Overview of Chapter 257 of the Acts of 2008.

This section describes Chapter 257, its intended outcomes, and related activities.

Overview

The Executive Office of Health and Human Services (EOHHS), through its 16 departments,¹ is responsible for providing a variety of human and social services to eligible citizens in the Commonwealth. In addition to providing some of these services directly, EOHHS departments also purchase services through contracts with a large network of private, mostly not-for-profit, organizations.

Before Chapter 257 of the Acts of 2008 was enacted, contracts between EOHHS departments and individual service providers were usually executed using rates negotiated between the department and the provider. However, a report titled Recommendations for Reforming the Purchase of Service System, dated January 2008 and prepared by EOHHS for the Executive Office for Administration and Finance, states,

For decades there has been wide-spread acknowledgement that the following challenges complicate the management of the Purchase of Service (POS) sector and compromise the stability of provider organizations:

• POS reimbursement rates are not set with reference to market prices. . . .
• POS reimbursement rates are non-standard and often not transparent. . . .
• Multi-year contracts are not reviewed with reference to inflationary cost increases. . . .
• There is no consistent way of identifying similar services across [EOHHS’s] purchasing agencies.

To address these issues, on August 8, 2008 the Legislature enacted Chapter 257 of the Acts of 2008, establishing that pricing for social-service programs² other than special-education programs would be set by the Secretary of EOHHS. The authority to award contracts to selected providers remained with the purchasing departments, which were required to use rates developed by EOHHS to develop contract pricing.

Chapter 257 required new rates to be implemented in stages, by October 1 of each year, as follows: 10% of rates set by 2009, 40% of rates set by 2010, 70% of rates set by 2011, and 100% of rates set by 2012. Chapter 9 of the Acts of 2011 amended the deadlines to January 1, 2012 (40%); January 1, 2013 (70%); and January 1, 2014 (100%). In addition, Section 13D of Chapter 118E of the Massachusetts General Laws requires rates to be reviewed at least once every two years.

On June 30, 2014, the Massachusetts Council of Human Service Providers and some individual providers filed suit against the Secretary of EOHHS for not having met the deadlines. On January 12, 2015, the Superior Court ordered that within 90 days of the order, the Secretary of EOHHS must establish payment rates for all social-service programs covered by Section 13C of Chapter 118E of the General Laws so that the rates would be in effect for services rendered on or after July 1, 2015.

Section 13C of 118E of the General Laws states,

The secretary of the executive office shall have the responsibility for establishing rates of payment for social service programs which are reasonable and adequate to meet the costs which are incurred by efficiently and economically operated social service program providers in providing social service programs in conformity with federal and state law, regulations and quality and safety standards; provided, that the secretary may designate another governmental unit to perform such ratemaking functions. When establishing rates of payment for social service programs, the secretary of the executive office shall adjust rates to take into account factors, including, but not limited to: (i) the reasonable cost to social service program providers of any existing or new governmental mandate that has been enacted, promulgated or imposed by any governmental unit or federal governmental authority; (ii) a cost adjustment factor to reflect changes in reasonable costs of goods and services of social service programs including those attributed to inflation; and (iii) geographic differences in wages, benefits, housing and real estate costs in each metropolitan statistical area of the commonwealth and in any city or town therein where such costs are substantially higher than the average cost within that area as a whole.

On May 4, 2015, a settlement agreement was reached between certain provider groups and individual providers and EOHHS that required one-time payments in the form of cost adjustments for delayed biennial rate reviews. The agreement provided for three tiers of rates to be implemented according to the following schedule: tier 1 by July 1, 2015; tier 2 by June 30, 2016; and tier 3 by July 1, 2017. These new deadlines were met, except rates for Community Based Flexible Supports,³ which were delayed because of new federal requirements.

