      TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN



                                      NO. 03-03-00379-CV




                           Chris M. Schade, M.D., Ph.D., Appellant


                                                v.


           Texas Workers’ Compensation Commission; and Richard F. Reynolds,
                            Executive Director,1 Appellees




     FROM THE DISTRICT COURT OF TRAVIS COUNTY, 261ST JUDICIAL DISTRICT
         NO. GN100093, HONORABLE JEANNE MEURER, JUDGE PRESIDING



                                         OPINION


               In this case, we consider the statutory authority of the Texas Workers’ Compensation

Commission to conduct a “desk” review of selected case files and certain billing and business

practices of physicians who treat patients in the workers’ compensation system. We also review the

nature of “administrative subpoenas” and the proper standard of review of those subpoenas under




       1
         The notice of appeal in this case named Leonard Riley, the previous executive director of
of the worker’s compensation commission, as an appellee. We have substituted the name of the
current executive director, Richard F. Reynolds. See Tex. R. App. P. 7.2(a).
article I, section 9 of the Texas Constitution. For the reasons stated below, we affirm the judgment

of the district court.


                                         BACKGROUND

                Chris Schade is a licensed medical doctor who treats patients who have long-term

pain. Among his patients, some have filed claims with the Texas Workers’ Compensation

Commission (the Commission).

                On December 8, 2000, the Commission notified Schade by letter that the medical

audit team of its compliance and practices division was conducting a “desk review of his services

to workers’ compensation claimants.”2 Beginning with a focus on five of Schade’s patients, the

medical audit team requested: (i) verification that those five patients were workers’ compensation

patients treated by Schade’s practice; (ii) copies of Schade’s initial evaluation, diagnoses, and

treatment plans for those patients; (iii) their complete clinical files; (iv) a contact person with his

office who will be available during normal business hours and able to answer questions about

workers’ compensation treatment and billing procedures; and (v) completion of an “audit

questionnaire.” The Commission further stated that the review “may include, but [will] not be

limited to, a review of medical treatment, billing and payment records, and questions concerning

[Schade’s] regular business activities between August 1, 1999 and July 31, 2000.” According to the




        2
           Although not stated in the desk-review letter, the purpose of this audit was to determine
if Schade was overprescribing narcotics. On appeal, Schade only challenges this justification as part
of his claim that the review constitutes an impermissible regulation of the practice of medicine. He
does not contend that this justification is outside the statutory authority of the Commission.

                                                  2
letter, the Commission considers failure or refusal to comply with a desk review to be an

administrative violation.

               The “audit questionnaire” is a questionnaire used by the Commission in all reviews

of health-care providers concerning their business practices. The questionnaire inquires into general

business practices, such as days and hours of operation, the staff organizational chart, the

relationship between the physician and other physicians, the services provided by the practice, the

physician’s financial interest in other service providers, record-keeping procedures concerning

workers’ compensation claims, and the use in the medical practice of Commission publications and

other medical references. It seeks information about the billing procedures of the practice but does

not require production of actual billing documents.

               Schade did not respond to the desk-review notification. Instead, he filed suit in

district court, seeking declaratory and injunctive relief “to prevent an unconstitutional search” in

violation of the Texas Constitution. See Tex. Const. art. I, § 9.3 He also sought a declaration that

the Commission lacks authority to conduct these desk reviews. See Tex. Lab. Code Ann.

§§ 413.002, 414.002, 415.003 (West 1996). The court held a bench trial and in a final order denied

Schade’s claims for relief. In its findings of fact and conclusions of law, the court found that the

Commission, through its compliance and practices division, has authority to conduct the desk

reviews in question, that a desk review is not a warrantless search, and that the review does not

violate article I, section 9 of the Texas Constitution. This appeal followed.



       3
         He also claimed a violation of due process of law. See Tex. Const. art. I, § 3. However,
he does not present this claim on appeal.

