1115 Medicaid Transformation Waiver

With approval of Texas’ new Medicaid 1115 Waiver worth approximately $25 billion through 2022, Texas hospitals are working with state and federal partners to address the Waiver’s new terms and conditions that will change hospitals’ supplemental payments. While maintaining significant funding for uncompensated care and Delivery System Reform Incentive Payments, the new Waiver requires two major changes:

  1. Transitioning from use of the current "UC tool" to a modified S-10 Worksheet to calculate and distribute UC payments based on hospital charity care costs alone. Medicaid shortfall and bad debt costs no longer will be allowed.
  2. Winding down DSRIP projects and funding.

Uncompensated Care

Texas will receive uncompensated care funding through Sept. 30, 2022. The size of the UC pool will be determined solely 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 UC funds for 2018-2022 are as follows.

  • 2018: Approximately $3.1 billion (level funding)
  • 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)


Under the terms of the new Waiver, CMS will temporarily continue DSRIP funding. However, funding is phased down to zero over the five years. THHSC must submit a draft plan for CMS' approval that outlines the transition from DSRIP to sustainable delivery system reforms that do not require DSRIP funding.

  • 2018: $3.1 billion (level funding)
  • 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

Additional details are available from THA's recent Information Alert.

Texas’ Medicaid 1115 Transformation Waiver represents a major resource in reshaping the delivery of health care in communities across the state. Hospitals are collaborating with providers of all types to implement ways to make health care more effective and efficient. To demonstrate the local impact of the waiver for members of Congress and highlight the innovative work hospitals and their partners are pursuing, THA produced a series of one-pagers highlighting the unique needs and challenges of each region, and the projects developed to meet those needs ... Read more

The Departmental Appeals Board at the U.S. Department of Health and Human Services decided in early August 2018 to uphold CMS' earlier decision to disallow approximately $25 million in federal uncompensated care payments to private hospitals in the Dallas-Fort Worth area. At this time, the state Medicaid agency is considering its options and could accept the decision or appeal.


In September 2014, CMS notified THHSC that it was deferring $74 million in federal Medicaid funds tied to private hospital uncompensated care payments from 2013 under the Waiver. While it did not accept the financial arrangement, CMS ultimately released the deferral in January 2015 and stated its willingness to work with THHSC before making a final determination.

In May 2015, THHSC and CMS revisited the issue, and shortly thereafter, CMS agreed that if changes to private hospital funding were required following the discussions, Texas would have until Sept. 1, 2017 to transition to other funding mechanisms without risk of disallowance on the same grounds as the 2014 deferral. Discussions concluded in September 2015 without CMS’ authorization of the private hospital funding arrangement in question.

In September 2016, CMS issued another disallowance notice to THHSC stating that $27 million in federal uncompensated care payments were being disallowed because they constituted “impermissible provider donations.” 

CMS Letter to THHSC on LPPF Permissibility (Dec. 2018)
HHS DAB Decision Letter (Aug. 8, 2018)
HHS Department of Appeals Board Decision on Disallowance (Aug. 7, 2018)
CMS Disallowance Response from CMS Administrator Seema Verma (Sept. 28, 2017)
Letter from Charles Smith to Seema Verma re: Disallowance (Sept. 22, 2017)
THHSC Appellate Brief on UC Disallowance (June 2017)
Disallowance of Federal Uncompensated Care Payments for Texas Hospitals (April 17, 2017)
Joint Hospital Association Letter to Texas Congressional Delegation (March 13, 2017)
THHSC Letter to US HHS Secretary Tom Price (March 7, 2017)
CMS Affirms Disallowance (Dec. 21, 2016)
Final Reconsideration Letter (Oct. 28, 2016)
CMS Disallowance Response (Oct. 27, 2016)
CMS Letter Lifting UC Deferral (Jan. 2015)
CMS Notice of Deferral (Oct. 2014)
THHSC Notice of Deferral (Oct. 2014)
THA Letter to THHSC Executive Commissioner (Oct. 2014)
CMS is questioning the financing mechanisms being used based on guidance issued in a State Medicaid Director Letter #14-004 on May 9, 2014.
THHSC Letter to Cindy Mann – CMS (Nov. 2014)
Proposed changes to the MBP for DY7-10 (June 2019)
DSRIP Protocols Related Strategies (June 2019)
THHSC Request for DSRIP Transition Proposals (October 2018)
Joint Hospital Association Letter to Congressional Delegation on UC Pool Size (July 2018)
THHSC Summary on New Medicaid 1115 Waiver (Jan. 23, 2018)
THHSC Presentation from 1115 Waiver

According to Texas Government Code 305.027, portions of this material may be considered “legislative advertising.” Authorization for its publication is made by John Hawkins, Texas Hospital Association, 1108 Lavaca, Suite 700, Austin, TX 78701-2180.