1. Texas Legislative Update Healthcare Landscape 2013 John Hawkins Texas Hospital Association

2. Still implementing changes from 2011:  Medicaid Managed Care Statewide = no more UPL funding  Medicaid Transformation Waiver transitions UPL to new regional payment arrangement  10% rate cut plus transition to inpatient statewide rate (SDA) with add- on for high cost services (trauma, teaching and wage adjustment)  Diagnoses codes expanded and implemented (MS-DRG to APR-DRG)  Outpatient cuts, including 40% cut for non-emergent patients in the ED  Medicaid & Medicare Dual Eligible cuts  Maternity and NICU changes include no payment for elective deliveries before 39 weeks, and NICU accreditation coming soon  Potentially Preventable Readmission reductions 9/1/2012 (now delayed to Spring 2013) 2

3. UPL Medicaid 1115 Transformation Waiver 3

4. Regional Healthcare Partnerships  All 20 RHP plans were timely submitted to HHSC  Some 1,341 Category 1 and Category 2 projects were proposed in the 20 plans.  Most common issues are the failure to demonstrate patient benefit and insufficient information to justify the claimed valuation  HHSC will be conducting two reviews: a technical review and a valuation review 4

5. January 8, 2013 83 rd Texas Legislature Convenes 5

6. The Upcoming Session  Historic Turnover in the Texas Capitol –Texas Senate  4 new senators of 31  New Finance & Education committee chairs –Texas House  Speaker Straus retains gavel?  40 new members of the House (150 total)  Tea Party Effect –Limited growth and revenue options 6

7. State Budget Situation  For 2014-15, the state can expect to have $101.4 B in funds available for general-purpose spending  This represents a 12.4 percent increase from the corresponding amount of funds available for 2012-13  State has an $8.8 B surplus compared to a $27 B shortfall last session  Strong sales tax collections and oil and gas severance fees 7

8. House Bill 1  The bill appropriates $89.1 B in General Revenue, and a total of $187.7 B in All Funds  Assumes the passage of a $6.8 billion supplemental bill in the coming weeks  Represents a $2.2 billion decrease from 2012- 13 levels and spends $3.7 billion less than allowed by the Constitutional Spending Limit and $5.5 billion less than is available under the Comptroller’s Biennial Revenue Estimate 8

9. Medicaid GR Budget Shortfall for Current Budget 9

10. How badly it is raining? 10

11. Looking forward to 2014-2015 Budget 11

12. Priority Budget Issues for THA  How to Fund Medicaid –State Share for the Transformational Waiver –State Share for Medicaid DSH –Acute Care Provider Rates –Outpatient Provider Rates –Graduate Medical Education –Physician Rates and Participation  Workforce (nursing shortage, allied health)  Mental Health  Trauma Fund Maintained, Fully Allocated 12

13. LBB GEER Report  Allowing Medicaid expansion permitted under ACA to be enacted at a county-by-county level  Funding, in part, the Texas Medicaid DSH program by placing an assessment fee on non-public hospitals  Increasing state-owned hospital participation in drawing down payments made under the Transformational Waiver’s Uncompensated Care Pool  Increasing oversight of Medicaid managed care organizations by HHSC  Requiring that Medicaid services provided by advanced practice nurses and physician assistants be reimbursed at a rate lower than the physician rate  Identifying and limiting “unnecessary” diagnostic ancillary services and adopting cost-effective strategies to ensure appropriate use of these services in the Texas Medicaid program  Maximizing the capacity of nursing education programs to reduce the shortage of nurses in Texas 13

14. Seeking a Solution for DSH Funding  THA is working with the Legislature to secure additional funding for Medicaid DSH  It is expected that FY 2013 DSH payments, in the aggregate, will be funded at about 80-85 percent of FY 2012 amounts  FY 2013 “state share” DSH funding is estimated to be $418 million ($318M transferring public hospitals + $100M state funds), compared with $502 million provided by intergovernmental transfer in FY 2012 14

15. HHSC NICU Council Annual Report  THHSC, DSHS and a proposed task force should collaborate to develop a process for the designation of maternal and neonatal levels of care for hospitals performing deliveries and/or caring for neonates: –Allowing individual facilities to have different levels of maternal and neonatal care; and –Limiting Medicaid program payments to designated facilities.  The Task Force should be made up of representatives from the NICU Council plus one general hospital representative (current constituency = 12 doctors, 1 children’s hospital CEO, and 1 children’s hospital representative)  The levels of neonatal care and maternal care should be based on the current American Academy of Pediatrics standards and current Guidelines for Perinatal Care publication 15