                                                 3
                                            DISCUSSION

                In three issues, Schade argues that the Commission lacks statutory authority to

conduct a desk review, that the desk review in question is a warrantless search that violates his right

to be free from unreasonable search and seizure, and that the desk review constitutes an

impermissible regulation of the practice of medicine. We will address each issue in turn.


Statutory Construction

                In his first issue, Schade challenges the district court’s determination that the medical

audit team has authority to conduct desk reviews on two grounds: lack of statutory authority on the

part of the Commission to conduct a desk review and improper delegation of the authority from one

division within the Commission to another.

                Statutory construction is a matter of law, which we review de novo. Johnson v. City

of Fort Worth, 774 S.W.2d 653, 656 (Tex. 1989). The primary rule of statutory interpretation is to

find the intent of the legislature and construe the statute to give effect to that intent. Fleming Foods

of Tex. v. Rylander, 6 S.W.3d 278, 284 (Tex. 1999); Union Bankers Ins. Co. v. Shelton, 889 S.W.2d

278, 280 (Tex. 1994); Sharp v. Clearview Cable TV, Inc., 960 S.W.2d 424, 426 (Tex. App.—Austin

1998, pet. denied). Disputed provisions are to be considered in context, not in isolation. Texas

Workers’ Comp. Comm’n v. Continental Cas. Co., 83 S.W.3d 901, 905 (Tex. App.—Austin 2002,

no pet.); see also Fitzgerald v. Advanced Spine Fixation Sys., 996 S.W.2d 864, 866 (Tex. 1999).

Texas courts are to consider, among other factors, the language of the statute, legislative history, the

nature and object to be obtained, and the consequences that would follow from alternative



                                                   4
constructions, even when a statute is not ambiguous on its face. Helena Chem. Co. v. Wilkins, 47

S.W.3d 486, 493 (Tex. 2001); Union Bankers Ins. Co., 889 S.W.2d at 280.

                In his attack on the statutory authority of the Commission, Schade first argues that

the legislature, in granting authority to the Commission to “monitor” doctors, did not give authority

to conduct a desk review. He reasons that the legislature expressly granted the Commission the

authority to audit insurance companies and to monitor health care providers, but the Commission’s

desk review is an “audit”4 that exceeds the scope of its authority. Compare Tex. Lab. Code Ann.

§ 413.013(2) (West 1996),5 and id. § .013(4),6 with id. § .015(b) (West 1996).7 We disagree.

                The powers of a commission include the powers delegated by the legislature in clear

and express statutory language, together with any implied powers that may be necessary to perform

a function or duty delegated by the legislature. Texas Building Owners & Managers Ass’n v. Public

Util. Comm’n, 110 S.W.3d 524, 531 (Tex. App.—Austin 2003, pet. denied). We may imply that the




       4
           The Commission itself characterizes the questionnaire an “audit questionnaire.”
       5
            “The commission by rule shall establish a program for the systematic monitoring of the
necessity of treatments administered and fees charged and paid for medical treatments or services
. . . to ensure that medical policies or guidelines are not exceeded.” Tex. Lab. Code Ann. § 413.013
(West 1996).
       6
          “The commission by rule shall establish a program to increase the intensity of review for
compliance with the medical policies or fee guidelines for any health care provider that has
established a practice or pattern in charges and treatments inconsistent with the medical policies and
fee guidelines.” Id. § 413.013(4) (West 1996).
       7
          “The commission shall provide by rule for the review and audit of the payment by
insurance carriers for charges for medical services provided under this subtitle to ensure compliance
of health care providers and insurance carriers with the medical policies and fee guidelines adopted
by the commission.” Id. § 413.015(b) (West 1996).

                                                  5
legislature intended that a commission have whatever power is reasonably necessary to fulfill a

function or perform a duty that the legislature has expressly placed in the agency. Id.; see also

Kawasaki Motors Corp. U.S.A. v. Texas Motor Vehicle Comm’n, 855 S.W.2d 792, 797 (Tex.

App.—Austin 1993, no writ); Texas Dep’t of Human Servs. v. Christian Care Ctrs., Inc., 826

S.W.2d 715, 719 (Tex. App.—Austin 1992, writ denied).

