The 2017-18 Budget: Analysis of the Department of Developmental Services Budget

The 2017-18 Budget: Analysis of the Department of Developmental Services Budget MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • FEBRUARY 2017 2017-18 BUDGET 2 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET EXECUTIVE SUMMARY Increases in Developmental Services Budget Mostly Due to Caseload Growth, Funding to Implement State Minimum Wage Increases. The Governor’s budget proposes $6.9 billion ($4.2 billion General Fund) for Department of Developmental Services (DDS) programs in 2017-18—a 3.6 percent net increase (5.2 percent General Fund increase) over estimated expenditures in 2016-17. Increases are primarily due to a growing number of people served in the Community Services Program coupled with funding for service providers to implement state minimum wage increases for minimum wage staff. Spending increases are partially offset by declining costs in the Developmental Center (DC) Program budget (due to declining caseload as residents move into the community). Keeping DC Closures on Track Is of the Utmost Importance Given Increasing Reliance on General Fund and Federal Funding Risks. The state plans to close its three remaining DCs— 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 budget proposes $450 million for DCs in 2017-18, with the state’s General Fund accounting for $330 million (73 percent) of spending. As DC populations decline, there are fewer federally reimbursable services provided, yet base-level operating costs for the facilities remain, meaning DDS relies more heavily on the General Fund each year. (For example, the General Fund accounted for less than 50 percent of DC spending ten years ago.) In addition, as happened with respect to Sonoma DC, the federal government can revoke funding at any time for the intermediate care facilities at Fairview and Porterville DCs if they are found to be out of compliance with health and safety regulations. Given these funding pressures, it is crucial DDS keeps DC closures on track. Trailer Bill Changes Intent of Community Placement Plan (CPP) Funding, Raising Issues for the Legislature to Consider. CPP funding is currently used to develop residential and nonresidential services and supports for people moving out of the DCs. A proposed trailer bill would broaden the use of CPP funding, allowing DDS and the Regional Centers to develop resources for consumers who already live in the community. We believe resource development for community residents should be addressed apart from CPP funding decisions, given that CPP funding was intentionally designed by the Legislature to serve those moving from the DCs. Furthermore, the trailer bill proposal was not justified in that it was not accompanied by an assessment of the unmet need that DDS is trying to address. Even if DDS no longer needs all of the CPP funding for DC residents, the Legislature may wish to weigh in on whether excess funding should revert to the General Fund or remain with DDS for other purposes. DDS Falling Behind in Helping Providers Comply With New Federal Rule, Risking Potential Loss of Significant Federal Funding in Future Years. Of DDS’s nearly $2.7 billion in federal funding in 2017-18, $2 billion is provided through Home- and Community-Based Services (HCBS) Medicaid waivers. A new federal rule passed in 2014 requires states to modify their HCBS programs to increase quality, consumer choice, and integration of consumers into the community. The state (and its service providers) must comply by March 2019 or it risks potentially losing some or all of www.lao.ca.gov Legislative Analyst’s Office 3 2017-18 BUDGET its federal waiver funding. We find that DDS has provided relatively little guidance to the state’s tens of thousands of service providers on what compliance means or what programmatic changes they will need to make to reach compliance. Last year, the Legislature appropriated $15 million in ongoing funds to assist providers with compliance efforts and DDS indicates that the hundreds of provider requests (totaling more than $130 million) highlight providers’ lack of understanding about the rule. Given the state’s significant reliance on federal HCBS funding, we recommend DDS report back during budget hearings this spring about the nature of these requests to understand the extent and severity of provider noncompliance and to inform the Legislature regarding what additional resources DDS may need to help facilitate timely compliance. Rate Study Should Evaluate Rate-Setting Processes That Adapt to Changes in Policies and Economic Conditions. Last year, the Legislature provided $3 million to DDS for a contractor to conduct a study to examine current provider rate-setting methods and to provide recommendations to restructure rates. (The current rate-setting processes are extremely complex and rigid. They have frequently been subject to incremental changes and do not adapt well to changes in policies and economic and market conditions.) The request for proposal (RFP) recently issued by DDS requires the winning bidder to “provide DDS with a documented rate maintenance process,” as part of the study, but does not elaborate on what that means. We understand the RFP cannot be easily changed at this point, but there is a window of opportunity for the Legislature to inform DDS of its preferences to have economic conditions (such as economic recessions), regional market conditions (supply of and demand for provider services), and policy changes (such as minimum wage increases) considered within the RFP’s “rate maintenance” activity. We think that consideration of these factors in the rate study would be of critical value to the Legislature as it considers DDS rate reform. DDS’s New Program and Fiscal Research Unit Presents an Opportunity for Strategic Decision- Making. The 2016-17 budget included $1.2 million in ongoing funds and seven positions for DDS to create a fiscal and program research unit. Although the unit can play a helpful role in responding to legislative and other requests for information, we recommend the Legislature set more specific research goals for the unit that serve to encourage data-driven decision-making. Complicated Rollout of Service Provider Rate Increases May Warrant Relaxed Reporting Requirements. Last year, the Legislature targeted $169.5 million in funding for rate increases to service provider staff who spend at least 75 percent of their time providing direct care to consumers. Although targeting the funding in this way made sense, associated administrative work has been time consuming and some providers may risk forfeiting their rate increases if they do not report back properly by this October. We have recommendations designed to smooth reporting and enforcement related to rate increases. 4 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET BACKGROUND Overview of the Department of does not have private health insurance or if RCs Developmental Services (DDS). Under the cannot access so-called “generic” services (those Lanterman Developmental Disabilities Services provided through other state and local government Act of 1969 (known as the Lanterman Act), the programs, such as Medi-Cal for qualifying state provides individuals who have developmental low-income residents or public education). RCs disabilities with services and supports to meet contract with tens of thousands of vendors around their needs, preferences, and goals in the least the state to purchase services and supports for restrictive environment possible. These services and consumers. The DDS provides the RCs with a supports are overseen by DDS. The Lanterman Act budget for both their administrative operations and defines a developmental disability as a “substantial the purchase of services (POS) from vendors. disability” that starts before age 18 and is expected Developmental Centers (DCs) Program. The to continue indefinitely. This definition includes DDS serves an estimated 847 consumers in 2016-17 cerebral palsy, epilepsy, autism, intellectual at three state-run 24-hour institutions known as disabilities, and other conditions closely related DCs—Fairview DC in Orange County, Porterville to intellectual disabilities that require similar DC in Tulare County, and Sonoma DC in Sonoma treatment (such as traumatic brain injury). Unlike County—as well as one community facility— most other public human services or health services Canyon Springs in Riverside County, which programs, individuals receiving services through serves up to 63 people at any time. Porterville DDS need not meet any income or qualification includes a General Treatment Area (GTA) and a criteria other than a diagnosis of a developmental Secure Treatment Program. (Consumers