By: Villarreal H.B. No. 1689

A BILL TO BE ENTITLED

AN ACT

relating to pay-for-performance contracts for certain Health and Human Services Enterprise programs and services.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Chapter 397, Finance Code, is amended by adding Subchapter I to read as follows:

SUBCHAPTER I. PAY-FOR-PERFORMANCE CONTRACTS FOR CERTAIN

DEPARTMENT PROGRAMS AND SERVICES

Sec. 397.001. DEFINITIONS. In this subchapter:

(1) "Advisory committee" means the advisory committee on pay-for-performance contracts established under Section 397.003.

Sec. 397.002. PAY-FOR-PERFORMANCE CONTRACT PROGRAM. The board shall develop and implement programs to assess the feasibility, desirability, and cost-effectiveness of entering into contracts:

(1) to operate programs or provide services that are:

(A) aimed at improving health statuses and outcomes;

(B) designed for the primary purpose of preventing health ailments; and

(C) selected by the board for inclusion in the program; and

(2) under which payments may be made only if:

(A) the contractor meets or exceeds specified performance requirements; and

(B) the state realizes a positive return on investment.

Sec. 397.003. ADVISORY COMMITTEE. (a) The advisory committee on pay-for-performance contracts is established for the primary purpose of advising the board regarding the pay-for-performance contract program.

(b) The advisory committee consists of the following members:

(1) the executive commissioner of the Health and Human Services Commission, or the executive commissioner's designee;

(2) the executive director of the Texas Public Finance Authority, or the executive director's designee;

(3) the comptroller, or the comptroller's designee;

(4) a representative of a nonprofit organization that has participated in a pay-for-performance contract program or similar program, appointed by the board; and

(5) any other person the board determines would be of assistance in developing and implementing the program, appointed by the board.

(c) Members of the advisory committee appointed under Subsections (b)(4) and (5) serve at the will of the board.

(d) The advisory committee shall:

(1) advise the board with respect to:

(A) criteria to be used for selecting the programs and services to be included in the program;

(B) performance requirements applicable to contractors under the program and desired outcomes for persons served by each selected program or service;

(C) criteria to be used in evaluating whether a contractor has met the performance requirements identified under Paragraph (B); and

(D) establishing or revising the methodology for computing the state's return on investment; and

(2) provide any other advice or information relating to the program that the board requests.

(3) select a third party entity to verify whether the state has realized a positive return on investment from the contracts authorized in Section 397.004 and issue bonds pursuant to Section 397.005.

(e) Members of the advisory committee are not entitled to compensation but are entitled to reimbursement for actual and necessary expenses incurred in performing their official duties as advisory committee members.

(f) Chapter 2110 applies to the advisory committee, except for Section 2110.008.

Sec. 397.004. CONTRACTS AUTHORIZED. (a) The board may enter into a contract for the operation of a program or performance of a service that the board selects to be included in the program. Before the board enters into a contract under this section, after considering information provided by the proposed contractor and other information available to the board, the board must determine that it is likely that having the program operated or services performed under the contract will result in a positive return on investment for the state in accordance with the methodology established under Section 397.007.

(b) The contract must specify:

(1) the program to be operated or service to be performed by the contractor;

(2) the period during which the contractor is to operate the program or perform the service under the contract;

(3) a condition that certain performance requirements must be met before any payment under the contract may be made together with a description of:

(A) the performance requirements; and

(B) the criteria the board will use to evaluate whether the contractor has met the performance requirements; and

(4) a condition that this state must realize a positive return on investment from the contract before any payment under the contract may be made together with a description of the methodology to be used to determine the state's return on investment.

Sec. 397.005. ISSUANCE OF GENERAL OBLIGATION BONDS FOR PAY-FOR-PERFORMANCE CONTRACTS. (a) A third party entity shall issue and sell general obligation bonds of the state under the authority of the comptroller in a total amount sufficient to provide money for payments anticipated to be due under contracts entered into under this subchapter.

(b) The third party entity shall remit to the comptroller the bond proceeds for deposit to the credit of the special fund created as required by Section 49-q(b), Article III, Texas Constitution. The proceeds may be appropriated only:

(1) to the Health and Human Services Enterprise to make payments under contracts entered into under this subchapter; or

(2) to the authority to pay the principal of or interest on the bonds.

Sec. 397.006. CONTRACT PAYMENTS. Using money appropriated to the Texas Health and Human Services Enterprise from the special fund established under Section 49-q, Article III, Texas Constitution, the board shall make payments under contracts entered into under this subchapter, provided that:

(1) the contractor has met the performance requirements specified in the contract;

(2) the state's return on investment under the contract is positive; and

(3) all other contract terms have been satisfied.

Sec. 397.007. RETURN ON INVESTMENT COMPUTATION. (a) The third party entity shall establish a methodology for computing the state's return on investment to determine whether that return is positive for purposes of making contract payments in accordance with Section 397.006. The methodology must:

(1) define a positive return on investment for the state as increases in state revenue, costs avoided by the state, or a combination of increased revenue and avoided costs in a total amount that equals or exceeds the state's financing and administration costs associated with a contract; and

(2) include considerations of the following:

(A) state tax revenue and any other state revenue collected during the state fiscal year after the state fiscal year during which the contract was entered into that would not have been collected if the contract had not been entered into;

(B) costs avoided by the state by operating the program or providing the services through the contract; and

(C) costs of debt service on bonds issued under this subchapter to provide money for payments due under the contract.

(b) The comptroller shall assist the board in collecting information useful for purposes of determining the state's return on investment under a contract.

Sec. 397.008. REPORT. (a) On or before December 15 of each year following the year in which the program is implemented, the department shall submit to the governor and the standing committees of the legislature with primary jurisdiction over Health and Human Services Enterprise a report regarding the operation of the program. The report must:

(1) explain the criteria the board uses for selecting the programs and services to be included in the program;

(2) explain the performance requirements applicable to contractors under the program and desired outcomes for persons served by each selected program or service;

(3) explain the criteria the board uses to evaluate whether a contractor has met the performance requirements described by Subdivision (2);

(4) identify the net benefits to the state of the program;

(5) explain the methodology the board uses to determine the state's return on investment before program contract payments are made and the period during which those payments may be made;

(6) include a comparison of the costs to the state of providing programs and services under contracts entered into under this subchapter and the costs to the state of directly providing those programs and services for a comparable period;

(7) include a summary of the amounts and terms of the bonds issued under Section 49-q, Article III, Texas Constitution; and

(8) include a recommendation regarding continuation or expansion of the program.

(b) The third party entity shall provide to the department information necessary for the department to provide the summary required by Subsection (a)(7).

SECTION 2. This Act takes effect January 1, 2014, but only if the constitutional amendment proposed by the 83rd Legislature, Regular Session, 2013, providing for the issuance of general obligation bonds to finance pay-for-performance contracts for certain programs and services for certain offenders is approved by the voters. If that amendment is not approved by the voters, this Act has no effect.