BILL ANALYSIS Ó
SENATE COMMITTEE ON HUMAN SERVICES
Senator McGuire, Chair
2015 - 2016 Regular
Bill No: AB 1400
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|Author: |Santiago |
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|Version: |July 6, 2015 |Hearing | July 14, 2015 |
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|Urgency: |No |Fiscal: |No |
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|Consultant|Mareva Brown |
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Subject: Developmental services: regional center contracts
SUMMARY
This bill requires all regional center contracts or agreements
with contracting entities that provide in-home respite services
and that have an annual revenue attributable to in-home respite
services provided to regional center consumers of at least
$7,000,000, as specified, to expressly require that at least 85
percent of regional center funds be spent on direct service
expenditures, as defined.
ABSTRACT
Existing law:
1) Establishes the Lanterman Developmental Disabilities
Services Act, which states that California is responsible
for providing an array of services and supports
sufficiently complete to meet the needs and choices of each
person with developmental disabilities, regardless of age
or degree of disability, and at each stage of life and to
support their integration into the mainstream life of the
community. (WIC 4500, et al)
2) Establishes a system of nonprofit Regional Centers,
overseen by the Department of Developmental Services (DDS),
to provide fixed points of contact in the community for all
persons with developmental disabilities and their families,
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to coordinate services and supports best suited to them
throughout their lifetime. (WIC 4620)
3) Establishes an Individual Program Plan (IPP) and defines
that planning process as the vehicle to ensure that
services and supports are customized to meet the needs of
consumers who are served by regional centers. (WIC 4512)
4) Requires a regional center shall secure services and
supports that meet the needs of the consumer, as determined
in the IPP, and to give highest preference to those which
would allow minors with developmental disabilities to live
with their families, adult persons with developmental
disabilities to live as independently as possible in the
community, and that allow all consumers to interact with
persons without disabilities in positive, meaningful ways.
(WIC 4648)
5) Establishes a process for regional centers to
"vendorize" or contract with service providers to serve
consumers IPP-identified service needs based on the
vendor's qualifications and other requirements necessary in
order to provide the service, and specifies the process and
requirements for becoming a regional center vendor. (WIC
4648 (3) (a))
6) Requires DDS to enter into contracts with regional
centers, which include annual performance objectives that
are designed to assist consumers to achieve life quality
outcomes, develop services and supports identified as
necessary to meet identified needs, including culturally
and linguistically appropriate services and supports and
meet other objectives. (WIC 4629)
7) Within the regional center contracts, requires DDS to
ensure that all regional center contracts or agreements
with service providers in which rates are determined
through negotiations between the regional center and the
service provider, shall expressly require that not more
than 15 percent of regional center funds be spent on
administrative costs and defines the following expenditures
and costs:
a. Defines direct service expenditures as those
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costs immediately associated with the services to
consumers being offered by the provider. Funds spent
on direct services shall not include any
administrative costs.
b. Defines administrative costs to include, but
not be limited to, 15 categories of expenditures items
including salaries, wages, and employee benefits for
managerial personnel including executive officers,
facility and occupancy costs, data processing,
training, contract procurement, insurance, travel and
other specified costs. (WIC 4629.7 (a))
8) Requires that not more than 15 percent of all funds
appropriated through the regional center's operations
budget shall be spent on administrative costs, and defines
direct services and administrative costs, as specified.
(WIC 4629.7 (b))
This bill:
1) Defines for the purposes of a new section, WIC 4629.8,
administrative costs to include all costs other than direct
service expenditures, including all amounts actually paid
and all accounts payable, as calculated in accordance with
generally accepted accounting principles, including, but
not limited to:
a. Compensation and benefits, including federal,
state, and local payroll taxes, workers' compensation
and unemployment insurance premiums, and recruiting,
training, orientation, and background checks for
managerial personnel whose primary purpose is the
administrative management of the entity, including,
but not limited to, directors and chief executive
officers.
b. Compensation and benefits, including federal,
state, and local payroll taxes, workers' compensation
and unemployment insurance premiums, and recruiting,
training, orientation, and background checks for
employees who perform administrative functions,
including, but not limited to, payroll management,
personnel functions, accounting, budgeting, and
facility management.
c. Facility and occupancy costs directly
associated with administrative functions.
