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Two ways states can improve their
COVID-
19 vaccination distribution plans

By:

Simone is a consultant in our Government consulting area. She holds a degree in health management and policy from the University of New Hampshire and has experience in health care project management, and event management and coordination for non-profit organizations. Simone currently performs business analyst and project coordination support across the state practice area for the public health and child welfare teams

Simone Zuchowski
01.15.21

Read this if your agency is involved with COVID-19 vaccination distribution.

Although states have already created COVID-19 vaccination plans, your state can still implement critical strategies to improve your distribution plan. In October 2020, the Centers for Disease Control (CDC) released the Interim Playbook version 2.0, providing a key framework for states and jurisdictions to build their COVID-19 vaccine distribution plans. The federal government asked that immunization programs in each state plans based on this model. The Playbook contains 15 sections of planning elements for states to consider in the development of their plan. Completing a plan of this extent while simultaneously trying to manage the pandemic has led some states to leave out or not thoroughly address critical components in their plans. 

The Kaiser Family Foundation (KFF) analyzed and collected common themes from each of the 47 state vaccination plans. Their analysis identified areas of weakness in the following areas of each plan: 

  • Priority populations for vaccinations in states 
  • Identifying networks of providers 
  • Developing data collection and reporting
  • Forming communication strategies

Each of the four areas each contained multiple findings, but since the vaccine has already started to roll out, some aspects of the plan cannot be revised. However, it is not too late to improve upon certain elements, especially for data collection and reporting, as well as communication strategies. 

The following recommendations for improvement of state plans are based on the findings from the KFF State COVID-19 vaccine distribution analysis report

States should identify a clear data reporting and collection plan that accounts for the COVID-19-specific data requirements.

According to KFF, an immunization registry or database has been included in 53% of the state COVID-19 plans; in the others it was an unclear component of the plan. The data collection process for COVID-19 vaccinations will be complex and unique due to a number of factors including the nature of a phased rollout, new provider enrollment and onboarding, storage requirements, multiple vaccines and doses, and off-site vaccination locations

Since a little over half of all states have arranged for either new systems or are developing or adding features to current immunization registries, states that are lacking a comprehensive approach could benefit from adopting elements present in the other plans. For example, some states detail how their current immunization system is being utilized for the COVID-19 vaccine, in addition to upgrading certain features in order to meet the anticipated increase in demand. 

Other states have also described their transition to the Immunization Gateway, a centralized technical infrastructure sponsored by the CDC Immunization Information Systems Support Branch, and led by the US Department of Health and Human Services Office of the Chief Technology Officer. The Gateway is securely hosted through the Association of Public Health Laboratories (APHL). States can review the data collection and reporting sections of other states’ plans to gain a greater understanding of how their plan can be improved by describing data reporting and collection processes.   

States should address racial and ethnic disparities in vaccine distribution and acceptance through targeted and evidence-based communication strategies. 

The KFF analysis of state COVID-19 plans indicated about 49% of state plans include specific mention of racial or ethnic minority populations in regards to communication. Communication plans need to include targeted strategies as minority populations and people of color have shown greater hesitation in receiving the vaccine, even if it is free and determined safe by scientists and federal authorities. The virus has had a disproportionate impact on communities of color and minority populations, and a lack of communication to these populations may continue to enhance these disparate health outcomes.

One way to improve a communication plan by addressing racial or ethnic minority populations would be by incorporating the National Standards for Culturally and Linguistically Appropriate Services (CLAS), specifically the standards for Communication and Language Assistance:

  • Offer language assistance to individuals who have limited English proficiency and/or other communication needs, at no cost to them, to facilitate timely access to all health care and services
  • Inform all individuals of the availability of language assistance services clearly and in their preferred language, verbally and in writing
  • Ensure the competence of individuals providing language assistance, recognizing that the use of untrained individuals and/or minors as interpreters should be avoided
  • Provide easy-to-understand print and multimedia materials and signage in the languages commonly used by the populations in the service area

A communication plan that considers the racial and ethnic minority populations most vulnerable to adverse health outcomes and have shown a lack of trust in the scientific community would be advisable in order to combat disproportionate negative outcomes from the COVID-19 virus in the future. 

A COVID-19 vaccine distribution plan is an important aspect of each state’s strategy to control the spread of the virus. In order to lead to effective vaccine distribution, it is vital for the plans to thoroughly address data collection, reporting, and tracking. It is also important to consider implementing a communication plan that incorporates strategies to reach racial and ethnic minority groups who might have been disproportionality impacted by COVID-19 as a way to improve your state’s health equity approach to COVID-19 vaccination efforts. By implementing these considerations, your state’s COVID-19 vaccine distribution plan could become more effective in improving the health outcomes of your population. 

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BerryDunn experts and consultants

  • Sarah Stacki
    Senior Consultant
    State Health and Human Services
    T 207.541.2304

Simone is a consultant in our Government consulting area. She holds a degree in health management and policy from the University of New Hampshire and has experience in health care project management, and event management and coordination for non-profit organizations. Simone currently performs business analyst and project coordination support across the state practice area for the public health and child welfare teams.

Professional
Simone Zuchowski

Read this if you are a State Medicaid Director, State Medicaid Chief Information Officer, State Medicaid Project Manager, or State Procurement Officer.

