SB 7 includes a new licensure process for health care collaboratives (or ‘Texas ACOs’)

SB 7 is an omnibus bill primarily related to reform of the Texas Medicaid system with a focus on performance based compensation measures. The bill is actually composed of several health care related bills that failed to pass during the regular session due to timing issues. In addition to Medicaid payment reforms, SB 7 includes a new statutory licensing process for health care collaboratives, the Texas version of accountable care organizations (ACOs). It also enacts the Interstate Health Care Compact, an initiative being pursued by conservative states to seek federal block grants to fund state health care needs. The Interstate Health Care Compact requires Congressional approval to be effective.

Legislative Background

The governor’s proclamation for the special session directed the legislature to consider legislation “related to health care cost containment, access to service through managed care, and the creation of economic and structural incentives to improve the quality of Medicaid services.” While the bill is dominated with quality related language, the expansion of medicaid managed care was the critical item that required passage of the legislation during the special session due to the estimated $468 million economic impact on the state budget. SB 7 includes the provisions of SB 23 (Medicaid Managed Care) and SB 8 (Health Care Collaboratives) considered during the regular session.

SB 23 was controversial during the regular session because it eliminated the longstanding “valley exemption” that prohibited an HMO model from being used for the Medicaid population located in Cameron, Hidalgo and Maverick counties. However, the budget impact combined with the negative media coverage of Valley medical costs ensured the elimination of the exemption despite initial objections by legislators from this region of the state.

SB 8 enacts the Texas version of ACOs — it enables hospitals, physicians and other providers to obtain a license as a health care collaborative (HCC) for the purposes of delivering integrated health care in Texas. Stakeholder negotiations on SB 8 centered on anti-trust review by the Attorney General’s office, exemptions from fee splitting and corporate practice of medicine provisions, and corporate governance and physician participation in the HCC.

By the start of the special session, most of the language disputes related to the legislation had been resolved among the various interested stakeholders. Supporters of SB 7 included the Texas Hospital Association, the Texas Medical Association, the Texas Nurses Association, the Texas Association of Business, the Texas Conservative Coalition, the Texas Public Policy Foundation, Texas Cares for Children and the Texas Association of Health Plans.

Following is a short summary of the key articles of SB 7 with an emphasis on the provisions of the bill related to HCCs. For the text of the entire bill, go to: http://www.capitol.state.tx.us/BillLookup/Text.aspx?LegSess=82R&Bill=SB7.

SUMMARY OF SB 7

Article 1: Administration of and Efficiency, Cost-Saving, and Fraud Prevention Measures for Certain Health and Human Services and Health Benefits Programs

Article 1 contains over 90 pages of changes related to the Texas Medicaid and CHIP programs, including repeal of the prohibition on Medicaid managed care in the valley region of the state. Other provisions in Article 1 include:

• Development of a new assessment process for Medicaid recipients’ needs for acute nursing services.
• Directing the Health & Human Services Commission (HHSC) to consider an assessment process for therapy services for occupational, physical, and speech therapy for Medicaid recipients.
• Promotion of a patient centered medical home for Medicaid and CHIP recipients.
• Requiring HHSC to consider fine history prior to awarding contracts to MCOs and PBMs.
• New operational obligations for MCOs contracting with HHSC for Medicaid managed care services, including implementation of a pharmacy benefit plan for enrollees (pharmacy benefits are currently “carved out” of Medicaid managed care).
• Directs HHSC to work with MCOs to ensure providers are given payment incentives to encourage preventive care services.
• Adds a new Chapter 260A to the Health & Safety Code mandating institutions and assisted living facilities to file reports of abuse, neglect and exploitation of residents.
• Amends provisions related to the Long Term Care Waiver program.
• Amends the assisted living facility statutes to allow for the provision of skilled nursing services for limited purposes.
• Mandates a study regarding physician incentives to reduce emergency room use for non emergent conditions.
• Enacts significant provisions related to quality based outcomes and payments in the Medicaid program.

