Texas hospitals expect to lose $27 million a day in Medicaid funding starting Tuesday

When the state’s new fiscal year begins on Tuesday, Texas hospitals expect to lose $27 million a day in additional Medicaid funding.

The shortfall is the result of a decision by the Trump administration to withhold approval from Texas for about $9.8 billion in the next year from three programs, the bulk of which affects the Comprehensive Hospital Increase Reimbursement Program (CHIRP).

This program gives hospitals additional funding to cover the difference between Medicaid rate payments and the actual costs that hospitals incur to provide services to Medicaid patients. Essentially, hospitals, which often are paid less than what they spend on Medicaid patients due to outdated payment rates set by the state, are losing out on their additional reimbursement for 2027.

Local governmental entities collect taxes from hospitals — about $4 billion a year, according to the Texas Hospital Association — and under CHIRP, the federal government matches those funds so that Texas hospitals can then use them to cover the actual costs of providing Medicaid services. Hospitals say those CHIRP dollars are critical and if they lose that funding, they will likely have to cut services to patients.

Four million low-income Texans are enrolled in Medicaid, most of them children.

“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.

In Houston alone, the impact could mean at least $258 million less for the public healthcare system there known as Harris Health and as much as $1.4 billion less for the region overall next year.

“The impacts would be catastrophic for Texas’ safety-net healthcare system,” said Dr. Esmaeil Porsa, president and CEO of Harris Health. “We are carefully monitoring every dollar and would be forced to make difficult decisions about maintaining critical services if this impasse continues.”

The federal government is withholding these critical dollars because they are calling into question how local jurisdictions in Texas calculate the amount of taxes collected from hospitals.

Robert Fries, the chief financial officer for Children’s Health in Dallas said in a statement that this type of funding is crucial for children’s hospitals like Children’s Medical Center. “Delays and uncertainty threaten access to critical pediatric specialty care, behavioral health services and the workforce needed to deliver that care,” Fries said. “If these delays continue, it will become increasingly difficult to maintain the health care safety net that Texas children and families depend on every day.”

The impasse, which began quietly last December, has escalated to such an extent that Gov. Greg Abbott sent a pointed letter Aug. 7 to U.S. Health Secretary Robert F. Kennedy Jr. in which he stated that there’s nothing wrong with the way Texas hospitals’ local taxes are collected.

In it, Abbott refers to the funding holdup as an economic “gun to the head.”

“The tax structure previously enacted by the Texas Legislature, and being implemented daily by local governments, fully complies with federal law,” Abbott said in the letter. “What CMS is requesting does not.”

If the federal government insisted that Texas must restructure the way local governments tax hospitals, the federal government must first guarantee Texas would not be penalized in the future for doing so, Abbott said.

“Any voluntary change that the State makes should be understood as the product of a desire to work collaboratively with CMS and not as any kind of admission about a legal defect in Texas’ broad-based healthcare-related taxes,” Abbott wrote, adding that the state estimates the anticipated loss could be as much as $12 billion in 2027.

The Centers for Medicare and Medicaid Services, the Texas Health and Human Services Commission, which administers the Medicaid program, and the governor’s office did not offer any comment by Monday regarding the nearly $10 billion loss or if the parties are closer to resolving it. Even if a new agreement between Texas and the federal government were struck by Tuesday, the anticipated funding would be delayed for months, THA officials said.

“Even if we get an approval soon, there will be a claims backlog that takes at least 90 days to clear. And the bigger the claims backlog, the longer it takes to catch up,” Anna Stelter, the THA’s vice president of policy, said.

According to the THA, when H.R. 1, the One Big Beautiful Bill Act, passed a year ago, it included $900 billion in nationwidecuts to Medicaid funding by 2034. The OBBBA effectively froze Texas’ taxing structure for hospitals, a provision of the legislation that Congress implemented to allow states that did not expand Medicaid to maintain the status quo — and not to create a sudden cutoff of additional funding that hospitals, rural clinics and hospital-affiliated providers use to keep existing services, Stelter said.

Many Texas officials had believed the state was shielded from the bill’s major funding cuts and stricter regulations because it was one of the few states that did not expand Medicaid. Texas, Florida and eight others have refused to expand Medicaid health insurance coverage to more people, something the Affordable Care Act has allowed since 2013. Texas A&M’s Bush School of Government and Public Service estimates Texas loses more than $5 billion in new federal funding each year because it opted out of expanding Medicaid coverage.

Under the OBBBA, those Medicaid-expansion states face stricter work requirements for working-age Medicaid recipients that will go into effect in January.

Despite its refusal to expand, Texas, like Florida, now has questions from the federal government about how hospitals pay taxes. Florida was able to resolve it s delay in additional Medicaid funding but only after 11 months. According to HHSC’s website, t here’s been an exhausting 11 rounds of back and forth questions between CMS and HHSC about how locals tax hospitals.

In the latest round of questions, high on CMS’ list was assurances from Texas that none of the nearly $10 million would pay for non-citizen healthcare. “The state confirms and assures CMS that the state directed payment does not include, nor direct plans to make, payments to providers for costs or utilization for individuals who have not demonstrated satisfactory immigration status,” HHSC stated on Aug. 17.

This is not the first time Texas has fought to keep this additional funding. Before the OBBBA passed, Texas had successfully won its legal fights with CMS over the funding in 2023.

Carrie Kroll, THA’s senior vice president of advocacy and public policy, noted hospitals are very aware that there’s no extra state funding to offset this federal funding hit.

“I think that we… are under no assumption that there is a large amount of money in GR (general revenue) ready to save us from the situation,” she said.

This story was originally published by The Texas Tribune and distributed through a partnership with The Associated Press.