2003 Legislative Compendium: Health and Human Services Reorganization

[ Medicaid Provisions | CHIP Provisions | Fraud and Abuse Provision | Agency Reorganization | Medicaid Disease Management | Prior Authorization for Nonemergency Ambulance Transport | Continuous Eligibility for Children's Medicaid | Local Medicaid Demonstration Projects | Group Health Insurance for CHIP Eligibles ]

In addition to reductions in services and eligibility described above, the legislature made numerous changes to the Medicaid and Children's Health Insurance Program (CHIP) delivery systems and to the structure of the agencies that oversee all health and human services.

One omnibus bill governs almost all changes to the delivery of Medicaid and CHIP: House Bill 2292 by Rep. Arlene Wohlgemuth (R-Burleson) and Sen. Jane Nelson (R-Flower Mound). The bill is divided into two sections, one addressing the structure of the health and human services enterprise (see below) and the other addressing service delivery. Many of the provisions within HB 2292 codify budget decisions, such as the freeze in continuous eligibility for children's Medicaid. Other provisions will change the way patients and physicians interact with the programs. Major changes to Medicaid include:

Enactment of a preferred drug list (PDL).   The bill directs the Health and Human Services Commission (HHSC) to establish a PDL with assistance from a Pharmacy and Therapeutics Committee. TMA strongly supported a PDL as a means to reduce prescription drug utilization and costs. However, the PDL enacted by HB 2292 is not as flexible as TMA desired. While the bill specifies that development of the PDL must be based on safety and quality in addition to cost, inclusion - or exclusion - of a drug on the PDL will be driven by whether the manufacturer agrees to a supplemental rebate or other cost reduction strategies. The Pharmacy and Therapeutics Committee established by the bill will include six physicians and five pharmacists, with a physician designated as the presiding officer.

Roll out of the most "cost effective" Medicaid managed care model . HHSC is required to expand Medicaid managed care to all regions of the state. Delivery models HHSC can consider are HMO, primary care case management, or an exclusive provider organization. HHSC must examine the "cost effectiveness" of the model by region and Medicaid population, though "cost effective" is not defined. TMA, working closely with the Border Health Caucus, successfully amended the bill to exclude the Medicaid HMO model from largest urban border counties, with the exception of Webb County. This county includes a hospital-based HMO, Mercy, which wanted to preserve the Medicaid HMO model as an option. If HHSC determines that managed care is not cost-effective for a region of the state or a Medicaid population, then the commission may continue to use traditional, fee-for-service Medicaid.

Medicaid Provisions

Maintains term of children's coverage (continuous eligibility period) at six months through Sept. 1, 2005;

Allows HHSC to use create more thorough procedures (such as using information from consumer reporting agencies, appraisal districts, or vehicle registration records) to verify assets;

Allows recertification through telephone interview or mail correspondence, unless HHSC determines a personal interview is necessary, and allows rules based on risk factors to require a personal interview for recertification in cases with a high probability that eligibility will not be recertified;

Allows establishment of cost sharing (i.e., copays and monthly premiums) based on federal maximum levels, to the extent it is cost-efficient;

Allows HHSC to establish prior authorization for high-cost medical services;

Makes provision of services under Medically Needy Program subject to appropriation of funds;

Eliminates requirement for providing services by podiatrists, psychologists, and licensed marriage and family therapists;

Allows HHSC to limit prescriptions to a 34-day supply and to impose a cap of four  brand name drugs per month (does not affect current three-prescription limits for certain clients);

Allows establishment of rules for purchase and distribution of over-the-counter medications if more cost-effective than the prescription alternative;

Establishes a statutory basis for estate recovery of Medicaid expenditures pursuant to federal requirements;

Provides for input of the Public Assistance Health Benefit Review and Design Committee in designing covered benefits;

Requires consolidation of health insurance premium payment programs for Medicaid and CHIP;

Requires HHSC to request federal matching funds for the employee's share of required premiums for Medicaid-eligible children enrolled in a group health plan; and

Requires HHSC to establish a consumer-directed services program to provide a monthly stipend for certain Medicaid waiver clients receiving home- and community-based services and to direct the delivery of those services.

