Aligning Healthcare Professional Fees with Licensing Costs

The Department of Health licenses more than 400,000 healthcare professionals, and sets fees for more than 80 separate licenses within 44 professions. To become licensed, a healthcare professional must: submit an application to DOH, pass background checks and examination requirements, and pay a licensing fee to DOH.

State law directs that each profession cover its own costs through these licensing fees. It also requires that these licensing fees only be used to cover the costs for that profession’s licensing and disciplinary activities. Licensing and disciplinary activities include things like:

• Conducting background checks
• Setting standards of practice
• Investigating complaints to protect public safety

In addition, government guidance on user fees says that the fees charged should reflect only those costs that benefit the users.

We found that DOH manages the Health Professions Account differently than many health professionals thought. Because DOH tracks and reports each profession’s finances separately, the professions believed their revenues were earmarked for their specific use. In other words, DOH pays each profession’s expenses from funds available for that profession, and holds any reserves remaining in the account for that profession’s future use.

In reality, once each profession’s revenue is deposited into the Health Professions Account, DOH treats account funds as a lump sum. The agency pays expenses for each profession regardless of whether it has sufficient funds of its own.

As a result, the expenses of professions whose revenues do not cover their own costs are still paid. And the reserves in the account that were accumulated by only some professions are used to pay the expenses for other professions.

But managing the account in this way does not follow state law. The law requires each profession cover its own costs. We made recommendations to change the way DOH manages the account.

During the last two fiscal years, the reserve balance in the Health Professions Account dropped by $16 million. While 31 professions have accumulated more than $30 million in reserves, fees for 13 professions have not covered their costs. As a result,  the Health Professions Account only has $9.3 million in reserves to protect all 44 professions. This amount would cover less than two months of expenditures for the professions. This is much lower than DOH’s desired level of five months of reserves.

This low balance creates risk for individual professions if the reserves they have accumulated are not available to cover unexpected costs. Furthermore, it creates risk for all professions if the reserves for the overall account become too low to cover the operating costs for necessary activities.

When we compared each profession’s fee revenues to its costs, we found only 10 professions had fee revenues sufficient to cover their costs and provide reasonable reserves. The remaining 77 percent of professions had fees that were either too high or too low.

• 20 professions had accumulated reserves significantly higher than the target amounts established by DOH, indicating they need a fee decrease.
• 14 professions have licensing fees set too low to cover their costs. These professions have significant reserve deficits and require a fee increase.

Contrary to state law, professions that have not been able to cover their costs have been supported by revenues from other professions.

In order to address the differences the audit found, it would likely be helpful if DOH conducted more reviews and adjustments.

Many stakeholders have raised concerns that increasing licensing fees to needed levels could limit the supply of certain professionals in critical healthcare fields. DOH gave us two examples of factors that could influence its fee decisions:

• Home care aides, which has a large negative reserve, is a high-demand profession. However, these workers earn low wages. Keeping licensing fees affordable is key to maintaining this workforce.
• Chemical dependency counselors are critical for responding to the opioid crisis. Stakeholders told DOH that if licensing fees become too high, professionals may switch to other mental health professions.

Given these concerns, DOH did not make the fee increases needed to fully cover costs for these professions.

While state law allows DOH to waive fees in situations related to public safety, the law does not provide a funding mechanism to replace lost revenues. Currently, only midwives have received support from the state’s general fund to cover a portion of their costs. However, even with general fund support, this profession does not fully cover its costs.

The way in which the Legislature appropriates expenditures and monitors reserves at the Health Professions Account level also affects fee decisions. This process masks how one profession’s reserves offset another’s costs.

The audit’s review focused on direct costs allocated to the professions but which they do not specifically budget for or control. These costs relate to operating the DOH service units all professions use, like credentialing and the call center. The audit found that all of these direct costs did in fact benefit the professions and had reasonable allocation methods to reflect that benefit.

Stakeholders were also concerned about indirect costs for two reasons. First, because they add more than 20 percent to the professions’ total costs, and second, the professions do not control this spending.

The audit found the majority of the indirect costs were appropriate, although four costs did not clearly benefit the licensing and disciplinary activities of all professions. However, these costs accounted for less than $1 million of the $123 million in total costs charged to the professions.

We recommend the Legislature consider:

• Appropriating at the profession level instead of the account level to prevent one profession from spending another’s reserves
• Alternative funding for professions that do not fully cover costs but would see a critical loss of needed professionals if fees were increased
• Finding alternative funding for ongoing costs of the medical marijuana authorization database

We recommend DOH:

• Review and adjust fees often enough to ensure they fully cover costs, provide sufficient reserves, and do so for each profession alone
• Publish the financial status of every profession
• Establish consistent fee-setting processes
• Require by policy that licensing programs are not charged for costs that do not benefit them
• Use only allowable revenue sources to pay for costs that do not benefit professions’ licensing functions