Waiver Overview & Background Resources

Overview

In 2011, Senate Bill (SB) 7, 82nd Legislature, First Called Session, directed HHSC to preserve federal hospital funding historically received as supplemental payments under the upper payment level (UPL) program. UPL payments were supplemental payments made to offset the difference between what Medicaid pays for a service and what Medicare would pay for the same service. House Bill (HB) 1, 82nd Legislature, Regular Session, 2011, and Senate Bill (SB) 7, 82nd Legislature, First Called Session, 2011, also instructed HHSC to expand its use of Medicaid managed care.

Federal regulations issued by the Centers for Medicare and Medicaid Services (CMS) prohibit UPL payments to providers in managed care. Therefore, CMS advised the Health and Human Services Commission (HHSC) that, to continue the use of local funding to support supplemental payments to providers in managed care, the state should employ a waiver of the Medicaid state plan as provided by Section 1115 of the Social Security Act.

Accordingly, on July 15, 2011, HHSC submitted a proposal to CMS for a five-year Section 1115 demonstration waiver designed to build on existing Texas healthcare reforms and to redesign health care delivery in Texas consistent with CMS goals to improve the experience of care, improve population health, and reduce the cost of health care without compromising quality. CMS approved the Section 1115 Transformation Waiver on December 12, 2011. In December 2017, CMS approved a five-year extension of the waiver through September 30, 2022.

The Texas 1115 Transformation Waiver provides the federal authority for operations of most of the state’s Medicaid managed care programs, including STAR, STAR+PLUS, STAR Kids, and the Children’s Dental Program. Managed care directed payment programs—the Uniform Hospital Rate Increase Program (UHRIP) and the Quality Incentive Payment Program (QIPP)—both operate within the 1115 waiver under authority conferred in 42 Code of Federal Regulations (CFR) 438.6(c). These programs provide additional funding to hospitals and nursing homes through increases in managed care reimbursement for hospital and nursing home services.

A third managed care program, the Network Access Improvement Program (NAIP), provides pass-through payments to participating physician practices in health- related institutions and public hospitals through managed care. NAIP operates within the 1115 waiver under authority conferred in 42 CFR 438.6(d). Under federal law, pass-through payments to physicians must be phased out by July 1, 2022, and pass-through payments to hospitals must be phased out by July 1, 2027.

The non-federal share of each of these managed care directed payment programs is provided by local governmental entities.

The 1115 waiver also contains two funding pools: the Uncompensated Care (UC) and the Delivery System Reform Incentive Payment (DSRIP) pools.

For the first five years of the waiver, which began in State Fiscal Year 2012, combined UC and DSRIP funding totaled $29 billion All Funds (AF), with $17.6 billion allocated for UC and $11.4 billion allocated for DSRIP. For the first 2 years of the extension, the UC pool was $3.1 billion and $3.87 billion AF each year thereafter. This year, the DSRIP pool is $2.91 billion AF. However, in Federal Fiscal Year (FFY) 2021, the pool will be reduced to $2.49 billion, and the following FFY, to zero.

For each program, the non-federal share is provided by local governmental entities. In order to receive UC or DSRIP payments, providers must participate in one of the twenty Regional Health Partnerships (RHPs).

Uncompensated Care

UC payments are cost-based and help offset the costs of uncompensated care provided by hospitals and other providers. Though previously defined as unreimbursed costs for Medicaid and uninsured patients incurred by hospitals, UC costs are currently federally defined as unreimbursed charity care costs. UC payments are based on each provider’s uncompensated care costs as reported to the state on a UC application.

Delivery System Reform Incentive Payment

The DSRIP program provides incentive payments to participating providers to improve health outcomes. Providers develop and implement programs, strategies, and investments to enhance:

  • Access to healthcare services
  • Quality of health care and health systems
  • Cost-effectiveness of services and health systems
  • Health of the patients and families served

There are currently 290 participating DSRIP providers, including hospitals, community mental health centers (CMHCs), physician groups primarily associated with academic health science centers, and local health departments (LHDs).

1115 Waiver Annual Reports

The 1115 Waiver's Standard Terms and Conditions require HHSC to submit an annual report on the waiver to the Centers for Medicare and Medicaid Services for each demonstration year. 

1115 Waiver Evaluation

The 1115 Waiver's Special Terms and Conditions require HHSC to select an independent external evaluator to implement the approved Evaluation Design Plan for the Waiver renewal period. The independent external evaluator will be responsible for conducting the evaluation according to the approved Evaluation Design Plan and submitting the interim and final evaluation reports. The approved Evaluation Design Plan can be found here:

1115 Evaluation Documents - Initial Approval Period

Background Resources

Medicaid/CHIP Quality and Efficiency Improvement Website