1. Texas Legislative Update School of Health Administration Conference Texas State University April 17, 2015 John M. Hawkins SVP, Government Relations Texas Hospital Association

2. Texas Hospitals by the Numbers  630: number of Texas hospitals  264: designated trauma facilities  369,000: full and part-time employees  Top 20: ranking as a source of private sector jobs in metro areas (top 3 in rural areas)  $177B: generated in annual economic activity by hospital jobs (2013)  $5.5B: uncompensated care (at cost) provided 2

3. Setting the Stage for 2015

4. Significant Changes in State Leadership  Texas has a new Governor, Lt. Governor, Attorney General, Comptroller, Land Commissioner and Agriculture Commissioner  Major changes in the Legislature as well –New Lt. Governor – Dan Patrick –9 new Senators (out of 31 total) –New chairs of Finance, Health and Human Services and State Affairs –Straus remains Speaker but new chairs of Appropriations, Public Health and Insurance

5. Major Issues for State Leaders  Economic growth puts pressure on infrastructure (1,000+ people moving to the state each day)  Focus on Water, Roads, Education and Tax Relief (what about health care / Medicaid?)  Political pressure to remain fiscally conservative –Honor the constitutional spending cap –Don’t raid the Rainy Day Fund ($9 billion + balance)  State share of Medicaid seen as crowding out other budget priorities (state vs. federal funds)  Struggling with health care costs for retirees

6. Texas State Budget  Texas Writes a Biennial Budget  “Must Pass” Legislation  Texas Constitution Requires Balanced Budget  Texas Constitution Imposes a Spending Limit  $113 Billion available in General Revenue for Biennium  HHS Art. II $75B = 36.5% of budget  55.5% of state revenue from sales tax  Economic Stabilization Fund –Rainy Day Fund –$11.1B expected by end of biennium

7. Competing Views on State Spending  “Restraint was clearly not the path that the Legislature took in 2013. When the Legislature discovered it had significantly more money available than it had two years before, it went on a spending spree, seemingly determined to keep money from retuning to taxpayers in the form of a tax cut. When all was said and done, the Legislature appropriated $44 billion more in 2013 than it had in 2013, an increase of 25.8 percent.” Texas Public Policy Foundation  “In recent months, there has been a great deal of misinformation about the budget. Assertions made that spending grew by 26 percent are simply false. Those figures mislead rather than inform. It appears basic accounting principles were sacrificed as spending and revenue numbers were mixed across fiscal years and certain items were either included or excluded depending on whether they supported a predetermined conclusion. After such severe mathematical torture, the numbers were ready to confess to anything.” Dale Craymer – Texas Taxpayers and Research Association

8. The Texas Budget – Now vs. Last Session  Last session the state had an $8.8 B surplus compared to a $27 B shortfall the previous session – driven by strong sales tax collections and oil and gas severance fees  This session the state expects to have at least a $2.5 B surplus  Supplemental Appropriations Bill will count against the spending cap ($179M more GR for Medicaid/CHIP plus ERS/TRS health cost increases)  Constitutional Spending Growth Rate –may not exceed the official estimate of Texas economic (personal income) growth  Both Houses can vote to expend more than the limit by majority vote but this has become a political litmus test

9. Texas Medicaid – Coverage 9 Eligible individuals: –Low-income families –Children –Related caretakers of dependent children –Pregnant women –Elderly –People with disabilities Not eligible: –Non-disabled, childless adults

10. Texas Medicaid – Coverage & Payments 10 Elderly & Disabled 30% Elderly & Disabled 60% Adults 9% Adults 10% Children 61% Children 30% Texas Medicaid Enrollees and Expenditures

11. What Drives Medicaid Spending? 11 Total Medicaid spending does not reflect delay in DSH and UC payments in FY 2013

12. The Frustration with Medicaid  Growing caseloads and cost  Overutilization / frequent fliers  Low rates = low provider participation –Fewer physicians accepting new Medicaid patients –Hospitals reimbursed at 51% of cost  Cost shifting to local governments / hospital districts to fund state share of supplemental payments (DSH, UPL, 1115 Waiver)  Waste, Fraud and Abuse

