Privatization of Child Welfare

Oklahoma’s Children at Risk

HB 3258, introduced during the 2010 session, would have required the Department of
Human Services to “develop a plan to outsource the provision of foster care and related
services statewide.” This radical change to the system that protects and provides services
to Oklahoma’s most vulnerable children should be carefully examined.

The question to ask about this proposal is: “What problem is this legislation attempting to
address?” According to proponents of privatization, the goals are to reduce the number
of out-of-home placements, increase adoption rates, and improve placement stability.
OKDHS and legislative reforms have already been successful in achieving these goals.

The real question is, “Who is behind the proposal to privatize child welfare?” The
corporate lobbyists at the Capitol pushing this legislation are employed by private firms
looking to expand their organization and profits into new areas. Some of these firms
have been responsible for failed initiatives in other states. Their proposal does not
improve services to Oklahoma’s children who depend on the state for protection and a
better future.

Privatization would derail the progress of HB 1734 and the Practice

Model.

In 2008 and 2009, the House of Representatives commissioned Hornby Zeller, Inc. to
conduct a detailed analysis of Oklahoma’s child welfare system at a cost of $400,000.
For several months, experts in the field interviewed participants in the system, studied
cases and analyzed data. The final report was presented to the legislature during the 2009
session. HB 1734 was passed to implement study recommendations. The Hornby Zeller
report makes no recommendation of further privatizing any section of child welfare.

In 2008, OKDHS has established a new Practice Model implementing best practices in
child welfare. The Practice Model guides the work of the child welfare system from case
opening to case closure and establishes evidence-based procedures. Hundreds of hours,
over the course of two years, were spent developing the current model.

Over the past few years, OKDHS, working with legislators, has reorganized the Children
and Family Services Division and improved outcomes for children in state supervision.

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Progress in safety, permanency and well-being of children
• Reduction of over 3,700 children in out-of-home care since July 2007;
• Lowest number of children per responsible worker in years;
• The daily shelter population has decreased from 98 in June 2009 to 46 in August
2010;
• Round-the-clock centralized hotline has been established in over half of the
counties with completion scheduled for spring 2011;
• Oklahoma is third in the nation in per capita adoptions;
• Oklahoma outpaces the nation in kinship foster care; and

The reforms of HB 1734 were accomplished efficiently in the traditional democratic

system of legislators working with agency personnel. A privatized system adds an
additional layer between legislators and those overseeing the care for children. If the
reforms had been implemented in a privatized system, contract negotiation would be
another step in the reform process. In a completely privatized infrastructure, reforms
would be subject to the whims of contractors.

Only two states, Kansas and Florida, have fully privatized their child welfare systems.
These states are not outpacing Oklahoma’s current reform process in providing better
outcomes for children. Privatizing the child welfare system would derail success and
progress in reforms in HB 1734 and the Practice Model and throw the system into chaos.

Privatization would cost the state additional funds needed for direct
services to children.

The state and the Department of Human Services are under serious budget constraints
and yet making great progress in outcomes for children. The additional costs of
developing, implementing and monitoring private contractors would take resources away
from the protection of children and providing prevention and treatment services. In
addition, state-operated services would need to continue during the implementation stage
to ensure the delivery of critical services.

In both Kansas and Florida, child welfare expenses escalated when privatization was
implemented. Funding for the division increased from $424 million to $1 billion in
Florida and $127 million to $288 million in Kansas between the years of 1996 and 2006.
OKDHS would have to spend an additional $47 million to implement a system similar to
Florida’s.

Kansas used funds from the federal TANF (Temporary Aid to Needy Families) block
grant to help stabilize the system when providers were on the brink of bankruptcy and
walking away from their contract. OKDHS does not have these funds available. TANF
block grant funds have been used by OKDHS to keep the agency afloat during the recent
budget shortfall.

A privatized system requires expensive duplication. The state must maintain an

infrastructure to provide stability if a contractor fails to perform the duties necessary to

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ensure the health and safety of vulnerable children. Visinet, a contracted lead agency in
Nebraska filed bankruptcy and left the state struggling to find services for over 1,000
children. Kansas spent millions to keep its contractors afloat after eliminating the state
infrastructure. In addition, a system of contract monitoring and billing must be
established to ensure accountability and compliance.

Proponents of privatization of state services claim that competition between contractors

and the public sector will drive down costs. However, contractors in fully privatized
child welfare systems become monopolies with little competition. Because of the large
initial investment required to hire and train staff and purchase technology, few vendors
attempt to compete for the contract in the initial phase or at renewals. In addition, the
state would be reluctant to replace contractors and disrupt continuity for children.

Privatization would replace centralized accountability with a patchwork of

lead agencies.

Currently, the OKDHS system is a public/private partnership in which the state maintains
accountability for the safety and placement of children while contractors provide
services. As representatives of the state, OKDHS staff investigates the case and
continues to be accountable until the child is placed in permanency. Privatization would
divide that accountability among OKDHS and private organizations.

In states with the privatization of child welfare services, state workers investigate the case
and then turn the children over to a private agency for services and placement. This
increases costs and the bureaucracy because a privatized system requires a complex
infrastructure to monitor the private contractor’s performance, implement contracts and
provide accountability for funding.

According to a study by McCullough and Associates on private case management in

child welfare, legal issues and dealing with the courts has been a problem in Florida and
Kansas. Case managers in the private sector do not have experience in the legal system
or providing testimony. OKDHS has established an infrastructure to interface with the
court system. Workers are familiar with preparing testimony and negotiating the system
on behalf of children. In addition, the court system provided input and recommendations
in the Hornby Zeller audit and the implementation of HB 1734.

