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Chapter 1 of TAP 16: Purchasing Managed Care Services for Alcohol and Other Drug Treatment: Essential Issues and Policy Issues

Chapter 1–Managed Care Overview

Substantial confusion about the meaning of the term "managed care" exists among both the general public and alcohol and other drug (AOD) treatment professionals. For purposes of this document, managed care can be described as "an organized system of care which attempts to balance access, quality, and cost effectively by using utilization management, intensive case management, provider selection, and cost-containment methodologies." Tension naturally exists between the fiscal objective of conserving funds and the clinical goal of providing appropriate, quality services in a timely manner to all those who need them.

Managed Care Models

Since its inception, the managed care industry has moved–and is moving–through several "generations." A basic understanding of the generations of managed care can be helpful in understanding managed care behavior and the maturity of systems (Center for Substance Abuse Treatment 1994; Waxman 1994).

1. The first generation of managed care focused on reducing costs by restricting access to services through such means as overly rigid utilization review, limited benefits, and large copayments.
2. The second-generation managed care organizations (MCOs) manage benefits. They focus on the development of provider networks, selective contracting, increased treatment planning, and a less rigid utilization review process.
3. Third-generation MCOs focus on managing the care of enrollees by emphasizing treatment planning and carrying out more active management of clients through the course of their treatment(s). This involves enhancing the breadth and "seamlessness" of the continuum of care and actively using the least restrictive treatment settings that are clinically appropriate. The MCO may provide highly individualized clinical management for individuals who are at high risk for multiple readmissions or who are particularly challenging to treat.
4. A fourth generation–now being aspired to–is for MCOs to manage by outcomes. This model seeks to focus primarily on the outcomes of treatment and allows great provider autonomy regarding how these outcomes are achieved. To the extent that the field moves toward this "outcomes management" model, research and clinical findings will be fed back to treatment programs, which will in turn provide new data for further analysis. This will create a self-correcting treatment system.

Numerous variations of managed care are rapidly evolving across the country. However, States are most likely to consider only the handful of managed care models that best meet their needs at this time. The most probable models of managed care include health maintenance organizations (HMOs), the managed behavioral healthcare organizations (MBHCOs), and regional integrated service networks (RISNs). Since most State development will be built upon these models, or variations of these models, State AOD directors need a basic understanding of their strengths and weaknesses.

Health Maintenance Organizations

Health maintenance organizations are healthcare organizations that provide and/or ensure the delivery of an agreed-upon set of health maintenance and treatment services to a group of persons for a prepaid amount of money.

The most common form of an HMO is a staff model in which treatment professionals are salaried employees. Other models include:

• A "group model" (contracts for services of treatment professionals in a group practice)

• A "group network" (treatment professionals in a group practice who also accept other patients)

• An "individual practice association" (in an IPA, the management organization administers the plan and contracts with independent treatment professionals who are generally paid a fixed sum of money per person)

• A "preferred provider organization" (in a PPO, the payer directly contracts with individual providers at reduced fees and a guaranteed volume)

For AOD treatment, a theoretical advantage of the HMO model is that AOD treatment is integrated with physical medicine and thus is more in the mainstream of general health care. Many believe that this strengthens AOD treatment services by increasing the understanding of how medical costs are related to AOD-related problems, thus highlighting the high medical costs associated with these problems. In reality, however, HMOs have often provided a very narrow range of mental health and AOD services. The primary care physician–usually the gatekeeper–is often insufficiently trained in screening for, or diagnosing, AOD disorders.

In HMO settings, mental health and AOD treatment services (i.e., behavioral health services) are often overwhelmed by the physical medicine departments. Behavioral health services are often also undervalued, because these disorders are not well understood by health care administrators. Behavioral health services account for only a small percentage (e.g., 3 percent) of the total HMO expenditures, with AOD treatment services accounting for as little as 1 percent. Since AOD treatment services represent such a small part of the total services, they are often relegated to the background and sometimes are not even tracked. As a result, more than half of all HMOs now contract with specialized firms to enrich their behavioral health treatment services and to remain competitive (Levin et al. 1984; Levin 1993; Frank and Salkever 1991).

