Tennessee Block Grant Waiver Summary

On November 20, 2019, Tennessee submitted a Section 1115 waiver application to the Centers for Medicare and Medicaid Services (CMS), which, if approved, would implement a block grant for the state’s Medicaid program (TennCare). The final waiver application is very similar to the proposed plan the state released in September, with a few minor adjustments. To view our summary of the initial proposal, click here.

Below is a summary of the key provisions of the final waiver application. CMS will accept comments on the proposal through December 27, 2019.

Block Grant Structure

Tennessee’s proposed block grant system would apply to the traditional Medicaid population – low-income adults, children, pregnant women, and people with disabilities. The waiver would establish a cap on federal Medicaid funding for the state, calculated based on four discrete member categories that have a history of different expenditures: 1) blind and disabled; 2) elderly; 3) children; and 4) adults. For each category, the state would calculate the average TennCare enrollment during State Fiscal Years 2016, 2017, and 2018, and then multiply by the federal government’s projections of what Medicaid costs would be in Tennessee without the existing TennCare demonstration. The amount of the block grant would then be adjusted in future years based on inflation. Based on the state’s initial calculations, Tennessee would receive approximately $7.9 billion in the first year of the program.

All expenses beyond the core medical services for the core Medicaid population would be excluded from the block grant calculation and be funded under existing mechanisms (see Excluded Expenditures section below). Additionally, any year in which the state’s Medicaid enrollment grows beyond its average enrollment during the base period of 2016 through 2018, the block grant amount would be adjusted on a per capita basis. (Thus, despite being framed as a block grant, the program acts more like a traditional per capita cap).

Finally, the proposal includes a shared savings provision, which would allow Tennessee to retain 50% of the savings in any year that the state underspends the block grant amount.

Excluded Expenditures

As noted above, certain services would be excluded from the block grant calculation and continue to be funded under existing mechanisms. These include:

  • Services that are currently carved out of the state’s 1115 demonstration;
  • Outpatient prescription drugs;
  • Disproportionate Share Hospital (DSH) payments, Critical Access Hospital payments, Essential Access Hospital payments, and similar payments made directly to hospitals;
  • Expenditures on behalf of individuals who are enrolled in Medicare, including cost sharing and premium assistance; and
  • Administrative expenses which are not treated as medical assistance expenditures for federal matching purposes.

The waiver also requests that Tennessee 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, such as new coverage requirements. If the federal government were to impose such mandates, the block grant amount would have to be adjust to account for it. Additionally, if the state were to elect to expand coverage to a new population, that population would be excluded from the block grant calculation for up to three years.

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. The application notes that the state will ensure that the selected drugs in each therapeutic class meet the clinical needs of the vast majority of beneficiaries and that they are cost effective. In addition, the state will maintain an exceptions process to cover drugs that are not on the formulary when medically necessary, including but not limited to exceptions to address adverse drug reactions, drug interactions, or specific clinical needs of a patient.

Additional State Flexibility

In addition to establishing a block grant funding structure and a closed drug formulary, the waiver application requests several new state flexibilities, which fall into four broad categories:

Flexibility to spend Medicaid dollars on things beyond basic health services:

  • The state requests the authority to spend block grant dollars on things such as services for members in Institutions for Mental Diseases, transition services for individuals preparing to exit correctional settings, health home strategies to better coordinate care for members with intellectual or other developmental disabilities, and other items and services as determined appropriate by the state. The application emphasizes that use of block grant funds will be limited to items and services with a demonstrable connection to TennCare member health.
  • Under the waiver, the state would have the authority to spend block grant dollars on efforts to improve access to care in rural areas or improve rural care quality. These efforts could include working with healthcare providers in rural communities to support the adoption of technologies to aid access, or to develop and implement new payment and service delivery models that incentivize value.
  • As part of the block grant system, the state commits to continue its efforts to improve care delivery and invest in quality improvements to the Medicaid program.

Flexibility to alter benefits packages:

  • The waiver would give Tennessee the flexibility to vary benefits packages for different populations (for example, elderly people with disabilities, pregnant women, or parents of dependent children) based on medical factors or other considerations. The state notes that it does not intend to reduce covered benefits for members below their current levels.
  • The waiver requests authority for Tennessee to make changes to its benefits package without the need for CMS approval. The waiver notes that this authority would only be used to add additional benefits, not to remove any existing benefits. It also notes that no changes would be made to the scope of the Early and Periodic Screening, Diagnostic and Treatment benefit, which requires states to provide all medically necessary Medicaid-covered services for children under 21.

Reducing administrative burden:

  • The waiver requests that CMS consider approving the state’s Medicaid demonstration program on a permanent basis, rather than requiring frequent renewals.
  • In keeping with the request for permanent program approval, Tennessee requests the authority to make changes to enrollment processes, service delivery systems, and comparable program elements without seeking additional CMS approvals via State Plan Amendments or demonstration amendments. The waiver would also waive the federal requirements of 42 CFR Part 438 concerning Medicaid managed care programs in order to give the state more flexibility in designing care delivery. The waiver notes that the state will continue to comply with all federal non-discrimination laws and is not seeking authority to alter its appeals or fair hearing processes.
  • The waiver requests authority to modify the participation criteria and distribution methodology associated with the state’s two uncompensated care funds (a “virtual DSH” fund and an uncompensated care fund for charity care) without the need to seek CMS approval through a separate demonstration amendment.
  • The waiver requests that CMS work with the state to identify ways to streamline federal policies related to states’ ability to seek payment from other insurance providers when necessary.
  • The waiver requests that CMS excuse states from sending Medicaid beneficiaries annual notifications that they meet the minimum essential coverage requirements of the Affordable Care Act (ACA). The state notes that these notices are unnecessary now that the individual mandate of the ACA is no longer being enforced.

Reducing fraud and abuse:

  • Finally, the waiver requests the authority to suspend or terminate the eligibility of individuals who have been determined to be guilty of TennCare fraud, and to prevent such individuals from re-enrolling in TennCare for a period of up to 12 months.