June 11, 1999

State ups TennCare funds, but many questions remain

State ups TennCare funds, but many questions remain

If anyone can be called a winner following the exhausting battle to craft next year's state budget, it's TennCare.

Still, it remains to be seen whether the health care providers that service the program – like Vanderbilt University Medical Center – will benefit.

In a year when state legislators either cut or refused increases in major programs such as education and economic development, the Tennessee General Assembly approved an additional $190 million in state funds for TennCare, the state's five-year-old alternative for Medicaid.

When federal matching funds are accounted for, the state's $95 million funding boost to TennCare managed care organizations (MCOs), translates into an approximate total of $256 million – or $16 per member, per month – to cover TennCare's approximately 1.3 million people. The program covers Tennessee residents who have low incomes, have a disability or are "uninsurable" – unable to obtain commercial health insurance because of pre-existing medical conditions.

The state also will require that the nine MCOs to pass approximately 80 percent of the increae in the cap rate directly to providers.

Additionally, at the end of the recently concluded legislative session, Gov. Don Sundquist and legislative leaders agreed to use $50 million in TennCare reserve funds to make a one-time payment in fiscal year 1999 to "essential providers" – those hospitals such as VUMC that provide the bulk of care under TennCare. VUMC's portion of a similar one-time payment of $60 million by the state last year was $4.1 million. The distribution of this year's payment has not yet been determined.

The recently approved state budget and the accompanying legislative action are positive measures, and show that Tennessee's leaders are coming to grips with the painful truth that TennCare is in crisis. There is still much, however, that needs to be done to plug the program's gaping financial holes.

"This year, Tennessee leaders took a big step forward," said Dr. Harry R. Jacobson, vice chancellor for Health Affairs. "But how big a step remains to be seen. Critical issues remain to be resolved."

One of the institution's main concerns with the budget is answering the unresolved questions regarding exactly how the state plans to channel the increased funds through the MCOs to the providers, and how that flow will be regulated and monitored. On this issue, time is of the essence, considering that next year's state goes into effect in less than a month.

Another primary concern is the state's continued refusal to re-implement disproportionate share (DSH) payments. Medicaid, the predecessor of TennCare, gave academic medical centers such as VUMC a special payment recognizing the disproportionate share of costs these centers incurred, which helped to offset the impact of serving a large Medicaid population and providing charity care. That practice was halted four years ago. Tennessee is the only one of the 16 states with similar Medicaid waivers that has substantially reduced DSH payments.

Another onerous TennCare practice that remains intact is the program's refusal to cover expenses incurred by enrollees who are treated during weekends.

Even so, other positive developments – in the form of bills passed – took place during the legislative session, said Betty C. Nixon, special assistant to the Office of University Relations and General Counsel.

"The General Assembly is clearly concerned about TennCare and passed legislation to make sure they had the data to know what is going on and to make better decisions in the future," she said.

The bills passed focused primarily on maintaining the service level of the network and increasing MCO accountability. They included:

o a measure that requires MCOs to include in their contracts with the state consideration of essential care services. While the bill falls short of requiring MCOs to contract for essential services, it is a first step in that direction.

o a bill that tightens the application process for enrollees to ensure that they are Tennessee residents.

o a requirement that the state conducts an actuarial study of TennCare and its MCOs at least every two years. The studies will be similar to the PricewaterhouseCoopers review conducted late last year that served as the basis for the governor's and legislature's recommendations and budget decisions.

o a bill that directs the Commissioner of Finance to verify that each MCO is complying with its state contract and maintains an adequate provider network to deliver all benefits.

o and legislation that established procedures to hopefully improve the amount of time it takes for providers to be paid by MCOs for the care they deliver. The bill includes the requirement that MCOs pay 90 percent of claims within 30 days and 99.5 percent of claims within 60 days. It also establishes an independent claims review panel for disputed claims.

While these bills and next year's state budget are steps in the right direction, they do not address the $100 million in TennCare losses incurred by VUMC over the past five years. They also leave other important issues unresolved for institutions such as VUMC, the state's teaching hospitals that provide a region's only source for a wide range of highly specialized, high-cost health care services.

"As a result of the still-uncertain future, Vanderbilt is keeping open the option that it will downsize its participation in – or even consider leaving – the TennCare program," Jacobson said.

"We have seen some movement but, frankly, I do not believe that some in the administration understand the value of Vanderbilt's participation and the financial pain we have suffered during the years that TennCare was allowed to be run so poorly."

Teaching hospitals make up only 6 percent of the hospitals in Tennessee, yet they account for a whopping 40 percent of all charity care performed. At VUMC, the costs of TennCare are staggering – for the past four years, the medical center has been losing an average of $20 million per year. As of last week, VUMC has spent an astonishing $100 million in reserves to cover losses attributable to TennCare. And these losses don't include the losses incurred by the Vanderbilt Medical Group physicians treating the patients.