BILL ANALYSIS Ó SENATE COMMITTEE ON HUMAN SERVICES Senator McGuire, Chair 2015 - 2016 Regular Bill No: SB 638 ----------------------------------------------------------------- |Author: |Stone | ----------------------------------------------------------------- |----------+-----------------------+-----------+-----------------| |Version: |April 21, 2015 |Hearing |April 28, 2015 | | | |Date: | | |----------+-----------------------+-----------+-----------------| |Urgency: |No |Fiscal: |Yes | ---------------------------------------------------------------- ----------------------------------------------------------------- |Consultant|Mareva Brown | |: | | ----------------------------------------------------------------- Subject: Developmental services: funding SUMMARY This bill requires the Department of Developmental Services (DDS) to submit a plan to the Legislature by August 1, 2016, to ensure the sustainability, quality, and transparency of community-based services for individuals with developmental disabilities. It requires DDS to regularly consult with stakeholders in developing the plan, and to address specified topics including recommendations for a comprehensive approach to funding regional center operations in a sustainable and transparent manner that enables regional centers to deliver high-quality services to consumers. The bill also relaxes the percentage of funds that vendors may spend on administrative costs, based on various factors, and increases rates for services that are established in statute. Additionally, the bill requires an increase to the rates set by the department through various methodologies and requires that DDS ensure that the rates permit the viability of certain residential facilities by establishing different rates for each facility size, as specified. Additionally, this bill requires DDS to increase funding for regional center operating budgets, by 10% by July 1, 2015, and, beginning July 1, 2016, to increase operations funding based on a calculation using the California Consumer Price Index. The bill also requires DDS to increase regional center vendor funding to cover costs related to minimum wage requirements. SB 638 (Stone) PageB of? ABSTRACT Existing law: 1) Defines "developmental disability" as a disability that originates before the age of 18, continues, or can be expected to continue, indefinitely, and constitutes a substantial disability. This term also includes autism. (WIC 4512) 2) Establishes the California Department of Developmental Services (DDS) as the agency that oversees the state's developmental centers, and specifies the duties of the department and developmental center employees. (WIC 4400 et seq.) 3) Establishes that DDS contracts with private non-profit regional centers to provide fixed points of contact in the community for persons with developmental disabilities and their families, so that these persons may have access to the services and supports best suited to them throughout their lifetime. (WIC 4620) 4) Prohibits any contract or agreement with a service provider in which rates are determined through negotiations between the regional center and the service provider from spending more than 15 percent of regional center funds on administrative costs. (WIC 4629.7) 5) Requires DDS to adopt regulations that specify rates for community care facilities serving persons with developmental disabilities and specifies elements of the cost model, including facility size, geographic cost of living variables, and common direct-care services specific to an identifiable group of persons, among many factors. (WIC 4681.1. (a)) 6) Prohibits a regional center from paying an existing residential provider, supported living provider or service SB 638 (Stone) PageC of? provider a negotiated rate any rate higher than the rate that was in effect on June 30, 2008, with limited exceptions. (WIC 4681.6 (a)(1)) (WIC 4689.8(a)(1)) (WIC 4691.9 (a)(1)) 7) Additionally, prohibits a regional center from negotiating a rate with a new residential provider, supported living provider, or service provider that is higher than the regional center's median rate for the same service, as defined, or the statewide median rate - whichever is lower. (WIC 4681.6 (a)(2)) (WIC 4689.8 (a)(2)) (WIC 4691.9 (a)(2)) 8) Defines habilitation services as activities purchased for regional center consumers, including services provided under the Work Activity and Supported Employment programs to prepare and maintain consumers at their highest level of vocation functioning or to prepare them for referral to vocational rehabilitation services. (WIC 4851) 9) Establishes the hourly rate for supported employment services at $30.82. (WIC 4860) 10)Establishes a series of fees to be paid to supported employment providers upon completion of a consumer's progress in the program, as follows: A $360 fee to be paid to a program provider upon intake of a consumer into a supported employment program, as specified. A $720 fee to be paid upon placement of a consumer in an integrated job, as specified. A $720 fee to be paid after a 90-day retention of a consumer in a job, as specified. SB 638 (Stone) PageD of? This bill: 1) Makes a variety of uncodified findings and declarations about the effects of cuts, rate freezes and outdated funding formulas. 