In the custom of modern political campaigns, invitations to a September fundraiser for Governor Rick Perry prominently displayed the names of major contributors. At the pinnacle of the gilded ladder were those who had earned “Lone Star Council Gold,” for giving at least $50,000 to the governor’s reelection effort. There, perched alongside the usual suspects (political heavyweights like the AT&T Texas Political Action Committee, the Texas Association of Realtors, and the Wholesale Beer Distributors of Texas), was an emerging powerhouse in Texas politics: the Border Health PAC, a group closely aligned with Doctors Hospital at Renaissance, a sleek physician-owned health care facility in Edinburg.

The hospital opened in 1997 and has recently become a force to be reckoned with. Alonzo Cantu, a prominent McAllen developer and an investor in DHR, was a prolific fund-raiser for Hillary Clinton’s presidential campaign. When DHR opened a new women’s hospital, in 2007, Nancy Pelosi dropped in on the festivities (a fundraiser held at Cantu’s house during her visit netted the Democratic Congressional Campaign Committee $800,000). Former Texas comptroller John Sharp, now a Democratic candidate for the U.S. Senate, owns a small stake in the hospital. The Border Health PAC has been equally influential. Since 2006, it has contributed more than $1.2 million to state and local candidates. It now boasts a war chest in excess of $1.3 million.

Nonetheless, few people outside the Rio Grande Valley had ever heard of Doctors Hospital until June, when it was cited by writer and physician Atul Gawande in an article in the New Yorker that called attention to the high per-patient Medicare costs in the McAllen metropolitan area. The article, later seized on by President Barack Obama, questioned whether the business model of physician-owned facilities such as DHR gives doctors an “unholy temptation” for the overutilization of tests and procedures.

Gawande compared Medicare payment data in McAllen and El Paso, cities with some demographic similarities, and found that between 2001 and 2005 “critically ill Medicare patients received almost fifty percent more specialist visits in McAllen than in El Paso, and were two-thirds more likely to see ten or more specialists in a six-month period.”

Physicians in the Valley passionately disputed Gawande’s conclusions, claiming that his assumptions and data were flawed. Principally they argued that the McAllen metro area had a poorer population than El Paso, presenting more-complicated cases with more chronically ill patients. Hidalgo County, where McAllen is located, is one of the poorest counties in the nation. It has a per capita income of $12,190, less than half the national average. Its physician-to-population ratio—116 doctors per 100,000 residents—is the lowest in the U.S. More than 35 percent of its residents are uninsured, beating the state’s dismal record of 24 percent uninsured.

For these same reasons, Hidalgo County and two adjacent Valley counties (Cameron and Maverick) have been the beneficiaries of an unusual exemption in the state’s Medicaid policy that officials say is costing Texas millions of dollars. Earlier this decade, state legislators instructed the Health and Human Services Commission to administer Medicaid in the state’s cities through a managed-care plan, modeled after health maintenance organizations, to control costs. But in 2003, Valley lawmakers, led by state representative Kino Flores, of Palmview, won a moratorium on expanding managed care to their region, claiming the area’s demographics created special challenges, such as high rates of expensive-to-treat chronic illnesses. Managed care could also drive away doctors, they argued, who had long been in scarce supply in the Valley.

“Managed care” is an umbrella term for a variety of cost-controlling efforts, which are at the very heart of the national health care debate. In the case of the Valley, the legislative moratorium on managed care refers strictly to health maintenance organization models, which save money by requiring participating doctors to treat patients in accordance with certain guidelines and restrictions. Not surprisingly, HMOs are not popular with some physicians, who don’t appreciate their judgments being second-guessed by an insurance company.

But if the status quo is maintained, the state’s Medicaid bill will go up almost 10 percent per biennium (a $4.5 billion increase this cycle). As Senator Everett Dirksen is famously credited with saying, “A billion here, a billion there, and pretty soon you’re talking real money.” How the Valley, and everyplace else, spend their Medicaid dollars is an issue that affects every Texan—and can no longer be dismissed as a local concern.

Complicating the situation is the fact that the health care industry has become a powerful engine of economic growth in the Valley. While health care makes up 12 percent of the economy on a statewide average, according to the Federal Reserve of Dallas, it weighs in at 21 percent of the economy in McAllen. Seven of the area’s ten largest private employers are health care firms. State representative Veronica Gonzales, of McAllen, and leaders from DHR tried to make this point—and explain the challenges of the Valley’s unique demographics—this summer, following Gawande’s article, when sixteen Texas House members were invited to McAllen for a tour of the region (and each given a $5,000 donation from the Border Health PAC).

“They were cognizant of the elevated exposure they had recently received nationally,” said Lois Kolkhorst, of Brenham, who, as chairman of the House Public Health Committee, declined a donation. “They wanted to tell us why managed care wouldn’t work in their area. They kept telling us they were different [from the rest of the state].”

Few would argue the point. As a former state health official told me, “The Rio Grande Valley is separated from the rest of Texas by fifty-five miles of King Ranch and two hundred years of neocolonialism.” Nonetheless, could managed care address the needs of the local population while saving Texas money? Stephanie Goodman, the communications director for the Health and Human Services Commission, believes the answer is yes. According to an HHSC estimate, the state would save $137 million over four years by undoing the moratorium.

