    Child Welfare: Early Experiences Implementing a Managed Care Approach
    (Chapter Report, 10/21/98, GAO/HEHS-99-8).

    Pursuant to a congressional request, GAO reviewed the states' efforts to
    implement managed care into their child welfare systems, focusing on
    determining the: (1) extent to which public agencies are using managed
    care to provide child welfare services; (2) financial and service
    delivery arrangements being used under a managed care approach; and (3)
    challenges child welfare agencies face as they develop and implement
    managed care, and the results of such efforts to date.

    GAO noted that: (1) nationwide, public child welfare agencies have
    implemented managed care projects or initiatives in 13 states, with new
    initiatives being planned or considered in more than 20 other states;
    (2) most of the ongoing initiatives involve foster children with the
    most complex and costly service needs; (3) currently, only about 4
    percent of the nation's child welfare population is being served under
    managed care arrangements; (4) public agencies have contracted with
    experienced nonprofit, community-based providers in their service
    systems to implement managed care initiatives; (5) for-profit managed
    care companies have not had a major role in implementing managed care in
    child welfare; only a few jurisdictions are using for-profit companies
    to administer and provide child welfare services; (6) the majority of
    the ongoing child welfare managed care initiatives have established a
    capitated payment system; (7) lacking experience and uncertain about the
    feasibility of new fixed payments, some initiatives also use mechanisms
    to limit the financial risk that has been shifted to providers; (8)
    managed care initiatives require service providers to organize and
    coordinate a full array of services to ensure that appropriate and
    necessary services are available to children and their families; (9)
    most of the public agencies responsible for the initiatives have
    transferred case management functions to private entities; (10) the
    public sector, however, continues to play an active role at strategic
    points throughout the service-delivery process; (11) to ensure that
    providers' cost-controlling strategies do not jeopardize service quality
    or access to care, public agencies use various quality assurance
    techniques to hold service providers accountable for outcomes; (12) as
    more public child welfare agencies move toward managed care, public
    officials and their private contractors face several challenges; (13) as
    they develop and implement a capitated payment method, agencies need to
    find ways to maintain adequate cash flow; (14) agencies face the
    difficult tasks of developing sound management information systems; (15)
    both public and private agencies face new responsibilities as some
    traditionally public functions shift to the private sector and new roles
    emerge; (16) these changes may require these agencies to develop new
    procedures for case management and program administration and to provide
    additional training for both public and private employees; and (17)
    despite these challenges, public officials are encouraged by some
    positive, though limited, early results from managed care initiatives.

    --------------------------- Indexing Terms -----------------------------

     REPORTNUM:  HEHS-99-8
         TITLE:  Child Welfare: Early Experiences Implementing a Managed
                 Care Approach
          DATE:  10/21/98
       SUBJECT:  Foster children
                 State-administered programs
                 Health care cost control
                 Management information systems
                 Health resources utilization
                 Managed health care
                 Health services administration
    IDENTIFIER:  Medicaid Program
                 Aid to Families with Dependent Children Program
                 Statewide Automated Child Welfare Information System
                 Supplemental Security Income Program
                 Hamilton County (OH)
                 California
                 Colorado
                 Georgia
                 Maryland
                 Minnesota
                 New York
                 North Carolina
                 North Dakota
                 Ohio
                 Pennsylvania
                 Virginia
                 Wisconsin
                 Kansas
                 Massachusetts
                 Florida

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    Cover
    ================================================================ COVER

    Report to the Chairman, Subcommittee on Human Resources, Committee on
    Ways and Means, House of Representatives

    October 1998

    CHILD WELFARE - EARLY EXPERIENCES
    IMPLEMENTING A MANAGED CARE
    APPROACH

    GAO/HEHS-99-8

    Child Welfare Managed Care

    (116005)

    Abbreviations
    =============================================================== ABBREV

      ACF - Administration for Children and Families
      AFDC - Aid to Families With Dependent Children
      ASO - administrative services organization
      CPS - child protective services
      GED - general equivalency diploma
      HHS - Department of Health and Human Services
      HMO - health maintenance organization
      IMPACT - Integrated Managed Partnership for Adolescent Community
         Treatment
      MATCH - Multi-Agency Team for Children
      MCO - managed care organization
      SACWIS - Statewide Automated Child Welfare Information System
      SAMHSA - Substance Abuse and Mental Health Services Administration
      SSI - Supplemental Security Income

    Letter
    =============================================================== LETTER

    B-280259

    October 21, 1998

    The Honorable E.  Clay Shaw, Jr.
    Chairman
    Subcommittee on Human Resources
    Committee on Ways and Means
    House of Representatives

    Dear Mr.  Chairman:

    This report, prepared at your request, describes states' efforts to
    implement managed care in their child welfare systems.

    We are sending copies of this report to the Secretary of Health and
    Human Services, state child welfare directors, and selected county
    child welfare directors.  We will also make copies available to other
    interested parties upon request.

    Please contact me at (202) 512-7125 if you or your staff have any
    questions about this report.  Other GAO contacts and staff
    acknowledgments are listed in appendix IV.

    Sincerely yours,

    Mark V.  Nadel
    Associate Director
    Income Security Issues

    EXECUTIVE SUMMARY
    ============================================================ Chapter 0

       PURPOSE
    ---------------------------------------------------------- Chapter 0:1

    Faced with a decade of escalating costs and a poorly integrated
    patchwork of services, state and local child welfare agencies are
    looking to new financial and service delivery strategies to meet the
    needs of the nearly 1 million abused and neglected children in the
    child welfare system.  Managed care in child welfare, like its
    counterpart in health care, is seen as a strategy to improve access
    to care while controlling the cost of delivering services.  By
    coordinating the delivery of only those services that are necessary
    and appropriate, managed care strives to reduce the inefficiencies of
    the traditional fee-for-service system while providing quality care.
    However, unlike health care, the child welfare system legally holds
    the custodial responsibility for the safety and well-being of many of
    the nation's abused children.  Aware of recent criticisms of managed
    health care's excessive controls over access to services,
    policymakers, practitioners, and child advocates are concerned about
    the consequences if the child welfare population is underserved or
    denied needed services while providers unduly profit.

    The Chairman of the Subcommittee on Human Resources, House Committee
    on Ways and Means, asked GAO to determine the (1) extent to which
    public agencies are using managed care to provide child welfare
    services; (2) financial and service delivery arrangements being used
    under a managed care approach; and (3) challenges child welfare
    agencies face as they develop and implement managed care, and the
    results of such efforts to date.

       BACKGROUND
    ---------------------------------------------------------- Chapter 0:2

    The current child welfare system encompasses a range of programs and
    services, including child protection, family preservation and support
    services, and foster care.  States and counties administer these
    programs and services.  The services typically provided include a
    temporary home for abused or neglected children, health care,
    educational services, and other services to support families, such as
    parenting education, mental health counseling, and substance abuse
    treatment.  Many of these services are currently provided through a
    system of separate fee-for-service contracts with private providers.
    Federal funding is primarily authorized under title IV-E of the
    Social Security Act, which reimburses states for a portion of
    out-of-home care costs for those children eligible under the Aid to
    Families With Dependent Children (AFDC) program.\1 In 1996, federal
    funding for child welfare services totaled nearly $5 billion.

    With roots in the health care system, managed care has two primary
    elements.  The first is a prepaid, capitated payment system to
    control costs and discourage providers from providing unnecessary
    services.  Under capitation, the managed care plan--such as a health
    maintenance organization--is prospectively paid a preset price for a
    range of services that are delivered by an established network of
    affiliated hospitals, physicians, and other providers for a defined
    population of clients.  The managed care plan must then manage its
    resources to ensure the availability of appropriate services when the
    need arises.  This payment arrangement is a departure from that used
    by many human service programs, where providers submit bills and are
    reimbursed on the basis of the number and type of services they
    provide.  Prepaid capitation exposes the managed care plan to some
    financial risk because the cost of serving clients may exceed the
    capitated payment.  Therefore, setting an appropriate rate that
    factors in the anticipated costs of all clients' needs--including the
    needs of high-cost clients--helps build in the financial incentives
    and protections that are important for both plans and clients.  The
    second element is coordinating service needs through a single entity
    to improve clients' access to quality care.  At this single point of
    entry, the managed care plan assesses clients' needs, develops the
    treatment plans, and prescribes the appropriate services needed to
    achieve desired outcomes.  The managed care entity can provide
    services itself, manage a network of affiliated providers, or
    authorize out-of-network services to collectively make available the
    broad array of services that might be needed.

    --------------------
    \1 Although legislation passed in 1996 eliminated the AFDC program,
    children who meet the 1996 eligibility criteria for AFDC continue to
    be eligible for title IV-E assistance.  The states incur all foster
    care costs for children not eligible for federal support.

       RESULTS IN BRIEF
    ---------------------------------------------------------- Chapter 0:3

    Nationwide, public child welfare agencies have implemented managed
    care projects or initiatives in 13 states, with new initiatives being
    planned or considered in more than 20 other states.  Most of the
    ongoing initiatives involve foster children with the most complex and
    costly service needs.  However, currently, only about 4 percent of
    the nation's child welfare population is being served under managed
    care arrangements.  In general, public agencies have contracted with
    experienced nonprofit, community-based providers in their service
    systems to implement managed care initiatives.  For-profit managed
    care companies have not had a major role in implementing managed care
    in child welfare; only a few jurisdictions are using for-profit
    companies to administer and provide child welfare services.

    The majority of the ongoing child welfare managed care initiatives
    have established a capitated payment system.  Lacking experience and
    uncertain about the feasibility of new fixed payments, however, some
    initiatives also use mechanisms to limit the financial risk that has
    been shifted to providers, such as limiting contractors' losses
    should costs exceed the fixed rate.  Managed care initiatives require
    service providers to organize and coordinate a full array of services
    to ensure that appropriate and necessary services are available to
    children and their families.  In addition, most of the public
    agencies responsible for the initiatives have transferred case
    management functions to private entities--mostly nonprofit service
    providers.  The public sector, however, continues to play an active
    role at strategic points throughout the service-delivery process,
    such as determining which clients will be served under managed care.
    To ensure that providers' cost-controlling strategies do not
    jeopardize service quality or access to care, public agencies use
    various quality assurance techniques, such as performance standards
    to hold service providers accountable for outcomes.

    As more public child welfare agencies move toward managed care, the
    experience of the ongoing managed care initiatives suggests that
    public officials and their private contractors face several
    challenges.  First, as they develop and implement a capitated payment
    method, agencies need to find ways to maintain adequate cash flow.
    Cash flow can be problematic because under capitation the agencies
    pay providers prospectively but claim federal reimbursement only
    after services have been delivered.  Second, agencies face the
    difficult task of developing sound management information systems,
    which are critical to establishing an appropriate capitated payment
    rate and a performance-based monitoring system.  Finally, both public
    and private agencies face new responsibilities as some traditionally
    public functions shift to the private sector and new roles emerge.
    These changes may require these agencies to develop new procedures
    for case management and program administration and to provide
    additional training for both public and private employees.  Despite
    these challenges, public officials are encouraged by some positive,
    though limited, early results from managed care initiatives.

       PRINCIPAL FINDINGS
    ---------------------------------------------------------- Chapter 0:4

          MANAGED CARE IS A NEW AND
          GROWING STRATEGY IN CHILD
          WELFARE
    -------------------------------------------------------- Chapter 0:4.1

    The application of managed care in child welfare is a new phenomenon.
    On average, most initiatives have been operating 2 years or less.
    Public agencies have implemented one or more initiatives in 13
    states, and by the end of 1998, additional initiatives will be
    operating in four more states.  These numbers are expected to
    continue increasing, with 18 more states currently in some stage of
    planning or considering managed care initiatives.

    Most managed care initiatives are small in scale, serving targeted
    populations of children and their families in a limited number of
    locations.  In only one state and one county--Kansas and Sarasota
    County, Florida--are essentially all children and families in the
    child welfare system served under new private managed care
    arrangements.  Most initiatives also include the most difficult to
    serve and high-cost adolescents in need of group or residential care,
    with many serving this group exclusively.  In total, however, only a
    small portion of the nation's child welfare population is covered by
    managed care arrangements.  In the 13 states where initiatives are in
    place, about 44,000 children, including both in-home and out-of-home
    care clients, are served under managed care.  This represents about 8
    percent of the child welfare population in those states and 4 percent
    of the nearly 1 million children in the child welfare system
    nationwide.

    Structurally, most of the ongoing child welfare managed care
    initiatives rely solely on the public and community-based private
    providers that have traditionally served children and families in the
    child welfare system.  GAO found that the organizational arrangement
    among public and private entities involved in these initiatives falls
    into four models:

      -- The public model, used in 10 initiatives, maintains the system's
         traditional management and service-delivery structure while the
         public agency incorporates managed care elements into its own
         practices and existing contracts with service providers.  While
         payment methods to service providers and performance standards
         are new, most roles and responsibilities remain unchanged.

      -- The lead agency model relies on private entities to manage child
         welfare services and is used in 19 initiatives.  The public
         agency contracts with a private entity, which assumes new
         responsibility for coordinating and providing all necessary
         services for a defined population of children and families.  In
         this model, the lead agency provides some or all direct services
         itself, and may also subcontract with a network of local service
         providers.

      -- The administrative services organization (ASO) model privatizes
         management services, such as billing and reimbursement,
         development or operation of a data system, training, and
         technical assistance.  The public agency contracts with a
         private organization for these administrative services only.  In
         the three initiatives that have implemented this model, the
         coordination of client services and provision of direct services
         are the responsibility of a separate private entity as in the
         lead agency model.

      -- The managed care organization (MCO) model is most similar to
         managed care arrangements in health care and can be found in
         four initiatives.  The public agency contracts with a private
         organization to manage child welfare services, as in the lead
         agency model.  However, in contrast to the lead agency model,
         the MCO does not provide direct services, but arranges for the
         delivery of all necessary services by subcontracting with other
         service providers.

          MANAGED CARE INITIATIVES USE
          CAPITATED PAYMENTS AND RELY
          ON PRIVATE ENTITIES TO
          ASSUME CASE MANAGEMENT
          RESPONSIBILITIES
    -------------------------------------------------------- Chapter 0:4.2

    In most of the 27 initiatives about which GAO obtained detailed
    information, public agencies have introduced capitated payments to
    providers at a rate set either for each referred client or for a
    defined population of clients residing in a geographic area.  Nearly
    all of these public agencies have limited providers' financial risk
    by capitating only part of the provider's payment and reimbursing
    some services through the fee-for-service method, or by specifying
    contract provisions that limit the extent of providers' financial
    risk.  These provisions include limiting the contractor's losses when
    costs exceed the capitated payment or setting funds aside to cover
    unusual catastrophic costs.  In addition, while public agencies use
    various sources and methods to finance their managed care
    initiatives--including federal, state, and local dollars as well as
    pooled funds from various human service agencies--contractors are
    often expected to supplement the contract rate with funds from other
    sources.

    Managed care contracts generally require the contractor to provide,
    create, or purchase a full package of services.  When contractors
    need to purchase services from other providers, they may develop and
    subcontract with a network of other service organizations.  The
    managed care entity--whether a public agency, lead agency, or
    MCO--functions as the single point of entry to the service system and
    performs case management tasks, such as treatment planning and case
    monitoring.  Although most of the 27 initiatives GAO examined have
    privatized case management responsibilities, public agencies continue
    to perform activities surrounding the investigation and
    substantiation of abuse and neglect--often considered the gateway
    into the child welfare system.  In addition, public agencies continue
    to play a major role in service-delivery decisions that directly
    affect the child's safety, such as discharge from care and changes in
    the level of care.

    Public agencies have also implemented quality assurance strategies
    designed to offset the inherent incentive in managed care to withhold
    or provide reduced services and balance the desire to control costs
    with the goal of improving service outcomes.  In nearly all of the
    ongoing initiatives, public agencies have instituted performance
    standards as a means of holding their contracted service providers
    accountable for outcomes.  Some standards focus on system outcomes,
    such as returning children to their families more quickly, while
    other standards are more client-specific, such as completing high
    school or job training programs.  Another quality assurance strategy
    links financial incentives and disincentives to outcomes, such as
    offering bonuses to contractors for meeting performance standards and
    limiting providers' profit levels or requiring unspent revenues to be
    reinvested in services.  Finally, these managed care initiatives will
    have to be evaluated to determine the efficacy of the new financing
    and service-delivery arrangements in accomplishing desired objectives
    and achieving efficiencies.

          THE MOVE TO MANAGED CARE IS
          NOT WITHOUT CHALLENGES
    -------------------------------------------------------- Chapter 0:4.3

    The experiences of the initiatives GAO examined indicate that child
    welfare agencies face three principal challenges as they seek to
    implement a managed care approach.  First, many public agencies need
    to find ways to maintain an adequate cash flow as they make
    prospective payments to service providers while receiving retroactive
    reimbursement from other sources, such as title IV-E.  Moreover,
    public agency officials expressed concern that federal prohibitions
    against the use of title IV-E funding for services other than
    out-of-home care may force states to fund a greater share of
    capitated contracts.  Specifically, if managed care creates
    incentives for contractors to provide better services and,
    consequently, return more children home, federal reimbursement for
    foster care ceases; however, the child and family may continue
    receiving unreimbursable in-home services.

    Second, the child welfare system has historically been plagued with
    poor service and cost information.  Accurate and timely information
    on services and outcomes is critical.  Public agencies are slowly
    implementing performance standards to hold contractors accountable
    for desired outcomes; however, ensuring that these standards are the
    most important ones and are set at reasonable levels becomes
    especially difficult when baseline and ongoing program data are
    absent.  In addition, establishing and revising an accurate and fair
    capitated payment rate requires information on an array of services
    from a variety of providers and their associated unit costs.  Public
    agencies have approached the development of their information systems
    in a variety of ways, including contracting specifically for a new
    system, developing it in-house, or adapting existing systems.

    A final challenge both public agency staff and private service
    providers face is the dramatic changes in their traditional roles and
    responsibilities.  Public agency staff need to adjust to performing
    less direct client casework and focusing more attention on contract
    and system management, as private entities assume new
    responsibilities for managing child welfare services.  Where case
    management and administrative functions have shifted to private
    entities, some public agencies have had to downsize the public
    workforce and retrain and move the remaining staff into their new
    roles as contract managers or quality assurance workers.  At the same
    time, private contractors have found themselves becoming
    quasi-governmental entities as they assume what were formerly public
    agency functions, such as direct responsibility for complying with
    federal and state procedural and paperwork requirements; hiring,
    training, and retaining qualified staff to perform new case
    management or administrative functions; and managing and monitoring a
    network of service providers.

