McCutchen V Becerra Underscores The Need For Section 1115 Reforms As A Matter Of Health Equity

McCutchen v Becerra challenges the Trump administration’s eleventh hour approval of Tennessee’s Medicaid block grant. The case offers a textbook example of how a presidential administration sought to repurpose a unique federal experimental power to pursue a political and policy agenda that had been repeatedly rejected by Congress and also poses extraordinary health risks to a population already deeply burdened by health inequality.

McCutchen offers evidence that section 1115’s problems cannot be fixed simply by reversing experimental approvals that should not continue because of changed circumstances (as in the case of Medicaid work experiments) or procedural errors (as with the administration’s recent decision to set aside a last-minute approval of Texas’s section 1115 uncompensated care pool demonstration).

Case-specific decisions to discontinue seriously problematic demonstrations on technical or factual grounds are important, of course. But the issues go far deeper. The history of section 1115 under the Trump administration, which culminated in McCutchen, underscores that it is time for substantive standards governing the use of section 1115—developed through a public notice and comment process—that reflect research integrity, health equity, and basic ethical considerations governing experiments involving human subjects. Section 1115 isn’t simply a license to run an alternative version of Medicaid, and there is a need for fundamental corrections.

The Legal And Ethical Framework For Federally Funded Experiments And Its Application To Section 1115

As a general matter, federally funded research involving human subjects is subject to the Common Rule, which has long established the federal regulatory framework for such experimental activities. Following a 1976 federal court decision applying the rule’s protections to Medicaid section 1115 experiments, Crane v Mathews, the Reagan administration in 1983 revised the rule to exempt section 1115 demonstrations from human subject protections. The preamble to this revision promised that “high-level agency officials” would ensure that such experiments would proceed under comparable safeguards.

Neither this “high-level” review process nor standards establishing ethical safeguards for section 1115 research ever materialized. Thus, we are left with a situation in which the Common Rule simply excludes section 1115 experiments from “human subjects” protections, exempting “research and demonstration projects which are conducted by or subject to the approval of department or agency heads and which are designed to study, evaluate, or otherwise examine…public benefit or service programs.” No published safeguards ever took the place of the Common Rule. Given the demography of US poverty, the consequences of this decision to remove section 1115 demonstrations from the reach of the Common Rule, without putting anything in its place, have fallen with special harshness on people of color.

In the case of Medicaid cost-sharing experiments, a bipartisan Congress rejected the administration’s policy, first tested out in 1982 with an emergency Common Rule exemption for Medicaid section 1115 cost-sharing experiments, by amending Medicaid itself to bar such experiments without certain safeguards. Arguably the protections (which one of us [Rosenbaum] had the opportunity to work on with bipartisan congressional staff) might have gone further than cost-sharing initiatives alone, but no one imagined the extent to which section 1115 would be used to simply rewrite Medicaid. As such, the Medicaid statutory limit on experiments remains confined to cost-sharing experiments (and is routinely ignored under modern section 1115 demonstrations). The Common Rule’s general exemption for section 1115 experiments survives to this day, despite the fact that nothing in the underlying federal research oversight statute on which the Common Rule rests excludes beneficiaries of social welfare programs from the definition of “human subject.”

A Section 1115 Experiment That Threatens An Unprecedented Level Of Harm

McCutchen is the apotheosis of the ongoing failure to develop strong, transparent standards for determining when it is appropriate to use section 1115 experimental powers. The complaint brought by the National Health Law Program, the Tennessee Justice Center, and King and Spalding describes a set of circumstances that lack even the most basic indicia of sound experimentation and that place the state’s entire Medicaid beneficiary population directly in harm’s way virtually without safeguards. Not surprisingly, of course, Tennessee has now moved to intervene to defend its authority to continue, denying all claims, even the claim by individual plaintiffs that they are Medicaid beneficiaries.

TennCare III—the name of the current TennCare iteration that contains the new block grant authority—is a well-traveled program. It began life in 1993 as a section 1115 experiment undertaken by the state and the Clinton administration to test expanded eligibility for low-income, working-age adults while moving the entire population into managed care to control costs. Its aim was to test insurance for poor, working-age adults without a Medicaid coverage pathway under traditional program rules (the population group that ultimately became the Affordable Care Act expansion population), while at the same time effectuating coverage via a shift to comprehensive managed care plans. The hypothesis was that the efficiencies gained without sacrificing quality would make expansion feasible.

Within a short time, as managed care proved unable to control costs to a sufficient degree, new TennCare enrollment was closed to uninsured adults; in 2005, coverage was ended for the experimental population altogether. What remained of TennCare was a mandatory managed care system that also eliminated retroactive eligibility for much of the population. Tennessee has been allowed to continue its managed care system under section 1115 experimental authority ever since, despite the fact that in 1997 Congress made comprehensive changes that permit states to operate managed care as a state option and without special demonstration authority. TennCare essentially has become a state Medicaid program operating in an alternative universe, rather than a demonstration resting on an experimental rationale.

