Southern Concepts, Inc. Volunteers of America Texas, Inc. Knob Oak, Inc. Silver Quail, Inc. Community Access, Inc. And Creative Community Care, Inc. v. Texas Department of Aging and Disability Services

Opinion

ACCEPTED

03-17-00712-CV

21562262

THIRD COURT OF APPEALS

AUSTIN, TEXAS 1/2/2018 4:33 PM JEFFREY D. KYLE

CLERK

CAUSE NO. 03-17-00712-CV (consolidated with 03-17-00711-CV)

FILED IN

3rd COURT OF APPEALS

AUSTIN, TEXAS

INTHE

1/2/2018 4:33:36 PM

COURT OF APPEALS

JEFFREY D. KYLE

for the Clerk THIRD DISTRICT OF TEXAS

at

AUSTIN, TEXAS

CAUSE NO. 03-17-00712-CV

Southern Concepts, Inc., Volunteers of America Texas, Inc., Knob Oak, Inc., Silver Quail, Inc., Community Access, Inc., and Creative Community Care, Inc., Appellants V.

Texas Department of Aging and Disability Services, Appellee.

Original Proceeding from the 353rd District Court Final order signed by Darlene Byrne, Presiding in the 126th Judicial District

CAUSE NO. 03-17-00711-CV

CALAB, Inc., Mosaic Inc., Mosaic Martin Luther Home, Mosaic of Bethphage, The Center Serving People with Mental Retardation, Unified Care Group, Appellants V.

Texas Department of Aging and Disability Services, Appellee.

Original Proceeding from the 261st District Court Final order signed by Gisela D. Triana, Presiding in the 200th Judicial District

Appellants' Brief on the Merits

ORAL ARGUMENT REQUESTED

2

Counsel for Appellant Joanalys B. Smith State Bar No. 05719200 Gay L. Bonorden State Bar No. 00785708 Smith & Associates 900 Ranch Road 620 South Suite C101-159 Austin, TX 78734

3

IDENTITY OF PARTIES AND COUNSEL

Pursuant to Texas Rule of Appellate Procedure 38.1 (a),

Appellant presents the following list of all parties and names and

addresses of its counsel:

Appellants SOUTHERN CONCEPTS, INC., VOLUNTEERS OF AMERICA TEXAS, INC., KNOB OAK, INC., SILVER QUAIL, INC., COMMUNITY ACCESS, INC., AND CREATIVE COMMUNITY CARE, INC., CALAB, INC., MOSAIC INC., MOSAIC MARTIN LUTHER HOME, MOSAIC OF BETHPHAGE, THE CENTER SERVING PEOPLE WITH MENTAL RETARDATION, UNIFIED CARE GROUP Counsel Joanalys B. Smith State Bar No. 05719200 Gay L. Bonorden State Bar No. 00785708 Smith & Associates 900 Ranch Road 620 South, Suite C101-159 Austin, TX 78734 Telephone: (512) 261-9990 Facsimile: (512) 261-9971 E-mail: Joanalys@LawOfficesJBS.com

Appellee TEXAS DEPARTMENT OF AGING AND DISABILITY SERVICES Counsel Eugene A. Clayborn, Deputy Chief State Bar No. 00785767 Andrew Lutostanski State Bar No. 24072217 Assistant Attorneys General Office of the Attorney General of Texas P.O. Box 12548, Capitol Station Austin, Texas 78711-2548

4

Eugene.clayborn@oag.texas.gov Andrew. lutostanski@oag.texas.gov

5

TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL. ....................................... 03

TABLE OF CONTENTS .................................................................. 05

TABLE OF AUTHORITIES ............................................................... 07

STATEMENT OF THE CASE ........................................................... 09

STATEMENT REGARDING ORAL ARGUMENTS ......................... 10

ISSUES PRESENTED ..................................................................... 11

STATEMENT OF FACTS .................................................................. 12

A. THE TAC RULES DID NOT ALLOW APPELLEE TO COLLECT ADDITIONAL QAF TAXES AS UNDERPAYMENTS FROM APPELLANTS DURING THE RELEVANT TIME .................................................. 12 8. IN 2009 THE FEDERAL CENTERS FOR MEDICARE AND MEDICAID SERVICES DETERMINED THAT APPELLEE VIOLATED FEDERAL LAW ................................................................... 18 C. AMENDMENT OF THE TAC (EFFECTIVE 2008)

FINALLY ALLOWED FOR QAF UNDERPAYMENTS TO BE COLLECTED ................................................... 20 D. APPELLEE'S ACTIONS IN RESPONSE TO ITS VIOLATION OF FEDERAL LAW.............................. 23

SUMMARY OF THE ARGUMENT .................................................. 23

ARGUMENT ......................................................................................27

A. AS A MATTER OF LAW, APPELLEE CANNOT RECOVER ADDITIONAL OAF TAXES AS UNDERPAYMENTS FOR THE RELEVANT TIME BECAUSE THE GOVERNING LAW DID NOT PROVIDE

6

FOR THEIR RECOVERY AND THE QAF TAX WAS PAID ACCORDING TO EXISTING LAW ........................... .27 B. AS A MATTER OF LAW, FEDERAL AND TEXAS LAW PROHIBITS RETROACTIVE APPLICATION OF QAF TAXES .............................................................. .41 PRAYER ......................................................................................... .46

APPENDIX ....................................................................................... .46

CERTIFICATE OF COMPLIANCE .......................................... .48

CERTIFICATE OF SERVICE ................................................. .48

7

TABLE OF AUTHORITIES

Cases

1. Bowen v. Georgetown Univ. Hospital, 488 U.S. 204 (1988); ...... .42

2. In re General Elec. Co., 271 S.W.3d 681 (Tex. 2008) .................. .43

3. Jasterv. Comet II Constr., Inc., 438 S.W.3d 556,562

(Tex. 2014) ........................................................................................37

4. Landgraf v. US/ Film Prods., 511 U.S. 244, 280 ....................... 42

5. Stanford v. Butler, 142 Tex. 692, 181 S.W.2d 269,273 (1944) .... 33

6. State Office of Risk Management v. Berdan, 335 S.W.3d 421 (Tex.

App. Corpus Christi 2011 ), reh'g overruled, (Mar. 9, 2011) and

petition for review filed, (May 25, 2011 )........................................... 43

7. Sw. Pharmacy Solutions, Inc. v. Tex. Health & Human Servs.

Comm'n, 408 S.W.3d 549, 557-558 (Tex.App.--Austin 2013, pet.

denied) ...............................................................................................29

Statutes

42 CFR Sec. 433.68 .............................................................. .45

SSA Sec. 1903(w)(1 )(A)(ii) ............................................................... .45

8

Tx Govt. Code Sec. 2001.174 ........................ 10, 24, 25, 26, 34, 36

Tx Health & Safety Code 252.202(b) ......................................... 27, 43

Rules

1 TAC 352.1-352.9(2003) ...................................................... 13, 14, 27

1 TAC 351.1-352.9(2008) ...................................................... 20, 30, 44

1 TAC 352.3{c)(2003) ............................................................ 15, 16, 30

1 TAC 352.5(1 ).................................................................................. 14

1 TAC 357.483(c) ............................................................................. .44

Other Authorities

28 TexReg 9235 ................................................................... 13

32 TexReg 7789 at 7790 ..............................................27, 30, 41

33 TexReg 667 ....................................................................20

Tex. Const. Art. 1, § 16 ..................................................... 27, 42

9

STATEMENT OF THE CASE

This case is Appellants' appeal from a judicial review in which

the district court entered a final order signed July 21, 2017 in favor of

Appellee, granting summary judgment for Appellee and affirming

Final Agency Orders entered in the Appeals Division of the

Administrative Law Court (ALC) of the Texas Health and Human

Services Commission. The district court further denied Appellant's

motion for summary judgment. The Final Agency Orders held that

Appellee could recoup additional Quality Assurance Fee (QAF) taxes

from each Appellant.

This case is also a consolidation with Appeal Cause No.

03-17-0711-CV, which is also an appeal from a judicial review in the

district court. The identical issues are presented for each Appellant

and Appellee, and this Court granted consolidation upon Appellants'

motion for "purposes of briefing and consideration only."

10

STATEMENT REGARDING ORAL ARGUMENTS

This case raises significant issues related to the

appropriateness of Appellee's rights to recoup additional Quality

Assurance Fee (QAF) taxes in light of the calculation rules in place at

the time each QAF tax was imposed and collected. At issue is

whether such recoupment is permissible now, when not due and

owing under the law in place at the relevant time. Both lower courts

have failed to apply clear, controlling Texas law and legal precedent

under Texas Gov't Code Sec 2001.17 4, containing the Substantial

Evidence Rule. In particular, the courts have allowed the Appellee

the right to recoup additional QAF taxes by allowing Appellee to

re-interpret the applicable 2003 law which was in effect during the

relevant time at issue here.

The inclusion of oral arguments will significantly aid the

decision of this Court.

II. ISSUES PRESENTED 1. Whether the lower courts properly interpreted the law or

committed error regarding the applicable law, particularly the law that

defined the QAF tax and how it was to be calculated. More

specifically, Appellee is not now authorized to re-interpret the law to

collect additional QAF taxes based upon the 2003 law that was

settled and in effect during the relevant time period. The Final Order

should be reversed.

2. Whether the lower courts committed error by retroactively

applying the law that came into effect after the relevant time period.

More specifically, the lower courts committed error by retroactively

applying law that came into effect in 2008, which was after the

relevant time period for calculation of the additional QAF taxes at

issue. The Final Order should be reversed.

II

12

Ill. STATEMENT OF FACTS A. THE TAC RULES DID NOT ALLOW APPELLEE TO COLLECT ADDITIONAL QAF TAXES AS UNDERPAYMENTS FROM APPELLANTS DURING THE RELEVANT TIME Appellants are providers which provide care to consumers

pursuant to individual Provider Agreements (Agreements) between

Appellants and Appellee. AR93. 1 Appellee pays each Appellant for its

various services to consumers as authorized under the Agreements,

less authorized taxes or other authorized deductions. Authorized

taxes and other deductions are calculated by rule based upon data

mandated in Appellee's published rules, regulations, policies and

practices. Providers paid OAF taxes to Appellee in the manner and

time dictated by Appellee according to its rules, regulations and

policies in place at the time. AR25-27.

The fundamental dispute in this case arises because

Appellee's current demand for additional QAF taxes is based upon its

own re-interpretation of the 2003 Law that was in effect during the

relevant time. At the time, Appellee defined the QAF tax to be

calculated and assessed on a cash basis as 6% of the gross receipts

1 All of the Appellants have virtually identical Adminstrative Records ("ARs"), and each AR is individually numbered. Thus, cites to the AR will be to the record for Appellant Southern Concepts, Inc. for simplicity.

13

actually received by Appellant from Appellee in a particular month,

reconciled every six months to refund overpayments of the tax by

Appellants. At issue here is Appellee's current demand for additional

QAF taxes calculated and assessed on an accrual basis as 6% of

revenue accrued in a particular month, reconciled years later to

recoup underpayments of the tax by Appellants.

It is undisputed that the rule in place at the relevant time based

the QAF tax on a cash basis and not an accrual basis. AR25-27. It is

further undisputed that Appellants paid all QAF taxes as calculated by

Appellee during the relevant time. AR22, 44. It is Appellee's current

re-interpretation of the law and resulting recalculation of past taxes

due that is at issue here.

The applicable 2003 Rules, 1 TAC §§ 352.1-352.9 (effective

October 24, 2003), governed the QAF tax and were in effect during

September 1, 2004 to December 31, 2007 (the "Relevant Time"). See

28 TexReg 9235. Throughout the proceedings in the lower courts,

Appellee repeatedly bases its current claims to additional QAF taxes

14

on an accrual recalculation years after assessment, which was not

the law until the 2008 Amendments.

During the Relevant Time, Appellee required providers to

submit specific census data at the beginning of each month, which

Appellee then used to calculate the QAF tax due by a provider every

month. AR25-27, 44-45. The record is undisputed and

uncontroverted that each Appellant faithfully followed this procedure

and made payment. Appellee defined its QAF tax by this method of

calculations on its own accord and required providers to act

according to its published rules and policies. Id. 1 TAC 352.5(1 ), as

amended in 2003, was in effect during the Relevant Time and

required Appellants to "pay the amount of the [QAF] in accordance

with the instructions of the commission or its designees not later than

the 30th day after the last day of the month for which the fee is

assesse d .... "

Each month the OAF was paid on cash actually received.

AR25-26. In the present case, it is undisputed that Appellants

accurately made their monthly payments in accordance with

15

Appellee's instructions during the Relevant Time. AR22, 44. There

is no evidence that any Appellant, whether a large provider or a small

provider, whether a for-profit or charitable organization (as Appellants

run the gamut of such types of organizations) in any way submitted

erroneous, inaccurate or incomplete data or acted in any manner that

was dishonest or in any other way attempted to violate or manipulate

any obligation it had to Appellee. The only evidence before this Court

is that Appellants accurately and properly paid their QAF tax each

month on a cash basis, and not on the accrual basis which became

law with the 2008 Amendments. AR25-26.

Periodically during the Relevant Time, Appellee internally

audited or "reconciled" its own QAF tax calculations. 1 TAC 352.3(c)

(2003). The 2003 Rules required Appellee to perform these

reconciliations for the QAF tax every six months. Id. In other

program areas with periodic reviews or reconciliations and rules for

reimbursement, Appellee regularly collected or "recouped" any

underpaid amounts from the providers in accordance with rules which

expressly granted such authority. It is undisputed that, during the

Relevant Time (which lasted three years) and according to Appellee's

16

own practices for these three years and its internal policies and the

2003 Rules, if Appellee determined during its 6-month reconciliation

that Appellee had calculated a provider's QAF tax as too low (a.k.a.

"QAF underpayment"), Appellee would not attempt to collect or

recoup the additional QAF tax difference from the provider. AR26.

However, if the Appellee calculated a provider's QAF as too high

(a.k.a "QAF overpayment"), the Rules dictated that Appellee would

refund the difference between the reconciled QAF tax and the

amount overpaid by a provider. AR36. The Rules mandated this

reconciliation occur every six months. 1 TAC 352.3(c) (2003).

1 TAC 352.3(c) (2003) provided that "A facility's liability for the

[QAF] may be adjusted following this review to ensure that the [QAF]

does not exceed six percent of annual revenue .. " There was no

provision allowing for adjustment if QAF was less than six percent,

and Appellee's practices were consistent with this interpretation of the

Rule. Appellee continued this practice of not collecting QAF

underpayments over the entire three-year Relevant Time period.

17

AR35 ("[Appellee] indicated that underpayments were never

collected since the inception of the QAF program.").

Appellee based this deliberate policy regarding underpayments

on several bases. First, the Rules governing OAF taxes in effect

during the Relevant Time did not allow for collection of additional

QAF taxes as being "underpayments". AR26, 32, 36. Indeed, the

definition of the QAF tax in place during the Relevant Time as

interpreted and practiced by Appellee did not include the factor of

"underpayments," nor the collections of such additional taxes. Thus,

the only evidence before the Court now is that Appellants paid their

QAF tax as it was defined by law during the Relevant Time.

Appellee had no authority or procedures for the collection of

QAF underpayments until the 2008 Rule amendments, after the

Relevant Time, when the Rules relating to the definition of gross

receipts, reconciliation, and enforcement were amended. AR25-26,

32.

Furthermore, "[Appellee] felt that the previous TAC language [in

effect during the Relevant Time] was too vague in order to enforce

18

the repayment of underpayments to [Appellee] and therefore

underpayments were not collected." AR32. "Again, [Appellee] did not

enforce the collection of these underpayments because they felt that

the TAC language was too vague and unenforceable." AR36.