    Little quantitative information exists on how managed care has
    affected the children and families in the child welfare system, as
    only a limited number of initiatives have collected evaluation data.
    Preliminary data in these few locations, however, indicate some cost
    efficiencies when children appropriately avoid residential care.
    Moreover, public officials are encouraged by other service-delivery
    improvements, such as increases in the amount and types of services
    that better match the needs of children and families in the child
    welfare system.

       AGENCY COMMENTS
    ---------------------------------------------------------- Chapter 0:5

    GAO obtained comments on a draft of this report from the Department
    of Health and Human Services (HHS) and state and county public child
    welfare officials responsible for the managed care initiatives in the
    four case study sites.  HHS and the four public agencies generally
    agreed with the report's findings and provided additional technical
    information, which GAO incorporated in the report as appropriate.
    HHS also said GAO should clarify the report to reflect HHS' efforts
    to provide public child welfare agencies guidance and supporting
    information to aid states' consideration and implementation of
    managed care concepts.  GAO clarified the report to reflect this
    information.  (Ch.  5 contains additional information about HHS and
    the public agencies' comments and GAO's responses.)

    INTRODUCTION
    ============================================================ Chapter 1

    For children who have been abused or neglected by their caregivers,
    the child welfare system is an expensive and often poor substitute
    for a permanent home.  The children and families in the system often
    have serious and difficult problems that can require intensive and
    time-consuming services.  Unfortunately, most experts agree that the
    current system for caring for these children is inadequate.  Program
    officials and policymakers alike are eager to find new and better
    solutions to meet the growing demands of this vulnerable group.
    Though not without controversy, managed care has emerged as one
    strategy to improve the overall care system for families in the child
    welfare system.

       CHILD WELFARE SYSTEM IS RIPE
       FOR REFORM
    ---------------------------------------------------------- Chapter 1:1

    The child welfare system is a complicated network of policies and
    programs designed to protect and promote the safety and well-being of
    children.  Encompassing a broad range of activities, child welfare
    services include those designed to protect abused or neglected
    children, support and preserve families, care for the homeless and
    neglected, support family development, and provide out-of-home care
    when children must be removed from their families.  The Adoption
    Assistance and Child Welfare Act of 1980 (P.L.  96-272) established
    requirements that states undertake reasonable efforts to prevent the
    need to remove abused and neglected children from their families.  If
    separation is required, however, states must ensure adequate care for
    the children while providing the necessary services to help reunite
    the family or locate another permanent home for the child if
    reunification is inappropriate.

    The child welfare system has been under great pressure to meet
    increased demands.  Over the last decade, rising caseloads have
    dramatically increased federal, state, and local spending for child
    welfare services.  The needs of children and their families in the
    system are greater and more complex than ever before.  Yet, the
    current system for funding and serving this more difficult population
    is fragmented and has strained public agencies' ability to adequately
    meet service needs.

          SYSTEM SEEKS TO PROTECT
          CHILDREN
    -------------------------------------------------------- Chapter 1:1.1

    The child welfare system consists of a myriad of agencies and
    programs that intervene when children are neglected or abused.  State
    or county child welfare agencies carry the responsibility for
    ensuring the safety of these children through multiple programs
    funded by local, state, and federal governments.  Children generally
    come to the attention of the child welfare system when someone--a
    physician, child care provider, or teacher, for example--reports to
    the state or local child welfare agency an allegation of abuse or
    neglect.  Child protective services (CPS) workers respond to and
    investigate these reports, identify services such as parenting
    classes for the family, and determine whether to remove a child from
    the family's home.

    If removal is warranted, the child is placed in any one of several
    foster care settings that offer different levels of care depending on
    the needs of the child.  The lowest to highest levels of
    care--corresponding to the least to most costly foster care
    settings--include foster family home, therapeutic family foster
    home,\2 group home, and residential treatment center.  A child's stay
    in foster care is considered temporary, until the family can be
    reunited, the child is adopted, or some other permanent living
    arrangement is made.  In addition, states provide family preservation
    and support services to prevent out-of-home placement and help
    reunite families.  These services include family counseling, respite
    care for parents and caregivers, and services to improve parenting
    skills and support child development.

    Primary responsibility for child welfare services rests with the
    states, and each has its own legal and administrative structures and
    programs to address the needs of children.  In most states, the state
    child welfare agency makes major administrative decisions; in 12
    states, however, counties administer child welfare programs with
    considerable autonomy to establish policies and priorities within
    broad state guidelines.\3 While public workers provide some or all
    child welfare services in some locations, most state and county child
    welfare agencies have long relied on private service
    providers--predominantly nonprofit, community-based agencies--to work
    directly with children and families.  For children entering the child
    welfare system, public caseworkers are typically responsible for (1)
    developing a service plan for the child that can identify out-of-home
    care, educational, and health service needs; (2) directly providing
    or arranging to purchase from private or other public providers the
    specified services; and (3) periodically monitoring the child's
    progress.

    --------------------
    \2 Children with special needs, who would not ordinarily be placed in
    traditional family foster care, may be placed in a therapeutic family
    foster home as an alternative to group care or residential treatment.

    \3 The 12 states with county-administered child welfare systems are
    California, Colorado, Georgia, Maryland, Minnesota, New York, North
    Carolina, North Dakota, Ohio, Pennsylvania, Virginia, and Wisconsin.

          CASELOADS AND COSTS ARE
          RISING
    -------------------------------------------------------- Chapter 1:1.2

    During the mid-1980s through the mid-1990s, the child welfare system
    witnessed dramatic increases in the number of children reported
    abused or neglected and placed in foster care.  An estimated 3
    million children were reported possible victims of abuse or neglect
    in 1996.  Upon investigation, CPS workers confirmed maltreatment of
    almost a third of these reported children.  During this same period,
    the foster care population grew almost 80 percent, from 280,000
    children in 1986, to 502,000 in 1996.\4

    Child welfare experts attribute the rise in the foster care
    population to such trends as the increasing use of illegal drugs,
    especially among young mothers in inner-city areas; rising numbers of
    homeless families; and the growing number of children whose families
    live in poverty.

    With increasing foster care caseloads, expenditures for the basic
    needs of foster children and program administration have risen
    dramatically.  From 1986 to 1996, federal costs for child welfare
    services increased nearly fivefold to $4.2 billion.  The
    Congressional Budget Office estimates that this will rise to $5.9
    billion by 2002.  In addition to facing similar increases in these
    expenditures, state and local resources have been constrained by
    competing demands from other activities.  States have found it
    increasingly difficult to maintain sufficient funding levels to
    ensure that service needs are met.\5 To address these financial
    pressures, many states have cut child and family services or kept
    budgets constant.\6 Further, resource constraints force public child
    welfare workers to prioritize their caseloads, which often means
    responding to emergency situations, leaving little time to attend to
    children already in out-of-home care.\7

    --------------------
    \4 The American Public Human Services Association estimated the
    foster care numbers on the basis of data voluntarily reported by the
    states.

    \5 Child Welfare:  Complex Needs Strain Capacity to Provide Services
    (GAO/HEHS-95-208, Sept.  26, 1995).

    \6 C.  Brach and L.  Scallet, "Managed Care's Implications for
    Children and Families:  An Overview of Trends and Issues," draft
    prepared for the Annie E.  Casey Foundation, July 1996.

    \7 T.  Feild, "Managed Care and Child Welfare:  Will It Work?" Public
    Welfare (Summer 1996).

          CURRENT FUNDING AND
          SERVICE-DELIVERY SYSTEM IS
          FRAGMENTED
    -------------------------------------------------------- Chapter 1:1.3

    No single federal program fully supports the range of services that
    typically make up state and local child welfare programs.  The major
    federal programs are found in the Social Security Act:

      -- Title IV-E Foster Care is an uncapped entitlement that
         reimburses states for a portion of foster care costs, such as
         food and shelter, daily supervision, administration, and
         training for agency staff, for only those children eligible
         under the Aid to Families With Dependent Children (AFDC)
         program.\8

      -- Title IV-E Adoption Assistance, also an uncapped entitlement,
         reimburses states for a portion of adoption costs, including
         payments to parents who adopt children with special needs as
         well as administrative and training costs, for only those
         children eligible under the Supplemental Security Income (SSI)
         or AFDC programs.

      -- Title IV-E Independent Living reimburses states for some of the
         cost of providing independent living services for older foster
         children.

      -- Title IV-B Child Welfare Services and Promoting Safe and Stable
         Families programs provide federal matching grants to states for
         up to 75 percent of the costs of services such as family
         preservation and support services, some foster care, and other
         child welfare services related to preventing out-of-home
         placements; reuniting families; finding adoptive families;
         protecting children's safety; and preventing maltreatment.

      -- Title XX Social Services Block Grant gives states discretion to
         fund a wide array of social services for children, families,
         adults, and the elderly.

    Federal, state, and local governments share responsibility for
    funding the child welfare system.  In fiscal year 1996, over 65
    percent of the $4.7 billion in federal funding for child welfare
    services under titles IV and XX was for foster care services.\9 Title
    IV funding of states' child welfare program costs ranged from 50 to
    77 percent.\10 In addition, where federal sources are fixed by annual
    appropriations, as in title IV-B, states fund both the required match
    and any additional costs above the capped amount.  Furthermore,
    through cost-sharing arrangements with counties, states pay all
    foster care costs for those children ineligible under the federal
    program.  Nationwide, about half of all foster care placements were
    funded under title IV-E in fiscal year 1996.

    The child welfare service system is also fragmented.  The service
    needs of children and families known to the child welfare system are
    more complex than in the past.  Facing multiple problems of economic
    hardship, substance abuse, homelessness, and mental or physical
    illness, these children and their families more often have serious
    emotional, behavioral, and medical needs.  However, rarely does a
    single state or local agency have control over the full array of
    services to appropriately address the needs of the child welfare
    population.  Many of the needed services, such as mental health care
    and drug treatment, are outside the control of the child welfare
    system.  Public child welfare agencies often must tap into a complex
    set of human service systems, which are usually supported by separate
    categorical funding sources and have different eligibility criteria.
    Gaining access to needed services, especially those outside the child
    welfare system, can be extremely difficult when other systems also
    have insufficient capacity or do not share child welfare's
    priorities.\11

    Finally, service providers are rarely held accountable for achieving
    system objectives to improve the quality of care and service outcomes
    to ensure children do not languish in foster care.  Public agencies
    traditionally use private service providers who are paid on a
    fee-for-service basis whereby a provider submits a bill and is
    reimbursed for the number and type of services delivered.  Under this
    system, the provider has little incentive to, when appropriate,
    reduce the level of care as children's functioning improves,
    discharge them from care, or monitor and assess the number of service
    units provided because these actions may result in lost revenues.

    --------------------
    \8 The Personal Responsibility and Work Opportunity Reconciliation
    Act of 1996 (P.L.  104-193) eliminated the AFDC program; however,
    children who meet the 1996 eligibility criteria for AFDC continue to
    be eligible for title IV-E assistance.

    \9 In addition to the $4.2 billion from titles IV-E and IV-B, the
    1996 Social Services Block Grant was about $2.4 billion.  However,
    the most current data available on the amount of title XX funds spent
    for child welfare-related services were for 1995 and represented
    about 22 percent of title XX expenditures in that year, or $0.5
    billion of the 1996 block grant.

    \10 Title IV-E funding for foster care and adoption maintenance costs
    are tied to the Medicaid matching rate, which ranged from 50 to 77
    percent in fiscal year 1997.  Federal funding for other child welfare
    costs under titles IV-E and IV-B is at either 50 or 75 percent of
    states' costs, depending on the program.

    \11 Child Welfare:  Opportunities to Further Enhance Family
    Preservation and Support Activities (GAO/HEHS-95-112, June 15, 1995)
    and GAO/HEHS-95-208, Sept.  26, 1995.

       WHAT IS MANAGED CARE?
    ---------------------------------------------------------- Chapter 1:2

    The origins of managed care lie in the health sector.  Prepaid health
    care plans were first developed to improve access to and continuity
    of health care while controlling costs.  Early health maintenance
    organizations (HMO) served primarily an employed population.
    Contracting with prepaid, fixed-fee managed care plans to deliver
    health care services to Medicaid beneficiaries first became an option
    for states in the 1960s.  As federal and state Medicaid expenditures
    soared, states increasingly turned to managed care programs to help
    bring costs under control and expand access to health care for
    low-income families.  By 1997, states had extended prepaid managed
    care to more than 48 percent of the Medicaid population.\12

    Prepaid managed care plans have two fundamental elements--a
    prospective capitated payment system and coordinated services.  In
    general terms, states pay contracted plans, such as an HMO, a monthly
    or capitated fee per enrollee to provide a range of medical services
    that are coordinated through primary care physicians and typically
    delivered by an established network of affiliated hospitals,
    physicians, and other providers.  With its fixed prospective payment,
    this model attempts to create an incentive for plans to provide
    preventive and primary care and to ensure that only necessary medical
    services are provided.  The second managed care element brings
    together an array of different services to ensure that an enrollee
    has access to needed care by linking individual beneficiaries with a
    single provider responsible for coordinating their health care
    needs.\13

    --------------------
    \12 Medicaid is a joint federal-state health financing program for
    the poor and provided health care to an estimated 36 million people
    in 1997.

    \13 Medicaid Managed Care:  Serving the Disabled Challenges State
    Programs (GAO/HEHS-96-136, July 31, 1996) and Medicaid Managed Care:
    Challenge of Holding Plans Accountable Requires Greater State Effort
    (GAO/HEHS-97-86, May 16, 1997).

          PROSPECTIVE FINANCING
          TRANSFERS RISK
    -------------------------------------------------------- Chapter 1:2.1

    A capitated payment is a prospective rate paid for a range of
    services for a specified population.  The methods for developing the
    capitated payment generally involve bundling rates by aggregating
    costs for a related set of services and paying a single average rate
    on a fixed-fee basis.  Separate rates may be established for specific
    populations, such as individuals with chronic illnesses or
    disabilities.  The fact that the price is fixed exposes the managed
    care plan to some financial risk.  Plans have an incentive to control
    expenses to avoid losses but always face a risk that the needs of
    certain patients may result in unexpectedly high costs.

    Two types of fixed payment arrangements, in particular, illustrate
    how risk is shifted to providers.  The first type, a case rate
    payment, transfers to the managed care plan the risk that patients'
    service level, duration, and cost will exceed projections.  Under
    this arrangement, the health plan's payment rate is fixed to cover
    all expected costs incurred for a specified patient.  Although each
    client generates a new payment, providers have an incentive to reduce
    the duration of treatment and avoid serving patients whose treatment
    will be costly or lengthy.  The second type, a capitated rate,
    similarly shifts financial risk when service use is higher than
    anticipated but also includes a factor of uncertainty because the
    number of clients that will actually require services is unknown.  A
    capitated rate is a single, previously negotiated, monthly or
    periodic fee paid for all members of a pool of potential service
    users, whether or not an enrollee uses any services.  The plan is
    expected to respond to whatever level of service is needed by the
    enrollees, as long as the service falls within contractual terms.

          SERVICES ARE COORDINATED TO
          MEET CLIENTS' NEEDS
    -------------------------------------------------------- Chapter 1:2.2

    In a managed health care plan, the primary care provider is
    responsible for delivering or arranging for the delivery of all
    health services required by the covered person under the conditions
    of the provider contract.  A primary care physician is typically
    responsible for approving and monitoring the provision of all
    services covered by a health plan to the patient and family.  As the
    case manager, this primary care physician acts as the gatekeeper or
    single point of entry for patient access to health care services.  To
    simplify access to a continuum of services and ensure coordination of
    care, the plan may incorporate a broad range of general and specialty
    services within a network or organization of affiliated providers.
    In addition, the plan may provide services itself or authorize
    out-of-network services.  To discourage and reduce unnecessary
    procedures or inappropriate service use, a patient may be required to
    obtain prior approval, or preauthorization for payment, before
    admission to inpatient facilities, emergency rooms, or other
    high-cost or high-risk services.  Furthermore, requiring approval for
    appropriate and necessary care as a condition of payment
    authorization reduces excessively prolonged or unnecessarily
    expensive treatment levels.  Costs can also be reduced when patients
    are diverted from unnecessary or overly expensive levels of care into
    suitable, less costly alternatives.

          MANAGED CARE IS VIEWED AS A
          SOLUTION TO CHILD WELFARE
          PROBLEMS
    -------------------------------------------------------- Chapter 1:2.3

    Public agencies are beginning to adopt these managed care elements in
    their child welfare systems.  According to child welfare experts,
    policymakers and child welfare administrators are attracted by the
    twin promises of managed care--cost containment and improved service
    access and quality--and hope that managed care can improve
    shortcomings in the current child welfare system.  Currently, for
    example, a public child welfare caseworker may have difficulty
    accessing different services, such as group or individual counseling
    and parent training, from a number of separate providers.  This
    fragmentation can lead to delays in receiving needed services and
    prolonged stays in foster care, and offers little assurance that
    children and families are getting services that best match their
    needs.  In addition, provider payments are typically made on a
    fee-for-service basis with little incentive for the provider to
    reduce the child's type and amount of services or recommend discharge
    from care when appropriate.  Under managed care, a single entity is
    responsible for arranging and coordinating the child's care among a
    network of providers and is reimbursed on a capitated basis rather
    than for the total amount of services provided.

    Similar to the pressures the Medicaid program faced, rapidly
    increasing child welfare expenditures and eligible populations have
    strained state and local budgets, while providers and policymakers
    have experienced difficulties in meeting their fiscal or program
    goals amid calls for system reform.  As we have previously reported,
    the current federal system for financing child welfare services makes
    it easier for states to place children in foster care rather than
    provide services to avert the need for foster care because federal
    funding under the open-ended entitlement program of title IV-E is
    available only when a child is in out-of-home care.\14 Federal
    funding under titles IV-B and XX is capped for in-home services, such
    as those to prevent the need to reenter foster care, and has not kept
    pace with growing demands.

    The implementation of Medicaid managed care--which serves many of the
    same vulnerable populations that child welfare agencies serve--has
    also created interest in managed care in child welfare.  Child
    welfare clients may already be required to access health care or
    behavioral health\15 services through a managed care system.  As of
    fiscal year 1997, more than 48 percent of Medicaid-eligible clients,
    including some in the child welfare system, were enrolled in managed
    health care or behavioral health programs.

