The 2019-20 Budget: Analysis of the Department of Developmental Services Budget

The 2019-20 Budget: Analysis of the Department of Developmental Services Budget GABRIEL PETEK LEGISLATIVE ANALYST FEBRUARY 25, 2019 analysis full gutter 2019-20 BUDGET LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Executive Summary The Governor’s budget proposes $7.8 billion in spending for the Department of Developmental Services (DDS) in 2019-20, with $4.8 billion from the General Fund. Compared to estimated 2018-19 expenditures, this marks an increase of $435 million (5.9 percent) overall and $332 million (7.5 percent) in General Fund spending. Caseload Growth and Costs of Covering State Minimum Wage Increases Drive Year-Over-Year Increases in Budget. DDS expects to serve 350,000 consumers in 2019-20, 16,500 more than in 2018-19. (“Consumers” is the term used in statute for the individuals with qualifying developmental disabilities receiving DDS services.) These new consumers, along with changes in consumers’ mix of services, account for about $303 million of the General Fund growth. The cost to cover the 2019 and scheduled 2020 increases in the state minimum wage among service providers’ staff accounts for about $80 million of General Fund growth. Increased spending is partially offset by decreased spending on Developmental Centers (DCs) of $41 million General Fund. General Treatment DCs on Track to Close in 2019; Future of Properties Unclear. DDS moved the final residents from Sonoma DC in 2018 and plans to move the final residents of Fairview DC and the general treatment area of Porterville DC by the end of 2019. The administration has not provided many details about its plans for the future of these state-owned properties after final closures. We suggest the Legislature request additional details from DDS at budget hearings to inform any legislative decisions about these properties. Proposed Reorganization of DDS Better Reflects Its Responsibilities; Opportunities for Further Reform Should Be Considered. Although DDS has requested a relatively small dollar amount and staffing augmentation—$8.1 million ($6.5 million General Fund) ongoing and 54 permanent positions—its proposal to reorganize the department represents a shift in thinking. Currently, the department reflects two systems of service delivery—one community-based and one DC-based. The new structure would consolidate all consumer services under one “Program Services” umbrella and all administrative, legal, and clients’ rights functions under a second “Operations” umbrella. Among other things, the proposal would enhance quality assurance, risk management, and fiscal accountability, and ramp up state oversight of Regional Centers (RCs), which coordinate services for consumers. This may be a good time to consider additional reform opportunities to improve DDS’ operations and program delivery to consumers over the longer term. We recommend the Legislature request information from DDS at budget hearings about: • DDS’ short- and long-term goals, particularly from a consumer perspective, and how this reorganization will facilitate meeting these goals. • How DDS would consolidate data and information collected and reported by various units throughout the department to think strategically about the future and how DDS could more systematically collect data generally. Better Quantifiable Information Needed About Demand for Crisis and Safety Net Services. For consumers with complex behavioral needs or who are at risk of, or currently in, crisis, DDS, together with RCs, has been developing a variety of community-based resources www.lao.ca.gov 1 analysis full gutter 2019-20 BUDGET to serve as a safety net for these consumers when regular homes and/or services cannot meet their needs. DDS requests $21 million ($20.8 million General Fund) to increase the number of safety net homes and crisis services. The proposal includes expanding the safety net to the Central Valley, as well as to children and adolescents. While there is likely need for additional safety net services to justify a budget augmentation for this purpose, we note there is a lack of data to comprehensively assess the demand for these services. Beyond the current proposal, we recommend the Legislature require DDS to submit a revised safety net plan with the 2020-21 budget proposal that provides more detailed information on the determination of future safety net expansion, based on information about consumer needs and demand. Other 2019-20 Budget Issues for Legislative Consideration. Below, we highlight additional key issues raised in the 2019-20 budget proposal for DDS. • Proposed Federal Claims Reimbursement Information Technology (IT) System. The Governor’s budget proposes $3.2 million ($3 million General Fund) in 2019-20 and $12 million ($11.8 million) in each of 2020-21 and 2021-22 for a new IT system that would allow DDS to more efficiently submit claims to the federal government to ensure receipt of federal funding for Medicaid-eligible services. For 2019-20, we recommend approving only the requested planning funds ($3.2 million), while deferring consideration of the requested design, development, and implementation funds ($24 million in total) until 2020-21. Since an external contract with a consultant for these purposes will not be awarded until fall of 2020, this will give the department more time to refine its estimates of total project cost. • Minimum Wage Issues. We recommend the Legislature revisit a rate adjustment quirk that disallows service providers in areas with local minimum wages that are higher than the state minimum wage from applying for rate adjustments the state provides for increases in state minimum wage. • Uniform Holiday Schedule. The budget proposes enforcement of the “14-day uniform holiday schedule,” which prohibits service providers from billing for services on 14 set days per year and was originally enacted as a cost-savings measure during the recession. If the Legislature agrees that the state should mandate a holiday schedule among service providers, it might instead consider a 10- or 11-day schedule that is more in line with state and federal government practices. Existing Rate-Setting Processes Are Overly Complex. The current system for setting service provider rates in the DDS system is complex due to the numerous statutorily defined methods for setting rates and the number of service codes to which rates are applied. Some of the rate-setting methods have not actually been used for more than a decade due to recessionary budget solutions, and many of the service codes are used inconsistently across the 21 RCs. Forthcoming Rate Study Report Will Help Inform Rate Reform in the Long-Run; Legislature May Also Wish to Consider Actions for 2019-20. In 2016, the Legislature approved $3 million General Fund for DDS to conduct a study of service provider rates and the rate-setting process. The resulting report is scheduled to be released to the Legislature on March 1. We provide some background information and a framework to guide the Legislature’s evaluation of the rate study and subsequent action. The timing of the release of the rate study likely does not allow the Legislature enough time to fully consider the study and enact comprehensive rate reform before enacting the 2019-20 budget. Therefore, the Legislature might take actions for the near term that provide some degree of fiscal relief for service providers. We provide some potential actions in this regard. 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET BACKGROUND Lanterman Act Lays Foundation for Statutory exhausted, such as private health insurance or “Entitlement.” California’s Lanterman Act was Medi-Cal (the state’s Medicaid program). passed in 1969 and amounts to a statutory DDS Closing Remaining Institutions. While entitlement to services and supports for individuals DDS operated as many as seven large institutions with qualifying developmental disabilities. Qualifying called Developmental Centers (DCs) in the past, disabilities include autism, epilepsy, cerebral the administration and the Legislature made the palsy, intellectual disabilities, and other conditions decision in 2015 to close the three remaining closely related to intellectual disabilities (such DCs. DDS closed one DC in December 2018 and as a traumatic brain injury) that require similar expects to close the other two, which currently treatment. The disability must be substantial, serve fewer than a total of 150 consumers, by lifelong, and start before the age of 18. By passing December 2019. the Lanterman Act and subsequent legislation, the DDS Will Still Operate Two Large Facilities . . . state has committed itself to providing the services DDS will continue to indefinitely operate the secure and supports that all qualifying “consumers” (the treatment program at Porterville DC, which serves term used in statute) need and prefer to live in the up to 211 individuals with developmental disabilities least restrictive environments possible. There are who have been committed by a court because they no income-related eligibility criteria. (Such criteria are a safety risk to themselves or others and/or are common with most public health and human have been deemed incompetent to stand trial for services programs.) an alleged criminal offense. DDS will also continue Nearly All Consumers Receive Services to operate Canyon Springs Community Facility, in Community Settings. The Department of which serves a maximum of 63 consumers who Developmental Services (DDS) oversees the typically need transitional services, such as when provision of services and supports, which are they are moving from the secure treatment program coordinated by 21 nonprofit Regional Center (RC) at Porterville DC, but before they are ready for a agencies. Nearly all 333,000 consumers receive permanent residence. (Legislation passed in 2018 these services in community settings, rather than in dedicates 10 of the 63 slots to consumers in crisis.) institutions. . . . And