                        November 10, 1988




Honorable Stan Schlueter           Opinion No. JM-978
Chairman
Ways and Means Committee           Re: Whether Department   of
Texas House of Representatives     Human Services contract for
P. 0. Box 2910                     Medicaid  purchased  health
Austin, Texas   78769              services insurance is sub-
                                   ject to the provisions   of
                                   article 601b, V.T.C.S.
                                   (RQ-1566)

Dear Representative   Schlueter:

     You request an opinion on the bidding process for the
Medicaid purchased  health services contract.     The Texas
Department of Human Services has issued a request        for
proposals for insurance and administration    of the Texas
Medicaid Purchased Health Services Prog.ram, with a bid
filing deadline of November 4, 1988. You inform us that the
contract will entail expenditure of over one billion dollars
per year in state and federal funds.

     The Medicaid program is established under title XIX of
the Social Security Act. 42 U.S.C. § 1396. It provides for
federal funding to assist states in furnishing medical
assistance on behalf of families with dependent children and
of aged, blind, or disabled individuals whose income and
resources are insufficient for the cost of necessary medical
services. Id. Participating states must designate a single
state agency to administer  or to supervise the administra-
tion of the state plan for medical assistance.     42  U.S.C.
5 1396a(a)(5).  The Texas Department    of Human Services  is
the state agency responsible for administering the Medicaid
program in this state.   Hum. Res. Code, 55 22.001, 22.002,
32.021.

     Under the Medicaid legislation, the federal government
pays a participating state for part of its expenditures    to
provide medical   services and to  administer  the   program,
including the costs of a mechanized   claims processing   and
information retrieval system, defined as a system of soft-
ware and hardware used to process Medicaid    claims  and to
provide information required by the state and the federal




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Honorable Stan Schlueter - Page 2   (JR-978)




government for administrative and audit purposes.   42 U.S.C.
55 1396a(s)(4)(A); 1396b(a);   42 CFR § 433.111(b).   If the
state's mechanized   claim processing  and information    re-
trieval system does not comply with federal requirements,
the amount of federal funds otherwise       due the     state
under the Medicaid   program will be reduced.      42 U.S.C.
ii 1396b(r); 42 CFR 5 433.110(a)(2).

     Federal regulations  permit  states to contract with
various entities to process claims, to pay for or provide
medical services, or to enhance the state's effectiveness in
administering the Medicaid   program.   42 C.F.R.   55 434.1;
434.2. A state may contract with a fiscal agent, which
processes and pays claims without assuming risk for the cost
of providing  medical services.   Id. § 434.2.    A state is
also permitted to contract with a "health insuring organiza-
tion," which pays for medical services provided to reci-
pients in exchange for a premium or subscription charge paid
by the agency and assumes an underwriting risk. Id.

      The Department  of Human Services currently   contracts
with an insurance company under a health insuring arrange-
ment. Tex. Dept. of Human Services,     Request for Proposal
for Administration   of a Portion of the Texas Medicaid
Program to be Implemented   Sept. 1, 1989, II-3  [hereinafter
RFP].    The contract provides    for reimbursement   to the
contractor for some medical   services, while the contractor
assumes financial responsibility for the provision of other
medical services, known as Purchased Health Services.    RFP,
11-3.    Electronic  data processing   services are divided
between the department and the contractor.   RFP, 11-7.   The
department has requested proposals     for similar services
under a contract to be implemented September 1, 1989.    RFP,
111-3; 111-4; III(D)-1.   Your questions relate to the bid-
ding process   for the contract proposed   to be implemented
September 1, 1989.

     Your first question is as follows:

        Is the bidding process     for the Medicaid
        purchased health services insurance contract
        subject to the provisions   of article 601b.
        V.T.C.S.