placed disability. The department administers two main in the secured program at Porterville have either programs, briefly described below. been convicted of a crime or deemed a danger to Community Services Program. The DDS themselves or others.) In 2015, the administration currently serves an estimated 303,447 people announced its intentions to close the three with developmental disabilities (“consumers” remaining DCs—Sonoma DC by the end of 2018 in statutory language) in 2016-17 through its and Fairview DC and Porterville GTA by the end Community Services Program. Services are of 2021. Canyon Springs Community Facility and coordinated through 21 independent nonprofit the secured area of Porterville will remain open agencies called Regional Centers (RCs), which indefinitely. assess eligibility and develop individual program For additional general background on DDS plans (IPPs) for consumers. RCs coordinate and how services and supports are funded and residential, health, day program, employment, provided, see our report, The 2016-17 Budget: transportation, and respite services, among Analysis of the Department of Developmental others, for consumers. As mandated payer of last Services Budget. resort, RCs only pay for services if a consumer www.lao.ca.gov Legislative Analyst’s Office 5 2017-18 BUDGET THE GOVERNOR’S BUDGET PROPOSAL In this section, we provide information about 2017-18) and POS ($5.6 billion in 2017-18) budgets. the Governor’s overall budget proposal for DDS, The proposed Community Services Program describe budgetary changes to the two main budget includes the following adjustments: programs—the Community Services Program and • Caseload Growth and Service Utilization the DC Program, provide a status update on federal Changes. Increase of $317 million funding for DCs, and discuss the DDS headquarters ($283 million General Fund) due to budget proposal. We then provide our assessment of caseload growth (of 4.8 percent) and the budget package for DDS and analyze one of the utilization changes compared to the enacted proposed trailer bills, which we find raises a number 2016-17 budget. More than 75 percent of the growth in POS spending has occurred in of issues for legislative consideration. the categories of community care facilities Overall Budget Proposal Largely (CCFs), support services, day programs, Reflects Caseload Changes and Funding for in-home respite, and transportation. A Implementation of State Minimum Wage policy change that took effect in July 2016 Increases. The Governor’s budget proposes created a new rate tier for CCFs serving up approximately $6.9 billion (all funds) for DDS to four residents (to reflect a current mode in 2017-18, a 3.6 percent net increase over of service delivery that encourages smaller estimated expenditures in 2016-17. General Fund homes). This new rate tier results in higher expenditures account for $4.2 billion of the per-person costs (previously the highest proposed budget, a net increase of $209 million, per-person rate was based on six-person or 5.2 percent, over estimated spending in 2016-17. CCFs). The net increase in overall spending is primarily • State Minimum Wage Increases. Increase due to a growing number of people served in of $77 million ($44 million General Fund) the Community Services Program coupled with to reflect full-year implementation of funding for service providers to implement state a January 1, 2017 state minimum wage minimum wage increases for minimum wage staff. increase (to $10.50 per hour) and half-year Spending increases are partially offset by declining implementation of a scheduled January 1, costs in the DC Program budget (due to declining 2018 state minimum wage increase (to caseload as residents move into the community). $11 per hour). The Governor’s budget does not include any major • One-Time Community Services new policy proposals or budget initiatives. Development Funds for Individuals Community Services Program Moving From DCs. In addition to Budget Summary $68 million in ongoing base-level funding, the Governor’s budget requests about The Community Services Program comprises $26 million ($19 million General Fund) the vast majority of DDS funding, estimated at in one-time resources for the Community $6.4 billion in 2017-18 ($3.8 billion General Fund), Placement Plan (CPP). (By comparison, a 5.9 percent net increase over estimated 2016-17 the request in 2016-17 for supplementary expenditures. The Community Services Program one-time funding for CPP was for includes funding for RC operations ($754 million in 6 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET $79 million [$69 million General Fund].) • Porterville Water Safety. Increase of CPP funds are used to aid in the transition $3.7 million in one-time General Fund of consumers from DCs to the community. spending to install a nitrate removal system RCs request CPP funding to develop new for the water supply at Porterville DC. community resources (residential and • New Method for Estimating DC Costs. nonresidential) for these consumers, assess The DDS implemented a new method an individual’s needs in moving to the for estimating 2017-18 costs at DCs, now community, and plan for an individual’s accounting for the base level of staffing community services. required regardless of how many residents • Decreased RC Operations Funding. live at the DC and basing costs on the Decrease of $200,000 ($100,000 General number and type of residential units Fund) due to a new method for estimating needed at each DC (as opposed to simply RC rent costs. The DDS worked with the the total number of DC residents). Department of General Services to update its methodology to better estimate rent Status Update on Federal Funding for DCs costs by accounting for factors such as fair Several years ago, the California Department market values in each location and actual of Public Health (DPH)—the state department lease costs. that has licensing and certification responsibilities over DCs—found the intermediate care facilities DC Program Budget Summary for the developmentally disabled (ICF/DDs) at The Governor’s budget proposes $450 million Sonoma, Fairview, and Porterville DCs to be out of all funds ($330 million General Fund) for DCs, compliance with federal certification requirements. a net decrease of 15.1 percent below estimated In 2013, DDS voluntarily decertified four ICF/DD 2016-17 expenditures. units at Sonoma DC, but to retain federal funds • Continuing Declines in Caseload and for the remaining seven units, DDS entered into a Staffing. Net decrease of about $81 million settlement agreement (which included a program ($12 million General Fund) below the improvement plan) with the federal Centers for enacted 2016-17 budget, an 18 percent Medicare and Medicaid Services (CMS), DPH, decline, due to reductions in caseload and and the California Department of Health Care related staffing adjustments. DDS expects Services (DHCS). Nevertheless the ICF/DD to move 257 residents into the community units at Sonoma were ultimately decertified in 2017-18, reducing the overall number of and became ineligible for federal funding as of DC residents to 490 by the end of 2017-18. July 1, 2016. Despite failing compliance surveys It expects a corresponding net decline in in 2015, Fairview and Porterville DCs have staff positions of nearly 500. subsequently been more successful in their • Closure Activities. Increase of $800,000 attempts to implement corrective actions for their ($600,000 General Fund) for archiving ICF/DD units. The CMS, DPH, DHCS, and DDS historical and clinical records at entered into settlement agreements in July 2016 Fairview and Porterville DCs as well as for Fairview and Porterville GTA DCs that would the relocation of physical property and have terminated funding at the end of 2016. The equipment from Sonoma DC. agreements, however, allowed the certification of www.lao.ca.gov Legislative Analyst’s Office 7 2017-18 BUDGET these residential units to be extended annually Increasing Reliance on the General Fund. Ten through the end of 2019, and federal funding was years ago, California’s General Fund accounted recently extended through 2017. for less than 50 percent of the annual DC budget, Extension of Certification of Fairview and whereas it now comprises more than 70 percent Porterville GTA ICF/DDs Includes Specific (see Figure 1). This reflects that as DC populations Improvement Activities. The recently extended decline, there are fewer federally reimbursable settlement agreements at Fairview and Porterville services provided, yet base-level operating costs GTA DCs included a number of key activities for the facilities remain. The state is now spending that should keep DDS on track to retain federal about what