Provide Some Community-Based RCs Coordinate Community-Based Services Safety Net Services Directly. In addition, DDS From Thousands of “Vendors.” RCs have operates certain “safety net” services—using service coordinators who are the consumers’ state staff—in community settings for consumers case managers. They coordinate consumers’ in crisis. (The systemwide safety net plan also services and supports, which are provided by includes some vendor-operated services.) The more than 40,000 vendors across the state and DDS-operated safety net system includes two include residential, day program, employment, mobile crisis teams (one in Northern California transportation, and respite services. Using state and one in Southern California), which currently and federal funding from DDS, RCs pay vendors accept referrals from five of 21 RCs, as well as two using what is called their “purchase of service” acute crisis facilities, which each can house five (POS) budgets. Vendors’ payment rates are set consumers. By the end of 2019, DDS expects to in numerous ways, which will be discussed in the have a total of five acute crisis homes (with 24 total “Rate Reform” section of this report, and have been beds) up and running. Because vendors cannot largely frozen since at least 2008 (aside from one be required to serve a consumer, having some increase in 2016 and a series of recent increases services run by DDS state staff essentially provides to account for rising state minimum wages). RCs a “last resort” option for consumers with especially cannot use POS funding to purchase services until challenging needs. all sources of other available funding have been www.lao.ca.gov 3 analysis full gutter 2019-20 BUDGET Service Delivery Continues to Evolve, population has grown by less than 1 percent each Providing Consumers With Increased year over the same period. Growth in the Early Independence. Service delivery methods and Start program, which serves infants and toddlers models continue to evolve as consumers are under age three, has been especially notable over given more independence and freedom of the past five years, averaging 8.7 percent per year. choice in a system that is nearly 100 percent In addition, over the same five years, the number of community-based. For example, new federal rules consumers with autism has increased an average of that will take effect in March 2022 require RCs 10.1 percent annually. Consumers with autism are and vendors to increase consumer integration in now one of every three DDS consumers. Figure 1 the community and enhance consumer choice, shows the rapid growth in autism. The reasons including using a “person-centered planning” for the increase in autism (which is occurring process to understand and identify the individual nationwide) are not entirely understood—research goals, preferences, and needs of each consumer. points to better diagnoses, as well as actual California’s Employment First law makes increases in autism as a condition. On the latter competitive (meaning at least minimum wage), point, researchers believe that both environmental integrated employment a top priority for working factors and parental age could be potential causes. age consumers. In addition, DDS is about to We hear anecdotally that more consumers implement the Self Determination Program, which have dual mental health diagnoses than in the allows consumers much greater control over their past and that more are involved in the criminal choice of services and service providers and justice system; however, data are unavailable to allows them to use independent facilitators to understand the extent to which these are the case. assist in planning. The program is being phased in over the next Figure 1 two-to-three years with about Autism Cases Driving Caseload Growth in 2,500 consumers before being Developmental Services offered to all consumers. 2004-05 2017-18 Caseload Continues Intellectual Disability to Expand and Change. Autism Autism cases grew 250% over the period. Reasons for the growth may include better The estimated number of Epilepsy diagnoses and awareness, higher parental ages, and environmental factors. consumers served by DDS— Cerebral Palsy 333,000 in 2018-19—continues to Other grow rapidly, at an average annual 40,000 80,000 120,000 160,000 200,000 rate of 4.7 percent over the past Individuals may have more than one diagnosis. five years. By contrast, the state’s THE GOVERNOR’S BUDGET PROPOSAL OVERVIEW OF GOVERNOR’S what was assumed in the 2018-19 Budget Act, revised expenditures for the current year are down PROPOSAL $65.5 million in total funds ($55.1 million General The Governor’s budget proposes $7.8 billion Fund). Figure 2 shows recent growth in the DDS (total funds) for DDS in 2019-20, an increase of budget. 5.9 percent over revised 2018-19 expenditures. The Governor’s budget includes a net reduction General Fund expenditures comprise $4.8 billion in the number of DDS positions (which include both of this amount, a 7.5 percent increase over revised staff at headquarters and staff operating state-run 2018-19 General Fund spending. Relative to homes and facilities) of 631 positions, or 21 percent, 4 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET from 3,598 to 2,967. While the budget proposes to • RC Operations—Total Decrease of add 251 positions in 2019-20—54 at headquarters $27.7 Million General Fund. The relative and 197 at state-run homes and facilities—these cost to the General Fund declined because additions are more than offset by a reduction of DDS secured additional federal Medicaid 882 positions at the DCs that are closing. matching funds through the Targeted Case Current-Year Adjustments. Slightly lower Management program (which helps pay for spending in 2018-19 relative to the enacted RC case management for Medicaid-eligible budget reflects the net effect of several changes, consumers). as described below. Caseload is expected to be • State-Run Services—Net Increase of 356 people higher than in the enacted budget, $9.8 Million ($7.5 Million General Fund). which partially offsets lower spending. The current-year budget for state-run services reflects the rising cost of employee • POS—Total Decrease of $74.7 Million compensation and retirement due to revised ($37.1 General Fund). Primary drivers of the collective bargaining agreements, partially change include: offset by reduced operating costs from » How Consumers Use Services. Net moving 20 DC residents to the community decrease of $20.4 million ($1.2 million earlier than expected. General Fund) due to a shift in the amount and mix of services consumers are Budget-Year Changes. Increased spending expected to use. For example, increased of $435.2 million ($332.4 million General Fund) in spending on community care facilities, 2019-20 relative to revised current-year estimates health care, and medical facilities is more is largely a result of caseload growth and costs to than offset by larger decreases in spending cover 2019 and scheduled 2020 minimum wage on day programs, in-home respite, increases among vendors’ lowest wage staff, employment programs, and transportation. offset to some degree by reductions in the cost to (This net decrease in spending on operate DCs. services largely reflects lower-than-expected Figure 2 spending on the January 1, 2018 state Department of Developmental Services minimum wage increase.) Spending up 67 Percent From Ten Years Ago » January 1, 2019 General Fund Expected to Comprise 61 Percent of Funding in 2019-20 State Minimum Wage (In Billions) Increase. Additional $9 decrease of $54.6 million Federal Funds and Reimbursements 8 ($33.1 million General General Fund Fund) in the cost to cover 7 the January 1, 2019 6 state minimum wage 5 increase among vendors’ 4 minimum wage staff. The decreases are based 3 on lower-than-expected 2 actual costs associated 1 with the minimum wage increases that took effect 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-20 on January 1, 2017 and Note: 2018-19 amounts are estimated and 2019-20 amounts are proposed. January 1, 2018. www.lao.ca.gov 5 analysis full gutter 2019-20 BUDGET • POS—Net Increase of $506.2 Million and for additional service coordinator time ($362.3 Million General Fund). Major drivers to work with those consumers who have of this change include: especially complex needs ($3.8 million, » Caseload Growth and How Consumers $2.6 million General Fund). Use Services. Increased spending of » DC Closure Activities. Reduction of $370.9 million ($278.5 million General $5.4 million in RC costs associated with Fund) ongoing to account for an anticipated moving consumers from the DCs into the 16,512 new consumers and the projected community. mix and amount of services used. Spending • State-Run Services—Net Decrease of is expected to increase for community $84.9 Million ($40.8 Million General Fund). care facilities, support services, in-home » DC Closures. Year-over-year decrease respite, and day programs. Spending of $105.9 million ($55.6 million General is expected to decline for work activity Fund) due to the closure of Sonoma DC in programs (non-integrated sub-minimum 2018-19 and the anticipated closures of wage programs) and increase for individual Fairview DC and the general treatment area supported employment (integrated, at Porterville DC in 2019-20. competitive job programs). The shift from » Safety Net Development. Increase of work activity programs to supported $11.7 million ($7.3 million General Fund) employment is what we should expect to for the development of additional state-run see as the system moves into compliance crisis and safety net services. with new federal rules and state rules, » Deferred Maintenance. Increase of which both favor consumer employment in $5 million (all from the General Fund) for integrated settings. deferred maintenance projects at the » 2019 and 2020 State Minimum Wage secure treatment program at Porterville DC. Increases. Increase of $159 million • Headquarters Changes. Expiration ($80.1 million General Fund) ongoing to of one-time costs of $400,000 (for cover vendors’ costs associated with both person-centered planning training) are offset the 2019 and scheduled 2020 increases in by an increase of $13.9 million ($10.9 million the state minimum wage. General Fund), as follows: » One-Time 2018-19 Expenditures That » Reorganization of DDS. Increase of Are Ending. Decrease of $89.8 million $8.1 million ($6.5 million General Fund) ($53.7 million General Fund) by ending the ongoing to restructure the department, as delay of the “uniform holiday schedule” discussed in the next section. (discussed later in the report) and one-time rate increases—“bridge funding”—for » Contractor Costs Related to New Federal Rules. One-time increase of $3 million vendors in high-cost areas. ($1.8 million General Fund) to hire a • RC Operations—Net Increase of contractor to conduct site assessments of $43.7 Million ($29 Million General Fund). vendors as part of coming into compliance Major changes include: with new federal Medicaid rules. » Caseload. Increase of $35 million » Information Technology (IT) Project ($25.2 million General Fund) ongoing for to Improve Federal Claims System. staffing costs associated with growth in One-time increases of $3.2 million caseload. ($3 million General Fund) in 2019-20 and » New Positions. Increase of $9.3 million $12 million ($11.8 million General Fund) in ($6.5 million General Fund) ongoing for each of 2020-21 and 2021-22 to develop a staff to monitor new housing models new IT system to manage claims to receive ($5.5 million, $3.9 million General Fund) federal Medicaid reimbursements. 6 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET ISSUES FOR some of the former DC division’s functions) into two main areas, as described below and depicted in LEGISLATIVE CONSIDERATION Figure 3 (see next page), each of which would be What follows is a discussion of the Governor’s overseen by a chief deputy director. DDS budget proposals for 2019-20, including • “Program Services” Would Handle our assessments and recommendations for each. Functions Associated With Consumer We note that most of the increased spending Services. Program Services would include proposed for DDS is a natural result of caseload the personnel that manage, and activities growth and reflects the impact of previous policy that concern, all of the services and supports decisions (primarily scheduled state minimum wage delivered to consumers. This would include increases). Nevertheless, the proposal to reorganize divisions for community services, state-run the department—while expected to cost relatively facilities, and federal programs (a new little—represents a significant shift in how DDS division). It would also include an office for approaches its job. statewide clinical services and monitoring (a Department Reorganization Proposal new office). • “Operations” Would Handle Administrative, The Governor’s budget proposes $8.1 million Legal, and Clients’ Rights Functions. ($6.5 million General Fund) and 54 new permanent Operations would cover what could be positions (as well as three-year, limited-term funding considered primarily administrative functions for three positions related to implementation of new for all DDS programs. It would include offices federal rules) to reorganize and restructure DDS to for quality assurance and risk management better reflect current models of service delivery and (a new office), legal affairs, human rights and enhance fiscal and programmatic oversight. advocacy, and protective services. It would Existing Structure Includes Two Separate consolidate several functions into a new office Divisions for DCs and Community Services, of legislation, regulations, and public affairs. as Well as Various Administrative Functions. It would include an administration division Currently, DDS is divided into two main divisions. and a restructured IT division, and it includes One handles community services, including emergency preparedness/coordination oversight of RCs. The other handles DCs and functions. other state-operated facilities. The DCs division includes the positions that work at the DCs and Proposal Calls for 54 New Positions. The other state-operated facilities, providing direct proposal requests 54 new permanent positions services to consumers or maintaining facilities. and three positions that would be funded for only At its Sacramento headquarters, DDS also has three years. Excluding the staff that work on-site an administration division, an IT division, and at the DCs and other state-operated facilities, this five different offices handling legal affairs, human proposal would increase the number of positions rights and advocacy, legislation, communications, at DDS by 13 percent (from 415 to 469 positions). and emergency preparedness. In addition to the Thirty-seven of the 54 new positions and the three department director, DDS has traditionally had three-year positions would be in Program Services, one chief deputy director. Before his departure, while 17 new positions would work in Operations. Governor Brown appointed a second chief deputy Some of the 54 new positions would augment director in December 2018 who will play a key role current departmental functions. For example, the in the newly proposed departmental structure, proposal calls for four additional staff to monitor overseeing Program Services. and provide oversight of RCs’ Early Start programs Proposal Consolidates Functions Into Two for infants and toddlers (please see our forthcoming Main Areas—Program Services and Operations. budget publication, The 2019-20 Budget: The current proposal would dissolve the DCs Governor’s Proposals for Infants and Toddlers division and reorganize DDS functions (including With Special Needs, for more information). Other www.lao.ca.gov 7 analysis full gutter 2019-20 BUDGET positions would perform new functions for DDS. For of occasionally attending RC board meetings, a example, the proposal requests an autism specialist liaison would attend every RC board meeting. to aid the department in understanding trends and . . . Which Includes Opening a New DDS research related to autism and to coordinate with Office in Southern California. Currently, DDS other departments in serving the growing autism conducts its operations only from its Sacramento caseload. Finally, some positions would extend headquarters (aside from the state staff employed current oversight of RCs, as discussed below. at DCs and other state-run facilities). This proposal Proposal Increases Oversight of RCs . . . includes opening a Southern California office (on Currently, four positions act as liaisons with RCs. the Fairview DC property in Costa Mesa in the near This proposal requests 19 additional positions to term) to house the RC Liaison/Monitoring Teams serve in this capacity. It proposes to create seven overseeing Southern California RCs. “RC Liaison/Monitoring Teams.” Each team would LAO Assessment. The cost of the proposal include three people and maintain responsibility to restructure and reorganize DDS—$8.1 million for oversight at three RCs. They would respond to (total funds)—does not represent a significant complaints; attend RC board meetings and train dollar amount relative to the total DDS budget. RC board members; and ensure compliance with Yet, it does represent a shift in policy and thinking, statutory, regulatory, and contractual obligations. and it comes at a critical juncture for the DDS Although the four current RC liaisons perform some system. DDS is in the process of closing its of these functions already, this proposal would allow final general treatment DCs, ramping up its new each team more time per RC. For example, instead self-determination program, preparing for possible Figure 3 Proposed Reorganization and Restructuring of the Department of Developmental Services Program Services Operations Community Services Division Office of Quality Assurance and Risk Managementa Office of Community Operations Appeals and Complaints Office of Legal Affairs Office of Community Development Disparities/Service Equity Section Office of Legislation, Regulations and Public Affairsa Emergency Preparedness and Coordination Office of Statewide Clinical Services and Monitoringa Office of Human Rights and Advocacy Services Federal Programs Divisiona Self Determination and Home- and Community-Based Services Office of Protective Services Monitoring and Family Services Program Operations Administration Division Financial Services Branch State-Operated Facilities Division Fiscal Forecasting Branch Porterville Developmental Center Human Resources and Support Services Branch Fairview Developmental Center Research, Audits and Evaluation Branch Canyon Springs Community Facility STAR Homes and CAST Support Services Information Technology Division Community State Staff IT Operations Branch Quality Assessment and Risk Management Technology Business Management Offices Regional Resource Development Projects, Transition and Information Security Office Support Services Enterprise Data Operations Office a New office or division. STAR = Stabilization, Training, Assistance, and Reintegration; CAST = Crisis, Assessment, Stabilization Teams; and IT = information technology. 