### T E X A S C O U R T O F A P P E A L S , T H I R D D I S T R I C T , A T A U S T I N

NO. 03-13-00526- CV

P harm serv, Inc., Appellant

v. Texas Health and Human Servic es Com m ission ; Off ice of the Inspector G eneral of the Texas Health and Human Servic es Com m ission ; K yle Janek, in h is Of

fi cial Capacity as Com m ission er of Texas Health and H um an Services Com m ission ; and Stuart W. Bow en, Jr., in h is Of fi cial Capacity as Inspector G eneral, Appellees 1

F ROM TH E DISTRI CT COURT O F TRAVIS CO UNTY, 261 ST JUDICI AL DISTRICT NO. D-1 -GN-1 2-0 0107 4, H ONO RAB LE AMY CLARK MEACH UM, J UDGE P RESIDING

M E M O R A N D U M O P I N I O N
Pharmserv, I nc., appea ls from the trial court’s order g ranting the pleas to the jurisdiction of the Texas Hea lth and Human Service s Commi ssion (HHSC); the Offic e of the I nspector Gener al of HHSC (OI G); Ky le J anek, HHS C Commi ssioner; and S tuart W

. Bow en, J r., I nspector Gene ral, (sometimes collectively HHSC) and dismiss ing Pharmserv’ s claims. Pharmserv broug ht an ac tion under the Unifor m Decla ratory J udg ments Act (UDJA) asser ting ultra vires and
contra ct claims and an alterna tive challen ge t o t h e validity of cer tain statutes and seeking decla rations of its rig hts under cer tain rules and statutes and the parties’ contra ct. See Tex. Civ. Prac. & Rem. Code § 37.004. Pharmserv also asser ted a rules challeng e under § 2001.038 of the

We substit ute Stuart W. Bowen, in his off icial ca pacity , as successor to Doug Wil son as 1 I nspector G ener al. See Tex. R. App. P . 7.2(a)

.Administrative Procedur e Act (APA). See Tex. Gov’t Code § 2001.038. For the rea sons that follow,

we a ffirm in par

t and re verse and re mand in part.

STATUT ORY AND R EGULATORY F RAMEWORK HHSC is the ag ency desig nated to administer the Texas Medica id prog ram. See Tex. Hum. Res. Code § 32.021 (a ); Tex. Gov’t C ode § 531.021(a)

. L icense d pharma cies may enroll as providers in the Medica id prog ram and are reimburse d by HHSC under the Vendor Drug Prog ram. See Tex. Hum. Res. Code § 32.029; 1 Tex. Admin. Code §§ 354.1801–.1941 (Tex. Hea lth & Human Servs. Comm’n, P h ar m ac y S ervices). Under HHSC rules, providers participa ting in the Vendor 2 Drug Prog ram are subject to a udit to deter

mine any deviations from the pr og ram or “ exceptions.” See 1 Tex. Admin. Code § 354.1891 (Ve nd o r D r u g Providers Subject to Audit) (outlining proce dures for au d i t an d appeal). I f a provider disag ree s with the audit finding s, it may prese nt additional information, and if it still disag ree s, it may appea l and be aff orded an informal hear ing or additional “desk r eview.” See id. § 354.1891(c)

.

Once HHSC acc epts the audit results, it notifies the provider, details the exceptions, and reque sts pay

ment within 30 day s. See id. § 354.1892 (Exception Notification). I f the provider does not make restitution within 30 day s, a vendor hold is place d on the provider’ s pay ment claims. See id. ; see also id. § 354.1815 (2003) (Reasons for Placing a Pharmac y on Vendor Hold), repeale d 37 Tex. Reg

. 9905–06 (2012) (propose d Oct. 12, 2012) ( For mer 1 Tex. Admin. Code § 354.1815) (authorizing vendor hold in ce rt ai n circ umstances including failure to pay restitution in allotted

All cites to the Texas Administrative Code are t o ru les issued by the Texas Hea lth and 2 Human Servic es Commissi on. 2time). HHSC has also adopted rules for imposing administrative sanctions on pharma cy providers 3 for e thics violations. See id. § 354.1811 (Sanctions).

As participa

nts in the Medica id prog ram, pharma cy providers are also subject to reg ulation by HHS C throug h its g ener al authority under Chapter 531 of the Gover nment Code and Chapter

32 of t he Human Resource s Code. See ge nerally Tex. Gov’t Code §§ 531.001–.988; Tex. Hum. Res. Code §§ 32.001–.256. Throug h its OI G, HHSC is responsible for i n v estig ating fra ud and abuse and enfor cing state laws re l at ed to the Medica id prog ram. See Tex. Gov’t Code § 531.102(a) ; 1 Tex. Admin. Code § 371.11 (Off ice of I nspector Gene ral: Purpose and Scope). HHSC and OI G may co n duct audits, investiga tions, and prepa y ment revie ws of claims for reimburse ment. See Tex. Gov’t Code § 531.102(h)( 4), (5); Tex. Hum. Res. Code § 32.0291(a) (1); 1 Tex. Admin. Code § 371. 1 9 (O ff i ce o f I nspector Gene ral: I nvestig ation). OI G may assess administrative penalties or sanctions for prog ram violations. See Tex. Gov’t Code § 531.102(h)( 1) (OI G may assess administrative penalties); Tex. Hum. Res. Code § 32.021(e) (re quirements for rules go v erning penalties); 1 Tex. Admin. Code §§ 371.11(a) , (c) (1) (Offic e of I nspector: Purpose and Scope) (OI G may i m p o s e sanctions and assess administrative penalties), .1643 (2005) (Use of Sanctions), repeale d 37 Tex. Reg

. 7998 (2012) (propose d Aug

. 10, 2012) (listing sanctions that may be imposed for non-exclusive list of prog ram violations found in 1 Tex. Admin. C ode § 371.1617 (2005), repeale d 37 Tex. Reg. 7 9 9 9 (2012) (propose d Aug

. 10, 2012)) (F ormer 1 Tex. Admin. Code § 371.1617).