it did in 2008-09 in real dollars funding, including independent monitoring of despite an estimated decline in caseload of about client protections, health care, and behavioral 70 percent and in the number of state staff of about health and active treatment at each DC. In addition, 50 percent. Beginning in 2020, none of the ICF/DD interdisciplinary teams will monitor the individual units at Fairview and Porterville DCs will be transition plans of residents as preparations are eligible for federal funding. It is important to keep made to move them into the community. The DDS closures on track to keep state costs down. The DDS notes that its independent monitor conducts mock is confident that Sonoma DC will close on time, yet certification surveys at each DC in an effort to stay the number of resident transitions in 2016-17 has ahead of possible deficiencies. not kept pace with initial expectations. Last year, Despite DDS Being Well-Poised to Retain DDS estimated that Sonoma’s resident population Federal Funding at DCs, Risk Remains. Although would reduce in half over the course of 2016-17 DDS has successfully extended the termination (from 298 on July 1, 2016 to 156 by June 30, 2017). date of Fairview and Porterville ICF/DD It now estimates the population will decline just certification, CMS reserves the right to revoke 16 percent (to 249) by June 30, 2017. certification at any time. If certification is revoked, Figure 1 DDS estimates the monthly Sources of Funding for Developmental Centers Budget loss of funds at $6.7 million Fund Source, as Percent of Total Budget in 2016-17 and $4 million 80% in 2017-18 ($48 million in 70 annual terms). While DDS is General Fund using the same independent 60 monitoring company that it 50 used at Sonoma DC, whose 40 units were decertified, it Federal Reimbursements 30 believes the lessons learned at Sonoma by this monitor 20 can be leveraged at Fairview 10 and Porterville DCs. Keeping DC Closures 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 on Track Is of the Utmost Note: 2016-17 amounts are estimated and 2017-18 amounts are proposed. Importance Given the 8 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Headquarters Budget Proposal types—ICF/DDs, skilled nursing facilities, and acute care facilities. We find that the new method The Governor’s budget proposes $52 million will allow the department to better calibrate staff ($35 million General Fund) for headquarters and facilities costs for a declining DC population. operations expenditures, a 2.2 percent increase over Similarly, the new method DDS is using to estimate estimated expenditures in 2016-17. The increase RC rent costs appears to be a more accurate includes $597,000 ($554,000 General Fund) and four reflection of actual costs, rather than a reflection of positions for oversight of housing developments a potentially outdated rental formula. funded through CPP as well as $398,000 ($317,000 General Fund) and three positions to improve Trailer Bill Raises Issues for the information technology security and privacy Legislature to Consider infrastructure and practices to comply with state Submission of the budget proposal included and federal security and privacy laws. seven trailer bills. As discussed below, we raise LAO Assessment of issues for legislative consideration regarding the Overall Budget Proposal proposal to broaden the use of CPP funding. What Is CPP Funding? As mentioned Caseload Estimates for Community Services earlier, the state allocates CPP funding to Program Seem Reasonable. The community develop community resources (residential and caseload has steadily increased year over year. The nonresidential) for consumers transitioning Governor’s budget projects RC consumer caseload from DCs to the community. Among its uses, of slightly more than 317,000 as of January 31, the funding is used by RCs for the initial costs 2018, an increase of 4.6 percent over the estimated associated with placing DC residents in the caseload as of January 31, 2017. In recent years, community and for providing the services and the Governor’s budget projections for caseload supports that would prevent placing someone in an in the upcoming fiscal year have been relatively institutional setting. In recent years, CPP funding close to actual caseload numbers. While we find has been used to develop residential resources for that the Governor’s overall caseload assumptions consumers transitioning from DCs, including two appear reasonable, we withhold recommendation new residential models—Enhanced Behavioral at this time pending the release of updated Support Homes and Adult Residential Facilities caseload estimates at the May Revision. We will for Persons with Special Health Care Needs—and continue to monitor caseload growth trends and nonresidential resources, such as day programs and recommend adjustments to the Governor’s caseload dental services. assumptions, if necessary, following our review of What Would the CPP-Related Trailer Bill Do? the May Revision. Whereas current state law earmarks CPP funding New Methods for Estimating DC Costs to serve the needs of consumers moving from DCs, and RC Rent Costs an Improvement. The new the proposed trailer bill would allow DDS and method that DDS is using to estimate DC costs RCs to use CPP funding to develop resources for appears to provide a more accurate assessment of consumers who already live in the community. the particular needs and associated costs at each The Trailer Bill Changes the Purpose of CPP DC. The new method appears to more precisely Funding. CPP funding is intended to increase estimate the staffing needs—clinical, medical, and resource capacity in the community to serve the administrative—for each of the residential unit www.lao.ca.gov Legislative Analyst’s Office 9 2017-18 BUDGET needs of former DC residents, as well as to fund Alzheimer’s Disease or dementia). In this regard, these consumers’ transitions into the community. DDS indicated that resource capacity is needed to Developing resources for already community- adapt to the changing needs of consumers to ensure based residents was not the intended purpose of that there are sufficient providers for the particular CPP funding. Broadening the use of CPP funding types of services being demanded. However, we would result in less available funding for those believe the issue of community service funding moving from DCs. This trailer bill proposal was not requirements should be addressed apart from submitted to the Legislature in conjunction with CPP funding decisions, given that CPP funding an assessment of the unmet need DDS is trying to was intentionally designed by the Legislature to address by broadening the use of CPP funding or serve those moving from DCs. Even in the event details of how the broadened use of CPP funding DDS no longer needs all of the CPP funding for would be spent. In addition, it does not include DC residents because most projects are already an estimate of how much CPP funding would be underway, the Legislature may wish to weigh in on shifted to these activities. whether that funding should revert to the General The Legislature May Wish to Consider Fund or remain with DDS for other purposes. Community Resource Development Needs on When assessing the issue of community service Their Own Merit. Based on high-level discussions funding requirements on their own merit, the with DDS, we agree there may be a need for Legislature could also evaluate alternative funding increased resource capacity for consumers living mechanisms for developing community resources. in the community. For example, there are many As discussed further later, the Legislature could more consumers with autism than in the past (see consider requiring DDS to conduct an assessment page 16 for a more in-depth discussion of this issue) of where community services currently fall short and consumers are living longer and facing health before requesting additional funding to address issues associated with older age (for example, nearly these gaps in service coverage. all individuals with down syndrome will develop HOW CHANGES TO THE COMMUNITY SERVICES PROGRAM ARE IMPLEMENTED WILL BE CRITICAL FOR SUCCESS The field of developmental services is undergoing future developmental services program in the state, several large shifts in both policy and practice, the and discuss issues for the Legislature to consider as implementation of which have near- and long-term DDS implements these changes. implications for the state’s system of developmental State and Federal Policy Supports a services. How DDS implements these changes will “Person-Centered” Approach affect funding streams, quality of service provided, and consumer outcomes. Below, we describe the A person-centered approach to serving people general nature of the changes, detail the relevant state with developmental disabilities is a philosophy, and federal policies and their implications for the practice, and policy. 