Keeping the Safety Net Open: Restoring the 1115 Medicaid Waiver
By Joey Berlin


Facing a major setback for uncompensated care, the Texas Medical Association is taking the opportunity to think bigger and better.

In April 2021, the Centers for Medicare & Medicaid Services (CMS) rescinded its previous extension for Texas’ Medicaid 1115 Transformation Waiver, which had been approved three months earlier. For a decade, the 1115 waiver has helped pick up the tab for care Texas safety-net hospitals and their affiliated clinics deliver to Medicaid patients, as well as the uninsured and underinsured.

Now, instead of Texas being able to count on that funding through September 2030, the waiver will expire at the end of September 2022 – unless the state, with input from TMA and others, can convince the Biden administration to reconsider its April decision.

However, TMA is pushing for CMS to not just reinstate the extension, but also to make a long-term commitment to Texas’ entire safety-net system. Until now, 1115 funding has gone almost exclusively to hospitals and certain other clinics, while leaving out many other integral parts of the safety-net equation.

Prior to the waiver’s approval in 2011, “we really were in a bad place, and so that’s why this uncompensated care pool really has saved the day for a lot of hospitals, in particular,” said Dallas internist Sue Bornstein, MD, executive director of the Texas Primary Care Consortium and a member of TMA’s Board of Trustees. “Is it ideal? No, and quite frankly, it’s been pretty hospital-centric. There’s a whole lot of other folks that are part of the health care system, including private practice docs, who … have not been able to participate in the waiver in any kind of meaningful way, because it’s really been focused on hospitals and also on some other kind of clinics.”

In testimony and a written letter to the Texas Health and Human Services Commission (HHSC) in June, TMA and specialty societies asked HHSC to propose a broader version of the waiver, including urging HHSC to establish a Texas-tailored solution for coverage expansion, a proposal medicine also unsuccessfully advocated for during this year’s session of the Texas Legislature.

A wave of uncertainty

The 1115 waiver, if extended, will bring as much as $11.4 billion in federal dollars to the state each year. It was originally intended as a bridge to Medicaid expansion before the U.S. Supreme Court ruled in 2012 that states couldn’t be required to expand Medicaid under the Affordable Care Act. (See “The Texas Medicaid 1115 Waiver: A Timeline,” below.) In addition to funding uncompensated care, it’s meant to support quality improvement projects serving as “demonstration” experiments to find better ways to deliver care.

When patients are uninsured – like an estimated 5.2 million Texans – or underinsured, they’re likely to pay for little or none of the care they receive, which often begins in the emergency department. Keller pediatrician Gary W. Floyd, MD, invokes the old cliché “You can’t squeeze blood out of a turnip” to express the difficulty many hospitals, practices, and clinics have in trying to get paid in those cases – at least, without funding sources like the waiver to supplement that care.

“That funding is still needed,” said Dr. Floyd, TMA’s president-elect for 2022-23. “It would be devastating to lose that, I would think.”

Just after the year began, Texas appeared to be set on 1115 funding for the rest of the decade. In late 2020, the state submitted an application to CMS to extend the existing 1115 waiver through September 2027. On Jan. 15, 2021, just five days before the transition from the Trump administration to the Biden administration, CMS instead approved the extension through 2030. But in April, CMS informed HHSC it was rescinding that extension.

CMS’ reason for the rescission, as expressed in its letter to HHSC, was rooted in procedure. CMS found fault with its previous decision to grant the state an exemption from the required federal public notice and comment period.

“The state’s exemption request in its application did not establish that the request to extend the [waiver] … was substantially related to the public health emergency for
COVID-19 or any other sudden emergency threat to human lives, that the circumstances surrounding the extension request constituted an emergency, or that delay sufficient to complete the public notice and comment process before approval of the extension request would have undermined or compromised the purpose of the [waiver] or been contrary to the interest of beneficiaries,” CMS wrote.

The letter gave the state the opportunity to reapply for an extension past 2022.

Despite the agency’s reasoning, a perception quickly arose that taking back the extension was an effort by the Biden administration to push Texas into Medicaid expansion.

“I think what you’re seeing play out between the federal government and Texas is a high-level/stakes poker game,” said Dallas cardiologist Rick Snyder, MD, chair of TMA’s Board of Trustees. “The federal government, especially this administration, would like every state to expand Medicaid under the Affordable Care Act.”

Texas Attorney General Ken Paxton sued the Biden administration about a month after CMS rescinded the extension in an attempt to reinstate it. CMS declined comment for this story citing pending litigation.

Asking for something better

TMA is hoping for a retooled version of the waiver that will not only provide low-income working Texans access to meaningful health care coverage, but also include private-practice physicians and others dealing with the impacts of uncompensated care.

