.

,

..

~

Division of TennCare

TennCare II Demonstration
Project No. 11-W-00151/4

Amendment 42
DRAFT

 Table of Contents
Executive Summary ...... .................................... ... ......... ................................. ..................................... ......... iii
Section I: Historical Context and Background ................................. .................... ........................................ l
Section II: Amendment Overview .. ................ .. .......................... .. ............................................................... 4
Section Ill: Proposed Financing Model.. ............................................................ .. ........................................ 6
Section IV: State Flexibilities .......................... .... ................... ................................................... ........... ...... 12
Section V: Proposed Waiver and Expenditure Authorities .......................................................................22
Section VI: Expected Impact on Budget Neutrality .. .......... ....................................................................... 23
Section VII: Expected Impact on CHIP Allotment Neutrality ..................................................................... 23
Section VIII: Modifications to the Evaluation Design .. .............................................................................. 23
Section IX: Demonstration of Public Notice and Input ............. .................... ............................................ 24
Appendices:
Appendix A: Public Chapter No. 481
Appendix B: Documentation of Public Notice
Appendix C: Public Comments Received

ii

 September 2019

DRAFT

Executive Summary
In this amendment, Tennessee proposes to convert the federal share of its Medicaid funding relating to
providing its core medical services to its core population to a block grant. This innovative proposal
reimagines the Medicaid financing structure in ways that emphasize state accountability for effective
Qro ram mana ement, while incentivizing performance and ensuring that financial responsibility for
------~Tennessee's
Medicaid program continues to be equitably shared between the state and the federal

government.
The traditional model of Medicaid financing is an outdated model of fundamentally misaligned
incentives. In the current framework, states that spend more money receive additional federal dollars,
while states that strive to control costs and reduce spending receive reductions in federal funding. New
models of Medicaid financing are needed that reward states for promoting value and health, not merely
spending more money.
Tennessee's Medicaid program already operates under an :1.115 demonstration waiver (known as
"TennCare"). Under this demonstration, Tennessee operates one of the most cost-effective Medicaid
programs in the nation, routinely under~pending the federal government's projections for what
Tennessee's Medicaid program vvould cost without the 1115 demonstration (otherwise known as the
state's "budget neutrality cap") and saving the federal government and taxpayers billions of dollars.
In this amendment, Tennessee proposes to demonstrate how, by using the federal government's
projections for the state's program costs without the 1115 demonstration as the basis for its block grant
amount, the incentives between the state and federal government can be appropriately realigned so
that TennCare can invest in and realize even better health outcomes for the Tennesseans it serves.
Consistent with the block grant framework, Tennessee proposes that in any year in which the state
underspends its block grant, the state and the federal government share in the resulting savings ... Jhis
opportunity to share savings with the federal government appropriately recognizes the state's efforts to
contain costs and improve program quality, while providing a meaningful incentive to continue building

on those efforts to make TennCare a stronger and more effective program.
Key features of the state's proposal include:
•

No reductions in who is eligible for or what benefits are currently provided in TennCare.

•

The proposed block grant will be calculated based on average TennCare enrollment during State
Fiscal Years 2016, 2017, and 2018, then multiplied by the federal government's projections of
what Medicaid costs would be in Tennessee absent the existing TennCare demonstration (the
"Without Waiver" projections currently used to calculate budget neutrality).

iii

 DRAFT

•

September 2019

Any year in which TennCare's enrollment grows beyond its average enrollment during the base
period of 2016 through 2018, the block grant amount will be adjusted on a per capita basis to
compensate the state for this enrollment growth. This per capita adjustment ensures the state
will continue to be able to provide medical assistance to all eligible individuals, regardless of
changes in the economy or other factors outside the state's control.

• _____ The amount of the _bl_ock_ g_!'ant will be inflated annually ~Q___~<::SJLl,:J_~f_o_!' y~(l_~:Q".~r_-.,_e_a_r~ __
ri_ce_ _ _ __
inflation. The inflator factor will be based on Congressional Budget Office projections of growth .
•

In any year in which the state underspends the block grant amount, the state will retain SO
percent of the federal share of those savings.

•

Any savings achieved under the block grant will be reinvestec! in the TennCare program with no
requirement that the state must first spend state dollars in order to spend these shared savings.
The state will also seek the authority to invest in the health of its enrollees, not just their
healthcare.

•

The costs driving the block grant calculation will only be those covering core medical services to
TennCare's core population.

All other expenses (e.g., costs of services provided under the

state's 1915(c) waivers, costs of targeted case management services provided to children in
state custody, administrative costs, uncompen~ated care payments to hospitals) will be
excluded from the block grant and continue to be financed through the processes and
mechanisms currently in place. In addition, the cost of outpatient pharmacy services will also be
excluded from the block grant calculation.
•

All costs excluded from the block grant calculation will continue to be funded in the same
manner in which they are currently funded with the same levels of federal match provided
based on the FMAP for the applicable year.

•

"r·

Under the block grant, the state would also have flexibility from excessive or unnecessary
federal intervention in its Medicaid program. These flexibilities will allow the state to administer
its program more effectively to promote the health of TennCare members.

•

The flexibilities requested by the state are focused primarily on issues that will empower the
state to implement improvements, efficiencies, and other reforms to make TennCare stronger
and more effective, without negatively impacting who is eligible for the program or what
services they may be eligible to receive.

•

The costs associated with any new population the state opts to cover in the future, even if it
would otherwise be considered a core population, will be excluded from the block grant

..
iv

 September 2019

DRAFT

calculation for a period of years until the state has enough experience paying for services for
this population to update the block grant formula in a financially sound manner.
Tennessee's Medicaid block grant proposal represents a natural progression of the state's history of
nationally recognized innovation and financial management. It also ensures that TennCare members
continue to receive high-quality, cost-effective care well into the future.
It is a bold and ambitious proposal that holds Tennessee accountable for continued leadership in
innovation, high-quality care that improves health, and rigorous fiscal stewardship. It challenges the
federal government to make good on its commitment to more fully partner with states to move past
unnecessary administrative and regulatory burdens.
Tennessee is volunteering to be the leader in reformi,ng the financial in~emives in Medicaid to show that
it is not only possible but desirable to ensure that states are relentlessly driving quality in care, efficiency
in program administration, innovation in serving enrollees, and sustainability in how we serve some of
our most vulnerable residents.

V

 DRAFT

September 2019

Amendment 42 to the TennCare II Demonstration
Tennessee has a long history of innovation in its Medicaid program.

Since 1994, Tennessee has

operated one of the longest-lasting and most comprehensive Medicaid managed care programs in the
nation . In so doing, Tennessee has become a recognized leader in the use of managed care to provide
broad access to care, deliver high-quality care that promotes improved health outcomes, and manage
-

·- ··· ·· --- -- - th-e -cost of care--effechvely.- =r-ennes-see -0perates·it-s-ma-naged -car-e pregmr-n ·under--the -author-ity -0f--an -·-· - - - - - -

lllS demonstration waiver known as TennCare.

In this proposed amendment to the TennCare

demonstration, Tennessee proposes a new phase of innovation, both for TennCare and for the Medicaid
program generally.

Amendment 42 proposes a block grant financing structure for the TennCare

program. This new model of Medicaid financing emphasizes performance, accountability, flexibility, and
innovation and, most importantly, solves the problem of misaligned financial incentives whereby the
federal government invests more federal money into a state Medicaid program only as the state spends
more money, an approach that has led to states like Tennessee being punished for being financially well
managed.

I.

Historical Context and Background

The early 1990s were a period of extreme financial stress for state Medicaid programs. The traditional
fee-for-service state Medicaid model was experiencing significant medical inflation driven by increased
healthcare costs and service utilization. The option to cut back state Medicaid programs in response to
the escalation of medical costs, contemplated by many states, would have the perverse effect of
reducing the federal matching funds available to states for their Medicaid programs.
Although the financial pressures facing Tennessee's Medicaid program were no different than those
facing every other state, Tennessee chose a new path forward. Rather than scaling back its Medicaid
program or continuing to dedicate an ever-increasing share of its state budget to the propS,.? m,
Tennessee chose to engage in a fundamental reform of both its healthcare delivery and financing
systems. This new model, known as TennCare, went into effect in 1994.
The TennCare program has gone through multiple iterations and reforms since its inception in 1994.
However, the core values of the program-broad access to care, improved health status of program
participants, and cost effective use of resources-remain much the same. Under the TennCare program
today, Tennessee extends coverage to more people than would otherwise be eligible for coverage under
the state's traditional Medicaid program; it offers members a richer package of benefits than was
previously covered under Medicaid; and it does so in a more fiscally prudent and sustainable way.
Tennessee's success in expanding eligibility and benefits while also managing program costs effectively
is a testament to the state's ability to pursue innovation to strengthen the healthcare delivery system
and deliver value both for TennCare members and Tennessee taxpayers.

