Special Report: Annotated Bibliography for
Managed Behavioral Health Care 1989-1999

Economics, Forecasting, and Pricing

124. Cummings, N. A. (1994). The successful application of medical offset in program planning and in clinical delivery. Managed Care Quarterly, 2(2), 1-6.

Medical offset research comprises some of the earliest outcome studies in mental health. In this article the author, one of the originators of medical offset studies, describes the evolution of such studies, reflects on 30 years of research, and summarizes some of the early literature on this subject. He demonstrates that evidence in favor of the offsetting of medical costs by pro-viding psychological services has been replicated widely over the years in varied health care systems. The absence of a psychotherapy benefit leads to increased medical and hospital costs to the health care plan. Evidence that patients translate stress, anxiety, and other psychological symptoms into physical ones is so strong that the author argues that no comprehensive health plan can afford to be without an effective psychotherapy benefit. Keyword: costs

125. DuVal, M. K. (1988). Changing reimbursement patterns and the realities of health care finance. In D. J. Scherl, J. T. English, & S. S. Sharfstein (Eds.), Prospective payment and psychiatric care (1st ed., pp. 1-8). Washington, DC: American Psychiatric Association.

The author provides a historic overview of changing health care reimbursement patterns over the past 50 years. He focuses on the past five years and describes the impact of these changes on the practice of medicine, on academic medical research, and on health care coverage for the uninsured. With practitioners at increasing economic risk, he is concerned that incentives to undertreat may prevail. He describes the movement toward prospective pricing as the biggest contemporary challenges to psychiatry.
Keywords: economics, trends

126. Frank, R. G., Huskamp, H. A., McGuire, T. G., & Newhouse, J. P. (1996). Some economics of mental health ‘carve-outs’. Archives of General Psychiatry, 53(10), 933-937.

This article discusses the economic rationale of carve-out contracts in general and for mental health and substance abuse (MH/SA) in particular. The authors focus on the control of a plan’s adverse selection of the insured population as the primary factor for the conception of behav-ioral health carve-outs as well as the moral hazard phenomenon, where utilization of mental health services is twice as responsive to cost-sharing provisions as is utilization of general health services. The authors first present the economic theory of carve-outs as determined by the problems of moral hazard and adverse selection; second, they present evidence of these economic explanations; and third, they analyze the incentives of the buyers and the vendors of mental health services. The conclusion finds that adverse selection has long undermined the insurance market for MH/SA coverage, and that, according to the authors, carve-outs are a suitable economic solution to the failures of this insurance market.
Keywords: carve-outs, economics, substance abuse

127. Frank, R. G., & Lave, J. R. (1992). Economics of managed mental health. In S. Feldman (Ed.), Managed mental health services (1st ed., pp. 83-100). Springfield, IL: Charles C. Thomas.

This chapter discusses the promises and pitfalls of using managed care to control costs and utilization in a private insurance setting. The authors explain the traditional demand-side approaches (such as limits on coverage and cost-sharing) and supply-side approaches (such as prospective payment), and identify several undesirable consequences of these approaches. The promises of managed care include the potential to reduce inappropriate care while con-straining utilization to appropriate levels. Potential problems include lack of clarity regarding respective responsibilities of employer, provider, and managed care firm; lack of standards for care; little research on effectiveness of managed care; and inefficient use of the tort system to address accountability problems. The authors conclude that while managed mental health care offers some promise for controlling utilization and cost of mental health services, it should be only one of the tools in the cost-containment toolbox.
Keywords: costs, economics

128. Frank, R. G., & McGuire, T. G. (1998). The economic functions of carve outs in managed care. The American Journal of Managed Care, 4, SP31-SP39.

