TennCare: The Perils of Cost Containment
© 1996, Michael J. Booker, Ph.D.
INTRODUCTION
The state of Tennessee is in the third year of an experiment in health care reform that may readily be described as bold. The program known as TennCare is ambitious in its scope and in its objectives. It is my intention to explain the goals, history, and difficulties of TennCare, and then to analyze the justice of sweeping cost containment through global budgeting and capitation rates. It is my contention in this paper that the state of Tennessee has not brought its health care system closer to justice, but rather that it trades one set of injustices for another.
THE GOALS OF TENNCARE
It is not news that the rate of growth of health care costs has readily outstripped the pace of inflation in our country in recent years. In the United States, health care has grown to count for 13% of our GNP, roughly twice what other developed countries expend for health care. In 1992, the state of Tennessee was finding itself experiencing a 17% annual increase in Medicaid, a rate of growth which greatly exceeded state revenue growth and a rate of growth which promised to be fiscally disastrous (McWherter, p. 83-88). Like most states, Tennessee was attempting to find a way to deal with that increased cost without levying onerous taxation levels and without abandoning its mission of providing healthcare to the least advantaged in the state. In 1992, the state had spent 2.9 billion dollars on Medicaid, and even a small annual increase in that figure would have a huge impact.
Rather than simply fine-tune the Medicaid system, then-Governor Ned Ray McWherter decided to radically redesign the care received by Medicaid recipients. In interviews with the media he claimed that inspiration for TennCare had struck him when he realized that state employees' health care costs were being contained by the private insurance providers while Medicaid costs continued to rocket skyward. If private providers could contain costs for state workers, he reasoned, they could also reign in the growth of Medicaid.
The eight formal goals of TennCare were as follows: "[to] increase access to health care within a context of overall market-based budgetary limit; improve quality of care; encourage preventive care; provide enrollees incentives for appropriate utilization; incorporate us of charity care funds; encourage coverage of presently uninsured employees and their families, as well as uninsurables; remove disincentives for AFDC recipients to work; and provide continuity of coverage despite change in status" (McWherter, p. 7).
What all of this means in practical terms is that the Governor had decided that it was possible to put a lid on costs while, with the same monies, offering health care insurance to fifty percent more Tennesseeans than were previously covered by Medicaid. How did McWherter expect to be able to do all of this? First, he wanted to hand control of health care distribution to the private sector. Individual MCOs (Managed Care Organizations) would compete for clients and received a fixed sum of state funds for each client recruited. Second, the TennCare system would receive pro-rated premiums from people it insured who fell above the poverty line. Finally, McWherter reasoned that decreasing the number of indigent Tenneseeans would decrease the need for indigent care, and thus health care costs to paying patients would not have to be inflated to care for these people.
There was an additional goal to TennCare that was explicitly spelled out in the Governor's plan (McWherter, pp. 13-14). Ned McWherter was a Democratic Governor who was supportive of recently-elected President Bill Clinton's plans for national health care reform. If TennCare could live up to its impressive expectations, then it would serve as a demonstration project to pave the way for Clinton's larger health care goals.
THE CHRONOLOGY OF TENNCARE
On April 8th of 1993, Governor McWherter announced his plans for Medicaid reform and declared that the program would begin on January first of the next year if federal Medicaid waivers could be obtained. Tennesseans scrambled to gain more information about the specifics of McWherter's plan, a plan which appeared to have emerged out of nowhere. In fact, the general outlines of TennCare had been sketched out in 1985 by the Select Committee on Health Care Cost Containment under Governor Lamar Alexander. It had said, "The Select Committee also recommends that the feasibility of contracting with alternative delivery systems that would cover Medicaid eligibles on a capitation basis be appropriately studied" (Select Committee, p. xviii).
The specifics of TennCare were not easily available at this point since they evidently did not exist. In April and May, the Tennessee Legislature considered a general statement of support for TennCare which consisted of a document merely four pages long. After rapid negotiations with many interest groups, especially the Tennessee Hospital Association, they voted to approve of the general proposal. The House passed the proposal 91 to 4, and the Senate later passed the document 30 to 1.
