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Click here for the full text of this decision FACTS:The Medicaid statute established a cooperative plan between the federal government and the states to provide medical services to certain defined categories of low-income individuals. The program is jointly funded by the federal and state governments and is administered by the states pursuant to federal guidelines. To qualify for federal funding, a state must have its own Medicaid plan approved by the Health Care Financing Administration (HCFA) of the U.S. Department of Health and Human Services. State Medicaid programs are required to follow fundamental principles set forth in the Social Security Act and comply with all mandates related to eligibility and covered services. One of the fundamental federal requirements is freedom of choice; Medicaid recipients must be allowed to select any health-care provider who meets program standards and elects to provide services. States seeking to limit a recipient’s freedom of choice must obtain a specific exemption in a waiver granted by the Centers for Medicare and Medicaid Services (CMS). Texas has elected to participate in the federal Medicaid program. The Texas Health and Human Services Commission is charged with the chief responsibility for the Medicaid program in Texas. To streamline the program, Texas instituted the State of Texas Access Reform Program (STAR). STAR allows the commission to contract with managed care organizations to provide health-care services to certain Medicaid recipients. Because STAR restricts the ability of Medicaid recipients to select their health care provider, the commission obtained a waiver of the federal freedom-of-choice requirement. Under the waiver, only expressly enumerated categories of Medicaid-eligible persons legally may be deprived of their freedom of choice and be deemed a mandatory member of a specific Medicaid HMO. Persons eligible to receive Temporary Assistance for Needy Families (TANF) may be designated as mandatory participants in a Medicaid HMO. The waiver identifies other categories of Medicaid-eligible persons who may elect to participate in a Medicaid HMO but who are not required to do so. These optional participants are defined in the waiver as voluntary members of the HMO. Persons eligible to receive Supplemental Security Income are among those designated as voluntary participants. Unlike persons eligible for Medicaid under TANF, persons eligible for Medicaid under SSI cannot be compelled to join an HMO. Amerigroup Texas Inc., a Medicaid HMO, is not obligated to pay for the medical expenses of voluntary members. The commission pays Medicaid providers like Methodist Hospitals of Dallas on a traditional fee-for-service basis (at a substantially lower rate of reimbursement) or it pays a capitation rate to an HMO which in turn reimburses the provider at a higher rate, still discounted from the full cost of services. A capitation payment is a fixed sum that is paid monthly to an HMO on a per-member basis, regardless of the amount of services used by that member. Capitation payments are described as “full risk,” because the HMO bears the risk that the capitated payment received for an insured may be insufficient to cover the cost of that insured’s medical needs for any given month. In this instance, Amerigroup paid Methodist a higher rate for services rendered to Felicia Carraway from Dec. 19-Dec. 31, 2001. Methodist was paid at the lower traditional Medicaid rate for services rendered to Carraway from Jan. 1, 2002, until her death in 2004. Methodist sought to recover the higher rate of reimbursement from Amerigroup for all services rendered to Carraway based on Amerigroup’s contractual obligation to pay for all services once a mandatory participant is admitted to the hospital, unless the patient becomes ineligible for Medicaid. Such ineligibility occurs when there is either a complete loss of eligibility or a temporary loss of eligibility that results in a gap in coverage. Methodist contends that Amerigroup is liable because Carraway never became ineligible for Medicaid, either permanently or because of a gap in coverage. Amerigroup became a Medicaid HMO participating in STAR pursuant to a 1999 contract with the commission. In the same year, Amerigroup also contracted with Methodist to pay for services rendered to the mandatory members of the Amerigroup HMO (the provider contract). Because Carraway was receiving TANF, she lost her ability to choose her health-care provider, and the federal waiver permitted the commission to enroll her as a mandatory participant in an HMO. On Feb. 1, 2000, the commission designated Carraway as a mandatory member of Amerigroup. On Dec. 19, 2001, Carraway was admitted to Methodist Hospital suffering from renal disease. She went into septic shock and cardiopulmonary arrest and lapsed into a coma from which she never emerged. Carraway remained hospitalized at Methodist until her death on Jan. 27, 2004. At some point in December 2001, Carraway voluntarily