Pharmserv, Inc. v. Texas Health and Human Services Commission Office of the Inspector General of the Texas Health and Human Services Commission Kyle Janek, in His Official Capacity as Commissioner of Texas Health and Human Services Commission
03-13-00526-CV
| Tex. App. | Jan 9, 2015Background
- This case involves PharmServ, Inc. appealing an HHSC-OIG action that withholds Medicaid payments to remedy alleged contract breaches.
- Texas TrueCare submits as amicus curiae arguing providers are entitled to hearing and judicial review for audit-related withholdings.
- The HHSC-OIG contends no due process right exists and that sections 32.0291 and 531.102 do not apply to pharmacy providers.
- Plaintiffs argue that withholding funds constitutes adjudication of contract rights and requires court review, not agency action alone.
- The court must reconcile statutory and constitutional limits on agency authority with the Medicaid program’s purpose and ensure due process protections.
- The court ultimately holds that the HHSC-OIG cannot withhold funds without proper hearing and judicial review, grounded in statutory authority and separation of powers.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Right to hearing and judicial review for audits | Pharmacy providers have rights under 32.0291 and 531.102 | No right because audits are not sanctions; no hearing mandated | Provider right to hearing and judicial review exists |
| Statutory authority to withhold payments | Statutes authorize payment holds and hearings | Statutes do not permit agency withholding for non-fraud violations | Statutory schemes authorize hearings and limit withholdings to legitimate bases |
| Separation of powers | HHSC-OIG cannot adjudicate contract rights | Audits may be internal; no court needed | HHSC-OIG cannot adjudicate contract rights without court involvement |
| Sanction vs. audit labeling | Labeling as 'audit' does not avoid sanctions | Labeling matters for procedures | Sanction vs. audit labeling does not avoid due process requirements |
| Constitutional access to courts | Article I, Section 13 requires access when funds are challenged | Access limited by sovereign immunity and contract framework | Constitutional access to courts central to challenge withholdings |
Key Cases Cited
- Grounds v. Tolar Independent School Dist., 856 S.W.2d 417 (Tex. 1993) (due process interest from pre-renewal and state-law limits)
- Stratton v. Austin Independent School Dist., 8 S.W.3d 26 (Tex. App.-Austin 1999) (modifies Grounds on due process and statutory context)
- McAllen Hospitals, L.P. v. Suehs, 426 S.W.3d 304 (Tex. App.-Amarillo, 2014) (exhaustion of remedies affects due process claim)
- State v. Flag-Redfern Oil Co., 852 S.W.2d 480 (Tex. 1993) (agency may audit but cannot bind as contract judgment under Art. II)
- Texas Dept. of Human Services v. Christian Care Centers, Inc., 826 S.W.2d 715 (Tex. App.-Austin, 1992) (implied authority limits and due-process concerns for withholdings)
- Harlingen Family Dentistry, Pc. v. Texas Health and Human Services Commission, --- S.W.3d ---- (Tex. App.-Austin, 2014) (rules expanding withholdings conflict with legislative directives)