Managed Behavioral Healthcare Organizations

This general shortcoming in the HMOs led to widespread criticism and to the rise of MBHCOs. These firms provided all, or specified components of, AOD and mental health care to an enrolled population for a prepaid capitated payment. They offered a range of "products" dedicated to managing mental health and AOD treatment needs. This MBHCO industry rapidly expanded from the last half of the 1980s until about 1992. This dramatic growth created a highly competitive environment that resulted in the active involvement of venture capitalists, frequent acquisitions and mergers, and general instability in the industry. During this growth period, financial concerns often took precedence over the quality of care provided to individuals.

The early 1990s brought a period of consolidation that resulted in the domination of about a dozen major MBHCOs. These organizations aggressively established–and continue to establish–contracts with corporations, governments, and HMOs around the country. These companies now collectively cover approximately 80 million lives (Oss 1993).

In an MBHCO, AOD and mental health treatment needs are not overshadowed–as can happen in an HMO–by the dominance of medical needs. However, these services are not naturally integrated with the medical care system. This lack of a natural bridge for linking individuals with necessary medical services can create incentives to shift costs to the medical sector (Christianson 1989). In addition, AOD treatment can be overshadowed by the mental health sector.

Regional Integrated Service Networks

Regional integrated service networks (RISNs) are a group of mental health and/or AOD providers who have formally organized into a functional entity to provide, manage, and/or oversee the delivery of specified behavioral health care to a defined population. The creation of these networks is a fairly recent phenomenon, but is gaining momentum as increasing numbers of providers and provider organizations attempt to respond to the growth of managed care.

These networks–variations of provider-based PPOs–can vary dramatically in terms of their comprehensiveness, sophistication, and marketability. While RISNs may collectively include a full range of needed services, they may lack the capital, technical expertise, and/or experience to participate successfully in the competitive managed care industry. To compensate for this, networks have the option of purchasing administrative services only (ASO) from an appropriate partner to strengthen the network.

In developing the network, State AOD authorities and other policymakers need to make a decision regarding whether or not to join with mental health providers and form a comprehensive behavioral health network tailored to the unique needs of the State. The advantage of doing so is that combined AOD and mental health services are the norm in existing managed behavioral health companies. The majority of the purchasing market is therefore looking for an integrated product. A disadvantage for AOD treatment providers in such networks is that AOD services are usually the smaller component both in terms of programs and in management. The particular circumstances in a given State should dictate whether an RISN should be formed and what its ideal composition should be.

Public Sector and Managed Care

Virtually all Federal and State health care reform initiatives envision the integration of public and private behavioral healthcare systems. Public behavioral healthcare funding streams–from Medicaid, Medicare, the Department of Veterans Affairs, CHAMPUS, State organizations, and other public payers–are now being redirected to purchase privatized behavioral healthcare services. MCOs are increasingly entering this new market niche. These public-private integration efforts will most likely result in rapid growth of privatized service capacity for publicly funded populations.

Until recently, public purchasers and private sector MCOs have been fairly cautious in terms of forming any kind of working alliance. The MCOs were generally focused on surviving in the highly competitive private sector. They often believed that employed enrollees and their families are generally more stable, more predictable, and easier to treat effectively as compared to public program beneficiaries, who were seen as less stable, more difficult to treat, and more expensive to cover (Christianson 1989). Public purchasers were not sure that the models and expertise developed by those serving private-sector clients would easily generalize to more vulnerable and impaired populations.

However, in examining the experience of MCOs in the private sector, government policy-makers have become increasingly interested in experimenting with alternative healthcare delivery systems. The hope is that these alternatives will help contain costs and improve quality of care. As a result, more than 30 States are now in various stages of developing health care reform measures. These almost always incorporate managed care concepts or the direct purchase of managed care services.

Despite this movement, community-based, public-sector providers are often skeptical about the ability and incentives of private-sector MCOs to provide appropriate services for vulnerable populations. They believe that most MCOs are not highly experienced in treating publicly insured clients and lack well-established links with key community-based agencies. Such MCOs would therefore be less effective in successfully serving this difficult treatment population.

Most MCOs, on the other hand, believe that their systems of care can be adapted to meet the needs of these populations effectively. They anticipate the integration of public and private health care systems. Eager to enter this evolving market, they are showing dramatically increased interest in serving publicly insured populations.

The strong interest of MCOs in providing services for public program beneficiaries, combined with the strong interest of public payers in using MCOs to help achieve cost-containment and system development goals, will soon result in greater blending of the "private" and "public" systems of care. The collective challenge to overall health care reform is:

1. To integrate the best of what the community-based public sector treatment systems and the managed care industry have to offer, and
2. To build collaboratively the system of care that will take AOD treatment into the next century.

