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Texas Budget and Health Care Legislation Summary – 2017

This week, our In Focus section comes to us from HMA Principal Dianne Longley, of our Austin, Texas, office. Dianne provides an update on and summary of the Texas Legislature’s adoption of a state fiscal year (SFY) 2018-2019 budget, as well as a review of health care legislation passed by the Legislature this session.

Texas Legislature Adopts SFY 2018-2019 Budget

The Texas Legislature adjourned May 29, 2017, after adopting a $217 billion (all funds) two-year budget, reflecting a 0.2 percent increase over the current 2016-17 biennial budget. The budget includes $106.7 billion in general revenue, which must be certified by the State Comptroller. Legislative budget leaders estimate the legislature will face a $1 billion shortfall when they reconvene in 2019. The budget is estimated to be as much as six percent lower than the prior biennium when considering inflation costs and population growth. The Texas state fiscal year (SFY) begins September 1 and ends August 31. Funding for Medicaid includes $62.4 billion in all funds, a reduction of $1.9 billion from SFY 2016-2017 (including a reduction of $0.4 billion in GR funds). Funding includes:

Funding CategorySFY 2017-18Decrease from SFY 2016-17
Medicaid Client Services$57.4 billion$1.3 billion
Other Programs supported by Medicaid Funding$1.7 billion$0.1 billion
Medicaid Program Administration$3.3 billion$0.6 billion
Total$62.4 billion

One of the biggest Medicaid compromises resolves differences between the Senate and House versions of the budget for funding to reinstate pediatric therapy rate cuts for services for children with developmental disabilities. The final budget restores 25 percent of the Medicaid pediatric therapy rate cuts which were enacted earlier this year as required by the 2015 Legislature. The House budget had included funds for a 50 percent rate restoration, and the Senate version included no rate increase. HHSC is required to monitor changes in the availability of therapy providers and notify the Legislature if covered children are unable to access covered services as a result of the rate cut. Following is additional information on funding details:

  • The budget includes funds for Medicaid caseload growth in 2018, but provides no funds for FY 2019 caseload growth. While the Legislative Budget Board (LBB) has not yet released projections for unfunded amounts, earlier projections estimated costs associated with caseload growth at $700 million in General Revenue (state funds) for the biennium. HHSC previously estimated the two-year cost of enrollment growth plus inflation could be as high as $1.9 billion. The budget is based on a projection that full-benefit Medicaid caseloads will increase by approximately 80,000 enrollees over the two-year period.
  • The budget includes no funding for projected cost growth per Medicaid participant for 2018 or 2019.
  • Funding for CHIP client services includes 2.0 billion in All Funds, an increase of $156.3 million in funding due to projected caseload growth and maintenance of FY 2017 premium levels without any increase in per enrollee costs.
  • The budget includes funding for an additional 735 enrollees in the Home and Community-based Services (HCS) waiver by the end of 2019. An additional 276 enrollment slots are included for children in Child Protective Services custody who are expected to require Long Term Supports and Services (LTSS). All other funding for long term care waivers is maintained at the August 2017 level, which is the first time in 10 years the legislature has failed to appropriate funds to reduce waiver “interest” (i.e., wait) lists.
  • Funding for the Texas Integrated Eligibility Redesign System (TIERS) includes $392.6 million (all funds), reflecting an increase of $0.6 million in total spending from 2016-17. Note: Rider 152 specifies that of these budgeted funds, $114.4 million must be spent for capital enhancements and maintenance; HHSC must also provide a quarterly report detailing spending and progress towards implementing the TIERS project.

Behavioral Health Funding

  • Spending for behavioral health (BH) services for the biennium is estimated at $3.5 billion for Medicaid, and $48.7 million for CHIP.
  • Funding for non-Medicaid/CHIP behavioral health totals $4.0 billion. This includes funding for programs across 18 agencies, and includes inpatient client services at state hospitals and community hospitals; outpatient services provided through Local Mental Health Authorities; Substance Abuse prevention, intervention, and treatment services, mental health care and substance abuse treatment for incarcerated individuals; mental health care for veterans, and other services.
  • Funding includes $62.6 million for the biennium to address waitlists for community mental health services for adults and children, and an additional $69.0 million in General Revenue contingency funding for several bills that would provide grants to community organizations for BH services and peer supports. The budget also includes $10.3 million to increase maximum security forensic bed capacity, and $366 million for new construction and maintenance at state hospitals and other inpatient mental health facilities.

