In September, the Joint Medicaid Oversight Committee (JMOC) met to discuss the preliminary report from the JMOC actuary, Optumas. During that meeting, Optumas laid out the basic process for determining the JMOC per member per month (PMPM) growth rate, and there was a review of the statutory obligations of JMOC when setting said rate. To learn more about the process and the discussion of that meeting, which may be helpful for this post, please see my blog post from September. On October 20, however, we saw JMOC officially establish their goal for the Medicaid Director at 3.3 percent. So what are the implications and how does this translate to the budget process?

The rate chosen (3.3 percent) represents the midpoint between the upper and lower bounds of the PMPM rate reflecting JMOC’s expectation that the director will not need to develop additional efficiencies (lower bound) or need to make new investments (upper bound) beyond the current trend. In real numbers, this means the PMPM should be about $645 in fiscal year (FY) 2018 and $666 in FY2019. Interestingly, this is pretty consistent with the consumer price index (CPI) number (roughly 3.26 percent over three years). It is important to realize that this does not mean the appropriation request the administration develops is singularly tied by this PMPM rate. While, yes, the Director must take into consideration the PMPM as a factor in developing the budget request, the request also includes projections which are not necessarily accounted for in JMOC’s rate. This administrative process includes an accounting for case mix (the types of individuals covered), caseload (the number of individuals), pharmacy costs, supplemental payments to hospitals, etc.

To understand what the PMPM goal is all about, we must first understand why it came into existence. When Ohio was first deliberating the extension of Medicaid, many members were concerned with the potential impact the extension could have on future budgets and state resources. With that in mind, JMOC was created as a way for the legislature to investigate, deliberate, and advise on Medicaid policy, including the obligation to set a PMPM rate which, as statute explains, requires the Director to implement reforms that limit the cost growth of the program and increase quality. What must be understood, though, is that the JMOC rate does not bind the Director to any specific “cost” metric in developing the budget request other than limiting the overall PMPM growth. In fact, the General Assembly (GA) ultimately has the ability to appropriate what it sees as being necessary, meaning the total projections developed by the Director, and, importantly that of the Legislative Service Commission (LSC), may have broader impacts on the bottom line of the program more than JMOC. If, for example, the projections of LSC and the Ohio Department of Medicaid (ODM) differ, the GA can alter its appropriations based on what they deem to be the most accurate and, even then, they have the discretion to make programmatic changes as long as they are consistent with the constitution and federal law.

Outside of the budget process, however, it may be useful to look into Optumas’ more detailed report to understand the implications for future policy development. If, as it is purported in the statute, JMOC’s goal is to develop a rate and examine issues with the idea of creating more efficiencies and quality in Medicaid, there are a few clear opportunities. First, pharmacy cost is driving a lot of expense. While there may need to be more broad federal-level reform, this may be an area of state policy development. This state work, however, could be complicated by an ongoing ballot initiative known as the “Drug Price Relief Act”, which would require Ohio to pay no more than what the Department of Veterans Affairs pays for those same drugs. While on its face this may seem like a consumer-friendly proposal, many experts have questioned the feasibility and success of the effort. In addition to pharmacy costs, one can also look at category of aid (COA) costs incurred in (Fee For Service) FFS as an area of potential reform:

 

If you look at the chart above, you can see that the largest areas of FFS expenditure, which accounts for nearly one third of all spending in Medicaid, are with populations that are currently “carved-out” of the Managed Care benefit, namely those individuals with Developmental Disability (DD) waivers and those in Skilled Nursing Facilities (SNF). In fact, Optumas concluded the rebasing of rates for SNFs resulted in a 13.8 percent and 14.6 percent increase in CY2014 and CY2015, respectively, now putting the PMPM for that population around $5,000. For DD, the number is similarly around $4,800. That is roughly eight times the PMPM of the overall JMOC rate.

As I have written about previously, this administration strongly believes in privatization and the Managed Care model. MyCare Ohio and the carve-in of behavioral health into Managed Care demonstrate this administration is not afraid of tackling large-scale population shifts into that model of benefit delivery. With that said, this is the last biennial budget of the Kasich administration and they may not have the desire to move the complex and expensive SNFs or DD waiver populations into Managed Care given the amount of work that would be required. But this desire for a coordinated benefit points to how case mix, as opposed to caseload, might be the primary frame of cost containment policy for the administration as they approach the budget. For the General Assembly, on the other hand, we must remember the history of JMOC and the recent efforts of the Healthy Ohio 1115 waiver. While there is an acknowledgement that complex populations are drivers of cost, the politics of the extension are still the foundation of the political dialogue around Medicaid. As such, legislative budget process may focus its appropriation efforts through this “caseload lens” as opposed to that of a “case mix lens”, shifting the political focus of reforms from population health to budget health. In any case, the JMOC rate process, now in its second incarnation, provides a previously absent policy target for the Director through a mandatory PMPM growth rate. But, as we know, appropriations happen in committee rooms, not in departments, and this budget will be no different.