 2012, the trial court held a hearing at which it heard arguments from
Erlanger, AmeriChoice, and the Attorney General. By the end of the hearing, the trial
court was convinced that it was “without jurisdiction to grant the relief sought until and
unless the affected person, in this case Erlanger, first seeks and has been refused a
declaratory order from the agency whose rule is being challenged.” Accordingly, the trial
judge dismissed the entire action, even Erlanger‟s damage claims, “because [she could
not] rule on Count II and Count III . . . until [she knew] what the State‟s position is and
[what TennCare has] declared how the rule and the statute should be interpreted.” The
trial court held that AmeriChoice‟s counterclaim was “just like [Erlanger‟s] claim” in that
it also required a ruling on Erlanger‟s assertion that the 74% and 57% Rules are either
invalid or inapplicable. After hearing the trial court‟s ruling on Erlanger‟s petition,
Americhoice agreed that the counterclaim must also be dismissed because it involved the
same issues.
In January 2013, the trial court issued a written order holding that it was without
subject matter jurisdiction to adjudicate Erlanger‟s claim for reimbursement for
EMTALA-mandated services, based on Erlanger‟s failure to exhaust its administrative
remedies under the UAPA. The written order also dismissed the counterclaim for the
same reason. Both Erlanger‟s complaint and AmeriChoice‟s counterclaim were
dismissed without prejudice, in order to permit the parties to refile them after Erlanger
exhausted its administrative remedies with TennCare. The trial court did not dismiss
Erlanger‟s claims relating to post-stabilization services not mandated under EMTALA.10
Erlanger sought permission for an interlocutory appeal of the trial court‟s January
2013 order. Both the trial court and the Court of Appeals granted permission for the
interlocutory appeal.
Court of Appeals Ruling
The intermediate appellate court reversed. Chattanooga-Hamilton Cnty. Hosp.
Auth. v. UnitedHealthcare Plan of the River Valley, Inc., No. M2013-00942-COA-R9-
CV, 2014 WL 2568456, at *11 (Tenn. Ct. App. June 6, 2014) (“Erlanger”). It found that
Erlanger‟s claims involved merely a disagreement over the interpretation of the
10
This appeal involves only Erlanger‟s claims for payments related to EMTALA-mandated
services. It does not involve Erlanger‟s claim against AmeriChoice for payments related to post-
stabilization (non-EMTALA) services.
11
regulations and held that Erlanger was not required to seek an administrative remedy
prior to filing suit. Id. at *11.
The appellate court observed that Erlanger‟s claims in this case are “strikingly
similar” to the claims asserted by the plaintiff hospital in River Park Hospital, in which
the plaintiff hospital claimed payment for EMTALA-mandated services in accordance
with regulations in effect at that time. Erlanger, 2014 WL 2568456, at *10 (citing River
Park Hosp., 173 S.W.3d at 50). The River Park Hospital Court, it noted, determined that
the trial court had jurisdiction over the case and remanded for further proceedings. In the
instant case, the Court of Appeals saw “no difference in the types of issues and analytical
approach in River Park Hospital and the case before us.” Id. It held: “[T]he dispute that
is at the heart of this case is a difference over the interpretation of the relevant statutes
and regulations. Interpretation of the law is, in the first instance, the province of the
courts.” Id. The Court of Appeals also noted that this is a dispute between private parties
and that a governmental entity is not involved. It concluded, “Trial courts are often
called upon to interpret statutes and regulations to resolve private parties‟ disputes, and
this case is no different.” Id. at *11.
The Court of Appeals also said that any challenge to the constitutionality of the
statutes and regulations would be a matter for the courts, not an administrative agency. It
recognized that no such constitutional challenge had been made in this case but
nevertheless commented: “[E]ven if Erlanger were seeking to challenge the
constitutionality of the regulations on payment for emergency services, which Erlanger
denies, that issue is not appropriate for decision by an administrative agency and must be
decided by a court.” Id. at *9 (relying on Colonial Pipeline Co. v. Morgan, 263 S.W.3d
827, 844 (Tenn. 2008)).
Thus, the Court of Appeals reversed the trial court‟s decision. It held that the
UAPA did not deprive the trial court of jurisdiction over Erlanger‟s complaint or
AmeriChoice‟s counterclaim and remanded the case to the trial court for further
proceedings. Id. at *11. We granted permission to appeal to address exhaustion of
administrative remedies under the UAPA.
ANALYSIS
The issue on appeal is whether the UAPA requires exhaustion of administrative
remedies with TennCare before the parties‟ dispute may be resolved by the courts. This
is a question of law, which we review de novo, affording no deference to the decisions of
the lower courts. Word v. Metro Air Servs., Inc., 377 S.W.3d 671, 674 (Tenn. 2012).
