BILL ANALYSIS



C.S.S.B. 10
By: Zaffirini, et al. (Berlanga)
04-27-95
Committee Report (Substituted)


BACKGROUND

The Texas Medicaid program has grown from a total budget of $7.5
billion in the 1990-91 biennium to an appropriation of $18.7
billion for the current 1994-95 biennium, including $6.8 billion in
general revenue and $11.7 billion in federal funds.  This growth is
due to federal mandates regarding eligibility expansions, required
services, and provider reimbursement rules.

Lt. Gov. Bob Bullock charged the Senate Committee on Health and
Human Services with the challenging task of developing
recommendations for wholesale reform.  In response the committee
began an intensive investigation that included a public hearing May
31-June 1, 1994, and on-site visits to Medicaid managed care pilot
projects in Texas, to a rural health clinic, and to a
rehabilitation center. On November 29-30, 1994, the House
Committees on Public Health and on Human Services joined the Senate
committee in a second public hearing in which public testimony was
taken. The Senate Committee on Health and Human Services then
adopted the recommendations that are the basis of this legislation.

PURPOSE

S.B. 10 as substituted would require the Health and Human
Services Commission to develop a health care delivery system in
an effort to restructure the delivery of Medicaid health care
services.  The bill sets forth a process for using local indigent
health care resources to draw federal matching funds and provides
local matching entities an option to create intergovernmental
initiatives to administer the system in a geographical area.

RULEMAKING AUTHORITY

It is the committee s opinion that the bill expressly grants
additional rulemaking authority to the Health and Human Services
Commission in Section 1 (Sections 16A(a)(7)(F), 16A(h), 16A(k),
16A(m), 16B(i), 16B(l) and 16D, Article 4413(502), Revised
Statutes) and to appropriate agencies that operate a part of the
state Medicaid program (Section 16D, Article 4413(502), Revised
Statutes).

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Article 4413(502), Revised Statutes, by adding
Sections 16A-16F as follows:

Sec. 16A.  HEALTH CARE DELIVERY SYSTEM.

(a) Requires the Health and Human Services Commission (HHSC) to
develop a Medicaid health care delivery system, subject to
obtaining a federal waiver, and outlines directives the HHSC must
follow in developing the delivery system, as follows:

          (1) Directs HHSC to design the system to emphasize
          prevention, promote continuity of care, provide a
          medical home for recipients, and to ensure that
          recipients can receive high quality services in their
          local community.

     (2) Directs HHSC to design the system in a way that enables
     state and local government entities that make funds
     available to the HHSC for matching, to control the costs
     associated with Medicaid and in a way that will result in
     cost savings to the state and the local entities through
     managed care service delivery.

     (3) Directs HHSC to maximize financing of the Medicaid
     program by obtaining federal matching funds for all
     resources and other funds available for matching. Directs
     HHSC to expand Medicaid eligibility to persons who were
     eligible for indigent health care services through the use
     of those resources before expansion of the program. Requires
     the HHSC to give priority in expanding eligibility to
     children and their families.

     (4) Directs HHSC to develop a plan for covering children and
     other persons by using existing related state
     appropriations, earned federal funds, contributions from
     recipients, or resources and other funds available for
     matching.

     (5) If federal matching funds are obtained by matching local
     funds, HHSC is directed to ensure that the local entities
     receive an amount at least equal to the amount they made
     available for match, which is to be used for providing
     services to persons eligible for Medicaid under the new
     program.

     (6) Directs HHSC to provide an option for entities that make
     resources and other funds available for federal match to
     administer the health care delivery system within their
     region, including appropriate portions of the eligibility
     determination process, subject to standards and oversight of
     HHSC.

     (7)(A)-(D)Directs HHSC to design the system to include
     methods for ensuring accountability to the state; to provide
     a single point of accountability for collection of uniform
     data; to conduct comparative analyses of compiled data to
     assess the relative value of alternative delivery systems;
     to oversee the methodology for setting capitation and
     provider payment rates to ensure cost-effective provision of
     quality care.
          
          (E) Directs HHSC to ensure that both private and public
          health care providers and managed care organizations,
          including disproportionate share (DSH) hospitals, will
          have an opportunity to participate in the system.

          (F) Directs HHSC to ensure, in adopting rules
          implementing the system, that the HHSC, each
          Intergovernmental Initiative (IGI), and each Managed
          Care Organization (MCOs) give extra consideration to
          traditional providers of Medicaid and charity care in
          designing the provider network.

