2007 Legislative Compendium: Health Care Funding

The state's budget for the next two years was part of House Bill 1, the general appropriations act, and House Bill 15, the supplemental spending bill. The 2008-09 budget totaled $152.5 billion in state and federal dollars (or "All Funds" in legislative parlance). The budget excluded $14.2 billion that was set aside for property tax relief. The state's budget exceeded the last fiscal year's by $7 billion - a 10-percent increase. Of the total budget, $80.1 billion (52 percent) is derived from state tax revenues.

The governor used his line-item veto authority when signing HB 1 and HB 15 to reduce the budget by $646.6 million. The vetoes included $297 million to pay  Texas' share of the federal "claw back" payments for the Medicare Part D program in state fiscal year 2009. Unless the state is able to negotiate a change in the claw back formula, the state will have to repay it.

The second largest component of the state's budget (after education) is health and human services, which includes Medicaid and CHIP. The legislature increased funding for health and human services by 4.6 percent. The new allocation of $51.1 billion (All Funds) will fund Medicaid, CHIP, long-term care initiatives, and a variety of public health measures. The state portion of the $51.1 billion is $20.7 billion. The state pays for many other health-related services besides public insurance and preventive health programs, including health care insurance or coverage for state employees, teachers, and prisoners. According to the Legislative Budget Board (LBB), all health-related appropriations within the budget total about $54 billion All Funds, or 35 percent of all spending.

Significant new health care initiatives funded over the biennium include substantial Medicaid rate increases for physicians, dentists, hospitals, pharmacists, and other health care professionals (detailed below); rescinding 2003 eligibility cuts to CHIP; investing in mental health crisis stabilization and prevention services; continuing reforms begun in 2005 to improve Child Protective Services (CPS); investing in Texas' ability to respond to pandemic flu; and reducing the waiting lists for Medicaid patients needing community-based long-term care services.

Medicaid Funding

Legislators allocated $39.8 billion (All Funds) for Medicaid. The lion's share of the Texas program - 60 percent - is paid with federal matching dollars. These matching dollars are the single largest source of federal funds in the state budget. Over the next two years, Texas will receive $15.8 billion.

Caseload Projections
HB 1 assumes an average Medicaid acute care caseload of 2.83 million in 2008 and 2.88 million in 2009. The Health and Human Services Commission (HHSC) is forecasting a slightly higher enrollment of 2.88 million and 2.97 million, respectively. The caseload projections assume an increase in enrollment of patients who are aged or who have a disability, and a decline in children's enrollment. Children will still make up roughly two-thirds of the Medicaid enrollees. Given the inherent difficulty of forecasting a Medicaid caseload and cost trends for two years, the budget includes conservative funding for cost growth, about $1 billion All Funds/$400 million in General Revenue. If costs are higher, the difference will be made up in the supplemental spending legislation filed at the beginning of the 2009 legislative session.

Medicaid Dollars From the Frew vs. Hawkins Lawsuit
The total Medicaid budget includes $706.7 billion in general revenue to settle the 14-year old Frew vs Hawkins litigation. Counting federal matching dollars, the "All Funds" figure is $1.77 billion. Filed in 1993, the lawsuit alleged serious deficiencies in the state's efforts to ensure that children enrolled in Medicaid received sufficient access to preventive and specialty care services. The Medicaid Early Periodic Screening Diagnosis and Treatment (EPSDT) program requires the services. The program is known as "Texas Health Steps" in Texas.

The dollars will improve reimbursement rates substantially for physicians and dentists who treat children. The money will fund improvements to Medicaid outreach, transportation, and case management systems (among other initiatives). Specifically, Frew -related dollars are dedicated to items such as these:

