SYSTEM REFORM, MANAGED CARE, and THE MYTH OF A "FREE MARKET"

in

California's Developmental Disabilities System

 

Note: This paper contains the ideas and opinions of many people involved in the developmental disabilities system in California, in addition to my own. Sixteen people made helpful suggestions for changes to earlier drafts. I must accept personal responsibility for the way these ideas are presented here, and I sincerely hope my style of presentation does justice to these ideas and the importance of this topic.

This paper was written on my own time and has not been endorsed by the agency which employs me or by any local or state organization of which I am a member. It is offered to stimulate thought, discussion and action.

Barbara Maizie, Executive Director
Contra Costa ARC
September, 1996

 

Professionals all over California are talking about "restructuring the system."

People all over the state are saying, "Managed Care is coming, whether we are ready for it or not." Whenever someone says this, other people nod their heads knowingly and get serious expressions on their faces.

Professionals at every level in the developmental disabilities system in California are saying these things and making these faces, some more than others.

This paper is being written for one reason: to acknowledge clearly, and publicly, that we may not understand what we are talking about.

And because we don't, we are being irresponsible. We are, figuratively speaking, playing with fire. And to make matters worse, we are playing with fire in somebody else's house, not our own.

The house we are playing in belongs to consumers and their families and to the consumers and families of future generations in California. We are professionals. If the house burns down we'll be okay. We'll get another job. But consumers and families LIVE HERE. And this is where future generations of consumers and families have to live.

We have a solemn responsibility to take care of this house, to strengthen it and make it strong for future generations.

This paper is an appeal to every professional in California's developmental disabilities system to stop and look at what we are doing. We are talking about restructuring, about "rebuilding" the house. Some of us have already begun the remodeling.

The house is nothing less than the State of California's commitment to its people with developmental disabilities, its most vulnerable population. The house is the entitlement. California is the only state in the entire United States with such an entitlement.

We did not create it. We did not fight to establish it in law. They did. It belongs to them. Our job is to preserve it.

Our first responsibility, as we talk about restructuring, is to understand what the house is made of...how it is constructed...what type of foundation it has. We need to know these things in order to assure that our remodeling effort doesn't have structural weakness. We need to know that the remodeled house isn't going to collapse in five years. It is our responsibility to assure that it stands the test of time.

 

Organization of this paper:

  • A context for this discussion
  • Clarifying 3 key topics
  • The structure of our current system and the balance of power
  • Managed Care
  • The myth of a free market in the developmental disabilities system
  • The pressure on Regional Centers
  • The restructuring now underway, Fall 1996
  • Actions for the future

 

A context for this discussion

Everyone in the developmental disabilities system has a unique point of view. We each have evidence and years of experience to support our points of view. We each have an unlimited supply of anecdotes and we have personal experiences to show that everyone else's anecdotes are misleading. We also have self-interest to consider and we have our own feelings about things.

Even those of us with broad decision-making power, even those of us with the power to make decisions which influence hundreds or thousands of peoples lives, are not immune from the myopia that comes from being a single human being with a point of view.

We need to agree to step back far enough from our usual positions to see the subject of system restructuring in its entirely.

To create an atmosphere which is conducive to looking at things from a more global perspective, there must first be an open acknowledgment of some basic realities which have led us to our current points of view. These include (but are not limited to):

  • Sometimes DDS behaves in a manner which is thoughtful, intelligent, and committed to enhancing the lives of consumers in the developmental disabilities system.
  • Sometimes DDS makes and implements policies or procedures which conflict with their slogan: "Building Partnerships and Supporting Choices."
  • Sometimes DDS lets Regional Centers do things that are inconsistent with the intent of the law.
  • Sometimes DDS hinders Regional Centers from having the degree of "local control" intended by law.
  • Sometimes the State Administration strongly upholds the intent of law.
  • Sometimes the State Administration interprets the law in ways that were not intended by the legislature.
  • Some Regional Centers place consumers, families, and service quality secondary to the goal of reducing costs or implementing their own vision of how things should be.
  • Some Regional Centers strive to carry out the promise of the Lanterman Act for consumers and families.
  • Some service providers have poor quality services.
  • Some service providers have high quality services.
  • Some service providers are in this field for the money and have little regard for quality of service.
  • Some service providers are committed to the ideals of the Lanterman Act and believe in a cost-effective partnership in which they raise funds to supplement government fees for services.
  • Some advocates have little tolerance for the constraints of the system and make demands that are unreasonable and cause backlash against the rights of consumers.
  • Some advocates strive to incorporate both the ideals and the reality of the system and seek to find reasonable solutions that really work.
  • Some consumers and families take advantage of the entitlement and use more than their fair share of the resources of the system.
  • Some consumers and families have reasonable expectations of what the system can provide for them and are grateful for the assistance they receive.

