THBI End of Session Report 84th Legislative Session

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THBI End of Session Report 84th Legislative Session By: Julie Haeber - Policy Director

Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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Table of Contents: 1. State Legislative Priorities..……….page 3 2. Focused Initiatives……………………page 5 3. Federal Priorities……………………...page 5 4. Activities and Events.................…….page 9 5. THBI Grassroots Outreach…….......page 11 6. Legislative Tracking and Info..…...page 14

7. 2016-2017 Budget……………….……page 31 8. THBI Board of Directors…..………..page 40 9. THBI Member list………………..…….page 41

THBI Mission Statement THBI was created in 1996 and is a non-profit public policy research organization comprised of biotechnology, medical device, and pharmaceutical companies, as well as academic institutions, research organizations and economic development corporations. The mission of the Texas Healthcare and Bioscience Institute is to research, develop, and advocate policies and actions that promote biomedical science, biotechnology, agriculture, and medical device innovation in Texas.

Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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84th Legislative Session End of Session Report On Tuesday, January 13th 2015, the 84th Regular Session of the Texas Legislature convened its 140-day effort with a new governor, a new lieutenant governor, 29 new representatives, nine new senators, and leadership changes on several house and senate committees. Newly elected Comptroller Glenn Hegar announced that Legislators would have $113 billion to use when crafting the 2016-2017 budget, along with an extra $10 billion in the Rainy Day Fund. The legislative session adjourned on June 1, 2015 but the one issue that could bring legislators back for a Special Session is a lawsuit on school finance currently before the state Supreme Court. Oral arguments are expected to begin this fall, and the timing and nature of the ruling will determine whether the Legislature will be back in session to deal with the issue next year or if it will wait until they meet in regular session again in January 2017. Governor Abbott’s veto period expired on June 21, 2015 with a total of forty-two vetoed measures. Lawmakers this year filed 11,332 bills and resolutions and passed 5,535. That’s more bills filed, and fewer passed than in 2013, when 10,630 measures were filed and 5,909 were passed. There were 26 vetoes in 2013, records show.

Legislative Priorities: The State and Federal Government Relations Committee began meetings in the fall of 2014 to prepare for the session, and started creating a list of legislative priorities. The full membership was asked to weigh in and provide suggestions on this priority list. The result was a legislative agenda of issues that ensured the most efficient use of THBI’s resources when working towards its members’ goals of developing policies important to the life science industry and maintaining an active research and development environment. To that end, THBI supported the following initiatives in the 84th Texas legislative session. Access to Innovative Products  It is critical that all patients fighting disease have access to needed treatments and cures that allow patients to live longer, healthier, and more productive lives. Research and Development is an important component of the drug and medical device innovation process. THBI is committed to safeguarding and preserving timely patient access to new medicines while maintaining the integrity of those who utilize the latest innovations in creating these products.

Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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Research & Development  The Texas life science industry is committed to break down the barriers that currently prevent the expansion of the life science industry in Texas. The Texas life science industry supports private-public collaborations that will allow Texas to compete globally and also supports efforts to build and sustain a highly skilled technology workforce in the state. Higher Education/Research  Encourage the Legislature to support a consistent transparent mechanism to fund research at our health-related institutions of higher education. In addition, we also encourage the Legislature to meaningfully fund research to ensure national competitiveness and to improve the ability of our Health Related Institutions to continue a robust technology transfer system and product development process. Product Development  The Texas life science industry supports continued funding of the Texas Emerging Technology Fund. The Texas Emerging Technology Fund provides critical investment to seed-stage companies to successfully develop the next innovations in healthcare. The Fund provides matching grants to draw down federal funding or private investment to the state and provides grants to help recruit the brightest minds to Texas. Cancer Prevention & Research Institute of Texas (CPRIT)  THBI supports the full funding of the Cancer Prevention Research Institute of Texas (CPRIT). CPRIT continues to foster cancer research and prevention in Texas as well as fund product development.

Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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Focused Initiatives: We Work For Health  The economic footprint of the biopharmaceutical industry can be measured not only by the traditional indicators of employment and output, but also in part by its impact on the vendors, large and small, that provide services or supplies to America’s biopharmaceutical research companies. We Work For Health Texas is a grassroots initiative that unites health consumers, biopharmaceutical company employees and retirees, vendors, suppliers and other business, academic and community partners to demonstrate how these diverse groups work together to improve America’s health care system and strengthen our economy. THBI president Tom Kowalski serves as the vice-chair for We Work For Health, working closely with the rest of WWFH to achieve these goals. 

As part of the WWFH Texas Initiative, a Texas Vendor Map was published and discussed with members of the Texas U.S. Legislative Delegation and the Texas State Legislative Members and staff. The statewide map shows the vendor strength of the Texas Lifescience Industry. Please visit www.weworkforhealth.org/state/texas or www.THBI.com for more information.

Federal Priorities: THBI’s policy focus expands into the federal arena as well. The implementation of the Affordable Care Act has created increased activity on the congressional scene, and the focus of the organization has been on the membership and staff of the Texas Congressional Delegation during this time. Our three national partners include PhRMA, BIO, and Advamed; and our key programs have been the “We Work for Health/BioTexas Initiative,” the “BIO Fly-in,” and the “Campaign for Modern Medicines.” Each activity includes legislative visits both in Washington D.C. and in the respective home districts of the relevant national officials. Our goal is to position THBI as a “go to” resource and to utilize THBI’s statewide grassroots network. Outlined below is a partial description of our federal agenda.

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Oppose Cuts to the Medicare Part B Program 

Oppose actions that would result in further reimbursement cuts to Medicare Part B products through changes to the ASP (Average Sales Price) system. Work to protect beneficiary access to important drug and biologic therapies by ensuring that physicians are appropriately reimbursed for these lifesaving therapies. o Medicare Part B coverage of drugs provides an invaluable route of access for patients facing grievous illnesses such as multiple sclerosis, cancer and rheumatoid arthritis. Part B provides an important pathway for patients to access a narrowly defined, limited number or provider-administered products (e.g., those that are injected or infused under the direction of the physician).

Protect the Structure of Medicare Part D 

Oppose changing the incentives structure of the Part D Program, as is could have a significant negative impact on patients. The program is saving Medicare and enrollee’s money and current enrollees are highly satisfied with the program. o Policy proposals have suggested imposing a price control in the form of the Medicaid drug rebate on prescription drugs in Medicare Part D based solely on potential savings and without regard to the impact on patients’ access to needed therapies and sustaining incentives for future innovation. According to a 2013 survey, 90% of beneficiaries are satisfied with the program and 96% say they have greater peace of mind as a result of Part D coverage.

Support Oversight of 340B Drug Discount Program 

The 340B program has departed significantly from its original intent of preserving access to outpatient medications for patients in need. There are no requirements governing how hospitals utilize revenues produced by 340B discounts; revenue generation, not improved patient access, has become a key attraction of the program – THBI continues to urges Congress to ensure the 340B program operates as intended. o The 340B Drug Discount Program is an important program designed to help uninsured indigent patients gain greater access to prescription medicines. However, exponential growth, significant rates of non-compliance revealed in audits, and a government report of lax oversight combined with the need to modernize this program to ensure it continues to serve patients in need.

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21st Century Cures Act / Initiative The 21st Century Cures Act unanimously passed out of the House Energy and commerce Committee in June. The legislation has 230 sponsors and needs only 218 votes on the floor to pass the House. A floor vote is expected in July. The following is a list of initiatives in this bill. The urgency of finding and developing 21st century cures cannot be overstated. It is difficult to find anyone whose life has not been affected by devastating diseases such as Alzheimer’s, cancer, Parkinson’s, diabetes, or rare genetic conditions. Biotechnology holds the greatest promise for finding the solutions to so many unmet medical needs. 

Embracing Precision Medicine and Genomics through Regulatory Science: o Industrial scale biomarker qualification and full genome sequencing will help to better understand the molecular basis of disease and develop targeted, precision therapies individualized to a unique patient.

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A Shared National Research Commitment to Chronic Disease: o In light of current demographics, the extraordinary reach of chronic disease will overwhelm the U.S. healthcare system in a relatively short time. Our hope for better treatments and cures hinges on understanding how to intervene to halt the progress of disease. A shared national commitment to a large-scale research program on Alzheimer's disease and other chronic conditions could identify precursors and early signs of disease risk to unlock the root causes of these devastating conditions that threaten both the health of Americans and our nation's fiscal health.

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Patient-Centric Approaches to Drug Development: o Essential to innovation is incorporation of the patient voice into the drug development cycle. The future of the drug development process will require active collaboration and cooperation between FDA, Sponsors and, most importantly, patients. Placing patients at the center of the drug development process will spur the development of therapies for the conditions that matter most to patients and their caregivers.

 Harnessing New Information Technologies and Data Analytics: o Modern technology and cutting-edge analytical methods must be embraced by FDA. Sophisticated approaches to harnessing sources of existing data and emerging health information technologies will help to improve the efficiency of clinical trials and transform the drug development process by learning from the real-world performance of treatments.

