Rate Variation Status Update

September 8, 2014

All hospitals impacted by the Tennessee Medicaid Rate Variation project did not submit their signed amendments to adjust their rates by the August 15, 2014 deadline.

Accordingly, MCOs will cancel, withdraw, and otherwise invalidate all amendments that enacted rate changes associated with the rate corridors for Year 2 of the variation project period beginning 7/1/2014.

It is the intention of the State, working with THA and others, to have all hospitals in compliance with the agreed upon variation project. The effort is not being abandoned.

In the interim, MCO contract negotiations should be working within the corridor established by the completed first year of Rate Variation, as below:

  • Inpatient routine and high cost routine: 40% of Medicare to 93% of Medicare
  • Outpatient: 78% of Medicare - >150% of Medicare

In addition, the rate variation project set the following corridors for these specialized services:

  • Cardiac surgery: 32% of Medicare – 83% of Medicare
  • Neonatal services: 4% of Medicare – 174% of Medicare
  • Other specialized: 49% of Medicare – 164% of Medicare

These specialized services accounted for 31% of total Inpatient spend in the Aon model.



new Year 2 Medicaid Rate Variation Implementation - 11/14/2013

During this webinar, you will hear the rationale for the variation work as well as learn about the design of the project and the results of the analyses completed by Aon Hewitt, the actuarial firm employed by the State to support the Bureau of TennCare. The TennCare bureau also will provide important information regarding the implementation of the Year 2 changes.

FAQ Updated 11/25/2013

May we get a copy of the slide presentation given on November 14, 2013?
Answer: Yes a copy of the presentation is available on this website, and you can download it directly by clicking here.
Where can we get some background on the TennCare variation problem and the current process?
Answer: Background information on the current process is available on this website, and you can download it directly by clicking here.
The variation rate we received does not appear correct, what do we do?
Answer: Hospitals should first work with their MCOs to review the proposed changes and understand their impacts. TennCare has reviewed the proposed changes from the MCOs and has verified that the impacts align with the rate variation targets. If there are significant issues that require additional research, please send an e-mail to rate.variation@tn.gov with your information. If additional research is required by Aon, the State’s actuarial resource, the cost of this work will be funded jointly by the THA and TennCare.
Why does the rate we received not agree with the rate adjustment communicated to us by the MCO?
Answer: You may be contracted with more than one MCO. The variation rate is the average of the MCO rates your facility receives and not all of your MCO rates may require adjustment.
When will these rates be effective?
Answer: Once all facilities have signed the required MCO contracts implementing the new variation implementation rates, TennCare will instruct the MCOs to reprocess claims back to July 1, 2013.
What services are included in each of the categories of inpatient, outpatient and specialized?
Answer: A listing of the DRGs included in each is included in the document, ”Service Class Map”, which is available on this website and can be downloaded by clicking here. (Excel)
What data were used to model the variation?
Answer: The data used for the variation analyses included Tennessee hospital TennCare claims incurred between September 1, 2010 and August 31, 2011 paid through November 30, 2011.
Will the MCOs reprocess all of the claims to make the adjustment back to July 1, 2013? Can we just do a settlement with the MCO instead of touching all the claims?
Answer: It is necessary for the MCOs to reprocess all claims and include the updated payment information in their claims data in order for TennCare to maintain an auditable accurate claims data base.
Why do the MCOs have to wait until all contracts are renegotiated before making the change to my payments after I sign the contract?
Answer: The rate variation work is required to be budget neutral for TennCare. If a hospital that is slated to receive an adjustment as part of rate variation does not participate, the project is no longer budget neutral.
What happens if I choose not to sign the contract amendment with the MCO?
Answer: If a hospital chooses not to sign the contract amendment, it will no longer be contracted with the MCO and therefore will be out of network for that MCO.
Why was the percent of Medicare used as the benchmark instead of percent of hospital costs?
Answer: Because of the wide variation in hospital costs that result from types of services provided, teaching status, etc., the THA board felt that Medicare was a more equitable benchmark.
Is Medicare the fully loaded Medicare rate for the hospital? If not what was excluded?
Answer: Medicare benchmarks included hospital specific payment factors such as Medicare DSH and Wage index. Only IME and pass through amounts were excluded.
Who decided where the bands would be set?
Answer: The THA board established the basic criteria and asked Aon to provide the ranges to meet those criteria that would ensure budget neutrality for the TennCare program.
Why is my hospital being impacted now if it was not in the first year implementation?
Answer: The bands for Year 1 were wider than for Year 2. Several hospitals that were within the wider Year 1 bands were above the ceiling or below the floor of the tighter Year 2 bands.
Can the MCOs include other contract changes in conjunction with the rate variation modification?
Answer: As was true in Year 1, the only other adjustments allowed are for the purpose of bringing MCO contracts into compliance with existing TennCare policies and rules.
How will the Tennessee Payment Reform Plan impact the variation implementation that is occurring in the same time frame?
Answer: The payment reform plan does not impact the billing or reimbursement for claims from hospital by MCOs. All claims will continue to be paid under the most current hospital rate.

The Tennessee Payment Reform plan adds the potential for shared risk at the end of a performance period. The data provided to the principal accountable providers related to hospital payments beginning in January 2014 will show the amounts paid for those claims based on current contract rates. Data reports for each quarter provide cumulative data and all data will be adjusted back to July 1, 2013 following the full implementation of Year 2 changes. The first calculation of shared savings/ excess cost will not occur until October 2015 and will be based on the amounts paid to the hospital after the rate variation adjustments.