Supreme Court of Texas

══════════

No. 22-0308

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Image API, LLC,

Petitioner,

v.

Cecile Young, Executive Commissioner of the Texas Health and 

Human Services Commission,

Respondent

═══════════════════════════════════════

On Petition for Review from the

Court of Appeals for the Seventh District of Texas

═══════════════════════════════════════

Argued November 29, 2023

CHIEF JUSTICE HECHT delivered the opinion of the Court.

By statute, the Texas Health and Human Services Commission 

“shall” contract for “annual independent external financial and 

performance audits” of Medicaid contractors, which “must be completed” 

before the end of the next fiscal year.1 The court of appeals held that 

1 TEX. HUM. RES. CODE § 32.0705(b) (“The commission shall contract 

with an independent auditor to perform annual independent external financial 

and performance audits of any Medicaid contractor used in the commission’s 
2

these requirements are “directory”, as opposed to “mandatory”, and thus 

the commissioner did not act ultra vires in directing that a contractor be 

audited years after the period covered.2 Labels aside, conducting timely, 

annual audits is not left to HHSC’s discretion and is in that sense 

mandatory. But in this case, HHSC’s noncompliance with the statutory 

mandate does not foreclose its use of the audit results. We therefore 

affirm the part of the court of appeals’ judgment dismissing Image’s 

claims arising from the 2016 audit. We reverse the part of the court of 

appeals’ judgment dismissing the rest of Image’s suit and remand the 

case to the trial court for further proceedings consistent with this 

opinion.

I

HHSC “is the state agency designated to administer federal 

Medicaid funds”3 and other benefits programs, such as SNAP4 and 

TANF.5 From 2009 to 2015, Image API, LLC provided services to HHSC 

operation of Medicaid. The commission regularly shall review the Medicaid 

contracts and ensure that: . . . (3) to the extent possible, audits under this 

section are completed in a timely manner.”); id. § 32.0705(d) (“An audit 

required by this section must be completed before the end of the fiscal year 

immediately following the fiscal year for which the audit is performed.”).

2 683 S.W.3d 54, 62 (Tex. App.—Amarillo 2022).

3 TEX. GOV’T CODE § 531.021(a) (“The commission is the state agency 

designated to administer federal Medicaid funds.”); TEX. HUM. RES. CODE

§ 32.021(a) (“The commission is the single state agency designated to 

administer the medical assistance program provided in this chapter in 

accordance with 42 U.S.C. Section 1396a(a)(5).”).

4 Supplemental Nutrition Assistance Program.

5 Temporary Assistance for Needy Families.
3

under the parties’ Document Processing Services Agreement.6 Image’s 

job was to manage a processing center for incoming mail related to 

Medicaid and other benefits programs. This mail included benefits 

applications submitted on paper, which Image sorted, scanned, and then 

routed electronically to the appropriate place or person within HHSC’s 

system.

The Agreement provided that HHSC would compensate Image 

using its “retrospective cost settlement model”. HHSC made monthly 

payments to Image based on Image’s estimated allowable costs plus a 

reasonable profit, subject to monthly and annual reviews to reconcile the 

payments with Image’s actual allowable costs. In this process, Image 

was to provide HHSC access to its records, and HHSC was to conduct 

its regular audits according to agreed procedures. Image was 

contractually obligated to refund payments in excess of allowable costs. 

From 2009 to 2015, HHSC identified overpayments and requested 

corrections more than twenty times, and each time Image complied. 

The Legislature has also made HHSC responsible for auditing 

certain contractors. Section 32.0705(b) of the Human Resources Code 

states that HHSC “shall contract with an independent auditor to 

perform annual independent external financial and performance audits 

of any Medicaid contractor used in the commission’s operation of 

Medicaid.”7 “Medicaid contractor” is defined in subsection (a), as we 

6 The Agreement has been extended multiple times since this initial 

contract term.