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Combating Infectious Disease in a Globalized World: o Next-generation vaccines and antibiotics to prevent and treat emerging or drug resistant infectious diseases represent one of our best lines of defense against deadly pathogens.

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Promoting a Science-Driven Regulatory Environment: o In order to realize a vision of a modern regulatory environment, it is fundamental to enhance FDA's scientific capacity and infrastructure. The size and complexity of the FDA, its increasing statutory responsibilities, and globalization of FDA-regulated industries have placed significant demands on the Agency and may hamper its ability to pursue forward-looking management strategies to prepare for the future of biomedical science. We must promote and empower a strong and flexible FDA with world-class scientists ready to meet the complexities of modern scientific discovery and encourage robust, science-driven communication regarding available medicines and appropriate patient care.

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Align Market Forces to Spur Biomedical Research: o Over the past several decades, the time and cost to develop new therapies have dramatically increased. To remain competitive in a globalized world, current research and development incentives-such as regulatory and patent-related protections- should be maintained. A sustainable reimbursement environment that continues to encourage innovation is also essential to global competitiveness.

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Improving Patient Access, Sustaining Incentives for Innovations, and Building an Efficient, Learning Healthcare System: o Ensure that patients have access to the therapies they need in Federal and State health care programs by guaranteeing adequate reimbursement and coverage policies with fewer administrative hurdles, and by promoting the development and incorporation of real-world evidence in Federal and State health care programs through both provider- and patient-focused mechanisms.

Repeal of the Medical Device Tax 

Repeal is essential to promoting economic growth and ensuring patient access to life-saving care and treatment. o Repealing the device tax will positively impact the future of medical technology and patient care by removing a barrier to medical progress and increasing

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resources for innovation, jobs, research and development, and manufacturing. Patients are depending on the next generation of breakthrough technologies to become a reality in order to improve and save their lives. With an aging population and growing incidences of chronic disease, now is the time for more – not less – resources to advance cures and treatments to help people live longer, healthier, and more independent lives. What Has THBI Been Up To? 2015 THBI Summit: The Second Annual Texas Healthcare and Bioscience Summit was a huge success. To a standing-room only crowd, the attendees heard keynotes Jim Greenwood, President and CEO, BIO, Brett Giroir, M.D., former CEO, Texas A&M Health Science Center, Chip Davis, Executive Vice President for Advocacy and Member Relations, PhRMA, and Steve Ubl, CEO, AdvaMed. The interactive Summit explored issues pertinent to the life science industry. A legislative panel, consisting of Representative Sarah Davis, Representative Jim Murphy, and Representative Donna Howard, discussed the 84th Texas Legislative Session and covered issues concerning the budget, the Emerging Technology Fund, and CPRIT. Day two of the Summit moved to the Texas State Capitol. Attendees visited with and heard the morning keynote by Representative John Zerwas, M.D., regarding the Texas Legislative Session. Representative Zerwas was named Chairman of the House Higher Education Committee. Over fifty THBI members walked the halls of the Texas Capitol to speak with Legislators and their staff about key pieces of legislation and the development of the industry in their respective regions throughout the state. THBI members covered the full extent of capitol offices, leaving behind materials listing issue priorities. The concluding event featured an old fashion barbeque on the South Lawn of the Texas State Capitol. Guests, legislative members and their staff’s braved the unseasonably chilly Austin weather to enjoy Austin’s own Bert’s Barbeque.

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THBI Luminary Dinner: The Texas Healthcare and Bioscience Institute hosted its eighth annual Luminary Dinner and had duel honorees with Dr. Kyle Janek, outgoing Executive Commissioner of the Health and Human Services Commission and Dennis Borel, Executive Director of the Coalition of Texans with Disabilities as the 2015 THBI Luminary Award recipients. The February 4, 2015 event boasted a lengthy list of leaders in healthcare as well as patient advocates serving as honorary hosts. Both Dr. Janek and Mr. Borel were introduced to a full room of attendees at the Sheraton Hotel in Austin and were chosen for their efforts in leading their respective organizations that foster medical advancements through research and benefits the state’s economy through job creation. The 2015 Luminary Dinner was attended by members of the Legislature, leaders in many different healthcare sectors from across the State, patient groups and life science and healthcare industry leaders. LeadTexas: In the fall of 2014, THBI launched LeadTexas, a regional initiative which seeks to promote Texas and its regional communities as leaders in the healthcare and life sciences industries. LeadTexas efforts will work to foster growth through capital investment and job creation, ultimately serving as a significant economic driver for the state of Texas. Our first event was held in the Rio Grande Valley and topics included: Building a Healthcare Industry Cluster in the Valley, Growing the Healthcare Job Sector in South Texas, and Solving Chronic Health Issues in the Valley. We look forward to doing more LeadTexas events around the state in 2015. State/Federal Relations Committee: The State and Federal Government Relations Committee started meeting in the fall of 2014 after legislative prefiles started, and we began holding bimonthly meetings in January to update members on our legislative priorities and the status of our selected bills. During the course of the 84th Legislative Session, THBI tracked over 150 different pieces of legislation in 13 different areas with the potential to affect Texas biotechnology, life sciences, and higher education. Our thanks go out to those of you who participated in these meetings, and we appreciate the efforts you put in over the course of the session. State/Federal Relations Committee Meeting Speakers: The State and Federal Government Relations Committee brought in occasional Speakers to our meetings at the Capitol to hear from different associations/groups on their legislative priorities for the session. We found it very helpful to both hear from these groups and to share information with them. We believe that these exchanges proved beneficial to our committee members.

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Monthly President’s Calls: Tom Kowalski hosted monthly membership calls to update THBI members on the status of the Institute’s legislative interests. The calls were conducted on a “listen only” basis and Mr. Kowalski routinely interviewed key leaders and staff pertinent to the issues in the life sciences industry. BIO International Convention in Philadelphia: The 2015 BIO International Convention was held in the Philadelphia Metropolitan Area, at the Pennsylvania Convention Center (June 15-18, 2015) which is the heart of the U.S. biopharma industry with close proximity to more than 1,200 companies, ranging from the biopharma industry's largest multinational companies to its fastest growing firms. These meetings covered the latest issues in science and policy, explored new business opportunities, and addressed the challenges facing the biotechnology industry. Hosted by the Biotechnology Industry Organization (BIO), and attracted more than 3,000 biotechnology companies and more than 15,000 attendees from 48 states and 65 countries. The 2016 BIO International Convention will take place June 6-9 in San Francisco, California. For more information, or for participation opportunities, please contact Carolyn Skinner at 512-708-8424 or [email protected]. Representative Zerwas Honored as BIO Legislator of the Year: On, Tuesday, June 16th, the Biotechnology Industry Organization (BIO) honored Texas State Representative John Zerwas (District 28) as a Legislator of the Year for 2015. Representative Zerwas received the award at the 2015 BIO International Convention, in recognition of his work as the prime sponsor of HB751, critical legislation that will create a pathway for the substitution of interchangeable biologic medicines in Texas. “I am honored to receive this award from BIO, but the real accomplishment is our working together to create a pathway for access to biologic drugs for chronic patients who need them most in Texas and across the country,” said Zerwas. 2015: THBI Grassroots Outreach THBI engages in events to continue stressing the strength of the life science industry while continuing to educate legislators and clearly conveying the importance of policy development for Texas. Outlined below is the series of events in which we participated going into the 84th Legislative Session and beyond.

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November 2014: 

THBI President Tom Kowalski provided a legislative update to the Cancer Alliance of Texas for the upcoming 84th Legislative Session.

December 2014:  

Tom Kowalski moderated the legislative panel at the Texas CEO Life Sciences Conference. THBI held our Annual Meeting and Holiday Party featuring a pre-session update by Representative John Zerwas.

February 2015:   

THBI held our 2015 Policy Summit and Fly-In with strong industry wide attendance. The Summit bolstered over 150 participants with 75 Capitol offices visited the second day for the fly-in. THBI held a policy “lunch and learn” covering Biosimilars for all interested staff and industry leaders. Tom Kowalski was a guest speaker at the Texas Life Science Forum at Rice University.

March 2015:  

Julie Haeber gave a “Budget 101” presentation to the Texas Society of Anesthesiologists during their legislative days at the Capitol. Tom Kowalski provided a legislative overview on the Texas life science industry to the Austin Healthcare Roundtable.

April 2015: 

Tom Kowalski participated in the BIO Fly-In in DC visiting over 15 Texas congressional offices in two days discussing life science issues.

May 2015: 

Tom Kowalski addressed the Medical Device Alliance of Texas on Life Sciences in Texas and an update on the current legislative trends in the industry.  THBI co-hosted the 2015 Texas Life Science Forum with BioHouston and Rice Alliance. 12 | P a g e Texas Healthcare and Bioscience Institute July 1, 2015 84th Legislative Session www.thbi.com

June 2015: 

Tom Kowalski gave a keynote address to the Texas Economic Development Council covering the 84th Legislative Session and life science issues.

