$4 Billion in Healthcare for Poor Texans at Risk as Doubts Rise About Medicaid Agreement

April 19--Texas stands to lose some $4 billion in annual funding to care for the poor unless it can persuade federal authorities to renew a Medicaid waiver due to expire in September 2016.

But federal officials signaled last week they may no longer be willing to pay for uncompensated care for people who could be covered by expanding Medicaid under the Affordable Care Act. With Texas lawmakers adamantly opposed to a Medicaid expansion, the waiver expiration creates a potential showdown between state and federal health care officials that, if not resolved, threatens to unravel the state's health care safety net.

"It would be a disaster," said Dr. Paul Klotman, president and CEO of Baylor College of Medicine, which provides staffing to Ben Taub, the largest charity hospital in Houston. "I would not be surprised if safety net hospitals just folded."

Texas and federal officials negotiated the current arrangement, known as a Section 1115 waiver, in 2011, allowing the state to move additional beneficiaries into Medicaid-managed care plans. The waiver created two funding pools, one for uncompensated care and another to fund projects aimed at increasing access to care for low-income people. The waiver was intended to serve as a launching pad for the expansion of Medicaid in Texas under the federal health care law starting in 2014.

Then in 2012, the U.S. Supreme Court ruled the federal government could not force states to expand Medicaid. Texas leaders have steadfastly refused to add another 2 million low-income uninsured people to its Medicaid program even with the federal government picking up almost all of the cost.

Following Florida?

The five-year waiver will expire next year, and Texas officials must submit a final plan to the federal Centers for Medicare & Medicaid Services to extend the waiver by Sept. 1. But on Wednesday, CMS officials sent Florida officials a letter about that state's expiring 1115 waiver. The federal agency tied continued funding of Florida uncompensated care fund, known as the Low Income Pool, to an expansion of Medicaid.

"Coverage rather than uncompensated care pools is the best way to secure affordable access to health care for low-income individuals," CMS acting director Vikki Wachino wrote, "and uncompensated care pool funding should not pay for costs that would be covered in a Medicaid expansion."

Florida Gov. Rick Scott said the state plans to sue the Obama administration over the move, arguing the Supreme Court ruled the President can't force Medicaid expansion on states.

CMS officials declined to comment except to say that the Florida letter articulates key principles the agency will use in considering proposals regarding the low-income pool in Florida. CMS said it plans to use these same principles in considering similar proposals in other states while considering specific circumstances. Federal officials notified Texas Health and Human Services Commission officials of that intent in a phone call on Thursday.

"Texas should be watching very closely what goes on in Florida, because we're just several months behind them down the same path," said Ken Janda, CEO of Community Health Choice, a nonprofit health plan that covers Medicaid beneficiaries. "The letter that CMS sent to Florida, you just change the name of who you're sending it to and it sounds exactly like Texas."

Tom Seuhs, who was the state's health and human services commissioner when the Texas waiver was negotiated, said he believes the federal stance would violate the Supreme Court order.

"So they take you to the bluff and put a gun to your head and say, jump off," he said. "There's no difference in my mind."

Others cautioned about drawing parallels between Florida and Texas, which combined account for more than 40 percent of the nation's Medicaid-eligible uninsured.

"It's too early to panic and believe that Texas will experience the same challenges as Florida has experienced with renewal of its Low Income Pool waiver," former Texas Medicaid director Billy Millwee said in an email to the Chronicle.

State GOP: No strings

Millwee said CMS had outlined numerous objections to Florida's program when it granted the state a one-year extension last year. Those included concerns about transparency in hospital payment and reimbursement equality with hospitals that don't participate in the fund. But Florida failed to adequately address those issues in its renewal application.

"It would be unlikely that CMS will arbitrarily end the Texas waiver or (uncompensated care) pool without providing the state with notice and an opportunity to cure any objectionable components," Millwee said.

Republicans in Austin have been uncompromising on Medicaid, saying they are willing to expand the program only if they get a lump sum, block-grant payment with no strings attached on how to spend it. CMS, on the other hand, has shown a willingness to provide states with considerable flexibility on how they expand their Medicaid programs, but draws the line at providing a block grant.

With six weeks left in the legislative session, there may be little time for lawmakers to find a compromise position that would appease the CMS insistence on coverage expansion yet still be palatable to Republicans in Austin.