Hurray! The in-person Medicaid Enterprise Systems Conference (MESC) was successfully held! It was a wonderful and true reunion for all those who attended the conference in Boston this year. Hats off to MESC’s sponsoring organization, NESCSO, for holding a hybrid in-person/virtual event. Although there were some minor technological glitches at the start, MESC went very smoothly. The curriculum, good planning, and hard work prevailed and led to a very successful conference.

Before highlighting the session content and conference themes, I must mention what first occurred upon arrival: We were able to greet our colleagues, partners, and vendor teams. How wonderful it was to be together with some colleagues who I had not seen for over two years! We all had stories and pictures that video conferencing just can’t convey, and being able to share them, face-fo-face (and tear-to-tear), was the highlight for me. Who cried when Shivane Pratap and Laura Licata played cello and violin Bach pieces for us? That would be me. 

Our Medicaid Practice Group team was not able to get to our agendas until checking in with each other. The joy of seeing people, hugging people, shaking hands, or bumping elbows or fists underscored the value of being able to utilize all our senses when we meet with people—after all, we are in a people industry, and it was amazing to see the care we have for each other, and it was a reminder that that care is the foundation of what we strive to deliver to the Medicaid population each and every day through our work.

What an amazing 18 months we’ve been through—hearing that the Medicaid population is now over 80 million, and that it exceeds the Medicare population is hard to fathom, and this means that the Medicaid population is 25% of our overall population, and Medicaid and Medicare populations combined are half of our population. I think the growth in Medicaid of 10 million members in just a few years is a reflection of the pandemic and hardships our nation is currently enduring.

In the midst of the loss endured as COVID-19 waves continue to seep through this world, we have accomplished much. I’m not sure if these gains seem bigger because it’s been two years since we last gathered, the appreciation of being able to get anything accomplished other than respond to the pandemic, or maybe we really have hit our goals out of the ballpark (most likely a mixture of all three).

Significant achievements of the past two years

Items of significant accomplishment and change since our last MESC in-person conference include:

  • A new administration and CMS Senior Leadership, Deputy Administrator and Director, Daniel Tsai
  • System and policy changes to accommodate needs driven by COVID-19, the substance use epidemic, and other hardships
  • Continued modular implementations, piloting of Outcomes-Based Certification and a focus on the Medicaid problems we are trying to solve
  • Steady progress on Medicaid Enterprise Systems modernization
  • Human-centered design focus
  • States seem to be striving to be more proactive and set up project management offices to help them be more efficient (great to hear attitudes like Kentucky’s, “If you can measure it, you can improve it.”). Examining the root cause with good planning helps reduce “reacting”
  • Agency collaboration and improvements in interoperability as well as collaboration with our federal CMS partners
  • Improved tools and monitoring tools (how about Tennessee’s dashboard demo!)

Challenges ahead that were raised in sessions and conversations during MESC include:

  • Public health emergency “unwinding” – lots of rule changes, potential re-enrollment for up to 80 million members
  • Coverage and access – healthcare is at a tipping point, and the future is a connected healthcare system
  • Equity and patient access
  • Whole person care innovation, delivery system reform, putting patients at the center
  • Managing data and data exchanges
  • Focus on Fast Healthcare Interoperability Resources (FHIR)—a progressive change

Inspiration to continue moving forward

Concepts of inspiration that I carry with me from this conference and will help me continue moving forward:

  • Many responses to the pandemic began organically with only a few, which grew to hundreds of thousands, showing us that a “few” (i.e., us) can lead to meaningful and impactful solutions.
  • Medicaid is about the people it’s serving, not the technology.
  • Everyone is born with creativity and the importance of curiosity as a form of listening
  • Collaboration is about peer respect—we need to understand what everyone is excellent at so we can count on them (thank you Michael Hendrix!)
  • Embrace change as a healthy way of being

We all know there is a lot going on right now and there is more to come—at work, in our lives, in our country, and on this planet. Our state partners need help as they are continually asked to do more (effectively) with less. States’ Medicaid members need help, and our state partners need help. Examining how we are structured, what tools and organizational and project management approaches we can leverage, and how we care for ourselves and our teams so we can be there for our citizens, will take us a long way towards a successful outcome. We are all in this together. Let’s dare to be bold, be creative, be innovative, be intentional—let’s lead the way to fulfil our vision and our mission!

Article
MESC 2021 reflections 

Read this if you are a State Medicaid Director, State Medicaid Chief Information Officer, State Medicaid Project Manager, or State Procurement Officer—or if you work on State Medicaid Enterprise System (MES) certification or modernization efforts.

As states transition to the Centers for Medicare & Medicaid Services' (CMS) Outcomes-Based Certification (OBC), many jurisdictions are also implementing (or considering implementation of) an Integrated Eligibility System (IES). Federal certification for a standalone Medicaid Enterprise System (MES) comes with its own challenges, especially as states navigate the recent shift to OBC for Medicaid Eligibility and Enrollment (E&E) services. Certification in the context of an IES creates a whole new set of considerations for states, as Medicaid eligibility overlaps with that of benefit programs like the Supplemental Nutrition Assistant Program (SNAP), Temporary Assistance for Needy Families (TANF), and others. We’ve identified the following areas for consideration in your own state's IES implementation: 

  • Modernizing MES 
    It's likely your state has considered the pros and cons of implementing an IES, since CMS' announcement of increased federal funds for states committed to building new and/or enhanced Medicaid systems. Determining whether an IES is the right solution is no small undertaking. From coordinating on user design to system security, development of an IES requires buy-in across a wider range of programs and stakeholders. Certification will look different from that of a standalone MES. For example, your state will not only need to ensure compliance with CMS' Minimum Acceptable Risk Standards for Exchanges (MARS-E), but also account for sensitive data, such as medical information, across program interfaces and integration. 

