TO:	Honorable Brandon Creighton, Chair, Senate Committee on Higher Education
FROM:	John McGeady, Assistant Director     Sarah Keyton, Assistant Director Legislative Budget Board
IN RE:	SB650 by Huffman (Relating to the creation of the University of Houston College of Medicine at the University of Houston.), As Introduced

SB 650 would create a new college of medicine at the University of Houston (UH) under the management and control of the UH Board of Regents with degrees offered under the name and authority of the University of Houston. 

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.

SB 650 would not directly change the governance of the institution but would codify recent changes already implemented by the institution and system. In October 2018, the THECB approved the institution to implement a doctor of medicine program and establish its College of Medicine. SB 650 codifies that action, which includes a change in governance structure. The College of Medicine's dean reports to the UH president and UH System chancellor. It authorizes the dean of the COM to enter affiliation agreements with any other entity or institution within the college's region, 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.

SB 650 also authorizes the Board of Regents of the University of Houston 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 medicine of the first class. The UH 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. SB 650 also allows a teaching hospital to be 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, "A hospital may not be constructed, maintained, or operated with state funds."

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 UH proposal for a MD 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 that goals for the program included that 50 percent of its graduates practice primary care medicine, and 2) it would seek to have 50 percent of its enrollment from under-represented populations.

The THECB also agreed that UH has strong supporting resources in place to offer a successful program. This included strong academic programs, existing faculty, and physical and administrative infrastructure necessary to develop, implement, and sustain a high-quality program.

Importantly, UH submitted a specific plan regarding how the institution will provide sufficient first-year residency positions for graduates, pursuant to the provisions and intent of SB 1066, 85th Legislature, Regular Session.

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. 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

The institution reports that the start-up and timing of the College of Medicine's development, upon which the following formula estimates are based, are contingent upon $20.0 million of start-up funding being appropriated to the University of Houston in the 2020-21 biennium. It is also assumed that the funding needed to construct a facility for the College of Medicine can be adequately covered by $80.0 million of institutional funds the University of Houston has set aside for this purpose.

In the UH proposal for a new program leading to the Doctor of Medicine (MD) degree, the institution anticipated that formula funding would be provided to support the MD program. It is assumed that the University of Houston would be included in all Health Related Institution (HRI) formulas, except mission specific formulas, at the same rate as other institutions. Based on information submitted by the University of Houston, it is assumed that in the first year the College of Medicine is operational, fiscal year 2021 (Fall 2020), it would enroll 30 students. It is assumed that annual enrollments of first-year students would remain at 30 students in fiscal year 2022, increasing to 60 first-year students annually in fiscal years 2023 and 2024, and 120 first-year students annually in fiscal years 2025 and 2026, reaching total enrollment of 360 students in all program years in the College of Medicine by fiscal year 2026. Based on these enrollment assumptions, the first biennium the College of Medicine would be eligible for formula funding allocations using base year data reported to the Higher Education Coordinating Board would be the 2024-25 biennium, using fiscal year 2022 as the base year for formula calculations.

Based on estimated future enrollment and the estimated growth of other formula drivers, it is anticipated that formula costs for the UH College of Medicine would reach approximately $6.2 million in General Revenue in each year of the 2024-25 biennium, $12.3 million in General Revenue in each fiscal year of the 2026-27 biennium, and $21.0 million in General Revenue in each fiscal year of the 2028-29 biennium. Estimated formula costs are calculated as follows:

Instruction and Operions (I&O) Formula. Using an annual All Funds rate of $9,431 per full-time student equivalent (FTSE) and a weight of 4.753 for all medical students enrolled in the UH College of Medicine, the current I&O rate and Medical Education weight for health related institutions in the 2018-19 biennium, it is estimated that the All Funds formula costs for these students would be $2,689,472 in each fiscal year of the 2024-25 biennium, $8,068,416 in each fiscal year of the 2026-27 biennium, and $16,136,832 in each fiscal year of the 2028-29 biennium.

Infrastructure Formula. It is assumed that the College of Medicine would receive $1,222,000 in each fiscal year from fiscal year 2020 to fiscal year 2029, based on information submitted by the institution.

Research Enhancement Formula. The total research expenditures reported by the College of Medicine in future base years cannot be determined at this time. However, the Research Enhancement Formula provides base funding of $1,412,500 each fiscal year to each eligible health related institution, plus 1.16 percent of each institution's annual research expenditures in the base year.

Graduate Medical Education (GME) Formula. It is assumed that the College of Medicine will support 142 medical residents in fiscal year 2022, 266 residents in fiscal year 2026, and 389 residents in fiscal year 2028, the base years for the 2024-25, 2026-27, and 2028-29 biennia, respectively. These estimates are based on a Memorandum of Understanding (MOU) that the University of Houston has signed with Healthcare Corporation of America to create 142 first-year residency positions by 2022 and 389 total new residencies by 2025. Based on these assumptions and the current GME Formula rate of $5,824 per resident per year, the cost would be $826,957 in each fiscal year of the 2024-25 biennium, $1,549,088 in each fiscal year of the 2026-27 biennium, and $2,265,396 in each fiscal year of the 2028-29 biennium.

Permanent Health Fund (PHF). The bill specifies that the University of Houston College of Medicine would become eligible for PHF distributions. It is assumed that participation in the Permanent Health Fund would not result in any additional cost to the fund, but instead would result in a reallocation of funds among participating institutions. Each fiscal year, 70.0 percent of the total amount to be distributed from the Permanent Health Fund is distributed equally between all eligible institutions. Based on the fiscal year 2018 total amount for the PHF distributed equally between thirteen health related institutions, the University of Houston College of Medicine would have received $1,166,577 in Other Funds. Future PHF distributions depend on performance of the Permanent Health Fund and the number of participating institutions and therefore cannot be determined at this time. The remaining 30.0 percent of the PHF distribution is allocated based on each institution's proportion of instructional expenditures, research expenditures, and uncompensated care expenditures as a percentage of the total expended by all health related institutions. Since UH College of Medicine expenditures in future years cannot be determined, this impact statement makes no estimate associated with this portion of the PHF distribution.

Adding UH's College of 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 UH 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 UH COM to Section 59.06 Limitation on Appropriated Funds to include University of Houston College of Medicine, which disallows the institution from using state appropriated funds to "establish or maintain the fund, to purchase insurance, or to employ private legal counsel" would not likely incur a cost to the state, but could incur a cost to the institution.

Adding UH 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 UH COM to Section 61.501(1) to include University of Houston College of 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 UH COM to Section 63.002(c) to include University of Houston College of 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 UH COM to the list of institutions receiving funding could provide additional funding to the institution.

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 significant and ongoing fiscal impact as a result of establishing a new medical school.