Monday, September 13, 2004

Rate reform

Aha! The third rail! Hold on, my zipper's stuck.

Rate reform means different things to different people but the following applies as a rule.

For vendors: Rate reform = getting more money for doing the same work for the same people.
For government folks: Rate reform = getting more of the same work for the same people for the same money. Quality is subjective anyhow.

I'm indifferent as to whether rate reform should raise the number of dollars coming into this system. I'm zealous, however that the irrelevance of support needed to funding provided needs to change. The failure is nearly total to correlate funding with the resources required to provide the right support, in the right amount, with sufficient quality to produce the outcomes that our clients seek and the State benefits from.

So, here's another primer. This time on how rates are currently set in this system.

There are really three methods of rate-setting. These are state-set rates, residential rates and negotiated rates.
In the most common (state-set) method as I understand it, a new agency receives a temporary rate which is the same for a given category of service regardless of where you are in the State (Inyokern rate=San Francisco rate.) The agency then functions for one year under that rate, fills out a statement explaining that agency's costs over that year and a new rate is assigned. Obviously, if you get the joke, in your first year as a program you spend every cent you're paid and lose as much money as you can afford to on whatever you can in order to produce as high a bill as possible at the end of your first year. The adjusted permanent rate circles over the agency forever, cawing to the great white whale that lurks in the deep. Once in a long while, the state adjusts the oldest rates and those older agencies go from the lowest rates to the highest.

So here's how various factors affect state-set rates, a few years after assignment:
Market value of qualified workers in an area: Irrelevant
Changes in worker's compensation insurance cost: Irrelevant
Cost of appropriate training and skill-building: Irrelevant
Administrative cost of regulatory compliance: Irrelevant
Quality of care provided: Irrelevant
Year Established: High correlation.

In negotiated rates, the agency predicts it's costs, tells the Regional Center what those will be, and then a process takes place leading to a contract to provide services at a given rate. According to the Legislative Analyst's Office, these rates increase at three times the rate of the state-set ones.

Residential rates, as I understand them (and I don't know that I do) works like the state-set rates but with a cost-of-living increase (suspended for several years now) so the correlation between real factors and rates would be like state-set with year of establishment being less relevant.

So the main factors in the level of funding that agencies receive for providing services are:
Whether they have been vendorized in a category in which the rate is state-set or negotiated and what year that vendorization took place. The individual needs and aspirations of the people this system serves, and measurable success in meeting those needs and reaching those aspirations are divorced, utterly, from the fiscal process and the financial incentives.

I don't mean to imply that this is unprecedented or poor incentive. Lots of California industries reward you for being young.

Another interesting trick of the state system is that rates apply to units of service performed not on deliverables. So, spending all day accomplishing nothing pays better than quick success.

When we talk about "rate reform" in this system, we talk about how people are compensated for the work they do, not about what the state is actually buying.

So, I'm thinking about rate reform and wondering whether the system couldn't get a little more cost-effective by:

Correlating rates with the outcomes sought, challenges presented and the likelihood of success and making level of accomplishment the unit the rates are paid to.

I'd bet on more effective services and lower costs if there were incentives to achieve either.


No comments: