Tennessee Community Organizations v. Tennessee Department of Intellectual And Developmental Disabilities

05/11/2018

IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

February 6, 2018 Session

TENNESSEE COMMUNITY ORGANIZATIONS, ET AL. v. TENNESSEE

DEPARTMENT OF INTELLECTUAL AND DEVELOPMENTAL

DISABILITIES

Appeal from the Chancery Court for Davidson County

No. 16-0183-IV Russell T. Perkins, Chancellor

___________________________________

No. M2017-00991-COA-R3-CV

___________________________________

Appellants, home and community based service providers and their professional trade

organization, appeal the trial court’s grant of summary judgment in favor of Appellee

Tennessee Department of Intellectual and Developmental Disabilities. The case, which

was filed as a declaratory judgment action, involves financial sanctions levied against

Appellant providers by Appellee for billing for day services in excess of the 243-day

limit imposed by a federal waiver. Appellants assert, inter alia, that the imposition of

these fines exceeded Appellee’s statutory and/or contractual authority. Discerning no

error, we affirm the trial court’s grant of summary judgment against Appellants on all

counts of their petition.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court

Affirmed and Remanded

KENNY ARMSTRONG, J., delivered the opinion of the court, in which FRANK G. CLEMENT,

JR., P.J., M.S., and W. NEAL MCBRAYER, J., joined.

William Beesley Hubbard and Robyn E. Smith, Nashville, Tennessee, for the appellants,

Tennessee Community Organizations, Dawn of Hope, Inc., and Evergreen Life Services,

Inc..

Herbert H. Slatery, III, Attorney General and Reporter, and Alexander S. Rieger, Deputy

Attorney General, for the appellee, Tennessee Department of Intellectual & Development

Disabilities.

OPINION

I. Background

Section 1915(c) of the Social Security Act authorizes the Secretary of Health and

Human Services to waive certain Medicaid requirements to allow states to provide home

and community based services (“HCBS”) to meet the needs of individuals receiving long-

term care services in their homes or communities. 42 U.S.C. § 139n(c)(1); 42 C.F.R. §

430.25. The HCBS waiver describes a comprehensive program designed to meet the

needs of the waiver population; the waiver includes requirements and limitations on

services provided by state providers that contract with the state to provide the waiver

services. At issue in this appeal is the 2014 HCBS waiver (the “Waiver”). The Waiver

specifically provides that, “Day Services shall be limited to a maximum of 5 days per

week up to a maximum of 243 days per person per calendar year.”1 The parties do not

dispute that, under the plain language of the Waiver, providers may be paid for no more

than 243 days of service per calendar year for each person served and may be reimbursed

for no more than five days of services per week.

Tennessee Community Organizations (“TNCO”) is a professional trade

organization for HCBS providers. Dawn of Hope, Inc. (“Dawn”) and Evergreen Life

Services (“Evergreen,” and together with Dawn and TNCO, “Appellants”) are providers

and members of TNCO. TennCare is the state agency responsible for Tennessee’s

Medicaid programs and for compliance with the HCBS Waiver. TennCare contracts with

the Tennessee Department of Intellectual & Developmental Disabilities (“TDIDD,” or

“Appellee”) to implement HCBS waiver services. To this end, TDIDD is authorized, by

statute, to enter into contracts with providers to procure waiver services for eligible

persons. Tenn. Code Ann. § 33-1-301(a). Both Dawn and Evergreen (together,

“Providers”) entered into contract with TDIDD under its standard provider agreement

(“Agreement”). As discussed in further detail below, the Agreement requires, inter alia,

that the Providers perform the waiver services in compliance with TDIDD’s Provider

Manual and the Waiver.2

As noted above, the Waiver at issue limits the number of days a provider may bill

for day services. It is undisputed that, for several years, both Evergreen and Dawn

violated the billing cap set by the Waiver. Prior to 2013, if a provider was in violation of

the Waiver, TDIDD either stopped paying or recouped overpayment for services the

providers billed in excess of the cap. However, in 2013, the Comptroller for the State of

1

“Day Services” include community day, support employment, facility based day, and home

based day. Day Services are required to last six hours to qualify for payment unless the termination of

services before six hours is beyond the provider’s control.

2

The parties do not dispute that Providers were provided a copy of TDIDD’s Provider

Manual.

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Tennessee issued a performance audit of TDIDD. The Comptroller noted that, despite its

statutory authority to do so, TDIDD was not imposing sanctions for providers’ violations

of the Waiver. The concern was that if the State failed to take appropriate action to

ensure compliance with the Waiver, it could risk termination of the Waiver and the

associated federal funding.

Rather than levying sanctions immediately, TDIDD first decided to warn non-

compliant providers so as to give them time to cure the billing issues. To this end, on

July 14, 2014 and July 25, 2014, TDIDD sent warning letters to Dawn and Evergreen,

respectively. The letters notified the Providers that each had billed in excess of the

Waiver limits for 2012 and 2013. Although the letters set out the sanctions available

under TDIDD Policy #80.4.6, discussed infra, neither provider was, in fact, sanctioned at

this time. Rather, the letters stated that: “This letter serves as a sanction warning. Such a

warning is not subject to appeal. Should future reviews find inappropriate billing of

services, you may anticipate sanctions or other administrative action.” Despite the

warning letters, in 2014, both Evergreen and Dawn continued to bill for more than 243

days of day services for some service recipients. On October 12, 2015, TDIDD sent

sanction letters to Evergreen and Dawn, notifying the Providers that they were being

sanctioned for billing in excess of the 243-day waiver limit for 2014. Sanctions were

assessed at $100.00 per day per recipient for each day billed over 243 days. Evergreen’s

sanctions totaled $2,200; Dawn’s sanctions totaled $10,900. Evergreen did not appeal

the sanctions; however, on October 23, 2015, Dawn requested an appeal hearing.

On February 22, 2016, TNCO filed a petition for declaratory judgment in the

Chancery Court of Davidson County (the “trial court”), asking the trial court to declare

TDIDD Policy #80.4.6 (the “Policy”), and any sanctions issued pursuant to the Policy,

invalid.3 In Counts I, II, and III of the petition, Appellants assert that TDIDD Policy

#80.4.6 is invalid because it is inconsistent with TDIDD’s statutory authority to issue

“civil penalties.” In Count IV of the petition, Appellants assert that Policy #80.4.6 is

void because it is a Rule that was not properly promulgated pursuant to the Uniform

Administrative Procedures Act (“UAPA”) as required by Tennessee Code Annotated

Section 33-1-309(a). In Count V of the petition, Appellants assert that the Policy’s

provision for sanctions for violation of the Agreement is not a proper sanction for breach

of the Agreement. In Count VI, Appellants assert that the assessments against Evergreen

and Dawn violate TDIDD’s statutory authority. In Count VII, Appellants contend that, in

imposing sanctions, TDIDD failed to comply with the review period and statutory period

for appeal. In Count VIII, Appellants reiterate that the sanctions are invalid because

3

One of TNCO’s goals is to “institute administrative and judicial proceedings to protect and

promote the provision of services to persons with disabilities and to protect and promote the rights of

community provider organizations and their officers and employees.” On March 23, 2016, TDIDD

moved to dismiss TNCO’s petition for declaratory judgment on the grounds of standing and justiciability.

The trial court denied the motion and granted TNCO leave to amend its petition to add Evergreen and

Dawn. TNCO filed an amended petition on June 14, 2016.

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Policy #80.4.6, under which the sanctions were assessed, was an invalidly promulgated

Rule, exceeded TDIDD’s statutory authority to sanction, and imposed invalid sanctions

for violation of the Agreement. In Count IX, Appellants assert that invoicing for more

than 243 days of day services does not constitute a sanctionable offense.

On January 31, 2017, the parties filed cross-motions for summary judgment. The

trial court heard the motions for summary judgment on April 7, 2017. In its order of

April 26, 2017, the trial court denied Appellants’ motion for summary judgment and

granted TDIDD’s motion as to all counts. Appellants appeal.

II. Issues

The dispositive issue is whether the trial court erred in granting summary

judgment in favor of TDIDD as to all counts of Appellants’ petition. Appellants parse

this question into seventeen issues as stated in their brief:

1. Whether TDIDD has statutory authority for its sanction policy and the

sanctions.

2. Whether the sanction policy and the sanctions violate T.C.A. § 33-2-

407, which authorizes TDIDD to monetarily sanction providers.

3. Whether the trial court erred by finding that T.C.A. 33-2-408 is a

procedural statute but nevertheless authorizes TDIDD to monetarily

sanction providers.

4. Whether the trial court erred by finding that T.C.A. § 33-2-408

authorizes TDIDD to monetarily sanction providers, in contravention of

T.C.A. § 33-2-407 that specifies the process for TDIDD monetarily

sanctioning providers.

