1. 2007 BEST PRACTICE COST ALLOCATION PLANS & GUIDANCE FOR DEVELOPING FY 2008 PLANS July 23, 2007 Constitution Hall

2. 2007 BEST PRACTICE PLANS & GUIDANCE FOR DEVELOPING FY 2008 PLANS Welcome and Introductions Purpose of the Session Plan for the Day

3. 2007 BEST PRACTICE PLANS & GUIDANCE FOR DEVELOPING FY 2008 PLANS Findings and Observations about FY 2007 Cost Allocation Plans –Items expected and commonly found missing in original cost allocation plans Certification Description of method used to assign costs to funding sources Schedule of costs assigned to funding sources Summary of allocations of costs Schedule of 460 costs Service description Expense items included in the allocated cost center

4. 2007 BEST PRACTICE PLANS & GUIDANCE FOR DEVELOPING FY 2008 PLANS Findings and Observations about FY 2007 Cost Allocation Plans –Helpful items found in some of the 460 cost allocation plans and requested from all plans with June 15, 2007 addendum General narrative describing the entity County Relationship County charges (direct or indirect) Description of accounting system Method of Staff costing CA relationship

5. 2007 BEST PRACTICE PLANS & GUIDANCE FOR DEVELOPING FY 2008 PLANS Findings and Observations about FY 2007 Cost Allocation Plans –Other helpful items found in some of the 460 cost allocation plans Table of contents Single document instead of Multiple files Excel schedules with narrative explanations Organizational charts that include prime subcontractors CA Narratives with supporting schedules with financial data

6. 2007 BEST PRACTICE PLANS & GUIDANCE FOR DEVELOPING FY 2008 PLANS Findings and Observations about FY 2007 Cost Allocation Plans –Items included in plans but not needed Employee job descriptions Employee staffing Charts Cost centers listing all accounts including unused accounts

7. 2007 BEST PRACTICE PLANS & GUIDANCE FOR DEVELOPING FY 2008 PLANS Findings and Observations about FY 2007 Cost Allocation Plans –Other issues found in the reviews Narratives indicating predetermined cost allocations between funding sources Inconsistent treatment of Information System costs Plans that appeared to follow managed care administration functions not the Section 460 cost allocation requirements and definitions for administration Reference to contracted cost allocation plan prepared by outside company but no detail as to compliance with the 460 cost allocation standards.

8. 2007 BEST PRACTICE PLANS & GUIDANCE FOR DEVELOPING FY 2008 PLANS Best Practices: Three Cost Allocation Plans –All 46 plans were some what unique which was expected –Difference approaches for addressing the needs Table of contents vs read me first files Schedule based verses narrative based –During the development of the plans several CMHSPs requested model plans to review –460 cost plans are so specialized that no models existed. –MDCH found Uniformity would be helpful to evaluate plans –MDCH decided to select five plans to hold out as best practice models

9. 2007 BEST PRACTICE PLANS & GUIDANCE FOR DEVELOPING FY 2008 PLANS Best Practices: Three Cost Allocation Plans –The following criteria were used to select the models Plans that included most of the items expected by MDCH based on the November 6, 2006 training Plans that included the helpful items that were included in the addendum request but not in the original training The plans included other helpful items and designs that made them user friendly

10. 2007 BEST PRACTICE PLANS & GUIDANCE FOR DEVELOPING FY 2008 PLANS Best Practices: Three Cost Allocation Plans –Specific examples of criteria include A general description of the organization Reconcilement of the 460 cost report with the FSR Clear identification of affiliation members and their costing methods Sections on direct service cost, administrative costs and allocable overhead costs. Clear flow of information through the plan Packaged as a single document

11. 2007 BEST PRACTICE PLANS & GUIDANCE FOR DEVELOPING FY 2008 PLANS Best Practices: Three Cost Allocation Plans –Specific examples of criteria include –Comprehensive organizational charts –Schedules and narratives that clearly showed »Expenses in a cost center »Method used to assign or allocate the cost center »Cost centers that received the cost assignment or allocation –Descriptions of the relationship with the County and/or CA –Descriptions of the accounting system and/or method of staff costing