8 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET vendor rate reform, dealing with how to best serve Finally, we note that the proposal includes the rapidly growing number of consumers with several positions—such as the autism specialist, autism, and preparing for 2022 implementation of several research data specialists, and staff services the new federal rules. managers—across various units throughout In general, we find that the restructuring the department that would handle important proposal warrants legislative consideration functions, such as emerging needs, literature because it more logically reflects DDS’ current reviews, research, trend analysis, and collaboration responsibilities (and those that are on the horizon) with parents and stakeholders to understand and it attempts to respond to some of its current consumers’ needs. It is unclear to us, however, limitations, such as an inadequate number of whether and how DDS would take disparate staff to conduct timely and comprehensive risk pieces of information collected and provided from management and quality assurance. It reflects the these various units and use them collectively to fact that all but 300 or so consumers will be served strategically plan for the future. For example, would in community settings and responds to the new DDS, with information collected by these various federal rules. It enhances oversight of RCs, which positions be in a position to consider questions, has been needed. For example, Kern RC has been such as: operating under special contract language with • Is 21 the right number of RCs? And if not, how DDS since 2015 after numerous complaints about many should there be? service delays, lack of services, conflicts of interest, • Does DDS have the right amount of oversight fiscal mismanagement, and lack of responsiveness of RCs? (to consumers and families as well as to Kern • Should more of what RCs do be standardized County). In addition, Inland RC was also recently on to ensure consumers across the state receive probation, and South Central Los Angeles RC has the same level of service and/or should RCs been put on notice about possible probation. be given more latitude to pursue creative Still, we note that the proposal misses some solutions to challenges? opportunities to more fully consider how the system • How should fiscal constraints be reconciled could better deliver services from a consumer with consumer choice? perspective. For example, although some changes could have a positive impact on consumers (such • How can self-determination be used to as the proposal to increase DDS oversight of RCs, enhance consumer outcomes? Can it reduce which should lead to more timely response to spending at the same time, and by how complaints and reported incidents), it is unclear much? how the reorganization will lead more directly, and • What can DDS and RCs do to promote a broadly, to improved outcomes for consumers and quality workforce among service providers? what specifically those improvements might be. • How should DDS and RCs measure quality in While the proposal includes increased data services? analysis and reporting, it does not appear to make LAO Recommendation. On net, we believe the significant changes to current data collection benefits of this proposal outweigh any downside. methods and types of data available. As we As noted earlier, it more accurately reflects DDS’ have noted in prior analyses, the current data current system and challenges and is responsive available about DDS consumers and services to some of the recent challenges the department are not comprehensive and are not collected in a has faced when it comes to RC oversight, risk systematic manner. This, in turn, makes it difficult management, and quality assurance. We suggest to understand, in a quantifiable way, unmet service the Legislature request some of the following needs across the state, including whether vendors information at hearings and/or at May Revision to have capacity and whether services are accessible aid in its evaluation of the proposal, including the to consumers. Legislature’s decision about whether or not to make any changes to the proposal. www.lao.ca.gov 9 analysis full gutter 2019-20 BUDGET • DDS’ overall near-term and longer-term goals, • Central Valley Mobile Crisis Team— particularly from the consumer perspective, $800,000 ($600,000 General Fund) and how the proposed reorganization would Ongoing. Adding a third DDS-run mobile help it reach these goals. crisis team comprised of five state positions. • Additional details about how the new Southern The purpose of the mobile team is to attempt California office would operate and how staff in to stabilize consumers in crisis and try to keep the Sacramento headquarters would maintain them in their homes. oversight of the new office’s functions. • State Staff for a Crisis Unit in • Additional information about how DDS would Vacaville—$3.2 Million ($2.6 Million consolidate findings from across the multiple General Fund) Ongoing. Adding 26.5 state units and positions to understand best positions to staff a third DDS-operated crisis practices, emerging needs, and trends, and to unit in Vacaville in Northern California that is provide forward-looking leadership to RCs and scheduled to open in the fall of 2019. vendors about how to best serve consumers. • Support Staff for Existing Safety Net • DDS’ ideas and possible plans for how Services—$3.2 Million ($2.6 Million General to address the data collection issue. For Fund) Ongoing. Adding 9.1 positions example, we suggest that the Legislature to provide oversight and support to ask DDS to begin thinking about whether DDS-operated safety net homes and mobile current methods could be enhanced or crisis services. adapted or whether DDS should consider new • Crisis Homes for Children—$4.5 Million ways to systematically collect information. General Fund. Developing three community The Legislature could consider asking the crisis homes specifically for children that department to prepare a roadmap to present would be run by vendors. Current crisis with its the 2020-21 budget proposal, homes—which provide temporary stabilization for example. Such a plan could consider for up to 18 months—are statutorily for mechanisms to aggregate and analyze data adults only. This proposal includes trailer bill and information at a statewide level to inform language governing the placement of children legislative, departmental, and fiscal and policy in these homes. decision making. • Monitoring of Specialized Homes—$5.5 Million ($3.7 Million General Safety Net Services Fund) Ongoing. Increasing monitoring of Expansion Proposal specialized homes by RC staff. Several new and specialized home models have been The Governor’s budget proposes to enhance developed in recent years—adult residential the DDS system of crisis and safety net services at facilities for persons with special health needs, a cost of $21 million ($20.8 million General Fund). enhanced behavioral supports homes, and Figure 4 shows the current and proposed capacity community crisis homes. Increased monitoring in safety net and crisis homes. The proposed would not only help ensure consumer safety, safety net enhancements include the following but it would also help ensure that DDS components. continues to collect federal funding (through reimbursements) by staying in compliance • Central Valley Crisis Homes—$4.5 Million with federal Medicaid rules. ($4.2 Million General Fund). Adding two DDS-operated crisis homes and 60 state • Lowering Caseload Ratios for Consumers positions in the Central Valley. Each home With Complex Needs—$3.8 Million could serve five consumers. DDS indicates ($2.6 Million General Fund) Ongoing. these homes may be located in Porterville on Adding RC service coordinator positions or near the Porterville DC property. and establishing a lower 1-to-25 service coordinator-to-consumer caseload ratio 10 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET for consumers with complex needs. Under Community Supports and Safety Net Services)—a current law, there are several service group of RC, advocate, family member, and coordinator-to-consumer ratios with which consumer representatives—and through RCs must comply, such as 1-to-62 for stakeholder meetings held in 2018 in Napa, Visalia, consumers receiving Medicaid waiver and Pomona. These conversations and meetings funding. DDS estimates this proposal would have revealed important information about the allow for intensive service coordination for need for safety net resources and well-trained, about 1,200 consumers at any one time. responsive service providers who can intervene The intensive service coordination would when a consumer is about to be in, or is in, a crisis. be provided on a temporary basis until a Nevertheless, it remains difficult to know whether consumer is stabilized, after which he or she the current number and proposed network of would resume working with his or her regular supports is adequate, more than adequate, or not service coordinator. adequate. It is also difficult to understand how the department makes its decisions about the number LAO Assessment. It is difficult to assess the of homes to build, how to ramp up services, and current plan to expand safety net services because when to ramp up services. the department lacks good recent data and Regarding the proposed placement of new crisis statistics about demand for such services, including homes in Porterville, we have concerns about information about where demand is most critical placing a statewide resource in such a remote and what types of services are needed most. DDS location, although we recognize the benefits relies primarily on qualitative information it has of this location due to the current availability collected through its work with the Developmental of well-trained staff (because of the closure of Services Taskforce (specifically the Workgroup on Figure 4 Safety Net and Crisis Home Capacity For Individuals With Developmental Disabilities Proposed in Total When Already Open In Development 2019‑20 Completea Operated Consumer Need by Homes Beds Homes Beds Homes Beds Homes Beds Adult Needs intensive behavioral supports Vendor 18 66 39 141 — — 57 207 Vendor 4 16 13 54 — — 17 70 In crisis DDS 3b 20b 4 20 2 10 7c 40c Transitioning from PDC-STP Vendor — — 3 12 — — 3 12 — Transitioning from IMD Vendor — — 4 16 — 4 16 Child/Adolescent Needs intensive behavioral supports Vendor 2 6 5 19 — — 7 25 Vendor — — — — 3 12 3 12 In crisis DDS — — 1 4 — — 1 4 Totals 27 108 69 266 5 22 99 386 a There are six additional homes with 34 total beds for which it is unclear the target population. b Two of the three crisis facilities currently run by DDS are