Rich VandenHeuvel, CEO

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Brooke Wells
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1 March 7, 2015 Rich VandenHeuvel, CEO Ms. Lynne Doyle, Director Mr. Scott Gilman, Director CMH of Ottawa County network James Street 790 Fuller Avenue NE Holland, MI Grand Rapids, MI Ms. Lisa Hotovy, Director Ms. Marianne Huff, Director West Michigan CMH System Allegan County CMH 920 Diana Street nd Avenue Ludington, MI Allegan, MI Ms. Julia Rupp, Director HealthWest 376 East Apple Avenue Muskegon, MI Dear LRP Members, As you are aware, the five CMH members of the have reported a projected Medicaid deficit for the current fiscal year. In keeping with the Risk Management Plan and Operating Agreement, this letter serves as a formal request for a Plan of Correction from all five CMHSP members of the LRP. In the interest of transparency, in recognition of the discussion on February 26, 2015, and in keeping with the values in our Operating Agreement, this letter is being shared with all members. It is also intended to support members in working collaboratively with the LRP and with your peers to learn from one another where practices can be adopted to continue services and reduce costs. At the Finance and Budget Planning meeting called by the LRP on February 26, 2015, rough estimates from the CFOs projected the following potential deficit based upon first quarter experience and enrollment trends: No Rate adjustment at 115,000 TANF 115,000 TANF w/ Rate Adj. N180 $ 10,000,000 $ 5,000,000 HealthWest $ 5,500,000 $ 3,500,000 Ottawa $ 1,000,000 $ 500,000 WMCMHS $ 1,500,000 $ 1,000,000 Allegan $ 800,000 $ 400,000 TOTAL $ 18,800, $ 10,400, These estimates reflect both a revenue and a spending challenge. 376 E. Apple Avenue, Muskegon, MI 49442

2 The region has experienced three substantial negative events which have impacted available revenue and are outside the control of the LRP or the members: FY Rate Rebasing: Negative estimated $2.2 million region wide impact. Notification in December, 2014 of the inability to use surplus Healthy Michigan Revenue to cover Medicaid services. The unexplained drop of approximately 22 percent in regional TANF Medicaid enrollment (mirrored by, although slightly higher than, 19 percent reported statewide TANF enrollment drop) resulting in an estimated annualized impact of $8.4 million. This last factor is reflected in the higher projected deficit amount referenced above, and is the focus of concerted LRP and statewide advocacy with MDCH (with initial response from MDCH marking progress). This issue will be reviewed at the March 20, 2015 MDCH Ratesetting meeting. Even if this deficit is resolved, members still project (based upon CFO estimates and 1 st quarter spending) the $ 10.4 million deficit reflected above. As noted at the February 26, 2015 LRP Finance and Budget Planning meeting, this remaining deficit must be the focus of member Plans of Correction. Please note, this is a Medicaid deficit. Healthy Michigan Projects a surplus for this fiscal year, but again, this is restricted from use for (traditional) Medicaid expenses. REQUIRED ACTION: Members will provide Plans of Correction to address the $ 10.4 million deficit reflected above to the LRP by via to Jeff Labun at Jeffl@lsre.org. Specific information required: All members shared budget reduction action plans as requested by the LRP in November of Please identify in your Plans of Correction: o What steps from these action plans were implemented and what was the resultant savings? o What steps from these actions plans were not implemented and why? o What steps remain to be implemented and what is the expected savings amount? N180 and Musekgon/Ottawa CMHs (as Lakeshore Behavioral Health Alliance PIHP) finished FY13 with a combined Medicaid surplus of over $ 7.6 million ($5.3 N180 and $2.3 LBHA). These members are now projecting (controlling for enrollment issue) ending FY 2015 with and approximately $9 million deficit. This is a significant shift. These three members are asked to analyze and provide specific explanation for the increase in spending over revenue. N180 has historically supplemented SUD services with surplus Medicaid Mental Health funds. With no projected surplus Medicaid funds, N180 must provide a plan with specific savings amounts to bring Medicaid SUD spending within allocation for these services. All Members will provide updated projections via bucket reports to Jeff Labun (contact above) by March 10 th. Plans of Correction must identify member administrative and service efficiency/cost reduction strategies in keeping with the principles disseminated from the February 26, 2015 LRP Budget and Financial Planning meeting (Attachment 1).