    Child welfare experts point to several other factors that have
    coalesced to heighten interest in managed care.  First, child welfare
    providers are responding to and adapting their practices to new
    managed care environments in other human service systems.  Private
    child welfare service providers often serve children, youth, and
    families from various service systems, including child welfare,
    mental health, and juvenile justice.  In an attempt to diversify
    their funding streams, some of these providers have pursued the
    commercial business of behavioral health managed care organizations
    and marketed themselves as a less expensive alternative to inpatient
    care.  These efforts enable the providers to capture new private
    clients, learn managed care skills, and advocate privatizing the
    child welfare service-delivery system.  Second, states are seeking
    the opportunity to allocate money more efficiently by using more
    appropriate and effective services.  As many states have addressed
    financial pressures by cutting children and family services or
    keeping budgets constant in the face of increasing demand, managed
    care is seen as well suited to downsizing and cost containment.
    Finally, behavioral health managed care organizations are seeking new
    markets in the child welfare system.\16 In chapters 2 and 3, we
    describe state and local efforts to implement managed care in the
    child welfare system.

    --------------------
    \14 Foster Care:  Services to Prevent Out-of-Home Placements Are
    Limited by Funding Barriers (GAO/HRD-93-76, June 29, 1993) and
    GAO/HEHS-95-208, Sept.  26, 1995.

    \15 The term behavioral health is used to specify mental health and
    substance abuse treatment and includes inpatient, outpatient, and
    residential care.

    \16 Brach and Scallet, "Managed Care's Implications;" and T.  Feild,
    Managed Care and Child Welfare:  Are They Compatible?  Institute for
    Human Services Management (Bethesda, Md.  1996).

       FUNDAMENTAL DIFFERENCES EXIST
       BETWEEN THE CHILD WELFARE AND
       HEALTH CARE SYSTEMS
    ---------------------------------------------------------- Chapter 1:3

    In contrast with health care, the child welfare system is uniquely
    affected by several factors, including the characteristics of the
    clientele, the role of the judiciary, legal and policy goals and
    responsibilities, and service delivery complexities.\17 One
    significant difference between child welfare and health care is that
    most child welfare services are delivered on an involuntary basis.
    Child welfare services are most often imposed on unwilling clients at
    the direction of the courts, police, or a CPS worker, after concerns
    are raised about their parenting abilities.  In the health care
    system, the patient wants the protection of a health insurance plan
    and seeks out services when the need arises.  In child welfare,
    families are often resistant or hostile to system intervention.  In
    these situations, according to child welfare experts, it may not be
    appropriate to assume that a limited number of visits or treatments
    will resolve long-standing family issues that have led to child abuse
    or neglect.

    A second difference between the child welfare and health care systems
    is that courts play a key role in child welfare decision-making, and
    this could limit providers' control over costs.  In health care, the
    payer is also the arbiter of what services are delivered and paid
    for, guided by contractual and regulatory guidelines.  In child
    welfare, however, many cases--
    including all out-of-home care--are under the jurisdiction of the
    state's family or juvenile court.  State law determines the full
    extent of the court's authority.  In some states, neither the public
    child welfare worker nor a service provider ultimately controls a
    child's treatment plan because the court has the authority to order
    specific services and placement at individual facilities, or the
    court may order different services from those recommended by child
    welfare professionals.  Moreover, courts may be backlogged or
    disagree with recommendations about children's movement within foster
    care or discharge from care; in either case, children may remain in
    or at a level of care longer than clinically necessary.

    A third factor unique to the child welfare system is the scope of
    care provided by public agencies.  Public agencies do not look merely
    at a child's clinical needs but also at the child's other needs, such
    as safety, protection, and social supports.  In addition, the overall
    well-being of the child's family is a concern of public agencies.  In
    many cases, the child's primary need may be the services provided to
    the parents, such as substance abuse treatment or parenting classes.
    Recalcitrant, hostile, or uncooperative parents may prolong the
    intervention required for a seemingly simple problem.  In addition,
    if a child cannot be reunited with the family, then the child welfare
    agency assumes the difficult task of finding an alternative permanent
    home for that child that will offer appropriate supervision and
    guidance until the child reaches adulthood.

    Last, the links between diagnoses, interventions, and outcomes are
    less clear for clients in the child welfare system.  In health care,
    one can generally predict with reasonable confidence the incidence of
    particular ailments for a given population, costs of care, and
    probable outcomes.  This predictability allows a managed care
    provider to anticipate service demand and, therefore, costs.  In the
    child welfare system, however, predicting needs and outcomes is much
    less certain and depends more on social factors, which are less
    predictable than physical ones.  Moreover, social services are much
    less standardized than health services and are often delivered very
    differently from community to community and from family to family,
    according to factors unrelated to the family's situation.

    --------------------
    \17 Feild, Managed Care and Child Welfare:  Are They Compatible?; and
    A.  Winterfeld, "Managed Care, Privatization and Their Impact on the
    Child Welfare System," Protecting Children, 11(4) (1995).

       FEDERAL ROLE IN CHILD WELFARE
       MANAGED CARE IS LIMITED
    ---------------------------------------------------------- Chapter 1:4

    Federal involvement in managed care in child welfare has thus far
    been limited.  While the federal role in states' managed health care
    efforts has expanded recently, no comparable role has emerged for
    managed care in child welfare.  The Administration for Children and
    Families (ACF) within the Department of Health and Human Services
    (HHS) administers the federal child welfare programs; this involves
    monitoring states' compliance with federal statutes and regulations,
    providing technical assistance to states, funding various resource
    centers across the country, and supporting research and evaluation
    efforts.  To date, ACF has included managed care topics in some of
    its conferences and responded to specific inquiries about managed
    care financing in child welfare but has so far not provided any
    formal guidance or technical assistance.  In addition, HHS was given
    the authority in 1994 to establish no more than 10 child welfare
    demonstrations that waive certain restrictions in title IV-E and
    allow broader use of federal foster care funds.  Although a waiver
    could facilitate managed care, the purpose for granting waivers is to
    test a variety of innovations including but not limited to managed
    care.  The Adoption and Safe Families Act of 1997 (P.L.  105-89)
    expanded HHS' authority to approve up to 10 states' waiver
    demonstrations in each of the 5 fiscal years 1998 through 2002.

       OBJECTIVES, SCOPE, AND
       METHODOLOGY
    ---------------------------------------------------------- Chapter 1:5

    The Chairman of the Subcommittee on Human Resources of the House
    Committee on Ways and Means asked us to review states' efforts to
    implement managed care arrangements into their child welfare systems.
    This report describes (1) the extent to which public agencies are
    using managed care to provide child welfare services, (2) the
    financial and service delivery arrangements under managed care that
    are being applied to the child welfare system, and (3) challenges
    child welfare agencies face as they develop and implement managed
    care, and the results of such efforts to date.

    To determine the number of managed care initiatives in the child
    welfare system and how they are being implemented, we surveyed all 50
    states, the District of Columbia, and selected localities.  To obtain
    more detailed information about managed care arrangements as well as
    implementation challenges and results, we studied ongoing managed
    care efforts at four locations--Kansas, Massachusetts, Boulder County
    in Colorado, and Sarasota County in Florida--where different managed
    care models of varying scope are being implemented.  We also
    interviewed public agency officials in states and localities that are
    implementing managed care initiatives and reviewed available
    documentation about individual initiatives.  In addition, we reviewed
    relevant literature, and interviewed experts about managed care in
    both health care and child welfare as well as representatives from
    national and state child advocacy organizations.  To learn about the
    federal government's involvement in state efforts to implement
    managed care, we spoke with officials at the Substance Abuse and
    Mental Health Services Administration (SAMHSA) and ACF.

          GAO SURVEY
    -------------------------------------------------------- Chapter 1:5.1

    The purpose of the survey was twofold.  First, we wanted to determine
    the total number of states and localities operating or considering
    managed care projects or initiatives nationwide and, for those
    projects in operation, obtain a description of the types of managed
    care arrangements being used.  Second, because some locations have
    more than one ongoing managed care initiative, we wanted to obtain
    detailed program information on the initiative that is serving the
    most children.

    In February 1998, we mailed a copy of the survey to the child welfare
    director in each of the 50 states and the District of Columbia.  We
    also mailed the survey to child welfare officials in 43 localities we
    had identified as possibly implementing or considering managed care
    initiatives.  We learned of those officials by telephoning the state
    child welfare directors in the 13 county-administered states and
    asking them to identify the applicable localities in their states.\18

    We received responses from 48 state agencies, the District of
    Columbia, and all the local agencies.  On the basis of the returned
    surveys and telephone contacts with several local agency officials,
    we excluded from our analyses 17 counties and 1 district that either
    (1) were implementing a multiple-county initiative and chose to
    designate one county as the survey respondent, or (2) were neither
    implementing nor considering managed care arrangements in their child
    welfare systems at the time of our survey.  Hence, for our adjusted
    population size of 76 state and local agencies, the 74 valid
    responses resulted in an overall response rate of 97 percent.  From
    these responses, we obtained general information on 36 initiatives
    and more detailed information on the 27 initiatives serving the most
    children in each location.

    We did not verify the information obtained through the survey.
    However, we conducted telephone interviews with state and local
    respondents to clarify responses, as needed, and obtained additional
    information about program and population coverage and available
    descriptive documentation.  In addition, we obtained more detailed
    information about ongoing managed care efforts at four locations.

    --------------------
    \18 We included Florida among the 13 county-administered states
    because, although Florida's child welfare system is administered at
    the state level, its 15 district offices have considerable autonomy
    and state legislation had authorized privatization pilots in several
    districts.

          CASE STUDY SITES
    -------------------------------------------------------- Chapter 1:5.2

    We selected four locations--Kansas, Massachusetts, Boulder County in
    Colorado, and Sarasota County in Florida--to obtain more detailed
    information about the events and activities surrounding the
    locations' decision to implement managed care in their child welfare
    systems, the process of planning and designing the initiative, the
    rationale behind changing service delivery and financial
    arrangements, contracting and subcontracting processes and
    management, monitoring and accountability activities, results to
    date, implementation challenges, and lessons learned.  On the basis
    of the relevant literature and in consultation with child welfare
    experts, we selected these four locations because they were
    implementing different managed care models, had different
    circumstances leading to their initiative's design, and provided
    examples of both state- and local-level efforts.  At each location,
    we interviewed officials from the state and local child welfare
    agencies as well as representatives from the primary managed care
    contractors and subcontractors, and reviewed pertinent documentation.
    Furthermore, we coordinated our site selection and data collection
    efforts with researchers at the University of Chicago's Chapin Hall
    Center for Children, who were conducting case studies to describe how
    managed care is being implemented in Kansas and three other
    locations--Tennessee, Hamilton County in Ohio, and Lake and Sumter
    Counties in Florida.  Where appropriate, information from Chapin
    Hall's four case studies is incorporated in this report.

    We conducted our work between August 1997 and August 1998, in
    accordance with generally accepted government auditing standards.

    MANAGED CARE IS A NEW AND GROWING
    STRATEGY IN CHILD WELFARE
    ============================================================ Chapter 2

    Nationwide, public child welfare agencies are implementing, planning,
    or considering managed care initiatives in 35 states.  Most ongoing
    initiatives are serving foster care children with the most complex
    and costly service needs.  In total, however, only a small portion of
    the nation's child welfare population is covered by managed care
    arrangements.  In general, public child welfare agencies are entering
    into managed care arrangements with nonprofit, community-based
    providers who have historically served as providers in the agencies'
    foster care or out-of-home placement systems.  These new
    arrangements, however, have significantly changed the roles and
    responsibilities of the public and private entities.  Finally,
    for-profit managed care companies have not had a major role in
    implementing managed care in child welfare, with only a few locations
    using these organizations to manage the delivery of child welfare
    services.

    Appendix I lists the 27 managed care initiatives about which we
    obtained detailed data, including their implementation date,
    geographic scope, size, organizational arrangement, and description
    of the populations and child welfare programs covered.\19

    --------------------
    \19 Some locations are implementing more than one managed care
    initiative.  In these instances, we obtained more detailed
    information about the initiative serving the most children.

       MANAGED CARE INITIATIVES ARE
       LIMITED IN SCOPE AND SIZE
    ---------------------------------------------------------- Chapter 2:1

    Interest in child welfare managed care is growing, as public agencies
    launch new efforts or consider developing initiatives in their
    states.  However, to date these efforts tend to be small in scale,
    serving targeted populations of children and their families in a
    limited number of locations.

          USE OF MANAGED CARE IN CHILD
          WELFARE IS NEW
    -------------------------------------------------------- Chapter 2:1.1

    Public agencies' exploration of managed care in child welfare is a
    new phenomenon.  Nationally, most managed care initiatives have been
    operating for 2 years or less.  As of March 1998, 36 initiatives were
    under way in 13 states and had been operating for an average of 20
    months.  By the end of 1998, managed care initiatives will be
    operating in four additional states.  These numbers will continue to
    rise in the near future as managed care efforts are being planned or
    considered in another 18 states.  (See table 2.1.)

                                             Table 2.1

                               States With Child Welfare Managed Care
                               Initiatives Ongoing, Planned, or Under
                                   Consideration as of March 1998

                         Implementing managed care      Planning to implement
                        ---------------------------  ---------------------------
                                                                                   Considering
                                                                                       managed
                                          Number of                   After 1998  care, but no
                         As of March        ongoing  By the end of     or in the      official
    State                       1998    initiatives           1998   near future  action taken
    ------------------  ------------  -------------  -------------  ------------  ------------
    Alaska                                                                     X
    Arizona                                                      X
    California                     X              1
    Colorado                       X              6
    Connecticut                                                                X
    Florida                        X              3
    Georgia                        X              1
    Idaho                                                                                    X
    Illinois                       X              2
    Indiana                        X              3
    Kansas                         X              3
    Kentucky                                                                   X
    Louisiana                                                                                X
    Maryland                                                     X
    Massachusetts                  X              1
    Michigan                       X              1
    Missouri                                                     X
    Montana                                                                                  X
    Nebraska                                                                                 X
    Nevada                                                                                   X
    New Hampshire                                                                            X
    New Jersey                                                                               X
    New York                       X              5
    North Carolina                                                                           X
    Ohio                           X              6
    Oklahoma                                                                   X
    Oregon                                                                                   X
    Pennsylvania                                                                             X
    Rhode Island                                                               X
    South Carolina                                                             X
    South Dakota                                                                             X
    Tennessee                      X              1
    Texas                                                        X
    Utah                                                                       X
    Wisconsin                      X              3
    ==========================================================================================
    Total: 35 states       13 states             36       4 states      7 states     11 states
                                        initiatives
    ------------------------------------------------------------------------------------------
    Source:  GAO survey.

          GEOGRAPHIC AND POPULATION
          COVERAGE VARIES AMONG
          INITIATIVES
    -------------------------------------------------------- Chapter 2:1.2

    The majority of the managed care initiatives have been implemented by
    a county or district-level child welfare agency.  Of the 36 ongoing
    initiatives, 23 were established by local agencies.  Two
    counties--Mesa County, Colorado, and Hamilton County, Ohio--have
    implemented multiple efforts.  In addition, eight state agencies have
    implemented managed care in child welfare, including statewide
    efforts in four states--Georgia, Kansas, Massachusetts, and
    Tennessee.

    Believing that managed care arrangements can contribute to better
    services and control costs, public child welfare agencies have
    targeted the most expensive and programmatically difficult
    populations to serve in their initiatives.  Of the 27 largest
    initiatives about which we obtained detailed information, 25 include
    the hard-to-serve and most costly children.  This population often
    consists of severely emotionally disturbed children--mostly
    adolescents--needing mental health services, who are either in or at
    risk of group or residential foster care placement.  About half of
    the 25 initiatives serve this group exclusively.  For example,
    Indiana's The Dawn Project targets children aged 5 to 17 who reside
    in Marion County and (1) are at risk of separation or are already
    separated from their families and living in a residential treatment
    center; (2) have been involved with two or more human service
    systems, such as child welfare, juvenile justice, special education,
    and mental health; and (3) have had an impairment for more than 6
    months.  In contrast, some jurisdictions serve all eligible
    populations--these include one statewide and five countywide
    efforts.\20 For example, Kansas' entire foster care, adoption, and
    family preservation program populations are being served through
    regional contractors across the state; and in Jefferson County,
    Colorado, the managed care initiative serves all children and
    families in the county's child welfare system.  While nearly all 27
    initiatives cover children in foster care, some initiatives also
    include or target children in other child welfare programs, such as
    adoption and family preservation and support services (see app.  I).

    --------------------
    \20 Kansas' statewide effort serves all eligible clients, and similar
    countywide initiatives are ongoing in Jefferson and Mesa Counties in
    Colorado, Albany County in New York, and Champaign and Madison
    Counties in Ohio.

          SMALL PROPORTION OF CHILD
          WELFARE POPULATION IS BEING
          SERVED
    -------------------------------------------------------- Chapter 2:1.3

    With few statewide efforts and most managed care activity occurring
    at the local level, only a small segment of the child welfare
    population is currently being served under managed care.  In the 13
    states where initiatives are in place, almost 44,000 children are
    being served under child welfare managed care arrangements.  This
    represents about 8 percent of the child welfare population in those
    states, including both in-home and out-of-home care clients, and 4
    percent of the nearly 1 million children in the child welfare system
    nationwide.\21 By the end of 1998, when managed care initiatives are
    expected to be under way in four more states, the nationwide
    proportion is likely to increase to about 6 percent.

    The number of children served under managed care in each of the
    geographic areas covered by an initiative--whether a state- or
    county-established effort--varies greatly.  Numbers range from fewer
    than 10 children in Oneida County, New York, to as many as 23,200
    children in Illinois, with an average of about 4,300 children in
    state-level efforts and 500 in counties and districts.  Many of these
    states and localities plan to expand the size of their initiatives by
    increasing the number of clients served, targeting new types of
    clients, or both.

    Where state-level initiatives are being implemented, the proportion
    of the state's child welfare population being served under managed
    care ranges from 1 to 80 percent, with a median of about 6 percent.
    For example, Michigan's family preservation initiative is serving
    about 165 children at selected sites around the state, or 1 percent
    of the state's child welfare population.  At the other extreme, the
    three statewide initiatives in Kansas are unique in their breadth and
    geographic scope, covering all 6,000 children in the state's foster
    care, adoption, and family preservation programs, representing 80
    percent of the state's child welfare population.  Excluded from
    Kansas' initiatives are children and families involved in a CPS
    investigation, a small number of noncustodial families receiving
    in-home services, and the juvenile offender population.  More
    typically, Georgia's statewide effort serves 660 children who are in
    therapeutic residential settings, or 3 percent of the state's child
    welfare total.

