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Budget Shortfall, Redistricting Present Challenges in 2011 Legislature

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Legislative Affairs Feature – January 2011

Tex Med. 2010;107(1):39-45

By Ken Ortolon
Senior Editor

The Texas Medical Association has an ambitious agenda for the 82nd Texas Legislature, which convenes Jan. 11. Not only does TMA hope to defend Medicaid and the Children's Health Insurance Program (CHIP) from deep cuts, but it also plans to push for additional state funding for residency training and a statewide ban on smoking in public places and to fight off attempts by midlevel practitioners to expand their scope of practice beyond their training.

But TMA officials already are preparing for one of the toughest sessions they've faced in quite some time. A budget shortfall that's now estimated to top $25 billion and a legislature that likely will be preoccupied with congressional and legislative redistricting will present major obstacles to achieving any of organized medicine's goals.

Plus, the specter of national health system reform will only add to the uncertainty as lawmakers grapple with implementing state health insurance exchanges and other provisions of that law.

"The top priority for TMA will be protecting patients' rights," said Dallas dermatologist Dan McCoy, MD, chair of TMA's Council on Legislation. "We're going to have a lot of issues related to the budget, including Medicaid access. And I think we have to look very seriously at the impact of federal health reform and how we make sure that we put laws in place that allow patients to continue to see the doctor of their choice."

"Caring for patients in a time of change" is the theme of TMA's 2011 legislative advocacy efforts. Association leaders identified several key areas to focus on, including defending Medicaid and CHIP against cuts in physician payments that could harm access to care, defending the 2003 medical liability reforms, stopping nurse practitioners and other nonphysicians from unsafely expanding their scope of practice, and defending the ban against the corporate practice of medicine.

Fort Worth pediatrician Gary Floyd, MD, a member of the Council on Legislation, says it will be very difficult to advocate for any new funding under the current budget environment. "And I think it's going to be very difficult to keep the funding for a number of programs that help protect the most vulnerable," he warned.

Is the Rainy Day Here?

Probably foremost on the legislature's agenda is the budget shortfall. Darren Whitehurst, TMA's vice president for advocacy, says passing a balanced budget is the only task lawmakers are constitutionally required to fulfill each session, and this one will be tough.

The state's new margins tax has underperformed in terms of generating revenue, and sales taxes, which constitute more than half of the state's general revenue, are down because of the recession. Added to those woes is the fact that lawmakers will no longer have billions of dollars in federal stimulus funds they used to help fill the cracks in the 2009-10 budget.

In mid-2010, state leaders directed state agency heads to cut 5 percent out of their 2009-10 budgets. Those cuts included a 1-percent reduction in physician payments under Medicaid. In early November, agencies were asked to identify another 10 percent in savings.

Despite those preemptive cuts and even though sales tax revenues had improved late in 2010, State Rep. Rene Oliveira (D-Brownsville), chair of the House Ways and Means Committee, announced in November that the budget shortfall could be $25 billion or more.

The state has some $9 billion in the Rainy Day Fund that lawmakers could use to help bridge the budget gap, but lawmakers so far have resisted the temptation to dip into that fund.

"They've always seemed very reluctant to touch that and have wanted to let it grow," Dr. Floyd said. "But how much more of an emergency can you have than being $25 billion down? If they touch it, I think it will be only a portion of it and I don't think it will be a majority of it."

Even if lawmakers used the entire Rainy Day Fund, they likely still will be $15 billion or more short of balancing the budget. Some health care advocates, such as F. Scott McCown, executive director of the Center for Public Policy Priorities, support tax increases to raise additional revenue.

In remarks to physicians at TMA's Specialty Society 2010 State Advocacy Retreat in Austin in November, Mr. McCown proposed increasing health-related taxes, such as a hike in the state cigarette tax of $1 per pack or creation of a 1-cent tax on sugary drinks.

