National Child Welfare Resource Center
for Organizational Improvement
A service of the Children's Bureau, US Department of Health and Human Services

Rate Setting: Innovations in Paying for Out-of-Home Care

Case Rates: Incentives for Achieving Outcomes

Practice Forum: Performance-based Contracting for Out-of-Home Care

Update: IV-E Waiver Demonstration Projects

Resources and More


From the Director...
One of the most positive themes in the national dialogue on child welfare is the increasing emphasis on outcomes. In child welfare agencies from coast to coast, we see managers who no longer ask, "What are we doing with this child or family?" but rather, What's happening as a result of our efforts? Do the services we provide move us closer to achieving our goals of safety, permanence and well-being for children in our care?"

Unfortunately, one area where outcome-focused management has not yet taken root in many states is the mechanism for payment for out-of-home care. Paying providers for days in care or for blocks of treatment does not always engage them as partners in moving children toward permanency. These maintenance-focused reimbursement systems can, in fact, work against agencies' efforts by providing an incentive to keep children in care.

This issue will highlight initiatives to reshape payment systems for out- of-home care services. The lead article presents excerpts from a recent Resource Center paper, profiling initiatives that set case rates for providers of group care and residential treatment.

To look at other approaches to linking payment to performance, we also discuss the use of performance-based contracts for out-of- home care services and provide an overview of child welfare waiver demonstrations that utilize Title IV-E flexibility to reshape the financing of out-of-home care services.

We welcome your comments, and look forward to hearing from you!

-Kris Sahonchik

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Case Rates: Providing Incentives for Achieving Outcomes

Around the country, child welfare managers are working to assure that both public agencies and contracted providers take responsibility for managing services to achieve specified outcomes for children and families. To support this effort, many agencies have developed innovative funding mechanisms- mechanisms that provide a fixed amount of funds per child or family and allow these funds to be used flexibly to meet their needs.

One approach is to provide organizations managing care with a case rate. Case rates are fixed, per-child rates paid to an organization to provide a group of services. Case rates shift the payment incentive structure, so that the organization managing care can benefit from achieving outcomes for children and families.

Case rates are generally structured in two ways:

  • Monthly case rates: Under this approach, state or county child welfare agencies pay a set amount per month/per child to an organization responsible for managing care. The amount is based on the expected monthly cost of serving an enrolled child. The rate is open-ended - that is, the agency will pay the monthly case rate as long as the child is receiving services from that organization.
  • Extended period case rates: Under these arrangements, states or counties calculate the total expected cost of services for a child during his or her stay in the child welfare system. They then provide the managed care organization with the total amount of funds. This approach to rate-setting is close-ended -it is limited to the calculated amount.

In addition, a focus on child safety and well-being outcomes has led many child welfare agencies to add another feature to case rates:

Performance-based payments: This model makes part of the organization's reimbursement contingent on its performance. It pairs case rates with incentive payments tied to completion of required processes and achievement of desired outcomes. For example, a set dollar amount is sometimes provided when a child moves to a lower level of care, is placed in a permanent setting, and achieves permanency for a defined period of time.

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Rate-setting strategies
Case rates are based on the expected costs of providing services for children with a given set of characteristics. Provider organizations, therefore, accept some level of risk: The case rate will only be adequate if the number and intensity of services used by a particular child is equal to or less than the projected cost.

To minimize the risk, case rates are established carefully. In some cases, the managed care organization has a track record of serving children and has worked with the child welfare agency to analyze actual costs. It is also helpful if the organization serves enough children so that their total is sufficient to absorb higher-than-anticipated costs for a few children. This risk, however, is paired with the potential for the organization to retain savings to invest in expanded services for children.

Three examples illustrate the range of approaches to developing and implementing case rates. In each of these initiatives, child welfare agencies pay a case rate to an organization to manage care for children in residential treatment centers or group homes. However, one project utilizes a monthly case rate; another, a monthly case rate with incentives; and the third, an extended period case rate. The rate structure, how the rate was developed, and risk arrangements vary for each of these projects.

