Texas and Feds Reach Agreement on the 1115 Waiver



In December 2017, Texas and the federal government ended their standoff over the 1115 Medicaid waiver. State leaders heralded a new agreement with the federal government that renews the program — offsetting the cost of care for the poor and uninsured and allowing Texas to use federal dollars to experiment in restructuring the state’s health care delivery systems — for another five years and $25 billion.

“I committed to the people of Texas that we would focus on preserving access to care without expanding a broken Medicaid system under Obamacare,” said Gov. Greg Abbott in a statement after the deal was reached. The 1115 waiver “ensures that funding will remain available for hospitals to treat and serve people across our state who are in need of top quality health care.” 

When the elation wore off and the details became clear, the reality of the renewal was not as rosy as the governor’s statements. The deal comes with a number of changes, including four billion fewer dollars, and the reduction and eventual elimination of federal matching funds for the state’s Delivery System Reform Incentive Payment (DSRIP) program by the fifth year — a fact that has not gone unnoticed.

“Texas probably walked away from the table with the best deal it could get,” said Don McBeath of the Texas Organization of Rural & Community Hospitals (TORCH), “but that doesn’t mean there aren’t unresolved issues for rural Texas, for hospitals and for counties because of this.”

Nonetheless, the extension came in the nick of time. Centers for Medicare and Medicaid Services (CMS) also announced in December that they would no longer accept new 1115 demonstration proposals nor renew any that rely on federal matching funding. 

“Failure to approve the 1115 waiver would have resulted in near catastrophic consequences for the state’s most vulnerable populations,” Ted Shaw, CEO of the Texas Hospital Association (THA), said in an interview with the Texas Tribune. “The waiver has been absolutely critical for increasing access to quality health care.”

The 1115 waiver has allowed the state to expand its privatized managed care health insurance system in which the state essentially buys private health insurance for most Medicaid recipients, and it has ensured that a portion of the uncompensated care costs hospitals and other providers take on is covered. 

The state has also used the waiver to try to make health care delivery more efficient and cost-effective. The waiver has provided funding, through the DSRIP program, for projects that employ new and innovative ways to address cost drivers in the Medicaid system. 

Cuts Still Coming in an Already Vulnerable Safety Net

The federal funds coming down to Texas through the 1115 waiver were originally conceived of as a one-time stopgap in the state’s safety net as the Affordable Care Act (ACA) was implemented back in 2011. The waiver was supposed to run for five years, as the state began the ACA Medicaid expansion, but Texas chose not to expand Medicaid under ACA the following year. The state negotiated an extension to the original waiver in 2016, eventually hammering out the details of the renewal agreement that was announced in the twilight of 2017.

Because Texas opted out of the Medicaid expansion, federal dollars and the related strings that came attached to that expansion, the state’s health care system is more sensitive to some aspects of the larger restructuring that has been happening nationwide for almost a decade. 

The overhaul has come with cuts to hospitals, nursing homes, home health care providers and Medicare plans. In October 2017, for example, the federal government cut the Disproportionate Share Hospital (DSH) fund by 14 percent. The fund makes payments available to hospitals whose patients are mostly low-income and on Medicaid or uninsured. 

Hospitals that fit the profile for DSH funds are generally rural, and also see disproportionately higher levels of patients on Medicare and Medicaid according to McBeath.

As part of the waiver’s renewal, CMS approved a $3.1 billion-a-year increase in funding for Texas’ uncompensated care pool for the next two years in light of the impact Hurricane Harvey has had on Texas and the state’s health care providers. After year two, however, the uncompensated care funding will be subject to a new formula, which will lower payments to hospitals starting in 2020.

In particular, CMS won’t allow the money to be used to cover what’s known as the Medicaid shortfall — the deficit between the costs a hospital incurs and what Medicaid reimburses. Medicaid payments to providers have often been below cost, and hospitals have relied on DSH funding to cover the difference.  

“They think it is the responsibility of the state legislature to make sure Medicaid rates are adequate. So, they’re going to move Medicaid shortfall from the equation, and that’s somewhere north of $4 billion a year. That’s a challenge we’re going to have to deal with through other mechanisms,” John Hawkins, the senior vice president of advocacy and public policy for the Texas Hospital Association explained in a recent episode of the Capitol Update webcast.

CMS is also taking bad debt — the unpaid bills from the uninsured and underinsured — out of the equation, effectively limiting the payouts to charity care cases.

“This is a big issue in Hidalgo County,” said Eddie Olivarez, the county’s health and human services chief administrative officer. Hidalgo County is the anchor for a regional health partnership under the 1115 waiver that includes Cameron, Starr and Willacy counties.

“In my community, 1115 has been a huge game changer. Based on hospital admissions prior to the 1115 waiver, about 40 to 45 percent of my community was uninsured.”

The four-county region has a combined population of more than 1.3 million residents, with most residing in Hidalgo County. The region is growing fast, transitioning from an agricultural economy to a more service-oriented one, but it still has one of the highest uninsured rates in the state.

