Timothy Philpot, president and chief executive officer of John Peter Smith Hospital in Fort Worth, Texas, last week recounted a telephone call from a colleague at a not-for-profit hospital.
"I can't survive without Medicaid," the administrator confessed.
That sums up the feelings of nervous hospital administrators as the Texas Legislature considers a complete overhaul of how it allocates money in its $8.7 billion Medicaid system. Legislators are considering channeling funds through new organizations called Intergovernmental Initiatives, or IGIs. The organizations also are known informally as "iggies."
As Congress considers giving block grants to the states to control Medicaid costs, two of the biggest spenders-Texas and Louisiana-are grappling with how to get even more funds from the federal government.
In Texas, the federal government pays 64% of Medicaid costs. In Louisiana, the state puts up just $350 million of a $4.5 billion state Medicaid budget.
Last month, the Texas Senate passed a bill that proposes a system of IGIs to administer the new Medicaid managed-care system.
Proponents see "iggies" as solving all their problems. Texas' Medicaid system would enter the managed-care era, which advocates say would save money and provide more coordinated, quality medical care.
However, critics believe the real attraction to IGIs has less to do with quality and more to do with money. IGIs would enable the state to access government hospital funds and parlay them into a larger match of federal dollars.
In a state that forecasts a $2.2 billion Medicaid shortfall for 1996 and 1997, hospitals, physicians and state officials see promise in a system that would generate more federal money.
Still, the IGIs would be controlled by public hospitals and state teaching hospitals. Critics say that gives those facilities a competitive advantage for Medicaid patients.
Those institutions would put up some local funds to be combined with state dollars. The funds would be matched by the federal government and flow back to IGIs to administer to managed-care systems (See chart, p. 26).
Critics fear public and state hospitals would channel those dollars to their own health programs, capturing nearly all of the Medicaid patients.
Not surprisingly, that prospect doesn't appeal to investor-owned hospitals and HMOs.
The IGIs essentially "carve out protections for the status quo," said Geoff Wurzell, executive director of the Texas HMO Association. "You can't have the status quo and save money. The status quo has led us to a system that's going to go broke."
Although state officials initially embraced a managed-care solution to Texas' Medicaid problems, "the focus has gone from how much can we save to how much can we get (from the federal government)," he said.
David Manning, vice president for government relations at Columbia/HCA Healthcare Corp., said, "We think the system needs to be more competitive." Manning, who formerly headed Tennessee's TennCare, a Medicaid managed-care system, said that state's system is "very much market-driven."
However, some not-for-profit hospitals may favor the "iggy" system.
"In Houston, there is a long history and tradition of the not-for-profits working with Harris County Hospital District," said Jon Iszard, manager of strategic planning and business development at Methodist Hospital System, Houston. As far as administering Medicaid funds, he said, "I would rather see it closer to the market, and if that's the hospital district, that would be fine."
However, Iszard said he hopes such a drastic overhaul won't be rushed in. A 1997 implementation would be preferable to 1996, he said.
"I hope the state can resist the budget pressure," he added. The legislative session ends in May.
Meanwhile, in Louisiana, the Legislature opened last week and must solve a Medicaid budget crisis by the time it adjourns in mid-June.
Louisiana faces unique pressures because of the way it funds its Medicaid program. The state puts up $350 million but then uses another $900 million in federal disproportionate-share funds for treating large numbers of poor people to obtain even more matching funds from the federal government.
Louisiana has the most to lose of all the states if the Republicans' Contract With America is implemented because of its overreliance on federal Medicaid funds, according to a National Governors' Asscoiation study. That study, released in January, predicted the state could lose more than $4 billion in federal funding, including $2.5 billion in Medicaid cuts.
The state could lose $3 billion in Medicaid funding from the federal government if it doesn't move to change its program by the start of fiscal 1996, which begins in July.
Congress has said states can't use federal funds as part of their match. As an alternative, Louisiana state officials have proposed a statewide HMO, which they figure would generate a profit of $400 million next year.
The rpofits from the HMO would be used as part of its match and along with other matching funds would raise the $1 billion needed to continue its $4 billion medicaid program, state officials say.
"The Legislature is terrified of this program," said Clark Cosse III, vice president of legal and government affairs for the Louisiana Hospital Association. "Many public officials would like to just wish this away" until after the Nov. 7 state elections, he said.
The state has applied for a waiver to convert its Medicaid system to managed care. Gov. Edwin Edwards and the Louisiana Health CAre Authority, which operates the state's charity hospital system, are proposing a statewide HMO that would be run by the authority. In addition, nine hos