Tennessee Community Organizations v. Tennessee Department of Intellectual And Developmental Disabilities

05/11/2018
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
February 6, 2018 Session
TENNESSEE COMMUNITY ORGANIZATIONS, ET AL. v. TENNESSEE
DEPARTMENT OF INTELLECTUAL AND DEVELOPMENTAL
DISABILITIES
Appeal from the Chancery Court for Davidson County
No. 16-0183-IV Russell T. Perkins, Chancellor
___________________________________
No. M2017-00991-COA-R3-CV
___________________________________
Appellants, home and community based service providers and their professional trade
organization, appeal the trial court’s grant of summary judgment in favor of Appellee
Tennessee Department of Intellectual and Developmental Disabilities. The case, which
was filed as a declaratory judgment action, involves financial sanctions levied against
Appellant providers by Appellee for billing for day services in excess of the 243-day
limit imposed by a federal waiver. Appellants assert, inter alia, that the imposition of
these fines exceeded Appellee’s statutory and/or contractual authority. Discerning no
error, we affirm the trial court’s grant of summary judgment against Appellants on all
counts of their petition.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed and Remanded
KENNY ARMSTRONG, J., delivered the opinion of the court, in which FRANK G. CLEMENT,
JR., P.J., M.S., and W. NEAL MCBRAYER, J., joined.
William Beesley Hubbard and Robyn E. Smith, Nashville, Tennessee, for the appellants,
Tennessee Community Organizations, Dawn of Hope, Inc., and Evergreen Life Services,
Inc..
Herbert H. Slatery, III, Attorney General and Reporter, and Alexander S. Rieger, Deputy
Attorney General, for the appellee, Tennessee Department of Intellectual & Development
Disabilities.
OPINION
I. Background
Section 1915(c) of the Social Security Act authorizes the Secretary of Health and
Human Services to waive certain Medicaid requirements to allow states to provide home
and community based services (“HCBS”) to meet the needs of individuals receiving long-
term care services in their homes or communities. 42 U.S.C. § 139n(c)(1); 42 C.F.R. §
430.25. The HCBS waiver describes a comprehensive program designed to meet the
needs of the waiver population; the waiver includes requirements and limitations on
services provided by state providers that contract with the state to provide the waiver
services. At issue in this appeal is the 2014 HCBS waiver (the “Waiver”). The Waiver
specifically provides that, “Day Services shall be limited to a maximum of 5 days per
week up to a maximum of 243 days per person per calendar year.”1 The parties do not
dispute that, under the plain language of the Waiver, providers may be paid for no more
than 243 days of service per calendar year for each person served and may be reimbursed
for no more than five days of services per week.
Tennessee Community Organizations (“TNCO”) is a professional trade
organization for HCBS providers. Dawn of Hope, Inc. (“Dawn”) and Evergreen Life
Services (“Evergreen,” and together with Dawn and TNCO, “Appellants”) are providers
and members of TNCO. TennCare is the state agency responsible for Tennessee’s
Medicaid programs and for compliance with the HCBS Waiver. TennCare contracts with
the Tennessee Department of Intellectual & Developmental Disabilities (“TDIDD,” or
“Appellee”) to implement HCBS waiver services. To this end, TDIDD is authorized, by
statute, to enter into contracts with providers to procure waiver services for eligible
persons. Tenn. Code Ann. § 33-1-301(a). Both Dawn and Evergreen (together,
“Providers”) entered into contract with TDIDD under its standard provider agreement
(“Agreement”). As discussed in further detail below, the Agreement requires, inter alia,
that the Providers perform the waiver services in compliance with TDIDD’s Provider
Manual and the Waiver.2
As noted above, the Waiver at issue limits the number of days a provider may bill
for day services. It is undisputed that, for several years, both Evergreen and Dawn
violated the billing cap set by the Waiver. Prior to 2013, if a provider was in violation of
the Waiver, TDIDD either stopped paying or recouped overpayment for services the
providers billed in excess of the cap. However, in 2013, the Comptroller for the State of
1
“Day Services” include community day, support employment, facility based day, and home
based day. Day Services are required to last six hours to qualify for payment unless the termination of
services before six hours is beyond the provider’s control.
2
The parties do not dispute that Providers were provided a copy of TDIDD’s Provider
Manual.
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Tennessee issued a performance audit of TDIDD. The Comptroller noted that, despite its
statutory authority to do so, TDIDD was not imposing sanctions for providers’ violations
of the Waiver. The concern was that if the State failed to take appropriate action to
ensure compliance with the Waiver, it could risk termination of the Waiver and the
associated federal funding.
Rather than levying sanctions immediately, TDIDD first decided to warn non-
compliant providers so as to give them time to cure the billing issues. To this end, on
July 14, 2014 and July 25, 2014, TDIDD sent warning letters to Dawn and Evergreen,
respectively. The letters notified the Providers that each had billed in excess of the
Waiver limits for 2012 and 2013. Although the letters set out the sanctions available
under TDIDD Policy #80.4.6, discussed infra, neither provider was, in fact, sanctioned at
this time. Rather, the letters stated that: “This letter serves as a sanction warning. Such a
warning is not subject to appeal. Should future reviews find inappropriate billing of
services, you may anticipate sanctions or other administrative action.” Despite the
warning letters, in 2014, both Evergreen and Dawn continued to bill for more than 243
days of day services for some service recipients. On October 12, 2015, TDIDD sent
sanction letters to Evergreen and Dawn, notifying the Providers that they were being
sanctioned for billing in excess of the 243-day waiver limit for 2014. Sanctions were
assessed at $100.00 per day per recipient for each day billed over 243 days. Evergreen’s
sanctions totaled $2,200; Dawn’s sanctions totaled $10,900. Evergreen did not appeal
the sanctions; however, on October 23, 2015, Dawn requested an appeal hearing.
On February 22, 2016, TNCO filed a petition for declaratory judgment in the
Chancery Court of Davidson County (the “trial court”), asking the trial court to declare
TDIDD Policy #80.4.6 (the “Policy”), and any sanctions issued pursuant to the Policy,
invalid.3 In Counts I, II, and III of the petition, Appellants assert that TDIDD Policy
#80.4.6 is invalid because it is inconsistent with TDIDD’s statutory authority to issue
“civil penalties.” In Count IV of the petition, Appellants assert that Policy #80.4.6 is
void because it is a Rule that was not properly promulgated pursuant to the Uniform
Administrative Procedures Act (“UAPA”) as required by Tennessee Code Annotated
Section 33-1-309(a). In Count V of the petition, Appellants assert that the Policy’s
provision for sanctions for violation of the Agreement is not a proper sanction for breach
of the Agreement. In Count VI, Appellants assert that the assessments against Evergreen
and Dawn violate TDIDD’s statutory authority. In Count VII, Appellants contend that, in
imposing sanctions, TDIDD failed to comply with the review period and statutory period
for appeal. In Count VIII, Appellants reiterate that the sanctions are invalid because
3
One of TNCO’s goals is to “institute administrative and judicial proceedings to protect and
promote the provision of services to persons with disabilities and to protect and promote the rights of
community provider organizations and their officers and employees.” On March 23, 2016, TDIDD
moved to dismiss TNCO’s petition for declaratory judgment on the grounds of standing and justiciability.
The trial court denied the motion and granted TNCO leave to amend its petition to add Evergreen and
Dawn. TNCO filed an amended petition on June 14, 2016.
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Policy #80.4.6, under which the sanctions were assessed, was an invalidly promulgated
Rule, exceeded TDIDD’s statutory authority to sanction, and imposed invalid sanctions
for violation of the Agreement. In Count IX, Appellants assert that invoicing for more
than 243 days of day services does not constitute a sanctionable offense.
On January 31, 2017, the parties filed cross-motions for summary judgment. The
trial court heard the motions for summary judgment on April 7, 2017. In its order of
April 26, 2017, the trial court denied Appellants’ motion for summary judgment and
granted TDIDD’s motion as to all counts. Appellants appeal.
II. Issues
The dispositive issue is whether the trial court erred in granting summary
judgment in favor of TDIDD as to all counts of Appellants’ petition. Appellants parse
this question into seventeen issues as stated in their brief:
1. Whether TDIDD has statutory authority for its sanction policy and the
sanctions.
2. Whether the sanction policy and the sanctions violate T.C.A. § 33-2-
407, which authorizes TDIDD to monetarily sanction providers.
3. Whether the trial court erred by finding that T.C.A. 33-2-408 is a
procedural statute but nevertheless authorizes TDIDD to monetarily
sanction providers.
4. Whether the trial court erred by finding that T.C.A. § 33-2-408
authorizes TDIDD to monetarily sanction providers, in contravention of
T.C.A. § 33-2-407 that specifies the process for TDIDD monetarily
sanctioning providers.