In more recent years,

TennCare has partnered with providers to implement a number of value-based payment arrangements
that have increased or maintained quality of care delivered to members while reducing the cost of

1

 September 2019

DRAFT

.,
delivering that care; these models have begun to be adopted by commercial payers inside and outside
the state of Tennessee.
In 2019, state Medicaid programs again face a period of growing financial strain . The unsustainable
growth of healthcare costs in the United States has put enormous financial pressure on states seeking to
provide high-quality healthcare to the individuals and families enrolled in Medicaid programs across the
__~-- ___ _ - - --f:(HJ At-r.y.--CoAti-Au.ir.lg--t-G -~ncr..e---ase..M.ate..a.nd-tederal .M.edicaid...spending..year__after_y.ear is

not..sustainable _

and has done nothing to alleviate the financial pressures on the state and federal budgets. Clearly the
future success of the Medicaid program depends on finding new models to finance the cost of care in
ways that promote high-quality care and improved health outcomes while also being cost effective and
fiscally responsible for states.

These new models should move beyond the traditional Medicaid

financing system in which states simply receive additional federal dollars for increasing their spending.
Rather, state efforts to improve quality of care and health outcomes while managing costs effectively
should be recognized for and supported in their efforts.

In particular, federal financial participation

(FFP) in Medicaid should be distinguishable across states not just based on a federal matching assistance
percentage (FMAP) but also on allowing states opportunities to earn additional federal investment into
their state through high performance and good stewardship.
As a mature managed care program that has already implemented the cost management strategies
available within the current system, TennCare now finds itself in a position of needing to identify or
develop new, innovative care delivery approaches that may require short-term investments of new
dollars, but which will-over time-reduce (or at least contain the growth of) the cost of care. And
failing to innovate and invest in the health of Tennesseans is also not a responsible option.
Accordingly, Tennessee is proposing in this amendment to build on its history of innovation in its
Medicaid program by reimagining the Medicaid financing model, and with it the relationship between
the state and federal government.

Tennessee's proposal is predicated on the simple idea that in

general, the state is in a better position than the federa l government to direct TennCare spending in
order to most effectively promote the health of the TennCare population. Therefore, if given sufficient
flex ibility, the state can manage its Medicaid program more effectively within a block grant financing
model than under the traditiona l Med icaid financing model.
The state's confidence that it can manage its program efficiently under a block grant is borne out of its
long history of effective program administration.

Based on this history of prudent and effective

management, TennCare's transformed Medicaid service delivery system has already produced and
continues to produce significant value for both Tennessee and the federal government by managing
program growth at lower rate than Medicaid programs nationally. CMS's own projections of the savings
achieved on behalf of the federal government under the TennCare demonstration total billions of
dollars. However, moving beyond what has already been achieved to pursue additional sources of value
and new strategies to promote improved health outcomes will require rethinking the way Medicaid
works today. This new approach must emphasize the critical role of states, not the federal government,
as the facilitators of meaningful intervention in the lives of Medicaid members and as the p_rimary
2

 DRAFT

September 2019

.,
drivers of innovation that are particularly suited to the needs of their population in response to the
challenges of today's healthcare market.
As in past periods of innovation, Tennessee's response to the challenges of increased costs is not to
retrench by scaling back program eligibility or benefits. The state's proposal does not rely on reductions
to eligibility or benefits in order to achieve savings, and indeed, does not request any significant changes
1

in those. areas.

_ _Rather,

the . state believes that there are ORJ:>Ortunities to deliver healthcare to its

current membership more effectively and that, if given sufficient flexibility to pursue meaningful
innovation, TennCare could implement new reform strategies that would reap benefits for both the
state and the federal government and meaningful impacts in the lives of the members the state serves.
Rather than seeking to reduce eligibility or benefits, Tennessee's block grant proposal is designed to
allow the state the flexibility to pursue and promote c_ore healthcare reform principles, such as
•

consumer empowerment and choice, so that members have more information and control over
their healthcare options;

•

member engagement, to allow members to become better healthcare consumers;

•

community-based solutians, to recognize the role that factors beyond healthcare play in
promoting and maintaining health;

•

prevention and wellness, to better ensure that members receive individualized care that is
outcomes-oriented

and

focused

on

prevention,

wellness,

recovery,

and

maintaining

independence;
•

competition and value, to allow for greater competition between healthcare providers and
ensure cost effective purchasing strategies that promote value for taxpayers; and

•

pay for performance, to deploy TennCare's purchasing power to encourage and reward service
quality and cost effectiveness by linking reimbursement to quality performance measures.

The state is confident that this proposal is a responsible and appropriate policy for Tennessee and for
the federal government.

It recognizes Tennessee's history of innovation and prudent fin!!m:ial

management and opens up new pathways for the state to invest in health (not merely healthcare). It
continues to ensure an equitable partnership between the state and federal government, while
recognizing that it is ultimately the state-as the entity responsible for administering TennCare-that is
in the best position to identify and implement solutions that are right for Tennessee, that align with
Tennessee values, and that will drive improvements in health outcomes for TennCare members. The
flexibilities provided under this proposal will allow the state to manage Tennessee's Medicaid program
in ways that best meet the needs and unique consumer context of Tennesseans, as well as afford the
state the opportunity to implement additional innovative solutions within the TennCare program to
address problems faced by Tennesseans today. The state's proposal will help preserve and build on the

1

As described in Section IV below, the only additional flexibilities requested by the state with regard to eligibility
or benefits are common-sense measures consi stent with the larger block grant framework of improving program
efficiency, and which are intend ed to make the Tenn Care program stronger and more effective .

3

 September 2019

DRAFT

.,
gains that have already been achieved under the TennCare demonstration and to pursue changes in the
organization, finance, and delivery of services that will make the program more effective into the future.

II.

Amendment Overview

- --Tne p opo-se -aemo strano~n-wilrtrans ormtne trailifi<snalMed1tinr:tfinanciltg- stnrtnrre-n-nennes-see to
a block grant. Within the current Medicaid financing system, states can only access additional federal
dollars by increasing their spending of limited state dollars. States seeking to control the growth of
healthcare costs face the perverse incentive of reduced federal funding rather than being rewarded for
their good stewardship, while the federal government reaps significant financial benefits from the
states' efforts to manage, rein in, and lower the cost of care. Under the state's proposal, however, the
federal government's financial commitment to the state will be re-worked to create a floor under which
federal contribution will not be reduced in any demonstration year, an increasing federal contribution
when enrollment increases beyond the experience used to calculate the floor, and a re-investment in

.

the state of a portion of any federal dollars the state saves through good stewardship and financial
management of the TennCare program.
This proposed demonstration will allow both the state and the federal government to predict the
budget for the TennCare program with increased certainty and will rightfully allow a portion of the
federal dollars saved by the state to be reinvested in the state's needy populations. This proposal
represents a significant opportunity for the federal government to test a potential innovative, national
solution at how to incentivize states' performance in maximizing the value of taxpayer dollars.
Tennessee is asking the federal government to hold it to a similar standard as that to which Tennessee
holds its managed care organizations-to assume responsibility for the risk of managing care, with
corresponding financial incentives to reward efforts to reduce costs, improve quality, and improve
outcomes.

Key Considerations
The goal of the state's proposal is to demonstrate that an alternative model of federal participation in
state Medicaid programs-a model that emphasizes state flexibility and innovation and that rewards
high performance-will lead to Medicaid programs that are more successful in promoting the health of
beneficiaries and more financially sustainable for states and the federal government. If implemented
thoughtfully, such a model would reap benefits for both states and the federal government and serve as
a model for Medicaid reform efforts nationally.
In developing this demonstration proposal, Tennessee has been guided by three key considerations
(illustrated in the figure below).

