Opinion

Southwest General

IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,

AT AUSTIN

NO. 3-93-670-CV

S. C. SAN ANTONIO, INC. DOING BUSINESS AS SOUTHWEST GENERAL

HOSPITAL, BY AND THROUGH SAFECO PROPERTIES, INC.,

ITS SUCCESSOR IN INTEREST,

APPELLANT

vs.

TEXAS DEPARTMENT OF HUMAN SERVICES,

APPELLEE

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 167TH JUDICIAL DISTRICT

NO. 92-12853, HONORABLE JERRY DELLANA, JUDGE PRESIDING

Appellee Texas Department of Human Services (the "Department") formerly

administered the Texas Medical Assistance Program ("Medicaid"), which includes a

reimbursement program for Medicaid hospitals serving a disproportionate share of low-income

patients ("Dispro I program"). (1) Under the Dispro I program, Medicaid hospitals that serve the

most low-income patients receive a pro rata share of an allotted fund which is disbursed annually.

In 1991 Southwest General Hospital in San Antonio applied for reimbursement under this

program. Based on the figures in its application, Southwest General was not selected to share in

the fund. After the Dispro I fund had been fully disbursed to the selected hospitals, Southwest

General discovered that it had not properly calculated its "total patient census days," a critical

number in the reimbursement formula. Had it properly calculated its total patient census days,

Southwest General estimates that it would have received approximately $850,000 of Dispro I

funds.

Southwest General sought a contested hearing to review the Department's allotment

of the Dispro I fund in 1991, alleging that the Department's failure to define "total patient census

days" harmed the hospital in the sum of $850,000. The Department granted the hospital an

administrative hearing in April 1992, at which time the administrative law judge upheld the

Department's denial of reimbursement to Southwest General. Southwest General then sought

judicial review of this decision and a declaratory judgment that the Department violated the

Administrative Procedure Act by relying on a definition that had not been published as a

Department rule. The trial court affirmed the agency decision and declined to grant the

declaratory relief. Southwest General brings this appeal, complaining of both actions.

Because we find no statutory or constitutional basis for an appeal from this agency

decision, we will render judgment that the suit seeking judicial review be dismissed for lack of

subject-matter jurisdiction. We will also dismiss for want of subject-matter jurisdiction Southwest

General's suit for declaratory judgment.

REIMBURSEMENT TO DISPROPORTIONATE SHARE HOSPITALS

In 1991 Southwest General was a designated Medicaid hospital, eligible to receive

payment for providing services to Medicaid patients. All qualifying Medicaid hospitals are

eligible to apply for additional reimbursement under the Dispro I program; the funds from this

program are awarded to the twenty-five percent of hospitals that provide the most services to low-income patients. The competitive Dispro I program is administered by the Department under

rules governing "Additional Reimbursement to Disproportionate Share Hospitals." 25 Tex.

Admin. Code § 29.609 (1994). (2) Neither party disputes that Southwest General qualified to

compete for a portion of the Dispro I fund in 1991.

The formula for determining a qualifying hospital's disproportionate share

percentage in 1991 was as follows:

Title XVIII days + Title XIX days + Additional Indigent Days × 100

Total Patient Census Days (3)

11 Tex. Reg. 4676 (1986) (former 40 Tex. Admin. Code § 29.609 (d)(1)). After calculating this

percentage, the Department arrays each hospital's disproportionate share percentage in descending

order and selects the twenty-five percent (25%) of hospitals that provide the most services to low-income patients. 25 Tex. Admin. Code § 29.609 (e)(3) (1994). The Dispro I fund for that year

is then allocated pro rata among the selected hospitals. (4) Hospitals that fail to rank among the top

twenty-five percent do not receive any reimbursement from the Dispro I fund.

