Analysis of the 2006-07 Budget Bill Legislative Analyst's Office February 2006

Licensing and Certification Reform Proposals

The Governor’s budget proposes a number of changes to four of the licensing and certification programs within the Health and Human Services Agency to improve the state’s oversight of health and community care facilities. We recommend that the Legislature approve the proposals, but we recommend reductions to the level of staff proposed in the Department of Health Services Licensing and Certification Division (DHS L&C). In addition, we propose that the Legislature consider enacting additional reforms in the Community Care Licensing Division in the Department of Social Services and in the DHS L&C.

Key Features of the Governor’s Proposal

The 2006-07 Governor’s Budget proposes to improve the licensing and certification efforts of the Department of Health Services (DHS), Department of Social Services (DSS), Department of Mental Health (DMH), and the Emergency Medical Services Authority (EMSA) by undertaking a multiyear comprehensive reform effort. The reform proposals include:

• 155.5 new positions in DHS Licensing and Certification Division (L&C) and $18.9 million ($652,000 General Fund) to support licensing activities including timely investigations of complaints about nursing home care.
• 81 new positions and $6.1 million ($5.6 million General Fund) in DSS Community Care Licensing (CCL) division to increase inspection frequency and to implement administrative and management efficiencies.
• Five positions and $420,000 ($349,000 in General Fund) in DMH for increased workload associated with oversight of 165 residential care facilities that provide 24-hour psychiatric and rehabilitative care. Under the proposal, the administration would submit statutory language to allow DMH to begin to collect fees from two types of facilities that would generate estimated revenues of up to $401,000 per year.
• Six positions in 2006-07 (a total of 30 positions would be phased in over the next three budget years) and a $1.5 million loan from the General Fund for EMSA to take over the licensing of certain categories of emergency medical technicians (EMTs) from local emergency services and public safety agencies and establish a uniform licensing protocol. The agencies that currently license these categories of EMTs often impose different licensing requirements. The licensing program would be fully fee supported and the General Fund loan would be repaid over a five-year period.
• The budget also proposes an extensive number of policy changes to the licensing and certification programs. This includes a proposal to establish a consistent set of core crimes for all programs that would result in a facility’s lifetime ban from operation.
• In addition, we are advised that the administration plans to present a proposal to the Legislature at the time of the May Revision for reform of licensing and certification functions at the Department of Alcohol and Drug Programs.

Evaluating the Governor’s Proposals

The DMH and EMSA Proposals. We raise no concerns with the budget proposals in DMH and EMSA included in the reform package. Specifically, we believe that the DMH proposal will help to ensure necessary oversight of residential care facilities. In addition, we find that the proposal for a statewide licensing program in EMSA for certain EMTs would provide consistency in licensing and a statewide registry of EMT personnel that could be helpful for disaster response preparation and during a statewide emergency.

The DHS and DSS Proposals. Thus, our analysis in the sections which follow focus on the proposed budget changes in the DHS L&C and in the DSS CCL division. We analyze each proposal and outline our recommendations for further reform.

Proposals for Additional Statutory Changes. In addition to the proposals discussed above, the administration is proposing extensive statutory changes to implement their broad concepts of L&C reform. While these proposals may have merit, they are beyond the scope of this analysis. We believe this proposed legislation does warrant scrutiny by the appropriate policy committees of the significant policy issues they raise.

Licensing of Health Facilities: State Oversight Needs Improvement

The state’s existing system for licensing and oversight of 7,000 health care facilities across the state suffers from some serious weaknesses, including a failure to detect deficiencies during inspections, poor follow-up when problems are discovered, a lack of enforcement of state standards, and a drop in staff productivity. In this analysis, we evaluate an administration budget proposal to improve the operations of the Department of Health Services Licensing and Certification Division and comment on further steps the Legislature could take to strengthen the state’s regulatory oversight of health facilities.

Background

Main Responsibilities. The L&C Division within DHS is responsible for ensuring and promoting a high standard of medical care in approximately 7,000 public and private health care facilities throughout the state. The L&C’s primary responsibilities are to:

• Conduct annual certification surveys for participation in the federal Medicare and Medicaid (Medi-Cal in California) programs. (Most L&C workload is associated with ensuring that health facilities comply with federal requirements.)

