DOCUMENTATION OF MANAGED SPECIALTY SERVICES AND SUPPORTS WAIVER CAPITATION RATES QUARTERS 1 AND 2 OF STATE FISCAL YEAR 2016

Transcription

1 Milliman Client Report DOCUMENTATION OF MANAGED SPECIALTY SERVICES AND SUPPORTS WAIVER CAPITATION RATES QUARTERS 1 AND 2 OF STATE FISCAL YEAR 2016 State of Michigan Department of Health and Human Services Prepared for: Lynda Zeller Director of Behavioral Health and Developmental Disabilities Administration Michigan Department of Health and Human Services Prepared by: Paul R. Houchens FSA, MAAA Principal and Consulting Actuary Mathew C. DeLillo MBA Healthcare Consultant Jeremy A. Cunningham FSA, MAAA Actuary Chase Center/Circle 111 Monument Circle Suite 601 Indianapolis, IN USA Tel Fax milliman.com September 16, 2015

2 Table of Contents I. BACKGROUND... 4 II. EXECUTIVE SUMMARY... 6 Summary of Results... 6 III. GENERAL INFORMATION... 9 IV. DEVELOPMENT OF ACTUARIALLY SOUND RATES Rate Development Overview A. Data Description of Data Availability and Quality of Data Data from Retrospective Eligibility Periods Development of Base Encounter Data Encounter Data Financial Statement Adjustment Other Encounter Data Adjustments B. Projected Benefit Costs and Trends Description of the Development of the Projected Benefit Costs Data Adjustments for Population Mix Managed Care Adjustments Benefit Cost Trends Components of Benefit Trends Adjustment of Capitation Rates for Retrospective Eligibility Period Final Projected Benefit Costs Projected Benefit Cost by Rate Cell C. Pass-Through Payments D. Projection of Non-Benefit Costs Development of Non-Benefit Costs Exclusion of Health Insurance Providers Fee from the Rates E. Rate Range Development F. Risk Mitigation, Incentives and Related Contractual Provisions Description of any Risk Mitigation, Incentives, or Similar Contractual Provisions Description of Incentives or Withhold Amounts Certification that Incentive Payments will not Exceed 105% of the Certified Rate Paid Estimated Percentage of Withhold that is Expected to be Returned and Basis for that Determination Effect of Incentive or Withhold Arrangements on the Development of Capitation Rates V. LIMITATIONS September 16,

3 Appendix A: State Plan and 1915 (b)(3) Capitation Rates and Rating Factors Appendix B: 1915 (c) Capitation Rates and Rating Factors Appendix C: Actuarial Certification Appendix D: Development of SFY 2016 Projected Benefit Expense Appendix E: Development of SFY 2016 Capitation Rates Appendix F: List of Services Covered Under Contract Appendix G: PIHP Consolidation Crosswalk Appendix H: Diagnosis Code Listing Appendix I: Assessment Service Listing Appendix J: HPSA Factor Methodology September 16,

4 I. BACKGROUND Milliman, Inc. (Milliman) was retained by the State of Michigan, Department of Health and Human Services (MDHHS) to develop managed care capitation rates for the Specialty Services and Supports 1915(b) Waiver. Michigan has operated this statewide mandatory managed care program since Capitation rates paid to the ten regional prepaid inpatient health plans (PIHPs) are calculated by multiplying the base rate by the age gender factor and corresponding PIHP geographic factor of the beneficiary. Historically, the geographic factor has been developed using an equal weight of historical relative cost and estimated morbidity of the underlying population. MDHHS, Milliman, and representatives from each of the ten PIHPs have been involved in discussing modifications to the geographic factor methodology to place a greater emphasis on underlying population morbidity in the development of the factors. As a result of those meetings, MDHHS plans to move toward an updated geographic factor methodology that does not incorporate unit cost differences between PIHPs or utilization differences between similar cohorts of individuals. This transition will occur over the next four six-month intervals, from October 1, 2015 to September 30, The updated geographic factor methodology is established based on morbidity and treatment prevalence (the percentage of the population receiving services on a monthly basis) differences between PIHPs. This transition is intended to be budget neutral from a statewide expenditure basis. To limit the potential disruption of beneficiary services, MDHHS will transition the PIHP geographic factors from the prior methodology to the new methodology over a 24 month time period. The following provides a timeline for the transition to exclusively using morbidity and treatment prevalence differences in the geographic factor methodology. The transitional period will combine two geographic factor methodologies with different weights as time progresses; using the state fiscal year (SFY) 2015 calculated geographic factors based on an equal weight of historical cost and morbidity (Existing Factors) and using the new geographic factor methodology which only includes morbidity and treatment prevalence differences (New Method). October 1, 2015 March 31, 2016: 100% Existing Factors April 1, 2016 September 30, 2016: 67% Existing Factors, 33% New Method October 1, 2016 March 31, 2016: 33% Existing Factors, 67% New Method April 1, 2017 September 30, 2017: 100% New Method The capitation rates developed in this report are for the first six months of SFY 2016, beginning on October 1, The capitation rates included in this certification are for the Aged, Blind, and Disabled (DAB), TANF and 1915 (c) home and community-based services (HCBS) habilitation supports waiver (HSW) for individuals with developmental disabilities, referred to as Waiver (c). Appendices A and B provide the final certified rate ranges for the DAB and TANF population and Waiver (c) capitation rates, respectively. This report documents the capitation rate development methodology and provides the required certification regarding actuarial soundness. The capitation rates developed in this report are certified as actuarially sound using published guidance from the American Academy of Actuaries (AAA), the Actuarial Standards Board, the Centers for Medicare and Medicaid Services (CMS), and federal regulations to ensure compliance with generally accepted actuarial practices and regulatory requirements. Specifically, the following were referenced during the rate development: September 16,

5 Actuarial standards of practice applicable to Medicaid managed care rate setting which have been enacted as of the capitation rate certification date, including: ASOP 1 (Introductory Actuarial Standard of Practice); ASOP 5 (Incurred Health and Disability Claims); ASOP 23 (Data Quality); ASOP 25 (Credibility Procedures); ASOP 41 (Actuarial Communications); ASOP 45 (The Use of Health Status Based Risk Adjustment Methodologies); and ASOP 49 (Medicaid Managed Care Capitation Rate Development and Certification). Federal regulation 42 CFR 438.6(c). Throughout this document, the term actuarially sound will be defined as follows: Medicaid capitation rates are actuarially sound if, for business for which the certification is being prepared and for the period covered by the certification, projected capitation rates and other revenue sources provide for all reasonable, appropriate, and attainable costs. For purposes of this definition, other revenue sources include, but are not limited to, expected reinsurance and governmental stop-loss cash flows, governmental risk adjustment cash flows, and investment income. For purposes of this definition, costs include, but are not limited to, expected health benefits, health benefit settlement expenses, administrative expenses, the cost of capital, and government-mandated assessments, fees, and taxes. September 16,