As for the special health challenges of the region’s impoverished population, Goodman believes that this is actually an argument in favor of managed care, where the focus is on prevention. In an e-mail, she wrote to me that “the health plans are responsible for managing patient care and controlling costs, and the combination leads to some innovative ideas. For example, a health plan in El Paso realized it was paying for lots of emergency room visits for nonemergency situations because many members couldn’t take off work to go to the doctor. The health plan began paying primary care doctors a higher rate for office visits in the evenings and on weekends to create an incentive for doctors to expand their normal business hours. The result is a decrease in emergency room visits for routine care and an increase in families’ access to preventive care.” She also pointed out that there are currently 7,200 disabled Medicaid recipients in the Valley who are on a state waiting list to receive community-based care. Under federal regulations prescribing how the state uses an HMO, those clients would immediately begin receiving benefits.

So why would the conservative Texas Legislature—whose budget writers have been wringing pennies from every other program—leave dollars on the table if people could actually be helped by moving to managed care? The simple answer, according to Senate finance chair Steve Ogden, of Bryan, is politics. While he personally favors extending managed care to the Valley to control costs, Ogden says, “Valley legislators line up uniformly opposed to it. It was not a fight I took on, because there wasn’t anything I could do about it.”

This is not entirely unusual. State senator Judith Zaffirini’s home county, Webb, was included in the moratorium until health care leaders in the area asked that they be excluded because an HMO-style program already existed dating back to 1995. She noted that lawmakers, according to legislative tradition, generally defer to colleagues whose districts are most affected by legislation, unless there is a compelling reason not to. In this case, she said, state senators Eddie Lucio Jr., of Brownsville, and Juan Hinojosa, of McAllen, have argued vigorously against allowing an HMO into the Valley.

Zaffirini, who has fought diligently to reduce waiting lists for the disabled, said she found the arguments that an HMO would eliminate these waiting lists for certain services “appealing.” But she also found Lucio and Hinojosa’s arguments convincing because, as she put it, “there is such an incredible level of poverty and people dispersed through rural areas where the medical infrastructure is so very fragile.”

Valley physicians have visited Austin to make their case against HMO-style managed care in person, and the Border Health PAC has contributed lavishly on both sides of the aisle to make sure that its point of view is heard. The PAC began donating in 2004. In the Texas Senate its largest beneficiaries have been Hinojosa ($200,000), Zaffirini ($50,000), and Lucio ($40,000). In the House of Representatives, the largest contributions have gone to Flores ($52,500); Gonzales ($42,500); Richard Raymond, of Laredo ($30,000); and Yvonee Gonzalez Toureilles, of Alice ($30,000). Governor Rick Perry picked up $125,000, Lieutenant Governor David Dewhurst received $80,000, and former House Speaker Tom Craddick netted $25,000.

But DHR is not the only Valley medical facility with a considerable political presence. This summer a Travis County grand jury indicted Flores for failing to report sources of income on the personal financial statements he filed with the Texas Ethics Commission over the past six years. One of those sources was a retainer from the McAllen Medical Center. And McAllen Medical has other political ties: Hinojosa, for example, has represented the hospital as local counsel in two cases. McAllen Medical is also part of the South Texas Health System, a hospital group that in October agreed to pay $27.5 million to settle a lawsuit by the U.S. Department of Justice alleging a scheme in which the hospital group paid kickbacks to doctors to induce them to refer patients to its facilities. (A spokeswoman for McAllen Medical declined to respond to our questions.)

Still, politics and influence are only part of this issue. Like his colleagues from the Valley, Houston lawmaker Garnet Coleman, now the chairman of the House County Affairs Committee, does not see an HMO as a silver bullet for the region. But he believes the “cost conundrum,” as the New Yorker called it, is worthy of an interim study by lawmakers. Under Texas law, counties are required to provide health care for indigents, but no public hospital exists in the McAllen area to do that. Other counties, he noted, have created health care districts that impose a tax to meet their obligations. Coleman says he hopes to examine the county’s responsibility—along with the state’s Medicaid program. “What is the advantage of pooling county and state resources?” Coleman asks. “This is an opportunity. States are laboratories of change.”

Gonzales believes the controversy over McAllen’s health care costs is overblown. Her view is that managed care could easily result in fewer patients receiving treatment. “My concern with managed care in the Rio Grande Valley is that a rollout done all at once could undermine the Valley’s fragile health care system,” she wrote. “The administrative costs associated with managed care alone results in more monies going to the insurance companies and less for direct patient care.” She noted that Valley physicians are hoping to come up with a homegrown solution to rising health care costs, such as a multimillion-dollar investment in electronic health records, so that physicians could share patient information and cut down on duplicate services. “I think health care costs are a problem everywhere,” she said. “It’s not limited to McAllen, Texas.”

She is certainly correct about that. On November 30, Dallas health care and business leaders will convene a summit to examine why their city ranks thirteenth in Medicare spending, well ahead of its neighbor Fort Worth. Meanwhile the Texas Workforce Commission estimates that high-skill health care jobs in the Valley will increase 46 percent between 2004 and 2014, compared with a 34 percent increase for the rest of Texas. Cantu told me the feasibility of a new pediatric heart surgery center is under study.

“The question you should be asking is this: Is health care in the Valley better than it was ten years ago?” he said in a phone interview. The answer is easy: Yes, without reservation. Because of the commitment and vision of local leaders, remarkable strides have been made in a region long ignored and underserved. But there’s a follow-up question, underlying the national health care reform debate, that needs to be answered without the distortion of political influence: At what cost?