• Conduct state licensing reviews and ensure compliance with state law.

• Issue state citations and federal deficiencies, impose sanctions, and assess monetary penalties on those facilities that fail to meet certain requirements.

• Investigate consumer complaints about health care facilities and incidents that are self-reported by the facilities. These complaints may be received via telephone, mail, personal contact, or during a facility inspection.

Later we discuss L&C’s failure to meet some of these responsibilities, such as ensuring compliance with state law.

Other Agencies Involved. Several other state agencies are also responsible for providing oversight and inspections of health facilities, including the DHS Audits and Investigations Division, the Office of the Long Term Care Ombudsman within DHS, and the Bureau of Medi-Cal Fraud and Elder Abuse within the Office of the Attorney General. Also, DHS contracts with Los Angeles County to perform oversight and inspections in that jurisdiction in lieu of providing L&C staff for that purpose.

Revenues and Workload. Funding for L&C activities comes from licensing fees imposed on certain health facilities, federal funds, and additional state General Fund support. As shown in Figure 1, the 2006-07 Governor’s Budget proposes about $128 million for L&C operations, an increase of nearly $18 million, or 16 percent, from 2005-06.

As Figure 2 shows, nursing facilities comprise 69 percent or most of L&C’s workload. This is primarily because most of the approximately 1,300 nursing homes in the state participate in the federally supported Medicare and Medicaid health care programs. The Centers for Medicare and Medicaid Services, the federal agency which administers these two programs, contracts with L&C to verify that California’s health care facilities meet minimum standards to qualify for Medicare and/or Medicaid reimbursement.

Governor’s Proposals to Improve Licensing of Health Facilities

The administration is undertaking a multiyear reform of state licensing operations within the Health and Human Services Agency in an effort to increase health and safety protections, modernize licensing systems, maximize the use of program resources, and use licensing fees to support these activities where appropriate. The proposals that specifically affect the DHS L&C Division include the following:

• Licensing Fee Increase. Licensing fees would be increased to support a greater portion of L&C costs and thereby reducing General Fund support for these activities by about $5 million in 2006-07. The cost of oversight activities performed in state-operated facilities would continue to be paid for with state General Fund support, and federal funding would continue to be received from CMS for the work that L&C performs on its behalf. A new special fund would be created in order to track the license fees that are collected and spent by L&C.

• Staffing Increase. About $17.6 million from the new special fund would be spent in 2006-07 to add 118 permanent positions and 23 two-year limited-term positions to complete state licensing and federal certification workload. More than one-half of these positions would be budgeted starting in mid 2005-06. The request also includes $2.7 million in contract funding for Los Angeles County to pay for 18 additional staff to perform licensing and certification functions within that jurisdiction.

• Fingerprint Investigations. About $1.3 million from the new special fund would be spent to add ten two-year limited-term positions and 4.5 permanent positions to address the current backlog and workload increases in the Fingerprint Investigation Unit. This proposal also includes $65,000 to explore using an information technology system to process criminal background checks. This would reduce the need in the future for additional position requests to handle this workload.

Serious Weaknesses Exist in Nursing Facility Oversight

Serious problems have been identified by federal authorities in L&C’s oversight of health facilities. The weaknesses discussed below apply primarily to L&C’s oversight of nursing facilities, which, as noted earlier, are by far the largest part of the division’s inspection workload.

Deficiencies Understated or Not Found at All. A recent investigation by the U.S. Government Accountability Office (GAO) has found that L&C either understated serious quality-of-care and fire safety problems in its reviews of nursing homes or missed them altogether. Specifically, in July 2003 through January 2005, GAO conducted surveys of a sample of California nursing facilities during the same timeframe that the same facilities had been inspected by L&C staff. The federal comparative surveys found that, in 17 percent of their reviews, at least one serious deficiency had been missed by state surveyors. A serious deficiency is defined as being one that has at least the potential to cause more than minimal harm to a patient.

