Texas sued HHS on Monday over a decision that would force the state to pay back more than $25 million in supplemental Medicaid payments.
The Texas Health and Human Services Commission said in its complaint that HHS exceeded its authority when it concluded that the state made improper uncompensated-care payments to private hospitals. The agency's decision would allow the CMS to claw back the matching Medicaid funds it paid to the state for providing uncompensated care.
Texas told the U.S. District Court for the Northern District of Texas that HHS' "standards were inconsistent with CMS' established regulations and practices and did not appear in the statute or regulation at the time."
The lawsuit stems from payments made in 2015 by the Texas Health and Human Services Commission to private hospitals in Dallas and Tarrant counties, including Baylor Health Care System, Methodist Hospitals of Dallas, Texas Health Resources and North Texas Division.
The state alleges that the CMS all but admitted that it didn't have the power to make Texas pay back the funds when the agency proposed the Medicaid Fiscal Accountability Rule last month.
"(The) recent proposed rulemaking by CMS ... demonstrates that the agency lacked the authority to enforce the standards against Texas," the lawsuit said.
The CMS said last month that the proposed rule would help hold states accountable for payments and financing arrangements related to supplemental Medicaid payments by increasing transparency.
Medicaid allows states to receive matching federal funds to pay doctors and hospitals extra money to provide uncompensated care. But the Trump administration is concerned that states might be gaming the system to boost payments to providers without delivering additional benefits to patients.
The administration is especially worried about complex financing arrangements that some local entities use to put up the state's portion of the matching funds. Private hospitals in Texas' Dallas and Tarrant counties created not-for-profit corporations to pay for uncompensated care in 2007. The arrangements are legal, but key government officials think they could be rife with abuse based on several government reports.
"We have seen a proliferation of payment arrangements that mask or circumvent the rules where shady recycling schemes drive up taxpayer costs and pervert the system," CMS Administrator Seema Verma said in a statement last month.
HHS, and the hospitals mentioned did not respond to requests for comment. Texas' office of the attorney general declined to comment.