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table of contents i executive summary 1 ii consolidated budget overview 3 health and human services system overview 3 strategic planning process 4 hhs system fy 2012-2013 legislative appropriations request 7 legislative appropriation request guidance and base funding 9 summary of hhs agency exceptional items request 12 iii factors contributing to funding needs 16 method of finance adjustments 16 caseloads and cost 16 iv cost containment initiatives 20 recent history of cost containment efforts and budget reductions 20 fiscal years 2010-2011 21 fiscal years 2012-2013 22 v health care reform ­ fy 2012-2013 cost estimates 26 vi enterprise initiatives 36 increase hhs community services waiting/interest lists 36 information technology systems needs 38 retention and recruitment of critical client service staff 42 veterans health initiative 45 other enterprise exceptional items 47 vii federal funds current issues 49 federal budget outlook 49 american recovery and reinvestment act arra 49 current federal issues 51 revenue and federal funds enhancement initiatives 61 health and human services consolidated budget page i

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dsh and upl programs 62 viii provider rate considerations and methodology 64 overview of provider rate considerations and methodology 64 cost of one percent rate change 66 long term services and supports 74 hospitals 79 acute care services 80 ix appendices 83 a increase capacity of hhs ­ community services 83 b 10 biennial base reduction options schedule 86 c1 rate schedule ­ rate change based on current review of costs 90 c2 rate schedule ­ attendant wages per hour and cost of increasing attendant wages by $1.00 per hour 101 c3 rate schedule ­ comparison of select physician/professional fees 103 c4 rate schedule ­ comparison of select dental fees 105 c5 rate schedule ­ comparison of select anesthesia fees 106 d promoting independence initiative 107 e long term care plan 111 f upper payment limit upl programs disproportionate share hospital dsh 116 g health and human services agencies executive contact list 118 health and human services consolidated budget page ii

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i executive summary the five agencies comprising the texas health and human services system the department of aging and disability services the department of assistive and rehabilitative services the department of family and protective services the department of state health services and the health and human services commission have individually submitted their requests for legislative appropriations lars for the two year budget period fy 2012-2013 each agency s request provides strategy level detail sources of funding anticipated performance and base and exceptional item requests to build on these requests the consolidated budget for fy 2012-2013 · · · · · · · summarizes the requests for legislative appropriations for all five texas health and human services agencies highlights critical funding needs across the agencies and categorizes the requests to assist decision makers and the public in their analysis of the service and operational needs to maintain and improve the delivery of health and human services in our state provides supporting information on elements contributing to funding needs identifies major federal funding issues describes provider rates methodologies and changes for legislative consideration includes additional information not included in agencies legislative appropriations requests lars such as health care reform hcr cost estimates and the impact of fy 2012 federal medical assistance percentage fmap and fulfills several statutory reporting requirements summary of the hhs system lar requests the hhs system agencies have requested a total of $76.2 billion from all fund sources for the two year period of fiscal years 2012-2013 an increase of $10.3 billion 15.6 percent over the 20102011 biennium the general revenue portion of the fy 2012-2013 request totals $30.9 billion an increase of $7.9 billion 34.3 percent the majority of which is related to lower federal matching rates federal funds would provide the majority 57.6 percent of the total funding but would not grow at the rate of total funding needs for several reasons described in this consolidated budget primarily related to the loss of higher federal matching rates in medicaid categorization of critical funding needs in addition to the base level of funding prepared according to required budget guidance the consolidated budget highlights agency requests above the base budget chapter ii and categorizes this nearly $5.6 billion all funds 2.6 billion general revenue of exceptional items into five groupings · · maintain current services and cost trends in medicaid and chip medicaid managed care savings health and human services consolidated budget page 1

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· · · maintain current services non-medicaid critical improvements in system operations and initiatives to increase service capacity and improve quality supporting information on factors contributing to funding needs chapter iii provides information on the key drivers of the increased need for resources such as lower federal match rates forecasts for caseload and trends in cost of services major federal funding issues federal policy issues are contained in several chapters of this consolidated budget document including chapter vi which highlights many issues with significant fiscal impact including american recovery and reinvestment act arra changes in federal matching percentages and recent information on two major medicaid provider supplemental payment systems dsh and upl chapter ix appendix f additional issues not included in agency lars the consolidated budget also addresses two additional fiscal issues which are not included in agency lar submissions · the cost of various provider rate changes presented in one percent increments chapter viii table viii.1 and appendices c1­c2 including the cost of attendant compensation increases and · health care reform ­ fiscal year 2012-2013 costs to create the system capacity to serve the increased clients that are eligible for medicaid in 2014 other supplemental information provided the document also provides tabular information on the ten percent biennial base reduction options schedule chapter ix appendix b statutory requirements fulfilled submission of the consolidated budget fulfills several statutory requirements including · · · the biennial consolidated budget recommendation for the hhs system the annual federal funds report chapter vii and the long-term care plan for persons with mental retardation which is provided in chapter ix appendix e health and human services consolidated budget page 2