Some of the statutes and HHSC rules g overning this case have since been repe aled or 3 amende d. We ref

er to these former sections of th e Texas Administrative Code and Texas Gover nment Code wher e applica ble. Other

wise, we ref

er to the c urre nt versions. 3During the time fra me rele vant to this appeal, HHSC and OI G wer e authorized to impose, wi t h o u t prior notice, a “pay ment hold” on Medica id reimburse ments upon rec eiving “re liable evidenc e” of “fr aud or wilful misrepre sentation” by the provider. See Act of May 28, 2011, 82d L eg ., R.S., ch. 879, § 3.11, sec. 351.102(g )(2) , 2011 Tex. Gen. L aws 2228, 2234–35 (ame nded 2013) (cur

rent version at Tex. Gov’t Code § 531.102(g )(2) ) (OI G shall impose hold) (F ormer Tex. Gov’t Code § 531.102(g )(2) ); Act of J une 2, 2003, 78th L eg ., R.S., ch. 198, § 2.103, sec. 32.0291(b), 2003 Tex. Gen. L aws 611, 690 (ame nded 2 0 1 3 ) (cur rent version at Tex. Hum. Res. Code § 32.0291(b)) (HHSC may impose hold) (F ormer Tex. Hum. Res. Code § 32.0291(b))

. A provider 4 subject to suc h a hold c ould r equest an expedited a dminist rative hear ing befor e the State Offic e of Administrative Hea

ring s (SOAH). See For

mer Tex. Gov’t Code § 531.102(g )(3) (HHSC shall file reque st for expedited h ea ri ng with SOAH upon timely written reque st by provider) ; For mer Tex. Hum. Res. Code § 32.0291(c) (same). I n ad d ition, HHSC had adopted rules providing for p aym en t holds without prior notice in cer tain other circ umstances. See 1 Tex. Admin. Code § 371.1709. 5

Additionally , OI G was require d to impose a pay ment hold “to compel production of 4 rec ords” or “whe n reque sted by the state’s Medica id fra ud unit.” See For

mer Tex. Gov’t Code § 531.102(g )(2)

. This Court rec ently sustained a rules challeng e to section 371.1709 on the g round that 5 cer tain subparts of it exceed the statutory authority for pre- notice pay ment holds and decla

red rules 1709(a) (2), (3), (4) invalid. See Harlingen Family Dentistry, P.C. v. Texas Health & Human Servs. Comm’n , 452 S.W .3d 479, 481, 486–88, (Tex. App.—Austin 2014, pet. filed. ); s ee a l s o 1 Tex. Admin. Co d e § 3 7 1

. 1709(a) (2), (3), (4). No compar able rules challeng e is prese ntly befor e us in this case. I n 2013, both section 531.102 of the Gover nment Code and section 32.0291 of the Huma n Resource s C o d e we re amende d. Section 32.0291(b) now provides that HHSC’s imposit ion of a pay ment hold on future claims is subject to section 531.102. See Tex. Hum. Res. Code § 32.0291(c)

. 4F ACTUAL AND P ROCEDURAL BACK GR OUND Pharmserv is a pha

rmac y that serve s Medicaid pa

tients under written contrac t with HHSC as part of the Vendor Drug Prog ram. I n 2010, HHSC, throug h OI G, conducte d a perf ormanc e audit of Pharmserv cover ing the period from J une 2006 throug h May 2008 and deter min ed t h at P h ar m serv owed the state more than $900,000. See id. § 354.1891. Ba sed on a random samp l e, HHSC found 127 exceptions and extrapolated to rea ch the total amount owed. Pharmserv disag ree d wi th the audit results and appea led. HHSC ag ree d to hold an informal hear ing. S ee i d

. § 354.1891(c)

. The hear ing was held and then continued at Pharmser v’s re quest while Pharmser v soug ht more information. HHSC responde d to the reque st for additional information and informed Pharmserv that its final response was due November 3 0 , 2 0 1 1

. On Dec ember 29, 2011, HHSC informed Pharmserv t hat t he audit was being upheld, that Pharmserv had 30 day s to pay in full or

rea ch an ag ree ment with HHSC for a pay ment plan, and that failure to pay or arr ang e a pay ment plan would result in a vender hold on Pharmserv’ s fut u re claims. See id. § 354.1892 (providing for vendor h o l d i f restitution not rec eived within 30 day s of notice); For mer 1 Tex. Admin. Code § 354.1815(2) (listi ng failure to make restitution reve aled by audit as basis for vendor hold). The notice letter

further stated that it was the only notice Pharmser

v would rec eive.

The amendments to section 531.102 revised the lang uag e authorizing pre- notice pay ment holds “on rec eipt of reliable evidenc e” of fra ud or wilful misrepre sentation to rea d “on the deter mination that a cre dible alleg ation of fra ud exis ts” and added require ments that (1) OI G employ experts to revie w cer tain investiga tive finding s befor e imposing a pay ment hold without prior notice and (2) the notice sent afte r a pay

ment hold has been imposed inform the provider of the basis for the hold and descr ibe the administrative and judicial due proce ss reme dies available , including the rig ht to seek informal resolution, a formal administrative hear ing, or both. See Tex. Gov’t Code § 531.102(g )(2) , (l), (m). 5Pharmserv responde d by offe ring to pay a “compr omise” amount and asking for a

hear ing u n d er fo rmer rule 371.1669. See 1 Tex. Admin. Code § 371.1669 (2005) (Notice of Appea l), repeale d 37 Tex. Reg

. 7889–90 (2012) (propose d Aug

. 10, 2012) (F ormer 1 Tex. Admin. Code § 371.1669) (proc edure for appea l of administrative sanctions). HHSC informed Pharmserv that the appea l rig hts descr ibed in former rule 371.1669, which applied to administrative sanctions taken as the result of prog ram violations under former rule 371.1617, are not applicable in the vendor drug audit context. HHSC ref err ed Pharmserv to the applicable rules, rules 354.1891 and 354.1892, and stated that Pharmserv had been aff orded the informal hear ing envisioned by section 354.1891. Although the parties disag ree as to the eff ective date, a pay

ment hold was place d on Pharmserv’ s reimburse ment claims.