7 TEX. HUM. RES. CODE § 32.0705(b).
4

discuss fully below.8 After imposing the audit requirement, 

subsection (b) provides that the “commission regularly shall review the 

Medicaid contracts and ensure” that various goals are met, including, 

“to the extent possible, [that] audits under this section are completed in 

a timely manner.”9 Subsection (d) imposes a concrete deadline: “An 

audit required by this section must be completed before the end of the 

fiscal year immediately following the fiscal year for which the audit is 

performed.”10

In 2016, HHSC notified Image that an independent external firm 

would conduct an audit of Image’s performance and billing for the years 

2010 and 2011. Image cooperated fully with the audit, which was 

completed in 2017. The auditors ultimately concluded that HHSC had 

overpaid Image approximately $440,000 in costs relating to bonuses, 

holiday pay, overtime, and other unauthorized labor expenses that 

Image had incurred but that were not allowable under the Agreement.11

HHSC wrote Image that to recoup the overpayments, it would begin 

deducting $73,500 per month from payments on Image’s invoices and 

would continue doing so for six months, until the total amount had been 

recouped.12

8 Id. § 32.0705(a).

9 Id. § 32.0705(b)(3).

10 Id. § 32.0705(d).

11 Subsequent audits for 2012 through 2014 found an additional $1.4 

million in overpayments, which are also at issue. For simplicity, we refer to the 

dispute here as being over the 2016 audit.

12 HHSC expressly invoked Section 9.01 of its Uniform Contract Terms 
5

Image sued HHSC’s executive commissioner in her official 

capacity for engaging in ultra vires conduct.13 Image alleged that the 

commissioner had no legal authority to conduct an untimely audit of 

Image, a Medicaid contractor, in violation of Section 32.0705(d). It 

sought a declaration that the 2016 audit for contract years 2010 and 

2011 violated Section 32.0705(d). It also sought to enjoin HHSC from 

conducting or relying on any noncompliant audit. 

Image moved for summary judgment. HHSC14 filed a plea to the 

jurisdiction and a cross-motion for summary judgment,15 asserting that 

it is both immune from suit and entitled to judgment on the merits 

because Image is not a Medicaid contractor under Section 32.0705(a) 

and Conditions, which is incorporated into the Agreement. Section 9.01(a) 

addresses the right of either party to set off in its invoice or payment “any 

undisputed amount that a Party in good faith determines should be 

reimbursed to it or is otherwise payable to it by the other Party”. 

13 “[A] suit against a state official can proceed even in the absence of a 

waiver of [sovereign] immunity” if the plaintiff pleads and proves that the 

official “acted without legal authority or failed to perform a purely ministerial 

act.” Hall v. McRaven, 508 S.W.3d 232, 238 (Tex. 2017) (quoting City of El Paso 

v. Heinrich, 284 S.W.3d 366, 372 (Tex. 2009)).

14 Though the commissioner is the only named defendant, Image’s suit 

challenges the conduct of the agency, and so we will refer to HHSC as if it were 

the named defendant.

15 In an ultra vires case, “the jurisdictional inquiry and the merits 

inquiry are [often] intertwined.” Chambers–Liberty Cntys. Navigation Dist. v. 

State, 575 S.W.3d 339, 345 (Tex. 2019) (citing Tex. Dep’t of Parks & Wildlife v. 

Miranda, 133 S.W.3d 217, 228 (Tex. 2004)). Where a statutory violation is 

alleged, the court must “begin by considering the proper construction” of the 

statute alleged to be violated “because whether the [defendant’s] conduct 

constitutes [an] ultra vires action[] that falls within an exception to 

governmental immunity depends on what the statute required of the 

[defendant].” Sw. Bell Tel., L.P. v. Emmett, 459 S.W.3d 578, 583 (Tex. 2015) 

(citing Miranda, 133 S.W.3d at 227-228).
6

and because the deadline for audits of Medicaid contractors in 

Section 32.0705(d) is directory—or not judicially enforceable. The trial 

court denied Image’s motion and HHSC’s plea to the jurisdiction but 

granted HHSC’s motion for summary judgment and signed a final 

judgment for the commissioner. The order does not give reasons for the 

court’s ruling. Both parties appealed.16

The court of appeals agreed with Image that it is a Medicaid 

contractor under Section 32.0705(a),17 but it also agreed with HHSC 

that the one-year deadline in Section 32.0705(d) is directory and 

therefore does not constrain the commissioner’s discretion.18 Because of 

its construction of subsection (d), the court held that HHSC’s plea to the 

jurisdiction should have been granted. The court of appeals reversed 

that part of the trial court’s judgment and rendered judgment 

dismissing Image’s entire suit for want of jurisdiction.19

Only Image seeks review. The issues are whether it is a Medicaid 

contractor to which Section 32.0705 applies20 and the consequences of 

16 Although the trial court ruled for HHSC on the merits, HHSC

appealed on the ground that the court should have granted its plea to the 

jurisdiction and dismissed the case.

