November 10, 1988

Honorable Stan Schlueter Opinion No. JM-978 Chairman Ways andMeans Committee Re: Whether Department of Texas House ofRepresentatives Human Services contract for P. 0. Box 2910 Medicaid purchased health Austin, Texas 78769 services insurance is subject to the provisions of article 601b,V.T.C.S. (RQ-1566)

Dear Representative Schlueter:

You request an opinion on thebidding process for the Medicaid purchased health services contract. The Texas Department of Human Services has issued a request for proposals for insurance and administration of the Texas Medicaid Purchased Health Services Prog.ram, with a bid filing deadline ofNovember 4, 1988. You inform us that the contract will entail expenditure ofover onebillion dollars peryear in state and federal funds.

TheMedicaid program isestablished under title XIX of the Social Security Act. **42**U.S.C. § 1396. Itprovides for federal funding to assist states in furnishing medical assistance onbehalf of families with dependent children and of

### aged, blind, or disabled individuals whose income and resources are insufficient for the cost ofnecessary medical services. Id. Participating statesmust designate a single state agency to administer or to supervise the administration of the state plan for medical assistance. **42** U.S.C. 5 1396a(a)(5). The Texas Department ofHuman Services is the state agency responsible foradministering the Medicaid program inthis state. Hum. Res. Code, 55 22.001, **22.002, 32.021.** 

Under theMedicaid legislation, the federal government pays aparticipating state for part of itsexpenditures to provide medical services and to administer the program, including the costs ofamechanized claims processing and information retrieval system, defined as a system of software and hardware used to process Medicaid **claims** and to provide information required by the state and the federal

p. 4990Honorable Stan Schlueter -Page 2 (JR-978)

government for administrative and audit purposes. 42U.S.C. 55 1396a(s)(4)(A); 1396b(a); 42CFR §433.111(b). If the state's mechanized claim processing and information retrieval system does not comply with federal requirements, the amount of federal funds otherwise due the state under theMedicaid program will be reduced. 42 U.S.C. ii1396b(r); 42 CFR 5433.110(a)(2).

Federal regulations permit states to contract with various entities to process claims, to pay foror provide medical services, or to enhance the state's effectiveness in administering the Medicaid program. 42 C.F.R. 55 434.1; 434.2. A statemay contract with a fiscal agent, which processes and pays claims without assuming risk for the cost ofproviding medical services. Id. §434.2. A state is also permitted to contract with a "health insuring organization," which pays for medical services provided to recipients inexchange for apremium or subscription charge paid by the agency and assumes anunderwriting risk. Id.

The Department ofHuman Services currently contracts with an insurance company under ahealth insuring ment. arrangeTex. Dept. ofHuman Services, forAdministration of a Portion Request for Proposal of the Texas Medicaid Program tobe Implemented Sept. 1, 1989, II-3 [hereinafter RFP]. The contract provides 

### for reimbursement to the contractor for somemedical services, while the contractor assumes financial responsibility 

### fortheprovision of other medical services, known as Purchased Health Services.

Electronic RFP, 11-3. data processing services are divided between the department and the contractor. RFP, 11-7. The department has requested proposals for similar services under a contract tobe implemented September 1, 1989. RFP, 111-3; 111-4; III(D)-1. ding process Your questions relate to the bidforthe contract proposed tobe September 1, 1989. implemented

Your first question isas follows:

Is the bidding process for the Medicaid purchased health services insurance contract subject to theprovisions ofarticle 601b. V.T.C.S.
Article 601b, V.T.C.S., establishes the State Purchasing and General Services Commission. Article 3 of that statute provides as follows for the commission's purchasing authority:

P. 4991Honorable Stan Schlueter -Page 3 (JM-978)

(a) The commission shall purchase, lease, rent, or otherwise acquire u supplies, materials, services, and equipment for all state auencieg
. . . .

-

- 

### . . . . (c) 'Services,' asused inthis article, means the furnishing of skilled or unskilled labor or professional work but does not include:
(1) professional services covered by the Professional Services Procurement Act (Article 664-4 . . . [V.T.C.S.]);
(2) services of an employee of a state agency;
(3) consulting services or services of aprivate consultant asdefined by Chapter 454,Acts of the 65thLegislature, Regular Session, 1977 (Article 6252-11~ . . . [V.T.C.S.]); or
(4) services of public utilities. (Emphasis added.)

V.T.C.S. art. 601b, §3.01.

