TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-09-00318-CV
Texas Health and Human Services Commission and Thomas Suehs, Commissioner,
Appellants
v.
El Paso County Hospital District d/b/a R. E. Thomason General Hospital, et al., Appellees
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 201ST JUDICIAL DISTRICT
NO. D-1-GN-02-003154, HONORABLE ORLINDA NARANJO, JUDGE PRESIDING
OPINION
Beginning in 2001, fourteen Texas hospitals (the Hospitals)1 initiated
proceedings—first at the agency level, then in the courts—challenging the methodology used by
the Health and Human Services Commission (HHSC) in determining the rates under which the
agency reimburses Texas hospitals for inpatient services provided to Medicaid insureds. Though
unsuccessful before the agency and the lower courts, the Hospitals ultimately prevailed in
1
In addition to the El Paso County Hospital District d/b/a R. E. Thomason General Hospital,
these include Conroe Hospital Corporation d/b/a Conroe Regional Medical Center; Bay Area
Healthcare Group, Ltd. d/b/a Corpus Christi Medical Center; Sunbelt Regional Medical Center, Inc.
d/b/a East Houston Regional Center; Brownsville-Valley Regional Medical Center d/b/a
Valley Regional Medical Center; Columbia/St. David’s Healthcare System, L.P. d/b/a North Austin
Medical Center; El Paso Healthcare System, Ltd. d/b/a Las Palmas Medical Center and Del Sol
Medical Center; HCA Health Services of Texas, Inc. d/b/a Rio Grande Regional Hospital;
Methodist Healthcare System of San Antonio, Ltd. d/b/a Methodist Specialty & Transplant Hospital,
Northeast Methodist Hospital, and Southwest Texas Methodist Hospital; and St. David’s Medical
Center and Round Rock Medical Center.
the Texas Supreme Court. See El Paso Hosp. Dist. v. Texas Health & Human Servs. Comm’n,
247 S.W.3d 709 (Tex. 2008) (the “first appeal”). In a 2008 opinion and judgment, the supreme court
declared invalid part of HHSC’s rate-setting methodology, enjoined its enforcement, and declared
that the Hospitals were entitled under HHSC’s rules to a contested-case hearing regarding
the agency’s calculation of the reimbursement rates. See id. at 714-16. It remanded the cause to the
district court for further proceedings consistent with its opinion.
Meanwhile, during the intervening years, HHSC had implemented Medicaid
reimbursement rates derived from the methodology the supreme court later held invalid and paid
the Hospitals’ Medicaid reimbursement claims in accordance with those rates. On remand, the
Hospitals sought remedies that had the ultimate goal of recovering any “underpayments” of Medicaid
reimbursement caused by HHSC’s application of the now-invalidated rate methodology. At the
Hospitals’ urging, the district court rendered a judgment that granted injunctive relief contemplating
that HHSC would recalculate, without applying the invalidated part of its rate methodology, the
reimbursement rates that would have applied beginning in state fiscal year 2002 and each year
thereafter. On appeal, HHSC challenges this injunctive relief to the extent it applies to time periods
before the date of the supreme court’s mandate.
As we detail below, the parties’ contentions require us to ascertain the legal effect
of the supreme court’s judgment, whether the district court awarded relief beyond what the
supreme court did explicitly or implicitly, and whether any such additional relief was error. We
conclude that to the extent the district court’s injunction applies to the calculation of the
reimbursement rates applicable during state fiscal year 2008 or later, the relief merely tracks the
2
legal effect of the supreme court’s judgment. However, to the extent the injunction extends to
recalculations of the rates that applied during prior years, we conclude that it goes beyond the relief
awarded in the supreme court’s judgment and, furthermore, was error.
BACKGROUND
Rate-setting methodology
The Medicaid health insurance program, which covers medical care for low-income
and certain other eligible persons, is jointly operated and funded by the federal and state
governments, with each state being responsible for administering the program within its borders in
accordance with guidelines mandated or approved by the federal government. See id. at 711-12. In
Texas, the Legislature has delegated this administrative responsibility to HHSC. A key part of
HHSC’s delegated responsibilities is reimbursing health care providers who provide medical care
to Medicaid insureds and determining the amounts to be paid. At relevant times, the Legislature had
charged HHSC with establishing, “on a prospective payment basis,” the amounts that Texas hospitals
are reimbursed for providing inpatient services to Medicaid patients.2 Tex. Hum. Res. Code Ann.
§ 32.028(d)(1) (West Supp. 2010).3 In so doing, the Legislature has required that HHSC “shall,”
2
See El Paso Hosp. Dist. v. Texas Health & Human Servs. Comm’n, 247 S.W.3d 709, 712
(Tex. 2008) (observing that this “prospective-payment system” enables “hospitals to know the rate
at which they will be reimbursed for specific services,” creating incentives for them “to control
costs . . . so they can earn a profit under the pre-determined rates”); cf. El Paso County Hosp. Dist.
v. Texas Health & Human Servs. Comm’n, 161 S.W.3d 587, 589 n.1 (Tex. App.—Austin 2005),
rev’d, 247 S.W.3d 709 (Tex. 2008) (observing that Texas had previously utilized a retrospective
system in which reimbursement was based on the actual costs incurred in providing the
medical services).
3
Except where there has been a material intervening substantive change, we cite the current
versions of relevant statutes for convenience.
3
among other things, “assure that the payment rates are reasonable and adequate to meet the costs
incurred by the hospital in rendering services to Medicaid recipients.” Id. To that end, HHSC has
promulgated rules establishing procedures whereby it is to periodically recalculate prospective
reimbursement rates for Medicaid inpatient hospital services based on recent historical claim and
cost information collected from hospitals. Although these rate-setting procedures were described
at length in the opinions from the first appeal,4 their complexity and the parties’ common reliance
on their intricacies in the present appeal warrant that we revisit them in some detail to provide
context and clarity to the issues currently in dispute.
Since 1986, and at all times relevant to this appeal, the agency has had in effect
formal rules governing how it establishes and adjusts Medicaid reimbursement rates for hospitals.
See 1 Tex. Admin. Code § 355.8063 (2004) (Tex. Health & Human Servs. Comm’n, Reimbursement
Methodology for Inpatient Hospital Services) (hereinafter, “Former Rule § 355.8063”). Although
there were other components to the rates HHSC set under Former Rule § 355.8063, the
one important to this appeal was a “standard dollar amount” (SDA) assigned to each hospital,
an approximation of the hospital’s costs for an average or “standard” Medicaid case. See id.
§ 355.8063(a), (b)(4), (c). HHSC would first determine each hospital’s individual SDA by dividing
the hospital’s overall cost per Medicaid case by a factor known as the “case mix index,” a measure
of the average complexity of the hospital’s Medicaid cases. See id. § 355.8063(b)(2)-(4), (c). Based
on their individual SDAs, hospitals were then grouped into “payment divisions,” and a weighted-
4
See El Paso Hosp. Dist., 247 S.W.3d at 711-13; El Paso County Hosp. Dist., 161 S.W.3d
at 589-90.
4
average SDA was determined for each such division. See id. § 355.8063(a), (b)(4). The weighted-
average SDA was then assigned to each hospital in the payment division. See id. From there, the
amount of Medicaid reimbursement paid to a hospital for providing a particular medical treatment
or procedure would be determined by multiplying the weighted-average SDA assigned to the
hospitals’ payment division times a “relative weight” reflecting the complexity of the procedure.5
Although the actual calculations were somewhat more complicated, for present purposes it suffices
to observe that a higher individual SDA for a hospital could mean a higher payment division and
higher assigned weighted-average SDA, and that the higher a hospital’s assigned weighted-average
SDA, the greater its reimbursement payments for providing a particular medical treatment.
Consequently, we will use reimbursement “rates” as shorthand for the weighted-average SDA
assigned to a hospital based on its payment division, and “SDAs” to refer to the individual SDAs that
determined a hospital’s assigned payment division.
Under Former Rule § 355.8063, HHSC was generally required to recalculate or
“rebase” SDAs and reimbursement rates and recalibrate relative weights at least every three years.
See id. § 355.8063(h), (i). This rebasing process correspondingly ran on a three-year cycle that was
tied to the state fiscal year (FY), which runs from September 1 through August 31. See El Paso
Hosp. Dist., 247 S.W.3d at 713. The first year of the three-year cycle was designated as the
“base year,” a “12-consecutive month period of claims data selected by [HHSC] or its designee.”
5
Medical treatments and procedures were classified into “diagnostic-related groups”
(DRGs). See Former Rule § 355.8063(b)(1), (e). For each DRG classification, a relative weight was
determined by dividing the statewide average cost of that treatment by the statewide average cost for
all cases. See id. § 355.8063(a), (b)(3), (c), (e).
5
Former Rule § 355.8063(b)(5); see El Paso Hosp. Dist., 247 S.W.3d at 712. Following the end of
the base year (FY 1), HHSC would, during the second year (FY 2), compile cost data from Medicaid
claims arising from hospital admissions made during FY 1 and, based on this data, determine new
SDAs, reimbursement rates, and relative weights. See Former Rule § 355.8063(n); El Paso Hosp.
Dist., 247 S.W.3d at 712. These new rates would then take effect at the beginning of the third year
(September 1 of FY 3) and remain effective for another three-year period, during which the same
rebasing process would be repeated based, once again, on claims data compiled from the first year
of the period. See Former Rule § 355.8063(n); El Paso Hosp. Dist., 247 S.W.3d at 712. In the
interim between rebasings, HHSC was to make annual cost-of-living adjustments to the rates. See
Former Rule § 355.8063(n)(2).
Hospitals had an obvious stake in ensuring that HHSC fully accounted for their
costs of treating Medicaid patients during the base year, as higher costs could mean higher
SDAs, higher reimbursement rates, and greater reimbursement payments. Former Rule § 355.8063
provided hospitals an administrative appeal process through which they could challenge perceived
“mechanical, mathematical, and data entry errors in computing the hospital’s base year claims data”
and obtain adjustments before the new rates became effective. See id. § 355.8063(k). However, the
rule explicitly barred such appeals with respect to “the prospective payment methodology used by
the HHSC,” including “the payment division methodologies.” Id. § 355.8063(k)(2).
Under this administrative appeal process (hereinafter “the appeal rule”), a hospital
claiming that HHSC made “a mechanical, mathematical, and data entry error in computing the
hospital’s base year claims data” could submit to HHSC, within sixty days after the hospital received
6
initial notification of its SDA and payment division (which would occur during the second year of
the three-year rebasing process), “a specific written request for review and appropriate specific
documentation supporting its contention that there has been [such] error.” Id. § 355.8063(k)(1)(A).
HHSC then had to “conduct the review as quickly as possible and notify the hospital of the results.”
Id.; see El Paso Hosp. Dist., 247 S.W.3d at 715 (observing that HHSC termed this procedure
an “informal review”). “If the hospital [was] dissatisfied with the results of the review,” the
appeal rule further provided, “the hospital [could] request a formal hearing” before the State Office
of Administrative Hearings (SOAH) under the contested-case procedures of the Administrative
Procedure Act (APA). Former Rule § 355.8063(k)(1)(A); see El Paso Hosp. Dist., 247 S.W.3d
at 715.
