Privatization Update 2015: Nebraska’s $22 Million Only Tip of the IceBerg

“I was taken from my mom kicking and screaming. As soon as I got into foster care, it was horrible.”
Molly Flynn, 16, testifying to Douglas County Board of Commissioners, February 2015.


HHS letters Nebraska

It was just over one year ago, around January of 2014, that it came to light that the federal government was demanding that the state of Nebraska repay $22 million in foster care reimbursements that were improperly documented. News of the demand came from State Auditor Mike Foley, who released the letters from the federal government to the state asking for the reimbursement on his web site.

By that time, the ill-fated foster care privatization effort had been cancelled in all parts of the state with the exception of the Omaha area. The other private contractors had dropped out of the game entirely, leaving in their place one lone contractor – the Nebraska Families Collaborative.

Auditor Mike Foley warned about these possible outcomes in his 152-page audit report, issued in 2011. Therein he addressed in great detail the “numerous findings regarding both increased costs and a lack of financial accountability under the Families Matter reform.”1

In an interview reported by Nebraska’s PBS and NPR stations in January 2014, Auditor Foley said the state Department of Health and Human Services was unable to account for spending on foster care during the period when it was trying to privatize child welfare services.

“It’s mostly a case of lack of documentation. You can’t show where the money was spent. We know the money went from HHS to the private contractors. But after that, HHS did not have the cost accounting in place,” Foley said. “It is HHS’s obligation to account for those dollars even though they’re working with private contractors. Ultimately the responsibility for tracking those costs rests with HHS and they just didn’t have the records.”

Nebraska Health and Human Services CEO Kerry Winterer acknowledged there were problems because the state had paid private contractors lump sums. But he reportedly held out hope that an acceptable accounting could be made.

“Documentation does exist and this is just the beginning of the process. It’s the initial notice,” Winterer said, according to the PBS-NPR report. “We will probably end up appealing it and then we’ll begin a process in which …I would expect the federal government to allow us to substantiate those charges and ultimately we’ll come to some resolution of it.”

We haven’t been able to be in a position to claim federal funds, because we are now playing by the rules.

At that point, CEO Winterer said something rather odd. By not being able to the claim the costs associated with the Nebraska Families Collaborative on an ongoing basis, his Department was being put at a disadvantage in order to avoid the possibility of another disallowance. Winterer continued on to explain that, “The downside to that however is that its all state funds. We haven’t been able to be in a position to claim federal funds, because we are now playing by the rules.”


Nebraska’s monumental failure in privatizing its child welfare system is well documented, and there is little point in repeating it here. In October 2010, I’d written up a fairly comprehensive entry describing the whole affair as it stood at that time. That may serve as a good point of departure for those unfamiliar with the course of events that led up to this point.

For additional background, one would do well also read a ruling issued by the Nebraska Supreme Court in 2010, which effectively derailed a revenue maximization effort by the state involving a “pretty substantial amount” of money, and a young child by the name of Gabriela. As the Court explained it:

It is clear from the record that DHHS declined to accept the relinquishment of parental rights because one of the parents was paying a “pretty substantial amount” of child support which partially offset DHHS’ cost with respect to Gabriela’s care. While conservation of public resources is a worthy objective, it cannot justify the legal perpetuation of a parental relationship which no longer exists in fact, thereby permitting an abandoned child to linger indefinitely in foster care. We agree with the observation of the juvenile court that the position taken by DHHS has made Gabriela a “de facto orphan.”

The bizarre twist in that particular case is that many parents who are unable to afford the child support that they are forced to pay by the state for the cost of their children’s foster care find their parental rights terminated as a result. Here, the mother was willing to relinquish her child, and the state wouldn’t do it because it was more lucrative to collect the child support payments. The case speaks volumes for the moral standing of the policy-making officials in DHHS.

