Can Texas withhold a Medicaid provider's payments to cover that provider's child support?

TX AG Opinion DM-0477: Can Texas withhold a Medicaid provider's pay for child support?

Plain-English summary

William Archer, the Texas Commissioner of Health, asked the Attorney General whether the Texas Department of Health could "garnish," meaning allocate, a Medicaid service provider's payment to satisfy the provider's child-support obligation. The department runs the state's Medicaid program and pays providers for services rendered to Medicaid recipients.

Human Resources Code section 32.036 generally says that Medicaid payments are not transferable or assignable and are not subject to garnishment. But subsection (c), added in 1997, says the section does not apply to the extent it conflicts with the Social Security Act, specifically 42 U.S.C. section 1396a(a)(32). The federal provision requires a state Medicaid plan to allow payment to a provider's assignee in limited situations, including when the assignment is made to a governmental agency or is established by or under a court order. The Attorney General concluded that, reading the state and federal provisions together, the Department of Health may withhold all or part of a provider's Medicaid payment to satisfy a child-support obligation when the assignment qualifies under 42 U.S.C. section 1396a(a)(32)(B). The opinion was careful to say it could not decide in any particular case whether a valid qualifying assignment exists; that is a fact question. For child support, the qualifying assignment might run to a governmental entity (the state's Title IV-D agency or a local registry) or be established by or under an order of the court handling the child-support matter.

The opinion explained that this result fits the purpose of the federal law. Congress added the relevant provisions in 1972 and 1977 to stop the assignment of Medicaid receivables to "factoring" agencies that bought up accounts at a discount and submitted inflated or fraudulent bills. Allocating part of a provider's payment to pay child support is very different from those factoring arrangements. The Attorney General also addressed a second issue the question raised: when the department pays Medicaid providers, is it subject to a Family Code child-support withholding order? Yes. The Family Code defines "employer," for income-withholding purposes, to include any governmental entity that pays earnings to an individual, so the department is an "employer." And Medicaid payments to a provider for services are "earnings" under the Family Code's broad definition (a payment to or due an individual, regardless of source). So a court order under Family Code section 154.007 or 158.001 directing an employer to withhold a percentage of disposable earnings reaches the department's Medicaid payments to a provider.

Currency note

This opinion was issued in 1998. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The Texas Medicaid program has been reorganized since 1998, with Medicaid operations moving to the Health and Human Services Commission, and the Human Resources Code and Family Code provisions cited here have been amended. Confirm the current statutes and the current agency before relying on any specific rule.

Who this opinion affected (as of 1998)

Medicaid service providers who owed child support: The opinion meant their Medicaid payments could be withheld to satisfy a child-support obligation when a qualifying assignment or court order existed.

The Texas Department of Health (and the child-support enforcement system): The opinion confirmed the department could withhold qualifying payments and was an "employer" bound by Family Code income-withholding orders when it paid providers.

Custodial parents and children owed support: The opinion opened a route to collect child support from a provider's Medicaid payments through the assignment and withholding mechanisms.

Common questions

Can Texas take part of a Medicaid provider's payment for child support?
Under this opinion, yes, in the right circumstances. The Department of Health may withhold all or part of the payment when the assignment is to a governmental agency or is established by or under a court order, as federal Medicaid law allows.

Doesn't state law ban garnishing Medicaid payments?
Human Resources Code section 32.036 generally does, but a 1997 amendment made clear it yields to federal law, which permits payment to a qualifying assignee. The opinion read the two together to allow child-support withholding through a qualifying assignment.

Is the Department of Health an "employer" for child-support withholding?
Yes. The opinion concluded the Family Code's definition of "employer" reaches any governmental entity that pays earnings to an individual, so the department qualifies when it pays Medicaid providers.

Are Medicaid provider payments "earnings"?
Yes, according to the opinion. The Family Code defines "earnings" broadly as a payment to or due an individual regardless of source, which covers a payment to a provider for services rendered.

