Fast Facts. Hospitals Participation In the Texas Medicaid Program

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1 Fast Facts Hospitals Participation In the Texas Medicaid Program Texas Hospital Association Medicaid: Health Coverage Program Primarily for Children, Pregnant Women, Disabled and Elderly 2012 Federal Poverty Level Guidelines Family Annual Income Level Size 100% of the FPL 1 $11,170 2 $15,130 3 $19,090 4 $23,050 5 $27,010 6 $30,970 1 In 1965, the U.S. Congress created the Medicaid program to ensure access to health care for low-income Americans. Over the years, Congress has transformed Medicaid from a narrowly-defined program available only to individuals eligible for cash assistance into a large health care coverage program with complex eligibility rules. During the late 1980s and early 1990s, Congress expanded Medicaid eligibility to include a greater number of people with disabilities, children, pregnant women and the elderly. These changes helped fuel the growth of the Medicaid program, and the Texas Medicaid population tripled in just a decade, adding more than 1 million people between 1990 and 1995 alone. Currently, about 3.5 million Texans are enrolled in the Texas Medicaid program, and some 2.8 million of these Medicaid enrollees are children under the age of 19. Although non-disabled children make up the majority of Medicaid enrollees, they account for only a third of spending on direct health care services. Medicaid is funded jointly by the federal and state governments. The program is operated by the states and is overseen at the federal level by the Centers for Medicare & Medicaid Services. The Texas Health and Human Services Commission oversees the operations of the Texas Medicaid program. CHIP The Children s Health Insurance Program was created by federal law in CHIP allows states to cover children in families with incomes that are modest (up to 200 percent of the federal poverty level) but too high to qualify for Medicaid. About 577,000 Texas children are enrolled in CHIP. The federal government pays more than 70 cents for every 30 cents that the state spends Percent of Federal Poverty Newborns on CHIP. The Children s Health Insurance Program Reauthorization Act of 2009 strengthened and extended CHIP until Sept. 30, The Patient Protection and Affordable Care Act extends federal funding for CHIP through federal fiscal year Who is Eligible for Medicaid and CHIP? The federal government sets minimum standards for Medicaid eligibility, and states may choose to cover people at higher income levels and broaden the definition of eligible populations. Texas Medicaid provides coverage at only the minimum levels required by federal Children Age 1-5 Federal Poverty Level 200% 200% 200% 200% 185% 185% 133% 100% 74% Children Age 6-18 Pregnant Women SSI, Aged, Disabled CHIP MEDICAID Parents law for most eligible populations. The federal poverty level is the basis on which financial eligibility is measured for both Medicaid and CHIP. The chart above summarizes the major categories of people eligible for Medicaid and CHIP. 14%

2 T e x a s h o s p i t a l a s s o c i a t i o n In determining qualification for Texas Medicaid coverage, THHSC screens applicants to ensure they meet eligibility requirements, including: n Financial; n Citizenship; and n State residency. Even extremely poor Texans do not qualify for Medicaid if they do not meet all of the necessary criteria. Non-disabled, non-pregnant adults are generally not eligible for coverage under the Texas Medicaid program. Under the Patient Protection and Affordable Care Act, Medicaid eligibility expands to 133 percent of the federal poverty level for most single adults in THHSC estimates that this expansion will result in an additional 1.2 million Texans becoming eligible for Medicaid. Texas Medicaid grants eligibility for six months; enrollees must reapply and THHSC must verify that they continue to meet all of the eligibility requirements for benefits to be maintained. Who Is Enrolled in Medicaid? Non-disabled children are the largest percentage of the Medicaid population. More than 75 percent of the people receiving Medicaid are under age 20. In 2010, while nondisabled children made up the majority of all Medicaid enrollees (about 66 percent), they accounted for only a relatively small portion (about one-third) of Texas Medicaid spending on direct health care services. By contrast, the aged, blind and disabled population made up about 25 percent of enrollees and accounted for almost 60 percent of expenditures. Medicaid Program Growth Enrollment in the Texas Medicaid program has grown dramatically over the past five years and is expected to continue to increase. In addition to sheer population growth, Medicaid enrollees have increased for a number of reasons, including the economic recession, the rising cost of private health care coverage, a decline in employer-sponsored health insurance and an increase in the number of part-time employees who usually are ineligible for employer-sponsored