💡 What’s Happening?
So far, Texas hospitals have been left without more than $375M in supplemental Medicaid payments, stemming from billions of dollars in federal funds being withheld from Texas by the Centers for Medicare & Medicaid Services (CMS). Since the new fiscal year began Sept. 1, the multibillion-dollar hold has translated to a loss of roughly $27 million per day. Prolonged funding gaps can force hospitals to make difficult decisions about taking on debt or cutting key services – particularly those serving infants and children – while putting financially vulnerable hospitals, especially in rural areas, at risk and threatening tens of thousands of Texas jobs.
Even after an agreement is reached between Texas and CMS, hospitals would still face at least 90 days of administrative and bureaucratic processing before the funds could reach them. Hospitals are also missing out on $1.4 billion in already-approved 2026 CHIRP funds tied to quality-of-care incentives.
This loss comes on top of the financial pressures created by the trillion-dollar cuts in last year’s H.R. 1, the expiration of enhanced premium tax credits earlier this year and a broader, longstanding problem: inadequate payment sources that leave hospitals navigating the gap between what it costs to provide care and what they are reimbursed.
“‘It is impossible for a hospital to take a huge loss on a Medicaid side of their portfolio and not have that impact services across the board, regardless of what type of insurance a patient has,’ said Sara González, a THA vice president of advocacy, public policy and political strategy.
…‘We are carefully monitoring every dollar and would be forced to make difficult decisions about maintaining critical services if this impasse continues,’ [said Dr. Esmaeil Porsa, president and CEO of Harris Health.]”
The Texas Tribune: Texas hospitals say they’re losing $27 million a day in Medicaid funding
“‘We’re bracing for a crisis that will crack the Texas healthcare safety net. No industry can withstand $27 million in losses per day,’ Texas Hospital Association CEO John Hawkins said. … ‘The numbers are seismic and will shake the Texas economy, eliminate thousands of jobs statewide and diminish Texas health. There is no more business-as-usual in the world of hospitals.’”
Becker’s Hospital Review: ‘No more business-as-usual’: Texas hospitals face $27M-a-day Medicaid hit as CMS stalls on DPPs
📌 Important Acronyms Explained
Medicaid is a health insurance program for people who are low-income, children, pregnant, elderly or disabled. About 4 million Texans, mostly children, rely on Medicaid. When hospitals care for Medicaid patients, Texas contributes 40% of the reimbursement, while the federal government provides the remaining 60% through various programs. On average, general revenue-funded base Medicaid reimbursement covers roughly 72–75% of the cost of caring for Medicaid patients. Medicaid directed payment programs (DPPs), which are self-financed by hospitals, help partially make up that difference:
- CHIRP – The Comprehensive Hospital Increase Reimbursement Program, which supports hospitals. More than $9 billion in CHIRP funds is currently being withheld.
- TIPPS – Texas Incentives for Physicians and Professional Services, which supports physician groups, including those affiliated with hospitals. More than $640 million is being withheld.
- RAPPS – Rural Access to Primary and Preventive Services, which supports rural health clinics, including hospital-based clinics. More than $15 million is being withheld.
Together, these programs provide critical supplemental payments that help hospitals cover more of the cost of care and the labor required to provide it. These payments do not make hospitals whole but without them, hospitals are left to absorb a larger share of the gap between reimbursement and the actual cost of care.
⚖️ Texas versus CMS
Why has CMS refused to approve and release these critical funds? The answer is tied to a months-long dispute.
H.R. 1 froze healthcare-related taxes in states like Texas that did not expand Medicaid and prohibited the creation of any new taxes. Texas relies on these tax structures to finance its share of Medicaid hospital supplemental payments, and is the only state in the country whose hospital taxes are exclusively imposed by local governments. These taxes, called Local Provider Participation Funds (LPPFs), were created by the Texas Legislature.
The current impasse is tied to CMS asking Texas to make changes to these existing taxes, without guaranteeing that those changes will not run afoul of H.R. 1’s freeze on existing taxes or that CMS won’t attempt to claw back funds already paid in prior years under longstanding methods previously approved by CMS. Forcing changes on LPPFs without those guarantees would significantly disadvantage Texas hospitals and jeopardize the stability of the Medicaid program, leaving state general revenue as the only straightforward backstop to supplement lost dollars. Governor Greg Abbott has pushed back against the federal changes, sending a letter to the U.S. Department of Health and Human Services in defense of the current structure and speaking publicly after news broke about the payment delays two weeks ago.
As the dispute continues, funding tied to the DPPs remains frozen.
“‘Texas is working with the Centers for Medicare and Medicaid Services to protect funding that helps hospitals serve Medicaid patients and keeps critical emergency care available. …Texas’ financing fully complies with federal law, and Texas health care providers should receive the funding they are due,’ [Andrew] Mahaleris, Abbott’s spokesman said on Wednesday.”
The Texas Tribune: In a rare move, Gov. Greg Abbott defends Medicaid funding for Texas
⏩ What’s Next?
This Medicaid funding dispute is ultimately about more than a delayed payment – it’s about how hospitals will continue to finance the care Texans rely on while navigating an increasingly uncertain reimbursement environment. This isn’t the first time hospitals have found themselves having to sound the alarm over the stability of their funding. Most importantly, hospitals, like any business, need stability in their revenue sources, and constant disagreements over Medicaid funding only creates instability and ultimately raises the cost of care.
Too often, it takes the prospect of real consequences, like a neonatal service line at risk, threatened nursing positions or a community worrying about what’s next to bring the challenges of hospital financing to focus.
The work of hospital and healthcare advocates makes those stakes, and the reality of how hospitals are funded, visible to policymakers, the media and the public. The solutions advocates propose aren’t about enabling hospitals to profit at the expense of patients; they’re about ensuring hospitals can meet the most basic obligation of the healthcare system: keeping critical, life-saving care available to the people who need it.
⭐ For hospitals serving millions of Texans – including those who are uninsured or covered by Medicaid – funding isn’t about the extras. It’s about the floor: the baseline resources needed to keep the doors open, the lights on and care available.
📖 Learn More
In the Crosshairs: Texas Hospitals Face $10 Billion Crisis
Texas hospitals say they’re losing $27 million a day in Medicaid funding
In a rare move, Gov. Greg Abbott defends Medicaid funding for Texas