The overall percentage of homes receiving citations from L&C had decreased significantly-by nearly 23 percent since 1999-00. Absent the GAO reviews, this drop in citations might have been interpreted to mean that the quality of care in California nursing homes had improved. But the GAO reviews indicate instead that L&C’s failure to identify serious deficiencies has caused a drop in the number of citations in recent years.

Why Are L&C Inspections Missing Problems? The federal review concluded that these failures by L&C are the result of several key factors.

One problem is that nursing home operators are now often able to predict in advance when a survey will occur. The federal government requires that nursing homes be surveyed at an average interval of 12 months. Surveys are thus considered to be predictable if they are conducted within 15 days of the anniversary of a home’s prior survey. The federal review found that, in 2005, 28 percent of the nursing homes in California were surveyed within 15 days of that one-year anniversary. This is an 18 percent increase in predictability since 2002.

Another problem is a lack of timely follow-up on public complaints alleging harm but not immediate jeopardy to patients. In 2004-05, L&C reported that only about one-half of all such complaints were investigated within the ten-day timeframe required under federal rules. In 2001-02, nearly 72 percent of these complaints had been investigated within ten days. Similarly, there has also been a significant reduction in the timeliness of investigations related to incidents that are self-reported by nursing homes.

Reductions in Nurse Evaluators May Have Weakened Regulation

The DHS has acknowledged some of the problems found by the GAO, but has contended that reductions in its staffing during recent years have contributed to its failure to meet state and federal requirements. Our analysis suggests that there may be some merit to DHS’ view that its performance has been compromised by reduced staffing levels.

DHS Staffing Levels Have Dropped. Figure 3 shows the staffing trend that L&C has experienced for nurse evaluators, the staff responsible for conducting most of the work related to facility oversight.

As shown in the figure, the 2000-01 Budget Act added approximately 100 nurse evaluator positions as part of what was then termed the “Aging With Dignity Initiative.” The additional staff were intended to increase the frequency of inspections, make surveys less predictable, and provide more intensive and focused inspections and enforcement actions in regard to “problem” nursing homes most often found to violate federal and state standards.

The number of nurse evaluator positions that were filled remained relatively consistent during 1999-00 through 2002-03, aside from a spike in staffing in 2000-01 due to the Aging with Dignity Initiative. However, budget reductions in 2003-04 and 2004-05 eliminated many of the vacant positions from the budget-effectively reversing the staff increases provided in 2000-01. The number of filled positions also dropped in 2003-04 and 2004-05.

Our analysis indicates that the staffing reductions have negatively impacted staff productivity. Specifically, in 2003-04 and 2004-05, there was:

• A decrease in the timeliness of follow-up on complaints (dropping from 64 percent to 51 percent of complaints investigated within the time frames required by state and federal law).

• A reduction in the number of citations issued by L&C (dropping from 705 citations issued in 2003 to 461 citations issued in 2004).

• A drop in the amount of penalties imposed (dropping from $3.5 million in 2003 to $2.3 million in 2004).

• An increase in the predictability of the timing of nursing facility surveys as discussed earlier.

These negative trends in L&C’s performance could be attributable to the reduction in staff, since these changes occurred during the same time period that the number of budgeted and filled staff positions declined. However, the Legislature lacks the information needed to be certain of the linkage between the decline in staffing and L&C’s lagging performance. For example, absent an analysis of how effectively the staff in the 17 L&C field offices are actually being deployed, it is difficult to know whether the problem is a lack of staff or a lack of productivity by that staff. The Joint Legislative Audit Committee has been requested to authorize an audit in the near future to examine this issue.

Governor’s Proposals a Step Forward, But Warrant Adjustments

We recommend that the Legislature approve the administration’s proposal to have state-regulated health facilities pay a greater share of the state’s cost of these regulatory activities. However, we recommend that the Legislature reduce the number of new staff positions requested for the Licensing and Certification Division because the proposal inappropriately assumes a reduced level of staff productivity than experienced in recent years. (Reduce Item 4260-001-3098 by $7.9 million and Item 4260-598-3098 by $346,000.)

