ACF Pre-Approved Alternative Methodology
https://pcqc.acf.hhs.gov/The law allows Lead Agencies the option to conduct a statistically valid and reliable ACF pre-approved alternative methodology developed by the state (such as a cost estimation model) instead of or in addition to the market rate survey described in the previous section. While a market rate survey measures prices charged by child care providers, a cost estimation model estimates the cost of care by incorporating both data and assumptions to model what expected costs would be incurred by child care providers and parents under different cost scenarios (such as participating in the levels of a quality rating and improvement system). Another approach would be a cost study that collects cost data at the facility or program level to measure the costs (or inputs used) to deliver child care services. Many child care providers report that they are unable to set published prices that reflect the full cost of providing quality services because parents would be unable to pay these prices. As a result, the published prices reflected in market rate surveys are not always adequate to cover providers' full costs, particularly for high-quality care.
Cost estimation models should account for key factors that affect the cost of service delivery, such as
The Provider Cost of Quality Calculator
Lead Agencies may use the Provider Cost of Quality Calculator (PCQC) or similar tool to estimate the cost of care. The PCQC is an easy-to-use web-based tool that calculates the cost of quality—based on site-level provider data—to help state policymakers understand the costs associated with delivering high-quality child care services. States can use the PCQC to take into account the cost of quality and inform an ACF pre-approved alternative methodology for setting payment rates. The tool can demonstrate whether there is a gap between the cost of providing quality services and the revenue sources available to support a program. Knowing the size of the gap at different quality levels for various types of providers can inform the design of financial support and incentive packages. The PCQC is free to use and publicly available on the National Center for Early Childhood Quality Assurance website. 
- staff salaries and benefits,
- training and professional development,
- curricula and supplies,
- group size and ratios,
- enrollment levels,
- licensing requirements,
- quality level,
- facility size, and
- other factors.
Such models should also take into account that costs vary across submarkets, such as by
- provider type (for example, center or family home),
- geographic groupings (for example, by locality or urban versus rural),
- age of child (for example, infants and toddlers, preschoolers, and school-age children),
- quality of care, and
- other considerations (for example, care for children with disabilities or special health needs).
Lead Agencies should be aware of a few key points about the use of an ACF pre-approved alternative methodology to set payment rates:
- Any alternate methodology used in lieu of a market rate survey must be approved in advance by the Administration for Children and Families as part of the CCDF Plan development and review process.
- The methodology must describe how it will use current data and what metrics the Lead Agency will use to set rates based on the alternative methodology.
- The Lead Agency will also need to describe the estimated reporting burden and cost to conduct the alternative approach.
- Advance approval is not required if the state plans to implement both a market rate survey and an ACF pre-approved alternative methodology.