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California State Auditor Report Number : 2016-108

Department of Developmental Services
It Cannot Verify That Vendor Rates for In‑Home Respite Services Are Appropriate and That Regional Centers and Vendors Meet Applicable Requirements



Our audit of the Department of Developmental Services' (DDS) oversight of the in‑home respite services program (in‑home respite services) highlighted the following:

Results in Brief

The Department of Developmental Services (DDS) is charged with overseeing the in‑home respite services program (in‑home respite services) for Californians with qualifying developmental disabilities; however, DDS has not recently assessed the appropriateness of the hourly rates it pays to the vendors of these services and it provides limited monitoring of the program. State law has established in‑home respite services to provide intermittent or regularly scheduled temporary assistance to families of developmentally disabled individuals (consumers) who are able to reside in their own homes in the care of family. Eligible consumers may obtain in‑home respite services through California’s network of 21 regional centers, which purchase in‑home respite services from a variety of private providers, referred to as vendors. In fiscal year 2015–16, the State spent more than $221 million on in‑home respite services that the regional centers purchased for consumers.

DDS has chosen not to obtain and review information that could verify whether its hourly vendor payment rates for in‑home respite services are appropriate. Depending on when vendors began providing services, DDS currently pays them one of two types of rates: a temporary or a permanent hourly rate. Historically, DDS paid a vendor new to providing in‑home respite services a temporary rate, which was based on the average of the permanent hourly rates paid to all vendors in California. Once the vendor had provided services and generated the necessary cost information for these services, DDS would convert its temporary rate to a permanent rate based on the cost statements the vendor submitted that detailed its costs and income. Every alternate year thereafter, DDS required the vendor to submit cost statements, which DDS used to adjust the permanent hourly rate as necessary. However, because of its interpretation of certain changes in state law that took effect in 1998 and 2003, DDS has since changed its approach to calculating payment rates and no longer requires vendors to submit cost statements. Rather, DDS currently adjusts the hourly vendor rates—whether they are temporary or permanent—based on legislatively approved rate adjustments and changes to minimum wage or labor laws. However, we question DDS’s interpretation of these statutes as negating the need for cost statements, and we believe clarifying legislation is needed because DDS could have been assessing the appropriateness of payment rates based on vendors’ cost statements since 2003.

Moreover, our review of selected vendors at five regional centers found that the majority receive a temporary hourly rate and that this rate is generally less than the permanent hourly rate that other vendors receive. Specifically, after a legislative cap on vendors’ permanent payment rates took effect on July 1, 2003, DDS has assigned only temporary hourly rates to vendors authorized to provide services, while vendors authorized before that time continue to receive a permanent hourly rate. Certain stakeholders have raised concerns that these newer vendors’ temporary hourly rates, which are not established using cost statements, are typically higher than the permanent hourly rates of older vendors and, therefore, place older vendors at a disadvantage. However, for the vendors we reviewed, older vendors’ permanent rates, on average, were higher than the temporary rates assigned to newer vendors. As of March 1, 2016, 19 of the 25 vendors we reviewed received an average temporary hourly rate of $21.97, while the remaining six received an average permanent hourly rate of $23.45. Nonetheless, because DDS does not obtain and review vendors’ costs statements and has not done so for more than a decade, the public lacks assurance that the differences in temporary and permanent hourly rates are appropriate and reasonably reflect vendors’ costs.

From June 30, 2014, through March 1, 2016, vendors’ hourly rates increased at an average rate that outpaced the hourly wages paid to respite workers. Because the increases in vendors’ hourly payment rates are largely due to statutory changes in minimum wage and labor laws, we expected to find that the hourly wages of respite workers would increase at a similar rate. However, our review of selected vendors at the five regional centers found that vendors—depending on the type of service model they use—retained a large portion of their hourly payment rates compared to the hourly rate paid to respite workers. This appeared to be true on a statewide basis as well. For example, the statewide weighted average hourly vendor payment rate under what we refer to as the Full Service model, in which the vendor recruits the respite worker and schedules services, increased from $17.76 to $21.21, or by more than 19 percent, while the respite workers’ statewide weighted average hourly wage increased from $9.89 to $11.14, or by nearly 13 percent.1 We found similar differences when reviewing the hourly rates vendors reported they paid under the Employer of Record model; in this model, vendors receive a lower payment rate from DDS than in the Full Service model because the family selects the individual who will provide the services to the consumer.2 DDS has not conducted a study of whether the amounts vendors are retaining of their payment rates are reasonable in relation to their costs and profit margins. Without this information, DDS cannot verify whether the rates it pays to vendors are appropriate.

Although DDS will be undertaking a required rate study of all of its community‑based services in the future, we believe it should conduct a rate study focusing on in‑home respite services sooner given the uncertainty we found related to the appropriateness of vendors’ rates under this program. Effective June 2016, state law requires DDS to submit a rate study of community‑based services for individuals with developmental disabilities by March 1, 2019. As part of this study, DDS stated that it will conduct a rate study of all of its rates, including in‑home respite services, to assess the effectiveness of its various rate‑setting methodologies. However, rather than wait nearly three years for the results of this study, we believe DDS should request and review vendors’ cost statements sooner and take any appropriate steps, such as seeking changes to state law if necessary, to ensure that its payment rates to vendors are appropriate. Although DDS believes that obtaining cost statements to evaluate in‑home respite services rates is not a productive use of time since it is already required to conduct a comprehensive analysis of rates, it could not provide any documentation of the methodology it formerly used when calculating in‑home respite rates. Thus, it is unclear on what information DDS is basing its statements that obtaining and evaluating cost statements would be overly time‑consuming.

