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Overview of the TennCare FY 2012 Budget

Like the two previous years before it, the FY 2012 final approved budget postpones some of the more difficult reductions. Most of the reductions are postponed with one-time funding such as the Hospital Assessment Fee, unused state funds from the 2011 state fiscal year, and a potential credit from the federal government known as SDW. A few other reductions were funded with recurring funds due to improved state revenue estimates. While TennCare is able to once again postpone the majority of the reductions, some cuts will have to be made at the start of the fiscal year, July 1, 2011. These reductions include:

  • The elimination of a grant to the Tennessee Chapter of the American Academy of Pediatrics (TNAAP)
  • A reduction in the amount of sleeping pills adults can fill per month
  • A reduction on the amount of Suboxone adults can fill per month
  • The elimination of acne products for adults
  • A limit of $4 on the amount TennCare will pay for widely accessible $4 generic drugs
  • Better purchasing agreements related to factor for Hemophilia
  • Births will be paid for at a new blended rate - calculated at current vaginal rates plus 17 percent. This will properly incentivize the appropriate use of C-sections
  • A change in the way ER physicians are reimbursed - they will only be paid a triage fee for treatment of non-emergent cases
  • A reduction in a grant paid to Meharry - from $13 million to $12.5 million
  • A reduction in grants paid to the MED, Metro and Jellico hospitals - from $10 million to $5 million
  • A rate reduction of 4.25 percent for certain providers:
    • Nursing homes, MCO admin. rates, transportation providers, lab and x-ray services, dental, PACE program, and home health providers
    • This rate reduction will be put into place starting July 1, 2011 and will stay in place until December 31, 2011
    • Starting January 1, 2012, that rate reduction will increase to a reduction of 8.5 percent for those providers
    • However, there is a possibility that the federal government will credit states for an error made by the Social Security Administration known as SDW. If that SDW money is credited to Tennessee by January 1, 2012, the rate reduction for those providers will remain at 4.25 percent for the rest of the fiscal year (until June 30, 2012)
    • If SDW funds are not received by January 1, 2012, TennCare will also implement a $2 co-pay for adult non-emergency transportation services

The 2012 budget also adds smoking cessation products to the TennCare benefit package for adult enrollees.

Update on the TennCare 2012 Budget

Based on communications with officials from the U.S. Department of Health and Human Services, TennCare will have to implement the additional provider rate reductions that were included in the program's current budget.

The budget contemplated the program being able to postpone the additional reduction due to the potential receipt of money owed to the state by the federal government. When the budget passed, it included a contingency plan that gave instructions on how those funds would be used should they be received prior to January 1, 2012. However due to recent communication from the U.S. Department of Health and Human Services, it is unlikely these funds will be received by Tennessee in order to postpone the reductions.

The contingency budget would have postponed a 4.25 percent rate cut to certain providers. This includes: nursing homes, ICF/IIDs, MCO administrative rates, transportation providers, lab and x-ray providers, dentists, the PACE program, and home health providers. This 4.25 percent rate reduction is in addition to the 4.25 percent rate reduction that went into place at the start of the fiscal year (July 1, 2011).

As you may recall, the original budget proposal actually called for an 8.5 percent rate reduction for these providers. However at the time the budget was passed, there was a possibility the federal government would make good on its debt to Tennessee before the mid-point of the fiscal year (January 1, 2012). This would have allowed the state to minimize that rate change to 4.25 percent for the entire fiscal year.

Recently, HHS announced that they believe absent federal legislation they are unable to resolve the outstanding liability. It is highly improbable that this type of legislation could be introduced and passed by Congress by the January 1 deadline. This is why TennCare must prepare for making the additional 4.25 percent rate reductions with a January 1 effective date.

We will keep you informed should the situation change.


The Social Security Administration (SSA) determines who receives disability benefits. Over the past 35 years, the SSA made a systematic error in the handling of about 300,000 cases of people who applied for disability. This resulted in some individuals receiving Supplemental Security Income (SSI) when they should have been receiving Social Security Disability Insurance (SSDI). SSA refers to the effort to correct this problem as the Special Disability Workload or SDW.

The SSA error has a cost impact to states because states were required to provide a portion of the funding for Medicaid benefits to individuals who should have qualified for federally-funded Medicare benefits. Individuals receiving SSI automatically receive Medicaid benefits. Medicaid is funded by the state and the federal government. Individuals receiving SSDI are eligible to receive Medicare benefits after receiving SSDI for two years. Medicare is primarily funded by the federal government. This resulted in Tennessee being owed an estimated $82 million for services provided to SDW cases that Medicare should have covered.

Over the past year, many states worked together to put forth a potential solution to this longstanding issue which would require the HHS Secretary to use administrative authority to solve the problem. Governor Haslam and many other Governors wrote official letters to Health and Human Services Secretary Kathleen Sebelius urging HHS to approve this proposal. TennCare and other state Medicaid officials across the U.S. have also been in communication with HHS about this issue.

While HHS has stated their desire to resolve this problem, ultimately it is their interpretation that federal legislation would be needed to resolve the SDW liability.