"We're going to have to take a balanced approach to writing that budget, one that includes using all the Rainy Day Fund. That's going to be a huge battle," Mr. McCown said. "And one that, frankly, includes new revenue. If we don't have a balanced approach, if we simply cut our way to a balanced budget, what we're going to be doing is setting a new base going forward, a new base that's far lower than the base we have now."

But Chris Britton, a former health policy aide to Gov. Rick Perry, told the audience that new taxes are not likely to be on Governor Perry's agenda. He said Governor Perry has a reputation of doing what he says he's going to do and there is an "expectation that he will be true to his word" that there will be no new taxes.

That said, Mr. Britton says there likely will be discussions about new sources of revenue, including gambling and increased state fees, such as physician licensing fees.

Fees are attractive, he says, because "fees are not called taxes."

Complicating the budget picture for those who oppose cuts to Medicaid and CHIP is the fact that conservative Republicans took an additional 22 seats in the Texas House in the November general election, giving the GOP a majority of 99 seats to only 51 for Democrats.

Speaking at the specialty society retreat, TMA President Susan Rudd Bailey, MD, said those freshman lawmakers will be "budget hawks and deficit haters. They aren't going to want to spend more money."

One of those incoming freshman, Representative-Elect Jose Aliseda (R-Beeville) told physicians at the retreat that voters expect them to hold the line on spending.

"When you talk to the people out there who are paying the bills, there's a lot of anger," he said. "They expect us to produce and if we don't, the pendulum will swing the other way. We're going to have to make some difficult decisions. There are going to be cuts, and we have to put together the best budget we can while hurting the fewest people."

Defending Medicaid Payments 

So in that environment, organized medicine will be hard pressed to fight off cuts to Medicaid, CHIP, and other health-related programs, much less gain new funding for graduate medical education or other TMA priorities.

"Everything flows off the budget and, for us, that includes primarily Medicaid and CHIP funding, all the public health programs, both undergraduate and graduate medical education, and programs like mental health," Mr. Whitehurst said. "All of that will be put in a very precarious situation since 90 percent of our general revenue goes to only four areas of the budget: public education, higher education, health care, and prisons."

Dr. McCoy says advocating for Medicaid and CHIP, graduate medical education increases, mental health funding, and other programs will essentially be a "budget race" because other interest groups will be fighting to get limited dollars for their programs, as well.

Dr. Floyd says any further cuts to Medicaid physician payments could be devastating for access to care for low-income Texans.

The 25-percent increase in Medicaid physician payments lawmakers enacted in 2007 as part of the Frew v. Hawkins lawsuit settlement temporarily halted the exodus of physicians from the Texas Medicaid program, he says. But the situation remains tenuous.

"The 25-percent bump got Medicaid payments up to about 60 percent to 65 percent of the cost of seeing a patient. It had been about 50 percent," Dr. Floyd said. "So it's nothing to write home about, but about 40 percent of our practitioners have hung in with that and managed to balance their insured with the Medicaid population. It works, but if they start cutting, we have estimates that 30 percent to 50 percent of physicians will stop taking Medicaid."

State Sen. Jane Nelson (R-Lewisville), chair of the Senate Health and Human Services Committee, says "making the best possible use of our health care dollars" will be the biggest challenge lawmakers face next session.

"Lawmakers will look at a wide range of options for balancing the budget, but I understand full well that having physicians available to treat individuals in our government-sponsored plans depends on fair reimbursement rates," Senator Nelson said. "I will do my best to make sure my colleagues understand that."

She adds that her primary focus will be on balancing the budget without a tax increase. "And I am proposing bills to eliminate fraud, waste, and abuse in state government. As we work to balance the state budget, it is critical that we protect our most vulnerable citizens."

Some Republican lawmakers have floated the idea that Texas might be better off backing out of the Medicaid program altogether. Mr. McCown says that's not a "legitimate possibility," and Dr. Floyd says such a move would cost the state billions in federal health care dollars, as the federal government provides about 60 percent of the state's Medicaid funding.

But Senator Nelson says that may be an option worth exploring.