12. 2007 BEST PRACTICE PLANS & GUIDANCE FOR DEVELOPING FY 2008 PLANS Best Practices: Three Cost Allocation Plans –Copies of 5 plans will be posted on the MDCH web site for your review Those five proposed best practice models are the plans submitted by –Summit Point –CEI –CMHCM –Network 180 –North Country/Northern Affiliation

13. 2007 BEST PRACTICE PLANS & GUIDANCE FOR DEVELOPING FY 2008 PLANS Best Practices: Three Cost Allocation Plans –An overview of the plan development and underlying theory will be presented today for three of the plans Network 180 CMHCM North Country/Northern Affiliation –The order was chosen to show the examples of CMHSP/PIHP that contracts out for services CMHSP/PIHP with a mix of contract and direct run services CMHSP/PIHP affiliation with Hub and spoke model

14. SECTION 460 COST ALLOCATION PLANS Network180 CMH for Central Michigan North Country CMH

15. Network180 Who we are: including general ledger cost centers Review each GL cost center and allocations for Section 460 reporting Spread Sheet 1- Division of costs between Administrative and Direct Service Spread Sheet 2 – Admin and Direct Service totals by funding sources What I would/will do differently

19. Network180 General Ledger Cost Centers 01 – Administration35 – Claims 02 – Human Resources40 - Grants 03 – Information Systems50 – SUD (Sub Abuse) 15 – Training53 – MI (Mental Illness 20 – Access Center Support56 – Children/Families 23 – Access Center Services59 - DD 29 – Med Clinic62 – Children’s Waiver

23. Network180 Who we are: including general ledger cost centers Review each GL cost center and allocations for Section 460 reporting Spread Sheet 1- Division of costs between Administrative and Direct Service Spread Sheet 2 – Admin and Direct Service totals by funding sources What I would/will do differently

24. CMHCM COST ALLOCATION PLAN

25. Objectives 1.Keep it Simple 2.All in One Excel File 3.Meet the A-87 and DCH Requirements 4.Create a tool to produce the 460 Reports

26. Table of Contents

27. CertificateCertificate

28. Descriptions (very short) Agency115 words County Relationship63 words Accounting System152 words Services114 words

29. Org Chart

30. Expenses by Line Item

31. Expenses by Program Type

32. Expenses by County

33. Overhead Cost Centers

34. DISTRIBUTIONS

35. Vehicle Cost Center

36. Vehicle Distribution

37. First Line Supervisors

38. Contracted Services

39. Prime Sub-Contractor

40. Allocation Summary

41. Allocation by Funding Source

42. PIHP 460 Report

43. CMHSP 460 Report

44. NEXT...

45. North Country Community Mental Health Section 460 Cost Allocation Plan

46. North Country Community Mental Health Section 460 Cost Allocation Plan

47. North Country CMH-Overview

48. North Country CMH-Affiliation Overview

49. Organizational Chart

50. Program Descriptions and Allocation Costing Methods

51. Program Descriptions and Allocation Costing Methods-Administration

52. Program Descriptions and Allocation Costing Methods- Administration-Affiliation

53. Total Budgeted Expenditures-FY2007

54. Budgeted Expense and Revenue By Line Item ( Note: spreadsheet in plan submitted to DCH contained more detail by program, expenditure, and revenue line item)

55. Budgeted Expense and Revenue By Line Item (Continued)

56. Expense Allocations

60. Other Expenses Allocated (Note: Detail included in plan submitted to DCH)

61. Contracted Services Narrative

62. Contract Services Spreadsheet

63. Prime Subcontractors-Affiliates

64. Prime Subcontractors-Northern Michigan SAS

65. Direct Service Expenditures

66. Administrative Services Narrative

67. Administrative Services Narrative (continued)

68. PIHP Managed Care Administration

69. Access Center Costs to Funding Source The Access Center costs are allocated across boards and funding Source by the relative number of screens.

