The opinion
November 10, 1988
Honorable Stan Schlueter Opinion No. JM-978
Chairman
Ways and Means Committee Re: Whether Department of
Texas House of Representatives Human Services contract for
P. 0. Box 2910 Medicaid purchased health
Austin, Texas 78769 services insurance is sub-
ject to the provisions of
article 601b, V.T.C.S.
(RQ-1566)
Dear Representative Schlueter:
You request an opinion on the bidding process for the
Medicaid purchased health services contract. The Texas
Department of Human Services has issued a request for
proposals for insurance and administration of the Texas
Medicaid Purchased Health Services Prog.ram, with a bid
filing deadline of November 4, 1988. You inform us that the
contract will entail expenditure of over one billion dollars
per year in state and federal funds.
The Medicaid program is established under title XIX of
the Social Security Act. 42 U.S.C. § 1396. It provides for
federal funding to assist states in furnishing medical
assistance on behalf of families with dependent children and
of aged, blind, or disabled individuals whose income and
resources are insufficient for the cost of necessary medical
services. Id. Participating states must designate a single
state agency to administer or to supervise the administra-
tion of the state plan for medical assistance. 42 U.S.C.
5 1396a(a)(5). The Texas Department of Human Services is
the state agency responsible for administering the Medicaid
program in this state. Hum. Res. Code, 55 22.001, 22.002,
32.021.
Under the Medicaid legislation, the federal government
pays a participating state for part of its expenditures to
provide medical services and to administer the program,
including the costs of a mechanized claims processing and
information retrieval system, defined as a system of soft-
ware and hardware used to process Medicaid claims and to
provide information required by the state and the federal
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Honorable Stan Schlueter - Page 2 (JR-978)
government for administrative and audit purposes. 42 U.S.C.
55 1396a(s)(4)(A); 1396b(a); 42 CFR § 433.111(b). If the
state's mechanized claim processing and information re-
trieval system does not comply with federal requirements,
the amount of federal funds otherwise due the state
under the Medicaid program will be reduced. 42 U.S.C.
ii 1396b(r); 42 CFR 5 433.110(a)(2).
Federal regulations permit states to contract with
various entities to process claims, to pay for or provide
medical services, or to enhance the state's effectiveness in
administering the Medicaid program. 42 C.F.R. 55 434.1;
434.2. A state may contract with a fiscal agent, which
processes and pays claims without assuming risk for the cost
of providing medical services. Id. § 434.2. A state is
also permitted to contract with a "health insuring organiza-
tion," which pays for medical services provided to reci-
pients in exchange for a premium or subscription charge paid
by the agency and assumes an underwriting risk. Id.
The Department of Human Services currently contracts
with an insurance company under a health insuring arrange-
ment. Tex. Dept. of Human Services, Request for Proposal
for Administration of a Portion of the Texas Medicaid
Program to be Implemented Sept. 1, 1989, II-3 [hereinafter
RFP]. The contract provides for reimbursement to the
contractor for some medical services, while the contractor
assumes financial responsibility for the provision of other
medical services, known as Purchased Health Services. RFP,
11-3. Electronic data processing services are divided
between the department and the contractor. RFP, 11-7. The
department has requested proposals for similar services
under a contract to be implemented September 1, 1989. RFP,
111-3; 111-4; III(D)-1. Your questions relate to the bid-
ding process for the contract proposed to be implemented
September 1, 1989.
Your first question is as follows:
Is the bidding process for the Medicaid
purchased health services insurance contract
subject to the provisions of article 601b.
V.T.C.S.
Article 601b, V.T.C.S., establishes the State
Purchasing and General Services Commission. Article 3 of
that statute provides as follows for the commission's
purchasing authority:
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Honorable Stan Schlueter - Page 3 (JM-978)
(a) The commission shall purchase, lease,
rent, or otherwise acquire u supplies,
materials, services, and equipment for all
state auencieg . . . .
. . . .
(c) 'Services,' as used in this article,
means the furnishing of skilled or unskilled
labor or professional work but does not
include:
(1) professional services covered by
the Professional Services Procurement Act
(Article 664-4 . . . [V.T.C.S.]);
(2) services of an employee of a state
agency ;
(3) consulting services or services of
a private consultant as defined by Chapter
454, Acts of the 65th Legislature, Regular
Session, 1977 (Article 6252-11~ . . .
- [V.T.C.S.]); or
(4) services of public utilities.
(Emphasis added.)
V.T.C.S. art. 601b, § 3.01.
