The provision of child welfare services has undergone significant changes during the 1990s. Some of the most important changes include a renewed focus on the rapid achievement of permanency goals for children, a large increase in the number of children in foster care, the continuing shift of responsibility for direct care to private agencies (both nonprofit and for-profit), the development of management information systems to monitor case progress more carefully, and the use of financial incentives to direct services toward desired goals. State child welfare systems have responded to these new circumstances in different ways and to varying degrees.
Generally, the provision of child welfare services is a partnership between government and private providers of service. Although states vary considerably in the division of responsibility, most states and localities contract with private nonprofit or for-profit organizations for the provision of at least some services to children and families. Until recently, these contracts were largely fee-for-service arrangements, in which the provider was paid by the state or county for delivering specific services.
This report describes the implementation by states of fiscal reforms in child welfare that replace traditional fee-for-service payment arrangements.1 It also identifies issues that implementation of fiscal reforms faces and describes how well fiscal reforms are working. Many of these reforms, such as capitated rates, are based on the managed care model that has been used in medicine for the past 30 years. However, some reforms reflect other approaches, such as the privatization of services and performance contracting. Some states, perhaps most notably Kansas, have transformed their entire systems along these lines. Most states have chosen to implement fiscal reforms on a smaller scale, targeting specific populations or programs.
Emergence of Managed Care in Child Welfare
The fiscal reforms described in this report are all directed at changing the relationship between public child welfare authorities (states or counties) and private agencies by altering the financial arrangements between them. The intent is to influence the behavior of those private agencies. Although not all are managed care reforms, most have incorporated managed care strategies at least to some extent.
Managed Care Assumptions
Because managed care practices were developed in the medical field, they require some adaptation to be applied to child welfare. Whether managed care can be adapted sufficiently to operate effectively in the child welfare arena depends on the following assumptions:
- Economic incentives are important determinants of service provision in child welfare. Increased expenditures in child welfare may be the result of perverse economic incentives. Private agencies can and should share some of the financial risk of increased foster care costs with state agencies.
- Decisionmaking in child welfare is sufficiently sophisticated that the appropriate course of action can be determined in most cases.
- It is possible to set rates of payment for services under managed care arrangements that will allow a well-managed agency to cover its costs. This implies that reasonable predictions of costs are possible.
- Prevention of placement is possible but often requires the availability of other supports and services.
- Services offered by community-based organizations are more effective than more traditional services. The task for contractors or other case managers is to develop and manage flexible provider networks within the client’s neighborhood and social networks.
How each of these assumptions plays out in child welfare is considered next.
Limitations of Managed Care
As the field has matured, the American public has become increasingly critical of many aspects of medical managed care, such as the requirements by insurance companies that providers obtain authorization before ordering a variety of procedures and tests (sometimes denying the requested care) and mechanisms that limit the freedom of patients to choose providers. (Public demands have led both houses of Congress to pass Patient's Bills of Rights.) The results of the widespread implementation of managed medical care have been ambiguous, and it can be reasonably said that the jury is still out. It is not evident that medical managed care has saved money. And everyone agrees it has not led to increased health care coverage for the uninsured. Many people have, however, argued that it has spawned its own kind of abuses and conundrums. What remains to develop is a consensus on whether the abuses and conundrums under the old system are qualitatively and quantitatively worse than those observed under the new system (Hurley, 1998). Described as “neither poison nor panacea” commentator Robert Hurley states, “A balanced summary judgement would be difficult, but it can be safely asserted that in general the experience has been better than its critics would acknowledge but less beneficial than apologists would contend.”
In child welfare, in spite of the impetus of rising costs, many factors have contributed to the states’ reluctance to jump aboard the managed care bandwagon. First, a diverse set of federal and state initiatives throughout the 1990s competed with managed care, the Adoption and Safe Families Act (ASFA)4 clearly being the most important of these. While ASFA helped promote fiscal reform efforts in numerous states, the array of family preservation, reunification, and adoption-oriented initiatives it encouraged often competed with fiscal reforms for limited management resources. Second, state agencies have less leeway regarding protecting vulnerable children than third-party payers have in providing medical care. Most crucially, the ultimate decisionmaking authority in most cases remains with the courts rather than with the state agency, limiting the ability to make definitive case plans.
Methods for the Report
Information for this report was gathered through reviews of existing documentation about fiscal reforms in the states, including materials produced by the states themselves, results of research by other organizations such as the Child Welfare League of America, evaluation reports by independent evaluators, and conference presentations on the reforms made by state officials as well as their consultants and evaluators. Most of the existing materials used had been published during the period 1999 through 2002. From August 2000 through November 2001, states were contacted to fill in gaps in the publicly available information about their particular initiatives. At that time, officials were invited to verify the accuracy of the information that had been gathered from other sources.
Information was available about a considerable range of changes in the relationships between states and private agencies. In order to focus the report, the universe of interest was defined as those efforts that involved changes in financial arrangements between the state (or county) and private contractors5 designed to affect the behavior of the private organizations. The programs described below do not include or represent every such initiative across the United States because some initiatives were excluded due to time and space limitations. The programs do constitute the majority of such efforts.
The following chapters describe the fiscal reforms, identify issues that were encountered in implementation, and specify what is known about how well they are working. The descriptive information (Chapter 2) covers the scope of these programs and their target populations, their objectives, and their organizational models. Chapter 3 discusses in detail their financial arrangements, with particular attention to issues of risk. Finally, the conclusion (Chapter 4) discusses some of the ongoing challenges in implementing fiscal reforms in child welfare that may be of particular interest to federal policymakers and identifies how those challenges have been addressed by the initiatives. Individual summaries of each initiative are presented in the appendix.
1 The examination of this subject was aided considerably by a previous survey of such programs: McCullough and Schmitt, 1999.
2 Title IV-E foster care appropriations in FY2002 were $5.06 billion, while the title IV-B appropriations were $597 million ($292 million for Subpart 1 and $375 million for Subpart 2).
3 Medicaid, on the other hand, is a federally sponsored medical coverage program aimed at low-income people, many of whom have long-term, chronic health conditions. In contrast to private health insurance, managed care concepts have only very recently been applied to the Medicaid program. Part of the reason for this is that managed care has had limited success in controlling costs when applied to the chronic conditions that plague much of the Medicaid population.
4 ASFA, passed in 1997, sought to achieve outcome goals in seven areas: reduce the recurrence of child abuse and/or neglect; reduce the incidence of child abuse and neglect in foster care; increase permanency for children in foster care; reduce time in foster care to reunification without increasing reentry to foster care; reduce time in foster care to adoption; increase placement stability; and reduce placement of young children in group homes or institutions (U.S. DHHS, 1999).
5 In this report, “contractor” is meant broadly, to cover any private nonprofit or for-profit organization that has a contract with the state to deliver services or manage networks of providers. It can refer to a lead agency or a managed care organization as well as a direct service provider. In some initiatives, the organization assuming financial risk may provide no services directly but contract out for them. The organization may receive a capitated rate, case rate, or block grant, then pay service providers fee-for-service or per diems; thus, the service providers themselves assume no risk. In other initiatives, risk is transferred to service providers.