Audit Results

Regional Centers We Visited Paid Vendor Rates That Were Compliant
With State Law, but Doubts Remain as to Whether the Centers Are
Consistently Selecting the Least Costly Vendors When Applicable

The provision of services to individuals with developmental disabilities (consumers) under the Lanterman Developmental Disabilities Services Act (Lanterman Act) currently operates in an environment of cost controls that the Legislature established during the recent recession. In January 2008 the former governor convened an extraordinary session of the Legislature to address the State’s fiscal crisis. During this extraordinary session, the Legislature passed several cost‑cutting reforms in an attempt to balance the State’s budget, including rate freezes and adjustable rate ceilings for certain services that regional centers procure under the Lanterman Act. As the State was still facing a fiscal crisis 18 months later, the former governor convened another extraordinary session of the Legislature in July 2009. As before, the Legislature adopted several proposals to contain costs, one of which required the planning teams at regional centers to select the least costly vendor under certain conditions. A legislative analysis estimated that requiring selection of the least costly vendor when appropriate would result in savings of over $23 million to the State’s General Fund.

Although the State’s financial condition is improving, our follow‑up audit found that the Legislature should be cautious about removing the rate freezes or rate ceilings currently in place in order to continue to contain costs. Our review of 200 expenditures across five regional centers found that all items we tested complied with the rate freeze and rate ceiling provisions when applicable. However, the California Department of the Developmental Services (Developmental Services) has not taken steps to verify that planning teams—those that develop a consumer’s Individual Program Plan (IPP) and select the vendors to provide the services—consistently choose the least costly vendor when multiple vendors satisfactory to the planning team provide a particular service. As was the case in our 2010 audit titled Department of Developmental Services: A More Uniform and Transparent Procurement and Rate‑Setting Process Would Improve the Cost‑Effectiveness of Regional Centers, Report 2009‑118 (2010 audit), the regional centers we reviewed all lacked documentation that demonstrated whether vendor cost was a consideration in selection, and if not, why not. Therefore, without the rate freezes and cost ceilings currently in place, the State will have limited ability to contain IPP costs.

The Regional Centers We Visited Complied With Applicable Rate Caps Established in the Statute

The Legislature enacted cost‑control measures in 2008 that appear to be an effective method to contain regional center spending on consumer services and supports. In 2008 the Legislature amended the Lanterman Act with two cost‑containment measures at the regional centers in an effort to address the projected fiscal year 2008–09 budget deficit. With these amendments, the Legislature generally prohibited regional centers from paying certain existing service providers a rate higher than the rate in effect on June 30, 2008 (rate freeze). It also prevented the regional centers from negotiating rates for new providers that are higher than the lower rate of either the statewide or regional center median rate for service providers in the applicable service code category.

As a result of our 2010 audit, Developmental Services revised its fiscal audit procedures to include a review of the regional centers’ compliance with rate‑freeze requirements, thereby providing a control to ensure that regional centers are paying appropriate rates for services. Further, as part of our current follow‑up audit, we reviewed a total of 200 consumer‑related service transactions at five locations—Central Valley Regional Center, Eastern Los Angeles Regional Center, Far Northern Regional Center, Golden Gate Regional Center, and Valley Mountain Regional Center. Based on the results of our testing, we found no instances in which the regional centers’ payments exceeded the applicable rate freeze or the median rate, when applicable, for the type of service being procured. Thus, we conclude that the regional centers we visited are adhering to these two cost‑control measures.

Developmental Services Has Not Taken Steps to Monitor Whether Regional Centers Are Choosing the Least Costly Vendor When More Than One Provides Comparable Service

Despite the effectiveness of the cost‑control measures described above, it remains unclear whether regional centers and consumers’ planning teams could be more cost‑effective when selecting vendors offering comparable services. For example, a planning team that selects a vendor who charges less than the statewide median rate does not guarantee that this vendor is also the most cost‑effective solution. Since at least 1993, the Lanterman Act has required planning teams to consider the cost of providing IPP services and supports of comparable quality by different providers. But in late July 2009, the Legislature amended the Lanterman Act to require that planning teams take the extra step of reviewing cost differences among vendors who offer—in the view of the planning team—a comparable service that meets the consumer’s needs. While neither this amndment nor any other state law or regulation defines comparable service, this amendment to the Lanterman Act requires planning teams to select the least costly provider of a comparable service that can meet the needs of the consumer. However, state law does not require regional centers, or their IPP teams, to document their vendor selection decisions so as to demonstrate that they are choosing the least costly vendors when required, which is why we recommended in our 2010 audit that Developmental Services establish a means to monitor compliance with this requirement. However, Developmental Services has not taken steps to implement our recommendation; instead, in response to our 2010 audit, Developmental Services stated that it was concerned about its authority to perform such a function but would instead send a memo to regional centers reminding them of their responsibilities under state law. However, the memo that Developmental Services sent did not require regional centers to document the reasons for selecting a particular vendor, nor did it require them to indicate that the least costly vendor of a comparable service had been selected.

