Official Summary Text
ON APRIL 6, 2026, THE HOUSE ADOPTED AMENDMENT #1 AND PASSED HOUSE BILL 1867, AS AMENDED.
AMENDMENT #1
rewrites the bill to, instead, enact the "Annual Coverage Assessment Act of 2026." The Act imposes an annual coverage assessment on covered hospitals for fiscal year 2026-2027. The total assessment on all covered hospitals in the aggregate must be equal
to 6% of the federally recognized annual coverage assessment base. As used in this amendment, a "covered hospital" means a hospital licensed under Tennessee law as of July 1, 2026. However, all of the following hospitals are excluded:
A hospital that has been designated by CMS as a critical access hospital as of July 1, 2026
.
A mental health hospital owned by this state
.
A hospital that is not licensed as a mental health hospital and does not operate an emergency department covered by the federal Emergency Medical Treatment and Active Labor Act (EMTALA).
A hospital that is determined by the division as eligible to certify public expenditures for the purpose of securing federal medical assistance percentage payments
.
A hospital that has been designated by CMS as a rural emergency hospital as of July 1, 2026
.
As used in this amendment, an "annual coverage assessment base" means the total net patient revenue minus the medicare net revenue, for all hospitals as shown in the hospital's medicare cost report for the fiscal year that ended during calendar year 2021
, subject to all of the following qualifications:
If a hospital does not have a full twelve-month medicare cost report for 2021 on file with CMS but has a full twelve-month cost report for a subsequent year, then the first full twelve-month medicare cost report for a year following 2021 on file with CMS is the hospital's portion of the annual coverage assessment base
.
If a hospital does not have a full twelve-month medicare cost report for 2021 on file with CMS and does not have a full twelve-month cost report for a subsequent year, but has a cost report for 2021 that covers at least nine
months of 2021, then the hospital's portion of the assessment base is calculated by annualizing the 2021 cost report data
.
If a hospital was first licensed in 2021 or later and did not replace an existing hospital, and if the hospital has a medicare cost report on file with CMS, then the hospital's initial cost report on file with CMS is the hospital's portion of the annual coverage assessment base for the hospital assessment. If the hospital does not have an initial cost report on file with CMS but does have a complete twelve-month joint annual report (JAR) filed with the department of health, then the net patient revenue from the first twelve-month JAR is the hospital's portion of the annual coverage assessment base. If the hospital does not have a medicare cost report or a full twelve-month JAR filed with the department of health, then the hospital's portion of the annual coverage assessment base is the hospital's projected net patient revenue for its first full year of operation as shown in its certificate of need application with the health facilities commission
.
If a hospital was first licensed in 2021 or later and replaced an existing hospital, then the hospital's portion of the annual coverage assessment base is the replacement hospital's initial medicare cost report on file with CMS. If the hospital does not have a medicare cost report on file with CMS, then the hospital's portion of the annual coverage assessment base is either the predecessor hospital's net patient revenue as shown in its medicare cost report for its fiscal year that ended during calendar year 2021, or, if the predecessor hospital does not have a 2021 medicare cost report, then the cost report for the first fiscal year following 2021 on file with CMS
.
If a hospital is not required to file an annual medicare cost report with CMS, then the hospital's portion of the annual coverage assessment base is its net patient revenue for the fiscal year ending during calendar year 2021 or the first fiscal year that the hospital was in operation after 2021 as shown in the covered hospital's JAR filed with the department of health
.
If a hospital's fiscal year 2021 medicare cost report is not contained in a CMS healthcare cost report information system file, and if the hospital does not meet another qualification listed
above
, then the hospital must submit a copy of the hospital's 2021 medicare cost report to the division in order to allow for the determination of the hospital's net patient revenue as its portion of the annual coverage assessment base
.
VALIDITY OF THE ASSESSMENT
This amendment clarifies that the annual coverage assessment is not effective and validly imposed until the division has provided the Tennessee Hospital Association with written notice that includes (i) a determination from the centers for medicare and me
dicaid services (CMS) that the annual coverage assessment is a permissible source of revenue that does not adversely affect the amount of federal financial participation in the division of TennCare ("division"); and (ii) an approval from CMS for
the distrib
ution of the full amount of directed payments to hospitals for TennCare services
or the rules promulgated by the division.
This amendment provides that the annual coverage assessment is not effective and validly imposed if the coverage or amount of revenue available for expenditure by the division for fiscal year 2026-2027 is less than the governor's fiscal year 2026-2027 re
commended budget level plus additional appropriations made by the general assembly to the division for fiscal year 2026-2027. The proceeds of the annual coverage assessment must not be used as a justification to reduce or eliminate state funding to the d
iv
ision.
