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 of America Texas, Inc., Knob 

Oak, Inc., Silver Quail, Inc., Community Access, Inc., and Creative 

Community Care, Inc., Appellants 

V. 

Texas Department of Aging 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 of Aging 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 REQUESTED 

 FILED IN 3rd COURT OF APPEALS AUSTIN, TEXAS 1/2/2018 4:33:36 PM JEFFREY D. KYLE Clerk
2 

Counsel 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 of the Attorney General of Texas 

P.O. Box 12548, Capitol Station 

Austin, Texas 78711-2548 

3 
4 

Eugene.clayborn@oag.texas.gov 

Andrew. lutostanski@oag.texas.gov 
TABLE 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 

6 
TABLE 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. Landgraf v. 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 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 ) ........................................... 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 

7 
Tx Govt. Code Sec. 2001.17 4 ........................ 10, 24, 25, 26, 34, 36 

Tx Health & Safety Code 252.202(b) ......................................... 27, 43 

Rules 

1 TAC 352.1-352.9(2003) ...................................................... 13, 14, 27 

1 TAC 351.1-352.9(2008) ...................................................... 20, 30, 44 

1 TAC 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 

8 
STATEMENT 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." 

9 
STATEMENT 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 of the 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 2001.17 4, 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 of this Court. 

10 
II. 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% of the gross receipts 

1 All of the 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 of the 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 accrual basis. 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 

13 
on 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 of the commission or its designees not later than 

the 30th day after the last day of the month for which the fee is 

assesse d .... " 

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 

14 
Appellee'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 manner that 

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 

15 
own 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. 1 TAC 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 of the 

Rule. Appellee continued this practice of not collecting QAF 

underpayments over the entire three-year Relevant Time period. 

16 
AR35 ("[Appellee] indicated that underpayments were never 

collected since the inception of the 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 

17 
the 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 if they 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 

19 
indicated 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 

20 
underpayments 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 by its 

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 of the 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 of the 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 of the 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 2001.17 4. 

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 of the 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 of the additional QAF taxes at issue. 

26 
The 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. 

28 
In 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 

29 
QAF 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 of the 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 

of the 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 of CMS 

that the 2008 rule changes would allow Appellee's reconciliations to 

address both overpayment and underpayment of the 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 

30 
ensure 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 unfair for Appellee 

to attempt to use improper means now to correct its own error, which 

actions were patently obvious throughout the 3-year Relevant Time. 

31 
Furthermore, the ALC Final Order erroneously states that the 

2003 Rules "created an obligation on [Appellants] to pay a total of 6% 

of its gross receipts." AR346. This interpretation flies in the face of 

the plain reading of the statute, which allows for an adjustment not to 

"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 

32 
6% 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 

it was 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 of federal 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 

33 
charged 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 under the Texas Gov't Code Section 

2001.17 4 which states: 

Review Under Substantial Evidence Rule or Undefined Scope 

of Review 

34 

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. 

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 

35 
actions collectively prejudice substantial rights of Appellants and are 

capricious, arbitrary, in violation of constitutional and statutory 

provisions, in excess of the 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 of gross 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 of discretion. 

36 
Furthermore, 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). 

2 The Rules changed the requisite percentage from 6% in the 2003 Rules to 5.5% 

in the 2008 Amendments, along with other changes. 

37 
Thus, 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 of 6% .... " 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 

38 
collect 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 power to then 

re-adjust the OAF at another time according to Appellee's whims. 

The plain reading of the 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 

39 
more 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 of discretion and violate substantial rights of Appellants 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 of the rules 

40 
and 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 of the 2008 Rules or the analyses made that 

there was any intention that the new rules have a retroactive effect at 

41 
expressly QAF b·ect to tax is su l stated that 
the 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). 

42 
The 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 

43 
protect 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 

44 
underpayments of [Appellant's] QAF up to a total of 6% of said 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 of this case, may not 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 

45 
hold 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 of Appellants' 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 of the 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) 

46 
47 

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@LawOfficesJ BS. 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 Appellants 
CERTIFICATE OF COMPLIANCE 

I certify that the brief submitted complies with Texas Rules of 

Appellate Procedure 9 and the word count of this document is 7773. 

The word processing software used to prepare this filing and 

calculate the word count of the document was 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 of the 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 of the Attorney General of Texas 

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 
• 

• 

• 

• • 

APPEALS DMSION 

Health and fl•nnan Services Coi,iml,sil'ln 

AUSTIN, TEXAS 

SOtJTBERN CONCEPTS, INC., 

AppePent 

vs. 

TEXAS DEPARTMENT OF AGING AND 

DISABILITY SERVIOS, 

Resp - !lent 

I CAUSE NO. UM'7'75-K 

PRQPQSAL fOR 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) 

during the times relevant to this appeal. Appellant appealed the results of an Informal Review of 

the calculation of Appellant's quality assurance fee (QAF) for the period of September I, 2004, 

throup December 31, 2007. 

JURISDICTION, NOTICE AND PROCEDURAL IDSTORY 

The HHSC Appeals Division beard Ibis case under the authority of 40 Texas Administrative 

Code Sections 90.3 and 90.4. The Administrative Law Judge (AU) notified the parties that 

Appellant's Motion to Transfer this case to the State Office of Administrative Hearings (SOAR) 

was denied, and proceeded to consider the parties' Motions for Summary Disposition and 

motions in opposition thereto. The parties waived oral argument. 

000343 
2 

• 

• 

• 

• • 

APPLICABLE LAW 

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) io contested C11SC11 that ue oot ll'IIIISferrcd to SOAH under the provisions of 40 

Tcus Aclroinistrativc Code Section 90.3. 

40 Tcxu .ldroioist:rativc Code Section 90.3 docs oot provide for the ll'IIIISfcr of ao appeal of 

DADS lofonnal Review of a Provider's QAF to SOAH. 

1 Tcus Administrative Code Section 352.3 io effect durioa the time period from September 1, 

2004, through Dcccmbcr 31, 2<X17, required lCF/MR providers to pay a QAF equal to 6,. of the 

facility's total annual gross receipts io Texas. 

40 Texas Administrative Code Section 11.5 provides that the QAF is to be paid io acc:ordaocc 

with the iostructioos of the agency. 

40 Texas Administrative Code Section 11.8 provides that an ICF/MR proviclcr may p:qucst ao 

Infonnal Review of DADS' calculation of its QAF. 

40 Tcus Administrative Code Scctioo 11.9 provides that ao ICF/MR provider may appeal the 

results of the lofonoal Review of the calculation of its QAF to the HHSC Appeals Division. 

1 Tcus 4droioish'.alivc Code Section 352.8 io effect during the year 2009 provided that a 

Medicaid poviclcr c:ould request ao Informal Review of DADS' calculation of its QAF. 

40 TAC Scctioo 91 provides that the IUISC Appeals Division conclucts contested CIISCII io 

IICCOldancc with DADS and HHSC Contested Case Hcariop Rules. 

1 TAC Section 357 .456 provides tbat ao AU may issue a Summary Disposition io favor of a 

pany if there is oo gcnuioc issue of material fact and thc party is entitled to disposition in its 

favor as a matter of law. 

