Recent fiscal reform initiatives have attempted to address some of the seemingly chronic problems of the child welfare system in the United States. The purposes of this review of fiscal reforms in child welfare are to identify how states are addressing the need to contain costs or improve system performance, and to see whether the changes appeared to be positive or negative for children and families. The 23 initiatives reviewed focus on altering the financial relationships between public child welfare agencies (states or counties) and organizations with which they contract for services. The altered relationships are intended to lead to greater efficiency in the use of resources, improved services, and better outcomes for children and families.
Unlike other child welfare initiatives, these reforms are not focused on technologies of service (e.g., family preservation). They do not, in and of themselves, provide new ways to solve the problems of families. Rather, they rely on a reorganization of existing methods. Also unlike other initiatives, these efforts do not tilt the system one way or the other on the continuum of protecting children from harm vs. upholding the integrity of the family. Rather, the initiatives are overlaid upon the existing system orientation.
How widespread is the adoption of fiscal reforms in child welfare? A few years ago, it was thought that managed care was about to sweep through the system, revolutionizing the field. It is evident that the impact of these ideas has been somewhat more modest. In a Child Welfare League of America survey in 1998, it was estimated that in the 29 states with initiatives identified at that time, only about 10 percent of the nation’s child welfare population was affected.14 The scope of fiscal reform efforts varies considerably across states. In some states (e.g., Kansas), the program covers most child welfare services across the state (except for initial intake and investigation, which was retained as a responsibility of state workers in all states). In other states, programs deal with small numbers of cases in limited geographical areas. Some states continue to expand the scope of their programs while others have pulled back. Several programs include children and families in systems other than child welfare.
One finding that emerged from the review of fiscal reforms was that, despite a concern that focusing on fiscal aspects of child welfare systems will lessen the focus on children and families, that does not appear to be what happened in the states reviewed. An integral part of the initiatives seems to be a push to do things better for the children and families served, or at least not to allow things to get worse for them when money is being saved. Many of the initiatives have implemented close monitoring of outcomes, quality-assurance procedures, performance contracting, client satisfaction surveys, evaluations, and other mechanisms for helping to ensure that saving money does not become more important than helping children and families. However, if some initiatives do not live up to early expectations that they will reduce costs, or if early success creates pressure to save more money or do even more with the same amount of money, it will be important to emphasize accountability and effectiveness. Fiscal considerations must not be allowed to overshadow objectives of improved well-being of children and families.
Available evidence does not support the conclusion that the fiscal reforms have had a major direct impact on outcomes, although impressionistic and anecdotal information points to some efficiencies and improvements in permanency outcomes. However, the initiatives’ overall impact may be difficult to quantify and document. Many states experienced a “jump-start” in child welfare when they implemented their fiscal reforms; as one administrator stated, the fiscal reform “got them out of the box and encouraged them to discover creative ways to do things.” This may be the greatest effect of the fiscal reforms, and it may not influence outcomes until much later, as states experiment with innovations and make improvements over time.
Another finding was that ongoing problems in child welfare are not necessarily eliminated by changes in fiscal relationships. In fact, the fiscal reforms may even highlight or exacerbate these problems, some of which are discussed later in this chapter. An example is in establishing rates and incentives (further discussed below); a state must clearly identify what it wants to buy and what is needed to buy it. Although the child welfare outcomes of safety, permanency, and well-being are often the goals, there is little agreement on specific outcomes. For example, does a state want to buy basic safety or does it want to achieve improvement in longstanding situations? The answer will greatly affect the design and costs of services.
At any rate, it appears that fiscal reforms are likely to be part of child welfare’s future, as agencies strive to improve child and family outcomes and reduce inefficiencies in the face of escalating costs. As fiscal strategies are adopted, there are many challenges to address; some of the major ones (discussed below) include the following:
- structuring risks and rewards;
- gaining flexibility;
- obtaining data;
- maintaining accountability and effectiveness; and
- changing people and organizations.
Since it seems that fiscal strategies are here to stay, at least in the foreseeable future, these issues need further consideration at both program and policy levels if the initiatives are to have a positive impact.
Structuring Risks and Rewards
How much should states pay for services? How should costs be apportioned?