6 II. EXECUTIVE SUMMARY The State of Michigan, Department of Health and Human Services operates a statewide managed care program for the DAB, TANF, and Waiver (c) populations under the Specialty Services and Supports Waiver. Services provided under the Waiver include those related to mental health, substance abuse, and services for the developmentally disabled population. This report contains the supporting materials and documentation for the development of the actuarially sound capitation rate range for the ten regional PIHP contracts during the first six months of SFY Summary of Results Appendix A provides a summary of the capitation rates and the rate adjustment factors for the low and high rate ranges for the first six months SFY 2016 for the state plan and 1915(b)(3) rates for the DAB and TANF populations. Appendix B provides a summary of the capitation rates and the rate adjustment factors for the low and high rate ranges for the first six months SFY 2016 for the Waiver (c) rates. The capitation rates were developed on a per member per month basis and vary by benefit type and program code. The capitation rate values were developed using the PIHP submitted encounter data and Medicaid Utilization Net Cost (MUNC) reports. The mental health and substance abuse capitation rates have been split between state plan services and 1915 (b)(3) services. The Waiver (c) capitation rates are paid on a per Waiver (c) eligible basis. The low and high rate ranges for each capitation rate were developed using differing trend assumptions. The benefit types include mental health, substance abuse, and Waiver (c) services. The program code categories include the TANF and the DAB populations. Rate adjustment factors have been developed to reflect age, gender, and geographic region for each benefit category and population. Tables 1 and 2 illustrate a comparison of the projected expenditures under the capitation rates paid during SFY 2015 and the rates effective for the six month period beginning October 1, 2015 for the low and high rate ranges, respectively. The SFY 2015 and first six months of SFY 2016 rates reflect estimated enrollment for the first six months of SFY 2016 by population, rate cell, and PIHP. September 16,

7 Rate Category Table 1 State of Michigan Department of Health and Human Services Comparison of Projection of Capitation Rate Expenditures October 1, 2015 to March 31, 2016 Capitation Rates Low Rate Range (Values in $ Millions) SFY 2015 Rates Q1 and Q2 SFY 2016 Rates Increase/Decrease TANF Mental Health $ 99.7 $ $ 4.3 Substance Abuse (0.3) DAB Mental Health Substance Abuse Waiver (c) (2.5) Total State & Federal $ 1,159.8 $ 1,168.8 $ 9.0 Total Federal Only $ $ $ 5.9 Notes: [1] Values have been rounded. [2] Values are inclusive of claims tax, use tax, and HRA. [3] Federal Medical Assistance Percentage of 65.60% used for Federal only expenditures. The FMAP reflects the FY 2016 FMAP values. For comparison purposes, the same FMAP was used for both sets of rates. Rate Category Table 2 State of Michigan Department of Health and Human Services Comparison of Projection of Capitation Rate Expenditures October 1, 2015 to March 31, 2016 Capitation Rates High Rate Range (Values in $ Millions) SFY 2015 Rates Q1 and Q2 SFY 2016 Rates Increase/Decrease TANF Mental Health $ 99.7 $ $ 8.5 Substance Abuse DAB Mental Health Substance Abuse Waiver (c) Total State & Federal $ 1,159.8 $ 1,218.4 $ 58.6 Total Federal Only $ $ $ 38.5 Notes: [1] Values have been rounded. [2] Values are inclusive of claims tax, use tax, and HRA. [3] Federal Medical Assistance Percentage of 65.60% used for Federal only expenditures. The FMAP reflects the FY 2016 FMAP values. For comparison purposes, the same FMAP was used for both sets of rates. September 16,

8 Appendix C contains the actuarial certification regarding the capitation rates illustrated in Appendices A and B. The actuarial certification indicates that the rates developed are considered to be actuarially sound as defined in Federal Regulation 438.6(c). It is the PIHP s responsibility to establish actuarially sound capitation rate levels that are appropriate to their risk, management and contractual obligations September 16,

9 III. GENERAL INFORMATION The following provides a brief description of the managed care program. (a) Summary of managed care program covered by this certification. This capitation rate certification includes the statewide mandatory managed care program for the DAB, TANF, and Waiver (c) populations under the Specialty Services and Supports Waiver. The State of Michigan has operated this mandatory managed care program since (b) The rating periods covered by the certification. The capitation rates are certified for a 6-month period, October 1, 2015 through March 31, (c) The Medicaid populations covered through the managed care programs for which this certification applies. The Medicaid eligibility file that Milliman receives from MDHHS includes program code, scope, and coverage information for each beneficiary among other eligibility information. In order to be included in the mandatory managed care program, a beneficiary must have both: 1. A DAB or TANF program code a. DAB Program Codes: A, B, E, M, O, P, Q b. TANF Program Codes: C, L, N 2. A qualifying scope/coverage code combination 1D, 1F, 1K, 1P, 1T, 2F, 2T The Waiver (c) population (also referred to as Habilitation Supports Waiver (HSW)) is also included in this certification. The Waiver (c) program is a capped program with 7,900 monthly slots available. (d) Any eligibility or enrollment criteria that could have a significant influence on the specific population to be covered within the managed care program To qualify as a Waiver (c) individual, a beneficiary must meet all of the following criteria: Have an intellectual disability (no age restrictions) Reside in a community setting Be Medicaid eligible and enrolled Would otherwise need the level of services similar to an ICF/IID Once enrolled, receive at least one HSW service per month Meeting the criteria listed above does not automatically enroll a beneficiary in the Waiver (c) program as there are a limited number of slots available. September 16,

10 . (e) A general description or list of the benefits that are required to be provided by the managed care plan or plans Appendix F provides a listing of the services provided by the PIHPs under this managed care program. Mental health and substance abuse services are provided to beneficiaries with a serious mental illness, intellectual disability, or substance abuse disorder. Waiver services are only provided to Waiver (c) beneficiaries. September 16,

11 IV. DEVELOPMENT OF ACTUARIALLY SOUND RATES Rate Development Overview The actuarially sound capitation rates were developed using the following methodology: SFY 2013 and SFY 2014 Encounter and Eligibility: We utilized SFY 2013 and SFY 2014 encounter and eligibility data to develop the mental health, substance abuse, and Waiver (c) capitation rates. Reconciliation to MUNC reports: The SFY 2013 and SFY 2014 encounter data was adjusted to reflect the financial reports prepared by the PIHPs for the comparable time periods. Managed Care Adjustment Factors: We identified historical PIHP utilization and unit costs that were unreasonable relative to other PIHPs within the delivery system or in relation to prior experience periods for certain PIHPs. The historical data was adjusted at the PIHP level to reflect reasonable and appropriate costs relative to experience from other PIHPs or prior period experience from the adjusted PIHP. Population Mix Adjustments: The historical data was adjusted to reflect the estimated population mix in the first six months of SFY Trend Factors: The data was trended forward to the October 1, 2015 through March 31, 2016 rate period. We developed trend rates for both utilization and unit cost. Age Gender Factors: The mental health age and gender factors were developed using SFY 2013 and SFY 2014 encounter and eligibility data. The substance abuse age and gender factors are consistent with the age and gender factors developed for the SFY 2015 rating period. These rating factors are multiplied by the base rate to get the appropriate statewide rate for each age and gender combination. Geographic Factors: We utilized the geographic factors developed for the SFY 2015 rating period with one modification; we normalized the factors to the estimated population for the first six months of SFY The geographic factor is multiplied by the age and gender factor and statewide base rate to calculate the final capitation payment for a Medicaid beneficiary. The remainder of this section provides additional detail regarding each of these steps. A. DATA As discussed above, SFY 2013 and SFY 2014 PIHP utilization and financial experience was used to develop the SFY 2016 capitation rates. Historical costs reported by each PIHP in the MUNC reports were allocated by rate cell using the PIHP submitted encounter data. Costs were divided by capitation payments from SFY 2013 and SFY 2014 to develop per member per month (PMPM) costs by benefit type and population: TANF Mental Health State Plan TANF Mental Health 1915(b)(3) TANF Substance Abuse State Plan TANF Substance Abuse 1915(b)(3) Disabled Mental Health State Plan Disabled Mental Health 1915(b)(3) Disabled Substance Abuse State Plan September 16,