What must be understood is that the privatization of human services is a highly contentious issue. Disallowances from the federal government for improprieties when it comes to billing are matters of routine that seldom make the headlines. Indeed, one of my earlier articles – written during the late 1990s – described a series of similar disallowances from the federal government doled out to a variety of states for as many creative ways of “shifting costs” to the federal government as one can dream up. Few, if any, made the headlines.2

To put it more directly, that the $22 million foster care disallowance was deemed newsworthy at all was only by virtue of the backdrop of the failing privatization effort itself being the subject of frequent headlines. What made it somewhat unique is that much of the money at issue seemingly vanished into a black hole, but even that is nothing new.


Let’s move forward and review some of the more recent developments to see where just where Nebraska stands today.

Hornby Zeller report

The Executive Board of the Nebraska Legislative Council commissioned the firm of Hornby Zeller Associates, Inc., to decipher some of the mysteries involving the privatization effort. The result was “An Assessment of Child Welfare Privatization in Nebraska, Final Report,” which rolled off the press in December 2014.

As Hornby Zeller explains it, what it has come down to by various acts of legislation, is that “the evaluation of the pilot project is to include a comparison of the performance of case management functions by Nebraska Families Collaborative (NFC) in the Eastern Service Area with that of the Department of Health and Human Services (DHHS) in the remainder of the State.”

In plain English, the experiment is now quite-nearly framed as one in which the battle is framed as one between the swollen and inefficient government bureaucracy (according to free market theorists) that is ostensibly bound by having to act in the public’s interest – and its private counterpart, which is relatively free to unabashedly turn a profit, albeit with much greater efficiency.

It is a well-researched product, weighing the pros and cons of the privatization debate. It’s a shame that they legislature didn’t commission the research before embarking on the privatization project, rather than after.

the money-saving myth

One myth that the Hornby Zeller report puts to rest is that privatization will result in cost savings. They look to Kansas, the first state to undertake such a mission, noting that researchers have concluded that communities embarking on such projects should not expect to save money as a result. In support of this position, they explain:

The chief Operating Officer of Alliance, an agency that provides case management services for Topeka, Kansas, said, “States have to be motivated by the desire to pay for better quality and more efficient services that create meaningful change for children and families, not by short-term fiscal benefit. In fact, some states have had to increase their spending after privatizing, a testament to what we already knew: the system, in general, is grossly underfunded.”3

Even spending a little more has a certain appeal to it, if real results may be obtained. The public has grown tired of the failures over so many decades of time. In 1993, the U.S. Advisory Board on Child Abuse and Neglect rather succinctly summarized the nation’s child-welfare apparatus as it existed at that time:

If the nation’s child protection system were a private corporation, it would have gone bankrupt years ago. We are utilizing outdated policies that do not and will not generate positive results. Taxpayers have spent literally billions of dollars on law enforcement, social services, foster care, investigators and court costs to address the issue of child abuse. With every dollar spent, the number of reported child maltreatment incidents continues to spiral upward. And as those numbers increase, the nation will spend billions of dollars to pay for the consequences of child maltreatment,

The crucial point is that here we are in 2015, and we are still sending 25-year-old caseworkers out to investigate the cases that flood the nation’s child abuse hotlines. For the most part, they have precious little life experience, and lack the essential training and critical decision-making skills required of their positions. The solutions of 2015 are the very same solutions that we had on offer when the Advisory Board issued its report, only there are approximately two million more calls coming into the hotlines today than there were at the time. There are also hundreds of additional caseworkers running around on the front lines, and billions more are being spent on foster care than ever before.

The Hornby Zeller report frames the crucial questions in this light:

To determine the extent to which privatization of child welfare in Nebraska has fulfilled the promises articulated in the arguments for it, this assessment of privatization’s success at improving case management focuses on three issues: compliance with state and federal standards, engagement of families and achievement of child and family outcomes. For all three areas the question is one of relative performance: Does privatization of case management provide better performance than public case management?

Pitting the bureaucratic state agency against the lean, streamlined private agency may sound wonderful in theory, but what is lost in all of the the discussions is that real children and families that are the subjects of this grand experiment.

