Budget Proposals Slash Medicaid, Public Health, Medical Education

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Legislative Affairs Feature – March 2011

Tex Med. 2001;107(3):39-42.

By Ken Ortolon
Senior Editor   

The political newsletter Texas Weekly dubs the proposed 2012-13 state budget the "nastiest, ugliest budget anybody's seen in a zillion years."

While that may be more than a slight exaggeration, the $156.4 billion proposed budget bill laid out by House Appropriations Committee Chair Jim Pitts (R-Waxahachie) in mid-January certainly isn't winning many friends in the public and higher education, health care, corrections, or other communities hit hard by the plan to slash $31.1 billion from total spending in the current two-year budget.

While just about every area of the state budget gets to share the pain, education and health and human services took the brunt of the cuts for obvious reasons. Those two areas account for about 81 percent of general revenue appropriated in the biennial state budget.

A few days after Representative Pitts revealed his bill, senators filed their own budget bill, which was only slightly less drastic. Senate Bill 1 would cut $28.8 billion from current spending levels.

Senate Finance Committee Chair Steve Ogden (R-Bryan) warned before that bill was filed that it, too, would contain substantial cuts to health care and education.

"It's impossible to balance this budget without making cuts in health and human services and education," he said.

Texas Medical Association officials reacted quickly. Former TMA Council on Medical Education Chair Michael Ragain, MD, said the combination of steep cuts in both undergraduate and graduate medical education funding, along with a 10-percent cut in physician fees in Medicaid, would be a "hammer blow to primary care training" in the state.

And San Antonio pulmonologist John Holcomb, MD, who chairs TMA's Select Committee on Medicaid and CHIP, predicted the fee cuts would cripple the Medicaid program.

"Doctors seeing Medicaid patients now are not going to see them at a 10-percent pay reduction," Dr. Holcomb told the Austin American-Statesman. "You have to be able to pay your light bill and your nurses."

Those sentiments were echoed in a letter that TMA President Susan Rudd Bailey, MD, and other leaders of organized medicine sent state officials even before the budget proposals were made public. They warned that even very small cuts in payments to physicians for treating patients in Medicaid and the Children's Health Insurance Program (CHIP) will increase, not decrease, costs.

The fee cuts "will result in more physicians restricting their Medicaid participation, thus exacerbating the challenges patients face in finding a participating physician." The cut could cost the state money, they said, "because more patients will have no choice but to rely on costly hospital emergency rooms for care." 

Cutting to the Bone

Representative Pitts unveiled HB 1 just days after State Comptroller Susan Combs released her revenue estimate for 2012-13 showing that lawmakers would have $72.2 billion in state general revenue to spend.

HB 1 includes $73.3 billion in spending from state general revenue and a total budget of $156.4 billion, when federal dollars, such as federal Medicaid matching funds, are included.

According to a budget summary prepared by the Children's Hospital Association of Texas (CHAT), that is $8.8 billion less in general revenue than was budgeted for 2010-11. When all funds are included, total proposed spending is down $31.1 billion from the $187.5 billion budgeted for 2010-11.

The cuts were necessitated because the comptroller's revenue estimate puts available revenue for the upcoming biennium at roughly $27 billion less than what was spent in the current biennium, plus funds needed to cover projected increases in public school enrollment and caseload growth in Medicaid and CHIP.

HB1 does not call for any tax increases nor would it use the state's rainy day fund – which now stands at more than $9 billion – to offset any of the proposed cuts.

Don Gilbert, a TMA consultant and former Texas health and human services commissioner, told members of the TMA Select Committee on Medicaid and CHIP that health and human services spending took the biggest hit of any budget item, 26 percent. That includes a $15.9 billion reduction in appropriations to Medicaid acute care.

A large chunk of those funds come from the proposed 10-percent reduction in Medicaid provider rates for physicians, hospitals, and other providers. That's on top of the 1-percent cut in September 2010 and the 1-percent reduction on Feb. 1.

Budget writers also did not replace $4.3 billion in federal stimulus funds that are no longer available, reduced some current optional Medicaid services, and expanded Medicaid managed care to the Lower Rio Grande Valley.

The CHAT summary says the bill also assumes much lower caseload growth than the Texas Health and Human Services Commission predicts, and it fails to provide sufficient funds to enroll all eligible clients or address costs due to medical inflation, higher utilization, or increased acuity.

In addition to the Medicaid cuts, HB 1 also would cut:  

  • $206 million from CHIP;
  • $35 million from trauma funding;
  • $15.8 million from the Children With Special Health Care Needs program;
  • $24.9 million from funding for children's mental health services; and
  • $18.6 million in general revenue funding from tobacco cessation programs.