B. IN 2009 THE FEDERAL CENTERS FOR MEDICARE AND MEDICAID SERVICES DETERMINED THAT APPELLEE VIOLATED FEDERAL LAW Appellee is also under contract with The Centers for Medicare

and Medicaid Services (CMS) which provides the federal funding for

the provision of services to consumers. CMS periodically performed

"compliance reviews" to ensure Appellee was complying with federal

law.. One such review resulted in a Final Report dated August 31,

2009, which found that during the Relevant Time, Appellee had

deficiencies in its process for determining OAF taxes. Appellee and

stated that before 2008, Appellee "was not performing a proper

reconciliation process." AR28, 35.

Additionally, Appellee "violated" Section 1903(w) of the Social

Security Act which "requires that ... taxes must: ... be uniform, such

that all providers within a class must be taxed at the same rate; ....

19

." AR21. Therefore, because Appellee's OAF taxes were not applied

uniformly to providers, CMS stated that the entire OAF tax could be

rendered impermissible. AR39. Consequently, if the OAF tax was

rendered impermissible, Appellee would lose the matching federal

Medicaid funds provided by CMS under federal law, indisputably an

enormous sum.

CMS reasoned that Appellee's actions caused providers to be

non-uniformly taxed because of Appellee's practice of refunding OAF

taxes to providers if they overpaid the OAF tax but not collecting any

underpayments of OAF taxes. AR21. This caused providers to pay

different OAF tax rates .. " AR21, 36 (Providers underpayments

"would appear to directly violate the uniformity requirement where all

providers within a class must be taxed at the same rate").

Again, it was Appellee's sole, deliberate decision through its

practices and its interpretation of the duly-promulgated Rules to

calculate OAF on a cash basis without factoring in underpayments,

which resulted in non-uniform taxation. AR21. Appellee explained its

actions in the Final Report: "The [Appellee] OAF program staff

20

indicated that they realize the cost reports are unreliable . . . . ."

AR37. And as noted above, Appellee deliberately chose its actions

(which resulted in non-uniform taxation) because it believed the Rules

in effect were just too vague to enforce any payments of additional

QAF taxes as underpayments. AR32, 36; see AR40 (the 2008

amendment of the TAC was "intended to correct the previous

non-uniform reconciliation process .... ").

C. AMENDMENT OF THE TAC (EFFECTIVE 2008) FINALLY ALLOWED FOR QAF UNDERPAYMENTS TO BE COLLECTED To remedy Appellee's situation, several suggestions made in

the CMS Final Report were put into place. First, the TAC was

amended effective January 1, 2008, which was after the Relevant

Time at issue here. See 1 TAC §§352.1-352.9, 33 TexReg 667. The

amendments show as a matter of law, that the TAC during the

Relevant Time did not provide for the collection of additional QAF

taxes as underpayments, nor was it even used as a factor in defining

and calculating the QAF tax due.

First regarding the 2008 amendments, Appellee admitted that

under the "Previous Rules", "Providers were not charged for QAF

21

underpayments when the QAF reconciliations were completed."

AR27. Thus, there needed to be "significant changes to the previous

rules governing QAF .... " AR25. A significant change found in the

new Rules was that "Providers . . . that underpay QAF will be

required to pay the outstanding amount .... " AR26. This shows that

prior to these amendments, the QAF tax was not defined or

calculated using the factor of underpayments.

Second regarding the 2008 amendments, "Enforcement [of

collection of OAF underpayments] was finally granted as of January

1, 2008 with the new TAC language." AR36. Thus, it was not until

the 2008 amendments that "underpayments" became a factor in

Appellee's calculation of the OAF tax--and consequently under the

2003 Rules, the proper, lawful QAF tax did not include the factor of

"underpayments". The proper, lawful QAF tax was that calculated by

Appellee monthly on a cash basis with any adjustments made under

the six-month reconciliation rule.

Third, CMS noted that the amendment of the TAC was

"intended to correct the previous non-uniform reconciliation process .

22

... " AR40. Thus, it was plain that the previous reconciliation process

resulted in non-uniform taxation as admitted by Appellee.

Fourth, the amendment "clearly identifies that the calculating of

QAF will no longer be performed on a cash basis . . . and that

underpayments will now be enforced and paid to [Appellee]." AR36

(emphasis added). Appellee was not collecting underpayments by its

own deliberate policy choice during the Relevant Time because it

interpreted the Rules as not authorizing such collection before the

new 2008 rules went into effect.

Fifth, the 2008 rules were considered "new". AR40. Any

resultant requirement, like collection of additional QAF taxes as

underpayments, was also new and not in effect during the Relevant

Time.

Contrary to statements in the Final Order, CMS never

"mandated" or "ordered" Appellee to collect QAF tax underpayments

in the Final Report for the Relevant Time. CMS merely "requested"

that it collect the additional QAF taxes as underpayments and

stressed that "providers will be afforded the opportunity to appeal".

23

AR21, 31,40. CMS further noted the tentivative status of Appellee's

response to the Report by stating "if you proceed". The nod to the

appeal process shows foreknowledge that Appellee's attempts to

collect underpayments could be improper under Texas law and that

providers should be given an opportunity to respond to such

collection efforts in the courts.

D. APPELLEE'S ACTIONS IN RESPONSE TO ITS VIOLATION OF FEDERAL LAW Despite the Rules and its own policies and interpretations in

effect during the Relevant Time, in the face of the possibility of losing

significant federal funds, Appellee demanded by letters to Appellants

that they pay additional QAF taxes as underpayments. AR21-23. In

the same letters, Appellee "acknowledges that [Appellants] followed

the practices of [Appellee] in its payment of the QAF." AR22.

In response to these letters, Appellants requested individual

informal reviews of the demand for QAF underpayments but the

Appellee upheld its position. AR21. Appellants then appealed these

determinations, which appeals landed in the ALC which upheld the

collection of additional taxes as OAF underpayments. AR343.

IV. SUMMARY OF THE ARGUMENT

24

A. The ALC committed error regarding the applicable law.

Appellee is not authorized to now re-interpret the 2003 law to collect

additional QAF taxes based upon the law that was settled and in

effect during the Relevant Time period. Several statements in the

Final Agency Order show that the ALC applied the wrong law--mixing

up the language and proper interpretation of the 2003 and 2008

Rules. Appellee did the same after 2008, and these actions

collectively prejudiced substantial rights of the Appellants because

the administrative findings, inferences, conclusions, and decisions

are capricious, arbitrary, in violation of constitutional and statutory

provisions, in excess of the agency's statutory authority, clear error of

law. and arbitrary, capricious and characterized by abuse of

discretion and clearly unwarranted exercise of discretion. Under

Texas Gov't Code Sec 2001.174, the Final Order should be reversed,

and the Court find Appellants owe no additional OAF taxes.

Further, as set forth in the facts above, Appellee correctly

interpreted the 2003 Rules for over three years to calculate the QAF

tax as exactly as compliantly paid by Appellants during the Relevant

Time. At the time, Appellee defined the QAF tax to be calculated and

25

assessed on a cash basis as 6% of the gross receipts actually

received by Appellant from Appellee in a particular month, reconciled

every six months to refund overpayments of the tax by Appellants.

Unlawful is Appellee's current demand for additional QAF taxes

calculated and assessed on an accrual basis as 6% of revenue

accrued in a particular month, reconciled years later to recoup

underpayments of the tax by Appellants. The Final Agency Order

violates Texas Gov't Code Sec 2001.174.

The interpretation and settled 2003 law did not allow for the use

of "underpayments" to recalculate the QAF tax and did not give

Appellee authority to collect additional QAF taxes that were

re-calculated using any alleged "underpayments". AR22, 26, 32, 36.

Additionally, the 2003 Rules based the QAF tax on cash receipts, not

accrued receipts. Thus, there is no legal authority for Appellee to

now make a claim to additional QAF taxes as sought herein and its

interpretation is plainly erroneous. And, the Final Agency Order

upholding such violates Texas Gov't Code Sec 2001.174.

26

Given Appellee's many admissions regarding the QAF tax

calculations and its interpretations and its policies and rules during

the Relevant Time, as a matter of law, Appellee cannot now recoup

additional QAF taxes as underpayments from the Appellants for the

Relevant Time. Its current interpretation is plainly erroneous and its

actions have no reasonable basis in the record. Substantial rights of

the Appellants have been prejudiced because the administrative

findings, inferences, conclusions, and decisions collectively are

capricious, arbitrary, in violation of constitutional and statutory

provisions, in excess of the agency's statutory authority, clear error of

law, and arbitrary, capricious and characterized by abuse of

discretion and clearly unwarranted exercise of discretion. Under

Texas Gov't Code Sec 2001.174, the Final Order should be reversed

and the Court find Appellants owe no additional QAF taxes.

B. The ALC committed plain error by retroactively applying law that

came into effect in 2008, which was after the Relevant Time period

for calculation of the additional QAF taxes at issue.

27

The Texas Constitution expressly prohibits Appellee from

applying rules to Appellants retroactively. Tex. Const. Art. 1, Sec. 16.

Appellee determined that there would be no additional cost to

providers who were required to comply with the proposed 2008

amendments. See 32 TexReg 7789, at 7790. Thus, they cannot now

add additional taxes to the 2003 QAF tax calculations due to the 2008

Amendments. There is no Texas statute that grants Appellee the

power to make retroactive adjustments to the QAF, or to demand

additional tax underpayments retroactively, as Appellee attempts

now. See TEX. HEALTH & SAFETY CODE § 252.202(b) (only

"prospective" adjustments allowed).

V. ARGUMENT A. AS A MATTER OF LAW, APPELLEE CANNOT RECOVER ADDITIONAL QAF TAXES AS UNDERPAYMENTS FOR THE RELEVANT TIME BECAUSE THE GOVERNING LAW DID NOT PROVIDE FOR THEIR RECOVERY AND THE QAF TAX WAS PAID ACCORDING TO EXISTING LAW As explained above, as a matter of law, the TAC rules in effect

during the Relevant Time, 1 TAC §§ 352.1-352.9, (effective 2003),

calculated the QAF tax, and that amount as calculated by Appellee

was paid by Appellants at the time, and the law as interpreted by

28

Appellee made no provision to collect additional QAF taxes as

underpayments. AR26, 32, 36. As illogical as that may sound,

Appellee justified this practice as explained above and continued this

practice unchanged for over three years during the Relevant Time.

AR26. Appellee defined its QAF tax differently during the Relevant

Time than under the 2008 Amendments and had no authority or

procedures for the collection of additional QAF taxes as

underpayments until the 2008 Amendments, when the rules relating

to the definition of gross receipts, reconciliation, and enforcement

were amended. AR25-27.

Further, the 2008 amendments and Appellee's comments

during this process and in the CMS Final Report additionally prove

that the 2003 Rules calculated the QAF tax under a different formula

and did not allow recoupment of additional QAF taxes as

underpayments. Id. These were Appellee's interpretations based

upon the Law which governed it. This is explained in depth above in

the Statement of Facts.

29

In Appellee's arguments in the lower courts, it cites the Third

Court of Appeals for the proposition that an agency's interpretation of

a statute is entitled to serious consideration as long as the

construction is reasonable and does not conflict with the statute's

language. Sw. Pharmacy Solutions, Inc. v. Tex. Health & Human

Servs. Comm'n, 408 S.W.3d 549, 557-558 (Tex.App.--Austin 2013,

pet. denied). The 2003 statute is completely neutral regarding

whether the QAF would be collected on revenue measured by

accrual or cash basis but Appellee chose to enact rules defining the

OAF tax on a cash basis and consistently for years interpreted the

2003 Rules as not allowing for recoupment of additional QAF taxes

as underpayments. AR26, 32, 35, 36, 41.

According to Appellee's interpretation and practices, the QAF

tax had been properly collected under the rules in place until 2008

Amendments. Appellee described the Rules as vague and

unenforceable when it came to QAF underpayments, and many

statements in the CMS Final Report and history of the 2008

amendments, as explained above, show that the Appellee did not

interpret the 2003 Rules as allowing for recoupment of additional

30

QAF taxes as underpayments. Id. Appellee may describe the issue

now as it chooses, with any attendant problems, but the fact remains

uncontroverted that Appellants paid the QAF tax assessed in full

under the 2003 Rules, under the definition of the OAF tax in the 2003

Rules and interpreted by Appellee. There is no evidence that any

Appellant in any way did anything devious or untoward in its payment

of the QAF tax during the Relevant Time.

Additionally, it was the 2008 rules, 1 TAC 352.1-352.9, that

provided ( 1) gross receipts were defined as accrued payments rather

than cash received, (2) new reporting and reconciliation procedures

were implemented, and (3) new enforcement procedures for audits

and (4) note to providers relating to audit findings regarding

underpayments. AR25-27, 334-8 (Proposed Rules, Nov. 2, 2007 32

TexReg 7789). See also AR34 (indicating the understanding of CMS

that the 2008 rule changes would allow Appellee's reconciliations to

address both overpayment and underpayment of the QAF).

Under the 2003 Rules, 1 TAC 352.3(c) provided only that "a

facility's liability for the [QAF] may be adjusted following this review to

31

ensure that the [OAF] does not exceed six percent of annual

revenue." Revenue was undisputedly defined as monthly cash

received. During the Relevant Time, this was the definition of the

OAF tax. As the tax was calculated on a monthly cash basis, there

was no underpayment. Appellee had no authority under any Rule to

collect additional taxes as a putative OAF underpayments, much less

to define or calculate the OAF tax differently than the 2003 Rule

provided.

Additionally, any failure to follow CMS rules or federal law is

solely attributable to Appellee, and not the providers who indisputably

complied with Appellee's rules in every respect. AR22. Appellee

disclosed to CMS that it failed to perform a proper OAF reconciliation

process during the period in question. AR35. This failure is the result

of law which failed to provide for this but in no way was the result of

any action taken by Appellants. Thus, it is patently unfair for Appellee

to attempt to use improper means now to correct its own error, which

actions were patently obvious throughout the 3-year Relevant Time.

32

Furthermore, the ALC Final Order erroneously states that the

2003 Rules "created an obligation on [Appellants] to pay a total of 6%

of its gross receipts." AR346. This interpretation flies in the face of

the plain reading of the statute, which allows for an adjustment not to

"exceed six percent." There is no requirement anywhere in the 2003

Rules mandating a flat 6% tax. It merely could not exceed 6% (unlike

the 2008 amendments which stated the adjustments should "equal"

the requisite percentage).

Further, gross receipts were the basis for each and every

payment properly made by Appellants under the 2003 Rule, defining

it as monthly cash received, rather than the definition Appellee now

uses, which is receipts on an accrual basis. AR25-26, 45. Appellee

chose to define its tax as the monthly gross revenue actually paid to

Appellants. Appellee sent Appellants a bill for this, and it is

uncontroverted that each Appellant paid this amount properly.

Appellee now contends that the amount it billed and collected under

the definition of QAF tax in place under the 2003 Rules is less than

33

6% of gross revenue calculated on an accrual basis, a basis not in

law until 2008.

In fact, the statute mandates only that the tax not exceed 6%,

and the QAF tax defined and used in 2003 complies with this

requirement. Thus, Appellee could permissibly impose under the

statute a percentage less than 6%, if it so decided. Clearly,

Appellee's actions during the Relevant Time bore this understanding

out-it did not tax all providers at 6%, but taxed them at different

rates--resulting in non-uniform taxation.

It is patently unfair for Appellee to have construed, interpreted

and applied the law for over three years during the Relevant Time

period one way, and then to re-interpret that law afterwards because

it was called out on its deliberate and knowing practice of non-uniform

taxation by CMS. It is still patently unfair to Appellants for Appellee to

re-interpret the law even when Appellee, a state actor, is at risk of

losing enormous sums of federal entitlements for its chosen course of

action. See Stanford v. Butler, 142 Tex. 692, 181 S.W.2d 269, 273

(1944) (explaining that an agency's construction of a statute it is

34

charged with enforcing is "worthy of serious consideration as an aid

to interpretation, particularly where such construction has been

sanctioned by long acquiescence").

