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Residential Group Homes Failing Reimbursement Rates: an Analysis of North Los Angeles County Regional Center’s Failing Residential Providers

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Residential Group Homes Failing Reimbursement Rates:
An Analysis of North Los Angeles County Regional Center’s
Failing Residential Providers

August 30, 2015


In California individuals with developmental disabilities receive hands-on training provided by over 45,000 vendors, who are contracted by 21 separate non-profits called regional centers (Information About RC, 2015). Each regional center has an annual performance contract with California’s Department of Developmental Service. The performance contract measures how each regional center delivers services to the individuals they support in their catchment area. In addition, the performance contract is supposed to assure the proper funding for each regional center, and it serves as a monitoring mechanism to help verify that each regional center is using the funds appropriately (RC Performance Contracts, 2015). All of this was made possible by ground breaking legislation passed in 1977 known as the Lanterman Developmental Disabilities Act (Lanterman, 2015). The Lanterman Act declares that individuals with developmental disabilities have the same legal rights and responsibilities guaranteed to all other persons by federal and state constitutions and laws, and charges the regional center with advocacy and protection of these rights. A developmental disability is a severe incapacity which attributes to a mental or physical impairment for the individual before the age of eighteen. These disabilities include intellectual deficiency, cerebral palsy, epilepsy, autism, and other restricting conditions closely related to an intellectual disability that requires similar treatment. Finally, and most importantly, the Lanterman Act establishes the services identified in a person’s Individual Placement Plan (IPP) as an entitlement (Lanterman, 2015). Started in the 1990’s, the regional center system has and continues to experience budget reductions. The California state budget crisis has had a profound effect on providers who are funded by regional centers. These providers have been subjected to rate freezes, inadequate median rates, and limited start-up funding. This has resulted in funding barriers to providers causing many closures especially with the residential model. The budget has also prevented regional centers from developing and contracting with new providers. The result is a system that is on the verge of collapsing. This paper will examine the funding stream for individuals with developmental disabilities. It will further examine how both regional centers and providers are struggling to maintain quality services, due to the different cost containments put in place by the State of California over the past twenty years.
Rates Structures In California, adults with developmental disabilities have many service options available in their communities. Examples of these services are, but not limited to, living in one’s own apartment with minimal to no support, residential homes with around the clock support, reinforced employment services, as well as adult daycare programs. Also, there are large institutions called development centers, where individuals with disabilities receive wrap around services. However, Developmental Centers are an archaic model with little community inclusion and are maintained at a high cost. The majority of individuals who reside in the community live in Adult Residential Facilities which provide care for adults ages 18-59, who are unable to provide their own daily needs. The issue is that these homes are being funded inadequately due to the budget crisis California is experiencing (Title 17 Section 54342, 2014).

Alternative Rate Model The alternative rate model funds Community Care Facilities which are commonly referred to as residential homes. There are separate service levels which have different staffing requirements and consultant requirements, see table 1 (Reimbursement Rates, 2015). To determine the service level, a
Table 1 (Reimbursement Rates, 2015)

Table 1 (Reimbursement Rates, 2015) provider is required to write a program design and have the appropriate experience that is required. These requirements are outlined in California’s Title 17 Regulations and are enforced by legislation; which is outlined in The Welfare and Institutions Code cited as the Lanterman Developmental Disabilities Services Act and the California Government Code (Title 17 - Vendorization Process, 2014). The alternative rate model’s intention was to base the reimbursement rates of providers on the intensity of the support needed for those being placed in the residential facility. The regional center is responsible for determining the service level and establishing the corresponding appropriated rate. Since July 1, 2000 the rates for the Alternative Rate Model have been adjusted three times (ARCA, 2014). 1. Fiscal year 2001/2002 the Alternative Rate Model received a 1.5% increase for Supplemental Security Income-State Supplementary Payment (SSI/SSP) pass through (ARCA, 2014). 2. Fiscal year 2002/2003 the Alternative Rate Model saw a second pass through of 1% for SSI/SSP (ARCA, 2014). 3. Fiscal year 2006/2007 all service providers whose rates were set by the Department of Developmental Services received a 3% increase. In addition, residential facilities whose rates were established at level 2 and level 3 were eligible for a 3.7% increase due to the minimum wage increase (ARCA, 2014). In February 2009, residential homes were subjected to a 3% payment reduction, and in July 2011 an additional payment reduction of 1.5 % was put into place. The combined 4.5% payment reduction brought rates back to their equivalent rates in 2000. Although these reductions have been restored, the impact to the providers was devastating and many were forced to close (ARCA, 2014). Table 2 (ARCA, 2014)

