A Cost Analysis of Therapeutic Foster Care on Medicaid Spending Among Children with High Need for Mental Health Services

Background and Purpose: The prevalence of severe mental health disorders among children and adolescents has increased in recent years. Children with higher need often require more intensive services. Because higher intensity services are more costly, understanding the value of higher intensity services is critical. For example, evidence-based therapeutic foster care (TFC) programs are effective at keeping children in less restrictive and less costly levels of care. For children with higher levels of need, enhanced TFC programs have been developed to provide a higher intensity of services. Because a higher intensity program has a higher reimbursement cost, it is important to know whether this additional cost is justified and can produce cost savings over time. To maximize policy relevance of mental health services research, studies are needed that examine financial costs in addition to child behavioral and functional outcomes. Methods: This cost analysis is one part of a larger quasi-experimental statewide study comparing two types of therapeutic foster care (TFC) received in 2018-2019: standard TFC and an enhanced TFC program. A total of 131 children received enhanced TFC services during this time frame and propensity score matching was used to identify an equivalent comparison group of youth receiving standard TFC (N = 262). The primary outcome was the per-member-per-month Medicaid spending on behavioral health services two years before and after TFC initiation. Costs were compared using a difference-in-differences analytic model using a comparative interrupted times series analysis. Results: Annual per capita costs were $88,787 for youth in standard TFC and $150,571 for youth in enhanced TFC (p < .001). The differences were mainly related to higher utilization of more restrictive services prior to coming into care, specifically psychiatric hospitalization and psychiatric residential treatment facility placement. Longitudinal models showed rapidly increasing Medicaid expenditures in both groups prior to TFC service initiation. Then, following TFC initiation, cost trends in both groups curved downwards and decreased in the follow-up period. Enhanced TFC services were more costly over time, reflecting the higher reimbursement rates for services. When costs of TFC were removed from the model, enhanced services showed a greater reduction in overall costs relative to standard TFC services. Conclusions and Implications: Therapeutic foster care programs provide benefits for youth who receive services, but this study also shows that the program has benefits to the financial health of one state’s Medicaid program. Examining the relationship between need for services, the intensity of services received, and youth outcomes presents challenges for causal inference and for characterizing the financial investments in mental health services. This study presents one analytic approach using rigorous methods and existing administrative data to begin to disentangle these overlapping issues. Importantly, many policymakers and administrators are increasingly focused on understanding the financial implications of the services that are deployed. This study provides further evidence of the benefits of TFC, but can also help inform reimbursement rates for higher intensity service models that seek to support children with the highest need.