Texas has withdrawn the increase it sought in its largest Medicaid hospital payment program and cut the rate it pays, telling federal officials on Sept. 9 and 10 that it would hold the program to $9,148,763,142 rather than the $9,254,513,046 it had written into its application — a difference of about $105.7 million that will not reach Texas hospitals this year.
The state also told Washington, in the same document, that federal officials are causing “harm being caused to Texans who receive Medicaid services.”
The program at issue pays hospitals extra money through the private insurers that run most of Texas Medicaid, on top of the base rates Medicaid pays. To get the total under the cap, the Texas Health and Human Services Commission said it is lowering the share of average commercial insurance rates that one part of the program pays, “from 95% to approximately 93.7%.” The exchange appears in the state’s answers to a fourth round of federal questions, posted by the commission’s Provider Finance Department. The document is the application Texas must get approved before the money can flow, a form the federal government calls a preprint.
The cap comes from Section 71116 of Public Law 119-21, the federal tax-and-spending law signed July 4, 2025. Under it, a program in place before that date is frozen at what it was paying and “cannot increase,” in the words of the questions the federal Centers for Medicare and Medicaid Services sent Texas on Sept. 3.
Rural clinics take a much harder cut, and for a reason that has nothing to do with the federal law. A companion program for rural health clinics falls from an estimated $19,654,039 to about $15.1 million, a drop the commission calculated at 23.45 percent. The explanation Texas gave is blunt: the program pays clinics the gap between Medicaid and what Medicare would have paid, and Medicare rates fell. “There are now 50 clinics that are paid more in Medicaid than in Medicare for SFY 2027,” the state wrote, “while the same was true for only 19 clinics for SFY 2026” — the state fiscal years that began Sept. 1 of this year and last. A clinic on the wrong side of that line gets nothing from the program.
None of the three programs — the hospital program, the rural clinic program, or a third that pays physicians and other practitioners — has been approved. The state fiscal year began Sept. 1. Hospitals are two weeks into a year with no federal sign-off on money they had budgeted.
The remaining obstacle is about where Texas gets its share, which comes from local hospital taxing districts. Federal officials wrote that “inpatient hospital services and outpatient hospital services are separate and distinct permissible classes” and that the tax as Texas structures it does not let them check each class separately for whether hospitals are effectively being repaid their own taxes.
Texas’s frustration is on the record in a federal filing. The commission wrote that the federal agency “continues to fail to identify matters that require technical or substantive modification of the preprint and persists in perseverating over matters that are most appropriately addressed outside the preprint process,” and asked it to “desist in efforts to withhold pre-print approval in an effort to advance a policy position.” It cited a July 21 meeting in Baltimore at which, the state said, Deputy Administrator and Medicaid Director Dan Brillman “confirmed that he agreed that these matters and further work to resolve CMS’ concerns can be addressed outside of the pre-print review process.” The federal side says the underlying tax questions are “still under review.”
The Texas Hospital Association, which represents more than 85 percent of the state’s acute-care hospitals, has put the cost of delay at $27 million a day. Chief executive John Hawkins has said hospitals “will be forced to make difficult decisions about cuts to service lines, such as NICU and labor and delivery units,” and that the harm falls first on “hospitals that serve primarily Medicaid patients.”
Not everyone accepts that framing. Lynn Cowles, director of health and food justice at Every Texan, said in a Sept. 10 statement that the federal refusal “sends a clear message to Texans and state leaders: Texas will not receive a special carve out and will shoulder the consequences of the administration’s policies just as Minnesota, Florida, and every other state are expected to.” Her group argues the state should raise base Medicaid rates instead, “reducing the need for Directed Payment Programs.” She also said work requirements under the same federal law have left more than 200,000 Texas coverage applications pending as of August.
Texas has asked for approval “as soon as possible.” No deadline binds the federal agency, and the fiscal year it would cover is already running.