State Innovations in Child Welfare Financing. Managing Risk


Besides the risk-sharing provisions of their contracts, a number of other features of state initiatives enable contractors to better manage fiscal risk. Generally, initiative contractors that have some control over case referral, decisionmaking, and service planning are able to use these features to stay within their limited budgets. For instance, contractors that have authority to refuse case referrals can regulate the number of children with high-end needs that enter their programs. According to several contractors, the authority to refuse referrals has been critical to their ability to manage expenditures. In Georgia’s MAAC, for example, refusing a referral, if it appears that the child is at risk of needing high-end services, is a primary mechanism for managing financial risk because MAAC remains responsible for providing whatever level of care children need after they are accepted. MAAC is more likely to refuse high-end service users if a large number of children already in its care are receiving intensive services such as residential treatment. Conversely, contractors with no-reject, no-eject contracts may receive more children with high-end needs than their fixed budgets can support. No-reject, no-eject contracts contributed to financial losses for Missouri’s contractor and the demise of Texas’ PACE initiative.

Although having some authority in the referral process may enable contractors to better manage their budgets, unless the target population is clearly identified and the state and the contractor agree on the target population, contractors may mis-target their selection of cases. For instance, Michigan is currently revising its Michigan Families contracts to clarify the target population in response to selection by contractors of lower-need families into the program instead of the high-need children that the state had intended the program to target.

The extent to which contractors have discretion over case decisionmaking, including level of care and services provided, also influences how well they can manage fixed budgets. For example, in state initiatives such as California’s Project Destiny and Tennessee’s Continuum of Care, contractor discretion over level of care and services is particularly important because payment rates are based on an average level of care, and the program objective is to reduce the level of care. In these types of initiatives, contractors typically have substantial decisionmaking discretion over both level of care and service planning. One way that contractors use their decisionmaking discretion to step children down to lower levels of care is by delivering intensive services in settings that are less expensive than residential facilities or group homes. In turn, the contractors’ ability to deliver services in alternative settings such as foster or biological parents’ homes is closely linked to flexibility in funding.

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