          (G) Directs HHSC to require, for not less than 3 years,
          that HHSC, IGIs and MCOs, as applicable, include in
          networks each health care provider who provided
          significant levels of Medicaid or charity care, agrees
          to accept the standard provider rate, meets
          credentialing requirements, and agrees to meet and
          comply with all of the terms and conditions of the
          standard provider agreement.

     (8) Directs HHSC to design the system in a manner that
     enables the state, to the extent possible, to manage care to
     lower the cost of providing Medicaid and use multiple,
     competing MCOs, where possible.

     (9) Directs HHSC to design the system in a manner that
     enables the state to use different delivery systems to meet
     the needs of different populations; to recognize the unique
     role of rural health care providers and home and community
     support services agencies; to maximize cost effective use of
     prescription drugs by covering all medically indicated
     prescriptions.

     (10) Directs HHSC to emphasize coordination by establishing
     geographic health care service regions after consultation
     with local government entities that make resources and other
     funds available for matching.

     (11) Directs HHSC to simplify eligibility criteria and
     streamline eligibility determination process.

     (12) Directs HHSC, to the extent possible, to use "one-stop"
     client information and referral for managed care services.

     (13) Directs HHSC to design, as much as possible, a system
     that encourages the training of and access to primary care
     physicians.

     (14) Directs HHSC to develop and prepare the federal waiver
     after consulting with the governmental entities that provide
     health care services to indigent persons, consumer
     representatives, managed care organizations, and health care
     providers.

     (15) Requires HHSC to set aside up to $20 million a year for
     special payments to rural hospitals that are the sole
     community providers and provide a significant amount of
     charity or Medicaid care, and that are located in a county
     in which a specified funding entity executes a matching
     funds agreement with the HHSC and participates in an IGI if
     one is formed in a contiguous county.

     (16) If necessary to maximize all matching funds under Sec.
     16A(a)(3), directs HHSC to design the system to dedicate an
     amount determined by HHSC for special payment to hospitals
     that provide 14,000 low income days.

(b) Lists some factors HHSC must consider to determine
"significant level" of Medicaid and charity care for purposes of
16A(a)(7)(G) including minimizing disruption to physician-patient
relationships, access to quality care, and relative amounts of
Medicaid and charity care by type of provider.

(c) Requires the HHSC to ensure that no new general revenue
appropriations are used for newly eligible Medicaid clients,
except the following: federal funds appropriated from general
revenue; local government matching funds; general revenue
appropriated for children's health care; general revenue
appropriated to state teaching hospital and medical school
indigent care; and DSH matching.

(d) Stipulates that if the delivery system includes a method to
obtain federal matching funds for local and state resources spent
on indigent health care and if HHSC has obtained a waiver,
certain listed governmental entities shall make resources
available to the HHSC in accordance with Matching Funds
Agreements.

(e) States that certain local mental health and mental
retardation authorities, city or county health departments, and
other government entities may make funds available for matching.

(f) Defines method of calculation for matching amounts to be made
available by entities.

(g) Stipulates that an entity may make available additional
amounts of resources or other funds, including an amount that
reflects costs associated with growth of the state Medicaid
program. States that additional amounts must be included in the
Matching Funds Agreement.

(h) Requires the HHSC by rule to determine the manner in which
specified entities will make resources available to HHSC for
matching. If an IGI is formed, the specified entities must make
resources available to the state by making them available to the
IGI, if they participate in the IGI and subject to federal
approval.

(i) Requires HHSC to prepare for a participating entity a
proposed memorandum of understanding, which would serve as a
basis for negotiating a final, binding Matching Funds Agreement.
Stipulates that for hospital districts with a tax rate set by
commissioners court, the amount made available for matching must
be approved by the commissioners court. Specifies that the
Matching Funds Agreements and the waiver must have the same
expiration date.

(j) Outlines items that must be included in a Matching Funds
Agreement, including the amount of resources to be matched,
estimated costs, estimated number of eligibles, scope of
services, assurance the matching entities will receive at least
as much as they made available, and provisions for modifying the
agreement.

(k) Provides that Matching Funds Agreements for entities located
in metropolitan statistical areas must be executed before the
waiver application is submitted unless HHSC extends the deadline
due to extraordinary circumstances. Also allows for later
submission of the agreement for entities located outside a
metropolitan statistical area, and requires HHSC, by rule, to
determine that timeframe.

(l) Stipulates that the liability, under the Indigent Health Care
Act, of counties described by Sec. 16A(d)(7) is not affected by
this section.

(m) Requires HHSC, by rule, to develop a methodology for special
rural hospital payments established under Sec. 16A(a)(15).

