Costs and use of mental health services before and after managed care

Mission unfulfilled: potholes on the road to mental health parity

Managed care holds the promise of facilitating parity between general medical care and alcohol, drug, and mental health care by reducing expenditures, even while expanding benefits. Limitations in our knowledge of variations in needs and treatment standards for substance use and psychiatric illnesses make such disorders an easy target for management. Costs for behavioral health care services have been reduced at a faster pace than has been the case for general medical care costs. The most severely ill face the potential burdens of managed care as access and intensity of care become more uniform across patient populations.

New research alliances in the era of managed care

BACKGROUND: The rise of managed behavioral health care in the United States was accompanied by reductions in costs, which has shifted the policy debate from concerns about rising costs to questions of universal access, mental health benefits at parity with medical benefits and quality of care. To meet these new challenges, managed care organizations, the purchasers of health care and academic services researchers must work together in new ways. AIMS OF THE STUDY: This paper discusses collaborative efforts between a for-profit managed care firm, academia and purchasers of health care coverage to study parity for mental health and substance abuse and how this effort has become part of a research strategy to inform policy. Historical, strategic and methodological issues are presented. METHODS: Case Study. RESULTS: Although the benefits from cooperative research are substantial, there are severe hurdles. Managed care organizations often have data that could answer pressing policy questions, yet these data are rarely used by researchers because it is difficult to obtain access and because analyzing the data requires computing facilities and skills that are not common in health services research. In turn, managed care organizations can learn how to design and implement more informative data systems that eventually lead to more cost-effective care, but there often are more immediately pressing business considerations and sometimes resistance to outside scrutiny. Important features that made this cooperation successful include strong support from the senior management in the company, including complete access to their extensive databases, and established funding for a managed care research center by the National Institute of Mental Health. CONCLUSION: This paper illustrates the potential of collaborative research. New research challenges, such as the linkages between quality and cost-effectiveness in actual practice settings, can only be met successfully if we build alliances among payors, managed care companies and academic researchers.

Managed behavioral health care: a Medicaid carve-out for youth

This DataWatch assesses the impact of a public sector-managed Medicaid mental health carve-out pilot for North Carolina youth. Access to, volume of, and costs of mental health/substance abuse services are reported. We compared a pilot managed care program, with an incentive to shift hospital use and costs to community-based services, with usual fee-for-service Medicaid. Aggregate data from Medicaid claims for youth (from birth to age seventeen) statewide are reported for five years. We found dramatic reductions in use of inpatient care, with a shift to intensive outpatient services, and less growth in mental health costs. These findings demonstrate that public sector-managed care can be viable and more efficient than a fee-for-service model.

More evidence for the insurability of managed behavioral health care

Debate continues about the cost and use of mental health services under managed care, as legislators consider various "parity" bills. This descriptive research replicates, broadens, and expands previously published case studies of single employers' data on cost and treatment prevalence in a large, diverse, national sample whose varied point-of-service benefits were provided by thirty employers representing multiple industries. Of those covered, 59,005 received treatment over the seven years studied. Of particular note is the pattern of increased use, increased care within the managed behavioral health organization network, and long-term cost reductions.

Risk sharing in managed behavioral health care

While policymakers have expressed concern over the impact of risk sharing with providers on treatment patterns, the literature lacks decisive evidence on which to base policy. This paper evaluates the impact of a contracting change within a managed behavioral health organization from a fee-for-service system to a case-rate system with utilization management delegated to providers. The contracting change resulted in a 25 percent reduction in mental health visits per episode. This effect varies with the dollar amount of the case rate and is more pronounced for providers with a larger share of revenue from risk contracts and with intensive utilization management programs.

Depression in the workplace: effects on short-term disability

We analyzed data from two national surveys to estimate the short-term work disability associated with thirty-day major depression. Depressed workers were found to have between 1.5 and 3.2 more short-term work-disability days in a thirty-day period than other workers had, with a salary-equivalent productivity loss averaging between $182 and $395. These workplace costs are nearly as large as the direct costs of successful depression treatment, which suggests that encouraging depressed workers to obtain treatment might be cost-effective for some employers.

Shifting to outpatient care? Mental health care use and cost under private insurance

OBJECTIVE

Concern over rising health care costs has put pressure on providers to reduce costs, purportedly by reducing inpatient care and increasing outpatient care.

METHOD

Inpatient and outpatient claims were analyzed for adult users of mental health services (180,000/year on average) from a national study group of 3.9 million privately insured individuals per year from 1993 to 1995. Costs and treatment days per patient were compared across diagnostic groups and stratified by whether patients were hospitalized.

