The New Rules of the Game An indepth look at the Balanced Budget Act of 1997 and how to respond to i

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The New Rules of the GameAn in-depth look at
the Balanced Budget Act of 1997 and how to
respond to its challenges

• Dale Jarvis, CPAMCPP Healthcare Consulting
  National Council for Community Behavioral
  Healthcare
• dale_at_mcpphc.com
• [phone]

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Agenda
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Chapter 1 Additional BBA Issues
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Issue 1 CMS Oversight

• The CMS Office of Inspector General has been
  taking a hard line against past CMS practices,
  finding them at fault for inadequate waiver
  oversight and approving state requests that are
  outside the letter of the law
• The OIG is looking into issues in IA, KS, WA, UT,
  and CO and considering disallowances,
  de-categorizations and deferrals

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Issue 1 CMS Oversight

• CMS has stepped up their scrutiny of Medicaid
  contracts, waivers, state plan amendments, and
  state operations
• Past approval from CMS is no guarantee that they
  wont come back and tell you the rules have
  changed

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Issue 1 CMS Oversight Example
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Issue 1 CMS Oversight Example

• However, we recognize that when a capitated
  payment is made to an MCO or a PHP, the entity is
  required to meet contractual obligations to serve
  Medicaid beneficiaries within the money provided,
  and that except for limits that may be set on
  allowed profits (in for-profit entities), the MCO
  or PHP can use its savings as it wishes. In
  effect, it is no longer Medicaid money. In
  fact, should an MCO or PHP voluntarily choose to
  serve people who are not Medicaid eligible, it is
  free to do so. However, we believe it is not
  appropriate for the State Medicaid agency to
  require in its contracts with an MCO or PHP that
  savings from capitated payments be used to
  provide health services to individuals not
  otherwise eligible for Medicaid.
• State Medicaid Director Letter 6/24/1998

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Issue 1 CMS Oversight

• CMS has unveiled a plan to begin prospectively
  reviewing state Medicaid budgets
• A draft State Medicaid Director Letter from
  Dennis Smith noted
• Over the last decade states have initiated a
  number of financing mechanisms to enhance the
  allowable Federal funding for their Medicaid
  programs. CMS and the OIG reviews of these
  programs have resulted in the identification of a
  number of potential disallowances of Federal
  Funds involving billions of dollars that have
  accumulated over the years To address these long
  standing problems, CMS will implement a
  prospective financial management review process

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Issue 1 CMS Oversight

• Soon afterward, the Administration made proposals
  in the Presidents Budget to institute new
  Medicaid program integrity activities saving the
  federal government 1.5 billion in FY2005 and
  23.5 billion over 10 years
• Pushback by the National Governors Association
  resulted in a temporary pullback by Secretary
  Thompson, but
• Translation Expect CMS to play hardball in
  their oversight role

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Issue 2 Unit Costs

• No Boren Amendment Rates do NOT have to be
  adequate to cover the costs of an efficiently run
  organization (Brenda Jackson, CMS/SAMHSA
  Conference, October 2004)
• The BBA brought about the repeal of a provision
  of Medicaid law commonly known as the Boren
  Amendment, which stated that states Medicaid
  payments to hospitals, nursing facilities and
  ICF/MRs had to be sufficient to cover the cost of
  efficiently and economically operated
  facilities. Under the BBA the only requirement
  is that states must open their Medicaid
  ratesetting process to the public.
• When the unit cost portion of the actuarial math
  problem is completed, theres no assurance that
  the actuaries will use figures that are relevant
  to the cost of doing business in the community
  mental health systems

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Issue 3 Statewide Rates

• States with county or regional-based PIHPs may
  have Medicaid PMPM rate models that could create
  a downward funding spiral
• Example - Oregon Mental Health System
• Round 1 The PriceWaterhouse Coopers actuarial
  study found that, on the average, PIHP PMPM rates
  were 12 higher than they could justify with
  their claims data
• Rates were cut across the board to the PIHPs
• PIHPs with higher utilization lost money PIHPs
  with lower utilization continued to be paid more
  than their utilization would justify.