  • $203 million in general revenue ($511.3 million in All Funds) to increase the funding pool by 25 percent for physician services provided to children under age 21.
  • $50 million in general revenue ($125.9 million in All Funds) to allow targeted rate increases to medical and dental specialists.
  • $258.7 million in general revenue ($661.6 million in All Funds) to increase the funding pool by 50 percent for dental services provided to children under age 21.
  • $45 million in general revenue ($$113.4 million in All Funds) to fund 11 judicially approved Corrective Action Plans. The plans cover a range of issues including case management, outreach, provider education and training, provider supply, and managed care organizations.
  • $150 million in general revenue to develop medical and dental strategic initiatives to improve children's services within Medicaid. HB 15, the supplemental appropriations legislation, lists the following as possible initiatives that could be funded. A final decision on which items will get funded has not been made and will not be until later this year:
    • Mobile medical and dental units;
    • Loan repayment and stipends for health care professionals who agree to practice in underserved areas and accept children enrolled in Medicaid;
    • Improvements in medical transportation;
    • Additional targeted rate increases to improve care within children's Medicaid;
    • Improvements in the Medicaid ID card to remind parents about well-child visits; and
    • Efforts to improve specialty care within underserved communities, such as through development of specialty care clinics.

Other newly funded initiatives of HB 1 include these:

  • $19.7 million in general revenue to increase the number of locations that provide breast and cervical cancer screening, diagnosis, and treatment, the goal being to help more low-income women with cancer obtain needed medical care through the Medicaid Breast and Cervical Cancer Treatment Program.
  • $2.7 million in general revenue to implement the Nurse-Family Partnership. The partnership is an initiative designed by the Robert Wood Johnson Foundation to provide community-based nurses and case managers to help educate low-income, first-time parents about improving prenatal care, reducing family violence, and promoting early childhood education. The initiative will benefit about 2,000 families.
  • $8 million increase in funding to HHSC in general revenue to increase staffing within the Office of the Inspector General (OIG) by 85 FTEs per year. The staff increase will implement provisions of the federal Deficit Reduction Act (DRA) to increase the state's fraud and abuse prevention and detection activities. HB 1 specifies that $6.6 million of the new funding is contingent on certification by the comptroller of available funds above the Biennial Revenue Estimate.
  • Out of appropriated funds, HHSC is directed to use $1.7 million to fund an outreach program to inform Medicaid patients and businesses about the Health Insurance Premium Payment (HIPP) program and Medicaid Opt-Out option (if implemented). The program also will train state workers on the availability of these programs. Under HIPP, Medicaid-eligible patients with employer-sponsored insurance can have their insurance premiums paid by the state. The program will pay up to the average amount Medicaid would have paid for the enrollee. Medicaid also pays any cost sharing required by the employer plan. Under Opt-Out, if the employer-sponsored health insurance premiums exceed what Medicaid would have paid, the patient may still choose to enroll in his or her employer's plan. However, the patient would be responsible for any difference in costs, including all cost-sharing obligations. SB 10, the Medicaid reform bill, requires that HHSC provide extensive education to patients before choosing to opt out, and outlines additional protections. Opt-Out has only been implemented in one other state to date.
  • $107 million in increased funding from general revenue to reduce the waiting lists for community-care services by about 10 percent. The funding will result in about 10,070 more Medicaid clients receiving these services over the next two years.

Medicaid Rate Increases
For 15 years, physician Medicaid reimbursement rates have been virtually stagnant. TMA made a Medicaid rate increase one of its highest priorities during the 2007 legislative session. We advocated for a 22.5-percent increase over the biennium with a commitment to reach at least Medicare parity within five years. Because of TMA advocacy and the Frew litigation, legislators appropriated a historic rate increase for children's Medicaid services. Substantial progress also was made in improving rates for other Medicaid services.

Physician rate increases will vary depending on the age of the patient. While TMA aggressively advocated increasing rates for all physician services, the Frew litigation related only to children's Medicaid. The legislature did not increase rates for adult Medicaid services as much as TMA advocated. However, it did recognize the need for better payments by allocating $101.8 million in general revenue ($256.4 million in All Funds). As a result, physicians will receive a 10-percent increase for adult Medicaid services.

To help primary care physicians and other health care professionals in border and rural communities, the legislature allocated $2.8 million in general revenue ($7.1 million All Funds). The funds increase the case management fee to physicians and other health care professionals in the Primary Care Case Management (PCCM) program from $2.93 to $5 per patient per month.

