State Innovations in Child Welfare Financing. Tennessee: Continuum of Care


Like many other states in the late eighties, Tennessee experienced a surge in the number of children entering care. This large influx of children eventually overburdened the foster care system and the state budget for children’s services. In response to the state legislature’s concerns about the quality of care that children were receiving and the escalating costs of providing services for the growing number of children entering care, a series of reform efforts were initiated to both reduce costs and improve care. Of those reform efforts, Tennessee’s Continuum of Care (CoC) has been one of the most successful. Currently, the state has 40 CoC contracts with private providers who serve 4,400 (38 percent) of the 11,500 children in the state’s custody.

CoC targets children who have serious emotional and behavioral problems or problems that are more moderate but disruptive to family functioning and school life. Prior to the implementation of CoC in 1995, children with these problems were placed in residential treatment and often remained in those facilities until they were discharged from state custody. The intent of CoC is to divert children from placement in residential facilities or to step them down to non-residential settings with services as quickly as possible. In order to accomplish this goal, under the new CoC system, private agencies that were previously reimbursed only for residential care can use funds flexibly to provide a variety of services in a range of treatment settings including residential facilities, therapeutic foster homes, regular foster care, and the child’s home of origin.

CoC provider’s reimbursement rate is no longer determined by where services are delivered, but rather the level of care that the child needs. Thus, private agencies with CoC contracts are reimbursed a per diem rate based on the level of care that the state determines is needed when a child first enters care irrespective of the placement setting. CoC uses a staggered reimbursement structure in which a provider delivering services to children with greater needs are reimbursed at a higher rate. Once a reimbursement rate is established for a particular child, CoC providers continue to receive that rate regardless of the setting where services are delivered. Hence, although the CoC maintains a per diem rate system rather than shifting to a case rate as is common to other managed care arrangements, flexible use of the per diem rate provides a financial incentive to deliver services in the least costly setting. Providers receive the established per diem reimbursement until the child is either discharged from care or the annual maximum reimbursement that is stipulated in the contract is reached.

CoC contracts include provisions that are intended to ensure provider accountability. To prevent providers from avoiding more difficult and costly cases and to encourage the timely discharge of children from the most expensive care settings, providers are limited to a maximum number of rejected referrals and are required to accept a minimum number of admissions each month. Furthermore, to discourage providers from prematurely discharging children to lower levels of care, CoC contracts stipulate that 80 percent of children be successfully maintained in their own home or other family home for nine months after discharge.

In addition to using funds more flexibly, CoC providers also have greater responsibility for case decisions. Although the public agency retains responsibility for protective investigations, initial removals, and recommendations to the court for adjudication into foster care, once a child is referred to CoC, the private provider has primary responsibility for planning and delivering all services. The role of the public agency caseworker is limited to the approval of case plans, goal changes, reunification, case closure, preparation of court documents, and oversight of provider performance.

The state has put in place several mechanisms to monitor CoC providers. All providers are licensed by the state and their licenses are subject to annual review. State caseworkers monitor CoC contracts and conduct quarterly physical plant evaluations. To monitor provider performance, the state requires providers to submit monthly statistical reports. These reports include the number of children entering and exiting the provider’s care, the number of children returned to their own home or placed in another family home, the number of children who remain in a family home for nine months, as well as the number of placements that disrupt. The state also conducts an annual financial and program audit of 30 percent of contracted providers.

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