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Issue 3 Statewide Rates

• Round 2 Preliminary results from the most recent
  PriceWaterhouse Coopers actuarial study found
  that, on the average, PIHP PMPM rates were 7.2
  higher than they could be justified from claims
  data
• Rates will likely be cut across the board in this
  second round
• Again, PIHPs with higher utilization will lose
  money PIHPs with lower utilization will continue
  to be paid more than their utilization would
  justify
• Unless a targeted intervention is made this
  downward trend could continue

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Issue 3 Statewide Rates
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Issue 4 Access Planning

• New Regulations for Ensuring Adequate Provider
  Capacity to Meet Enrollee Demand
• Anticipated Medicaid enrollment
• Expected utilization of services
• The numbers and types of providers required
  (training, experience, and specialization)
• The number not accepting new patients
• The geographic location of providers and
  enrollees
• The creates an opportunity to project what it
  would cost to meet the needs of the covered
  population it also raises the bar in relation to
  how most PIHPs plan
• Recently CMS approved a new 5-county 1915(b)(c)
  combo waiver in North Carolina where we used this
  projections exercise to justify higher rates

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Issue 4 Access Planning
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Issue 5 Dual Standards for PIHPs

• CMS is interpreting Savings that need to go
  into the Community Reinvestment Fund in two
  different ways one for Public entities and one
  for Private entities
• PIHPs
• Public Entity Formula PMPM Revenue minus
  Expenses minus Risk Reserve (if any) equals
  Savings
• Private Entity Formula PMPM Revenue minus
  Expenses minus Profit Allowance minus Risk
  Reserve (if any) equals Savings
• Providers
• Public Entity Formula (if related to the PIHP)
  Medicaid Payments minus Expenses equals Savings
• All Others Not Applicable
• Utah has recently built a 3 profit allowance
  into their PIHP rates. This would likely be
  prohibited if the PIHPs were Public Entities
  (versus nonprofit organizations)

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Issue 6 Managed Care Risk

• Potential disjoint between back to the future
  Fee For Service system and many managed care
  financing models
• In the last ten years of managed care payors, in
  many instances, have shared financial risk with
  provider as a strategy for managing cost and
  giving provider more flexibility to provide the
  right care, in the right amount, at the right
  time
• Risk is passed to the provider via the payment
  mechanism case rate, subcapitation (see next 2
  slides) or some variation
• If providers dont properly manage the risk they
  will lose money
• If providers do a good job managing the risk
  client outcomes can improve and the provider
  reaps a financial reward

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Issue 6 Managed Care Risk

• There are five levels of financial risk
• The payment mechanism is the method by which risk
  is transferred from payor to provider
• Payment mechanisms carry varying incentives for
  both payor and provider

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Issue 6 Managed Care Risk

• Cost Risk Services cost more per unit than
  planned
• Individual Utilization Risk Individuals, on
  average, use more units of service than planned
• Case Mix Utilization Risk The proportion of
  high-need cases is higher than planned
• Penetration Risk More individuals from the
  covered population need services than planned

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Issue 6 Managed Care Risk

• One problem we occasionally run into is when a
  PIHP practices Pseudo Managed Care this is
  when a PIHP writes a contract with a provider
  where they pay the provider via a case rate or
  subcapitation, pushing risk down to the provider,
  but then allow the provider to only be paid for
  their costs (or less) this is know as a contract
  with downside risk and no upside reward
• Under CMS current interpretation of the BBA,
  PIHPs are at risk to meet all of the behavioral
  health needs of the Medicaid population (no
  waiting lists, no refusal of medically necessary
  care) but, for all intents and purposes, have no
  upside reward if they provide efficient care
  they are going to get less money
• Its only a matter of time before the unintended
  consequences of this new (old) model kick in

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Questions, Comments?
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Chapter 2 Getting Re-Grounded in Managed Care

