1115 Medicaid Transformation Waiver

With approval of Texas’ Medicaid 1115 Waiver worth approximately $25 billion through 2022, Texas hospitals are working with state and federal partners to address the waiver’s new terms and conditions that will change hospitals’ supplemental payments. While maintaining significant funding for uncompensated care and Delivery System Reform Incentive Payments, the new waiver requires two major changes:

  1. Transitioning from use of the current "UC tool" to a modified S-10 Worksheet to calculate and distribute UC payments based on hospital charity care costs alone. Medicaid shortfall and bad debt costs no longer will be allowed.
  2. Winding down DSRIP projects and funding.

Uncompensated Care

Texas will receive uncompensated care funding through Sept. 30, 2022. The size of the UC pool will be determined solely by hospital charity care provided to the uninsured, but UC payments can be distributed among all qualifying providers, including non-hospital providers whose costs are not counted in the size of the UC pool. Federal UC funds for 2018-2022 are as follows.

  • 2018: Approximately $3.1 billion (level funding)
  • 2019: Approximately $3.1 billion (level funding)
  • 2020: Resized and adjusted based on 2017 S-10 Data (or $2.3 billion if no data)
  • 2021: Resized and adjusted based on 2017 S-10 Data (or $2.3 billion if no data)
  • 2022: Resized and adjusted based on 2017 S-10 Data (or $2.3 billion if no data)

DSRIP Transition

Under the terms of the waiver, CMS will temporarily continue DSRIP funding. However, funding is phased down to zero over the five years. HHSC must submit a draft plan by Oct. 1, 2019 for CMS' approval that outlines the transition from DSRIP to sustainable delivery system reforms that do not require DSRIP funding.

  • 2018: $3.1 billion (level funding)
  • 2019: $3.1 billion (level funding)
  • 2020: Unspecified decrease in funds (capped at $2.91 billion)
  • 2021: Unspecified additional decrease in funds (capped at $2.49 billion)
  • 2022: No funding

With the ongoing COVID-19 pandemic, now is not the time to wind down a program that has been vital to Texas' health care safety net and provided critical funding for health care services. Texas hospitals and health care providers instead support at least a one year extension of the program. 

Learn more from the THA-led whitepaper supporting a DSRIP extension. 


The Departmental Appeals Board at the U.S. Department of Health and Human Services decided in early August 2018 to uphold CMS' earlier decision to disallow approximately $25 million in federal uncompensated care payments to private hospitals in the Dallas-Fort Worth area. At this time, the state Medicaid agency is considering its options and could accept the decision or appeal.


In September 2014, CMS notified THHSC that it was deferring $74 million in federal Medicaid funds tied to private hospital uncompensated care payments from 2013 under the Waiver. While it did not accept the financial arrangement, CMS ultimately released the deferral in January 2015 and stated its willingness to work with THHSC before making a final determination.

In May 2015, THHSC and CMS revisited the issue, and shortly thereafter, CMS agreed that if changes to private hospital funding were required following the discussions, Texas would have until Sept. 1, 2017 to transition to other funding mechanisms without risk of disallowance on the same grounds as the 2014 deferral. Discussions concluded in September 2015 without CMS’ authorization of the private hospital funding arrangement in question.

In September 2016, CMS issued another disallowance notice to THHSC stating that $27 million in federal uncompensated care payments were being disallowed because they constituted “impermissible provider donations.” 