12 Disabled Substance Abuse 1915(b)(3) 1915(c) Waiver The following section describes the data sources used to develop the baseline PMPM costs in detail, our process for reviewing and assessing the quality of the available data, and any data adjustments that were applied in the development of baseline costs. Description of Data The mental health, substance abuse, and Waiver (c) capitation rates shown in Appendices A and B were developed from the data sources listed in Table 3. The combined information from all data sources provides a comprehensive summary of the historical enrollment, capitation data, utilization, and cost of the covered services for the populations eligible for the Specialty Services and Supports Waiver. The capitation payment data reflects payments made by MDHHS to the PIHPs. The data was provided to us from MDHHS. Table 3 State of Michigan Department of Health and Human Services October 1, 2015 to March 31, 2016 Capitation Rates Data Sources Data Source Incurred Time Period Provided Capitation data October 2012 August 2015 Medicaid Eligibility data October 2012 September 2015 PIHP encounter data October 1, 2012 September 30, 2014 PIHP MUNC reports SFY 2013 and SFY 2014 Quality Improvement (QI) Data SFY 2013 and SFY 2014 The encounter data was submitted by the eighteen PIHPs for SFY 2013 and ten PIHPs for SFY Effective January 1, 2014, the eighteen PHIPs consolidated to ten PIHPs. Five of the ten PIHPs reported financial experience for the 12 month time period beginning October 1, 2013, while the other five PIHPs reported financial experience for the nine month period beginning January 1, When consolidating SFY 2013 membership from the eighteen PIHP structure to the revised ten PIHP structure, membership was assigned to a PIHP as follows: 1. If a SFY 2013 PIHP s membership maps completely to a new consolidated PIHP, then this mapping was used. This crosswalk can be found in Appendix G. 2. Otherwise, if membership was assigned to one of the three SFY 2013 PIHPs (Southwest Alliance, Northern Lakes, or CMH Affiliation of Mid-Michigan) that split under the revised structure (i.e. the PIHP maps to two different new PIHPs), then SFY 2013 PIHP membership was assigned using the county code from the eligibility file. Using the logic stated above, we mapped the encounters from an eighteen PIHP basis to a ten PIHP basis for the SFY 2013 reporting period. September 16,

13 Availability and Quality of Data Capitation payment data was validated by comparing our monthly summaries to control values provided by MDHHS. In addition, the revenue from the capitation payment data was reconciled to the revenue provided by the PIHPs on the financial status reports. The PIHP submitted encounter data was validated by comparing the data to MUNC reports provided by each PIHP. During the process of adjusting the encounter data utilization and cost to equal what is reflected in the MUNC report, we develop and review adjustment factors for each service category. In some cases, we identified material differences between the encounter data and the MUNC report for the substance abuse services. Capitation payment, eligibility, and re-priced encounter data used in the rate certification appear to be reasonable in relation to the historic data for these populations. We did not complete an audit of the data, but following these reviews and adjustments made to the encounter data to reflect the PIHP MUNC reports, we believe the data is sufficiently complete and accurate to serve as a source for capitation rate setting. Data from Retrospective Eligibility Periods PIHPs are contractually obligated to provide services to all Medicaid eligible members, including during retrospective eligibility periods. The encounter data and MUNC reports submitted by the PIHPs included experience from a member s retrospective eligibility period. The Medicaid eligibility data also includes eligibility months for individuals during their retrospective eligibility period. However, capitation payments are not made to the PIHPs for theretrospective eligibility months. During the SFY 2015 time period, PIHPs only received capitation payments for members if they were eligible as of the last day of the prior month. Beginning on October 1, 2015, PIHPs will begin receiving one-month retroactive capitation payments. Thus, PIHPs will be receiving capitation payments in a given month for members if a beneficiary was Medicaid eligible as of the last day of the preceding month. Development of Base Encounter Data The baseline expenditures were developed from PIHP reported encounter data for SFY 2013 and SFY 2014, October 1, 2012 through September 30, We summarized Medicaid eligibility information for the encounter data by merging the encounter data against an eligibility file provided by MDHHS. Monthly eligibility information was mapped on to the encounter data based on the Medicaid beneficiary identification number and the incurred month on the encounter line. The encounter data utilization reflected both state plan approved services and 1915(b)(3) services. The encounter utilization associated with the waiver (c) services were extracted from the base encounter data by identifying waiver (c) service codes, waiver (c) Medicaid eligibility periods, and the presence of the HK modifier code on the encounter line. We excluded Medicaid-eligible recipients in the Children s Waiver and Children with Serious Emotional Disturbance Waiver (SEDW) populations from the base encounter data. MDHHS provided us with a list of Medicaid beneficiaries in these two waiver programs during SFY 2013 and SFY September 16,

14 Children s Waiver and SEDW recipient s encounter data was excluded from the final base data, with the exception of services that were provided during a time period when the recipient was not actively enrolled on either the Children s or SED waiver. Encounter Data Financial Statement Adjustment The encounter data was adjusted to reflect the financial reports prepared by the PIHPs for the comparable time periods. The financial report utilized in the rate setting process was the MUNC report prepared by each PIHP. The MUNC report provides information regarding utilization and cost per unit of service for the Medicaid eligible population split between state plan, Early Periodic Screening, Diagnosis, and Treatment (EPSDT), 1915(b)(3), and waiver (c) services. The cost per unit of service was developed from the SFY 2013 and SFY 2014 MUNC reports submitted by each PIHP. The MUNC reports illustrated the incurred cost per unit of service by procedure code or revenue code for each covered service, split between state plan, EPSDT, (b)(3), and waiver (c) services. Cost per service amounts specific to each PIHP and fiscal year were applied to the encounter data. For instances where a procedure or revenue code contained in the encounter data did not have a corresponding cost per service amount on the MUNC report for a given PIHP, the cost per service from a composite of the PIHP MUNC reports was used. We accepted the cost per unit of service information contained in the MUNC reports without audit for all PIHPs except Detroit Wayne in FY The adjustment made to Detroit Wayne s encounter data in FY 2013 can be found in the Other Encounter Data Adjustments section below. PMPM expenditures were developed by applying the MUNC cost per unit to the encounter utilization and dividing by the base enrollment information. PMPM expenditures included Reconciling Items to financial status report (FSR) from the MUNC report in some cases. Examples of these items include unencounterable direct care wages and first and third party liabilities. Milliman worked with MDHHS and the PIHPs to evaluate each of items listed for each PIHP to determine whether it should be included in (or removed from) service costs and the specific services the costs represented. First and third party liabilities were removed from the base claims experience. Financial Statement Reconciliation Factor We compared the costs developed from the encounter data utilization with values reported on each PIHP s MUNC report during both SFY 2013 and SFY We adjusted the encounter data utilization and PMPM cost to be equal to the utilization and expenditures reported on the MUNC reports for each individual PIHP by the following service categories: Mental health state plan inpatient hospital services; Mental health state plan outpatient hospital services; Mental health state plan professional Community Living Support (CLS) services; Mental health state plan professional non-cls services; Mental health EPSDT professional Community Living Support (CLS) services; Mental health EPSDT professional non-cls services; Mental health (b)(3) professional CLS services; Mental health (b)(3) professional non-cls services; Waiver (c) professional CLS services; Waiver (c) professional non-cls services; September 16,

