Expenditures for mental health services in the Utah prepaid mental health plan

Health Care Financing Review, Spring, 1996 by Tamara Stoner, Willard Manning, Jon Christianson, Donald Z. Gray, Sally Marriott

INTRODUCTION

The reimbursement of mental health care providers using capitation payment rates has been a controversial issue for Medicaid programs. In theory, capitated payment, when accompanied by the risk of financial loss or the potential for financial gain, should reduce the use of expensive inpatient treatment settings and encourage the use of less-costly inpatient settings and outpatient treatment programs. Capitated payment arrangements could generate more efficient delivery of health care, because they assign the responsibility for the financing and delivery of services to a single organizational entity. However, a major issue in the use of capitation reimbursement has been the development of appropriate financial incentives for providers. Capitation arrangements that reward cost containment could lead to the under-provision of services, especially to subgroups of beneficiaries with chronic mental illness. On the other hand, capitation payment arrangements that provide only weak cost-containment incentives could be ineffective at restraining Medicaid expenditures.

Medicaid programs have applied capitation payment methodologies to mental health care by including mental health services under capitation payments received by health maintenance organizations (HMOs) or by breaking out mental health services from other benefits and paying organizations to manage them. This second approach -- sometimes called a "mental health carve-out" -- has two variations. Under the first variation, Medicaid contracts on a capitated basis with a single entity that is responsible for the provision of all mental health services to beneficiaries in the State. This is the approach that has been taken by the Massachusetts (Callahan et al., 1995) and Iowa (Micali and Nardini, 1996) Medicaid programs. Under the second variation, Medicaid contracts directly with local mental health entities, such as community mental health centers, that agree to provide services to all beneficiaries in their geographical catchment areas and are reimbursed on a capitated basis. The presumed advantage of this second approach is that the responsibility for the coordination and delivery of mental health care rests with entities that are familiar with local delivery systems and treatment resources (Christianson and Gray, 1994).

UTAH PREPAID MENTAL HEALTH

PLAN

The State of Utah established the UPMHP in July 1991, in part with the objective of controlling the costs of inpatient mental health treatment for Medicaid beneficiaries provided in acute care hospitals. One of the stated goals of the UPMHP also was to increase the use of outpatient treatment settings. Prior to the UPMHP, Utah ranked very low among the 50 States in per capita outpatient mental health treatment expenditures. It was hoped that some of the dollars freed up by reduced reliance on inpatient care would be used to expand outpatient treatment programs (Christianson et al., 1995a). However, outpatient expenditures per beneficiary could decrease if better management of mental health care under the UPMHP resulted in improved coordination of service delivery, or if contracting CMHCs did not adequately staff to meet the increase in demand brought about by the requirement that all Medicaid beneficiaries in their service areas were entitled to receive care from them or from providers under contract to them.

In April 1990, HCFA approved a freedom-of-choice waiver request from the State of Utah to operate the UPMHP. Under this waiver, the State solicited proposals from entities within the State to provide mental health services for Medicaid beneficiaries on a capitated basis. To qualify, the bidders had to be able to directly provide, or subcontract to provide, the full range of mental health services covered by Medicaid. Six of the 11 CMHCs in the State submitted bids; three CMHCs withdrew during contract negotiations and the State finalized contracts with the three remaining CMHCS (Christianson et al., 1995a). The catchment areas of these contractors contained about 52 percent of the State's Medicaid eligibles in 1991. In the areas of the State not covered by capitated contracts, Medicaid continued to reimburse providers on a fee-for-service basis. Of the three CMHCs operating under capitation, one was classified as having an urban catchment area (Salt Lake County and Summit County), and 78 percent of the Medicaid beneficiaries who received capitated mental health care lived in this area. There was roughly the same distribution of urban versus rural Medicaid beneficiaries residing in the capitated and non-capitated catchment areas.

Medicaid contracts with CMHCs under the UPMHP initially were divided into inpatient and outpatient portions. During the first 2 years, contractors were to retain any funds allocated for inpatient care that exceeded payments to inpatient providers. Thus, they had an incentive to reduce their inpatient expenditures, because any savings could be spent in any way deemed appropriate by the CMHC. The intent of the UPMHP was that at least some portion of the inpatient savings could be used to expand outpatient programs. Any shift of funds to outpatient care during the first 2 years would financially benefit the CMHCs, because it would increase the expenditure base on which capitation rates would be set for the third year, when the CMHCs would be at financial risk for losses on both inpatient and outpatient care.