By Gina Macris

Many of the private agencies serving adults with developmental disabilities in Rhode Island teeter so close to the fiscal edge that they need cash advances from the state to keep their doors open from one year to the next.

“It is evident that the advance payments made by BHDDH constitute a crucial lifeline for many of the agencies,” said consultants to the state Department of Behavioral Healthcare, Developmental Disabilities and Hospitals.

A review of nearly three quarters of the state’s payments to private developmental disability service agencies showed that all but two among a representative sample of 16 large, mid-sized, and small organizations fall below a nationwide standard for financial health, the consultants said.

The consultants, working under the auspices of the New England States Consortium Systems Organization (NESCSO), were hired to expand the analytical capacity of BHDDH in reviewing the rates and payment structure for the privately-run developmental disability system.

While it is outside NESCSO’s scope to make specific recommendations, the consultants nevertheless concluded that there is a “concerning level of financial vulnerability for a substantial portion” of the private system, the backbone of state-funded developmental disability services.

The financial review represented some of the interim findings in an 18-month, $1.3 million contract between NESCSO and BHDDH that concludes at the end of June.

The report appears to be incorporated in an addendum to the BHDDH budget request for an additional $4 million in federal-state Medicaid funding beginning July 1 to help provide incentives for advancement to front-line workers by raising the salaries of supervisors, support coordinators, job developers and professionals an average of 8.2 percent. Direct care workers also would receive an additional 10 cents an hour.

The governor adopted the language of the BHDDH proposal “to provide an investment in the overall human resource infrastructure” of the provider network for adults with developmental disabilities. She nevertheless cut the $4 million request to $2.2 million. That recommendation includes $1 million in state funding and the remainder in matching federal Medicaid funds.

The raises are offset by $2.2 million in savings from caseload figures that the governor’s office says showed slower growth than BHDDH projected. The budget office projected a 1.5 percent caseload growth for the next fiscal year, or one percentage point less than BHDDH estimated.

The NESCSO fiscal report, meanwhile, said 71 percent of all BHDDH payments for privately-run services to adults with developmental disabilities went to 16 of the 39 agencies licensed to operate in the state. For the analysis, the agencies offered a total of 27 audited financial statements, some for 2018 alone and others for 2017 and 2018.

Of the 27 audit reports from those two fiscal years, 15 showed operating losses and 6 showed surpluses between 1 and 2 percent, according to NESCSO. Only 6 reports showed healthy income margins of 3 percent or more, prompting the consultants to comment on the “concerning level of vulnerability” for the system as a whole. The consultants noted that the audits covered all operations for the respective agencies and were not structured to allow a more detailed analysis of only those activities supported by BHDDH funding.

To the extent that agencies use other sources of income to subsidize developmental disability services, the providers themselves may feel that the analysis “does not fully represent the fiscal challenges of serving the I/DD (intellectual and developmental disability) population,” the consultants wrote.

The NESCO report analyzed two other indicators of financial health:

• liquidity, or the ease with which assets can be converted to cash

• solvency, or the ratio of assets to liabilities.

All but two agencies fell below the liquidity level considered healthy by the NonProfit Finance Fund, according to the consultants.

NESCSO used two measures to calculate liquidity:

• the number of months of cash on hand, with two agencies meeting the standard of three months or more

• working capital, which calculated as current assets minus current liabilities and then further refined to determine how many months of operational costs the working capital could cover. Three agencies met this standard.

The NESCSO consultants added that advance payments from the state, which show up on audits as liabilities, in effect function as sources of operating cash and working capital for the agencies. The report did not say how many agencies have received such payments, nor did BHDDH respond to a request for clarification.

The consultants’ report included a financial note they said was found in many audited statements. It reads:

“This amount represents approximately 45 days of funding for operating the residential and day programs. This amount is due to the State of Rhode Island if the company ceases operation of a residential or day program within the scope of the original advance funding agreement or if it is no longer licensed or certified to provide serves (services) to individuals with developmental disabilities. During 2017, the State of Rhode Island requested payment of these funds prior to the end of the fiscal year at which time additional funds were provided to the Company/Agency.”

Another way the state subsidizes the agencies’ operations is leasing properties to them for nominal amounts, the consultants said.

Although 17 of 27 agency audit reports showed assets that were two times greater than liabilities, the organizations are more vulnerable than those figures might indicate on their face, the consultants said, because a “critical portion” of the assets are property and equipment “intertwined in daily operations,” like group homes.

As an example, the NESCSO’s consultants cited the case of one agency, Bridges, Inc, The agency had assets that exceeded liabilities but also faced a second consecutive year of losses from operations in 2017. In that case, Bridges closed its doors in 20017 but transferred its entire business to Looking Upwards, another agency.

“That approach likely preserved capacity within the system but highlights the risk of loss of overall provider capacity,” the consultants wrote.