5. Whether the trial court erred by finding that T.C.A. § 33-2-407 governs

TDIDD assessing civil penalties upon providers, which T.C.A. § 33-2-

408 independently governs TDIDD monetarily sanctioning providers.

6. Whether the provision in the Provider Agreement that authorizes

TDIDD to monetarily sanction providers violates public policy and is

invalid.

7. Whether the trial court erred by finding that TDIDD’s authority to

monetarily sanction providers is derived from contract.

8. Whether the trial court erred by finding that the sanctions were

liquidated damages agreed to in the Provider Agreement.

9. Whether the Provider Manual gives TDIDD authority for its sanction

policy and sanctions.

10. Whether the sanction policy is a rule and is void because it was not

properly promulgated

11. Whether the trial court erred by finding that the sanction policy is of

general applicability, but only concerns the internal management of

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state government and does not affect private rights, privileges or

procedure available to the public.

12. Whether TDIDD failed to give providers fair notice that it was no

longer screening invoices and that it was changing its long-term

interpretation of the requirements of the Waiver concerning the

invoicing of over 243 days.

13. Whether TDIDD failed to give providers fair notice that future

involving of over 243 days was prohibited and punishable.

14. Whether the trial court erred in finding that the warning letters to

providers and conversations with providers constituted fair notice.

15. Whether TDIDD’s termination of screening invoices and change in its

long-term interpretation of the requirements of the Waiver concerning

the 243-day limit was required to be promulgated as a rule.

16. Whether the trial court erred in finding that invoicing over 243 days has

always been a sanctionable offense and TDIDD only began to strictly

enforce the requirement, which does not require rulemaking.

17. Whether TDIDD’s change in its long-term interpretation of the

requirements of the Waiver concerning the 243-day limit is not

enforceable because TDIDD failed to assess in writing the fiscal impact

of the changes upon provider.

III. Standard of Review

This case was decided on grant of summary judgment. Summary judgment is

appropriate when “the pleadings, depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment as a matter of law.”

Tenn. R. Civ. P. 56.04. Bain v. Wells, 936 S.W.2d 618, 622 (Tenn. 1997); see also

Abshure v. Methodist Healthcare–Memphis Hosp., 325 S.W.3d 98, 103 (Tenn. 2010);

Dick Broad. Co., Inc. of Tenn. v. Oak Ridge FM, Inc., 395 S.W.3d 653, 671 (Tenn.

2013); Rye v. Women's Care Center of Memphis, MPLLC, 477 S.W.3d 235, 250 (Tenn.

2015). We review a trial court’s ruling on a motion for summary judgment de novo,

without a presumption of correctness. In doing so, we make a fresh determination of

whether the requirements of Rule 56 of the Tennessee Rules of Civil Procedure have

been satisfied. Id. (citing Estate of Brown, 402 S.W.3d 193, 198 (Tenn. 2013); Hughes

v. New Life Dev. Corp., 387 S.W.3d 453, 471 (Tenn. 2012)). For actions initiated on or

after July 1, 2011, the standard of review for summary judgment is governed by

Tennessee Code Annotated Section 20-16-101. The statute provides:

In motions for summary judgment in any civil action in Tennessee, the

moving party who does not bear the burden of proof at trial shall prevail on

its motion for summary judgment if it:

(1) Submits affirmative evidence that negates an essential element of the

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nonmoving party's claim; or

(2) Demonstrates to the court that the nonmoving party's evidence is

insufficient to establish an essential element of the nonmoving party's

claim.

Tenn. Code Ann. § 20-16-101. Here, the material facts are not in dispute. Specifically,

Appellants concede that Evergreen and Dawn’s 2014 billings were in excess of the

Waiver cap. However, the parties dispute the interpretation and applicability of the

Policy, the statutory scheme, and the Agreement. The interpretation of written

agreements and contracts are questions of law and, so, are particularly suited to

disposition by summary judgment.

To the extent our review requires interpretation of statutes, we are guided by the

familiar principles of statutory construction. The primary objective of statutory

construction is to determine the intent of the legislature and give effect to that intent.

Walker v. Sunrise Pontiac–GMC Truck, Inc., 249 S.W.3d 301, 309 (Tenn. 2008). To

achieve this objective, we begin by examining the plain language of the statute in

question. Curtis v. G.E. Capital Modular Space, 155 S.W.3d 877, 881 (Tenn. 2005).

This Court presumes that the legislature intended every word be given full effect. Lanier

v. Rains, 229 S.W.3d 656, 661 (Tenn. 2007). Therefore, if the “language is not

ambiguous ... the plain and ordinary meaning of the statute must be given effect.” In re

Adoption of A.M.H., 215 S.W.3d 793, 808 (Tenn. 2007). It is a well-settled rule of

construction that “statutes ‘in pari materia’—those relating to the same subject or having

a common purpose—are to be construed together, and the construction of one such

statute, if doubtful, may be aided by considering the words and legislative intent

indicated by the language of another statute.” Graham v. Caples, 325 S.W.3d 578, 581-

82 (Tenn. 2010) (citing Wilson v. Johnson Cnty., 879 S.W.2d 807, 809 (Tenn. 1994)).

Likewise, to the extent that adjudication of this appeal involves the interpretation

of the provisions of the Agreement, we apply the standard of review applicable to

contract interpretation. Because the interpretation of a written agreement is a matter of

law, Allstate Ins. Co. v. Watson, 195 S.W.3d 609, 611 (Tenn. 2006), we undertake to

interpret the language of the Agreement de novo. “A cardinal rule of contract

interpretation is to ascertain and give effect to the intent of the parties.” Id. (citing

Christenberry v. Tipton, 160 S.W.3d 487, 494 (Tenn. 2005)). “In interpreting contractual

language, courts look to the plain meaning of the words in the documents to ascertain the

parties’ intent.” Id. (citing Planters Gin Co. v. Fed. Compress & Warehouse Co., 78

S.W.3d 885, 889-90 (Tenn. 2002)).

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IV. Analysis

Before addressing Appellants’ specific arguments, it is helpful to discuss the

interplay among the Waiver, the statutory scheme, TDIDD Policy #80.4.6, and the

Agreement. In doing so, we apply the standards of review applicable to contract and

statutory construction, which are set out supra.

The statutory scheme, Title 33, concerning “Mental Health and Substance Abuse

and Intellectual and Developmental Disabilities,” vests TDIDD with the “responsibility

for system planning, setting policy and quality standards, system monitoring and

evaluation, disseminating public information and advocacy for persons of all ages who

have mental illness . . . or developmental disabilities.” Tenn. Code Ann. § 33-1-201. To

achieve its functions, TDIDD is authorized “to promote the use of private and public

service providers . . . to achieve outcomes and accomplishments [to aid service

recipients].” Id. In engaging these private and public service providers (such as

Evergreen and Dawn), TDIDD is statutorily “empowered to enter into contractual

agreements.” Tenn. Code Ann. § 33-1-301(a); Tenn. Code Ann. § 33-1-302(a)(1) (“The

department may: (1) Make . . . contracts . . . .”). Pursuant to its statutory authority to

contract, TDIDD entered into Agreements with Evergreen and Dawn, discussed further

infra.

In addition to its authority to contract, the statutory scheme also vests TDIDD with

power to promulgate certain rules that providers will be required to follows. For

example, Tennessee Code Annotated Section 33-2-406 requires that a waiver services

provider “shall obtain a license from [TDIDD]. . . in order to lawfully establish . . . a

service or facility . . . .” To this end, Tennessee Code Annotated Section 33-2-404 states

that TDIDD “shall adopt rules for licensure of services.” Reading these provisions, in

pari materia, it is clear that in order to obtain a license for lawful operation, a service

waiver provider must adhere to the specific “rules for licensure of services” adopted by

TDIDD. Likewise, Tennessee Code Annotated Section 33-1-309(d) states that “[a]ll

methodology utilized by [TDIDD] for determining payment to service providers shall be

adopted as rules . . . .” Under Tennessee Code Annotated Section 33-2-407(b), which

addresses suspension or revocation of licenses, TDIDD must “establish by rule a

schedule designating the minimum and maximum civil penalties within the ranges set in

§ 33-2-409 that may be assessed under this part for violation of each statute and rule that

is subject to violation.” In addition to its authority to adopt licensure, payment, and civil

penalty rules, TDIDD is also statutorily authorized to “[m]ake and enforce rules that are

necessary for the efficient financial management and lawful operation of the facilities,

programs or services . . . .” Tenn. Code Ann. § 33-1-302(a)(3). The statute does not

specifically define what constitutes “rules . . . for . . . lawful operation.” Nonetheless,

Tennessee Code Annotated Section 33-1-309(a) requires that “the department shall adopt

all rules in accordance with the Uniform Administrative Procedures Act [(“UAPA”)].”