The appeal rule further required that if the “review or appeal” ultimately determined
that an adjustment to the hospital’s SDA or payment division was warranted, the timing of that
adjustment would depend on when that review or appeal was completed:
if the review or appeal is completed at least 60 days before the beginning of the
next prospective year, any adjustment required after completion of the review
or appeal is applied to that next prospective year. If the review or appeal is not
completed at least 60 days before the beginning of the next prospective year, any
adjustment required after the completion of the review or appeal is applied only to
the subsequent prospective year. The base year claims data used by the HHSC . . .
pending the review or appeal is the base year claims data established by the HHSC
....
Former Rule § 355.8063(k)(1)(A). In context, “the beginning of the next prospective year” referred
to September 1, the first day of the ensuing state fiscal year. The sixtieth day prior to that date is
July 3. Thus, the appeal rule contemplated that if the “review or appeal” had not concluded by July 3
7
of the second year of the three-year rebasing cycle, the new SDAs and reimbursement
rates—although derived from base-year claims data that was still in dispute as of that
deadline—would nonetheless take effect on the following September 1 as scheduled, pending the
outcome of the “review or appeal.” If the “review or appeal” later determined that adjustments were
required, those adjustments would be “applied only to the subsequent prospective year.”
In addition to the appeal rule, Former Rule § 355.8063 also provided for correction
of certain errors in reimbursement rates that had already been implemented—and, within certain
limitations, for reconciliation of the reimbursement amounts HHSC had paid a hospital under the
rates prior to correction with the amounts to which the hospital would be entitled under the rates as
corrected (hereinafter “the error-correction rule”). The error-correction rule provided that “[w]hen
the HHSC or its designee determines that [it] has made an error that, if corrected, would result in the
[SDA] of the provider for which the error was made changing to a new payment division, either
higher or lower”—i.e., yielding a different applicable reimbursement rate—“the HHSC or its
designee moves the provider into the correct payment division [and] reprocesses claims paid using
the initial, incorrect [SDA] that was in effect before the current state fiscal year by using the existing
[SDA] in which the provider was moved.” Id. § 355.8063(c).6 However, the error-correction rule
emphasized that “[t]he correction of this error condition only applies to the current state fiscal year
payments,” and “[n]o corrections are made to payment rates for services provided in previous state
fiscal years.” Id.
6
These calculations were to utilize “the relative weights that are currently in effect for the
state fiscal year.” Former Rule § 355.8063(c).
8
The dispute and first appeal
The underlying dispute originated from HHSC’s rebasing of hospital SDAs and
reimbursement rates during a three-year cycle beginning September 1, 1999 (i.e., from a base year
of FY 2000), to take effect on September 1, 2001 (FY 2002). When compiling the Hospitals’ base-
year FY 2000 claims data during FY 2001, HHSC followed a practice—purportedly dating back to
the 1986 origins of Former Rule § 355.8063, but appearing nowhere in the rule’s text—of including
information from Medicaid claims from base-year Medicaid admissions only if the claims
were processed and paid by not later than six months following the end of the base year (here,
February 28, 2001, the end of the sixth month after FY 2000 ended on August 31, 2000). The
Hospitals complained that HHSC’s application of this “February 28 cutoff” had unlawfully excluded
legitimate Medicaid reimbursement claims from their respective base-year claims data (“post-
February 28 claims data”) and skewed their SDAs and rates downward by disproportionately
excluding complex, high-cost claims that tended to take longer to process and pay. HHSC insisted
that its application of this deadline was a permissible interpretation of Former Rule § 355.8063 and
one warranted by the necessity of having to close the base-year data set sufficiently far in advance
of September 1 to allow time for it to compile the claims data, calculate the hospitals’ SDAs, and
implement the new reimbursement rates by that date.
The Hospitals each requested informal administrative review under HHSC’s
appeal rule, asserting that the agency’s exclusion of their post-February 28 claims data constituted
“data entry” or “mechanical” errors. See El Paso Hosp. Dist., 247 S.W.3d at 715-16. HHSC denied
the requests, in the view that the Hospitals were raising complaints about its rate-calculation
9
methodology and, thus, had no right of appeal under the rule. See id. at 713. The Hospitals then
requested HHSC to refer their complaints to SOAH for contested-case hearings, but HHSC—again
in the view that the Hospitals’ complaints concerned rate-calculation methodology—declined to refer
them. See id. It is undisputed that the Legislature has provided no right of judicial review from
HHSC’s refusal to make the referrals. See, e.g., Continental Cas. Ins. Co. v. Functional Restoration
Assocs., 19 S.W.3d 393, 397 (Tex. 2000) (“It is well recognized under Texas law that there is no
right to judicial review of an administrative order unless a statute provides a right or unless the order
adversely affects a vested property right or otherwise violates a constitutional right.”) (citing Stone
v. Texas Liquor Control Bd., 417 S.W.2d 385, 385-86 (Tex. 1967)); Creedmoor-Maha Water Supply
Corp. v. Texas Comm’n on Envtl. Quality, 307 S.W.3d 505, 515 (Tex. App.—Austin 2010, no pet.)
(additionally observing that sovereign immunity generally bars declaratory claims that would disturb
a non-appealable agency order).
The new SDAs and reimbursement rates—again, derived from a FY 2000 base-year
data set that excluded the Hospitals’ post-February 28 claims data—took effect as scheduled
on September 1, 2001. In August 2002, the Hospitals sued HHSC7 in an attempt to challenge both
the agency’s application of the February 28 cutoff in calculating their reimbursement rates and its
refusal to refer their administrative appeals to SOAH. As they ultimately amended their pleadings,
the Hospitals invoked the cause of action and waiver of sovereign immunity provided under
7
The Hospitals also asserted their claims against HHSC’s executive director, in his official
capacity, but the distinction is immaterial at this juncture.
10
section 2001.038 of the APA8 and sought declarations that: (1) “the February 28, 2001 claims
processing deadline is invalid and void” because it constituted a “rule” that HHSC had adopted
without complying with the APA’s notice-and-comment rulemaking procedures,9 (2) the cutoff
was in “direct conflict” with the substantive requirements of both Former Rule § 355.8063 and the
human resources code; and (3) “HHSC has wrongfully denied the Hospitals’ requests for
administrative review provided in [Former Rule] § 355.8063(k)(1)(A)” and that “as a result of
HHSC’s wrongful denial . . . HHSC has impaired the Hospitals’ legal rights and privileges by failing
to correct mechanical and data entry errors in the calculation of the Medicaid base year claims for
state fiscal years 2002, 2003 and 2004.”10 The Hospitals also requested temporary and permanent
injunctive relief enjoining HHSC “from reimbursing the Hospitals in a manner that excludes all base
year claims, regardless of whether the claims were processed before February 28, 2001.”
The district court initially granted the Hospitals’ request for a temporary injunction.
However, in October 2003, following a bench trial, a visiting judge rendered judgment that the
Hospitals take nothing on their claims. The Hospitals appealed to this Court, asserting that: (1) the
8
See Tex. Gov’t Code Ann. § 2001.038(a) (West 2008) (providing that “[t]he validity or
applicability of a rule . . . may be determined in an action for declaratory judgment if it is alleged
that the rule or its threatened application interferes with or impairs, or threatens to interfere with
or impair, a legal right or privilege of the plaintiff”); Texas Logos, L.P. v. Texas Dep’t of Transp.,
241 S.W.3d 105, 123 (Tex. App.—Austin 2007, no pet.) (“section 2001.038 is a grant of original
jurisdiction and, moreover, waives sovereign immunity”).
9
See Tex. Gov’t Code Ann. §§ 2001.003(6), .023-33, .035 (West 2008).
10
The Hospitals’ live pleadings also invoked the Uniform Declaratory Judgments Act.
HHSC asserts, and the Hospitals do not dispute, that the Hospitals’ claims under the UDJA either
sound exclusively under APA 2001.038 or that the Hospitals waived any UDJA claims by relying
exclusively on section 2001.038 during the first appeal. See El Paso Hosp. Dist., 247 S.W.3d at 715
(describing the Hospitals’ claims solely as APA section 2001.038 declaratory claims).
11
February 28 cutoff was invalid because it constituted an invalidly promulgated “rule” under the
APA and was also substantively invalid because it conflicted with Former Rule § 355.8063 and the
human resources code; and (2) HHSC had misapplied its appeal rule in denying them a SOAH
hearing. El Paso County Hosp. Dist. v. Texas Health & Human Servs. Comm’n, 161 S.W.3d
587, 590, 594 (Tex. App.—Austin 2005), rev’d, 247 S.W.3d 709 (Tex. 2008); see Tex. Gov’t
Code Ann. § 2001.003(6); .035 (West 2008); Tex. Hum. Res. Code Ann. § 32.028(d)(1); Former
Rule § 355.8063(k)(1)(A). This Court overruled both issues and affirmed the district court’s
judgment, reasoning in part that (1) the February 28 cutoff was not a “rule” under the APA and that
(2) the Hospitals’ administrative appeals were unreviewable complaints about HHSC’s payment
methodology. El Paso County Hosp. Dist., 161 S.W.3d at 594.
The Hospitals then appealed to the Texas Supreme Court, which granted review.
Texas Supreme Court proceedings
The supreme court initially issued an opinion and judgment affirming this Court’s
judgment in part, reversing in part, and remanding to HHSC. El Paso Hosp. Dist. v. Texas Health
& Human Servs. Comm’n, No. 05-0372, 2007 Tex. LEXIS 740, at *16 (Tex. Aug. 31, 2007). On
rehearing, however, the court withdrew its original opinion and issued a substituted opinion and
judgment reversing this Court’s judgment in full, rendering judgment in part, and remanding to
the district court in part. El Paso Hosp. Dist., 247 S.W.3d at 716. Because the supreme court’s
modifications to its opinion and judgment on rehearing and the parties’ arguments that preceded
them prove to be relevant to our analysis, we describe them in some detail.
12
In both of its opinions, the supreme court, agreeing with the Hospitals, held that
the February 28 cutoff was an invalidly promulgated rule under the APA. See El Paso Hosp. Dist.,
247 S.W.3d at 714-15; El Paso Hosp. Dist., 2007 Tex. LEXIS 740, at *14. The court expressly did
not reach whether the cutoff was also substantively invalid, leaving that matter to HHSC to “explore
as a part of the rule-making process” the agency would presumably initiate to enact the cutoff in
the form of an APA-compliant rule. See El Paso Hosp. Dist., 247 S.W.3d at 714-15; El Paso Hosp.
Dist., 2007 Tex. LEXIS 740, at *13.
In its initial opinion, the supreme court, relying on section 2001.040 of the APA,11
and “[f]inding no good reason to invalidate the rule immediately,” opted to leave the February 28
cutoff in effect and remanded the matter to HHSC to afford the agency a “‘reasonable time . . .
to either revise or readopt the rule through the established procedures.’” El Paso Hosp. Dist.,
2007 Tex. LEXIS 740, at *14 (quoting Tex. Gov’t Code Ann. § 2001.040 (West 2008)). It then
affirmed this Court’s judgment regarding the Hospitals’ administrative appeals, reasoning that
“because the Hospitals’ argument . . . essentially seeks a formal review of HHSC’s methodology,”
the agency could have properly denied their hearing requests. El Paso Hosp. Dist., 2007 Tex. LEXIS
740, at *16.
11
See Tex. Gov’t Code Ann. § 2001.040 (West 2008) (“If a court finds that an agency has
not substantially complied with one or more procedural requirements of Sections 2001.0225 through
2001.034, the court may remand the rule, or a portion of the rule, to the agency and, if it does so
remand, shall provide a reasonable time for the agency to either revise or readopt the rule through
established procedure. During the remand period, the rule shall remain effective unless the court
finds good cause to invalidate the rule or a portion of the rule, effective as of the date of the court’s
order”).