10 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Philosophically, the Person-Centered Approach for approximately 130,000 consumers through Puts the Person First. The person-centered approach Home- and Community-Based Services (HCBS) means viewing someone as a person first, rather waivers. HCBS waivers provide Medicaid funding than defining that person by his or her disability. It for Medicaid-eligible individuals to receive means that rather than limiting someone’s choices long-term care services and supports in home- based on what is available within the developmental and community-based settings, rather than in services network, the person is allowed to express his institutions. (Beneficiaries include persons with or her own hopes and preferences. developmental disabilities as well as other people In Practice, Person-Centered Planning at risk of institutionalization, such as older adults Identifies Consumers’ Preferences. In California, and people with long-term illnesses or physical person-centered planning is the process used to disabilities.) Waiver funding requires the state develop a consumer’s IPP. The process involves to equally match federal contributions, which it ongoing meetings and discussions among the does through the General Fund. As a condition of individual, his or her family (if appropriate), receiving ongoing waiver funding, states have until other relevant people (such as RC clinical staff March 2019 to be in compliance with new HCBS or caregivers), and the individual’s RC service waiver conditions (called the “final rule”) passed by coordinator. Through this process, the IPP CMS in 2014. is developed to identify and understand the HCBS Final Rule Focuses on Community individual’s goals and preferences and to select Integration and Consumer Choice. According the services and supports (such as residential and to CMS, the final rule “creates a more outcome- employment) needed to advance these goals and oriented definition of home- and community-based facilitate daily living. settings, rather than one based solely on a setting’s The Person-Centered Approach Drives location, geography, or physical characteristics.” Policy. The person-centered approach is at the It defines, and requires states to use, a person- heart of current state and federal developmental centered planning process and it provides services policy. The state of California codified requirements for home- and community-based an individualized person-focused IPP process settings to maximize consumer independence and and the right of individuals with developmental integration into the community. Examples of new disabilities to make choices about their own lives residential requirements include requirements that through 1992 amendments to the Lanterman Act. consumers must be able to come and go freely, Rules passed by CMS make federal funding to the have visitors whenever they would like, have their states contingent on states using a person-centered own bedroom, and be able to lock their bedroom approach to determine preferred and needed door from the inside. The final rule requires day services and supports. Although California has program and employment settings to be integrated been using a person-centered approach since the with, and for consumers to have access to, the 1990s, DDS must implement recently enacted greater community. States must submit a “Statewide federal and state regulations and policies that Transition Plan (STP),” which provides details further advance person-centered objectives. about how they plan to meet the requirements of New Federal Rule With Major Programmatic the new rule. DHCS submitted California’s revised Implications Requires Compliance by transition plan in November 2016. March 2019. California receives federal funding www.lao.ca.gov Legislative Analyst’s Office 11 2017-18 BUDGET DC Closure Policy Was in Part a Fiscal Competitive Integrated Employment (CIE) Decision . . . The state began providing DC services Promotes Integration and Pay at the Going to people with developmental disabilities in the Wage . . . At both the state and federal levels, policy late 1800s and over time has operated as many as has shifted when it comes to the employment of 11 DCs, including programs within state hospitals. individuals with developmental disabilities, again After passage of the Lanterman Act in 1969, DC to a more integrated and person-centered approach. populations began to decline as more consumers In 2013, the Legislature enacted Chapter 667 received services in the community. In 2012, the of 2013 (AB 1041, Chesbro), to implement an Legislature issued a moratorium on new admissions “employment first” policy, which provides that CIE to DCs, and in 2015, the decision was made to close will be the highest priority for working age people the remaining DCs. DDS submitted the last of with developmental disabilities, regardless of the the remaining closure plans (for Fairview DC and severity of their disability. In 2014, Congress passed Porterville GTA) to the Legislature in April 2016. the Workforce Innovation and Opportunities The decision to close the DCs was in part a Act (WIOA), which promotes CIE and increased cost-savings measure (as were federal HCBS rules training and supports (particularly for those age to deinstitutionalize people with developmental 24 and younger), and generally prohibits employers disabilities). At the time the decision was made from paying subminimum wages to employees to close the remaining DCs, the average annual with developmental disabilities. The WIOA also cost to serve a DC resident was about $500,000; by provided a definition of CIE: full- or part-time 2017-18, the cost will be closer to $700,000. (As the work compensated at either the going wage for population declines, the average annual per person that particular position or the minimum wage— cost will continue to rise because the state still has whichever is higher—and in which the employee to maintain the buildings and land, and provide interacts with individuals who do not have a minimum level of staffing). By comparison, it is disabilities and has opportunities for advancement. generally less expensive to serve a resident living In collaboration with the California Departments in the community, although the cost per person of Education and Rehabilitation, DDS recently varies greatly depending on a person’s severity of released a draft employment blueprint. Once disability, residential setting, and mix of services. finalized, the blueprint will provide a road map . . . But Also a Promotion of the Person- for increasing CIE over a five-year period so as to Centered Approach. In addition to the compelling achieve full compliance with WIOA requirements. financial reasons for closing DCs, the state has . . . And a Paradigm Shift Away From Previous also been moving toward a more integrated Activities. Seeking mainstream employment and community-based system for people with for people with developmental disabilities is a developmental disabilities for more than two shift away from the types of programs and work decades. Transitioning residents out of DCs and activities that are still the mainstay. For example, into the broader community provides former DC more than 50,000 consumers currently participate consumers with greater access to community life in day programs, which provide social-skills and is in line with the state’s emphasis on a person- and self-care training to groups of consumers centered approach. in a set location or out in the community. These are not paid work programs but rather daytime activity programs. Day program expenditures 12 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET currently comprise one-fifth of POS spending. with the RC), and decide whether they would like Another mainstay is work activity programs, to work with their RC service coordinator or an which involve large “sheltered workshops” and independent facilitator. Participating consumers typically pay participants subminimum wage. will still be required to design an IPP and they will About 1 percent of POS spending is for work be required to work with a financial management activity programs, which currently serve about service to manage their budget (currently, more 10,000 consumers. Meanwhile, individual and than 8,000 consumers already work with a financial group supported employment programs (which management service at an average annual cost of make up about 2 percent of POS spending) provide $460). on-the-job support and coaching to more than SDP Contingent on Federal Waiver Funding. 