Background and statutory framework

The Department of Health operated the state's medical assistance (Medicaid) program under Human Resources Code chapter 32 and paid service providers (§ 32.029). Section 32.036 provides that Medicaid and payments to providers are not transferable or assignable and that money payable under the chapter is not subject to garnishment, except that the section does not apply to the extent it conflicts with 42 U.S.C. section 1396a(a)(32). The federal provision requires a state plan to provide that no payment for care be made to anyone other than the individual or the provider, except that an assignment may be honored when made to a governmental agency or entity or established by or under the order of a court of competent jurisdiction. A state's failure to permit federally allowed assignments can cost it federal funding (the opinion cited Connecticut Hospital Ass'n v. O'Neill, 793 F. Supp. 47 (D. Conn. 1992), and Texas Department of Human Services v. Christian Care Centers, Inc., 826 S.W.2d 715 (Tex. App.-Austin 1992, writ denied)).

The Legislature added subsection (c) in 1997 (S.B. 614 and companion H.B. 1634) to resolve a conflict the Fifth Circuit had identified in In re Missionary Baptist Foundation of America v. First National Bank, 796 F.2d 752 (5th Cir. 1986), which found the pre-1997 state statute broader and more rigid than the federal provision, so cases could come out differently depending on which applied. After 1997, state law comports with the federal provision. Whether a particular transfer is a valid assignment that satisfies the federal standard is a fact question outside the opinion process; an assignment is a contract transferring a right from assignor to assignee (University of Texas Medical Branch v. Allan, 777 S.W.2d 450 (Tex. App.-Houston [14th Dist.] 1989, no writ)). The opinion traced the federal law's anti-"factoring" purpose through the 1972 and 1977 Social Security amendments and concluded a child-support allocation is unlike the factoring abuses Congress targeted. The opinion noted that the question did not implicate Texas Constitution article XVI, section 28 (which bars wage garnishment) because that provision excepts garnishment for court-ordered child support.

On the second issue, the opinion concluded the department is an "employer" subject to a child-support withholding order under Family Code sections 154.007 and 158.001, because Family Code section 101.012 defines "employer" to include a governmental entity or any other entity that pays or owes earnings to an individual. And Medicaid payments to a provider are "earnings" under Family Code section 101.011, which defines earnings broadly as a payment to or due an individual regardless of source. The opinion did not decide whether an order of the state's Title IV-D agency (the Office of the Attorney General) is itself a "court order" for purposes of 42 U.S.C. section 1396a(a)(32)(B).

Citations

Statutes and constitution:

• Tex. Hum. Res. Code §§ 32.029, 32.036
• 42 U.S.C. §§ 1396, 1396a(a)(32)
• Tex. Fam. Code §§ 101.011, 101.012, 154.007, 158.001, 158.009, 158.103, 158.203, 231.001
• Tex. Const. art. XVI, § 28
• Social Security Amendments of 1972, Pub. L. No. 92-603; Medicare-Medicaid Antifraud and Abuse Amendments, Pub. L. No. 95-142 (1977)

Cases:

• In re Missionary Baptist Foundation of America v. First National Bank, 796 F.2d 752 (5th Cir. 1986)
• Connecticut Hospital Ass'n v. O'Neill, 793 F. Supp. 47 (D. Conn. 1992)
• Texas Department of Human Services v. Christian Care Centers, Inc., 826 S.W.2d 715 (Tex. App.-Austin 1992, writ denied)
• University of Texas Medical Branch v. Allan, 777 S.W.2d 450 (Tex. App.-Houston [14th Dist.] 1989, no writ)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0477
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1998/dm0477.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

Office of the Attorney General, State of Texas

DAN MORALES, ATTORNEY GENERAL

May 29, 1998

William R. Archer III, M.D.
Commissioner of Health
Texas Department of Health
1100 West 49th Street
Austin, Texas 78756-3199

Opinion No. DM-477

Re: Whether the Texas Department of Health may allocate medicaid provider payments to satisfy a medicaid provider's child-support obligation (RQ-1046)

Dear Commissioner Archer:

Human Resources Code section 32.036 stipulates that a medical assistance (medicaid) provider payment may be paid only to the service provider unless the provider has assigned the payment consistently with 42 U.S.C. § 1396a(a)(32). Under the federal law, a state may pay a medicaid provider's assignee if the assignee is a governmental agency or if the assignment was established in accordance with a court order. You ask whether the Texas Department of Health ("TDH") may "garnish" a service provider's medicaid payment to satisfy the provider's child-support obligation. By "garnish," we understand you to mean "allocate" the payment in accordance with an assignment authorized by 42 U.S.C. § 1396a(a)(32). We conclude the Department of Health may withhold all or part of the payment if the provider has assigned medicaid payments to a governmental agency or if the assignment is established by or in accordance with a court order issued by a court of competent jurisdiction. We do not determine in any particular case whether payments have been assigned as Human Resources Code section 32.036(c) and 42 U.S.C. § 1396a(a)(32)(B) require.

