Honorable Brandon Creighton, Chair, Senate Committee on Higher Education
FROM:
John McGeady, Assistant Director Sarah Keyton, Assistant Director Legislative Budget Board
IN RE:
HB2867 by Metcalf (relating to the creation of the Sam Houston State University College of Osteopathic Medicine.), Committee Report 2nd House, Substituted
HB 2867 would create a new college of osteopathic medicine at Sam Houston State University, under the management and control of the board of regents of the Texas State University System with degrees offered under the name and authority of Sam Houston State University.
Included in this higher education impact statement is an estimate for the need for the new or expanded institution, along with information on geographic access to existing institutions, student demand for the institution and programs, the possible duplication of programs with other institutions in the geographical region, and the long-term costs to the state for the institution, including any facilities construction and maintenance. This impact statement also addresses whether the proposed legislation would change the governance of an institution, and what the economic impacts of the change to the state and the affected institutions and systems might be.
HB 2867 would not directly change the governance of the institution, but would codify recent changes already implemented by the institution and system. In August 2018, the THECB approved the institution to implement a doctor of osteopathic medicine (DO) program and establish its College of Osteopathic Medicine. SHSU received approval from the THECB with the understanding that SHSU would not seek, nor accept if offered, formula funding for the osteopathic medical students enrolled in the courses in the DO program. HB 2867 codifies that action, which includes a change in governance structure. It authorizes the provost of SHSU to enter affiliation agreements with any other entity or institution, and it allows the Board to solicit, accept, and administer gifts and grants from any public or private source for the use and benefit of the college.
HB 2867 also authorizes the Board of Regents of the Texas State University System to prescribe courses leading to the customary degrees and allows for the adoption of rules for the operation, control, and management of the college as necessary for conducting a college of osteopathic medicine of the first class. The SHSU Board of Regents may enter into agreements under which additional facilities used in the college's teaching and research programs, including libraries, auditoriums, research facilities and medical education buildings, may be provided by a public or private entity. HB 2867 also allows a teaching hospital considered suitable by the Board of Regents to be provided by a public or private entity. However, it restricts funding for such a hospital, stating that, "The hospital may not be constructed, maintained, or operated with state funds." HB 2867 restricts state funding for the DO program.
Background Information - Need for a New Medical School
Texas is the second most populous state in the nation. The Texas Demographic Center estimated the state's general population to be 28.3 million in 2018. The state's changing demographics include significant increases among two populations: people over 65 years of age and Hispanics. The population of Texans over 65 years of age is projected to more than triple in size from 2010 to 2050, approaching 7.9 million. Additionally, the Hispanic population is projected to increase to nearly 2.3 times its size in 2010 to 21.5 million by 2050. Growth in these population sectors will present challenges to the health care system and will challenge the system in different ways, e.g., patterns in patient visits and need for medical procedures.
The aging population is expected to have greater financial security, have more health insurance coverage, require access to more health care services related to declines in visual and auditory acuity, and need help with daily living activities. The increasing Hispanic population is expected to be younger, carry less health insurance coverage, and have an increased incidence of chronic lifelong health conditions, such as diabetes and obesity. These two population sectors will exert continuing demands on the existing and future physician workforce. Escalating health care costs and greater specialized care complicate patients' decisions related to health care services. Other factors that influence the health care delivery system include declining employer-based financial support for health insurance and potential reductions in federal support for Medicare and Medicaid programs.
The Texas physician workforce faces additional challenges, including the high rate of Texas' uninsured population. The lack of insurance is associated with delayed or postponed treatment, which results in more complex and higher cost services. In 2015, 19 percent of the Texas population was uninsured, compared to 11 percent nationally. In 2017, federal tax legislation removed the penalty associated with the individual mandate to purchase health insurance. While the repeal of the individual mandate will not take effect until 2019, it may result in an increase in the uninsured population in Texas.
Even though Texas attracts many physicians to the state, the need for more physicians is a concern because the Texas physician workforce has faced a shortage for several decades. This concern remains, despite that from 2008 to 2017, newly licensed Texas physicians increased 30 percent, with such growth likely to continue in the coming years. The Texas Medical Board reported that applications for new licenses continued to rise as well, and in 2017, the agency received 5,576 applications, up from 4,026 applications in 2004. In addition, the ratio of practicing physicians to population in Texas increased from the 2007 level of 157 per 100,000 to the 2017 level of 194 per 100,000. Still, Texas is well below the national average of 237 physicians per 100,000 and ranks 41st among states in this category.
