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Lawrence, KS 66046
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LPA Again Recognizes Conflict of Interest Problem

by: Stephanie Wilson

The Kansas Division of Legislative Post Audit recently completed an audit on the Community Developmental Disability Organizations. The audit revealed interesting findings, and proposed important recommendations for the improvement of the current system. The audit was presented to and approved by the legislative committee on post audit, and has also been presented to the legislative budget committee.

Most notably, the audit concluded that the structure of the current developmental disability service system creates an inherent conflict of interest for CDDOs that also provide services. The audit points out that conflict of interest issues can arise in the areas of client referrals, contract terms, funding distribution, and quality assurance. The key recommendation within the audit is to eliminate the conflict of interest through the creation of independent CDDOs.

The legislative committee on post audit voted to send the audit to several other key legislative committees for their review. The legislative budget committee heard a review of the audit and testimony from stakeholders on Nov. 18. Senate President, David Kerr, pointed out that a 1999 Legislative Post Audit on the CDDO system included the same key recommendation that CDDOs be separate from service provision. Senator Kerr asked SRS representative, Margaret Zillinger what the agency's current position is on this recommendation. Although SRS Secretary Janet Schalansky has publicly testified that SRS supports CDDO separation, Ms. Zillinger would not commit to this position.

The negative outcomes of the conflict of interest are becoming more and more apparent. For example, CDDOs are able to negotiate Medicaid funding rates and distribution methodologies within their contract with SRS, while their other affiliate service providers cannot. As a result, the audit found that in fiscal year 2003, when SRS allowed CDDOs to decide locally how to distribute $8 million in new federal funds, the CDDOs developed distribution methods that were more favorable to them. In fact, the percentage of funds distributed based upon number of clients served, and their level of severity, decreased from 91% in fiscal year 2002 to 22% in fiscal year 2003 when SRS left the distribution methodology up to the CDDOs.

The audit also revealed that of the total $19.2 million state and local discretionary funds available to CDDOs, only $5.2 million was shared with affiliate providers. The percentage of discretionary funds shared has increased from 21.4% to 27.6% over the past three years. However approximately $1 million of the additional $1.2 million increase in shared discretionary funds came from two CDDOs that no longer provide direct services. Wyandotte CDDO in particular did not share any of its $743,516 discretionary funds prior to separation, and now shares over 70% of the discretionary funds it receives.

Regarding client referrals, although 76% of consumers and families surveyed through the audit process indicated that they were informed of all available service providers, 20% res-ponded that they don't know. The audit also found that, on an overall basis, CDDOs serve clients with less significant disabilities than their service provider affiliates, both by tier level, and potentially within each tier level. The audit points out that if CDDOs serve less disabled persons within each tier, they can financially benefit.

Another significant example of the outcome of conflict of interest is the current lawsuit in Barton County. As the audit indicates, one community service provider in Barton County has filed a suit against the CDDO on allegations related to the conflict of interest. The federal judge in the case has ruled that there is sufficient, credible evidence to allow the case to go to trial. The Barton County Commission voted twice over the past 2 years to create an independent CDDO, and SRS has recently approved the county's application to create a separate CDDO.

The audit found that, whether true or not, community service providers believe that they are disadvantaged when their CDDO also provides services. Providers believe the CDDO may steer clients to or away from their services, the CDDO may take unfair action against the provider through the CDDOs role in monitoring quality assurance, and that the provider is disadvantaged in the CDDO/SRS contract negotiations process. As shown in the 2001 internal SRS audit on the CDDO system, these beliefs by providers, again whether true or not, create a system that is not functional. Although adequate statutes, regulations, policies and practices may be in place to guide the system, they cannot be implemented adequately if the oversight and monitoring entities are also in direct competition with those that they oversee.

CLO has supported, since the implementation of the Developmental Disability Reform Act, the separation of CDDO functions from service pro- vision. During the upcoming legislative session, CLO will again support, with the assistance of The Alliance, legislation which requires CDDOs to be separate from the provision of services in order to eliminate the inherent conflict of interest within the system.