     Article   601b,   V.T.C.S.,  establishes   the   State
Purchasing and General Services Commission.   Article 3 of
that statute provides    as follows for the commission's
purchasing authority:




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    Honorable Stan Schlueter - Page 3        (JM-978)




                (a) The commission shall purchase, lease,
            rent, or otherwise acquire u        supplies,
            materials, services, and equipment for all
            state auencieg . . . .

               . . . .

                (c)  'Services,' as used in this article,
            means the furnishing of skilled or unskilled
            labor or professional     work but does not
            include:

               (1) professional   services    covered           by
            the Professional  Services Procurement             Act
            (Article 664-4 . . . [V.T.C.S.]);

               (2) services of         an employee   of a    state
            agency ;

               (3) consulting services or services of
            a private consultant   as defined by Chapter
            454, Acts of the 65th Legislature,     Regular
            Session,   1977     (Article    6252-11~ . . .
-           [V.T.C.S.]); or

               (4) services       of       public       utilities.
            (Emphasis added.)

    V.T.C.S. art. 601b, § 3.01.

         A "state agency" is defined to include "any department,
    commission, board, office, or other agency in the executive
    branch of state government created by the constitution or a
    statute of this state . . . I1&   !j 1.02(2)(A). The Depart-
    ment of Human Services, established by title 2 of the Human
    Resources Code, is a state agency within this definition.
    Hum. Res. Code 55 11.001; 21.001. As a state agency, it is
    subject to the provisions of article 601b, V.T.C.S. relating
    to purchasing unless excepted by the legislature.     Comoare
    Attorney General Opinion JM-445 (1986) with Attorney General
    Opinion WW-177 (1980). We will consider whether any provi-
    sion of law excepts the contract from article 601b, V.T.C.S.

         Section 22.002(f) of the Human Resources Code grants
    the department  authority to enter into contracts.   This
    provision states as follows:

               (f) The department may enter into agree-
-           ments with federal, state, or other public or




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Honorable Stan Schlueter - Page 4    (JM-978)




        private agencies or individuals to accomplish
        the purposes  of the programs authorized   in
        Subsection (c) of this section. The agree-
        ments or contracts between the department and
        other state agencies are not subject to the
        Interagency Cooperation Act . . . .

Hum. Res. Code S 22.002(f).   The subsection    (c) referred   to
provides that

        [t]he department may establish and maintain
        programs of assistance and services autho-
        rized by federal law and designed    to help
        needy families and individuals    attain and
        retain the capability   of independence   and
        self-care. Notwithstanding   any other pro-
        vision of law, the department may extend the
        scope of its programs to the extent necessary
        to ensure that federal matching    funds are
        available, if the department determines  that
        the extension of scope is feasible and within
        the limits of appropriated funds.

Id. s 22.002(c).

     These provisions were adopted in 1969 by a bill which
amended former article 695c, V.T.C.S., now recodified     as
various provisions of Title II, Human Resources Code.   Acts
1969, 61st Deg., ch. 845, S 1, at 2527; 8&8 Acts 1979, 66th
Leg., ch. 842, art. I (adopting Texas Human Resources Code).

     In construing statutes, a court must look to the entire
act, including the caption, body, and emergency clause, to
determine the legislative intent.    Trawalter v. Schaefer,
179 S.W. 2d 765 (Tex. 1944). See also Southwestern      Bell
Tel. Co. v. Houston   Inden. School Dist., 397 S.W.2d 419
(Tex. 1965). The title of the 1969 enactment reads in part:

        An Act . . . authorizing the State Department
        of Public Welfare    to extend by rule and
        regulation the full range of programs      and
        scope of services provided     for under the
        Federal laws as they now read or as they may
        hereafter   be amended    and any rules
        regulations   promulgated  pursuant  .theretzr
        authorizina   the deoartment   to enter   into
        aareements to imDlement   these D crams and
        services . . . . (Emphasis added:;)

Acts 1969, 61st Leg., ch. 845, at 2525.




