Tennessee Supreme Court Clarifies Which Policy Statements Must Undergo Notice and Comment

While the federal Administrative Procedure Act (APA)[1] may receive the most attention from students of administrative law, many states have their own laws governing administrative procedure modeled in part on the federal APA. Just as the federal APA plays a central role in the development of federal regulations, these state laws play similarly important roles in the development of state-level rules and regulations. One such state law is Tennessee’s Uniform Administrative Procedures Act (UAPA),[2] which was the subject of a recent decision by the Tennessee Supreme Court.

In May of 2023, the Tennessee Supreme Court decided Emergency Medical Care Facilities, P.C. v. Division of TennCare.[3] At issue in the case was the UAPA’s definition of a “rule.” Under the UAPA, an agency “rule” must go through various procedures before taking effect, including notice and an opportunity for public comment.[4] Under the terms of the UAPA, a rule that is not adopted in compliance with these procedures “shall be void and of no effect.”[5] Thus, it is crucially important whether an agency statement qualifies as a “rule.”

The UAPA defines a “rule” as an “agency statement of general applicability that implements or prescribes law or policy or describes the procedures or practice requirements of any agency.”[6] But the UAPA also sets out some exceptions to this definition. One such exception was at issue in Emergency Medical, namely the so-called “internal-management exception.” This exception applies to agency statements “concerning only the internal management of state government and not affecting private rights, privileges or procedures available to the public.”[7]

In Emergency Medical, the Tennessee Supreme Court was asked to decide whether this “internal-management exception” applied to a statement issued by TennCare, a state agency that operates Tennessee’s state Medicaid program. Under the program operated by TennCare, medical providers sign a contract with the state agreeing to treat enrollees in the program and to accept reimbursement from the state as “payment in full.”[8] Although signing such a contract is optional, emergency-department physicians have little practical choice but to do so. That is because, unlike other medical providers, emergency-department physicians are “legally obligated to provide certain care to all patients who walk through the door.”[9] Emergency-department physicians thus must treat TennCare enrollees no matter what, and signing the contract is the only way to be reimbursed for that treatment.

In 2011, TennCare faced a budget shortfall.[10] To partially make up for that shortfall, the agency attempted to change how it reimbursed emergency-department physicians. The agency sent an email announcing that reimbursements for non-emergency visits to emergency departments would be capped at $50.[11] The change announced in the email did not go through the UAPA procedures of notice and comment.[12]

After TennCare sent the email announcing this change, the agency was sued by Emergency Medical Care Facilities, P.C., a corporation composed of emergency-department professionals. Emergency Medical argued that the $50 cap was a “rule” that needed to go through notice and comment and that the cap was therefore void. Emergency Medical won in a Tennessee chancery court, but then lost in a Tennessee court of appeals.[13] The court of appeals held that the cap fell under the “internal-management exception” because it only affected healthcare providers in a contractual relationship with the agency, not the general public as a whole.[14] The Tennessee Supreme Court then agreed to hear Emergency Medical’s appeal.

In a unanimous opinion authored by Justice Sarah Campbell, the Tennessee Supreme Court held that the $50 cap was indeed a “rule” that was required to go through notice and comment.[15] First, the court held that the $50 cap met the basic definition of a rule under the UAPA because it was a statement of “general applicability.”[16] Looking to dictionary definitions, the court explained that a rule need not apply to every single Tennessean to be “generally applicable.” Rather, the court held that a statement is of general applicability “when it is capable of being applied or is relevant to an entire class or category.”[17] The cap met that definition because it applied “to every member of a class,” namely all emergency-department physicians who have signed contracts with TennCare and who treat TennCare enrollees.[18]

The court further held that the cap did not fall within the internal-management exception because it concerned more than just “the internal management of state government.”[19] To reach this conclusion, the court again turned to dictionary definitions. In particular, the court focused on the key word “internal,” defined as “of, relating to, or located within the limits or surface of something.”[20] The court observed that the cap regulated the relationship between TennCare and “private emergency-department physicians.”[21] The court held that those physicians “cannot be considered ‘internal’ to state government” because they “are not state employees, and they are not engaged in any activities that could be described as internal functions.”[22]

The Tennessee Supreme Court thus reversed the judgment of the court of appeals, which had held that the internal-management exception did apply. The appeals court had reasoned that the cap concerned “only the internal management of state government” because it affected only “those under contract with TennCare.”[23] But the Tennessee Supreme Court explained that “the internal-management exception makes no mention of contracts.”[24] The court further noted that the UAPA’s goals would be undermined if agencies could “evade rulemaking based on nothing more than contractual privity.”[25]

In the final portion of its decision, the court considered one final statutory argument put forward by TennCare.[26] A statute specific to TennCare gave the agency the “authority to develop and implement initiatives or program modifications to control the costs of the TennCare program.”[27] That same statute also gave the agency the power “to define, through rules and regulations, categories of eligible enrollees who may be exempted from some or all benefit limits.”[28] The agency argued that the state legislature intentionally mentioned “rules and regulations” in the latter provision but not the former, a choice that should be interpreted as meaningful. Specifically, the agency argued that cost-control measures are exempted from rulemaking requirements entirely because the phrase “rules and regulations” is not mentioned with respect to cost-control measures.

The court quickly rejected this argument as reading too much into this statutory variation in language. As the court noted, “Nothing in the provision says that the UAPA does not apply.”[29] The court found it highly implausible that this provision implicitly “created a sweeping exemption from rulemaking for any measure that cuts costs.”[30] The court reasoned that if the legislature had intended such an exemption, “it undoubtedly would have said so,” since “the legislature knows how to create exemptions from the UAPA’s rulemaking requirements.”[31]

Having rejected each of the agency’s arguments for exempting the $50 cap from the notice-and-comment requirement, the court held that the cap “should have been promulgated through notice-and-comment rulemaking.”[32] In reaching that conclusion, the court set a precedent that will provide guidance to agencies when interpreting both whether a statement is “of general applicability” and whether a statement concerns “only the internal management of state government.”

Going forward, agencies in Tennessee should know that a policy can qualify as a rule if it applies to “an entire class or category” of people or entities—it need not apply to every single Tennessean. And agencies should also know that a statement can qualify as a rule even if it regulates only those who have a contractual relationship with the state, because such a relationship does not make the regulated entities “internal” to the state government. With these two issues clarified, Tennessee agencies should have a better understanding of when policy pronouncements will require notice-and-comment rulemaking before they can go into effect.

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