Wraparound Milwaukee
The mission of Wraparound Milwaukee is to provide cost effective, comprehensive, individualized care to children with complex needs and their families. The program, which is managed by the public children's mental health agency, began by serving a portion of the children in or being diverted from residential treatment. As it succeeded, it expanded to serve all children in residential treatment as well as additional children, bringing the current total to 650 children. Approximately half of the children served are referred by juvenile justice and half by child welfare.

Wraparound Milwaukee uses a monthly case rate to serve this population. The child welfare and juvenile justice programs provide Wraparound Milwaukee with a combined monthly case rate of $3,300 per child per month. This rate was negotiated based on actual cost data gathered during the program's first 18 months of operation.

During that time, Wraparound Milwaukee provided services to 175 children with federal grant funds and Medicaid funds. The program developed their projected costs taking into account the costs of community-based services and reductions in the level of utilization of out-of-home care. The $3,300 per child per month rate is considerably less than the $4,700 per child per month that the county had been paying for residential treatment.

Under this arrangement, the program is fully at risk; there is no formal agreement to adjust the amount paid to the project if costs exceed revenue. To help ensure that the risk is manageable, the program not only designed the rate based on actual cost experience but also has engaged the support of juvenile judges. The program has realized savings and has reinvested funds into serving additional children.0

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Under the Massachusetts Commonworks program, the organization managing care is a private providers –a lead agency in each region of the state. The Commonworks program serves approximately 775 adolescents who were in or on their way to residential or group care. The goal of Commonworks is to achieve permanency as quickly as possible for these adolescents or to prepare them for independent living. The project also aims to maintain and educate these children in the least restrictive setting.

Commonworks receives a monthly case rate plus incentives. When contracts with lead agencies were initiated in January, 1997, the state Department of Social Services (DSS) proposed a monthly case rate of $4,000 per child per month. This figure was based on an analysis of historical cost and service utilization data.

However, DSS also chose to start the project with a "hold harmless" period, during which lead agencies were reimbursed for their actual costs and cost data was gathered and analyzed. In July, 1998, after 18 months of operation, DSS and lead agencies negotiated contract amendments that specified a new case rate of $4,476 per child per month.

This case rate includes funds for child welfare services and an education subsidy to cover educational costs for 20% of the children served. The Department proposed a case rate based on an average of actual expenditures in four of the state's six regions, where costs were closely clustered together. (It excluded data from two regions where costs differed significantly). The new rate also reflects a 2.7% increase in reimbursements that were provided statewide to residential and education service providers.

Lead agencies also receive $1,000 per child payment of flexible funds at intake and another $1,000 at each key performance point - for example, when children transition to lower levels of care, at discharge and when a permanent placement has been maintained successfully for six months. Once adolescents leave the Commonworks continuum, the lead agencies can continue to receive aftercare payments of $400 per month for six months to provide support services.

These incentive payments have also been restructured based on analysis of actual costs - DSS had originally proposed a larger intake payment, but created the transition and discharge payment when data showed that costs were incurred at these points.

Over the year following negotiation of the new contracts, lead agencies gradually assumed risk - a 1% risk in the first four months, a 2% risk in the second four months, and a 3% risk in the third four months. Thus, beginning June, 1999, a lead agency that receives a case rate plus transition payments of $ 1 00,000, is responsible for covering costs up to 3% above that amount ($103,000) out of its own resources. Conversely, the agency can also retain savings up to $3,000 if costs are less than the fixed amount.

A total of 5% of the payments, can be retained by the Commonworks project. These savings are split between lead agencies, which can retain 3%, and the regional DSS. Regional staff, along with central office and lead agency staff, decide how to spend the remaining 2%. This structure has been developed to encourage DSS caseworkers to support lead agencies in meeting Commonworks goals.