Table 2 (ARCA, 2014) Looking at rates from 2000, one can see that service level 2 homes have received a rate increase of 19.3% and that service level 4i homes, which serve the most complex needs, have only received a 4.9% increase. When comparing this increase to the 36.6% increase in the Consumer Price Index in California, one can see that these rate increases are not sufficient (see Table 2; ARCA, 2014).
Non-Negotiated Rate Community-Based Programs Adult daycare programs, independent living services, in-home respite agencies, and similar services have their rates set by Department of Developmental Services. Providers submit a cost statement to the Department of Developmental Services which reflects their anticipated cost of operating business. An initial temporary rate would be established based on the provider’s aggregate projections. Six months later, providers submit a second cost statement showing their actual costs for the program. The department would then set a permanent rate, see table 3 (Reimbursement Rates, 2015). Table 4

Table 4 Service Category | Staff
Ratio | Lower
Limit | Upper
Limit | Temporary
Rate | Daily Rates | Activity Centers | 1:8 | $26.83 | $46.91 | $36.39 | | 1:7 | $28.52 | $46.20 | $36.54 | | 1:6 | $32.68 | $56.76 | $45.09 | Adult Development Center | 1:4 | $36.14 | $66.94 | $53.86 | | 1:3 | $45.43 | 69.22 | $58.87 | Behavior Management Program | 1:3 | $49.97 | $83.49 | $72.42 | Independent Living | 1:3 | $10.64 | $16.54 | $14.31 | | 1:2 | $17.45 | $22.68 | $20.66 | | 1:1 | $22.42 | $43.00 | $31.62 | Social Recreation | 1:10 | $13.12 | $24.74 | $16.36 | Infant Development | 1:3 | $28.66 | $48.34 | $38.72 | | 1:2 | $42.58 | $73.65 | $59.17 | | 1:3 | $60.07 | $108.05 | $78.29 | In-Home Respite | 1:1 | $16.85 | $23.75 | $20.41 |
Table 3 (Reimbursement Rates, 2015) Service Category | Staff
Ratio | Lower
Limit | Upper
Limit | Temporary
Rate | Daily Rates | Activity Centers | 1:8 | $26.83 | $46.91 | $36.39 | | 1:7 | $28.52 | $46.20 | $36.54 | | 1:6 | $32.68 | $56.76 | $45.09 | Adult Development Center | 1:4 | $36.14 | $66.94 | $53.86 | | 1:3 | $45.43 | 69.22 | $58.87 | Behavior Management Program | 1:3 | $49.97 | $83.49 | $72.42 | Independent Living | 1:3 | $10.64 | $16.54 | $14.31 | | 1:2 | $17.45 | $22.68 | $20.66 | | 1:1 | $22.42 | $43.00 | $31.62 | Social Recreation | 1:10 | $13.12 | $24.74 | $16.36 | Infant Development | 1:3 | $28.66 | $48.34 | $38.72 | | 1:2 | $42.58 | $73.65 | $59.17 | | 1:3 | $60.07 | $108.05 | $78.29 | In-Home Respite | 1:1 | $16.85 | $23.75 | $20.41 |
Table 3 (Reimbursement Rates, 2015) In October 1999, a California Bureau State Audits report stated “If the State had increased funding, providers would have received a rate adjustment every two years; however, there were no rate increases between fiscal years 1992-93 and 1997-98. In September 1998, the State granted $33 million in additional funding. Although the increase allowed these providers to receive adjustments, it was only enough to fund rates based on their fiscal year 1995-96 costs… Furthermore, their rates will remain at this level until the department revises its current rate-setting process or receives additional state funding” (ARCA, 2014). In 2003, Assembly Bill 1762 established a rate freeze which does not allow vendors to receive a rate increase after the initial rate is established. The result for Non-Negotiated Rate Community-Based Programs is no new providers since 2003 have been allowed to submit a second cost statement to the Department of Developmental Services for a rate increase. Then, this freezes their ongoing rate of reimbursement at the temporary rate as outlined in Table 3. Similar to the Alternative Rate Model for residential homes, the rate structure for Non-Negotiated Rate Community-Based Programs have not kept up with California’s CPI increase of 36.6% from July 2000 to January 2013, see Table 4 on the previous page (ARCA, 2014). Statutorily Set Rates Supported employment is service which supports individuals in a work setting and is the only rate that is the same for all providers. Neither the Department of Developmental Services nor the regional centers can modify these rates (ARCA, 2014). These rates have been on a roller coaster of increases and decreases. The Association of Regional Centers Agencies (ARCA), report Inadequate Rates for Service Provision in California (2014), and summarizes the increases and decreases in supported living rates that have been subjected to and are represented below: 1. In 1998, the rates for group and individual Supported Employment were set by the California Assembly Bill 2779 at $27.50 per hour. 2. The 2000 California Assembly Bill 2876 increased these rates to $28.33 per hour. 3. The 2003 California Assembly Bill 1752 decreased these rates to $27.62 4. The 2004 California Senate Bill X1 24 returned the rate to $28.33 5. The 2006 California Assembly Bill increased the rate to $34.24 6. Supported Employment Rate Reductions | Hourly rate for individual Reduced from $34.24 to $30.8 | Hourly rate for group services Reduced from $34.42 to $30.82 | Intake fees Reduced from $400 to $360 | Job Placement Reduced from $800 to $720 | 90-dayRetention fee Reduced from $800 to $720 | |
Table 5 Supported Employment Rate Reductions | Hourly rate for individual Reduced from $34.24 to $30.8 | Hourly rate for group services Reduced from $34.42 to $30.82 | Intake fees Reduced from $400 to $360 | Job Placement Reduced from $800 to $720 | 90-dayRetention fee Reduced from $800 to $720 | |
Table 5
The 2008 California Assembly Bill 1781 decreased the rate to $30.82.