The increases in the Texas physician workforce have occurred in medical specialties and subspecialties that are not considered primary care specialties. Texas continues to have fewer primary care physicians than other states, with just 65.4 active primary care physicians per 100,000; Texas ranks 47th among states in this category and is below the national ratio of 82.5 per 100,000. A 2018 Texas Department of State Health Services, Center on Health Professions Workforce report shows there are shortages of primary care physicians in every region of Texas. The report also predicts that the shortages will worsen in the coming years.
In addition, there is a national call for more physicians. The Association of American Medical Colleges issued a call to increase medical school enrollments nationally by 30 percent. Texas existing medical schools responded to the call and increased entering first-year medical school enrollments 52.9 percent, from 1,342 in fall 2002 to 2,052 in fall 2017.
In 2017, the Texas Legislature passed Senate Bill 1066, which requires an institution proposing a doctor of medicine (MD) or doctor of osteopathic medicine (DO) degree program to provide a "specific plan regarding the addition of first-year residency positions for the graduate medical education program to be offered in connection with the new degree program." The plan must propose an increase in the total number of first-year residency positions in the state.
In its review of the SHSU proposal for a DO program, the THECB found that such a program would likely prepare physicians for entry into primary care and would prepare physicians to pursue medical careers in geographically underserved areas. The institution's stated goal is to graduate more primary care physicians that will practice in underserved areas of Texas (especially in East Texas).
Student Demand
Texas has 12 medical schools that currently enroll students; 10 are public; one, Baylor College of Medicine (Houston), is independent, although it receives state funding; and one, The University of the Incarnate Word, is private and does not receive state funding at this time. Of these 12 medical schools, 10 are allopathic medical schools, granting the MD degree, and two are osteopathic medical schools, granting the DO degree. Eight of the 10 public medical schools are located in health-related institutions, which offer many health-related degree programs; the other two are part of public, general academic institutions.
Since 2002, the number of unduplicated applicants to Texas public medical schools has steadily increased. With the opening of two new medical schools in 2016, the number of applicants increased by 11.6 percent from the previous year (Figure 1). From 2006 to 2017, the number of applicants increased by 44.6 percent, while the number of enrolled first-year students increased by 30 percent. Applicants typically apply to more than one medical school. Texas offers applicants a coordinated submission process where one application may be submitted to all Texas public medical schools through the Texas Medical and Dental Schools Application Service.
Fiscal Impact
While the bill would authorize the creation of the Sam Houston State University College of Osteopathic Medicine in the Texas Education Code (TEC), the SHSU College of Osteopathic Medicine is expressly prohibited from seeking or receiving formula funding from the state. Instead, the institution intends to generate sufficient revenue to operate its medical school by charging tuition and fees comparable to private osteopathic medical schools, which have annual tuition costs of approximately $60,000, making the four-year degree cost for each student approximately $240,000 for the duration of the program.
Similarly, based on information provided by the institution, it is assumed that startup costs for land and facilities for the College of Osteopathic Medicine are adequately covered by non-state funds available to Sam Houston State University. The land on which the College of Osteopathic Medicine will be constructed was donated to the institution and is valued at approximately $3.0 million. Construction is currently underway on the main medical college facility in Conroe, which will provide approximately 107,000 square feet at a total cost, including medical equipment for the facility, estimated at $65.0 million. Sam Houston State University's financial plan includes financing construction of the medical college facility with short-term construction loans. Once complete, Sam Houston State University intends to issue $65.0 million in bonds financed at 5.0 percent interest over an amortization period of 30 years, with debt service scheduled to begin in fiscal year 2022. The bonds would be supported by revenues from the College of Osteopathic Medicine, which would consist primarily of tuition and fees charged to medical students.
It is assumed that operational costs of the College of Osteopathic Medicine can be adequately covered by the college's revenues, philanthropic support, and institutional funds. A donor has pledged $10.0 million of support for the medical college's first five years of operations, and the college anticipates additional philanthropic support to cover operating costs.
