Is a state agency or university exempt from another state agency's rules just because it's a state entity?

Texas AG Opinion JC-0003: State Entities Must Follow Another Agency's Valid Rules

Plain-English summary

The Texas Department of Health runs the state Medicaid program and writes the rules that providers must follow to participate, including deadlines for filing claims. Some of the providers, including Texas Tech University Health Sciences Center and the University of Texas Medical Branch at Galveston, took the position that because they are themselves state entities, the Department's rules did not bind them. The Commissioner of Health asked the Attorney General whether that was right.

The Attorney General said no, and not gently. A rule adopted by a state agency that has rule-making authority from the legislature, and that is properly promulgated, has the force of law, the same as a statute. The fact that the party engaged in the regulated activity is itself a state agency, board, department, political subdivision, or state university does not exempt it any more than it would be exempt from a statute. The opinion called the providers' contrary argument a "novel and indeed startling proposition of law" with no support, and said the opposite rule (that valid agency rules bind everyone subject to them, except the United States) is so well established as to be beyond question. It drew on City of Lubbock v. Public Utility Commission, where a city escaped a Public Utility Commission rule only because of a specific statutory exemption; the court's careful analysis there would have been pointless if a city could dodge a rule just by being a city. The opinion also flagged a practical concern: the Department's rules were built into its contracts with the providers, and a rule letting a state entity escape a contract term simply because of its political nature would make private parties reluctant to contract with the state at all. The bottom line: state entities, like everyone else, are bound by properly promulgated agency rules unless a statute specifically exempts them.

Currency note

This opinion was issued in 1999. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The general principle that valid agency rules have the force of law is long-standing, but the specific Medicaid rules and code citations referenced here may have changed. Verify current law before relying on anything specific.

Common questions

Can a state university or agency ignore another agency's rules because it is a state entity?
No. The opinion concluded a state entity is bound by a properly promulgated rule to the same extent it would be bound by a statute, and its status as a state entity does not create an exemption.

What makes an agency rule binding like a statute?
The rule must be within the rule-making power the legislature granted the agency and must be properly promulgated. The opinion assumed both were true here and explained that such a rule then has the force of law (citing Lewis v. Jacksonville Building & Loan Ass'n).

When is a state entity exempt from a rule?
Only when a statute specifically exempts it. The opinion noted that in City of Lubbock a city escaped a rule because of a specific statutory exemption, not because of its political status, and that the analysis would have been unnecessary if status alone were enough.

Did it matter that the rules were in the providers' contracts?
The opinion treated it as making the providers' argument more troubling. Because the Medicaid rules were incorporated into the contracts, a rule letting a state entity escape a contract term just because of its political nature would discourage private parties from contracting with the state.

Background and statutory framework

The Texas Department of Health, as administrator of the Texas Medical Assistance (Medicaid) Program, promulgates participation rules, including claim-filing deadlines codified at 25 Texas Administrative Code section 29.3, and providers contract with the Department to provide services in compliance with those rules. The narrow question was whether a provider could claim exemption from the rules solely because it is a state entity. The opinion assumed, without deciding, that the rule was within the Department's statutory authority, was properly promulgated, and that the providers claimed no other statutory exemption; it addressed only the "bare proposition" that state status alone confers an exemption.

The opinion rejected that proposition. A properly promulgated rule, within the powers the legislature granted, has the force of law and binds all parties subject to it except the United States (Lewis v. Jacksonville Bldg. & Loan Ass'n, 540 S.W.2d 307, 310 (Tex. 1976)). It analogized to City of Lubbock v. Public Util. Comm'n, 705 S.W.2d 329, 330-31 (Tex. App.-Austin 1986, writ ref'd n.r.e.), where the Third Court of Appeals held a Public Utility Commission rule inapplicable to a city only because of a specific statutory exemption, while making clear that absent such an exemption the city would be bound: "[a]bsent a statutory directive to the contrary," a valid rule, construed like a statute and carrying the force of legislation, applies to the regulated party. The opinion reasoned that if mere political status exempted an entity, the rest of the City of Lubbock analysis would have been unnecessary. It added that incorporating the rules into the providers' contracts made the argument especially troubling, since a rule letting a state entity avoid an onerous contract term for no reason other than its political nature would deter private parties from contracting with the state. It therefore concluded that state entities, like other parties, are bound by valid agency rules unless specifically exempted.

