Joint Budget Hearing

1. Joint Budget Hearing FY 2012-2013 Legislative Appropriations Request September 15, 2010

2. Health and Human Services Commission “The mission of the health and human service agencies in Texas is to develop and administer an accessible, effective, and efficient health and human services delivery system that is beneficial and responsive to the people of Texas.” Page 2

3. FY 2010-11 Actions and Accomplishments Eligibility and Enrollment Improvements: • Increased Eligibility Determination Staffing • Improved Timeliness for Processing Applications • Improved Error Rates • Successful Implementation of Initial TIERS Rollout in Austin, Lubbock and El Paso Regions in FY 2010 Medicaid and CHIP: • Implementation of STAR+Plus in the D/FW area – February 2011 • Rebased Hospital Rates pursuant to Rider 68 - October 2010 • Reviewing HHS impact of Federal Health Care Reform • Implementation of Non-Emergency Medical Transportation Broker Model - Spring 2011 Enterprise Progress and Improvements: • HHS Staff Participating on Comptroller’s Project ONE Page 3

4. Health and Human Services Commission (HHSC) LAR Policy Guidance and Resulting Actions • Instructions allowed GR-Entitlement growth for Medicaid and CHIP caseloads and maintaining FY 2011 Eligibility Determination staff levels. Requested Entitlement GR increased $4.6 billion over the 2010-11 biennium. • Non-Entitlement GR for the base request was submitted lower than allowed because of the HHSC’s acknowledgement of FY 2010-11 one-time funding and the assumption of FY 2013 savings from the decommissioning of SAVERR. Page 4

5. FY 2012-13 Base Request Assumptions • Medicaid • Average monthly caseloads are projected to increase from 3.73 million in FY 2011 to 3.88 million in FY 2012 and 3.99 million in FY 2013. • Costs for hospitals, physicians, and other providers are maintained at FY 2011 levels for the 2012-2013 biennium which continues the 1 percent rate reduction. • Children’s Health Insurance Program (CHIP) • Average monthly caseloads for CHIP are projected to increase from 581,599 in FY 2011 to 593,836 in FY 2012 and to 611,418 in FY 2013. • Costs for hospitals, physicians, and other providers are maintained at FY 2011 levels for the 2012-2013 biennium which continues the 1 percent rate reduction. • Temporary Assistance for Needy Families (TANF) • Recent trends of increasing TANF caseloads continues through the next biennium. The FY 2010 average monthly caseload of 123,338 is projected to increase to a monthly caseload of 136,507 by FY 2013. • Monthly and annual TANF cash amounts would be reduced due to base limitations of TANF State MOE and TANF federal funds. Reductions for monthly grant awards would be 16 percent for regular TANF and 50 percent for two parent TANF families. Page 5

6. Medicaid Caseload by Group Fiscal Years 2000 - 2013 Page 6

7. Children’s Health Insurance Program (CHIP) Caseloads, September 2001 – August 2010 Page 7

8. TANF Recipients, Fiscal Years 2003 – 2013 Page 8

9. FY 2010-2011 Budget Issues in the LAR • Net Supplemental Funding Need - $1.1 billion GR • $1.094 million GR for Medicaid costs and caseloads (yet to be adjusted for recent FMAP extension). • The HHSC impact of the FMAP extension would reduce this need by an estimated $660 million GR. Other HHS agencies impact could also be used to further reduce the supplemental funding need. • $46.2 million GR for CHIP costs and caseloads • Assumes FY 2011 TANF need would be covered by a Medicaid transfer based upon April 2010 letter submission. • Federal Funding and Other Issues • Extended lengths of time for review of state plan amendments and waivers that would provide additional federal reimbursement. • Federal deferrals and disallowances have increased federal cash flow issues. Page 9

