![]() While the state is only authorized to spend savings on pre-approved DSIPs, the state will be able to use federal Medicaid dollars to supplant existing state spending on these programs, thereby freeing up state dollars for use on other priorities. Tennessee will be permitted to divert these “savings” to CMS-approved Designated State Investment Programs (DSIPs)-state-funded health initiatives that would not normally qualify for federal Medicaid funding and that CMS previously indicated would no longer be allowed. Depending on quality performance, the state will have the ability to access up to 55 percent of the difference between the cap and actual Demonstration expenditures. ![]() Tennessee will have the ability to capture “shared savings” if its expenditures fall below the cap in a given year and the state satisfies certain quality benchmarks. Furthermore, CMS permitted Tennessee to retain approximately $6 billion in savings from the TennCare II Demonstration, allowing the state to fall back on these savings if it otherwise exceeds its cap. Since Medicaid enrollment in Tennessee already well exceeds 2019 enrollment, the per capita adjustment (referred to as a “risk corridor” in the terms and conditions of the Demonstration) is likely to go into effect during the first Demonstration year. If, in a given year, TennCare enrollment is more than 1 percent above or below the 2019 enrollment baseline, the aggregate cap for that year will be adjusted based on actual enrollment and projected per capita expenditures, effectively converting the arrangement to a per capita cap. CMS calculated the aggregate cap for the first five years of the Demonstration based on 2019 expenditure data by trending forward expenditures for each year based on the President’s Budget trend rate for each of the major eligibility groups. Under Tennessee’s Demonstration (referred to as “TennCare III”), the state has accepted a cap on Medicaid expenditures for which it can receive federal Medicaid matching dollars. The Biden administration could potentially seek to unwind components of Tennessee’s waiver, particularly if it becomes clear that the waiver is not “budget neutral” to the federal government or litigation emerges over the prescription drug provisions of the waiver. While certain features may generate interest from some states, the waiver is unlikely to establish significant new precedent that will be observed by the Biden administration and, in fact, may be subject to further review by the new administration and to litigation by pharmaceutical companies or others. The waiver has received much attention because it has been described as a “block grant” and allows Tennessee to access “shared savings,” but also because it allows the state to operate a closed formulary without foregoing rebates, sets a 10-year term for the waiver, and continues a sizable uncompensated care pool. On January 8, the Centers for Medicare and Medicaid Services (CMS) approved a ten-year Medicaid demonstration project in Tennessee that imposes an aggregate cap on federal funding (subject to certain adjustments). ![]() Jocelyn Guyer, Adam Striar, and Patricia Boozang, Manatt Health Introduction ![]()
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