Cuts like those made to DSH and uncompensated care funding coupled with other changes and uncertain long-term future of programs under the 1115 Medicaid waiver program could further weaken health care delivery, particularly in rural areas. 

 In the last five years, at least 18 rural hospitals across the state have closed, leaving holes in the safety net, adding to a mosaic of factors that leave rural Texans more susceptible to negative consequences as a result of changes in the 1115 waiver.​

“You imagine a hospital in an urban area — like Parkland in Dallas — they might have 30 or 35 percent of their patients on Medicare or Medicaid, and a cut to reimbursement there is a cut to 30 or 35 percent of their business. But in rural and South Texas you have hospitals where that is 50 percent of their business, for some 75 or 80 percent, so you tell me who gets hit hardest by these cuts,” McBeath said. Many of Texas’ rural hospitals have struggled to stay open even with the assistance available. In the last five years, at least 18 rural hospitals across the state have closed, leaving holes in the safety net, adding to a mosaic of factors that leave rural Texans more susceptible to negative consequences as a result of changes in the 1115 waiver.

According to McBeath, the coming cuts to funding — which help cover the cost of uncompensated care and address costs drivers in the Medicaid system through the DSRIP —will affect hospitals, counties and various other providers, with the most acute effects hitting rural Texas.

McBeath, who also served as the Lubbock County judge for eight years, sees how these changes, left unaddressed, could ripple across rural communities. When a hospital closes in rural Texas, McBeath explained, the county has probably just lost their biggest employer. 

“The closure means high-skilled workers are moving away, there are fewer students in the schools, the hardware store closes because business is down, the whole tax base is eroding. And now the hospital district, the schools, the mayor, the county judge, everybody needs to raise the tax rate to continue providing services, but they can’t, because of revenue caps and residents who are already fed up with high school taxes,” McBeath explained. 

“In the end, services degrade, more people leave rural Texas — it’s a brain drain — and then counties cannot attract new employers to the area. It’s a vicious cycle for rural Texas in a way that it isn’t in urban Texas. They are better equipped to cushion against these changes.”

The National Rural Health Association says scenarios like this are playing out across the country, contributing to rural health care deserts, leaving rural populations that are often older, sicker and poorer, without timely access to lifesaving care.

DSRIP and Mental Health

The value of 1115 waiver programs goes beyond just the savings and efficiencies realized in the bottom lines of rural hospitals. DSRIP programs helped divert people from jail and the court system and into the needed treatment, alleviating the burden on the judicial system and taxpayers, and positively impacting communities. 

“We saw a number of successful DSRIP programs when it comes to indigent health care,” TAC Legislative Liaison Rick Thompson said, “but where we saw the real home run was on the mental health side. Working with our partners in local community health centers, there were a lot of projects that helped get folks that needed help to treatment facilities instead of jail.” 

Since 2011, counties have used the waiver to leverage dollars to strengthen local safety nets in several ways. The waiver gave counties the opportunity to engage in intergovernmental transfers where they could have a guarantee that funds would come back to the local community. 

Counties were able to use money they were already providing to the local community mental health centers as a way to bring down federal matching dollars to expand projects that improve public health and even divert residents with mental health issues from the county jail.

“The 1115 waiver turned the game around. The hospitals were getting compensated a good percentage of their uncompensated care, the DSRIP programs have developed some fantastic preventative medicine programs that are empowering our local residents to take better care of themselves, and programs helping with mental health diversions from jails,” said Hidalgo County’s Olivarez.

In Hidalgo County, Tropical Texas Behavioral Health partnered with the cities and the county to train law enforcement officers to become mental health officers. 

“They service these clients who are the frequent flyers in the county jail, and they’ve done a tremendous job in developing integrated primary psychiatric and mental health programs and keeping these people out of jail,” said Olivarez. “So, all of a sudden you have fewer arrests, less occupation in your county jail from these unfortunate clients who would get in trouble with the law, or domestic violence issues. It’s not just saving money; it’s saving lives.”

Local Provider Participation Fund
While the federal government has put a lot of money on the table through the 1115 waiver, bringing it down to local communities requires being able to match those funds. This has proved to be a challenge for some communities. That’s where a Local Provider Participation Fund (LPPF) can help communities bridge the gap. 

In South Texas, the 1115 waiver program allocated $829 million for the region, which includes the Hidalgo, Starr, Cameron and Willacy counties, but the matching funds put up locally were only enough to claim about half of it, according to Hidalgo County Health and Human Services Chief Administrator Eddie Olivarez.  

“We didn’t have the tax base for it. If it weren’t for LPPF, we would never have come close to where we are. We just don’t have the financial infrastructure to compete.” 

To help the region maximize its match, Sen. Juan “Chuy” Hinojosa authored House Bill 1623 during the 2015 legislative session. The bill created the Hidalgo Care Funding District, an LPPF.  

The LPPF is not a taxing district, but a county-run fund that essentially allows hospitals within the district to assess themselves a fee and send that money to the county, which in turn sent it to the federal government where it was effectively matched. 