10. Key LAR Federal Fund Assumptions • FY 2010-11 ARRA • August 2010 enactment of the extension (January 2011 – June 2011) of the temporary increase in federal match is not reflected in the FY 2010-11 Base funding. • FY 2012-13 includes approximately $3.0 billion GR to fund the return to a non-ARRA federal FMAP rate. • Health Care Reform (HCR) • In the LAR, FY 2010-13 reflects the HCR impact on increased federal recapture of the State’s supplemental drug rebates beginning January 2010. • Since HCR enactment, HHSC has prepared updated impacts of this policy as additional federal information is provided. FY 2010-11 assumes the first estimated impact which was available in June 2010 which was $18.9 million in lost state share of supplemental rebate revenue for the biennium. • The most recent estimate for FY 2010-11 would increase that biennial loss of state share to $25.2 million. • As CMS continues to provide guidance on this policy decision, no rebates have been recaptured yet. Page 10

11. Key LAR Federal Fund Assumptions • Federally-Required Perinate Changes for Clients Under 185% FPL • Beginning with FY 2011, Perinate moms and their newborns under 185% FPL will be funded in Medicaid. • Prenatal services would continue to be covered by CHIP until delivery. • Pending Amendment for Qualified Alien Coverage • The LAR assumes that as of May 2010, federal CHIP match is available for Medicaid coverage for Qualified Aliens. • The SPA has not been approved at this time and recent CMS guidance issued in July 2010 could alter the funding assumptions. Page 11

12. HHSC FY 2012-2013 Key Issues • CHIP and Medicaid Services • Preparing for Health Care Reform • Successful Implementation of any Medicaid Managed Care Expansion • Eligibility and Enrollment • Completion of Rollout of TIERS • Maintaining the staffing & improvements gained during FY 2010-11 • Addressing HHS IT Security Concerns • Maintaining Sufficient Support to Implement FY 2012-13 Work Effort • Adequate and Safe Work Environment for HHS Employees and Customers • Maintaining local office space, utilities, and services. Page 12

13. HHSC LAR Summary Request Page 13

14. Comparison of Selected Measures

15. 10% GR Biennial Base Reduction Supplemental Schedule • Capital $9.2 million • Deferral of Projects - $6.9 million and One-Time Adjustments - $2.3 million • Administrative & Program Operations $12.0 million • Salary Savings by reducing 202 positions in FY 2011 and another43.6 positions in FY 2013. Will attempt through attrition - $5.8 million • Travel and Other Operating - $5.7 million • Infrastructure Delays - $0.5 million • Contracted Services $22.1 million • Medicaid and CHIP Reduced Scope and Service Levels - $5.3 million • Reduction and Conversion of IT and TIERS Contractors - $10.8 million • Reduced Scope and Services Minimal Impact - $3.5 million & Significant Impact - $2.5 million • Grants $1.1 million • Reduces grants to Guardianship Programs, Community Resource Coordinationgroups, Office for the Elimination of Health Disparities and Medicaid initiatives - $1.1 million • Eliminates Faith and Community-Based Grants - $0.1 million • TANF Cash Assistance (Basic and State Programs) $13.1 million • Reduces grants awards by approximately 6.5 percent on top of base reductionsand jeopardizes portion of federal TANF grant to State for failure to maintain MOE requirement • Eliminate Frew Rewards to Managed Care Organizations $26.0 million Total GR $83.5 million Page 15

16. Exceptional Item Summary Total Exceptional Items $1.4 billion GR & $3.4 billion AF • HHSC Current Services $1.56 billion GR & $3.68 billion AF • Medicaid, CHIP, TANF, Frew Strategic Initiatives, and Cost Annualization • DIR Data Center (HHS System Request) • HHSC Service Improvements$135.1 million GR & $256.3 million AF • Eligibility Improvements • Salary Increases for Staff Retention & Additional Staff for Caseload Growth • Food Bank Collaboration Expansion & Local Office Improvements • Additional Family Violence Funding and Services • 2-1-1 TIRN Funding • Additional Office of Inspector General (OIG) Staffing • MEPD Asset Verification System • Autism Resource and Research Center Page 16

17. Exceptional Item Summary • Managed Care Expansion($600.6) million GR & ($1.2) billion AF • Cost and Savings of Managed Care Expansion assumes Department of Aging and Disability (DADS) and HHSC current services funding for costs and caseloads. • Net Savings represent HHSC increased STAR+PLUS Costs offset by Long Term Care (LTC) Savings at DADS and the Premium Insurance Tax Revenue Gain to State. The revenue gain would offset the need for GR and is reflected as a savings. • Implementation is assumed September 1, 2011 for STAR Expansion in Contiguous Counties and Vendor Drug capitation. March 2012 is assumed as implementation for all other initiatives. • Federal approval would be required for the rates. • Impact to Administration and other services have yet to be estimated. Page 17

