




Christian Care2                                                     



IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,

AT AUSTIN


 



NO. 3-91-024-CV



TEXAS DEPARTMENT OF HUMAN SERVICES, ET AL.,

	APPELLANTS

vs.



CHRISTIAN CARE CENTERS, INC.,

	APPELLEE


 


FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT

NO. 482,108, HONORABLE WILL WILSON, JUDGE PRESIDING

 


	Plaintiff below, Christian Care Centers, Inc. ("Christian Care"), brought a
declaratory judgment action against Texas Department of Human Services (TDHS) and Ron
Lindsay, Commissioner, (collectively "Appellants").  Christian Care sought to declare a portion
of a TDHS administrative rule void in order to recover $124,033.85 in reimbursement payments
for services it had provided to Medicaid recipients.  The district court granted Christian Care's
motion for summary judgment declaring that TDHS had exceeded its statutory authority in
enacting the rule which allowed it to withhold the Medicaid payments in question.  On appeal,
Appellants contend that the trial court erred in granting summary judgment.  We will affirm the
district court.


THE CONTROVERSY
The Medicaid Program
	The Texas Legislature has designated TDHS to administer the Texas program of
medical assistance to financially needy persons.  Tex. Hum. Res. Code Ann. § 32.021 (1990). 
That program, commonly known as "Medicaid," (1) requires cooperation between TDHS and the
federal government to ensure that Texas qualifies for federal matching funds.  Title 42 of the
United States Code establishes the program whereby matching funds are provided to states as a
percentage of state expenditures for health care to the needy.  42 U.S.C. §§ 1396-1396s (1988 &
Supp. I. 1989).   The Secretary of the United States Department of Health and Human Services
administers this program through rules codified in title 42 of the Code of Federal Regulations. 
42 C.F.R. §§ 430-456 (1991).  Those federal rules set requirements for matching funds but do
not attempt to assign functions directly to any particular state administrative agency.  That process
is left to state lawmakers.
	The Texas Legislature gave TDHS statutory authority to provide Medicaid services
directly or through contracts with private providers.  TDHS also has authority to prescribe rules
governing the Medicaid program, including "reasonable rules and standards governing the
determination of fees, charges, and rates for medical assistance payments."  Tex. Hum. Res. Code
Ann. §§ 22.002, 32.001-.040, 32.028 (1990 & Supp. 1992) (the state Medical Assistance statute). 
Under this authority, TDHS has adopted extensive rules governing its Medicaid program which
are codified at title 40 of the Texas Administrative Code.  TDHS also issues policy statements
which are viewed as rules under the Administrative Procedures and Texas Register Act (APTRA). 
See Tex. Rev. Civ. Stat. Ann. art. 6252-13a (Supp. 1992).  One type of policy statement, entitled
Standards for Participation, is used to amend provider contracts.  Standards for Participation
mirror formal rules and carry the same numerical designation.  
	Under its statutory authority, TDHS promulgates standardized contracts which all
providers of Medicaid services are required to sign.  These contracts require nursing homes to
accept and acknowledge all changes in the Standards for Participation as amendments to their
contracts in order to remain providers.  One such Standard and the rule it reflects, TDHS Rule
16.7103, form the focus of this lawsuit.  