17 683 S.W.3d at 60.

18 Id. at 62.

19 Id.

20 Image argues that HHSC cannot assert this challenge because it did 

not file its own petition for review. This is incorrect. “A party who seeks to alter 

the court of appeals’ judgment must file a petition for review.” TEX. R. APP. 

P. 53.1. The court of appeals’ judgment reversed the trial court’s denial of 

HHSC’s plea to the jurisdiction and dismissed Image’s lawsuit for want of

jurisdiction. HHSC is content with that judgment and prays that it be affirmed. 
7

HHSC’s failure to comply with the one-year deadline for audits.

II

We first consider whether Image is a Medicaid contractor.21 A 

“Medicaid contractor” is defined by Section 32.0705(a)(2) as “an entity 

that . . . under a contract with the commission . . . performs one or more 

administrative services in relation to the commission’s operation of 

Medicaid, such as claims processing, utilization review, client 

enrollment, provider enrollment, quality monitoring, or payment of 

claims.”22 Because the statute does not define “administrative services”, 

the court of appeals looked to several dictionaries, which reflect that 

Its argument that Image is not a Medicaid contractor is an alternative path to 

affirmance.

As we have explained, in an ultra vires case, jurisdiction and merits are 

intertwined. See supra note 15. Section 32.0705(d) imposes a deadline for 

audits of Medicaid contractors, which are defined in subsection (a). If Image is 

not a Medicaid contractor, then the 2016 audit did not violate subsection (d), 

the commissioner did not act ultra vires, and sovereign immunity requires that 

Image’s lawsuit be dismissed. See McRaven, 508 S.W.3d at 234, 243-244 (upon 

concluding that McRaven did not act ultra vires, affirming the court of appeals’ 

judgment dismissing Hall’s suit for want of jurisdiction).

21 Whether Image meets the statutory definition of Medicaid contractor 

is a mixed question of law and fact. Cf. Helix Energy Sols. Grp., Inc. v. Gold, 

522 S.W.3d 427, 435 (Tex. 2017) (“A plaintiff’s status as a seaman under the 

Jones Act is a mixed question of law and fact.” (citing Chandris, Inc. v. Latsis, 

515 U.S. 347, 369 (1995))). When the facts are uncontroverted—as they are 

here—the court may decide the mixed question as a matter of law. See BPX 

Operating Co. v. Strickhausen, 629 S.W.3d 189, 196 (Tex. 2021). The “trial 

court has no discretion in determining what the law is or applying the law to 

the facts, even when the law is unsettled.” In re State Farm Lloyds, 520 S.W.3d 

595, 604 (Tex. 2017) (cleaned up).

22 TEX. HUM. RES. CODE § 32.0705(a)(2). The definition excludes a

“health and human services agency as defined by Section 531.001, Government 

Code”. Id. § 32.0705(a)(1).
8

administrative, when used as an adjective, connotes “office-y”, 

secretarial, or ministerial tasks.23 The court reasoned that Image’s work 

of sorting, digitizing, and routing mail meets the basic definition of 

administrative services. The court further reasoned that Image 

performed its service “in relation to”—broadly speaking—HHSC’s 

operation of Medicaid because the processed documents include 

applications for Medicaid benefits.24 Turning to the statute’s list of 

examples, the court concluded that Image’s services facilitate “client 

enrollment, at the very least”, pointing to HHSC’s request for proposal 

(RFP) in response to which Image was hired.25

The 100-page RFP states that HHSC is seeking a documentprocessing vendor to make eligibility determinations for programs 

including Medicaid more efficient. Under the heading “Mission 

Statement”, the RFP states: “HHSC’s mission in this procurement is to 

procure services that will assist in its efforts to modernize the eligibility 

system and improve Texans’ access to health and human service 

programs in a manner that assures the highest levels of quality, 

accuracy and efficiency.” Under the heading “Mission Objectives”, the 

RFP lists the programs, including Medicaid, for which it is seeking a 

vendor “to support the determination of client eligibility”. Then it 

continues: “The procurement of document processing services supports 

23 See 683 S.W.3d at 58; see also TEX. GOV’T CODE § 311.011(a) (“Words 

and phrases shall be read in context and construed according to the rules of 

grammar and common usage.”).

24 See 683 S.W.3d at 58.

25 Id. at 59.
9

the mission objectives described in this section.” Those objectives 

include “obtain[ing] program and operational optimization of eligibility 

determination[s]” for Medicaid and other programs.

