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Cover story
In Van We Trust?

How firm is Hilleary's grasp of Tennessee's ailing health system?

by Joe Sullivan

Van Hilleary has made TennCare the whipping boy for nearly all that ails the state financially. Yet, in insisting that cuts in TennCare can go a long way toward resolving the state's fiscal bind, he doesn't show much cognizance of the forces that are exerting upward pressure on TennCare costs.

These forces start with the rising cost of health care generally, especially for prescription drugs. The city of Knoxville, for example, got hit with a 30 percent increase in its health insurance bill for the current fiscal year and will incur an additional 15 percent increase in the fiscal year ahead.

Then there are the many special forces at work on TennCare, primarily due to court orders and consent decrees. Under one consent decree, the state got relief from an embargo on removing ineligible people from the rolls for lack of due process, but for every person removed the state must add another whose employer doesn't offer health insurance. Another costly decree requires the managed care organizations (MCOs) that administer the program to keep on paying for drugs or other treatment that have been denied to an enrollee pending an appeal of the denial. What could prove even more costly is a decision by Federal District Judge John Nixon last December declaring TennCare "a failed experiment"—not for any excesses but for its deficiencies in delivering federally mandated services to children. These center on Early Periodic Screening, Diagnostic and Treatment (EPSDT) requirements that the state and the MCOs have failed to meet. A special master has been named to determine how to bring them into compliance.

All of these court actions are the handiwork of the state's premier social services advocate, Gordon Bonnyman, and the Tennessee Justice Center, which he heads. Bonnyman fears that the state, in its current efforts to get federal approval for restrictions on eligibility and benefits, risks "killing the goose that lays the golden egg." By that he means the uniquely favorable federal matching of state funds that former Gov. Ned McWherter negotiated for TennCare at its outset in 1994. Loss of this "sweetheart deal" as many in Nashville have impolitically come to refer to it could drive state costs far higher yet or else force cutbacks that go far beyond what even the program's harshest critics have been seeking.

Hilleary points out the state's TennCare costs have risen nearly 50 percent (to $1.84 billion) over the past three years, a rate well in excess of the national average increase in state Medicaid programs. Yet pointing to a chart that shows increases below the national average in prior years, he goes on to acknowledge that, "The only reason we saved money down here is because we didn't pay the doctors, we didn't pay the hospitals, we didn't pay the pharmacists, and when we paid them, we paid them late. And when we paid 'em late, we didn't pay 'em much."

Indeed, until reimbursement rates to doctors, hospitals and other providers were substantially increased over the past three years, TennCare teetered on the brink of collapse due to a mass exodus from MCO provider networks. At the same time, by far the largest MCO, BlueCross BlueShield, served notice of its intent to quit the program while two other major players went bankrupt.

Eventually, BlueCross was induced to continue on a smaller scale, and two new MCOs were recruited to pick up the slack. But that construct is crumbling once again. The two new MCOs have both pulled out; and BlueCross' TennCare chief, Ron Harr, reports it's losing money again, primarily due to rising drug costs in relation to the set fee it receives from the state per enrollee.

The head of another remaining MCO, PHP/Cariten, contends the program can't continue in its present form. "Pharmacy costs are out of control, and the state is going to have to place the MCO's on a non-risk footing," says Tony Spezia, who is also CEO of PHP/Cariten's parent company, Covenant Health. By non-risk, he means a fee basis that would eliminate risk of loss if MCO costs exceed their fees—yet this risk is supposed to be incentive for MCOs to control their costs and hence the state's.

Hilleary has off-handedly proposed placing the entire program under a single MCO. But while Bonnyman and Harr disagree on many things, they concur that this approach is ill advised. "If Van believes that markets function best with a monopoly provider, then godspeed," says Bonnyman sardonically. To which Harr adds, "BlueCross always does best when we have someone else to compare ourselves to. We definitely would not want responsibility for the program as a whole."

Perhaps his recently formed healthcare advisory council will help Hilleary come to grips with the enormous complexity of the issues overhanging TennCare and its future. But aside from his ability, there's the question of his willingness to do so. In January, Hilleary told a Tennessee Medical Association Gubernatorial Forum that, "It's probably not my passion to sit there and work on TennCare for the next year or however long it takes...You know I can hire a manager to run TennCare. I can hire someone that's done it before, someone that's run an HMO. I can hire someone who's good at that."