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ii consolidated budget overview health and human services system overview the texas health and human services hhs system is dedicated to developing client-focused program and policy initiatives that are solution-oriented and fiscally responsible the hhs system promotes client-choice appropriate funding and streamlined service delivery reflecting a unified philosophy and approach to delivering health and human services the hhs system agencies operate with similar organizational structures organizational structures reflect an emphasis on efficiency service delivery accountability and providing visible and accessible agency resources for stakeholders the following chart depicts the hhs system organizational structure in fy 2010 and identifies services provided by the hhs agencies figure ii.1 governor health human services council the texas health and human services system health and human services commission hhsc executive commissioner system oversight commission operations administrative support medicaid/vendor drug/chip for hhs agencies tanf hhs program policy eligibility determination hhs rate analysis disaster assistance hhs ombudsman medical transportation interagency initiatives family violence services ftes 12,471 aging disability services council state health services council office of inspector general family protective services council assistive rehabilitative services council department of aging and disability services dads commissioner mental retardation services state supported living centers community services community care services nursing home services long-term care regulatory aging services ftes 17,944 department of state health services dshs commissioner public health preparedness physical health support services mental health services substance abuse services vital health records consumer protection services ftes 12,515 department of family and protective services dfps commissioner child protective services adult protective services child care regulation prevention early intervention department of assistive and rehabilitative services dars commissioner rehabilitation services blind visually impaired services disability determination early childhood intervention services ftes 10,800 ftes 3,216 as of 09-01-2010 note the full time equivalent fte s positions are the budgeted level for fy 2010 health and human services consolidated budget page 3

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strategic planning process the fy 2012-2013 legislative appropriation requests highlighted in the consolidated budget reflect the results of a methodical process undertaken to establish a forward-thinking strategic direction for the health and human services figure a shows the dynamic elements of this process figure ii.2 the hhs system strategic plan for 2011­15 describes a framework to guide how hhs agencies and employees will do business support customers and involve local stakeholders and communities while remaining accountable to taxpayers development of the plan began with the recognition that texas taxpayers and leadership expect state agencies to make the best possible use of available resources even under challenging conditions hhsc has developed a system vision and a set of strategic priorities to guide the planning effort the vision statement for the hhs system renews the focus on customer service and emphasizes quality cost effectiveness and results for improved health safety and greater independence of texans the strategic priorities direct activities and decision-making throughout the system to health and human services consolidated budget page 4

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· · · · · · improve the health and well-being of texans create opportunities for increased self-sufficiency and independence protect vulnerable texans from abuse neglect and exploitation deliver the highest quality of customer service encourage partnership and community involvement and strengthen and support the health and human services workforce the analyses conducted for this strategic planning cycle revealed several common external challenges faced by hhs agencies · addressing growth in the need for services · increasing focus on regulatory effectiveness · maintaining and developing the workforce · addressing infrastructure needs · improving data quality and use and · evaluating the impact of federal health care reform requirements on the current health and human services system not all of these challenges are new but they have become more urgent due to the economic downturn and the significant increase in the number of clients applying for and enrolling in hhs programs in addition to this growth the short and long-term requirements of federal health care reform will result in a significant increase in clients to the medicaid program other programs will be impacted as well possibly in ways not yet understood finally there is an increasing emphasis on the system s ability to regulate effectively not only services provided by hhs agencies but also larger systems such as child care facilities long-term care nursing facilities and even the safety of our food supply these external challenges amplify the need for the system to address pressing key internal challenges which include · training and developing the hhs workforce strategies to deal with the anticipated retirements of many experienced workers must also be in place · investing in infrastructure to support the workforce and client service delivery including the completion of key technology projects for example the statewide roll-out of tiers an · improving the collection and use of high-quality data to effectively assess program performance make timely changes as needed budget wisely evaluate our efforts and plan for the future each agency has its own set of challenges and opportunities in meeting the enterprise strategic priorities the hhs executive commissioner has directed the agency commissioners hhsc deputy executive commissioners and the hhsc inspector general to create an annual operational plan that identify strategies and clearly defined activities that allow the agency/division to operationalize the strategic plan agency operational plans focus on communicating agency/division progress in addressing the key challenges and opportunities identified in the strategic plan and include the following 1 prospective and goal-oriented solutions to improve service delivery achieve efficiencies or enhance accountability 2 concrete action steps for addressing ongoing and/or future challenges and 3 milestones and/or measures against which to health and human services consolidated budget page 5

