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Thursday, April 5, 2012

Cutting the Buddha

Budgeting for Disaster: Cutting the Buddha

Our budget tour continues with a visit to the Behavioral Healthcare, Developmental Disabilities and Hospitals. The acronym is BHDDH and I’m told by insiders it’s pronounced “buddha.”

BHDDH is spending more time than usual in the news. This is largely because last year they cut $26 million from the budget that would have gone to private providers of care for disabled adults. You can see the cut on page 153 of Volume II of the budget (or page 17 of this excerpt), second line, where $206 million in 2011 went down to $180 million in 2012.

This is a cut about three times as big as Governor Chafee proposed. But if you remember, the General Assembly rejected Chafee’s sales tax changes, so they had to cut much deeper than he’d suggested.

Some background: Rhode Island provides services to these people in two ways. About 220 get services through Rhode Island Community Living and Supports (RICLAS), a state program, and a bit more than 3,000 others get services through private agencies who bill the state for their service. These agencies are almost wholly dependent on those bills.

BHDDH recently commissioned a big study of the matter and determined that the state actually doesn’t pay very much for this service. Over the last few years, the population under care grew slower than any northeast state besides Massachusetts, and we reduced the per capita expense from $76,803 in 2009 to $63,013 in 2011. 

This is despite being one of only nine states (out of 44 where data was available) without a waiting list for services. In other words, we appear to be getting pretty good service for our money.

There is another side, though. We get this great value by paying people very little. The going rate for direct support staff at the private facilities appears to be between $9 and $11 per hour, even for the unionized folks. 

Remember, these are the people who are bathing, feeding, teaching, and otherwise caring for highly disabled individuals. By contrast, direct care staff at RICLAS are paid about twice as much. (Representative Scott Slater has sponsored a bill in to set a minimum wage for direct support staff at these residences.)

Conversely—and somewhat unfortunately—some of the executives at the private organizations are paid far more than their counterparts in the state. David Jordan, the CEO of Seven Hills, was paid $533,214 in 2009. (Seven Hills runs homes in Massachusetts, too.) 

This year he has responded to the budget cuts by cutting support staff pay by 5% and ending most of their benefits. Executive pay was cut 3%, according to UNAP, the union representing workers there.

So what happens when the administration makes a plan to cut costs and the Assembly says that’s great, but please cut three times as much? Answer: some pretty dumb things.

For example, the state will only pay a fee for service provided, as opposed to a per-person “capitation” rate. This sounds fair, but if an employee shows up an hour late to work, the agency gets docked not only that employee’s pay, but also the overhead costs allocated to that hour of pay. It’s not as if the agency wasn’t responsible for that care, or the heat and electricity didn’t have to be paid for that hour.

The state also changed the way they assess the level of disability for each resident. This affects the amount the state pays for their care. We had been using a four-step measure, but it was changed to a seven-step “Supports Intensity Scale” (SIS). The SIS is probably a better measure, but the four-step scale doesn’t exactly translate over to the seven-step one and the staff to do re-assessments simply doesn’t exist. Result: BHDDH simply decided which levels of the old scale corresponded to which levels of the new scale, and voila, they had to pay less to support the residents.

Actually, what BHDDH says is this:

If SIS has not been performed and client is receiving services then, the resource allocation is based on previously approved level of service cross walked to the new levels effective 7/1/11.

So what do we learn from this? That there isn’t much deference to department plans in the Assembly, for better and worse. If you’re a department director with a plan to cut costs, you should probably only present a fraction of those costs, or risk having your department turned upside down by a demand to cut much more. 

The promise of cuts is like blood in the water; the sharks don’t care where they bite, and presto you have people mobilizing marches against you. Under these conditions, which director is going to volunteer cuts again?

And we also learn about the downside of privatization. Through aggressive use of private group homes and community-based care, Rhode Island has kept costs low, much lower than most northeast states. But part of the reason we could do that is that the private operators of those homes didn’t have to pay their employees well (and could pay their executives too well). 

Though I’m sure it would help (at some of the agencies), slashing executive pay won’t make up for the cuts; there simply aren’t enough executives with egregious salaries to make up $26 million.

Overall, administrative costs at the private agencies (about 10%) seem comparable to the RICLAS costs, as far as one can tell from the personnel lists in the budget. More important, because these are private agencies, we have only limited control over them. 

As some will recall, that was part of the point of the whole privatization push. We were to give up control of services so the invisible hand of the private market could work its magic. Well it has, and here’s the result.

None of this is to say it isn’t possible to squeeze costs down over time, but how much less do we want care-givers to be paid? Though we would like to be able to slowly reduce administrative overhead, the sudden cuts of this past year will not have that effect. More likely they’ll bankrupt one or two of the providers, and that will be a lesson to…someone.

Full disclosure: I have recently done some software consulting work for West Bay Residential Services, one of the DD residential care providers, and may do so again someday.