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Analysis of the 2006-07 Budget BillLegislative Analyst's Office
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The Department of Mental Health (DMH) directs and coordinates statewide efforts for the treatment of mental disabilities. The department’s primary responsibilities are to (1) provide for the delivery of mental health services through a state-county partnership, (2) operate five state hospitals, (3) manage state prison treatment services at the California Medical Facility at Vacaville and at Salinas Valley State Prison, and (4) administer various community programs directed at specific populations.
The state hospitals provide inpatient treatment services for mentally disabled county clients, judicially committed clients, clients civilly committed as sexually violent predators, mentally disordered offenders, and mentally disabled clients transferred from the California Department of Corrections and Rehabilitation (CDCR).
Budget Proposal Decreases DMH Overall Budget. The budget proposes $3.4 billion from all fund sources for support of DMH programs in 2006-07, which is a decrease of about $173 million, or 5 percent, below the revised estimate of current-year expenditures. The decrease in overall DMH spending, when all fund sources are taken into account, is mainly due to the discontinuation of one-time current-year expenditures. Specifically, the Governor’s spending plan reflects (1) a reduction of about $139 million in reimbursements related to one-time costs incurred in 2005-06 for settling past Early and Periodic Screening, Diagnosis and Treatment (EPSDT) program claims and (2) one-time General Fund spending of $120 million for two state-mandated programs for mentally ill children (known together as the “AB 3632” mandates) that would not be continued in the DMH budget for 2006-07.
The budget proposes about $1.6 billion from the General Fund, which is an increase of about $316 million, or 25 percent, above the revised estimate of current-year expenditures. If some significant budget adjustments had not been included in the Governor’s budget proposal, the DMH General Fund budget for 2006-07 would have grown by about $96 million, or about 7.5 percent, above the revised estimate of current-year expenditures.
The increase in General Fund spending is mainly due to a technical budget adjustment in which General Fund support previously displayed in the Department of Health Services (DHS) Medi-Cal budget for the EPSDT program (which provides mental health services to children who are enrolled in Medi-Cal) would now be displayed in the DMH budget item. This transfer of about $340 million in General Fund support is offset in the DMH budget with a corresponding reduction in reimbursements.
Another significant technical change is the shift of funding for support of AB 3632 services from the DMH budget item to the Commission on State Mandates (CSM) budget item. (We discuss the Governor’s further proposals to modify the AB 3632 mandates in The 2006-07 Budget: Perspectives and Issues.) As a result of the AB 3632 budgeting change, $50 million in General Fund spending that would otherwise have been included in DMH spending totals in 2006-07 appears instead in the CSM budget item.
Budget Proposal Includes Proposition 63 Funds. In November 2005, California voters approved Proposition 63, the Mental Health Services Act. This measure established a surcharge of 1 percent on the portion of a taxpayer’s taxable income that exceeded $1 million beginning in January 2005. Revenues are deposited into a newly created Mental Health Services Fund. For the first time, the Governor’s budget display reflects the expenditure of these Proposition 63 resources, with proposed spending of $649 million in local assistance in 2005-06 and $656 million in 2006-07.
Budget Proposal Includes Some Increases. Although the budget plan provides for an overall net decrease in total funding, it does include some significant proposals to increase spending on some programs. About $38 million from the General Fund would be spent to add 453 staff positions to the state hospital system to resolve U.S. Department of Justice (U.S. DOJ) civil rights investigations of four state hospitals. We discuss this proposal in more detail later in this analysis. The budget plan also requests an increase of about $19 million in General Fund for additional caseload costs for EPSDT.
The Governor’s proposed budget requests additional resources to address deficiencies in state hospitals cited in civil rights investigations conducted by the U.S. Department of Justice. We withhold recommendation on the proposal at this time because this request is premature until a final agreement to resolve federal findings of deficiencies has been finalized and until documents detailing a remediation plan for the hospitals have been provided to the Legislature. Also, we find the proposed timetable for hiring 453 new staff by July 2006 to be unrealistic.