As outlined above, the Frew settlement resulted in the legislature allocating $203 million in general revenue to increase the funding pool by 25 percent for physician services provided to children. An additional $50 million was added to allow targeted rate increases for both physician and dental subspecialists. The Medicaid Physician Payment Advisory Committee (PPAC), a committee composed of physicians and dentists from across the state, recommended a methodology to implement the new rates, which includes these:

  • Apply an across-the-board 2.5-percent update to rescind cuts enacted in 2003 plus the following:
    • Increase all Evaluation and Management codes by 27.5 percent;
    • Increase Texas Health Steps (EPSDT) preventive care codes. Per the recommendation of the TMA Select Committee on Medicaid, there will be differential payments to distinguish between new and established patients as well as between older and younger children:
      • Payments for established EPSDTpatients will increase to 92 percent of Medicare levels;
      • Payments for new EPSDT patients will increase to 100 percent of Medicare;
    • Update the RVUs for all Medicaid fees to the 2007 Medicare level. Codes that would have declined as a result of the update will be held harmless and be assured a minimum 5-percent increase (in addition to the 2.5-percent rate restoration);
    • Increase payments for immunization administration by 30 percent; and
    • Increase the anesthesia base use units to Medicare levels and update the anesthesia conversion factors by 27.5 percent.

The federal judge as well as the HHSC executive commissioner must approve the PPAC recommendations. Once adopted, the new rates will take effect Sept. 1, 2007. The Medicaid HMOs also must pass on the rate increases to physicians without any deductions.

Other Medicaid providers also received these rate increases:

  • Hospitals: $150 million in general revenue/$377.8 million All Funds to rebase Medicaid payments;
  • Ambulance: $31.3 million in general revenue/$78.8 million All Funds;
  • Home health: $39.7 million in general revenue/$100 million All Funds;
  • Dentists (in addition to dollars allocated in Frew ): $3.1 million in general revenue/$7.8 million All Funds;
  • Pharmacists: $52.8 million in general revenue/$133 million All Funds to increase Medicaid dispensing fee;
  • Foster care providers: $13.4 million n general revenue/$39 million All Funds;
  • Community care: $86.2 million in general revenue/$203.1 million All Funds; and
  • Nursing facilities: $99 million in general revenue/$248.6 million All Funds.

HB 1 did rescind the 2.5-percent reduction made in 2003 to physician payments for the Children's Health Insurance Program (CHIP). However, the bill did not increase rates commensurate with Medicaid as advocated by TMA. The legislature also restored the 2.5-percent funding cut for services provided via the Children with Special Health Care Needs programs, family planning services, and women's and children's health services. Post-session UPDATE:  Using its budget authority, in August 2007 HHSC announced that physician reimbursement rates under CHIP also would increase an average of 25 percent in order to be commensurate with rates paid in Medicaid for children's services.

Across all providers, the legislature invested more than $1.2 billion in general revenue and $3 billion All Funds to improve reimbursement rates.

Children's Health Insurance Program

HB 1 allocates $637.8 million in general revenue and $2.1 billion All Funds for CHIP. Seventy-two percent of the Texas CHIP program is paid for by federal matching dollars (compared with 60 percent for Medicaid). Funding includes $73.8 million in general revenue to implement House Bill 109 - the CHIP-eligibility reform bill.

Funding covers enrollment in both the traditional CHIP program, which covers children up to age 19, and two full years of the CHIP perinatal program. Legislators enacted the perinatal program in 2005 to provide prenatal care to low-income women earning up to 200 percent of poverty but who do not qualify for Medicaid because of their income or immigration status. The CHIP perinatal program receives the same federal matching rate as traditional CHIP.

HB 1 assumes that by the end of state fiscal year 2009, there will be 401,578 CHIP enrollees, of which some 69,316 would be CHIP prenatal enrollees. HB 1 assumes an additional 96,396 children will gain traditional CHIP coverage because of HB 109. HHSC has estimated that 127,500 new children would gain coverage. Worth noting, HHSC forecasted a significant higher enrollment in the CHIP perinatal program: 101,977 in 2009 compared with the HB 1 assumption of 69,316.

The budget specifies that should total CHIP funding be insufficient to cover enrollment, the HHSC executive commissioner may transfer funds to prevent a waiting list, subject to approval from the LBB. The budget also specifies that in the event of insufficient funding, HHSC must prioritize funding for the traditional CHIP program over the perinatal program.