12
On appeal, the parties take the same positions taken in the lower court
proceedings. AmeriChoice and the Attorney General (collectively “Appellants”) argue
that the Court of Appeals erred and that the trial court‟s dismissal of Erlanger‟s complaint
was correct. They contend that Erlanger‟s complaint, seeking additional payments from
AmeriChoice, implicitly seeks a judicial declaration that the 74% and 57% Rules are
either inapplicable or invalid. Those TennCare regulations, Appellants argue, set the
rates at which non-contract providers “shall be reimbursed” for EMTALA-mandated
services; they give no indication that the stated rates are intended to be a minimum or
“floor,” as argued by Erlanger. Thus, Erlanger‟s request for a ruling that it is entitled to
“the average contract rate” under the DRA or Section 71-5-108 is in effect a request for a
ruling that the TennCare Rules are invalid or inapplicable because they are inconsistent
with the statutes. This triggers the UAPA‟s requirement of exhaustion of administrative
remedies. The Appellants argue, “[T]o the extent Erlanger asserts that it is entitled to
payment at rates different from those set forth in these governing TennCare regulations,
its claims are subject to the UAPA” exhaustion requirement.
We look first at the doctrine of exhaustion of administrative remedies. “Courts
traditionally . . . give great deference to an agency‟s interpretation of its own rules
because the agency possesses special knowledge, expertise, and experience with regard to
the subject matter of the rule.” Pickard v. Tenn. Water Quality Control Bd., 424 S.W.3d
511, 522 (Tenn. 2013). For this reason, an agency‟s interpretation of its own rule has
“controlling weight unless it is plainly erroneous or inconsistent with the regulation.” Id.
(quoting BellSouth Adver. & Publ‟g Corp. v. Tenn. Regulatory Auth., 79 S.W.3d 506,
514 (Tenn. 2002)). This respect for the expertise and experience of administrative
agencies gave rise to the common-law “exhaustion of administrative remedies” doctrine.
See id. “The exhaustion doctrine has been recognized at common law as an exercise of
judicial prudence.” Colonial Pipeline, 263 S.W.3d at 838. The Court in Colonial
Pipeline described the doctrine of exhaustion of administrative remedies:
Justice Brandeis referred to it as “the long settled rule of judicial
administration that no one is entitled to judicial relief for a supposed or
threatened injury until the prescribed administrative remedy has been
exhausted.” Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 50-51,
58 S. Ct. 459, 82 L. Ed. 638 (1938). When a claim is first cognizable by an
administrative agency, therefore, the courts will not interfere “until the
administrative process has run its course.” United States v. W. Pac. R.R.
Co., 352 U.S. 59, 63, 77 S. Ct. 161, 1 L. Ed. 2d 126 (1956).
Id. The administrative exhaustion doctrine protects and preserves administrative
authority in several ways:
13
The exhaustion doctrine serves to prevent premature interference with
agency processes, so that the agency may (1) function efficiently and have
an opportunity to correct its own errors; (2) afford the parties and the courts
the benefit of its experience and expertise without the threat of litigious
interruption; and (3) compile a record which is adequate for judicial review.
Thomas v. State Bd. of Equalization, 940 S.W.2d 563, 566 (Tenn. 1997). It also allows
the agency to engage in “specialized fact-finding, interpretation of disputed technical
subject matter, and resolving disputes concerning the meaning of the agency‟s
regulations.” Colonial Pipeline, 263 S.W.3d at 839 (quoting West v. Bergland, 611 F.2d
710, 715 (8th Cir. 1979) (citations omitted)). “Requiring that administrative remedies be
exhausted often leaves courts better equipped to resolve difficult legal issues by allowing
an agency to perform functions within its special competence.” Id. (citation and internal
quotations omitted).
At common law, application of the exhaustion doctrine “is a matter of judicial
discretion.” Thomas, 940 S.W.2d at 566 n.5 (citing Reeves v. Olsen, 691 S.W.2d 527,
530 (Tenn. 1985)). Today, however, administrative remedies are addressed in statutes.
Pickard, 424 S.W.3d at 523. “Generally, when a statute provides an administrative
remedy, one must exhaust this administrative remedy, prior to seeking relief from the
courts.” Thomas, 940 S.W.2d at 566. However, “a statute does not require exhaustion
when the language providing for an appeal to an administrative agency is worded
permissively.” Colonial Pipeline, 263 S.W.3d at 839 (citing Thomas, 940 S.W.2d at
566). Absent a statutory mandate, the decision on whether to dismiss a case for failure to
exhaust administrative remedies is a matter of judicial discretion. Reeves, 691 S.W.2d at
530. In contrast, when exhaustion of administrative remedies is required by statute, the
failure to do so will deprive the court of subject matter jurisdiction. Pickard, 424 S.W.3d
at 523 (quoting Bailey v. Blount Cnty. Bd. of Educ., 303 S.W.3d 216, 236 (Tenn. 2010));
see also Colonial Pipeline, 263 S.W.3d at 842 (citing Watson v. Tenn. Dep‟t of Corr., 970
S.W.2d 494 (Tenn. Ct. App. 1998)).
