According to the Legislative Budget Board (LBB), the fiscal implications of HB 3984 are projected to result in a net positive financial impact for the State of Texas, primarily through enhanced Medicaid overpayment recoveries in managed care. The LBB estimates a net gain to General Revenue of approximately $4.06 million for the 2026–2027 biennium, despite initial startup costs. This net gain grows significantly over time, with anticipated General Revenue savings exceeding $32 million annually by 2029 and 2030.

In the first year (FY 2026), implementation costs, including new personnel (3.2 FTEs) and initial system upgrades, are expected to create a negative fiscal impact of about $3.15 million. However, from FY 2027 onward, projected Medicaid recoveries outpace costs. These recoveries are based on assumptions about the volume of managed care overpayments, estimated at over 22,000 claims annually, and an average recovery of $5,276 per claim, reduced 25% for practical limitations. By FY 2029, recoveries could total $88.5 million annually. After subtracting a 12.5% contingency fee to Recovery Audit Contractors (RACs), the state’s net savings are still substantial, exceeding $77 million per year from FY 2029 onward.

The fiscal impact includes additional operational and technology costs. HHSC anticipates hiring 17.7 new FTEs by FY 2027 and incurring personnel costs reaching $2.9 million annually. Non-staff costs include vendor contracts for collections, second-level appeals, and a new deconfliction database to prevent audit duplication, totaling millions in ongoing technology costs. Nonetheless, the bill includes a provision limiting implementation to when funds are specifically appropriated, which reduces risk if the legislature chooses not to fund the program.

In summary, while the bill requires upfront investments in staff, IT systems, and vendor services, it is projected to yield high returns through improved oversight and recovery of Medicaid overpayments in managed care. These long-term savings far outweigh initial expenditures, making the bill fiscally advantageous for the state.

HB 3984 is a meaningful and well-structured effort to expand and modernize oversight of the Texas Medicaid program by extending Recovery Audit Contractor (RAC) authority into Medicaid managed care, where the majority of Medicaid dollars are now spent. This reform aligns with recommendations from the federal Government Accountability Office and responds to longstanding concerns that managed care claims have not been subject to the same scrutiny as traditional fee-for-service Medicaid payments. The bill introduces a targeted mechanism to identify and recover overpayments, supporting the liberty principles of fiscal responsibility and government accountability without introducing new taxes or fees.

The bill also includes multiple procedural safeguards that reflect a thoughtful attempt to balance government oversight with protections for providers. These include requirements that RAC audits be pre-approved by the Office of Inspector General (OIG) based on cost-effectiveness, a one-year waiting period before claims can be audited, and a prohibition on duplicate audits if a managed care organization is already reviewing a claim. Importantly, the bill mandates the creation of a formal appeals process and allows, but does not require, implementation only if the Legislature appropriates funding. These provisions enhance due process, limit arbitrary enforcement, and give the executive branch clear but bounded authority to carry out legislative intent.

From a fiscal standpoint, HB 3984 is projected to result in significant savings to the state. After an initial investment in staff, technology infrastructure (notably a deconfliction database), and vendor contracts, the state is expected to see net General Revenue savings exceeding $32 million annually by FY 2029. This positive return on investment reflects sound fiscal policy and responsible use of taxpayer dollars. Moreover, the bill does not expand taxes, assessments, or fees, and instead aims to recoup taxpayer funds that were improperly spent.

That said, the bill does grow the size and scope of state government modestly by requiring new staff (up to 17.7 FTEs), new IT systems, and additional contracting authority. It also increases regulatory and compliance obligations on Medicaid providers and managed care organizations, who will be required to submit documentation, respond to audit requests, and potentially navigate appeals. While these requirements are justified by the bill’s purpose and mitigated by procedural protections, there remains room to tighten the scope of administrative discretion. Specifically, limiting rulemaking and contracting authority, clarifying appeals timelines, and requiring transparency in third-party vendor oversight would further strengthen the bill’s alignment with limited government and free enterprise principles.

Therefore, Texas Policy Research recommends that lawmakers vote YES on HB 3984 but also encourages lawmakers to refine the bill’s execution and ensure that new government authority is as limited, efficient, and transparent as possible.

• Individual Liberty: The bill strengthens individual liberty for Medicaid providers and managed care organizations (MCOs) by introducing procedural safeguards against arbitrary or duplicative audits. It requires the Office of Inspector General (OIG) to pre-approve audits based on cost-effectiveness, prohibits audits on claims less than one year old, prevents RACs from auditing claims already under review by an MCO, and establishes a formal appeals process for providers to challenge overpayment findings. These protections promote due process and ensure that providers, many of whom are small or independent, are not subject to unjustified financial clawbacks or administrative overreach. By making the audit process more fair, predictable, and accountable, the bill bolsters individual liberty within a highly regulated healthcare environment.
• Personal Responsibility: The bill does not directly advance or undermine personal responsibility as a core principle. It does, however, promote accountability within the Medicaid system by increasing the likelihood that providers or MCOs who receive improper payments will be held financially responsible. In that sense, it ensures that participants in public programs bear the consequences of errors or fraud—supporting personal and institutional responsibility in a limited but meaningful way.
• Free Enterprise: The bill has a dual impact on the principle of free enterprise. On one hand, it increases regulatory obligations on private healthcare providers and managed care companies by requiring them to respond to audits, submit documentation within deadlines, and potentially engage in appeals processes. These obligations can be burdensome and may divert time and resources away from patient care or operational efficiency. On the other hand, the bill limits arbitrary enforcement, promotes fairness, and creates a clearer set of rules around audits and appeals. This structure can reduce legal uncertainty and financial unpredictability, which benefits private actors operating in a government-funded market. Thus, while it imposes more regulation, it does so in a more transparent and predictable manner, preserving some balance with enterprise freedom.
• Private Property Rights: The bill implicates private property rights by addressing the state’s authority to recoup Medicaid overpayments, which, from the provider's perspective, could involve seizing payments already received. However, the bill protects those rights by requiring independent, pre-approved audits, ensuring providers can contest recovery efforts through an appeals process, and blocking recovery efforts that duplicate existing MCO audits. These procedural safeguards help prevent improper seizure of provider income and uphold the principle that property should not be taken without due process. In this way, the bill reinforces, not erodes, property rights.
• Limited Government: The bill is grounded in the principle of limited government in its intent: to ensure that taxpayer dollars are not wasted through improper Medicaid payments. It achieves this by requiring that RAC reviews be cost-effective, prohibiting duplicative or premature audits, and mandating fiscal oversight through the Legislature before implementation (via the appropriation clause). However, it does expand the administrative scope of the Health and Human Services Commission (HHSC) by adding 17.7 new FTEs over time, creating a new appeals system and IT infrastructure, and allowing third-party contracting for audit and appeal administration. These expansions are targeted and bounded, but they do represent real growth in state government. That growth is justifiable given the expected cost savings and fraud prevention, but it still requires monitoring and possible amendment to ensure it does not exceed its limited scope.

• SB 712 (Same As)
• SB 2458 (Similar To)