CHIP Provisions

Maintains income eligibility at 200 percent of federal poverty level ($36,800 for a family of four);

Eliminates deductions to income so that eligibility is based on gross income;

Restricts eligibility for families at or above 150 percent of federal poverty level to those with assets within allowable levels;

Changes term of coverage (continuous eligibility period) from 12 months to six months until Sept. 1, 2005;

Establishes a 90-day waiting period between eligibility determination and coverage; exceptions from this waiting period are allowed for loss of insurance coverage due to:

-Layoff or business closing,
-Termination of COBRA coverage,
-Change in marital status of parent,
-Loss of Medicaid eligibility, or
-Termination of coverage because cost of coverage exceeded 10 percent of family income;

Allows establishment of cost-sharing (i.e., copays and monthly premiums) at maximum federal level to the extent it is cost-efficient;

Allows HHSC to limit prescriptions to a 34-day supply and to impose a cap of four  brand name drugs per month;

Subjects children of school district employees and state employees to same requirements as CHIP enrollees with regard to eligibility and coverage;

Removes provisions requiring the benefit package to be actuarially equivalent to state employee HMO benefits upon inception of CHIP and to provide at least the level of benefits recommended by the CHIP Interim Report to the 76th legislature;

Reduces CHIP outreach efforts to the federal minimum;

Provides for input of the Public Assistance Health Benefit Review and Design Committee in designing covered benefits;

Requires HHSC to request federal matching funds for the employee's share of required premiums for CHIP-eligible children enrolled in a group health plan; and

Requires HHSC to request a waiver to allow Medicaid families to opt in to CHIP.

Fraud and Abuse Provisions

Adds "abuse" to fraud statutes;

Outlines duties of the Office of Inspector General (OIG), which replaces HHSC's Office of Investigations and Enforcement:

-Provides for appointment of an inspector general by the governor for a one-year term;
-Allows HHSC to obtain any information or technology necessary to meet responsibilities;
-Allows the office to access any information maintained by an HHS agency;
-Requires OIG to conduct an integrity review to determine a need for full investigation;
-Requires referral of cases within 30 days by OIG to the attorney general (AG) in cases of suspected criminal conduct, and allows continuation of investigation by OIG for purposes of imposing administrative or civil sanctions;
-Allows imposition of payment holds on providers to compel production of records (provides for expedited administrative hearing or informal resolution); and
-Allows OIG to provide coordination with special investigative units for managed care organizations, audit use and effectiveness of state and federal funds, and recommend policies promoting economical and efficient administration in state and federal funds;

Allows OIG to issue subpoenas, with approval of HHSC commissioner;

Outlines requirement for the memorandum of understanding between OIG and the AG:

-Must include procedures for processing cases of fraud within the Temporary Assistance to Needy Families (TANF), food stamp, and CHIP programs;
-Must require OIG to refer cases of suspected fraud, waste, or abuse to the AG within 20 business days after determination that existence of fraud, waste, or abuse is reasonably indicated;
-Must require the AG to take appropriate action and allow the AG to refer cases to the U.S. attorney or local prosecutor;
-Direct initiation of prosecution by the AG must be with consent of the local prosecutor;
-Must require facilitation of direct referrals to the AG's office and communication between the AG's office and employees of the Medicaid agency;
-Adds comptroller to the list of government officials who is to receive the semiannual report on Medicaid fraud and adds other HHS programs to the content of the report; and
-Must specify the type, scope, and format of investigative support provided by OIG;

Outlines criteria and sanctions for TANF fraud; transfers enforcement for TANF fraud to HHSC;

Allows AG to pursue criminal asset forfeiture for felony violations relating to Medicaid fraud, and allows transfer of proceeds from forfeited property to HHSC;

Allows concurrent jurisdiction between the AG and the local prosecutor, with consent of the local prosecutor;

Allows award for reporting Medicaid fraud and modifies terms for receipt and calculation of award:

-Reward is prohibited if HHSC or AG had independent knowledge of fraudulent activity,
-Award is limited to 5 percent of administrative penalty, and
-Award will be paid out of administrative penalty;

