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Back to the Future: Tennessee’s Experience with Medicaid MISmanaged Care

On November 20, 2019, Tennessee submitted to the federal Centers for Medicare and Medicaid Services (CMS) a request for a federal waiver that would convert the state’s Medicaid managed care program, known as TennCare, into the nation’s first Medicaid block grant. State officials herald the proposal as “Innovative… bold and ambitious.” Yet its most striking feature isn’t innovative at all, but an effort to return TennCare to the regulatory climate of twenty years ago, when the program was mired in scandal.

In 1994, Tennessee implemented a federal Medicaid demonstration waiver that turned over most of its multi-billion dollar Medicaid program to managed care organizations (MCOs) to administer. Tennessee has never had a strong state regulatory culture, especially when it comes to holding powerful insurance companies accountable. In fact, not long after TennCare began in 1994, Tennessee became one of only three states to be denied accreditation by the National Association of Insurance Commissioners because it could not meet NAIC accreditation standards that most experts regarded as woefully inadequate. The state’s inability to effectively regulate TennCare MCOs had dire consequences.

In 1999, Xantus Healthplan, the TennCare program’s third largest MCO, was placed in receivership, and taxpayers ended up on the hook for many of the plan’s unpaid bills. The following year, Access MedPlus, TennCare’s largest MCO, was placed under administrative supervision for failing to pay providers.

As these plans fell behind in paying providers, their TennCare patients effectively became uninsured, because providers dropped out of the plans’ provider networks, and there was nowhere for patients to turn. At an April 2001 emergency hearing, a federal court received dramatic testimony about Access MedPlus patients suffering and even dying as they searched in vain for care. The court ordered the state to create an emergency process for meeting the most urgent needs of the plan’s patients. A few months later, the plan went bankrupt, leaving $100 million in unpaid debts to hospitals, doctors and other creditors. The state spent millions more, and 350,000 Tennesseans struggled to find new providers, as Access MedPlus’s patients were reassigned to new plans.

A federal grand jury investigated Access MedPlus financial dealings after the plan collapsed. Although no one was ever prosecuted, there was never a full accounting of where millions of taxpayer dollars had gone.  Suspicions of criminality extended to other players amid allegations that an indicted state senator had tried to steer lucrative TennCare contracts to managed care companies from which he had received payments.

Tennessee’s managed care problems were among many factors that led to the issuance in 2002 of comprehensive federal regulations. A revised version of those regulations is codified as 42 Code of Federal Regulations Part 438. The rules address a broad range of problems that manifested themselves in the TennCare scandals. The rules prohibit conflicts of interest, require states to pay rates that are actuarially sound, ensure that MCOs maintain solvency and pay providers on time, and require that provider networks are adequate to meet patients’ needs. The rules also include important guarantees of “mental health parity” to prevent discrimination by MCOs in the care of patients with mental illness or addictions.

Although the rules were strengthened in 2016, government watchdogs continue to call for stronger regulation and oversight, warning that Medicaid managed care programs remain at “high risk” of program abuse.

Instead of heeding these warnings and the lessons of its own past, Tennessee requests in its block grant proposal that it be allowed to “Operate a managed care program that does not comply with 42 CFR Part 438.” Tennessee asks for the chance to show what it can do with such “flexibility.” But the record already shows what happens when TennCare operates without federal managed care regulation. The waiver should be denied.

2019-12-03T17:59:59-05:00