4

 DRAFT

September 2019

Financing

Flexibility

Innovation

The financial
arrangement must

Any new financial risk
assumed by the State

The new financing
arrangement and
flexrbititi
must provide a
framework for
meaningful
innovation.

olve to ensore a
more equitable
partnership between
the State and federal
government.

musrb accompanie
by new flexibilities
that are sufficient to
help offset the risk.

-- -•- •--

These key considerations have guided and informed the state's proposed demonstration.

Recalibrating the State-Federal Partnership to Share with the State a Portion of the Dollars
the State Saves the Federal Government
Like all Medicaid demonstration projects authorized under Section 1115 of the Social Security Act,
"budget neutrality" is a condition of TennCare's continued approval and operation . In essence, the
principle of budget neutrality means that the Tenncare demonstration cannot result in costs to the
federal government that are greater than what the federal government would have spent on
Tennessee's Medicaid· program in the absence of the TennCare demonstration .

To assess budget

neutrality, CMS subjects each state demonstration to a budget neutrality test, which results in limits
that are placed on the amount of federal Medicaid funding the state may receive over the course of the
demonstration approval. These budget neutrality expenditure limits are based on CMS' s reasonable
projections of future spending trend_
s based on methodologies developed and used by the Congressional
Budget Office (CBO), and therefore the amount of federal financial participation that CMS estimates the
state would receive in the absence of the demonstration.
This context is critical to understanding the state-specific factors that have informed the development of
Tennessee's block grant proposal. The TennCare program has operated under the authority of an 1115
demonstration since 1994. The primary principle being demonstrated by TennCare is that a state can
organize its Medicaid service delivery system under managed care more cost effectively than it can
through a fee-for-service system, without compromising access to or quality of care. This being the
case, TennCare is already subject to a budget neutrality expenditure limit that has been in place for a
number of years.

Under this system, CMS has calculated a set of "Without Waiver" amounts that

represent what the state and federal government would have spent on Tennessee's Medicaid program
in the absence of the TennCare demons!ration. These "Without Waiver" figures are calculated by CMS
based on CBO projections and on CMS's own policies and methods for reasonably projecting program
costs. CMS monitors TennCare expenditures on a continuous basis, and by CMS's own calculations, the

5

----- -·-

 .,

September 2019

DRAFT

TennCare demonstration has resulted in billions of dollars of savings for the federal government each
year, as reflected in TennCare's performance against CMS' s budget neutrality projections.
In Amendment 42, Tennessee is proposing an innovative new financing model for its Medicaid program
that reconceives the partnership between the state and federal government.

Under the state's

proposal, the state will assume the primary risk for managing its program within available resources .
__ ____ _____ ----- ----h!Gwe-ver,-ba-sed -OA --it.s- pe.r:for.mance.-inn.ianagi ng_prngra m .costs effectiv.eJy• .the state wi ll.aJso__haye an _ _____ __ ________ __ _
opportunity to share in the savings that have historically accrued to the federal government as a direct
result of the efficiencies implemented under the TennCare demonstration and the partnership the state
has with the many healthcare providers who deliver care to the TennCare members throughout the
state.
This new financing model emphasizes state account~bility for effective program management, because
any shared savings earned by the state will be based directly on the state's performance in delivering
high-quality, cost-effective care to its members, while also incentivizing performance and ensuring that
financial responsibility for Tennessee's Medicaid program continues to be equitably shared between the
state and the federal government.' In essence, Tennessee is a_sking the federal government to hold it to
a similar standard as that to which Tennessee holds its managed care organizations-to assume
responsibility for the risk of managing care, with corresponding financial incentives to reward efforts to
reduce costs, improve quality, and improve outcomes.

Ill.

Proposed Financing Model

The state's proposed financing model consists of three main components:
1.

A block grant amount calculated based on CMS's projected cost of providing care to the
,;: ,,:('' '

TennCare member population. This block grant amount will become a floor below which federal
financial participation in Tennessee will not fall over the life of the demonstration . The block
grant amount will be inflated each year-by specified member categories-on a predetermined
index used by the CBO for comparable enrollment categories.
2.

Per capita adjustments to the block grant amount to reflect growth in Tenn Care enrollment that

may occur in future years that was not present in the base period enrollment on which the block
grant is calculated.
3.

A shared savings mechanism recognizing that all savings to the federal government reflected in
TennCare 's actual costs compared to the CMS projected without waiver costs are attributable
solely to the state 's hard word and that the state should share equitably with the federal
government in those savings by having them directly reinvested into the state.

6

 DRAFT

September 2019

Block Grant Calculation
The state's block grant amount will be calculated as follows :
1.

Base Period Average Enrollment
The state's block grant amount will be based on average TennCare enrollment over the three

_

_____ _ . _______ --~--- JIIQ~t[~~~JJ.t S1i:lt~ .fi~c;_i,!I _
y_~c1r_~_fg_r which all enrollment data ar~Jln~L Th9-.?.1:!_~tat~..fis~~Ly_e=-a'-"
rsc.. .a
:::..;;r-=e_ __ _ _ __

2016, 2017, and 2018.
The block grant amount will be calculated based on discrete member categories, which have a
history of different expenditure patterns or cost profiles and, thus, pose differing levels of risk to
the state. These are member categories that CMS currently uses to hold the state accountable
for spending under the TennCare demonstration. These categories are:
Enrollee Category

Definition

Blind and disabled

Enrollees who are eligible forTennCare on the basis of being blind or disabled,
or who otherwise meet the definition of being blind or disabled.

Elderly

Enrollees who are 65 years of age or older who are not in the blind or disabled
category.

Children

Enrollees under 21 years of age who are not in the blind and disabled category.

Adults

2.

(

Enrollees ages 21 through 64 who are not in the blind and disabled category.

Projected Member Cost (Without
Waiver Per Member Per Month Projected Cost)
,,,
As part of the existing 1115 demonstration agreement between Tennessee and CMS, the federal
government requires the state to demonstrate that the TennCare program saves the federal
government money. To do so, CMS calculates a projection of what it would otherwise cost' to
provide medical services to Tennessee's Medicaid population in the absence of the TennCare
demonstration. This "Without Waiver" cost is calculated by CMS on a per member per month
(PMPM) basis for each of the four member categories included in the block grant. Tennessee is
proposing to use these federal projections of per member Medicaid costs in Tennessee as the
basis for its block grant.
Because the state is proposing to exclude pharmacy costs from the block grant (see "Excluded
Expenditures" discussion below), Tennessee has adjusted the CMS-calculated "Without Waiver"

costs to remove pharmacy-related expenses.

7

 September 2019

DRAFT

.,
3.

Formula for Calculation
3.1.

For each member category [blind and disabled, elderly, children, adults], calculate
TennCare's average enrollment over the three years of the base period (SFYs 20162018). The resulting averages represent TennCare's base period enrollment.

- - - - - - -- -,2.

.F.:or. acb...membeccai.e.go.ry ..[blind__amLcllsabled,. __elder.l.y., _cbild,:en, a u/tsl, _multiply~h~
base period enrollment by the category's "Without Waiver" expenditure amount in
TennCare's approved budget neutrality agreement. The resulting products represent
the projected cost of providing care to TennCare's member population.

3.3.

Multiply each of the products calculated in Step 3.2 by the state's federal medical
assistance percentage (FMAP) to arrive at the federal share of projected costs for each
member category.

3.4.

The resulting amounts for the four member categories are summed to form the state's
block grant amount.

The calculation of Tennessee's proposed block grant is illustrated in the figure below.

Ffgure 1. Illustration af Tennessee's Block Grant Calculation Methodology
Average Base
Period Enrollment:
Blind & Disabled
Average Base
Period Enrollment:
Elderly

X

Approved·~wJthoutWalver'.'
Per Member Cost:
Bllnd & Disabled

X

Approved •without Waiver"
Per Member-Cost:
Elderly

X

Approved "Without Waiver"
Per Member Cost:
Children

X

Approved "Without Waiver"
Per Member Cost:
Adults

X

Tennessee's Federal
Medical P.ssistance
Percentage (FMAP)

X

Tennessee's Federal
Medical Assistance
Percentage (FMAP)

X

Tennessee's Federal
Medical P.ssistance
Percentage (FMAP)

X

Tennessee's Federal
Medical Assistance
Percentage (FMAP)

TennCere Block Grant
Average Base
Period Enrollment:
Children
Average Base
Period Enrollment:
Adults

~

r

~~

Applying this methodology results in a block grant amount for Tennessee of approximately $7.9 billion.
See figure below.

