Most seasoned political observers describe Texas’ 140-day biennial legislative session as a marathon — starting with a slow, steady, measured pace and building to a frantic sprint in May as lawmakers try to push their legislation across the finish line to become law. This, however, is not a typical legislative session.

By Tom Banning TAFP Director of Legislative Affairs

As of this writing, the Texas Legislature has passed the midway point. The session began at a blistering pace, but very well may limp into the home stretch as the regular session winds down at the end of May. But if the Legislature is unable to come up with a new method of financing elementary and secondary education, the regular session may be only the first leg of a very long race.

School Finance:
A Refresher Course

The driving issue of the 79th Legislature is school finance reform and everything from budget deliberations to Medicaid reform is defined by this issue. As Yogi Berra observed, “it’s déjà vu all over again.” You’ll recall the failed 30-day special session of the Legislature to fix the state’s troubled school funding system by repealing the current so-called Robin Hood method of funding public schools, while cutting property taxes and generating additional revenue for elementary and secondary education. They’re back to try again, though this time there is additional pressure for the Legislature to act. State District Judge John Dietz of Austin issued a ruling last fall that the state’s school finance system is unconstitutional because it does not provide sufficient funding. If the system isn’t fixed by Oct. 1, 2005, the judge plans to halt state funding for schools.

Under these conditions, the Texas House of Representatives passed sweeping legislation in the form of HB 2 and HB 3, which overhauls the way Texas collects and provides funds for public education, while reducing local property taxes by one-third.

HB 3 increases the cigarette tax by $1 per pack and it increases taxes by 3 percent on snack foods such as soft drinks, chips and cookies. It also expands consumption taxes in Texas, broadening the sales tax base and raising it a penny from 6.25 percent to 7.25 percent.

The House also made major changes to which businesses would be required to pay taxes in Texas by expanding the tax burden to partnerships and sole proprietorships, which would include most physicians’ practices. The House also eliminated the Delaware Sub/Geoffrey franchise tax loophole that allows corporations to avoid paying the franchise tax by incorporating outside of Texas.

Under this bill, businesses would have the option of two different tax calculations: the current franchise tax, set at 4.45 percent of net income or 0.25 percent of capital, or a payroll tax calculated at 1.15 percent on wages.

Recognizing the economic realities of a medical practice, the House provides a 40-percent credit of Medicare and Medicaid revenue against the tax for those physicians who can show that 15 percent of their total revenue is attributed to those programs. Physicians may add Children’s Health Insurance revenues to Medicaid and Medicare to meet the 15-percent threshold, but the 40-percent credit may be calculated on Medicaid and Medicare revenues only.

An additional amendment impacting physician practice was added on the floor that trades sales tax on diapers and parking in medical facilities for a sales tax on “elective cosmetic procedures” that do not “meaningfully promote the proper function of the body or prevent illness or disease.” The tax does not apply to reconstructive surgery or repair of congenital defects.

The prognosis of the House school finance bill is clouded, due in part to the comptroller’s announcement that the bill will not balance and is about $2.3 billion short in meeting mandated property tax cuts. As required by the Texas Constitution, the House of Representatives took a first shot at crafting a tax bill. Now it is the Senate’s turn, where the bill and funding mechanism will likely change significantly. The Senate is not scheduled to begin debate on the tax bill until April 25, leaving only five weeks in the session for both chambers to reach consensus and pass the bill.

Ultimately the tax bill will be hashed out in conference committee, where five members of the House and five members of the Senate will play chicken until one side swerves. The final version of the bill won’t surface until the end of session, if at all. If the Legislature is not able to come to a conclusion on the school finance bill, it could turn into a long summer.

Budget

The one piece of legislation the 79th Legislature must pass is SB 1, the budget bill for fiscal years 2006-07. Unlike the 2003 session when the Legislature was faced with a $10 billion shortfall, this Legislature entered session with the comptroller announcing a small surplus.

