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The Medicaid Waiver Standoff

Another fight with the feds could jeopardize billions of dollars to provide healthcare for Dallas County’s poor.

For the last four years, Texas healthcare providers have received billions of dollars from the federal government for treating the uninsured while implementing programs to keep them healthy. The state will need to ask for a renewal this year if it wants that money once the funds’ authorization expires in September 2016. And there’s no guarantee Texas will be given more money. 

The saga of the Texas Healthcare Transformation and Quality Improvement Program has incensed politicians, triggered nervousness in providers, and now has once again sparked a standoff of sorts between Texas and the Obama administration. Known technically as the Medicaid 1115 waiver—its name derives from Section 1115 of the Social Security Act that birthed it and its cousins in other states—the pot of money worth $29 billion was meant to offset the cost of uncompensated care and reform the way healthcare is delivered to Medicaid enrollees and the uninsured in Texas. 

Approved by the federal Centers for Medicare and Medicaid Services in 2011, the 1115 waiver created two pools of money. One goes toward paying for indigent care. The other pays for providers to create and implement programs that will keep poor people healthier and out of the ER. It hasn’t been without controversy, though. Especially in North Texas, which has pockets where the uninsured rate flirts with 40 percent. 

“The waiver has been cost-effective, and i’m operating on an assumption that it will get renewed.”

Barclay Berdan, CEO, THR
You aren’t remiss if you’re not familiar with the waiver. Since the U.S. Supreme Court ruling in 2012 that gave states the choice to expand Medicaid under the Affordable Care Act, Texas lawmakers have shouted their refusal to do so at such a volume that it has filled the echo chamber where healthcare and politics intersect. There’s hardly room for anything else. 

The waiver was originally OK’d to help Texas weather increased capacity for Medicaid patients once the Affordable Care Act became law. But the high court’s ruling essentially made that moot, given Texas’ refusal to expand Medicaid. Instead, the 1115 waiver now has been helping hospitals offset sagging Medicaid reimbursement rates. According to the Texas Hospital Association, the Medicaid program reimburses providers 50 cents on the dollar for inpatient services and 72 cents for outpatient. 

“The 1115 waiver is incredibly important to Texas hospitals,” says Erol Akdamar, president of HCA North Texas, which counts 15 area hospitals in its portfolio. “We’re reimbursed roughly half of the Medicaid cost for inpatient care. The waiver provides some funding that is a supplement to the initial reimbursement.” 

The money doesn’t completely come from CMS. The waiver mandates that local governments put skin in the game by ponying up a portion of their own money, which the feds return and match at 60 percent. As a result, about $17 billion of the $29 billion came from CMS. And about $2.3 billion of that has poured into the Dallas area. 

The one pool for treating the uninsured—coined UC for Uncompensated Care—dwindles as the years progress. The other pool for the reform programs—coined DSRIP, for Delivery System Reform Incentive Programs—is heavier on the back-end. The idea is that poorer populations shouldn’t be receiving as much uncompensated care if the DSRIP projects are successful. Region 9, which includes Dallas County, has 131 active projects. They’ve birthed new clinics, paid salaries for specialists in underserved areas, and funded partnerships wth providers and community groups.

Shutting Off the Cash Spigot

The feds may have the Texas waiver in their sights. Florida, another state that’s loudly rebuked Medicaid expansion, has sued, alleging that CMS is holding its 1115 waiver hostage, refusing to renew it until the state expands Medicaid. Texas has pledged an amicus brief in support of the Sunshine State. CMS denies the allegation, which could end up in the U.S. Supreme Court. 

In fact, CMS has already once shut off the cash spigot that filled Texas’ uncompensated pool. The feds deferred tens of millions of dollars in payments for uncompensated care provided during the third quarter of fiscal year 2014 while it investigated funding schemes in Corpus Christi, Austin, and Dallas-Fort Worth. CMS was concerned over so-called indigent care corporations, nonprofit 501(c)(3) organizations made up of local provider systems that donate money to public hospitals to pay for physicians who provide uncompensated care. 

