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There's No Place Like Home

Thursday, May 1, 1997

The state of Kansas has turned its child-welfare services over to private nonprofits with one mandate: Don't let kids languish in foster care.

More than 500,000 children will pass through America's foster-care system this year, double the number from a little over a decade ago. Nearly 100,000 of these children will never return to their original home. Some will be adopted, but even these lucky ones will spend an average of three to five years waiting for a permanent family. The unlucky ones will spend the remainder of their childhood drifting through foster-care hell. After "ageing out" of the system at 18 years of age, many of these foster-care "graduates" will end up on welfare, on the streets, in jail, or a combination of the three.

Last December, President Clinton issued a bold challenge to the states, which administer most of the country's child-welfare programs, to double the number of children moved each year from foster care to adoptive homes by the year 2002. "The public child-welfare system was created to provide a temporary haven for children," he said, "not to let them languish forever in foster care."

Kansas may become a model for states trying to meet the Clinton challenge. The Sunflower State recently became the first state in the nation to fully privatize its adoption, foster-care, and family-preservation services. "Kansas has taken the national lead in foster-care and adoption reform," says Derek Herbert, the associate director of the

Boston-based Institute for Children, which tracks developments in state child-welfare programs.

Kansas's Department of Social and Rehabilitation Services (S.R.S.), previously the state's largest provider of adoption and foster-care services, now purchases these services from a network of private providers. No longer does the state recruit foster-care or adoptive parents or send in social workers to assist families in crisis. These responsibilities-along with administration, placement, counseling, and follow-up services-have all been turned over to private, nonprofit organizations.

The Kansas model offers vigorous competition between providers, a "capitated" funding system that pays contractors a flat, one-time, per-child rate regardless of actual costs, and stringent performance standards. This emphasis on performance provides strong incentives for the private providers to move children rapidly out of foster care and into permanent homes.

Kansas's privatization effort is unprecedented in its ambitions. The reform "addresses many of the hopes and dreams the child-welfare community has had for many years," says Bob Hartman, the executive director of Kansas Children's Service League (KCSL). "We just never fathomed the state would ever go to this extent."


A System in Disarray

Like most state child-welfare systems, Kansas's had been broken for years. Case workers were overwhelmed, the computer equipment was antiquated, and the bureaucracy moved glacially. Because they weren't mandated by state law, adoption services were neglected; over the past eight years, fewer than half of Kansas children legally free for adoption were placed in homes within a year. Foster care was also a mess. Children were shuffled from one foster home to another, and many passed through seven or eight homes during their childhood.

Within four months after privatization, the number of adoptions in Kansas has risen from 30 to 50 a month.

For 14-year-old Dale, a mere seven or eight would have been heavenly. The teenager, an animal lover with an IQ of 130, has been in 130 foster homes since he entered Kansas's child welfare system at age three. "Just when you unpack your stuff, it's time to move again," he says. "I learned to turn off my feelings because if I thought about how bad I felt, I wouldn't be alive. You learn to use your imagination a lot because it's so much better than what you're living."

Finally, in 1990, the ACLU filed a class-action lawsuit against the state on behalf of children. The judge listened to the state's defense-and promptly put the department under a consent decree. The S.R.S. failed court-ordered reviews for five years running. By 1995, it had become clear to all involved that tinkering with the existing system wouldn't work.

Nearly everyone who mattered-Governor Bill Graves, the Secretary of S.R.S., the Commissioner of Children and Family Services, the legislature, and the advocacy community-agreed that a fundamental restructuring of the system was needed. And so Kansas's privatization model was born.


A Bold Plan

Kansas's new child-welfare system departs from the past in several dramatic ways. One is the way that providers are compensated. In all three areas-family preservation, foster care, and adoption-the contractors are paid a one-time, flat fee per child. Drawing on the managed-care model in health care, the rate is "capitated," which means the contractor must agree to serve each child for a fixed price, regardless of how troubled the child is or how long he has been in the system. For example, contractors in family-preservation services receive the same payment regardless of whether a family requires a handful of visits or hundreds.

Previously, providers were paid on a fee-for-service basis. Under this scheme, neither the state social workers nor the private providers had much incentive to move a child out of the system quickly. Federal funding for child welfare pays states for each day a child remains under the state's care. So once the child left foster care, the state agency and the contractor stopped receiving federal money. In effect, they had a financial incentive to keep children in foster care.

