Tennessee 1115 Waiver Application

On September 17th, 2019, Tennessee released its proposal to implement a black grant for Tennessee’s Medicaid program, otherwise known as TennCare.  This 1115 waiver, referred to as “Amendment 42,” would convert the federal share of the state’s Medicaid funding for most services into a block grant. The block grant would apply to, generally, the entire Medicaid population in the state, which is a non-expansion state.  The Tennessee waiver is currently in the state public comment period and has not yet been submitted to CMS. TennCare public comment period for “Amendment 42” is open from September 17, 2019, through October 18, 2019. Click here for specific details on where to send comments.

Below please find our summary of key points of the waiver.

Block Grant Structure

Through the waiver, Tennessee is seeking approval to convert its Medicaid program into a block-grant type model.  If approved, Tennessee would become the first state to restructure its Medicaid program accordingly.

In determining the block grant amount, it will be calculated based on discrete member categories that have a history of different expenditures. The four categories are: 1) blind and disabled; 2) elderly; 3) children; and 4) adults. For each category TennCare will calculate average enrollment over the three years of the base period (FYs 2016-2018). Then the state will calculate the “without waiver” expenditure amount for each category. The state will multiply the enrollment amount by the expenditure amount and then by the FMAP. This will be done across each eligibility category.  In future years, the block grant amount will be adjusted by an inflation factor, which is the CBO projection of growth in Medicaid spending. In the first year of the program the state would receive approximately $7.9 billion.

Although this funding restructuring is being framed as a block grant, it really acts more as a traditional per capita cap.  If actual enrollment in any of the four categories exceeds the category’s average enrollment during the base period, then the state’s block grant amount will be adjusted to reflect the increase. Furthermore, the state law initiating the waiver states that the block grant amount will not decrease if the Medicaid population decreases. Additionally, the waiver states that there will be no reductions to benefits offered or eligibility categories.

Tennessee also requests to 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.  To the extent that congress or CMS imposes additional requirements to the Medicaid program during the course of the demonstration, the states block grant must be adjusted to account for any new expenses.

The state has also included a shared savings component. In any year in which the state underspends the block grant amount, the state will retain 50 percent of the federal share of those savings. The state notes that it will maintain its current state funding levels for Medicaid services.

Services Excluded

Services excluded from the block grant include: 1) 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 1915(c) waiver and targeted case management services provided to children in state custody; 2) outpatient prescription drugs; 3) 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; and 5) administrative expenses.

Prescription Drug Formulary

Although the state is excluding outpatient prescription drugs from the block grant formula, it is proposing to adopt a closed formulary that has at least one drug available per therapeutic class. The state proposes to exclude 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. A similar proposal was included in a Massachusetts 1115 waiver. However, CMS denied the Massachusetts waiver in 2018. CMS noted that the state would have to forgo the rebates that prescription drug manufacturers give to Medicaid programs in order to implement a closed formulary. The Administration has indicated interest in implementing closed formularies in Medicaid through pilot programs. Specifically, the President’s FY 2020 Budget (and FY 2019 Budget) called for a five state demonstration program to allow states to test a closed formulary under which states negotiate prices directly with manufacturers, rather than participating in best price reporting or the Medicaid Drug Rebate Program.

Waiver Length

Additionally, Tennessee suggests that CMS should re-evaluate approving waivers on a permanent basis. The implementation start and end dates are not specified in the waiver. However, having the state raise concerns about making waivers permanent suggest that the state is concerned that future Administrations would not approve/re-approve this waiver. (The exact start and ends of the waiver are not specified.)