The fanfare of his first inauguration was over, and Gov. Phil Bredesen had a harsh reality to face: Tennessee had a more than $300 million budget problem for the upcoming fiscal year, much of it due to TennCare, the state’s expanded Medicaid program.

The Sunday afternoon after his Jan. 18, 2003, inauguration, Bredesen drove himself in a pickup truck to the Tennessee Tower, where Bill Bradley, director of the state’s budget office, and other staff met with him in their 14th-floor office.

Bradley, who had worked in the budget office more than 20 years at that point, told Bredesen the budget before them for the next fiscal year — one that Bredesen would have just a couple of months to develop — was the toughest he had seen in his career.

As Bredesen stood up to leave the meeting, Bradley rose and apologized for the arduous task at hand.

“He laughed and he said, ‘You don’t understand, Bill. I love solving problems,’ ” Bradley recalled in a recent interview. “And he did solve that one.”

Now, Bredesen is highlighting his record tackling TennCare as he runs again for statewide office, this time for the seat held by retiring U.S. Sen. Bob Corker, a Chattanooga Republican.

Bredesen faces Republican U.S. Rep. Marsha Blackburn in the Nov. 6 general election and recently launched an ad touting his experience as a health care executive and his ability to “fix what’s broken.”

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That first year, Bredesen would call for roughly 9 percent across-the-board cuts to most state departments as the cost of TennCare continued to surge.

He began to look for solutions, a process that would span the next two years and ultimately lead to massive disenrollment from TennCare of thousands of poor and sick residents: adults who were terminally ill or in the midst of lifesaving treatments for illnesses such as kidney failure, cancer or hemophilia.

The solutions solved the budget woes but would prove to be the largest enrollment cut of any Medicaid program in history, while thousands more faced new limits on care and access to medication.

Bredesen calls TennCare changes 'extraordinarily difficult and painful decision'

In the ad, Bredesen says he “saved TennCare” while governor. But those fixes came at a cost and proved controversial for many at the time.

Bredesen's initial cut of 170,000 people from the rolls expanded a year later to 80,000 more adults who were in a category reserved for adults whose catastrophic illnesses put them at risk for bankruptcy.

A year later, the Bredesen administration eliminated coverage for an additional 100,000 in the program. No children were disenrolled under the reforms.

Brian Haile, a former TennCare official who also worked in the Bredesen administration, said the immediate implications of the TennCare purge were clear: The state saw more residents without insurance, more residents with medical debt and more people facing bankruptcy.

But TennCare and the state budget survived, thanks to a “terrible choice" that Bredesen was forced to make by the financial peril he inherited from his predecessor, Haile said.

Former Republican Gov. Don Sundquist had tried and failed to increase government revenue with an income tax. Without new revenue, Bredesen had to cut.

“Many may criticize whether Governor Bredesen made the wrong decision,” Haile said. “But I think you’ve got to give him credit for making an incredibly hard decision, making it decisively and seeing it through.”

In a statement Monday, Bredesen described the state of TennCare at the time he took office as a "disaster and well on its way to bankrupting our state," forcing him to "make an extraordinarily difficult and painful decision."

"These TennCare reforms were personally painful, not to mention politically damaging, but as the state’s chief executive I did what had to be done," Bredesen said, adding that TennCare went on to become "one of the most financially stable Medicaid programs in the nation."

Bredesen said his administration worked to help those removed from the rolls and created Cover Tennessee, an initiative to provide affordable health insurance to working Tennesseans, uninsured children in low-income families and the chronically ill who were denied coverage due to pre-existing conditions.

TennCare growth had become 'unsustainable'

Created in 1994, TennCare is the state’s Medicaid program, providing coverage to roughly 1.4 million low-income Tennesseans, or 20 percent of the state’s population. The program is the only one in the nation to enroll the state’s entire Medicaid population in managed care.

Bradley said Bredesen's controversial decision to enact widespread cuts was necessary for the state to be able to pay for TennCare.

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“The program was growing at, basically, an unsustainable rate at that point,” Bradley said, citing growth caused in part by medical inflation running higher than general inflation.

In his statement, Bredesen said he was faced with the prospect of "reducing funding for education, children’s services and other essential state responsibilities."

Approaching his third budget, the program was going to need $647 million more, while the state’s revenue growth that year amounted to $325 million.

“That’s the budget in which he said ‘Nope. No more,’ ” Bradley said.

Advocates, including Gordon Bonnyman of the Tennessee Justice Center, suggested less drastic measures to spare the cuts, including management changes like more closely monitoring doctors' prescribing habits and joining other states to form buying pools to better negotiate prescription prices.

They suggested lowering payments to managed care organizations and trying to negotiate more federal money for the program.

"I think it's important for people to understand that cuts of this magnitude are literally unprecedented in this country," Bonnyman said in 2005.

But Bredesen countered that the changes advocates suggested could never save the amount of money Tennessee would need to continue funding the growing TennCare program, describing Bonnyman and others as "living in a fairyland."

Bonnyman didn't respond to requests for comment for this story.

Bredesen forced to implement TennCare's largest round of cuts

In spring 2005, the mass disenrollment began, cutting off the uninsured and uninsurable adult categories of the program who did not qualify for Medicaid.

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The decision was unpopular.

Protesters staged a 77-day, round-the-clock sit-in outside the governor's office.

A Middle Tennessee State University poll in 2005 found that Bredesen’s approval rating fell 10 percentage points from February to November, though it still remained at 52 percent after the cuts began.

The same poll found that 56 percent of Tennesseans disagreed with Bredesen’s decision to make the TennCare cuts.

Bredesen said the state worked to provide help for those removed from the TennCare rolls.

"We provided members who were disenrolled with assistance in finding alternatives and we established a high-risk pool for Tennesseans who could not obtain coverage due to pre-existing conditions," he said in the statement Monday.

Bradley, who worked as director of the budget office under the Republican administrations of Sundquist before Bredesen and Gov. Bill Haslam afterward, said from his vantage point, he believes the cuts as they occurred were necessary and, to balance the budget, unavoidable.

There were essentially no other cuts to other state departments that could be made to make up for the massive shortfall to continue funding TennCare as it was, Bradley said.

“I can’t imagine that we could have not dealt with it,” Bradley said. “If we had not dealt with it, what we would have had to do was eliminate a lot of the rest of state government.”

Anita Wadhwani and Brett Kelman contributed to this report.

Reach Natalie Allison at nallison@tennessean.com. Follow her on Twitter at @natalie_allison.