Our current follow‑up audit at five regional centers confirms a consistent lack of documentation that would allow an independent, outside observer to evaluate whether regional centers are considering vendor costs when required to do so. Although we found no instances in which the payments made by regional centers exceeded the applicable rate freeze or median rate for the type of service being procured, none of the five regional centers documented their vendor selection process in a manner that would allow evaluation of whether the IPP team selected the lowest cost vendor when so required. Specifically, the five regional centers we visited have guidelines requiring staff to consider cost‑effectiveness when choosing from among service providers offering comparable services, but these guidelines do not specifically instruct staff to document the rationale used for selecting a vendor and the extent to which the vendor’s cost played a role in the decision. For example, Far Northern Regional Center’s guidelines for purchase of service simply state that when more than one provider offers similar services of similar quality, preference should be given to the one with the most economical rate; however, the guidelines also state that decisions regarding cost‑effectiveness will be made on an individual basis, taking into account the needs of the consumer. Far Northern Regional Center’s executive director stated that regional centers must create an array of services and supports that are sufficiently complete to meet the needs and choices of each person, and that the least costly service comes into play only when there are vendors offering comparable services that will meet the needs of the family. The executive director explained that the regional center does not require staff to document the vendor selection process because it is too labor‑intensive to write an analysis detailing the variety of factors considered when choosing a vendor.

Similarly, Golden Gate Regional Center’s IPP development procedures require that staff consider the most cost‑effective service that will meet the consumer’s needs. However, according to its chief of administration and finance, that regional center does not require its staff to document vendor comparisons and determinations of the least costly provider when selecting services because the law does not require it to do so. As a result, neither we nor any independent observer can verify that these regional centers are complying with the requirement to choose the least costly vendor of comparable services that meet a consumer’s needs.

When we shared our observations with Developmental Services and again asked why it had not taken additional steps to implement our recommendations, its chief legal counsel (chief counsel) told us that although Developmental Services’ responsibility is, among other things, to promote cost‑effectiveness in the operations of the regional centers, the regional centers are responsible for providing services and Developmental Services does not participate in the IPP planning process. Moreover, the chief counsel confirmed that Developmental Services does not have a process to ensure that regional centers select the least costly acceptable provider of a comparable service. In support of his position, he referenced a 1985 California Supreme Court decision that ruled that Developmental Services is without authority to dictate or control which vendor the regional center and consumer selects. Further, the chief counsel told us that imposing a requirement that regional centers document specific factors in selecting vendors during the IPP process may be viewed as an unlawful attempt by Developmental Services to control the regional center’s operation relating to the IPP and vendor selection process.

According to our legal counsel, however, Developmental Services’ perspective that it lacks the authority to implement our recommendations misconstrues the 1985 California Supreme Court’s ruling it cited. In that legal case, Developmental Services attempted, without statutory authorization, to require regional centers to effectively reduce services provided to consumers under the Lanterman Act.³ In contrast, implementing our recommendations would merely require Developmental Services to exercise its already existing regulatory and auditing authority to ensure compliance with the July 2009 amendment to the Lanterman Act. The Lanterman Act authorizes Developmental Services to adopt regulations in consultation with regional centers regarding reporting of regional center service purchases. According to our legal counsel, adopting a regulation that requires regional centers to document a planning team’s compliance with the July 2009 amendment to the Lanterman Act, which relates to regional center purchases of services, would be a reasonable exercise of their regulatory authority. Likewise, our legal counsel believes that Developmental Services’ review of a representative sample of the documentation for compliance with this amendment would be a reasonable exercise of its statutory authority to audit regional centers. As a result, a court would likely conclude that Developmental Services’ implementation of the recommendations would be a reasonable exercise of its legal authority under the Lanterman Act and would not violate the 1985 California Supreme Court decision. Moreover, according to our legal counsel, implementing the recommendations would further Developmental Services’ role in promoting the cost‑effectiveness of the operations of regional centers.

Given Developmental Services’ continued decision that it will not implement our recommendations, our current report is redirecting some of the original recommendations we made to Developmental Services and offering them instead to the Legislature should it wish to pursue legislation that further ensures costcontainment under the Lanterman Act.

Recommendations

If the Legislature wishes to better guard against future cost increases under the Lanterman Act, it should amend existing law to require that planning teams document, and that regional centers retain documentation of, vendor cost considerations when they offer comparable services that meet the consumer’s needs. Specifically, for consumer needs that the planning team decides will be addressed by a vendor, the Legislature should require the planning team to document the following:

Whether multiple vendors offer comparable services needed by the particular consumer.

Whether any particular vendor was deemed unacceptable by the planning team and why.

Whether the least costly vendor offering comparable services was ultimately selected, and if not, why.

To further ensure that the planning team consistently chooses the least costly vendor when required under state law, the Legislature should direct Developmental Services to audit compliance with the documentation requirements suggested in the previous recommendation.

To ensure that regional centers and their planning teams are using consistent criteria when determining whether multiple vendors offer comparable services, the Legislature should define the phrase comparable service for the purpose of the 2009 amendment to the Lanterman Act. One way the Legislature could do this would be to define comparable service as a service of the type required in the consumer’s treatment plan and that the planning team has reviewed and found as meeting the needs of the consume

We conducted this audit under the authority vested in the California State Auditor by Section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives specified in the Scope and Methodology section of the report. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Respectfully submitted,

ELAINE M. HOWLE, CPA
State Auditor

Date:
July 21, 2015

Staff:
Grant Parks, Audit Principal
Ralph M. Flynn
Christopher P. Bellows
Brenton Clark, MPA, CIA
Joshua K. Hammonds, MPP
Joseph S. Sheffo, MPA

Legal Counsel:
Scott A. Baxter, Sr. Staff Counsel

For questions regarding the contents of this report, please contact Margarita Fernández, Chief of Public Affairs, at 916.445.0255.

Footnotes

³Association for Retarded Citizens – California v. Department of Developmental Services (1985) 38 Cal. 3d 384. Go back to text