Editor’s note: This story has been updated to clarify HHSC’s timeline for responding to districts’ appeals.

Texas school districts received unwelcome news Dec. 15—they would lose about $300 million in Medicaid reimbursements for special education students through the state's School Health and Related Services program.

The funding reduction comes as the Texas Health and Human Services Commission lost its yearslong appeal to the findings of a federal audit in October. In December, HHSC notified districts of how much their funding would be reduced as a result; however, some Central Texas school districts say they’re seeing additional funding cuts.

The background

The School Health and Related Services, or SHARS, program allows school districts to be reimbursed for providing Medicaid health-related services to special education students, such as speech language, physical and occupational therapy, according to the Texas Education Agency.

Districts receive some payments throughout the school year for these services prior to receiving their final amount determined by HHSC for the fiscal year. On Dec. 15, HHSC provided districts this amount for the 2021-22 fiscal year, which included over $300 million in cuts, HHSC spokesperson Mike Parker said.

In October, HHSC lost an appeal made in 2017 against a federal audit into the 2011 fiscal year. The audit found that the agency owed the federal government about $16 million as it received funding for some services that were not medical in nature—alleging that some time when Texas school districts' staff provided students a service was coded wrong.

HHSC plans to repay the $16 million by recovering funds from districts and made cuts to districts’ funding for FY 2022 due to the new coding method, Parker said. Districts may no longer receive funding for services that are determined to be educational in accordance with the audit’s findings, he said.

The impact

The loss comes after districts have already budgeted for fiscal year 2023-24 with an already $2 billion special education shortfall districts statewide are facing, said Sylvia Wood, spokesperson for the Texas Association of School Boards.

Northside ISD, Dallas ISD and Cypress-Fairbanks ISD are anticipating some of the largest setbacks financially, with Austin ISD close behind, according to data provided by the HHSC.

With a current budget deficit of $52 million for FY 2023-24, AISD will see a loss of $7.8 million promised in reimbursements, impacting over 10,000 special education students in the district, according to AISD documents. The HHSC reported a $6.7 million loss for the district. This setback comes amid a state-appointed monitor over the district’s special education department.

The district was referenced in the 2017 audit with cases of students receiving services improperly coded as medical.

Diving in deeper

Some Central Texas school districts told Community Impact they are seeing cuts beyond what HHSC has reported as a result of the audit.

Dripping Springs ISD officials told Community Impact that the district was initially promised a reimbursement of $600,513 prior to the decision made in December. The proposed adjusted reimbursement is $116,149—a loss of almost $500,000.

DSISD deputy superintendent Elaine Cogburn said other than filing an appeal, there isn’t much the district can do to challenge the reduction in funding.

Lake Travis ISD will see a total reduction of $285,236 despite HHSC notifying the district of a $72,568 cut due to recoding some services, said Pam Sanchez, LTISD assistant superintendent for business services. The funding loss will further add to the district’s $5 million projected budget deficit for this fiscal year, she said.

Liberty Hill ISD will have to realign funds to cover some special education services as the district will receive $247,403 in reimbursements when it expected $1.1 million, Chief Financial Officer Rosanna Guerrero said.

“The notifications that HHSC sent in December were not full [and] were not complete of all the reductions they were making,” Guerrero said.

Pete Pape, Leander ISD chief financial officer, said the district was notified it owed HHSC $183,000 when it expected to receive $7 million—a decision the district has appealed. The district is now anticipating a $3.8 million deficit for the 2023-24 fiscal year mainly due to the funding loss, he said.

“It is never a good time to lose money, but this is really the worst possible time to lose money and to lose money for services for special needs students,” Pape said.

What’s next

Texas districts had until Jan. 31 to appeal the final amounts they were notified of in December. HHSC expects to finish reviewing districts' appeals by May, HHSC spokesperson Tiffany Young said.

Third-party billing company MSB School Services assisted almost all of the 460 districts it represents in submitting an appeal to HHSC for their settlement amounts, said Emily Blanco, chief strategy officer for MSB School Services.

“My hope is that we reduce the amount of loss,” Blanco said. “I think the longevity of [SHARS] is incredibly important to education and school finance in Texas.”

Wood told Community Impact TASB will continue to seek solutions, including legislative assistance, to improve the SHARS program “so that school districts can spend more time serving [the] most vulnerable students and less time figuring out how to navigate the complicated and opaque reimbursement system.”