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The 2016-17 Budget: Analysis of the Department of Developmental Services Budget
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The 2016-17 Budget:
Analysis of the Department of
Developmental Services Budget
M AC TAY LO R • L E G I S L A T I V E A N A L Y S T • M ARC H 2 016
2016-17 BUDGET
2 Legislative Analyst’s Office www.lao.ca.gov
2016-17 BUDGET
EXECUTIVE SUMMARY
Overview of Developmental Services Budget. The Governor’s budget proposes about $6.4 billion
(all funds) for Department of Developmental Services (DDS) programs in 2016-17—a 6.7 percent
net increase over estimated expenditures in 2015-16. General Fund expenditures for 2016-17 are
proposed at $3.8 billion, a net increase of $265 million, or 7.5 percent, over estimated expenditures
in 2015-16. The net increase in total expenditures reflects year-over-year increases in the budget
for the Community Services Program (including several significant new policy proposals) and
transition costs for Developmental Center (DC) closures, partially offset by decreasing costs in the
DC Program budget due to declining caseload.
Governor’s Proposals Should Be Considered in Context of Recent Special Session Actions.
On February 29, 2016, the Legislature enacted, and the Governor later signed, a package of ongoing
spending proposals in AB2X 1 (Thurmond) that directly appropriates $287 million General Fund
for various increases to Regional Centers (RCs) and community services providers in 2016-17 and
leverages related federal funding. In light of these actions recently taken, the Legislature will need
to consider the Governor’s proposed budget in this context. Ideally, spending increases should be
targeted to areas with the greatest service challenges and the Legislature’s special session actions
seek to do this in many ways.
Additional Community Services Funding Related to DC Closures Warranted. In May 2015,
the Governor proposed to initiate the closure planning process for the remaining DCs, with the
goals of closing Sonoma DC by the end of 2018, and Fairview DC and the general treatment area
at Porterville DC by the end of 2021. The Governor’s January budget proposal includes additional
funding to support accelerated community services development and placements in response to
these planned closures. We find the Governor’s proposal would move the state forward on the path
towards timely closures, ensuring successful transitions, and maintaining federal funding at the
DCs as residents transition out. While we support additional targeted funding for this purpose, we
make recommendations for legislative consideration to improve transparency and monitoring of the
Community Placement Plan (CPP) program.
Targeted Funding for Certain Residential Facilities and RC Case Managers Makes Sense.
The Governor’s 2016-17 budget proposal includes targeted funding to support the development and
implementation of a new rate for certain residential facilities, as well as funding for RCs to provide
for additional case managers to improve compliance with statutorily required service coordinator-
to-consumer ratios. We find these proposals have significant merit, would support compliance with
federal requirements, and would likely have positive impacts on residential capacity as well as the
quality of case management services. We generally recommend approval of these proposals, pending
additional information from the administration related to implementation and other issues.
Governor’s Budget Proposal Makes Important Steps Towards Compliance With New Federal
Home- and Community-Based Services (HCBS) Regulations, but Uncertainty Remains. The
Governor’s budget includes several proposals to support initial compliance efforts related to new
federal HCBS regulations that became effective March 2014. In order to maintain significant federal
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2016-17 BUDGET
funding, HCBS programs must be in compliance with the new rules by March 2019. While the
Governor’s proposal is a critical next step towards compliance, we find that understanding of what
compliance means for providers and the state—programmatically and fiscally—is still developing.
We also find that implementation details for the Governor’s proposal are unclear and that the level
of resources needed to meet full compliance with the new rules by March 2019 is uncertain and
likely to change. Given these uncertainties, we recommend the Legislature use budget deliberations
to gain additional clarity on HCBS compliance efforts and key aspects of the Governor’s proposal
and suggest some key issues and questions for legislative consideration.
Substantial Continued Community Services Program Growth Makes Meaningful Financing
Reform Critical. As the community services system continues to grow, meaningful restructuring
of the community services financing methodologies is critical to ensure cost-efficient and effective
program operations. We find that, overall, the community services financing structures have not
fundamentally changed in several decades and therefore have not kept pace with the changing
business environment in the delivery of services. Generally, spending changes over the past several
decades have been made in response to some improvement or deterioration of the state’s financial
condition, without systematic and strategic consideration of the state’s goals as a purchaser of
these services or with regard to outcomes for consumers and performance of the system at large.
The Governor’s January budget, along with recent special session actions, would make some
headway towards community services financing restructuring. However, we find that more can
be done to help ensure meaningful financing reform is ultimately achieved and therefore make
recommendations for legislative consideration on related next steps. Specifically, we recommend the
Legislature require the administration to: (1) report at budget hearings on next steps and vision for
reforming provider rates and RC operations funding and (2) develop a strategic plan for financing
reform.
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2016-17 BUDGET
BACKGROUND
Overview of DDS. The Lanterman with a budget to purchase services from vendors
Developmental Disabilities Services Act of 1969 for an estimated 290,496 consumers in 2015-16.
(known as the Lanterman Act) forms the basis of These services and supports can include housing,
the state’s commitment to provide individuals with activity and employment programs, in-home care,
developmental disabilities a variety of services transportation, and other support services that
and supports, which are overseen by DDS. The assist individuals to live in the community. The
Lanterman Act defines a developmental disability RCs purchase more than 150 different services on
as a “substantial disability” that starts before behalf of consumers. As the payer of last resort,
age 18 and is expected to continue indefinitely. RCs generally only pay for services if an individual
The developmental disabilities for which an does not have private health insurance or if the RC
individual may be eligible to receive services cannot refer an individual to so-called “generic”
under the Lanterman Act include: cerebral palsy, services such as (1) other state-administered health
epilepsy, autism, intellectual disabilities, and other and human services programs for low-income
conditions closely related to intellectual disabilities persons or (2) services that are generally provided
that require similar treatment (such as a traumatic at the local level by counties, cities, school districts,
brain injury). The department works to ensure that or other agencies. We note that the majority
individuals with developmental disabilities over the of consumers receiving services through the
age of three have access to services and supports Community Services Program are enrolled in
that sufficiently meet their needs, preferences, and Medi-Cal, California’s federal-state Medicaid
goals in the least restrictive setting. For children health program for low-income individuals. (For a
under the age of three with a developmental description of the Medi-Cal program, please refer
disability or delay(s), the department administers to our report, The 2016-17 Budget: Analysis of the
early intervention services through the Early Medi-Cal Budget.)
Start program. Unlike most other public human More than 99 percent of DDS consumers
services or health services programs, services receive services under the Community Services
for the developmentally disabled are generally Program. These consumers live in the community
provided without any requirements that recipients with their parents or other relatives, in their own
demonstrate that they or their families do not houses or apartments, or in residential facilities or
have the financial means to pay for the services group homes designed to meet their needs. Less
themselves. The department administers two main than 1 percent of DDS consumers live in state-
programs, described in detail below. operated institutions known as DCs, discussed
Community Services Program. Community- below.
based services are coordinated through DCs Program. The DDS operates three
21 nonprofit organizations known as RCs, which 24-hour facilities known as DCs—Fairview DC in
assess eligibility and—through an interdisciplinary Orange County, Porterville DC in Tulare County,
team—develop individual program plans (IPPs) and Sonoma DC in Sonoma County—and one
for eligible consumers. The DDS provides RCs smaller leased community facility (Canyon Springs
with an operations budget in order to conduct in Riverside County). Together, these facilities
these activities. The department also provides RCs provide care and supervision to approximately
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2016-17 BUDGET
1,000 consumers in 2015-16. Each DC is licensed repeatedly identified problems at the DCs,
by the Department of Public Health (DPH), and including inadequate care, insufficient staffing, and
certified by DPH on behalf of the federal Centers inadequate reporting and investigation of instances
for Medicare and Medicaid Services (CMS), as of abuse and neglect. (For more background on the
skilled nursing facilities, intermediate care facilities history of problems identified at DCs, please refer
for the developmentally disabled (ICF-DDs), and to the “Department of Developmental Services”
general acute care hospitals. section in our report, The 2013-14 Budget: Analysis
The DCs are licensed and certified to provide a of the Health and Human Services Budget.)
broad array of services based on each resident’s IPP, Closure Plans for Remaining DCs. In May
such as nursing services, assistance with activities 2015, the administration announced plans to
of daily living, specialized rehabilitative services, initiate and develop closure plans for the state’s
individualized dietary services, and vocational remaining DCs, except for the secure treatment
or other day programs outside of the residential program at Porterville DC and the Canyon Springs
unit. The DCs must be certified in order to receive facility. The Governor’s plan is to have the last
federal Medicaid funding, and the vast majority of closure completed by 2021. The 2015-16 spending
DC residents are enrolled in Medi-Cal. Generally, plan reflects the Legislature’s approval of the
for these Medi-Cal enrollees, the state bears Governor’s intent in concept. On October 1, 2015,
roughly half the costs of their care and the federal DDS submitted to the Legislature a plan to close
government bears the remainder. Over the past Sonoma DC by the end of 2018. Specific closure
15 years, oversight entities—such as DPH, CMS, plans for Fairview DC and the general treatment
and the United States Department of Justice—have area at Porterville DC are expected by April 2016.
THE GOVERNOR’S BUDGET PROPOSAL
Overall Budget Proposal. The budget Community Services Program
proposes about $6.4 billion (all funds) for DDS Budget Summary
in 2016-17, which is a 6.7 percent net increase
The budget proposes $5.8 billion from all
over estimated expenditures in 2015-16. General
funds for support of the Community Services
Fund expenditures for 2016-17 are proposed at
Program in 2016-17, which is a 8.2 percent net
$3.8 billion, a net increase of $265 million, or
increase over estimated expenditures in 2015-16.
7.5 percent, over estimated expenditures in 2015-16.
Of the total, $663.5 million is proposed for RC
This net increase in total expenditures reflects
operations expenditures and the remainder of
year-over-year increases in the budget for the
$5.1 billion is for the purchase of services from RC
Community Services Program, including several
vendors. General Fund expenditures are proposed
new policy proposals discussed below as well as
at $3.4 billion, a net increase of $298 million,
transition costs for DC closures, partially offset by
or 9.5 percent, above estimated expenditures in
decreasing costs in the DCs Program budget due to
2015-16. The net increase in total and General
declining caseload.
Fund spending is a result of caseload growth
and utilization changes as well as several other
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2016-17 BUDGET
policy-driven program changes discussed below. • Funds to Support RC Caseload-Ratio
The community services budget plan includes the Improvements. Increase of $17 million
following major budget adjustments and policy ($13 million General Fund) to support
proposals: about 200 additional RC Service
• Caseload Growth and Utilization Coordinator positions to lower the caseload
for case managers employed by the RCs.