In light of this, the Final Order is unduly deferential to Appellee

and made through error of law. As a matter of law, judgment is

appropriate that Appellee is not allowed to collect additional taxes as

underpayments for the Relevant Time because the OAF tax was

collected in accordance with valid law in effect, and there exists no

legal basis for the present requested recoupment. Appellee's current

interpretation of the 2003 law is plainly erroneous and its actions

have no reasonable bases in the record as set forth above.

1. The Final Agency Order should be reversed under Texas Gov't Code Sec 2001.174, the Substantial Evidence Rule

The ALC's decision should be reversed to the extent it violates

the substantial evidence rule under the Texas Gov't Code Section

2001.17 4 which states:

Review Under Substantial Evidence Rule or Undefined Scope of Review If the law authorizes review of a decision in a contested case under the substantial evidence rule or if the law does not define

35

the scope of judicial review, a court may not substitute its judgment for the judgment of the state agency on the weight of the evidence on questions committed to agency discretion but:

(1) may affirm the agency decision in whole or in part; and (2) shall reverse or remand the case for further proceedings if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:

(A) in violation of a constitutional or statutory provision; (B) in excess of the agency's statutory authority;

(C) made through unlawful procedure;

(D) affected by other error of law;

(E) not reasonably supported by substantial evidence considering the reliable and probative evidence in the record as a whole; or

(F) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.

Further, the Appellee's reinterpretation of the 2003 Rules are

unreasonable and plainly erroneous.

Appellee wrongly asserts that the ALC applied the proper law

with a proper interpretation, the 2003 Rules, in the Final Order.

Several statements in the Final Order show that the ALC applied the

wrong law--mixing up the language and proper interpretation of the

2003 and 2008 Rules. Appellee did the same after 2008, and these

36

actions collectively prejudice substantial rights of Appellants and are

capricious, arbitrary, in violation of constitutional and statutory

provisions, in excess of the agency's statutory authority, clear error of

law, and arbitrary, capricious and characterized by abuse of

discretion and clearly unwarranted exercise of discretion. Under

Texas Gov't Code Sec 2001.174, the Final Order should be reversed

and judgment granted that Appellants owe no additional QAF taxes.

Further, the Final Order is not reasonable and plainly erroneous.

First, the Final Order states that "the rules in effect during the

period in question created an obligation on [an Appellant] to pay a

total of 6% of its gross receipts." AR345-6. However, the Final Order

does not address the issue of gross receipts calculated by cash basis

(as was in effect in the Relevant Time) or the accrual basis which

came into effect with the new 2008 Rules. The ALC completely

disregards the different definitions of gross receipts in the 2003 and

2008 Rules. AR25-26, 32. Thus, the Final Order conclusion is

plainly erroneous and contrary to the existing law and constitutes

abuse of discretion and clearly unwarranted exercise of discretion.

37

Furthermore, the 2008 amendments show the Final Order's

error. The 2003 Rules at 352.3(c) required reconciliation to ensure

that the "[QAF] does not exceed six percent of annual revenue".

(Emphasis added.) But, the 2008 Rules at Section 352.3 stated the

QAF tax may be adjusted "to ensure that the [QAF] equals five and

one half percent of annual gross receipts from all facilities." 2

(Emphasis added.) Clearly, the plain statutory construction,

especially in light of the change to "equal" in 2008, shows that the

2003 Rules did not mandate a 6% flat fee. Any contrary conclusion is

plainly erroneous and made by error of law.

Additionally, this change shows that in 2008, the statutory intent

was that the QAF annual reconciliation ensure QAF taxes "equal"

5.5% while the 2003 reconciliation was to ensure the QAF "does not

exceed" 6%--not that QAF should be adjusted to equal 6% for all

providers. As stated by Appellee, the courts should read the statute

contextually to give effect to every word, clause, and sentence.

Jaster v. Comet II Constr., Inc., 438 S.W.3d 556, 562 (Tex. 2014).

2 The Rules changed the requisite percentage from 6% in the 2003 Rules to 5.5% in the 2008 Amendments, along with other changes.

38

Thus, the plain conclusion is that the 2003 Rules did not mandate a

6% flat rate on all providers based on gross receipts. Clearly, it was

permissible for the 6% QAF tax to be based upon cash receipts, as

Appellee did.

More confusion continues in the Final Order. The ALC Order

stated that Appellee was entitled to collect underpayments "up to a

total of six percent of said gross receipts .... " Granting "up to" six

percent conflicts with the prior ALC statement that the statute

"created an obligation on [a Appellant] to pay a total of 6% .... " The

Final Order contradicts itself internally, ordering an entitlement that

conflicts with its prior statement of the law. The Final Order is plainly

erroneous, capricious and arbitrary. But, Appellee's interpretation of

the 2003 Rules during the Relevant time is correct in light of its

statements, policies, practices and legal interpretation during the

Relevant Time.

Appellants do not dispute that the statutes allow Appellee to

collect the QAF tax. Nor do Appellants dispute that each facility was

to required to pay QAF taxes without any exception. Appellee did

39

collect all the OAF taxes that it asked of Appellants during the

Relevant Time, and they each paid the OAF tax as calculated and

instructed by Appellee. But, the statutes granting Appellee the

authority to collect OAF taxes does not give them the authority to

reinterpret the 2003 law years later and attempt to collect additional

OAF taxes based upon the re-interpreted law in violation of

substantial rights of Appellants. Such action is arbitrary and

capricious, made through error of law, unreasonable and plainly

erroneous.

Additionally, Appellant's agree that the 2003 Rules allowed for

an adjustment of a provider's OAF amount during reconciliation. But,

the adjustment was only allowed at the 6-month interval mandated by

the Rule. The 6-month rule does not give Appellee the power to then

re-adjust the OAF at another time according to Appellee's whims.

The plain reading of the statute provides for one adjustment---at each

6 month interval. It does not allow for multiple adjustments, possibly

years after a 6-month reconciliation period passed, as in the present

case. Such actions are capricious and arbitrary. Under Appellee's

current interpretation, it could again recalculate the OAF and demand

40

more tax from Appellants. Clearly, Appellee's actions are an abuse

of discretion and a clearly unwarranted exercise of discretion and

unlawful.

Appellants further agree that they were to pay the QAF

according to the instruction of the commission. But, Appellants did

that fully and completely. The evidence shows that Appellants

followed all of Appellee's Rules when they paid their QAF taxes

during the Relevant Time. AR22, 44. There is no evidence that any

Appellant did anything otherwise. That Rule does not allow Appellee

to change its instructions after Appellants have fully and completely

complied with its instructions. Nor does this Rule give Appellee the

power to change its instructions years after its prior instructions were

fully complied with by Appellants. Such actions are capricious and

arbitrary and an abuse of discretion and a clearly unwarranted

exercise of discretion and violate substantial rights of Appellants to be

free from unreasonable taxation, essentially civil ex post facto taxes.

Appellee's interpretation of the 2003 Rules during the Relevant

Time were correct and consistent with the plain meaning of the rules

41

and statutes and should be applied to the present case. The Final

Agency Orders should be reversed and judgment rendered that

Appellants owe no additional QAF tax.

B. AS A MATTER OF LAW, FEDERAL AND TEXAS LAW PROHIBITS RETROACTIVE APPLICATION OF QAF TAXES The Texas Constitution expressly prohibits Appellee from

applying rules to Appellants retroactively. Tex. Const. Art. 1, Sec. 16.

Appellee is clearly attempting to collect the taxes retroactively

because it continues to cite the 2008 Rules to support its position for

additional taxes in its briefings in the lower courts.

In making its required Small Business and Micro-Business

Impact Analysis of the 2008 Rules, Appellee determined that there

would be no additional cost to providers who were required to comply

with the proposed amendments. See 32 TexReg 7789, at 7790.

Appellee also determined that the new 2008 Rules would not restrict

or limit an owner's right to his or her property that would otherwise

exist in the absence of government action. Id. It does not appear

from the plain language of the 2008 Rules or the analyses made that

there was any intention that the new rules have a retroactive effect at

QAF tax is su b·ect

l to

expressly stated that

42

the time of adoption or to change the status quo retroactively. Thus,

Appellee's contrary actions to these determinations through its

current unlawful collections are improper and untenable, and are

unduly deferential to Appellee and made through error of law.

Appellee's informal review decision relies on the 2008 rule

amendments as a justification for recouping the additional taxes as

alleged QAF underpayments. AR21. However, under federal

precedent and the Texas and United States Constitutions, Appellee is

prohibited from retroactively applying rules where the legislature has

not expressly conveyed that power to Appellee. See generally

Bowen v. Georgetown Univ. Hospital, 488 U.S. 204 (1988); see a/so

Landgraf v. US/ Film Prods., 511 U.S. 244, 280 (absent clear

legislative intent, an agency may not give retroactive effect to statutes

or rules that impair rights a party possessed when he acted, increase

a party's liability for past conduct, or impose new duties with respect

to transactions already completed); See also Tex. Const. Art. 1, §

16 (prohibits the enactment of retroactive laws).

43

The Legislature has expressly stated that QAF tax is subject to

a "prospective adjustment as necessary." See TEX. HEALTH & SAFETY

CooE § 252.202(b) (emphasis added). Conversely, there is no Texas

statute that grants Appellee the power to make retroactive

adjustments to the QAF, or to demand additional tax underpayments

retroactively, as Appellee attempts now.

Courts must rely on the plain meaning of statutory text. See

State Office of Risk Management v. Berdan, 335 S.W.3d 421 (Tex.

App. Corpus Christi 2011 ), reh'g overruled, (Mar. 9, 2011) and

petition for review filed, (May 25, 2011 ). Every word excluded from

a statute must also be presumed to have been excluded for a

purpose. See In re General Elec. Co., 271 S.W.3d 681 (Tex.

2008). Appellee is violating the plain language of this legislative

mandate regarding the QAF tax. Further, all courts are bound by the

same legislative mandate, including the ALC.

Appellants are not asking that this Court find that any particular

rule or statute is invalid. However, the Court does have the authority

to issue "any order in the interest of justice that is necessary to

44

protect the person or party seeking relief from ... invasion of ...

constitutional rights" under 1 T.A.C. § 357.483(c). Appellants are

simply hereby requesting that the Court apply the validly promulgated

rules in effect at the Relevant Time, as U.S. Supreme Court

precedent, our state law, and the federal constitution requires. Under

the 2003 law in effect during the Relevant Time, Appellants paid the

QAF tax due, and Appellee has no authority to collect additional QAF

taxes as underpayments or otherwise.

Of significant note, CMS gave Appellee a choice about whether

or not it would seek additional QAF taxes for the Relevant Time,

albeit with a hefty consequence if chose not to seek them. CMS did

not "direct" nor demand nor mandate that Appellee collect additional

taxes as underpayments from providers, contrary to the statement in

the Final Order. AR39. In response, Appellee, a state actor, did not

promise to recoup the underpayments--it only agreed to "seek

recoupment." AR40. Appellee added the caveat that collections

"may not total" the amount of underpayments identified by CMS.

AR40. Also, the Final Order only required Appellee to "collect all

45

underpayments of [Appellant's] QAF up to a total of 6% of said gross

receipts." AR347 (emphasis added).

It is those underpayments that allegedly resulted in non-uniform

taxation, and thus, Appellee admits that its collection efforts, that are

the subject of this case, may not even result in uniform taxation. And,

the ALC does not even require Appellee to collect an amount that

results in uniform taxation. It is illogical that Appellee, a state actor,

should be allowed to seek recoupments so that it can comply with

"uniform taxation" when it admits that its actions in recouping may not

result in "uniform taxation." These actions are arbitrary and

capricious.

Further, the federal law cited by CMS in the Final Report

regarding Appellee's QAF program specifically provides that the

State, and not taxpayers (like Appellant providers), will be penalized

for "hold harmless" violations in which taxpayers are held harmless

for any portion of health-care related taxes. See 42 CFR Sec. 433.68

(setting forth federal requirements for state health care-related taxes).

See also Social Security Act Section 1903(w)(1 )(A)(ii) (providing that

46

hold harmless arrangements trigger penalties against a State's

Medicaid expenditures under the Federal Medicaid Statute). AR34

(explanation in the CMS Final Report of the federal regulations

regarding hold harmless arrangements and penalties).

Any liability for errors in the calculation of Appellants' OAF taxes

is solely attributable to Appellee, and not Appellants. As a matter of

law, Appellee has no legal basis for demanding retroactive OAF

payments from Appellants, and Appellants are entitled to judgment

that they owe no additional OAF taxes and reversal of the Final

Order. Appellee's actions have no reasonable basis in the record

and its interpretation of the Law is plainly erroneous.

VI. PRAYER Appellants hereby seek a judgment that the Final Agency Orders

are reversed, that Appellants owe no additional OAF taxes for the

Relevant Time, that Appellee be estopped from any further collection

efforts, and such other and further relief to which Appellants may be

entitled.

VII. Appendix 1.Final Agency Order 2.District Court Final Judgment (appeal 712)

47

3. District Court Final Judgment (appeal 711) 4. 1 TAC§§ 352.1-352.9 (effective October 24, 2003) 5. 28 TexReg 9235 6. Texas Gov't Code Sec 2001.174 7. 1 TAC §§352.1-352.9 (effective Jan. 1, 2008) 8. 33 TexReg 667 9. 32 TexReg 7789-90 10. 1 T.A.C. § 357.483(c) 11. 42 CFR Sec. 433.68.

Respectfully submitted, SMITH & ASSOCIATES 900 Ranch Road 620 South Suite C101-159 Austin, Texas 78734 Telephone (512) 261-9990 Facsimile (512) 261-9971 Joanalys@LawOfficesJ BS. com Gay@LawOfficesJBS.com

By: Isl Joanalys B. Smith Joanalys B. Smith Texas Bar Number 05719200 Gay L. Bonorden Texas Bar Number 0785708

Attorneys For Appellants

48

CERTIFICATE OF COMPLIANCE

I certify that the brief submitted complies with Texas Rules of Appellate Procedure 9 and the word count of this document is 7773. The word processing software used to prepare this filing and calculate the word count of the document was Google Docs.

Dated: December 29, 2017

/s/ Joanalys B. Smith JOANALYS B. SMITH

CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing document has been served by electronic service or facsimile on this the 29th day of December, 2017, to counsel for Appellee:

Eugene A. Clayborn Via e-service and/or email Deputy Chief State Bar No. 00785767 Andrew Lutostanski State Bar No. 24072217 Assistant Attorneys General Office of the Attorney General of Texas P.O. Box 12548, Capitol Station Austin, Texas 78711-2548 Eugene.clayborn@oag.texas.gov Andrew.lutostanski@oag.texas.gov

Isl Joanalys B. Smith Joanalys B. Smith • • • APPEALS DMSION Health and fl•nnan Services Coi,iml,sil'ln AUSTIN, TEXAS

SOtJTBERN CONCEPTS, INC., AppePent

vs. I CAUSE NO. UM'7'75-K

TEXAS DEPARTMENT OF AGING AND DISABILITY SERVIOS, Resp - !lent

PRQPQSAL fOR QICISIQN

INTRODUCTION

• Southern Concepts, Inc. (Appellant) bad an lnrennecliate Care Facility for the Mentally Retaldcd (ICF/MR) provider agn:ement with the Department of Aging and Disability Services (DADS) during the times relevant to this appeal. Appellant appealed the results of an Informal Review of the calculation of Appellant's quality assurance fee (QAF) for the period of September I, 2004, throup December 31, 2007.