Of the more than 250 vendors that provided in‑home respite services in fiscal year 2014–15, four received more than $7 million in revenue specifically for these services. We requested that these vendors report specific financial information, including the revenue they received from public funds broken down by service model, their annual net income, and the amount and percentage of their administrative costs. The amounts these vendors reported spending on costs related to respite workers, including their hourly wages and payroll taxes, vary, as do the amounts the four vendors spend on administrative costs, which include wages and benefits for administrative staff and other operating expenses. For example, only one vendor, Premier Healthcare Services, Inc., reported that its administrative costs were less than 15 percent. The remaining three vendors reported spending between about 19 percent to nearly 30 percent on administrative costs. In‑Roads Creative Programs, Inc. reported a particularly high administrative cost at almost 30 percent. In‑home respite services, unlike certain other services DDS provides, has no cap on vendors’ administrative costs, which could explain some of the variance in these costs. Without a cap on administrative costs, however, the State runs the risk that vendors are spending unreasonable amounts on these types of expenses.

The five regional centers we reviewed have adequate processes to authorize the vendors providing in‑home respite services, a process referred to as vendorization. The vendorization process requires regional centers to verify—before a vendor is allowed to provide services to consumers—that the vendor’s application meets the requirements specified in regulations. These requirements include a proposed or existing service design, a service provider agreement, and a disclosure statement form regarding any activities that would prevent the vendor from being eligible to receive federal funds. In addition, regulations require that regional centers review, at least biennially, all vendor files they maintain to determine that the information required for vendorization is current, complete, and accurate. Regional centers have the authority to terminate vendorization for noncompliance with vendorization requirements. However, while the initial vendorization process is adequate, our review of selected regional centers found that they could not demonstrate adequately, if at all, whether they conduct biennial reviews as required to ensure vendors continue to satisfy vendorization requirements. Three of the regional centers we reviewed claimed to have processes in place to conduct a review of vendors’ files; however, none could provide sufficient evidence demonstrating that the reviews took place. The remaining two regional centers acknowledged that they do not conduct such reviews. By not conducting biennial reviews as required, regional centers risk that some vendors may not currently meet all requirements for providing in‑home respite services.

Additionally, DDS performs limited monitoring of regional centers’ compliance with state and federal requirements applicable to in‑home respite services. In fact, its current monitoring efforts consist solely of fiscal audits it is required to conduct every two years. However, DDS has fallen short of meeting this requirement, and for fiscal years 2013–14 and 2014–15, it completed only 14 of the 21 required regional center audits. Further, for those audits it did conduct, the review of in‑home respite services was minimal, if it occurred at all. DDS explained that delays are occurring in completing some regional center audit reports because audit staff is not available and because its internal reviews of these audit reports and the information submitted by the regional centers are sometimes lengthy. According to DDS, its audits division is working to improve recruitment efforts for auditors and identifying ways to streamline the lengthy internal review of audit reports and regional center information. Other than these audits, DDS performs no monitoring of in‑home respite services. Without effective monitoring, DDS has little assurance that the regional centers are complying with applicable requirements and consumers are receiving the intended in‑home respite services.



To ensure that DDS is paying reasonable and appropriate hourly rates to vendors for in‑home respite services, the Legislature should clarify whether the rate freeze imposed by the 1998 legislation is still in effect despite the numerous legislative rate adjustments made since then. Further, the Legislature should clarify whether the 2003 legislation that imposed a cap on vendors’ hourly payment rates constitutes only a ceiling on increases of in‑home respite rates and require DDS to resume collecting cost statements and adjust the rates if appropriate.

To ensure that vendors’ in‑home respite hourly payment rates are reasonable and appropriate, particularly when compared to their administrative costs and the hourly wages they pay to respite workers, the Legislature should require DDS to conduct an in‑depth review of its in‑home respite rates by November 1, 2017. In conducting this review, the Legislature should require DDS to perform the following:


To ensure that in‑home respite vendors comply with vendor requirements on an ongoing basis, DDS should require the regional centers to develop a process to conduct biennial reviews of the vendor files the regional centers maintain and document the outcome of the review in the files. DDS should require the regional centers to take appropriate action to ensure that vendors comply, up to and including terminating the vendorization, if necessary.

To ensure that it is providing oversight in accordance with state law and federal requirements, DDS should ensure that it performs audits of each regional center every two years as required. In conducting these audits, DDS should consistently include a review of in‑home respite services.

Agency Comments

DDS disagreed with some recommendations in our report, particularly the recommendation to the Legislature that it require DDS to conduct an in‑depth review of its in‑home respite rates. However, DDS did indicate it would implement some of our recommendations.


1 The average hourly wage paid to the respite worker at the statewide level and for each regional center is a weighted average. This average takes into consideration the numbers of consumers served by each vendor as a proportion of the total number of consumers served by the respective regional center.  Go back to text

2 Throughout the report we use the term Employer of Record model to indicate the process used when the family selects the individual who will provide the in‑home respite service. Certain vendors we reviewed refer to this model using other terms, such as the parent conversion rate.  Go back to text

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