Specialty Health Care, Treatment Patterns, and Quality: The Impact of a Mental Health Carve-Out on Care for Depression

Carve-outs, the management of mental health care by firms that are legally and administratively separate from the firm managing general medical care, have become common in both the public and private health care sectors (Grazier and Eselius 1999). Under a mental health carve-out, an employer, health plan, or state Medicaid program generally contracts with a single managed behavioral health organization (MBHO) to administer, manage, and often insure all necessary mental health care to enrollees. The rapid increase in mental health specialty care has been driven at least in part by the observation that MBHOs reduce mental health spending by as much as 40 percent (Callahan et al. 1995; Frank and McGuire 1997; Goldman, McCulloch, and Sturm 1998; Grazier et al. 1999; Grazier and Eselius 1999; Huskamp 1999; Ma and McGuire 1998; Sturm 1999b;). Additional research has shown that this is not a one-time savings and costs continue to decline as the carve-out gains experience (Goldman, McCulloch, and Sturm 1998; Grazier et al. 1999; Ma and McGuire 1998; Sturm 1999b; The implications of this dramatic organizational change are still not completely understood. While MBHOs appear to deliver on promises to contain costs, dramatic reductions in spending raise concerns about the effect of MBHOs on quality of care. If reduced spending is due to increased contracting efficiencies, the use of strict clinical criteria to eliminate unnecessary treatment, or increased use of effective but less costly treatments, concerns about quality should be allayed. Conversely, if reduced spending is due to across-the-board denials, drastic reductions in service provision to those with severe conditions, or a decrease in appropriateness of care, concerns about quality may be warranted. Empirical evidence assessing the impact of carve-outs on quality of care is limited. Merrick (1998) studied Massachusetts employees discharged from hospitals with major depression and found increases in follow-up care rates and no significant change in 15-day and 30-day readmission rates, suggesting an improvement in quality in the carve-out. Sturm (1999b) examined continuing cost declines in 52 plans of one MBHO and found no correlation between reductions in spending, 30-day follow up rates after hospital discharge, and 30-day readmission rates. The Medical Outcomes Study, a large observational study that followed depressed patients for two years, compared patients whose care was financed fee-for-service with patients whose care was prepaid, a common financing arrangement in mental health carve-outs. These researchers found that patients of psychiatrists in prepaid care were more likely to develop new functional limitations (Wells et al. 1996). While these studies suggest concerns about quality may be unfounded, the narrow indicators considered suggest the need for additional research. In this paper, I examine outpatient treatment for depression, the most prevalent and costly mental illness (Kessler et al. 1994). The analyses that follow differ from previous research in that I link patient's outpatient and pharmacy claims to construct treatment episodes. Because prescription drugs are an effective and common treatment for mental illness, this allows a more complete view of the treatment received. By examining the receipt of antidepressant drugs, I highlight that drug costs may impact estimates of savings. First, I examine changes in the use of antidepressant medication to assess whether previous estimates of cost savings that exclude the cost of drugs may be overstated. To assess quality, I examine whether patients are more likely to receive treatments consistent with published guidelines post–carve-out implementation. To strengthen confidence in a causal relationship, I search for structural breaks in treatment patterns across a wide range of dates, assuming no a priori knowledge of the timing of the impact of the carve-out.