A "state agency" isdefined to include "anydepartment, commission, board, office, orother agency inthe executive branch of state government created by the constitution or a statute of this state . . .I1 & !j1.02(2)(A). The Department ofHuman Services, established by title 2of the Human Resources Code, is **a** state agency within this definition. Hum. Res. Code 55 11.001; 21.001. As a state agency, it is subject to theprovisions ofarticle 601b,V.T.C.S. relating topurchasing unless excepted by the legislature. Comoare Attorney General Opinion JM-445 (1986)with Attorney General Opinion WW-177 (1980). Wewill consider whether any provision of lawexcepts the contract fromarticle 601b,V.T.C.S.
Section 22.002(f) of theHuman Resources Code grants the department authority to enter into contracts. This provision states as follows:

(f) The department may enter into agree**ments** with federal, state, or other public or

p. 4992Honorable Stan Schlueter -Page 4 (JM-978)

private agencies or individuals to accomplish thepurposes of the programs authorized in Subsection (c)of this section. The agreements or contracts between the department and other state agencies are not subject to the Interagency Cooperation Act . . . .
Hum. Res. Code S22.002(f). The subsection (c)referred to provides that

[t]hedepartment may establish and maintain programs of assistance and services authorized by federal law anddesigned to help needy families and individuals attain and retain the capability of independence and self-care. Notwithstanding any other provision of law, thedepartment **may** extend the scope of itsprograms to the extent necessary to ensure that federalmatching funds are available, ifthedepartment determines that the extension of scope is feasible andwithin the limits ofappropriated funds.

Id. s22.002(c).

These provisions were adopted in 1969by abill which amended former article 695c, V.T.C.S., now recodified as various provisions ofTitle II,Human Resources Code. Acts 1969, 61st Deg., ch. 845, S 1,at 2527; 8&8Acts 1979, 66th Leg., ch. 842, art. I (adoptingTexas Human Resources Code).

Inconstruing statutes, acourtmust look to the entire act, including the caption, body, and emergency clause, to determine the legislative intent. Trawalter v. Schaefer, 179 S.W. 2d 765 (Tex. 1944). See also Southwestern Bell Tel. Co. v.Houston Inden. School Dist., 397 S.W.2d 419 (Tex. 1965). The title of the 1969enactment reads inpart:

AnAct . . .authorizing the State Department of Public Welfare to extend by rule and regulation the full range of programs and scope of services provided for under the Federal laws as they now read or as they may hereafter be amended and any rules regulations promulgated pursuant .theretzr authorizina the deoartment to enter into aareements to **imDlement** these **D** crams and services
. . . . (Emphasis added:;)

Acts 1969, 61st Leg., ch. 845, at 2525.

4993.

Honorable Stan Schlueter -Page 5 (JM-978)

The emergency clause of the 1969bill provides inpart:

Sec. 10. The factthat under Federal Law the Department is required to extend the welfare programs and toprovide services to and onbehalf of theneedy people served by the Department, and such services cn. m Iggnv instances. be best nrovided throuch contracts and aareements with individuals or with other DUblic ornrivate aaenciez . . . and the crowded condition of the calendar create an emergency . . . . (Emphasis added.)

Id. at 2533.

As the title and emergency clause show, thepurpose of the 1969 amendments was to enable the state to participate fully in federal welfare programs and the legislature granted the department broad rule-making authority to achieve that purpose. Theprovision now codified as section 22.002(f) was directed at achieving the same legislative purpose. Itgranted the department expansive authority to contract with individuals andpublic orprivate agencies to implement welfare programs and exempted such contracts with other state agencies from the Interagency Cooperation Act, article 4413(32), V.T.C.S. Interagency contracts entered intounder that ,act were not valid unless approved in advance by the Hoard of Control, now the State General Services and Purchasing Commission.

In 1969 the Board ofControl was also the agency responsible for purchasing supplies, materials, services, and equipment for the state of Texas under the State Purchasing Act of 1957. Acts 1957, 55th Leg., ch. 304 (formerly codified as article 664-3,V.T.C.S., repealed by Acts 1979, 66th Leg., ch. 773, 599.05). Under the State Purchasing Act of 1957, the Board 

### ofControl had authority to contract only for "services of the type heretofore contracted for"by the board and to act only onbehalf of "departments and agencies of the type heretofore required to make purchases through the Board . . . .I@Thus, there may have been no need for thepredecessor of section 22.002(f) to exempt the contracts itauthorized fromthe State Purchasing Act of 1957.
Article 601b,V.T.C.S., was adopted in 1979 to create the State Purchasing and General Services Commission, organize the laws formerly relating to the Board of Control intoa State Purchasing and General Services Act, and abolish the State Board of Control. Acts 1979, 66th Leg.,