In fiscal year 2017, nine EOHHS departments spent more than $2.39 billion on services subject to Chapter 257, representing 11% of EOHHS’s $21 billion budget. According to the Massachusetts Management Accounting and Reporting System (MMARS), Chapter 257 program spending in fiscal year 2017 was as follows:

Department	Fiscal Year 2017 Payments	Percentage of Total Payments
Department of Mental Health	$87,665,239	3.66%
Department of Developmental Services	1,323,043,573	55.25%
Department of Public Health	167,031,981	6.98%
Department of Children and Families	426,571,859	17.82%*
Department of Youth Services	74,772,540	3.12%
Executive Office of Elder Affairs	253,252,598	10.58%
Massachusetts Commission for the Blind	12,204,692	0.51%
Massachusetts Rehabilitation Commission	39,130,025	1.63%
Department of Transitional Assistance	10,830,900	0.45%
Total	$2,394,503,407	100.00%

*    Discrepancies in totals are due to rounding.

Chapter 257 Rate-Setting

The rate-setting process for Chapter 257 is conducted every two years and includes the following processes:

• Data are extracted from the Uniform Financial Statement and Independent Auditor’s Report database maintained by the Operational Services Division for items such as revenue, expenses, full-time equivalents, and operating results for all providers associated with the specific activity codes that are under review.

• The data for each expense category are totaled for all associated providers, and a weighted average is developed.
• The data are then compared to the previous year’s model budgets.⁴ The model budget with the highest expense amount is used to develop the new rate.
• The cost allocation factor, an applied percentage increase, is determined by using forecasting data received from an economic research firm each spring and fall.
• Discussions are held with contracting agencies regarding the program services provided and the proposed rates.
• Once rates have been drafted, the rates and the information used to develop them are sent to EOHHS’s legal counsel, to the Secretary of EOHHS, and to the Commonwealth’s Secretary of Administration and Finance for review.
• Once rates are approved by the Secretary of Administration and Finance, a public hearing is held, and concerns and questions are documented and addressed in a public document.
• If necessary, rates may be adjusted based on the public hearing; otherwise, the regulations establishing the new rates are published and filed with the Office of the Secretary of the Commonwealth.

EOHHS has developed hundreds of rates that are set out in various regulations in the Code of Massachusetts Regulations. Payments pursuant to the rates encompass 172 distinct activity codes⁴ in MMARS. These activity codes and regulations are detailed in the Appendix of this report.

1.    The departments are the Department of Children and Families, the Department of Developmental Services, the Executive Office of Elder Affairs, the Department of Mental Health, the Department of Transitional Assistance, the Department of Public Health, the Department of Veterans’ Services, the Department of Youth Services, the Massachusetts Commission for the Blind, the Massachusetts Commission for the Deaf and Hard of Hearing, the Massachusetts Rehabilitation Commission, the Office of Medicaid (MassHealth), the Office for Refugees and Immigrants, the Soldiers’ Home in Chelsea, the Soldiers’ Home in Holyoke, and the Board of Registration in Medicine.

2.    Section 3 of Chapter 257 amends Chapter 118G of the Massachusetts General Laws to define “social service program” as “a social, mental health, mental retardation, habilitative, rehabilitative, substance abuse, residential care, adult or adolescent day care, vocational, employment and training, or elder service program or accommodations, purchased by a governmental unit or political subdivision of the executive office of health and human services, but excluding any program, service or accommodation that: (a) is reimbursable under a Medicaid waiver granted under section 115 of Title XI of the Social Security Act; or (b) is funded exclusively by a federal grant.”

3.    The Community Based Flexible Supports program has changed its name and is now referred to as the Adult Community Clinical Services program. The rate for this program was set on July 1, 2018.

4.    Model budgets are electronic worksheets used to analyze a variety of factors, including revenue and expense line items obtained from Uniform Financial Statement and Independent Auditor’s Report data, to determine new rates.

5.    An activity code is a number assigned by the Comptroller of the Commonwealth to a type of service or activity purchased by a department. Activity codes are used for reporting and budgeting in the Commonwealth’s accounting system, and each department may have several unique activity codes. Rates under Chapter 257 are developed for each activity code.

Date published:	May 8, 2019