Medicaid is a program jointly funded by federal and state governments. The federal government provides matching funds to states for a specific percentage of Medicaid expenditures, called federal financial participation (FFP). The amount of FFP is calculated using a state-specific Federal Medical Assistance Percentage (FMAP). To receive federal funding, states must use public funds generated at either the state or local government level as the non-federal share of Medicaid expenditures.
In Texas, locally derived funds are used to finance a vast majority of the non-federal share of Medicaid supplemental and directed payments. All states must provide the non-federal share of Medicaid funding to receive federal matching funds. The non-federal share funds are provided to HHSC from governmental entities through two methods: intergovernmental transfers or the certified public expenditures process.
Intergovernmental transfers (IGTs) are transfers of public funds from a governmental entity to the state. The state receives federal matching Medicaid funds for IGTs used as the non-federal share. The transfer of funds must occur before a Medicaid payment is made.
Some Medicaid payment programs that use IGTs as the non-federal share include: Comprehensive Hospital Reimbursement Increase Program (CHIRP), Disproportionate Share Hospital (DSH), Graduate Medical Education (GME), and uncompensated care payments for hospital providers.
Certified Public Expenditures
Certified public expenditures (CPEs) are expenditures that have been certified by a governmental entity to represent its contribution of public funds in providing services that are eligible for federal matching Medicaid funds. Governmental entities will report CPEs to the state and the state will then claim the federal matching funds. States have the flexibility to retain some of the matching funds.
Some Medicaid payment programs that use CPEs as the non-federal share include: Public Health Provider - Charity Care Program (PHP-CCP), School Health and Related Services (SHARS), and uncompensated care for governmental ambulance providers.
Local Funds Monitoring
HHSC, as the state Medicaid agency, is responsible for ensuring that all funds received from governmental entities are permissible sources of non-federal share. In 2021, the Texas Legislature authorized additional staff to HHSC for increased monitoring and oversight of the use of local funds in the Medicaid program.
- Local Funds Monitoring (LFM) Information
- If you are interested in receiving additional information about local funding for Medicaid payments, sign up for email updates.
Types of Local Funding Used in Texas
In accordance with federal law, local governmental entities may opt to use eligible public funds to support the Medicaid program. Many local governmental entities in Texas choose to support the Medicaid program to ensure that their community members have access to essential health care services regardless of a patient’s ability to pay.
There are many eligible sources of public funds that a local governmental entity may use to fund the Medicaid program; however, it is important to keep in mind that no federal funding may be used to generate the non-federal share. For example, a local governmental entity that receives a federal grant may not use those funds as eligible local public dollars to support the non-federal share. A local governmental entity can, however, use state-appropriated funding, funds received through the implementation of an ad valorem tax, funds appropriated from other local governmental entities, patient revenue (so long as no federal payor program funds are used), tuition or fees at state institution of higher education, or through the implementation of a health-care related tax.
In Texas, some jurisdictions have chosen to implement a Local Provider Participation Fund (LPPF), which is a health-care related tax that is implemented on a local level, administered by an existing unit of local government, and that is designed specifically to meet federal requirements associated with eligible local funds. The local government operating an LPPF will collect mandatory payments (i.e., taxes) from the non-public hospitals located in the local government’s jurisdiction. LPPF funding collected by the local governmental entity is then provided to HHSC through an IGT for use as the non-federal share of Medicaid payments just like other eligible sources of local funding.
Currently, 30 jurisdictions have the authority to operate an LPPF. In 2019, House Bill 4289 provided authority for a local government not currently operating an LPPF to have the ability to operate one. A local governmental entity interested in implementing an LPPF or with questions related to the operation of an existing LPPF should contact LFM.
- Local jurisdictions authorized to operate LPPFs with their enabling legislation and statutory authority (PDF)
- A map of the local governments with LPPFs by managed care service delivery area (PDF)
- If you are interested in receiving additional information about only LPPFs, sign up for email updates.