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THBI attended the 2015 BIO International Convention in Philadelphia, Pennsylvania (June 15-18, 2015). These meetings covered the latest issues in science and policy, explored new business opportunities, and addressed the challenges facing the biotechnology industry and attracted more than 3,000 biotechnology companies and more than 15,000 attendees from 48 states and 65 countries.

Ongoing Initiatives/Collaborations: THBI continues to work with diverse groups across the state in an effort to identify and discuss strategies as we approach the 85th Texas Legislature. Focus groups discuss the ongoing debate centered on state initiatives and the current funding levels and operations of the Cancer Prevention Research Institute of Texas. These groups work together as coalitions during the convened Legislative sessions.

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Legislative Tracking With a slight decrease in the number of bills filed this session, THBI reviewed all bills filed and tracked any legislation related to the Texas life science industry. In tracking this legislation, THBI sent out weekly updates detailing the progress of these bills with a short summary of each that was updated upon amendment or substitution. Additionally, THBI and its outside contacts provided testimonies, both oral and written during the session. THBI dropped thirteen witness cards supporting or opposing legislation. THBI tracked legislation throughout the session in 13 different categories: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

Budget/Tax/Economic Development CPRIT County Issues Federal Healthcare Reform General Healthcare General Medicaid Higher Education Incentive Programs Licensing, Regulatory and Ethics Medical Device Pharmaceutical Stem Cell Sunset

Budget/Tax/ Economic Development: Four bills were passed under this THBI designation during the 84th legislature: HB 1 and HB 2 by Otto, HB 31 by Dennis Bonnen, and HB 3475 by Greg Bonnen. HB 1 relates to the general appropriations bill (detailed summary begins on page 31). HB 2 relates to making supplemental appropriations and giving direction and adjustment authority regarding appropriations (detailed summary begins on page 36). HB 31 provides a 25% across the board reduction in The Franchise Tax Liability for Texas businesses. HB 3475 relates to increasing price transparency for consumers of freestanding ER services. Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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Cancer Prevention & Research Institute of Texas (CPRIT): Funding for the Cancer Prevention and Research Institute of Texas for the 2016–17 biennium totals $600.1 million in All Funds, an increase of $3.9 million, or 0.7 percent from the 2014– 15 biennium. The increase is primarily related to approximately $5.9 million in General Obligation (GO) Bond Proceeds to be transferred to the Department of State Health Services to administer the Cancer Registry in the 2016–17 biennium. In addition, THBI tracked one major bill under this designation during the 84th legislature: SB 197 by Schwertner. SB 197 would have required the Cancer Prevention and Research Institute of Texas (CPRIT) to develop a financial self-sufficiency plan and strategies for the institute to continue operations without relying primarily on state funding, other than on patent royalties and license revenues from projects funded through the cancer prevention and research fund by 2021. The bill went down on a point of order on the house floor May 26, 2015. County Issues: No pertinent bills in this track were passed. Federal Healthcare: No pertinent bills in this track were passed. General Healthcare: Five bills were passed under this THBI designation during the 84th legislature: HB 369 by Villalba; HB 416 by Riddle; HB 764 by Susan King; HB 2641 by Zerwas, and SB 203 by Nelson. HB 369 designates May 24 as Lung Cancer Awareness Day to encourage Texas residents to learn about the disease's prevalence, ways to increase early diagnosis and treatment and to reduce that prevalence, and the statistical risk of developing the disease. HB 416 would require certain personnel at facilities that provide abortion services to complete an educational and training program about human trafficking. HB 764 requires a health care provider, including a physician or health care facility, to provide written notice to a patient whose data was collected by the Texas Health Care Information Collection (THCIC). The Department of State Health Services (DSHS) would include the notice as part of an existing department form and would make the form available Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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on the department’s website. HB 2641 sets regulations for sending or receiving information, including health information collected by the Department of State Health Services (DSHS), through a health information exchange. SB 203 amends current law relating to the continuation and functions of the Texas Health Services Authority as a quasi-governmental entity and the electronic exchange of health care information. General Medicaid: Two bills were passed under this THBI designation during the 84th legislature: HB 839 by Naishtat and HB 2084 by Munoz. HB 839 amends current law relating to eligibility for Medicaid and the child health plan program for certain juveniles committed to juvenile justice detention facilities. HB 2084 amends current law adding transparency in the rate-setting processes for the Medicaid managed care and child health plan programs. However, HB 2084 was vetoed by Governor Abbott as it would require HHSC to reveal the details of the internal actuarial analysis it uses when negotiating rates on behalf of the State. Higher Education: One bill passed under this THBI designation during the 84th legislature: HB 100 by Zerwas; Relating to authorizing the issuance of revenue bonds to fund capital projects at public institutions of higher education. HB 100 authorizes capital construction and projects at 64 public higher education campuses in Texas at a cost of $3.027 billion. The break out among institutions is: • Texas A&M University System ($805.8 million); • University of Texas System ($927.6 million); • University of Houston System ($362.5 million); • Texas State University System ($256.4 million); • University of North Texas System ($269 million); • Texas Tech University System ($250.2 million); • Texas Woman’s University ($38 million); • Midwestern State University ($58.4 million); • Stephen F. Austin University ($46.4 million); Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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Texas Southern University ($60 million); and Texas State Technical College System ($41.7 million).

Incentive Programs: HB 1 provides $90 million in funding for the Texas Enterprise Fund (TEF) and $40 million for the Governor’s University Research Initiative. The Governor’s University Research Initiative will replace the Emerging Technology Fund (SB 632). Three bills were passed under this THBI designation during the 84th legislature: HB 26 by Button; HB 2667 by Ashby and SB 632 by Fraser. HB 26 abolishes the Emerging Technology Fund (TEF) and creates the Governor’s University Research Initiative (GURI) requiring a biennial report. Any unencumbered ETF fund balances are to be appropriated to the Texas Research Initiative and it also creates a nine member Economic Incentive Oversight Board. HB 2667 abolishes the Texas Small Business Development Industrial Development Corporation and Linked Deposit programs in the Texas Economic Development Bank. SB 632 creates the Governor’s University Research Initiative (GURI) in the Economic Development & Tourism Division in the Office of the Governor and abolishes the Emerging Technology Fund (TEF). GURI is the successor of the TEF and shall award matching grants to assist eligible institutions in recruiting distinguished researchers with preference given in the fields of science, technology, engineering, math and medicine. Pharmaceutical: Nine bills were passed under this THBI designation during the 84th legislature: HB 21 by Kacal; HB 751 and HB 1550 by Zerwas; HB 3028 by Frullo; SB 94 by Hinojosa; SB 195 and SB 332 by Schwertner; SB 1243 by Burton; and SB 1462 by West. HB 21 amends current law authorizing patients with certain terminal illnesses access to certain investigation drugs, biological products, and devices that are in clinical trials. HB 751 updates the Texas Pharmacy Practice Act by allowing Texas pharmacists to dispense safe and less expensive biologic medications to patients, by allowing substitution of an FDA approved interchangeable biologic for a prescribed brand name biologic.

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HB 1550 allows a pharmacist to administer epinephrine through an auto-injector device and could maintain, administer and dispose of these devices according to the board’s rules. HB 3028 amends current law relating to the regulation of certain conduct by discount health care program operators, or concerning discount health care programs, which relates to prescription drugs or prescription drug benefits and authorizes administrative and civil penalties. SB 94 prohibits a health benefit plan issuer or a pharmacy benefit manager from directly or indirectly charging or holding a pharmacist or pharmacy responsible for a fee for any step of or component or mechanism related to the pharmacy benefit claim adjudication process. SB 195 would transfer rulemaking authority over the state’s prescription drug monitoring program and related duties from the Department of Public Safety (DPS) to the State Board of Pharmacy. SB 332 amends current law relating to the use of maximum allowable cost lists related to pharmacy benefits. SB 1243 amends the Health and Safety Code to require the Department of State Health Services (DSHS) to establish a pilot program for the donation and redistribution of prescription drugs and conduct the pilot program in one or more municipalities with a population of more than 500,000 but less than one million. SB 1462 would allow certain individuals to be prescribed an opioid antagonist and would provide for the prescription, dispensation, administration, storage, distribution and possession of opioid antagonists. Stem Cell: One bill was passed under this THBI designation during the 84th legislature: HB 177 by Zedler. HB 177 seeks to create the Texas Adult Stem Cell Research Coordinating Board for the research, collection, and use of adult stem cells. Sunset Bills: The Sunset review involves three steps. First, Sunset Commission staff evaluated the Texas Health and Human Services Commission and the Interagency Task Force for Children with Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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Special Needs and issued a report in October 2014 recommending solutions to problems found. In November, the Sunset Commission met to hear public testimony on the agencies and the recommendations of the Sunset staff. Based on public input and the Sunset staff reports, the Sunset Commission adopted recommendations which were published in a final report. The recommendations requiring legislative action were then turned into legislation for the full Legislature to consider during the 84th session. The bills reported here is the culmination of that process. SB 200 (enrolled): Continues the Health and Human Services Commission until September 1, 2027. The Department of Family and Protective Services (DFPS) and the Department of State Health Services (DSHS) would be continued with a Sunset date of September 1, 2023 the Department of Aging and Disability Services (DADS) would transfer to HHSC and would be abolished, while DFPS and the DSHS would be maintained as separate agencies to perform certain functions. The bill also sets guidelines for Medicaid managed care organizations. The bill transfers to HHSC all functions, including any remaining administrative support services, of:  DARS;  Health and Human Services Council;  Aging and Disability Services Council;  Assistive and Rehabilitative Services Council;  Family and Protective Services Council;  State Health Services Council;  Office for the Prevention of Developmental Disabilities; and  Texas Council on Autism and Pervasive Developmental Disorders. These entities will be abolished after all their functions have transferred. Consolidation of administrative support services: The bill requires the executive commissioner of HHSC, after consultation with affected state agencies and divisions, to transfer and consolidate support services functions within HHSC to the extent such consolidation was feasible and contributed to the system’s effective performance. The consultation would ensure that client services were minimally affected. Agreements and memoranda will identify measurable performance goals and how an agency or division could seek permission from the HHSC executive commissioner to find an alternative way to address needs. Department of Aging and Disability Services: The Department of Aging and Disability Services (DADS) transfers to HHSC and will be abolished.