A "state agency" is defined to include "any department,
commission, board, office, or other agency in the executive
branch of state government created by the constitution or a
statute of this state . . . I1& !j 1.02(2)(A). The Depart-
ment of Human Services, established by title 2 of the Human
Resources Code, is a state agency within this definition.
Hum. Res. Code 55 11.001; 21.001. As a state agency, it is
subject to the provisions of article 601b, V.T.C.S. relating
to purchasing unless excepted by the legislature. Comoare
Attorney General Opinion JM-445 (1986) with Attorney General
Opinion WW-177 (1980). We will consider whether any provi-
sion of law excepts the contract from article 601b, V.T.C.S.
Section 22.002(f) of the Human Resources Code grants
the department authority to enter into contracts. This
provision states as follows:
(f) The department may enter into agree-
- ments with federal, state, or other public or
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Honorable Stan Schlueter - Page 4 (JM-978)
private agencies or individuals to accomplish
the purposes of the programs authorized in
Subsection (c) of this section. The agree-
ments or contracts between the department and
other state agencies are not subject to the
Interagency Cooperation Act . . . .
Hum. Res. Code S 22.002(f). The subsection (c) referred to
provides that
[t]he department may establish and maintain
programs of assistance and services autho-
rized by federal law and designed to help
needy families and individuals attain and
retain the capability of independence and
self-care. Notwithstanding any other pro-
vision of law, the department may extend the
scope of its programs to the extent necessary
to ensure that federal matching funds are
available, if the department determines that
the extension of scope is feasible and within
the limits of appropriated funds.
Id. s 22.002(c).
These provisions were adopted in 1969 by a bill which
amended former article 695c, V.T.C.S., now recodified as
various provisions of Title II, Human Resources Code. Acts
1969, 61st Deg., ch. 845, S 1, at 2527; 8&8 Acts 1979, 66th
Leg., ch. 842, art. I (adopting Texas Human Resources Code).
In construing statutes, a court must look to the entire
act, including the caption, body, and emergency clause, to
determine the legislative intent. Trawalter v. Schaefer,
179 S.W. 2d 765 (Tex. 1944). See also Southwestern Bell
Tel. Co. v. Houston Inden. School Dist., 397 S.W.2d 419
(Tex. 1965). The title of the 1969 enactment reads in part:
An Act . . . authorizing the State Department
of Public Welfare to extend by rule and
regulation the full range of programs and
scope of services provided for under the
Federal laws as they now read or as they may
hereafter be amended and any rules
regulations promulgated pursuant .theretzr
authorizina the deoartment to enter into
aareements to imDlement these D crams and
services . . . . (Emphasis added:;)
Acts 1969, 61st Leg., ch. 845, at 2525.
4993
.
Honorable Stan Schlueter - Page 5 (JM-978)
The emergency clause of the 1969 bill provides in part:
Sec. 10. The fact that under Federal Law
the Department is required to extend the
welfare programs and to provide services to
and on behalf of the needy people served by
the Department, and such services c n. m
Iggnv instances. be best nrovided throuch
contracts and aareements with individuals or
with other DUblic or nrivate aaenciez . . .
and the crowded condition of the calendar
create an emergency . . . . (Emphasis added.)
Id. at 2533.
As the title and emergency clause show, the purpose of
the 1969 amendments was to enable the state to participate
fully in federal welfare programs and the legislature
granted the department broad rule-making authority to
achieve that purpose. The provision now codified as section
22.002(f) was directed at achieving the same legislative
purpose. It granted the department expansive authority to
contract with individuals and public or private agencies to
implement welfare programs and exempted such contracts with
other state agencies from the Interagency Cooperation Act,
article 4413(32), V.T.C.S. Interagency contracts entered
into under that ,act were not valid unless approved in
advance by the Hoard of Control, now the State General
Services and Purchasing Commission.
In 1969 the Board of Control was also the agency
responsible for purchasing supplies, materials, services,
and equipment for the state of Texas under the State
Purchasing Act of 1957. Acts 1957, 55th Leg., ch. 304
(formerly codified as article 664-3, V.T.C.S., repealed by
Acts 1979, 66th Leg., ch. 773, 5 99.05). Under the State
Purchasing Act of 1957, the Board of Control had authority
to contract only for "services of the type heretofore
contracted for" by the board and to act only on behalf of
"departments and agencies of the type heretofore required to
make purchases through the Board . . . .I@ Thus, there may
have been no need for the predecessor of section 22.002(f)
to exempt the contracts it authorized from the State Pur-
chasing Act of 1957.