In June of 1993 McWherter met with President Bill Clinton and Secretary of Health and Human Services Donna Shalala in Washington. He requested rapid approval of the necessary Medicaid waivers, and stressed how TennCare could be politically useful to Clinton. McWherter left Washington claiming that the waivers would be arrive in sixty days. As it turns out, a conditional waiver took five months to arrive because of repeated requests from Washington for additional specifics. By this time it was mid-November, and precious little time was remaining until the proposed kick-off date. McWherter sent letters to the state's Medicaid recipients, asking them to choose from the twelve provider organizations that had offered to manage TennCare patients. Most of the provider organizations had been created after April of 1993 in order to take advantage of the new business opportunities, and none could declare at the end of the year precisely which physicians would actually see patients for them.
THE DIFFICULTIES OF TENNCARE
TennCare began on January first of 1994, just as McWherter had promised. As might be guessed, the rapid deployment of TennCare made for enormous logistical problems. A toll-free state line to answer questions about TennCare received eight thousand calls an hour. By no stretch of the imagination could 800,000 patients be moved smoothly from Medicaid to TennCare in the brief time available, and an additional group of 400,000 Tennesseans were being added to the new program.
Why was TennCare implemented so rapidly? From the outset, the Tennessee Medical Association had protested that the plan had been developed without anything resembling adequate input from anyone outside of McWherter's office. Even the legislature complained that it had been effectively bypassed in a plan which was going to have enormous impact. The rapid pace of TennCare implementation appears to have been wholly deliberate. My interpretation of McWherter's remarks to interest groups in 1993 and 1994 is that the Governor deliberately wanted to impose TennCare on health care professionals. He knew that each group would try to defend its own interests, and apparently felt that no meaningful change could ever emerge from a broad-based consensus.
Related to the rapid implementation of TennCare was Blue Cross and Blue Shield's decision to implement a unilateral demand on its existing providers to now care for TennCare patients. The "cram-down" provision generated enormous hostility which TennCare might not have otherwise engendered. The state needed to ensure an adequate pool of health care providers in order to receive its Medicaid waiver, and the "cram-down" gave them that pool. Initial physician opposition to TennCare and its low compensation rates meant that over two thousand out of seven thousand physicians initially abandoned their BCBS contracts rather than take TennCare patients. BCBS, the largest health care insurer in the state, had to deal with hundreds of thousand of patients who feared that they would lose their physicians of choice. Most physicians have since returned to BCBS, but accurate numbers have proven difficult to obtain.
TennCare continues to face problems with inadequate health care provision. Rural health care providers are always scarce, but TennCare has pushed this scarcity. In one vivid example, Dr. Houston Lowry, a 67-year-old primary care physician in rural Madisonville, signed with Access MedPlus in order to receive compensation for Medicaid patients that he had seen for years. After signing with the MCO, he learned that he was expected to absorb an additional one thousand TennCare patients (Davis, Marti. "1,000 reasons to dislike TennCare," Knoxville News-Sentinel, pp. A1, A6) In another case, Dr. Chet M. Gentry, a recent medical school graduate in the city of Sparta, found himself one of only two primary care physicians in a five-county area that would accept TennCare patients (Walker, p. 91).
Consumers have also suffered as a result of TennCare's haphazard implementation. A dramatic story from TennCare's first year was the story of Brandie Hinds, a two-year-old child who needed a liver and bowel transplant in order to survive congenital intestinal malformations. TennCare officials initially disapproved, and then approved, and then disapproved the $576,000 medical procedure. The child finally died without treatment.