    In the local initiatives, the proportion of a county's or district's
    child welfare population currently being served under managed care
    covers the full range, from less than 1 percent to the entire child
    welfare population, with a median of 20 percent.  At the lowest
    extreme, Oneida County in New York has just begun its countywide
    initiative, having so far served 7 children, or less than 1 percent
    of the county's child welfare population; the county expects to serve
    120 children by the end of the year.  At the highest extreme,
    Jefferson County in Colorado has brought its entire child welfare
    population of about 1,700 children under its managed care initiative.
    A more typical example can be found in Albany County, New York; the
    1,750 children receiving preventive services represent 20 percent of
    the county's child welfare population.

    --------------------
    \21 According to HHS' 1997 National Study of Protective, Preventive
    and Reunification Services Delivered to Children and Their Families
    (Washington, D.C.:  HHS, 1997), an estimated 1 million children were
    receiving child welfare services as of March 1994.

       PUBLIC AGENCIES PURSUE VARIOUS
       MANAGED CARE MODELS BUT
       CONTINUE TO RELY ON TRADITIONAL
       PARTNERS
    ---------------------------------------------------------- Chapter 2:2

    Public child welfare agencies have approached both the overall design
    of their managed care initiatives and the distribution of roles and
    responsibilities among initiative participants differently.
    Nonetheless, most of these agencies now contract with private
    entities to coordinate the provision of an array of child welfare
    services and to assume administrative tasks, such as processing
    claims and monitoring program activities.

          MANAGED CARE FOLLOWS FOUR
          MODELS
    -------------------------------------------------------- Chapter 2:2.1

    We found that the organizational arrangements among public and
    private entities implementing managed care generally fall into four
    models--public, lead agency, administrative services organization,
    and managed care organization.

             PUBLIC MODEL MAINTAINS
             THE TRADITIONAL STRUCTURE
    ------------------------------------------------------ Chapter 2:2.1.1

    The public model represents the least change for public child welfare
    agencies.  While the public agency continues its role of coordinating
    care for children and families as well as providing services, it is
    both changing the way it reimburses service providers and introducing
    performance standards.  For example, public agencies can incorporate
    fixed payments into existing contracts with community-based service
    providers.  Currently, 10 of the 36 initiatives are using the public
    model of managed care.

    Boulder County in Colorado began implementing its Integrated Managed
    Partnership for Adolescent Community Treatment (IMPACT) initiative in
    July 1997.  Three county agencies--social services, mental health,
    and youth corrections--jointly formed a new managed care entity to
    perform gatekeeping, assessment, case planning, concurrent service
    utilization review, and quality assurance functions for children
    placed out-of-home.  The new public entity merged funding from the
    three county agencies and currently performs joint programming and
    placement decision-making for adolescents in need of out-of-home care
    in group or residential treatment settings.  Although the county
    agencies now take an integrated approach as care coordinator, they
    continue to rely on the same network of public and private providers
    for direct services.  Boulder County's new public managed care entity
    receives funds from the state in the form of a block grant.  This is,
    in effect, the public agency's capitated payment for the services it
    provides to adolescents.  In turn, the managed care entity intends to
    contract with community-based adolescent placement providers on a
    "subcapitated" basis--that is, the public managed care entity will
    pass on capitated payments to subcontracted service providers.
    Finally, the state has introduced a series of performance standards.
    Figure 2.1 illustrates the organizational arrangement of Boulder
    County's managed care initiative.

       Figure 2.1:  Organizational
       Arrangement of a Public Model
       of Managed Care in Boulder
       County, Colorado

       (See figure in printed
       edition.)

             SINGLE PROVIDER ASSUMES
             KEY ROLE IN LEAD AGENCY
             MODEL
    ------------------------------------------------------ Chapter 2:2.1.2

    Over half of the 36 initiatives--19 in all--are using the lead agency
    model to incorporate managed care elements into their child welfare
    systems.  In this model, the public agency contracts with a private
    entity that, as the primary contractor or lead agency, assumes new
    responsibility for coordinating child welfare services for a defined
    population of children and families.  The lead agency's case
    management functions can include assessing clients' needs, developing
    treatment plans, and monitoring progress toward achieving permanency
    or treatment goals.  In addition, the lead agency is responsible for
    providing all the necessary services, as prescribed by the treatment
    plan.  In this model, the lead agency provides some or all direct
    services itself but may also subcontract with a network of local
    service providers.

    Sarasota County in Florida is using a lead agency model.  In January
    1997, the state child welfare agency transferred to the Sarasota
    County Coalition for Families and Children responsibility for
    coordinating the care of all children and families in the child
    welfare system in this one county.  Formed specifically for this
    managed care initiative, the Coalition's members are primarily
    community-based, nonprofit entities and include all major service
    providers in the county.  One Coalition member--the YMCA--has been
    designated the lead agency responsible for managing the project and
    contracting with the state public child welfare agency.  Where the
    state previously had separate contracts with each service provider,
    the state now has only one contract with the lead agency which itself
    developed new subcontracts with the Coalition service providers.  The
    lead agency is responsible for (1) performing administrative tasks,
    such as disbursement and accounting of state-allocated funds and
    preparing required reports; (2) monitoring the quality of services
    provided by Coalition subcontractors; and (3) providing some direct
    services.  Case management functions have been subcontracted to two
    other Coalition service providers.  Of the ongoing managed care
    initiatives nationwide, Sarasota County is one of only two locations
    in the country that have contracted with private entities to manage
    essentially the entire child welfare system.\22 Figure 2.2
    illustrates the organizational arrangement of Sarasota County's
    managed care initiative.

       Figure 2.2:  Organizational
       Arrangement of a Lead Agency
       Managed Care Model in Sarasota
       County, Florida

       (See figure in printed
       edition.)

    --------------------
    \22 According to Florida child welfare officials, a child does not
    enter the child welfare system until after state CPS workers
    investigate maltreatment reports and determine the need for system
    intervention.  Kansas' child welfare managed care initiative is the
    other location and is also using the lead agency managed care model.

             ADMINISTRATIVE SERVICES
             ORGANIZATION MODEL
             PRIVATIZES ADMINISTRATIVE
             SERVICES
    ------------------------------------------------------ Chapter 2:2.1.3

    Under an administrative services organization (ASO) model, the public
    child welfare agency contracts out the administrative or management
    services, including such activities as billing and reimbursement,
    development or operation of a data system, training, and technical
    assistance, separately from the service-delivery tasks.  The
    administrative contractor, or ASO, is not responsible for the
    delivery of child welfare services to children and families directly.
    In this model, currently used in three initiatives, the management of
    clients' care and provision of direct services are the responsibility
    of the public agency or a lead agency in the public or lead agency
    model, respectively.  For example, Massachusetts' Commonworks program
    is a statewide initiative whereby the state public child welfare
    agency has contracted with a for-profit behavioral health managed
    care organization to function as the ASO.  On behalf of the state
    agency, the ASO's responsibilities include

      -- monitoring and reporting on the use of Commonworks services;

      -- implementing and monitoring an overall program quality
         evaluation and improvement system;

      -- developing and managing an information system for the entire
         program;

      -- developing the overall financial reporting system;

      -- developing, implementing, and managing the billing and payment
         system;

      -- tracking complaints and grievances from clients, families,
         providers, and the community; and

      -- reviewing, monitoring, and reporting on the credentialing of all
         direct service providers.

    The ASO does not provide any direct services to children and
    families.  The state agency contracts with a lead agency in each of
    six regions across the state to develop service networks and
    coordinate the care of adolescents in group home and residential
    treatment settings.  The six lead agencies are responsible for
    coordinating the care of Commonworks' youth in their respective
    regions.  Although the lead agencies have no compensatory arrangement
    with the ASO, each lead agency has a formal agreement with the ASO to
    discharge its respective responsibilities related to credentialing,
    utilization review, quality improvement, training, reporting,
    information systems, payment processing, and care authorizations.
    Figure 2.3 illustrates the organizational arrangement of
    Massachusetts' managed care initiative.

       Figure 2.3:  Organizational
       Arrangement of an ASO Managed
       Care Model in Massachusetts

       (See figure in printed
       edition.)

             MANAGED CARE ORGANIZATION
             MODEL IS MOST SIMILAR TO
             HEALTH CARE MODEL
    ------------------------------------------------------ Chapter 2:2.1.4

    The managed care organization (MCO) model is most similar to managed
    care arrangements in health care and is being used in 4 of the 36
    child welfare initiatives.  Under this arrangement, the public child
    welfare agency contracts with a private organization to perform
    administrative services and assume responsibility for developing and
    subcontracting with a network of service providers.  The difference
    between the MCO and lead agency models is that the MCO does not
    itself provide services directly to children and families.  Rather,
    the MCO arranges for the delivery of all necessary services through
    its provider network.

    The largest MCO managed care effort under way is in Hamilton County,
    Ohio.  In January 1998, the county child welfare agency contracted
    with a national for-profit MCO to (1) manage care for children and
    families in need of either outpatient mental health services or
    foster care in therapeutic, group home, and residential treatment
    settings and (2) build an integrated information system for three
    county agencies--child welfare, mental health, and alcohol and drug
    addiction.  To carry out its administrative responsibilities, the MCO
    has subcontracted with four other companies to manage outpatient
    mental health services, maximize Medicaid funding, provide the
    hardware for the information systems, and manage the software and
    network.  To fulfill its service-delivery responsibilities, the MCO
    has subcontracted with 22 local service providers.  The MCO serves as
    the organizer, gatekeeper, and manager of services, but is itself
    precluded from providing any direct child welfare services, unless no
    other provider can offer the same service and the county agency
    approves.  At the end of 5 years, the county intends to assume the
    operation of the managed care initiative.\23 Figure 2.4 illustrates
    the organizational arrangement of Hamilton County's managed care
    initiative.

       Figure 2.4:  Organizational
       Arrangement of an MCO Model in
       Hamilton County, Ohio

       (See figure in printed
       edition.)

    --------------------
    \23 F.  Wulczyn and B.  Orlebeke, "Fiscal Reform for Child Welfare
    Systems:  Four Case Studies," Chapin Hall Center for Children,
    University of Chicago (Jan.  1998) (draft).

          PUBLIC AGENCIES CONTINUE TO
          RELY ON TRADITIONAL PARTNERS
    -------------------------------------------------------- Chapter 2:2.2

    Most of the 36 managed care initiatives currently under way are using
    some version of either the lead agency or public model, as shown in
    table 2.2.  These organizational arrangements tend to rely solely on
    the community-based nonprofit providers that have traditionally
    served children and families in the child welfare system.  In some
    lead agency model initiatives, public agencies stipulated in the
    request for proposals that only those prospective bidders with
    previous experience in providing child welfare services within the
    state or locality were eligible to submit bids.  Used less
    frequently, the ASO and MCO models introduce a new type of
    organization to the child welfare system--a management entity that
    generally is not itself in the business of delivering child welfare
    services.  In the three initiatives implementing the ASO managed care
    model, one or more lead agencies are responsible for coordinating and
    providing direct services.

                                   Table 2.2

                     Type of Managed Care Model Used in 36
                              Ongoing Initiatives

                                                                    Number
                                                                        of
                                                                    initia
    Model                                                            tives
    --------------------------------------------------------------  ------
    Lead agency                                                         19
    Public                                                              10
    Managed Care Organization (MCO)                                      4
    Administrative Services Organization (ASO)                           3
    ======================================================================
    Total                                                               36
    ----------------------------------------------------------------------
    Source:  GAO survey.

    For-profit companies, including organizations with experience
    providing managed physical or behavioral health care, have not had a
    major role in developing and implementing managed care initiatives in
    child welfare.  Of the 27 initiatives about which we obtained more
    detailed information, 10 currently use for-profit organizations as a
    service provider, managed care entity, or both, as shown in table
    2.3.  For-profit companies are providing traditional direct services
    in five of the initiatives using the public model and in one of the
    initiatives using the ASO model.  The companies function as a lead
    agency in the two initiatives using the lead agency model and the
    other initiative using the ASO model.  Many of these for-profit
    entities had historically provided services to children and families
    in their community before the managed care initiative.  For example,
    in Massachusetts' Commonworks program, a for-profit company that was
    already a primary provider of mental health services was the
    successful bidder for one of six regional lead agency contracts.
    Having little or no experience in the child welfare system, some
    for-profit managed care companies are functioning as ASOs or MCOs.
    In Milwaukee County's Safety Services Program in Wisconsin, a
    behavioral health managed care company linked with two nonprofit,
    community-based agencies to form a new entity to which the state
    awarded a contract to become one of four lead agencies.  For-profit
    managed care companies are functioning as the MCO or ASO in three of
    the five initiatives using these models.

                             Table 2.3

                 Role of For-Profit Companies in 27
                      Managed Care Initiatives

                      (Number of initiatives)

                                Using for-
                                    profit  Role of for-
    Model              Total    company(s)  profit company(s)
    --------------  --------  ------------  ------------------
    Lead agency           12             2  Lead agency and
                                             service provider
    Public                10             5  Service provider
    ASO                    3             2  In one initiative,
                                             different
                                             companies are the
                                             ASO and a lead
                                             agency,
                                             respectively; in
                                             the other
                                             initiative, the
                                             same entity is
                                             the ASO and a
                                             service provider
    MCO                    2             1  MCO
    ==========================================================
    Total                 27            10
    ----------------------------------------------------------
    Source:  GAO survey.

    MANAGED CARE INITIATIVES USE
    CAPITATED PAYMENTS AND RELY ON
    PRIVATE ENTITIES TO ASSUME CASE
    MANAGEMENT RESPONSIBILITES
    ============================================================ Chapter 3

    Child welfare agencies have implemented capitated payment systems and
    new service-delivery strategies in their managed care initiatives.
    In these new financial arrangements, public agencies are developing
    methods to limit risk and to establish the capitated payment rate.
    In addition, public agency contracts with providers now require the
    providers to organize and coordinate a full array of services.  With
    these changes, public agencies are using different approaches to hold
    providers accountable for outcomes through performance standards and
    by linking financial rewards and penalties to outcomes.

       CAPITATED PAYMENTS SHIFT
       FINANCIAL RISK TO SERVICE
       PROVIDERS
    ---------------------------------------------------------- Chapter 3:1

    Public agencies are implementing capitated payment systems in managed
    care initiatives, although they still maintain fee-for-service
    reimbursement methods in some of their contracts with service
    providers.  States and counties have used a number of different
    methods to develop capitated contract rates and have created
    strategies that shift some or all financial risks to the private
    sector.  Finally, some public agencies have pooled funds from
    different agencies to increase their flexibility to provide multiple
    services to hard-to-serve children.

          CAPITATION REPLACES
          TRADITIONAL FEE-FOR-SERVICE
          PAYMENT SYSTEM
    -------------------------------------------------------- Chapter 3:1.1

    In 19 of the 27 initiatives about which we obtained detailed
    information, payments to providers serving children and families
    under managed care are fixed.  In nine initiatives, payment takes the
    form of a case rate, or a fixed dollar amount for each referred
    client, and covers contracted services for all clients in the
    caseload regardless of the extent to which these services are used.
    For example, in Kansas' foster care managed care initiative, the
    state pays each lead agency a case rate for each referred child
    averaging about $13,850 a case, which is expected to cover the
    complete operation of the out-of-home care system, including food and
    shelter, child care, mental health treatment, independent living,
    reunification services, and case management for the children in
    foster care, as well as all recruiting and training of foster
    parents.

    Eight initiatives use a capitated rate--a fixed payment for all
    contracted services for a defined client population, such as those
    residing within a designated geographic area, with no limits on
    duration of care.  Unlike the case rate, each new client does not
    generate a new stream of dollars; rather, the capitated rate is fixed
    regardless of how many children are served.  In Sarasota County,
    Florida, for example, the lead agency receives a capitated rate of
    about $4 million, over a 1-1/2-year period, for providing all the
    child welfare services that any county resident in the state's child
    welfare system might need.\24

    --------------------
    \24 Two initiatives use a combination of case and capitated rates for
    different contracts.  Seven of the remaining eight initiatives plan
    to implement some type of capitation in the future.

          DIFFERENT METHODS ARE USED
          TO LIMIT PROVIDERS'
          FINANCIAL RISK
    -------------------------------------------------------- Chapter 3:1.2

    A single entity that assumes the total cost of providing a defined
    scope of services to a defined population of potential users over a
    specified time period inevitably assumes financial risk as well.  Of
    the 19 ongoing initiatives using capitated payments, only 2
    initiatives--the Sarasota County initiative and the Lake and Sumter
    County initiative in Florida--have transferred full financial risk to
    the respective private lead agency.  In nearly all the remaining
    capitated arrangements, public and private agencies alike have
    created risk-limiting mechanisms to address the unknowns associated
    with the size of the population needing services and the scope and
    duration of those services.  Absent good historical data on service
    use and costs as well as experience with a capitated payment system,
    public child welfare agencies have explored different ways to limit
    the financial risk carried by the initiative's service providers.  We
    found that public agencies are using two approaches--one fixes only a
    part of the provider payment and reimburses some services through the
    fee-for-service method, and the other uses specific contract
    provisions to limit the size of the financial risk assumed by the
    providers.

    In five initiatives, public agencies have established a fixed rate
    for only a part of the contracted services.  Services not included
    under this partial fixed rate are reimbursed on a fee-for-service
    basis.  For example, in the Kids Oneida project in Oneida County, New
    York, the lead agency receives a prepaid, monthly case rate of
    $2,500--amounting to $30,000 a year--which is expected to cover the
    full range of services needed to keep children and adolescents with
    serious emotional, behavioral, or mental health issues in the
    community or at home.  However, the federally eligible behavioral and
    mental health services that the lead agency provides or purchases may
    be billed for Medicaid reimbursement on a fee-for-service basis.

    According to our survey of ongoing managed care efforts, seven
    initiatives include contract provisions that limit providers' losses
    when costs exceed the fixed rate.  Mechanisms to limit a provider's
    losses can take several forms, including those where the public
    agency and provider share excess costs and others where the public
    agency bears the excess costs alone.  One risk-sharing mechanism
    limits the provider's losses to a percentage of total costs, with
    either public dollars alone paying any further costs or the provider
    sharing some of the cost overruns.  For example, during the first
    year of Kansas' foster care managed care initiative, the lead agency
    contracts contained a 10-percent margin so that the contractor was
    responsible for all additional costs up to 10 percent above the case
    rate and the state was to pay for all excess costs beyond that.
    Under this arrangement, the lead agency would pay all costs up to 110
    percent of the case rate and the state would pay anything over that
    amount.