RATE REDUCTIONS
This amendment prohibits the proceeds of the annual coverage assessment from being used as justification for a division managed care organization to implement across-the-board rate reductions to negotiated rates with covered or excluded hospitals or phys
icians in existence on July 1, 2026. For such rates, the division must include provisions in the managed care organizations' contractor risk agreements that prohibit the managed care organizations from implementing across-the-board rate reductions to cov
er
ed or excluded network hospitals or physicians by specific service category, or type of provider. Further, the division must include provisions in the managed care organizations' contractor risk agreement that prohibit across-the-board rate reductions to
services or settings of care that are ancillary to the primary license of a covered or excluded hospital or physician, but do not apply to reductions in benefits or reimbursement for the ancillary services if the reductions (i) are different from those i
te
ms being funded by the maintenance of coverage trust fund, as described below and (ii) have been communicated in advance of implementation to the general assembly and the Tennessee Hospital Association.
As used in this amendment, "services or settings of care that are ancillary" include ambulatory
surgical facilities, free standing emergency departments, outpatient treatment clinics or imaging centers, dialysis centers, home health and related services, home infusion therapy services, outpatient rehabilitation, or skilled nursing services
. "Services or settings of care that are ancillary to the primary license of a covered or excluded hospital or physician" include
services where the physician or covered
or excluded hospital, including a wholly owned subsidiary or controlled affiliate of a covered or excluded hospital or hospital system, holds more than a
50%
controlling interest in the ancillary services or settings of care, but does not include other ancillary services or settings of care. For across-the-board rate reductions to ancillary services or settings of care, the division
must
include appropriate requirements for notice to providers in the managed care organizations' contractor risk agreements.
This amendment clarifies that the prohibition on across-the-board rate reductions do not preclude good faith negotiations between managed care organizations and covered or excluded hospitals, hospital systems, and between managed care organizations and p
hysicians on an individualized, case-by-case basis. Good faith negotiation necessarily implies mutual cooperation between the negotiating parties and may include the right to terminate contractual agreements; the ability to modify negotiated rates, prici
ng
, or units of service; the ability to alter payment methodologies; and the ability to enforce existing managed care techniques or to implement new managed care techniques.
If CMS mandates a TennCare program change, or a change is required by state or federal law that impacts rates, and that change is required to be implemented by the managed care organizations in accordance with their contracts, or if the annual coverage a
ssessment becomes invalid, then this amendment does not prohibit the managed care organizations from implementing the mandated rate change.
Charges and Surcharges
This amendment prohibits a covered hospital from increasing charges or adding a surcharge based on, or as a result of, the annual coverage assessment.
AMOUNT OF ANNUAL ASSESSMENT
This amendment provides that each covered hospital's annual assessment is a weighted portion of the annual assessment base. The weight for each covered hospital must be determined in accordance with the hospital's classification based on its 2023 joint
annual report as
children's, tier 1, tier 2, tier 3, psychiatric, and safety net hospitals in the division's DSH program, or meet the out-of-state medicaid classification
.
The high out-of-state medicaid classification means that a hospital's percentage of
out-of-state medicaid visits is greater than
15% of all medicaid visits, as determined from the hospital's 2023 joint annual report.
If multiple hospitals operate under a single license and aggregate to a single medicare number, then the determination for the out-of-state medicaid classification must be determined based on combining total medicaid visits and out-of-state medicaid visit
s, as reported in the 2023 joint annual reports for all hospitals in the group in the same way as the medicare cost report.
The following weights apply to the annual coverage assessment, if approved by CMS:
Children's hospitals are an inpatient weight of 0.8 and an outpatient weight of 0.3.
Tier 1 hospitals are an inpatient weight of 1.0 and an outpatient weight of 0.5.
Tier 2 hospitals are an inpatient weight of 0.75 and an outpatient weight of 0.3.
Tier 3 hospitals are an inpatient weight of 0.151 and an outpatient weight of 0.175.
Psychiatric hospitals are an inpatient weight of 0.11 and an outpatient weight of 0.5.
Safety net hospitals are an inpatient weight of 0.133 and an outpatient weight of 0.5.
High out-of-state medicaid hospitals are an inpatient weight of 0.151 and an outpatient weight of 0.1.
Any other hospitals eligible for the assessment have a weight of 6%.
If CMS does not approve the structure of the assessments as described above, then this amendment requires each hospital's assessment to be determined in accordance with the alternative assessment structure approved by CMS on January 14, 2025. Under such
alternative structure, each covered hospital's annual assessment is a weighted portion of the annual coverage assessment base. The weight for each covered hospital must be determined in accordance with the hospital's classification based on its 2023 joi
nt
annual report as children's, tier 1, tier 2, tier 3, psychiatric, and safety net hospitals in the division's DSH program. The following weights apply to the alternative assessment structure:
Children's hospitals are an inpatient weight of 0.8 and an outpatient weight of 0.3.
Tier 1 hospitals are an inpatient weight of 1.0 and an outpatient weight of 0.55.
Tier 2 hospitals are an inpatient weight of 0.75 and an outpatient weight of 0.3.
Tier 3 hospitals are an inpatient weight of 0.15 and an outpatient weight of 0.175.
Psychiatric hospitals are an inpatient weight of 0.11 and an outpatient weight of 1.0.
Safety net hospitals are an inpatient weight of 0.133 and an outpatient weight of 0.157.
Any other hospitals eligible for the assessment have a weight of 6%.
This amendment clarifies that the weights provided above are not a rule and are not subject to the rulemaking provisions of present law. Further, the division is required to implement the assessment in a manner that complies with federal requirements ne
cessary to ensure that the assessment qualifies for federal matching funds. The division may modify the amount of the individual percentages if necessary to comply with federal regulations or address additional state appropriations.
If a covered hospital ceases to operate or changes status to be an excluded hospital between July 1, 2026, and June 30, 2027, then the hospital's total annual coverage assessment is equal to its annual coverage assessment base multiplied by a fraction, t
he denominator of which is the number of calendar days from July 1, 2026, to July 1, 2027, and the numerator of which is the number of days from July 1, 2026, until the date the health facilities commission has recorded as the date that the hospital chang
ed
status or ceased operation.
If a hospital changes from an excluded hospital to a covered hospital, and if such hospital contributed an intergovernmental transfer, then this amendment requires the intergovernmental transfer and assessment obligations to be applied to such hospital p
roportionally based on the length of time the hospital met each of the respective definitions.
Method of Payment
This amendment requires the annual coverage assessment to be paid in installments. The division must establish a schedule of installment payments spread as evenly as possible throughout fiscal year 2026-2027 with each installment due 15 days after the f
iscal year 2026-2027 directed payments approved by CMS to offset unreimbursed division costs have been made to hospitals. The division is required to send each covered hospital a notice of payment with a return form at least 30 days in advance of each in
st
allment payment due date. However, failure to receive a notice and return form does not relieve a covered hospital from the obligation of timely payment. The division must also post the return form on its website.
If a covered hospital is sold after July 1, 2026, and before July 1, 2027, then this amendment provides that the seller is responsible for the annual coverage assessment payments due for the period up to an including the date the sale is
final. If the hospital continues to operate in this state and continues to meet the definition of a covered hospital, then the new owner is responsible for paying all annual coverage assessment amounts due for the period beginning on the date of the sale
until July 1, 2027.
Penalties for Non-Payment
This amendment provides that the failure of a covered hospital to pay an installment of the annual coverage assessment will result in an imposition of a penalty of $500 per day until the installment is paid in full. However, the division may waive the pe
nalty if the hospital establishes that it attempted to mail or electronically transfer the payment to the state on or before the date the payment was due. If a covered hospital fails to pay an installment of the annual coverage assessment within 30 days,
t
hen the division is required to suspend the direct payments to the hospital, as described below, required until the installment is paid. The division must also report the failure to the department that licenses the covered hospital. Failure of a hospita
l to pay an installment or a refund required by this amendment is considered a license deficiency and grounds for disciplinary action as set forth in the statutes and rules under which the covered hospital is licensed.
This amendment authorizes the division to file a civil action against a covered hospital and its controlling person or persons to collect delinquent annual coverage assessment installments, late penalties, and refund obligations established by this amend
ment. Jurisdiction and venue for such an action is in the chancery court for Davidson County.
If a covered hospital ceases operation prior to payment of its full annual coverage assessment, then
this amendment provides
the person controlling the hospital
as of the date it ceased operation is jointly and severally responsible for any remaining annual coverage assessment installments and unpaid penalties associated with previous late payments.
Pause on Assessments and Payments
This amendment provides that, if a federal agency with jurisdiction over the annual coverage assessment determines that the annual coverage assessment is not a valid source of revenue or if there is a reduction of the coverage and funding of the division
's program, or if the annual coverage assessment is not approved by CMS, or if one or more managed care organizations impose across-the-board rate reductions, then (i) subsequent installments of the annual coverage assessment are not due and payable; and
(i
i) further payments must not be paid to hospitals required after the date of the event. The division is authorized to make necessary changes to its budget to account for the loss of annual coverage assessment to account for the loss of revenue due to the
above named events.
