Texas and the Centers for Medicare and Medicaid Services (CMS) are locking horns over what Lone Star State officials say is CMS’s double standard when it comes to states that have not participated in Medicaid expansion.
Along with Florida and Missouri, Texas was targeted by CMS last year for audits and other enforcement actions as part of what officials in the three states say is a concerted effort by the agency to crack down on states that have chosen to forgo Medicaid expansion.
In its complaint filed April 5 in the U.S. District Court for the Eastern District of Texas, Tyler Division, Texas alleges that CMS is selectively enforcing an Informational Bulletin it issued last year governing the financing of Medicaid and has “wielded its oversight role as a cudgel to force Texas to adopt its policy preferences. It has shaken the structural foundations of Medicaid’s operation in Texas.”
Local Medicaid Financing
Like other states, Texas’s Medicaid program is funded jointly by both the federal and state governments. Local governments in Texas may also participate in the program by providing funding to the state to enable their citizens’ access to health care, regardless of income level.
Since 2013, with CMS authorization, Texas has allowed local governments to administer Local Provider Participation Funds (LPPFs). In 2021, CMS attempted to rescind Texas Medicaid’s authorization to use LPPFs, but a federal court issued a preliminary injunction against that effort.
“LPPFs involve local governments collecting a mandatory assessment from healthcare providers and then transferring that money to the state to help finance Texas’s share of Medicaid. Such arrangements are expressly permitted by federal law,” states a press release from Texas Atty. Gen. Ken Paxton.
Illegal Hold Harmless Arrangements?
Texas alleges that the February 23, 2023, Informational Bulletin “is a retroactive change in CMS’s definition of a hold harmless arrangement,” states an article on the website of the global law firm Norton Rose Fulbright,
“Federal law, however, outlaws hold harmless arrangements, which are agreements between a government and a health care provider through which the government guarantees that the provider will receive its total tax payment back through Medicaid payments,” Paxton’s press release states. “CMS recently issued an unlawful informational bulletin that would arbitrarily categorize purely private contracts involving entities paying taxes into an LPPF as prohibited hold harmless arrangements. Nothing in federal law prohibits purely private contracts of this sort.”
By unilaterally redefining hold harmless arrangements to invalidate LPPFs, Texas says CMS violated the Administrative Procedure Act by failing to give notice and initiate a public comment process prior to issuing the Informational Bulletin.
In an analysis of the Texas-CMS dispute, Norton Rose Fulbright states the outcome “could significantly reduce the amount of Medicaid funding in Texas and in every other state that uses the same or similar Loan Provider Payment Fund (LPPF) measures to help pay for its Medicaid program.”
“In those states that have had these arrangements formally approved by CMS, including Texas, the hospital system and physician groups rely heavily on funding provided by these programs to help to make such entities fiscally whole as they treat larger percentages of Medicaid patients at a significant financial loss,” Norton Rose Fulbright explains.
States Selectively Targeted
As the case continues to play out in a Texas court, CMS upped the ante by announcing that enforcement (and corrective actions) of provisions related to the financing of state Medicaid programs will begin on January 1, 2028.
At a hearing before the House Energy and Commerce Committee Subcommittee on Health, Rep. Dan Crenshaw (R-TX) said Texas’s approach to funding its share of Medicaid “focuses on making sure that the health infrastructure is funded so that people who need care actually have a place to go, not just a piece of paper that says they have a place to go.”
The Texas lawsuit, along with one filed by Florida, was launched before the U.S. Supreme Court in June overturned the doctrine of Chevron deference, which allowed federal agencies to interpret ambiguously worded federal statutes, in the case of Loper Bright Enterprise v. Raimondo. CMS, by giving its own interpretation to its powers under Medicaid, could be in violation of Loper.
Feds Strong-Arming States
Merrill Matthews, Ph.D., a resident scholar at the Texas-based Institute for Policy Innovation, says Texas uses its LPPF program to help it qualify for the 1115 Medicaid waiver, which helps hospitals cover the cost of the state’s roughly 5 million uninsured.
“The Biden administration would prefer the state adopt Obamacare’s Medicaid expansion,” said Matthews. “But that action would raise the cost to the state and federal government and give the feds more control over the Texas health care system, something Texas has been unwilling to do. It’s the same old game of using strong-arm methods to achieve liberal goals.”
“The less control states have over their health care systems, the more power CMS can concentrate in Washington,” said Craig Rucker, president of the Committee for a Constructive Tomorrow. “We see the same thing in the Biden administration’s efforts to cripple Medicare Advantage for seniors. Curtail individual choice in coverage, and erase state health care programs that operate independently of the feds.”
Bonner Russell Cohen, Ph.D. (bcohen@nationalcenter.org) is a senior fellow at the National Center for Public Policy Research.
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