Senator Robert "Bob" Deuell, M.D.
The Texas State Senate
District 2

For Immediate Release
April 4, 2003


Issues Facing the 78th Legislature

(Austin) - Recently, the Senate Research Center (SRC) issued a document highlighting some of the issues my Senate colleagues and I will address this session. This article contains the Senate Research Center report on rising medical costs. Subsequent articles will focus on other issue areas that will be addressed by the legislature. If you would like to view the full document, you can read it on-line at, or contact my office for a copy.

Rising Medical Costs

National health expenditures are accelerating again after nearly 20 years of declining growth; overall health expenditures are projected to nearly double by 2011, with drug expenditures comprising a growing portion of total costs. Rising health care costs are not only a threat to the fiscal well-being of states, employers, health plans, and consumers, but also could reduce access to care for millions of Americans.

Hospital inpatient costs represent the largest component of health care spending. Inpatient costs grew by 5.9 percent annually over the period 1998-2001, almost twice the rate of inflation. While smaller than the rates of growth in prescription drugs and outpatient spending, the overall increase in inpatient costs contributed the largest amount to the rise in hospital spending -- 34 percent -- during that period.

Public safety net hospitals and health systems provide inpatient and outpatient care for low-income individuals, community-wide services such as trauma care, burn units, and neonatal intensive care, and medical education. They also provide care for the uninsured and the underinsured and serve as initial responders to natural disasters. Despite the critical role of public safety net hospitals in preserving community health, the financial situation of such hospitals remains precarious. The combined effect of federal, state, and local budget cuts, rising health care costs, increasing numbers of uninsured, and the costs associated with homeland security and natural disaster preparedness is exacerbating the problem. Personnel shortages and the rising costs of pharmaceuticals and other medical/surgical supplies have also contributed to the problems facing safety net providers.

The number of uninsured people has increased significantly since the early 1990s due to a combination of factors, including fluctuating enrollment in the Medicaid program and welfare reform. The burden of caring for the uninsured has fallen on safety net institutions that serve all patients regardless of ability to pay. The share of unreimbursed costs covered by Medicare and Medicaid supplemental payments like disproportionate share hospital (DSH) payments has continued to decline. Between 1993 and 2000, ambulatory care volume at public hospitals increased by over 20 percent; a sizeable portion of this care is uncompensated.

Prescription drug costs are also escalating. According to a recent report by the Department of Health and Human Services (DHHS), national spending on prescriptions tripled from 1990 to 2000. Some states report that spending on prescription drugs is rising by 20 percent annually. In Texas, drug costs are projected to increase approximately 11 percent each year for FY 2004-2005.

The 78th Legislature will probably face issues relating to reimbursement for safety net providers. The elimination of the federal upper payment limit provision (UPL) will reduce Medicaid payments to hospitals and Medicaid DSH payments will also be cut, in FY03, unless Congress intervenes. Medicare cuts to hospitals are also being considered. Legislators may also have to address reimbursement issues related to providing outpatient primary and specialty care to the uninsured and include support for these services in direct funding for outpatient care.

The baseline budget request for Texas health and human services agencies is $16.4 billion in general revenue for FY 2004-2005, an increase of $1.4 billion over the FY 2002-2003 budget. Medicaid and CHIP caseload growth, inflation, and changes in utilization account for $840.4 million of the increase. The continuation of community care services at FY 2003 levels accounts for $41.9 million. Increasing costs associated with higher acuity levels of nursing home residents and foster children accounts for $56.0 million. Inflation adjustments account for $206 million in general revenue funds.

To contact Sen. Deuell about the legislative process, contact the Capitol Office at (512) 463-0102 or mail to Sen. Bob Deuell, Texas Senate, P.O. Box 12068, Austin, TX 78711. The website for the Texas Senate is The e-mail address for Sen. Deuell is: