February 24, 1999

William R. Archer III, M.D. Commissioner ofHealth Texas Department ofHealth 1100 West 49th Street Austin, Texas 78756-3 199 Opinion No. K-0003 Re: Binding effect of government agency rules on other state entities (RQ-1201)

Dear Commissioner Archer: Your predecessor asked this office whether rules promulgated by the Texas Department of Health (the “department ”) as administrator of the Texas Medical Assistance (Medicaid) Program were binding on state entities participating in that program ashealth care providers. We answer in the affirmative. So long asastate agency’s rules arewithin thepower granted toitbythe legislature and have been properly promulgated, they have the force of law. See Lewis v.Jacksonville Bldg. & Loan Ass’n, 540 S.W.2d 307, 310 (Tex. 1976). The mere fact that an entity engaged in the conduct governed by those rules is a state agency, board, department, orpolitical subdivision no more exempts that entity from the rule than it would be from alegislative enactment. See City of Lubbockv.Public Util. Comm’n, 705 S.W.2d329,330-31 (Tex. App.-Austin 1986, writrefdnre.). As your predecessor explained the situation, the department promulgates rules for participation in the Medicaid Program, including inter alia deadlines for tiling claims which are codified atvolume 25, section 29.3 ofthe Texas Administrative Code. Health care providers enter into contracts with the department “whereby the entities agree[] to provide services in compliance with Medicaid Program rules and regulations.” Letter from Patti J.Patterson, M.D., Tex. Dept. of Health, toHon. Dan Morales, Office ofthe Tex. Att’y Gen. (July 7,1997) (on file with the Opinion Comm.). Certain ofthese providers, including Texas Tech University Health Sciences Center and the University ofTexas Medical Branch atGalveston, aswe understand it,have taken the position that because they are state entities, they are not subject tothe rules promulgated by the department. Itis, we are given to understand, that assertion and that assertion alone which you wish this office to consider. We will therefore assume, without deciding, that the rule in question is within the statutory authority ofthe department; that the rule has been properly promulgated; and that the entities in question are making no claim that an exemption for them istobe found somewhere else in the statute. We are considering only the bare proposition that astate entity may assert, merely because it is a state entity, that it is exempt from what would otherwise be abinding regulation properly promulgated by a state agency which had the necessary rule-making authority.William R. Archer III, M.D. - Page 2 (JC-0003)

- We know ofno authority forthis novel and indeed startling proposition oflaw. Indeed, the

contrary view that properly promulgated state agency rules bind allparties subject tothem, save the United States, is sowell established asto bebeyond question. Such rules, when within the powers granted by the legislature, have the force oflaw. SeeLewis, 540 S.W.2d at 310. A somewhat similar argument isto be found in City 

### ofLubbock. While in that case arule promulgated by the Public Utility Commission was found not to apply tothe city involved because ofaspecific statutory exemption, the Third District Court ofAppeals made itclear that absent such statutory exemption the city would have been bound:

[T]he City does not challenge the validity ofthis rule, but instead challenges its application to municipal regulatory authorities under PURA. The courts must assume that facts exist which justify the promulgation ofthe rule and establish its general validity. A valid administrative rule is ordinarily construed like a statute and has the force and effect of legislation. Accordingly, absent a statutory directive to the contrary, the court assumes that [the rule] does indeed apply to municipal regulatory authorities. City oflubbock, 705 S.W.2d at 330-31 (citations omitted).

- If a political subdivision or other state entity could assert that its mere political status

exempted it from an agency regulation, then the rest ofthe City 

### ofLubbock court’s analysis would have been supererogatory. Such isplainly not the case. An agency, acity, aboard or department, a state university: any such entity is as bound by aproperly promulgated rule as it would be by legislative enactment. We find the assertion to the contrary particularly troubling in light of the fact that, as we understand it,the rules in question are incorporated inthe contract between the department and the health care providers. Arule providing that astate entity could, in effect, avoid acontract term it found onerous forno other reason than itspolitical nature might atfirstblush seem an attractive one from the state’s point of view. But we imagine that, were such arule part of the common law, private parties would be loath to contract with the state on account ofit. No such rule, of course, exists; and we do not intend to expound it. But such arule would be the necessary consequence of the proposition which the health care providers have argued to you. Accordingly, we conclude that state entities, like other parties, arebound by rules properly promulgated by anadministrative agency towhich the legislature has given the necessary regulatory authority, unless specifically exempted therefrom.

-William R. Archer III, M.D. - Page 3 (JC-0003)

SUMMARY State entities, like other parties, arebound byrules properly promulgated by an administrative agency to which the legislature has given the necessary regulatory authority, unless specifically exempted therefrom.

Attorney General ofTexas ANDY TAYLOR First Assistant Attorney General CLARK RENT ERVIN Deputy Attorney General -General Counsel

- ELIZABETH ROBINSON

Chair, Opinion Committee Prepared by James E. Tourtelott Assistant Attorney General