Federal Grant Contracting

MALPHSeptember 2014

Tim Becker, CPA Senior Deputy Director, Operations

Michigan Department of Community Health

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Health Care Industry is Michigan’s Largest Private-Sector Employer1

• Provides more than 558,000 direct jobs1

o Hospitals employing nearly 219,0001

o One third of the projected fastest growing occupations are health care related2 o Health care employment as a percentage of total Michigan employment is 10.6%3

• 1 million people who collectively earn more than $48.4 billion a year in wages, salaries and benefits1

Health Care Industry Generates $13.4 Billion in Federal, State & Local Tax Revenues1

Health Care Spending Per Capita in Michigan is $6,6183

Total Health Care Spending in Michigan is $64.3 Billion3

Healthcare is an Economic Force in Michigan

1 Economic Impact of Health Care in Michigan, 8th ed.2 U.S. Bureau of Labor Statistics3 Kaiser State Health Facts (2009 data)

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Mission The Michigan Department of Community Health will protect, preserve, and promote the health and safety of the people of Michigan with particular attention to providing for the needs of vulnerable and under-served populations.

Vision Improving the experience of care, improving the health of populations, and reducing costs of health care.

Leadership, Excellence, Teamwork

Our Guiding Principles

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Supported by:• Operations• Policy & Planning• Inspector General• Commissions

MDCH Service Structure

Medicaid

Behavioral Health, Developmental

Disabilities

9.9 MillionMichiganders

Services to the Aging

PublicHealth

FY 2015 Budget: $17.4 billionGeneral Fund: $2.9 billionFull Time Employees: 3,648

MDCH Services Statistics

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• 1,900,000 older adults (aged 60+) in Michigan• 85+ age group is fastest growing • 10,498,348 home delivered/congregate meals provided to aging

population in Michigan• 6,822 caregivers for the aging that were supported by 694,401

hours• 62,858 older adults received 541,393 hours/units of community

services• 649 children received autism diagnostic services• 520 children diagnosed with Autism Spectrum Disorder• 40,564 children served in Children’s Special Health Care Services

(CSHCS)• 254,100 eligible Women, Infants and Children (WIC) receive WIC

services each month• 45 Local Public Health Departments (LPHD)• 12,000 live emergency department reports daily• 1, 894,673 doses of vaccine in the Vaccine for Children program

distributed to eligible children• 22: Michigan’s 2012 rank (70.5%) based on a national childhood

immunization survey • 134,310 Infectious Disease Specimens Tested• 122,127 Newborn Screening specimens tested• 26,181 tests completed for blood lead levels and environmental

lead exposure• 126,000 Facilitated epidemiology responses to communicable

disease cases• 504,000 dollars in healthy food purchased daily from local

grocers• 1,000,000 hearing and vision Screenings done yearly for Pre-K

and school aged kids• 6,700,000 lab services provided to over 240,000 individuals.

• 5,604 residents test positive for gonorrhea and/or chlamydia yearly by State Lab System and Local Public Health

• 360,000 new vital records events recorded each year• 32,000,000 records in vital records depository dating to 1867• 1,779,449 Medicaid Total Average Eligibles• 965,042 children served by Medicaid• 347,395 disabled adults served by Medicaid• 13 Medicaid Health Plans• 786,629 Medicaid School-Based direct service procedures• 83,200,000 Medicaid transactions processed last year• 494,380 children currently enrolled in Healthy Kids Dental• 37,453 currently enrolled in MI Child • 1,039,000 calls handled annually by Michigan Enrolls• 3,788 women using Maternal Outpatient Medical Services

(MOMS) program each month• 28,977 Medicaid nursing home residents • 46 Community Mental Health Services Programs (CMHSP)• 10 Prepaid Inpatient Health Plans (PIHPs)• 242,884 people served by CMHSPs and PIHPs• 5 state operated hospitals and centers• 1,017 state psychiatric hospital bed capacity• 1,975 licensed psychiatric beds in the community for adults; 242

for children• 6,537 allegations investigated, processed, and resolved by Office

of Recipient Rights• 41 Developmental Disabilities Council grants• 66,164 received Substance Use Disorder Services• 125,277 participated in Substance Use Prevention Programs• 1,563 claims paid for crime victims• 79,337 cases worked by Victim Advocates in Prosecutor Offices