based at developmental centers and will be replaced by homes currently in development. The third refers to the ten beds available at Canyon Springs Community Facility. c Per 2018 statute, DDS now dedicates ten of Canyon Springs Community Facility’s 63 beds for crisis services. PDC-STP = Porterville Developmental Center-Secure Treatment Program; IMD = Institution for Mental Disease; and DDS = Department of Developmental Services. www.lao.ca.gov 11 analysis full gutter 2019-20 BUDGET the general treatment area at Porterville DC) less clear given the lack of back-up data in the and proximity to the secure treatment program proposal providing a comprehensive assessment at Porterville DC (which could act as back-up). of consumer demand and service gaps. We Very few community-based consumers live near recommend approval of the proposals to increase Porterville and we have concerns about hiring and monitoring of specialized homes and to lower retaining quality staff at this location in the future. caseload ratios for consumers with specialized Although Porterville College currently offers degrees needs. We recommend considering other locations and certificates in relevant fields—psychiatric in the Central Valley besides Porterville for the technology and registered nursing—many of new state-run crisis homes, keeping consumer the program’s graduates end up working for the convenience, future demand, and future availability Department of State Hospitals or the Department of quality workforce in mind. of Corrections and Rehabilitation; it is unclear how Regarding future planning for crisis and safety many of those graduates would stay and work for net needs, we recommend the Legislature require DDS in the Porterville area. DDS revise its overall safety net plan (the first Regarding the proposed additional monitoring version was released in May 2017) and include of specialized homes by RC staff, we recognize more quantifiable information about the use of and the importance of this function, both in terms of demand for crisis and safety net services, including ensuring quality services for consumers as well as information about what DDS and RCs are each ensuring continued receipt of federal funding when doing specifically to prevent potential crises from applicable. escalating to the point of needing state-run services Regarding the proposed caseload ratio of or out-of-home placement. We suggest DDS be 1 service coordinator to 25 consumers with required to submit a revised plan with the 2020-21 complex needs, we note that the proposal only Governor’s budget proposal that would include partially addresses other RC caseload ratios that information about how DDS will determine when are often out of compliance with state statute a new home or service is needed. This plan could and agreements with the federal government. include information about how DDS would answer The department was unable to provide the most some of the following questions—even if it does not recent caseload ratio data, but as of March 2017, have all of the answers ready by next January: only 1 of 21 RCs was in compliance with all of the • Do consumers need more support in their various caseload ratio requirements. Although the homes? What would this look like? current proposal may shift some of the complex • Do consumers need more temporary crisis cases off regular service coordinator caseloads, homes? If so, what additional capacity is and importantly targets resources at the consumers needed, and where? with the most challenging, time-consuming, and • Are most crises behavioral? What types complicated needs, it most likely does not go far of interventions have been successful in enough to improve regular caseload ratios. We preventing potential crises from escalating? raise concerns that the other consumers lack the time and attention of service coordinators to • Do consumers need additional ongoing mental receive the support they need and that is stipulated health services or behavioral supports? In in statute. what form? LAO Recommendation. On the Governor’s • Do families need more training on how to budget proposal, it is likely that additional safety handle crises and access available resources? net resources are needed in the DDS community • What markers indicate that crises could for consumers with complex behavioral needs develop? Are there things that could be done and for consumers in crisis to justify a budget or training programs that could be developed augmentation for this purpose. However, whether and implemented to identify these markers the specific number of resources proposed by and provide the necessary supports to DDS is the right number for near-term demand is prevent crises from occurring? 12 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Caseload Projections as reducing administrative costs, staff, or program offerings. In some cases, they may shut down. Caseload remains a major driver of Downward Revision to Cost Estimates year-over-year cost increases. DDS projects an Associated With State Minimum Wage increase of 16,512 consumers in its community Increases. In each of the past two January budget programs, growing 5 percent from an estimated proposals, DDS has had to revise downward the 333,094 in 2018-19 to a projected 349,606 in current-year POS estimates, in part because the 2019-20. DDS also expects the population at DCs actual prior-year costs to cover state minimum to decline to 323 consumers by July 1, 2019. wage increases had come in lower than expected. Although the DDS population is growing much For example, in the current budget proposal, more rapidly than overall state population growth DDS has revised downward—by $144.2 million (particularly in the Early Start program and in ($81.9 million General Fund)—its previously cases of autism), caseload estimates reflect recent estimated costs in 2018-19 associated with the historical trends and align with projections our January 1, 2018 and January 1, 2019 minimum office made. We will examine caseload estimates wage increases, based on actual expenditures from again in May. 2017-18. Minimum Wage Issues The Way DDS Has Interpreted Statute Has Perhaps Led to Unintended Consequences, State Minimum Wage Increases. The Namely a Rate Adjustment Quirk. While it is Legislature has increased the state minimum wage not certain, the downward revision in minimum several times over the past decade. Currently, the wage-related spending is likely due in large part to state minimum wage is $11 per hour for businesses a quirk in the implementation of the statutory policy with 25 or fewer employees and $12 per hour for that guides rate adjustments. Specifically, vendors businesses with 26 or more employees. The state in areas with a local minimum wage that is higher minimum wage is statutorily scheduled to increase than the state minimum wage are unable to benefit each year until it reaches $15 per hour—in 2022 for from the rate adjustments for state minimum wage the larger businesses and in 2023 for the smaller increases that vendors in lower-cost areas benefit businesses. Currently, statute allows DDS to adjust from. Vendors in jurisdictions with a higher local the rates paid to vendors when the adjustment is minimum wage are therefore both (1) ineligible needed to bring their lowest wage staff up to the for rate adjustments due to local minimum wage state minimum wage. increases, and (2) also considered ineligible for Some Local Jurisdictions Also Have Minimum any of the rate adjustments due to state minimum Wages. Some cities and counties have enacted wage increases. They are considered ineligible minimum wages that exceed the state’s minimum for the state increases because they already pay wage. Currently, more than 20 cities—and all of their minimum wage workers a wage that is higher Los Angeles County—have local minimum wages than the state minimum wage (even though they that exceed the state’s. In 14 San Francisco Bay received no rate adjustment to pay these higher Area cities, the local minimum wage is already wages). In contrast, vendors providing the same at or above $15 per hour. Nearly 40 percent of service in another part of the state, but who are the state’s population lives in areas with these not subject to a local minimum wage requirement, higher local minimum wages. In these areas, DDS can seek an adjustment per state policy for their vendors must pay at least the local minimum wage. minimum wage workers. These vendors must do so, however, without any To see how this plays out, consider a vendor adjustment to their rate because statute generally in San Francisco (which has had a local minimum does not provide for vendor rate adjustments in wage above the state minimum wage since 2014). response to local minimum wage increases. To This vendor cannot request an adjustment to cover cover the cost of their minimum wage staff, vendors the local minimum wage costs. It also cannot seek must make adjustments to absorb the cost, such any adjustment when the state minimum wage goes www.lao.ca.gov 13 analysis full gutter 2019-20 BUDGET up because it already pays its lowest wage staff warm shutdown, before it has given responsibility more than the state minimum wage. This means it for the property over to the Department of may still operate with the rate it had before 2014, General Services (DGS). (Please see our report, whereas a vendor in Modesto (which does not have Sequestering Savings From the Closure of a local minimum wage) would have been able to Developmental Centers, for more information about request an adjustment each of the five times the this process.) state minimum wage has increased since 2014. Not Proposal Omits Details About the Future of only does the vendor in San Francisco have to pay DC Properties. The Governor’s budget does not higher wages to its minimum wage staff (currently include any information about DDS’s and DGS’s $15 per hour), but it cannot benefit from any of the plans for each of the state-owned DC properties