The Senate and the House both produced their own version of the budget bill. The Senate spending plan for 2006-07 is $139 billion. This represents a 10-percent increase over the current two-year budget cycle, which is about $13 billion larger than the current state budget. The House meanwhile approved a two-year spending plan that totals $137.5 billion, increasing spending by 9 percent over the current budget. The House version of the 2006-07 budget is about $1.5 billion less than the Senate plan.

After the funding cuts two years ago, legislators are proposing to restore mental health, podiatry, vision and hearing coverage for Medicaid patients, and dental, vision and mental health coverage for CHIP patients. Child and Adult Protective Services, the agency charged with protecting children from abuse and neglect that has been plagued with problems, will also see a substantial increase in funding. The Legislature is also looking at restoring and enhancing Medicaid provider reimbursement rates, though the proposal only made it into Article 11 — the Legislature’s wish list.

In the end, the funding differences in the two bills will be worked out in conference committee where the two chambers will negotiate a budget package and wait to see how the comptroller says the revenue estimates compare to the proposed expenditures. Perhaps the most important component of how much money will be available for the budget bill will be determined by the success or failure to pass a school finance bill. In other words, the more taxes the Legislature raises, the less pressure to use funds from general revenue to pay for public education and property tax cuts. Conversely, the less new taxes available for school finance, the more pressure to “scrub the budget” to find additional money in current services.

Medicaid

As Medicaid costs continue to grow at unsustainable rates, the debate over how to best manage patient care and cost while maximizing federal funds has taken center stage at the Legislature.

In a misguided effort to reign in Medicaid health care costs, the Health and Human Services Commission was poised to roll out the controversial Star+Plus Medicaid HMO model to the state’s eight urban counties and surrounding areas. In fact, the commission was so dead set on rolling out the HMO-only model that $109.5 million in cost savings, attributed to the anticipated rollout of Star+Plus was built into the 2006-07 base budget.

Everything changed, however, when the state’s safety net public hospitals, county governments and the local taxpayers who subsidize them realized they would lose upwards of $150 million this biennium in federal upper payment limit (UPL) funds and hundreds of millions more in future payments if the state were to implement a capitated HMO model of care for Medicaid.

Faced with the potential loss of hundreds of millions of dollars in federal funds, members of the Senate Finance Committee, led by Sen. Judith Zaffirini (D-Laredo) and members of the House Committee on Appropriations, led by Rep. Vicki Truitt (R-Keller) placed a rider in the budget prohibiting HHSC from implementing a capitated model of care for the aged, blind and disabled Medicaid population.

To ensure cost savings of $109.5 million to the state and appropriately manage the state’s Medicaid patients, a broad group of health care providers and others were asked to develop a new model of care, giving birth to the Integrated Care Management model. ICM is a hybrid of the best parts of managed care and the best parts of the Primary Care Case Management model.

ICM, like other forms of managed care, will utilize care management tools like utilization review, disease management and pay for performance, but the main feature of ICM will be providing the patient a “medical home.” With a medical home, the patient can establish a long-term, continuous relationship with a primary care physician or provider, who will manage all aspects of that patient’s care. Physicians would also be entitled to an enhanced per-member per-month fee for serving as the patient’s primary care physician or medical home.

Unresolved Issues

A number of other issues affecting medicine and Texas patients remain unresolved. The Legislature has its hands full, working on various Sunset bills dealing with entities like the Texas State Board of Medical Examiners and the Workers’ Compensation Commission. Bills to address Texas’ growing obesity problem are pending in committee. A slew of bad managed care bills being pushed by the health insurance companies and the Texas Association of Business have yet to receive a hearing. These include prohibiting pass-through and balanced billing, allowing insurers to determine usual and customary charges, and prohibiting physician ownership in technology facilities, services or equipment. And who can forget the perennial attempts by allied health professionals to expand their scopes of practice through the Legislature? This session, the optometrists and podiatrists have declared war on organized medicine and are preparing a full-scale attack on the Legislature to expand their scopes of practice.

Only time will tell which bills will ultimately cross the finish line this session, which will be given new life if a special session is called and which ones are doomed to compete again in the 2007 legislative session.