Article 2: Legislative Findings and Intent; Compliance with Anti Trust Laws

The stated legislative intent of Article 2 is to: (1) explore innovative health care delivery and payment models to improve the quality and efficiency of health care in this state; (2) to improve health care transparency; (3) to give providers the flexibility to collaborate and innovate to improve the quality and efficiency of health care; and (4) create incentives to improve the quality and efficiency of health care.

Article 3: Texas Institute of Health Care Quality and Efficiency

This article creates a new Texas Institute of Health Care Quality and Efficiency with a statutory purpose to “improve health care quality, accountability, education, and cost containment in this state by encouraging health care provider collaboration, effective health care delivery models, and coordination of health care services.” The institute is comprised of 15 members appointed by the governor, including representatives of various state agencies, health care providers, payors, consumers, and health care quality experts.

Article 4: Health Care Collaboratives

Article 4 contains the new statutory provisions related to health care collaboratives (HCCs), the Texas version of accountable care organizations. Specifically, Article 4:

• Creates a new Chapter 848 of the Texas Insurance Code allowing for certification of HCCs.
• Defines an HCC as an entity:
  • that undertakes to arrange for medical and health care services for insurers, HMOs, and other payors; 
  • that accepts and distributes payments for medical and health care services; 
  • that consists of physicians, physicians and other health care providers, or physicians, other health care providers and HMOs or insurers; and 
  • that is certified by the commissioner to lawfully accept and distribute payments to physicians and other providers using the reimbursement methodologies authorized by this chapter.
• Protects as confidential certain financial and reimbursement information required to be filed in an application for HCC certification.
• Allows for certified HCCs to arrange to provide health care services under contract with governmental or private entities.
• Contains governance requirements, including an even number of physician board members if the governing board is composed of both physicians and other providers.
• Requires the HCC governing board to establish a compensation advisory committee to develop and make compensation related recommendations.
• Conditions for certification as an HCC include demonstrating that the HCC has the willingness and potential ability to ensure that health care services are delivered in a manner that:
  • Increases collaboration among health care providers and integrates services; 
  • Promotes improvement in quality based health care outcomes; 
  • Reduces the occurrence of potentially preventable events; 
  • Includes processes that contain health care costs; 
  • Has processes to develop, compile, evaluate, and report statistics on performance measures related to the quality and cost of health care services.
• The commissioner of insurance must also conduct an initial antitrust review to determine:
  • The HCC is not likely to reduce competition in any market for physician, hospital, or ancillary health care services due to the size or composition of the HCC; 
  • The pro-competitive benefits of the applicants proposed HCC are likely to substantially outweigh the anticompetitive effects of any increase in market power.
• Prior to certifying the HCC, the commissioner of insurance must forward the application to the Texas Attorney General’s Office to concur with the insurance department’s anti-trust review.
• A certified HCC has the following general powers and duties under Chapter 848:
  • An HCC may provide or arrange for health care services through contracts with physicians and other providers; 
  • An HCC may not prohibit a physician from participating in other HCCs; 
  • An HCC may not use a covenant not to compete to prohibit a physician from participating in other HCCs; 
  • An HCC must comply with medical record transfer obligations related to physicians leaving the HCC; 
  • An HCC may contract with an insurer for reinsurance for the cost of medical and health care services; 
  • An HCC may contract and accept payment from governmental and private entities for the provision of health care and medical services and distribute payments to physicians and other providers;
  • An HCC may accept and distribute payments from governmental and private entities on a fee for service or alternative payment mechanism basis including episode based or condition based payments; capitation or global payments or pay for performance or quality based payments; 
  • An HCC may not accept payment from a governmental or private payor on a capitated, prospective or indemnity basis unless licensed as an insurer or HMO; 
  • An HCC may contract with HMOs or insurers on a capitated basis.
• An HCC must establish policies to improve the quality and control the cost of health care services.
• In addition to creation of new Chapter 848 of the Insurance Code, Article 4 also:
  • Amends Chapter 1301 of the Insurance Code (regarding PPO plans) to allow insurers to contract with HCCs; 
  • Provides statutory authority for public hospitals to form HCCs; 
  • Amends Section 102.005 of the Occupations Code related to the prohibition on solicitation of patients to add a reference excluding HCCs from the prohibition; 
  • Amends Section 151.002 of the Occupations Code, related to definitions for purposes of the Texas Medical Practice Act, to add HCCs to the definition of health care entity.

