Pharmserv, Inc. v. Texas Health and Human Services Commission Office of the Inspector General of the Texas Health and Human Services Commission Kyle Janek, in His Official Capacity as Commissioner of Texas Health and Human Services Commission ( 2015 )

ACCEPTED
03-13-00526-CV
5276282
THIRD COURT OF APPEALS
AUSTIN, TEXAS
5/13/2015 6:15:17 PM
JEFFREY D. KYLE
CLERK
NO. 03-13-00526-CV
___________________________________________________________
FILED IN
IN THE COURT OF APPEALS 3rd COURT OF APPEALS
AUSTIN, TEXAS
5/13/2015 6:15:17 PM
THIRD COURT OF APPEALS DISTRICT JEFFREY D. KYLE
Clerk
___________________________________________________________
PHARMSERV, INC., Appellant
V.
THE TEXAS HEALTH AND HUMAN SERVICES COMMISSION and
OFFICE OF INSPECTOR GENERAL OF THE TEXAS HEALTH AND
HUMAN SERVICES COMMISSION, ET AL
Appellees
___________________________________________________________
On Appeal from the 261st Judicial District Court
of Travis County, Texas
Cause No. D-1-GN 12-001074-CV
.________________________________________________________
MOTION FOR REHEARING
________________________________________________________
Respectfully Submitted:
Jeff Avant
Avant & Mitchell, L. P.
700 Lavaca, Suite 1400
Austin, Texas 78701
Phone: (512) 478-5757
Facsimile: (512) 478-5404
E-mail: avantlaw@swbell.net
Hugh M. Barton
Hugh M. Barton, P.C.
603 West 13th St, Ste 1B
Austin, TX 78701
Telephone (512) 499-0793
Facsimile (512) 727-6717
E-mail:
bartonlaw@yahoo.com;
1
TABLE OF CONTENTS
Table of Contents ..................................................................................................... 2
Index of Authorities ................................................................................................. 3
Argument and Authority ........................................................................................ 4
Point 1:
The Court of Appeals erred in holding that there is no jurisdiction to
consider Appellant’s complaints of ultra vires acts with request for
injunctive relief to compel Doug Wilson and Kyle Janek to set the
matter for a hearing. .................................................................................................. 6
Point 2:
The Court of Appeals erred in holding that there is not jurisdiction to
make determination of applicability of the statutes and rules to this
matter. ..................................................................................................................... 10
Point 3:
The Court of Appeals erred in holding that there is not jurisdiction to
make determination of validity and constitutionality of the statutes
and rules on the grounds that Appellant has not established a vested
property interest deserving protection and that Appellant was provided
opportunity to be heard at a meaningful time and in a meaningful
manner. .................................................................................................................... 12
Conclusion and Prayer .......................................................................................... 16
Certificate of Compliance with Tex. R. App. P. 9.4(i)(2)(D) and
word count .............................................................................................................. 17
Certificate of Service ............................................................................................. 17
Addendum:
Senate Bill 207 text as engrossed and passed by Senate ......................................... 18
Emphasis added to Section 9 adding Tex. Gov. Code §531.1203,
and Section 16 (see yellow highlighting)
2
INDEX OF AUTHORITIES
Statutes
Tex. Hum. Res. Code §32.0291 ................................................................. 6, 6 fn 115
Tex. Hum. Res. Code §32.046 ................................................................................... 8
Uniform Declaratory Judgment Act, Civil Practice and Remedies
Code §37 ............................................................................................... 10, 11, 13, 14
Pending Legislation
Senate Bill 207 Section 9, 16 adding Tex. Gov. Code §531.1203 ............... 6, 12, 16
and addendum highlighted text as engrossed and passed by Senate
Administrative Rules;
1 TAC 354.1811(a) ............................................................................................. 7, 15
1 TAC 354.1891 and 1892 ....................................................................................... 15
1 TAC §371.1603(j)(2) ......................................................................................... 7, 8
1 TAC §371.1667 ..................................................................................... 6 fn 1, 7, 8
1 TAC 371.1709 ........................................................................................................ 8
Cases
Harlingen Family Dentistry, P.C. v. Texas Health & Human Servs.
Comm’n, 452 S.W.3d 479 (Tex. App.—Austin 2014, pet. filed.) ..................... 6 fn1
Texas Parks & Wildlife v Sawyer Trust, 354 S.W.3d 384 (Tex. 2011) .................. 14
Montrose Mgmt. Dist. v 1620 Hawthorn, Ltd 435 S.W.3d 393 (Tex.
App. - Houston [14th Dist.] 2014, pet filed)............................................................ 15
3
TO THE HONORABLE THIRD COURT OF APPEALS:
Comes now Pharmserv, Inc. (“Pharmserv”) pursuant to Tex
Rule of Appellate Procedure 49 and requests that the Court reconsider
its appeal and moves for rehearing, showing as follows:
Argument and Authority
Issues in this case are of statewide importance to survival of not just
one pharmacy, but survival of the concept of small, full service pharmacies
serving retirees and other Medicaid patients. The unanticipated and truly
bizarre recent actions by the Health and Human Services Commission
(“HHSC”) and its department heads and staff and its Inspector General
(“OIG”) have made the existence of due process rights to independent
review an absolute necessity. Reliability and advisability of any provider
entering Medicaid Provider Contracts with the state are at risk. On the
micro scale, financial urgency is important. Without recognition of rights
protected by some rule, statute or the Texas or United State’s constitutions
– for the provider who does not engage in fraud – are of paramount
importance. Declarations on each of these questions are appropriate for
judicial review in this case.
4
Prior to imposition of the unsupported payment hold, Appellant,
Pharmserv, Inc. was a small pharmacy which had found a niche of actually
delivering medications in an ethnically concentrated corner of the Houston
area. Many mobility limited customers were elderly or disabled and qualify
under the Medicaid program.