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d. Maintenance and repair.
e. Data processing and computer support services.
f. Contract and procurement activities, except
those provided by a direct service employee.
g. Training directly associated with
administrative functions.
h. Travel directly associated with administrative
functions.
i. Licenses directly associated with
administrative functions.
j. Taxes.
aa. Interest.
bb. Property insurance.
cc. Personal liability insurance directly
associated with administrative functions.
dd. Depreciation.
ee. General expenses, including, but not limited
to, communication costs and supplies directly
associated with administrative functions.
ff. Consultants and professional services,
including, but not limited to, accounting and legal
services.
gg. Distributions to shareholders.
hh. Advertising costs.
ii. Conference, convention, and meeting costs.
jj. Facility and office equipment costs,
including, but not limited to, rent, lease, and
mortgage payments, directly associated with
administrative functions.
aaa. Transfers to a corporate parent or franchisor,
including, but not limited to, franchise fees, fees
for copyright or trademark usage, fees for advertising
materials, royalty fees, or conference fees.
bbb. Other general operating and overhead costs.
2) Defines "direct service expenditures" to mean all
amounts actually paid and all accounts payable, as
calculated in accordance with generally accepted accounting
principles, in the following categories:
a. Wages and benefits, including state, federal,
and local payroll taxes, workers' compensation and
unemployment insurance premiums, and recruiting,
training, orientation, and background checks for
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respite care aides.
b. Expenses substantially similar to those in
subparagraph (a) that are directly related to the
provision of in-home respite services.
3) Defines "financial management services" to mean
services, as defined, and any similar service, including,
but not limited to, payroll duties, processing payments for
the reimbursement of services, and other employer
responsibilities that are required by federal and state
law, when the agency is the employer for those purposes,
but the consumer or his or her family member recruits the
worker.
4) Defines "service agency," to mean an organization or
corporation that provides in-home respite services, as
defined.
5) Requires that all regional center contracts or
agreements entities that provide in-home respite services,
as defined, and that have an annual revenue attributable to
in-home respite services provided to regional center
consumers of at least seven million dollars ($7,000,000),
shall expressly require that at least 85 percent of
regional center funds be spent on direct service
expenditures. Direct service expenditures shall not include
administrative costs.
6) Specifies that a contracting service agency may meet the
annual revenue attributable to in-home respite services in
either of the following ways:
a. The annual revenue of the contracting service
agency that is attributable to in-home respite
services provided to regional center consumers,
excluding financial management services and other
administrative services, meets or exceeds seven
million dollars ($7,000,000).
b. The annual revenue of the contracting entity's
parent organization that is attributable to in-home
respite services provided to regional center consumers
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in California, excluding financial management services
and other administrative services, whether earned
directly by the parent organization or by
subcontractors and subsidiaries of the parent
organization, meets or exceeds seven million dollars
($7,000,000).
7) Requires service providers and contractors, upon
request, to provide regional centers with access to books,
documents, papers, computerized data, source documents,
consumer records, or other records pertaining to the
service providers' and contractors' rates.
FISCAL IMPACT
This bill has not been analyzed by a fiscal committee.
BACKGROUND AND DISCUSSION
Purpose of the bill:
According to the author, the rate set by the DDS for In-home
Respite Services Agencies does not require that regional center
funds are expended primarily for the delivery of services to
ensure public funds are not expended for excessive
administrative costs and profits. The author states that current
law requires that no more than 15 percent of the funds received
by a service provider with a negotiated rate from the regional
centers may be used for administrative costs. This policy is
not applicable to services that have rates established by DDS,
DHCS, or statutorily established rates. In-home Respite
Services Agency is set by DDS - not negotiated - based on a cost
statement the provider completed and submitted to the regional
center.
