Texas Health & Human Servs. Comm'n v. El Paso Cnty. Hosp. Dist.

• Decision Date: 04 October 2011
• Docket Number: No. 03–09–00318–CV.,03–09–00318–CV.
• Citation: 351 S.W.3d 460
• Parties: TEXAS HEALTH AND HUMAN SERVICES COMMISSION and Thomas Suehs, Commissioner, Appellants, v. EL PASO COUNTY HOSPITAL DISTRICT d/b/a R.E. Thomason General Hospital, et al., Appellees.
• Court: Texas Court of Appeals

351 S.W.3d 460

TEXAS HEALTH AND HUMAN SERVICES COMMISSION and Thomas Suehs, Commissioner, Appellants,

v.EL PASO COUNTY HOSPITAL DISTRICT d/b/a R.E. Thomason General Hospital, et al., Appellees.

No. 03–09–00318–CV.

Court of Appeals of Texas, Austin.

Aug. 4, 2011.Rehearing Overruled Oct. 4, 2011.

Rance L. Craft, Office of the Attorney General, Assistant Solicitor General, Austin, TX, for Appellants.

James E. Gjerset, Shauna L. Lorenz, Lance J. Ramsey, Gjerset & Lorenz, L.L.P., Austin, TX, Marie R. Yeates, Julie Woody, Vinson & Elkins, L.L.P., Houston, TX, for Appellees.

Before Chief Justice JONES, Justices PEMBERTON and WALDROP.

OPINION

BOB PEMBERTON, Justice.

Beginning in 2001, fourteen Texas hospitals (the Hospitals)¹ initiated proceedings—first at the agency level, then in the courts—challenging the methodology used by the Health and Human Services Commission(HHSC) in determining the rates under which the agency reimburses Texas hospitals for inpatient services provided to Medicaid insureds.Though unsuccessful before the agency and the lower courts, the Hospitals ultimately prevailed in the Texas Supreme Court.SeeEl Paso Hosp. Dist. v. Texas Health & Human Servs. Comm'n,247 S.W.3d 709(Tex.2008)(the “first appeal”).In a 2008 opinion and judgment, the supreme court declared invalid part of HHSC's rate-setting methodology, enjoined its enforcement, and declared that the Hospitals were entitled under HHSC's rules to a contested-case hearing regarding the agency's calculation of the reimbursement rates.Seeid. at 714–16.It remanded the cause to the district court for further proceedings consistent with its opinion.

Meanwhile, during the intervening years, HHSC had implemented Medicaid reimbursement rates derived from the methodology the supreme court later held invalid and paid the Hospitals' Medicaid reimbursement claims in accordance with those rates.On remand, the Hospitals sought remedies that had the ultimate goal of recovering any “underpayments” of Medicaid reimbursement caused by HHSC's application of the now-invalidated rate methodology.At the Hospitals' urging, the district court rendered a judgment that granted injunctive relief contemplating that HHSC would recalculate, without applying the invalidated part of its rate methodology, the reimbursement rates that would have applied beginning in state fiscal year 2002 and each year thereafter.On appeal, HHSC challenges this injunctive relief to the extent it applies to time periods before the date of the supreme court's mandate.

As we detail below, the parties' contentions require us to ascertain the legal effect of the supreme court's judgment, whether the district court awarded relief beyond what the supreme court did explicitly or implicitly, and whether any such additional relief was error.We conclude that to the extent the district court's injunction applies to the calculation of the reimbursement rates applicable during state fiscal year 2008 or later, the relief merely tracks the legal effect of the supreme court's judgment.However, to the extent the injunction extends to recalculations of the rates that applied during prior years, we conclude that it goes beyond the relief awarded in the supreme court's judgment and, furthermore, was error.

BACKGROUND

Rate-setting methodology

The Medicaid health insurance program, which covers medical care for low-income and certain other eligible persons, is jointly operated and funded by the federal and state governments, with each state being responsible for administering the program within its borders in accordance with guidelines mandated or approved by the federal government.Seeid. at 711–12.In Texas, the Legislature has delegated this administrative responsibility to HHSC.A key part of HHSC's delegated responsibilities is reimbursing health care providers who provide medical care to Medicaid insureds and determining the amounts to be paid.At relevant times, the Legislature had charged HHSC with establishing, “on a prospective payment basis,” the amounts that Texas hospitals are reimbursed for providing inpatient services to Medicaid patients.²Tex. Hum. Res.Code Ann. § 32.028(d)(1)(West Supp.2010).³In so doing, the Legislature has required that HHSC “shall,” among other things, “assure that the payment rates are reasonable and adequate to meet the costs incurred by the hospital in rendering services to Medicaid recipients.”Id.To that end, HHSC has promulgated rules establishing procedures whereby it is to periodically recalculate prospective reimbursement rates for Medicaid inpatient hospital services based on recent historical claim and cost information collected from hospitals.Although these rate-setting procedures were described at length in the opinions from the first appeal, ⁴ their complexity and the parties' common reliance on their intricacies in the present appeal warrant that we revisit them in some detail to provide context and clarity to the issues currently in dispute.