coverage. The THHSC estimates that the monthly average number of Medicaid enrollees, also known as Medicaid caseload, will increase by more than a third between 2008 and Historically, the Texas Legislature has failed to fund the full projected Medicaid caseload, resulting in a shortfall that must be funded in the next biennium. Because of lower-than-anticipated revenue collection and the impact of the national economic crisis on the state, when the Texas Legislature convened in January 2011, members were looking for additional ways to contain costs and create budget certainty. Some 32 percent of the state budget is spent on health and 100% Texas Medicaid Beneficiaries and Expenditures State Fiscal Year % 80% 70% 60% 50% Non - Disabled Children 66% Non - Disabled Children 32% Non- Disabled Adults 10% 40% 30% 20% 10% 0% Non - Disabled Adults 9% Aged & Disability Related 25% Caseload Aged & Disability Related 58% Cost Source: HHS Financial Services, 2010 Medicaid Expenditures, including Acute Care, Vendor Drug, and Long-Term Care. Costs and caseload for all Medicaid payments for full beneficiaries and non-full beneficiaries (Women s Health Waiver, Emergency Services for Non - Citizens, Medicare payments) are included. Children include all Poverty-Level Children, including TANF. Disability Related Children are in the Disability-Related group, not in the Children group. 2

3 f a c t s o n t e x a s m e d i c a i d p r o g r a m THHSC Actual and *Projected Caseloads State Budget Medicaid Caseload FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY ,877,203 3,004,380 3,296,358 *3,547,717 *3,712,237 *3,834,684 3,105,445 3,168,320 3,620,829 3,709,990 Variance Over Budget 6% 12% 3% 3% human services, second only to public and higher education at 42 percent, so both were targets for the budget committees. One response to the shortfall was to expand Medicaid managed care because it provides more budget certainty for the state, since the financial risk is assumed by managed care organizations. Another benefit of managed care for the state is that it generates additional state general revenue. All insurance companies in Texas including managed care organizations pay a state premium tax. HMOs premium tax is based on HMO revenues received from the sale of health maintenance certificates or contracts. In the chart below, the blue line represents THHSC s estimated and actual caseloads from 2008 to The dotted red line represents the amount included in the and appropriations made by the Texas Legislature. As the chart demonstrates, over the past several sessions, the Texas Legislature has not funded the full caseload projected by the THHSC and has made other funding reductions to Medicaid to achieve a balanced budget. In each of these sessions, this underfunding has been at least partly responsible for the need for supplemental appropriations. THHSC has determined that the Legislature underfunded Medicaid for the biennium by an estimated $4.8 billion, which will need to be addressed when the Legislature convenes in ,000,000 Medicaid Caseload 3,800,000 3,600,000 *3,547,717 *3,712,237 *3,834,684 3,620,829 3,709,990 3,400,000 3,200,000 3,000,000 2,800,000 3,296,358 3,105,445 3,004,380 2,877,203 3,168,320 THHSC Actual and *Estimates and Budgets FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY

4 T e x a s h o s p i t a l a s s o c i a t i o n How Are Medicaid Services Provided to Enrollees? Medicaid provides services to enrollees through four different delivery models. The majority of Medicaid enrollees more than 3 million people or 77 percent of Medicaid enrollees receive their care through Medicaid managed care organizations because the Texas Legislature expanded Medicaid managed care to all areas of the state in 2011 as part of its cost containment initiatives. The two main managed care programs are: (1) STAR (State of Texas Access Reform), which provides services to pregnant women, children, newborns and low-income families, with an enrollment of approximately 2.5 million; and (2) STAR+PLUS, which provides services to the aged, disabled and chronically ill, with an enrollment of about 396,000. A small managed care program, STAR Health, covers about 31,500 children in foster care. In the Dallas/ Fort Worth service area, the NorthSTAR program integrates mental health care and chemical dependency services provided to about 424,000 Medicaid enrollees using a behavioral health THHSC contracts with managed care organizations that in turn contract with providers, including physicians and hospitals, to create a network of providers to deliver health care services to Medicaid enrollees. The MCO bears the financial risk for the individuals enrolled in its Medicaid plan, meaning that regardless of how much the MCO pays for health care services provided to its enrollees, the state pays a fixed premium to the MCO each month based on the number of Medicaid enrollees the MCO has. This per-member per-month premium is called a capitation rate. MCOs negotiate discounted rates with providers, including