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Total FY 2015 Budget Recommendation (in millions)

Medical Services62.4%

Healthy Michigan Plan14.1%

Behavioral Health Services17.3%

Policy, Planning, and Crime Victims0.3%

Public Health4.6%

Office of Services to the Ag-ing

0.6%Information Technology

0.5%Administration

0.3%

  TOTAL GF/GP

Medical Services $10,833.6 $1,586.3

Healthy Michigan Plan $2,452.9 -

Behavioral Health Services $3,002.8 $1,101.1

Public Health $794.6 $158.7

Office of Services to the Aging $99.5 $35.8

Information Technology $87.2 $19.7

Policy, Planning, and Crime Victim Services Commission $57.9 $7.6

Administration $46.1 $29.8

FY 2015 TOTAL $17,374.6 $2,939.0

FY 2014 TOTAL $16,934.5 $2,747.6

NET CHANGE $440.1 $191.4

Revenue Sources (Millions)

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*Private and Local

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015

Federal 5534 6043 6709 7226 8949 9474 8987 9691 11620 11942

General Fund 2952 2940 3125 3096 2309 2422 2771 2817 2748 2939

State Restricted* 1807 2176 2175 2171 1785 2175 2477 2508 2557 2484

Total 10326 11196 12048 12533 13092 14124 14241 15026 16935 17375

1,000

3,000

5,000

7,000

9,000

11,000

13,000

15,000

17,000

19,000

Total

Federal

General Fund

State Restricted

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Assistance or Benefits: Money, Property, Services• Transfer of value from Federal Government to entities or individuals

o To accomplish a public purpose of support or stimulationo Authorized by Federal statute

Formula Grants• Allocation of money to states or their subdivisions• Distributed through legally prescribed or administratively regulated formula• For activities of a continuing nature

Project Grants• Funding for fixed or known periods• Scholarships, research grants, construction grants

Direct Payments• Provided directly to individuals or private entities• Receipt conditioned on specific performance or eligibility requirements

Common Types of Federal Grants

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Announcement: Federal posting of grant opportunityApplication: Request to Federal Government for awardAward: States terms, conditions, amount, durationAccessing: Drawing down of federal fundsAppropriate: Expend or Pass-throughAccount: Financial Status ReportAssess: Monitor of programs and subrecipientsAudit: Determine compliance with Federal programs

Federal Grants Cycle

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Grants.Gov• Find and apply for federal grants

o Find Open Grant Opportunitieso Browse Categories and Federal Agencieso Browse Eligibility Categories

Federal Register• Daily journal of United States Government• Announcement of all rules and funding announcements

Catalog of Federal Domestic Assistance (CFDA)• Detailed program descriptions for 2,243 federal assistance programs• CFDA is a 5 digit number

o First 2 digits represent the funding agencyo Last 3 digits represent the programo 10.557 = Department of Agriculture (10) Supplemental Nutrition Program for Women,

Infant, and Children (557)o 93.778 = Health and Human Services (93) Medical Assistance Program (778)

Announcement of Federal Grants

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Federal Awards Authorized by Federal Statute• Medical Assistance Program (CFDA 93.778 – Formula Grant)

o Authorized by Social Security Act, Title XIX and 67 Public Laws o Legislative intent expanded with Patient Protection and Affordable Care Act (PPACA)o Pre-PPACA:

o Childreno Pregnant Womeno Aged Who Meet Income and Resource Requirements

o PPACA adds the following up to 138% of Federal Poverty Level (FPL):o Parentso Caretaker Relativeso Disabledo Childless Adults

o Any variances to Prescribed Federal Formula must be granted Federal Approval through a waiver as permitted in the Social Security Act

