Waiver Update: CMS May Have Found a Path Forward in Tennessee

The Biden CMS inherited a real waiver mess in Tennessee, but CMS may have found a path forward. CMS has asked the state to amend the most problematic parts of its section 1115 demonstration known as TennCare III, so that the TennCare program can continue. Just as importantly, to its credit (and unlike some other states), Tennessee is also signaling that it wants to move forward. But there are still a few hurdles to clear. Will CMS and the state get across the finish line?

Let’s remember how we got to where we are. In January 2021, just before leaving office, the Trump CMS approved a historically bad demonstration in Tennessee. The demonstration included a confusing attempt to “block grant” the TennCare demonstration and implement an extremely restrictive drug formulary. The approval also continued a waiver of retroactive coverage for most populations. The Trump CMS never held a comment period on managed care components of the demonstration, and held an inadequate comment period on the block grant and drug formulary. Nonetheless, the Trump CMS approved the demonstration for ten years – double the historic and legal limits for waiver approvals.

The approval was so problematic that Tennessee Medicaid recipients then filed a strong lawsuit challenging the approval.

So the Biden CMS inherited an approval that was a legal and policy disaster, and the subject of a lawsuit. Talk about a fixer-upper.

CMS began cleaning up this mess (and there were many others) by opening a comment period in August 2021, to finally offer Tennesseans a full chance to comment on the TennCare III demonstration. The lawsuit was put on pause to allow for the comment period to play out. Together with partners, we submitted comments identifying all of the problems with the TennCare III demonstration approval. And then we all began to wait. And wait.

On June 30, 2022, CMS finally made its move. After analyzing the comments, CMS sensibly concluded that the block grant and drug formulary components of the demonstration were not approvable – and CMS sent a letter to Tennessee proposing that they be removed. However, CMS’s letter is troublingly silent on the ten-year approval and the retroactive coverage waiver (though the latter may not be surprising; the Biden CMS has moved to end work requirements and premium waivers, but has been willing to extend retroactive coverage waivers in a few states).

On July 19, 2022, Tennessee released a proposed amendment to its demonstration, agreeing to drop the block grant and the drug formulary, paving the way for the demonstration to move forward. The proposal is going through a state comment period, and then we expect CMS will open a federal comment period. It is commendable that Tennessee is willing to work in good faith with CMS making the necessary adjustments and that they opened a comment period.

A ten-year approval remains deeply concerning. The demonstration that would remain in place is in reality an extension of the prior TennCare II demonstration – and extensions cannot legally be approved for more than five years (see section 1115(e)). A ten-year approval also defies the purpose of section 1115 demonstrations: they are supposed to be experiments, not long-term program changes. CMS should limit the approval to five years, as a matter of law, precedent, and policy.

Meanwhile, CMS should also ask the state to drop the retroactive coverage waiver. The state has tested this waiver for decades, and the experiment (if there ever was one) is done. At a time when the administration is prioritizing tackling medical debt and has issued an Executive Order asking agency heads to examine “policies or practices that help reduce the burden of medical debt on households,” the approval would be misaligned and tone-deaf in addition to bad policy and arguably illegal. If CMS nonetheless moves to approve retroactive coverage, it certainly should not do so for ten years! Within a year or two, there should be even more data confirming the policy is harmful – why punish Tennesseans for a full decade?

Dropping the ten-year approval and retroactive coverage would presumably also get CMS out from under the lawsuit.

For its part, Tennessee has no reason to fall on its sword for the ten-year approval. Demonstrations are routinely extended, so in five years the state can just extend it. Giving up the retroactive coverage waiver will help Tennesseans and reduce hospital losses. And while it might add some costs for the state, securing the approval of this demonstration would get the state lots of other new dollars. Under Tennessee’s proposed amendment, the state would capture federal dollars to replace millions in state spending on various health care projects. While we believe CMS will need to refine this proposal to meet legal standards and ensure transparency, it is likely that some form of the funding will be approved.

CMS and the state have a clear path forward with a routine extension of TennCare, and both sides have more to lose than gain in clinging to the irregularities of the Trump approval. They appear poised to clear the final hurdles to a workable solution. Now let me go find some wood to knock on.

Leonardo Cuello is a Research Professor at the Georgetown University McCourt School of Public Policy’s Center for Children and Families.

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