Texas school districts asked to return $16 million in federal funding for special education services

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After a yearslong legal battle, federal officials are asking Texas schools that used a Medicaid reimbursement program for special education services to return $16 million that they say were billed incorrectly.

The U.S. Department of Health and Human Services’ Office of the Inspector General sent an email this month to 572 school districts statewide informing officials they would need to pay anywhere from $100 to $800,000 back to the department for services billed in 2011. The charges, which vary between districts but in some cases reach six-digit figures, stem from a 2017 federal health agency audit that found Texas had improperly billed the agency 238 times for services under the School Health and Related Services program.

The SHARS program reimburses schools for providing services to Medicaid-eligible students, including mental and physical therapy, nursing and screenings. Almost 950 of the state’s more than 1,200 school districts are currently enrolled in SHARS programming, according to the Texas Association of School Boards.

The 238 errors the federal government identified were for services that were deemed ineligible for reimbursement. The Inspector General’s Office also found over 94% of the services billed — including some that were eligible — did not have the required documentation.

The audit warned the Texas Health and Human Services Commission that districts would be asked to return the money paid out for ineligible services, but a series of attempted appeals postponed the repayments. School districts would have had to return more funds, but Texas’ appeals and a review by the Center for Medicaid and Medicare Services lowered the number of billings considered ineligible.

The state has six weeks to decide how they want to pay back the $16 million, according to the federal agency. The federal agency is not requiring the state to recoup the money directly from school districts, leaving the option of using state funding to pay the bill.

“It is up to the state to recoup from individual school districts, if it chooses to do so,” according to a spokesperson with the Health and Human Services Office of the Inspector General.

A statement from Texas’ Health and Human Services Commission said the department has already paid the $16 million to the federal government, and that it is required by law to recoup its costs. The statement added HHSC “submitted every possible denial and request” to contest the charges.

With school budgets set for the year, Texas districts say they have little room to move around funds to pay the money back.

“Because this comes in the middle of a budget year, it makes planning for schools virtually impossible,” said Brian Woods, director of advocacy at the Texas Association of School Administrators. “Had this clawback been known prior to schools approving their budgets in the summer of 2024, then at least it could have been planned for, right?”

Pete Pape, chief financial officer for the Leander school district, called the charge “the tip of the iceberg” and expressed frustration with the Texas health agency’s lack of support for districts and their programs. Federal appeals officers said in 2023 that Texas produced “nothing at all” to dispute investigators’ findings, noting the only evidence Texas submitted in its appeal was a spreadsheet created by CMS listing the improperly billed services.

“If we acted like this as a school district, we would get blasted,” Pape said. “It's like they just want to check off a box, they could tell the community and the legislature, 'Yeah, we appealed it.' So it's frustrating.”

The Leander district owes about $99,000. Pape said he plans to appeal the charge, although the repayment notice the district received did not say if it could be appealed.

The $16 million repayment request comes after Texas slashed more than $607 million for SHARS funding as the state imposed strict limitations on the kinds of services school districts could get reimbursed for. The move, which some school staff consider overcorrection on the state’s part in reaction to the errors made in 2011, have forced some smaller schools to exit the program entirely.

Woods, the former superintendent of the Northside school district in San Antonio, said the repayments are “substantial” even for the largest districts because they are already so strapped for funding.

Northside ISD is set to return more than $420,000, one of the highest repayments the federal government is asking for.

Over 40 schools owe more than $100,000, however more than half the schools listed owe less than $10,000. Houston and Austin school districts are set to pay the most, with over $780,000 each.

For many districts, the notice comes as officials grapple with budget shortfalls worsened by inflation, expiring pandemic relief funds and five years without a significant raise in public school spending from the state.

“I don't think that I've heard a consistent, programmatic-type plan. Most of what I hear is, 'You got to be kidding me, right?’” Woods said of districts’ reactions. “This is on top of the multimillion-dollar cuts that we spent most of the fall talking about, and here we are with another.”

District officials hope lawmakers will provide relief after the SHARS cuts. Several special education funding bills have already been filed ahead of the state legislative session that starts next month. Woods said there is no lawmaker who serves the role of a “designated advocate” for special education funding but added that there is still time to highlight the issue before the Legislature starts.

“Concerned parents and concerned citizens just need to contact their representatives and indicate that they believe there's a need to rectify that situation,” Woods said.

Disclosure: Texas Association of School Administrators and Texas Association of School Boards have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.