Program & Fiscal Design Issues & Models

1. Program & Fiscal Design Issues & Models Charlotte McCullough National Consultant

2. Topics for Consideration • Program Design Issues • Fiscal Design Issues • Contracting Models • Lessons Learned • Commentary

3. Establishing Goals • Most initiatives have four broad goals: • Improved outcomes consistent w/ ASFA and CFSR • System improvement (eg: expansion of services, more equitable distribution & local ownership) • Fiscal, programmatic goal alignment through risk- or performance-based contracts • Shared public-private accountability for results

4. Selecting the Target Population • Populations vary depending on overarching goals: • Reduce deep-end placements (MA, MO,WY) • Front-end diversion (AZ) • Manage care of children in kinship & family foster care re: permanency (IL, MI, TN,NYC) • Focus on youth exiting system w/out permanency (IL) • Timely adoption (MI, NC, MN,ND) • Coordinate care, resources across systems (WI, IN) • Improve outcomes for children and families— both in-home and in OHC—from entry to exit (KS, FL) • PB requirement for all service contracts (DC, IL)

5. Defining Services - Building Networks • Some contracts have integrated service network to ensure no wrong door for eligible child & family. • Decide what services to include/require to achieve specified goals. • “Right” array depends on population and desired results • Each service could have explicit “standards” and performance-based payments to advance safety, permanency, and well-being goals.

6. Services (cont) • Need access to right services, in right amount. No more and no less for every child and family. • Planners must consider: • How will contractor stimulate new, expand current services? • How will planners achieve equity across state? • What are rural considerations?

7. Size and Scope Considerations • Great variability across initiatives: • Two states have statewide initiatives that include entire child welfare caseload after CPS investigations (KS, FL) • Some initiatives begin as small pilots and stay small, others expand. • Scale is an issue in both directions. • When providers are at risk, the size, case mix and scope of services matters.

8. Roles & Responsibilities • Critical to define case management expectations, roles, and responsibilities. Role clarity is essential. • In some states, public agency has delegated all case management. (FL, KS, MO, IL, NYC) • In others, private agency has control over some decisions but public agency approves key decisions. (NE, IA) • A few states have dual case management systems which can pose challenges. (PA, MA)

9. Defining Outcomes & “Success” • Variability in definitions, measures, and how performance is linked to payments. • Challenges abound: • Poorly defined outcomes/measures • Too many, too few, or not “right” outcomes • No alignment between $ and expectations • Lack of balance between roles/authority and outcomes • Most states now start with federal mandates (ASFA and CFSR requirements).

10. Oversight & Monitoring Issues • States must ensure sufficient oversight while also encouraging innovation. Public agencies use a variety of approaches. • Often uneven from one contract or locale to another • Often changes over time • Until recently contract monitoring was adversarial, “compliance-driven” and not linked to quality improvement.

11. Fiscal Considerations • Over 90% of the 39 initiatives in 2003 CWLA survey report included payment arrangements that introduced risk and/or performance incentives into contracts. • There was and is great variability in how payments are structured and risk is introduced. • States are increasingly directly linking payment amounts or schedules to performance.

12. Fiscal (Cont) • Designing fiscal model neither simple nor straightforward. Planners must consider: • Overall pricing (how much $ is in the pot) • How rates will be determined • How payments will be made • How risk/rewards will be introduced • How “savings” will be used/reinvested • When and how adjustments will be made.

13. Risk • Planners have to consider how different types of risk will be shared: • Rate of entry • Cost of producing a unit of service • Volume of units used • Types of services used, utilization patterns • Duration and performance (e.g., LOS, post-permanency “warranty” periods, or other explicit/implicit outcomes)

14. Global Budgets • Whatever was in public agency “pot” for specified target population and service is transferred to the contractor. • “Theoretically” contractor bears all risks; public agency has none. Examples: Florida, Statewide; new NE contracts

15. Case Rates • Payment is per case, with some variations: • Annual or episode of care • Services included and excluded • Point at which risk ends • Blended or stratified rate • Payment schedule • Use of bonuses/penalties • How rate is set… Examples: OH, MA, MO, KS, WI

16. Performance-based Payments • Payment amounts or schedules linked to performance requirements or caseloads. • Variations: % that is “pure” pay for performance, events that trigger payments, underlying assumptions, use of bonuses/penalties. Examples: IL and MO foster care “caseload” contracts, adoption and FC contracts in other states

17. PB Incentives and Penalties • Providers receive base contract payments on top of which they are paid incentives (or are charged penalties) for performance on select measures. • Variations: Amount of incentive/penalty, the trigger events. Examples: IA and ID recruitment contracts; IA family support/permanency contracts

18. PB Incentives (cont) • Incentive/penalties can be used with any type of payment --from FFS to Case Rate to global budget. • Withhold portion of payment until outcomes are achieved. • Link payment amounts or schedules to case milestones/achievement of outcomes. • Pay ONLY when agencies achieve results and meet standards (adoption contracts).

19. Models Change-The KS example • 1997 – Episode of care payment. Providers lost significant $ - it was too risky. • 2001 – Annual case rate. Performance lagged - decided not risky enough. • 2005 – Performance-based tiered rate with declining payments. • 2009 – Return to an annual case rate with fixed monthly payments.

