Medicaid Reform and Health Care Financing Presentation to the House Appropriations Committee

1
Medicaid Reform and Health Care
FinancingPresentation to the House
Appropriations Committee

• Albert Hawkins, Executive Commissioner
• Tom Suehs, Deputy Executive Commissioner for
  Financial Services
• Maureen Milligan, Deputy Chief of Staff
• April 27, 2007

2
Insurance Status in Texas 24 or 5.5 million
Texans uninsured
Half of all Texans have private insurance
Half are either uninsured or have public insurance
Odds are 50/50 that any Texan will have private
insurance, or be either uninsured or in a public
program (e.g., Medicaid, CHIP, Medicare,
Veterans Assistance).
3
Health Care Financing

Care for the Uninsured, if not paid by the
individual, is paid for by local taxes, property
taxes, hospital district taxes, tax offsets
commercial subsidies and intergovernmental
transfers (IGT) and federal match
(Disproportionate Share Hospital (DSH) and Upper
Payment Limit (UPL)) (5.5 million uninsured
Texans)
Private insurance paid by businesses, employees
and tax offsets
Public programs financed by federal taxes
(Federal Funds Participation (FFP)), state taxes
(sales and other), and Medicare enrollee
premiums. Medicaid alone will cover an average of
2.8 million Texans per month in 2007.
4
Texas Employer Premium Rates
5
Texas and US Private Sector Establishments that
Offer Health Insurance 2004
Percent
6
Shifting Insurance Coverage

• Increased premium costs and erosion of
  employer-based insurance leads to shift to
  uninsured and public programs
• Increases number of uninsured and uncompensated
  care burden
• Increases public insurance (which includes
  Medicaid) caseload
• Drives the need for commercial subsidies, which
  increases private premium rates

7
Health Care Funding Burden

• Local and State taxes support a significant
  portion of all health care spending.
• Local taxes pay for a larger share of
  uncompensated care costs, through local programs,
  county indigent health care, hospital district
  and public hospital care and emergency room
  access.
• Businesses and individuals pay a hidden tax or
  subsidy in their insurance payments to help
  offset costs of care for the uninsured (500/year
  subsidy for individual employer premiums
  1551/year subsidy for family employer premiums).
  

8
Medicaid Pays for Both Publicly Insured
Uninsured Texans

• Medicaid Payments
• DSH lump sum payment to qualifying hospitals
• UPL lump sum payment to qualifying hospitals

• Medicaid Payments
• Claims paid for inpatient outpatient services
  (DRG)
• DSH (Shortfall)

9
Total Medicaid Hospital Funding by Source of Funds
10
Very Different Medicaid Funding Criteria for
Medicaid Funding
11
Transforming Access to Health Care Requires
Transformation in Funding

• CMS waiver opportunities for transforming access
  to health care. CMS System Goals
• Reduce the Uninsured
• Funding Directed to insurance or other coverage
  -- Not current lump sum payments
• Accountability
• Care Management

12
Medicaid DSH and UPL Financing and Distribution
Federal Match
GR IGTs
All Funds
Funds sent to IGT contributors, DSH, and UPL
providers

• State GR and Local IGT funds can be matched and
  used either for DRG claim reimbursement in
  Medicaid or for DSH and UPL supplemental payments.

13
Medicaid Funding Sources and Vehicles for Federal
Match State GR and IGTs
Distribution of Funds
State Funding Sources
Federal Matching Vehicles
Caps Dependencies
Federal Match 2.4 B
DRG Claims Paid
Medicaid Costs

• IGT funds returned
• Payments to hospitals for
• uncompensated care
• Cover Medicaid Shortfall
• (IP OP)
• 1.5 B

Hospital Specific DSH Cap (Medicaid Shortfall
Uncompensated Care Costs, excluding bad debt)
Disproportionate Share Hospital (DSH) 919 M
UPL Cap for DSH Hospitals Lesser of DSH Room or
Charge Room UPL Cap for non-DSH Hospitals
Charge Room

• Compensation for lower
• Medicaid rates
• 1.5 B

Upper Payment Limit 894 M
Cap Definitions Medicaid Shortfall (900 M)
Medicaid Costs Actual Payments DSH Room
Hospital Specific DSH Cap DSH payments Charge
Room Medicaid charges Medicaid payments
14
Medicaid Related Hospital Payments
UPL Payment
DSH Reimbursement Medically Indigent
15
Hospital Medicaid State and Federal Financing
DRG/Outpatient (4 B)
DSH Program (1.5 B)
UPL Program Aggregate Cap Sum (2.29 B)
State Hosp Federal Funds 269 M
Federal Funds 2.4 B
State Hospital (Agg Cap) 170 M
Public Hospital (Agg Cap) 924 M
Private Hosp (Agg Cap) 1.2 B
Hospital Shortfall
GR Match 1.6 B
GR Match Funds 179 M
FY 2007 Estimated Payment 77 M
FY 2007 Estimated Payment 780 M
FY 2007 Estimated Payment 603 M
Non State Hospitals Federal Funds 631M
Federal Funds 46 M
Federal Funds 468 M
Federal Funds 362 M
GR Match 31 M
Local IGT Match 312 M
Local IGT Match 241 M
Non State Hospitals IGT Match 421 M
16
State Federal Hospital Financing Under Medicaid
Reform Waiver
Distribution of HOP Fund
If State rebases hospital DRG, UCC will be
lowered and Infrastructure Premium Assistance
Improvements will be increased.
17
Impact of Rebasing on HOP Fund
Caps Dependencies
Cap Definitions Medicaid Shortfall (900 M)
Medicaid Costs Actual Payments DSH Room
Hospital Specific DSH Cap DSH payments Charge
Room Medicaid charges Medicaid payments
18
Historic UPL Allocations
Federal Funds in Millions of Dollars
Year
Note Fiscal Year 2006 allocations includes
retroactive payments made in fiscal year 2007.
19
Current Challenges

• Increasing health care costs, uncompensated care
  costs and Medicaid costs
• Increasing federal challenges to existing UPL
  funding
• Untapped and unmatched local funding for indigent
  care
• Current methods of Medicaid funding for indigent
  care drive how and where uninsured Texans access
  health care, and increase uncompensated care
  costs
• The current method of paying for uncompensated
  care is neither systematic nor efficient
• Federal funding methods drive policy

20
Medicaid Funded Indigent Care
Medicaid funded indigent care focuses on
hospitals, and drives how uninsured Texans
access healthcare.
Current System Investment The uninsured tend to
forgo primary and preventive care until a high
acuity, high cost catastrophic health event
occurs.
Cost
Health Care Access Continuum
Primary Preventive Care
Hospital Inpatient Care
Acuity
21
Challenges Federal Funding Changes Affecting UPL

• The federal government has increased state
  limitations on Hospital UPL payments
• No UPL allowed if hospitals paid through
  capitation
• Impact in Texas is the hospital carve-out for
  STARPLUS expansion. Floridas waiver addresses
  this.
• State-specific UPL denials
• California, Massachusetts, Iowa and Florida all
  negotiated with the Centers for Medicare and
  Medicaid Services (CMS) to protect UPL funding by
  converting UPL to expanded Medicaid coverage, or
  to Low Income Pools, covering the uninsured, and
  changing health care payments from lump sum to
  more patient-specific payments.
• Across the board limitation on UPL for all states
• Administrations proposed rule would limit public
  provider funding for UPL payments Texas could
  lose nearly 500 million in federal fund
  payments.

22
Untapped and Unmatched Local Funds

• Local tax supported programs for indigent care
  are paid 100 percent with Texas funds not
  matched with federal funds
• Waivers provide an option to use Unmatched State
  and Local Funds as the basis for match. These can
  offset IGTs or other funds now used to generate
  federal match
• Previous attempts to use Texas local funds to
  provide matched coverage failed (1995s
  Intergovernmental Initiative) because of federal
  disapproval however, recent waivers indicate
  CMS renewed interest and flexibility in
  negotiations

23
Options to Protect UPL, Reduce Uninsured and
Reduce Uncompensated Care

• Negotiate for
• UPL protection -- trended UPL funds or trended
  cap UPL
• UPL maintenance under capitation to allow better
  care and cost-management
• In Exchange for
• Agreement to begin transition to use of DSH for
  health care coverage medical home
• Health Opportunity Pool (HOP) as funding
  distributor
• Transition from lump sum payments to health
  coverage subsidies
• Develop coverage models for target populations
• Program flexibility
• Can incorporate Health Insurance Exchange or
  other components

24
DSH and UPL Financing and Distribution
Federal Match
Current Access Pattern
All Funds
Sent to IGT contributors DSH, and UPL providers
Insurance
25
Health Opportunity Pool Allocation
DSH State Hospital
UPL State Hospital
HOP Fund
Uncompensated Care Existing allocation
of DSH UPL
Increase Access to Health Benefits Coverage
e.g., Premium subsidies
Infrastructure Improvements e.g., Health Info.
Tech.
Public Health Infrastructure
26
Health Care Coverage
Decrease uninsured (small business individual
market (more affordable premiums portability)
Decrease uninsured through subsidies for
low-income individuals
27
Transforming Access and Quality for Provision of
Health Care to Uninsured Texans
Continuum of Access to Health Care

• Increased access to primary and preventive
  care
• Increased care management
• Decreased need for more costly emergency and
  inpatient care

28
Example of a Tailored Benefit Model - Foster Care

• More intensive care management
• Service Coordinators (with clinical backgrounds)
  for each member
• Service Managers (with advanced clinical
  backgrounds) to handle the most complex
  individuals.
• Strengthened medical home model
• Requirement for PCP other providers work
  together to manage the care of member.
• Requirement that BH provider and PCP share client
  notes on a regular basis.
• Integrate Primary Care (encourages co-location of
  BH and PCP providers, e.g., FQHCs do this)
•  More robust provider network
• Require a full array of types of behavioral
  health providers additional dental provider
  types required
• Medical passport
• 24-hour nurse hotline (staffed with live person)
  for both BH and acute care lines
• Capitation is more integrated to ensure care is
  better coordinated by single entity
• MH rehabilitation services is under cap
  (currently out of cap in STAR)
• Dental is under the cap (currently out of cap in
  STAR)