The Document Processing Services Agreement incorporates the 

RFP expressly. The Agreement also states that “HHSC’s procurement of 

document processing services . . . will assist in its efforts to modernize 

the eligibility system and improve Texans’ access to health and human 

service programs in a manner that assures the highest levels of quality, 

accuracy and efficiency.” In an exhibit to the Agreement containing 

modifications to Image’s proposal, Image acknowledges potential 

“increases in the number of Medicaid clients” and the effect of such an

increase on Image’s fees.

We agree with the court of appeals’ conclusion. The parties 

dispute whether subsection (a)(2)’s inclusive example list modifies 

“administrative services” or “operation of Medicaid”. But the examples 

listed—“claims processing, utilization review, client enrollment, 

provider enrollment, quality monitoring, or payment of claims”—are 

both “administrative services” and HHSC’s “operation of Medicaid”.26

26 A Medicaid handbook prepared by the Kaiser Commission on 

Medicaid and the Uninsured states that:

Primary duties of a state Medicaid agency include:

• Informing individuals who are potentially eligible and 

enrolling those who are eligible.

• Determining what benefits it will cover in which settings.

• Determining how much it will pay for covered benefits and 

from whom it will purchase services.

• Processing claims from fee-for-service providers and making 
10

The question is thus whether Image provides “administrative services 

in relation to” one of these processes or one that is similar in kind or 

class.27 The RFP and the Agreement make clear that HHSC solicited 

document-processing services so that it could make accurate eligibility 

determinations faster, facilitating client enrollment.28

HHSC argues that administrative services means managerial 

services and that a Medicaid contractor “must have some role in the 

actual management of HHSC’s Medicaid program.” As HHSC points out, 

capitation payments to managed care plans.

• Monitoring the quality of the services it purchases.

• Ensuring that state and federal health care funds are not 

spent improperly or fraudulently.

• Collecting and reporting information necessary for effective 

program administration and accountability.

• Resolving grievances by applicants, enrollees, providers and 

plans.

THE KAISER COMM’N ON MEDICAID & THE UNINSURED, THE MEDICAID 

RESOURCE BOOK 130 (Jan. 17, 2003) [hereinafter MEDICAID RESOURCE BOOK], 

https://www.kff.org/medicaid/report/the-medicaid-resource-book/.

27 In HILCO Electric Cooperative v. Midlothian Butane Gas Co., we said:

[T]he rule of ejusdem generis . . . provides that when words of a 

general nature are used in connection with the designation of 

particular objects or classes of persons or things, the meaning of 

the general words will be restricted to the particular 

designation. Thus, we hold that [the statutory phrase at issue in 

that case] . . . is limited to purposes similar in kind or class to 

the twenty-one identified categories.

111 S.W.3d 75, 81 (Tex. 2003) (citations omitted).

28 See MEDICAID RESOURCE BOOK, supra note 26, at 130 (including 

“[i]nforming individuals who are potentially eligible and enrolling those who 

are eligible” among the primary duties of a state Medicaid agency).
11

there are dictionary definitions that equate administrative or 

administration with management or executive work.29 In the 

governmental realm, there are many instances in which administrative

is used in reference to managerial or skilled work, rather than routine 

or helping work.30

But importantly, administrative work is not always executive or 

managerial work. “[W]ords can have more than one meaning. . . . The 

fact that [a] word may sometimes be used to convey a different meaning 

is the very reason why we look for its common, ordinary meaning.”31 We 

29 See, e.g., Administration, BLACK’S LAW DICTIONARY (11th ed. 2019) 

(“The management or performance of the executive duties of a government, 

institution, or business; collectively, all the actions that are involved in 

managing the work of an organization.”); Administrative, BLACK’S, supra (“Of, 

relating to, or involving the work of managing a company or organization; 

executive.”).

30 For example, administrative agencies like HHSC are governmental 

bodies, usually housed in the executive branch, “with the authority to 

implement and administer particular legislation.” Agency, BLACK’S, supra note 

29 (third definition). The head of the Office of Court Administration is its 

“administrative director”. TEX. GOV’T CODE §§ 72.001(2), 72.012.

31 Jaster v. Comet II Constr., Inc., 438 S.W.3d 556, 563 (Tex. 2014)

(plurality op.). We explained:

To determine [an undefined statutory term’s] common, ordinary

meaning, we look to a wide variety of sources, including 

dictionary definitions, treatises and commentaries, our own 

prior constructions of the word in other contexts, the use and 

definitions of the word in other statutes and ordinances, and the 

use of the words in our rules of evidence and procedure.