Medicaid and CHIP Eligibility
HB 1 includes two important budget riders sponsored by Rep. Garnet Coleman (D-Houston) and Rep. Eliot Naishtat (D-Austin). The riders direct HHSC to minimize gaps in coverage, to the greatest extent possible, for children transitioning from Medicaid to CHIP or vice versa. Specifically, HHSC is required to provide simultaneous screening for children who apply to either CHIP or children's Medicaid using a consolidated application. Children who are eligible for Medicaid or CHIP must be enrolled automatically without further application. If HHSC finds that a child is no longer eligible for children's Medicaid, the state must, before terminating coverage, determine whether the child is eligible for CHIP using currently available information. If the child is eligible, he or she must be enrolled unless the parent objects. Likewise, if the state finds a child is no longer eligible for CHIP, the state must assess whether the child qualifies for Medicaid and enroll the child if found eligible.

The riders further specify that HHSC must assure that Medicaid and CHIP applications and redeterminations are completed within state and federal timeliness standards 

Additionally, with the termination of the contract with Accenture to manage the eligibility call centers and other functions, a separate rider within HB 1 ensures that HHSC can add eligibility workers as needed to replace contracted workers and meet all federal performance standards.

Child and Adult Protective Services
HB 1 appropriates $150.5 million in general revenue to maintain reforms put in place in 2005 for both child and adult protective services. The budget includes an additional $33 million in general revenue specifically for Child Protective Services (CPS) reforms to maintain increased staffing, among other improvements.

Public Health

Mental Health
HB 1 increased general revenue funding by $82 million for community mental health crisis services to prevent costly hospitalizations. The funding will help pay for mobile crisis units, in-home crisis services, and respite care. HB 1, Rider 69, specifies that as part of the funding, DSHS must distribute a portion of the funding to achieve equity in state funding among local mental health authorities, a portion on a per capita basis, and a portion using a competitive process. DSHS must develop performance measures relating to mental health crisis services, such as number of new psychiatric emergency observation sites, number of persons receiving observation, mobile outreach and children's crisis outpatient services, mental health relapse and hospitalization rates, and criminal justice recidivism rates. No later than Sept. 1, 2008, DSHS must contract for an independent evaluation of mental health crisis services.

Pandemic Flu Preparation
HB 15 includes $11 million in general revenue to purchase vaccines in the event of a flu pandemic.

Tobacco Prevention and Control
HB 1 increased funding by $10.5 million in general revenue. HB 1, Rider 66, establishes a competitive statewide tobacco prevention community grant program. Cities, county health departments, and school districts may apply for funding to implement tobacco prevention programs. DSHS may require matching local funds. Grantees must establish programs based on best practices for cessation, prevention, and enforcement. DSHS must report to the legislature on the progress of the program by Oct. 1, 2008. The rider also directs DSHS to publish on its Web site evidence-based approaches for tobacco prevention, cessation, and enforcement. Out of the $10.5 million, $2 million is to be used to reduce use of smokeless tobacco products among children in rural areas.

Additionally, HB 1, Rider 72, Article II, and Rider 84, Article III, requires DSHS and the Texas Education Agency (TEA) to develop an interagency contract for developing initiatives that will reduce and prevent use of tobacco products by children in grades 4 through 12. DSHS and TEA must each allocate $6 million over the biennium to fund the initiative.

TB and HIV Services
Tuberculosis and HIV services received increased funding of $17 million in general revenue to provide additional clients medication.

Stroke Care
To the extent funds are available, DSHS Rider 80, Article II, directs DSHS to allocate up to $750,000 each year to implement a stroke survival system.

Wellness Promotion/Fitness
DSHS Rider 84, Article II, specifies that DSHS shall award $400,000 annually to the Governor's Advisory Council on Physical Fitness to provide grants to local mayors' councils for developing and implementing wellness and physical fitness programs.

K-8 Physical Education and Fitness
Rider 89, Article III, directs TEA to appropriate $10 million each year of the biennium to support grants to school districts that develop in-school PE and fitness programs for children in grades 6 through 8. TEA and the comptroller will develop criteria for the grant program, ensuring that (1) initiatives are designed to help reduce childhood obesity and type 2 diabetes in schools with a large number of economically disadvantaged schools, and (2) all school districts regardless of size have access to the grants. The funding is contingent upon the comptroller certifying at least $20 million over the Biennial Revenue Estimate.