hospitals. Each MCO emphasizes prevention and primary care for its enrollees. Access to specialty care such as expensive diagnostic tests and consultation with a medical specialist is managed by the MCO both to ensure that the services are medically necessary and to control costs. Medicaid enrollees have the opportunity to select their MCO and their primary care physician. Many MCOs Medicaid Managed Care Programs As of March 2012 STAR North STAR 424, million STAR+PLUS STAR Health 31, ,000 Enrollees 0 125, , ,000 1 million 1.5 million 2 million 2.5 million 3 million Source: Texas Health and Human Services Commission 4 organization, which is a managed care organization providing only behavioral health services. Through managed care, the state seeks to: n establish a medical home for Medicaid enrollees through a primary care provider (PCP); n emphasize preventive care; n improve access to care; n ensure appropriate use of services; n improve health outcomes and quality of care; n improve enrollee and provider satisfaction; and n improve cost effectiveness. offer value-added services as recruitment incentives for enrollees. For example, some MCOs offer transportation to medical appointments, which improves compliance with follow-up care and leads to cost savings because illnesses are treated quickly and effectively. If the enrollee fails to select an MCO, the state makes an assignment based on the enrollee s history with a plan or primary care provider and location. Some individuals are not enrolled in STAR or STAR+PLUS because they do not meet one of the eligibility categories. For them, the state contracts directly with physicians, hospitals and other providers and pays them directly under a fee schedule. Among

5 f a c t s o n t e x a s m e d i c a i d p r o g r a m those Medicaid enrollees served in the fee-for-service program are clients eligible for both Medicare and Medicaid and individuals in institutions like a state school or nursing home. What Services Does Medicaid Cover? Medicaid covers basic physical and behavioral health services, as well as chronic care and nursing home care for low-income Texans. Covered services include inpatient and outpatient hospital services, physician services, pharmacy services, and laboratory and X-ray services. Federal law allows states to determine the reasonably sufficient amount, duration and scope of Medicaid benefits. For example, state Medicaid programs can limit the number of visits per year for a certain service or limit a service to delivery in an outpatient setting. In traditional fee-for-service Medicaid, Texas limits adult inpatient hospitalizations to 30 days per spell-of-illness. For adults enrolled in Medicaid fee-for-service, only three prescriptions per month are covered in Texas. This limitation does not apply to people enrolled in managed care or Medicaid enrollees in nursing homes. How Is Medicaid Financed? The Texas Legislature appropriates money to fund Texas Medicaid each biennium based on projected caseloads and the cost of services. The amount of state dollars budgeted and local funds transferred to the state impact the amount contributed by the federal government. The Federal Medical Assistance Percentage (FMAP) determines the amount of federal payments to the state for Medicaid medical services. The FMAP formula compares each state s average per capita income with the national average. The minimum FMAP is 50 percent, the maximum is 83 percent and the average is 59 percent. States with lower per capita incomes receive more federal assistance. The FMAP calculation changes every year, and the calculation impacts the federal funds available to the state for Medicaid. Historically, Texas FMAP has averaged about 60 percent. Texas FMAP has been higher than average because of the state s large lower-than-average per capita income. However, Texas current FMAP is 58 percent, slightly below the average, meaning that for every 42 cents the state spends on Medicaid services, the federal government contributes 58 cents. In 2011, the Texas Legislature required the THHSC to actively pursue a modification to the FMAP formula that would reflect the state s total population, growth rate and the percentage of the population with incomes below the federal poverty level. The Legislature reasoned that these factors more appropriately reflect the state s need for federal matching funds than the current formula. States may use local government funding for up to 60 percent of the state s share of Medicaid monies eligible for federal matching dollars. Texas uses local government funding for the disproportionate share hospital program and other, smaller Texas Medicaid programs. A Medicaid transformation and quality improvement 1115 waiver program, approved by the Centers for Medicare & Medicaid Services in December 2011, allows the state to use public funds from local governmental entities willing to make a transfer to draw down federal matching funds. The additional matching funds that Texas expects under the waiver will