STATEMENT OF THE CASE 

Appcllaot is a certified lCF/MR proviclcr based io Gnmbury, Texas. Appellant oootlacted to 

provide services to qualified iodividuals with IIIClllal ietanlation or related conditions pursuaot to 

its Medicaid provider agreement. Oo November 18, 2009, DADS notified Appellant that it 

dctennioed that Appellant had uoclapaid its QAF, and that it would collect all uodcrpaymcnts of 

Appellant's QAF for thc period from September l, 2004, through Dcccmbcr 31, 2<X17. Oo 

December 4, 2009, Appellant requested ao lofonoal Review of DADS' dctcnnination of the 

amouot Appellant uoclcrpaid for tbat time period based on DADS' calculation of 6-. of 

Appellant's annual gross receipts. Oo September 29, 2010, DADS ootified Appellant ofthc 

results of the loformal Review and that it determinccl that Appellant owed DADS $8,485.28 

1cpae mting thc amount of Appellant's QAF underpayments for the period from September l, 

000344 
3 

• 

• 

• 

• • 

2004, through December 31, 2007. Appellant filed a formal appeal of the outcome of the 

Infonnal Review on October 21, 2010. 

SUMMARY OF THE 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) that HHSC bad under-collected the federally mendetcd li'I> QAF from Appellant 

and other ICF/MR providas during the period from September l, 2004, through Dcceniber 31, 

2'YJ1. CMS mandetcd t1w DADS collect all funds dial it 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 mplire providers to make up die underpayments. 

In 2009, CMS notified DADS that DADS was required to collect all periodic QAF 

underpayments that bad not t.it collected from ICF/MR providers, including Appellant, for the 

period in question, 

DADS attached die affidavit of Cathy 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 a copy of the November 

18, 2009, DADS notice of intent to collect Appellant's QAF underpayments; a copy of an 

August 1, 2008, letter to Appellant from Tommy FOR!. DADS Director of InstilUlional Senices 

Section, Provider Services. in which Mr. Fold desaibed the QAF rules in place prior to January 

l, 2008. IS not requiring charges for QAF underpayments by ICF/MR providers; and a copy 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 of its representatives 

who swore dial Appellant paid its QAF in the form of 6'1> of all 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 dial time 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 of the fee when the provider made QAF payments based on projected revenues 

000345 
4 

• 

• 

• 

• • 

that were lower than the 8C1Ual gross receipts for the period in question. Nevertheless, the rules in 

effect during the period in question created an obligation on Appellant to pay a total of 6., of its 

poss receipts. This obligation was not obviated by HHSC's inability to devise a sc:bcme to 

collect said .eceipts ur DADS' erroneous portrayal of the rule thll created the obligation in Mr. 

Ford's August I, 2008, letter to Appellant. 

Cathy Belliveau's affidavit which described Appellant's gross receipts for the period of 

September l, 2004, through December 31, 20Cf1, - not controverted by the CMS report which 

desc:ribed inaccuracies in DADS' records during an WISpecified time period prior to DADS' 

reconciliation of Appellant's gross revenues described in the November 18, 2009, notke ofQAF 

charps due, or by the affidavit of Appellant's repiaentative which included a statement tbat 

Appellant paid all of its QAF fees based on projected revenues. 

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., of tbat 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 

QAF fees based on thll calculation should be sustained. 

PROPOSED FINDINGS OF FACI' 

l. This case is adj11dicared •'Dller the provisions of 40 Texas Adminialrative Code Section 11.9, 

90.3, and 90.4. 

2. Appellant is m lCF/MR provider based in Granbury, Texas. 

3. On November 18, 2009, DADS notified Appellant tb8I it owed underpayments for Quality 

Assurance Fees (QAF) for the period from September I, 2004, througli December 31, 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 OF LAW 

l. 40 Texas Administrative Code Section 11.9 provides th8l an ICF/MR provider may 

appeal an informal review of DADS calculation of its QAF to the HIISC Appeals 

Division. 

2. 40 Texas Administrative Code Section 90.4 provides 1h11 the HHSC Appeals Division is 

000346 
5 

• 

• 

• 

• • 

to c:ooduct hearings and issue PFDs in DADS CXJOtested cases that are not tranSferred to 

SOAH in accordance with 40 Texas Adminislrative Code Section 90.3. 

3. 40 Texas Administrative Code Section 90.3 does not provide for the transfer of formal 

appeals of Informal Reviews of QAF assessmems to SOAH. 

4. 1 Texas Administrative Code Section 352.3 in effect from September 1, 2004, through 

December 31, 2007, required ICF/MR providers to pay a QAF equal to 6'11 of 

reimbursements for residents, up to a total of 6'11 of annual gross revenues of the facility. 

5. 40 Texas 4dmiois~ve Code Section 11.5 provides that QAF assessments are to be paid 

by providas acc:ording to instructions from DADS. 

6. Appellant's Medicaid Provider agree111e111 in effect durio& the relevant time periods 

provided that Appellant was to comply with all stare laws and regulations. 

7. 1 TAC Section 357.456 provides that an AU may 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 in its favor as a matter of law. 

8. HHSC' s failure to collect the full QAF that was payable under its Nies did not excuse 

Appellant from its obligation to pay the full amouot due it owed pursuant to those rules • 

9. Because there are no genuine issues of malcria1 fact regarding Appellant's total gross 

receipts during from September 1, 2004, through December 31, 2007, DADS is entitled 

to collect all underpayments of Appellant's QAF up to a total of 6.., of said gross 

receipts. 

Eoterec1 this I'* day of ~tYtl))otf . 2012. 

000347 

I 

KeltliGraatham 

Admioislnltive Law Judge 
CAUSE NO. D·l-GN-16-003653 

Filed in The District Court 

of Travis County, Texas 

SEP 2 9 2017 NNR 

At II os "'--- "'· 

Velva L Price, District Clerk 

CALAB, INC.; MOSAIC, INC.; MOSAIC § 

BETHPHAGE; MOSAIC MARTIN § 

LUTHER HOMES, INC.; THE CENTER § 

IN TIIE DISTRICT COURT OF 

SERVING PERSONS WITH MENTAL § 

RETARDATION; UNIFIED CARE § 

GROUP; § 

Plaintiffi, § 

§ 

V. TRAVIS COUNTY, TEXAS 

TEXAS DEPARTMENT OF AGING 

AND DISABILITY SERVICES, 

Defendants. 

§ 

§ 

§ 

§ 

§ 261st JUDICIAL DISTRICT 

AGREED FINAL JUDGMENT GRANTING BILL OF REVIEW 

AND AFFIRMING AGENCY ORDERS 

On September 25, 2017, this agreed final judgment came to be heard and considered. The 

Court finds this proposed final judgment has merit and therefore orders as follows: 

1. Bill of review. The Plaintiffs bill of review is granted. 

2. Suits for judicial review. These suits for judicial review present the same issue as 

in Innovative Outcomes, Inc. et al, v. Texas Department of Aging and Disability Services, No. Dl-GN-13-000999 (353 Dist. Ct., Travis County, Tex.) where the Court affirmed the agency orders. 

The following 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. Mosaic Bethphage, HHSC Appeals Cause No. 10-0763-K; 

d. Mosaic Martin Luther Homes, Inc., HHSC Appeals Cause No. 10-0762-K; 

e. The Center Serving Persons with Mental Retardation, HHSC Appeals 

Cause No. 10-0722-K; and 

f. Unified Care Group, HHSC Appeals Cause No. 10-0578-K. 

Page 1 of2 
3. Costs. Each party shall bear its own costs. 