3 N180 and Allegan are to submit updated 2014 MUNC Administrative Cost information consistent with regional methodology by 3/13/15. Managed Care Administrative Efficiencies: Those members who formerly performed PIHP functions prior to the creating the LRP must specifically assess what functions were eliminated or moved to the LRP, assess for current duplicative functions that are no longer necessary, and identify specific savings/cost reduction opportunities in dollar amounts. o Provider Administrative Efficiencies: Members must assess administrative/overhead efficiency opportunities and potential savings and provide specific savings/cost reduction opportunities in dollar amounts. This should include consideration of opportunities for members to pool costs/share functions. These may include but are not limited to: General Overhead, Human Resources Administration, Training, Staff wages and Benefits, Electronic Health Records, Information Technology Hardware/Software and Infrastructure, Facilities Costs, etc. o Service Costs: Given the magnitude of the projected deficit, service costs must be part of the strategy for deficit reduction. All members are asked to identify specific service cost reduction strategies with projected dollar amount impact of the reductions. Reductions to service costs must be guided by the principles outlined on February 26, 2015 (Attachment 1). In particular: Expenses: Comparative metrics and standards within region and cross regionally/statewide. Target Outliers. o Cost per Unit o Volume of Units Target Magnitude Outliers and avoid getting stalled in minor areas. Reducing service costs must not raise costs elsewhere, but be true reductions. Reducing service volume/units should be limited to outlier areas and support a consistent regional benefit. To support members in completing the required Plans of Correction, Attachment 2 provides a summary of the LRP initial comparative cost analysis. The data reviewed is the data submitted by members. This includes quarterly Medicaid encounter reporting for July/August/September of 2014 and member final 2014 MUNC reports. This analysis continues and will be a focus of the March 13, 2015 LRP Budget and Financial Planning meeting. Initial review is limited to services for persons with Intellectual/Developmental Disabilities, Adults with a Mental Illness and Children with a Mental Illness. COMMUNICATION: As noted at the February 26, 2015 Budget and Financial Planning meeting, consistent and coordinated communication regarding both the challenge of the projected deficits and the planning to address same is needed. This will be the focus of ongoing Budget and Financial Planning meetings. As part of this process I would like to attend your local board and/or relevant committee

4 meetings as part of this process. Please provide options for this when submitting Plans of Correction. In conclusion, all of the LRP member organizations have experienced executives and staff. You have all had the experience of budget reduction planning in the past. While challenging, any crisis is also an opportunity. I encourage all members to work together and with the LRP to meet this challenge for our beneficiaries. Please do not hesitate to contact me or anyone at the LRP with questions or for any assistance. Sincerely, Rich VandenHeuvel, CEO Attachments

5 Rich VandenHeuvel, CEO ATTACHMENT 1 Principles to Guide POCs: a. Strategies are not individual, but w/in regional standards: i. Supports values in Operating Agreement ii. Supports Goal of Consistent Regional Benefit iii. Supports members in implementation iv. Protects against short term strategies that may negatively impact revenue in future b. Perform w/ in Mission and Values: i. 1 st priority is targeting administrative reductions/efficiencies 1. Supports values in Operating Agreement RE: efficiencies and consumer protections 2. Supports LRP Business Plan Goal # 2 3. Note: Includes Managed Care Admin. As well as provider admin. c. Perform within Contract i. Must meet responsibilities: 1. MMBPIS 2. Risk Corridor d. Consistent and Targeted Strategies based upon Data e. Revenue issue related to rates, Expense issue must be targeted and regionally consistent i. Expenses: Comparative metrics and standards w/in region and cross regionally/statewide. 1. Target Outliers. a. Cost per Unit b. Volume of Units 2. Target Magnitude Outliers don t get stalled in minor areas. 3. Reducing service costs must not raise costs elsewhere, but be true reductions. 4. Reducing service volume/units should be limited to outlier areas support consistent regional benefit. 376 E. Apple Avenue, Muskegon, MI 49442