Article 601b, V.T.C.S., was adopted in 1979 to create
the State Purchasing and General Services Commission,
organize the laws formerly relating to the Board of Control
into a State Purchasing and General Services Act, and
abolish the State Board of Control. Acts 1979, 66th Leg.,
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.
Honorable Stan Schlueter - Page 6 (JM-978)
ch. 773, at 1908: Bill Analysis, Tex. H.B. 1673, 66th beg.
(1979) (prepared for House Committee on State Affairs). The
bill as introduced incorporated the State Purchasing Act of
1957 and other purchasing laws but did not provide that the
commission "shall purchase, lease, rent, or otherwise
acquire &J, supplies, materials, services, and equipment for
u state agencies . . . ." &$s Bill Analysis, Tex. H.B.
1673, a; Bill Analysis, Tex. H.B. 1673 61C.S.H.B. 1673,
66th Leg. (1979) (prepared for Senate). The bill was
amended on the Senate floor to add the language adopted as
section 3.01, article 601b, V.T.C.S. S.J. of Tex. 66th
-cl., Reg. Sess. 1795 (1979). We have no indication that
the legislature intended this provision to limit the
department's broad authority to contract with private
entities in carrying out federal welfare programs.
While section 22.002(f) of the Human Resources Code
applies to a broad range of federal programs, other
provisions of the Code are particularly relevant to the
department's contract for Medicaid purchased health
services. Chapter 32 of the Code authorizes state
participation in federal programs of medical assistance.
Hum. Res. Code S 32.001. The chapter is to be liberally
construed in relation to applicable federal laws and
regulations to make health care available to all persons who
need the care and are unable to pay for it. Hum. Res. Code
5 32.002(a). The Department of Human Services is the state
agency designated to administer the medical assistance
program provided in chapter 32 and is authorized to esta-
blish methods of administration and adopt necessary rules to
operate the program. && 5 32.021(a), (c).
Section 32.029 of the code provides in part:
(a) The department may prescribe a method
of payment for medical assistance claims by
establishing a direct vendor payment program
that is administered by the department, u
an insurance olan, a hospital or medical
service plan, or any other health service
plan authorized to do business in the state,
or bv a combination of those nlan S.
(b) The deDartment mav use anv fiscaI
intermediarv. method of oavment. or combina-
tion of methods it finds most satisfactory
and economicaL. The department may make
whatever changes it finds necessary from time
to time to administer the program in an
economical and equitable manner consistent
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Honorable Stan Schlueter - Page 7 (JM-978)
with simplicity of administration and the
best interest of the recipients of medical
assistance.
(c) If the department elects to make
direct vendor payments, the payments shall be
made by vouchers and warrants drawn by the
comptroller on the proper account of the
Texas Department of Human Services fund. The
department shall furnish the comptroller with
a list of those vendors entitled to payments
and the amounts to which each is entitled.
When the warrants are drawn, they must be
delivered to the commissioner, who shall
supervise the delivery to vendors. (Emphasis
added.)
Hum. Res. Code !j32.029.
This provision gives the department broad authority to
use various methods of administering the Medicaid program.
Several of these methods necessarily require the department
to enter into contracts. The means of administering Medicaid
set out in subsections (b) and (c) of section 32.029 overlap
with the definition of "contractor" in the part of the Code
of Federal Regulations which sets out, requirements for
contracts in connection with the Medicaid program. 42 CFR
Ft. 434. Wontractor**
means any of the following entities that
contract with the Medicaid agency under a
State plan and in return for a payment, to
process claims, to pay for or provide medical
services, or to enhance the agency's capa-
bility for effective administration of the
program:
A fiscal agent.
A health care project grant center.
A private nonmedical institution.
A health insuring organization.
A health maintenance organization.
A prepaid health plan.
A clinical laboratory.
A professional management service or
consultant firm.
42 CFR 5 434.2.
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Honorable Stan Schlueter - Page 8 (JM-978)
Section 32.029 authorizes the state to enter into at
least some of the kinds of contracts contemplated by federal
law. Such contracts cannot easily be described as contracts
for "supplies, materials, services, and equipment," within
section 3.01 of article 601b, V.T.C.S. Contracts to
implement Medicaid may involve the provision of professional
services excepted from section 3.01 of article 601b,
V.T.C.S., or the assumption of risk as an insurer, and not
merely the provision of %.upplies, materials, services, and
equipment."
It would not be inconsistent with the legislature's
treatment of other insurance contracts to regard the depart-
mentDs contract with an insurance company under section
32.029 as excepted from article 601b, V.T.C.S. Contracts
for health insurance coverage for state employees are
governed by Insurance Code provisions, and not by the State
Purchasing and General Services Act. a Ins. Code art.