5. Whether the trial court erred by finding that T.C.A. § 33-2-407 governs
TDIDD assessing civil penalties upon providers, which T.C.A. § 33-2-
408 independently governs TDIDD monetarily sanctioning providers.
6. Whether the provision in the Provider Agreement that authorizes
TDIDD to monetarily sanction providers violates public policy and is
invalid.
7. Whether the trial court erred by finding that TDIDD’s authority to
monetarily sanction providers is derived from contract.
8. Whether the trial court erred by finding that the sanctions were
liquidated damages agreed to in the Provider Agreement.
9. Whether the Provider Manual gives TDIDD authority for its sanction
policy and sanctions.
10. Whether the sanction policy is a rule and is void because it was not
properly promulgated
11. Whether the trial court erred by finding that the sanction policy is of
general applicability, but only concerns the internal management of
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state government and does not affect private rights, privileges or
procedure available to the public.
12. Whether TDIDD failed to give providers fair notice that it was no
longer screening invoices and that it was changing its long-term
interpretation of the requirements of the Waiver concerning the
invoicing of over 243 days.
13. Whether TDIDD failed to give providers fair notice that future
involving of over 243 days was prohibited and punishable.
14. Whether the trial court erred in finding that the warning letters to
providers and conversations with providers constituted fair notice.
15. Whether TDIDD’s termination of screening invoices and change in its
long-term interpretation of the requirements of the Waiver concerning
the 243-day limit was required to be promulgated as a rule.
16. Whether the trial court erred in finding that invoicing over 243 days has
always been a sanctionable offense and TDIDD only began to strictly
enforce the requirement, which does not require rulemaking.
17. Whether TDIDD’s change in its long-term interpretation of the
requirements of the Waiver concerning the 243-day limit is not
enforceable because TDIDD failed to assess in writing the fiscal impact
of the changes upon provider.
III. Standard of Review
This case was decided on grant of summary judgment. Summary judgment is
appropriate when “the pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter of law.”
Tenn. R. Civ. P. 56.04. Bain v. Wells, 936 S.W.2d 618, 622 (Tenn. 1997); see also
Abshure v. Methodist Healthcare–Memphis Hosp., 325 S.W.3d 98, 103 (Tenn. 2010);
Dick Broad. Co., Inc. of Tenn. v. Oak Ridge FM, Inc., 395 S.W.3d 653, 671 (Tenn.
2013); Rye v. Women's Care Center of Memphis, MPLLC, 477 S.W.3d 235, 250 (Tenn.
2015). We review a trial court’s ruling on a motion for summary judgment de novo,
without a presumption of correctness. In doing so, we make a fresh determination of
whether the requirements of Rule 56 of the Tennessee Rules of Civil Procedure have
been satisfied. Id. (citing Estate of Brown, 402 S.W.3d 193, 198 (Tenn. 2013); Hughes
v. New Life Dev. Corp., 387 S.W.3d 453, 471 (Tenn. 2012)). For actions initiated on or
after July 1, 2011, the standard of review for summary judgment is governed by
Tennessee Code Annotated Section 20-16-101. The statute provides:
In motions for summary judgment in any civil action in Tennessee, the
moving party who does not bear the burden of proof at trial shall prevail on
its motion for summary judgment if it:
(1) Submits affirmative evidence that negates an essential element of the
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nonmoving party's claim; or
(2) Demonstrates to the court that the nonmoving party's evidence is
insufficient to establish an essential element of the nonmoving party's
claim.
Tenn. Code Ann. § 20-16-101. Here, the material facts are not in dispute. Specifically,
Appellants concede that Evergreen and Dawn’s 2014 billings were in excess of the
Waiver cap. However, the parties dispute the interpretation and applicability of the
Policy, the statutory scheme, and the Agreement. The interpretation of written
agreements and contracts are questions of law and, so, are particularly suited to
disposition by summary judgment.
To the extent our review requires interpretation of statutes, we are guided by the
familiar principles of statutory construction. The primary objective of statutory
construction is to determine the intent of the legislature and give effect to that intent.
Walker v. Sunrise Pontiac–GMC Truck, Inc., 249 S.W.3d 301, 309 (Tenn. 2008). To
achieve this objective, we begin by examining the plain language of the statute in
question. Curtis v. G.E. Capital Modular Space, 155 S.W.3d 877, 881 (Tenn. 2005).
This Court presumes that the legislature intended every word be given full effect. Lanier
v. Rains, 229 S.W.3d 656, 661 (Tenn. 2007). Therefore, if the “language is not
ambiguous ... the plain and ordinary meaning of the statute must be given effect.” In re
Adoption of A.M.H., 215 S.W.3d 793, 808 (Tenn. 2007). It is a well-settled rule of
construction that “statutes ‘in pari materia’—those relating to the same subject or having
a common purpose—are to be construed together, and the construction of one such
statute, if doubtful, may be aided by considering the words and legislative intent
indicated by the language of another statute.” Graham v. Caples, 325 S.W.3d 578, 581-
82 (Tenn. 2010) (citing Wilson v. Johnson Cnty., 879 S.W.2d 807, 809 (Tenn. 1994)).
Likewise, to the extent that adjudication of this appeal involves the interpretation
of the provisions of the Agreement, we apply the standard of review applicable to
contract interpretation. Because the interpretation of a written agreement is a matter of
law, Allstate Ins. Co. v. Watson, 195 S.W.3d 609, 611 (Tenn. 2006), we undertake to
interpret the language of the Agreement de novo. “A cardinal rule of contract
interpretation is to ascertain and give effect to the intent of the parties.” Id. (citing
Christenberry v. Tipton, 160 S.W.3d 487, 494 (Tenn. 2005)). “In interpreting contractual
language, courts look to the plain meaning of the words in the documents to ascertain the
parties’ intent.” Id. (citing Planters Gin Co. v. Fed. Compress & Warehouse Co., 78
S.W.3d 885, 889-90 (Tenn. 2002)).
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IV. Analysis
Before addressing Appellants’ specific arguments, it is helpful to discuss the
interplay among the Waiver, the statutory scheme, TDIDD Policy #80.4.6, and the
Agreement. In doing so, we apply the standards of review applicable to contract and
statutory construction, which are set out supra.
The statutory scheme, Title 33, concerning “Mental Health and Substance Abuse
and Intellectual and Developmental Disabilities,” vests TDIDD with the “responsibility
for system planning, setting policy and quality standards, system monitoring and
evaluation, disseminating public information and advocacy for persons of all ages who
have mental illness . . . or developmental disabilities.” Tenn. Code Ann. § 33-1-201. To
achieve its functions, TDIDD is authorized “to promote the use of private and public
service providers . . . to achieve outcomes and accomplishments [to aid service
recipients].” Id. In engaging these private and public service providers (such as
Evergreen and Dawn), TDIDD is statutorily “empowered to enter into contractual
agreements.” Tenn. Code Ann. § 33-1-301(a); Tenn. Code Ann. § 33-1-302(a)(1) (“The
department may: (1) Make . . . contracts . . . .”). Pursuant to its statutory authority to
contract, TDIDD entered into Agreements with Evergreen and Dawn, discussed further
infra.
In addition to its authority to contract, the statutory scheme also vests TDIDD with
power to promulgate certain rules that providers will be required to follows. For
example, Tennessee Code Annotated Section 33-2-406 requires that a waiver services
provider “shall obtain a license from [TDIDD]. . . in order to lawfully establish . . . a
service or facility . . . .” To this end, Tennessee Code Annotated Section 33-2-404 states
that TDIDD “shall adopt rules for licensure of services.” Reading these provisions, in
pari materia, it is clear that in order to obtain a license for lawful operation, a service
waiver provider must adhere to the specific “rules for licensure of services” adopted by
TDIDD. Likewise, Tennessee Code Annotated Section 33-1-309(d) states that “[a]ll
methodology utilized by [TDIDD] for determining payment to service providers shall be
adopted as rules . . . .” Under Tennessee Code Annotated Section 33-2-407(b), which
addresses suspension or revocation of licenses, TDIDD must “establish by rule a
schedule designating the minimum and maximum civil penalties within the ranges set in
§ 33-2-409 that may be assessed under this part for violation of each statute and rule that
is subject to violation.” In addition to its authority to adopt licensure, payment, and civil
penalty rules, TDIDD is also statutorily authorized to “[m]ake and enforce rules that are
necessary for the efficient financial management and lawful operation of the facilities,
programs or services . . . .” Tenn. Code Ann. § 33-1-302(a)(3). The statute does not
specifically define what constitutes “rules . . . for . . . lawful operation.” Nonetheless,
Tennessee Code Annotated Section 33-1-309(a) requires that “the department shall adopt
all rules in accordance with the Uniform Administrative Procedures Act [(“UAPA”)].”