Changes. Increase of $235 million
($149.2 million General Fund) due to
• Continued Implementation of Prior-Year
caseload growth (about 4 percent) and
Policy Changes. Increase of $49.7 million
utilization changes compared to the
($27 million General Fund) to reflect
enacted 2015-16 budget. The growth in
the annualized cost of state hourly
purchase of services is primarily within the
minimum wage increases and federal labor
day programs, in-home respite, health care,
regulations, slightly offset by savings in
support services, and miscellaneous budget
the DDS budget due to implementation of
categories.
Behavioral Health Treatment (BHT) by
• Rate Increase for Certain Residential the Department of Health Care Services
(DHCS) for new BHT-related caseload. (We
Facilities. Increase of $46 million
note that at this time, the DDS budget does
($26 million General Fund) to develop and
not yet reflect savings related to existing
implement a new rate for certain residential
RC consumers receiving BHT services
facilities serving four or fewer individuals
covered through RC-vendored providers.
based on a four-bed model.
These individuals will begin a phased
• Additional Community Services transition to DHCS-covered BHT services
Development Funds for Individuals on February 1, 2016, and we expect the
Moving From DCs. Increase of Governor’s May Revision to reflect the
$78.8 million ($73.9 million General savings in the DDS budget and the new
Fund) in one-time resources for service costs in the DHCS budget.)
development and placement, such as
specialized residential facilities, targeted for
DCs Program Budget Summary
individuals transitioning to the community
The budget proposes $526 million from all
from DCs proposed for closure.
fund sources for the support of DCs in 2016-17,
• Funding to Begin Compliance Efforts which is an 8.4 percent net decrease below
With New Federal Regulations. Increase of estimated expenditures in 2015-16. General
$16.6 million ($11.9 million General Fund) Fund expenditures for 2016-17 are proposed at
to support compliance with new federal $308 million, a net decrease of $41.3 million, or
requirements related to Medicaid-funded 11.8 percent, below estimated expenditures in
community-based services, including 2015-16. The DC budget plan includes the following
funding for 21 Program Evaluator positions major budget adjustments and proposals:
within the RCs and resources for providers • Caseload Decline and Staffing Changes.
to make program modifications. The Governor’s budget plan proposes a
net decrease of $8.8 million ($4.9 million
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2016-17 BUDGET
General Fund decrease) compared to the ($1 million General Fund decrease)
enacted 2015-16 budget due to declining for settlement of remaining workers’
caseload and related staffing adjustments. compensation claims. (The DDS
These spending changes due to declining requests total funding for this purpose
caseload are partially offset by required of $15 million annually through 2021
additional specialized support staffing when the last DC is planned for complete
related to maintaining federal certification closure.)
requirements at Sonoma DC and DC
• Porterville DC Fire Alarm and Personal
closure activities.
Alarm Locating System. Increase of
• One-Time Funding for DC Audit Findings. $8.3 million General Fund in one-time
The proposed budget includes $3.8 million funding to replace the secure treatment
General Fund in one-time funding related area personal alarm locating system as well
to audit findings of disallowed federal as for the construction phase to upgrade
expenditures. (We note that the revised the fire alarm system at Porterville DC.
2015-16 budget includes $42.5 million in
one-time funds for this purpose.) Headquarters Budget Proposal
The budget proposes $49.6 million
• Advanced Closure Costs for Sonoma DC.
($32.6 million General Fund) for headquarters
Increase of $1.3 million ($800,000 General
operations expenditures, which is a 7.8 percent
Fund) for independent monitor contract
increase above estimated expenditures in 2015-16.
resources as well as to begin preliminary
This increase is primarily to support 31 positions
closure activities at Sonoma DC, such
and contract resources for additional oversight of
as archiving historical and clinical
RCs, including for research and analytics, as well
records and relocating residents and their
as for vendor audits, headquarters support to guide
belongings to community settings.
and oversee implementation of new federal HCBS
• Workers’ Compensation Case Settlement regulations, and centralized support related to DC
Funding. Net decrease of $2.3 million closures.
DC CLOSURES AND RELATED FUNDING
Introduction The plan also recognizes the varying needs of
existing DC residents and makes recommendations
In January 2014, the Task Force on the Future
for improving community services and supports,
of the DCs convened by the administration released
while retaining state-operated facilities for
a plan for the long-term future of the DCs. The
individuals who are in acute crisis or involved in
plan recognizes the need to reevaluate the role of
the criminal justice system. Consistent with the
DCs in light of the historical trend of individuals
DC Task Force recommendations, the Governor
with developmental disabilities transitioning from
proposed in May 2015 to initiate the closure
institutional placements to community settings.
planning process for the remaining DCs with the
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2016-17 BUDGET
goals of closing Sonoma DC by the end of 2018, has steadily declined from 2,668 to an estimated
and Fairview DC and the general treatment area at 1,011—an average annual reduction of about
Porterville DC by the end of 2021. The Governor 10 percent—as shown in Figure 1. This decline is
requested, and the Legislature approved, initial mostly attributable to the closure of Agnews and
resources to immediately begin the closure process Lanterman DCs and the corresponding transition
at Sonoma DC with the statutorily required of DC consumers to community-based settings. In
submission of a specific closure plan to the addition, a moratorium on most new admissions
Legislature to come later. Budget-related legislation to DCs established in 2012-13 has contributed to
expanded the criteria for closure plans submitted this decline. (Exceptions to this moratorium are for
to the Legislature for approval and required individuals involved in the criminal justice system
that closure plans for one or more of the DCs be and consumers in acute crisis in need of short-term
submitted by October 1, 2015. The administration stabilization.) The Governor’s budget assumes
submitted its Sonoma DC closure plan on that by the end of 2016-17, 747 individuals will be
October 1, 2015. residing in the DCs. This assumes the placement
In the analysis below, we describe the Governor’s of 240 individuals from the DCs into community-
major funding proposals related to the DC closures, based settings in 2016-17.
including support for additional community services
development specifically for
individuals transitioning out
Figure 1
of the DCs to the community
DC Average In-Center Populationa
(referred to as DC movers). We
2004-05 Actuals to 2016-17 Proposed
find that providing additional
resources to accelerate the 3,500
Moratorium on
development of community DC Admissionsb
3,000
services and placement for
DC movers will move the
2,500
state forward on the path
towards timely closure, 2,000
ensuring successful consumer
1,500
transitions, and maintaining
federal funding at the DCs
1,000
as residents transition out.
However, we make various 500
suggestions to the Legislature
to improve transparency and
04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17
EstimatedProposed
monitoring of these funds.
Agnews DC Closure Lanterman DC Closure
DC Population
a Midyear population.
Continues to Decline b Exceptions include admissions for individuals involved in the criminal justice system and consumers in
acute crisis in need of short-term stabilization.
DC = Developmental Center.
Between 2004-05 and
2015-16, the DC population
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2016-17 BUDGET
State Takes Initial Steps Towards Requirements. The DPH licenses health facilities
Closing Remaining DCs and annually certifies them on behalf of CMS.
Facilities must be certified in order to receive
Sonoma DC Closure Plan Submitted for
federal Medicaid funding. Since 2013, the
Legislative Approval. On October 1, 2015, the
three DCs—Fairview, Porterville, and Sonoma—
administration submitted to the Legislature for
have been found in surveys conducted by DPH
approval a plan to begin the closure of Sonoma DC.
to be out of compliance with federal certification
The plan outlines various commitments regarding:
requirements for ICF-DD residential units. The
(1) the provision of key specialized health services
facilities were found to have some common
through the DC, such as dental and mental
deficiencies, including inconsistent treatment plans;
health, until such services are established in the
residents who were not adequately protected from
community; development of community behavioral
abuse or harm; and inconsistent implementation of
services; continued crisis services at Sonoma DC,
policies generally related to residents’ health, safety,
as well as ongoing community oversight; (2) the
and rights.
expansion of the community state staff program (a
Settlement Agreement Allows Federal
program that allows DC staff to follow and support
Funding to Continue at Sonoma DC. Although
DC clients in their community placements) and
decertification has the potential to result in lost
commitment to explore incentives for employees to
federal funding, for most of the decertified units at
stay at Sonoma DC through the end of closure; and
the three DCs, the state has been able to maintain
(3) working with the Sonoma community regarding
federal funding through various corrective actions.
disposition of the land as well as identifying
For Sonoma DC, effective June 30, 2015, the state
potential options for the future use of the Sonoma
successfully negotiated a settlement agreement
campus.
with CMS to continue federal funding through
Closure Plans for Other DCs Expected April 1,
June 2016 with the possibility of extension through
2016. On November 30, 2015, DDS announced
June 2017, if certain requirements are met. Overall,
that closure plans for Fairview DC and the general
the agreement reflects the state’s commitment to
treatment area at Portville DC would be submitted
close Sonoma DC and move clients to appropriate
to the Legislature by April 1, 2016. As part of
community or other placements for current
the initial stages of the closure process for these
residents, with the highest priority being the health,
two DCs, DDS has begun soliciting stakeholder
safety, and successful transition of each client. The
feedback and has held public hearings for both DCs
terms of the agreement require that Sonoma DC
as required prior to the submission of the closure
meet several requirements related to: client safety
plans.
and health needs, active treatment, comprehensive
Governor’s Budget Provides
assessments and needs identification, IPPs and
Additional Resources Related to
transition plans, post-move monitoring, and quality
DC Closures
assurance. For example, the settlement requires
that DDS develop a plan to create additional
Budget Assumes Continued Federal Funding community resources needed to meet clients’ needs
Related to Federal Certification Requirements as identified in their comprehensive assessments
and transition plans. In addition, the agreement
Some Residential Units at DCs Found to Be
requires an independent monitor, which DDS has
Out of Compliance With Federal Certification
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2016-17 BUDGET
secured. The monitor conducts monthly reviews community service delivery system specifically
of conditions at Sonoma DC, with emphasis in to move individuals out of or deflect individuals
specific areas such as treatment outcomes and client from being admitted to DCs, out-of-state
protections. The settlement also specifies that CMS placements, and certain mental health facilities
may terminate the agreement at any time if, for ineligible for Medicaid federal funds because
example, CMS determines that Sonoma DC fails to of their institutional setting. The RCs are in a
substantially meet the terms and conditions of the key position to facilitate this process because
settlement. of their community resource finding, service
Federal Funding Could Be Lost Soon at purchasing, and DC consumer case management
Fairview and Porterville DCs. More recently, responsibilities. In recent years, the DC budget
based on DPH surveys completed in July 2015, has included a constant “base” amount of
DPH notified DDS that all ICF-DD units at funding for this purpose of about $68 million
Fairview DC and all units at Porterville DC’s total funds annually. Specific to the planned
general treatment area were out of compliance and closure of Sonoma DC, the 2015-16 Budget Act
would lose federal funding effective December provided $49.3 million ($46.9 million General
2015. The DDS appealed this decision and federal Fund) in one-time additional funds to support the
funding has been extended through March 2016. transition of individuals out of Sonoma DC. In
Governor’s Proposal. The Governor’s budget total, this funding generally reflects the historical
assumes federal funding related to Medi-Cal in experience of community service placement costs
2016-17 for all three DCs (except for some residents derived from individualized assessments of DC
generally related to the units not covered under movers, and includes the costs to perform these
the Sonoma settlement agreement). This means assessments, develop new or expand existing
the administration assumes that Sonoma DC will community services to facilitate the transitions to
meet the required milestones in the settlement the community, and enhance case management of
agreement to allow for extension of the agreement, the DC movers.
and therefore continued federal funding, for a Each year, DDS issues a request for proposals
second year through June 2017. For Fairview and and related guidance to RCs regarding CPP
Porterville DCs, the administration indicates funding requirements and generally begins
it is in settlement negotiations with the federal reviewing RC proposals in the spring for funding
government to reach an agreement similar to that would be authorized the next fiscal year,
Sonoma DC and continue federal funding past subject to appropriation in the annual state budget
March 2016. The Governor’s budget assumes act. For example, DDS will likely be reviewing
the state will be successful in these settlement RC CPP proposals for 2016-17 this spring and
negotiations and therefore assumes $92.4 million in is currently finalizing related guidance. After
continued federal funding for all three DCs. DDS review, which includes consideration for RC
circumstances and statewide priorities, the funding
Additional Funding Targets DC Movers
is allocated to RCs for approved projects. The DDS
in Response to Planned Closures
generally tracks use of placement funds and uses
Background. The DDS currently provides a database as part of the Statewide Specialized
CPP funding to RCs to help build capacity of the Resource Service (SSRS) to track capacity specific
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2016-17 BUDGET
to CPP-developed resources. The RCs can contact LAO Assessment of Governor’s
DDS to help identify available CPP related DC Closure-Related Proposals
community developments through the SSRS.