State Appropriates Federal Funds and State Match Annually• State Budget is Legislation authorizing the expenditure of federal awards and state

resources• Medicaid funds appropriated to 13 private HMOs and 10 Prepaid Inpatient Health Plans

Legislative-Intended Use of Funds

Children 0-6

Children 7-18

Parents Caretaker Relatives

19-20 year olds

Elderly Disabled Childless Adults

0%

50%

100%

150%

200%

250%

300%

350%

400%

MedicareExchangeExpansionCurrent

Healthy Michigan Plan fills the gap between current coverage and private health insurance coverage offered on the Exchange

% o

f fed

eral

pov

erty

leve

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Healthy Michigan Plan

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Authorized by Federal Government as a Waiver• Waiver granted under Section 1115 of the Social Security Act

o Federal Government may waive compliance with certain provisions to permit demonstration

o Permits experimental, pilot, or demonstration project

Federal Medicaid Waivers• Section 1115: Research and Demonstration Projects

o Permits state flexibility to test new or existing approaches to financing and delivery• Section 1915(b): Managed Care Waivers

o Permits state to provide services through managed care delivery systems and limit beneficiary’s choice of providers

• Section 1915(c): Home and Community-Based Service Waiverso Permits state to provide continuum of services to elderly and disabled

Michigan Public Act 107 of 2013• Established Healthy Michigan Plan to start April 1, 2014

Healthy Michigan Plan

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Beneficiary Cost Sharing• Co-pays required of all Healthy Michigan Plan members• Individuals between 100% and 133% FPL pay into MI Health Account

o Limited to 2% of annual incomeo Contributions made on a monthly basis

• Co-pays and contributions can be reduced through health behavior incentives

Incentives for Healthy Behaviors• Addressing substance use disorders• Reduced tobacco use• Obesity reduction

Federal Waiver and Legal Intent of Healthy Michigan• Improved health outcomes through preventive primary care• Reduced cost burden on healthcare system through reduced emergency visits• Reduced spread of costs to other payers from hospitals for uncompensated care

Healthy Michigan Plan

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Healthy Michigan: 1115 Demonstration• Healthy behavior incentives, premium sharing, health spending accounts

Michigan Specialty Services and Support: 1915(b)(c)• Mental health, substance abuse, developmental disabilities support• Prepaid shared risk arrangement with prepaid inpatient health plans

MIChoice: 1915(c)• Adult day health, respite, personal care, home delivered meals, nursing

Children with Serious Emotional Disturbance: 1915(c)• Respite, community living supports, family home care training, therapeutic activities

Children’s Waiver Program: 1915(c)• Specialized medical equipment and supplies, specialty services for autistic children

Habilitation Supports: 1915(c)• Private duty nursing for individuals with developmental disabilities

Comprehensive Health Care Program: 1915(b)• Managed care capitated payment system

Healthy Kids Dental: 1915(b)• MDCH partners with Delta Dental to administer dental care using Delta Dental’s commercial model

Michigan Medicaid Waivers

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OMB Circular A-102• Regulates grants and cooperative agreements with state and local governments

o Pre-Award Policieso Post-Award Policieso After-the-grant Policies

• Requires advance public notice of awards in Federal Registry or other means• Prescribes standard forms for application

o SF-424: Application for Federal Assistance• Non-profits, hospitals, institutions of higher education follow Circular A-110

Medicaid State Plan• Comprehensive written statement of nature and scope of state’s Medicaid program • Required by 42 CFR Chapter 430.10

o Code of Federal Regulations = codification of rules published in the Federal Registero CFR is divided into 50 subject matter titles o CFR titles are divided into parts (chapters) according to the issuing Federal department/agencyo Chapters are divided into sub-parts covering specific regulatory areaso Title 42 = Public Healtho Chapter 430 = Department of Health and Human Services, Centers for Medicare & Medicaid Services, Medical