After the 2008 increase, there has been no change to the rates. Again, the California Consumer Price Index has increased 36.6% but the Supported Employment rates have only increased 8.8%. Service Description | Regional Center’sMedian Rate | StateMedian Rate | Service A | $52.44 | $76.00 | Service B | $100.00 | $66.00 |
Table 7 Service Description | Regional Center’sMedian Rate | StateMedian Rate | Service A | $52.44 | $76.00 | Service B | $100.00 | $66.00 |
Table 7
Negotiated/Median Rates Certain service providers have negotiated rates. These service providers present their projected costs to the regional center by filling out a cost statement. The regional center has the ability to negotiate the rate for these services up to the established median rate, which were established in July of 2008. California Assembly Bill 5 changed the language in the Welfare and Institute Code § 4691.9. Since July 2008, not a single regional center is allowed to negotiate a rate
Example of how a Median Rate is established

A median is determined by arranging data set in numeric order. The middle of the array has an equal number of points above and below it – even if some points are the same. This middle value is called a median. The “median rate” is determined by finding the median among all the rates paid to providers of a particular service code

$2,400 | $2,500 | $3,000 | $4,900 | $4,900 | $5,000 | $5,600 |
The median rate in the example above is $3,000

$10.75 | $10.75 | $11.38 | $11.38 | $12.99 | $18.78 | $33.95 |
The median rate is $11.38 (although the mathematical average, or “mean,” is $15.71, and there are several duplicate rates. The middle remains the middle.)

Table 6

Example of how a Median Rate is established

A median is determined by arranging data set in numeric order. The middle of the array has an equal number of points above and below it – even if some points are the same. This middle value is called a median. The “median rate” is determined by finding the median among all the rates paid to providers of a particular service code

$2,400 | $2,500 | $3,000 | $4,900 | $4,900 | $5,000 | $5,600 |
The median rate in the example above is $3,000

$10.75 | $10.75 | $11.38 | $11.38 | $12.99 | $18.78 | $33.95 |
The median rate is $11.38 (although the mathematical average, or “mean,” is $15.71, and there are several duplicate rates. The middle remains the middle.)

