LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE
74th Regular Session
May 5, 1995
TO: Honorable Hugo Berlanga, Chair IN RE: Committee Substitute
Committee on Public Health for
House of Representatives Senate Bill
Austin, Texas No. 10
By: Zaffirini
FROM: John Keel, Director
In response to your request for a Fiscal Note on Senate Bill No.
10 (relating to development of a health care delivery system
under the state Medicaid program that results in cost savings to
the state) this office has determined the following:
The bill would make no appropriation but could provide the legal
basis for an appropriation of funds to implement the provisions
of the bill.
The bill would authorize the Health and Human Services Commission
to develop a health care delivery system that restructures the
delivery of health care services provided under the State
Medicaid Program. The bill provides intent and direction, to the
extent possible, regarding the design of the system. The bill
would allow the Commission to maximize the financing of the
Medicaid Program by obtaining federal matching funds for local
and state resources spent on indigent health care. The
Commission would be required to apply for a federal waiver no
later than August 31, 1995 to implement the provisions of this
bill.
The bill would require the Health and Human Services Commission
in the design of the health care delivery system to maximize the
cost-effectiveness of prescription drugs by covering all
prescription medications that are medically indicated by a
licensed physician. In effect, this provision would allow
removal of the current three prescription limit for Medicaid
eligible adults not residing in nursing homes.
The bill details the requirements for the Commission and other
entities intending to develop a managed care system, to provide
funding for matching purposes or to form an intergovernmental
initiative to administer the health care delivery system subject
to state oversight. The following assumptions were made in
developing the fiscal estimates:
1) State and local entities would make available funds for
matching potential federal funds. These matching funds are
assumed to be currently available from such sources as tax
revenues and other public funds used to operate hospital
districts and public hospitals; funds allocated under the County
Indigent Health Care Program; and general revenue and other
funding associated with unsponsored charity care and the Medicaid
Disproportionate Share Hospital program for medical schools and
teaching hospitals. It is estimated that savings to the General
Revenue Fund would range from $0-$250 million annually for the
next five years. Savings to the State would accrue to the extent
local funds can be made available for matching federal funds
within the regular Medicaid Program. This number will have to be
agreed upon by the local matching entities.
2) As part of a waiver, the State of Texas would exercise an
option in the Social Security Act that permits states to raise
eligibility levels for children and pregnant women by
disregarding certain types of income or assets and extend
coverage to persons eligible for non-Medicaid indigent care now.
The bill specifies that if eligibility requirements are expanded,
appropriations from the General Revenue Fund, including accounts
consolidated into the General Revenue Fund, may not be used for
the health care services for the new populations with the
following exceptions:
a) federal funds appropriated from the General Revenue
Fund;
b) monies local governmental entities make available for
matching;
c) appropriations for certain entities which provide
indigent health care services, such as state teaching hospitals
and medical schools;
d) appropriations from the General Revenue Fund used for
matching under the Medicaid disproportionate share program; and
e) appropriations from the General Revenue Fund to provide
health care services to children.
3) Because other states have expanded eligibility for adults
under federal waivers by reallocating a portion of their
disproportionate share (DSH) funding, it was assumed that the
State would also attempt to protect current levels of DSH program
funding by using these funds to expand Medicaid eligibility. This
would discontinue the availability of this portion of DSH funds
for lump-sum DSH payments to hospitals. The funding
contributions of government entities would return to them through
capitation fees for managed care coverage for expanded numbers of
eligible Texans. Special payments to rural hospitals would also
be funded with these contributions. This assumption would
protect approximately $900 million in federal funds payments
annually for the next five years, the life of the waiver.
The bill would allow the Health and Human Services Commission to
design the system using different types of delivery systems in
different service regions, including primary care case
management, a partially capitated system, fully capitated
arrangements or a combination thereof. The bill would require
the Health and Human Services Commission, in adopting rules, to
implement a managed care system which gives extra consideration
to traditional Medicaid providers and to include for at least
three years health care providers with a history of providing a
significant level of Medicaid or charity care. In the event this
requirement limits the State's ability to competitively contract
for services, savings related to managed care may be diminished.