While the invited-expert consulting firms seek to define better ways of optimizing the “delivery of services to families in need,” in the real world outside of the bureaucratic and political realms are very real children and families who have been torn asunder. They care not one wit about such things as who is to be responsible for their “service planning and provision.” The children want to go home. On the whole, they don’t feel “protected” in the homes of their state-paid caretakers. Hundreds of families are waiting, and hoping, in in some cases praying, only for the day that their state-imposed nightmare will end. They neither know or care who their designated decision-maker is. They just want to eat dinner together again. And watch a movie together. Reduced to its very essence, all that they want is to be allowed to be a family once again, and without having to live in constant fear of a knock at the door.

The Hornby Zeller report frames that part of the debate like so:

Public child welfare agencies, almost by their very nature, are often viewed by families as adversaries. Private agencies do not carry the same stigma. One of the arguments for privatization which could have great persuasive power is that a privatized entity has at least the opportunity to do a better job of engaging families.

But are the differences real, or merely illusory? Consider this from the aspect of the family held captive at the doors of the courthouse. As the report puts it:

Family team meetings are one of the mechanisms developed over the past couple of decades to give families a greater stake in protecting their children by involving the family, their friends and community members they identify in planning for the child’s care and safety. For both DHHS and NFC the meetings are generally attended by members of the case management agency, by other service providers and by one adult member of the family. They are also frequently attended by attorneys, because many of the meetings take place immediately prior to a court hearing. No plan is developed at the meeting. Instead, the caseworker comes in with the plan already drafted. The only difference the case reviewers could identify between the family team meetings held by DHHS and those held by NFC was that NFC tended to have more service providers involved, not more family members,

At this stage, a child may or may not still be in the family’s home. There may be a removal petition in the works, or a “family preservation plan” may be about to be foisted on the family, with regular visits to follow as the family is “monitored” for progress. What is certain is that a series of court-sanctioned hoops have been devised for the family to hop through with the greatest of diligence, lest they lose all.

The report notes that federal standards require a reunification rate of no less than 48.4 percent. Another indicator focuses on children who have been reunified, and measures the percentage of children who return to foster care within 12 months of their reunification. No more than 9.9 percent should do so. The results?

During no month in FFY 2014 did Nebraska achieve the standard for reunification.

“During no month in FFY 2014 did Nebraska achieve the standard for reunification. In fact only the Northern Service Area achieved it at any time and that was only for one month. During the last two months of that period NFC showed a lower performance than any other Service Area, except for Central. The last two months of the year have also seen significant improvements in the Southeast, Northern and Western Service Areas.”

I dare say, not much of a difference to show for all of that effort. Readers are encouraged to review the report in its entirety to see how the battle between the machine that is Nebraska’s DHHS and its leaner and cleaner private-enterprise counterpart ultimately play out. The measurements are case management, reunification and reentry rates, and other related matters of improved efficiency. There are no proposed measures to be taken in terms of which approach extracts a greater or lesser toll in human anguish. Lower removal rates, higher reunification rates, and lowered termination rates will have to suffice as the representative indicators.

Let’s move on from the Hornby Zeller report and see what else the state of Nebraska has been doing in terms of helping its constituents with there human services needs.

the year in review

Nebraska HHS report

Nebraska’s mad grab at federal dollars isn’t strictly limited to foster care. According to a report issued in October 2014 by the Inspector General of the federal Department of Health and Human Services, “Nebraska Incorrectly Claimed Federal Reimbursement For Inpatient Claims With Sterilization And Delivery Procedures For The Period April 1, 2011, Through December 31, 2013.”

According to the report, “The State agency did not correctly claim costs for inpatient claims with sterilization and delivery procedures for the audit period. For the 11 quarters in our audit period, the State agency incorrectly claimed the costs associated with 804 sterilization procedures instead of claiming the costs for the 324 procedures that were actually performed. In addition, for one quarter, the State agency inadvertently based its claim for inpatient sterilization procedures on an incorrect amount.”
The report continues on to explain that, “As a result of these errors, the State agency received $268,285 of unallowable Federal reimbursement. These errors occurred because the State agency did not follow its policies and procedures in claiming costs for inpatient claims with sterilization and delivery procedures.”