Table 6 that is above its median rate for said regional center or above the state’s median rate (WIC 2014). Table 7 gives you an example of how a regional center determines which median rate is used. Service A shows us that the regional center’s median rate is less than the state’s median rate, so the regional center may negotiate a rate above $52.44. Examining Service B, a regional center could not negotiate above the state’s median rate of $66.00. All the median rates mentioned in this paper have been subjected to the same 3% decrease in 2010 as did the 1.5% decrease in 2011. Although the median rate of Service A is $52.44, in 2011 regional centers were required to back out a total of 4.5% due to the 2010 and 2011 payment reduction explained earlier. In June 2013, the payment reductions ended and regional centers were able to negotiate their individual median rate or the state’s, depending on which was most cost effective. Usual and Customary There are some service providers who are permitted to be paid at their usual and customary rate. This is the rate they would charge the general public for their services, counseling for example. This option is only available when the providers’ delivery of services is at 30% regional center participants to a 70% general public ratio (ARCA, 2014). When establishing a usual and customary rate the regional center has no influence or negotiation power over the rate. With that being said, this paper does not address Usual and Customary rates.
Schedule of Maximum Allowances
These are services that are reimbursed under the Medi-Cal program, such as nurses. The compensation for these services is based on the reimbursement rate of Medi-Cal and regional centers that have no influence or negotiation power over the rates (ARCA, 2014). Again, because the regional center has no influence over these rates, this paper does not address rates established by the Schedule of Maximum Allowances.
A Macro Problem Leading to a Micro Problem for Regional Centers and Providers For over a decade the reimbursement rates have been subjected to a roller coaster ride of increases, decreases, reduction, and freezes. This is directly related to the California’s budget crisis, as all funds for individuals with developmental disabilities are funded from California’s General Funds. Currently, Governor Brown has made it very clear that he wishes to balance the California budget. However, with this balance, comes an expense and the services for the developmentally disabled are feeling its effects. As shown in the many examples provided, the rate of reimbursement for services is not keeping up with the California’s Consumer Price Index. In fiscal year 2014/2014, The North Los Angeles County Regional Center has experienced a dangerous amount of providers closing because they can no longer afford to run their services under the broken rate system. Kimberly Johnson-McNeil (2015) of the North Los Angeles County Regional Center-NLACRC explained, that in fiscal year 2013/2014 NLACRC experienced fifteen closures of residential homes whose rates were established under the Alternative Rate Model and only four residential homes under this model were opened. This is a devastating situation for regional centers as these closures are occurring, due to inadequate funding. Without new legislation to increase reimbursement rates for the Lanterman Act, regional centers, and providers of direct services are facing a failing system which will collapse in the near future if something is not done immediately.


Inadequate Rates For Services Provision In California. (January, 2014). Association of Regional Center Agencies (ARCA).
Information About Regional Centers. (2015). Retrieved August 30, 2015, from
Johnson-McNeil, K. (2015, August 24). Residntial Closures [Personal interview].
Keat, P., & Young, P. (2013). Managerial economics: Economic tools for today's decision makers (7th ed.). Boston: Pearson.
Lanterman Developmental Disabilities Service Act and Related Laws. (2015). Retrieved August 30, 2015, from
Regional Centers Performance Contracts. (2015). Retrieved August 30, 2015, from
Reimbursement Rates. (2015). Retrieved August 30, 2015, from
Title 17 Code of Regulations Section 54342. (2014). Retrieved August 30, 2015, from
Title 17 Code of Regulations Section - Vendorization Process. (2014). Retrieved August 30, 2015, from
Title 17 California Code of Regulations, Division 2 Chapter 3 - Community Services SubChapter 2 - Vendorization Article 2 - Vendorization Process. (2014). Retrieved August 23, 2015, from
WIC-California Welfare and Institutions Code Sections 4690-4694.htm. (2014). Retrieved August 30, 2015, from…...

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