18. Biennial Summary of Managed Care Expansions Page 18

19. HHS System Exceptional Items • HHS System Exceptional Items$351.2 million GR & $671.9 million AF • HHSC Community Expansion • Technology Improvements • IT Security • Address Systems at Certain State Facilities • Health Initiatives • Acquired Brain Injury Waiver • Veteran’s Health Initiative • HHSC Disproportionality and Disparities Initiative • HHS Targeted Staff Retention and Recruitment • Salary Increases for Nurses and Assistants at Certain State Facilities • Salary Increases for DADS LTC Eligibility Staff Page 19

20. Exceptional Items

21. Exceptional Items Continued

22. Appendix • Summary of Exceptional Item Requests Page 22

23. Description of HHSC Exceptional Items 1. MAINTAIN MEDICAID COST TRENDS FOR CURRENT SERVICES $1,341.9 GR / $3,341.7 AF This request represents cost and utilization increases forecasted for FY 2012-13 in the Medicaid program that are not allowed in the base request. Caseload growth is assumed to be in the base request at FY 2011 cost levels and FMAP rates of 60.55 percent for FY 2012 and 60.55 percent for FY 2013. The one percent provider reduction imposed in FY 2011 is assumed to be continued through FY 2012-13. 2. MAINTAIN CHIP COST TRENDS FOR CURRENT SERVICES $41.8 GR / $140.7 AF This request represents cost and utilization increases forecasted for FY 2012-13 in the CHIP program that are not allowed in the base request. Caseload growth is assumed to be in the base request at FY 2011 cost levels and FMAP rates of 72.39 percent for FY 2012 and 72.39 percent for FY 2013. The one percent provider reduction imposed in FY 2011 is assumed to be continued through FY 2012-13. 3. MAINTAIN TANF CASH GRANT AMOUNTS FOR CURRENT SERVICES $54.1 GR /$54.1 AF This request would continue funding the monthly cash grant awards at current amounts for the basic and two-parent family programs at the projected caseload levels assumed in the base request. The limitations of the FY 2012-13 base funding held constant the FY 2010-11 federal TANF funds and state GR funds. The requested state general revenue for the basic program could also be TANF federal funds, if available. Page 23

24. Description of HHSC Exceptional ItemsContinued 4. MAINTAIN FREW STRATEGIC INITIATIVES FUNDING $91.4 GR /$96.9 AF This funding request would complete and continue those Frew Strategic Initiatives initiated during the current biennium that are not related to rates which are in the FY 2011 Medicaid cost trends in the base request. This funding would complete two initiatives during FY 2012 and provide on-going funding for continuing the courier service for TH Steps lab testing, physician and dentist loan repayment program, mobile dental units, health home and developmental calendars. No Strategic Initiative funding from the original $150 million is available for FY 2012-13. 5. ANNUALIZE AND MAINTAIN CURRENT OPERATING LEVELS FOR HHSC POGRAMS & SERVICES $19.8 GR / $26.3 AF During the 2010-11 biennium, HHSC acquired office space for which there is not 24 months of expenditures in the FY 2012-13 base request funding. This request would fund $17.8 million GR and $24.3 million All Funds for the balance of those facility costs as well as $1.0 million GR and $2.0 million AF for increased transaction costs associated with the Electronic Benefit Card due to SNAP caseload growth. . 6. MAINTAIN IT SERVICES FOR HHS PROVIDED BY DIR DATA CENTER SERVICES $13.7 GR / $18.8 AF This request would provide funding to all five HHS agencies in support of Data Center Services consolidation managed by the Department of Information Resources (DIR). Funding of $4.4 million GR and $7.3 million All Funds would cover increased billings from DIR for HHSC, DARS, and DSHS) as well as $9.4 million GR and $11.5 million All Funds internal agency costs (DADS, DFPS, DSHS, and HHSC) to transform and remediate existing systems to be supported by DIR. Page 24