The success of a fiscal reform initiative in a child welfare system depends to a great extent on the effective structuring of risks and rewards. The issues are both practical and philosophical. The practical issue involves establishing adequate rates and incentives for contractors and service providers: if the rates and incentives are inadequate, or if the risks and penalties are too severe, services will be inadequate or will not be available at all. Of course, the intent of most of the initiatives is to reduce inefficiencies, so the rates and incentives must not be set too high or they will not exert the necessary pressure to squeeze out excesses or increase efficiencies. The philosophical issue addresses the question of who should bear the responsibility for child welfare services: some fiscal reforms incorporate the expectation (or experience the result) that part of child welfare services is supported by sources outside the public child welfare system. Obviously, practical and philosophical issues are intertwined; setting inadequate payment rates can lead to incentives to shift costs to other systems such as mental health, juvenile justice, or special education systems. Here the issues are separated for the purposes of discussion.
Establishing realistic and adequate rates and incentives for contractors and service providers requires the ability to project utilization and risk. Medical managed care has actuarial and health care utilization data to use in pricing services; child welfare has no such database and no proven formula to use in projecting the costs of serving children and families. In addition, the pricing of child welfare reforms can be restricted by the categorical nature of much child welfare funding, which may preclude certain services, prevent collaborative arrangements, and create cash-flow problems for states due to retrospective payment methods.15
In setting payment rates and incentives under their initiatives, states generally relied on historical data on the costs of providing services for the targeted population in the covered geographic area. However, this often proved inadequate in projecting future costs. For example, the rate paid under the Baltimore managed care pilot was based on 3 years of historical data; however, the data were misleading because (1) twice as many children in the initiative needed therapeutic care as children in the historical data, and (2) the contractor was required to provide some services that were not in the historical data (including an intermediate level of care). Thus the actual caseload has required more expensive services than were predicted by the historical data.
A related issue is that states must balance the goal of limiting costs with the need for establishing and maintaining a stable and responsive provider community. In many communities, states must build provider capacity to address the full spectrum of needed services or serve the entire range of targeted children or families before a fiscal reform can be successful. And clearly it will not help states achieve their goals if the provider network fluctuates widely over time in the number of providers and their ability to deliver effective services. Although the adequacy of the provider community is influenced by many factors, payment rates are central. Rates must reflect both the actual costs of providing services and the investment required to support an effective provider community. In Florida, for instance, the legislature’s requirement that child welfare be privatized statewide has presented the challenge of building local provider capacity to take on complex child welfare responsibilities.
States found ways to address the rate-setting challenge. Recognizing that historical data may not produce realistic current rates, many initiatives limit the costs that contractors have to cover beyond a threshold (through risk sharing, risk corridors, and risk pools), or limit or exclude children likely to require extremely high levels of services. This can help maintain contractors’ fiscal viability and a stable provider community, but may result in higher costs to the state or in children or families not receiving needed services. Sometimes funding levels are sufficient to achieve safety and permanency at a minimal level, but true rehabilitation or long-term turnaround of chronic situations would require a much higher rate.
Several initiatives adjusted the rates or payment model after a period of operation, to re-align the rates with actual cost experience. Kansas, for example, changed from a case rate model to a capited per/child, per/month rate for foster care and adoption contracts, when contractors experienced fiscal difficulties under the case rate system. The state realized that achieving timely permanency was influenced by many factors beyond the contractors’ control.
Other states assume that the rates paid under the initiatives will not cover the costs of services and that contractors will make other provisions. This brings the discussion to the philosophical issue concerning responsibility for child welfare costs. In some of these states, contractors are expected to obtain funding from other sources to cover shortfalls; these sources include federal funding streams (especially TANF and Medicaid) and grants from foundations and philanthropic organizations. The demands placed by time-consuming fundraising activities or complex reporting requirements of other funding sources can greatly affect contractors’ operations (and were a factor in the demise of the initiative in Texas), while expecting a contractor to cover larger shortfalls than anticipated may force the contractor out of the initiative (as in Washington).
Some initiatives (such as the one in Massachusetts) incorporate expectations that community resources and natural supports will be utilized extensively. Whether these expectations can be met depends on high-quality resources being available. Although in the United States there is a long history of private-sector and community support for child welfare activities, the actual availability and amounts of contributions vary considerably across states and localities. Some reformers argue that communities ought to take responsibility for the welfare of their children, but there remains the question regarding whether this responsibility ought to reside in the state or in local communities.
It appears that, until adequate historical data and cost formulas are available, states will need to incorporate some flexibility in their initiatives. This includes risk sharing arrangements and mechanisms for adjusting rates periodically. States will have to address individually the philosophical question regarding responsibility for child welfare, although it is an issue that also should be addressed nationally.
How can states do things differently to obtain better results?