15 Substance abuse state plan services; and, Substance abuse (b)(3) services. IBNR Adjustment The data and information reflected encounter claims that were submitted through April 2015, allowing seven months of claims completion. Based on our review of the claims and our process of repricing the encounter data to the MUNC reports, we did not apply a claims completion factor to the encounter experience. Other Encounter Data Adjustments Removal of Encounters We modified the reported utilization to reflect duplicate encounters. The duplicate encounters were identified by a single recipient having multiple encounter lines for the same procedure and service date, with different internal control numbers, and the cumulative units of the encounter lines exceeding a maximum amount as determined by MDHHS. For the final base encounter data, only the encounter line with the greatest internal control number (which indicates it was the last submitted line) was included in the final encounter data extract. We also reviewed the mental health and waiver (c) encounter data for instances of recipients receiving more than the maximum number of units per day based on the number of days between service dates. A single encounter line was not flagged for excessive units due to the existence of series billing. We developed a methodology to ensure that the total units reported for a recipient during the base experience period was reasonable. Table 4 illustrates an example of the methodology used for a per diem code. Table 4 State of Michigan Department of Health and Human Services October 1, 2015 to March 31, 2016 Capitation Rates Excessive Unit Methodology Service Date Units Violation Units Eliminated Final Units 2/2/ No 0 7 2/9/ No 0 7 2/16/ No 3 4 2/20/ Yes 0 7 In Table 4, the encounter line is being submitted on a weekly basis. For the first two incurred dates, there are seven units submitted and seven days between the service dates. Therefore, there is no violation since a single unit can be allocated to each day between service dates. The third line assumes one unit of service will be provided from February 16, 2014 through February 22, However, the fourth line indicates seven units being provided beginning on February 20, 2014, which indicates two units of the service being provided on February 20, 2014 through February 22, Since this example is using a per diem code, a violation has occurred for these three days, and the units for these days are reduced to one. The excessive unit methodology removed approximately 1% of the submitted utilization statewide. September 16,

16 The excessive unit methodology was not applied to the substance abuse encounter data due to limited series billing in the data. Additionally, we reviewed the prevalence of Serious Mental Illness (SMI) and Developmental Disability (DD) for the ten PIHPs based on reported diagnosis codes in the encounter data. We evaluated each PIHP s diagnosis data for consistency relative to prior years and reasonableness relative to statewide averages. This process identified one PIHP that had an unreasonable change in the prevalence of DD. After this issue was discussed with the PIHP, the PIHP identified an issue in the reporting of diagnosis data for its SFY 2014 encounter data. The issue was corrected and the encounter data was re-submitted to MDHHS. Spend-Down Adjustment In determining the appropriate encounter claims to include in the capitation rate setting process, we included services for the spend-down eligible population. However, we were unable to determine the services rendered prior to full eligibility for benefits. Therefore, we relied on the reported total spend-down amount included in the MUNC report line items by each PIHP. The reported spend-down values were applied as reductions to the DAB and TANF population mental health and substance abuse capitation rates. The reduction varied by PIHP; however, the amount was distributed across the age / gender cells for each PIHP based on the overall health expenditures. The total reduction across all PIHPs was approximately $4.1 million and $3.4 million in fiscal year 2013 and fiscal year 2014, respectively. Other Encounter Data Adjustments The Detroit Wayne PIHP indicated in a letter to MDHHS that four out of five Managed Care Provider Networks (MCPNs) received a 10% reimbursement increase in SFY 2012, reversing a reimbursement reduction that occurred in SFY In SFY 2013, a 5% reimbursement increase was given to the fifth MCPN. In the original SFY 2012 MUNC report submitted by Detroit Wayne, the MCPN reimbursement increase was not reflected in the service line cost. After we had completed the SFY 2014 rate setting process, Detroit-Wayne re-submitted its SFY 2012 MUNC with the reimbursement increase allocated to the service line items. MDHHS has made a policy decision to limit Detroit Wayne s reimbursement increase recognized in the capitation rate setting process to a 5% annual increase. We evaluated Detroit Wayne s annual unit cost increase in its experience data from SFY 2011 through Using data from all PIHPs in SFY 2011, we established a Relative Value Unit (RVU) scale for all services covered under the contract. The Relative Value scale was established by comparing the cost per unit of a specific service to the composite cost per unit for all services. For example, if the cost per unit of a specific service is $25 and the composite cost per unit of all services is $100, the specific service would have a Relative Value of Likewise, if a specific service had a cost per unit of $200, the Relative Value for that service would be 2.0. After identifying each service s Relative Value, the number of RVUs for a service can be calculated as the number of units multiplied by the Relative Value for the service. For MUNC report cost data in SFY 2011 through 2013, we calculated the average reimbursement per RVU for all services. By examining reimbursement on a RVU basis rather than per unit basis, we normalize for changes in the mix of services from year to year that will influence the average cost per unit. Table 5 illustrates the development of the RVU adjustment factors. These factors were applied to Detroit Wayne s professional unit cost amounts. No adjustments were made for inpatient or outpatient services. As shown in Table 5, the adjustment resulted in an approximately 10% unit cost reduction. September 16,

17 Table 5 State of Michigan Department of Health and Human Services October 1, 2015 to March 31, 2016 Capitation Rates Relative Value Unit Adjustment Factor Development SFY 2011 SFY 2012 SFY 2013 CLS Cost Per RVU $9.38 $11.21 $11.59 CLS Annual Increase 19.5% 3.4% CLS Cost Per RVU Capped at 5% Annual Increase $9.85 $10.34 CLS Cost Per RVU Adjustment Non-CLS Cost Per RVU $9.24 $10.81 $11.25 Non-CLS Annual Increase 17.0% 4.0% Non-CLS Cost Per RVU Capped at 5% Annual Increase $9.70 $10.19 Non-CLS Cost Per RVU Adjustment We evaluated Detroit Wayne s reported unit costs in SFY Our analysis indicated the unit costs were reasonable in relation to statewide averages. B. PROJECTED BENEFIT COSTS AND TRENDS Description of the Development of the Projected Benefit Costs This section of the report outlines the methodology utilized to project the baseline costs to the rating period. Apply population mix adjustments to reflect estimated changes in the covered population from the historical time period to the rate period. Apply managed care adjustments to the base experience to reflect appropriate utilization and reimbursement levels. Apply trend adjustments to reflect estimated utilization and cost per unit health care inflation from the base experience period to the rate period. Retroactive eligibility adjustment. Apply age and gender factors to the base capitation rates. Apply geographic factors to the base age and gender adjusted capitation rates. Apply residential living arrangement and geographic factors to the base Waiver (c) capitation rates. Material Changes in the Data, Assumptions, and Methodologies Used to Develop the Projected Benefit Costs Since the Last Certification The PIHPs are responsible for providing coverage to Medicaid beneficiaries during periods of retroactive eligibility, as well as initial months of eligibility. However, the PIHPs do not receive a capitation payment for these Medicaid eligibility periods. Capitation rates are developed to include costs associated with these periods of eligibility by increasing the capitation PMPM to reflect the estimated percentage of eligibility months for which the PIHPs will not receive a capitation payment. September 16,

