On December 11, 2024, the Texas Health and Human Services Commission filed a complaint in the United States District Court for the Western District of Texas. The complaint seeks to block the enforcement of a May 9, 2014, State Medicaid Director Letter (SMDL) by CMS providing that certain types of public-private arrangements violate the Social Security Act’s provisions against “hold harmless” arrangements, including Low-Income and Needy Care Collaboration Agreements (LINCCAs), Collaborative Endeavor Agreements (CEAs), and Public-Private Partnerships.
Federal Matching of State Governments’ Medicaid Expenditures
Medicaid is a joint federal-state healthcare program that receives its funding from both state governments and federal matching. The money that each state government put towards Medicaid is known as the “state share,” while the money that the federal government puts towards each Medicaid program is known as the “federal share” or “federal financial participation.”
The Social Security Act has restrictions regarding how states can finance the “state share.” Even though intergovernmental transfers (IGTs) from local governments can be used to finance the state share, CMS disallows the federal share for IGTs that derive from impermissible provider related donations, such as those stemming from a “hold harmless arrangement” as defined in 42 C.F.R. § 433.54(c).
SMDL
On May 9, 2014, CMS issued SMDL #14-004 identifying certain public-private partnerships as constituting impermissible hold harmless arrangements. In SMDL #14-004, CMS alleged that some private hospitals and governmental hospitals had entered arrangements in which the private hospitals had agreed to provide services that governmental hospitals would have otherwise been obligated to provide themselves, and in exchange, the governmental hospitals would make IGTs to finance Medicaid programs benefiting those private hospitals. CMS further asserted that such arrangements constitute impermissible hold harmless arrangements, because “the contract to provide services is a provider-related donation and the receipt of [Medicaid] supplemental payments is the return of some, or all, of the donation.”
According to the Texas Health and Human Services Commission, CMS is enforcing SDML #14-004 without proper notice and comment rulemaking under the Administrative Procedures Act, and the public-private partnerships discussed in the letter are not prohibited or considered in the underlying regulation the letter purports to interpret. The Texas agency further alleges that as a result of CMS’s enforcement of SDML #14-004, CMS has disallowed almost $84 million in federal financial participation that CMS believes Texas received due to impermissible provider related donations between 2014 and 2017.
The Texas Health and Human Services Commission complaint can be found here. Additionally, SDML #14-004 can be found here.