13
The Hospitals filed a motion for rehearing pointing out that APA section 2001.040
did not apply to the case because that statute had been added in 1999, the Legislature had provided
that it would apply only prospectively, and the February 28 cutoff dated back to 1986. In response,
HHSC conceded that section 2001.040 did not apply because the February 28 cutoff predated the
statute’s enactment. The parties also agreed in principle that, under the pre-1999 version of the
APA, the supreme court did not have discretion to leave the February 28 cutoff in effect. Beyond
this, however, the parties skirmished regarding the details of the appropriate appellate remedy
and—foreshadowing the issues in the present appeal—the implications of that remedy for the
Hospitals’ Medicaid reimbursement claims that HHSC had already paid under the rates it had
derived from base-year data to which the February 28 cutoff had been applied.
During the pendency of the litigation, HHSC had continued to pay
Medicaid reimbursement to the Hospitals in accordance with rates that had been derived from
FY 2000 base-year claims data to which the February 28 cutoff had been applied (i.e., that had
excluded the post-February 28 claims data). Following their implementation, the original FY 2002
rates had been adjusted for cost-of-living increases in FY 2003 and 2004. Effective in FY 2005,
HHSC had implemented rates apparently derived from an adjusted version of the original FY 2000
base-year data—still excluding the post-February 28 claims data. Thereafter, the reimbursement
rates had remained unchanged. Consequently, by the time the supreme court issued its substituted
opinion on rehearing in 2008, almost six years had elapsed in which HHSC had paid the Hospitals
Medicaid reimbursement in accordance with rates calculated under a February 28 cutoff “rule” that
14
the supreme court ultimately held to violate the APA—and which, according to the Hospitals, had
caused “underpayments” to them.
The Hospitals argued that the proper remedy under the applicable, pre-1999 version
of the APA was to “declare the February 28 cutoff void and enjoin its enforcement.” They further
asserted that this remedy was “critically important to the Hospitals” because, they reasoned,
“it would (1) result in retroactive invalidation of the February 28 cutoff, and (2) pave the way
for the Hospitals to seek retroactive adjustment of their prospective reimbursement rates set in the
2000 base year, which were improperly skewed downward as a result of HHSC’s application of the
February 28 cutoff.” (Emphasis in original.) In support of these propositions, the Hospitals relied
on the concept that when a court declares an agency rule invalid, the governing legal standard reverts
to the last validly adopted one in effect prior to the rule’s promulgation. See All Saints Health Sys.
v. Texas Workers’ Comp. Comm’n, 125 S.W.3d 96, 103 (Tex. App.—Austin 2003, pet. denied). As
applied to the invalidation of the February 28 cutoff, the Hospitals urged that this principle meant
that the existing reimbursement rates dating back to FY 2002—the first year for which they had
complained of the rate calculation—were void and would have to be recalculated under the correct
legal standards (i.e., without application of the February 28 cutoff).
Assuming that the supreme court agreed with them and declared the February 28
cutoff immediately “void,” the Hospitals additionally urged the court to revisit its disposition of
the administrative-appeal issue and conclude that, with no February 28 cutoff in effect, their
complaints regarding exclusion of the post-February 28 claims data went to “data entry” rather than
“methodology,” and should be referred for formal hearing. The Hospitals further suggested that their
15
administrative appeals would be “the most appropriate and efficient vehicle for [them] to seek
retroactive adjustment of their reimbursement rates.”
HHSC agreed with the Hospitals only to the extent of conceding that the court
should declare the February 28 immediately “invalid,” although it pointedly did not refer to this
disposition as rendering the cutoff “void,” as the Hospitals did. As for the Hospitals’ assertions
regarding retroactive effects of such a judgment, HHSC urged that this “proposed justification for
the Hospitals’ requested relief is immaterial to the Court’s analysis” and was not before the court
because the Hospitals had previously disclaimed seeking any remedy other than prospective relief.
Nonetheless, HHSC also joined issue with the Hospitals’ assertions regarding retroactive effects,
arguing that such relief was unavailable because its orders in the Hospitals’ administrative appeals
were long since final, there remained “no pending administrative proceeding in which their 2001-
2007 rates are still at issue,” and the Hospitals’ declaratory claims under APA section 2001.038
could not be used to collaterally attack or reopen the final administrative orders. Similarly, HHSC
urged the supreme court not to revisit its holding regarding the administrative appeals because “the
Hospitals cannot use the cutoff date’s invalidation in the collateral [section 2001.038] suit to undo
HHSC’s final orders,” such that the Hospitals’ declaratory claims regarding the “data-entry” versus
“methodology” distinction under the appeal rule were effectively moot. In the alternative, even if
the Hospitals’ section 2001.038 claims could somehow “revive” their administrative proceedings,
HHSC emphasized that the appeal rule provided that any adjustments yielded by that process could
take effect no earlier than the “next prospective year,” or even not until the “subsequent prospective
year.” “Next prospective year” or “subsequent prospective year,” HHSC reasoned, would necessarily
16
refer to a fiscal year after the Hospitals’ administrative appeals, if reinstated, were finally concluded,
not earlier years.
In a reply brief—within a section titled, “The Parties Agree That the Issue of
Retroactive Relief is Not Before This Court and Should Not Be Addressed By This Court”—the
Hospitals clarified that their previous arguments were intended merely to “demonstrat[e] that a
judgment declaring the February 28 cutoff void would create an avenue for the Hospitals to seek
retroactive relief in a future administrative or court proceeding” in order to “emphasize the
importance of obtaining this relief.” They insisted that they “did not ask the Court to decide the
retroactivity issue,” which “is properly reserved until such time as the Hospitals actually seek
retroactive relief in a future proceeding.” Nonetheless, responding to “retroactivity arguments”
HHSC had raised, the Hospitals went on to reiterate their views regarding the legal effects of
declaring the February 28 cutoff “void.”
In its substituted opinion, the supreme court held that “[b]ecause we conclude that
the February 28 cutoff is a rule that HHSC did not properly promulgate, we reverse the court of
appeals’ judgment and render judgment declaring the rule invalid and enjoining its enforcement.”
El Paso Hosp. Dist., 247 S.W.3d at 715. Throughout its substituted opinion, the court used the
term “invalid” to describe the legal status of the February 28 cutoff and did not use the term “void,”
as the Hospitals had argued. See id. at 711, 715-716. This phraseology tracks the version of
APA section 2001.035 that governed the case, and the court cited that statute (albeit without
specifying the year or version) as authority for its disposition of the issue. See id. at 715 (“See
Tex. Gov’t Code § 2001.035”). Although section 2001.035 currently provides that a rule is
17
“voidable” unless enacted in substantial compliance with the APA’s requirements, see Tex. Gov’t
Code Ann. § 2001.035, the “voidable” language was added in 1999, in the same bill that added
APA section 2001.040. Act of Sept. 1, 1999, 76th Leg., R.S., ch. 558, § 3, 1999 Tex. Gen. Laws
3089, 3090, codified as amended, Tex. Gov’t Code Ann. § 2001.035. Prior to the 1999 amendment,
section 2001.035 had stated that “[a] rule . . . is not valid” unless adopted in substantial compliance
with the APA’s procedures. Id.
As for the Hospitals’ declaratory claims regarding HHSC’s refusal to refer their
administrative appeals for formal hearing, the supreme court tacitly rejected any notion that these
claims were moot, rendering judgment declaring that “the Hospitals’ administrative appeals . . . .
involve[] a reviewable ‘data entry’ claim,” such that “the Hospitals were entitled to a review of
individual claims data excluded by the February 28 cutoff.” El Paso Hosp. Dist., 247 S.W.3d at 716.
In conclusion, the supreme court “reverse[d] the court of appeals’ judgment
and remand[ed] the case to the trial court for further proceedings.” Id. The court’s mandate
subsequently issued on April 9, 2008. The mandate commanded the lower courts that “[t]he court
of appeals’ judgment is reversed and the cause is remanded to the trial court for further proceedings
consistent with this Court’s opinion.”
Events following mandate
In the aftermath of the supreme court’s April 2008 mandate, the parties joined issue
at both the district court and agency levels as to the implications of the supreme court’s judgment,
18
particularly with regard to reimbursement rates and payments from earlier years.12 In the
district court, the Hospitals filed a motion for entry of judgment that sought, in part, to obtain relief
making explicit that HHSC was required to recalculate the applicable reimbursement rates dating
back to FY 2002. Following a hearing, the district court signed a final judgment dated March 9,
2009. The judgment recited that “[t]he Supreme Court specifically declared the ‘February 28 cutoff’
rule invalid and enjoined [HHSC] from reimbursing Plaintiffs for Medicaid inpatient services
based on a Standard Dollar Amount reimbursement methodology that excludes claims based on the
February 28 cutoff/deadline.” The judgment then provided:
• “The Final Judgment of this court, which was previously entered on
October 4, 2003, is a nullity.”
• “Plaintiffs are entitled to a review of individual claims data that
Plaintiffs appealed and Defendants excluded, based on the February 28
cutoff/deadline, in accordance with the formal hearing rules found in
Subchapter I, 1 TAC § 357.481, et. seq., of HHSC’s administrative rules.”
These citations referenced HHSC’s then-current version of its rules governing
formal hearings, which had been amended during the interim to designate the
agency’s Appeals Division rather than SOAH as the tribunal.
• “[HHSC is] enjoined from applying the February 28 cutoff/deadline on
Plaintiffs’ base year claims data used to calculate Plaintiffs’ Medicaid
Standard Dollar Amounts for state fiscal years 2002 through 2009, and until
such time as [it] lawfully implement[s] a new rate.”13
12
HHSC also promulgated an APA-compliant rule that incorporated the February 28 cutoff
and initiated a rebasing under the new rule to calculate new prospective hospital reimbursement
rates. However, no new rates were implemented prior to the administrative order setting rates for
FY 2010, discussed below.
13
The judgment also taxed costs in accordance with the supreme court’s judgment
and mandate.
19
After filing a motion for new trial that was overruled by operation of law, HHSC perfected
this appeal.
Meanwhile, a few days after the district court signed its judgment, the Hospitals
requested a formal hearing of their administrative appeals before HHSC’s Appeals Division. The
appeals were consolidated into a single proceeding, and an evidentiary hearing was eventually held
in February 2010 before an ALJ, who signed a final agency order on June 9 of that year.14 The
evidence at the hearing reflected that HHSC had continued through the time of hearing to pay
Medicaid reimbursement to the Hospitals under the same rates that it had originally implemented
in FY 2005—again, still based on the FY 2000 data set to which the invalidated February 28 cutoff
had been applied. However, following issuance of the supreme court’s mandate, HHSC had
recalculated for each Hospital the applicable SDA and reimbursement rates for FY 2010 (by the
time of the hearing, the current state fiscal year) using a FY 2000 base-year data set that, per the
judgments, incorporated the post-February 28 claims data. The parties stipulated to the accuracy of
the calculations and that the calculations had yielded upward adjustments in the reimbursement rates
for five of the hospitals.15
14
We have granted the Hospitals’ unopposed motion that we take judicial notice of this
order, and the above summary is based on its contents.
15
The reimbursement rates for the El Paso County Hospital District d/b/a R. E. Thomason
General Hospital actually decreased, while those of the remaining eight hospitals did not change.
