ACCEPTED 03-17-00712-CV 21562262 THIRD COURT OF APPEALS

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

CLERK 

## CAUSE NO. 03-17-00712-CV

(consolidated with 03-17-00711-CV)
INTHE COURT OF APPEALS for the THIRD DISTRICT OF TEXAS at AUSTIN, TEXAS CAUSE NO. 03-17-00712-CV Southern Concepts, Inc., Volunteers ofAmerica Texas, Inc., Knob Oak, Inc., Silver Quail, Inc., Community Access, Inc., and Creative Community Care, Inc., Appellants V. Texas Department ofAging and Disability Services, Appellee. Original Proceeding from the 353rd District Court Final order signed by Darlene Byrne, Presiding in the 126th Judicial District

1 CAUSE NO. 03-17-00711-CV CALAB, Inc., Mosaic Inc., Mosaic Martin Luther Home, Mosaic of Bethphage, The Center Serving People with Mental Retardation, Unified Care Group, Appellants V. Texas Department ofAging and Disability Services, Appellee. Original Proceeding from the 261st District Court Final order signed by Gisela D. Triana, Presiding in the 200th Judicial District Appellants' Brief on the Merits
ORAL ARGUMENT REQUESTED2Counsel for Appellant Joanalys B. Smith State Bar No. 05719200 Gay L. Bonorden State Bar No. 00785708 Smith & Associates 900 Ranch Road 620 South Suite C101-159 Austin, TX 78734

### IDENTITY OF PARTIES AND COUNSEL Pursuant to Texas Rule of Appellate Procedure 38.1 (a), Appellant presents the following list of all parties and names and addresses of its counsel: 

### Appellants SOUTHERN CONCEPTS, INC., VOLUNTEERS OF AMERICA TEXAS, INC., KNOB OAK, INC., SILVER QUAIL, INC., COMMUNITY ACCESS, INC., AND CREATIVE COMMUNITY CARE, INC., CALAB, INC., MOSAIC INC., MOSAIC MARTIN LUTHER 

### HOME, MOSAIC OF 

### BETHPHAGE, THE 

### CENTER SERVING PEOPLE WITH MENTAL RETARDATION, UNIFIED CARE GROUP 

### Counsel Joanalys B. Smith State Bar No. 05719200 Gay L. Bonorden State Bar No. 00785708 Smith & Associates 900 Ranch Road 620 South, Suite C101-159 Austin, TX 78734 Telephone: (512) 261-9990 Facsimile: (512) 261-9971 E-mail: Joanalys@LawOfficesJBS.com 

### Appellee TEXAS DEPARTMENT OF AGING AND DISABILITY SERVICES 

### Counsel Eugene A. Clayborn, Deputy Chief State Bar No. 00785767 Andrew Lutostanski State Bar No. 24072217 Assistant Attorneys General Office ofthe Attorney General ofTexas P.O. Box 12548, Capitol Station Austin, Texas 78711-2548

34 

### Eugene.clayborn@oag.texas.gov Andrew.lutostanski@oag.texas.govTABLE OF CONTENTS IDENTITY OF PARTIES AND COUNSEL.

.......................................03 TABLE OF CONTENTS

.................................................................. 05 TABLE OF AUTHORITIES

............................................................... 07 STATEMENT OF THE CASE

........................................................... 09 STATEMENT REGARDING ORAL ARGUMENTS

......................... 10 ISSUES PRESENTED

.....................................................................11 STATEMENT OF FACTS

..................................................................12 A. THE TAC RULES DID NOT ALLOW APPELLEE TO COLLECT ADDITIONAL QAF TAXES AS UNDERPAYMENTS FROM APPELLANTS DURING THE RELEVANT TIME

..................................................12 8. IN 2009 THE FEDERAL CENTERS FOR MEDICARE AND MEDICAID SERVICES DETERMINED THAT APPELLEE VIOLATED FEDERAL LAW

...................................................................18 C. AMENDMENT OF THE TAC (EFFECTIVE 2008) FINALLY ALLOWED FOR QAF UNDERPAYMENTS TO BE COLLECTED

...................................................20 D. APPELLEE'S ACTIONS IN RESPONSE TO ITS VIOLATION OF FEDERAL LAW

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

.................................................. 23 ARGUMENT

......................................................................................27

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

### FOR THEIR RECOVERY AND THE QAF TAX WAS PAID ACCORDING TO EXISTING LAW

............................27 B. AS A MATTER OF LAW, FEDERAL AND TEXAS LAW PROHIBITS RETROACTIVE APPLICATION OF QAF TAXES

...............................................................41 PRAYER

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

........................................................................................46 CERTIFICATE OF COMPLIANCE

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

..................................................48

6TABLE 

### OF AUTHORITIES Cases 1. Bowen v. Georgetown Univ. Hospital, 488 U.S. 204 (1988);

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

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

........................................................................................37 4. Landgrafv. US/Film Prods., 511 U.S. 244, 280

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

....33 6. State Office ofRiskManagement v. Berdan, 335 S.W.3d 421 (Tex. App. Corpus Christi 2011 ), reh'g overruled, (Mar. 9, 2011) and petition for review filed, (May 25, 2011 )

...........................................43 

### 7. Sw. Pharmacy Solutions, Inc. v. Tex. Health & Human Servs. Comm'n, 408 S.W.3d 549, 557-558 (Tex.App.--Austin 2013, pet. denied)

............................................................................................... 29
Statutes 42 CFR Sec. 433.68

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

................................................................45

7Tx Govt. Code Sec. 2001.174

........................ 10, 24, 25, 26, 34, 36 Tx Health & Safety Code 252.202(b)

.........................................27, 43 Rules 1TAC 352.1-352.9(2003)

......................................................13, 14, 27 1TAC 351.1-352.9(2008)

......................................................20, 30, 44 1TAC 352.3{c)(2003)

............................................................15, 16, 30 1 TAC 352.5(1 )

..................................................................................14 1 TAC 357.483(c)

..............................................................................44 Other Authorities 28 TexReg 9235

...................................................................13 32 TexReg 7789 at 7790

.............................................. 27, 30, 41 33 TexReg 667

.................................................................... 20 Tex. Const. Art. 1, § 16

.....................................................27, 42

8STATEMENT OF THE CASE
This case is Appellants' appeal from a judicial review in which the district court entered a final order signed July 21, 2017 in favor of Appellee, granting summary judgment for Appellee and affirming Final Agency Orders entered in the Appeals Division of the Administrative Law Court (ALC) of the Texas Health and Human Services Commission. The district court further denied Appellant's motion for summary judgment. The Final Agency Orders held that Appellee could recoup additional Quality Assurance Fee (QAF) taxes from each Appellant. This case is also a consolidation with Appeal Cause No. 03-17-0711-CV, which is also an appeal from a judicial review in the district court. The identical issues are presented for each Appellant and Appellee, and this Court granted consolidation upon Appellants' motion for "purposes of briefing and consideration only."

9STATEMENT REGARDING ORAL ARGUMENTS This case raises significant issues related to the appropriateness of Appellee's rights to recoup additional Quality Assurance Fee (QAF) taxes in light ofthe calculation rules in place at the time each QAF tax was imposed and collected. At issue is whether such recoupment is permissible now, when not due and owing under the law in place at the relevant time. Both lower courts have failed to apply clear, controlling Texas law and legal precedent under Texas Gov't Code Sec 2001.174, containing the Substantial Evidence Rule. In particular, the courts have allowed the Appellee the right to recoup additional QAF taxes by allowing Appellee to re-interpret the applicable 2003 law which was in effect during the relevant time at issue here. The inclusion of oral arguments will significantly aid the decision ofthis Court.

10II. ISSUES PRESENTED 1. Whether the lower courts properly interpreted the law or committed error regarding the applicable law, particularly the law that defined the QAF tax and how it was to be calculated. More specifically, Appellee is not now authorized to re-interpret the law to collect additional QAF taxes based upon the 2003 law that was settled and in effect during the relevant time period. The Final Order should be reversed. 2. Whether the lower courts committed error by retroactively applying the law that came into effect after the relevant time period. More specifically, the lower courts committed error by retroactively applying law that came into effect in 2008, which was after the relevant time period for calculation of the additional QAF taxes at issue. The Final Order should be reversed.

I I

### Ill. STATEMENT OF FACTS A. THE TAC RULES DID NOT ALLOW APPELLEE TO COLLECT ADDITIONAL QAF TAXES AS UNDERPAYMENTS FROM APPELLANTS DURING THE RELEVANT TIME Appellants are providers which provide care to consumers pursuant to individual Provider Agreements (Agreements) between Appellants and Appellee. AR93. 1 Appellee pays each Appellant for its various services to consumers as authorized under the Agreements, less authorized taxes or other authorized deductions. Authorized taxes and other deductions are calculated by rule based upon data mandated in Appellee's published rules, regulations, policies and practices. Providers paid OAF taxes to Appellee in the manner and time dictated by Appellee according to its rules, regulations and policies in place at the time. AR25-27. The fundamental dispute in this case arises because Appellee's current demand for additional QAF taxes is based upon its
own re-interpretation of the 2003 Law that was in effect during the relevant time. At the time, Appellee defined the QAF tax to be calculated and assessed on a cash basis as 6% ofthe gross receipts

1 All ofthe Appellants have virtually identical Adminstrative Records ("ARs"), and each AR is individually numbered. Thus, cites to the AR will be to the record for Appellant Southern Concepts, Inc. for simplicity. 12

### actually received by Appellant from Appellee in a particular 

### month, reconciled every 

### six months to refund 

### overpayments of the tax by Appellants. At issue here is Appellee's current demand for additional QAF taxes calculated and assessed on an 

### accrual basis as 6% of
revenue 

### accrued in a particular 

### month, reconciled 

### years later to recoup 

### underpayments ofthe tax by Appellants. It is undisputed that the rule in place at the relevant time based the QAF tax on a 

### cash basis and not an 

### accrualbasis. AR25-27. It is further undisputed that Appellants paid all QAF taxes as calculated by Appellee during the relevant time. AR22, 44. It is Appellee's current re-interpretation of the law and resulting recalculation of past taxes due that is at issue here. The applicable 2003 Rules, 1 TAC 

### §§ 352.1-352.9 (effective October 24, 2003), governed the QAF tax and were in effect during September 1, 2004 to December 31, 2007 (the "Relevant Time"). 

### See 28 TexReg 9235. Throughout the proceedings in the lower courts, Appellee repeatedly bases its current claims to additional QAF taxes

13on an accrual recalculation years after assessment, which was not the law until the 2008 Amendments. During the Relevant Time, Appellee required providers to submit specific census data at the beginning of each month, which Appellee then used to calculate the QAF tax due by a provider every month. AR25-27, 44-45. The record is undisputed and uncontroverted that each Appellant faithfully followed this procedure and made payment. Appellee defined its QAF tax by this method of calculations on its own accord and required providers to act according to its published rules and policies. Id. 1 TAC 352.5(1 ), as amended in 2003, was in effect during the Relevant Time and required Appellants to "pay the amount of the [QAF] in accordance with the instructions ofthe commission or its designees not laterthan the 30th day after the last day of the month for which the fee is d " assesse .... Each month the OAF was paid on cash actually received. AR25-26. In the present case, it is undisputed that Appellants accurately made their monthly payments in accordance with

14Appellee's instructions during the Relevant Time. AR22, 44. There is no evidence that any Appellant, whether a large provider or a small provider, whether a for-profit or charitable organization (as Appellants
run the gamut of such types of organizations) in any way submitted erroneous, inaccurate or incomplete data or acted in any mannerthat
was dishonest or in any other way attempted to violate or manipulate any obligation it had to Appellee. The only evidence before this Court is that Appellants accurately and properly paid their QAF tax each month on a cash basis, and not on the accrual basis which became law with the 2008 Amendments. AR25-26. Periodically during the Relevant Time, Appellee internally audited or "reconciled" its own QAF tax calculations. 1 TAC 352.3(c) (2003). The 2003 Rules required Appellee to perform these reconciliations for the QAF tax every six months. Id. In other program areas with periodic reviews or reconciliations and rules for reimbursement, Appellee regularly collected or "recouped" any underpaid amounts from the providers in accordance with rules which expressly granted such authority. It is undisputed that, during the Relevant Time (which lasted three years) and according to Appellee's

15own practices for these three years and its internal policies and the 2003 Rules, if Appellee determined during its 6-month reconciliation that Appellee had calculated a provider's QAF tax as too low (a.k.a. "QAF underpayment"), Appellee would not attempt to collect or recoup the additional QAF tax difference from the provider. AR26. However, if the Appellee calculated a provider's QAF as too high (a.k.a "QAF overpayment"), the Rules dictated that Appellee would refund the difference between the reconciled QAF tax and the amount overpaid by a provider. AR36. The Rules mandated this reconciliation occur every six months. 1TAC 352.3(c) (2003). 1 TAC 352.3(c) (2003) provided that "A facility's liability for the [QAF] may be adjusted following this review to ensure that the [QAF] does not exceed six percent of annual revenue.." There was no provision allowing for adjustment if QAF was less than six percent, and Appellee's practices were consistent with this interpretation ofthe Rule. Appellee continued this practice of not collecting QAF underpayments over the entire three-year Relevant Time period.

16AR35 ("[Appellee] indicated that underpayments were never collected since the inception ofthe QAF program."). Appellee based this deliberate policy regarding underpayments
on several bases. First, the Rules governing OAF taxes in effect during the Relevant Time did not allow for collection of additional QAF taxes as being "underpayments". AR26, 32, 36. Indeed, the definition of the QAF tax in place during the Relevant Time as interpreted and practiced by Appellee did not include the factor of "underpayments," nor the collections of such additional taxes. Thus, the only evidence before the Court now is that Appellants paid their QAF tax as it was defined by law during the Relevant Time. Appellee had no authority or procedures for the collection of QAF underpayments until the 2008 Rule amendments, after the Relevant Time, when the Rules relating to the definition of gross receipts, reconciliation, and enforcement were amended. AR25-26, 32. Furthermore, "[Appellee] felt that the previous TAC language [in effect during the Relevant Time] was too vague in order to enforce

17the repayment of underpayments to [Appellee] and therefore underpayments were not collected." AR32. "Again, [Appellee] did not enforce the collection of these underpayments because they felt that the TAC language was too vague and unenforceable." AR36.



### B. IN 2009 THE FEDERAL CENTERS FOR MEDICARE AND MEDICAID SERVICES DETERMINED THAT APPELLEE VIOLATED FEDERAL LAW Appellee is also under contract with The Centers for Medicare and Medicaid Services (CMS) which provides the federal funding for the provision of services to consumers. CMS periodically performed "compliance reviews" to ensure Appellee was complying with federal law.. One such review resulted in a Final Report dated August 31, 2009, which found that during the Relevant Time, Appellee had deficiencies in its process for determining OAF taxes. Appellee and stated that before 2008, Appellee "was not performing a proper reconciliation process." AR28, 35. Additionally, Appellee "violated" Section 1903(w) of the Social Security Act which "requires that

... taxes must:
... be uniform, such that all providers within a class must be taxed at the same rate;
....

18." AR21. Therefore, because Appellee's OAF taxes were not applied uniformly to providers, CMS stated that the entire OAF tax could be rendered impermissible. AR39. Consequently, if the OAF tax was rendered impermissible, Appellee would lose the matching federal Medicaid funds provided by CMS under federal law, indisputably an enormous sum. CMS reasoned that Appellee's actions caused providers to be non-uniformly taxed because of Appellee's practice of refunding OAF taxes to providers ifthey overpaid the OAF tax but not collecting any underpayments of OAF taxes. AR21. This caused providers to pay different OAF tax rates
.." AR21, 36 (Providers underpayments "would appear to directly violate the uniformity requirement where all providers within a class must be taxed at the same rate"). Again, it was Appellee's sole, deliberate decision through its practices and its interpretation of the duly-promulgated Rules to calculate OAF on a cash basis without factoring in underpayments, which resulted in non-uniform taxation. AR21. Appellee explained its actions in the Final Report: "The [Appellee] OAF program staff

19indicated that they realize the cost reports are unreliable

. . . . ." AR37. And as noted above, Appellee deliberately chose its actions (which resulted in non-uniform taxation) because it believed the Rules in effect were just too vague to enforce any payments of additional QAF taxes as underpayments. AR32, 36; see AR40 (the 2008 amendment of the TAC was "intended to correct the previous non-uniform reconciliation process ...."). 