It is a great deal to expect of any Medicaid reform to suggest that it could resolve such dramatic social problems as the absence of adequate rural health care or the troubling problem of expensive life-saving health care. However, TennCare has proven inherently unable to provide adequate health care because its compensation rates appear to be little more than political fiction. The GAO has criticized the plausibility of the state providing adequate coverage for $1214 per patient. The Governor's Roundtable has suggested that compensation increase to $1538 per month, though it has doubts that this will be fiscally possible (Governor's TennCare Roundtable, Recommendation #1).
CAPITATION COST CONTAINMENT
There is an attitude implicit in the design of TennCare that holds that low capitation rates will force healthy changes in health care delivery. This attitude is predicated on a series of four beliefs, beliefs which I believe must be critically analyzed. The first belief, and one which Governor McWherter explicitly relied on in drafting TennCare, was that TennCare would create more efficient delivery of health care. As one example, emergency room visits were supposed to decrease once the number of uninsureds was reduced (McWherter, pp. 8-9, 88). The logic here was that the presence of primary care would cut down on needless ER visits for trivial health care problems. Unfortunately, ER visits have increased by 5% under TennCare (Davis, Marti. "Criticism of TennCare easing but not ending," Knoxville News-Sentinel, August 10, 1994, pp. A1, A11). There are two reasons for this increase. First, patients who lack access to primary care physicians have had no choice but to go to emergency rooms to receive care. Second, some patients who would previously go to emergency rooms only reluctantly now have come to see themselves as entitled to ER visits for routine medical care.
The philosophy of global budget containment is reminiscent of an exchange from the old "Addams Family" television program. A guest comes to the house looking for the eccentric lead character, Gomez Addams. His wife informs the guest that Gomez is unavailable because he is out skydiving. She explains that he is working on a new hypothesis about skydiving. He is testing the idea that if each time he uses a progressively smaller parachute, he will eventually be able to jump out of a plane with no parachute at all.
If TennCare could end of waste an abuse in health care, this might decrease the misuse of state resources. However, the GAO has criticized all twelve MCOs for failing to implement adequate monitoring mechanisms which might offer some hope of detecting fraud and misuse of resources (GAO, Letter 3). The MCOs themselves, supposedly the agents of waste elimination, have been accused of wasteful and fraudulent practices. For example, Access MedPlus was showing initial profitability under TennCare, but also delaying compensation to providers far beyond its contractual obligation. When the state of Tennessee began to withhold 10% of its compensation and demand more rapid payment of providers, Access MedPlus began to post operating losses. It closed 1994 with a loss of $2.1 million (Ferrar, Rebecca. "Opinions divided about success of TennCare," Knoxville News-Sentinel, February 6, 1995, pp. A1, A10).
Many myths die hard, and one which has shown amazing persistence is the belief that the power of the marketplace can work miracles. While I cannot disagree with the assumption that a private organization has incentives for efficient operation that a government agency lacks, one needs to be critical of just how a private organization will act to reduce expenses. The assertion that MCOs have a vested interest in a healthy population, and hence will encourage preventative health care, ignores the fact that the payoff for preventative care comes long down the line. When one is accountable for this quarter's profitability, widescale mammography represents a present expense with only hypothetical future benefits. Further, the existence of the MCOs means that ten percent of health care resource funds are taken off of the top, and their efficiency must at least make up for the cost of their existence.
Beyond all of this, we must remember that the power of the marketplace only works properly when all parties enter into economic interactions as functional equals with adequate information. Unfortunately, the choice of a health care provider is not the sort of decision that is made with the same rationality as one might approach the purchase of an automobile. The primary tool that most people use in selecting an MCO, if any such choice exists, is to find a plan that one's present physician takes part in. Beyond that, co-payment and deductible expenses probably come in a close second.
Unstated in Governor McWherter's formal proposal is a fourth assumption, which is that health care providers are a group of self-interested, greedy pigs who cheerfully overcharge their clients so as to maintain extravagant lifestyles. When speaking with my students about justice in health care, I frequently hear this stereotype raised even by students who are trying to find employment in health care fields. McWherter's attitude towards health care professionals is typified by the following quote. When a physician complained that the state's capitation rates were inadequate to provide decent medical care, McWherter replied, "Let me tell you something, Doc. The state doesn't pay me what I'd make running my truck line, but I choose to be governor. You choose to be a doctor, and we've got some obligation to the people" (Ferrar, Rebecca. "Health care representatives meet with governor," Knoxville News-Sentinel, August 28, 1993, p. A6).