Since 1986, and at all times relevant to this appeal, the agency has had in effect formal rules governing how it establishes and adjusts Medicaid reimbursement rates for hospitals.See1 Tex. Admin. Code § 355.8063(2004)(Tex. Health & Human Servs. Comm'n, Reimbursement Methodology for Inpatient Hospital Services)(hereinafter, “Former Rule § 355.8063”).Although there were other components to the rates HHSC set under Former Rule § 355.8063, the one important to this appeal was a “standard dollar amount”(SDA) assigned to each hospital, an approximation of the hospital's costs for an average or “standard” Medicaid case.Seeid.§ 355.8063(a), (b)(4), (c).HHSC would first determine each hospital's individual SDA by dividing the hospital's overall cost per Medicaid case by a factor known as the “casemix index,” a measure of the average complexity of the hospital's Medicaid cases.Seeid.§ 355.8063(b)(2)-(4), (c).Based on their individual SDAs, hospitals were then grouped into “payment divisions,” and a weighted-average SDA was determined for each such division.Seeid.§ 355.8063(a), (b)(4).The weighted-average SDA was then assigned to each hospital in the payment division.Seeid.From there, the amount of Medicaid reimbursement paid to a hospital for providing a particular medical treatment or procedure would be determined by multiplying the weighted-average SDA assigned to the hospitals' payment division times a “relative weight” reflecting the complexity of the procedure.⁵Although the actual calculations were somewhat more complicated, for present purposes it suffices to observe that a higher individual SDA for a hospital could mean a higher payment division and higher assigned weighted-average SDA, and that the higher a hospital's assigned weighted-average SDA, the greater its reimbursement payments for providing a particular medical treatment.Consequently, we will use reimbursement “rates” as shorthand for the weighted-average SDA assigned to a hospital based on its payment division, and “SDAs” to refer to the individual SDAs that determined a hospital's assigned payment division.

Under Former Rule § 355.8063, HHSC was generally required to recalculate or “rebase” SDAs and reimbursement rates and recalibrate relative weights at least every three years.Seeid.§ 355.8063(h), (i).This rebasing process correspondingly ran on a three-year cycle that was tied to the state fiscal year (FY), which runs from September 1 through August 31.SeeEl Paso Hosp. Dist.,247 S.W.3d at 713.The first year of the three-year cycle was designated as the “base year,” a “12–consecutive month period of claims data selected by [HHSC] or its designee.”Former Rule § 355.8063(b)(5);seeEl Paso Hosp. Dist.,247 S.W.3d at 712.Following the end of the base year (FY 1), HHSC would, during the second year (FY 2), compile cost data from Medicaid claims arising from hospital admissions made during FY 1 and, based on this data, determine new SDAs, reimbursement rates, and relative weights.SeeFormer Rule § 355.8063(n);El Paso Hosp. Dist.,247 S.W.3d at 712.These new rates would then take effect at the beginning of the third year (September 1 of FY 3) and remain effective for another three-year period, during which the same rebasing process would be repeated based, once again, on claims data compiled from the first year of the period.SeeFormer Rule § 355.8063(n);El Paso Hosp. Dist.,247 S.W.3d at 712.In the interim between rebasings, HHSC was to make annual cost-of-living adjustments to the rates.SeeFormer Rule § 355.8063(n)(2).

Hospitals had an obvious stake in ensuring that HHSC fully accounted for their costs of treating Medicaid patients during the base year, as higher costs could mean higher SDAs, higher reimbursement rates, and greater reimbursement payments.Former Rule § 355.8063 provided hospitals an administrative appeal process through which they could challenge perceived “mechanical, mathematical, and data entry errors in computing the hospital's base year claims data” and obtain adjustments before the new rates became effective.Seeid.§ 355.8063(k).However, the rule explicitly barred such appeals with respect to “the prospective payment methodology used by the HHSC,” including “the payment division methodologies.”Id.§ 355.8063(k)(2).

Under this administrative appeal process (hereinafter “the appeal rule”), a hospital claiming that HHSC made “a mechanical, mathematical, and data entry error in computing the hospital's base year claims data” could submit to HHSC, within sixty days after the hospital received initial notification of its SDA and payment division (which would occur during the second year of the three-year rebasing process), “a specific written request for review and appropriate specific documentation supporting its contention that there has been [such] error.”Id.§ 355.8063(k)(1)(A).HHSC then had to “conduct the review as quickly as possible and notify the...