Beyond the Water's Edge: Charting the Course of Managed Care for People with Disabilities--Conference Resource Book (continued)

TAB 6: Track I: Managed Care for Children and Adults with Disabilities

PDF Version

OVERVIEW

Moderator Biographics

• Brian Burwell
• Sandra Tanenbaum

Managed Care for Children and Adults with Disabilities (Burwell and Tanenbaum)

SESSION 1: IMPACT OF MANAGED CARE ON CHILDREN WITH DISABILITIES

Reactor Biographies

• Ruth E.K. Stein
• Nancy R. Thaler

Evaluation of the District of Columbia's Demonstration Program: Managed Care System for Disabled and Special Needs Children (Irvin)

Families' Out-of-Pocket Expenses When Caring for Children With Special Needs: A Preliminary Report Comparing Children in Medicaid and a Commercial Product Line-- Presentation Summary (Shenkman)

The Managed Care Enhancement Project for Children with Special Health Care Needs (Allen)

Planning Grant: Services for Children with Chronic Illness and Disease in an HMO (Staub)

State Medicaid Managed Care Policies Affecting Children with Chronic or Disabling Conditions (Fox, McManus)

Families' Out-of-Pocket Expenses When Caring for Children With Special Needs: A Preliminary Report Comparing Children in Medicaid and a Commercial Product Line (Shenkman)

Managed Care Enhancement Project for Children with Special Health Care Needs: Family and Primary Care Clinician Needs Assessment Methods and Description of Survey Respondents

Managed Care Enhancement Project for Children with Special Health Care Needs: Primary Care Clinician Survey--Mail Survey

Managed Care for Children with Special Health Needs: Parent Survey

Overall Findings of Needs Assessment

SESSION 2: IMPACT OF MANAGED CARE ON ADULTS WITH MENTAL ILLNESS

Reactor Biographies

• Howard R. Goldman
• Michael F. Hogan

Severely Mentally Ill HMO Members (McFarland)

Colorado's Early and Preliminary Experience with Capitation for the Severely and Persistently Mentally Ill Adults (Bloom)

The Effects of Private Sector Mental Health Carve-Outs (McGuire)

The Massachusetts Mental Health System Change (Dickey)

Costs and Incentives in a Mental Health and Substance Abuse Carve Out (Ma, McGuire

Enrollment Duration, Service Use, and Costs of Care for Severely Mentally Ill Members of a Health Maintenance Organization (McFarland, Johnson, Hornbrook)

Managing the Care of Schizophrenia: Lessons From a 4-Year Massachusetts Medicaid Study (Dickey, Normand, Norton, Azeni, Fisher, Altaffer)

SESSION 3: IMPACT OF MANAGED CARE ON ADULTS WITH AIDS OR PHYSICAL DISABILITIES

Reactor Biographies

• Gerbon DeJong
• Tony Dreyfus
• Lex Frieden

Access, Use, and Satisfaction of the Under 65 Medicare-Disabled in HMOs and Fee-for-Service (Gruenberg)

How the Oregon Health Plan Serves People With Disabilities: System Design Issues and First-Year Impacts (Rosenbach)

Comparison of Physician and Hospital Use Among People with Chronic Illness in HMO and FFS Plans (Fama)

A Managed Care Program for Working-Age Persons with Physical Disabilities (Batavia, DeJong, Burns, Smith, Melus, Butler)

A Vision for the Future: Interview with Gerben DeJong, Ph.D. (Prince, Haas)

Perspective and Analysis--Market Forces: Medical Rehabilitation Undergoing Major Shakeup in Advanced Managed Care Markets (DeJong, Wheatley, Sutton)

Surviving Managed Care and Preparing for the Next Revolution in American Health Care (DeJong)

OVERVIEW

Moderator Biographies

Brian O. Burwell
Brian Burwell is the Director of Healthcare Organization and Economics within the Research and Policy Division of The MEDSTAT Group. The MEDSTAT Group is a healthcare information company which provides databases, analytical software and consulting services to employers, managed care companies, insurers, providers, and government, with headquarters in Ann Arbor, MI. Mr. Burwell has been conducting healthcare services research for 17 years, with a career focus on Medicaid, disability and long-term care policy. He has published extensively on Medicaid eligibility policies for long-term care, home and community-based care waiver programs, Medicaid spend-down, asset transfers, community-based approaches to supporting persons with developmental disabilities, and managed care models for persons with disabilities. He is currently working with the Department of Health and Human Services in Delaware on a project to develop managed long-term care policy options for all the Department's long-term care populations.

Sandra J. Tanenbaum, Ph.D.
Sandra Tanenbaum is Associate Professor of Health Services Management and Policy at the Ohio State University College of Medicine. A political scientist by training, Dr. Tanenbaum's research focuses on the Medicaid program, disability policy, and clinical decision-making. She is the author of Engineering Disability: Public Policy and Compensatory Technology (Temple, 1986) and serves as Book Review Editor of the Journal of Health Politics, Policy and Law.

Managed Care for Children and Adults with Disabilities: A Step in Which Direction?

Brian Burwell and Sandra Tanenbaum

INTRODUCTION

Managed care financing and delivery models have considerable potential for improving the value and quality of health care and supportive services provided to children and adults with disabilities. Managed care models that encourage flexibility in benefit coverage and which coordinate care across the full spectrum of the insurance benefit package are features that are particularly attractive to persons with disabilities. At the same time, however, managed care incentives to eliminate "inappropriate care" or care that is not "medically necessary" are of great concern to people with disabilities whose experience in obtaining access to needed health care services in the fee-for-service system is already problematic.

Both positive and negative effects of managed care for persons with disabilities are similarly reflected in the limited empirical research that has been conducted to date on the impacts of managed care on disabled populations. Some studies point to improvements in outcomes, while others have found significant reductions in service levels under managed care incentives. In brief, the jury is still out on how managed care models effect the health care status of persons with disabilities, and the challenge to the health care services research community is to monitor the enrollment of persons with disabilities into managed care systems closely, and to identify those factors which contribute to improved and worsened outcomes for these vulnerable populations.

CHILDREN AND ADULTS WITH DISABILITIES: WHO ARE THEY?

Part of the challenge in assessing the impact of managed care on persons with disabilities is that the population of children and adults with disabling conditions is extremely diverse, with broad-ranging differences in both types and levels of impairment. At the same time, managed care models are evolving into a variety of permutations that make the generalizability of managed care impact studies increasingly hazardous. In conceptualizing a research agenda for examining managed care impacts, it is critical that we begin with a fundamental understanding of the defined populations, and how the structure and incentives of managed care models may impact access, cost and quality outcomes for persons with severe and chronic disabling conditions.

Children with Disabilities

National survey data indicate that approximately one in ten children have a "severe chronic illness" (Neff and Anderson, 1995). This estimate obscures dramatic diversity in the characteristics of children with disabling conditions--many children with disabilities have conditions which do not result in health care use or costs significantly higher than the population of children without disabilities, while a significant minority of children with disabilities have severe and multiple conditions that require continuous and expert medical attention. Health care and supportive services for the population of children with special health care needs are also fragmented across a variety of financing and service settings that renders the transition from a fee-for-service framework to a managed care framework operationally cumbersome.

Importantly, within the population of children with high health care needs, there is a subset of children with extremely severe medical conditions that require continuous and highly specialized care. For example, within the target population of SSI children receiving services under the District of Columbia's Managed Care System for Disabled and Special Needs Children Demonstration, a Medicaid Section 1115 waiver program, children with Medicaid expenditures of over $50,000 per year constituted less than three percent of all SSI children in the District in the year prior to implementation of the demonstration program, yet they accounted for about 54 percent of all Medicaid spending for SSI children (Blanchon, 1996).

Childhood disability differs from disability in adulthood in that the nature and extent of the disability frequently changes during the developmental process. Many children experience improvements in functioning as they develop, and the disability may become less limiting with time. Other children with extremely severe medical conditions do not survive childhood at all. Moreover, the health care needs of children with disabilities is confounded over time by the interaction of the disability with the child's normal development, such as the onset of puberty. Consequently, access to appropriate pediatric and adolescent specialists may change frequently during the developmental process.

In regard to accessing health care, parents obviously take an active role in negotiating the health care system for their children. In brief, many parents take on the "coordination of care" role that is generally lacking in the fee-for-service system. Consequently, their interactions with the care coordination function of a managed care system may require a new accommodation of respective roles in managing the care of the disabled child. Managed care organizations are generally not used to the level of advocacy and health care system knowledge exhibited by parents of children with disabilities, and may not know how to positively incorporate that energy and knowledge into their internal care coordination systems.

A common concern of parents is the ability to maintain relationships with pediatric specialists, many of which have developed over the lifetime of the child, once the child is enrolled into a managed care plan. Consequently, in some Medicaid managed care initiatives, states require participating plans to continue to pay for ongoing physician-patient relationships, even if the specialty physician is not otherwise enrolled in the plan. This issue is of obvious concern to plans who feel that they are being paid to manage the care of the enrollee, but may not be given all the requisite tools to do so.

