Waiver Overview and 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. On January 15, 2021, HHSC received federal approval for an extension of the waiver through September 30, 2030. However, pursuant to CMS direction, HHSC submitted the waiver for re-approval on July 14, 2021. On April 22, 2022, CMS sent a letter to HHSC indicating they would thereafter consider Texas’s 1115 Transformation Waiver to be approved as extended and governed by the Special Terms and Conditions that CMS approved on January 15, 2021.

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. Five managed care directed payment programs— Comprehensive Hospital Increase Reimbursement Program (CHIRP),   Quality Incentive Payment Program (QIPP), Texas Incentives for Physicians and Professional Services (TIPPS), Rural Access to Primary and Preventive Services (RAPPS), and the Directed Payment Program for Behavioral Health Services (DPP BHS) — 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, nursing homes, physician groups, rural health clinics, community mental health centers, and local behavioral health authorities through increases in managed care reimbursement for providers that meet program requirements.

Another provider payment program, the Network Access Improvement Program (NAIP), provides pass-through payments to participating 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 hospitals may not continue in rating periods that begin on or after July 1, 2027.

The non-federal share of each of the managed care directed payment programs and pass-through payments is provided by local governmental entities.

The 1115 waiver initially contained two funding pools: the Uncompensated Care (UC) and the Delivery System Reform Incentive Payment (DSRIP) pools. On December 22, 2021, HHSC received federal approval of the Public Health Providers – Charity Care Program (PHP-CCP) Protocol from CMS. 

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. UC was resized for FY2022 to $4.5 billion and will be resized again in FY2027. In FFY 2020, the DSRIP pool was $2.91 billion AF. In Federal Fiscal Year (FFY) 2021, the DSRIP pool was reduced to $2.49 billion, and in  FFY 2022, to zero.

For the UC and DSRIP  programs, the non-federal share is provided by local governmental entities. For PHP-CCP, the non-federal share is limited to certified public expenditures from governmental entities.

The waiver rules are available at the link provided below:

Texas Administrative Code, Title 1, Part 15, Chapter 355, Subchapter J, Division 11

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 provided incentive payments to participating providers to improve health outcomes. Final DSRIP payments were made in January 2023. Providers developed and implemented 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

Public Health Providers – Charity Care Program

PHP-CCP allows qualified publicly owned providers to receive reimbursement for the cost of delivering healthcare services, including behavioral health services, immunization, and other preventative services when those costs are not reimbursed by another source.

DY9-10 COVID-19 Protocol Changes

Significant changes in care delivery due to COVID-19 prevented Delivery System Reform Incentive Payment (DSRIP) program providers from achieving Category B goals for Medicaid and Low-Income or Uninsured (MLIU) Patient Population by Provider (PPP), improving Category C measures (pay-for-performance measures) of health care quality, and earning related incentive payments. CMS provided guidance to all DSRIP states regarding measurement flexibilities for Calendar Year (CY) 2020 due to COVID-19’s impact on providers’ ability to achieve goals.

DY7-10 Measure Bundle Protocol (MBP)

The initial draft Demonstration Year (DY) 7-10 MBP, an accompanying Excel file of Related Strategies, the summary of stakeholder feedback on the initial draft DY7-10 MBP, and the revised DY7-10 MBP incorporating changes from stakeholder feedback is posted below. Also included below is the final, approved DY7-10 MBP and a final version of the Related Strategies Excel file. Unless specifically indicated in the DY7-10 MBP as only a DY7-8 or DY9-10 requirement, all requirements apply to DY7-10.

DY9-10 Program Funding and Mechanics Protocol (PFM)

The initial draft DY9-10 PFM along with a file showing a summary of proposed changes to the DY9-10 PFM is posted below. Also included below are the proposed changes to the DY9-10 PFM webinar along with the accompanying frequently asked questions documents, the summary of stakeholder feedback on the first draft DY9-10 PFM, and the revised DY9-10 PFM with changes made based on stakeholder feedback. The final, approved DY9-10 PFM and an accompanying file showing final provider DY9-10 valuations and Minimum Point Thresholds (MPTs) is also included below. Note that unless indicated specifically as a requirement only for DY7-8, all previous DY7-8 requirements also apply to DY9-10.

DSRIP DY7-8 Protocols Approved

On Jan. 19, 2018, CMS approved the DSRIP Protocols - the Program Funding and Mechanics Protocol and the Measure Bundle Protocol. These protocols covered the requirements for participation in DSRIP for Demonstration Years 7-8, Oct. 1, 2017, through Sept. 30, 2019. HHSC  worked with stakeholders to develop requirements for DY9-10.

The approved protocols are below. Also posted is a summary of DY7-8 requirements.

Draft DY7-8 Measure Bundle Protocol and Value Based Purchasing Roadmap

HHSC  updated the draft DY7-8 Measure Bundle Protocol in 2017 and submitted it to CMS for review and approval. The draft DY7-8 Measure Bundle Protocol contained proposed Category A Core Activities; the Category B system definition; Category C Measure Bundles for Hospitals and Physician Practices, Measures for Community Mental Health Centers, and Measures for Local Health Departments; and the Category D Statewide Reporting Measure Bundle for all provider types.

Draft DY7-8 Program Funding and Mechanics Protocol and Planning

In 2017, HHSC  updated the draft DSRIP PFM that described proposed requirements for DSRIP participation in DY 7-8. A summary of requirements in the revised draft and a summary of stakeholder feedback on the first draft of the DY7-8 PFM is also  posted below. This draft PFM was submitted to CMS for approval.

The current 1115 waiver was approved without DSRIP, and authority for the DSRIP pool expired September 30, 2021.

1115 Waiver Annual Reports

The 1115 Waiver's Standard Special 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

Medicaid/CHIP Quality and Efficiency Improvement Website