Locally, the Dallas County Indigent Care Corp. was founded in 2007 by Baylor Health Care System, Methodist Health System, HCA North Texas, and Texas Health Resources. Tenet Healthcare Corp. joined in late 2012, but has no governing power. In 2011 and 2012, the first two years of the 1115 Waiver, tax documents filed with Texas’ secretary of state show the nonprofit gave Parkland Health and Hospital System a total of about $318 million for indigent care services that UT Southwestern physicians provided to the poor and uninsured. Before this arrangement, Parkland had paid the physicians without money from outside hospitals. The new funding scheme allowed Parkland to free up more dollars to send to the feds to match under the 1115 waiver, resulting in more money for Dallas-area hospitals.

When CMS deferred those payments, it was in order to look into arrangements such as these. In essence, CMS was alleging that the waiver did not intend for private hospital systems to be pitching in—that the money it matches should originate solely from a local government source. 

Last October, Texas Medicaid Director Kay Ghahremani sent a letter to CMS contending that the feds were aware of the indigent-care agreements when it signed off on the terms of the waiver. CMS relented in January 2015 and reissued the tens of millions of deferred funds, but not before issuing a warning in another letter, saying, “release of the deferral does not constitute CMS’ acceptance of the financing arrangements.” Texas has until December to comply. 

Meanwhile, the Lone Star State may soon find itself in the same position as Florida. And it’s hard not to think about the possibility: What if the two waiver pools dry up? Barclay Berdan, CEO of Texas Health Resources, isn’t worried. “I think the waiver has proven to be cost-effective, and I’m operating on an assumption that it will ultimately get renewed,” he says. 

One criticism is that Dallas’ formidable number of independent physicians hasn’t had a seat at the table relative to the hospital systems. When Dr. Jim Walton, president of the Dallas County Medical Society, talks about providing care to the uninsured, the waiver isn’t what he brings up first. Instead, he recalls Project Access Dallas, a program started in 2002 that provided primary and specialty services for free to about 10,000 patients over a decade. 

It began as a volunteer project among the medical society’s membership of roughly 5,500. Primary-care physicians offered to see a certain number of patients for free each month. Specialists did the same. The care typically was provided at UT Southwestern Medical Center and at Parkland Memorial Hospital in the Medical District. Walton says the project saved up to $3 for every dollar that was invested in it. Instead of an ER visit—which the Robert Wood Johnson Foundation found can cost up to $580 more than if the service had been provided in a standard doctor’s office—this population was given a primary care physician who could recommend specialists if necessary, a model known as integrated care. 

Project Access Dallas was scrapped in 2012, however, after the hospitals that helped fund it balked when organizers asked to boost the project’s annual operating budget from $5 million to $8 million. The medical society, citing cost concerns, says it had no choice but to kill it. “The project as conceptualized couldn’t go forward,” Walton says. “The result was a loss of trust between the leadership of the medical society with the hospitals that were going to have access to the money to fund it.” 

Reflecting on the 1115 waiver conflict in Florida, Walton says Project Access is proof that North Texas can come together to fight this problem—with or without all that money. And, it is a lot of money. Providers in Dallas County have received about $680 million to date to fund the 131 active projects. Baylor Scott & White Health has added specialists such as endocrinologists to its staff in Garland and Irving. Medical City Dallas says 750 children have received care at a DSRIP-funded clinic known as PediPlace. 

According to Niki Shah, Baylor Scott & White’s corporate director of care redesign and equitable access, each provider must send biannual reports to prove that the projects are on track. She said she has sent off pictures of the brick and mortar clinics as well as volume metrics and proof that specialists were actually hired.

But if the money isn’t there, what will happen to these projects? How will providers address the needs without shifting the cost to Texas taxpayers? “Look, the whole community came together to build Project Access. It wasn’t just the medical society. The hospital community came together to help build that, the county government came together to help build that, and we think we can do that again,” Walton says. “Now, how do we pay for it is a question to eventually get to. But I think Dallas has proven that the community proves over and over again that it’s willing to fund important projects … that it doesn’t require federal money to fund what it thinks is really important.”