Establishes Medicaid front-end fraud pilot program:

-Can be implemented in one or more counties;
-May be extended to other counties if determined cost-effective;
-Must be designed to reduce number of fraud cases, fraudulent participants, and total Medicaid expenditures;
-Must include smart cards; biometric readers at point of contact with providers; a secure, HIPAA-compliant finger imaging system; and a monitoring system;
-Allows HHSC to exempt children, or elderly or disabled persons and to obtain a fingerprint from a parent or caretaker;
-Requires HHSC to consider transportation barriers and work schedules; and
-Requires HHSC to begin implementation by Jan. 1, 2004, and to report to the governor, lieutenant governor, and speaker by Feb. 1, 2005;

Adds a representative of TDH to the Medicaid and Public Assistance Fraud Oversight Task Force and requires study of procedures used to determine identity;

Prohibits solicitation of business by Medicaid and CHIP providers;

Requires each managed care organization to have a fraud investigation unit;

Requires HHSC to cross-reference eligibility information for health and human services programs with the federal list of fugitive felons;

Requires third-party billing vendors for CHIP and Medicaid to contract with HHSC;

Allows prepayment reviews and postpayment holds and allows a provider subject to a payment hold to request an expedited administrative hearing or an informal resolution; and

Requires a surety bond for Medicaid providers with irregularities.

(Portions of HB 2292 summary prepared by the Health and Human Services Commission.)


As mentioned above, HB 2292 dramatically alters HHSC organization, consolidating 12 agencies into four. The HHSC will remain the umbrella agency, with each of the new agency executive directors reporting directly to the HHSC commissioner. The HHSC commissioner, with approval of the governor, will hire agency directors.

In addition to its current Medicaid and CHIP policy functions, HHSC will be responsible for all cross-agency functions, such as consolidated human resources and information management. Additionally, HHSC will absorb all eligibility determination functions. Most significantly, HHSC will be responsible for promulgating all rules and policies for the agencies it oversees. Currently, each agency has its own board and rulemaking authority.

The four new agencies reporting to HHSC are:

Department of State Health Services, which replaces the Texas Department of Health and also absorbs the mental health functions of the Mental Health and Mental Retardation Department, Texas Commission on Alcohol and Drug Abuse, and all of the Texas Health Care Information Council;

Department of Aging and Disability Services, which includes most functions of the Department of Human Services, including all long-term care and aging services;

Department of Assistive and Rehabilitative Services; and

Department of Family and Protective Services.

A council composed of nine gubernatorial appointees will be created for each agency to advise the agency director on agency policies and programs. Additionally, HB 2292 requires the appointment of a transition council to assist HHSC in devising a transition plan. Council members will include two senators, two representatives, and three public members. The council must submit its initial plan to the legislature by Dec. 1, 2003. Development of the transition plan must include public input.


HB 727 by Rep. Dianne Delisi (R-Temple) and Sen. Kyle Janek (R-Houston) requires a request-for-proposal (RFP) process with providers of disease management programs to provide program services to certain recipients of medical assistance (Medicaid). Those recipients must have a disease/health condition for which it is determined that disease management is needed and the recipients are not eligible for those services under a Medicaid managed care plan. Initial language required disease management services specifically for Medicaid pregnant women and children residing in the Rio Grande Valley and who receive treatment of asthma-related health conditions. This language was removed in the substitute that passed. The contract with the disease management vendor(s) is required to include a written guarantee of state savings on expenditures for the recipients covered by the program. Also, HHSC is required to conduct a study to analyze the potential for state savings and to consider the results of the study when doing the RFP process. The study must be completed no later than Dec. 31, 2003.

TMA has strong policy supporting disease management as a cost-effective means of managing chronic and other conditions. TMA's requirements that the disease management be an evidence-based model, the patient's physician direct the health care team dealing with the patient, and standardized protocols and criteria be used were added to the bill's language. Governor Perry signed the bill into law on June 16 and it took effect immediately.