25. Description of HHSC Exceptional ItemsContinued 7. IMPROVE SECURITY FOR HHS IT SYSTEMS $10.9 GR / $16.1 AF This project would use technology to find and protect client confidential data and would put the HHS agencies in compliance with state and federal law and policy. The agencies can be fined significant penalties for failure to comply with these protection policies. Additionally, this request includes Winters building data center power infrastructure and physical security upgrades. 8. IMPLEMENT MEPD ASSET VERIFICATION SYSTEM $2.3 GR / $4.6 AF This request funds the development of an Asset Verification System for the Medicaid Eligibility for the Elderly and People with Disabilities (MEPD) Program. Development of this system is mandated by the Supplemental Appropriations Act of 2008 which added section 1940 to the Social Security Act (Sec. 1940.[42 U. S. C, 1396w]). This system would be used to verify applicants’ assets by electronically matching client provided information with information obtained from financial institutions. 9. EXPAND FOOD BANK COLLABORATION PILOT STATEWIDE $2.2 GR / $4.5 AF This request would allow statewide expansion of the Food Bank Collaboration Pilot implemented during FY 2010. USDA approved an HHSC waiver request for the Community Partner Interviewer (CPI) demonstration project enabling HHSC to expand application assistance services provided through a strategic public partnership with Texas Food Bank Network (TFBN) which includes the SNAP eligibility interview process. Page 25

26. Description of HHSC Exceptional ItemsContinued 10. INCREASE RETENTION OF ELIGIBILITY STAFF $52.9 GR / $102.5 AF This request would provide funding to increase retention of Office of Eligibility Services (OES) regional field office staff by providing a salary increase and performance incentives. A 10 percent salary increase would be allocated for clerks, workers, supervisors and program managers totals $28.6 million GR and $59.5 million all funds. There would also be $24.3 million general revenue and $43.0 million all funds for performance incentives for OES staff as recommended by a State Auditor’s Report. 11. INCREASE ELIGIBILITY RESOURCES FOR CASELOAD AND WORKLOAD GROWTH $66.4 GR / $128.7 AF This request for funding would support additional direct eligibility staff associated with the caseload forecasts assumed in the base for Medicaid, TANF, SNAP and CHIP- 958.0 FTES in fiscal year 2012 and 1,547.0 FTEs in fiscal year 2013. 12. IMPLEMENT OES CUSTOMER FLOW MANAGEMENT SYSTEM $1.0 GR / $2.0 AF This request would allow for the Office of Eligibility Services’ (OES) statewide expansion of a customer flow management system for certain regional field offices that house three or more eligibility units. This system would help improve client services, decrease client waiting time, and increase customer flow efficiency. The system would also help provide reports to help OES managers track the customer flow within an office to identify processes that need to be improved. 13.CAPITATE MEDICAID SERVICES IN URBAN AND CONTINGUOUS COUNTIES ($34.7) GR / ($58.6) AF This request represents the net fiscal impact to implement Medicaid capitated managed care services in certain contiguous counties to the managed care service delivery areas of Lubbock, San Antonio, Austin, Houston, Corpus Christi and El Paso by September 2011 as well as STAR+Plus in the two remaining urban Page 26