Id.

Administrative services is not a commonly defined noun. But an 

administrative assistant is “a person whose job is to support an executive, 

group, department, or organization especially by handling administrative 

tasks (such as data entry, correspondence, filing, and scheduling 
12

are also obligated to “read [statutory terms] in context”.32 Doing so, we 

think that if the Legislature had meant to limit the definition of 

Medicaid contractor to one who takes a lead in managing Medicaid, it 

would have said so expressly.

HHSC also argues that the parties’ course of dealing confirms 

that Image is not a Medicaid contractor, pointing to a checkbox section 

of the parties’ Agreement. One box that could have been checked but 

wasn’t discusses the financial and performance audits required by 

Section 32.0705. The implication is that if the parties had considered 

Image to be a Medicaid contractor, the box would have been checked. 

Whatever evidentiary value the unchecked box may have,33 it cannot 

overcome the language in the RFP and the Agreement acknowledging 

Image’s role in assisting HHSC to optimize and modernize its eligibilitydetermination system.

We hold that Image is a Medicaid contractor under 

Section 32.0705(a).

III

We turn to whether the court of appeals erred in its conclusion 

that the audit deadline imposed by Section 32.0705(d) is directory. The 

appointments)”. Administrative assistant, MERRIAM-WEBSTER (online version, 

last visited June 17, 2024); see also Administrative assistant, WIKIPEDIA (last 

visited June 17, 2024) (stating that an administrative assistant is “[i]n most 

instances . . . identical to the modern iteration of the position of secretary”).

32 TEX. GOV’T CODE § 311.011(a).

33 None of the checkboxes in this section are checked, including the box 

next to the section requiring Image to procure and maintain certain insurance 

coverage.
13

statute provides:

(b) The commission shall contract with an independent 

auditor to perform annual independent external 

financial and performance audits of any Medicaid 

contractor used in the commission’s operation of 

Medicaid. The commission regularly shall review the 

Medicaid contracts and ensure that:

. . .

(3) to the extent possible, audits under this section 

are completed in a timely manner.

. . .

(d) An audit required by this section must be completed

before the end of the fiscal year immediately 

following the fiscal year for which the audit is 

performed.34

The 2016 audit undeniably failed to meet the deadline in subsection (d). 

The court of appeals agreed with HHSC that subsection (d)’s 

deadline is “mere[ly] a suggestion”.35 The court acknowledged that “a 

common man would read [‘must’] as being mandatory”.36 But relying on 

this Court’s caselaw, the court reasoned that the statute’s lack of a 

penalty for noncompliance “creates the presumption that ‘must be 

completed’ is directory, as opposed to mandatory.”37 This presumption 

is “buttressed by other considerations”, the court explained, including 

HHSC’s heavy workload:

Construing “must be completed” as authorizing only a year 

34 TEX. HUM. RES. CODE § 32.0705(b)(3), (d) (emphases added).

35 683 S.W.3d at 60.

36 Id. at 61.

37 Id.
14

to begin and finish the annual audit could well hamper [the 

statute’s] objective, given the plethora of other business 

conducted by the Commission. Unless one forgets, we are 

dealing with a bureaucracy engaged in many activities and 

serving many functions.38

Thus, “in the end,” the lack of noncompliance penalty, coupled with 

HHSC’s “many activities and . . . functions”, led the court “to forgo the 

common man’s interpretation of ‘must’” and hold that subsection (d) “is 

directory, as opposed to mandatory.”39

A

The distinction between mandatory and directory timing 

provisions derives from our caselaw.40 The usual case involves a statute

or rule requiring an act to be performed within a certain amount of time 

prior to or during litigation or an administrative process—e.g., service 

of process on a state agency within thirty days of the filing of a petition 

for judicial review,41 holding a hearing on property forfeiture within 

thirty days of the defendant’s answer,42 or filing a declaration of water 

use in an agency by a specified date43—and a party who failed strictly to 

38 Id.

39 Id. at 61-62.

40 See, e.g., Chisholm v. Bewley Mills, 287 S.W.2d 943, 945 (Tex. 1956) 

(“There is no absolute test by which it may be determined whether a statutory 

provision is mandatory or directory.”).

41 AC Ints., L.P. v. Tex. Comm’n on Env’t Quality, 543 S.W.3d 703 (Tex. 

2018).