Pharmserv filed suit ag ainst HHSC and OI G and a g ainst J anek and Bowen in their officia l capa cities arg uing tha t HHSC had violated Pharmserv’ s due process rights, asser ting ultra vires and contra ct claims, and seeking decla rations of its rig hts under former section 32.0291 of the Human Resource s Code, Chapter 354 of Title 1 of the Administrat i v e C ode, and the parties’
contra ct. See Tex. Civ. Prac. & Rem. Code § 37.004. HHSC and OI G filed a plea to the jurisdiction arg uing that Pharmserv’ s claims ag ainst them are barr ed by sovere ign immunit y that is not waived by the UDJA. J anek and Bowen filed pleas to the j urisdiction contending that Pharmserv ha d not stated a valid ultra vires claim beca use the actions complained of wer e valid exe rc i s es of their discretion, that Pharmserv had not pleade d a valid claim based on d en i al o f due proce ss, and that there is no jurisdiction under the UDJA beca use Pharmserv did not challeng e the validity of a statute. At the hear ing on the pleas, HHSC arg ued that Pharmserv had not plead ed a ru l es challeng e.

6Following the hear ing but pr ior to the trial court’s ruling , Pharmserv filed a fifth amende d petition

to “cla rify ” that it was asser

ting (1) a rules challeng e to rules 354.1891 and 354.1892 on the g round that they do not provide due proce ss and (2) an alterna tive challeng e to the validity of former section 32.0291 of the Human Resource s Code and Chapter 531 of the Gover nment Code. See For

mer Tex. Hum. Res. Code § 32.0291 (providing for prepa y ment revie ws and post p ay ment holds); see generally Tex. Gov’t Code §§ 531.001–.9871 (g overning HHSC’s authority over Medica id prog ram). T he trial c ourt g rante d the pleas, a nd this appeal followe d.

STANDARD OF REVIEW AND AP P LICABLE LAW A plea to the jurisdiction challeng es the court’s authority to decide a case . Hec kman

v. W illiamson Cnty. , 369 S.W .3d 137, 149 (Tex. 2012). A plea questioning the trial court’s subject
matter jurisdiction raises a question of law that we revie w de novo. W estbrook v. Penley , 231 S.W .3d 389, 394 (Tex. 2007). When, as here , a plea to the jurisdiction challeng es the pleading s, we must deter

mine if the pl eade r has alleg ed sufficient fac ts to affir matively demonstrate the trial court’s jurisdiction to hear the cause . City of El Paso v. Heinrich , 284 S.W .3d 366, 378 (Tex. 2009); Texas Dep ’ t of Parks & W ildlif e v. Mi randa , 133 S.W .3d 217, 226 (Tex. 2004). We construe the pleading s liberally and look to the pleade r’ s intent. Heinrich , 284 S.W .3d at 378; Miranda , 133 S.W .3d at 226. I f t he pleadings affirmatively neg ate the exis tence of j urisdiction, then a plea
to the jurisdiction may be g rante d without allowing the plaintiff an opportunity to amend. Miranda , 133 S.W .3d at 227. When the pleading s do not alleg e sufficie nt fac ts to aff irmatively demonstrate the trial court’s jurisdiction but do not aff irmatively demonstrate an incura ble jurisdictional defe ct,

7the issue is one of pleading sufficie ncy , and the plaintiff should be g iven an opportunity to amend.

Id. at 226–27. Sovereig n immunit y protec ts the state from “the litigation and judicial reme dies that would be available if the same acts wer e committed by private persons[,] ” Bacon v. Texas Historical Comm’n , 411 S .W.3d 161, 172 (Tex. App.—Austin 2013, no pet.), and thus encompa sses two principles: immunit y from suit and immunit y from liability , Ben Bolt-Palito Blanco Consol. Indep. Sch. Dist. v. Texas Political Subdivisions Prop./Cas. Joint Self-Ins. Fund , 212 S.W .3d 320, 323–24 (Tex. 2006). I mmunity from suit prohibits suits ag ainst the state unless the leg islature g rants consent. Id. at 324. By enter ing into a contra ct, the state waives its immunit y from liability but not its immunit y from suit. Id. The state’s sovere ign immunit y extends to various d i v isions of state g overnme nt, including ag encie s. Id. Sovereign immunit y from suit deprive s a court of subject matter jurisdiction and ther efor e is proper ly asser ted in a plea to the jurisdiction. Mission Consol

. Indep. Sc h. Dist. v. Garcia , 372 S.W .3d 629, 636 (Tex. 2012); Miranda , 133 S.W .3d at 225–26.

H H SC ’ s p le a to th e ju

r is d ic tion includes challeng es to Pharmserv’ s ultra vir e s c la im s . W h i l e sovere ign immunit y bars actions ag ainst the state absent a leg islative waiver , Harris C n t y.

v. Syke s , 136 S.W .3d 635, 638 (Tex. 20 0 4 ), reque sts for decla ratory relief that do not attempt to control state action do not implicate g overnme ntal immunit y at all, see Heinrich , 284 S.W .3d at 372. Suits ag ains t g overnme ntal officia ls alleg ing that they “ac ted without leg al authority or failed to perf orm a p u re l y minist eria l act” and seeking to compel the officia ls “to comply with statutory or constitutional provisions” fall within the “ultra vires” exception to g overnme ntal immunit y beca use they “do not attempt to exert control over the state-- they attempt to rea ssert the control of the state.”