Governor’s Proposal. The Governor’s budget While Governor’s Budget Assumes
includes $78.8 million ($73.9 million General Fund) Retention of Federal Funding,
in additional one-time CPP resources to support Some Risk for General Fund Remains
accelerated transitions for individuals moving out
We find that risk remains—at least to some
of Sonoma, Fairview, and Porterville DCs related
degree—that federal funding may not continue at
to planned closures. This is in addition to the
current levels for the three DCs in the near future.
historical $68 million in base CPP funding, for
If the state is unsuccessful at extending the Sonoma
total CPP funding of $146.6 million ($122.9 million
settlement agreement for a second year and fails to
General Fund) in 2016-17. Of the additional
reach a similar settlement agreement for Fairview
amounts provided for the three DCs specific to
and Porterville DCs, the state could be at risk
closure, $58.2 million total funds is estimated
of losing about $16.5 million in federal funds in
for start-up purposes and about $15 million total
2015-16 and $92 million in 2016-17, as identified
funds would support the additional placement of
in Figure 3. Further, under the current terms of
95 individuals moving out of these DCs in 2016-17
the Sonoma DC settlement agreement, federal
as shown in Figure 2.
funds would not continue beyond June 2017 and,
therefore, the state would need to begin backfilling
Figure 2
Proposed 2016-17 CPP Funding and Placement Activity for DC Movers
Total Funds (In Millions)
CPP Expenditures
Total
CPP Activity Sonoma DC Fairview DC Porterville DC Funds
RC operationsa $3.6 $1.2 $0.6 $5.4
Start-upb 10.6 25.6 22.0 58.2
Placementc 10.2 2.9 2.1 15.2
Total Additional CPP Tied to Closures $24.5 $29.7 $24.6 $78.8
Base CPP funding —d —d —d $67.9
Total CPP Funding —d —d —d $146.6
Community Placements
Total
CPP Funding Type Sonoma DC Fairview DC Porterville DC Placements
Closure CPP 54 24 17 95
Base CPP —d —d —d 145
Total 240
a
Funding supports RC staff to identify individuals for community placement, facilitate transitions, identify and develop new resources, provide
enhanced case management through face-to-face visits, and other activities.
b
Development of new facilities and programs or expansion of existing programs.
c
Cost of consumers’ move into the community based on consumer specific information and needs from assessments.
d
Information not included in budget estimate.
CPP = Community Placement Plan; DC = Developmental Center; and RC = Regional Center.
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2016-17 BUDGET
for the loss of federal
Figure 3
funds with state General
Estimated Current Federal Funding at Risk
Fund to cover costs for
Related to ICF-DD Deficiencies
the remaining residents
(In Millions)
from the end of the
Developmental Center (DC) 2015-16 2016-17
settlement term until the
Fairview $8.1a $32.4b
projected closure by the
Porterville 8.4a 33.6b
end of 2018. We note that Sonoma —c 26.4d
the administration has Totals $16.5 $92.4
a
reported that settlement Assumes three months of lost federal funding without a settlement agreement to allow federal funding to
continue.
discussions for Fairview b Assumes no settlement agreement that allows federal funding to continue.
c
CMS may terminate the Sonoma DC settlement agreement at any time. To the extent that this occurs in
and Porterville DCs 2015-16, there is some risk for federal funds loss.
d
Assumes Sonoma DC settlement agreement is not extended for a second year.
are encouraging and
ICF-DD = intermediate care facility for the developmentally disabled and CMS = Centers for Medicare
an agreement is likely and Medicaid Services.
forthcoming.
Agnews and Lanterman DC closures. For these
Recent Event of
closures, CPP resources supported the development
Immediate Jeopardy at Sonoma DC Suggests
of key specialized homes tailored to meet the
Continued Challenges. While the state generally
unique medical and other needs of consumers who
has had success in continuing federal funding
were transitioning from Agnews and Lanterman
in spite of federal certification deficiencies at the
DCs and provided enhanced case management
DCs, there is some uncertainty about the state’s
to ensure successful transitions and ongoing
ability to continue to meet federal requirements
community placement. We find that the Governor’s
sufficient to maintain federal funding for
proposal to provide additional CPP funding related
Sonoma DC in particular. In an unannounced
to the anticipated closures of Sonoma, Fairview,
February survey at Sonoma DC, DPH declared a
and Porterville DCs is critical for moving towards
situation of “immediate jeopardy” (a situation of
timely closures and ensuring the unique residential,
noncompliance that has, or is likely to cause serious
health, and social support needs of transitioning
injury, harm, impairment, or death to a resident) at
consumers are met. Further, we note that, as part
the DC after discovering a client was not receiving
of the Sonoma settlement agreement to continue
oxygen as prescribed by a physician. The DDS
federal Medicaid funding, DDS has committed
reports that the survey is expected to be completed
to the development of new community resources
by February 22, 2016, with results and official
for current Sonoma DC residents. It is likely that
findings forthcoming sometime thereafter.
a settlement agreement for Fairview and Sonoma
CPP Funding Warranted, but DCs would include similar terms related to
Additional Program Oversight Needed closures. The additional CPP resources proposed
would help meet these requirements for Sonoma
CPP Funding Supports Critical Residential
and the other DCs, if applicable.
and Other Resources for DC Movers. The use
Proposed Concurrent Closure Timelines Are
of CPP funding to support DC closures is an
Very Ambitious. The planned, concurrent closure
important strategy for successful consumer
timelines for all three DCs (although with varying
placements from a DC, as demonstrated by the
www.lao.ca.gov Legislative Analyst’s Office 13
2016-17 BUDGET
end dates), are very ambitious compared to recent time. As a result, it is likely that similar additional
experience with prior DC closures. For Agnews DC funding will be requested in the future to support
and Lanterman DC, closures were completed over the accelerated closure process for all three DCs.
five- and six-year periods, respectively, and were Greater Budget Transparency and Monitoring
completed one at a time. of CPP Program Needed. The Governor’s budget
Development of New Resources Takes Several proposal provides little overall context for the use
Years. Historically, the development of new of these requested resources, relative to the needs
community resources, primarily housing, has of consumers, projected transitions, as well as
taken about two to three years due to property available and developing community capacity. For
acquisition, construction, building modifications, example, it is not clear what expected capacity this
licensing, and other needed activities to ensure additional CPP funding could provide and how
the service is ready for consumer placement. many consumers would potentially be impacted.
However, the administration believes that—given Further, additional supporting detail, such as
lessons learned from prior closures to advance status of current CPP spending, is not included.
the process—new developments instead will take While some of this information has been provided
only about one and one-half to two years. We upon request and in legislative briefings, it is not
also note that the department has had historical included as part of the budget request. Further,
issues with the reversion of budgeted CPP funding we note that the department has struggled to
for discontinued projects. Since 2005-06, a total appropriately respond to legislative requests to
of 1,056 CPP related residential start-up projects provide an inventory of where transitioning
have been approved. Of these approved projects, residents are anticipated to go in the community
498 were completed, 273 are currently in progress, and related resource needs. We recognize that the
and 285 were discontinued as of late January transition of consumers out of the DCs and related
2016. (Many of the discontinued projects were for resource development is tied to the unique needs
projects that never started for various reasons.) of each transitioning individual and therefore is
Because of the significant time it takes to develop an inherently fluid process. However, as additional
resources and the various inherent challenges in funding is appropriated to support resource
doing so, identifying and implementing successful development and placements through the CPP
strategies and processes to expedite and ensure program, greater transparency and monitoring
successful development—such as providing timely of the use of funds and related developments
technical assistance, best practices, and clear and progress is necessary to ensure appropriate
guidelines to RCs and providers—will be important legislative oversight and success of DC closures.
in ensuring successful DC closures and the most
LAO Recommendations
effective use of funds.
While Closure-Related CPP Funding Request Require DDS to Report at Budget Hearings
Is One Time, Out-Year Requests Are Likely. As the Regarding Risk of Federal Funding Loss for DCs.
closure process moves forward, evaluations of the Because of a continued risk of losing additional
needs of consumers and availability of resources federal funding and the inherent uncertainty and
will become more refined and also develop over challenges in addressing this risk, we withhold
14 Legislative Analyst’s Office www.lao.ca.gov
2016-17 BUDGET
recommendation on the Governor’s federal funding placement assumptions and other adjustments.
assumptions pending additional information from To help increase legislative oversight of the CPP
the administration. Specifically, we recommend program, we recommend the Legislature consider
the Legislature request DDS to report at budget improving how CPP-related budget information
hearings on: is presented and provided to better meet the
Legislature’s information needs. Specifically, we
• The DDS’ progress in meeting the terms
recommend providing more detailed information
and conditions of the Sonoma settlement
on CPP funding, by fund source and by specific
agreement, including specific milestones
DC and placements made, as well as the estimated
met; findings from recent DPH surveys and
additional capacity proposed CPP funding
court monitor reviews and their potential
would create and potential number of consumers
impact on federal funding; and next steps
impacted. Further, to assist the Legislature in
towards extending federal funding through
its evaluation of the Governor’s 2016-17 budget
June 2017.
proposed for the CPP program, we recommend
• The status of settlement negotiations with the Legislature require DDS to report at budget
the federal government regarding Fairview hearings on the following:
and Porterville DCs as well as findings
• The DDS’ process for soliciting CPP
from any recent DPH surveys and reviews
proposals, providing guidance to RCs
and their potential impact on federal
and providers, prioritizing and approving
funding.