2) Adds section 4519.8 to the Welfare and Institutions code requiring DDS submit a plan to the Legislature by August 1, 2016, to ensure the sustainability, quality, and transparency of community-based services for individuals with developmental disabilities. 3) Requires the department to regularly consult with stakeholders in developing the plan. 4) Requires the plan to include, but not be limited to, all of the following: a. An assessment of the effectiveness of the methods used to pay each category of community service provider, including consideration of the following factors for each category of service provider: i. Whether the current method of ratesetting for a service category is ensuring an adequate supply of providers in that category, including, but not limited to, whether there is a sufficient supply of providers to enable a consumer to have a choice of providers. ii. A comparison of the likely fiscal effects of using the following methodologies for each service provider category: Negotiated rates, which may be limited to regional medians or other limits. Rates established through regulations on either a statewide or regionally adjusted basis. Alternate rate methodologies that may use combinations of negotiated or regulatory rates on either a statewide or regionally adjusted basis. a. An evaluation of the appropriateness of the SB 638 (Stone) PageE of? number and type of service codes for regional center services, including, but not limited to, recommendations for making service codes more reflective of the level and type of services provided and for reducing the number and type of services that are billed with a service code of "Miscellaneous." b. Recommendations for a comprehensive purchase-of-services rate structure that would ensure a sustainable, high-quality, and transparent community services system. c. An assessment of the adequacy of the number and locations of regional centers for providing timely service to consumers. This assessment shall consider, at a minimum, all of the following factors: The waiting time for consumers to obtain appointments with regional center personnel. The distance consumers must travel for in-person meetings with regional center personnel. The type and frequency of interactions between consumers and regional center staff that can be accommodated remotely through electronic means, including, but not limited to, electronic mail, video conferencing, or telehealth. Whether the number of consumers and the geographic size of the catchment area served by each regional center are reasonable for delivering high-quality service to consumers and their families. Whether additional regional centers or regional center locations are necessary to address any identified deficiencies in access to regional center personnel, or whether technology-enabled means of access or other solutions are warranted. a. Recommendations for a comprehensive approach to funding regional center operations in a sustainable and transparent manner that enables regional centers to deliver high-quality services to their consumers, including, but not limited to, recommendations and estimated costs for increasing the number of regional centers or altering catchment areas. SB 638 (Stone) PageF of? 1) Amends existing law which mandated a 15 percent cap on administrative costs for all service providers receiving negotiator rates from a regional center. Instead, it requires: a. For service providers who receive payments from one or more regional centers totaling $2 million or more annually, 15 percent of regional center funds may be spent on administrative costs. b. For service providers who receive payments from one or more regional centers totaling less than $2 million but more than $500,000 annually, 20 percent of regional center funds may be spent on administrative costs. c. For service providers who receive payments from one or more regional centers totaling $500,000 or less annually, 25 percent of regional center funds may be spent on administrative costs. 2) Requires DDS to ensure that rates established for community care facilities serving persons with developmental disabilities permit the viability of those facilities, including, but not limited to, four-bed facilities, by establishing different rates for each facility size, as determined by the number of beds available, that reflect reasonable differences in the cost structure of facilities with differing numbers of beds. 3) Requires DDS to adopt emergency regulations by July 1, 2016, to implement the establishment of different rates for each facility size and deems any adoption, amendment, repeal, or re-adoption of a regulation to be necessary for the immediate preservation of the public peace, health and safety, or general welfare, and therefore DDS is exempted from the requirement that it describe specific facts showing the need for immediate action, as required for regulations under Gov Codes 11346.1 and 11349.6. 