The managed-care approach turns the incentives upside down. Kaw Valley Center, a nonprofit that has provided children's services in Kansas for nearly 30 years, has foster-care contracts in two of the state's five regions. It is paid a one-time rate of $12,860 per child, whether the child stays in foster care for one month or five years. Services for one child typically cost $17,000 to $25,000 a year, so Kaw Valley will lose money on any child that stays in substitute care for more than seven or eight months. Previously, a child in Kansas would stay in foster care on average more than two years.

This system gives Kaw Valley and other providers a powerful financial incentive to work intensively with the birth parents to get the child back into her original home. If that is not in the child's best interests and the initial prognosis for the family is dim, Kaw Valley will pursue two tracks concurrently: family reintegration and termination of parental rights. The end result should be much shorter foster-care stays for children. "The point is, if the family can be reunited, let's do it," says Phil Krueger, the vice president of Kaw Valley. "If not, we'll place the child in an adoption track."

The managed-care approach dramatically shifts risk to the private sector. "It's the old bell curve," says Krueger. "At one end are the expensive long-term-care children. At the other are the kids that can be placed or reunited quickly who won't cost much. We're hoping it averages to $12,860."

Most contractors have been willing to accept higher risks in return for greater freedom and control over how the system is run.

Most contractors have been willing to accept higher risks in return for greater freedom and control over how the system is run. Besides, they say, they're not in it for the money; their mission is to help kids. "We faced a big decision in bidding for this contract because it involves a financial risk to the agency," says K.C.S.L.'s Hartman. "Yet we've been committed to these children for more than 100 years."

Actually, the contractors can defray a little of the financial risk. The state will pay for up to 10 percent of an agency's cost overruns-one provider dubs this "capitation insurance." On the other hand, if the contractor costs come in under the bid price, they're allowed to keep the first 10 percent of savings.


Nonprofits Embrace Competition

Another innovation of the Kansas experiment is vigorous competition. Previously, state contracts went to politically connected providers; there was little real competition for the contracts. This has changed. Due to intense competition for the contracts, nonprofits have had to radically rethink the way they do business. "Competition forced us to take a hard look at our true costs, which we hadn't done before," says K.C.S.L.'s Hartman.

Competition also has encouraged nonprofit providers to create an array of partnerships and consortia to address their weaknesses. "Within the last year there has been a total upheaval in how this business is done," says one nonprofit director. Methodist United Youthville partnered with Value Behavioral Health (V.B.H.), a division of Columbia HCA, the nation's leading managed-care company, to help it develop a managed-care program for children's services. V.B.H. is setting up Youthville's system for processing claims, measuring outcomes, staffing phones, and building a provider network. V.B.H. won't make a dime on the deal, but the partnership gives it some experience in a field where increased privatization is bound to provide future business opportunities.

To win another contract, Youthville set up a partnership with the Salvation Army, whose workers provided a large and dedicated cadre for recruiting foster-care and adoptive families. "We have more flexibility both internally and in building relationships with other providers," says Karen Baker, the vice president of Youthville. "The state is more constrained structurally and financially."


Advantages of the Private Sector

Youthville's religious affiliation also gives it an edge over state agencies. Nearly every town in Kansas has at least one Methodist church, says Baker. "If we need to start up services in Colby [a small town in northeast Kansas], we can start with the Methodist church. They'll usually provide us with volunteer drivers, temporary assistance, and referrals. It gives us a foothold in town with people who have a similar mission."

Kansas's private providers are also able to specialize in services in a way the state could not. "In the state agencies, each social worker had multiple responsibilities," explains Virginia Rodman, of Lutheran Social Services of Kansas and Oklahoma. "Child abuse was a mandated service, family preservation was a mandated service, but adoption was not and so it fell by the wayside. Our workers have only adoption as their priority."

Since taking over adoption in October, Lutheran and its subcontractors have dramatically raised adoption's profile in Kansas. The Kansas Adoption Network (K.A.N.), an organization formed by the providers to recruit adoptive families, has blanketed the state with a massive marketing effort. The recruitment drive has included direct-mail pitches, pictures and profiles of foster children in local newspapers, radio, and TV, and giant posters of the children affixed to business storefronts. To recruit more black families, the network has appealed to specific businesses that employ large numbers of African Americans. Now you can't turn on the TV, listen to the radio, open your mail, or read your newspaper in Kansas without hearing about a child in need of a loving home.

The new approach is working. The adoption network found a home for two sisters, 10-year-old Lovely and seven-year-old Sasha, within three months. Their new adoptive parents first heard of the girls from a direct-mail profile sent to targeted families. Over the next two months, they heard reports on the girls over the radio and saw them on television. Lovely and Sasha eventually won their hearts.