27. Description of HHSC Exceptional ItemsContinued counties of Lubbock and El Paso by March 2012. Managed care programs would include STAR and STAR+Plus where these programs currently exist. Assuming full funding of current services at DADS and HHSC, the estimate reflects the biennial impact of improved utilization management in the affected service areas, long-term savings of client services at DADS ($96.1 million GR and $243.6 million all funds), and the revenue gain in Insurance Premium Tax to the State Treasury ($19.4 million general revenue). Thus, all of the identified savings cannot be reduced from HHSC. Administrative impacts have not yet been calculated. 14. EXPAND MEDICAID MANAGED CARE IN SOUTH TEXAS ($290.0) GR / ($674.0) AF This request represents the net fiscal impact to implement Medicaid capitated managed care services in South Texas by March 2012. Managed care services would include STAR and STAR+Plus in 10 counties in South Texas. Assuming full funding of current services at DADS and HHSC, the estimate reflects the biennial impact of improved utilization management in the affected service areas, long-term savings of client services at DADS ($428.4 million general revenue and $1,085.9 million All Funds) and the revenue gain in Insurance Premium Tax to the State Treasury ($40.7 million general revenue). Thus, all of the identified savings cannot be reduced from HHSC. Administrative impacts have not yet been calculated. This action would also require a statutory change in order to implement managed care programs in Hidalgo, Cameron and Maverick counties. 15. REPLACE PCCM SERVICES WITH MANAGED CARE (EPO AND STAR+PLUS) ($61.2) GR / ($92.8) AF This request represents the net financial impact incurred by HHSC replacing Medicaid PCCM service delivery with EPO to provide managed care services to include all Acute Care services for all Adults (Aged and Disability-Related, as well as current HMO) in 164 counties with a capitated EPO model by March 2012. Assuming full funding of current services at HHSC, the estimate reflects the revenue gain in Insurance Premium tax to the State Treasury ($50.0 million general revenue) Thus, all of the identified savings cannot be reduced from HHSC. Administrative impacts have not yet been calculated. Page 27

28. Description of HHSC Exceptional ItemsContinued 16. CAPITATE MEDICAID DENTAL SERVICES ($101.6) GR / ($176.0) AF This funding request the net impact incurred by HHSC to capitate children’s dental services through a DMO or HMO dental carve-in by March 2012. The biennial estimate also reflects the revenue gain in Insurance Premium Tax to the State Treasury ($48.6 million general revenue) so all of the identified savings cannot be reduced from HHSC. Administrative impacts have not yet been calculated. 17. CARVE-IN HOSPITAL COSTS IN STAR+PLUS ($28.9) GR / ($58.8) AF The funding represents the net impact to HHSC by including in-patient hospital costs in the capitation rates for STAR+Plus by March 2012. Currently, these costs are excluded from the capitation and paid fee-for-service for STAR+PLUS members. The biennial estimate reflects the revenue gain in Insurance Premium tax to the State Treasury ($9.5 million general revenue) so all of the identified savings cannot be reduced from HHSC. Administrative impacts have not yet been calculated. 18. CAPITATE MEDICAID AND CHIP VENDOR DRUGS ($84.1) GR / ($113.9) AF This request represents the net financial impact incurred by HHSC to provide capitation managed care services for prescription drugs by September 2011. The biennial estimate reflects lost vendor drug supplemental rebates by the State as well as the revenue gain in Insurance Premium tax to the State Treasury ($78.7 million general revenue) so all of the identified savings cannot be reduced from HHSC. Administrative impacts have not yet been calculated. It is assumed that the rate paid to managed care organizations would be reduced for their collection of supplemental rebates. Page 28

29. Description of HHSC Exceptional ItemsContinued 19. IMPROVE STAFFING AND SUPPORTS FOR THE OFFICE OF INSPECTOR GENERAL (OIG) $2.4 GR / $4.4 AF This funding request would increase the staff for the OIG by 35 positions each year, adding investigators and support positions to address the increasing workload of the Office and reduce backlog. Most of the requested staff would be in General Investigations to conduct recipient fraud investigations, establish overpayment claims, and research data matches in HHS programs and within federally mandated timeframes Four positions would support Internal Affairs to investigate alleged criminal activity including abuse, neglect, sexual assault, and exploitation of client/residents within State Supported Living Centers (SSLC). The general revenue amount also includes the general revenue share that would be billed to other HHS agencies but would eventually be Interagency Contracts in HHSC’s method of finance 20. INCREASE FAMILY VIOLENCE SERVICES FUNDING $4.5 GR/ $4.5 AF This request would enhance family violence services for existing service providers to expand services in four areas: economic stability (including but not limited to transitional housing, job training and educational support), legal services (to address complex issues such as custody, immigration, and protective orders), primary prevention and Domestic Violence Fatality Review. Funding would also allow for new providers and initiatives to implement evidence-based primary prevention models and Domestic Violence Fatality Review efforts across Texas. 21. ESTABLISH TEXAS AUTISM RESEARCH AND RESOURCE CENTER $1.6 GR / $1.6 AF Senate Bill 1574, 81st Legislature Regular Session 2009, requires HHSC to establish and administer an autism spectrum disorders resource center to coordinate resources for individuals with autism and other pervasive developmental disorders and their families. Funding would enable HHSC (through a contract with DADS) to begin to provide some of the training and development activities that are central to the mandates required of the center. It would also support further development and on-going implementation of the web-based resource tools, as well as the development of some of the coordination and support activities described in legislation. Page 29