20. Fiscal Design Challenges • Estimating costs and determining rates: • Two basic approaches to developing cost estimates: • Actuarial approach, which uses historical data to predict what will happen in the future • Prospective approach, which includes simulation of future scenarios. • Some states specify rates, others allow the bidding/negotiation process determine the rates.

21. Fiscal Design (cont) • Developing risk-mitigating strategies: • Risk-RewardCorridor – Most common mechanism defines point at which a contractor' losses and profits will be absorbed by or shared with the public agency (reinvestment requirements common) • Catastrophic Stop-Loss – Aggregate or individual provisions limit losses when expenditures exceed a certain amount. • Risk Pool – Some states have set aside funding to cover increased costs that are outside the contractor’s control. • Risk Reserve/insurance – Contractors are required to have a specified reserves to cover unexpected cash flow problems.

22. Fiscal Design (cont) • Achieving flexibility, maintaining federal revenue, managing cash flow: • Providers need flexible funding, which is not guaranteed under various risk-or results-based contracts. • Prospective payments - the best option for front-end flexibility - can be hard to achieve with cost reimbursement requirements governing federal and state funds. • Achieving better outcomes for clients may produce higher costs for states. • Some states have tried to work around restrictions by blending funds.

23. Contracting Models • Lead Agency Model - From mid-1990s until the early 2000s, majority of initiatives were described as lead agency models. • Public agency contracts with one or a limited number of agencies w/in designated region to provide or purchase all specified services for target population from time of referral to case closure or at some other point specified in the contract. • Network development/management is often a requirement of LA contracts. Examples: FL, KS, MO, MA, NE

24. Variations in the Lead Agency Model • Some lead agencies provide most, if not all, services with few or no subcontracts; others procure most services from other agencies. Some contracts cap; others don’t. • Some are single agencies; others are newly formed corporations created for the sole purpose of responding to the RFP. • Overwhelming majority are held by nonprofit entities. • Most are accredited.

25. Variations (cont) • Florida Lead Agency Model – Community-based care was the legislative solution to statewide, systemic problems. • Used Invitation to Negotiate process to select 20 lead agencies now operating across 22 sites. • These agencies differ in organizational and governance structures, specific child welfare practices such as case management, and levels of funding. • All lead agencies are responsible for providing or procuring all services needed by child, family from time of referral until child achieves permanency. • Wide variability in meeting this objective. • Statewide, lead agencies have established 500 subcontracts.

26. Variations (cont) • Kansas Model • Between July 1996 and February 1997, Kansas issued 3 RFPs to select regionally based not-for-profit contractors to serve as lead agencies for specific services • family preservation services, adoption services, foster care and group home care services. • Contracts have been rebid 3 times and with each rebid providers and payment models have changed. • Lead agencies in KS are single agencies and most contract for services.

27. Other Contracting Models • Some states and jurisdictions have decided to use performance-based contracts with all agencies providing specified services (e.g., PB contracts are by type of service with explicit outcome expectations). • Often, no competition at the front-end, but only the best performing agencies may survive.

28. Illinois: A PBC Success Story • Illinois was first state to use performance-based “caseload” model: • 1997 – Foster and kinship care agencies were required to accept % of their caseload in new referrals and move % to permanency each year. • 2005 – Illinois’ foster care caseload had fallen by 65%. • With caseload reductions, state retained better performing agencies and eliminated ineffective ones. • 2009 – Illinois introducing PBC for residential care, independent and transitional living.

29. Advantages/Disadvantages • Lead Agency model has inherent advantages and disadvantages: • Lower cost of contract admin and monitoring. • Economies of scale – infrastructure, management costs spread across more clients. • Greater coordination and service integration – if many contracts divided by function, rather than region, clients may "fall between the cracks.“ • Variability in performance may be reduced. • Potential downsides: Public agency relies heavily on single, or small number of contractors.

30. Advantages/Disadvantages • Issuing more, smaller performance based contracts has both pros and cons. • Contractors can specialize by service or population. • Wider range - and, as a result, a greater number - of organizations compete for smaller contracts. • More competition may lead to higher quality or less costly services. • However, public agencies will face • Added admin costs, challenges re: monitoring contracts, variability in performance of providers, struggle to build integrated and equitable networks across state.

31. Success Factors • Innovative practices and improved results have been noted in all types of contracting models. • Success appears to relate to: • Alignment of design and payment decisions • Contractor’s capacity and flexibility to introduce or enhance business and casework practices • Overall adequacy of funds • Public agency’s effectiveness in monitoring/ partnering with agencies/communities

32. Lessons Learned • QIC PCW interviewed state officials (2009) about lessons learned from their PBCs. Most described need for: • Continuous communication • Clear performance measures • Transparency of fiscal penalties/incentives • Reliable and trusted data • Clarity in roles • Ongoing refinement: Contracts are “work in progress”

33. Lessons Learned • Ensure public and private agency readiness: • Florida • Site readiness so important that state developed readiness assessment process for all new providers and public agency counterparts that had to be completed during start-up phase of contract before service contract began in any of the community-based care regions.

34. Commentary • Change is hard. • No quick fix. PATIENCE! • You get what you pay for - it may cost more short-term. • No silver bullet. • Challenges same for public or private workers. • Even with perfect plans, transitions challenging; cross-training essential. • Power (and audacity) of public-private partnership can’t be overstated; but partnership without shared accountability is empty.