• (a prelude to looking at what states are doing to
  respond to the BBA)

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Four Generations of Managed Care

• Pre-Managed Care (post World War II with the
  growth of commercial, employer-funded health
  insurance)
• Insurance companies do actuarial work and pay
  claims
• Payors holds most of the risk
• Pay providers on a fee for service basis
• No concept of a provider network only licensure
• Manage costs by keeping fees low and restricting
  eligibility or benefit package (little or no
  ability to manage utilization)

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Four Generations of Managed Care

• First Generation Managed Care (1971 Nixon
  strategy to develop Health Maintenance
  Organizations (HMOs)
• Insurance companies take on new roles some
  providers become insurers (staff model HMOs)
• Payor holds most of the risk
• Pay providers on a fee for service basis
• No concept of a provider network only licensure
• Manage costs by tightly limiting access (who can
  get into care)

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Four Generations of Managed Care

• Second Generation Managed Behavioral Health
  Care (early 1980s with the implementation of
  managed behavioral healthcare carve-outs for
  employer plans)
• New companies get into the managed care game
• Payor holds most of the risk
• Pay providers on a fee for service basis
• Create provider network that agrees to play by
  the rules as a requirement for entry
• Manage costs by requiring pre-authorization of
  all care, doling out services in small chunks
  and requiring frequent reauthorization
• Use concurrent review for certain types of cases
  and retrospective review for sampling of cases to
  ensure that care is medically necessary

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Four Generations of Managed Care

• Third Generation Managed Behavioral Health Care
  (mid-1990s in public sector managed care
  demonstration projects)
• Payor begins to share the risk
• Pay providers on a fee for service, case rate
  basis, or subcapitation
• Increase expectations of providers in the
  network match service demand with provider
  capacity
• Replace most/all outpatient pre-authorization
  with agreed upon Level of Care Criteria,
  Assessment Tools to be used by all providers, and
  funding caps at the client and provider level
• Use concurrent review for certain types of cases
  and retrospective review for sampling of cases to
  ensure the fidelity of leveling process and that
  care is medically necessary

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Four Generations of Managed Care

• Fourth Generation Managed Care
• Continue to use Third Generation Managed Care
  strategies
• Use Evidence-Based Practices to inform the Levels
  of Care, utilization parameters, and overall
  utilization and cost projections
• Use Clinical Outcomes and other Performance
  Measures to measure success and reward (or not)
  providers

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Chapter 3 State and PIHP Strategies

• What states are (or should consider) doing to
  address the challenges embedded in the BBA

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Strategy Area I Planning

• Every state is somewhere on the following
  continuum
• How and what you should do to respond to the BBA
  should be based on the quadrant you are in
• Strategy 1 Complete a Self-Assessment of your
  State and PIHPs to determinewhat
  mismatchesexist, if any, betweenyour current
  designand the BBA

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Strategy Area I Planning

• States that are using a comprehensive approach to
  address the identified mismatches will be better
  served
• Utahs PIHPs are working together and hoping to
  work more closely with the state
• Oregon has not yet gotten organized as a group of
  PIHPs or at the state level
• Washington has developed a plan but is having
  challenges implementing it
• Strategy 2 State and PIHPs work collaboratively
  to develop a Strategic Action Plan that includes
  the High Impact Strategies Relevant to the State
• The strategies in this presentation should be
  considered when developing your plan

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Strategy Area I Planning

• Washington State game plan

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Strategy Area II System Management

• Strategy 3 Ensure that the State and PIHPs Play
  an Active Role in Designing the Actuarial Study
  Methodology that will be used in your State
• The state as the contracting entity has a
  responsibility to ensure that the actuarial study
  methodology is in alignment with the states
  public policy goals the actuary has a
  responsibility to ensure that the methodology is
  in compliance with CMS regulations
• States working with their PIHPs can create a game
  plan whereby
• The actuaries become a technical resource to the
  system
• Proactive efforts are made to ensure that the
  data is complete, and where its not, data
  smoothing techniques are used
• Unit costs are based on local community mental
  health realities
• PriceWaterhouse Coopers in Oregon, Milliman USA
  in Washington, and Mercer in North Carolina have
  all been excellent resources and an extremely
  important part of the equation