The Challenged Rule
	Rule 16.7103 establishes a program of "Utilization Review" to ensure that the State
of Texas is paying only for nursing home services that Medicaid recipients truly need. (2)  Federal
Medicaid guidelines require some type of Utilization Review program to maintain eligibility for
matching funds.  42 U.S.C. § 1396a(a)(30) (1988 & Supp. I. 1989).  States have the option of
either crafting a review program similar to Medicare's review program, or creating their own
program, which must be more stringent than the Federal requirements, and applying for a
"superior waiver."  42 C.F.R. §§ 456.505-.507 (1991).  Texas chose to craft its own program
and, in 1977, received its "superior waiver" for the program which is now set out in Rule
16.7103.  
	Part of this review program is  "continued stay review," a mechanism whereby the
medical condition of a Medicaid recipient in a nursing home is regularly evaluated to determine
if the "level of care" (3) administered by the nursing home continues to be appropriate to the
Medicaid recipient's needs.  As stated in Rule 16.7103(d)(3), "continued stay reviews are the
responsibility of the long-term care unit,"  a unit of the Texas Department of Health.  Tex. Dep't
of Hum. Servs., 12 Tex. Reg. 4010 (1987) (40 Tex. Admin. Code § 16.7103(d)(3), since
repealed).  TDHS has an agreement with the Department of Health whereby health nurses and
other health-care professionals perform review and inspection of nursing homes under the
Medicaid program.  Tex. Dep't of Hum. Servs. 7 Tex. Reg. 2278 (1982) (40 Tex. Admin. Code
§ 16.7101, since repealed).  
	However, in rule changes made since the original waiver was obtained, TDHS and
the Department of Health have shifted at least part of their responsibility to nursing homes.  A
1987 amendment to Rule 16.7103 requires that nursing home facilities submit level of care
assessment forms to the Health Department at specified intervals.  Tex. Dep't of Hum. Servs.,
12 Tex. Reg. 4010 (1987) (40 Tex. Admin. Code § 16.7103(d)(3) and (4)(A), since repealed). 
This rule change was also issued as a Standard for Participation.  Pursuant to the contracts,
providers had to accept this Standard as an amendment to their contracts in order to continue
participating in the program.  It is the enforcement of this change to Rule 16.7103 in the
Utilization Review process that creates the controversy in this case.
	The system promulgated by TDHS provides that if the nursing home fails to submit
its forms in a timely fashion, the Department of Health does not initiate its review.  Absent a
review, the patient's "level of care" pursuant to the Rule "cease[s] to exist" and TDHS does not
pay for the care provided during the period of time that the "level of care" assessment forms are
not on file. (4)  The designation that a patient's "level of care" has "ceased to exist" avoids the due-process notice procedures otherwise required when finding a patient is no longer medically
eligible for benefits.  


Christian Care Centers, Inc.
	Christian Care entered into two standard contracts with TDHS: a 1980 contract for
an intermediate care facility and a 1973 contract for a skilled nursing facility.  Due to
administrative confusion at the nursing home, lasting several months during 1988 and 1989,
Christian Care's employees failed to send in "level of care" assessment forms for thirty-seven
Medicaid recipients.  The nursing home did not realize the error until payments from the State
ceased several months later. (5)  When Christian Care became aware of the problem, it sent in new
forms and Medicaid payments resumed from the date those forms were processed.  However,
pursuant to the Rule in question, TDHS refused to pay for the care provided during the interim
period when the forms were not current.  There is no dispute on this appeal that the thirty-seven
Medicaid recipients at the Christian Care facility received reasonable and necessary nursing care
at all times.  Nor is there any question as to the eligibility of these patients for Medicaid, based
on financial or medical need.  However, TDHS takes the position that under its Rule, which states
that without current forms the "level of care ceases to exist," Christian Care has permanently lost
the Medicaid payments for these patients during the hiatus. (6)
	In the district court, Christian Care filed a motion for summary judgment alleging
that the enforcement of Rule 16.7103 by permanently withholding Medicaid reimbursement
payments for services provided to admittedly eligible Medicaid recipients exceeded the statutory
authority granted to TDHS.  Appellants responded that the promulgation and enforcement of the
Rule was within its statutory authority.  Further, they alleged that the Rule was incorporated into
the written contracts existing between TDHS and Christian Care and, therefore, should be
enforced by the court as written.  The district court held that TDHS exceeded its statutory
authority in enacting this penalty provision of Rule 16.7103 and applying it to effectuate the
forfeiture of Medicaid payments due Christian Care.  On appeal, Appellants contend, in a single
point of error, that the district court erred in granting Christian Care's Motion for Summary
Judgment.


