It's a new year, but it’s the same crisis for nonprofit human service organizations. Robert Miles, president and CEO of Alliance member Lutheran Child & Family Service of Michigan (LCFS), Bay City, describes it as “the perfect storm.”
Nonprofit human service organizations have long struggled with low government reimbursement rates. But now they are grappling with far more: eliminated programs, slashed funding, delayed payments, operating deficits, market losses, reduced lines of credit, and an ever-greater demand to serve the nation’s most vulnerable populations.
“The government financing system has been broken for years, even decades,” says Peter Goldberg, Alliance president and CEO. “The economic situation has pushed this to a crisis point. It is imperative that the Alliance, UNCA, and their member agencies take immediate and forceful responsibility in reforming the system.”
Forum Creates Blueprint for Change
In May 2009, the Alliance; Deloitte, a professional services and auditing firm; and Alliance member Hillside Family of Agencies, Rochester, N.Y., convened a diverse group of thought leaders to strategize about the future of human services financing. (Download the group’s report.)
The first step in transformation, the group emphasized, must be the creation of a fundamental national strategy for the implementation of human services. That strategy should demonstrate a commitment to providing programs and services that address individuals or families in a holistic, integrated fashion.
“Our current system is highly fractured and under-resourced,” says Martin Mitchell, president and CEO of Alliance member Starr Commonwealth, Albion, Mich. “There is no clear, consistent approach we can all work toward.”
Responsibility for human services planning and funding is spread across countless federal agencies and programs—each with its own priorities and goals, funding patterns, regulations, and reporting requirements. These federal silos are mimicked at the state level.
“These very prescriptive silos leave no room for flexibility, creativity, and innovation,” Mitchell says. “Most decisions are being driven by economic realities rather than best practices and the best interests of children and families.”
Participants at the May 2009 forum believe bringing all funders together around a common strategy for providing human services will foster clear priorities; synergistic goals and unified outcomes expectations; higher quality service integration; innovation in programs, delivery, and funding; and greater cost-effectiveness.
Begin with Accurate Pricing
“We often talk about how low the reimbursement rates are in our field. That’s our fault,” says Patrick Lawler, president and CEO of Alliance member Youth Villages, Memphis, Tenn.
Some Alliance member agencies report government reimbursement of 50 percent or less of actual program costs. But agencies commonly underprice their service to win a bid, and often agencies
themselves don’t have a clear understanding of the true value of their services, Lawler says.
“Many human service organizations chase grants and requests for proposals and accept inadequate rates,” Lawler says. “That’s exactly the wrong approach.”
Lawler and Youth Villages chose a different method. The organization, which operates in 10 states and the District of Columbia, receives about 90 percent of its funding through government contracts. Almost all contracts cover the actual cost of care, including administrative costs. In most cases, Youth Villages chooses not to provide a service if it can’t get reasonable reimbursement rates and the resources to achieve quality and sustainability.
Lawler’s advice to other organizations is to begin by assessing current services, and focus the agency’s energy on those with the strongest evidence- and research-based outcomes and greatest efficiency. Expand only those services with clear processes and systems in place to manage quality and outcomes. And don’t calculate costs based on best-case scenarios, he says. Factor in the unknowns and challenges that frequently impact revenue down the road, such as slow referrals, changes in leadership or staffing, delayed payments, or new rules and regulations.
Decide the rate at which the organization can provide and sustain high quality service, he recommends, and be upfront and steadfast about that decision. Unless the agency has the philanthropic or advocacy support to make up the difference, don’t accept a lower rate.
“Nonprofit human service organizations have to stop living day-to-day and create a sustainable organization for a lifetime,” Lawler says. “Children and families in our communities need services they can rely on all the time.” (An article in Issue 1 – 2009 of the Nonprofit Director, a supplement to the Alliance for Children & Families Magazine, addresses the importance of quantifying true service costs. It also offers advice and a tool for making decisions about how to distribute limited resources.)
Having a Voice
Alliance member Yellowstone Boys and Girls Ranch (YBGR), Billings, Mont., works closely with the state to more accurately determine actual cost of care and advocate for equitable rates.
This effort addresses the government funding the agency receives, but Jani McCall, vice president of government affairs, says it will also affect the organization’s contracts with private insurance companies, ensuring that private payments also reflect fair rates.
McCall, like other Montana-based providers, is frustrated that the state’s cost reports don’t give a true assessment of care costs. “They give us a per diem rate. The cost report requires a breakdown of how we spent the money they gave us, versus an accurate analysis of what it takes to provide quality care.”
McCall is former director of the Montana Children’s Initiative (MCI), which represents about 85 percent of the state’s providers. In 2005, MCI was successful in getting legislation passed to establish an advisory rate commission under the Montana Department of Public Health and Human Services. The commission includes a broad constituency of community representatives, consumers or their family members, care providers, legislators, and government program staff.
MCI has been successful in getting rate increases for children’s mental health and child welfare services—which continue to be based on methodology created in the late 80s and early 90s—but it’s always a battle.
With the advisory rate commission in place, MCI is now is working with the rate commission for passage of legislation that would require the state to establish a consistent, equitable methodology to set rates for all community-based services. It would also require reassessment of the methodology at least every four years, as well as include ongoing data collection and evaluation.
Using the Alliance’s benchmarking initiative to gather agency outcomes data and influence state rate setting decisions, McCall is hoping benchmarking will be used throughout the MCI membership to produce statewide data for the first time.
“The commission is gaining an increased level of understanding and competency about these complex issues,” McCall says. “We’re beginning to get some traction.”
