                                                                                            ACCEPTED
                                                                                        03-15-00657-CV
                                                                                                7803715
                                                                             THIRD COURT OF APPEALS
                                                                                        AUSTIN, TEXAS
                                                                                  11/12/2015 2:58:49 PM
                                                                                      JEFFREY D. KYLE
                                                                                                 CLERK
                              NO. 03-15-00657-CV

                                                                       FILED IN
                                                                3rd COURT OF APPEALS
                                IN THE                               AUSTIN, TEXAS
                        THIRD COURT OF APPEALS                  11/12/2015 2:58:49 PM
                             AUSTIN, TEXAS                          JEFFREY D. KYLE
                                                                         Clerk


CHRIS TRAYLOR, EXECUTIVE COMMISSIONER OF TEXAS HEALTH
 AND HUMAN SERVICES COMMISSION AND THE TEXAS HEALTH
           AND HUMAN SERVICES COMMISSION,
                     APPELLANTS

                                        V.

                                 DIANA D., et al
                                  APPELLEES


       ON APPEAL FROM THE 200TH JUDICIAL DISTRICT COURT,
        TRAVIS COUNTY, TEXAS, HON. TIM SULAK, PRESIDING


            APPLICATION FOR LEAVE TO FILE SUR-REPLY
     ______________________________________________________________

TO THE HONORABLE THIRD COURT OF APPEALS:

1)     Appellants have filed a “Reply Supporting Rule 24.4 Motion To Vacate

Counter-Supersedeas Order Or, In The Alternative, Increase Counter-Supersedeas

Bond (“Reply”). The Reply raises new arguments and cites to record contents that

were not included the Appellants’ Motion. This causes prejudice to Appellees in

that it attempts to inject new grounds for the relief requested after Appellees have
filed their response. Accordingly, the Court should grant leave for Appellees to

file the following Sur-Reply.

                                        SUR-REPLY

2)     Government Code §531.021 does not grant HHSC the power to ignore its

own regulatory rules. For the first time in the Reply, Appellants claim that the rate

reductions do not have to comply with its own rules because of the provisions of

Texas Government Code §531.021. This argument was never raised in Appellants’

Motion and therefore constitutes an improper new ground for relief because each

motion must “state with particularity the grounds on which it is based.” TRAP

10.1(a)(2).1 Furthermore, this is an argument on the merits of the interlocutory

appeal of the temporary restraining order and should therefore be reserved for

consideration on full briefing on the merits. Accordingly, should the Court be

inclined to consider this ground for the relief sought in Appellants’ Motion,

Appellees request that the Court set a briefing schedule so that Appellees may fully

respond.

3)     It should be noted, however, that §531.021 is a statute that permits HHSC to

adopt regulatory rules to govern procedures for Medicaid rates. Nothing in the

statute provides that once HHSC has adopted rules, such as 1 TAC
1
  §531.021 was mentioned in the affidavit of Pam McDonald which was attached to Appellants’
Motion, but was not referenced as a ground for relief in the Motion. Ms. McDonald’s affidavit
was filed in the trial court with Appellants’ motion to modify the temporary injunction and
therefore was not before the trial court at the time of the temporary injunction or the denial of
supersedeas.
                                               2
§355.8021(a)(2)(B), it is then free to ignore such rules when engaging in a

Medicaid rate review. Furthermore, it should be noted that the proposed rates at

issue expressly stated that they were subject to 1 TAC §355.8021 and never

asserted that they were adopted pursuant to any provision of Government Code

§531.021. 6 RR at Ex. 1, p.2–3. Finally, contrary to the Reply’s claim that these

rates constituted an “adjustment” rather than a rate review subject to §355.8021,

HHSC’s witness testified that the proposed rates were a “periodic rate review” (3

RR 230) which is the language found in §355.8021(a)(2)(B). The Court should

disregard the Reply’s attempt to characterize the rate reductions as an “adjustment”

that is exempt from the requirements of §355.8021(a)(2)(B) because the only

evidence presented to the trial court was that this was a periodic rate review, which

is subject to §355.8021(a)(2)(B).