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Honorable Stan Schlueter - Page 5   (JM-978)




     The emergency clause of the 1969 bill provides in part:

           Sec. 10. The fact that under Federal Law
        the Department  is required to extend the
        welfare programs and to provide services to
        and on behalf of the needy people served by
        the Department,  and such services c n. m
        Iggnv instances. be best nrovided     throuch
        contracts and aareements with individuals  or
        with other DUblic or nrivate aaenciez . . .
        and the crowded condition of the calendar
        create an emergency . . . . (Emphasis added.)

Id. at 2533.

     As the title and emergency clause show, the purpose   of
the 1969 amendments was to enable the state to participate
fully in federal welfare programs      and the legislature
granted the department    broad rule-making   authority    to
achieve that purpose. The provision now codified as section
22.002(f) was directed at achieving the same legislative
purpose.  It granted the department expansive authority    to
contract with individuals and public or private agencies to
implement welfare programs and exempted such contracts   with
other state agencies from the Interagency Cooperation    Act,
article 4413(32), V.T.C.S.   Interagency  contracts  entered
into under that ,act were not valid unless approved        in
advance by the Hoard of Control, now the State General
Services and Purchasing Commission.

     In 1969 the Board of Control was also the agency
responsible for purchasing supplies, materials,    services,
and equipment   for the state of Texas under the State
Purchasing Act of 1957. Acts 1957, 55th Leg., ch. 304
(formerly codified as article 664-3, V.T.C.S., repealed by
Acts 1979, 66th Leg., ch. 773, 5 99.05). Under the State
Purchasing Act of 1957, the Board of Control had authority
to contract   only for "services of the type heretofore
contracted for" by the board and to act only on behalf of
"departments and agencies of the type heretofore required to
make purchases through the Board . . . .I@ Thus, there may
have been no need for the predecessor of section 22.002(f)
to exempt the contracts it authorized   from the State Pur-
chasing Act of 1957.

     Article 601b, V.T.C.S., was adopted in 1979 to create
the State Purchasing    and General Services     Commission,
organize the laws formerly relating to the Board of Control
into a State Purchasing and General      Services Act, and
abolish the State Board of Control. Acts 1979, 66th Leg.,




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Honorable Stan Schlueter - Page 6   (JM-978)




ch. 773, at 1908: Bill Analysis, Tex. H.B. 1673, 66th beg.
(1979) (prepared for House Committee on State Affairs).    The
bill as introduced incorporated the State Purchasing Act of
1957 and other purchasing laws but did not provide that the
commission   "shall purchase,   lease, rent, or     otherwise
acquire &J, supplies, materials, services, and equipment for
u   state agencies . . . ."    &$s Bill Analysis, Tex. H.B.
1673, a;      Bill Analysis, Tex. H.B. 1673 61C.S.H.B.   1673,
66th Leg.   (1979) (prepared for Senate).      The bill was
amended on the Senate floor to add the language adopted     as
section 3.01, article 601b, V.T.C.S.      S.J. of Tex. 66th
-cl., Reg. Sess. 1795 (1979). We have no indication       that
the legislature    intended this provision    to limit     the
department's   broad authority to contract with        private
entities in carrying out federal welfare programs.

     While section   22.002(f) of the Human Resources    Code
applies to a broad range of federal programs,           other
provisions of the Code are particularly relevant to the
department's   contract   for   Medicaid   purchased   health
services.    Chapter  32   of the    Code authorizes    state
participation in federal programs    of medical   assistance.
Hum. Res. Code S 32.001. The chapter is to be liberally
construed   in relation to applicable     federal laws    and
regulations to make health care available to all persons who
need the care and are unable to pay for it. Hum. Res. Code
5 32.002(a). The Department of Human Services is the state
agency designated    to administer   the medical   assistance
program provided in chapter 32 and is authorized to esta-
blish methods of administration and adopt necessary rules to
operate the program. && 5 32.021(a), (c).

