Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-12-00735-CV

Appellants, Physician Assistants Business Alliance of Texas, LLC; Richard Branson, PA-C;

Shawn Mollica, PA-C; and Will Thompson, PA-C // Cross-Appellants, Texas Medical

Board; Texas Physician Assistant Board; and Mari Robinson in Her Official Capacity as

Executive Director of the Texas Medical Board and the Texas Physician Assistant Board

v.

Appellees, Texas Medical Board; Texas Physician Assistant Board; and Mari Robinson in

Her Official Capacity as Executive Director of the Texas Medical Board and the Texas

Physician Assistant Board // Cross-Appellees, Physician Assistants Business Alliance of

Texas, LLC; Richard Branson, PA-C; Shawn Mollica, PA-C; and Will Thompson, PA-C

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT

NO. D-1-GN-12-001216, HONORABLE GISELA TRIANA, JUDGE PRESIDING

MEMORANDUM OPINION

The Physician Assistants Business Alliance of Texas, LLC and physician assistants

Richard Branson, Shawn Mollica, and Will Thompson (collectively, the Alliance) filed a declaratory-

judgment action seeking invalidation of a rule promulgated by the Texas Medical Board imposing

certain restrictions on business entities jointly owned by physicians and physician assistants (PAs).

The Board and the Alliance each filed a motion for summary judgment, after which the trial court

entered a final judgment upholding part and invalidating part of the challenged rule. Each party

appeals the portion of the judgment contrary to its interests. For the reasons discussed below, we

will affirm the judgment in part and reverse and render in part.

BACKGROUND

In 2011 the Texas Legislature enacted House Bill 2098 (HB 2098), adding several

new sections to the Business Organizations Code and the Occupations Code to regulate business

entities formed by PAs and physicians. See Act of May 24, 2011, 82d Leg., R.S., ch. 782, §§ 1-7,

secs. 22.0561, 152.0551, 162.530, 204.209, 301.012, 2011 Tex. Gen. Laws 1818, 1818-21 (codified

at Tex. Bus. Orgs. Code §§ 22.0561, 152.0551, 301.012 and Tex. Occ. Code §§ 162.053, 204.209)

(HB 2098). HB 2098 placed restrictions on the ability of PAs to manage and control business

entities they jointly own with physicians. See Tex. Bus. Orgs. Code §§ 22.0561(b), (c), 152.0551(b),

(c), 301.012(a-2), (a-3) (PA may not be officer or general partner of entity and may not contract with

or employ physician to be supervising physician of PA or of any physician in entity).

The Act also placed restrictions on the ownership interests of PAs: “A physician

assistant or combination of physician assistants may have only a minority ownership interest in an

entity created under this section. The ownership interest of an individual physician assistant may

not equal or exceed the ownership interest of any individual physician owner.” Id. §§ 22.0561(f),

152.0551(f), 301.012(a-6). The Act also contained a grandfather provision, central to this dispute,

which reads:

The restrictions on ownership interests in Sections 22.0561, 152.0551, and 301.012,

Business Organizations Code, apply to an ownership interest acquired on or after the

effective date of this Act. An ownership interest acquired before the effective date

of this Act is governed by the law in effect at the time the interest was acquired, and

the former law is continued in effect for that purpose.

HB 2098 § 6 (uncodified).

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The Board then promulgated Rule 177.16, substantively tracking the requirements

of HB 2098 except for the grandfather provision; instead, the Rule’s grandfather provision reads:

Restrictions on ownership interests, [sic] shall apply only to those entities formed on

or after June 17, 2001. However, if the ownership interests of an entity changes [sic],

or an entity contracts with a new supervising physician to provide services, then the

restrictions on ownership shall apply to the entity.

22 Tex. Admin. Code § 177.16(f) (2015) (Tex. Med. Bd., Physician Assistants). Additionally, the

Rule imposes a new requirement that “[p]hysician assistants who solely own an entity or jointly own

an entity with a non-physician must annually submit a form to the Board providing the date of

formation of the entity, each person’s ownership interest in the entity, proof of ownership, and proof

of date of formation, along with required fees.” Id. (e). The corresponding sections of HB 2098

require annual reports and fees from “a physician who jointly owns an entity with a physician

assistant” and “a physician assistant who jointly owns an entity with a physician” but do not address

entities owned solely by PAs. HB 2098 §§ 4-5 (Tex. Occ. Code §§ 162.053(a), (b), 204.209(a), (b)).

