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. 


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