TennCare’s New Approach to Payment Shows Savings

Episodes of care is a leading value-based strategy, reduced costs by at least $11.1 million

Nashville – Dr. Wendy Long, director of TennCare, the state of Tennessee’s Medicaid program, announced today that doctors and hospitals reduced costs while maintaining quality of care in the first year of TennCare’s episodes of care value-based payment strategy.

Episodes of care is one of several value-based strategies that TennCare has advanced in the past few years through the Tennessee Health Care Innovation Initiative. Since 2013, TennCare and major health insurers in Tennessee have worked together to move from paying for volume to paying for value. Increasingly, health care providers are being rewarded for positive outcomes including high quality and efficient treatment of medical conditions and maintaining people's health over time.

“We launched the Health Care Innovation Initiative in February 2013 to make health care in Tennessee a value-based system focused on efficiency, quality of care and the patient experience. The state has established itself as a leader in paying for value in health care, and these results are an early and exciting indication of the promise of our approach,” said Tennessee Gov. Bill Haslam.

Results after the first year showed a reduction in costs of 3.4 percent in perinatal, 8.8 percent in asthma exacerbation, and 6.7 percent in total joint replacement (hips and knees). Overall, the cost for services in these three types of episodes was $6.3 million less than the previous year, even though medical costs were projected to increase by 5.5 percent nationally. Conservatively assuming a 3 percent increase would have taken place in the absence of this initiative, these episodes reduced costs by $11.1 million.

“Episodes of care are helping us achieve low trends and reductions in costs, which is great news for Tennessee taxpayers,” Dr. Long said. “We achieved these reductions while continuing to provide high-quality care for TennCare members.” In an episode of care, providers can receive financial rewards if the services a patient received meet certain quality measures and are cost effective.

The results are from the first three episodes implemented. In 2016, five additional types of health care services were added to the episodes list: chronic obstructive pulmonary disease exacerbation, colonoscopy, acute and non-acute percutaneous coronary intervention, and cholecystectomy. The state plans to have 75 episodes designed by 2020.

Episodes of care are becoming a more common approach to payment in Tennessee and nationally. Some providers have already engaged in episodes of care agreements for commercial insurance and for Medicare. More commercial insurers are expected to ramp up episodes programs in Tennessee next year. Medicare recently made a joint replacement episode payment mandatory for 75 cities across the country including Memphis and Nashville. Medicare further announced that it plans to implement a mandatory episode program for all care associated with bypass surgery and heart attacks in July 2017.

For more information on the Tennessee Health Care Innovation Initiative including details on episodes of care, please visit Tennessee Health Care Innovation Initiative.

About TennCare

TennCare is the state of Tennessee’s Medicaid program which provides health insurance to approximately 1.5 million low-income Tennesseans including pregnant women, children, caretaker relatives of dependent children and older adults and adults with physical disabilities. With a satisfaction rating above 90 percent since 2009 TennCare provides health insurance through the use of managed care.