Errors do happen, but $916,000 in errors did not happen. If a
jurisdictional bar prevents Appellant from proving up the true figures this
pharmacy will close and its customers who need delivery service will have
to find another way. The defensive position of the recently discredited OIG
that it need give only kangaroo hearings will benefit no rational purpose
except, perhaps, to permit the OIG to claim that it is a successful watchdog
discovering Medicaid abuse, without risk that such bogus claims will be
refuted. Moreover, Appellees’ position requires the courts to ignore a
strained and wrong interpretation of the legislative scheme for management
of Medicaid contracts, which interpretation leads to an absurd, unworkable
and intolerable result.
This case has brought the problem to public light. Thirteen days after
this court’s memorandum opinion was issued, the Texas Senate approved,
5
with nary a single nay vote, Senate Bill 207 (see addendum) which contains
some attempt at a curative clarification of legislative intent that non-
fraudulent pharmacies in Pharmserv’s position must be given meaningful
discovery and a hearing to check the OIG’s math. SB 207 clarifies
legislative intent to provide due process and may save the Medicaid drug
program from failure, but may not be retroactive. Survival of this test case
plaintiff requires Appellant to respectfully request rehearing, upon the
following points.
Point 1
The Court of Appeals erred in holding that there is no jurisdiction
to consider Appellant’s complaints of ultra vires acts with request
for injunctive relief to compel Doug Wilson and Kyle Janek to set
the matter for a hearing.
The Appeals Court recognized at page 12 that the plain language of
Human Resources Code §32.0291 and former Rule 1 TAC 371.1667(b)
shows that they apply in cases involving sanctions, but erred in summarily
concluding that this payment hold does not arise from sanctions1.
1The Legislature did not grant HHSC authority to impose holds for mere program
violations - a concept already recognized by this court at footnote s 4 and 5 of
Harlingen Family Dentistry, P.C. v. Texas Health & Human Servs. Comm’n, 452
S.W.3d 479 (Tex. App.—Austin 2014, pet. filed.). The Sunset Commission
Report cited therein stated “This recommendation would not affect OIG’s existing
authority to pursue and recover overpayments”. (emphasis added)
6
Grant of a hearing in a sanctions case is not discretionary. Executive
Commissioner Janek and Inspector General Wilson’s bald denial that the
payment hold applied here is a sanction is not supported by any correct
reference in the then existing or successor rules or the empowering statute.
Rule 1 TAC 354.1811(a) expressly states “Sanctions include, but are not
limited to, termination or suspension from participation, suspension of
payments, and recoupment of overpayments”.
That rule goes on to state “(b) On receipt of a written request, HHSC
provides an appeal to a pharmacy provider on whom HHSC sanctions have
been placed for a violation described in subsection (a) of this section”.
The above quoted language and provision for procedure to appeal it
is consistent with the provisions of 1 TAC §371.1603(j) (2) which sets out
that for payment holds “Imposition of sanctions triggers the due process
notice and hearing requirements.”
The above is also consistent with and bolstered by 1 TAC §371.1667
(“(a)The Inspector General affords, to any provider or person against
whom it imposes sanctions, all administrative and judicial due process
remedies applicable to administrative sanctions”) and its successor 1 TAC
7
§371.1709, titled “Payment Holds”. There is no express provision in 1
TAC §371.1667 or 1 TAC §371.1603(j) (2) that indicated inapplicability to
vendor drug cases. Having established that entitlement to a hearing was
promulgated in the rules, the courts have jurisdiction to interpret, apply and
grant injunctive or mandamus relief to compel the head of the department to
grant the hearing - as the published rule requires him to do.
The Human Resources Code provision that empowered the executive
commissioner to promulgate rules to address improper claims for
reimbursement in the vendor drug program used the same term -
“sanctions”.
“Sec. 32.046. SANCTIONS AND PENALTIES
RELATED TO THE PROVISION OF PHARMACY
PRODUCTS. (a) The executive commissioner of the
Health and Human Services Commission shall adopt rules
governing sanctions and penalties that apply to a provider
who participates in the vendor drug program or is enrolled
as a network pharmacy provider of a managed care
organization contracting with the commission under
Chapter 533, Government Code, or its subcontractor and
who submits an improper claim for reimbursement under
the program.” (emphasis added).
There is also factual component. The sanction character of the
payment hold at bar is a fact that clearly requires characterization as a
sanction. Almost none of the payment hold in this matter based in
8
“restitution”. Its basis is principally “early refills” or other technical
“program violations” that did not involve any charge for any good or
service not fully delivered by Pharmserv, Inc. Compounded by the voodoo
of 100X unexplained extrapolation, Pharmserv, which charged HHSC only
a small fee plus flow through of costs paid to its suppliers, incurs a penalty
which looks to be over $800,000 – though HHSC received the value of the
goods. The figures look unfair, to be sure. More importantly, the payment
hold is certainly acts as a sanction, even if the extrapolation were validly
derived. It is clearly not restitution or repayment of inflated or false
charges.
The pleading for injunctive/mandamus relief supports jurisdiction for
the courts to make determinations of the authority and duties of the OIG
and the commissioner of the HHSC under the guiding law, including
whether Pharmserv is entitled to hearing. The court may ultimately
determine that Pharmserv was not so entitled should it determine that the
legislature did intend to grant the OIG and the Commissioner of the HHSC
the power to refuse discovery and to refuse to allow any independent
review of its fuzzy math – or that they did not act ultra vires. However the
panel erred in ruling that there is not jurisdiction to make such
determination.
9
Point 2
The Court of Appeals erred in holding that there is not jurisdiction to
make determination of applicability of the statutes and rules to this
matter.