4. Appeal. Plaintiffs have the right to appeal this final judgment. 

5. Final judgment. All relief not expressly granted herein is denied. This judgment 

disposes of all 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, Suite CJ0J-159 

Austin, Texas 78734 

Tel: 512-261-9990 

Fax: 512-261-9971 

joanalys@lawofficesJBS.com 

Attorney for Plaintiff 

Isl Andrew Lutostanski 

Andrew Lutostanski 

Assistant Attorney General 

SBN 24072217 

Office of the Attorney General of Texas 

Administrative Law Division 

P.O. Box 12548 

Austin, Texas 78711-2548 

Phone:(512)475-4200 

Fax: (512) 320-0167 

andrew.lutostanski@oag.texas.gov 

For Defendant DADS 

~0.~ 

PRESIDING JUDGE 

Page 2 of2 
CAUSE 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 

353rd JUDICIAL DISTRICT 

MODIFIED ORDER GRANTING DEFENDANT'S MOTION FOR 

SUMMARY JUDGMENT 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, HA YING 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 and the findings and orders issued on July 11, 2017 are hereby modified 

and superseded as follows. After considering the same and attached appendices, 

and after hearing the arguments of counsel and taking judicial notice of the file, the 

Court, having first taken the matter under advisement, is now of the opinion that the 

Motion should be 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 Final 
Agency 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 of July, 2017 

PRESIDING JUDGE 

2 
<<Prev Rule Next Rule>> 

Texas Administrative Code 

'--

TITLE 1 

PART 15 

CHAPTER352 

RULE §352.1 

Historical 

ADMINISTRATION 

TEXAS HEALTH AND HUMAN SERVICES 

COMMISSION 

QUALITY ASSURANCE FEE FOR LONG-TERM 

CARE FACILITIES 

Purpose and Duration of Chapter 

Texas 

Register 

(a) This chapter implements the determination, assessment, collection, and 

enforcement of the quality assurance fee authorized under chapter 252, Health and 

Safety Code, subchapter H. 

(b) The purpose of the quality assurance fee established under this chapter is to 

"--improve the quality of care provided to persons with mental retardation as follows: 

(1) The quality assurance fee is intended to support and/or maintain an increase 

in reimbursement to licensed intermediate care facilities for the mentally retarded 

and facilities operated according to the requirements of chapter 252, Health and 

Safety Code and owned and/or operated by a community mental health and mental 

retardation center as described in chapter 534, subchapter A, Health and Safety 

Code, and a facility owned by the Texas Department of Mental Health and Mental 

Retardation that participate in Medicaid program, subject to legislative 

appropriation for this purpose; and 

(2) The Commission or its designee may also offset allowable expenses to 

administer the quality assurance fee program against revenues generated by the 

collection of the quality assurance fee. 

(c) This chapter will expire on September 1, 2005, unless chapter 252, subchapter 

H, Health and Safety Code, is extended by the 79th Texas Legislature. 

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

Source Note: The provisions of this §352.1 adopted to be effective November 18, 

2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg 
9235 

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Texas Administrative Code 

'-

TITLE 1 

PART 15 

CHAPTER352 

RULE §352.2 

Historical 

ADMINISTRATION 

TEXAS HEALTH AND HUMAN SERVICES 

COMMISSION 

QUALITY ASSURANCE FEE FOR LONG-TERM 

CARE FACILITIES 

Definitions 

Texas 

Register 

As used in this chapter, the following terms shall have the meanings prescribed 

below, unless the context clearly indicates otherwise: 

(1) "Facility" means: 

....._ (A) An intermediate care facility for the mentally retarded or the corporate 

parent of an intermediate care facility for the mentally retarded licensed under 

chapter 252, Health and Safety Code; or 

(B) A facility operated according to the requirements of chapter 252, Health and 

Safety Code, and owned and/or operated by a community mental health and 

mental retardation center as described in chapter 534, subchapter A, Health and 

Safety Code ; or 

(C) A facility owned by the Texas Department of Mental Health and Mental 

Retardation. 

(2) ''.Grass,~c-~pts" means mone~ a facility as compensation for services 

provided to patients, including clierlt--patticipation, but does not include charitable 

contributions to a facility. 

(3) "Total patient days" means the sum, computed on a monthly basis, of the 

'---following: 

. . ~ 
(A) The total number or patients occupying a tacillty bed unmediately betore 

midnight on each day of the month; and 

'- (B) The total number of beds that are on hold on each day of the month and that 

have been placed 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 of days a patient is discharged from a facility are not 

counted in the calculation of the total patient days under this chapter. 

Source Note: The provisions of this §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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<<Prev Rule 

TITLE 1 

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CHAPTER352 

Next Rule>> 

Texas Administrative Code 

ADMINISTRATION 

TEXAS HEALTH AND HUMAN SERVICES 

COMMISSION 

RUL~~ 

QUALITY ASSURANCE FEE FOR LONG-TERM 

CARE FACILITIES 

Quality Assurance Fee Determination Methodology 

Texas 

Register 

Historical 

(a) Quality assurance fee on State facilities. As provided in section l(b) of the Act 

of June 20, 2003, 78th Leg. R.S., (Senate Bill 1862), not later than August 31, 

2003, the Texas Department of Mental Health and Mental Retardation shall pay 

for each facility owned by the 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 in the amount of six percent of each reirobm:sel!!_cnt or payment 

rate receiv.e.d, including those received from the resident, for each resident 1n the 

!_ac1frty during a calendar month, provided the amount of all such quality assurance 

fees assesseofbr the facility during the 12-month period following assessment of 

the quali~ ass~ance fee_ not excee4)six percent of the facility's total annual 

gross receipts 1n Texas. 

( c) Not later than July 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 may be adjusted 

following this review to ensure that the quality assurance fee does not exceed six 

percent of annual revenue. vtur cic(:jJ1£(:f'd ft)r less 7 

Source Note: The provisions of this §352.3 adopted to be effective November 18, 

'- 2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg 

9235 
'---

<<Prev Rule Next Rule>> 

Texas Administrative Code 

TITLE 1 

PART 15 

CHAPTER352 

RULE §352.4 

Historical 

ADMINISTRATION 

TEXAS HEALTH AND HUMAN SERVICES 

COMMISSION 

QUALITY ASSURANCE FEE FOR LONG-TERM 

CARE FACILITIES 

Required reports 

Texas 

Register 

(a) The following reports must be filed by a facility in accordance with the 

instructions of the Commission or its designee: 

( 1) The monthly patient day report required under subsection ( c) of this section; 

and 

'--- (2) The semi-annual report of gross receipts required under subsection (d) of this 

section. 

(b) Amended reports. 

(1) A facility may amend a report required under subsections (c) or (d) of this 

section; 

(2) An amended monthly patient day report must be filed no later than 10 

calendar days following the filing of the report required under subsection ( c) of 

this section. 

(3) An amended report of gross receipts must be filed no later than 10 calendar 

days following the filing of the report required under subsection ( d) of this section. 

( c) Monthly patient day report. 

'--- ( 1) A facility must report, not later than the 20th calendar day after the last day of 

a month, the total number of patient days for the facility during the preceding 

month. ------
Cl) A tac1llty must tlle the report required by this subsection on torms or 1n the 

format and according to the instructions prescribed by the commission or its 

designee. 

'--( d) Reporting of gross receipts. 

(1) A facility must report, not later than the 10th calendar day following the last 

day of the sixth month following the effective date of this chapter, the total gross 

receipts the facility received during the preceding 6-month period. 

(2) A facility must file the report required by this subsection on forms or in the 

format and according to the instructions prescribed by the commission or its 

designee. 

Source Note: The provisions of this §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 Next Rule>> 

Texas Administrative Code 

TITLE 1 

PART 15 

CHAPTER352 

RULE §352.5 

Historical 

A facility must: 

ADMINISTRATION 

TEXAS HEALTH AND HUMAN SERVICES 

COMMISSION 

QUALITY ASSURANCE FEE FOR LONG-TERM 

CARE FACILITIES 

Payment and Collection of Quality Assurance Fee 

Texas 

Register 

(1) Pay the amount of the quality assurance fee in accordance with the 

instructions of the commission or its designee not later than the 30th day after the 

\....., last day of the month for which the fee is assessed ; or 

(2) Pay the amount of the quality assurance fee in accordance with the 

instructions of the commission or its designee and request an informal review of 

the calculation of the quality assurance fee in accordance with §352.8 of this 

chapter. 

