Update from HHSC: SDPs, enhanced Medicaid funding, and federal financial support


Eli Kirshbaum


Safety net funding, the allocation of federal dollars, COVID-19’s impact on Medicaid — a panel of experts from the Texas Health and Human Services Commission (HHSC) discussed all of this and more at last month’s 2021 North Texas State of Reform Health Policy Conference. 

Stephanie Stephens, HHSC’s Medicaid director, Sonja Gaines, the agency’s deputy executive commissioner for IDD and BH services, and Trey Wood, the agency’s chief financial officer, gave an overview of some of the work being done at the country’s largest state agency. 


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Here are some of the main takeaways from their conversation.

Allocation of federal financial support

Gaines detailed some of the ways HHSC intends to spend the increased federal financial support it’s receiving through both the American Rescue Plan Act (ARPA) and HR 122, which makes changes to the federal minimum wage. Texas is getting around $450 million in total financial support from these items between now and Sept. 2025, she said.

“Lots and lots of exciting things [are] happening on the horizon with the use of these federal dollars.”

The state will invest over $70 million to expand its mental health capacity, she said. This money will go to local mental health authorities and allow individuals to have near immediate access to mental health services.

“We recognize that immediate access to [mental health] services are really, really important in terms of follow through and mitigating individuals ending up in crisis services.”

Gaines said ARPA will allow Texas to build on its already-strong crisis response infrastructure by expanding mobile crisis outreach services and call centers. The funding will also help the state prepare for the nationwide implementation of the 988 mental health crisis hotline, she said.

Drawing on federal support, the agency will supplement its coordinated specialty care program, which provides intensive services to Texans aged 13 to 30 who are experiencing their first onset of psychosis. $19 million in federal support will allow HHSC to expand its existing 20 coordinated specialty care sites throughout the state. This program has an over 90% success rate, according to Gaines.

To address housing affordability and homelessness, HHSC is using federal dollars to establish a call center where Texans can get information about affordable housing, as well as to distribute housing vouchers. It is also going to build on its Healthy Community Collaborative program by partnering with existing sites in urban areas that provide affordable housing resources to those in need.

$44 million will be allocated to expanding the state’s overall capacity to address substance use disorder. Nearly $39 million will go toward a substance use public awareness campaign, $19 million will go to community development services, and $18 million will go toward advancements in crisis response and overdose prevention.

1115 waiver and the safety net

HHSC is currently operating under the Medicaid 1115 waiver that the Centers for Medicare and Medicaid Services (CMS) approved in Jan. 2021, which expires in Sept. 2022. The agency submitted a new waiver extension request in March of 2021, proposing a stable roadmap for Texas’s Medicaid system through both the renewal of existing state-directed payment (SDP) programs and the creation of new ones. While CMS hasn’t approved this extension request, it offered to extend the state’s existing SDPs in August for one year as negotiations continue.

In a letter sent to CMS on Sept. 7, HHSC accepted the federal government’s offer to continue current SDPs in order to support physicians, hospitals, nursing facilities, and other health care providers as the pandemic continues. However, Stevens emphasized these programs are intended only as temporary solutions while the agency seeks a long-term solution with CMS to solidify the future of the state’s safety net.

Wood said the timely approval of HHSC’s proposed SDPs is crucial because 2021 is a “base year” for budget neutrality. This means that this year, the federal government will evaluate how much room the state has for these payment programs based on the cost difference between its managed care programs and what a completely fee-for-service Medicaid program would cost.

He said the looming “financial cliff” — Sept. 30 of next year — makes a decision from CMS all the more pressing, as it will determine the requirements and restrictions the federal government enforces on Texas’s payment programs.

“That’s why it’s so critical to get those programs stood up and approved by CMS this year, because if we get them established in the base year, it’ll create that budget neutrality room on a permanent basis going forward so that we can continue to operate those programs.”


Stephens highlighted the “dramatic” increase in telehealth use during the pandemic, as well as the administrative telehealth flexibility that CMS granted providers. Gaines said medical visits provided via phone (audio-only) increased by over 300% during the pandemic. For telehealth video visits, the rate increased by over 100%, she said.

They both noted that increased telehealth use resulted in a substantial increase in the use of mental health care. Around 50% of all mental health services in the state are currently delivered remotely, Stephens said.

“Mental health services always lent themselves well to remote delivery, and I think we’ve seen such an increase through the public health emergency.”

Going forward, HHSC will determine which telehealth flexibilities should stay and which will be abandoned once the state “returns to normal.” Stephens said the agency has started the implementation of HB 4, which passed this year and requires a widespread, permanent increase in telehealth services throughout the state. HHSC will listen to stakeholders and examine data to make decisions about the future of these flexibilities.

As Gaines put it:

“While [telehealth is] convenient, we want to make sure that it’s still effective.”

Medicaid changes during COVID-19

Stephens highlighted the impacts of changes to the state’s Medicaid program during the public health emergency, including increased flexibility from CMS concerning Medicaid eligibility. As a result of these temporary changes, the statewide Medicaid caseload increased by around 30%. She said the current caseload is around 5 million Texans — a “major undertaking.”

The agency is focused on preparing its Medicaid program for when the public health emergency ends and this federal financial support diminishes, Stephens said.

“We’ve recently received guidance from CMS, so we are looking to update our plans for how we will return to normal when the PHE ends from an eligibility perspective.”

Due to enhanced federal contributions to home and community-based services (HCBS), HHSC submitted its HCBS spending plan to CMS in July of 2021. CMS partially approved the plan in August and asked for clarification on certain elements. After meeting with CMS to address their questions, HHSC submitted an updated plan in September, which has yet to receive CMS approval.

The majority of the funding is for HCBS provider retention, Stephens said. The plan will also fund an information-gathering initiative to learn the needs of individuals on the long-term services and supports (LTSS) interest list, as well as create a portal for these individuals to state which services they’re interested in and to check their position on the LTSS interest list.

Stephens said HHSC is cognizant that these enhanced funds were temporary, and thus proposed one-time spending activities that won’t require ongoing enhanced funding.

“The federal funding is time-limited, so in our plan, we are proposing things that can get done on a one-time or time-limited basis because neither the state nor the federal government wants to set up a situation where there is an end to federal funding and that creates some kind of cliff for our providers and our members.”