In determining whether the trial court has jurisdiction to make
Uniform Declaratory Judgment Act (“UDJA”) declaration on issues of
interpretation and correctness of application of administrative rules and the
empowering statutes, the Appeals Court correctly identified the weight
given to agency interpretations:
“When a statutory scheme is subject to multiple
interpretations, we should defer to an enforcing agency’s
construction if it is reasonable and in harmony with the
statute…
… We defer to an agency’s interpretation of its own rules
unless it is plainly erroneous or contradicts the text of the
rule or underlying statute.” (emphasis added).
However, the Appeals Court erred in failing to recognize that:
(a) the HHSC and OIG’s new interpretation or construction of the
empowering statute is not reasonable nor in harmony with the legislative
intent in designing the system of empowering statutes;
(b) the agency’s interpretation of its own rules is plainly erroneous
and contradicts the text of the rule or underlying statute; and,
10
(c) the new interpretation is not in harmony with the treatment of
fraudulent providers and whether those who are not accused of fraud should
be sanctioned at all.
(d) this situation is appropriate for judicial determination of the facts
and applicability of the rules and statutes upon the facts at bar.
Moreover, the pleading for UDJA type relief supports jurisdiction for
the courts to make those type determinations and rule whether the agency
construction is reasonable and agency interpretation is erroneous.
In this particular instance, the acts complained of (refusal to grant
meaningful discovery or hearing before an independent entity) are a recent
tactic and a recent wrong interpretation, clearly not intended by the
legislature, but dreamt up by an OIG run amok. The scheme to deny any
meaningful hearing to the non-fraud provider was certainly unknown prior
to the execution of the contract in issue. Otherwise only an ill-advised
business person would enter such agreement.
It appears that the entire Senate Chamber now sees the obviously
absurd results that “new interpretation” would bring about – if allowed to
11
stand, and has agreed to pass a clarification, or “cure”. (See Section 9 of
SB 207 [highlighted copy attached in the addendum] which passed the
Senate, 30-0 adding Government Code 531.1203 addressing concern about
secreted extrapolation methods and meaningful hearing - the specific
problem encountered by Appellant herein). See also Section 16 of SB 207,
which expressly requires the Commissioner of the HHSC to adopt rules
necessary to implement same). This is offered to show that the Appellees’
interpretation would provide a ridiculous, unintended and ultra vires result.
Point 3
The Court of Appeals erred in holding that there is not
jurisdiction to make determination of validity and
constitutionality of the statutes and rules on the grounds that
Appellant has not established a vested property interest deserving
protection and that Appellant was provided opportunity to be
heard at a meaningful time and in a meaningful manner.
Elements of two erroneous factual conclusions were cited as ground to
deny jurisdiction. One is the nature of the protected interest and the other is
that meaningful opportunity was provided (it was not).
Appellant has provided medications and services, at considerable
expense, to the state and federal designated recipients, in a manner that has
not been questioned as improper or as an overcharge in any way, yet
reimbursement for Appellant’s cost is being held. The property interests
12
involved far exceed mere contract rights – though the contract expressly
referenced due process. Pharmserv has complied with the state’s request
that it treat the State’s poor, its sick and its elderly and has been subjected to
ludicrous extrapolation and agency refusal to reveal the basis of same. The
undersigned does not typically engage in criticism of state agencies of staff.
It is informative, however that this scenario involves the very department
that has encountered staff members (reference news reports regarding Mr.
Nelson, Mr. Stick and Mr. Wilson), who have left office under the cloud of
widespread impropriety and abuse of power, accused of widespread use of
fraudulent figures and methods to inflate claims of Medicaid recoupments.
There is a substantial fact dispute about whether any meaningful
discovery or revelation of how the fuzzy math was performed in the audit
and no hearing whatsoever as to the sanction imposed. Yet the empowering
statutes seem to provide for due process for a provider to seek review the
basis of the sanction of payment hold were cited to the court, as were the
rules promulgated thereunder.
The Court of Appeals correctly notes that the UDJA does waive a
governmental entity’s immunity for a declaration construing a statute, that
13
the UDJA waives sovereign immunity for suits to challenge the validity of a
statute and the APA’s declaratory judgment provision allows Plaintiff to
challenge the validity and applicability of a rule. However, the Appeals
Court has erred in its conclusions that the declaratory relief requested is
based in some type of hidden agenda like those which were correctly
prohibited in the cited cases such as Texas Parks & Wildlife v Sawyer Trust,
354S.W. 3d 384 (Tex. 2011) [which involved a trust’s attempt to wrest title
to land from the state in order to take and sell gravel from a navigable
portion of the Red River]. The distinction is great. Pharmserv, Inc. does
not seek to wrest property from the state, but to get a meaningful hearing.
If a fair administrative hearing commences, Pharmserv will seek a ruling on
fuzzy math by the resoundingly discredited inspector general and staff.
However, such relief is permitted by statute and administrative rule and will
be granted or denied at the administrative level. Pharmserv seeks from the
court system only declaration of its rights to referral to a fair administrative
hearing, without any monetary strings, property interests or windfall
attached to such declaration. For that sole and genuine limited purpose, the
courts have jurisdiction to make declarations.
The Appeals court’s reliance upon precedent of a taxpayer suit
14
seeking to invalidate tax assessments in a water control district Montrose
Mgmt. Dist. v 1620 Hawthorn, Ltd 435 S.W.3d 393 (Tex. App. - Houston
[14th Dist.] 2014, pet filed) is also misplaced. Montrose Mgmt. proposes
that immunity exists from suit to control governmental actions that are
within the discretion of the actors. In stark contrast, Pharmserv does not
seek to control discretionary acts. Montrose Mgmt. does not serve to
prohibit this suit. Rather, it affirms that when there are fact questions
relating to determining issues of ultra vires acts, jurisdiction does lie (See
Mgmt. Dist. v 1620 Hawthorn, Ltd 435 S.W.3d 393, 413. Pharmserv, Inc.
seeks only a fair hearing. Referral to a hearing is not now nor has it ever
been discretionary.
