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The Results are In!

Jun 1, 2017, 15:57 PM by Dylan Lancaster
Ben’s Blog 2017 (#10); May 29
Sine Die Budget Results

Is it sine die yet?

Sine die—the last day of the regular session of the 85th Texas Legislature—arrived on Memorial Day, May 29. As we await word of a special session (more on that later), I thought a review of where we’ve been and how our funding looks for the FY2018/2019 biennium would be helpful.

 

A look back

Heading toward the first gavel in January, we had an inkling that the sluggish Texas economy, downturn in oil prices and poor tax collections from retail sales were not going to make this a “good session” in terms of generous increases in funding to any agency in the state.

That “inkling” proved to be fact. At the last gavel on Monday, UTMB has fared better than originally feared, but we have been given some challenging cuts to resources in some areas.

Over the past five months, we have seen announcements from both the House and Senate leadership that this would be an austere session for higher education. Both houses sweated a variety of issues, but both were strongly committed to cost-containment for higher education and elsewhere. Whether the message was one of “do the same or more with less” or “we know you have more money in your budget you can use,” the picture was not a hopeful one for university presidents trying to grow the depth and/or breadth of their institutions. 

Members of the Senate Finance Committee found themselves in countless hours of meetings looking for cost savings in agency budgets, the Employee Retirement System, Correctional Health Care, Medicaid and just about everything that required state appropriations. It was a difficult task to squeeze into 140 days. Some of the suggestions came forward with months of study behind them; others were a bit off the cuff and required a lot of perfecting. Many could have benefitted from extended study.

Both the House and the Senate have been concerned about what is called “Special Item” funding found in health-related institution (HRI) and general academic institution budgets. For instance, at UTMB, Area Health Education Centers (AHEC) and chronic home dialysis have been “Special Items” for a number of years. The McDonald Observatory in Fort Davis has been funded as a Special Item since the early 1900s in the UT Austin budget. Both chambers feel that the system for funding many of these items is broken and needs substantial re-thinking. To that end, the Senate zeroed out all Special Items in its first budget; the House’s first budget reduced them by about 60 percent. Those moves got everyone’s attention at the start of the session.

For UTMB, that meant a huge decrease in funding, reducing the Special Item budget to the point that many programs would either close or face significant cutbacks and layoffs. 

As the session evolved, the Senate proposed a restoration of the items—but not in the Special Item format. Rather, they were included in a Formula Funding proposal, which placed the funds into the education, research and infrastructure category. The House differed with that proposal and the Conference Committee basically adopted the House’s proposal, with reductions but still categorizing the funding as “Special Items.” Most of the HRIs faced a very small reduction of 1 percent or less. UTMB’s related reductions, however, added up to over 55 percent of the total reductions for all of the state’s 12 medical schools. 

Such a massive proportional reduction for UTMB was not equitable. After bringing that fact to the attention of our area’s legislative delegation (Rep. Wayne Faircloth, Rep. Greg Bonnen and Sen. Larry Taylor), as well as to the co-chairs of the conference committee (Rep. John Zerwas and Sen. Jane Nelson) and to the Speaker of the House, Lt. Governor and Governor, we attempted to educate state officials about the adverse impact to UTMB’s mission. Rep. Faircloth went so far as to tell the Chair of the House Appropriations Committee and the Speaker that he could not support a budget that treated his constituents so unfairly. House leadership responded quickly. And, Rep. Bonnen and Sen. Taylor each visited with leadership and colleagues to support restoration of funds to UTMB.

In addition to cuts to Special Items, UTMB also stood to lose $8.9 million in funding from the Health and Human Services Commission’s (HHSC) unclaimed lottery proceeds, which supported our hospital’s indigent health care programs. And, UTMB was subjected to a mandatory discount for Employee Retirement System patients, which would reduce clinical revenue by more than $5 million. Lastly, UTMB had received multiple reductions in the Correctional Managed Care budget, through lower reimbursements for hospital care, loss of revenue for indirect costs and making repairs to Hospital Galveston the responsibility of UTMB and UT System. 


The Results

After many sleepless nights, multiple meetings and backstage drama, we were finally notified that there would be a $12 million restoration in the UTMB budget in Goal A (see below) in an effort to treat the university more fairly.

So how does it all look, with the $12 million added back to the budget?

  • Goal A—Education and Infrastructure: Total appropriation is $165,333,809 million, an increase of $6,454,700 or +4.06 percent 
  • Goal B—Provider Research Support: Total appropriation is $6,198,636, a decrease of $102,106 or -1.62 percent
  • Goal C—Provide Infrastructure Support: Total appropriation is $71,167,284, an increase of $4,282,810 or +6.4 percent
  • Goal D—Health Care Support: Total appropriation is $295,628,090, an increase of $878,885 or +0.3 percent
  • Goal E—Special Items: The hardest hit of all funding categories for UTMB, with total appropriation of $15,199,452, a loss of $14,153,842 or -48.22 percent
  • Goal F—Tobacco Funds: Total appropriation of $6,962,884, a loss of $3,032,762 or -30.34 percent for this resource that supports research

The total UTMB General Revenue funding for the FY18/19 biennial budget is $561,369,041 (which includes related funding for benefits and the like). This represents a reduction of $14,602,194 or -2.54 percent for the two-year period, compared to FY16/17.

