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President's Page
March 2005
An Example of Unintended Consequences:
Understanding the Medicaid Budget Avoids Costly Mistakes
2005 DCMS PresidentThis example begins with the 78th Legislature. In its effort to balance a budget whose revenue would not cover state costs, the Legislature directed the Texas Health and Human Services Commission to “provide medical assistance for acute care through the most cost-effective model of Medicaid managed care as determined by the Commission.”
After a state study, HHSC determined that a capitated HMO managed care model called Star+Plus could reduce Medicaid costs to the state by $25 million to $35 million per year. We imagine that such savings would please any state agency trying to accommodate the Legislature’s request. Managed care companies responded to a Request for Proposals and statewide implementation was to start Sept 1, 2005.
Dallas County Commissioners, also attempting to manage the county’s healthcare budget with a desire to provide quality medical care through cost-effective means, retained the Health Management Associates consulting firm to evaluate a number of cost and operational issues associated with the financing of Parkland Health & Hospital System. HMA found that although the Star+Plus capitated managed care model might save the state $25 million to $35 million, it would result in a $25 million loss in current federal funding to Parkland Hospital. If the effect on University of Texas at Southwestern Medical School physicians, private hospitals, and physicians in Dallas County who care for Medicaid covered patients is included, the potential loss is estimated to be $100 million.
This should get the attention of all Dallas County taxpayers, even though we may not always be adept when it comes to following what our tax dollars end up supporting. This causes me to say, “Hey—wait a minute, help me understand this.” Dallas County taxpayers pay federal income tax, and the Centers for Medicare and Medicaid Services
send back to Parkland Hospital and Dallas County hospitals and physicians $100 million to support health care. A capitated managed care system designated by HHSC will save a total of $25 million in state tax dollars contributed by all Texas taxpayers. If HHSC implements Star+Plus, Dallas County taxpayers will have to make up for the $100 million loss in revenue through higher county taxes to support the public sector and higher healthcare costs in the private sector.
The final effect is forfeiting $100 million that Dallas County taxpayers paid in federal taxes, while increasing Dallas County taxes and the amount of money required to deliver health care in the private sector, but decreasing state tax expenditures by $25 million. Savings in state tax expenditure now has required the citizens of Dallas County to make up $100 million in lost federal revenue.
Certainly there must be a reason for this unintended consequence, and there is. As long as a capitated managed care model is not used to deliver Medicaid managed care, the hospitals and physicians may qualify for a technical factor known as the Upper Payment Limit. Under UPL, states can claim federal funds for the difference between what Medicaid pays a qualified provider and what Medicare would have paid for the same services. A capitated Medicaid managed care structure precludes UPL reimbursement. The UPL reimbursement factor allows the approximately $100 million in federal dollars to come to Dallas County to support health care.
As this is being written in February, it is not clear whether HHSC will implement Star+Plus. However, a number of groups are working diligently to preserve a system that would allow our federal tax dollars to return to support Dallas County health care. The Dallas County Commissioners, Dallas County Judge Margaret Keliher, the Dallas County legislative delegation, Dallas Medical Resources (a nonprofit business community and health community organization) have actively brought this inequity and unintended consequence to the attention of Albert Hawkins, executive commissioner of HHSC, other Texas commissioners, the governor, lieutenant governor, and the speaker of the House.
This example shows that the funding of health care is complicated and that a well-intended change in one area can produce dramatic unintended consequences in another area unless all aspects of healthcare quality, delivery, and funding are understood.
Dallas County Medical Society is thankful for the serendipitous actions of the Dallas County Commissioners and Health Management Associates, who discovered a costly threat to the county taxpayers throughout Texas and to the healthcare delivery system that provides health care to all Texans covered by Medicaid.
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