Therefore, we must ascertain whether Erlanger was statutorily required to exhaust
its administrative remedies before filing the instant action against AmeriChoice in the
chancery court. To do this, we first look to the relevant provision of the UAPA:
(a) The legal validity or applicability of a statute, rule or order of an
agency to specified circumstances may be determined in a suit for a
declaratory judgment in the chancery court of Davidson County, unless
otherwise specifically provided by statute, if the court finds that the statute,
rule or order, or its threatened application, interferes with or impairs, or
14
threatens to interfere with or impair, the legal rights or privileges of the
complainant. The agency shall be made a party to the suit.
(b) A declaratory judgment shall not be rendered concerning the
validity or applicability of a statute, rule or order unless the complainant
has petitioned the agency for a declaratory order and the agency has
refused to issue a declaratory order.
(c) In passing on the legal validity of a rule or order, the court shall
declare the rule or order invalid only if it finds that it violates constitutional
provisions, exceeds the statutory authority of the agency, was adopted
without compliance with the rulemaking procedures provided for in this
chapter or otherwise violates state or federal law.
Tenn. Code Ann. § 4-5-225 (emphasis added). In construing this statute, our goal is “to
ascertain and give effect to the legislative intent without unduly restricting or expanding a
statute‟s coverage beyond its intended scope.” In re Kaliyah S., 455 S.W.3d 533, 552
(Tenn. 2015) (quoting Owens v. State, 908 S.W.2d 923, 926 (Tenn. 1995)). “The text of
the statute is of primary importance.” Mills v. Fulmarque, Inc., 360 S.W.3d 362, 368
(Tenn. 2012). A statute should be read naturally and reasonably, with the presumption
that the legislature says what it means and means what it says. In re Kaliyah S., 455
S.W.3d at 552.
Section 4-5-225 first provides the manner in which an agency regulation can be
challenged: “The legal validity or applicability of a statute, rule or order of an agency to
specified circumstances may be determined in a suit for a declaratory judgment in the
chancery court of Davidson County.” Tenn. Code Ann. § 4-5-225(a). The statute then
prohibits a court from rendering a declaratory judgment “concerning the validity or
applicability of a statute, rule or order unless the complainant has petitioned the agency
for a declaratory order.” Id. § 4-5-225(b). Thus, when a court is called upon to render a
declaratory judgment “concerning the validity or applicability of” either a statute or
regulation, it is without jurisdiction to do so unless the complainant has first exhausted its
administrative remedies. Subsection (b) of Section 4-5-225 is a clear proscription; it
states that a court “shall not . . . render[]” a declaratory judgment before the
administrative remedies have been exhausted. Tenn. Code Ann. § 4-5-225(b); Colonial
Pipeline, 263 S.W.3d at 842 (“In no uncertain terms, [Section 4-5-225] requires a
prospective plaintiff to make a request for a declaratory order with an agency before
bringing an action for a declaratory judgment in the Chancery Court.”). Consequently, if
Erlanger‟s claims for relief necessarily require the trial court to render a declaratory
judgment concerning the validity or applicability of the 74% or 57% Rules, then the trial
15
court was correct in holding that it was without jurisdiction to adjudicate Erlanger‟s
claims absent exhaustion.
Erlanger insists that its lawsuit against AmeriChoice is not an action for
declaratory judgment “concerning the validity or applicability” of the 74% or 57% Rules.
Erlanger notes that its complaint did not include a challenge to the validity of either the
statutes or the regulations and indeed did not even mention TennCare‟s 74% and 57%
Rules.11 Erlanger claimed in its complaint that it was entitled to the “average contract
rate” for its services pursuant to the DRA and Section 71-5-108, and it sought an award
of damages against AmeriChoice on that basis. In response to Erlanger‟s complaint,
AmeriChoice argued that the Rules were partially applicable to Erlanger‟s claim for
damages. It was only at this point that Erlanger challenged the regulations---after
AmeriChoice cited the 74% and 57% Rules in its defense.
Even in its challenge to the Rules, Erlanger argues, it did not directly seek a
declaratory judgment that the Rules are either invalid or inapplicable. Instead, Erlanger
says, it disputes the interpretation of the Rules urged by Americhoice. Erlanger
maintains that the Rules are not intended to set a “ceiling” or maximum amount that a
non-contracting hospital must accept as payment for EMTALA-mandated services;
rather, they are intended to set a “floor” or minimum amount. Erlanger‟s bases this
argument on (1) the language of the statute, in that it does not say what Erlanger “must
accept” in payment for EMTALA-mandated services; (2) the market-based nature of the
TennCare system, in which rates are set by negotiation and agreement, not by the State;
and (3) the “average contract rate” language of the DRA and Section 71-5-108.
Boiled down to its essence, Erlanger‟s contention is that it has not requested a
“declaratory judgment . . . concerning the validity or applicability” of TennCare
regulations because its complaint contains no reference to the 74% or 57% Rules. Thus,
the premise of Erlanger‟s argument is that, in determining the applicability of the UAPA
exhaustion requirement, the court is limited to looking at the face of the complaint. We
disagree with this premise.12
11
In fact, the 57% Rule, which went into effect in March 2010, could not have been mentioned
in Erlanger‟s complaint, which was filed in June 2009.
