Texas Sues Health Agency Over Rescinded Demonstration Project Approval

On Friday, the State of Texas and the Texas Health and Human Services  Commission filed suit against Elizabeth Richter as Acting Administrator of the Centers for Medicare and Medicaid Services (CMS) and CMS directly. The suit, filed in the Eastern District of Texas, concerns a rulemaking letter issued by Administrator Richter regarding the Texas Healthcare Transformation and Quality Improvement Program (THTQIP Demonstration Project). The complaint alleges that the rulemaking letter does not meet the procedural standards issued both by CMS and under the Administrative Procedure Act.

Federal statutes and regulations impose a number of requirements on state Medicaid programs for providing medical assistance to poor and underserved communities. However, certain rules may be waived under what are known as demonstration projects, which propose administrative alternatives to certain procedural and financing requirements. The THTQIP demonstration project is one of these projects and has been in effect in Texas since 2011, with extensions made in 2016, 2017, and 2021. This most recent extension is the subject of this lawsuit.

The THTQIP demonstration project modifications were originally set to expire in 2022, but due to COVID-19 and the increased demand for medical services, Texas sought an extension of the demonstration project, which was granted on January 15 with a new sunset date of 2030. However, on April 16, CMS purportedly issued a letter withdrawing approval of the extension and returning the demonstration project to the previous sunset date.

Texas disputed this withdrawal of the approval, citing a lack of statutory authority to rescind approval after approval has been granted, arguing that the withdrawal was not made within statutory time limitations, arguing that the withdrawal of authority is contrary to statutory intent, arguing failure to comply with the APA notice and public comment period, arguing that the decision was arbitrary and capricious and no finding of lack of compliance was made in the letter, arguing promissory estoppel, and finally arguing that the intent of the letter was to force Texas to comply with the terms of the Affordable Care Act Medicaid expansion in violation of the commerce clause of the United States Constitution.

The  State of Texas is represented by the Office of the Attorney General of Texas. The United States, CMS, and Administrator Richter are represented by the Department of Justice.