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Department of Assistive and Rehabilitative Services (DARS): The Bill transfers some of the duties and powers of DARS to the HHSC. Different and separate sunset bills transfer some provisions to another agency (Texas Workforce Commission). In such a case, federal approval could be required. SB 200 provides that a power, duty, program, function, or activity at DARS would not be transferred to HHSC if another bill of the 84th Legislature became law and provided for the transfer of those responsibilities to the Texas Workforce Commission (TWC). This would be subject to any necessary federal approval or authorization. If DARS and TWC did not receive necessary federal approval or authorization by September 1, 2016, the responsibilities of DARS would transfer to HHSC as provided in the bill. Department of Family and Protective Services (DFPS): The bill maintains DFPS as a separate agency and would specify the functions retained at DFPS, including the statewide intake of reports and other information related to:  Child protective services and federally required services;  Adult protective services other than investigations of alleged abuse, neglect, or exploitation of an elderly person or person with a disability under certain circumstances; and  Prevention and early intervention services. In addition, the Nurse-Family Partnership Program would transfer from HHSC to DFPS. Department of State Health Services: The bill maintains DSHS as a separate state agency with control over its public health functions, including health care data collection and maintenance of the Texas Health Care Information Collection program. Transition Plan; Providing Oversight: The bill requires the transfers to HHSC to be accomplished according to a transition plan developed by the HHSC executive commissioner that would be submitted to the transition legislative oversight committee, governor, and Legislative Budget Board by March 1, 2016. The executive commissioner would have to review and consider the comments and recommendations of the committee before. The plan is required to define the programs contained in each type of function to be transferred, including client services, regulatory, institutions, public health, and adult and child protective services. The bill creates the Transition Legislative Oversight Committee to facilitate and report on the transfer of functions contained in the bill. With assistance from HHSC and the transferred agencies and entities, the committee would advise the executive commissioner of HHSC on specified functions to be transferred, related funds and obligations, and the reorganization of HHSC’s administrative structure under the law. The committee’s members are to include Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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legislators appointed by the lieutenant governor and the speaker of the House in addition to public members appointed by the governor. The committee would meet at least quarterly and would be subject to statute regarding open meetings. A biennial report is required that will provide an update on the progress of and issues related to the transfer of functions to HHSC and DFPS, including the need for any additional changes to statute that may be needed to complete the transfer of prevention and early intervention services to DFPS and the reorganization of the commission’s administrative structure. The committee would be abolished September 1, 2023. In addition, The HHSC executive commissioner would conduct a study and submit a separate report and recommendation to the Transition Legislative Oversight Committee regarding the need to continue DFPS and DSHS as agencies. Organizational Divisions Required: The bill requires the HHSC executive commissioner to establish divisions within HHSC along functional lines. The divisions would include the Office of Inspector General, a medical and social services division, a regulatory division, an administrative division, and a facilities division for administering state facilities including state hospitals and state supported living centers. The executive commissioner is authorized to establish additional divisions as appropriate. The HHSC executive commissioner would appoint a director for each division established within HHSC. The executive commissioner will define duties and responsibilities of a division director and would develop clear policies for delegating decision-making and budget authority to the directors. NorthSTAR and behavioral health: The bill removes references in statute to the NorthSTAR behavioral health program and requires HHSC to ensure that Medicaid managed care organizations fully integrate recipients’ behavioral health services into their primary care coordination. HHSC would give particular attention to managed care organizations that contracted with a third party to provide behavioral health services in monitoring the compliance of the managed care organizations with integration requirements. Internal audit: The bill requires HHSC to operate a consolidated internal audit program for HHSC and each health and human services agency. Websites: HHSC is required to establish a process to ensure system websites were developed and maintained according to standard criteria for uniformity, efficiency, and technical capabilities. HHSC is charged with ensuring the websites meet standard criteria and, if necessary and appropriate, consolidating websites. Policy and performance office: The bill requires the executive commissioner to establish an executive-level office to coordinate policy and performance efforts across the health and Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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human services system. The office will develop a performance management system, lead in supporting and overseeing the implementation of major policy changes and managing organizational changes, and will be a centralized body of experts with expertise in program evaluation and process improvement. The office also would assist the Transition Legislative Oversight Committee with the implementation of changes to policy and organization major policy changes and organizational changes related to the consolidation of the health and human services system. HHSC Executive Council: The bill establishes the HHSC Executive Council to receive public input and advise the executive commissioner on the operation of HHSC. The council would not have the authority to make administrative or policy decisions and would not be subject to statute related to open meetings. The council will seek and receive public comment on proposed rules, recommendations of advisory committees, legislative appropriations requests, program operation, and other items the executive commissioner determined appropriate. The executive commissioner is directed to make every effort to ensure the appointment of other individuals to result in a balanced representation of a broad range of related industry and consumer interests and broad geographic representation on the council. Medicaid eligibility: HHSC is tasked with developing and implementing a statewide effort to assist Medicaid recipients who use Medicaid managed care with maintaining their eligibility for Medicaid and avoiding lapses in coverage. If cost effective, HHSC is charged to develop specific strategies for Medicaid recipients who receive Supplemental Security Income (SSI) benefits with maintaining eligibility as well as ensure that information relevant to a recipient’s eligibility is provided to the recipient’s managed care organization. Medicaid data: HHSC is charged with regularly evaluating whether data submitted by Medicaid managed care organizations continues to serve a useful purpose and whether additional data is needed to oversee the contracts or evaluate the effectiveness of Medicaid. The data should capture the quality of services received by Medicaid recipients and HHSC is charged with developing a dashboard by March 1, 2016, to assist agency leadership with overseeing Medicaid. The dashboard is to compare the performance of Medicaid managed care organizations by identifying important Medicaid indicators. Medicaid provider enrollment: The bill requires HHSC to create a single, consolidated Medicaid provider enrollment and credentialing process and to create a centralized Internet portal through which providers could enroll in the program as well as requiring Medicaid managed care organizations to formally re-credential Medicaid providers along the timeline for the single, consolidated Medicaid provider enrollment and credentialing process.