In summary, we recommend that the Legislature approve the proposal to increase licensing fees to support L&C operations, reduce General Fund support, and create a special fund to track expenditures for these activities. However, while we recognize the need for additional staff in L&C to improve its oversight of health facilities, the number of new staff positions and contract funding requested for L&C is excessive and assumes a level of productivity that is less efficient than experienced in prior years. Also, the request for additional positions and funding in the current fiscal year should be deleted. Figure 4 summarizes the positions requested in L&C for 2006-07 as well as our recommendation to reduce the number of requested staff by 63 and related funding by $8.2 million ($346,000 General Fund.)

We discuss our rationale for these proposed actions below.

Proposal to Increase Licensing Fees Is Reasonable. We concur with the administration’s proposal to increase licensing fees because we believe it generally makes sense for state-regulated health facilities to pay a greater share of these costs through fees, rather than to subsidize these activities with state General Fund resources. Notably, despite significant increases in state and federal licensing and certification requirements and resulting increases in regulatory costs during the last five years, licensing fees for most facilities have not been increased.

At this time, the specific level of the fee increase provided in the statutory language to implement the Governor’s proposal is not known. This issue warrants careful legislative review. In addition, we believe the proposed creation of a special fund should improve the Legislature’s ability to track fees and expenditures related to the program.

Full Request for Nurse Evaluators Not Justified. As described earlier, the Governor’s budget proposes an increase of 141 positions in L&C, including 96 nurse evaluators. The DHS estimates that each nurse evaluator position is the equivalent of 1,364 productive hours a year. However, no justification is provided in the budget request for this assumption about the productivity of these staff.

When DHS sought additional such positions in 1994, it used a higher standard of 1,503 productive hours for each new nurse evaluator. Generally, a standard of 1,800 productive hours is applied for DHS staff positions. We believe it is reasonable to use a lower number than 1,800 hours in this case because of the training and experience necessary to become proficient at health facility inspections. But DHS has provided no support for its assumption that the productivity of nurse evaluators has markedly declined since 1994.

Accordingly, we recommend that the Legislature budget these new positions on the basis of 1,503 hours of productivity per nurse evaluator. This means 55 additional nurse evaluators would be needed to accomplish the estimated workload-41 fewer than are being requested by the administration. The $2.7 million proposed for the contract with Los Angeles County to conduct L&C activities is also based on an assumption of 1,364 productive hours for each nurse evaluator. For the same reason as above, we believe these contract dollars should be budgeted on the basis of 1,503 productive hours and the proposed contract funding reduced to $1.1 million.

Support Staff Request Should Be Reduced. Because the request for support staff for L&C is based on the number of additional nurse evaluators, we recommend that the staffing for support staff be reduced commensurately. Accordingly, we recommend that 20 of the 38 requested support staff be approved.

Number of Pharmacists Overbudgeted. The budget plan requests seven pharmacist positions to ensure pharmaceutical safety in hospitals and surgical clinics by reviewing medication error plans during licensure or survey visits. The request is based on an assumed workload in which each facility would receive one such survey each year. However, according to information provided by L&C, these facilities actually would only be surveyed once every two or three years. Based on our analysis of the annual workload, only three positions are justified. We recommend the Legislature reject the balance of this position request.

Request for Fingerprint Investigations Staff Reasonable. We recommend the Legislature approve the administration’s request for 14.5 additional staff for the Fingerprint Investigations Unit. Our analysis found the request is justified on a workload basis.

Reject Request for 2005-06 Positions. The administration has requested that nearly one-half of the positions requested for the budget year be budgeted to start in the current year. However, as of January 2006, DHS had more than 80 nurse evaluator vacancies or a 24 percent vacancy rate. This high vacancy rate means it is unlikely that all of the positions requested, and the funding associated with them, could actually be used for the L&C unit in the current year.

Finally, we recognize there is a need for additional staff in L&C, but that the first priority should be filling existing vacancies. Accordingly, we recommend the request for current-year staffing and funding be rejected in its entirety.

Additional Health Facility Reforms Should Be Considered

In addition to the reforms proposed by the administration to improve the regulation of health facilities, there are other changes the Legislature may wish to consider for the same purpose. These include ensuring that nursing homes are inspected for their compliance with state standards, and improving the coordination of investigations of patient abuse and neglect with the state’s chief law enforcement agency.