Under the formula set forth above, the smaller the denominator, "total patient

census days," the higher the hospital's disproportionate share percentage will be. Southwest

General's calculation of its total patient census days was inflated, producing a smaller

disproportionate share percentage than it actually earned; this lower percentage knocked Southwest

General out of the top twenty-five percent of competing hospitals. (5) On July 19, 1991, the

Department informed Southwest General that it would receive no disproportionate share

reimbursement for 1991. At that time the Department disbursed 85% of the Dispro I fund to

qualifying hospitals; however, it retained 15% of the fund for thirty days to allow hospitals

dissatisfied with their ranking or their percentage to request adjustments. Having anticipated a

large reimbursement, Southwest General contacted the Department repeatedly within this thirty-day period to question its failure to receive reimbursement. However, the hospital did not

discover the miscalculation that led to its ineligibility until after the remaining 15% of the Dispro

I fund for 1991 was finally disbursed on August 19, 1991. Complaining that but for this

miscalculation it would have been entitled to $850,000 in reimbursement from the Dispro I fund,

Southwest General asked the Department to "recall" sufficient funds already distributed to other

hospitals to allow full reimbursement of $850,000 to Southwest General. When the Department

refused because the hospital's claim came too late, Southwest General sought an administrative

hearing. The administrative law judge found that the hospital was entitled to a hearing but upheld

the agency's decision. Southwest General then sought judicial review and a declaratory judgment

challenging the rules governing Dispro I; the trial court also affirmed the agency's decision.

JURISDICTION

The Department argues that no statute confers a right of judicial review of this

agency action, nor has the action adversely affected any vested property right of the hospital.

Although the Department did not object to the trial court's lack of subject-matter jurisdiction, this

jurisdictional challenge may be raised for the first time on appeal. Tullos v. Eaton Corp. , 695

S.W.2d 568 (Tex. 1985). Subject-matter jurisdiction is essential to our authority to decide a case.

Texas Ass'n of Business v. Texas Air Control Bd. , 852 S.W.2d 440, 443 (Tex. 1993). Southwest

General responds that the Texas Human Resources Code provides for this right of appeal in

section 32.034(a), which grants the Department authority to adjudicate claims in contested cases

in accordance with the Administrative Procedure Act, Tex. Gov't Code Ann. §§ 2001.001 -.902

("APA"). See Tex. Hum. Res. Code Ann. § 32.034 (a) (West Supp. 1995). Additionally, it

argues that section 32.0281 provides for the right to appeal actions involving rules that relate to

the determination of payment rates to Medicaid hospitals. See id. § 32.0281 (West 1990). It also

asserts that APA section 2001.171 confers a right of appeal in this case. See Tex. Gov't Code

Ann. § 2001.171 (West 1995). Finally, Southwest General contends that even without statutory

authority a right of judicial review is necessarily implied because the Department violated the

hospital's constitutional rights by taking a vested property right. We must resolve this question

of jurisdiction before addressing appellant's points of error.

The doctrine of governmental immunity insulates agency action from judicial

review unless a statute provides for such review, the action violates constitutional procedural due

process, or the constitution waives the state's immunity from suit. Southwest Airlines v. Texas

High-Speed Rail Auth. , 867 S.W.2d 154, 157 (Tex. App.--Austin 1993, writ denied). In

Motorola, Inc. v. Bullock, 586 S.W.2d 706 (Tex. Civ. App.--Austin 1979, no writ), we held that

the predecessor of APA section 2001.171, section 19 of the Administrative Procedure and Texas

Register Act, did not create a right of judicial review by generally waiving the state's immunity

from suit, but only set out the procedure for judicial review if suit is authorized pursuant to

another statutory provision. Id. at 708 . Consequently, section 2001.171 provides no basis for

judicial review of Southwest General's claim. Southwest Airlines , 867 S.W.2d at 158 .

Southwest General further relies on two sections in chapter 32 of the Texas Human

Resources Code, the chapter that governs this state's Medicaid Program. First, appellant points

to section 32.034(a):

The department has authority to adjudicate claims of contested cases in accordance

with the [Administrative Procedure Act]. When the department intends to cancel

its contract or impose monetary penalties under a contract with a person providing

medical assistance, the department shall give reasonable notice and an opportunity

for hearing if one is requested. The department shall adopt rules consistent with

the [APA] to implement this section, and hearings under this section are contested

cases under that act.

