LEGISLATIVE BUDGET BOARD
                              Austin, Texas
                                     
                    FISCAL NOTE, 77th Regular Session
  
                                May 7, 2001
  
  
          TO:  Honorable Mike Moncrief, Chair, Senate Committee on
               Health & Human Services
  
        FROM:  John Keel, Director, Legislative Budget Board
  
       IN RE:  SB1839  by Moncrief (Relating to certain long-term care
               facilities.), Committee Report 1st House, Substituted
  
**************************************************************************
*  Estimated Two-year Net Impact to General Revenue Related Funds for    *
*  SB1839, Committee Report 1st House, Substituted:  an impact of $0     *
*  through the biennium ending August 31, 2003.                          *
*                                                                        *
*  The bill would make no appropriation but could provide the legal      *
*  basis for an appropriation of funds to implement the provisions of    *
*  the bill.                                                             *
**************************************************************************
  
General Revenue-Related Funds, Five-Year Impact:
  
          ****************************************************
          *  Fiscal Year  Probable Net Positive/(Negative)   *
          *               Impact to General Revenue Related  *
          *                             Funds                *
          *       2002                                   $0  *
          *       2003                                    0  *
          *       2004                                    0  *
          *       2005                                    0  *
          *       2006                                    0  *
          ****************************************************
  
All Funds, Five-Year Impact:
  
***********************************************************************
*Fiscal    Probable    Probable    Probable    Probable   Change in    *
* Year     Revenue     Savings/    Revenue     Savings/   Number of    *
*        Gain/(Loss) (Cost) from Gain/(Loss) (Cost) from    State      *
*          from New      New         from      Federal    Employees    *
*          Quality     Quality     Federal     Funds -   from FY 2001  *
*         Assurance   Assurance    Funds -     Federal                 *
*            Fund        Fund      Federal       0555                  *
*                                    0555                              *
*  2002  $186,000,000            $279,000,000                    21.0  *
*                      $(186,672,              $(280,135,              *
*                            819)                    629)              *
*  2003   202,740,000             304,110,000                    21.0  *
*                       (203,257,               (304,925,              *
*                            623)                    433)              *
*  2004   204,246,600             306,369,900                    21.0  *
*                       (204,764,               (307,185,              *
*                            223)                    333)              *
*  2005   204,382,194             306,573,291                    21.0  *
*                       (204,899,               (307,388,              *
*                            817)                    724)              *
*  2006   204,394,397             306,591,596                    21.0  *
*                       (204,912,               (307,407,              *
*                            020)                    029)              *
***********************************************************************
  
***************************************************************************
*Fiscal    Probable Revenue Gain/(Loss)    Probable Savings/(Cost) from   *
* Year        from New Policyholder       New Policyholder Stabilization  *
*           Stabilization Reserve Fund             Reserve Fund           *
*  2002                       $86,001,250                   $(11,001,250) *
*  2003                        12,005,350                    (12,005,350) *
*  2004                        12,001,375                    (12,001,375) *
*  2005                        12,004,900                    (12,004,900) *
*  2006                        12,005,700                    (12,005,700) *
***************************************************************************
  
Fiscal Analysis
  
The bill would amend various sections of the Insurance, Government, and
Health and Safety Codes.  Sections 5.07, 5.08 and 5.09 amend Article
21.49-3 of the Insurance Code by addressing rates and rating plans for
nursing homes and describing the issuance of bonds for the Texas Public
Finance Authority (TPFA) to fund professional liability insurance.

Section 7.02 amends Subchapter B, Chapter 531, Government Code by adding
Sections 531.056 and 531.057 relating to a survey process review and
quality assurance early warning system for long-term-care facilities and
rapid response teams.  Section 7.06 requires all property, records and
appropriated funds related to informal dispute resolution currently
residing at the Department of Human Services (DHS) be transferred to the
Health and Human Services Commission (HHSC) by January 1, 2002.