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Medicaid providers, the OIG and Criminal Background Checks: The bill requires the Office of Inspector General (OIG) and each licensing authority that requires fingerprints for a health professional’s criminal background check to enter into a memorandum of understanding. The memorandum of understanding is to include a process for the OIG to confirm with a licensing authority that a health care professional was licensed and in good standing for purposes of determining eligibility to participate in Medicaid. Under SB 200, the licensing authority is required to immediately notify OIG if a provider’s license had been suspended or revoked or if the authority had taken disciplinary action against the professional. The OIG is also charged to establish guidelines that the executive commissioner is required to adopt by rule for the evaluation of a potential Medicaid provider’s criminal history information. The guidelines are to outline conduct that would result in exclusion of a provider from Medicaid. The OIG’s guidelines are not allowed to be stricter than those of a licensing authority that conducts fingerprint-based criminal background checks. Provider enrollment contractors and Medicaid managed care organizations would defer to the OIG when deciding whether a person’s criminal history precluded the person from participating as a Medicaid provider. The OIG will be required to routinely check federal databases to ensure a person excluded from participating in Medicaid or Medicare was not a participating Medicaid provider. SB 200 requires that the OIG inform HHSC or the health care professional within 10 days after receiving the person’s application of whether the provider should be denied participation in Medicaid. The OIG is tasked with determining metrics for measuring the length of time required for conducting a determination of a person’s Medicaid eligibility. Section 1115 waiver and DSRIP projects: The bill specifies that when HHSC seeks to renew the Section 1115 Texas Health Care Transformation and Quality Improvement waiver, HHSC should seek to reduce the number of approved project options that could be funded under the waiver using delivery system reform incentive payments (DSRIPs) to include only those projects that would be most critical to improving the quality of health care and were consistent with an operational plan developed by HHSC. HHSC should take into consideration the diversity of local and regional health care needs when reducing the number of approved project options. These provisions expire September 1, 2017. Incentive-based payment pilot program: HHSC is required to develop a pilot project to increase the use and effectiveness of incentive-based provider payments by Medicaid managed care organizations. HHSC and the managed care organizations are to work with health care providers and professional associations in at least one managed care service delivery area to develop common payment incentive methodologies for the pilot program. By September 1, 2018, HHSC will identify goals and outcome measures for statewide Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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implementation of the pilot program and the provisions related to the pilot program will expire on that date. Hotlines and call centers: HHSC is required to establish a process to ensure all system hotlines and call centers were necessary and appropriate. HHSC will maintain an inventory of all hotlines and call centers and use the inventory and assessment criteria to periodically consolidate hotlines and call centers along functional lines. The initial assessment and consolidation of hotlines is targeted to happen by March 1, 2016. HHSC also will seek to maximize the use and effectiveness of the agency’s 211 telephone system. Ombudsman: The executive commissioner is required to establish the office of the ombudsman for the health and human services system. The bill abolishes other ombudsman offices for state agencies that are abolished when the functions are transferred into HHSC. The bill retains the office of independent ombudsman for state supported living centers, office of the state long-term care ombudsman, and any other ombudsman office required by federal law. Advisory Committees: The bill removes certain advisory committees from statute and would make conforming changes. The HHSC executive commissioner would establish and maintain advisory committees across all major areas of the health and human services system according to issue areas specified in the bill. HHSC is required to create a master advisory committee calendar for all advisory committee meeting and post the master calendar on its website and stream advisory committee meetings on its website. The Promoting Independence, IDD Redesign Committee and STAR Kids Advisory Committee were retained in statute through amendments to the Bill. Drug Utilization Review Board: The bill abolishes the Pharmaceutical and Therapeutics Committee and would transfer its functions to the Drug Utilization Board. The board will review all drug classes included in the preferred drug lists at least every 12 months and can recommend drugs to be included or excluded from the lists. HHSC must publicly disclose each specific drug recommended for or against preferred drug list status for each drug class and post the disclosure on its website within 10 business days of board deliberations. Limited Sunset review: HHSC is subject to a limited-scope Sunset review during the 202223 fiscal biennium. The provisions related to the limited-scope review expire in 2023. Effective Date: The bill would take effect September 1, 2015.

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The Legislative Budget Board – SB 200 Fiscal Note (Enrolled): States that the fiscal impact could not be determined, but some provisions clearly have fiscal impact. These include:  Section 1 reorganizes portions of the five health and human services agencies in two phases, which could result in cost savings from more accountable operations, more streamlined services, and increased consolidation of administrative functions. This reorganization includes consolidation of the health and human service system's internal audit functions. Savings could be achieved through more efficient operations and organizational streamlining, including contract consolidation, in several administrative and support areas including legal, internal audit, governmental relations, budget/accounting, information technology, contract management and oversight, rate analysis, facilities management, human resources, ombudsman, and other administrative management. Contract consolidation could result in significant savings in the future, but the timing and scope is unknown due to a lack of information. Alternatively, costs would occur from development of a transition structure and formation of a transition team, employment of new division directors, modifications to information technology, financial, and administrative systems to support the new organization, rebranding signage and various office products to reflect the new organization (although this adjustment is anticipated to happen over time), creation of the policy and performance office, transition of employees and email accounts, and maintenance of legacy systems and data access during the transition period. The modifications to information technology, financial and administrative systems could result in a significant cost, estimated to be $8 million by HHSC. 

Sections 2.05 and 2.07 require HHSC to create an approval process and standard criteria for all system websites and policies governing hotlines and call centers which could produce savings from streamlined websites and hotlines and potentially fewer consumer contacts and complaints.

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Sections 2.09 and 2.17 require HHSC to streamline the Medicaid provider enrollment and credentialing process which would result in web-based portal development costs.

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Section 2.13 requires the Office of Inspector General (OIG) to complete provider criminal history background checks on providers who have not previously been reviewed by a licensing board. The provisions require OIG to complete the criminal history background check within ten days of a completed application, which may result in costs associated with increased FTEs and enhanced information technology requirements.

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Section 2.18 requires HHSC to assist with Medicaid eligibility statewide which could

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result in savings associated with obtaining federal matching funds for those who lose funds when they are otherwise eligible. 

Section 3.02 establishes issue areas that advisory committees may be created to support. A reduction in the number of advisory committees could result in savings; to the degree such committees aren't reestablished in rule.

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Section 3.08 combines the Pharmaceutical and Therapeutics Committee and the Drug Utilization Review Board which could result in savings, by consolidating the vendor contracts that support the separate committees.

SB 200 - Relating to state agency contracting: Identified contracting irregularities at HHSC incentivized the Legislature to address contracting process at HHSC and other state agencies. The bill:  Amends the Government Code to require the State Auditor's Office to consider auditing contracts entered by the Health and Human Services Commission that exceed $100 million in annual value.  Requires the Comptroller of Public Accounts (CPA), in cooperation with the  Governor's budget and policy staff, to conduct a study examining the feasibility and practicality of consolidating state purchasing functions and reducing the number of vendors authorized to contract with the state.  Amends the Government Code to require agencies to retain records related to contracts for at least seven years after the expiration of the contract.  Prohibits the employment of former state employees and officers within the first two years after state employment if those employees participated in a procurement related to the hiring entity.  Amends the Government Code to specify that purchasing information reported by state agencies in the statewide uniform accounting system should include solicitation and contracting information, as defined by CPA.  Requires institutions of higher education to participate in the training and certification process offered by CPA to state agencies.  Amends the Government Code to allow CPA to contract with entities that administer cooperative purchasing programs and agreements.  Requires agencies to submit a certain number of requests for pricing on purchases made through multiple award contract schedules at the Department of Information Resources (DIR) depending on the value of the goods, services, and contracts. Agencies would be prohibited from making purchases for commodities in a single fiscal year in excess of $1 million under a single contract in a multiple award schedule. Agencies would also be required to receive approval for statements of work on DIR information technology commodity contracts worth more than$50,000. 26 | P a g e Texas Healthcare and Bioscience Institute July 1, 2015 84th Legislative Session www.thbi.com

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Requires agencies and institutions of higher education to comply with certain reporting requirements for each contract with a value exceeding $1 million, and to comply with certain additional requirements for each contract with a value exceeding $5 million. Agencies would be required to develop a risk analysis procedure and identify certain types of contracts for enhanced contract or performance monitoring. Requires agencies, including the Texas Department of Transportation (TxDOT), to post online a list of the contracts the entities have entered along with the statutory authorities and request for proposals associated with the procurements. Amends the Government Code to require agencies to use the vender performance tracking system to determine whether to award a contract to a vendor reviewed in the system. CPA would be required to develop an evaluation process to rate vendors on an "A" through "F" scale. CPA would be required to establish in rule how these ratings affect a vendor's eligibility for state contracts and the grades on the scale that disqualify a vendor from state contracting. The tracking system would be accessible to the public on CPA's website. Requires agencies to consider prior vendor performance when renewing a contract or considering a rebid for a contract. Additionally, CPA could bar vendors from participating in state contracts if more than two contracts between the vendor and the state have been terminated by the state within the last three years. Amends the Education Code to make the procurement authority of institution of higher education contingent on implementation of policies and procedures described in the bill. If the state auditor determines that an institution of higher education has failed to adopt the required rules and policies, the auditor will adopt a remediation plan in consultation with the institution. If the auditor finds that the institution fails to comply with the remediation plan, the purchasing authority of the institution would subject to standard agency procurement oversight and procedures. Amends the Education Code to require the disclosure of research sponsors in certain public communications.

SB 207- Relating to the authority and duties of the Office of Inspector General of the Health and Human Services Commission: The Legislature addressed the Office of Inspector General at HHSC in separate legislation. Some key provision of the bill follow. Role of the executive commissioner, OIG, and governor: The bill would require OIG to work in consultation with the executive commissioner of HHSC to adopt rules necessary to implement a power or duty related to the operations of OIG. The HHSC executive commissioner would be responsible for performing all administrative support services necessary to operate OIG and HHSC’s internal audit division would regularly audit OIG as part of the commission’s internal audit program and would include the office in the commission’s Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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risk assessments. OIG would closely coordinate with the executive commissioner and the staff of programs under OIG’s purview when performing functions related to the prevention of fraud, waste, and abuse in the health and human services system and the enforcement of state law related to the provision of those services, including audit utilization reviews, provider education, and data analysis. Definition of fraud: The bill changes the definition of “fraud” in Government Code, sec. 531.1011(4) to specify that the term did not include unintentional technical, clerical, or administrative errors. Criminal history background checks: OIG is required to enter into a memorandum of understanding with each state licensing authority that requires a fingerprinted background check of a health care professional to ensure that only individuals who were licensed and in good standing as health care professionals would be Medicaid providers. The memorandum of understanding must include a process for OIG to confirm that a health care professional is licensed and in good standing. The licensing authority is required to immediately notify OIG if a provider’s license has been revoked or suspended or if there has been disciplinary action against the provider. The bill requires OIG to routinely check federal databases to ensure that a provider who was excluded from the Medicaid program was not continuing to participate. Medicaid provider: The bill specifies other guidelines for the criminal background check, which OIG and HHSC could use to determine whether a provider would be eligible to continue to participate in Medicaid. Investigations: The bill requires OIG to complete preliminary investigations of Medicaid fraud and abuse by the 45th day after the date the commission received a complaint or allegation or has reason to believe that fraud or abuse has occurred. It requires OIG to complete a full investigation by the 180th day after the date the full investigation began unless the office determines that more time was needed. Under the bill, if OIG determines that it needs more time, the office has to notify the provider subject to the investigation of the delay and has to specify why the office was unable to complete the investigation within the 180-day period. Payment holds and provider notice: The bill specifies that a payment hold is a serious enforcement tool that the office imposes to mitigate ongoing financial risk to the state and that a payment hold would take effect immediately. The bill requires OIG to consult with the state’s Medicaid fraud control unit in establishing guidelines regarding the imposition of certain payment holds. Other provisions related to payment hold are outlined in the Bill.