Tex. Hum. Res. Code Ann. § 32.034 (a) (West Supp. 1995) (emphasis added). This dispute does

not involve the cancellation of Southwest General's Medicaid contract or monetary penalties under

that contract. We therefore find no basis for judicial review in section 32.034(a).

Next Southwest General cites us to section 32.0281(e) of the Human Resources

Code, which governs "Rules and Notice Relating to Payment Rates" for medical assistance: "An

interested party may appeal an action taken by the department under this section, and an appeal

of such action shall be governed by the procedures for a contested case hearing under the

[Administrative Procedure Act]. . . ." Tex. Hum. Res. Code Ann. § 32.0281 (e) (West 1990).

However, Southwest General is not an interested party in a dispute concerning payment rates for

services provided under the Medicaid program. Rather, this dispute concerns "Additional

Reimbursement to Disproportionate Share Hospitals," a voluntary and competitive program that

makes no provision for a contested case hearing or other appeal of disputes regarding the

distribution of Dispro I funds. The administrative law judge erroneously relied on department

rules governing contested hearings of payment rates to find that Southwest General was entitled

to a hearing when it failed to qualify to receive Dispro I funds. We conclude that because this

dispute is not about payment rates, appellant may not rely on section 32.0281(e) to bring this

appeal.

Although the version of the department rule in effect at the time of this dispute

simply failed to provide for any appeal of a hospital's qualification or disqualification for Dispro

I funds, that rule has been amended to specifically negate a hospital's right to an adversary

hearing. (6) We note that in lieu of a contested hearing, the Department retained 15% of the Dispro

I fund for a thirty-day period to allow for "adjustments" before all the annual funds were finally

disbursed. (7) During this limited time period, any hospital could ask that its eligibility or the

amount of its reimbursement be corrected before the balance of funds was distributed. This

adjustment period was available to Southwest General, and the record reflects that sufficient funds

were retained to reimburse the hospital in full had its calculation error been timely discovered.

Reviewing the department rule and the time-sensitive nature of the reimbursement at issue, we

conclude that the rule governing additional reimbursement for disproportionate share hospitals

purposefully did not provide for a contested hearing with rights of appeal pursuant to the

Administrative Procedure Act. Appellant cannot bootstrap such a right of appeal from other

sections of the Human Resources Code governing payment rates for medical assistance. The

administrative law judge erred in finding any statutory basis for granting appellant a hearing. Southwest General maintains that it is nevertheless entitled to judicial review

because the Department's action deprived the hospital of a vested property right. See Texas State

Dep't of Human Resources v. Silver Threads Co. , 569 S.W.2d 49, 51 (Tex. Civ. App.--Austin

1978, writ ref'd n.r.e). We begin by noting that even if a right to judicial review is inherent when

an administrative action adversely affects a vested property right, judicial review of the

administrative decision is not necessarily required by due process protection. See id. ; Blair v.

Texas Dep't of Human Servs. , 837 S.W.2d 670, 671 (Tex. App.--Austin 1992, writ denied).

Rather, after determining that a protected interest is involved, the reviewing court focuses on

whether due process was afforded by the administrative procedures. Blair , 837 S.W.2d at 672 .

However, we must first determine whether Southwest General had a vested property right entitling

it to any judicial review at all.

Southwest General cites the Court to its recent decision in Texas Department of

Human Services v. Christian Care Centers, Inc. , 826 S.W.2d 715 (Tex. App.--Austin 1992, writ

denied), in which we held that the Department could not permanently withhold payment for

services that had actually been rendered to qualified Medicaid patients. Id. at 720 . The

distinction in this case is that Southwest General had already been reimbursed for the medical

services directly provided to patients. By merely providing services, Southwest General did not

have a vested right to additional reimbursement; rather, it had to qualify and then rank in the top

twenty-five percent of competing hospitals to receive Dispro I funds in any given year. As we

have noted, Dispro I funds do not constitute payment for medical services rendered; they offer

"additional reimbursement" based solely on the volume of services provided to indigent

patients--those qualifying for Medicaid or Medicare and others. See 25 Tex. Admin. Code §§

29.609 (b)(1), (4), (10) (1994). In short, Southwest General had no more than an expectancy of

receiving additional reimbursement; any rights it had to Dispro I funds were contingent on a

comparison of Southwest General's level of services to indigent patients with that of other

hospitals. Its own failure to follow the rules in calculating the level of services it provided

disqualified it from receiving additional reimbursement in 1991. We hold that the agency's action

in promulgating and following the rules governing the Dispro I program did not deprive

Southwest General of any vested property right.