Current Managed Care/Medicaid Initiatives

Currently, State Medicaid agencies all over the country are developing innovative managed care systems. The Medicaid system now has about 12 percent of its 30 million benefi-ciaries currently covered in some form of managed care, and these numbers are expanding rapidly. These systems are directly affecting, or will be affecting, the delivery of AOD treatment services. State AOD agencies are in a key position to engage actively with State Medicaid systems and become collaborators in developments occurring now and in the foreseeable future.

Two Federal Government Medicaid waivers–allowing States to experiment with new models of care–continue to create opportunities for States to pilot innovative managed care models. The "1115" waiver, the most comprehensive, is used to establish pilot or demonstration projects, usually through a Request for Proposal (RFP) process. The "1915(b)" waiver allows the State to "lock in" Medicaid beneficiaries to certain provider classes and to create central intake systems.

The Medicaid projects–designed to provide more carefully managed, clinically appropriate, and cost-effective care to lower income and more clinically challenging populations–are at the cutting edge of the State healthcare reform movement. The manner by which the government and managed care entities decide and implement the delivery, management, payment, and measurement of care for Medicaid populations is the crucial question. The answer will broadly impact both the direction of healthcare reform and the publicly insured clients themselves.

Massachusetts, Minnesota, Oregon, and Tennessee are some of the most well-known examples of States that are implementing major managed care programs. State programs are described below.

Massachusetts

Massachusetts has one of the most extensive managed care initiatives in the country. In 1992, the State Medicaid agency contracted with a national MBHCO that specializes in servicing the public sector. This MBHCO would manage mental health and AOD treatment services for about 400,000 recipients in Massachusetts. An active collaborative relationship has evolved between the MBHCO, Medicaid, and the State AOD authority.

The project is widely viewed as being both fiscally and clinically successful. Since its inception, the MBHCO has halved AOD treatment costs–largely through eliminating unnecessary hospitalizations, improving overall access, developing useful profiles of program performance, adding new levels of care, and expanding methadone treatment services. It has currently implemented intensive office-based and community-based case management services for the most challenging clients–the addicted, dually diagnosed individuals and/or pregnant women with AOD problems. An independent evaluation detailing the strengths and weaknesses of this project, mandated by the Health Care Financing Administration, is now available (Callahan et al. 1994).

Minnesota

Minnesota has the longest experience in handling the interface of managed care with AOD treatment. Two initiatives–the Consolidated Fund and the Chemical Dependency Treatment Accountability Plan–are now up and running.

The Fund consolidates a variety of AOD treatment funds into a single consolidated fund. The Plan collects data on patient demographics, severity of illness, and treatment placement. It then looks at outcomes by measuring abstinence, utilization of health care services, encounters with the law, on-the-job productivity, and family impact. In an attempt to optimize cost-efficiency and quality outcomes, it will provide better parameters for improving client match to the appropriate setting, treatment modality, and clinical intensity.

Tennessee

In January 1994, by Executive Order, Tennessee implemented a Medicaid waiver that totally replaced its Medicaid system with Tenncare. Under this system, the State minimized its healthcare management responsibility and reduced its costs by contracting on a capitated basis with competing MCOs.

The cost savings have allowed the State to provide total health care with no tax increase to all Medicaid-eligible individuals (about 800,000), plus another 350,000 people who were formerly uninsured or uninsurable.

To be eligible to contract with Tenncare and compete for subscribers, each MCO had to establish a comprehensive healthcare provider network, including AOD services. Some MCOs chose to manage AOD services themselves, while others subcontracted behavioral health (mental health and AOD) to an MBHCO that, in turn, established a provider network.

The minimum AOD benefit package which Tenncare requires MCOs to provide includes two episodes of treatment per lifetime. This minimum has, in reality, become a maximum for most MCOs. Discussions are ongoing about whether to increase or remove this benefit limit, since many people have already exhausted it.

This system will also examine the cost offsets of providing comprehensive AOD coverage. Monitoring, evaluation, and data-reporting to the State by the MCOs is just beginning and reliable data are not yet available. Anecdotal data on AOD treatment show a shift occurring in primary treatment modalities– from inpatient hospital treatment under Medicaid to precertified outpatient services under Tenncare.