4)    The text of Rider 50 explicitly states that rate reductions are only suggested,

not mandatory. Section I(A) of the Reply claims that the text of Rider 50 mandates

rate cuts on the basis that the words “should be achieved through rate reductions”

of Subsection (c) are compulsory, rather than permissive or discretionary. The

authorities cited for this proposition are inapposite at best, but even if they were

not, the language of Rider 50 is explicit that such rate reductions are not

mandatory. Subsection (d) of Rider 50 states: “HHSC shall develop a plan to

allocate the reductions required by Subsection (a) of this rider by taking actions


                                         3
such as those suggested under Subsection (b) and (c) of this rider. . . . The plan . . .

shall be submitted in writing before December 1, 2015 to the Legislative Budget

Board, the Governor, and the Comptroller of Public Accounts.” 6 RR at Ex. 9, p. 4

(emphasis added). Because the actions under Subsection (c) are explicitly only

“suggested,” it is impossible to conclude that the provisions of Subsection (c)

regarding rate reductions constitute a compulsory obligation imposed on HHSC by

Rider 50.    Furthermore, Rider 50 only requires HHSC to submit a plan by

December 1, 2015. Clearly this does not constitute a compulsory obligation to

implement rate reductions as of October 1, 2015 as claimed by the Reply.

5)    The temporary injunction and the denial of supersedeas do not change

Medicaid rates. In its introductory paragraph and in Section II, the Reply claims

that this lawsuit is subject to federal preemption because state court remedies that

change the amount of Medicaid rates are preempted by federal law. Nothing in the

temporary injunction or the denial of supersedeas changes any Medicaid rates.

Nowhere in the temporary injunction or the denial of supersedeas is there any

assertion of a “statutory right to have courts impose particular Medicaid rates.”

(Reply, §II(B)). The temporary injunction merely prohibits implementation of

rates promulgated in violation of HHSC’s own rules and requires HHSC to follow

its own rules before promulgating new rates. Because the temporary injunction

and the denial of supersedeas do not change Medicaid rates, the Court should


                                           4
disregard Appellants’ claim that the trial court’s remedy constitutes a change in

Medicaid rates.

6)    El Paso Hospital District requires HHSC to comply with its own rules and

the APA when making Medicaid reimbursement decisions. Contrary to the claims

of the Reply, nothing in this case involves a state court implementing a change in

Medicaid rates. This case merely stands for the unremarkable proposition that

HHSC is required to follow state law and its own regulatory rules when it makes

decisions. This has been explicitly approved by the Texas Supreme Court in El

Paso Hosp. Dist. v. Tex. Health & Human Servs. Comm’n, 247 S.W.3d 709 (Tex.

2008), which held that when HHSC adopts Medicaid reimbursement rates, it is

required to either follow its own rules or adopt new rules in accordance with the

Administrative Procedures Act (“APA”). There is no dispute in this case that in

promulgating the proposed rate reductions, HHSC did not follow its own rules and

did not adopt new rules as required by the APA. Therefore Texas law clearly

provides for a remedy, which does not include changing Medicaid rates, but

merely prohibits the improper attempt to implement rate reductions promulgated in

violation of HHSC rules.

7)    There are no changed circumstances. Section III(B) of the Reply includes

another new ground for relief that was not included in Appellants’ Motion because

it claims that comments by the trial judge during a hearing on Appellants’ Motion


                                        5
to Modify constitute “changed circumstances” under TRAP 24.4(b).              TRAP

10.1(a)(2) requires a motion to state with particularity the grounds on which it is

based. This alleged “changed circumstance” was not stated in Appellants’ Motion,

nor could it have been because the hearing at issue occurred after Appellants’ filed

their Motion. Accordingly, the Court should disregard this attempt to state new

grounds for relief set forth in the Reply. Alternatively, should the Court believe

this ground requires any consideration then Appellees request that the Court set a

briefing schedule so that Appellees may fully respond to the claimed ground for

relief.

8)        It should be noted, however, that the outcome of the hearing on the

Appellants’ Motion to Modify was that the trial judge did not modify the

temporary injunction or the denial of supersedeas, therefore nothing actually

changed as a result of the hearing. It is nonsensical for Appellants to claim that

changed circumstances can be the result of a hearing in which nothing was

changed.