Other Important Medicaid and Public Health-Related Budget Riders
HHSC Rider 60, Article II, outlines the broad goals of a federal Medicaid reform waiver, which are detailed more specifically in the companion legislation SB 10. The budget rider specifies that any reform waiver must include the following principles:

  1. Leverage local, state, federal, and other funding to (a) provide health coverage to more Texans, (b) allow Texas to be a more prudent purchaser and payer of health care, and (c) promote a "culture of insurance" by encouraging the transition of consumers from public to private health insurance.
  2. Restructure Medicaid finance system to ensure that financing supports public policy goals.
  3. Protect and maintain the health care safety net.
  4. Promote health care access and affordability for uninsured Texans.
  5. Promote positive incentives to support consumer health choices and outcomes.
  6. Enhance the administration and effectiveness of the program by (a) improving consistency of reported program data, and (b) enhancing the Medicaid program's care management models.
  7. Support increased personal planning and investment for long-term care needs.
  8. Include broad-based stakeholder input.

The rider further states that it is the intent of the legislature that any Medicaid reform waiver "recognize the unique needs of the state's rural providers, trauma centers, and primary care residency programs."

HHSC Rider 66, Article II, allows HHSC to make GME payments to state-owned teaching facilities contingent upon receipt of allowing matching funds from the state-owned teaching hospital to be used for the state share of funding.

DSHS Rider 70, Article II, allows DSHS to use family planning funds to pay for services not covered by the Medicaid Women's Health Program, including testing and treatment for certain sexually transmitted diseases (STDs), cholesterol screening, and facility costs for tubal ligations.

DSHS Rider 77, Article II, clarifies that a family planning organization that is "affiliated" with an abortion services provider will not be disqualified for funding so long as the family-planning provider meets certain stipulations, including being a legally separate entity that has an easily distinguishable name and separate board of directors.

DSHS Rider 55, Article II, County Indigent Health Care program (CIHCP) was amended to specify that DSHS must not allocate more than 10 percent - instead of 20 percent - of CIHCP funding to any single county.

DSHS Rider 34, Article II, DSHS Services Budget, states that a total of $155,700 each fiscal year of the 2008-09 biennium shall be used for the Childhood Lead Registry.

DSHS Rider 61, Article II, requires DSHS to include educational information about respiratory syncytial virus in its materials already provided to mothers-to-be about childhood immunizations and illness.

HHSC Rider 55, Article II, directs HHSC to pursue federal approval to reimburse physicians and providers for consultations provided to mothers regarding collection of umbilical cord blood.

HHSC Rider 56, Article II, directs HHSC to enter into a contract with an accredited public cord blood bank for $4 million to gather and retain umbilical cord blood from live births for the primary purpose of making umbilical cord blood available for transplant. Additionally, HHSC must enter into a $1 million contract with a health science center for research using stem cells collected from umbilical cord blood from a live birth.

HHSC Rider 59, Article II, directs HHSC to compile a report on the services and costs provided to undocumented immigrants. The report shall include services provided by each hospital district. The report is due Dec. 1, 2008.

Sec. 19.86, Article IX, allocates $10 million over the biennium to TEA to help school districts purchase automated external defibrillators as required by Senate Bill 7. Funds of $500,000 must be used to establish a cardiovascular health-screening pilot for students in sixth grade. The pilot must include electrocardiogram (EKG) and echocardiogram evaluation.

Sec. 19.109, Article IX, allocates $6 million in 2008 to TEA to help school districts implement Senate Bill 8, which requires high schools to test high school athletes for steroid usage.

Sec. 54, Article III, provides $18 million to The University of Texas Southwestern Medical Center at Dallas for research on obesity, diabetes, and metabolism. A portion of this budget, $8 million is from general revenue funds and is contingent on surplus funds beyond the comptroller's January 2007 Biennial Revenue Estimate. In the same rider, Texas Tech University Health Sciences Center in Lubbock received approval for $4.8 million to support a pilot program for new research opportunities in clinical trials of cancer therapy and control for rural and underserved areas of Texas.

