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TennCare enrollment cuts and their impact on the MED.

The Regional MedicalCenter at Memphis (The MED) has been an integral part of Memphis and the surrounding community during three different centuries. The MED is Tennessee's oldest hospital and also the state's largest "safety-net" hospital. The MED has an affiliation with the University of Tennessee Health Sciences (UTHS) and has had a hand in educating over half of the active medical professionals in Tennessee. The MED is also known for its five highly-respected Centers of Excellence, including the Trauma Center, Regional Burn Center, High-Risk Obstetrics Center, Wound Center, and Newborn Center. Many in our community would simply characterize The MED as the hospital that serves the poor of our area, but it is much more. The MED is a crucial resource to Shelby County and the Mid-South, offering many one-of-a-kind services to our community and region, while serving as the major teaching affiliate for the University of Tennessee Health Sciences and its range of academic programs.

From a financial perspective, The MED is operated by the Shelby County Healthcare Corporation and receives approximately 12.0 percent of its annual revenue as a direct appropriation from Shelby County. Many citizens believe that The MED is funded 100.0 percent by Shelby County the state of Tennessee, but that clearly is not the case. So, generating other revenue from patient care at The MED is not unlike any other community hospital and includes Medicare, TennCare, commercial insurance, managed care, and Worker's Compensation, among others. However, one profound difference in the patient care and revenue profile at The MED that is strikingly different than for other Mid-South hospitals is the number of uninsured patients care. Currently, 30.0 percent of the inpatients served by The MED enter the hospital with no source of payment for their care.

Prelude to Changes in TennCare

As changes in the TennCare program were being debated and finally implemented, there was significant speculation about what the impact would be on healthcare providers. Basically, non-Medicaid-eligible TennCare enrollees would be dropped from the rolls of coverage. It was clear that the greatest changes would be experienced in East Tennessee, simply because they had a higher percentage of non-Medicaid-eligible TennCare enrollees in that part of Tennessee. However, this situation brought great concern to the MED in early and mid-2005, with its current uninsured proportion of inpatients then at the 25.0 percent level. Even though the percentage in the expansion population was lower, the absolute numbers were quite high. The potential existed for less revenue due to the loss of TennCare eligibility for patients but with at least the same number of patients needing care. Obviously, this situation painted a rather challenging financial picture once the cuts were implemented. This scenario appeared to call for finding new sources of revenue and/or significant cost savings within the day-to-day operation of The MED.

Another issue relates to the geographic location of The MED, in close proximity to a disproportionate number of local TennCare recipients and the uninsured. The Emergency Department (ED) of The MED has been disproportionately busy for quite some time, dealing with basically whomever or whatever situation comes in the door. It has been well documented that Urban EDs across the United States have faced a difficult situation. Of course, The MED deals with trauma cases throughout the region, but the situation being alluded to here is the use of the ED as a source of primary care services. Because The MED is a safety-net provider, many uninsured patients feel most comfortable at The MED. They see it as a place that takes what comes. Despite these challenges, the quality of care is this pattern of use is quite inefficient in providing care for the patients, particularly relative to any continuity of care for these patients. In addition, many of these patients for treatment until the complexity of their problems have increased. On top of this, ED treatment is more costly than routine primary care delivery. So, prior to any TennCare cuts, inpatient services and ED services at The MED are already managing a high volume of very complex patients, but not under the most cost-effective circumstances.

The Impact

The impact of TennCare cuts has changed the patient profile at The MED. Beginning in July 2005, inpatient census numbers began to show an increases in the proportion of uninsured patients. The trend continued to creep upward through the remainder of 2005 and into 2006.