8Id. To deter mine whether a party has asser ted a valid ultra vires claim, we construe the rele vant statutory provisions, apply them to the facts alleg ed, and deter mine whether those fac ts constitu t e

ac t s b ey o nd the officia l’s authority or establish a failure to perf orm a purely minist eria l act. S ee Texas Dep’ t of Transp. v. Sunset Transp., Inc. , 357 S.W .3d 691, 701–02 (Tex. App.—Austin 2011, no pet.); Creedmoor-M aha W ater S u p p l y Corp. v. Texas Comm’n on Envtl. Quality , 307 S.W .3d 505, 516 n.8 (Tex. App.—Austin 2010, no pet.) (quoting Hende e v. De w h urst , 228 S.W .3d 354, 368–69 (Tex. App.—Austin 2007, pet. denied) ) (whe n analy zing whether plaintiff has alleg ed ultra vires acts, we construe statutes defining official ’s authority , apply provisions to pleade d and unneg ated fac ts, and deter mine whether those fac ts fall within or outside that authority ). The resolution of the jurisdictional issues in this case turns on statutory construction, which is a question of law that we review de novo. See Railroad Comm’n v. Texas C itizens for a Safe Future & Clean W

ater , 336 S.W .3d 619, 624 (Tex. 2011). Our primary conce rn is the express statutory lang uag e. See Galbraith Eng’g Consultant s, Inc. v. Pochuc ha , 290 S.W .3d 863, 867 (Tex. 2009). We apply the plain meaning of the text unless a differ ent meaning is supplied by leg islative d ef i n i t i on or is appar ent from the context or the plain meaning leads to absurd results. Marks

v. St. Luke ’s Episcopal Hosp. , 319 S.W .3d 658, 663 (Tex. 2010)

. “We g ener ally avoid construing individual pro v i s i o n s of a statute in isolation from the statute as a whole,” Texas Citi zens , 336 S.W .3d at 628, we must consider a provision’s role in the broade r statutory scheme , see 20801, Inc. v. Parker , 249 S.W .3d 392, 396 (Tex. 2008), and we presume that “the entire statute is intended to be ef fec tive,” Te x . Gov’t Code § 311.021(2)

.

9Her e, we must construe statutes and rules that HHSC is char g ed with administering

.

See Tex. Hum. Res. Code § 32.021(a) ; Tex. Gov’t Code § 531.021(a)

. I f the lang uag e of the statute

or rule is a

mbiguous, we may defe r to a n administrative ag ency ’s construction of its own statutory authority

. Texas Bd. of Chiropractic E xa m’ r s v. Texas Med. Ass’n , 375 S.W .3d 464, 475 (Tex. App.—Austin 2012, pet. denied)

. “[A]n ag ency ’s interpre tation of a s t at ute it is char g ed with enfor cing is entitled to ‘ser ious consideration,’ so long as the construction is rea sonable and does not conflict with the statute’s lang uag e.” Texas Citi zens , 336 S.W .3d at 624. When a statutory scheme is subject to multi ple interpre tations, we should defe r to a n enfor cing ag ency ’s construction if it is

rea sonable and in harmony with the statute. Id. at 629 (obser ving that “g overnme ntal ag encie s have a ‘unique understanding ’ of the s tatutes they administer”) (quoting W

yeth v . Levine , 555 U.S. 555 (2009))

. This defe renc e is particula rly important in construing a complex statutory scheme like that g overning Texas Medica id. See id. at 629–30; Southwest Pharmacy Solutions, Inc. v. Texas Heath & Human Servs. Comm’n , 408 S.W .3d 549, 562 (Tex. App.—Austin 2013, pet. denied). We
construe administrative rules in the same manner as st at u t es. TGS-NOPEC Geophy sical Co. v. Combs , 340 S.W .3d 432, 438 (Tex. 2011). We defe r to an ag ency ’s interpre tation of its own rules unless it is plainly err oneous or contra d i ct s the text of the rule or underly ing statute. Public Util. Comm’n v. Gulf States Utils. Co. , 809 S.W .2d 201, 207 (Tex. 1991); Texas Med. Ass’n , 375 S.W .3d at 475. With t hese r

ules of construc tion in mi nd, we turn to Pharmse rv’s issues.

10DISCUSSIO N

Ultra V ires Claim s

I n it s f ir s t a nd second issues, Pharmserv arg ues that J anek and Bow en acte d ultra vires by failing to provide Pharmserv due proce ss. Pharmserv contends that former section 32.0291 and former rule 371.1667(b) require d HHSC to provide it a SOAH hear ing. See For mer Tex. Hum. Res. Code § 32.0291(c) (providing for e xp edited SOAH hear ing when provider is subject to pay ment hold for fra ud or wilful misrepre sentation); 1 Tex. Admin. Code § 371.1667(b) (2005) (Due Process for Administrative Sanctions), repeale d 37 Tex. Reg

. 7989–90 (prop osed Aug

. 10, 2012) (af fording provider ag ainst whom sanction is imposed informal hear in g , formal appea l hear ing, or both) (F ormer 1 Tex. Admin. Code § 371.1667(b)) . Pharmserv a rg ues that HHSC should not be able to avoid providing the due proce ss aff orded in former section 32.0291 by declining to alleg e fra ud and that the pay

ment hold i n t h is case amounts to a sanction despite HHSC ’s refusal t o label it as one

s o t h at t h e due proce ss provisions of former rule 371.1667(b) apply

. Pharmserv contends that J anek’ s and Bow en’s interpre tation of their own rules violates the due proce ss provisions of the Texas Constit ution and is outside their author ity