Children with disabilities differ from adults with disabilities in one other important respect--children are more likely to receive their health care through a fragmented financing system. Expansions in SSI and Medicaid eligibility for children with disabilities in recent years has meant that there are a growing number of children who have both private health care insurance and Medicaid coverage. Since the Medicaid benefit package is more comprehensive than private health insurance coverage, children and families often use their Medicaid coverage to finance services that are supplemental to their private insurance benefits, particularly home and community-based services and extended therapies. In addition, under the Individuals with Disabilities Education Act, local school systems are required to provide children with disabilities with educationally related services that often extend into the health care arena, particularly in the case of children with severe medical conditions. Lastly, under the Title V Program for Children with Special Health Care Needs, many states provide direct care services to children with disabilities on a categorical basis, not as part of the child's health insurance benefit. Since the implementation of managed care systems generally occurs within payers, not across payers, these multiple financing streams for children with disabilities create special challenges for the managed care marketplace.

Adults with Mental Illness and Substance Abuse Problems

Purchasers of health care services in both the private and public sectors have targeted services to persons with mental illness as prime candidates for managed care financing and delivery initiatives. In the private sector, many large companies have "carved-out" mental health and substance abuse benefits from their mainstream health care benefit programs, and have contracted with specialized vendors to administer these benefits. In the public sector as well, state Medicaid programs are building upon the infrastructure that has developed in managed behavioral health care to similarly "carve-out" at least a subset of mental health and substance abuse-related services covered under their own benefit packages to companies that specialize in the management of these services. On the research side, there is a larger body of research available on the impacts of managed mental health care than on how managed care impacts other services and/or populations.

While there has been significant penetration of managed care systems in the mental health/substance abuse market, it is important to recognize the differences in private and public markets as they relate to persons with mental health and substance abuse problems. In the private sector, purchasers finance mental health and substance abuse care for their employees, retirees and dependents. This population of workers and dependents is predominantly middle class and employed, with the concomitant array of mental health conditions that are most prevalent in this socio-demographic group. Depression and substance abuse disorders are diagnoses of high concern to private purchasers of health care, and the health care benefit programs of employers are structured to maximize value in the early identification and treatment of these conditions, with the objective of sustaining the productivity of their workforces.

In regard to coverage of mental health and substance abuse services for the dependents of employees, the goals are to provide coverage that is sufficiently attractive to recruit and retain a quality workforce (i.e. remaining competitive in the market for qualified workers) while limiting corporate expenditures for mental health and substance abuse care. Coverage of mental health and substance abuse care for adolescents with mental health conditions is often a major benefit issue for employers, since this population includes a subset of persons who account for a high percentage of total expenditures for these services.

In the public sector, the primary population of interest is persons with severe and persistent mental illnesses, particularly persons with disabilities associated with schizophrenia-related disorders. Approximately 30 percent of all adults under the age of 65 receiving SSI benefits, or about 1.5 million persons, qualified for SSI benefits on the basis of a mental disorder other than mental retardation (SSA, 1996). In addition, about 1 million persons with mental disorders received SSDI benefits, and are therefore insured under the Medicare program. As opposed to individuals receiving SSI benefits, persons receiving SSDI benefits have had a sufficient work history to obtain insured status under the Social Security disability system. On the whole, it is therefore reasonable to assume that SSDI beneficiaries have somewhat higher levels of functioning than persons receiving SSI.

Persons with severe and persistent mental illness have a broad range of medical, therapeutic, and supportive care needs, and a key issue in the application of managed care models to this population is what part of the care spectrum should be "managed." Although a number of state Medicaid programs have implemented mental health "carve-out" programs, it is important to recognize that states generally have only "carved-out" acute mental health services under these programs--inpatient care and outpatient follow-up care. Long-term supportive services, such as residential care programs, vocational training, day program services, and intensive case management services, have generally been excluded from the managed care contracts with carve-out vendors. Basic health care services are also usually provided by mainstream plans or the fee-for-service system.

The characteristics of persons with severe and persistent mental illness and their health and supportive service needs forcefully underscore the challenges of applying managed care models to the financing and delivery of services to this population. As a consequence, we are seeing a variety of managed care models emerging. Conceptually, one relatively simplistic way of classifying the service needs of this population is in three broad categories: (1) basic health care needs; (2) mental health-related services needed to deal with acute episodes of mental illness (short-term hospitalization, crisis intervention services); and (3) long-term supportive services intended to maintain individuals in independent or semi-independent community care settings.

As discussed above, most managed care initiatives for persons with severe and persistent mental illness have focused only on the management of one part of the total service continuum, i.e. the management of short-term hospitalizations and outpatient services. Basic health care services and long-term supportive services have, with few exceptions, not been made part of state managed care initiatives, as yet. A major reason for this segmentation of the total benefit package is related to infrastructure issues--states are building upon the infrastructure of managed behavioral health care vendors that have developed from demand created in the commercial marketplace. Another reason for this segmentation relates to the fragmentation of payments sources; Medicaid is generally the primary payer for acute mental health services for this population, while state Departments of Mental Health remain the primary payer for longer-term supportive services.

The limited scope of managed care initiatives for persons with severe and persistent mental illness has created "boundary" issues that affect the operationalization of these programs in critical ways, as well as how this population receives services. One fundamental issue is the boundary between mental health care and basic health care. Does it make sense for persons with severe mental illness to receive their primary health care through one system but have their "mental health" services managed by a separate system? If so, how is medication management coordinated across these dual systems? One major rationale for managed care is to coordinate care across a comprehensive benefit package for an enrolled population, and managed care initiatives which simply mirror the fragmentation of service delivery existent in the fee-for-service system are likely to fall short of this goal.

On the other hand, some state Medicaid programs have "carved-out" mental health services from managed care contracts for basic health care as a means to protect the population from the financial incentives of managed care to reduce services that may not be considered "medically necessary." There is considerable controversy in the commercial insurance market about the "savings" that have been achieved for health care purchasers by behavioral managed care vendors, and whether these savings are affecting mental health outcomes. Thus, in the public sector, mental health carve-outs have been used as a policy tool to protect mental health benefits from the incentives of managed care plans, most of whom have little experience in providing services to persons with severe and persistent mental illness. However, another factor in states' decisions to carve out mental health benefits has been advocacy by the specialized provider systems that serve this population to protect their market share.

Another boundary issue in designing managed care systems for persons with severe and persistent mental illness is whether to combine substance abuse programs with mental health services into an integrated managed care system. Although programmatically, there are strong reasons for bundling mental health and substance abuse benefits for this population in an integrated system, infrastructure issues and provider concerns often act to keep these services unbundled.

A final issue regarding the application of managed care models to persons with severe and persistent mental illness concerns the measurement of plan performance. What measures should purchasers (public or private) use to assess whether plans are doing a "good job?" Persons who support individuals with severe mental illness know that interventions of the highest quality can still lead to undesired outcomes in some individuals, while in other cases, people with mental illness somehow seem to get better or do okay despite inferior care or the absence of care. The relationship between good care and positive outcomes in this population is not straightforward, and the assessment of performance probably needs to measure average outcomes over sufficiently large samples of individuals, wherein the differentiation between inferior and superior care can be more reliability discerned.

Adults with Physical Disabilities and Persons with AIDS

The population of persons with severe and chronic physical disabilities, including persons with multiple sclerosis, cerebral palsy, muscular dystrophy, quadriplegia, and other conditions, encompasses a very broad range of disabilities and impairment levels. Persons with severe physical disabilities are often not well served by the fee-for-service health care system, and many experience the frustration of referrals to multiple specialists without any single physician taking overall responsibility for the oversight of their health care. If the care coordination functions of managed care models truly take hold, then managed care holds some promise for improving access and quality for persons with severe physical disabilities.

However, as with other disabled populations, many people with severe physical disabilities are skeptical that managed care organizations will provide them with access to comprehensive and coordinated medical care. Many worry that managed care organizations will be stringent in the allocation of resources in meeting their medical needs and will perceive them as "undesirable" enrollees, particularly if the cost of their care exceeds the average premium paid by their sponsor, be it an employer, Medicare, or Medicaid. For persons who require highly specialized care, many worry whether managed care plans will deny access to the most qualified specialists, and/or specialists with whom they have developed long-standing relationships.

On the purchaser side, private employers generally place little emphasis on ensuring that covered individuals with severe disabilities are adequately served in the managed care system. The disability programs of employers generally focus on short-term disability issues; the integrated management of their health insurance, workmen's compensation, and disability insurance programs; and rehabilitation initiatives which assist injured workers' to return to work as quickly as possible. The quality of health care provided to persons with severe and chronic conditions is generally not an issue of high concern to most private employers. Furthermore, the assessment of the performance of managed care plans by employers has largely focused on measures that are pertinent to large segments of their covered populations (e.g. prenatal care, immunizations, etc.) rather than on how plans treat individuals with rare conditions.

For persons with severe disabilities who do not have private insurance and are covered by Medicaid, it appears that mandatory enrollment in some kind of managed care system is increasingly inevitable. With completion of the enrollment of non-disabled Medicaid populations into managed care, states are now focusing their attention on the more difficult challenge of enrolling SSI recipients into managed care (Checkett, 1996). And unlike persons with severe mental illness, mental retardation and/or developmental disabilities, persons with severe physical disabilities generally do not have specific "sponsors" or "programs" within state government whose responsibility it is to look out for their welfare. Just as the needs of persons with physical disabilities often fall through the cracks in the current Medicaid system, there is equal danger that the needs of this population will be largely ignored in the headlong rush to achieve Medicaid savings through managed care approaches.