18 Historically, the PIHPs have received a capitation payment for approximately 92% of DAB and TANF eligibility months. For a PIHP to receive a capitation payment for a given member month, a member had to be enrolled in Medicaid before the card cutoff date of the prior month, which occurs around the 25 th of the month. During SFY 2014, MDHHS began providing a capitation payment for members who became eligible after card cutoff until the end of the prior month, thus making a higher percentage of capitation payments relative to the Medicaid eligible population. In addition, beginning on October 1, 2015, MDHHS will begin paying a one-month retroactive capitation payment to PIHPs. As a result, MDHHS will make a payment to a PIHP for individuals in a month if the individual is eligible as of the last day of the month for SFY Table 6 illustrates the estimated capitation payment to eligibility month ratio for the DAB, TANF, and Waiver (c) populations after taking into account these two changes to the payment process. Table 6 State of Michigan Department of Health and Human Services October 1, 2015 to March 31, 2016 Capitation Rates Capitation Payment to Eligibility Month Ratio Population Ratio DAB TANF Waiver (c) In the development of the capitation rates, we divided the benefit expense eligibility PMPM by the capitation payment to eligibility month ratio to calculate the benefit expense capitation PMPM. The remainder of this section provides detailed information regarding the development of the projected benefit costs. Data Adjustments for Population Mix The mental health expenditures from SFY 2013 and SFY 2014were individually normalized to the estimated SFY 2016 population for each the following population changes: Morbidity mix (including age/gender mix); and, PIHP mix (based on Mental Health Professional Shortage Area). Morbidity and PIHP mix adjustments are needed to appropriately reflect the distribution of estimated individuals covered by the PIHPs during the rate period. The morbidity mix factors are calculated by weighting enrollment in the historical experience and the rate certification period by historical PMPMs stratified by population cohort. The population cohorts were created by identifying members with common demographic and claim diagnostic information. From the SFY 2013 to SFY 2014 time period, we utilized cohorts consistent with the geographic factor development, which include separate subgroups for each unique combination of the following variables: age, gender, dual eligible, program code, DD and SMI diagnosis group, and Waiver (c) eligible. We split the population into a cohort for each unique age, gender, and program code combination from the SFY 2014 to SFY 2016 time period, consistent with the variables utilized to project enrollment for the SFY 2016 time period. September 16,

19 Table 7 illustrates the morbidity mix adjustments applied to the SFY 2013 and SFY 2014 base experience by population for the mental health and substance abuse experience data. A morbidity mix factor below a 1.0 indicates that the population distribution in the projection period is less expensive relative to the historical experience, while a morbidity mix factor above a 1.0 indicates that the population distribution in the projection period is more expensive relative to the historical experience. Table 7 State of Michigan Department of Health and Human Services October 1, 2015 to March 31, 2016 Capitation Rates Base Experience Morbidity Mix Cost Adjustments Mental Health Substance Abuse SFY TANF DAB TANF DAB A final adjustment was made to the base experience to account for differences in the enrollment mix by PIHP between the base experience periods and SFY The PIHP mix factors are calculated by weighting enrollment in the historical experience and the rate certification period by the mental health professional shortage area (HPSA) factors. Health professional shortage area designations are used to identify geographic rations within the U.S. that are experiencing a shortage of health professionals. The development of the HPSA factors can be found in Appendix J. A PIHP mix factor below a 1.0 indicates that the population distribution in the projection period is less expensive relative to the historical experience, while a PIHP mix factor above a 1.0 indicates that the population distribution in the projection period is more expensive relative to the historical experience. For purposes of this adjustment, a factor greater than a 1.0 indicates there is a higher percentage of enrollees in shortage areas in the projection period compared to the historical experience period. The factors applied to the SFY 2013 and SFY 2014 experience to normalize the PIHP mix differences are illustrated in Table 8 for mental health and substance abuse services. Table 8 State of Michigan Department of Health and Human Services October 1, 2015 to March 31, 2016 Capitation Rates Base Experience PIHP Mix Cost Adjustments Mental Health Substance Abuse SFY TANF DAB TANF DAB September 16,

20 Managed Care Adjustments During our review of historical unit cost and utilization differences between PIHPs during the SFY 2013 and SFY 2014 time period, we identified two anomalies in the underlying data. 1. Southwest s unit cost decreased significantly for the DAB and TANF populations from SFY 2013 to SFY We believe that Southwest was able to reduce historical unit cost as a result of the consolidation of the PIHPs from eighteen to ten. 2. Macomb s utilization, particularly their utilization of CLS services was abnormally high compared to the rest of the state for comparable populations. We notified Macomb of this issue; the PIHP notified MDHHS that utilization management measures would be put in place to reduce the utilization in appropriate CLS services going forward. We reduced the SFY 2013 historical experience for Southwest to have unit cost consistent with SFY We reduced both SFY 2013 and SFY 2014 historical experience for Macomb by approximately fifteen percent. This reduction puts Macomb s utilization factor in line with the next highest PIHP. Table 9 illustrates the managed care adjustments that were utilized in the development of the mental health base experience for the DAB and TANF populations by service category. Table 9 State of Michigan Department of Health and Human Services October 1, 2015 to March 31, 2016 Capitation Rates Managed Care Adjustments Impact on Base Experience Costs TANF DAB Capitation Category SFY 2013 SFY 2014 SFY 2013 SFY 2014 Mental Health State Plan Inpatient State Plan Outpatient State Plan Professional CLS State Plan Professional Non-CLS (b)(3) Professional CLS (b)(3) Professional Non-CLS Substance Abuse State Plan (B)(3) Benefit Cost Trends As services are on a multitude of unit bases (per diem, 15-minute, 30-minute, 1 hour, etc), it is difficult to assess utilization and unit changes on a composite level. For example, if a PIHP moved services from a per diem service in SFY 2013 to an hourly basis in SFY 2014, composite utilization would artificially increase, while cost per unit would decrease. As a result, we have utilized a Relative Value Unit (RVU) scale to help normalize for the different unit cost bases. September 16,