“They started out 10 years ago saying that they were going to include physicians. But honestly, [while] I think the intent might’ve been there, I don’t think they had a mechanism to do that,” Dr. Floyd said. “Consequently, most of the money was kept by the hospital systems that received finances. Most of them did not share with the physicians who were taking call in the emergency rooms, who were coming in at night to take care of the patients with fractures, and needing some emergent surgery and what have you. Those docs only got paid pennies on the dollar at Medicaid rates, if they were lucky. That needs to change.”

In May 2021, HHSC released its proposed application for extending the waiver, and the agency took comments at a public hearing in June. Dr. Floyd testified at the hearing, telling the commission the waiver has benefited both countless low-income Texans and the safety-net systems they need.

However, he also noted the basic construct of the waiver is a decade old, and if Texas receives long-term approval for the waiver, it needs to foster a more inclusive and holistic health care system. Medicine also wants the waiver to provide financial protection for the state’s entire health care safety net, not just hospitals, public health departments, and mental health practitioners.

Dr. Floyd told HHSC medicine supports:


  • Offsetting uncompensated care for safety-net entities and amending the waiver to ensure financial viability for all components of the safety-net system – including allowing the redirection of funds to physicians and community clinics;
  • Seeking the authority to establish a comprehensive health coverage initiative tailored to Texas to reduce the state’s alarming uninsured rate among adults of working age; and
  • Promoting an inclusive, holistic, and community-driven approach to improving population health and health outcomes. That includes piloting organized medicine’s vision for an accountable health organization (AHO), governed by a community-based board of physicians, hospitals, safety-net entities, and others, to develop a locally tailored approach to health and implement value-based care.


Dr. Bornstein told Texas Medicine a Texas-style health coverage solution needs to be paired with the “continued delivery system innovation” the waiver is meant to foster.

“You have to have both, you really do,” she said. “You certainly have to have the [uncompensated care pool] and all that. But … the waiver does not ensure any kind of coverage, really. It pays for care in certain entities, like in some outpatient clinics and things like that. But it really doesn’t address the coverage in any kind of sustainable way.”

In its letter to HHSC in late June, TMA noted uncompensated care dollars are no substitute for health coverage. Those dollars “offset the costs of caring for uninsured patients’ care within a facility, not any ongoing care afterwards,” and also have no direct impact on patients who don’t need hospital-level care, said the letter from TMA President E. Linda Villarreal, MD, and leaders from several state specialty organizations.

“Texas can no longer ignore the profound human, social, and economic impact of having more than 20% of our people uninsured and the continued financial favoritism within the waiver,” Dr. Villarreal said in the letter.

Spending tied to the 1115 waiver must be budget-neutral with respect to federal spending, meaning the federal government can’t spend more on Medicaid than it would without the existence of the waiver. In order for the funding to be spread to more places, the budget-neutrality calculation needs to be as high as possible, says John Hawkins, senior vice president of government relations for the Texas Hospital Association (THA). He tells Texas Medicine THA is supportive of 1115 funding being more broadly distributed around the safety-net system.

“There’s always opportunity for that, and it is the right thing to do from a policy perspective,” Mr. Hawkins said. “That’s why we are really hopeful that the state will negotiate strongly on that budget neutrality calculation. Because the higher the budget neutrality number, the more opportunity there is for funding beyond just the uncompensated care pool.

“From a policy perspective, we’re definitely supportive. The challenge in the past has always been since the state has been unwilling to put in general revenue in for [its] share, we’ve always been limited to providers that can put up their own state share. That’s usually hospital districts, county health departments, and local mental health authorities. We’re going to have to figure out a workaround about the method of financing the state share, ultimately.”

TMA had promoted the AHO model – previously known as a community-based accountable care organization – in conversations with the state just before the pandemic as a way to promote greater local accountability and inclusivity in care delivery. The AHO would not deliver actual care, but would work with those who do to establish a common vision, purpose, and direction for addressing health care quality, safety, and equity for the community. Ultimately, its aim is to foster local decisions regarding how best to improve access to care, health outcomes, and health equity, and reduce costs. (See “The Power of Community,” December 2020 Texas Medicine, pages 38-41,

Dr. Bornstein says the diversity of Texas makes the AHO model particularly necessary as a piece of Texas’ care delivery future.

“What works in Dallas probably wouldn’t work in Marshall, or Lufkin,” she said. “We need to have the ability on the local level to adapt for our own situation. Because we know what our needs are better in our own communities.”

Tex Med. 2021;117(8):44-46
August 2021 Texas Medicine 
Texas Medicine  Main Page  

Last Updated On

August 02, 2021

Originally Published On

August 01, 2021

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