May 14, 1999

TennCare’s river of red ink reaching flood stage

TennCare's river of red ink reaching flood stage

Anyone with even a passing interest in current events knows that TennCare is seriously ill.

The state's five-year-old alternative to Medicaid is suffering from a host of fiscally painful complications: it's underfunded by anywhere from $190 million to $290 million, depending on who is doing the counting; payments from TennCare managed care organizations (MCOs) don't cover the cost of providing care – if payments are even made in the first place; one MCO – Xantus Healthplan – has been taken over by the state and another is on the brink of financial failure; and a recently revealed state plan to bolster the ailing program stops short of providing direct payments to essential providers.

All of which leaves providers of health care in Tennessee glancing nervously at the exit doors.

The situation is dire, especially for teaching hospitals such as Vanderbilt University Medical Center. 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 $15 million per year. As of last week, VUMC has spent an astonishing $80 million in reserves to cover losses attributable to TennCare. And these losses don't include the losses incurred by the physicians treating the patients.

To add insult to injury, more than 36 percent of these write-offs are attributable to TennCare denials. Particularly onerous is the program's refusal to cover expenses incurred by enrollees who are treated during weekends.

TennCare is only part of the financial threat facing VUMC. The institution is also dealing with the impact from continuing cuts in Medicare reimbursement mandated by the 1997 Balanced Budget Amendment. These cuts are also severe. It's estimated that over the next five years, VUMC will have to absorb the loss of $41 million in reduced Medicare funding.

Earlier this week, Tennessee lawmakers were told that TennCare needed an additional $190 million next year or the $3.8 billion program could fail. That news boosted the shortfall in the state's proposed budget for next year by 14 percent, from $365 million to $416 million. Lawmakers are faced with cutting state programs and/or raising taxes, because Tennessee law mandates a balanced state budget.

State legislators, however, aren't the only ones being forced to make tough choices.

Tennessee's providers of health care services, especially teaching hospitals like VUMC, have kept TennCare alive by providing those health care services at a loss. But that kind of charity can't go on forever. Like it or not, money is the lifeblood of an institution such as VUMC. And everyone knows that if you lose too much blood, you die.

"To continue on like this jeopardizes the integrity of the medical center, and that is not an option that we are willing to entertain," said Dr. Harry R. Jacobson, vice chancellor for Health Affairs. "But without relief from the current burdensome and unfair policies, we will have to proceed with considering some painful options."

Among these are downsizing or closing expensive essential services, such as the burn unit and poison control center, which will impact all Middle Tennesseans regardless of their insurance status; limiting non-emergency care for TennCare and Kentucky Medicaid patients; and reconsidering the TennCare contracts now in place.

In addition to keeping the emergency department open to anyone in need regardless of their insurance status or ability to pay, Jacobson said there has been no discussion of closing the intensive-care nursery or turning away high-risk obstetric cases.

"But we still have to ask the questions, 'which ones can we do without or which can we downsize,' " Jacobson said.

The wounds inflicted by TennCare have left VUMC and the state's other health care providers, especially the teaching hospitals, bleeding profusely.

It wasn't supposed to be like this.

TennCare was implemented Five years ago to serve as an alternative to Medicaid. The managed-care program covers approximately 1.3 million people, most of whom have low incomes, have a disability or are "uninsurable" – unable to obtain commercial health insurance because of pre-existing medical conditions.

For the first year, losses associated with TennCare averaged about $3 million per year. Then, as reimbursement rates plummeted due to the removal of state Disproportionate Share (DSH) payments, losses per year began averaging more than $15 million.

DSH is critical. Across the state, academic medical centers such as VUMC account for only 6 percent of hospitals. They care for 17 percent of all patients yet account for 40 percent of all charity care performed. VUMC, by the way, provides more hospital care under TennCare than any center in Tennessee – averaging more than $60 million in cost per year. That figure is higher than the Regional Medical Center in Memphis.

In previous years, TennCare and its predecessor, Medicaid, gave academic medical centers such as VUMC a disproportionate share of reimbursements to offset the amount of charity care they provided. That practice was halted four years ago, leaving Tennessee as the only state in the country without a vehicle to fairly compensate those who actually do most of the charity care in the state.

Several months ago, the state reviewed its own program and the results of the survey came as no surprise in health care circles – TennCare is underfunded by $289 million; providers, including physicians, safety net hospitals such as VUMC and rural hospitals, are woefully underpaid; and continued provider participation is a serious concern, one that threatens the viability of the program.

Through intensive efforts to communicate with state policy makers, VUMC and Tennessee's other top charity care providers last summer received a one-time lump sum DSH payment. It was small, but it was something. VUMC officials are working on securing another payment this year.

It's unclear yet how much impact the state's plan to reform TennCare, unveiled earlier this week, will have in relieving the financial burden on VUMC and other providers. Among the plan's highlights are:

o The legislature is being asked to approve a $190 million increase in state funding for TennCare. With that money, the state will increase payments to the nine private MCOs that provide services to enrollees by 13 percent. The state will require that most of that money go directly to providers.

o The state will require additional documentation that a person is uninsurable and is a Tennessee resident.

o The state will try to create a single list of medications covered by TennCare. Currently, each of the nine MCOs has its own list.

o The state will reexamine the appeals process.

o The state may limit the amount of money MCOs can spend on administration.

o While these changes are being considered, the state may close enrollment to uninsurables for six to nine months.

State Finance Commissioner John Ferguson said the state needs to dip into TennCare reserve funds to pay off a $52 million shortfall this year to cover higher-than-expected enrollment and prescription costs. State officials will take another $30 million out of reserves next year to pay off half of the Xantus debt, which stood at approximately $60 million before it was taken over by the state.

Paying these expenses would leave $100 million in the TennCare reserve fund. Though he's said that the state is better off under TennCare than it would have been had it remained under Medicaid, Ferguson himself has said he's thankful for the Hippocratic oath, referring to providers' vows to treat those in need.

Under TennCare, honoring that vow is fast becoming painfully expensive, especially for institutions such as VUMC that take care of the bulk of TennCare patients.

Jacobson offered several paths to a solution in addition to reinstating DSH payments. They include: funding 24-hour eligibility and access; ensuring funding increases flow to providers and not managed care organizations (MCOs); requiring MCOs to contract for essential services; requiring MCOs to contract a complete physician panel; and boosting GME funding by $15 million.

No matter the final form, one thing is clear – relief must come. And it must come soon.

"If there is not a turnaround, TennCare patients in Middle Tennessee are likely to be faced with more restricted access to TennCare providers," Jacobson said. "Access will be limited, not because providers do not have deep concerns for these patients, but because hospitals and doctors are being forced to choose between opening their doors to unlimited TennCare patients and jeopardizing the fundamental soundness of their institutions.

"For VUMC to be in a position to continue serving TennCare patients at the current level, we must receive additional direct payments from TennCare to compensate for our high volumes of TennCare and charity care patients.

"One thing is certain. VUMC cannot continue to subsidize the TennCare program at the level of approximately $20 million per year and growing," Jacobson said.