### C. AMENDMENT OF THE TAC (EFFECTIVE 2008) FINALLY ALLOWED FOR QAF UNDERPAYMENTS TO BE COLLECTED To remedy Appellee's situation, several suggestions made in the CMS Final Report were put into place. First, the TAC was amended effective January 1, 2008, which was after the Relevant Time at issue here. See 1 TAC §§352.1-352.9, 33 TexReg 667. The amendments show as a matter of law, that the TAC during the Relevant Time did not provide for the collection of additional QAF taxes as underpayments, nor was it even used as a factor in defining and calculating the QAF tax due. First regarding the 2008 amendments, Appellee admitted that under the "Previous Rules", "Providers were not charged for QAF

20underpayments when the QAF reconciliations were completed." AR27. Thus, there needed to be "significant changes to the previous rules governing QAF

...." AR25. A significant change found in the
new Rules was that "Providers

. . . that underpay QAF will be required to pay the outstanding amount
...." AR26. This shows that prior to these amendments, the QAF tax was not defined or calculated using the factor of underpayments. Second regarding the 2008 amendments, "Enforcement [of collection of OAF underpayments] was finally granted as of January 1, 2008 with the new TAC language." AR36. Thus, it was not until the 2008 amendments that "underpayments" became a factor in Appellee's calculation of the OAF tax--and consequently under the 2003 Rules, the proper, lawful QAF tax did not include the factor of "underpayments". The proper, lawful QAF tax was that calculated by Appellee monthly on a cash basis with any adjustments made under the six-month reconciliation rule. Third, CMS noted that the amendment of the TAC was "intended to correct the previous non-uniform reconciliation process .

21

### ..." AR40. Thus, it was plain that the previous reconciliation process resulted in non-uniform taxation as admitted by Appellee. Fourth, the amendment "clearly identifies that the calculating of QAF will no longer be performed on a 

### cash basis

. . . and that underpayments will now be enforced and paid to [Appellee]." AR36 (emphasis added). Appellee was not collecting underpayments 

### byits
own deliberate policy choice during the Relevant Time because it interpreted the Rules as not authorizing such collection before the
new 2008 rules went into effect. Fifth, the 2008 rules were considered "new". AR40. Any resultant requirement, like collection of additional QAF taxes as underpayments, was also new and not in effect during the Relevant Time. Contrary to statements in the Final Order, CMS never "mandated" or "ordered" Appellee to collect QAF tax underpayments in the Final Report for the Relevant Time. CMS merely "requested" that it collect the additional QAF taxes as underpayments and stressed that "providers will be afforded the opportunity to appeal".

22

### AR21, 31,40. CMS further noted the tentivative status of Appellee's response to the Report by stating "if you proceed". The nod to the appeal process shows foreknowledge that Appellee's attempts to collect underpayments could be improper under Texas law and that providers should be given an opportunity to respond to such collection efforts in the courts. D. APPELLEE'S ACTIONS IN RESPONSE TO ITS VIOLATION OF FEDERAL LAW Despite the Rules and its own policies and interpretations in effect during the Relevant Time, in the face ofthe possibility of losing significant federal funds, Appellee demanded by letters to Appellants that they pay additional QAF taxes as underpayments. AR21-23. In the same letters, Appellee "acknowledges that [Appellants] followed the practices of [Appellee] in its payment ofthe QAF." AR22. In response to these letters, Appellants requested individual informal reviews of the demand for QAF underpayments but the Appellee upheld its position. AR21. Appellants then appealed these determinations, which appeals landed in the ALC which upheld the collection of additional taxes as OAF underpayments. AR343. IV. SUMMARY OF THE ARGUMENT
23

### A. The ALC committed error regarding the applicable law. Appellee is not authorized to now re-interpret the 2003 law to collect additional QAF taxes based upon the law that was settled and in effect during the Relevant Time period. Several statements in the Final Agency Order show that the ALC applied the wrong law--mixing up the language and proper interpretation of the 2003 and 2008 Rules. Appellee did the same after 2008, and these actions collectively prejudiced substantial rights of the Appellants because the administrative findings, inferences, conclusions, and decisions
are capricious, arbitrary, in violation of constitutional and statutory provisions, in excess ofthe agency's statutory authority, clear error of law. and arbitrary, capricious and characterized by abuse of discretion and clearly unwarranted exercise of discretion. Under Texas Gov't Code Sec 2001.174, the Final Order should be reversed, and the Court find Appellants owe no additional OAF taxes. Further, as set forth in the facts above, Appellee correctly interpreted the 2003 Rules for over three years to calculate the QAF tax as exactly as compliantly paid by Appellants during the Relevant Time. At the time, Appellee defined the QAF tax to be calculated and

24

### assessed on a cash 

### basis as 6% of the gross receipts actually received 

### by Appellant from Appellee in a particular month, 

### reconciled every six months 

### to refund overpayments 

### of the tax by Appellants.

Unlawful is Appellee's current demand for additional QAF taxes calculated and assessed on an accrual 

### basis as 6% of revenue accrued 

### in a particular month, 

### reconciled years later 

### to recoup underpayments 

### of the tax by Appellants. The Final Agency Order violates Texas Gov't Code Sec 2001.174. The interpretation and settled 2003 law did not allow for the use of "underpayments" to recalculate the QAF tax and did not give Appellee authority to collect additional QAF taxes that were re-calculated using any alleged "underpayments". AR22, 26, 32, 36. Additionally, the 2003 Rules based the QAF tax on cash receipts, not accrued receipts. Thus, there is no legal authority for Appellee to
now make a claim to additional QAF taxes as sought herein and its interpretation is plainly erroneous. And, the Final Agency Order upholding such violates Texas Gov't Code Sec 2001.174.

25

### Given Appellee's many admissions regarding the QAF tax calculations and its interpretations and its policies and rules during the Relevant Time, as a matter of law, Appellee cannot now recoup additional QAF taxes as underpayments from the Appellants for the Relevant Time. Its current interpretation is plainly erroneous and its actions have no reasonable basis in the record. Substantial rights of the Appellants have been prejudiced because the administrative findings, inferences, conclusions, and decisions collectively are capricious, arbitrary, in violation of constitutional and statutory provisions, in excess ofthe agency's statutory authority, clear error of law, and arbitrary, capricious and characterized by abuse of discretion and clearly unwarranted exercise of discretion. Under Texas Gov't Code Sec 2001.174, the Final Order should be reversed and the Court find Appellants owe no additional QAF taxes. B. The ALC committed plain error by retroactively applying law that
came into effect in 2008, which was after the Relevant Time period for calculation ofthe additional QAF taxes at issue.

26The Texas Constitution expressly prohibits Appellee from applying rules to Appellants retroactively. Tex. Const. Art. 1, Sec. 16. Appellee determined that there would be no additional cost to providers who were required to comply with the proposed 2008 amendments. See 32 TexReg 7789, at 7790. Thus, they cannot now add additional taxes to the 2003 QAF tax calculations due to the 2008 Amendments. There is no Texas statute that grants Appellee the power to make retroactive adjustments to the QAF, or to demand additional tax underpayments retroactively, as Appellee attempts
now. See TEX. HEALTH & SAFETY CODE 

### § 252.202(b) (only "prospective" adjustments allowed).



### V. ARGUMENT A. AS A MATTER OF LAW, APPELLEE CANNOT RECOVER ADDITIONAL QAF TAXES AS UNDERPAYMENTS FOR THE RELEVANT TIME BECAUSE THE GOVERNING LAW DID NOT PROVIDE FOR THEIR RECOVERY AND THE QAF TAX WAS PAID ACCORDING TO EXISTING LAW As explained above, as a matter of law, the TAC rules in effect during the Relevant Time, 1 TAC 

### §§ 352.1-352.9, (effective 2003), calculated the QAF tax, and that amount as calculated by Appellee
was paid by Appellants at the time, and the law as interpreted by

27

### Appellee made no provision to collect additional QAF taxes as underpayments. AR26, 32, 36. As illogical as that may sound, Appellee justified this practice as explained above and continued this practice unchanged for over three years during the Relevant Time. AR26. Appellee defined its QAF tax differently during the Relevant Time than under the 2008 Amendments and had no authority or procedures for the collection of additional QAF taxes as underpayments until the 2008 Amendments, when the rules relating to the definition of gross receipts, reconciliation, and enforcement
were amended. AR25-27. Further, the 2008 amendments and Appellee's comments during this process and in the CMS Final Report additionally prove that the 2003 Rules calculated the QAF tax under a different formula and did not allow recoupment of additional QAF taxes as underpayments. 

### Id. These were Appellee's interpretations based upon the Law which governed it. This is explained in depth above in the Statement of Facts.

28In Appellee's arguments in the lower courts, it cites the Third Court of Appeals for the proposition that an agency's interpretation of
a statute is entitled to serious consideration as long as the construction is reasonable and does not conflict with the statute's language. 

### Sw. Pharmacy Solutions, Inc. v. Tex. Health & 

### Human Servs. Comm'n, 408 S.W.3d 549, 557-558 (Tex.App.--Austin 2013, pet. denied). The 2003 statute is completely neutral regarding whether the QAF would be collected on revenue measured by accrual or cash basis but Appellee chose to enact rules defining the OAF tax on a cash basis and consistently for years interpreted the 2003 Rules as not allowing for recoupment of additional QAF taxes
as underpayments. AR26, 32, 35, 36, 41. According to Appellee's interpretation and practices, the QAF tax had been properly collected under the rules in place until 2008 Amendments. Appellee described the Rules as vague and unenforceable when it came to QAF underpayments, and many statements in the CMS Final Report and history of the 2008 amendments, as explained above, show that the Appellee did not interpret the 2003 Rules as allowing for recoupment of additional

29QAF taxes as underpayments. Id. Appellee may describe the issue
now as it chooses, with any attendant problems, but the fact remains uncontroverted that Appellants paid the QAF tax assessed in full under the 2003 Rules, under the definition ofthe OAF tax in the 2003 Rules and interpreted by Appellee. There is no evidence that any Appellant in any way did anything devious or untoward in its payment ofthe QAF tax during the Relevant Time. Additionally, it was the 2008 rules, 1 TAC 352.1-352.9, that provided (1) gross receipts were defined as accrued payments rather than cash received, (2) new reporting and reconciliation procedures
were implemented, and (3) new enforcement procedures for audits and (4) note to providers relating to audit findings regarding underpayments. AR25-27, 334-8 (Proposed Rules, Nov. 2, 2007 32 TexReg 7789). See also AR34 (indicating the understanding ofCMS that the 2008 rule changes would allow Appellee's reconciliations to address both overpayment and underpayment ofthe QAF). Under the 2003 Rules, 1 TAC 352.3(c) provided only that "a facility's liability for the [QAF] may be adjusted following this review to

30ensure that the [OAF] does not exceed six percent of annual revenue." Revenue was undisputedly defined as monthly cash received. During the Relevant Time, this was the definition of the OAF tax. As the tax was calculated on a monthly cash basis, there
was no underpayment. Appellee had no authority under any Rule to collect additional taxes as a putative OAF underpayments, much less to define or calculate the OAF tax differently than the 2003 Rule provided. Additionally, any failure to follow CMS rules or federal law is solely attributable to Appellee, and not the providers who indisputably complied with Appellee's rules in every respect. AR22. Appellee disclosed to CMS that it failed to perform a proper OAF reconciliation process during the period in question. AR35. This failure is the result of law which failed to provide for this but in no way was the result of any action taken by Appellants. Thus, it is patently unfairfor Appellee to attempt to use improper means now to correct its own error, which actions were patently obvious throughout the 3-year Relevant Time.

31Furthermore, the ALC Final Order erroneously states that the 2003 Rules "created an obligation on [Appellants] to pay a total of6% of its gross receipts." AR346. This interpretation flies in the face of the plain reading of the statute, which allows for an adjustment notto "exceed six percent." There is no requirement anywhere in the 2003 Rules mandating a flat 6% tax. It merely could not exceed 6% (unlike the 2008 amendments which stated the adjustments should "equal" the requisite percentage). Further, gross receipts were the basis for each and every payment properly made by Appellants under the 2003 Rule, defining it as monthly cash received, rather than the definition Appellee now uses, which is receipts on an accrual basis. AR25-26, 45. Appellee chose to define its tax as the monthly gross revenue actually paid to Appellants. Appellee sent Appellants a bill for this, and it is uncontroverted that each Appellant paid this amount properly. Appellee now contends that the amount it billed and collected under the definition of QAF tax in place under the 2003 Rules is less than

326% of gross revenue calculated on an accrual basis, a basis not in law until 2008. In fact, the statute mandates only that the tax not exceed 6%, and the QAF tax defined and used in 2003 complies with this requirement. Thus, Appellee could permissibly impose under the statute a percentage less than 6%, if it so decided. Clearly, Appellee's actions during the Relevant Time bore this understanding out-it did not tax all providers at 6%, but taxed them at different rates--resulting in non-uniform taxation. It is patently unfair for Appellee to have construed, interpreted and applied the law for over three years during the Relevant Time period one way, and then to re-interpret that law afterwards because itwas called out on its deliberate and knowing practice of non-uniform taxation by CMS. It is still patently unfair to Appellants for Appellee to re-interpret the law even when Appellee, a state actor, is at risk of losing enormous sums offederal entitlements for its chosen course of action. See Stanford v. Butler, 142 Tex. 692, 181 S.W.2d 269, 273 (1944) (explaining that an agency's construction of a statute it is

33charged with enforcing is "worthy of serious consideration as an aid to interpretation, particularly where such construction has been sanctioned by long acquiescence"). In light of this, the Final Order is unduly deferential to Appellee and made through error of law. As a matter of law, judgment is appropriate that Appellee is not allowed to collect additional taxes as underpayments for the Relevant Time because the OAF tax was collected in accordance with valid law in effect, and there exists no legal basis for the present requested recoupment. Appellee's current interpretation of the 2003 law is plainly erroneous and its actions have no reasonable bases in the record as set forth above. 

### 1. The Final Agency Order should be reversed under Texas Gov't Code Sec 2001.174, the Substantial Evidence Rule The ALC's decision should be reversed to the extent it violates the substantial evidence rule underthe Texas Gov't Code Section 2001.174 which states:

Review Under Substantial Evidence Rule or Undefined Scope of Review

34 Ifthe law authorizes review of a decision in a contested case underthe substantial evidence rule or ifthe law does not definethe scope ofjudicial review, a court may not substitute its judgment for the judgment ofthe state agency on the weight of the evidence on questions committed to agency discretion but: (1) may affirm the agency decision in whole or in part; and (2) shall reverse or remand the case for further proceedings if substantial rights ofthe appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are: (A) in violation ofa constitutional or statutory provision; (B) in excess ofthe agency's statutory authority; (C) made through unlawful procedure; (D) affected by other error of law; (E) not reasonably supported by substantial evidence considering the reliable and probative evidence in the record as a whole; or (F) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion. Further, the Appellee's reinterpretation of the 2003 Rules are unreasonable and plainly erroneous. Appellee wrongly asserts that the ALC applied the proper law with a proper interpretation, the 2003 Rules, in the Final Order. Several statements in the Final Order show that the ALC applied the wrong law--mixing up the language and proper interpretation of the 2003 and 2008 Rules. Appellee did the same after 2008, and these

35actions collectively prejudice substantial rights of Appellants and are capricious, arbitrary, in violation of constitutional and statutory provisions, in excess ofthe agency's statutory authority, clear error of law, and arbitrary, capricious and characterized by abuse of discretion and clearly unwarranted exercise of discretion. Under Texas Gov't Code Sec 2001.174, the Final Order should be reversed and judgment granted that Appellants owe no additional QAF taxes. Further, the Final Order is not reasonable and plainly erroneous. First, the Final Order states that "the rules in effect during the period in question created an obligation on [an Appellant] to pay a total of 6% of its gross receipts." AR345-6. However, the Final Order does not address the issue ofgross receipts calculated by cash basis (as was in effect in the Relevant Time) or the accrual basis which
came into effect with the new 2008 Rules. The ALC completely disregards the different definitions of gross receipts in the 2003 and 2008 Rules. AR25-26, 32. Thus, the Final Order conclusion is plainly erroneous and contrary to the existing law and constitutes abuse of discretion and clearly unwarranted exercise ofdiscretion.