Comparison with Federal Accountable Care Organizations

HCCs are widely perceived as Texas’s version of the federal Accountable Care Organization (“ACO”), the Proposed Rule for which was released in March of 2011 and has since been almost universally rejected as conceptually inadequate and operationally unworkable. Some key differences between HCCs and ACOs include:

• While ACOs will only accept shared savings payments and distribute those among their members, HCCs will accept and distribute payment to participating providers for health services as well (though it should be noted that providers involved in HCCs and ACOs alike will continue to bill on a fee-for-service basis).
• Unlike ACOs, HCCs can contract directly with payors to provide health services.
• Primary care physicians will likely not be bound exclusive to one HCC.
• Payors may directly participate in and form HCCs, but not ACOs.
• HCCs will likely have a less costly and onerous start-up process and application than ACOs.

Interestingly, as originally filed during the regular legislative session, the HCC provisions specifically exempted HCCs from the Occupation Code provisions related to fee splitting and the corporate practice of medicine. SB 8 as filed contained the following:

Notwithstanding Section 164.052(a)(13) or (17) or 165.156, Occupations Code, a health care collaborative may contract for, receive, allocate, and distribute payments for health care services provided by a physician or health care provider participating within the organization.

The provisions of Article 4 do not contain this language.

Miscellaneous Provisions

SB 7 make a variety of other changes to state healthcare regulation, including:

• Amends Chapter 311 of the Health and Safety Code to require each hospital to implement a standardized statewide patient risk identification system in which a patient with a specific medical risk may be readily identified to hospital personnel. (Article 5).
• Amends various sections of the Health and Safety Code related to reporting of health care associated infections and mandating public reports of certain potentially preventable events in hospitals. Also requires a study of adverse health conditions in long term care facilities. (Article 6).
• Relates to the ability of state agencies to share confidential information without losing confidentiality protections. (Article 7).
• Adds a new chapter to the Health and Safety Code mandating hospitals to develop and implement a policy to protect patients from vaccine preventable diseases. (Article 8).
• Adds a new chapter to the Education Code to create the Texas Emergency and Trauma Care Education Partnership Program, a partnership of one or more hospitals and one or more graduate professional nursing or graduate medical programs that serves to increase training opportunities in emergency care for doctors and nurses. (Article 9).
• Amends the insurance code to prohibit a contract between an insurer and a hospital from requiring physicians or other practitioners to contract with the insurer as a condition staff membership or privileges. (Article 10).
• Amends the Insurance Code to provide for parity in coverage of services provided by chiropractors within the scope of a chiropractor’s license. (Article 11).
• Amends the Insurance Code to enact the Interstate Health Care Compact to allow Texas to join other states in obtaining consent from Congress to obtain regulatory authority to govern all health care within the state. The compact, if approved by Congress, would allow Texas to operate all health and human services programs, such as Medicaid, without regard to federal laws and regulations. The proposal provides for federal block grants to states to fund the state’s health care programs. (Article 12).
• Relates to obtaining federal authorization for Medicaid reform initiatives through the waiver process, including a provision addressing consolidation of federal funding streams including DSH and UPL payments. Creates a Medicaid Reform Waiver Legislative Oversight Committee to facilitate the Medicaid reform waiver efforts. (Article 13).
• Adds a new Chapter to the Health and Safety Code providing for the creation and operation of an autologous adult stem cell bank. (Article 14).
• Makes an exception to the prohibition on the use of tax revenues for abortions for medical emergencies. (Article 15).
• Provides that except as otherwise provided, the bill’s provisions take effect on the 91st day after the last day of the legislative session (which ended on June 29, 2011). (Article 16)