R. E. Thomason subsequently withdrew from the administrative proceeding.
Neither side has suggested that the outcome of these administrative calculations or
R. E. Thomason’s withdrawal have mooted the present appeal with respect to any of these nine
appellees, nor can we so conclude from our record. Although the calculations on which the FY 2010
adjustments were based would logically extend to the reimbursement rates applicable in FY 2005
through 2009 as well—the rates, again, were unchanged throughout that period—there has of yet
20
The ALJ found (with reference to the appeal rule) that “[t]he agency regulation
controlling the calculation of Petitioners’ Medicaid SDAs provides that the required adjustments are
to be applied to the subsequent prospective year” and that (with reference to the error-correction rule)
“HHSC has authority to issue corrected payments to Petitioner hospitals in accordance with the
stipulated rates, retroactive to the [2010] state fiscal year beginning September 1, 2009.” Reasoning
that “prospective year” and “current year” under these rules meant the time of its June 2010 order,
the ALJ concluded that it had no authority to order HHSC to pay reimbursement or additional
reimbursement on claims arising prior to FY 2010. Similarly, the ALJ also excluded, as irrelevant
and “outside the scope of the hearing,” evidence that the Hospitals attempted to present regarding
“the year-specific Medicaid SDA rates applicable to the Hospitals for state fiscal years 2002 through
2009 ” and the differences between those rates and the reimbursements HHSC paid during the
same time period. The net effect of the order, as the parties acknowledge, is that the applicable
reimbursement rates for FY 2010 were recalculated and adjusted to account for the post-February 28
claims data, but that no similar recalculations were made with respect to FY 2002 through 2009.
ANALYSIS
The district court, on remand, had the mandatory, ministerial duty under the
supreme court’s mandate to give effect to the high court’s judgment and to conduct any further
been no judicial or administrative determination of the rates that would have been applicable during
FY 2002, 2003, or 2004. Consequently, each appellee Hospital would appear to have a continuing
justiciable interest in this appeal at least with regard to FY 2002 through 2004, as the Hospitals’
allegation that HHSC’s use of the February 28 cutoff skewed each of their reimbursement rates
downward remains pending and unrefuted with respect to those years.
21
proceedings necessary to dispose of the cause in a manner “consistent with this Court’s opinion.”
See Texas Dep’t of Parks & Wildlife v. Dearing, 240 S.W.3d 330, 347 (Tex. App.—Austin 2007,
pet. denied); see also Hudson v. Wakefield, 711 S.W.2d 628, 630 (Tex. 1986) (“in a subsequent
appeal, instructions given to a trial court in the former appeal will be adhered to and enforced,” and
“courts should look not only to the mandate itself, but also to the opinion of the court,” to ascertain
what is being commanded by the mandate); cf. Perry Nat’l Bank v. Eidson, 340 S.W.2d 483, 487 n.2
(Tex. 1960) (when appellate court judgment refers to further proceedings consistent with that court’s
opinion, “[t]he nature of the judgment is therefore determined by an inspection of the opinion”).
This included complying with the supreme court’s partial rendition of judgment—which, in effect,
became the district court’s own judgment, see Tex. R. App. P. 65.2—“declaring the [February 28
cutoff] rule invalid and enjoining its enforcement,” El Paso Hosp. Dist., 247 S.W.3d at 715, and
declaring “that the Hospitals’ administrative appeals . . . . involve a reviewable ‘data entry’ claim”
under the meaning of HHSC’s appeal rule, such that “the Hospitals were entitled to a review of
individual claims data excluded by the February 28 cutoff.” Id. at 716. HHSC’s arguments in its
current appeal are predicated, in the first instance, on its perception of the issues that had already
been decided by the supreme court—and, thus, are not susceptible to challenge in the lower courts
on remand—versus the issues that had not been decided. It is helpful to start with an explanation
of that view before turning to the agency’s specific contentions on appeal, whose nature and scope
are somewhat difficult to conceptualize in the abstract.
HHSC begins by arguing that the supreme court’s injunction “enjoining . . .
enforcement” of the February 28 cutoff operates only prospectively because injunctions always
22
operate prospectively unless the issuing court indicates otherwise, and that the supreme court
did not indicate otherwise here. See Democracy Coal. v. City of Austin, 141 S.W.3d 282, 296
(Tex. App.—Austin 2004, no pet.) (“Generally, the purpose of injunctive relief is to halt wrongful
acts that are threatened or in the course of accomplishment, rather than to grant relief against past
actionable wrongs or to prevent the commission of wrongs not imminently threatened.”). Moreover,
HHSC observes that the supreme court’s injunction became enforceable by the district court
only upon issuance of the high court’s April 2008 mandate. See In re Long, 984 S.W.2d 623, 626
(Tex. 1999) (per curiam) (absent contrary order by trial or appellate court, trial court could not hold
a party in contempt for violating an injunction until all appeals relating to the judgment
were exhausted and a mandate enforcing the injunction issued). Consequently, HHSC reasons, the
district court’s injunction would enforce or track the supreme court’s injunction only to the extent
it operated prospectively from the date of mandate.
HHSC additionally urges that the supreme court’s injunction and declarations must
be viewed in the procedural context of HHSC’s appeal rule and error-correction rule, which were
neither challenged by the Hospitals nor invalidated by the supreme court. Within that procedural
framework, HHSC urges, the supreme court’s declaratory and injunctive relief invalidating the
February 28 cutoff and prospectively barring its enforcement operated merely to prohibit HHSC from
using the cutoff (at least until it enacted the cutoff in the form of an APA-compliant rule) in any
future administrative calculations or recalculations of reimbursement rates under the appeal rule
or error-correction rule. For example, HHSC observes, the injunction would bar application of the
February 28 cutoff in the “review of individual claims data” under its appeal rule to which the
23
supreme court declared that the Hospitals were entitled. But if that review or other administrative
proceedings result in rate changes or adjustments, HHSC insists, both of these unchallenged
rules require that such changes could have only prospective effect. Specifically, HHSC urges that
the timing of any resulting rate changes or adjustments would be a function of (1) when the
administrative process finally concludes (obviously sometime after the supreme court’s mandate,
and which ultimately did not occur here until June 2010), and (2) the requirements of the appeal
rule—which makes any adjustments to base-year data effective in either the “next prospective year”
or the “subsequent prospective year,” depending on whether the “review or appeal” concludes
before or after July 3 of that year, see Former Rule § 355.8063(k)(1)(A)—or, alternatively, the error-
correction rule—which permits rate adjustments and payment reprocessing to correct certain
errors during the “current state fiscal year,” but not earlier ones. See id. § 355.8063(c). HHSC, like
the ALJ in its June 2010 order, maintains that “prospective” or “current” years under these rules
would necessarily apply with reference to the time at which the administrative determination is
made (e.g., the “current year” of FY 2010, “next prospective year” of FY 2011, etc.), rather than in
any earlier years.
Informed by this view of the supreme court’s judgment, HHSC purports to challenge
only the portion of the district court’s judgment enjoining the agency “from applying the February 28
cutoff/deadline on Plaintiffs’ base year claims data used to calculate Plaintiffs’ Medicaid
Standard Dollar Amounts for state fiscal years 2002 through 2009,” and then only to the extent this
injunction applies to rate calculations made prior to the supreme court’s April 2008 mandate. HHSC
concedes that the other portions of the district court’s judgment merely restate the legal effect of the
24
supreme court’s judgment (at least as the agency views the high court’s judgment). That is, HHSC
acknowledges that the district court’s judgment declaring its prior judgment a nullity simply restates
the legal effect of the supreme court’s judgment of reversal, and perceives that the district court’s
judgment that the Hospitals “are entitled to a review of individual claims data” before its Appeals
Division does not, in itself, add anything to the supreme court’s judgment. HHSC further reasons
that the district court’s injunction tracks the legal effect of the supreme court’s injunction to the
extent it operates from date of mandate—the date on which the supreme court’s injunction could be
enforced by the district court16—to bar use of the February 28 cutoff in any rate calculations
thereafter (although, again, no post-mandate rate calculations were ultimately completed until
FY 2010). But the portion of the district court’s injunction that purports to apply to calculations of
“Plaintiffs’ Medicaid Standard Dollar Amounts for state fiscal years 2002” through the date of
mandate, HHSC complains, presumes a “retroactive” recalculation that the supreme court did not
award or require.
In granting this additional “retroactive” relief on remand, HHSC adds, the
district court: (1) erroneously purported to enjoin pre-injunction conduct not previously made
unlawful; (2) awarded relief barred by sovereign immunity, as the recalculation the injunction
contemplates would have no conceivable purpose or effect but to establish an entitlement to
retrospective monetary relief from the State against which the Legislature has not waived
immunity;17 and (3) awarded relief that was inconsistent with HHSC’s unchallenged appeal and
16
See In re Long, 984 S.W.2d 623, 626 (Tex. 1999) (per curiam).
17
Alternatively, HHSC suggests that if this recalculation does not have this purpose or
effect, there would be, for this reason alone, no justiciable controversy underlying the “retrospective”
portion of its injunction.
25
error-correction rules, which do not permit retrospective adjustments to reimbursement rates.
HHSC further suggests that because it is thus impossible to have “retroactive” adjustments to rates
and reimbursements that predate the supreme court’s mandate, the district court’s injunction was
moot to the extent it purported to apply to calculation of those earlier rates.
Motion to dismiss
The Hospitals, in response, insist that the district court’s judgment in its entirety
merely tracks what is already explicit or implicit in the supreme court’s judgment. As a threshold
matter, however, they urge that HHSC’s arguments to the contrary bring its appeal within the
exclusive jurisdiction of the supreme court. Accordingly, they have moved that we dismiss this
appeal for want of subject-matter jurisdiction.
HHSC also goes further to label the “retrospective” portion of the injunction as in itself
“money damages” or “retrospective monetary relief” that implicates sovereign immunity. Based on
this characterization, HHSC complains that the district court erred in awarding relief that the
Hospitals did not request in their pleadings—they did not purport to seek “money damages” or other
retrospective monetary relief. The agency similarly emphasizes what it portrays as inconsistencies
between the Hospitals’ current position that the district court’s injunction tracks the supreme court’s
judgment (discussed below) and instances in the supreme court proceedings where the
Hospitals disclaimed any present claim for monetary relief. The Hospitals respond that they have
not yet asserted any claim for monetary relief, per se, nor did the district court award such
relief, but have only sought and obtained relief contemplating a recalculation of the reimbursement
rates under which they should have been paid beginning in FY 2002. Only if and when those
recalculations determine that they were actually “underpaid” reimbursement during any of
those years, the Hospitals explain, would they then seek to recover the difference through subsequent
administrative or judicial proceedings. Although we ultimately agree with the Hospitals that
they have not purported to request “damage” or retrospective monetary relief, per se, in this
proceeding, the distinction ultimately makes little difference with respect to sovereign immunity, as
we explain below.