29
Challenges to Opportunities

• Increasing health care costs, uncompensated care
  costs and Medicaid costs
• Increasing federal challenges to existing UPL
  funding
• Untapped and unmatched local funding for indigent
  care
• Current methods of Medicaid funding for indigent
  care drive how and where uninsured Texans access
  health care, and increase uncompensated care
  costs
• The current method of paying for uncompensated
  care is neither systematic nor efficient
• Federal funding methods drive policy

• Investing in primary care coverage and insurance
  can lower costs and cover more people
• Negotiate to use Medicaid funds in
  non-entitlement coverage for the uninsured
• Under a waiver, certain Unmatched State and Local
  Funds can be matched
• Under the flexibility of a waiver, funds can pay
  for individual coverage, uncompensated care AND
  can reduce fixed uncompensated care costs
• A waiver offers an opportunity and basis for
  transforming to a more efficient system of care
• Good policy drives funding

30
Appendix A

• Glossary

31
Glossary

• Case Mix Index (CMI) A numerical description
  used to identify the complexity of a hospitals
  patient case load throughout the year.
• 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.
• Certified Public Expenditures (CPE) - A certified
  public expenditure (CPE) is a mechanism through
  which funds spent by a public entity (city,
  county, state agency, or other public entities
  within a state) for the provision of covered
  services to Medicaid recipients are certified
  through a cost reporting process. CPEs are
  permitted under federal Medicaid law and
  regulations as the non-federal share for matching
  federal Medicaid funds for Medicaid provider
  payments.
• Diagnosis Related Group (DRG) A method for
  grouping hospital patients using diagnoses
• 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.

32
Glossary

• 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.
• 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.
• Medicaid Hospital Shortfall Hospital costs for
  providing treatment to Medicaid patients which
  are allowable under Medicaid rules but are not
  reimbursed because the DRG-based payment does not
  fully reimburse the full amount of these costs.
  Shortfall costs that originate in the SDA
  reimbursement system are passed to the DSH system
  where they are reimbursed.
• Primary Care Case Management (PCCM) Medicaid
  recipients assigned to primary care provider who
  manages services and controls costs by
  authorizing services.
• Ratio of Costs to Charges (RCC) Providers
  claims for reimbursement are stated in terms of
  charges. Medicaid, which pays allowable costs
  converts charges to costs for the hospital. The
  RCC is the basis for making this conversion. The
  RCC is derived from an analysis of the providers
  Medicare cost report. The analysis determines
  allowable costs and then creates the RCC by
  diving costs by charges.

33
Glossary

• Rebasing Updating to a more recent year the
  data used to calculate the hospitals SDA
  payment. The effect of rebasing is to capture
  changes in cost that impact the amount of
  Medicaid allowable reimbursement paid to a
  hospital.
• Standard Dollar Amount (SDA) The value that
  determines the individual hospitals Medicaid
  reimbursement payment. Each hospital has its
  own SDA which results from dividing its average
  cost per admission by its CMI. This calculation
  essentially standardizes the standard dollar
  amount.
• 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.
• Uncompensated Care Identifies the costs for a
  hospital resulting from the provision of
  treatment to patients who are unable to reimburse
  the hospital for their care. Formally defined as
  the sum of a hospitals bad debt expense and its
  charity care.
• Unmatched State and Local Funding (USLF) Health
  care expenditures for populations and services
  not currently covered by Medicaid and for which
  federal funding is not available. Under 1115
  waivers, some states have negotiated with the
  Centers for Medicare and Medicaid Services to
  secure federal match for some of these services.
• 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.

34
Appendix B

• DSH and UPL Reimbursement Methodology

35
DSH and UPL Reimbursement Methodology

• Medicaid funds contribute to local support for
  the insured through uncompensated care payments.
  DSH and UPL funds provide supplemental payments.
• Medicaid funding to hospitals is based on
• A payment per claim called DRG (e.g., hospital
  admission or DRG payment) Hospital Specific
  Cost Factor X an Acuity/Diagnosis Factor
• (Standard Dollar Amount (SDA) x Diagnostic
  Related Group (DRG) Relative Weight)
• Disproportionate Share Hospital (DSH) Funding
  originally intended to reimburse hospitals for
  uncompensated care. Paid based on Medicaid stays
  and Indigent Care stays
• Formula is (Hospitals Low Income Days / Total
  Low Income Days All Hospitals) x DSH Funds
  Available
• Upper Payment Limit (UPL) Supplemental Payments
  funds pays hospitals based on the difference
  between what Medicare would have paid and what
  Medicaid paid. (Federal Regulation proposes to
  limit to Medicaid costs for public and state
  hospitals)
• Formula is Medicaid Charges Medicaid Paid
  (for Fee-For-Service (FFS)-paid inpatient stays)