Tennessee Code Annotated Section 33-2-404(b) allows TDIDD to periodically “amend
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its rules . . . to be consistent with the federal home-based and community-based settings
final rule . . . .” From the foregoing statutes, we glean that TDIDD is statutorily
authorized to promulgate rules concerning licensure, payments, civil penalties, and lawful
operation of service providers’ facilities. To be enforceable against a provider, these
rules must be promulgated in accordance with the UAPA and must comport with federal
requirements, including the Waiver.
In the event that a waiver service provider violates a statutory requirements under
Title 33, e.g., attempts to operate without a license (Tenn. Code Ann. § 33-2-405), or
violates a Rule promulgated by TDIDD pursuant to its statutory authority, the statutory
scheme vests TDIDD with authority to impose civil penalties on the provider.
Specifically, Tennessee Code Annotated Section 33-2-407 provides:
(b) The department may impose a civil penalty on a licensee for a violation
of this title or a department rule. Each day of a violation constitutes a
separate violation. The department shall establish by rule a schedule
designating the minimum and maximum civil penalties within the ranges
set in § 33-2-409 that may be assessed under this part for violation of each
statute and rule that is subject to violation. The department may exclude a
statute or rule from the schedule if it determines that a civil penalty for
violation of that statute or rule would not achieve the purposes of licensure.
If the department has not adopted a rule designating the minimum and
maximum civil penalty that may be assessed for violation of a statute or
rule, the maximum civil penalty that may be imposed for violation of that
statute or rule shall be the lowest figure set under the appropriate subsection
of § 33-2-409 that applies to the violation.
Tenn. Code Ann. § 33-2-407(b) (emphasis added). From the emphasized language,
TDIDD may only assess civil penalties if a provider violates a statutory requirement or a
TDIDD rule. In the case of monetary civil penalties, Tennessee Code Annotated Section
33-2-409 limits the amount of the penalty, to-wit:
(a) A civil penalty of not less than two hundred fifty dollars ($250) and not
more than five hundred dollars ($500) may be imposed on a licensee for a
violation of a statute or rule.
(b) A civil penalty of not less than five hundred dollars ($500) and not more
than five thousand dollars ($5,000) may be imposed on a licensee for a
second or subsequent violation of the same kind committed within twelve
(12) months of the first penalty being imposed.
-8-
In addition to its statutory authority to adopt rules for provider licensure,
operation, payments, and to impose civil penalties for a provider’s violation of these
rules, TDIDD is also authorized to adopt “operating guidelines.” Specifically, Tennessee
Code Annotated Section 33-1-309(b) provides:
(b) All operating guidelines of the department of intellectual and
developmental disabilities (sometimes referred to as “DIDD”) and its
successors shall be adopted pursuant to the procedure set forth in this
subsection (b). For purposes of this section “operating guidelines” means
instructions to service providers that the department deems or intends to be
mandatory upon such providers. Interpretive instructions, other
nonmandatory guidance from the department and rules adopted pursuant to
the Uniform Administrative Procedures Act, are not operating guidelines.
(1) The adoption of operating guidelines shall be preceded by notice, public
meeting, opportunity for comment and responses to such comments from
the department; provided, however, in those instances in which the
department determines that exigent circumstances require that the operating
guideline be implemented prior to a public meeting, the department shall
begin the process required by this section as soon as reasonably practicable
after its implementation.
(2) The department shall provide notice in the Tennessee administrative
register which shall include a general description of the subject of the
operating guideline, the date, place and time of the public meeting and the
opportunity for interested persons to provide oral or written comments. The
date of the public meeting shall be no sooner than the first day of the month
following the month of publication of the notice. The notice shall also
include the name, address and telephone number of a contact person to
provide additional information, including, if available, copies of the
proposed operating guideline.
(3) A representative of DIDD shall be present to hear comments at a
hearing required by this section. The representative shall be a person
designated by the deputy commissioner of DIDD who is a director level or
higher employee. This designee shall be authorized to conduct the meeting
in such a manner as to provide reasonable opportunity for all interested
persons to provide comments.
(4) Within thirty (30) days after the meeting, DIDD shall provide responses
to the specific comments received and shall state the reasons for accepting
or rejecting the comments. DIDD shall maintain an official record of the
meeting, submitted comments and any responses.
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Pursuant to its statutory authority under Tennessee Code Annotated Section 33-1-
309(b), on or about January 23, 2013, TDIDD adopted Policy #80.4.6, with an effective
date of March 15, 2013. As stated in the Policy, its purpose “is to establish guidelines
for applying sanctions against contracted entities due to violations of the provider
agreement, provider manual, conditions of the home and community based service
waivers, and departmental policies and procedures” (Emphases added). Under the
Policy, available sanctions for such violations are: (1) termination of the waiver service
provider’s contract; (2) moratorium on persons served; (3) management takeover by
TDIDD; (4) mandatory training and assistance; and (5) financial penalties.
While Tennessee Code Annotated Sections 33-2-407 and 33-2-409 contemplate
civil penalties for a provider’s violation of Title 33, or TDIDD rules, Tennessee Code
Annotated Section 33-2-408 authorizes TDIDD to impose “sanctions” when a provider
engages in “deficient practices.” The statute provides, in relevant part:
(a) All proceedings by the department of intellectual and developmental
disabilities (DIDD) to impose sanctions against licensed entities under this
title shall be conducted in accordance with the Uniform Administrative
Procedures Act, compiled in title 4, chapter 5. The proceedings shall
include notice and opportunity for a hearing before an administrative law
judge who shall issue an initial order.
(a) Sanctions shall include any action by DIDD, based upon alleged
deficient practices of the licensed entity, to impose financial or
contractual penalties, including the following:
(1) Financial penalties shall include fines, liquidated damages, or denial
or withholding or delay of a payment.
***
(c) Sanctions do not include any action to recoup moneys that are
determined by DIDD to be unearned, according to stipulations specified in
the provider agreement between DIDD and the provider.
(d) This section shall not prevent termination of any contract with the
licensed entity in accordance with the provisions of that contract. In those
cases the contractor shall have only the due process rights, if any, otherwise
provided by law regarding termination of state contracts.
(e) All sanctions, except for financial sanctions, may be imposed
immediately by DIDD. This does not prevent the provider from appealing
the decision using the process as provided in the Uniform Administrative
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Procedures Act.
(f) These requirements shall not prevent the DIDD or the provider from
pursuing alternative means of resolving issues related to sanctions while the
process as provided in the Uniform Administrative Procedures Act is
pending.
Tenn. Code Ann. § 33-2-408. The statute does not define what is meant by “deficient
practices.”
As discussed above, pursuant to its statutory authority to contract, TDIDD entered
into Agreements with Evergreen and Dawn. In relevant part, the Agreement states:
A.4. [TDIDD] Provider Manual. A copy of [TDIDD] Provider Manual
shall be maintained by the State for review by the Provider. . . . The
Provider agrees that any authorized and approved services that it provides
to eligible persons served . . . shall be performed in accordance with this
Agreement, [TDIDD] approved policies and the [TDIDD] Provider Manual
as may be amended. . . .
A.5. State and Federal Compliance. [TDIDD], TennCare, and the Provider
shall be subject to all relevant and applicable state and federal . . . rules,
regulations, and statutory requirements, including any amendments and/or
revisions thereto, as they relate to this Agreement or any performance or
approved service to eligible persons . . .
(a) Waiver Services—Any Waiver Service as detailed in the [TIDD] Provider
Manual and performed by the Provider shall comply with terms of the . . .
[HCBS] waiver. . . .
***
A.21 Sanctions and Licensure Action. For failure to comply with this
Agreement or the standards and requirements referenced herein, [TDIDD] .
. . may invoke sanctions and licensure actions pursuant to Tennessee Code
Annotated, Section 33-2-408. . . .
(a) Sanctions—The Sanctioning Agencies may impose sanctions including,
but not limited to, the following . . .
***
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(vi) assess monetary sanctions for any deficient practice.
***
(c) In accordance with Tennessee Code Annotated Section 33-2-408, the
following procedures and appeals process shall apply with regard to the
imposition of any sanctions:
(i) [TDIDD] will provide notice of each sanction in writing. The
Provider may appeal the sanction within ten (10) working days
from the date of the written notice from the [TDIDD] Regional
Director. The appeal must be submitted to the Deputy
Commissioner of [TDIDD] through the Office of General
Counsel by certified mail or by facsimile transmission. The
notice of appeal must state the reason(s) for any objection to the
sanction.
(ii) If notice of appeal is timely filed, the imposition of monetary
sanctions will be stayed pending resolution of the appeal. A
hearing will be scheduled in accordance with the Uniform
Administrative Procedures Act requirements. . . .4
Under the plain language of the Agreement, the Providers agree to comply with the terms
of the Waiver. In the event the provider violates the Waiver, the Agreement provides that
TDIDD may levy monetary sanctions.