DISCUSSION AND HOLDING
	An agency like TDHS "is a creature of the Legislature and has only such powers
as are expressly granted to it by statute, together with those necessarily implied from the authority
conferred or duties imposed."  Railroad Comm'n v. Atchison, T. & S.F. R.R., 609 S.W.2d 641,
643 (Tex. Civ. App. 1980, writ ref'd n.r.e.). TDHS is expressly granted authority to withhold
Medicaid payments permanently only in cases of contract cancellation or fraud.  See Tex. Hum.
Res. Code Ann. §§ 32.034, 32.039 (1990).  Christian Care argues that since TDHS has not been
given the express authority to enforce Rule 16.7103 by permanently withholding payments, the
agency's action is unlawful.  Christian Care urges this Court to adopt a system whereby TDHS
could enforce the Rule in question only by canceling the contract with the nursing home provider. 
However, it is obvious from the statutory language that sections 32.034 and 32.039, dealing with
contract cancellation and fraud, are not intended as the exclusive enforcement tools for the
Medicaid program, and we decline to read the statutory authority of TDHS so narrowly.  
	Lack of express authority for a particular act of an agency does not mean the
agency has no authority for that act.  An agency may have implied authority to take an action or
promulgate a rule even though such authority might not be expressly enumerated in its enabling
statute.  Indeed, under a general grant of authority, an agency has all the implied authority
reasonably necessary to accomplish a delegated purpose.  Sexton v. Mount Olivet Cemetery Ass'n,
720 S.W.2d 129, 137 (Tex. App. 1986, writ ref'd n.r.e.) (and cases cited therein).  The
legislature expressly gave TDHS full rulemaking authority as necessary for the administration of
the Medicaid program.  Tex. Hum. Res. Code. Ann. § 32.021 (1990). (7)  A means of enforcing
the administrative rules can be implied from the grant to promulgate rules.  Sexton, 720 S.W.2d
at 137; see also First Fed. Sav. & Loan Ass'n v. Vandygriff, 639 S.W.2d 492, 499 (Tex. App.
1982, writ dism'd).  In the instant case, we conclude that the authority given TDHS to promulgate
rules for utilization review includes the implied authority to enforce such rules.  
	However, statutory authority, both express and implied, is limited to what is
necessary and reasonable.  See Bullock v. Hewlett-Packard Co., 628 S.W.2d 754, 756 (Tex.
1982).  Although we hold that implied authority would permit TDHS to temporarily withhold
Medicaid payments until a nursing home facility complied with the rules, we conclude that such
authority does not extend to the permanent withholding of payments for services that were actually
rendered to qualified Medicaid patients.  Although administrative rules are presumed valid, they
may be found void if adopted without statutory authority.  Hollywood Calling v. Public Util.
Comm'n, 805 S.W.2d 618, 620 (Tex. App. 1991, no writ); see also Brown v. Humble Oil & Ref.
Co., 87 S.W.2d 1069 (Tex. 1935).  There appears to be no reasonable basis to support the
confiscation or forfeiture that results from the Rule at issue in this case, either to enforce other
TDHS rules or carry out the purposes of the program.  
	Appellants argue that permanently withholding payments for services rendered
while current "level of care" forms were not on file is necessary to prevent the loss of federal
matching funds.  A careful reading of the federal statutes governing Medicaid does not support
this contention.  At the time TDHS promulgated these penalty provisions, the only element of
Utilization Review which elicited a mandatory decrease of federal funds was failure to have an
annual evaluation of each case by a professional review team.  42 U.S.C. § 1396b(g)(1) (1988). (8) 
As Christian Care correctly points out, the cases TDHS cites in their supplemental brief are
narrowly based on language which was subsequently deleted from the statute.  See Indiana Dep't
of Public Welfare v. Bowen, 686 F. Supp. 692, 695 (S.D. Ind. 1987); Colorado Dep't of Social
Servs. v. Department of Health and Human Servs., 558 F. Supp. 337, 354 (D. Colo. 1983)
(amounts of federal matching funds reduced due to the failure of states to meet the statutory
requirements of their Utilization Review programs).  The courts in those cases lamented the overly
harsh penalty provision but felt constrained to follow it until Congress acted to amend it.  Bowen,
686 F. Supp. at 695.  In view of the change in the Medicaid statute, this Court finds no federal
basis for the permanent withholding provision. (9) 
	Further, TDHS has constructed the enforcement of Rule 16.7103 around the fiction
that the patient's "level of care," i.e., the patient's medical need, "ceases to exist."  Relying on
this fiction to deny reimbursement likewise exceeds the statutory authority of TDHS.  TDHS is
required to pay for qualified services made to eligible patients or give notice before finding
patients ineligible, so that disqualified patients may exercise their due-process right to appeal
eligibility decisions.  See Tex. Hum. Res. Code Ann. § 32.035 (1990); 42 U.S.C. § 1396a(a)(3)
and (10) (1988 & Supp. I. 1989); 42 C.F.R. § 431.200-.250 (1991); see also Goldberg, 397 U.S.
254.  By providing that a "Level of Care ceases to exist," rather than declaring a patient medically
ineligible, TDHS seeks to avoid these due-process notice and appeal requirements.  We find that
use of this grammatical fiction circumvents the primary intent of the Medicaid statute; to provide
continuous payment for necessary services to eligible individuals.  Implied authority is not
authority to depart from the intent of the statute.  Sexton, 720 S.W.2d at 137; see also Texas Bd.
of Dental Examiners v. Prichard, 446 S.W. 2d 905, 909 (Tex. Civ. App. 1969, writ ref'd n.r.e.).
 	One of the key determinants of whether a rule is within an agency's implied
authority is whether the rule harmonizes with the purpose of the agency's governing statute, in
all of its provisions. See Gerst v. Oak Cliff Sav. & Loan Ass'n, 432 S.W.2d 702, 706 (Tex. 1968);
see also State Bd. of Ins. v. Deffebach, 631 S.W.2d 794, 798 (Tex. App. 1982, writ ref'd n.r.e.);
Jeffco, Inc. v. Lewis, 520 S.W.2d 915, 921 (Tex. Civ. App. 1975, writ ref'd n.r.e.).  It would
be inconsistent with the overall purposes of the Medical Assistance statute, i.e. providing quality
nursing services to Medicaid qualified patients, to give TDHS the authority to withhold funds
permanently, merely for failure to file updated records timely.
	TDHS alternatively urges that summary judgment was inappropriate in this case
because of genuine and material fact issues regarding the enforcement of the written contracts
between TDHS and Christian Care.  A trial court should grant a motion for summary judgment
only if the movant establishes by competent summary judgment evidence that there is no genuine
issue of material fact to be decided and that the movant is therefore entitled to judgment as a
matter of law.  Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548 (Tex. 1985). 
Movant has the burden of demonstrating that no genuine issue of material fact exists.  Id.
	We believe the district court correctly concluded that if Rule 16.7103(d)(4)(G) and
(8), as enforced to permanently withhold funds from Christian Care, is invalid, then the
incorporation of the Rule into the written contracts is likewise unenforceable.  The invalidity of
the Rule is a question of law for the court, therefore, it creates no genuine and material fact issue
to be presented to a factfinder.  See Texas State Bd. of Examiners in Optometry v. Carp, 388
S.W.2d 409, 414-15 (Tex. 1965).  In this case, once the Rule is declared void, the issue of the
contract is resolved as a matter of law and there is no ambiguity to present to a fact finder.  See
Capitol Rod & Gun Club v. Lower Colorado River Auth., 622 S.W.2d 887, 894 (Tex. App. 1981,
writ ref'd n.r.e.).  
	Permanent withholding of reimbursement during the lapse in filing "level of care"
forms with TDHS is not reasonable in light of the circumstances present here and is inconsistent
with the purposes of the federal Medicaid and state Medical Assistance statutes.  Therefore, we
hold that the district court properly concluded that the Rule as applied to Christian Care was
invalid.  We therefore overrule Appellant's single point of error and affirm the summary judgment
of the district court.