12
On March 28, 2013, after the trial court ruled that it lacked jurisdiction under the UAPA,
Erlanger filed a “First Amended Complaint” that deleted count 1 of its original complaint in which
Erlanger specifically requested a declaratory judgment on the measurement of damages. The amended
complaint includes only claims for damages based on breach of implied contract and unjust enrichment.
Like the original complaint, Erlanger‟s amended complaint does not mention the TennCare Rules and
seeks payment based on the “average contract rate” under the statutes. The amended complaint‟s
omission of the specific request for declaratory relief in count 1 does not affect our holding regarding
16
As noted above, the UAPA administrative exhaustion requirement is contained in
the following language: “A declaratory judgment shall not be rendered concerning the
validity or applicability of a statute, rule or order unless the complainant has petitioned
the agency for a declaratory order.” Tenn. Code Ann. § 4-5-225(b). This language does
not limit the court to considering the face of the complaint. Rather, if the relief sought by
a party would necessarily require the trial court to render a declaratory judgment
“concerning the validity or applicability of a statute, rule or order,” then the UAPA
administrative exhaustion requirement is implicated.
To determine whether exhaustion of administrative remedies is required, the trial
court must look to the substance of the parties‟ dispute. As previously noted by this
Court, the trial court is not limited by a party‟s characterization of its own pleadings.
Baptist Hosp. v. Tenn. Dep‟t of Health, 982 S.W.2d 339, 341 (Tenn. 1998).
This point is illustrated by the facts presented in Baptist Hospital. At the time the
dispute in Baptist Hospital arose, Tennessee had a fee-for-service Medicaid system that
predated the current managed-care TennCare system. The plaintiff hospitals in that case
had provided services to Medicaid patients pursuant to provider agreements between the
hospitals and the State of Tennessee. Id. at 339-40 & n.1. The hospitals filed a breach-
of-contract complaint against the State in the Tennessee Claims Commission, asserting
that the State had failed to pay the hospitals in accordance with the provider agreements.
In response, the State argued that its payments were consistent with a new Medicaid
regulation. Id. at 340.
The State filed a motion to dismiss, citing the UAPA exhaustion requirement. Id.
It contended that, even though the hospitals‟ complaint sought relief for breach of
contract, the hospitals were essentially challenging the validity of the Medicaid regulation
on which the State relied in its defense. Under the UAPA, the State claimed, the
hospitals were required to first file a claim with the Department of Health to allow the
agency to address the validity of the new regulation. Because the hospitals had not done
so, the State argued, the trial court did not have subject matter jurisdiction over the
dispute. The Claims Commission denied the motion to dismiss, and an interlocutory
appeal was granted. Id. The Court of Appeals reversed, holding that the trial court
lacked subject matter jurisdiction, and the hospitals were granted permission to appeal.
Id.
On appeal, the Baptist Hospital Court affirmed the decision of the Court of
Appeals. It held that, although the hospitals characterized their lawsuit as a breach-of-
exhaustion of administrative remedies as to the validity or applicability of the TennCare Rules because
we focus on the substance of the parties‟ dispute.
17
contract action, their claims were “premised on the contention that [the Medicaid
regulation] is invalid.” Id. at 341. Therefore, the Court held, “the hospitals‟ claim is
properly classified as a challenge to the validity of [the Medicaid regulation],” not as a
breach-of-contract action. Id. The Court stated unequivocally, “Claims challenging the
validity of or applicability of a statute, rule, or order must be brought pursuant to the
UAPA.” Id. Because the hospitals had not exhausted their administrative remedies by
first bringing the dispute to the pertinent agency, the Court in Baptist Hospital dismissed
the complaint for lack of subject matter jurisdiction. Id.
In this case, as in Baptist Hospital, the determination regarding application of the
UAPA is not limited to the face of Erlanger‟s complaint and is not governed by
Erlanger‟s characterization of its own claims. It is made by considering the the substance
of the parties‟ claims and defenses and the overall posture of the case. If resolution of the
parties‟ dispute necessarily requires the trial court to render “a declaratory judgment
concerning the validity or applicability of a statute, rule or order,” then the trial court is
without jurisdiction to adjudicate the claims until the administrative remedies have been
exhausted.
The parties‟ dispute in this case is centered on the “validity or applicability” of the
TennCare Rules. It is undisputed that AmeriChoice must pay Erlanger for the EMTALA-
mandated services provided to AmeriChoice enrollees; the dispute concerns only the
yardstick by which those payments are measured. AmeriChoice sought partial summary
judgment on this very point, requesting that the trial court rule that the TennCare Rules
governed this issue. After the trial court orally agreed with AmeriChoice on the
application of the Rules, Erlanger filed its “Motion for Additional Argument,” in which it
claimed that application of the TennCare Rules in this manner “would be in violation of
the statute and would be unconstitutional.” Erlanger wisely recognized at this juncture
that it was required to notify the Attorney General that the TennCare Rules were being
“called into question” in the lawsuit. At the December 2012 hearing on the Motion for
Additional Argument, Erlanger argued, “[T]he statute trumps the regulation[s]. The
statute guarantees Erlanger the average contract rate.” It insisted that, “unless 74[%] and
57[%] [Rules] are, in fact, the average contract rate, [TennCare has not] done what the
statute directed [it] to do.” Erlanger suggested to the trial court that, if AmeriChoice
sought application of the TennCare Rules to the parties‟ dispute, AmeriChoice would
first “need to go to TennCare . . . and see what the regulation means.”