If CMS discontinues approval of or otherwise fails to approve the full amount of directed payments to hospitals for providing services to division enrollees, then this amendment requires the division to suspend payments from or to covered hospitals other
wise required by this bill.
PETITION FOR A DECLARATORY ORDER
This amendment authorizes a covered hospital or an association representing at least 30 or more covered hospitals, to file a petition for a declaratory order to determine if there has been a failure to meet the requirements of this amendment.
MAINTENANCE OF COVERAGE TRUST FUND
This amendment requires the funds generated by this amendment to be deposited in the maintenance of coverage trust fund. However, the fund must not be used to replace monies otherwise appropriated to the division's program by the general assembly or to
replace monies appropriated outside of the division's program. The maintenance of coverage trust fund consists of funds from all of the following sources:
The balance of the trust fund remaining as of June 30, 2026.
All annual coverage assessments received by the division.
Investment earnings credited to the assessments received by the division.
Penalties paid by covered hospitals for late payment of assessment installments imposed by this part or a prior statute authorizing an annual coverage assessment.
Intergovernmental transfer of funds from hospitals determined by the division as eligible to certify public expenditures for the purpose of securing federal medicaid assistance percentage payments up to $300 million. The intergovernmental transfer amount is determined on the proportion of a hospital's medicaid days and total outpatient payments as reported on the 2021 JAR.
This amendment requires the division to modify the contracts with the division's managed care organizations and otherwise take action necessary to ensure the use and application of the assets of the maintenance of coverage trust fund, as described below.
Expenditures for Benefits and Services under the Division's Program
This
amendment requires that monies credited or deposited into the fund, together with all federal matching funds, be made available to and used by the division only for expenditures in the division's program for specific purposes. One expenditure is expenditu
res for benefits and services under the division's program, including those that would have been subject to reduction or elimination from the division's funding for fiscal year 2026-2027, except for the availability of one-time funding for that year only,
a
s follows:
Replacement of across-the-board reductions in covered and excluded hospital and professional reimbursement rates described in the governor's recommended budgets since FY 2011, except for reductions that were included on a list for a given year but then funded in a subsequent year with recurring state dollars
.
Funding virtual DSH payments, funding payments to hospitals for uncompensated care to charity patients, and funding payments to hospitals for quality incentive arrangements, with all of those payments being made in accordance with, and as those categories of payments are defined in, the division's 1115 demonstration waiver from the federal centers for medicare and medicaid services to the maximum amount permitted for each category under that waiver
.
Maintenance of payments for graduate medical education of at least
$48 million.
Avoidance of coverage limitations relative to the number of hospital inpatient days per year or the annual cost of hospital services for a division enrollee
.
Avoidance of coverage limitations relative to the number of nonemergency outpatient visits per year for a division enrollee
.
Avoidance of coverage limitations relative to the number of physician office visits per year for a division enrollee
.
Avoidance of coverage limitations relative to the number of laboratory and diagnostic imaging encounters per year for a division enrollee
.
Maintenance of coverage for occupational therapy, physical therapy, and speech therapy services
.
$612,007 to maintain reimbursement at the same emergency care rate
in FY 2025-2026 for nonemergent care to children
12 to 24 months of age.
$21,391,431 to the division to offset the elimination of the provision in the division's managed care contractor risk agreements for hospitals.
$175,000 to offset a portion of the hospital cost of providing admissions, discharge, and transfer messages to the division to support the division's Patient Centered Medical Home Initiative.
$1,426,700 to provide funding for stipends for physicians and other healthcare providers who commit to work in designated medically underserved areas in this state.
$3 million to offset the unreimbursed cost of charity care for critical access to hospitals to be funded from funds remaining in the trust fund as of June 30, 2026.
Directed Payments to Hospitals
This amendment provides that monies in the fund may be used by the division for expenditures for the purpose of making directed payments to hospitals for providing services to division patients and the uninsured, as approved by CMS. Such payments will b
e made based on claims paid with the division's utilization and encounter data from the managed care organizations during each quarter of fiscal year 2026-2027. A directed payments to a hospital must be in an amount set by the division in consultation wi
th
the Tennessee Hospital Association and is dependent on available funding. Further, a directed payment must include a quality program designed and implemented with the partnership and cooperation of the division and the Tennessee Hospital Association.
If CMS does not approve directed payments to hospitals as described above, but instead approves hospital supplemental pools in the division waiver, then this amendment requires payments to be made from the allocated pools to covered hospitals to offset l
osses incurred in providing services to division enrollees as first priority before any other supplemental payments authorized in the division waiver are distributed.
