The Office of Substance Abuse in Maine (OSA) was created to plan, implement, and coordinate all substance abuse treatment activities and services. The OSA allocated the funding it received from the legislature across nonprofit providers of substance abuse treatments through provider contracts. Providers used this funding to finance the cost of uninsured indigent clients, who are called “OSA clients” in this study.
In addition to OSA clients, nonprofit providers (of care in outpatient, inpatient, and other modalities) also treated clients covered by Medicaid, other insurance policies, and a few self-pay clients. The contracts required providers to submit service and financial reports, as well as Maine Addiction Treatment System (MATS) admission and discharge forms for every client treated in their programs.
Through fiscal year (FY) 1992, providers were required to provide contracted units of services; therefore, the outcomes of treatments did not affect funding. OSA's allocations to providers were based on the amount of funding they received in the prior year. A performance-based contracting system (PBC) designed to give nonprofit providers more incentives to care for high-priority clients in a cost-effective manner was implemented in FY 1993. The new contract specified that the performance outcomes of these programs would influence the allocation of funding for the next year.
The performance indicators included three categories: “efficiency,”“effectiveness,” and “special populations.”“Efficiency” dealt with the units of treatment that providers had to deliver in the contract year. “Effectiveness” specified the minimum percentage of discharged clients who had achieved certain outcomes, such as abstinence for 30 days before discharge or reduction in the frequency of drug use before discharge. Finally, “special populations” required that the target percentage of clients were to be drawn from specific populations that were considered difficult to treat, such as homeless people, youths, females, and intravenous (IV) drug users. The effectiveness and special population standards were measured for all discharge clients, regardless of the source payment.
The contract specified separate performance standards for different modalities (i.e., outpatient, inpatient, detoxification). This study examines the incentive problem in outpatient programs, the modality used by the majority of clients as a result of the shift of care from inpatient to outpatient settings. lists all the performance indicators for outpatient programs. The efficiency standards required outpatient programs to deliver at least 90 percent of contracted units of treatment. It also required that at least 70 percent of these units be delivered to primary clients. There are a total of 12 effectiveness indicators, including substance abuse measures, social role functioning outcomes, and relationship measures. Programs were evaluated as “good” as long as they accomplished any 8 of these indicators. Finally, programs were required to complete any 5 of the 8 special population standards.
Performance Measures and Standards: 1993
With the implementation of PBC, providers who achieved good outcomes could be rewarded with more funding in the fiscal year.1
Provider performance outcomes were measured by the average performance of all clients in the program at the time of discharge. This system created incentives for providers to select clients who were easier to treat in order to improve performance outcomes. The OSA tried to mitigate the selection problem by including special populations as one of the performance indicators.2
The policy may nonetheless create leeway for providers to select patients by unregulated but predictive factors such as severity level.
To identify a selection effect, this study focuses on OSA and Medicaid clients, who accounted for 46.8 percent of total outpatient visits. There are two key reasons for restricting the sample to these groups. First, OSA and Medicaid clients were alike in income and substance abuse habits; second, the selection problem triggered by PBC is relevant only for OSA clients. Therefore, the Medicaid group is a control group to study the selection problem in the OSA clients.
This study's basic assumption is that nonprofit providers were seeking to maximize total revenue from all sources. Revenue maximization is one of the standard assumptions in the literature of nonprofit firms (Pauly and Redisch 1973
We adopted this assumption based on the fact that the nonprofit providers in our study were heavily regulated and no profit was allowed at the end of each fiscal year. Given this objective, there was a clear incentive for these providers to reject the most severely ill OSA clients who could cause their performance outcomes to deteriorate. Since a provider's fixed budget from OSA is tied with contracted units of service from nonpaying clients, not with specific clients, the provider could avoid the most severely ill OSA clients without suffering a loss of current revenue. Rejecting the unfavorable OSA clients could improve the possibility of receiving more revenue in the next funding period.
This selection issue, however, was more complicated in the case of Medicaid clients. On the one hand, since Medicaid reimbursed providers per unit of treatment, each Medicaid client was a source of revenue; therefore there was an incentive for providers to treat all Medicaid clients. On the other hand, because the effectiveness indicators—used by OSA for future funding decisions—included all discharged clients (i.e., OSA, Medicaid, and other), providers had an incentive to reject the most severely ill Medicaid clients to improve the outcome. Therefore, there was a tradeoff between today's revenue (from Medicaid) and tomorrow's funding (from OSA) as far as undesirable Medicaid clients were concerned. On average, Medicaid reimbursed providers $62 per unit of treatment in post-PBC periods, which was high enough to take any available Medicaid patient, despite the fact that the most severe ones might adversely affect future funding from OSA. Thus, selection was not a major issue in the Medicaid sample. Even if there was selection in the Medicaid sample, it should be more pronounced in the OSA sample.