The Legislature also enacted separate supplemental legislation (House Bill 2) to close the gap for unmet costs expected for the current fiscal year. HB 2 funding includes $794 million to address the Medicaid shortfall, which will bring in an additional $1.6 billion in federal funds. Based on estimated growth projections and funding, the Center for Public Policy Priorities estimates the 2018-19 Medicaid shortfall will be at least $1.2 billion when the Legislature returns in 2019.

Budget Riders

The Appropriations legislation for the Health and Human Services Commission also includes more than 230 “riders” that address additional requirements related to program operations, funding, and budget guidance. For example, budgeted Medicaid funding levels assume $1 billion in cost containment for Medicaid client services based on budget riders that reduce the risk margin for Medicaid managed care organizations and that direct HHSC to contain costs through a variety of specific actions. Following is a summary of some of the more significant Medicaid riders.

  • Rider 5 – Cost Comparison Report: requires HHSC to analyze and report on residential and nonresidential services in HCS, Texas Home Living, and Intermediate Care Facilities for Individuals with Intellectual Disabilities and Related Conditions. The report must include detailed cost analysis across facilities and based on types of coverage and services. The report is due no later than August 31, 2018.
  • Rider 8 – Additional Funding Sources, Medicaid: if the appropriations for Medicaid are insufficient to meet mandated services, the LBB and Governor are authorized to transfer funds as necessary to HHSC.
  • Rider 13 – Local reporting on DSH, Uncompensated Care, DSRIP, and Indigent Care Expenditures: requires HHSC to develop a report that non-state public hospitals, private hospitals, hospital districts, physician and private administrators use to describe any expenditures they make through the Disproportionate Share Hospital (DSH) program, the Uncompensated Care (UC) Pool, the Delivery System Reform Incentive Payment (DSRIP) Pool and the Indigent Care Program. The report must include expenditures by method of finance per year. HHSC also shall require contracted hospital providers to report payments to entities who provide consultative services regarding revenue maximization under the medical assistance program, UC, DSRIP and DSH.
  • Rider 16 – Dental and Orthodontia Providers in the Texas Medicaid Program: requires HHSC to strengthen the capacity of the HHSC Office of Inspector General to investigate and prosecute abuse by dentists and orthodontists, and conduct more extensive reviews of medical necessity for orthodontia services in the Medicaid program.
  • Rider 21 – Report on Pay for Quality Measures: requires HHSC to evaluate how Managed Care Organizations (MCOs) use pay for quality measures to improve health care and whether these initiatives are successful. A report is due to the Legislature no later than October 1, 2018 and must include recommendations for improving current pay for quality measures, areas requiring additional studies, and how the findings could be used to expand pay for quality measures into outpatient settings.
  • Rider 29 – Medicaid Substance Abuse Treatment: requires HHSC to evaluate spending on substance abuse services and submit a report by December 1, 2017.
  • Rider 34 – Medicaid Funding Reduction and Cost Containment: requires HHSC to implement cost containment measures that will reduce Medicaid spending by $830 million from all funds ($350 million in General Revenue). The Rider includes 18 initiatives that can be used, including increasing Fraud, Waste, and Abuse collections; evaluating reimbursement for dual eligibles; reviewing utilization and rates for durable medical equipment; strengthening and expanding prior authorization and utilization reviews; and implementing fee-for-service payment and MCO premium adjustments that incentivize the most appropriate and effective use of services. It also includes an option to identify and execute savings by conducting an independent audit of MCO premiums every two years; evaluating trend factors; and using a competitive procurement process with price as one component of the procurement evaluations. HHSC is required to submit a plan to the LBB to implement cost containment initiatives by December 1, 2017. The plan must include an analysis of initiatives determined not to be cost effective.
  • Rider 157 – Medicaid Provider Enrollment Portal: contingent upon submitting a plan to the LBB and the Governor, HHSC will receive an additional $30 million in SFY 2019 to develop a centralized Medicaid provider enrollment portal.
  • Rider 158 – Managed Care Risk Margin: the approved budget includes a reduction of $182.6 million based on HHSC reducing the risk margin in managed care premiums from 2.0 percent to 1.5 percent for STAR and STAR Health, and from 2.0 to 1.75 percent for STAR+PLUS and STAR Kids. An additional reduction of $11 million is included based on HHSC reducing the risk margin in CHIP managed care premiums from 2.0 percent to 1.5 percent.
  • Rider 167 – Office of Inspector General: Managed Care Organization Performance, Reporting Requirement: requires the Office of Inspector General (OIG) to review cost avoidance and waste prevention activities used by MCOs to prevent waste; the OIG must submit a report on its findings to the LBB and Governor by March 2, 2018, and provide recommendations for performance measures related to cost avoidance and waste prevention activities that should be applicable to all MCOs.