Obviously, this list could go on forever. And it is also true that some of these things are true on Wednesday but not again on Friday. This is just the way things are. What we need to do is accept that all these things are true and step back to look at the system as a whole. There will always be contradictory things like this no matter how the system is structured.

One other subject deserves special attention. Even with all the problems, even though many of us spend much of our time dealing with the numerous frustrations that occur, a tremendous number of good things take place every day in this system. People have a tendency to always focus on what's going badly instead of what's going well. We must acknowledge and appreciate how many good things are taking place in the lives of people with developmental disabilities in California because of how well the system works. There is so much more that our consumers could achieve if our system worked better. But we must not forget how much they have to lose if the system fails.

The important thing is...as you read this paper, if you feel yourself reacting negatively, please come back and look at this list and remember that whatever you are feeling, you've probably got a good reason for it. But still, we have to go on...

 First, an attempt to simplify and clarify a few topics

      • System Reform/Restructuring
      • Medicaid Reform/Medi-Grants/Block Grants
      • Managed Care

Because these concepts are interrelated, when we talk we mix all of them together in various ways. This adds to the confusion that is naturally present in any time of change. Here is a brief overview to simplify and clarify these concepts.

System Reform/Restructuring:

There are two reasons why people are talking about System Reform and System Restructuring.

1. Many people are dissatisfied with how the current system is working and think changes are needed. People want these changes to occur to make the system work better. (Of course, there is not always agreement about exactly how the system would look if it "worked better.") Generally the reforms being sought are about creating a more "consumer driven" system. The need to control or reduce spending is not the main focus of this sort of reform.

2. The other reason why people are talking about reform has to do solely with money. This is the sort of reform needed to create a system that spends less money, or at least limits its increases in spending each year. This intensified in 1992 in California with the passage of the Budget Trailer Bill SB 485 with its emphasis on Regional Center budget management plans and the introduction of "cost-effectiveness" as a primary value in the administration of the system. Events at the federal level have added a great deal of steam to this reform effort. At the federal level the emphasis on "Medicaid Reform" is impacting us most. The goal of this reform effort is to slow the rate of growth in spending in the Medicaid program.

Medicaid Reform:

In the summer of 1995, it seemed very likely that Medicaid Reform at the federal level would happen. That meant that there might be a drastic reduction in the level of federal Medicaid dollars available for California's developmental disabilities system. In anticipation of that reduction, Dennis Amundson, Director of DDS, requested that Regional Centers and Area Boards gather community input about how to deal with these possible funding reductions. There is a statewide group still meeting about this. It is called the System Reform Workgroup or, informally, the "Burlingame Group." Again, the impetus for this discussion was the prospect of less federal Medicaid money coming into our system and how we would cope with that.

At this point, Medicaid reform is stalled in Washington, D.C. Whether the reductions in Medicaid dollars for California are reduced a lot, a little or not at all depends to a large extent upon which political party ends up with more power after the November elections.

Medi-grants/Block Grants:

Medi-grants are one of the things that might happen if Medicaid Reform takes place. It might be that the federal government decides to lessen its role in the administration of Medicaid and give more authority to the individual states.

They could do this through what is referred to as block grants or, as they are sometimes called, "Medi-grants." In this scenario, the federal government would allocate a certain amount of Medicaid money to each state and it would be up to each state to decide how the money would be spent. If this happens, we will have to fight very hard to assure that some of the money in California's Medi-grant goes to the developmental disabilities system. It is also possible that Medicaid Reform will take place in a different way which does not include block grants to states.

Managed Care:

The term "Managed Care" originated in the private health care industry. The cost of health insurance was continually rising. This was happening because doctors and hospitals could provide whatever level of services they wanted for their patients and they could also set the price of those services. There were few controls on the prices or the amount of services provided and no incentive to doctors or hospitals to hold down costs. Many large employers across the nation were concerned about the rising cost of health insurance for their employees. In response, insurance companies created the term "Managed Care" to refer to a new system in which the insurance companies would be able to control costs by controlling the level of services provided to patients and the prices paid to doctors and hospitals. Essentially, Managed Care in private health care was a shift of control from doctors to insurance companies. Whether this is a good thing or not depends upon your point of view. One important thing to remember is that the intent which drives Managed Care is to reduce spending. The other important thing to remember is that under the general heading of "Managed Care" there are many different ways to reduce spending. HOW any particular group does it is completely up to them.