Thus, if the fact that the parties‟ dispute centered on the TennCare Rules was
unclear when the complaint was filed, it became crystal clear once Erlanger filed its
“Motion for Additional Argument.” By contending that the TennCare Rules are not
applicable to its claim for damages or in the alternative that they are invalid as
18
inconsistent with the statutes,13 Erlanger in effect asked the trial court for a declaration
“concerning the validity or applicability of” the TennCare Rules. Tenn. Code Ann. § 4-
5-225(b). The term “declaratory” means “having the function of declaring, setting forth,
or explaining.” Bryan A. Garner, Garner‟s Dictionary of Legal Usage 252 (3rd ed.
2011). A judgment that grants no relief other than to set forth the parties‟ rights is a
“declaratory” judgment. We decline Erlanger‟s invitation to look only at the face of its
complaint and ignore the substance of the parties‟ dispute in determining whether the
parties‟ arguments required the trial court to render declaratory relief to adjudicate its
claims. See Baptist Hosp., 982 S.W.2d at 341 (noting that, although the hospitals
characterized their lawsuit as a breach-of-contract action, the relief requested was
necessarily “premised on the contention that [the Medicaid regulation] is invalid”).
Erlanger contends that it is not required to exhaust administrative remedies
because the UAPA applies only when a state agency is a party to the lawsuit. Erlanger
does not point to any language in Section 4-5-225(b) to support this contention, but it
relies instead on other cases in which a state agency is a party to the litigation. Erlanger
describes the case at bar as one that “tests the limits of a Tennessee court‟s authority to
abdicate judicial power to state administrative agencies in lawsuits between private
parties.” Here, Erlanger did not name TennCare as a defendant, and TennCare has never
taken any action to enforce the disputed regulations against Erlanger, so Erlanger‟s
lawsuit is between private parties only. The Court of Appeals agreed with Erlanger‟s
position:
Erlanger . . . has no complaint with the Bureau of TennCare and is
not in an adversarial position with respect to any action the Bureau has
taken against it or any other entity. Erlanger‟s complaint is with
AmeriChoice, a private entity. The fact that regulations enacted by the
Bureau of TennCare may come into play to resolve the parties‟ dispute does
not transform Erlanger‟s complaint into a dispute with the Bureau of
TennCare. Unlike Image Outdoor Advertising and the other cases upon
which AmeriChoice relies, Erlanger is not complaining about an action a
state agency took that had an adverse effect on Erlanger. Trial courts are
often called upon to interpret statutes and regulations to resolve private
parties‟ disputes, and this case is no different.
13
Erlanger argues strenuously that it seeks only an “interpretation” of the TennCare Rules,
contending that the Rules should be “interpreted” as establishing a “floor” for payments to non-contract
hospitals for EMTALA-mandated services. This is another way of asking the Court to look only at a
sliver of its argument rather than at its entirety. We decline to do so.
19
Erlanger, 2014 WL 2568456, at *11. Erlanger maintains that the Court of Appeals‟
holding was correct and that the trial court erred because this is simply a lawsuit between
two private parties regarding the proper interpretation of TennCare statutes and
regulations. It asserts, “No Tennessee court has ever held that the UAPA divests courts
of original jurisdiction to decide disputes between private citizens over the interpretation
or applicability of agency rules.” Erlanger‟s argument goes further: “Divesting the
courts of such jurisdiction in favor of administrative agencies violates the fundamental
constitutional principle of separation of powers that „it is the sole obligation of the
judiciary to interpret the law . . . .‟” (Quoting Richardson v. Tenn. Bd. of Dentistry, 913
S.W.2d 446, 453 (Tenn. 1995)). Erlanger insists that this case “is no different than other
disputes that the courts of this State hear and properly decide every day.” Therefore,
Erlanger claims, the trial court had jurisdiction and erred in surrendering its jurisdiction
to a state agency.
