Special Terms and Conditions of Texas 1115 Medicaid Transformation Waiver

Special terms and conditions of the Medicaid 1115 Waiver, approved in December of 2017, specify that HHS must submit a draft DSRIP Transition Plan to CMS by October 1, 2019 and a finalized plan by March 31, 2020. The plan must describe how the state will further develop its delivery system reform efforts without DSRIP funding. The Transition Plan will include milestones for HHSC as the state prepares for DSRIP to end.

 The 1115 waiver allows the state to expand Medicaid managed care while preserving hospital funding, provides incentive payments for health care improvements, and directs more funding to hospitals that serve large numbers of uninsured patients.

The waiver is worth $25 billion through 2022, and will directly change the hospital’s supplemental payments. In addition to the new funding for managed care Delivery System Reform Incentive Payments, there are two new provisions related to these special terms and conditions worth noting. 

 

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The first major change is the use of a new tool to calculate and distribute uncompensated care (UC) payments based on hospital charity costs. The new tool transitions away from the “UC tool” that has been used in the past, and instead uses a modified version of the S-10 tool, the Medicare cost reporter’s worksheet. Along with this change, Medicaid short-fall and bad debt costs will no longer be allowed in calculation considerations. 

Texas will receive uncompensated care funding through Sept. 30, 2022. The size of the UC pool will be determined by hospital charity care provided to the uninsured, but UC payments can be distributed among all qualifying providers, including non-hospital providers whose costs are not counted in the size of the UC pool.

Federal funding for uncompensated care in the state over the next five years is as follows:

  • 2019: Approximately $3.1 billion (level funding)
  • 2020: Resized and adjusted based on 2017 S-10 Data (or $2.3 billion if no data)
  • 2021: Resized and adjusted based on 2017 S-10 Data (or $2.3 billion if no data)
  • 2022: Resized and adjusted based on 2017 S-10 Data (or $2.3 billion if no data)

The second major change is a gradual winding down of delivery system reform incentive program (DSRIP) projects and funding. This new waiver has provisions that allow for temporary funding from CMS, that will eventually drop to zero by 2022.  

Special terms and conditions of the waiver specify that HHS must submit a draft DSRIP Transition Plan to CMS by October 1, 2019 and a finalized plan by March 31, 2020. The plan must describe how the state will further develop its delivery system reform efforts without DSRIP funding. The Transition Plan will include milestones for HHSC as the state prepares for DSRIP to end.

DSRIP funding over the next five years is as follows: 

  • 2019: $3.1 billion (level funding)
  • 2020: Unspecified decrease in funds (capped at $2.91 billion)
  • 2021: Unspecified additional decrease in funds (capped at $2.49 billion)
  • 2022: No funding

With the terms around the corner, HHS has received letters of recommendation regarding some of these provisions. One recommendation from Harris County Public Health reads:

“HCPH recommends that HHSC include public health as a key partner in transforming the healthcare delivery system so that health departments can be integrated into healthcare delivery and payment models. Allowing local health departments to become authorized, in-network providers for managed care organizations (MCOs) for example, is one recommended strategy for accomplishing this,” according to stakeholder feedback on the HHS site. 

The Texas Hospital Association expressed concern over the gradual decrease in DSRIP funding, stating: 

“Since 2011, Texas hospitals have used DSRIP funds to address community health needs, test innovations in care delivery, and improve the health outcomes. The phase-out of DSRIP dollars presents an enormous challenge for critical safety-net providers.”

The provisions in the waiver will be gradually implemented over the next five years, and continued public and stakeholder input is expected.