"What states need is flexibility to be able to reform and change the program according to the needs of the state, and that's something we don't have under Medicaid, and we won't have under Medicaid expansion, either," said John Davidson, director for the center of health care policy at the Texas Public Policy Foundation, a conservative Austin think tank. The Florida letter, he said, underscores that lack of state control.

"This kind of federal strong-arming of state agencies is par for the course for the Affordable Care Act, par for the course for the Obama administration," he said.

Anne Dunkelberg, health and wellness program director for the more left-leaning Center for Public Policy Priorities, said CMS recently allowed other Republican-controlled states, including Arkansas and Indiana, to build into their waivers many conservative-backed features that have never been allowed before in Medicaid.

"I wish that Texas leaders were showing more leadership on this issue," Dunkelberg said. "The fact that we aren't even having a discussion about it, particularly when the waiver is potentially at stake, is a great concern."

Nothing on the table

Safety net providers are watching to see whether CMS's new posture will spur the state health agency and the Legislature to propose more than a mere extension of the waiver.

"Really the last two years, CMS has been dying to have Texas propose something," Janda said. "There are lots of examples where CMS has been more flexible than I would have imagined. It's been more Texas being unwilling to put anything on the table for them to react to."

The Texas Hospital Association said it supports the renewal of the waiver but would like to see the state provide insurance coverage to indigent patients rather than relying on uncompensated care funding schemes. That would allow patients to see doctors on a timely basis and avoid allowing problems to escalate until they have no choice but to seek much more costly care at the emergency room.

"We would actually prefer some of these innovations that other states have used that are private market," said John Hawkins, senior vice president of government relations for the hospital group. "Those private market solutions we think are better for the beneficiaries, and they're certainly better for providers because we're not trapped in the kind of low reimbursement setting of Medicaid."

Hawkins said even with the waiver, Texas hospitals face a $2.8 billion shortfall in uncompensated care funding for 2016. Without a waiver renewal or Medicaid expansion, that amount could reach $6.6 billion in 2017. Those costs are then shifted to patients with insurance, raising costs for everyone. Moreover, if county hospital districts experience a drastic reduction in funding from Medicaid, they may have to pursue increases in property taxes to make up the difference.

"No Texan is being benefitted by this stance that our state legislators are taking," Klotman said. "We're just shooting ourselves in the foot. It's just unbelievable that a political stance would end up actually doing harm and providing less care to people in our own state. It makes no sense."

The uncertain future of the waiver also threatens some 1,500 projects throughout the state aimed at expanding access to care and providing services in underserved areas. Projects in region 3, which includes Harris County and eight other counties, received $2.2 billion through the wavier over the past five years. That has funded nine new facilities in Harris County providing more than 300,000 primary care visits, and expanding access to behavioral health and dental services for low-income Texans.

"We will not have the resources to provide care to these people," said Dr. Ericka Brown, executive vice president of ambulatory care services for Harris Health. "If we do not continue the waiver, if we do not accept Medicaid expansion, where will these people go? The cost of health care certainly will rise, because we will roll back to the ages of emergency room care, which is absolutely not the right thing to do."

The impact could extend far beyond the safety net hospitals as well.

"Removing almost $4 billion from the health care economy of Texas would have significant repercussions," Millwee said. "It's likely that hospital bond ratings would suffer, the ability for Texas hospitals to obtain loans to finance new ventures would be impacted and it's likely that some hospitals would need to reduce services, potentially lay off employees and, in extreme cases, close."

Hospitals' burden

Private hospitals already are shouldering an increasing load for indigent care in Houston and other parts of the state. Memorial Hermann hospital is now the largest provider of care to the uninsured in the region.

Freddy Warner, vice president of government affairs for Memorial Hermann, said hospitals have been lobbying lawmakers in Austin to address indigent care funding and the waiver extension, but he fears that time is running out.

"If you look at the worst-case scenario, you have no coverage expansion, you have a failure of hospitals in the state and the state health and human services commission to come up with a viable sustainable hospital financing methodology going forward, and you have CMS coming back and saying we won't approve a continuation of the wavier, unless you extend your Medicaid program," Warner said. "That's not just a worst-case scenario, that's a doomsday scenario."

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