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Project Destiny
As part of Project Destiny in Alameda County, California, the Interagency Children's Policy Council contracts with the Flexcare Consortium, a group of three private providers. Under this project, the Flexcare Consortium serves 24 severely emotionally disturbed children who were receiving residential treatment services. The project goal is to transition these children to permanent homes in the community by providing in-home support services.

Project Destiny uses extended period case rates. In April, 1997 Alameda County initiated a contract to provide Consortium with a 24-month case rate of $78,748 per child. This amount was based on analysis of cost data from the previous two years for a group of children similar to those to be served through the pilot.

At the inception of this contract, the Flexcare Consortium was provided with $250,000 in flexible funds. In addition, $150,000 was removed from the rate and held in trust as an incentive for meeting outcomes. The Consortium has been at risk over the 2-year contract period and has used part of their flexible funds to cover service costs.

The county has recently extended Project Destiny by negotiating another contract with Flexcare for a lower amount. This rate is based upon the provider's actual expenditures during the 2-year period.

The county is also planning on expanding the project under California's IV-E waiver. The waiver will allow the federal portion of the case rate to be used flexibly. Under the expansion, six new children will be enrolled each month, so that a total of 144 new children will be served over the next two years. For this group, Alameda County will pay the monthly amount of $3,988 per child per month.

Outcomes and results
These three projects are tracking different sets of outcomes and are demonstrating a range of results:

  • Under the Wraparound Milwaukee program, the number of children in residential treatment has decreased from 360 to 210, and lengths of stay for psychiatric hospitalizations have declined from an average of 15 days to 6.2 days. At the same time, children served show improved clinical and functional outcomes on the Child Behavior Check List (CBCL), the Youth Self Report (YSR) and the Child and Adolescent Assessment Scale (CAFAS).
  • Commonworks has demonstrated some decreases in overall length of stay, and continually tracks the numbers of children moving to less restrictive levels of care as well as recidivism rates. The program also tracks the percentage of adolescents making progress on specific treatment goals – for example, the percentage that improved on goals relating to substance abuse or in their treatment plans.
  • Twenty-three of the Project Destiny children moved out of residential treatment into less restrictive settings, but several of these children have since been returned to higher levels of care. A recent qualitative evaluation concluded that some children in high levels of care cannot safely be stepped down within two years, and that success relies on strengthening the number of specialized foster homes and the supports available to them. It also pointed to the rich range of support services and the continuity offered to children by consistent Project Destiny staff, which enriches the quality of their lives.

These descriptions of case rate initiatives are drawn from a recent Resource Center paper developed as a handout for a teleconference on rate setting strategies under child welfare managed care. The full version of the paper, "Rate Setting Strategies Under Child Welfare ' Managed Care: Three Case Rate Examples" is available from the Resource Center's Clearinghouse at 1-800-HELP-KID. The audiotape of the teleconference, in which representatives from these three sites present their work, is also available through the Clearinghouse.

For more information:

    Bruce Kamradt, Director Children's Mental Health Services, Milwaukee County, WI (414) 257-7531

    Bob Wentworth, Director, Residential and Adolescent Services, MA Department of Social Services, (617) 748-2359

    Elliot Robinson, Finance Director, Alameda County Social Services Agency, Oakland, CA, (510) 268-2052

Material for this issue of Managing Care was compiled by Mary O'Brien, MPA. Mary's work for the Resource Center focuses on issues of pooled funding, managed care and creative financing for comprehensive services. She brings to the Resource Center a background in Medicaid managed care, health care financing, and program evaluation.

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Practice Forum
Performance-based Contracting for Out-of-Home Care

(Editor's Note-In June, 1998, the National Child Welfare Resource Center for Organizational Improvement responded to a request from the North Carolina Division of social Services for information on performance-based contracting for out-of-home care. Through our Clearinghouse, we identified relevant initiatives and provided the state with descriptions of a variety of approaches. Recently, we updated this information, and it is presented below.