               The legislature directed the Commission to “monitor health care providers . . . to

ensure the compliance of those persons with rules adopted by the commission relating to health care,

including medical policies and fee guidelines.” Tex. Lab. Code Ann. § 413.002(b). To carry out this

duty, the Commission shall establish “a program for the systematic monitoring of the necessity of

treatments administered and fees charged and paid for medical treatments or services, including the

authorization of prospective, concurrent, or retrospective review under the medical policies of the

commission to ensure that medical policies or guidelines are not exceeded.” Id. § 413.013(2). “In

monitoring health care providers who serve as designated doctors under [the Workers’

Compensation Act], the [medical review] division [of the Commission] shall evaluate the

compliance of those providers with this subtitle and with rules adopted by the commission relating

to medical policies, fee guidelines, and impairment ratings.” Id. § 413.002(c).

               When we consider the desk-review letter and the questionnaire, we discern that the

Commission is seeking information concerning: (i) the treatment of five specific workers’

compensation patients; (ii) general medical practice operations and business interests; and (iii)

billing and record-keeping practices concerning workers’ compensation claims. These questions

focus on the treatments administered and fees charged and paid for medical treatments or services.


                                                 6
They also seek to review general practice operations in the context of the provision of workers’

compensation services. In light of the language used by the legislature in the statutes, we can only

conclude that these categories are reasonably related to ensuring compliance with the medical

policies and fee guidelines of the Commission. See id. §§ 413.002(b)-(c), .013(2).8

               Next, Schade argues that the legislature granted the power to monitor health-care

providers only to the medical review division of the Commission. See id. § 413.002. Because the

medical audit team of the compliance and practices division is attempting to conduct the desk review

at issue in this case, he contends that the medical audit team’s actions result from an impermissible

“sub-delegation” of statutory power within the Commission. See Lipsey v. Texas Dep’t of Health,

727 S.W.2d 61, 64-65 (Tex. App.—Austin 1987, writ ref’d n.r.e.) (considering whether express and

implied subdelegation of duties to agency employees is authorized). We disagree.

               A commission is composed solely of the members of the commission to whom the

legislature delegates authority. See Canales v. Laughlin, 214 S.W.2d 451, 453 (Tex. 1948). A

commission may hire employees to carry out its delegated functions, if such power is provided by

statute. See id. at 457. Where a statute entrusts specified functions to a commission, the legislature

presumably intends that only that commission will exercise the delegated functions. Lipsey, 727

S.W.2d at 64. The commission may not subdelegate assigned functions to its employees. Id. To


       8
          Schade focuses on the Commission’s use of the word “audit” in the questionnaire and
attempts to distinguish between the power to “audit” and the power to “monitor.” First, we note that
the word “audit” appeared only in the title of the questionnaire. The letter sent by the Commission
refers only to a “desk review” or a “review.” Second, we find it unnecessary to distinguish between
the power to monitor and the power to audit because, regardless of the description, we find that the
inquiry the Commission actually attempted to initiate, by whatever words it chose to describe that
inquiry, falls within the language of the statute.

                                                  7
do so would mean that the Commission acted outside of its statutory authority, and its employees’

actions would be invalid for want of authority. Id.

               The Workers’ Compensation Commission “is composed of six members appointed

by the governor with the advice and consent of the senate.” Tex. Lab. Code Ann. § 402.001 (West

1996). The Commission itself has the delegated authority to implement and enforce the Workers’

Compensation Act. See id. § 402.061 (West 1996). The executive director of the Commission has

all of the powers of the Commission except for rulemaking and policy-setting powers. See id.

§ 402.041 (West 1996). The Commission must have at least four divisions in order to fulfill its

duties. See id. § 402.021(a) (West Supp. 2004). Although each of these divisions has different

functions from the other, the “executive director may allocate and reallocate functions among the

divisions.” Id. § 402.021(b).

