On November 20, Tennessee submitted its final Medicaid block grant proposal to the Centers for Medicare and Medicaid Services (CMS). A week later, CMS formally notified the state that the proposal was complete and accepted and formally opened a 30-day federal comment period. The state’s proposal, if approved, would become “Amendment 42” to TennCare since its establishment nearly 30 years ago, although the term “amendment” would hardly seem to describe such a total and sweeping departure from the normal Medicaid coverage and payment principles that govern all state Medicaid programs, including TennCare. Tennessee’s final proposal updates an earlier draft proposal.
According to the Nashville Tennessean, the original proposal drew over 1800 public comments, 11 of them positive. In response to this overwhelmingly negative response, the state made certain modifications. But Tennessee is nonetheless forging ahead with a plan to fundamentally alter the flow of federal Medicaid financing into its health care system and the economy as a whole, on the theory that doing so can improve health care quality and efficiency while sharing savings with the federal government and repurposing surpluses to population health improvement activities. Ironically, perhaps, at the same time, news accounts are also reporting that Tennessee has accumulated a $732 million surplus in its Temporary Aid to Needy Families (TANF) program that sits unspent on families it was intended to benefit.
What Did And Did Not Change In The Final Proposal
As was the draft, the final proposal is long on generalized arguments and rhetorical positioning and short on detail. Indeed, at one point the proposal expressly states that “it is not 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 which it can make decisions about its Medicaid program.” A close read of the final proposal makes clear that, essentially, the state is seeking a large block of federal funding (about $8 billion), freed of legal constraints, with the freedom to make decisions about how to spend it. Obviously, this poses a challenge for the public comment process, not to mention federal review.
There are small signs of movement in response to comments. But the fundamental design remains identical, and even those movements that do appear to have taken place are significantly more ambiguous and complex than some of the initial reporting suggests. This is especially true in terms of what the state does and does not promise to do about commenters’ crucial concern: whether coverage will be hollowed out to accommodate spending caps.
Benefit Reductions
Originally the state proposed that it be given nonreviewable authority to reduce benefits, including complete elimination of benefit classes and downward alterations in the amount, duration, and scope of coverage. The state also proposed that CMS exclude prescription drugs from aggregate block grant limits while at the same time authorizing officials to substitute a narrower formulary based on “commercial style” principles for comprehensive Medicaid standards.
In response to comments, the state appeared to scale back its coverage flexibility request. But the final plan narrative, along as the waivers of federal law requested, show a continuing push for broad authority over coverage design.
In response to public comments, the final proposal acknowledges that certain benefits are a basic Medicaid requirement. At the same time, the proposal leaves the door open to future rollbacks, stating merely that “it is not the state’s intention to reduce the benefits received by TennCare members.” Only in the case of early and periodic screening diagnosis and treatment (EPSDT) benefits for children under 21 does Tennessee state seemingly unequivocally that “no changes would be made to the scope of [EPSDT] under this amendment.” But even this statement is undercut by the proposal’s fine print and the scope of the waivers being sought.
The state makes no similar representations regarding benefits for adults, including those with serious physical and mental health conditions or disabilities. Indeed, any representations to the contrary must be contrasted with the ambiguity inherent in the state’s assertion that it does not intend to reduce benefits. On the positive side, Tennessee notes that it will “seek to invest” block grant funding in certain “priorities for program administration”: 12 months of extended postpartum coverage as recommended by experts; prenatal and postpartum dental care; coverage for additional needy individuals; speedier care for people with intellectual and developmental disabilities; and services to address other “State-Specific Health Crises,” such as the opioid epidemic and maternal and infant mortality. But on the negative side, the proposal makes no request for waivers in connection with these contemplated expansion plans, which can be read only as future and aspirational.
Furthermore, the state’s disclaimers regarding its intent not to make downward coverage adjustments that could be contrary to federal law appear to melt away when one looks at the specific provisions of law the state seeks to waive. As noted, the state is clear regarding its intent to reduce prescription drug coverage. Moreover, although the state has scaled back its draft proposal, which sought unilateral authority to alter its state plan for expansions only — dropping its request for nonreviewable authority over coverage reduction decisions — this is far different from any explicit assurance that no scaleback of benefits will be sought. In this sense, the state continues to position itself to reduce coverage within any benefit category. Indeed, the state could continue to argue for the power to reduce coverage if (as in its original proposal to CMS) its view is that its proposed changes do not “affect the overall sufficiency of the benefit” to be reduced.