(3) Not later than August 31, 2003, the Texas Department of Mental Health and 

Mental Retardation shall pay for each facility owned by the department the quality 

assurance fee imposed under §352.3(a) of this title for patient days occurring 

between September 1, 2002, and July 31, 2003. 

(4) The commission or its designee may review the calculation of the quality 

assurance fee to ensure its accuracy and instruct the facility to correct its 

calculation and payment. 

\....., Source Note: The provisions of this §352.5 adopted to be effective November 18, 

2001, 26 TexReg 9085; amended to be effective October 29, 2003, 28 TexReg 

9235 
'--

<<PrevRule Next Rule>> 

Texas Administrative Code 

TITLE 1 

PART 15 

CHAPTER352 

RULE §352.6 

ADMINISTRATION 

TEXAS HEALTH AND HUMAN SERVICES 

COMMISSION 

QUALITY ASSURANCE FEE FOR LONG-TERM 

CARE FACILITIES 

Enforcement 

Texas 

Register 

(a) The commission or its designee may audit a facility's records or the record of 

any corporate parent or affiliate of a facility for the purpose of determining the 

total patient days or gross receipts of the facility. 

(b) The commission may not grant any exceptions from the quality assurance fee 

'-- or the provision of any data necessary for the Commission or its designee to 

calculate the fee. 

Source Note: The provisions of this §352.6 adopted to be effective November 18, 

2001, 26 TexReg 9085 

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<<Prev Rule Next Rule>> 

Texas Administrative Code 

TITLE 1 

PART 15 

CHAPTER352 

RULE §352.7 

ADMINISTRATION 

TEXAS HEALTH AND HUMAN SERVICES 

COMMISSION 

QUALITY ASSURANCE FEE FOR LONG-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 of this 

chapter; 

'-' (2) Files a false, erroneous, or fraudulent monthly facility report that the 

commission or its designee concludes resulted in the assessment of a quality 

assurance fee that is less than the facility should have been assessed; or 

(3) Fails to timely pay a quality assurance fee assessed under §352.5 of this 

chapter. 

(4) A penalty assessed under this section is in an amount equal to one-half the 

amount of the outstanding quality assurance fee or fees, not to exceed $20,000. 

(b) The commission or its designee will notify a facility in writing of the 

assessment ofa penalty under this section and the amount of the penalty. 

( c) The commission or its 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 of information to the commission or its 

designee; 
CL) Wllltully submitted erroneous intormatlon to the commission or its ctesignee; 

or 

\_. (3) Violated a requirement of its license or Medicaid certification. 

( d) The commission or its designee may report a facility that fails to pay the 

quality assurance fee to the Comptroller of Public Accounts or other appropriate 

authority for purposes of implementing a suspension of payments to the provider. 

( e) The assessment of a penalty under this section does not relieve a facility from: 

(1) Providing services to patients in accordance with its obligations under 

contract or the law; 

(2) Paying additional quality assurance fees that may be assessed to the facility; 

or 

(3) Otherwise complying with licensure and certification requirements. 

"--- Source Note: The provisions of this §352.7 adopted to be effective November 18, 

200 l, 26 TexReg 9085 

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<<Prev Rule Next Rule>> 

Texas Administrative Code 

TITLE 1 

PART 15 

CHAPTER352 

RULE §352.8 

ADMINISTRATION 

TEXAS HEALTH AND HUMAN SERVICES 

COMMISSION 

QUALITY ASSURANCE FEE FOR LONG-TERM 

CARE FACILITIES 

Informal review 

Texas 

Register 

(a) A facility that believes the commission or its designee incorrectly calculated 

the amount of a quality assurance fee as defined in this chapter may request an 

informal review from the commission or its designee in accordance with this 

section. 

"--(b) The purpose of an informal review is to provide for the informal and efficient 

resolution of the matters in dispute. An informal review is not a formal 

administrative hearing, but is a prerequisite to obtaining a formal administrative 

hearing and is conducted according to the following procedures: 

(1) The facility must request an informal review in writing to the commission or 

its designee, delivered by United States mail or special mail delivery within 20 

calendar days of the date on the written notification of any of the actions described 

in subsection (a) of this section. 

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

(A) A concise statement of the specific actions or determinations the facility 

disputes; 

(B) The facility's recommended resolution; and 

(C) Any supporting documentation the facility deems relevant to the dispute. It 

'-' is the responsibility of facility to submit all pertinent information at the time of its 

request for an informal review. 
l c) Un receipt ot a request tor intormal review, the commission or its ctesignee 

assigns the review to appropriate staff. 

'-- ( 1) The lead staff member coordinates a review by appropriate staff of the 

information submitted by the interested party. 

(2) Staff may request additional information from the facility, which the facility 

must submit in writing to the lead staff member within 14 calendar days of the 

request for additional information. Information received after 14 days may not be 

used in the panel's written decision unless the interested party receives approval of 

the lead staff member to submit the information after 14 days . 

. ( d) Within 30 days of the date the request for informal review is received by the 

commission or its designee or the date additional requested information is received 

by the commission or its designee, the lead staff member must send the interested 

party its written decision by certified mail, return receipt requested. 

Source Note: The provisions of this §352.8 adopted to be effective November 18, 

2001, 26 TexReg 9085 

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Texas Administrative Code 

TITLE 1 

PART 15 

CHAPTER352 

RULE §352.9 

ADMINISTRATION 

TEXAS HEALTH AND HUMAN SERVICES 

COMMISSION 

QUALITY ASSURANCE FEE FOR LONG-TERM 

CARE FACILITIES 

Formal Appeal of Penalty 

Texas 

Register 

A facility that wishes to appeal the assessment of a penalty under §352.8 of this 

chapter may request a formal appeal from the Texas Department of Human 

Services in accordance with 40 T.A.C. §90.236. 

------------------------------

Source Note: The provisions of this §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 E TI\<;s 
Texas Register, Volume 28, Number 43, 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, 

raport&. 

collOIWl'ling and QUlllly 

§352.5, 

auuranco 

conoeming 

tee, 

payment 

§352,4, 

and 

concerning 

c:ollecliOn ~ of the quallly aauranca IN, without changes to tha proposed 1IIXt u publllhed in thfl AuQoat 211, 2003, lsaue of Iha ».as RftOicte, 

(28 TexReg 7060). The text of these arnendmllnts will not be ntpublllhed. In adelldon, thee• amendmentl were adopted on an ornsgencybul1 in the August 29, 2003, luueallhe TOUIIR8glcMr'(28 Tex Reg 7050). The emergency adoption i1 Ming withdrawn eleewta'e in ttUI luue of !he Texas ~-ii ii eu· perMded biJ the adoptiol'I of lhMft proposed arMndments. The 

withdnMal ol the ·~ amenmienta will be effective Qc.-

~ 29. 2003. 

change 

The .adope;,cl that mai.s ame11dme11ts the quality ~ 

asslA'al1C8 

a et.wtorily 

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~wllh SB 1862, 78th Legislature, Regular Seaion, which~- payment by MHMR of 

1eel fDf !hole facillltel t\t that date; expends the poaible UEI of 

the tundl; dianges the dllfinition ot patient days; and. c:hangn 1he time lor faclllties to Ille required reports from the 1 oth IO the 

20th day after the last day of a month. The ,amendments also 

lnaHN the quality asnnnce tee from 5.5 to 6 peroBm beOJn. 

ning S.,:-mber 1, 2003, in aceordance with projected reverus 

and l9lal9d ,._. matching funds spedlled In !he Ganeral Appropriation• Act for the 2004-2005 biennium. 