. Pharmserv further contends that Chapter 531,

au t h o ri z i ng HHSC to administer the Medica id prog ram, does not g rant HHSC the authority to promulg ate rules that deny due proce ss, in this case rule 354.1891 and former rule 371.1669. I n the alterna tive, Pharmserv a

rg ues that Janek and B owen a cted ultra vires by failing to adopt rules that do aff ord Pharmserv due proce ss. I n sum, Pharmserv arg ues that J anek and Bow en acte d ultra vires in misint erpr eting and misapply ing rules t h at afford Pharmserv due proce ss, promulg ating and

11apply ing rules that deny Pharmserv due proce ss, and, alterna tively , faili n g t o ad o pt rules that do

aff ord Pharmser

v due proc ess. Statutory basis f

or right to contested case he aring At the core of Pharmserv’ s ultra vires claims is the arg umen t t h at P harmser v is entitled to a contested case hear ing befor e SOAH. Howeve r, not e very dispute betwee n an ag ency and another party co n s t i tutes a contested case proce eding

. See McAllen Hosps., L.P. v. Suehs , 426 S.W .3d 304, 314 (Tex. App.—Amar illo 2014, no pet.). I n fac t, “this Court has long held that, absent express s t atut ory authority , the APA does not independe ntly provide a rig ht to a contested

case hear in g. ” T

ex a s Logos, L.P. v. Texas Dep’ t of Transp. , 241 S.W .3d 105, 123 (Tex. App.—Austin 2007, no pet.); accord Texas Comptroller of Pub. Acc ounts v. W alker Elec. C o . , No. 03-13-00285- CV, 2014 Tex. App. L EXI S 12648, at *11 (Tex. App.—Austin Nov. 21, 2014, no pet.) (mem. op.). The particula r ag ency ’s enabling act deter min es wh et h er rig hts are to be deter mined afte r an opportunity for adjudicative hear ing, and ag ency rules may decide whether that opportunity includes a contested case hear ing. McAllen Hosps. , 426 S.W .3d at 314; Texas Comm’n

on Envtl. Quality v. City of W aco , 413 S.W .3d 409, 423 (Tex. 2 0 1 3 ); s ee W alker Elec. Co. , 2014 Tex. App. L EXI S 12648, at *12.

Pharmserv contends that former section 32.0291 of the Human Resource s Code and former ru l e 3 7 1

. 1 6 6 7(b) crea ted i ts rig ht to a S OAH hearing

. Howeve r, as expressed i n the pl ain lang uag e of these provisions, they applied in case s involving fra ud or wilful misrepre sentation and sanctions, respe ctively , neither o f wh i ch is prese nt in this case , which arises from the pharma cy vendor audit proce dures and n ot from alleg ations of fra ud or from administrative sanctions.

12See Fo rm er Tex. Hum. Res. Code § 32.0291; 1 Tex. Admin. Code §§ 354.1891, .1892;

For mer 1 Tex. Admin. Code § 3 71.1667(b)) ; Marks , 319 S.W .3d at 663. Pharmserv cites no other statute or rule as a basis for its purported rig ht to a SOAH hear ing and has not asser ted an

ar g ument for our depar

ture from the prec edent that the APA does not independe ntly cr ea t e a rig ht to a contested case hear ing

. See Texas Logos, L.P. , 241 S.W .3 at 123; W alker Elec. Co. , 2014 Tex. App. L EXI S 12648, at *11–12. Thus, Pha rm serv has not shown a statutory rig ht to a contested c ase he aring

.
Constit utional basi s for right to contested c ase hearing Pharmserv also arg ues that J anek and Bow en denied its due proce ss rig hts provided by the Tex as C onstitut ion, citing article I , section s 1 3 an d 1 9

. See Tex. Const. art. I , §§ 13 (open
courts provision), 19 (af

fording citizens rig ht to due course of law). I n evalua ting Pharmserv’ s due proce ss claims, we must deter mine whether Pharmserv has been deprive d of a vested proper ty rig ht and, if so, what proce ss is due. See Harrell v. State , 286 S.W .3d 315, 319 (Tex. 2009) (citing University of Tex. Med. Sch. at Hous. v. Than , 901 S.W .2d 926, 929 (Tex. 1995)); Coastal Habitat Alliance v. Public Util. Comm’ n , 294 S.W .3d 276, 286 (Tex. A pp.—Austin 2009, no pet.) (noting that “our first inquiry in a procedura l due process claim is whether the plaintiff ha s been deprived of a proper

ty or liberty interest deser ving protec tion”). “W h at proce ss is due is measure d by a fl ex i b le standard that depends on the prac tical require ments of the circ umstances.” T h a n , 901 S.W .2d at 930 (citing Mathews v. Eldri dge , 424 U.S. 319, 334 (1976)). “At a mi nimum, due proce ss require s notice and an opportunity to be hear d at a mea n i n gfu l time and in a meaning ful

13manner . ” Scally v. Texas State Bd. of Med. Exam’ rs , 351 S.W .3d 434, 447 (Tex. App.—Austin

2011, pet. denied) (citing Mathews , 424 U.S. at 333; Than , 901 S.W .2d at 930).

Pharmserv does not identify its claimed vested proper ty rig ht, other than to complain of economic harm from HHSC’s withholding pay ments as a “unilater al sanction,” and does not cite any authority that extends a vested proper ty rig ht in Medica id reimburse ments to a provider subject
to a vendor hold. Even assuming that Pharmserv has established a vested proper ty rig ht, howeve r, 6

we conclude that Pharmserv has not been deprive d of its constitutional rig ht to due proce ss. HHSC provided Pharmserv notice in acc ordanc e with rule 354.1892 and aff orded it the proce dural reme dies outlined in rule 354.1891. See 1 Tex. Admin. Code §§ 354

. 1 891, .1892. Thus, Pharmserv was aff orded “notice and an opportunity to be hear d at a meaning ful time and in a meaning ful manner ,”

see Scally , 351 S.W .3d at 447, and it has not demonstrated a constitutional rig ht to a SOAH hear ing.