26
In support of their dismissal motion, the Hospitals emphasize language from
this Court’s opinion in Bilbo Freight Lines, Inc. v. State, 645 S.W.2d 925 (Tex. App.—Austin 1983,
writ ref’d n.r.e.). Bilbo involved a 1963 suit by the State against a common carrier, V.C. Bilbo,
seeking declaratory and injunctive relief prohibiting Bilbo from transporting certain commodities
that the State alleged were not authorized by his motor carrier’s certificate. See id. at 925. The
trial court denied all relief requested. This Court affirmed in part and reversed and rendered in part,
declaring that the carrier could transport some of the commodities in dispute but not others. The
State sought writ of error from the supreme court, which reversed and rendered judgment declaring
that the carrier was not authorized to transport any of the commodities at issue. State v. Bilbo,
392 S.W.2d 121, 122 (Tex. 1965); Bilbo Freight Lines, Inc., 645 S.W.2d 925 at 926. However,
the portion of the trial court’s judgment denying injunctive relief was never reversed by either
appellate court. See Bilbo Freight Lines, Inc., 645 S.W.2d 925 at 926. Mandate issued in 1965.
Approximately seventeen years later, in 1982, the State filed in the trial court what
it styled as a motion for judgment pursuant to the supreme court’s mandate, but also sought the
same injunctive relief that it had sought and been denied in the original suit. See id. The trial court
granted the motion for judgment, and an appeal was taken to this Court. Of relevance here, we held
that we lacked jurisdiction because the appellant was complaining that “the trial court . . . erred in
construing the mandate of the Supreme Court.” Id. at 927. In this regard, we reasoned that “[o]nly
the Supreme Court has jurisdiction over this cause to ensure compliance with this mandate. The
interpretation of the Supreme Court’s judgment and mandate lies exclusively with that Court.” Id.
(emphasis in original). In support, we relied on often-quoted language from Conley v. Anderson,
27
164 S.W. 985 (Tex. 1913), in which the supreme court had restrained a trial court’s actions in a
subsequent suit that the high court deemed to impede enforcement of one of its prior judgments:
this court, having upon writ of error reversed the judgment of the district court in
the former suit, and having entered final judgment in that case, no district court
had jurisdiction to review that judgment, nor to interpret and enforce it, but must
observe it as it was framed by this court. The interpretation and enforcement of that
judgment belongs exclusively to this court, and no interference with its enforcement
will be tolerated.
Bilbo Freight Lines, Inc., 645 S.W.2d at 927-28 (quoting Conley, 164 S.W. at 986) (emphasis
in original). Citing Conley, we concluded that “[o]nly the Supreme Court has the jurisdiction over
this cause to ensure compliance with this mandate” and to “construe and enforce its own judgment.”
Id. at 927-28.
To the extent that the Hospitals are suggesting that lower courts literally have no
jurisdiction to interpret an appellate court’s judgment or mandate, even if only to determine their
meaning in order to comply, that notion is belied by more recent Texas Supreme Court decisions.
See Hudson, 711 S.W.2d at 630 (instructing that “courts should look not only to the mandate itself,
but also to the opinion of the court,” to ascertain what is being commanded by the mandate); see also
Madeksho v. Abraham, Watkins, Nichols & Friend, 112 S.W.3d 679, 684 (Tex. App.—Houston
[14th Dist.] 2003, pet. denied) (en banc) (plurality op.) (citing Hudson and positing, “If lower courts
cannot ‘interpret’ appellate mandates, why has the [Supreme] Court authorized us to use its related
opinion to do just that?” and suggesting that “this language has never been applied literally”). The
core notion underlying decisions like Conley, as we have more recently observed, is simply that a
higher court’s mandate imposes a mandatory, ministerial duty on the lower court to comply with the
28
higher court’s judgment. See Dearing, 240 S.W.3d at 347. It is in this respect that the lower court
has no “jurisdiction” or “discretion” in regard to “reviewing” or “interpreting” the mandate. See id.
It is true, as we observed in Bilbo, that mandamus to the higher court may be a proper
remedy where it is alleged that a lower court’s actions threaten to nullify the effect of the higher
court’s judgment or otherwise impair its appellate jurisdiction. See In re Nolo Press/Folk Law, Inc.,
991 S.W.2d 768, 775 (Tex. 1999) (“we have repeatedly construed [Article V, Section 3 of the
Texas Constitution] as authorizing the Court to issue writs only when a lower court’s action threatens
to impair our appellate jurisdiction or nullify the effect of our judgments”); Cherokee Water Co.
v. Ross, 698 S.W.2d 363, 365-66 (Tex. 1985, orig. proceeding) (per curiam) (issuing writs of
mandamus and prohibition to bar trial court from violating supreme court’s judgment and mandate
by relitigating issues on remand on which the high court had rendered judgment); City of Orange
v. Clark, 627 S.W.2d 146, 147 (Tex. 1982, orig. proceeding) (per curiam) (same). That was the
situation in both Conley and Bilbo, each of which involved trial court orders that were alleged to
conflict with final judgments of the supreme court. See Conley, 164 S.W. at 986; Bilbo Freight Lines,
Inc., 645 S.W.2d at 927-28. However, HHSC is not advancing that sort of complaint here.
HHSC is not contending that the district court has violated the supreme court’s
mandate or interfered with the high court’s judgment. To the contrary, it asserts that the
district court has erred with respect to issues that were not addressed in the supreme court’s
judgment and that the high court left to the lower court to address on remand. The same is true
of the Hospitals: they are contending that the district court’s judgment merely restates the
supreme court’s judgment. Even accepting the Hospitals’ premise as accurate, it would remain that
29
HHSC, as appellant, is not contending that the district court violated the mandate or interfered
with the supreme court’s judgment. Although HHSC has advocated a view of the supreme court’s
judgment that, as the Hospitals see it, would fail to give effect to the high court’s judgment, HHSC’s
view did not prevail in the district court. Consequently, the district court’s judgment, and HHSC’s
appeal challenging it, do not implicate the jurisdictional concerns that the Hospitals raise.
Accordingly, we overrule the Hospitals’ motion to dismiss.
The supreme court’s judgment
On the other hand, if, as the Hospitals assert in their dismissal motion, the
district court’s judgment merely restates the legal effect of the supreme court’s judgment, the
Hospitals would win on the merits: we would be required to overrule HHSC’s appellate contentions
and affirm. See Dearing, 240 S.W.3d at 347-48 (explaining trial court’s mandatory duty on
remand to comply with appellate court’s mandate, as well as further constraints of the law-of-the-
case doctrine). The primary analytical linchpin of the Hospitals’ position is their view—introduced
in their motion on rehearing in the supreme court—that the supreme court’s invalidation of the
February 28 cutoff served to retroactively and immediately invalidate all of HHSC’s reimbursement
rates that had been derived from the FY 2000 base-year data to which the cutoff had
been applied—i.e., the rates in FY 2002 forward through 2009—“paving the way” for recalculation
of those rates in accordance with FY 2000 base-year data that included the post-February 28
claims data. For that proposition, the Hospitals rely primarily on All Saints Health Systems,
125 S.W.3d 96.
30
All Saints was one of several appeals arising from an “epic legal dispute” pitting
numerous hospitals against numerous workers’ compensation insurers and self-insurers (collectively,
“insurers”) concerning the validity of rates (termed “fee guidelines”) promulgated by the workers’
compensation commission to establish the reimbursement amounts that the insurers were required
to pay the hospitals for services provided to workers’ compensation claimants. See id. at 98-102.
For several years during the late 1980s and early 1990s, the commission had promulgated a series
of temporary or emergency fee guidelines that tied reimbursement to specified percentages of
the hospitals’ billed fees. See id. at 98-100. After a 1991 emergency fee guideline expired, the
commission operated without an explicit guideline for a period of time until it promulgated a new
fee guideline (the “1992 Fee Guideline”) that eschewed the former fee-for-service approach in
favor of a new per-diem reimbursement scheme. See id. at 100. The hospitals brought suit under
APA section 2001.038, asserting that the 1992 Fee Guideline was invalid for failure to comply with
the APA’s reasoned-justification requirement. See id.; Hospitals & Hosp. Sys. v. Continental Cas.
Co., 109 S.W.3d 96, 97-98 (Tex. App.—Austin 2003, pet. denied). Although the district court
denied temporary injunctive relief against the 1992 Fee Guideline’s implementation and later upheld
the 1992 Fee Guideline on the merits, this Court ultimately reversed, declared the 1992 Fee
Guideline invalid, and enjoined its enforcement. See All Saints, 125 S.W.3d at 100 & n.5; Hospitals
& Hosp. Sys., 109 S.W.3d at 97-98.
In the interim between the 1992 Fee Guideline’s implementation in 1992 and
this Court’s 1995 ruling, and for an additional period before the proceeding became final
and mandate finally issued, the insurers continued to pay, and the hospitals continued to accept,
31
workers’ compensation reimbursement calculated in accordance with the 1992 Fee Guideline. See
All Saints, 125 S.W.3d at 100; Hospitals & Hosp. Sys., 109 S.W.3d at 97-98. Subsequently, the
hospitals sought to have their reimbursement claims dating back to the 1992 Fee Guideline’s
implementation reexamined through the medical dispute resolution process provided under
the workers’ compensation act, and additional reimbursement paid accordingly. See All Saints,
125 S.W.3d at 101; Hospitals & Hosp. Sys., 109 S.W.3d at 98; see also Tex. Lab. Code Ann.
§ 413.031(a)(1), (c) (West Supp. 2003). The commission denied the hospitals’ claims for additional
reimbursement, and some of the hospitals sought hearings on their claims before SOAH. See
All Saints, 125 S.W.3d at 101; Hospitals & Hosp. Sys., 109 S.W.3d at 98-99. The SOAH ALJ
ordered briefing on several threshold legal issues, including the applicability of a one-year limitations
period under the commission’s rules governing claims in the commission’s medical dispute
resolution process and the legal standard or standards that governed reimbursement amounts now
that the 1992 Fee Guideline had been invalidated. See All Saints, 125 S.W.3d at 101; Hospitals &
Hosp. Sys., 109 S.W.3d at 99.
Persuaded by arguments advanced by the insurers, the ALJ ultimately held that
the one-year limitations period did not apply to the administrative proceedings and that
reimbursement would be governed by a direct application of the underlying statutory standards of
“fair and reasonable” reimbursement. See All Saints, 125 S.W.3d at 101; Hospitals & Hosp. Sys.,
109 S.W.3d at 99. These rulings prompted the hospitals to sue the commission and insurers under
APA section 2001.038, seeking declarations that the one-year limitations period did not apply and
that reimbursement was instead governed by the fee-for-service-based 1991 emergency fee guideline
32
that had preceded the 1992 Fee Guideline. See All Saints, 125 S.W.3d at 101 & n.7; Hospitals &
Hosp. Sys., 109 S.W.3d at 99 & n.5. The SOAH proceedings “were accordingly abated.” All Saints,
125 S.W.3d at 101-02. The district court severed the claims presenting the two questions
into separate causes and granted summary judgment in favor of the insurers as to each. See id.,
125 S.W.3d at 102; Hospitals & Hosp. Sys., 109 S.W.3d at 99. The hospitals perfected appeals
in each of the two causes. In Hospitals and Hospital Systems, we affirmed the district court’s ruling
on the limitations issue, which served to bar all of the hospitals’ claims for additional reimbursement
except those that had been submitted within the one-year period. 109 S.W.3d at 99-103. In
All Saints, we addressed the hospitals’ appeal regarding the applicable reimbursement standard.
As framed by the parties, the basic dispute in All Saints came down to a choice
between two potentially applicable standards governing adequacy of reimbursement payments—the
1991 emergency fee guideline, advocated by the hospitals, which was based upon a percentage-of-
fee-for-services model; and an application of the underlying statutory requirement of “fair
and reasonable” reimbursement, advocated by the insurers. See All Saints, 125 S.W.3d at 102. In
advocating their position, the hospitals relied upon, and this Court reaffirmed, the concept that “the
appropriate remedy following the invalidation of an administrative rule under the APA is to return
to the last validly adopted legal standard existing at the time of the rule’s promulgation.” Id. at 103.
