Managed behavioral health care and supply-side economics. 1998 Carl Taube Lecture.

Background Within the past decade, the mental health care system in the United States has undergone a significant transformation in terms of delivery, financing and work force configuration. Contracting between managed care organizations (MCOs) and providers has become increasingly prevalent, paralleling the trend in health care in general. These managed care carve-outs in behavioral health depend on networks of providers who agree to capitated rates or discounted fees for service for those patients covered by the carve-out contracts. Moreover, the carve-outs use a broader array of mental health providers than is typically found in traditional indemnity plans, encourage time-limited versus long-term treatments and favor providers who are engaged in outpatient care. This phenomenal growth in managed behavioral health care over the past decade includes the rapid growth and quick consolidation of mental health MCOs. The period 1992–1998 shows steady and substantial annual increases in the number of enrollees in mental health MCOs, the figure more than doubling from 78.1 million people in 1992 to a projected 156.6 million in 1998, or 70% of insured lives. Moreover, these vast numbers of enrollees are becoming increasingly consolidated into a smaller number of firms. In 1997, 12 companies controlled nearly 85% of the managed behavioral health care market, with 60% of the market held by the three largest firms. Study Aims This article reviews empirical data and draws policy implications from the literature on managed behavioral health care in the United States. Starting with spending and spending trend estimates that show the average annual growth rate of mental health expenditures to be lower than that of health care expenditures in general over the past decade, the author examines utilization and price factors that may account for managed-care-induced cost reductions in behavioral health care, with special attention to hospital use patterns, fee discounting and the supply and earnings patterns of various types of mental health provider. In addition, data on staffing ratios and provider mixes of health maintenance organizations and mental health MCOs are reviewed as they reveal at least part of the dynamics of reconfiguration of the mental health work force in this era of managed care. Conclusions As measured by changes in utilization and price, widespread application of ‘classic’ managed care techniques such as preadmission review (gatekeeping), concurrent review, case management, standardized clinical guidelines and protocols, volume purchase of services and fee discounting appears to have led to significant cost reductions for providers of both impatient and outpatient mental health services. However, amidst a complex flux of market variables such as risk shifting, changing financial incentives and intensity of competition, not all of the reduction or slowdown in spending can be clearly and purely attributed to managed care. The data on the ongoing reconfiguration of the mental health work force are clearer in their implications: with an oversupply of all types of mental health providers, managed care has significant potential to increase the incidence of provider substitutions and spur the growth of integrated group practices. Implications for Further Research The current body of empirical and policy literature in mental health economics suggests several salient areas of follow-up. Is the proportionately greater impact of managed care on the annual growth rate of mental health care spending a temporary phenomenon or does it signal an enduring difference in the rates of increase between behavioral health care and health care in general? Beyond industry downsizing, what are the substitutions among mental health providers that are going on, and will go on, to produce cost-effective practices? What are the new financial or risk-sharing arrangements between providers and MCOs that will produce appropriate and high-quality mental health services? Copyright © 1999 John Wiley & Sons, Ltd.