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)


Under the terms of the new Waiver, CMS will temporarily continue DSRIP funding. However, funding is phased down to zero over the five years. THHSC 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

DSRIP Transition Plan

THHSC’s DSRIP Transition Plan must include milestones for the state to achieve through 2020-2021, related to the state’s use of alternative payment models, managed care payment models, payment mechanisms to support delivery system reform efforts, and other opportunities. THHSC anticipates meeting the following milestones to ensure federal financial participation is not jeopardized.

September 2020

  • THHSC updates the Texas Value-Based Purchasing Roadmap to address strategies to sustain key DSRIP initiative areas.
  • THHSC identifies and submits to CMS any proposals for new programs, including state-directed payment programs, to sustain key DSRIP initiative areas in 2022 of current Waiver period.

December 2020

  • THHSC updates the Texas Medicaid quality strategy to address program and stakeholder goals.
  • THHSC reviews DSRIP activities as possible Medicaid state plan benefits and policy changes and submits findings and approval requests to CMS, as necessary.
  • THHSC assesses the current capacity and use of telemedicine and telehealth, particularly in rural areas of Texas, to inform next steps to address access gaps.
  • THHSC conducts a preliminary analysis of 2018-2019 DSRIP quality data and related core activities to outline lessons learned on health system performance measurement and improvement.

March 2021

  • THHSC assesses Texas’ current financial incentives for Medicaid MCOs and providers to enter into meaningful quality-based alternative payment models and identifies potential opportunities to strengthen or align incentives.
  • THHSC completes an assessment of social factors correlated with Texas Medicaid health outcomes.
  • THHSC identifies options for the Regional Healthcare Partnership structure post-DSRIP.

September 2021: THHSC identifies and submits to CMS any additional proposals for new programs to sustain key DSRIP initiative areas that would start in the next Waiver renewal period.

Additional details are available from THA's recent Information Alert.

Texas’ Medicaid 1115 Transformation Waiver represents a major resource in reshaping the delivery of health care in communities across the state. Hospitals are collaborating with providers of all types to implement ways to make health care more effective and efficient. To demonstrate the local impact of the waiver for members of Congress and highlight the innovative work hospitals and their partners are pursuing, THA produced a series of one-pagers highlighting the unique needs and challenges of each region, and the projects developed to meet those needs ... Read more

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)
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.