Nebraska HHS report

Also from the Health and Human Service OIG comes this report from August 2014, aptly entitled “Nebraska Claimed Unallowable Federal Reimbursement For Some Medicaid Physician-Administered Drugs.” The report explains, “The State agency did not always comply with Federal Medicaid requirements for billing manufacturers for rebates for physician-administered drugs,” the report explains. By failing to follow procedures, “the State agency improperly claimed Federal reimbursement for these single-source drugs and top-20 multiple-source drugs.”

“The State agency did not capture the utilization and coding data necessary to collect rebates for all physician-administered drugs. Without the NDCs, we were unable to determine whether the State agency improperly claimed Federal reimbursement for an additional $1,460,514 ($869,291 Federal share) for other physician-administered drug claims that may have included single-source drugs.”

Among the recommendations:

  • refund to the Federal Government $2,015,620 (Federal share) for claims for single-source physician-administered drugs that were ineligible for Federal reimbursement,
  • refund to the Federal Government $441,011 (Federal share) for claims for top-20 multiple-source physician-administered drugs that were ineligible for Federal reimbursement,
  • work with CMS to determine the unallowable portion of the $869,291 (Federal share) for other claims for outpatient physician-administered drugs that were ineligible for Federal reimbursement and refund that amount.

Yet another report from the HHS OIG was issued in March 2014, and it is aptly entitled “Not all of Nebraska’s Controls for its Child Care Subsidy Program Claims were Effective.”

“The State agency’s lack of sufficient written policies and procedures was the primary cause for ineffective controls over the Child Care Subsidy program. Without written policies and procedures, the State agency’s Child Care Subsidy program is vulnerable to fraud, waste, and abuse,” the report explains.

“Of the 100 claims reviewed, we determined that 32 claims showed evidence of ineffective controls for client and provider eligibility and for claims processing. We estimated that $16,412,057 ($8,759,115 Federal share) of the Child Care Subsidy program claims could have had one or more of the control deficiencies we identified.”

Also from the Health and Human Service OIG comes this report from August 2014, aptly entitled “Nebraska Claimed Unallowable Federal Reimbursement for Some Medicaid Physician-Administered Drugs.

OIG Report to Congress

As a recent OIG Report to Congress explains it, “Nebraska claimed $2.5 million over 3 years in Federal reimbursement that was unallowable and $869,000 that may have been unallowable.” Regarding the status of that particular disallowance, according to the HHS Office of Inspector General’s Semiannual Report to Congress, issued in Fall 2014, “Although Nebraska disagreed, OIG continues to recommend that Nebraska work with CMS to determine the unallowable portion of the $869,000 for other claims for outpatient physician-administered drugs that were ineligible for Federal reimbursement and refund that amount.”

the medicaid fraud control audit

Nebraska medicare fraud audit

There is more. In February 2014, the HHS Inspector General’s Office conducted an on site review of Nebraska’s Medicaid Fraud Control Unit. The details are to be found in Report OEI-07-14-00060, 06-13-2014, “Nebraska State Medicaid Fraud Control Unit: 2014 Onsite Review.” Among the findings:

For FYs 2011 through 2013, the Unit reported combined civil and criminal recoveries of nearly $33 million and 22 criminal convictions. Our review identified that 91 percent of cases files contained documentation of periodic supervisory reviews and nearly all case files contained documentation of supervisory approval for opening and closing. However, the Unit did not transmit reports of nine convictions to OIG for the purpose of program exclusion, and conviction information for two cases was not transmitted in a timely manner. Additionally, the Unit’s Memorandum of Understanding with the State Medicaid agency did not reflect current Federal legal requirements. Lastly, although 85 percent of Nebraska Medicaid enrollees received health care through managed care, the Unit received only 3 managed care referrals during the review period.