Tennessee Code Annotated Section 33-2-404(b) allows TDIDD to periodically “amend

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its rules . . . to be consistent with the federal home-based and community-based settings

final rule . . . .” From the foregoing statutes, we glean that TDIDD is statutorily

authorized to promulgate rules concerning licensure, payments, civil penalties, and lawful

operation of service providers’ facilities. To be enforceable against a provider, these

rules must be promulgated in accordance with the UAPA and must comport with federal

requirements, including the Waiver.

In the event that a waiver service provider violates a statutory requirements under

Title 33, e.g., attempts to operate without a license (Tenn. Code Ann. § 33-2-405), or

violates a Rule promulgated by TDIDD pursuant to its statutory authority, the statutory

scheme vests TDIDD with authority to impose civil penalties on the provider.

Specifically, Tennessee Code Annotated Section 33-2-407 provides:

(b) The department may impose a civil penalty on a licensee for a violation

of this title or a department rule. Each day of a violation constitutes a

separate violation. The department shall establish by rule a schedule

designating the minimum and maximum civil penalties within the ranges

set in § 33-2-409 that may be assessed under this part for violation of each

statute and rule that is subject to violation. The department may exclude a

statute or rule from the schedule if it determines that a civil penalty for

violation of that statute or rule would not achieve the purposes of licensure.

If the department has not adopted a rule designating the minimum and

maximum civil penalty that may be assessed for violation of a statute or

rule, the maximum civil penalty that may be imposed for violation of that

statute or rule shall be the lowest figure set under the appropriate subsection

of § 33-2-409 that applies to the violation.

Tenn. Code Ann. § 33-2-407(b) (emphasis added). From the emphasized language,

TDIDD may only assess civil penalties if a provider violates a statutory requirement or a

TDIDD rule. In the case of monetary civil penalties, Tennessee Code Annotated Section

33-2-409 limits the amount of the penalty, to-wit:

(a) A civil penalty of not less than two hundred fifty dollars ($250) and not

more than five hundred dollars ($500) may be imposed on a licensee for a

violation of a statute or rule.

(b) A civil penalty of not less than five hundred dollars ($500) and not more

than five thousand dollars ($5,000) may be imposed on a licensee for a

second or subsequent violation of the same kind committed within twelve

(12) months of the first penalty being imposed.

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In addition to its statutory authority to adopt rules for provider licensure,

operation, payments, and to impose civil penalties for a provider’s violation of these

rules, TDIDD is also authorized to adopt “operating guidelines.” Specifically, Tennessee

Code Annotated Section 33-1-309(b) provides:

(b) All operating guidelines of the department of intellectual and

developmental disabilities (sometimes referred to as “DIDD”) and its

successors shall be adopted pursuant to the procedure set forth in this

subsection (b). For purposes of this section “operating guidelines” means

instructions to service providers that the department deems or intends to be

mandatory upon such providers. Interpretive instructions, other

nonmandatory guidance from the department and rules adopted pursuant to

the Uniform Administrative Procedures Act, are not operating guidelines.

(1) The adoption of operating guidelines shall be preceded by notice, public

meeting, opportunity for comment and responses to such comments from

the department; provided, however, in those instances in which the

department determines that exigent circumstances require that the operating

guideline be implemented prior to a public meeting, the department shall

begin the process required by this section as soon as reasonably practicable

after its implementation.

(2) The department shall provide notice in the Tennessee administrative

register which shall include a general description of the subject of the

operating guideline, the date, place and time of the public meeting and the

opportunity for interested persons to provide oral or written comments. The

date of the public meeting shall be no sooner than the first day of the month

following the month of publication of the notice. The notice shall also

include the name, address and telephone number of a contact person to

provide additional information, including, if available, copies of the

proposed operating guideline.

(3) A representative of DIDD shall be present to hear comments at a

hearing required by this section. The representative shall be a person

designated by the deputy commissioner of DIDD who is a director level or

higher employee. This designee shall be authorized to conduct the meeting

in such a manner as to provide reasonable opportunity for all interested

persons to provide comments.

(4) Within thirty (30) days after the meeting, DIDD shall provide responses

to the specific comments received and shall state the reasons for accepting

or rejecting the comments. DIDD shall maintain an official record of the

meeting, submitted comments and any responses.

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Pursuant to its statutory authority under Tennessee Code Annotated Section 33-1-

309(b), on or about January 23, 2013, TDIDD adopted Policy #80.4.6, with an effective

date of March 15, 2013. As stated in the Policy, its purpose “is to establish guidelines

for applying sanctions against contracted entities due to violations of the provider

agreement, provider manual, conditions of the home and community based service

waivers, and departmental policies and procedures” (Emphases added). Under the

Policy, available sanctions for such violations are: (1) termination of the waiver service

provider’s contract; (2) moratorium on persons served; (3) management takeover by

TDIDD; (4) mandatory training and assistance; and (5) financial penalties.

While Tennessee Code Annotated Sections 33-2-407 and 33-2-409 contemplate

civil penalties for a provider’s violation of Title 33, or TDIDD rules, Tennessee Code

Annotated Section 33-2-408 authorizes TDIDD to impose “sanctions” when a provider

engages in “deficient practices.” The statute provides, in relevant part:

(a) All proceedings by the department of intellectual and developmental

disabilities (DIDD) to impose sanctions against licensed entities under this

title shall be conducted in accordance with the Uniform Administrative

Procedures Act, compiled in title 4, chapter 5. The proceedings shall

include notice and opportunity for a hearing before an administrative law

judge who shall issue an initial order.

(a) Sanctions shall include any action by DIDD, based upon alleged

deficient practices of the licensed entity, to impose financial or

contractual penalties, including the following:

(1) Financial penalties shall include fines, liquidated damages, or denial

or withholding or delay of a payment.

***

(c) Sanctions do not include any action to recoup moneys that are

determined by DIDD to be unearned, according to stipulations specified in

the provider agreement between DIDD and the provider.

(d) This section shall not prevent termination of any contract with the

licensed entity in accordance with the provisions of that contract. In those

cases the contractor shall have only the due process rights, if any, otherwise

provided by law regarding termination of state contracts.

(e) All sanctions, except for financial sanctions, may be imposed

immediately by DIDD. This does not prevent the provider from appealing

the decision using the process as provided in the Uniform Administrative

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Procedures Act.

(f) These requirements shall not prevent the DIDD or the provider from

pursuing alternative means of resolving issues related to sanctions while the

process as provided in the Uniform Administrative Procedures Act is

pending.

Tenn. Code Ann. § 33-2-408. The statute does not define what is meant by “deficient

practices.”

As discussed above, pursuant to its statutory authority to contract, TDIDD entered

into Agreements with Evergreen and Dawn. In relevant part, the Agreement states:

A.4. [TDIDD] Provider Manual. A copy of [TDIDD] Provider Manual

shall be maintained by the State for review by the Provider. . . . The

Provider agrees that any authorized and approved services that it provides

to eligible persons served . . . shall be performed in accordance with this

Agreement, [TDIDD] approved policies and the [TDIDD] Provider Manual

as may be amended. . . .

A.5. State and Federal Compliance. [TDIDD], TennCare, and the Provider

shall be subject to all relevant and applicable state and federal . . . rules,

regulations, and statutory requirements, including any amendments and/or

revisions thereto, as they relate to this Agreement or any performance or

approved service to eligible persons . . .

(a) Waiver Services—Any Waiver Service as detailed in the [TIDD] Provider

Manual and performed by the Provider shall comply with terms of the . . .

[HCBS] waiver. . . .

***

A.21 Sanctions and Licensure Action. For failure to comply with this

Agreement or the standards and requirements referenced herein, [TDIDD] .

. . may invoke sanctions and licensure actions pursuant to Tennessee Code

Annotated, Section 33-2-408. . . .

(a) Sanctions—The Sanctioning Agencies may impose sanctions including,

but not limited to, the following . . .

***

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(vi) assess monetary sanctions for any deficient practice.

***

(c) In accordance with Tennessee Code Annotated Section 33-2-408, the

following procedures and appeals process shall apply with regard to the

imposition of any sanctions:

(i) [TDIDD] will provide notice of each sanction in writing. The

Provider may appeal the sanction within ten (10) working days

from the date of the written notice from the [TDIDD] Regional

Director. The appeal must be submitted to the Deputy

Commissioner of [TDIDD] through the Office of General

Counsel by certified mail or by facsimile transmission. The

notice of appeal must state the reason(s) for any objection to the

sanction.

(ii) If notice of appeal is timely filed, the imposition of monetary

sanctions will be stayed pending resolution of the appeal. A

hearing will be scheduled in accordance with the Uniform

Administrative Procedures Act requirements. . . .4

Under the plain language of the Agreement, the Providers agree to comply with the terms

of the Waiver. In the event the provider violates the Waiver, the Agreement provides that

TDIDD may levy monetary sanctions.

