The state law that requires the Texas Department of State Health Services (DSHS) to get its legal, purchasing and technology services from the Texas Health and Human Services Commission (HHSC) carried a total cost of about $122.3 million in fiscal 2025, about $40 million of it beyond what HHSC billed, including more than $17 million in money the health department lost because contracts were signed too late to spend it, according to a staff report from the Sunset Advisory Commission posted Nov. 6.
The commission, a panel of legislators and public members that reviews state agencies and recommends whether and how to continue them, found that HHSC “was unable to provide concrete evidence that this arrangement is, in fact, cost effective for the state.” Its staff recommends letting DSHS run or buy its own administrative services when it can do so without raising costs.
The finding matters for the programs DSHS runs with that money: disease surveillance, vaccines, laboratory testing, vital records such as birth and death certificates, and payments to local health departments. Much of DSHS’s budget passes from Washington to local health entities, and the report says DSHS received more than $569 million in federal funds in fiscal 2025. When a contract is signed too late in a grant period, the money that could not be spent is lost.
The report’s table of fiscal 2025 costs lists $82,374,600.35 billed to DSHS by HHSC for administrative services; $17,090,388.16 in funds DSHS let lapse or missed because of delays; $17,165,405.00 DSHS spent supplementing HHSC’s services; and $5,620,017.06 in facilities costs charged above HHSC’s bill, for a total of $122,250,410.57. About $40 million of that is “beyond billed amounts due to delays, service quality issues, and DSHS needing to coordinate with or supplement the services HHSC provided,” the report says, and “the state could potentially eliminate these additional costs” if DSHS controlled its own administrative services.
Of the $17 million in lapsed funds, more than $3 million was federal money, according to the report. At Sunset staff’s request, DSHS documented at least $6.9 million in federal funds lost between fiscal 2020 and 2025 because of procurement delays.
The arrangement grew out of the consolidation of the state’s health and human services agencies, and the report acknowledges the reasoning behind it. “The Legislature could reasonably assume that placing DSHS’ administrative services at HHSC is a good deal for the state based on the economies of scale that come with a consolidated system and HHSC’s comparatively large buying power,” it says. When Sunset staff asked for a detailed accounting of HHSC’s charges to DSHS by service line to test that, HHSC could provide costs for only some services, according to the report.
Under Recommendation 3.1, DSHS could provide its own administrative services “if DSHS determines it can do so on a cost neutral basis,” after a cost-benefit analysis comparing in-house work, an outside vendor or staying with HHSC. HHSC could not charge DSHS for services DSHS chose to handle itself. The recommendation pairs with one in the Sunset staff report on HHSC requiring detailed annual billing to DSHS.
The DSHS report is one of several the commission posted Nov. 6 for the health and human services agencies. The HHSC report found the agency paid $59.6 million on a claims contract it later canceled, as the Dispatch reported Nov. 10. Agency responses and public testimony come next: the commission’s meetings page lists a public hearing on the health and human services agencies for Dec. 2-3, a schedule it calls tentative. The commission votes on recommendations after that, and the Legislature takes up the resulting bills in 2027.
Key facts
- The Sunset Advisory Commission staff report on DSHS was posted Nov. 6, 2026 (Sunset Commission).
- The report puts the total fiscal 2025 cost of DSHS’s mandated reliance on HHSC for administrative services at about $122.3 million, including $17.09 million in lapsed or missed funds (staff report, Issue 3).
- The report says about $40 million of that was beyond billed amounts and could potentially be eliminated (staff report).
- Recommendation 3.1 would let DSHS provide its own administrative services on a cost-neutral basis (staff report).
- A public hearing is tentatively set for Dec. 2-3, 2026 (Sunset Commission meetings page).