Prior to the implementation of TennCare cuts, in January, 2005, Dr. Cyril Chang, Professor of Economics and Director of the Methodist LeBonheur Center for Healthcare Economics at the University of Memphis was engaged by The MED to conduct a study to determine "Who Are the Uninsured and Why Are They Uninsured?" The study was done in conjunction with Dr. Paul Fitzgerald of the Division of Health Administration and Dr. Jerome Blakemore of the Division of Social Work, both at the University of Memphis. This study set a baseline for later work completed in early 2006 by Drs. Chang and Fitzgerald, tracking changes in the profiles of the uninsured patients at The MED since the initial 2005 study. However, particular emphasis was placed on changes since the implementation of the TennCare cuts at the end of June 2005. Both of these studies involved a quantitative and qualitative research component. An examination was completed of the patient database to create a demographic profile of the inpatient population. In addition, each study included the qualitative component of interviewing currently hospitalized patients classified as "self-pay" (uninsured).

Changes in the Patient Profile at The MED

The research revealed significant changes in the profile of inpatients at The MED. Data were compared from the period of July-September 2004 to data from that same period of July-September 2005. Note that the former period in 2004 was at a time prior to TennCare cuts and the latter period in 2005 was at the inception of and following the initial cuts in enrollment by TennCare.

An examination of inpatient data revealed that The MED experienced a substantial increase in self-pay/uninsured patients during the period examined during July-September 2005. During that time period, 1,052 self-pay/ uninsured individuals were treated as inpatients at The MED. That figure represents an increase of 22.0 percent over the same period one year earlier. In comparison, total inpatient discharges for the hospital only increased 9.2 percent during the same period, suggesting that virtually all of the hospital growth was due to self-pay patients since July 1, the date on which TennCare cuts were implemented.

Other findings from the study noted other changes in the profile of uninsured patients at The MED. One change was that during the period being examined, male uninsured patients increased in number from 58.8 percent of the total uninsured to 61.2 percent, an increase of 4.1 percent. Also, the racial makeup changed somewhat, with white uninsured patients increasing by 6.0 percent of the total to 39.2 percent. Correspondingly, both African-American and Hispanic patients decreased by 3.0 percent each in that same time period. The bottom line is that the inpatient population of The MED now has more uninsured patients than before TennCare cuts began in July 2005.

One other notable demographic change is where the uninsured live. The post TennCare disenrollment period saw a dramatic shift of geographic concentration of the uninsured from the more familiar low-income neighborhoods. The post disenrollment uninsured included more individuals living in "middle-class" neighborhoods in areas such as East Memphis, Fox Meadows, and Hickory Hill.

Another portion of this study involved interviews with uninsured inpatients at The MED. Bear in mind that the sample of randomly selected, uninsured interviewees was small (50 inpatients over a 10-day period of time), but 10 of the 50 patients had lost insurance coverage during calendar year 2005. Eight of these 10 (16.0 percent of the sample) had lost TennCare coverage since July 2005. Two of the 10 (4.0 percent of the sample) had lost commercial insurance coverage due to changes in personal or employment circumstances. Overall, 20.0 percent of the subjects interviewed had lost insurance coverage in the past year. Anecdotally, a number of the subjects stated their current hospitalization was caused by their inability to gain access to either primary care or prescribed medications.

Another Piece of the Puzzle: Managed Care

Memphis Managed Care Corporation (MMCC) is a managed-care organization (MCO) formed as a partnership between The MED and UT Medical Group. UT Medical Group is the private practice arm of the University of Tennessee Health Science Center in Memphis. TLC Family Care Healthplan is the health plan of MMCC, serving TennCare recipients in West Tennessee. There are four other TennCare MCOs serving the West Tennessee area, defined as the 21 counties west of the Tennessee River. TLC is the largest managed-care organization in West Tennessee, with 45.0 percent of eligible individuals in West Tennessee enrolled as TLC members. As with any managed-care organization, TLC needs to maintain a strong base of members for fiscal survival. Consequently, a drop in the number of patients/covered lives in this program would create financial stress.