Jurisdiction exists to determine the applicability and validity of the
sanctions aspects of §32.0291 of the Human Resources Code and former
rule 1 TAC §371.1667(b), 1 TAC §354.1811 and the silence of 1TAC
§354.1981-1892 as to the procedures for appeal and due process or apply to
the matter at bar. The courts should exercise their jurisdiction and declare
that Pharmserv Inc.’s statutory construction is wrong or right, or finds facts
as to the property rights of a non-fraudulent provider are the same or more
deserving a property interest entitling Pharmserv to at least the due process
which is afforded a fraudulent crook that has intentionally abused the system
15
to the detriment of the most vulnerable members of society in their weakest
moments of illness.
Conclusion and prayer
Appellant/Movant requests that the court favorably consider
this request for re-hearing, in light of the distinctions of case
precedent and the legislative intent shown by the current initiative
with SB 207, which seems rooted in recognition of the type of
problem encountered by a non-fraud provider.
The question at bar is jurisdiction. Appellant, to survive, needs
these issues to be determined, at least to get a chance to have the math
of the now discredited OIG office checked by some independent
entity, panel or jurist. The Medicaid drug program, to survive, needs
the same.
Respectfully Submitted
Jeff Avant
Jeff Avant (signed digitally)
AVANT & MITCHELL, L.
P.
700 Lavaca, Suite 1400
Austin, Texas 78701
Phone: (512) 478-5757
16
Facsimile: (512) 478-5404
E-mail: avantlaw@swbell.net
/S/
Hugh M. Barton
State Bar No. 01853700
Hugh M. Barton, P.C.
603 West 13th St, Ste 1B
Austin, TX 78701
Telephone 512-499-0793
Fax 512-727-6717
E-mail:
bartonlaw@yahoo.com;
CERTIFICATE OF COMPLIANCE UNDER RULE 9.4(i)(2)(D)
OF THE TX. RULES OF APPELLATE PROCEDURE
By my signature below I certify that a computer assisted word count
of this Motion indicates that the number of countable words is 2,578,
from the beginning of page number 4 through the prayer, including
footnotes, and that the formatting is in size of at least 14 of the
commonly used font of Times New Roman, except footnotes, which
are size 12.
Jeff Avant
Jeff Avant (signed digitally)
CERTIFICATE OF SERVICE
By my signature below I certify that a true and correct copy of the
above and foregoing document was served on the following by email
and/or electronic filing on May 13, 2015:
Ms. Ann Hartley, Assistant Attorney General, of the Financial,
Tax and Litigation Section or the Texas office of the Attorney
General, 300 West 15th, 6th Floor, Austin, Texas 78711-2548 by
email to
Jeff Avant
Jeff Avant (signed digitally)
17
By: Hinojosa, et al. S.B. No. 207
A BILL TO BE ENTITLED
AN ACT
relating to the authority and duties of the office of inspector
general of the Health and Human Services Commission.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 531.1011(4), Government Code, is amended
to read as follows:
(4) "Fraud" means an intentional deception or
misrepresentation made by a person with the knowledge that the
deception could result in some unauthorized benefit to that person
or some other person[, including any act that constitutes fraud
under applicable federal or state law]. The term does not include
unintentional technical, clerical, or administrative errors.
SECTION 2. Section 531.102, Government Code, is amended by
amending Subsections (g) and (k), amending Subsection (f) as
amended by S.B. 219, Acts of the 84th Legislature, Regular Session,
2015, and adding Subsections (a-2), (a-3), (a-4), (a-5), (a-6), (f-
1), (p), (q), (r), (s), and (t) to read as follows:
(a-2) The executive commissioner shall work in consultation
with the office whenever the law requires the commissioner to adopt
a rule or policy necessary to implement a power or duty of the
office, including rules necessary to carry out a responsibility
under Subsection (a).
Page - 1 -
S.B. No. 207
(a-3) The executive commissioner is responsible for
performing all administrative support services functions necessary
to operate the office in the same manner that the executive
commissioner is responsible for providing administrative support
services functions for the health and human services system,
including functions of the office related to the following:
(1) procurement processes;
(2) contracting policies;
(3) information technology services;
(4) legal services;
(5) budgeting; and
(6) personnel and employment policies.
(a-4) The commission's internal audit division shall
regularly audit the office as part of the commission's internal
audit program and shall include the office in the commission's risk
assessments.
(a-5) The office shall closely coordinate with the executive
commissioner and the relevant staff of health and human services
system programs that the office oversees in performing functions
relating to the prevention of fraud, waste, and abuse in the
delivery of health and human services and the enforcement of state
law relating to the provision of those services, including audits,
utilization reviews, provider education, and data analysis.
(a-6) The office shall conduct investigations independent of
the executive commissioner and the commission but shall rely on the
coordination required by Subsection (a-5) to ensure that the office
Page -2 -
S.B. No. 207
has a thorough understanding of the health and human services
system for purposes of knowledgeably and effectively performing the
office's duties under this section and any other law.
(f)(1) If the commission receives a complaint or allegation
of Medicaid fraud or abuse from any source, the office must conduct
a preliminary investigation as provided by Section 531.118(c) to
determine whether there is a sufficient basis to warrant a full
investigation. A preliminary investigation must begin not later
than the 30th day, and be completed not later than the 45th day,
after the date the commission receives a complaint or allegation or
has reason to believe that fraud or abuse has occurred. [A
preliminary investigation shall be completed not later than the
90th day after it began.]
(2) If the findings of a preliminary investigation give
the office reason to believe that an incident of fraud or abuse
involving possible criminal conduct has occurred in Medicaid, the
office must take the following action, as appropriate, not later
than the 30th day after the completion of the preliminary
investigation:
(A) if a provider is suspected of fraud or abuse
involving criminal conduct, the office must refer the case to the
state's Medicaid fraud control unit, provided that the criminal
referral does not preclude the office from continuing its
investigation of the provider, which investigation may lead to the
imposition of appropriate administrative or civil sanctions; or
(B) if there is reason to believe that a recipient
Page -3 -
S.B. No. 207
has defrauded Medicaid, the office may conduct a full investigation
of the suspected fraud, subject to Section 531.118(c).