Because the trial court granted TDIDD’s motion for summary judgment as to each

count of Appellants’ Petition, we will review each count of the petition to determine

whether the trial court erred in granting summary judgment on that count. As an initial

matter, TDIDD asserts, in its appellate brief that

[Appellants] ha[ve] raised 17 issues on appeal. [Appellants’] amended

complaint consisted of only nine counts, and summary judgment was

granted by the trial court in [TDIDD’s] favor for each. To the extent that

[Appellants] ha[ve] attempted to raise issues outside of its complaint, they

should be deemed waived.

We agree. To the extent that Appellants’ specific issues were not argued or adjudicated

in the trial court, we will consider them to be waived on appeal. City of Cookeville ex

rel. Cookeville Reg’l Med. Ctr. v. Humphrey, 126 S.W. 3d 897, 905-906 (Tenn. 2004)

4

The Provider Agreement language is taken from the Provider Agreement entered by and

between TDIDD and Dawn. It is undisputed that these contractual provisions are the same for both Dawn

and Evergreen.

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(“Questions not raised in the trial court will not be entertained on appeal.”) (citation

omitted).

Count I

In Count I of the Petition, Appellants contend that TDIDD

does not have authority for its Sanction Policy[, i.e., Policy #80.4.6,] and[,]

therefore[,] the Sanctions issued pursuant to the Sanction Policy are invalid.

The Sanction Policy conflicts with the statutory provisions. The statutes[,

i.e., Tennessee Code Annotated Sections 33-2-407(b) and 33-2-409,]

provide for the monetary sanction to be assessed against Providers for

violations of Title 33 Tennessee Code Annotated and [TDIDD] Rules. The

Sanctions issued were for practices that did not violate Title 33 or [TDIDD]

Rules. . . .

In its order granting summary judgment in favor of TDIDD, the trial court restates

Appellants’ argument as follows: “Appellants argue[] that [the provider] invoicing

violates neither Title 33 nor DIDD rules and thus the sanctions are in excess of the

statutory authority provided in Tenn. Code Ann. § 33-2-407(b).” TDIDD counters that

the monetary fines imposed on Evergreen and Dawn are not “civil penalties” governed by

Tennessee Code Annotated Section 33-2-407(b), but rather sanctions governed by

Tennessee Code Annotated Section 33-2-408, which “sanctions” are not subject to the

limits set out in Tennessee Code Annotated Section 33-2-409, supra. The Policy

specifically states that its purpose “is to establish guidelines for applying sanctions

against contracted entities due to violations of the provider agreement, provider manual,

conditions of the home and community based service waivers, and departmental policies

and procedures” (Emphases added). The Policy cites, inter alia, the “Provider

Agreement, TCA 33-2-408, [and] Tennessee Home and Community Based Waivers” as

the “authority,” under which the Policy is adopted. As discussed above, Tennessee Code

Annotated Section 33-2-408 specifically authorizes TDIDD to impose sanctions for a

provider’s “deficient practices.” Additionally, the Policy sets out those violations that

may give rise to the imposition of sanctions, to-wit: TDIDD may impose “sanctions

against contracted entities due to violations of the provider agreement, provider

manual, conditions of the home and community based service waivers, and

departmental policies and procedures” (emphasis added). Furthermore, Tennessee

Code Annotated Section 33-1-309(b) authorizes TDIDD to adopt guidelines that will be

mandatory on providers. The guidelines adopted in the Policy, including those regarding

what will constitute a violation giving rise to sanctions, do not exceed TDIDD’s statutory

authority to adopt such guidelines. Moreover, although Tennessee Code Annotated

Section 33-2-408 authorizes sanctions for a provider’s deficient practices, the statute is

silent as to what constitutes deficient practices. Accordingly, it is incumbent on TDIDD

(pursuant to its statutory authority to adopt guidelines) to adopt criteria for imposition of

- 13 -

sanctions, i.e., to define what constitutes deficient practices. To this end, the Policy

specifically enumerates those violations that may give rise to sanctions, i.e., “violations

of the provider agreement. . . [and] conditions of the [HCBS] [W]aiver[].” Because

sanctions are only allowed for deficient practices, and because the Policy sets out those

circumstances that will give rise to sanctions, we conclude that the Policy’s enumerated

violations constitute deficient practices for purposes of imposing sanctions. Here, it is

undisputed that the Providers’ billing practices violated the Waiver and the Provider

Agreement. From the plain language of the Policy, we conclude that a Providers’ breach

of the Provider Agreement and violation of the Waiver constitute “deficient practices,”

which are punishable by sanctions, including monetary fines. Because such violations

are “deficient practices,” under Tennessee Code Annotated Section 33-2-408, and not

violations of rules or statutes, Tennessee Code Annotated Sections 33-2-407 and 33-2-

409 are not implicated in this case.

In holding that TDIDD is entitled to summary judgment as to Appellants’ first

count, the trial court’s order states, in relevant part, that

Tenn. Code Ann. § 33-2-408(b) expressly acknowledges [TDIDD’s] ability

to sanction, including financial sanctions, for “deficient practices” of the

licensed entity. As Tenn. Code Ann.§ 33-2-408 governs sanctions and as

Tenn. Code Ann. § 33-2-408(b) provides for financial sanctions for

“deficient practices” of the licensed entity, the Court finds that the Policy

did not exceed [TDIDD’s] statutory authority to impose sanctions.

Accordingly, the Court finds that [TDIDD] is entitled to judgment as a

matter of law on Count I of the Petition.

For the reasons discussed above, we agree with the trial court’s holding. Tennessee Code

Annotated Section 33-1-309(b) specifically authorizes TDIDD to adopt guidelines such

as Policy #80.4.6. Tennessee Code Annotated Section 33-2-408 specifically authorizes

TDIDD to impose financial sanctions for a provider’s deficient practices. Although the

statute does not define “deficient practices,” this does not preclude TDIDD from defining

this term under its power to promulgate guidelines. In this regard, Policy #80.4.6 does

not exceed the scope of the authority granted under Section 33-2-408 insofar as the

Policy defines “deficient practices” to include a provider’s violation of the Provider

Agreement and/or the Waiver.

Count II

In Count II of the Petition, Appellants contend that the Policy exceeds the

statutory maximum set out in Tennessee Code Annotated Section 33-2-409, supra. In

holding that TDIDD is entitled to summary judgment as to Count II of Appellants’

complaint, the trial court’s order states, in relevant part, that:

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In Count II, [Appellants] complain[] that the Policy’s penalties exceed the

statutory maximum as provided in Tenn. Code Ann. § 33-2-409 . . . .

[TDIDD] argues that Tenn. Code Ann. § 33-2-409 governs civil penalties,

not sanctions. [TDIDD] suggests that the correct statute is Tenn. Code

Ann. § 33-2-408, which governs sanctions and which leaves the amount of

financial sanctions for [TDIDD] to determine. The pertinent part of Tenn.

Code Ann. § 33-2-408 provides: “(b) Sanctions shall include any actions by

DIDD, based upon alleged deficient practices of the licensed entity, to

impose financial or contractual penalties, including the following: (1)

Financial penalties shall include fines, liquidated damages or denial,

withholding or delay of a payment[.]” Tenn. Code Ann. § 33-2-408(b)(1).

Thus, [TDIDD] argues, the range of financial sanctions provided by the

Policy does not exceed the statutory authority provided. The Court agrees.

Accordingly, the Court finds that [TDIDD] is entitled to judgment as a

matter of law on Count II of the Petition.

As discussed above, by its plain language, Tennessee Code Annotated Section 33-

2-409 governs “civil penalties,” not sanctions. Here, the applicable statute is Tennessee

Code Annotated Section 33-2-408(b). Although Tennessee Code Annotated Section 33-

2-408 specifically states that “[s]anctions shall include any action by [TDIDD] . . .

including . . .[f]inancial penalties . . .,” it does not impose a limit on the amount of

financial sanctions that TDIDD may impose for a provider’s deficient practices. Just as

TDIDD was statutorily authorized to set guidelines defining what constitutes a provider’s

deficient practices, the statute’s silence as to the amount of sanctions allows TDIDD to

promulgate guidelines concerning sanction amounts. To this end, and under the statutory

authority granted in Tennessee Code Annotated Section 33-1-309(b), TDIDD’s Policy

sets out three classes of sanctions. Class A sanctions can result in a moratorium,

termination of the provider agreement, or management takeover. Class B sanctions can

result in daily sanctions of $100.00 to $500.00 until resolution of the deficient practice.

Class C sanctions can result in a one-time sanction of $100.00 to $500.00. There is no

allegation that the sanctions imposed against Evergreen and Dawn exceeded the amounts

set out in the Policy. Appellants contend only that TDIDD exceeded the statutory

maximum set out in Tennessee Code Annotated Section 33-2-409. This statute, however,

governs civil penalties, not sanctions. As such, we conclude that the trial court did not

err in granting summary judgment against Appellants as to Count II.