adjustments, due to changes in state policy, that after final closures. Based on conversations with are afforded vendors in other areas of the state DDS, it is our understanding that DDS will not without local minimum wages. declare Sonoma DC property surplus (meaning LAO Recommendation. Given the information it will not go through the typical DGS process presented above, the Legislature may wish to of disposing of state properties) and is working clarify what it intended when it authorized DDS closely with DGS and the local government to vendors to seek rate adjustments. For example, determine the future of the property. DDS also the state minimum wage is scheduled to increase indicated that the Fairview DC property would not on January 1, 2020, from $12 per hour to $13 per be declared surplus until at least 2020-21. The hour for large employers and from $11 per hour Fairview property also includes two DDS-run crisis to $12 per hour for small employers. Does the homes, an apartment development called Harbor Legislature want to allow a vendor in San Francisco Village (which includes some residences for DDS paying the local minimum wage of $15 per hour consumers), and will include a second apartment to seek a rate adjustment to account for the development (which will also include some units for $1 increase in the state minimum wage to partially DDS consumers). None of these developments or offset its costs, as it allows a vendor in Modesto the crisis homes will be affected by the disposition (paying the state minimum wage) to do? If so, of the property. There are fewer options for the we recommend statutory clean up to clarify that future of the general treatment area at Porterville vendors in areas with a local minimum wage that DC given its less populated location and its shared is higher than the state minimum wage can seek infrastructure with, and proximity to, the secure an adjustment related specifically to the increase treatment program. in the state minimum wage. We recommend the LAO Recommendation. The Legislature Legislature direct DDS to report at budget hearings might wish to weigh in on decisions about these about the estimated 2019-20 General Fund cost to state-owned properties. We recommend it direct allow all vendors in the state to seek an adjustment DDS to provide more information at budget related to the scheduled January 1, 2020 minimum hearings on the status of the administration’s wage increase. decisions about the future of the DC properties so the Legislature can better understand what role it DC Closures might play. DCs on Track to Close in 2019. DDS Proposals to Facilitate successfully completed the closure of Sonoma DC Federal Funding in December 2018 and expects to have moved the last residents from Fairview DC and the general The Governor’s budget includes two proposals treatment area of Porterville DC by the end of that are ultimately related to the department’s ability 2019. Each DC goes through a period of “warm to claim federal Medicaid waiver reimbursements shutdown”—typically about six months—after for community-based services—such as residents have moved. DDS is still responsible residential or day program services—provided for maintaining and securing the property during to Medicaid-eligible consumers. (Medicaid 14 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET reimbursements are projected to account for nearly design, development, and implementation of the 40 percent of DDS’ funding in 2019-20.) IT project. The current “legacy” IT system used Contracting for On-Site Vendors to claim federal reimbursements began to be Assessments. The first proposal concerns the implemented 36 years ago and is not meeting the state’s plan for coming into compliance by 2022 current programmatic needs of the department. with the new federal rules discussed earlier. These (For example, DDS estimates it forgoes roughly rules are associated with the state’s ability to $13.7 million in federal reimbursements each year receive federal funding through the Home- and because of the delays and manual intervention Community-Based Services Medicaid Waiver. needed to use the legacy system.) DDS is working These rules affect DDS as well as other state with the California Department of Technology (CDT) departments, including the Department of Health and using its four-stage planning and approval Care Services (DHCS) and Department of Social process for IT project proposals. Services (DSS). As part of California’s federally LAO Assessment and Recommendation. approved Statewide Transition Plan (the state’s plan Although we agree DDS should modernize its for how it will comply with the new federal rules), federal claims reimbursement system (especially DDS must facilitate self-assessments by vendors. given that federal reimbursements currently This requires vendors to respond to questions account for $2.8 billion in annual DDS funding and about their current service delivery models, service given the annual amount DDS estimates it cannot settings, and staffing, for example, to help DDS currently claim), it is unclear to us that DDS needs determine what changes need to be made, if any, to request the full three-year amount of funding in to help the vendor come into compliance with 2019-20. Departments should complete all four the federal rules. A second step involves taking stages of CDT’s IT project proposal planning and a random sample of vendors and conducting an approval process before the fiscal year in which on-site assessment to validate information provided they are requesting design, development, and in the survey. The Governor’s budget requests implementation funds. This allows the department $3 million ($1.8 million General Fund) in one-time to solicit bids from external consultants and provide funds for DDS to work with a contractor to conduct the Legislature with more precise estimates of approximately 1,100 on-site assessments. total project cost, schedule, and scope before the LAO Assessment and Recommendation. DDS Legislature approves project funding. DDS is only must complete the assessments to comply with the in stage 3 of the process and claims that waiting federally approved transition plan, and ultimately to to seek the remaining funding until after stage 4 is draw down a significant amount of federal funding complete would delay the project by a year. We by complying with the new federal rules. DDS disagree. DDS does not plan to award a contract based the cost of these on-site assessments on to an external consultant until the fall of 2020, and a contract DHCS has with a contractor for review could request funding in next year’s budget process. of DHCS service providers. For these reasons, By waiting to approve the remaining funding, the we do not have concerns with DDS’s request and Legislature would have additional cost, schedule, recommend its approval. and scope information from stages 3 and 4 (if completed). Even if DDS has not received bids from IT Proposal—Federal Claims Reimbursement external consultants by the time it must submit its System Project. The Governor’s budget requests 2020-21 budget request, we believe the department $3.2 million ($3 million General Fund) in 2019-20 could still provide more refined information to the and $12 million ($11.8 million General Fund) Legislature based on what it learned in 2019. We in each of 2020-21 and 2021-22 to complete therefore recommend approving only DDS’ request development of a new IT system to help DDS for $3.2 million ($3 million General Fund) in planning process and claim federal reimbursements for its dollars for 2019-20 and rejecting the current request Medicaid waiver-eligible services. The 2019-20 for design, development, and implementation amount would pay for planning costs, while the funding in both 2020-21 and 2021-22. subsequent two years of funding would pay for www.lao.ca.gov 15 analysis full gutter 2019-20 BUDGET Reinstatement of is based on the savings that would occur from Uniform Holiday Schedule observing about four additional days. We note that currently, California state government observes As part of a package of budget solutions passed 11 holidays each year and the federal government in 2009 in response to the significant state budget observes 10. The 14-day schedule would therefore deficit, the state enacted a policy prohibiting RCs exceed both state and federal government from paying service providers on 14 set holidays practices. One option is to statutorily establish per year. This meant that service providers either a 10- or 11-day schedule, rather than 14. This did not provide services on those days or absorbed would not result in the savings estimated by the the cost without payment. The policy also required administration, however. Whether the schedule that the 14 holidays be uniform statewide (in other should be uniform is another question. On the one words, it could not be any 14 days throughout hand, it ensures that services are up and running the year). This was called the uniform holiday on the same days facilitating coordination between, schedule. This policy has not been enforced since for example, transportation and day program 2015 (as a result of litigation, since resolved). Last providers. On the other hand, consumers may have year, the Governor’s budget proposed beginning particular needs on certain holidays—for example enforcement again in 2018-19, but a compromise they may need day program job support on the day reached with the Legislature delayed enforcement after Thanksgiving if they work in retail. We believe until 2019-20. that it would be reasonable for the Legislature to LAO Assessment. DDS estimates that enforcing revisit the entire uniform holiday policy, which was this policy could save $47.8 million ($28.7 million part of a package of recessionary budget solutions, General Fund) annually. Typically, most RCs and given the state’s improved fiscal condition and vendors observe a certain number of holidays the policy’s potential negative ramifications