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Managed Medicaid behavioral healthcare: Why the time is ripe

October 31, 2013
by Alison Knopf, Contributing Writer
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Contracts give states leverage in boosting provider accountability, care coordination

The trend in Medicaid behavioral healthcare is toward managed care – and that means private insurance companies like Magellan, Optum, and ValueOptions bidding for state and federal dollars which, in some 25 states so far, are growing due to expansion under the Affordable Care Act. And while medical and surgical Medicaid has been managed in this way for years, particularly for mothers and dependent children, now single adults in expansion states are going to be added in.

“We’ve done managed care for a long time in Medicaid, but it was primarily focused on the moms and kids,” explains Kathleen Nolan, director of state policy and programs for the National Association of Medicaid Directors. “It was primary care, and deliveries,” she said. “But now there’s a growing movement to take this into more complex populations,” including those who need treatment for substance use disorders (SUDs) and mental illness, as well as other complex chronic problems.

“The interest is in creating more coordinated care, care that is less fragmented, by bringing in a whole group of providers for these complex populations,” said Nolan.

The old fee-for-service reimbursement system so beloved of treatment providers is, state by state, falling away. While states are in different stages of the process – they must first apply to the Centers for Medicare and Medicaid Services (CMS) for waivers, because managed care involves significant changes in the delivery of services – the trend is unrelenting. States on the one hand are facing a sudden influx of new Medicaid patients, many with dire needs for treatment, and private insurance companies eager to bid on the lucrative new contracts. This is a formula that cries out for care coordination and utilization management – the specialty of private insurance companies most of which, unlike government payers, have a profit motive.

In fee for service, each individual provider seen by the patient is on his or her own in an unmanaged system, says Nolan. “There’s no requirement that they work together,” she said. “It has to be about outcomes and an accountability structure that doesn’t happen under fee for service.”

Take the legendary example of New York State’s revolving-door detoxifications, in which the same small percentage of patients use the lion’s share of SUD treatment funding and don’t get better – they keep coming back to hospitals for costly inpatient detoxifications. While the standard of care would be to treat them in the community afterward – or in some cases in the community in the first place – there aren’t any incentives for the hospitals to make these referrals, explains Nolan. Even patients treated in the community may not get better unless the provider has an incentive to make that happen. “When you have providers who are paid by the visit and hospitals who are paid by the admission, no one has the incentive to reduce readmissions,” says Nolan. “That’s not good for the patients, not good for the budget, and not the right thing to be happening for the system,” she continues. “That’s what’s driving this – is to say, ‘Enough!’”

The right way to think about managed care is not that it is aimed at cutting necessary treatment, but rather that it is to draw all providers in “under the same umbrella,” says Nolan. “A managed care entity has an incentive to reduce spending because it’s getting some kind of capitated [per member] payment, and they want to know ‘Why is this person showing up 17 times a month?’”

And there’s another side of the story. Patients – those with SUDs and those with mental illness – would often prefer to be treated in the community, and not in a hospital. Some advocates, in fact, say that managed care is the friend of people with mental illness because it will help empower them to have their own treatment plans that are the least restrictive. “It’s accurate to say that the managed care entity has an interest in driving more people into a community setting where they want to be anyway,” says Nolan. “This is fiscally right, but even if the fiscal situation doesn’t work out, we can create incentives for community-based treatment.”

For example, let’s say the cost is hypothetically the same of hospital admissions and community treatment. “I can put in the contract that ‘You will get an incentive if you put 80 percent of the patients into a community setting,’” says Nolan. A state Medicaid director can have this kind of leverage through a contract vehicle with managed care, but not with community or hospital providers. “Without that managed care contract, it would be really hard to go against a hospital’s interest in readmissions or a provider’s interest in more visits.”

But there are some “rocky starts” even in states which have carefully planned for a transition to Medicaid managed behavioral healthcare, such as New York. The main problem, says Nolan, is that the community-based provider infrastructure isn’t there. “Providers have to think differently and act differently, and consumers have to do the same,” she says. “That conversion takes time to work through, but the end result should benefit everyone.”