JURISDICTION, NOTICE AND PROCEDURAL IDSTORY

The HHSC Appeals Division beard Ibis case under the authority of 40 Texas Administrative Code Sections 90.3 and 90.4. The Administrative Law Judge (AU) notified the parties that Appellant's Motion to Transfer this case to the State Office of Administrative Hearings (SOAR) was denied, and proceeded to consider the parties' Motions for Summary Disposition and motions in opposition thereto. The parties waived oral argument.

• 000343 2 • • • APPLICABLE LAW

40 Texas Adroioism.tivc Code Section 90.4 provides tbat the Health and Hwnan Services Commission Appeals Division has jurisdiction to c:ooc1uct beariop and issue Proposals for Decisions (PFDs) io contested C11SC11 that ue oot ll'IIIISferrcd to SOAH under the provisions of 40 Tcus Aclroinistrativc Code Section 90.3.

40 Tcxu .ldroioist:rativc Code Section 90.3 docs oot provide for the ll'IIIISfcr of ao appeal of DADS lofonnal Review of a Provider's QAF to SOAH.

1 Tcus Administrative Code Section 352.3 io effect durioa the time period from September 1, 2004, through Dcccmbcr 31, 2<X17, required lCF/MR providers to pay a QAF equal to 6,. of the facility's total annual gross receipts io Texas.

40 Texas Administrative Code Section 11.5 provides that the QAF is to be paid io acc:ordaocc with the iostructioos of the agency.

40 Texas Administrative Code Section 11.8 provides that an ICF/MR proviclcr may p:qucst ao Infonnal Review of DADS' calculation of its QAF.

40 Tcus Administrative Code Scctioo 11.9 provides that ao ICF/MR provider may appeal the results of the lofonoal Review of the calculation of its QAF to the HHSC Appeals Division.

• 1 Tcus 4droioish'.alivc Code Section 352.8 io effect during the year 2009 provided that a Medicaid poviclcr c:ould request ao Informal Review of DADS' calculation of its QAF.

40 TAC Scctioo 91 provides that the IUISC Appeals Division conclucts contested IICCOldancc with DADS and HHSC Contested Case Hcariop Rules.

CIISCII io

1 TAC Section 357.456 provides tbat ao AU may issue a Summary Disposition io favor of a pany if there is oo gcnuioc issue of material fact and thc party is entitled to disposition in its favor as a matter of law.

STATEMENT OF THE CASE

Appcllaot is a certified lCF/MR proviclcr based io Gnmbury, Texas. Appellant oootlacted to provide services to qualified iodividuals with IIIClllal ietanlation or related conditions pursuaot to its Medicaid provider agreement. Oo November 18, 2009, DADS notified Appellant that it dctennioed that Appellant had uoclapaid its QAF, and that it would collect all uodcrpaymcnts of Appellant's QAF for thc period from September l, 2004, through Dcccmbcr 31, 2<X17. Oo December 4, 2009, Appellant requested ao lofonoal Review of DADS' dctcnnination of the amouot Appellant uoclcrpaid for tbat time period based on DADS' calculation of 6-. of Appellant's annual gross receipts. Oo September 29, 2010, DADS ootified Appellant ofthc results of the loformal Review and that it determinccl that Appellant owed DADS $8,485.28 1cpae mting thc amount of Appellant's QAF underpayments for the period from September l,

• 000344 3 • • • 2004, through December 31, 2007. Appellant filed a formal appeal of the outcome of the Infonnal Review on October 21, 2010.

SUMMARY OF THE EVIDENCE

It was Ulldisputed that the Health and Hwmn Services Commission administered the ICF/MR QAF program for a time frame that included the period from September 1, 2004, through December 31, 2007. Sometime after raponaibility for the admioisll:ation of the program WIS transfened to DADS, the agency wu notified by the Centers for Medicare and Medicaid Services (CMS) that HHSC bad under-collected the federally mendetcd li'I> QAF from Appellant and other ICF/MR providas during the period from September l, 2004, through Dcceniber 31, 2'YJ1. CMS mandetcd t1w DADS collect all funds dial it determined were Ullderpaid.

During the time period of September l, 2007, through December 31. 2007, HHSC required Appellllll and other ICF/MR providas to pay QAFs based OD projected gross receipts. When IICIUll revenues fell below projections. HHSC i:efunded die overpayments, but when adUal revenues exceeded projections, HHSC did not mplire providers to make up die underpayments. In 2009, CMS notified DADS that DADS was required to collect all periodic QAF underpayments that bad not t.it collected from ICF/MR providers, including Appellant, for the period in question,

• DADS attached die affidavit of Cathy Belliveau, a QAF Manager employed by DADS, to its Motion for Summary Disposition. Ms. Belliveau's aff"Jclavit stiled that during the period of Seprember l, 2004, through T)ecember 31, 2007, Appellant's annual gross receipts were $6,421,026.81 and that this calculation was based on official billing records maintained by DADS.

In response to DADS' summary disposition evidence. Appellant filed a copy of the November 18, 2009, DADS notice of intent to collect Appellant's QAF underpayments; a copy of an August 1, 2008, letter to Appellant from Tommy FOR!. DADS Director of InstilUlional Senices Section, Provider Services. in which Mr. Fold desaibed the QAF rules in place prior to January l, 2008. IS not requiring charges for QAF underpayments by ICF/MR providers; and a copy of an August 31, 2009. report issued by CMS which included conclusions that data it previously obtained from DADS rqardina QAF payment reconciliations contained confusing and conflicting infonnation. Finally. Appellant submitted an aff"Jclavit from one of its representatives who swore dial Appellant paid its QAF in the form of 6'1> of all projected revenues

ANALYSIS

HHSC did not follow its own Nies when it failed to collect Appellant's QAF underpayments during the time period of September I. 2004. through December 31, 2007. DADS miscbaracleriz. the QAF Nies in effect during dial time period in its August l, 2008, letter to Appellant in which ;I indicated lhal the prior HHSC Nies did not require HHSC to collect underpayments of the fee when the provider made QAF payments based on projected revenues

• 000345

4

• • • that were lower than the 8C1Ual gross receipts for the period in question. Nevertheless, the rules in effect during the period in question created an obligation on Appellant to pay a total of 6., of its poss receipts. This obligation was not obviated by HHSC's inability to devise a sc:bcme to collect said .eceipts ur DADS' erroneous portrayal of the rule thll created the obligation in Mr. Ford's August I, 2008, letter to Appellant.

Cathy Belliveau's affidavit which described Appellant's gross receipts for the period of September l, 2004, through December 31, 20Cf1, - not controverted by the CMS report which desc:ribed inaccuracies in DADS' records during an WISpecified time period prior to DADS' reconciliation of Appellant's gross revenues described in the November 18, 2009, notke ofQAF charps due, or by the affidavit of Appellant's repiaentative which included a statement tbat Appellant paid all of its QAF fees based on projected revenues.

Bec111se Cathy Belliveau's w.conbo.-erted affidavit established thll Appellant's total gross receipts for the period of September l, 2004, through December 31, '2007, were $6,421,026.81, and th8l 6., of tbat amount is $385,261.60, the AU has deu:rmined tbat there are no genuine issues of material fact in controversy, and l*uflClles thll DADS' Motion for Summuy Disposition should be sustained, and that its authority to collect underpayments of Appellant's QAF fees based on thll calculation should be sustained.

PROPOSED FINDINGS OF FACI'

• l. This case is adj11dicared •'Dller the provisions of 40 Texas Adminialrative Code Section 11.9, 90.3, and 90.4.

2. Appellant is m lCF/MR provider based in Granbury, Texas.

3. On November 18, 2009, DADS notified Appellant tb8I it owed underpayments for Quality Assurance Fees (QAF) for the period from September I, 2004, througli December 31, 20Cf1.

4. Betwem September l, 2004, and December 31, 'JJX17, Appellant bad gross receipts of $6,421,026.81.

S. Appellant's total QAF for the period in questions is $385,261.60 which is 6., of $6,421,026.81.

PROPOSED CONCLUSIONS OF LAW

l. 40 Texas Administrative Code Section 11.9 provides th8l an ICF/MR provider may appeal an informal review of DADS calculation of its QAF to the HIISC Appeals Division.

2. 40 Texas Administrative Code Section 90.4 provides 1h11 the HHSC Appeals Division is

• 000346 5 • • • to c:ooduct hearings and issue PFDs in DADS CXJOtested cases that are not tranSferred to SOAH in accordance with 40 Texas Adminislrative Code Section 90.3.

3. 40 Texas Administrative Code Section 90.3 does not provide for the transfer of formal appeals of Informal Reviews of QAF assessmems to SOAH.

4. 1 Texas Administrative Code Section 352.3 in effect from September 1, 2004, through December 31, 2007, required ICF/MR providers to pay a QAF equal to 6'11 of reimbursements for residents, up to a total of 6'11 of annual gross revenues of the facility.

5. 40 Texas 4dmiois~ve Code Section 11.5 provides that QAF assessments are to be paid by providas acc:ording to instructions from DADS.

6. Appellant's Medicaid Provider agree111e111 in effect durio& the relevant time periods provided that Appellant was to comply with all stare laws and regulations.

7. 1 TAC Section 357.456 provides that an AU may issue a Summary Disposition in favor of a party if there is no genuine issue of malcria1 fact and the party is entitled to disposition in its favor as a matter of law.

8. HHSC' s failure to collect the full QAF that was payable under its Nies did not excuse Appellant from its obligation to pay the full amouot due it owed pursuant to those rules•

• 9. Because there are no genuine issues of malcria1 fact regarding Appellant's total gross receipts during from September 1, 2004, through December 31, 2007, DADS is entitled to collect all underpayments of Appellant's QAF up to a total of 6.., of said gross receipts.

Eoterec1 this I'* day of ~tYtl))otf . 2012.

I

KeltliGraatham Admioislnltive Law Judge

• 000347

Filed in The District Court of Travis County, Texas

SEP 29 2017 NNR

CAUSE NO. D·l-GN-16-003653 At II os "'--- "'· Velva L Price, District Clerk

CALAB, INC.; MOSAIC, INC.; MOSAIC § IN TIIE DISTRICT COURT OF BETHPHAGE; MOSAIC MARTIN § LUTHER HOMES, INC.; THE CENTER § SERVING PERSONS WITH MENTAL § RETARDATION; UNIFIED CARE § GROUP; § Plaintiffi, § §

V. § TRAVIS COUNTY, TEXAS §

TEXAS DEPARTMENT OF AGING § AND DISABILITY SERVICES, § Defendants. § 261 st JUDICIAL DISTRICT

AGREED FINAL JUDGMENT GRANTING BILL OF REVIEW AND AFFIRMING AGENCY ORDERS On September 25, 2017, this agreed final judgment came to be heard and considered. The

Court finds this proposed final judgment has merit and therefore orders as follows:

1. Bill of review. The Plaintiffs bill of review is granted.

2. Suits for judicial review. These suits for judicial review present the same issue as

in Innovative Outcomes, Inc. et al, v. Texas Department ofAging and Disability Services, No. D-

l-GN-13-000999 (353 Dist. Ct., Travis County, Tex.) where the Court affirmed the agency orders.

The following agency orders are hereby affirmed:

a. Calab, Inc., HHSC Appeals Cause No. 10-0617-K;

b. Mosaic, Inc., HHSC Appeals Cause No. 10-0764-K;

c. Mosaic Bethphage, HHSC Appeals Cause No. 10-0763-K;

d. Mosaic Martin Luther Homes, Inc., HHSC Appeals Cause No. 10-0762-K;

e. The Center Serving Persons with Mental Retardation, HHSC Appeals Cause No. 10-0722-K; and

f. Unified Care Group, HHSC Appeals Cause No. 10-0578-K.

Page 1 of2

3. Costs. Each party shall bear its own costs.

4. Appeal. Plaintiffs have the right to appeal this final judgment.

5. Final judgment. All relief not expressly granted herein is denied. This judgment

disposes of all claims and all parties and is final.

IT IS SO ORDERED this "2-ct day of st~ , 2017.

~0.~ PRESIDING JUDGE

AGREED:

mZ1.1s~ SMITH & ASSOCIATES 900 Ranch Road 620 South, Suite CJ0J-159 Austin, Texas 78734 Tel: 512-261-9990 Fax: 512-261-9971 joanalys@lawofficesJBS.com Attorney for Plaintiff

Isl Andrew Lutostanski Andrew Lutostanski Assistant Attorney General SBN 24072217 Office of the Attorney General of Texas Administrative Law Division P.O. Box 12548 Austin, Texas 78711-2548 Phone:(512)475-4200 Fax: (512) 320-0167 andrew.lutostanski@oag.texas.gov For Defendant DADS

Page 2 of2

CAUSE NO. D-1-GN-13-000999

INNOVATIVE OUTCOMES, INC. et al, § IN THE DISTRICT COURT Plaintiffs, § §

v. § TRAVIS COUNTY, TEXAS §

TEXAS DEPARTMENT OF AGING § AND DISABILITY SERVICES § Defendant. § 353 rd JUDICIAL DISTRICT

MODIFIED ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND AFFRIMING AGENCY FINAL ORDERS

TO THE HONORABLE JUDGE OF SAID COURT:

On this the 7 th day of July, 2017 came on for consideration Defendant's

Motion for Summary Judgment. The Court, HAYING REVIEWED THE

Defendant's "Motion to Modify, Correct, or Reform Judgment" now finds that the

previous orders signed on July 11, 2017 should be and are hereby ordered to be

VACATED and the findings and orders issued on July 11, 2017 are hereby modified

and superseded as follows. After considering the same and attached appendices,

and after hearing the arguments of counsel and taking judicial notice of the file, the

Court, having first taken the matter under advisement, is now of the opinion that the

Motion should be granted.

IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that

Defendant' Motion for Summary Judgment is hereby GRANTED.

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the Final

Agency Orders issued in Innovative Outcomes, Inc. (HHSC Appeals; Cause No.

10-0710-K), Southern Concepts, Inc. (HHSC Appeals; 10-0775-K), Volunteers of

America Texas, Inc. (HHSC Appeals; 10-0689-K), SOMA Resources, Inc. (HHSC

Appeals; Cause No. 10-0628-K), Knob Oak, Inc. (HHSC Appeals; Cause No.

10-0716-K), Home at Silver Quail, Inc. (HHSC Appeals; Cause No. 10-0717-K),

Community Access, Inc. (HHSC Appeals; 10-0582-K), Reaching Maximum

Independence, Inc. (HHSC Appeals; Cause No. 10-0579-K), Creative Community

Care, Inc. (HHSC Appeals; 10-0629-K), and Premieant, Inc. (HHSC Appeals;

Cause No. 10-0719-K), (collectively referred to as "Plaintiffs") are, in all things

AFFIRMED.

IT IS FURTHER ORDERED that any other relief not granted in this final

order is DENIED. This order is final and appealable.

SIGNED this 21 st day of July, 2017

PRESIDING JUDGE

<<Prev Rule Next Rule>> Texas Administrative Code '--

TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE FOR LONG-TERM CARE FACILITIES

RULE §352.1 Purpose and Duration of Chapter Historical Texas Register

(a) This chapter implements the determination, assessment, collection, and enforcement of the quality assurance fee authorized under chapter 252, Health and Safety Code, subchapter H.

(b) The purpose of the quality assurance fee established under this chapter is to "--improve the quality of care provided to persons with mental retardation as follows:

(1) The quality assurance fee is intended to support and/or maintain an increase in reimbursement to licensed intermediate care facilities for the mentally retarded and facilities operated according to the requirements of chapter 252, Health and Safety Code and owned and/or operated by a community mental health and mental retardation center as described in chapter 534, subchapter A, Health and Safety Code, and a facility owned by the Texas Department of Mental Health and Mental Retardation that participate in Medicaid program, subject to legislative appropriation for this purpose; and

(2) The Commission or its designee may also offset allowable expenses to administer the quality assurance fee program against revenues generated by the collection of the quality assurance fee.

(c) This chapter will expire on September 1, 2005, unless chapter 252, subchapter H, Health and Safety Code, is extended by the 79th Texas Legislature.