“[O]ne of the chief purposes of the [UAPA is] to provide a single method for
obtaining judicial review of the decisions of state agencies.” Pickard v. Tenn. Dep‟t of
Env‟t and Conservation, No. M2011-01172-COA-R3-CV, 2012 WL 3329618, at *9
(quoting McEwen v. Tenn. Dep‟t of Safety, 173 S.W.3d 815, 820 (Tenn. Ct. App. 2005));
see Tenn. Code Ann. § 4-5-103(a) (stating that the UAPA must be construed as “remedial
legislation designed to clarify and bring uniformity to the procedure of state
administrative agencies and judicial review of their determination”). In many cases in
which the applicability or validity of an agency regulation is being challenged, a state
entity will be involved. See, e.g., Baptist Hosp., 982 S.W.2d at 341; Tolley v. Att‟y Gen.
of Tenn., 402 S.W.3d 232, 235 (Tenn. Ct. App. 2012) (citing Stewart v. Schofield, 368
S.W.3d 457, 464-65 (Tenn. 2012)); Hall v. McLesky, 83 S.W.3d 752, 756-57 (Tenn. Ct.
App. 2002); Watson, 970 S.W.2d at 497. But it does not necessarily follow that a state
entity will always be involved in a dispute over the application or validity of an
administrative regulation.
Notably, our Court of Appeals has applied the UAPA exhaustion requirement in
an action between private parties. In Image Outdoor Adver., Inc. v. CSX Transp., Inc.,
No. M2000-03207-COA-R3-CV, 2003 WL 21338700 (Tenn. Ct. App. June 10, 2003), a
billboard company filed a declaratory judgment action against two private parties after
the Tennessee Department of Transportation denied the billboard company‟s request for a
billboard permit. The trial court dismissed the petition; it held, inter alia, that the
petitioner billboard company was statutorily required to exhaust its administrative
remedies before filing suit. Id. at *4. On appeal, the Court of Appeals noted that “[t]he
UAPA sets out the statutory prerequisites for seeking review of an agency‟s actions
through declaratory judgment proceedings.” Id. (citing Davis v. Sundquist, 947 S.W.2d
155, 156 (Tenn. Ct. App. 1997)). It explained: “A declaratory judgment action is
premature if the petitioner proceeds directly to judicial review without seeking an
20
administrative determination.” Id. (citing Davis, 947 S.W.2d at 156; Hall, 83 S.W.3d at
757). The petitioner billboard company argued that its lawsuit was a dispute between
private parties regarding “property interests.” Id. at *5. The Court of Appeals found that,
despite the characterization of the dispute by the petitioner billboard company, the trial
court had correctly perceived that the petitioner‟s request for relief necessarily involved
an allegation that the Department of Transportation had erroneously interpreted and
applied the pertinent state statute. Id. at *6. The appellate court affirmed the trial court‟s
dismissal of the complaint in part because the petitioner billboard company “failed to
exhaust the administrative remedy statutorily required as a prerequisite to its declaratory
judgment action. . . .”14 Id. at *8. Thus, the appellate court applied the UAPA exhaustion
requirement in a dispute in which no state agency was a party.
Indeed, the suit filed by Erlanger demonstrates how the validity and/or
applicability of an agency regulation can become an issue in a suit between private
parties, particularly when one party is subject to agency regulations. TennCare MCOs,
such as AmeriChoice, are required to pay healthcare providers in a manner that comports
with applicable TennCare rules, policies, and contract requirements. See Tenn. Comp. R.
& Regs. ch. 1200-13-13-.06 (stating that MCOs “shall agree to comply with all
applicable rules, policies, and contract requirements”). So, while MCOs are private
parties, they function in partnership with TennCare.
Moreover, application of the UAPA administrative exhaustion requirement to
disputes between private parties furthers the purpose of the statute by allowing the
agency to engage in specialized fact-finding, interpret technical subject matter, and
resolve disputes concerning the meaning of its own regulations. Colonial Pipeline, 263
S.W.3d at 839. It gives the parties and the courts the benefit of the agency‟s experience
and expertise and helps ensure a record that is adequate for judicial review. See Thomas,
940 S.W.2d at 566. Therefore, we reject Erlanger‟s argument that the UAPA
administrative exhaustion requirement applies only to cases in which a state agency is a
party to the lawsuit.
Erlanger argues, and the Court of Appeals held, that this case is governed by the
holding in River Park Hospital v. BlueCross BlueShield of Tennessee, Inc., 173 S.W.3d
43 (Tenn. Ct. App. 2002), in which the Court of Appeals adjudicated a dispute between
private parties regarding a TennCare regulation. In River Park Hospital, the plaintiff was
a non-contract hospital, not in the participating provider network of the defendant MCO.
The hospital billed the MCO at its standard rate for the EMTALA-mandated services. Id.
14
The Court of Appeals in Image Outdoor Advertising first commented that it did not need to
address the exhaustion doctrine, but then went on to hold that the trial court‟s dismissal of the complaint
was warranted in part by the petitioner‟s failure to exhaust administrative remedies. Image Outdoor
Adver., 2003 WL 21338700, at *7, *8.
21
at 49-50. The MCO refused to pay the standard rate; instead, it paid the non-contract
hospital the same rate that it paid the MCO‟s in-network providers. The MCO argued
that its payments were in compliance with applicable TennCare regulations, the
predecessors to the regulations at issue in this case. Id. (citing then-applicable TennCare
regulations, Tenn. Comp. R. & Regs. ch. 1200-13-12-.08(1) and (2)(a)). The hospital
filed suit; it sought a declaratory judgment that the MCO was required to compensate the
hospital according to the hospital‟s reasonable, standard rates. In its responsive pleading,
the MCO sought a declaratory judgment that its method of paying non-contract providers
the in-network rate was authorized by the applicable TennCare regulations.15 Id. at 50.