 

The structure of our current system and the balance of power.

When we talk about restructuring the system, what STRUCTURE are we talking about? What are the basic elements of what we all refer to as the developmental disabilities "system?" We need to understand what they are and how they work before we attempt to improve them.

Please bear with this discussion. This is the part where we really step back so that we can see the "Big Picture."

As recently as thirty-five years ago, there was no such thing as a developmental disabilities system in California. Thirty-five years is not a long time. California could find itself in that same position five or ten or thirty-five years from now. This is important to remember.

All there was in California back then were families coping with children who had developmental disabilities, trying to keep them at home even though there was little in the way of schooling or other services for them. Families struggled to cope, and when that became impossible, they turned to the State for assistance. That assistance came in only one form...placement in a State Developmental Center (then known as State Hospitals).

Gradually, small non-profit groups, mostly started by parents, some in cooperation with church groups, began to spring up. These groups were created to help make it possible for families to keep their children at home, and for children with developmental disabilities to learn and grow.

It is important to stop and recognize that these players: families, local non-profits, church groups and close friends are the people who started what has become the developmental disabilities system. It is important to remember this because these are the people who will stay around to pick up the pieces if the system fails. These players are the absolute bottom of the safety net.

Gradually these people realized that what was needed was a commitment from the State itself to secure the future of their children with developmental disabilities. They knew that without a strong commitment by the State of California to its citizens with developmental disabilities, their children could easily be forgotten. A firm commitment by the State to the well-being of people with developmental disabilities was the best gift these families could give to their children. It was the greatest inheritance these families could leave to their loved ones and to future generations.

These people went to Republican Assemblyman Frank Lanterman and asked him to write a piece of legislation for people with developmental disabilities. That piece of legislation became what we now call the "Lanterman Act." This document, the Lanterman Act, designed the structure which is our "system."

If you haven't read it, now is a really good time to do so. The Lanterman Act has become part of the State of California Welfare and Institutions Code. It covers Division 4.5, sections 4501 through 4854 and Division 4.7, sections 4900 through 4905. You can easily get a copy from DDS or through your local Area Board. This document does not cover every aspect of what we refer to as our "system," but it covers all the main ones, and most importantly, it describes the basic structure of the system, the one we are now talking about changing.

What we have to realize is that when people started writing the Lanterman Act, they started with a blank piece of paper. This is almost impossible to comprehend today because we are so inundated with laws, regulations and other written rules to follow.

They started with a blank piece of paper and they defined the basic elements of a structure that was intended to last forever.

The people who wrote this document were smart. They knew about the fundamental dynamics of human behavior and what usually happens when human beings try to do something together in a democratic society. The most important thing they knew was this:

In any human endeavor, there are two forces involved: individual entities and corporate entities. Another way to say this is: in any human endeavor there are individual human beings and there are large organizations and corporations.

The way things generally work is: individuals end up with a little bit of power and corporations end up with a lot of power.

The challenge in any human endeavor which seeks to do good things for people is the challenge of maintaining the power of individuals while limiting the power of corporations and bureaucracies.

This is a VERY difficult thing to accomplish. Anyone involved in designing social structures has to deal with this. A good example is the Constitution of the United States and the Bill of Rights.

The people who wrote the Lanterman Act knew about this and designed a structure which was intended to protect the rights of the individual within the system. They designed a structure with five basic elements and they set it up so that there would be a balance of power among these elements. This is commonly referred to as a system of "checks and balances." It is comparable to our federal government which consists of three branches: Executive, Legislative and Judicial.

It is not a perfect balance by any means, but most people agree it works better than anything any society has come up with yet.

The five basic elements of our system, as designed by the Lanterman Act are:

  • The State: represented by the Department of Developmental Services
  • The Regional Centers
  • Service Providers
  • Advocacy Groups
  • Consumers & Families

The Lanterman Act clearly recognizes all five of these parts of our system and clearly intended for there to be a balance of power among the elements. When you read the Lanterman Act from this point of view, it is obvious how strong the author's intention was to create this balance of power.

Of most significance is the way the author constructed the system to ASSURE that the individual consumer's rights would not be buried by the power of the bureaucracy...A device was built into the structure that would guarantee that the individual for whom the system was created would not get lost in the shuffle. That device was the IPP. The IPP is the only thing that gives the individual a fighting chance to have a say in what happens to him or her. The role of the IPP is the pivotal point in the entire developmental disabilities System in California. The fundamental importance of the IPP was affirmed in 1985 by the State Supreme Court.