  
					Mack Kidd, Justice
[Before Chief Justice Carroll, Justices Aboussie and Kidd]
Affirmed
Filed:   March 4, 1992
[Publish]
1.      1 This is a separate and distinct program from Medicare and it is necessary to distinguish
between the rules for the separate programs.  
2.      2 Tex. Dep't of Hum. Servs., 7 Tex. Reg. 2278 (1982) (40 Tex. Admin. Code § 16.7103),
amended by 8 Tex. Reg. 3418 (1983), amended by 9 Tex. Reg. 1985 (1984) (adopting 8 Tex.
Reg. 4479 (1983) (proposed rule)), amended by 10 Tex. Reg. 339 (1985) (adopting 9 Tex.
Reg. 5376 (1984) (proposed rule)), amended by 11 Tex. Reg. 2104 (1986), amended by 11
Tex. Reg. 4853 (1986), amended by 12 Tex. Reg. 4010 (1987), amended by 13 Tex. Reg.
3586 (1988) (adopting 13 Tex. Reg. 771 (proposed rule)), repealed by 15 Tex. Reg. 6749
(1990).
3.      3 Level of Care (LOC) is defined as the required degree of medical care or nursing care for
a recipient in a nursing home.  Tex. Dep't of Hum. Servs., 13 Tex. Reg. 3587 (1988),
adopting 13 Tex. Reg. 766 (1988) (proposed rule) (40 Tex. Admin. Code § 16.1101, since
repealed).  
4.      4 The portions of the Rule 16.7103 relevant to this case are:

