TennCare and Disproportionate Share Hospitals (review)

Tennessee and Oregon were two of the health reform darlings of the 1990s, but by 2008 both states’ efforts had fallen on hard times. In 1993, Tennessee Governor Ned McWherter’s bold TennCare experiment almost overnight put nearly Tennessee’s entire Medicaid population into mandatory managed care and added about 500,000 uninsured and uninsurable people as a Medicaid expansion population. TennCare’s design provided a snapshot of one way that the 1990s Clinton-style managed competition might have looked. Chinyere Ogbonna, of Austin Peay State University (located near Nashville), in this book gives us a look at one part of Tennessee’s controversial TennCare 1115 waiver experiment during that program’s early heady, if turbulent, days. TennCare and Disproportionate Share Hospitals looks at the waiver’s effect on Tennessee’s hospitals through 1998, focusing on disproportionate share hospitals [DSH].

Based on Ogbonna’s 2000 doctoral dissertation at Tennessee State University, this study examines data on all Tennessee hospitals in terms of profits, admissions and discharges, and average daily census. While less than elegantly written and edited, this book still presents a useful picture of the early impact of Medicaid managed care on a state’s hospital industry. Working with the Joint Annual Report on Hospitals data from 1989 through 1998, Ogbonna contends that after TennCare’s implementation: (1) prior downward census trends appeared to reverse, (2) the trend in the the rate of admissions/discharges went from decreasing to increasing, and (3) DSHs experienced either a decrease or no change in profits.

Ogbonna’s background discussion on TennCare’s national and Tennessee policy context are generally simply adequate, but her discussion of the budget ploys employed with such distinction in Tennessee is very informative. The study could have benefited from more description and analysis of the characteristics of disproportionate share and non-disproportionate share hospitals. For instance, are they public, non-profit, or proprietary institutions? Non-DSHs acted as a control group for Ogbonna, but since they differ from the DSH hospitals so much with respect to their participation in Medicaid caseloads, the controls do not so much document the impact of the TennCare intervention as they illustrate the before and after trends for two different types of hospitals.

Ogbonna’s data do not permit her to address several factors that stakeholders in Tennessee’s Medicaid experiment viewed as critical to TennCare’s impact on hospitals. Ogbonna’s report does not tell us whether or how federal consent decrees, poor program management, inadequate financing and regulation of managed care organizations [MCOs], or the whirlwind implementation of the waiver in 1994 adversely affected hospitals.

TennCare’s reimbursement to hospitals was generally acknowledged to be significantly lower than payments by other payors. Supplemental payments aided Tennessee’s essential access hospitals in a manner not unlike federal DSH Medicaid payments in other states. While, in theory, reimbursement from the MCOs that the state contracted with to deliver services should have adequately compensated hospitals, from early on TennCare supplemented these revenues with additional funds. These financial factors represent significant facets of TennCare’s impact on Tennessee hospitals, but Ogbonna’s study does not significantly address them, as it instead subsumes them into the “black box” of hospital profits. She sketches a limited picture of Tennessee hospitals’ profits and financial health.

With the exception of a brief closing nod to the changes initiated by Governor Phil Bredesen, she does not address TennCare events or literature after 1998. Managed care organization failures, significant cost increases, disenrollments, benefit limits, litigation and more challenges have characterized this reform initiative since 1998. TennCare has spawned a great deal of academic attention over the last several years and Ogbonna’s argument would have sounded louder had she taken into account some of that literature.

TennCare and Disproportionate Share Hospitals’ bottom line is that, given Tennessee’s experience, the broad implementation of Medicaid managed care is not necessarily a bad or dire experience for disproportionate share hospitals, or even for hospitals generally. Rather, on the basis of TennCare’s early...