This story has been corrected.

The Indiana Department of Child Services and IARCCA, an Association of Children and Family Services, announced their agreement today in a dispute regarding reimbursement rate cuts. The dispute led to a lawsuit filed in late 2009 between the two organizations.

IARCCA sued the DCS to challenge the reimbursement reductions to agencies providing foster care placements and intensive residential treatment for abused and neglected children. IARCCA believed the payment cuts were arbitrary and based solely on budget concerns.

The parties issued a joint press release Friday saying under the terms of the proposed agreement, DCS will begin cost-based rate setting for child-welfare service providers in January 2012. This year, the terms of the settlement require DCS to impose a limited five percent reduction for the reimbursement of agencies serving children through foster and residential care.

The IARCCA suit was combined in federal court with a similar suit filed by foster and adoptive parents challenging a 10 percent cut in the maximum $25 per day subsidy that parents and guardians receive for foster kids and some special needs adoptive children. The DCS and parents reached a settlement agreement in November.

Neither agreement has been approved by the federal court as of IL deadline.