The girls have not been the only beneficiaries of the network's stepped up recruitment. In only four months, the number of adoptions has risen from 30 to 50 a month-an increase of 67 percent-while inquiries from prospective families have jumped from 50 to 450 a month.


Tough Standards

Also crucial to appreciating Kansas's privatized system is its rigorous standards of accountability. The new contracts dictate the results that the contractor is expected to achieve, but how it achieves them is left to the provider's discretion.

The new performance measures hold the private contractors to a much higher standard than the state had demanded of itself. For example, Lutheran must meet five adoption outcome measures as part of the terms of its contract. The most important, of course, is placement. Previously the state was placing only one-fourth of children in adoptive homes within six months of freeing them for adoption. Lutheran may lose its contract if it fails to place 70 percent within 180 days and 90 percent within a year.

Providers must also meet a difficult standard for "disruption"-the term for an adoption that fails. Nationally, an average of 10 to 15 percent of adoption placements fail. Lutheran must keep its disruption rate below 10 percent.

Given the reputation of HMOs for skimping on medical care, some children's advocates object to the capitated rate for child-welfare services. They fear that a profit-driven organization might put a child back in an abusive home rather than keeping him in more expensive foster care. "Our concern is that if you have managed care without quality insurance and the proper incentives to shore up vulnerable families, you could create financial incentives to underserve vulnerable children," says Charlotte McCullough, the director of the Managed Care Institute at the Child Welfare League of America.

To guard against this, Kansas officials carefully designed the outcome measures in a way that compels contractors to value the children's safety at all times. One such standard mandates that at least 90 percent of the children in each provider's care never suffer abuse or neglect (as measured by confirmed reports). So far, the private charities have achieved 98 percent safety in this area. Another standard makes the contractor responsible for the child's well-being for a full year after she has been placed in a permanent home.

"Requiring certain outcomes to be achieved is the balance to the capitation," says Hartman of Kansas Children's Service League. Virginia Rodman, of Lutheran Social Services, agrees: "The state has done a good job in making the funding incentives match the outcome measures."

It is too early to tell if Kansas's bold experiment will produce the ambitious outcomes spelled out in the contracts. The early results, however, are encouraging. In just the first seven months after family preservation was privatized, the providers have significantly exceeded performance goals in all five of the outcome categories.


The Opposition

One would expect a seismic systemic change like Kansas's to provoke fierce opposition from public-employee unions and the child-welfare advocacy establishment. It didn't. There was some initial opposition from the state's front-line social workers, who feared the loss of their jobs and benefits. They held a small protest rally, but in general they weren't very noisy. Why not? First, there were no layoffs. The department easily found new jobs for displaced employees, because a three-year hiring freeze in the department created new openings through attrition, and privatization required additional contract monitors.

Second, at least some state social workers actually welcomed a move to the nonprofit sector. "Working conditions of social workers had gotten so bad in the state agencies, [and] the feeling amongst social workers was that the nonprofits had higher standards," says Tammi Hawke, the president of the Kansas chapter of the National Association of Social Workers (NASW).

Even national groups like the Children's Defense Fund have expressed support for the general concept of a privatized, managed-care model for child-welfare services. "When you look at the goals of managed care and the goals that have been behind the child-welfare reforms we have supported, there are lots of similarities," says Mary Lee Allen, the director of child welfare and mental health for the Children's Defense Fund. "The movement is in the right direction." McCullough of the Child Welfare League says that, although advocates are now pretty quiet on the issue, "if we discover the outcomes are below what they were under the old system, then you will see a huge outcry."

The real opposition to a Kansas-style reform model will come not from public employees or the child-advocacy community, but from those nonprofit providers who stand to lose state contracts under the new system. If Kansas meets its goal of reducing by one-third the number of kids in out-of-home care and shortening foster-home stays, the number of beds needed for foster care will drop significantly. "[This] threatens some organizations' existence," says one provider, "particularly those providing group and residential homes. Not all agencies will make it."


Hope for the Future?

The problem with Kansas's previous foster-care and adoption services wasn't that social workers employed by the state were less caring than those in private groups. The problem was the system. Like most public agencies, it was driven by all the wrong incentives. Decades of failures with America's child-welfare system demonstrate that all the compassion in the world is not enough to overcome a bad system.

Kansas designed its new child-welfare system as if it were starting from scratch. The new incentives offered by a privatized managed-care model are improving the lives of children in need. Even Dale has become more upbeat about his prospects of getting a real family. "For the first time, I feel like someone is really trying to find a home for me," he says. "I feel like someone is actually doing something for me-someone cares."