Finding no statutory basis for judicial review and no deprivation of a vested

property right, we determine that there is no subject-matter jurisdiction for Southwest General's

suit for judicial review.

Repeating one of the arguments from its suit for judicial review, Southwest General

also sought a separate declaratory judgment that the Department violated the rulemaking

provisions of the Administrative Procedure Act by failing to promulgate a rule defining "total

inpatient census days." Southwest General argues that this rulemaking violation caused it to lose

its share of the Dispro I fund in 1991. The trial court declined to grant the requested relief. (8) We have previously addressed an argument and fact situation parallel to Southwest

General's in Southwest Airlines Co. v. Texas High-Speed Rail Authority , 863 S.W.2d 123 (Tex.

App.--Austin 1993, writ denied). In that case, the trial court dismissed for want of subject-matter

jurisdiction a petitioner's suit for declaratory judgment after dismissing for the same reason the

petitioner's related cause of action for judicial review of an agency action. We affirmed the trial

court's judgment and held that an action for declaratory judgment could not be used as a vehicle

to try issues piecemeal in an attempt to obtain a different judgment in a concurrent judicial

proceeding involving the same controversy. Id. at 125-26 . As the language of its request for

declaratory judgment reveals, Southwest General asked for declaratory relief merely to raise again

its argument that the Department's omission rather than Southwest General's own precluded it

from sharing in the 1991 Dispro I fund. As in Southwest Airlines , the object of Southwest

General's suit for declaratory judgment was to control the Department's final order by attacking

the validity of agency rules; this is precisely the "attempt to obtain a different judgment in the

same controversy" that we held to be an improper use of declaratory relief in Southwest Airlines .

See id. at 126. Because we have concluded that the Department's decision regarding disbursement

of the 1991 Dispro I fund is not subject to judicial review for want of subject-matter jurisdiction,

we also hold that Southwest General may not circumvent this lack of jurisdiction by cloaking part

of its complaint in the mantle of a suit for declaratory judgment. Accordingly, the trial court was

without subject-matter jurisdiction to grant Southwest General the declaratory relief it sought.

Because the trial court was without subject-matter jurisdiction to hear Southwest General's cause,

we do not address its points of error.

CONCLUSION

Because we have determined that the trial court was without subject-matter

jurisdiction to hear Southwest General's suit for judicial review or to grant the declaratory relief

it requested, we reverse the judgment of the trial court and render judgment that the cause be

dismissed for want of subject-matter jurisdiction.

Bea Ann Smith, Justice

Before Justices Powers, Aboussie and B. A. Smith

Reversed and Rendered

Filed: January 11, 1995

Publish

1. 1 The Texas Department of Health assumed primary responsibility for administering the

Medicaid and Dispro I programs in 1993. See Act of Aug. 8, 1991, 72d Leg., 1st C.S., ch.

15, § 1.07, 1991 Tex. Gen. Laws 296 , 296-97, amended by Act of May 22, 1993, 73d Leg.,

R.S., ch. 747, § 1.07, 1993 Tex. Gen. Laws 2920 , 2920-21; 18 Tex. Reg. 5978 (1993)

(transferring bulk of Texas Administrative Code sections governing Medicaid and Dispro I

programs from title 40 (Department of Human Services) to title 25 (Department of Health)).

Because the sections pertinent to the instant dispute are now in title 25, we will cite to this title

for convenience; however, we will note all substantive changes between former and current

versions of the rules.

2. Although the heading and section number remained the same, substantial changes were

made to section 29.609 shortly before it was transferred from title 40 to title 25. See 18 Tex.

Reg. 5091 (1993). Again, we will note specific changes where relevant.