Some believe that there are major constraints with current federal title IV-E funding that make it difficult for states to experiment with innovative reforms and achieve better outcomes or improved system functioning. For example, title IV-E is limited in terms of what it will cover; it reimburses for out-of-home care and not for prevention or wraparound services that may eliminate the need for costly out-of-home care. It also reimburses only for services already delivered, which can create cash-flow problems for states that want to try prospective payment mechanisms. The results are a fiscal incentive to place children in foster care and keep them there in order to have a steady federal funding stream and little incentive to put resources into supporting families to keep children at home or “stepping down” children into less intensive (and lower reimbursed) levels of care, when necessary supports would not be reimbursed.
Most of the initiatives found ways to incorporate flexibility in the use of resources. One way to both avoid categorical funding restrictions and increase available funds is to pool or integrate funding from several public agencies and finance the initiative through this more flexible and comprehensive mechanism. Reflecting the networking and collaborative activity seen at the provider level over the past several years, collaboration at the funding level can result in an integrated system of care that addresses a full array of child and family needs. Service integration is not a new approach to providing services to families – it has been around for a while – but many of the fiscal reform initiatives re-energized the concept. This type of collaboration requires clear role definition and the development of trust, which takes considerable time and effort, but the result can be new levels of responsiveness to complex needs, an increased flexibility to focus on outcomes, and broader cooperation and enhanced relationships across agencies generally. As one program administrator described the integrated funding initiative in his state, “this is the wave of the future—the way child welfare should be run.”
Colorado’s initiative in Boulder County, for example, established a new entity that institutionalizes interagency partnerships and integrates county funding from mental health, corrections, social services, public health, substance abuse services, and other community services. This allows the interagency treatment planning team to reduce duplication and provide a variety of flexible wraparound and in-home services. Minnesota’s collaborative initiatives allow the integration of funding from two state departments (human services and education) to provide services for children prenatally through age 21. And Missouri’s Interdepartmental Initiative for Children with Severe Needs integrates funding from state social services, mental health, health, and education departments to support comprehensive, unified care for children likely to need services funded by multiple state agencies.
Another way to avoid categorical funding restrictions is to obtain a title IV-E waiver, in which the federal government waives certain restrictions and allows a broader and more flexible use of federal funds. The purpose is to test innovative strategies (including but not limited to managed care initiatives). However, waivers have their own set of restrictions, including a government preference for an experimental design (control group and random assignment), a requirement for an independent evaluation, and a limited authorization period (at the end of the waiver period, states have to revert to their previous way of operating their system unless they receive extensions). These restrictions have discouraged some states from developing initiatives that would allow funding flexibility, or at least discouraged them from operating such initiatives under a waiver.
Florida, for example, was granted a IV-E waiver for its privatization initiatives; however, the state decided to proceed with privatization without implementing the waiver, due at least in part to the stringent evaluation requirements (Florida Department of Children and Families, 2001). Washington’s waiver initiative has ceased operation, and one factor in its demise was the evaluation requirements. Texas also was granted a IV-E waiver, but by the time the waiver was granted the initiative had already been in operation for a year and some shifting in services had occurred, so that the waiver demonstration was no longer perceived as financially advantageous and the state withdrew it. Five other states currently utilize IV-E waivers as platforms for their fiscal reforms and the flexibility afforded by their initiatives (California, Connecticut, Maryland, Michigan, and Ohio).16
In general, states that did not utilize IV-E waivers for their fiscal reforms did not need waivers. Some initiatives targeted children not in foster care; e.g., Massachusetts covers 75 percent of all children and families in the child welfare system but excludes most children in care. Others tapped state or local general revenue funds and other funding streams rather than IV-E funds, such as New York City’s initiative in which the flexible dollars are funded through general operating revenue. Others operated initiatives that did not require deviation from IV-E requirements, such as Illinois’s initiative in which foster care payments are still covered by IV-E (Illinois operates three separate IV-E waivers in other child welfare reform efforts).
How will states know they’re doing better?
Inadequate data on service needs, utilization, costs, performance, and outcomes plague states’ attempts to implement child welfare fiscal reforms. Public agencies need data to design and manage their initiatives, and contractors need data to improve performance and satisfy reporting requirements. In particular, as child welfare agencies move from documenting process to measuring results, information on outcomes and performance is needed. And in order for public agencies to establish reasonable payment rates and performance standards, they must have good service, cost, and outcome data.