21 Using data from all PIHPs in SFY 2011 through SFY 2014, we established a Relative Value Unit (RVU) scale for all services covered under the contract. The Relative Value scale was established by comparing the cost per unit of a specific service to the composite cost per unit for all services. After identifying the relative value units for each unit of service, the aggregate number of RVUs for a service can be calculated as the number of units multiplied by the relative value units for the unit of service. For MUNC report cost data in SFY 2011 through SFY 2014, we calculated the average reimbursement per RVU for all services. By examining reimbursement on a RVU basis rather than per unit basis, we normalize for changes in the mix of services from year to year that will influence the average cost per unit. Annual utilization and unit cost trend rates were developed for mental health, waiver (c), and substance abuse services using normalized cost and RVU PMPMs from SFY 2013 and SFY Normalized cost and RVU PMPMs were determined separately for following service categories for the TANF and DAB populations: Mental Health State Plan Inpatient; Mental Health State Plan Outpatient; Mental Health State Plan Professional Community Living Supports; Mental Health State Plan Professional Non-Community Living Supports; Mental Health 1915(b)(3) Professional Community Living Supports; Mental Health 1915(b)(3) Professional Non-Community Living Supports; Waiver C Community Living Supports; Waiver C Non-Community Living Supports; Substance Abuse State Plan; and, Substance Abuse 1915(b)(3). For each of the service category splits, the combined experience was then trended from the midpoint of the base experience period (10/1/2013) to the midpoint of first six months of SFY 2016 (1/1/2016). Trend rates were developed from a review of historical costs from SFY 2013 through SFY Components of Benefit Trends Tables 10 and 11 illustrate the unit cost and utilization trends utilized to develop the projected mental health, substance abuse, and Waiver (c) benefit cost for the DAB, TANF, and Waiver (c) populations. September 16,

22 Table 10 State of Michigan Department of Health and Human Services October 1, 2015 to March 31, 2016 Capitation Rates DAB and Waiver (c) Population Estimated Annual Trend Rates Low Rate Range High Rate Range Capitation Category Unit Cost Utilization Unit Cost Utilization Mental Health State Plan Inpatient (0.9%) (0.1%) 0.9% 0.1% State Plan Outpatient (0.9%) (0.1%) 0.9% 0.1% State Plan Professional CLS (0.9%) (0.1%) 0.9% 0.1% State Plan Professional Non-CLS (0.9%) (0.1%) 0.9% 0.1% (b)(3) Professional CLS 2.7% 0.3% 4.5% 0.5% (b)(3) Professional Non-CLS 0.9% 0.1% 2.7% 0.3% Waiver (c) Enrollees Professional CLS 0.0% 0.0% 2.0% 0.0% Professional Non-CLS 0.5% 0.0% 2.5% 0.0% Substance Abuse State Plan 0.0% 2.0% 0.0% 4.0% (B)(3) 0.0% 4.0% 0.0% 6.0% Table 11 State of Michigan Department of Health and Human Services October 1, 2015 to March 31, 2016 Capitation Rates TANF Population Estimated Annual Trend Rates Low Rate Range High Rate Range Capitation Category Unit Cost Utilization Unit Cost Utilization Mental Health State Plan Inpatient 0.3% 0.2% 1.5% 0.9% State Plan Outpatient 0.6% 0.4% 1.8% 1.1% State Plan Professional CLS 2.2% 1.3% 3.4% 2.0% State Plan Professional Non-CLS 2.5% 1.5% 3.7% 2.2% (b)(3) Professional CLS (0.6%) (0.4%) 0.6% 0.4% (b)(3) Professional Non-CLS (0.6%) (0.4%) 0.6% 0.4% Substance Abuse State Plan 0.0% (1.0%) 0.0% 1.0% (B)(3) 0.0% 4.0% 0.0% 6.0% September 16,

23 Adjustment of Capitation Rates for Retrospective Eligibility Period During the development of the DAB and TANF populations mental health and substance abuse capitation rates, we utilized Medicaid eligibility months as the denominator in the calculation of the claims cost PMPM. We then apply an adjustment to this PMPM to reflect the estimated capitation payment to eligibility month ratio that will be experienced during the rating period. Thus, the capitation rate includes an inflated PMPM cost because PIHPs are not paid for beneficiaries during their retrospective eligibility months. Final Projected Benefit Costs Appendix D illustrates the population mix adjustments, managed care adjustments, blending, and trending applied to the SFY 2013 and SFY 2014 base experience for the DAB, TANF, and Waiver (c) populations. Appendix E illustrates the development of the capitation rates for the DAB, TANF, and Waiver (c) populations for both the low and high rate ranges. This includes adjusting the blended base experience for the estimated capitation to eligibility ratio in SFY 2016 as well as the addition of administrative cost, taxes, and the hospital reimbursement adjustment (HRA). Projected Benefit Cost by Rate Cell This section describes the development of the rating factors utilized in the SFY 2016 capitation rates, which are multiplied by the base rates to get the appropriate rate for each age, gender, and PIHP combination. Age/Gender Factors State Plan and b(3) Services The SFY 2013 and SFY 2014 encounter data and MUNC reports were used to develop the mental health age/gender factors for each PIHP s state plan and (b)(3) capitation rates. Separate factors were developed for the TANF and DAB populations and between state plan and (b)(3) services. Due to the addition of EPSDT services for under 21 year olds, which shifts (b)(3) dollars to state plan, maintaining a single set of age/gender factors would produce capitation payments that would not be actuarially sound. The creation of separate age/gender factors for state plan and (b)(3) services is cost neutral. The age / gender factors for both state plan and (b)(3) services were calculated on a statewide basis using the SFY 2013 and SFY 2014 encounter data. The substance abuse age and gender factors utilized in the first six months of SFY 2016 are consistent with the factors developed for the SFY 2015 time period. Geographic Factors The geographic factors for mental health and substance abuse capitation rates for the DAB, TANF, and Waiver (c) populations remain consistent with the SFY 2015 capitation rates with one exception. Each of the geographic factors have been normalized to the estimated population for the first six months of SFY The methodology for the SFY 2015 geographic development was documented in our October 15, 2014 report titled Documentation of Managed Specialty Services and Supports Waiver Capitation Rates Fiscal Year Appendix H provides the listing of diagnosis codes used in the development of the SFY 2015 geographic factors for the DAB and TANF mental health and substance abuse benefits. Appendix I provides the listing of assessment services that were excluded when determining whether a person has a diagnosis for serious mental illness or developmental disability. September 16,

24 The HPSA factors, illustrated in Appendix J, will be incorporated into the new geographic factor methodology, which will begin transitioning April 1, Waiver (c) Base and Residential Status Adjustment Factors MDHHS maintains profile information in the Quality Improvement (QI) dataset, which documents certain insurance, employment, residential, and other characteristics about the waiver (c) population. The residential living arrangement identified using the QI data was deemed correlated with the cost contained in the encounter data utilization. The SFY 2013 and SFY 2014 encounter data and MUNC reports were used to update the residential status adjustment factors utilized in the first six months of SFY 2016 Waiver (c) capitation rates. The residential status adjustment factors were calculated on a statewide basis. Table 13 illustrates the residential status adjustment factors. Table 13 State of Michigan Department of Health and Human Services October 1, 2015 to March 31, 2016 Capitation Rates Waiver (c) Residential Status Adjustment Factors Residential Status Adjustment Factor Other Private Residence with Spouse or Non Family/Supported Independence Program Specialized Residential Home Private Residence with Family or Foster Home The Other residential status adjustment factor is multiplied by the statewide PMPM cost to create the base rate. The three residential status adjustment payments are calculated as the statewide PMPM cost multiplied by the corresponding residential status adjustment factor less the base rate. Appendix B provides the 1915(c) waiver base capitation rate as well as the residential status adjustment payments for the low and high rate ranges for the first six months SFY Beginning with the October 1, 2015 to March 31, 2016 capitation rate certification, the Private Residence with Spouse or Non-Family and Supported Independence Program residential status adjustments were combined into one residential status adjustment, the Private Residence/Supported Independence Program based on guidance provided by MDHHS and the PIHPs. The capitation rate for each waiver (c) eligible is calculated by the following equation: Waiver (c) Capitation Rate = (Base Rate + Residential Status Adjustment) (Geographic Factor) The Waiver (c) capitation rates do not vary by age group. September 16,