The federal auditors weren’t the only ones digging up multiple financial improprieties on the part of Nebraska’s Department of Health and Human Services. And, the improprieties weren’t strictly limited to the Department’s operations at the state level.

the douglas county guardian ad litem audit

The Douglas County Board of Commissioners found enough of concern that it passed a resolution petitioning the Auditor of Public Accounts “to conduct an audit of both Douglas County’s (County) guardian ad litem contracts and those non-contractual guardian ad litem services provided pursuant to appointment by the Douglas County Juvenile Court.”

douglas county guardian ad litem audit

The requested report was issued by the Auditor on July 7, 2014. It details numerous financial shenanigans on the part of guardian ad litem contractors. Lawyers were found to have billed for meetings with clients that never took place – or, at the very least for which no documentation could be found to confirm the meetings. Court records in some cases clearly indicated that the guardian ad litem failed to appear at a particular court hearing, yet billed for it nevertheless.4

Two law firms – Incontro and Monahan – had the lion’s share of the work. As the report explained, these were lucrative contracts. “During the past two fiscal years alone, the Board has paid to Incontro and Monahan a combined total of $1,765,452.50 for the services provided pursuant to the guardian ad litem contracts.”

Aside from the work performed under the Incontro and Monahan contracts, additional guardian ad litem duties, as well as other legal services, were carried out by non-contract attorneys appointed by the Court. The report explains, “During the last two fiscal years, fees for the 183 non-contract attorneys appointed totaled $4,811,078.24. Of that amount, $1,561,828.63 was for guardian ad litem services, and the remainder was for other legal services – such as being the attorney for the parent or the child, responding to a special appointment, or acting as a special prosecutor.”

In addition to the concerns relating to the Board’s contracts with Incontro and Monahan, “the APA noted issues relating to the more than $4.8 million paid to the 183 non-contract attorneys appointed by the Court to provide guardian ad litem and other legal services.”

In some case, one firm billed for services that appeared to have been rendered by another firm. In some cases, it was impossible to conclusively determine whether any legal services had been provided at all. In summary, millions of dollars were disappearing into the black hole that is the juvenile court and its affiliated legal firms.

“Typically, the attorneys were simply not listed as being among those in attendance. In one particular instance, however, an attorney billed for a hearing when the court record stated explicitly that counsel had failed to appear,” the report explains.

All of this occurred in just one County, and had the Board not been as diligent as it was in noting the potential problems, it may well have gone undetected for years. One may only imagine the scope and scale of the problem on the statewide level.

On February 10, 2015, KETV NewsWatch 7 News reported that “The Douglas County board voted to not renew contracts with two law firms assigned to juvenile court cases Tuesday. One commissioner said ‘something went wrong.'”


Credit: KETV NewsWatch 7 News broadcast Feb 10, 2015.

Guardians are meant to be the voice for the children they represent, but according to testimony from parents and children before the County Board, they were anything but that. Families addressed the Board about the complete lack of accountability on the part of their appointed guardian ad litems.

I conclude by giving one young lady by the name of Molly her voice in this forum. As KETV reported it:

“I was taken from my mom kicking and screaming,” Molly Flynn, 16, said. “As soon as I got into foster care, it was horrible.”

Molly Flynn described dark days in foster care and testified Tuesday that the very person meant to help her, her guardian ad litem, filled her with fear.

“They kept saying that my mom was going to kill me and I didn’t believe that,” Molly Flynn said. “I finally got to go home once they found out that the lady who said my mom was going to kill me was lying.”

Molly Flynn and her mother embraced after her testimony.

“That little girl that just spoke is my daughter,” Molly Flynn’s mother, Laurie Flynn, said. “I’m proud of her.”

1. Nebraska Auditor of Public Accunts. Attestation Report of the Nebraska Department of Health and Human Services Child Welfare Reform (Families Matter) Contract Expenditures July 1, 2009 through March 31, 2011. 2011. See also Nebraska Auditor of Public Accunts. Department of Health and Human Services. July 1 2010 through June 30 2011 CAFR Management Letter. 2012.

