TennCare Payment Reform Background

Most of the healthcare industry recognizes that the current fee-for-service model of reimbursement is not sustainable. As such, the TMA supports, in concept, the State of Tennessee’s efforts to create an alternative payment mechanism that helps contain costs. 

Tennessee’s physicians are committed to any initiative that makes delivering healthcare more efficient without negatively impacting the quality of that care.  

We have had ongoing concerns, however, about significant defects with respect to data collection, data reporting and data accuracy during the episode design and program implementation. We want to make sure the cost and quality thresholds that will be used to reward or penalize providers are transparent.

In late 2012, the State applied for and, in Spring 2013, received a State Innovation Model (SIM) design grant from the federal Center for Medicare and Medicaid Innovation (CMMI). The grant was for $756,000 and required the State to do just what the name implies – design a payment reform model. The State did not start from scratch, however, choosing to emulate a design that Arkansas’s Medicaid program implemented just a couple of years ago. The State has even contracted with the same consulting firm that Arkansas hired to help design its program. While most of the Arkansas plan has translated to Tennessee, one key difference is that Arkansas is a single payer Medicaid system, while Tennessee has managed care. That distinction alone makes Tennessee’s version more complicated.

In December 2014, the State received a $65 million testing grant to implement the payment reform initiative. As a result, the State is moving forward with its timeline. The performance period for the first three episodes of care began January 1, 2015.


The THCII has four main components: retrospective episodes of care, primary care transformation involving patient-centered medical homes, value-based payments for long-term services and supports, and regionalized population health plans.

Episodes of care look at the cost of an entire string of care involving the same medical problem. The total cost of an episode includes the cost of all services involved in the episode, including some costs that are billed by providers other than the primary health care provider.

The first wave of episodes of care was launched in May 2014 for acute asthma exacerbation, perinatal care and total joint replacement for the hip and knee, with additional waves rolling out throughout 2015-2017. TennCare managed care companies reward providers who meet quality measures and who are providing episode care at a lower average cost than other providers in the state. Those who are deemed high-cost providers face financial penalties. Providers are assessed based on their performance for members of TennCare and CoverKids.