RESULTS

Inpatient mental health costs fell $2,507 (30.4%) over the period, driven primarily by decreases in hospital days per patient per year (19.9%), with smaller changes in the proportion of enrollees who received inpatient care (increase of 0.8%) and a decrease in per diem costs (9.1%). Outpatient mental health costs also declined over the period, falling 13.6% for patients also using inpatient services and 14.6% for patients receiving only outpatient care. Patients whose primary diagnosis was mild to moderate depression saw the largest decreases in inpatient cost per patient (42.8%); those diagnosed with schizophrenia experienced the smallest decrease (23.5%). For patients using outpatient services only, those diagnosed with substance abuse experienced the largest decrease in costs (23.5%); those diagnosed with schizophrenia experienced the smallest decrease (8.6%).

CONCLUSIONS

Substantial cost reductions for mental health services are primarily a result of reductions in inpatient and outpatient treatment days. Declines in inpatient service use were not accompanied by increases in outpatient service use, even for severely ill patients requiring hospitalization. Managed care has not caused a shift in the pattern of care but an overall reduction of care.

A system of care perspective on prevention

Recent efforts to focus preventive interventions on individuals not yet manifesting disorders may have served to further isolate those who are involved with preventive interventions from those who provide clinical treatments. The effective linkage of preventive and remedial interventions requires greater participation by clinicians. Changes in public and private policies concerning the organization and financing of health care provide opportunities to relink these two constituencies. Some opportunities presented by recent developments are reviewed and their implications for expanding preventive interventions discussed.

Changes in inpatient mental health utilization and costs in a privately insured population, 1993 to 1995

BACKGROUND

Concerns over rising health care costs have led to pressure on health care providers to reduce inpatient costs.

METHODS

Inpatient claims data were analyzed for adult users of mental health services (n = 45,579) from a national sample of over 3.8 million privately insured individuals between 1993 and 1995 from the MarketScan database. Costs and annual hospital days per treated patient were compared across diagnostic groups and plan types.

RESULTS

Inpatient mental health costs fell 30.5% over the period, driven primarily by decreases in the number of hospital days per treated patient per year (-20.0%), with smaller changes in the proportion of enrollees who received care (-0.2%), and per diem costs (-13.1%). Patients whose primary diagnosis was mild/moderate depression saw the largest decrease in costs per treated patient (44.5%), and those diagnosed with schizophrenia experienced the smallest decrease (23.5%). There was no evidence of substitution of medical for psychiatric care.

CONCLUSIONS

Inpatient cost reductions have been substantial and are primarily caused by reductions in the number of inpatient mental health treatment days per treated patient. Further research is needed to evaluate the impact of these changes on outcome, quality of care, and patient satisfaction.

How expensive are unlimited substance abuse benefits under managed care?

Substance abuse (SA) care has been excluded from recent federal and state legislation mandating equal benefits for mental health and medical care ("parity"), largely because of cost concerns. This article studies how many patients are affected by SA coverage limits and the likely implications of limits on insurance payments, using 1996-97 claims from 25 managed care plans with unlimited SA benefits. Changing even stringent limits on annual SA benefits has a small absolute effect on overall insurance costs under managed care, even though a large percentage of SA patients are affected. Removing an annual limit of $10,000 per year on SA care is estimated to increase insurance payments by about 6 cents per member per year, removing a limit of $1,000 increases payments by about $3.40. As long as care is comprehensively managed, "parity" for SA in employer-sponsored health plans is not very costly.

Economic aspects of mental health carve-outs

BACKGROUND: Recent empirical research has found behavioral health carve-outs in the US to reduce costs immediately and considerably, compared to indemnity insurance and HMOs. Carve-outs have quickly captured a large part of the organized market in US behavioral health. At the same time, market concentration has increased significantly. METHODS: The current paper uses concepts and results from the industrial organization and transaction cost literature to explain (i) why carve-outs hold cost advantages over other institutional arrangements, (ii) why these hold in particular for behavioral health and (iii) why this did not happen earlier. RESULTS: The main explanatory variables relate to economies of scale, the avoidance of diseconomies of scope, and the avoidance of personal relationships. The sometimes surprising lack of explicit risk-taking by carve-outs and of explicit cost-reducing incentives in carve-out contracts are more than overcome by incentives created from gaining large contracts. The specific advantages of carve-outs in behavioral health derive from a combination of lack of economies of scope with other health services, lack of economies of scale in provision of behavioral health and presence of economies of scale in management. It is conjectured that behavioral health carve-outs have benefited from biomedical innovations that changed the direction of treatments, from computerization that enables large-scale standardized management and from financial pressures on the behavioral health sector. DISCUSSION: The empirical basis for the current study is a number of case studies and the rapid penetration of mental health carve-outs in the US. Cost reductions caused by such carve-outs appear to be quite robust. Explaining cost reductions from institutional changes has to start with the question of why the old institution did not implement the same or similar changes. We have emphasized reasons why such changes were not feasible under indemnity insurance and HMOs. Nevertheless, we have not been able to evaluate quality changes that might have accompanied those cost reductions. IMPLICATIONS FOR HEALTH POLICY: While further cost reductions may follow a logistic curve, which simply flattens out, there are developments, regulatory and legal in particular, that could lead to a regression of carve-out costs towards those under other institutional arrangements. Thus, the main health policy questions arising from this study are to what extent the freedom of carve-outs to hold costs down should be upheld and to what extent the cost reductions should be used to increase behavioral health coverage. IMPLICATIONS FOR FURTHER RESEARCH: I see three main avenues for further research. The first is to find more empirical evidence for the hypotheses developed in this paper. The second is to look for other countries and other areas of health care with characteristics that would lend themselves to the application of carve-outs. The third is to analyze the quality aspect of carve-outs. The empirical question here is "What has been the effect of carve-outs on the quality of behavioral health care in the US?". The theoretical question is "What are the incentives of the sponsors of carve-out plans and of the carve-out management to assure quality provision of care?".

