Last week, a Texas appeals court invalidated three rules that permitted the Texas Health and Human Services Commission (HHSC) and the Texas OIG to impose a pre-notice payment hold against a Medicaid provider in certain circumstances. In reversing the district court’s decision, the appeals court held that HHSC’s adoption of such rules permitting pre-notice payment holds for any alleged violation of the Medicaid program exceeded HHSC’s statutory authority.

The appellants, two Texas dental groups, argued that two sets of rules, both a prior and the current version, permitted a payment hold in instances that did not involve evidence of fraud by the provider and, therefore, exceeded HHSC’s statutory rulemaking authority. The rules at issue included subsections that gave the OIG broad authority to withhold payments, including for “any other reason specified by statute or regulation.”

The appeals court found that the challenged rules granted OIG the authority to “impose a payment hold whenever it believes a provider has committed any program violation, no matter how minor and irrespective of whether there is any indication of fraud or other intentional abuse.” The court held that the rules “significantly expand the circumstances under which a pre-notice payment hold can be imposed” under the law. The appeals court found further basis for its decision in the fact that the challenged rules lacked the same due process rights afforded to providers facing a payment hold who were alleged to have committed fraud, which the court referred to as “the hallmark of legislation expressly authorizing the imposition of pre-notice payment holds.”

In its ruling, the appeals court also invalidated a rule permitting the OIG to retain seized funds related to a hold even after that hold is terminated and to use such funds to offset any payments later determined to be owed in connection with an ongoing investigation of that provider. A copy of the appeals court’s decision may be read here.