9)        To the extent that Appellants claim that the statements of the trial judge

during the hearing constitute a ground for relief from the denial of supersedeas,

only the written language of the temporary injunction and the denial of supersedeas

are binding on the parties. No oral statement by a trial judge can alter such written

orders. Furthermore, the statements in the supplemental record cited by Appellants


                                           6
do not state that the scope of the temporary injunction will be made clear in

subsequent proceedings. The trial judge merely stated that if the parties have a

dispute about whether an action or proposed action violates the temporary

injunction, the trial court would be required to resolve the dispute. Supp. RR 36-

38.   This is nothing other than a recitation of the trial court’s duties in the

resolution of any dispute.       Accordingly, the claim that there are changed

circumstances justifying this Court’s intervention is without basis, and the Court

should ignore the claim of changed circumstances in the Reply.

10)   Government Code §402.004 does not exempt the State from the rules of

procedure. “The Texas Supreme Court has made clear that, when the state becomes

a litigant in the courts, it is bound by the same rules of procedure that bind all other

litigants, except where special provision is made to the contrary. . . . We hold that

section 402.004 is not a ‘provision to the contrary’ exempting [the state] from

compliance with the procedural rules.” Carrasco v. Tex. Transp. Inst., 908 S.W.2d

575, 578 (Tex. App.—Waco 1995, no writ) (internal cites omitted).                TRAP

33.1(a)(1) requires that all errors be preserved in the trial court as a prerequisite to

appellate review, and Government Code §402.004 does not exempt the State from

compliance with this rule. Accordingly, the Court should decline to consider relief

requested in Appellants’ Motion and Reply without a demonstration that

Appellants requested that relief from the trial court. If the State believes the bond


                                           7
for denial of supersedeas should be changed, then the State should file a motion to

modify in the trial court and only come to this Court if it is unsatisfied with the

outcome of that motion.

11)   Conclusion. The Reply makes several attempts to assert new grounds for

relief that were not included in Appellants’ Motion, therefore the Court should

grant leave to file this Sur-Reply. If the Court has any inclination to consider the

new grounds set forth in the Reply, then the Court should set a new briefing

schedule to permit Appellees to fully respond. Appellants’ arguments for vacating

the denial of supersedeas fail because: a) the proposed rates are “periodic rate

reviews” subject to 1 TAC §355.8021(a)(2)(B) and not “adjustments”; b) the

language of Rider 50 explicitly provides that the rate reductions are merely

“suggested” and not compulsory; c) the temporary injunction and denial of

supersedeas only prohibit HHSC acting in violation of state law and do not impose

or change any Medicaid rates; d) there are no changed circumstances for appellate

review; and e) Government Code §402.004 does not exempt Appellants from the

rules of procedure, including TRAP 33.1(a)(1), which requires preservation of

error as a prerequisite for appellate review. Accordingly, Appellees request that

the Appellants’ Motion be denied.




                                         8
                               Respectfully submitted,

                               RICHARDS RODRIGUEZ & SKEITH, LLP
                               816 Congress Avenue, Suite 1200
                               Austin, Texas 78701
                               Telephone: 512-476-0005
                               Facsimile: 512-476-1513

                               By: /s/ Daniel R. Richards_____________
                                   DANIEL R. RICHARDS
                                   State Bar No. 00791520
                                   drichards@rrsfirm.com
                                   BENJAMIN H. HATHAWAY
                                   State Bar No. 09224500
                                   bhathaway@rrsfirm.com
                                   CLARK RICHARDS
                                   State Bar No. 90001613
                                   crichards@rrsfirm.com
                                   CHASE C. HAMILTON
                                   State Bar No. 24059881
                                    chamilton@rrsfirm.com

                               ATTORNEYS FOR APPELLEES


                     CERTIFICATE OF CONFERENCE

      Pursuant to Tex. App. R. 10.1(a)(5), I hereby certify that I have conferred
with counsel for Appellants and Appellants do not oppose this Application for
Leave to File Sur-Reply.

                                     /s/ Daniel R. Richards_____________
                                     DANIEL R. RICHARDS




                                       9
                        CERTIFICATE OF SERVICE

       I hereby certify that the foregoing document has been delivered to the
following counsel of records on this, the 12th day of November 2015 by electronic
notification and e-mail:

Kristofer S. Monson
Assistant Solicitor General
Office of the Attorney General of Texas
P.O. Box 12548, (MC 059)
Austin, Texas 78711-2548
Kristofer.monson@texasattorneygeneral.gov


                                     /s/ Daniel R. Richards_____________
                                     DANIEL R. RICHARDS




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