The parties in River Park Hospital agreed that the TennCare regulations at issue
applied to their dispute. They agreed that the regulations, by their plain language, at least
set a “floor” for the amount the MCO was required to pay the non-contract hospital for
services provided to the MCO‟s enrollees. Id. at 55. They disputed only the
interpretation of the regulations; the MCO took the position that the regulations set the
amount that must be accepted by the provider, while the non-contract hospital argued that
they did not. The appellate court construed the relevant regulation along with the related
statutes and held that the regulation “was intended to prevent balance billing as against an
enrollee and was not intended to allow MCOs to unilaterally set maximum
reimbursement rates for out-of-network [non-contract] providers.” Id. at 56.
While River Park Hospital is factually similar to this case, the issue in this appeal
was simply not presented in River Park Hospital. In River Park Hospital, exhaustion of
administrative remedies was not raised as an issue, so it was not discussed in the
appellate court‟s decision. Moreover, the parties in River Park Hospital agreed that the
15
The applicable regulations provided:
(1) In situations where a managed care organization authorizes a service rendered by a
provider who is not under contract with the managed care organization, payment to the
provider cannot be less than the amount that would have been paid to a provider under
contract with the managed care organization for the same service. As a condition of
payment, non-contract providers shall accept payment from managed care organizations
as payment in full except for applicable deductibles, co-payments and special fees.
(2) Participation in the TennCare program will be limited to providers who:
(a) Accept, as payment in full, the amounts paid by the managed care
organization, including enrollee cost-sharing, or the amounts paid in lieu
of the managed care organization by a third party (Medicare, insurance,
etc.) . . . .
Tenn. Comp. R. & Regs. ch. 1200-13-12-.08(1) and (2)(a) (2000).
22
TennCare regulations at issue were applicable and valid, so neither party sought a
declaratory judgment concerning either the “validity or applicability of a statute, rule or
order.”16 Tenn. Code Ann. § 4-5-225(b). Thus, the UAPA was not implicated in River
Park Hospital. Therefore, while the factual similarities in River Park Hospital are
interesting, the case is ultimately unhelpful in resolving the question of whether Erlanger
was required to exhaust its administrative remedies before filing the instant lawsuit.
Erlanger makes an alternative argument about AmeriChoice‟s interpretation of the
74% and 57% Rules. Erlanger argues that AmeriChoice‟s construction of the Rules
would “render them constitutionally suspect” because it would mean that TennCare
enacted rules that are inconsistent with its legislative directive.
At this juncture, it is unnecessary for us to address this issue. We have held that
Erlanger must first bring the parties‟ dispute to the TennCare Bureau, which may not
adopt the construction of the 74% and 57% Rules advocated by AmeriChoice. Under
these circumstances, it may never become necessary to rule on Erlanger‟s constitutional
argument, so it is not ripe for our review. “Ripeness . . . requires a court to answer the
question of „whether the dispute has matured to the point that it warrants a judicial
decision.‟” West v. Schofield, --- S.W.3d ---, 2015 WL 4035399, at *6 (quoting B&B
Enters. of Wilson Cnty., LLC v. City of Lebanon, 318 S.W.3d 839, 848 (Tenn. 2010)).
“This Court will not pass on the constitutionality of a statute, or any part of one, unless it
is absolutely necessary for the determination of the case and of the present rights of the
parties to the litigation.” State v. Crank, --- S.W.3d ----, 2015 WL 603158, at *10 (Tenn.
Feb. 13, 2015) (quoting State v. Murray, 480 S.W.2d 355, 357 (Tenn. 1972)).
Consequently, we decline to address this issue.17
Given the overall posture of this case and the substance of the dispute, we
conclude that resolution of Erlanger‟s claims would necessarily require the trial court to
render a declaratory judgment “concerning the validity or applicability of” the 74% and
16
The regulations involved in River Park Hospital no longer exist; they predated the federal
government‟s attempt to address this issue in the DRA and the State‟s attempt to comply with federal law
in enacting Section 71-5-108. The regulations at issue in River Park Hospital are not similar to the
current 74% and 57% Rules, which were implemented in response to the legislative directive to the
TennCare Bureau to set out a methodology by which non-contract providers would be paid for
EMTALA-mandated services.
17
Erlanger makes the sweeping assertion that such a holding would “run afoul of the
constitutional principle of separation of powers.” Erlanger does not raise this as a separate issue, cites no
authority to support its assertion, and acknowledges that “state agencies should have the right to complete
their statutorily-required procedures before the courts intervene, and allowing them to do so does not
violate the principle of separation of powers.” (Emphasis in original) (citing Colonial Pipeline, 263
S.W.3d at 844; Richardson v. Tenn. Bd. of Dentistry, 913 S.W.2d 446, 455 (Tenn. 1995)). Under these
circumstances, we decline to address this issue.