Deficiencies Found at State Hospitals. Pursuant to the Civil Rights of Institutionalized Persons Act (CRIPA), a federal civil rights law to protect individuals housed in public institutions such as mental hospitals, the U.S. DOJ has undertaken a series of actions affecting California’s state hospital system.
The U.S. DOJ completed an on-site review of conditions at Metropolitan State Hospital (MSH) for both the children and adult programs in July 2002. The U.S. DOJ has since issued reports finding a number of deficiencies, including wrong diagnoses, improper medication, and insufficient protection of some patients from other patients. The U.S. DOJ recommended improvements in several program areas, including assessment, treatment, and medication of hospital patients.
The U.S. DOJ has also conducted on-site visits at Atascadero State Hospital and Patton State Hospital but at the time this analysis was prepared, had not yet reported its findings from these on-site visits. However, in June 2005, without first conducting an on-site visit, U.S. DOJ issued a report on the operations at Napa State Hospital that identified a number of deficiencies and recommended changes similar to those presented for MSH.
We are advised by DMH that the conditions that U.S. DOJ found and cited at MSH and Napa exist at all state hospitals except Coalinga State Hospital, which has been open less than one year. The DMH expects U.S. DOJ to issue findings similar to those for MHS and Napa in forthcoming reports on Atascadero and Patton. Accordingly, DMH has already undertaken program improvements to address CRIPA deficiencies at all state hospitals.
Proposed Remediation Plan. According to DMH, U.S. DOJ has developed a remediation plan detailing the specific actions the department must take to resolve the problems identified at MSH. We are further advised by DMH that the proposed remediation plan, and a related draft settlement agreement, could serve as the basis for resolving CRIPA issues at all four state hospitals. The department has indicated that a consent decree between the state and the federal government settling all of these matters could be completed by late February.
The proposed remediation plan was considered confidential and thus was not available for review by the Legislature at the time this analysis was prepared. According to DMH, the document sets out measurable performance standards and establishes a timeline for state hospitals to address the U.S. DOJ’s findings of deficiencies. We are advised that the proposed remediation plan also includes agreements related to treatment planning, patient assessments, patient discharge planning, patient discipline, and documentation requirements. It also apparently addresses issues surrounding the use of seclusion and restraint of patients, incident management, quality improvement, and safety hazards in hospital facilities.
Probable Consequences if the State Does Not Act. We have been advised by DMH that if the state fails to address CRIPA deficiencies, the state hospitals could be placed into federal receivership by the federal courts. Such an action could be similar to the recent federal court decision to place CDCR’s health care program into receivership.
Additional Resources for CRIPA Compliance. The Governor’s budget proposes about $43 million in total funds (about $38 million from the General Fund) in 2006-07 to implement the U.S. DOJ remediation plan. Most of the funds would be used to add 453 additional staff positions to the state hospital system. About $1.8 million of the budget-year funding would be for consulting contracts and about another $1.8 million would be spent on special repairs to address potential safety hazards in hospital facilities.
New Treatment Program Would Be Implemented. The DMH proposes to use most of the additional staff to implement a “recovery model” in which the hospitals would assist individuals through individualized mental health treatment to achieve their own goals and to recover the ability to effectively function in the community. The DMH describes this as a shift away from the present approach that focuses more on medical treatment of the patient’s mental illness.
According to DMH, the U.S. DOJ’s proposed remediation plan assumes that some of the problems found at MSH are the result of inadequate clinical staff (psychiatrists, psychologists, rehabilitation therapists, social workers, nurses, and psychiatric technicians) relative to the number of patients. We are advised that the staffing increases proposed by the Governor increase staff in some categories so as to establish patient-staffing ratios consistent with the proposed remediation plan.