Current law only limits the funds devoted to overhead to 15
percent for some vendors, according to the author, but sets no
minimum requirement for direct service expenditures. This
leaves the remaining 85 percent of regional center funds for
direct service expenses and profit with no clear guidance on the
proper allocation for these costs, the author states. AB 1400
sets a minimum requirement for direct service expenditures at 85
percent for in-home respite services, leaving the remaining 15
percent for administration and profit. Direct service
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expenditures are those costs immediately associated with the
services provided to clients.
The Lanterman Act
The Lanterman Developmental Disabilities Services Act, passed in
1974, established an entitlement to services and supports for
Californians with developmental disabilities and set up an
extensive system to care for individuals who living in their
communities. A developmental disability is defined in statute as
one that originates before the age of 18, continues, or can be
expected to continue, indefinitely, and constitutes a
substantial disability. Today, approximately 290,000 children
and adults with developmental disabilities are served in
community-based programs and supported by state- and federally
funded services that are coordinated by local, nonprofit
regional centers. Another 1,077 individuals are served in three
state-run Developmental Centers and one smaller step-down
facility, although the institutional population has decreased
significantly in recent years and the Department has recently
announced it plans to close all three Developmental Centers.
The state's 21 regional centers vary considerably in size and
organization. Statewide, slightly more than half of the regional
center population is between age 18 and 61 years old; about
two-thirds of all consumers have an intellectual disability,
three in 10 are diagnosed with autism or a related disorder, and
18 percent are identified as having severe behaviors, according
to data reported by the Department of Developmental Services
(DDS). About 77 percent of consumers live in the home of a
parent or guardian or in their own home, according to DDS.
Regional centers provide the diagnosis and assessment of
eligibility and help plan, access, coordinate and monitor the
services and supports that are needed because of an individual's
developmental disability. Services for consumers are determined
through an individual program plan (IPP).
Vendorization
To be eligible to provide services to a regional center client,
a provider must become a vendor of those services in a specific
regional center's catchment area. According to the DDS website,
"vendorization is the process for identification, selection, and
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utilization of service providers based on the qualifications and
other requirements necessary in order to provide the services.
The vendorization process allows regional centers to verify,
prior to the provision of services to consumers, that an
applicant meets all of the requirements and standards specified
in regulations."
In truth, regional centers must vendorize any applicant who
meets all the requirements for the service to be provided. The
DDS website notes that vendorization in no way obligates that
regional center to purchase service from that vendor. Applicants
who pass vendorization requirements are assigned a service code
and unique vendor identification number by the regional center,
which determines the appropriate vendor category for the service
to be provided.
Within the vendor community, there are roughly 75 to 100 vendor
codes, designed to identify criteria for providing specific
types of services and to set rates for those services. More than
45,000 vendors provide services paid for by regional centers in
California.
Provider rates
Current statute and regulations set rate requirements for
regional center rates that can be paid to vendors to provide
various services to regional center consumers. There are
different rates for different types of services, including the
following:
Rates set by DDS, which are included in statute or
regulation, or can be set through cost estimates or rate
schedules;
Rates established by the DDS, which are set through
a calculation of actual costs, and includes those rates
for in-home respite services, which are the subject of
this bill;
Rates established by Medi-Cal, which require a
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regional center to pay no more than the Medi-Cal rate;
Usual and customary rates, which align with the
rates a particular business charges individuals who do
not have developmental disabilities and are not served by
regional centers;
Rates set for transportation services to regional
center clients; and
Negotiated Rates set through negotiation between the
regional center and the provider, which are applied to
services that do not fit within any of the other
established rate structures and in which case the maximum
rate is capped at the regional center median rate for
that service or the statewide median rate for that
service, whichever is lower. An example is Supported
Living Services.
In Home Respite services
In-home respite services are intended to provide temporary,
nonmedical care and supervision to a regional center client, in
his or her own home, in order to assist family members in
maintaining the client at home, or to ensure the client's safety
in the absence of family members, among other objectives. In
California, there are a number of large agencies that hire
in-home respite providers to provide direct care. Rates for
in-home respite services are set by DDS based on actual costs
submitted through cost statements for administrative costs, and
may be no more than a maximum of $22.44 per hour, with some
adjustments for various factors. For example, hourly rates among
three of the largest providers for administration costs range
$7.41 to $10.56 and the administrative portion of the rate
averages around $10 statewide. The direct service rate is
established statewide and will be $13.10 per hour as of January
1, 2016
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According to the Department's website, for rates established
through cost statements, such as community-based day programs
and in-home respite service agencies, each vendor's rate is
established utilizing actual allowable cost information and
consumer attendance data submitted by the vendor. If the
calculated rate is within the allowable range of rates for like
programs, the vendor will receive the calculated rate. If,
however, the vendor's rate is below the lower limit or above the
upper limit, the rate will be adjusted up to the lower limit or
reduced to the upper limit, as appropriate.
