Dan Stultz, M.D., FACP, FACHEPresident/CEOTexas Hospital Association

Texas State University HCA Students-Annual ConferenceOctober 21, 2011

The 2011 Legislative Session in ReviewHighlights and Issues of Importance to Hospitals

2012-2013 State Budget

House and Senate both filed initial versions of budget that assume no new revenue

Projected $72B in available revenue to fund an estimated $99B in current services

Shortfall approximately $27B

– Current services impacted by Medicaid caseload growth, public school enrollment, etc.

– Loss of Federal stimulus funding

Historically dire budget situation – 2003 shortfall was “only” $10B resulting in significant cuts

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Factors driving the shortfall

Structural deficit – business margins tax Sales tax projections down over biennium

– Sales taxes are 56% of state revenue

Teacher and state employee retirement and health care costs have skyrocketed

Increased demand for services as state population grows, ages

Loss of enhanced FMAP under federal stimulus act

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Factors driving the shortfall (cont.)

Missed projections for Medicaid caseload, service utilization in 2010-2011

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No Political Will to Address Revenue

Nov. 4, 2010 elections– 101/150 Republicans in House

– Tea Party effect on “no new revenue”, no RDF

Rainy Day Fund only used for current biennial shortfalls Focus on temporary “non-tax revenue” Payment deferrals Unwillingness to modify margins tax Focus on “administrative efficiency:”

– Higher and public education

– Medicaid

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Spreading the Pain?

$4 billion cut from public schools $4.8 billion unfunded in Medicaid $1 billion cut to higher education, including

financial aid and institutional funding $2.2 billion ”smoke and mirrors” deferred

payments to the Foundation School Program $0 appropriated from $6.6 billion Rainy Day

Fund for the current biennium

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Budget Overview - Medicaid

Substantial $4.8B under-funding of program– Expected to be made up thru supplemental

appropriation in 2013 (Rainy Day Fund)

True spending reductions– Cost-containment initiatives

– Medicaid managed care expansion statewide

Gray area– Cost-containment for federal “flexibility”

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Budget – Hospital Impact

8% rate cut for hospitals (added to 2% cut in 2010-11)

No rate cut for doctors (had 2% cut in 2010-11) Statewide Hospital SDA ($30 M savings - $20M

mitigation) Expansion of Medicaid managed care ($272 M

in savings) Potentially punitive UPL riders replaced with

enhanced HHSC data collection requirements

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Cost Containment Riders in Budget

Rider 61 requires HHSC to achieve $450m GR funds through: (of 30 items)

– Payment reform and quality based payments

– Increasing neonatal intensive care management

– More appropriate ER rates for non-emergent care

– Maximizing copays in Medicaid

– Improving birth outcomes by reducing birth trauma and elective inductions

– Increasing fraud, waste and abuse detection

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Cost Containment Riders in Budget

Rider 59 requires HHSC to save $700m GR funds by pursuing a waiver from CMS to allow Medicaid flexibility including:– Greater flexibility in standards and levels of eligibility

– Better designed benefit packages to meet demographic needs of Texas

– Use of co-pays

– Consolidation of funding streams for transparency and accountability

– Assumed responsibility by the Feds of 100% of the health care costs of unauthorized immigrants.

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Concerns with Hospital Payment System

Impact of rebasing / SDA system that pays similar hospitals differently

Unequal ways to access supplemental payments (reimbursement = 61% of costs)

“Inability” of state to adequately fund program Limited interest in provider tax “Transparency” of local UPL programs Need to protect of UPL under Medicaid

managed care expansion11

Nursing & Trauma Funding

Nursing Shortage Reduction Fund = $30 M total for the biennium – will allow nursing schools to maintain increased enrollment

Nursing education received $5-6 million from tobacco settlement funds

Provides for $57.5 million per year in funding for designated trauma facilities, which is a 23 percent reduction from the $75 million per year originally appropriated for the current biennium.

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Next Steps

Keep an eye on D.C.

- Deficit reduction = cuts to hospitals

- “Medicaid reform” Continued discussions about hospital

payment reform

- UPL waiver

- Provider tax Develop coalitions to address state’s

structural revenue deficit13

THA Mission

THA brings value to Texas hospitals by leading change that enhances access to safe, affordable, quality health care.

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Key Implications and Questions for Hospitals That Are Troublesome

1) Delivery System Reform or Payment Reform

2) Is it or isn’t it reform? Feels “stalled”.

3) Managing in transition; budgeting in change.

4) Acquisition and consolidation of hospitals and systems will continue.

5) New models of care delivery

6) Physician alignment strategy - issues

7) Can we pay the physicians in a way that incentivizes the right behavior and care, that “gets them in the game?”

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Key Implications and Questions for Hospitals

Payment System Reform UPL Waiver – monitoring, input; the need for the

government to work this out with us. The Provider Tax issue and the need for an in-depth

analysis State DSH Program Federal Payment Cuts The Future of Medicaid and Medicare – are they

sustainable? Bundling of Payments and Other “Ideas” to Reduce the

Costs or to Reduce the Reimbursement to Providers16

Key Implications and Questions for Hospitals

The Elephants In The Room: There are unnecessary and duplicative costs in the

system. There is high variation in all parts of the country and all

parts of the state. We know the physicians are key, but no one (very few)

has changed the payment system to control costs. UPL in Texas is a publically, not well known, huge

financing vehicle that keeps hospitals above water. Tremendous anxiety over this issue is in the state now.

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Overview: Market Changes

Realignment of capital investments Constrained reimbursement levels from state and

federal pressure Passive payers transitioning to active purchasers Market consolidation Growth in physician employment – at what rate? Workforce shortages Careful watch by financial groups, banks, markets

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Mandatory Medicare Quality P4P Initiatives – Still Coming

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FFY 2013 FFY 2015

The Future For You

Manpower NeedsResponse to Care/Evidence BasedPhysician Comp Formulas that

Incentivizes the Right Behavior It has to changeGet rid of the elephants in the room

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Dan Stultzdstultz@tha.org

512-465-1012

Questions?