Oregon

In 1993, the Oregon legislature enacted a bill that includes AOD treatment in the Oregon Health Plan, a plan designed to provide health care to the uninsured and poor. Oregon's vision was to integrate AOD treatment services fully into a comprehensive set of services that are managed and coordinated via primary care and case management.

These comprehensive services would include medical, surgical, and AOD/mental health services, so that the needs of the whole person can be met. The stated goal was to include AOD treatment services in the plan to reduce the inappropriate use and cost of medical and surgical services.

It was understood by all parties involved with this legislation that AOD treatment services, if provided appropriately, would reduce the other health and social costs that inevitably occur when AOD problems are left untreated. The Oregon Department of Human Resources is the buyer and sets standards, capitation rates, and other requirements for the management of the Plan. The Oregon Office of Alcohol and Drug Abuse Programs (SSA) is charged with implementation of the AOD budget, including development of contract standards, placement/discharge criteria, and screening instruments.

MCOs, mostly HMOs, are the managers of the Oregon Health Plan operating within defined geographic boundaries across the State. These MCOs determine the procedures, amounts and methods of payments, and providers to be used in their geographic area. The State has required that the MCOs must initially plan to refer at least 50 percent of their plan members who need AOD treatment to identified "essential community providers." This is intended to ensure that public safety, welfare, and other public costs are protected during the transition into and implementation of managed care. Essential community providers are programs that previously received funds from the Single State Agency (SSA).

Concerns About Managed Care

Implementing a managed care system is extremely threatening to the status quo. Concerns about managed care abound because of past performance and perceived structural shortcomings. Many fear the potential of an MCO for causing harm to the AOD treatment system and to the vulnerable populations that system serves.

It is important to understand the breadth of concerns that have been raised about managed care. These concerns serve as a collective example of what can happen if a managed care initiative is poorly executed (see table 1). This understanding can be critical to State AOD authorities as they attempt to develop stipulations in their managed care contracts that will effectively guard against such abuses.

In assessing the implementation of managed care, it is essential to understand that MCOs are vendors of a service who have negotiated service contracts with a government agency, private company, or other entity. These service contracts are designed to achieve specified financial, administrative, system development, and clinical goals. Consequently, both the contracting agency and the MCO share the successes and failures of a particular initiative.

The Potential of Managed Care

Managed care, having demonstrated the capacity to contain costs in the private sector, is increasingly being proposed as a possible solution to the many challenges that face public sector purchasers of behavioral health care. It is seen as having the capacity to:

• Develop incentives that increase accountability

• Build an integrated continuum of treatment services

• Contain costs

• Improve outcomes

• Introduce much-needed innovation

Managed care techniques–when properly applied–offer many new opportunities to State AOD systems. Managed care's powerful tools and methodologies can be applied to develop new systems, reallocate finite resources, expand access, improve quality of care, and/or to "jump-start" a treatment system to help it keep pace with the rapidly evolving healthcare system. Any enlightened, systemwide reform should proceed based on an appreciation of how managed care strengths can be used to achieve reform goals and to reform service delivery systems.

Each State and region differs in its specific financial, political, and systems development reform needs. Nevertheless, quality AOD treatment has basic components that cut across these individual circumstances. These components are described below.

Managed Care Needs Assessment

Many State AOD authorities need to decide which path to pursue regarding their relationship with managed care. The AOD authority must first consider carefully the current strengths and weaknesses of the AOD treatment network, the current status of managed care for publicly funded beneficiaries within the State, and the future desired design of the service delivery system. State situations vary widely on many important dimensions. These include:

• Treatment needs

• Client needs

• Stage of managed care development

• Staff and financial resources

• Political support for AOD treatment services

• Relationship with the State Medicaid agency

• Extent of sparsely populated areas

• Affiliation with other State agencies

Conducting an Inventory of the Current System

To achieve maximum benefit, the AOD authority should perform a careful and critical inventory of the current system. It should minimally include:

1. An examination of the resources available to the State
2. Unmet treatment needs
3. Regional and statewide gaps in a full continuum of care
4. Cultural and ethnic capacities
5. Sufficiency of linkages to housing, social, educational, health care, and other services
6. Adequacy of fiscal oversight and accountability
7. Effectiveness of outreach efforts
8. The quality of screening, assessment, and placement processes
9. Maturity and utilization of quality improvement methodologies
10. Breadth and sophistication of the management information system
11. Status of followup data on treatment outcomes

Establishing Priorities

Establishing priorities for system development is a key step when considering a managed care initiative. Questions that can be asked include:

• Is there a preference for uniformity or diversity in services for a specified modality of treatment?