So, let's look at the five elements of our system and see how the balance of power was designed to work...

The State (DDS): DDS is supposed to assure that the spirit and the letter of the law is carried out consistently throughout the state. This is supposed to happen primarily through the writing of regulations which clarify the law and through the contracts DDS negotiates with Regional Centers.

The Regional Centers: were created to avoid the State having too much power in the lives of consumers and families. Regional Centers were intended to prevent the development of an impersonal state bureaucracy and assure responsiveness to local needs. Regional Centers were created to develop the resources needed by consumers and families and to assure that consumers had local access to a case manager who would assist them to find needed services and supports.

Service Providers: The Lanterman Act assumes that an array of services and supports necessary to carry out consumers IPPs exists in each community. It assumes that an array of options is available so that consumers can make choices from among the available options. The law is clear that these services exist independently and are not run directly by the state nor by the Regional Centers.

Advocacy Groups: The Lanterman Act created the State Council on Developmental Disabilities and the Organization of Area Boards along with the individual Area Boards. (Federal law has also established Protection & Advocacy in each state.) These groups were given a number of important functions, but for purposes of this discussion, the most important is their "watchdog" role of assuring that all the other players in the system are carrying out their proper roles and responsibilities.

Most important throughout all of this is the role of the IPP. The IPP is the document that EVERYONE in every part of the system is supposed to be following. When the Lanterman Act was first written, the terms "entitlement" and "consumer driven" were not part of the vocabulary. In those days, they talked about the State's commitment to people with developmental disabilities and the importance of the IPP as the guiding document of the system.

The reason why the IPP was given such a key role in the design of the current structure is because the IPP is the voice of consumers and families within the system. The other four parts of the system -- DDS, Regional Centers, Service Providers, Advocacy Groups -- have staff and buildings and money. They have the substance and power that corporate and bureaucratic entities have. They have the power to become much stronger than any individual human being.

The IPP represents the consumer in our system. It gives the consumer a legal voice. Quite simply, structurally speaking, the IPP is the consumer in our system.

Any corporate or bureaucratic entity can claim to be listening to consumers and families. Any corporate entity can claim to honor and support "consumer choice." Any corporate entity can claim to be "consumer driven." Whether they really are or not has nothing to do with what they say. What matters is whether or not they honor and support the IPP and the ID Team process which creates it.

In all of the community meetings that have been held around the state on the topic of "Restructuring the System," two key values have been reaffirmed over and over again by consumers and families. Those values are:

  • Maintain the entitlement.
  • Assure a consumer-driven system.

 This is another way of saying exactly what the Lanterman Act originally said. Keep the state's commitment to our consumers and assure that the IPP drives the system. The thing we are still trying to do is assure that the rights of the individual are not buried by the power of the bureaucracy.

So, it is important to notice that in all the recent talk of "restructuring" among professionals, the IPP is almost never mentioned.

***

The following table gives a very streamlined overview of the checks and balances of California's developmental disabilities system and considers the impact that changes in this balance could cause:

Entity

Major Impacts of Too Much Control

Major Impacts of Too Little Control

State/DDS

Through regulations and policies, can misinterpret the intent of laws passed by the legislature (can substitute their priorities for the legislature's intent).

Can overburden Regional Centers to the point that they cannot function for consumers and families as the law intended.

Can fail to assure an equitable statewide system of rates and standards for service providers and thus jeopardize the continued existence of quality community options for consumers.

May be unable to assure consistent availability and quality of Regional Center service and support options in the community.

May have difficulty assuring the system operates within the funds allocated by the legislature.

May have difficulty protecting the system from unreasonable demands by consumers and families.

Regional Centers

Can deny or delay service to individuals via eligibility determinations and purchasing policies.

Can impose policies and procedures that strengthen the role of the bureaucracy and weaken the role of the IPP.

Can inappropriately influence consumer choices.

Can fail to uphold minimum quality standards for services and supports in the community.

May be unable to assure quality of services provided and the achievement of IPP goals and objectives.

May be unable to fully carry out its role due to burdensome regulation and state controls.

May be unable to assure that the Regional Center operates effectively within the funds allocated by DDS.

Service Providers

Can manipulate the entitlement for personal or corporate gain/profit.

Can inappropriately influence consumer choices.

Can fail to assure high standards in quality of direct services.

Can be forced out of business through lack of referrals or insufficient levels of reimbursement.

Can be forced to perpetuate marginal and mediocre services.

 Advocates

Can place demands upon Regional Centers, service providers, and other entities which are impossible to meet, which result in unfair distribution of resources and which ultimately cause backlash against consumer rights.

Can be unable to protect consumers and families from unreasonable constraints by the corporate or bureaucratic entities in the system.

 Consumers/ Families

Can cause unequal distribution of resources by demanding more that their fair share of the system's resources.

Can be left without any of the opportunities and assistance that was promised by the State of California in the Lanterman Act.

This is the framework, the system of checks and balances, the "balance of power" that we must bear in mind as we discuss any proposed changes to our system. We must be aware of potential dangers as control is shifted among the various elements in the system and we must evaluate the impact of each proposed change on the overall system of checks and balances. Most importantly, we must analyze how each potential change would strengthen or weaken the power of the IPP and thus strengthen or weaken the power of the individual to survive in the midst of powerful corporate and bureaucratic entities.

Bearing this in mind, we need to talk about Managed Care and the restructuring of our system which is taking place right now.

Managed Care

A very simplified look at how Managed Care evolved in the private health care industry will help us see the implications for California's developmental disabilities system.

In the private health care industry, before Managed Care, doctors and hospitals had few price controls on the services they were providing and few controls on the level of services patients could receive. There were no incentives to hold down costs.

Insurance companies, under growing pressure from large employers who purchase medical coverage for their employees, wanted to find a way to control rising costs. So, they decided to "manage" the care. Managing the care meant that the insurance companies would begin to:

  • establish tighter criteria for deciding which people could participate in their health insurance plans
  • limit the kinds of care people could receive
  • set limits on the amount of care people could receive
  • set the maximum reimbursement that doctors and hospitals could receive
  • require patients to receive care only from certain doctors under contract with the insurance company
  • implement a variety of cost control measures such as emphasizing prevention, utilizing lower cost personnel, or utilizing technological rather than staff intensive methods whenever possible

It is important to note that there were many insurance companies and HMO organizations making these changes around the same time. These organizations were in competition with each other to attract large employers to purchase their plans. These organizations have paying customers (employers and individuals) who purchase medical coverage and who can shop for whichever plan has the best quality service for the lowest price. This competition among Managed Care organizations builds in some assurance of service quality. A balance exists in which competing Managed Care organizations seek to attract the highest quality, most cost effective service providers (doctors and hospitals) while service providers (doctors and hospitals) likewise have numerous organizations with whom they may affiliate to deliver services. Many HMOs now voluntarily seek national accreditation to help assure service quality and to more effectively market their services to their customers.

Thus managed care began in an effort to control rising costs. There are many different perspectives on the extent to which Managed Care has, or has not, had a positive effect in the private health care industry.

For purposes of our discussion, it is important to understand the fiscal theory on which managed care was built. A major factor in lowering costs of health care had to do with changing the emphasis on what kind of care would be provided. The focus changed to preventing the need for expensive services. In Managed Care, the insurance company/HMO attempts to provide early intervention and preventive services so that more costly services can be avoided. At the same time, the insurance companies/HMOs try to sell policies mostly to people who are healthy and don't really need much care. The people who pay their premiums and don't use any services provide the money to pay for the more expensive services that other patients need. Planning for the eventual long term care needs of aging policy holders is an important challenge for medical managed care organizations.

This is one reason why there is so much concern about Managed Care for people who all need varying degrees of long term care. There is, understandably, concern about whether or not the basic fiscal assumption of Managed Care can be applied to individuals with life long disabilities.

So, in summary, Managed Care is a way of controlling costs by controlling who receives services, what services they receive, how much service they receive, who provides it, and how much the provider is paid. The foundation upon which a Managed Care system is built is the fiscal assumption that premiums paid by people with few needs will cover the costs of people with more needs. Service quality is in part assured by the free market force of competition among the various Managed Care organizations.

The Myth of a Free Market in California's developmental disabilities system

In discussions of system reform, the pressure to "do more with less" has been increasing. In anticipation of Managed Care, many people have been talking about and advocating for more "competition" among service providers. This seems like a good idea, especially since everyone can see the obvious value of operating the system "like a business."

Competition is one of the basic elements of business in the United States. In the U.S. economy, competition keeps prices down and ensures that those products and services which give the best value for the best price are the ones to survive. Competition also ensures a variety of options and thus gives consumers greater choice.