Contractual basi s for right to contested c ase hearing As a third basis for

its due proce ss claims, Pharmserv a rg ues in its first and second issues and in part of

its fifth issue that it has a rig ht under its vendor c ontrac t to a SOAH hea ring

. P h armserv relies on a provision in the parties’ contra ct that HHSC may impose a pay m en t h o l d “consistent with due proce ss.” Howeve r, the contra ct also incorpora tes and require s Pharmserv to comply with all HHSC “ reg ulations, rules, policies, and proce dures.” As we have discussed, what

The F ifth Circuit has held that a Medicaid provider subject to pay ment holds based on a 6 fra ud investiga

tion has no proper

ty rig ht in leg itimately ear ned, curr ent reimburse ments that are not subject to investiga tion beca use fede ral law does not prohibit the pay ment h o l d s and Texas state law expli citly allows them. See Perso n a l Ca r e P r o ds., Inc. v. Hawkins , 635 F.3d 155, 159 (5th Cir. 2011). 14proces s is due is a flexibl e standard depending on the circ umstances. Than , 901 S.W .2d at 930.

Her e, Pharmser

v contra ctually

ag ree d to comply with applicable HHSC rules, and it was aff orded notice and opportunity to be hear d in ac co rdanc e with rules 354.1891 and 354.1892. Thus, even assuming that Pharm s er v has a vested proper ty interest, it has not shown a contra ctual rig ht to a contested c ase he aring

.
Procedural v iolations I n its final argu m ent under issues one and two, Pharmserv urg es that J anek and Bow en acte d ultra v i re s by violating Pharmserv’ s due proce ss rig hts in deviating from require d proce dures, specific ally by ref using to provide meaning fu l d i scover y , failing to provide adequate notice, failing to r equest an expedited SOAH hear ing under former section 32.0291(c) , and failing to adopt rules as r equire d under f ormer se ction 32.0291(d) that would allow Pharmser v to seek a

n informal re solution of the pay ment hold dispute. See For mer Te x . Hum. Res. Code § 32.0291(c) 7 (on t imely reque st by provider subject to postpay ment hold under subsection (b), HHSC shall file reque st for expedited hear ing) , (d) (HHSC shall adopt rules for informal resolution of issues). The

rec ord does not support the conclusion that the alleg ed proce dural failure s occur red. Even assuming 8

some proce dural deviations occur red, howeve r, failure to provide notice or otherwise comply with

Pharmserv also arg ues that it has a rig ht under its vendor contra ct to a SOAH hear ing. We 7 addre ss this arg ument in our discussion of Pharmserv’ s UDJA claims.

The rec ord ref

lects that HHSC responde d t o P h armser v’s reque sts for additional 8 information in acc ordanc e with rule 354.1891 a n d p r o v id e d n o ti c e in acc ordanc e with rule 354.1892. S ee 1 T ex . Admin. Code §§ 354.1891, .1892. Fur ther, based on the plain lang uag e of former sections 3.0291(c) and (d), they do not apply on the fac ts of this case . See For mer Tex. Hum. Res. Code § 32.0291(c) , (d) (apply ing to provider subject to pay ment hold based on evidenc e of fra ud or wilful misrepre sentation); Marks v. St. Luke’s Episcopal Hosp. , 319 S.W .3d 658, 663 (Tex. 2010). 15“all of the intricac ies of the [audit] proce s s ca nnot be the fac tor that confe rs jurisdiction.” See

Friends of Canyon Lake, Inc. v. Guadalupe-Blanco R i ve r Auth. , 96 S.W .3d 519, 528 (Tex. App.—Austin 2002, pet. denied)

. Rather, Pharmserv was require d to alleg e J anek and Bow en acte d wholly outside their authority

. See id. Ba sed on the rec ord and the plain lang uag e of the statute, we cannot conclude that Pharmserv has done so. See For mer Tex. Hum. Res. Code § 32.0291(b), (c) , (d); Marks , 319 S.W .3d at 663. Summary of c onclusions Pharmserv’ s complaints conce rn the actions of J anek and Bow en in adopting rules. Howeve r, J anek and Bo we n are authorized to implement rules in administering the Medica id prog ram, and in adopting the rules Pharmserv complains of, they did not exercise authority bey ond their statutorily confe rre d power s. See, e.g. , Tex. Go v ’t C o d e §§ 531.0055 (Executive Commi ssioner: Gene ral Responsi b i l i t y for Hea lth and Human Service s Ag encie s), .021(a) (Administration of Medic ai d P rog ram), .102 (Off ice of I nspector Gener al); Tex

. Hum. Res. Code § 32.021(c) (HHSC shall adopt ru l es for proper and eff icient opera tion of Medica id prog ram); Heinrich , 284 S. W

. 3 d at 372 (ultra vires suit must alleg e, and ultimately prove, that office r acte d without leg al authority or failed to perf orm a purely minist eria l act)

. There fore , beca use Pharmserv has failed to establish a st atutory , constitutional, or contractual r ight to due proce ss in the form of

a contested case hear ing, we conclude that J anek and Bow en did not exceed their statutory authority in interpre ting fo rm er section 32.0291 and former rule 371.1667(b), which provide for a SOAH hear ing, as inapplicable or in promulg ating and apply ing rules 354.1891 and 354.1892, which do not aff ord Pharmserv a SOAH hear ing. See For mer Tex. Hum

. R es . C ode § 32.0291; For mer 1 Tex.
16Admin. Code § 371.1667(b); Heinrich , 284 S.W .3d at 372; Texas Logos, L.P. , 241 S.W .3d at 123

