Health Affairs Risk contracts in managed mental health care

Private employers and state Medicaid programs are increasingly writing risk contracts with managed behavioral health care companies to manage mental health and substance abuse benefits. This paper analyzes the case for a carve-out program and makes recommendations about the form of the payer-managed behavioral health care contract. Payers should consider using a “soft” capitation contract in which only some of the claims’ risk is transferred to the managed behavioral health care company. To avoid incentives to underserve seriously ill persons, we recommend that payers not allow choice by enrollees among risk contractors. The most striking development in the financing and organization of mental health services in the past five years is the extremely rapid growth of specialty managed care organizations, referred to here as the managed behavioral health care industry. According to Monica Oss, 102 million Americans-virtually half of all persons with health insurance (including Medicare and Medicaid)-were enrolled in some form of managed behavioral health care program as of January 1994. The managed behavioral health care industry is new, unconcentrated, and rapidly evolving; enrollment has grown 15 percent per year in the past two years. Of the companies that Oss surveyed (forty-three of which responded), the largest in terms of enrollment in 1994 (Value Behavioral Health) accounted for 16 percent of the total enrollment, and nineteen companies enrolled more than one million persons each. The ranking of largest firm in the industry has changed in each of the past three years. The most common role for a managed behavioral health care company is to conduct utilization review and case management on behalf of a payer (37.0 million enrollees, or 37 percent of the total, are in this category). Managed behavioral health care companies also operate employee assistance programs (EAPs) and set up provider networks. The most rapidly growing activity of the industry, however, accounting in Oss’s survey for twenty to twenty-five million enrollees and more than half of the industry’s revenues, is “risk-based contracting.” In a risk contract, the managed behavioral health care company assumes some of the claims risk for a population and is responsible for providing and managing the services. In effect, the employer or insurer “contracts out” to a private vendor for mental health and substance abuse (MH/ SA) benefits. Risk contracts in MH/ SA care are of interest for two main reasons. First, as a new and growing institutional feature in the MH/ SA treatment area, risk contracts have a measurable impact on costs of, access to, and effectiveness of services. Second, risk contracting addresses two of the three stumbling blocks as identified by Bernard Arons and colleagues in their proposal to include a comprehensive MH/ SA benefit in a national health insurance policy: (1) controlling its cost, and (2) setting a per person or capitation payment to a risk-bearing organization that does not create adverse incentives. The “solutions” to these problems embodied in contracts that are Health Affairs, Volume 14, Number 3 ©1995 The People-to-People Health Foundation, Inc. on O cber 0, 2017 by H W T am H ealth A fairs by http://conealthaffairs.org/ D ow nladed fom 52 HEALTH AFFAIRS | Fall 1995 emerging between employer/ payers and managed behavioral health care vendors deserve public policy attention. This paper is part of an initial effort to describe and analyze these contracts, and to draw implications for public policy in mental health and substance abuse. Experience With Risk Contracting Risk contracting and managed mental health care predate the specialty industry of managed behavioral health care. Prepaid group practices and health maintenance organizations (HMOs) have accepted risk contracts for MH/ SA services, along with other health care, for some time. In general, these contracts are capitation contracts in which all of the cost or claims risk is borne by the prepaid group. As part of the Health Insurance Experiment conducted at RAND in the mid-1970s, Willard Manning and colleagues compared the cost and use of care by families assigned to a prepaid group practice, the Group Health Cooperative of Puget Sound, with that of families assigned to receive free care in the fee-for-service sector. Although enrollees with the two types of insurance sought care at the same rate, the fee-for-service population had mental health expenditure levels almost three times greater than those of the prepaid health plan enrollees ($69.70 versus $24.60 in 1977 dollars). Paula Diehr and colleagues compared the use of outpatient mental health care in a fee-for-service unmanaged benefit plan, a staff-model HMO, and an individual practice association (IPA) prepaid plan for Washington State employees, with results that were consistent with Manning’s.However, because the Washington employees chose their plan and were not assigned to an insurance condition as in the Health Insurance Experiment, the Diehr findings may at least partly reflect differences in each study group’s needs and not just an effect of the plan. Prepaid groups can exert direct managerial authority over the supply of mental health services. Indeed, by controlling the number of therapist hours available, they can almost directly ration the volume of care provided. Managed behavioral health care companies, however, may have weaker incentives to reduce costs than prepaid groups do, and they typically have much less direct control over their contracted providers. Thus, the cost reductions from managed behavioral health care should be expected to be more modest than those from prepaid groups. The Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) p ex erimented with an at-risk preferred provider organization (PPO) during the late 1980s in the Virginia Tidewater area. This region was known for its high mental health care costs. The demonstration showed significant savings (about 31 percent below expected costs) stemming largely from reduced inpatient care. In spite of the reported savings, on O cber 0, 2017 by H W T am H ealth A fairs by http://conealthaffairs.org/ D ow nladed fom