Presentation to the House Appropriations Subcommittee on Health

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Presentation to the House Appropriations
Subcommittee on Health Human Services

• Hospital Funding
• April 17, 2006

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Objectives for Presentation

• To provide a brief overview of the major
  Medicaid reimbursement methodologies,
  Disproportionate Share Hospitals (DSH), Upper
  Payment Limit (UPL), and Diagnosis Related Groups
  (DRG) that
• Demonstrates how these different funding streams
  interact to generate total Medicaid funding for a
  hospital
• Explains how state policies directed at
  controlling growth in Medicaid costs interact
  with federal requirements and the effects on
  federal funding streams
• Shows how these funding streams impact state and
  local financing strategies
• Illustrates the important impact of these funding
  streams on uncompensated care and
• Reveals several of the major public policy
  questions that are associated with the complexity
  of these different funding methodologies.

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Hospital Funding Provisions 79th Legislature

• Allow expansion of the use of intergovernmental
  transfers (IGTs) to fund Graduate Medical
  Education (S.B. 1188, Sec. 2(c) (3)) and Adult
  Medically Needy. (S.B. 1, Article II, HHSC Rider
  74)
• Discontinue the General Revenue funded non-public
  urban UPL.
• Continue IGT payments to preserve Medicaid rates.
  (S.B. 1)
• Expand managed care while preserving local funded
  UPL for aged/blind/disabled Medicaid populations.
  (S.B. 1, Article II, Special Provisions, Sec. 49)
  
• Establish a General Revenue funded Childrens
  Hospital UPL. (S.B. 1, Article II, Special
  Provisions, Sec. 73)
• Expand UPL through a regional concept using IGTs
  and local dedicated taxes. (H.B. 2463)
• HHSC to study the hospital reimbursement system
  and make recommendations to the 80th Legislature
  that address maximizing federal funds, allow
  legislative policy flexibility, and integrate and
  define uncompensated care. A report must be
  submitted by October 1, 2006. (S.B. 1, Article
  II, HHSC, Riders 60 and 61)
• DSHS to conduct a study regarding the impact of
  niche hospitals on financial viability of other
  general hospitals located in the State. (S.B. 872)

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Related Hospital Reimbursement Terms

• Cost Based Reimbursement to hospitals based on
  the Tax Equity and Fiscal Responsibility Act of
  1982 (TEFRA) rules which reimburses hospitals for
  their allowable costs. This is to be
  distinguished from DRG-based reimbursement, whose
  rates are prospectively determined.
• Diagnosis Related Group (DRG) Hospital
  reimbursement determined in advance of the
  patients hospitalization and is different for
  each diagnosis. Places the hospital at financial
  risk if patient stay is longer than what
  reimbursement was based on.
• Disproportionate Share Hospital Reimbursement
  (DSH) Federal law requires Medicaid make
  payments to hospitals serving a
  disproportionately large number of Medicaid and
  low-income patients. Federal funding to Texas is
  capped. Texas uses IGTs to fund the state match.
  
• Graduate Medical Education (GME) Medicaid
  provides payments to hospitals to support its
  share of direct costs related to medical training
  programs and to support higher patient care costs
  associated with the training of residents.
• Inter-Governmental Transfers (IGTs) Methodology
  employed by Texas to obtain state match for
  Federal funding and does not require General
  Revenue. IGT has limitations in that only public
  funds can be used (only transfers between
  governmental entities), the result is a
  limitation in the available non-General Revenue
  funding to match Federal funds and potential
  Federal revenue is lost.

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Related Hospital Reimbursement Terms

• Standard Dollar Amount The weighted mean base
  year payment for all hospitals in a payment
  division after adjusting each hospitals base
  year payment per case by a case mix index, and a
  cost-of-living index.
• Trauma Funding Hospital designated as trauma
  facilities can receive payments from the Trauma
  Facility and Emergency Medical Services account
  established for the purpose of reimbursing
  hospitals for unreimbursed trauma care.
• Upper Payment Limit (UPL) Financing mechanism
  used by Texas to provide supplemental payments to
  hospitals. The basis for this funding is the
  difference between what Medicare and Medicaid
  pays for essentially the same patient. The
  formula results in increased payments because
  Medicares aggregate payments are higher than
  Medicaids. Texas uses IGTs to fund the state
  match.
• 
  
• Primary Care Case Management (PCCM) Medicaid
  recipients assigned to primary care provider who
  manages services and controls costs by
  authorizing services.
• Health Maintenance Organization (HMO) Delivers
  and manages services under a capitation
  arrangement that is embedded in a risk-based
  contract. There are strong incentives to control
  costs.

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17,316.8 Billion Total
Excludes UPL and DSH payments to the hospitals
totaling 903 million and 1,487 million,
respectively.
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Texas Medicaid Spending by Major Function, FY
2005
Includes UPL and DSH payments to the hospitals
totaling 903 million and 1,487 million,
respectively.
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Medicaid Hospitals FY 2005 Funding
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Medicaid Hospitals by Location Rural Urban FY
2005 Funding (State Federal)
Inpatient and Outpatient Financed by 9 public
hospitals and the 14 state hospitals Financed
by 4 state hospitals, 11 urban public hospitals
and 22 rural public hospitals
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Medicaid Hospitals by Ownership/Classification
FY2005 Funding (State Federal)
Use of IGT Inpatient and Outpatient
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Major Public Policy Issues

• Because over 62 percent of the Medicaid acute
  care funding is for hospitals, achieving
  operating efficiencies in Medicaid requires
  containing the growth in costs associated with
  hospital care.
• Yet, programs which most efficiently control cost
  are in conflict with the requirements of some
  Federal funding streams.
• The result is a loss of overall efficiency
  because state public policy for achieving savings
  is in conflict with Federal funding requirements.
• The complexity that exists among the different
  Medicaid funding streams can obscure the impact
  of Medicaid funding on the problem of
  uncompensated care and its impact on local
  communities as they attempt to fund services for
  the medically indigent.
• An example of this complexity can be seen in the
  Medicaid shortfall for hospitals and its impact
  on indigent care funding.

