King & Spalding Represents Medicaid Beneficiaries in a Suit to Challenge the Approval of the TennCare III Medicaid Demonstration Project

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On April 22, 2021, thirteen Medicaid beneficiaries, represented by the National Health Law Program, the Tennessee Justice Center, and King & Spalding, filed a complaint in the U.S. District Court for the District of Columbia that challenges HHS’s approval of the TennCare III demonstration project through the end of 2030. TennCare III, which operates as a Medicaid demonstration project under a Section 1115 waiver of the Social Security Act, caps federal funding for the State’s Medicaid program and allows the State to limit coverage of medically necessary prescription drugs, among other restrictions.

As background, on November 20, 2019, the State of Tennessee filed a proposal to amend its existing demonstration project (TennCare II) that would convert much of the federal funding for its State Medicaid program into a modified block grant. Instead of following the current Medicaid formula––which provides unlimited federal funding depending on need––Tennessee asked that $7.9 billion of its federal Medicaid funding be delivered as a lump sum block grant that would be adjusted annually for inflation. One year later, while the amendment request was still pending, and with TennCare II scheduled to expire at the end of June 2021, Tennessee opened a State-level comment period on a separate request to extend the TennCare II managed care program for another decade. However, the State never submitted this request to CMS, and the agency did not hold a comment period on the continuation of the program. Then, on January 8, 2021––just before leaving office––the Trump administration approved a new project labeled as “TennCare III,” despite never having solicited comments from the public on many aspects of the program.

TennCare III caps the federal Medicaid funding available to Tennessee and allows the State to use a portion of that funding for non-Medicaid purposes. In effect, CMS authorized a variation on Tennessee’s request for a block grant, capping the amount of federal funding available for Medicaid services and allowing Tennessee to keep more than half of the federal share of savings achieved if it comes in under the cap. TennCare III further authorized Tennessee to limit coverage of medically necessary prescription drugs. CMS allowed Tennessee to continue its mandatory managed care program and its waiver of three-month retroactive coverage. The plaintiffs contend that, in approving these components of the project, CMS authorized the State to ignore provisions of the Medicaid Act that Congress does not permit to be ignored.

More specifically, the plaintiffs argue that the approval of TennCare III exceeds agency authority for the following reasons:

  • The Medicaid Act requires that the public be given an opportunity for notice and comment, but Medicaid beneficiaries, their providers, and other stakeholders never had a chance to submit their objections to continuing the existing features of TennCare for a decade.
  • HHS’s Medicaid waiver authority is intended to test pilot programs designed to improve services for Medicaid beneficiaries, but the approval of this project for ten years shows that the project, on its face, is not a bona fide test but rather an effort to make long-term structural change.
  • The new financial model will give the State a powerful incentive to reduce access to health care. Should Tennessee come in under the cap, it would be able to draw down federal Medicaid funding for other programs, freeing up state funding for other projects (e.g., for use on roads, bridges, etc.).
  • Because of the financial incentives that drive managed care plans, access to care and services has already been a significant problem for TennCare enrollees even without this new financing model. TennCare III only exacerbates that problem; it does not alleviate it.

Given the restrictions on access to healthcare under TennCare III and the inability to submit comments opposing the project, as the complaint explains, the plaintiffs seek to vacate TennCare III’s approval. The complaint is available here. More information on the Tennessee Justice Center is available here, and the National Health Law Program is available here.

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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