State Innovations in Child Welfare Financing. Conclusion


The above description of states’ attempts to reform their payment arrangements with service contractors to achieve multiple goals such as improving services, shortening lengths of stay in foster care, and reducing foster care costs, highlights the complexities that such initiatives engender. Reform efforts generally are not limited to changes in contractor reimbursements; they also encompass a shift from categorical to flexible funding. Flexible funding, in turn, enables contractors to individualize treatment plans and deliver different types of services in non-residential treatment settings. Components of the reform efforts--fiscal arrangements, flexible use of funding, and community-based services--are tightly linked. Flexible funding allows contractors greater discretion over treatment decisions, including what and where services are provided, and fixed budgets are intended to encourage contractors to deliver less expensive services in lower cost settings whenever appropriate given the child and family’s needs. To some extent then, the greater flexibility that these new arrangements afford enable contractors to control the costs of delivering services.

A majority of contractors managed to operate within the limited budgets imposed by fixed payment rates. Many of these contractors had greater discretion over intake, discharge, and treatment and were therefore in a better position to control the types and duration of services delivered and hence the agencies’ costs. Some contractors were also able to reduce their costs by supplementing the services that were provided directly with those available from other community agencies and informal supporters.

Maintaining Incentives in Illinois

Contractors with superior performance in moving children to permanency are rewarded in Illinois, where the Foster Care Performance Contracting Initiative allows high performers to lower their caseloads, ensure their contract levels, and enhance their programs. An ongoing challenge is to devise a plan that works in both urban and rural areas: how can the best performing agencies outside of urban Cook County maintain a secure contract base with a sufficient number of referrals to replace children who move to permanency? The problem is that outside of Cook County (where there is a high ongoing demand for child welfare services), the relatively sparse population meant that cases did not roll in fast enough to keep up the numbers in the high-performing agencies, once caseload reductions were achieved through faster permanency. One solution is to give a $2,000 bonus to high performers in downstate agencies for each child over the required 33 percent moved to permanency and make a commitment to target referral to those agencies during the following year. Other options being explored include transferring cases from low to high performers at transition times such as worker assignment changes, giving top performing agencies every third referral while giving middle performing agencies every fifth referral, and establishing different rate levels.

Nevertheless, in those states where contractors incurred substantial financial losses, payment rates obviously did not cover the cost of services that contractors determined were necessary to address the needs of the populations served. In some instances, for example Texas, the discrepancy between the payment rate and the contractor’s costs may have been a consequence of mis-targeting--serving a population with a larger proportion of high-end service users than was intended. On the other hand, state administrators argue that the payment rates would have been adequate if only the contractors had made the right decisions with regard to the types and duration of services delivered. This conflict in perspectives underscores the difficulty that both state administrators and contractors often face in accurately targeting particular services and predicting case trajectories.

Finally, there is the question of whether the fiscal reforms address the alleged perverse economic incentives of the fee for service system. Overall, contractors report that they are monitoring their budgets more carefully at both the program and case levels. At the case level, contractors generally attempt to avoid more costly services and residential settings whenever possible. If permitted and other circumstances are conducive, some contractors avoid serving potentially high cost cases in order to limit their financial risk. So, as intended, the fiscal reforms do appear to have some effect on contractors’ cost consciousness.

However, the fiscal reforms may introduce their own set of perverse outcomes. In particular, over-emphasis on the cost of providing services may unduly influence contractors’ decisions regarding problem assessment and treatment at the expense of effectiveness. For instance, if budgetary concerns blur providers’ judgments, they may tend to minimize the extensiveness of families’ problems and overestimate the effectiveness of weak treatments. This is, however, a potential dynamic, not a documented one. Assessing any perverse effects that the fiscal reforms may introduce will depend on implementing ongoing systems to carefully monitor child and family outcomes. Many states have thus far been hesitant to implement such systems primarily because there is no consensus about what outcomes should be monitored, and measurement tools are still evolving.

View full report


"report.pdf" (pdf, 545.25Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®