TENNESSEE COMMUNITY ORGANIZATIONS, ET AL.
TENNESSEE DEPARTMENT OF INTELLECTUAL AND DEVELOPMENTAL DISABILITIES
Session February 6, 2018
from the Chancery Court for Davidson County No. 16-0183-IV
Russell T. Perkins, Chancellor.
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.
R. App. P. 3 Appeal as of Right; Judgment of the Chancery
Court Affirmed and Remanded
William Beesley Hubbard and Robyn E. Smith, Nashville,
Tennessee, for the appellants, Tennessee Community
Organizations, Dawn of Hope, Inc., and Evergreen Life
Herbert H. Slatery, III, Attorney General and Reporter, and
Alexander S. Rieger, Deputy Attorney General, for the
appellee, Tennessee Department of Intellectual &
Armstrong, J., delivered the opinion of the court, in which
Frank G. Clement, Jr., P.J., M.S., and W. Neal McBrayer, J.,
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." 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.
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
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 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.
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.
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. 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
#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.
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.
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
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
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
8. Whether the trial court erred by finding that the
sanctions were liquidated damages agreed to in the Provider
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 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
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.
Standard of Review
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 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.
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.
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)).
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.
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
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 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.
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
(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
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,
(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.
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
(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 ...