    BerryDunn recommends one of the first steps states take in the planning phase of their IES implementation is to identify how they will define their certification team. Federal certification itself does not yet reflect the level of integration states want to achieve with an IES, and will require as much subject matter expertise per program included in the IES as it requires an understanding of your state's targeted integration outcomes and desired overlap among programs.
  • Scale and scope of requirements
    Once your agency commits to designing an IES, the scope of its solution becomes much broader. With this comes a wider range of contract requirements. Requirements can be program-specific (e.g., relevant only to Medicaid) or program-agnostic (e.g., general technical, "look-and-feel", and security requirements that apply throughout the solution). Common requirements across certain programs (e.g., certain eligibility criteria) will also need to be determined. Requirements validation and the development of Requirements Traceability Matrixes (RTM) per program are critical parts of the development phase of an IES implementation.

    BerryDunn recommends a comprehensive mapping process of requirements to OBC and other federal certification criteria, to ensure system design is in compliance with federal guidance prior to entering go/no-go for system testing phases.
  • Outcomes as they apply across programs
    CMS' transition to OBC changed the way states define their Medicaid program outcomes. Under this new definition outcomes are the value-add, or the end result, a state wishes to achieve as the result of its Medicaid eligibility solution enhancements. In the context of an IES, Medicaid outcomes have to be considered in terms of their relation to other programs. For example, presumptive eligibility (PE) between SNAP and Medicaid and/or cross-program referrals might become more direct outcomes when there is an immediate data exchange between and among programs.

    BerryDunn recommends consideration of what you hope to achieve with your IES implementation. Is it simply an upgrade to an antiquated legacy system(s), or is the goal ultimately to improve data sharing and coordination across benefit programs? While certification documentation is submitted to individual federal agencies, cross-program outcomes can be worked into your contract requirements to ensure they are included in IES business rules and design.
  • Cost allocation
    In the planning phase of any Design, Development, and Implementation (DDI) project, states submit an Advance Planning Document (APD) to formally request Federal Financial Participation (FFP), pending certification review and approval. This APD process becomes more complex in an IES, as states need to account for FFP from federal programs in addition to CMS as well as develop a weighted cost allocation methodology to distribute shares equitably across benefit programs.

    BerryDunn recommends States utilize the U.S. Department of Health & Human Services (HHS), Administration for Children & Families (ACF), Office of Child Support Enforcement's (OCSE) Cost Allocation Methodologies (CAM) Toolkit to inform your cost allocation model across benefit programs, as part of the APD development process
  • Timeline
    A traditional MES implementation timeline accounts for project stages such as configuration sessions, requirement mapping, design validation, testing, CMS' Operational Readiness Review (ORR), etc. The project schedule for an IES is dependent on additional factors and variables. Scheduling of federal certification reviews for OBC and/or other programs might be held up by project delays in another area of the implementation, and project teams must be agile enough to navigate such changes

    BerryDunn recommends development of a thoughtful, comprehensive project schedule allowing ample time for each project phase across programs. We also recommend states cultivate relationships with federal partners including, but not limited to, CMS, to communicate when a development delay is anticipated. Engaging federal partners throughout the DDI phases will be a critical part of your IES implementation.

In theory, an IES benefits stakeholders on both sides of the system. Caseworkers avoid duplication of efforts, reduce administrative costs, and ensure program integrity, while individuals and families on the receiving end of public benefit programs experience a more efficient, streamlined application process. In practice, the development of a comprehensive business rules, case management, and workflow system across human services programs can prove to be a heavy lift for states, including but not limited to considerations around certification to secure FFP. Planning for the implications of an IES implementation ahead of time will go a long way in preparing your agency and state for this comprehensive certification effort.
 
For further reading
Keep an eye out for the next blog in this series, highlighting certification guidelines across an IES implementation (for CMS and other Federal programs). You can read more on OBC here

If you have questions about your specific situation, please contact the Medicaid Consulting team. We’re here to help. 

Article
States transition to Outcomes-Based Certification: Considerations and recommendations

Read this if you are a State Medicaid Director, State Medicaid Chief Information Officer, State Medicaid Project Manager, or State Procurement Officer—or if you work on a State Medicaid Enterprise System (MES) certification or modernization efforts.

You can listen to the companion podcast to this article, Organization development: Shortcuts for states to consider, here: 

Over the last two years, the Centers for Medicare and Medicaid Services (CMS) has undertaken an effort to streamline MES certification. During this time, we have been fortunate enough to be a trusted partner in several states working to evolve the certification process. Through this collaboration with CMS and state partners, we have been in front of recent certification trends. The content we are covering is based on our experience supporting states with efforts related to CMS certification. We do not speak for CMS, nor do we have the authority to do so.

