TX Hospitals to Receive $1B Boost in Medicaid Reimbursement

The gap between what hospitals actually spend to treat Medicaid patients and the Medicaid reimbursement amount for that care will get about $1 billion smaller in 2021.

Texas Governor Greg Abbott announced on July 2 that, together with the Texas Health and Human Services Commission (HHSC), his office secured $2.67 billion in federal funding for hospitals that provide care for Medicaid patients. The funding for the 2021 state fiscal year (SFY) is a $1.07 billion increase compared to SFY 2020.

"This federal funding is a crucial source of support for Texas hospitals that provide care for Medicaid patients," Governor Abbott said in the announcement. "As we respond to the COVID-19 pandemic, the State is committed to ensuring that our hospitals have the resources they need to continue providing care to Texans across the state." 

The federal funding will go toward the Uniform Hospital Rate Increase Program (UHRIP), a statewide program that provides increased Medicaid reimbursements to hospitals for inpatient and outpatient services rendered to Medicaid patients.

UHRIP aims to reduce the Medicaid shortfall for hospitals, which totaled nearly $23 billion nationwide in 2017, the most recent for which the American Hospital Association had complete data.

"Hospitals in Texas are on the front lines of care and prevention at all times, providing critical emergency and intensive care for people, including those with COVID-19," said Texas HHSC Executive Commissioner Phil Wilson. "This federal funding is one way we can make sure hospitals have sufficient resources to provide quality care to people receiving Medicaid."

Texas launched UHRIP, with CMS’ approval, about three years ago to implement a uniform rate increase for hospitals within the state. Through the program, Texas Medicaid managed care organizations (MCOs) receive additional funding through the monthly capitation rate from the HHSC. MCOs then increase Medicaid reimbursement rates for certain hospitals.

Hospitals are eligible for the higher Medicaid reimbursement rate based on claims submitted to a Medicaid MCO, according to program rules.

Medicaid reimbursement rates for Texas hospitals increased by as much as 73 percent in certain regions last year, data from HHSC showed.

Texas hospitals have supported a target rate increase to reduce reliance on supplemental payments. Prior to UHRIP, the Texas Hospital Association reported that most hospitals in the state were reimbursed about 50 percent of the costs for inpatient services and 72 percent of costs for outpatient services.

States have recently started to increase Medicaid reimbursement rates for hospitals, according to a survey of Medicaid program directors conducted by the Kaiser Family Foundation (KFF).

Most states implemented and planned more fee-for-service provider rate increases for FY 2019 (50 states) and FY 2020 (45 states), KFF reported. Additionally, 19 states reported mandating minimum provider reimbursement rates in their MCO contracts for inpatient hospital, outpatient hospital, or primary care physicians. Seventeen states also reported requiring MCOs to change provider reimbursement rates in accordance with fee-for-service payment rate changes for one or more of the provider types.

The COVID-19 pandemic, however, has strained state budgets at a time when hospitals are seeing a decrease in overall utilization and anticipating large volumes of Medicaid patients due to the downturned economy and loss of employer-sponsored healthcare coverage.

The federal government has earmarked $175 billion for healthcare providers impacted by the novel coronavirus. Distribution of the funds has also targeted Medicaid providers. But hospitals relying on Medicaid reimbursement need more financial support, stakeholders have argued.

KFF has recommended that states require MCOs to adopt a uniform temporary increase in per-service provider reimbursement amounts for services covered by the managed care contracts.

“This strategy can address the scenario in which states are making capitation payments to plans, but providers are not receiving reimbursement from plans due to decreased service utilization while social distancing measures are in place and non-urgent services are suspended,” the organization stated.

But as the pandemic dies down and states still find themselves in the COVID-19 recession, Medicaid reimbursement rates could take more reductions without policies in place to prevent the shortfall from growing.