Education Cut

In addition to the health and human services reductions, medical education also took serious hits in HB 1. According to an analysis by TMA's Medical Education Department, formula funding for medical schools and health-related institutions would be cut by 23 percent per medical student annually. Formula funding for graduate medical education would decrease by 33 percent.

HB 1 also zeroes out both the Medicaid physician loan repayment program created as part of the settlement of the Frew v. Hawkins lawsuit and a second physician loan repayment program expanded just two years ago to attract more physicians to rural and underserved areas. That means 176 physicians who made commitments to practice in an underserved area in 2010 as part of the program would be denied future funding by the state.

It also takes away all Higher Education Coordinating Board funding for primary care preceptorships and residency programs.

While SB 1 makes similar cuts in Medicaid and other health and human services programs, it is somewhat more generous on medical education and workforce budgets. It provides $3 million more in graduate medical education funding than does HB 1 and about $2,000 more per student per year for medical school formula funding.

SB 1 does eliminate the Frew physician loan repayment program, but maintains $17 million for the Physician Education Loan Repayment Program. 

Crippling Medicaid

While the spending cuts in HB 1 are a long way from becoming reality, TMA officials warn that they could have dire consequences. Dr. Holcomb says doctors likely will drop out of Medicaid because they won't be able to cover their overhead if the cuts are enacted.

"Why would someone take a 10-percent cut and keep scheduling Medicaid patients when they could schedule a commercially insured patient?" he asked.

Mr. Gilbert called the Medicaid program cuts "crippling."

"You can't take 10 percent out of provider rates and have a Medicaid program," he said. "You might as well say 50 percent or 60 percent, because the program essentially collapses when you start taking those kinds of cuts out of provider fees. It just won't hold a network of providers together."

TMA officials also expressed concern about cuts in other programs, such as mental health services for children.

"It's already an area that is significantly underfunded, whether privately or publicly," said Tyler physician Jeffrey Levin, MD, chair of TMA's Council on Science and Public Health. "To further reduce those funds results in a much more significant burden of unmanaged health problems in the state of Texas that will ultimately rear their heads as costs in other areas, whether it be through safety net mechanisms at the local level or in the penal system. Cuts in public health and prevention programs can have the same impact and may even increase the burden and cost of chronic disease."

Dr. Ragain, chair of the Family Medicine Department at Texas Tech University Health Sciences Center, says reduced spending in both undergraduate and graduate medical education likely will lead to detrimental cuts in medical school and residency faculty.

"A big chunk of the basic science education is funded through state sources, and when you cut to that degree, your biggest expense is salary," Dr. Ragain said. "So those state cuts are going to have a huge effect on the basic science departments across the state. And the cuts to GME … will have a huge impact on the clinical departments across the medical schools.

"Specifically, this is a hammer blow to primary care training because of the multiple losses – the loss of preceptorships, the loss of support for residency training programs, and the loss of loan repayment, which is kind of an equalizer to get folks into primary care," he added.

 Is This the Rainy Day? 

While the budget looks bleak, both lawmakers and political observers say HB 1 and SB 1 are just starting points for the discussion.

"This is the first batter in a nine-inning baseball game," Mr. Gilbert said.

"Clearly, this is a starting point for the budget process," added state Sen. Jane Nelson (R- Lewisville). "I will be working with my colleagues to help them understand that deep cuts in provider rates mean limited access to health care for many Texans."

TMA leaders are somewhat optimistic that lawmakers will use at least a part of the rainy day fund to offset some of the proposed cuts. But neither Gov. Rick Perry nor Lt. Gov. David Dewhurst mentioned tapping the rainy day fund in statements issued after the comptroller released her revenue estimate. Instead, Governor Perry said he is "confident we will meet our state's needs within this revenue estimate by prioritizing spending without raising taxes."

 Indeed, TMA officials say that any significant tax increase likely is out of the question.

"I don't think the House, which is where tax bills are supposed to originate, has any appetite to pass any sort of tax or any sort of increase in revenue," said Darren Whitehurst, TMA's vice president for advocacy. "It's all about cutting to live within the revenue that we have."

Mr. Gilbert adds, "They had to start with a budget that assumes no new revenue. You've got 100 right-leaning Republicans in the House who came to town with a perceived mandate not to raise taxes and to cut government spending."

The only exceptions to the no-new-taxes pledge might fall in the area of gaming, where some lawmakers have discussed legalizing casino gambling.

But Mr. Whitehurst says that any kind of gaming legislation is "a long shot to happen."

  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 ken.ortolon@texmed.org.

  All articles in Texas Medicine that mention Texas Medical Association's stance on state legislation are defined as "legislative advertising," according to Texas Govt. Code Ann. §305.027. That law requires disclosure of the name and address of the person who contracts with the printer to publish the legislative advertising in Texas Medicine: Louis J. Goodman, PhD, Executive Vice President, TMA, 401 W. 15th St., Austin, TX 78701.

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