42 State v. $435,000.00, 842 S.W.2d 642 (Tex. 1992).

43 Edwards Aquifer Auth. v. Chem. Lime, Ltd., 291 S.W.3d 392 (Tex. 

2009).
15

comply. When construing such a provision, we first ask whether the 

statute expresses the timing requirement in mandatory language. Does 

it say that the act “shall” or “must” be performed within the prescribed 

time? “[I]n a statute”, these words “are generally understood as 

mandatory terms that create a duty or condition.”44 Or does it instead 

say only that the act “may” or “should” be performed, indicating that it 

is directory?45

When mandatory language is used, the question becomes “what 

consequences follow a failure to comply.”46 The answer turns on whether 

a particular consequence is “explicit” in the text47 or “logically necessary 

to accomplish the statute’s purpose”.48 If a particular consequence is 

either, then “the courts will apply that consequence.”49 If no particular 

consequence is explicit or logically necessary, then we decline to create 

a statutory consequence for noncompliance, because that “is the 

Legislature’s job, not ours.”50

The mandatory–directory distinction can be confusing. We have 

44 AC Ints., 543 S.W.3d at 709 (citing Helena Chem. Co. v. Wilkins, 47 

S.W.3d 486, 493 (Tex. 2001)); see also Smith v. Spizzirri, 144 S. Ct. 1173, 1177 

(2024) (“[T]he use of the word ‘shall’ ‘creates an obligation impervious to 

judicial discretion.’” (quoting Lexecon Inc. v. Milberg Weiss Bershad Hynes & 

Lerach, 523 U.S. 26, 35 (1998))).

45 TEX. GOV’T CODE § 311.016(1) (“‘May’ creates discretionary authority 

or grants permission or a power.”).

46 AC Ints., 543 S.W.3d at 709 (quoting $435,000.00, 842 S.W.2d at 644).

47 Id. at 714.

48 Id. at 713.

49 Id.

50 Id.
16

labeled statutes using mandatory language as directory in the absence 

of an explicit or logically necessary consequence for noncompliance.51

And “[a]lthough the word ‘shall’ is generally construed to be mandatory, 

it may be and frequently is held to be merely directory.”52 But we have 

never equated directory with discretionary. To the contrary, we have 

expressly disavowed such a reading. Recently, we said:

Our law contains many such commands for agencies to 

undertake ministerial actions within a stated time, 

without any further statutory guidance on what happens if 

the command is broken. Such commands are part of the 

law; whether they prescribe a consequence, and whether 

they are characterized as “mandatory” or “directory,” they 

are not mere suggestions to be disregarded.53

A statute requiring that an act be performed within a certain 

time, using words like shall or must, is mandatory. Whether the statute 

imposes a specific penalty for noncompliance is a separate question, but 

a mandatory timing provision is not rendered otherwise by the statute’s 

51 See id. at 714 (“Because the Legislature expressed no particular 

consequence for failing to meet that deadline and none is logically necessary, 

we presume that the Legislature intended the requirement to be directory 

rather than mandatory . . . .”); Chisholm, 287 S.W.2d at 945 (“If the statute 

directs, authorizes or commands an act to be done within a certain time, the 

absence of words restraining the doing thereof afterwards or stating the 

consequences of failure to act within the time specified, may be considered as 

a circumstance tending to support a directory construction.”).

52 Chisholm, 287 S.W.2d at 945; see also AC Ints., 543 S.W.3d at 708 

(quoting Chisholm).

53 In re Stetson Renewables Holdings, LLC, 658 S.W.3d 292, 295 (Tex. 

2022); see also AC Ints., 543 S.W.3d at 714 (“[J]ust because a provision . . . is 

directory does not make it a mere suggestion that can be disregarded at will.”).
17

failure to state a penalty for noncompliance.54 Applying these principles, 

Section 32.0705(d) is mandatory because it states that a statutorily 

required audit “must be completed” within the time prescribed.

B

HHSC argues that subsection (b)(3) authorizes it to complete 

audits performed under Section 32.0705 later than the deadline in 

subsection (d). Subsection (b) states that “[t]he commission regularly 

shall review [its] Medicaid contracts and ensure that” certain 

benchmarks are met, including that “(3) to the extent possible, audits 

under this section are completed in a timely manner.” As HHSC 

acknowledges, we must read subsections (b) and (d) together, “giving 

effect to each provision so that [neither] is rendered meaningless or mere 

surplusage.”55

HHSC tries to harmonize the provisions this way: 

“[S]ubsection (b)(3) directs that the audit be conducted in a timely 

fashion but provides HHSC with authority to conduct an audit 

afterwards”, whereas “subsection (d) directs what ‘timely’ means”. But 

this reading cannot be correct because it renders meaningless 

subsection (d)’s statement that an audit “must be completed” by the end 

of the fiscal year following the audit year. 