However, few initiatives have the necessary management information systems (MIS’s) to provide timely access to all the needed data. Although numerous initiatives relied on MIS data for contract monitoring and/or case decisionmaking, the data produced tended to be too limited and the systems too inflexible to be useful for assessing the impact of the reforms. In many cases, public agencies and contractors are working inefficiently with incompatible systems, and both have difficulty buying or developing systems that respond to their needs. Substantial investment is needed in hardware, software, and training to ensure that information technology is available and used for system improvement. To be most useful, an MIS should:
- Be performance-based and capable of tracking children, families, and providers on a timely basis;
- Incorporate the perspective of various users (e.g., able to track service utilization, costs, client status, and outcomes; handle billing and reimbursement; and provide user-driven reports);
- Link with or be part of the state’s Statewide Automated Child Welfare Information System (SACWIS)17;
- Include privacy protections for clients and families; and
- Be compatible between various government and service system entities.
Maintaining Accountability and Effectiveness
Are things getting better for children and families?
In child welfare, there appears to be an awareness that fiscal considerations should not be allowed to outweigh objectives of improved well-being of children and families; i.e., a more important goal than controlling costs is improving services for children and families. In fact, spending increased under several of the initiatives. Although data systems are rarely adequate for allowing state and local agencies to monitor results, establish performance standards, and link performance to financial incentives (see previous subsection), many states are taking steps toward establishing accountability for performance and results. However, not much is known definitively about the effects of the initiatives.
Some states have mechanisms in place to monitor their initiatives. Wisconsin, for example, tracks its initiative in Milwaukee County through extensive state monitoring and fiscal reviews that include analyses of permanency plans to ensure goals are being met. As previously noted, it will be important to maintain the focus on child and family well-being as fiscal reforms continue to try to improve efficiency and system performance.
Most of the initiatives track at least some measures covering established child welfare outcomes (i.e., safety, permanency, and well-being). The way those outcomes are measured depends on the specific initiative’s objectives and target population. For example, Georgia’s Project MATCH’s standards are that 40 percent of the children will improve their functioning and be discharged to a less restrictive placement setting, and a 20-percent reduction will occur in the frequency with which children harm others. A few states have established systems for linking financial rewards and penalties to outcomes. In New York, for example, the Safe and Timely Adoptions and Reunifications (STAR) program provides flexible dollars that agencies can allocate to a broad array of services to achieve timely permanency for children in placement. Agencies can obtain flexible dollars if they are able to show improvements in the length of stay for children in their care; improvement is defined as an increased discharge rate into permanent homes without a corresponding increase in re-entries and transfers to other agencies.
Although positive outcome changes have been documented in several of the states with fiscal reform initiatives, it usually is unknown whether the changes can be attributed to the fiscal reforms because the initiatives have not been rigorously evaluated. Illinois experienced a dramatic reduction in caseload, from over 51,000 to less than 30,000 in 3 years, after implementing the Foster Care Performance Contracting initiative. Milwaukee County, Wisconsin, has begun to see shorter placements for new families and some cost savings. However, these trends have not yet been documented or analyzed by an evaluation, and isolating the impact of each initiative is difficult, especially in places where multiple initiatives are operating.
Where initiatives have been evaluated, findings are mixed regarding outcomes. These initiatives include:
- Arizona’s Family Builders Program, where an evaluation showed that the initiative did not increase children’s safety in their homes overall, although families who accepted services experienced a slight but statistically significant decrease in the risk for child abuse and neglect (Arizona Office of the Auditor General, 2000);
- Colorado’s Boulder County initiative, where evaluation findings show that managed care has not yet had a discernable effect on outcomes for children and families (Mercer, 2000);
- Florida’s Community-Based Care initiative, where early evaluation findings show that initiative counties did at least as well as the comparison counties on the outcome indicators and they spent fewer dollars on direct child welfare services (Paulson et al., 2002); and
- Kansas’s privatization initiative, where the evaluation has found that most of the state’s performance standards have been achieved by the contractors, with the notable exceptions of (1) rates of re-entry into care within 12 months of reunification, and (2) permanent placement within 6 months of referral, where performance has been consistently below standards (James Bell Associates, 2001).
Several other initiatives have evaluations currently under way, and more will be known about the effects of fiscal reforms when those evaluations are concluded. Fully ensuring accountability for outcomes and attributing outcomes to fiscal reforms requires rigorous evaluation. However, performance assessment (carefully defining and consistently tracking specific outcomes and performance indicators) or performance contracting (tying performance on outcomes to financial rewards and penalties) can serve as an interim step on the way to evaluation or as a way to monitor overall trends in outcomes. Fundamentally, it is essential to stress that fiscal considerations, and attention to proximate system performance indicators, not be allowed to overshadow objectives of improved well-being of children and families. Quality-control mechanisms that ensure continual attention to those objectives must be enforced.
Changing People and Organizations
How do states get there from here?