"With current growth in Medicaid running at 11 percent, it is worth exploring whether our enrollees – and there certainly could be millions more by 2014 – could be served more cost efficiently and see better outcomes in a state-run program," she said.

The federal health system reform law, however, may not give Texas that option. The bill requires states to maintain their current levels of funding for Medicaid and CHIP.

Where Are the New Doctors? 

Another difficult budget fight will be for additional graduate medical education funding. Dr. Floyd says that will be a critical issue because Texas is now "on the losing side" when it comes to keeping its medical graduates at home for the postgraduate training.

"This past May, we had 1,404 medical students graduate and we only had 1,390 first-year residency positions. So even if all of them wanted to stay, they couldn't have," Dr. Floyd said. "That's important because as taxpayers we've already contributed more than $200,000 to educate those medical students. And if they go out of state, 75 percent to 80 percent of them will settle within 100 miles of where they train. We would just as soon train them in Texas and keep them in Texas."

Texas ranks 42nd out of the 50 states in physicians per capita. Even with a 21-percent increase in physicians licensed in Texas since the 2003 medical liability reforms were passed, Texas can't afford to be exporting doctors to other states, Dr. Floyd added. "The growth of our physician population since '03 has been 21 percent, but the population has grown by 19 percent. So we're just keeping up with the population, we're not really catching up to the deficit."

Senator Nelson says lawmakers will have to take a hard look at where they are spending the state's medical education dollars.

"I support the continuation of our efforts to graduate more health care providers, but I do think we need to look at whether our dollars are being prioritized to those who commit to practicing in Texas," she said.

Oldies But Goodies 

While the budget will undoubtedly dominate the session, TMA also expects to have to do battle over a number of issues that seem to return every session. Two of those are the push by hospitals to directly employ physicians and a number of attempts by nurse practitioners, physical therapists, and other nonphysician practitioners to expand their scope of practice or gain authority to practice independently.

In 2009, more than 20 bills were filed to give county hospital districts or private community hospitals – mostly in rural areas – an exception from the corporate practice ban to allow them to directly hire physicians.

After considerable negotiation with Sen. Robert Duncan (R-Lubbock) and other stakeholders, TMA worked with House sponsor Rep. Garnet Coleman (D-Houston) to add some very important language to Senator Duncan's bill. Dan Finch, director of TMA's Legislative Affairs Department, says the changes provided "very strong protections" to ensure a hospital employer could not interfere with a physician employee's clinical autonomy. Those protections included a whistle-blower provision, a Texas Medical Board (TMB)-supervised certification process, and more.

Ultimately, the bill died in the House but was resurrected as an amendment to a different bill, House Bill 3485. However, to make it germane to that bill, employment authority was limited to government-owned hospitals in counties of 50,000 or fewer residents.

The issue seemed settled until the Texas Trial Lawyers Association and the Texas Hospital Association mounted a sneak attack. As the legislative session was ending, the trial lawyers association succeeded in doing by amendment what it couldn't do in straight-up face-to-face debate. It managed to add language to the bill that diluted liability protection for physicians and hospitals. As it turned out, the trial lawyers also succeeded in torpedoing Representative Coleman's delicate compromise.

Outraged, on June 8, after the legislature adjourned, then-TMA President William H. Fleming III, MD, wrote Governor Perry a letter asking him to veto the bill. He said TMA was "most disturbed" at the attempt to "modify the medical liability standards at government-owned hospitals in counties with less than 50,000 population." He added that the "bill not only changes the liability cap from a per-plaintiff standard to a per-defendant standard but also exposes these local governmental entities to tort liability risks way beyond those of the largest government facilities."

On June 19, 2009, Governor Perry vetoed the bill.

"As the husband of a former nurse at a rural hospital, the son-in-law of a rural county physician, and a native of a rural county, I understand the needs of rural hospitals and their patients," the governor said in his veto message. "I support rural hospitals' intention of attracting more doctors and would have been glad to sign a bill allowing them to do so by directly hiring physicians."