Assistance Programso Sub-part 10 = State Plan

• Michigan Medicaid State Plan = 968 pages, online PDF = 39.74 MB

Application for Federal Grants

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Michigan’s Medicaid Program Intent Expressed in State Plan• Medicaid State Plan is an agreement between state and federal government• Provides assurance that state’s Medicaid program will be administered in conformity with the specific

requirements of the Social Security Act’s Title XIX and regulations• Specifies the services to be provided and the means to deliver the services

o Identifies the general health care serviceso How costs of services will be reimbursedo Eligibility policies in effect for the program’s beneficiaries

Components of Michigan’s Medicaid State Plan• Single state agency organization

o Describes the state organization administering the program and its authority to administer• Coverage and eligibility: identifies who qualifies for coverage • Amount, Duration, and Scope of Services Provided

o Detailed description of services covered including limitations and requirements• Program administration

o General program administration: reimbursement methodologieso Personnel administration: provides assurance on personnel standards and trainingo Financial administration: fiscal policies, accountability, cost allocation, financial participation

Program Intent through Federal Agreements

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Notice of Grant Award• Issued by Awarding Federal Department/Agency• Authorizing Legislation Stated• CFDA Number• Approved Budget Period• Approved Budget amounts by category

o Direct costso Indirect Costs

OMB Circular A-87• Cost principles for state, local, and Indian tribal governments • 5 attachments

o Attachment A: General principles for determining allowable costso Attachment B: Selected items of costo Attachment C: State/local wide central cost allocation planso Attachment D: Public assistance cost allocation planso Attachment E: State and local indirect cost rate proposals

Award of Federal Grant

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Michigan’s Medicaid Providers Adhere to Provider Manual• Medicaid Provider Manual addresses all health insurance program provisions• Document is 1,789 pages divided into 44 comprehensive chapters and 4 appendices• Prescriptive Eligibility Determination and appeal rights• Coordination of Benefits

o Mechanism used to designate order in which multiple carriers are responsible for paymento Medicaid is the payer of last resorto Billing Medicaid prior to exhausting other insurance resources may be considered fraud under the

Medicaid False Claim Act if provider is aware beneficiary had other insurance coverage for serviceso Subrogation: beneficiaries assign MDCH the right to seek recovery of other payments

Cost Containment Through Managed Care• Most Medicaid services delivered through managed care organizations (HMOs)

o Payments are capitated monthly payments per member per month

Fee For Service Cost Controls• Predictive Modeling: screening technology to identify Medicaid claims with billing irregularities• Third Party Liability Division: ensuring responsible payers meet their obligations• Office of Health Inspector General: Investigating Medicaid fraud

Program Intent through Contracts

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Draw Methodology Varies by Federal Granting Agency• Web-Based Systems• Lines of Credit• Telephone Systems

Advance Draws• In some instances draws are permitted in advance of earned expenditure

o Funds must be deposit into an interested bearing accounto Interest earnings in excess of threshold limit must be remitted to Federal Governmento SF-425 monitors timing of cash advances and disbursements

o Submitted quarterly for most federal awards

Reimbursement-Based Draws• Most federal grants are drawn after an earning expenditure recorded at local level

o Goal is to minimize lost interest exposure by ensuring timely draws are made

Accessing Federal Funds

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Health Programs Administered Through Local Partners• Medicaid administered through 13 private health plans• Behavioral health administered through 10 Prepaid Inpatient Health Plans and 46

Community Mental Health Service Providers• Public Health administered through 45 local public health departments• Aging programs administered through 16 area agencies on aging

Interim Payments and Cost Settlements• Providers paid through monthly interim payments • Receivables/Payables Recorded at year-end on cost reports

o Final cost settlements can lag two or more years after serviceso Dependent on cost report submissions from localso Can be delayed by audits or open issues under review

o Medicaid accruals at year-end can be as large as $1.7B

Appropriating Federal Funds

Michigan Medicaid Health Plans

• 13 accredited health plans covering medically necessary services• Blue Cross Complete of Michigan• CoventryCares of Michigan, Inc. • HealthPlus Partners• McLaren Health Plan• Meridian Health Plan of Michigan• Midwest Health Plan• Molina Healthcare of Michigan• Physicians Health Plan – Family Care• Priority Health Choice• Harbor Health Plan• Total Health Care• UnitedHealthcare Community Plan• Upper Peninsula Health Plan

