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.