(f-1) The office shall complete a full investigation of a
complaint or allegation of Medicaid fraud or abuse against a
provider not later than the 180th day after the date the full
investigation begins unless the office determines that more time is
needed to complete the investigation. Except as otherwise provided
by this subsection, if the office determines that more time is
needed to complete the investigation, the office shall provide
notice to the provider who is the subject of the investigation
stating that the length of the investigation will exceed 180 days
and specifying the reasons why the office was unable to complete
the investigation within the 180-day period. The office is not
required to provide notice to the provider under this subsection if
the office determines that providing notice would jeopardize the
investigation.
(g)(1) Whenever the office learns or has reason to suspect
that a provider's records are being withheld, concealed, destroyed,
fabricated, or in any way falsified, the office shall immediately
refer the case to the state's Medicaid fraud control
unit. However, such criminal referral does not preclude the office
from continuing its investigation of the provider, which
investigation may lead to the imposition of appropriate
administrative or civil sanctions.
(2) As [In addition to other instances] authorized under
state and [or] federal law, and except as provided by Subdivisions
Page -4 -
S.B. No. 207
(8) and (9), the office shall impose without prior notice a payment
hold on claims for reimbursement submitted by a provider only to
compel production of records, when requested by the state's
Medicaid fraud control unit, or on the determination that a
credible allegation of fraud exists, subject to Subsections (l) and
(m), as applicable. The payment hold is a serious enforcement tool
that the office imposes to mitigate ongoing financial risk to the
state. A payment hold imposed under this subdivision takes effect
immediately. The office must notify the provider of the payment
hold in accordance with 42 C.F.R. Section 455.23(b) and, except as
provided by that regulation, not later than the fifth day after the
date the office imposes the payment hold. In addition to the
requirements of 42 C.F.R. Section 455.23(b), the notice of payment
hold provided under this subdivision must also include:
(A) the specific basis for the hold, including
identification of the claims supporting the allegation at that
point in the investigation, [and] a representative sample of any
documents that form the basis for the hold, and a detailed summary
of the office's evidence relating to the allegation; [and]
(B) a description of administrative and judicial
due process rights and remedies, including the provider's option
[right] to seek informal resolution, the provider's right to seek a
formal administrative appeal hearing, or that the provider may seek
both; and
(C) a detailed timeline for the provider to pursue
the rights and remedies described in Paragraph (B).
Page -5 -
S.B. No. 207
(3) On timely written request by a provider subject to a
payment hold under Subdivision (2), other than a hold requested by
the state's Medicaid fraud control unit, the office shall file a
request with the State Office of Administrative Hearings for an
expedited administrative hearing regarding the hold not later than
the third day after the date the office receives the provider's
request. The provider must request an expedited administrative
hearing under this subdivision not later than the 10th [30th] day
after the date the provider receives notice from the office under
Subdivision (2). The State Office of Administrative Hearings shall
hold the expedited administrative hearing not later than the 45th
day after the date the State Office of Administrative Hearings
receives the request for the hearing. In a hearing held under this
subdivision [Unless otherwise determined by the administrative law
judge for good cause at an expedited administrative hearing, the
state and the provider shall each be responsible for]:
(A) the provider and the office are each limited to
four hours of testimony, excluding time for responding to questions
from the administrative law judge [one-half of the costs charged by
the State Office of Administrative Hearings];
(B) the provider and the office are each entitled
to two continuances under reasonable circumstances [one-half of the
costs for transcribing the hearing]; and
(C) the office is required to show probable cause
that the credible allegation of fraud that is the basis of the
payment hold has an indicia of reliability and that continuing to
Page -6 -
S.B. No. 207
pay the provider presents an ongoing significant financial risk to
the state and a threat to the integrity of Medicaid [the party's
own costs related to the hearing, including the costs associated
with preparation for the hearing, discovery, depositions, and
subpoenas, service of process and witness expenses, travel
expenses, and investigation expenses; and
[(D) all other costs associated with the hearing
that are incurred by the party, including attorney's fees].
(4) The office is responsible for the costs of a hearing
held under Subdivision (3), but a provider is responsible for the
provider's own costs incurred in preparing for the hearing
[executive commissioner and the State Office of Administrative
Hearings shall jointly adopt rules that require a provider, before
an expedited administrative hearing, to advance security for the
costs for which the provider is responsible under that
subdivision].
(5) In a hearing held under Subdivision (3), the
administrative law judge shall decide if the payment hold should
continue but may not adjust the amount or percent of the payment
hold. Notwithstanding any other law, including Section
2001.058(e), the decision of the administrative law judge is final
and may not be appealed [Following an expedited administrative
hearing under Subdivision (3), a provider subject to a payment
hold, other than a hold requested by the state's Medicaid fraud
control unit, may appeal a final administrative order by filing a
petition for judicial review in a district court in Travis County].
