S3862

The Payment Integrity Act, S. 3862, directly amends Section 658E of the Child Care and Development Block Grant Act of 1990. It requires states to make payments to child care providers based on verified attendance rather than enrollment. This change eliminates revenue for child care centers from enrolled but absent children, directly impacting their financial models. The bill also clarifies that lead agencies are not required to make payments prior to service provision, shifting payment timing risk to providers. The money trail for federal child care subsidies will now flow strictly based on actual attendance. This means child care providers will only receive federal funds for the days children are physically present and verified. This directly reduces the total addressable market for federal subsidy revenue for child care operators. Companies like Bright Horizons Family Solutions ($BFAM), which operates a large network of child care centers and receives federal and state subsidies, will see a direct reduction in revenue per enrolled child, as they can no longer bill for absent children. Historically, similar shifts in payment models for government-funded services have led to immediate revenue adjustments for providers. For instance, when Medicare shifted from fee-for-service to value-based care models in the mid-2010s, healthcare providers experienced significant revenue recalibrations. While not a direct parallel, the principle of moving from a fixed payment (enrollment) to a variable payment (attendance) model consistently results in reduced revenue for providers who previously benefited from the fixed model. Bright Horizons Family Solutions ($BFAM) stands to lose revenue directly from this legislation. As a major operator of child care and early education centers, a significant portion of its revenue is tied to enrollment and attendance. The shift to attendance-based billing for federally subsidized children will reduce their effective revenue per child. There are no clear winners from this legislation among publicly traded child care providers, as the bill aims to reduce federal spending on unutilized services, not to redirect it. This bill has been introduced in the Senate and referred to the Committee on Health, Education, Labor, and Pensions. Its passage through committee and subsequent votes in the Senate and House will determine its timeline. If enacted, the changes would take effect upon implementation by state lead agencies, likely within 12-24 months of becoming law.