Texas hospitals stopped earning roughly $27 million a day in extra Medicaid money on Sept. 1, the first day of the state’s new fiscal year, because federal regulators have not signed off on three programs that pay hospitals, doctors and rural clinics the difference between what Medicaid pays and what care actually costs.
The Texas Hospital Association, which represents more than 500 hospitals, said in a statement published Aug. 31 that the first services at risk are labor and delivery units, neonatal intensive care, and emergency rooms.
The dispute is not about whether Texas hospitals deserve the money. It is about how the local governments that raise Texas’s share of it write their tax ordinances.
The three programs are known by acronyms — CHIRP for hospitals, TIPPS for physician groups and RAPPS for rural health clinics — and together they were slated to move $9.81 billion in the year beginning Sept. 1, according to a two-page analysis the hospital association released with figures it attributes to the Texas Health and Human Services Commission. The hospital program alone accounts for $9.15 billion of that. Divided across a year, the total works out to about $27 million a day.
“We’re bracing for a crisis that will crack the Texas healthcare safety net. No industry can withstand $27 million in losses per day,” said John Hawkins, the association’s chief executive. “The numbers are seismic and will shake the Texas economy, eliminate thousands of jobs statewide and diminish Texas health.”
Special taxing districts assess hospitals — about $4 billion a year, by the association’s count — and the federal government matches those dollars. The federal Centers for Medicare and Medicaid Services, which must approve the arrangement each year, first cleared the hospital program on March 25, 2022. This year it has not.
The agency’s objections are on the public record, in questions it sent Texas on Aug. 12 and the state’s written answers filed Aug. 17. There are two. The first concerns multi-county taxing districts — the agency says Texas “has not explained the basis by which these specific units of local government were grouped,” and singles out the Northeast and West Texas health care provider participation districts. The second is more consequential: the districts tax a hospital’s total patient revenue, but federal rules treat inpatient and outpatient care as separate categories that must be measured separately. As written, the agency said, the Texas tax “does not permit CMS to evaluate compliance” one category at a time.
Those questions were the eleventh round on the current year’s program. The state’s own filings show the exchange began Dec. 5, 2025 and ran monthly through the summer, with in-person meetings at the agency’s Baltimore headquarters on July 20 and 21. Three further rounds of questions cover next year’s application. In the most recent, dated Aug. 14, federal officials told Texas to resubmit at no more than $9,148,763,142 — the amount approved a year earlier.
Gov. Greg Abbott escalated the fight in an Aug. 7 letter to U.S. Health Secretary Robert F. Kennedy Jr., copied to Medicare and Medicaid administrator Mehmet Oz. Abbott wrote that the matter “stands to impact more than $12 billion annually” and that federal law protects the arrangement, citing the grandfather clause Congress wrote into last year’s tax and spending law for states like Texas that never expanded Medicaid. “The tax structure previously enacted by the Texas Legislature, and being implemented daily by local governments, fully complies with federal law,” he wrote. “What CMS is requesting does not.” Quoting a Supreme Court decision from June, he called the withheld money a $12 billion “economic ‘gun to the head.'”
Abbott offered to have local governments rewrite their taxes, but only if the federal government commits in writing that doing so will not forfeit the grandfather protection and will not trigger demands to repay money already spent.
The consequences fall unevenly across the state. In Houston, the public Harris Health system stands to lose at least $258 million, its president and chief executive, Dr. Esmaeil Porsa, told The Texas Tribune. Robert Fries, chief financial officer of Children’s Health in Dallas, said delays “threaten access to critical pediatric specialty care, behavioral health services and the workforce needed to deliver that care.” The hospital association cites a state report finding that 41 percent of rural Texas hospitals hold less than 30 days of cash.
Neither the federal agency, the state health commission nor the governor’s office commented publicly as the deadline passed. Even a quick deal would not restore the cash quickly: Anna Stelter, the association’s vice president of policy, said a claims backlog would take at least 90 days to clear. Florida spent close to a year in the same standoff before federal officials approved roughly $8 billion for its hospitals on April 30.