Employer of record
In situations where a consumer selects and supervises her or her
own caregiver, a respite agency may also serve the function of
"employer of record." This function was established by the state
after federal regulators prohibited any further payments for
respite caregivers directly from the regional center to the
caregiver, instead requiring that payments be made to a
vendorized provider. The employer of record therefore satisfies
payroll and tax requirements for the consumer and his or her
selected respite provider. As an example, this type of service
may be used for a neighbor or relative who provides temporary or
intermittent respite care for a consumer. The employer of record
function is essentially administrative; no direct services are
provided by the employer of record provider.
Rate Restructuring
In 2001, DDS and its stakeholders completed a four-year review
of the community based service delivery system and released a
67-page document with that year's May budget revision. The
report, prompted by SB 1038 (Chapter 1043, Statutes of 1998),
underscored the need to shift the current system to one of
quality-based outcomes. Inherent in this process was the need
restructure rates to reflect the actual cost of providing
services. A recession in late 2001, forced the state to postpone
implementation, although DDS committed to continue focusing on
the effort with workgroups.
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In 2014, the Legislature again tried to establish a rate reform
process in its budget bill, however the Governor rejected the
language, noting that the issue would be taken up by a task
force convened by the Health and Human Services Agency.
Agency task force
In July 2014, Health and Human Services Secretary Diana Dooley
convened a task force to study the community service delivery
system and to recommend reforms. The Developmental Services task
force and its subcommittees have met several times since fall,
including last week. The task force will be considering whether
to revise the existing rate structure and rate-setting
methodology, how to streamline billing codes, how to allow more
flexible rates, establish standards of quality and outcome
measurements and consider other new state, local and federal
mandates. It also is looking into staffing levels and the core
staffing formula at the 21 regional centers. The task force has
no specific end date for its work, although the Administration
has testified in budget hearings and a 2nd Extraordinary session
informational hearing that may bring forward a restructured rate
proposal as early as next January.
The task force was convened as a follow up to the work of a
similar task force that looked into the state's developmental
centers and produced a report on "The Plan for the Future of
Developmental Centers in California." That task force's report
included a request to "develop recommendations to strengthen the
community system in the context of a growing and aging
population, resource constraints and availability of community
resources to meet the specialized needs of clients and past
reductions to the community system."7
New federal HCBS requirements
In March 2014, the federal Centers for Medicaid and Medicare
Services (CMS) released new regulations for federal
reimbursement of home and community based services. Among the
changes are requirements for consumers to live in and receive
services in the most integrated setting possible, leaving open,
for now, exact definitions of what changes could be required in
California to comply. The new regulations affect federal HCBS
waivers used by DDS to pay for consumer services. California and
other states are required to submit state transition plans and
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DDS has begun a stakeholder process to identify service types
that may be out of compliance. The state is required to have its
plan in place and to shift consumers to the more-integrated
models of care in 2019.
Related legislation:
SBX2 1 (Beall, 2015) provides a 10 percent increase in the
funding paid to a regional center and purchase-of-service
vendors; requires funding to enable the regional center and the
regional center's purchase-of-service vendors to fund certain
costs related to minimum wage requirements; and
requires DDS to develop a 10-year financial sustainability plan.
This bill was recently introduced in the 2nd Extraordinary
Session and has not yet been heard.
