With Hospital Funds in Question, Who's at Risk?

As Texas negotiates with Washington over how to pay for health care for the poor and uninsured — a tricky dance given the state's opposition to expanding Medicaid coverage under President Obama's signature health law — billions of dollars in federal funding are on the line. And the state's safety-net hospitals and clinics are steeling themselves for an uncertain future.

Currently, Texas providers rely on a five-year, federally approved program called the "1115 waiver" that reimburses them for the care they provide to people who cannot afford health insurance. But the feds have indicated that "uncompensated care" money could be discontinued if Texas doesn't expand Medicaid, the joint state-federal insurer of last resort, to include the poorest adults.

At the state's largest safety-net systems in impoverished, urban communities, hundreds of millions of these uncompensated care dollars could be in jeopardy — in some cases, more than one-fifth of a hospital system's annual revenue.

In fiscal year 2013, the most recent year for which data is available, more than 300 Texas health care providers received a combined $3.9 billion for uncompensated care by way of the 1115 waiver. Local funds made up roughly 40 percent of that total, with the rest supplemented by the feds.

A handful of public safety-net hospitals received the largest share of those payments.

In Texas, the Harris Health System receives the most money from the uncompensated care pool. In 2013, about 64 percent of Harris Health's patients received charity care or were self-pay, "a euphemism for no-pay," said President and CEO George Masi. Of the people receiving care at the Harris Health System in 2013 — which includes three hospitals and dozens of community health centers and school-based clinics — 57 percent were Latino and 26 percent were African-American. 

Masi called the uncompensated care funding "absolutely crucial for our mission accomplishment." Such funds made up 21 percent of his hospital system's revenue in 2013.

In recent months, facing a $71.8 million budget deficit, the hospital system laid off more than 250 employees. Its leadership has blamed the state's decision not to expand Medicaid as a reason for the shortfall.

"We have continued to really sort of shave every penny we can off of our expenses," Masi said. "You can't repeat that year over year and expect the enterprise to continue the work it's doing, the way it's doing it."

When the federal waiver was approved in 2011, it was negotiated as a transitional move to protect Texas' rapidly changing safety-net system. At the time, all states were expected to participate in the Medicaid expansion — a key tenet of the federal Affordable Care Act (ACA) — and Texas leaders were preparing for a huge influx of low-income people into the state's health care system. Nearly a million additional people in Texas would have been eligible for Medicaid coverage under the ACA, according to the Kaiser Family Foundation.

But in 2012, the U.S. Supreme Court declared the Medicaid expansion optional, and Texas leaders — who believe Medicaid is too broken to be expanded — soon announced they would not participate. That has left advocates for the uninsured wondering what Texas leaders intend to do once the waiver expires in 2016. The state must negotiate a renewal by Sept. 30.

"If you don’t ever move to coverage, where are you going to get the money from?" asked Ken Janda, president and CEO of Community Health Choice, a Houston-based health plan. "Are you going to just continue to ask the feds for money forever? That wasn’t the intent."

After the Obama administration told Texas officials that their decision to renew the waiver would depend, in part, on whether the state expanded Medicaid, Gov. Greg Abbott held firm in his opposition.

"Medicaid expansion is wrong for Texas,” he said in a statement at the time, lambasting the ACA as a "massive expansion of an already broken and bloated Medicaid program."

Hospital officials say losing the uncompensated care funding could jeopardize programs like community health clinics, which deliver primary care at lower costs than care provided in the emergency room. Federal law mandates that hospitals treat sick patients who come to the emergency room regardless of their ability to pay — whether or not those hospitals get uncompensated care funding. 

Still, many health policy experts say they are confident the funding will continue in some fashion.

"There has been sort of a recognition that there is only so much the Legislature’s going to do, but that doesn’t mean it’s not being solved," said Greg Hartman, president of external affairs for the Austin-based Seton Healthcare Family. "The state bureaucracy will still be required to work on this."

Disclosure: The Seton Healthcare Family was a corporate sponsor of The Texas Tribune in 2011 and 2013. A complete list of Tribune donors and sponsors can be viewed here.

This story was produced in partnership with Kaiser Health News, an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.