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Strategy Area II System Management

• Strategy 4 Take a Proactive Approach to
  Determining the Unit Costs that will be used in
  the Actuarial Study
• Determine the philosophy that the state will
  apply to costs
• Example Keep the costs/fee schedules low to
  dissuade providers from running up the costs
  (e.g. pre-managed care strategy)
• Example Payments should be sufficient to cover
  the cost of efficiently and economically
  operated facilities
• Work with the actuaries to develop and complete a
  statewide Cost Study
• Compile the results of the Cost Study and work
  with actuaries to ensure these figures are built
  into the PMPM rates
• Example In Oregon PriceWaterhouse Coopers
  accepted the PIHP Cost Studies that concluded
  that mental health unit costs were approximately
  30 higher that the states usual and customary
  fee schedule

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Strategy Area II System Management

• Strategy 5 Re-Evaluate Your PIHP Allocation
  Methodology
• Are you headed towards the Oregon experience?
• Does the methodology need to be tweaked to
  address the new math problem?

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Strategy Area II System Management

• Strategy 6 Developing a Statewide Utilization
  and Cost Trend Model
• Most states do not collect and report utilization
  and cost data on a timely basis and then project
  how the upcoming actuarial study will unfold
• The alternative is to develop a Utilization and
  Cost Trend Model that will
• Track data by PIHP, Medicaid and non-Medicaid
• Segregate countable services from
  non-countable services
• Use statistical modeling methods to trend the
  utilization through the end of the actuarial rate
  setting period
• Update and analyze the model monthly
• Identify corrective action measures before the
  actuarial rate setting period ends

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Strategy Area II System Management

• Strategy 6 Developing a Statewide Utilization
  and Cost Trend Model

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Strategy Area II System Management

• Strategy 7 Re-Evaluate Your Existing Provider
  Reimbursement Models
• If you are one of the many states where, at the
  PIHP level, providers are paid on a
  sub-capitation, case rate, or similar non-fee for
  service model
• Evaluate the potential risks from under reporting
  and the gaps between payments and claims
• Examine alternative payment models, including the
  many versions of fee for service
• Determine the cost-benefit of moving to a new
  reimbursement model
• Identify the potential transition plans that
  would facilitate such a move

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Strategy Area II System Management

• Strategy 7 Re-Evaluate Your Existing Provider
  Reimbursement Models

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Strategy Area II System Management

• Strategy 8 Data Quality Initiative
• Develop a statewide strategy, to be executed at
  the PIHP level, to improve the completeness,
  accuracy and timeliness of encounter data
• Several states have taken a proactive approach to
  develop
• Clinician Service Coding User Guide
• Comprehensive Training Curriculum
• Infrastructure to Disseminate the Training to
  EVERY CLINICIAN IN THE PUBLIC MENTAL HEALTH
  SYSTEM
• Monitoring Process to evaluate the success (or
  not) of the Data Quality Initiative
• Corrective Action Strategies if data quality
  problems still exist

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Strategy Area II System Management

• Strategy 8 Data Quality Initiative
• Example Training Curriculum

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Strategy Area III Public Policy

• Build the Public Policy Case for Protecting and
  Expanding State Funding
• Strategy 9 Determine the Gap between Need and
  Available Funding, using Available Data
• SAMHSAs prevalence methodologies for Adults and
  Children
• NASMHPD/NRIs 50 States Cost Comparison Data
• Combination of these two data sources
• In 2000 Washington State was able to demonstrate
  a 216 million shortfall in the public mental
  health system the report was instrumental in
  preventing budget cuts during times of
  substantial state budget shortfalls

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Strategy Area III Public Policy

• Build the Public Policy Case for Protecting and
  Expanding State Funding
• Strategy 9 Determine the Gap between Need and
  Available Funding, using Available Data