'---------------4-"Awe-'--"--\a,,'--'---'--'(1O~t.L.L...X-+Li Source Note: The provisions of this §352.1 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg

9235

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TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE FOR LONG-TERM CARE FACILITIES

RULE §352.2 Definitions Historical Texas Register

As used in this chapter, the following terms shall have the meanings prescribed below, unless the context clearly indicates otherwise:

(1) "Facility" means:

....._ (A) An intermediate care facility for the mentally retarded or the corporate parent of an intermediate care facility for the mentally retarded licensed under chapter 252, Health and Safety Code; or

(B) A facility operated according to the requirements of chapter 252, Health and Safety Code, and owned and/or operated by a community mental health and mental retardation center as described in chapter 534, subchapter A, Health and Safety Code ; or

(C) A facility owned by the Texas Department of Mental Health and Mental Retardation.

(2) ''.Grass,~c-~pts" means m o n e ~ a facility as compensation for services provided to patients, including clierlt--patticipation, but does not include charitable contributions to a facility.

(3) "Total patient days" means the sum, computed on a monthly basis, of the '--- following:

. . ~

(A) The total number or patients occupying a tacillty bed unmediately betore midnight on each day of the month; and

' - (B) The total number of beds that are on hold on each day of the month and that have been placed on hold for a period not to exceed three consecutive calendar days during which a patient is on therapeutic leave during the month.

(C) The total number of days a patient is discharged from a facility are not counted in the calculation of the total patient days under this chapter.

Source Note: The provisions of this §352.2 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg 9235

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TI\. \S RLGISTEP TE•.. \S \DI\II~ISTR.\Tl\'I COlJE OP["· '\If I TI',J~S

<<Prev Rule Next Rule>> Texas Administrative Code '--

TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE FOR LONG-TERM CARE FACILITIES

RUL~~ Quality Assurance Fee Determination Methodology Historical Texas Register

(a) Quality assurance fee on State facilities. As provided in section l(b) of the Act of June 20, 2003, 78th Leg. R.S., (Senate Bill 1862), not later than August 31, 2003, the Texas Department of Mental Health and Mental Retardation shall pay for each facility owned by the department the quality assurance fee for patient days occurring between September 1, 2002, and July 31, 2003.

'-'@'buality assurance fee., Beginning September 1, 2003, the quality assurance fee for a facility is in the amount of six percent of each reirobm:sel!!_cnt or payment rate receiv.e.d, including those received from the resident, for each resident 1n the !_ac1frty during a calendar month, provided the amount of all such quality assurance fees assesseofbr the facility during the 12-month period following assessment of the quali~ ass~ance fee_ not excee4)six percent of the facility's total annual gross receipts 1n Texas.

(c) Not later than July 31, 2002, and every six months thereafter, the commission or its designee will review each individual facility's quality assurance fee calculation. A facility's liabilig_ for the quality assurance fee may be adjusted following this review to ensure that the quality assurance fee does not exceed six percent of annual revenue. vtur cic(:jJ1£(:f'd ft)r less 7 Source Note: The provisions of this §352.3 adopted to be effective November 18, '- 2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg <<Prev Rule Next Rule>> Texas Administrative Code '---

TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE FOR LONG-TERM CARE FACILITIES

RULE §352.4 Required reports Historical Texas Register

(a) The following reports must be filed by a facility in accordance with the instructions of the Commission or its designee:

( 1) The monthly patient day report required under subsection (c) of this section; and

'--- (2) The semi-annual report of gross receipts required under subsection (d) of this section.

(b) Amended reports.

(1) A facility may amend a report required under subsections (c) or (d) of this section;

(2) An amended monthly patient day report must be filed no later than 10 calendar days following the filing of the report required under subsection (c) of this section.

(3) An amended report of gross receipts must be filed no later than 10 calendar days following the filing of the report required under subsection (d) of this section.

(c) Monthly patient day report.

'--- (1) A facility must report, not later than the 20th calendar day after the last day of a month, the total number of patient days for the facility during the preceding month. ---- --

Cl) A tac1llty must tlle the report required by this subsection on torms or 1n the format and according to the instructions prescribed by the commission or its designee.

'--(d) Reporting of gross receipts.

(1) A facility must report, not later than the 10th calendar day following the last day of the sixth month following the effective date of this chapter, the total gross receipts the facility received during the preceding 6-month period.

(2) A facility must file the report required by this subsection on forms or in the format and according to the instructions prescribed by the commission or its designee.

Source Note: The provisions of this §352.4 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg 9235

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<<PrevRule Next Rule>> Texas Administrative Code \....., TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE FOR LONG-TERM CARE FACILITIES

RULE §352.5 Payment and Collection of Quality Assurance Fee Historical Texas Register

A facility must:

(1) Pay the amount of the quality assurance fee in accordance with the instructions of the commission or its designee not later than the 30th day after the \....., last day of the month for which the fee is assessed ; or

(2) Pay the amount of the quality assurance fee in accordance with the instructions of the commission or its designee and request an informal review of the calculation of the quality assurance fee in accordance with §352.8 of this chapter.

(3) Not later than August 31, 2003, the Texas Department of Mental Health and Mental Retardation shall pay for each facility owned by the department the quality assurance fee imposed under §352.3(a) of this title for patient days occurring between September 1, 2002, and July 31, 2003.

(4) The commission or its designee may review the calculation of the quality assurance fee to ensure its accuracy and instruct the facility to correct its calculation and payment.

\....., Source Note: The provisions of this §352.5 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg <<PrevRule Next Rule>> Texas Administrative Code '--

TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE FOR LONG-TERM CARE FACILITIES

RULE §352.6 Enforcement Texas Register

(a) The commission or its designee may audit a facility's records or the record of any corporate parent or affiliate of a facility for the purpose of determining the total patient days or gross receipts of the facility.

(b) The commission may not grant any exceptions from the quality assurance fee '-- or the provision of any data necessary for the Commission or its designee to calculate the fee.

Source Note: The provisions of this §352.6 adopted to be effective November 18, 2001, 26 TexReg 9085

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TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE FOR LONG-TERM CARE FACILITIES

RULE §352.7 Penalty Texas Register

(a) The commission or its designee will assess a financial penalty against a facility that:

(1) Fails to timely file the monthly facility report required under §352.4 of this chapter;

'-' (2) Files a false, erroneous, or fraudulent monthly facility report that the commission or its designee concludes resulted in the assessment of a quality assurance fee that is less than the facility should have been assessed; or

(3) Fails to timely pay a quality assurance fee assessed under §352.5 of this chapter.

(4) A penalty assessed under this section is in an amount equal to one-half the amount of the outstanding quality assurance fee or fees, not to exceed $20,000.

(b) The commission or its designee will notify a facility in writing of the assessment ofa penalty under this section and the amount of the penalty.

(c) The commission or its designee may make a referral to an appropriate authority in cases where the commission or its designee makes a good faith determination that a facility has:

\,..., (1) Committed fraud in the submission of information to the commission or its designee;

CL) Wllltully submitted erroneous intormatlon to the commission or its ctesignee; or

\_. (3) Violated a requirement of its license or Medicaid certification.

(d) The commission or its designee may report a facility that fails to pay the quality assurance fee to the Comptroller of Public Accounts or other appropriate authority for purposes of implementing a suspension of payments to the provider.

(e) The assessment of a penalty under this section does not relieve a facility from:

(1) Providing services to patients in accordance with its obligations under contract or the law;

(2) Paying additional quality assurance fees that may be assessed to the facility; or

(3) Otherwise complying with licensure and certification requirements.

"--- Source Note: The provisions of this §352.7 adopted to be effective November 18, 200 l, 26 TexReg 9085

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<<Prev Rule Next Rule>> Texas Administrative Code "---

TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE FOR LONG-TERM CARE FACILITIES

RULE §352.8 Informal review Texas Register

(a) A facility that believes the commission or its designee incorrectly calculated the amount of a quality assurance fee as defined in this chapter may request an informal review from the commission or its designee in accordance with this section.

"-- (b) The purpose of an informal review is to provide for the informal and efficient resolution of the matters in dispute. An informal review is not a formal administrative hearing, but is a prerequisite to obtaining a formal administrative hearing and is conducted according to the following procedures:

(1) The facility must request an informal review in writing to the commission or its designee, delivered by United States mail or special mail delivery within 20 calendar days of the date on the written notification of any of the actions described in subsection (a) of this section.

(2) A facility's written request for an informal review must include:

(A) A concise statement of the specific actions or determinations the facility disputes;

(B) The facility's recommended resolution; and

(C) Any supporting documentation the facility deems relevant to the dispute. It '-' is the responsibility of facility to submit all pertinent information at the time of its request for an informal review.

l c) Un receipt ot a request tor intormal review, the commission or its ctesignee assigns the review to appropriate staff.

'-- ( 1) The lead staff member coordinates a review by appropriate staff of the information submitted by the interested party.

(2) Staff may request additional information from the facility, which the facility must submit in writing to the lead staff member within 14 calendar days of the request for additional information. Information received after 14 days may not be used in the panel's written decision unless the interested party receives approval of the lead staff member to submit the information after 14 days .

.(d) Within 30 days of the date the request for informal review is received by the commission or its designee or the date additional requested information is received by the commission or its designee, the lead staff member must send the interested party its written decision by certified mail, return receipt requested.

Source Note: The provisions of this §352.8 adopted to be effective November 18, 2001, 26 TexReg 9085

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<<Prev Rule Next Rule>> Texas Administrative Code '--

TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE FOR LONG-TERM CARE FACILITIES

RULE §352.9 Formal Appeal of Penalty Texas Register

A facility that wishes to appeal the assessment of a penalty under §352.8 of this chapter may request a formal appeal from the Texas Department of Human Services in accordance with 40 T.A.C. §90.236.

------------------------------

Source Note: The provisions of this §352.9 adopted to be effective November 18, 2001, 26 TexReg 9085

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TI·,. \S Rf CISTFR Tf \: \S \fl'\II\ISTR,\Tl\'E COPE <)Pl'-, '\II E TI\<;s

Texas Register, Volume 28, Number 43, Pages 9133-9326, October 24, 2003 Page: 9,235

TITLE I, ADMINISTRATION

--· F•edwllhtheOfficeofthe 5eaetary o15tale on0clober9, 2003.

PART 15. TEXAS HEALTH AND HUMAN SERVICES COMMISSION CHAPrER 352. QUALITY ASSURANCE FEE FOR LONG-TERM CARE FACILITIES I TAC HJ52.l • 351.5 -=- "'"'"'"'''''' T9ul HNIIII #Id Humart ~ Oommi11ion at«:t1wc:1ut: °'*"* n,

2003

Pfopc:,u,I p u ~ dll9: Aug,.- 211, 2003 forlwtMr"lnt;lrlrrdon. - - cal; (512)42+6578

Th• Htallh and Human ServiCea Commlalon (HHSC) ad0pts lhe amendmen1' 10 9352.1, concerning tht purpoeo and dlJ.

•

TITLE 4. AGRICULTURE

• •

ratlOn ol ctiapt.- 352. §352.2, concerning def~ltlons. §352.3, collOIWl'ling QUlllly auuranco tee, §352,4, concerning ~ PART I. TEXAS DEPARTMENT OF raport&. and §352.5, conoeming payment and c:ollecliOn of the quallly aauranca IN, without changes to tha proposed 1IIXt u AGRICULTURE publllhed in thfl AuQoat 211, 2003, lsaue of Iha ».as RftOicte,

CHAPTER JO. SEED CERTIFICATION (28 TexReg 7060). The text of these arnendmllnts will not be ntpublllhed . In adelldon, thee• amendmentl were adopted on an STANDARDS ornsgencybul1 in the August 29, 2003, luueallhe TOUIIR8g- lcMr'(28 Tex Reg 7050). The emergency adoption i1 Ming with- SUBCHAPTER A. GENERAL RF.QUIREdrawn eleewta'e in ttUI luue of !he Texas ~ - ii ii eu· MENTS perMded biJ the adoptiol'I of lhMft proposed arMndments. The withdnMal ol the · ~ amenmienta will be effective Qc.- 4 TAC 116.3 ~ 29. 2003. The Tuai &ate Seed and Plant Board {the Baan:I) adopta an The .adope;,cl ame11dme11ts ~ a et.wtorily ~ ~ to §10.3, COl1C»mlnQ appnMJ of an ~ 1or change that mai.s the quality asslA'al1C8 laa 8'll)licatll& to seed certificaliOn, without chl!lngee to the proposal published In lacilllles owned by the T.,... 0epertrnant of t.4ental HNllh and June 27, 2003. IUueotlhe "TelrM~(28 TexReg-t760). Mental Retardation (MHMR) beginning with the state fl&cal year The amencment ii adopted IO incn,aae tees tor lioensing U a ending on Augutt 31, 2003, Reglmrtd Plant Bl'Mdlr. The.._ lncreued by thi& adoptlOn haveno1: been increuedbr the Board since 1987. The increase The arnondmenlSareadopledto~wllh SB 1862, 78th Leg- In fNs will alloW the&o,td and the Ta,,:aa ~olAgriallislature , Regular Seaion, which~- payment by MHMR of ture (the de$)BrbT"lent) to recover costs l!IHOciated with enforc- 1eel fDf !hole facillltel t\t that date; expends the poaible UEI of ing the atandatdl adopled ~ the Baan:I, u direoled b)' the 78th the tundl; dianges the dllfinition ot patient days; and. c:hangn Legislature, Aegular SessiOn, 2003. The amenctnent to §10.3 1he time lor faclllties to Ille required reports from the 1oth IO the irlCRNIMa from $100 to $120 the licenee ile lor licenaing u a 20th day after the last day of a month. The ,amendments also Registered Plant Breeder. lnaHN the quality asnnnce tee from 5.5 to 6 peroBm beOJn. ning S.,:-mber 1, 2003, in aceordance with projected reverus Comments were recalv9d r8Q(trdng the propoaed tee increue and l9lal9d ,._. matching funds spedlled In !he Ganeral Ap- and other iJ"ICl'eMN made to Ned cartlftcdon IHI from Texu propriation• Act for the 2004-2005 biennium. Farm Bureau (TFB) and the T. . 5eed Tia Auodatlon (TSTA), Th9 TFB, through II• Praldent. Kenneth Oierachke, During the pimlic oonment periOcl, whictJ included public hear- commenlfld that It ~ and appreciates the dapartment'a ingl on August 29, 2003 and s.ember 25, 2003, no oommentc functlong and Hl"'ril»B, but that It teela the lnoreaNd f9ee are were re(l9Mlld regan;tng the prtlOClS&I. not IIR)r0Pf1ate and do not rwft9ct the lnstructiona of the - e The amandmlntS ani Dpted under !he Texa& Government leadership not to IBM tu:ee. The TFB further staled itB belle! Code, §531.033, which authorizw the C o m ~ of HHSC that feel c:aladed ~ the department ltloold be uaed ID IUld lo adOpt MN neoauary to CllrT)' out the oorrmlaion's dutieSI: the NNiale pn:widlld lo the sei,ner,t of the population paying and unct.r §252.205 Health &l'ld Safety Code. the fees and not to fund NMCH kl the general public, Md that IIQOr1CY Nrviooa ll'l0lMI be fl.ncllld by ~ revenue.

This IQ8f1C)' heret1f certifies that the adoption hu been reviewed The TSTA. through ita E,oeoutn,e Director, Charles Lea.mona. by legal COOONI and found to be a valid ~ ol the agency's al&O voc:ed similar conceme regarding ttio toe lnaeaeea, legal auttlority.