Count III

In Count III of the Petition, Appellants argue that the Policy’s appeal procedure

violates the statutory authority set out at Tennessee Code Annotated Section 33-2-407(c),

which provides:

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(c)(1) The procedure governing the suspension or revocation of a

license or imposition of a civil penalty shall be as prescribed in this

subsection (c).

***

(3) If the department determines that a license should be suspended or

revoked, a civil penalty imposed, or both, it shall so notify the licensee.

Within fifteen (15) days of notification, the licensee may file a written

request for review by the panel appointed under § 33-2-403(d). The

review shall be at the earliest possible date, and the panel shall report its

recommendations to the commissioner. The commissioner shall determine

whether the original action shall remain effective and shall notify the

licensee. Within fifteen (15) days of notification, the licensee may file a

written request for a hearing before the department. The hearing shall be

conducted under the Uniform Administrative Procedures Act, compiled in

title 4, chapter 5.

(Emphasis added). Relying on the foregoing statute, Appellants assert that the Policy

omits the review panel and requires an appeal within ten days of notification rather than

fifteen days as provided under the UAPA. Therefore, Appellants argue that the Policy

violates TDIDD’s statutory authority. As highlighted above, the procedure outlined in

Tennessee Code Annotated Section 33-2-407(c) applies only when TDIDD seeks to

suspend or revoke a provider’s license or to impose civil penalties. As discussed above,

in this case, TDIDD imposed sanctions against Evergreen and Dawn for deficient

practices, as opposed to civil penalties for violation of Title 33 or TDIDD rules.

Accordingly, Tennessee Code Annotated Section 33-2-407(c) (and specifically the 15-

day time period set out therein) is not applicable. Instead, the correct statute is Tennessee

Code Annotated Section 33-2-408, which provides that:

(a) All proceedings by the department of intellectual and

developmental disabilities (DIDD) to impose sanctions against licensed

entities under this title shall be conducted in accordance with the Uniform

Administrative Procedures Act, compiled in title 4, chapter 5. The

proceedings shall include notice and opportunity for a hearing before an

administrative law judge who shall issue an initial order.

(Emphasis added). In its order, the trial court found that “the correct statutory authority

for sanctions is Tenn. Code Ann. § 33-2-408(a), which provides that the appeal process is

governed by the UAPA and must include notice and an opportunity for a hearing before

an administrative law judge who must issue an initial order.” The only question, then, is

whether TDIDD’s Policy comports with Section 33-2-408(a). The Policy sets out the

appeal process for sanctions as follows:

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4. The following appeals process shall apply to sanctions.

a. [TDIDD] shall issue a sanction letter to the provider prior to imposing

any sanction.

b. The provider may appeal the sanctions within ten (10) business days of

receipt of the sanction letter, or from the date of the Department’s

decision regarding any additional information submitted as described

above, whichever is later. The provider shall submit the appeal to the

office of general counsel via certified mail or facsimile. The appeal

shall state and explain the provider’s objection(s) to the sanction.

c. The office of general counsel shall review the appeal and route it to the

Commissioner.

d. If the provider filed the appeal within the specified time period, the

imposition of monetary sanctions shall be stayed pending resolution of

the appeal.

e. The office of general counsel shall schedule a hearing in accordance

with the Uniform Administrative Procedures Act.

f. If the administrative law judge upholds the sanction, then, monetary

sanctions shall be calculated from the effective date noted in the

sanction letter.

In its order, the trial court further held that

The Policy’s appeal process provides for a contested case hearing with

notice and an opportunity to be heard. Accordingly, the Court finds that the

Policy does not violate the statutory authority provided in Tenn. Code Ann.

§ 33-2-408(a). The Court finds that [TDIDD] is entitled to judgment as a

matter of law on Count III.

We agree with the trial court’s holding. Tennessee Code Annotated Section 33-2-408(a)

merely requires that sanction proceedings be conducted in accordance with the UAPA,

with notice and an opportunity for hearing. Unlike Tennessee Code Annotated Section

33-2-407(c) (which, for the reasons discussed above, is not applicable), Tennessee Code

Annotated Section 33-2-408(a) does not impose a specific time frame. Accordingly, we

cannot conclude that the 10-day time period set out in the Policy, supra, exceeds

TDIDD’s statutory authority. From the plain language of both the statute and the Policy,

we conclude that the Policy meets the requirements of the statute insofar as the Policy

provides for application of UAPA procedures, requires TDIDD to send notice of

sanctions to the provider, and provides an opportunity for hearing before imposition of

sanctions. Accordingly, TDIDD was entitled to summary judgment on Count III of the

Petition.

- 17 -

Count IV

In Count IV of the Petition, Appellants argue that the Policy is void because it falls

within the definition of a Rule and was not promulgated pursuant to the UAPA. As

discussed above, the Policy clearly states that it is a “guideline,” not a Rule. Despite this

fact, Appellants contend that because the Policy establishes monetary sanctions, the

Policy meets the UAPA’s definition of a “Rule” and does not fall into one of the

enumerated exceptions. The UAPA defines a “Rule,” in relevant part, as follows:

“Rule” means each agency statement of general applicability that

implements or prescribes law or policy or describes the procedures or

practice requirements of any agency. “Rule” includes the amendment or

repeal of a prior rule, but does not include:

(A) Statements concerning only the internal management of state

government and not affective private rights, privileges or procedures

available to the public;

(B) Declaratory orders issued pursuant to § 4-5-223;

(C) Intra-agency memoranda;

(D) General policy statements that are substantially repetitious of

existing law;

Tenn. Code Ann. § 4-5-102(12) (emphases added). In response to Appellants’ argument,

TDIDD asserts that its Policy was adopted pursuant to the statutory authority set out at

Tennessee Code Annotated Section 33-1-309(b), supra. According to TDIDD, the Policy

is simply an operating guideline, not a Rule because it falls within the exception for

“statements concerning only the internal management of state government and not

affecting private rights . . . .” Tenn. Code Ann. § 4-5-102(12)(A). Specifically, TDIDD

contends that the sanction process affects only those providers that are under contract

with TDIDD, not the public at large. TDIDD concedes that, if the Policy were broad

enough to reach persons or entities that were not under contract to follow it, then the

Policy would be a Rule subject to promulgation under the UAPA. However, because the

Policy applies only to TDIDD employees and contracted entities, TDIDD contends that

the Policy is an exception to the statutory definition of Rule and, thus, is not required to

be promulgated pursuant to the UAPA. Nonetheless, Appellants contend that, in order to

be defined as an operating guideline, the Policy would have to include instructions to

providers that TDIDD intends to be mandatory. Appellants also assert that the Policy

does not instruct the providers, but rather instructs the staff of TDIDD as to how the staff

will sanction the providers. TDIDD, however, contends that the Policy clearly provides

mandatory instructions for contracted providers regarding sanction guidelines and the

appeals process. In support of this contention, TDIDD cites the Policy language: “This

Policy applies to department staff responsible for enforcement of the provider agreement,

provider manual, authorizing and applying sanctions, and to all contracted entities.”

- 18 -

(Emphasis added).

In holding that the Policy was correctly adopted as an operating guideline pursuant

to Tennessee Code Annotated Section 33-1-309(b), the trial court relied on Attorney

General Opinion No. 07-42, to-wit:

In Attorney General Opinion No 07-42, the Attorney General

considered the Division of Mental Retardation Services (“DMRS”)

“operating guidelines” within its Provider Manual, which is a

comprehensive manual to outline the basic principles and requirements for

delivery of quality services to people with intellectual disabilities. After

determining that DMRS is an “agency,” as that term is defined under the

UAPA, the Attorney General explained that DMRS retains statutory

authority to promulgate rules as required by Title 33 pursuant to Tenn.

Code Ann. § 33-1-309. Unless the “operating guidelines” fell within one of

the statutory exceptions to the definition of a Rule under Tenn. Code Ann.

§ 4-5-102(12), the Attorney General stated that they would be required to

be promulgated as rules under the UAPA.

Citing to the exception to the definition of a Rule found at Tenn.

Code Ann. § 4-5-102(12)(A), the Attorney General opined that DMRS’

“operating guidelines” were to be imposed only on those providers under

contract with DMRS, and, as such, the “operating guidelines” are

statements concerning only the internal management of DMRS and do not

affect private rights, privileges or procedures available to the public.

Further, the Attorney General opined that the duty to comply with the

provisions of the “operating guidelines” is a requirement of the contract

with DMRS, and imposition of any penalty for failure to comply with the

“operating guidelines” is only allowed as provided in the provider contract.

See Tenn. Op. Atty. Gen. No. 07-42, 2007 WL 1451629 (April 4, 2007).

