JD Key Consulting Logo
Signed Into Law
Signed June 20, 2025Effective 2025-09-01
SB457

Regular Session

Relating to the regulation of certain nursing facilities, including licensing requirements and Medicaid participation and reimbursement requirements.

Government Affairs & Regulatory Compliance Analysis

SB457: Government Affairs Overview

SB457 fundamentally restructures the financial model for Texas nursing facilities by imposing a mandatory "80/20" Patient Care Expense Ratio, where failure to spend 80% of the patient-care portion of Medicaid reimbursement on direct care results in fund recoupment and public listing. Additionally, the bill reforms the Change of Ownership (CHOW) process, allowing uninterrupted cash flow during acquisitions only if the buyer assumes strict statutory successor liability for the seller’s past Medicaid debts.

Sen. Lois Kolkhorst·Senate Bill·Regular Session

Critical
High Cost
Effective:2025-09-01
Business Impact

Who SB457 Affects

This legislation has regulatory implications for the following Texas businesses and organizations:

Regulatory Priority: critical

Significant regulatory changes (effective 2025-09-01). Review with your legal and compliance teams to understand implications.

🏥

Healthcare

Affected business types:

  • Hospitals
  • Healthcare systems
  • Medical practices
  • Health insurance providers
View all healthcare legislation

Key Operational Considerations

  • 1Managed Care (MCO) Agreements: MCOs are statutorily required to incorporate the 80/20 compliance rules into provider contracts. Expect amendments to STAR+PLUS agreements in mid-2025.

Estimated Cost Impact

highSignificant operational investment may be required.

Enforcing Agencies

Need Government Relations Support?

JD Key Consulting provides government affairs and regulatory strategy services. We help businesses navigate Texas agencies, understand legislative impacts, and advocate for their interests.

Need Help Navigating This Legislation?

JD Key Consulting provides strategic guidance on Texas regulatory compliance and legislative impact for your business.

SB457
Critical
Relating to the regulation of certain nursing facilities, including licensing requirements and Medicaid participation and reimbursement requirements.
Critical Compliance Urgency
Requires immediate attention
Cost Impact
High
Effective
2025-09-01
Enforcing Agencies
HHSC
Primary Author: Sen. Lois Kolkhorst
89th Texas Legislature
jdkey.com
01

Compliance Analysis

Key implementation requirements and action items for compliance with this legislation

Implementation Timeline

  • Effective Date: September 1, 2025.
  • Compliance Deadline:
  • Expense Ratio: Fiscal Year 2026 (begins Sept 1, 2025).
  • Ownership Disclosure: Immediate upon first license renewal or application submitted after Sept 1, 2025.
  • Agency Rulemaking: HHSC is mandated to adopt rules establishing the expense ratio calculation and compliance verification *before* September 1, 2025. The period between January 2025 and June 2025 is the critical "regulatory gray zone" where definitions will be finalized.

Immediate Action Plan

  • 1. Run Pro-Forma Models: Direct your CFO to model your current expense ratio immediately. If your patient care spend is below 75%, you have 18 months to restructure your P&L or risk recoupment.
  • 2. Audit Lease Terms: Review all facility leases. Ensure you have the legal right to demand ownership structure data from your landlords to comply with the new licensing requirements.
  • 3. Review MCO Receivables: The law mandates MCOs pay clean claims within 10 days. Update your billing software to flag late payments and automatically generate demand letters based on this statutory requirement.
  • 4. Update Acquisition Strategy: For any deal closing after Sept 1, 2025, adjust your valuation models to account for the mandatory assumption of the seller's Medicaid liabilities.

Operational Changes Required

Contracts

  • Purchase & Sale Agreements (PSAs): Buyers must now assume statutory liability for the seller's Medicaid debts to maintain cash flow. You must strengthen indemnification clauses to hold sellers contractually liable for pre-closing overpayments or penalties discovered post-closing.
  • Lease Agreements: Landlords and REITs are now subject to ownership disclosure. Amend leases to require property owners to provide ownership charts (identifying all >5% stakeholders) within 5 business days of a request to satisfy HHSC licensing deadlines.
  • Managed Care (MCO) Agreements: MCOs are statutorily required to incorporate the 80/20 compliance rules into provider contracts. Expect amendments to STAR+PLUS agreements in mid-2025.

Hiring/Training

  • Finance/Accounting: Staff must be trained on Section 32.0286 definitions to correctly segregate "patient care" expenses (e.g., nursing staff, food, medical supplies) from administrative/capital costs.
  • Due Diligence Teams: Acquisitions teams must expand due diligence to identify hidden Medicaid liabilities, as "Tail Coverage" insurance will become critical.

Reporting & Record-Keeping

  • Expanded Ownership Disclosure: License applications now require disclosure of any person/entity with >5% interest in the Real Property (land/building), not just the operations.
  • Expense Ratio Accounting: You must establish a separate accounting track to verify the 80% spend annually. This data will be subject to HHSC audit.