54 See Stetson, 658 S.W.3d at 297 (“[E]ven when there is no judicially 

enforceable consequence of a broken deadline, a mandatory deadline can still 

be both mandatory and far from pointless.”); Chem. Lime, 291 S.W.3d at 404 

(“We have said that the word ‘must’ is given a mandatory meaning when 

followed by a noncompliance penalty but this does not suggest that when no 

penalty is prescribed, ‘must’ is non-mandatory.” (cleaned up)).

55 TIC Energy & Chem., Inc. v. Martin, 498 S.W.3d 68, 74 (Tex. 2016)

(citing City of San Antonio v. City of Boerne, 111 S.W.3d 22, 25 (Tex. 2003)).
18

This reading is also undermined by the statute’s history.56 What 

is now Section 32.0705 was enacted in 1999 as Section 12.0123 of the 

Health and Safety Code.57 Section 12.0123 contained the text in 

subsections (a) through (c) of Section 32.0705, but there was no 

subsection (d). Section 12.0123(b)(3) stated that the Commission 

“regularly shall review its Medicaid contracts and ensure that[] . . . to 

the extent possible, audits under this section are completed in a timely 

manner”,58 but “timely” was not defined. In 2015, the Legislature moved 

Section 12.0123 to Section 32.0705 of the Human Resources Code and 

amended it to add subsection (d).59 If the Legislature had intended for 

HHSC to retain discretion on the timing of its audits of Medicaid 

contractors, it would not have amended the statute to say that the audits 

“must be completed” by a specific deadline. 

Finally, subsections (b)(3) and (d) can be harmonized to give effect 

to the plain language of each. The focus of subsection (b) is on HHSC’s 

duty to arrange for an annual independent external audit of its Medicaid 

contractors and on what its Medicaid contracts should say about these 

56 The history of the legislation is not the same thing as legislative 

history. See Pruski v. Garcia, 594 S.W.3d 322, 328 n.2 (Tex. 2020) (citing Ojo 

v. Farmers Grp., Inc., 356 S.W.3d 421, 445 n.31 (Tex. 2011) (Willett, J., 

concurring in part)). “Variations in enacted text can lend helpful interpretive 

context” because “they boast the imprimatur of the Legislature as a whole.” Id.

(quoting Ojo, 356 S.W.3d at 445 n.31).

57 Act of May 29, 1999, 76th Leg., R.S., ch. 1411, § 1.10, 1999 Tex. Gen. 

Laws 4761, 4766.

58 Id.

59 Act of March 26, 2015, 84th Leg., R.S., ch. 1, § 3.0016, 2015 Tex. Gen. 

Laws 1, 154-155.
19

audits. Because “text cannot be divorced from context”,60

subsection (b)(3) requires HHSC to “regularly . . . review [its] Medicaid 

contracts and ensure that” they support the timeliness benchmark. 

Subsection (d) then tells HHSC what timeliness is and sets a hard 

deadline: each audit “must be completed” by the end of the fiscal year 

following the audit year.

We reject HHSC’s contention that subsection (b)(3) transforms 

subsection (d)’s (later enacted) “must” into a “may”.

IV

HHSC’s 2016 audit of Image thus failed to comply with the 

deadline in Section 32.0705. We turn finally to the consequences of that 

failure. 

To avoid usurping the Legislature’s authority, when an agency

fails to comply with a statutory duty, the Judiciary may impose only 

consequences that are explicit in the statutory text or “logically 

necessary to accomplish the statute’s purpose”.61 The “logically 

necessary” test is text-based too. We do not “choos[e] legal consequences 

without any direction from the text.”62 Doing so risks “trespass[ing] 

beyond the judicial realm and into the policy decisions that are proper 

for the [Legislature].”63 And courts must be especially vigilant when 

60 Worsdale v. City of Killeen, 578 S.W.3d 57, 69 (Tex. 2019).

61 AC Ints., 543 S.W.3d at 713.

62 Id.; see Chem. Lime, 291 S.W.3d at 404 (“The EAAA does not suggest 

that an applicant can be fined for a late filing or that the water allocated should 

be reduced accordingly. The only penalty the EAAA suggests is that late 

applications will not be considered.”).