Page -7 -
S.B. No. 207
(6) The executive commissioner, in consultation with the
office, shall adopt rules that allow a provider subject to a
payment hold under Subdivision (2), other than a hold requested by
the state's Medicaid fraud control unit, to seek an informal
resolution of the issues identified by the office in the notice
provided under that subdivision. A provider must request an
initial informal resolution meeting under this subdivision not
later than the deadline prescribed by Subdivision (3) for
requesting an expedited administrative hearing. On receipt of a
timely request, the office shall decide whether to grant the
provider's request for an initial informal resolution meeting, and
if the office decides to grant the request, the office shall
schedule the [an] initial informal resolution meeting [not later
than the 60th day after the date the office receives the request,
but the office shall schedule the meeting on a later date, as
determined by the office, if requested by the provider]. The
office shall give notice to the provider of the time and place of
the initial informal resolution meeting [not later than the 30th
day before the date the meeting is to be held]. A provider may
request a second informal resolution meeting [not later than the
20th day] after the date of the initial informal resolution
meeting. On receipt of a timely request, the office shall decide
whether to grant the provider's request for a second informal
resolution meeting, and if the office decides to grant the request,
the office shall schedule the [a] second informal resolution
meeting [not later than the 45th day after the date the office
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receives the request, but the office shall schedule the meeting on
a later date, as determined by the office, if requested by the
provider]. The office shall give notice to the provider of the
time and place of the second informal resolution meeting [not later
than the 20th day before the date the meeting is to be held]. A
provider must have an opportunity to provide additional information
before the second informal resolution meeting for consideration by
the office. A provider's decision to seek an informal resolution
under this subdivision does not extend the time by which the
provider must request an expedited administrative hearing under
Subdivision (3). The informal resolution process shall run
concurrently with the administrative hearing process, and the
informal resolution process shall be discontinued once the State
Office of Administrative Hearings issues a final determination on
the payment hold. [However, a hearing initiated under Subdivision
(3) shall be stayed until the informal resolution process is
completed.]
(7) The office shall, in consultation with the state's
Medicaid fraud control unit, establish guidelines under which
[payment holds or] program exclusions:
(A) may permissively be imposed on a provider; or
(B) shall automatically be imposed on a provider.
(7-a) The office shall, in consultation with the state's
Medicaid fraud control unit, establish guidelines regarding the
imposition of payment holds authorized under Subdivision (2).
(8) In accordance with 42 C.F.R. Sections 455.23(e) and
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(f), on the determination that a credible allegation of fraud
exists, the office may find that good cause exists to not impose a
payment hold, to not continue a payment hold, to impose a payment
hold only in part, or to convert a payment hold imposed in whole to
one imposed only in part, if any of the following are applicable:
(A) law enforcement officials have specifically
requested that a payment hold not be imposed because a payment hold
would compromise or jeopardize an investigation;
(B) available remedies implemented by the state
other than a payment hold would more effectively or quickly protect
Medicaid funds;
(C) the office determines, based on the submission
of written evidence by the provider who is the subject of the
payment hold, that the payment hold should be removed;
(D) Medicaid recipients' access to items or
services would be jeopardized by a full or partial payment hold
because the provider who is the subject of the payment hold:
(i) is the sole community physician or the
sole source of essential specialized services in a community; or
(ii) serves a large number of Medicaid
recipients within a designated medically underserved area;
(E) the attorney general declines to certify that a
matter continues to be under investigation; or
(F) the office determines that a full or partial
payment hold is not in the best interests of Medicaid.
(9) The office may not impose a payment hold on claims
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for reimbursement submitted by a provider for medically necessary
services for which the provider has obtained prior authorization
from the commission or a contractor of the commission unless the
office has evidence that the provider has materially misrepresented
documentation relating to those services.
(k) A final report on an audit or investigation is subject to
required disclosure under Chapter 552. All information and
materials compiled during the audit or investigation remain
confidential and not subject to required disclosure in accordance
with Section 531.1021(g). A confidential draft report on an audit
or investigation that concerns the death of a child may be shared
with the Department of Family and Protective Services. A draft
report that is shared with the Department of Family and Protective
Services remains confidential and is not subject to disclosure
under Chapter 552.
(p) The executive commissioner, in consultation with the
office, shall adopt rules establishing criteria:
(1) for opening a case;
(2) for prioritizing cases for the efficient management
of the office's workload, including rules that direct the office to
prioritize:
(A) provider cases according to the highest
potential for recovery or risk to the state as indicated through
the provider's volume of billings, the provider's history of
noncompliance with the law, and identified fraud trends;
(B) recipient cases according to the highest
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potential for recovery and federal timeliness requirements; and
(C) internal affairs investigations according to
the seriousness of the threat to recipient safety and the risk to
program integrity in terms of the amount or scope of fraud, waste,
and abuse posed by the allegation that is the subject of the
investigation; and
(3) to guide field investigators in closing a case that
is not worth pursuing through a full investigation.
(q) The executive commissioner, in consultation with the
office, shall adopt rules establishing criteria for determining
enforcement and punitive actions with regard to a provider who has
violated state law, program rules, or the provider's Medicaid
provider agreement that include:
(1) direction for categorizing provider violations
according to the nature of the violation and for scaling resulting
enforcement actions, taking into consideration:
(A) the seriousness of the violation;
(B) the prevalence of errors by the provider;
(C) the financial or other harm to the state or
recipients resulting or potentially resulting from those errors;
and
(D) mitigating factors the office determines
appropriate; and
(2) a specific list of potential penalties, including
the amount of the penalties, for fraud and other Medicaid
violations.
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(r) The office shall review the office's investigative
process, including the office's use of sampling and extrapolation
to audit provider records. The review shall be performed by staff
who are not directly involved in investigations conducted by the
office.
(s) At each quarterly meeting of any advisory council
responsible for advising the executive commissioner on the
operation of the commission, the inspector general shall submit a
report to the executive commissioner, the governor, and the
legislature on:
(1) the office's activities;
(2) the office's performance with respect to performance
measures established by the executive commissioner for the office;
(3) fraud trends identified by the office; and
(4) any recommendations for changes in policy to prevent
or address fraud, waste, and abuse in the delivery of health and
human services in this state.
(t) The office shall publish each report required under
Subsection (s) on the office's Internet website.
SECTION 3. Section 531.1021(a), Government Code, as amended
by S.B. No. 219, Acts of the 84th Legislature, Regular Session,
2015, is amended to read as follows:
(a) The office of inspector general may issue [request that
the executive commissioner or the executive commissioner's designee
approve the issuance by the office of] a subpoena in connection
with an investigation conducted by the office. A [If the request
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is approved, the office may issue a] subpoena may be issued under
this section to compel the attendance of a relevant witness or the
production, for inspection or copying, of relevant evidence that is
in this state.
