Kansas secretly withheld $21 million in payments to foster care providers

The Kansas Department for Children and Families from 2016 to 2018 secretly withheld millions in payments to private operators of the state foster care system, propelling them toward financial ruin and directly contributing to the suffering of kids in state custody.

Saint Francis Ministries and KVC Kansas prepared to sever ties with the state as they repeatedly begged DCF to cover the actual costs of child placement services.

An investigation by The Topeka Capital-Journal discovered DCF delayed more than $21 million to the two contractors over a 30-month period and never paid for at least $1.8 million in services from fiscal year 2017.

Three days after Laura Kelly won the governor’s race in November 2018, DCF agreed to make a final round of hush payments to prevent the foster care system from failing before Kelly took office. The Kelly administration resolved the problem by taking over direct billing for services in dispute, a shift in responsibility that required a $22 million increase to DCF’s annual budget.

“My administration has taken dramatic strides in stabilizing and rebuilding our state foster care system,” Kelly said. “As leaders, we have a moral obligation to protect our children and families, and my administration will continue to do everything in our power to ensure their safety and well-being.”

Details of the financial burden DCF placed upon the nonprofit contractors remained concealed, until now, because Saint Francis and KVC were bound by a state-imposed nondisclosure agreement. They also feared retaliation from a hostile administration that had its own budget problems.

As the contractors kept quiet about the funding dispute, outside observers documented problems within the foster care system. Children with increasing frequency bounced between temporary homes, slept in offices, went missing and were exposed to sexual trauma, physical violence and neglect. Kansas Appleseed Center for Law and Justice in 2018 filed a class-action lawsuit demanding better care.

Meanwhile, DCF refused to fully reimburse Saint Francis and KVC for the extra work required by the addition of 1,000 kids to the foster care system.

“You could see the stress of the system,” said Christie Appelhanz, executive director of the Children’s Alliance of Kansas. “If you look at when this was happening, there were high numbers of runaways, there was placement instability, there was the lawsuit that was filed.

“This wasn’t the child welfare system that they signed up to provide, and I think organizations were put in an awful position. They weren’t able to talk about it because of what was in the contracts and perhaps because of threats.”

Significant losses

A memo from Saint Francis urging DCF to replenish funds arrived in November 2017, a few days before Phyllis Gilmore stepped down as secretary of DCF.

During her tumultuous tenure, Gilmore helped carry out Gov. Sam Brownback’s aggressive cost-cutting agenda, including the slashing of welfare programs that led to more children being placed in state custody.

“We had the secretary for the Department of Children and Families come and say everything was fine and, as a matter of fact, they didn’t need any more funding,” said Rep. Jarrod Ousley, a Democrat from Merriam who serves on the House Children and Seniors Committee. “They were doing so good with cost savings that everything was fine. Then as I got to scratching the surface, I really realized not only are things not fine but we need to add resources, and we need to do better for these kids.”

DCF pays the foster care contractors a flat rate for finding places for children to stay, checking in on them and providing counseling and other services. The state then makes additional payments to reimburse the contractors as costs vary from projections.

As the number of children entering the state system skyrocketed, the cost of caring for all of them was greater than expected, but DCF refused to make up the difference.

Jenny Kutz, spokeswoman for KVC Kansas, said the organization suffered “significant financial losses.”

“There were millions of dollars in foster care case management expenses that were not reimbursed, and other payments were significantly delayed,” Kutz said. “This had a negative impact on service delivery. We continue to feel the negative impact.”

Saint Francis’ chief financial officer in the memo to DCF detailed how the organization struggled to absorb $8.8 million in actual costs that weren’t reimbursed in fiscal years 2016 and 2017.

DCF refused to provide funding for children who re-entered foster care after previously being returned to their parents. The policy was meant to be an incentive to keep families together, but social workers believed the rising number of re-entry children was caused by reductions in government funding for community services. The unpaid cost to Saint Francis for the 261 children in this category was $45 per day per child.

Similarly, more children needed mental health services at a time when the availability of those services decreased. This included human trafficking victims and children with extreme aggressiveness or a tendency to harm themselves.

There weren’t enough psychiatric residential treatment facilities with available beds, which meant children who needed help were placed instead at youth group homes. Saint Francis then hired more mental health professionals to provide necessary care. DCF reimbursed the contractor for these kids at the standard rate for a group home, rather than the rate for kids with psychiatric needs. The cost difference for fiscal year 2017 translated to a $2.2 million loss for Saint Francis.

The organization also had to add staff to meet DCF expectations. A shortage in qualified workers pushed compensation higher for therapists and other trained professionals.

“Saint Francis will always advocate for the children and families we serve,” said Tom Blythe, the organization’s president. “We know they will be best supported by increased resources put in place in a thoughtful, evidence-based way.”