In so doing, we cited with approval a 1939 case in which we had held “that, under the old
Railroad Commission Act, services rendered under an invalid rate will be recompensed at the validly
enacted rate in place at the time the invalid rate was adopted,” and further recognized that carriers
and shippers could sue each other for “restitution” or “reparation” for over- or under-charges
33
attributable to the past imposition of the invalidated rates. Id. at 103 (citing Gulf, C. & S. F. Ry. Co.
v. American Sugar Ref. Co., 130 S.W.2d 1030, 1034 (Tex. Civ. App.—Austin 1939, writ ref’d)).
We also stated that “this rule is appropriate because it prevents agencies from retroactively imposing
regulations not originally adopted in compliance with the APA’s requirements.” Id. (citing Gulf,
C. & S. F. Ry. Co., 130 S.W.2d at 1034). We additionally analogized this rule to the legal effect of
declaring a statute invalid, as depicted in two cases describing the consequence in terms of rendering
the statute “no law at all,” “wholly void, and in legal contemplation . . . as inoperative as if it had
never been passed,” and “leav[ing] the question that it purports to settle just as it was prior to its
ineffectual enactment.” Id. (citing In re Johnson, 554 S.W.2d 775, 787 (Tex. Civ. App.—Corpus
Christi 1977), writ ref’d n.r.e., 569 S.W.2d 883 (Tex. 1978); Genzer v. Fillip, 134 S.W.2d 730, 733
(Tex. Civ. App.—Austin 1939, writ dism’d)); see Johnson, 554 S.W.2d at 787; Genzer, 134 S.W.2d
at 732-33 (quoting 11 Am. Jur. § 148, p. 827).
While reaffirming the principle that the governing legal standard reverted back to the
“last validly adopted one” prior to the invalidated rule’s promulgation, we held that the principle did
not point to application of the 1991 emergency fee guideline because that guideline had already
expired before the 1992 Fee Guideline took effect; thus, it was not the last valid legal standard
in effect prior to the promulgation of the invalid 1992 Fee Guideline. See id. Instead, we reasoned
that the governing standard defaulted to a case-by-case application of the statutory standards. See
All Saints, 125 S.W.3d at 103-04. Nonetheless, we concluded that this case-by-case application
had to reflect the commission’s policies prior to its implementation of the invalidated 1992 Fee
Guideline—a fee-for-services approach rather than the per-diem approach implemented in the
34
invalidated Guideline—because “when a rule adopting a new policy is declared invalid, that policy
cannot be applied until a new, properly adopted rule becomes effective.” Id. at 104-06; see also id.
at 107 (“When a rule is invalidated based on the APA’s reasoned justification requirement, both its
specific provisions and any concomitant policy changes revert to the standard in place at the time
of the rule’s adoption.”).
From All Saints, the Hospitals derive two sets of principles which, they assert,
must inform our view of the supreme court’s judgment. First, they urge that the legal effect of the
supreme court’s judgment declaring the February 28 cutoff invalid was to render it retroactively
“void” and wholly inoperative—a nullity—at all times relevant to this litigation. In addition to citing
All Saints as support for this view, the Hospitals observe that this Court has previously described the
legal effect of invalidating an agency rule under the pre-1999 APA as rendering it “void,” see, e.g.,
Lower Laguna Madre Found. v. Texas Natural Res. Conservation Comm’n, 4 S.W.3d 419, 421 n.4
(Tex. App.—Austin 1999, no pet.); Texas Hosp. Ass’n v. Texas Workers’ Comp. Comm’n,
911 S.W.2d 884, 888 (Tex. App.—Austin 1995, writ denied), and “void,” they insist, is synonymous
with void ab initio, and denotes a legal nullity from its inception, i.e., something that is considered
never to have existed. See Love Terminal Partners, L.P. v. City of Dallas, 256 S.W.3d 893, 897 &
n.7 (Tex. App.—Dallas 2008, no pet.) (contrasting “voidable,” denoting an act “valid until
adjudicated and declared void,” with “void” or “void ab initio,” both denoting an act that is a
“nullity”). And if the February 28 cutoff was void and a nullity at all times relevant to the litigation,
the Hospitals further reason, it follows that any reimbursement rates derived from FY 2000 base-year
data to which the “void” cutoff had been applied were likewise retroactively void and a nullity, as
35
to conclude otherwise would amount to retroactively imposing the invalidated cutoff itself and the
“concomitant policy change” it represented. See All Saints, 125 S.W.3d at 103, 107.
Second, having concluded that the February 28 cutoff had been retroactively
invalidated, the Hospitals urge that the governing legal standard during the relevant time period
reverts back to the “last validly adopted legal standard” prior to the cutoff’s adoption—Former
Rule § 355.8063 as promulgated, minus the “interpretation” of “base year” to exclude the post-
February 28 claims data. See All Saints, 125 S.W.3d at 103. And, because there were, in concept,
no reimbursement rates in effect during this period, the Hospitals maintain, it follows that HHSC
would be required to recalculate the rates under the correct legal standards, just as occurred in
All Saints and Gulf, Colorado and Santa Fe Railway Company. These calculations, the Hospitals
add, would necessarily be subject to the supreme court’s injunction against enforcement of the
February 28 cutoff. See El Paso Hosp. Dist., 247 S.W.3d at 715. Although admittedly applying to
recalculations of reimbursement rates from prior years that had been retrospectively invalidated,
the injunction itself, the Hospitals insist, would nonetheless operate prospectively because the
HHSC “will be adjusting, i.e., calculating and applying, the . . . rates as if for the first time.”
(Emphasis in original.) Consequently, the Hospitals conclude, the so-called “retroactive” portion
of the district court’s injunction is not retroactive after all, and merely tracks what is already implicit
in the supreme court’s judgment.
HHSC urges that the supreme court’s opinion and judgment do not purport to
invalidate reimbursement rates retroactively or explain what would happen next. The agency is
correct—the opinion and judgment do not explicitly state whether or how the court’s holdings
36
apply to reimbursement rates or payments prior to judgment. See generally El Paso Hosp. Dist.,
247 S.W.3d at 713-16. This is not surprising because, as previously discussed, both HHSC and the
Hospitals dissuaded the supreme court from addressing “retroactivity issues” on rehearing. While
the Hospitals now insist that they were referring solely to whether they were entitled to monetary
relief, per se, as opposed to a judgment having the effect of retrospectively invalidating prior years’
reimbursement rates and “paving the way” for recalculations and payment adjustments, it remains
that the supreme court did not expressly mention either sort of retroactive effect. However, the
Hospitals ultimately rely less on the explicit text of the supreme court’s opinion and judgment than
on what they perceive to be the inherent legal effect or implication of the court’s invalidation of the
February 28 cutoff, as informed by their reading of All Saints and Gulf, Colorado and Santa Fe
Railway Company.
We agree with the Hospitals to the extent that the supreme court’s invalidation of
the February 28 cutoff would, in theory, have the effect of rendering it inoperable, as if it had
never existed. See All Saints, 125 S.W.3d at 103. In turn, this would, in theory, render erroneous
reimbursement rates derived from the cutoff’s application to the FY 2000 base-year data, to the
extent that calculating these rates without applying the cutoff would have yielded any differences.
Where differences between the correctly calculated rates and original ones existed, we further agree
with the Hospitals that the supreme court’s injunction, once effective, would prohibit HHSC from
thereafter paying reimbursement under the incorrect rates, as this would amount to “enforcement”
of the February 28 cutoff through reliance on FY 2000 base-year data made incorrect by the cutoff’s
37
application. See id. at 103, 107. However, whether the supreme court’s judgment implies that a
remedy is available to correct reimbursement rates or payments during earlier years is another matter.
In both All Saints and Gulf, Colorado and Santa Fe Railway Company, one or more
parties were pursuing remedies through which one could recover past “underpayments” attributable
to rates subsequently held to be invalid. In All Saints, that remedy was provided through the medical
dispute resolution procedures under section 413.031 of the labor code, whereby the hospitals had the
right to seek adjudication of reimbursement claims for which insurers “denied payment or paid a
reduced amount for the medical service rendered,” first within the agency, then through a contested-
case hearing before SOAH if still aggrieved, with a right to judicial review thereafter. All Saints,
125 S.W.3d at 100-01; see Tex. Lab. Code Ann. § 413.031(a) (1), (c), (k), (k-1) (West Supp. 2010).
In Gulf, Colorado and Santa Fe Railway Company, the remedy was an equitable claim considered
to be ancillary to a statutory right of judicial review whereby railroad commission rate orders could
be directly challenged and invalidated. See Gulf, C. & S. F. Ry. Co., 130 S.W.2d at 1033-35. Given
the existence of these remedies in each case, there was a live, justiciable controversy regarding
the applicable rates dating back to the origins of the dispute. In this context, All Saints and Gulf,
Colorado and Santa Fe Railway Company amount to applications of the principle that judicial
decisions are generally presumed to operate retroactively with respect to such controversies. See,
e.g., Carrollton-Farmers Branch Indep. Sch. Dist. v. Edgewood Indep. Sch. Dist., 826 S.W.2d 489,
515-16 (Tex. 1992); Bowen v. Aetna Cas. & Sur. Co., 837 S.W.2d 99, 100 (Tex. 1992) (per curiam);
cf. City of El Paso v. Heinrich, 284 S.W.3d 366, 369-77 (Tex. 2009).
38
The scope of HHSC’s appeal is consistent with a recognition that, as of the date of the
supreme court’s judgment, the contemplated remedy of “review of individual claims data excluded
by the February 28 cutoff” via the appeals rule, see El Paso Hosp. Dist., 247 S.W.3d at 716, could
have yielded rate adjustments that impacted reimbursement rates and payments as early as FY 2009,
or even during FY 2008. The appeal rule provided for adjustments to the rates in either (1) “the next
prospective year,” if the “review or appeal is completed at least 60 days before the beginning of
the next prospective year” (i.e., by July 3), or else (2) “only to the subsequent prospective year.”
Former Rule § 355.8063(k)(1)(A). Assuming these terms are construed, as HHSC urges, to refer to
the time at which the “review or appeal” yielding the change is concluded—an issue we address
below—the Hospitals could have obtained rate changes effective in FY 2009 if their “review or
appeal” had concluded by July 3, 2008. Additionally, the Hospitals’ appeal could have revealed an
“error condition” that implicated the error-correction rule, triggering adjustments to reimbursement
rates and payments within the “current state fiscal year,” see id. § 355.8063(c)—at the time of
judgment, FY 2008—although HHSC insists that no such adjustment could have been made with
respect to rates and payments prior to the date of mandate. While HHSC emphasizes that no such
adjustments were ultimately made until FY 2010, it seems to acknowledge that, at least as of the time
of the supreme court’s judgment, the reimbursement rates applicable in FY 2008 (at least after
mandate) and FY 2009 were subject to change through the Hospitals’ administrative appeals.
Through the limited scope of its appeal, HHSC seems to acknowledge that the supreme court’s
declaratory and injunctive relief would, in these ways, apply to the determination of reimbursement
rates applicable during FY 2008 and 2009, which in turn would mean that the portion of the
39
district court’s injunction addressed to those periods would merely track the legal effect of the high
court’s judgment.
