WHEN MEDICAID PAYS THE BILLS | Behavioral Healthcare Executive Skip to content Skip to navigation


January 1, 2006
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Behavioral healthcare providers have suffered as Medicaid has become the dominant public-sector payer

Agency leaders in the Department of Health and Human Services have taken exception to statements that federal programs are financing a declining portion of mental healthcare. They point out that Medicaid overshadows traditional mental health block grants as the principal public-sector funding source for this care. If federal contributions to Medicaid are counted, then Washington's financing of public-sector behavioral healthcare is indeed growing.

State budget officers and legislators might disagree with the perspective that federal support is growing. Traditional mental health block grants are lump-sum payments to all states by the federal government, based on total state population. In contrast, Medicaid is a state government option for which the federal government provides funding support. State revenues fund roughly 40% of all Medicaid services, and state policies generally determine residents’ eligibility for the program. Moreover, states can choose to participate in Medicaid or withdraw from the program; for example, Arizona opted out of Medicaid for the program's first 20 years.

However, Medicaid's growing domination of public- sector mental healthcare is real and was charted several years ago in a SAMHSA-funded study conducted by The Medstat Group and The Lewin Group. The study's authors, Drs. Rosanna Coffey and Tami Mark, wrote that Medicaid funded slightly more than one-third of all state and local mental healthcare services in 1987. Less than 12 years later, Medicaid became the reimbursement source for most of public-sector mental healthcare. The study projects that Medicaid will account for two-thirds of all state and local mental healthcare spending by 2017. In contrast, the mental health services block grant to states that operates under SAMHSA's supervision accounts for fewer than two cents of every dollar spent by states and local governments on mental health.

According to Jeffrey A. Buck, PhD, associate director for organization and financing of the SAMHSA Center for Mental Health Services, differences between Medicaid and block-grant funding go far beyond the question of which government pocket the money comes from. U.S. behavioral healthcare policy traditionally has assumed that state governments have a legitimate interest in determining what types of mental health and substance abuse care are made available to low-income residents. In the “bad old days,” this meant that most state governments invested behavioral health resources in state-run hospitals and asylums. During the 1960s and 1970s, public behavioral healthcare funds were shifted by state and federal policy to community mental health centers and to nonprofit providers operating outpatient programs in low-income neighborhoods.

But the growing dominance of Medicaid reimbursement ironically weakens the government's ability to target behavioral healthcare funds to preferred providers. Medicaid does not earmark funding for mental health. Rather, it reimburses “any willing provider” for delivery of a wide range of healthcare services and supplies, which may include medication and clinical care for behavioral health problems. “Any willing provider” means that the patient—or a Medicaid HMO—effectively determines who will be reimbursed by Medicaid for the delivery of behavioral health services.

In practice, this system works to the disadvantage of behavioral healthcare providers. Medicaid expects clinicians to quantify each service delivered to each patient. An outpatient practice that provides a typically eclectic mix of individual, group, and family therapy represents an accounting nightmare for the fee-for-service–oriented Medicaid auditors. Less clinical interventions, such as art therapy and peer counseling, present additional challenges for Medicaid reimbursement.

In contrast, primary care physicians, pediatricians, and general purpose hospitals tend to be winners in the reimbursement sweepstakes because they are familiar with Medicaid practices and focus narrowly on clinical services for the individual patient. They also offer the possibility of “one-stop” service delivery for patients who present with somatic symptoms by performing tests for physical problems in addition to treating psychological conditions.

Medicaid also places restrictions on the type of patient who receives public-sector financing. Under the block-grant system, behavioral health providers often could deliver care to any uninsured low-income individual, regardless of age, gender, or employment status. In contrast, Medicaid patients must document enrollment eligibility. Most states limit eligibility for Medicaid to low-income children under 18 years old, unemployed women of childbearing age, adults with severe disabilities, and the elderly. Uninsured men between the ages of 21 and 65—often the largest group in need of publicly financed addiction treatment—are almost entirely ineligible to receive behavioral healthcare through Medicaid.

Medicaid eligibility also tends to be short-lived. With the exception of young children and the elderly, the average recipient of Medicaid-financed care has coverage for less than one year because of varying state rules and changes in family income. As a result, individuals with chronic behavioral health problems can encounter abrupt termination of long-term care for their treatment when they lose their Medicaid coverage. Similar problems sometimes occurred under the block-grant system, but they reportedly were much less frequent.

Dr. Buck documents that the past two years have seen the differences between block-grant and Medicaid funding of behavioral healthcare take a heavy toll on public-sector behavioral healthcare providers. Among his examples: