November 10, 1988 

Honorable Stan Schlueter Opinion No. JM-978 

Chairman 

Ways and Means Committee Re: Whether Department of 

Texas House of Representatives 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 the bidding 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 of November 4, 1988. You inform us that the 

contract will entail expenditure of over one billion dollars 

per year in state and federal funds. 

The Medicaid program is established under title XIX of 

the Social Security Act. 42 U.S.C. § 1396. It provides for 

federal funding to assist states in furnishing medical 

assistance on behalf of families with dependent children and 

of aged, blind, or disabled individuals whose income and 

resources are insufficient for the cost of necessary medical 

services. Id. Participating states must 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 of Human Services is 

the state agency responsible for administering the Medicaid 

program in this state. Hum. Res. Code, 55 22.001, 22.002, 

32.021. 

Under the Medicaid legislation, the federal government 

pays a participating state for part of its expenditures to 

provide medical services and to administer the program, 

including the costs of a mechanized 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. 4990 
Honorable Stan Schlueter - Page 2 (JR-978) 

government for administrative and audit purposes. 42 U.S.C. 

55 1396a(s)(4)(A); 1396b(a); 42 CFR § 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 the Medicaid program will be reduced. 42 U.S.C. 

ii 1396b(r); 42 CFR 5 433.110(a)(2). 

Federal regulations permit states to contract with 

various entities to process claims, to pay for or 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 state may contract with a fiscal agent, which 

processes and pays claims without assuming risk for the cost 

of providing 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 in exchange for a premium or subscription charge paid 

by the agency and assumes an underwriting risk. Id. 

The Department of Human Services currently contracts 

with an insurance company under a health insuring 

ment. 

arrangeTex. Dept. of Human Services, 

for Administration of a Portion 

Request for Proposal 

of the Texas Medicaid 

Program to be Implemented Sept. 1, 1989, II-3 [hereinafter 

RFP]. The contract provides for reimbursement to the 

contractor for some medical services, while the contractor 

assumes financial responsibility for the provision 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 to be implemented September 1, 1989. RFP, 

111-3; 111-4; III(D)-1. 

ding process 

Your questions relate to the bidfor the contract proposed to be 

September 1, 1989. 

implemented 

Your first question is as follows: 

Is the bidding process for the Medicaid 

purchased health services insurance contract 

subject to the provisions of article 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. 4991 
Honorable 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,' as used in this 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 

a private consultant as defined by Chapter 

454, Acts of the 65th Legislature, 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" is defined to include "any department, 

commission, board, office, or other agency in the executive 

branch of state government created by the constitution or a 

statute of this state . . . I1 & !j 1.02(2)(A). The Department of Human Services, established by title 2 of 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 the provisions of article 601b, V.T.C.S. relating 

to purchasing unless excepted by the legislature. Comoare 

Attorney General Opinion JM-445 (1986) with Attorney General 

Opinion WW-177 (1980). We will consider whether any provision of law excepts the contract from article 601b, V.T.C.S. 

Section 22.002(f) of the Human Resources Code grants 

the department authority to enter into contracts. This 

provision states as follows: 

(f) The department may enter into agreements with federal, state, or other public or 

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

private agencies or individuals to accomplish 

the purposes 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 S 22.002(f). The subsection (c) referred to 

provides that 

[t]he department may establish and maintain 

programs of assistance and services authorized by federal law and designed to help 

needy families and individuals attain and 

retain the capability of independence and 

self-care. Notwithstanding any other provision of law, the department may extend the 

scope of its programs to the extent necessary 

to ensure that federal matching funds are 

available, if the department determines that 

the extension of scope is feasible and within 

the limits of appropriated funds. 

Id. s 22.002(c). 

These provisions were adopted in 1969 by a bill which 

amended former article 695c, V.T.C.S., now recodified as 

various provisions of Title II, Human Resources Code. Acts 

1969, 61st Deg., ch. 845, S 1, at 2527; 8&8 Acts 1979, 66th 

Leg., ch. 842, art. I (adopting Texas Human Resources Code). 

In construing statutes, a court must 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 1969 enactment reads in part: 

An Act . . . 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 1969 bill provides in part: 

Sec. 10. The fact that under Federal Law 

the Department is required to extend the 

welfare programs and to provide services to 

and on behalf of the needy people served by 

the Department, and such services c n. m 

Iggnv instances. be best nrovided throuch 

contracts and aareements with individuals or 

with other DUblic or nrivate aaenciez . . . 

and the crowded condition of the calendar 

create an emergency . . . . (Emphasis added.) 

Id. at 2533. 