The fiscal reform initiatives described here often required complex system changes and resolution of major interorganizational issues. Reforming the fiscal structure does not automatically bring about changes in performance, efficiency, or cost. Those require fundamental changes in both people and organizations. When reforms are implemented, many forces are put into play, not all of which are under the control of policymakers. Organizations and individuals often seek adaptations to altered structures that result in minimizing changes. They seek to regain the previous equilibrium and revert to doing what they are accustomed to rather than really creating change. Success depends on the receptiveness and capacity of organizations and people to make the desired changes.
Privatization, team decisionmaking, outcome measurement, and organizational collaboration were the primary changes incorporated into the 23 initiatives. Each requires complicated change processes as relationships, roles, and responsibilities evolve. This process includes the following:
- Shifting service delivery from public agencies to private contractors requires that (1) public agency staff switch their role from delivering services to monitoring service delivery and (2) provider staff change their service delivery, funding mechanisms, and reporting requirements. Often different sets of staff skills are required, and retention may become a problem as staff decide that the change process is too difficult and move on to other jobs.
- Implementing collaborative or team decisionmaking about cases takes the responsibility away from individual caseworkers, who often are then expected to take on responsibility for case management and provider monitoring. Again, a different set of staff skills is required and a different “culture” for case decisionmaking is created. Sometimes staff turnover is required in order to bring in new staff who support the innovations.
- Switching from a system that measures processes and outputs to one that emphasizes outcomes represents a paradigm shift. It requires letting go of a preoccupation with prescribed processes and moving to a focus on achieving desired outcomes and results. It often requires changes in priorities and business procedures, including major redesigns of data collection systems. Initiatives that feature performance contracting in which payments are tied to outcomes most explicitly require this shift, but other types of initiatives also monitored outcomes and had expectations for performance and results. Although for several years a focus on outcomes has been expected(18), the actual operationalization has been inconsistent and is still in process.
- Bringing together a range of participating organizations to design and implement an initiative requires clear communication channels and mechanisms for negotiating disputes. Depending on the range of stakeholders involved in the initiative, there may be major philosophical differences to be resolved. This process can take a long time and require extensive negotiation. Collaboration is popular in social services today; it is thought to help in making the best use of available resources, leveraging an agency’s resources, and expanding the range of organizations concerned with child welfare--and working together is valued as a good thing to do. However, all parties must perceive benefits, give up some autonomy, and be willing to invest time and energy.
Community Ownership Paves the Way in Florida
Florida is implementing Community-Based Care (CBC) privatization initiatives throughout the state using a lead agency model to provide child welfare services. The Coalition for Children and Families in Sarasota County was the first to implement the model. A major goal was to build community ownership of child welfare services by having the community, rather than the state, decide what should be done. The Coalition’s belief that families have more trust in services that are provided by community agencies is bringing positive results: nearly 400 citizens, business people, and volunteers across Sarasota County are involved in a community coalition that seeks solutions to child maltreatment. Achieving such extensive involvement was a major challenge — dealing with multiple agendas and stakeholders required ongoing negotiation, mutual respect, and strong leadership at every level.
State and federal involvement can support the necessary change processes by providing training and technical assistance, disseminating written products, allowing sufficient start-up funds (including funds for MIS development and implementation), adopting realistic implementation schedules, and convening forums to discuss emerging issues and needed policy decisions. This support will help the child welfare system of the future evolve in ways that correct current inadequacies and benefit children and families.
14 CWLA has updated its data through a survey in 2000 (McCullough and Schmitt, 2001). That study identified 39 initiatives in 25 states. CWLA did not estimate the national scope of initiatives in 2000.
15 States receive reimbursement for the federal share of costs only after the delivery of services. Federal title IV-E funding, which finances most foster care, cannot be used for in-home or prevention services; when a child returns home, federal reimbursement for foster care costs ceases even if the child and family continue receiving in-home services. Title IV-B, the primary federal child welfare funding source for in-home interventions, is capped, and the amount available is limited.
16 Several other states also operate IV-E waivers, but the fiscal reforms reviewed in this report were not based on those waivers.
17 A recent GAO study (U.S. GAO, 2000) showed that none of the 12 initiatives contacted were using their SACWIS to manage information on clients, services, or outcomes, although some states hoped to eventually either link their initiatives’ data with SACWIS or incorporate SACWIS into their initiatives.
18 An outcomes focus for federal agencies has been required since the passage of the Government Performance and Results Act of 1993 (GPRA), which forced a shift away from traditional concerns such as staffing and activity levels and toward the single overriding issue of results.