SECTION 4. Section 531.113, Government Code, is amended by
adding Subsection (d-1) and amending Subsection (e) as amended by
S.B. 219, Acts of the 84th Legislature, Regular Session, 2015, to
read as follows:
(d-1) The commission's office of inspector general shall:
(1) investigate, including by means of regular audits,
possible fraud, waste, and abuse by managed care organizations
subject to this section;
(2) establish requirements for the provision of training
to and regular oversight of special investigative units established
by managed care organizations under Subsection (a)(1) and entities
with which managed care organizations contract under Subsection
(a)(2);
(3) establish requirements for approving plans to
prevent and reduce fraud and abuse adopted by managed care
organizations under Subsection (b);
(4) evaluate statewide fraud, waste, and abuse trends in
Medicaid and communicate those trends to special investigative
units and contracted entities to determine the prevalence of those
trends; and
(5) assist managed care organizations in discovering or
investigating fraud, waste, and abuse, as needed.
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(e) The executive commissioner, in consultation with the
office, shall adopt rules as necessary to accomplish the purposes
of this section, including rules defining the investigative role of
the commission's office of inspector general with respect to the
investigative role of special investigative units established by
managed care organizations under Subsection (a)(1) and entities
with which managed care organizations contract under Subsection
(a)(2). The rules adopted under this section must specify the
office's role in:
(1) reviewing the findings of special investigative
units and contracted entities;
(2) investigating cases where the overpayment amount
sought to be recovered exceeds $100,000; and
(3) investigating providers who are enrolled in more
than one managed care organization.
SECTION 5. Section 531.118(b), Government Code, is amended to
read as follows:
(b) If the commission receives an allegation of fraud or
abuse against a provider from any source, the commission's office
of inspector general shall conduct a preliminary investigation of
the allegation to determine whether there is a sufficient basis to
warrant a full investigation. A preliminary investigation must
begin not later than the 30th day, and be completed not later than
the 45th day, after the date the commission receives or identifies
an allegation of fraud or abuse.
SECTION 6. Section 531.120(b), Government Code, is amended to
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read as follows:
(b) A provider may [must] request an [initial] informal
resolution meeting under this section, and on [not later than the
30th day after the date the provider receives notice under
Subsection (a). On] receipt of the [a timely] request, the office
shall schedule the [an initial] informal resolution meeting [not
later than the 60th day after the date the office receives the
request, but the office shall schedule the meeting on a later date,
as determined by the office if requested by the provider]. The
office shall give notice to the provider of the time and place of
the [initial] informal resolution meeting [not later than the 30th
day before the date the meeting is to be held]. The informal
resolution process shall run concurrently with the administrative
hearing process, and the administrative hearing process may not be
delayed on account of the informal resolution process. [A provider
may request a second informal resolution meeting not later than the
20th day after the date of the initial informal resolution meeting.
On receipt of a timely request, the office shall schedule a second
informal resolution meeting not later than the 45th day after the
date the office receives the request, but the office shall schedule
the meeting on a later date, as determined by the office if
requested by the provider. The office shall give notice to the
provider of the time and place of the second informal resolution
meeting not later than the 20th day before the date the meeting is
to be held. A provider must have an opportunity to provide
additional information before the second informal resolution
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meeting for consideration by the office.]
SECTION 7. Sections 531.1201(a) and (b), Government Code, are
amended to read as follows:
(a) A provider must request an appeal under this section not
later than the 30th [15th] day after the date the provider is
notified that the commission or the commission's office of
inspector general will seek to recover an overpayment or debt from
the provider. On receipt of a timely written request by a provider
who is the subject of a recoupment of overpayment or recoupment of
debt arising out of a fraud or abuse investigation, the office of
inspector general shall file a docketing request with the State
Office of Administrative Hearings or the Health and Human Services
Commission appeals division, as requested by the provider, for an
administrative hearing regarding the proposed recoupment amount and
any associated damages or penalties. The office shall file the
docketing request under this section not later than the 60th day
after the date of the provider's request for an administrative
hearing or not later than the 60th day after the completion of the
informal resolution process, if applicable.
(b) The commission's office of inspector general is
responsible for the costs of an administrative hearing held under
Subsection (a), but a provider is responsible for the provider's
own costs incurred in preparing for the hearing [Unless otherwise
determined by the administrative law judge for good cause, at any
administrative hearing under this section before the State Office
of Administrative Hearings, the state and the provider shall each
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be responsible for:
[(1) one-half of the costs charged by the State Office
of Administrative Hearings;
[(2) one-half of the costs for transcribing the hearing;
[(3) the party's own costs related to the hearing,
including the costs associated with preparation for the hearing,
discovery, depositions, and subpoenas, service of process and
witness expenses, travel expenses, and investigation expenses; and
[(4) all other costs associated with the hearing that
are incurred by the party, including attorney's fees].
SECTION 8. Section 531.1202, Government Code, is amended to
read as follows:
Sec. 531.1202. RECORD OF AND CONFIDENTIALITY OF INFORMAL
RESOLUTION MEETINGS. (a) On the written request of a provider,
the [The] commission shall, at no expense to the provider who
requested the meeting, provide for an informal resolution meeting
held under Section 531.102(g)(6) or 531.120(b) to be recorded. The
recording of an informal resolution meeting shall be made available
to the provider who requested the meeting. The commission may not
record an informal resolution meeting unless the commission
receives a written request from a provider under this subsection.
(b) Notwithstanding Section 531.1021(g) and except as
provided by this section, an informal resolution meeting held under
Section 531.102(g)(6) or 531.120(b) is confidential, and any
information or materials obtained by the commission's office of
inspector general, including the office's employees or the office's
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agents, during or in connection with an informal resolution
meeting, including a recording made under Subsection (a), are
privileged and confidential and not subject to disclosure under
Chapter 552 or any other means of legal compulsion for release,
including disclosure, discovery, or subpoena.