8

 DRAFT

September 2019

Figure 2. Calculation of Tennessee's Block Grant Amount, Year 1
(Multiplying these columns may not produce exactly the numbers displayed due to rounding.)

Base Period Enrollment
(Average Member Months,

SFYs 2016-2018)

Federal Projection of
--er- Member,CoSt- -·- -("Without Waiver"
Projections)**

Block GrantAmounr- -

(C) = (A) x (Bl x .65

Category

(A)

Children

9,882,651

$

513.63

$

3,299,403,512

Adult

4,281,728

"$ !l.;024.68

$

2,851,813,764

Elderly*

64,679

$ 1,193.59

$

50,180,139

Disabled

1,603,682

s

$
$

1.657,476,983

Total

(B)

15,832,740

1,590.07

7,858,874,398

*Tennessee's proposal excludes Medicare members from the calculation of the block grant.

See "Excluded

Expenditures" discussion below.
**Projected "Without Waiver" costs have been adjusted to exclude prescription drug costs.

See "Excluded

Expenditures" discussion below.

Once calculated, the block grant amount will be trended forward from 2018 to the first year of the
demonstration using an inflation factor based on CBO projections for growth in Medicaid spending. The
inflation factor will be applied by member category. Then, after the first year (and each subsequent
year) of the demonstration, the state's block grant aniount will be trended forward annually to reflect
inflation in the same manner.

Per Capita Adjustments for Member Growth
As described above, the state's block grant amount will be based on TennCare's average enrollment in
four member categories during a specified base period {SFYs 2016-2018) . If during the course of the
demonstration, TennCare's actual enrollment in any of these categories exceeds the category's average
enrollment during the base period, then the state's block grant will be adjusted on a per capita basis to
reflect the increase in membership. The per capita adjustment will be equivalent to the federal portion
of the appropriate "Without Waiver" expenditure amount (the same number used to calculate the initial
block grant amount for the member category in which enrollment has increased), trended forward by
the inflation factor, and multiplied by the number of additional members above the average base period
enrollment.
The per capita adjustment ensures the state will continue to be able to provide medical assistance to all
eligible individuals, regardless of changes in the economy or other factors outside the state's control
that may result in an increase in TennCare enrollment.
9

 September 2019

DRAFT

.,
Shared Savings
The shared savings component of the block grant is a key feature and a necessary component of the
state's proposal. The current Medicaid financing system is built around misaligned incentives in which
states must increa se their Medicaid spending in order to draw down additional federal dollars, even
after a state like Tennessee has worked diligently to manage the cost of care, resulting in billions of
dollars of savings to the federal government.

States that partner with providers to implement

- - - - - --e.ff.i0ie11c~es to •imprnv.e-wogr-a-m-acim-iriist-ra-tiGr:i, e-ngag.e- ir:i .rn-for.m .efforts to..driv.e .down.,the .cost of car.e,- - - - - - and improve the lives of members by empha sizing the purchase of high-quality care are "rewarded" for
these significant efforts with reductions in federal funding.

Any serious effort to reform Medica id

financing must recognize the role of states as equity partners with the federal government in the
financing of Medicaid and re-align incentives so that states are rewarded, not penalized, for effectively
managing the cost of care (while still maintaining access and quality).

New financing mechanisms

should also support, not discourage, the state investments necessary to implement large-scale valuebased payment and delivery system reform initiatives. In short, the better a state performs in the
administration of its Medicaid program, the more opportunity it should have to attract federal
investment in its state to enhance the services it provides in order to drive even larger-scale
improvements in the health of its population .
Under the state' s proposal, any year in which the state does not spend the entirety of its federal block
grant represents a year in which the state has saved money for the federal government (since the block
grant amount is calculated based on the federal government's projection of what it would have
otherwise spent on Tennessee's Medicaid program absent the program efficiencies implemented by the
state under its demonstration) . In recognition of this, the state and federal government will share in any
savings generated under the block grant. Specifically, the state will retain half (SO percent) of the saved
amount, and the federal government will retain half (SO percent) of the saved amount.

Excluded Expenditures
As described above, the calculation of the state's block grant amount will be based on projected medical
assistance expenditures for individuals in various member categories. Some TennCare expenditures are
outside the scope of the regular medical assistance furnished to beneficiaries. Other expenditures lie
either wholly or partially outside the state's ability to manage or control. Therefore, the state proposes
to exclude certain expenditures from the block grant financing model described above. Specifically, the
state proposes to exclude:
l.

Services that are currently carved out of the state' s 1115 demonstration (e.g., services provided
to individuals with intellectual disabilities under the authority of a separate 191S(c) waiver;
targeted case management services provided to children in state custody}2;

2.

Outpatient prescription drugs;

2

See Table 3 of the TennCare demonstration for list of Medicaid services carved out of the TennCare 1115
demonstration (https://www.tn .gov/content/dam/tn/tenncare/documems/tenncarewaiver.pdf) .

10

 DRAFT

3.

September 2019

Disproportionate Share Hospital (DSH) payments, Critical Access Hospital (CAH) payments,
Essential Access Hospital (EAH) payments, and similar payments made directly to hospitals from
the uncompensated care funds authorized under the TennCare demonstration;

4.

Expenditures on behalf of individuals who are enrolled in Medicare, including cost sharing and

assistance (including Medicare Part D "claw back" payments)
- ---- ·-··--------- premium
individuals who are dually enrolled in Medicare and TennCare; and
5.

paid on behalf of

Administrative expenses which are not treated as medical assistance expenditures for FMAP
purposes.

These expenditures, and any comparable expenditures agreed upon by the state and CMS, will continue
to operate under the payment and financing processes currently in place (based on annual updates to
the state's FMAP). Accordingly, they are also excluded from the calculation of the block grant amount
described above.

Avoiding Disincentives for Future Program Changes
Given the proposed changes to the state's federal funding, it is expected that Tennessee will be exempt
from any new federal mandates over the life of the demonstration that could have a material impact on
the state's Medicaid expenditures (e.g., mandates concerning eligibility or covered benefits). To the
extent that Congress or CMS imposes additional requirements on the state during the course of the
demonstration, the state's block grant amount must be adjusted to account for any new expenses.
It is also possible that the state may elect to initiate programmatic changes that may have a material
impact on expenditures during the life of the demonstration (e.g., coverage of a new population). In
general, the state anticipates that such expenditures would be financed outside of the block grant via
the traditional Medicaid financing model for a period of up to three years. Once the state and CMS,!Jave
sufficient experience with the program modification, the state's block grant amount will be adjusted
accordingly so that the new expenditures can be integrated into the block grant.

State Maintenance of Effort
Under this proposal, the financing of Tennessee's Medicaid program will no longer operate under the
traditional Medicaid financing model.

Instead of drawing down federal dollars based on a fixed

percentage, the federal government will provide a block grant of federal funds to the state for the
operation of its Medicaid program. In order to ensure adequate funding for the state's program and to
preserve the nature of the state-federal partnership that has historically characterized the Medicaid
program, under this proposal the state commits to maintenance of effort with regard to the non-federal
share of TennCare funding based on state expenditures on TennCare during state Fiscal Year 2019,
trended forward each year the block grant is in effect.

11

 September 2019

DRAFT

.,
Medicare Wage Index Adjustment
In addition to the core block grant model described above, the state also proposes that when
considering the state's block grant amount, CMS recognizes the low levels of federal reimbursement
that hospitals in Tennessee receive from Medicare. These low levels of Medicare reimbursement are
based in large part on how CMS has historically calculated the Medicare Wage Index. Under the historic
wage index, hospitals in states like Tennessee that have a large number of rural counties served by small
•·•-e@mmunit-y--lles-13italsr-e0eive -disprnpol'tiooately -low-reimbur:semer:it.from .Medicar.e.............._ _____ .
The state acknowledges and supports CMS's recent action to promulgate regulations revising certain
aspects of the Medicare Wage Index calculation. While these regulations will mitigate the extent to
which small hospitals in rural communities are unfairly disadvantaged by the wage index calculation,
under the new methodology many of these facilities may continue to suffer from inadequate federal
support. The state urges CMS to consider this in determining the amount of the state's block grant.

