Press Releases

CMS Administrator Seema Verma’s Press Call Remarks as Prepared for Delivery on TennCare

CMS Administrator Seema Verma’s Press Call Remarks as Prepared for Delivery on TennCare
(January 8, 2021)

Thank you for joining today’s call, as we announce the approval of a groundbreaking new demonstration for the state of Tennessee that infuses the principles of value-based care into the Medicaid program like never before. The section 1115 demonstration, known as “TennCare III,” represents a new paradigm for Medicaid, one capable of one day being a national model.

This is not a traditional block grant proposal; but rather, it takes many of the advantages associated with traditional proposals and leverages value based care concepts while placing appropriate guardrails to ensure protection for beneficiaries. It also requires rigorous federal oversight and state accountability, while providing new flexibilities to ensure these demonstrations remain attractive to states.

With an unprecedented opportunity and incentive to share in federal savings, Tennessee will be able to earn the opportunity to reinvest those savings in programs that strengthen Medicaid and improve the health of all of their residents.

Before Director Smith gets into some more detail on the waiver, I’d like to provide some important context. Medicaid is the foundation of America’s health care safety net, a lifeline for more than 76 million Americans. Over the last four years, CMS’ stewardship of the program has been distinguished by the recognition that merely enrolling people in the program is insufficient; instead, we have strived to provide high-value, high-quality care to Medicaid beneficiaries capable of helping them achieve the best quality of life possible, maintain and improve their health, and attain their fullest potential.

Unfortunately, Medicaid’s financing structure – in which states draw down more federal funding whenever they increase their own spending – incentivizes unending cost growth but does little to encourage policies that promote the health and wellbeing of Medicaid beneficiaries. Over time, Medicaid has grown tremendously. It now consumes 30 percent of total state budgets, and is the #1 or #2 budget item for every state in the country. This cost explosion has necessitated more federal oversight of the program, scrutiny which too often descended into micromanagement that thwarted innovation.

For too long, an overbearing, prescriptive Washington was the norm, rather than the exception. Having worked at the state level, I’m painfully aware of the cumbersome, paper-pushing process states endure. Routine changes and innovative programs were stymied by the rigidity of a federal bureaucracy rooted in a 1960s program design.  The result was a program focused on process rather than outcomes, one that too often failed to address the needs of our beneficiaries.

We sought to change that by shining a greater light on the program’s outcomes. CMS’ Medicaid Scorecard – a national and state report card on health outcomes – has revealed numerous challenges facing the program, such as serious failures in treating chronic disease and delivering appropriate preventative care. The Scorecard has also exposed massive variations in costs between the same populations in different states. For all the spending, barely over half of adults on Medicaid report that their healthcare needs were met all the time, and uninsured individuals reported better health status than those on Medicaid.

That’s why we have focused across all of our programs on improving value and aligning financial incentives toward better outcomes and lower costs. We have done this in Medicare through the use of innovative payment models, and Medicaid should be no exception. At the beginning of this year, after decades of calls from states to give them greater control of Medicaid in exchange for more flexibility, we released our Healthy Adult Opportunity (HAO) block grant opportunity.

The program is a test of the theory that with clear accountability, beneficiary protections, and more appropriate financial incentives, states can deliver better outcomes for beneficiaries and value for taxpayers. At a time when there is broad, bipartisan agreement about holding providers accountable for cost and quality as part of a move to value, we are pushing boundaries and introducing the same fundamental concept into Medicaid, rewarding states for improving quality metrics – not simply for spending more money.

Unfortunately, the unexpected jolt of the Coronavirus pandemic prevented many states from pursuing HAO. Nevertheless, it proved to be the conceptual foundation of today’s approval, which uses many of the flexibilities outlined in HAO.

In exchange for a streamlined financing approach in which the state will receive a fixed amount of funding with a reasonable growth rate, the state will enjoy a range of operating flexibilities from the federal government, some of which draw from existing waivers we have provided to other states, with others being entirely new.

For example, for the first time, Tennessee will be able to retain Medicaid drug rebates while gaining the ability to negotiate other supplemental rebates through the use of a commercial-style formulary. The policy includes strong protections to ensure broad drug coverage while also maintaining protections for children and those with certain chronic diseases.

If Tennessee spends less than its target and also meets its quality targets, it can reinvest federal savings back into other state health programs – including those that address the social determinants of health or behavioral health. This opportunity to share in federal savings – provided Tennessee meets a certain standard of excellence in its program – creates a strong incentive to both reduce costs and improve the quality beneficiaries receive.

Crucially, the demonstration contains a range of beneficiary protections. Tennessee may only supplement, not reduce, benefits and coverage from where they are today, and beneficiaries will maintain access to all appeals and fair hearing rights.

Additionally, if enrollment increases above 1 percent – perhaps because of some unexpected event – additional funding will be made available. On the other hand, if enrollment decreases by more than 1 percent, some funding will be reduced, erecting an important safeguard against a state attempting to save money by reducing enrollment. 

The demonstration is approved for ten years, giving Tennessee and CMS ample time to implement and evaluate it. And after five years, CMS will have an opportunity to review the program’s finances and adjust accordingly.

Tennessee officials know the needs of its residents better than any distant bureaucrat in Washington ever could, and in addition to the rigorous federal accountability built into today’s demonstrations, they are also directly answerable to the people their policies affect. I want to thank Governor Lee, Director Smith and his team, as well as the CMCS staff, for their tireless work getting this groundbreaking demonstration ready for prime time.

States like Tennessee have innovative ideas to improve the care their beneficiaries receive. Proactive efforts to refine the care received by the most vulnerable should be encouraged – not hamstrung by a federal bureaucracy confident that it holds all the answers. Like none before it, this administration has reinvigorated federalism in Medicaid – with firm beneficiary guardrails in place – to transformative effect.