Fees & Costs

  • Recoupment Risk: Failure to meet the 80/20 ratio results in direct clawback of Medicaid funds.
  • Insurance Premiums: Expect increased costs for Reps & Warranties insurance and Tail Coverage due to the new successor liability mandates.

Strategic Ambiguities & Considerations

  • The "Portion" Calculation: The law applies the 80% requirement to the "portion of the reimbursement... attributable to patient care." HHSC rulemaking will define this denominator. If capital and administrative components are excluded from the denominator, the target is achievable; if the *total* rate is the denominator, many facilities will be non-compliant.
  • Recoupment Methodology: The statute allows HHSC to recoup "all or part" of the funds. Rulemaking will determine if the penalty is a flat fine or a dollar-for-dollar clawback of the shortfall.
  • "Indirect" Real Estate Ownership: The definition of indirect ownership for real property is vague. Rulemaking will determine if this pierces the corporate veil of private equity or REIT structures.

Need Compliance Guidance on This Legislation?

JD Key Consulting specializes in Texas regulatory compliance strategy. Work directly with James Dickey—former Chairman of the Republican Party of Texas—to understand this bill's impact on your operations and develop an actionable compliance plan.

Schedule a Consultation

Information presented is for general knowledge only and is provided without warranty, express or implied. Consult qualified government affairs professionals and legal counsel before making compliance decisions.

02

Legislative Timeline

This bill's path through the Texas Legislature

Filed
Nov 21, 2024
Passed Senate
May 1, 2025
Passed House
May 28, 2025
Signed
Jun 20, 2025
Effective
Sep 1, 2025
TopicsHealth Care ProvidersHuman ServicesHuman Services--medical AssistanceNursing HomesManaged CareMedicaidHealth & Human Services Commission
03

Senate Authors

Sen. Lois KolkhorstRepublican · Primary Author
Coauthors (4)

House Sponsors

Rep. James FrankRepublican · Primary Sponsor
Joint Sponsors

Bill Text(with markup)

View bill text in multiple formats on Texas Legislature website

Fiscal NoteView Original

Related Legislation

Explore more bills from this author and on related topics

More from Sen. Lois Kolkhorst

View all bills by Sen. Lois Kolkhorst

Related by Topic

View more Health Care Providers legislation
Quick Reference

Frequently Asked Questions

Common questions about SB457

Q

What does Texas SB457 do?

SB457 fundamentally restructures the financial model for Texas nursing facilities by imposing a mandatory "80/20" Patient Care Expense Ratio, where failure to spend 80% of the patient-care portion of Medicaid reimbursement on direct care results in fund recoupment and public listing. Additionally, the bill reforms the Change of Ownership (CHOW) process, allowing uninterrupted cash flow during acquisitions only if the buyer assumes strict statutory successor liability for the seller’s past Medicaid debts.

Q

Who authored SB457?

SB457 was authored by Texas Senator Lois Kolkhorst during the Regular Session.

Q

When was SB457 signed into law?

SB457 was signed into law by Governor Greg Abbott on June 20, 2025.

Q

Which agencies enforce SB457?

SB457 is enforced by Health and Human Services Commission (HHSC).

Q

How significant are the changes in SB457?

The regulatory priority for SB457 is rated as "critical". Businesses and organizations should review the legislation to understand potential impacts.

Q

What is the cost impact of SB457?

The cost impact of SB457 is estimated as "high". This may vary based on industry and implementation requirements.

Q

What topics does SB457 address?

SB457 addresses topics including health care providers, human services, human services--medical assistance, nursing homes and managed care.

Q

What are the key dates for SB457?

Key dates for SB457: Effective date is 2025-09-01. Rulemaking: Adopt rules establishing the annual patient care expense ratio, the calculation process, and compliance verification methods. (Prior to 2025-09-01); Adopt rules regarding the form and manner for notifying the commission of changes to ownership interest. (Undetermined). Consult with legal counsel regarding applicability.

Q

What are the penalties under SB457?

SB457 establishes the following penalties: administrative penalty of Variable (Recoupment of funds) for Failure to spend at least 80% of the patient-care-attributable portion of Medicaid reimbursement on reasonable/necessary patient care expenses.; administrative penalty of Reputational (Public Listing) for Facilities subject to recoupment for failing the expense ratio will be published on the HHSC website.. Consult with legal counsel for specific applicability to your situation.

Q

Which Texas businesses are affected by SB457?

SB457 primarily affects healthcare providers and medical facilities. These businesses should review the legislation with their legal and compliance teams to understand potential impacts.

Need Strategic Guidance on This Legislation?

JD Key Consulting is an Austin, Texas-based government affairs firm led by James Dickey, former Chairman of the Republican Party of Texas. We specialize in Texas regulatory compliance and legislative strategy for data centers, energy, banking, and manufacturing.

Legislative data provided by LegiScanLast updated: January 11, 2026