During the pimlic oonment periOcl, whictJ included public hearingl on August 29, 2003 and s.ember 25, 2003, no oommentc 

were re(l9Mlld regan;tng the prtlOClS&I. 

The amandmlntS ani Dpted under !he Texa& Government Code, §531.033, which authorizw the Com~ of HHSC 

lo adOpt MN neoauary to CllrT)' out the oorrmlaion's dutieSI: 

and unct.r §252.205 Health &l'ld Safety Code. 

This IQ8f1C)' heret1f certifies that the adoption hu been reviewed 

by legal COOONI and found to be a valid ~ ol the agency's 

legal auttlority. 

F•edwllhtheOfficeofthe 5eaetary o15tale on0clober9, 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 

• • • 

TITLE 4. AGRICULTURE 

PART I. TEXAS DEPARTMENT OF 

AGRICULTURE 

CHAPTER JO. SEED CERTIFICATION 

STANDARDS 

SUBCHAPTER A. GENERAL RF.QUIREMENTS 

4 TAC 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~(28 TexReg-t760). 

The amencment ii adopted IO incn,aae tees tor lioensing U a Reglmrtd Plant Bl'Mdlr. The.._ lncreued by thi& adoptlOn haveno1: been increuedbr the Board since 1987. The increase 

In fNs will alloW the&o,td and the Ta,,: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 $100 to $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 made to 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, but that It teela the lnoreaNd f9ee are 

not IIR)r0Pf1ate and do not rwft9ct the lnstructiona of the -e leadership not to IBM tu: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:/ 6 7531/ metapth l 01071/ m 1/101/? 

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 
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PART 15 

CHAPTER352 

RULE §352.1 

Repealed Date: 

Historical 

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Texas Administrative Code 

ADMINISTRATION 

TEXAS HEALTH AND HUMAN SERVICES 

COMMISSION 

QUALITY ASSURANCE FEE 

Purpose of Chapter 

03/01/2010 

Texas 

Register 

(a) This chapter implements the determination, assessment, collection, and 

enforcement of the quality assurance fee authorized under chapter 252, Health and 

Safety Code, subchapter H. 

(b) The purpose of the quality assurance fee established under this chapter is to 

I\,,,..., improve the quality of care provided to 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 Medicaid program, subject to 

legislative appropriation for this purpose; and 

(2) The Department of Aging and Disability Services (DADS) may also offset 

allowable expenses to administer the quality assurance fee program against 

revenues generated by the collection of the quality assurance fee. 

Source Note: The provisions of this §352.1 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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TITLE 1 

PART 15 

CHAPTER 352 

RULE §352.2 

Repealed Date: 

Historical 

Texas Administrative Code 

ADMINISTRATION 

TEXAS HEALTH AND HUMAN SERVICES 

COMMISSION 

QUALITY ASSURANCE FEE 

Definitions 

03/01/2010 

Texas 

Register 

As used in this chapter, the following terms shall have the meanings prescribed 

below, unless the context clearly indicates otherwise: 

(1) "DADS" means: The Department of Aging and Disability Services. 

"-

(2) "Facility" means: 

(A) An intermediate care facility for the mentally retarded or the corporate 

parent of an intermediate care facility for the mentally retarded licensed under 

chapter 252, Health and Safety Code; or 

(B) A facility operated according to the requirements of chapter 252, Health and 

Safety Code, and owned and/or operated by a community mental health and 

mental retardation center as described in chapter 534, subchapter A, Health and 

Safety Code; or 

(C) A facility owned by DADS. 

(3) "Gross receipts" means money paid to a facility as compensation for services 

provided to residents, including resident participation, but does not include 

charitable contributions to a facility. Gross receipts are defined as accrued 

payments and not as cash received. · ------ \......' 

(4) "Total patient days" means the sum, computed on a monthly basis, of the 

following: 
{A) The total number ot residents occupying a tacillty bed nmnediately betore 

midnight on each day of the month; and 

'-- (B) The total number of beds that are on hold on each day of the month and that 

have been placed on hold for a period not to exceed three consecutive calendar 

days during which a resident is on therapeutic leave during the month. 

(C) The total number of days a resident is discharged from a facility are not 

counted in the calculation of the total patient days under this chapter. 

Source Note: The provisions of this §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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Texas Administrative Code 

TITLE 1 

PART 15 

CHAPTER352 

RULE §352.3 

Repealed Date: 

Historical 

ADMINISTRATION 

TEXAS HEALTH AND HUMAN SERVICES 

COMMISSION 

QUALITY ASSURANCE FEE 

Quality Assurance Fee Determination Methodology 

03/01/2010 

Texas 

Register 

;ffa) Quality assurance fee. Effective January 1, 2008, the quality assurance fee for a 

~cility is five and one half percent of a facility owner's gross receipts. 

(b) Quality assurance fee review. Every twelve months on a schedule determined 

by DADS, DADS will review each facility owner's quality assurance fee payments 

'---' from all of the owner's facilities combined. A facility owner's liability for the 

quality assurance fee may be adjusted following this review to ensure that the 

quality assurance fee equals five and one half percent of annual gross receipts 

from all facilities. 

Source Note: The provisions of this §352.3 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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Texas Administrative Code 

TITLE 1 

PART 15 

CHAPTER352 

RULE §352.4 

Repealed Date: 

Historical 

ADMINISTRATION 

TEXAS HEALTH AND HUMAN SERVICES 

COMMISSION 

QUALITY ASSURANCE FEE 

Required reports 

03/01/2010 

Texas 

Register 

(a) The following reports must be filed by a facility in accordance with DADS 

instructions: 

(1) The monthly patient day report required under subsection ( c) of this section; 

and 

(2) The annual report of gross receipts required under subsection ( d) of this 

section. 

(b) Amended reports. 

(1) A facility may amend a report required under subsections (c) or (d) of this 

section; 

(2) An amended monthly patient day report must be filed no later than 20 

calendar days after the last day of the month for which the report was filed. 

(3) An amended report of gross receipts must be filed no later than 10 calendar 

days after the filing of the report required under subsection ( d) of this section. 

( c) Monthly patient day report. 

(1) A facility must report, not later than the 10th calendar day after the last day of 

"- a month, the total number of patient days for the facility during the preceding 

month. 
CL) A tacllity must tile the report required by this subsection on torms or m the 

format and according to the instructions prescribed by DADS . 

...__, ( d) Reporting of gross receipts. 

(1) A facility must report, no later than October 31 of each year, money paid to 

the facility by private-pay residents and money paid to the facility for bed-hold 

fees for the period of September 1 through August 31 immediately preceding the 

report. DADS will use the Durable Medical Equipment and Applied Income 

amounts on file with the Claims Management System and the amounts reported by 

the facility for private-pay and bed-hold to determine the total gross receipts. 

(2) A facility must file the report required by this subsection on forms or in the 

format and according to the instructions prescribed by DADS. 

Source Note: The provisions of this §352.4 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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Texas Administrative 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 of Quality Assurance Fee 

03/01/2010 

Texas 

Register 

(1) Pay the amount of the quality assurance fee in accordance with DADS 

instructions not later than the 30th day after the last day of the month for which 

the fee is assessed; or 

(2) Pay the amount of the quality assurance fee in accordance with DADS 

instructions and request an informal review of the calculation of the quality 

assurance fee in accordance with §352.8 of this chapter. 

(b) DADS may review the calculation of the quality assurance fee to ensure its 

accuracy and instruct the facility to correct its calculation and payment. 

Source Note: The provisions of this §352.5 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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Texas Administrative 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 or the record of any corporate parent or 

affiliate of a facility for the purpose of determining the total patient days and gross 

receipts of the facility. 

