                                          February 24, 1999



William R. Archer III, M.D.                         Opinion No. K-0003
Commissioner of Health
Texas Department of Health                         Re: Binding effect of government       agency rules
1100 West 49th Street                              on other state entities (RQ-1201)
Austin, Texas 78756-3 199

Dear Commissioner     Archer:

         Your predecessor asked this office whether rules promulgated by the Texas Department of
Health (the “department”) as administrator of the Texas Medical Assistance (Medicaid) Program
were binding on state entities participating in that program as health care providers. We answer in
the affirmative. So long as a state agency’s rules are within the power granted to it by the legislature
and have been properly promulgated, they have the force of law. See Lewis v. Jacksonville Bldg.
& Loan Ass’n, 540 S.W.2d 307, 310 (Tex. 1976). The mere fact that an entity engaged in the
conduct governed by those rules is a state agency, board, department, or political subdivision no
more exempts that entity from the rule than it would be from a legislative enactment. See City of
Lubbockv.Public    Util. Comm’n, 705 S.W.2d329,330-31        (Tex. App.-Austin 1986, writrefdnre.).

         As your predecessor explained the situation, the department promulgates             rules for
participation in the Medicaid Program, including inter alia deadlines for tiling claims which are
codified at volume 25, section 29.3 of the Texas Administrative Code. Health care providers enter
into contracts with the department “whereby the entities agree[] to provide services in compliance
with Medicaid Program rules and regulations.” Letter from Patti J. Patterson, M.D., Tex. Dept. of
Health, to Hon. Dan Morales, Office of the Tex. Att’y Gen. (July 7,1997) (on file with the Opinion
Comm.). Certain of these providers, including Texas Tech University Health Sciences Center and
the University of Texas Medical Branch at Galveston, as we understand it, have taken the position
that because they are state entities, they are not subject to the rules promulgated by the department.

         It is, we are given to understand, that assertion and that assertion alone which you wish this
office to consider. We will therefore assume, without deciding, that the rule in question is within
the statutory authority of the department; that the rule has been properly promulgated; and that the
entities in question are making no claim that an exemption for them is to be found somewhere else
in the statute. We are considering only the bare proposition that a state entity may assert, merely
because it is a state entity, that it is exempt from what would otherwise be a binding regulation
properly promulgated by a state agency which had the necessary rule-making authority.
        William R. Archer III, M.D. - Page 2             (JC-0003)


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                We know of no authority for this novel and indeed startling proposition of law. Indeed, the
        contrary view that properly promulgated state agency rules bind all parties subject to them, save the
        United States, is so well established as to be beyond question. Such rules, when within the powers
        granted by the legislature, have the force of law. See Lewis, 540 S.W.2d at 310.

                 A somewhat similar argument is to be found in City of Lubbock. While in that case a rule
        promulgated by the Public Utility Commission was found not to apply to the city involved because
        of a specific statutory exemption, the Third District Court of Appeals made it clear that absent such
        statutory exemption the city would have been bound:

                    [T]he City does not challenge the validity of this rule, but instead challenges
                    its application to municipal regulatory authorities under PURA. The courts
                    must assume that facts exist which justify the promulgation of the rule and
                    establish its general validity.    A valid administrative rule is ordinarily
                    construed like a statute and has the force and effect of legislation.
                    Accordingly, absent a statutory directive to the contrary, the court assumes
                    that [the rule] does indeed apply to municipal regulatory authorities.

        City oflubbock,   705 S.W.2d at 330-31 (citations omitted).
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                  If a political subdivision or other state entity could assert that its mere      political status
        exempted it from an agency regulation, then the rest of the City of Lubbock court’s        analysis would
        have been supererogatory.       Such is plainly not the case. An agency, a city, a board    or department,
        a state university: any such entity is as bound by a properly promulgated rule as          it would be by
        legislative enactment.

                We find the assertion to the contrary particularly troubling in light of the fact that, as we
        understand it, the rules in question are incorporated in the contract between the department and the
        health care providers. A rule providing that a state entity could, in effect, avoid a contract term it
        found onerous for no other reason than its political nature might at first blush seem an attractive one
        from the state’s point of view. But we imagine that, were such a rule part of the common law,
        private parties would be loath to contract with the state on account of it. No such rule, of course,
        exists; and we do not intend to expound it. But such a rule would be the necessary consequence of
        the proposition which the health care providers have argued to you.

                  Accordingly, we conclude that state entities, like other parties, are bound by rules properly
         promulgated by an administrative agency to which the legislature has given the necessary regulatory
         authority, unless specifically exempted therefrom.



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    William R. Archer III, M.D. - Page 3            (JC-0003)




                                            SUMMARY

                   State entities, like other parties, are bound by rules properly promulgated
               by an administrative agency to which the legislature has given the necessary
               regulatory authority, unless specifically exempted therefrom.




                                                   Attorney General of Texas

    ANDY TAYLOR
    First Assistant Attorney General

    CLARK RENT ERVIN
    Deputy Attorney General - General Counsel

-   ELIZABETH ROBINSON
    Chair, Opinion Committee

    Prepared by James E. Tourtelott
    Assistant Attorney General
