Advocates File Suit Over Tennessee Waiver – Dissecting the Complaint

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Foley Hoag LLP - Medicaid and the Law

On April 22, 2021 the Tennessee Justice Center and the National Health Law Program, representing thirteen (13) aggrieved Medicaid beneficiaries in the state of Tennessee, filed suit in the U.S. District Court for the District of Columbia against the U.S. Department of Health and Human Services (HHS) seeking to block the implementation of the TennCare III “modified block grant” 1115 waiver approved in the waning days of the Trump Administration. We’ve written about TennCare III extensively on this blog – from its initial proposal in 2019 to its approval in January 2021 and everything in between.

As a quick refresherthe TennCare III waiver (which is set to go into effect on or before July 1, 2021, when the current TennCare II waiver is set to expire) is a dramatic break from the existing, open-ended Medicaid financing system in which the Federal government commits to matching a percentage of every dollar spent by a state on eligible Medicaid items and services (in Tennessee, that percentage, or FMAP, is 66 cents on the dollar). Under the approved TennCare III waiver, Tennessee would accept an “aggregate cap” on Federal dollars in exchange for: (1) broad exemption from many of Medicaid’s Federal requirements; and (2) the ability to capture and realize savings on any dollars underspent relative to this aggregate cap. Proponents of the model argue it will result in cost-savings for the Federal government and state and enhanced flexibility to innovate in the state’s Medicaid program. Opponents argue that the waiver gives the state of Tennessee an overwhelming incentive to underpay its network of MCOs, which in turn will be forced to cut provider payment rates and implement service and benefit cuts. Our summary of the approved waiver is here. We separately wrote about the closed formulary piece here.

Now that we’ve had a chance to read the complaint, we wanted to share with you (our readers), some thoughts and key takeaways:

  • Theory of the Complaint: Tennessee Can’t be Trusted. Upon reading, it is clear the complaint is as much an indictment of Tennessee’s past performance in operating its Medicaid program, as it is an argument against the challenged block grant waiver. In other words, the harms asserted by the plaintiffs have as much to do with the state’s historic treatment of its Medicaid enrollees, as they do the changes the state seeks to implement under its new waiver. The thirteen individual plaintiffs are TennCare recipients with disabilities (ranging from cerebral palsy to rare diseases like Dandy-Walker syndrome and Cornelia de Lange syndrome) who are already suffering under the existing TennCare program. As the theory of the complaint goes, if Tennessee is already failing to take care of its most vulnerable citizens, it certainly cannot be trusted with a “longer leash” and stronger incentives to engage in cost-cutting behaviors.
  • A Familiar Legal Construct. The case, like the majority of Medicaid waiver cases, is a challenge against the government under the Administrative Procedure Act (APA). Just like the plaintiffs alleged in the Medicaid work requirement and Medicaid DSH litigation, the plaintiffs here argue that the agency (here, HHS/CMS) have exceeded their statutory authority and acted in a way that is “arbitrary and capricious” by approving a waiver that is not within the Secretary’s authority to approve given the statutory limitations placed on waiver approvals. In the complaint, TJC and NHELP point to the approval of the waiver for a ten year period, the (continued) waiver of retroactive eligibility, the closed formulary for prescription drugs, and the unprecedent financing systems (among other provisions) as evidence for these APA failures.
  • Process Failures May Pose the Biggest Risk to HHS. This case may ultimately turn on the procedural failings of HHS. One particularly strong point alleged in the complaint concerns the intersection between the expiring TennCare II waiver and the new TennCare III waiver. Under the existing TennCare II waiver (which, as noted above, expires June 30, 2021) , Tennessee has received a number of longstanding flexibilities including (1) mandatory enrollment in managed care for most TennCare recipients; and (2) a waiver of retroactive coverage. While these elements are incorporated into the approved version of TennCare III, TJC and NHELP argue that because these were not features of the TennCare III proposal in its original form, and because HHS never opened a Federal public comment period on the TennCare II renewal, the public was arguably deprived of commenting in favor or against a ten-year continuation of two major components of the waiver: mandatory MCOs and a waiver of retroactive coverage. TJC also presents evidence in the complaint of another process failure — while Federal regulation at 42 CFR 431.416 requires a Federal public comment period on any waivers of “30 days,” because of a technical error, the public only had 28 days in which to submit comments.

The decision to litigate now is likely driven, at least in part, by litigation strategy. While many anticipate the Biden Administration may rescind this waiver (just as it did with the work requirement waivers), a “wait and see” approach risks the possibility that: (1) the state undergoes significant efforts to implement the waiver before it is retracted; and/or (2) that the Biden Administration unilaterally withdraws the waiver and is sued by the state of Tennessee. In the latter case, Tennessee would certainly choose a venue/forum (the 6th circuit) far more favorable to the state than the plaintiffs in this pending litigation.

We at MedicaidandtheLaw will continue to track this litigation and keep you apprised of further updates.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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