6 Rich VandenHeuvel, CEO ATTACHMENT 2 DATA ANALYSIS SUMMARY TO DATE Overall: The source of data used in the analysis is from the members. Each member will know your own data best. Below is the initial analysis based upon your information. Each member will likely still have variations in how cost is distributed and reported; that is most likely to be known within your organization. I encourage you to actively explore this and to identify where you feel these variations exist and impact the LRP Data Analysis. Administrative Cost Comparison: Comparative Administrative Cost data is not available until members, as noted above, complete updated MUNC reporting. Data Reporting Issues Noted: When reporting Medicaid encounters to the LRP (including HMP, HSW, Autism, MI Child) members must report per unit rate with each encounter (using the previous year s rate). Lakeshore Regional Partners will follow up with specific instructions via the Finance ROAT. Rationale: In order to conduct analysis and be informed as a region to manage the benefit and the overall Medicaid risk, encounter cost information must be reported. Muskegon and N180: Review processes for encounter batch submission. LRP is finding duplicate encounters submitted. State Comparative Data: We are just beginning state comparative data based upon preliminary 404 analysis. Of note for the Lakeshore Region: a preliminary look at data shows that Residential (CLS per diem and Personal Care) accounts for 36.1% of LRP s total costs. That's a greater proportion of costs than any other PIHP (except for Northcare, who spent 40.5% of their money on it in 2013). The LRP is in 70th ppercentile across PIHPs for cost per 1,000 served, 70th percentile for unit cost, and 20th percentile for cost per person, indicating that a greater percent of people served receive these services. 376 E. Apple Avenue, Muskegon, MI 49442

7 Member Comparative Data: Jan. Sept Encounter Data Reported by Members and Population Designation in QI File: Cost Per Person Served: o MI Adult Per Person Served Highest to Lowest Cost Muskegon Allegan* Ottawa N180* WM o DD Per Person Served Highest to Lowest Cost WM Allegan* Ottawa N180* Muskegon o MI Child Per Person Served Highest to Lowest Cost Muskegon West Michigan Allegan* Ottawa N180* *pending updated MUNC Admin. Cost Report July/August/September Encounter Data Reported by Members Cost Data from 2014 MUNC Report Unit Cost = Medicaid Only, not HMP NOTE: information below indicates where members appear to be high cost, either per unit or volume, outlier for specific service codes compared to other members. Specific comparative data files will be forwarded to all members, but these indicators provide opportunity for members to target analysis for potential service cost efficiencies.

8 CPT Code cost per Beneficiary (DD): Case Management: o T Ottawa CLS: o H2016 Allegan and WM o H2015 WM/Ottawa/Muskegon Plan Development o H032 Ottawa OT Evaluation o Ottawa OT Individual o Allegan Personal Care o T1020 Muskegon and WM Psycho therap o 90832/90837/90834 N180 (DD Consumers) Respite o T105 WM o H0045 N180 Skills Training o H2014 -Muskegon/N180/Ottawa Per Person Costs Supported Employment o H2023 Per Person Muskegon Supported Housing o H0043 Allegan Targeted Case Management o T1017 Ottawa Transportation o T2003 Muskegon CPT Code cost per Beneficiary (MI-A): Inpatient o 0100 Muskegon Targeted Case Management o T1017 Ottawa (Higher Cost) and N180 (Higher Volume) ECT o 901 N180 CLS o H2016 Allegan and WM Peer Supports o H0038 Ottawa

9 RN Services o T1002 Muskegon SUD Individual Therapy o H0004 N180 Supported Housing o H0043 Allegan CPT Code cost per Beneficiary (MI-C): Inpatient o 100 N180 Respite o T1005 WM, N180 o H0045 N180 Targeted Case Management o T1017 N180 and WM Home Based o H0036 Muskegon ECT o 901 N180

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