CPP projects, allocating CPP funds to
Approve CPP Funding in Concept, but RCs, and monitoring of CPP funds and
Consider Additional Budget Reporting to Improve developments.
Transparency and Monitoring of CPP Program.
• The overall status of CPP projects in
We support the administration’s proposal in
development and implementation
concept to provide additional CPP funding tied
challenges as well as placement status of
specifically to the closure of the three DCs, but
DC residents compared to community
withhold recommendation on the specific amounts
placement goals.
pending additional and updated information.
We find that CPP funding has supported critical
• The estimated additional capacity the
residential and other resource development for
proposed additional and base CPP funding
individuals transitioning from a DC and would
would provide and the potential number
help in working towards accelerated DC closure
of consumers impacted with such funding,
timelines and requirements related to ensuring
and the extent to which such funding
continued federal funding at Sonoma DC and
addresses total estimated requirements
possibly the other DCs proposed for closure. We
to develop community resources for
note that these estimated amounts could change
transitioning residents.
at the May Revision due to changes to consumer
www.lao.ca.gov Legislative Analyst’s Office 15
2016-17 BUDGET
GROWING COMMUNITY SERVICES PROGRAM
FACING FINANCING AND FEDERAL
REGULATORY CHALLENGES
Introduction proposals in this context. Finally, we provide our
recommendations related to the Governor’s specific
The DDS RC system—collectively referred to
proposals presented in January as well as for how
as the Community Services Program—has grown
the Legislature may wish to approach the financing
tremendously in complexity of programmatic
implications of a growing RC system in the short
operations and size—both in the number of
and longer term.
consumers served and total expenditures—since
the enactment of the Lanterman Act in 1969. This Background
growth includes the impact of significant changes
in both state and federal policy over the last several How Are RCs Funded?
decades, such as the expansion of Medicaid-related
Fund Sources. As shown in Figure 4,
financing options to include HCBS and policy
General Fund support accounts for about
direction to close state DCs in California and
$3.4 billion, or nearly 60 percent, of the
across the country. As the RC system continues to
2016-17 proposed $5.8 billion RC total budget.
grow, we find that the many financing structures
Federal reimbursements from the Medi-Cal
of the program fundamentally have not changed
program for certain clients and services provide
in several decades and therefore have not kept
$2.1 billion—most of the remaining support for
pace with changing business environments in the
the program. About $1.6 billion of these Medi-Cal
delivery of services. This increasingly presents
reimbursements are for services provided under a
challenges for the Legislature in making informed
federal HCBS waiver. Under federal HCBS waivers,
fiscal and policy decisions to ensure efficient and
federal Medicaid funds can be drawn down to
effective program operations that meet the goals
pay for about one-half of the costs of certain
of the Lanterman Act and requirements of the
community-based services for individuals at risk
consumers the system serves.
for institutionalization.
In our analysis below, we describe some of
Two Main Types of RC Expenditures. The RC
the challenges related to RC system financing,
budget is mainly comprised of two major types
including how new federal regulations will
of expenditures—RC operations and purchase of
exert cost and programmatic pressures on the
services (POS):
Community Services Program in order maintain
• RC Operations. The RC operations budget
federal funding, and evaluate how proposals
funds administrative activities but also
included in the Governor’s budget may start
direct client services, including initial
addressing a number of the financing challenges.
diagnosis of an individual’s developmental
We also summarize legislation enacted as part of
disability, assessment for eligibility and
the recent special session that provides significant
services, individual program planning
additional funding to the Community Services
and service coordination, clinical services
Program and consider the Governor’s January
16 Legislative Analyst’s Office www.lao.ca.gov
2016-17 BUDGET
such as medication reviews, as well as (see next page). Three categories—
ongoing case management, monitoring, community care facilities (CCFs), day
and follow-up assessments. Most of the RC programs, and support services—account
operations budget supports these direct for almost three-fourths of all POS
services. The RCs are also responsible spending. In general, the budget provided
for authorizing or “vendoring” with to RCs are allocated as a percent of the
community providers for services—a total POS budget based on each RC’s
process that requires the RC to ensure the POS expenditures in the prior fiscal
provider meets all program requirements year. According to DDS, in 2013-14, RCs
and obtains necessary licenses for vendored with over 45,000 providers for
operation to appropriately provide services these various health and human services.
to consumers and bill for those services. Figure 5 also shows how rates are set for
The RC operations are budgeted primarily these services. We describe these various
through a funding formula known as the rate-setting methodologies for vendored
“core staffing formula.” This formula was providers in greater detail below.
first developed in 1978, and is generally
based on salaries, wages, and business How Are RC Providers Compensated?
environment at that time.
Great Variation in Provider Rate-Setting.
Provider rate-setting methodologies vary
• POS Through Vendored RC Providers.
significantly depending on the type of service and
The budget for POS consists of ten main
provider. As Figure 5 shows, the vast majority of
services categories as shown in Figure 5
POS rates are set by DDS or negotiated between
the provider and RC.
Figure 4
Some rates, however, are
Proposed RC 2016-17 Funding
established by DHCS
(Dollars in Millions)
through the Medi-Cal
2016-17 Percent of
program, set at what is
Proposed Total
charged to the general
By Category of Expenditure
RC operations $663.5 11.5% public and referred to as
RC POS 5,089.4 88.1 “usual and customary”
Othera 21.1 0.4
rates, or set using
Total $5,774.1 100.0%
other methodologies.
By Funding Source
General Funda $3,426.9 59.3% The DDS-set rates are
Medi-Cal reimbursementsb 2,079.0 36.0 established through
Otherc 268.2 4.6
historical cost statements,
Total $5,774.1 100.0%
rate schedules, statute,
a
Early Start Program funds allocated to other agencies by the Department of Developmental Services,
primarily to local education agencies. or regulation. Even
b
The majority of these reimbursements are for purchase of services (POS) under a federal Home- and
Community-Based Services waiver. within a particular
c
Includes, but is not limited to, reimbursements for Title XX Block Grant, Mental Health Services Act
service type, such as
funds, Federal funds for the Early Start Program, and parental fees.
RC = Regional Center. for transportation, the
Amounts may not add due to rounding.
rate-setting methodology
www.lao.ca.gov Legislative Analyst’s Office 17
2016-17 BUDGET
can vary. The RC methodologies for negotiating Proposed Budget Continues Most
rates with their vendored providers can also vary. Prior-Year Budget Solutions
Vendored providers generally have the ability
Many Budget Solutions Implemented Since
to request exemptions or changes to rates, due
2003-04 Remain in Place. During periods of
to unanticipated program changes or to protect
budget deficits since 2003-04, the Legislature
the health and safety of consumers in certain
enacted numerous DDS budget reductions and
circumstances.
cost-savings measures in order to yield General
Fund savings. These included service changes such
Existing Financing Structures Are Complex
as the elimination of certain services, reliance on
The RC operations funding formula and
increased federal funding, and the adoption of best
various provider rate-setting methodologies
practices and accountability measures, as well as
described above have become more complex as
rate restrictions for RC providers and reductions
they have evolved over time. For example, the
in RC operations formula funding. Most of these
variation in provider rate-setting—and resulting
budget solutions remain in place today and are
complexity—is, in part, the product of incremental
continued in the Governor’s proposed budget. We
changes made to the system over time, such as
discuss RC operations reductions and provider rate
to account for new services as they have come on
controls since 2003-04 in more detail below.
line. Layered on top of these underlying financing
Reductions to RC Operations. The RC
methodologies are various reductions and rate
operations budget experienced a number of
restrictions—enacted as budgetary solutions—that
reductions between 2003-04 and today. For
have been put into place over the course of several
example, in 2009-10, the RC operations budget
years, which we describe in greater detail below.
was reduced by $10.5 million General Fund
(ongoing) and then
Figure 5 again in 2011-12 by an
Percent of Total RC POS Spending— additional $14.1 million
By Budget Category and Rate Methodology
General Fund, through
2012-13 both targeted reductions
Rate-Setting Methodology (such as funding for
Set by Negotiated Between office relocations) and
POS Budget Category DDS RC and Provider Other Totals
unallocated reductions.
Community care facilities 17% 7% — 25%
Many Restrictions
Medical facilities — 1 — 1
on Vendor Rates. Since
Day programs 22 1 — 23
Habilitation 4 — — 4 2003-04, many provider
Transportation — 6 1% 6
rate restrictions were put
Support services — 22 — 22
into place as a means of
In-home respite 5 — 1 5
Out-of-home respite — — — — budgetary control. These
Health care — — 2 2 restrictions have affected
Miscellaneous services — 8 3 11
providers differently,
Total POS Budget 49% 44% 7% 100%
depending on the provider
Amounts may not add due to rounding.
RC = Regional Center, POS = purchase of services, DDS = Department of Developmental Services. type. Even within the
same provider type—with
18 Legislative Analyst’s Office www.lao.ca.gov
2016-17 BUDGET
the same rate-setting methodology—providers providers with usual and customary rates.
could be affected differently depending on when Beginning in 2009-10, the percentage
a provider was first established relative to when amount of the provider payment reduction
various budget solutions were put into place. was set year to year. A 3 percent provider
payment reduction was implemented in
• Rate Freezes Began in 2003-04. Some
2009-10 and was increased to 4.25 percent
vendor services, including community-
in 2010-11. By 2013-14, however, funding
based day programs, in-home respite,
lost from previous levels of payment
supported living services, and
reductions was fully restored.
transportation, became subject to rate
freezes beginning in 2003-04. By 2008-09,
Some Recent Rate Increases
all vendors with rates negotiated with
RCs experienced rate freezes with some Recent Rate Increases for State Minimum
limited exceptions. Vendors of specific RC Wage and Federal Law Changes. Certain RC
services received a 3 percent rate increase vendors received rate increases directly related
in 2006-07. We note that supported to increases in the state’s minimum wage
employment providers also received a rate in 2006-07, 2007-08, 2014-15, and 2015-16.
increase of 24 percent in 2006-07, but then Further, a 5.82 percent rate increase was recently
received a 10 percent decrease in 2008-09, provided, effective December 1, 2015, for certain
for a net increase of 14 percent. services to implement new federal regulations
requiring overtime pay for home care workers.