provide supplemental payments for uncompensated care and incentive payments for making the health care delivery system more effective and efficient. The state s large hospital districts provide most of the share of local government funding. How Does Medicaid Reimburse Hospitals? Medicaid reimburses hospitals for providing covered inpatient and outpatient services to enrollees. Federal law allows state Medicaid programs flexibility in the amount they reimburse health care providers, although rates may not exceed the amount paid by Medicare for the same treatment. In 2012, Medicaid will pay most hospitals slightly more than 50 percent of their allowed costs for inpatient services, and outpatient rates are at less than 75 percent of allowed costs. Allowable costs are determined by a THHSC audit process. In 2013, Medicaid will pay most hospitals less than 50 percent of their audited allowed costs for inpatient services. These payment rates apply only to fee-for-service Medicaid. With most Medicaid enrollees covered through managed care plans, provider reimbursement rates are negotiated between the hospital or doctor and the MCO. The state Medicaid fee-for-service rates are usually the starting point for negotiations between the parties. Texas Medicaid has special cost-based payment rules for children s hospitals and hospitals in rural counties with a population of less than 50,000, because these hospitals treat a very high percentage of Medicaid patients. Hospitals that meet certain eligibility criteria may receive Medicaid Disproportionate Share Hospital funds. Hospitals also may be able to receive Medicaid transformation and quality improvement 1115 waiver payments, beginning in state fiscal year While supplemental payments help offset the below cost reimbursement in Medicaid and losses on uninsured patients, hospitals still are forced to underwrite a portion of the cost of caring for Medicaid patients. To help offset the unpaid costs of care, hospitals shift a portion of the uncovered Medicaid costs to insured and private-pay patients. In 2013, Medicaid will pay most hospitals less than 50 percent of their audited allowed costs for inpatient services. 5

6 T e x a s h o s p i t a l a s s o c i a t i o n Inpatient Hospital Reimbursement Rates Effective Sept. 1, 2012, general acute-care hospital reimbursement rates for fee-for-service Medicaid enrollees are set using a prospective payment system (PPS) based on an All Patient Refined Diagnosis Related Group methodology (APR-DRG). This approach replaces the previous Medicare diagnosis grouping approach. However, most hospitals will be paid a negotiated rate by MCOs, as most Medicaid enrollees will be covered through managed care and not the original fee-for-service program. The state sets the capitation rate that it pays to the MCOs, in part, on the Medicaid fee-for-service reimbursement rate. However, the decision of how much the MCO will pay a hospital, and whether a hospital will participate in that MCO s provider network, is negotiated between the two entities. Because MCOs bear the risk of financial loss on care provided to Medicaid enrollees, the MCOs may Medicaid Hospital Reimbursement Shortfall to the base APR-DRG payment for enrollees under age 21 whose treatments are exceptionally costly or who have unusually long lengths-of-stay. Rates paid to children s and rural hospitals are set using a different methodology. Children s and rural hospitals are reimbursed for their actual audited reasonable cost of providing care to Medicaid enrollees using the Tax Equity and Fiscal Responsibility Act of 1982 cost principles. Children s hospitals will be reimbursed under an APR-DRG methodology effective Sept. 1, Free-standing psychiatric hospitals also are paid on a prospective basis but they are paid a hospital-specific per diem, meaning a specified amount for each day a Medicaid enrollee is in a psychiatric hospital. These rates apply to services provided to Medicaid enrollees who are 21 years old or younger. The per diem is calculated based on a Medicare federal base rate with hospital-specific adjustments for wages, rural location and length-of-stay. On Sept. 1, 2011, these per diem rates were reduced by 10 percent, in compliance with a $400 million package of broad-based hospital cost containment measures approved by the Texas Legislature in % Audited 100% Allowed Costs 52% Actual Inpatient Reimbursement 75% Actual Outpatient Reimbursement Outpatient Hospital Reimbursement Rates Outpatient hospital services provided to fee-for-service Medicaid enrollees are reimbursed at a portion of the hospital s audited reasonable cost. Reimbursement for outpatient hospital services for high-volume providers is paid at approximately 76 percent of the hospital s allowable audited costs, with lower-volume hospitals paid about 72 percent of their allowable audited costs. As with inpatient reimbursement rates, the amounts that MCOs pay hospitals are negotiated between the two entities and may be less than the fee-for-service rate. 6 pay