               The legislature delegated the duty to monitor health care providers to the Commission

in creating the duties of the Commission’s division of medical review. See id. § 413.002. However,

we find the reallocation of the “medical audit” functions from the medical review division to the

compliance and practices division to be authorized by statute. See id. § 402.021(b). There can be

no subdelegation issue when the statute itself expressly gives the Commission or its executive

director the flexibility to allocate functions among the Commission’s employees. We overrule

Schade’s first issue.


Warrantless Search

               In his second issue, Schade argues that the desk review and the request of information

through the “audit questionnaire” constitute an unreasonable search and seizure in violation of the

                                                 8
Texas Constitution. See Tex. Const. art. I, § 9. In response, the Commission argues that, at most,

the desk review letter and audit questionnaire are forms of an “administrative subpoena.” See

Sinclair v. Savings & Loan Comm’r, 696 S.W.2d 142, 145, 151-52 (Tex. App.—Dallas 1985, writ

ref’d n.r.e.).

                 The district court made a conclusion of law that “the desk review is not a warrantless

search, but is, rather, a legitimate request for information.” We review the district court’s

conclusions of law de novo. State v. Heal, 917 S.W.2d 6, 9 (Tex. 1996). When conducting a de

novo review, we exercise our own judgment and redetermine each issue of fact and law. Quick v.

City of Austin, 7 S.W.3d 109, 116 (Tex. 1999). In such a review, we accord the original court’s

decision no deference. Id.

                 We begin by noting that on some occasions the legislature expressly grants an agency

the power to issue an administrative subpoena and specifies the procedure by which a subpoena will

issue. See, e.g., Tex. Gov’t Code Ann. § 2001.089 (West 2000) (when agency has contested case

pending, allowing that agency to issue subpoena addressed to sheriff or constable); Tex. Fam. Code

Ann. § 231.303 (West 2002) (allowing Title IV-D agency to issue administrative subpoenas ordering

individuals or entities to furnish information necessary to carry out the purposes of child support

enforcement); Tex. Fin. Code Ann. § 59.010 (West Supp. 2004) (defining “administrative subpoena”

as a valid and enforceable subpoena requesting customer records, issued by government agency

exercising investigatory or adjudicative functions with respect to matter within agency’s

jurisdiction); Tex. Occ. Code Ann. § 153.007 (West 2004) (allowing board of medical examiners




                                                   9
to issue subpoenas to compel attendance of witness and production of books, records, and

documents, and allowing subpoena service either personally by board investigators or by certified

mail); id. § 556.101 (West 2004) (dispensing with warrant requirement for administrative subpoenas

issued by board of pharmacy). In addition, Texas case law does not define the nature of an

administrative subpoena outside the context of those subpoenas expressly permitted by statute. See,

e.g., Pelt v. State Bd. of Ins., 802 S.W.2d 822, 826 (Tex. App.—Austin 1990, no writ) (discussing

subpoenas issued in contested case under administrative procedures act); id. at 831-32 (Powers, J.,

concurring) (same); Sinclair, 696 S.W.2d at 145-47, 148-49 (considering statute authorizing savings

and loan commissioner to require production of records, contracts, or other documents by court

order).

               Schade originally brought this suit only under the search and seizure provision of the

Texas Constitution. See Tex. Const. art. I, § 9. A plain reading and comparison of the language of

the Fourth Amendment of the United States Constitution and our constitutional provision reveals

no substantive difference between the two. See Hill v. State, 951 S.W.2d 244, 248 (Tex.

App.—Houston [14th Dist.] 1997, no pet.). As a result, and because Texas case law does not fully

describe the nature of an administrative subpoena, we begin by considering the federal approach to

this issue. Id.; see also Sinclair, 696 S.W.2d at 151.

               In Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186 (1946), the United States

Supreme Court considered a similar request for information from a federal agency. In that case, the

parties subject to the request claimed that a federal agency was attempting to conduct “general




                                                 10
fishing expeditions” into their books, records, and papers, in order to secure evidence that they had

violated the federal Fair Labor Standards Act. Id. at 189, 195. That agency was acting without a

prior charge or complaint but simply to secure information upon which to base one, allegedly in

violation of the Fourth Amendment’s search and seizure provisions. Id. at 195. The Court found

that Congress had authorized the agency administrator to conduct a preliminary investigation of

possible violations. Id. at 214. The Court then held that the agency administrator had the authority

“to exercise his subpoena power for securing evidence upon that question, by seeking the production

of petitioners’ relevant books, records and papers.” Id. In case of refusal to obey the subpoena, he

also had a right to the aid of the district court in enforcing it. Id. Finally, it held that no

constitutional provision forbids Congress from giving authority to an agency to compel the

production of business records and papers in that way. Id.

               Thus, we find that the Fourth Amendment and its Texas counterpart at most guard

against abuse only by way of too much indefiniteness or breadth in the things required to be

“particularly described,” if the agency request for the production of corporate records and papers is

one the requesting agency is authorized to make and the materials specified are relevant. See id. at

208. The overriding standard is the disclosure sought shall not be unreasonable. See id. It is not

necessary, as in the case of a warrant, that a specific charge or complaint of violation of law be

pending or that the order be made pursuant to one. See id. at 209. It is enough that the investigation

be for a lawfully authorized purpose, within the power of the legislature to command. See id.

               The Workers’ Compensation Act does not direct how the Commission is to perform

its monitoring duties, except that the Commission by rule shall establish procedures to enable the

                                                 11
Commission “to compel the production of documents.” See Tex. Lab. Code Ann. § 413.052 (West

1996). The Commission’s rule describes the documents the Commission would seek and the

procedure of a review. See 28 Tex. Admin. Code § 134.900 (2003). It also provides a graduated

level of intensity of review. See id. § 134.900(g).

               We agree with the Commission that the request in this case is better characterized as

a request for production of documents than as a search and thus is akin to an administrative

subpoena. The legislature has expressly authorized the Commission to conduct these investigations

without filing charges. In addition, the Commission requested documents and answers to questions.

It is not conducting an on-site inspection. See, e.g., Op. Tex. Att’y Gen. No. JC-204 (2000)

(advising that polygraph examiners board may not conduct warrantless on-site inspections of an

individual polygraph examiner not initiated by consumer-filed, formal complaint); Op. Tex. Att’y

Gen. No. JC-274 (2000) (same as to powers of board of podiatric medical examiners). The Dallas

court relied on Oklahoma Press Publishing Co. to articulate a detailed test for reviewing

administrative subpoenas. We will treat the request in this case in the same way and analyze its

constitutionality under the same test. See Sinclair, 696 S.W.2d at 151-52.

               The requirements for administrative subpoenas are these: (1) the agency must

conduct its investigation pursuant to an authorized purpose, and the subpoena must be relevant to

that purpose; (2) the agency must follow the necessary statutory procedures; (3) the subpoena must

describe the documents sought with adequate particularity, meaning that the scope of its demand for

documents must be adequate, but not excessive, for the purposes of the inquiry; (4) the subpoena




                                                12
must not unnecessarily or excessively seek information that the agency already possesses; and (5)

the respondent may show that the subpoena is unnecessarily burdensome. Id. (citations omitted).

               We have already considered the statutory requirements for a desk review and found

them adequate. This satisfies the first and second steps of the Sinclair test. In relation to the third

step, the request and the questionnaire focused on two areas of inquiry: information related to five

workers’ compensation patients and information concerning Schade’s medical practice and billing

procedures. The inquiry into the treatment of the five patients directly concerns compliance with the

Workers’ Compensation Act in relation to those five patients. In addition, whether Schade’s

treatment and billing practices relating to those five patients is similar to or different from that of

patients not in the workers’ compensation system can only be determined by inquiring into the

general business operations of the practice. The request letter and the questionnaire sets out the

exact documentation the Commission is seeking with particularity. As well, the scope of the inquiry

is reasonably related to evaluating compliance with the Workers’ Compensation Act. Thus, we find

that the request and questionnaire meet the requirements of the third prong of the Sinclair test.