25 C. PASS-THROUGH PAYMENTS MDHHS maintains a hospital reimbursement adjustment (HRA) program, which increases funding to hospitals. The HRA is added onto the DAB population state plan capitation rate and is estimated to be $22.5 million dollars in the first six months of SFY The HRA PMPM amount included in the DAB state plan capitation rate is $7.43, $22.5 million divided by the estimated number of DAB capitation payments in SFY An additional $0.53 was added due to claims and use tax. D. PROJECTION OF NON-BENEFIT COSTS This section describes the development and methodology utilized to include the non-benefit costs in the SFY 2016 capitation rates. The non-benefit costs include an administrative allowance, use tax, and claims tax. Development of Non-Benefit Costs The estimated benefit expenses were increased to reflect an administrative allowance. For waiver (c) services, a 3% administrative allowance was applied. The substance abuse administration allowance for the TANF and DAB populations is 7.5%. The administration allowance for mental services has been split into two components: a fixed per member per month payment and percentage of medical cost. Table 14 provides the administration allowance applied to mental health services for the TANF and DAB populations. Table 14 State of Michigan Department of Health and Human Services October 1, 2015 to March 31, 2016 Capitation Rates Mental Health Services SFY 2016 Administration Allowance Population: TANF DAB Fixed Per Member Per Month Administration $1.02 $8.21 Administration Allowance % 4.0% 4.0% The fixed per member per month administration allowance was trended by 1.5% from SFY 2015 to SFY In addition, the fixed per member per month administrative PMPM was adjusted by the capitation payment to eligibility ratio in SFY 2015 over the capitation payment to eligibility ratio in SFY This adjustment is budget neutral (i.e. PIHPs are estimated to receive the same net revenue holding all other factors constant). In addition to the administration allowance, the capitation rates for all services under the Specialty Services Waiver were increased to reflect a 0.75% claims tax assessment and a 5.98% use tax during the first six months of SFY The SFY 2015 rates illustrated in this report also reflect a 0.75% claims tax and 5.98% use tax. The claims tax assessment is not applied to the administrative load component of the capitation rates. The use tax is applied to all components of the capitation rate, including the administrative allowance and the claims tax assessment. The claims tax assessment and use tax are applicable for the mental health, substance abuse, and waiver (c) capitation rate. The administration allowance was calculated as a percentage of the capitation payments, excluding the claims tax assessment and the use tax. September 16,

26 Since the mental health administration allowance is not an equal percentage of capitation revenue for each PIHP, the fixed per member per month administration allowances cannot be simply added to the base capitation amounts. We built the fixed administration allowances into the rates using the following process: 1. Calculate for each PIHP the total capitation revenue by applying the age/gender and existing geographic factors to the base cap rates (without fixed administration), plus the flat per member per month administration allowance. 2. Solve for new TANF and DAB geographic factors for each PIHP that produce the same capitation revenue for each PIHP as in Step #1 by applying the age/gender and developed geographic factors to the base cap rates. By performing step #2, the flat per member per month administration amounts do not need to be included in the CHAMPS template. Exclusion of Health Insurance Providers Fee from the Rates The ACA-mandated health insurer fee has not been calculated and included in these capitation rates. In accordance with section 9010(c)(2)(C)(i)-(iii), the regulations excluded any entity that is incorporated as a nonprofit corporation under State law. The PIHPs who provide services under the Specialty Services and Supports Waiver fulfill this requirement. E. RATE RANGE DEVELOPMENT The low and high rate ranges for each capitation rate were developed using differing trend assumptions. Appendices D and E illustrate the development of the base experience and capitation rates for both the low and high rate ranges for the DAB, TANF, and Waiver (c) populations. F. RISK MITIGATION, INCENTIVES AND RELATED CONTRACTUAL PROVISIONS Description of any Risk Mitigation, Incentives, or Similar Contractual Provisions A summary of the current risk corridor arrangement between the PIHPs and MDHHS is provided below. The risk corridor is administered across all services, with no separation for mental health and substance abuse funding. The risk corridors are a contractual issue between MDHHS and the PIHPs. The PIHP shall retain unexpended risk-corridor-related funds between 95% and 100% of said funds. The PIHP shall retain 50% of unexpended risk-corridor related funds between 90% and 95% of said funds. The PIHP shall return unexpended risk-corridor-related funds to MDHHS between 0% and 90% of said funds and 50% of the amount between 90% and 95%. The PIHP shall be financially responsible for liabilities incurred above the risk corridor-related operating budget between 100% and 105% of said funds contracted. The PIHP shall be responsible for 50% of the financial liabilities above the risk corridor-related operating budget between 105% and 110% of said funds contracted. The PIHP shall not be financially responsible for liabilities incurred above the risk corridor-related operating budget over 110% of said funds contracted. September 16,

27 Description of Incentives or Withhold Amounts The contract has a 0.2% withhold from the capitation rates. The withhold requires the PIHPs to submit accurate and timely encounter data to MDHHS. The withhold is only applied to the DAB and TANF capitation rates. MDHHS also has an incentive program to support increasing access to mental health services under the Specialty Services and Supports Waiver for foster children and children in protective service with a serious emotional disturbance. MDHHS has created separate incentive payment criteria to reflect a range of service needs amongst the targeted population. The incentive payment amounts are intended to both increase access to services and provide PIHPs with funding to develop protocols for identifying children that are currently not being served. The budgeted SFY 2016 incentive payment amount is $8,705,500. Certification that Incentive Payments will not Exceed 105% of the Certified Rate Paid The budgeted SFY 2016 incentive payment amount is $8,705,500. This amount is less than 5% of the total capitated amount under the Specialty Services and Supports Waiver. Estimated Percentage of Withhold that is Expected to be Returned and Basis for that Determination The contract currently does not include definitions for quality and timely data submission. As a result, the PIHPs are earning back 100% of the withhold. MDHHS is working with the PIHPs to develop the definition of quality and timely data. Effect of Incentive or Withhold Arrangements on the Development of Capitation Rates The capitation rate development is independent of the incentive and withhold arrangements. The capitation rate development followed generally accepted actuarial practice. September 16,