  • Rider 175 – Managed Care Organization Services for Individuals with Serious Mental Illness: requires HHSC to develop performance metrics to hold MCOs accountable for care of enrollees with serious mental illness. Metrics should include performance measures for integrated care, jail and emergency department diversion, integration of care and enhanced cost control HHSC must submit a report no later than November 1, 208 detailing performance metrics.
  • Rider 180 – Hospital payments: the budget includes $356.9 million in SFY 2018 and $357.7 million in SFY 2019 to provide Medicaid hospital add-on payments for trauma care, safety net hospitals and rural hospitals. To the extent possible, HHSC shall ensure any funds identified in the rider that are included in Medicaid managed care capitation rates are distributed by the MCOs to the hospitals.
  • Rider 202 – Evaluation of Rural Hospital Funding Initiatives: requires HHSC to evaluate Medicaid funding initiatives for rural hospital services and submit a progress report by August 1, 2018, and a final report by August 1, 2019. The study must include determining the percentage of estimated allowable hospital costs reimbursed by payments for services providers provided to managed care clients; the percentage of wrongful denials; the average wait tine for final payment; and any remedies taken by HHSC to improve vendor compliance.
  • Rider 205 – Operational and Administrative Efficiencies related to Technology and Electronic Visit Verification: requires HHSC to review technology usage and Electronic Visit Verification (EVV), including opportunities to improve operational efficiencies and general cost savings; strategies to improve collection and maintenance of accurate contact information for individuals receiving services; and strategies to streamline the administrative requirements imposed on health providers using EVV. HHSC must submit a report no later than March 31, 2018.
  • Rider 212 – Texas Medicaid Pre-term Births and Low Birthweight Births: requires HHSC to work with the Comptroller of Public Accounts and the Legislative Budget Board to study opportunities for Medicaid savings from increasing the minimum legal age for access to tobacco products from 18 to 21.
  • Rider 214 – Exemption from waiver Rate Reduction: exempts providers of consumer directed services from rate reductions for supported home living services in the HCS waiver and Community Support Services in the Texas Home Living waiver.
  • Rider 215 – Medicaid Therapy Services Reporting: requires HHSC to track and report information related to access to pediatric therapy services. Information must include complaint data received by HHSC and by MCOs, the number of therapy provider terminations, the utilization of therapy services, the number of members on wait lists due to an insufficient network, and the number of providers no longer accepting new clients and the reason. Reports are due quarterly to the LBB and the Governor beginning December 1, 2018.
  • Rider 218 – Adjustment of Therapy Rate Reductions: provides funds to restore 25 percent of the reductions made to reimbursement rates for acute care therapy services during the 2016-17 biennium. Also includes funds to phase in and delay the planned reduction of rates for therapy assistants. Reductions will not begin until December 1, 2017 and rates will remain at 85 percent of the rate paid to a licensed therapist until September 1, 2018, when rates will be reduced to 70 percent of the rate paid to a licensed therapist.
  • Rider 219 – Prescription Drug Benefit Administration in Medicaid, CHIP, and Other Health-Related Services: requires HHSC to study potential cost savings achieved from a single statewide claims processor to deliver drug benefits in the Medicaid, CHIP, Women’s Health, Children with Special Health Care Needs (CSHCN), and Kidney Health Care programs; reduction of the Affordable Care Act Health Providers Fee, guaranteed risk margin, and administrative services fees from decreasing capitation related to pharmacy benefits; and transitioning to a pricing methodology based on National Average Drug Acquisition Cost with a professional dispensing fee.
  • Rider 220 – Evaluation of Medicaid Managed care: 1) requires HHSC to contract with an independent organization to conduct a comprehensive evaluation of Medicaid managed care. The evaluation must include a review of the delivery system, assessment of the performance of managed care including analysis of costs, cost savings, cost trends, the impact of caseload growth, cost containment initiatives, and contractual mandates, and how cost trends in Texas compare to other states. The report must include recommendations on additional operational efficiencies, delivery system reforms, and cost containment initiatives. 2) Requires HHSC to evaluate the contract management and oversight function for Medicaid and CHIP managed care contracts and consider existing contract requirements and enforcement, including penalties, and the need for additional training and resources for effective contract management. 3) Requires HHSC to conduct a study of Medicaid managed care rate setting processes and methodologies in other states. 4) requires HHSC to conduct an audit of administrative expenditures made by managed care organizations in Medicaid and CHIP, and use the audit to identify opportunities for savings. Findings are to be reported to the Governor, LBB, and legislative committees not late than September 1, 2018.

