by Joe Sullivan
While the rest of the state budget, except for public schools and children's services, is facing a 9 percent cut, state funding for TennCare in the fiscal year ahead is budgeted to increase by 17 percent to over $2.2 billion. Making matters worse, the increase will run even higher unless the state is able to get relief from a cap on federal matching funds and from court decrees that have also contributed to big overruns in the current fiscal year.
By way of illustrating just how bad it is, the 9 percent cuts across the broad range of state outlays on which they've been imposed total $355 million. In other words, nearly all the cuts have gone to cover a $328 million increase in TennCare funding. Moreover, the state increase is just a subset of a $1.2 billion jump to $7.1 billion in TennCare's total budget after federal matching funds are taken into account.
This hemorrhaging has made a mockery of the former Sundquist administration's attempt to contain the program's growth by purging ineligible people from the rolls and reducing benefits. Finding ways to contain it in the future probably represents Gov. Phil Bredesen's biggest single challenge-lest TennCare continue to impinge on funding of everything from higher education to environmental programs.
Before he can make things better, though, Bredesen has got to keep them from getting worse. So he's focused in the short run on getting relief from Washington and on the judicial front.
The cap on federal matching funds was imposed last June as part of a five-year extension of the complex TennCare cost-sharing agreement, known as a waiver, between the state and the federal Center for Medicare and Medicaid Services. As a rule, the federal share of TennCare costs is about two-thirds, but the state agreed to absorb the entire amount of any outlays above a budgetary base for a period of 18 months.
The overrun in the current fiscal year alone is projected to be $175 million, and Bredesen has been negotiating with the Bush administration to get out from under it. "We've been working very hard on that, and while it's not a done deal I think our chances are 65/35 or 70/30," the governor told Metro Pulse in an interview.
A series of federal court decisions and decrees are also subjecting TennCare to big cost increases and the threat of even bigger ones. In December, a federal district judge ordered restoration of 168,000 TennCare enrollees who had been removed from the rolls on grounds the state failed to afford them due process under its eligibility verification procedures. That order has been stayed pending appeal, but if the state loses TennCare officials estimate $260 million in additional annual cost. In a decision that these officials now rue, the state consented in another case to allow enrollees who are denied a medication they'd been receiving to continue to get it for 14 days while appealing the denial. Officials contend this consent decree, known as Grier, has both pushed up prescription drug costs in the short run and also impedes the state's ability to realize savings in the long run from a new pharmacy regimen that's due to be implemented on July 1.
"Our pharmacy costs are way out of line, and Grier just ties our hands. I'll bet it's costing us $150 million a year," says Bredesen. "One of the things you've got to do is get generic drug use way up, and Grier makes it very difficult to do that."
The ever-so-effective advocate for TennCare enrollees in these and other court proceedings is Nashville lawyer Gordon Bonnyman, whom the Sundquist administration treated as its nemesis. But Bredesen has done a good job of building good will with Bonnyman since he took office. For one, he declared a "grace period" during which individuals who've been stricken from the rolls can apply for readmission. He's also held in abeyance certain benefit reductions that were due to take effect on April 1 and were the subject of yet another Bonnyman court challenge. "Phil Bredesen has made a believer out of me," Bonnyman allows.
Bredesen, for his part, says "We are working with Gordon Bonnyman to get out from under a four-inch-thick stack of paper which are all these court orders. You can't run a complex program like TennCare in that environment." But Bonnyman says he's still "an agnostic" where the costs for Grier are concerned-though he professes to be sympathetic toward the concept on which the state's quest for drug cost-savings is based.
That concept is the establishment of what's being called a preferred drug list-in essence, a short list of approved drugs on which the state could use its purchasing power to get price discounts from drug makers with an emphasis on generics. "Tennessee is one of the few states that doesn't have a preferred drug list, and we anticipate saving $150 million by streamlining the [pharmacy] program," TennCare Director Manny Martins told legislators at a budget hearing last week. But these anticipated savings, it turns out, only serve to hold down the increase in TennCare's $1.8 billion pharmacy budget for the fiscal year ahead to about 14 percent, whereas it would run well over 20 percent higher without them. (Note: these figures represent total cost, not just the state's share of them.)