It is assumed that the majority of operating costs would be covered by tuition and fee revenue. Sam Houston State University's financial plan anticipates setting tuition and fees at $55,000 per student per year beginning in fiscal year 2021, increasing by 4.0 percent each fiscal year thereafter. Based on enrollment projections and the college's target class size, the College of Osteopathic Medicine anticipates total tuition revenue of $4.1 million in fiscal year 2021, $10.7 million in fiscal year 2022, $19.3 million in fiscal year 2023, $28.9 million in fiscal year 2024, $33.4 million in fiscal year 2025, and $37.1 million in fiscal year 2026. By fiscal year 2026, the college's class size would stabilize and revenue growth thereafter would be incremental. These revenue estimates are based on enrollment of the first enterig class of 75 in fiscal year 2021. The college's entering classes would grow to 112 students in fiscal year 2022 and to a final target size of 150 students in fiscal year 2023. Based on these enrollment projections, and including first-year entering students as well as those continuing through the program, the College of Osteopathic Medicine would reach full enrollment of 600 students in fiscal year 2026.
If tuition revenue and philanthropic support do not fully cover startup costs, Sam Houston State University reports that the university intends to allocate amounts necessary to cover the remainder of startup costs from other institutional funds.
The bill expressly prohibits Sam Houston State University from receiving any formula funding for the College of Osteopathic Medicine. Therefore, it is assumed that the creation of the College of Osteopathic Medicine would not result in future formula funding costs to the state. However, the bill would not prohibit Sam Houston State University from requesting non-formula funding from the state, which could include non-formula support items (formerly called special items), tuition revenue bond debt service, and workers' compensation insurance, as well as state-funded grants available through the Higher Education Coordinating Board, such as Graduate Medical Education (GME) Expansion Grants. If the institution failed to enroll a sufficient number of students, if tuition or fees were reduced, or if costs of operating the medical school increased more than anticipated, the institution could request non-formula funding from the state.
The non-formula funding that the college could request or receive cannot be determined at this time. However, two recent examples of new public medical schools in Texas indicate that startup and operational costs for a new medical school can be significant. Counting non-formula support item funding specifically for the medical school only, Texas Tech University Health Sciences Center, later Texas Tech University Health Sciences Center at El Paso, received $5.0 million in General Revenue for its El Paso medical campus in 2006-07 biennium, $48.0 million in General Revenue in the 2008-09 biennium, $65.6 million in General Revenue in the 2010-11 biennium, $46.7 million in General Revenue in the 2012-13 biennium, $56.1 million in General Revenue in the 2014-15 biennium, $56.1 million in General Revenue in the 2016-17 biennium, and $50.0 million in General Revenue in the 2018-19 biennium. Similarly, The University of Texas Rio Grande Valley received non-formula support item funding for its School of Medicine of $61.4 million in General Revenue in the 2016-17 biennium and $42.0 million in General Revenue in the 2018-19 biennium.
Adding SHSU's College of Osteopathic Medicine to Section 58.002 (a) (1) would add the institution to the existing list of Texas medical schools and would not incur a cost to the state.
Adding SHSU's College of Osteopathic Medicine (COM) to Section 59.01 Medical Malpractice Coverage for Certain Institutions, (1) and (3) would not likely incur a cost to the state, but could incur a cost to the institution.
Adding SHSU COM to Section 59.02. Medical Professional Liability Fund (a) and (c) to include the institution would not likely incur a cost to the state, but could incur a cost to the institution.
Adding SHSU COM to Section 61.003 to the definition of a "medical or dental unit" would not likely incur a cost to the state, nor incur a cost to the institution.
Adding SHSU COM to Section 61.501(1) to include SHSU College of Osteopathic Medicine in the list of Texas medical schools would not likely incur a cost to the state, nor incur a cost to the institution.
Adding SHSU COM to Section 63.002 (c) to include SHSU College of Osteopathic Medicine in the Permanent Health Fund would not incur a new cost to the state, as the endowment fund exists, but could decrease funding to other participating institutions, as funding is provided to institutions based on available proceeds. Adding SHSU COM to the list of institutions receiving funding would provide additional funding to the institution. HB 2867 authorizes the institution to participate in this fund distribution beginning September 1, 2019.
Final Considerations
After reviewing the available data and considering the needs of the institution and the state, THECB staff's assessment is that there is an ongoing fiscal impact as a result of establishing a new medical school.