	(4)(E) if an LOC [Level Of Care] form is not received by the day
after the expiration date of the current LOC, the current LOC
ceases to exist.  To reinstate an expired LOC, facility staff must
submit an updated LOC assessment to the TDH/LTCU.  The date
of receipt of these LOC forms is the new effective date of the
LOC;
****
	(4)(G) DHS does not pay for the period of time between the LOC
expiration date and the new effective date of the level of care,
and recoups any inadvertent payments made to ICF or SNF
facilities.  If a lapse in payment is because of a facility error,
restrictions apply as provided in § 16.3807 of this title (relating
to Limitations on Provider Charges to Patients).

Tex. Dep't of Hum. Servs., 13 Tex. Reg. 3588 (1988), adopting 13 Tex. Reg. 772 (1988)
(proposed rule) (40 Tex. Admin. Code § 16.7103(d)(4)(E), (G), since repealed) and
 
	(8) The Texas Department of Human Services (DHS) does not
make vendor payment when a level of care expires.  A provider
is not entitled to payment for services between the expiration date
and the new effective date of a recipient's level of care.  Vendor
payment made by DHS for that period is subject to recoupment.

Tex. Dep't of Hum. Servs., 12 Tex. Reg. 4010 (1987) (40 Tex. Admin. Code §
16.7103(d)(8), since repealed).  This Court notes that the penalty provisions of this Rule have
been amended during the pendency of this suit so that they are no longer permanent. 
However, these changes do not impact our decision.
5.      5 A time lag occurs between the date services are rendered and the date payment is sent to
providers.  Therefore, it takes several months for nursing homes to realize that they are no
longer receiving payments due to their failure to update level of care forms.  No other notice
exists for the failure to timely update these forms. 
6.      6 This refusal to pay is especially harsh because the nursing home has no other source of
reimbursement.  Providers are forbidden by federal and state law from charging the patients
directly because the patients to whom services were rendered were at all times Medicaid
eligible.  Tex. Dep't of Hum. Servs., 12 Tex. Reg. 70 (1987) adopting, 11 Tex. Reg. 3925
(1986) (proposed rule) (40 Tex. Admin. Code § 16.3807, since repealed).
7.      7 TDHS also cites to Tex. Hum. Res. Code Ann. §§ 32.024(c) and 32.026(a), (c) (1990),
as authority to promulgate Rule 16.7103.  However, those sections deal with the relationship
between the agency and aid recipients, not providers.  Further, once a patient is qualified and
begins receiving aid under the program, the agency's authority to terminate services to patients
is circumscribed by the United States Constitution.  See Goldberg v. Kelly, 397 U.S. 254
(1970).
8.      8 This version of the statute includes the amendments made in 1984 decreasing the scope of
the mandatory penalty provisions.  Spending Reduction Act of 1984, Pub. L. No. 98-369, 
§ 2363(a)(2)(C), (a)(4), 98 Stat. 494, 1106 (1984).
9.      9 Section 1396b(g)(1) also makes reference to a medical review program as set out in 42
U.S.C. § 1396a(a)(26) through (31) (1988 & Supp. I. 1989).  These subsections in turn refer
states to requirements in 42 U.S.C. §§ 1396r(b)-(d), (f)(7), (e), (g), and (h)(2)(B) and (D)
(1988 & Supp. I. 1989) and Social Security Amendments of 1967, Pub. L. 90-248, § 236(b),
81 Stat. 821, 908, amended by Social Security Amendments of 1972, Pub. L. 92-603, §§
268(b), 269, 274(b), 86 Stat. 1329, 1451-52, amended by Act approved Dec. 31, 1973, Pub.
L. 93-233, § 18(y)(3), 87 Stat. 947, 973 (42 U.S.C. § 1396g, since repealed).  None of these
sections places upon states or facilities a requirement similar to the Level of Care Forms, or
requires a decrease in federal matching funds as a mandatory penalty if such forms or the
review initiated by them is delayed, or if services provided during that delay are reimbursed
once the need for 
those services has finally been documented.  