Compliance with State Laws Should Be Ensured

If the state wishes to ensure the quality of care in California’s nursing facilities, we believe that both state and federal requirements for these facilities must be enforced. We recommend the enactment of legislation that requires Licensing and Certification Division to conduct a consolidated survey that covers both state and federal requirements and that clarifies that state regulators should routinely enforce state law.

State Laws Not Routinely Enforced. Legislative oversight hearings held during 2005 highlighted the fact that L&C does not routinely conduct evaluations of nursing homes regarding their compliance with state laws. Currently, only those violations of state law that are incidentally found during inspections for compliance with federal rules are resulting in state action by L&C. The issue is an important policy matter because state and federal legal requirements for nursing homes vary significantly. For example, the state has adopted laws and regulations that exceed federal nursing home standards, such as abuse reporting requirements and protections against theft and loss.

The administration has asserted that it has the discretion not to routinely conduct inspections to ensure compliance with these state provisions under Chapter 709, Statutes of 1992 (AB 396). The measure exempted nursing facilities that received certification for participating in Medicare and Medi-Cal from periodic state licensing inspections after their initial licensure. When the measure was passed, state and federal requirements were relatively comparable. Since that time, California has adopted numerous laws and regulations that exceed federal nursing home standards in an effort to ensure the safety and rights of nursing home residents.

However, Chapter 709 appears to be in conflict with the statutory language of Chapter 451, Statutes of 2000 (AB 1731, Shelley). Chapter 451 states that DHS is to conduct inspections of long-term care facilities at least once every two years to check whether they are complying with state laws.

We have requested that the administration explain why it is apparently not adhering to the requirements of Chapter 451. At the time we prepared this analysis, however, it had not provided the requested information.

Analyst’s Recommendation. In order to avoid any uncertainty about the Legislature’s intended policy, we recommend that it enact legislation reconciling Chapters 709 and 451 to clarify that L&C is responsible for regularly evaluating compliance by nursing homes with both federal and state requirements. Where state law exceeds federal law, we believe the appropriate standard should be for state regulators to evaluate compliance with, and to enforce, state law.

In order to ensure this effort is accomplished in a cost-effective manner, state law should be changed to further direct L&C to use consolidated surveys covering both state and federal requirements using a single survey tool whenever possible.

Address Lack of Coordination With Attorney General

We recommend the enactment of legislation to ensure that the Attorney General has direct access to information about the outcome of state inspections of nursing homes and timely referrals from Licensing and Certification Division when serious problems involving patient safety and quality of care are found.

Existing Data-Sharing Agreement Not Working. While the day-to-day responsibility for the identification of elder abuse and neglect rests with L&C, investigating and prosecuting patient abuse and neglect is the responsibility of the Attorney General’s Bureau of Medi-Cal Fraud and Elder Abuse. An agreement between L&C and the Attorney General was signed in May 2004 requiring DHS to provide the bureau with access to computerized information relating to all aspects of L&C program monitoring and investigation, including complaint information and survey information. In addition, the agreement established timeframes for referrals of cases from L&C to the Attorney General where inspections turn up serious problems. For example, a case resulting in a death apparently caused by an abusive act or negligent care is supposed to be referred to the Attorney General’s Office within 24 hours.

Despite the signing of this written agreement, we are advised by the Attorney General’s Office that it sometimes receives late referrals or none at all. Moreover, the Attorney General’s Office still does not have direct computer access to information about L&C program monitoring and complaints investigations. We are advised that L&C has sometimes taken months to provide the information being sought by the Attorney General. According to the Attorney General’s Office, these barriers to obtaining information about problems discovered during L&C investigations, and the subsequent delays in referrals of matters to his office, have hindered the Attorney General’s efforts to substantiate allegations of abuse of nursing home patients. Our analysis indicates that this situation is weakening state efforts to enforce patient protection laws.

Analyst’s Recommendation. We believe it is important that the state remedy the failure of the interagency agreement between the Attorney General’s Office and L&C to ensure that the Attorney General receives timely referrals and direct access to information regarding nursing home inspections. Accordingly, we recommend the enactment of legislation directing L&C to provide the Attorney General referrals on a timely basis (as specified in their existing agreement) and direct computer access to L&C’s nursing home inspection databases. In addition, the Legislature should direct L&C to report at budget hearings on the status of its efforts to address these problems.

Residential and Child Care Facilities: Inspections Alone Do Not Ensure Safety

The CCL division of the Department of Social Services (DSS) develops and enforces regulations designed to protect the health and safety of individuals in 24-hour residential care facilities and day care. The CCL oversees the licensing of a total of 92,000 facilities, including child care centers, family child care homes, foster family and group homes; adult residential facilities; and residential facilities for the elderly. Counties who have opted to perform their own licensing operations monitor approximately 11,000 of these facilities. The Governor’s budget proposes total expenditures of $107.3 million ($25 million General Fund) for CCL in 2006-07. This is an increase of almost 40 percent, or slightly more than $7 million in General Fund support from the current year.

Licensing Inspection Visits

The CCL performs different types of inspection visits to licensed facilities. These inspection visits may be (1) routine inspection visits, (2) the result of complaints, (3) follow-up on violations of regulation, (4) the result of an incident, or (5) for a new license applicant.

Routine Inspection Visits. Licensed facilities may be subject to a routine inspection visit in any year in one of two ways. First, a routine inspection visit is required every year for certain facilities (about 5,800) that meet specified criteria, such as a federal requirement or probationary status

The other reason a facility would receive a routine inspection is if it is selected as part of a 10 percent random sample that is specified in current law. This equates to about 7,000 facilities per year. In practice, this sampling procedure means that most of the licensed facilities in California would receive a routine visit once every 10 years. We note that this level of inspection frequency is inconsistent with a separate statutory requirement that every facility should receive one visit every five years.

Other Inspection Visits. The CCL also inspects facilities initially when they apply for a license and later, as a result of any complaints or incident reports. In addition, licensing visits are conducted to verify that a violation has been corrected. Each year, CCL completes about 69,000 such visits. When these other visits are included, the total number of visits in a year is approximately 82,000. Because these additional visits target only facilities with complaints and violations, CCL does not visit all facilities within a year.

Governor’s Proposal

The Governor’s budget proposal for the Community Care Licensing Division increases inspection frequency to meet the requirements of current law and adds funds to implement other administrative programs and efficiencies.

The Governor’s proposal consists of more licensing staff and other additional positions to enhance certain management and administrative practices. We describe these below.

Increase Inspection Frequency. The Governor’s budget proposes an additional $6.1 million ($5.6 General Fund) to provide 38 permanent field staff positions and 29 limited term positions. With the additional permanent positions, CCL will be able to conduct 7,100 more routine inspection visits, allowing for an increased random sample of 20 percent. This increase in the sample will meet the current statutory requirement of an unannounced inspection every 5 years. The 29 limited term positions will be used to eliminate a backlog of inspections.

Enhance Management and Administrative Practices. The budget proposes an additional 12 positions to implement several administrative initiatives as follows.

• Training Academy. The CCL proposes to add five permanent staff positions to the Central Training Section to train licensing staff and develop standardized training materials.

• Flagging System for Individuals with Legal/Administrative Actions. The CCL proposes to develop a system which flags and communicates information regarding individuals who have been the subject of legal action. The CCL will create a database and provide access to other Health and Human Service Agency departments who carry out licensing functions. This will prevent individuals who have had a license revoked, or who have been excluded from a CCL-licensed facility for serious misconduct from reapplying or obtaining employment in another facility licensed by a county, CCL or another department. The proposal requests 2.5 positions to coordinate this effort.

• Department of Justice (DOJ) Conviction Information. As the result of a contract with DOJ, DSS will receive increased information on approximately 8,500 individuals who have been convicted of a crime and who require an exemption in order to remain employed at a licensed facility. The proposal requests 4.5 positions to handle the additional investigative workload generated by this information.

• Contracting for Testing. The budget proposes to develop a contract with a vendor to provide for the testing and certification of facility administrators. The cost for this contract will be covered by an anticipated $40 fee paid by the administrator.

• Automate Collections Processes. The budget also proposes $250,000 from the General Fund to implement an automated fee collection and accounting process. Current manual processes and staffing do not accommodate the existing accounts receivable workload. The department also plans to expand its capacity to accept payments online. This proposal will allow the division to process the current workload and expand its electronic payment capability without hiring additional staff.

Governor’s Proposal Does Not Address Enforcement Gaps

We have no concerns with the proposals to improve various administrative capabilities for the Community Care Licensing (CCL) division. However, because of its focus on inspection frequency, the Governor’s proposal ignores gaps in the enforcement process, which is designed to ensure that facilities are either safe or if they are not, that they cease operation. We discuss concerns with the division’s enforcement activities, and provide recommendations to increase CCL’s enforcement effectiveness.

Inspection Frequency Is Only Part of the Picture. During 2005-06, CCL estimates that it will issue over 33,000 citations for violations that present an “immediate risk” to the health and safety of clients in facilities which it licenses. The CCL has the task of assuring the timely correction of these violations and taking enforcement action when necessary. The ability to inspect more frequently, as the Governor proposes, does not by itself improve safety, as we discuss below.

Current Enforcement System

Enforcement Model. The CCL follows a progressive enforcement model to achieve compliance with regulations. This model begins with inspections and citation for violations, which must be corrected within a specified amount of time. Current law requires that civil penalties be levied when a provider fails to correct a serious violation. Repeat violations within a 12 month period also result in penalties. In cases where facilities chronically fail to comply with licensing officials, CCL management may initiate a noncompliance conference, where a “plan of compliance” is developed. This is an alternative to immediately pursuing legal action against the provider’s license. If the provider does not comply after this, CCL seeks a legal action to either place the provider on probation, or revoke the license. Although progressive enforcement is the typical approach to compliance, a serious, substantiated complaint or incident report, which presents an immediate risk of harm, usually results in a Temporary Suspension Order, which immediately shuts down the facility, pending the results of a hearing.

Figure 5 illustrates the progressive enforcement model. The wide base of the pyramid represents the relatively large number of citations and inspections. The narrow top represents the relatively small number of license revocations. The levels in between are comprised of progressively more intensive enforcement actions designed to achieve compliance with regulation.

Civil Penalties. As shown in Figure 5, civil penalties are a central step in enforcing compliance with regulations, reflecting the consequences for failure to comply with licensing regulations. The details of civil penalty usage, including the amounts for each type of facility, circumstances and type of violation are defined in current law. Civil penalties are tiered in order to provide an increasing financial incentive to correct serious violations. Normally, penalties are assessed only after a provider has failed to correct a violation within a designated period of time. Penalties increase when serious violations are repeated twice within a 12 month period and again if a violation occurs in a third instance. In most cases, a penalty is levied as an amount per day until correction of the violation is achieved, providing an increasing incentive to correct the licensing violation. In some cases, statute requires that penalties be levied immediately with no correction time allowed. These instances include violation of background check requirements, operation of a facility while unlicensed, or if an individual in care becomes sick, injured or dies as a result of a deficiency.

Nonexpiring License. The CCL issues facility licenses that do not expire. Although licensees are required to pay an annual fee, there is no immediate consequence for nonpayment. The fee process has no bearing on the status of the license.

Problems With Enforcement System

As shown in Figure 6, we find that the current enforcement system of CCL contains a gap. This gap is the result of the following problems:

• Although required by statute, CCL does not appear to fully utilize civil penalties with non-compliant licensed facilities.

• Current law allows CCL to exempt a large proportion of child care facilities from civil penalties.

• The licensing division does not collect the information necessary to track the number, type or instances in which civil penalties are used.

• The nonexpiring license hinders the division’s ability to collect penalties, overdue fees or to take action against licensees with a history of serious violations.

Figure 6 illustrates how problems outlined above create an enforcement gap. We elaborate on these problems below.

Limited Usage of Civil Penalties. Although current law requires that facilities are subject to civil penalty assessment for specified violations, DSS does not have information about the number of civil penalties levied, the types of facilities most frequently penalized, or any data revealing the instances in which the penalties were levied.