(conc luding claims that TXDOT ref used to deter

mine Texas L og os’s protest throug h contested case proce eding did not alleg e ac ts that ex cee ded TXD OT’s statutory authority ). 9 Fur ther, the APA does not authorize judicial revie w of an age ncy ’s decision not to promulg ate a rule. See Texas Comm’n on Envtl. Quality v. Bonser-Lain , 438 S.W .3d 887, 895 (Tex. App.—Austin 2014, no pet.) (observing that no Texas court has ever held that ag ency ’s re fusal to promulg ate rules is revie wable by courts). For this additional rea son, we further conclude that J anek and Bow en did not fail to perf orm a minist eria l duty in declining to adopt rules that aff ord Pharmserv

a SOAH hear ing on the fac ts of this case . See Heinrich , 284 S.W .3d at 372. Finally , even assuming HHSC failed to follow cer tain proce dural steps, any such failure does not fall wholly outside J anek’ s and Bow en’s authority to act. See Friends of Canyon Lake , 96 S.W .3d at 528. Be cause Pharmserv has failed to alleg e a valid ultra vires claim, we overr ule Pharmserv’ s first and second issues and its fifth issue as to its due proc ess claim.

UDJA Claim s I n its t hird issue and in the rema inder of its fifth issue, Pharmserv arg ues that

s o v er ei gn immunit y does not bar its UDJA claims. Pharmserv seeks construction of HHSC’ s “leg islative pronounce ments and promulg ation of administrative rules” and a decla ration of it rig hts

To the extent Pharmserv complains of the substance of adopted r ules in its discussion of 9 its ult ra vire s claims, we construe that ar g ument as a r ules cha lleng e that should be a sserted unde r section 2001.038 of the APA. See Tex. Gov’t Code § 2 0 0 1

. 038 (providing that validity or applicability of rule may be deter mined in a c ti o n f

o r d ecla ratory judgme nt). We addre ss Pharmserv’ s purported r

ules cha lleng e below in our discussion of Pharmserv’ s UDJA claims. 17under c erta in statutes and rules. Pharmserv contends t hat s overe ign immunity is waived for

these claims. We do not find this arg ument persua sive.

The UDJA does not waive the state’s sovere ign immunit y when a plainti ff s ee ks

a decla ration of his rig hts under a s t at u t e or other law. Texas Dep’ t of Transp. v. Sefzik , 355 S.W .3d 618, 621 (Tex. 2011). The UDJA does not enlar g e the trial court’s jurisdiction; rathe r, the underly ing action ag ainst the state or its political subdivisions must be one for which immunit y has been expressly waived. Id. at 621–22. Whil e the UDJA does waive a go v ernme ntal entity ’s immunit y for a decla

ration construing a statute, Pharmserv doe s not simpl y seek c onstruction of a statute; rathe r, it is challeng ing th e state’s actions under cer tain statutes, and it does not cite any provision of the UDJA that ex pressly waives immunity

for suc h claims. See id. at 622 (no waiver of immunit y wher e plaintiff challeng ed state’s actions under statute and did not direc t c ourt to a ny provision of UDJA that expressly waiv ed i m m unity for claim); Texas Parks & W ildlif e Dep’ t

v. S a w ye r T rust , 354 S.W .3d 384, 388 (Tex. 2011) (“[S ]overeig n immunit y will bar an otherwise proper [U] DJ A claim that has the eff ect of establishing a rig ht to relief ag ainst the State for w hich the L eg islature has not waived i mmunity .”); Montrose Mgmt. Dist. v. 1620 Hawthorne, Ltd. , 435 S.W .3d 393, 404) (Tex. App.—Houston [14t h Dist.] 2014, pet. filed) (g overnme ntal immunit y not waived under UDJA for complaints about g overnme ntal entity ’s action under statute). And althoug h the UDJ A waive s sovere ign immunity for suits to challeng e the va lidity of a statute, and the APA’s decla

ratory judgme nt provision allows a plaintiff to challeng e the validity or applicability of a rule, see T ex . C i v . P ra c. & Rem. Code § 37.006; Tex. Gov’t Code § 2001.038; Sefzik 3 5 5 S

. W

. 3 d at 622; Sawyer Trust , 354 S.W .3d at 388, to the extent Pharmserv asser ted a rules

18challe n ge o r ch all eng ed the validity of a statute in the trial court, it has waived those claims

on appea l. I n its fifth amende d petition, Pharmserv asser ted a challeng e under section 2001.038 of the APA to rules 354.1891 a nd 354.1892 on the g round t hat t he rule s denied Pharmse rv its due proce ss rig ht t o a S OA H hear ing. Howeve r, on appea l, althoug h Pharmserv states that it seeks a deter mination that “an administrative rule, prac tice, or statute” that denies due proce ss is invalid, it does not specify the statutes or rules it contends are invali d o r o ffe r any arg ument or authority in support of t his arg ument and has there fore waived it. See Tex. R. App. P . 38.1(i). F urther, to the
extent Pharmserv has attempted to encompa ss its rules challeng e in its arg uments supporting its ultra vires claims based o n d u e p ro ce s s , we have alre ady conclude d that Pharmserv has no such due proce ss rig ht to a SOAH hear ing. As for challeng ing the validity of any statutes, in its fifth amende d petition, Pharmserv stated that it was making an alterna tive challeng e to former section 32.0291 of the Human Reso u rc es Code and Chapter 531 of the Gover nment Code to the extent that they authorize rules that deny due proce ss. Howeve r, other than that bare statement, the petition contains

no arg ument in support of a challeng e to those st at u t es . I n fac t, in its rules challeng e, Pharmserv relied on section 32.0291 in arg uing that the ru l es violated that section. Fur ther, on appea l, Pharmserv makes no ref

ere nce to the invalidity of either statute and has waived any such challeng e due to inadequate brief

ing. See id. Pharmserv also seeks an interpre tation of its contra ct with HHSC and decla ration of its rig hts under the contra ct. Pharmserv relies on a ref ere nce in the contra ct to litigation betwee n the parties as support for its rig ht to litigate its due proce ss claims. Howeve r, when the state contra cts