Citations

Rule and case authority:

• 25 TEX. ADMIN. CODE § 29.3 (Medicaid Program claim-filing deadlines)
• Lewis v. Jacksonville Bldg. & Loan Ass'n, 540 S.W.2d 307, 310 (Tex. 1976)
• City of Lubbock v. Public Util. Comm'n, 705 S.W.2d 329, 330-31 (Tex. App.-Austin 1986, writ ref'd n.r.e.)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/john-cornyn/jc-0003
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1999/jc0003.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

February 24, 1999

William R. Archer III, M.D.
Commissioner of Health
Texas Department of Health
1100 West 49th Street
Austin, Texas 78756-3199

Opinion No. JC-0003

Re: Binding effect of government agency rules on other state entities (RQ-1201)

Dear Commissioner Archer:

Your predecessor asked this office whether rules promulgated by the Texas Department of Health (the "department") as administrator of the Texas Medical Assistance (Medicaid) Program were binding on state entities participating in that program as health care providers. We answer in the affirmative. So long as a state agency's rules are within the power granted to it by the legislature and have been properly promulgated, they have the force of law. See Lewis v. Jacksonville Bldg. & Loan Ass'n, 540 S.W.2d 307, 310 (Tex. 1976). The mere fact that an entity engaged in the conduct governed by those rules is a state agency, board, department, or political subdivision no more exempts that entity from the rule than it would be from a legislative enactment. See City of Lubbock v. Public Util. Comm'n, 705 S.W.2d 329, 330-31 (Tex. App.-Austin 1986, writ ref'd n.r.e.).

As your predecessor explained the situation, the department promulgates rules for participation in the Medicaid Program, including inter alia deadlines for filing claims which are codified at volume 25, section 29.3 of the Texas Administrative Code. Health care providers enter into contracts with the department "whereby the entities agree[] to provide services in compliance with Medicaid Program rules and regulations." Letter from Patti J. Patterson, M.D., Tex. Dept. of Health, to Hon. Dan Morales, Office of the Tex. Att'y Gen. (July 7, 1997) (on file with the Opinion Comm.). Certain of these providers, including Texas Tech University Health Sciences Center and the University of Texas Medical Branch at Galveston, as we understand it, have taken the position that because they are state entities, they are not subject to the rules promulgated by the department.

It is, we are given to understand, that assertion and that assertion alone which you wish this office to consider. We will therefore assume, without deciding, that the rule in question is within the statutory authority of the department; that the rule has been properly promulgated; and that the entities in question are making no claim that an exemption for them is to be found somewhere else in the statute. We are considering only the bare proposition that a state entity may assert, merely because it is a state entity, that it is exempt from what would otherwise be a binding regulation properly promulgated by a state agency which had the necessary rule-making authority.

We know of no authority for this novel and indeed startling proposition of law. Indeed, the contrary view that properly promulgated state agency rules bind all parties subject to them, save the United States, is so well established as to be beyond question. Such rules, when within the powers granted by the legislature, have the force of law. See Lewis, 540 S.W.2d at 310.

A somewhat similar argument is to be found in City of Lubbock. While in that case a rule promulgated by the Public Utility Commission was found not to apply to the city involved because of a specific statutory exemption, the Third District Court of Appeals made it clear that absent such statutory exemption the city would have been bound:

[T]he City does not challenge the validity of this rule, but instead challenges its application to municipal regulatory authorities under PURA. The courts must assume that facts exist which justify the promulgation of the rule and establish its general validity. A valid administrative rule is ordinarily construed like a statute and has the force and effect of legislation. Accordingly, absent a statutory directive to the contrary, the court assumes that [the rule] does indeed apply to municipal regulatory authorities.

City of Lubbock, 705 S.W.2d at 330-31 (citations omitted).

If a political subdivision or other state entity could assert that its mere political status exempted it from an agency regulation, then the rest of the City of Lubbock court's analysis would have been supererogatory. Such is plainly not the case. An agency, a city, a board or department, a state university: any such entity is as bound by a properly promulgated rule as it would be by legislative enactment.

We find the assertion to the contrary particularly troubling in light of the fact that, as we understand it, the rules in question are incorporated in the contract between the department and the health care providers. A rule providing that a state entity could, in effect, avoid a contract term it found onerous for no other reason than its political nature might at first blush seem an attractive one from the state's point of view. But we imagine that, were such a rule part of the common law, private parties would be loath to contract with the state on account of it. No such rule, of course, exists; and we do not intend to expound it. But such a rule would be the necessary consequence of the proposition which the health care providers have argued to you.

Accordingly, we conclude that state entities, like other parties, are bound by rules properly promulgated by an administrative agency to which the legislature has given the necessary regulatory authority, unless specifically exempted therefrom.

SUMMARY

State entities, like other parties, are bound by rules properly promulgated by an administrative agency to which the legislature has given the necessary regulatory authority, unless specifically exempted therefrom.

JOHN CORNYN
Attorney General of Texas

ANDY TAYLOR
First Assistant Attorney General

CLARK KENT ERVIN
Deputy Attorney General - General Counsel

ELIZABETH ROBINSON
Chair, Opinion Committee

Prepared by James E. Tourtelott
Assistant Attorney General