    Other techniques address the serious financial burden associated with
    the catastrophic costs of certain groups of children or circumstances
    beyond the provider's control, such as an unexpected increase in the
    number of abuse and neglect reports.  One technique is to set aside a
    pool of funds, known as a risk pool, for use if the cost of care
    exceeds some targeted amount.  For example, in Champaign County,
    Ohio, the county and its foster care contractor created a risk pool
    set at a value equal to 10 percent of the contract value, or about
    $24,000.  The contractor funds 40 percent of the pool, and the county
    funds 60 percent.  The risk pool covers catastrophic costs over
    $32,400 per child, so that costs in excess of this amount are charged
    to the risk pool; however, once the risk pool is depleted, the county
    pays the cumulative costs over the $32,400 per child amount.

    To prevent a fixed payment system from penalizing extraordinarily
    hard-to-serve children, some managed care initiatives exempt these
    populations from their rates.  This can be accomplished by either not
    referring certain clients to the managed care entity or allowing the
    costs associated with serving only these clients to be reimbursed on
    a fee-for-service or per diem basis.  Without such exemptions, the
    prohibitively high service costs for these clients could place such a
    drain on the managed care entity's resources that it would not be
    able to provide the caliber of services these hard-to-serve children
    need.  Furthermore, serving these high-need children could
    significantly reduce the resources available to serve more typical
    clients.  For example, in both Kansas' foster care managed care
    initiative and Boulder County's managed care initiative in Colorado,
    developmentally disabled children are excluded from the population
    served by the respective managed care entities.  These children have
    unusually high service needs, including hospitalization and in-home
    medical care.  Moreover, in Kansas, each lead agency can now exclude
    a designated number of referred cases--ranging from 24 to 35--for
    which it has 60 days to decide whether a referral will be served
    outside the case rate on a fee-for-service basis.  This change was
    effected to ameliorate financial problems lead agencies experienced
    while serving children with high service needs within the contract
    case rate, which was initially developed without data on actual
    service costs.

    Financial risk is also associated with uncertainty about the size of
    the population to be served.  One mechanism to limit this type of
    risk is for the public agency to guarantee the provider a minimum or
    maximum number of cases.  According to our survey of ongoing managed
    care initiatives, seven initiatives have such measures in place.  For
    example, in the Kids Oneida initiative in Oneida County, New York,
    the lead agency must accept all county referrals as long as its
    capacity has not been reached.

          PUBLIC AGENCIES USE
          DIFFERENT METHODS TO
          ESTABLISH CAPITATED PAYMENT
          RATES
    -------------------------------------------------------- Chapter 3:1.3

    Setting capitated payment rates for child welfare services was a new
    exercise for states and local agencies.  Consequently, they used a
    variety of methods.  In some initiatives, the public agency used the
    competitive bidding process as the forum to negotiate a contract rate
    for services.  In Kansas' foster care managed care effort, for
    example, each of the five regional lead agency contracts has its own
    case rate.  The state provided prospective bidders with a dollar
    amount that was based on previous expenditures for purchased
    services, staff, other operating expenditures, and services funded
    through other parts of the agency, such as mental health and child
    care.  Equipped with this information, private entities vying for the
    lead agency contracts proposed their own annual case rates covering a
    4-year period.  These rates then became the case rate for those
    successful contractors.  In Massachusetts' Commonworks project, the
    state negotiated a 3-year contract rate with the managed care company
    that was awarded the ASO contract; the rate was based on the annual
    projected operating costs for the specified administrative services.

    In other initiatives, the public agency used historical data to set
    the contract rate and did not, as a rule, negotiate the rate with the
    contractors.  For example, in Florida's managed care initiative in
    Lake and Sumter Counties, the lead agency's case rate was developed
    by examining the actual cost for the care of children sheltered in
    Lake County over a 2-year period, including multiple cost categories,
    such as out-of-home care, administrative services, and therapeutic
    services for children and families entering care.  Costs were also
    categorized according to whether children were entering foster care
    or receiving only protective services, and bundled into a single
    2-year case rate.\25 In Massachusetts, the state's contract with the
    lead agency in each of six regions across the state has two
    components.  One is a negotiated annual fee for the lead agency to
    coordinate and oversee its service provider network and is intended
    to cover staff costs and training.  The second component is a case
    rate for direct services that is the same for each lead agency and,
    for the first year, was partly based on an actuarial model using 1995
    expenditure and utilization data for youth in group care, and also
    including an educational subsidy.

    In other initiatives, the state allocated a portion of its child
    welfare services budget directly to the managed care entity.  Such
    was the case in Colorado, where the state allocates child welfare
    funds to counties through a block grant.  In Boulder, Jefferson, and
    Mesa Counties, the block grant, in effect, created the capitated
    contract rate for each county's public managed care model.  For the
    Sarasota County managed care initiative in Florida, the state carved
    out the county's share of a multicounty district's annual operating
    budget, generally using the same methodologies it uses to allocate
    budget line items to districts.\26 The allocation method is based on
    caseload size; actual dollar amounts from about 14 different budget
    components, including out-of-home care, sexual abuse treatment, and
    independent living services; and operating expenses and salaries
    associated with the cost of 37.5 public positions.  Once the county's
    budget allocation was determined, the state withheld about 10 percent
    of the total to fund an evaluation and seven new public positions in
    the county to perform quality assurance and title IV-E eligibility
    determination functions.  The remaining budget dollars became the
    lead agency's contract rate.

    Regardless of the method for setting rates, the public agency often
    expects the contractor to supplement the contract rate with funds
    from other sources, especially federally reimbursable programs such
    as Medicaid.  For example, in Massachusetts' Commonworks program, the
    lead agencies are expected to tap Medicaid and state education
    sources, as well as private funding sources, to fund related
    services.  The state also encouraged the lead agencies to enter into
    public-private partnership agreements to help subsidize the cost of
    coordinating their provider networks because the state will reimburse
    no more than 75 percent of these costs, or a maximum of $100,000.
    For Wisconsin's Safety Services Program in Milwaukee County, the
    state expects each of the four lead agencies to supplement state
    funding by referring clients who are eligible under Medicaid to their
    HMO for applicable services and securing Medicaid funds for targeted
    case management to partially support staff costs.

    --------------------
    \25 B.  Peacock, Implementation Study Report on the Child Welfare
    Privatization Projects, Florida Department of Children and Families
    (Jan.  1998).

    \26 Florida administers its child welfare system through and
    distributes funding to 15 state-operated districts, which comprise
    multiple counties.  Sarasota County is one of seven counties in
    District 8.

          POOLING FUNDS INCREASES
          FLEXIBILITY
    -------------------------------------------------------- Chapter 3:1.4

    The child welfare system relies on many different programs from
    multiple agencies with many funding streams.  Because of restrictions
    on eligibility and prohibitions on certain uses of funds, public and
    private agencies often face problems accessing needed services.  To
    reduce service access problems sometimes associated with these
    categorical programs and increase flexibility in the use of funds,
    agencies in some locations have agreed to pool or blend funds from
    various sources for their managed care initiative.  In four states
    where counties administer the child welfare system, the state
    distributes child welfare funds to county child welfare agencies
    through a capitation method that fixes the level of funding, for
    example, a block grant.\27

    "Blockgranting" state funds in this way loosens the restrictions on
    the use of the funds and thus increases counties' flexibility.  In
    Colorado, for example, the state's capped allocation to counties now
    typically includes categorical child welfare budget line items for
    out-of-home placement, subsidized adoptions, and child care and
    county administrative costs related to child welfare services.
    Boulder County's managed care initiative--serving adolescents at
    imminent risk of placement in group or residential care referred from
    the child welfare, mental health, and juvenile justice
    systems--further pooled its capped child welfare allocation with
    funding from the mental health agency and youth corrections agency to
    finance its IMPACT initiative.

    Funding from both child welfare and mental health funding streams are
    often pooled, especially for the hard-to-serve and high-cost
    children.  Under its public managed care model, the Wraparound
    Milwaukee program in Wisconsin blended Medicaid, child welfare, and
    federal grant funds into a single buying pool to purchase
    individualized, family-based services to help children placed in
    residential treatment centers return to their family, a foster home,
    or other living arrangement in the community.  The county child
    welfare agency agreed to pay a monthly case rate of $3,300 per child
    out of its institutional placement budget.  In addition, the state
    health care financing agency agreed to pay a monthly case rate of
    $1,459 to pay for all mental health and substance abuse services for
    Medicaid-eligible children, who make up about 80 percent of the
    initiative's clientele.  Along with a federal grant from SAMHSA's
    Center for Mental Health Services, these child welfare and Medicaid
    dollars form the funding pool from which the public managed care
    entity pays the cost of residential treatment, group and foster care,
    and all other services, except physical health care, which is outside
    the capitated contract rate and still obtained by families on a
    fee-for-service basis.

    --------------------
    \27 In response to our survey, the states of Colorado, New York,
    Ohio, and Wisconsin indicated they have "blockgranted" funds for
    child welfare services to counties.  In addition, Alameda County is
    implementing a managed care initiative as one of five counties in
    California experimenting with blended funding strategies.

       SERVICE DELIVERY CHANGES ARE
       DESIGNED TO COORDINATE CARE,
       BUT PUBLIC AGENCIES RETAIN
       CRITICAL FUNCTIONS
    ---------------------------------------------------------- Chapter 3:2

    Managed care contracts usually require the managed care entity to
    provide, create, or purchase a wide range of services to meet
    clients' needs.  If not providing services directly itself, the
    primary contractor may develop and subcontract with a network of
    service providers to make available all the services referred clients
    might need.  Under managed care, public agencies have increasingly
    privatized case management tasks, such as treatment planning and case
    monitoring, and expect the managed care entity to serve as the single
    point of entry to the service system.

    States and localities have retained certain functions that officials
    believe are critical to meeting their legal responsibility for the
    safety of children in the child welfare system.  Although most of the
    27 initiatives have transferred case management responsibilities to
    private entities, public agencies maintain a large presence during
    strategic points in a child's service history.  These include the
    points at which a child enters and exits the child welfare system and
    when key decisions are made about changes in a child's service plan.

          PRIMARY CONTRACTOR IS
          RESPONSIBLE FOR ENSURING
          ACCESS TO A WIDE RANGE OF
          SERVICES
    -------------------------------------------------------- Chapter 3:2.1

    Managed care initiatives are trying to better coordinate care and
    ensure access to a wide range of services to address concerns about
    service fragmentation and gaps that have historically plagued the
    child welfare system.  Where public agencies have contracted out the
    care coordination function to a lead agency or MCO, that primary
    contractor assumes responsibility for ensuring the availability and
    provision of all contracted services as well as any additional
    services that may be necessary to meet individual client needs.  If a
    child or family has a unique service need that traditional services
    cannot meet, the primary contractor must develop new strategies to
    meet it.  Whether using existing services or creating new ones, the
    primary contractor--regardless of whether it is a public agency in
    the public model or a private organization in the lead agency
    model--can either deliver services itself or contract with a network
    of service providers.

             SERVICE NETWORKS PROVIDE
             THE FRAMEWORK FOR FULL
             ARRAY OF SERVICES
    ------------------------------------------------------ Chapter 3:2.1.1

    The creation of an organized and coordinated network of service
    providers is the foundation of managed care initiatives.  These
    configurations of service providers have been formed in one of two
    ways--through a self-initiated process prior to the formation of the
    managed care project or as a required component of the initiative
    itself.  The self-initiated process often begins with a group of
    community providers establishing itself as a service coalition or
    consortium in anticipation of state or county reform.  By either
    becoming an MCO itself or designating one of its members as the lead
    agency to perform management services, a provider group assumes
    responsibility for coordinating the care of a defined population of
    children and families.  In Indiana's The Dawn Project in Marion
    County, four community mental health centers in the county formed a
    new nonprofit MCO.  The MCO contracts with case managers and service
    providers who collectively provide or develop the necessary services
    for children and youth with serious emotional disturbances who are
    already in or at risk of out-of-home placement.  In the lead agency
    model being used in Sarasota County, Florida, all the major local
    vendors that had traditionally provided contracted child welfare
    services, such as parenting classes, therapy, in-home visitation,
    family support services, therapeutic foster care, and residential
    services, formed a coalition; one member--the YMCA--serves as the
    lead agency, and the coalition operates as the provider network.

    In still other initiatives, the primary contractor had to build a
    network of service providers as a condition of its managed care
    contract with the public agency.  In both Massachusetts' Commonworks
    program and Tennessee's Continuum of Care contracts, for example, the
    primary contractors are responsible for forming a network of either
    existing or new providers and, through this network, providing all
    the appropriate services to meet the needs of clients accessing the
    network.

             NEW APPROACHES TO CASE
             MANAGEMENT ARE DESIGNED
             TO BETTER COORDINATE CARE
    ------------------------------------------------------ Chapter 3:2.1.2

    Under child welfare managed care arrangements, contracted private
    providers are attempting to develop coordinated networks of service
    providers and are assuming more case management responsibilities.
    While some private entities were already performing some case
    management functions before these initiatives were implemented, in 21
    of the 27 ongoing managed care initiatives, the public agency has
    shifted more case management responsibilities to private contractors.
    In the lead agency and MCO models, in particular, the private sector
    is now performing such case management tasks as developing the
    treatment plan that identifies the treatment goals and needed
    services, as well as arranging for the provision of these services
    either by the case manager's own organization or through the provider
    network.  Case managers also track clients' progress toward achieving
    their treatment goals, assess the appropriateness of each service,
    and update the treatment plan, as needed.

    In an effort to better match services with client needs, many of the
    ongoing initiatives use a team approach to case management to avoid
    the duplication, time delays, and fragmentation that often result
    when different service systems are not involved in the treatment
    planning and decision-making process.  In some initiatives, the
    treatment team consists of those individuals who are regularly in
    direct contact with the child, including the case manager, therapist,
    parents or guardians, school officials, and other service providers,
    depending on the child's problems.  Together, the treatment team
    develops an individualized service plan and reviews, revises, and
    implements any necessary changes.  For example, in Sarasota County's
    managed care initiative in Florida, where the lead agency
    subcontracts with two coalition service providers to establish case
    management teams, the subcontractor provides a case manager and a
    therapist, who bring in the foster parents, and, when appropriate, a
    guardian ad litem,\28 to work exclusively with families and complete
    assessments, case plans, concurrent planning, and case reviews.
    Having both a case manager and therapist on the team means that
    mental health services are routinely made available to each family
    and child in care.

    In other initiatives, case management teams are interdisciplinary
    with representatives from multiple agencies to better address the
    varied needs of hard-to-serve children who often have long histories
    of involvement with multiple agencies.  For example, the managed care
    initiative in Boulder County, Colorado, is an interagency
    collaboration under the public managed care model.  The local child
    welfare, mental health, and juvenile justice agencies formed a new
    managed care entity to perform joint gatekeeping, assessment,
    placement case planning, concurrent utilization review, and quality
    assurance functions for the targeted population of adolescents in
    need of group or residential placement.  Youth in need of such a
    placement are referred to an interagency team comprising public
    agency administrators from child welfare, community corrections,
    health, community services, mental health, youth corrections, and
    probation, and facilitated by staff from the managed care entity.
    This team makes the final decision on whether and where the referred
    adolescent should be placed and reviews the child's progress every 90
    days.  The day-to-day case management responsibilities are handled by
    the managed care entity's intensive case managers, who monitor and
    assess the adolescent's movement toward placement goals in
    conjunction with the county child welfare caseworker.

    --------------------
    \28 A guardian ad litem is an attorney or trained volunteer who
    represents the child in court, investigates the case, and monitors
    case progress.

          PUBLIC AGENCIES RETAIN
          CERTAIN CHILD WELFARE
          FUNCTIONS
    -------------------------------------------------------- Chapter 3:2.2

    Although public agencies are privatizing the management and
    coordination of care for children who are victims or at risk of abuse
    and neglect, they continue to retain certain tasks they believe are
    critical to meeting their legal responsibility for the safety and
    well-being of children in the child welfare system.  In all 27
    initiatives, the public agency continues to conduct all CPS functions
    related to investigating reports of child abuse and neglect and
    recommending to the courts whether a child needs to enter the child
    welfare system for protective or any other services.  A child enters
    the managed care system on the basis of a referral from the public
    child welfare agency to the managed care entity.  To ensure that
    managed care providers do not deny access, some contracts explicitly
    state that the primary contractor can neither reject a referral nor
    eject an accepted case.

    The public agency also maintains its presence by participating in the
    primary contractor's treatment planning process and requiring
    approval when the contractor decides to make changes in the level of
    care, such as moving a child from residential care to family foster
    care.  In several initiatives, public agency staff are members of the
    case management team that reviews, revises, and implements the
    child's treatment plan.  The public worker's role on the treatment
    team in some initiatives is to review and approve the case manager's
    service plan for the child and family, any significant deviations
    from the plan, and decisions calling for discharge from care or
    transfer to a different level of foster care placement or to an
    in-home service provider.  For example, in Sarasota County's managed
    care initiative in Florida, a public worker attends all case review
    meetings where case plans may change significantly, including the
    treatment goal and decisions to discharge a case or pursue
    termination of parental rights to free a child for adoption.  This
    worker does not participate in case plan choices or recommendations,
    but is there to listen, observe, and intervene when he or she
    perceives a child's safety may be jeopardized because of the case
    review decisions.

    While primary contractors are generally free to subcontract any of
    the contracted services, the public agency can exercise some control
    over these subcontracts.  For example, in Massachusetts' Commonworks
    program, the state requires that if a lead agency also administers a
    residential care program, then at least 75 percent of placement
    services must be subcontracted out to avoid conflicts of interest
    regarding placement decisions among direct service providers in the
    network and to help maintain diverse programming and placement
    options.  In several initiatives, the public agency controls which
    agencies are in the provider network.  In the TrueCare Partnership
    initiative in Hamilton County, Ohio, for example, the MCO has
    contracted and negotiated reimbursement rates with local service
    providers to carry out its service-delivery responsibilities;
    however, the county selected the first group of providers through a
    competitive process and must approve any elimination or addition to
    the provider network.

       QUALITY ASSURANCE STRATEGIES
       ARE DESIGNED TO BALANCE COSTS
       AND QUALITY
    ---------------------------------------------------------- Chapter 3:3

    Public agencies are developing strategies to protect against the
    inherent incentive in managed care to withhold or provide reduced
    services.  These strategies attempt to hold managed care providers
    accountable for achieving the outcomes public agencies are pursuing
    by setting performance standards and linking financial rewards and
    penalties to outcomes.  In addition, public agencies plan to evaluate
    the effectiveness of their initiatives to determine whether managed
    care is accomplishing the desired objectives and resulting in
    efficiencies.