Applying the logic employed by the Attorney General, the trial court held that:

The same can be said about the Policy here. The Policy is only to be

imposed on those Providers under contract with [TDIDD] and, as such, are

statements concerning only the internal management of [TDIDD]. The

Policy does not affect private rights, privileges or procedures available to

the public, and it contains instructions to service providers that the

department deems or intends to be mandatory upon such providers. So,

while the Policy is, indeed, an “agency statement of general applicability

that . . . describes the procedures or practice requirements of any agency,” it

is also “[s]tatements concerning only the internal management of state

government and not affecting private rights, privileges or procedures

available to the public[]” and “instructions to service providers that the

- 19 -

department deems or intends to be mandatory upon such providers.” Tenn.

Code Ann. § 4-5-102(12); Tenn. Code Ann. § 33-1-309(b). Accordingly,

the Court finds that the Policy fits within the exception to the definition of

“Rule” as provided in Tenn. Code Ann. § 4-5-102(12)(A). Hence, the

Policy was not required to be adopted in accordance with the UAPA as

provided for in Tenn. Code Ann. § 33-1-309(a). For these reasons, the

Court finds that [TDIDD] is entitled to judgment as a matter of law on

Count IV.

We agree with the trial court that the Policy is an operating guideline, as opposed

to a Rule. As noted above, the Policy specifically states that it applies to “department

staff . . . and to all contracted entities.” This language clearly narrows the Policy’s

application to TDIDD employees and to contracted entities such as Evergreen and

Dawn. Although the substantive requirements outlined in the Policy primarily address

the internal procedures that TDIDD will follow, the Policy also outlines the appeals

procedure that contracted entities must follow in order to appeal the imposition of

sanctions. In this regard, the Policy is mandatory only on TDIDD employees and

contracted entities. It does not address or bear on “private rights, privileges or procedures

available to the public[].” As such, we hold that the Policy meets the exception to the

definition of a Rule under Tennessee Code Annotated Section 4-5-102(12)(A).

Count V

We now turn to Count V of the Petition, wherein Appellants argue that sanctions

for breach of the Agreement are illegal. As set out in context above, the Agreement

states that TDIDD “may invoke sanctions . . . pursuant to TCA § 33-2-408,” and

“sanctions includ[e], but [are] not limited to . . . assess[ment] [of] monetary sanctions”

(emphasis added). Tennessee Code Annotated Section 33-2-408 defines “sanctions” as “.

. . any action by [TDIDD]. . . to impose financial . . . penalties, including the following:

(1) Financial penalties shall include fines, liquidated damages . . . ” (emphases added).

As discussed above, Tennessee Code Annotated Section 33-2-408 authorizes TDIDD to

impose “financial penalties” for a provider’s “deficient practices” but does not define

what is meant by a deficient practice. In instances where the statute is silent, TDIDD has

authority to adopt guidelines, see discussion above.5 Here, TDIDD adopted Policy

#80.4.6 as a guideline for assessing sanctions under its statutory authority to do so. As

discussed above, the Policy enumerates those instances where sanctions are warranted,

i.e., the Policy defines what constitutes a deficient practice, and specifically states that a

“violation of the provider agreement” is a deficient practice that may give rise to

sanctions.

5

TDIDD’s statutory authority to adopt guidelines is not limited to those instances where the

statute is silent; however, TDIDD’s guidelines may not exceed its statutory authority.

- 20 -

Appellants contend that sanctions meant to punish providers for breach of contract

are disfavored in Tennessee. In its final order, the trial court explained the parties’

respective positions as follows:

In Count V, [Appellants] contend that the Policy provisions for

violation of the Provider Agreement are invalid sanctions for breach of

contract. [Appellants] allege[] that the provisions of the Provider Manual

that permit sanctioning for deficient practices are illegal penalties that

violate public policy. . . .

[TDIDD] argues that, because the Provider Agreement does not

describe sanctions as penalties, they should be considered liquidated

damages. Further, [TDIDD] argues that, as in most governmental

contracts, the damages for violations of the HCBS Waiver, Provider

Manual, and Provider Agreements are uncertain or immeasurable. Tenn.

Code Ann. § 33-2-408 acknowledges [TDIDD’s] ability to impose financial

and contractual penalties and the HCBS Waiver itself, which was approved

by the federal government, contemplates sanctioning for failure to comply

with its requirements. Thus [TDIDD] asserts that the sanctions here are

properly construed as permissible damages.

In granting summary judgment in favor of TDIDD on this Count of Appellants’ Petition,

the trial court adopted TDIDD’s argument that the sanctions imposed against Evergreen

and Dawn are, in fact, liquidated damages, which the Legislature specifically authorizes

TDIDD to collect insofar as the statutory definition of “sanctions,” under Tennessee

Code Annotated Section 33-2-408, includes “financial penalties,” which include

“liquidated damages,” see supra. While we agree that, under the plain language of the

statute, TDIDD may collect liquidated damages for a provider’s deficient practices,

including “violations of the provider agreement,” we do not agree that the monetary

amounts levied against Evergreen and Dawn constitute “liquidated damages” in this case.

The term “liquidated damages” is defined as a “sum stipulated and agreed upon by

the parties at the time they enter their contract, to be paid to compensate for injuries

should a breach occur.” V.L. Nicholson Co. v. Transcon Inv. & Fin. Ltd., Inc., 595

S.W.2d 474, 484 (Tenn.1980) (emphasis added); see also Kimbrough & Co. v. Schmitt,

939 S.W.2d 105, 108 (Tenn.App.1996), perm. app. denied (Tenn.1996). The stipulated

amount represents an estimate of potential damages in the event of a contractual breach

where damages are likely to be uncertain and not easily proven. V.L. Nicholson, 595

S.W.2d at 484 (emphasis added). Here, the sums assessed to Evergreen and Dawn were

not levied to compensate TDIDD for injuries from Evergreen and Dawn’s respective

violations of the Provider Agreement and Waiver. This is so because there is no evidence

that TDIDD’s suffered any actual damages due to the Providers’ billing violations.

Rather, the monetary amounts charged to the Providers were meant to be coercive (i.e., to

- 21 -

force the Providers to comply with the Waiver), not compensatory (i.e., to compensate

TDIDD for losses it suffered as a result of the Providers’ breaches).

While we concede that, in defining what is meant by sanctions for deficient

practices, the Provider Agreement uses the term “monetary sanctions” whereas the statute

uses the term “financial penalties,” this is merely a semantic conflict and a distinction

without difference. Both are sanctions authorized under Tennessee Code Annotated

Section 33-2-408. Furthermore, the amount of these sanctions was neither estimated nor

unknown to the parties. Policy #80.4.6 clearly states that

Class B. Sanction shall mean repeat violations or violations that involve

multiple persons supported or an agency that supports only one (1) person.

This deficiency may result in daily cumulative sanctions of $100.00 to

$500.00 until resolution of the deficiency . . .

As discussed above, neither Tennessee Code Annotated Section 33-2-408, nor the

Provider Agreement indicate the amount TDIDD may levy as a sanction for a provider’s

deficient practices. However, the Policy adopted by TDIDD pursuant to its statutory

authority to establish guidelines clearly sets the amount of sanctions that may be imposed

for the type of deficient practice at issue here. There is no evidence that TDIDD

exceeded the Policy amount in sanctioning these Providers. Because TDIDD was

authorized to impose financial sanctions for deficient practices in violation of the

Agreement, we affirm the trial court’s grant of summary judgment on this Count of the

Petition

Counts VI, VII, and VIII.

In Count VI, Appellants assert that the sanctions violate statutory authority. In

Count VII, Appellants contend that the appeals process for sanctions violates TDIDD’s

statutory authority. In Count VIII, Appellants argue that the sanctions are invalid

because the Policy is a Rule, which was not promulgated according to the statute. These

counts are largely reiterations of Counts I through V. Regardless, the arguments asserted

in Counts VI through VIII are all premised on Appellants’ contention that the sanctions

are governed by Tennessee Code Annotated Sections 33-2-407(b) and 33-2-409. We

have previously stated that these statutes apply only when TDIDD seeks to impose “civil

penalties” against a provider. The instant case involves the imposition of sanctions,

which are governed by Tennessee Code Annotated Section 33-2-408. For the reasons

discussed above, TDIDD’s imposition of these sanctions neither exceeded its statutory

authority, nor violated any statutory requirements. Accordingly, TDIDD was entitled to

summary judgment on these counts.

- 22 -

Count IX

In the last Count of the Petition, Appellants ostensibly make three arguments.

First, Appellants contend that invoicing for more than 243 days of day services is not a

sanctionable offense. Second, Appellants argue that TDIDD did not give the Providers

proper notice before TDIDD began imposing monetary sanctions, in 2015, for invoicing

more than 243 days in 2014. Finally, Appellants argue that, in view of the fact that, prior

to 2014, TDIDD did not impose sanctions for overbilling, it was required to promulgate

its new policy as a Rule or regulation, which it did not do. We will address each of these

arguments in turn.

a. Invoicing for More than 243 Days

It is undisputed that the Waiver states that providers will not be reimbursed for

service days in excess of the cap of 243 days of day services per individual per year.