In contrast, persons with AIDS are receiving special attention in the development of Medicaid managed care models. Led by the model developed by the Community Medical Alliance in Boston, the concept of "specialized health plans" (SHPs) which target a single population type, is now being replicated in other states such as Maryland and New York. Specialized health plans are generally perceived as voluntary alternatives to mainstream managed care plans, rather than mandatory alternatives that persons with certain conditions would be required to enroll in. The development of specialized plans is not totally attributable to demand side factors. Another factor is that specialized provider networks with experience in providing health care services to specific populations want to be able to preserve their "product line" without having to diversify into being mainstream health plans.

The Community Medical Alliance model for managing the care of persons with AIDS places strong emphasis on the substitution of non-institutional care arrangements for institutional care, particularly during the terminal phases of the illness. The recruitment and training of medical care professionals that are committed to the treatment philosophy and culture of the Community Medical Alliance is another key component of the model.

Areas of Commonality Across Populations

Although children with severe disabilities, persons with severe and persistent mental illness, and adults with physical disabilities possess diverse characteristics that raise unique issues in the application of managed care models, there are some common characteristics shared by all of these populations. First, persons with severe disabilities of all types require access to specialty services that may be limited under managed care approaches. Closed panel plans may have few or no physicians with expertise in the care of conditions with low prevalence rates in the general population. Point-of-Service plans may allow enrollees to seek care outside of their networks, but at a higher cost to enrollees, who may have limited financial resources to utilize out-of-network providers.

Second, the health care costs of disabled populations are more predictable than the health care costs of non-disabled populations. Not only are they more predictable at the population level, but also, in many cases, at the individual level. This creates opportunities for health plans to maximize profitability by adopting business strategies to limit the enrollment (or increase disenrollment) of individuals whose health care costs are predictably above the payment rate made to the plan. Risk adjustment strategies which pay plans fairly for the expected costs of persons with disabilities, yet which still reward plans for efficient care, are critical to the application of managed care models to these populations, as well as to ensuring that persons with disabilities are provided quality care by the plans in which they are enrolled (Kronick et al, 1996). However, alternative mechanisms, other than risk adjusted capitated rates, for financially rewarding plans which enroll higher-cost individuals and providing quality services, also need to be explored. Risk-adjusted capitation may prove not to be the best solution to addressing these incentive issues, particularly given the technical and operational challenges of measuring risk and adjusting payments appropriately.

Third, the development of performance measures, which reliably assess the relative performance of plans in providing medical and supportive care to persons with disabilities of all types, is an area that requires extensive work and development. Workable approaches to eliciting the perspective of consumers, many of whom may have disabilities which impede traditional survey methods, is a key issue in the development of such measures.

Fourth, it is frequently the case that people with disabilities are receiving services from multiple payment sources and programs concurrently. The development of managed care models for these populations must respond to a set of needs that are broader than the financing and delivery of medical care. If care for these populations is to be truly integrated, then models need to be developed which consolidate the financing and delivery of health care services, rehabilitative services, long term care services, family supports, respite care, occupational supports, and personal counseling within integrated organizational structures. It may not be necessary for a single organization to possess all of these capabilities, but a managed care approach to these populations must include mechanisms for effectively coordinating the full array of medical and related services that are needed to help persons with disabilities maintain the highest level of independence possible.

What Does the Research Tell Us About the Impacts of Managed Care?

Empirical research which directly measures the health outcomes of persons with disabilities in fee-for-service versus managed care settings is extremely limited, and the research which has been conducted does not paint a consistent picture of the impacts of managed care. Research on the impacts of targeted managed care initiatives seems to paint a more positive picture, while general population studies of managed care impacts are more pessimistic. Also, considerably more research has been conducted of the impact of managed care on mental health populations than on populations with other types of disabilities.

Master et al (1996) describe improved outcomes among persons with severe disability and AIDS in a targeted Medicaid managed care program in Massachusetts. Positive outcomes included increased patient satisfaction, reduced inpatient hospital days, and improved decubitus ulcers and PCP. The study suggests that managed care can improve care for persons with severe disability through the use of innovative providers providing care in innovative settings, relative to the fee-for-service system. The results of this research may be questioned, however, given that the researchers also represent the senior management team of the managed care organization being studied. Similarly, Meyers et al (1987) found improved outcomes from managed care in a population of severely disabled adults in an independent living center, largely associated with increased resource allocation to care provided in the individual's home and centered around the person's individualized needs.

In an 11-year longitudinal study of persons with rheumatoid arthritis receiving care in fee-for-service settings versus prepaid group practice, Yelin et al (1996) found no evidence of differences in either the quantity of health care provided or in health care outcomes on either an annual or long-term basis across the systems of care.

Studies of populations in mainstream managed care plans seem less positive. An analysis of data from the Medical Outcomes Study (Ware et al, 1996) found that while health outcomes for the average patient did not differ between fee-for-service and managed care settings, health outcomes were decidedly poorer for patients who reported ill health at baseline. The study suggests that while managed care plans do quite well in maintaining the health of healthy patients, relative to fee-for-service, that people with higher medical needs fare less well in managed care, due to financial incentives among plans to reduce the level of resources applied to medical interventions. The findings of the Medical Outcomes Study support similar findings by the same research team ten years previously (Ware et al, 1986). Although the population of interest in the Ware study encompassed "chronically ill" persons, not persons with severe disabilities, it is reasonable to generalize the study findings to all populations with higher-than-average medical care needs. In another study of data from the Medical Outcomes Study, Safran et al (1992) found notable differences in dimensions of primary care provided to persons with chronic illness across fee-for-service plans, IPA-model plans, and traditional HMOs, but did not specifically associate these differing primary care paradigms with patient outcomes.

Research on the impacts of mental health managed care models is decidedly richer. The Medical Outcomes Study reported above found superior mental health outcomes in managed care for nonpoverty populations, but inferior outcomes in the poverty group (Ware et al, 1996). Wells et al (1990) found that one managed care network provided less intensive mental health services to their covered population but a higher quantity of services. Lurie et al (1992) found few differences in mental health outcomes among patients served in managed care versus fee-for-service with one exception--persons with schizophrenia showed superior outcomes in a fee-for-service setting. And in a study focusing on a population of persons with depression, Rogers et al (1993) reported that depressed patients declined, on average, in managed care settings, declines that were likely attributable to a drop-off in the prescription of anti-depressant drugs.

Other studies have reported more positive impacts of mental health managed care initiatives. Superior mental health outcomes under managed care, as well as reduced financial impacts on patients, were reported by Babigan et al (1992). Shern et al (1995) also reported greater reductions in problems, fewer unmet needs, and higher adherence to clinical protocols, among mental health clients in a managed care demonstration than in a comparison fee-for-service population.

A few studies have evaluated the impacts of mental health carve-out programs for Medicaid populations, and thus far, have generally reported favorable outcomes. Callahan et al (1995) conducted an evaluation of a Medicaid mental health carve-out in Massachusetts and reported that the carve-out vendor was successful in substantially lowering Medicaid costs for acute mental health services without any overall reduction in quality or access. Christianson et al (1995) also reported significant reductions in Medicaid expenditures for mental health services in the first year of a carve-out initiative, primarily due to reductions in inpatient admissions for mental health treatment, although mental health outcomes were not measured.

Studies that assess the impact of managed care on children with disabilities are very few, although a number of researchers have published on the potential dangers of managed care systems on children with disabilities. Fox et al (1993) reported findings from a survey of parents of children with disabilities, with mixed results. Parents were pleased with the reduced out-of-pocket costs associated with managed care systems, and with improved access to medical services, but at the same time reported increased difficulty obtaining access to specialty services and mental health care. The focus of managed care plans on requiring specialty care interventions to demonstrate rapid improvement was cited as a significant concern, and a barrier to care continuity.

Discussion: Is Managed Care for Children and Adults with Disabilities a Step Forward or a Step Backward?

Research on the impacts of managed care on children and adults with disabilities is decidedly mixed. The limited body of research published to date seems to suggest that the incentives of capitated financing mechanisms are not, in and of themselves, the primary determinants of outcomes. Rather, the research suggests that operational variables, i.e. how managed care models are applied, are equally important, if not more important, in determining how people with disabilities fare in the managed care world. Of particular interest is the nature of the managed care entity with whom the purchaser has contracted to provide care. Managed care organizations with missions to serve persons with disabilities, and organizations who provide specialized services, appear to achieve better outcomes for persons with disabilities than do mainstream plans which have no special focus on the needs of disabled populations.

As managed care models continue to evolve, and as purchasers increasingly pursue innovative managed care purchasing strategies, it will be increasingly important for researchers to help sort out which managed care models are associated with improved outcomes and reduced costs versus those managed care models which achieve reductions in health care costs only to the detriment of the populations they are intended to serve.

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Sturm, Roland, Catherine A. Jackson, Lisa S. Meredith, Winnie Yip, Willard G. Manning, William H. Rogers, Kenneth B. Wells. 1995. Mental Health Care Utilization in Prepaid and Fee-for-Service Plans Among Depressed Patients in the Medical Outcomes Study. Health Services Research 30(2): 319-340.

Sturm, Roland, Elizabeth A. McGlynn, Lisa S. Meredith, Kenneth B. Wells, Willard G. Manning, William H. Rogers. 1994. Switches Between Prepaid and Fee-for-Service Health Systems Among Depressed Outpatients: Results from the Medical Outcomes Study. Medical Care 32(9): 917-929.

