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Medicaid Realignment: Boon or Bane for Behavioral Healthcare?

May 21, 2012
by Ron Manderscheid
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How will behavioral healthcare clients fare under proposed Medicaid realignments?

Reports are now available from a growing number of states about major efforts to realign Medicaid programs. Almost always, the impetus is financial, i.e., the need to contain costs; sometimes, it also has ideological overtones, e.g., the desire to alter population coverage, to convert the program to a block grant, to create an omnibus waiver, etc. A key question for us in each of these proposals is how behavioral healthcare would fare under these changes.  Here, I would like to explore some of the features of these proposals and their implications for behavioral healthcare.

Contracting Medicaid Out to a Managed Healthcare Entity. Although we can expect that all Medicaid benefits will be managed in the future, two very important distinctions need to be made. First, it is very important that behavioral healthcare funds remain carved out, i.e., Medicaid funds for behavioral healthcare services remain separated from Medicaid funds for healthcare. This will assure that these funds will not be reallocated either deliberately or inadvertently to healthcare services. Second, it also is very important that management be done by an entity that has direct experience with behavioral healthcare service delivery. This may be a new not-for-profit entity specifically created for this purpose by a state behavioral healthcare association, a national or regional managed behavioral healthcare entity with a proven track record, or some combination of the two.

Moving Rapidly to Integrated Health Home Care.  Although whole-health and person-centered care can be achieved through integrated health homes, their development must be planned and staged. One simply cannot take a field, such as Intellectual and Developmental Disability Services (I/DDS), which has been separately organized and operated since the middle of the twentieth century, and integrate it successfully with primary care in a three to six month period. Such a move would cause severe dislocations for clients who are served as well as massive disorganization of the current specialty service system. Carefully planned, staged changes are needed. As an example, behavioral healthcare already has been planning for such changes for several years through discussion, technical assistance, etc. Even in behavioral healthcare, much remains to be done to complete successful integration strategies. For example, it will be very important to apply the newly-announced  Medicaid options and state plan amendments going forward.           

Failure to Incorporate the 2014 Medicaid Expansion into Current Planning.  In some instances, states are proposing adjustments to current Medicaid programs without also considering how the anticipated 2014 Medicaid Expansion will affect the proposed realignment. For example, if a state elects to narrow the population coverage of its Medicaid Program now, it cannot incorporate these same persons into the 2014 Medicaid Expansion at the higher rate of federal financial participation. These persons must be reincorporated into the Medicaid program for which they qualified previously at the lower rate of federal financial participation.





Thanks for sharing your thoughts on strategy for protecting Behavioral Healthcare as Medicaid is realigned. Frankly, as I read your blog, it occurred to me that you really were talking about Behavioral Healthcare (main title) rather than Behavioral Healthcare clients (subheading) since your recommendations seem to overlook that fact that the majority of Medicaid, public program, and non-insured patients/clients experiencing mental health and substance use disorder challenges are actually seen in the primary and specialty medical setting, not the mental health setting. If you were fostering better outcomes for this majority of behavioral health patients/clients, you would not be talking about protecting “carved out” reimbursement. Rather, you would be looking to create better access to behavioral health services where the majority of patients are seen, i.e., the medical settings.

It should not surprise me that your recommendations endorse conservative handling of behavioral health funding even in this time of health reform since your constituency is composed of Community Behavioral Health and Developmental Disability Directors. Nonetheless, I guess I expected more since you are a knowledgeable advocate for behavioral health in general and would recognize the importance of pushing the envelop on behalf of the entire population of patients/clients with behavioral disorders.

I have been heavily involved in the development of Health Exchanges in Minnesota. As a part of that process, we have also been trying to keep abreast of Exchange development in other states. As I am sure you are aware, it is through interaction with Exchanges that Medicaid realignment will occur and potential progress can be made on behalf of behavioral health patients/clients. As a part of this process, we have been heavily involved in discussions about essential benefit sets, wrap around services, care coordination, and how all health benefits should be adjudicated moving forward. As a part of the process, I do not share your pessimism about what is possible through the reform activity.