10,000 consumer employees, many of whom earn at Implementation of SDP depends on California least minimum wage. In the past, consumers who securing federal funding through a new HCBS wanted to work in the community often lacked a waiver. The state’s waiver application proposes variety of jobs from which to choose. One goal of phasing in SDP over three years for up to employment first is to provide more job options 2,500 randomly selected consumers. At the end as well as the training and education required for of the phase-in period, DDS will offer SDP to any those jobs. interested RC consumer. DDS submitted its waiver The Current Rate of Employment Is Unclear; application in 2014 and revised application in 2015, Proposed Trailer Bill Will Facilitate Data and hopes to finalize the terms with CMS in the Collection. It is currently difficult to know exactly coming months. DDS maintains it is ready to roll how many people with developmental disabilities in out SDP upon approval of the waiver. California have paid work—and at what pay level— Funding Pressures in the because an individual’s work may not be part of an Community Services Program employment program or because an individual may not earn enough to pay income taxes. Proposed This section first notes the sources of fiscal trailer bill language would require RCs to report on pressure (at least in the near term) resulting from employment data in their performance contracts recent policy changes described above. These with DDS. DDS has said it will work with RCs to include the possible loss of federal funding if the address some of the data gathering challenges. HCBS compliance deadline is missed, the costs Self Determination Program (SDP) Will Give associated with HCBS compliance, the funding More Control to Consumers. Another state policy— risks and costs associated with federally required Chapter 683 of 2013 (SB 468, Emmerson)—that service coordinator-to-consumer caseload ratios, will promote consumer choice and independence and the need to develop community-based crisis is the creation of the SDP. SDP will give interested services as DCs close. We then go on to describe consumers greater choice in selecting the services financial pressures associated with other types and supports they prefer. Although the current IPP of policy changes (such as state minimum wage process uses a person-centered approach, SDP will increases) and with population and demographic go a step further. It will allow consumers to control changes in the developmental services system how their budget is spent on services and supports at-large (including growth in caseload, growth in identified in their IPP, select their own service the number of autism cases, increasing diversity, providers (including ones that are not “vendored” and longer life expectancy). www.lao.ca.gov Legislative Analyst’s Office 13 2017-18 BUDGET Resulting Funding Pressures and what the consequences will be if full compliance From Recent Policy Changes is not reached by March 2019. For anything less than full compliance, the state risks losing some or all of New state and federal policies that promote its federal HCBS waiver funding. consumer choice and community integration State Funding to Assist HCBS Compliance could ultimately save the state money. For example, Efforts Among Service Providers Is Another serving consumers in the community is far less Funding Pressure. In the 2016-17 Budget Act, the expensive than serving them in institutions (as Legislature appropriated $15 million in ongoing described earlier). Consumers who find CIE funding for DDS to allocate to service providers may need fewer government-funded benefits. who demonstrated they needed assistance to Evaluations of SDPs in other states have shown comply with the HCBS final rule. The legislation that they can save money. Still, there are funding requires RCs to report annually on the number of pressures associated with implementing these new providers receiving funding for these compliance policies, as described below. efforts. According to DDS, last October, more than Major Federal HCBS Funding at Risk. 900 service providers (less than 5 percent of the Federal reimbursements for developmental services estimated number of providers) submitted proposals currently provide about 40 percent of California’s for more than $130 million in funding requests. total DDS budget—$2.7 billion in 2017-18. Federal The variety of requests appear to highlight a lack of reimbursements from the Medicaid program understanding about the final rule, which could be ($2.4 billion) provide the bulk of this funding and a result of the limited guidance provided thus far by of that amount, about $2 billion (or 30 percent the state. The funding pressure on the system stems of the entire DDS budget) is provided through both from the risk of losing federal waiver funding HCBS waivers. Nearly 60 percent of consumers do (as discussed above) and from the unknown cost to not receive HCBS waiver funding, yet all service the state to provide financial assistance to service providers must be in compliance with the final rule providers to bring them into compliance. because they may serve someone who does receive Required Improvements to Service Coordinator- waiver HCBS funding. According to the STP to-Consumer Caseload Ratios Create Funding the state submitted to CMS this past September Pressures. Current state law, as well as the terms of the (which CMS has not yet approved), there will be current HCBS waiver, require RCs to have specified a three-part process to assess whether service average service coordinator-to-consumer ratios providers comply with the final rule. First, DDS depending on certain consumer characteristics. For will work with DHCS to send self-surveys to all example, federal HCBS rules require RCs to maintain service providers to gauge how well the providers’ an average service coordinator-to-consumer ratio current operations align with the final rule. Second, of 1-to-62 for consumers receiving services through DDS will conduct interviews with consumers the HCBS waiver. State law further requires RCs to to gather their opinions about the services maintain an average ratio of 1-to-45 for consumers they receive. Lastly, DDS will conduct on-site who have moved from a DC within the previous assessments of a sample of service providers. DDS 12 months, 1-to-62 for consumers age three and will give the assessment results to providers so they younger, and 1-to-66 for all other consumers. The RCs can ameliorate any problems. have had longstanding challenges with maintaining It remains unclear how stringently CMS will these required caseload ratios, citing significant enforce the deadline and compliance requirements 14 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET funding issues that may relate to the department’s crisis homes to serve residents moving out of overall methodology for funding RC operations. Sonoma and Porterville DCs. Community crisis The 2016-17 budget included $17 million (all funds) homes are meant to be temporary residences for to support an estimated 200 additional RC service the consumer while he or she stabilizes. Currently, coordinator positions with the goal of improving RC no community crisis homes have been opened. coordinator-to-consumer caseload ratios. In addition, Another option that is under development to statute requires RCs to report annually to DDS serve as a safety net for consumers with especially on the number of staff hired with these additional challenging behaviors is the Enhanced Behavioral funds as well as on RC’s effectiveness in reducing Support Home (EBSH). An EBSH is meant for average caseload ratios. DDS indicated that RCs will consumers who require nonmedical 24-hour care provide information about hiring and an update on and advanced behavioral support. For up to six of coordinator-to-consumer ratios in early March; DDS these homes (more than 20 are currently under will provide an overall update in April or May. development for those moving from DCs), delayed Funding pressures stem from two main sources egress devices (which provide a short delay on exit with regards to coordinator-to-consumer caseloads. doors to allow staff to quickly assess the situation) First, there is an HCBS compliance issue and the risk in combination with a secured perimeter may be of losing some amount of federal funding. Second, added. Homes with delayed egress and secured there is the cost associated with hiring additional perimeters are meant to provide temporary (up coordinators, which, as noted above, special session to 18 months) stabilization for consumers in need legislation attempted to address last year. Until