This bill requires the State Department of Developmental Services to implement rate reforms based on the department’s 2019 rate study, create a quality incentive program, and reshape payments to prioritize person-centered outcomes and workforce supports. It phases funding and policy changes to move from a compliance-focused system toward an outcomes-based model and instructs that a majority of early increases be used to enhance wages and benefits for staff who provide direct care.
The legislation also creates rules for geographic differentials, language-enhanced rates, hold-harmless protections for certain providers, audit and documentation requirements, and a public process for developing quality measures. Implementation is expressly contingent on federal funding and the department may use written directives until regulations are adopted by mid-2028.
At a Glance
What It Does
Orders DDS to adopt the 2019 rate-study rate models in phases, with a transition to fully funded rate models by January 1, 2025, structured as a base rate (90%) plus a quality incentive (up to 10%). It requires providers to document that a defined portion of rate increases go to staff who spend at least 75% of their time in direct services and conditions some incentive eligibility on compliance with federal HCBS rules and electronic visit verification.
Who It Affects
Regional centers, community-based service providers for Californians with intellectual and developmental disabilities, direct support professionals (DSPs), and the Department of Developmental Services. Medi‑Cal reimbursement for eligible consumers factors into funding and federal approval is required before the provisions take effect.
Why It Matters
The bill operationalizes a long-delayed rate study, links payment to measurable quality and workforce improvements, and shifts significant fiscal pressure to state (and potentially federal) funding streams. Compliance, auditing, and performance measurement obligations will alter provider cash flow, reporting systems, and labor allocations.
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What This Bill Actually Does
The bill directs the Department of Developmental Services to convert the rate models developed in the department’s 2019 study into an implemented payment structure for community-based developmental services. Rather than one-off or opaque increases, payments move toward standardized rate models that account for regional cost differences, language needs, and defined staffing competencies.
The statute establishes a multi-year phase-in with specific benchmarks for how much of the modeled gap is closed at set dates and a mechanism to split the fully funded model into a 90% base rate and up to a 10% quality incentive.
To ensure money reaches the workforce, the bill requires providers to allocate a defined share of rate increases to employees who spend at least 75% of their time providing direct services, maintain documentation of those wage/benefit increases, and be subject to audit by the department or regional center. The quality incentive program will be built iteratively: early years can focus on capacity-building and process measures while the department works toward individual-level outcome measures.
The department must solicit public comment and expert input on measures, post materials in advance, and report proposed measures to the Legislature before seeking federal approval.The bill establishes a two-part protection and transition mechanism for providers: a hold-harmless freeze for providers whose existing rates are above model recommendations and a separate freeze for providers whose rates already exceed 90% of the model, both lasting until February 28, 2026, after which base rates are equalized across providers in a service category and region with eligibility for the quality incentive to bring total payment to model levels. Providers not identified in the 2019 rate study are excluded from these adjustments.
The department can still adjust rates after audits and must report progress to the Legislature on implementation and federal HCBS compliance, including identifying service categories likely unable to meet federal requirements.Because the bill conditions implementation on federal funding and allows the department to use written directives rather than immediate formal rulemaking (with regulations required by June 30, 2028), much of the operational detail—payment timing, reporting templates, audit protocols, and the precise quality measure set—will be determined administratively. The legislation also ties rate models to updates of statewide minimum wage and other relevant statutes so future wage floor changes feed into the modeled rates.
The Five Things You Need to Know
The fully funded rate model is implemented on January 1, 2025 as two payment components: a base rate equal to 90% of the model and a quality incentive payment of up to 10%.
Providers receiving rate increases must document and are audited on the allocation of the increase toward wages and benefits for staff who spend at least 75% of their time delivering direct services.
A hold-harmless policy freezes existing higher rates for affected providers until February 28, 2026, after which base rates are adjusted to equalize rates within a service category and region while quality payments can bring total pay to model levels.
Eligibility for full quality incentive payments phases in, and beginning 2026–27 providers must comply with electronic visit verification, HCBS rules, and annual fiscal reviews to qualify for incentives.
Implementation is contingent on federal funding and the department may issue written directives (instead of immediate regulation) until regulations must be adopted by June 30, 2028.
Section-by-Section Breakdown
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Findings and policy goals
Lists the department’s 2019 rate study findings and the Legislature’s objectives: transparency, regional differentials, language-enhanced rates, optional DSP wage add-ons, consolidation of codes, and moving to an outcomes-based, person-centered system. This framing sets the statutory priorities that will guide how the department constructs measures and payment models and gives explicit legislative direction on values such as equity and consumer experience.
