Texas Hospitals Confront Multi-Billion Dollar Medicaid Funding Gap

When Texas’s fiscal year begins, hospitals anticipate losing roughly $27 million each day because the federal government is withholding about $9.8 billion in Medicaid-related payments for the upcoming year. The hold centers on the Comprehensive Hospital Increase Reimbursement Program (CHIRP), which normally matches local hospital taxes to cover the gap between state Medicaid rates and actual service costs. State officials estimate the total shortfall could reach $12 billion in 2027. In Houston, the loss may translate to at least $258 million less for the Harris Health system and up to $1.4 billion less for the broader region.

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The dispute stems from the One Big Beautiful Bill Act (H.R. 1), passed a year ago, which froze Texas’s hospital-tax structure while imposing nationwide Medicaid cuts through 2034. Texas, like Florida and eight other states, has declined to expand Medicaid under the Affordable Care Act, a decision the Bush School of Government estimates costs the state more than $5 billion in annual federal funding. Texas defended its CHIRP payments in 2023, but renewed federal questions about how local jurisdictions calculate hospital taxes have revived the funding gap.

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Governor Greg Abbott sent a letter in early August to U.S. Health Secretary Robert F. Kennedy Jr., asserting that Texas’s tax structure complies with federal law and warning that any mandated changes would act as an “economic gun to the head.” Abbott said voluntary adjustments would be collaborative, not an admission of a legal defect. The Texas Health and Human Services Commission later assured CMS that state-directed payments would not fund care for individuals lacking satisfactory immigration status. Texas Hospital Association officials warned that even a prompt approval would leave a claims backlog of at least 90 days, further delaying funds.

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• “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,” — Sara González, THA vice president of advocacy

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• “The impacts would be catastrophic for Texas’ safety-net healthcare system,” — Dr. Esmaeil Porsa, president and CEO of Harris Health

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• “Delays and uncertainty threaten access to critical pediatric specialty care, behavioral health services and the workforce needed to deliver that care,” — Robert Fries, CFO for Children’s Health in Dallas

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• “The tax structure previously enacted by the Texas Legislature, and being implemented daily by local governments, fully complies with federal law,” — Gov. Greg Abbott

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