withdrew from TANF. Consequently, on Dec. 31, 2001, the commission removed her from the Medicaid eligibility rolls. The commission was unaware that Carraway had earlier applied for SSI on Feb. 20, 2001. On Jan. 8, 2002, the commission received notice that the Social Security Administration had certified Carraway as eligible to receive SSI benefits; it also made her SSI eligibility retroactive to the month she applied for benefits. As an SSI recipient, effective Feb. 1, 2001, Carraway could only be classified as a voluntary member of Amerigroup. After Carraway’s hospitalization on Dec. 19, 2001, Methodist began to bill Amerigroup for the medical expenses she incurred. In February 2002, the commission notified Amerigroup that it was no longer responsible for Carraway’s medical expenses. In November 2002, Methodist officially requested the commission to reconsider who was responsible for payment of Carraway’s expenses after Dec. 31, 2001. Revisiting the issue, the commission reversed its earlier decision and concluded that Amerigroup was responsible for all medical services provided to Carraway after she was admitted. Based on this determination, Amerigroup paid Methodist $349,067.43 for services provided to Carraway through Aug. 28, 2002. But the dispute continued. On Jan. 15, 2003, Amerigroup reconsidered its position and advised Methodist that it would not be liable for any medical services rendered after Carraway was removed as a mandatory participant on Dec. 31, 2001. Therefore, all but $19,374 of its payment had been made in error. In response to Amerigroup’s adjusted payment, Methodist again requested the commission to investigate. In March 2003, the commission reversed itself and concluded that Amerigroup was not obligated to pay for services rendered to Carraway after Dec. 31, 2001. Specifically, the commission found that because Carraway voluntarily withdrew from TANF, she was properly removed from the Medicaid eligibility rolls as of midnight on Dec. 31, 2001. Although Carraway regained Medicaid eligibility when she was certified as SSI eligible on Jan. 8, 2002, there was a gap in Carraway’s Medicaid eligibility in the eight-day interim between Jan. 1 and Jan. 8. Therefore, the commission concluded that Amerigroup was not responsible for any of Carraway’s medical expenses incurred after Dec. 31, 2001. Instead, the commission found that the state was responsible for Carraway’s medical expenses under traditional Medicaid and advised Methodist that it should submit a claim to National Heritage Insurance Co. Methodist submitted a claim, and on June 2, 2003, NHIC paid $436,800 to Methodist. Methodist initiated this action against Amerigroup and asserted, inter alia, that Amerigroup breached both its provider contract and its commission contract when it failed to pay for Carraway’s medical care after Dec. 31, 2001. Both parties moved for summary judgment. The trial court granted summary judgment on behalf of Amerigroup and denied Methodist’s motion. Methodist appealed. HOLDING:Affirmed. In its first issue, Methodist asserted that Amerigroup remained liable for services rendered to Carraway after Dec. 31, 2001, because Carraway never lost her Medicaid eligibility. Amerigroup’s contractual obligation to pay for medical services, the court stated, depends on Carraway’s status as a mandatory member of the HMO. But the court found that Carraway was therefore ineligible to be a mandatory member of the HMO, because of her retroaction enrollment into SSI. As a result, the commission disenrolled Carraway from mandatory membership in the Amerigroup HMO. The commission has the exclusive statutory and contractual authority to make enrollment and eligibility decisions, the court stated. Thus, the court found that when the commission found Carraway was no longer eligible to be a mandatory member of the HMO, Amerigroup was no longer contractually obligated to pay her medical expenses. The court did not address Carraway’s retroactive enrollment into SSI, because Amerigroup did not contest its obligation to cover Carraway’s medical expenses incurred from Dec. 19 to Dec. 31, 2001. Methodist next asserted that Amerigroup was liable under paragraph 6.3.2 of the commission contract, because the evidence Amerigroup submitted to establish the commission’s eligibility determination was hearsay. The evidence consisted of two e-mails from the commission and a letter from the assistant general counsel of the commission. Because Methodist failed to obtain a ruling on its objection, the court found that Methodist waived its right to complain about the evidence. The court then found that the evidence at issue established a loss of Medicaid eligibility under the commission contract. The court found no error in the commission’s reconsideration of its original decision. The court also found that Methodist contractually waived its right to complain about the commission’s coverage decision regarding Carrway. OPINION:Smith, J.; Moseley, Bridges and Smith, JJ.

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