Appellants, however, argue that the Waiver does not limit the number of days of day

services that a provider may invoice. The Provider Agreement states, in relevant part,

that TDIDD

will refuse payment to the Provider for services billed to [TDIDD] that are

beyond the level of services authorized by [TDIDD] through Individual

Support Plans or Individual Support Plan Amendments, exceed payment

rates for these services are not billed to [TDIDD] within the appropriate

time frame after the delivery of services.

Relying on the foregoing language, Appellants’ argue that the Providers are not restricted

from invoicing in excess of 243 days. Appellants further argue that the foregoing

language places the burden on TDIDD to deny payment for invoicing that exceeds the

243-day cap. As support for this argument, Appellants note that, although the 243-day

limit has been a Waiver requirement since 2007, until 2014, TDIDD handled over-

invoicing by simply denying payment for the excess days. In other words, until 2014,

TDIDD screened provider invoices for the number of days of day services and simply

stopped paying once the 243-day limit was reached. TDIDD counters by pointing out

that the Agreement expressly provides for sanctions, pursuant to Tennessee Code

Annotated Section 33-2-408, for a provider’s failure to comply with the requirements of

the Provider Manual, etc. The Provider Manual also reiterates that failure to comply with

the Agreement, specifically the provisions regarding the Waiver, are sanctionable

offenses, i.e., deficient practices. Furthermore, the Agreement states that the provider

must “comply with the terms of the Center for Medicare and Medicaid Services (CMS)

approved 1915(c) Home and Community Based Services Waiver for Mentally Retarded

and Developmentally Disabled.” From the Agreement, Provider Manual, and Policy, it is

clear that any violation of the Waiver is a sanctionable offense. The question remains,

- 23 -

however, whether the Waiver forbids a provider from invoicing more than 243 days for

day services.

In relevant part, the Waiver provides that: “Day Services shall be limited to a

maximum of 5 days per week up to a maximum of 243 days per person per calendar

year.” Again, Appellants argue that the Waiver does not specifically state that a provider

may not invoice for more than 243 but only reiterates TDIDD’s obligation to refuse

payment for more than 243 days. In support of this argument, Appellants further note

that providers are not able to determine when the 243 day limit has been reached for

individuals because these individual may receive waiver services from multiple providers

or they may move their services from one provider to another. Therefore, Appellants

argue that providers have no way to ensure that their billings for individual service

recipients do not exceed the 243 days.

In resolving the question of whether the Waiver forbids invoicing for more than

243 days of day services, the trial court’s order explains:

The terms of each state’s waivers are unique, including services that

may be covered and limitations applicable thereto. Tennessee has three

waivers authorized under Section 1915(c) of the Social Security Act (the

“Act”) that permit the State to provide HCBS services that would otherwise

not be available to individuals with intellectual disabilities and children

with developmental disabilities. . . . Under the terms of each of

Tennessee’s approved Section 1915(c) waivers, day services are limited to

a maximum of five days per week up to a maximum of 243 days per service

recipient per year. The State Plan and any approved Waivers act as a

contract between the State and Centers for Medicare and Medicaid Services

(“CMS”).

States must comply with their Plan and approved Waivers and with

all applicable federal law and regulations in order to receive federal

matching funds for covered benefits provided to eligible enrollees,

including federal waiver assurances set forth in 42 CFR § 441.302. One of

these assurances pertains to the financial accountability of the program.

These assurances are embedded into the Waiver application that the State

submits to CMS and against which the State is monitored. In Appendix I:

Financial Accountability of the CMS Waiver application template, section

I-1: Financial Integrity and Accountability, the State is required to:

Describe the methods that are employed to ensure the

integrity of payments that have been made for waiver

services, including: (a) requirements concerning the

independent audit of provider agencies; (b) the financial audit

program that the state conducts to ensure the integrity of

- 24 -

provider billings for Medicaid payment of waiver services,

including the methods, scope and frequency of audits; and (c)

the agency (or agencies) responsible for conducting the

financial audit program.

In each of the CMS-approved Waiver applications, the State offers

three components of the financial audit program that the State conducts to

ensure the integrity of provider billings for Medicaid payment of Waiver

services. One of these components is “Fiscal Accountability Review”

(“FAR”), whereby a review of the claims billed is compared to supporting

documentation and all discrepancies are noted in a report that is submitted

to the contract provider for comment. Another component is the State

audit. The audit, which covers at least one fiscal year, includes a random

sample of each program, including the HCBS Waiver program. Requests

for documentation to support paid claims are made directly to selected

providers. At the completion of the audit process, a comprehensive report

is submitted to TennCare for review and follow-up to insure that findings

are not repeated in subsequent years.

In a performance audit conducted in 2013 by the Office of the

Comptroller, a finding was identified because [TDIDD’s] computer system

did not contain an edit that would prevent Providers who billed in excess of

the 243-day limit from receiving Medicaid overpayments. It was further

discovered that, with respect to the Self-Determination Waiver, TennCare’s

Medicaid Management Information System (“MMIS”) did not have an edit

in place to prevent these claims from being overpaid. Upon this discovery,

TennCare took action to reconfigure MMIS to include an edit against the

day services limits, which was put into place in 2013. In addition, working

with [TDIDD], other overpayments that had been made under the Self-

Determination Waiver in excess of the 243-day limit were recouped.

Providers are bound by the terms of their Medicaid Provider

Agreement with TennCare and with [TDIDD] to comply with all relevant

and applicable state and federal court orders, consent decrees, policies,

rules, regulations, and statutory requirements, including any amendments

and/or revisions thereto, as they relate to the Agreement or any

performance of approved service to eligible persons supported. The

Medicaid Provider Agreement affirms to Providers that they are not entitled

to reimbursement for services beyond the scope of a defined Waiver service

definition, including the 243-day limit on day services.

Applicable state and federal laws with which the State must comply

include the federal and Tennessee False Claims Acts. Under the Guidance

for Providers, developed by the US Department of Health and Human

Services, Office of Inspector General, it is illegal to submit claims for

payment to Medicare or Medicaid that the Provider knows or should know

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are false or fraudulent. The Guidance describes the difference between

unintentional mistakes and fraudulent or abusive behavior and makes it

clear that submitting an erroneous claim for payment is different from

submitting the same claim with actual knowledge, reckless disregard or

deliberate ignorance of its falsity. The Guidance further describes non-

covered services or items billed by a Provider as an example of fraud, waste

and abuse. [TDIDD] argues that services in excess of a defined benefit

limit (i.e., in excess of the 243-day limit) are non-covered services. Thus,

[TDIDD] argues, in billing in excess of the defined 243-day limit specified

in the CMS-approved Waiver application, Providers knowingly sought

payment to which they were not entitled.

Under the terms of TennCare’s Agreement with [TDIDD], [TDIDD]

is required to take corrective actions as are necessary, including sanctions,

when a Provider is unwilling or unable to comply with the Waiver program

requirements. TennCare is obligated under the terms of the Waiver to limit

the billing and payment for day services to 243 days per person per year.

TennCare is also obligated under the Waiver to monitor Provider billing in

order to provide assurance of financial accountability for the program, as

well as to take appropriate action to ensure compliance. [TDIDD] argues

that Providers are obligated to bill only for services they have been

authorized to provide and in accordance with the covered services defined

in the approved Waiver application. [TDIDD] further argues that Providers

who submit claims for payment of day services in excess of the limit are in

violation of the State’s approved Waiver, as well as the federal and

Tennessee False Claims Acts. The State is obligated to take appropriate

action to assure compliance, and, if it does not, it risks termination of the

Waivers and federal funding for HCBS services provided to vulnerable

citizens under these programs.

[TDIDD] argues that the record reflects that billing in excess of the

243-day limit is a violation of the HCBS Waiver and Provider Manual.

[TDIDD] further argues that violating the HCBS Waiver and Provider

Manual is a deficient practice subject to sanction by agreement of the

parties in the Provider Agreement. [TDIDD] argues that Providers have a

responsibility to understand where a service recipient is with respect to

benefit limit, so they know not to exceed the provision of service or the

billing of service beyond a billing limit. Providers can talk to [TDIDD]

about how may service units remain available. It is incumbent upon

Providers to coordinate their care, and this applies to people who have more

than one day services Provider.

Based on the foregoing discussion, the trial court ultimately held that the onus is

on the Providers to ensure that they bill for only authorized services. Specifically, the

trial court’s order states that:

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As to the question of whether invoicing/billing beyond the 243-day

limit for day services is a deficient practice subject to sanctions,

[Appellants’] answer is no. [Appellants] argue[] that, because Providers

were previously allowed to bill for all services provided and [TDIDD]

limited its payment to the 243-day limit, the onus was on [TDIDD] to only

pay up to the 243-day limit. [TDIDD], on the other hand, answers the

posed question as yes. [TDIDD’s] argument is that invoicing/billing for

over the 243-day limit has always been considered a deficient practice

subject to sanctions and [TDIDD] places the onus on Providers to limit

their billing/invoicing to only 243-days of day services.