Each LPPFs is created by an act of the Legislature. Cities, counties and hospital districts with more than one hospital can pursue creating an LPPF, though a city and county cannot both have one. Currently, Hidalgo, Cameron, Webb, Bell, Gregg, Brazos, McLennan, Bowie, Hays, Cherokee, Smith, Angelina, Williamson, Tom Green, Grayson and Potter counties, the city of Beaumont and the Dallas County Hospital District, Tarrant County Hospital District and Amarillo Hospital District have LPPFs.

Tropical Texas Behavioral Health’s catchment area is more than 3,000 square miles, and includes Hidalgo, Cameron and Willacy counties. The organization partners with nine local law enforcement agencies, committing to cover salary, benefits and all other indirect costs, and in exchange, an officer is assigned to Tropical Texas full time. They currently employ 18 officers.

The officers receive extensive, ongoing mental health training — including all of the training that other employees of Tropical Texas receive — on top of maintaining their peace officer certification.

Through their Mental Health Officer Team (MHOT), Tropical Texas has coordinated, helped facilitate, or provided instruction in 11 Mental Health Officer Certification classes across the Rio Grande Valley and have certified approximately 400 additional local officers as mental health officers.

Tropical Texas Behavioral Health CEO Terry Crocker said they chose to work with multiple law enforcement organizations, making none of them a primary partner to mitigate the impact of funding eventually going away. It also garnered them broader buy-in from the community by showing the value of having law enforcement agencies involved in the mental health community. 

The mental health officers often escort Tropical Texas’s mobile crisis outreach teams when they go into the community, and are available to take over mental health calls from any law enforcement agency in the catchment area. 

“We’ve had huge, positive response from the different law enforcement agencies, from the community, from families, and even from patients that appreciate and understand that, ‘Okay, this is somebody coming out who knows what’s going on with me, maybe he’s even come out to talk to me before, and he’s coming in an unmarked car, not with sirens blazing,’” Crocker said.  

The members of MHOT often see people in some of their worst moments, but because of the services Tropical Texas provides, the officers also get to see them turn around. 

Officer Antonio Gonzales with Tropical Texas worked with LL (name redacted for patient privacy considerations) when they took over the case from the City of Mission Police Department in Hidalgo County. He credits the collective work of the MHOT and the services of Tropical Texas connected her with as a true success story.

“She was extremely manic, very aggressive, very inappropriate. She would sit in the lobby talking to herself and to us for hours. She was up and down, going from laughing hysterically to crying uncontrollably and she seemed to go out of her way to aggravate those around her. Placement was very difficult to find so she remained with us for many hours. Once she tried to reach for an officer’s gun, another time she took another officer’s Coke when he wasn’t looking,” Gonzales wrote in his report.

The officers at Tropical Texas used their de-escalation training to manage her. Despite her behavior, they knew to be patient with her. As time passed, she got to know all the officers by name. With that familiarity, she became easier to manage.  

On one occasion, Gonzales found LL asleep in an officer’s office. MHOT members did not want to wake her because she was finally quiet.  

“I later asked her why she slept there and she said she felt safe with the officers,” wrote Gonazales.

As much as LL could give the officers a hard time, she was getting to know them, and it was changing how she related to them.  One evening, LL overheard MHOT members talking about a high-risk client an officer was being assigned to handle, and a request for Pharr PD to back him up. 

According to Gonzales, as the officer was leaving, LL told him to make sure to call Pharr PD for back up and then she told Gonzales again to make sure Pharr PD backed him up, because she did not want anything bad to happen to him. 

After LL’s third hospitalization, the Tropical Texas MHOT did not see her for a long while. After so many long hours with her, they wondered what might have become of her.

“I was walking through the main lobby one day when I heard someone yelling my name.” Gonzales wrote. “It was her, and she was with her mother. She yelled out for me to come see her saying ‘It’s okay! I’m not bi-polar right now.’” 

LL introduced Gonzales to her mother and told her that he was one the officers that took care of her when she was sick. Her mother thanked Gonzales for all the help the officers at Tropical Texas had provided for her daughter. 

LL said she knew she would have to take medicine probably for the rest of her life but that it was better than being that way she was.

LL kept up with the services and care she was able to get connected with initially through Tropical Texas. She has not had a mental health crisis for nearly four years now.  

“I have bumped into LL a few times since then, in med clinic, or primary care,” wrote Gonzales, “and each and every time, she asks me to thank all the officers for what they did for her, and to apologize to them for what she did to them.”

Despite the successes of mental health and jail diversion programs, there is an uncertain future ahead. The DSRIP funding pool faces reductions in each of the next four years until it is ultimately zeroed out. The drawdown and eventual elimination of federal matching funds for DSRIP means stakeholders will need to come to the table to begin the discussion of how the programs wind down or transition in the future.

“It’s our hope to do two things: to expand the MHOT, adding more mental health officers, and also to integrate a more permanent funding base for that — one that’s not entirely dependent on 1115. I learned early on coming into this job that you need to diversify your funding streams because any one of them can go south. You’ve got to have other ones to pick up some of the slack so it’s not catastrophic when one of them pulls out because that does happen quite frequently in our business,” said Crocker.


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