IV.

State Flexibilities

A key benefit of a block grant is the flexibility afforded the state to manage its Medicaid program
without unnecessary or excessive interference or mandates from the federal government. Simply put,
the state is in a better position than the federal government to direct TennCare spending in order to
most effectively promote the health of the TennCare population. This flexibility is essential both to
ensuring that the state can be successful in managing its Medicaid program within the new block grant
financing arrangement, as well as achieve its policy goals of improving the cost effectiveness, quality of
services, and health outcomes achieved by the TennCare program.
Given this understanding, it is riot the intention of the state to enumerate in detail in this document
every innovation, reform, or policy change that might take place over the life of the demonstration,
since the purpose of the block grant is precisely to give the state a range of autonomy within whi~h it
can make decisions about its Medicaid program .

Rather, the state has identified a discrete set of

reasonable flexibilities that will provide the context in which the state can make meaningful decisions
about program management without the need for unnecessary federal approvals; initiate new policies
designed to drive program improvement; or respond to changes in demographics, economic conditions,
or emerging public health issues. The state will work with CMS to determine what reporting processes
(if any) are necessary in order to keep CMS adequately apprised on the progress of the state's
demonstration; however, consistent with the conceptual framework of the block grant, routine
programmatic changes will not require CMS approval.
The flexibilities requested by the state as a part of its block grant model are as follows :

12

 DRAFT

September 2019

Investing in Health, Not Just Healthcare
CMS has long used the authority afforded by Section 1115 of the Social Security Act to allow states to
spend federal Medicaid funds on "costs not otherwise matchable," when CMS determines that such
expenditures are likely to advance the objectives of the Medicaid program.

Under the financing

mechanism envisioned in this demonstration, Tennessee will receive a block grant of federal funds to
support the operation of the TennCare program. While it is anticipated that the bulk of the block grant
~ --------will be_spfnt on traditional _TennCare expenses -:--that is, paying to provide medically necessary covered
services to members-under the proposed demonstration the state will have the flexibility to spend
block grant dollars on items and services not otherwise covered under TennCare, or not otherwise
eligible for federal match, if the state determines that such expenditures will benefit the health of
members or are likely to result in improved health outcomes.
Such expenditures could include services for members in Institutions for Mental Diseases (IMDs) when
such services are determined to be medically necessary and appropriate, services to address social
factors with a direct impact on member health (e.g., nutritional assistance, housing supports), transition
services for individuals preparing to exit correctional settings who are likely to be eligible for TennCare,
health home strategies to better coordinate care for members with intellectual or other developmental
3

disabilities, and other items and services as determined appropriate by the state.

The state commits that its use of block grant funds will be limited to items and services with a
demonstrable connection to TennCare member health. In other words, block grant funds will not be
used by the state for other purposes, such as tourism development, financial institution regulat ion,
routine infrastructure maintenance, etc.

However, the state may elect to use block grant funds on

public health initiatives that are not specifically targeted at the TennCare population but which can
reasonably be expected to result in health benefits for the TennCare population (e.g., supporting
provider transformation efforts in rural or underserved areas of the state that support access to care for
TennCare members and other Tennesseans; see section on rural health transformation below for

.

additional discussion).

.., ,.,

Freedom to Use the Same Tools as Medicare and Commercial Payers to Lower Drug Costs
Rapidly growing pharmaceutical spending poses an important risk for the financial sustainability of
TennCare and of state Medicaid programs generally. It is for this reason that the state has proposed to
exclude outpatient prescription drugs from the block grant.

However, the expense associated with

prescription drugs, especially specialty and orphan drugs, is a challenge of such severity that the state's
inability to implement strategies to control the growth of drug prices will undermine the effectiveness of
this proposal.

3

This list is intended to be illustrative only.
services listed in thi s paragraph , or to limit its
being made is that under the block grant the
determines will best promote the health of its
federal match under the Medicaid program .

The state is not committing to spend block grant dollars on the
potential use of block grant funds to only these services. The point
state will have flexibility to spend its federal dollars in ways that it
members, even if such expenditures are not traditionally eligibl e for

13

 September 2019

DRAFT

,,

Although pharmacy benefits are technically optional benefits for adults, Tennessee is committed to
ensuring that its Medicaid beneficiaries have access to needed medications.

However, the federal

government has deprived state Medicaid programs of basic formulary management tools commonly
used by other payers to manage prescription drug spending. Whereas commercial payers can elect
whether or not to cover drugs based on considerations such as clinical efficacy and affordability,
- ----- --- -- ---- TennGafe is- reqt1ir-ecl 4 0-<=0ver-any-d-rng-forwhich--the--mam-1f.ae-tur-er-par-ticipates ir:t -the.f.edera~ -Medicaid- ..
drug rebate program. This coverage mandate, coupled with the volatility of prescription drug costs and
the state's lack of authority to meaningfully manage its prescription drug benefit, leads to extreme
financial pressures for states.
The state proposes that it have the flexibility under this demonstration to adopt a commercial-style
closed formulary with at least one drug available p~r therapeutic class. Adopting this strategy would
allow the state to negotiate more favorable rebate agreements with manufacturers, since-for each
therapeutic class-the state could offer manufacturers an essentially guaranteed volume in exchange
for a larger rebate, which would generate savings for the state and federal government and would help
mitigate the state's exposure to' ever-increasing trends in the growth of pharmaceutical prices

In

addition, much of the current volatility in prescription drug prices is driven by new drugs coming to
market through the FDA's accelerated approval pathway. Despite the enormous costs of some of these
new drugs, many of them have not yet demonstrated actual clinical benefit and have been studied in
clinical trials using only surrogate endpoints. The state proposes that it have flexibility to exclude these
new drugs from its formulary until market prices are consistent with prudent fiscal administration or the
state determines that sufficient data exist regarding the cost effectiveness of the drug. Adopting these
practices would allow TennCare to implement the same basic formulary management strategies
available to virtually all other payers and avoid exorbitant spending on high-cost drugs that are not
medically necessary, which do not provide additional clinical benefit, and/or which actually pose health
risks for members when prescribed without sufficient medical evidence, while continuing to ensure that
members have access to at least one effective, medically necessary medication in every therape'tltic
class.
If the state is permitted this flexibility to apply reasonable formulary management tools to help control
the cost of its prescription drug benefit, then the state is open to the possibility of incorporating its
prescription drug benefit into the block grant financing system in the future.

Leveraging Medicaid as a Catalyst to Promote Rural Healthcare Transformation
Healthcare for patients in rural communities across the United States remains an enduring challenge.
This challenge is magnified in disproportionately rural states like Tennessee.

In many rural states,

Medicaid is uniquely positioned to provide leadership for rural health transformation initiatives as the
largest statewide payer (other than Medicare) with member and provider relationships in all areas of
the state.

14

 DRAFT

September 2019

,,
Under the proposed demonstration, the state will have the flexibility to strategically invest block grant
funds to support rural health transformation efforts intended to either improve access to care for
members in rural communities or improve the quality of care those members receive . This could
include working with healthcare providers to support the adoption oftechnologies to overcome some of
the traditional challenges associated with ensuring patient access to up-to-date specialist care (e.g.,
electronic consultation, telemedicine).

This could also include working with providers in rural

communities
to__ ,_____
develop
and~- service
models
---~--.,.... - -- ·····-_
,,,_ __ -·--- --and
·--·--implement
. .. ·- ·•- -··new
.... ·-pa
··· ment
-- ----------- -~· --del ivery
. -·-·---- --- -- that
- -- ---incentivize
----··- - -·value
-and outcomes to drive improvements in both individual and population health, while ensuring that the
cost of care is sustainable for healthcare providers, their communities, and the state. One significant
challenge to the sustainability of the cost of care in many rural communities is the expense of
infrastructure required by current regulations; with additional flexibility to support rural health
transformation efforts, the state could help support the transition of facilities to more sustainable,
community-appropriate models.

