Mental health costs and access under alternative capitation systems in Colorado.

To contain costs and manage utilization, public mental health systems across the country are rapidly implementing capitation payment systems and managed care policies. At least 32 states are in some stage of designing and implementing behavioral health managed care programs. The potential for both positive and negative impacts on mental health consumers has been suggested (Mechanic and Aiken 1989; Lehman 1987; Mechanic 1991; Schlesinger 1986). It is expected that the financial incentives introduced by capitation can lead to reduced reliance on institutional and other inpatient care in favor of community-based outpatient care, increased coordination of mental health care, and increased emphasis on preventive care. The net result of these effects would be to contain or lower costs while at the same time maintaining or increasing the quality of mental health care. Alternatively, concerns have been expressed that the strong incentives of capitation to seek cost-efficiencies, if combined with inadequate oversight of quality of care, could result in reductions in access to services or quality of care sufficient to lead to decrements in treatment outcomes in comparison with those obtained under prior financing systems (Mechanic and Aiken 1989; Lehman 1987; Mechanic 1991; Schlesinger 1986). Particular concern has been focused on the impact of capitation on persons with severe and persistent mental illness. Because the level of need, and the use and costs of treatment services for this consumer group greatly exceed the average, it has been anticipated that they would be disproportionately affected (Lurie, Moscovice, Finch, et al. 1992). This group of consumers may be less able or less likely to effectively express, or have heard, any concerns over treatment changes, making them even more susceptible to reductions in treatment quality (Hall and Beinecke 1998). However, it is also well known that persons with severe and persistent mental illness are more likely to be at risk for institutional and other inpatient care, have more complex treatment episodes, and benefit from early detection of, and intervention for, the onset of acute episodes of illness (Young et al. 1997). Thus, it could be equally argued thattheymight disproportionately benefit from the potential positive treatment changes, as noted above, that are also expected from capitation financing. Most of the mental health services research in this area has focused on how capitation or managed care have led to shifts in utilization and reduction in aggregate costs and utilization. For example, in a two-year study in Rochester, New York, capitation resulted in reduced costs, but the rate of savings decreased over time. At the end of the first year the authors found costs had declined by 14 percent but by the second year costs had declined by only 8 percent. The cost reductions were a result of increased intervals between inpatient care episodes (Lurie, Moscovice, Finch, et al. 1992; Hall and Beinecke 1998; Young et al. 1997; Babigian et al. 1993; Cole, Reed, Babigian et al. 1994). In Massachusetts, Medicaid expenditures were lowered 27 percent compared to levels expected based on prior trends. Because the entire state was capitated, evaluation was limited to pre–post comparisons (Dickey, Normand, Azeni, et al. 1996; Frank and McGuire 1997). Cost savings were also found in the first-year results from the mental health capitation project in Utah (Christianson, Manning, Lurie, et al. 1995). Significant reductions in inpatient expenditures in the capitated sites in Utah were concentrated in consumers receiving Aid to Families with Dependent Children. Compared to non-capitated sites, no reductions in outcomes were reported for these subjects but decrements in functioning and symptom scales were found for the schizophrenic client sample (Lurie et al. 1998). Changes in the process of care were also reported, including a greater likelihood of a patient's terminating treatment or being lost to follow-up and a reduction in standard outpatient therapy visits (Lurie et al. 1998; Popkin, Lurie, Manning, et al. 1998). A pilot program in California reported that capitated funding provided service flexibility and shifted services towards rehabilitation; this study did not examine whether there were cost savings (Chandler, Hu, Meisel, et al. 1997). In Minnesota, 35 percent of all Medicaid recipients, including people with severe mental illness, were randomly assigned to health maintenance organizations (HMOs) for physical and mental health coverage. Only short-term outcomes (6 to 11 months) could be assessed because adverse selection led to the termination of this capitation demonstration. Differences in use, expenditures of community-based treatment, or outcomes were not found for those assigned to the capitated payment plan, including consumers with severe mental illness (Lurie, Moscovice, Finch, et al. 1992; Christianson and Gray 1994). Consistent with these findings, one-year results in Colorado's Medicaid mental health capitation program also found reductions in both inpatient costs per user and probability of outpatient service use without measurable short-term outcome change (Bloom, Hu, Wallace, et al. 1998; Cuffel, Bloom, Wallace, et al. 2002). However, these studies also suggest the importance of multiyear follow-up in assessing the impact of capitation on costs and outcomes. A common focus of these studies—and central to assessing the impact of capitation policy—is the development of estimates of the change in aggregate costs and utilization due to capitation financing. Studies in both public and private mental health capitation have found that capitation financing does indeed lead to cost reductions. In fact, the cost savings due to capitation are relatively high. Frank and his colleagues suggest that a magnitude of 24 to 48 percent can be expected (Frank, Koyangi, and McGuire 1997). Missing from many studies, however, is information on how these changes in utilization and cost come about. Particularly, how patterns of treatment access and intensity change at the individual and system level. Cost decreases due to capitation are often expected to occur through substitution of less expensive outpatient services for more expensive inpatient services. Though reductions in inpatient cost or utilization are common elements in capitation study findings, evidence of outpatient increases or substitution are not. This potential discrepancy simply highlights the fact that system-level change involves a variety of individual and sub-group dynamics that cannot be easily generalized. However, to fully assess, develop, and perfect the use of capitation and other prospective payment mechanisms, one needs to identify the path from individual to system dynamics. Changes in access to and intensity of service use are focal elements. These measures need to be identified in the context of different consumer, provider, and payer characteristics. This paper presents findings through the first two years of Colorado's capitated payment system for Medicaid mental health services on patterns of cost, utilization, and access. The study incorporates several levels of analysis to clearly identify the impact of capitation on the treatment process. These include (1) separate analyses of the probability of service use at a point of time and level of treatment expenditures given that services are used; (2) separate analyses of important treatment services (i.e., local inpatient care, state hospital care and outpatient care), that are important substitutes from a cost and treatment standpoint; and, (3) analyses of consumers' perceptions of access to and the provision of treatment. Analyses of the outcomes of care for this same group of consumers in Colorado under capitation financing are presented in a separate paper in this issue (Cuffel, Bloom, Wallace, et al. 2002).