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Administrative hearings: The bill requires OIG to file a request with the State Office of Administrative Hearings (SOAH) for an expedited administrative hearing regarding a payment hold within three days after the date the office received a provider’s request for such a hearing. The bill also would require a provider to request an expedited administrative hearing within 10 days after receiving notice from OIG regarding a payment hold. Under the bill, SOAH would have to hold the expedited administrative hearing within 45 days after receiving a hearing request. The bill removes the requirement in existing law that OIG and the provider share costs of an expedited administrative hearing. Instead, unless otherwise determined by the administrative law judge for good cause, the bill makes OIG responsible for the costs of the hearing and makes the provider responsible for the provider’s own costs incurred in preparing for the hearing. The bill also removes the requirement in law that a provider advance a security payment for the costs of the hearing. These changes apply only to a complaint or allegation received on or after September 1, 2015. Informal resolution process: The bill allows OIG to decide whether to grant a provider’s request for a first or second informal resolution meeting. Informal resolution meetings will be confidential and any information or materials obtained by OIG will be privileged and confidential and not subject to disclosure under any means of legal compulsion for release, nor under Government Code, ch. 552 related to public information. Recoupment of overpayment or debt: The bill requires HHSC or OIG to give a provider written notice of any proposed recoupment of an overpayment or debt related to Medicaid services and any damages or penalties related to a fraud or abuse investigation. The notice should have to include the specific basis and calculation of the overpayment or debt, facts and supporting evidence, a representative sample of the documents used as a basis for the overpayment or debt, the extrapolation methodology and related information, the amount of damages and penalties, and a description of due process remedies, including informal resolution and provides an appeal process. Rules on OIG operation and duties: The executive commissioner of HHSC is required to set rules for opening and prioritizing cases. In addition, the executive commissioner, in consultation with OIG, is required to adopt rules detailing OIG investigation procedures and criteria for enforcement and punitive actions. Significant coordination between the Commissioner and OIG is required. Extrapolation review: The bill requires OIG to review its investigative process, including its use of sampling and extrapolation to audit provider records. The bill requires the review to be performed by staff who were not directly involved in OIG investigations. It also requires OIG to arrange for the Association of Inspectors General or a similar third party to conduct a peer review of the office’s sampling and extrapolation techniques. Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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Pharmacies subject to audits: The bill specifies that a pharmacy has a right to request an informal hearing before the HHSC’s appeals division to contest an audit that did not find that the pharmacy engaged in Medicaid fraud. The bill requires staff of the HHSC’s appeals division, assisted by vendor drug program staff, to make the final decision on whether an audit’s findings were accurate. Federal medical coding guidelines for hospital reviews: OIG, including office staff and any third party are required to comply with federal medical coding guidelines, including guidelines for diagnosis-related group validation and related audits. Performance audits and audit coordination: The bill authorizes OIG to conduct a performance audit of any program or project administered or agreement entered into by HHSC or a health and human services agency, including an audit related to contracting procedures or the performance of the HHSC or a health and human services agency. Future Sunset review: The Sunset Advisory Commission would conduct a special-purpose review of the overall performance of OIG as part of its review of agencies for the 87th Legislature in 2021. OIG would not be abolished solely because it was not explicitly continued following the review. Coordination requirements: The Bill requires in all aspects of OIG engagement, that coordination with the Executive Commissioner will occur. The LBB Fiscal Note for SB 207 (Enrolled): States that there is no significant fiscal impact to the state or units of local government. Some key provisions identified by the LBB include:  The bill requires the OIG to undergo special review by SAC in six years.  The bill requires the OIG to establish priorities to guide its investigation processes, change the timelines for different phases of the investigation process, define OIG's role in managed care oversight, and requires the OIG to conduct quality assurance reviews and require a peer review of sampling methodology used in its investigative process.  The bill streamlines the credible allegation of fraud (CAF) hold hearing process, clarifies good cause exceptions for OIG's application of a CAF hold, requires the OIG to pay all costs for CAF hold hearings at State Office of Administrative Hearings (SOAH), and changes pharmacies' rights when under an OIG audit.  The bill requires the OIG and HHSC to coordinate audit and oversight activities of managed care organizations.  The bill prohibits the OIG from performing duplicative criminal history background checks. The LBB acknowledges that implementing the provisions of the bill may have some cost; it is Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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assumed that the provisions of the bill can be implemented within existing resources at the OIG and at SOAH. Budget: Health and Human Services Commission HB1 Funding for the Health and Human Services Commission (HHSC) for the 2016–17 biennium totals $56.6 billion in All Funds, which includes an increase of $5.1 billion from the 2014–15 biennium. General Revenue Funds and General Revenue–Dedicated Funds total $22.6 billion, an increase of $2.8 billion from the 2014–15 biennium. The increase in funding is primarily related to the Medicaid program. Medicaid Funding Decisions: Funding for Medicaid at HHSC for the 2016–17 biennium includes $51.6 billion in All Funds, $21.1 billion in General Revenue Funds, which is an increase of $5.1 billion in All Funds and $3.0 billion in General Revenue Funds from the 2014–15 biennium. The statewide expansion of the STAR+PLUS program (September 2014) and carving in of nursing facility services to STAR+PLUS (March 2015) result in long-termcare services previously provided at the Department of Aging and Disability Services being provided at the Health and Human Services Commission. Caseload assumptions made by the LBB were used to address case load growth. Funding for anticipated increases in cost due to medical inflation, higher utilization, or increased acuity is not included and will, more than likely form the starting point for a supplemental bill next session. Health Insurance Provider Fee and Claims Administrator Costs: Funding for Medicaid at HHSC includes $583.0 million in All Funds, $239.8 million in General Revenue Funds to fund the Health Insurance Providers Fee and resulting federal income tax impact, per the Affordable Care Act; $189.2 million in All Funds, $44.2 million in General Revenue Funds for increased claims administrator costs; and $31.5 million in All Funds, $12.3 million in General Revenue Funds to fund additional services provided to individuals with intellectual and developmental disabilities. The Children’s Health Insurance Program funding also includes $30.9 million in All Funds, $2.5 million in General Revenue Funds for the Health Insurance Providers Fee and resulting federal income tax impact, per the Affordable Care Act. Medicaid and Hospital Funding: Funding in Medicaid includes $712.6 million in All Funds, $5.0 million in General Revenue Funds for three add-on payments to hospitals. This includes $355.5 million in All Funds, $153.0 million in General Revenue–Dedicated Trauma Facility and EMS Account Number 5111 (trauma) funds transferred from the Department of State Health Services (DSHS), for a safety-net hospital add-on payment; $299.0 million in All Funds, $128.7 million in trauma funds transferred from DSHS, for a trauma hospital add-on Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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payment; and $58.1 million in All Funds, $20.0 million in trauma funds transferred from DSHS, and $5.0 million in General Revenue Funds for a rural hospital add-on payment. Caseload and Federal Medical Assistance Percentage (FMAP): HB1 includes $3.1 billion in General Revenue Funds for projected caseload growth; a less favorable Federal Medical Assistance Percentage (FMAP), which results in a higher proportion of the program being funded with General Revenue Funds; and a reduction to the proportion of the program funded with General Revenue Funds related to a 23 percentage point increase to the Enhanced Federal Medical Assistance Percentage (EFMAP), which applies to certain children in Medicaid previously receiving services through the Children’s Health Insurance Program (CHIP). As mentioned above, the caseload numbers used in the Bill are not in agreement with those projected by the Commission. To the extent these projections are not accurate; a deficit/surplus could result. Historically the result has been a deficit which is addressed in the following session through a supplemental appropriations bill. Cost Containment: Consistent with past appropriations bills the real story is not just in the line item appropriations. HB 1 includes a rider that decreases $869.6 million in All Funds and $373.0 million in General Revenue Funds for cost containment initiatives. The rider (50), a variation of previous cost containment riders reads: 50. Medicaid Funding Reduction and Cost Containment. a. Included in appropriations above in Goal B, Medicaid, is a reduction of $186,500,000 in General Revenue Funds and $249,349,498 in Federal Funds in fiscal year 2016 and $186,500,000 in General Revenue Funds and $247,220,930 in Federal Funds in fiscal year 2017, a biennial total of $373,000,000 in General Revenue Funds and $496,570,428 in Federal Funds. The Health and Human Services Commission (HHSC) is authorized to transfer these reductions between fiscal years and to allocate these reductions among health and human services agencies as listed in Article II of this Act, pursuant to the requirement to submit a plan included in Subsection (d) of this rider. b. This reduction shall be achieved through the implementation of the plan described under subsection (d) which may include any or all of the following initiatives: (1) Continue strengthening and expanding prior authorization and utilization reviews, (2) Incentivize appropriate neonatal intensive care unit utilization and coding, (3) Fully implement dually eligible Medicare/Medicaid integrated care model and long term services and supports quality payment initiative, (4) Maximize co-payments in Medicaid programs, (5) Increase fraud, waste, and abuse prevention and detection, (6) Explore changes to premium structure for managed care organizations and contracting Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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tools to reduce costs and increase efficiency, (7) Renegotiate more efficient contracts, including reducing the administrative contract profit margin and establish rebate provisions where possible, (8) Develop a dynamic premium development process for managed care organizations that has an ongoing methodology for reducing inappropriate utilization, improving outcomes, reducing unnecessary spending, and increasing efficiency, (9) Implement fee-for-service payment changes and managed care premium adjustments that incentivize the most appropriate and effective use of services, (10) Improve birth outcomes, including improving access to information and payment reform, (11) Increase efficiencies in the vendor drug program, (12) Increase third party recoupments, (13) Create a pilot program on motor vehicle subrogation, (14) Assess options to reduce costs for retroactive Medicaid claims, (15) Review the cost effectiveness of including children with disabilities in dental managed care, (16) Review and determine the benefits of providing the managed care-organizations with the ability to create a pharmacy lock-in program, and (17) Implement additional initiatives identified by HHSC. c. HHSC shall reform reimbursement methodology to be in line with industry standards, policies, and utilization for acute care therapy services (including physical, occupational, and speech therapies) while considering stakeholder input and access to care. Out of the amount in subsection (a), in each fiscal year at least $50,000,000 in General Revenue Funds savings should be achieved through rate reductions and $25,000,000 in General Revenue Funds savings may be achieved through various medical policy initiatives listed in items (1)-(10), below. If $25,000,000 in savings is not achieved through various medical policy initiatives in fiscal year 2016, the amount of unrealized savings (the difference between $25,000,000 in General Revenue Funds and savings actually achieved in fiscal year 2016) should be achieved through additional rate reductions in fiscal year 2017 while continuing any initiatives implemented in fiscal year 2016 that have been found to produce savings. HHSC may achieve savings through various medical policy initiatives, taking into consideration the following: (1) Clarifying policy language regarding co-therapy definition, documentation, and billing requirements, (2) Clarifying who can participate in therapy sessions in policy that interns, aides, students, orderlies and technicians can participate in therapy sessions when they are directly and appropriately supervised according to provider licensure requirements, but they are not eligible to enroll as providers and bill Texas Medicaid for services, (3) Consolidate Traditional, Comprehensive Care Program and Home Health Agency therapy policies into one policy, (4) Require a primary care or treating physician to initiate a signed order or referral prior to an Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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initial therapy evaluation. The initial evaluation may require prior authorization and the signed order or referral must be dated prior to the evaluation, (5) Require a primary care or treating physician to order the therapy services based on the outcomes of the evaluation, (6) Clarify medical necessity for therapy services to ensure prior authorization staff who are reviewing requests are using guidelines based on the nationally recognized standards of care, (7) Require licensed Medicaid enrolled therapists to document and support decisions for continued therapy based on professional assessment of a client's progress relative to their individual treatment plan and in concert with the client's primary care physician and the individual and/or family, (8) Ensure appropriate duration of services by aligning authorization periods with national standards, (9) Streamline prior authorization processes, and (10) Implement policies that ensure services are provided in the most cost-efficient and medically appropriate setting, and implementation of other medical or billing policy changes. d. HHSC shall develop a plan to allocate the reductions required by Subsection (a) of this rider by taking actions such as those suggested under Subsection (b) and (c) of this rider to the budgets of the health and human services agencies as listed in Chapter 531, Government Code. The plan shall include reduction amounts by strategy and fiscal year and shall be submitted in writing before December 1, 2015 to the Legislative Budget Board, the Governor, and the Comptroller of Public Accounts.