• Is there a preference for a larger number of smaller programs which are joined into a network of services, or for a smaller number of larger programs that have multiple levels of care and services?

• What are the priorities for program expansion or reduction?

• Is rapid development or slower, more measured development more appropriate?

• What services are currently provided at public cost? Which agencies fund these services and is there a consensus in goals?

• Are there currently achievable savings in the AOD treatment system?

• Can medical/surgical costs be substantively reduced by increased access to AOD treatment?

• To what degree are payers, legislators, and the citizens of the State supportive of addiction treatment?

• Who are the key policymakers and what relationships exist? What commitments will they make to AOD services?

The ramifications of the answers to these questions should be carefully assessed to facilitate achievement of desired goals.

Choosing the Optimal Approach

The AOD authority must decide between two options. &nbsp;One is whether to support the development of a comprehensive, "one-stop shopping" approach to service–where a client can receive a variety of medical, educational, and social services onsite along with AOD treatment.

The second option is to support the development of more free-standing, specialty AOD treatment programs–where a client is referred to other community resources for medical care and for educational, social, and other services. The unique set of circumstances in each State should strongly guide the decisionmaking about these options.

To the extent possible, the State should consider whether its long-term goals for the treatment network are consistent with any proposed managed care plan. If the managed care plan does not promote the treatment goals of the State, the State should seek to modify the managed care plan instead of the treatment goals.

Achieving Maximum Benefits

Managed care systems offer a set of specific clinical technologies that can, in the right circumstances and with careful planning, reshape treatment systems to achieve specified goals (see table 2). Managed care is a flexible and powerful tool–with clear strengths and weaknesses– that can be adapted to a variety of circumstances and used to transform systems in desired directions. Misused, poorly managed, or poorly implemented managed care programs can cause great damage. State AOD authorities and other purchasers of AOD treatment services will benefit from doing a thorough needs assessment and then &nbsp;carefully considering the degree and manner in which managed care would be the most appropriate vehicle to implement reform initiatives (H. Bartlett, New York State Office of Mental Health and Substance Abuse Services, personal communication, 1994).

Much of the current expansion of publicly funded AOD treatment across the country results from the expansion of Medicaid AOD treatment services. However, it is important to understand that managed care is only one of the tools available to effect desired changes in the treatment network. There are many ways to change the quantity, quality, and mix of treatment types available in any State. This can be done through regulations, legislation, licensing, oversight, monitoring, and a variety of direct funding and contract schemes. To best achieve the prevention and treatment goals established by the State, it is important to ensure that these efforts work in concert with a managed care plan.

Using Contracts To Achieve Goals

Given the impact that managed care can have, it is imperative that, once a decision is made to use managed care, a strong and well-thought-out contract be carefully developed, closely monitored, and strongly enforced. The contract must specifically address all key areas, clearly specify expectations, outline valid and efficient means to monitor compliance, and have strategies to enforce this compliance. The MCO should submit a written description of how it intends to comply with contract specifications. A well-designed contract will maximize the chance that a given managed care initiative will achieve its desired goals.

For publicly funded treatment, Single State Agencies for AOD abuse treatment are probably in the best position to monitor stipulations of the AOD abuse contract. SSAs should approach State financing agencies and insist on developing and monitoring AOD contract stipulations with MCOs. It is the SSAs' responsibility to manage the MCO vendors effectively, so they ensure compliance with both the letter and the spirit of the contract.

The managing team overseeing the contract must be strong, and any gaps in their knowledge, experience, or skills must be filled through collaboration with others or through consultation services, which are widely available. There should be no confusion whatsoever about the fact that the MCO will be held accountable for achieving specified goals.

The remainder of the MCO contract should focus on key issues relating to AOD treatment and managed care. These include:

• Access to treatment

• Comprehensiveness of care

• Financial considerations

• Consumer protections

The following four chapters in this book discuss how these arenas should be addressed by managed care providers. Three of these chapters contain sample contract language.

Last Updated 11-7-02