2009-10 Budget Analysis Series: Health

DDS—“Cost–Effective” Services Should Be Clearly Defined


The Lanterman Developmental Disabilities Services Act and related laws (also known as the Lanterman Act) provide the statutory framework for operation of the state’s community services program for the developmentally disabled. The term cost–effectiveness is used in the Lanterman Act related to the provision of services. For example, the Lanterman Act states that, among other service and support options, RCs shall consider the use of paid roommates or neighbors, personal assistance, technical and financial assistance, and all other service and support options which would result in greater self–sufficiency for the consumer and cost–effectiveness to the state.

Terms such as cost–effective are frequently defined in statute in order to clarify legislative intent. For example, the Lanterman Act includes definitions of many terms including “services and supports,” and “planning teams.” However, the term cost–effective is not defined in the Lanterman Act.

Generally, the dictionary definition of the term cost–effective is used to refer to an activity that (1) is productive relative to its cost, (2) returns a benefit that justifies the initial cost, (3) produces the most economical outcome, or (4) is the lowest–cost alternative means of achieving the same end result or objective.

Meaning of Cost–Effective Is Open to Interpretation

Because the term cost–effective is not defined in the Lanterman Act, its meaning with regards to the provision of services to the developmentally disabled has been open to interpretation.

In a December 2007 report titled Controlling Regional Center Costs, DDS identified various options for controlling costs in the RC system, including changes to define cost–effectiveness in the Lanterman Act. The department indicated that the lack of a statutory definition meant it was difficult for teams that plan services for developmentally disabled consumers to apply the cost–effectiveness requirement. The department found that defining the term would have several advantages, including:

The DDS report also indicated that this option had some disadvantages, in that the statutory definition that was put in place could inadvertently undermine efforts to ensure that the individual needs of all consumers are met.

Defining the Term Clearly Would Help Ensure Efficient Use of Program Dollars

We recommend that the Legislature (1) define the term cost–effective with clear elements that generally require RCs to choose the least costly services that are appropriate for an RC consumer, (2) insert the term into additional key sections of the Lanterman Act, and (3) clarify how the requirements for providing cost–effectiveness are to be balanced with a consumer’s preference in the services they receive.

Definition of Cost–Effective Should Contain Certain Elements. We believe the term cost–effective should be defined in the Lanterman Act in a way that is meaningful and ensures that it can be applied in a practical way to the decisions that RC staff must make about their purchase of services or supports needed to implement a consumer’s IPP. We recommend that the definition clarify that cost–effective services and supports are those that are: (1) either evidence–based or consistent with the current standard of practice, (2) purchased at an economical rate or price, and/or (3) the least costly appropriate option that results in the desired measurable outcome for the consumer. Generally, a definition of cost–effective that contains the elements described above should require RCs to choose the least costly option when choosing between two or more appropriate options.

Cost–Effectiveness Requirement Should Be Applied More Broadly. We also recommend the term cost–effective be inserted into some additional key sections of the Lanterman Act. For example, the Legislature could modify a provision of the Lanterman Act that provides that persons with developmental disabilities and their families are to be assisted in securing services and supports which maximize opportunities and choices in living, working, learning, and recreating in the community. The language could be changed to ensure that cost–effective services and supports are to be provided for these purposes. Our review of the Lanterman Act indicates that there are other sections where the term cost–effective could be inserted to clarify legislative intent.

Clarify Relation Between Cost–Effectiveness and Consumer Preference. The Legislature should also clarify how a consumer’s choices and preferences in their services are to be balanced against the requirement that cost–effective services be provided to them. State law should specify that when two equally cost–effective and appropriate services are available, consumer preference should generally be the deciding factor, but that the more cost–effective services must be the ones provided if the services preferred by a consumer are a less cost–effective alternative.

Savings Would Grow Over Time. In the report cited above, DDS estimated that codifying the definition of the term cost–effective in the Lanterman Act would result in General Fund savings of approximately $29 million annually. This estimate was based on the assumption that RC costs for purchases of services would be reduced by 1 percent. It would take about three years to implement such a change as new IPPs are developed for consumers. Accordingly, we estimate that the changes we propose would result in roughly $5 million in General Fund savings in the first year. These savings could grow to as much as the low tens of millions of dollars annually after three years of implementation.

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