P. 4994.

Honorable Stan Schlueter -Page 6 (JM-978)

ch. 773, at 1908: Bill Analysis, Tex. H.B. 1673, 66th beg. (1979) (prepared forHouse Committee on State Affairs). The bill as introduced incorporated the State Purchasing Act of 1957 and other purchasing lawsbut did notprovide that the commission "shall purchase, lease, rent, or otherwise acquire &J, supplies, materials, services, and equipment for
u state agencies
. . . ." &$s Bill Analysis, Tex. H.B. 1673,a; BillAnalysis, Tex. H.B. 1673 61C.S.H.B. 1673, 66th Leg. (1979) (prepared for Senate). The bill was amended on the Senate floor to add the language adopted as section 3.01, article 601b, V.T.C.S. S.J. of Tex. 66th -cl., Reg. Sess. 1795 (1979). We have no indication that the legislature intended this provision to limit the department's broad authority to contract with private entities incarrying out federal welfare programs.
While section 22.002(f) of theHuman Resources Code applies to a broad range of federal programs, other provisions of the Code are particularly relevant to the department's contract for Medicaid purchased health services. Chapter 32 of the Code authorizes state participation in federal programs of medical assistance. Hum. Res. Code S 32.001. The chapter is tobe liberally construed in relation to applicable federal laws and regulations tomake health care available to allpersons who need the care and areunable topay for it. Hum. Res. Code 532.002(a). The Department ofHuman Services isthe state agency designated to administer the medical assistance program provided in chapter 32and isauthorized to establish methods ofadministration and adopt necessary rules to operate theprogram. && 5 32.021(a), (c).
Section 32.029 of the codeprovides inpart:

(a) The department may prescribe amethod ofpayment for medical assistance claims by establishing adirect vendor payment program that isadministered by the department, u an insurance olan, a hospital or medical service plan, or any other health service plan authorized todo business inthe state, orbv acombination of those nlan**S.**
(b) The deDartment mav use anv fiscaI intermediarv. method ofoavment. or combination of methods it findsmost satisfactory and economicaL. The department may make whatever changes it findsnecessary fromtime to time to administer the program in an economical and equitable manner consistent

p. 4995Honorable Stan Schlueter -Page 7 (JM-978)

with simplicity of administration and the best interest of the recipients of medical assistance.
(c) If the department elects to make direct vendor payments, thepayments shall be made byvouchers andwarrants drawn by the comptroller on the proper account of the Texas Department ofHuman Services fund. The department shall furnish the comptroller with
a list of those vendors entitled to payments and the amounts towhich each is entitled. When the warrants are drawn, they must be delivered to the commissioner, who shall supervise thedelivery tovendors. (Emphasis added.)

Hum. Res. Code !j32.029.
This provision gives thedepartment broad authority to usevarious methods of administering theMedicaid program. Several of thesemethods necessarily require the department to enter into contracts. Themeans ofadministering Medicaid set out in subsections (b)and (c)of section 32.029 overlap with the definition of "contractor" inthepart of the Code of Federal Regulations which sets out, requirements for contracts inconnection with theMedicaid program. 42 CFR Ft. 434. Wontractor**

means any of the following entities that contract with the Medicaid agency under a State plan and inreturn for apayment, to process claims, topay fororprovide medical services, or to enhance the agency's capability for effective administration of the program:

A fiscal agent.

Ahealth care project grant center. Aprivate nonmedical institution. Ahealth insuring organization. Ahealth maintenance organization. Aprepaid health plan. A clinical laboratory. Aprofessional management service or consultant firm.

42CFR 5434.2.

P. 4996Honorable Stan Schlueter -Page 8 (JM-978)

Section 32.029 authorizes the state to enter into at least some of the kinds of contracts contemplated by federal law. Such contracts cannot easily be described as contracts for "supplies, materials, services, and equipment," within section 3.01 of article 601b, V.T.C.S. Contracts to implement Medicaid may involve theprovision ofprofessional services excepted from section 3.01 of article 601b, V.T.C.S., or the assumption of risk as an insurer, and not merely the provision of %.upplies, materials, services, and equipment."