Just how TennCare could have run so far over its $6 billion budget for the current fiscal year is hard to fathom. Martins, who's fairly new on the job, offers "aggressive budgeting" on the part of his Sundquist administration predecessor, John Tighe, as a partial explanation. But he obfuscates after that by saying, "It's a function of many forces coming together. They are too complex�to say what the right level is. Even the best actuaries and accounting people can't get to the answers."
Another factor would appear to be the abandonment last July 1 of a system under which managed care organizations (MCOs) were held at risk for any cost above a pre-determined amount per TennCare enrollee assigned to them. These so-called capitation payments had become unacceptably low to the MCOs, and the state agreed to absorb any overages while paying the MCOs a fixed fee for administrative services. There's also a widespread belief among legislators that Tighe deliberately low-balled this year's TennCare budget as part of a strategy, or stratagem, for getting tax reform approved. "The administration had to convince key legislators that TennCare was under control in order to get their votes for tax reform. So he came up with a budget that was designed to do that," says one closely involved. The demise of tax reform meant a failure of both ends and means.
Looking ahead, Bredesen says, "We are going to revamp the structure of TennCare. This MCO model hasn't worked. Several of the MCOs have gone bankrupt, and we've never gotten any of the big players involved. We also have a Comptroller's report for last year raking them over the coals for a bunch of things that were problems before and haven't been fixed." At the state level as well, he says, "We've got to get a different management structure where it actually is a manageable program."
Bredesen says he's "working this spring and summer to get my act together to just how we manage this program going forward." One approach that's being contemplated is "rolling it out of state government into some sort of quasi-governmental agency that operates like a TBA and provides a level of insulation from politics." TBA is an acronym for third-party benefit administrator, and most large companies that self-insure their employee health benefit programs look to TBAs to manage them. TennCare is already taking a big step in that direction by stripping responsibility for pharmacy away from the nine MCOs and placing it under a single pharmacy benefits manager (PBM). The firm selected for this role, Consultec, would also handle negotiations with drug makers in establishing the state's preferred drug list.
Bredesen doesn't rule out restoration of a managed care model as another possibility. "I think we can get some big, well-structured, well-financed HMOs in the bigger cities, but it's not going to work in the smaller towns. We're trying to use one-size-fits-all right now, and it doesn't work."
The governor also believes that benefit levels need to be reduced, particularly on prescription drugs, but he opposes curtailing the program though abandonment of the waiver that allows for coverage of the 260,170 uninsured and uninsurable individuals now on the rolls in addition to the 1,027,386 enrollees who are eligible for Medicaid. "I'd rather keep as many people in the programs as we can at a lighter benefit level," he says. In addition to retention, he would like to reopen enrollment to uninsurables that was closed last July 1 except for those with incomes below the federal poverty line. "We need to get in a mode where it's not closed off, and if you're lucky enough to have been uninsurable on a given date you're in, and if you're not you're out." But given budgetary constraints, that's "down the line somewhere," he says.
When it comes to long-term cost containment, Bredesen isn't claiming that his management prowess can bring TennCare cost increases to a halt. Rather, he foresees them growing at about the 9 percent trend line the Bush administration is in the process of adopting for Medicaid nationally. "We're probably going to be looking at 9 percent growth over the next decade�I'd hope with good management we could do that or even better. But this is health care, and it goes up for all the reasons," he says.
Unfortunately for others seeking more state funds-or just the restoration of this year's funding cuts-9 percent growth on a $2.2 billion base is $200 million a year. That equals the entire state revenue growth that's projected for the fiscal year ahead and at least half of what might be expected in robust economic times. Especially when the likely high cost of satisfying a State Supreme Court mandate for teacher pay equalization is also taken into account, that doesn't leave room for restoring this year's budget cuts, let alone any more funding for those impacted by them anytime soon.
But Bredesen cannot be faulted for fulfilling the mandate of an electorate that's not prepared to pay for more.
April 17, 2003 * Vol. 13, No. 16
© 2003 Metro Pulse
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