This is a sound theory and it can work well in a free market economy. Competition among private health care HMOs is one example of this theory in action. We must, however, realize that the developmental disabilities system in California is NOT a free market economy.

In theory, this is how a free market works:

A free market is one where the production and exchange of goods and services takes place without interference from government and without interference by monopolies. The driving force in a free market is referred to as "supply and demand." "Supply is the amount of a product or service available for sale, and "demand" is the amount of that product or service people are ready and able to buy. In a free market, it is the relationship between supply and demand that determines the price of the product or service. When demand for a product or service increases, prices rise. Then, as supply is increased to meet demand, prices fall. The theory is that when supply and demand are equal, price is said to have reached "equilibrium." Again, this works only to the extent that the forces are allowed to operate freely, without interference by government, and without interference by monopolies which, by definition, have exclusive control of some part of the market.

In California's developmental disabilities system, there is no free market economy because supply and demand do not operate freely. Supply, demand and price are all controlled either directly or indirectly by government. In this situation, the role of government is equivalent to what is considered a "monopoly" in economic theory.

Bearing this in mind, let's look at the way the "market" works in California's developmental disabilities system...

Price is not determined by the interplay of supply and demand. Price is set by DDS and/or Regional Centers. Service providers, at least those in the major service categories, do not set their prices for the service they are selling. Prices are controlled by the State, and usually do not cover the cost of providing the service. It is well known that the level of reimbursement paid to service providers is significantly below the costs of providing the services. Providers must raise funds to make up the difference, or, reduce the quality of their services to keep their expenses in line with their income.

Demand for services is strongly influenced by Regional Centers via case management and purchase of service policies. While the Lanterman Act intended that demand would be determined by consumer need and consumer choice via the IPP, in practice Regional Centers have considerable influence over which consumers are referred to which providers and, through purchase of service guidelines, what level of service is purchased. In their ability to influence "demand," (aka "referrals") Regional Centers most clearly demonstrate the behavior of classic "monopolies."

Supply is influenced in this system in the opposite way. In a system with Regional Center influence over the demand for services, state control of prices, and Regional Center policies concerning service levels, it would be reasonable to limit the supply of service providers in a given area. However, this system often allows more providers in a given area than the demand warrants.

So, just viewing the interrelationship of these three key factors: Price, Demand and Supply, it is quite obvious that something other than free market forces are in play.

There is another factor which causes considerable confusion in this "market." That factor is our use of the term "customer." As part of the effort to assure consumer empowerment we have begun to refer to consumers as "customers." This is helpful in keeping professionals focused on the need to assure consumer satisfaction, but it has one unintended result: we are distracted from the fact that in economic terms a "customer" is one who pays for a product or service. There is, structurally speaking, only one customer in this system: the Regional Center. This customer is also an entity which has the ability to influence supply, demand and price. Thus, in each of the 21 geographic areas, the Regional Center functions as a classic "monopoly." In a monopoly environment, free market forces like competition do not work. In fact, there is a term in economic theory for competition in a monopoly environment. The term is: "destructive competition." Destructive competition is competition used by a monopoly to drive down prices (with or without quality assurance).

In California's developmental disabilities system, the call for more competition among service providers is a call for destructive competition.

The distinction between a free market environment and a monopoly environment is important to remember as the subject of Managed Care is considered.

Government entities across the country are embracing the concept of Managed Care as an option when fewer tax dollars are available to meet human service needs. These government entities are generally the sole purchaser of the services being discussed. Managed Care, however, came from an industry which functions in a market environment containing stabilizing forces to help assure the maintenance of quality in the services. In the absence of these stabilizing forces, Managed Care will result in increased government (in this case DDS or Regional Center) control over who is eligible for services, what services and what level of services they may receive, who will provide the services, and how much the provider will be paid. When governmental entities create Managed Care systems they are creating systems in which government monopolies can further limit availability and quality of services.

In California's developmental disabilities system, Regional Centers are already functioning in some ways as HMO-like entities. However, Regional Centers have no competition and no paying customers to bring the stabilizing effects which help assure service quality.

Right now, there is a growing use of managed care terminology in discussions of system reform in California. Most people have not yet realized that these new terms have meanings which are old and familiar: For example:

    Utilization Management: someone decides which consumers get which services and how much service they get.

    Capitation: the amount of money available is cut and held at a certain level regardless of how many consumers need services.

    Directed Procurement: someone decides which providers can provide services in a given geographic area.

    Gatekeeping: Someone decides who receives services and who doesn't receive services. Waiting lists are maintained.