What organization development (OD) shortcuts can state Medicaid agencies consider when faced with competing priorities and challenges such as Medicaid modernization projects in flight, staffing shortages, and a retiring workforce?

The shortcuts include rapid development and understanding of the “why”. This requires the courage to challenge assumptions, especially around transparency, to allow for a consistent understanding of the needs, data, environment, and staff members’ role in impacting the health of the people served by a state’s Medicaid program. To rapidly gain an understanding of the “why”, state Medicaid agencies should:

  1. Accelerate the transparency of information and use of data in ways that lead to a collective understanding of the “why”. Accelerating a collective understanding of the why requires improved communication mechanisms. 
  2. Invest time to connect with staff. The insistence, persistence, and consistency of leaders to stay connected to their workforce will help keep the focus on the “why” and build a shared sense of connection and purpose among teams.
  3. Create the standard that planning involves all stakeholders (e.g., policy, operations, systems staff, etc.) and focus on building consensus and alignment throughout the organization. During planning, identify answers to the following questions: What are we trying to achieve, what are the outcomes, and what is the vision for what we are trying to do?
  4. Question any fragmentation. For example, if there is a hiring freeze, several staff are retiring, and demand is increasing, it is a good idea to think about how the organization manages people. Question boundaries related to your staff and the business processes they perform (e.g., some staff can only complete a portion of a business process because of a job classification). Look at ways to broaden the expectations of staff, eliminate unnecessary handoffs, and expect development. Leaders and teams work together to build a culture that is vision-driven, data-informed, and values-based.

What are some considerations when organizations are defining program outcomes and the “why” behind what they are doing? 

Keep in mind that designing system requirements is not the same as designing program outcomes. System requirements need to be able to deliver the outcomes and the information the organization needs. With something like a Medicaid Enterprise System (MES) modernization project, outcomes are what follow because of a successful project or series of projects. For example, a state Medicaid agency looking to improve access to care might develop an outcome focused on enabling the timely and accurate screening and revalidation for Medicaid providers. 

Next, keeping with the improving access to care example, state Medicaid agencies should define and communicate the roles technology and staff play in helping achieve the desired outcome and continue communicating and helping staff understand the “why”. In Medicaid we impact people’s lives, and that makes it easy to find the heart. Helping staff connect their own motivation and find meaning in achieving an outcome is key to help ensure project success and realize desired outcomes. 

Program outcomes represents one of the six major categories related to organizational health: 

  1. Leadership
  2. Strategy
  3. Workforce
  4. Operations and process improvement 
  5. Person-centered service
  6. Program outcomes

Focusing on these six key areas during the analysis, planning, development, and integration will help organizations improve performance, increase their impact, and achieve program outcomes. Reach out to the BerryDunn’s Medicaid and Organization Development consulting team for more information about how organization develop can help your Medicaid agency.
 

Article
Outcomes and organization development, part II

Read this if you are a State Medicaid Director, State Medicaid Chief Information Officer, State Medicaid Project Manager, or State Procurement Officer—or if you work on a State Medicaid Enterprise System (MES) certification or modernization efforts. 

The companion podcast to this article, Organization development: Preparing for Medicaid Enterprise Systems (MES) modernization, can be found in our virtual library.  


What is organization development (OD)? 

The purpose of OD is to improve organizational performance and outcomes. OD focuses on improving an organization’s capability through the alignment of strategy, structure, people, rewards, systems, metrics, and management processes.  

OD is a science-backed, interdisciplinary field rooted in psychology, culture, innovation, social sciences, quality management, project management, adult learning, human resource management, change management, organization behavior, and research analysis and design, among others.  

OD typically starts with a clear sense of mission, vision, and values that answers the question “what we are trying to be?” OD develops the culture and behaviors that reflect the organizational values.  

OD facilitates the transformation of the workplace culture to become strategic, meaning: vision-driven, values-based, and goals-aligned. This may include talent development for leaders and staff and redesigning organizational infrastructure. 

What is the scope of an OD effort? 

OD efforts are most effective when they encompass the entire organization becoming the basis for a strategic plan. OD can be just as effective when applied to a MES modernization project. In this application of OD, we facilitate stakeholder engagement with the intent of person-centered service, concurrent design for operations, processes, and training side-by-side with the systems design and development. This approach is also referred to as human-centered design (HCD).  

Regardless of the scope, OD reinforces benchmarks of high-performance organizations including: 

  • Transparent and data-informed decision making 
  • Developed leadership building connections with consistent expectations 
  • Culture of continuous improvement and innovation 
  • Team-based success and ownership for outcomes 
  • Person-centered service 

What does OD look like in action? 

We facilitate leaders to assess their organization through the eyes of stakeholders, particularly staff and people served. Collaboratively, with no blame or shame, the leaders articulate where they are today and where they need to be in the future, and build a roadmap or strategic plan to get there. In the assessment and roadmap we use the following six focal points of the organization:  

  • Excellent leadership 
  • Effective strategy 
  • A workforce that is confident, competent, consistent, and compassionate 
  • Quality operations and process improvement 
  • Person-centered service that results in a positive client experience 
  • Quality program outcomes for the communities served 

The roadmap or strategic plan typically includes talent development, and redesign of the infrastructure, including structure, processes, communication mechanisms, performance management processes, deployment of resources, and job skills development approaches.  