36Furthermore, the 2008 amendments show the Final Order's
error. The 2003 Rules at 352.3(c) required reconciliation to ensure that the "[QAF] does not exceed six percent of annual revenue". (Emphasis added.) But, the 2008 Rules at Section 352.3 stated the QAF tax may be adjusted "to ensure that the [QAF] equals five and
one half percent of annual gross receipts from all facilities." 2 (Emphasis added.) Clearly, the plain statutory construction, especially in light of the change to "equal" in 2008, shows that the 2003 Rules did not mandate a 6% flat fee. Any contrary conclusion is plainly erroneous and made by error of law. Additionally, this change shows that in 2008, the statutory intent
was that the QAF annual reconciliation ensure QAF taxes "equal" 5.5% while the 2003 reconciliation was to ensure the QAF "does not exceed" 6%--not that QAF should be adjusted to equal 6% for all providers. As stated by Appellee, the courts should read the statute contextually to give effect to every word, clause, and sentence. Jaster v. Comet II Constr., Inc., 438 S.W.3d 556, 562 (Tex. 2014).

2The Rules changed the requisite percentage from 6% in the 2003 Rules to 5.5% in the 2008 Amendments, along with other changes. 37Thus, the plain conclusion is that the 2003 Rules did not mandate a 6% flat rate on all providers based on gross receipts. Clearly, it was permissible for the 6% QAF tax to be based upon cash receipts, as Appellee did. More confusion continues in the Final Order. The ALC Order stated that Appellee was entitled to collect underpayments "up to a total of six percent of said gross receipts

...." Granting "up to" six percent conflicts with the prior ALC statement that the statute "created an obligation on [a Appellant] to pay a total of6%

...." The Final Order contradicts itself internally, ordering an entitlement that conflicts with its prior statement of the law. The Final Order is plainly erroneous, capricious and arbitrary. But, Appellee's interpretation of the 2003 Rules during the Relevant time is correct in light of its statements, policies, practices and legal interpretation during the Relevant Time. Appellants do not dispute that the statutes allow Appellee to collect the QAF tax. Nor do Appellants dispute that each facility was to required to pay QAF taxes without any exception. Appellee did

38collect all the OAF taxes that it asked of Appellants during the Relevant Time, and they each paid the OAF tax as calculated and instructed by Appellee. But, the statutes granting Appellee the authority to collect OAF taxes does not give them the authority to reinterpret the 2003 law years later and attempt to collect additional OAF taxes based upon the re-interpreted law in violation of substantial rights of Appellants. Such action is arbitrary and capricious, made through error of law, unreasonable and plainly
erroneous. Additionally, Appellant's agree that the 2003 Rules allowed for
an adjustment of a provider's OAF amount during reconciliation. But, the adjustment was only allowed at the 6-month interval mandated by the Rule. The 6-month rule does not give Appellee the powerto then re-adjust the OAF at another time according to Appellee's whims. The plain reading ofthe statute provides for one adjustment---at each 6 month interval. It does not allow for multiple adjustments, possibly years after a 6-month reconciliation period passed, as in the present
case. Such actions are capricious and arbitrary. Under Appellee's current interpretation, it could again recalculate the OAF and demand

39more tax from Appellants. Clearly, Appellee's actions are an abuse of discretion and a clearly unwarranted exercise of discretion and unlawful. Appellants further agree that they were to pay the QAF according to the instruction of the commission. But, Appellants did that fully and completely. The evidence shows that Appellants followed all of Appellee's Rules when they paid their QAF taxes during the Relevant Time. AR22, 44. There is no evidence that any Appellant did anything otherwise. That Rule does not allow Appellee to change its instructions after Appellants have fully and completely complied with its instructions. Nor does this Rule give Appellee the power to change its instructions years after its prior instructions were fully complied with by Appellants. Such actions are capricious and arbitrary and an abuse of discretion and a clearly unwarranted exercise ofdiscretion and violate substantial rights ofAppellants to be free from unreasonable taxation, essentially civil ex post facto taxes. Appellee's interpretation of the 2003 Rules during the Relevant Time were correct and consistent with the plain meaning ofthe rules

40and statutes and should be applied to the present case. The Final Agency Orders should be reversed and judgment rendered that Appellants owe no additional QAF tax.



### B. AS A MATTER OF LAW, FEDERAL AND TEXAS LAW PROHIBITS RETROACTIVE APPLICATION OF QAF TAXES The Texas Constitution expressly prohibits Appellee from applying rules to Appellants retroactively. Tex. Const. Art. 1, Sec. 16. Appellee is clearly attempting to collect the taxes retroactively because it continues to cite the 2008 Rules to support its position for additional taxes in its briefings in the lower courts. In making its required Small Business and Micro-Business Impact Analysis of the 2008 Rules, Appellee determined that there would be no additional cost to providers who were required to comply with the proposed amendments. See 32 TexReg 7789, at 7790. Appellee also determined that the new 2008 Rules would not restrict
or limit an owner's right to his or her property that would otherwise exist in the absence of government action. Id. It does not appear from the plain language ofthe 2008 Rules or the analyses made that there was any intention that the new rules have a retroactive effect at

41

## expressly b·ect to 

### QAF tax is su l 

## stated thatthe time of adoption or to change the status quo retroactively. Thus, Appellee's contrary actions to these determinations through its current unlawful collections are improper and untenable, and are unduly deferential to Appellee and made through error of law. Appellee's informal review decision relies on the 2008 rule amendments as a justification for recouping the additional taxes as alleged QAF underpayments. AR21. However, under federal precedent and the Texas and United States Constitutions, Appellee is prohibited from retroactively applying rules where the legislature has not expressly conveyed that power to Appellee. See generally Bowen v. Georgetown Univ. Hospital, 488 U.S. 204 (1988); see a/so Landgraf v. US/ Film Prods., 511 U.S. 244, 280 (absent clear legislative intent, an agency may not give retroactive effect to statutes
or rules that impair rights a party possessed when he acted, increase
a party's liability for past conduct, or impose new duties with respect to transactions already completed); See also Tex. Const. Art. 1, § 16 (prohibits the enactment of retroactive laws).

42The Legislature has expressly stated that QAF tax is subject to
a "prospective adjustment as necessary." See TEX. HEALTH & SAFETY CooE § 252.202(b) (emphasis added). Conversely, there is no Texas statute that grants Appellee the power to make retroactive adjustments to the QAF, or to demand additional tax underpayments retroactively, as Appellee attempts now. Courts must rely on the plain meaning of statutory text. See State Office of Risk Management v. Berdan, 335 S.W.3d 421 (Tex. App. Corpus Christi 2011 ), reh'g overruled, (Mar. 9, 2011) and petition for review filed, (May 25, 2011 ). Every word excluded from
a statute must also be presumed to have been excluded for a purpose. See In re General Elec. Co., 271 S.W.3d 681 (Tex. 2008). Appellee is violating the plain language of this legislative mandate regarding the QAF tax. Further, all courts are bound by the
same legislative mandate, including the ALC. Appellants are not asking that this Court find that any particular rule or statute is invalid. However, the Court does have the authority to issue "any order in the interest of justice that is necessary to

43protect the person or party seeking relief from

... invasion of

... constitutional rights" under 1 T.A.C. § 357.483(c). Appellants are simply hereby requesting that the Court apply the validly promulgated rules in effect at the Relevant Time, as U.S. Supreme Court precedent, our state law, and the federal constitution requires. Under the 2003 law in effect during the Relevant Time, Appellants paid the QAF tax due, and Appellee has no authority to collect additional QAF taxes as underpayments or otherwise. Of significant note, CMS gave Appellee a choice about whether
or not it would seek additional QAF taxes for the Relevant Time, albeit with a hefty consequence if chose not to seek them. CMS did not "direct" nor demand nor mandate that Appellee collect additional taxes as underpayments from providers, contrary to the statement in the Final Order. AR39. In response, Appellee, a state actor, did not promise to recoup the underpayments--it only agreed to "seek recoupment." AR40. Appellee added the caveat that collections "may not total" the amount of underpayments identified by CMS. AR40. Also, the Final Order only required Appellee to "collect all

44underpayments of [Appellant's] QAF up to a total of 6% ofsaid gross receipts." AR347 (emphasis added). It is those underpayments that allegedly resulted in non-uniform taxation, and thus, Appellee admits that its collection efforts, that are the subject ofthis case, maynot even result in uniform taxation. And, the ALC does not even require Appellee to collect an amount that results in uniform taxation. It is illogical that Appellee, a state actor, should be allowed to seek recoupments so that it can comply with "uniform taxation" when it admits that its actions in recouping may not result in "uniform taxation." These actions are arbitrary and capricious. Further, the federal law cited by CMS in the Final Report regarding Appellee's QAF program specifically provides that the State, and not taxpayers (like Appellant providers), will be penalized for "hold harmless" violations in which taxpayers are held harmless for any portion of health-care related taxes. See 42 CFR Sec. 433.68 (setting forth federal requirements for state health care-related taxes). See also Social Security Act Section 1903(w)(1)(A)(ii) (providing that

45hold harmless arrangements trigger penalties against a State's Medicaid expenditures under the Federal Medicaid Statute). AR34 (explanation in the CMS Final Report of the federal regulations regarding hold harmless arrangements and penalties). Any liability for errors in the calculation ofAppellants' OAF taxes is solely attributable to Appellee, and not Appellants. As a matter of law, Appellee has no legal basis for demanding retroactive OAF payments from Appellants, and Appellants are entitled to judgment that they owe no additional OAF taxes and reversal of the Final Order. Appellee's actions have no reasonable basis in the record and its interpretation ofthe Law is plainly erroneous. 

### VI. PRAYER Appellants hereby seek a judgment that the Final Agency Orders
are reversed, that Appellants owe no additional OAF taxes for the Relevant Time, that Appellee be estopped from any further collection efforts, and such other and further relief to which Appellants may be entitled. 

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

4647 3. District Court Final Judgment (appeal 711) 4. 1 TAC§§ 352.1-352.9 (effective October 24, 2003) 5. 28 TexReg 9235 6. Texas Gov't Code Sec 2001.174 7. 1 TAC §§352.1-352.9 (effective Jan. 1, 2008) 8. 33 TexReg 667 9. 32 TexReg 7789-90 10. 1 T.A.C. § 357.483(c) 11. 42 CFR Sec. 433.68.
Respectfully submitted, SMITH 

### &ASSOCIATES 900 Ranch Road 620 South Suite C101-159 Austin, Texas 78734 Telephone (512) 261-9990 Facsimile (512) 261-9971 Joanalys@LawOfficesJBS.com Gay@LawOfficesJBS.com
By: Isl Joanalys 

### B. Smith Joanalys B. Smith Texas Bar Number 05719200 Gay L. Bonorden Texas Bar Number 0785708 Attorneys For AppellantsCERTIFICATE OF COMPLIANCE

I certify that the brief submitted complies with Texas Rules of Appellate Procedure 9 and the word count ofthis document is 7773. The word processing software used to prepare this filing and calculate the word count ofthe documentwas Google Docs. Dated: December 29, 2017 /s/ Joanalys B. Smith JOANAL YS B. SMITH

CERTIFICATE OF SERVICE I hereby certify that a true and correct copy ofthe foregoing document has been served by electronic service or facsimile on this the 29th day of December, 2017, to counsel for Appellee: Eugene A. Clayborn Deputy Chief Via e-service and/or email State Bar No. 00785767 Andrew Lutostanski State Bar No. 24072217 Assistant Attorneys General Office ofthe Attorney General ofTexas P.O. Box 12548, Capitol Station Austin, Texas 78711-2548 Eugene.clayborn@oag.texas.gov Andrew.lutostanski@oag.texas.gov

48 Isl Joanalys B. Smith Joanalys B. Smith

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APPEALS DMSION Health andfl•nnan Services 

### Coi,iml,sil'ln AUSTIN,TEXAS

SOtJTBERNCONCEPTS,INC., AppePent 

### vs. TEXAS DEPARTMENTOFAGINGAND DISABILITYSERVIOS, Resp

- !lent 

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

PRQPQSALfOR QICISIQN
INTRODUCTION Southern Concepts, Inc. (Appellant)bad an lnrennecliate Care Facility for the Mentally Retaldcd (ICF/MR) provider agn:ement with the Department of Aging and Disability Services (DADS) duringthe times relevant tothis appeal. Appellant appealed the results ofan Informal Review of the calculation ofAppellant's quality assurance fee (QAF) for the period ofSeptember I, 2004, throupDecember31,2007. JURISDICTION,NOTICEANDPROCEDURAL IDSTORY TheHHSCAppeals DivisionbeardIbiscase underthe authorityof40TexasAdministrative Code Sections90.3 and90.4. TheAdministrativeLaw Judge (AU)notifiedthe parties that Appellant'sMotiontoTransferthis casetothe StateOfficeofAdministrative Hearings (SOAR) wasdenied, andproceeded toconsiderthe parties' Motionsfor SummaryDisposition and motions in oppositionthereto. Theparties waivedoral argument.



