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February 26, 2008

What is a "Rule" and what is an "Interpretation"?

The Texas Supreme Court addressed this question under its state APA in El Paso Hosp. Dist. v. Tex. Health & Human Serv. Comm'n, 51 Tex. S.Ct. J. Rep. 534 (Tex. 2008).  I don't pretend to be an expert in this little niche, but found the court's analysis interesting: if the agency had adopted a "rule," then it had not followed proper procedures for doing so, but if it was merely interpreting an existing rule or statute, then it had.  The court reasoned, in part:

Under the APA, a rule: (1) is an agency statement of general applicability that either “implements, interprets, or prescribes law or policy” or describes [HHSC’s] “procedure or practice requirements;” (2) “includes the amendment or repeal of a prior rule;” and (3) “does not include a statement regarding only the internal management or organization of a state agency and not affecting private rights or procedures.” Tex. Gov’t Code § 2001.003(6)(A)–(C).

            First, the February 28 cutoff is a statement of general applicability that implements law or describes procedure. See id. § 2001.003(6)(A)(i)–(ii). The term “general applicability” under the APA references “statements that affect the interest of the public at large such that they cannot be given the effect of law without public input.” R.R. Comm’n of Tex. v. WBD Oil & Gas Co., 104 S.W.3d 69, 79 (Tex. 2003). The prospective payment system and its calculations affect all hospitals receiving reimbursement for inpatient Medicaid services. Thus, no question exists that the February 28 cutoff is a statement of general applicability because it applies to all hospitals.

            The cutoff further implements policy and describes HHSC’s data collection procedure. HHSC is required to describe the process used to determine payment rates through its formally promulgated rules, and HHSC’s rule provides that it will use a base year, “[a] 12-consecutive-month period of claims data,” to calculate the Hospitals’ rates. 1 Tex. Admin. Code § 355.8063(b)(5). The effect of HHSC’s February 28 cutoff, however, is to modify the base-year rule by controlling the data HHSC will use from that year. The February 28 cutoff thus amends another rule, the base year’s 12-consecutive-month period of claims data, thus meeting the second criteria of a rule. See Tex. Gov’t Code § 2001.003(6)(B).

            Finally, the February 28 cutoff is not a statement regarding the agency’s internal management or organization but rather affects the Hospitals’ private rights. Hospitals are entitled to have their prospective reimbursement rates determined according to the formula set out in HHSC’s rules. The February 28 cutoff is a key component of that formula, directly affecting the Hospitals’ right to reimbursement, but was not adopted through proper rule-making procedures. Id. § 2001.003(6)(C).

            The enabling statute here requires that HHSC adopt “reasonable rules and standards governing the determination of rates paid for inpatient hospital services on a prospective payment basis.” Tex. Hum. Res. Code § 32.028(d). Specifically, HHSC must “assure that the payment rates are reasonable and adequate to meet the costs incurred by the hospital in rendering services to Medicaid recipients.” Id. § 32.028(d)(1). The February 28 cutoff is a significant component for calculating prospective reimbursement rates, and the Hospitals complain that its effect is to skew those rates to their disadvantage. Whether or not this is true, it is a matter that the agency should explore as a part of its rule-making process.

            A presumption favors adopting rules of general applicability through the formal rule-making procedures the APA sets out. Rodriguez v. Serv. Lloyds Ins. Co., 997 S.W.2d 248, 255 (Tex. 1999). These procedures include providing notice, publication, and public comment on the proposed rule. Id. (citing Tex. Gov’t Code §§ 2001.023–.030). The process assures notice to the public and affected persons and an opportunity to be heard on matters that affect them. Id.

            When an agency promulgates a rule without complying with the proper rule-making procedures, the rule is invalid. See Tex. Gov’t Code § 2001.035(a). Although we do not decide whether the February 28 cutoff is appropriate to the determination of whether hospitals receive reasonable and adequate reimbursement for inpatient Medicaid services, we do hold that HHSC should have incorporated the cutoff into the language of the “base-year rule.” See, e.g., 1 Tex. Admin. Code § 355.8065(b)(24) (including cutoff in rule pertaining to additional reimbursement for disproportionate share hospitals). Because we conclude that the February 28th cutoff is a rule that HHSC did not properly promulgate, we reverse the court of appeals’ judgment and render judgment declaring the rule invalid and enjoining its enforcement. See Tex. Gov’t Code § 2001.035.

Again, not my area of expertise, but I found the rule/interpretation dichotomy interesting.

February 26, 2008 in Current Affairs | Permalink


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