DDS of intensive intervention and who may be at risk reports back on this information, it is unknown what of harming themselves or others. The funding more may be required to improve caseload ratios. pressure in this context stems from the need to Crisis Services and Safety Net Resources Will develop crises services for consumers in need and Be Lost With DC Closures, Creating Funding the need to have these resources in place by the Pressures to Replace Them. DCs currently provide time the DCs are fully closed. a safety net for consumers who are in crisis or who Other Funding Pressures Also Exist in the exhibit significant behavioral challenges. Not only Developmental Services System At-Large are the DCs each licensed as general acute care hospitals with onsite medical staff, but Sonoma and Raising the State Minimum Wage Increases Fairview DCs each house an acute crisis facility Costs for Service Providers and State. There that can serve up to five consumers in crisis at a is precedent for the Legislature to appropriate time. The DDS indicated that these crisis facilities funding to cover service providers’ increased are nearly always full and the average length of stay staffing costs due to increases in the state’s is about 315 days. Once the DCs are fully closed, minimum wage. For example, in the past decade, the system can no longer fall back on DCs as a last the state budget provided increases for affected resort for the provision of crisis services. providers in 2006-07, 2007-08, 2014-15, 2015-16, Crisis and Safety Net Resources Must Be and 2016-17. The Governor’s budget proposes Ready Before Final DC Closures. The system has about $77 million ($44 million General Fund) responded in several ways to the future loss of crisis for this purpose in 2017-18 to account for the and safety net services. As of January 2017, RCs increases that took effect in January 2017 and the were in the process of developing eight community one that is scheduled to take effect in January 2018 www.lao.ca.gov Legislative Analyst’s Office 15 2017-18 BUDGET as the minimum wage continues its scheduled The 2016-17 enacted budget provided $18.4 million step-by-step progression to $15 by 2022. The ($9.9 million General Fund) to cover these costs. funding increases do not account for “wage Rapidly Rising Caseloads—With a Rising compression” resulting from the implementation Share of Consumers With Autism—Increase of a minimum wage increase. Wage compression Costs . . . The overall growth in the number of is the concept that as the wages of the lowest paid consumers eligible to receive developmental workers increase, the gap between their wages and services has outpaced population growth in the wages of their managers or higher-ups tightens California. Annual caseload growth has averaged or closes altogether. Employers then face pressure about 4.6 percent since 2015, when broadened to increase the wages of those employees as well. eligibility criteria were reinstated for infants and This issue can ultimately lead to pressure on the toddlers under three years of age. (Eligibility for state to raise provider rates to mitigate the impacts this age group was tightened between 2009 and of wage compression. 2015 as a cost-savings measure.) Average annual Local Minimum Wage Increases May growth over the past ten years has been 3.7 percent. Trigger Provider Requests for More Funding. Meanwhile, the state’s population has increased at The Legislature has not traditionally appropriated an average rate of 0.8 percent. additional funding to cover service providers’ The underlying reasons for such significant increased staffing costs due to increases in local caseload growth are not fully understood, but minimum wages. Currently, more than 20 cities are likely to include such high-level factors as an in California have a minimum wage that is higher aging RC population and an increase in the autism than the state’s. The mechanism by which a service population served by DDS. About 35 percent of provider may request a rate increase from DDS all consumers today are diagnosed with autism, to cover its higher staffing costs due to a factor about three and a half times the share in 2000. The such as a local minimum wage increase is to rapidly increasing share of consumers with autism submit a health and safety (H&S) waiver through exerts a cost pressure on the developmental services the vendoring RC for each consumer served by a system because autism is the most expensive provider. On a consumer-by-consumer basis, the developmental disability to treat on average, provider must demonstrate that the health or safety according to DDS. The vast majority of consumers of the consumer is at risk without the requested with autism are between the ages of 3 and 21. funding. While DDS sometimes grants approval Consumers under the age of 22 are eligible for H&S waivers to account for local minimum for many government services, such as public wages, the application process is administratively education and most live with their parents. As this cumbersome for the vendors, RCs, and DDS. large group of children begins to reach adulthood, Other Labor Laws Have Also Increased DDS will have to cover a much larger share of the Service Provider Costs. Recent changes to other cost to serve them. labor laws have also created additional costs in . . . Other Demographic Shifts Likely Increase the system. The state provided a 5.82 percent rate Costs. Other demographic changes among increase, effective December 1, 2015, for certain consumers are also likely to increase costs. For services to implement new federal regulations example, for about one-quarter of consumers, requiring overtime pay for home care workers. English is not their primary spoken language. Although the shares of English and non-English 16 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET speakers have increased at similar rates in recent implementation of the recent policy changes years, the growth in the number of non-English and ensure effective legislative oversight of such speakers requires RC and service provider staff to implementation. accommodate them. Another demographic shift Service Providers Could Miss is the increasing life expectancy of people with HCBS Compliance Deadline developmental disabilities. As consumers live longer, they will need care longer, more intensive Final Rule Issued in 2014, Yet the State Has health care when they are older, and their parental Been Slow in its Efforts to Facilitate Compliance. caregivers may be unable to care for them as the Although DDS must coordinate HCBS compliance parents themselves age or pass away. efforts with DHCS, we have concerns that too Figure 2 shows the rapid rise in RC caseload little guidance has been provided thus far to since 2000-01 along with corresponding DDS service providers to ensure their compliance by expenditures (all funds). Although expenditure March 2019. The primary activities underway thus growth stalled during the Great Recession, funding far include convening of an advisory group to increases that were part of last year’s special session guide the transition process; posting informational legislation and budget act have accelerated growth. pieces, fact sheets, and frequently asked questions online; providing a copy of the STP online; and Issues for Legislative notifying RCs of the $15 million in funding Consideration provided by the Legislature for compliance Below, we identify several issues for activities (and associated application rules). legislative consideration and offer a number We understand that DHCS is still awaiting of recommendations designed to smooth the final approval of the STP from CMS to begin Figure 2 Regional Center Community Caseload and Expenditure Growth $6.5 350 6.0 5.5 300 5.0 4.5 250 4.0 3.5 200 3.0 2.5 150 2.0 1.5 100 www.lao.ca.gov Legislative Analyst’s Office 17 )snoilliB nI( serutidnepxE Caseload (In Thousands) Caseload (Right Axis) Total Expenditures (Left Axis) 00-01 02-03 04-05 06-07 08-09 10-11 12-13 14-15 16-17 17-18 Note: 2016-17 amounts are estimated and 2017-18 amounts are proposed. 