13. Background on ACA Financing 13  Hospitals “agreed” to $155B in cuts in Medicare and Medicaid over 10 years  Can only survive financially with more insured patients –Marketplaces with subsidies to make affordable –Medicaid expansion to 133% of FPL ($30,657 for a family of 4) –Coverage mandate –Insurance reforms (lifetime limits, preexisting conditions, medical loss ratios, etc.) –Movement to quality-based payment system  Full expansion financed by $500B in cuts to hospitals, home health, nursing homes and Medicare advantage plans

14. Hospital Frustration: Cumulative Impact of Cuts 14

15. THA Priorities 1. Texas Way Program: Coverage for Low-Wage Working Texans 2. Renewal of Medicaid 1115 Transformation Waiver and Increase in UC Funds 3. State Funding for Hospital Supplemental Payments 4. Preserving the Driver Responsibility Program to Fund Trauma Care 5. Funding for Graduate Medical Education and other Health Care Workforce Components 6. Investing in Behavioral Health Care Services 15

16. The Texas Way Program A private insurance program for low-wage working Texans. 16

17. Where the States Stand Medicaid Expansion

18. The Texas Way Program: Why It Is Needed  >1 million low-wage working Texans with no access to public or private insurance  $5.5 billion annually in hospital uncompensated care  Inefficient health care spending: –Use of ER as primary source of care –Uncompensated care costs shifted to privately insured and local property taxpayers 18

19. The Texas Way Program  Private coverage for >1.1 million low-wage working Texans  Requires cost-sharing and health savings accounts  Incentives for appropriate use of health care services  Results: –Less uncompensated care –Healthier workforce and state economy –Financial relief for privately insured and local property taxpayers –More effective health care system  No talk of Medicaid expansion! 19 Coverage, Personal Responsibility, Reduced Uncompensated Care and Less Cost Shifting

20. The Texas Way Program: What It Isn’t  The Texas Way is NOT Medicaid expansion  The Texas Way is NOT access to an open- ended entitlement  The Texas Way is NOT a government handout 20

21. Texas Way Program More Information www.texasway.com

22. Hospitals Designing Local Solutions Medicaid 1115 Transformation Waiver  Provides $3.1 billion in transformational dollars and additional $3.1 billion in UC funds in FY 2016  Positions Texas at forefront of health care innovation  THA supports: –Waiver renewal –Streamlining the process for development, review and implementation of DSRIP projects –Increase in UC funds 22

23. Hospital Supplemental Payments  State’s rate of uninsured remains at 25%; exceeds 30% in some communities >$5.5 billion annually in hospital uncompensated care  Medicaid shortfall: exceeding $3 billion in FY 2016 and growing –Reimbursement well below cost  <50% for inpatient services for most hospitals  72% for outpatient services 23

24. Hospital Supplemental Payments  THA supports continued state appropriations to fund Medicaid hospital payments, including: –No reductions in base reimbursement rates; and –Full state funding of the Medicaid DSH program ($555 million in FY 2016) in the base budget.  THA also supports negotiating an increase in the level of uncompensated care funds provided through the Medicaid Transformation waiver 24

25. Preserving the Driver Responsibility Program to Fund Trauma Care Texas hospitals annually bear more than $230 million in uncompensated trauma care costs DRP – collects fines and surcharges from repeat offenders and DWI convictions An additional 77 hospitals have been designated as trauma facilities – especially important in rural areas Significant efforts have been made to improve the DRP program administration 25

26. GME and Health Care Workforce Education and Training Texas has a severe statewide shortage of primary care physicians and specialists in a number of disciplines (e.g., psychiatry, pediatrics, endocrinology and geriatrics) Most effective way to increase the number of physicians practicing in Texas is to retain the medical school graduates who are educated here! 220 additional physician training slots are needed Continue to support the Professional Nursing Shortage Reduction Program 26

27. Invest in Behavioral Health Care Services The impact of an underfunded behavioral health care system is seen in reduced ED capacity, increased hospital readmissions and increased hospital uncompensated care Three-quarters of the state’s counties are designated as mental health professional shortage areas Allow physicians in hospital and freestanding emergency medical care facilities to initiate a temporary hold in certain situations 27

28. Questions? John M. Hawkins Senior Vice President Advocacy & Public Policy 512/465-1505 jhawkins@tha.org www.THA.org