on each year regardless of state policy—often about consumers. ten days—so it is our understanding the estimate RATE REFORM On March 1, 2019, DDS will release the results the rate study and the method the contractor used of a three-year study of the DDS rate structure and to conduct the rate study and develop rate-setting rate-setting processes. (Rates refer to the amounts models. We then identify previous attempts to paid to vendors for the services they provide to reform the rate-setting process. Finally, we offer consumers. For example, vendors’ rates may be some issues the Legislature may wish to consider a set monthly amount or a set hourly amount and after it receives the rate study in March. may vary based on the consumers’ level of need.) Current Rate-Setting Process Chapter 3 of 2016 (AB X2 1, Thurmond), called for the study. DDS was provided $3 million from the Rate Setting Is Inherently Complex. There are General Fund to hire a contractor to conduct the any number of ways that vendors’ rates are set study. In anticipation of the release of the findings in the DDS system, as described below, making and recommendations from the rate study, we have for an intrinsically complex system. In addition, compiled some background information and issues services are billed according to a system of more for the Legislature to consider when the study is than 150 codes; service providers are “vendorized” released. First, we describe the various current to provide services under a given code or codes. methods for setting rates and how this already Based on conversations with RCs and service inherently complex process was made even more providers, it is our understanding that these codes complex by budget solutions and subsequent are not necessarily used consistently across the selective funding restorations. Next, we discuss state and that despite the sheer number, these 16 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET codes can often be inflexible when a service complex needs,such as those transitioning provider tries to meet the unique needs of an from DCs to the community, statute allowed individual. Rates are primarily set in the following DDS, RCs, and residential care vendors to various ways: negotiate rates to respond to the complex needs of these consumers. • Statute Sets Certain Rates. Rates for supported employment and work activity Budget Solutions Fundamentally Changed programs are set in statute. Key Rate-Setting Processes. While numerous • DDS Sets Some Rates. Some vendor rates targeted budget solutions stemmed growth in are set by DDS. For example, DDS provides the DDS budget during the recent economic rate schedules for community care facilities downturns, they also fundamentally changed the and day programs, including Early Start for way rates are set and managed on an ongoing infants and toddlers with developmental basis. The methods described above in essence do delays. not apply any longer, except for those set by other departments or those that are usual and customary. • Some Rates Reflect Medi-Cal Rates. When Three key sets of budget solutions include the an RC pays for a service that is otherwise following: covered by Medi-Cal (but the consumer is ineligible for Medi-Cal or has exhausted his • Rate Freezes. A variety of services have had or her Medi-Cal benefits), the RC can pay no their rates frozen for many years, including more than the Medi-Cal rate. For example, day programs and in-home respite since RCs pay no more than the Medi-Cal rates 2003-04 and most other services since for dentistry, physical therapy, and registered 2008-09. Whereas there was a process in nurse care. the past for adjusting rates as vendors’ costs • Certain Rates Reflect Rates Set by DSS. increased, that process no longer applies. When a provider, such as an out-of-home • Median Rates. Since 2008-09, statute has respite provider, has a rate established by required new vendors of certain services DSS, RCs also pay that rate. (whose rates were negotiated with RCs in the • Some Vendors Receive Their “Usual and past) to accept either the state median rate for Customary” Rate. RCs purchase some that service or their vendorizing RC’s median services that are also provided to the wider rate for that service—whichever is lower. population. In these cases, RCs may pay the • Cost Statements. Vendors used to submit same rate the business charges the general cost statements every two years, which public. These services include sports clubs, were an accounting of expenses and staffing diaper service, taxi cabs, and translators. costs. These were used to adjust rates and • Some Transportation Rates Are Based rate schedules as the cost of doing business on RC Mileage Reimbursement. Certain increased. Since the recession, vendors transportation services, such as transportation have no longer had to submit these cost provided by a family member, are reimbursed statements because rates have been frozen. at the same rates that RCs reimburse their Funding Restorations/Augmentations Have own employees for travel. Occurred on a Piecemeal Basis. Some recent • RCs and Vendors Negotiate Certain Rates. budget-related actions have increased vendor If none of the methods for establishing a rate rates, without reinstating the pre-recession described above apply, an RC and a vendor rate-setting and rate-adjustment processes. In can negotiate that vendor’s rate. addition, the state has provided funding specifically • New Specialized Homes Receive Different to cover some vendors’ costs associated with Rates. When DDS began developing increases in the state minimum wage. Below are specialized homes for consumers with some examples of these actions. www.lao.ca.gov 17 analysis full gutter 2019-20 BUDGET • 2016 Special Session Legislation Increased » Whether the current methods result in Vendor Rates . . . Chapter 3 provided a fixed an adequate number of vendors in each ongoing allocation of $179.4 million from service category. the General Fund for vendors to increase » How the fiscal effects of alternative the salaries and benefits of their employees methods for each service category who spend at least 75 percent of their time compare. providing direct service to consumers. » How different methods can positively affect • . . . But Implementation of the Rate consumer outcomes. Increase Was Complicated. DDS conducted • Evaluate and make recommendations to a survey of vendors to determine how much simplify the service code structure. to increase the rates across the many types of service providers (because it was a fixed Certain rates are not under consideration in allocation). It then developed a percentage the study. Primarily, this includes those rates that rate increase for each service type. In 2017, are out of DDS’ control, such as rates based on vendors that received a rate increase were Medi-Cal or DSS rates and usual and customary required to submit documentation as to how rates paid to vendors who serve the wider general they were spending the increased funds. All population. vendors of the same type of service received DDS Selected an Experienced Contractor to the same percentage rate increase. In other Conduct the Study. DDS solicited proposals and words, the increase did not reflect vendors’ awarded the contract to conduct the rate study individual costs. to Burns & Associates, health policy consultants • 2018-19 Budget Included Another Targeted based in Phoenix, Arizona. The company has Rate Increase. The 2018-19 Budget Act worked with a number of other states to evaluate provided $25 million one time from the rate setting in their developmental services General Fund for vendor bridge funding. The systems, including Arizona, Georgia, Hawaii, funding is only for providers in high-cost Louisiana, Maine, Mississippi, New Mexico, areas of the state and, as implemented, only Oregon, Rhode Island, and Virginia. To assess applies to community care facilities and day the rate-setting process in the DDS system programs. and develop rate-setting models and other recommendations, Burns & Associates conducted • Minimum Wage-Related Adjustments the activities discussed below. Provided Since 2016. Chapter 351 of 2013 (AB 10, Alejo), and Chapter 4 of 2016 (SB 3, The Rate Study Included an In-Depth Leno), scheduled state minimum wage Survey of Vendor Costs . . . Burns & Associates increases, beginning in 2014. With each conducted a survey of vendors to learn more new increase in the state minimum wage, about how they each conduct business. For only certain vendors are able to apply for example, the survey asked for information about rate adjustments to cover their associated wages and other costs. Importantly, the survey increased costs (based on DDS’ interpretation solicited other information as well, since looking at of this statute, discussed earlier). vendors’ costs alone would provide an incomplete picture. This is because vendor costs are a direct Rate Study function of current rates. In other words, this is not a market-based system in which vendors can Statute Requires the Rate Study to Consider increase their rates as their costs rise; they receive Several Issues. Per statute, the rate study the rates the state offers—which have largely been is to address the “sustainability, quality, and frozen for more than a decade—and adjust their transparency” of services in the DDS system and: spending based on those rates. In addition to collecting cost information, the survey also asked • Assess whether current rate-setting methods detailed questions about the proportion of time are effective, based on: 18 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET staff spend on various types of activities, such service providers, with an eye toward upholding the as direct care, training or program development, intent of the Lanterman Act and sustaining quality supervision, and professional support. It also services and choice for consumers. Below are asked about turnover rates and the number of some examples of