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Prepaid Inpatient Health Plan (PIHP) Consolidation

Region 1Region 2Region 3Region 4Region 5Region 6Region 7Region 8

Region 9Region 10

Allegan Barry Eaton

Oakland Macomb

Van Buren

Kalamazoo

CalhounJackson

Wayne

Berrien CassLenawee

MonroeSt. Joseph

Branch

OceanaNewaygo

Mecosta Isabella Midland Bay

MuskegonMontcalm

Gratiot SaginawTuscola Sanilac

St. ClairLapeer

ClintonIoniaKentOttawa

Genesee

CheboyganPresque Isle

Emmet

Grand

ManisteeWexford Ogemaw Iosco

Mason Lake Osceola Clare Gladwin

Arenac

Huron

MissaukeeRoscommon

Gogebic

Ontonagon

Houghton

Keweenaw

Iron

Baraga

Marquette

Dickinson

Alger

Delta

Menominee

Schoolcraft

Luce

Mackinac

Chippewa

Charlevoix

AntrimOtsego

Leelanau

Benzie Traverse Kalkaska Crawford Oscoda Alcona

Alpena

Montmorency

Shiawassee

Ingham

Hillsdale

Livingston

Washtenaw

Cheboygan

Presque Isle

Emmet

Regional PIHP Structure though December 2013 (18)

Regional PIHP Structure Beginning January 2014 (10)

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Local Public Health Services

Local Partners in Health

Local Health Departments

30 County14 District1 City

Services: ~ 5 millionVisits: ~4.6 millionPatients: ~1.4 million

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Michigan’s Area Agencies on Aging

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Internal Control Integrated Framework• COSO Report: Committee of Sponsoring Organizations of the Treadway Commission

o Provides framework to design, implement, and evaluate controls for complianceo AICPA Statement on Auditing Standard 78: Consideration of Internal Controls in a Financial

Statement Audit• Control Environment: Provides discipline and structure and sets organization tone• Risk Assessment: Identification and analysis of risks forming basis to manage risks• Control Activities: Policies and procedures that carry out management’s directives• Information and Communication: Enable staff to carry out responsibilities• Monitoring: A process that assesses the quality of internal control performance

Period of Availability• Can only charge obligations incurred during the budget/project period

o Cash or accrued expenditureso Encumbrances: contracts for goods or services engaged before end of budget period

Periodic Reporting to Federal Government• Largest report for DCH is CMS-64 for quarterly reporting on Medicaid

Accounting for Federal Funds

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Entity Type Circulars Grants-wide HHS Programs Education Institutions OMB A-21 2 CFR 220 45 CFR 74.27

State and Local Gov. OMB A-87 2 CFR 225 45 CFR 92.22

Non-Profits OMB A-122 2 CFR 230 45 CFR 74.27

Accounting for Federal Funds

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Proper accounting of costs• Consistency and equity in charging Federal and non-Federal activities• Expense item charged to a single Federal activity• Allocate costs in accordance with relative benefit received by program

COSO Internal Control Framework• Control Environment

o Demonstrates commitment to integrity and ethical valueso Enforces accountability

• Risk Assessmento Identifies and analyzes risk

• Control Activitieso Deploys through policies and procedures

• Information and Communicationo Uses relevant information both internally and externally

• Monitoring Activitieso Conducts ongoing evaluations

Internal Controls for Not-For-Profits

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Performance Audits• Conducted by Office of Auditor General on Department of Community Health• Objective is to assess the effectiveness of particular programs• These audits are not on a regular schedule and can cover multiple years

Internal Control Evaluation• Conducted by department and reviewed by internal auditors• Objective is to assess the effectiveness of the internal control environment• Formal evaluation is conducted on a biennial basis with ongoing interim monitoring