SB 638 (Stone, 2015) would have raised a variety of vendor
rates, increased funding to regional centers for staffing and
relaxed the percentage of funds that vendors may spend on
administrative costs, based on various factors. Additionally,
the bill required DDS to ensure that the rates permit the
viability of certain residential facilities by establishing
different rates for each facility size, as specified. The bill
was held in the Senate Appropriations committee, which estimated
more than $700 million annually in costs, including ongoing
costs of about $420 million per year for the initial 10 percent
increase in rates paid to vendors of certain services and
ongoing costs in the tens of millions per year for additional
purchase of services to offset the redirection of regional
center funding to administrative purposed by vendors. This bill
was held in the Senate Appropriations committee.
AB 1626 (Maienschein, 2014) would have made increases to the
supported employment rates and fees. It died in the Senate
Appropriations Committee. An Appropriations committee analysis
estimated the cost of these rate and fee increases to be at
least $10.1 million (GF) per year.
AB 954 (Maienschein, 2013) would have made increases to the
supported employment rates and fees. It died in the Assembly
Appropriations Committee. A committee analysis estimated the
cost of these rate and fee increases to be approximately $12.5
million (GF) per year.
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SB 74 (Committee on Budget and Fiscal Review, Chapter 9,
Statutes of 2011) requires all regional center contracts or
agreements involving negotiated rates to expressly require that
not more than 15 percent of regional center funds be spent on
administrative costs.
COMMENTS
AB 1400 will be a two-year bill in this committee and only
testimony will be presented at hearing. The author has expressed
intent to introduce the same language in the 2nd Extraordinary
Session on Public Health and Developmental Services.
This bill would refocus the existing 15 percent administrative
cap that restricts some providers - although not the In-Home
Respite providers targeted in this bill - by instead requiring
that 85 percent of the rate for care be spent on direct service
provision. An additional 15 percent cap is added for
administrative costs, as defined. According to DDS, just four
large respite providers are receiving more than $7 million in
regional center funding and would therefore be affected by the
rate restructuring in this bill. The sponsor of the bill, SEIU,
disputes DDS's calculation of how many providers would be
affected and believes there are more providers above the
threshold.
There have been a number of concerns voiced about this bill:
1. Several large providers have asked the author to exempt
Employer of Record services from inclusion in this bill,
which would result in many affected businesses falling
below the $7 million cap. The author has amended the bill
twice in an attempt to satisfy this concern. However, the
current version of the bill excludes "financial management
services" from inclusion on the revenue calculation, which
are a different type of management entity, funded
differently from employer of record services. Those
providers remain opposed to the bill.
2. Should the employer of record exemption be included in
the bill, according to DDS (and disputed by the sponsor),
there would remain just one large in-home respite agency
affected by the bill. That agency has asked the author to
instead impose a 15 percent administrative cap similar to
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that on negotiated rate providers.
3. DDS has expressed concerns that restructuring the rate
as proposed in this bill would have the effect of
substantially raising the rate for in-home respite because
the administrative costs are calculated based on actual
costs and therefore could not be reduced. The Department
provided an early estimate of $24 million in General Fund
cost, for FY 2015-2016 and $52 million for 2016-2017, but
has said recent amendments may expand the scope and cost of
the bill. The Department has an official position of
opposition.
4. The restructuring of this service category and code is
concurrent with substantial discussion of rate
restructuring taking place both in task force led by the
Secretary of the Health and Human Services Agency and by
the Legislature in the 2nd Extraordinary Session, which was
convened, in part, to consider DDS provider rates.
Restructuring a single type of rate should be considered in
the broader context of rate increases and revisions.
Staff recommends that should this bill be introduced in the 2nd
Extraordinary Session the author consider these concerns and
mitigate any unintended effects.
PRIOR VOTES
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|Assembly Floor: |62 - |
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|Assembly Appropriations Committee: | |
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|Assembly Human Services Committee: |5 - |
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POSITIONS
Support:
SEIU California (Co-Sponsor)
California Labor Federation
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Congress of California Seniors
UDW/AFSCME
Oppose:
Accredited Family of Homecare Services
Alliance Supporting People with Intellectual and
Developmental Disabilities
California Association of Health Services at Home
California Chamber of Commerce
California Disability Services Association
Maxim Healthcare Services
Premier Healthcare Services
24 Hour HomeCare
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