hospitals less than the fee-for-service rate. A natural tension exists in these negotiations because MCOs need an adequate network of providers, and hospitals see large numbers of Medicaid patients, but want to be paid fairly. Under the fee-for-service PPS, each admission is classified into an APR-DRG on the basis of clinical information. Hospitals then are paid a predetermined rate for each admission, based on the APR-DRG, regardless of the actual services provided. The payment rate is calculated using a formula based on a statewide rate called a Standard Dollar Amount that is adjusted for each hospital s geographic location, teaching status and trauma designation. For state fiscal year 2013, the statewide APR-DRG rates likely will be set at levels that reimburse hospitals, in the aggregate, less than 50 percent of their allowable audited costs. Outlier payments are added Supplemental Medicaid Payments To compensate hospitals for below-cost Medicaid reimbursement by the state and to help fund care for low-income patients not eligible for Medicaid, the federal government created the Disproportionate Share Hospital program to provide additional Medicaid funds to hospitals. A second program, the Upper Payment Limit Program, provided about $2.7 billion per year in funding to hospitals through state fiscal year The state s expansion of Medicaid managed care required significant changes to preserve the UPL funding for Texas hospitals.

7 f a c t s o n t e x a s m e d i c a i d p r o g r a m Disproportionate Share Hospital Funding In the Omnibus Budget Reconciliation Act of 1981, Congress required state Medicaid programs to make special payments to hospitals that serve a disproportionately large number of Medicaid and uninsured patients. Such hospitals are called disproportionate share hospitals and receive DSH funding. DSH funds differ from all other Medicaid payments because DSH is tied to both Medicaid and uninsured patients. DSH payments help hospitals finance the unpaid and under-funded care delivered in the emergency room as a result of the federal Emergency Medical Treatment and Labor Act (EMTALA), which requires hospitals to screen and stabilize everyone who comes to the emergency room, regardless of the person s ability to pay. While this unfunded mandate assures access to care, EMTALA does not address how to pay for the related health care services. DSH payments have been an important source of revenue for hospitals to expand health care services to the uninsured, defray the cost of treating indigent patients, and recruit physicians and other health care professionals to treat patients. The THHSC is considering a change in the distribution of DSH funds. Since the amount of DSH funding is fixed, changes will impact all hospitals that receive these additional payments. Medicaid patients often use the hospital emergency room to access health care services, especially after hours or on weekends. Because there typically is no enrollee-required financial participation for these ER visits, Medicaid patients have no incentive to use alternate, more appropriate sources of health care. In 2011, the Legislature approved a 40 percent reduction in Medicaid hospital and physician reimbursement for non-emergency care visits, penalizing providers for patient behavior they cannot control. Who Gets DSH? Three University of Texas teaching hospitals and all children s hospitals in Texas receive DSH payments if they meet federal and state qualification criteria. All other hospitals must qualify annually for DSH funds by providing care to large numbers of Medicaid and uninsured patients. The amount Texas hospitals receive from DSH varies annually, based on a formula set by Congress. The state combines its funds related to state-owned hospitals with local tax monies transferred to the state by the large hospital districts to create a pool of state dollars eligible to obtain federal matching dollars. These funds then are distributed to Texas hospitals that meet the threshold to qualify for DSH funds. Each hospital has a specific DSH cap, which is the total of the hospital s Medicaid and uninsured shortfalls, which are the differences between what it costs a hospital to provide services to that population and the payment received for those services. The lower the state Medicaid reimbursement to hospitals becomes, the more reliant hospitals become on DSH funds to mitigate the shortfall. Medicaid 1115 Transformation and Quality Improvement Waiver As allowed by federal law, in the mid-2000s, Texas created an Upper Payment Limit program that provided supplemental Medicaid payments to hospitals to mitigate the difference between Medicaid reimbursement levels and what Medicare would pay for the same services. The UPL program allowed public hospitals and county governments to transfer dollars to the state to obtain federal matching funds. However, the legislatively-mandated expansion of managed care in March 2012 effectively resulted in its discontinuation because UPL dollars cannot be used