In Oklahoma’s centralized system of public/private partnership, children can move across

the state or even to an out-of-state location and still be monitored. Privatization can lead
to confusion about who is responsible for children in state custody. In privatized
systems, the state maintains legal responsibility for the child, while the private contractor
makes decisions. Competition and disputes among contractors and between contractors
and subcontractors can lead to lack of cooperation and not sharing information on cases.

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Oklahoma already has a system public/private partnership with local
agencies providing services to children and families in the child welfare
system.

Currently, OKDHS contracts with local, community organizations to provide a wide

array of services on a fee-for-service basis. The agency maintains accountability for
Oklahoma’s custody children and the safety net of core services, while contracting with
local organizations to provide preventive services, home studies and special foster homes.
In this model, which is prevalent across the nation, the ultimate responsibility stays with
the DHS county office that coordinates services and monitors safety. A privatized system
puts a “lead agency” between OKDHS and the local contractors providing services to
children.

According to the Center for Public Policy Priorities, reimbursement systems for
privatized child welfare can cause incentives counter to the welfare of children. Agencies
paid by case may keep children in care to maximize profits. If the agency is paid for an
outcome of moving a child to permanency, children can be rushed through the system
and cases dismissed before they are secure. Some agencies may systematically order
services they offer for all children, regardless of need, if reimbursement is on a fee-for-
service basis. In the current system, of public case management and private care
providers, the state maintains control over the case and orders services each child needs
for security and permanency.

Since its inception, the Department of Human Services has been responsible for child
welfare and the protection of children in state custody. Over several decades, the agency
has established an infrastructure of human resources and technology that the private
agency would have to reconstruct. OKDHS workers develop expertise in the judicial and
criminal justice system, child psychology and family dynamics. Establishing a private
system of social services with specialization needed for child welfare has proven
difficult, time consuming and expensive with mixed results in rural areas of other states
that have attempted similar projects. Kansas providers have faced challenges duplicating
the state infrastructure of services in rural areas.

Oklahoma has 38 federally registered tribes who are currently working in partnership
with OKDHS on child welfare issues. Privatization would place the private vendor
between the state and sovereign tribes disrupting current and forcing renegotiation of
tribal agreements.

Privatization does not improve outcomes for children.

The Center for Public Policy Priorities reports that any improvements in outcomes may
be the result of increased funding, not privatization. The same report indicates that even
though a substantial amount of money was expended in Florida, the outcomes for
children did not increase significantly across the board. Contractor results were

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inconsistent with some providers performing below standard or abandoning their
contracts.

In its audit of the state’s privatized child welfare system, the Florida Office of Inspector
General reported fraud by contract case managers not performing home visits and
contacting clients by phone. Oklahoma is one of only four states exceeding the national
standard of 90 percent of children being visited each month, with 97 percent of children
seeing their worker monthly. In an effort to control costs, contractors in Kansas have
used unlicensed therapists to treat abused children.

The Children’s Bureau of the U.S. Department of Health and Human Services conducts
the Child and Family Service Review (CFSR) and sets standards for child welfare in the
states. After almost a decade of privatization Kansas exhibited improvement in its
second review. However, the auditors identified several outcomes as “needs
improvement” including failure to provide children with permanency and stability and
lack of timeliness in reunification and adoption.

OKDHS, working in partnership with the legislature, has already had great successes in
outcomes for children. The Oklahoma child welfare system is third in the nation in per
capita adoptions. States with privatized systems do not rank above Oklahoma in these
critical outcomes. Furthermore, private corporations in child welfare have been
scrutinized for not having a centralized tracking system. In 1995, OKDHS was one of
the first states in the nation to establish a statewide database, the KIDS system, to keep
medical, family, and education records of children in state custody.

Privatization of the child welfare system took almost a decade and millions in additional
funding in Kansas and Florida. During the transition process the systems in both states
were in disarray. Children and families suffered. Comparatively, the reforms of HB
1734 and the Hornby Zeller audit have taken little additional funding only one year for
implementation.

Recommendations for the Future

OKDHS and the legislature has successfully improved outcomes for children in the
reforms recommended by the Hornby Zeller audit and established in HB 1734. The
results have been a great bargain for the meager $1 million appropriated to accomplish
these goals. The experience in other states indicates privatization is not a good
investment, but would derail the reforms in progress and be expensive. However, several
important recommendations of the Hornby Zeller audit have not been implemented.
Before spending money to provide profits to corporations, legislators should consider
funding these reforms and investing in the current system,

The Hornby Zeller audit recommended the legislature should fund consistent salary
increases for OKDHS child welfare staff based on performance. Adequate compensation
would address the problem of staff turnover, which has not improved with privatization
in other states.

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According to the Hornby Zeller audit, the legislature should fund increases in the daily
rate and clothing allowance for foster families. This would provide additional
opportunities for placement and help struggling kinship foster parents make ends meet.

Investing in the current reform process only a small portion of the $50 million needed for
the privatization scheme would help bring a brighter future for Oklahoma’s kids. The
partnership of legislative leaders and OKDHS should continue on the road established by
HB 1734, not take the expensive diversion of privatization.

For more information contact Trish Frazier, MPA, CAE

Policy and Research Director
trishf@opea.org
405-524-6764