(n) Provides that this section expires September 1, 2001.

Sec. 16B. INTERGOVERNMENTAL INITIATIVES.

(a) Provides that entities making matching funds available under
a Matching Funds Agreement may form IGIs for the purpose of
operating a health care delivery system in their area in
accordance with this section.

(b) States that an IGI may serve more than one county, but a
county may not be served by more than one IGI. Also provides that
HHSC, with consent of each entity in the IGI, may modify the area
the IGI serves to promote client access to care and move toward
regionalization of the delivery system.

(c) States that an IGI must be formed as a nonprofit corporation
under a specified law or as any other nonstock, nonprofit entity
approved by the HHSC.

(d) Stipulates that an IGI is a governmental entity for purposes
of Chapter 101, Civil Practice and Remedies Code (Texas Tort
Claims Act, which provides certain circumstances under which a
governmental entity may be subject to liability and suit).

(e)(1)-(2) Stipulate the IGI's governance structure: Each IGI
must have an executive committee of representatives of funding
entities.  The executive committee must appoint a governing
board, including the executive committee and representatives of
specified entities.

     (3)-(4) Provide that representatives of the specified groups
     are subject to removal if they fail to maintain
     qualifications outlined in subdivision (e)(2), that a person
     may represent more than one of the groups outlined, and that
     groups are entitled to be represented on the board only if
     located in the IGI's geographical area.

     (5) Provides that entities share governance of the executive
     committee in proportion to the amount of resources and other
     funds they make available for matching.

     (6) Requires representation on the governing board and vote
     apportionment to be based primarily on the relative level of
     Medicaid and charity care over the past two years.  The
     executive committee must have at least 51 percent of the
     voting rights on the governing board, and the votes must be
     apportioned in the manner described by subdivision (5) of
     this subsection.

     (7) States that the executive board has exclusive authority
     regarding how the public funds of the IGI are managed and
     expended. The governing board shall address health care
     delivery system issues, including the preparation and
     negotiation of the proposed health care delivery plan.

     (8) Stipulates that if the IGI includes a hospital district
     for which the tax rate is set by the commissioners court,
     the governance structure of the IGI must be approved by the
     commissioners court, which must take action no later than
     the date on which it approves the health care delivery plan.

(f) Requires an IGI to administer the health care system in the
area subject to HHSC standards and oversight and as required by
applicable state and federal statutes and rules, the waiver, and
the health care delivery plan agreement. Requires an IGI to
perform the functions outlined in its delivery plan agreement. If
applicable, the IGI shall make supplemental payments as necessary
to ensure that matching entities receive payments at least equal
to the resources it makes available. Also, the IGI is required,
to the extent possible, to manage care to lower cost and use
multiple, competing MCOs, where possible. States that an IGI must
comply with Texas Open Meetings Act, and stipulates that savings
accrued by an IGI and funding entities through operation of the
plan agreement must be used for indigent health care.

(g) Provides that an IGI may contract with any public or private
entity to perform any of its powers or duties.  Also states that
the entities that form the IGI may contract, collaborate or enter
into a joint venture with other entities as necessary to carry
out the functions of or provide services to the IGI, subject to
oversight and standards of HHSC.

(h) Requires the entities that intend to form an IGI to submit a
letter of intent to HHSC not later than the 60th day after HHSC
submits the waiver application. Specifies the information the
letter of intent must include.  States that the letter of intent
is not binding but serves to inform HHSC of the areas of the
state that intend to be part of an IGI.

(i) Requires the entities that have submitted a letter of intent
to submit a proposed health care delivery plan within the time
specified by the appropriate operating agency after approval of
the waiver.  Stipulates that the health care delivery plan is not
binding, but serves as the basis for negotiation of a final,
binding plan agreement, which takes effect as provided by its
terms unless rejected by the commissioners court. Requires the
HHSC to set, by rule, a date by which the entities must submit
and negotiate the proposed health care plan, based on a schedule
in the waiver. States an agreement takes effect as provided for
in the agreement, with an exception.

(j) Stipulates that the HHSC, after notice and local public
hearing, must approve the plan agreement, the structure of the
governing board, and the service area of an IGI before the IGI
can administer the health care delivery system. Designates scope
of HHSC authority to select MCOs and specifies criteria for HHSC
to approve the agreement.

(k) Provides that HHSC shall implement the health care delivery
system in areas for which HHSC did not receive a letter of intent
to form an IGI or that are not covered by a plan agreement by the
date specified by the HHSC under Subsection (i) of this section.
Exempts HHSC from HMO, utilization review, and third party
administrator licensing, in performing its duties under this
section.