However, he said, the hospitals' and trial lawyers' amendment "would undermine some of the gains in medical liability reform that have come from caps on physicians' liability. These reforms were passed in 2003 and approved in a constitutional amendment election. The objectionable provision would increase the liability cap for doctors employed directly by hospital districts, as compared to the bill without the amendment. With respect to doctors employed by hospital districts, this amendment creates uncertainty as to the applicability of the liability cap available in a single action when multiple doctors or multiple claims are involved."

Governor Perry added that the bill's provision regarding physician liability "was neither debated nor discussed, but rather amended onto this bill late in the session. It risks unraveling the progress we made in curtailing excessive liability and ensuring that patients who need physicians will be able to find them. The 2003 medical liability reform has led to thousands of new doctors coming to Texas. The changes proposed by House Bill 3485 threaten the progress that reform has made."

Don McBeath, director of advocacy for the Texas Organization of Rural & Community Hospitals, says rural hospitals are not giving up on their desire to hire doctors.

"The issue has not gone away, and the reason the issue has not gone away is there are many, many primary care and other physicians – especially in rural areas of Texas – that want to be an employee of the local hospital," Mr. McBeath said. "Parallel to that are previous surveys and an ongoing high level of interest among current residents in the medical schools who also want to be employees of hospitals upon completing their residency programs."

But TMA's 2010 survey of physicians shows little support for hospital employment among physicians. According to the survey, 66 percent of physicians older than 61 and 62 percent of those aged between 51 and 60 oppose further expansion of hospitals' ability to employ physicians. Sixty percent of physicians aged between 41 and 50 oppose expansion of physician employment by hospitals, but only 47 percent of those younger than 40 feel the same.

Dr. McCoy says TMA stands firm behind its policy of supporting the existing corporate practice ban. Dr. Floyd adds that TMA is concerned that patient care or a physician's job could be threatened by corporate decisions forced on the physician by a hospital administrator.

"We don't want undue pressure put on a physician to make a medical decision that's not in the best interest of their patient," Dr. Floyd said.

A number of scope fights also appear to be on the horizon. Advanced practice nurses are expected to push for independent practice. Physical therapists likely will ask for direct access to patients without a physician referral. Other scope expansions could arise from podiatrists, chiropractors, family counselors, and others. Dr. McCoy says protecting patient safety will be paramount in those battles.

"There's going to be a lot of groups that are going to see that this [partisan] change that we have in the legislature gives them an opportunity to step up and expand their privileges into the practice of medicine without doing it through the normal route," Dr. McCoy said. "We're going to stand strong on those particular issues. And I believe if you want to practice medicine, you ought to go to medical school."

Other issues that likely will resurface this session are the push to require pregnant women seeking an abortion to get an ultrasound first and a number of end-of-life care issues.

Tackling Smoking 

TMA also has some issues from previous sessions that it will again advocate this year, including a statewide ban on smoking in public places, increased funding for immunizations, and measures to prevent childhood obesity.

"All of those are huge to the future health of every individual in the state," Dr. Floyd said. "Hopefully, we can impress upon the legislators these are public health issues that, if you make an impact early, can pay long-term dividends."

Another area TMA will be watching closely is implementation of health system reform. Even though the state insurance exchanges created by the reform law do not go into effect until 2014, Texas lawmakers must tackle that issue this session because they won't meet again until 2013, and states must demonstrate that their exchanges are viable by then.

Senator Nelson says there is still much that is unknown about the exchanges and other elements of the reform law that state lawmakers and agencies will have to address.

"We know that we have to make a decision about the exchange, specifically, whether to house it in an existing agency, create a separate entity, or, as some are advocating, put the ball back in the federal government's court," she said.

She says lawmakers are still waiting for concrete data on the cost of provisions that take effective immediately, including the likely impact on the teacher and state employee health benefits.

Ken Ortolon can be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by e-mail at

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