28 V. LIMITATIONS The services provided for this project were performed under the signed contract between Milliman and MDHHS approved June 30, The information contained in this report, including the appendices, has been prepared for the State of Michigan, Department of Health and Human Services and their consultants and advisors. It is our understanding that the information contained in this report may be utilized in a public document. To the extent that the information contained in this report is provided to third parties, the report should be distributed in its entirety. Any user of the data must possess a certain level of expertise in actuarial science and healthcare modeling so as not to misinterpret the data presented. Milliman makes no representations or warranties regarding the contents of this report to third parties. Likewise, third parties are instructed that they are to place no reliance upon this report prepared for MDHHS by us that would result in the creation of any duty or liability under any theory of law by us or its employees to third parties. Other parties receiving this report must rely upon their own experts in drawing conclusions about the MDHHSs capitation rates, assumptions, and trends. In performing this analysis, we relied on data and other information provided by MDHHS and its vendors. We have not audited or verified this data and other information. If the underlying data or information is inaccurate or incomplete, the results of our analysis may likewise be inaccurate or incomplete. Differences between our projections and actual amounts depend on the extent to which future experience conforms to the assumptions made for this analysis. It is certain that actual experience will not conform exactly to the assumptions used in this analysis. Actual amounts will differ from projected amounts to the extent that actual experience deviates from expected experience. The actuarial certification contained within the appendix was developed with regard to the mental health, substance abuse, and Waiver (c) capitation rates for the Managed Specialty Services and Supports Waiver PIHPs that operate in the State of Michigan. The information may not be appropriate for any other purpose. It is the responsibility of any individual PIHP to establish required revenue levels appropriate for their risk, management and contractual obligations. Guidelines issued by the American Academy of Actuaries require actuaries to include their professional qualifications in all actuarial communications. I am a member of the American Academy of Actuaries, and I meet the qualification standards for performing the analyses in this report. September 16,

29 APPENDIX A September 16,

30 State of Michigan, Department of Health and Human Services Specialty Services and Supports Waiver Low Rate Range - October 1, 2015 to March 31, /14/2015 8:09 PM Service and Population State Plan 1915(b)(3) TANF Mental Health $15.42 $0.80 DAB Mental Health $ $ TANF Substance Abuse $0.86 $0.55 DAB Substance Abuse $2.67 $2.05 October 1, 2015 to March 31, 2016 Age / Gender Factors Service and Population Mental Health - TANF Male - State Plan Female - State Plan Male - (b)(3) Female - (b)(3) Mental Health - DAB Male - State Plan Female - State Plan Male - (b)(3) Female - (b)(3) Substance Abuse - TANF Male Female Substance Abuse - DAB Male Female October 1, 2015 to March 31, 2016 Geographic Factors Mental Health Substance Abuse PIHP Name TANF DAB TANF DAB Northcare Network Northern Michigan Regional Entity Lakeshore Regional Entity Southwest Michigan Behavioral Health Mid-State Health Network CMH Partnership of Southeast Michigan Detroit Wayne Mental Health Authority Oakland County CMH Authority Macomb County CMH Services Region 10 PIHP Appendix A - Low Rate Range Milliman, Inc. Page 1 of 2

31 State of Michigan, Department of Health and Human Services Specialty Services and Supports Waiver High Rate Range - October 1, 2015 to March 31, /14/2015 8:09 PM Service and Population State Plan 1915(b)(3) TANF Mental Health $16.04 $0.84 DAB Mental Health $ $ TANF Substance Abuse $0.90 $0.57 DAB Substance Abuse $2.78 $2.14 October 1, 2015 to March 31, 2016 Age / Gender Factors Service and Population Mental Health - TANF Male - State Plan Female - State Plan Male - (b)(3) Female - (b)(3) Mental Health - DAB Male - State Plan Female - State Plan Male - (b)(3) Female - (b)(3) Substance Abuse - TANF Male Female Substance Abuse - DAB Male Female October 1, 2015 to March 31, 2016 Geographic Factors Mental Health Substance Abuse PIHP Name TANF DAB TANF DAB Northcare Network Northern Michigan Regional Entity Lakeshore Regional Entity Southwest Michigan Behavioral Health Mid-State Health Network CMH Partnership of Southeast Michigan Detroit Wayne Mental Health Authority Oakland County CMH Authority Macomb County CMH Services Region 10 PIHP Appendix A - High Rate Range Milliman, Inc. Page 2 of 2

32 APPENDIX B September 16, 2015

33 State of Michigan, Department of Health and Human Services Specialty Services and Supports Waiver Waiver C Capitation Rate Development October 1, 2015 to March 31, 2016 Capitation Rates Low Rate Range 9/14/2015 8:08 PM High Rate Range Rate Development Base: $2, $2, Residential Living Arrangement Private Residence with Spouse or Non-family/Supported Independence Program 4, , Specialized Residential Home 1, , Private Residence with Family or Foster Home 1, , Mount Pleasant $0.00 $0.00 Multiplicative Factor Northcare Network Northern Michigan Regional Entity Lakeshore Regional Entity Southwest Michigan Behavioral Health Mid-State Health Network CMH Partnership of Southeast Michigan Detroit Wayne Mental Health Authority Oakland County CMH Authority Macomb County CMH Services Region 10 PIHP Appendix B - Low and High Rates Milliman, Inc. Page 1 of 1

34 APPENDIX C September 16, 2015

35 State of Michigan Department of Health and Human Services Managed Specialty Services and Supports Waiver DAB, TANF, and Waiver (c) Populations Capitation Rates Effective October 1, 2015 through March 31, 2016 Actuarial Certification I, Paul R. Houchens, am a Principal and Consulting Actuary with the firm of Milliman, Inc. I am a Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries. I was retained by the State of Michigan, Department of Health and Human Services to perform an actuarial review and certification regarding the development of the capitation rates for the DAB, TANF, and Waiver (c) Populations under the Specialty Services and Supports Waiver to be effective for the six month period beginning October 1, I have experience in the examination of financial calculations for Medicaid programs and meet the qualification standards for rendering this opinion. I reviewed the historical claims experience for reasonableness and consistency. I have developed certain actuarial assumptions and actuarial methodologies regarding the projection of healthcare expenditures into future periods. I have developed certain actuarial assumptions and actuarial methodologies regarding the projection of healthcare expenditures into future periods. The capitation rates provided with this certification meet the requirements defined in 42 CFR 438.6(c), including: The capitation rates have been developed in accordance with generally accepted actuarial principles and practices. The capitation rates are appropriate for the populations to be covered, and the services to be furnished under the contract. For the purposes of this certification actuarial soundness is defined as follows: Medicaid capitation rates are actuarially sound if, for business in the state for which the certification is being prepared and for the period covered by the certification, projected capitation rates including expected reinsurance and governmental stop-loss cash flows, governmental risk adjustment cash flows, and investment income provide for all reasonable, appropriate, and attainable costs, including health benefits; health benefit settlement expenses; marketing and administrative expenses; any government-mandated assessments, fees, and taxes; and the cost of capital. This certification is intended for the State of Michigan and should not be relied on by other parties. The reader should be advised by actuaries or other professionals competent in the area of actuarial projections of the type in this certification, so as to properly interpret the projection results. It should be emphasized that capitation rates are a projection of future costs based on a set of assumptions. Actual costs will be dependent on each contracted PIHPs situation and experience. September 16, 2015

36 Actuarial Certification September 16, 2015 This actuarial certification has been based on the actuarial methods, considerations, and analyses promulgated from time to time through the Actuarial Standards of Practice by the Actuarial Standards Board. Paul R. Houchens, FSA Member, American Academy of Actuaries September 16, 2015 Date September 16, 2015