          PERFORMANCE STANDARDS HOLD
          MANAGED CARE PARTNERS
          ACCOUNTABLE
    -------------------------------------------------------- Chapter 3:3.1

    Public agencies have instituted performance standards as a means of
    holding their contracted service providers accountable for outcomes.
    In 23 of the 27 managed care initiatives about which we obtained
    detailed information, the public agency requires service providers to
    meet specific performance standards.  In a majority of these 23
    locations, the public agencies were using performance standards in
    contracts before implementing managed care initiatives.  However, in
    most cases, these agencies are now incorporating performance
    standards into more contracts.  In addition, service providers in
    eight ongoing initiatives are being held accountable for their
    performance for the first time.

    Public agencies are using multiple performance standards to balance
    the twin goals of controlling costs while ensuring quality of care
    and the overall safety of children.  Taken together, a set of goals
    and objectives with related performance standards can help ensure
    desired outcomes are achieved.  While some standards are based on
    system outcomes, such as reducing overall costs of placements or
    achieving permanency more quickly, other standards are more
    client-specific and appropriate for every child, such as ensuring
    that immunization schedules are met.  Moreover, some standards
    address cost efficiencies and the savings associated with speedier
    exits from foster care or transfers to less costly but appropriate
    levels of care.  For example, if a goal is to achieve cost
    efficiencies, the performance standard may call for decreased
    residential care costs shown as a percentage less than an established
    baseline amount.  Or, if an objective is to ensure that children are
    reunited with their families in a timely manner, a performance
    standard may require that a percentage of children in out-of-home
    care be returned to their families within a specified period of time.
    Other standards focus on the quality of care, which is often measured
    by whether children remain in safe, stable settings and their
    well-being is sustained and nurtured.  For example, in addressing
    children's safety, the performance standard could prescribe a
    percentage of all children that are returned to their families with
    no findings of maltreatment for a specified period of time.
    Furthermore, an indicator of placement stability in out-of-home care
    could be a standard setting the maximum number of times a percentage
    of children experience changes in their placement setting.  In
    addition, promoting families' well-being could manifest itself in a
    standard of a certain percentage of families that show improvement in
    parenting skills and capacity.

    Public agencies in most ongoing managed care initiatives are
    incorporating multiple performance standards for their service
    providers, as illustrated for Kansas' foster care managed care
    initiative in table 3.1.

                                   Table 3.1

                    Performance Standards Contained in Lead
                    Agency Contracts for Foster Care Managed
                           Care Initiative in Kansas

    Outcome or goal                     Performance standard
    ----------------------------------  ----------------------------------
    Children are safe from              95 percent of children in the care
    maltreatment                        and supervision of the contractor
                                        will not experience confirmed
                                        abuse or neglect while in
                                        placement (raised to 98 percent
                                        for year 2)

                                        80 percent of children will not
                                        experience confirmed abuse or
                                        neglect within 12 months after
                                        reuniting with their families

    Children experience a minimal       90 percent of children referred to
    number of placements                the contractor will have no more
                                        than three placement moves
                                        subsequent to referral (lowered to
                                        70 percent for Year 2)

                                        65 percent of all children will be
                                        placed with at least one sibling

    Children maintain family,           70 percent of children referred
    community, and cultural ties        after the implementation date will
                                        be placed within their contract
                                        regional boundaries

                                        75 percent of youth, aged 16 and
                                        over, released from custody will
                                        have completed high school,
                                        obtained a general equivalency
                                        diploma (GED), or be participating
                                        in an educational or job training
                                        program

    Children are reunited with their    60 percent of children placed in
    families in a timely manner         out-of-home care will be returned
                                        to their families within 6 months
                                        of referral to the contractor
                                        (lowered to 40 percent for year 2)

                                        90 percent of children who are
                                        reunited with their families will
                                        not reenter out-of-home custody
                                        within 1 year of return home

                                        65 percent of children will
                                        achieve permanency within 1 year
                                        of referral to the contractor (new
                                        standard added for year 2)

    Clients will be satisfied with      80 percent of parents and youth
    services                            (aged 14 and over) will report
                                        satisfaction with services as
                                        measured by the Client
                                        Satisfaction Survey upon case
                                        closure
    ----------------------------------------------------------------------
    Source:  Kansas Department of Social and Rehabilitation Services.

          FINANCIAL INCENTIVES AND
          DISINCENTIVES ARE LINKED TO
          OUTCOMES
    -------------------------------------------------------- Chapter 3:3.2

    Some initiatives offer bonuses as a financial incentive for the
    managed care entity to meet performance standards.  For achieving
    cost savings or successfully returning a child to the family, for
    example, the contractor can earn additional funds in several ways.
    In Massachusetts' Commonworks initiative, the lead agency receives a
    bonus payment of $1,000 for each youth who has been discharged for 6
    months and not readmitted to the program during that period.  In the
    TrueCare Partnership initiative in Hamilton County, Ohio, the MCO can
    earn two kinds of performance bonuses.  First, the MCO can earn as
    much as about $100,000 per year in bonuses for meeting 20 individual
    performance indicators related to (1) service outcomes for referred
    families, such as improved functioning, timely receipt of behavioral
    health services, and success in ensuring children's safety and
    reducing risk of harm; and (2) management services, including
    maintenance of a competent provider network, revenues maximized, and
    client satisfaction with network providers' services.  Second, the
    MCO can earn an additional bonus up to a maximum of $33,000 a year by
    meeting all its performance standards and reducing costs by more than
    15 percent.\29

    Similarly, some contractors can be penalized for poor performance.
    Continuing with the Hamilton County example, the MCO can incur
    financial penalties totaling about $63,000 if it fails to meet the
    various performance indicators related to service outcomes for
    families and management services.  In several initiatives, another
    disincentive to poor treatment planning and discharging children from
    care prematurely is to hold contractors financially responsible for
    those children who must reenter care within a specified period of
    time.  For example, in Kansas' foster care managed care initiative,
    the lead agency must pay for all costs if a child who was returned to
    the family reenters foster care within 12 months of the discharge.
    Hence, while the lead agency initially received a fixed case rate for
    each referred child, the state provides no additional funds beyond
    this amount if the child must once again be removed from the family
    during the year following discharge.

    Another method public child welfare agencies use to help ensure that
    managed care entities do not inappropriately limit the amount or
    types of necessary service to children and families is to restrict
    profit levels or require that cost savings be reinvested in services.
    Ongoing managed care initiatives limit contractors' ability to profit
    at the public's expense in several different ways.  First, in
    Massachusetts, state regulations limit surplus revenues to 5 percent
    for the lead agencies and their network providers in the Commonworks
    managed care initiative.  Second, contract language can limit a
    provider's gains with a risk-sharing mechanism similar to the one
    that limits losses.  In the Kansas foster care initiative example,
    where the lead agency was financially at risk for up to 110 percent
    of the contract rate in the first year, the contract also allowed a
    10-percent margin for retaining any cost savings.  Under this
    arrangement, the lead agency could keep any savings after spending 90
    percent of the contract rate; any additional savings reverted to the
    state.  Such a limitation on both losses and gains is sometimes
    referred to as a "risk-reward corridor."

    Other managed care initiatives include contract provisions requiring
    providers to reinvest "profits" in the program.  For example, in
    Sarasota County's managed care initiative in Florida, the lead agency
    must reinvest any realized savings in primary prevention programs or
    enhanced child welfare services.  In Boulder County's public managed
    care initiative in Colorado, the state stipulates that the county can
    use up to 5 percent of its capped child welfare allocation to reduce
    its share of the state-required local match, but any additional
    savings must be reinvested in additional child welfare services.
    Under this arrangement, the county plans to reinvest any savings in
    innovative community-based services to shorten or eliminate the need
    for residential placement; reward and enhance selected providers'
    capabilities to serve adolescents effectively; and develop and
    maintain a countywide management information system that will
    integrate clinical, fiscal, and outcome data on children in
    placement.

    Finally, public agencies are concerned about the critical time
    immediately following a child's discharge from foster care.  To
    better safeguard against reentry into care, some locations are
    offering providers incentives--in the form of additional funds or as
    a supplement to the contract rate--to deliver aftercare services to
    recently discharged children and their caregivers.  For example, in
    the Commonworks program in Massachusetts, the state has incorporated
    funding specifically for aftercare services into the lead agencies'
    case rate during the first year so that, once a child is discharged
    from foster care, the lead agency's case rate changes from $4,000 to
    $400 per month for up to 6 months.

    --------------------
    \29 Wulczyn and Orlebeke, "Fiscal Reform for Child Welfare Systems."

          INDEPENDENT REVIEW WILL
          ASSESS THE EFFICACY OF
          MANAGED CARE INITIATIVES
    -------------------------------------------------------- Chapter 3:3.3

    External or independent reviews will help determine whether system
    reforms under managed care arrangements are effective, accomplishing
    desired objectives, and resulting in efficiencies.  Most of the 27
    initiatives about which we obtained detailed information intend to
    collect information to assess the time it takes to achieve permanency
    goals as well as the cost of providing services under managed care.
    In addition to these efforts, many initiatives include an evaluation
    component that will examine project outcomes, performance quality,
    and cost efficiency in various ways.  Some initiatives--for example,
    both Massachusetts' Commonworks program and Alameda County's Project
    Destiny initiative in California--will conduct independent
    longitudinal evaluations.  A systemwide evaluation is planned in
    Kansas, where the state has contracted for a 4-year external review
    of its entire child welfare system, including its three statewide
    managed care initiatives and services provided by both public and
    private employees.

    In some initiatives, public child welfare agencies plan internal
    evaluations of their managed care efforts.  In Tompkins County, New
    York, the county child welfare agency will conduct an annual program
    review of its Youth Advocate Program and the lead agency's services.
    The objective is to determine the extent to which client milestones
    and targets are achieved, and to use the program review results to
    help modify program goals and performance standards.  Other
    initiatives will be evaluated by the managed care entities
    themselves, as in Wisconsin's Safety Services Program in Milwaukee
    County, where the contracted lead agency is responsible for designing
    and implementing a 2-year plan, subject to the state's approval, to
    evaluate program effectiveness and the quality of the services
    delivered.

    A final approach is to measure the extent to which foster and
    biological parents as well as older children are satisfied with the
    services they receive under managed care arrangements.  As part of
    either an independent evaluation, performance standards, or ongoing
    quality assurance monitoring, collecting information directly from
    clients will help identify outcomes related to managed care's effect
    on children and families.  For example, in Boulder County's managed
    care initiative in Colorado, client satisfaction data will be
    collected from adolescents and families served--through focus groups
    of those receiving services under the initiative--as a component of
    the overall quality assurance plan.  This information will add
    qualitative texture to the quantitative outcomes and assessment data.

    THE MOVE TO MANAGED CARE IS NOT
    WITHOUT CHALLENGES
    ============================================================ Chapter 4

    Public officials considering managed care for their child welfare
    system face three difficult challenges.  First, when implementing
    managed care, public agencies have found that they need to accomplish
    a number of tasks, of which developing a capitated, prospective
    payment system is most crucial.  Second, client service and outcome
    data are critical to setting adequate payment rates and monitoring
    both client and provider outcomes.  Developing the management
    information systems needed to store and retrieve these data
    represents a difficult task for public agencies.  Third, managed care
    requires both public and private agencies to assume new roles and
    responsibilities.  Staff from both sectors must alter long-standing
    practices and develop new skills.  Despite these challenges, public
    officials are encouraged by early--though limited--positive results.

       PUBLIC AGENCIES FACE INITIAL
       START-UP TASKS
    ---------------------------------------------------------- Chapter 4:1

    Before managed care arrangements can be implemented, both public and
    private agencies have found they need to accomplish a number of
    start-up tasks.  First and foremost, public agencies have sought
    solutions to the fiscal challenges of developing a prospective,
    capitated payment system when the major federal source of support for
    child welfare services--
    particularly foster care--is the service reimbursement method of
    title IV-E.  Second, in developing their managed care initiatives,
    public agencies have brought together key participants in the
    system--many of whom have little experience in such joint efforts.
    Third, because applying managed care principles to child welfare is
    new, public agencies have developed different strategies to build
    expertise in this area.  Finally, private providers participating in
    new initiatives need to anticipate significant start-up costs that
    may not be covered in their contracts.

          NEW FINANCING SYSTEMS ARE
          DIFFICULT TO DEVELOP AND
          REQUIRE ADJUSTMENTS
    -------------------------------------------------------- Chapter 4:1.1

    In a managed care environment, the use of prospective, fixed-payment
    arrangements between public agencies and private service providers
    can be difficult and presents states with fiscal challenges because
    the federal government retrospectively reimburses states for many
    child welfare services.  The managed care environment--in which
    public agencies pay service providers in advance of services but
    obtain reimbursement from federal title IV-E funds only after the
    services have been delivered--strains public agencies' ability to
    maintain an adequate cash flow.  In some states as well, state law
    mirrors federal law and prohibits advanced payments from the state's
    funding category for out-of-home placements.  States have found ways,
    however, to address this problem.  Some states, for example,
    initially make nonfederal funds available for advance payments to
    managed care entities.  In Massachusetts, the state advances general
    revenue dollars to the Commonworks' lead agencies and later replaces
    the advances with reimbursements from the federal foster care and
    Medicaid programs.

    Public agency officials also expressed concern that federal
    prohibitions against the use of title IV-E funding for services other
    than out-of-home care may increase the state's liability for funding
    a greater share of capitated contracts.  When a child returns home,
    federal reimbursement for foster care costs ceases; however, the
    child and family may continue receiving unreimbursable in-home
    services.  As managed care entities provide aftercare services and
    become more successful at returning and keeping children at home, the
    state's portion of the contract rate will increase as the federal
    share decreases.  In this scenario, the state will also realize
    savings in its out-of-home costs; however, these savings may be more
    than offset by the state's obligation to continue paying contractors
    for in-home services under the fixed rate.  This was the case in the
    Lake and Sumter County managed care initiative in Florida, where the
    state was paying the lead agency a case rate of about $15,000 over a
    2-year period for each child entering foster care.  The state based
    this rate on a daily cost of about $21 per child and expected to
    finance this rate, in part, by submitting claims for federal title
    IV-E foster care reimbursement.  However, the lead agency had the
    flexibility to use its case rate dollars to fund treatment and
    in-home services, and sometimes returned children home or completed
    successful adoptions in less than 2 years; the state was then left
    paying more of the daily per diem amounts with its own funds and
    could no longer claim federal title IV-E reimbursement because the
    children were no longer in out-of-home care.  Finding this financial
    risk unacceptable, the state abandoned the case rate after a year in
    favor of a capitated rate for the entire caseload and not for each
    referral.

    Of the 13 states where initiatives are currently being implemented,
    HHS has waived the categorical funding restriction in title IV-E for
    one state.  Ohio secured a federal waiver to receive a quarterly
    block grant of title IV-E funds that can be spent on in-home
    services, such as home-based therapy and other community-based
    support services.  Fifteen counties volunteered to participate in
    this demonstration, including Hamilton County where the county has
    contracted with an MCO to manage care for children and families in
    need of therapeutic, group, and residential care.  A few of the 10
    states that have received an HHS waiver of certain title IV-E
    restrictions plan to use it in part to implement managed care
    initiatives.  Furthermore, other states with ongoing managed care
    initiatives, including Kansas and Florida, are now seeking similar
    relief from title IV-E restrictions and have submitted waiver
    proposals to HHS.

    Once a financing system is established, agency officials have found
    that adjustments are often necessary as they gain experience with
    managed care.  For the second year of Kansas' foster care managed
    care initiative, for example, the state modified the lead agencies'
    risk-sharing mechanism to offset an increase in the lead agencies'
    case rate.\30

    Unlike the first year of the contract, lead agencies' financial
    liability is no longer limited by a 10-percent margin; instead they
    must pay all costs above the case rate.  In addition, each lead
    agency can now exclude a designated number of referred
    cases--averaging about 3 percent of each lead agency's total
    caseload--from the case rate and bill the state for those cases on
    the more traditional fee-for-service basis instead.  According to
    state officials, these changes were necessary because of potential
    cash flow problems associated with the risk-sharing mechanism and the
    realization that the cost of serving some children and families was
    higher than the initial case rate anticipated.  The payment method
    was changed altogether in the Lake and Sumter County managed care
    initiative in Florida, although the rate is still fixed.  Because the
    state found the case rate too costly when the number of children
    requiring a foster care placement grew at a steeper rate than
    anticipated, the state changed the payment method to a capitated
    rate--that is, a fixed fee that is no longer linked to each child the
    state refers to the lead agency but instead covers the estimated
    total number of children residing in the two counties who may require
    foster care services.

    --------------------
    \30 Technically, the state did not increase the lead agencies' case
    rate, but supplemented it by a fixed dollar amount.

          KEY STAKEHOLDERS' BUY-IN IS
          IMPORTANT
    -------------------------------------------------------- Chapter 4:1.2

    The child welfare system includes many different individuals and
    groups--such as public and private agencies, courts, community
    organizations, child advocates, and foster parents--all with
    different roles and perspectives.  Public agencies have found that
    involving these key participants to build consensus concerning
    program design issues is an important step in developing managed care
    initiatives.  In hindsight, program officials agreed that more
    inclusive, early involvement would have helped address misconceptions
    and reduce tensions surrounding managed care and would have
    facilitated program implementation by ensuring that stakeholders were
    informed about and supportive of the planned system reform.  While
    public agencies took steps to involve key stakeholders when the
    managed care initiatives were being developed, officials agreed that
    they could have done better in this regard.  For example, Boulder
    County's IMPACT initiative in Colorado is built on a premise of
    interagency collaboration among the various public agencies that
    serve the targeted population of adolescents in need of group care or
    residential treatment.  Although the directors from each of these
    agencies are stakeholders in the public managed care entity, setting
    broad policy and procedures, caseworkers were not involved in the
    initiative's development, resulting in some duplication of efforts
    between agency caseworkers and the new intensive case managers.

    In Sarasota County, Florida, on the other hand, the community-based
    providers collectively designed the service-delivery model and
    actively supported the state legislation that authorized the
    initiative, without the involvement of the state child welfare
    agency.  Hence, according to officials, the state agency was not
    initially prepared to implement the state legislation and experienced
    great difficulty in resolving with the lead agency such contract
    issues as the contract rate, data reporting requirements, and public
    workers' role in overseeing children under the lead agency's care.
    However, at the state agency's suggestion, the lead agency convened a
    stakeholders' group, including community leaders and business
    representatives, to provide oversight and advice.  This action has
    resulted in increased community involvement and support for the
    initiative through donated space and equipment.