We have two main concerns with the administration’s budget request. The first is that the request is premature until an agreement to address federal findings of deficiencies has been finalized and until documents detailing the proposed remediation plan for the hospitals have been provided to the Legislature. Our second concern is that the proposed timetable for hiring 453 new staff by July 2006 is unrealistic. We discuss both of these concerns below.
Budget Request Is Premature. At the time this analysis was prepared, DMH and U.S. DOJ had not yet finalized the proposed remediation plan or the terms of the consent decree. Moreover, the documents that are identified as being the basis of resolving the CRIPA investigations have been kept confidential and are not yet available for legislative review.
Under these circumstances, the Legislature has no way to determine at this time whether the staffing expansions and other measures proposed by DMH meet or exceed what is actually being required by U.S. DOJ in response to the deficiencies cited in the CRIPA reports. If DMH is correct and an agreement is finalized in February, and if the remediation plan is subsequently made available for review, the Legislature will be in a much better position to assess the administration’s budget request.
In our view, it would be premature to approve the administration’s request for these additional staff and funding until and unless DMH reaches a final settlement agreement with U.S. DOJ for each hospital subject to investigation. Until such time as both parties have signed final agreements completely addressing all of the CRIPA findings of deficiencies affecting all four of the state hospitals, the Legislature has no assurances that still further costly demands from U.S. DOJ would not follow.
Administration’s Plan Assumes 453 New Staff in July 2006. The administration’s plan provides full-year funding for 453 positions that are all assumed to join the staff of the state hospital system as of July 2006. However, our analysis indicates that it is unlikely that all of the proposed new positions could possibly be filled by that time. Typically, state agencies, including the state hospital system, cannot recruit and appoint individuals to fill newly created positions until months after they have been established.
Based on State Controller’s Office data, about 2,030, or 24 percent, of the authorized positions in the four state hospitals subject to the CRIPA investigation were vacant in January 2006. Some of the new clinical positions proposed in the Governor’s budget request could prove to be very difficult to fill. The administration proposes to add about 47 senior psychiatrists and about 48 registered nurses. Increasingly in recent years, the state hospitals have had difficulties filling these types of positions and often experience large numbers of staff vacancies in these classifications. If the Legislature were to provide full-year staffing and funding for the 453 new positions proposed by the administration for 2006-07, it is likely that the state hospital system would be significantly overbudgeted as it encountered delays in actually using these resources.
We withhold recommendation at this time on the administration’s entire budget request for additional resources to respond to the CRIPA investigations. Once the consent decree has been finalized, and the documents resolving the matter have been provided to the Legislature, we will review this additional information and provide the Legislature with our recommendations on this matter.
If the Legislature does choose to approve some or all of the positions requested by the administration, we recommend that it budget any such positions on a half-year basis. This approach would recognize that it will take DMH several months in many cases to fill these new positions after they have received approval in the budget process.
Updated caseload data indicate that the amount of General Fund needed for support of the state hospital system is overbudgeted by a combined $39 million in the current and budget year. Accordingly, we recommend that the Legislature make appropriate budget adjustments. (Reduce Item 4440-011-0001 by $20 million.) We also recommend that the administration clarify whether it intends to continue to operate a children’s unit at the Metropolitan State Hospital given the dwindling caseloads at this facility.
The DMH operates five state hospitals: Atascadero, Patton, Napa, Metropolitan, and Coalinga. The DMH also operates two acute psychiatric programs at the California Medical Facility in Vacaville, and the Salinas Valley State Prison. Forensic patients are generally committed by the courts to state hospitals under one of four categories: “incompetent to stand trial” (ISTs), “mentally disordered offender” (MDOs), “not guilty by reason of insanity” (NGIs), and “sexually violent predator” (SVPs). Some inmates and wards of CDCR receive care in the Vacaville and Salinas Valley facilities, while additional offenders in the custody of CDCR are transferred to the state hospitals for mental health treatment. Also, counties contract with the state to purchase beds at state hospitals for adults and children committed for mental health treatment under the provisions of the Lanterman-Petris-Short (LPS) Act.