[Footnote: Your question does not implicate article XVI, section 28 of the Texas Constitution, which generally prohibits garnishing wages. Even assuming medicaid provider payments are "wages" for purposes of article XVI, section 28, that section excepts garnishment "for the enforcement of court-ordered child support payments."]

We understand the TDH is the operating agency for the State's medical assistance program. As such, the TDH pays service providers for medical assistance services rendered to medicaid recipients.

We conclude, in answer to your question, that Human Resources Code section 32.036 permits the TDH to withhold some or all of a medical assistance payment due a service provider to satisfy the provider's child-support obligation if the assignment satisfies 42 U.S.C. § 1396a(a)(32)(B). Human Resources Code section 32.036 generally prohibits the assignment or garnishment of payments to medicaid providers, unless the assignment is permitted under 42 U.S.C. § 1396a(a)(32):

(a) Neither medical assistance nor payments to providers of medical assistance under this chapter are transferable or assignable at law or in equity.

(b) No money paid or payable under the provisions of this chapter is subject to garnishment. . . .

(c) This section does not apply to the extent that it conflicts with the Social Security Act (42 U.S.C. Section 1396a(a)(32)).

The United States Code requires a state plan for medical assistance to permit the assignment of medicaid provider payments if the assignment is to a governmental agency or if a court order establishes or orders the assignment (or in other specific circumstances not relevant here):

A State plan for medical assistance must . . . (32) provide that no payment under the plan for any care or service provided to an individual shall be made to anyone other than such individual or the person or institution providing such care or service, under an assignment or power of attorney or otherwise; except that . . . (B) nothing in this paragraph shall be construed (i) to prevent the making of such a payment in accordance with an assignment from the person or institution providing the care or service involved if such assignment is made to a governmental agency or entity or is established by or pursuant to the order of a court of competent jurisdiction, or (ii) . . . .

A state's failure to permit assignments allowed by federal law may lead to the loss of federal funding.

The legislature added subsection (c) in 1997 to clear up an apparent conflict with 42 U.S.C. § 1396a(a)(32). Prior to the 1997 amendment, a court might apply section 32.036 and 42 U.S.C. § 1396a(a)(32) and reach conflicting results. In In re Missionary Baptist Foundation of America, Inc. v. First National Bank, the United States Court of Appeals, Fifth Circuit, compared the pre-1997 version of Human Resources Code section 32.036 with 42 U.S.C. § 1396a(a)(32) and concluded that "cases decided under them could . . . come out differently, depending upon which applied." According to the court, the state statute "is broader and more rigid in its prohibitions." Arguably, before the 1997 amendment, Human Resources Code section 32.036 absolutely prohibited paying medicaid service provider payments to any assignee of the service provider. By contrast, 42 U.S.C. § 1396a(a)(32) permits payments to certain assignees. Since the 1997 amendment became effective, however, the state law comports with 42 U.S.C. § 1396a(a)(32).

Whether a particular transfer is an assignment that satisfies 42 U.S.C. § 1396a(a)(32)(B) is, of course, a fact question that cannot be resolved in the opinion process. The transfer first must be a valid assignment. If it is, the assignment must be either made to a governmental agency or entity or established by or in accordance with the order of a court of competent jurisdiction. In the case of child-support payments, for instance, the assignment may be to a governmental entity (the state's Title IV-D agency or the "local registry") or it may be established by or in accordance with an order of the court with jurisdiction over the child-support matter.