Sturm, Roland, Lisa S. Meredith, Kenneth B. Wells. 1996. Provider Choice and Continuity for the Treatment of Depression. Medical Care 34(7): 723-34.

U.S. General Accounting Office. 1996.Medicaid Managed Care: Serving the Disabled Challenges State Programs. July, GAO/HEHS-96-136.

Ware, John, Jr., William H. Rogers, Allyson Ross Davies, George A. Goldberg, Robert H. Brook, Emmet B. Keeler, Cathy Donald Sherbourne, Patricia Camp, Joseph P. Newhouse. 1986. Comparison of Health Outcomes at a Health Maintenance Organization with Those of Fee-for-Service Care. Lancet (May 3): 1017-1022.

Ware, John E., Jr., Martha S. Bayliss, William H. Rogers, Mark Kosinski, Alvin R. Tarlov. 1996. Differences in 4-Year Health Outcomes for Elderly and Poor, Chronically Ill Patients Treated in HMO and Fee-for-Service Systems. JAMA 276 (13): 1039-1047.

Wells, Kenneth B., Boris M. Astrachan, Gary L. Tischler and Jurgen Unutger. 1995. Issues and Approaches in Evaluating Managed Mental Health Care. Milbank Quarterly 17(1): 57-75.

Wells, Kenneth B., M. Audrey Burnam and Patti Camp. 1995. Severity of Depression in Prepaid and Fee-for-Service General Medical and Mental Health Specialty Practices. Medical Care 33(4): 350-364.

Wells, Kenneth B., Willard G. Manning, Jr. and R. Burciaga Valdez. 1990. The Effects of a Prepaid Group Practice on Mental Health Outcomes. Health Services Research 25(4): 615-625.

Wells, Kenneth B., Roland Sturm, Cathy Sherbourne and Lisa Meredith. 1996. Caring for Depression. A Rand Study. (Uncorrected page proofs.) Cambridge: Harvard University Press.

Yelin, Edward H., Martin A. Shearn, Wallace V. Epstein. 1986. Health Outcomes for a Chronic Disease in Prepaid Group Practice and Fee for Service Settings: The Case of Rheumatoid Arthritis. Medical Care 24(3): 236-247.

Yelin, Edward H., Lindsey A. Criswell, Paul G. Feigenbaum. 1996. Health Care Utilization and Outcomes Among Persons with Rheumatoid Arthritis in Fee-for-Service and Prepaid Group Practice Settings. JAMA 276(13): 1048-1053.

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SESSION 1: IMPACT ON MANAGED CARE ON CHILDREN WITH DISABILITIES

Reactor Biographies

Ruth E.K. Stein, M.D.
Ruth Stein is Professor and Vice Chairman of the Department of Pediatrics and Director of General Pediatrics at Albert Einstein College of Medicine. She is also Pediatrician-in-Chief at Jacobi Medical Center. She has been involved in developing models of care for children with special health care needs for many years. Her research is on chronic physical disorders in childhood and their psychological and social consequences. From 1983 to 1995, she was also the Principal Investigator of the Preventive Intervention Research Center for Child Health at the Albert Einstein College of Medicine/Montefiore Medical Center. She recently spent a sabbatical at the United Hospital Fund examining issues for the pediatric population under managed care.

Nancy R. Thaler
Nancy Thaler has been Deputy Secretary for Mental Retardation in the Pennsylvania Department of Public Welfare since 1992. She served as the Director, Bureau of Community Programs, for six years prior to being appointed Deputy Secretary. Before her career in State government, she worked for 16 years in a large nonprofit agency in southeastern Pennsylvania, Ken-Crest Services. While with that agency, she served eight years as a direct care worker, including four years as a houseparent and another eight years in administrative positions.

As Deputy Secretary for Mental Retardation, Ms. Thaler is responsible for the State's services to people with mental retardation. These services affect 3,240 people in State institutions, and 63,000 people in the community.

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Evaluation of the District of Columbia's Demonstration Program: Managed Care System for Disabled and Special Needs Children

Carol Irvin, Ph.D.
As a Health Economist at Abt Associates, Inc., Carol Irvin has conducted numerous studies on the use, costs, and outcomes of health care services provided under managed care and fee-for-service arrangements. In current work she is analyzing enrollment patterns among applicants to the Program for All-Inclusive Care for the Elderly (PACE)--a capitated day health center program for frail elders. Dr. Irvin is also currently involved in analyzing the impacts of a new pharmaceutical product on the use and costs of health care services and labor market participation among individuals with chronic progressive multiple sclerosis. In earlier work funded by the Health Care Financing Administration, she has done comparisons of care and customer satisfaction of families in Florida, Michigan, and Maine enrolled in Medicaid managed care and fee-for-service providers. She has also analyzed the impact on health care use and economic outcomes of a national capitation demonstration project among mine workers--a high risk industry population.

Dr. Irvin has also been actively researching health care issues pertaining to the maternal and child populations. Research in this area include assessing Missouri's 1988 Medicaid expansion and its impacts on enrollment patterns of pregnant women and infants, prenatal care, birth outcomes, and infant health care. Related work includes on-going analysis of the Community Integrated Service Systems (CISS) serving women and children and a series of analyses of the Special Supplemental Food Program for Women, Infants, and Children (WIC) program.

THE DEMONSTRATION

• Eligible Population
• Plan Structure
• Provider Network
• Benefit Plan

ENROLLMENT

• Enrollment Procedures
• Challenges to the Enrollment Process
• Current Enrollment Experience

COMPONENTS OF THE EVALUATION

• Analyses of Enrollment
• Implementation of the Demonstration
• Outcome Analyses

DATA TO BE COLLECTED

• Secondary Data Sources
• MMIS
  • Plan encounter data
  • SSI eligibility data
• Primary Data
  • Key informant interviews
  • Focus groups
  • Client survey
  • Medical record review

PRIMARY RESEARCH QUESTIONS

• Analyses of Enrollment
  • Which children enroll?
  • Which children are long-term enrollees?
• Implementation of the Demonstration
  • What can other states and managed care plans learn?
• Outcomes Analyses
  • What are the experiences of the District, the managed care plan, the providers, and the children and their families under this type of health care system?

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Families' Out-of-Pocket Expenses When Caring for Children With Special Needs: A Preliminary Report Comparing Children in Medicaid and a Commercial Product Line

Elizabeth A. Shenkman, Ph.D.
Elizabeth Shenkman is the Coordinator of Research and Program Evaluation at the Institute for Child Health Policy of the State University System of Florida, and an Assistant Professor of Pediatrics at the University of Florida. Dr. Shenkman is the Principal Investigator on the following research projects: Contractual Arrangements with Physicians: Implications for Pediatric Health Care, funded by the Robert Wood Johnson Foundation; Managed Care: Implications for Families' Out-of-Pocket Expenses When Caring for Children with Special Health Care Needs, funded by the Department of Health and Human Services, Assistant Secretary for Planning and Evaluation, Office of Health Policy; and the School Enrollment-Based Health Insurance (SEBHI) Program Evaluation, funded by the Florida Healthy Kids Corporation. In addition, she is the Co-Principal Investigator for the following project: Children with Special Health Care Needs Within Managed Care: the Department of Empirically-Based Models, funded by the Department of Health and Human Services, Maternal and Child Health Bureau.

BACKGROUND

• Concerns about children with special needs in managed care environments
• Limited data from managed care organizations about enrollees
• Strong financial burdens in fee-for-service system
• Will these burdens be greater in managed care?

PURPOSE

• Present preliminary information about families' out-of-pocket expenses when caring for children with special needs
• Two groups of children
  • Commercially-insured through a special program
  • Medicaid fee-for-service or primary care case management
• Continuing to collect data for both of these groups

THE THIRD PARTY PAYERS

• Commercial Product Line
  • Insured through a special program providing subsidized premiums
  • About 30,000 enrollees
  • Comprehensive benefit package
  • Private not-for-profit corporation negotiates contracts with health maintenance organizations
  • Health maintenance organizations bear risk and maintain the provider network
  • Currently four participating
  • Primary care provider serving as gatekeepers
  • Program enrollment is voluntary
• Medicaid Product Line
  • About 49% of the children are enrolled in primary care case management
  • Comprehensive benefit package
  • Children covered varies according to Federal Poverty Level
  • Medically Need Program available

THE BENEFIT PACKAGE

• Well child care visits and immunizations
• Primary and specialty physician office visits
• In-patient hospital care
• Surgical procedures
• Emergency services and transportation
• Prescriptions
• Vision screening and glasses
• Hearing screening and hearing aids
• Physical, occupational, speech therapy
• Mental health services

HOW WERE THE CHILDREN SELECTED?