Talent development ensures that your leaders are aligned, prepared, and most importantly leading and inspiring their people toward that vision and the development of the workforce. Talent development provides staff with the skills, knowledge, and abilities needed, and reinforces positive attitudes, beliefs, and willingness to work together towards common goals. This might also include restructuring business process redesign, it might include expanding roles or shifting roles.  

Principles of lean are an important component of organization development when redesigning processes and helps organizations, such as state Medicaid agencies, do more with the current resources. With so many constraints placed on organizations, the lean approach is a critical component of optimizing existing resources and finding cost savings through changing “what we do” and “how we do it”, as opposed to cutting “what we do” or “changing who does it”. Resource optimization is just one of the benefits of organization development. 

Why is it important to redesign your organization and develop your staff when you're implementing a new technology system, such as a new Medicaid Enterprise System module? 

For state Medicaid Agencies, the organization goal isn't to modernize a system, the goal is for competent and compassionate staff serving clients and providers to improve health and wellness in our communities. Our goal is streamlined processes that improve accuracy and timeliness. Look at the outcomes of the program, then design the systems that enable business processes and the people who make that process happen every single day. We go back to why we are doing anything in the first place. Why do we need this change? What are we trying to accomplish? If we're trying to accomplish better service, a healthier community, and streamline processes so we are cost effective, then it leads us to modernizing our enterprise system and making sure that our people are prepared to be successful in using that system. Aligning to the organizational goals, or what we call the North Star, sets us up for success with the enterprise efforts and the human efforts. 

What can clients do to navigate some of the uncertainties of a modernization effort, and how can they prepare their staff for what's next? 

First articulate the goals or why you want the modernization, and build a foundation with aligned, and effective leaders. Assess the needs of the organization from a “social” or people perspective and a technical or systems perspective (note: BerryDunn uses a socio-technical systems design approach). Then, engage staff to develop a high-performance, team-based culture to improve lean processes. Design and develop the system to enable lean business processes and concurrently have operations design standard operating procedures, and develop the training needed to optimize the new system.  

Leaders must lead. If leaders are fragmented, if they are not effective communicators, if they do not have a sense of trust and connection with their workforce, then any change will be sub-optimized and probably will be a frustrating experience for all.  

If the workforce is in a place where staff live with suspicion or a lack of trust, or maybe some dysfunctional interpersonal skills, then they are not in a place to learn a new system. If you try to build a system based on a fragmented organizational structure or inconsistent processes, you will not achieve the potential of the modernization efforts and will limit how people view your enterprise system. The worst thing you can do is invest millions of dollars in the system based on a flawed organizational design or trying to get that system to just do what we've always done. 

By starting with building the foundation of engaging employees, not just to make people feel good, but also to help them understand how to improve their processes and build a positive workplace. Do we have the transparency in our data so that we understand what the actual problems are? Can employees articulate the North Star goals, the constraints, the reasons to update systems, then the organizations will have a pull for change as opposed to a push.

Medicaid agencies and other organizations can create a pull for change by engaging with their resources who can identify what gets in the way of serving the clients, i.e., what gets in the way of timeliness or adds redundancy or rework to the process. The first step is building that foundation, getting people leaning in, and understanding what's happening. By laying the foundation first, organizations help reduce the barriers between operations and systems, and ensure that they're working collaboratively toward organizational goals, always keeping the ‘why’ in mind and using measures to know when they are successful. 

How does a state focus on organization development when they are facing budget and staffing constraints? 

It is too easy to say, "invest in your people". In reality, the first thing that state Medicaid agencies or other organizations need do is redefine their sense of lean. Many inaccurately believe that lean means limited resources working really hard. Lean is tapping into the potential creativity and innovation of each staff member to look for ways to improve the process. Organizations should look at everything they do and ask “Does this add value to the end recipient of our service?” Even if I'm processing travel reimbursement requests, I still have a customer, I still have a need for timeliness and accuracy. If state Medicaid agencies can mobilize that type of focus with every single employee in their organization, they can achieve huge cost savings without the pain of cutting the workforce.   

In one state where BerryDunn’s organization development team provided this level and type of organizational transformation, there was a very deliberate focus on building this foundation prior to a large-scale system modernization.

By developing the leaders and training the employees in how to improve their processes, improve teamwork and trust, and align to the goal of a positive client experience, they were able to effectively implement the new system and seamlessly move to remote pandemic conditions. Once the state Medicaid agency had aligned the technical systems and the people systems to the organizational goals, they were successful and more resilient for future changes.   

If you have any questions, please contact our Medicaid consulting team. We're here to help.

Article
Outcomes and organization development 

Read this if you work in an alcohol control capacity for state government.

The COVID-19 outbreak has changed the alcoholic beverage industry significantly over the last 14 months. Restrictions forced people to stay at home, limiting their travel to restaurants, bars, and even some stores to purchase their favorite spirits. In at least 32 states, new legislation allowed consumers the option to buy to-go cocktails as a way to help these establishments stay in business. As a result, consumers took advantage of alcohol delivery services. 

There were two large shifts in consumer purchasing for the alcoholic beverage industry in 2020. The first was a shift from on-premise to off-premise purchasing (for example, more takeaway beverages from bars, breweries, and other establishments). The second was the explosion of e-commerce sales for curbside pickup and home delivery. A study by IWSR, an alcoholic beverage market research firm, stated that alcohol e-commerce sales grew 42% in 2020. The head of consumer insights for the online alcoholic beverage delivery service, Drizly, attributes this growth to the “increased consumer awareness of alcohol delivery as a legal option, as well as an overall shift in consumer purchasing behavior toward online ordering and delivery”. 

How state agencies responded

The move to an e-commerce model has impacted state agencies who regulate the distribution and/or sale of alcohol. States such as Oklahoma, Alabama, and Georgia recently passed legislation allowing alcohol delivery to consumers’ homes. In alcoholic beverage control states, where the state controls the sale of alcohol at the wholesale level, curbside pickup programs (New Hampshire) were implemented, while others started online home delivery services (Pennsylvania). 

In a fluid legislative environment, states agencies are working to meet consumer needs in a very competitive marketplace, while fulfilling their regulatory obligation to the health and safety of their constituents.

How alcoholic beverage control states can adapt

Now is an opportune time for control state agencies to keep pace with consumer demand for more flexible purchasing options, such as buying online with home delivery, or some form of curbside and/or in-store pickup programs. Every one of the 17 alcoholic beverage control states has passed legislation to allow the delivery of either beer, wine, and/or distilled spirits in some form, with some limitations.

While for some the COVID-19 outbreak has necessitated these more distant shopping experiences, the option of these sales channels has brought consumers flexibility they will expect going forward. This calls for control state agencies to act on this changing consumer demand. By prioritizing investing in and taking ownership of new sales channels, such as e-commerce and curbside pickup, control state agencies’ technology and logistics teams can develop strategies and tools to effectively adapt to this new demand. 

Adapting technology and logistics

Through technology, control state agencies can take advantage of e-commerce and curbside pickup sales channels, to drive more revenue. We recommend control states consider the following: 

Define the current capabilities to support an online sales strategy

An important first step is to define how to address constituents’ evolving needs as compared to the current e-commerce capabilities control state agencies can support. Considerations include:

  • Are current staff capable of developing and supporting new website capabilities to meet the increased demand on the website?  
  • How will the current customer support team(s) expand to support concerns from the new channels?
  • How will new e-commerce order volume be fulfilled for home delivery (including order errors, breakage, returns, etc.)?   

Control state agencies should complete current and future state assessments in each area above to confirm what capabilities they have today and which they would like to have in the future; which will allow for an accurate gap analysis and comparison to their future state needs. Once the current state assessment, future state strategy, and gap analysis are complete, control state agencies can define the projects required to support the future state requirements. 

Reevaluate existing fulfillment, inventory, and distribution processes

Each control state has existing product fulfillment, inventory and distribution processes, and information technology (IT) tools for delivering alcohol, to their own or licensed retail stores and businesses. These current processes and IT systems should be assessed as part of the current state capabilities assessment mentioned above, to help define the level of change needed to support the control state agency’s future needs in the e-commerce channel. Key assessment questions control state agencies should ask themselves include: 

  • Can the current IT systems (e.g., inventory management, customer relationship management [CRM], customer support/call center, financial, point of sale [POS], and website infrastructure) support required upgrades?
  • Can retail teams and today’s infrastructure support order taking, inventory, fulfillment, and buy online pickup in store programs?
  • How will warehouse and retail stores track and manage the e-commerce shipments and returns related to this channel?
  • If home delivery is part of the strategy, define how the delivery logistics will be met through state or vendor resources.
  • What staffing model and skill sets will support future business needs?
  • What is the total cost of ownership for these new e-commerce capabilities so that the short and long-term costs and profits can be accurately estimated? 

The answers to these questions will help to inform a future e-commerce strategy and accommodate the cost and staff impacts. 

Bring in online retail expertise

It is important to ensure that the control state agency has website and mobile capabilities to support today’s consumer needs. This includes the ability to order a wide range of products online for either home delivery or buy online pickup in store. The design of the website and mobile transactional capabilities is critically important to the success of this channel, the true growth in revenues. Being marketing focused (e.g., allowing consumers to view and order products, save items for later, and see similar products) will help drive traffic and sales on this upgraded channel. 

For control state agencies with a more static product website, consider purchasing a commercial off-the-shelf (COTS) e-commerce product with existing retail-focused website features, or contract with a vendor to build a website that meets more unique needs. The control state agency should bring in at least one online retail subject matter expert vendor to help set the direction, design the upgrades or new site, manage the project(s) needed to implement the online capabilities, and potentially manage the operational support of the website and mobile solution.

BerryDunn provides state alcoholic beverage control boards and commissions with many services along the IT system acquisition lifecycle, including planning, needs assessment, business process analysis, request for proposal (RFP) development, requirements development, technology contract development, and project management services. 

For the full list of steps to consider and to learn more about how you can successfully position your control state agency to adapt to the changing alcoholic beverage landscape, contact us.
 

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COVID-19 and the e-commerce explosion

Read this if your organization operates under the Governmental Accounting Standards Board (GASB).

Governmental Accounting Standards Board (GASB) Statement No. 93 Replacement of Interbank Offered Rates

Summary

With the global reference rate reform and the London Interbank Offered Rate (LIBOR) disappearing at the end of 2021, GASB Statement No. 93 was issued to address the accounting and financial impacts for replacing a reference rate. 