### 0003432 

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APPLICABLELAW 40 Texas Adroioism.tivc Code Section 90.4 provides tbat the Health and Hwnan Services Commission Appeals Division has jurisdiction to c:ooc1uct beariop and issue Proposals for Decisions (PFDs) iocontested C11SC11 that ueoot ll'IIIISferrcd toSOAH underthe provisions of40 TcusAclroinistrativc Code Section90.3. 40 Tcxu .ldroioist:rativc Code Section 90.3 docs oot provide for the ll'IIIISfcr of ao appeal of DADS lofonnal Review ofaProvider's QAFtoSOAH. 1 TcusAdministrative Code Section 352.3 ioeffect

### durioa the time period from September 1, 2004, throughDcccmbcr 31, 2<X17, required lCF/MR providers topay a QAF equal to 6,.ofthe facility's total annual gross receipts ioTexas. 40 Texas Administrative Code Section 11.5 provides that the QAF is to be paid io acc:ordaocc withthe iostructioos oftheagency. 40 Texas Administrative Code Section 11.8 provides that an ICF/MR proviclcr may p:qucst ao InfonnalReview ofDADS' calculationofits QAF. 40 Tcus Administrative Code Scctioo 11.9 provides that ao ICF/MR provider may appeal the resultsofthe lofonoal Review ofthecalculation ofits QAFtotheHHSC Appeals Division. 1 Tcus 4droioish'.alivc Code Section 352.8 io effect during the year 2009 provided that a Medicaid poviclcrc:ould request ao Informal Review ofDADS' calculationofits QAF. 40 TAC Scctioo 91 provides that the IUISC Appeals Division conclucts contested CIISCII io IICCOldancc withDADS andHHSC Contested Case HcariopRules. 1 TAC Section 357.456 provides tbat ao AU may issue a Summary Disposition io favor of a pany ifthere is oo gcnuioc issue ofmaterial fact and thc party is entitled to disposition in its favor as a matteroflaw. STATEMENT OFTHECASE Appcllaot is acertified lCF/MRproviclcrbased ioGnmbury,Texas. Appellantoootlactedto provide services toqualifiediodividuals with IIIClllalietanlationorrelated conditions pursuaotto its Medicaid provideragreement. OoNovember 18, 2009, DADS notified Appellant that it dctennioedthatAppellanthad uoclapaid itsQAF, andthatit wouldcollectall uodcrpaymcnts of Appellant's QAFfor thc periodfrom September l,2004, throughDcccmbcr31,2<X17. Oo December4, 2009, Appellant requested ao lofonoal Review ofDADS' dctcnninationofthe amouotAppellant uoclcrpaid fortbat timeperiod based on DADS' calculationof6-.of Appellant's annual gross receipts. Oo September29, 2010, DADS ootifiedAppellantofthc results ofthe loformalReview and that itdeterminccl that Appellantowed DADS $8,485.28 1cpae mting thc amountofAppellant's QAFunderpayments for theperiod from September l,


### 0003443 

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2004, through December 31, 2007. Appellantfiled aformal appeal ofthe outcomeofthe InfonnalReview on October21, 2010.
SUMMARYOFTHE EVIDENCE It was Ulldisputed that the Health and Hwmn Services Commission administered the ICF/MR QAF program for a time frame that included the period from September 1, 2004, through December 31, 2007. Sometime after raponaibility for the admioisll:ation of the program WIS transfened to DADS, the agency wu notified by the Centers for Medicare and Medicaid Services(CMS) thatHHSCbadunder-collected the federally mendetcd li'I> QAFfromAppellant and other ICF/MR providas during the period from September l, 2004, through Dcceniber 31, 2'YJ1. CMS mandetcd t1wDADScollectall funds dialit determined were Ullderpaid. During the time period of September l, 2007, through December 31. 2007, HHSC required Appellllll and other ICF/MR providas to pay QAFs based OD projected gross receipts. When IICIUll revenues fell below projections. HHSC i:efunded die overpayments, but when adUal revenues exceeded projections, HHSC did not mplireproviders to make up die underpayments. In 2009, CMS notified DADS that DADS was required to collect all periodic QAF underpayments thatbad nott.itcollected from ICF/MR providers, including Appellant, for the period in question, DADS attached die affidavit ofCathy Belliveau, a QAF Manager employed by DADS, to its Motion for Summary Disposition. Ms. Belliveau's aff"Jclavit stiled that during the period of Seprember l, 2004, through T)ecember 31, 2007, Appellant's annual gross receipts were $6,421,026.81 and that this calculation was based on official billing records maintained by DADS. In response to DADS' summary disposition evidence. Appellant filed acopy ofthe November 18, 2009, DADS notice of intent to collect Appellant's QAF underpayments; a copy of an August 1, 2008, letterto Appellant from Tommy FOR!. DADS Director ofInstilUlional Senices Section, Provider Services. inwhich Mr. Fold desaibed theQAFrules in place priortoJanuary l, 2008. IS notrequiring charges for QAF underpayments by ICF/MR providers; and acopy of an August 31, 2009. report issued by CMS which included conclusions that data it previously obtained from DADS rqardina QAF payment reconciliations contained confusing and conflicting infonnation. Finally. Appellant submitted an aff"Jclavit from one ofits representatives whoswore dialAppellantpaidits QAFin theformof6'1> ofall projected revenues ANALYSIS HHSC did not follow its own Nies when it failed to collect Appellant's QAF underpayments during the time period of September I. 2004. through December 31, 2007. DADS miscbaracleriz. the QAF Nies in effect during dialtime period in its August l, 2008, letter to Appellant in which ;I indicated lhal the prior HHSC Nies did not require HHSC to collect underpayments ofthe fee when the provider made QAF payments based on projected revenues


### 0003454 

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• • •

thatwere lowerthanthe8C1Ual gross receipts forthe period inquestion. Nevertheless, the rules in effectduringthe period inquestioncreated an obligation onAppellantto pay a total of6., ofits poss receipts. This obligation was not obviated by HHSC's inability to devise a sc:bcme to collect said .eceipts ur DADS' erroneous portrayal ofthe rule thll created the obligation in Mr. Ford'sAugust I, 2008, lettertoAppellant. Cathy Belliveau's affidavit which described Appellant's gross receipts for the period of September l, 2004, through December 31, 20Cf1,
- notcontroverted bythe CMSreport which desc:ribed inaccuracies in DADS' records during an WISpecified time period prior to DADS' reconciliation ofAppellant's gross revenuesdescribed intheNovember 18,2009, notke ofQAF charps due, or by the affidavit of Appellant's repiaentative which included a statement tbat Appellantpaid allofits QAFfees based onprojectedrevenues. Bec111se Cathy Belliveau's w.conbo.-erted affidavit established thll Appellant's total gross receipts for the period of September l, 2004, through December 31, '2007, were $6,421,026.81, and th8l 6., oftbat amount is $385,261.60, the AU has deu:rmined tbat there are no genuine issues of material fact in controversy, and l*uflClles thll DADS' Motion for Summuy Disposition should be sustained, and that its authority to collect underpayments of Appellant's QAFfees basedonthllcalculationshould be sustained. PROPOSEDFINDINGS OFFACI' l. This case is adj11dicared •'Dllerthe provisions of40Texas AdminialrativeCodeSection 11.9, 90.3, and90.4. 2. Appellantism lCF/MR providerbased inGranbury,Texas. 3. OnNovember 18, 2009, DADS notified Appellant tb8I it owed underpayments for Quality Assurance Fees (QAF)fortheperiod fromSeptember I,2004,througliDecember31,20Cf1. 4. Betwem September l, 2004, and December 31, 'JJX17, Appellant bad gross receipts of $6,421,026.81. S. Appellant's total QAF for the period in questions is $385,261.60 which is 6., of $6,421,026.81. PROPOSED CONCLUSIONS OFLAW
l. 40TexasAdministrativeCodeSection 11.9provides th8l an ICF/MRprovidermay appeal aninformal reviewofDADScalculationofits QAFtothe HIISCAppeals Division. 2. 40TexasAdministrativeCodeSection90.4 provides 1h11the HHSCAppeals Divisionis


### 0003465 

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to c:ooducthearings andissuePFDs inDADS CXJOtestedcases thatare nottranSferredto SOAHin accordance with40Texas Adminislrative CodeSection90.3. 3. 40Texas Administrative Code Section 90.3 does notprovidefor thetransferofformal appeals ofInformal Reviews ofQAFassessmems to SOAH. 4. 1Texas Administrative Code Section352.3 in effectfrom September 1, 2004, through December 31,2007, required ICF/MRproviders topaya QAFequalto 6'11 of reimbursements for residents, uptoa total of6'11 ofannual grossrevenues ofthefacility. 5. 40Texas 4dmiois~veCode Section 11.5 provides thatQAFassessments are tobepaid byprovidas acc:ordingto instructions fromDADS. 6. Appellant'sMedicaidProvideragree111e111 in effect

### durio&therelevanttimeperiods provided thatAppellantwas tocomply with all stare laws and regulations.
7. 1TAC Section 357.456provides that an AUmay issue a Summary Disposition in favor of a party if there is no genuine issue of malcria1 fact and the party is entitled to disposition inits favor as a matteroflaw. 8. HHSC's failure to collect the full QAF that was payable under its Nies did not excuse Appellantfrom its obligation to paythe full amouotdue itowed pursuanttothose rules• 9. Because thereareno genuine issuesofmalcria1 fact regardingAppellant's total gross receipts during from September 1, 2004,through December31,2007,DADS is entitled tocollectall underpaymentsofAppellant's QAFuptoa total of6..,ofsaidgross receipts.

Eoterec1 this

## I'* day of

## ~tYtl))otf
. 2012.



### 000347I KeltliGraatham Admioislnltive Law JudgeCAUSENO. D·l-GN-16-003653 Filed inThe District Court ofTravis County,Texas 

### SEP 292017 

### NNR At 

# II 

# os"'--- "'·

Velva L Price, District Clerk CALAB, INC.; MOSAIC, INC.; MOSAIC § BETHPHAGE; MOSAIC MARTIN § LUTHERHOMES, INC.; THE CENTER § IN TIIE DISTRICT COURT OF
SERVING PERSONS WITH MENTAL § RETARDATION; UNIFIED CARE § GROUP; § Plaintiffi, § § V. TRAVIS COUNTY, TEXAS TEXAS DEPARTMENTOF AGING AND DISABILITY SERVICES, Defendants. § § § § § 261 stJUDICIAL DISTRICT AGREED FINAL JUDGMENT 

### GRANTING BILL OF REVIEW 

### AND

### AFFIRMINGAGENCYORDERS On September 25, 2017, this agreed finaljudgmentcame to be heard andconsidered. The Court finds this proposedfinaljudgmenthas merit andtherefore orders as follows: 1. Bill ofreview. The Plaintiffsbill ofreview is granted. 2. Suits forjudicialreview. These suitsforjudicialreview presentthe sameissue as inInnovative Outcomes, Inc. etal, v. Texas Departmentof AgingandDisabilityServices, No. Dl-GN-13-000999 (353 Dist. Ct., Travis County, Tex.) where the Courtaffirmedthe agencyorders. Thefollowing agency orders are hereby affirmed:
a. Calab, Inc., HHSC Appeals Cause No. 10-0617-K; b. Mosaic, Inc., HHSC Appeals Cause No. 10-0764-K;
c. MosaicBethphage, HHSC Appeals Cause No. 10-0763-K; d. Mosaic MartinLuther Homes, Inc., HHSC Appeals CauseNo. 10-0762-K;
e. The Center Serving Persons with Mental Retardation, HHSC Appeals CauseNo. 10-0722-K; and f. Unified Care Group, HHSC Appeals CauseNo. 10-0578-K.
Page 1of23. Costs. Each party shall bear its own costs. 4. Appeal. Plaintiffshave the right to appeal this finaljudgment. 5. Finaljudgment. All reliefnot expressly granted herein is denied. Thisjudgment disposes ofall claims and all parties and is final. IT IS SO ORDERED this 

### "2-ct day of

# st~ , 2017.

AGREED: 

# mZ1.1s~
SMITH & ASSOCIATES 900 Ranch Road 620 South, SuiteCJ0J-159 Austin, Texas 78734 Tel: 512-261-9990 Fax: 512-261-9971 joanalys@lawofficesJBS.com Attorney for Plaintiff

IslAndrew Lutostanski Andrew Lutostanski Assistant Attorney General SBN24072217 Office oftheAttorney General ofTexas AdministrativeLawDivision P.O. Box 12548 Austin, Texas 78711-2548 Phone:(512)475-4200 Fax: (512) 320-0167 andrew.lutostanski@oag.texas.gov ForDefendantDADS 

# ~0.~ PRESIDINGJUDGE

Page 2 of2CAUSE NO. D-1-GN-13-000999 INNOVATIVE OUTCOMES, INC. et al, § Plaintiffs, § § 

### v. § § TEXAS DEPARTMENT OF AGING § AND DISABILITY SERVICES § Defendant. § IN THE DISTRICT COURT
TRAVIS COUNTY, TEXAS

353 rd JUDICIAL DISTRICT MODIFIED ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARYJUDGMENT AND AFFRIMING AGENCY FINAL ORDERS TO THE HONORABLE JUDGE OF SAID COURT: On this the 7th day of July, 2017 came on for consideration Defendant's Motion for Summary Judgment. The Court, HAYING REVIEWED THE Defendant's "Motion to Modify, Correct, or Reform Judgment" now finds that the previous orders signed on July 11, 2017 should be and are hereby ordered to be VACATED andthe findings and orders issuedon July 11, 2017 arehereby modified and superseded as follows. After considering the same and attached appendices, and after hearing the arguments ofcounsel andtakingjudicial notice ofthe file, the Court, having first taken the matterunder advisement, is now ofthe opinion thatthe Motion shouldbe granted. IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that Defendant' Motion for Summary Judgment is hereby GRANTED. IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the FinalAgency Orders issued in Innovative Outcomes, Inc. (HHSC Appeals; Cause No. 10-0710-K), Southern Concepts, Inc. (HHSC Appeals; 10-0775-K), Volunteers of America Texas, Inc. (HHSC Appeals; 10-0689-K), SOMA Resources, Inc. (HHSC Appeals; Cause No. 10-0628-K), Knob Oak, Inc. (HHSC Appeals; Cause No. 10-0716-K), Home at Silver Quail, Inc. (HHSC Appeals; Cause No. 10-0717-K), Community Access, Inc. (HHSC Appeals; 10-0582-K), Reaching Maximum Independence, Inc. (HHSC Appeals; Cause No. 10-0579-K), Creative Community Care, Inc. (HHSC Appeals; 10-0629-K), and Premieant, Inc. (HHSC Appeals; Cause No. 10-0719-K), (collectively referred to as "Plaintiffs") are, in all things AFFIRMED. IT IS FURTHER ORDERED that any other relief not granted in this final order is DENIED. This order is final and appealable. SIGNED this 21 st day ofJuly, 2017

PRESIDING JUDGE

2

### <<Prev Rule Next Rule>> 

# TexasAdministrative Code '-- TITLE 1 PART 15 CHAPTER352 RULE §352.1 Historical ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION QUALITY ASSURANCE FEEFORLONG-TERM CARE FACILITIES Purpose andDuration ofChapter Texas Register (a) This chapter implements the determination, assessment, collection, and enforcement ofthe quality assurance fee authorized under chapter252, Health and Safety Code, subchapterH. (b) The purpose ofthe quality assurance fee establishedunderthis chapter is to "--improve the quality ofcare providedto persons with mental retardation as follows: (1) 

### The quality assurance fee is intendedto support and/ormaintain an increase inreimbursement to licensed intermediate care facilities for the mentally retarded and facilities operated according to the requirements ofchapter252, Health and Safety Code and owned and/or operatedby a community mental health andmental retardation centeras described in chapter 534, subchapterA, Health and Safety Code, and a facility ownedbythe Texas Department ofMental Health and Mental Retardation that participate in Medicaidprogram, subjectto legislative appropriation for this purpose; and

(2) The Commission orits designee may also offset allowable expenses to administerthe quality assurance fee program againstrevenues generatedbythe collection ofthe quality assurance fee. (c) This chapterwill expire on September 1, 2005, unless chapter252, subchapter H, Health and Safety Code, is extendedbythe 79th Texas Legislature. 

## '---------------4-"Awe-'--"--\a,,'--'---'--'(1 O~t.L.L...X

# -+Li Source Note: 

### The provisions ofthis §352.1 adopted to be effectiveNovember 18, 2001, 26 TexReg 9085; amendedto be effective October 29, 2003, 28 TexReg

### 9235
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# TexasAdministrative Code '- TITLE 1 PART 15 CHAPTER352 RULE §352.2 Historical ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION QUALITY ASSURANCE FEEFORLONG-TERM CARE FACILITIES Definitions Texas Register

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

(1) "Facility" means:

....._ (A) Anintermediate care facility for the mentallyretarded orthe corporate parent ofan intermediate care facility for the mentallyretarded licensedunder chapter 252, Health and Safety Code; or (B) A facility operated according to the requirements ofchapter252, Health and Safety Code, and owned and/or operatedby a communitymental health and mental retardation center as described in chapter 534, subchapterA, Health and Safety Code ; or (C) A facility ownedbythe Texas Department ofMental Health and Mental Retardation.