70. Total Administrative Costs

71. Allocation of Administrative and Direct Costs By Funding Sources

72. Allocation of Administrative and Direct Costs By Funding Stream (continued)

73. Section 460 Compliance Report-Medicaid

74. Section 460 Compliance Report-Non Medicaid

75. Questions?

76. Review criteria for Cost Allocation Plans Single document Table of contents Certification form with signature (scanned into PDF) The organization chart must include the following if applicable –Spoke CMHSPs –Prime subcontractors –Identify administrative and direct cost centers

77. Review criteria for Cost Allocation Plans A narrative that describes the entity –The terms from the Mental Health Code such as Authority or County Agency are adequate because they have legal definitions that define the relationship with the county. Narrative indicating if the costs reported include costs from the county (direct or indirect)

78. Review criteria for Cost Allocation Plans Narrative that describes the accounting system used. Narrative that describes how the staffing costs are accounted for and assigned/allocated to cost centers Narrative describing the CA arrangement or a statement that there is not a CA relationship Narrative and schedules that identify the basis of allocations

79. Review criteria for Cost Allocation Plans Either a formal budget or numbers that appear to represent the operating budget being used to begin the financial schedules of the plan Either a completed copy of the 460 Report form or a separate schedule of the 460 costs A narrative that describes the services provided

80. Review criteria for Cost Allocation Plans A narrative and schedules that describe and show costs allocated to services and/or administration Narrative naming the cost centers, listing of cost centers or spreadsheet that identifies the cost centers A narrative and/or schedule that identifies the expense items in each allocated cost center A narrative and/or schedule that identifies the programs that receive the allocated costs

81. Review criteria for Cost Allocation Plans A narrative and schedule that identifies the distribution methods used A schedule that summarizes all the cost centers that are allocated A narrative that describes the methods used for assigning costs to funding sources A schedule that shows the costs assigned to the funding sources using the methods described in the narrative above.

82. Expectations for FY 2008 Plans Plans are due to MDCH electronically by September 30, 2007 Include all of the applicable items noted in review criteria noted above Comply with section 460 cost allocation requirements for the definition of direct services and administration Plans do not allocate costs to funding sources based on predetermined (budgeted) amounts

83. Expectations for FY 2008 Plans Clear narratives regarding methods used by contracted cost allocation plans Narrative regarding the implementation of reporting for Phase II Refinement of Information systems costing in the section 460 cost allocation plans

84. Expectations for FY 2008 Plans Review of the treatment of Information Systems (IS) costs in the 460 Cost allocation plans found a wide range of treatment –Some plans charged all the costs to administration –Some plans charged most or all the costs to direct services –Some plans allocated costs as overhead to both direct services and administration –Basis used for allocation of IS costs also varied across the CMH system

85. Expectations for FY 2008 Plans Specific examples related to these issued included –Cost plans that determined all costs within the IS department would be charged to administration regardless of who uses the system –IS systems held by outside vendors –IS costs shared in affiliate PIHPs –Different basis used for IS costs between members of an affiliation –Contracts for IS services within Affiliations

86. Expectations for FY 2008 Plans Issues that can result in the assignment or allocation of IS costs –Misclassification of direct services costs into administration –Misclassification of administrative costs into direct services –Misallocation of overhead costs based on accumulated direct service costs –Contract terms changing classification of costs between direct service and administration –Contract terms changing classification of costs between funding sources such as Medicaid and General Fund

87. Expectations for FY 2008 Plans The section 460 Cost allocation diagram gives direction as to how IS costs should be handled Costs are administrative unless documentation proves the costs should be allocated or direct services –Under administration the diagram shows Information system staff Network management Help desk Security

88. Expectations for FY 2008 Plans Under allocated overhead charged to administration (note documentation must support costs are allocable to administrative and direct services) –Equipment –Personal computer –Network management –Help desk –Securty –Hardware and software

89. Expectations for FY 2008 Plans –Under allocated overhead charged to direct services (must be supported with documentation) Equipment Personal computer Network management Help desk security Hardware and software Medical records – electronic or otherwise

90. Expectations for FY 2008 Plans –Expectations regarding IS costs Costs that should be charged to direct services –IS costs that can be documented as used in providing direct services should be allocated to direct services –IS costs of using electronic medical records should be charged to direct services –IS costs of running the IS department that can be documented as related to providing direct services

91. Expectations for FY 2008 Plans –Expectations regarding IS costs Costs that should be charged to administration –IS costs that relate to administrative functions should be allocated to administrative costs –IS costs of running the IS department should be administrative costs –Any IS costs that can not be documented as related to providing direct services

92. Expectations for FY 2008 Plans –Expectations regarding IS costs IS costs of developing systems should be capitalized and only expensed once they are placed in service (turned on and used) These costs would be allocated based on the above criteria

93. Questions ?