3. Title XVIII of the Social Security Act governs the Medicare program. See 42 U.S.C.A.

§§ 1395 -1395ccc (West 1992 & Supp. 1994). Title XIX of the Social Security Act governs

the Medicaid program. See id. §§ 1396-1396v. Thus, Title XVIII Days refers to number of

Medicare patient days billed, while Title XIX Days refers to number of Medicaid patient days

billed. See 11 Tex. Reg. 4676 (1986) (former 40 Tex. Admin. Code §§ 29.609 (b)(1), (2)).

This formula has since been amended. See 18 Tex. Reg. 2938 (1993) (adopted at 18 Tex.

Reg. 5091 and codified at 25 Tex. Admin. Code 29.609(d)).

4. The formula in effect for 1991 is set forth at former 40 Tex. Admin. Code § 29.609 (e).

11 Tex. Reg. 4676 (1986). The current formulas are set forth at 25 Tex. Admin. Code

§ 29.609 (f) (1994).

5. Southwest General erroneously included "skilled nursing days" when calculating its "total

patient census days" on the disproportionate share application. It likewise included skilled

nursing days in reporting its total annual patient days in the Texas Department of Health's

Annual Survey of Hospitals. The Department used the number supplied on the

disproportionate share application as a check on the number of total patient census days it

received from the Texas Department of Health based on the annual survey. Southwest General

complains that the Department never published a rule instructing hospitals to exclude skilled

nursing days in either report; however, the instructions on the annual survey direct hospitals to

include or exclude skilled nursing days depending on the type of facility they operate.

6. Current 25 Tex. Admin. Code § 29.609 (g), effective August 16, 1993, reads:

(g) Review of agency determination. The single state agency or its

designee notifies hospitals of their eligibility or ineligibility and the

estimated amount of payment before the beginning of the state fiscal

year. The actual amount of payment may vary if a successful review

request by one or more hospitals necessitates an adjustment in the

amount of payments to the other hospitals in the program. Hospitals that

do not qualify or that believe the amount of payment is incorrect may

request a review by the single state agency or its designee.

(1) The hospital's written request for a review must be made to

the director of acute care services and must be received by the director

within 10 calendar days after the hospital receives notification of its

eligibility or ineligibility. The hospital's request must contain specific

documentation supporting its contention that factual or calculation errors

were made, which, if corrected, would result in the hospital qualifying

for payments or receiving payment in a corrected amount.

(2) The review is:

(A) limited to allegations of factual or calculation errors;

(B) limited to a review of documentation submitted by the

hospital or used by the single state agency or its designee in making its original determination; and

(C) not conducted as an adversary hearing .

(Emphasis added).

7. This practice was not based on a formal rule in 1991, but there was testimony that the

Department followed this 85-15 percent disbursement procedure. Although Southwest General

complains that it was denied due process because the Department had not established a formal

appeals procedure, it does not challenge the fact or propriety of the Department's disbursement

practice. Moreover, Southwest General's federal due process challenge to the Department's

procedure must fail because Southwest General did not have a protected interest for which

process was due. As we have noted, "[C]urrent procedural due-process analysis protects only

what actually belongs to the individual, rather than recognizing that unfairness exists in the

very act of disposing of an individual's situation without allowing the individual to participate

in some meaningful way." Pickell v. Brooks , 846 S.W.2d 421, 426 (Tex. App.--Austin 1992,

writ denied). Because we conclude below that Southwest General did not have a vested

property interest in funds from the competitive Dispro I program for 1991, no notice, process,

or formal appeals procedure was due. See Pope v. City of Dallas , 636 S.W.2d 244, 246 (Tex.

App.--El Paso 1982, no writ). As we note, however, limited review procedures have now been

established by rule at 25 Tex. Admin. Code §§ 29.609 (g), (h) (1994).

8. Although the trial-court judgment does not expressly deny Southwest General's claim for

declaratory judgment, its judgment affirming the Department's final decision impliedly

disposes of this claim. See North E. Indep. Sch. Dist. v. Aldridge , 400 S.W.2d 893, 897-98

(Tex. 1966) (when judgment is not intrinsically interlocutory in character, it is presumed to

dispose of all claims and parties and render judgment final for appeal purposes).