 Whichever entity is designated as the Managed Care organization would be making these decisions.

The Managed Care term which has the most significance to California's developmental disabilities system is the term Shared Risk. In Managed Care, the word "risk" means "responsibility." When risk is shared, responsibility is shared.

All of these Managed Care concepts are in direct conflict with the idea of a "consumer driven" system. Under Managed Care, the HMO's policies and procedures drive the system and the individual consumer has very little voice.

One final note on this subject: The term "monopoly" has a very negative connotation in our society. Nonetheless, the structure of many government run programs can best be understood using this term. The point here is not to cast a negative light on how government operates. The point is show that changes which will reform the developmental disabilities system can not presuppose free market forces. The reforms that will work in this system are the sort of reforms needed when a monopoly is part of the system.

The pressure on Regional Centers

Anyone who has been watching California's developmental disabilities system in the past few years has noticed two significant changes occurring.

  1. The concept of "cost-effectiveness" has been increasingly emphasized.
     
  2. Regional Centers have been given more and more responsibility and authority by the   Legislature and by DDS to be the ones who assure "cost-effectiveness" is achieved.

This has put pressure on Regional Centers and they have responded in understandable ways.

In any system, there are those who are responsible for managing the money and there are those who are responsible for using the money. In our system, it has historically been that the Legislature and DDS have been responsible for managing the money. The Legislature decides on the annual allocation. The law states that the Director of DDS goes back to the legislature to request more funds if the allocation is insufficient.

In 1992, however, the law changed. The Legislature mandated that the system would have to live within its annual allocation. Significantly, the Legislature did not, at that same time, repeal the entitlement. So, the pressure on DDS and Regional Centers was increased. Thus in 1992, more than ever before, Regional Centers had to become identified with those who manage the money rather than those who spend the money. Regional Centers are supposed to be the primary advocates for meeting consumer needs. Therefore, this seems to create a conflict of interest for Regional Centers.

Ironically, California's fiscal problems arrived just as consumers, families and the community were demanding an increased focus on outcomes, greater community inclusion, and expanded consumer choice. These values had become driving principles of the system. However, no one had reconciled the conflict between these rising expectations and the costs involved in meeting them. The passage of SB 1383 brought "consumer choice" and "full inclusion" to the top of everyone's agenda. The Coffelt Settlement extended this vision to individuals with significantly greater support needs than had previously been met outside of State Developmental Centers.

In response to this increasing pressure, Regional Centers have tried to gain more control over how money is spent. For some Regional Centers where the corporate culture was already strongly identified with cost savings, this was a relatively easy transition. For those Regional Centers where meeting consumer needs was always the top priority, this caused, and continues to cause, a great deal of stress.

Regional Centers have always been in the position of having to administer an entitlement system within a limited number of dollars. This is the essential challenge of running a Regional Center. It is a significant challenge and no one outside a Regional Center should underestimate the difficulty involved. It should also be noted that so far, it has been accomplished.

As the prospect of further reductions in funding are contemplated, Regional Centers can see that their challenge is going to get even more difficult. An atmosphere has been created in which Regional Centers believe the only way the system can continue to exist is if they are able to have more control of how the money is spent.

Regional Centers have been searching for more effective ways to manage the entitlement for as long as they have been in existence. It would be understandable if Regional Centers saw Managed Care as an opportunity to modify the structure of the developmental disabilities system so that they could have more control over how money is spent.

As a community we must recognize the dilemma that Regional Centers have with entitlement and talk about it. We must stop being afraid that even mentioning it jeopardizes the entitlement. Remember, just because funding for public schools is sometimes reduced, the right of all children to a free public education is not called into question.

The restructuring now underway, Fall 1996

Many people recognize that a non-systematic restructuring of the developmental disabilities system in California appears to be well underway. It is taking place without benefit of informed public discussion of the fundamental structural issues involved. Unless you have a good understanding of the basic structure of our system it is not immediately apparent what is happening. But if you look at the structural components, you can see significant changes occurring:

1. The concept of "cost-effectiveness" as a higher value than "consumer choice" in the administration of the system.

    Impact:

    a. Weakens the role of the IPP.

    b. Strengthens the role of whichever corporate entity is responsible for defining and implementing "cost-effectiveness."

2. Movement towards indicating general types of services rather than specific providers in IPPs.

    Impact:

    a. Permits Regional Centers to decide which providers will be utilized for which consumers.

    b. Limits consumer choice.

    c. Weakens the role of the IPP.