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

(3) "Total patient days" means the sum, computed on a monthlybasis, ofthe '---following:



# . .**~**(A) 

### The total number orpatients occupying a tacillty bed unmediately betore midnight on each day ofthe month; and
'- (B) The total number ofbeds that are on hold on each day ofthe month and that have beenplaced on hold for a period not to exceed three consecutive calendar days during which a patient is on therapeutic leave during the month. (C) The total number ofdays apatient is discharged from a facility are not counted in the calculation ofthe total patient days under this chapter.
Source Note: 

### Theprovisions ofthis §352.2 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg 9235
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TITLE 1 PART 15 CHAPTER352 NextRule>> 

# TexasAdministrative Code ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION

RUL~~ QUALITY ASSURANCE FEE FORLONG-TERM CARE FACILITIES QualityAssurance Fee Determination Methodology Texas Register Historical
(a) Quality assurance fee on State facilities. As provided in section l(b) ofthe Act ofJune 20, 2003, 78th Leg. R.S., (Senate Bill 1862), not laterthan August 31, 2003, the Texas Department ofMental Health and Mental Retardation shallpay for each facility ownedbythe department the quality assurance fee for patient days occurring between September 1, 2002, and July 31, 2003. '-'@'buality assurance fee.,Beginning September 1, 2003, the quality assurance fee for a facility is inthe amount ofsixpercent ofeachreirobm:sel!!_cnt orpayment rate receiv.e.d, including those received from the resident, for eachresident 1n the !_ac1frty during a calendarmonth, providedthe amount ofall such quality assurance

fees assesseofbrthe facility during the 12-monthperiod following assessment of the quali~ ass~ance fee_not excee4)sixpercent ofthe facility's total annual gross receipts 1n Texas. (c) NotlaterthanJuly 31, 2002, and every six months thereafter, the commission or its designee will review each individual facility's quality assurance fee calculation. A facility's liabilig_for the quality assurance fee maybe adjusted following this review to ensure thatthe quality assurance fee does not exceed six percent ofannualrevenue. 

# vturcic(:jJ1£(:f'dft)r

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# 7

Source Note: 

### The provisions ofthis §352.3 adopted to be effective November 18, '- 2001, 26 TexReg 9085; amendedto be effective October 29, 2003, 28 TexReg 9235

## '---<<Prev Rule Next Rule>> 

# TexasAdministrative Code
TITLE 1 PART 15 CHAPTER352 RULE §352.4 Historical ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION QUALITY ASSURANCE FEE FORLONG-TERM CARE FACILITIES Requiredreports Texas Register (a) The following reports mustbe filed by a facility in accordance withthe instructions ofthe Commission orits designee:

(1) The monthlypatient day reportrequired under subsection (c) ofthis section; and '--- (2) The semi-annual report ofgross receipts requiredunder subsection (d) ofthis section. (b) Amendedreports.

(1) A facility may amend a reportrequired under subsections (c) or (d) ofthis section;

(2) An amended monthlypatient dayreport mustbe filed no laterthan 10 calendar days following the filing ofthe report required under subsection (c) of this section.

(3) An amendedreport ofgross receipts mustbe filed no laterthan 10 calendar days following the filing ofthe reportrequired under subsection (d) ofthis section. (c) Monthlypatient dayreport. '--- (1) A facility mustreport, not later than the 20th calendar day afterthe last day of a month, the total number ofpatient days for the facility during the preceding month.

---- --Cl) A 

### tac1llty must tlle the reportrequired by this subsection on torms or 1n the format and according to the instructions prescribedbythe commission orits designee.
'--(d) Reporting ofgross receipts. (1) A facility must report, not laterthan the 10th calendar day following the last day ofthe sixth month following the effective date ofthis chapter, the total gross receipts the facility received during the preceding 6-monthperiod.

(2) A facility must file the report requiredbythis subsection on forms or in the format and according to the instructions prescribedbythe commission or its designee.
Source Note: 

### The provisions ofthis §352.4 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg 9235
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### <<PrevRule NextRule>> 

# TexasAdministrative Code
TITLE 1 PART 15 CHAPTER352 RULE §352.5 Historical

A facility must: ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION QUALITY ASSURANCE FEEFORLONG-TERM CARE FACILITIES Payment and Collection ofQualityAssurance Fee Texas Register

(1) 

### Pay the amount ofthe quality assurance fee in accordance with the instructions ofthe commission orits designee not laterthanthe 30th day after the \.....,last day ofthe month for which the fee is assessed ; or (2) Paythe amount ofthe quality assurance fee in accordance withthe instructions ofthe commission or its designee and request an informal review of the calculation ofthe quality assurance fee in accordance with §352.8 ofthis chapter.

(3) Not laterthan August 31, 2003, the Texas Department ofMental Health and Mental Retardation shall pay for each facility ownedbythe departmentthe quality assurance fee imposedunder §352.3(a) ofthis title for patient days occurring between September 1, 2002, andJuly 31, 2003.

(4) The commission orits designee mayreview the calculation ofthe quality assurance fee to ensure its accuracy and instructthe facility to correct its calculation and payment.
\....., Source Note: 

### The provisions ofthis §352.5 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg 9235

## '-- <<PrevRule NextRule>> 

# TexasAdministrative Code
TITLE 1 PART 15 CHAPTER352 RULE §352.6 ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION QUALITY ASSURANCE FEE FORLONG-TERM CARE FACILITIES Enforcement Texas Register (a) The commission orits designee may audit a facility's records orthe record of any corporate parent or affiliate ofa facility for the purpose ofdetermining the total patient days orgross receipts ofthe facility. (b) The commissionmaynot grant any exceptions from the quality assurance fee '-- orthe provision ofany data necessary for the Commission orits designee to calculate the fee.
Source Note: 

### The provisions ofthis §352.6 adopted to be effective November 18, 2001, 26 TexReg 9085
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# TexasAdministrative Code
TITLE 1 PART 15 CHAPTER352 RULE §352.7 ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION QUALITY ASSURANCE FEE FORLONG-TERM CARE FACILITIES Penalty Texas Register (a) The commission or its designee will assess a financial penalty against a facility that:

(1) Fails to timely file the monthly facility report required under §352.4 ofthis chapter; '-' (2) Files a false, erroneous, or fraudulent monthly facility report that the commission or its designee concludes resulted in the assessment ofa quality assurance fee that is less than the facility shouldhave been assessed; or

(3) Fails to timely pay a quality assurance fee assessedunder §352.5 ofthis chapter.

(4) A penalty assessed under this section is in an amount equal to one-halfthe amount ofthe outstanding quality assurance fee or fees, not to exceed $20,000. (b) The commission or its designee will notify a facility in writing ofthe assessment ofapenaltyunder this section and the amount ofthe penalty. (c) The commission orits designee may make a referral to an appropriate authority in cases where the commission or its designee makes a good faith determination that a facility has: \,..., (1) 

### Committed fraud in the submission ofinformation to the commissionorits designee;CL) 

### Wllltully submitted erroneous intormatlon to the commission orits ctesignee; or \_. (3) Violated a requirement ofits license orMedicaid certification. (d) The commission or its designee mayreport a facility that fails to paythe quality assurance fee to the Comptroller ofPublic Accounts or other appropriate authority for purposes ofimplementing a suspension ofpayments to the provider. (e) The assessment ofa penaltyunder this section does not relieve a facility from:

(1) 

### Providing services to patients in accordance with its obligations under contract orthe law;

(2) 

### Paying additional quality assurance fees that maybe assessed to the facility; or

(3) Otherwise complying with licensure and certification requirements.

"--- Source Note: 

### The provisions ofthis §352.7 adopted to be effective November 18, 200l, 26 TexReg 9085
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# TexasAdministrative Code
TITLE 1 PART 15 CHAPTER352 RULE §352.8 ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION QUALITY ASSURANCE FEE FORLONG-TERM CARE FACILITIES Informal review Texas Register (a) A facility thatbelieves the commission or its designee incorrectly calculated the amount ofa quality assurance fee as defined in this chaptermay request an informal review from the commission orits designee in accordance with this section.
"-- (b) The purpose ofan informalreview is to provide for the informal and efficient resolution ofthe matters in dispute. An informal review is not a formal administrative hearing, butis a prerequisite to obtaining a formal administrative hearing and is conducted according to the following procedures:

(1) The facility mustrequest an informalreview inwriting to the commission or its designee, delivered byUnited States mail or special mail delivery within 20 calendar days ofthe date onthe written notification ofany ofthe actions described in subsection (a) ofthis section.

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

(A) A concise statement ofthe specific actions or determinations the facility disputes; (B) The facility's recommendedresolution; and (C) Any supporting documentation the facility deems relevant to the dispute. It 

### '-'is the responsibility offacility to submit all pertinent information at the time ofits request for an informal review.

### lc) Un receipt ot a request torintormalreview, the commission orits ctesignee assigns the review to appropriate staff. '-- (1) The lead staffmember coordinates a review by appropriate staffofthe information submittedbythe interestedparty.

(2) Staffmayrequest additional information from the facility, which the facility must submit in writing to the lead staffmember within 14 calendardays ofthe request for additional information. Information received after 14 days may notbe used in the panel's written decision unless the interestedparty receives approval of the lead staffmemberto submitthe information after 14 days
.

.(d) Within 30 days ofthe date the request for informalreview is receivedbythe commission or its designee orthe date additional requested information is received bythe commission or its designee, the lead staffmembermust sendthe interested party its written decision bycertified mail, returnreceiptrequested.
Source Note: 

### The provisions ofthis §352.8 adopted to be effective November 18, 2001, 26 TexReg 9085
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# TexasAdministrative Code
TITLE 1 PART 15 CHAPTER352 RULE §352.9 ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION QUALITY ASSURANCE FEE FORLONG-TERM CARE FACILITIES Formal Appeal ofPenalty Texas Register

A facility that wishes to appeal the assessment ofa penaltyunder §352.8 ofthis chapter may request a formal appeal from the Texas Department ofHuman Services in accordance with 40 T.A.C. §90.236.



# ------------------------------ Source Note: 

### The provisions ofthis §352.9 adopted to be effective November 18, 2001, 26 TexReg 9085
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# - ' TI·,. \S Rf CISTFR Tf \: \S \fl'\II\ISTR,\Tl\'E COPE <)Pl'-, '\II ETI\<;s

### Texas Register, Volume 28, Number43, Pages 9133-9326, October 24, 2003 Page: 9,235

TITLE I, ADMINISTRATION PART 15. TEXAS HEALTH AND HUMAN SERVICES COMMISSION CHAPrER 352. QUALITY ASSURANCE FEE FOR LONG-TERM CARE FACILITIES I TAC HJ52.l • 351.5 Th• Htallh and Human ServiCea Commlalon (HHSC) ad0pts lhe amendmen1' 10 9352.1, concerning tht purpoeo and dlJ. ratlOn ol ctiapt.- 352. §352.2, concerning def~ltlons. §352.3, collOIWl'ling QUlllly auuranco tee, §352,4, concerning**~** raport&. and §352.5, conoeming payment and c:ollecliOn of the qualllyaauranca IN, without changes to tha proposed 1IIXt u publllhed in thfl AuQoat 211, 2003, lsaue of Iha ».as RftOicte, (28 TexReg 7060). The text ofthesearnendmllntswill not be ntpublllhed. In adelldon, thee•amendmentl were adopted on an ornsgencybul1 in theAugust29, 2003, luueallhe TOUIIR8glcMr'(28 TexReg 7050). The emergency adoption i1 Ming withdrawn eleewta'e in ttUI luue of !he Texas ~- ii ii eu· perMdedbiJ the adoptiol'I of lhMftproposed arMndments. The withdnMal ol the ·~ amenmienta will be effective Qc.-**~** 29. 2003. The .adope;,cl ame11dme11ts**~** a et.wtorily**~** change that mai.s the quality asslA'al1C8 laa 8'll)licatll& to lacilllles owned by the T.,... 0epertrnant of t.4ental HNllh and Mental Retardation (MHMR) beginning with the state fl&cal year ending on Augutt 31, 2003, The arnondmenlSareadopledto~wllhSB 1862, 78thLegislature, RegularSeaion, which~- payment by MHMR of 1eelfDf !holefacillltel t\tthatdate;expendsthe poaibleUEIof the tundl; diangesthe dllfinition ot patientdays; and. c:hangn 1hetime lorfaclllties to Ille required reportsfrom the 1oth IO the 20th day after the last day of a month. The ,amendments also lnaHN the qualityasnnncetee from 5.5to 6 peroBmbeOJn. ning S.,:-mber 1, 2003, in aceordancewith projected reverus and l9lal9d ,._. matching funds spedlledIn !he Ganeral Appropriation• Act for the 2004-2005 biennium. During the pimlic oonment periOcl, whictJ included public hearinglon August29,2003ands.ember25,2003, nooommentc were re(l9Mlld regan;tng theprtlOClS&I. The amandmlntS ani Dpted under !he Texa& Government Code, §531.033, which authorizw the Com~ of HHSC lo adOpt MN neoauaryto CllrT)' outthe oorrmlaion's dutieSI: and unct.r §252.205 Health &l'ld Safety Code. This IQ8f1C)'heret1fcertifiesthattheadoptionhubeenreviewed by legal COOONI and found to be avalid**~**olthe agency's legal auttlority. F•edwllhtheOfficeofthe5eaetaryo15taleon0clober9, 2003. 

### "'"'"'"'''''' 

# --· 

# -=- T9ul HNIIII #Id Humart**~** Oommi11ion at«:t1wc:1ut:°'*"* n, 2003 Pfopc:,u,I pu~dll9: Aug,.- 211, 2003 forlwtMr"lnt;lrlrrdon.
-- cal; (512)42+6578 

### • 

## • 

## • TITLE4. AGRICULTURE PART I. TEXAS DEPARTMENT OF AGRICULTURE CHAPTER JO. SEED CERTIFICATION STANDARDS SUBCHAPTER A. GENERAL RF.QUIREMENTS 4TAC 116.3 The Tuai &ate Seed and Plant Board {the Baan:I) adopta an**~** to §10.3, COl1C»mlnQ appnMJ of an**~** 1or seed certificaliOn, without chl!lngee to the proposal published In June 27, 2003. IUueotlhe "TelrM~(28TexReg-t760). The amencment ii adopted IO incn,aae tees tor lioensing U a Reglmrtd Plant Bl'Mdlr. The.._ lncreued by thi& adoptlOn haveno1: been increuedbrthe Board since 1987. Theincrease In fNswill alloW the&o,tdand theTa,,:aa ~olAgriall- ture (the de$)BrbT"lent) to recover costs l!IHOciated with enforc- ing the atandatdl adopled**~** the Baan:I, u direoled b)'the 78th Legislature, Aegular SessiOn, 2003. The amenctnent to §10.3 irlCRNIMa from $100to $120 the licenee ile lor licenaing u a Registered Plant Breeder. Comments were recalv9d r8Q(trdng the propoaed tee increue and other iJ"ICl'eMN madeto Ned cartlftcdon IHI from Texu Farm Bureau (TFB) and the T

.. 5eed Tia Auodatlon (TSTA), Th9 TFB, through II• Praldent. Kenneth Oierachke, commenlfld that It**~** and appreciates the dapartment'a functlong and Hl"'ril»B, butthat It teela the lnoreaNd f9ee are not IIR)r0Pf1ate and do not rwft9ct the lnstructiona of the -e leadership not to IBMtu:ee. The TFB further staled itB belle! that feel c:aladed**~** the department ltloold be uaed ID IUld the NNiale pn:widlld lo the sei,ner,t of the population paying the fees and not to fund NMCH kl the general public, Md that IIQOr1CY Nrviooa ll'l0lMI be fl.ncllld by**~** revenue. The TSTA. through ita E,oeoutn,e Director, Charles Lea.mona. al&O voc:ed similar conceme regarding ttio toe lnaeaeea, Texas. Secretary of State. Texas Regist~ll8, 

### iil11~-,fiit.:1*3, ~9183-9326, October 24, 2003, periodical, October 24, 2003; Austin, Texas. (texashistory.unt.edu/ark:/67531/metapthl01071/m1/101/? utm_source=email&utm_medium=client&utm_content=ark_sidebar&utm_campaign=ark_permanent: accessed June 28, 2017), University of North Texas Libraries, The Portal to Texas History, texashistory.unt.edu; crediting UNT Libraries Government Documents Department.12/29/2017 GOVERNMENT CODE CHAPTER 2001. ADMINISTRATIVE PROCEDURE

Sec. 2001.174. REVIEW UNDER SUBSTANTIAL EVIDENCE RULE OR UNDEFINED SCOPE OF REVIEW. If the law authorizes review of a decision in a contested case under the substantial evidence rule or if the law does not define the scope of judicial review, a court may not substitute its judgment for the judgment of the state agency on the weight of the evidence on questions committed to agency discretion but: (1) may affirm the agency decision in whole or in part; and (2) shall reverse or remand the case for further proceedings if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are: (A) in violation of a constitutional or statutory provision; (B) in excess of the agency's statutory authority; (C) made through unlawful procedure; (D) affected by other error of law; (E) not reasonably supported by substantial evidence considering the reliable and probative evidence in the record as a whole; or (F) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion. Added by Acts 1993, 73rd Leg., ch. 268, Sec. 1, eff. Sept. 1, 1993.

http://www.statutes.legis.state.tx.us/Docs/GV/htm/GV.2001.htm 1/1

### <<Prev Rule

TITLE 1 

### PART 15 CHAPTER352 RULE §352.1 Repealed Date: Historical NextRule>> 

# TexasAdministrative Code ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION QUALITY ASSURANCE FEE Purpose ofChapter 03/01/2010 

### Texas Register (a) This chapter implements the determination, assessment, collection, and enforcement ofthe quality assurance fee authorized under chapter 252, Health and Safety Code, subchapterH. (b) Thepurpose ofthe quality assurance fee establishedunderthis chapter is to I\,,,...,

### improve the quality ofcare providedto persons with mental retardation as follows: (1) The quality assurance fee is intended to support and/or maintain an increase in reimbursement to facilities that participate in the Medicaidprogram, subjectto legislative appropriation for this purpose; and

(2) The Department ofAging and Disability Services (DADS) may also offset allowable expenses to administerthe quality assurance fee program against revenues generatedbythe collection ofthe quality assurance fee.
Source Note: 

### The provisions ofthis §352.1 adopted to be effective November 18, 2001, 26 TexReg 9085; amendedto be effective October 29, 2003, 28 TexReg 9235; amended to be effective February 3, 2008, 33 TexReg 667
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# A~'P~Y1 O I

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### <<Prev Rule NextRule>>

TITLE 1 PART 15 CHAPTER 352 RULE §352.2 Repealed Date: Historical 

# TexasAdministrative Code
ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION QUALITY ASSURANCE FEE Definitions 

### 03/01/2010 Texas Register

As used inthis chapter, the following terms shall have the meaningsprescribed below, unless the context clearly indicates otherwise:

(1) "DADS" means: The Department ofAging andDisability Services. 

