"We're at a real turning point, some would call it a crisis, on how much money we're spending on health care," said state Rep. Lois Kolkhorst, R-Brenham, the chairwoman of the House Public Health Committee. "It is incumbent upon us that the system actually transforms and doesn't become bigger and bulkier and more expensive."
But the complicated bureaucratic process for achieving these lofty goals to transform the system has led to disagreements over how to distribute money, and whether all the state's regions will have the same capacity to finance experimental programs to attract federal financing.
The so-called transformation waiver could potentially bring Texas' health care industry a $29 billion infusion over the next five years -- if hospitals and providers can figure out how to create a system that will reap the benefits.
"It is a gamble," said Greg Hartman, the president and chief executive officer of the Seton Medical Center in Austin. "You do have to be willing to ante up and to put money into the system on the belief and assumption that you're going to make a better system."
In the last year, government initiatives to curb rising health care costs dramatically altered the financial backbone of the state's health care industry. As part of the transformation waiver, Texas lawmakers expanded Medicaid managed care, a cost-saving program where health maintenance organizations contracted by the state receive a flat rate to care for Medicaid patients.
The waiver also replaces a stream of county tax dollars that used to supplement Medicaid payments to hospitals with two new pools of money that combine financing from federal, state and county coffers.
One pool will reimburse health care providers based on the volume of uncompensated care they provided for Medicaid patients and the uninsured. The second is a risk-based incentive pool aimed at encouraging providers to roll out experimental programs that improve the quality of care while reducing costs.
The financing structure has already shifted, and the state hopes to have approval from the federal government to begin the experimental programs by May.
"We're missing the opportunity to treat people prior to the need for hospitalization," said state Rep. Garnet Coleman, D-Houston, "and the transformation waiver is supposed to bring together folks" at the primary care level of intervention.
The experimental incentive pool could dispense up to a total of $11.4 billion to Texas health providers. But 60 percent of that financing is federal matching dollars that are contingent upon whether providers meet quality and efficiency standards.
To meet those standards, providers must use local tax dollars -- from hospital districts, for example -- to create programs and partnerships that improve their region's health care system. In some cases, private and nonprofit hospitals have agreed to also contribute money for the programs, but the federal government will not match those dollars.
Coleman said some hospitals stand to lose from this new arrangement. Before, those that treated Medicaid patients were guaranteed to receive money regardless of those patients' outcomes. The new system holds providers accountable.
But the hospitals also have many opportunities from which to gain.
Most of the high-risk incentive financing -- 75 percent -- is designated for hospitals. Ten percent has been designated for mental health centers, another 10 percent for academic health science centers and 5 percent for local health department projects.
Health care providers must also coordinate their transformation waiver project proposals with a regional anchor -- in most cases, a local government entity or public hospital -- assigned by the state to supervise the distribution of local government financing.
Seton, for example, is partnering with Central Health, the Central Texas region's public hospital district and anchor for the six counties in the region, to set up an incentive project called the "Community Care Collaborative." By connecting primary care physicians, community clinics and hospitals in the region, the initiative tries to keep low-income, uninsured residents healthy and out of high-cost hospital emergency room.
Hartman said a pilot program already under way assigns social workers, nurses and physicians to monitor patients making costly recurring visits to the emergency room to identify the environmental factors contributing to the patient's chronic health problems.
The goal is "to stabilize the patient quickly by really being very involved in their lives for a while," Hartman said, "and then once they get stabilized, getting them into a primary care home."
In many cases, the regional anchors have proposed projects to receive incentive money. Although the anchors cannot influence which proposals receive approval from the federal government, some participants worry that the administrative power of the anchors has affected which project proposals will be considered.
Kolkhorst said that in some cases, the project negotiations have "actually fractured the health community more, because just a few people are in charge of this very large sum of money."
In Dallas, for example, the failure of a proposed program dubbed "My Medical Home" fueled conflict between physicians and hospitals in the region.
"We just had a much more ambitious idea of what this could accomplish," said Dr. Rick Snyder, president of the Dallas County Medical Society, which proposed "My Medical Home" as an expansion of an existing program, which is financed under the former system, that it ran to coordinate care for uninsured residents.
By bumping the program's budget to $38 million annually, from $5 million, the medical society hoped My Medical Home could begin paying physicians for services they currently provide for free and set up a health information exchange to share electronic health records between the four regional hospital systems.
After negotiations between the medical society and hospital systems -- each of which needed to agree to assume some of the financial risk associated the project -- came up $17 million short of the $38 million the medical society budgeted, the project was put on hold. Without a future source of financing, the medical society decided to stop operating the existing program in 2013.
Snyder suggested hospitals, with their deep pockets, have too much control over which projects are financed.
The "main goal is to increase access, and particularly access to primary care physicians," he said. "The way the funding mechanism and the resource allocation is being rolled out, it's not going to achieve that."
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