Subrecipient Monitoring• Department conducts reviews and audits of subrecipients • Compliance examinations to ensure compliance with the contracts on grants• Ensure that subrecipients are complying with OMB Circular A-133

Assessing Utilization of Federal Funds

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Internal Controls• Pre-audit assessment through questionnaires• Field testing by auditors through observation and interviews

Reconcile financial status reports to accounting records • Unsubstantiated costs are questioned and susceptible to disallowance• Accounting records must demonstrate appropriate allocations

Expenditure testing for program compliance• Payroll and Building Space

o Costs are to be charged in accordance with relative benefit receivedo Pre-determine interim allocations permissible if trued up at year-endo Time reporting should be used if staff are allocated to multiple activities

• Charging of direct/indirect costso Double dipping: directly allocating overhead to a cost center while also allocating the cost

indirectly through a general administrative cost pool

Contract Compliance

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Assumed risk with subrecipients• Staffing limitations limit ability to monitor subrecipients• Financial status reports taken at face value and not sufficiently audited

Failure to check contracts to compliance supplements • Federal regulations updated annually through compliance supplements• Limited internal audit staff and lack of training for grant accountants

Vesting fiduciary responsibilities with program staff• Program specialists tend to initiate grants proposals

o Program staff need to be supported by strong financial analystso Inadequate financial review leads to missed budgets and compliance issues

Decentralized cost allocation methodology• Loose cost allocation plans without strong central oversight tend to lead to errors in

cost allocation and improper charging of indirect costs

Common Errors in the Grants Process

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Single Audit• Primary accountability system for use of federal funds• Pre-1979: Federal agencies responsible for their own audits of their grants• 1979: OMB Circular A-102: First government-wide audit requirements of grants• 1984: Single Audit Act: Established organization-wide audits of states and locals

o 1996 Amendment: Extended Single Audits to non-profits and universitieso Increased audit expenditure threshold from $25k to $300k

OMB Circular A-133• Issued pursuant to Single Audit Act• 2003 Amendment: increased audit expenditure threshold from $300k to $500k• Establishes policies and procedures for auditors and auditees• A-133 Compliance Supplement

o Provides guidance to auditors for testing federal program compliance requirementso Narrative descriptions and purpose descriptions for all federal programso Revised annually

Auditing of Federal Grants

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“Single” Audit is both a compliance and financial auditConducted by an independent auditor

• State’s audit is conducted by Office of the Auditor Generalo Audited agencies are part of the Executive Brancho Office of the Auditor General reports to Legislative Branch

Financial Statements: prepared by auditeeSchedule of Expenditures of Federal Awards (SEFA)

• Discloses each award expended or passed through

Auditor’s Opinions on Financial Statements and SEFAAuditor’s Report on internal controls and complianceAuditor’s Schedule of findings and questioned costsAuditee’s Corrective Action Plans

Single Audit

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State of Michigan Statewide Single Audit: FY 2012• 37 major program: 24 qualified, 9 qualified, 4 adverse• $22B in federal awards for FY 2012

Data Integrity• User access rights and safeguards to ensure data is secure

o Implications for program costs and accuracy of eligibility determination• Ensure secure data exchanges between systems• Comprehensive automated data processing security program

Subrecipient Monitoring• Proper review of subrecipients audit reports and accounting records• Investigation of variances on financial status reports

Period of Availability• Ensure reported expenditures are in proper period and supported by documentation

Contract Compliance• Expenditures are authorized in contract and incurred during contract period• Administrative expenditure limits• Federal regulations restrict subcontracting with debarred, suspended, excluded entities

Single Audit: Common Findings

Website: http://www.michigan.gov/mdch

Facebook: https://www.facebook.com/michigandch

Twitter: @MIHealth, https://twitter.com/mihealth

Michigan 2012 Single Audit: http://audgen.michigan.gov/finalpdfs/12_13/r000010013.pdf

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MDCH Links