Advisory Commissions Foster Teamwork
“The rate setting process varies widely state by state,” says Patrick Lester, the Alliance and UNCA’s senior vice president for public policy. Lester and his staff are conducting nationwide research to inform recommendations for government rate setting and financing reform.
He has found only a few states that currently have advisory rate setting commissions. Wisconsin, for example, is moving from a county-negotiated approach to a state rate setting system that involves a commission similar to the one in Montana.
Other states are implementing or considering such commissions.
“The advisory nature of the commission gives providers an opportunity to be part of the process,” Lester says. “They can explain what the needs are and push back a little.”
Lester doesn’t view advisory commissions as the ultimate solution to all human services financing problems, but he believes that they promote teamwork among a diverse group of constituents. That kind of open, transparent process leads to greater service integration and better outcomes. He envisions that as more states adopt advisory commissions, they will move beyond rate setting and recommend wholesale changes to the financing system.
Performance-Based Payments
Performance-based contracting, in use since the 1980s, typically specifies only quantity of units of service rather than impact of services. Only recently have these contracts begun to specify a range of outcomes expectations, and few link performance to contract rates.
Based on its research, the Quality Improvement Center on the Privatization of Child Welfare Services (QIC PCW) describes performance-based contracting as a work in progress. QIC PCW emphasizes the need for continuous communication between public and private entities, transparency, clear performance measures, and reliable data.
YBGR joins the majority of Montana providers in asking the state to be flexible with public agency funding. The organization is looking for options that would fund youth served by multiple agencies, as well as options such as case rates and performance-based payments. “Currently, accountability and outcome data are hit or miss,” McCall says. “It’s essential to move to a data-driven system.”
Accountability, data, and outcome-oriented payment methods are at the core of the financing model for Youth Villages’ programs in Tennessee.
In 1995, when the state experienced a fiscal crisis that resulted in across-the-board cuts to child welfare contracts, it opened the door for Youth Villages. “We suggested that the state pay us a price to achieve an outcome, hold us responsible for the results, and let us determine how to achieve them,” Lawler explains. “We told them that we’d treat the same number of kids for two-thirds the price they were then paying. They agreed.”
Youth Villages delivered. The organization’s evidence- and research-based continuum of care, with a focus on in-home services, community care, and transitional services, provides better outcomes and is extremely cost-efficient compared to more traditional out-of-home care.
“In Tennessee, Youth Villages consistently achieves levels of success that rarely were matched in the past,” Lawler says. “Moreover, this superior performance came at a lower price; Youth Villages could promise a better return on investment than other providers.” This success was documented in a 2008 case study by the Harvard Business School.
Tennessee now has the country’s most comprehensive process to monitor outcomes, measure provider performance based on clear metrics, and hold providers accountable, Lawler says. Since adopting a performance-based contracting system, the state has dramatically reduced the percentage of children in congregate care or juvenile detention.
Like QIC PCW, Lester urges significant research before states move forward with more performance-based systems. “Both providers and funders clearly care about performance. But what exactly does that mean?” he says. “There are a lot of practical issues that need to be addressed before taking the next step of tying payments to performance. We’re all still figuring it out—even the simplest things like what specific activities and outcomes to measure and how to measure them.”
Fiscal Constraints Open Door to Innovation
As states currently struggle with scarce resources, Lawler believes this is an opportune time to successfully advocate for change.
“No matter their budget shortfall, every state has an enormous budget for human services,” Lawler says. “And states have to get better outcomes and greater cost-effectiveness. That means they’re going to be more open to moving money from one provider to another, or from one funding silo to another. If states direct those monies to organizations and programs that work, and away from those that don’t work, they’d find they have a lot more money to allocate.”
Lawler believes that every human service agency and association should hold states accountable for producing outcomes. That means providers themselves have to be vigilant about defining their outcomes, collecting data, analyzing their strengths and weaknesses, and improving performance.
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Youth Villages is advocating for changes at the federal level that will foster innovation and improved outcomes, as well as cost-effectiveness. For example, the agency is trying to open up a Medicaid waiver option that would allow states to use Medicaid money in a more flexible way, primarily through prevention and family preservation.
“It can be difficult for funders and providers to use money differently, to move it out of the silo,” says Carol Wood, president and CEO of Alliance member Christian Home Association–Children’s Square USA, Council Bluffs, Iowa. “But tough economic times call for new ways of doing things.”
Wood is past president of the Coalition for Family and Children’s Services in Iowa, an Alliance member state association based in Des Moines. The Coalition gives providers a strong voice as the state modifies service systems and funding mechanisms.
A recent example of the result of this advocacy relates to a change in the state’s model for funding emergency shelter beds for children. The state had been contracting for a specific number of beds, yet utilization of emergency shelters would vary on a day-to-day basis. Providers in each region of the state were asked to explore alternatives.
Christian Home Association–Children’s Square USA worked with two other shelters, the department of human services, the juvenile court, and other key stakeholders in its region to propose a new approach. The number of guaranteed beds for two of the three shelters was reduced, and the dollars that the state would have spent on those beds was converted to a new “triage” program at Christian Home Association–Children’s Square USA.
The new program allows the organization to immediately assess children and plan for their living arrangements, all within the first 24 hours. Thereby, this “triage” approach adverts the need for formal admission to the shelter.
“This enables us to serve children differently,” Wood explains. “The state didn’t allocate additional funding, but is allocating the dollars differently.” The desired outcome is a safe, more permanent living situation for children, as opposed to temporary out-of-home care.
“Systemic transformation takes time, patience, and persistence,” observes McCall. “During this time of financial instability, our strategy is to take small, incremental steps toward a rate system that will ensure quality care. We absolutely must gather, analyze, and demonstrate evidence-based outcomes. Working better together, we will get there.”
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