Because the trial court granted TDIDD’s motion for summary judgment as to each
count of Appellants’ Petition, we will review each count of the petition to determine
whether the trial court erred in granting summary judgment on that count. As an initial
matter, TDIDD asserts, in its appellate brief that
[Appellants] ha[ve] raised 17 issues on appeal. [Appellants’] amended
complaint consisted of only nine counts, and summary judgment was
granted by the trial court in [TDIDD’s] favor for each. To the extent that
[Appellants] ha[ve] attempted to raise issues outside of its complaint, they
should be deemed waived.
We agree. To the extent that Appellants’ specific issues were not argued or adjudicated
in the trial court, we will consider them to be waived on appeal. City of Cookeville ex
rel. Cookeville Reg’l Med. Ctr. v. Humphrey, 126 S.W.3d 897, 905-906 (Tenn. 2004)
4
The Provider Agreement language is taken from the Provider Agreement entered by and
between TDIDD and Dawn. It is undisputed that these contractual provisions are the same for both Dawn
and Evergreen.
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(“Questions not raised in the trial court will not be entertained on appeal.”) (citation
omitted).
Count I
In Count I of the Petition, Appellants contend that TDIDD
does not have authority for its Sanction Policy[, i.e., Policy #80.4.6,] and[,]
therefore[,] the Sanctions issued pursuant to the Sanction Policy are invalid.
The Sanction Policy conflicts with the statutory provisions. The statutes[,
i.e., Tennessee Code Annotated Sections 33-2-407(b) and 33-2-409,]
provide for the monetary sanction to be assessed against Providers for
violations of Title 33 Tennessee Code Annotated and [TDIDD] Rules. The
Sanctions issued were for practices that did not violate Title 33 or [TDIDD]
Rules. . . .
In its order granting summary judgment in favor of TDIDD, the trial court restates
Appellants’ argument as follows: “Appellants argue[] that [the provider] invoicing
violates neither Title 33 nor DIDD rules and thus the sanctions are in excess of the
statutory authority provided in Tenn. Code Ann. § 33-2-407(b).” TDIDD counters that
the monetary fines imposed on Evergreen and Dawn are not “civil penalties” governed by
Tennessee Code Annotated Section 33-2-407(b), but rather sanctions governed by
Tennessee Code Annotated Section 33-2-408, which “sanctions” are not subject to the
limits set out in Tennessee Code Annotated Section 33-2-409, supra. The Policy
specifically states that its purpose “is to establish guidelines for applying sanctions
against contracted entities due to violations of the provider agreement, provider manual,
conditions of the home and community based service waivers, and departmental policies
and procedures” (Emphases added). The Policy cites, inter alia, the “Provider
Agreement, TCA 33-2-408, [and] Tennessee Home and Community Based Waivers” as
the “authority,” under which the Policy is adopted. As discussed above, Tennessee Code
Annotated Section 33-2-408 specifically authorizes TDIDD to impose sanctions for a
provider’s “deficient practices.” Additionally, the Policy sets out those violations that
may give rise to the imposition of sanctions, to-wit: TDIDD may impose “sanctions
against contracted entities due to violations of the provider agreement, provider
manual, conditions of the home and community based service waivers, and
departmental policies and procedures” (emphasis added). Furthermore, Tennessee
Code Annotated Section 33-1-309(b) authorizes TDIDD to adopt guidelines that will be
mandatory on providers. The guidelines adopted in the Policy, including those regarding
what will constitute a violation giving rise to sanctions, do not exceed TDIDD’s statutory
authority to adopt such guidelines. Moreover, although Tennessee Code Annotated
Section 33-2-408 authorizes sanctions for a provider’s deficient practices, the statute is
silent as to what constitutes deficient practices. Accordingly, it is incumbent on TDIDD
(pursuant to its statutory authority to adopt guidelines) to adopt criteria for imposition of
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sanctions, i.e., to define what constitutes deficient practices. To this end, the Policy
specifically enumerates those violations that may give rise to sanctions, i.e., “violations
of the provider agreement. . . [and] conditions of the [HCBS] [W]aiver[].” Because
sanctions are only allowed for deficient practices, and because the Policy sets out those
circumstances that will give rise to sanctions, we conclude that the Policy’s enumerated
violations constitute deficient practices for purposes of imposing sanctions. Here, it is
undisputed that the Providers’ billing practices violated the Waiver and the Provider
Agreement. From the plain language of the Policy, we conclude that a Providers’ breach
of the Provider Agreement and violation of the Waiver constitute “deficient practices,”
which are punishable by sanctions, including monetary fines. Because such violations
are “deficient practices,” under Tennessee Code Annotated Section 33-2-408, and not
violations of rules or statutes, Tennessee Code Annotated Sections 33-2-407 and 33-2-
409 are not implicated in this case.
In holding that TDIDD is entitled to summary judgment as to Appellants’ first
count, the trial court’s order states, in relevant part, that
Tenn. Code Ann. § 33-2-408(b) expressly acknowledges [TDIDD’s] ability
to sanction, including financial sanctions, for “deficient practices” of the
licensed entity. As Tenn. Code Ann.§ 33-2-408 governs sanctions and as
Tenn. Code Ann. § 33-2-408(b) provides for financial sanctions for
“deficient practices” of the licensed entity, the Court finds that the Policy
did not exceed [TDIDD’s] statutory authority to impose sanctions.
Accordingly, the Court finds that [TDIDD] is entitled to judgment as a
matter of law on Count I of the Petition.
For the reasons discussed above, we agree with the trial court’s holding. Tennessee Code
Annotated Section 33-1-309(b) specifically authorizes TDIDD to adopt guidelines such
as Policy #80.4.6. Tennessee Code Annotated Section 33-2-408 specifically authorizes
TDIDD to impose financial sanctions for a provider’s deficient practices. Although the
statute does not define “deficient practices,” this does not preclude TDIDD from defining
this term under its power to promulgate guidelines. In this regard, Policy #80.4.6 does
not exceed the scope of the authority granted under Section 33-2-408 insofar as the
Policy defines “deficient practices” to include a provider’s violation of the Provider
Agreement and/or the Waiver.
Count II
In Count II of the Petition, Appellants contend that the Policy exceeds the
statutory maximum set out in Tennessee Code Annotated Section 33-2-409, supra. In
holding that TDIDD is entitled to summary judgment as to Count II of Appellants’
complaint, the trial court’s order states, in relevant part, that:
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In Count II, [Appellants] complain[] that the Policy’s penalties exceed the
statutory maximum as provided in Tenn. Code Ann. § 33-2-409 . . . .
[TDIDD] argues that Tenn. Code Ann. § 33-2-409 governs civil penalties,
not sanctions. [TDIDD] suggests that the correct statute is Tenn. Code
Ann. § 33-2-408, which governs sanctions and which leaves the amount of
financial sanctions for [TDIDD] to determine. The pertinent part of Tenn.
Code Ann. § 33-2-408 provides: “(b) Sanctions shall include any actions by
DIDD, based upon alleged deficient practices of the licensed entity, to
impose financial or contractual penalties, including the following: (1)
Financial penalties shall include fines, liquidated damages or denial,
withholding or delay of a payment[.]” Tenn. Code Ann. § 33-2-408(b)(1).
Thus, [TDIDD] argues, the range of financial sanctions provided by the
Policy does not exceed the statutory authority provided. The Court agrees.
Accordingly, the Court finds that [TDIDD] is entitled to judgment as a
matter of law on Count II of the Petition.
As discussed above, by its plain language, Tennessee Code Annotated Section 33-
2-409 governs “civil penalties,” not sanctions. Here, the applicable statute is Tennessee
Code Annotated Section 33-2-408(b). Although Tennessee Code Annotated Section 33-
2-408 specifically states that “[s]anctions shall include any action by [TDIDD] . . .
including . . .[f]inancial penalties . . .,” it does not impose a limit on the amount of
financial sanctions that TDIDD may impose for a provider’s deficient practices. Just as
TDIDD was statutorily authorized to set guidelines defining what constitutes a provider’s
deficient practices, the statute’s silence as to the amount of sanctions allows TDIDD to
promulgate guidelines concerning sanction amounts. To this end, and under the statutory
authority granted in Tennessee Code Annotated Section 33-1-309(b), TDIDD’s Policy
sets out three classes of sanctions. Class A sanctions can result in a moratorium,
termination of the provider agreement, or management takeover. Class B sanctions can
result in daily sanctions of $100.00 to $500.00 until resolution of the deficient practice.
Class C sanctions can result in a one-time sanction of $100.00 to $500.00. There is no
allegation that the sanctions imposed against Evergreen and Dawn exceeded the amounts
set out in the Policy. Appellants contend only that TDIDD exceeded the statutory
maximum set out in Tennessee Code Annotated Section 33-2-409. This statute, however,
governs civil penalties, not sanctions. As such, we conclude that the trial court did not
err in granting summary judgment against Appellants as to Count II.
