Texas hospitals face an estimated $27 million daily shortfall in supplemental Medicaid payments after the Trump administration withheld approval of nearly $10 billion in federal funding for the state fiscal year that began Tuesday amid a dispute over the state’s hospital tax system, according to the Texas Hospital Association.
The funding dispute centers on how Texas taxes hospitals to generate the state share needed to receive federal matching dollars. State officials say the financing complies with federal law and are working with the Centers for Medicare and Medicaid Services (CMS) to resolve the issue.
CMS withholds approval of nearly $10 billion
CMS has withheld approval for about $9.8 billion in supplemental Medicaid payments to Texas for state fiscal year 2027. Three state-directed payment programs are affected, with most of the money tied to the Comprehensive Hospital Increase Reimbursement Program, or CHIRP.
The program provides supplemental payments to hospitals to help cover the gap between Medicaid reimbursements and the actual cost of treating Medicaid patients.
Texas hospitals pay about $4.2 billion each year to local taxing districts, according to the Texas Hospital Association. The federal government matches those funds, allowing hospitals to receive additional Medicaid reimbursement.
Federal officials began questioning the state’s financing structure last December and said they would withhold approval until Texas addressed their concerns.
Federal law requires provider taxes to apply broadly and uniformly and prohibits arrangements that guarantee providers repayment of their tax costs. CMS says it is reviewing Texas’ financing system for compliance and to protect Medicaid’s financial integrity. Texas health officials maintain that the system and its calculations have not changed and comply with federal requirements.
The current impasse follows an earlier fight over Texas hospital financing. As previously reported by The Dallas Express, a federal judge last year struck down a Biden-era CMS rule targeting Texas’ Local Provider Participation Funds.
Abbott defends Texas funding structure
Gov. Greg Abbott’s office has pushed back against the federal withholding and said Texas is working with CMS to recover the money.
“Texas’ financing fully complies with federal law, and Texas health care providers should receive the funding they are due,” Abbott spokesman Andrew Mahaleris said.
Abbott also described the withholding as an economic “gun to the head” in an August 7 letter to U.S. Health Secretary Robert F. Kennedy Jr.
CMS said it is working with states to ensure compliance with federal and recently enacted requirements but did not provide details about the dispute.
Hospitals warn of service cuts
The Texas Hospital Association has warned that a prolonged funding shortfall could force hospitals to reduce services or cut staff.
“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, per NBC 5 DFW.
Stephen Love, president and CEO of the Dallas-Fort Worth Hospital Council, said safety-net and children’s hospitals could be particularly vulnerable.
“I can tell you the safety net hospital and children’s hospitals will be hit very hard,” Love said, per Fox 4.
Texas has about 4 million Medicaid enrollees, most of them children.
Medicaid patients not immediately affected
There is no immediate indication that Medicaid patients will lose coverage or experience disruptions because of the withheld funding.
Medicaid coverage is continuing, although local nonprofit leaders warned that prolonged financial pressure on hospitals could eventually affect patients and employees.
Wes Keyes, CEO of Dallas nonprofit Brother Bill’s Helping Hand, said nonprofits could also face increased demand if government-funded services are reduced.
“I really hope that this gets resolved because if it does trickle down to patient care, or even the people who are employed by the hospital, this could be devastating,” Keyes said, per Fox 4.
New federal Medicaid limits loom
The dispute comes ahead of new federal limits on health care-related taxes enacted under President Donald Trump’s One Big Beautiful Bill Act.
Section 71115 takes effect October 1 and changes the thresholds used to determine whether provider-tax arrangements improperly hold providers harmless for their tax costs. CMS has proposed regulations implementing the law and says the changes will strengthen Medicaid’s financial integrity.
The Texas Hospital Association says the legislation effectively froze Texas’ existing hospital-tax structure.
Texas hospitals were already preparing for a separate 10% funding reduction next year, according to the Texas Hospital Association.
State health officials are continuing discussions with CMS, but it remains unclear when the federal government will approve the delayed payments.
Provided by Dallas Express