2017-18 BUDGET official provider assessments, but our concern is of requests (more than 900) and total amount of that time is running out for the actions necessary requests (more than $130 million) received last for providers to reach compliance by March 2019. fall for compliance funding, the Legislature could The STP proposes conducting provider self-surveys direct DDS to report at budget hearings with details for the better part of 2017, and onsite assessments on what it gleaned from the funding requests. from the first quarter of 2017 through the third The report at budget hearings could include quarter of 2018. This leaves only a short window for information on the nature of the funding requests, remediation activities identified as necessary from whether they identified any serious compliance the self-surveys and onsite assessments—perhaps as issues, what service providers proposed to do, little as a few months for some providers. However, whether the proposals taken together highlight a if DDS does not begin these activities until CMS need for educational efforts about the final rule, approves the STP, this further compresses the short and how much additional funding DDS estimates window to achieve compliance with the final rule. service providers will need for compliance efforts It is concerning that DHCS only just submitted based on the proposals submitted. Although the state’s revised STP (on November 23, 2016), the self-surveys and onsite assessments will also leaving at most two years for much of the serious be seeking some of the same information, DDS compliance work (and that assumes CMS approves could use the information it already has to gauge the plan quickly). the gravity of compliance issues and inform the We recognize that DDS has made efforts Legislature of how it intends to remediate these in this area, for example, increasing residential problems ahead of the March 2019 deadline. In capacity that conforms to new requirements, its report, DDS could also inform the Legislature convening taskforces and workgroups, releasing of its priorities for allocating the appropriated an employment blueprint in coordination with the compliance funding and generally how it decides Departments of Rehabilitation and Education, and which funding requests to approve. allowing providers to apply for funding to support Clarity Needed on “Rate Maintenance compliance efforts. Our concern remains, however, Process” in DDS Rate Study whether the tens of thousands of service providers around the state will have made the necessary Current Rate-Setting Process Is Very programmatic and facility changes to come into Complicated. Provider rate-setting methodologies compliance by 2019, especially since so little is vary significantly depending on the type of service known about the extent of noncompliance with the and provider, and have frequently been subject final rule. to incremental changes, making the overall LAO Recommendation—Direct DDS to Report rate-setting process highly complex. The vast at Budget Hearings on How Compliance Funds majority of POS rates are set by DDS or negotiated Were Allocated. As noted earlier, last year the between the provider and RC. Some rates, however, Legislature appropriated $15 million in ongoing are established by DHCS through the Medi-Cal funding for DDS to allocate to service providers program, set at what is charged to the general for compliance activities related to the final rule. public and referred to as “usual and customary” Currently, statute only requires that RCs report rates, or set using other methodologies. on the number of service providers that received For rates negotiated between RCs and vendors, funding for this purpose. Given the sheer volume budget solutions taken by the Legislature during 18 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET the recent recession froze rates and established a RFP for the Rate Study Includes Requirement median rate process for new vendors (RCs assign That Contractor Provide a Rate Maintenance new vendors the lower of the RC median rate or the Process. The contractor awarded the rate study statewide median rate for that service). Legislation project is required to “provide DDS with a passed in 2011 recalculated the medians, which documented rate maintenance process, and the meant that most median rates were lowered. These multiyear fiscal impact.” We assume that “rate policies remain in effect. One consequence has maintenance” refers to the process of making rate been that new vendors in high-cost areas are often adjustments over time. (For example, in other areas assigned the statewide median rate (which can be of government, some benefits or rates for services a disincentive to enter the market). In addition, it are automatically adjusted based on changes in the means there are large inequities in the rates paid to Consumer Price Index.) It is not stated explicitly vendors providing the same service that entered the whether the rate maintenance activity in the RFP system before and after the rate freeze. includes consideration of how the rate-setting Similarly, the current rate-setting processes process should account for, and adapt to, changing have been complicated by policy changes. For economic conditions and policy changes that are example, in response to minimum wage increases, outside of DDS’s control. Much of the system’s the state has increased rates for providers with current complexity is due to these factors. We minimum-wage employees, but has not accounted think that consideration of these factors in the rate for the resulting wage compression. As another study would be of critical value in informing the example, the current mode for residential facilities Legislature as it considers DDS rate reform. is to have four residents (rather than six), but for a LAO Recommendation—Inform DDS of long time (up until last year), rates were unable to Legislative Preference for Including Consideration account for this shift in service delivery. of Economic and Policy Changes in the Rate Special Session Legislation Required a Rate Maintenance Process. We recommend the Study. DDS received $3 million last year for a Legislature inform DDS of its preference to have contractor to conduct a service provider rate the role of economic and policy changes considered study and provide recommendations about rate within the rate maintenance activity identified in setting. The rate study and recommendations to the RFP. Rate maintenance is currently not defined address some of these problems are due to the in the RFP. The Legislature could request that DDS Legislature by March 1, 2019. Statute stipulates work with prospective bidders about its meaning. that the study should provide an assessment of For example, rate maintenance could include: the current methods for setting rates, including • Options for how the Legislature and DDS whether they provide an adequate supply of could reduce costs in recessionary times, vendors; a comparison of the fiscal effects of while minimizing adverse impacts on alternative rate-setting methods; and how vendor consumer outcomes. This could include rates relate to consumer outcomes. It also requires recommendations for making targeted an evaluation of the current number and types of reductions rather than across-the-board service codes and recommendations for possible cuts or rate freezes. restructuring of service codes. The request for • Options for how the Legislature could proposal (RFP) for the rate study was just released either restore funding or return to a on February 9, 2017. www.lao.ca.gov Legislative Analyst’s Office 19 2017-18 BUDGET regular rate maintenance schedule after New Research and Fiscal Unit Presents an cost-savings measures have been taken. Opportunity for Strategic Decision-Making First Year Focused on Hiring, Restructuring. • Options for how the Legislature, DDS, and RCs could make ongoing rate adjustments The 2016-17 budget included $1.2 million ($930,000 based on regional market conditions, General Fund) and seven positions for DDS to including how the supply of services by create a fiscal and program research unit. In its providers meets the demand for services by budget change proposal last year, DDS noted consumers. that it receives numerous requests for data and information, but that unlike other departments • Options for how the Legislature and DDS of its size, had no staff dedicated to research could implement rate changes associated and analysis to respond to these requests. Since with minimum wage increases (and other establishing the unit, DDS has to date hired a labor laws), including how to measure PhD-level unit manager and filled two other the number of affected vendors and employees, as well as how to address wage positions. DDS reports that it has consolidated compression. some of its administration, data extraction, and audit functions within the new unit, and that • Options for how the Legislature and DDS it intends the new unit to respond to requests could handle policy changes, such as and respond more quickly, archive requests and changes in authorized modes of service responses, inform decisions related to the annual delivery, that have a direct impact on January and May budget estimates, fulfill statutory rates, including recommendations for reporting requirements, and examine historical incorporating flexibility in the