Discussions with private agencies about the actual cost of service provision can provide important information in making this determination. Private agencies that have the capacity to determine the price of services accurately and that have developed a system of service provision that is tied to true costs will be particularly helpful in these discussions. They also can provide information on the costs of services in different regions of the country. State A may discover that what it pays for a service in State A is significantly less than what a private agency in State B must receive to meet its costs given differences in cost of living and salary differentials.

Private agencies should be able to share with public agencies the formula they use for determining the cost of services (whether that is by the hour, month, per client, per service unit, or by outcome). When payment is by the hour (or increments of an hour), in particular, 31 there must be a system for tracking the hours of service provision and a billing system that captures this information and tracks payments. When payment is by other methods, private agencies need data systems that capture information on services provided, the costs of services, and the extent to which payment rates under current contracts may not cover the actual costs of services. When determining how much to pay for services, the goal is to develop purchase of service contracts that are realistic and ethical – that is, contracts that provide adequate and appropriate resources to private agencies so that they can deliver high quality, professional services within a sound business and financing structure for the organization and can produce the outcomes that both the public and private agency want to achieve.


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