HB 1735, also by Representative Delisi, establishes a uniform disease management process for state-funded or state-administered health plans, including CHIP, Medicaid managed care, the Teacher Retirement System, and the Employee Retirement System. Agencies or boards overseeing the state- funded or -administered plans must establish criteria and standards regarding (1) patient self-management education, (2) provider education, (3) evidence-based models and minimum standards of care, (4) standardized protocols and participation criteria, and (5) physician-directed or physician-supervised care.  Chronic illnesses referenced in the bill as potential targets for disease management are heart disease, diabetes, respiratory illnesses, end-stage renal disease, and HIV or AIDS. A study of the models by each agency or board is required to determine whether the covered populations' outcomes improved as a result of disease management. Additionally, HHSC is required to determine whether implementation of disease management achieved savings for the state. TMA supported the legislation.


Over TMA's strenuous objection, HB 111 by Rep. Norma Chavez (D-El Paso) passed, requiring physicians, hospitals, and nursing homes to reimburse costs of requested nonemergency ambulance transports when Medicaid fails to approve payment for the service. TMA worked throughout the session to exclude physicians from the bill, since data show that less than 1 percent of nonemergency ambulance transport originates from physicians. TMA instead offered to work with the bill author to educate physicians about how properly to obtain prior approval for such services. Representative Chavez agreed to accept TMA's amendment, removing physicians from the bill in the House version. However, Representative Chavez stripped the compromise language from the bill in conference committee.


HB 728 by Representative Delisi freezes until September 2005 the implementation of 12 months of continuous eligibility for children's Medicaid. Currently, children in Medicaid are guaranteed six months' continuous coverage. Law passed in 2001 would have extended the continuous enrollment period to 12 months by June of this year. The bill is a pragmatic compromise given the budget deficit faced by the state. TMA, the Texas Pediatric Society, and the Texas Academy of Family Physicians strongly supported the bill.

Senate Bill 1522 by Sen. Judith Zaffirini (D-Laredo), like HB 728, freezes children's Medicaid continuous enrollment at six months with the option of expanding to 12 months in June 2005. As the original author of children's Medicaid simplification, Senator Zaffirini worked mightily to protect initiatives such as simplified application and enrollment and elimination of the face-to-face interview. SB 1522 retains most elements of simplification but as a compromise, does allow the Department of Human Services (DHS) to request an in-person interview when information cannot be obtained any other way. The bill does allow DHS to obtain asset and other information from third-party resources when available. TMA supported the bill.

HB 2292 (described above) also freezes children's Medicaid continuous eligibility at six months and incorporates provisions within SB 1522. HB 2292 language prevails whenever there is a conflict.


HB 3122 by Rep. Vicky Truitt (R-Keller) allows for two Medicaid demonstration projects to expand Medicaid to low-income parents not currently eligible for Medicaid. Projects will be funded by hospital districts or other funding entities that agree to certify the availability of local funds to provide the state portion to obtain federal matching dollars. Two pilots are envisioned. One would expand Medicaid coverage to uninsured parents up to 100 percent of federal poverty; hospital districts would not be required to provide the full Medicaid benefit package since the targeted population is optional. The second pilot would target working parents by blending dollars from local hospital districts and employers to achieve an affordable insurance product. A task force comprising officials from hospital districts, health care providers, employers, and others would oversee development of the projects. TMA supported the legislation.


SB 240 by Sen. Kip Averitt (R-Waco) amends statute enacted in 2001 allowing children eligible for CHIP to enroll in employer-sponsored health plans under what is called the "Health Insurance Premium Payment" program. TMA supported the legislation

Health and human services reorganization TMA staff contacts:

-Helen Kent Davis, director, Office of Governmental Affairs, (512) 370-1401

[ Overview | Professional Liability Reform | Patient Safety/Quality Improvement | Managed Care/Insurance Reform | Health Care Funding | Scope of Practice | Public Health | Rural Health | Mental Health | Medical Science | Workers' Compensation | Tax Reform | Long-Term Care | Workforce/Medical Education | Abortion and Related Legislation | Health Facility Regulation | Transplantation/Organ Donation ]

Last Updated On

July 23, 2010