63 Stetson, 658 S.W.3d at 293.
20

asked to “[f]ashion[] an extratextual judicial remedy against the 

executive branch”, for doing so “creates a serious risk that the courts will 

intrude into the prerogatives of both other branches.”64

Image concedes that a Medicaid contractor is liable in damages 

for fraudulent overcharges or payments in breach of contract. HHSC has 

made no such allegation against Image. Nor has Image disputed the 

overcharges found in HHSC’s 2016 audit. Absent allegations of 

misconduct, Image argues, the consequence for a late audit under 

Section 32.0705(d) must be that HHSC cannot recoup payments 

identified as unallowable. This consequence is not explicit in the text, 

but Image argues it would serve Chapter 32’s general purposes of 

“enabl[ing] the state to provide medical assistance on behalf of needy 

individuals and . . . to obtain all benefits for those persons authorized 

under the Social Security Act or any other federal act.”65 Disallowing 

recoupment of overpayments, Image argues, would serve this purpose 

by motivating HHSC to conduct timely audits, as it regularly does 

anyway under the retrospective cost settlement model for paying 

contractors. A contractor found to have charged HHSC costs for which 

reimbursement is not allowed can make adjustments when the 

overcharge is found in regular reviews or an annual audit when it can 

be difficult, as in this case, to repay overcharges years before. In Image’s 

view, audits within the statutory deadline would ensure timely error 

correction, aid HHSC as a good steward of the public funds it is 

64 Id. at 297.

65 TEX. HUM. RES. CODE § 32.001.
21

entrusted to administer, and maximize state funds available for medical 

assistance. HHSC should be able to use the results of late audits only 

prospectively, Image argues, ensuring that overcharges are corrected 

going forward.

Image’s arguments are not unreasonable, but that is not the test 

for determining the consequences of an untimely audit under 

Section 32.0705(d). The test for a consequence not expressed in the 

statute is that it be “logically necessary” to give effect to the statute. 

Disallowance of recoupment does not give effect to Section 32.0705(d), 

much less Chapter 32 as a whole. There is no textual clue whatsoever 

that the result Image urges is what the Legislature intended.66 An 

injunction prohibiting HHSC from collecting overpayments found by the 

2016 audit would therefore be error.

We leave open the possibility that a Medicaid contractor could sue 

to stop an untimely audit from proceeding. But Image did not object to 

the 2016 audit at the time and complied with it fully. And, as we have 

noted, Image has not disputed the audit’s findings.

We thus conclude that Image’s action for a declaration that 

HHSC’s 2016 audit was ultra vires and void, and for an injunction 

prohibiting HHSC from using the result of the audit or recouping 

overcharges from Image, must be dismissed. Because Image’s request 

66 See Stetson, 658 S.W.3d at 296-297 (“Here, the 90-day deadline is 

unaccompanied by any textual indication that the Comptroller’s failure to act 

could in any way suspend the legislature’s unambiguous command that 

program eligibility must end on December 31.”).
22

for relief regarding prospective audits has not been adjudicated,67 we 

remand the case to the trial court for further proceedings.68 

* * * * * 

We hold that Image is a Medicaid contractor under 

Section 32.0705(a), and that the deadline in Section 32.0705(d) for 

auditing HHSC’s Medicaid contractors is mandatory, but that HHSC’s 

failure to meet the deadline does not preclude it from using the result of 

the audit or pursuing recoupment of overcharges found in the audit. We 

affirm the part of the court of appeals’ judgment dismissing Image’s 

claims arising from the 2016 audit for lack of jurisdiction, we reverse 

the part of the judgment dismissing the remainder of Image’s suit, and 

we remand to the trial court for further proceedings consistent with this 

opinion. 

 

 Nathan L. Hecht

 Chief Justice

OPINION DELIVERED: June 21, 2024 

67 Image’s Second Amended Petition “seeks a declaration that HHSC 

may not commence any future audit of Plaintiff’s performance under the 

contract later than ‘the end of the fiscal year immediately following the fiscal 

year for which the audit is performed.’”

68 HHSC has not argued that even if we determine that Image is a 

Medicaid contractor, the Agreement’s audit provisions gave HHSC

independent authority to audit Image after the deadline prescribed by 

Section 32.0705(d). Accordingly, we express no view on that issue.