Delivering the Right Care to the Right Members
Like all Medicaid programs, TennCare covers a variety of discrete member populations. These include
children, elderly individuals receiving long-term care, pregnant women, individuals with physical or
intellectual disabilities, parents of dependent children, foster care children (including young adults who
have recently aged out of foster care), individuals receiving treatment for breast or cervical cancer, and
others. 4 Although the federal government allows states some flexibility in establishing their Medicaid
benefits packages, in general states are constrained by the requirement of comparability. This federal
restriction requires that within a state, covered benefits must be the same (i.e., covered in the same
amount, duration, and scope) for all covered populations (with certain exceptions).

Although this

Medicaid requirement is longstanding, it is not obvious that the actual medical needs of a pregnant
woman and those of a disabled SSI recipient (for example), or those of a member of any of Medicaid' s
diverse other member populations, are in fact the same.
The current policy framework is unnecessarily limiting and constrains states in a number of impo~nt
ways. For example, the comparability requirement prevents a state that wishes to explore emerging
therapies and treatment modalities from implementing limited pilot programs designed to assess their
clinical efficacy and potential cost effectiveness, or to use a small-scale pilot process to inform the
5

statewide rollout of a new benefit or service. Alternatively, a state may determine (for example), based
on the clinical literature around perinatal health and vertical disease transmission between pregnant
4

See Table la of the TennCare demonstratio n for a complete listing of populations cove red by TennCare
(https://www.tn.gov/ content/ dam/tn/tennca re/ docume nts/ten nca rewaiver. odf).
5
In 2017, for example, Tennessee wi shed to implement a pilot program to test wh ether a medicat ion therapy
management (MTM) benefit would improve health outco mes and redu ce co sts for certain high-risk m embers with
multipl e prescription s. In order to implement the pilot program, the state requested and received a wa iver of the
fede ral compa rabil ity requirement under th e· authority of Sectio n 111S(a)(1). Although there was no question that
MTM w as a reimbursab le Med icai d benefit or that the state' s proposed wai ver wa s cons istent with the purpose of
Section 1115 to test new service del ivery models, the process of seeking and secu ring federa l approval for th is
wa iver was un necessa rily long and onerous. The state's ability to implement similar innovative pilot projects in th e
future is currently limited by th e administrative burden associated with seeking such waivers.

15

 .,

September 2019

DRAFT

women and their children, that providing a limited dental benefit to pregnant women would lead to
improved health outcomes both for women and newborn children.

However, unless the state has

sufficient funds to provide dental services to all adults, the federal government will not allow the state
to implement such a targeted benefit.

6

The state proposes that it have the flexibility under this demonstration to vary benefits packages for
- - - -·---- - ___---diffe-r-e.nt+members -based -on--rnedical factors -0r: -otber con.siderations.- TennCare already.bas~s.ignificant

experience with waivers of comparability, particularly in the TennCare demonstration's managed longterm services and supports programs, where the state has demonstrated the potential for achieving
both improved outcomes and lower costs by targeting benefits to members based on their actual level
of need. The state believes the use of this flexibility can be expanded to better focus delivery of benefits
or marshal resources to respond to specific health needs, so that members receive the care most
relevant for their needs while the state is able to m?ximize the use of its available funding. The state
notes that it is not its intent under this proposal tb reduce covered benefits for members below their
current levels.

Disentangling Misaligned Incentives to Promote Value for Providers
As a condition of the original TennCare demonstration in 1994, Tennessee essentially agreed to give up
its Medicaid Disproportionate Share Hospital (DSH) funding from the federal government. (Congress has
since created a small DSH allotment for Tennessee.) As a result, most of TennCare's uncompensated
care payments to hospitals are authorized through the TennCare demonstration.

The TennCare

demonstration currently authorizes payments to hospitals from two uncompensated care funds-a
"virtual DSH" fund and an uncompensated care fund for charity care. The criteria for hospitals to qualify
for payments from these funds, as well as the state's distribution methodology for these funds, are
prescribed in the terms and conditions of the TennCare demonstration, and thus require a
demonstration amendment to modify.
The state proposes that it have the flexibility under this demonstration to modify the participa1:ion
criteria and distribution methodology associated with the state's two uncompensated care funds
without the need to seek CMS approval through a separate demonstration amendment. This flexibility
will allow the state to be more responsive to the actual experience of Tennessee hospitals providing
uncompensated care, and could also be used to support value-based payment or delivery system reform
initiatives (for example, by conditioning a hospital's participation in one or both uncompensated care
funds on its participation in outcomes- or quality-based payment initiatives). As the state continues to
engage in systematic delivery system reform strategies to incentivize the delivery of high-quality,
appropriate care in the lowest-cost setting, this flexibility could also be used to reduce the misalignment
6

Federal policy provides some flexibility for. states to vary benefits by developing "alternative benefit plans" (or
"ABPs") for certain populations . However, the federal government' s process for developing and securing approval
of these ABPs is administratively cumbersome to an extent so as to not be a meaningful source of useful flexibility
for states. It is notable t hat virtually no states deemed the ABP option worth taking advantage of prior to 2014,
when the federal government required it as a condition of receiving the enhanced f ederal match rate for Medicaid
expansion population s.

16

 DRAFT

September 2019

"
of incentives inherent in the current system. For example, in some cases a hospital may be able to treat
a patient effectively and at a lower cost on an outpatient basis instead of an inpatient setting, but
reimbursement policies often incentivize more inpatient admissions rather than recognizing the value of
providing care in less expensive settings when appropriate. The flexibility to leverage existing resources
to support and reward hospitals-rather than penalize them-for removing costs from the system by
connecting the member with the right level of care in the right setting will reinforce and enhance the
overall effectiveness of larger delivery system reform initiatives .

Appropriately Penalizing Member Fraud
Like all state Medicaid programs, TennCare devotes considerable resources to preventing and
identifying member fraud, including taking action when appropriate with regard to members who are
suspected of or have been determined to be guilty of member fraud. However, historically the federal
government has not allowed states to take the most basic and obvious corrective action of terminating
or suspending a member's eligibility when he has been determined to have committed fraud or abuse
against the Medicaid program. This federal policy defies common sense, demonstrates a distressing lack
of concern for public resources, undermines the integrity of the Medicaid program, and does nothing to
disincentivize the misuse of public: resources dedicated to provide assistance to needy individuals and
families.
The state proposes that it have the flexibility under this demonstration to suspend or terminate the
eligibility of individuals who have been determined to be guilty of TennCare fraud, and to prevent such
individuals from re-enrolling in TennCare for a period of up to 12 months.

For purposes of this

demonstration, "determined to be guilty of TennCare fraud" means a judgment of conviction entered
against the individual in a federal, state, or local court; a finding of guilt against the individual by a
federal, state, or local court; a plea of guilty or nolo contendere by the individual that has been accepted
by a federal, state, or local court; or the individual's agreement to enter into participation in a first
offender, deferred adjudication, or other arrangement where judgment of conviction has been
withheld.
Within the flexibility afforded by the block grant, the state will develop its own policies-based on the
nature of the underlying offense-regarding when it is appropriate to terminate or suspend a member's
eligibility, the appropriate length of the termination or suspension (up to 12 months), and whether
specific actions on the part of the member could serve as an alternative to termination or suspension of
benefits. For example, if an individual has been convicted of fraudulently using his TennCare coverage
to obtain access to prescription opioids, the state could decide that securing the member's agreement
to participate in appropriate substance use disorder treatment would be a preferable alternative to
suspension of benefits. Alternately, the state could decide to suspend only a portion of the member's
benefits. In the example of the member who has used his TennCare coverage to fraudulently obtain
prescription opioids, the state could decide to suspend the member's pharmacy benefit for up to 12
months. This flexibility to impose meaningful consequences for members who have abused a public
benefit is both reasonable and will improve the integrity of the TennCare program.

17

 DRAFT

September 2019

,,

Pathway to Permanency
Unlike traditional Medicaid programs, 1115 demonstration programs like TennCare are subject to
periodic re-approvals and under current CMS policy must typically be renewed every three to five years.
The TennCare demonstration has been renewed no fewer than six times since its original approval in
1994.
The pr-eGess for r-e-newiRg 1-11£ -demonstrations -is -U.n.necessar~ly-one.rous .. and cumbe.r.some,~both for_______
states and for CMS.

