In Tennessee, a Managed Care Organization (MCO) is a health maintenance organization (HMO) licensed under Title 56, Chapter 32 of the Tennessee Code that contracts with the state’s TennCare program to deliver Medicaid-covered health services in exchange for fixed monthly per-member payments, and that assumes the financial risk for the cost of that care. Four MCOs currently serve TennCare enrollees statewide: Wellpoint (formerly Amerigroup), BlueCare, UnitedHealthcare Community Plan, and TennCare Select.1State of Tennessee. Managed Care Organizations Before any of them can operate, it must hold a certificate of authority from the Tennessee Department of Commerce and Insurance (TDCI).
What Makes an Organization an MCO Under Tennessee Law
Tennessee law defines an HMO as any person or organization that arranges to provide basic health care services to enrollees on a prepaid basis.2Justia. Tennessee Code 56-32-102 – Chapter Definitions An HMO can deliver physician services directly through employed doctors, through agreements with individual physicians or physician groups, or through physician-hospital organizations. Because every TennCare MCO must first be a licensed HMO, the label carries two sets of obligations at once: the insurance laws that govern every HMO in the state, and the Medicaid managed care rules that apply because the MCO is a TennCare contractor.
That dual status explains why an MCO is not just an insurance company that pays claims. It must build and maintain a provider network, coordinate care across settings, approve or deny services based on medical necessity, and manage the cost of care within the capitation it receives from the state. If care costs more than the payments, the MCO absorbs the loss. That is what “at risk” means in this context.
Licensure and Financial Requirements
No organization can operate as an MCO in Tennessee without a certificate of authority from the TDCI.3Justia. Tennessee Code 56-32-103 – Certificate of Authority Applicants file organizational documents, officer and board lists, provider contracts, evidence-of-coverage forms, audited financials on the NAIC’s HMO form, a two-year financial projection, a description of the proposed service area, and a description of the complaint procedure.
The financial bar is substantial. An applicant must show an initial net worth of at least $1.5 million.4FindLaw. Tennessee Code 56-32-112 – Minimum Net Worth and Working Capital Requirements After licensure, the ongoing minimum net worth is the greater of $1.5 million or a formula amount: 4% of the first $150 million in annual premium revenue plus 1.5% of any revenue above that. Positive working capital is required at all times. If either figure drops below the minimum, the MCO has 30 days from the commissioner’s notice to submit a written recovery plan for approval.
Who Regulates MCOs in Tennessee
Two state agencies share the work, each from a different angle.
Tennessee Department of Commerce and Insurance
TDCI regulates the MCO in its capacity as a licensed HMO. The commissioner may examine an HMO and its contracted providers as often as needed and must do so at least once every five years.5Justia. Tennessee Code 56-32-115 – Regulation by Commissioner Outside auditors can be brought in, but the commissioner approves the results. The HMO pays the cost of the examination and must open its books fully.
Bureau of TennCare
The Bureau of TennCare administers Tennessee’s Medicaid program under Tennessee Code 71-5-104, consistent with Title XIX of the Social Security Act and any federal waivers the state has obtained.6Justia. Tennessee Code 71-5-104 – Administration by Department Tennessee Administrative Rules Chapter 1200-13-13 sets the operational standards MCOs must meet, covering enrollment and disenrollment, covered services, prior authorization, and protections against discriminatory treatment.7Tennessee Secretary of State. Tennessee Rules Chapter 1200-13-13 – TennCare Managed Care An MCO cannot request disenrollment of a member because of worsening health, a pre-existing condition, or high medical costs. The Tennessee Comptroller of the Treasury also conducts periodic TennCare examinations focused on financial efficiency and program integrity.
The Federal Layer
Because TennCare is a Medicaid managed care program, every MCO must also comply with 42 CFR Part 438, and the Centers for Medicare and Medicaid Services (CMS) must approve each MCO contract before it takes effect.8eCFR. 42 CFR 438.3 – Standard Contract Requirements Capitation rates have to be identified in the contract and adequate for the MCO to deliver covered services efficiently.
Federal rules require Tennessee to run a monitoring system that tracks MCO performance across at least 14 areas, including claims management, grievance and appeal systems, finance, medical management, network adequacy, program integrity, and quality improvement.9eCFR. 42 CFR 438.66 – State Monitoring Requirements The state must also contract with at least one independent External Quality Review Organization (EQRO) that reviews each MCO annually and publishes a technical report on the state website covering the quality, timeliness, and accessibility of care.10Medicaid.gov. Quality of Care External Quality Review Each MCO must maintain a health information system that collects utilization, claims, grievance, appeal, and disenrollment data and must submit enrollee encounter data to the state in standardized electronic format.11eCFR. 42 CFR 438.242 – Health Information Systems for Enrollees
What Enrollees Can Do When an MCO Denies Care
An MCO’s authority over services runs into firm limits once an enrollee pushes back. Federal rules require every MCO to operate a grievance and appeal system meeting the standards in 42 CFR Part 438, Subpart F. A grievance is dissatisfaction about any aspect of operations or care; an appeal challenges a decision to deny or limit a specific service.
Standard appeals must be resolved within 30 calendar days. If the enrollee’s health makes waiting dangerous, an expedited appeal must be resolved within 72 hours.12eCFR. 42 CFR 438.408 – Resolution and Notification If the MCO upholds the denial, the enrollee can request a state fair hearing. An enrollee can also go straight to a hearing if the MCO misses its resolution deadlines.
Tennessee’s own rules add protections. An MCO cannot refuse payment for emergency services or EPSDT services just because prior authorization was not obtained, cannot impose service limits more restrictive than TennCare rules allow, and cannot push an enrollee out because the enrollee’s care has become expensive.7Tennessee Secretary of State. Tennessee Rules Chapter 1200-13-13 – TennCare Managed Care
Enforcement When an MCO Breaks the Rules
The TennCare Contractor Risk Agreement authorizes intermediate sanctions whenever an MCO fails to meet a corrective action plan or is otherwise deficient.13State of Tennessee. TennCare Contractor Risk Agreement Specific triggers include failing to provide medically necessary services, imposing unauthorized cost-sharing on members, discriminating among enrollees based on health status, falsifying information to the state or CMS, and distributing unapproved or misleading marketing materials. Available responses include liquidated damages, suspension of new enrollment by region or statewide, moving existing members out of the plan, restrictions on service area, and civil monetary penalties under 42 CFR 438.704.
Federal regulations give Tennessee independent authority to sanction MCOs for Medicaid managed care violations based on onsite surveys, enrollee complaints, financial reviews, or any other source.14eCFR. 42 CFR Part 438 Subpart I – Sanctions The state can appoint temporary management over an MCO and can grant enrollees the right to disenroll without cause.
Fraudulent billing or misrepresentation by an MCO or its providers opens a separate track. The Tennessee Medicaid False Claims Act at Tennessee Code 71-5-181 through 71-5-185 supports civil liability, restitution, and exclusion from future state contracts.15Justia. Tennessee Code 71-5-181 – Tennessee Medicaid False Claims Act – Short Title The Tennessee Bureau of Investigation’s Medicaid Fraud Control Division investigates and works with the Civil Medicaid Fraud Team in the Tennessee Attorney General’s Office.16Tennessee Bureau of Investigation. Medicaid Fraud Control Division