This paper examines the economic tenets of carve-outs. The authors discuss four broad forms of carve-outs: (1) payer specialty carve-outs from all health plans, (2) payer specialty carve-outs from only indemnity and preferred provider organization arrangements, (3) individual health plan carve-outs to specialty vendors, and (4) group practice carve-outs to specialty organizations. The efficiency, adverse selection, and costs of these different carve-out options are considered without many specific qualitative examples being given. In the conclusion the authors argue that the decision to carve out services must be made based on the individual services being provided and the population being served. However, for some payers, it may be more efficient to obtain the necessary expertise from a carve-out which specializes in manage-ment of one of these services and has a sufficient volume of cases in order to have a strong bargaining position in the market.
Keywords: carve-outs, economics

129. Goldman, H. H., & Taube, C. A. (1988). High users of outpatient mental health services, II: Implications for practice and policy. American Journal of Psychiatry, 145, 24-28. This article examines four stereotypes of outpatient mental health use: (1) all use is alike, (2) any use leads to high use, (3) all high use is discretionary, and (4) insurance encourages excessive use. The authors provide data to refute the first three assumptions and argue that these stereotypes ignore the diversity of outpatient mental health services and the individuals who use them. They favor a combination of pricing strategies that would not impede initial treatment but would limit excessive use of mental health services. The authors argue that the same principles of insurance and public health apply to the financing of mental health care as to general health care.
Keywords: economics, utilization

130. Ma, C. A., & McGuire, T. G. (1998). Costs and incentives in a behavioral health carve-out. Health Affairs 17(2), 53-69.

Implementing managed care arrangements has proven to be a highly effective cost-saving strategy for the behavioral health arena, and many States have chosen to take advantage of this fact for both their employee benefit programs and for beneficiaries of their public pro-grams. At the same time, there is evidence that some managed care systems achieve these cost-savings at the expense of quality. These authors examine the behavioral health managed care carve-out established by the Massachusetts GIC (Group Insurance Commission), which sup-plies insurance to State employees, as a model from which to determine the nature of cost-savings in this type of arrangement. The authors present a detailed analysis of changes in cost, incentives contained in the carve-out contract, and eligibility and claims data to deter-mine the source and nature of cost savings. The data they examine show significant cost-savings (30-40 percent) after the implementation of the carve-out, even beyond that of their pre-set cost targets/contract incentives. As a result they speculate further that there may be a "reputation effect," or desire on the part of contractors to show especially good results in the interest of attracting future business in the rapidly expanding managed care market.
Keywords: carve-outs, costs, economics, Massachusetts, public sector

131. National Advisory Mental Health Council (1998). Parity financing mental health services: Managed care effects on cost, access, and quality. An Interim Report to Congress. Rockville, MD: National Institute of Mental Health.

This National Advisory Mental Health Council workgroup paper discusses the cost impli-cations of parity, and in response to more recent charges from the Senate, has amplified its domain to include how managed care affects both access to mental health services and the quality of those services. The summary findings show that as the overall managed care pop-ulation increases, the projected cost of parity declines, and that the introduction of parity laws would accelerate the trend toward increased management of mental health services. Also, parity alone does not guarantee improved access to mental health care because of the counteracting effects of managed care. Measurement of the quality of care with the advent of management shows considerable variability in the results, and further research is needed in this area.
Keywords: costs, parity

132. Olfson, M., Sing, M., & Schlesinger, H. J. (1999). Mental health/ medical care cost offsets: Opportunities for managed care. Health Affairs, 18(2), 79-90.

This paper examines the potential for managed care companies to take advantage of the "cost-offset effect," the phenomenon where the provision of mental health services can lead to a decrease in utilization of general medical services. The authors introduce the debate, reviewing possible pathways to achieve cost offsets, how cost offsets arise, and the relationship between mental health status and use of medical services. They identify three patient groups with high potentials to yield cost offsets, including distressed elderly medical inpatients, primary care out-patients with multiple unexplained somatic complaints, and nonelderly adults with alcoholism. The paper discusses previous research in the subject and implications for delivery and financ-ing. Three possible structures for achieving cost offsets are to integrate medical and mental health financing and management, to train utilization managers to identify target populations and facilitate their access to mental health care, and to combine pricing policies with utilization management to increase access within managed care plans.
Keywords: costs, utilization

133. Pallak, M. S., Cummings, N. A., Dörken, H., & Henke, C. J. (1993). Managed mental health, Medicaid, and medical cost offset. New Directions for Mental Health Services, 59, 27-40.

