LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session April 28, 1997 TO: Honorable John T. Smithee, Chair IN RE: Senate Bill No. 385, Committee Report 2nd House, Substituted Committee on Insurance By: Sibley/et al. House Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on SB385 ( Relating to the regulation of health maintenance organizations.) this office has detemined the following: Biennial Net Impact to General Revenue Funds by SB385-Committee Report 2nd House, Substituted Implementing the provisions of the bill would result in a net positive impact of $123,504 to General Revenue Related Funds through the biennium ending August 31, 1999. The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill. Fiscal Analysis This bill would amend the Texas Insurance Code to specify, require, limit, and authorize various acts of a Health Maintenance Organization (HMO) under the HMO Act, and transfer the "quality of care" function from the Department of Health (TDH) to the Department of Insurance (TDI). Article 20A.03 of the Insurance Code would be amended to require any person, physician, or provider who performs the acts of an HMO to obtain a certificate of authority from the TDI. Article 20A.04 of the Insurance Code would be amended to expand the requirements for an application for a certificate of authority. Article 20A.01 of the Insurance Code would be modified to add Section 12A which would allow persons to file complaints with TDI after attempting to resolve complaints through an internal HMO complaint system. The Commissioner of TDI would be required to investigate the complaint against the HMO to determine compliance with this act. Medical review may be required for individual complaint cases. Article 20A.17 of the Insurance Code would be modified to allow the TDI Commissioner to make an examination concerning the quality of health care services or the affairs of any applicant for a certificate of authority as often as the Commissioner deems necessary, but not less frequently than once every three years. Article 20A.20 of the Insurance Code would be modified to allow the Commissioner of TDI to impose sanctions under Section 7, Article 1,10 of the Insurance Code, impose administrative penalties under Article 1.10E of the Insurance Code, or issue a cease and desist order under Article 1.10A of the Insurance Code. Article 20A.32 of the Insurance Code would be modified to increase fees that the Commissioner of TDI could charge for a certificate of authority by $3,000, from $15,000 to $18,000. The article would be amended to allow the Commissioner to charge for certain expenses of examinations under Section 17(a) of the Texas Health Maintenance Organization Act. TDI based the fiscal impacts of the bill on the number of quality assurance examinations to be administered, which would include: complaints examinations, qualifying examinations, service area expansion reviews, and triennial examinations. In order to implement the mandates of this legislation, five Nurse V Examiners and one Supervising Nurse V would be needed at a cost of $238,140 in salaries for each fiscal year. Additional funding would be needed to convert technician positions to nurse positions since medical expertise in the form of nurses would eventually be required in the complaints unit. Through attrition, technical positions at lower pay grades would be replaced by nurses at pay group 20. $17,016 per fiscal year would be needed for this upgrade. Per TDI, equipment and operating expenses for these FTEs would be $25,950 in fiscal year 1998, $8,700 in fiscal years 1999 and 2000, and $9,900 in fiscal years 2000 and 2001. Travel would be required for in-house staff to perform forty qualifying examinations, twenty-five service area expansion examinations, and twenty-five complaint examinations per fiscal year. The average time for an on-site examination would be two days. Costs associated with travel would be $58,310 per fiscal year. Additional TDI fiscal impacts include costs for professional fees for contracted physician services as follows: For FY 1998, medically complex physician review costs are estimated based on thirty-six triennial examinations at $4,800 each, two targeted complaint examinations at $15,000 each, and medical review for twelve complaint examinations at $1,200 each. Total outside contracting (professional fees) for FY 1998 would be $217,200. For FY 1999, medically complex physician review costs are estimated based on twenty-six triennial examinations at $4,800 each, two targeted complaint examinations at $15,000 each, and medical review for twelve complaint examinations at $1,200 each. Total outside contracting (professional fees) for FY 1999 would be $169,200. For FY 2000, medically complex physician review costs are estimated based on twenty triennial examinations at $4,800 each, two targeted complaint examinations at $15,000 each, and medical review for twelve complaint examinations at $1,200 each. Total outside contracting (professional fees) for FY 2000 would be $140,400. For FY 2001, medically complex physician review costs are estimated based on forty-three triennial examinations at $4,800 each, two targeted complaint examinations at $15,000 each, and medical review for twelve complaint examinations at $1,200 each. Total outside contracting (professional fees) for FY 2001 would be $250,800. For FY 2002, medically complex physician review costs are estimated based on fifty-nine triennial examinations at $4,800 each, two targeted complaint examinations at $15,000 each, and medical review for twelve complaint examinations at $1,200 each. Total outside contracting (professional fees) for FY 2002 would be $327,600. Costs associated with the bill would be recovered primarily by Overhead Assessment and Examination billings. Since this bill would transfer quality of care requirements to TDI from TDH, TDH would save $61,752 per fiscal year, which is the yearly amount in its current budget for oversight of HMO "quality of care", and require one less FTE. Methodolgy Per TDI, fiscal impacts and estimates were based on the anticipated increase in workload required to implement quality of care examinations mandated by this bill. Cost was based on the number of quality assurance examinations that would be administered which includes: complaints examinations, qualifying examinations, service area expansions, and triennial examinations. For targeted complaint examinations and medical review for complaint examinations, cost estimates are based on contracted physician time for two examinations per year, and twelve per year, respectively. Cost estimates for the level of involvement of a physician were developed from discussions with two organizations specializing in this kind of quality of care review. Costs associated with the bill would be recovered primarily by Overhead Assessment and Examination billings. The probable fiscal implications of implementing the provisions of the bill during each of the first five years following passage is estimated as follows: Five Year Impact: Fiscal Year Probable Probable Probable Revenue Change in Number Savings/(Cost) Savings/(Cost) Gain/(Loss) from of State from Texas from General Texas Department Employees from Department of Revenue Fund of Insurance FY 1997 Insurance Operating Operating Account/ Account/ GR-Dedicated GR-Dedicated 0036 0001 0036 1998 ($627,859) $61,752 $627,859 5.0 1998 (562,609) 61,752 562,609 5.0 2000 (533,809) 61,752 533,809 5.0 2001 (645,409) 61,752 645,409 5.0 2002 (722,209) 61,752 722,209 5.0 Net Impact on General Revenue Related Funds: The probable fiscal implication to General Revenue related funds during each of the first five years is estimated as follows: Fiscal Year Probable Net Postive/(Negative) General Revenue Related Funds Funds 1998 $61,752 1999 61,752 2000 61,752 2001 61,752 2002 61,752 Similar annual fiscal implications would continue as long as the provisions of the bill are in effect. No fiscal implication to units of local government is anticipated. Source: Agencies: LBB Staff: JK ,TH ,BK