Barclays on Health Care Facilities: Thoughts on the Expansion of Managed Medicaid in Texas and Preservation of the Upper Payment Limit Program

Barclays on Health Care Facilities: Thoughts on the Expansion of Managed Medicaid in Texas and Preservation of the Upper Payment Limit Program

Barclays analyst says, "Yesterday, Texas received approval from the CMS for a five-year waiver that allows the state to expand the use of managed Medicaid while continuing to receive Upper Payment Limit (UPL) payments. We note that there had been some concern that with the passage of the managed Medicaid waiver, there may have been some reallocation of UPL funds. As a result, we view this news as a positive for hospitals which do receive some Texas UPL payments (mainly United Health (NYSE: UHS) and HCA (NYSE: HCA)). We note that there are some potential changes to the UPL payment formula which could cause some changes the amounts that each hospital receives. However, the approval of this five-year waiver reduces some concerns of larger reductions in UPL payments at least in the near term."

"We recognize that the expanded use of managed Medicaid is expected to result in a reduction in expenses to through a reduction in utilization, administered by the managed care plan. However, we also note that the expanded use of managed Medicaid in Texas has been discussed for some time as a source of cost savings for the state. Additionally, we believe that hospitals with scale will have the opportunity to drive volume through their relationships with managed care payors as managed care payors become stewards of the utilization for a larger percentage of the Medicaid population."

"Barclays Capital Key Takeaways: 1) We view the preservation of Texas UPL program for five years as a positive development for UHS and HCA; 2) Approval of this waiver by CMS confirms that the state will move forward with its expansion of the use of Managed Medicaid in Texas; and 3) We provide an overview of the Texas UPL program."

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