Analysis of the 2008-09 Budget Bill: Health and Social Services

Developmental Services (4300)

A developmental disability is defined as a severe and chronic disability, attributable to a mental or physical impairment that originates before a person’s eighteenth birthday, and is expected to continue indefinitely. Developmental disabilities include, but are not limited to, mental retardation, cerebral palsy, epilepsy, autism, and disabling conditions closely related to mental retardation. The Lanterman Developmental Disabilities Services Act of 1969 forms the basis of the state’s commitment to provide developmentally disabled individuals with a variety of services, which are overseen by the state Department of Developmental Services (DDS). Unlike most other public social services or medical services programs, services are generally provided to the developmentally disabled at state expense without any requirements that recipients demonstrate that they do not have the financial means to pay.

The Lanterman Act establishes the state’s responsibility for ensuring that persons with developmental disabilities, regardless of age or degree of disability, have access to services that sufficiently meet their needs and goals in the least restrictive setting. Individuals with developmental disabilities have a number of residential options. Almost 99 percent receive community–based services and live with their parents or other relatives, in their own houses or apartments, or in group homes that are designed to meet their medical and behavioral needs. Slightly more than 1 percent live in state–operated, 24–hour facilities.

Community Services Program. This program provides community–based services to clients through 21 nonprofit corporations known as regional centers (RCs) that are located throughout the state. The RCs are responsible for eligibility determinations and client assessment, the development of an individual program plan, and case management. They generally pay for services only if an individual does not have private insurance or they cannot refer an individual to so–called “generic” services that are provided at the local level by counties, cities, school districts, and other agencies. The RCs also purchase services, such as transportation, health care, respite, day programs, and residential care provided by community care facilities. The department contracts with RCs to provide services to more than 220,000 clients each year.

Developmental Centers (DC) Program. The department operates five DCs, and two smaller leased facilities, which provide 24–hour care and supervision to approximately 2,600 clients. All the facilities provide residential and day programs as well as health care and assistance with daily activities, training, education, and employment. More than 7,300 permanent and temporary staff serve the current population at all seven facilities.

Overall Budget Proposal. The budget proposes $4.5 billion (all funds) for support of DDS programs in 2008–09, which is a 1.2 percent increase over estimated current–year expenditures. General Fund expenditures for 2008–09 are proposed at $2.7 billion, an increase of almost $61 million, or 2.3 percent, above the revised estimate of current–year expenditures.

Community Services Budget Proposal. The budget proposes $3.8 billion from all funds ($2.3 billion General Fund) for the support of the Community Services Program in 2008–09. This represents almost a $120 million General Fund increase, or 5.4 percent, over the revised estimate of current–year spending. The increase is a net result of caseload growth and other program changes. Of the total $3.8 billion in funding proposed for RC programs in 2008–09, about $525 million is for RC operations and $3.3 billion is for the purchase of services. The 2008–09 community services budget plan includes the following major proposals:

• Purchase of Services Cost Containment Measures. The administration proposes to make permanent some cost containment measures that would otherwise sunset at the end of the current year for a savings of about $215 million General Fund in 2008–09. These measures include the following savings: (1) $128 million from freezing rates for contracted services, (2) $34 million from freezing service levels and eliminating a specified pass–through of federal funds for community care facilities, (3) $33 million from freezing funding for startup of certain new types of programs, (4) $11 million from freezing rates for day, work activity and in–home respite programs, (5) $9.4 million from freezing rates for habilitation services.
• RC Operations Cost Containment Measures. The administration proposes to extend cost containment measures to reduce RC operations costs for savings of about $20 million General Fund in 2008–09.
• Freeze Negotiated Rates. The administration proposes to place an upper limit on the rates RCs can negotiate with new providers in certain service categories for savings of $14 million General Fund.
• Rate Reduction for Supported Employment Programs (SEP). The administration proposes to reduce rates for SEP by 10 percent to achieve savings of $7.7 million.
• Redesign Family Cost Participation Program (FCPP). The FCPP requires families to pay a share of the cost for respite, child day care and camping services if their child is 3 to 17 years old, lives at home, and is ineligible for Medi–Cal. The administration proposes to expand FCPP and thereby reduce RC costs by $773,000 General Fund.

Developmental Centers Budget Proposal. The budget proposes $670 million from all fund sources ($358 million General Fund) for the support of DCs in 2008–09. This represents a net decrease of almost $57 million General Fund, almost 14 percent below the revised estimate of current–year expenditures. The DC budget plan includes the following major proposals:

• Agnews DC Closure. The Governor’s budget plan includes a decrease of $62 million total funds ($38.7 million General Fund) to account for the scheduled closure of Agnews DC on June 30, 2008. The plan also includes almost $4 million ($192,000 General Fund) and 24 positions to provide medical, dental, and other professional services through a primary care clinic at Agnews to individuals residing in the community and to facilitate the transition of Agnews residents to community health care providers. The reimbursements for the primary care clinic will mostly come from RCs.
• Suspend Activation of 96 Secure Treatment Beds at Porterville DC. A 96 bed expansion of the Secure Treatment Program at Porterville DC is currently under construction and is scheduled for completion in October 2008. The administration estimates savings of $11.7 million General Fund in the budget year from reduced staffing and operation costs because the new beds will not be activated.

Headquarters Budget Proposal. The budget proposes almost $38 million from all funds ($24 million General Fund) for support of headquarters. About 62 percent of headquarters funding is for support of the community services program, with the remainder for support of the DC program.

Regional Center System: Spending Growth Continues

In this analysis we describe the major features of the Governor’s budget proposal, assess the Governor’s caseload projections, and identify a potential underfunding in regional center (RC) purchase of services of as much as $113 million General Fund in the budget year. The underfunding appears to be driven by increases in utilization and costs in the RC program. We recommend the department report at budget hearings on the specific causes for increased utilization and costs in the RC program.