    The courts also play a critical role in determining outcomes for
    children in the child welfare system, yet they are often a forgotten
    player in reform efforts.  As independent judicial bodies, the courts
    may view themselves as outside the child welfare service-delivery
    system and not necessarily bound by the same policies or priorities.
    However, children in out-of-home care often cannot be transferred to
    a different level of care or discharged from foster care--both key
    strategies for controlling costs under child welfare managed
    care--without the court's approval.  While public agencies have
    involved the courts as they developed their initiatives, the extent
    of judicial involvement has not always been sufficient to guarantee
    support for system reform efforts.  In Kansas, public officials
    acknowledged the lack of adequate judicial involvement in their
    foster care managed care initiative.  According to officials at one
    lead agency, the local judge has disagreed with some of their
    recommendations to discharge children from care and, as a result,
    children are staying in out-of-home care longer and incurring more
    costs than the lead agency had projected for its case rate.

          BUILDING EXPERTISE TAKES
          MANY FORMS
    -------------------------------------------------------- Chapter 4:1.3

    Because managed care in child welfare is new, public agencies have
    had to develop strategies to find both information and sources of
    assistance.  Information on managed care can be obtained from
    national associations or provider organizations, private consultants,
    or internal resources in other public agencies with experience in
    managed care.  For example, in both Massachusetts and Sarasota
    County, Florida, the state hired a private consultant to help develop
    various aspects of its managed care initiative, particularly how to
    set capitated contract rates.  In both Massachusetts and Boulder
    County, Colorado, public agency staff looked at their state's
    experience with managed care in behavioral health care--which serves
    a similar clientele--to learn more about that system's capitation and
    service-delivery arrangements.  Anticipating the arrival of managed
    care, private service providers also sought information about the
    subject to better position themselves--by developing or becoming part
    of a provider network, for example--as players in states' system
    reform efforts, often with assistance from national organizations,
    such as the Child Welfare League of America.

    Public agencies have looked to and adapted their own successful
    practices and relationships as starting points for their initiatives.
    With its history of interagency collaboration, especially between the
    child welfare and mental health agencies, Boulder County in Colorado
    decided to build on this relationship to launch its IMPACT
    initiative.  The county established a new public managed care entity
    comprising representatives from the agencies that might be involved
    in the lives of the target population of adolescents in need of group
    or residential care, such as child welfare, mental health, youth
    corrections, health, and probation.  In Sarasota County, Florida,
    community-based service providers were active in shaping the managed
    care initiative, having had a tradition of working together.  They
    formed their own coalition, comprising all major service vendors in
    the county.  Thus, a provider network with a designated lead agency
    was already in place when state legislation authorized a limited
    number of community-based pilots.  Finally, in Massachusetts, a
    strong and established service provider network existed in the
    predecessor to the Commonworks program.  The state, therefore,
    decided to build upon this existing framework and also to contract
    with an ASO to be responsible for standardizing all operating
    procedures.

          PROVIDERS ALSO FACE
          FINANCIAL CHALLENGES WHEN
          IMPLEMENTING CONTRACTS
    -------------------------------------------------------- Chapter 4:1.4

    Participating in managed care initiatives is a new experience for
    most community-based service providers.  Service providers we
    interviewed told us they are eager to participate in this new
    phenomenon because they believe managed care is part of child
    welfare's future and do not want to be excluded from initial efforts.
    As financing for services becomes fixed under new payment
    arrangements, one critical issue facing community-based providers is
    the potential financial strain--both from start-up and ongoing
    operational costs--involved in their new efforts.  As they assume new
    roles as managed care entities, providers often need to hire
    additional management and frontline personnel as well as purchase
    buildings, equipment, and other capital to manage both their provider
    networks and the new caseloads of children and families.  However,
    public agencies do not always make start-up funds available in the
    new contracts.  For example, neither the lead agency contracts in
    Kansas' foster care managed care initiative nor the one in Sarasota
    County, Florida, included start-up moneys.  This prevented providers
    from using the dollars spent on start-up acquisitions to fund a risk
    pool or required them to seek additional in-kind donations from
    community organizations.

    Providing start-up funds can help alleviate potential financial
    pressure on new managed care entities and enable them to focus more
    attention on serving and coordinating the care of children and
    families.  This was the case in Alameda County's small Project
    Destiny initiative in California, where the county awarded a separate
    contract to the lead agency, providing funds to support start-up
    costs, such as those associated with developing the consortium of
    care providers, training, and any other unanticipated costs.

    While public agency officials admit that they expect their providers
    to find other sources of funding, such as Medicaid and charitable
    contributions, to support their managed care initiatives, some
    contractors may have difficulty attracting financial support from
    their usual contributors because of misconceptions about financial
    arrangements under managed care.  In Kansas, for example, the public
    agency expected foster care contractors to supplement the case rate
    with their usual in-kind contributions from philanthropic
    organizations.  However, according to one provider, these
    organizations were at first reluctant to continue their monetary
    contributions because they had incorrectly assumed that the new
    managed care contract provided sufficient funds to cover the lead
    agency's service costs.

    Community-based service providers, who formerly contracted with the
    public agency and now find themselves part of a provider network
    under subcontract with a lead agency or MCO, are not immune from
    financial strains under managed care either.  In particular, small
    providers we interviewed expressed concern about their financial
    viability in a managed care environment when client referral patterns
    fluctuate and payments are capitated.  For example, in Massachusetts'
    Commonworks program, lead agencies have developed their own provider
    network and, in some regions, have expanded the number of providers
    to make available the full array of services needed by the
    adolescents in their care.  As a result, lead agencies have not
    utilized the services of some providers as often as the state agency
    had in the past and, faced with empty beds in the fee-for-service
    payment method still in place for subcontractors, these underutilized
    providers lost revenues.  In addition, without the capacity to serve
    a substantial volume of clients as larger providers might, several
    small community-based providers expressed reservations about the lead
    agencies' plans to subcapitate payments and transfer financial risk
    to providers, especially given the high and costly service needs of
    Commonworks' target population of adolescents in need of group or
    residential care.

       MANAGEMENT INFORMATION SYSTEMS
       ARE NEEDED
    ---------------------------------------------------------- Chapter 4:2

    For managed care initiatives to effectively develop and adjust
    capitated payment rates, track service use, and monitor program and
    child outcomes, public agencies realize that client-level data on
    services and outcomes are needed.  However, public child welfare
    officials believe that developing management information systems is
    the most difficult task they face.

          MANAGED CARE IS A
          DATA-DEPENDENT SYSTEM
    -------------------------------------------------------- Chapter 4:2.1

    The successful ongoing operation of managed care arrangements is
    linked to the extent to which public agencies have timely and
    accurate information on services and outcomes.  These data form the
    basis for two important activities central to managed care.  First,
    as state child welfare agencies move from a process-monitoring
    environment to a performance-based approach, information on client
    outcomes is needed to develop and revise performance standards.
    Second, payment rates must reflect the accurate overall costs for
    providing services to children and families in the child welfare
    system.  Aggregate client-level information on service use and costs
    is necessary to establish capitated rates.

    Although most of the initiatives use performance standards in their
    managed care contracts, performance-based management in general is a
    new focus for many child welfare agencies.  Setting appropriate
    standards and determining how to measure performance against those
    standards can be a daunting task for some public agencies.
    Massachusetts' Commonworks program, for example, identified
    performance goals for treatment planning, recidivism, family
    functioning, education, and independent living but did not evaluate
    providers on these outcomes for the first year because the outcome
    measures had yet to be developed.  In conjunction with the state
    agency, the new ASO is expected to develop the measures and collect
    baseline information for comparison the second year.

    As public agencies gain more experience with managed care and develop
    the capacity to collect better information, public officials
    recognize that adjustments to existing performance standards and
    payment rates will be necessary.  For example, in Kansas' foster care
    managed care initiative, the state set initial performance levels not
    on the basis of past program performance but on what public agency
    officials believed could reasonably be expected of the new lead
    agencies.  Realizing that these expectations might be unrealistic,
    the state chose not to penalize the lead agencies for failing to meet
    performance standards.  Indeed, when the lead agencies fell short of
    first-year goals, such as reuniting families in a timely manner, the
    state lowered the standard the following year by narrowing the gap
    between its original expectation and contractors' actual performance.

    As we described earlier, establishing payment rates for providers
    also requires public child welfare agencies to continually revisit
    and adjust price levels and, in some cases, risk-sharing provisions
    as more current information is collected.  The absence of quality
    client and service-cost information can, potentially, delay the
    implementation of capitated rates and create financial strains for
    both public and private agencies.  In Massachusetts' Commonworks
    program, for example, the state delayed for a year applying the case
    rate and transferring financial risk to the lead agencies.  Instead,
    the state opted to collect and analyze baseline cost and service-use
    data as well as minimize financial pressures on lead agencies so they
    could focus on service-delivery issues during the first year.
    Financial strain was a problem for the lead agencies in Kansas'
    foster care managed care initiative because the case rate did not
    reflect the true cost of serving children with high service needs.
    On the basis of accumulated first-year cost data, the state modified
    the risk-sharing formula by increasing lead agencies' case rates in
    the second year, eliminating the 10-percent risk-reward corridor, and
    permitting lead agencies to charge the state actual service costs for
    a limited number of cases.

          MANAGEMENT INFORMATION
          SYSTEMS ARE A CONTINUING
          CHALLENGE
    -------------------------------------------------------- Chapter 4:2.2

    Program officials responsible for the initiatives we surveyed view
    the development of a management information system as the most
    difficult task they face in their move to managed care.  We found
    that public agencies are implementing their managed care initiatives
    without appropriate information systems in place.  In many instances,
    providers and public agencies are working with multiple and
    incompatible information systems.  For example, in the managed care
    initiative in Sarasota County, Florida, the lead agency is directly
    connected to the state's two child welfare client and service
    information systems for submitting required management reports, and
    has its own internal system that is networked with subcontracted
    service providers to input and track client-level data.  Because
    these three systems are not integrated, lead agency staff must enter
    duplicate information into each system and physically locate the
    three computer terminals side-by-side to ensure consistent data.  In
    contrast, Kansas implemented its foster care initiative without an
    information system in place and relies on handwritten reports
    submitted by the lead agencies to generate automated reports for the
    state to manage the initiative.  Despite their limits, according to
    state officials, these management reports contain more information
    about program performance than was previously available.\31

    Public agencies are approaching the development of their information
    systems in a variety of ways that reflect the complexity of new
    systems and in-house expertise.  One approach is to purchase a
    custom-designed system.  For the TrueCare Partnership initiative in
    Hamilton County, Ohio, for example, one major component of the MCO's
    contract is to develop a comprehensive management information system
    for the initiative's public partners--the child welfare, mental
    health, and alcohol and drug agencies--that will integrate
    client-level data to meet both the public agencies' and service
    providers' information needs.  Another approach is for in-house staff
    to develop the information system.  This has been the case in the
    Lake and Sumter County managed care initiative in Florida, where the
    lead agency's information system personnel have developed a database
    to track all service and placement data regarding program clients to
    measure outcome achievement.  Yet another approach to developing an
    information system is to adapt an existing system.  Boulder County's
    IMPACT initiative is using a temporary system to track client and
    aggregate outcomes data until the county can purchase or custom build
    a more comprehensive, integrated management information system with
    anticipated project savings within the next year.  For the short
    term, county staff have modified a system originally designed to
    track adolescents in a previous pilot project that also targeted
    adolescents in out-of-home care.

    --------------------
    \31 Wulczyn and Orlebeke, "Fiscal Reform for Child Welfare Systems."

       ROLES AND RESPONSIBILITIES
       CHANGE DRAMATICALLY
    ---------------------------------------------------------- Chapter 4:3

    Under managed care, public agencies are adjusting to new
    responsibilities while shifting some traditional functions to the
    private sector.  These public agencies now focus their attention more
    on oversight and monitoring, and have reconfigured staff resources
    for contract monitoring and quality assurance purposes.  Private
    agencies, assuming many of the responsibilities traditionally held by
    public agencies, are now faced with learning various state and
    federal requirements; preparing and monitoring other service provider
    contracts; and attracting, training, and retaining a larger
    workforce.

          NEW RESPONSIBILITIES DEMAND
          A CULTURE CHANGE AND STAFF
          ADJUSTMENT
    -------------------------------------------------------- Chapter 4:3.1

    Many of the public agencies implementing managed care initiatives
    have shifted most of the day-to-day casework responsibilities to
    private contractors, while developing the capacity and expertise to
    perform system oversight and monitoring activities.  To accomplish
    this change, some locations reduced the number of public caseworkers
    and created new positions that reflect their new role.  Gaining
    employees' acceptance of these changes was a difficult task,
    according to about half the agency officials we surveyed.
    Comfortable with the traditional service-delivery system and
    concerned about the safety and well-being of their caseloads of
    children and families, some workers have resisted the loss of their
    control over service decisions for clients and must learn new skills
    and abilities to perform new quality assurance and contract
    management duties.  In some instances, workers were not fully
    prepared to assume their new duties because public agencies had not
    taken steps to ensure staff support or to train until after
    implementation was under way.

    Former state child welfare caseworkers have assumed new positions,
    performing quality assurance activities and managing the new lead
    agency contract for the managed care initiative in Sarasota County,
    Florida.  The state replaced 37.5 positions with 7 new
    positions--filled by public foster care, adoption, and protective
    services caseworkers whose jobs had been eliminated--to oversee the
    lead agency contract.  Of these seven positions, three are quality
    assurance workers, responsible for monitoring the contractor's case
    management activities to ensure that issues related to the child's
    safety are adequately addressed; they accomplish this function by
    reviewing case files and provider-prepared court paperwork as well as
    attending case review meetings.  A fourth position is for a contract
    manager, who monitors the lead agency's compliance with the terms and
    conditions of the contract.  Finally, three public employees perform
    tasks related to determining children's eligibility for the federal
    foster care program and claiming federal reimbursement.  The
    transition in public workers' responsibilities has not been easy for
    either the public employees or provider staff, according to
    officials, as the public workers received no training for their new
    positions and focused most of their initial efforts on providing
    technical assistance and training to the providers' staff about
    federal and state documentation and procedural requirements rather
    than on quality assurance.

    Kansas' foster care managed care initiative has changed public
    employees' approach to casework.  State caseworkers are still
    responsible for a caseload of children and their families but have
    shifted their emphasis from day-to-day case management to intake,
    assessment, and child protection, and now function as service
    managers who monitor the services provided by the contractors.  In
    addition, the state has altered the structure of its contract
    management staff.  Now, some of the contract managers are Area
    Contract Specialists physically located in each of the state's 12
    area offices.  As the state caseworker's direct liaison with the lead
    agency, an Area Contract Specialist receives reports for management
    and oversight purposes and responds to questions about contract
    operations.

          PRIVATE ENTITIES ARE
          ASSUMING PUBLIC FUNCTIONS
    -------------------------------------------------------- Chapter 4:3.2

    Private service providers under contract in the managed care
    initiatives we reviewed have assumed many of the responsibilites
    formerly held by public child welfare agencies and, in some
    instances, have had to adjust to the rapid growth of staff that
    accompanied the expansion of providers' duties.  Understanding and
    monitoring existing federal and state requirements and managing
    provider networks are among their new duties.

    As case management functions have shifted to private providers, the
    providers have taken on new administrative tasks that enable states
    to continue claiming federal reimbursement for eligible activities
    now performed by contractors.  Some contracts require the service
    provider to provide the information the public child welfare agency
    needs to file claims for federal title IV-E reimbursement of the
    costs associated with feeding and housing an eligible child in
    out-of-home care, as well as certain administrative costs related to
    that child's placement, such as case management and licensing of
    foster homes.  The tasks necessary to determine administrative costs
    can be very time consuming yet necessary where the public agency is
    financing the capitated payments with federal title IV-E dollars.
    Such is the case in Sarasota County's managed care initiative in
    Florida.  The state had previously established a method for
    determining administrative costs under its traditional, publicly
    operated service system, based on the assumption that caseworkers'
    activities were reimbursable under title IV-E.  However, the lead
    agency's service-delivery approach includes a mixture of
    Medicaid-funded functions--such as clinical therapy--that title IV-E
    does not cover.  To help determine eligible administrative costs for
    this initiative, the state requires the providers' staff to perform a
    time study for 2 weeks each quarter, when individual workers record
    their various job activities in 15-minute increments.  According to
    lead agency officials, this requirement is a new activity that has
    unexpectedly reduced staff time available for serving children and
    families.

    Another new administrative function for lead agencies is managing
    their subcontracts with network providers.  Whether changing the
    nature of existing relationships or developing new ones, lead
    agencies--whose general experience has been in directly providing
    services to children and sometimes their families--must develop new
    capacities and expertise to ensure network providers are qualified;
    expand, contract, or reconfigure the network, when necessary; and
    monitor network providers' performance and compliance with their
    contract requirements.  Lead agencies' relationships with network
    providers may become strained when, in the interest of cost
    efficiency or service quality, referral patterns to individual
    providers fluctuate or nonperformers are dropped from the network.

    As private contractors have assumed the lead agency role, the nature
    of their relationships with other community-based service providers
    has changed.  Where previously providers contracted directly with the
    public agency, some now find themselves managing a network made up of
    former competitors.  For example, for Kansas' foster care managed
    care initiative, many of the community-based service providers were
    among the 16 bidders for the lead agency contracts, but only 3 of
    them won contracts.  Many of the unsuccessful bidders became network
    subcontractors, and according to several providers' staff, the stress
    of the competitive process left some network providers resentful of
    the lead agency's new oversight role.  Conversely, where there may
    have been fierce competition in the past for the public agency's
    business, increased collaboration among providers may reduce the
    uncertainties of a competitive market.  This has been the case in the
    managed care initiative in Sarasota County, Florida, where the major
    service providers no longer view themselves as competitors, according
    to providers' staff, but are now collaborative partners in the
    self-formed Coalition that is the provider network.  In yet another
    scenario, lead agencies have had to establish new
    relationships--sometimes straining existing relationships--when new
    providers were brought into the network.  In order not to jeopardize
    the stability of existing placements when Massachusetts' Commonworks
    program was implemented, the state, among other strategies, required
    the lead agencies to expand their provider network to include those
    group or residential care providers already serving youth who were
    transferred to the lead agency's care.  Expanding the network in this
    way meant purchasing fewer services from other network providers and
    possible financial jeopardy for some of them, according to providers'
    staff, which strained their relationship with the lead agency.

