The federal agency that oversees Medicaid is reviewing arrangements between private Texas hospitals and local government entities to ensure they did not violate a rule that allowed the state to draw down federal dollars to cover health care for the uninsured. 

The federal Centers for Medicare and Medicaid Services (CMS) is withholding $75 million that the state used to reimburse private hospitals for care they provided to poor patients without a means to pay.

As part of an arrangement with the federal government to give Texas greater flexibility in running Medicaid — the joint state-federal health care program for the poor — the Obama administration agreed in 2011 to match local tax dollars to incentivize public health and hospital systems to experiment with ways to deliver care more efficiently. In some cases, private and nonprofit hospitals also agreed to contribute money for the projects, but the federal government said it would not match those dollars.

In a Sept. 30 letter to Texas health officials, CMS officials said they had discovered instances of direct payments from private hospitals to governmental entities — money that the federal government was being asked to match — and were investigating whether those arrangements passed muster.

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"The potential problem is if the private hospitals were participating under an agreement that guaranteed them a specific return," said Stephanie Goodman, a spokeswoman for the Texas Health and Human Services Commission.

“CMS has questions regarding the source of the non-federal share of these expenditures,” the federal officials wrote, adding that they would withhold the $75 million “until the source of the non-federal share is determined appropriate.”

The federal government has withheld payments for would-be violations in Dallas, Fort Worth and Corpus Christi, but officials say they could freeze more money as they review practices elsewhere

In 2011, the federal government approved a "transformation waiver" that allowed Texas to use Medicaid funds in ways not otherwise allowed under federal rules. One change the state made was to replace a stream of county tax money that used to supplement Medicaid payments to hospitals with two new pools of money that combine financing from federal, state and county coffers. One of those pools is a risk-based incentive fund aimed at encouraging providers to roll out experimental programs that deliver care more efficiently. Up to $11.4 billion could be dispensed to Texas health providers — mostly hospitals — from that pool over five years.

The latest decision by CMS to defer federal payments for those experimental projects followed a federal review that began in June, state officials said.

“In the next days and weeks, the Health and Human Services Commission will be working closely with CMS to resolve this matter before the UC (uncompensated care) funds are permanently disallowed or future waiver payments are impacted,” state officials responded in an Oct. 1 letter to hospitals.

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Goodman said it was “too soon to say” whether the state would recoup the federal funds.

Texas hospitals say they are eager to address the issue of uncompensated care because they ultimately foot the bill when an uninsured person shows up in the emergency room. A representative for the Texas Hospital Association did not return a request for comment on Monday.

Hospital groups have advocated for an expansion of Medicaid, which would extend health coverage to adults with incomes below 138 percent of the federal poverty line — $15,856 for an individual, or $32,499 for a family of four. Medicaid expansion is optional for states under the Affordable Care Act, President Obama’s signature health care law, but as an incentive, the federal government offered to cover 100 percent of the state’s expansion costs for three years, eventually reducing its contribution to 90 percent. The federal government currently provides Texas with $60 in matching funds for every $40 the state spends on Medicaid services.

To finance the federal share of the Medicaid expansion, the Affordable Care Act reduced payments to hospitals for uncompensated care. Federal lawmakers assumed the Medicaid expansion would reduce the number of people without health insurance and that, as a result, hospitals would incur fewer uncompensated care costs.

In 2016, Texas hospitals are slated to receive $1.6 million less in federal Medicare money as a result of 2 percent cuts to Medicare reimbursements that began in March 2013, according to the Texas Hospital Association, which estimates that hospitals already provide roughly $5 billion annually in uncompensated care.

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