3.50-2 (Texas Employees Uniform Group Insurance Benefits
Act); art. 3.50-3 (Texas State College and University
Employees Uniform Insurance Benefits Act). See 1Q
V.T.C.S. art. 6252-19a; Attorney General Opinion JM~8~9
(1988). Attorney General Opinion RR-494 (1982) determined
that contracts for the purchase of insurance were not
contracts for personal or professional services within an
exemption to the competitive bidding statute applicable to
counties. Attorney General Opinion Rx-342 (1981) held that
an insurance contract was not l@personal property" within the
competitive bidding requirement applicable to school
districts. See &vn H ff r 146 N.Y.S.Zd 113 (N.Y.
App. Div. 1955) (zha>ereprzv%n requiring competitive
bidding on all contracts over $1,000 not applicable to
insurance policy). At least some of the contracts
authorized by section 32.029 of the Human Resources Code are
not within the purchasing authority accorded the State
Purchasing and General Services Commission by section 3.01
of article 601b, V.T.C.S.
Subsection (c) of section 32.029, which establishes a
procedure for making direct vendor payments, is moreover
inconsistent with the provisions on payment for state agency
purchases in article 601b, V.T.C.S. Sections 3.15 and 3.16
of article 601b, V.T.C.S., require the State Purchasing and
General Services Commission to approve the invoice and
purchase voucher before the comptroller may approve them for
payment and draw his warrant.
There are thus significant inconsistencies between
section 32.029 of the Human Resources Code~and article 3.01 -.
of the State Purchasing and General Services Act. Moreover,
p. 4997
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Honorable Stan Schlueter - Page 9 (JM-978)
both section 22.002(f) and section 32.029 of the Human
Resources Code are parts of comprehensive grants of power to
the Department of Human Services to enable it to implement
federal benefit programs. Federal law expressly requires
the state to designate a single state agency to administer
or supervise the administration of the Medicaid program, 42
U.S.C. f 1396a(a)(5). A federal regulation implementing
this requirement provides as follows:
In order for an agency to qualify as the
Medicaid agency--
. . . .
(2) The authority of the agency must not
be impaired if any of its rules, regulations,
or decisions are subject to review, clear-
ance, or similar action by other offices or
agencies of the State.
42 C.F.R. 5 431.10(e). If the Purchasing Commission had
authority to review the departmentIs purchasing decisions
that implement the Medicaid program and to refuse payment
for its purchases, a question as to the state's compliance
with the above regulation would arise.
In summary, the legislature has granted the Department
of Human Services comprehensive authority to administer
federal benefit programs, and in particular, the Medicaid
program. That authority includes statutory authority to
enter into contracts with private entities to implement
those programs, authority which is inconsistent with an
interpretation of article 601b, V.T.C.S., that would subject
the Medicaid purchased health services contract to its
provisions. In our opinion, sections 22.002(f) and 32.029
of the Human Resources Code are provisions of special laws
relating to the state#s participation in federal benefit
programs. The enactment of article 601b, V.T.C.S., a
general law which governs purchasing for state agencies,
does not repeal these special law contract provisions. See
Flowers v. Pecos River R. Co., 156 S.W.2d 260 (Tex. 1941).
They are construed as exceptions to the general law, based
on the presumption that a specific statute evidences the
intention of the legislature more clearly that a general
one. Townsend v. Terre11 16 S.W.Zd 1063 (1929). In this
case, the legislature has'made its intent very clear that it
wishes the state to receive full benefit from the federal
programs administered by the Department of Human Services
and has granted the department specific contract authority
to help achieve that purpose. We do not believe that the
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.
Honorable Stan Schlueter - Page 10 (JM-978)
legislature intended article 601b, V.T.C.S., to limit the
specific contractual powers it conferred on the department.
Accordingly, we conclude that the Medicaid purchased health
services insurance contract is not subject to the provisions
of article 601b, V.T.C.S. To the extent that Attorney
General Opinion MM-254 (1980) appears to imply the contrary,
that implication\is surplusage and is expressly repudiated.
In view of our answer to your first question, we need
not answer your second and third questions.
SUMMARY
The Medicaid purchased health services
insurance contract which the Department of
Human Services proposes to enter into is not
subject to article 601b, V.T.C.S., the State
Purchasing and General Services Commission
Act.
JIM MATTOX
Attorney General of Texas
MARYKKLLER
First Assistant Attorney General
LDUMCCREARY
Executive Assistant Attorney General
JUM;E ZOLLIE STEAKLEY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Susan L. Garrison
Assistant Attorney General
P. 4999