Managed Care savings would accrue to the Department of Health in
Medicaid acute care services for current Medicaid program
participants. The following assumptions are made in developing
and implementing a managed care system:
1) Phase-in of Medicaid eligible populations. Rural (assumes
19 percent of eligibles live in rural areas) and aged populations
are excluded from the managed care system. Disabled and blind
population groups are phased in: 1996, 0 percent; 1997, 10
percent; 1998, 30 percent; 1999, 50 percent. Remaining
populations would begin phase-in: 1996, 10 percent; 1997, 50
percent; 1998, 70 percent; and 1999, 81 percent. [NOTE: These
estimates have been revised based upon the fact that an
additional managed care site is not expected to be added until
January 1996. This change reduces the anticipated savings for
the 1996-97 biennium.]
2) Only those participants who are medically needy or newly
eligible, disabled and non-disabled, would be responsible for
copayment of services. [NOTE: This is a change from previous
fiscal notes on this bill and is due to notification by the
federal Health Care Financing Administration that copayments
cannot be imposed on those populations currently eligible for
Medicaid. This change reduces the anticipated savings for the
1996-97 biennium.]
3) Eligibility for Medicaid benefits would be guaranteed for a
period of 12 months.
4) Savings and costs from implementing managed care are based
on the assumption that the State will receive the necessary
waivers from the Health Care Financing Administration. Approval
of a waiver allowing the State to implement managed care is
relatively routine; however, the approval of a waiver to expand
eligibility is less certain.
The managed care system savings were projected using March 1995
updates by the Health Department for acute care caseloads and
costs for fiscal years 1996 and 1997. Managed care savings and
costs for fiscal years 1998, 1999, and 2000 were calculated by
applying the original managed care trend assumptions from
November 1994 estimates to the February data for fiscal years
1998-2000. Savings from copayments for medically needy and
newly eligible Medicaid clients, and costs for 12 month
eligibility coverage were calculated by applying the same trends
from the updated managed care calculations to the copayment and
12 month eligibility assumptions from November 1994.
Administrative costs are included for the Department of Health,
Department of Human Services, and the Health and Human Services
Commission. TDH administrative costs correspond to Public Health
Technicians; DHS administrative costs relate to eligibility
determination workers and computer programming; and HHSC
administrative costs are for additional staff (managed care
experts, systems manager, actuarial position, contract manager,
attorney, accountant, legal assistant, and administrative
technicians).
The bill would provide authority for local entities to provide
eligibility determination services; any costs or savings to the
State and local governments related to this provision cannot be
determined.
Costs are included for the removal of a three prescription limit
for Medicaid eligible adults through the Vendor Drug Program.
Estimates do not include potential costs or savings to local
entities as a result of this provision. In addition, the
estimates do not include any potential offsetting savings in
other Medicaid program areas should they result in fewer
expenditures for services by physicians, hospitals, and/or
nursing homes or if copayment for prescriptions is required.
Revenue gains to the State from drug manufacturer rebates are
assumed and applied as offsets to the amounts of general revenue
required to fund prescription medications. In the event, that
the removal of the three prescription limit is applied only to
those adults enrolled in managed care plans, the estimates of
cost would be considerably reduced.
The probable fiscal implication of implementing the provisions of
the bill during each of the first five years following passage
is estimated as follows:
Fiscal Probable Probable Cost Probable Probable Cost
Year Savings to Out of Savings to Out of
General General Federal Federal
Revenue Fund: Revenue Fund: Funds: Funds:
Managed Care Managed Care Managed Care Managed Care
1996 $2,680,000 $6,856,764 $4,443,870 $7,212,170
1997 25,350,000 8,433,201 41,150,525 10,801,722
1998 41,786,671 9,880,125 67,832,088 13,264,617
1999 62,550,000 12,042,755 101,537,093 16,630,206
2000 93,340,000 14,027,554 151,518,342 19,749,400
Fiscal Change in
Year Number of
State
Employees
from FY
1995
1996 362.8
1997 412.6
1998 436.8
1999 451.2
2000 461.2
Fiscal Year Probable Cost Probable Cost Probable Cost Probable
Out of Out of Other Out of Revenue Gain
General State Federal to Other
Revenue Fund: Funds:Vendor Funds: State Funds:
Prescription Drug Rebates Prescription Vendor Drug
Medications Medications Rebates
1996 $38,000,000 $6,700,000 $74,000,000 $6,700,000
1997 49,800,000 $8,800,000 $96,900,000 $8,800,000
1998 55,400,000 $9,800,000 $105,200,000 $9,800,000
1999 69,300,000 $12,200,000 $131,500,000 $12,200,000
2000 88,200,000 $15,600,000 $167,400,000 $15,600,000
Source: Department of Human Services, Department of Health,
Health and Human Services Commission
LBB Staff: JK, AZ, DF