As you might expect, I have been a strong advocate for choosing an essential benefit set that includes robust behavioral health benefits. Unlike the recommendations that you encourage, however, if we are going to improve behavioral health services for the majority of those with behavioral health conditions and/or concerns, it is necessary that they also be readily available in Medicaid clinics servicing the medical/surgical health needs of patients. It is only possible to do this by making behavioral health a part of the rest of medical benefits in all health insurance policies, i.e., behavioral benefits will roll into medical so that payment for coordinated care can occur regardless of setting. Managed behavioral health carve-outs (and carve-ins) will no longer be needed to manage segregated behavioral health. Competing budgets will disappear.

Integrated benefits makes a lot of sense from both a health and cost perspective. The 60% of behavioral health patients receiving no treatment and the additional 20+% receiving inadequate treatment in the medical setting could now have access to behavioral health providers that could bill and be paid in the medical setting. From a cost perspective, a high percentage of those with behavioral health problems in the medical sector have chronic and/or complex medical problems. Unless, these individuals are exposed to outcome changing behavioral health treatment where they prefer to be seen (medical setting), data shows that they will predictably have medical treatment resistance, poor control of their medical conditions, increased medical illness complications, health related impairment/disability, and persistent high health care costs. Needless to say, without behavioral health treatment, their behavioral health conditions will also persist.

Savings generated by reduced medical service use associated with effective behavioral health treatment for these patients/clients would more than cover the extra cost of behavioral health specialists in the medical inpatient and outpatient settings if implemented correctly. They would also allow specialty mental health sector services to continue for seriously mentally ill patients. With the carve-out/carve-in system’s competing budgets, none of this is possible.

Nothing worth having is easy to get or without pain. I agree that as the system changes to one in which behavioral health services become available in the medical setting, behavioral health professionals will need to actively participate in payment reform decisions to insure that adequate funding for behavioral health services in both the medical and mental health sectors is supported. We cannot expect practitioners and administrators in the medical sector to be familiar with the now robust literature that shows potential for health improvement and cost savings in numerous and various medical settings when value-added behavioral health services are included. Interestingly, the reverse is also true when medical service delivery is available in specialty mental health settings. Parity alone will not get us there.

Since the data is robust, we are in a very good position to argue effectively. In fact, data suggests that funding for behavioral health services from a “total budget” should increase rather than decrease. Since the medical budget is 94% to 98% of the health care spend, bumps supporting effective behavioral health service is inconsequential compared to other medical costs, particularly when there is a potential for health improvement, cost savings, and a better coordinated patient experience (the Triple Aim). Unfortunately, few in behavioral health have chosen to look at the glass half-full picture of Behavioral Health realignment since it is so easy to think about the money we could lose from an already meager behavioral health budget.

Since this is a comment related to your Behavioral Healthcare Blog, lets return to your principles:

1. Agree that utilization management will become less prominent (though there will be some) and that clinically integrated networks will be expected to strive for the Triple Aim (improved patient experience, better outcomes, reduce cost) by effectively supporting services through a global budget. Do not agree that the absence of behavioral health professionals in the medical setting, which is virtually assured by a continued “carve-out” or “carve-in” payment system, will allow behavioral health professionals to contribute an important piece to this puzzle.
2. Since behavioral conditions are so prevalent in the primary and specialty medical sector, integration necessarily requires active involvement of behavioral health specialists. Having worked for a large health plan that hired me to integrate their medical and mental health business practices, I learned that it is impossible to systematically support behavioral health services in the medical setting and medical services in the behavioral setting when “carved-out” or “carved-in” payment procedures are used. The two budgets always compete. “Which doesn’t have to pay?”

Thus, I totally disagree that carved-out/carve-in benefits should continue. Rather, we behavioral health specialists should be arguing aggressively for behavioral health benefits to become just a part of medical benefits (No Health without Mental Health, as the World Health Organization would say). I call this “integrated benefits.” They are not separate. Specialty behavioral health programs, e.g., CMHCs, would be supported much as specialty medical, e.g., dialysis or rehabilitation programs, within one budget, but they would also be routinely available in the primary medical setting.