HHSC further acknowledges that if, hypothetically, the Hospitals had been pursuing
a remedy through which they could have obtained adjustments to their Medicaid reimbursement
payments or rates from earlier time periods, the supreme court’s judgment would have had
application to the rates applicable to those earlier periods. HHSC suggests that this might have been
the case if, for example, the Legislature had provided a right to judicial review from specific
reimbursement payment decisions or the agency’s disposition of the Hospitals’ 2001 administrative
appeals, and this had been the remedy that the Hospitals had pursued through the intervening years.
But the Legislature did not provide the Hospitals a right to judicial review from that order,
HHSC points out, and it asserts that the Hospitals did not pursue—and could not have
pursued—any other remedy that could have the effect of changing the reimbursement payments or
rates during prior years.
HHSC emphasizes that the Hospitals have pursued only declaratory claims under
APA section 2001.038 that did not directly challenge the amount of past reimbursement payments
or past reimbursement rates. Instead, HHSC observes, the claims challenged only (1) the validity
of the February 28 cutoff “rule” and (2) the agency’s application of the appeal rule to classify the
Hospitals’ complaints regarding exclusion of the post-February 28 claims data as unreviewable
“methodology” issues rather than “data-entry” issues. And neither declaration could have impacted
reimbursement rates in effect prior to the supreme court’s judgment, HHSC reasons, because the
Hospitals’ 2001 administrative appeals concerning the FY 2002 rates had long since concluded, the
40
Hospitals’ section 2001.038 claims could not have “revived” or “kept alive” those appeals, and the
Hospitals had not initiated any additional administrative proceedings concerning rates in the
subsequent years prior to judgment. Absent a live, pending proceeding in which the past years’ rates
were at stake, HHSC urges that the Hospitals’ section 2001.038 claims could have had no effect
on those rates. In support, it cites several decisions from this Court. See Texas Logos, L.P. v. Texas
Dep’t of Transp., 241 S.W.3d 105, 123-24 (Tex. App.—Austin 2007, no pet.) (reasoning that relief
available under section 2001.038 did not extend to invalidating final order from agency proceeding
in which rules had already been applied and that, consequently, there was no justiciable controversy
to support a section 2001.038 claim); see also Creedmoor-Maha Water Supply Corp., 307 S.W.3d
at 526 n.16 (justiciable controversy that could have supported section 2001.038 claim “was rendered
moot by TCEQ’s final, unappealable order”); Friends of Canyon Lake, Inc. v. Guadalupe-Blanco
River Auth., 96 S.W.3d 519, 529 (Tex. App.—Austin 2002, pet. denied) (no justiciable controversy
to support section 2001.038 claim where challenge would have legal effect only in context of
administrative proceeding that had become final due to claimant’s failure to seek a contested-case
hearing). To preserve a live, justiciable controversy regarding the reimbursement rates applicable
during prior years, HHSC further suggests, the Hospitals should have sought an abatement or stay
of their administrative appeals while they pursued their section 2001.038 claims, like the hospitals
in All Saints evidently did. See All Saints, 125 S.W.3d at 101-02 (noting that the SOAH proceedings
“were accordingly abated” after hospitals filed section 2001.038 claims).
We cannot ignore that the supreme court, as previously explained, tacitly rejected
HHSC’s similar assertions on rehearing that the “data-entry”-versus-“methodology” dispute was
41
moot because the agency’s 2001 orders had not been subject to judicial review, were long since
final, and could not be “collaterally attacked” or “revived” by the Hospitals’ rule-application claim.
See El Paso Hosp. Dist., 247 S.W.3d at 716. On appeal, HHSC, shifting focus, offers the
explanation that “the Hospitals’ section 2001.038 claim regarding the appeal rule[] remained
justiciable because there was an ongoing controversy—specifically, HHSC continued to pay the
Hospitals using rates calculated using the cutoff-date rule,” such that the requested declaration that
the Hospitals’ complaint involved a “data-entry” rather than “methodology” issue would have
application in “new appeals” that the Hospitals would then have the opportunity to pursue.
(Emphasis in original.) However, in its opinion, the supreme court does not mention anticipated
future administrative appeals by the Hospitals, but speaks only to events and issues in the Hospitals’
original 2001 administrative appeals:
The Hospitals also complain that HHSC improperly applied its administrative
appeals rules. The Hospitals contend that HHSC was required to refer their appeal
for a formal hearing with the State Office of Administrative Hearings.
....
The court of appeals concluded that HHSC was not required to grant a formal
review “[b]ecause the mathematical or data entry errors alluded to by the Hospitals
did not pertain to individual claims but, rather, to how the claims selection process
in the aggregate could lead to mathematical or data entry errors.” 161 S.W.3d at 594.
Because the February 28 cutoff is invalid, however, the Hospitals’ administrative
appeals do not question HHSC’s payment methodology but rather the omission
of individual claims. Applying the base-year rule without the February 28 cutoff,
the only issue is whether HHSC has included all the claims arising during the
twelve-month base-year period. See 1 TEX. ADMIN. CODE §§ 355.8063(b)(5), (n).
This inquiry involves a reviewable “data entry” claim. See id. § 355.8063(k)(1).
Thus, we conclude that the Hospitals were entitled to a review of individual claims
data excluded by the February 28 cutoff.
42
El Paso Hosp. Dist., 247 S.W.3d at 716 (emphases added); see also id. at 711 (“We further
conclude[] that the Hospitals are entitled to have their excluded data entry claims reviewed.”)
(emphasis added). Furthermore, in noting that “the Hospitals’ administrative appeals do not question
HHSC’s payment methodology . . . ,” it is significant that the court used a present-tense form of the
verb “question,” as contrasted with “did not question,” “would not question,” or “will not question.”
This usage denotes a recognition or assumption by the supreme court that the “administrative
appeals” (which could only have been the ones the Hospitals filed in 2001) were currently pending
and that this would be the procedural context to which its declaratory and injunctive relief would
apply. In short, it would appear that the supreme court viewed the relevant controversy to be framed
by an ongoing refusal by HHSC to refer the Hospitals’ 2001 administrative appeals for formal
hearing, as opposed to an expectation that HHSC would assert the same position in some future
administrative appeal. While HHSC argues strenuously that this conclusion could not be correct due
to the limited scope of the section 2001.038 declaratory remedy or the finality of its orders, the lower
courts are bound to give effect to the judgment that the supreme court has rendered. See Dearing,
240 S.W.3d at 347-48 (under law-of-the-case doctrine, correctness of appellate court’s judgment may
only be revisited by the same court or a higher one); see also Hudson, 711 S.W.2d at 630 (we look
to opinion for guidance in ascertaining what supreme court has commanded in its mandate).
On the other hand, as HHSC points out, it does not follow from these conclusions that
the Hospitals’ administrative appeals would necessarily yield rate adjustments that reverted back to
when those proceedings were first initiated, as the Hospitals contend. As HHSC emphasizes, the
appeals would be governed by Former Rule § 355.8063’s appeal rule and error-correction rule, and
43
nothing in the supreme court’s opinion or judgment purports to change this. Under the appeal rule,
again, any “adjustment” to reimbursement rates resulting from recalculation of the FY 2000 base-
year data would be applied either to (1) “the next prospective year,” if the “review or appeal is
completed at least 60 days before the beginning of the next prospective year,” or else (2) “only to the
subsequent prospective year.” Former Rule § 355.8063(k)(1)(A). As for the error-correction rule,
while HHSC would be required to “move[] the provider into the correct payment division [and]
reprocess[] claims” using the correct reimbursement rate if it determines there has been an error
impacting a hospital’s rates, “[t]he correction of this error condition only applies to the current
state fiscal year payments,” and “[n]o corrections are made to payment rates for services provided
in previous state fiscal years.” Id. § 355.8063(c).
In light of these limitations on the remedies available under Former Rule § 355.8063,
whether the Hospitals could obtain adjustments to reimbursement rates or payments dating back to
FY 2002 would ultimately turn on how the terms “next prospective year” and “current state
fiscal year” are interpreted: (1) do they apply from the perspective of the time at which the
administrative correction or adjustment of rates or payments is actually made (which would
necessarily occur sometime after the supreme court’s judgment, and which ultimately did not occur
here until FY 2010), or (2) do they comprehend application as of when the dispute began in 2001
(making FY 2002 the “next prospective year” and the earliest “current state fiscal year” in which an
“error condition” could have been corrected)? The supreme court was not called upon to answer this
rule-application question, and did not explicitly answer it. See El Paso Hosp. Dist., 247 S.W.3d
at 713-16. Nor can we conclude that anything in its opinion or judgment did so by implication or
44
legal effect. Although the Hospitals emphasize their concept that the supreme court’s invalidation
of the February 28 cutoff rendered both the cutoff and any resulting rates legal nullities—as if never
implemented—such a conclusion would not in itself dictate the appropriate remedy for the omission
or failure18 or how the remedies provided in Former Rule § 355.8063 would apply in those
circumstances.
We must ultimately answer this question ourselves in order to determine the range
of fiscal years’ rate calculations to which the supreme court’s judgment applied. At this juncture,
as previously explained, we now have the benefit of a final HHSC order reflecting the agency’s
interpretation of “next prospective year” and “current state fiscal year.” That interpretation holds
that these terms refer to the time at which the rate or payment adjustments are made rather than
the time at which the proceeding or dispute originated. We defer to an agency’s interpretation of its
own rules unless that interpretation is plainly erroneous or inconsistent with the rule’s text. See
Public Util. Comm’n v. Gulf States Utils. Co., 809 S.W.2d 201, 207 (Tex. 1991); Tennessee Gas
Pipeline Co. v. Rylander, 80 S.W.3d 200, 203 (Tex. App.—Austin 2002, pet. denied). We construe
administrative rules in the same manner as statutes because they have the force and effect of statutes.
Rodriguez v. Service Lloyds Ins. Co., 997 S.W.2d 248, 254 (Tex. 1999). The primary guiding force
of statutory construction is the ordinary meaning of the words chosen. See State v. Shumake,
199 S.W.3d 279, 284 (Tex. 2006) (“[W]hen possible, we discern [legislative intent] from the
18
See, e.g., City of El Paso v. Heinrich, 284 S.W.3d 366, 373-76 (Tex. 2009) (explaining
how otherwise-permissible ultra vires declaratory or injunctive claims to enforce statutory duties are
nonetheless barred by sovereign immunity to the extent the relief would have the effect of awarding
retrospective monetary relief).
45
plain meaning of the words chosen.”). We cannot conclude that construing “next prospective year”
to mean the year beginning immediately after the present point in time, not some earlier one, and
“current state fiscal year” to mean the year that includes the present point in time, not some earlier
one, is plainly erroneous or inconsistent with the ordinary meaning of these words and phrases.
For these reasons, we conclude that the “review of individual claims data excluded
by the February 28 cutoff,” as contemplated by the supreme court’s judgment, did not provide the
Hospitals a remedy with respect to the reimbursement rates applicable during FY 2002 through 2007,
due to the limitations of Former Rule § 355.8063. However, we conclude that it did provide the
Hospitals a remedy with respect to rates in FY 2008 forward by virtue of the error-correction rule.