4) Requires DDS to increase by 10 percent rates for various regional center services, effective July 1, 2015. It further requires that, commencing July 1, 2016, DDS shall increase those rates in accordance with the California Consumer Price Index, unless the Budget Act of 2016 SB 638 (Stone) PageG of? includes alternative rate increases or rate reforms, as specified, or the increase would not imperil the amount of federal matching funds available for these services. The rate categories include: a. Community care facilities b. Residential service providers with negotiated rates c. Supported Living Services providers with negotiated rates d. Non-residential service providers e. Service providers with negotiated rates f. The regional centers' core staffing formula. 5) Requires DDS to increase the funding to enable a regional center to fund all of the following costs associated with minimum wage requirements for the centers and purchase-of service vendors: a. Costs necessary to comply with a statewide minimum wage requirement. b. Costs necessary to comply with minimum wage requirements enacted by local governments that exceed the statewide minimum wage. c. Costs necessary to increase compensation for exempt, salaried employees to comply with wage orders issued by the Industrial Welfare Commission or any other state regulatory agency. d. Any other wage adjustments that vendors are required to make in response to minimum wage increases mandated by state or federal statutes, regulations, or other authorities. 6) Requires that funding increases related to minimum wage mandates be in addition to the 10 percent and Consumer Price Index funding increases mandated in other sections of this bill, and the increases to Supported Employment Rates set in statute. 7) Increases the hourly rate paid to providers of individualized and group-supported employment services from $30.82 to $34.24, and increases the fees paid to program providers from $360 to $400 and from $720 to $800, respectively, for achieving various client milestones in SB 638 (Stone) PageH of? employment. 8) Effective July 1, 2016, increases the hourly rate paid to providers of individualized and group-supported employment services to $37.66, providing the Budget Act of 2016 does not implement alternative rate increases or regional center funding reforms. 9) States codified Legislative intent that the changes made by this act are not intended to result in the substantial impairment of any contract, and that if any contract is substantially impaired as a result of the application of any change made by this act, it is the intent of the Legislature that the change apply only to contracts renewed or entered into on or after January 1, 2016. FISCAL IMPACT This bill has not been analyzed by a fiscal committee. BACKGROUND AND DISCUSSION Purpose of the bill: According to the author, neglect of the community service system in the past decade has shut down some small businesses and non-profits that serve developmentally disabled individuals. State budget actions in recent years reduced or froze reimbursement levels for service providers, and imposed mandates and administrative hurdles that added little or no value, the author states. Additionally, the author states, archaic methods for funding and overseeing services through the non-profit regional centers have resulted in understaffing at those centers, which has created challenges for persons with developmental disabilities and their families to identify and obtain the services they need. According to the author, these obstacles continue to threaten the viability of the community system. SB 638 takes both short-term and long-term steps to sustain the promise that individuals with developmental disabilities can thrive in their own communities, the author states. The Lanterman Act SB 638 (Stone) PageI of? The Lanterman Developmental Disabilities Services Act establishes an entitlement to services and supports for Californians with developmental disabilities who are living in their communities. A developmental disability is one that originates before the age of 18, continues, or can be expected to continue, indefinitely, and constitutes a substantial disability. Approximately 280,000 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. An additional 1,100 individuals are served in four state-run institutions, including three Developmental Centers. About 74 percent of consumers live in the home of a parent or guardian, according to 2014 DDS data. The state's 21 nonprofit regional centers vary considerably in size and organization, from Redwood Coast Regional Center, which serves approximately 3,300 consumers, to Inland Regional Center, with a caseload of nearly 29,000. The average is around 12,000 consumers. Services are developed locally and regional centers "vendorize" providers to deliver services in local catchment areas. Approximately 45,000 agencies provide services in more than 150 service category types