    Once community-based service providers, regardless of their size,
    became lead agencies, they found that they needed to
    expand--sometimes very rapidly--to accommodate their new
    responsibilities and new caseloads of children and families.  For
    many of these lead agencies, hiring and training a larger workforce
    amid various other start-up activities became a difficult task.  For
    example, in Kansas' foster care managed care initiative, the lead
    agencies' caseloads more than doubled in a matter of months and they
    took on multiple areas of major new responsibilities.  For example,
    they had to accept all referrals, develop and manage a provider
    network, manage cases of children that now also include their
    families, track and report outcomes, and consider the financial risk
    of the case rate.  These responsibilities were combined with the
    basic business of expansion--hiring, training, and acquiring space
    and equipment.  In addition, lead agencies had difficulty recruiting
    and retaining new workers because of tremendous competition for
    social workers when the state kept most of its social work staff and,
    therefore, did not provide a pool of former state workers that lead
    agencies had expected to choose from.\32

    --------------------
    \32 Wulczyn and Orlebeke, "Fiscal Reform for Child Welfare Systems."

       EARLY, THOUGH LIMITED, POSITIVE
       RESULTS ENCOURAGE PUBLIC
       OFFICIALS
    ---------------------------------------------------------- Chapter 4:4

    While only a few locations are beginning to collect data and report
    results, preliminary results indicate some cost savings and
    improvements in the quality of care from the implementation of
    managed care.  Public agency officials responsible for the ongoing
    initiatives are encouraged by improvements in the amount of services
    provided, overall service availability, and increased public support
    for children in the child welfare system.

          EARLY COST SAVINGS ARE SEEN
          IN SOME MANAGED CARE
          INITIATIVES
    -------------------------------------------------------- Chapter 4:4.1

    Some initiatives report cost savings resulting from the managed care
    entity's success in reducing or averting the need to place children
    in the most costly out-of-home settings, such as residential care.
    The public agencies involved attribute this success in part to the
    better coordination of services that match client needs.  For
    example, in Wisconsin's Wraparound Milwaukee program in Milwaukee
    County, the publicly operated HMO has reduced the number of children
    in residential treatment and, as a result, costs are almost 40
    percent less per child than under the previous system.  Moreover, the
    program's Mobile Crisis Team's gatekeeping functions and development
    of treatment plans have resulted in a 55-percent reduction in
    inpatient hospital days as well as nearly 200 fewer children in need
    of residential care between 1994 and 1997.  Furthermore, reinvestment
    of moneys saved from reducing the use of residential treatment has
    enabled the project to serve 44 percent more children with the same
    moneys.

          CHILD WELFARE OFFICIALS ARE
          ENCOURAGED BY OTHER MANAGED
          CARE EFFECTS
    -------------------------------------------------------- Chapter 4:4.2

    Child welfare officials are encouraged by other service-delivery
    improvements as well.  Most agency officials we surveyed believe
    children and families are receiving more services that better match
    their needs under managed care.  For example, in Sarasota County's
    managed care initiative in Florida, the lead agency subcontracts with
    service providers whose caseworkers are seeing clients more
    frequently and providing more intensive services in the family's home
    than public workers did prior to the managed care initiative.
    Managed care has also improved services by making them available to
    those who would otherwise not receive the services they need.
    Kansas' foster care initiative, for example, includes one lead agency
    with a provider network dedicated to serving children and families in
    the extremely rural, westernmost part of the state.  Historically,
    these children were hard to serve because of their remote location,
    but they now have available to them a provider network offering an
    array of services.

    Other initiatives also report improvements that have resulted in
    children and families achieving permanency goals more quickly under
    managed care, but they have yet to document reduced costs.  For
    example, in Illinois' Performance Contracting initiative in Cook
    County, private foster care agencies are more aggressively moving
    children toward permanency by providing services, such as aftercare
    and counseling, that enable children to rejoin their families, be
    adopted, or live with subsidized guardians.  After 3 months of
    operation, the initiative has yet to realize any cost savings because
    of the additional state dollars invested in services for foster care
    contractors to find children permanent homes.  However, the state
    projects that almost two-thirds more children will be in permanent
    living arrangements at year's end over the previous year's total
    because providers are now more effectively managing their cases.

    In still other initiatives, early results are mixed.  While private
    contractors have met performance standards in some areas, they have
    fallen short in others.  Kansas' foster care managed care initiative,
    for example, reported that, after the first 10 months of operation,
    its lead agencies successfully surpassed performance standards
    related to the quality of children's care, such as ensuring that
    children are safe from maltreatment and in stable placements.
    However, they were less successful in meeting standards that could
    result in cost efficiencies, such as reuniting families in a timely
    manner.  After its first year of operation, according to state
    officials, managed care had not yet resulted in improvements in the
    rate that children leave foster care for more permanent living
    arrangements, or yielded cost savings.

    Finally, public officials believe managed care is increasing
    community awareness and support for the vulnerable population,
    particularly at-risk adolescents, that resides within their
    boundaries.  For example, the managed care initiative in Boulder
    County, Colorado, targets adolescents in or at risk of residential
    treatment whose likely permanency goal is to live in the community
    and not with their families.  According to initiative officials,
    building community-based networks of care has increased community
    concern and involvement with these adolescents, which county
    officials believe will facilitate reintegration into the community.

    OBSERVATIONS AND AGENCY COMMENTS
    ============================================================ Chapter 5

       OBSERVATIONS
    ---------------------------------------------------------- Chapter 5:1

    Child welfare agencies face growing caseloads of children and
    escalating costs.  At the same time, they must ensure that these
    children remain safe and search for the most appropriate permanent
    living arrangements.  In addition, program officials and policymakers
    alike have been frustrated with many of the characteristics of the
    current service delivery system that is intended to provide care for
    these children and their families.  They observe a system that often
    keeps children in care longer than necessary, in part, because of
    fragmented services and few financial incentives to provide better
    services to move children out of care faster.  Many public officials
    responsible for the care of these children are looking to managed
    care as a way to change how their state or locality approaches the
    financing and delivery of child welfare services.

    While there is no single managed care approach, in general, states
    and localities are (1) experimenting with capitated payments to
    transfer financial risk to providers and (2) managing children's care
    through a single point of entry to a full array of services.
    Simultaneously, they are introducing quality assurance strategies to
    maintain a balance between the desire to control costs and to ensure
    service quality and children's safety.  In what has been a publicly
    managed system, however, new contractual arrangements are shifting
    financial and service coordination responsibilities to the private
    sector in some states.  Where public agencies opt to retain these
    responsibilities, they are changing their approach to coordinating
    children's care and purchasing needed services.

    Public agencies experimenting with managed care view it as a strategy
    that promotes flexibility in a fragmented service-delivery system
    while attempting to ensure accountability for controlling costs and
    improving service outcomes.  Because they anticipate legislative and
    policy changes that may reduce child welfare budgets, public and
    private agency officials alike have felt a sense of urgency to
    proactively pursue or prepare themselves for system reform.  Even so,
    implementing managed care is a dynamic process that will require time
    to evolve and evaluate its efficacy.  To date, the application of
    managed care arrangements in the child welfare system is still in its
    infancy and remains largely untested.

    States and localities expect to continue refining their initiatives
    as service and cost data become available and evaluations assess the
    efficacy of managed care to improve service outcomes for children and
    families.  As more children are served under managed care
    arrangements, however, three outstanding issues need resolution.
    First, public agencies need to address the cash flow problems
    associated with an approach that requires public agencies to provide
    prospective, capitated payments to service providers but receive
    reimbursement for the federal share of costs only after the delivery
    of services.  Where there is greater funding flexibility--either
    through blended or pooled funding arrangements or federal waivers,
    for example--public agencies stand a better chance of reducing or
    eliminating the service access problems often associated with
    different eligibility requirements in categorical funding streams.
    Second, the need for good service and cost data is paramount if
    public agencies expect to set reasonable and appropriate contract
    rates and performance standards.  Public agencies must continue to
    develop and adapt their management information systems in order to
    make additional changes or provide their managed care partners
    feedback that could further improve policies and procedures for
    serving children and families in an effective, yet cost-efficient,
    manner.  Finally, public agencies must continue to develop and refine
    strategies to hold their private partners accountable for achieving
    desired outcomes and developing the capacity to continuously measure
    and report their progress toward meeting performance goals.  Such
    efforts are necessary to enable public agencies to report to
    policymakers at all levels on the effectiveness of the new system in
    meeting the needs of children and families.

       HHS AND PUBLIC AGENCY COMMENTS
    ---------------------------------------------------------- Chapter 5:2

    We obtained comments on a draft of this report from HHS and state and
    county public child welfare officials responsible for the managed
    care initiatives in the four case study sites.  HHS provided two
    general comments and additional technical information, which we
    incorporated in the report as appropriate.  First, HHS acknowledged
    that the federal role in child welfare managed care has been limited.
    However, it said that ACF has initiated and participated in a number
    of activities, such as internal training sessions and national
    conferences, that provided information about managed care concepts.
    Second, HHS noted that states' Statewide Automated Child Welfare
    Information Systems (SACWIS) should provide data states need to
    implement managed care.  We agree that SACWIS could provide some
    necessary information; however, most states are still developing
    their systems, and SACWIS' overall usefulness in managed care is
    unknown.  Responsible child welfare officials from the four case
    study sites generally agreed with the report's findings and provided
    additional technical information about their child welfare managed
    care initiatives, which we incorporated in the report as appropriate.

    ONGOING CHILD WELFARE MANAGED CARE
    INITIATIVES
    =========================================================== Appendix I

    Table I.1 includes the 27 managed care initiatives about which we
    collected more detailed information from our survey of state and
    local officials.  Where locations had multiple initiatives, we asked
    respondents to provide additional information about only their
    largest initiative, as determined by the number of children served.
    As of March 1998, multiple initiatives were reported as ongoing in
    four locations--Illinois; Kansas; Mesa County, Colorado; and Hamilton
    County, Ohio.

                                            Table I.1

                                Information About 27 Ongoing Child
                             Welfare Managed Care Initiatives, as of
                                            March 1998

                                           Number of
                                        children served
                                        ---------------
                                               Percenta
                                                  ge of
                                               location
                                               's total
                                                  child
                  Date                          welfare  Managed
    Location and  implemente  Geograph         populati  care        Covered population and
    project name  d           ic scope  Total        on  model\a     child welfare program(s)
    ------------  ----------  --------  -----  --------  ----------  ------------------------
    State-level initiatives
    -----------------------------------------------------------------------------------------
    Georgia       July 1994   Statewid    660         3  Public      Residential treatment
    Multi-                    e                                      services for severely
    Agency Team                                                      emotionally disturbed
    for Children                                                     children
    (MATCH)

    Illinois      July 1997   One       23,20        40  Public      Relative foster care in
    Performance               county        0                        Cook County
    Contracting

    Indiana       May 1997    One         106         1  MCO         Wraparound services for
    The Dawn                  county                                 seriously emotionally
    Project                                                          disturbed children, aged
                                                                     5 to 17, who have been
                                                                     impaired for more than 6
                                                                     months and involved with
                                                                     multiple service systems
                                                                     in Marion County

    Kansas        Mar. 1997   Statewid  4,950        66  Lead        All foster care
    Foster Care               e                          agency
    Privatizatio
    n

    Massachusett  Jan. 1997   Statewid    683         2  ASO with    Foster care for
    s                         e                          lead        adolescents needing
    Commonworks                                          agency      group care or
                                                                     residential treatment

    Michigan      Oct. 1995   Selected    166         1  Lead        Wraparound services for
    Interagency               sites                      agency      seriously emotionally
    Family                                                           disturbed children
    Preservation                                                     involved with multiple
    Initiative                                                       service systems

    Tennessee     July 1996   Statewid  2,500        21  Public      Foster care for older
    Continuum of              e                                      children with moderate
    Care                                                             to severe emotional and
    Contracts                                                        behavioral problems

    Wisconsin     Jan. 1998   One         750      10\b  Lead        Family preservation
    Safety                    county                     agency      services for noncourt
    Services                                                         families in Milwaukee
    Program                                                          County

    Local-level initiatives
    -----------------------------------------------------------------------------------------
    Alameda       Apr. 1997   Countywi     24         1  Lead        Foster care for
    County,                   de                         agency      seriously emotionally
    Calif.                                                           disturbed children in
    Project                                                          residential treatment
    Destiny

    Boulder       July 1997   Countywi    270        30  Public      Foster care for
    County,                   de                                     adolescents needing
    Colo.                                                            group care or
    Integrated                                                       residential treatment
    Managed
    Partnership
    for
    Adolescent
    Community
    Treatment
    (IMPACT)
    pilot

    El Paso       Sept. 1997  Countywi     85        50  ASO with    Foster care for children
    County,                   de                         lead        placed by Child
    Colo.                                                agency      Placement Agencies

    Jefferson     Oct. 1997   Countywi  1,687       100  Public      All child welfare
    County,                   de                                     services
    Colo.
    Child
    Welfare
    Pilot

    Mesa County,  Jan. 1998   Countywi    320        40  Public      All child welfare
    Colo.                     de                                     services
    Child
    Welfare
    Pilot

    District 4,   Oct. 1997   District    318        \c  ASO with    Foster care and
    Fla.                      wide                       lead        independent living
    Privatizatio                                         agency      services for adolescents
    n Pilot

    District 8,   Jan. 1997   One         420        30  Lead        All children needing
    Fla.                      county                     agency      protective services,
    Sarasota                                                         foster care, and
    County                                                           adoption services in
    Privatizatio                                                     Sarasota County
    n Pilot

    District 13,  Jan. 1997   Two          88        \c  Lead        Children needing foster
    Fla.                      counties                   agency      care and adoption
    Bridges                                                          services in Lake and
    Program                                                          Sumter Counties

    Albany        Jan. 1989   Countywi  1,750        20  Public      Children needing
    County, N.Y.              de                                     preventive services

    Broome        Oct. 1996   One site     10        <1  Lead        Children needing family
    County,                                              agency      preservation services,
    N.Y.                                                             foster care, and
    Child                                                            independent living
    Welfare Care                                                     services; pilot on hold
    Management

    Oneida        Jan. 1998   Countywi      7        <1  Lead        Wraparound services for
    County,                   de                         agency      seriously emotionally
    N.Y.                                                             disturbed children in or
    Kids Oneida                                                      at risk of out-of-home
                                                                     placement

    Onondaga      Oct. 1994   Countywi    155        \c  Public      Children needing
    County,                   de                                     emergency foster care
    N.Y.                                                             services
    Family
    Support
    Center
    Program

    Tompkins      July 1996   Countywi     10        10  Lead        Wraparound services for
    County,                   de                         agency      youth in residential or
    N.Y.                                                             institutional placements
    Youth
    Advocate
    Program

    Champaign     Oct. 1995   Countywi     21        20  Public      Foster care for children
    County,                   de                                     needing nonrelative,
    Ohio                                                             out-of-home placement
    Human
    Services/
    Adriel
    School

    Crawford      Jan. 1997   Countywi     17         1  Lead        Foster care for children
    County,                   de                         agency      placed outside the
    Ohio                                                             county in therapeutic
    Out-of-                                                          family foster home,
    County                                                           group care, or
    Placement                                                        residential treatment

    Hamilton      Jan. 1998   Countywi  3,220        35  MCO         Foster care and
    County,                   de                                     independent living
    Ohio                                                             services for children in
    TrueCare                                                         outpatient mental health
    Partnership                                                      and therapeutic
                                                                     placements

    Madison       Jan. 1996   Countywi     27        50  Lead        Foster care for children
    County,                   de                         agency      needing nonrelative,
    Ohio                                                             out-of-home placement
    Adriel Out-
    of-Home Care
    Placements

    Dodge         Aug. 1997   Nine-        40         5  Lead        Wraparound services for
    County,                   county                     agency      adolescents in child
    Wis.\d                    area                                   care institutions or
    Family                                                           juvenile corrections
    Partnership
    Initiative

    Milwaukee     June 1996   Countywi    600         8  Public      Wraparound services for
    County,                   de                                     children in or at risk
    Wis.                                                             of residential treatment
    Wraparound
    Milwaukee
    -----------------------------------------------------------------------------------------
    \a Organizational arrangements among public and private entities
    generally fell into one of the following managed care models:  (1)
    public model, which maintains the traditional management and
    service-delivery structure while the public agency incorporates
    managed care elements into its own practices and existing contracts
    with service providers; (2) lead agency model, where the public
    agency contracts with a private entity that is responsible for
    coordinating and providing all necessary services--either directly
    itself or by subcontracting with a network of service providers--for
    a defined population of children and families; (3) administrative
    services organization (ASO) model, where the public agency contracts
    with a private organization for administrative services only, and
    direct services are structured as in the lead agency or public
    models; and (4) managed care organization (MCO) model, where the
    public agency contracts with a private organization as in the lead
    agency model, but the MCO arranges for the delivery of all necessary
    services by subcontracting with other service providers and does not
    itself provide direct services.

    \b Percentage is of Milwaukee County's child welfare population;
    although Wisconsin has a county-operated child welfare system, the
    state child welfare agency operates this managed care initiative in
    Milwaukee County.

    \c Data were not readily available.

    \d Nine-county initiative includes Columbia, Dodge, Green Lake,
    Jefferson, Ozaukee, Sauk, Sheboygan, Washington, and Winnebago
    Counties; Dodge County completed our survey for the participating
    counties.

    Source:  State and local agency officials' responses to GAO survey
    and follow-up telephone conversations, as well as documentation
    describing the initiative, where provided.

    GAO SURVEY OF STATE AND LOCAL
    PUBLIC AGENCIES
    ========================================================== Appendix II

    This appendix presents our survey of state and local public agencies
    regarding their use of managed care arrangements in child welfare
    programs.  Each question includes the summary statistics and the
    actual number of respondents that answered the question.  In each
    case, we use the format that we believe best represents the data,
    including frequencies, means, and ranges.

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    (See figure in printed edition.)Appendix III
    COMMENTS FROM THE DEPARTMENT OF
    HEALTH AND HUMAN SERVICES
    ========================================================== Appendix II

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    GAO CONTACTS AND STAFF
    ACKNOWLEDGMENTS
    ========================================================== Appendix IV

    GAO CONTACTS

    David D.  Bellis, Assistant Director, (202) 512-7278
    Karen E.  Lyons, Evaluator-in-Charge, (916) 486-6442

    STAFF ACKNOWLEDGMENTS

    The following individuals also made important contributions to this
    report:  Rodina S.  Tungol, Joel I.  Grossman, and Joan K.  Vogel.

    *** End of document. ***