Each state designs and administers its own Medicaid program, subject to federal requirements for eligibility, services covered, and provider payments. At the federal level, the program is administered by the Health Care Financing Administration (HCFA), an HHS agency. TennCare Program Designed to Expand Coverage and Contain Costs

Tennessee’s demonstration project was designed to use a capitated managed care system to expand coverage to the uninsured population and to control total program and state costs. In addition, the waiver includes provisions to monitor and ensure enrollee access to quality care. The year before TennCare’s implementation, the increase in long-term care expenditures was over 18 percent. Actual collections to date have been less than estimated. TennCare Has Initially Met Its Objectives, but Access and Quality Assurance Measures Have Been Delayed

For the first year, TennCare essentially met its objectives of expanding coverage and controlling costs. The survey indicated that 45 percent of TennCare enrollees who had previously been on Medicaid said that the care they received under TennCare was worse than under Medicaid, citing limited choice of doctors and difficulty in finding providers as the most significant reasons. And although access and quality of care have not yet been fully analyzed, access to care will likely be inadequate if large numbers of providers choose to discontinue or drastically reduce their participation. As part of the state’s waiver agreement with HCFA, the Comptroller’s office reviewed cost reports from participating federally qualified health centers for the first 6 months of TennCare and concluded that, “it appears the clinics are not performing as well under TennCare compared to Medicaid.” However, the Comptroller’s office said that its analysis was not conclusive because it could not be sure that changes in costs were caused solely by TennCare nor that health centers accurately reported revenues, particularly pending payments. Overall, MCOs lost money in the first year, even after receiving substantial one-time supplemental payments. However, because of the recency of the changes, their impact on the problems we identify is uncertain at this time. The capitation rates are based on historical Medicaid costs and set by enrollee type; the rates are then reduced by charity care deductions and enrollee cost sharing. Although many of these problems have been addressed to some degree, the Assistant Commissioner in charge of the TennCare Bureau testified in March 1995 that TennCare continues to experience several problems as does any program in its “infancy.”

	Limited Managed Care Experience Led to Confusion Among MCOs, Beneficiaries, and Providers

TennCare introduced a prepaid, capitated system, in which the TennCare Bureau makes monthly payments to MCOs for enrollee care, and the Bureau assumes responsibility for MCO oversight.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed Tennessee's Medicaid capitated managed care program (TennCare), focusing on: (1) TennCare's basic design and objectives; (2) the degree to which the program is meeting these objectives; and (3) the experiences of TennCare insurers and medical providers and their implications for TennCare's future.

What GAO Found

GAO found that: (1) TennCare's objectives are to expand health care coverage to the state's uninsured and to control program costs by mandating that Medicaid participants enroll in managed care organizations (MCO) and covering certain uninsured, Medicaid-ineligible persons; (2) Tennessee has cut costs by setting its capitation rates below historical Medicaid costs, applying an additional discount based on the assumption that extensive insurance coverage would reduce charity care costs, and discontinuing certain supplemental payments; (3) in granting the Medicaid waiver, the Health Care Financing Administration has required Tennessee to implement measures to monitor and ensure access to quality care and has limited federal payments over the 5 years to ensure that federal costs do not exceed what they would have been without the waiver; (4) despite the increased number of participants, federal and state TennCare expenditures have increased much less than the national average for Medicaid programs and program costs have actually declined when uncapitated administrative and long-term care costs are excluded; (5) access to and quality of care could not be measured because Tennessee and MCO have not yet set up their monitoring systems, but a survey of beneficiaries revealed significant dissatisfaction with the new program because of the limited choice of doctors and difficulty in finding providers; (6) many MCO and providers lost money in 1994 despite receiving supplemental payments from TennCare; and (7) although TennCare has met its initial objectives, its long-term success is uncertain.