Paying fee-for-service (FFS) is easy for both parties – for executive teams of payers and for provider organizations. One service = one rate.
Move to the range of options other than FFS – case rates, bundled rates, capitation rates, global budgets with elements of pay-for-performance – and the parameters are not always so clear. As my colleague, Monica E. Oss, CEO of OPEN MINDS, said at a recent meeting, “When you’ve seen one case rate, you’ve seen one case rate.” And there are problems on both sides of the equation – how managers of payers develop contracts for services and how executives of provider organizations plan for and manage these contracts.
A good case in point? The many iterations of reimbursement redesign and related contracting for foster care in Texas. For a quick look at the timeline for reimbursement reform for foster care in Texas, check out:
- Texas Puts Region 8 Foster Care Out to Bid (May, 2006)
- Texas Health Care Claims Study Special Report on Foster Children (January 2007)
- Moving Foster Care Forward (March 2008)
- Texas DFPS Starts Review of Purchasing Processes for Foster Care Overhaul (June 2008)
- Improving Child/Youth Placement Outcomes: Foster Care Redesign (April 2010)
- Texas Foster Care Redesign to Implement Blended Case Rates (February 2011)
- Texas DFPS Draft RFP Single Source Continuum Contract for Residential Childcare Services: A Redesigned Foster Care Approach (May 2011)
- Texas Department of Children & Families Seeks Foster Care Redesign Contractor (August 2011)
- First Two Regions of Redesigned Texas Foster Care System Out To Bid (August 2011)
- Texas DFPS Notice To Lutheran Social Services Of The South Regarding Decision On Foster Care Redesign Contract (August 2012)
- Texas To Implement Foster Care Case Rate Initiative In February 2013 (January 2013)
- Texas Foster Care Redesign RFP Released For Seven North Texas Counties (July 2013)
- Texas DFPS RFP 530-13-0070 FCR Seeks Foster Care Redesign Single Source Continuum Contractor (July 2013)
- Texas DFPS Foster Care Redesign Public-Private Partnership Recommendations To DFPS Commissioner, Judge Specia Regarding Modifications To Foster Care Redesign Procurement Processes (March 2013)
- Texas Selects ACH Child & Family Services For Second Foster Care Redesign Contract (November 2013)
- Texas DFPS House Human Services Committee Interim Charge: Foster Care Redesign (June 2014)
- ACH Child & Family Services Launches Texas Foster Care Redesign Contract (September, 2014)
- Texas Health & Human Services Commission: General Contract Terms & Conditions For The Foster Care Program (September 2014)
- Texas Considers Redesign Elements In Foster Care Blended Rate Contracts (November 2014)
- Texas Legislature Considering Pausing Foster Care Reforms (February 2015)
Now, after a decade of initiatives, the State conducted an analysis of the first two Texas Department of Family and Protective Services (DFPS) Single Source Continuum Contracts (SSCC) for regional foster care services (see Texas Considers Redesign Elements In Foster Care Blended Rate Contracts). The recommended enhancement to future contracts?
- Setting clear expectations in procurements and contracts about what the blended case rate is intended to cover.
- How the resource transfer from DFPS to the SSCC will be calculated and transferred.
- Changes in how the SSCC structure is described to stakeholders to manage expectations about what will happen in the SSCC catchment areas, especially during the first year.
The DFPS recommendations identified a number of variables that have caused problems with these initiatives, including overlapping administrative functions, inefficiencies in the business model design, lack of understanding of capital needs for launching the project, and lack of clarity in expectations of what the blended rate was intended to fund. What does this analysis tell us about the state of value-based contracting in government human services? The government agencies and their contract provider organizations are not on the same page when it comes to: expectations, service delivery, and capital needed to start up a project of this magnitude; understanding that managers in government agencies need to improve their competencies in program design, contracting, and implementation; and understanding that executives of provider organizations need to ask more questions of agencies before entering into these new types of contracts.
In this equation, it is ultimately the responsibility of the managers of government agencies to provide clarity in expectations, have well-designed and clear contractual expectations, and select organizations that are able to successfully execute on the contract. Unfortunately, this often does not happen. Managers in those agencies don’t have the staff with the competencies to manage these new agreements and often don’t have the budgets to hire advisors to help them through the process. This is complicated by conflicting legislative and executive branch objectives and requirements – along with the lobbying by a wide range of constituencies. But what we do know is that lack of doing it right won’t slow the process. The momentum for value-based payment and privatization is too strong right now.
On the contractor side of the equation, there are related problems. In my experience, it is not until the executive team of a provider organization begins delivering services that they “figure out” what it is actually going to cost them. In the rush to “win” (and as a result of poorly constructed bidding processes), they are not as thorough about building an operating and financial model for these new opportunities. It is too easy for executive teams to say, “Oh yeah, we can do that” without having a model for estimating the true costs. Unfortunately, as these opportunities arise it is often not possible to develop organizational metrics for clinical utilization patterns and cost drivers – those systems need to be in place and those executive team competencies need to be well developed before the time comes to put them to use. I am not, however, recommending that executive teams sit back and watch other organizations win the contracts for these new opportunities. Rather, I’m suggesting that a more proactive approach to performance management and RFP response is what is needed.
For a more on managing cost and quality in the new world of contracting, check out these resources from the OPEN MINDS Industry Library:
- ‘Competitive Advantage’ Drives Your Operational Performance Metrics
- Tools For Managing Your Unit Costs In A Market With Shifting Reimbursement
- Reengineering Your Organization to Manage Unit Cost: Translating Activity-Based Cost Management Into A Model You Can Use
And for even more, check out the session on June 16, How To Create A Winning Proposal: The Five Essential Elements In A Successful Procurement Strategy, by OPEN MINDS Senior Associate Joseph P. Naughton-Travers, at the 2015 OPEN MINDS Strategy & Innovation Institute.