• Identified initially from claims data from participating health maintenance organizations and Florida Medicaid
• Used International Classification of Diseases, 9th Revision
• High and low prevalence conditions included
• Screening questions used to identify those with greatest needs
  1. Because of a physical or mental condition, does your child require more supervision than other children of his/her age?
  2. Does your child require extra or specialized medical care, therapies, supplies, or medical equipment because of a special health care need?
  3. Has your child had his/her special health care need for 6 months or longer?
• Must meet a or b or c

OUT-OF-POCKET EXPENSES MEASURED

• Direct expenses--medical care expenditures for diagnosis, treatment, continuing care, rehabilitation and terminal care
• Other direct expenses--expenditures items or services such as respite care, special diets or formulas, medical supplies, special or additional clothing, and others
• Indirect expenses--time spent in providing care for the child and lost employment opportunities

CAREGIVERS' OUT-OF-POCKET EXPENSE SURVEY

• Panel of reviewers
• Field testing
• 45 to 60 minutes to administer as telephone survey

WHAT WAS CONSIDERED AN OUT-OF-POCKET EXPENSE

• If the item or service was paid for entirely or in part by:
  • A parent or guardian
  • Another family member residing in the household
  • The child's supplemental security income check
• Co-payments categorized according to the expense incurred

OTHER CATEGORIES MEASURED:

• Child's functioning using the Functional Status Rating Scale short form
  • Addresses mood, interest level, communication
• Diagnostic information
• Demographic information

DIAGNOSTIC CATEGORIES

• Array of diagnoses represented
• Used diagnostic categories to group the children
• Also used scores on Functional Status Rating Scale to describe the children
• Wide variation in functioning seen both within and between diagnostic groupings

SUMMARY AND RECOMMENDATIONS

• Highest expenses for families in "Other Direct" category
• Regressive patten of expenditures for both groups of children
• Benefit packages must consider broad array of services and items
• Significant caregiving time
• Health care cost savings can be achieved; but at what price to families?

FUTURE WORK

• Include influence of participation in State Title V Children with Special Health Care Needs Programs
• Explore unmet needs
• Explore lost employment opportunities
• Link to actual health care use data

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The Managed Care Enhancement Project for Children with Special Health Care Needs

Deborah Allen
As the Director of the Division for Children with Special Health Care Needs of the Massachusetts Department of Public Health, Deborah Allen is responsible for assuring family-centered, community-based care for children with special health care needs and their families. Her division is the lead agency for implementation of Part H of the IDEA in Massachusetts and for the provision of case management services to SSI-eligible children. Ms. Allen is the Principal Investigator for the federally funded Managed Care Enhancement Project for Children with Special Health Care Needs. She is also responsible for two grants funded by Title IV of the Ryan White Care Act: MassCARE (Massachusetts Community AIDS Resource Enhancement), which focuses on pediatric and family care needs, and MCAP (the Massachusetts Women's HIV Care and Advocacy Project), which promotes identification and care of women with HIV prior to or early in pregnancy.

Ms. Allen has master's degrees in Health Policy and Management and Maternal and Child Health from the Harvard School of Public Health and is, as we speak, in the final stages of her doctoral research on "Predictors of Voluntary HIV Testing During Pregnancy," also at Harvard. She is absolutely committed to making this the last formal education she ever undertakes.

OUTLINE OF PRESENTATION

• Health care in Massachusetts
• MassHealth Managed Care
• The Managed Care Enhancement Project
• Needs assessment
• Interventions
• Evaluation
• Concluding thoughts

HEALTH CARE IN MASSACHUSETTS--A WHIRLWIND TOUR

• Extensive tertiary medical system
• Widespread influence of academic medicine
• Extensive CHC network
• Extensive HMO penetration
• No county health departments
• Limited clinical role of local health departments
• Comprehensive Medicaid program

MASSHEALTH OVERVIEW

• Target population - 450,000 Medicaid recipients
• All Medicaid clients except:
  • Individuals with private insurance and Medicaid
  • Individuals with Medicare and Medicaid
• Enrollment started April, 1992

SSI RECIPIENTS IN MASSHEALTH

• Special procedures for
  • Outreach
  • Enrollment
  • Assignment
• For adults and children on SSI

MASSHEALTH COMPONENTS

• Health Benefits Advisor Program
• Primary Care Clinician Program
• Mental Health/Substance Abuse Program
• HMO Program

PCC PROGRAM

• Approximately 1300 practices
• Almost 2500 physicians
• Eligible providers are:
  • Internists
  • Pediatricians
  • Family practitioners
  • Ob-gyns
  • Nurse practitioners

PCC PROGRAM OPERATIONS

• No capitation at present
• PCC receives $10 bonus per primary or preventive visit
• PCC responsible for:
  • Primary care
  • Specialty referrals
  • Authorization of most medical services
• Mental health, substance abuse do not require PCC authorization

PCC PROGRAM ENROLLMENT

• Current enrollment approximately 290,000
• 80% of Medicaid enrollees in PCC program
• 80% of children with special health care needs in PCC program

HMO PROGRAM

• 8 vendors statewide
• 1 special contract for disabled individuals
• Enrollment is voluntary
• Current enrollment 81,000

MANAGED CARE ENHANCEMENT PROJECT OVERVIEW

• Four year grant ending Sept. 1997
• Funded by HRSA--Maternal and Child Health Bureau
• Joint Title V--Division of Medical Assistance administration
• Active, diverse advisory committee

MCEP GOALS

• Improve health status of children with special health care needs in MassHealth
• Improve quality of life for families of children with special health care needs in MassHealth
• Increase appropriate use of health resources for care of children with special health care needs while averting unnecessary costs
• Enhance understanding of optimal systems of care for children with special health care needs

MCEP NEEDS ASSESSMENT

• Utilization data
• Family survey
• Provider survey
• Family focus groups
• Provider focus groups
• National key informant interviews

FINDINGS ON UTILIZATION

• CSHCN claims reveal:
  • Equal or greater use of primary care
  • More use of
    • Inpatient care
    • Home health care
    • Prescriptions
    • DME
  • Less use of
    • Dental
• Than other children in MassHealth Managed Care

FAMILY SURVEY METHODS

• Inclusion criteria
  • SSI enrollment or at least one EI claim
  • At least one full year of Medicaid with < 45 day interruption
• Sample
  • 1,000 families chosen at random
  • Overselection of Spanish-speaking families
• Implementation
  • Two mailings in English and Spanish
  • 800 number for questions or if phone administration preferred
• Response
  • 32% response rate
  • 254 English surveys returned or completed by phone
  • 67 Spanish surveys returned or completed by phone

FAMILY SURVEY FINDINGS

• High level of general satisfaction
• Areas for improvement
  • Access to information
  • Family supports
  • Coordination of services
• Survey also revealed weak links between primary care and
  • Schools
  • Discharge planning
  • Home care

PROVIDER SURVEY METHODS

• Target population
  • Pediatricians, family practitioners
  • Participating in Primary Care Clinician Plan
• Sample
  • 906 physicians
• Implementation
  • Initial attempt at phone administration
  • Shift to administration by mail
• Response
  • 31% response rate
  • 196 surveys completed by mail
  • 89 surveys completed by phone

PROVIDER SURVEY FINDINGS

• High level of general satisfaction
• Some areas of provider concern
  • Coordination of care
  • Information needs
  • Time constraints

OTHER NEEDS ASSESSMENT STRATEGIES

• Confirmed and expanded upon needs assessment findings
• Identified possible interventions

INTERVENTIONS

• Special Care Coordinator
  • 4 sites
  • 3.5 FTE's
• Parent manual
  • Focus on system "how to's"
  • Parent role in writing, editing
• Enhanced provider education
• Enhanced customer service
• Enhanced PCC/case management linkage

EVALUATION OF SCC INTERVENTION

• Parent questionnaires
  • Two points in time
  • Comparison group
  • Child functional status
  • Family functional status
  • Parent satisfaction
• Utilization
  • Admissions
  • ER use
  • EPSDT compliance
  • Over one year relative to comparison group
• Post-implementation PCC review
  • Qualitative interviews at 4 sites

EVALUATION OF MANUAL

• Parent survey
  • Use
  • Strengths and weaknesses
  • Usefulness
• Provider survey
  • Use
  • Strengths and weaknesses
  • Impact on practice

CONCLUDING THOUGHTS

• Medicaid managed care offers opportunities to change system for the better
• To seize that opportunity must have relevant players in a given state at the table listening to each other
• Key elements to make managed care work for cshcn are being to emerge
• These elements must be addressed at each stage of implementation, from early planning to final evaluation

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Planning Grant: Services for Children with Chronic Illness and Disease in an HMO

Barbara E. Staub, M.D.
Barbara Staub has been at the White Bear Lake Clinic for 13½ years and enjoys her practice. As a general pediatrician, she sees a wide range of illness as well as doing a lot of preventive, well-child care. Dr. Staub's special interests are in chronic illness and disability.

Dr. Staub received her medical degree at the Albany Medical College in 1980. She did her pediatric internship and residency at the University of Minnesota Medical School and was board certified in 1986. Her other professional activities have been a Clinical Assistant Professor, Department of Pediatrics, University of Minnesota Medical School; and Fellow, American Board of Pediatrics.

A COLLABORATIVE PROJECT

• PACER Center
• University of Minnesota
• HealthPartners

STUDY OBJECTIVES

• Comprehensive assessment of the needs and services, and the costs of services for a pediatric population with chronic illness and disability in a managed care environment.
• Examine the interface between our managed care system and education and social services.