As the title and emergency clause show, the purpose 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. The provision now codified as section 

22.002(f) was directed at achieving the same legislative 

purpose. It granted the department expansive authority to 

contract with individuals and public or private 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 

into under 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 of Control 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, 5 99.05). Under the State 

Purchasing Act of 1957, the Board of Control had authority 

to contract only for "services of the type heretofore 

contracted for" by the board and to act only on behalf of 

"departments and agencies of the type heretofore required to 

make purchases through the Board . . . .I@ Thus, there may 

have been no need for the predecessor of section 22.002(f) 

to exempt the contracts it authorized from the 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 

into a 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 for House Committee on State Affairs). The 

bill as introduced incorporated the State Purchasing Act of 

1957 and other purchasing laws but did not provide 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; Bill Analysis, Tex. H.B. 1673 61 C.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 in carrying out federal welfare programs. 

While section 22.002(f) of the Human 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 to be liberally 

construed in relation to applicable federal laws and 

regulations to make health care available to all persons who 

need the care and are unable to pay for it. Hum. Res. Code 

5 32.002(a). The Department of Human Services is the state 

agency designated to administer the medical assistance 

program provided in chapter 32 and is authorized to establish methods of administration and adopt necessary rules to 

operate the program. && 5 32.021(a), (c). 

Section 32.029 of the code provides in part: 

(a) The department may prescribe a method 

of payment for medical assistance claims by 

establishing a direct vendor payment program 

that is administered by the department, u 

an insurance olan, a hospital or medical 

service plan, or any other health service 

plan authorized to do business in the state, 

or bv a combination of those nlan S. 

(b) The deDartment mav use anv fiscaI 

intermediarv. method of oavment. or combination of methods it finds most satisfactory 

and economicaL. The department may make 

whatever changes it finds necessary from time 

to time to administer the program in an 

economical and equitable manner consistent 

p. 4995 
Honorable 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, the payments shall be 

made by vouchers and warrants drawn by the 

comptroller on the proper account of the 

Texas Department of Human Services fund. The 

department shall furnish the comptroller with 

a list of those vendors entitled to payments 

and the amounts to which each is entitled. 

When the warrants are drawn, they must be 

delivered to the commissioner, who shall 

supervise the delivery to vendors. (Emphasis 

added.) 

Hum. Res. Code !j 32.029. 

This provision gives the department broad authority to 

use various methods of administering the Medicaid program. 

Several of these methods necessarily require the department 

to enter into contracts. The means of administering Medicaid 

set out in subsections (b) and (c) of section 32.029 overlap 

with the definition of "contractor" in the part of the Code 

of Federal Regulations which sets out, requirements for 

contracts in connection with the Medicaid program. 42 CFR 

Ft. 434. Wontractor** 

means any of the following entities that 

contract with the Medicaid agency under a 

State plan and in return for a payment, to 

process claims, to pay for or provide medical 

services, or to enhance the agency's capability for effective administration of the 

program: 

A fiscal agent. 

A health care project grant center. 

A private nonmedical institution. 

A health insuring organization. 

A health maintenance organization. 

A prepaid health plan. 

A clinical laboratory. 

A professional management service or 

consultant firm. 

42 CFR 5 434.2. 

P. 4996 
Honorable 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 the provision of professional 

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." 

It would not be 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 not by 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 for personal or professional 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@personal property" within the 

competitive bidding requirement applicable to school 

districts. See &vn 

App. Div. 1955) 

H ff r 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 the Human Resources Code are 

not within the purchasing authority accorded the State 

Purchasing and General Services Commission by section 3.01 

of article 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 on payment for state agency 

purchases in article 601b, V.T.C.S. Sections 3.15 and 3.16 

of article 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 his warrant. 

There are thus significant inconsistencies between 

section 32.029 of the Human Resources Code~and article 3.01 

of the State Purchasing and General 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 are parts of comprehensive grants of power to 

the Department of Human Services to enable it to 

federal benefit programs. 

implement 

Federal law expressly requires 

the state to designate a single state agency to administer 

or supervise the administration of the Medicaid program, 42 

U.S.C. f 1396a(a)(5). A federal regulation 

this requirement provides as follows: 

implementing 

In order for an 

Medicaid agency-- 

agency to qualify as the 

. . . . 

(2) The authority of the agency must not 

be impaired if any of its rules, regulations, 

or decisions are subject to review, clearance, or similar action by other offices or 

agencies of the State. 

42 C.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 its purchases, a question as to the state's compliance 

with the above regulation would arise. 

In summary, the legislature has granted the Department 

of Human 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., that would subject 

the Medicaid purchased health services contract to its 

provisions. In our opinion, sections 22.002(f) and 32.029 

of the Human Resources Code are provisions 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 law contract provisions. See 

Flowers v. Pecos River R. Co., 156 S.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 intent very clear that it 

wishes the state to receive full benefit from the federal 

programs administered by the Department of Human Services 

and has granted the department specific contract authority 

to help achieve that purpose. We do not believe 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 it conferred on the 

Accordingly, 

department. 

we conclude that the Medicaid purchased health 

services insurance contract is not 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 is expressly repudiated. 

In view of our answer to your 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 of Texas 

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