For example, Tennessee's most recent request to renew the TennCare

demonstration was submitted to CMS in 2015. This request required 12 months of discussion with CMS
to secure CMS approval, or fully one third of the three-year approval period that was in place at the
time.

7

CMS required an entire year to review the state's renewal request despite the fact that

extensions of the TennCare demonstration had already been approved on five previous occasions and
despite the fact that the state explicitly requested no substantive changes to the TennCare program or
its underlying authorities. The level of resources required on the part of both the state and CMS to
engage in this ongoing cycle of constant demonstration renewals is needless and costs dollars that could
be better invested on the health of members.
In the cases of mature demonstrations like TennCare (which have been re-approved multiple times and
which have demonstrated positive results}, CMS should re-evaluate its current policy to allow for a more
permanent approval status (or at least less frequent renewals). As noted elsewhere, the principle being
demonstrated by TennCare is that a state can organize its Medicaid service delivery system under
managed care more cost effectively than it can through.a fee-for-service system, without compromising
access to or quality of care, and in the case of TennCare this outcome is not in question.

Today,

TennCare is a mature, data-driven managed care program that extends coverage to many people not
otherwise eligible for Medicaid in Tennessee and provides its members a more generous package of
covered benefits than was previously covered under Medicaid, all at a cost that is significantly below the
federal government's own projections for how much would be needed to care for Tennessee's Medicaid
population in the absence of the TennCare demonstration. Approving longer operating periods with.kss
frequent renewals would be an important first step to reduce an unnecessary administrative burden and
allow both the state and CMS to re-purpose resources for more productive uses. The logical, long-term
solution, however, is for CMS to approve of the TennCare 1115 demonstration waiver on a permanent
basis and only require amendments to the waiver to go through the approval process.

Improving Administrative Efficiency
Central to the design of the state's proposal is flexibility for the state to manage its Medicaid program
without unnecessary involvement or interference from the federal government. The state's proposal is
predicated on the proposition that the state is in a better position than the federal government to direct
TennCare spending in order to most eff~ctively meet the needs and promote the health of Tennessee
residents. Within the scope of the state's existing authorities and the new authorities that are part of
7

Tennessee submitted its renewal application to CMS on December 22, 2015, and the renewal request was
approved by CMS on December 16, 2016.

18

 September 2019

DRAFT

,,
this proposal, the state proposes that it have the flexibility to make changes to enrollment processes,
service delivery systems, and comparable program elements without seeking additional CMS approvals
via State Plan Amendments or demonstration amendments. For example, the state currently contracts
with multiple managed care organizations, a prepaid inpatient health plan, and two prepaid ambulatory
health plans for delivery of covered TennCare benefits. Should the state elect to alter its service delivery
system in the future, a demonstration amendment will not be required.
In addition, the ability of states to administer their Medicaid programs effectively is often constrained by
overly prescriptive and unnecessary federal regulations that do not take into account the unique needs
and consumer contexts within each state. Under the state's proposal, the state will have relief from the
federal requirements at 42 CFR Part 438 (concerning Medicaid managed care programs) in order to have
the flexibility necessary to structure its managed care service delivery system in a manner that meets
the needs of state residents and optimizes effectiveness and efficiency of operation. TennCare is one of
the oldest and most comprehensive Medicaid managed care programs in the country, and as such,
Tennessee has a demonstrated history of effective administration of its managed care program. Given
the necessary flexibility, the state believes it can structure its program in a way that better meets the
needs of its members.

Within a, context in which the state bears the primary risk for the cost of

delivering care to members, there is no reason for the federal government to be involved in prescribing
the details of managed care contracts, sanctions applied to contractors, how the state establishes
capitation rates for managed care contractors, dictating changes to the state's managed care quality
improvement strategy, or other aspects of program administration. Such flexibility to structure the
state's service delivery system free of unnecessary federal interference is essential to the state being
able to operate within .a capped funding structure.
Examples of unnecessary federal requirements include (but are not limited to):
•

Federal approval unnecessarily required for states to contract with managed care organizations
to provide services to Medicaid beneficiaries (42 CFR § 438.3(a))

•

Federal approval unnecessarily required for states to partner with their managed .. c;ere
contractors to pursue healthcare delivery system reform initiatives (42 CFR § 438.6(c))

•

Arbitrary restrictions on the ability of managed care contractors operating fully at-risk to provide
a full continuum of care for members with mental health or substance use disorder treatment
needs (42 CFR § 438.6(e))

•

Federal approval unnecessarily required for actuarially certified capitation rates paid to
managed care contractors (42 CFR § 438.7(a))

•

Unnecessary federal reporting requirements, despite the fact that CMS has not articulated a
purpose for these required reports and that no comparable requirements exist for fee-forservice programs (42 CFR § 438.66(e))

Eliminating these unnecessary requirements and approvals, as well as increased flexibility from other
overly prescriptive or unnecessary federal regulations, will allow the state to maximize program
efficiency while also implementing reforms to better meet member needs.

19

 September 2019

DRAFT

,,

In administering its program, the state commits that it will not alter any requirements related to
compliance with federal non-discrimination laws (including Title VI of the Civil Rights Act of 1964; the
Age Discrimination Act of 1975; the Rehabilitation Act of 1973; Title IX of the Education Amendments of
1972; Titles II and Ill of the Americans with Disabilities Act; and section 1557 of the Patient Protection
and Affordable Care Act).

Streamlining Unnecessary Approvals
Federal Medicaid policy distinguishes between mandatory Medicaid benefits (which states must make
available to their members) and optional Medicaid benefits (which states may elect, at their discretion,
to make available to their members). For both mandatory and optional benefits, states have flexibility
to determine the amount, duration, and scope of covered benefits. Due to the savings realized under
the TennCare demonstration, Tennessee covers a far richer array of benefits under TennCare than were
historically covered under Tennessee's Medicaid program prior to the TennCare demonstration. 8
The state proposes that it have the flexibility under this demonstration to make changes to its benefits
package, including the addition or 'elimination of optional benefits and changes in the amount, duration,
and scope of covered benefits, without the need for CMS approval. It is important to note that this
flexibility does not confer new authority on the state; it is already the state's prerogative to elect to
cover or not cover optional benefits.

The federal government cannot compel a state to cover an

optional benefit, nor can it disapprove a state's election to cover an optional benefit. Nevertheless,
current federal policy requires states to submit such changes to CMS for "approval" via a State Plan
Amendment and/or demonstration amendment. Ukewise, changes to the amount, duration, and scope
of covered benefits, which are also determined at the discretion of the state, are similarly subjected to a
CMS "approval" process. To the extent that the state, under this demonstration, will be operating its
Medicaid program under a block grant, the state should have autonomy to make adjustments to its
package of covered benefits as it determines necessary to best promote the health of its members.
Eliminating an unnecessary federal approval process is a common-sense reform that will rE"dtlce
administrative burden for the state (and CMS) and increase program effidency.

Strengthening Medicaid's Status as Payer of Last Resort
In some cases, TennCare members have access to other insurance in addition to their TennCare
coverage.

In these cases, the member's other insurance is considered "primary," and his TennCare

coverage is considered "secondary."

Medicaid's status as the "payer of last resort" has long been

provided for in federal law, meaning that TennCare only pays for services when all other respon sible
parties have paid their required portions.

9

In cases when a Medicaid payment has already been made

(e.g., the billing healthcare provider or the state were unaware of the member's other coverage), the

8

See Table 2a of the TennCare demonstration for a listing of benefits covered under the Tenn Care demonstration
that are not covered under Tennessee's Medicaid State Plan
(https ;//www.tn.gov/content/ dam/tn/ten ncare/ doc uments/te nnca rewa iver. pdf).
9
See Section 1902(a)(25) of the Social Security Act and implementing regulations at 42 CFR Part 433, Subpart D.

20

 DRAFT

September 2019

"
state may bill the member' s primary coverage for any payments expended on behalf of the covered
individual.
However, states' ability to seek payments from other parties that may be legally responsible for the cost
of care provided to Medicaid beneficiaries is currently inhibited by inconsistent and conflicting federal
policies. Under federal law, state Medicaid programs have three years from the date on which a service
occurred to review and bill a claim that should have been another party's responsibility to pay.