19with a private party , it waives imm unity from l i ab ility , but not from sui t. Tooke v. City of Mex ia ,

197 S.W .3d 325, 332 (Tex. 2006). Only the leg islature can waive sovere ign immunit y from suit, and administrative ag encie s cannot waive immunit y from suit by ag ree ing to contra ct terms. Id. ; Texas Natural Res. Conservation Comm’n v. IT-Dav y , 7 4 S .W.3d 849, 858 (Tex. 2002). Thus, even though the deputy executive commissioner w h o e xe c u te d Ph a r ms e rv’s vendor drug prog ram contra ct had the authority to enter into the contra ct on HHSC’s behalf , he did not have authority to, and there fore d i d n o t , waive HHSC’s immunit y from suit. See IT-Davy , 74 S.W .3d at 858 (ag ency ’s executive direc tor had author ity to enter contra ct but did not have authority to, and thus did not, waive a g ency ’s immunity from suit). Dec lara tory judgme nt suits seeking to establish a contra ct’s validity , to enfor ce perf

ormanc e under a contra ct, or to impose contra ctual liabiliti es are attempts to control state action and cannot be maintained without leg islative consent. Id. at 855–56. Pharmserv cites no statutory authority as a basis for waiver of immunit y o ther than the UDJA. Thus, in the absenc e of leg islative consent, P harmser v’s UDJ A claims are barr ed by sovere ign immuni ty

. See Syke s , 136 S.W .3d at 638. We overr ule Pharmserv’ s third issue and the rema inder of its fifth issue. 1 0 Acc ording ly , we a ffirm the tria l court’s orde r as to its g rant of the pleas to the jurisdiction.

Trial Court’s Dism issal of P harm serv’ s Claim s When we uphold a plea to the jurisdiction on sovere ign immunit y g rounds, we allow the plaintiff the opportunity to reple ad if the defe ct can be cure d. Sefzik , 355 S.W .3d at 623 (citing

I n what it char acte rizes as its fourth issue, Pharmserv arg ues that the trial court incorre ctly 1 0 relied on inapplicable case law as authority for its decision to g rant HHSC’s and OI G’s pleas to the jurisdiction. Whether the trial court did so is an arg ument subsumed within our deter mination of Pharmserv’ s other issues, and w e ther efor e do not re ach it sepa rate ly

. 20Sawyer Trust , 354 S.W .3d at 394); Miranda , 133 S.W .3d at 226–27. This Court r ece ntly decla red invalid parts of HHSC’s rule 371.1709(a) on the g round that they exceed the statutory authority for pre- notice pay

ments holds. See Harlingen Family Dentistry, P.C. v. Texas Health & Human Servs. Comm’n , 452 S.W .3 d 4 7 9 ,481, 486–88, (Tex. App.—Austin 2014, pet. filed.); see also 1 Tex. Adm in. Code § 371.1709(a) (2), (3), (4). Although Pharmserv’ s pleading s do not aff irmativ el y demonstrate jurisdiction, in light o f our holding in Harlingen Family Dentistry , neither do they neg ate the ex i s t en ce of jurisdiction, and Pharmserv should have an opportunity to reple ad in an attempt to cure the jurisdictional defe cts in its rules challeng e. See Sefzik , 355 S.W .3d at 623; Texas A & M Univ. Sys. v. Koseoglu , 233 S.W .3d 835, 839 (Tex. 2 0 0 7 ) (plaintiff g ener ally deser ves

rea sonable opportunity to amend defe ctive p le ading s unless pleading s demonstrate incura ble defe cts

or neg ate the exis tence of jurisdiction); Mir anda , 133 S.W .3d at 226–27 (whe n pleading s do not aff irmatively demonstrate incura ble defe cts in jurisdiction, plaintiffs should be aff orded opportunity to amend). We the ref

ore r ever se the trial c ourt’s dismissal of Pharmserv’ s claims and re mand the

case to allow Pharmserv this opportunity without ex p re s s i n g any opinion on the merits of such a claim. See Sefzik , 355 S.W .3d at 623 (re manding t o al l o w pl aintiff to reple ad to asser t ultra vi res claim in light of supreme court’s holding in Heinrich , 284 S.W .3d 373); City of McKinney v. Hank’

s Rest. Grp., L.P. , 412 S.W .3d 102, 113, 117, 121 (Tex. App.—Dallas 2013, no pet.) ( rema nding to

a ll o w p laintiff to (1) reple ad claims for decla ratory relief wher e plaintiff’s reque st for decla ration that city was attempting t o enfor ce “unenf orce able provisions” of city code did not specify ordinanc es

or rea sons they wer e invalid and thus did not aff irmatively demonstrate jurisdiction but also did not

21d em o nstrate claim was barr ed by immunit y and (2) to reple ad to asser t ultra vires claims i n l i gh t of Heinrich ).

CONCLUSION

Having overr

uled P harmser

v’s i s s u es , we aff

irm the t rial court’s g rant of the pl eas to the jurisdic t i o n o f HHSC, OI G, J anek, and Bow en. Be cause Pharmserv’ s pleading s do not aff irmatively demonstrate incura ble defe cts in jurisdiction, we reve rse the trial court’s dismiss al of Pharmserv’ s claims and rema nd this case to the trial court for further proce eding s in acc ordanc e with this opini on.

__________________________________________ Melissa Goodwin, Jus tice Be fore Chief J ustice Rose, Jus tices Pemberton a nd Goodwin Affir med in Part; Reverse d and Remande d in Part Filed: Apr il 9, 2015

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