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In addition, the bill provides a decrease of $300.0 million in Other Funds due to a one-time interagency contract in 2014–15 with the Department of State Health Services to provide additional funds for Medicaid expenses. Children’s Health Insurance Program (CHIP) Funding: Includes $1.8 billion in All Funds, $152.4 million in General Revenue Funds for CHIP, which is a decrease of $164.9 million in All Funds and $420.3 million in General Revenue Funds from the 2014–15 biennium. The All Funds decrease is primarily due to a transition of certain children from CHIP to Medicaid pursuant to the Affordable Care Act. Funding levels also include a reduction to the proportion of the program funded with General Revenue Funds related to a 23 percentage point increase to the Enhanced Federal Medical Assistance Percentage (EFMAP), the matching rate for the CHIP program. As with Medicaid, funding for anticipated increases in cost due to medical inflation, higher utilization, or increased acuity is not included. Office of Inspector General: HB 1 provides $130.1 million in All Funds, $45.8 million in General Revenue Funds for the Office of the Inspector General, which is an increase of $3.1 million in All Funds from the 2014–15 biennium. The net increase includes additional funds for the Medicaid Fraud and Abuse Detection System and a new lease to consolidate the OIG employees based in Austin, offset by a decrease due to the ending of the fraud case management system contract. Attendant Care Wage Increase: Funding includes an increase of $77.7 million in All Funds, which includes $32.5 million in General Revenue Funds, to increase the base pay of Community Attendant Care Workers to $8.00 per hour and for rate enhancement across community-based programs. Rate enhancement is a currently operating program which provides additional payments to providers that spend more on salaries and benefits above the base amount. Family Violence Increase: Funding includes $56.9 million in All Funds, including $21.5 million in General Revenue Funds for the Family Violence Services program, which is an increase of $3.9 million in All Funds from the 2014–15 biennium. The increased funding is intended to serve 2,176 additional clients. Primary Health Care and Family Planning: Funding includes an increase of $141.6 million in All Funds, $137.8 million in General Revenue Funds for the transfer of the Expanded Primary Health Care Program and the Family Planning Program from the Department of State Health Services (DSHS) to HHSC. Strategy D.2.3 has been renamed Women’s Health Services and includes the former  Texas Women’s Health Program  Expanded Primary Health Care Program Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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

Family Planning Programs

The Legislative action also includes an increase of $50.0 million in General Revenue Funds to increase the number of clients served. Total funding for the Women’s Health Services is $260.9 million in All Funds, $257.1 million in General Revenue Funds. Court Appointed Special Advocate (CASA) Transfer: Funding includes an increase of $52.6 million in All Funds to transfer the Court Appointed Special Advocates (CASA) grant program and the Children’s Advocacy Centers (CAC) grant program from the Office of the Attorney General to HHSC. In addition to the transfer, the Bill provides a $4.8 million increase for CASA and a $6.7 million increase for CAC over 2014–15 biennial funding levels. Mental Health Services to Veterans: Funding includes an increase of $20.0 million in General Revenue Funds to implement a grant program to provide mental health services to veterans. HB 2, Supplemental Appropriations: In addition to HB 1, because of a shortfall in Medicaid for the present biennium, there was the necessity for supplemental appropriations. HB 2 provided General Revenue and GR related amounts as follows (Bolded items impact the HHS Enterprise):  Comptroller of Public Accounts - Texas Tomorrow Fund $87,671,644  Facilities Commission - Emergency Maintenance at State Owned Buildings $9,538,658  Facilities Commission - Critical Operations and Health & Safety Maintenance (TSD) $10,952,024  Facilities Commission - Capital Complex Master Plan $ 500,000  Facilities Commission - DMV Headquarters $ 500,000  Health and Human Services Commission - Medicaid $ 75,544,927  Health and Human Services Commission - Medicaid - Health Insurance Provider Fee and Federal Income Tax $ 79,685,024  Teacher Retirement System - TRS Care $768,100,754  University of Texas at Austin - Bureau of Economic Geology $4,471,800  Lamar State College -Orange - Damages Associated with Hurricane Ike $1,077,557  UTMB - Galveston - Bio-Containment Critical Care Unit $ 8,200,000 Lee College Prison Higher Education $775,000  District Courts - Comptroller's Judiciary Section - Trial Costs for Erath County $500,000  Department of Criminal Justice - Correctional Managed Health Care (CMHC)

Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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      

$42,500,000 Texas Military Department - Border Security $ 9,000,000 Department of Public Safety - Border Security $ 29,253,684 Animal Health Commission - Cattle Fever Tick Quarantine $ 601,111 Cattle Tuberculosis $ 188,736 Parks and Wildlife Department - Contingency appropriation for the San Jacinto Lawsuit Settlement $ 10,000,000 Parks and Wildlife Department - Border Security $ 2,095,447 Department of Insurance - Health Texas and other agency operations $ 5,300,000