# "- (2) "Facility" means: (A) An intermediate care facility for the mentallyretarded orthe corporate parent ofan intermediate care facility for the mentally retarded licensedunder chapter 252, Health and Safety Code; or (B) A facility operated according to the requirements ofchapter 252, Health and Safety Code, and owned and/or operatedby a community mental health and mentalretardation center as described in chapter 534, subchapterA, Health and Safety Code; or (C) A facility ownedby DADS. (3) "Gross receipts" means moneypaidto a facility as compensation for services providedto residents, including residentparticipation, but does notinclude charitable contributions to a facility. Gross receipts are defined as accrued payments andnot as cashreceived. · ------ \......' 

### (4) "Total patient days" means the sum, computed on a monthlybasis, ofthe following:{A) 

### The total number otresidents occupying a tacillty bed nmnediately betore midnight on each day ofthe month; and '-- (B) The total number ofbeds that are on hold on each day ofthe month and that have beenplaced onhold for a period not to exceedthree consecutive calendar days during which a resident is ontherapeutic leave during the month. (C) The total number ofdays a resident is discharged from a facility are not countedin the calculation ofthe total patient days under this chapter.
Source Note: 

### Theprovisions ofthis §352.2 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg 9235; amended to be effective February 3, 2008, 33 TexReg 667
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# '-i1111 TI\. \S RLGISTEP UPI\, '\JI [Tl\!,S\....,

### <<Prev Rule NextRule>> 

# TexasAdministrative Code
TITLE 1 PART 15 CHAPTER352 RULE §352.3 Repealed Date: Historical ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION QUALITY ASSURANCE FEE QualityAssurance Fee DeterminationMethodology 03/01/2010 

### Texas Register 

# ;ffa) Quality assurance fee. Effective January 1, 2008, the quality assurance fee for a ~cilityis five and one halfpercent ofa facility owner's gross receipts. (b) Quality assurance fee review. Everytwelve months on a schedule determined byDADS, DADS will review each facility owner's quality assurance fee payments '---'from all ofthe owner's facilities combined. A facility owner's liability for the quality assurance fee maybe adjusted following this review to ensure thatthe quality assurance fee equals five and one halfpercent ofannual gross receipts from all facilities.
Source Note: 

### The provisions ofthis §352.3 adopted to be effective November 18, 2001, 26 TexReg 9085; amendedto be effective October 29, 2003, 28 TexReg 9235; amended to be effective February 3, 2008, 33 TexReg 667
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# TexasAdministrative Code
TITLE 1 PART 15 CHAPTER352 RULE §352.4 Repealed Date: Historical ADMINISTRATION TEXAS HEALTHAND HUMAN SERVICES COMMISSION QUALITY ASSURANCE FEE Requiredreports 

### 03/01/2010 Texas Register (a) The following reports mustbe filed by a facility in accordance withDADS instructions:



### (1) The monthlypatient day report required under subsection (c) ofthis section; and

(2) The annual report ofgross receipts requiredunder subsection (d) ofthis section. (b) Amendedreports.



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

(2) An amendedmonthlypatient dayreport mustbe filed no laterthan20 calendar days afterthe last day ofthe month for whichthe report was filed.

(3) An amendedreport ofgross receipts must be filed no laterthan 10 calendar days after the filing ofthe reportrequired under subsection (d) ofthis section. (c) Monthlypatient day report.



### (1) A facility mustreport, not laterthanthe 10th calendarday after the last day of "- a month, thetotal number ofpatient days for the facility during thepreceding month.CL) A 

### tacllity musttile the reportrequired by this subsection on torms orm the format and according to the instructions prescribedbyDADS
.

...__,(d) Reporting ofgross receipts. (1) A facility mustreport, no later than October 31 ofeachyear, moneypaidto the facility byprivate-payresidents and moneypaidto the facility for bed-hold fees for the period ofSeptember 1through August 31 immediatelypreceding the report. DADS willuse the Durable Medical Equipment andAppliedIncome amounts onfile with the Claims Management System andthe amounts reportedby the facility for private-pay andbed-holdto determine the total gross receipts.

(2) A facility must file the report requiredbythis subsection on forms orin the format and according to the instructionsprescribedbyDADS.
Source Note: Theprovisions ofthis §352.4 adoptedtobe effective November 18, 2001, 26 TexReg 9085; amendedto be effective October 29, 2003, 28 TexReg 9235; amendedto be effective February 3, 2008, 33 TexReg 667
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# TexasAdministrative Code
TITLE 1 PART 15 CHAPTER352 RULE §352.5 Repealed Date: Historical
(a) A facility must: ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION QUALITY ASSURANCE FEE Payment and Collection ofQuality Assurance Fee 03/01/2010 

### Texas Register

(1) Paythe amount ofthe quality assurance fee in accordance with DADS instructions not laterthan the 30th day after the last day ofthe month for which the fee is assessed; or

(2) Paythe amount ofthe quality assurance fee in accordance with DADS instructions andrequest an informal review ofthe calculation ofthe quality assurance fee in accordance with §352.8 ofthis chapter. (b) DADS may review the calculation ofthe quality assurance fee to ensure its accuracy and instruct the facility to correct its calculation andpayment.
Source Note: 

### The provisions ofthis §352.5 adopted to be effective November 18, 2001, 26 TexReg 9085; amendedto be effective October 29, 2003, 28 TexReg 9235; amended to be effective February 3, 2008, 33 TexReg 667
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## I Re-Query TAC Database 11 Back to List TL\. \S RLGISTER TE :\.\S .\D"\11'\ISTR.\TJ\'L COUL UPI'-, "Ill l Tl'\1;s\.- 

### NextRule>> <<Prev Rule 

# TexasAdministrative Code
TITLE 1 PART 15 CHAPTER352 RULE §352.6 Repealed Date: Historical ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION QUALITY ASSURANCE FEE Enforcement 

### 03/01/2010 Texas Register (a) DADS monitors a facility's records orthe record ofany corporate parentor affiliate ofa facility for the purpose ofdetermining the totalpatient days and gross receipts ofthe facility. (b) The Health andHuman Services Commission (HHSC) andDADS maynot 1o,,....,grant any exceptions from the quality assurance fee orthe provision ofany data necessary for DADS to calculate the fee. (c) HHSC orits designee audits quality assurance fee determinations in accordance withthis subsection.

(1) HHSC orits designeeperiodically audits the records ofa facility and, if necessary, the corporateparent or affiliate ofa facility to verifythe amountofthe quality assurance fee ownedbythe facility. The facility must allow HHSC orits designee to review andphotocopy anyrecords necessary to conductthe audit.

(2) Ifa facility fails to maintainrecords orfails to allow HHSC orits designee to review andphotocopy anyrecords necessary to conduct an audit, an audit will be conducted withthe records available.

(3) HHSC orits designeeprovides the facility with a report ofthe final audit findings.
'-- (4) Ifthe final audit findings show the facility owes additional amounts for the quality assurance fee, DADS notifies the facility ofthe amount due. Ifthe final



## ... ,... 

## ...

### audit t1nd1ngs showthe tac1llty 1s owedmoney due to overpayment otthe quallty assurance fee, DADS refunds the amount owedto the facility owner. 

# \._------------------------------- Source Note: 

### The provisions ofthis §352.6 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective February 3, 2008, 33 TexReg 667
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# TexasAdministrative Code \....., 

### TITLE 1 PART 15 CHAPTER352 RULE §352.7 Repealed Date: Historical ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION QUALITY ASSURANCE FEE Penalty 03/01/2010



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

(1) 

### Fails to timely file the monthly facility report required under §352.4 ofthis chapter; \....., (2) Files a false, erroneous, or fraudulent monthly facility report that DADS concludes resulted in the assessment ofa quality assurance fee that is less than the facility should havebeen assessed; or

(3) Fails to timely pay a quality assurance fee assessed under §352.5 ofthis chapter. (b) A penalty assessed under this section is an amount equal to one-fourththe amount ofthe quality assurance fee for each month the quality assurance fee is late, not reported orunpaid. (c) DADS will notify a facility in writing ofthe assessment ofa penaltyunderthis section and the amount ofthe penalty. (d) DADS maymake a referral to an appropriate authority in cases where it makes a good faith determination that a facility has:

(1) Committed fraud in the submission ofinformation to DADS; (2) Willfully submitted erroneous information to DADS; or

,_.,. ,. .... ..(.i) 

### Violated a requirement ot its llcense orMedicaid certitication. (e) DADS may suspendpayments to a facility that fails to pay orreportthe quality \...,assurance fee. (f) The assessment ofa penaltyunderthis section does notrelieve a facility from:

(1) 

### Providing services to residents in accordance with its obligations under contract orthe law;

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

(3) Otherwise complying with licensure and certificationrequirements.


### Source Note: The provisions ofthis §352.7 adopted tobe effectiveNovember 18, 2001, 26 TexReg 9085; amendedto be effective February 3, 2008, 33 TexReg 667
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# TexasAdministrative Code '-TITLE 1 PART 15 CHAPTER352 RULE §352.8 Repealed Date: Historical ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION QUALITYASSURANCE FEE Informal review 

### 03/01/2010 Texas Register (a) A facility thatbelieves DADS incorrectly calculatedthe amount ofa quality assurance fee as defined inthis chaptermayrequest an informal review from DADS in accordance withthis section. (b) The purpose ofan informal review is to provide for the informal and efficient '-resolutionofthe matters in dispute. Aninformal review is not a formal administrative hearing, butis a prerequisite to obtaining a formal administrative hearing andis conducted according to the following procedures:

(1) The facility must request an informal review in writingto DADS, delivered byUnited States mail or specialmail delivery to DADS no later than 20 calendar days after the date onthe written notification ofa calculation described in subsection (a) ofthis section.

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

(A) A concise statement ofthe specific actions or determinations the facility disputes; (B) The facility's recommendedresolution; and (C) Any supporting documentation the facility deems relevantto the dispute. It is the responsibility offacility to submit all pertinent information atthe time ofits '-'request for an informal review.

### tc) Un receipt ot a request tor intormal review, UAU:S 

### assigns the review to appropriate staff. "-' (1) DADS coordinates a review by appropriate staffofthe information submitted bythe facility.

(2) DADS mayrequest additional information from the facility, which the facility must submit in writing to DADS within 14 calendar days after the request for additional information. Information received after 14 days maynotbeused in DADS written decision unless the interestedpartyreceives approval from DADS to submit the information after 14 days. (d) Within 30 days after the date the request for informal review is receivedby DADS orthe date additional requested information is receivedbyDADS, DADS sends the facility its written decisionby certified mail, returnreceiptrequested.
Source Note: 

### The provisions ofthis §352.8 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective February 3, 2008, 33 TexReg 667
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# TexasAdministrative Code
TITLE 1 PART 15 CHAPTER352 RULE §352.9 Repealed Date: Historical ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION QUALITY ASSURANCE FEE Appeal ofan Informal Review Decision 03/01/2010 

### Texas Register

A facility that wishes to appeal an informal review decision under §352.8 ofthis chapter mayrequest a hearing from the Health and Human Services Commission in accordance with Chapter 357, SubchapterI ofthis title (relating to Hearings Under the Administrative Procedure Act).
Source Note: 

### Theprovisions ofthis §352.9 adopted to be effective November 18, 2001, 26 TexReg 9085; amended to be effective February 3, 2008, 33 TexReg 667
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## Texas Register, Volume 33, Number 4, Pages 635-808, January 25, 2008 Page: 667

cAJ~PTED

.. .. 