In the absence of actual civil penalty data, we developed an estimate of the amount of penalties that would likely be assessed during a year. Using actual data on violations, and conservative assumptions about the requirements for levying penalties, we estimate that approximately $2.4 million would likely be levied in a year. Actual assessments (not collections) were about $1 million in 2004-05. Thus, we believe that CCL is using this enforcement tool less than would be expected. Our estimate, along with anecdotal evidence that licensing analysts are inconsistent in applying penalties suggests that there is limited usage of this enforcement tool.

Legislature Needs More Data on Penalties. We believe that data regarding the usage of civil penalties is important management information that DSS should have in order to make the best possible use of a primary enforcement strategy. Like statistics on inspection visits and citations, this information should also be available to the Legislature. Because civil penalties are levied primarily in response to chronic and serious violations, they also provide information about the level of compliance of licensed facilities. The CCL should report at budget hearings on its plans to collect penalty information, the resources required, and an estimated timeline for such a project.

Currently, licensing fees are deposited in a special fund to allow additional oversight, and tracking of their volume. Given the lack of information about civil penalty assessment and collections, placing civil penalties in a special fund would be a good first step in improving the availability of this kind of information. This would provide the Legislature with some insight into trends in enforcement and compliance.

No Civil Penalty Requirement for Family Child Care Homes. A family child care home (FCCH) is a facility where licensees provide day care in their own homes for no more than 14 children. These homes care for about 35 percent of the children in licensed child care. The Health and Safety Code clearly requires civil penalties for all licensed facilities with the exception of family child care homes. As regards FCCHs, the statute states that CCL “may” levy civil penalties, thereby delegating this authority to the administration. The DSS has not issued regulations for civil penalties on FCCHs. We understand that with exceptions for violations of background check regulations, civil penalties are generally not levied on family child care homes. The department has provided no explanation for this policy.

By not levying penalties on this facility type for licensing violations, CCL removes a key tool from its enforcement strategies. Without any monetary penalty, CCL must rely on more intensive levels of the enforcement structure when a facility fails to comply with regulation. Such enforcement procedures, such as repeated visits, non-compliance conferences or administrative action require more resources and offer a much less immediate consequence for a licensee. Thus, in our view, statute should be clarified to require civil penalties be applied to FCCHs.

Nonexpiring Licenses. The license issued by CCL to care providers in California is a non-expiring license. One study of other states’ licensing (for child care facilities only) that we reviewed reveals that California is one of 12 states who grant licenses that do not expire. Once a facility has applied and successfully received its license, it is effective indefinitely, regardless of the licensee’s record of compliance. Facilities do pay an annual fee for their license, which is due upon the anniversary of their licensing date. If the facility does not pay, licensing staff must initiate administrative procedures to close the facility.

In a system where a license expires, the state could deny the renewal request for providers with serious compliance problems or who have unpaid collections or fees. Under the current system, the only way to proceed against such a provider is to initiate an administrative action to revoke the license. This is a lengthy process, which can take six months or longer. Currently CCL collects about 50 percent of the civil penalties assessed. With a renewable license, the state could make payment of outstanding penalties and fees a condition of license renewal. This should result in increased collection without the need for time consuming collection efforts.

Analyst’s Recommendations

As discussed above, the Governor’s proposal does not address serious gaps in the enforcement process. Increased inspections alone, as the Governor proposes, will not guarantee safer facilities. Below we present a series of recommendations to improve CCL’s enforcement and compliance procedures.

• Enact legislation that requires that FCCHs be assessed civil penalties for lack of timely correction of violations and for repeated violations.

• Establish a special fund for the deposit of civil penalty collections from all facilities including family child care homes. In the absence of other data on civil penalties, such a fund will assist the Legislature in monitoring the amount of penalties and enforcement actions.

• Adopt supplemental report language that requires DSS to report on the costs and benefits of developing the capacity to track the following enforcement data: (1) the number of civil penalties issued for noncorrection of violations and for repeated serious violations, (3) the number of noncompliance conferences held and, (4) the number of resulting probationary, and revocation actions taken against facility licenses.

• Enact legislation instituting a license renewal requirement. Such a requirement could improve the state’s ability to maintain compliance and to improve its collections of fees and penalties owed.