Since there will necessarily be a transition, as with any change, there is the potential for clinical services to be disrupted and for patients/clients to experience inconveniences and even interrupted care. To the extent possible, we should do everything we can to minimize adverse clinical effects to patients but not to stop the transition. During the transition, we should also be participatory in the change process, using the data to demonstrate the value that we can bring and the support that we should receive. Importantly, programs should bring value to patients regardless of setting.

3. Agree that disease prevention and health promotion will increase but this should be coordinated with our medical/surgical colleagues. Mental conditions are predictably associated with poor medical outcomes and with high cost, and vice versa. There are good clinical and fiscal reasons that value-added behavioral and medical disease prevention and health promotion in both the behavioral and medical settings should be supported. Why separate them?

I am pleased that you published this piece. It has given me a chance to provide a different view of the world and to suggest an alternative approach. Whether we like it or not, we are in period of health care foment. Because this is true, it is possible to suggest fundamental change with the possibility that it may actually occur. With change there will be winners and losers, including health care programs, clinical positions, and access to smooth patient care. On the other hand, we live in a care delivery and reimbursement environment, which is fragmented, inefficient, ineffective, and bankrupting. A major component in this is the way that behavioral health is handled vis-à-vis the rest of health.

We are doing our patients no favor by tweaking the edges of a dysfunctional system.

If we do not make behavioral health benefits a part of medical benefits as a part of this reform movement, starting with Health Exchanges, we may not have another opportunity for another quarter century. Fragmented medical and behavioral care will persist. Segregated behavioral health services will continue to be retched down even from the meager support we currently get. Perhaps most importantly, however, the large percentage of patients seen in the medical setting who get virtually no mental health treatment will continue to suffer and die earlier than they should.

Roger Kathol, M.D.

Carved-out managed behavioral health is often cited as one of the top barriers to integration of behavioral and medical healthcare. It creates difficulties with financial and organizational management, provider panels, and truly integrated care for the patient. The carve-out situation also does not typically provide balanced incentives for the carved-out managed behavioral health organization and the managed medical care organization. I question the wisdom of promoting maintenance of carved-out behavioral health and would like to know how the author would anticipate overcoming the barriers to integrating health if managed behavioral health did remain carved-out.


(Since my first comments have not been accepted yet, I am uncertain whether they will. If they are, offliine, Dr. Manderscheid and I have been sharing correspondence, which would be of potential interest regarding this topic.)


Thanks ever so much for your very thoughtful response to my blog posting on “Medicaid Realignment: Boon or Bane for Behavioral Healthcare?.” I think that you and I do want exactly the same things—better care, better outcomes, and reduced costs—for persons with behavioral health conditions.

I envision that good care integration will take place in medical settings and in behavioral health settings. Clearly, the goal is to provide whole health, person-centered care that addresses the full spectrum of a person’s needs irrespective of setting. If we are astute about it, we also will include disease prevention and health promotion interventions in these settings to delay or prevent the onset of chronic illness, and we will assure that social wrap-around services are available to improve the effectiveness of the prevention and health care services that are actually delivered. Direct work with communities to address problematical social and physical determinants of health also will be necessary.

As we implement this vision, good behavioral health services in medical settings and good medical services in behavioral health settings have the potential, as you note, to reduce overall care costs while improving outcomes. The current failure to do this results in premature mortality of at least 25 years for public mental health clients and up to a million deaths every five years from heart attack or stroke. Many of these deaths are preventable.

Yet, at present, two competing forces clearly are at play: the promise of reform and the drag of the recession. Reform holds out the promise of new health insurance coverage for 32 million persons, implementation of health homes through ACOs, better quality care, and performance assessment, among other things—the reforms you talk about. The recession holds the threat of dramatic cut-backs in Medicaid population coverage, reduced service packages, and smaller provider reimbursements—which you have not discussed. At present, it is not clear to me how these two competing forces will meet or what will be the net effect.