• Implementation of Median Rates
The Governor’s proposed budget continues these
Beginning 2008-09. Beginning in 2008-09,
recent rate increases. (We note that significant rate
an upper limit was established for all new
increases are provided in recent legislation enacted
providers of services with negotiated rates.
in March 2016, which we describe in greater detail
This limit was set as the median of all rates
later.)
in place at the time for each service. When
negotiating rates with new vendors, the RC Spending and Caseload Growth
is required to negotiate a rate that does not
Caseload and Community Services Spending
exceed the statewide median rate or the
Continue on a Growth Path. As shown in Figure 6
RC median rate for the service—whichever
(see next page), spending on the RC system
is lower. In 2011-12, a new survey was
has grown significantly over the last 15 years.
conducted that resulted in lower median
Expenditures went from $1.9 billion in 2001-02
rates, and therefore avoided costs that
to a proposed $5.6 billion in 2016-17, an annual
would have otherwise occurred if the
growth rate of 7.2 percent. Three high-level factors
median rate remained higher.
drive spending for RC services: (1) caseload levels,
• Provider Payment Reductions (2) utilization of services, and (3) rates or prices
Implemented in 2009-10, but With Full for services. Between 2000-01 and 2007-08, DDS
Funding Restored by 2013-14. Provider community services expenditures grew from
payment reductions enacted beginning $1.9 billion to about $3.6 billion, an average annual
in 2009-10 affected all vendors except rate of 9.6 percent. During this same period
supported employment providers and caseload grew from 163,613 to 221,069 consumers,
www.lao.ca.gov Legislative Analyst’s Office 19
2016-17 BUDGET
an average annual rate of 4.4 percent. However, prior years. This is in part due to the January
during the most recent recessionary period, 2015 restoration of eligibility in the Early Start
expenditure growth flattened, likely due to the Program to prior-year criteria—that is, criteria
many budgetary controls enacted that largely offset that existed before it was tightened as a budget
growth in expenditures due to increases in caseload solution in 2009-10. We note that the Governor’s
and utilization of services. While caseload grew, it budget assumption may very modestly overstate
grew at a slower rate than in prior years, also likely caseload in 2015-16 based on recent data. However,
due to budgetary controls implemented (including given recent fluctuations and uncertainty, we find
enactment of tighter eligibility requirements for that the Governor’s overall caseload assumptions
the Early Start Program in 2009-10). Since 2011-12, appear reasonable. We withhold recommendation
however, both spending and caseload have been at this time pending the release of updated
growing at rates more reflective of historical growth caseload estimates at the May Revision. We will
trends. continue to monitor caseload growth trends and
Governor’s Community Caseload recommend adjustments to the Governor’s caseload
Assumptions Appear Reasonable. The community assumptions, if necessary, following our review of
caseload has steadily increased year over year, even the May Revision.
though the most recent recessionary period (see Why Are Caseload and Expenditures
Figure 7). The Governor’s budget projects that the Growing? The underlying reasons for caseload and
average monthly RC consumer caseload will exceed expenditure growth in the community services
302,000 in 2016-17, a year-over-year growth of system are not well understood. Several high-level
4.1 percent. Caseload overall is growing somewhat factors are contributing to this growth, such as
faster in 2014-15 and 2015-16 relative to immediate an aging RC population as well as individuals
moving out of the DCs
Figure 6 who require more intensive
Regional Center Community services and supports
Caseload and Expenditure Growth
relative to the average RC
2000-01 Actuals to 2016-17 Proposed consumer. Another factor
pushing caseload and costs
$6.0 350
upwards is an increase in the
5.5
autism population served by
5.0 300 DDS and the comparatively
4.5
higher costs of treating
250
4.0 autistic individuals. Also,
3.5 Caseload (Right Axis) as new medical treatments,
200
3.0 equipment, and technology
2.5 become available, the scope
150
Total Expenditures (Left Axis)
of services that DDS is able to
2.0
provide to developmentally
1.5 100
00-01 02-03 04-05 06-07 08-09 10-11 12-13 14-15 16-17 disabled individuals is
broadening.
20 Legislative Analyst’s Office www.lao.ca.gov
)snoilliB
nI(
serutidnepxE
Caseload
(In
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Graphic Sign Off
Secretary
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ARTWORK #160030
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Note: 2015-16 amounts are estimated and 2016-17 amounts are proposed.
2016-17 BUDGET
Longstanding Need for
Figure 7
Community Services
Community Caseload Shows Continued Growth
Financing Reform
Increase From Prior Year
Past Financing
Average Monthly Number of
Reform Efforts for Caseload Consumers Percent
RC Operations and 2007-08 221,069 — —
Provider Rates Generally 2008-09 231,451 10,382 4.7%
2009-10a 233,294 1,843 0.8
Unsuccessful. Over the
2010-11 239,153 5,859 2.5
past couple decades, 2011-12 247,674 8,521 3.6
significant efforts were 2012-13 256,294 8,620 3.5
2013-14 265,216 8,922 3.5
made to update or reform
2014-15a 277,242 12,026 4.5
the community services
2015-16b 290,496 13,254 4.8
financing structures 2016-17b 302,419 11,923 4.1
for RC operations and a Early Start Program eligibility tightened in 2009-10 and restored January 1, 2015.
b
Administration’s caseload estimate.
provider rates due to
enduring concerns
reflect either the current way services are being
about the rising costs of the RC system, adequacy
provided or the actual costs of providing those
of funding levels, and quality of outcomes for
services. For example, the RC operations formula
consumers. For example, the 2004-05 Budget
has generally not been updated since 1990 (with
Act provided positions and contract resources to
some exceptions). The formula currently provides
enable a multiyear reform effort, starting with the
for one executive director at each RC at an annual
review and development of standardized rates for
budgeted salary of about $61,000 (although actual
certain services. The activities approved by the
expenditures for such positions are much higher
Legislature were intended to be part of a more
today). Additionally, provider rates that were
comprehensive cost-containment program for the
historically set with annual cost statements have
RC system. However, due to a number of issues,
not been updated for over a decade and submission
including ongoing budgetary challenges that were
of cost statements for these rates have since been
exacerbated due to information technology system
suspended in response to enacted rate freezes.
development challenges and the recent recession,
Complexity of the Financing Structures
the RC operations and provider rates reform
Creates Its Own Challenges. The complexity of the
efforts did not move forward in a meaningful way.
current financing mechanisms makes the exercise
As a result, the principal funding structures for
of updating and modernizing a difficult task. To the
RC operations and provider rates remain largely
extent that the provider rate structure, for example,
unchanged.
remains out of date, the more likely it is that what
RC Operations Funding and Provider
may have originally been a rational basis for that
Rate-Setting Methodologies Remain Outdated.
rate methodology no longer exists.
The RC operations funding formula and many
Renewed Momentum in Financing Reform
of the existing provider rate-setting mechanisms
Efforts as Task Force Workgroups Examine
remain considerably outdated. Specifically, most
Operations Funding and Provider Rates. In July
of the funding methodologies in use do not adapt
2014, the Health and Human Services Agency
to changing economic conditions and do not
www.lao.ca.gov Legislative Analyst’s Office 21
2016-17 BUDGET
repurposed the then-existing Developmental an estimated $186 million in additional related
Centers Task Force as the Developmental Services federal funds.) Most of the additional General Fund
(DS) Task Force, with the charge of examining spending, about 60 percent, is for salary and/or
community-based services. Recognizing the benefit increases for community service providers’
longstanding challenges of the current funding staff that devote most of their time to providing
mechanisms in the community services system, the direct care to consumers. The legislation also
immediate work of the DS Task Force has focused makes changes for rates set by DHCS—for certain
on RC operations funding and provider rates by intermediate care facilities and skilled nursing
creating two specific workgroups to address issues facilities—for which a General Fund appropriation
in these areas. These workgroups have met several is not provided. (The administration indicates
times since the initial larger task force meeting. the budgetary impacts of these changes will be
In June 2015, the DS Task Force released two included in the DHCS budget at the May Revision.)
documents outlining various goals and consensus While the DDS-specific spending proposals are
points for changes to the RC operations funding ongoing—subject to appropriation in the annual
formulae and provider rates. These overall goals budget act in future years—most are capped at a
and points of consensus included concepts of fixed General Fund dollar amount and therefore
sustainability, flexibility, transparency, and support would not vary year to year based on consumer
for proper incentives for quality outcomes and utilization changes. Rate increases for services that
performance in funding. Budget legislation passed are not capped—and therefore the total cost would
in 2015 requires DDS to report at 2016-17 budget change based on consumer utilization changes—
hearings on several community services financing include transportation, in- and out-of-home respite,
issues related to RC operations and provider rates supported living, and independent living services.
using the work from the DS Task Force. The legislation also requires documentation
Special Session Legislation Provides and extensive new reporting requirements by
Significant Additional Community Services RCs and providers to (1) provide information to
Funding Beginning in 2016-17. In June 2015, the DDS to determine the allocation of many of these
Governor convened a special legislative session to spending increases (including through a random
address various health and human services issues, sample survey of providers to be completed in
including the provision of sufficient funding for April 2016) and (2) ensure program accountability
rate increases for community service providers regarding the use of these funds. This reported
serving individuals with developmental disabilities data would include, for example, the number of
as well as the consideration of legislation to increase RC Service Coordinators receiving salary and/
oversight and the effective management of services or benefit increases and information on staff
provided to consumers of the RC system. As part turnover. Additionally, the legislation requires
of the special session—on February 29, 2016—the DDS to submit to the Legislature, by March 2019,
Legislature adopted, and the Governor later a rate study addressing the sustainability, quality,
signed, a package of ongoing spending proposals and transparency of community-based services for
in AB2X 1 (Thurmond) that directly appropriates individuals with developmental disabilities.
$287 million General Fund for various increases to Figure 8 outlines the various spending
RCs and community services providers for 2016-17. proposals contained in AB2X 1 and their
(This new General Fund spending would leverage General Fund impacts, including whether or
22 Legislative Analyst’s Office www.lao.ca.gov
2016-17 BUDGET
Figure 8
Summary of Special Session Spending Augmentations in AB2X 1 (Thurmond)
(In Millions)
Fixed
General Fund Appropriation
Enacted Spending Proposala Appropriation (Y or N) b
Community Services Staff Providing Direct Services to Consumers. Rate increases, as $169.5 Y
determined by DDS, for enhancing wages and benefits for community service provider staff
who spend a minimum of 75 percent of their time providing direct services to consumers. Rate
increases would only apply to services for which rates are set by DDS or through negotiations
between RCs and service providers, as well as supported employment services and vouchered
community services. (Employees of the Community State Staff Program are excluded.)
RC Staff Salaries and/or Benefits. Increases for RCs to provide RC staff salary and/or benefit 29.7 Y
increases as allocated by DDS. Would exclude RC unfunded retirement liabilities and RC
executive staff.
RC Administration. RC operations increase, as allocated by DDS, for administration, including for 1.4 Y
clients’ rights advocates contracts.
Provider Administration Costs. Rate increases, as allocated by DDS, for rates set by DDS or 9.9 Y
through negotiations with the RC and provider, as well as supported employment services and
vouchered community-based services.
5 Percent Rate Increase for Supported Living and Independent Living Services. 5 percent 18.0 N
increase to rate in effect on June 30, 2016.
5 Percent Rate Increase for In- and Out-of-Home Respite Services. 5 percent increase to the 10.0 N
rate authorized and in operation on June 30, 2016 for family-member-provided respite services
and in-home respite service agency rates.
5 Percent Rate Increase for Transportation. 5 percent rate increase to rates for transportation 9.0 N
services in effect on June 30, 2016.
Competitive Integrated Employment Program. Requires DDS to establish guidelines and oversee 20.0 Y
a program to increase paid internship opportunities for individuals with developmental disabilities
that produce outcomes consistent with a consumer’s Individual Program Plan, as specified, to
include incentive payments for supported employment.
11.1 Percent Rate Increase for Supported Employment. Provides an 11.1 percent rate increase 8.5c N
for supported employment by restoring rates to levels in effect in 2006.
Resources to Support Bilingual RC Staff, Training, and Education Efforts. Provides a fixed 11.0 Y
amount to implement recommendations and plans to promote equity and reduce disparities in
the purchase of services that may include pay differentials supporting bilingual RC staff, cultural
competency training, parent education efforts, and other activities.
Rate Increases for Certain Intermediate Care Facilities (ICFs). Provides a 3.7 percent rate —d —d
increase to the reimbursement rates in effect in the 2008-09 rate year for dates of service on
or after August 1, 2016 for ICFs for the developmentally disabled and continuous nursing care.
Implementation subject to federal approvals for related federal funding. Effective for dates of
service on or after August 1, 2016.
Exemption From Retroactive Reductions for Distinct Part Skilled Nursing Facilities —d —d
(DP/SNF). Prohibits the Department of Health Care Services from implementing or seeking
retroactive reductions or reimbursement limitations for services provided by SNFs that are distinct
parts of general acute care hospitals for dates of service on or after June 1, 2011 and on or before
September 20, 2013.
Total General Fund Appropriation $287.0
a
Spending augmentations effective July 1, 2016, unless otherwise noted.
b
If a fixed appropriation, total rate increases provided cannot exceed total appropriation amount. Therefore, year-to-year amounts would not vary based on utilization. Amounts for
spending that are not fixed will likely vary year to year; amounts for 2016-17 are estimates.
c
Spending changes also affect the Department of Rehabilitation budget and are not included in appropriation but estimated to be about $3.5 million General Fund.
d
Spending changes affect the Department of Health Care Services budget and are not included in appropriation but estimated to be about $12 million General Fund for ICFs and
about $123 million General Fund for DP/SNFs.
DDS = Department of Developmental Services and RC = Regional Center.
www.lao.ca.gov Legislative Analyst’s Office 23
2016-17 BUDGET
not the spending change is subject to a “fixed have historically had the authority to authorize
appropriation”—that is, a capped total General changes in facility service levels. Under certain
Fund amount year to year. Nearly all of the circumstances, an RC could, for example, authorize
spending augmentations in AB2X 1 would become a facility service-level change from service level
effective July 1, 2016, unless otherwise indicated. two to a service level three, to allow for additional
staffing to meet the needs of consumers served in
Governor’s Budget Provides
that facility, which would result in a higher rate
Targeted Funding Increases for
paid per consumer. State regulations outline the
Community Resources
service-level staffing standards and related rate
Below, we discuss most of the Governor’s methodology based on a six-bed model. However,
major budget proposals related to the Community it is common practice for many RCs to vendor with
Services Program. Community Services Program ARM-rate facilities with four or fewer beds, which
spending proposals related to CPP are discussed is generally consistent with state and federal policy
earlier under the “DC Closures and Other Related direction towards placements in smaller residential
Funding” section of this report. We note that facilities. Therefore, the current individual rate
overall spending totals displayed in this section paid to facilities assumes that overhead and
below include the impacts of proposed CPP staffing costs are spread across six placements, even
funding. though many RCs are using facilities with fewer
placements.
Budget Includes Targeted Funding
Governor’s Proposal. The Governor’s budget
Increases for Certain Residential Facilities
proposes $46 million ($26 million General Fund)
Background. About one-fourth of community to allow for the development and implementation
RC clients do not live with their parent(s) or of a new rate for ARM-rate facilities serving four
another family member, and of these individuals, or fewer individuals in recognition of more current
the majority live in CCFs that generally provide RC vendoring practices. Many details regarding the
nonmedical, residential care. For 2014-15, DDS Governor’s ARM rate proposal are currently being
reports about 27,000 consumers were utilizing worked out. The administration states the new rate
CCFs. About $1.3 billion, or about 25 percent, of methodology would be similar to the existing ARM
the proposed POS budget is for spending related to rate methodology, but would assume placements
CCFs. for four residents. Additionally, the administration
The CCFs are primarily funded through a rate proposes both budget and trailer bill language to
methodology known as the Alternative Residential implement this new rate, as well as require RCs to
Model (ARM) rate—which has not been fully report annually to the department on the number
updated in many years. This rate methodology, of facilities receiving these rates. Further, the trailer
which was initially established in 1987, was bill language also appears to prohibit RCs from
developed based on an analysis of then-operating authorizing any residential service-level changes
residential facilities. Currently, per-resident rates for CCF providers, including for the new four-bed
are based on 14 different consumer service levels rate, if the change would increase state costs, with
and related staffing requirements, assuming each exceptions to protect the health and safety of
home supports six residents. The RCs generally consumers, upon approval by DDS.
24 Legislative Analyst’s Office www.lao.ca.gov
2016-17 BUDGET
Budget Proposes Funding to Improve RC system. Currently, these activities are generally
Coordinator-to-Consumer Caseload Ratios performed by programmatic and other staff. Many
other departments with oversight responsibilities
Background. Current state law, as well as
of large caseload-driven programs have dedicated
the terms of the HCBS waiver, require RCs to
research and analytical staff to support a variety
have certain average service coordinator-to-
of operational and oversight functions. Further,
consumer ratios depending on certain consumer
these dedicated staff can proactively analyze
characteristics. For example, RCs are required
programmatic information to support policy
to maintain an average service coordinator-to-
development and decision making.
consumer ratio of 1:62 for consumers receiving
Resources for New Fiscal and Research
services through the HCBS waiver, but maintain
Unit. The Governor’s budget proposes $923,000
an average ratio of 1:45 for consumers who have
($630,000 General Fund) for seven new permanent
moved from a DC within the last 12 months.
positions and the redirection of one vacant
The RCs have had longstanding challenges with
position to establish a Fiscal and Program
maintaining these required caseload ratios, citing
Research Unit. This new unit would provide fiscal
significant funding issues that relate to the overall
and programmatic analysis to assist with DDS
funding methodology for RC operations. For the
responses to various research and analytical needs
past two years, all 21 RCs reported not meeting
related to both the community services and DC
caseload ratio requirements for one or more
programs. Given that the community services
required consumer categories. Additionally, six
program is by far the larger of the department’s
RCs reported noncompliance with the HCBS ratio
two major programs, a substantial portion of the
requirements in 2015.
new resources could presumably be focused on
Governor’s Proposal. The Governor’s budget
community services. The Governor’s proposal
includes $17 million ($13 million General Fund)
indicates an annual research plan will be produced
to support an estimated 200 additional RC service
within a half-year of filling positions.
coordinator positions with the goal of improving
RC coordinator-to-consumer caseload ratios and
Proposed Spending for New Federal
thereby improving case management functions.
HCBS Regulation Compliance
Additionally, the administration proposes budget
Background. In March 2014, new regulations
language to require reporting by RCs annually
issued by CMS became effective that significantly
to DDS on the number of staff hired with these
change what it means for services to be provided
additional funds as well as report on RC’s
in a HCBS setting for Medicaid reimbursement.
effectiveness in reducing average caseload ratios.
The new rules create a more outcome-oriented
The administration states that the allocation of
definition of home- and community-based
funding among RCs would be worked out through
settings—rather than one based solely on a setting’s
consultation with the association of RCs.
location, geography, or physical characteristics—
Proposed Fiscal and Program Research Unit by focusing on the qualities and consumer
experience related to services provided to ensure
Background. The DDS reports significant
an integration with the broader community. The
issues in meeting increasing demands for general
new rules provide for a five-year transition period
information, research, and analytics on a variety
for existing programs to come into compliance by
of topics impacting the developmental services
www.lao.ca.gov Legislative Analyst’s Office 25
2016-17 BUDGET
March of 2019, after which noncompliant services after March 2017, the state will need to have a CMS
will be ineligible for federal funding. These new approved transition plan in place to meet HCBS
regulations impact all Medi-Cal HCBS-related requirements by March 2019 and will need to have
programs that are currently administered by adequate assurance to CMS that thereafter, services
several departments, including DDS, where DHCS provided under the waiver will be in compliance
serves as the lead Medicaid liaison to the federal with the new rules.
government and state coordinating agency. In Governor’s Proposal. The Governor’s budget
response to this new rule, DDS established a HCBS proposes positions and funding to support
advisory group that began meeting in February compliance efforts by DDS with the new federal
2015 to engage stakeholders and provide guidance HCBS regulations as follows:
on the transition process and ongoing compliance
• Community Services Program Funding.
requirements. Nationally, states are in the process
The Governor’s budget proposes
of evaluating and determining what the new
$16.6 million ($11.9 million General Fund)
rules mean for existing HCBS programs. Overall,
in local assistance for RCs and providers
some DDS programs and services may need to be
to begin compliance efforts with the new
redesigned and as a result will likely require various
HCBS rules. Specifically, $15 million
changes to statute, regulations, and program
($11 million General Fund) in POS funding
policies. However, the total impact to the program
is proposed for resources and additional
is unknown at this time.
staffing for providers to transition to
The CMS has established an extensive process
models of service delivery consistent
for states to evaluate the service settings in their
with the new HCBS rules. Additionally,
current HCBS programs and requires that states
the budget includes $1.6 million (about
submit to CMS for review and approval a statewide
$1 million General Fund) to fund an
transition plan (STP). The STP is the process
additional 21 Program Evaluator positions
through which states determine their compliance
within the RCs to ensure HCBS program
with the new rules and provide assurances to
settings are integrated into the community
CMS on how compliance will be achieved and
by March 2019 and to provide ongoing
maintained. In August 2015, California submitted
monitoring of provider compliance.
its STP, covering all HCBS programs, including
those operated by DDS, to CMS for review. In • Headquarters Resources Proposed for
November 2015, CMS responded by expressing DDS. The Governor’s budget proposes
concerns with timelines presented and requested $483,000 and four permanent positions
significant additional detail on how California will to support the immediate workload
come into compliance. The DDS also intends to associated with compliance efforts related
include a DDS-specific transition plan which is in to the new HCBS rules. Specifically, these
development, to supplement the larger STP. resources will assist in the development of
The majority of DDS’ Medi-Cal-related funding a DDS-specific transition plan that will be
is used for community services operated as an provided to the federal government and
HCBS waiver program, which is set to expire in will direct RC system efforts to comply
March 2017. In order for the wavier to be renewed with the new regulations. (We also note
to ensure continued federal funding to the state that the Governor’s budget includes
26 Legislative Analyst’s Office www.lao.ca.gov
2016-17 BUDGET
headquarters resources for DHCS and residential capacity and given common service
California Department of Aging related to delivery practices to operate homes with four
these efforts as well.) or fewer beds. Compared to a six-bed facility,
which often requires that some residents share
LAO Assessment of
rooms, facilities with four or fewer placements
Governor’s Proposals
can generally offer more individual attention,
privacy, and choice. This is consistent with state
Governor’s Proposals Should Be Considered and federal policy direction towards placements in
In Context of Recent Special Session Actions smaller residential facilities that can provide greater
consumer choice and privacy.