Links to applicable budget documents used in developing this summary are available at:

Texas State Legislation Summary

In addition to the state biennial budget, the Legislature enacted numerous legislative proposals that impact public and private insurance plans. Not all enacted bills have been signed by the governor. The Governor has 10 days after receipt of a bill to sign or veto a bill, or allow it to become law without signature. For bills sent to the governor within 10 days of final adjournment (May 29th), the governor has until 20 days after adjournment (June 18th) to sign or veto a bill, or allow it to become law without signature. Links to all legislation are available at:

Enacted Senate Legislation:

  • SB 74 – BH Services Access: Expands the authorization of a Medicaid/CHIP provider enrolled in a managed care organization to provide behavioral health services to provide targeted case management and psychiatric rehabilitative services to children, adolescents, and their families, as a means of expanding access to certain services.
  • SB 507 – Balance Billing: Expands the balance billing mediation process for commercial health plans to include all physicians and other providers that provide out-of-network services at certain in-network facilities.
  • SB 680 – Medicaid Step Therapy: Authorizes physicians to override health plans’ step therapy protocols, enabling patients to continue receiving effective medication.
  • SB 894 –MCO Audit Oversight: Imposes several requirements intended to improve HHSC’s oversight and use of audit resources for monitoring MCO compliance and operations. Includes changes to the electronic visit verification system and strategies for verifying the accuracy of program and financial information reported by Medicaid managed care organizations.
  • SB 922 – Telemedicine: requires HHSC to ensure that Medicaid reimbursement is provided to a public-school district or open-enrollment charter school for telehealth services provided through the district or charter school by a health professional, even if the health professional is not the patient’s primary care provider.
  • SB 1107 – Telemedicine: Establishes a statutory definition for telemedicine and provides that the standard of care for a traditional, in-person medical setting also applies for telemedicine services. Clarifies that telemedicine is not a distinct service but a tool physicians can use. Prohibits health plans from excluding telemedicine from coverage solely because it isn’t provided in-person.
  • SB 1148 – Maintenance of Certification: With a few exceptions, prohibits the state from using Maintenance of Certification (MOC) as a requirement for state licensure or renewal, or insurance participation; prohibits certain hospitals and health facilities, and managed care plans from using MOC to differentiate among physicians for payment, contracting or credentialing.
  • SB 1462 – Local Health Care Funding Programs: Enacts several provisions related to the funding of local health care districts, county healthcare provider participation programs, and municipal health care provider participation programs, including requirements related to the funding of intergovernmental transfers and funding of Medicaid supplemental payment program payments.
  • SB 2087 – Temporary Health Risk Pool: Authorizes the Commissioner of Insurance to establish and administer a temporary health insurance risk pool with federal funds, to the extent those funds become available.

