Hospitals in Texas are sounding the alarm about a threat to critical Medicaid funding, while financial pressures could cause some of the state's rural healthcare facilities to shutter.
An imminent crisis involves the state's Medicaid directed payment programs in fiscal 2027, which began Sept. 1, and a potential big financial hit for hospitals.
Despite months of negotiations, the federal Centers for Medicare & Medicaid Services (CMS) has
The association warned that without the programs, which help fill the gap between Medicaid's low base payment rates and the actual cost of providing care, hospitals and other Medicaid providers stand to lose an estimated $27 million every day.
"We're bracing for a crisis that will crack the Texas healthcare safety net," the group's Chief Executive Officer John Hawkins said in a statement. "The numbers are seismic and will shake the Texas economy, eliminate thousands of jobs statewide and diminish Texas health."
The approval holdup involves revenue from local government taxes on providers that are used to obtain federal Medicaid matching funds.
The state is working with CMS to protect the funding, according to Andrew Mahaleris, Gov. Greg Abbott's press secretary.
"Texas' financing fully complies with federal law, and Texas health care providers should receive the funding they are due," he said in a statement.
CMS did not immediately respond to a request for comment.
Despite the fact Texas is one of 10 states that did not adopt Medicaid expansion under the Affordable Care Act, which provides an enhanced federal matching rate for the expanded population's coverage, its directed payment programs face limits under Medicaid funding reduction provisions in 2025's One Big Beautiful Bill Act (OBBBA).
Medicaid limits loom
Texas is among 36 states and the District of Columbia with programs that would likely
"Once implemented, the new law limits such payments in most states to Medicare payment rates, which typically are substantially lower than commercial rates," the analysis said. "In the 10 states that have not expanded their Medicaid programs under the Affordable Care Act, payments are capped just above Medicare rates."
Previously, states were able to direct managed care organizations to pay healthcare providers up to the average commercial rates for services, it added.
Meanwhile, Texas has the largest number of
"Although the at-risk hospitals are losing money on uninsured patients and Medicaid patients, losses on private insurance patients are the biggest cause of overall losses," the report said, adding that more than 100 rural hospitals closed over the past decade.
Rural hospitals at risk of closing
In Texas, 84 of its 153 rural inpatient hospitals are at risk, with 27 facing immediate closure, the report said.
The state's rural hospitals are under constant financial and operational pressure, according to John Henderson, president and CEO of The Texas Organization of Rural & Community Hospitals
"Every report will show that, and Texas will always be near the top of the list, partly because we have more geography and rural hospitals and clinics than any other state," he said in an email.
It is too early to know if initiatives — like the federal Rural Health Transformation Program — will be enough to offset Medicaid changes and avoid additional hospital closures, he added.
OBBBA allocated $50 billion over five years for that program, with
A 2025 Texas law aimed at rural hospitals
Rural hospitals in Texas and nationally have credit positive elements, including community backing, while typically benefiting from tax support and other supplemental governmental revenue for capital and operating needs, according to Daniel Steingart, executive director of public finance at Moody's Ratings.
They also face challenges that can constrain their credit quality, such as limited budgets, physician recruitment issues, and "a more challenging payer mix consisting of higher levels of government payers, which often reimburse at lower rates than commercial payers, and weaker negotiating leverage with commercial payers given their small scale relative to urban/suburban hospitals," he said in an email.
Some Texas healthcare providers were among 42 issuers Moody's placed on review in May under updated nonprofit healthcare rating methodology, which has, so far, resulted in about 27% of hospital ratings being left unchanged, while 45% saw negative rating actions, with the remainder getting positive actions, according to the rating agency.
A review of Kimble County Hospital District in west Texas resulted in a one-notch general obligation rating downgrade to Baa3 with a stable outlook. Moody's cited the rural district's "very small operating scale, with combined operating revenue of approximately $13.5 million, which limits financial flexibility and heightens vulnerability to operational and competitive pressures."
Hunt Memorial Hospital District northeast of Dallas received a one-notch GO rating upgrade to Ba2, which is still in the non-investment category.
Moody's said the Ba2 rating reflects the district's "dedicated tax levy with substantial headroom as well as a strong and growing economic base," adding the bonds also benefit from a lockbox structure for taxes levied to pay debt service. The district has about $135.8 million of outstanding debt.