including residential care, day programs, behavioral therapies, independent and supported living, supported employment, respite, transportation and many others. The Governor's January budget includes funding for DDS of $5.7 billion. Determination of service needs Determining and coordinating the services for an individual consumer is done through the process of developing an Individualized Program Plan (IPP), or an Individual Family Service Plan (IFSP), if the consumer is an infant or toddler three years of age or younger. The IPP or IFSP is prepared jointly by an interdisciplinary team consisting of the consumer, a parent or guardian, persons who have important roles in evaluating or assisting the consumer, and representatives from the Regional Center. The IPP or IFSP includes a description of the consumer's needs and of the services to be provided to meet SB 638 (Stone) PageJ of? those needs. Cost-saving measures Although consumers have an entitlement to services that meet their needs, a variety of restrictions on service provision have been implemented over the past 10 years. Since 2009, the state has reduced costs to developmental services programs by more than $1 billion (GF) including restrictions on payments for specific services, caps on costs or provided for other services, across-the-board reductions, mandated holidays and other cuts. Prior to the 2009 cost-containment measures, the state had frozen rates to providers in order to contain costs. A Senate Human Services Committee oversight hearing in Los Angeles on October 9, 2014, focused on the sustainability of the Regional Center system in the wake of significant cuts and freezes.<1> Panelists and members of the public testified that years of rate freezes and payment cuts have left the system fragile and unable to withstand even minor fiscal challenges. The Association of Regional Center Agencies reports that 435 licensed residential homes and 57 day and work programs have closed since July 2011, and while the exact cause of these closures is unclear and may be related to other factors, some of these are a result of unsustainable reimbursement rates. Widespread rate freezes began in 2003-04 for community-based and similar day programs, in-home respite care, supported living services and transportation. In 2008-09, as a part of Recession-prompted rate controls, new regional center vendors statewide were no longer permitted to negotiate a rate higher than the statewide median rate or regional center median rate for the same service - whichever was lower. In 2011-12, a new rate survey was conducted resulting in lower median rates for new providers. This practice continues today. Provider payment reductions also were imposed as cost savings mechanisms. In 2009-10, providers were required to take a 3 percent across the board reduction to save an estimated $51 million annually. In the following two fiscal years, provider --------------------------- <1> The Lanterman Act: Promises and Challenges, Senate Human Services Committee, Edward R. Roybal Board of Public Works Session Room, October 9, 2014 SB 638 (Stone) PageK of? payments were reduced by 4.25 percent, to save an estimated $75 million and $94 million respectively, and in 2012-13, providers phased out the payment reductions with a 1.25 percent decrease. Rates returned to their 2008-09 levels in 2013-14. In 2009-10, at the height of the recessionary cutbacks, a DDS budget workgroup discussed the importance of using generic resources before tapping into regional center funds to serve consumers. The state imposed the requirement that year. Increased use of private insurance, for example, was estimated to save $51 million annually, increased use of public transportation saved $37 million, and the increased use of public education for consumers between ages 18 and 22 saved $14 million, among other examples. The 2011 developmental service budget trailer bill (SB 74, Chapter 9, Statutes of 2011) additionally capped administration costs for all negotiated rate providers and contractors at 15 percent and defined what must be included in administrative costs. Regional Center caseloads Regional centers struggled with heavy caseloads and low salary reimbursements during this time period. Caseloads are statutorily mandated to be no higher than 1:62 for most consumers, or 1:45 for consumers who have moved out of a developmental center in the previous 12 months, and 1:66 for consumers not receiving federally reimbursed waiver services and who had not recently moved from a developmental center. Some regional center caseworkers have testified of caseloads substantially higher than 62 and ARCA reports one regional center in 2014 reported a ratio of 1:136 for consumers without waiver services. In 2007, before the recession began, 11 regional centers were reportedly out of compliance with the caseload ratio requirements. In 2014, all 21 regional centers reported being out of compliance in at least one category. As part of the cost cutting solutions, the mandated ratio of 1:66 for some consumers was statutorily lifted between February 2009 and June 2013. As a comparison, the National Association of State Directors of Developmental Disabilities Services (NASDDDS) surveyed states about their caseloads and found that 32 out of 37 states had caseload ratios below 1:59, and more than half of SB 638 (Stone) PageL of? the 37 had caseloads below 1:39.