(l) Requires the HHSC to adopt rules regarding the health care
delivery plan agreement and requiring an IGI to seek public
input. Also requires the HHSC to develop a model plan agreement
and establish minimum requirements for a plan agreement. Requires
the HHSC to ensure that an IGI seeks public input into the
development and provisions of the delivery plan agreement.

(m) Sets minimum requirements for a plan agreement as follows:

     (1) Requires uniform criteria for eligibility for services.

     (2) Requires uniform provision of services to eligible
     persons.

     (3) Requires that, insofar as payments to an IGI are made on
     a capitated basis, to the extent possible, they consider the
     geographic, risk-adjusted cost of care.

     (4) Requires an IGI to develop a sufficient provider network
     to ensure access.

     (5) Requires development and operation by an IGI, MCOs, and
     providers of policies regarding financial management,
     quality assurance, utilization review and patient access.

     (6) Requires inclusion in the plan of provisions regarding
     opportunity for participation by public and private managed
     care organizations and providers. Provisions must include a
     methodology for selection of participating MCO and providers
     giving added weight for services of value to the state, a
     methodology for establishing capitation rates and provider
     payment rates, and a methodology to ensure recipients have
     the choice of multiple MCOs where possible.

     (7) Requires that provisions exist for an IGI and MCOs to
     maintain adequate stop loss coverage.
     
     (8) Requires that provisions exist for phasing in
     implementation of the health care delivery system, including
     methods, such as reserve funds, for phasing the
     Disproportionate Share Program funds into waiver financing.

     (9) Requires that provisions exist for ensuring that the
     amount of resources provided for Medicaid clients in the
     matching entities is at least equal to funds made available
     for matching.

     (10) Requires that an IGI or MCO provide notice to health
     care providers of the bid solicitation procedures.

     (11) Requires that an IGI include in the plan agreement
     grievance and appeal procedures for clients.

     (12) Requires that an IGI include in the plan agreement
     procedures for health care providers to appeal regarding
     denial of participation, calculation of payment rates,
     denial or reduction of supplemental payments and payment for
     services.

(n) Requires that the plan agreement be completed before
implementation; if a waiver is terminated, then the IGI or the
HHSC has the option to terminate the plan agreement; if the
waiver is modified in a way that affects service delivery in an
area, the IGI and the HHSC have the option to renegotiate the
agreement, and the other party is required to make a good-faith
effort to renegotiate.

(o) Provides that if an IGI includes a hospital district whose
tax rate is set by the commissioners court, the IGI shall file
the plan agreement with the commissioners court. The plan
agreement will be deemed final and binding on the 30th day unless
the commissioners court adopts a resolution rejecting it.  The
commissioners court may adopt a resolution to delegate the
authority to reject the plan agreement to the board of directors
of the hospital district.

(p) Provides that an IGI is exempt from HMO and certain related
licensing requirements to the extent it: (1) contracts to
purchase services to implement the system through HMOs or MCOs
that meet the Texas Department of Insurance standards and federal
solvency requirements; or (2) receives capitated payments from
HHSC.

(q) Requires MCOs that contract with HHSC or an IGI to hold
specified certification and to satisfy Texas Department of
Insurance standards and federal solvency requirements.

(r) States that Sec. 16B(q) does not affect specific Texas
Department of Insurance HMO licensing requirements.

(s) Permits HHSC to allow the establishment of rate categories
based on health status and other risk factors, including age and
sex.

(t) Provides that this section expires September 1, 2001. 

Sec. 16C.  IMPLEMENTATION OF HEALTH CARE DELIVERY SYSTEM;
ENFORCEMENT.  Requires HHSC to implement a health care delivery
system and monitor and enforce compliance, including by use of
administrative penalties. Provides that HHSC and the Texas
Department of Insurance shall share with each other certain
confidential information to further the purposes of Sections 16A-16E; provides that Sec. 16C expires September 1, 2001.

Sec. 16D.  RULES FOR HEALTH CARE DELIVERY SYSTEM.  Provides that
HHSC shall adopt rules to carry out its functions. Adds authority
for HHSC to delegate authority to adopt rules to an agency
operating a part of the state Medicaid program and allows HHSC to
require that agency to adopt rules. States that this section
expires September 1, 2001.

Sec. 16E.  DELEGATION OF AUTHORITY.  Gives HHSC authority to
delegate to a health and human services agency that administers a
part of the state Medicaid program the authority to exercise all
or part of HHSC's functions, powers, and duties under Sections
16A-16C. States that this section expires September 1, 2001.

