Contracting and Accountability in State Medicaid Reform: Rhetoric, Theories, and Reality

Introduction Privatization and contracting out have enjoyed widespread popularity in the current climate of government reform. Frequently, privatization and contracting initiatives are pursued because they are consistent with popular political positions. Among the political benefits of privatization is credit claimed by elected officials--including governors for--reforming and shrinking government, thereby reducing taxpayer burdens (Wallin, 1997; Chi, 1993). For administrative leaders, benefits include gubernatorial approval and support (Gill and Rainey, 1998). Yet the rhetoric of capturing market efficiencies through privatization and contracting often masks the reality of administrative "load shedding" and the management challenges that accompany the transition. Recent devolutionary actions, such as the passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 and the enactment of state Medicaid waiver reforms, are likely to expand state contracts with non-government organizations. A significant portion of state services can be categorized as social services, which present unique challenges for privatization and contracting. In the area of social service reform, there is evidence that much of this privatization and contracting activity is plagued by features of the social services "market," including an absence of competition among bidders and the subsequent difficulties faced by state contract-management staff. These difficulties include complications in the contracting accountability relationships and changes in organizational cultures that affect the implementation of these reforms (Romzek and Johnston, 1999). While there is a nationwide trend toward privatization, the State of Kansas has taken a national lead in privatizing certain social services, driven primarily by gubernatorial leadership. Early in the current governor's administration, the merits of privatization were regularly featured in media releases and at public political events. Unfortunately, the rhetoric on the benefits of shifting services out of government conflicts with the reality of the contracting environment. Nonetheless, Kansas' privatization/contracting rhetoric has created a trajectory of load shedding. The result has been a continued quest to shift state social services out of government agencies, even as evaluations of such shifts question the cost savings, enhanced quality, and other promised benefits (Fox, et al., 1998). For leaders in the state's social service agency, following this trajectory minimizes political criticism of an organization perceived as large, unwieldy, cumbersome, and ineffective. (1) Political and administrative leaders tend to assume that contract-management and accountability will be relatively straightforward, as will the benefits associated with contracting. We address this assumption by exploring the administrative and accountability dynamics that arise during the implementation of a reform--a reform based on the rhetoric of privatization, but which does not meet the conditions necessary to tap into market relationships. We examine these issues through an in-depth case analysis of a state-level contract for case-management services for elderly Medicaid clients in Kansas. (2) The proliferation of state contracting suggests that there is a legitimate need to study states' capacity to make sound contracting and contract-management decisions. For example, Wallin (1997) indicates the need for more information on state government privatization and contracting activity--especially on the decision processes, which generate such activity. Theories of contracting and accountability provide frameworks within which to examine the market environment and the accountability relationships that characterize this contract. These frameworks provide a basis for considering how rhetoric and theory are manifested in the reality of the contracting experience. Following the lead of Schlesinger et al. …