### LES Adopted rules include new rules, amendmenG to e,ustmg rules. and repeals of7x.1s:1~g rules. A rule adopted bya state agency takes effect 20 days after the dateon which. Lt 1s filed withthe Secretary of State 1.mless a laterdate is required by statute orspe<:ified in the rule (Government Code, §2001.036). Ifa rule is adopted without change to the texl ofthe proposed rule, then the Texas Register does not republish the rule texthere. (fa rule is adopted with cllllnge to the textofthe proposed rule, then the final rule text is included here. The final rule text willappear in the TexasAdministrative Codeon the effective date. TITLE I. ADMINISTRATION PART 15. TEXAS HEALTH AND HUMAN SERVICES COMMISSION CHAPTER 352. QUALITY ASSURANCE FEE 1 TAC H352.t • 352.9 The Texas HaalJh and Human Services Commission (HHSC) aoopts amendments to §§352.1
. 352.9, concerning the quality assurance tee for the Intermediate Gare Facilities tor Pefsons with Mental Retardation (ICFIMA) program, without changes to the proposed text as published in the November 2, 2007, issue of the Texas Register(32 TexReg TT89) and will not be repub- lished. Theamelldmentsupdate the ICFIMRqua~tyassu-aoceteerules by reviSing the quality assurance fee perceotage to reflect the maximum 5.5 percent fee alloWed underthe 1ederal Tax Relief and Health care Act of 2006 (TRHCA). P.L. 109-432, Section 403, which amended Section 1903(w)(4)(C) of lhe Social Security Act (42 U.S.C. 1398b(w)(4)(C)). This law took effect on January 1, 2008. The 5.5 percent maximum allowed for ICF/MR facmtlfi In the TRHCA repr6NmS a 0.5 percent reooctlol1 In matchable ICFIMRquality assurance lees. The effectof thislaw is that contraCled ICF!MA providers will pay less ln quality as- surance "lffStothe state thantheycurrently pay. tn addition. the amendment8 update adminiStrative procedures relating to the quality assurance fee, remove ouldated language. and update referencesto reflectthatthe Department of Aging and Olsabllty Serviees (DADS) has administraUve responsibility forthe quality assurance lee. Thepurpose oftheamendment&areto revise the ICF/MRquality usurance fee rules to reflect the new maximum qualty USIJranoe lee allowed under the TRHCA and to provide clear guidance to agency staff and providefs on quallty assurance fee reporting requirements and calculations, monitoring and audil- ing responsibilities, penalties. informal reviewandfonnalappeal rights and responsibilities. As part of upctating am\iniStrativ& procedures, the &mendmen1s clarify how penalties for non-payment of the lea wlU be calculated and require DADS to collact underpayments and refund overpayments of fees. In addition. the deadlines r&Qaroing the submittal of required reports are changed orclarified, andthe definitionol •gross receipts" isclarified to mean 'accrued payments" and not "cash received• Anally, language is added to allow DADS to reconcile overpayments and underpayments of the fee to 5.5 percent of annual gross receipts at the corporate eniity level forthose entitles that control more than 01"18 facility. The 30-day comment period ended December 2, 2007, and HHSC did not rucelve any comments on the proposed amendments. The amendments are adopted undef the Texas Government Code, §531.033, which provkleS the Executive Commissioner of HHSC with brClad r,Jlemaklng authorl!y: and lhe Human Resource Code §32.021 and Texas Government Cooe §531.021(a), which provide HHSC with the authority to adminis· terlhe federal macicalassistance (Medicaid) program in Texas. Thisagency herebycertifiesthatthe adoptionhasbeen reviewed by legal counseland foundto bea valid exercise of the agency·s legal authority. Filed with the Office of the Secretary of State cm January 14, 2008. TR[).200800150 Steve AfaQOn Chle!Counsel Texas Health anti Human services CommiBSIOn Elfdve dale: February 3, 2008 Pmposal publlC&lion date: Novembsl" 2, 2007 For further ll'lformation. please can: {512) 424--6800 

## • CHAPTER 355. 

## • • REIMBURSEMENT RATES The Texas Health and Human Services Comml&siOn (HHSC) aoopl8 arneoctnents to §355.503, conce,ning Reimbursement Mdiodology for the Community-Based Altemalivas (CBA) Waiver Program and the Integrated Gare Managemenl-Home and Community Support Services and Assisted Living/Residential care PrOQtams; §355.505. concetning Reimbursement Methodology tor the Community Living Assistance and &Jpport Services (CLASS)Waiver Program; and §355.5902, concerning Reimbursement Mathodology !or Primary Home Gant (PHC), without changes to the proposed text as pubBshtld In the November 9, 2007, Issue of the ~XS$ Register {32 Te~Reg 8073) and wlU not be republished. One amendment to §355.503(d)j2) adds subparagraph (0), which sets out a relrmursement methodology for Personal Care Ill Iha.I: (1) models the direct care portiofl of the payment rate using program staffing reQUlrements; and (2) ties the non-direct care portion of the rate to the non-attendant portion ot the non-apartment assisted living rate for a provider that does not**~** in receiving rate add-ons in the Attendant Compensation Rate Enhancement. A second amendment to §355.503 adds subSeetion (f)(3J; Iha amendment lo §355.505 amends subsection (c)(2); and Iha amendment to §355.5902 amends 81.bSeCtion (b)(1). Th898
ADOPTEDRVLES January 25, 2008 33 TexReg 667

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

### Texas Register, Volume 

### 32, Number 44, Pages

### m7-8060, November 

### 2, 2007 Page: 

### 7,789

PART 15. TEXAS HEALTH AND HUMAN SERVICES COMMISSION CHAPTER 352. QUALITY ASSURANCE FEE 1TAC tfMZ.l • 351.' The H..ithand Human Services CommiUlon (HHSCJ propoae1**~** to ff352.1

- 352.9, conoemlng tha quality anurance IM lorthe l~meoiatlt care Facilltles Mental Relafdallon (ICF!MR) program. ~dand Justification Th8li8 rule proposal; establish the quallty assurance lee for faolll!IN in 11w ICFIMR program. HHSC, Ulder hs authority and r.spor,5ibility to admlnieter and implement rates. 1$ updating the quailr81A1tatX»INNINbyre,,ising the~ueu,ar,011 IN percentageto rellect'tta maximl.ffl5.5 percentletaJloWed under 1hellderalTax Re11e1 and Health CareAd.of2006 (TRHCA), P.L.. 109-432. 8cK1iorl 403, Whid'I amended Sedtorl 1903(w)(4)(C) of !hi Social S.WrttyId (42 U,S.C. 1396b(w)(-4)(C)J. This laW take$ etleot on Janusy 1, 2008. The 5.5 percent maximum allowed kit !Cf/MRlacilillN in the TAHCA**~** a 0.5 per. oen1:Nalction inmatchable ICF/MR quaMty aPU'8IICetHI. The affec;t01lflll law ialtlalcontract«tICfJMRprovider&wilpayless In quality assurance fe•to the statethan !hay c:u,qntty pay. 1n acldillOn, NI propoeal Updatea admlnillralMI l)l'OCedurN re<ing to the~ aaut11r1Ce felt. removes outtated' langUlga, and updateg referencN to reflect that the DepartmentOI Aging and DlubilltyServloes (DADS) hU admlnlllrative msponsibllity for 11'111 quality &1&Urance tea. SectiOn~-sectiOn summary The proposed amendment revises §352.1 to:**~** from IUbNc;tiOn (b)(1) extran.out Language eu'""1tly al8o Included In §352.2(1) in tne dallnltlon o1 faclllly. Replace in aublection (b)(2) reference• to the "Commission or its dealgnee'' With references to DADS, which is tha agency reaponsi,ietorthe administration of Ihaqualityauurancefee. R91'nO'te lUbleetiOfl (C) beCaUH Cl'taot• 252 olthe HMfth and SakNy CodiwuamendedbyIha79th Legialalunlto ram0Yflan embedded exprationdate, making this subsection oblKllele. Renamit the section to betl8rdltcri>e itscontents. The~ amendmentrevilH§352.2 to: Adel a paragraph defining DADS and renumber aubeeqlJent 

## ,.,_. Replace In the newly renumbered paragrarit, {2)(C) 1hl refer. encetothe "Tuu Departmen1of MerGI Health and Mental fle- tardatiOn {TOMHMR)" with a raference to DADS. Clarify Inthe newly Nnumbaredperagrapt, (3)thati,na1reoEMptS are definedas accruedpaymentc and notas cut, racelv8d. The propoaed amendment l1MMI §352.3 to: Remove IUbne:tiOfl (a), whidi ii outdated, and renumber the IU00Hding 8Ubseotionc accordingly.**~** the rule lo refl6ct that the**~** usurance fee is 5.5 percent ol atacllty's gross rec:eipls effecllwJanuary 1, 2008. Ranova an ouldMeddale; replace referencN to the ''Comrrvation or !ta dnignee" with teloreoces 10 DADS; add languagsto reql.lN' Iha! qualily uaurance fee reviews are conducted ...,.ry 12-monlhl: ac1C1 !anguage to allowDAOS to make adiUltmentl lo erlllUl'II that the quallty ueurance tee equals 5.5 percent ol eachfacillty's groareceipts; and addlanguageto indcalethat for entitlN controlling mor.then one lacillty, quality auurance fee revlaws are conduc:led at the entity, rather than the facility 

# ..., The propoeed amenctment rOVllea f352.4 to: Replaee relerenoestothe "Commission orItsdeslgnee" with referenoeato DAO$, which 11 1Wponalble !orthe acminislraliono1 the Quality assurance lee. Revise subNc:ticin (a)(2) to rwqui!'II annual reports of groM r&- 01iptl instead ot semi-annualreports. Rmseth•duedaleforsubmitting amended monthlyDatientday reportS in subNction (b)(2) from 10calendardays following the fling of the report to 20eallllndllr days afterthe lastday ot the month for which the reportWUtied. RIIYile the we date tor 11.timHng amended f9POltS to grosa receipts in subNc::1:lon (b)(3) from 10 calendar days "following" llling the reportto 10 days"after" lllng the r.port. Revilethe ck»datefor•tlmltttnothe monthly pdlentday report in 11.JbMCtiOn (c:~1) from 20 calendar days after the last Clay of the month to 1Dcalenderdays aftar 1h11 lutdayofthe month. A..... tubNalon (cl)(1) to lndloale thel facilitlN muat report mo,wy paidto the 'lac:illty by~/"8lkfenlr and tor baCS- hold !wtduring Reh ttm "9oa.l year byOc:lober 31 each year andloindicDthatDADSwill UNthisintorrnatlon, alongwi\hthe Durable MedicalEquipmentandApplied Incomeemounu onfie with the Claims ManagernW Syatem, to detarmine total grou 

# ,_
The proposed amen::mentrewses §352.5 10: R8place Nleranoeatothe "Commiuionor Ila deelgrMta" with ref· er'9llCe8to DADS, which It re&ponllble forthe 9'*nlni8lratlon of thequality usuranca tee. Delete panl!18ph (3), which Is ol..lldated. Add n- MJbleQliorl (a) and ra-dNignale paragraph (4) u U-**~** (bl iauch that UNCtion (l) ii a liSI: of taciltty reqt.llre- mentaand subaection (b) isro1a part of that 1181. The proposed amerd"nentrevilN §352.6 to: Replace reterencestothe "CcnvniUiOn fJlt Itsdellgl"lee" with referencesto DADS, whictl ls responsiblll forthe mninisiration of the quality &ICMIIMC8 fee. /nctcatettwlt DADS monltlnlacilltie1' recofdtbutcloesnotaJClil lham. lncicata that HHSC or its deeigflM &I.ICit& quality auuranoefee cleteminatlons for accincy. The pr0pOl8d amendment reviaeBf352.7 to: Replace refer8f"l0Nlothe "Commiuionoritsdeaignee" with refarwincesto DADS, which It mponslble forthe llCSTiiniltration of the**~** uaurance fee. Renumbereubeection (a)(4)aasublec:tiQn (b) and:clarllyltlalthe fti\ln0ial penal\/ II equaltoone-1oul1f'I theemoi.nt of the~ aMtnnCe tee tor each month the quality uauranc:e lee ii late, not Nl)Cllted,or l.ffll*ld. Re-designatethe remailWIQ tubaeC:tion$ appropriately. Texas. Secretary of State. Texas Regisf/W?~, ~-- ~~l)tll<iPlf-8060, November 2, 2007, periodical, November 2, 2007; Austin, Texas. (texashistory.unt.edu/ark:/67531/metapth97421/m1/11/7 utm_source=email&utm_medium=client&utm_content=ark_sidebar&utm_campaign=ark_permanent: accessed June 28, 2017), University of North Texas Libraries, The Portal to Texas History, texashistory.unt.edu; crediting UNT Libraries Government Documents Department.Modify new subseC!ion (o) 10 indicale lhal DADS may suspend payments to a lacilrty that lalls to pay or 1'81)01'1 the quality assurance lee. The propo&ed ameooment revises §352.8 10: Replace references lothe ·Comm.ssionor itS designee· with ref· erenoes to DADS, which is r8'5'10nsib4e for the administration of Iha quality assurance fee. Clarify in subsection (b)C 1) that a rl9(Jlest kw an anformal rt11view must be received by DADS no later than 20 calendar day& alter lhedaleon 1110written notificallon of lhecalculationot lhequalify assurance tee. Replace references to ·staff." 0leadstaff," and "panel" with reterences 10 DADS. Clarify in subsection td) lhal DADS sends ils written doasion within "30 days a11er" rather lhan ''withil1 30 days ot." 111e dale lhe reqUMtfo, i<lfonnal review is r"""'11ed Ill' DADSand lhatIlle decision is sent to the "'faolity" rattlerthan the ·tnterestedparty." The proposed ameronent revises §35.2.9to: Remove reference tothe appealasbeingfortheassessmerno1 a penalty and replaea itwith a referooce 10 the appeal aabeing for an _informai irevieW decision. since this section refers to §352.8 which govems lnfofmal reviews., not assessments of penalties. Replace refttrenotsto the ·Comm,ssionor rtsdesignff" with references to DADS, whid"I is responsib4e k>f the administratiofl of lhe quality assurance fee. Chanoe an incorracl reference 10 the formal appeal rules related lo HHSC programs. Fiscal Note Gordon E. Taylor. Chief Financial Officer lot lhe Department of Aging and Oiaabilily Services, has -nnined lhal. du<ing lhe first five.year period lhe amended mtes are in effectthere will be afiscal impael 10 state go.emrnent of $3.078.151 for Slale firs()al year (SFY) 2008: $4,617,227 lo,SFY 2009: $4,6I7,227for SFY 2010; $4,617.227 for SFY 2011: and $4,6I7.227 lor SFY 2012 as a resull of changing the amount of the qualty assurance fee lhal is collected from 6 percent 10 5.5 percent The proposed rule amendments wll not result in any fisee.l implications tor local health and human services agencies. There are no fiscal implications tor local governments as a result ot enfon::ing oradministering theamended sections. Small Business and Micro-buSi<loss Impact Analysis HHSC has ,cfelemlmed lhat !here is no - economic e1- tect on small businesses or micro-businesses as a reUI of eolorting Of admon-lng lhe proposed amendment. The impo- "*"8tion of lhese proposed rule amendments does nol require any changes 1n pract10e or anr addfflOOal cosl to the eon1racted provider. HHSCdoes notanticipatethat !herewiR beany economic: cost lo persons whoare required 10 oomply wilh this proposed •mendmenl. The amendment will not affect localemployment. Public Benefit C.,oiyn Pratt, Directorof Rate Analysis, hasdetenninedIha!, for each of the twst ftve yearsthe proposed rule amendments are in effe<;t, Ille e,pecledpublic benefit is lhat- rule language will be_eliminated: refe,ences lo TDMHMR, which no longerex· ,ots, w,11 be removed and replaoed wi1l1 refe,onces lo DADS, lho
32 TexReg 7790 No,ember2, 2007 Texas Register - CU<Mnl1y ,.._,,.ible for admi11iltering Ille ICF/MR program; and lhe Nlff WIii p,ovide clear guidance 10 agency staff and providers on quality ...,..,ance fee ,_rting requi!1,ments and calcolatlons, monl10ring and auditing responslbllill

...penalties, informal review and formal -'rights and retpOnlibilibK. F,nally. the pobltC wiN benefil because the rules will reflect the new maximum qualitya8*jranc:e tee allowed underthetederal Tax Relief and Heallh careAd of 2006. P.L. 109-432. sachon 403 effectiVe Jam,a,y 1. 2008. Taking& lmpa01: Assessment HHSC has-nninedlhallllis proposal doesnot restrict or•mil anowner's right 10 his or her propen)' that would otherwise exist "1 lhe abeence ot

## _,,..,ent ac:1i0n and, lherefore, does nol oonsttlUle a taking under TexnGovemmonl Code, §2007.043. Regula!Ofy Analy&IS HHSC hasdelerm"1edthatlhis proposal isnot a ·major9flwonmenialru1e· asdefirledby§2001.0225otlhe Texes Govemment Code. ·Major environmental Nie"Is defined 10 mean a Mo Ille specific; il1lent ot wt1ich io 10 prote<;t Ille environmenl Of ,_ce tiskco homan healthfrom enWonmental exposu,e and ltlat may adYerlely alfecl, in a material way. the economy. a - ot lhe economy, productivity, competition, jobs, theenvi,onment orthe pUblichealth and aalety ol a state or a sedorol lhe stale. Thi$ p,_.al is not specifically intOfldod to proteol Iha environment or reduat ri&l<s 10 humanhealth from environmental exposure Public Comment Oueotions elJout 111e oontent ot 111is proposal may be direoled 10 Pam McDonald in Ille HHSC Raio Analysis Dopan,-1 by telephone at (512) 491-1373. Written oonvnenta on the proposal may be submitted 10 Ms. Mcllonald byfacsimile al (512) 491-1998, by e-mail 10 pam.modonol<IOhh&e.stale.tx.us, or by mail to HHSC Aale Analysis, Mail Code H-400, P.O. Box 85200. Austin. Texas 78708-5200, Wllh., 30 days of publication ot this p<opoaal in Ille Texas Regioter. Slllturory Aulhorily The amendments are proposed undat the Texas Government Code, §531.033. wt-och provide$ the Exea,li.., CommiasicJner of HHSC witll broad rulemaking aulhoril)'; and 1110 Human