The Alliance filed a declaratory-judgment action seeking to invalidate Board Rule

177.16 to the extent that it purports to (1) impose any requirements on entities owned solely by

Pas and (2) impose HB 2098’s restrictions on previously existing jointly owned entities upon

either a change in a PA’s supervising physician or a change in the entity’s ownership interests. The

Alliance sought additional declarations, on which the trial court ruled, but those rulings are not

before us on appeal.1

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For instance, the Alliance sought a declaration that certain provisions of HB 2098 are

invalid and unconstitutional, either facially or as applied, because they constitute illegal impairments

of contracts, takings, denial of due process, and retroactive laws.

3

Three of the trial court’s conclusions are before us on appeal: (a) HB 2098 does not

apply to entities which are owned solely by PAs (conclusion no. 2); (b) the provisions of HB 2098

are not triggered by changing the supervising physician of an entity or of any PA in an entity existing

before the effective date of the Act unless the change is accompanied by a change in ownership

interests (conclusion no. 3); and (c) a change in any ownership interest—whether that of a physician

or a PA—will bring an entity jointly owned by physicians and PAs, as well as its owners, under the

restrictions of the Act (conclusion no. 4).

DISCUSSION

Because the issues in this appeal involve statutory construction, we review the trial

court’s conclusions de novo. State v. Shumake, 199 S.W.3d 279, 284 (Tex. 2006). We first look to

a statute’s plain language to ascertain and give effect to legislative intent. Employees Ret. Sys. of Tex.

v. Jones, 58 S.W.3d 148, 154 (Tex. App.—Austin 2001, no pet.). If a statute is unambiguous, we look

no further beyond the literal text. Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644,

651-52 (Tex. 2006). Courts construe agency rules in the same manner as statutes, striving to give

effect to the agency’s intent and following the plain language of the rule unless it is ambiguous.

Rodriguez v. Service Lloyds Ins. Co., 997 S.W.2d 248, 254 (Tex. 1999). An agency rule that

contravenes specific statutory language; runs counter to the general objectives of the statute; or

imposes additional burdens, conditions, or restrictions in excess of or inconsistent with the relevant

statutory provision is facially invalid. State Office of Pub. Util. Council v. Public Util. Comm’n of

Tex., 131 S.W.3d 314, 321 (Tex. App.—Austin 2004, pet. denied). The law prohibits agencies from

exercising what is effectively a new power, or a power contradictory to the statute, based merely on

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the claim that the power is expedient for administrative purposes. Id. Absent specific or implied

statutory authority, an agency rule is void. Id.

The Board’s issues on appeal

The Board’s first issue asserts that the trial court erred in its conclusion no. 2, which

determined that HB 2098 does not apply to entities owned solely by PAs and that Rule 177.16 is

contrary to HB 2098 to this extent. Our review of the Act leads us to conclude that the trial court

did not err in making this determination. Nothing in the plain language of HB 2098, including the

requirement that entities annually submit to the Board a form and fee, indicates that the requirements

therein are to apply to entities owned solely by PAs. Rather, each section of the Act imposing any

kind of requirements explicitly refers only to entities formed and jointly owned by PAs and

physicians. See, e.g., Tex. Bus. Orgs. Code § 22.0561 (outlining restrictions on corporations formed

by physicians and PAs), Tex. Occ. Code § 204.209 (“physician assistant who jointly owns an entity

with a physician shall report annually....”).

A rule is void where it conflicts with the plain language of a statute, and a rule may

not narrow the scope of a legislatively mandated exception. Employees Ret. Sys., 58 S.W.3d at 154.

Rule 177.16’s imposition of reporting and other requirements on entities owned solely by PAs

directly conflicts with HB 2098, which imposes no requirements on PA-only owned entities.

Therefore, to the extent that Rule 177.16 purports to subject entities owned solely by PAs to any of

the provisions of HB 2098, it is invalid. See Public Util. Comm’n, 131 S.W.3d at 321 (rule imposing

additional conditions or restrictions in excess of or inconsistent with statute is invalid). Accordingly,

the trial court’s conclusion no. 2 is not erroneous, and we overrule the Board’s first issue.

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In its second issue, the Board complains about the trial court’s conclusion no. 3,

which states: “The provisions of HB 2098 are not triggered by changing the supervising physician

of either a jointly owned entity or of any PA in the jointly owned entity for a jointly owned entity in

existence prior to the effective date of that Act, unless the change is accompanied by a change in

ownership interests as well. Texas Medical Board Rule 177.16(f) is contrary to HB 2098 to this

extent.” Specifically, the Board contends that a change in an entity’s or PA’s supervising physician,

independent of a change in ownership interests, would trigger the provisions of HB 2098 and that

Rule 177.16(f), reflecting this contention, is valid. We disagree.