This result is entirely consistent with the purpose of the federal law. The United States Congress adopted what is now subdivision (32)(A) of 42 U.S.C. § 1396a(a) in 1972 and adopted the substance of what is now subdivision (32)(B) five years later. The House Interstate and Foreign Commerce Committee explained that the purpose of both the 1972 and 1977 amendments to the Social Security Act was to stop the assignment of medicaid receivables to "factoring" agencies, which purchased medicaid accounts receivable at a discount and allegedly sent the government inflated bills:

In 1972, the Congress took action to stop a practice under which some physicians and other persons providing services under medicare and medicaid reassigned their medicare and medicaid receivables to other organizations or groups. Under the conditions of these reassignments, the organizations or groups purchased the receivables for a percentage of their face value, submitted claims and received payments in their name. By 1972, it had become apparent that such reassignments were a significant source of incorrect and inflated claims for services paid by medicare and medicaid. In addition, cases of fraudulent billings by collection agencies and substantial overpayments to these so-called "factoring" agencies were also found.

Congress concluded that such arrangements were not in the best interest of the government or the beneficiaries served by the medicare and medicaid programs. The Social Security Amendments of 1972 . . . therefore, included a prohibition against the payment for covered services to anyone other than the patient, his physician, or other person who provided the service, unless the physician or other person is required as a condition of his employment to turn his fees over to his employer, or unless the physician or other person has an arrangement with a facility under which the facility bills for such services.

Despite these efforts to stop factoring of medicare and medicaid bills, some practitioners and other persons have circumvented the intent of the law by use of a power of attorney. The use of a power of attorney allows the factoring company to receive the medicare or medicaid payment in the name of the physician thus allowing the continuation of program abuses which factoring activities were shown to produce in the past.

The bill would modify existing law to preclude the use of a power of attorney as a device for reassignments of benefits under medicare and medicaid, other than an assignment to a governmental entity or establishment, or an assignment established by or pursuant to the order of a court of competent jurisdiction.

Assigning all or part of a medical assistance payment to pay a child-support obligation or arrearage is, in our opinion, vastly different from the factoring arrangements the federal law is designed to preclude.

Although you ask only about the TDH's authority to withhold some or all of the medical assistance payment under Human Resources Code section 32.036, we believe your question raises a second issue. Assuming that a court of competent jurisdiction has issued an order under Family Code section 154.007 or 158.001 directing an "employer" to withhold a percentage of a child-support payor's disposable "earnings," is the TDH subject to it when paying medical assistance payments to service providers? We conclude that it is.

First, we conclude that TDH is an employer in the context of Family Code chapter 158. Family Code sections 154.007 and 158.001 require a court, in any proceeding ordering, modifying, or enforcing child-support payments, to direct a child-support obligor's employer to withhold up to fifty percent of the obligor's disposable earnings to pay child-support obligations and any arrearage. Family Code section 101.012 defines employer for chapter 158, and the definition encompasses relationships other than a typical "employment" relationship: "'Employer' means a person, corporation, partnership, workers' compensation insurance carrier, governmental entity, the United States, or any other entity that pays or owes earnings to an individual. . . ." Assuming for the moment that medicaid payments to a service provider are earnings, the TDH is a governmental entity that pays earnings to an individual.

Second, we conclude that medicaid payments to service providers are earnings in the context of Family Code chapter 158. The term earnings is defined, for purposes of chapter 158, in Family Code section 101.011. Like the applicable definition of employer, the definition of earnings is broad, encompassing more than hourly wages or annual salary:

"Earnings" means a payment to or due an individual, regardless of source and how denominated. The term includes a periodic or lump-sum payment for:

(1) wages, salary, compensation received as an independent contractor, overtime pay, severance pay, commission, bonus, and interest income;

(2) payments made under a pension, an annuity, workers' compensation, and a disability or retirement program; and

(3) unemployment benefits.

Certainly, a payment to a medical assistance provider for professional services he or she rendered to a medicaid recipient is "a payment to or due" the provider.

SUMMARY

Consistent with Human Resources Code section 32.036, the Texas Department of Health may allocate all or part of a service provider's medical assistance payments to satisfy the provider's child-support obligation if the service provider has assigned the payment to a government agency or if the assignment was established by or in compliance with a court order issued by a court of competent jurisdiction.

The Department of Health is an "employer" subject to a court order issued under Family Code section 154.007 or 158.001 when it pays medical assistance payments to a service provider. Additionally, medicaid payments are "earnings" subject to such a court order.

DAN MORALES
Attorney General of Texas

JORGE VEGA
First Assistant Attorney General

SARAH J. SHIRLEY
Chair, Opinion Committee

Prepared by Kymberly K. Oltrogge
Assistant Attorney General