30. Description of HHSC Exceptional ItemsContinued 22. INCRESE STATE ASSISTANCE TO 2-1-1 INFORMATION CENTERS $1.7 GR/ $3.5 AF The requested funding would increase support of 2-1-1 Area Information Centers (AICs). Included in the request are funds to implement telephony improvements to increase call capacity needed for daily increased call volumes and especially during natural disasters. The AICs would also be able to increase their staffing to better achieve targeted service levels. Due to increasing call volume, an increasing number of AICS are not meeting the monthly service level of 80 percent of calls answered within 60 seconds. Additionally, two FTEs are needed to support the HHSC expanding 2-1-1 workload in the areas of contract management and routine administrative (clerical) duties. 23. INCREASE CAPACITY OF HHS-FUNDED COUMMUNITY SERVICES $265.4 GR / $543.5 AF This exceptional item would request funding to increase capacity of HHS community services as part of a continue the effort to reduce and/or eliminate programs with waiting or interest lists at the Department of Aging and Disability Services (DADS), the Department of Assistive and Rehabilitative Services (DARS) and the Department of State Health Services (DSHS). The biennial cost has been reduced for the assumed impact of Medicaid managed care expansions. 24. SUPPORT A HHS VETERAN’S HEATLH INITIATIVE $14.9 GR / $14.9 AF This funding request would address HHS efforts to fill some of the gaps and enhance veterans’ services at HHSC, DADS, and DSHS. The initiative includes contracting with Local Mental Health Authorities to develop veterans resource networks, contracting with 2-1-1 providers to expand the Texas Military Family Access Project, contracting with local government entities with high concentration of veterans and service members to expand the military-focused CRCG, and supporting Aging and Disability Resource Centers that assists veterans. Page 30

31. Description of HHSC Exceptional ItemsContinued 25. ENHANCE TECHNOLOGICAL SUPPORTS OF STATE HOSPITALS AND STATE-SUPPORTED LIVINGCENTERS $8.8 GR / $12.4 AF This request represents all enterprise IT funding supporting existing initiatives supporting both State Hospitals and State Supported Living Centers, such as integrated enhanced reporting initiatives to allow an increase in the efficiency of real time reporting of clinical information to make patient treatment and care decisions, implementation of failover infrastructure of software suites to support pharmacy and medication administration applications, client trust fund (CTF) application upgrade (which does not meet software requirements for the Data Center Services (DCS) contract), and the consumable inventory management system (MIMS) upgrades. 26. IMPLEMENT AN ACQUIRED BRAIN INJURY WAIVER $1.2 GR / $2.6 AF This request would fund the development and implementation of a Medicaid waiver to provide support and respite services to individuals who have acquired a brain injury. The waiver would require federal approval and is assumed to be implemented during fiscal year 2013. Initially 100 slots would be funded with expansion to 200 slots by fiscal year 2015. Acute costs would be funded at HHSC and long-term costs would be funded at DADS. 27. IMPLEMENT AN HHS DISPROPORTIONALITY AND DISPARITIES INITATIVE $2.2 GR / $3.1 AF This funding would facilitate cross systems disproportionality and disparities work at a state and regional level including working with communities and other stakeholders. Training for HHS employees and managers would build a foundation for understanding culture, ethnicity and race, enhancing the competency of staff to ensure equitable outcomes for all clients served. Page 31

32. Description of HHSC Exceptional ItemsContinued 28. INCREASE RETENTION AND RECRUITMENT OF TARGETED HHS STAFF $47.7 GR / $79.3 AF This funding would provide salary increases to medical personnel at DADS and DSHS working in the state-supported living centers and state hospitals to address high turnover in nurses, mental retardation assistants and nursing assistants. There is also a salary increase for DADS long-term care eligibility workers. Page 32