Sec. 16F. CONFLICT WITH OTHER LAWS.  Provides that for any
conflict between Sections 16A-16E and any other provision of
state law relating to Medicaid, Sections 16A-16E prevail. States
that this section expires September 1, 2001.

SECTION 2.  Amends Section 1, Article 4413(502), Revised
Statutes, by adding definitions for "managed care organization,"
"managed care plan," "resources," and "resources or other funds
available for matching."

SECTION 3.  Adds Subchapter H to Chapter 285, Health and Safety
Code, to provide that hospital districts may contract,
collaborate, or enter into a joint venture as necessary to form
or carry out the functions of or provide services to an IGI.

SECTION 4.  Stipulates that HHSC or a specified type of agency
operating a part of the state Medicaid program may not implement
Sections 16A-16E unless HHSC has obtained a federal waiver or
other specified authorization; requires HHSC to submit waiver
application by August 31, 1995.  Provides that the governor and
the Legislative Budget Board may prohibit submitting the waiver
if it does not control Medicaid costs; allows governor, upon HHSC
request, to extend waiver submission up to September 30, 1995.

SECTION 5.  Stipulates that if a federal waiver is not obtained
to implement the health care delivery system, HHSC shall continue
to establish additional Medicaid managed care pilot programs;
requires HHSC to begin establishing additional pilots not later
than the date of waiver submission; provides that HHSC may
contract with public or private entities as necessary to perform
these functions.

SECTION  6.  Emergency clause. Effective upon passage.

COMPARISON OF ORIGINAL TO SUBSTITUTE

S.B. 10 as substituted provides greater specificity regarding how
the health care delivery system will be implemented and operated
by the HHSC and the proposed intergovernmental initiatives.  In
general, the substitute strengthens state oversight of how
intergovernmental initiatives may carry out their
responsibilities. More specifically, the substitute:

1.  Strengthens state oversight and standards as follows:

      Grants HHSC use of administrative penalties, to ensure
compliance.

      Requires uniform eligibility and services criteria.

      Requires participating managed care organizations to meet
     Texas Department of Insurance standards and federal solvency
     requirements.

      Allows HHSC and the Texas Department of Insurance to share
     confidential information to ensure performance capability of
     participating managed care organizations.

      Requires intergovernmental initiative governing board to
     comply with the Texas Open Meetings Act.

      Requires that any savings accrued by the intergovernmental
     initiative must be spent on health care.

2.  Specifies that no state general revenue will be used for new
participants funded by local and federal funds.  However,
existing state funded programs for the same population may be
integrated to draw federal matching funds.

3.  Establishes a $20 million fund for certain rural hospitals in
areas that participate in the intergovernmental initiative.

4.  Adds protection for three years for traditional Medicaid
providers who have given significant levels of Medicaid and
charity care.  This change essentially rolls S.B. 603 as
engrossed into S.B. 10 as substituted, adding two changes:

      The term "primary care physician and hospital" is replaced
     with "health care provider."

      Guidelines for determining what constitutes a significant
     level of Medicaid and charity care are added.

5.  Stipulates that the liability of County Indigent Health Care
Program counties, under the Indigent Health Care Act, is not
affected by this section.

6.  Allows counties outside metropolitan areas to phase into the
intergovernmental initiative system at a later date.

7.  Adds high-volume, disproportionate share hospitals and rural
hospitals to the list of entities included on the
intergovernmental initiative governing board.

8.  Provides for maximizing federal matching funds.

9.  Provides that the Governor and Legislative Budget Board may
prohibit submitting the waiver if it does not control costs.

10.  Extends the submission deadline for the waiver from July 31
to August 31, 1995.  Allows the Governor, upon request by HHSC,
to extend the deadline to no later than September 30, 1995.

SUMMARY OF COMMITTEE ACTION

S.B. 10 was considered by the Public Health Committee in a formal
meeting April 27, 1995. The committee considered a complete
substitute for the bill. Four amendments were offered to the
substitute. The four amendments were adopted without objection.
The substitute as amended was adopted without objection. The
Chair directed the staff to incorporate the amendments into the
substitute.

The bill was reported favorably as substituted, with the
recommendation that it do pass and be printed, by a record vote
of 9 ayes, 0 nays, 0 PNV, and 0 absent.

A motion was made to reconsider the vote by which S.B. 10 as
substituted was reported.
The vote was reconsidered without objection. The bill was
reported favorably as substituted, with the recommendation that
it do pass and be printed, by a record vote of 8 ayes, 0 nays, 1
PNV, and 0 absent.