STUDY COMPONENTS

• Parental Evaluation
• Cost and Utilization Data
• Primary Care Physician Survey
• Community Advisory Board

PARENTAL ASSESSMENT

• Family Advisory Board
• Family Interviews

PARENT ADVISORY BOARD

• Case Management Services Desired
• Mental Health Services Desired
• Information Source About HP Policies Desired

PHYSICIAN SURVEY

• 29 Physicians Surveyed
• Time
• Benefits
• Care Coordination

COMMUNITY ADVISORY COUNCIL

• Case Management
  • Agency's Perspective
  • Family Perspective
• Improved Communication Between Agencies and Health Systems
• Monitoring of Short and Long-Term Outcomes
• Monitoring of Costs

HEALTHPARTNERS PROVIDES

• Access to Subspecialist Care
• Medical Care Management by Pediatrician
• Benefits which are Supplemented by other Sources

NEXT STEPS

• Provide Family-Centered Case Management
• Address Mental Health Needs
• Provide Comprehensive Assessment of Total Costs
• Create Outcome Measures
• Provide Coordination among Agencies Involved in these Children's Lives

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State Medicaid Managed Care Policies Affecting Children with Chronic or Disabling Conditions

Harriette B. Fox
Harriette Fox is the President of Fox Health Policy Consultants, a small Washington-based consulting firm specializing in the financing and delivery of maternal and child health services, and the co-director of the Maternal and Child Health Policy Research Center. She has had extensive experience managing projects examining Medicaid, private health insurance, and other financing arrangements to support services to children, with a particular focus on issues pertaining to managed care and health insurance reform. Her work has included analyses of Federal laws and policy options; evaluations of State Medicaid and maternal and child health programs; surveys of State and private industry insurance practices; and consultation to numerous State and private organizations. She has published extensively on the subject of health care financing and children. Before establishing Fox Health Policy Consultants in 1982, Ms. Fox was the Senior Program Analyst for the Select Panel for the Promotion of Child Health. She also had served as a consultant to the Institute of Medicine and the National Health Policy Forum.

Margaret McManus
Margaret McManus is President of McManus Health Policy, Inc., a small consulting firm which specializes in managed care and health insurance reform affecting children. She also co-directs a Maternal and Child Health Policy Research Center for Paul Newacheck and Harriette Fox, funded by the Federal Maternal and Child Health Bureau. For the past 15 years, Ms. McManus has consulted with the American Academy of Pediatrics' Committee on Child Health Financing and a variety of other national, State, and local organizations. She has recently assisted the Maternal and Child Health Bureau in convening a series of managed care work groups on definitions, capitation and risk adjustment, quality of care, and family participation. Ms. McManus has published extensively on the subject of health care financing and children. Most recently, with Harriette Fox, she has completed a report entitled, Medicaid Managed Care for Children with Chronic or Disabling Conditions: Improved Strategies for States and Plans.

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Families' Out-of-Pocket Expenses When Caring for Children With Special Needs: A Preliminary Report Comparing Children in Medicaid and a Commercial Product Line

Elizabeth A. Shenkman, Ph.D.

INTRODUCTION

Despite the growing interest in enrolling children with special health care needs in managed care plans, remarkably little is known about the effects of managed care on this vulnerable group.^{1, 2} This lack of information is due, in part, to the fact that many private managed care organizations (MCOs) are unwilling to release person level use data so that analyses can be conducted on those enrollees who have special health care needs. In addition, states with Medicaid managed care plans have exempted some or all children with special needs from enrollment in these plans. Therefore very limited data from the public sector are available.^{3, 4}

Many concerns have been raised about how children with special health care needs and their families will fare within a managed care environment. It is not known whether families will be able to obtain the services their children need in an environment where health care use and expenditures are closely monitored. Within the current fee-for-service system, families often face strong financial burdens both in terms of out-of-pocket expenses and caregiving time. These financial burdens are disproportionately borne by lower-income families.⁵ Some believe that placing children with special health care needs in managed care arrangements will result in even higher out-of-pocket expenses for families as they enter a system with stringent health care utilization management and potential financial disincentives to physicians to provide care or make referrals.⁶

PURPOSE

The purpose of this paper is to present preliminary information about families' out-of-pocket expenses when caring for children with special health care needs. Families' expenses for two groups of children are presented. The first group are commercially-insured children with special needs who are receiving care through private health maintenance organizations. The second group are children with special needs who are receiving care through Medicaid fee-for-service or primary case management programs.

The information in this paper is preliminary because we are continuing to collect data both for the Commercially insured and the Medicaid populations. In addition, we are presenting the findings from the survey data only. We have actual health care use data from the HMOs and Medicaid from their claims and encounter data bases for each child in the study. However, these data have not been completely analyzed and therefore are not included in this report.

METHODS

The Third Party Payers Participating in the Study

The Third Party Payers--Commercial: The commercially insured children participating in this study to date are insured through a special program designed to provide subsidized insurance premiums to previously uninsured children. Families with incomes below 130% of the federal poverty level (FPL) pay $5.00 per child per month; those between 131% and 185% of the FPL pay $15.00 per child per month; and those at 186% of the FPL or above paid the full premium of $50.00 per child per month. Approximately 30,000 children are currently enrolled. The benefit package is the same as that offered through Medicaid (Table 1). A key program feature is the provision of care through the private sector. The program is not intended to extend Medicaid coverage or to provide health care as a variation of the current Medicaid system for children in Florida. A private not-for-profit corporation negotiates contracts with HMOs to assume the financial risk and to provide health care services for the children. Four HMOs currently have contracts and deliver care through private physicians' offices and clinics in the children's communities. Both pediatricians and family practitioners serve as the children's primary care providers. Extensive specialty networks including tertiary care facilities are available through the HMOs. Program enrollment is voluntary.

The Third Party Payers--Florida Medicaid: The Medicaid Program in Florida offers coverage to the following children: (1) children less than one year of age and pregnant women at 134% to 185% of the FPL; (2) children one to six years of age at 101% to 133% of the FPL; and (3) children six to thirteen years at 100% of the FPL or below. Forty-nine percent of children receiving Medicaid are enrolled in the Medipass Program which is a Primary Care Case Management Program. Physicians provide care coordination for these children on a capitated basis. Any services provided beyond care coordination are reimbursed at a Medicaid fee-for-service rate. Catastrophic coverage is available through Florida Medicaid.

Sample Selection

Children were initially identified for possible inclusion in the study through the following steps:

1. Each HMO and Florida Medicaid provided child-specific health care use data including International Classification of Diseases, Clinical Modification, 9th Revision (ICD-9-CM) codes for each health care encounter.

2. In collaboration with two physicians from the University of Florida, Department of Pediatrics, we developed a list of ICD-9-CM codes that might indicate the child had a special health care need. The list was intentionally broad and included conditions of high and low prevalence (Appendix A).

3. The health care use data bases were searched to identify those children who had at least one health care visit during which an eligible ICD-9-CM code was identified. We then identified those children with an eligible ICD-9-CM code who were enrolled within three months preceding the sample selection. We wanted to include those who were recently enrolled so that the survey data and health care use data were as contemporaneous as possible.

   Table 2 shows the number of children identified across each HMO and Florida Medicaid for possible inclusion in the study. As expected, significantly more children were identified as possibly having a special health care need through the Medicaid data base than through the private HMO data bases (33% versus 14%).

4. Once the commercially insured children were identified from the data bases, we contacted a census of all those potentially eligible and administered a series of screening questions to determine final eligibility into the study. The screening questions were used to ensure that we only included those children who had moderate to severe health care needs. The following screening questions were used:

   1. Because of a physical or mental condition, does your child require more supervision than other children of his/her age?
   2. Does your child require extra or specialized medical care, therapies, supplies or medical equipment because of a special health care need?
   3. Has your child had his/her special health care need for 6 months or longer?

   Those children whose families answer yes to question a or b and c will be included in the study. That is, a family who has a child (1) requiring increased supervision or has a child who requires specialized medical care, therapies, supplies, or medical equipment because of a special health need; and (2) the child has had the condition for 6 months or longer were included in the study.

   Questions about activities of daily living (ADLS) were not used as initial screening questions because, based on our past work, a significant number of children may have special health care needs with no ADL deficits. For example, a child with mental retardation could have many needs for educational interventions and supervision resulting in additional financial and caregiving burdens on the families; yet have no ADL deficits.

   Table 3 shows the number of parents with commercially insured children meeting the ICD-9-CM criteria who were contacted, the number who met the screening question criteria, and the number who participated in the survey.

5. Because so many children in the Medicaid data base had an ICD-9-CM code that might qualify them for inclusion in the study, we obtained a simple random sample of the Medicaid enrollees to contact. The same screening questions described in Step 4 also are being used to determine final study eligibility for the Medicaid population. We randomly selected 5,500 children, administered screening questions to 112 parents to date, and obtained 76 completed interviews (Table 3). We expected to find not only a greater number of children with special health care needs in the Medicaid data base, but also more children with significant health care needs when compared to the HMO population. As expected, more children in the Medicaid data base met the screening questions for inclusion into the study when compared to the pediatric HMO population (23% versus 10%).

6. At the present time, we have completed surveys for 387 children in the commercial product line and 76 children participating in the Medicaid Program. The data for these children are presented in this report. As previously mentioned, we are continuing to conduct surveys among the Medicaid enrollees and also among children who are receiving health insurance through other commercial product lines offered by the HMOs with whom we are working.

Measures of Caregivers' Out-of-Pocket Expenses

We developed the Caregivers' Out-of-Pocket Expense (COPE) Survey to assess the following dimensions for expenses:

• Direct Expenses--medical care expenditures for diagnosis, treatment, continuing care, rehabilitation and terminal care. Expenses for the following services are included in this category: physical therapy, occupational therapy, speech therapy, skilled nursing (registered nurse/ licensed practical nurse), personal attendant, respiratory therapy, specialized day care, counseling, doctor's visits in clinic or office, hospital care, medications and home medical equipment.
• Other Direct Expenses--expenditures for the following items or services: respite care, special diets or formulas, medical supplies, special or additional clothing, diapers not normally used at the child's age, transportation costs, educational services related to the child's special health care need, assistive technologies, transportation related to the child's special health care needs, emergency transportation, purchase of a car or van related to the child's special health care needs, and home modifications.
• Indirect Expenses--time spent in providing care for the child and lost employment opportunities.