Count III
In Count III of the Petition, Appellants argue that the Policy’s appeal procedure
violates the statutory authority set out at Tennessee Code Annotated Section 33-2-407(c),
which provides:
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(c)(1) The procedure governing the suspension or revocation of a
license or imposition of a civil penalty shall be as prescribed in this
subsection (c).
***
(3) If the department determines that a license should be suspended or
revoked, a civil penalty imposed, or both, it shall so notify the licensee.
Within fifteen (15) days of notification, the licensee may file a written
request for review by the panel appointed under § 33-2-403(d). The
review shall be at the earliest possible date, and the panel shall report its
recommendations to the commissioner. The commissioner shall determine
whether the original action shall remain effective and shall notify the
licensee. Within fifteen (15) days of notification, the licensee may file a
written request for a hearing before the department. The hearing shall be
conducted under the Uniform Administrative Procedures Act, compiled in
title 4, chapter 5.
(Emphasis added). Relying on the foregoing statute, Appellants assert that the Policy
omits the review panel and requires an appeal within ten days of notification rather than
fifteen days as provided under the UAPA. Therefore, Appellants argue that the Policy
violates TDIDD’s statutory authority. As highlighted above, the procedure outlined in
Tennessee Code Annotated Section 33-2-407(c) applies only when TDIDD seeks to
suspend or revoke a provider’s license or to impose civil penalties. As discussed above,
in this case, TDIDD imposed sanctions against Evergreen and Dawn for deficient
practices, as opposed to civil penalties for violation of Title 33 or TDIDD rules.
Accordingly, Tennessee Code Annotated Section 33-2-407(c) (and specifically the 15-
day time period set out therein) is not applicable. Instead, the correct statute is Tennessee
Code Annotated Section 33-2-408, which provides that:
(a) All proceedings by the department of intellectual and
developmental disabilities (DIDD) to impose sanctions against licensed
entities under this title shall be conducted in accordance with the Uniform
Administrative Procedures Act, compiled in title 4, chapter 5. The
proceedings shall include notice and opportunity for a hearing before an
administrative law judge who shall issue an initial order.
(Emphasis added). In its order, the trial court found that “the correct statutory authority
for sanctions is Tenn. Code Ann. § 33-2-408(a), which provides that the appeal process is
governed by the UAPA and must include notice and an opportunity for a hearing before
an administrative law judge who must issue an initial order.” The only question, then, is
whether TDIDD’s Policy comports with Section 33-2-408(a). The Policy sets out the
appeal process for sanctions as follows:
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4. The following appeals process shall apply to sanctions.
a. [TDIDD] shall issue a sanction letter to the provider prior to imposing
any sanction.
b. The provider may appeal the sanctions within ten (10) business days of
receipt of the sanction letter, or from the date of the Department’s
decision regarding any additional information submitted as described
above, whichever is later. The provider shall submit the appeal to the
office of general counsel via certified mail or facsimile. The appeal
shall state and explain the provider’s objection(s) to the sanction.
c. The office of general counsel shall review the appeal and route it to the
Commissioner.
d. If the provider filed the appeal within the specified time period, the
imposition of monetary sanctions shall be stayed pending resolution of
the appeal.
e. The office of general counsel shall schedule a hearing in accordance
with the Uniform Administrative Procedures Act.
f. If the administrative law judge upholds the sanction, then, monetary
sanctions shall be calculated from the effective date noted in the
sanction letter.
In its order, the trial court further held that
The Policy’s appeal process provides for a contested case hearing with
notice and an opportunity to be heard. Accordingly, the Court finds that the
Policy does not violate the statutory authority provided in Tenn. Code Ann.
§ 33-2-408(a). The Court finds that [TDIDD] is entitled to judgment as a
matter of law on Count III.
We agree with the trial court’s holding. Tennessee Code Annotated Section 33-2-408(a)
merely requires that sanction proceedings be conducted in accordance with the UAPA,
with notice and an opportunity for hearing. Unlike Tennessee Code Annotated Section
33-2-407(c) (which, for the reasons discussed above, is not applicable), Tennessee Code
Annotated Section 33-2-408(a) does not impose a specific time frame. Accordingly, we
cannot conclude that the 10-day time period set out in the Policy, supra, exceeds
TDIDD’s statutory authority. From the plain language of both the statute and the Policy,
we conclude that the Policy meets the requirements of the statute insofar as the Policy
provides for application of UAPA procedures, requires TDIDD to send notice of
sanctions to the provider, and provides an opportunity for hearing before imposition of
sanctions. Accordingly, TDIDD was entitled to summary judgment on Count III of the
Petition.
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Count IV
In Count IV of the Petition, Appellants argue that the Policy is void because it falls
within the definition of a Rule and was not promulgated pursuant to the UAPA. As
discussed above, the Policy clearly states that it is a “guideline,” not a Rule. Despite this
fact, Appellants contend that because the Policy establishes monetary sanctions, the
Policy meets the UAPA’s definition of a “Rule” and does not fall into one of the
enumerated exceptions. The UAPA defines a “Rule,” in relevant part, as follows:
“Rule” means each agency statement of general applicability that
implements or prescribes law or policy or describes the procedures or
practice requirements of any agency. “Rule” includes the amendment or
repeal of a prior rule, but does not include:
(A) Statements concerning only the internal management of state
government and not affective private rights, privileges or procedures
available to the public;
(B) Declaratory orders issued pursuant to § 4-5-223;
(C) Intra-agency memoranda;
(D) General policy statements that are substantially repetitious of
existing law;
Tenn. Code Ann. § 4-5-102(12) (emphases added). In response to Appellants’ argument,
TDIDD asserts that its Policy was adopted pursuant to the statutory authority set out at
Tennessee Code Annotated Section 33-1-309(b), supra. According to TDIDD, the Policy
is simply an operating guideline, not a Rule because it falls within the exception for
“statements concerning only the internal management of state government and not
affecting private rights . . . .” Tenn. Code Ann. § 4-5-102(12)(A). Specifically, TDIDD
contends that the sanction process affects only those providers that are under contract
with TDIDD, not the public at large. TDIDD concedes that, if the Policy were broad
enough to reach persons or entities that were not under contract to follow it, then the
Policy would be a Rule subject to promulgation under the UAPA. However, because the
Policy applies only to TDIDD employees and contracted entities, TDIDD contends that
the Policy is an exception to the statutory definition of Rule and, thus, is not required to
be promulgated pursuant to the UAPA. Nonetheless, Appellants contend that, in order to
be defined as an operating guideline, the Policy would have to include instructions to
providers that TDIDD intends to be mandatory. Appellants also assert that the Policy
does not instruct the providers, but rather instructs the staff of TDIDD as to how the staff
will sanction the providers. TDIDD, however, contends that the Policy clearly provides
mandatory instructions for contracted providers regarding sanction guidelines and the
appeals process. In support of this contention, TDIDD cites the Policy language: “This
Policy applies to department staff responsible for enforcement of the provider agreement,
provider manual, authorizing and applying sanctions, and to all contracted entities.”
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(Emphasis added).
In holding that the Policy was correctly adopted as an operating guideline pursuant
to Tennessee Code Annotated Section 33-1-309(b), the trial court relied on Attorney
General Opinion No. 07-42, to-wit:
In Attorney General Opinion No 07-42, the Attorney General
considered the Division of Mental Retardation Services (“DMRS”)
“operating guidelines” within its Provider Manual, which is a
comprehensive manual to outline the basic principles and requirements for
delivery of quality services to people with intellectual disabilities. After
determining that DMRS is an “agency,” as that term is defined under the
UAPA, the Attorney General explained that DMRS retains statutory
authority to promulgate rules as required by Title 33 pursuant to Tenn.
Code Ann. § 33-1-309. Unless the “operating guidelines” fell within one of
the statutory exceptions to the definition of a Rule under Tenn. Code Ann.
§ 4-5-102(12), the Attorney General stated that they would be required to
be promulgated as rules under the UAPA.
Citing to the exception to the definition of a Rule found at Tenn.
Code Ann. § 4-5-102(12)(A), the Attorney General opined that DMRS’
“operating guidelines” were to be imposed only on those providers under
contract with DMRS, and, as such, the “operating guidelines” are
statements concerning only the internal management of DMRS and do not
affect private rights, privileges or procedures available to the public.
Further, the Attorney General opined that the duty to comply with the
provisions of the “operating guidelines” is a requirement of the contract
with DMRS, and imposition of any penalty for failure to comply with the
“operating guidelines” is only allowed as provided in the provider contract.
See Tenn. Op. Atty. Gen. No. 07-42, 2007 WL 1451629 (April 4, 2007).