(b) The Health and Human Services Commission (HHSC) and DADS may not 

1o,,....,grant any exceptions from the quality assurance fee or the provision of any data 

necessary for DADS to calculate the fee. 

( c) HHSC or its designee audits quality assurance fee determinations in 

accordance with this subsection. 

( 1) HHSC or its designee periodically audits the records of a facility and, if 

necessary, the corporate parent or affiliate of a facility to verify the amount of the 

quality assurance fee owned by the facility. The facility must allow HHSC or its 

designee to review and photocopy any records necessary to conduct the audit. 

(2) If a facility fails to maintain records or fails to allow HHSC or its designee to 

review and photocopy any records necessary to conduct an audit, an audit will be 

conducted with the records available. 

(3) HHSC or its designee provides the facility with a report of the final audit 

findings. 

'-- (4) If the final audit findings show the facility owes additional amounts for the 

quality assurance fee, DADS notifies the facility of the amount due. If the final 

... ,... ... 
audit t1nd1ngs show the tac1llty 1s owed money due to overpayment ot the quallty 

assurance fee, DADS refunds the amount owed to the facility owner. 

\._-------------------------------

Source Note: The provisions of this §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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Texas Administrative 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 of this 

chapter; 

\....., (2) Files a false, erroneous, or fraudulent monthly facility report that DADS 

concludes resulted in the assessment of a quality assurance fee that is less than the 

facility should have been assessed; or 

(3) Fails to timely pay a quality assurance fee assessed under §352.5 of this 

chapter. 

(b) A penalty assessed under this section is an amount equal to one-fourth the 

amount of the quality assurance fee for each month the quality assurance fee is 

late, not reported or unpaid. 

( c) DADS will notify a facility in writing of the assessment of a penalty under this 

section and the amount of the penalty. 

(d) DADS may make 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 of information to DADS; 

(2) Willfully submitted erroneous information to DADS; or 

,_.,. ,. .... .. 
(.i) Violated a requirement ot its llcense or Medicaid certitication. 

(e) DADS may suspend payments to a facility that fails to pay or report the quality 

\...,assurance fee. 

(f) The assessment of a penalty under this section does not relieve a facility from: 

(1) Providing services to residents in accordance with its obligations under 

contract or the law; 

(2) Paying additional quality assurance fees that may be assessed to the facility; 

or 

(3) Otherwise complying with licensure and certification requirements. 

Source Note: The provisions of this §352.7 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 Administrative Code 

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TITLE 1 

PART 15 

CHAPTER352 

RULE §352.8 

Repealed Date: 

Historical 

ADMINISTRATION 

TEXAS HEALTH AND HUMAN SERVICES 

COMMISSION 

QUALITY ASSURANCE FEE 

Informal review 

03/01/2010 

Texas 

Register 

(a) A facility that believes DADS incorrectly calculated the amount of a quality 

assurance fee as defined in this chapter may request an informal review from 

DADS in accordance with this section. 

(b) The purpose of an informal review is to provide for the informal and efficient 

'-resolution of the matters in dispute. An informal review is not a formal 

administrative hearing, but is a prerequisite to obtaining a formal administrative 

hearing and is conducted according to the following procedures: 

(1) The facility must request an informal review in writing to DADS, delivered 

by United States mail or special mail delivery to DADS no later than 20 calendar 

days after the date on the written notification of a calculation described in 

subsection (a) of this section. 

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

(A) A concise statement of the specific actions or determinations the facility 

disputes; 

(B) The facility's recommended resolution; and 

(C) Any supporting documentation the facility deems relevant to the dispute. It 

is the responsibility of facility to submit all pertinent information at the time of its 

'-' 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 staff of the information submitted 

by the facility. 

(2) DADS may request 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 may not be used in 

DADS written decision unless the interested party receives approval from DADS 

to submit the information after 14 days. 

(d) Within 30 days after the date the request for informal review is received by 

DADS or the date additional requested information is received by DADS, DADS 

sends the facility its written decision by certified mail, return receipt requested. 

Source Note: The provisions of this §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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Texas Administrative Code 

TITLE 1 

PART 15 

CHAPTER352 

RULE §352.9 

Repealed Date: 

Historical 

ADMINISTRATION 

TEXAS HEALTH AND HUMAN SERVICES 

COMMISSION 

QUALITY ASSURANCE FEE 

Appeal of an Informal Review Decision 

03/01/2010 

Texas 

Register 

A facility that wishes to appeal an informal review decision under §352.8 of this 

chapter may request a hearing from the Health and Human Services Commission 

in accordance with Chapter 357, Subchapter I of this title (relating to Hearings 

Under the Administrative Procedure Act). 

Source Note: The provisions of this §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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Tf ·,. \S Rf CISTf P Tl\. \S \IJ'\Jl'\ISTP .\ Tl\ t COi ,1 
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 of 7x.1s:1~g 

rules. A rule adopted by a state agency takes effect 20 days after the date on which. Lt 1s 

filed with the Secretary of State 1.mless a later date is required by statute or spe<:ified in 

the rule (Government Code, §2001.036). If a rule is adopted without change to the texl of the proposed rule, then the 

Texas Register does not republish the rule text here. (fa rule is adopted with cllllnge to the text of the proposed rule, then 

the final rule text is included here. The final rule text will appear in the Texas Administrative Code on 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 Tex Reg TT89) and will not be repub- lished. 

Theamelldments update the ICFIMRqua~ty assu-aoce tee rules 

by reviSing the quality assurance fee perceotage to reflect the 

maximum 5.5 percent fee alloWed under the 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 ICFIMR quality assurance lees. The effect of this law 

is that contraCled ICF!MA providers will pay less ln quality as- surance "lffS to the state than they currently pay. tn addition. the 

amendment8 update adminiStrative procedures relating to the 

quality assurance fee, remove ouldated language. and update 

references to reflect that the Department of Aging and Olsabllty 

Serviees (DADS) has administraUve responsibility for the quality 

assurance lee. 

The purpose of the amendment& are to 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 review andfonnal appeal 

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 or clarified, and the definition ol •gross receipts" is clarified 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 for those 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· 

ter lhe federal macical assistance (Medicaid) program in Texas. 

This agency hereby certifies that the adoption has been reviewed 

by legal counsel and found to be a 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 

ADOPTED RVLES 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 

1 TAC tfMZ.l • 351.' 

The 

~ 

H..ith and Human Services CommiUlon (HHSCJ propoae1 

to ff352.1 - 352.9, conoemlng tha quality anurance IM lor the l~meoiatlt care Facilltles Mental Relafdallon 

(ICF!MR) program. 

~d and 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» IN NIN by re,,ising the~ ueu,ar,011 IN percentage to rellect'tta maximl.ffl 5.5 percent let aJloWed under 1he llderal Tax Re11e1 and Health Care Ad. of 2006 (TRHCA), P.L.. 109-432. 8cK1iorl 403, Whid'I amended Sedtorl 1903(w)(4)(C) 

of !hi Social S.Wrtty Id (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/MR lacilillN in the TAHCA ~ a 0.5 per. oen1: Nalction in matchable ICF/MR quaMty aPU'8IICe tHI. The 

affec;t 01 lflll law ia ltlal contract«t ICfJMR provider& wil pay less 

In quality assurance fe• to the state than !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 Department OI Aging 

and Dlubillty Servloes (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,ie tor the administration of Iha quality auurance fee. 

R91'nO'te lUbleetiOfl (C) beCaUH Cl'taot• 252 ol the HMfth and 

SakNy Codi wu amended by Iha 79th Legialalunl to ram0Yfl an embedded expration date, making this subsection oblKllele. 

Renamit the section to betl8r dltcri>e its contents. 

The~ amendment revilH §352.2 to: 

Adel a paragraph defining DADS and renumber aubeeqlJent ,.,_. 

