AUSTIN, Texas — Texas hospitals expect to lose about $27 million a day in Medicaid funding when the state’s new fiscal year begins Tuesday, as the Trump administration withholds approval for roughly $9.8 billion in federal funding tied to three Texas Medicaid programs.
Most of the disputed funding involves the Comprehensive Hospital Increase Reimbursement Program (CHIRP), which provides additional Medicaid payments to hospitals to help cover the gap between state reimbursement rates and the actual cost of caring for Medicaid patients.
The Texas Hospital Association said the funding loss could force hospitals to reduce services, particularly across the state’s safety-net health care system.
About 4 million low-income Texans receive Medicaid coverage, 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 for advocacy, public policy and political strategy.
Under CHIRP, local governments collect taxes from hospitals, generating about $4 billion annually, according to THA. The federal government matches those funds, allowing hospitals to receive additional Medicaid payments.
Federal officials have questioned how Texas local governments calculate and collect the hospital taxes that support the program.
The dispute has created concerns across Houston. Harris Health could lose at least $258 million, while the broader Houston region could face a reduction of as much as $1.4 billion in Medicaid-related funding next year.
“The impacts would be catastrophic for Texas’ safety-net healthcare system,” said Dr. Esmaeil Porsa, president and CEO of Harris Health. He said the system could face difficult decisions about maintaining critical services if the dispute continues.
Children’s hospitals also warned that prolonged uncertainty could affect specialized care and staffing.
“Delays and uncertainty threaten access to critical pediatric specialty care, behavioral health services and the workforce needed to deliver that care,” said Robert Fries, chief financial officer for Children’s Health in Dallas.
The funding dispute began in December and intensified this month when Gov. Greg Abbott sent a letter to U.S. Health Secretary Robert F. Kennedy Jr. defending Texas’ hospital tax structure.
Abbott said Texas’ system complies with federal law and described the funding dispute as an economic “gun to the head.”
He also said Texas could lose as much as $12 billion in 2027 if the federal government requires changes to the state’s hospital tax structure.
The Centers for Medicare and Medicaid Services, the Texas Health and Human Services Commission and Abbott’s office had not announced a resolution as of Monday.
Even if CMS approves the funding soon, hospitals would not receive the money immediately. THA officials said processing a resulting claims backlog could take at least 90 days.
“Even if we get an approval soon, there will be a claims backlog that takes at least 90 days to clear,” said Anna Stelter, THA’s vice president of policy.
The dispute follows passage of the federal One Big Beautiful Bill Act, which THA said included hundreds of billions of dollars in nationwide Medicaid reductions through 2034.
Texas officials had expected the state to avoid some of the law’s major Medicaid changes because Texas has not expanded Medicaid under the Affordable Care Act.
Texas, Florida and eight other states have not expanded Medicaid eligibility under the law. Texas A&M University’s Bush School of Government and Public Service estimates Texas forgoes more than $5 billion in federal funding each year because of its decision not to expand coverage.
Florida previously faced a similar dispute over additional Medicaid funding and resolved it after an 11-month delay.
Texas has gone through 11 rounds of questions and responses with CMS over the hospital tax structure, according to HHSC.
In its latest response, HHSC assured CMS that the disputed directed payments would not cover health care costs or services for people who had not demonstrated satisfactory immigration status.
Texas hospitals previously fought CMS over the additional Medicaid funding and won legal disputes in 2023.
THA officials said hospitals have no expectation that state general revenue will replace the federal funding if the dispute continues.
“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,” said Carrie Kroll, THA’s senior vice president of advocacy and public policy.