Itwould notbe inconsistent with the legislature's treatment of other insurance contracts to regard the departmentDs contract with an insurance company under section 32.029 as excepted from article 601b,V.T.C.S. Contracts for health insurance coverage for state employees are governed by Insurance Code provisions, and notby the State Purchasing and General Services Act. a Ins. Code art. 3.50-2 (Texas Employees Uniform Group Insurance Benefits Act); art. 3.50-3 (Texas State College Employees Uniform Insurance and University Benefits Act). See 1Q V.T.C.S. art. 6252-19a; Attorney General Opinion JM~8~9 (1988). Attorney General Opinion RR-494 (1982) determined that contracts for the purchase of insurance were not contracts forpersonal orprofessional services within an exemption to the competitive bidding statute applicable to counties. Attorney General Opinion Rx-342 (1981)held that
an insurance contract was not l@personalproperty" within the competitive bidding requirement applicable to school districts. See &vn App. Div. 1955) H ffr 146 N.Y.S.Zd 113 (N.Y. (zha>ereprzv%n requiring competitive bidding on all contracts over $1,000 not applicable to insurance policy). At least some of the contracts authorized by section 32.029 of theHuman Resources Code are notwithin the purchasing authority accorded the State Purchasing andGeneral Services Commission by section 3.01 ofarticle 601b,V.T.C.S.
Subsection (c)of section 32.029,which establishes a procedure for making direct vendor payments, is moreover inconsistent with the provisions onpayment for state agency purchases inarticle 601b,V.T.C.S. Sections 3.15 and 3.16 ofarticle 601b,V.T.C.S., require the State Purchasing and General Services Commission to approve the invoice and purchase voucher before the comptroller may approve them for payment and draw hiswarrant.

There are thus significant inconsistencies between section 32.029 of theHuman Resources Code~and article 3.01 of the State Purchasing andGeneral Services Act. Moreover, -.

p. 4997.

Honorable Stan Schlueter -Page 9 (JM-978)

both section 22.002(f) and section 32.029 of the Human Resources Code areparts of comprehensive grants ofpower to the Department ofHuman Services to enable itto federal benefit programs. implement Federal lawexpressly requires the state to designate a single state agency to administer
or supervise the administration of theMedicaid program, 42 U.S.C. f 1396a(a)(5). A federal regulation this requirement provides as follows: implementing

Inorder foran Medicaid agency-- agency toqualify as the

. . . . (2) The authority of the agencymust not be impaired ifany of itsrules, regulations,
ordecisions are subject to review, clearance, or similar action by other offices or agencies of the State.

42C.F.R. 5 431.10(e). If the Purchasing Commission had authority to review the departmentIs purchasing decisions that implement the Medicaid program and to refuse payment for itspurchases, aquestion as to the state's compliance with the above regulation would **arise.**

**In** summary, the legislature has granted the Department ofHuman Services comprehensive authority to administer federal benefit programs, and in particular, the Medicaid program. That authority includes statutory enter into authority to

contracts with private entities to implement those programs, authority which is inconsistent with an interpretation of article 601b,V.T.C.S., thatwould subject theMedicaid purchased health services contract to its provisions. Inour opinion, sections 22.002(f) and 32.029 of theHuman Resources Code areprovisions of special laws relating to the state#s participation in federal benefit programs. The enactment of article 601b, V.T.C.S., a general law which governs purchasing for state agencies, does not repeal these special lawcontract provisions. See **Flowers v.**  Pecos **River** R. Co., 156S.W.2d 260 (Tex. 1941). They are construed as exceptions to the general law, based on the presumption that a specific **statute** evidences the intention of the legislature more clearly that a general
one. Townsend **v. Terre11**  **16** S.W.Zd 1063 (1929). In this case, the legislature has'made its intentvery clear that it wishes the **state** to receive full benefit from the federal programs administered by the Department ofHuman Services andhas granted the department specific contract authority tohelp achieve that purpose. Wedo notbelieve that the

p. 4998.

Honorable Stan Schlueter -Page 10 (JM-978)

legislature intended article 601b,V.T.C.S., to limit the specific contractual powers itconferred on the Accordingly, department.

we conclude that theMedicaid purchased health services insurance contract isnot subject to the provisions of article 601b, V.T.C.S. To the extent that Attorney General Opinion MM-254 (1980)appears to imply the contrary, that implication\is surplusage and isexpressly repudiated.

Inview of our answer toyour first question, we need not answer your second and third questions.

SUMMARY
The Medicaid purchased health services insurance contract which the Department of Human Services proposes to enter into is not subject to article 601b,V.T.C.S., the State Purchasing and General Services Commission Act.

JIM MATTOX Attorney General ofTexas

MARYKKLLER First Assistant Attorney General

LDUMCCREARY Executive Assistant Attorney General

JUM;E ZOLLIE STEAKLEY Special Assistant Attorney General

RICK GILPIN Chairman, Opinion Committee
Prepared by Susan L.Garrison Assistant Attorney General

P. 4999