-------~------ - - -----------However, Medicare (Parts A and B) and TRICARE both limit Medicaid's ability to bill for services to a
mere 12 months. This unnecessary limitation compromises Medicaid's intended status as the payer of
last resort and inappropriately shifts healthcare costs that should be the responsibility of the federal
government to states. Tennessee expects CMS to work in good faith with the state to identify strategies
to mitigate the effects ofthese misaligned policies.
In addition, CMS should work with the state to ensure the state has the ability to bill Medicare directly
when appropriate for the cost of care provided to Medicare enrollees . Currently, Medicare does not
allow states to bill Medicare directly, meaning that when the state identifies a claim which should have
been paid by Medicare, the state must recover a payment that has already been made to a healthcare
provider, and the provider must then submit a new claim to Medicare before Medicare's timely filing
deadline. This process is unnecessary and administratively cumbersome for both providers and the
state. The simple step of allowing the state to bill Medicare directly for the cost of care already
provided will increase efficiency and help preserve Medicaid's status as the payer of last resort .

Building on Proven Solutions
Having long been a leader in the use of the tools of managed care to deliver high-quality care in a
financially sustainable manner, in recent years Tennessee has continued and amplified its leadership
through its implementation of a variety of value-based payment and delivery system reform
initiatives. These include episodes of care, a performance and financial management framework that is
being adopted in both public and commercial healthcare operations across the United States to im~,i;eve
quality and reduce costs, as well as patient-centered medical home initiatives in both acute care and
behavioral health.
Initially supported by State Innovation Model (SIM) grants, the state's efforts are demonstrating positive
results in terms of improved quality and reduced costs. In the current state fiscal year, the state's
episodes of care initiative is estimated to have reduced the cost of care by more than $40 million, which
benefits both the state and the federal government. As part of the proposed block grant, Tennessee
commits to not only continue its existing efforts to reform delivery systems but to deepen its
commitment to find new ways to ensure Medicaid dollars drive increasing quality and improvements in
health.

21

 September 2019

DRAFT

.,
Eliminating Unnecessary Administrative Requirements
The Affordable Care Act (ACA) created an individual mandate for almost all Americans to maintain
health insurance. Non-exempt individuals who did not maintain health insurance were subject to a tax
penalty, also known as a "shared responsibility payment." Like other insurers, state Medicaid programs
were required to provide their members with an annual notice confirming that their members had
minimum essential coverage.

10

However, the Tax Cuts and Jobs Act essentially eliminated the individual

------ -- -ma-nC:IBt-e-by -redudng-tne snar-ec:1---res-pensibili-t-y- 13ayment--to -$0-.- -N-Gnet-he~ess,despite--the f-ac;.t-that the -- - - - - individual mandate is no longer being enforced, the federal government continues to require states to
mail these coverage notices to members despite the fact that they no longer serve any useful purpose.
Mailing these annual notices to TennCare's 1.4 million members is a costly and fruitless exercise. CMS
should provide assurances to the state that there will be no negative enforcement action taken against
the state should it choose not mail minimum essential coverage notices to members in any year when
the shared responsibility payment is $0.

V.

Proposed Waiver and Expenditure Authorities

All waiver and expenditure authorities currently approved for the TennCare demonstration will continue
to be in effect.

In addition, the state requests the waiver and expenditure authorities ("CNOMs")

enumerated below.

State Flexibility

Statute or Regulation to be Waived

Cap the state's Medicaid expenditures at the annual block grant
amount.

N/A

Disenroll individuals who have been determined to have
committed TennCare fraud and prevent them from re-enrolling
for a period of up to 12 months.

Section 1902(a)(8); Section
1902(a)(10)

Establish a formulary that does not comply with Section
1927(d)(4) ofthe Social Security Act.

Section 1902(a)(54), insofar as it
incorporates Section 1927

Addition or elimination of optional State Plan benefits shall not
require CMS approval. Changes in the amount, duration, and
scope of State Plan benefits that do not affect the overall
sufficiency of the benefit shall not require CMS approval.

Section 1902(a); 42 CFR Part 430,
subpart B

Target benefits to certain populations.

Section 1902(a)(l0)(B)

10

See Sect ion 6055 of the Internal Revenue Code.

22

 bz

September 2019

DRAFT

"
State Flexibility

Statute or Regulation to be Waived

Modify the requirements for hospitals to receive payments from
the uncompensated care funds authorized under the TennCare
demonstration .

N/A - CNOM, lllS(a)

Spend federal block grant dollars on items or services not
otherwise reimbursable under Title XIX but which have an
- impacf on enro·llee health~
- ---

N/A-CNOM, lllS(a)

Modify enrollment processes, service delivery system, and
comparable program elements without the need for a
demonstration amendment.

N/A

Operate a managed care program that does not comply with the
requirements of 42 CFR Part 438.

N/A- CNOM, lllS(a)

VI.

Expected Impact on Budget Neutrality

The state's proposal will not have an impact on budget neutrality under the TennCare demonstration.
The state is proposing that the federal government cap its expenditures at the amount already agreed to
in the state's approved budget neutrality agreement.

VII.

Expected Impact on CHIP Allotment Neutrality

This amendment will not result in any changes to Tennessee's CHIP allotment neutrality.

VIII.

Modifications to the Evaluation Design

As discussed in Section 11, the goal of the state's proposal is to demonstrate that an alternative model of
federal participation in state Medicaid programs will lead to Medicaid programs that are more
financially sustainable for states and the federal government, without compromising access to care,
quality of care, or health outcomes.
The state intends to contract with an independent evaluator to develop a plan for evaluating the
hypotheses indicated below.

The state, in consultation with its evaluation partner, will identify

appropriate performance measures that assess the impact of the demonstration . It is the intent of the
state to follow all CMS evaluation design guidance in working with the state's independent evaluator to
draft an evaluation plan.

23

 DRAFT

September 2019

.,
The table below presents an overview of the state's preliminary plan for evaluating its demonstration.
This evaluation plan is subject to change and will be further refined based on input from CMS and the
state's evaluation partner.

Hypothesis
TennCare expenditures under
this demonstration will grow at a
slower rate than the average
Medicaid expenditures
nationally.

Methodology
Comparison of TennCare growth
rate compared to Medicaid
national growth rate

Data Sources and Metrics
Expenditure data

The demonstration will not
negatively impact access to care
or health outcomes for TennCare
members.

Comparison of key access and
health outcome measures prior
to implementation ,of the
demonstration and during the
demonstration.

Provider participation and access
data

------ -

IX.

Key health outcome metrics

Demonstration of Public Notice and Input

The state has used multiple mechanisms for notifying the public about this amendment and for soliciting
public input on the amendment.

These public notice and input procedures are informed by-and

comply with-the requirements specified at 42 CFR § 431.408.
Public Notice

The state's public notice and comment period began on September 17, 2019, and lasted through
October 18, 2019. During this time, a comprehensive description of the amendment to be submitted to
CMS was made available for public review and comment on an amendment-specific webpage on the
TennCare website .

An abbreviated public notice-which included a summary descriptiorr of

Amendment 42; the locations, dates, and times of three public hearings; and a link to the full public
notice on the state's amendment-specific webpage-was published in the newspapers of widest
circulation in Tennessee cities with a population of 50,000 or more. TennCare disseminated information
about the proposed amendment, including a link to the relevant webpage, via its social media (i.e.,
Twitter, Facebook). TennCare also notified the members of the Tennessee General Assembly of
Amendment 42 via an electronically transmitted letter.
The state held three public hearings to seek public comment on Amendment 42. These hearings took
place as follows:
Middle Tennessee
Location: 2400 Clifton Avenue in Nashville (Family and Children's Service)
Date: Tuesday, October 1

24

 September 2019

DRAFT

,,
Time: 2:00 p.m. Central Time
East Tennessee
Location: 4614 Asheville Highway in Knoxville (Burlington Branch of the Knox County Library)
Date: Wednesday, October 2
Time: 2:30 p.m. Eastern Time
West Tennessee
Location: 433 East Lafayette Street in Jackson (Jackson-Ma9ison County Library)
Date: Thursday, October 3
Time: 2:30 p.m. Central Time
Members of the public also had the option to submit comments throughout the notice period by mail
and/or email. Documentation of the state's public notice process is included as Appendix B.

Public Comments
[RESERVED FOR SUMMARY OF PUBLIC COMMENTS RECEIVED]

25