16. SCOTUS Ruling on PPACA  March 2010, the Patient Protection and Affordable Care Act was signed into law  Challenged by 26 states and NFIB  June 28, 2012, Supreme Court rules: –Individual Mandate is constitutional –Medicaid Expansion is optional for states  July 16, 2012, Gov. Perry says Texas won’t expand its Medicaid program or create a state insurance exchange, leaving it up to the feds 16

17. Reactions to Ruling 17

18. AHA & THA Background on ACA  Hospitals agreed to $155B in cuts in Medicare and Medicaid over 10 years  In return for more insured patients: –Insurance Exchanges w/ Subsidies for Affordability –Medicaid expansion to 133% of FPL, which equates to $30,657 for a family of 4. –Insurance Mandate –Insurance Reforms (lifetime limits, preexisting conditions, medical loss ratios, etc.) –Movement to a Quality-Based Payment System  Full expansion was financed by $500B in cuts to hospitals, home health, nursing homes and Medicare advantage plans 18

19. We’re Number One  More than 6B uninsured in Texas today (#1)  If Medicaid expanded to 133% FPL ($30,657 family of 4): –Moderate Expectations = 3M more covered in TX  50% private coverage, 50% Medicaid –11.6% of Texans remain uninsured  With no Medicaid expansion and only increase in private insurance coverage = 4.4M still uninsured 19

20. Budgetary Considerations of Expansion  Texas cost estimate to fully expand ACA Medicaid = $15.5B over 10 years –Includes the “Woodwork Effect” of those eligible today  100% federal for 3 years, 90% for remainder  Federal matching funds = $100.1B over 10 years  Net gain to Texas = $85B + more insured Texans  Doughnut hole created for 1 million Texans –Over 100% FPL can go into exchange w/ subsidy –Under 100% not eligible for exchange so remain uninsured because priced out of market 20

21. Medicaid Expansion Considerations  Cost  EMTALA -1986 in Budget Reconciliation bill  TX Hospitals already providing $5B/year in UC.  Cost Shift from the Uninsured –Private insurance now $1,800/year to cover the 1 in 4 Texans who are uninsured.  http://www.americanprogressaction.org/wp-content/uploads/issues/2009/03/pdf/cost_shift.pdf http://www.americanprogressaction.org/wp-content/uploads/issues/2009/03/pdf/cost_shift.pdf  Increased Medicaid Coverage will reduce mortality among adults –Esp. ages 35 – 64, minorities, impoverished areas  http://www.nejm.org/doi/full/10.1056/NEJMsa1202099 http://www.nejm.org/doi/full/10.1056/NEJMsa1202099 21

22. Economic Benefit of Expansion  Perryman Report on Economic Activity of Expansion: –Medicaid expenditures lead to substantial economic activity, federal funds inflow, reduction in costs for uncompensated care and insurance, and enhanced productivity from a healthier population. –When these outcomes and the related multiplier effects are considered, every $1 spent by the State returns $1.29 in dynamic State GR over the first 10 years of the expansion. –Over the first 10 years of implementation, economic gains (even when fully adjusted for the diversion of State funding for other purposes) include an estimated $255.8 billion (2012 dollars) in output (real gross product) and 3,031,400 person-years of employment (an average of over 300,000 per year).  http://www.perrymangroup.com/reports/MedicaidExpansionwithTables12_1003.pdf http://www.perrymangroup.com/reports/MedicaidExpansionwithTables12_1003.pdf 22

23. Debate Entering 2013 Session  Is Medicaid “broken” and how to fix it? –Desire for more flexibility for states in admin of Medicaid.  Value of Medicaid: –Non-disabled children are 66% of Medicaid caseload, 32% of cost. –Aged and disabled are 25% of Medicaid caseload, 58% of cost.  How to expand coverage to adults under 100% of FPL ($30k) and address the doughnut hole.  Can we rely on DSH to continue to cover the cost of the uninsured and Medicaid shortfall?  Growth of HHS portion of the budget. –32% is HHS; 42% on Education 23

24. Physician Participation In Medicaid 24

25. Bottom Line for Hospitals 25  Hospitals cannot sustain 25% uninsured rates or additional payment cuts in 2013 without meaningful coverage expansion –Viable options must be found  Hospitals need financial stability to be able to reform the system to lower cost and increase quality: –Continued focus on payment cuts and reforms –Delivery system reform (ACOs, EHRs, etc.)

26. Cumulative Impact of Cuts 26

27. The Regulatory Burden 27

28. Questions? John Hawkins Senior Vice President Government Relations 512/465-1505 jhawkins@tha.org www.THA.org