The Clearinghouse continues to respond to requests of this type as part of its mission to gather and disseminate information on innovative management strategies. We invite you to contact us if we can assist you with information on organizational improvement issues.)

Increasingly, child welfare agencies take steps to ensure that funds spent for contracted services lead to desired results. For children in foster care, group care and residential treatment, states use a variety of approaches to link payments for out-of-home care to performance.

One approach is to make portions of the contractor's reimbursement contingent on completing case milestones and on achieving outcomes. In Wayne County, Michigan, a group of four providers has been contracting with the state since May, 1997 to accomplish permanency plans for 650 children in family foster care. The children are largely ages 12 and under.

Under this "permanency-focused reimbursement system pilot," contractors receive a daily rate that is lower than the standard reimbursement. However, contractors are eligible for other payments that, combined, result in a payment rate that is 15% or more above the standard.

Contractors receive an initial payment of $1,990 per case to allow them to intensify services at the front end. They are also able to earn two performance-based payments: $1,700 when a permanent placement is made or parental rights are terminated within a defined number of days, and $930 when a youth maintains permanent placement for six months or is placed for adoption within six months.

Arizona exemplifies another approach. In July, 1998, the state initiated reunification contracts, through which private agencies contract with the state to achieve reunification for children residing in group homes. Under these contracts providers receive an initial fee at the time of referral, and two other payments tied to performance: One payment when key parties sign the case plan with a goal of reunification, and another payment when the case is closed because the child has been reunified with his or her family.

Some performance-based contracts are targeted to specific populations. For example, many sites have established approaches to link performance for services for children with case plans of adoption. Under a Michigan initiative, contracts with adoption agencies establish expectations for the percentage of children who must be placed within a defined number of days. Sixty percent of the payment is provided when children are initially placed in adoptive homes, and 40% is paid when adoptions are finalized.

Other sites have transformed the basic payment into a case rate of one set amount that is expected to cover the provision of a group of services as needed. Some of these case rate arrangements are supplemented by incentive payments, as in the Massachusetts example, described above. In others, the case rate is paid out at intervals as milestones are reached.

For example, under the Kansas privatization project, the state contracts with one agency in each region to provide foster and group care services to all children in child welfare custody. During the fourth year of these contracts, starting in July, 1999, contractors are paid a fee per referral, plus a fixed case rate ranging from $13,564 to $14,763, to provide a range of services to each child.

In return for these flexible funds, expected to meet a set of outcomes for children, and data on performance is tracked and published regularly. The case rate is paid at intervals – 25% upon referral, 25% upon receipt of the first 60-day progress report, 25% upon receipt of the 180-day formal case plan, and 25% when reunification or permanent placement is achieved.

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Another approach to link payment to performance is to decrease contractors' caseloads (and, subsequently, their reimbursements) if they do not meet agreed-upon outcomes. Under performance-based contracting in Illinois, the state expects providers who oversee children in relative homes to meet defined outcomes within specified periods of time. After the contracts were launched in July, 1997, the state tracked average length of stay (LOS) during the first six months of the contracts and used this information to set LOS standards. If a contractor's LOS meets these standards, the state maintains the contractor's intake; if the contractor does not meet these standards, intake is decreased.


    Michigan: Vic Buranskas, Rate Specialist, Office of Contracts and Rate Setting, (517)373 0448

    Arizona: Rita Schmidt, Manager, Contracts, Financial and Business Operations Administration, Division of Children, Youth and Families, (602)542-0239

    Kansas: Sue Ashlock, Department of Social and Rehabilitative Services, (913)296-2023

    Illinois: Mike Shaver, Project Director, Derpartment of Children and Family Services, (312)814-4111

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IV-E Waiver Demonstration Projects

Traditionally, Title IV-E federal reimbursements have been available only for costs associated with placements in out-of-home care. As states and counties succeed in serving children in family and community based settings, federal reimbursements decline.