<2> The persistent inability of regional centers to adhere to caseload mandates has caused some concern. A similar lack of oversight in 1997 drew a federal rebuke and significant restrictions on the use of the federal Home and Community Based Services (HCBS) waiver, which provides matched funding to many services for consumers who qualify for subsidized benefits. After extensive state compliance efforts, in which regional centers had to certify compliance one by one, the federal waiver enrollment freeze was gradually lifted. The six-year freeze cost California $933 million in lost reimbursements. Central to the caseload conversation is the regional centers' "core staffing formula" which defines the way regional centers are funded. The core staffing formula has not been updated since 1991, meaning that regional centers are funded for positions at significantly lower rates than the actual salaries they are paying. One consequence of this is that regional centers will hire fewer staffers in order to pay the staffers they have a competitive wage. Additionally, the core staffing formula does not fully reflect current demands on mid-level managers and other staff. 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. 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 --------------------------- <2> "On the Brink of Collapse: The Consequences of Underfunding California's Developmental Services System," Association of Regional Center Agencies, February 2015, pg 31. SB 638 (Stone) PageM of? 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. 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 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: SB 638 (Stone) PageN of? SB 490 (Beall, 2015) revises the threshold for vendor financial audit requirements imposed as budget cost savings measures. AB 1400 (Santiago, 2015) requires that all regional center contracts with in-home respite providers expressly require that at least 85 percent of regional center funds be spent on direct service expenditures, as defined. AB 1626 (Maienschein, 2014) would have made identical 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 identical 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. SB 468 (Emmerson, Chapter 683, Statutes of 2013) established the self-determination program which gives consumers the option of having an individual budget with which to purchase services as they choose, with defined approval processes, rather than having services coordinated by the regional center. AB 1041 (Chesbro, Chapter 677, Statures of 2013) established the Employment First policy, requiring the state to prioritize integrated, competitive employment when planning activities for working age adults with developmental disabilities. COMMENTS A series of reports issued by the Association of Regional Center Agencies (ARCA) in the past several years have described systemic underfunding of the system. In its February 2015 report, "On the Brink of Collapse: The Consequences of Underfunding California's Developmental Services System," ARCA concludes that erosion of funding coupled with additional unfunded mandates have left it struggling to maintain many consumers, rather than providing them with the robust supports SB 638 (Stone) PageO of? and services they need to thrive.<3> To the degree that this bill overlaps efforts already in place by the Health and Human Services Agency's task force, the language in SB 638 imposes a time line on completion of the evaluation of service rates and regional center staffing formulas. This bill also reflects advocacy efforts for a 10 percent increase to provider rates, satisfies the regional center's request for a 10 percent increase to its core staffing formula and includes a statutory rate increase to supported employment providers that was attempted last year in SB 1626 (Maienschein). Should the author need to trim costs in this bill, he may want to consider prioritizing language that remedies identified needs in the system that are not being addressed by the task force or in the budget committee, such as restructuring rates for four-bed facilities to comply with new federal integrated setting requirements, or to identify the most critical rate stabilization efforts. The Autism Society of Los Angeles, which did not take a position on this bill, submitted a letter encouraged the author to consider prioriting funding for purchase of services for consumers to improve individual outcomes. POSITIONS Support: California Association of State Hospital Parent Councils for the Retarded California Disability Services Association Futures Explored, Inc. ResCoalition Opposition: None received --------------------------- <3> Ibid P 55 SB 638 (Stone) PageP of? -- END --