previous efforts advanced by the training hours an employee spends in the first year Legislature. and in subsequent years. For administrative staff, • In response to Chapter 692 of 1982 (AB 2775, it asked about the proportion of time spent on Torres and Hannigan), the State Council administrative tasks related to DDS requirements on Developmental Disabilities prepared a versus other types of administrative work, including report entitled, Report on Quality Assurance fundraising. in the Delivery of Services to Persons with . . . And a Survey of Parents and Consumers. Developmental Disabilities. It examined Statute required DDS to involve stakeholders quality assurance standards and rates in the rate study process, which it did. One of reimbursement for residential service recommendation from stakeholders, including providers. the Developmental Services Task Force, was • DDS prepared a report in 1997 in response to conduct a survey of consumers and family to supplemental report language in the members to understand the vendor rate structure 1996 budget requiring a review of rate setting more holistically. On this recommendation, DDS for residential and day program services. authorized Burns & Associates to subcontract with • The California State Auditor submitted a the Human Services Research Institute to conduct report in 1999 about insufficient funding in the this additional survey. Although the survey is not system based on a survey of service providers necessarily representative of the DDS system (in and RCs. terms of RCs, ages, diagnoses, race/ethnicity, and/or language), DDS and Burns & Associates • DDS contracted for a report in 2000 in have indicated that the qualitative information response to Chapter 1043 of 1998 (SB 1038, collected has been used to inform the overall study Thompson) about a proposed residential rate process. Burns & Associates also indicated that model. Subsequent work about rates for other this is the first time in their rate development work services did not happen because the state with states that a survey of consumers and families went into a recession. has been conducted. Results and Recommendations Have Been Contractor Is Also Using Other Sources of Addressed in a Piecemeal Fashion. Although Information to Inform Its Evaluation. Burns & the system did move to an Alternative Residential Associates examined information such as wage Model rate structure for community care facilities, data from the federal Bureau of Labor Statistics and many of the other recommendations about quality mileage rates from the Internal Revenue Service. services and rate-setting reform more generally They also considered the new federal Home- and have not been taken up in whole. In large part, this Community-Based Services waiver rules that will has been due to budget constraints, as a number take effect in 2022 as well as federal labor laws. of the recommendations would have required significantly more funding in the system. Previous Rate Studies The Current Rate Study Is Not the First. A FRAMEWORK FOR LEGISLATIVE Concerns about rate setting, delivery of quality ACTION ON THE RATE STUDY services, insufficient funding, rapid caseload growth, and a desire for increased consumer Although it is not yet known what will be choice are not new concepts in the history of recommended in the current rate study or how the DDS system. On several occasions over the sweeping the reform recommendations might be, past four decades, the Legislature has called for we suggest some issues for the Legislature to examinations of the system and its network of consider when reviewing the results. www.lao.ca.gov 19 analysis full gutter 2019-20 BUDGET The Opportunity for Real Reform We also suggest the Legislature consider whether the study offers ideas for how to The statutory requirements of the rate study implement changes, such as ways to phase in rate were not limited to suggesting new rates or increases, and whether it recommends approving rate-setting models for services. It required an all changes as a package or offers a menu of examination of the service code structure, how options. Does the study offer insights about the to set rates in a sustainable way, and how to set changes that would need to be made to the current rates in a way that would improve outcomes for infrastructure—such as IT changes; billing and consumers. The discussions that will be held claims processes; and communication with RCs, over the coming months provide an opportunity vendors, families, and consumers—to implement to review what does not work about the current the recommended changes? structure and to identify systemic ways to improve Finally, we suggest the Legislature consider the structure. For example, when rates were frozen how the recommendations could lead to improved and median rates for new providers were instituted, quality of services for consumers. This may include statute provided a process for exceptions—the suggestions for better collection and analyses of health and safety waiver process. If a provider’s data and information about service needs and rate was compromising the health and safety of a gaps. consumer, DDS could grant an exception to the rate freeze and increase the vendor’s rate to avoid Taking Action for risk to the consumer. Since that time, the health 2019-20 and the Short Term and safety waiver process has become a challenge in and of itself. Vendors have sought to use it in Given the timing of the release of the rate study, response to increased local minimum wages and the Legislature must weigh whether to approve the sheer number of requests has led to long certain changes to the DDS rate structure in the delays in DDS responses. 2019-20 budget or wait to make any significant changes until further discussions take place. This Issues to Consider in Reading and trade-off will depend in large part on the nature Evaluating the Rate Study Report of the recommendations and whether there are actions that can be taken right away, whether On March 1, the Legislature should receive a certain recommendations should be phased in or report and/or other materials about the final rate even piloted, or whether all of the recommendations study results and recommendations. The study will require lengthier consideration. likely inform the answers to a number of important Providing Vendors Some Fiscal Relief questions, such as how much should rates be in 2019-20. The study may offer near-term increased and whether the service code structure recommendations to increase rates. If it does can be simplified. However, there may be some not, the Legislature may wish to consider a select unanswered questions as well. set of ways to increase funding for vendors in First, we suggest the Legislature consider how 2019-20 that are not dependent on broader rate the study addressed sustainability of rates over reform ultimately enacted in the longer term. For time—particularly given the ups and downs in the example, as we noted earlier, the Legislature state fiscal condition—and whether it considers could clarify statute to allow vendors in areas with geographic variation in costs and labor market local minimum wages to access the scheduled conditions. For example, what considerations January 1, 2020 state minimum wage increases. It does the study make about adjusting rates in could also consider a 10- or 11-day uniform holiday recessionary times and containing costs when schedule (as discussed earlier), or no set holiday necessary? Do the recommendations include ways schedule at all. to adjust rates for scheduled increases in the state minimum wage? Does it address local minimum wages? 20 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Taking Action for the Longer Term Instituting an Oversight Process. We recommend the Legislature consider a process We recommend the Legislature ultimately take to regularly track rate-setting issues with the a number of actions to allow for effective ongoing administration, especially in terms of the impact oversight of implementation of the rate structure and of the rate structure on consumer outcomes and establish processes for rate adjustments and overall service gaps. In tandem with our recommendation continuous improvement to the rate structure. that the Legislature require DDS to develop a plan Instituting a Process for Both Adjusting for more systematic collection and analysis of data Rates and Containing Costs. We recommend the and information of consumers’ services needs and Legislature consider how it would like to handle vendor availability and capacity, we suggest the statutorily a process for adjusting rates over time Legislature require regular briefings for legislative as vendors’ costs of doing business increase. staff to include updates on rates, service provider At the same time, it should also consider how capacity, and consumer outcomes. (Similar to handle statutorily a process for containing quarterly briefings are currently required to inform costs in the DDS system in tighter fiscal times. In legislative staff on the status of DC closures and recent experience, the types of budget solutions related issues.) that have been enacted followed by attempts to Periodic Formal Review of Rate Setting. We restore funding have led to a situation in which the recommend the Legislature consider requiring established rate-setting methods are not used. DDS to comprehensively review the rate structure For example, although there are vendors in certain on a regular basis—perhaps every ten years—to service categories that have “negotiated rates,” determine whether it is still being used as intended; nothing has been truly negotiated in more than ten whether it meets consumers’ needs; and whether it years since median rates were implemented. needs adjustments, or wholesale changes, to adapt to the changing needs of consumers or the economy. www.lao.ca.gov 21 analysis full gutter 2019-20 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. 22 LEGISLATIVE ANALYST’S OFFICE