Applying the logic employed by the Attorney General, the trial court held that:
The same can be said about the Policy here. The Policy is only to be
imposed on those Providers under contract with [TDIDD] and, as such, are
statements concerning only the internal management of [TDIDD]. The
Policy does not affect private rights, privileges or procedures available to
the public, and it contains instructions to service providers that the
department deems or intends to be mandatory upon such providers. So,
while the Policy is, indeed, an “agency statement of general applicability
that . . . describes the procedures or practice requirements of any agency,” it
is also “[s]tatements concerning only the internal management of state
government and not affecting private rights, privileges or procedures
available to the public[]” and “instructions to service providers that the
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department deems or intends to be mandatory upon such providers.” Tenn.
Code Ann. § 4-5-102(12); Tenn. Code Ann. § 33-1-309(b). Accordingly,
the Court finds that the Policy fits within the exception to the definition of
“Rule” as provided in Tenn. Code Ann. § 4-5-102(12)(A). Hence, the
Policy was not required to be adopted in accordance with the UAPA as
provided for in Tenn. Code Ann. § 33-1-309(a). For these reasons, the
Court finds that [TDIDD] is entitled to judgment as a matter of law on
Count IV.
We agree with the trial court that the Policy is an operating guideline, as opposed
to a Rule. As noted above, the Policy specifically states that it applies to “department
staff . . . and to all contracted entities.” This language clearly narrows the Policy’s
application to TDIDD employees and to contracted entities such as Evergreen and
Dawn. Although the substantive requirements outlined in the Policy primarily address
the internal procedures that TDIDD will follow, the Policy also outlines the appeals
procedure that contracted entities must follow in order to appeal the imposition of
sanctions. In this regard, the Policy is mandatory only on TDIDD employees and
contracted entities. It does not address or bear on “private rights, privileges or procedures
available to the public[].” As such, we hold that the Policy meets the exception to the
definition of a Rule under Tennessee Code Annotated Section 4-5-102(12)(A).
Count V
We now turn to Count V of the Petition, wherein Appellants argue that sanctions
for breach of the Agreement are illegal. As set out in context above, the Agreement
states that TDIDD “may invoke sanctions . . . pursuant to TCA § 33-2-408,” and
“sanctions includ[e], but [are] not limited to . . . assess[ment] [of] monetary sanctions”
(emphasis added). Tennessee Code Annotated Section 33-2-408 defines “sanctions” as “.
. . any action by [TDIDD]. . . to impose financial . . . penalties, including the following:
(1) Financial penalties shall include fines, liquidated damages . . . ” (emphases added).
As discussed above, Tennessee Code Annotated Section 33-2-408 authorizes TDIDD to
impose “financial penalties” for a provider’s “deficient practices” but does not define
what is meant by a deficient practice. In instances where the statute is silent, TDIDD has
authority to adopt guidelines, see discussion above.5 Here, TDIDD adopted Policy
#80.4.6 as a guideline for assessing sanctions under its statutory authority to do so. As
discussed above, the Policy enumerates those instances where sanctions are warranted,
i.e., the Policy defines what constitutes a deficient practice, and specifically states that a
“violation of the provider agreement” is a deficient practice that may give rise to
sanctions.
5
TDIDD’s statutory authority to adopt guidelines is not limited to those instances where the
statute is silent; however, TDIDD’s guidelines may not exceed its statutory authority.
- 20 -
Appellants contend that sanctions meant to punish providers for breach of contract
are disfavored in Tennessee. In its final order, the trial court explained the parties’
respective positions as follows:
In Count V, [Appellants] contend that the Policy provisions for
violation of the Provider Agreement are invalid sanctions for breach of
contract. [Appellants] allege[] that the provisions of the Provider Manual
that permit sanctioning for deficient practices are illegal penalties that
violate public policy. . . .
[TDIDD] argues that, because the Provider Agreement does not
describe sanctions as penalties, they should be considered liquidated
damages. Further, [TDIDD] argues that, as in most governmental
contracts, the damages for violations of the HCBS Waiver, Provider
Manual, and Provider Agreements are uncertain or immeasurable. Tenn.
Code Ann. § 33-2-408 acknowledges [TDIDD’s] ability to impose financial
and contractual penalties and the HCBS Waiver itself, which was approved
by the federal government, contemplates sanctioning for failure to comply
with its requirements. Thus [TDIDD] asserts that the sanctions here are
properly construed as permissible damages.
In granting summary judgment in favor of TDIDD on this Count of Appellants’ Petition,
the trial court adopted TDIDD’s argument that the sanctions imposed against Evergreen
and Dawn are, in fact, liquidated damages, which the Legislature specifically authorizes
TDIDD to collect insofar as the statutory definition of “sanctions,” under Tennessee
Code Annotated Section 33-2-408, includes “financial penalties,” which include
“liquidated damages,” see supra. While we agree that, under the plain language of the
statute, TDIDD may collect liquidated damages for a provider’s deficient practices,
including “violations of the provider agreement,” we do not agree that the monetary
amounts levied against Evergreen and Dawn constitute “liquidated damages” in this case.
The term “liquidated damages” is defined as a “sum stipulated and agreed upon by
the parties at the time they enter their contract, to be paid to compensate for injuries
should a breach occur.” V.L. Nicholson Co. v. Transcon Inv. & Fin. Ltd., Inc., 595
S.W.2d 474, 484 (Tenn.1980) (emphasis added); see also Kimbrough & Co. v. Schmitt,
939 S.W.2d 105, 108 (Tenn.App.1996), perm. app. denied (Tenn.1996). The stipulated
amount represents an estimate of potential damages in the event of a contractual breach
where damages are likely to be uncertain and not easily proven. V.L. Nicholson, 595
S.W.2d at 484 (emphasis added). Here, the sums assessed to Evergreen and Dawn were
not levied to compensate TDIDD for injuries from Evergreen and Dawn’s respective
violations of the Provider Agreement and Waiver. This is so because there is no evidence
that TDIDD’s suffered any actual damages due to the Providers’ billing violations.
Rather, the monetary amounts charged to the Providers were meant to be coercive (i.e., to
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force the Providers to comply with the Waiver), not compensatory (i.e., to compensate
TDIDD for losses it suffered as a result of the Providers’ breaches).
While we concede that, in defining what is meant by sanctions for deficient
practices, the Provider Agreement uses the term “monetary sanctions” whereas the statute
uses the term “financial penalties,” this is merely a semantic conflict and a distinction
without difference. Both are sanctions authorized under Tennessee Code Annotated
Section 33-2-408. Furthermore, the amount of these sanctions was neither estimated nor
unknown to the parties. Policy #80.4.6 clearly states that
Class B. Sanction shall mean repeat violations or violations that involve
multiple persons supported or an agency that supports only one (1) person.
This deficiency may result in daily cumulative sanctions of $100.00 to
$500.00 until resolution of the deficiency . . .
As discussed above, neither Tennessee Code Annotated Section 33-2-408, nor the
Provider Agreement indicate the amount TDIDD may levy as a sanction for a provider’s
deficient practices. However, the Policy adopted by TDIDD pursuant to its statutory
authority to establish guidelines clearly sets the amount of sanctions that may be imposed
for the type of deficient practice at issue here. There is no evidence that TDIDD
exceeded the Policy amount in sanctioning these Providers. Because TDIDD was
authorized to impose financial sanctions for deficient practices in violation of the
Agreement, we affirm the trial court’s grant of summary judgment on this Count of the
Petition
Counts VI, VII, and VIII.
In Count VI, Appellants assert that the sanctions violate statutory authority. In
Count VII, Appellants contend that the appeals process for sanctions violates TDIDD’s
statutory authority. In Count VIII, Appellants argue that the sanctions are invalid
because the Policy is a Rule, which was not promulgated according to the statute. These
counts are largely reiterations of Counts I through V. Regardless, the arguments asserted
in Counts VI through VIII are all premised on Appellants’ contention that the sanctions
are governed by Tennessee Code Annotated Sections 33-2-407(b) and 33-2-409. We
have previously stated that these statutes apply only when TDIDD seeks to impose “civil
penalties” against a provider. The instant case involves the imposition of sanctions,
which are governed by Tennessee Code Annotated Section 33-2-408. For the reasons
discussed above, TDIDD’s imposition of these sanctions neither exceeded its statutory
authority, nor violated any statutory requirements. Accordingly, TDIDD was entitled to
summary judgment on these counts.
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Count IX
In the last Count of the Petition, Appellants ostensibly make three arguments.
First, Appellants contend that invoicing for more than 243 days of day services is not a
sanctionable offense. Second, Appellants argue that TDIDD did not give the Providers
proper notice before TDIDD began imposing monetary sanctions, in 2015, for invoicing
more than 243 days in 2014. Finally, Appellants argue that, in view of the fact that, prior
to 2014, TDIDD did not impose sanctions for overbilling, it was required to promulgate
its new policy as a Rule or regulation, which it did not do. We will address each of these
arguments in turn.
a. Invoicing for More than 243 Days
It is undisputed that the Waiver states that providers will not be reimbursed for
service days in excess of the cap of 243 days of day services per individual per year.