_,,.. Code, §32.021 and T"""" GoYemmen1 Code. §531 .021(a), ,ohich provide HHSC willl lhe ault>oril)' to admi<lis1er lhefedetat medical assl&lance (Medicaid) program in Texas. The propooed amendmenlS aHect 1110 Human Rescurces Code. Chapler 32. and 1l1eTexas Government Code, Chaple,531. No 01har .-,artlclas. or codes are alfacfed by lhis pr0p00,at. JJ52./. Pu,r,m.c- Jdltll ~/of Chap,,.,._ !"' Thi!> d111ph:-r imp5cmenb lhe dek:nntna111Jn• .in~sstn1.'IU, CLlllcc:ut1n. and cnfo1ccmcn11 i,r 1hc 4uality ~~urancc- Fee :auchori.11.'d utmt·h:apter 2'.'i2. Hcahh anJ Sa.fol)' Colle, ,_utM.·hartt!r II. tb) Tk**~** ol"the QUillily ilSSUl'lllK"C' I« C'SLU.bliishcJ uooef lhhi chlqller.ii. to impm\·I!' the quali1y r~rcare JWa\•id1--d to p::r.umi. "'ilh mt'flUII rdardiilLion tL,. folkiwis· tIt The qualil)' as5Ufani;c kc is intended to !iiuppon and/or**~1~~** an i~in rcimhun&:mc-n1 10 I~ if'Nifmaedidle aw-I lacttilleloo IWf"- ~·AMHNN tMlJ fw;ilk~**~** ill.'Q.~10 Hll! NqYiNIMtllli uf**~** 2,~2-. i4ffkh Mil~('<OOI! llAd- 0Wfll!d liltldl('I' ,"Pffllkid It)- • ~)'ffW'~I ~h ood nwt1h1I Mlilr\lallon efflWf mi~Ht t.'Nlpl« ~;4-.**~** A. Hffkh 1100**~** C"*· lll-1 ,111 f1111,.'iltl)' t~by !he T.,..lii.1' [)e,pfwlt'Wlll o(M,.,,iiMal Hellillh

### <<PrevRule NextRule>>

TITLE 1 PART 15 

# TexasAdministrative Code
ADMINISTRATION TEXAS HEALTH AND HUMAN SERVICES COMMISSION HEARINGS CHAPTER357 SUBCHAPTERI HEARINGS UNDERTHE ADMINISTRATIVE PROCEDURE ACT RULE §357.483 Historical Powers and Duties ofthe Judge Texas Register (a) Thejudge is a designee ofthe HHSC Executive Commissioner for purposes of:

(1) issuing default, final, and other orders, and
'- (2) ruling on any motions for rehearing. (b) Thejudge shall have the authority andthe duty to:

(1) 

### regulate pre-hearingmatters and the hearing; (2) conduct a full, fair, and impartial hearing; (3) take action to avoid unnecessary delay in the disposition ofthe proceeding; and

(4) maintain order, includingregulating the conduct ofthe parties, authorized representatives, witnesses, observers, and otherparticipants. (c) Thejudgemay issue any orderin the interest of justicethat is necessary to protect the person orparty seeking relieffrom undue burden, unnecessary expense, harassment, or invasion ofpersonal, constitutional, orproperty rights. '--'(d) Thejudgehas no authority to declare state statutes orrules, orfederal statutes orregulations, invalid. 

# A-Pfe?nDI X \

# 0

### Source Note: 

### Theprovisions ofthis §357.483 adopted to be effective June 20, 2007, 32 TexReg 3544
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### Legal Informa!!~~.,!~~!\~!;l~~ 

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"-...,., CFR >TiUe 42 >Chapter IV >Subchapter C >Part 433 >Subpart B >Section 433.68 42 CFR 433.68 - Permissible health care-related taxes. § 433.68 Permissible health care-related taxes. (a) General rule. A State may receive health care-related taxes, without a reduction in FFP, only in accordance with the requirements ofthis section. (b) Permissible health care-relatedtaxes. Subjectto the limitations specified in§ 433.70, a State may receive, without a reduction in FFP, health care-related taxes ifall ofthe following aremet

(1) The taxes are broad based, as specified in paragraph (c) ofthis section; (2) Thetaxes are uniformly imposed throughout a jurisdiction, as specified in paragraph (d) ofthis section; and (3) The tax program does notviolate the hold harmless provisions specified in paragraph (f) ofthis section. (c) Broadbasedhealth care-relatedtaxes.

(1) A health care-related tax will be considered to be broad based ifthe tax is imposed on at least all health care items or services in the class or providers of such items or~-~'YJ~~- furnished by all non-Federal, non-public providers in the State, and is imposed uniformly, as specified in paragraph (d) ofthis section. (2) Ifa health care-related tax is imposed by a unit of local government, the tax must extend to all items or services or providers (orto all providers in a class) in the area over which the unit ofgovernment hasjurisdiction. (3) A State may request a waiverfrom CMS ofthe requirement that a tax program be broad based, in accordance with the procedures specified in§433.72. Waivers from the uniform and broad-based requirements will automatically be granted in cases ofvariations in licensing and certification fees for providers ifthe amount of such fees is not more than $1,000 annually per provider and the total amount raised by the State from the fees is used in the administration ofthe licensing or certification program. (d) Uniformlyimposedhealth care-relatedtaxes. A health care-related tax will be considered to be imposed uniformly even if it excludes Medicaid or Medicare payments (in whole or in part), or both; or, in the case of a health care-related tax based on revenues or receipts with respectto a class of items or services (or providers of items or services), if it excludes either Medicaid or Medicare revenues with respect to a class of items or services, or both. The exclusion of Medicaid revenues must be applied uniformly to all providers being taxed.

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

(i) Ifthe tax ls a licensing fee or similar tax imposed on a class of health care services (or providers ofthose health care items or services), the tax isthe same amountfor every provider furnishing those items or services within the class. (11) Ifthe tax is a licensing fee or similar tax imposed on a class of health care items or services (or providers ofthose items or services) on the basis ofthe number of beds (licensed or otheiwise) ofthe provider, the amount ofthe tax is the samefor each bed ofeach provider ofthose items or services in the class. {ill) Ifthe tax is imposed on provider revenue or receipts with respect to a class of items or services (or providers ofthose health care items or services), the tax is imposed at a uniform rate for all services (or providers ofthose items or services) in the class on all the gross revenues or receipts, or on net operating revenues relating to the provision of all items or services in the State, unit, orjurisdiction. Net operating revenue means gross charges offacilities less any deducted amounts for bad debts, charity care, and payer discounts. (iv) The tax is imposed on items or services on a basis otherthan those specified in paragraphs (d){1) (i) through (iii) ofthis section, e.g., an admission tax, and the State establishes to the satisfaction ofthe Secretary that the amount ofthe tax isthe same for each provider of such items or services in the class. (2) A tax imposed with respect to a class of health care items or services will not be considered to be imposed uniformly if it meets either one ofthe following two criteria:

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

(A) The net impact ofthe tax and~'!!~~~ is not generally redistributive, as specified in paragraph (e) ofthis section; and {B) The amount ofthe tax is directly correlated to p_<!Y._ments underthe M_edica!Q program. (Ii) The tax holds taxpayers harmless for the cost ofthe tax, as described in paragraph (f) ofthis section. (3) Ifa tax does not meetthe criteria specified in paragraphs (d)(1 )(i) through (iv) ofthis section, butthe State establishes that the tax is imposed uniformly in accordance with the procedures for a waiver specified in§433.72, the tax will be treated as a uniform tax. (a) Generally redistributive. A tax will be considered to be generally redistributive if it meets the requirements ofthis paragraph. Ifthe State desires waiver ofonly the broad-based tax requirement, it must demonstrate compliance with paragraph {e)(1) ofthis section. Ifthe State desires waiver ofthe uniform tax requirement, whether or not the tax is broad-based, it must demonstrate compliance with paragraph (e)(2) of 

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# l\this section. (1) Waiverofbroad-basedrequirement only. This test is applied on a per class basis to a t~that is impo~ed. on all revenues but

. excludes certain providers. For example, a tax thatis imposed on all revenues (including Medicare and ~ed1ca1d) but ex~udes ~ach1~~ hospitals would haveto meetthis test. This test cannot be used when a State excludes any or all Medicaid revenue from its tax ~n addition to the exclusion of providers, since the test compares the proportion of Medicaid revenue being taxed underthe proposed tax with the proportion of Medicaid revenue being taxed under a broad-based tax.

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

(A) Calculating the proportion ofthe tax revenue applicable to Medicaid ifthe tax were broad based and applied to all providers or activities wtthin the class (called P1 ); (B) Calculating the proportion ofthe tax revenue applicable to Medicaid underthe tax program for which the State seeks a waiver (called P2); and (C) calculating the value of P1/P2. (ii) Ifthe State demonstrates to the Secretary's satisfaction that the value of P1/P2 is at least 1, CMS will automatically approve the waiver request. (Ill) If a tax is enacted and in effect prior to August 13, 1993, and the State demonstrates to the Secretary's satisfaction that the value of P1!P2 is at least 0.90, CMS wm review the waiver request. Such a waiver will be approved only ifthe following two criteria are met:

(A) The value of P1/P2 is at least 0.90; and (B) The tax excludes or provides credits or deductions only to one or more ofthe following providers of items and services within the class to be taxed:

(1) Providers that furnish no ~..!}'.ice§. within the class in the State; (2) Providers that do not charge for ~.!.Vice_! within the class; (3) Rural hospitals (defined as any hospital located outside of an urban area as defined in § 412.62(f}(1){ii) ofthis chapter); (4) Sole community tiospita.!.§. as defined in § 412,92(a) ofthis chapter; (5) Physicians practicing primarily in medically underserved Meas as defined in section 1302(7) ofthe Public Health Service Act; (6) Financially distressed hospitals if:

(I) A financially distressed !l.~I?l~l is defined by the State law: (II) The State law specifies reasonable standards for determining financially distressed hospitals, and these standards are applied uniformlyto all hospitals in the State; and (Ill) No morethan 10 percent of nonpublic hospitals in the State are exemptfrom the tax; (7) Psychiatric hospitals; or (8) Hospitals owned and operated by HMOs. (iv) If a tax is enacted and in effect after August 13, 1993, and the State demonstratesto the Secretary's satisfaction that the value of P1/P2 is at least 0.95, £M~will review the waiver request. Such a waiver requestwill be approved only ifthe following two criteria are met:

(A) The value of P1/P2 is at least 0.95; and (B) The tax complies with the provisions of§433.68(e)(1)(iii)(B). (2) Waiverofuniform tax requirement. This test is applied on a per class basis to all taxes that are not uniform. This includes those taxes that are neither broad based (as specified in § 433.68(c)) nor uniform (as specified in § 433.68(d)).

(i) A State seeking waiver ofthe uniform tax requirement {whether or notthe tax is broad based) must demonstrate that its proposed tax plan meets the requirement that its plan is generally redistributive by:

(A) Calculating, using ordinary least squares, the slope {designated as ( S) (that is. the value ofthe x coefficient) oftwo linear regressions, in which the dependentvariable is each provider's percentage share ofthe total tax paid by all taxpayers during a 12- month period, and the independentvariable is the taxpayer's "Medicaid Statistic". The term "Medicaid Statistic" means the number of the provider's taxable units applicable to the Medicaid program during a 12-month period. If, for example, the State imposed a tax based on provider charges, the amount of a provider's Medicaid charges paid during a 12-month period would be its "Medicaid Statistic". Ifthe tax were based on provider inpatient days, the number ofthe provider's Medicaid days during a 12-month period would be its "Medicaid Statistic". Forthe purpose ofthis test, it is not relevant that a tax program exempts Medicaid from the tax. (B) Calculating the slope (designated as B1) ofthe linear regression, as described in paragraph (e)(2)(i) ofthis section, forthe State's tax program, if it were broad based and uniform. (C) Calculating the slope (designated as B2) ofthe linear regression, as described in paragraph (e)(2)(i) ofthis section, for the State's tax program, as proposed.(ii) Ifthe State demonstrates to the secretary's satisfaction thatthevalue of B1/B2 is at least 1, CMS will automatically approve the waiver request. (Ill)**~** the State demonstrates to the secretary's satisfaction that the value of B1/B2 is at least 0.95, CMSwill review the waiver request. Such a waiver will be approved only ifthe following two criteria are met:

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

(1) Providers that furnish no services within the class in the State; (2) Providers that do not charge for services within the class; (3) Rural hospitals (defined as any hospital located outside ofan urban area as defined in § 412.62(f}(1)(ii) ofthis chapter; (4) Sole community hospitals as defined in§ 412.92(a) ofthis chapter; (5) Physicians practicing primarily in medically underserved areas as defined in section 1302(7) ofthe Public Health Service Act; (6) Financially distressed hospitals if:

{i) A financially distressed hospital is defined by the State law; (ii) The State law specifies reasonable standards for determining financially distressed hospitals, and these standards are applied uniformly to all hospitals in the State; and (Ill) No more than 10 percent of nonpublic hospitals in the State are exempt from the tax; (7) Psychiatric hospitals; or (8) Providers or payers with tax rates thatvary based exclusively on regions, but only ifthe regional variations are coterminous with preexisting political (and not special purpose) boundaries. Taxes within each regional boundary must meetthe broad-based and uniformity requirements as specified in paragraphs (c) and (d) ofthis section. (Iv) A B1/B2 value of 0.70 will be applied to taxes thatvary based exclusively on regional variations, and enacted and in effect prior to November24, 1992, to permit such variations. (f) Holdharmless. A taxpayer will be considered to be held harmless under a tax program ifany ofthe following conditions applies:

(1) The State (or other unit of government) imposing the tax provides for a direct or indirect non-Medicaid paymentto those providers or others paying the tax and the Q_B_Y.m~~ amount is positively correlated to eitherthe tax amount orto the difference between the Medicaid payment and the tax amount. A positive correlation includes any positive relationship between these variables, even if not consistent over time. (2) All or any portion ofthe Medicaid .P!J_yment_to the taxpayervaries based only on the tax amount, including where Medicaid payment is conditional on receipt ofthe tax amount. (3) The State (or other unit ofgovernment) imposing the tax provides for any direct or indirect_eayment. offset, orwaiver such thatthe provision ofthat payment, offset, orwaiver directly or indirectly guarantees to hold taxpayers harmlessfor all or any portion ofthe tax amount.

(I)(A) An indirect guarantee will be determined to exist under a two prong "guarantee~ test. tf the health care-related tax or taxes on each

health care class are applied at a rate that produces revenues less than or equal to 6 percent ofthe revenues received bythe taxpayer, thetax ortaxes are permissible underthis test. The phrase "revenues received by the taxpayer" refers to the net patient revenue attributable to the assessed permissible class of health care items or services. However, for the period ofJanuary 1, 2008 through September 30, 2011, the applicable percentage of net _E@!ent service revenue is 5.5 percent. Compliance in State fiscal year2008 will be evaluated from January 1, 2008 through the last day of State fiscal year 2008. Beginning with state fiscal year 2009 the 5.5 percent tax collection will be measured on an annual State fiscal year basis. (B) When the tax ortaxes produce revenues in excess ofthe applicable percentage ofthe revenue received bythe taxpayer, CMSwill consider an indirect hold harmless provision to exist if75 percent or more ofthe taxpayers in the class receive 75 percent or more of theirtotal tax costs back in enhanced Medicaid payments or other State payments. The second prong ofthe indirect hold harmlesstest is applied in the aggregate to all health care taxes applied to each class. Ifthis standard is violated, the amount oftax revenue to be offset from medical assistance expenditures isthe total amount ofthe taxpayers' revenues received by the State. (II) [Reserved] [57 FR 55138, Nov. 24, 1992, as amended at 58 FR 43181, Aug. 13, 1993; 62 FR 53572, Oct. 15, 1997; 73 FR 9698, Feb. 22, 2008]

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