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assess progress the linkage between the strategic plan and agency operational plans is essential to ensuring the enterprise is coordinated in achieving the enterprise-wide strategic priorities in addition an enterprise-wide executive management briefing process was implemented to ensure the executive commissioner achieves health and human services oversight and programmatic responsibilities systematically benchmark agency performance using information and data contained within the health and human services executive management briefs and ensure agencies are systematically and strategically linking the strategic planning operational planning and legislative appropriations request development strategically linking the strategic planning process operational planning and legislative appropriations request development and proactively identifying and communicating critical information through the executive management briefing process ensures that the health and human services enterprise is well-positioned to navigate the opportunities and challenges that will arise in the days ahead health and human services consolidated budget page 6

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hhs system fy 2012-2013 legislative appropriations request the fy 2012­2013 legislative appropriations request lar base request combined with the exceptional items for all hhs agencies total $76.2 billion an increase of $10.2 billion all funds from the 2010-2011 biennium 15.6 percent increase figure ii.3 presents the allocation of requested funds among hhs agencies hhs system request byagency base and exceptional request all funds for fy 2012-2013 76,196.5 million dads $14,653.7 19.2 dars $1,400.8 1.8 hhsc $50,715.5 66.6 dfps $3,192.7 4.2 dshs $6,233.8 8.2 as reflected in the following chart the gr-related base and exceptional item request for 20122013 biennium totals $31 billion representing a $7.9 billion increase 34.3 percent from the 20102011 biennium the majority of this increase is related to returning to the regular medicaid match rate after american recovery and reinvestment act arra expiration total requested federal funds for the base and exceptional items for the hhs system for the biennium is $43.9 billion representing a $2.3 billion increase 5.6 percent over 2010-2011 biennium federal funds health and human services consolidated budget page 7

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figure ii.4 presents the comparison of funding sources for the hhs system hhs system method of financing base and exceptional request all funds for fy 2012-2013 $76,196.5 million other funds $1,350.1 1.8 federal funds $43,895.7 57.6 gr-related funds $30,950.7 40.6 as the chart below indicates medicaid related funding accounts for $58.4 billion or 76.6 percent of the total hhs funding requested in the 2012-2013 biennium using state and federal funding texas medicaid program provides acute care and long term services and support to millions of low income texans each year reference tables iv 1-4 for medicaid caseload forecasts figure ii.5 presents the comparison of medicaid to the hhs system comparison of medicaid to hhs system base and exceptional request all funds for fy 2012-2013 $76,196.5 million total medicaid related $58,366.7 76.6 balance of hhs funding $17,829.8 23.4 health and human services consolidated budget page 8

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legislative appropriation request guidance and base funding base request policy the general revenue gr and gr-related base request must not exceed the sum of the amounts expended in fiscal year 2010 and budgeted in fiscal year 2011 adjusted to reflect the full five percent reduction target identified by the legislative budget board and governor s office of budget planning and policy exceptions to the base limitation include amounts necessary to maintain funding for caseloads in medicaid entitlement programs the children s health insurance program foster care program as well as maintain health and human services eligibility staffing key items not allowed to be included in the base request are adoption subsidies early childhood intervention eci maintain non-entitlement services temporary assistance for needy families tanf cash assistance and tanf supplemental funds funding requests for other purposes which exceed the base spending level may not be included in the base request but may be submitted as exceptional items agencies must also submit a supplemental schedule detailing how they would reduce the base request by 10 percent or down to 90 percent in general revenue funding reference chapter ix appendix b a summary of each agency s base request is provided below health and human services commission the health and human services commission base request for fy 2012-2013 totals $47,283.0 million in all funds 18,611.1 million gr-related this request represents an increase of $5,495.8 million in all funds and an increase of $4,599.4 million gr or a 13.2 percent and 32.8 percent increase respectively aging and disability services the department of aging and disability services dads fy 2012-2013 base request totals $13,309.2 million in all funds 5,319.8 million gr-related this level of funding is a decrease of $483.3 million in all funds from the 2010-2011 biennial amount of $13,792.5 million the gr difference between the two biennia is an increase of $601.3 million 12.7 percent family and protective services the texas department of family and protective services dfps fy 2012 2013 base request totals $2,818.2 million in all funds 1,205.2 million gr-related this level of funding is an increase of $17.3 million all funds from the fy 2010-2011 biennial amount of $2,800.9 million and a $93.6 million or 8.4 percent increase of gr-related funds health and human services consolidated budget page 9

