May 24, 2021

The 2021-22 Budget

Department of Developmental Services (DDS) May Revision Budget Proposal

The revised 2021‑22 DDS budget at May Revision includes $6.6 billion General Fund ($10.7 billion total funds), a 1.6 percent increase in General Fund spending from the budget proposed in January. This increase is driven in large part by a number of new policy proposals totaling approximately $80 million General Fund. Below, we provide comments on one of the key policy proposals.

Performance Incentives Program

The May Revision includes $4 million General Fund in 2021‑22 ($5.6 million total funds) to establish a performance incentives program at regional centers (RCs). Funding would increase to $61 million General Fund ($89.4 million total funds) in 2022‑23 and ongoing. The program’s ultimate goal is to improve the quality of RC services and consumer satisfaction. It seeks to achieve that goal by linking RC performance to incentive payments. Performance would be measured by a set of indicators and targets developed through a stakeholder process prior to program implementation. RCs’ annual performance contracts with DDS also would be updated accordingly. In the first year, funding would support planning of the program, including development of performance indicators and targets. In the second year, some of the funding would be provided to RCs to improve service coordinator caseload ratios, which are currently out of compliance (likely affecting service quality and consumer satisfaction). The remaining funds would support incentive payments that would be awarded to RCs based on their performance (as measure by the agreed upon indicators and targets).

LAO Comments

LAO Raised Concerns With Performance Incentives Program Originally Proposed in Last Year’s Governor’s Budget. The administration proposed a similar program in 2020, but chose to withdraw the proposal as the pandemic took hold. At the time the proposal was made, our office noted that the DDS system lacked some of the optimal conditions for a successful performance incentive program, including clear, observable measures and few competing interests (due to RC staff having many different demands on their time, particularly given their individual caseloads). Whether the incentives would be aligned properly or be meaningful enough to make a difference also was unclear. Finally, we noted that the DDS system had three fundamental challenges that could make a performance incentives program difficult: outdated service provider rates and rate structure, service coordinator-to-consumer caseload ratios that were out of compliance, and lack of data and good data systems.

DDS System Still Faces Challenges Today That Could Affect the Success of a Performance Incentives Program. While the pandemic demonstrated that the DDS system could be somewhat nimble in responding to consumers’ needs, some of the same challenges facing the department in 2020 exist today. While some of these (such as developing clear, observable measures) could be overcome if the incentive program were well designed, the three fundamental challenges of outdated rates, high service coordinator caseloads, and lack of good data systems remain.

Proposal Would Begin to Address Service Coordinator Caseload Ratios, but Not Until 2022‑23. The proposal notes that in 2022‑23, some of the funding would support reduced caseload ratios, while the remaining funds would be for incentive payments. Recent data indicate that RCs fall short of statutory and federal caseload ratio requirements by 921 service coordinators. Filling those 921 positions along with the required number of supervisors (92) would cost approximately $57 million General Fund ($84 million total funds). Why some of the funding earmarked for 2022‑23 could not begin to address this shortfall in 2021‑22 is unclear.

DDS Data Systems Are Brittle and Likely Cannot Support Systematic Data Collection and Reporting Necessary for an Effective Performance Incentives Program. DDS data and information technology (IT) systems are many years old and do not allow DDS and RCs to collect and report information in a way that would be ideal for a performance incentive program. The proposal indicates that DDS would try to identify data collection systems/tools in the first year, however, DDS may need an entire data system overhaul, rather than piecemeal solutions. The proposal also points to DDS’ ability to collect and report data during the pandemic and use it to make decisions as a harbinger of the performance incentives program’s future. Our understanding, however, is that data collection during the pandemic was fairly manual in nature and we suspect these processes are neither scalable nor sustainable.

Issues for Legislative Consideration

Consider Funding Additional Service Coordinators in 2021‑22. While we understand that DDS hopes to link any new RC operations spending to newly designed performance indicators, we also know that caseloads continue to grow, which results in service coordinator caseload ratios being even more out of compliance. The Legislature could consider allocating some of the funding planned for 2022‑23 in 2021‑22 to begin to address the service coordinator shortfall.

Consider More Robust Data Systems Overhaul. As mentioned above, DDS’ data/IT systems may require a major overhaul. Not only would better systemwide data/IT systems improve the performance incentive program, but it would also allow DDS and others to conduct more real-time and regular assessments to better inform policy and funding decisions. As a first step to address this issue, the Legislature might consider directing the administration to conduct an in-depth evaluation of DDS’ data/IT systems and report to the Legislature on recommended system improvements that would allow the DDS system to be operated more effectively and efficiently.

Consider Whether American Rescue Plan (ARP) Act Funding Could Support Data Overhaul and Program Planning. The recently passed ARP Act provided one-time Medicaid funding to “enhance, expand, or strengthen” home- and community-based services (HCBS) by increasing the federal matching rate by 10 percentage points for a one-year period. (While the higher HCBS matching rate can only be claimed on state HCBS spending between April 1, 2021 through March 31, 2022, states can use the additional funds generated through March 31, 2024.) The ARP Act stipulated that funding could not supplant state funding. Guidance was issued by the Centers for Medicare and Medicaid Services (CMS) on May 13 and directed states to submit their spending plans to CMS by June 12. The Legislature might consider whether this new source of federal funding could be used to support one-time efforts to plan the performance incentives program and to overhaul DDS’ data system.