The Governor’s approach to target funding
. . . But Implementation Details Are
increases for RC operations and vendored providers
Lacking . . . At the time of this analysis, the
would be complemented by many of the recent
administration had not provided additional detail
special session spending actions taken by the
on how the proposed funding amounts were
Legislature. The Legislature will need to consider
derived or on its assumptions for how the new rate
the Governor’s January proposals in light of the
might be calculated. Further, how this proposal
actions it has recently taken. Ideally, spending
may account for the Supplemental Security Income/
increases should be targeted to areas with the
State Supplementary Payment (SSI/SSP) grant
greatest service challenges, such as finding and
levels as proposed in the Governor’s budget is not
retaining suitable, quality staff to appropriately
identified. (About 95 percent of persons in CCFs
meet the needs of consumers consistent with the
receive SSI/SSP payments, but the RCs fund only
goals of the Lanterman Act and other state and
the portion of the facility reimbursement that is
federal policy. The Legislature’s special session
above the SSI/SSP level of payment.)
actions seek to do this in many ways. However, the
. . . While Provider and Consumer Impact Is
Legislature has also recognized—in mandating that
Unclear. The possible impact that this proposal
a multiyear rate study be conducted and in setting
may have on CCFs and the consumers they serve,
various reporting requirements on the use of funds
including overall residential capacity and quality of
and outcomes from its spending augmentations—
care provided, is unclear. For example, at the time
that fundamental financing restructuring for the
of this analysis, the department had not reported
Community Services Program in the longer term
how many ARM facilities are vendored at six
will be dependent on a much-improved collection
beds compared to four beds. Would the proposed
and analysis of data to inform its decisions. We
change increase capacity by attracting additional
discuss the need for this restructuring in greater
residential providers? How might this proposal
detail later.
impact providers vendored for more than four
Funding Increase for Residential Facilities beds? While we think this proposal could positively
Has Merit, but Full Impact Unclear impact the quality of care provided by and access
to these facilities, without additional detail it is
ARM Rate Proposal Has Merit in
difficult to fully evaluate this proposal.
Concept . . . We find that the Governor’s proposal
Proposed Budget Trailer Bill Appears to Go
to provide for a new rate reflecting a four-bed
Beyond Establishing a New ARM Rate. We find
residential model has merit, given legislative
that the Governor’s proposed statutory language
and stakeholder concerns about the adequacy of
www.lao.ca.gov Legislative Analyst’s Office 27
2016-17 BUDGET
to implement the new four-bed ARM rate . . . But Noncompliance With Required HCBS
makes changes that appear to go beyond simply Waiver Caseload Ratios Still Possible . . . The
establishing a new rate based on a four-bed model. Governor’s proposal would provide funding for an
Specifically, the language would make changes estimated 200 more Service Coordinators. While
to when RCs are allowed to approve service-level DDS expects significant improvements in service
changes for all CCFs, and would prohibit any such coordinator-to-consumer ratios with this proposal,
changes that would add to state costs unless the RC the administration notes that this proposal would
demonstrates to DDS that approval is necessary to not provide for RCs to fully comply with all
protect the consumer’s health or safety and DDS caseload-ratio requirements.
grants that approval. We note that stakeholders . . . Which May Continue to Put Some Federal
have raised significant concerns regarding the Funding at Risk. To the extent that RCs are out of
existing health and safety waiver review process. compliance with caseload ratios related to federal
At the time of this analysis, the administration funding for the HCBS waiver, federal funding
had not communicated its proposed intent for this could be at risk. In the late 1990s, the state did lose
change and therefore it is unclear what issue this some federal funding and was required to take
change may be trying to address and whether this significant corrective actions as a result of a federal
may be the most effective way to address it. HCBS waiver review that occurred just before a
waiver renewal. The federal government identified
Improved Coordinator-to-Consumer
significant deficiencies in the state’s oversight of
Caseload Ratios Likely Have Benefits, but
the program, including deficient case management
Federal Funds Could Still Be at Risk
activities due to lack of trained case managers,
Improving Caseload Ratios Likely to Improve excessive caseloads, and inadequate or unavailable
Service Quality and Cost Efficiency . . . As case-work information.
the primary contact for all RC consumers, Special Session Actions Likely Mitigate
Service Coordinators act as the main hub for Potential Federal Funding Risk. We find that
the identification, monitoring, and provision of the Governor’s proposal to provide for additional
services. To the extent that caseloads per service Service Coordinators at the RCs would be
coordinator are lower, they will likely be able to complemented by the recent special session actions
spend more time per consumer in appropriately taken by the Legislature to increase salaries and/or
identifying, understanding, meeting, and benefits for RC staff because existing Service
monitoring consumer needs. Poor service and care Coordinators would likely benefit from these
quality results when case managers are not able to funding increases which could help reduce staff
properly and thoroughly perform their required turnover, for example. As a result, we find that
functions, which can also impact the cost efficiency the combination of these two proposals taken
of services, such as if a service is not well matched together could help mitigate the potential loss of
to a consumer’s needs. Further, more time per federal funds. However, we find that at least some
consumer could mean that Service Coordinators risk remains that some federal funds could be
are able to help RCs fully maximize Lanterman Act jeopardized depending on how RCs implement
requirements to access generic services first and, if these proposals related to ratio requirements for
services are purchased by the RC, select the least HCBS consumers.
costly provider to meet the consumer’s needs.
28 Legislative Analyst’s Office www.lao.ca.gov
2016-17 BUDGET
Proposals to Enhance Data and Analytical Fiscal and Programmatic Uncertainties
Capacity In-House Are a Worthy Start Surround Compliance With New
Federal HCBS Requirements
Good Data and Analytical Capacity Are
Needed for Strong Program Oversight. The Governor’s Proposal Is a Critical Next-Step
department has had substantial difficulty in for HCBS Rule Implementation. The new HCBS
evaluating expenditure trends and cost drivers as requirements fundamentally change what it means
well as responding to important data analysis needs to be integrated into the community for purposes
critical for efficient and appropriate oversight of of federal reimbursement. The Governor’s proposal
the community services system. For example, the shows the administration’s commitment on this
department has struggled to adequately answer key front and is a critical next step towards bringing
legislative questions about provider capacity and California into compliance and ensuring continued
consumer access to services. The department has federal funding for HCBS programs. We find
also experienced significant data integrity issues in that some DDS programs or services will likely
efforts to inform the transition of behavioral health need to be redesigned if they are to qualify for
treatment service provision to Medi-Cal managed continued federal funding. There are some settings
care plans for RC consumers. We find that the that are likely to be compliant with the new rules
Governor’s proposal to establish the Fiscal and today, such as special needs homes established
Research Unit is a good start towards addressing specifically for individuals moving out of DCs;
these data and analytical challenges. Expanding however, there are other services that would likely
data collection and improving capacity to analyze not meet the new HCBS settings rule, such as
that data could help inform financing reform sheltered work programs. However, the state is
efforts as well, while also providing needed support only in the beginning stages of determining what
for policy and budget development. services may or may not meet the new federal
Workload Planned for New Unit in First requirements and what this may mean for existing
Year Mostly Exploratory. The DDS expects that providers as well as the state overall both fiscally
workload for this new unit as it staffs up in the first and programmatically. We think that providing
year of operations would be mostly exploratory, as transitional funding to providers to make program
it evaluates and develops data sources, including modifications to come into compliance with the
data from ad-hoc surveys administered to the new federal rules is reasonable because it will likely
RCs, in order to identify research priorities. We help maintain existing provider capacity.
find that this approach is reasonable, but think Understanding of What Compliance Means
the Legislature should weigh in on expectations Continues to Develop . . . Implementation of the
for this new unit, including identifying data needs new HCBS rules will be a multiyear effort. The
and possible deliverables. Additionally, work state continues to work with CMS and stakeholders
product from this new unit is likely to be a key to refine the STP for approval, but this is just the
informational input in ongoing discussions and beginning of larger assessment efforts that will
action related to RC operations and provider rate be undertaken, particularly for DDS and the
reform. RC system. We find that because the state is still
assessing and trying to understand what it means
www.lao.ca.gov Legislative Analyst’s Office 29
2016-17 BUDGET
for California to come into compliance with the reviews of the service system to date, in order
new rules, the changes that may be required are to assess the extent of require changes to come
still developing. This situation presents some into compliance. As a result, it is possible that
significant uncertainties for the Legislature in additional resources may be needed in 2016-17
evaluating the Governor’s proposal and ensuring and in subsequent years. We note, however, that
that the state moves forward in an efficient and the Legislature is at an important juncture to
cost-effective way. help inform policy in how such programs may be
. . . While Implementation Details for transitioned and what level of support the state
Governor’s Proposal Are Unclear . . . We find that should provide to providers to facilitate required
the Governor’s proposal to provide funding for RC changes.
Program Evaluators and transitional resources for New Federal Requirements Highlight Need
service providers lacks sufficient detail in how the for Financing Reform. The changing landscape for
proposal would be implemented. We think that service delivery for individuals with developmental
establishing specific RC program staff to evaluate disabilities requires thinking about how these
and monitor HCBS compliance is reasonable, but programs should be financed to appropriately
will only be successful with clear direction and serve consumers. As we outline earlier in our
guidance from the state. Further, the parameters analysis, many of the financing structures for the
by which service providers may apply for and Community Services Program are outdated and
access funding to transform programs to meet have not kept pace with changes in service delivery.
the new requirements are unclear. For example, The new federal HCBS rules, which will require
could the new proposed funding be used to make significant changes in how certain providers do
capital improvements? While DDS proposes that business, illustrates how important financing
RCs would be required to first evaluate proposals reform that accounts for these HCBS-related
from providers and then submit to DDS for changes will be in ensuring efficient and effective
review and approval, this will require significant program operations.
leadership from DDS for the appropriate, efficient,
The Need for Fundamental
and cost-effective use of funds in a timely way.
