State mental health authorities have increasingly adopted capitated payment systems for Medicaid recipients. By doing so, states hope to provide incentives for cost-effective treatment by shifting some degree of financial risk for the delivery of care to providers. In capitated systems, providers agree to deliver a specified range of services to a specified group of clients for a fixed price and, therefore, come to share interest with the payer in delivering mental health care in a more stable and predictable budget (Mechanic and Aiken 1989
The opportunities and risks of capitation of the severely mentally ill are well documented (Mechanic and Aiken 1989
; Lehman 1987
). Capitation affords opportunities for mental health systems to reduce costs through adoption of more cost-effective treatment, to operate within more stable and predictable budgets, to adopt early intervention and prevention strategies, and to integrate inpatient, outpatient, and intermediate levels of care. The primary risks of capitation are undertreatment, substitution of inadequate mental health services, cost shifting to other service systems, and poorer treatment outcomes resulting from financial risks and incentives placed on the contract agency (Mechanic and Aiken 1989
States differ in the agency selected to receive capitated payments. Some states make per-capita Medicaid payments directly to mental health provider agencies, such as community mental health centers. Other states pay an intermediary agency such as a managed behavioral health organization (MBHO) or a health maintenance organization (HMO) on a per-capita basis. The MBHO or HMO may or may not pass on financial risk to providers. The growth of the managed behavioral health industry has afforded state Medicaid agencies the choice of making per-capita payments directly to a provider agency or to an intermediary agency. The relative effects of sharing risk directly with providers as opposed to through an intermediary organization has not beenexamined, although both have received some attention in controlled studies.
Several controlled studies of paying capitated Medicaid funds directly to mental health providers have been published. A study in Rochester (NY) showed that severely mentally ill individuals randomly assigned to capitated providers showed no differences in psychiatric symptoms and global ratings of functioning, but experienced fewer hospital days relative to noncapitated providers over the 2 years of the study (Cole, Reed, Babigian, et al. 1994
). Capitated payment appeared to result in a favorable cost-benefit ratio and no deleterious outcomes (Reed et al. 1994
). Another controlled study in New York found that paying an intensive case management program a capitated amount reduced face-to-face contact between case managers and consumers but increased the provision of ancillary services and reduced the amount of unmet service needs (Shern, Donahue, Felton, et al. 1995
Utah contracted directly with mental health providers in geographic areas serving approximately one half of their Medicaid population. Results through the first 2 years of the demonstration showed that inpatient mental health admissions and expenditures were significantly reduced by capitating providers for a full range of mental health services (Christianson, Shepard, Beinecke, et al. 1995
; Stoner, Manning, Christianson, et al. 1997
). Outpatient expenditures were unaffected, and this may have been due to the fact that mental health providers were not at risk for outpatient expenditures until the 2nd year of the demonstration program (Stoner, Manning, Christianson, et al. 1997
Findings from the Utah demonstration suggest that cost reductions achieved by capitating Medicaid payments to providers may have resulted in poorer outcomes (Manning, Liu, Stoner, et al. 1999
). The Utah evaluation examined outcome measures for Medicaid beneficiaries with a diagnosis of schizophrenia over a 4-year period. Among persons with schizophrenia, capitated areas showed lower rates of improvement, as measured by the Brief Psychiatric Rating Scale (BPRS) and the Global Assessment Scale. Evidence for the lower improvement rates increased over the 4-year period. Taken together, the literature on direct capitation of Medicaid providers shows mixed results, with one large-scale study showing poorer outcomes in a segment of the Medicaid population.
Two studies have examined the effects of paying capitated Medicaid dollars to an intermediary MBHO or HMO. In Massachusetts, an MBHO (Options) accepted capitated payments to manage Medicaid mental health and substance abuse services. The MBHO did not subcapitate its providers but used concurrent review, case management, and a provider network to control costs. Because the Massachusetts' demonstration program was implemented statewide, evaluation was limited to pre-post comparisons of expenditures and interviews with administrators, providers, and clients regarding qualitative changes to the system (Callahan, Shepard, Beinecke, et al. 1995
; Frank and McGuire 1997
; Beinecke et al. 1997
; Dickey, Normand, Azeni, et al. 1996
). Medicaid expenditures were lowered by 27 percent compared with levels expected based on prior trends. Providers reported that access to services was unchanged relative to the time period before capitation but that administrative problems related to utilization review increased with the implementation of managed care.
In Hennepin County Minnesota, severely mentally ill individuals were randomized to either “mainstream” HMOs or fee-for-service (FFS) Medicaid. No consistent differences in utilization, symptoms, functioning, and health status were evident in the first 7 months of Minnesota's demonstration program (Lurie, Moscovie, Finch, et al. 1992
; Christianson, Lurie, Finch, et al. 1992
). The demonstration was terminated in the 7th month, when the largest capitated health plan withdrew because of problems with adverse selection of beneficiaries into health care plans. Nevertheless, results suggest that at least short-term outcomes of the severely mentally ill treated in HMO model care are not different than out comes in traditional FFS Medicaid systems.
Comparisons among studies are difficult because capitation programs vary considerably in the populations studied, services for which providers are placed at risk, and the nature of the risk-sharing arrangements with providers. In this regard, the Colorado Medicaid Demonstration Program is particularly interesting because capitation contracts were awarded under one of two types of arrangements. In one arrangement, contracts were awarded directly to free-standing, not-for-profit community mental health provider agencies. Provider agencies were responsible for the management and delivery of care. In other areas of Colorado, contracts were awarded by the state to a joint venture between local community mental health provider agencies and a large MBHO. The MBHO conducted utilization review, contracted with providers, and administered other support functions for selected regions in Colorado. The MBHO shared financial risk with community mental health agencies through subcapitation contracts. The MBHO and local provider agencies jointly governed the Medicaid contract with the state. Finally, providers in selected regions ofColorado continued to be paid through the state's existing FFS Medicaid program.
The Colorado Medicaid Demonstration Program (CMDP) allows a comparison of direct capitation of Medicaid providers, capitation of an intermediary MBHO, and traditional FFS reimbursement of providers. This study is part of a larger research project that examines the effects of the CMDP on (1) clinical outcomes; (2) access, cost, and utilization of Medicaid mental health services; and (3) organizational adaptation, culture, and program development. This article focuses on the clinical outcomes achieved under these models over a 2-year period and across a broad array of outcomes, including measures of mental health symptoms, functioning, and objective and subjective measures of quality of life.