rate costs. structure. New Unit Can Also Play an Important Role We acknowledge that DDS already posted in Policy Decisions and DDS Oversight of RCs. its RFP and that prospective bidders will be As service delivery continues to move toward submitting their proposals by early April. In the consumer choice and independence, we believe interim, DDS will be answering questions from, this unit could play a critical role, helping the and providing further guidance to, prospective department and the Legislature make data-driven bidders. In light of these timing constraints, we policy and budget decisions. In addition, RCs recommend that, during budget hearings prior to are currently required to report many types early April, the Legislature make the department of information to DDS about their POS and aware of its preference to include economic and operations budgets among other things. The new policy considerations in the rate maintenance research unit could use this information to conduct activity and see whether DDS concurs that these analyses of RC and service provider performance factors should be considered. By making DDS and evaluations of consumer outcomes (including aware of its preferences for what the rate study labor market outcomes and consumer satisfaction), should encompass, the Legislature would help in an effort to strengthen DDS oversight of RCs. inform the guidance provided to prospective LAO Recommendation—Legislature Could Set bidders by DDS during the RFP process and inform More Specific Goals for the Research Unit. To help DDS’s selection process for the winning bid. ensure the research unit does not become overly 20 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET focused on, and get bogged down in responding better position the RCs to prevent future to requests for information—and without being disparities. overly prescriptive—the Legislature could weigh in • Identify Alternatives to RC Core Staffing on the overall goals and projects for the new fiscal Formula. The rate study that will be and program research unit, particularly as they completed by 2019 is one piece of finance concern the person-centered approach, compliance reform in the developmental services with federal rules, and rate reform. Such goals and system. Another significant component is projects could include: the way in which RCs are reimbursed for • Assessment of Gaps in Service and their operations costs. Currently, estimated Provider Capacity. We noted earlier RC operations costs are based on a core in the discussion of CPP funding that staffing formula, which is outdated in the proposed trailer bill did not include terms of both staff salaries and position information about what community types. The fiscal and program research resources are hardest to find for unit could conduct an analysis of current community-based consumers. Whether or staffing and salary challenges, research not the Legislature approves the trailer bill, alternative methods for estimating it could consider requiring DDS to conduct staffing, and provide recommendations to an assessment of these service gaps. the Legislature about how to reform the Particularly if the Legislature considers current budgeting methodology. providing ongoing funding for community resource development (separate from CPP Implementation Challenges of funding), this assessment would enable to 2016 Rate Increases the Legislature and department to make Targeting Increases to Direct Care Staff strategic decisions about funding and Made Sense . . . When weighing its options last projects, respectively. year during the special legislative session, it made • Identify the Causes of Disparities in sense that the Legislature wanted service provider POS Funding. RCs and DDS currently rate increases to go to staff providing direct care provide data on disparities in POS for consumers (as opposed to administrative authorization and access in response to staff). Targeting $169.5 million in funding to staff a statutory requirement. The data have spending at least 75 percent of their time to provide identified significant disparities among direct consumer care reflected the state’s goals racial/ethnic groups in terms of access to, for achieving positive consumer outcomes and and amount of, POS spending. Last year, focusing efforts to improve and honor consumer the Legislature provided $11 million in choice. The rate increase affected service providers funding to try to reduce these disparities, that have rates determined by DDS or through which is being allocated to RCs based on proposals the RCs submitted to DDS. negotiations with the vendoring RC, but did not A study to better understand the root affect rates set by DHCS or the Department of causes of POS disparities could inform Social Services. future decisions about steps RCs can take . . . But the Rollout Has Been Complicated. to reduce disparities and about which The targeted increase requires a significant amount future RC proposals to fund. It could also of administrative work on the part of DDS, RCs, www.lao.ca.gov Legislative Analyst’s Office 21 2017-18 BUDGET and service providers. Statute required DDS to enacted. We note that the Legislature’s objective complete a provider survey (in coordination with of having the rate increases not going to support RCs) with a random sample of service providers largely administrative costs could be met to some to determine how to allocate the fixed amount degree on the natural given that current law places of the appropriation. It also requires DDS to a 15 percent administrative cap for providers with conduct a survey by October 1, 2017 to find out rates set through negotiations with the RCs. (This how providers used the rate increase (including cap affects providers that account for roughly half number of employees affected, the percentage of of the relevant spending.) time that these employees spend on direct care, To smooth reporting and enforcement related administrative costs, and any other information to the 2016 rate increases, the Legislature might requested by DDS). Every provider who received consider amending the provisions of the special the rate increase must complete the survey by session legislation. Specifically, the Legislature October 1 or risk losing funding. DDS is not could consider relaxing the rule that providers requiring new providers that entered the system forfeit the increase if they fail to report how they after June 30, 2016 to complete the survey. DDS implemented the increase. It could also consider is also required to report on implementation of removing the survey reporting requirement the rate increases in its 2017-18 May Revision altogether, or extending its October 1, 2017 fiscal estimate. Based on discussions with deadline. One benefit of this approach would DDS and provider advocates, it appears that be to free up DDS, RC, and service provider completion of the mandated vendor survey will administrative resources that could otherwise be administratively burdensome. DDS noted that be spent on activities that work toward 2019 it was not easy getting providers to respond to the compliance with the HCBS waiver regulations. initial survey that they used to determine how to Finally, it may be worth using this experience allocate the funding. It also appears that many regarding the administrative efforts required to providers are unaware of the reporting requirement implement, report on, and enforce a targeted rate and that they will lose the increased funding if increase to inform future, more administratively they do not respond. It may also be difficult for streamlined rate increases (at least until rate reform some of the smaller vendors to collect the required is addressed at a more fundamental level). The information. DDS intends to begin outreach efforts administrative costs—in terms of DDS, RC, and within the next month. provider time to implement a complex increase (no LAO Recommendation—Conduct Statutory matter how well intentioned)—may outweigh the Clean-Up to Ease Reporting and Enforcement. policy benefit of targeting the rate increases. For The extent of the administrative burdens to allocate example, a simple percentage increase may be more the funding for the 2016 rate increases was likely efficient, especially given the caps on administrative not known to the Legislature when the special costs already in place for many service provider session legislation including the rate increases was categories. 22 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET www.lao.ca.gov Legislative Analyst’s Office 23 2017-18 BUDGET LAO Publications This report was prepared by Sonja Petek 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. 24 Legislative Analyst’s Office www.lao.ca.gov