In today’s recessionary environment, program managers frequently engage in overly simplistic or even magical thinking in the quest for financial savings, e.g., “we can achieve full integration by January 1 of 2013” or “we can begin managing all of our eight Medicaid programs in exactly the same way within 6 months.” We must advocate against such proposed instant fixes. You and I both know that they won’t deliver as planned. The consequence will be that many clients, providers, and program will suffer unnecessarily.

In a more ideal world, good integrated care with integrated funding ought to be an achievable goal. However, in my opinion, it is necessary to shepherd behavioral health care funding in today’s cut-back environment. Parity will not carry the day for us in this regard.

I do think that it is fully possible to integrate care delivery without simultaneously integrating funding. Several of the new state Medicaid 1115 waivers are based on this premise. Similarly, a number of service integration demonstrations are already operating in this financial environment. We are actually learning how well this works as it happens. Clearly, we would be in a much better position today if we had actually begun such integration work much, much earlier.

I hope that we will continue to communicate about integrated care and its financing. I have great respect for your work and that of your colleagues, and I wish you the very best.


Ron Manderscheid, PhD
Executive Director,
Natl Assn of Co Beh Hlth & Dev Dis Dirs/
25 Massachusetts Ave, NW, Ste 500
Washington, DC 20001
The Voice of Local Authorities in the Nation's Capital!
202-942-4296 (O); 202-553-1827 (M);


Thanks for your thoughtful comments in reply to my “alternative view.” I agree that we are after the same ultimate outcome, i.e., better behavioral health access and care, but still have different positions on how to get there and who our constituency is. You have raised several important questions that deserve response. I will address your concerns about the reform/recession conundrum and then talk about strategies on how to implement value-added, cost saving behavioral health programs as a part of a truncated reform implementation.

There are several levels needing attention related to the reform/recession discussion. Many of my comments will come from what I learned while working at a large medical health plan that owned (carved-in) its behavioral health and then while consulting to many other carved-in and carved-out general medical health plans that have been interested in better addressing support for behavioral health services.

First, according to the Kaiser Foundation, around 1.8% of total health spending has been for mental health and substance abuse (MHSA) between 2004 and 2009. In other studies and databases, this varies by population from 1% to about 6% but is consistently going down year-by-year as a portion of the total health budget. The downward spiral started in the 1980s when independent behavioral health management started to grow. Thus, as an industry, behavioral health has done poorly in advocating for its funding in relation to medical health. Projections by Levit et al suggest that this downslide, though less than in early years, will continue if behavioral health continues to be funded in a separate budget.

Second, the vast majority of spending on substance use disorders (79% in 2005) and mental health (61% in 2005) comes from public programs. This is much more than public program payment for medical services (46% in 2005). As you are aware, the proportion of behavioral health funding by public payors is gradually increasing for our patients/clients. Thus, any national recession hits behavioral health patients/clients much harder than those with other medical conditions.

These facts lead one to wonder why the behavioral health industry would want to remain separate from other medical benefits. To me, the answer is perverse. Behavioral health providers have been brainwashed into “protecting” their 1% to 6% (average 1.8%) behavioral health budget for the 15% to 20% of total MHSA patients that they treat in the mental health sector. We tend to forget that 80% of MHSA patients are actually seen in the medical sector. Most are not treated or are ineffectively treated even though the total number projected to have SMI is even larger in the medical sector than those treated in the behavioral health sector. Since virtually all payment goes for treatment in the behavioral health sector, 80% of behavioral health patients have no advocate for their care and are hung to dry. The behavioral health industry, paid exclusively by carved-out and carved-in payors, say little about the needs of this huge population since it could affect their payment for 20% of MHSA patients in the behavioral health sector.

Logically, several opportunities arise if behavioral health service payment becomes a part of the medical budget. It automatically makes behavioral health care a part to the total health picture. Thus, behavioral health would be collaborating with medical colleagues in arguing for specialty behavioral health and integrated programs that will enhance total health and potentially decrease total cost. Importantly, behavioral health providers and patients would be drawing on the total health budget (100%) as its source for funding rather than the residual 2%.