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Major Public Policy Issues contd

• Alternatives need to be identified that better
  use existing funding to strengthen the ability
  of local governments to meet their
  responsibilities to serve the needs of the
  medically indigent.
• While uncompensated care costs are growing, it is
  difficult to know by how much.
• We must better understand the growth in
  uncompensated care by standardizing ways to
  uniformly measure it across hospitals and require
  hospitals to report uncompensated care more
  accurately to the agency.
• We must better understand the impact of Medicaid
  funding not only on indigent care but also on
  local communities.

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Overview of the Dynamic Interdependence of a
Hospitals Medicaid Medically Indigent Cost
Reimbursement and the Different Reimbursement
Methodologies
UPL Payment
DSH Reimbursement Medically Indigent
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Projected Growth in Medicaid Hospital
Reimbursement Shortfall Compared to Federal DSH
Funding
Reasons for Shortfall Growth
Return
Source Texas Hospital Association
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Source Department of State Health Services (DSHS)
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Upper Payment Limit Current Active Programs

• Urban Non-State Public Hospital
• Non-state owned or operated publicly owned
  hospitals or hospitals affiliated with a hospital
  district in Bexar, Dallas, Ector, El Paso,
  Harris, Lubbock, Nueces, Midland, Potter,
  Randall, Travis Counties. Annual amounts total
  706.3 million (276.6 million IGT and 429.7
  million Federal).
• Rural Hospital
• Public, non-state rural hospitals affiliated with
  a hospital district. Annual amounts total 68
  million (26.6 million IGT and 41.4 million
  Federal).
• State Hospital UPL
• State-owned hospitals including UTMB, MD
  Anderson, UT Tyler, and the Texas Center for
  Infectious Disease. Annual amounts total 65.2
  million (25.6 million IGT and 39.6 million
  Federal).

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Upper Payment Limit Proposed Programs

• Statewide Hospitals
• UPL supplement reimbursement for Medicaid
  inpatient and outpatient hospital services
  provided by privately owned hospitals with an
  indigent care affiliation agreement with a
  hospital district or other local government
  entity. If approved, annual estimated payments
  would total 504 million (199.0 million IGT and
  305 million Federal).
• May impact approximately 75 hospitals.
• Childrens Hospital
• HHSC Rider 73 directs the use of 25.0 million
  General Revenue for the biennium to provide UPL
  reimbursement for childrens hospitals. If
  approved, annual estimated payments would total
  63.7 million (25.0 million General Revenue and
  38.7 million Federal).

• Physicians and Dentists
• Members of practice plans affiliated with a state
  academic heath center. If approved, annual
  estimated payments would total 65 million (25.3
  million IGT and 39.7 million Federal).
• Members employed by, or under contract with,
  non-state owned or operated publicly owned
  hospitals or hospitals affiliated with a hospital
  district in Tarrant County. If approved, annual
  estimated payments would total 6 million (2.4
  million IGT and 3.6 million Federal).
• Select Private Hospitals
• Non-public hospitals in Bexar, Hidalgo, Maverick,
  Midland, Montgomery, Potter, Randall, Travis, and
  Webb counties. If approved, annual estimated
  payments would total 131.6 million (51.7
  million IGT and 79.8 million Federal).

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Summary

• Summary Issue 1
• Policy makers must consider all Medicaid related
  funding sources.
• Hospital Medicaid funding is the sum of
• (1) DRG reimbursement rate which is based on
  claims submitted by the hospital
• (2) DSH reimbursement
• (3) UPL payments
• (Trauma funds which are used to reimburse
  unreimbursed trauma care is not part of Medicaid,
  but will impact DSH and UPL.)

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Summary

• Summary Issue 2
• Medicaid funding streams interact to impact
  local communities.
• When allowable Medicaid costs for a hospital are
  not fully reimbursed by DRG payments, there are 2
  primary implications
• the amount of General Revenue required for state
  match is minimized, and
• the difference between allowable costs and what
  Medicaid actually reimbursed grows, i.e.,
  Medicaid hospital reimbursement shortfall.
• The Medicaid hospital reimbursement shortfall is
  made up with DSH reimbursement and the primary
  effect is
• the state match moves from General Revenue to
  local funds via the IGT mechanism, and
• the amount of DSH available to reimburse
  hospitals for the cost of treating the medically
  indigent is reduced by the amount of the
  shortfall.
• With less DSH funds to reimburse indigent care,
  the cost is borne by UPL. The primary effect is
  that IGTs must be used as the state match.

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Summary

• Summary Issue 2, continued
• Only thirty-seven (37) public and state hospitals
  provide over 353 million match for UPL funding
  for the state.
• Fourteen state-operated hospitals and nine public
  hospitals provide over 580 million to match the
  federal DSH payment to Texas which is then
  allocated between state and local use.
• Local governments through IGTs are providing an
  increasing amount of the state match to fund both
  Medicaid services and indigent care services.
• Summary Issue 3
• Federal requirements associated with Medicaid
  funding streams are in conflict with state public
  policy for controlling the growth in Medicaid
  costs.