Resulting Federal Funds increases were provided as follows:    

Family and Protective Services - Foster Care Payments $ 43,671,644 Health and Human Services Commission - Medicaid $ 104,538,332 Health and Human Services Commission - Medicaid - Health Insurance provider Fee and Federal Income Tax $ 113,570,204 Health and Human Services Commission - TANF Cash Assistance Grants $3,005,357

Department of State Health Services Funding for the Department of State Health Services (DSHS) for the 2016–17 biennium totals $6.4 billion in All Funds, which reflects a decrease of $56.8 million from the 2014–15 biennium. General Revenue Funds and General Revenue–Dedicated Funds total $3.6 billion, an increase of $6.5 million in General Revenue Funds and General Revenue– Dedicated Funds from the 2014–15 biennium. Specific items of note are presented below. Behavioral Health: Funding for behavioral health and substance abuse includes $2.7 billion in All Funds for the biennium, including $2.0 billion in General Revenue Funds and General Revenue–Dedicated Funds, which is an increase of 2.3 percent All Funds, and 8.9 percent General Revenue Funds and General Revenue–Dedicated Funds over the 2014–15 biennium. Increased funding for inpatient client services is included for new contracted community hospital beds, state hospital information technology improvements, building repairs and inflation-related cost increases. Increased funding for outpatient services is provided making funding adjustments for local mental health authorities and funding the adult mental health waitlist, federal Preadmission Screening and Resident Review services, substance abuse prevention and treatment, neonatal abstinence syndrome prevention services, transition support for patients moving from hospitals to the community, expansion of recovery-focused clubhouses, crisis and suicide prevention services, and residential treatment slots for Department of Family and Protective Services clients who are at risk of parental 37 | P a g e Texas Healthcare and Bioscience Institute July 1, 2015 84th Legislative Session www.thbi.com

relinquishment. Funding assumes discontinuation of the NorthSTAR behavioral health program in January 2017, with a transfer of funding to the appropriate mental health and Medicaid programs. Additional funds are provided for the transition period. Funding also includes $5.6 million in General Revenue Funds to provide wage or salary increases at state hospitals for psychiatric nursing assistants, registered nurses and licensed vocational nurses. These amounts do not include Medicaid expenditures. EMS and Trauma: Funding for EMS and Trauma Care Systems is $349.1 million in All Funds for the biennium, which is a decrease in All Funds of $84.8 million from the 2014–15 biennium, due to two significant funding changes: the decrease of an appropriation of $300.0 million by the Eighty-third Legislature of General Revenue–Dedicated Trauma Facility and EMS Account Number 5111 which was transferred to the Health and Human Services Commission for Medicaid expenses, and the increase of $216.2 million in additional trauma funds. A total of $301.7 million in trauma funds will be transferred to the Health and Human Services Commission for rural, safety-net and trauma hospital add-on payments. Family Planning and Primary Health Care: Funding for the Family Planning and the Expanded Primary Health Care Programs has been transferred to the Health and Human Services Commission (HHSC). Women, Infants and Children (WIC): Funding for the WIC program is $1.6 billion in All Funds for the biennium, including $440.3 million in General Revenue Funds and General Revenue–Dedicated Funds, which is a $27.6 million increase in All Funds over the 2014–15 biennium, due to an anticipated increase in Federal Funds. Office of Violent Sex Offenders: Funding for the Office of Violent Sex Offender Management (OVSOM) is $24.5 million in All Funds for the biennium, including $24.4 million in General Revenue Funds and General Revenue–Dedicated Funds, which is an increase of $11.4 million in General Revenue Funds and General Revenue–Dedicated Funds in the 2014–15 biennium, due to increases in the per diem cost to house off enders and for projected caseload increases. Additional funds for OVSOM are included in Article IX, contingent upon enactment of SB 746 or similar legislation. Children with Special Health Care Needs: Funding for Children with Special Health Care Needs (CSHCN) is $87.6 million in All Funds for the biennium, including $62.0 million in General Revenue Funds and General Revenue–Dedicated Funds, which is an increase of $5.0 million in General Revenue Funds and General Revenue–Dedicated Funds over the 2014–15 biennium, due to funding an additional 186 clients on the waiting list.

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Infectious Disease Including Ebola: Funding includes $33.6 million in All Funds for the biennium for Ebola and other infectious diseases and $4.0 million in General Revenue– Dedicated funds for local preparedness of hazardous chemical events. These amounts include funding for epidemiological surveillance and response capacity, infectious disease response training and exercises, public health preparedness and response communications and coordination, personal protective equipment and chemical event preparedness. Cardiovascular and Stroke: Funding for cardiovascular disease and stroke projects includes an increase of $1.5 million in General Revenue Funds over the 2014–15 biennium.

Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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BOARD OF DIRECTORS CHAIRMAN David R. Margrave BioNumerik Pharmaceuticals, Inc. SECRETARY Margaret Sampson Vinson & Elkins, LLP TREASURER Richard B. Ponder Johnson & Johnson PRESIDENT Thomas R. Kowalski Texas Healthcare and Bioscience Institute

Dan Howle Eli Lilly & Company Ryan Garofalo PhRMA Mark Moreno U.T.M.D. Anderson Cancer Center Erin Frey AstraZeneca

Bradley Westmoreland Genentech, Inc. Jeffrey L. Wade Lexicon Genetics Incorporated Terri Lee Merck & Co., Inc. Amber Pearce Pfizer Don Stevens Novartis Pharmaceuticals Jenny Jones, M.A. Texas A&M University Rodney Varner THBI General Counsel Wilson & Varner, L.L.P. Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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THBI Members: Abbott Labs AbbVie Actavis plc Allergan Amgen Apollo Endosurgery Astellas Pharma AstraZeneca Pharmaceuticals Asuragen Austin Chamber of Commerce Azaya Therapuetics Bayer Corporation BCM Technologies, Inc. The Beck Group BioAustin BioDFW BioHouston BioMed SA BioNorthTX BioNumerik Pharmaceuticals, Inc. Bioo Scientific Boehringer Ingelheim Boulware & Valoir Bristol-Myers Squibb Company Build NB* Celgene Corporation CenterPoint Energy City of Cedar Park* Coalition of Texans with Disabilities CRB Engineers & Builders CSL Behring DAIICHI Sankyo Datatrak International

Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

Development Corporation of Abilene Doctors Hospital at Renaissance * Economic Development Partnership Edinburg Economic Development Corporation * Eli Lilly Emergent Technologies Emergo Group Genentech, Inc. Greater Houston Partnership Higginbotham & Associates Houston Technology Center Johnson & Johnson Kendall County EDC Lexicon Pharmaceuticals, Inc. McAllen Economic Development * Medpace Medical Device B.V. Merck & Co., Inc. Mirna Therapeutics Mission Economic Development * Mission Pharmacal Company National Center for Therapeutics Manufacturing (NCTM) Novartis Pharmaceuticals Corporation Novo Nordisk Orthopeutics, LP Otsuka Pfizer Inc. Pharmaceutical Manufacturers and Researchers of America (PhRMA) PLx Pharma Inc. Quarles & Brady LLP Research Valley Partnership * Rio Grande Valley Partnership * 41 | P a g e July 1, 2015

THBI Members:

Rules-Based Medicine San Antonio Austin Austin Life Science Association (SALSA) Sanofi-Aventis Shire Regenerative Medicine Inc. Sunovion Takeda TechAmerica TEKSA Innovations Temple Health & Bioscience District Terapio Texas A&M Health Science Center Texas A&M University Texas A&M University System Texas Biomedical Research Institute Texas Economic Development Council Texas Life Sciences Collaboration Center Texas Society for Biomedical Research Texas State University Thomas George P.C. TriNet Tyler Economic Development Council, Inc.* UCB The University of Texas System The University of Texas at Arlington The University of Texas at Austin The University of Texas - Pan Am * The University of Texas at San Antonio The University of Texas Health Science Center at Houston UT Health Science Center at San Antonio UT Health Science Center at Tyler Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

UT M.D. Anderson Cancer Center UT Medical Branch at Galveston Vermillion Vertex Pharmaceuticals VGXI, Inc. Vinson & Elkins L.L.P. VWR Waller Lansden Dortch & Davis, LLP Weslaco Economic Development * Wilson & Varner, LLP

*LeadTexas Members 42 | P a g e July 1, 2015

84th Session End of Session Report Acknowledgement THBI would like to acknowledge and thank Texas Insight for their extensive research, analysis, and reporting in areas of Health and Human Services and Article II. The real time reporting of events as they occur within the legislative and regulatory branches of Texas state government was an indispensable resource for our efforts to stay on top of upcoming actions that can affect THBI members. THBI would also like to acknowledge and thank the JHL Company for their commitment to quality and professionalism in all activities associated with THBI.

Texas Healthcare and Bioscience Institute 84th Legislative Session www.thbi.com

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