As of the date of the supreme court’s judgment (and, for that matter, its mandate), FY 2008
was the “current state fiscal year” for which reimbursement rates and payments still remained subject
to adjustment. FY 2008 began on September 1, 2007 and ended on August 31, 2008. Although a
portion of this period predated the supreme court’s mandate, the effect of the error-correction rule
was that HHSC’s payment obligations during a particular state fiscal year would not be fully
discharged until the end of that year, as that year’s reimbursement rates and payments would
remain subject to adjustment until that time. See Former Rule § 355.8063(c).19 In this way, the
supreme court’s judgment declaring the February 28 cutoff invalid and enjoining its enforcement
applies to calculation of the FY 2008 rates. Consequently, the portion of the district court’s
injunction applicable to the compilation of “claims data used to calculate Plaintiffs’ Medicaid
19
For the same reason, application of the error-correction rule would be in the nature of
prospective enforcement of a payment obligation rather than an imposition of retrospective monetary
relief under the Heinrich analysis, discussed below.
46
Standard Dollar Amounts” for state fiscal years 2008 and 2009 merely tracks what was already
implicit in the supreme court’s judgment.
The Hospitals, emphasizing All Saints and Gulf, Colorado and Santa Fe Railway
Company, suggest the supreme court’s invalidation of the February 28 cutoff independently implies
the existence of a remedy with respect to reimbursement rates and payments in FY 2002 through
2007. Whatever remedial implications these cases might have in other contexts, they are limited
here by sovereign immunity. In its seminal Heinrich decision—issued after the district court
rendered the judgment on appeal—the Texas Supreme Court clarified that while a statutory payment
obligation of the government may be enforceable through prospective declaratory or injunctive relief,
“as measured from the date of injunction,” see Heinrich, 284 S.W.3d at 371-72, 376, sovereign
or governmental immunity generally bars such relief to the extent it establishes or enforces
retrospectively a right to payment accruing prior to that time. See id. at 373-76. The dispute in
Heinrich involved a municipal pension beneficiary who sued the city for declaratory and injunctive
relief to rectify what she alleged were misinterpretations or misapplications of rules (specifically,
the pension fund’s bylaws) that had deprived her of her statutorily rightful share of pension payments
both in the past and continuing through the present. See id. at 369. The Hospitals’ complaints here
are closely analogous to those in Heinrich—the upshot is that HHSC, through misapplications of
rules and reliance on an invalid rule, has failed to comply with its statutory duties to pay the
Hospitals reasonable and adequate Medicaid reimbursements beginning in FY 2002.
Absent express waiver by the Legislature, sovereign immunity would plainly bar any
remedy having the purpose or effect of establishing a right to recover “underpayments” of Medicaid
47
reimbursement in FY 2002 through 2007. See Heinrich, 284 S.W.3d at 373-76. This would include
a remedy entailing recalculation of the reimbursement rates applicable during those years, as such
a remedy would have no other conceivable purpose. See City of Houston v. Williams, 284 S.W.3d
827, 828 (Tex. 2007) (sovereign immunity barred declaratory claim concerning statutory authority
where declaration had effect of establishing right to retrospective monetary relief); see also
Creedmoor-Maha Water Supply Corp., 307 S.W.3d at 515 (observing that “an otherwise proper
UDJA claim seeking to construe or invalidate a statute is nonetheless barred by sovereign immunity
if the remedy would have the effect of establishing a right to relief against the State that implicates
sovereign immunity and for which immunity has not been waived,” and compiling cases). Stated
another way, judicial resolution of the applicable reimbursement rates in FY 2002 through 2007
would amount to a constitutionally impermissible advisory opinion, because it would serve no
purpose other than to declare a right to a remedy that would be barred by sovereign immunity.
Although the Hospitals emphasize that they have not as of yet explicitly sought to recover
“underpayments,” “money damages” or monetary relief, per se, that is not the standard. See
Williams, 284 S.W.3d at 828.
In neither All Saints nor Gulf, Colorado and Santa Fe Railway Company was
sovereign immunity a litigated issue. Gulf, Colorado and Santa Fe Railway Company involved the
competing monetary claims of a private railroad and private shipper. See 130 S.W.2d at 1031-32.
The same is largely true of All Saints—the commission’s role was to act as a tribunal that decided
the hospitals’ claims to additional medical reimbursement from what were primarily private
insurance carriers. 125 S.W.3d at 100-01, 110-12; see Tex. Lab. Code Ann. § 401.031(a)(1), (c),
(k-2). Although a few of the insurers were self-insured governmental entities, see All Saints,
48
125 S.W.3d at 110-12, there is no indication in All Saints that any of these insurers ever raised
sovereign immunity as a bar to the hospitals’ claims. Consequently, we question whether All Saints,
much less Gulf, Colorado and Santa Fe Railway Company, stand for the existence of a retrospective
monetary remedy that sovereign immunity would otherwise bar. To the extent All Saints might be
viewed as providing some tacit support for that proposition, we conclude that it is contrary to
Heinrich and would not survive it. The same is true for the Hospitals’ notion that the district court’s
injunction should be viewed as “prospective” relief under Heinrich because it must be viewed from
the perspective of FY 2002—Heinrich, to the contrary, holds that “prospective” declaratory or
injunctive relief is “measured from the date of injunction.” See Heinrich, 284 S.W.3d at 376.
The Hospitals suggest that any such concerns are resolved by the waiver of sovereign
immunity provided in APA section 2001.038. We disagree. Section 2001.038 provides a limited
waiver of sovereign immunity, solely to the extent of permitting suits against state agencies
for declaratory relief concerning the validity or applicability of their rules. See Tex. Gov’t Code
Ann. § 2001.038(a), (c) (West 2008); State v. BP Am. Prod. Co., 290 S.W.3d 345, 362-63
(Tex. App.—Austin 2009, pet. filed); Texas Logos, L.P., 241 S.W.3d at 123-24; Texas Dep’t of
Transp. v. City of Sunset Valley, 92 S.W.3d 540, 549 (Tex. App.—Austin 2002), rev’d on other
grounds, 146 S.W.3d 637 (Tex. 2004). It is thus analogous to section 37.006(b) of the UDJA, which
provides a limited waiver to the extent of permitting suits against the State for declaratory relief
regarding the validity or construction of statutes. See Tex. Civ. Prac. & Rem. Code Ann. § 37.006(b)
(West 2008); Texas Lottery Comm’n v. First State Bank of DeQueen, 325 S.W.3d 628, 634 & n.4
(Tex. 2010). It is established that the limited waiver of sovereign immunity under section 37.006(b)
49
does not extend to permitting declarations having the effect of establishing a right to retrospective
monetary relief, Williams, 284 S.W.3d at 828, or other relief that sovereign immunity independently
bars. See Creedmoor-Maha Water Supply Corp., 307 S.W.3d at 513-15. The same limitations apply
to APA section 2001.038. See BP Am. Prod. Co., 290 S.W.3d at 362-63 (waiver did not extend to
determining whether plaintiff had title vis-à-vis the State in order to determine plaintiff’s standing
to sue under section 2001.038).
Finally, the Hospitals urge that HHSC “waived” sovereign immunity by failing to
raise it before the supreme court during the first appeal. Of course, only the Legislature can waive
sovereign immunity, strictly speaking,20 but the substance of the Hospitals’ argument is that the
supreme court’s judgment is predicated on the implied legal conclusion that it possessed subject-
matter jurisdiction to award the relief it did (i.e., that the relief was not barred by sovereign
immunity),21 the judgment is now final, and that HHSC cannot raise immunity in the lower courts
as a bar to enforcement of the supreme court’s judgment. See Dearing, 240 S.W.3d at 347-48
(explaining law-of-the-case doctrine). However, for reasons previously stated, we cannot
conclude that the supreme court rendered a judgment awarding relief that would implicate HHSC’s
sovereign immunity.
20
City of Galveston v. State, 217 S.W.3d 466, 468 (Tex. 2007); see also Texas Dep’t of
Transp. v. Jones, 8 S.W.3d 636, 638 (Tex. 1999) (per curiam) (“Since as early as 1847, the law in
Texas has been that absent the state’s consent to suit, a trial court lacks subject matter jurisdiction.”);
Texas Ass’n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 445 (Tex. 1993) (subject-matter
jurisdiction may be raised for the first time on appeal and cannot be waived).
21
See Madeksho v. Abraham, Watkins, Nichols & Friend, 112 S.W.3d 679, 683
(Tex. App.—Houston [14th Dist.] 2003, pet. denied) (en banc) (plurality op.) (“jurisdiction is an
issue in all cases whether explicitly mentioned or not”).
50
In sum, we agree with HHSC that in awarding injunctive relief addressed to the
calculation of Medicaid reimbursement rates applicable between FY 2002 through 2007, the
district court awarded additional, retroactive relief that was neither explicit nor implicit in the
supreme court’s judgment. However, as to the portion of the district court’s injunction that applied
to calculation of reimbursement rates in FY 2008, we conclude that the relief tracked the legal effect
of the supreme court’s judgment.
Additional relief
HHSC next asserts that the district court erred in awarding the additional
relief concerning FY 2002-07. It asserts that the additional relief is, among other things, barred by
sovereign immunity and runs afoul of the limitations of Former Rule § 355.8063. For the reasons
we have already explained in addressing the legal effect of the supreme court’s judgment, we agree.
Accordingly, we will vacate that portion of the district court’s injunction that applies to the
calculation of rates for FY 2002 through 2007.
Injunction violations
Finally, during the pendency of this appeal, the Hospitals have urged us to exercise
our “supervisory power” to remedy what they contend is HHSC’s violation of the supreme court’s
injunction (even if viewed as operating only as to the reimbursement rates applicable from date
of mandate forward) by continuing to pay reimbursement under the preexisting rates. We first
observe that this request is moot with respect to the nine appellees whose reimbursement rates
were determined to be unchanged by the 2010 administrative recalculations. As for the other
five appellees, by the time of their request, HHSC had already agreed to recalculate the applicable
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reimbursement rates in accordance with the supreme court’s judgment, although the adjusted rates
were not implemented until FY 2010. Consequently, to the extent these appellees are requesting us
to exercise contempt power to coerce compliance with the injunction going forward, the request is
moot. The same is true with regard to whether we can coerce HHSC’s compliance during FY 2008
and 2009. See Green v. Mansour, 474 U.S. 64, 71-73 (1985) (recognizing, in the context of an
Eleventh Amendment immunity claim where there was no ongoing violation to enjoin, that courts
could order prospective relief, including ancillary measures to appropriate prospective relief, but
could not award money damages or restitution, despite a “dispute about the lawfulness of [state
actor’s] past actions”). We express no opinion as to whether these appellants would possess any
other remedy with respect to FY 2008 or 2009, as that question is not before us.
CONCLUSION
We reverse and vacate the portion of the district court’s injunction that enjoins HHSC
“from applying the February 28 cutoff/deadline on Plaintiffs’ base year claims data used to calculate
Plaintiffs’ Medicaid Standard Dollar Amounts for state fiscal years 2002 through 200[7].” We
otherwise overrule HHSC’s contentions and affirm the judgment.
__________________________________________
Bob Pemberton, Justice
Before Chief Justice Jones, Justices Pemberton and Waldrop;
Justice Waldrop not participating
Reversed and Vacated in part; Affirmed in part
Filed: August 4, 2011
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Texas Health and Human Services Commission and Thomas Suehs, Commissioner v. El Paso County Hospital District D/B/A R. E. Thomason General Hospital Conroe Hospital Corporation D/B/A Conroe Regional Medical Center Bay Area Healthcare Group, Ltd. D/B/A Corpus Christi Medical Center Sunbelt Regional Medical Center, Inc.
Combined Opinion