Texas. Secretary of State. Texas Regist~ll8, iil11~-,fiit.:1*3, ~9183-9326, October 24, 2003, periodical, October 24, 2003; Austin, Texas. (texashistory.unt.edu/ ark:/ 6 7531/ metapth l 01071/ m1/101/? utm_source=email&utm_medium=client&utm_content=ark_sidebar&utm_campaign=ark_permanent: accessed June 28, 2017), University of North Texas Libraries, The Portal to Texas History, texashistory.unt.edu; crediting UNT Libraries Government Documents Department.

12/29/2017 GOVERNMENT CODE CHAPTER 2001. ADMINISTRATIVE PROCEDURE

Sec. 2001.174. REVIEW UNDER SUBSTANTIAL EVIDENCE RULE OR UNDEFINED SCOPE OF REVIEW. If the law authorizes review of a decision in a contested case under the substantial evidence rule or if the law does not define the scope of judicial review, a court may not substitute its judgment for the judgment of the state agency on the weight of the evidence on questions committed to agency discretion but:

(1) may affirm the agency decision in whole or in part; and (2) shall reverse or remand the case for further proceedings if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:

(A) in violation of a constitutional or statutory provision; (B) in excess of the agency's statutory authority; (C) made through unlawful procedure; (D) affected by other error of law; (E) not reasonably supported by substantial evidence considering the reliable and probative evidence in the record as a whole; or (F) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.

Added by Acts 1993, 73rd Leg., ch. 268, Sec. 1, eff. Sept. 1, 1993.

http://www.statutes.legis.state.tx.us/Docs/GV/htm/GV.2001.htm 1/1 <<Prev Rule Next Rule>> Texas Administrative Code TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE RULE §352.1 Purpose of Chapter Repealed Date: 03/01/2010 Historical Texas Register

(a) This chapter implements the determination, assessment, collection, and enforcement of the quality assurance fee authorized under chapter 252, Health and Safety Code, subchapter H.

(b) The purpose of the quality assurance fee established under this chapter is to I\,,,..., improve the quality of care provided to persons with mental retardation as follows:

(1) The quality assurance fee is intended to support and/or maintain an increase in reimbursement to facilities that participate in the Medicaid program, subject to legislative appropriation for this purpose; and

(2) The Department of Aging and Disability Services (DADS) may also offset allowable expenses to administer the quality assurance fee program against revenues generated by the collection of the quality assurance fee.

Source Note: The provisions of this §352.1 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg 9235; amended to be effective February 3, 2008, 33 TexReg 667

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<<Prev Rule Next Rule>> Texas Administrative Code TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER 352 QUALITY ASSURANCE FEE RULE §352.2 Definitions Repealed Date: 03/01/2010 Historical Texas Register

As used in this chapter, the following terms shall have the meanings prescribed below, unless the context clearly indicates otherwise:

(1) "DADS" means: The Department of Aging and Disability Services.

"- (2) "Facility" means:

(A) An intermediate care facility for the mentally retarded or the corporate parent of an intermediate care facility for the mentally retarded licensed under chapter 252, Health and Safety Code; or

(B) A facility operated according to the requirements of chapter 252, Health and Safety Code, and owned and/or operated by a community mental health and mental retardation center as described in chapter 534, subchapter A, Health and Safety Code; or

(C) A facility owned by DADS.

(3) "Gross receipts" means money paid to a facility as compensation for services provided to residents, including resident participation, but does not include charitable contributions to a facility. Gross receipts are defined as accrued payments and not as cash received. · ------

\......'

(4) "Total patient days" means the sum, computed on a monthly basis, of the following:

{A) The total number ot residents occupying a tacillty bed nmnediately betore midnight on each day of the month; and

'-- (B) The total number of beds that are on hold on each day of the month and that have been placed on hold for a period not to exceed three consecutive calendar days during which a resident is on therapeutic leave during the month.

(C) The total number of days a resident is discharged from a facility are not counted in the calculation of the total patient days under this chapter.

Source Note: The provisions of this §352.2 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg 9235; amended to be effective February 3, 2008, 33 TexReg 667

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TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE RULE §352.3 Quality Assurance Fee Determination Methodology Repealed Date: 03/01/2010 Historical Texas Register

;ffa) Quality assurance fee. Effective January 1, 2008, the quality assurance fee for a ~cility is five and one half percent of a facility owner's gross receipts.

(b) Quality assurance fee review. Every twelve months on a schedule determined by DADS, DADS will review each facility owner's quality assurance fee payments '---' from all of the owner's facilities combined. A facility owner's liability for the quality assurance fee may be adjusted following this review to ensure that the quality assurance fee equals five and one half percent of annual gross receipts from all facilities.

Source Note: The provisions of this §352.3 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg 9235; amended to be effective February 3, 2008, 33 TexReg 667

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TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE RULE §352.4 Required reports Repealed Date: 03/01/2010 Historical Texas Register

(a) The following reports must be filed by a facility in accordance with DADS instructions:

(1) The monthly patient day report required under subsection (c) of this section; and "-

(2) The annual report of gross receipts required under subsection (d) of this section.

(b) Amended reports.

(1) A facility may amend a report required under subsections (c) or (d) of this section;

(2) An amended monthly patient day report must be filed no later than 20 calendar days after the last day of the month for which the report was filed.

(3) An amended report of gross receipts must be filed no later than 10 calendar days after the filing of the report required under subsection (d) of this section.

(c) Monthly patient day report.

(1) A facility must report, not later than the 10th calendar day after the last day of "- a month, the total number of patient days for the facility during the preceding month.

CL) A tacllity must tile the report required by this subsection on torms or m the format and according to the instructions prescribed by DADS .

...__, (d) Reporting of gross receipts.

(1) A facility must report, no later than October 31 of each year, money paid to the facility by private-pay residents and money paid to the facility for bed-hold fees for the period of September 1 through August 31 immediately preceding the report. DADS will use the Durable Medical Equipment and Applied Income amounts on file with the Claims Management System and the amounts reported by the facility for private-pay and bed-hold to determine the total gross receipts.

(2) A facility must file the report required by this subsection on forms or in the format and according to the instructions prescribed by DADS.

Source Note: The provisions of this §352.4 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg 9235; amended to be effective February 3, 2008, 33 TexReg 667

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- Tf ·,.\SRI GISTER TEXAS \Di\I!\JISTK \ Tl\"I conr OP!\ "\II I Tr·,,;s <<Prev Rule Next Rule>> Texas Administrative Code TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE RULE §352.5 Payment and Collection of Quality Assurance Fee Repealed Date: 03/01/2010 Historical Texas Register

(a) A facility must:

(1) Pay the amount of the quality assurance fee in accordance with DADS instructions not later than the 30th day after the last day of the month for which the fee is assessed; or '-'

(2) Pay the amount of the quality assurance fee in accordance with DADS instructions and request an informal review of the calculation of the quality assurance fee in accordance with §352.8 of this chapter.

(b) DADS may review the calculation of the quality assurance fee to ensure its accuracy and instruct the facility to correct its calculation and payment.

Source Note: The provisions of this §352.5 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg 9235; amended to be effective February 3, 2008, 33 TexReg 667

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TL\. \S RLGISTER TE :\.\S .\D"\11'\ISTR.\ TJ\'L COUL UPI'-, "Ill l Tl'\1;s

<<Prev Rule Next Rule>> Texas Administrative Code \.-

TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE RULE §352.6 Enforcement Repealed Date: 03/01/2010 Historical Texas Register

(a) DADS monitors a facility's records or the record of any corporate parent or affiliate of a facility for the purpose of determining the total patient days and gross receipts of the facility.

(b) The Health and Human Services Commission (HHSC) and DADS may not 1o,,....,grant any exceptions from the quality assurance fee or the provision of any data necessary for DADS to calculate the fee.

(c) HHSC or its designee audits quality assurance fee determinations in accordance with this subsection.

( 1) HHSC or its designee periodically audits the records of a facility and, if necessary, the corporate parent or affiliate of a facility to verify the amount of the quality assurance fee owned by the facility. The facility must allow HHSC or its designee to review and photocopy any records necessary to conduct the audit.

(2) If a facility fails to maintain records or fails to allow HHSC or its designee to review and photocopy any records necessary to conduct an audit, an audit will be conducted with the records available.

(3) HHSC or its designee provides the facility with a report of the final audit findings.

'-- (4) If the final audit findings show the facility owes additional amounts for the quality assurance fee, DADS notifies the facility of the amount due. If the final

... ,... ...

audit t1nd1ngs show the tac1llty 1s owed money due to overpayment ot the quallty assurance fee, DADS refunds the amount owed to the facility owner.

\._------------------------------- Source Note: The provisions of this §352.6 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective February 3, 2008, 33 TexReg 667

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- Tl·,\~ In <~ISTF I--" Tl•. -\S c\lll\lI'~ISTI< \Tl\'! COl•l <<Prev Rule Next Rule>> Texas Administrative Code \.....,

TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE RULE §352.7 Penalty Repealed Date: 03/01/2010 Historical Texas Register

(a) DADS will assess a financial penalty against a facility that:

(1) Fails to timely file the monthly facility report required under §352.4 of this chapter;

\....., (2) Files a false, erroneous, or fraudulent monthly facility report that DADS concludes resulted in the assessment of a quality assurance fee that is less than the facility should have been assessed; or

(3) Fails to timely pay a quality assurance fee assessed under §352.5 of this chapter.

(b) A penalty assessed under this section is an amount equal to one-fourth the amount of the quality assurance fee for each month the quality assurance fee is late, not reported or unpaid.

(c) DADS will notify a facility in writing of the assessment of a penalty under this section and the amount of the penalty.

(d) DADS may make a referral to an appropriate authority in cases where it makes a good faith determination that a facility has:

(1) Committed fraud in the submission of information to DADS;

(2) Willfully submitted erroneous information to DADS; or

,_.,. ,. .... ..

(.i) Violated a requirement ot its llcense or Medicaid certitication.

(e) DADS may suspend payments to a facility that fails to pay or report the quality \...,assurance fee.

(f) The assessment of a penalty under this section does not relieve a facility from:

(1) Providing services to residents in accordance with its obligations under contract or the law;

(2) Paying additional quality assurance fees that may be assessed to the facility; or

(3) Otherwise complying with licensure and certification requirements.

Source Note: The provisions of this §352.7 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective February 3, 2008, 33 TexReg 667

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Tl·,. \SRI (;!STFR TF\. \S \1)1\ll"JISTR \Tl\·~ CODI (,Pl\ '\ll f T1,.,;s

<<Prev Rule Next Rule>> Texas Administrative Code '-

TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE RULE §352.8 Informal review Repealed Date: 03/01/2010 Historical Texas Register

(a) A facility that believes DADS incorrectly calculated the amount of a quality assurance fee as defined in this chapter may request an informal review from DADS in accordance with this section.

(b) The purpose of an informal review is to provide for the informal and efficient '-resolution of the matters in dispute. An informal review is not a formal administrative hearing, but is a prerequisite to obtaining a formal administrative hearing and is conducted according to the following procedures:

(1) The facility must request an informal review in writing to DADS, delivered by United States mail or special mail delivery to DADS no later than 20 calendar days after the date on the written notification of a calculation described in subsection (a) of this section.

(2) A facility's written request for an informal review must include:

(A) A concise statement of the specific actions or determinations the facility disputes;

(B) The facility's recommended resolution; and

(C) Any supporting documentation the facility deems relevant to the dispute. It is the responsibility of facility to submit all pertinent information at the time of its '-' request for an informal review.

tc) Un receipt ot a request tor intormal review, UAU:S assigns the review to appropriate staff.

"-' ( 1) DADS coordinates a review by appropriate staff of the information submitted by the facility.

(2) DADS may request additional information from the facility, which the facility must submit in writing to DADS within 14 calendar days after the request for additional information. Information received after 14 days may not be used in DADS written decision unless the interested party receives approval from DADS to submit the information after 14 days.

(d) Within 30 days after the date the request for informal review is received by DADS or the date additional requested information is received by DADS, DADS sends the facility its written decision by certified mail, return receipt requested.

Source Note: The provisions of this §352.8 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective February 3, 2008, 33 TexReg 667

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- Tl•. \S REGISTER T[•._.\S \1)1\IJ'\,ISTP -\TI\T cnr,1 OPI \ '\Tl I Tf\1 ;s <<PrevRule Next Rule>> Texas Administrative Code TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER352 QUALITY ASSURANCE FEE RULE §352.9 Appeal of an Informal Review Decision Repealed Date: 03/01/2010 Historical Texas Register

A facility that wishes to appeal an informal review decision under §352.8 of this chapter may request a hearing from the Health and Human Services Commission in accordance with Chapter 357, Subchapter I of this title (relating to Hearings Under the Administrative Procedure Act).

'-'

Source Note: The provisions of this §352.9 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective February 3, 2008, 33 TexReg 667

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Tf ·,. \S Rf CISTf P Tl\. \S \IJ'\Jl'\ISTP .\ Tl\ t COi ,1

Texas Register, Volume 33, Number 4, Pages 635-808, January 25, 2008 Page: 667

cAJ~PTEDAdopted rules include new rules, amendmenG to e,ustmg .. rules. and repeals of 7x.1s:1~g ..

LES rules. A ruletheadopted ofa state agency takes effectis20 days after the date on which. Lt 1s filed with Secretary

by

State 1.mless a later date required by statute or spe<:ified in the rule (Government Code, §2001.036). If a rule is adopted without change to the texl of the proposed rule, then the Texas Register does not republish the rule text here. (fa rule is adopted with cllllnge to the text of the proposed rule, then the final rule text is included here. The final rule text will appear in the Texas Administrative Code on the effective date.

TITLE I. ADMINISTRATION The 30-day comment period ended December 2, 2007, and HHSC did not rucelve any comments on the proposed amend-

PART 15. TEXAS HEALTH AND ments. HUMAN SERVICES COMMISSION The amendments are adopted undef the Texas Government Code, §531.033, which provkleS the Executive Commis-

CHAPTER 352. QUALITY ASSURANCE FEE sioner of HHSC with brClad r,Jlemaklng authorl!y: and lhe Human Resource Code §32.021 and Texas Government Cooe 1 TAC H352.t • 352.9 §531.021(a), which provide HHSC with the authority to adminis· The Texas HaalJh and Human Services Commission (HHSC) ter lhe federal macical assistance (Medicaid) program in Texas. aoopts amendments to §§352.1 . 352.9, concerning the quality This agency hereby certifies that the adoption has been reviewed assurance tee for the Intermediate Gare Facilities tor Pefsons by legal counsel and found to be a valid exercise of the agency·s with Mental Retardation (ICFIMA) program, without changes to legal authority. the proposed text as published in the November 2, 2007, issue of the Texas Register (32 Tex Reg TT89) and will not be repub- Filed with the Office of the Secretary of State cm January 14, lished.

2008.

Theamelldments update the ICFIMRqua~ty assu-aoce tee rules by reviSing the quality assurance fee perceotage to reflect the TR[).200800150 maximum 5.5 percent fee alloWed under the 1ederal Tax Relief Steve AfaQOn and Health care Act of 2006 (TRHCA). P.L. 109-432, Section Chle!Counsel 403, which amended Section 1903(w)(4)(C) of lhe Social Secu- Texas Health anti Human services CommiBSIOn rity Act (42 U.S.C. 1398b(w)(4)(C)). This law took effect on Jan- Elfdve dale: February 3, 2008 uary 1, 2008. The 5.5 percent maximum allowed for ICF/MR Pmposal publlC&lion date: Novembsl" 2, 2007 facmtlfi In the TRHCA repr6NmS a 0.5 percent reooctlol1 In For further ll'lformation. please can: {512) 424--6800 matchable ICFIMR quality assurance lees. The effect of this law is that contraCled ICF!MA providers will pay less ln quality assurance "lffS to the state than they currently pay. tn addition. the amendment8 update adminiStrative procedures relating to the CHAPTER 355.