to mitigate shortfalls on Medicaid patients enrolled in managed care. The end of the UPL program could have resulted in a loss of about $2.7 billion a year in supplemental payments to hospitals. To save these supplemental payments, as well as incentivize changes in how services are delivered to improve the population s health, enhance the patient experience of care (including quality, access and reliability), and reduce or control the cost of care, THHSC obtained federal approval of a Medicaid transformation and quality improvement 1115 waiver. THHSC estimates that up to $29 billion will be available to hospitals over the five-year waiver period through two pools, an uncompensated care subpool and a delivery system reform incentive payment subpool. To receive payments from either subpool, a hospital must join with other hospitals and public entities in a geographic region to form a Regional Healthcare Partnership. Each RHP will create a plan under which its members will implement projects that will achieve waiver goals. To receive payments from the UC subpool, a hospital will fill out an application listing its uncompensated costs for services provided to Medicaid and uninsured individuals. A hospital may claim uncompensated costs for inpatient and outpatient services, as well as related costs for physician, clinic and pharmacy services. To receive payments from the DSRIP subpool, a hospital must meet specific metrics for each project selected by the RHP members and detailed in the plan. The projects will fall into four categories: infrastructure development, program innovation and redesign, quality improvements and population-focused improvements. As in the Medicaid DSH program, Texas will use intergovernmental transfers from state-owned and local governmental entities to draw down federal funds to finance both subpools. In addition to the same local Did you know? Texas Medicaid: n Subsidizes care for 70 percent of Texans in nursing homes n Pays for more than 57 percent of all births in Texas n With the Children s Health Insurance Program, provides health insurance to 3.7 million low-income Texans each month 7

8 T e x a s h o s p i t a l a s s o c i a t i o n Uncompensated Care Subpool Pays hospitals for cost of care not compensated by Medicaid directly or through DSH Medicaid 1115 Waiver Pool Hospitals eligible for funding must commit to investing in system transformation. Hospitals must participate in a Regional Healthcare Partnership to receive funds from either pool. Delivery System Reform Incentive Payment Subpool Pays hospitals for achieving metrics that move toward the triple aim Inpatient Outpatient Pharmacy Clinic Physician Category 1 Infrastructure Development Category 2 Program Innovation & Redesign Category 3 Quality Improvements Category 4 Population Focused Improvements entities that fund Medicaid DSH, counties, local mental health authorities and state academic medical centers also will fund the waiver. All hospitals are eligible to participate in the waiver, but each must be a member of a Regional Healthcare Partnership which must include public entities to provide the intergovernmental transfer of funds to finance the state match. THHSC is implementing the waiver on a very aggressive timeline. The federal government approved the waiver in December 2011, and THHSC must have everything implemented and approved by the Centers for Medicare & Medicaid Services by Oct. 31, Among the many items to be accomplished are: n Agreement on regions for RHPs; n Agreement on an anchor entity in each RHP; n Identification of sources of public funds to make up the state match used to draw down the federal matching dollars to fund both subpools; n Determination of the governance of each RHP; n Agreement by RHP members on projects that will form the basis of an RHP plan; n Determination of the valuation of each project in the plan; and n Determination of a payment process, perhaps graduated, based on the level of success in achieving projects in the plan. Not only are these very large, complex issues that must be resolved within a short timeframe, but they also are complicated by politics and competition. 8 According to Texas Government Code , portions of this material may be considered legislative advertising. Authorization for its publication is made by John Hawkins, Texas Hospital Association, P.O. Box , Austin, TX About the Texas Hospital Association Founded in 1930, the Texas Hospital Association is the leadership organization and principal advocate for the state s hospitals and health care systems. Based in Austin, THA enhances its members abilities to improve accessibility, quality and cost-effectiveness of health care for all Texans. One of the largest hospital associations in the country, THA represents more than 85 percent of the state s acute-care hospitals and health care systems, which employ more than 369,000 health care professionals statewide. Learn more about THA at or follow THA on Twitter at For more information, contact THA s Advocacy staff at 512/