That TennCare still technically existed as an experiment, however, turned out to be convenient, since this enabled the Trump administration to simply graft on a block-grant component at the last minute (technical corrections still were being made on January 20, 2021), as if it were a routine amendment. Thus, while TennCare—which now enrolls nearly the entire state Medicaid population—rested on Medicaid’s traditional open-ended financing and entitlement structure, the amendment, hurried into place as the administration was walking out the door, fundamentally transformed the entire program, materially changing its very foundations as an “experiment.” In other words, TennCare’s radical reinvention as a Medicaid block grant was presented to the world as a routine amendment to a nearly 30-year-old undertaking whose continued existence as an experiment had been rendered obsolete by the 1997 Medicaid managed care reforms.

What elevates McCutchen to a whole new level of disturbing is the fact that the 13 individual plaintiffs whose health benefits have been placed at risk are children and adults with profound disabilities: the most vulnerable of all Medicaid beneficiaries. The individual factual circumstances show a group for whom the block grant, coupled with the legal flexibilities permitted under the experiment, poses astounding health risks. These added flexibilities include: elimination of the state’s obligation to comply with Medicaid’s core requirement establishing the right to apply for assistance and for prompt assistance if found eligible; elimination of Medicaid’s prescription drug coverage rules (despite the fact that those rules are set forth in a part of the statute that is non-waivable under section 1115); no limits on the state’s ability to introduce increasingly stringent use management rules that make it possible to maintain the illusion of coverage when in fact benefits are completely unavailable; and elimination of managed care provider network rules, leaving a managed care “system” that potentially exists on paper only.

The concerns raised by these flexibilities—especially as they relate to the highest-need and costliest population in Medicaid—are heightened immeasurably by the fact that they are coupled with a block grant whose terms allow the state to keep more than 50 percent of the savings; this is an unheard-of shared savings arrangement in federal health care programs. Under the approval, Tennessee is free to invest these savings in ways that in its judgment will improve health, without any state maintenance-of-effort safeguard (which would require that the state not impose new Medicaid eligibility restrictions or coverage reductions) or non-supplantation provision (which would require that the state not substitute Medicaid savings for other state expenditures).

Taken as a whole, the complaint presents a picture of a program reaching 1.3 million of the state’s poorest and most vulnerable residents but stripped of its core protections for the people it serves. Medicaid’s traditional funding system (also codified in a part of the statute that is non-waivable under section 1115) would be stripped of its essential feature as a guarantee of federal funding for medically necessary care furnished to eligible people. What would be left is a massive pile of money, freed of the coverage and service obligations that go along with Medicaid, and thus freed of legal constraints on its use.

Not surprisingly, in approving the demonstration, Centers for Medicare and Medicaid Services officials offered no evidence that the agency had conducted anything like the risk/benefit assessment promised in 1983. Instead, the approval letter simply declared that “states, as administrators of their Medicaid programs, are in the best position to assess the needs of their respective Medicaid-eligible populations and to drive reforms that result in better health outcomes.”

Concluding Thoughts And Future Directions

One assumes that the Biden administration will decide that TennCare III (at least the block grant component) no longer comports with agency priorities and will notify the state to that effect. That might end this particular lawsuit. It is certainly possible, of course, that Tennessee, like Arkansas in the Medicaid work case before the US Supreme Court, and Texas, in the Medicaid uncompensated care pool section 1115 case, will sue to reverse such a decision. In that case, litigation would enter a new phase focused on the power of the US Department of Health and Human Services (HHS) secretary to end or alter the terms of an approved experiment, not on the underlying question of whether such use of section 1115 ever should have been sanctioned to begin with.

McCutchen underscores the much bigger discussion needed around section 1115 itself: when these extraordinary powers should be used and to what end; and whether safeguards should apply throughout the life of a section 1115 project, including any amendments not documented as non-material. The discussion is urgent, since section 1115 demonstrations are nothing less than compulsory experiments that effectively become a condition of coverage for those who depend on Medicaid.

The McCutchen experience, as well as the Medicaid work experiment cases, underscore the need for reforms to section 1115 that will ensure that, prior to approving a new or amended experiment, the HHS secretary makes four evidence-based determinations. The first determination is that the benefits of the experiment outweigh its risks and that the experiment has the types of procedural safeguards that will permit the federal government and the state to immediately halt it in the face of evidence of harm. The second determination is that the experiment rests on a solid design, with real testable hypotheses and an implementation design that will yield the type of evidence needed to measure whether the experiment’s aims are being met.

The third determination—again, prior to approval—is that the experiment has designated an independent evaluator whose evaluation design is in place and who is permitted to launch the evaluation prior to the time that the experiment commences, to ensure a proper baseline for comparison. Fourth, in keeping with President Joe Biden’s goals of racial equity, support for underserved communities, and strengthening Medicaid, the HHS secretary should make an evidentiary determination that the experiment will advance health equity. Given section 1115’s history and purpose and the extraordinary powers it confers on the HHS secretary, the time has come to ensure that these powers are put to work to advance, not undermine, the cause of health equity.