The cost of caring for various categories of forensic patients is generally supported from the state General Fund. Counties reimburse the state hospitals using funds they receive from the state under the 1991 state-local realignment of tax revenues and mental health program responsibilities. About 90 percent of occupied beds are now utilized for forensic patients while about 10 percent are purchased by the counties.
The Governor’s budget proposes a net increase of about $12.4 million from all fund sources compared to the revised current-year estimate of expenditures. The increase is a result of updated estimates for the state hospital system population and baseline adjustments. The overall hospital population (including CDCR inmates in the Vacaville and Salinas psychiatric programs) is projected to grow from the revised estimate of 5,591 patients by the end of 2005-06 to 5,830 patients by the end of 2006-07, for an increase of 239 patients.
Updated Caseload Information Shows Overall Population Lagging. The DMH’s current-year hospital caseload adjustment is based on comparing the estimated population for September 30, 2005 to the actual caseload at that time for ISTs, NGIs, MDOs, and SVPs (the main population groups traditionally supported from the state General Fund).
However, more recent hospital population data we have reviewed through January 2006 indicate that the caseload is likely to be about 190 patients below DMH’s revised and reduced estimate of patients for the current year. On this basis, we believe that the spending plan overestimates the funding needed in the current year by about $10 million from the General Fund. Similarly, our analysis indicates that the spending plan overestimates the funding needed in the budget year by about $20 million from the General Fund.
Coalinga Startup Behind Schedule. The 2005-06 budget provided an additional $65.7 million in General Fund support for the activation of the new Coalinga State Hospital. The 1,500-bed hospital began accepting its first patients in September 2005. The patient population was projected to be about 250 patients initially, increasing during the current year to a total of about 680 patients (or about 430 more) by March 2006.
In order to accommodate the first wave of 250 patients, the 2005-06 DMH budget plan assumed hiring about 875 clinical and support staff by August 2005. It also assumed that another 449 staff would be hired by January 2006 in order to receive the second wave of 430 additional patients.
However, neither the actual patient population nor staffing levels assumed in the state budget plan are close to being achieved. As of mid-January 2006, the total Coalinga patient population was about 140-approximately 300 patients below the number assumed in the hospital’s activation plan. Staffing efforts were also well behind schedule. Data provided by the State Controller’s Office indicate that, as of January 2006, about 58 percent of the staff positions authorized at that point in time were still vacant.
Why Is the Coalinga Activation Off Track? We are advised by DMH that the slowdown in activation of their new hospital facility is due mainly to the difficulty being experienced by the department in recruiting and hiring qualified staff for the new facility. Key clinical staff positions, we have been advised by DMH, have been particularly difficult to fill, and some clinical staff that had been initially recruited and hired to work at the hospital have already left to work elsewhere.
The department indicates that its difficulties in hiring and retaining staff stem in part from the recent federal Plata court case involving problems with the provision of health care at state prisons. On December 1, 2005, the federal judge in the case ordered the state to immediately increase compensation for several classes of prison medical personnel (such as physicians, nurse practitioners, and registered nurses). State hospital administrators advised us that soon after the Plata ruling, efforts to recruit and hire additional clinical staff for Coalinga hit a snag for medical personnel in part because compensation levels at Coalinga were not competitive with nearby prisons.
Coalinga Staffing Problem Has Ripple Effects. At the time this analysis was prepared, DMH indicated it was seeking administration approval to increase pay rates for its clinical staff to help offset the effects of the Plata decision. Even with the funding and position authority already available in its budget, Coalinga’s beds cannot be activated without the appropriate staff in place to care for additional patients.