Survey items initially were developed based on a literature review of expenses families incur when caring for children with disabilities.^{7, 8, 9} A panel of reviewers reviewed the first two drafts of the surveys for content. Reviewers included: a generalist pediatrician from an academic health center who specializes in caring for children with special health care needs, a family economist, a health care economist, two state Title V Children with Special Health Care Needs (CSHCN) Program Directors, two families who have children with special health care needs, and two policy analysts from the former Congressional Office of Technology Assessment. Following the content reviews, the survey was revised and field tested with 60 families. Based on the field testing, a final version of the survey was developed and used in this research.

This phase of our research focuses on families reported direct and other direct expenses. Families were determined to have incurred direct or other direct out-of-pocket expenses if the respondent indicated that the child received the particular service or item and it was paid for either entirely or in part by the parent or guardian, another relative residing in the household, or the child's Supplemental Security Income (SSI) check. The respondent was asked what the out-of-pocket expense was for the preceding month and for the preceding year for each service or item the child received. He or she also was asked if the expenditure for the month was typical or not and if the dollar amount provided was based on actual records or an estimate.

If the family was required to pay a co-payment for a service and the payment was made according to the criteria described in the preceding paragraph; the dollar amount was attributed to the particular category for which the co-payment was required. For example, in the commercially insured population, families are required to pay a $3.00 co-payment for an acute care visit to their primary care provider. The $3.00 co-pay would be described as an out-of-pocket expense for a doctor's visit. Thus out-of-pocket expenses could represent a co-payment for a particular service or item; an expenditure for a service or item not covered in the benefit package; or a service or item that was covered by the benefit package but the maximum amount allowed for payment was exceeded and the family had to begin paying.

Measures of Child's Functional Status

We used the Functional Status Rating Scale [FSII(R)], short form, to assess the children's level of functioning. The FSII(R) assess a child's functioning in the areas of social behavior, sleeping, eating, and activities.¹⁰ The instrument also was specifically designed to detect changes in a chronically ill child's functioning across time. The short version contains 14 items and has an alpha coefficient of 0.80. An alpha coefficient measures the degree to which the items on an instrument measure the same concept.¹¹ The alpha coefficient of .80 means that the items on the FSII(R) are consistently measuring the same concept.

The instrument is scored from 0 to 100 with 100 representing the highest functioning. The developers established concurrent validity by correlating the FSII(R) measures with established measures of morbidity such as days in hospital and school absences. The correlations were moderate ranging from .24 to .47. A copy of the items are contained in Appendix B.

Demographic Measures

We gathered information about the family's race and ethnicity, respondent's age, total family income, and participation in the SSI Program for children. In addition, we asked about the child's age and diagnosis.

Data Analysis

Descriptive data only are presented for this phase of the study. Specifically we will describe the following:

• The children's demographic characteristics.
• The diagnoses (grouped together into diagnostic categories) and the FSII(R) scores by diagnostic category of the children in the HMOs and Medicaid.
• The amount families spent on direct and other direct expenses expressed both in dollar amounts and as a percentage of family income for children in the HMOs and Medicaid.
• The amount families spent on direct and other direct expenses expressed both in dollar amounts and as a percentage of family income by diagnostic category for children in the HMOs and Medicaid.
• The dollar amount spent for specific services and items (i.e. physical therapy, supplies, medications, and others) for children in the HMOs and Medicaid.

RESULTS

The Study Sample

Children enrolled in Medicaid varied from children in the commercial program on several characteristics (Table 4). A higher percentage of children in Medicaid were African-American (15% versus 8%) and from lower income homes. Thirty percent of the Medicaid enrollees reported an average family income of less than $9,999 per year compared to only 13% of the commercially insured. However, overall both groups had low incomes with 15% or less of the respondents reporting a family income over $35,000 per year. In addition, children in the Medicaid program had significantly lower scores on the FSII(R) than the commercially insured children (p<.01). When reporting out-of-pocket expenses, it is important to note that a higher percentage of families in the commercially insured group when compared to the Medicare group used actual records rather than recall to report their expenses.

More than 70 different diagnoses are represented in this study. Given the diverse array of diagnoses, children were classified into categories (Table 5). We used the Social Security Administration's diagnostic categories that are contained in their medical listings of impairments. Children in Medicaid had a broader range of diagnoses and more severe diagnoses than children in the commercially insured group. The most striking example can be found in the respiratory category. Ninety-two percent of the commercially insured children in the respiratory category had a diagnosis of asthma compared to only 2% of the children receiving Medicaid. Children who received Medicaid and were classified in the respiratory category had diagnoses including: ventilator dependency, cystic fibrosis, and chronic respiratory failure.

The greatest similarity in diagnoses was found in the category of mental and emotional disorders. Attention deficit disorder (ADD) or attention deficit hyperactivity disorder (ADHD) were the most frequently occurring conditions with 80% of the commercially insured children and 74% of the children in Medicaid in this category having one of these two diagnoses. Depression and mental retardation were also seen in this category for both groups.

In addition to classifying into diagnostic groups, we obtained FSII(R) scores on each child. Prior research has documented that there is wide variability in functioning both between and within diagnoses; therefore classifying children according to their functioning as opposed to a diagnostic label is a valuable approach. The children's FSII(R) score by diagnostic category is contained in Table 5. With the exception of neoplastic diseases, children in Medicaid had lower scores for each diagnostic category when compared to commercially insured children. For both groups, children with mental and emotional disorders had the lowest scores in functioning. However, these low scores may reflect the fact that the instrument used contains many items that could be indicative of a mental or behavioral problem such as items referring to the child's mood, cheerfulness, and crying behavior. Few of the items specifically refer to limitations in physical activity.

The Amount Families Spend on Direct and Other Direct Out-of-Pocket Expenses

Given the higher functional status scores of children in the commercially insured program, it is not surprising that families incurred less out-of-pocket expenses in both absolute dollar amounts and in terms of the amount spent as a percent of family income when compared to Medicaid enrollees. Tables 6 and 7 illustrate the amount families spent out-of-pocket on direct and other direct expenses. Cross-tabulations of families' out-of-pocket expenses by income level reveal that families with incomes below $14,999 per year spend a disproportionate amount of their income on caring for their children when compared to families with incomes above that amount. While the average amount of out-of-pocket expenses as a percent of family income was only about 2% for the commercially insured, these expenses represented 12% of family income for those reporting incomes below $14,999. A similar regressive pattern was noted for Medicaid recipients with families at the lowest income levels paying as much as 32% of their income to care for their children with special needs.

Families with children in the commercial insurance program spent about equal amounts of money per month on direct and other direct expenses. However, families who had children in the Medicaid program spent greater amounts of money on other direct expenses. These other direct expenses included items and services that are not traditionally covered by Medicaid or other third party payers. Table 8 describes specific expenditures by third party payer category. Families incurred expenses for medications, special diets, assistive technologies, and respite care that are not contained in the Medicaid benefit package. Those families who received supplemental security income (SSI) reported spending this money on these and other items that were described in the "other direct expense" category. Ninety percent of families reported using the child's SSI check for one or more of the items or services in this category.

An important but often neglected area of out-of-pocket expenses to the family is that of indirect expenses or the time families spent caring for the child and lost employment opportunities. For this report, we calculated the average amount of time in hours that families reported spending in caregiving activities for their children with special needs. The number of hours spent in caregiving was obtained through the following methods:

• Obtaining a listing of each person residing in the household, the person's age and relationship to the child with special needs;
• For each person 18 years of age or older, asking if that person spent any time providing care to the special needs child, and if so the number of hours spent providing that care; and
• Summing the number of caregiving hours across all members of the household who indicated that provided care.

We obtained the following results:

• Eighty-five percent of families whose children were receiving Medicaid reported spending time in specific caregiving activities. They reported spending an average of 15.33 hours per day (± 9.19; range 0 to 24 hours) in care provision.
• Forty-eight percent of families whose children were commercially insured reported spending time in specific caregiving activities. On average, these families spent 8.76 hours per day (± 3.2; range 0 to 11 hours) providing care.

We have several more items about families caregiving activities and the impact that this has had on their employment. These data will be analyzed in future work.

SUMMARY

The data contained in this report are preliminary. We are gathering more survey data from Medicaid and from other commercial product lines. However, some patterns are noted in these data that have important implications when designing health care programs and financing mechanisms for children with special health care needs.

Families incur significant out-of-pocket expenses when caring for their children. Lower income families bear the heaviest financial burden with expenses as high as 32% of their total income. While families with children in the HMOs have less expenses than those families with children in Medicaid, they still bear out-of-pocket expenses that take the heaviest toll on the lowest income groups. Benefit packages must be designed that consider the broad array of services required by children with special health care needs including respite care and educational technologies.

Moreover, the impact on the family in terms of their time must be considered. Perhaps health care expenditures can be minimized but at great personal cost to families. Particularly for families receiving Medicaid, more than half of their day can be spent providing care to their children with special needs. The economic impact of this activity must be considered.

