John McCarthy Founding Partner Speire Healthcare Strategies, LLC June 29, 2018

1. Center for Community solutions: Budget Training Academy – Medicaid budgeting from a Medicaid director’s point of view John McCarthy Founding Partner Speire Healthcare Strategies, LLC June 29, 2018

2. About Speire • Speire Healthcare Strategies is a boutique consulting firm, based out of Nashville, TN. • We work with clients across the healthcare industry to help them respond to policy and legislative changes and make sound business decisions. • Our team has deep expertise in Medicaid and CHIP, managed care, value-based purchasing, insurance marketplaces, federal and state programs, health policy and reform, and on a wide range of industry issues. • Speire provides strategic advice and helps clients traverse the complex health care partner ecosystem. • We work with federal and state government agencies, health plans, healthcare providers, foundations, professional service firms, and investors. • By working across diverse clients, we are able to bring a range of insights and provide balanced objective advice.

3. Our Partners • The Speire team brings a wealth of experience and deep relationships across the industry. • Our three founding partners, Dianne Faup, Darin Gordon, and John McCarthy, have served as government and private sector executives, holding executive roles in Medicaid agencies, the U.S. Department of Health and Human Services and within top tier management consulting firms. 

4. Timeline • Budgeting in Ohio Medicaid NEVER stops. • As soon as one budget is passed, OBM starts working with ODM on the next budget • This was especially true in the time of Mid Biennial Reviews (MBRs) • 12 months before the budget must be submitted to the legislature the Medicaid fiscal staff presents the budget development timeline to ODM leadership

5. Determine Budget Goals • Medicaid Director must determine his/her goals for the next budget • Must meet with Governor’s office and OBM to find out what their goals for the next budget are. • Meld your goals with the Governor’s goals and present those to the ODM senior leadership

6. What are Budget Goals? They are policy AND fiscal decisions that will determine the direction of the program. Examples of budget goals: • Lower or limit the state share of Medicaid • Increase provider rates • Cover a new benefit to save money in the out years • Reduce infant mortality • Prepare summary of the group’s decision

7. Ask Staff for Their Ideas • This request goes to everyone in ODM and is run through the managerial team • Most are great ideas • Many are tied to asks for additional money • They span the range from small to big ideas • A number of them do make it into the budget

8. How to Decide? • I held meetings with my management team • Fairly large group of about 30 people • We would run through the ideas quickly to make a first cut - about 4 to 6 hours • The first cut list goes back to the staff to put more meat around proposal along with better budget estimates • The first cut list is then matched up with the fiscal estimates • Determine how much can you actually implement

9. Baseline Budget • The budget staff under the CFO develops the enrollment and fiscal estimates for the baseline budget • The baseline budget is simply the budget if there were no policy changes • I wish it was that easy • How do you account for federal and state mandates or changes in the federal matching percentage? • This is accomplished through sophisticated economic modelling using past data and projected data sources such as: • Unemployment rate • Labor force participation rate • Ohio GDP • Actuary estimates for utilization and prices

10. Revision of the Baseline Budget • Typically the baseline budget is very high • Often presented at the top of the estimated ranges • This leads to rumors of 20% provider rate cuts • Director works with CFO to bring down the baseline to an acceptable starting point • Usually the midpoint of the range • The revised baseline is then compared to the appropriation target provided by OBM

11. Building the Budget • If the baseline is below the OBM target, the Director can added to the budget up to the target if he/she chooses • I am not sure if this has ever happened in any state at any time since the passage of Medicaid in 1965 • If the baseline is above the target, the Director works with staff on policy changes that will reduce the budget until the target is hit • This is complicated further if there are programs that must be included because of federal mandates or Governor’s Office requests • Policy changes take 6 months to a year to implement, so you can only count 6 months of savings

12. JMOC Targets • The Joint Medicaid Oversite Committee also sets budget targets • These are targets NOT mandates • If the Medicaid budget submitted to the Legislature is over the JMOC targets, the Director has to provide a written explanation of why

13. Balancing Act • If the Director lets the baseline be too high, that will lead to policies to reduce costs • If the Director drives the baseline too low, the appropriation levels may not be adequate • What road to take? • Developing policy options is hard • Reducing the baseline is easy • What do I keep in the budget that I can give up later in budget negotiations? • What is the timing of the various proposals? • Implementations can be moved back to save money • Reductions can be moved up to save money

14. Outside Influences • Everyone wants to meet with the Director to discuss their budget ideas • Those meetings are important but they also take up valuable time • Very few people bring real budget reduction ideas to those meetings • Most are if you just give me more money then there will be savings

15. Budget Review • The budget is reviewed in the following order: • Office of Healthcare Transformation (OHT) • Office of Budget and Management (OBM) • Governor’s Office staff • Governor • Final tweaks are done up to the very end • The Medicaid budget is always one of the last to be finalized – often only 3 or 4 days before it is submitted to the Legislature

16. The End • Sometimes you are in the conference committee and sometimes you are not • Review the final bill • Make veto recommendations to the Governor • Go to the bill signing ceremony • Take a day off and then start the process again

17. Important Relationships • It is extremely important that the Director and ODM staff have a good relationship with the OBM Director and staff • A lack of trust leads to questioning of the baseline budget and what the true needs are • Can lead to unnecessary budget reductions • OBM Director can be your champion when you are not in the room in both the Governor’s Office and the Legislature

18. It is all a Negotiation • The Director has to be a good negotiator • The negotiation starts with OBM then the budget office. • Then it moves to the Legislature, providers, and advocates • What do you have to have and what can you give away • Do you use the Hairy Arm Theory or the G. Gordan Liddy Process?

19. Things Medicaid Directors Think About • As Medicaid Director there are just some things you think about when it comes to the budget: • My decisions impact people’s lives both positively and negative for people on the program and providers • This is about 40% of the budget • Every dollar I spend means some other program does not get to spend it

20. Issues for the Next Budget • This fiscal year has been the closest budget on the state share for services in a number of years. • This can be a positive or a negative • Expansion • Implementation of community engagement requirements • PBM issue • HCBS provider rates • Nursing home rates – since they are running over budget this year • Provider rates in general • Managed care • Payment reform • Treatment of federal dollars

21. Thank you