Appellants, however, argue that the Waiver does not limit the number of days of day
services that a provider may invoice. The Provider Agreement states, in relevant part,
that TDIDD
will refuse payment to the Provider for services billed to [TDIDD] that are
beyond the level of services authorized by [TDIDD] through Individual
Support Plans or Individual Support Plan Amendments, exceed payment
rates for these services are not billed to [TDIDD] within the appropriate
time frame after the delivery of services.
Relying on the foregoing language, Appellants’ argue that the Providers are not restricted
from invoicing in excess of 243 days. Appellants further argue that the foregoing
language places the burden on TDIDD to deny payment for invoicing that exceeds the
243-day cap. As support for this argument, Appellants note that, although the 243-day
limit has been a Waiver requirement since 2007, until 2014, TDIDD handled over-
invoicing by simply denying payment for the excess days. In other words, until 2014,
TDIDD screened provider invoices for the number of days of day services and simply
stopped paying once the 243-day limit was reached. TDIDD counters by pointing out
that the Agreement expressly provides for sanctions, pursuant to Tennessee Code
Annotated Section 33-2-408, for a provider’s failure to comply with the requirements of
the Provider Manual, etc. The Provider Manual also reiterates that failure to comply with
the Agreement, specifically the provisions regarding the Waiver, are sanctionable
offenses, i.e., deficient practices. Furthermore, the Agreement states that the provider
must “comply with the terms of the Center for Medicare and Medicaid Services (CMS)
approved 1915(c) Home and Community Based Services Waiver for Mentally Retarded
and Developmentally Disabled.” From the Agreement, Provider Manual, and Policy, it is
clear that any violation of the Waiver is a sanctionable offense. The question remains,
- 23 -
however, whether the Waiver forbids a provider from invoicing more than 243 days for
day services.
In relevant part, the Waiver provides that: “Day Services shall be limited to a
maximum of 5 days per week up to a maximum of 243 days per person per calendar
year.” Again, Appellants argue that the Waiver does not specifically state that a provider
may not invoice for more than 243 but only reiterates TDIDD’s obligation to refuse
payment for more than 243 days. In support of this argument, Appellants further note
that providers are not able to determine when the 243 day limit has been reached for
individuals because these individual may receive waiver services from multiple providers
or they may move their services from one provider to another. Therefore, Appellants
argue that providers have no way to ensure that their billings for individual service
recipients do not exceed the 243 days.
In resolving the question of whether the Waiver forbids invoicing for more than
243 days of day services, the trial court’s order explains:
The terms of each state’s waivers are unique, including services that
may be covered and limitations applicable thereto. Tennessee has three
waivers authorized under Section 1915(c) of the Social Security Act (the
“Act”) that permit the State to provide HCBS services that would otherwise
not be available to individuals with intellectual disabilities and children
with developmental disabilities. . . . Under the terms of each of
Tennessee’s approved Section 1915(c) waivers, day services are limited to
a maximum of five days per week up to a maximum of 243 days per service
recipient per year. The State Plan and any approved Waivers act as a
contract between the State and Centers for Medicare and Medicaid Services
(“CMS”).
States must comply with their Plan and approved Waivers and with
all applicable federal law and regulations in order to receive federal
matching funds for covered benefits provided to eligible enrollees,
including federal waiver assurances set forth in 42 CFR § 441.302. One of
these assurances pertains to the financial accountability of the program.
These assurances are embedded into the Waiver application that the State
submits to CMS and against which the State is monitored. In Appendix I:
Financial Accountability of the CMS Waiver application template, section
I-1: Financial Integrity and Accountability, the State is required to:
Describe the methods that are employed to ensure the
integrity of payments that have been made for waiver
services, including: (a) requirements concerning the
independent audit of provider agencies; (b) the financial audit
program that the state conducts to ensure the integrity of
- 24 -
provider billings for Medicaid payment of waiver services,
including the methods, scope and frequency of audits; and (c)
the agency (or agencies) responsible for conducting the
financial audit program.
In each of the CMS-approved Waiver applications, the State offers
three components of the financial audit program that the State conducts to
ensure the integrity of provider billings for Medicaid payment of Waiver
services. One of these components is “Fiscal Accountability Review”
(“FAR”), whereby a review of the claims billed is compared to supporting
documentation and all discrepancies are noted in a report that is submitted
to the contract provider for comment. Another component is the State
audit. The audit, which covers at least one fiscal year, includes a random
sample of each program, including the HCBS Waiver program. Requests
for documentation to support paid claims are made directly to selected
providers. At the completion of the audit process, a comprehensive report
is submitted to TennCare for review and follow-up to insure that findings
are not repeated in subsequent years.
In a performance audit conducted in 2013 by the Office of the
Comptroller, a finding was identified because [TDIDD’s] computer system
did not contain an edit that would prevent Providers who billed in excess of
the 243-day limit from receiving Medicaid overpayments. It was further
discovered that, with respect to the Self-Determination Waiver, TennCare’s
Medicaid Management Information System (“MMIS”) did not have an edit
in place to prevent these claims from being overpaid. Upon this discovery,
TennCare took action to reconfigure MMIS to include an edit against the
day services limits, which was put into place in 2013. In addition, working
with [TDIDD], other overpayments that had been made under the Self-
Determination Waiver in excess of the 243-day limit were recouped.
Providers are bound by the terms of their Medicaid Provider
Agreement with TennCare and with [TDIDD] to comply with all relevant
and applicable state and federal court orders, consent decrees, policies,
rules, regulations, and statutory requirements, including any amendments
and/or revisions thereto, as they relate to the Agreement or any
performance of approved service to eligible persons supported. The
Medicaid Provider Agreement affirms to Providers that they are not entitled
to reimbursement for services beyond the scope of a defined Waiver service
definition, including the 243-day limit on day services.
Applicable state and federal laws with which the State must comply
include the federal and Tennessee False Claims Acts. Under the Guidance
for Providers, developed by the US Department of Health and Human
Services, Office of Inspector General, it is illegal to submit claims for
payment to Medicare or Medicaid that the Provider knows or should know
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are false or fraudulent. The Guidance describes the difference between
unintentional mistakes and fraudulent or abusive behavior and makes it
clear that submitting an erroneous claim for payment is different from
submitting the same claim with actual knowledge, reckless disregard or
deliberate ignorance of its falsity. The Guidance further describes non-
covered services or items billed by a Provider as an example of fraud, waste
and abuse. [TDIDD] argues that services in excess of a defined benefit
limit (i.e., in excess of the 243-day limit) are non-covered services. Thus,
[TDIDD] argues, in billing in excess of the defined 243-day limit specified
in the CMS-approved Waiver application, Providers knowingly sought
payment to which they were not entitled.
Under the terms of TennCare’s Agreement with [TDIDD], [TDIDD]
is required to take corrective actions as are necessary, including sanctions,
when a Provider is unwilling or unable to comply with the Waiver program
requirements. TennCare is obligated under the terms of the Waiver to limit
the billing and payment for day services to 243 days per person per year.
TennCare is also obligated under the Waiver to monitor Provider billing in
order to provide assurance of financial accountability for the program, as
well as to take appropriate action to ensure compliance. [TDIDD] argues
that Providers are obligated to bill only for services they have been
authorized to provide and in accordance with the covered services defined
in the approved Waiver application. [TDIDD] further argues that Providers
who submit claims for payment of day services in excess of the limit are in
violation of the State’s approved Waiver, as well as the federal and
Tennessee False Claims Acts. The State is obligated to take appropriate
action to assure compliance, and, if it does not, it risks termination of the
Waivers and federal funding for HCBS services provided to vulnerable
citizens under these programs.
[TDIDD] argues that the record reflects that billing in excess of the
243-day limit is a violation of the HCBS Waiver and Provider Manual.
[TDIDD] further argues that violating the HCBS Waiver and Provider
Manual is a deficient practice subject to sanction by agreement of the
parties in the Provider Agreement. [TDIDD] argues that Providers have a
responsibility to understand where a service recipient is with respect to
benefit limit, so they know not to exceed the provision of service or the
billing of service beyond a billing limit. Providers can talk to [TDIDD]
about how may service units remain available. It is incumbent upon
Providers to coordinate their care, and this applies to people who have more
than one day services Provider.
Based on the foregoing discussion, the trial court ultimately held that the onus is
on the Providers to ensure that they bill for only authorized services. Specifically, the
trial court’s order states that:
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As to the question of whether invoicing/billing beyond the 243-day
limit for day services is a deficient practice subject to sanctions,
[Appellants’] answer is no. [Appellants] argue[] that, because Providers
were previously allowed to bill for all services provided and [TDIDD]
limited its payment to the 243-day limit, the onus was on [TDIDD] to only
pay up to the 243-day limit. [TDIDD], on the other hand, answers the
posed question as yes. [TDIDD’s] argument is that invoicing/billing for
over the 243-day limit has always been considered a deficient practice
subject to sanctions and [TDIDD] places the onus on Providers to limit
their billing/invoicing to only 243-days of day services.