Studies have demonstrated that mental health treatment may reduce the use and cost of med-ical services (the "cost-offset" effect). This study uses a quasi-experimental design to test the cost-offset hypothesis on a Medicaid population in Hawaii. Results showed that managed mental health services consistently resulted in declines in both inpatient and outpatient medical costs for Medicaid enrollees. In contrast, traditional unmanaged mental health services had lit-tle effect on overall medical costs. The authors conclude that managed mental health care can lead to a cost-effective provision of total medical services.
Keywords: costs, Hawaii, Medicaid, public sector

134. Pallak, M. S., Cummings, N. A., Dörken, H., & Henke, C. J. (1994). Medical costs, Medicaid, and managed mental health treatment: The Hawaii study. Managed Care Quarterly, 2(2), 64-70.

This article reports on a randomized, prospective study to examine the impacts of mental health care on medical utilization and costs. The study found that medical costs of a Medicaid population in Hawaii were reduced by 23 percent to 40 percent compared to control groups. The study analyzed the impact of managed mental health services separately for people with and without chronic health conditions. The authors demonstrate that the costs of managed mental health care are recovered in 6 to 24 months. They conclude that managed mental health treatment is associated with declines in medical costs.
Keywords: costs, Hawaii, evaluation, Medicaid, public sector, utilization

135. Sharfstein, S. S. (1991). Prospective cost allocations for the chronic schizophrenic patient. Schizophrenia Bulletin, 17, 395-400.

The author presents a life-course longitudinal model for financing care of patients with schizo-phrenia. The model, which is being tested in a demonstration project in Rochester, New York, is based on a prospective cost allocation method using capitation payments that are "risk adjusted" to reflect patient’s past use of services, current health status, and level of disability. The purpose of this approach is to provide incentives to develop outpatient services, to encour-age early intervention, and to integrate public and private funding streams. The author calls for a new social policy to address the needs of this population. Such a policy would provide comprehensive care, adequate funding, incentives for innovation, and patient choice. The author outlines a proposal to integrate Federal and State funding for chronic mental illness. Keyword: capitation, New York, public sector, schizophrenia, serious mental illness

136. Smith, M. E., & Loftus-Rueckheim, P. (1993). Service utilization patterns as determinants of capitation rates. Hospital and Community Psychiatry, 44, 49-53.

This study examined the service use of 55 clients of a psychosocial rehabilitation outpatient program at a hospital-based community mental health center. The purpose of the study was to identify different patterns of service use and associated patient characteristics. Treatment cost and services provided were tracked for each patient for one year. Cluster analysis revealed that service use may be determined by factors other than clinical need. The authors argue that setting capitation rates based on previous use of services may inaccurately predict the cost of services needed to serve patients with severe mental illness. Findings from this study led the authors to develop an alternative strategy for estimating service need based on comprehensive service planning models for subgroups of seriously mentally ill persons.
Keywords: capitation, serious mental illness

137. Sterman, P. (1997). The costs of behavioral health care coverage. Employee Benefits Journal, 22(1), 2-10.

This article reports on the significant financial implications psychiatric and chemical depend-ency conditions can have on the plan sponsor and how to control the cost with managed behavioral health care protocols and benefit designs. Conditions that contribute to the high costs include absence of price regulation, shifting cost from patients with less coverage to those with more coverage, a bias for inpatient reimbursement-in-full, destigmatization of psychiatric and substance abuse treatment, and an increase in the number of psychiatric beds and the consequent increase in demand for patients. The author discusses several strategies to contain behavioral health care costs such as modifying benefit plans to restrict services cov-ered, imposing benefit limitations, refining and developing provider networks, implementing managed care approaches, early identification and prevention of behavioral health conditions, and improving treatment outcomes.
Keywords: costs, substance abuse

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