Thus, for example, the state could continue to seek permission to alter any benefit (including EPSDT benefits) as long as, in its view, its proposed change does not “affect the overall sufficiency of the benefit.” Such a test, should the state continues to argue for it in its negotiations with CMS, could affect coverage that otherwise would be required under law. This is of particular concern in the case of EPSDT, which requires coverage of all medically necessary care aimed at “ameliorating” physical and medical conditions identified through the screening process. For example, the proposal’s request would appear to open the door for the state to determine unilaterally that certain types of treatments for complex pediatric conditions are “low value” and therefore should be excluded across the board; this change arguably would not affect the “overall sufficiency” of the benefit but could deprive individual children of medically necessary care. The state also seeks waivers so that it can set aside Medicaid’s “comparability” of coverage standards to “target” benefits to certain population, which could result in selective coverage of effective treatments for certain conditions but not others.
The Block Grant’s Scope And Population Growth Adjustments
As in the draft proposal, the block grant would span all four major beneficiary groups: blind and disabled enrollees, low-income children, low-income adults, and the elderly. (Since EPSDT effectively mandates coverage of all medical assistance benefits and virtually eliminates the concept of optional benefits and services, it is difficult to square the state’s assertion that EPSDT is immunized from cuts under the amendment with the inclusion of children in the block grant). Included in the block grant would be all “core medical services,” defined only by exclusion: “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, uncompensated 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”
As in the draft proposal, the state continues to seek exemption from “any new federal mandates over the life of the demonstration that could have a material impact on the state’s Medicaid expenditures” offering examples such as mandated eligibility and benefit expansions. Alternatively, the state asks that the block grant amount be adjusted for the costs of such expansions. Likely in response to analyses and comments, the state separately and expressly notes that it is not seeking exemption from federal civil rights laws, which of course CMS has no authority to waive anyway.
The proposal, as it did before, seeks an adjustment for population growth within the included beneficiary categories that exceeds the baseline. But this adjustment presumably would come only after the enrollment growth triggering the adjustment, meaning that the growth would come in advance of any funding adjustments. The proposal does not describe how the state would accommodate a population surge (e.g. an unemployment growth, a major public health event such as severe influenza) in the interim.
Health Investments
Like the draft, the proposal seeks authority to spend surpluses on “costs otherwise not matchable,” that is, expenditures for which no federal Medicaid funding is available, such as food or rent. The state offers possible examples of such expenditures such as treatment in “institutions for mental diseases (IMDs)” (an excluded form of medical care under traditional program principles), or nutrition or housing assistance, along with transition services for individuals exiting correctional institutions who likely would be eligible for TennCare once released. The state also suggests spending on “health home strategies to better care for members with intellectual or other developmental disabilities, and other items and services as determined appropriate by the state.”
The state commits not to spend on activities such as “tourism development” and other non-health promoting activities identified in comments. What the state does not commit to is spending the surplus. In light of the TANF stories, non-expenditure appears to be a real possibility.
DSH Payments
The TennCare program includes a separate uncompensated care payment provision that effectively substitutes for the standard DSH program found in other states. The proposal seeks permission to modify its current distribution formula to “leverage existing resources to support and reward hospitals”. Details regarding exactly what the state has in mind are missing, other than its statement that it seeks to engage in “systematic delivery system reform strategies to incentivize the delivery of high-quality, appropriate care in the lowest-cost setting” and to reduce “the misalignment of incentives inherent in the current system.” This sound much like the Obama Administration’s Delivery System Reform Incentive Program (DSRIP), which CMS Administrator Seema Verma publicly announced would end during her recent Medicaid directors speech.
Appropriately Penalizing Member Fraud
As in the draft, the proposal seeks the power to create “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 termination or suspension. . . and whether specific actions on the part of the member could serve as an alternative to termination or suspension.” The final proposal is silent on the question of procedural safeguards to be used under the new system.
Pathway To Permanency And Administrative Streamlining
As before, the state seeks to eliminate the periodic demonstration review and evaluation process, something that appears to be at odds with 1115 itself and which presumably CMS cannot therefore waive. This would appear to be especially true in the case of Amendment 42, which represents a fundamental and dramatic departure from normal Medicaid principles in virtually all respects. While TennCare itself served as a groundbreaking experiment in transitioning to managed care (and has been extensively evaluated), this amendment, if approved, ventures into entirely new territory where federal policy is concerned; CMS presumably will evaluate it extensively assuming the experimental modification is approved and implemented.