Background

How Do RCs Provide Services for Their Clients?

The RCs provide services to clients through two mechanisms. First, RCs purchase services directly from vendors. These services are commonly referred to as “purchase of services.” Secondly, RCs assist their clients in obtaining services from public agencies. These services are commonly referred to as “generic services.” We discuss both types of services further below.

Purchase of Services. The budget for purchase of services consists of ten main service categories as follows: (1) community care facilities, (2) medical facilities, (3) day programs, (4) habilitation services, (5) transportation, (6) support services, (7) in–home respite, (8) out–of–home respite, (9) health care, and (10) miscellaneous. (A more detailed description of these categories is provided on page C–162 of our Analysis of the 2005–06 Budget Bill.)

Generic Services. Under state law, generic services are defined as those being provided by federal, state, and local agencies which have a legal responsibility to serve all members of the general public and that receive public funds for providing such services. There are more than a dozen different generic services that are regularly accessed by RC clients. For example, medical services for an eligible developmentally disabled person might be provided through the Medi–Cal health care program. City or county park and recreation programs also provide generic services for developmentally disabled clients. State law requires that RCs access generic services first and purchase services only when generic services are unavailable.

Some Purchase of Services Provided Under a Federal Waiver. Under the federal Home and Community–Based Services (HCBS) waiver, federal funds can be drawn down to pay for about one–half the costs of certain community–based services for individuals at risk of institutionalization.

The 2008–09 budget plan assumes that RC programs will draw down $824 million in federal funds under the HCBS waiver.

RC Caseload. Between 2001–02 and 2008–09, the RC caseload is projected to grow from almost 173,000 to about 232,000, an average annual growth rate of about 4.3 percent. The caseload trend is shown in Figure 1.

Several key factors appear to be contributing to ongoing growth in the RC caseload. Medical professionals are identifying persons with a developmental disability at an early age and referring more persons to DDS programs. Improved medical care and technology have increased life expectancies for individuals with developmental disabilities. The RC caseload growth also reflects a significant increase in the diagnosed cases of autism, the causes of which are not fully understood.

Governor’s Budget Proposal

In accordance with past practice, the 2008–09 budget plan reflects DDS’ updated projections for the number of RC clients for the current and budget years. The budget plan indicates that the actual caseload in the RC system in 2007–08 is tracking at a higher level than the originally budgeted level in the 2007–08 Budget Act. Specifically, the average annual caseload for the current year is estimated at 221,655, or 2,425 clients more than the estimate of 219,230 that was the basis for the RC system’s appropriations in the 2007–08 Budget Act. The budget plan further estimates that the average annual RC caseload will grow to 232,125 in 2008–09, a year–to–year increase of 10,470 clients, or 4.7 percent.

For 2008–09, the Governor’s budget proposes to increase spending for the RC system by about $142 million, including an increase of about $120 million from the General Fund. This increase reflects estimated growth in caseloads but not increases in costs and utilization.

Recent Data Suggest Caseload Estimate Is on Target. Recent data through December 2007 indicate that the average annual caseload is likely to be about 100 below the revised level that DDS has estimated in the current year (221,655 clients) and at about the level that DDS has estimated in the budget year.

Estimate Fails to Take Into Account Cost and Utilization Growth. Increased costs for RC purchase of services are driven by three major factors: (1) increases in caseload, (2) increases in the costs of the services provided, and (3) increases in utilization of services by RC clients. The estimating methodology that the administration uses to forecast growth in RC purchase of services indicates that caseload growth is being outstripped by increased costs and utilization of services. The administration indicates that until it has a better understanding of what is causing the growth in costs and utilization, only caseload growth will be funded (on an average cost–per–client basis). Therefore, the administration does not propose to fund projected growth due to estimated cost and utilization, totaling about $113 million General Fund the budget year.

Analyst’s Recommendation

We recommend the Legislature take into account that the RCs are likely underbudgeted by as much as $113 million General Fund in the budget year. We further recommend the Legislature require the department to report at budget hearings on the specific causes for increased utilization and costs. In our view, without accurate information about what is causing increased utilization and costs, the Legislature lacks the information it needs to assess the causes of the rapid growth in the RC program and determine which policies would be most effective to contain these costs.

We note that in our Analysis of the 2006–07 Budget Bill, (page C–156) we recommended that the Legislature direct the Department of Finance’s Office of State Audits and Evaluations to conduct an audit to evaluate the accuracy and the consistency of the purchase of services data now being reported by RCs. Because the accuracy and consistency of these data are now uncertain, the state lacks tools that are needed to exercise strong fiscal oversight over RC spending. An improvement in the way expenditure data are reported has additional potential benefits. It could improve the quality of the data used by DDS for budget forecasts, so that its budget request to the Legislature could more closely match the actual funding required to support community services programs.

The administration has indicated that it will provide updated information on the overall RC caseload trend, change in the mix of RC clients, and trends in the cost and utilization of services at the time of the May Revision. We will continue to monitor caseload trends and will recommend appropriate adjustments, if necessary, in May when DDS’ updated budget request is presented to the Legislature.

Report on Potential RC Savings Measures Overdue

Chapter 188, Statutes of 2007 (AB 203, Committee on Budget) requires DDS to develop a plan of options for consideration by the administration and the Legislature to better control RC costs of operating and providing services. The plan is required to include a wide range of options with an analysis of the advantages and disadvantages of each. The plan was due to the Legislature on October 1, 2007. At the time this analysis was prepared, the report was five months overdue.

Analyst’s Recommendation. We recommend the Legislature require the administration to report at budget hearings on the status of the overdue plan to control RC costs.