Texas hospitals expect to lose $27 million a day in Medicaid funding
starting Tuesday
[September 02, 2026]
By TERRI LANGFORD/The Texas Tribune
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outdated payment rates set by the state, are losing out on their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.
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 “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.
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