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state health services the department of state health services dshs fy 2012-2013 base request totals $5,952.6 million in all funds 2,996.8 million gr-related this level of funding is a decrease of $208.6 million all funds from the fy 2010-2011 biennial amount of $6,161.2 million but a $41.8 million or 1.4 percent increase gr-related funds assistive and rehabilitative services the department of assistive and rehabilitative services dars fy 2012-2013 base request totals $1,237.8 million 244.8 million gr-related the fy 2012-2013 base request is a decrease of $112.7 million in all funds over the estimated and budgeted fy 2010-2011 biennial amounts and gr decrease of $1.1 million 5 percent summary tables of agency requests table ii.1 illustrates a comparison by agency of the fy 2012-2013 requests to the fy 2010-2011 budgets and summarizes the fy 2012-2013 base request and exceptional items amounts approximately seventy percent 70 of the general revenue increase in the base request is attributed to arra health and human services consolidated budget page 10

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table ii.1 comparison of hhs agency base request fy 2010 2011 and fy 2012 2013 in millions agency dads dars dfps dshs hhsc total hhs fy 10 expended fy 11 budgeted gr grd 4,718.5 245.9 1,111.6 2,955.0 14,011.7 23,042.7 all funds 13,792.5 1,350.5 2,800.9 6,161.2 41,787.2 65,892.4 fy 12-13 baseline gr grd 5,319.8 244.8 1,205.2 2,996.8 18,611.1 28,377.7 all funds 13,309.2 1,237.8 2,818.2 5,952.6 47,283.0 70,600.9 biennial change gr grd 601.3 1.1 93.6 41.9 4,599.5 5,335.1 all funds 483.3 112.7 17.3 208.6 5,495.8 4,708.5 gr grd change 12.7 -0.5 8.4 1.4 32.8 23.2 all funds change -3.5 -8.3 0.6 -3.4 13.2 7.1 hhs agency base and exceptional items request total request fy 2012 2013 in millions agency dads dars dfps dshs hhsc total hhs baseline request gr grd 5,319.8 244.8 1,205.2 2,996.8 18,611.1 28,377.7 all funds 13,309.2 1,237.8 2,818.2 5,952.6 47,283.0 70,600.9 exceptional item request gr grd 517.9 107.1 293.2 206.3 1,448.4 2,573.0 all funds 1,344.4 163.0 374.4 281.2 3,432.5 5,595.6 total request gr grd 5,837.7 351.9 1,498.4 3,203.2 20,059.6 30,950.7 all funds 14,653.7 1,400.8 3,192.7 6,233.8 50,715.5 76,196.5 hhs agency biennial funding comparison baseline exceptional items fy 2010 2011 and fy 2012 2013 in millions agency dads dars dfps dshs hhsc total hhs fy 10 expended fy 11 budgeted gr grd 4,718.5 245.9 1,111.6 2,955.0 14,011.7 23,042.7 all funds 13,792.5 1,350.5 2,800.9 6,161.2 41,787.2 65,892.4 fy 12 13 requested 1 gr grd 5,837.7 351.9 1,498.4 3,203.2 20,059.6 30,950.7 all funds 14,653.7 1,400.8 3,192.7 6,233.8 50,715.5 76,196.5 biennial change gr grd 1,119.2 106.0 386.8 248.2 6,047.9 7,908.0 all funds 861.2 50.3 391.8 72.6 8,928.3 10,304.2 gr grd change 23.7 43.1 34.8 8.4 43.2 34.3 all funds change 6.2 3.7 14.0 1.2 21.4 15.6 note totals may not add due to rounding hhsc exceptional items include enterprise items such as interest list staff retention and it 1 requested includes base and exceptional items health and human services consolidated budget page 11