Replace In the newly renumbered paragrarit, {2)(C) 1hl refer. 

ence to the "Tuu Departmen1 of MerGI Health and Mental fle- tardatiOn {TOMHMR)" with a raference to DADS. 

Clarify In the newly Nnumbared peragrapt, (3) that i,na1 reoEMptS are defined as accruedpaymentc and not as 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 a tacllty's gross rec:eipls effecllw January 1, 2008. 

Ranova an ouldMed dale; replace referencN to the ''Comrrvation or !ta dnignee" with teloreoces 10 DADS; add languags to 

reql.lN' Iha! qualily uaurance fee reviews are conducted ...,.ry 

12-monlhl: ac1C1 !anguage to allow DAOS to make adiUltmentl lo erlllUl'II that the quallty ueurance tee equals 5.5 percent ol each facillty's groa receipts; and add language to indcale that 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 relerenoes to the "Commission or Its deslgnee" with referenoea to DAO$, which 11 1Wponalble !or the acminislralion o1 

the Quality assurance lee. 

Revise subNc:ticin (a)(2) to rwqui!'II annual reports of groM r&-

01iptl instead ot semi-annual reports. 

Rmse th• due dale for submitting amended monthly Datient day 

reportS in subNction (b)(2) from 10 calendar days following the 

fling of the report to 20 eallllndllr days after the last day ot the 

month for which the report WU tied. 

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 report to 10 days "after" lllng the r.port. 

Revile the ck» date for •tlmltttno the monthly pdlent day report 

in 11.JbMCtiOn (c:~1) from 20 calendar days after the last Clay of 

the month to 1 D calender days aftar 1h11 lut day of the month. 

A..... tubNalon (cl)(1) to lndloale thel facilitlN muat report 

mo,wy paid to the 'lac:illty by~ /"8lkfenlr and tor baCS- hold !wt during Reh ttm "9oa.l year by Oc:lober 31 each year 

and lo indicD that DADS will UN this intorrnatlon, along wi\h the 

Durable Medical Equipment and Applied Income emounu on fie ,_ with the Claims ManagernW Syatem, to detarmine total grou 

The proposed amen::ment rewses §352.5 10: 

R8place Nleranoea to the "Commiuion or Ila deelgrMta" with ref· 

er'9llCe8 to DADS, which It re&ponllble for the 9'*nlni8lratlon of 

the quality 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- menta and subaection (b) is ro1 a part of that 1181. 

The proposed amerd"nent revilN §352. 6 to: 

Replace reterences to the "CcnvniUiOn fJlt Its dellgl"lee" with references to DADS, whictl ls responsiblll for the mninisiration of 

the quality &ICMIIMC8 fee. 

/nctcatettwlt DADS monltlnlacilltie1' recofdt butcloesnotaJClil 

lham. 

lncicata that HHSC or its deeigflM &I.ICit& quality auuranoe fee 

cleteminatlons for accincy. 

The pr0pOl8d amendment reviaeB f352.7 to: 

Replace refer8f"l0N lo the "Commiuion or its deaignee" with refarwinces to DADS, which It mponslble for the llCSTiiniltration of 

the ~ uaurance fee. 

Renumber eubeection (a)(4)aasublec:tiQn (b) and:clarllyltlalthe 

fti\ln0ial penal\/ II equal to one-1oul1f'I the emoi.nt of the~ aMtnnCe tee tor each month the quality uauranc:e lee ii late, 

not Nl)Cllted, or l.ffll*ld. 

Re-designate the 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:/ 6 7531/metapth97421/ m 1/11/7 

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 U NT 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 lo the ·Comm.ssion or 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 an formal rt11view 

must be received by DADS no later than 20 calendar day& alter 

lhe dale on 1110 written notificallon of lhe calculation ot lhe qualify 

assurance tee. 

Replace references to ·staff." 0lead staff," 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 reqUMt fo, i<lfonnal review is r"""'11ed Ill' DADS and lhat Ille 

decision is sent to the "'faolity" rattler than the ·tnterested party." 

The proposed ameronent revises §35.2.9 to: 

Remove reference to the appeal as being for the assessmern o1 a 

penalty and replaea it with a referooce 10 the appeal aa being for 

an _informai irevieW decision. since this section refers to §352.8 

which govems lnfofmal reviews., not assessments of penalties. 

Replace refttrenots to the ·Comm,ssion or rts designff" 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 effect there will be 

a fiscal impael 10 state go.emrnent of $3.078.151 for Slale firs()al 

year (SFY) 2008: $4,617,227 lo, SFY 2009: $4,6I7,227 for 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 or administering the amended 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. 

HHSC does not anticipate that !here wiR be any economic: cost lo 

persons who are required 10 oomply wilh this proposed •mendmenl. The amendment will not affect local employment. 

Public Benefit 

C.,oiyn Pratt, Director of Rate Analysis, has detennined Iha!, for 

each of the twst ftve years the proposed rule amendments are in 

effe<;t, Ille e,pecled public benefit is lhat - rule language 

will be_ eliminated: refe,ences lo TDMHMR, which no longer ex· 

,ots, w,11 be removed and replaoed wi1l1 refe, onces lo DADS, lho 

32 TexReg 7790 No,ember 2, 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 quality a8*jranc:e tee allowed under the tederal Tax Relief and Heallh care Ad of 2006. P.L. 109-432. sachon 403 effectiVe Jam,a,y 1. 2008. 

Taking& lmpa01: Assessment 

HHSC has-nnined lhal lllis proposal does not restrict or •mil an owner'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 Texn Govemmonl Code, §2007.043. 

Regula!Ofy Analy&IS 

HHSC has delerm"1ed that lhis proposal is not a ·major 9flwonmenial ru1e· as defirled by §2001.0225 ot lhe 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 

tisk co homan health from enWonmental exposu,e and ltlat may 

adYerlely alfecl, in a material way. the economy. a - ot lhe 

economy, productivity, competition, jobs, the envi,onment or the 

pUblic health and aalety ol a state or a sedor ol lhe stale. Thi$ 

p,_.al is not specifically intOfldod to proteol Iha environment 

or reduat ri&l<s 10 human health 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 by facsimile 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 lhe fedetat medical assl&lance (Medicaid) program in Texas. 

The propooed amendmenlS aHect 1110 Human Rescurces Code. 

Chapler 32. and 1l1e Texas 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 

utm t·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~r care JWa\•id1--d to p::r.umi. "'ilh 

mt'flUII rdardiilLion tL,. folkiwis· 

t It 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 Next Rule>> 

TITLE 1 

PART 15 

Texas Administrative Code 

ADMINISTRATION 

TEXAS HEALTH AND HUMAN SERVICES 

COMMISSION 

CHAPTER357 HEARINGS 

SUBCHAPTER I HEARINGS UNDER THE ADMINISTRATIVE 

PROCEDURE ACT 

RULE §357.483 

Historical 

Powers and Duties of the Judge 

Texas 

Register 

(a) The judge is a designee of the HHSC Executive Commissioner for purposes of: 

( 1) issuing default, final, and other orders, and 

'- (2) ruling on any motions for rehearing. 

(b) The judge shall have the authority and the duty to: 

(1) regulate pre-hearing matters and the hearing; 

(2) conduct a full, fair, and impartial hearing; 

(3) take action to avoid unnecessary delay in the disposition of the proceeding; 

and 

(4) maintain order, including regulating the conduct of the parties, authorized 

representatives, witnesses, observers, and other participants. 

( c) The judge may issue any order in the interest of justice that is necessary to 

protect the person or party seeking relief from undue burden, unnecessary 

expense, harassment, or invasion of personal, constitutional, or property rights. 

'--' ( d) The judge has no authority to declare state statutes or rules, or federal statutes 

or regulations, invalid. 

A-Pfe?n DI X \ 0 
Source Note: The provisions of this §357.483 adopted to be effective June 20, 

2007, 32 TexReg 3544 

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Tl"· \S \IJ'\ll".ISTR \Tl\ I COlll Ul'I \,'\III TI\CS 
Cornell Law School 

Legal Informa!!~~.,!~~!\~!;l~~ [Lil· 

"-...,., 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 of this 

section. 

(b) Permissible health care-related taxes. Subject to the limitations specified in§ 433.70, a State may receive, without a reduction in FFP, 

health care-related taxes if all of the following are met 

(1) The taxes are broad based, as specified in paragraph (c) of this section; 

(2) The taxes are uniformly imposed throughout a jurisdiction, as specified in paragraph (d) of this section; and 

(3) The tax program does not violate the hold harmless provisions specified in paragraph (f) of this section. 

(c) Broad based health care-related taxes. 

(1) A health care-related tax will be considered to be broad based if the 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) of this section. 

(2) If a health care-related tax is imposed by a unit of local government, the tax must extend to all items or services or providers (or to all 

providers in a class) in the area over which the unit of government has jurisdiction. 

(3) A State may request a waiver from CMS of the 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 of variations in 

licensing and certification fees for providers if the 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 of the licensing or certification program. 

(d) Uniformly imposed health care-related taxes. 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 

respect to 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 of the following criteria: 

(i) If the tax ls a licensing fee or similar tax imposed on a class of health care services (or providers of those health care items or 

services), the tax is the same amount for every provider furnishing those items or services within the class. 

(11) If the tax is a licensing fee or similar tax imposed on a class of health care items or services (or providers of those items or services) 

on the basis of the number of beds (licensed or otheiwise) of the provider, the amount of the tax is the same for each bed of each provider 

of those items or services in the class. 

{ill) If the tax is imposed on provider revenue or receipts with respect to a class of items or services (or providers of those health care 

items or services), the tax is imposed at a uniform rate for all services (or providers of those 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, or jurisdiction. Net 

operating revenue means gross charges of facilities less any deducted amounts for bad debts, charity care, and payer discounts. 

(iv) The tax is imposed on items or services on a basis other than those specified in paragraphs (d){1) (i) through (iii) of this section, e.g., 

an admission tax, and the State establishes to the satisfaction of the Secretary that the amount of the tax is the 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 of the following two criteria: 

(I) The tax provides for credits, exclusions, or deductions which have as its purpose, or results in, the return to providers of all, or a 

portion, of the tax paid, and it results, directly or indirectly, in a tax program in which -

(A) The net impact of the tax and~'!!~~~ is not generally redistributive, as specified in paragraph (e) of this section; and 

{B) The amount of the tax is directly correlated to p_<!Y._ments under the M_edica!Q program. 

(Ii) The tax holds taxpayers harmless for the cost of the tax, as described in paragraph (f) of this section. 

(3) If a tax does not meet the criteria specified in paragraphs (d)(1 )(i) through (iv) of this section, but the 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 of this paragraph. If the State 

desires waiver of only the broad-based tax requirement, it must demonstrate compliance with paragraph {e)(1) of this section. If the State 

desires waiver of the uniform tax requirement, whether or not the tax is broad-based, it must demonstrate compliance with paragraph (e)(2) of 

tW~D\'/... l\ 
this section. 

(1) Waiver of broad-based requirement 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 that is imposed on all revenues (including Medicare and ~ed1ca1d) but ex~udes ~ach1~~ 

hospitals would have to meet this 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 under the proposed tax with the 

proportion of Medicaid revenue being taxed under a broad-based tax. 

(I) A State seeking waiver of the 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 of the tax revenue applicable to Medicaid if the tax were broad based and applied to all providers or 

activities wtthin the class (called P1 ); 

(B) Calculating the proportion of the tax revenue applicable to Medicaid under the tax program for which the State seeks a waiver 

(called P2); and 

(C) calculating the value of P1/P2. 

(ii) If the 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 if the 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 of the 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) of this chapter); 

(4) Sole community tiospita.!.§. as defined in § 412,92(a) of this chapter; 

(5) Physicians practicing primarily in medically underserved Meas as defined in section 1302(7) of the 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 

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) Hospitals owned and operated by HMOs. 

(iv) If a tax is enacted and in effect after August 13, 1993, and the State demonstrates to the Secretary's satisfaction that the value of 

P1/P2 is at least 0.95, £M~ will review the waiver request. Such a waiver request will be approved only if the 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) Waiver of uniform 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 of the uniform tax requirement {whether or not the 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 of the x coefficient) of two linear 

regressions, in which the dependent variable is each provider's percentage share of the total tax paid by all taxpayers during a 12-

month period, and the independent variable 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". If the tax were based on provider inpatient days, the number of the provider's Medicaid days during a 12-month period would 

be its "Medicaid Statistic". For the purpose of this test, it is not relevant that a tax program exempts Medicaid from the tax. 

(B) Calculating the slope (designated as B1) of the linear regression, as described in paragraph (e)(2)(i) of this section, for the State's 

tax program, if it were broad based and uniform. 

(C) Calculating the slope (designated as B2) of the linear regression, as described in paragraph (e)(2)(i) of this section, for the State's 

tax program, as proposed. 
(ii) If the State demonstrates to the secretary's satisfaction that the value of B 1/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, CMS will review the waiver request. 

Such a waiver will be approved only if the following two criteria are met: 

(A) The value of B1/B2 is at least 0.95; and 

(B) The tax excludes or provides credits or deductions only to one or more of the 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 of an urban area as defined in § 412.62(f}(1 )(ii) of this chapter; 

(4) Sole community hospitals as defined in§ 412.92(a) of this chapter; 

(5) Physicians practicing primarily in medically underserved areas as defined in section 1302(7) of the 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 that vary based exclusively on regions, but only if the regional variations are coterminous with 

preexisting political (and not special purpose) boundaries. Taxes within each regional boundary must meet the broad-based and 

uniformity requirements as specified in paragraphs (c) and (d) of this section. 

(Iv) A B1/B2 value of 0.70 will be applied to taxes that vary based exclusively on regional variations, and enacted and in effect prior to 

November 24, 1992, to permit such variations. 

(f) Hold harmless. A taxpayer will be considered to be held harmless under a tax program if any of the following conditions applies: 

(1) The State (or other unit of government) imposing the tax provides for a direct or indirect non-Medicaid payment to those providers or 

others paying the tax and the Q_B_Y.m~~ amount is positively correlated to either the tax amount or to 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 of the Medicaid .P!J_yment_ to the taxpayer varies based only on the tax amount, including where Medicaid payment is 

conditional on receipt of the tax amount. 

(3) The State (or other unit of government) imposing the tax provides for any direct or indirect _eayment. offset, or waiver such that the 

provision of that payment, offset, or waiver directly or indirectly guarantees to hold taxpayers harmless for all or any portion of the 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 of the revenues received by the taxpayer, 

the tax or taxes are permissible under this 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 of January 1, 2008 through 

September 30, 2011, the applicable percentage of net _E@!ent service revenue is 5.5 percent. Compliance in State fiscal year 2008 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 or taxes produce revenues in excess of the applicable percentage of the revenue received by the taxpayer, CMS will 

consider an indirect hold harmless provision to exist if 75 percent or more of the taxpayers in the class receive 75 percent or more of 

their total tax costs back in enhanced Medicaid payments or other State payments. The second prong of the indirect hold harmless test 

is applied in the aggregate to all health care taxes applied to each class. If this standard is violated, the amount of tax revenue to be 

offset from medical assistance expenditures is the total amount of the 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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