     Section 32.029 of the code provides in part:

           (a) The department may prescribe a method
        of payment for medical assistance claims by
        establishing a direct vendor payment program
        that is administered by the department, u
        an insurance olan, a hospital       or medical
        service plan, or any other health      service
        plan authorized to do business in the state,
        or bv a combination of those nlan S.

            (b) The deDartment mav use anv fiscaI
        intermediarv. method of oavment. or combina-
        tion of methods it finds most satisfactory
        and economicaL.    The department   may make
        whatever changes it finds necessary from time
        to time to administer the program      in an
        economical and equitable manner    consistent




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Honorable Stan Schlueter - Page 7   (JM-978)




       with simplicity of administration  and the
       best interest of the recipients of medical
       assistance.

            (c) If the department    elects to make
        direct vendor payments, the payments shall be
        made by vouchers  and warrants drawn by the
        comptroller on the proper account of the
        Texas Department of Human Services fund. The
        department shall furnish the comptroller with
        a list of those vendors entitled to payments
        and the amounts to which each is entitled.
        When the warrants are drawn, they must be
        delivered  to the commissioner,    who shall
        supervise the delivery to vendors.   (Emphasis
        added.)

Hum. Res. Code !j32.029.

     This provision gives the department broad authority  to
use various methods of administering the Medicaid   program.
Several of these methods necessarily require the department
to enter into contracts. The means of administering Medicaid
set out in subsections (b) and (c) of section 32.029 overlap
with the definition of "contractor" in the part of the Code
of Federal Regulations   which sets out, requirements    for
contracts in connection with the Medicaid program.   42 CFR
Ft. 434. Wontractor**

        means any of the following entities that
        contract with the Medicaid agency under a
        State plan and in return for a payment,    to
        process claims, to pay for or provide medical
        services, or to enhance the agency's capa-
        bility for effective administration   of the
        program:

                  A fiscal agent.
                  A health care project grant center.
                  A private nonmedical institution.
                  A health insuring organization.
                  A health maintenance organization.
                  A prepaid health plan.
                  A clinical laboratory.
                  A professional management service or
                  consultant firm.

42 CFR 5 434.2.




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Honorable Stan Schlueter - Page 8     (JM-978)




     Section 32.029 authorizes  the state to enter into at
least some of the kinds of contracts contemplated by federal
law. Such contracts cannot easily be described as contracts
for "supplies, materials,  services, and equipment,"  within
section 3.01 of article     601b, V.T.C.S.    Contracts    to
implement Medicaid may involve the provision of professional
services  excepted  from section   3.01 of article      601b,
V.T.C.S., or the assumption of risk as an insurer, and not
merely the provision of %.upplies, materials, services,   and
equipment."

     It would not be inconsistent with the legislature's
treatment of other insurance contracts to regard the depart-
mentDs contract with an insurance company under section
32.029 as excepted    from article   601b, V.T.C.S.     Contracts
for health    insurance coverage     for state employees       are
governed by Insurance Code provisions, and not by the State
Purchasing and General Services Act. a           Ins. Code art.
3.50-2 (Texas Employees      Uniform Group Insurance     Benefits
Act); art. 3.50-3      (Texas State College      and University
Employees   Uniform   Insurance    Benefits Act).     See      1Q
V.T.C.S. art. 6252-19a; Attorney       General Opinion JM~8~9
(1988). Attorney General Opinion RR-494 (1982) determined
that contracts   for the purchase      of insurance were not
contracts for personal     or professional   services within    an
exemption to the competitive     bidding statute applicable     to
counties.   Attorney General Opinion Rx-342 (1981) held that
an insurance contract was not l@personal property" within the
competitive   bidding    requirement   applicable    to    school
districts.   See &vn        H ff r      146 N.Y.S.Zd 113     (N.Y.
App. Div. 1955)     (zha>ereprzv%n        requiring  competitive
bidding on all contracts       over $1,000 not applicable       to
insurance policy).      At    least some     of the     contracts
authorized by section 32.029 of the Human Resources Code are
not within the purchasing       authority   accorded the State
Purchasing and General Services     Commission by section     3.01
of article 601b, V.T.C.S.

