Texas Hospitals Lose $27 Million a Day in Medicaid Funding Dispute

Texas hospitals are losing $27 million a day in additional Medicaid funding after the Trump administration withheld approval of roughly $9.8 billion in payments for the state's 2027 fiscal year, according to the Texas Hospital Association (THA).¹ The bulk of the withheld funding is tied to the Comprehensive Hospital Increase Reimbursement Program (CHIRP), which supplements Medicaid rates to cover the gap between what the program pays and what hospitals actually spend treating Medicaid patients.

Under CHIRP, local governmental entities collect approximately $4 billion a year in hospital taxes, which the federal government then matches so hospitals can recoup the difference between Medicaid reimbursement and the true cost of care. CMS is withholding approval because it is questioning how Texas jurisdictions calculate those local hospital taxes. The Texas Health and Human Services Commission itself has referred to these dollars as "the state-directed payment" in its correspondence with CMS,¹ placing CHIRP among the supplemental payment tools that the One Big Beautiful Bill Act (OBBBA) already constrains nationally—the law caps state-directed payment rates at 100% of the Medicare rate for expansion states and 110% for nonexpansion states like Texas, independent of the tax-methodology dispute driving the current holdup.²

Safety-Net Systems Warn of Service Cuts

More than 4 million low-income Texans are enrolled in Medicaid, most of them children.¹ Sara González, THA's vice president of advocacy, public policy and political strategy, said a sustained funding gap would ripple across a hospital's entire patient population, not just its Medicaid enrollees: "It is impossible for a hospital to take a huge loss on a Medicaid side of their portfolio and not have that impact services across the board, regardless of what type of insurance a patient has."

The financial exposure is concentrated in Texas' largest safety-net systems. Harris Health, the public system serving the Houston area, estimates a loss of at least $258 million, with the broader Houston region facing as much as $1.4 billion less in 2027. Harris Health CEO Esmaeil Porsa, MD, said the impact "would be catastrophic for Texas' safety-net healthcare system" and that the system may need to make "difficult decisions about maintaining critical services if this impasse continues." Children's Health in Dallas warned that continued delays threaten access to pediatric specialty and behavioral health care.

Governor Calls Funding Holdup a "Gun to the Head"

The dispute, which began quietly in December 2025, escalated when Governor Greg Abbott sent HHS Secretary Robert F. Kennedy Jr a letter on August 7 defending the state's hospital tax structure as compliant with federal law and calling the funding delay an economic "gun to the head." Abbott said any change Texas makes to accommodate CMS should not be read as an admission that the existing tax structure is legally defective, and he pegged the state's potential 2027 loss at up to $12 billion.

Even if Texas and CMS reach an agreement soon, Anna Stelter, THA's vice president of policy, said a resulting claims backlog would take at least 90 days to clear.

"The bigger the claims backlog, the longer it takes to catch up,” she said in a statement.²

CMS, the Texas Health and Human Services Commission, and the governor's office had not commented on the funding standoff as of August 31.

Precedent in Florida, and a Broader Pattern

Florida faced a similar CMS challenge to its hospital tax structure and resolved its funding delay, but only after 11 months. Texas has already gone through 11 rounds of information requests from CMS, including a recent demand that the state confirm none of the funding would cover care for people without verified immigration status—a request Texas said it satisfied on August 17. Texas previously prevailed in a similar legal fight with CMS over the funding in 2023, before OBBBA reshaped Medicaid financing rules nationally.

References

1. Langford T. Texas hospitals say they're losing $27 million a day in Medicaid funding. The Texas Tribune. August 31, 2026. Accessed September 9, 2026. https://www.texastribune.org/2026/08/31/texas-hospitals-medicaid-funding-chirp/
2. Steinzor P. 5 things to know about the converging Medicaid funding crisis. AJMC. May 8, 2026. Accessed September 9, 2026. https://www.ajmc.com/view/5-things-to-know-about-the-converging-medicaid-funding-crisis