The economic recession and the rising healthcare costs experienced by many states in the U.S. is leading us towards the enactment of legislation that will reform the way that healthcare is provided and paid for within the individual states. TennCare was developed in Tennessee as a bold healthcare reform strategy that would simultaneously contain rapidly rising Medicaid costs while expanding insurance for a large, uninsured Tennessee population. The implementation of TennCare in January 1994 instituted the move of Tennessee's Medicaid patients into managed care health plans. This study describes the design, rationale, implementation strategy, and issues of the reform program, as well as offering in depth insight regarding the effects of the reform strategy on disproportionate share hospitals, i.e. hospitals that serve a large portion of Medicaid and uninsured patients. Data spanning ten years of pre- and post-Tenncare were analyzed to determine the effects of TennCare on the hospitals. Dr. Ogbonna provides a template for dealing with policy, managerial, and administrative issues of rising healthcare costs in Tennessee and the nation in general.