Background
Cantu’s Pharmacy, a Texas Medicaid-enrolled pharmacy, was placed under investigation by the Texas Health and Human Services Commission’s Office of Inspector General for allegedly submitting improper claims for COVID-19 at-home test kits. The Commission contended that Medicaid had ceased authorizing refills of those test kits as of January 2022, and that a directive to that effect appeared in the Texas Medicaid Provider Procedures Manual. Rather than wait for the administrative enforcement process to run its course, Cantu’s filed a pre-enforcement lawsuit in Travis County district court seeking declaratory relief and alleging a due process violation under Article I, Section 19 of the Texas Constitution. The pharmacy argued the Commission was required to provide it with actual notice of any changes to the Provider Manual before enforcing those changes against it, and that the absence of such notice violated its constitutional due process rights.
The Commission filed a plea to the jurisdiction on three grounds: (1) sovereign immunity barred the claims; (2) the claims were not ripe because no enforcement action had been taken; and (3) Cantu’s had failed to exhaust its administrative remedies. The trial court granted the plea and dismissed all claims with prejudice. Cantu’s appealed, arguing the dismissal was erroneous, that it was entitled to jurisdictional discovery, and that dismissal should have been without prejudice.
The Court’s Holding
The Fifteenth Court of Appeals affirmed. On the due process claim, the court held that Cantu’s had no constitutionally protected property or liberty interest in receiving special notice of Medicaid regulation changes. Texas Administrative Code § 371.1605(b)(1) expressly requires all Medicaid participants to know the federal and state laws and regulations governing the program — the obligation runs to the provider, not to the State. Because there was no vested right to advance, individualized notice of regulation changes, no cognizable due process claim existed, and the constitutional claim was facially invalid. Under Klumb v. Houston Municipal Employees Pension System, 458 S.W.3d 1 (Tex. 2015), sovereign immunity is not waived when a constitutional claim is facially invalid. The court did not reach the ripeness or exhaustion defenses.
On the declaratory judgment claim, the court held that § 2001.038 of the Texas Administrative Procedure Act — which waives immunity for challenges to the “validity or applicability of a rule” — did not save Cantu’s claim because the pharmacy’s live pleadings did not actually challenge any “rule.” Cantu’s only sought a declaration that the Commission was required to give it notice of changes to the Provider Manual; it never identified a rule whose validity or applicability was at issue. Although Cantu’s argued on appeal that it was challenging a prescription requirement for COVID-19 test kits, that theory appeared nowhere in its pleadings, and a plea-to-the-jurisdiction analysis begins with the live pleadings. On the dismissal-with-prejudice issue, the court held that when a plaintiff has amended and still cannot state a facially valid constitutional claim, dismissal with prejudice is appropriate under Harris County v. Sykes, 136 S.W.3d 635 (Tex. 2004), because jurisdiction has been finally determined.
Key Takeaways
- Texas Medicaid providers are required by regulation to know the rules governing the program; they have no constitutionally protected entitlement to individualized advance notice of Provider Manual changes, and a due process claim premised on that right is facially invalid and cannot overcome sovereign immunity.
- The APA § 2001.038 immunity waiver for declaratory challenges to “rules” requires the plaintiff to actually challenge a rule in its pleadings; a declaration that the agency must provide notice is not a challenge to rule validity or applicability and does not invoke the waiver.
- When a plea to the jurisdiction is based on sovereign immunity, the plea challenges only the sufficiency of the pleadings, and a court need not allow or compel discovery before ruling.
Why It Matters
For Texas healthcare providers and Medicaid practitioners, Cantu’s Pharmacy underscores a harsh but fundamental principle: Medicaid enrollment comes with a regulatory compliance obligation, not a right to be hand-held through program changes. Filing a pre-enforcement lawsuit arguing the agency owed you better notice is likely to fail on sovereign immunity grounds before you ever get to the merits, because the claim is facially invalid from the outset.
The opinion also clarifies the limits of the APA’s immunity waiver for rule challenges. A provider that believes a Medicaid manual directive is legally invalid must squarely challenge that directive in its pleadings, identifying it as a “rule” whose validity or applicability is in dispute. A more diffuse complaint that the agency should have given better notice — without targeting the underlying rule itself — falls outside the waiver. Practitioners who want to mount a pre-enforcement challenge to Medicaid program changes should draft their declaratory judgment counts to directly attack the regulation or directive as invalid, not merely to demand enhanced notice procedures.