Tenncare Timeline: Major Events and Milestones from 1992 to 2016

TennCare Timeline: Major Events and Milestones from 1992 to 2016 Cyril F. Chang and Stephanie C. Steinberg The Methodist Le Bonheur Center for Healthcare Economics The University of Memphis September 2016 Methodist Le Bonheur Center for Healthcare Economics Fogelman College of Business and Economics The University of Memphis Phone: 901-678-3565 Fax: 901-678-2685 E-Mail: [email protected] http://www.memphis.edu/mlche/index.php Suggested Citation: Cyril F. Chang and Stephanie C. Steinberg, “TennCare Timeline: Major Events and Milestones from 1992 to 2016,” Methodist Le Bonheur Center for Healthcare Economics, the University of Memphis, September 2016. (online) http://www.memphis.edu/mlche/index.php. TennCare Timeline: Major Events and Milestones from 1992 to 2016 What is TennCare? TennCare is Tennessee’s Medicaid managed care demonstration program. Beginning in 1994, this comprehensive health reform program has used the Medicaid program to both expand services to the Medicaid population and insurance coverage to individuals who are determined to be uninsured or uninsurable using a system of Managed Care Organizations (MCOs). The program is managed by the Bureau of TennCare under the direction of a Deputy Commissioner of Health (http://www.state.tn.us/tenncare/). The history, conceptual design, and modifications of this comprehensive reform program have been reviewed and analyzed by many of the studies referenced at the end of this report and the documents available at the Center for Medicare and Medicaid Services (CMS) Web site: http://www.cms.hhs.gov/medicaid/1115/tn1115tc.asp. Prelude to TennCare: In the early 1990s, states were increasingly required to expand their Medicaid programs with "unfunded" or "incompletely funded" federal mandates through their state budgets. The traditional fee-for-service state Medicaid models experienced serious medical inflation driven by increased costs and service utilization. The option to cutback state Medicaid programs in response to the escalation of medical costs, contemplated by many states, would have a counter effect of reduced federal funding or federal Medicaid program matches. Tennessee's Medicaid program, similar to the programs in other states, was plagued with the twin problems of escalating costs (from approximately $692 million in fiscal year 1988-1989 to almost $2.7 billion by fiscal year 1993-1994) and an increasing Medicaid eligible population (from 694,000 covered lives in 1990 to 1.1 million by 1994). A projected state budget deficit of over $250 million was attributed largely to escalating Medicaid spending. Looming on the horizon was the threat of an end of supplemental revenues of over $400 million generated by a special tax on hospitals and nursing homes. Reauthorization of this special tax by the State Legislature, scheduled for 1994, was unlikely due to heavy lobbying against the tax by interest groups. 1992 A task force appointed by Governor Ned McWherter identified three options to present to the State Legislature: 1) increase state taxes; 2) reduce health care services or provider reimbursement rates without a major change to the current Medicaid financing model; or 3) engage in a serious reform to both the health care delivery and financing systems - or TennCare. The timing of the impending financial crisis coincided with the window of opportunity for Governor McWherter to push through his vision of expanded access to Medicaid. 1993 April 1993: TennCare Timeline Page 1 Developed by David Manning (Commissioner of Finance and Administration) and Manny Martins (Director of the Medicaid Bureau), the TennCare concept as a Section 1115 waiver demonstration program was approved by the State Legislature. June 1993: Tennessee's Section 1115 waiver demonstration program was submitted to the Health Care Financing Administration (HCFA) for review. Tennessee's ability to show a credible statewide managed care network hinged upon the participation of Blue Cross Blue Shield of Tennessee (BCBST). November 1993: HCFA approved the Section 1115 waiver as a 5 year demonstration project. Included in the waiver were exemptions from the drug coverage mandates of the Medicaid drug rebate program. Providers and managed care organizations received letters from the state regarding the January 1, 1994 start date for TennCare. December 1993: Managed care organizations responded to the formulary guidelines, but most did not plan to start on January 1, 994 with a drug formulary. Many opted to continue with the "open formulary" coverage of the Medicaid program. 