This amendment requires the division to provide to the Tennessee Hospital Association a schedule showing the directed payments to each hospital at least seven days prior to making the payments. Payments may be made to hospitals directly by the division
or by the division managed care organizations with the direction to make payments to hospitals, or by a designee approved by the division. Any payments made to a hospital pursuant to this provision are not part of the reimbursement a hospital is entitled
t
o under its contract with a division managed care organization.
This amendment allows for expenditures from the
maintenance of coverage trust fund
to make the alternative payments described above, if CMS discontinues approval of the above-described directed payments. Further, expenditures from the fund may be made to offset any public hospital funding shortfalls for state directed payments.
If the annual coverage assessment is implemented, then this amendment requires the expenditures for directed payments to hospitals to be limited to either the same amount authorized for fiscal year 2024, or a greater amount as determined by the division
in consultation with the Tennessee Hospital Association, up to the amount approved by CMS, until such a time as CMS approval and confirmation has been obtained.
Refunds to Hospitals
This amendment authorizes expenditures from the maintenance of coverage trust fund to pay refunds, in proportion to the amount paid in, to covered hospitals based on (i) the payment of annual coverage assessments or penalties to the division through error
, mistake, or a determination that the annual coverage assessment was invalidly imposed; or (ii) circumstances where
the division, in consultation with the Tennessee Hospital Association, has determined a lower coverage assessment would have been required t
o
provide for the
expenditures for benefits and services under the division's program
and directed payments to hospitals, as described above.
Public Health Emergencies
This amendment authorizes expenditures from the maintenance of coverage trust fund for programs and initiatives developed by the division, in consultation with the Tennessee Hospital Association, to offset the unreimbursed costs of providing services to
division enrollees and the financial consequences of a public health emergency. However, state funding for such programs and initiatives must be used to obtain federal matching funds to raise funds up to $350 million.
Administrative Funding
This amendment authorizes an expenditure from the maintenance of coverage trust fund in the amount of $382,400, for six full-time state employees to assist with implementation, operationalization, and ongoing management of hospital payment programs. Fur
ther, this amendment authorizes an expenditure from the maintenance of coverage trust fund in the amount of $1.6 million for a program manager contract.
Audit Requirements
This amendment authorizes the comptroller of the treasury to audit the expenditure of funds from the maintenance of coverage trust fund. the division and the maintenance of trust fund must bear the full costs of the audit.
REPORTING REQUIREMENTS
This amendment requires the division to submit a report to the finance, ways and means committee of the senate and the committee of the house of representatives having jurisdiction over finance matters, health and welfare committee of the senate, and the
committee of the house of representatives having jurisdiction over health matters, and the legislative librarian at quarterly intervals beginning September 1, 2026. The report must include:
The status of the determination and approval by CMS of the annual coverage assessment.
The balance of funds in the maintenance of coverage trust fund.
The extent to which the maintenance of coverage trust fund has been used to carry out this amendment.
EXPIRATION
This amendment provides that its provisions expire on July 1, 2027. However, the all of the following rights and obligations survive the expiration:
The authority of the division to impose late payment penalties and to collect unpaid annual coverage assessments and required refunds.
The rights of a covered hospital or an association of covered hospitals to file a petition for a declaratory order to determine compliance with this amendment.
The existence of the maintenance of coverage trust fund and the obligation of the division to use and apply the assets of the maintenance of coverage trust fund.
HOSPITAL PAYMENT RATE CORRIDORS
Present law establishes hospital rate corridors applicable to payments made by managed care organizations to hospitals provided to TennCare enrollees. This bill eliminates such rate corridors.
RULEMAKING
This amendment requires the division to promulgate rules that address all of the following:
Establish the methodology for determining the amounts, categories, and times of payments to hospitals, if any, instead of the payments that otherwise would have been paid
directly to hospitals, as described above,
if approved by CMS.
Prioritize
direct
payments to hospitals
, as described above.
Identify the benefits and services for which funds will be available in order to mitigate reductions or eliminations that otherwise would be imposed in the absence of the coverage assessment.
Determine the amount and timing of payments for benefits and services
for which funds will be available in order to mitigate reductions or eliminations that otherwise would be imposed in the absence of the coverage assessments.
Reinstitute payments from or to covered hospitals as appropriate.
Any rules promulgated by the division must, to the extent possible, (i) maximize the amount of federal matching funds available for the division's program; and (ii) minimize the variation between payments hospitals will receive under the rules as compared
to payments hospitals would have received if CMS had approved the total payments.
This amendment requires the division to submit requests to CMS to modify the medicaid state plan the contractor risk agreements, and an applicable Section 1115 demonstration project, as necessary to implement this amendment.