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summary of hhs agency exceptional items request hhs agencies have requested a total of 71 exceptional items totaling almost $2.6 billion in general revenue 18 percent less than the 2010-11 request including eight requests that are enterprise wide with components that affect multiple agencies in addition hhsc includes six exceptional items that would result in savings of $600.7 million in general revenue table ii.2 divides the exceptional items into the following categories to better highlight the areas of funding needs maintain current services and cost trends for medicaid/chip the exceptional items in this category would continue the current level of services provided in the medicaid program by funding increased costs in acute care as well as maintaining those frew strategic initiatives that began in previous biennia and have not been completed the dads request seeks to maintain client services in waiver and non-waiver programs medicaid managed care savings the exceptional items in this category would achieve savings by expanding managed care in medicaid items include geographic expansion of managed care as well as capitation of certain services that are currently not included on the list of benefits covered by managed care organizations such as dental and drug benefits vendor drug capitation also includes chip maintain current services non-medicaid this category captures those exceptional items required to annualize the costs of legislatively mandated programs that were ramped up during the 2010-2011 biennium these exceptional items also seek to maintain non-medicaid services in multiple programs across the enterprise that are experiencing costs growth in areas such as leases utilities and other operating expenses the two categories above with the exception of medicaid managed care savings identify those exceptional items that maintain current services in fy 2012-2013 critical improvements in system operations this category identifies those exceptional items related to the critical infrastructure needs of the agencies these items include it system support and enhancements building repair and renovation and vehicle replacement major initiatives to increase service capacity and improve quality these exceptional items seek funding to increase the capacity for serving clients in existing programs including community care services to decrease the size of waiting/interest lists as well as continuing services to existing clients in the early childhood intervention program there are several major initiatives developed to respond to ongoing needs in the hhs system such as improving retention and recruitment of direct care staff including eligibility staff and direct care staff at the state hospitals and state supported living centers this category also includes a number of exceptional items that seek funding to enhance services increase prevention efforts and improve quality these items have been identified as critical to building each agency s capacity to fulfill its mission health and human services consolidated budget page 12

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table ii.2 hhs exceptional item request by major category agency exceptional item gr/grd all funds maintain current services and cost trends for medicaid/chip return to regular fmap after arra expiration non-entitlement annualization of non-entitlement programs service dads levels maintain fy 2010-2011 service levels cost trends dads entitlement and non-entitlement hhsc maintain medicaid cost and utilization trends hhsc maintain chip cost and utilization trends maintain funding to continue frew strategic hhsc initiatives subtotal medicaid managed care savings dads hhsc hhsc hhsc hhsc hhsc 192,360,137 126,962,744 101,793,199 1,341,855,509 41,805,519 91,382,605 1,896,159,713 34,723,309 290,019,368 61,228,898 101,634,692 28,940,877 84,121,558 600,668,702 487,516,860 319,456,256 258,030,921 3,341,682,553 140,669,502 96,928,831 4,644,284,923 58,617,610 674,026,136 92,805,100 176,008,155 58,776,159 113,900,391 1,174,133,551 capitate medicaid in urban and contiguous counties expand medicaid managed care into south texas expand medicaid exclusive provider organization model in non-urban counties capitate medicaid dental services in managed care carve-in star+plus hospital services in medicaid managed care capitate medicaid and chip vendor drug programs hhsc in managed care subtotal maintain current services non-medicaid maintain fy10-11 funding for early childhood dars intervention restore arra idea part c and return to regular fmap after arra expiration eci requested funding to serve 2012-13 growth dars in caseload levels maintain fy 10-11 funding for adoption subsidies dfps return to regular fmap after arra expiration maintain fy 10-11 funding for cps direct delivery dfps staff restore arra tanf maintain fy 10-11 funding for day care services dfps restore arra ccdbg and one-time funds dfps annualization of phased-in staff dfps maintain current caseloads per worker caseload growth for adoption subsidies and dfps permanency care assistance dfps caseload growth for relative caregiver program 56,202,184 29,799,816 14,032,594 47,982,710 17,337,022 3,723,108 69,844,907 44,684,146 4,104,200 80,741,416 42,868,890 35,570,578 56,217,440 18,378,264 4,317,358 80,252,423 76,930,660 4,104,200 health and human services consolidated budget page 13

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