Neither the Provider Agreement, Provider Manual, nor HCBS

Waiver expressly states that Providers cannot bill/invoice in excess of the

243-day limit. Rather, the HCBS Waiver provides that day services shall

be limited to a maximum of five days per week up to a maximum of 243

days per recipient per year. So, who has the onus to comply with this limit?

The Court finds that, despite both parties having very compelling

arguments, the most compelling argument is the one most consistent with

the HCBS Waiver. That is: Providers are obligated to bill only for services

they have been authorized to provide. Because Providers are only

authorized to provide 243 days of day services, the onus is on Providers to

only bill for 243 days of day services. As the Court has so found, it follows

that the Court finds that invoicing/billing for over 243 days of day services

is a deficient practice subject to sanctions. Accordingly, [TDIDD] is

entitled to judgment as a matter of law . . . .

We agree that both TDIDD and the Providers have an obligation to ensure that the

billings for waiver services are compliant with federal mandates. TDIDD does this by

imposing requirements, contractual and procedural, on the providers. In turn, the

providers do this by complying with these requirements. In this case, and for the reasons

discussed above, the Providers breached the Agreement, Provider Manual, and the

Waiver by submitting bills for services the Providers were not authorized to provide, i.e.,

day services in excess of the 243-day limit. As found in the Comptroller’s audit, the

Providers’ deficient practices had the potential to negate the State’s ability to receive

federal funds for provision of waiver services, and TDIDD is statutorily authorized to

impose sanctions as a means of enforcing proper practices by providers.

b. Notice

Appellants contend that, without prior notice, TDIDD began levying monetary

sanctions, in 2015, for invoicing more than 243 days in 2014. Although the sanction

letters state that the Providers had been warned of the billing violations in 2014,

Appellants contend that this is incorrect. Appellants argue that the sanction letters were

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the first notice TDIDD sent regarding the overbilling. While maintaining that it sent

warning letters before levying sanctions, TDIDD asserts that, regardless of the warning

letters, the Providers were informed of the potential for sanctions as part of the terms of

the Agreement. In holding that Appellants received adequate notice that TDIDD

intended to start imposing sanctions in 2015, the trial court relied on the depositions of

Lee Vestal, TDIDD Director of Risk Management and Licensure, and Robin Atwood,

TNCO’s Executive Director. The trial court’s order states, in relevant part, that:

Before sending the warning letters in 2014, Lee Vestal verbally spoke to

every Executive Director of a Provider that was going to receive a warning

letter. Thus, the Providers received verbal, as well as written, notice about

stopping the practice of overbilling. Further, Robin Atwood, Executive

Director of TNCO, set a letter to Lee Vestal . . . on September 9, 2014,

which stated: “Going forward, providers are aware of the new

expectations.” TNCO represents its Providers. The Court finds that the

testimony in the record establishes that [TDIDD] provided notice to TNCO,

via warning letters to and Lee Vestal’s conversations with Providers, that

[TDIDD] expected Providers to not bill over the 243-day limit for day

service.

The communication between Mr. Vestal and Ms. Atwood is not a disputed fact in the

record. Ms. Atwood’s September 9, 2014 letter clearly indicates that Providers, through

their profession trade organization (TNCO), were on notice that TDIDD planned to

impose sanctions going forward, even though it had not done so in the past.

Aside from Ms. Atwood’s acknowledgement of TDIDD’s “new expectation” for

providers, the Agreement, which both Providers executed, clearly states that, for failure

to comply with the Agreement or the standards and requirements referenced therein (see

discussion above), TDIDD may invoke sanctions including monetary sanctions for

deficient practices. In this regard, the Agreement provides adequate notice that providers

may be charged with monetary sanctions for deficient practices such as billing in excess

of the 243-day limit.

c. Requirement to Promulgate Rules

Appellants argue that, when agencies change long-standing interpretations of

statutes or regulations, they are required to promulgate rules. Specifically, Appellants

allege that TDIDD’s decision to change its long-standing interpretation of the

requirements of the Waiver concerning the 243-day limit requires rulemaking because:

the decision: (1) covers all providers operating under the Waiver; (2) applies to future

invoicing; (3) prescribes a directive that was not otherwise clear; (4) constitutes a

material and significant change from its previous position; and (5) is in the nature of an

interpretation of law or general policy. In Tennessee Cable Television Association v.

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Tennessee Public Service Commission, 844 S.W.2d 151 (Tenn. Ct. App. 1992), this

Court adopted the following test for when rulemaking is required, to-wit:

if it appears that the agency determination, in many or most of the

following circumstances, (1) is intended to have wide coverage

encompassing a large segment of the regulated or general public, rather

than an individual or a narrow select group; (2) is intended to be applied

generally and uniformly to all similarly situated persons; (3) is designed to

operate only in future cases, that is, prospectively; (4) prescribes a legal

standard or directive that is not otherwise expressly provided by or clearly

and obviously inferable from the enabling statutory authorization; (5)

reflects an administrative policy that (i) was not previously expressed in

any official and explicit agency determination, adjudication or rule, or (ii)

constitutes a material and significant change from a clear, past agency

position on the identical subject matter; and (6) reflects a decision on

administrative regulatory policy in the nature of the interpretation of law or

general policy.

Id. at 162-63 (adopting the test first enumerated in Metromedia, Inc. v. Director, Div. of

Taxation, 97 N.J. 313, 478 A.2d 742, 751 (1984)).

Appellants further assert that TDIDD failed to assess the fiscal impact of its

change of interpretation on providers as required under Tennessee Code Annotated

Section 33-5-108, which states, in relevant part, as follows:

The department of intellectual and developmental disabilities shall assess in

writing the fiscal impact on licensees under chapter 2, part 4 of this title, of

any change to any rule, regulation, policy or guideline relating to the

staffing, physical plant or operating procedures of the licensee for rendering

services pursuant to a contract, grant or agreement with the department.

Specifically, Appellants allege that TDIDD did not determine the fiscal impact of

restricting providers from invoicing all of their day services, which determination should

have required application of the rulemaking process as it involved a change in TDIDD’s

interpretation of the Waiver requirements.

TDIDD asserts that there was no need to promulgate a Rule because there was no

change in the interpretation of the Waiver—billing for over 243 days has always been a

sanctionable offense as a violation of the Waiver, Provider Agreement, and Provider

Manual. Therefore, the fact that TDIDD began to strictly enforce the Waiver does not

mean that the terms of the Waiver changed. The 243-day limit for day services has been

part of the Waiver since 2005, and the Providers agreed to comply with the limit by

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executing the Agreement. Furthermore, TDIDD asserts that it did not have to determine

the fiscal impact on providers because billing in excess of the cap has been a sanctionable

offense since 2005, and Tennessee Code Annotated Section 33-5-108, on which

Appellants rely, applies only to changes to rules, regulations, policies or guidelines.

In its order granting summary judgment in favor of TDIDD, the trial court made

the following, relevant, findings:

The Court agrees with [TDIDD] that because [TDIDD] began strict

enforcement of the HCBS Waiver does not mean that the terms of the

Waiver have changed. The HCBS Waiver, by its own terms, limits day

services to 243 days. Strict enforcement of the Waiver does not require

rulemaking or a new fiscal impact determination pursuant to Tenn. Code

Ann. § 33-5-108. Furthermore, the Court finds that [TDIDD] provided

notice to Providers, via warning letters to and Lee Vestal’s conversations

with Providers, that [TDIDD] expected Providers to not bill over the 243-

day limit for day services and that billing over that limit would be

considered a sanctionable offense. The testimony in the record reflects that

the Providers who received sanction letters had previously received

warning letters but continued to bill for day services over the 243-day limit.

We agree with the trial court’s reasoning. TDIDD’s decision to strictly enforce an

existing requirement, after notice to the Providers, did not change the requirement. The

243-day billing limit was a requirement, to which the Providers agreed to be bound by

executing the Agreement. Under the Agreement, TDIDD could have sanctioned for

billing overages at any time after 2005. Having determined that billing/invoicing for over

243 days of day services was a deficient practice subject to sanctions, we conclude that

TDIDD was entitled to summary judgment on Count IX of the Petition.

Any issue not specifically addressed herein is expressly pretermitted or deemed

waived due to Appellants’ failure to raise it in the trial court. City of Cookeville ex rel.

Cookeville Reg’l Med. Ctr., 126 S.W. 3d at 905-906

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V. Conclusion

For the foregoing reasons, we affirm the trial court’s order. The case is remanded

for such further proceedings as may be necessary and are consistent with this opinion.

Costs of the appeal are assessed against Appellees, Tennessee Community Organizations,

Dawn of Hope, Inc., Evergreen Life Services, and their surety, for all of which execution

may issue if necessary.

_________________________________

KENNY ARMSTRONG, JUDGE

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