Senate budget writers believe they have found a creative way to cut down on growing health care costs for state employees. But the potential source of those savings — state-run medical schools — say the idea would essentially amount to a big budget cut.

Inserted in the nearly 900 page Senate budget bill are three paragraphs that would force the medical schools to treat members of the Employees Retirement System of Texas at a discounted rate. The new rule is designed to save about $80 million for the Employees Retirement System, which has seen its expenses grow by nearly 10 percent annually in recent years.

Proponents see it as a way to use one state asset to help another. But opponents warn that it would mean less revenue to help the medical schools pay for important cancer research and medical residencies that help fight doctor shortages in the state.

The rule was inserted into the budget by Sen. Charles Schwertner, R-Georgetown, an orthopedic surgeon. Schwertner's chief of staff, Thomas Holloway, called it an effort to "help the state control costs and make sure that we're paying a reasonable and appropriate rate for those state employees who receive care at the state's health-related institutions."

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The rule isn't a done deal, however. It wasn't included in the House's version of the budget bill, meaning its future will be determined by the 10-person conference committee negotiating over the bill. Schwertner is a member of that committee. 

Conference committee members might tweak the language if they choose to include it. But as currently written, it would require the medical schools to negotiate with the organizations that administer the Employees Retirement System's health care plans in order to set new reimbursement rates that would save the $80 million. Critics warn that any savings for the retirement system would mean losses for the hospitals. And those losses would come during what is already turning out to be a difficult budget year for medical schools.  

Opponents also argue that the rule is a blunt instrument. Using the medical schools to find ways to save money on state employees' health care might be an interesting idea, they say, but not one that should be committed to during the chaotic budgeting process. 

The rule would have by far the biggest impact on the University of Texas System, which oversees six health institutions that serve about 10,000 Employees Retirement System patients each year. Discounting those patients' care would likely be costly. But system officials said they also worry about tempting the state to later add public school teachers and other beneficiaries to the list.

"We think it sets a very bad precedent to have legislatively dictated reimbursement," said Ray Greenberg, vice chancellor for health affairs at the UT System. 

The powerful Texas Association of Business, meanwhile, wrote a memo to conference committee members saying it worried about the impact on its members. Lowering costs for state employees might force the hospitals to raise costs on other patients, which would be costly to businesses that pay their employees insurance premiums, the group said.

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"It will cause long-term harm to [hospitals'] financial ability to provide care for all patients beyond the [Employees Retirement System] population," the letter said.

Disclosure: The University of Texas System has been a financial supporter of The Texas Tribune. A complete list of Tribune donors and sponsors is available here.

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