1994 January 1994: TennCare was implemented on January 1, 1994, with an enrollment cap of 1.775 million. Organizationally, the state was divided in to twelve (12) grand regions established by the Community Health Agency Act to coordinate TennCare services. Twelve chartered managed care organizations (MCOs), including 8 HMOs and 4 PPOs, were licensed by the state to participate in TennCare. Only two MCOs, Access MedPlus and BCBST, elected to operate in the entire state. They together enrolled approximately two-thirds of the TennCare eligible population. BCBST alone had one-half of the statewide total enrollment. State payments to the MCOs were based upon a capitation system derived from a statewide global health care budget. The MCOs were responsible for contracting and negotiating fee schedules with providers from their capitation. BCBST was the only MCO paying providers on a fee-for-service basis, while others paid on a capitation basis. June 1994: All TennCare enrollees were covered under plans with closed drug formularies. The MCOs contracted with Pharmacy Benefit Managers (PBMs) for a range of services including formulary management, drug utilization review, rebate management, disease- state management programs, etc. TennCare Timeline Page 2 August 1994: Tennessee Medical Association (TMA) filed a lawsuit against the Bureau of TennCare (Tennessee Medical Association v. Manning, No. 93-3939-1 slip op. at 6-9, Tenn Ct. Ch. Div., August 8, 1994). The lawsuit alleged that the “cram-down” practice of forcing physicians to accept TennCare patients violated the Medicaid Act. The legal action did not eventually prevail. December 1994: Enrollment was closed for the “Uninsured” category. 1995 The TennCare annual budget rose to $3.3 billion ($1.1 billion from the state and $2.2 billion from the federal government). To reduce expenditures without cutting enrollment, the state lowered capitation rates and opted to eliminate subsidies to Academic Medical Centers (AMCs). Participating HMOs were required to agree to an 18 month non-cancelable contract. TennCare planned to identify duplications and ineligibles in the current enrollment. The new Governor, Don Sundquist, appointed a citizen TennCare review commission, the Tennessee Business Roundtable, to advise him on TennCare. A Deputy Commissioner position in the Department of Commerce and Insurance (DCI) was created to ensure greater oversight and financial accountability for all TennCare plans. All MCOs (both HMOs and PPOs) were required to file financial reports with the DCI. The lawsuit Tennessee Medical Association v. Manning filed by the Tennessee Medical Association in August 1994 to halt the implementation of TennCare was dismissed by the court. TMA's lawsuit alleged violations of federal laws regarding the TennCare payment methodology and a violation of the state Administrative Procedure Act (APA) regarding the adoption of MCO payment rates. Three new departments were created or designated to share responsibility in monitoring the TennCare program: TennCare Bureau, the TennCare Division within DCI, and the Comptroller of the Treasury. BCBST bought the University of Tennessee Health Plan. RxCare and BCBST began negotiations that would eventually bring 90 percent of TennCare enrollees under one drug formulary. TennCare Pharmacy Committee was formed to address pharmacy issues. TennCare Timeline Page 3 Two new AIDS drugs were approved by the FDA, which would greatly impact the pharmacy program and TennCare in general. 1996 Phoenix Healthcare bought the right to serve TennCare enrollees through Health Source. May 1996: In Daniels v. Wadley handed down on May 15, 1996, the U.S. District Court for the Middle Tennessee held that actions taken by MCOs to deny or terminate ineligible Medicaid recipients' access to covered health plan services constituted state actions that triggered federal due process notice and hearing requirements. June 1996: TennCare capitation rates increased by 9.5 percent from July 1995 through June 1996 July 1996: The TennCare Partners program was created on July 1, 1996, to carve out the delivery of all behavioral health services from the existing TennCare program. TennCare Partners would begin contracting directly with two separate, capitated behavioral health organizations (BHOs) to provide behavioral health services to all TennCare enrollees. The BHOs would also cover the seriously and persistently mentally ill (SPMI) adults and for children with severe emotional disturbance (SED). In creating TennCare Partners, the state redirected non-Medicaid block grant funding into capitated payments to the BHOs for the first time. Each MCO was to be paired with one of the two BHOs (Premier Behavioral Systems of Tennessee, LLC and Tennessee Behavioral Health, Inc.). BCBST, due to its statewide presence, has members in both BHOs. 1997 January 1, 1997: All TennCare PPOs were required to be licensed as HMOs and use primary care gatekeepers for their TennCare

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