If MHSA would become part of medical benefits, they would also be at the negotiating table as total health service support is divvied up. The way that it works now, behavioral health largely gets the leftovers after decisions have been made related to the rest of the medical budget. That is one of the reasons that disproportionate care funds and grants are so important to support for behavioral health services. The leftover budget doesn’t come close to covering mental health needs even in the mental health sector.

We now live in a “parity” world. If behavioral health were part of medical benefits (real parity), then there is potential for a greater percentage of patients with behavioral health conditions to be covered by private insurance for their behavioral disorders. This is certainly true in Minnesota if Exchanges are administered as private insurance products. Patients in public programs would actually have the choice of remaining in a public program, such as Medicaid, or moving to a “private” insurance product. This is a huge factor for patient access to services. It also speaks to levels of payment for behavioral health professionals. Finally, it would lessen the impact of recession on behavioral health patients since fewer would be subject to political budget vagaries. Behavioral health, however, has to be at Exchange discussions to make sure that Exchange benefit packages contain support for all patients with behavioral health conditions.

Let us now turn to behavioral health strategies that could be considered if health reform was accompanied by an integrated medical and mental health budget. First, a combined budget could foster better access to cross-disciplinary care, both behavioral health services in the medical setting and medical services in the specialty behavioral health setting. In the current reimbursement environment, the number of workarounds to allow this to happen is daunting. In Minnesota alone with the DIAMOND project, literally hundreds of independent additional contracts need to be written between each clinic and the various health plans just to cover the costs of behavioral health personnel addressing depression needs of primary care patients. Interestingly, few pay behavioral health specialists directly and many of the health plans pay from “foundation funds” or grants rather than benefit dollars.

You indicate in your response that it is possible to support integrated programs yet maintain separate payment for behavioral and medical services. Technically, this is correct. Workarounds are always possible, however, systematic implementation is nearly impossible. All you need to do is look at the Center for Integrated Health Solutions billing tools link to see how complicated this is state-by-state for FQHCs and CMHCs billing only Medicaid or Medicare. Why would a primary care or multispecialty clinic want to go to the hassle to bill for mental health services in their setting when it is so complicated and evidence shows that it will be a money loser anyhow? While making behavioral health benefits part of medical benefits would not solve all problems, e.g., same day billing, support for care management, it would create a “we” approach to coming up with solutions rather than an “us” “them” approach.

This gets us to the final issue for comment, i.e., creating value (improved health and cost savings [and a better patient experience]) during a short transition timeline. I do not suggest that things will be perfect from day one but they can certainly be better than they are today if the behavioral health industry starts collaborating with its medical colleagues. Importantly, this goes both ways, i.e., medical care for patients in the behavioral health setting and behavioral health care for patients in the medical setting. It starts with thinking smart about prioritizing the delivery of care. In fact, there are good models to draw from, such as the chronic care coordination programs of Joe Parks et al in Missouri, the TEAMcare program of the Washington University group, the proactive psychiatric hospitalist approach suggested by Desan et al, and many others.

To get to the Triple Aim, we need to think about what in our service delivery programs bring value and what do not. The programs that bring value should be prioritized. For instance, many SMI patients in the CMHC system have significant comorbid medical conditions that predict worse outcomes and higher cost, yet they have significant trouble accessing medical services. Further, many ACT team professionals have little training in assisting these patients in getting needed medical/surgical services. As a result, ER use and inpatient medical hospitalizations are the expense and generally ineffective default. A value-added prioritized program, therefore, may include training ACT professionals in integrated care coordination techniques, coordinating medical and behavioral services under one clinic roof (consolidated CHCs and CMHCs), and/or setting up medical service delivery in the CMHC setting. This is all much easier when behavioral and medical budgets are one and professionals on both sides work together on behalf of the whole patient.

On the medical side, the strategy could include incorporation of inpatient and outpatient behavioral health teams to service the MHSA needs of primary and specialty medical patients, but especially those with chronic medical illnesses and complex health care needs. By targeting high need, high cost patients first and making sure that behavioral health professionals with the expertise to change outcomes are active participants on the teams, it is possible to maximize both clinical and fiscal value and to open the door for expanded behavioral health services to less complicated patients through savings generated. Likely this is where a portion of disease prevention and health promotion dollars could come from. Since 60% to 80% of chronically ill complex patients have behavioral health comorbidity, less time will be needed for screening and more patients will benefit from specialty mental health service support.

