State Innovations in Child Welfare Financing. Chapter 3: Financial Arrangements of the Initiatives


The states' fiscal reform initiatives incorporate a variety of approaches to address accountability concerns, enhance financial flexibility, and achieve better performance. Financial arrangements--payment mechanisms, risk sharing, and risk management--attempted to redirect resources, encourage comprehensive services, and serve more children and families with the same funding levels as under the previous financial arrangements. The initiatives varied in the extent to which financial risk was transferred to private organizations, but most hoped to achieve better outcomes or cost savings through relying on contractors for much of the work that once was the responsibility of public agencies. In general, it is not yet known whether better outcomes were actually achieved by the initiatives. Cost savings were rare. Several initiatives provided financial rewards for contractors that achieved outcome standards or improved their performance and imposed penalties for contractors that did not.

Some initiatives reported concerns about potential or actual conflicts between fiscal and treatment considerations. Indeed, nearly all initiatives had or were working toward mechanisms for monitoring contractor performance and outcomes to prevent decisions that reduced costs by reducing treatment effectiveness. Many emphasized the importance of balancing the pressure to reduce costs, or to do more with the same amount of money, with an emphasis on improving child and family outcomes. As one state child welfare administrator said: “Privatization is a double-edged sword. We must never lose sight of our mission--to protect kids, not to save money.”

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