Child welfare waiver demonstration projects have allowed some states to use Title IV-E funds flexibly to support the range of services needed to achieve desired outcomes. As of October, 1999, 22 projects had been approved, many of which are testing the effects of financing changes. Other demonstrations will test the effects of using Title IV-E funds to provide specific expanded services, such as alcohol and drug counseling.

Three states have federal approval to provide counties with block grants or fixed allocations of federal funds that can be used flexibly to provide a range of services to children and their families. Ohio is providing participating counties with capped, flexible allocations along with expectations for outcomes, and North Carolina and New York have approval to pursue a similar strategy.

In another three states, counties or providers on the county level will be able to use some of the child welfare allocation flexibly. In Oregon, counties are receiving some flexible funds and the ability to retain savings. In California, local projects, such as Project Destiny in Alameda County, now have flexible Title IV-E funds available to provide a range of in-home services to families. Local projects in Indiana are also receiving up-front flexible funds to provide preventive support services to families.

Several other sites have approved projects in which Title IV-E funds are used to fund case rates or capitated payments to organizations managing care. These include Kansas, Connecticut, Washington and Michigan. Florida's waiver will support the state's privatization initiative, where child welfare allocations are provided to community-based agencies that are responsible for all services after investigations.

More information on the demonstration projects can be found on the Department of Health and Human Services' web site,, or by calling Patricia Campiglia at (202) 205-8060.

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Resources and More

About the Resource Center
The National Child Welfare Resource Center for Organizational Improvement is one of nine centers providing federally-supported technical assistance services to public child welfare agencies. Each state is allotted ten days of consultation per federal fiscal year.

To utilize this service, states must develop a specific plan for assistance, which is approved by the appropriate federal regional office. Call 1-800-HELP- KID for further information or to initiate a technical assistance or training plan to meet your state's needs.

On Rate-Setting
The Resource Center has an extensive track record of helping states to implement improvements in rate-setting systems for out-of- home care. Here are two examples of recent projects:

After the New Jersey legislature voted to increase reimbursements for family foster care providers, Resource Center personnel worked with the state to design and implement a new system for allocating payment dollars. Through this project, the Resource Center assisted the state in updating its basic rate and developed an assessment tool to determine the amount of time required for foster families to care for children with various needs. This assessment led to a determination of a special needs rate.

Resource Center personnel also trained caseworkers on the use of the computerized assessment form and completed cost projections for implementing the new rate structure.

In Louisiana, a legislative auditor requested information on the correlation between the rates paid to residential care providers and the costs they incurred. Resource Center consultants worked with the state to design and implement a rate-setting system based on an assessment of the level of effort required by residential facilities to care for an individual child, including the level of basic care, supervision and intervention required.

In addition the Resource Center has introduced innovative technology to rate setting systems. For example, we have assisted states in using computer technology:

  • to calculate rates based upon the assessment of the child;
  • to generate a contract for the foster parents which include specific expectations based upon the special needs rate; and
  • to generate monitoring forms.

Resource Center personnel have also developed a matching program, which assists caseworkers to match the needs of the child with the preferences of foster families. In addition, we can help you to include incentives in your rate structure to reduce foster family turnover.

Other services tied to rate-setting include assisting states in:

  • defining outcomes for contracted out-of-home care services,
  • building consensus around outcomes,
  • developing systems to track performance, and
  • exploring ways to tie payment to performance.

Outcome Initiatives in Child Welfare. Amy L. Gordon, Child Welfare League of America Press, Washington, DC, 1999 ($14.95). Call 1-800-4-7-6273 to order. This recent overview of outcome initiatives in child welfare provides information on the range of efforts currently underway to track outcomes in child welfare.

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updated on 01/31/2005


National Child Welfare Resource Center for Organizational Improvement
PO Box 15010, 400 Congress St., Portland, ME 04112
1-800-HELPKID (435-7543) • fax: 1-207-780-5817

Muskie School of Public Service