               As to the fourth step, Schade believes that the Commission already possesses this

information. In particular, he argues that health care providers submit similar patient information

as part of filing a medical bill with the insurance providers and that the Commission has the power

to seek this information from those insurance providers. See Tex. Lab. Code Ann. §§ 413.015,

414.002 (West 1996); 28 Tex. Admin. Code §§ 133.1(a)(3), .100 (2003).

               Schade’s argument fails in two ways. First, the Commission may initially identify

the need for a review from data it receives from insurance companies regarding individual claims.

                                                  13
To then restrict its review to that source data would undermine the purposes of conducting a review,

for the Commission would never be able to verify the data it has or to compare its impressions with

the source data. Second, even if the Commission “has access to [this information] through a

multitude of consulting contracts,” as Schade asserts, because Schade has centralized records on

these patients, a comprehensive view of Schade’s practice and his treatment and billing related to

five particular patients can best be found through Schade’s own records. To require the Commission

to piece together from a variety of sources information that statutes permit it to gather from one

central source would put an immense strain on the Commission’s ability to fulfill its duties. Sinclair

does not test the validity of administrative subpoenas on whether a commission could have the

information sought by other means. Rather, the Commission may not “unnecessarily or excessively

seek information” that the Commission already possesses. See Sinclair, 696 S.W.2d at 151.

               The information the Commission seeks in this case seems necessary to its review, as

we have discussed above. Although the review reaches beyond the records of the five listed patients,

it seeks information to put those records in context with the general procedures Schade uses in his

practice. We find the request within the scope of that focus and not excessive. Thus, the

Commission’s request meets the requirements of the fourth prong.

               Finally, we turn to the fifth step of Sinclair—that the respondent may show that the

subpoena is unnecessarily burdensome. On this issue, Schade offered two comments to the district

court. First, he stated that “when I looked at the questionnaire, it was so broad that it appeared to

be a fishing expedition. . . . In other words, I couldn’t identify an issue I was aware of, what they




                                                 14
typically will audit; and I couldn’t tell what they were looking for.” Second, he believed that it

would require forty to eighty hours to compile the information requested. When we consider the

request and the questionnaire, however, we can determine what documentation the Commission is

seeking. The request in this case meets the requirements of the fifth Sinclair prong.

               Having found both that the request in this case is best considered an administrative

subpoena and that the request satisfies the five prongs of the Sinclair test, we conclude that the

request does not violate constitutional protections against unreasonable searches and seizures. We

overrule Schade’s second issue.


Regulation of the Practice of Medicine

               In his third issue, Schade argues that the request and the audit questionnaire constitute

an impermissible regulation of practice of medicine. However, he did not allege this issue in his

petition in district court, nor did he argue it to that court.9 “As a rule, a claim, including a

constitutional claim, must have been asserted in the trial court in order to be raised on appeal.”

Dreyer v. Greene, 871 S.W.2d 697, 698 (Tex. 1993). Because this issue was not presented to the

district court, Schade waived his arguments. We overrule his third issue.




       9
          At the hearing in district court, Schade established that the review was conducted on the
suspicion that he was overprescribing narcotics. On appeal, he argues that justification itself
constitutes the regulation of the practice of medicine. He never presented this argument to the
district court. At oral argument, Schade admitted that he only raised this issue to support his
argument that the Commission has no rational basis for conducting the review, an argument that may
have been relevant were we to have found that the review was not an “administrative subpoena” but
a warrantless search. See, e.g., Donovan v. Dewey, 452 U.S. 594, 599 (1981).

                                                 15
                                        CONCLUSION

              Because we overrule Schade’s issues on appeal, we affirm the judgment of the district

court.




                                            W. Kenneth Law, Chief Justice

Before Chief Justice Law, Justices B. A. Smith and Patterson

Affirmed

Filed: April 8, 2004




                                               16
