The state and federal government have inked a new deal for supplemental Medicaid funds, but what does it mean for rural hospitals?

Since 2013, at least 18 rural hospitals have closed across Texas, leaving behind health-care deserts in places already struggling with diabetes, stroke and mental health disorders, among other problems. Now, cuts to two Medicaid funding streams that help Texas hospitals recoup treatment costs and pay for innovative health programs are putting more rural hospitals at risk of shrinking or closure. Administrators at cash-strapped hospitals say they may be forced to curb obstetrics, pediatrics and other crucial health care services for poor people if they can’t find a legislative fix in the next two years.

In December, Governor Greg Abbott trumpeted a $25 billion deal with the feds that would prop up a program that pumps money into safety-net hospitals who serve lots of uninsured and underinsured patients. Essentially, the deal extended what’s known as the 1115 Medicaid waiver, a long-standing agreement that allows the state to partially privatize Medicaid but also contains $25 billion in funding for hospitals.

“Most rural hospitals are like us. They’re the only hospital in the county and they treat everybody.”

But under the new agreement, some money sent to hospitals for uncompensated care — including reimbursement for Medicaid shortfalls (the difference between a hospital’s cost for providing a service and Medicaid reimbursement) — is set to be phased out in two years. Funds for popular community health care initiatives will be stepped down after two years and eliminated after four.

“While on the surface it’s good news that the waiver is being renewed, there’s some real minefields,” said Don McBeath, director of government affairs at the Texas Organization of Rural and Community Hospitals. “We’ve got a train wreck coming. The fine print is gonna be a problem.” Hospital administrators and other experts told the Observer that the funding reductions could lay the groundwork for cuts in medical services provided by hospitals in parts of the state where the health care system is already bare-bones.

At Childress Regional Medical Center, which serves a 12-county area just south of the Panhandle, the loss of uncompensated care funding could lead to a reduction in obstetrics services, administrator John Henderson said. A large share of his facility’s child births are partially covered by Texas Medicaid, but the federal-state program only reimburses about 60 percent of the cost of treatment. In the past, Henderson could use the uncompensated care fund to make up the difference, but the new agreement phases out that type of reimbursement in 2020.

“Most rural hospitals are like us. They’re the only hospital in the county and they treat everybody,” Henderson said. “If you operate at a loss continually, you can’t survive. If you can’t bridge that gap, you end up making hard decisions regarding services.”

The funding cuts come at a critical time for rural hospitals in Texas. Hospital closures have left many communities stranded far from basic health care, largely the casualties of Congress and the Texas Legislature setting stingy reimbursement rates for Medicaid and Medicare. Rural hospitals also shoulder much of Texas’ enormous uninsured patient population with little help from Austin or Washington, D.C. While cuts to the uncompensated care fund will also hurt hospitals in urban and suburban areas, rural facilities’ razor-thin margins make them more sensitive to funding cuts.

The waiver itself is a Band-Aid, a stopgap measure necessitated by Texas’ refusal to expand Medicaid under the Affordable Care Act, experts say. After the law’s passage, then-Governor Rick Perry opted out of expanding Medicaid in Texas, even though it would have extended health insurance to many of the state’s 5 million uninsured residents and relieved hospitals’ financial burden for treating them. Because Obamacare was designed to cover more low-income uninsured people, the law reduced funding for uncompensated care. Nonetheless, Abbott hailed the new, five-year deal as a way to “focus on preserving access to care without expanding a broken Medicaid system under Obamacare.”

A Texas Health and Human Services Commission spokeswoman did not answer questions regarding how, or whether, the state would make up for the loss of funding.

Along with reimbursing hospitals for Medicaid shortfall, another program renewed through the waiver, the Delivery System Reform Incentive Payment, pays hospitals to create new initiatives to make medical care more efficient. In Decatur, about 45 minutes northwest of Fort Worth, Wise Health System used that waiver provision to create a new behavioral health clinic, set up a congestive heart failure program and to hire a pediatrician at the community health clinic, where new Medicaid patients were accepted.

“While on the surface it’s good news that the waiver is being renewed, there’s some real minefields.”

Paul Aslin, the hospital system’s chief population health officer, said the programs have been popular. But with funding being phased out “we will have to look at scaling back or discontinuing those projects,” he said.

While rural hospital administrators eye potential cuts to services, McBeath and other advocates say they’re preparing to lobby the Texas health agency and lawmakers for other supplemental funds to bridge the gap. But accessing additional federal Medicaid money likely will require putting up matching funds — dollars the Legislature will approve spending “when the sun rises in the west,” McBeath said. Hospitals could put up the matching dollars themselves, but that would add costs to facilities that are barely making ends meet.

John Hawkins, senior vice president of advocacy and public policy at the Texas Hospital Association, is more optimistic. Because funding changes to the waiver don’t kick in until 2020, his organization has two years to convince lawmakers to help out. He also noted that the waiver has allowed the state to expand its privatized managed care system. “I think [the Legislature is] sympathetic because one of the things this waiver has done is allow us to expand managed care to most areas of the state,” Hawkins said. “The Legislature will be able to meet in this period, we’ll be able to get all the issues teed up.”