The problems in opening up Coalinga are already having a significant ripple effect throughout the state hospital system. For example, state hospital administrators had been counting on the activation of Coalinga to relieve overcrowding at Atascadero and Patton as some of their patients were transferred to Coalinga. Both Atascadero and Patton are currently over their licensed bed limit. Consequently, administrators of these two state hospitals have contended that their operations are at some risk if DHS, which licenses these hospital beds, will not continue to permit the “overbedding” of the two facilities.
The maximum patient population permitted at Patton, which is established in statute, was supposed to decrease by 334 patients one year after Coalinga was activated. Instead, the administration budget plan proposes statutory language to allow Patton to maintain its current maximum population for four years after the date Coalinga was activated.
This situation is also complicating efforts by CDCR to comply with federal court orders to provide additional mental health treatment beds for prison inmates. The Coalinga activation plan included 50 intermediate care beds at the hospital for inmates. Recent caseload information indicates that none of these 50 beds has been occupied.
County jail operations are also apparently being affected by this situation. According to the DMH budget request, the state hospital system has a waiting list of 350 individuals who have been committed to their system by the courts, but who remain in county jails because state hospitals are operated at their maximum staffed capacity. According to DMH, the size of that list is increasing daily.
LPS Patient Count Under Budgeted Level. The caseload data we have reviewed also show that the number of beds being occupied by county LPS patients is running somewhat below the level assumed in the 2005-06 Budget Act. As of mid-January, there were 526 LPS patients in Napa and MSH, the two hospitals that care for this patient group, instead of the 555 that were expected, continuing a slow but steady decline that has occurred in recent years. Notably, the Governor’s budget plan assumes that the number of LPS beds occupied in 2006-07 will hold steady at 520, but that figure now appears likely to be overstated.
Children’s Caseload at MSH Has Dropped by One-Half. One subset of this population is a unit at MSH that provides mental health services for severely emotionally disturbed children and adolescents. This population has also been in decline. Recently, however, we were advised by state hospital administrators that the remaining population of 50 in this unit is down by half to a total of 25 patients. As a result, we are advised that DMH had held up the bidding process for an estimated $8.8 million project to construct an on-site school building at MSH for these clients, and is reviewing whether the current population (if it holds) is sufficient to justify the continuation of this unit.
Based on (1) the updated caseload information we have reviewed, (2) the problems evident in the activation of Coalinga, and (3) the declining LPS population, including the children’s unit at MSH, we recommend that the Legislature take the following actions in regard to the budget proposal for state hospital population adjustments:
Caseload Adjustment for Certain Forensic Groups Warranted. Based on our analysis of updated caseload information for ISTs, NGIs, MDOs, and SVPs, we recommend the Legislature reduce the General Fund budget for the state hospital system by $10 million General Fund for 2005-06 and by $20 million General Fund for the budget year. We anticipate that DMH will propose further adjustments for state hospital population trends for these specific patient groups at the time of the May Revision.
Adjust for Unavailable CDCR Beds at Coalinga. We recommend the Legislature reduce the General Fund budget for the state hospital system by $8.5 million in the current year because Coalinga is unlikely to have the staffed capacity to accept the 50 patients anticipated when the 2005-06 budget was enacted. This amount represents the funding provided in the 2005-06 Budget Act for these 50 beds.
Monitor and Respond to the Coalinga Problems. Given the ongoing problems in activating the new Coalinga hospital, and uncertainty as to how and if these staffing difficulties can be overcome, we recommend approval of the administration’s proposed statutory language to allow Patton to maintain its present capacity for three more years. We will continue to monitor the situation at Coalinga and will advise the Legislature whether additional budget adjustments are warranted for the budget of the hospital at the time of the May Revision. If significant progress is not made in hiring staff and bringing more patients into the facility, further budget and staffing adjustments may be warranted.
MSH Intentions Should Be Clarified. The DMH should report to the Legislature at budget hearings regarding the outcome of its evaluation as to whether operation of the children’s unit at MSH can and should continue. The department should also report on its final decision in regard to the construction of the new school on the grounds of MSH, and whether budget authority for the project should be reverted.