SECTION 9. Subchapter C, Chapter 531, Government Code, is
amended by adding Sections 531.1023, 531.1024, 531.1027, and
531.1203 to read as follows:
Sec. 531.1023. COMPLIANCE WITH FEDERAL CODING GUIDELINES.
The commission's office of inspector general, including office
staff and any third party with which the office contracts to
perform coding services, shall comply with federal coding
guidelines, including guidelines for diagnosis-related group (DRG)
validation and related audits.
Sec. 531.1024. HOSPITAL UTILIZATION REVIEWS AND AUDITS:
PROVIDER EDUCATION PROCESS. The executive commissioner shall by
rule develop a process for the commission's office of inspector
general, including office staff and any third party with which the
office contracts to perform coding services, to communicate with
and educate providers about the diagnosis-related group (DRG)
validation criteria that the office uses in conducting hospital
utilization reviews and audits.
Sec. 531.1027. PERFORMANCE AUDITS AND COORDINATION OF AUDIT
ACTIVITIES. (a) Notwithstanding any other law, the commission's
office of inspector general may conduct a performance audit of any
program or project administered or agreement entered into by the
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commission or a health and human services agency, including an
audit related to:
(1) contracting procedures of the commission or a health
and human services agency; or
(2) the performance of the commission or a health and
human services agency.
(b) The office shall coordinate the office's audit activities
with those of the commission, including the development of audit
plans, the performance of risk assessments, and the reporting of
findings, to minimize the duplication of audit activities. In
coordinating audit activities with the commission under this
subsection, the office shall:
(1) seek input from the commission and consider previous
audits conducted by the commission for purposes of determining
whether to conduct a performance audit; and
(2) request the results of an audit conducted by the
commission if those results could inform the office's risk
assessment when determining whether to conduct, or the scope of, a
performance audit.
Sec. 531.1203. RIGHTS OF AND PROVISION OF INFORMATION TO
PHARMACIES SUBJECT TO CERTAIN AUDITS. (a) A pharmacy has a right
to request an informal hearing before the commission's appeals
division to contest the findings of an audit conducted by the
commission's office of inspector general or an entity that
contracts with the federal government to audit Medicaid providers
if the findings of the audit do not include findings that the
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pharmacy engaged in Medicaid fraud.
(b) In an informal hearing held under this section, staff of
the commission's appeals division, assisted by staff responsible
for the commission's vendor drug program who have expertise in the
law governing pharmacies' participation in Medicaid, make the final
decision on whether the findings of an audit are accurate. Staff
of the commission's office of inspector general may not serve on
the panel that makes the decision on the accuracy of an audit.
(c) In order to increase transparency, the commission's
office of inspector general shall, if the office has access to the
information, provide to pharmacies that are subject to audit by the
office or an entity that contracts with the federal government to
audit Medicaid providers information relating to the extrapolation
methodology used as part of the audit and the methods used to
determine whether the pharmacy has been overpaid under Medicaid in
sufficient detail so that the audit results may be demonstrated to
be statistically valid and are fully reproducible.
SECTION 10. The following provisions are repealed:
(1) Section 531.1201(c), Government Code; and
(2) Section 32.0422(k), Human Resources Code, as amended
by S.B. 219, Acts of the 84th Legislature, Regular Session, 2015.
SECTION 11. Notwithstanding Section 531.004, Government Code,
the Sunset Advisory Commission shall conduct a special-purpose
review of the overall performance of the Health and Human Services
Commission's office of inspector general. In conducting the
review, the Sunset Advisory Commission shall particularly focus on
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the office's investigations and the effectiveness and efficiency of
the office's processes, as part of the Sunset Advisory Commission's
review of agencies for the 87th Legislature. The office is not
abolished solely because the office is not explicitly continued
following the review.
SECTION 12. Section 531.102, Government Code, as amended by
this Act, applies only to a complaint or allegation of Medicaid
fraud or abuse received by the Health and Human Services Commission
or the commission's office of inspector general on or after the
effective date of this Act. A complaint or allegation received
before the effective date of this Act is governed by the law as it
existed when the complaint or allegation was received, and the
former law is continued in effect for that purpose.
SECTION 13. Not later than March 1, 2016, the executive
commissioner of the Health and Human Services Commission in
consultation with the inspector general of the office of inspector
general shall adopt rules necessary to implement the changes in law
made by this Act to Section 531.102(g)(2), Government Code,
regarding the circumstances in which a payment hold may be placed
on claims for reimbursement submitted by a Medicaid provider.
SECTION 14. As soon as practicable after the effective date
of this Act, the executive commissioner of the Health and Human
Services Commission shall adopt the rules establishing the process
for communicating with and educating providers about diagnosis-
related group (DRG) validation criteria under Section 531.1024,
Government Code, as added by this Act.
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SECTION 15. Sections 531.120 and 531.1201, Government Code,
as amended by this Act, apply only to a proposed recoupment of an
overpayment or debt of which a provider is notified on or after the
effective date of this Act. A proposed recoupment of an
overpayment or debt that a provider was notified of before the
effective date of this Act is governed by the law as it existed
when the provider was notified, and the former law is continued in
effect for that purpose.
SECTION 16. Not later than March 1, 2016, the executive
commissioner of the Health and Human Services Commission in
consultation with the inspector general of the office of inspector
general shall adopt rules necessary to implement Section 531.1203,
Government Code, as added by this Act.
SECTION 17. If before implementing any provision of this Act
a state agency determines that a waiver or authorization from a
federal agency is necessary for implementation of that provision,
the agency affected by the provision shall request the waiver or
authorization and may delay implementing that provision until the
waiver or authorization is granted.
SECTION 18. This Act takes effect September 1, 2015.
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