Managed behavioral health care and supply-side economics. 1998 Carl Taube Lecture

BACKGROUND: Within the past decade, the mental health care system in the United States has undergone a significant transformation in terms of delivery, financing and work force configuration. Contracting between managed care organizations (MCOs) and providers has become increasingly prevalent, paralleling the trend in health care in general. These managed care carve-outs in behavioral health depend on networks of providers who agree to capitated rates or discounted fees for service for those patients covered by the carve-out contracts. Moreover, the carve-outs use a broader array of mental health providers than is typically found in traditional indemnity plans, encourage time-limited versus long-term treatments and favor providers who are engaged in outpatient care. This phenomenal growth in managed behavioral health care over the past decade includes the rapid growth and quick consolidation of mental health MCOs. The period 1992-1998 shows steady and substantial annual increases in the number of enrollees in mental health MCOs, the figure more than doubling from 78.1 million people in 1992 to a projected 156.6 million in 1998, or 70% of insured lives. Moreover, these vast numbers of enrollees are becoming increasingly consolidated into a smaller number of firms. In 1997, 12 companies controlled nearly 85% of the managed behavioral health care market, with 60% of the market held by the three largest firms. STUDY AIMS: This article reviews empirical data and draws policy implications from the literature on managed behavioral health care in the United States. Starting with spending and spending trend estimates that show the average annual growth rate of mental health expenditures to be lower than that of health care expenditures in general over the past decade, the author examines utilization and price factors that may account for managed-care-induced cost reductions in behavioral health care, with special attention to hospital use patterns, fee discounting and the supply and earnings patterns of various types of mental health provider. In addition, data on staffing ratios and provider mixes of health maintenance organizations and mental health MCOs are reviewed as they reveal at least part of the dynamics of reconfiguration of the mental health work force in this era of managed care. CONCLUSIONS: As measured by changes in utilization and price, widespread application of "classic" managed care techniques such as preadmission review (gatekeeping), concurrent review, case management, standardized clinical guidelines and protocols, volume purchase of services and fee discounting appears to have led to significant cost reductions for providers of both impatient and outpatient mental health services. However, amidst a complex flux of market variables such as risk shifting, changing financial incentives and intensity of competition, not all of the reduction or slowdown in spending can be clearly and purely attributed to managed care. The data on the ongoing reconfiguration of the mental health work force are clearer in their implications: with an oversupply of all types of mental health providers, managed care has significant potential to increase the incidence of provider substitutions and spur the growth of integrated group practices. IMPLICATIONS FOR FURTHER RESEARCH: The current body of empirical and policy literature in mental health economics suggests several salient areas of follow-up. Is the proportionately greater impact of managed care on the annual growth rate of mental health care spending a temporary phenomenon or does it signal an enduring difference in the rates of increase between behavioral health care and health care in general? Beyond industry downsizing, what are the substitutions among mental health providers that are going on, and will go on, to produce cost-effective practices? What are the new financial or risk-sharing arrangements between providers and MCOs that will produce appropriate and high-quality mental health services?

Costs and incentives in a behavioral health carve-out

A carve-out of mental health and substance abuse services initiated in 1993 by the Group Insurance Commission (GIC) of the Commonwealth of Massachusetts resulted in changes in the costs of those services. Those changes were related to incentives in the contract between the GIC and its managed behavioral health vendor. Total and plan costs were reduced by 30-40 percent after adjusting for trends. Incentives to produce savings of this magnitude not only were a consequence of the payer/vendor contract but, we speculate, derive from the growth potential facing companies in the managed behavioral health care market.