Phased rate increases and wage-allocation requirements
Specifies the phase-in percentages for rate increases (starting with a partial gap closure in 2022–24 and full implementation by January 1, 2025) and requires that most of the 2022–23 year increases be used to raise wages and benefits for staff spending at least 75% of their time in direct care. It mandates documentation and auditability of wage pass-throughs and defines 'direct services' to include training and program preparation per existing regulations.
Rate model structure and wage floor updates
Establishes the 90% base / up-to-10% quality incentive split for the fully funded model and requires rate models to be updated to reflect changes in the statewide minimum wage (and other statutes) starting July 1, 2024. That ties modeled rate calculations to labor market policy and preserves a financial lever for the state to maintain alignment with statutory wage floors.
Uniformity within categories with geographic differentials
Directs that within service categories, rates be uniform but adjusted for geographic cost differentials — wages, travel, and real estate costs. This attempts to balance standardization with local cost realities, and it excludes providers not identified in the 2019 study from receiving adjustments under this section.
Hold-harmless and eventual equalization
Creates two freeze provisions: one to hold rates above model recommendations steady through February 28, 2026; another to freeze base rates above 90% of the model as of January 1, 2023, until the same date. After the freeze period, the department will align base rates across providers in the same category and region while still allowing quality incentive payments to reach full model levels. The department retains authority to adjust rates after audits or reviews.
Quality incentive program and measure development
Requires the department to develop quality measures with stakeholder input and public transparency: initial measures may focus on capacity and process while the program evolves to individual-level outcome measures by the end of 2025–26. The department must post materials for public comment, seek expert input on alternative payment models, and publish proposed measures to the Legislature before seeking federal approval. It also sets rules for how incentive percentages are determined and reported to legislative fiscal and policy committees.
Reporting, temporary directives, and federal funding contingency
Requires a March 1, 2024 status report to the Legislature on implementation and HCBS compliance considerations, allows the department to implement this statute via written directives until formal regulations are adopted (deadline June 30, 2028), and makes overall implementation contingent on federal funding. These mechanics concentrate initial authority in administrative actions and link the program’s feasibility to federal Medicaid reimbursements.
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Who Benefits
- Direct support professionals (DSPs): The statute directs that a majority of early increases be used to enhance wages and benefits for staff who spend at least 75% of their time in direct services, and it creates a framework for wage differentials tied to training and demonstrated competency.
- Consumers with developmental disabilities: The law prioritizes person-centered, outcomes-based measures and funds a quality incentive program intended to improve consumer experience, equity, and individual outcomes, including enhanced rates for services delivered in other languages.
- Providers that adopt outcome and compliance standards: Providers that meet quality measures, HCBS rules, and EVV requirements can earn up to the full quality incentive payment—improving total revenue and potentially rewarding higher-performing organizations.
Who Bears the Cost
- State General Fund and Medi‑Cal program: The fiscal impact outlined in the 2019 study was large; the bill’s implementation depends on federal funding, but the state share and administrative costs to DDS and regional centers will increase if federal funds are limited.
- Providers excluded from the 2019 rate study: Providers not identified in the study are not eligible for adjustments under this statute, which may leave some organizations without access to model-based funding despite similar cost pressures.
- Providers with previously higher rates: The hold-harmless freeze followed by equalization can reduce the relative advantage of higher-rate providers after February 28, 2026, requiring operational adjustments and potentially causing short-term financial strain.
Key Issues
The Core Tension
The central tension is between targeting funding to improve workforce compensation and measurable consumer outcomes while keeping the system financially sustainable and administratively manageable: the law promises standardized, outcome-driven rates and regional fairness, but achieving that requires substantial new funding, precise measurement, and potentially disruptive rate equalizations that pit provider stability against fiscal and equity goals.
The bill ties an ambitious set of reforms to the outcomes of one rate study and to federal funding, creating a funding and implementation risk: if federal dollars are not approved at the necessary levels, the statutory schedule and incentive structure cannot fully materialize. The written-directive authority allows the department to operationalize complex measure sets and payment mechanics quickly, but it postpones formal rulemaking and associated public oversight until 2028.
That accelerates administrative discretion in the near term while delaying the transparency and stability that regulations provide.
Operationally, enforcing the wage pass-through and quality incentives will require new reporting systems, frequent audits, and clear definitions of allowable costs and direct-service time. The department must build robust measurement, IT, and compliance capacity—work that consumes funds and staff time that might otherwise go into direct care.
Equalizing base rates within categories while also adjusting for geographic differentials is a technical challenge: the law requires both uniformity and local adjustments, which can pull in opposite directions when defining regions and weighting cost factors. Finally, excluding providers not in the 2019 study and freezing rates for some high-rate providers creates distributional winners and losers that may produce service disruptions if transitions are not smoothed.
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