• •

REIMBURSEMENT RATES

•

quality assurance fee, remove ouldated language. and update The Texas Health and Human Services Comml&siOn (HHSC) references to reflect that the Department of Aging and Olsabllty aoopl8 arneoctnents to §355.503, conce,ning Reimbursement Serviees (DADS) has administraUve responsibility for the quality Mdiodology for the Community-Based Altemalivas (CBA)

assurance lee. Waiver Program and the Integrated Gare Managemenl-Home The purpose of the amendment& are to revise the ICF/MRquality and Community Support Services and Assisted Living/Resiusurance fee rules to reflect the new maximum qualty USIJr- dential care PrOQtams; §355.505. concetning Reimbursement anoe lee allowed under the TRHCA and to provide clear guid- Methodology tor the Community Living Assistance and &Jpport ance to agency staff and providefs on quallty assurance fee Services (CLASS) Waiver Program; and §355.5902, concerning reporting requirements and calculations, monitoring and audil- Reimbursement Mathodology !or Primary Home Gant (PHC), ing responsibilities, penalties. informal review andfonnal appeal without changes to the proposed text as pubBshtld In the rights and responsibilities. As part of upctating am\iniStrativ& November 9, 2007, Issue of the ~XS$ Register {32 Te~Reg procedures, the &mendmen1s clarify how penalties for non-pay- 8073) and wlU not be republished. ment of the lea wlU be calculated and require DADS to collact One amendment to §355.503(d)j2) adds subparagraph (0), underpayments and refund overpayments of fees. In addition.

which sets out a relrmursement methodology for Personal Care the deadlines r&Qaroing the submittal of required reports are Ill Iha.I: (1) models the direct care portiofl of the payment rate changed or clarified, and the definition ol •gross receipts" is clarusing program staffing reQUlrements; and (2) ties the non-direct ified to mean 'accrued payments" and not "cash received• A-

care portion of the rate to the non-attendant portion ot the nally, language is added to allow DADS to reconcile overpaynon -apartment assisted living rate for a provider that does not ments and underpayments of the fee to 5.5 percent of annual ~ in receiving rate add-ons in the Attendant Compengross receipts at the corporate eniity level for those entitles that sation Rate Enhancement.

control more than 01"18 facility.

A second amendment to §355.503 adds subSeetion (f)(3J; Iha amendment lo §355.505 amends subsection (c)(2); and Iha amendment to §355.5902 amends 81.bSeCtion (b)(1). Th898

ADOPTED RVLES January 25, 2008 33 TexReg 667

Texas. Secretary of State. Texas Register, Volume 33, Number 4, Pages 635-808, January 25, 2008, periodical, Jonuary 25, 2008; Austin, Texas. (texashistory.unt.edu/ark:/6753l/metapth90778/ml/3l/? q=texas%20register%20volume%2033%20, accessed December 29, 2017), University of North Texas Libraries, The Portal to Texas History, texashistory.unt.edu; crediting UNT Libraries Government Documents Department.

Texas Register, Volume 32, Number 44, Pages m7-8060, November 2, 2007 Page: 7,789

PART 15. TEXAS HEALTH AND 12-monlhl: ac1C1 !anguage to allow DAOS to make adiUltmentl lo erlllUl'II that the quallty ueurance tee equals 5.5 percent ol HUMAN SERVICES COMMISSION each facillty's groa receipts; and add language to indcale that CHAPTER 352. 1 TAC tfMZ.l • 351.'

QUALITY ASSURANCE FEE

The H..ith and Human Services CommiUlon (HHSCJ propoae1 ..., for entitlN controlling mor. then one lacillty, quality auurance fee revlaws are conduc:led at the entity, rather than the facility

The propoeed amenctment rOVllea f352.4 to:

~ to ff352.1 - 352.9, conoemlng tha quality anur- Replaee relerenoes to the "Commission or Its deslgnee" with refance IM lor the l~meoiatlt care Facilltles Mental Relafdallon erenoea to DAO$, which 11 1Wponalble !or the acminislralion o1 (ICF!MR) program. the Quality assurance lee. ~ d and Justification Revise subNc:ticin (a)(2) to rwqui!'II annual reports of groM r&- Th8li8 rule proposal; establish the quallty assurance lee for fa- 01iptl instead ot semi-annual reports. olll!IN in 11w ICFIMR program. HHSC, Ulder hs authority and Rmse th• due dale for submitting amended monthly Datient day r.spor,5ibility to admlnieter and implement rates. 1$ updating the reportS in subNction (b)(2) from 10 calendar days following the quailr81A1tatX» IN NIN by re,,ising t h e ~ ueu,ar,011 IN fling of the report to 20 eallllndllr days after the last day ot the percentage to rellect'tta maximl.ffl 5.5 percent let aJloWed under month for which the report WU tied. 1he llderal Tax Re11e1 and Health Care Ad. of 2006 (TRHCA), P.L.. 109-432. 8cK1iorl 403, Whid'I amended Sedtorl 1903(w)(4)(C) RIIYile the we date tor 11.timHng amended f9POltS to grosa of !hi Social S.Wrtty Id (42 U,S.C. 1396b(w)(-4)(C)J. This laW receipts in subNc::1:lon (b)(3) from 10 calendar days "following" take$ etleot on Janusy 1, 2008. The 5.5 percent maximum al- llling the report to 10 days "after" lllng the r.port. lowed kit !Cf/MR lacilillN in the TAHCA ~ a 0.5 per. Revile the ck» date for •tlmltttno the monthly pdlent day report oen1: Nalction in matchable ICF/MR quaMty aPU'8IICe tHI. The in 11.JbMCtiOn (c:~1) from 20 calendar days after the last Clay of affec;t 01 lflll law ia ltlal contract«t ICfJMR provider& wil pay less the month to 1Dcalender days aftar 1h11 lut day of the month.

,_

In quality assurance fe• to the state than !hay c:u,qntty pay. 1n acldillOn, NI propoeal Updatea admlnillralMI l)l'OCedurN re&lt- A..... tubNalon (cl)(1) to lndloale thel facilitlN muat report ing to t h e ~ aaut11r1Ce felt. removes outtated' langUlga, mo,wy paid to the 'lac:illty b y ~ /"8lkfenlr and tor baCSand updateg referencN to reflect that the Department OI Aging hold !wt during Reh ttm "9oa.l year by Oc:lober 31 each year and Dlubillty Servloes (DADS) hU admlnlllrative msponsibllity and lo indicD that DADS will UN this intorrnatlon, along wi\h the for 11'111 quality &1&Urance tea. Durable Medical Equipment and Applied Income emounu on fie with the Claims ManagernW Syatem, to detarmine total grou SectiOn~-sectiOn summary The proposed amendment revises §352. 1 to: The proposed amen::ment rewses §352.5 10: ~ from IUbNc;tiOn (b)(1) extran.out Language eu'""1tly R8place Nleranoea to the "Commiuion or Ila deelgrMta" with ref· al8o Included In §352.2( 1) in tne dallnltlon o1 faclllly. er'9llCe8 toDADS, which It re&ponllble for the 9'*nlni8lratlon of Replace in aublection (b)(2) reference• to the "Commission or the quality usuranca tee. its dealgnee'' With references to DADS, which is tha agency re- Delete panl!18ph (3), which Is ol..lldated. aponsi,ie tor the administration of Iha quality auurance fee.

Add n- MJbleQliorl (a) and ra-dNignale paragraph (4) u U-

R91'nO'te lUbleetiOfl (C) beCaUH Cl'taot• 252 ol the HMfth and ~ (bl iauch that UNCtion (l) ii a liSI: of taciltty reqt.llre- SakNy Codi wu amended by Iha 79th Legialalunl to ram0Yfl an menta and subaection (b) is ro1 a part of that 1181. embedded expration date, making this subsection oblKllele.

The proposed amerd"nent revilN §352. 6 to:

Renamit the section to betl8r dltcri>e its contents.

Replace reterences to the "CcnvniUiOn fJlt Its dellgl"lee" with ref-

T h e ~ amendment revilH §352.2 to: erences to DADS, whictl ls responsiblll for the mninisiration of ,.,_. Adel a paragraph defining DADS and renumber aubeeqlJent the quality &ICMIIMC8 fee.

/nctcatettwlt DADS monltlnlacilltie1' recofdt butcloesnotaJClil Replace In the newly renumbered paragrarit, {2)(C) 1hl refer. lham. ence to the "Tuu Departmen1 of MerGI Health and Mental fle- lncicata that HHSC or its deeigflM &I.ICit& quality auuranoe fee tardatiOn {TOMHMR)" with a raference to DADS. cleteminatlons for accincy. Clarify In the newly Nnumbared peragrapt, (3) that i,na1 reoEMptS The pr0pOl8d amendment reviaeB f352.7 to: are defined as accruedpaymentc and not as cut, racelv8d.

Replace refer8f"l0N lo the "Commiuion or its deaignee" with ref-

The propoaed amendment l1MMI §352.3 to: arwinces to DADS, which It mponslble for the llCSTiiniltration of Remove IUbne:tiOfl (a), whidi ii outdated, and renumber the the ~ uaurance fee. IU00Hding 8Ubseotionc accordingly. Renumber eubeection (a)(4)aasublec:tiQn (b) and:clarllyltlalthe ~ the rule lo refl6ct that the ~ usurance fee is 5.5 fti\ln0ial penal\/ II equal to one-1oul1f'I the emoi.nt of t h e ~ percent ol a tacllty's gross rec:eipls effecllw January 1, 2008. aMtnnCe tee tor each month the quality uauranc:e lee ii late, Ranova an ouldMed dale; replace referencN to the ''Comrrvanot Nl)Cllted, or l.ffll*ld.

tion or !ta dnignee" with teloreoces 10 DADS; add languags to Re-designate the remailWIQ tubaeC:tion$ appropriately. reql.lN' Iha! qualily uaurance fee reviews are conducted ...,.ry

Texas. Secretary of State. Texas Regisf/W?~, ~ - - ~~l)tll<iPlf-8060, November 2, 2007, periodical, November 2, 2007; Austin, Texas. (texashistory.unt.edu/ ark:/ 6 7531/metapth97421/ m1/11/7 utm_source=email&utm_medium=client&utm_content=ark_sidebar&utm_campaign=ark_permanent: accessed June 28, 2017), University of North Texas Libraries, The Portal to Texas History, texashistory.unt.edu; crediting U NT Libraries Government Documents Department.

Modify new subseC!ion (o) 10 indicale lhal DADS may suspend - CU<Mnl1y ,.._,,.ible for admi11iltering Ille ICF/MR propayments to a lacilrty that lalls to pay or 1'81)01'1 the quality assur- gram; and lhe Nlff WIii p,ovide clear guidance 10 agency staff ance lee. and providers on quality ...,..,ance fee ,_rting requi!1,ments and calcolatlons, monl10ring and auditing responslbllill... penal-

The propo&ed ameooment revises §352.8 10: ties, informal review and formal - ' rights and retpOnlibili- Replace references lo the ·Comm.ssion or itS designee· with ref· bK. F,nally. the pobltC wiN benefil because the rules will reflect erenoes to DADS, which is r8'5'10nsib4e for the administration of the new maximum quality a8*jranc:e tee allowed under the ted- Iha quality assurance fee. eral Tax Relief and Heallh care Ad of 2006. P.L. 109-432. sachon 403 effectiVe Jam,a,y 1. 2008.

Clarify in subsection (b)C 1) that a rl9(Jlest kw an an formal rt11view must be received by DADS no later than 20 calendar day& alter Taking& lmpa01: Assessment lhe dale on 1110 written notificallon of lhe calculation ot lhe qualify HHSC has-nnined lhal lllis proposal does not restrict or •mil assurance tee. an owner's right 10 his or her propen)' that would otherwise exist Replace references to ·staff." lead staff," and "panel" with reterences 10 DADS.

0

"1 lhe abeence ot _,,..,ent ac:1i0n and, lherefore, does nol oonsttlUle a taking under Texn Govemmonl Code, §2007.043.

Clarify in subsection td) lhal DADS sends ils written doasion Regula!Ofy Analy&IS within "30 days a11er" rather lhan ''withil1 30 days ot." 111e dale HHSC has delerm"1ed that lhis proposal is not a ·major 9flwonlhe reqUMt fo, i<lfonnal review is r"""'11ed Ill' DADS and lhat Ille menial ru1e· as defirled by §2001.0225 ot lhe Texes Govemment decision is sent to the "'faolity" rattler than the ·tnterested party." Code. ·Major environmental Nie" Is defined 10 mean a Mo Ille The proposed ameronent revises §35.2.9 to: specific; il1lent ot wt1ich io 10 prote<;t Ille environmenl Of ,_ce tisk co homan health from enWonmental exposu,e and ltlat may Remove reference to the appeal as being for the assessmern o1 a penalty and replaea it with a referooce 10 the appeal aa being for adYerlely alfecl, in a material way. the economy. a - ot lhe economy, productivity, competition, jobs, the envi,onment or the an _informai irevieW decision. since this section refers to §352.8 pUblic health and aalety ol a state or a sedor ol lhe stale. Thi$ which govems lnfofmal reviews., not assessments of penalties.

p,_.al is not specifically intOfldod to proteol Iha environment Replace refttrenots to the ·Comm,ssion or rts designff" with ref- or reduat ri&l<s 10 human health from environmental exposure erences to DADS, whid"I is responsib4e k>f the administratiofl of Public Comment

lhe quality assurance fee. Chanoe an incorracl reference 10 the formal appeal rules related Oueotions elJout 111e oontent ot 111is proposal may be direoled 10 Pam McDonald in Ille HHSC Raio Analysis Dopan,-1 by lo HHSC programs.

telephone at (512) 491-1373. Written oonvnenta on the pro-

Fiscal Note posal may be submitted 10 Ms. Mcllonald by facsimile al (512) Gordon E. Taylor. Chief Financial Officer lot lhe Department of 491-1998, by e-mail 10 pam.modonol<IOhh&e.stale.tx.us, or by Aging and Oiaabilily Services, has -nnined lhal. du<ing lhe mail to HHSC Aale Analysis, Mail Code H-400, P.O. Box 85200. first five.year period lhe amended mtes are in effect there will be Austin. Texas 78708-5200, Wllh., 30 days of publication ot this a fiscal impael 10 state go.emrnent of $3.078.151 for Slale firs()al p<opoaal in Ille Texas Regioter. year (SFY) 2008: $4,617,227 lo, SFY 2009: $4,6I7,227 for SFY Slllturory Aulhorily 2010; $4,617.227 for SFY 2011: and $4,6I7.227 lor SFY 2012 as a resull of changing the amount of the qualty assurance fee The amendments are proposed undat the Texas Government lhal is collected from 6 percent 10 5.5 percent The proposed Code, §531.033. wt-och provide$ the Exea,li.., CommiasicJner rule amendments wll not result in any fisee.l implications tor lo- of HHSC witll broad rulemaking aulhoril)'; and 1110 Human cal health and human services agencies. There are no fiscal _ , , . . Code, §32.021 and T"""" GoYemmen1 Code. implications tor local governments as a result ot enfon::ing or ad- §531 .021(a), ,ohich provide HHSC willl lhe ault>oril)' to admi<lisministering the amended sections. 1er lhe fedetat medical assl&lance (Medicaid) program in Texas.

Small Business and Micro-buSi<loss Impact Analysis The propooed amendmenlS aHect 1110 Human Rescurces Code.

Chapler 32. and 1l1e Texas Government Code, Chaple, 531. No HHSC has ,cfelemlmed lhat !here is no - economic e1- 01har . - , artlclas. or codes are alfacfed by lhis pr0p00,at. tect on small businesses or micro-businesses as a reUI of eolorting Of admon-lng lhe proposed amendment. The impo- JJ52./. Pu,r,m.c- Jdltll ~ / o f Chap,,.,._ "*"8tion of lhese proposed rule amendments does nol require !"' Thi!> d111ph:-r imp5cmenb lhe dek:nntna111Jn • .in~sstn1.'IU, any changes 1n pract10e or anr addfflOOal cosl to the eon1racted CLlllcc:ut1n. and cnfo1ccmcn11 i,r 1hc 4uality ~~urancc- Fee :auchori.11.'d provider. utm t·h:apter 2'.'i2. Hcahh anJ Sa.fol)' Colle, ,_utM.·hartt!r II.

HHSC does not anticipate that !here wiR be any economic: cost lo tb) Tk ~ ol"the QUillily ilSSUl'lllK"C' I« C'SLU.bliishcJ uooef persons who are required 10 oomply wilh this proposed •mend- lhhi chlqller .ii. to impm\·I!' the quali1y r~r care JWa\•id1--d to p::r.umi. "'ilh menl. The amendment will not affect local employment. mt'flUII rdardiilLion tL,. folkiwis·

Public Benefit t It The qualil)' as5Ufani;c kc is intended to !iiuppon and/or ~1~~ an i ~ in rcimhun&:mc-n1 10 I ~ if'Nifmaedidle aw-I C.,oiyn Pratt, Director of Rate Analysis, has detennined Iha!, for lacttilleloo IWf "- ~ · AMHNN tMlJ fw;ilk~ ~ ill.'Q.~ 10 each of the twst ftve years the proposed rule amendments are in Hll! NqYiNIMtllli uf ~ 2,~2-. i4ffkh M i l ~ ('<OOI! llAd- 0Wfll!d effe<;t, Ille e,pecled public benefit is lhat - rule language liltldl('I' ,"Pffllkid It)- • ~ ) ' ffW'~I ~ h ood nwt1h1I Mlilr\lallon will be_ eliminated: refe,ences lo TDMHMR, which no longer ex· efflWf m i ~ Ht t.'Nlpl« ~;4-. ~ A. Hffkh 1100 ~ ,ots, w,11 be removed and replaoed wi1l1 refe, onces lo DADS, lho C"*· lll-1 ,111 f1111,.'iltl)' t ~ by !he T.,..lii.1' [)e,pfwlt'Wlll o( M,.,,iiMal Hellillh

32 TexReg 7790 No,ember 2, 2007 Texas Register <<PrevRule Next Rule>> Texas Administrative Code TITLE 1 ADMINISTRATION PART 15 TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER357 HEARINGS SUBCHAPTER I HEARINGS UNDER THE ADMINISTRATIVE PROCEDURE ACT

RULE §357.483 Powers and Duties of the Judge Historical Texas Register

(a) The judge is a designee of the HHSC Executive Commissioner for purposes of:

( 1) issuing default, final, and other orders, and

' - (2) ruling on any motions for rehearing.

(b) The judge shall have the authority and the duty to:

(1) regulate pre-hearing matters and the hearing;

(2) conduct a full, fair, and impartial hearing;

(3) take action to avoid unnecessary delay in the disposition of the proceeding; and

(4) maintain order, including regulating the conduct of the parties, authorized representatives, witnesses, observers, and other participants.

(c) The judge may issue any order in the interest of justice that is necessary to protect the person or party seeking relief from undue burden, unnecessary expense, harassment, or invasion of personal, constitutional, or property rights.

'--' (d) The judge has no authority to declare state statutes or rules, or federal statutes or regulations, invalid.

A-Pfe?n DI X \0

Source Note: The provisions of this §357.483 adopted to be effective June 20, 2007, 32 TexReg 3544

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Legal Informa!!~~.,!~~!\~!;l~~ [Lil· "-...,., CFR > TiUe 42 > Chapter IV > Subchapter C > Part 433 > Subpart B > Section 433.68

42 CFR 433.68 - Permissible health care-related taxes.

§ 433.68 Permissible health care-related taxes. (a) General rule. A State may receive health care-related taxes, without a reduction in FFP, only in accordance with the requirements of this section. (b) Permissible health care-related taxes. Subject to the limitations specified in§ 433.70, a State may receive, without a reduction in FFP, health care-related taxes if all of the following are met (1) The taxes are broad based, as specified in paragraph (c) of this section;

(2) The taxes are uniformly imposed throughout a jurisdiction, as specified in paragraph (d) of this section; and

(3) The tax program does not violate the hold harmless provisions specified in paragraph (f) of this section.

(c) Broad based health care-related taxes.

(1) A health care-related tax will be considered to be broad based if the tax is imposed on at least all health care items or services in the class or providers of such items or ~-~'YJ~~- furnished by all non-Federal, non-public providers in the State, and is imposed uniformly, as specified in paragraph (d) of this section.

(2) If a health care-related tax is imposed by a unit of local government, the tax must extend to all items or services or providers (or to all providers in a class) in the area over which the unit of government has jurisdiction.

(3) A State may request a waiver from CMS of the requirement that a tax program be broad based, in accordance with the procedures specified in§ 433.72. Waivers from the uniform and broad-based requirements will automatically be granted in cases of variations in licensing and certification fees for providers if the amount of such fees is not more than $1,000 annually per provider and the total amount raised by the State from the fees is used in the administration of the licensing or certification program.

(d) Uniformly imposed health care-related taxes. A health care-related tax will be considered to be imposed uniformly even if it excludes Medicaid or Medicare payments (in whole or in part), or both; or, in the case of a health care-related tax based on revenues or receipts with respect to a class of items or services (or providers of items or services), if it excludes either Medicaid or Medicare revenues with respect to a class of items or services, or both. The exclusion of Medicaid revenues must be applied uniformly to all providers being taxed.

(1) A health care-related tax will be considered to be imposed uniformly if it meets any one of the following criteria:

(i) If the tax ls a licensing fee or similar tax imposed on a class of health care services (or providers of those health care items or services), the tax is the same amount for every provider furnishing those items or services within the class.

(11) If the tax is a licensing fee or similar tax imposed on a class of health care items or services (or providers of those items or services) on the basis of the number of beds (licensed or otheiwise) of the provider, the amount of the tax is the same for each bed of each provider of those items or services in the class.

{ill) If the tax is imposed on provider revenue or receipts with respect to a class of items or services (or providers of those health care items or services), the tax is imposed at a uniform rate for all services (or providers of those items or services) in the class on all the gross revenues or receipts, or on net operating revenues relating to the provision of all items or services in the State, unit, or jurisdiction. Net operating revenue means gross charges of facilities less any deducted amounts for bad debts, charity care, and payer discounts.

(iv) The tax is imposed on items or services on a basis other than those specified in paragraphs (d){1) (i) through (iii) of this section, e.g., an admission tax, and the State establishes to the satisfaction of the Secretary that the amount of the tax is the same for each provider of such items or services in the class.

(2) A tax imposed with respect to a class of health care items or services will not be considered to be imposed uniformly if it meets either one of the following two criteria:

(I) The tax provides for credits, exclusions, or deductions which have as its purpose, or results in, the return to providers of all, or a portion, of the tax paid, and it results, directly or indirectly, in a tax program in which -

(A) The net impact of the tax and~'!!~~~ is not generally redistributive, as specified in paragraph (e) of this section; and

{B) The amount of the tax is directly correlated to p_<!Y._ments under the M_edica!Q program.

(Ii) The tax holds taxpayers harmless for the cost of the tax, as described in paragraph (f) of this section.

(3) If a tax does not meet the criteria specified in paragraphs (d)(1 )(i) through (iv) of this section, but the State establishes that the tax is imposed uniformly in accordance with the procedures for a waiver specified in§ 433.72, the tax will be treated as a uniform tax.

(a) Generally redistributive. A tax will be considered to be generally redistributive if it meets the requirements of this paragraph. If the State desires waiver of only the broad-based tax requirement, it must demonstrate compliance with paragraph {e)(1) of this section. If the State desires waiver of the uniform tax requirement, whether or not the tax is broad-based, it must demonstrate compliance with paragraph (e)(2) of

tW~D\'/... l\

this section.

(1) Waiver of broad-based requirement only. This test is applied on a per class basis to a t~ that is impo~ed. on all revenues but . excludes certain providers. For example, a tax that is imposed on all revenues (including Medicare and ~ed1ca1d) but ex~udes ~ach1~~ hospitals would have to meet this test. This test cannot be used when a State excludes any or all Medicaid revenue from its tax ~n addition to the exclusion of providers, since the test compares the proportion of Medicaid revenue being taxed under the proposed tax with the proportion of Medicaid revenue being taxed under a broad-based tax.

(I) A State seeking waiver of the broad-based tax requirement only must demonstrate that its proposed tax plan meets the requirement that its plan is generally redistributive by:

(A) Calculating the proportion of the tax revenue applicable to Medicaid if the tax were broad based and applied to all providers or activities wtthin the class (called P1 ); (B) Calculating the proportion of the tax revenue applicable to Medicaid under the tax program for which the State seeks a waiver (called P2); and

(C) calculating the value of P1/P2. (ii) If the State demonstrates to the Secretary's satisfaction that the value of P1/P2 is at least 1, CMS will automatically approve the waiver request. (Ill) If a tax is enacted and in effect prior to August 13, 1993, and the State demonstrates to the Secretary's satisfaction that the value of P1!P2 is at least 0.90, CMS wm review the waiver request. Such a waiver will be approved only if the following two criteria are met:

(A) The value of P1/P2 is at least 0.90; and

(B) The tax excludes or provides credits or deductions only to one or more of the following providers of items and services within the class to be taxed:

(1) Providers that furnish no ~..!}'.ice§. within the class in the State; (2) Providers that do not charge for ~.!.Vice_! within the class; (3) Rural hospitals (defined as any hospital located outside of an urban area as defined in § 412.62(f}(1 ){ii) of this chapter);

(4) Sole community tiospita.!.§. as defined in § 412,92(a) of this chapter; (5) Physicians practicing primarily in medically underserved Meas as defined in section 1302(7) of the Public Health Service Act; (6) Financially distressed hospitals if:

(I) A financially distressed !l.~I?l~l is defined by the State law: (II) The State law specifies reasonable standards for determining financially distressed hospitals, and these standards are applied uniformly to all hospitals in the State; and

(Ill) No more than 10 percent of nonpublic hospitals in the State are exempt from the tax;

(7) Psychiatric hospitals; or

(8) Hospitals owned and operated by HMOs.

(iv) If a tax is enacted and in effect after August 13, 1993, and the State demonstrates to the Secretary's satisfaction that the value of P1/P2 is at least 0.95, £M~ will review the waiver request. Such a waiver request will be approved only if the following two criteria are met:

(A) The value of P1/P2 is at least 0.95; and

(B) The tax complies with the provisions of§ 433.68(e)(1 )(iii)(B).

(2) Waiver of uniform tax requirement. This test is applied on a per class basis to all taxes that are not uniform. This includes those taxes that are neither broad based (as specified in § 433.68(c)) nor uniform (as specified in § 433.68(d)).

(i) A State seeking waiver of the uniform tax requirement {whether or not the tax is broad based) must demonstrate that its proposed tax plan meets the requirement that its plan is generally redistributive by:

(A) Calculating, using ordinary least squares, the slope {designated as ( S) (that is. the value of the x coefficient) of two linear regressions, in which the dependent variable is each provider's percentage share of the total tax paid by all taxpayers during a 12- month period, and the independent variable is the taxpayer's "Medicaid Statistic". The term "Medicaid Statistic" means the number of the provider's taxable units applicable to the Medicaid program during a 12-month period. If, for example, the State imposed a tax based on provider charges, the amount of a provider's Medicaid charges paid during a 12-month period would be its "Medicaid Statistic". If the tax were based on provider inpatient days, the number of the provider's Medicaid days during a 12-month period would be its "Medicaid Statistic". For the purpose of this test, it is not relevant that a tax program exempts Medicaid from the tax.

(B) Calculating the slope (designated as B1) of the linear regression, as described in paragraph (e)(2)(i) of this section, for the State's tax program, if it were broad based and uniform. (C) Calculating the slope (designated as B2) of the linear regression, as described in paragraph (e)(2)(i) of this section, for the State's tax program, as proposed.

(ii) If the State demonstrates to the secretary's satisfaction that the value of B 1/B2 is at least 1, CMS will automatically approve the waiver request. (Ill) ~ the State demonstrates to the secretary's satisfaction that the value of B1/B2 is at least 0.95, CMS will review the waiver request. Such a waiver will be approved only if the following two criteria are met:

(A) The value of B1/B2 is at least 0.95; and (B) The tax excludes or provides credits or deductions only to one or more of the following providers of items and services within the class to be taxes:

(1) Providers that furnish no services within the class in the State;

(2) Providers that do not charge for services within the class; (3) Rural hospitals (defined as any hospital located outside of an urban area as defined in § 412.62(f}(1 )(ii) of this chapter;

(4) Sole community hospitals as defined in§ 412.92(a) of this chapter; (5) Physicians practicing primarily in medically underserved areas as defined in section 1302(7) of the Public Health Service Act;

(6) Financially distressed hospitals if:

{i) A financially distressed hospital is defined by the State law; (ii) The State law specifies reasonable standards for determining financially distressed hospitals, and these standards are applied uniformly to all hospitals in the State; and

(Ill) No more than 10 percent of nonpublic hospitals in the State are exempt from the tax;

(7) Psychiatric hospitals; or (8) Providers or payers with tax rates that vary based exclusively on regions, but only if the regional variations are coterminous with preexisting political (and not special purpose) boundaries. Taxes within each regional boundary must meet the broad-based and uniformity requirements as specified in paragraphs (c) and (d) of this section.

(Iv) A B1/B2 value of 0.70 will be applied to taxes that vary based exclusively on regional variations, and enacted and in effect prior to November 24, 1992, to permit such variations.

(f) Hold harmless. A taxpayer will be considered to be held harmless under a tax program if any of the following conditions applies:

(1) The State (or other unit of government) imposing the tax provides for a direct or indirect non-Medicaid payment to those providers or others paying the tax and the Q_B_Y.m~~ amount is positively correlated to either the tax amount or to the difference between the Medicaid payment and the tax amount. A positive correlation includes any positive relationship between these variables, even if not consistent over time.

(2) All or any portion of the Medicaid .P!J_yment_ to the taxpayer varies based only on the tax amount, including where Medicaid payment is conditional on receipt of the tax amount.

(3) The State (or other unit of government) imposing the tax provides for any direct or indirect _eayment. offset, or waiver such that the provision of that payment, offset, or waiver directly or indirectly guarantees to hold taxpayers harmless for all or any portion of the tax amount.

(I)

(A) An indirect guarantee will be determined to exist under a two prong "guarantee~ test. tf the health care-related tax or taxes on each health care class are applied at a rate that produces revenues less than or equal to 6 percent of the revenues received by the taxpayer, the tax or taxes are permissible under this test. The phrase "revenues received by the taxpayer" refers to the net patient revenue attributable to the assessed permissible class of health care items or services. However, for the period of January 1, 2008 through September 30, 2011, the applicable percentage of net _E@!ent service revenue is 5.5 percent. Compliance in State fiscal year 2008 will be evaluated from January 1, 2008 through the last day of State fiscal year 2008. Beginning with state fiscal year 2009 the 5.5 percent tax collection will be measured on an annual State fiscal year basis.

(B) When the tax or taxes produce revenues in excess of the applicable percentage of the revenue received by the taxpayer, CMS will consider an indirect hold harmless provision to exist if 75 percent or more of the taxpayers in the class receive 75 percent or more of their total tax costs back in enhanced Medicaid payments or other State payments. The second prong of the indirect hold harmless test is applied in the aggregate to all health care taxes applied to each class. If this standard is violated, the amount of tax revenue to be offset from medical assistance expenditures is the total amount of the taxpayers' revenues received by the State.

(II) [Reserved]

[57 FR 55138, Nov. 24, 1992, as amended at 58 FR 43181, Aug. 13, 1993; 62 FR 53572, Oct. 15, 1997; 73 FR 9698, Feb. 22, 2008]

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