2. At the risk of being accused of circuitous self-citation, the reader is referred to my entry “Foster Care, Revenue Maximization, and Illusory Approaches: 101” which is replete which references to federal disallowances, and describes how the states have used “illusory approaches” (as described by the Office of Inspector General of the Department of Health and Human Services) to maximize federal dollars for child welfare, foster care, and juvenile justice programs. For a writeup of the Nebraska Supreme Court case, the reader is similarly referred to “Nebraska Supreme Court Derails Child Support Revenue Maximization Effort,” and, for a somewhat related case, “Parental representation, child support case on way to Georgia Supreme Court.”

3. See also Casey Family Programs. An Analysis of the Kansas and Florida Privatization Initiatives. 2010. (“Although many states assume that privatization leads to cost savings, this was not the case in Kansas or in Florida. In fact, both states increased their funding upon implementation, more than doubling their child welfare budgets in the first ten years”).

4. There are never enough caseworkers, it seems, unless there are more pressing issues to spend money on. See for example Texas Health And Human Services Commission, Office of Inspector General Inspector General. Child Protective Services Investigation Report. December 10, 2004. (Suggesting that the state should “Provide additional caseworkers and incentives to keep them, which will help alleviate the workload. Increase caseworker salaries”); The Grand Island Independent, “Johanns mum on how much he’ll spend improving child welfare,” December 23, 2003 (Reporting on Nebraska Governor’s plan to add more caseworkers: “There are more than 300 case workers in the state currently. The task force recommended adding at least 99, and the Foster Care Review Board said there needs to be at least 150 more); Kelly Richmond, “Temporary DYFS chief is made permanent,” Bergen Record, April 26, 1997 (“Union officials representing DYFS employees called recently for $40 million in new funding to hire about 450 additional staff members to reduce caseloads. The division currently has 2,600 employees, including 1,100 caseworkers who supervise 45,000 children”). Bureaucratic priorities often prevail over the alleged need for additional caseworkers. See Carl Chancellor, “Ignoring abuse cases is no solution,” Beacon Journal, May 6, 1996. (noting that while the bureaucrats at the Summit County Children Services Board where trying to pare back 7 proposed caseworker positions to 3, “To meet the need for new office furniture to equip its new $12 million headquarters on South Arlington Street, Children Services last week requested $511,000, down from an earlier request of $570,900. That money will be spent on modular office furniture for 210 employees and includes some $58,000 for nearly 4,000 yards of blue and gray fabric for panel coverings”).

4. See Nebraska Auditor of Public Accunts. Douglas County Guardian ad litems: July 1 2011 through June 30 2013 Attestation Report. 2014.


Office of Inspector General. “Review of Nebraska’s Foster Care IV-E Training Costs for the Period October 1, 1994 through September 30, 1999,” (A-07-02-00138) February 24, 2003.

Office of Inspector General. “Nebraska’s Foster Care IV-E Administrative Costs Claimed During the Five-Year Period Ending September 1999,” (A-07-02-00144) August 4, 2003

Office of Inspector General. “Federal Financial Participation in Nebraska’s Medicaid Management Information System, Nebraska Department of Social Services, Lincoln, Nebraska.” (A-07-92-00526) 1992.

University of Kentucky College of Social Work & Planning and Learning Technologies, Inc. Literature Review on the Privatization of Child Welfare Services. 2006.

National Quality Improvement Center on the Privatization of Child Welfare Services. Summit on Public/Private Partnership: Partnering to Protect and Strengthen Families in Our Communities. 2007.

Center for Public Policy Priorities. Drawing the Line Between Public and Private Responsibility in Child Welfare: The Texas Debate. 2008.

Washington Federation of State Employees, AFSCME Council 28. Improving Outcomes for Children and Families Served by DSHS Children’s Administration Through Savings and Reinvestment of Services. 2010.