Financing Restructuring
Clear communication by DDS to both RCs and
service providers will be key part of effective Generally, over the past few decades, changes
implementation of this proposal. to RC operations funding or provider rates have
. . . And Level of Resources Required Is been made in response to some improvement or
Uncertain and Likely to Change. We find that deterioration of the state’s financial condition,
the level of funding that may be needed to assist without systematic and strategic consideration of
providers in transforming their programs is highly the state’s goals as a purchaser of these services
uncertain and dependent, in part, on the state’s or the intent of the Lanterman Act with regard
policy approach to providing financial support to outcomes for consumers and performance of
to providers to make necessary changes to meet the system at large. While the Governor’s budget
federal requirements. Our understanding is that includes several key proposals that attempt to
the administration’s budgeted amount for service address some of the challenges the state faces
provider transition funding is a “placeholder” in more appropriately funding the community
amount, and not necessarily the outcome of any services system, we find that more could be done to
30 Legislative Analyst’s Office www.lao.ca.gov
2016-17 BUDGET
address the underlying longer-term issues with the be symptomatic, in part, of a community services
community services program financing structures. financing system that is not functioning as
As discussed further below, the Legislature’s special efficiently as it could.
session actions take important steps towards such Financing Reform Effort Should Consider
financing restructuring. Programmatic Impact of Changes Required for
Status Quo May Be Contributing to Inefficient HCBS Rules Compliance. We find that as financing
Program Administration and Use of Services. We reform efforts move forward, they will increasingly
find that the current community services financing need to take into consideration the possible
methodologies are needlessly complex and often do programmatic changes that the new HCBS rules
not serve the needs of RCs, vendors, and program may require.
beneficiaries. As a result, the status quo may be Special Session Legislation Requires DDS
contributing to inefficient program administration to Submit a Rate Study by March 2019. Special
and use of services. Such inefficiencies may session legislation passed by the Legislature and
be occurring to the extent that the financing approved by the Governor includes an important
methodologies, and resultant funding levels, step towards financing restructuring by requiring
result in service provision that is not efficiently a rate study to be conducted that would address
or effectively matched with the consumers’ need. the sustainability, quality, and transparency of
This may occur, for example, when a RC is unable community-based services for individuals with
to find an appropriate residential placement for developmental disabilities. Specifically, this study
a consumer, such as in a CCF, but instead places is required to include, among other issues, an
the consumer in a supported living environment evaluation of the effectiveness of various rate
at higher cost than might have otherwise been methodologies and consider rates relative to the
possible had the most appropriate placement option supply of providers, fiscal effects of alternative rate
been available. methodologies, and how different methodologies
Another example of inefficiency may be can incentivize outcomes for consumers. This
found in recent trends in how some vendors have study is required to be submitted to the Legislature
exercised their ability to request an exemption on or before March 1, 2019. Notably, neither
from rates currently in place if a consumer’s the Governor’s budget nor the special session
health and safety is at risk. The DDS reports that legislation includes resources to support this study.
these requests have increased more recently, in We find that DDS would benefit significantly
part due to provider requests for rate adjustments from the technical expertise of rate consultants
related to cost pressures from local minimum to meaningfully progress with financing reform
wage increases. These requests must be reviewed efforts and we therefore expect that DDS will
by both the RC as well as DDS, which can take require and request additional resources related
several months, and if approved, are most often to this new statutory requirement. We find there
granted on a per individual consumer basis only. is significant opportunity to leverage experience
This is an inefficient process, and administratively from other states and various delivery system
burdensome, to the extent it is increasingly being models to help inform the development of new
used to address fundamental deficiencies in financing structures for the developmental services
provider rate-setting. Overall, the increases in system that better meet the needs of consumers.
health and safety exemption requests appear to The resource requirements for this contract work
www.lao.ca.gov Legislative Analyst’s Office 31
2016-17 BUDGET
will significantly depend on the scope of work and to the SSI/SSP grant levels have on this
related timing, particularly in 2016-17. proposal?
LAO Recommendations • What federal approvals and processes
would be required to implement this
Legislature Should Seriously Consider proposal?
Governor’s January Budget Proposals
Approve Governor’s Proposal to Improve
Approve Four-Bed ARM Rate Proposal in Service Coordinator-to-Consumer Ratios, but
Concept, Pending Additional Implementation Consider Possible Ongoing Federal Funding
and Other Details. We recommend the Legislature Risks. We recommend approval of the Governor’s
approve the Governor’s new ARM rate proposal proposal for increased funding to support
in concept, pending additional information on the improvements in service coordinator-to-consumer
expected impact and implementation details of this ratios and case management functions. The
proposal. We find that this proposal is a reasonable Governor’s proposal would likely have a positive
way to meaningfully target spending given the impact on the quality of services provided as well
proposal’s general alignment with state and federal as the cost-efficiency of program operations if
policy and probability that this change would service coordinator caseloads are indeed reduced.
address an area where there are capacity concerns. However, because the Governor’s proposal
Depending on additional information about the would not support staffing changes sufficient to
current operational environment of these facilities bring RCs into full compliance with all required
and consumers they are serving, as well as details caseload ratios, federal funds could still be at
on how this proposal would be implemented, the risk related to HCBS waiver consumers. While
Legislature may wish to make modifications to special session actions taken by the Legislature
the Governor’s proposal to target these providers could help mitigate some of this risk, that risk
differently from what is presented by the Governor. remains to some degree to the extent that RCs
Some key questions for the Legislature include: are not meeting caseload requirements for HCBS
consumers. We recommend the Legislature direct
• What impact would this proposal have on
the administration to report at budget hearings on
residential facilities and consumers served,
the benefits, trade-offs, and implementation issues
including overall capacity and quality of
of targeting caseload ratio requirements where
care provided?
federal funds are at risk. The Legislature may also
• How might this proposal impact residential want to know what it would take to bring RCs into
facilities vendored with RCs for six beds? full compliance with all caseload requirements.
Approve Request to Establish Fiscal and
• What is the rationale and intent for the
Program Research Unit, but Plan for New
proposed modification for authorization
Unit Should Reflect Legislative Priorities. We
of residential service-level changes? What
recommend approval of the Governor’s request for
problem is this proposal trying to address?
resources and positions to establish a new Fiscal
• Exactly how would this new rate and Program Research Unit. We find that the
methodology be different from existing administration’s request for additional staff and
ARM rates and what impact might changes related resources to support in-house analytical and
32 Legislative Analyst’s Office www.lao.ca.gov
2016-17 BUDGET
data capacity is warranted. While we agree with the that the Governor’s proposal for positions and
administration’s overall proposal, we recommend community resources to begin compliance
the Legislature identify goals and possible efforts in response to the new federal HCBS rules
deliverables for this new unit. In thinking about is a critical next step towards ensuring federal
what priorities and possible deliverables might be, funding for services in the future. We also find
the following are key questions and issues for the the Governor’s requested resources for DDS
Legislature’s consideration: headquarters and RC funding to support 21
evaluator positions for this purpose are reasonable
• What data gaps exist that could help
and raise no concerns at this time. However,
improve DDS oversight and program
because the level of resource requirements for RC
operations and how might this new unit
service providers to achieve compliance is highly
address these gaps? How will recent
uncertain and likely subject to change as described
changes to reporting requirements for RCs
in our analysis, we withhold recommendation
and providers as part of special session
on the aspect of the Governor’s proposal that
legislation help address these gaps?
provides transition support funding to the provider
• What data and analysis should this new community pending additional information from
unit provide publically and how often? For the administration. Specifically, we recommend
example, the Legislature may want to direct the Legislature require the department to report at
this new unit to produce an annual report budget hearings on the following key issues:
on individual RC expenditures as it relates
• Immediate Next Steps for HCBS
to caseload demographic trends such as
Compliance Efforts. Given CMS’ response
age, consumer diagnosis, and other factors.
to California’s STP and significant work
still ahead, what are the administration’s
• How will this new unit work with other key
immediate next steps towards achieving
sister agencies—such as DHCS, California
compliance? Specifically, what
Department of Education (CDE), and
conversations has DDS had with CMS
DPH—in efficiently leveraging data,
and when does the department expect
research, and analytical capacity? For
to have a DDS-specific transition plan
example, are there joint research efforts
for stakeholder review and submission
that DDS could engage with DHCS, CDE,
to CMS? How is DDS collaborating with
and DPH in better understanding overall
DHCS, as the lead agency, to ensure
health and human services utilization and
meaningful progress in meeting CMS’
expenditures for the DDS population more
expectations for approval of the STP? What
holistically?
are the most critical next steps for the DDS
• How will this new research unit help HCBS advisory committee and what is the
support reform efforts for RC operations plan for ongoing meetings and work of the
and provider rates? committee?
Use Budget Deliberations to Gain Additional
• Parameters for Service Provider Eligibility
Clarity on HCBS Compliance Efforts and Key
for Funding and Process to Receive
Aspects of Budget Proposal. Overall, we find
Transition Funding. The Legislature is in
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2016-17 BUDGET
an important position to direct the general RC operations funding. We find that significant
parameters or principles by which service work has been done recently in trying to address
provider funding should be provided to the very difficult and immense challenge of
facilitate modifications by providers to community services financing reform, and without
meet the new HCBS settings rules. This fundamental changes, program administration and
policy direction may help guide what level use of services will likely not continue to operate as
of funding the state should provide for this efficiently as possible.
purpose as well as ensure that spending is Further, the Legislature should require an
consistent with Legislative priorities. update specifically on the status, scope, timing, and
potential cost of the required rate study, and should
• How DDS Will Provide Leadership and
weigh in accordingly to ensure that what moves
Guidance to RCs and Providers. The
forward is consistent with legislative priorities as
success of the community services program
well as the DS Task Force workgroups’ consensus
transition to meet and maintain compliance
findings.
with the new federal rules will depend
Require Administration to Develop a Strategic
on the leadership and direction provided
Plan for Financing Reform. We also recommend
by DDS and DHCS, together, to the RCs
the Legislature require DDS to develop a multiyear
and the provider community. How can
strategic plan for RC system financing reform. We
DDS improve upon its communications
think that such a plan would formally acknowledge
to RCs and providers to ensure complete
financing challenges that currently exist, provide
and accurate understanding of new
direction and expected solutions by which to
requirements and requisite changes needed
address these challenges, and provide a benchmark
to achieve compliance?
for the Legislature to evaluate future budget and
policy proposals over time. Further, we think
Financing Reform Plan Needed
such a plan could provide more accountability
Require Administration to Report at Budget and transparency to the Legislature and the
Hearings on Next Steps and Vision for Reforming public in the development of a new financing
Providers Rates and RC Operations Funding. structure for the RC system. We recognize that
While the administration is already required to meaningful financing reform will take many years
report to the Legislature at budget hearings on to accomplish and by having a reform plan, the
the findings of the DS Task Force and workgroups Legislature will be in a better position by which to
as specified in state law, we recommend the evaluate progress in meeting reform goals, make
Legislature require the administration to also necessary adjustments, and ultimately ensure that
report at budget hearings on expected next steps, what moves forward meets the requirements of the
timing, and vision for reforming provider rates and consumers served by the RC system.
34 Legislative Analyst’s Office www.lao.ca.gov
2016-17 BUDGET
www.lao.ca.gov Legislative Analyst’s Office 35
2016-17 BUDGET
LAO Publications
This report was prepared by Meredith Wurden and reviewed by Mark C. Newton. The Legislative Analyst’s Office (LAO)
is a nonpartisan office that provides fiscal and policy information and advice to the Legislature.
To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service,
are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000,
Sacramento, CA 95814.
36 Legislative Analyst’s Office www.lao.ca.gov