3. Movement towards replacing state vendorization of service providers with the mechanism of "directed procurement" of contractors conducted by individual Regional Centers.

    Impact:

    a. Weakens the State's ability to assure a consistent array of community services and supports throughout the State.

    b. Fundamentally alters the relationship between Regional Centers and providers.

    c. Results in providers seeking ways to assure survival in a monopoly situation through mergers and other consolidation actions. Ultimately results in the survival of only a few very large and powerful providers.

    d. Gradually, eliminates service options, limits consumer choice, and weakens the role of the IPP.

4. Movement away from statewide reimbursement methodologies for service providers.

    Impact:

    a. Weakens the State's ability to assure a consistent array of community services and supports throughout the State.

    b. Weakens the State's ability to assure a minimum standard of quality in community services.

These four major structural changes are underway now. They are occurring through changes in DDS's regulations and through contracts entered into via Section 4669.2 of the Lanterman Act, commonly referred to as "637 proposals."

Every one of us has a professional and a moral responsibility to carefully examine these activities before going any further. We must determine whether, or to what extent, these particular restructuring activities will have a positive or a negative impact on the long term effectiveness of the system. We hope they will have a positive impact, but we have done no analysis to warrant our opinions and we have not established sufficient safeguards in case they don't work.

 Actions for the future

There is a way we can proceed with respect for the values of consumers and families and in recognition of our responsibility to future generations of people with developmental disabilities in California.

1. We must continue to reaffirm what is important to consumers and families: the importance of preserving the entitlement and the importance of a consumer driven system.

2. We all need to understand the basic components of our current structure and evaluate every suggested change in terms of how it impacts the balance of power within that structure. We must do this knowing that our objective is to restore and preserve the strength of the IPP for the individual it represents.

3. In discussions of system reform we must distinguish between the value of a structural element itself and the specific examples of how that element may be implemented. (For example: You may not like a person who was elected in a democratic process, but that usually does not mean you want to abolish the democratic process.)

Certainly, many aspects of the current system need significant improvements in how they are operationalized. In our frustration with how things are implemented we often forget that there may be no structurally better alternative. There are many examples of this:

  • Someone may recommend elimination of Regional Centers because they are frustrated with their Regional Center.
  • Someone may want to abolish statewide regulations because existing regulations have not been modified to meet changing community needs.
  • Someone may recommend elimination of statewide rate setting mechanisms because existing mechanisms have not been properly funded.
  • Someone may recommend elimination of state vendorization of services because existing vendor categories are not sufficient to meet changing community needs.

These sorts of suggestions are examples of what is sometimes referred to as "throwing the baby out with the bath water."

4. We must recognize the implications of the movement towards "service contracts" between Regional Centers and service providers. For 20 years the State has been the responsible entity in this system. By delegating its responsibility to Regional Centers via service contracts, the State is fundamentally changing the structure of the system. Without informed public discussion, the State is transferring responsibilities to Regional Centers which will result in the evolution of 21 different locally designed systems, each run by a monopoly. We must discuss the pros and cons of "contracting" along with the structural implications of lessening the State's mandated responsibility to assure an equitable statewide service system.

5. We must strengthen the "local control" intended by the Lanterman Act. Regional Centers must be able to use contracts appropriately, with great flexibility, to create new and innovative services to add to the array of options available to consumers.

6. In the effort to move the system towards the goal of a fully inclusive community, we must be careful not to unintentionally weaken the structural foundation and the State's mandated commitment to consumers which will be needed to assure the long term sustainability of the vision.

7. We must step back in the movement towards implementation of new Managed Care concepts within our system and first answer the following question: What are the ways in which California's developmental disabilities system already is a Managed Care system and how can we use that experience in our analysis of where we go from here?

8. We must all recognize and acknowledge that it is difficult for Regional Centers to manage their budgets within an entitlement system and work together to enable them to continue to do this at least as successfully as they have for the past 20 years, if not more successfully.

9. Most important of all, DDS and Regional Centers must gather and make publicly available the clinical/outcome and financial data which is necessary to analyze service, spending, and consumer outcome trends in the system on a per-consumer basis across Regional Centers. Only with this data can we accurately diagnose which areas of the system are in need of better management.

 We have the time to do this. We are not in a crisis situation. There is no need to restructure the system quickly without taking the time to consider the long term implications. What will happen with Medicaid reform is still unknown. The State budget for 96-97 is not in crisis. There is no need to continue remodeling without a blueprint. We have a responsibility not to. Remember, this is not our house.

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