8 In addition, these payment mechanisms afford little flexibility in treatment; the services provided must be on the predefined list of reimbursable services. Many fiscal reforms attempted to open up the range of services through more flexible funding mechanisms.
9 Under per diem payments, providers may bear some financial risk if the services needed cost more than had been anticipated in setting the per diem, and “level-of-care” per diems are not available.
10 It is important to note that federal reimbursement under title IV-E for foster care days is viewed by many as a major impediment to implementing fiscal reforms in child welfare, due to IV-E’s categorical per diem reimbursement structure.
11 In his article “Federal Fiscal Reform in Child Welfare Services,” Wulczyn (2000) identified volume, duration, and unit cost as the three variables that both determine the total cost and financial risk of providing child welfare services. In this report, level of care (intensity) is substituted for unit cost because none of the state-provider contracts in the states interviewed were based on the unit costs of individual services. Instead, payment rates are typically based on the average cost of providing bundles of services or levels of care to specific populations.
12 The purpose of Project Destiny’s financing arrangements are not to reduce costs, but to provide quality services in the least restrictive settings at no additional cost?to spend no more on nonresidential settings than they would have on residential treatment. In the long term, administrators hope to reduce costs as a result of fewer re-entries into the system and lower use of residential treatment facilities. They see the initiative as a long-term investment.
13 In some states, there was disagreement between state administrators and contractors’ reports regarding the adequacy of payment rates. Where there were such differences, state administrators typically reported that payment adequacy was contingent on good financial management. On the other hand, although they may generally be more inclined to report that payment rates are inadequate, most contractors substantiated their claims with specific ways in which underfunding had negatively affected the management and delivery of services and the financial status of programs.