Tax on Sexually Oriented Businesses
House Bill 1751 by Rep. Ellen Cohen (D-Houston) and Sen. Royce West (D-Dallas) imposes a $5 per customer fee for patrons of certain sexually oriented businesses. The new revenue will be deposited in an account managed by the comptroller. The bill requires $25 million in general revenue to be credited over the biennium towards the Sexual Assault Program Fund. The Office of the Attorney General, DSHS, and a variety of academic institutions will use the dollars to fund grants, education, and research initiatives designed to reduce the incidence of sexual assault. Any funds collected above the $25 million will be deposited in the Texas Health Opportunity Pool (THOP), as created by SB 10, the Medicaid Reform legislation, to help pay for health insurance premiums for uninsured Texans who qualify. The LBB estimates the fee will generate $9.2 million in 2008 and $53 million in 2009 for THOP. If Texas is able to secure a federal Medicaid waiver, these funds may be eligible for federal matching dollars.

Graduate Medical Education/Workforce Funding
Legislators appropriated record-high funding levels to train more physicians at Texas graduate medical education (GME) programs. The funding increase reflected greater awareness among legislators of Texas' growing physician shortage and the need for more GME programs with which to educate and retain physicians.

TMA, Texas medical schools, and teaching hospital professional associations joined forces before the session to develop a consensus statement outlining Texas' critical need for GME funding. This effort helped to educate legislators and resulted in more funding. Specifically, lawmakers appropriated:

  • $63 million to Texas medical schools, up from $25 million last biennium, to cover faculty costs and create new GME slots;
  • $23 million directed toward the Higher Education Coordinating Board as continued support for primary care GME programs; and
  • $13 million in special item requests to medical schools for GME programs.

Long-awaited funds of $48 million also were appropriated to Texas Tech Health Sciences Center in El Paso for hiring faculty and staff. The funding will allow Texas Tech to move forward with its expansion from a two-year medical school to an independent, four-year institution. The first class is expected to matriculate in fall 2009.

The Texas A&M Health Science Center received $33 million in new funds for medical school enrollment expansion. This will help both Bryan/College Station and Temple develop a four-year medical school. At least $9 million was directed to establish a two-year clinical training facilities in Round Rock.

Another long-awaited funding source was the $6 million allocated for the Irma Rangel College of Pharmacy in Kingsville, an institution placed in the A&M System following the 79th legislative session.

Texas Medical Board
HB 1 appropriated $18.3 million to TMB, an increase of 2.1 million, or 13 percent, over the previous budget. The additional funding is primarily targeted at increasing staffing levels and technology to expedite licensing for new physicians. Additionally, HB 15, the supplemental appropriations bill, allocated $1.2 million in general revenue primarily for licensing and enforcement as well as $600,248 to hire six new full-time employees (FTEs).

Rider 7, Article VIII, specifies that out of the new monies, $267,000 in 2008 and $198,000 in 2009, as well as the six new FTEs, is contingent upon TMB prioritizing physicians who treat Medicare and Medicaid patients.

Miscellaneous Budget Provisions

Background Check Procedures
Sec. 19.68, Article IX, requires all state agencies conducting background checks to submit to the state auditor, Texas Department of Licensing and Regulation (TDLR), Department of Public Safety (DPS), and the LBB a report regarding how they conduct background checks. The report must be submitted by Nov. 1, 2007. The state auditor will review the procedures and identify any deficiencies. They also will determine if any agencies that should be conducting such checks are not. Additionally, DPS will report to the 81 st legislature the availability of background check information. This includes the sufficiency level of background checks needed and recommendations for improving background check procedures across state agencies.

Narcotics Enforcement
Sec. 19.104, Article IX, specifies that DPS is allocated an additional $703,536 in 2008 and $101,436 in 2009 to implement Senate Bill 1879, which will increase regulation and enforcement relating to Schedule III to V controlled substances.

Health Care Funding TMA Staff Team:

Legislative: Michelle Romero
Policy: Helen Kent Davis, Gayle Love, Marcia Collins, and  Susan Griffin
Legal: Kelly Walla

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