23
57% TennCare Rules. Tenn. Code Ann. § 4-5-225(b). The UAPA prohibits the trial
court from doing so until the complainant has exhausted its administrative remedies.
Accordingly, the UAPA exhaustion requirement applies to Erlanger‟s claims to the extent
that adjudicating them required a declaratory judgment concerning the applicability or
validity of the TennCare Rules at issue.
The UAPA does not prohibit the trial court from adjudicating a request for money
damages; it only prohibits the trial court from rendering a declaratory judgment regarding
the validity or applicability of agency regulations. However, in this case, a request for
declaratory judgment regarding the applicability or validity of the TennCare regulations
is implicit in Erlanger‟s claims for money damages. Resolution of the administrative
proceedings regarding the applicability or validity of the Rules serves as a roadblock to
adjudication of the damage claims. Under these circumstances, “we hesitate . . . to affirm
the [trial court‟s] dismissal of the damage claim for fear of foreclosing [Erlanger‟s]
opportunity to see such relief after completion of” the administrative proceedings. Von
Hoffburg v. Alexander, 615 F.2d 633, 641-42 (5th Cir. 1980); Barlow v. Marion Cnty.
Hosp. Dist., 495 F. Supp. 682, 691 (M.D. Fla. 1980) (citing Von Hoffburg and surmising
that “the fact that the complaint includes . . . remedies which the administrative agency
cannot provide does not preclude application of the exhaustion requirement to the other
claims”); see also Maryland Reclamation Assocs., Inc. v. Harford Cnty., 855 A.2d 351,
362-64 (Md. 2004) (discussing why a stay rather than a dismissal is appropriate in this
situation, collecting cases); Town of Bolton v. Chevron Oil Co., 919 So. 2d 1101, 1111-
12 (Miss. Ct. App. 2005) (relying on Von Hoffburg and holding that claims for money
damages should have been stayed pending exhaustion of administrative remedies). In the
interest of judicial efficiency and to avoid the potential bar of a statute of limitations, we
deem it prudent to reverse the trial court‟s dismissal of Erlanger‟s damage claims and
instead remand those claims to be held in abeyance pending resolution of the TennCare
administrative proceedings.
AmeriChoice also appeals in this case. It contends that the trial court erred in
dismissing its counterclaim along with Erlanger‟s complaint. AmeriChoice argues that
its counterclaim does not challenge the validity of the 74% and 54% Rules but instead
relies on them to support its position that it overpaid Erlanger. Consequently, with no
trace of irony, AmeriChoice asserts that the UAPA exhaustion requirement is not
implicated as to the counterclaim and that the trial court erred in dismissing it.
As noted by the trial court, AmeriChoice‟s counterclaim appears to present the
other side of the same coin. In response to the counterclaim, it appears likely that
Erlanger will maintain that the Rules on which AmeriChoice relies are either inapplicable
or invalid. However, the record in this case does not show clearly the extent to which the
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proceedings involving the counterclaim have progressed and whether Erlanger has in fact
done so.
Regardless, from a practical standpoint, adjudication of AmeriChoice‟s
counterclaim is checked by the same roadblock as Erlanger‟s complaint, namely,
resolution of the dispute about the applicability or validity of the TennCare Rules.
However, for the reasons outlined above, it is appropriate for the trial court to hold the
counterclaim in abeyance rather than dismissing it. Therefore, we reverse the trial court‟s
dismissal of Americhoice‟s counterclaim and remand to the trial court with directions to
instead hold the counterclaim in abeyance pending resolution of the TennCare
administrative proceedings.
CONCLUSION
We hold that, looking at the substance of the parties‟ dispute, adjudication of
Erlanger‟s complaint necessarily requires the trial court to render a declaratory judgment
“concerning the validity and applicability of” the 74% and 57% TennCare Rules, and that
such declaratory relief is prohibited by the UAPA absent exhaustion of Erlanger‟s
administrative remedies with TennCare. For this reason, we affirm the trial court‟s
holding that it was without jurisdiction to render a declaratory judgment regarding the
validity or applicability of the Rules. However, we reverse the dismissal of Erlanger‟s
complaint and AmeriChoice‟s counterclaim and remand with instructions for the trial
court to hold the complaint and the counterclaim in abeyance pending resolution of the
administrative proceedings.
The decision of the Court of Appeals is reversed, the decision of the trial court is
affirmed in part and reversed in part as set forth above, and the cause is remanded to the
trial court for further proceedings consistent with this opinion. Costs on appeal are to be
taxed equally to Appellant UnitedHealthcare Plan of the River Valley, Inc., d/b/a
AmeriChoice and to Appellee The Chattanooga-Hamilton County Hospital Authority
d/b/a Erlanger Health System, for which execution may issue, if necessary.
_________________________________
HOLLY KIRBY, JUSTICE
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