The article below is focused on Hedging Derivative Investments and amendments impacting Statement No. 87, Leases. We have not included guidance related to the Secured Overnight Financing Rate or the Up-Front Payments. 

Background

We have all heard that by the end of 2021, LIBOR will cease to exist in its current form. LIBOR is one of the most commonly used interbank offered rates (IBOR). Now what?

In March 2020, the GASB provided guidance to address the accounting treatment and financial reporting impacts of the replacement of IBORs with other referenced rates while maintaining reliable and comparable information. Statement No. 93 specifically addresses previously issued Statements No. 53, Accounting and Financial Reporting for Derivative Instruments, and No. 87, Leases, to provide updated guidance on how a change to the reference rate impacts the accounting for hedging transactions and leases.  

Here are our analyses of what is changing as well as easy-to-understand and important considerations for your organization as you implement the new standards.

Part 1: Hedging Derivative Instruments

The original guidance under Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, as amended, requires that a government terminate a hedging transaction if the government renegotiates or amends a critical term of a hedging derivative instruction. 

Reference rate is the critical term that differentiates Statement No. 93 from Statement No. 53. The newly issued Statement No. 93 provides an exception that allows for certain hedging instruments to hedge the required accounting termination provisions when the IBOR is replaced with a new reference rate. 

In order words, under Statement No. 53, a modification of the IBOR would have caused the hedging instrument to terminate. However, Statement No. 93 now provides an exception to the termination rules as a result of the end of LIBOR. According to Statement No. 93, the exception is allowable when: 

  1. The hedging derivative instrument is amended or replaced to change the reference rate of the hedging derivative instrument’s variable payment or to add or change fallback provisions related to the reference rate of the variable payment.
  2. The reference rate of the amended or replacement hedging derivative instrument’s variable payment essentially equates to the reference rate of the original hedging derivative instrument’s variable payment by one or both of the following methods:
    • The replacement rate is multiplied by a coefficient or adjusted by addition or subtraction of a constant; the amount of the coefficient or constant is limited to what is necessary to essentially equate the replacement rate and the original rate
    •  An up-front payment is made between the parties; the amount of the payment is limited to what is necessary to essentially equate the replacement rate and the original rate.
  3. If the replacement of the reference rate is effectuated by ending the original hedging derivative instrument and entering into a replacement hedging derivative instrument, those transactions occur on the same date.
  4. Other terms that affect changes in fair values and cash flows in the original and amended or replacement hedging derivative instruments are identical, except for the term changes, as specified in number 1 below, that may be necessary for the replacement of the reference rate.

As noted above, there are term changes that may be necessary for the replacement of the reference rate are limited to the following

  • The frequency with which the rate of the variable payment resets
  • The dates on which the rate resets
  • The methodology for resetting the rate
  • The dates on which periodic payments are made.

Many contracts that will be impacted by LIBOR will be covered under Statement No. 93. The statement was created in order to ease with the transition and not create unnecessary burdens on the organizations. 

Part 2: Leases

Under the original guidance of Statement No. 87 Leases, lease contracts could be amended while the contract was in effect. This was considered a lease modification. In addition, the guidance states that an amendment to the contract during the reporting period would result in a separate lease. Examples of such an amendment included change in price, length, or the underlying asset.  

Included within Statement No. 93, are modifications to the lease standard as it relates to LIBOR. In situations where a contract contains variable payments with an IBOR, an amendment to replace IBOR with another rate by either changing the rate or adding or changing the fallback provisions related to the rate is not considered a lease modification. This modification does not require a separate lease. 

When is Statement No. 93 effective for me?

The removal of LIBOR as an appropriate interest rate is effective for reporting periods ending after June 31, 2021. All other requirements of Statement No. 93 are effective for all reporting periods beginning after June 15, 2022. Early adoption is allowed and encouraged. 

What should I do next? 

We encourage all those that may be impacted by LIBOR—whether with hedging derivative instruments, leases, and/or specific debt arrangements—to review all of their instruments to determine the specific impact on your organization. This process will be time consuming, and may require communication with the organizations with whom you are contracted to modify the terms so that they are agreeable to both parties.

If you would like more information about early adoption, or implementing the new Hedging Derivative Instruments or Leases, please contact Katy Balukas or Grant Ballantyne.
 

Article
The clock is ticking on LIBOR. Now what?

Read this if your organization operates under the Governmental Accounting Standards Board (GASB).

GASB Statement No. 96 Subscription-Based Information Technology Agreements

Summary

GASB Statement No. 96 defines the term Subscription-Based Information Technology Agreements (SBITA) as “a contract that conveys control of the right to use another party’s (a SBITA vendor’s) information technology (IT) software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction.”

GASB Statement No. 96 determines when a subscription should be recognized as a right-to-use subscription, and also determines the corresponding liability, capitalization criteria, and required disclosures. 

Why does this matter to your organization?

In 2018, Financial Accounting Standards Board (FASB) issued Accounting Standards Updated (ASU) 2018-15: Cloud Computing Arrangements for Service Contracts, and we knew it would only be a matter of time when a similar standard would be issued by the Governmental Accounting Standards Board (GASB). Today, more and more governmental entities are purchasing software in the cloud as opposed to a software that is housed locally on their machine or network. This creates the need for updated guidance in order to improve overall financial reporting, while maintaining consistency and comparability among governmental entities. 