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Strategy Area III Public Policy

• Build the Public Policy Case for Protecting and
  Expanding State Funding
• Strategy 10 Create a Statewide Clinical Redesign
  Grounded in Evidence-Based Practices and Utilize
  the Actuarial Utilization Adjustment Step
• The Final Rules Ratesetting Checklist describes
  the standard actuarial procedure related to
  adjustments of historical utilization data based
  on the States mental health system design
• Under the Final Rules States have the opportunity
  to translate a mental health system redesign into
  a financial model that projects the expected
  utilization and cost for the system

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Strategy Area III Public Policy

• Strategy 10 Create a Statewide Clinical Redesign
  Grounded in Evidence-Based Practices and Utilize
  the Actuarial Utilization Adjustment Step
• Example Washington State Proposal
• Develop a Revised Clinical Design for the State
  public mental health system based on desired
  shifts in service approaches, including
  Evidence-Based Practices (EBPs) for adults and
  children.
• Create an Implementation Workplan for desired
  service adjustments across the State, projecting
  the level of penetration for these practices over
  a multi-year period.
• Research and project Utilization and Cost Changes
  that will occur through the use of new clinical
  model and practices and the discontinuation of
  other services that have not demonstrated their
  effectiveness.
• Build these Utilization and Cost Changes into the
  Utilization Adjustment steps of the subsequent
  Actuarial Models.

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Strategy Area III Public Policy

• Strategy 10 Create a Statewide Clinical Redesign
  Grounded in Evidence-Based Practices and Utilize
  the Actuarial Utilization Adjustment Step

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Strategy Area III Public Policy

• Build the Public Policy Case for Protecting and
  Expanding State Funding
• Strategy 11 Expand Coverage for Non-Medicaid
  SMI/SED Clients
• Maximize Presumptive Eligibility efforts through
  work with your states Medicaid eligibility unit,
  drawing on best practices efforts in New York
  City, Seattle, and other communities
• Consider a targeted 1115 waiver for SMI, SED not
  currently eligible for Medicaid, layered on top
  of the existing 1915 waiver (e.g. Patrick
  Barries Michigan analysis)
• Achieving budget neutrality through a
  reallocation of resources that come out of the
  clinical redesign

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Strategy Area III Public Policy

• Strategy 11 Expand Coverage for Non-Medicaid
  SMI/SED Clients

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Strategy Area III Public Policy

• Build the Public Policy Case for Protecting and
  Expanding State Funding
• Strategy 12 Watch Californias Proposition 63

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Questions, Comments?
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Small Group Setup

• Question 1 What are the top 3 threats that the
  BBA brings to the Michigan Community Behavioral
  Health System?
• Question 2 What are the top 3 Strategies that
  should be considered to support and improve the
  current system?
• Process
• Choose a group facilitator and recorder
• Use the Issues and Strategies from this session
  and the morning Plenary plus your knowledge of
  the Michigan system
• Break your time into 4 segments
• 5 minutes to brainstorm Question 1 Threats
• 5 minutes to select Top 3
• 5 minutes to brainstorm Question 2 Strategies
• 5 minutes to select Top 3

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Small Group Reports Discussion
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Dale A. Jarvis, CPA

• Dale Jarvis is a Managing Consultant at MCPP
  Healthcare Consulting, a Seattle-based consulting
  firm. Mr. Jarvis helps health and behavioral
  health organizations and system managers develop
  and install practical financial planning,
  analysis and information systems.
• He has contributed articles to publications and
  is a co-author of two books, The Primary Care
  Performance Management System and How to Thrive
  in Managed Behavioral Healthcare.
• In recent years he has worked with over 60 PIHPs
  and provider organizations in several states
  addressing behavioral health financing and
  technology-related issues.
• Dale can be reached at dale_at_mcpphc.com and (206)
  613-3339. MCPP Healthcare Consulting is on the
  web at www.mcpphealthcare.com.