The state also, as before, seeks extensive waivers of the federal oversight process, including approval of managed care contracts, state arrangements with MCOs on delivery system reforms, limits on risk contracting, and federal certification of actuarially sound capitation rates. These would be in addition to the broad coverage and payment waivers the state seeks, on the ground that “[w]ithin 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” program administration, in particular the managed care contracting process. Given the magnitude of federal funding sought, along with the extensive exemptions from block granting that have been requested, the state does not explain its thinking regarding its assertion regarding its role as the primary bearer of financial risk.
Evaluation Design
As is generally the case with 1115 experiment proposals, the state offers only a broad sketch of what it is contemplating will be covered by the evaluation of the experiment’s success or failure. The state’s thinking at this point appears to be even more limited than most; the state identifies two measures, program expenditure growth and the absence of negative impact on access or health for TennCare members.
Wide-Ranging Public Comments
Despite the draft’s vagaries and seeming incompleteness, the public comments were voluminous and extensive. Commenters appear to raise common themes, such as:
- the potential for large-scale coverage reductions; the potential harms to health care and health implicated by the experimental design;
- the pressures to cut care as the gap between costs and federal payment grows over time;
- the potential adverse impact of a closed drug formulary;
- the potential harms from eliminating managed care rules such as network adequacy;
- slashed provider payments;
- harms to specific high-risk populations such as people living with mental illness, developmental disabilities, cystic fibrosis, epilepsy, cancer, heart disease, diabetes, addiction, or HIV/AIDS;
- a surge in public health threats such as untreated sexually transmitted infections;
- the ignoring of lessons learned from other block grant experiments such as TANF (one of which appears to be hundreds of millions of unspent funds, as noted);
- and extraordinary strains on the health care system.
Notably Blue Shield of Tennessee lauded the proposal as a “novel approach” that can be managed in partnership with the state’s MCOs.
The state’s response to comments in general seeks to provide general assurances that it intends to strengthen TennCare, not harm it. Perhaps most notable is Tennessee’s assertion that the budget neutrality principles that govern 1115 experiments effectively legitimize the notion of block grant as within the scope of CMS approval authority, since the impact of budget neutrality is to create an overall spending ceiling against which 1115 demonstrations are approved. Of course, a governmental budgeting policy for determining whether a state experiment should be authorized (a CMS policy, not a legal constraint) is fundamentally different from the question of whether CMS actually has the power to waive federal Medicaid payment laws aimed, at least in part, at protecting beneficiary populations against insufficient coverage for necessary health care — Medicaid’s core purpose. As Rachel Sachs and Nicole Huberfeld recently pointed out, federal waiver authority under the law appears to be confined to legal provisions that do not include the federal spending formula.
Unanswered Legal Questions
Beyond the question of whether the laws governing federal financial participation in state programs are even waivable, at least two other legal questions are worth posing. The first is whether the HHS Secretary ever can reasonably find that a block grant that raises the potential harms discussed nonetheless “is likely to assist in promoting the objectives of” Medicaid. Such a finding is the defining test of whether HHS can legitimately exercise its experimental authority under 1115. Putting aside the conceptual aspect of this question, as we have learned from the Medicaid work experiment cases, the real issue under established principles of administrative law is whether the Secretary provides a reasoned explanation regarding his decision to proceed — with a clear record, based in evidence, that weighs measurable harms against the articulable benefits to be gained.
The public record thus far would suggest that this will be hard to do. There is overwhelming evidence of potential harms, and it is difficult to understand how global budgeting would advance Medicaid policy in a state where, officials say in their block grant proposal, Medicaid managed care has already produced major efficiencies and cost savings to the federal government. One must ask: Why try such a model in a state like Tennessee as opposed to one whose per capita spending is considered excessively high? Putting aside the fact that the experimental model may do more harm than good once the evidence is laid bare, what is the logic of moving forward in a state that already is making such heavy use of cost containment through capitation?
A second set of questions is raised in a November 26 letter from the National Health Law Program (NHeLP) to CMS, ironically sent the day that CMS formally accepted the amendment proposal and opened the comment period. The letter raises two basic issues: the status of the proposal as an amendment rather than a new proposal, given its scope and sweep; and the vagaries of the proposal, which deprive people of the opportunity to submit meaningful comments. NHeLP asks that CMS order the process to begin again as a new proposal with sufficient detail to enable meaningful public comment.
However, on November 27 CMS notified the state that its application is considered complete and thus in the review process. The CMS review process now begins on a proposal that attempts to test a state-level version of a major Presidential budgetary aim, block granting Medicaid. How long the process will take, what the federal public comment process will look like, and whether CMS will decide to let Tennessee proceed all are questions to be answered in the coming months.