Study: Privatized system still needs work

1:53:41 PM CDT - Tuesday, December 09, 2003

By Amy Geiszler-Jones

When Kansas privatized its family preservation, foster care and adoption services statewide in 1996, it was the most comprehensive reform made in the United States. No other state, before or since, has made such a drastic change in the way it delivers these child welfare services.

While the state made many mistakes as it undertook this initiative, there have been some positive outcomes. On the societal side, more emphasis is placed on adoption, fewer kids are being placed in foster care and the ones placed in foster care are more likely to be in family-based settings. On the operations side, Kansas has excellent data on children and families using its child welfare services.

But the current system won't be sustainable, says a WSU public administration professor who spent the past two years studying Kansas' privatization effort.

"Ultimately, there will be too few nonprofits to maintain sufficient competition to control costs and the state must be able to control costs," Nancy McCarthy Snyder says in a recent paper she presented to the Association for Public Policy Analysis and Management and to the Kansas Children's Alliance.

Her study, which makes recommendations for improving the system, is already having an impact.

After Snyder provided her findings, a Department of Social and Rehabilitation Services committee reviewing SRS' contracting procedures took her recommendation to rethink the design of its child welfare system and gather feedback before final decisions are made. It delayed its upcoming contract bidding process and recently appointed a 24-member advisory committee that includes Snyder, foster and adoptive parents, two teenagers who've received services, and social services, mental health and judicial system representatives.

'A chaotic implementation'
When Kansas reformed its child welfare system in 1996, it contracted with nonprofit agencies to provide three of its four child welfare services in five regional areas of Kansas. SRS remained responsible only for child protection services, which is the investigation of abuse and neglect reports.

The reform came rather quickly and without much study.

"It was a chaotic implementation," says Snyder. "Everything moved too fast with insufficient planning."
Snyder says she often heard the phrase "nobody knew what they were getting into" in the interviews she and her graduate assistant conducted with about 100 people involved with this new system.

Because they bid contracts using "best guess" data and because no one really knew how to predict the new system's costs, the contractors lost millions of dollars. United Methodist Youthville went bankrupt after depleting its $16 million endowment. Lutheran Social Service, which had handled the adoption services, ended up going out of business.

The managed-care model, which called for a capitation rate between nearly $13,000 and $15,500 per child, created lots of financial problems for nonprofits that spent far more on some children who needed more behavioral, mental or physical health services. SRS scrapped that model when contracts were rebid in 2000.

Another mistake was that SRS made the reform without consulting some key players: judges and foster parents. Judges, who have the final say when kids enter the court system, ended up mistrusting the inexperienced social workers from the nonprofits and ordered independent assessments that ended up costing the nonprofits money and added delays to the time children and families spent in the system.

A new design?
While there are five regions and three different areas of child welfare services involved in the privatization, the privatized system creates some regional service monopolies. For example, Kansas Children's Service League is the adoption contractor for all five regions. DCCCA, a Lawrence-based agency, holds the family preservation contract for four of the regions.

"The current system of regional monopolies isn't healthy and, in the long run, sustainable," Snyder says.

The competitive model SRS is currently using will only work if there's adequate competition. "And in fact, the learning curve is very steep and start-up costs are really high, so developing the infrastructure to do this is really high. I believe it's unlikely that you're going to get new bidders in another round, which means the state will lose its fallback system," says Snyder. "The state has dismantled its own ability to deliver" some of the services.

As an economist interested in public finance, Snyder says the current competitive model may not be achieving the goals SRS desires. "Accountability for taxpayer dollars becomes more difficult with each layer that exists between elected officials and direct service delivery," she writes in her paper.

The current system also needs to be simplified, Snyder says. Currently there's some duplication between SRS and the contractors that makes the system more expensive than it needs to be, she says.

While privatization got more financial resources into what had been "a grossly under-funded service it's not 100 percent obvious that the resources are being spent as efficiently as might be the case if it had a simpler model," says Snyder.

When Kansas moved to privatization, then-Gov. Bill Graves was quoted as saying, "This isn't about saving money. In fact, it may very well cost us more money, and that is OK in the long run if the results are more positive for the children of our state."

But, in some cases, the new system has become confusing to the families being served. They may come in contact with numerous workers as they move through the system an SRS investigator, an SRS caseworker who must monitor the child's movement through the system because the state is still considered legally responsible for a child in its custody even if the child is receiving services from a contractor, a case worker at the contractor, etc.

"There are too many people involved and there's no buffer for the kids and the families right now," says Snyder.
Another aspect that should be changed is the outcomes, Snyder says. Contractors are still working under outcomes that were established at the onset of privatization. With all the data that's been collected, the current benchmarks and outcomes can be "recalibrated."

"They need targets that are challenging and reachable," says Snyder.

Snyder, who's also researched Kansas' welfare-to-work reform and school finance, says she eventually would like to write a book on Kansas' child welfare privatization efforts.

Other outcomes
One outcome of Kansas' child welfare privatization is that nonprofits in Kansas are "way better managed and way better governed than before," says Snyder, who teaches a nonprofit management class at WSU. "There aren't many boards of nonprofits who can take the bankruptcy of UMY or the closing of Lutheran (Social Service) casually. They're asking if they have the financial officers who understand the financial implications or an executive director who understands managing a huge contract."

Based on Snyder's study of the privatization efforts and how nonprofits fared, WSU's Hugo Wall School also realized it could play a role in helping nonprofits. It now offers an executive seminar for nonprofit executive directors, similar to what it offers for city managers and elected officials. The school is also planning to develop a nonprofit management track within its master of public administration program.

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