As you can see, the biggest losers in the budget process were the tobacco funds and Special Item funding. Without the $12 million restoration worked out in the waning days of the session, we would be down $26.6 million.


Meanwhile…

What about our request for a mission-specific formula for our hospital to provide a more predictable way of determining funding and blunt the effect of drastic cuts to our Health System funding in lean years? For the fourth session in a row, the Legislature did not want to take on the task of designating new formulas. BUT, they did put into a legislative rider their intent for an interim review of all special items, formulas and processes for all higher education institutions.

 

What About Correctional Managed Care?

Funding for Correctional Managed Care is appropriated to TDCJ, which then pays UTMB and Texas Tech University according to terms of their contracts to provide care.

Some good news first.

The Legislature appropriated $2 million for the remodeling of two prison facilities to serve as infirmaries, so that CMC patients at Hospital Galveston and community hospitals can be transferred to an appropriate lower-acuity facility to complete their inpatient care. The hope is that these new infirmaries will lower the costs associated with hospital care.

The Legislature also appropriated $20.9 million for staffing both of those infirmary units with nursing and mental health professionals.

The Legislature appropriated $37.9 million for salary adjustments for those health care professionals working in CMC units. This represents roughly a 5 percent pool for salary adjustments.

Of concern to UTMB:

  • The basis for the Legislature’s operational budget for correctional health care did not get adjusted, so funding is essentially the same as FY16/17—a biennium in which we’ll see an $80 million shortfall for CMC. In addition, a projected $70 million shortfall in the CMC budget for FY18/19 was not funded in the budget approved on Monday. This created a potential CMC shortfall of $150 million for the 86th Legislature to address. (In 2019, the 86th Legislature also will have to deal with an estimated shortfall of more than $1.5 billion in Medicaid.)

    I should note that the Legislature did provide $80 million in the Supplemental Appropriations Bill (SAR) to “square up” the deficit in funding for the current biennium (FY16/17). Because of restructuring in our contracts four years ago, those deficits now accrue to TDCJ and not to UTMB. But if TDCJ cannot pay, the deficits fall to UTMB as a “past due” account.

  • Both the House and the Senate had a lively debate about ownership of Hospital Galveston, and declared that it was indeed owned by UTMB and UT System. Therefore, based on ownership, the Legislature declined to provide any funding for repair or general upkeep of the facility. That task will fall to UTMB in the future through Permanent University Fund (PUF) or Tuition Revenue Bond (TRB) funding. (The hospital was constructed in 1983 and has never been remodeled.)
  • Texas Tech and UTMB had been allowed a pool equal to 3.5 percent of revenues to cover indirect costs they incur to provide human resources, payroll, accounting, information systems, procurement, legal and numerous other services associated with the operation of a CMC enterprise. The Legislature lowered that reimbursement to 2.75 percent for both universities. For UTMB, this amounts to about a $14 million reduction in support to offset the cost of those necessary services.

In other CMC news, the Legislature instructed the health care providers to provide patients with 30 days of prescription medications at discharge and provided about $600,000 for that requirement. This is good news.

Regarding reimbursement for CMC-related hospital services, UTMB has been reimbursed at what are known as “TEFRA” rates for the past five years. “TEFRA” refers to a 1982 law that, among other things, set up a cost-sharing program in Medicaid. The methodology is set by the federal government through HHSC and is based on the UTMB cost report, which reflects the actual cost of care provided. In short, there is no “mark up” on the care, just the hard costs to provide the care. That methodology also provided approximately $20 million in salary coverage for 125 resident positions (also known as Graduate Medical Education, or GME). 

The first proposal from the Senate cost-containment work group would have lowered UTMB’s reimbursement by almost 40 percent per case and eliminated the 125 residency slots. After multiple, lengthy negotiations, the work group heard testimony from UTMB and from HHSC experts regarding how to best capture a fair cost reimbursement strategy. That has resulted in the allocation of a Medicare Standard Daily Average rate for inpatient services at Hospital Galveston, a cost-based reimbursement methodology for outpatient services at HG, the aforementioned funding of unit-based infirmary beds to enable earlier discharge of patients, and restoration of 125 residency slots. This also is good news.

 

It’s Not Over ‘Til It’s Over

A lot of time was taken up this session with religious, social, immigration and border security issues. Bills related to higher education, health care, the economy, equitable funding for public education and other topics got little play. A special session may be called to tackle some of these important issues for the people of Texas. That decision is Governor Abbott’s to make, and he has indicated he’ll let us all know later this week.

In the meantime, he has numerous bills on his desk—including the state budget—to sign or veto.