McWherter tried to buttress his case by pointing out that Medicaid costs had been increasing far beyond the rate of inflation, with the none-too-subtle implication that physicians were to blame. In fact, much of the increased cost was due to additions to Medicaid rolls. Between FY1987 and FY1993, the total cost of Medicaid tripled, but the number of people enrolled in Medicaid had also doubled (McWherter, pp. 11, 95).
JUSTICE AND HEALTH CARE
A frequent complaint about TennCare is that it has been "managed money, not managed care." Yet it is easy enough to criticize other peoples' work. How could Medicaid reform be done in a way that would produce a more just health care delivery system? I concur that Medicaid cannot continue to go about its present path. To borrow a metaphor from State Representative Bud Gilbert, Medicaid has been like a monster that has come to our door each year, and each year we've thrown one of our children at it to make it go away. Now, we find that we've run out of children.
One thing to keep in mind in any discussion of Medicaid reform, and I am grateful to State Senator Randy McNally for making this point, is that the individual states have their hands tied in many ways. Federal law mandates who must be included in Medicaid programs, and the federal government can even dictate what medications and treatments must be covered. Without greater leeway, there is little that states can do to reform Medicaid.
Given these limitations, though, I believe that there is a core principle which has been missed in this attempt to reform Medicaid, and that is the principle of sustainability. What do I mean by this term? By a sustainable system I mean one which works in the present and which can reasonably be expected to continue to work in the future. Sustainability is analogous to the healthy operation of a living organism. A sustainable system is also one which can adapt to changes in its environment, and this requires that it be responsive to its environment. It does not appear disputable that a just health care delivery system must necessarily be sustainable one.
If this is so, then TennCare is unjust from its very roots. When TennCare was created, its birth was overshadowed by the Clinton administration's plans for national health care reform. Governor McWherter evidently did not expect the program to last more than two years before being superseded by Clinton's reforms, so it was only trivially important that TennCare was not actuarially sound (see Governor's Roundtable, Recommendation #1). As far as I can discern, the program was never truly designed to work. Consultants to the state Milliman & Robertson, Inc., concluded that core elements of the plan "were not based on commonly accepted actuarial methods." Put less politely, they made absolutely no fiscal sense.
Predictably, the first year of TennCare was a financial nightmare. In 1994, the state of Tennessee lost $99 million. Blue Cross and Blue Shield lost $9 million (GAO, Letter #1). Access MedPlus lost $2.1 million (Ferrar, Rebecca. "Opinions divided about success of TennCare," Knoxville News-Sentinel, February 6, 1995, pp. A1, A10). The state's hospitals lost $34 million in six months (GAO , Letter #4.6). The Med, Memphis' teaching hospital complex, announced a $42 million shortfall for the year ("TennCare may affect physician training," Knoxville News-Sentinel, February 11, 1995, p. A3).
Losses of this sort demanded a response. When physicians received compensation below their costs, compounded by an explosion of paperwork resulting from multiple compensation plans, they had to find some way to make ends meet. Some health care providers have responded by closing shop. Some have gone into debt. Most have done the obvious; they have shifted costs to their other patients. The central principle which has been violated here is that TennCare will simply not provide resources adequate for its care demands. This is like a patient whose output does not match intake. This can last for a while, but it simply can't go on indefinitely.
The problem of inadequate compensation seems to be one which would be easy enough to remedy; either reduce output, or increase input. Yet this isn't the only threat to sustainability. A deeper problem is the utter lack of accountability inherent in the structure of TennCare. To keep up the biological metaphor, TennCare has avoided pain by severing its own nervous system. Previous criticisms of TennCare have understated this point.