Enacted House Legislation

  • HB 10 – Access to Behavioral Health Services: Increases the Texas Department of Insurance’s authority to enforce existing mental health parity law and creates a BH ombudsman to help consumers and providers navigate the BH health care system and benefits. Establishes a state mental health parity work group and clarifies benefits for mental health and substance use.
  • HB 490 – Cochlear Implant Coverage: amends the Insurance Code to require certain commercial health benefit plans to cover hearing aids and cochlear implants for individuals who are 18 years of age or younger.
  • HB 1036 –Mammography Benefits: Requires certain commercial insurance plans to include digital mammography and breast tomosynthesis coverage under annual breast cancer screenings for females 35 years of age or older
  • HB 1296 – Medication Synchronization: Requires certain commercial insurance plans to provide coverage for medications in cases where physicians, working in conjunction with the patient’s health plan and the pharmacy, determine which medications should be aligned to properly treat chronic diseases. Eliminates barriers to medication synchronization by requiring health plans to prorate any cost-sharing amount charged for a prescription drug dispensed in a quantity that is less than the full amount as part of a recommended medication synchronization program, resulting in reduced upfront costs for patients.
  • HB 1600 – Mental Health Screenings for Adolescents: Authorizes Medicaid/CHIP payment for mental health screenings during each annual well-child exam. Currently, payment for applicable screening medical codes is authorized only once between the ages of 12 and 18 for each adolescent.
  • HB 1629 – HIV Viral Loads Quality Oversight: Requires HHSC to adopt Medicaid/CHIP quality measures related to ensuring persons with HIV maintain a low viral load, thus improving the health of individuals with HIV and reducing the transmission of HIV.
  • HB 1917 – Medicaid Vendor Drug Program: Retains the Medicaid Preferred Drug List (PDL) under HHSC oversight, delaying until 2023 previous plans to put the PDL under the oversight of managed care organizations.
  • HB 2379 – Fraud, Waste and Abuse: Enacts numerous changes to the FWA program oversight and penalty payments.
  • HB 2590 – LTSS Administrative Amendments: Amends the appeal process for LTSS providers, to be consistent with the process for other providers participating in Medicaid waiver programs. Includes establishing an informal dispute resolution process for HCS and Texas Home Living (TxHmL). Grants HHSC the authority to use amelioration as a tool to assist providers with compliance, and allows a provider to use a portion of an administrative penalty toward compliance and program improvement.
  • HB 2466 – Maternal Depression Screening: Requires Medicaid/CHIP coverage of maternal depression screening for an enrolled child’s mother during a covered well-baby visit or other office visit to a pediatric provider. Also allows pregnant women enrolled in Medicaid to sign up for texts, emails, or phone calls from their MCO to receive appointment reminders and health information to maintain a healthy pregnancy.
  • HB 3295 – LTSS Pilot Programs: Extends the statutory deadline by one year for pilot programs intended to test one or more service delivery models for long term services and supports under Medicaid managed care. The new expiration date is moved from September 1, 2018 to September 1, 2019, and is necessary to provide consistency with the 24-month period state law allows for program operations.
  • HB 3675 – Ophthalmology benefits: clarifies that patients covered by a Medicaid MCO have direct access to ophthalmologists and optometrists for non-surgical eye care services, without a requirement that the provider or the patient obtain prior authorization for those services. Clarifies that an ophthalmologist or an optometrist who joins an established practice may become a network provider for the MCOs with which the practice already has a valid contract. Allows institutions of higher learning with accredited ophthalmology or optometry training programs to contract with MCOs as network providers. Amends current law relating to the provision of eye health care by certain professionals and institutions as providers in the Medicaid managed care program.

Special Legislative Session Likely

Due to the failure to pass several key legislative proposals (including the Sunset legislation that authorizes continuation of the Texas Medical Board, the licensing agency for medical providers), the Governor is expected to call a special session sometime this summer. Governor Abbot was expected to announce his decision last week, but has not yet done so. The special session will be limited to only those items specifically identified by the Governor.

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