     Subsection (c) of section 32.029, which establishes   a
procedure for making direct vendor payments,    is moreover
inconsistent with the provisions on payment for state agency
purchases in article 601b, V.T.C.S.  Sections 3.15 and 3.16
of article 601b, V.T.C.S., require the State Purchasing  and
General Services  Commission  to approve the invoice and
purchase voucher before the comptroller may approve them for
payment and draw his warrant.

     There are thus significant     inconsistencies  between
section 32.029 of the Human Resources Code~and article  3.01         -.
of the State Purchasing and General Services Act. Moreover,




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Honorable Stan Schlueter - Page 9   (JM-978)




both section 22.002(f) and section 32.029 of the Human
Resources Code are parts of comprehensive grants of power to
the Department of Human Services to enable it to implement
federal benefit programs.   Federal law expressly   requires
the state to designate a single state agency to administer
or supervise the administration of the Medicaid program,  42
U.S.C. f 1396a(a)(5).   A federal regulation    implementing
this requirement provides as follows:

           In order for an   agency to qualify as   the
        Medicaid agency--

           . . . .

           (2) The authority of the agency must not
        be impaired if any of its rules, regulations,
        or decisions  are subject to review, clear-
        ance, or similar action by other offices or
        agencies of the State.

42 C.F.R.  5 431.10(e).  If the Purchasing  Commission  had
authority to review the departmentIs purchasing   decisions
that implement the Medicaid program and to refuse payment
for its purchases, a question as to the state's compliance
with the above regulation would arise.

      In summary, the legislature has granted the   Department
of Human Services     comprehensive  authority  to administer
federal benefit programs,    and in particular, the Medicaid
program.   That authority    includes statutory authority   to
enter into contracts with private entities to implement
those programs,   authority which is inconsistent     with an
interpretation of article 601b, V.T.C.S., that would subject
the Medicaid   purchased   health services contract    to its
provisions.   In our opinion, sections 22.002(f) and 32.029
of the Human Resources Code are provisions of special laws
relating to the state#s participation in federal benefit
programs.    The enactment of article 601b, V.T.C.S.,        a
general law which governs purchasing for state agencies,
does not repeal these special law contract provisions.     See
Flowers  v. Pecos River  R. Co., 156 S.W.2d 260 (Tex. 1941).
They are construed as exceptions to the general law, based
on the presumption that a specific statute      evidences  the
intention of the legislature more clearly that a general
one. Townsend v. Terre11     16  S.W.Zd 1063 (1929). In this
case, the legislature has'made its intent very clear that it
wishes the state   to receive full benefit from the federal
programs administered by the Department     of Human Services
and has granted the department specific contract authority
to help achieve that purpose. We do not believe that the




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           .




Honorable Stan Schlueter - Page 10      (JM-978)




legislature intended article  601b, V.T.C.S.,  to limit the
specific contractual powers it conferred on the department.
Accordingly, we conclude that the Medicaid purchased  health
services insurance contract is not subject to the provisions
of article  601b, V.T.C.S.    To the extent that Attorney
General Opinion MM-254 (1980) appears to imply the contrary,
that implication\is surplusage and is expressly repudiated.

     In view of our answer to your first question, we     need
not answer your second and third questions.

                        SUMMARY
           The Medicaid   purchased  health   services
        insurance contract which the Department     of
        Human Services proposes to enter into is not
        subject to article 601b, V.T.C.S., the State
        Purchasing and General Services     Commission
        Act.




                                   JIM     MATTOX
                                   Attorney General of Texas

MARYKKLLER
First Assistant Attorney General

LDUMCCREARY
Executive Assistant Attorney General

JUM;E ZOLLIE STEAKLEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Susan L. Garrison
Assistant Attorney General




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