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The Centers for Medicare and Medicaid Services (CMS), which oversees the program, has been pushing to make states and hospitals more accountable for how they use federal Medicaid dollars.

The agency is targeting the dollars "to improve care rather than just giving it to hospitals to use as they see fit," said James Verdier, a senior fellow at Mathematica, a nonpartisan think tank.

"CMS is doing exactly the right thing," said Sara Rosenbaum, a health policy professor at George Washington University. "I think other states will follow."

The federally approved plan for Texas is also being closely watched by other states because of how it changes --and potentially increases --Medicaid payments to hospitals that treat the poor.

The Texas approval comes one month after the Obama administration approved a similar managed care expansion in California. There, too, the administration allowed hospitals to tap into supplemental Medicaid funds if they met certain performance measures.

Florida's bid to expand its Medicaid managed care program, which is pending with the federal government, is also likely to require hospitals to meet quality criteria, said Bruce Rueben, president of the Florida Hospital Association.

Hospitals in Texas, like those in about 30 states, can tap into supplemental Medicaid dollars, called "upper payment limit" funds, designed to help them make up for low base payments.

Those funds accounted for $2.6 billion this year, or about a quarter of Medicaid spending on hospitals. But that access was threatened by the expansion of managed care because hospitals would contract with private health plans, rather than with the state.

Federal regulators agreed to allow the continuation of those payments, and also expand the pool of Medicaid money to nearly $6 billion a year. To qualify for a significant portion of that, however, hospitals must show they are improving quality and access to care. Until now, there's been no such requirement.

"I think states will welcome removing hurdles to using managed care since the expansion of managed care is a far better response to the economic realities than some of the alternatives," said Darin Gordon, Tennessee Medicaid director and vice president of the National Association of Medicaid Directors.

The Texas' Medicaid plan has political ramifications. That's because Texas Gov. Rick Perry, a GOP presidential candidate, has argued to reduce federal restrictions on how states run Medicaid. He endorsed turning the program into a block grant and briefly considered having the state drop out of the program. The agreement between federal and state officials adds more rules even as it helps the state draw down more federal dollars.

The plan covers five years and would help the state increase its supplemental Medicaid dollars from $12 billion to $30 billion over the five years.

Private hospitals in Texas have been able to tap into the upper payment limit Medicaid dollars through partnerships with public hospitals. If the private hospitals can show they are removing a financial burden on the public facilities—such as by running a diabetes clinic for the poor—they can access the money.

But critics have argued there is little oversight of the arrangements. The new regional partnerships, which would set goals for hospitals such as lowering readmissions or unnecessary use of emergency rooms would bring more transparency to the system, Texas Medicaid officials say.

Texas has had Medicaid managed care for more than a decade though it's been limited to urban areas. The expansion will require Medicaid recipients in many rural counties and the Rio Grande Valley to join the plans, which typically require enrollees to use certain providers.

The Texas expansion involves no additional state dollars. That's because to get the extra money for hospitals, local tax funds are put into a state pool to draw down more federal funds. New regional partnerships organized by large public hospital districts will help determine how the supplemental Medicaid dollars are paid out.