Section 9.01 amends Chapter 242, Health and Safety Code, by adding
Subchapter Q, Quality Assurance Fee. The bill would require that each
institution, for which a license fee must be paid under Section 242.034,
be assessed a quality assurance fee. The Health and Human Services
Commission (HHSC) or the Department of Human Services (DHS), at the
direction of the Commission, would collect the fee. The fee may be
appropriated only for the purposes of the paying the cost of
administering provisions of the bill and increasing the rate of
reimbursement paid to institutions under the State Medicaid Program.
The Quality Assurance Fee would be assessed on each licensed institution
at a rate equal to six percent of the institution's gross receipts from
its operations in Texas. The fee would be payable monthly, in addition
to other fees imposed under Chapter 242 of the Health and Safety Code,
and would be an allowable cost for reimbursement under the State
Medicaid program.
  
  
Methodology
  
Sections 5.07, 5.08 and 5.09 amend Article 21.49-3, Insurance Code, and
would establish the joint underwriting association for health-care
providers. Bonds could be issued by the TPFA in the name of the
association, in a maximum amount of $75 million, for a maximum term of
ten years.

The bonds would be paid solely from a maintenance tax surcharge on all
insurance companies writing professional liability insurance for nursing
homes and the association, based on their reported gross premiums.  The
rate of the surcharge would be set by the Insurance Commissioner and
collected by the Comptroller at the times and in the manner as other
maintenance taxes, in an amount determined to be sufficient to pay the
bond obligations.  The surcharge could be passed through to the
policyholders.  TPFA estimated the debt service on $75 million in bonds
to range from $11,001,250 in FY 2002 to $12,005,700 in FY 2006, and
assumed 9.5 % (taxable bonds) interest rate with level debt service
payments over ten years.  The bonds would be exempt from State and local
taxes, however, under federal tax law the bonds would not be tax-exempt.

The HHSC estimate included 21 FTEs for the sections relating to quality
of care monitors (15 Nurse IV and 1 Attorney IV), review of the survey
process (1 Attorney IV, 3 Program Specialist IV and 1 Admin Tech IV) and
the quality assurance early warning system (1 Program Specialist IV).
FTEs and the associated operating costs were estimated to be $1.3 million
in FY 2002 and approximately $1.1 million thereafter by HHSC. A one-time
automation cost of $330,000 for the implementation of the early warning
system, matched at 25/75 State/Federal, was included in the HHSC
estimate. It is assumed the costs associated with survey and related
processes could be paid for using new Quality Assurance Funds and federal
funds.  HHSC assumed there would be no new costs associated with the
transfer of informal dispute resolution to HHSC from DHS.

The HHSC estimate stated either HHSC or DHS would collect and distribute
the fee and HHSC or DHS would likely have to add staff and associated
administrative support.  The fee would be collected from all licensed
nursing and convalescent homes and deposited into the Quality Assurance
Fund, which is a fund outside of the State Treasury held by the Texas
Treasury Safekeeping Trust Company.  The HHSC estimated administrative
costs to be $1.0 million annually with a one-time technology cost of
$100,000 in FY 2002.

The HHSC estimated revenues generated by the new fund would be between
$186.0 million in FY 2002 to $204.0 million in FY 2006. The HHSC assumed
that because provisions of the bill require the  funds generated be used
for rate reimbursements to nursing facilities, the State would use the
funds to draw down additional Medicaid funds. The Commission estimated
these additional federal funds to be between $279 to $306 million for FY
2002 through 2006, respectively.  The Health and Human Services
Commission assumes the additional new funds and federal funds would be
allocated to the facilities, if appropriated, through a modeled rate
during the first two years and incorporated into the cost reports using
the cost report methodology subsequently. The HHSC also assumes that,
under this scenario, there would be no compounding effect of increased
expenditures adopted through the cost report.  However, the HHSC stated
in the estimate if the assumption regarding the use of the increased fee
revenues is not correct, and if these fees are to be used only for rate
increases for the current year and the previous years' rate increases
become part of the base appropriation for nursing facilities, then there
could be a very significant impact on the General Revenue Fund beginning
in the second year of this program (FY 2003).  In other words, the
amount of revenue gains become new General Revenue costs in the second
year of the program.
  
  
Local Government Impact
  
No fiscal implication to units of local government is anticipated.
  
  
Source Agencies:   304   Comptroller of Public Accounts, 347   Texas
                   Public Finance Authority, 352   Texas Bond Review
                   Board, 324   Texas Department of Human Services, 454
                   Texas Department of Insurance, 529   Health and
                   Human Services Commission
LBB Staff:         JK, HD, ML, KF, WP