Neither the Provider Agreement, Provider Manual, nor HCBS
Waiver expressly states that Providers cannot bill/invoice in excess of the
243-day limit. Rather, the HCBS Waiver provides that day services shall
be limited to a maximum of five days per week up to a maximum of 243
days per recipient per year. So, who has the onus to comply with this limit?
The Court finds that, despite both parties having very compelling
arguments, the most compelling argument is the one most consistent with
the HCBS Waiver. That is: Providers are obligated to bill only for services
they have been authorized to provide. Because Providers are only
authorized to provide 243 days of day services, the onus is on Providers to
only bill for 243 days of day services. As the Court has so found, it follows
that the Court finds that invoicing/billing for over 243 days of day services
is a deficient practice subject to sanctions. Accordingly, [TDIDD] is
entitled to judgment as a matter of law . . . .
We agree that both TDIDD and the Providers have an obligation to ensure that the
billings for waiver services are compliant with federal mandates. TDIDD does this by
imposing requirements, contractual and procedural, on the providers. In turn, the
providers do this by complying with these requirements. In this case, and for the reasons
discussed above, the Providers breached the Agreement, Provider Manual, and the
Waiver by submitting bills for services the Providers were not authorized to provide, i.e.,
day services in excess of the 243-day limit. As found in the Comptroller’s audit, the
Providers’ deficient practices had the potential to negate the State’s ability to receive
federal funds for provision of waiver services, and TDIDD is statutorily authorized to
impose sanctions as a means of enforcing proper practices by providers.
b. Notice
Appellants contend that, without prior notice, TDIDD began levying monetary
sanctions, in 2015, for invoicing more than 243 days in 2014. Although the sanction
letters state that the Providers had been warned of the billing violations in 2014,
Appellants contend that this is incorrect. Appellants argue that the sanction letters were
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the first notice TDIDD sent regarding the overbilling. While maintaining that it sent
warning letters before levying sanctions, TDIDD asserts that, regardless of the warning
letters, the Providers were informed of the potential for sanctions as part of the terms of
the Agreement. In holding that Appellants received adequate notice that TDIDD
intended to start imposing sanctions in 2015, the trial court relied on the depositions of
Lee Vestal, TDIDD Director of Risk Management and Licensure, and Robin Atwood,
TNCO’s Executive Director. The trial court’s order states, in relevant part, that:
Before sending the warning letters in 2014, Lee Vestal verbally spoke to
every Executive Director of a Provider that was going to receive a warning
letter. Thus, the Providers received verbal, as well as written, notice about
stopping the practice of overbilling. Further, Robin Atwood, Executive
Director of TNCO, set a letter to Lee Vestal . . . on September 9, 2014,
which stated: “Going forward, providers are aware of the new
expectations.” TNCO represents its Providers. The Court finds that the
testimony in the record establishes that [TDIDD] provided notice to TNCO,
via warning letters to and Lee Vestal’s conversations with Providers, that
[TDIDD] expected Providers to not bill over the 243-day limit for day
service.
The communication between Mr. Vestal and Ms. Atwood is not a disputed fact in the
record. Ms. Atwood’s September 9, 2014 letter clearly indicates that Providers, through
their profession trade organization (TNCO), were on notice that TDIDD planned to
impose sanctions going forward, even though it had not done so in the past.
Aside from Ms. Atwood’s acknowledgement of TDIDD’s “new expectation” for
providers, the Agreement, which both Providers executed, clearly states that, for failure
to comply with the Agreement or the standards and requirements referenced therein (see
discussion above), TDIDD may invoke sanctions including monetary sanctions for
deficient practices. In this regard, the Agreement provides adequate notice that providers
may be charged with monetary sanctions for deficient practices such as billing in excess
of the 243-day limit.
c. Requirement to Promulgate Rules
Appellants argue that, when agencies change long-standing interpretations of
statutes or regulations, they are required to promulgate rules. Specifically, Appellants
allege that TDIDD’s decision to change its long-standing interpretation of the
requirements of the Waiver concerning the 243-day limit requires rulemaking because:
the decision: (1) covers all providers operating under the Waiver; (2) applies to future
invoicing; (3) prescribes a directive that was not otherwise clear; (4) constitutes a
material and significant change from its previous position; and (5) is in the nature of an
interpretation of law or general policy. In Tennessee Cable Television Association v.
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Tennessee Public Service Commission, 844 S.W.2d 151 (Tenn. Ct. App. 1992), this
Court adopted the following test for when rulemaking is required, to-wit:
if it appears that the agency determination, in many or most of the
following circumstances, (1) is intended to have wide coverage
encompassing a large segment of the regulated or general public, rather
than an individual or a narrow select group; (2) is intended to be applied
generally and uniformly to all similarly situated persons; (3) is designed to
operate only in future cases, that is, prospectively; (4) prescribes a legal
standard or directive that is not otherwise expressly provided by or clearly
and obviously inferable from the enabling statutory authorization; (5)
reflects an administrative policy that (i) was not previously expressed in
any official and explicit agency determination, adjudication or rule, or (ii)
constitutes a material and significant change from a clear, past agency
position on the identical subject matter; and (6) reflects a decision on
administrative regulatory policy in the nature of the interpretation of law or
general policy.
Id. at 162-63 (adopting the test first enumerated in Metromedia, Inc. v. Director, Div. of
Taxation, 97 N.J. 313, 478 A.2d 742, 751 (1984)).
Appellants further assert that TDIDD failed to assess the fiscal impact of its
change of interpretation on providers as required under Tennessee Code Annotated
Section 33-5-108, which states, in relevant part, as follows:
The department of intellectual and developmental disabilities shall assess in
writing the fiscal impact on licensees under chapter 2, part 4 of this title, of
any change to any rule, regulation, policy or guideline relating to the
staffing, physical plant or operating procedures of the licensee for rendering
services pursuant to a contract, grant or agreement with the department.
Specifically, Appellants allege that TDIDD did not determine the fiscal impact of
restricting providers from invoicing all of their day services, which determination should
have required application of the rulemaking process as it involved a change in TDIDD’s
interpretation of the Waiver requirements.
TDIDD asserts that there was no need to promulgate a Rule because there was no
change in the interpretation of the Waiver—billing for over 243 days has always been a
sanctionable offense as a violation of the Waiver, Provider Agreement, and Provider
Manual. Therefore, the fact that TDIDD began to strictly enforce the Waiver does not
mean that the terms of the Waiver changed. The 243-day limit for day services has been
part of the Waiver since 2005, and the Providers agreed to comply with the limit by
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executing the Agreement. Furthermore, TDIDD asserts that it did not have to determine
the fiscal impact on providers because billing in excess of the cap has been a sanctionable
offense since 2005, and Tennessee Code Annotated Section 33-5-108, on which
Appellants rely, applies only to changes to rules, regulations, policies or guidelines.
In its order granting summary judgment in favor of TDIDD, the trial court made
the following, relevant, findings:
The Court agrees with [TDIDD] that because [TDIDD] began strict
enforcement of the HCBS Waiver does not mean that the terms of the
Waiver have changed. The HCBS Waiver, by its own terms, limits day
services to 243 days. Strict enforcement of the Waiver does not require
rulemaking or a new fiscal impact determination pursuant to Tenn. Code
Ann. § 33-5-108. Furthermore, the Court finds that [TDIDD] provided
notice to Providers, via warning letters to and Lee Vestal’s conversations
with Providers, that [TDIDD] expected Providers to not bill over the 243-
day limit for day services and that billing over that limit would be
considered a sanctionable offense. The testimony in the record reflects that
the Providers who received sanction letters had previously received
warning letters but continued to bill for day services over the 243-day limit.
We agree with the trial court’s reasoning. TDIDD’s decision to strictly enforce an
existing requirement, after notice to the Providers, did not change the requirement. The
243-day billing limit was a requirement, to which the Providers agreed to be bound by
executing the Agreement. Under the Agreement, TDIDD could have sanctioned for
billing overages at any time after 2005. Having determined that billing/invoicing for over
243 days of day services was a deficient practice subject to sanctions, we conclude that
TDIDD was entitled to summary judgment on Count IX of the Petition.
Any issue not specifically addressed herein is expressly pretermitted or deemed
waived due to Appellants’ failure to raise it in the trial court. City of Cookeville ex rel.
Cookeville Reg’l Med. Ctr., 126 S.W.3d at 905-906
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V. Conclusion
For the foregoing reasons, we affirm the trial court’s order. The case is remanded
for such further proceedings as may be necessary and are consistent with this opinion.
Costs of the appeal are assessed against Appellees, Tennessee Community Organizations,
Dawn of Hope, Inc., Evergreen Life Services, and their surety, for all of which execution
may issue if necessary.
_________________________________
KENNY ARMSTRONG, JUDGE
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