U.S. HHS Departmental Appeals Board Affirms Disallowance of Uncompensated Care Payments (Oct. 2, 2019)
CMS Letter to THHSC on LPPF Permissibility (Dec. 2018)
HHS DAB Decision Letter (Aug. 8, 2018)
HHS Department of Appeals Board Decision on Disallowance (Aug. 7, 2018)
CMS Disallowance Response from CMS Administrator Seema Verma (Sept. 28, 2017)
Letter from Charles Smith to Seema Verma re: Disallowance (Sept. 22, 2017)
THHSC Appellate Brief on UC Disallowance (June 2017)
Disallowance of Federal Uncompensated Care Payments for Texas Hospitals (April 17, 2017)
Joint Hospital Association Letter to Texas Congressional Delegation (March 13, 2017)
THHSC Letter to US HHS Secretary Tom Price (March 7, 2017)
CMS Affirms Disallowance (Dec. 21, 2016)
Final Reconsideration Letter (Oct. 28, 2016)
CMS Disallowance Response (Oct. 27, 2016)
CMS Letter Lifting UC Deferral (Jan. 2015)
CMS Notice of Deferral (Oct. 2014)
THHSC Notice of Deferral (Oct. 2014)
THA Letter to THHSC Executive Commissioner (Oct. 2014)
CMS is questioning the financing mechanisms being used based on guidance issued in a State Medicaid Director Letter #14-004 on May 9, 2014.
THHSC Letter to Cindy Mann – CMS (Nov. 2014)
HHSC Requests DSRIP Extension (Oct. 16, 2020)
Update from the Executive Waiver Committee (Aug. 24, 2020) | HHSC
Hospitals, Health Care Providers Support DSRIP Extension (Aug. 10, 2020)
Health Care Advocates Request DSRIP Extension Due to COVID-19 (June 23, 2020)
HHSC Provides DSRIP Transition Update(April 23, 2020)
Joint-Association DSRIP Extension Request (March 25, 2020)
THHSC’s Consolidated Summary of DSRIP Transition Stakeholder Meetings (October 2019)
Slides from THHSC’s DSRIP Transition Webinar (Oct. 14, 2019)
Stakeholder Feedback on Draft DSRIP Transition Plan (Oct. 2, 2019)
THHSC’s DSRIP Transition Plan (Sept. 30, 2019)
CMS Approves $3.87 Billion UC Pool Size for FYs 2020-2022 (Sept. 26, 2019)
THHSC Announces Changes for Medicaid Supplemental Payment Programs (Sept. 17, 2019)
2019 HHSC DSRIP Statewide Learning Collaborative Summit Agenda (Sept. 4, 2019)
RHP Showcase Slides from the DSRIP Statewide Learning Collaborative (Sept. 4, 2019)
THHSC Slides From DSRIP Transition Stakeholder Meeting (Aug. 26, 2019)
Framing Post-DSRIP (Stakeholder Proposals & DSRIP Transition Plan Feedback) (Sept. 4, 2019)
THA Comment on DSRIP Transition Plan (Aug. 16, 2019)
Draft DSRIP Transition Plan (Aug. 2019)
Proposed changes to the MBP for DY7-10 (June 2019)
DSRIP Protocols Related Strategies (June 2019)
THA Comments on THHSC’s Request for DSRIP Transition Proposals (November 2018)
THHSC Request for DSRIP Transition Proposals (October 2018)
Joint Hospital Association Letter to Congressional Delegation on UC Pool Size (July 2018)
THHSC Summary on New Medicaid 1115 Waiver (Jan. 23, 2018)
THHSC Presentation from 1115 Waiver Extension Kickoff Meeting (January 2018)
Texas Budget Neutrality Summary: March 2017 Forecast Update With 5 Year Waiver (Excel)
Texas Medicaid Waiver Renewal - Summary (Dec. 29, 2017)
Congressmen Green, Doggett and Castro Letter 1115 Waiver Letter
Texas Congressional Delegation 1115 Waiver and Disallowance Letter
DY 7-8 DSRIP Webinar Presentation
Draft DY 7-8 DSRIP Protocol (Feb. 5, 2017)
DY 7-8 Measure Bundle Overview for Providers (Feb. 5, 2017)
THHSC 1115 Waiver Update Presentation (Feb. 5, 2017)
THHSC 21-month Waiver Renewal Request (Jan. 26, 2017)
THA Takeaways, THHSC Uncompensated Care Study: Implications for 1115 Waiver Renewal (Sept. 2, 2016)
THHSC Study of Hospital UC Costs (September 2016)
Letter from HHSC to CMS on Waiver Extension (Aug. 19, 2016)
Medicaid Draft Report on Hospital UC Cost (July 19, 2016)
THA Takeaways, Medicaid 1115 Waiver Extension: What Does It Mean for Texas Hospitals and Patients? (May 4, 2016)
Texas Medicare Transformation 1115 Waiver Extension CMS Special Terms and Conditions (May 2, 2016)
CMS - Request for 15-Month Extension of the 1115 Demonstration Waiver (April 7, 2016)
Medicaid 1115 Waiver CMS Response to Johnson
Performance Bonus Pool
Transformational Extension Protocol Models, Jan. 26, 2016
Transition Year Plan
Delegation Waiver Letter of Support Signed (November 2015)
1115 waiver extension: Comment letter to CMS (November 2015)
Congressional Letter of Support (November 2015)
Waiver Extension FAQs (October 2015)
Final 1115 Waiver Extension Application (Submitted September 2015)
Infographic: Uncompensated Care (Aug. 7, 2015)
THA Comments on THHSC's Draft Waiver Extension Request(Aug. 3, 2015)
THA Takeaways: Hospitals Support Waiver Continuation (July 8, 2015)
1115 Extension Application Draft (July 2, 2015)
Attachment A - Texas DSRIP Projects (July 2, 2015)
Attachment B - Quality Monitoring Reports and Deliverables (July 2, 2015)
Attachment C - Performance Indicator Dashboards and Pay-for-Quality Measures (July 2, 2015)
Attachment D - 1115 Waiver Extension Budget Neutrality Calculations (July 2, 2015)
Attachment E - STC Compliance (July 2, 2015)
Public Notice (July 2, 2015)
THA Takeaways: Waiver Renewal Discussion (April 2015)
Special Terms and Conditions (STC) 48 Requirement (March 23, 2015)
Special Terms and Conditions (STC) 48 Requirement Attachment A (March 23, 2015)
THA Comments on THHSC’s Draft Waiver Transition Plan (Feb. 13, 2015)

According to Texas Government Code 305.027, portions of this material may be considered “legislative advertising.” Authorization for its publication is made by John Hawkins, Texas Hospital Association, 1108 Lavaca, Suite 700, Austin, TX 78701-2180.