A comparison was done of individuals enrolled in TLC, comparing enrollment in June 2005 to enrollment in February 2006. TLC enrollment fell from 192,093 to 171,370, a total enrollee loss of 20,499 members, or a 10.7 percent drop in enrollment. Also, more than one-fifth of that enrollment drop for TLC was residents of Shelby County, but the proportion of TLC enrollees living in Shelby County has been at about 50.0 percent or slightly higher over the past year. Disenrollment has had a more significant, proportional toll outside Shelby County in the other 20 counties of West Tennessee. The overall loss of enrollment in West Tennessee was 7.2 percent during that same time period. However, taking TLC out of that aggregate figure reveals that the overall loss for the other four TennCare MCOs operating in West Tennessee averaged 4.1 percent, substantially less than the loss for TLC.

What does all this mean for MMCC and TLC? Assuming fixed costs are staying relatively the same means it costs more to administer the plan per member today, controlling for inflation, than it did just nine months ago. Managed care and health insurance plans depend on volume, numbers, and economies of scale in their operation. This cut in enrollees has a negative impact on the financial performance of MMCC and, in turn, also has a negative impact on the financial performance of its investing partners, including The MED and UT Medical Group.

Special Complex Patient Situations

In addition to the eligibility changes, the state has found it necessary to implement some benefit restrictions in order to maintain the stability of the plan. Fortunately, a great deal of healthcare involves treating simple, straightforward, common illnesses and conditions. However, The MED, like most healthcare providers, also deals with a significant number of patients having complicated illnesses and multiple diagnoses. The conditions have been referred to as "the pathologies of poverty," describing a number of conditions prevalent among the poor and medically underserved. The MED and other providers face a challenge in dealing with this set of chronic illnesses, and TennCare restrictions and policy can often make it more challenging to treat these patients and others in an efficient and effective manner.

One example of this relates to restrictions in prescriptions. For example, a "common"patient seen at The MED is one with diabetes, hypertension, and congestive heart failure. According to medical faculty at The MED, this type of patient often stretches the current limits, and a good deal of planning needs to take place to avoid increased hospitalizations.

One longstanding issue is the separation of medical and psychiatric treatment by TennCare into two separate pools of funding, a number of behavioral health patients have dual diagnoses, with both a medical and a psychiatric diagnosis. Treating this dual-diagnosis patient effectively is difficult when attempting to work through two separate funding programs. A re-evaluation of this "split" in funding could lead to improved patient care and a reduction in overall costs. Limits and structure of TennCare policy cause challenges on a daily basis at The MED in dealing with these and other complicated patients.


The inpatient census numbers and the research completed are conclusive that the patient profile at The MED is changing. An increasing proportion of the patients being served by The MED fall into the self-pay/uninsured financial classification. In addition, this change began to accelerate in conjunction with the cuts and eligibility changes in TennCare enrollment beginning in July 2005. Along with changing numbers at The MED, Memphis Managed Care Corporation has seen a significant drop in the number of enrollees in its health plan, TLC.

What this adds up to is a serious financial strain for The MED and organizations with which it is affiliated. The scenario is simple. The MED is treating more patients without insurance. It also appears that more of these patients are sicker than in the past, with higher costs for treating the uninsured relative to other patients. In addition, the testimonials from the uninsured were clear that many individuals are waiting to seek treatment until their condition/illness is much more complex and serious.

However, the real bottom line is the quality of life for individuals and families living in Memphis, Shelby County, and the Mid-South. Cuts in TennCare are not the only factor adding individuals to the ranks of the uninsured. The MED is facing serious financial challenges, but the bigger issue is a nationwide challenge to reverse the overall trends adding individuals and families daily to the list of those without health insurance and access to even a basic level of healthcare services.

Paul E. Fitzgerald, Jr., Ph.D., Associate Professor, Division of Health Administration, The University of Memphis, and Board Member, Shelby County Healthcare Corporation. and Bruce W. Steinhauser, M.D., President/CEO, the Regional Medical Center of Memphis, and Professor, Division of Health Administration, The University of Tennessee Health Sciences
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Title Annotation:The Regional MedicalCenter at Memphis
Author:Fitzgerald, Paul E.; Steinhauer, Bruce W.
Publication:Business Perspectives
Geographic Code:1U6TN
Date:Sep 22, 2006
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