If you run the numbers for each of these value-added programs, we are talking about high dollar savings potential (see Melek, Milliman publication). Such programs, however, are not possible in the carved-out system since payment for medical practitioners in the behavioral health sector is complicated. On the medical side, direct payment for the clinical services by behavioral health professionals in the medical setting is nearly impossible to accomplish without major hassle. Carved-in and carved-out behavioral health payors have a significant financial incentive to make this so. That is why so few behavioral health specialists work in medical settings. Even then, reimbursement amounts are typically insufficient to cover professional direct and indirect costs. Adding behavioral health professionals is a non-starter for most primary care clinics for the reasons described above.

Lastly, and importantly, the majority of total health care spend for behavioral health patients is for use of medical services (80%). When value-added behavioral health services result in savings, two things typically happen. First, more behavioral health “evidence-based” (outcome changing) services are delivered (increased behavioral health costs) during the first 6 months. Yes, we are paid more. Second, stabilized MHSA conditions lead to less medical service use during the next 6 months and offsets the higher initial MHSA costs. In the second year, savings persist mainly from lower medical service use and can do so for up to 4 years after effective long-term mental health improvement has occurred (see Unutzer et al). In the behavioral health sector, better medical health care also leads to savings. Again, primarily on the medical side.

So to which providers/payors do medical savings accrue? How do you divide them fairly? Logically, the networked medical and behavioral practitioners should be paid fairly for the value-add that they bring in terms of time and expertise. This is a challenge when independent payors have little incentive to do so unless payment from their purchasers or profits support this business decision. It gets even dicier to distribute proceeds to competing medical and behavioral health payors contributing to the added cross-disciplinary value. In fact, why are two payors needed? It is more complicated to get buy in on the front end to set up the integrated programs because of worry on the back end about where and how the savings will be distributed. It would be so much less complicated if “health” was the goal and medical and behavioral stakeholders would work together to accomplish it as a part of a single payment process.

This response is way too long but the questions in your reply are also likely questions that other leaders in the behavioral health industry have related to this topic. They are not ones that can be readily answered in a single paragraph. It is my firm conviction that national behavioral health leadership should be looking at the “health” picture for all behavioral health patients. It will be better not only for the 80% now getting little or no MHSA care but, in the long run, also for those seen primarily in the behavioral health setting.
I have added writing this response to an already very busy schedule since it has allowed me to share thoughts about behavioral health services to which I think few in the behavioral health industry are exposed. It is an important time for behavioral health leadership to expand its perception of possibilities since there are unique opportunities today that may not be possible in as few as five years. It could be that behavioral health leadership will remain on the carved-out/carved-in behavioral health bandwagon. It should, however, realize that in doing so it is putting the majority of behavioral health patients at risk for poor total health outcomes.

My question to you is how you and other leaders in the behavioral health world propose to address the behavioral health needs of the 80% in the medical sector if carved-out and carved-in payment practices persist? Carve-outs and carve-ins have no intention of extending their meager budgets to service delivery in the medical setting. Medical benefit managers and practitioners, though working with a much larger budget, do not see behavioral health as a part of their accountability. Fragmented care in segregated medical or mental settings does not typically allow the coordinated care necessary for total health outcomes. Since payment drives practice, what options do you suggest?

Finally, similar to the closing comments in your reply, I certainly respect the work that you have done on behalf of patients with behavioral conditions. We have been working in challenging times with few clear options. Hopefully, we will come to the other side of health reform in a better position on behalf of all patients/clients with behavioral challenges. Best.

Roger Kathol, M.D.
President, Cartesian Solutions, Inc.


Ron Manderscheid

Exec. Dir., NACBHDD and NARMH

Ron Manderscheid


Ron Manderscheid, Ph.D., serves as the Executive Director of the National Association of County...

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