What should you do?

We are going to walk through the steps to determine if a SBITA exists—from identification through how it may be recognized in your financial statements. You can use this step-by-step guide to review each individual subscription-based software to determine if Statement No. 96 applies.

Step 1: Identifying a SBITA

There is one important question to ask yourself when determining if a SBITA exists:

Will this software no longer work/will we no longer be able to log in once the contract term ends?

If your answer is “yes”, it is likely that a SBITA exists.  

Step 2: Determine whether a contract conveys control of the right to use underlying IT assets

According to Statement No. 96, the contract meets the right to use underlying IT assets by:

  • The right to obtain the present service capacity from use of the underlying IT assets as specified in the contract
  • The right to determine the nature and manner of use of the underlying IT assets as specified in the contact

Step 3: Determine the length of the subscription term

The subscription term starts when a governmental entity has a non-cancellable right to use the underlying IT assets. This is the period during which the SBITA vendor does not have the ability to cancel the contract, increase or decrease rates, or change the benefits/terms of the service. The contract language for this period can also include an option for the organization or the SBITA vendor to extend or terminate the contract, if it is reasonably certain that either of these options will be exercised.

Once a subscription term is set, your organization should revisit the term if one or more of the following occurs:

  • The potential option (extend/terminate) is exercised by either the entity or the SBITA vendor 
  • The potential option (extend/terminate) is not exercised by either the government or the SBITA vendor
  • An extension or termination of the SBITA occurs 

If the maximum possible term under the SBITA contract is 12 months or less, including any options to extend, regardless of their possibility of being exercised, an exception for short-term SBITAs has been provided under the statement. Such contracts do not need to be recognized under the Statement and the subscription payments will be recognized as outflows of resources. 

Step 4: Measurement of subscription liability 

The subscription liability is measured at the present value of the subscription payments expected to be made during the previously determined subscription term. The SBITA contract will include specific measures that should be used in determining the liability that could include the following:

  • Fixed payments
  • Variable payments
  • Payments for penalties for termination
  • Contract incentives
  • Any other payments to the SBITA which are included in the contract

The future payments are discounted using the interest rate that the SBITA charges to your organization. The interest rate may be implicit in the contract. If it is not readily determinable, the rate should be estimated using your organization’s incremental borrowing rate. 

Your organization will only need to re-measure the subscription liability is there is a change to the subscription term, change in the estimated amounts of payments, change in the interest rate the SBITA charges to your organization, or contingencies related to variable payments. A change in the discount rate alone would not require a re-measurement. 

Step 5: Measurement of subscription asset

The SBITA asset should be measured at the total of the following:

  • The amount of the initial measurement of the subscription liability (noted in Step 4 above)
  • If applicable, any payments made to the SBITA vendor at the beginning of the subscription term
  • The capitalized initial implementation costs (noted in Step 6 below)

Any SBITA vendor incentives received should be subtracted from the total.

Step 6: Capitalization of other outlays

In addition to the IT asset, Statement No. 96 provides for other outlays associated with the subscription to be capitalized as part of the total subscription asset. When implementing the IT asset, the activities can be divided into three stages: 

  • Preliminary project stage: May include a needs assessment, selection, and planning activities and should be recorded as expenses.
  • Initial implementation stage: May include testing, configuration, installation and other ancillary charges necessary to implemental the IT asset. These costs should be capitalized and included in the subscription asset.
  • Operation and additional implementation stage: May include maintenance and troubleshooting and should be expensed.

Step 7: Amortization

The subscription asset are amortized over the shorter of the subscription terms or the useful life of the underlying IT assets. The amortization of the asset are reported as amortization expense or an outflow of resources. Amortization should commence at the beginning of the subscription term. 

When is this effective?

Statement No. 96 is effective for all fiscal years beginning after June 15, 2022, fiscal and calendar years 2023. Early adoption is allowed and encouraged.

Changes to adopt the pronouncement are applied retroactively by restating previously issued financial statements, if practical, for all fiscal years presented. If restatement is not practical, a cumulative effect of the change can be reported as a restatement to the beginning net position (or fund balance) for the earliest year restated. 

What should you do next? 

With any new GASB Standard comes challenges. We encourage governmental entities to re-review their vendor contracts for software-related items and work with their software vendors to identify any questions or potential issues. While the adoption is not required until fiscal years beginning after June 15, 2022, we recommend that your organization start tracking any new contracts as they are entered o starting now to determine if they meet the requirements of SBITA. We also recommend that your organization tracks all of the outlays associated with the software to determine which costs are associated with the initial implementation stage and can be capitalized. 

What are we seeing with early adoption?

Within the BerryDunn client base, we are aware of at least one governmental organization that will be early adopting. We understand that within component units of state governments, the individual component unit is required to adopt a new standard only when the state determines that they will adopt.

If you are entering into new software contracts that meet the SBITA requirements between now and the required effective date, we would recommend early adoption. If you are interested in early adoption of GASB Statement No. 96, or have any specific questions related to the implementation of the standard, please contact Katy Balukas or Grant Ballantyne

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Our take on SBITA: Making accounting for cloud-based software less nebulous