Nothing in the plain language of the Act, including the grandfather provision, speaks

to the effect on a previously existing entity when the entity or one of its PA owners obtains a

new supervising physician. Rather, the Act hinges the imposition of its restrictions on ownership

interests on the acquisition of an ownership interest occurring on or after the effective date of the

Act.2 See HB 2098 § 6 (“The restrictions on ownership interests . . . apply to an ownership interest

acquired on or after the effective date of this Act.”). Rule 177.16(f), therefore, overreaches by

adding the contingency of a “change in the supervising physician” as a trigger for bringing the

entity’s ownership interests under the Act’s restrictions and is invalid to the extent that it purports

to impose those restrictions upon such change. See Public Util. Comm’n, 131 S.W.3d at 321. The

portion of the trial court’s conclusion no. 3 stating that a change in a supervising physician does not

trigger the provisions of HB 2098 and that the Board’s Rule 177.16(f) is contrary to HB 2098 to that

extent is, therefore, not in error. Accordingly, we overrule the Board’s second issue.

2

The Alliance appeals the propriety of the second half of conclusion no. 3, which determined

that the restrictions in HB 2098 are triggered by a change in an entity’s ownership interests. We

address this issue infra.

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The Alliance’s issues on appeal

The Alliance complains that the trial court’s conclusion no. 4 was erroneous, which

determined that a change in any ownership interest will bring a jointly owned entity and all of its

owners under the restrictions of HB 2098 and that Rule 177.16(f)’s grandfather provision is

consistent with the Act to this extent. The Alliance contends that although an ownership interest

acquired after the Act’s effective date would be governed by the Act’s restrictions, the entity’s

remaining ownership interests would continue to be governed by pre-Act law and that the Rule’s

grandfather provision overreaches by bringing all the owners of an entity under the Act’s ownership

restrictions as a result of any “change” in an ownership interest. The Board responds that any time

an ownership interest in an entity “changes,” that change necessarily results in the “acquisition” of

an ownership interest, bringing not only the new interest but all of the remaining interests under the

ownership restrictions in the Act. While we agree with the Board that any change in an ownership

interest necessarily results in the acquisition by someone of an ownership interest, it does not follow

that because this newly acquired interest is governed by the Act’s ownership restrictions so are

previously existing interests. In fact, the Act’s plain language is expressly contrary to such contention.

The Act’s grandfather provision does not reference “changes in ownership interests”

as the trigger for the imposition of restrictions on ownership interests. Rather, the trigger is the date

an “ownership interest [is] acquired,” and the Act explicitly exempts ownership interests acquired

pre-Act from the restrictions. See HB 2098 § 6 (“The restrictions on ownership interests . . . apply

to an ownership interest acquired on or after the effective date of this Act. An ownership interest

acquired before the effective date of this Act is governed by the law in effect at the time the interest

was acquired.”). One could contemplate a scenario wherein a PA’s ownership interest “changes”

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by way of a reduction in equity (for instance, if that PA sells a portion of her interest to a physician)

but wherein such “change” would not result in that PA “acquiring” an ownership interest. Under the

plain language of the Act’s grandfather provision, because that PA has not acquired an ownership

interest post-Act, her previously acquired ownership interest is expressly governed by pre-Act law

and thereby excused from compliance with the new ownership-interest restrictions. By purporting

to subject this PA’s ownership interest to HB 2098’s ownership-interest restrictions due to the

“change” (reduction) in equity, the Board’s grandfather Rule 177.16(f) impermissibly imposes

restrictions that are inconsistent with the Act’s grandfather provision. See Public Util. Comm’n,

131 S.W.3d at 321. Therefore, we hold that the Board’s Rule 177.16(f) is invalid to the extent that

it purports to impose HB 2098’s ownership restrictions upon any change in ownership interests and,

accordingly, the trial court’s conclusion no. 4 is erroneous.3

CONCLUSION

Having found no error in the trial court’s conclusion no. 2, we affirm that conclusion.

We reverse conclusions nos. 3 and 4 and render judgment that Texas Medical Rule 177.16(f) is

contrary to HB 2098, and therefore invalid, to the extent that it purports to (a) impose the Act’s

ownership-interest restrictions upon a change in an entity’s ownership interests and (b) impose any

ownership restrictions on an entity or its owners upon the entity’s or one of its PA-owners’

contracting with a new supervising physician. We affirm the trial court’s judgment in all other respects.

3

The Alliance also complains about the trial court’s conclusion no. 3, determining that a

change in an entity’s supervising physician will not bring an entity under the restrictions of HB 2098

unless the entity’s ownership interests also change. Our disposition of the Alliance’s issue with

respect to the trial court’s conclusion no. 4 dispenses with the necessity to address this complaint

separately, and we conclude that conclusion no. 3 is also erroneous.

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_____________________________________________

David Puryear, Justice

Before Chief Justice Rose, Justices Puryear and Pemberton

Affirmed in Part; Reversed and Rendered in Part

Filed: February 13, 2015

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