Who is accountable for TennCare's failings? Not Ned Ray McWherter. He was a lame duck governor who is now out of office. Not Don Sundquist, the state's present governor. While elected in part of a platform of massive TennCare reform, he has made only cosmetic changes to the program and boasted to Washington of its "efficiencies" (Powelson, Richard. "Gov Sundquist asks for unfair edge for TennCare, member of House panel says," Knoxville News-Sentinel, June 9, 1995, p. A5). Is the Tennessee legislature to blame? No, it only voted to approve a vague statement of support for TennCare reform. The federal government is also off of the hook, because the program is Tennessee's and not theirs. The MCOs should have some chance for blame, but they are shielded not only from moral accountability but from financial risk as well. They are guaranteed a 10% cut of the money that flows through their fingers. If the books fail to balance, their contracts with the health care providers allow them to demand a refund of the needed funds. While this has not yet taken place, some MCOs have unilaterally cut off payments at year's end to balance their books (Walker, pp. 101-102).
Who then bears the pain of TennCare? Not surprisingly, the 1.2 million TennCare recipients and the front-line health care workers responsible for caring for them. This should be deeply troubling. The only people who experience any real feedback from TennCare's problems are those who have no power to set TennCare policy. The decision-makers have insulated themselves from the pain that they cause, while having the audacity to boast of TennCare's success (Manning). The inevitable hard choices are left to the health care providers, resulting in an intolerable conflict of interest. The same professionals who must be that patient's advocate are require to ration care. This is certainly not a problem unique to TennCare, but it is a ghastly trend in health care delivery.
What might be offered in the place of TennCare? First we must ask why we have Medicaid. It essentially reflects two desires of the part of the electorate. The first is that we realize that any of us could potentially face catastrophic medical costs in our families, and we want to have a sort of insurer of last resort. The second desire is a generalized philanthropic spirit which seeks to offer publicly-supported health care for the most needy in the society.
If those goals are to be met ethically, they must be met sustainably. This means that we must match our desires for services with the resources needed to produce those services. The fact that there is no such thing as a free lunch does not mean that the electorate won't pursue it. Yet the burden must fall to those with the power top set public policy to create systems that will work. I commend the Oregon approach, which honestly addressed the question of health resource allocation, over Tennessee's lie of offering more for less. Politicians will quite certainly evade this if they are allowed a painless alternative.
MCOs, if they are to be used as a part of health care reform, must be held accountable to something other than their own bottom line. They need to be accountable to the truth, by which I mean an open disclosure of policies and an end to contractual physician silence.
A just health care system will probably displease virtually everyone. The root of this is our irreconcilable wish for health care both good and inexpensive, and is compounded by our insistence of individual choice over our lifestyles. We don't want to see the end of Medicaid, we don't want higher taxes, and we certainly don't want to be told how to live our lives. Meeting the demands of sustainability will force us to confront our own conflicting desires, something that we have struggled to avoid.
SELECTED BIBLIOGRAPHY
Government Accounting Office. Medicaid: Tennessee's Program Broadens Coverage But Faces Uncertain Future. Washington D.C.: Government Accounting Office, 1995.
Governor's TennCare Roundtable. TennCare Roundtable Report. Nashville: Tennessee Department of Treasury, 1996.
McWherter, Ned. TennCare: A New Direction in Health Care. Nashville: State of Tennessee, 1993.
Mirvis, David M., Chang, Cyril F., Hall, Christopher J., Zaar, Gregory T., and Applegate, William B. "TennCare - Health System Reform for Tennessee," Journal of the American Medical Association, Oct. 18, 1995, vol. 274, no., 15, pp. 1235-1241.
The Select Committee on Health Care Cost Containment. A Plan for Tennessee Health Care Cost Containment. Nashville: Tennessee Department of Health and Environment, 1985.
Walker, Lauren M. "How Not to Launch Health Care Reform," Medical Economics, June 26, 1995, pp. 88-110.
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