The big payback

For Joey Hentzler, director of advocacy for Kansas Appleseed, delayed payments help explain terrifying news reports of sexual violence and gruesome deaths involving foster children.

In some regions, employees were responsible for monthly check-ins and case management of more than 50 children apiece, well above the DCF-recommended limit of 30. The private contractors could have added social workers with stable funding.

“That is the difference between catching something that keeps a kid alive or making sure that children have their medicine when they move from placement to placement,” Hentzler said. “Having that proper case worker and social worker are critical to the kid’s mental health and physical health, and developmental and cognitive health. That’s damning.”

He blamed the Brownback administration’s commitment to 2012 tax cuts that led to endless budget shortfalls and cash flow problems throughout state government.

“They did this in order to maintain an ideological project — the tax cuts,” Hentzler said.

In January 2018, under new secretary Gina Meier-Hummel, DCF agreed to make the first in a series of partial payments to bolster resources for the foster care contractors. The agency paid $2,684,320 to KVC and $5,081,276 to Saint Francis, amounts that were calculated to offset 75% of missed payments from fiscal year 2017.

Additional payments, labeled “settlement” in internal agency documents, were paid in July to offset 75% of losses from fiscal year 2018. These payments — $3,087,459 to Saint Francis and $1,815,233 to KVC — came with caveats. The contractors had to implement a cost savings plan and release DCF from any further claims for past costs.

DCF continued to shortchange the contractors. In October 2018, DCF made additional payments of $2,660,193 to Saint Francis and $1,833,312 to KVC. The standard rate structure was adjusted through negotiations, but the expectation was Saint Francis and KVC would continue to lose money for child placement services in the months ahead.

“That’s totally unacceptable,” said Sen. Richard Hilderbrand, R-Galena. “It infuriates me that that was our mode of operation instead of doing what’s right. The kids are in such a traumatic state anyway, and then we put them through that.

“We’re negotiating the well-being of our kids — we’re negotiating it down. It’s unacceptable.”

Fail or bail

Documents signed Nov. 9, 2018, three days after Kelly won election, show Saint Francis and KVC concluded the ongoing financial dispute would require them to surrender their contracts, a startling revelation.

“Where would these kids have gone?” Hentzler said. “Was there an end game in mind? Fill DCF’s office downtown?”

DCF agreed to pay Saint Francis and KVC an additional $2 million apiece in exchange for keeping their contracts and maintaining staff sizes until Kelly took office. A handwritten note, scrawled on an internal DCF document confirming the payments, refers to them as a “bailout.”

“I vaguely remember the conversations, but I don’t remember any of the details,” said Meier-Hummel, who signed each of the payment agreements throughout 2018. “Honestly, there was a lot going on.”

Mike Deines, spokesman for DCF, said the amount owed to contractors “was not tracked on an ongoing basis.” In response to questions raised for this story, DCF conducted an internal review and concluded the agency never repaid 25% of the $7.4 million in missed payments from fiscal year 2017. That amounts to $560,000 for KVC and $1.3 million for Saint Francis.

The contractors maintain they provided detailed accounting for actual costs, which exceed the amounts acknowledged by DCF. Because of the nondisclosure agreement, the contractors couldn’t say how much they actually lost.

As DCF’s finance director, Daniel Lewien negotiated with the belief that Saint Francis and KVC deserved to be underpaid because they submitted low bids to win contracts. The agency ultimately paid up when it became apparent the foster care system would fail.

Appelhanz, the Children’s Alliance director, said it is terrifying to think of what would have happened to the kids in state custody.

“In child welfare, we pretend like resources don’t matter, that love will be enough or churches can take over, but the reality is this is a profession,” Appelhanz said. “You have to pay staff. You have to pay for interventions. You have to pay for the services that produce the outcomes we want to have. And if you don’t have the funds to do that, it doesn’t just fall out of the sky.”

Kelly selected Laura Howard to take over DCF operations. Howard realized the rate structure was unsustainable and was causing instability in the child welfare system, Deines said.

The agency took over direct billing of the services in dispute. That required an additional $17.3 million in DCF’s annual budget for payments to foster homes and $4.7 million to administer licensing.

Both foster care contractors receive about $80 million from DCF in annual funding to find homes and provide services for the 7,300 children currently in state custody. Neither contractor is asking to be compensated for past financial losses.

“What happened in the 2010s must never be repeated,” said Linda Bass, president of KVC Kansas. “Funding for community supports and mental health were cut dramatically, leading to a 50% increase in the number of children in foster care. In less than one decade, we went from one of the country’s best child welfare systems to one of the most stressed.

“What changed were state policies and funding, not the quality of the private nonprofit partners involved. We are advocating every day for the policies and adequate funding needed to serve vulnerable Kansas children and families.”