Often it is difficult to compare out-of-pocket expenses between different third party payers due to differences in benefit packages. In this phase of our study, all of the children received the same benefits. Although this is a preliminary report, differences in out-of-pocket spending can largely be attributed to differences in the children's health status. Children in Medicaid had much lower scores on functioning when compared to children in the commercially insured group.

Further analytic work will be conducted using regression techniques to more fully describe the factors influencing out-of-pocket expenses. In addition, we will include the children's health care use data from the claims data bases as well as measures of the time families spend in caregiving.

NOTES

1. Ireys, HT. "Children with Special Health Care Needs: Evaluating Their Needs and Relevant Service Structures." Paper commission by the Institute of Medicine. Baltimore, MD: Johns Hopkins University, November 1994.
2. Batavia, AI. "Health Care Reform and People with Disabilities." Health Affairs. 1993; 12:40-55.
3. Ireys, HT. "Children with Special Health Care Needs: Evaluating Their Needs and Relevant Service Structures." Paper commission by the Institute of Medicine. Baltimore, MD: Johns Hopkins University, November 1994.
4. Butler, P, RL Mollica, and T Riley. Children's Health Plans. Portland, ME: National Academy for State Health Policy, 1993.
5. Rasell, E, J Bernstein, and K Tang. "The Impact of Health Care Financing on Family Budgets." Challenge. November-December 1993:12-21.
6. Newacheck, PW, DC Hughes, JJ Stoddard, and N Halfon. "Children with Chronic Illness and Medicaid Managed Care." Pediatrics. 1994; 93:497-500.
7. Newacheck, PW, and N Halfon. "The Financial Burden of Medical Care Expenses for Children." Medical Care. 1986; 24:1110-1117.
8. Jacobs, P, and S McDermott. "Family Caregiver Costs of Chronically Ill and Handicapped Children: Method and Literature Review." Public Health Reports. 1989; 104:158-163.
9. Leonard, B, JD Brust, and JJ Sapienza. "Financial and Time Costs to Parents of Severely Disabled Children." Public Health Reports. 1992; 107:302-312.
10. Stein, REK, and DJ Jessop. Manual for the Functional Status II(R) Measure. New York: Albert Einstein College of Medicine of Yeshiva University, 1991.
11. Aday, L. Designing and Conducting Health Surveys. San Francisco, CA: Jossey-Bass, 1991.

APPENDIX A. ICD-9-CM CODES USED TO IDENTIFY CHILDREN FROM THE CLAIMS/ENCOUNTER DATA

APPENDIX B. ITEMS USED TO MEASURE FUNCTIONAL STATUS

Enter child number and first/last name of child with special health care needs listed in Section 1, #16.

Child Number:__________ First Name:__________ Last Name:__________

FUNCTIONAL STATUS II (R) 14-ITEM VERSION (English)

Here are some statements that mothers have made to describe their children. Thinking about __________ (INDEX CHILD), during the last two weeks did he/she...

Copyright 1981
Ruth E.K. Stein, M.D.
Catherine K. Riessman, Ph.D.
Dorothy Jones Jessop, Ph.D.

[Table of Contents]

Managed Care Enhancement Project for Children with Special Health Care Needs: Family and Primary Care Clinician Needs Assessment Methods and Description of Survey Respondents

METHODS

A needs assessment was conducted to gain a better understanding of the needs and concerns of families of children with special health care needs enrolled in MassHealth Managed Care and primary care clinicians (PCCs) in the MassHealth Primary Care Clinician Plan. Surveys, which focussed on issues identified by the project Advisory Committee, were utilized to identify the needs and concerns of families and PCCs. Focus groups were then held in order to clarify and enhance survey data. Focus groups also provided a forum in which participants could generate ideas and recommendations for potential interventions to address their concerns. The results of the assessment were used to guide the development of appropriate interventions to enhance the care of children with special health care needs in MassHealth Managed Care.

Criteria Used for Defining MassHealth Population of Children with Special Health Care Needs

In order to identify the population of children with special health care needs enrolled in MassHealth Managed Care, the following criteria were used: Children with special health care needs were defined as those children aged 18 and under who were enrolled continuously (with no more than a 45 day break in eligibility in FY 94) in the MassHealth Managed Care program, and who were either (1) receiving SSI or (2) receiving AFDC and had at least one Early Intervention claim in FY 94.

Surveys

Surveys were sent to a random sample of families of children with special health care needs enrolled in MassHealth and PCCs in the MassHealth PCC Plan. All families were sent both English and Spanish versions of the survey. Three hundred twenty-one family surveys (including 67 Spanish versions of the survey) and 285 PCC surveys were returned. This represents a 32% and 31% response rate, respectively. Analysis of family survey data did not reveal any significant differences in the responses of English and Spanish respondents. Analysis of PCC survey data did not reveal any significant differences in satisfaction or needs between PCCs with high and low proportions of children with special health care needs in their practice, or between PCCs in different practice types.

Focus Groups

Four family and two PCC focus groups were conducted. The family focus groups were held in Lawrence, Boston, Hyannis and Holyoke. The Holyoke focus group was conducted in Spanish. The PCC focus groups, which were comprised of PCCs from a variety of practice types and cities and towns throughout Massachusetts, were conducted as conference calls.

DESCRIPTION OF SURVEY RESPONDENTS

Family Respondents

321 families completed the family survey (32% response rate). The mean age of respondents' children was 9.7 years, with 2.5% under 3 years of age and 52% between 3 and 10 years of age. There was no significant difference in age or race between respondents and non-respondents. When asked to describe their child's current special health care needs, 6% described the need as a physical limitation only, 12.5% described the need as one that requires help with every day activities, and 33% described the need as one resulting in difficulty with social relationships only. The remaining respondents reported a combination of different types of needs.

PC Respondents

285 PCCs completed the PCC survey (31% response rate). 59% were from group practices, 17% were solo practitioners, and 24% were from outpatient departments or community health centers. Of the 285 respondents, 194 were eligible to complete the entire survey. (91 reported that they either did not provide primary care for Medicaid enrolled children under age 18 or did not provide care for children with special health care needs, and were therefore instructed not to continue beyond the first few survey questions.) Therefore, 194 surveys were used for analysis. When asked to describe their patient population by estimating the proportion of children with special health care needs that fall into various categories, the average responses were as follows:

• chronic disease or physical disability category: 39.4% of caseload
• cognitive impairment category: 30.0% of caseload
• mental health or behavior impairment category: 32.4% of caseload

When asked to estimate the proportion of their entire caseload comprised of children with special health care needs, the mean response was 10.4% (range between 1% and 100%). 60% reported that less than 10% of their caseload was comprised of children with special health care needs.

[Table of Contents]

Managed Care Enhancement Project for Children with Special Health Care Needs: Primary Care Clinician Survey--Mail Survey

[Table of Contents]

Managed Care for Children with Special Health Needs: Parent Survey

[Table of Contents]

Overall Findings of Needs Assessment

An analysis and integration of survey and focus group data revealed overall satisfaction of families and primary care clinicians (PCCs) of children with special health care needs to be generally high. However, when satisfaction with different aspects of care is compared, both families and PCCs reported being less satisfied in some areas than in others. These areas, information, family supports, and coordination of care (in particular, coordination of care regarding home health services, hospitalization and discharge planning, and school health services) were identified by both families and PCCs as areas that present opportunities for improvement.

This summary report includes key findings of the family needs assessment, followed by key findings of the primary care clinician needs assessment.

FAMILY NEEDS ASSESSMENT

Three hundred twenty-one family surveys were completed, and four family focus groups were held. Tables I-IV describe key survey findings. Table V is a summary of the family needs assessment and incorporates key findings of both the survey and focus groups.

The family survey measured overall parent satisfaction in five different areas of care. Table I describes the responses to the five overall satisfaction questions. Most respondents reported being satisfied in most areas in most areas measured. However, when comparing the responses to the overall satisfaction questions, we see that the provision of information and the availability of supports to help parents care for their children with special health care needs stand out as areas in which fewer parents reported themselves "very satisfied." This comparison, in conjunction with the knowledge that patient satisfaction surveys generally reflect a somewhat positive or favorable bias, suggests that the provision of information and availability of family supports are areas that may benefit from improvement.

Parents reported some types of information and supports to be more accessible than others. Tables II and III list parents' ratings of the accessibility of different types of information and supports.

Although overall satisfaction with primary care physicians' coordination of medical care was high (94%), respondents reported primary care physician involvement to be low in several critical areas of care coordination: discharge planning, home care, and school health services. These areas are highlighted in Table IV. These responses are in striking contrast to the responses in other areas measured regarding the primary care physician's role in care coordination. Other areas of care coordination measured revealed primary care physician involvement to be always/usually present for at least 87% of respondents.

One suggested explanation for parents' high level of overall satisfaction with primary care physicians' coordination of medical care, despite low primary care physician involvement in these areas, is that parents may not view communication and coordination with hospital discharge planning, home care, and schools as part of the role of their child's primary care physician and therefore do not attribute them as contributing to their satisfaction (or dissatisfaction) with the way in which the primary care physician coordinates their child's care.

In order to gain further insights regarding the problems of information, support, and care coordination, parents were asked to elaborate on these areas in focus groups. Highlights of the focus group discussions are described in Table V (on the following page), along with a summary of key findings from the parent survey.

Summary of Family Needs Assessment

Parents of children with special health care needs identified the availability and accessibility of information, family supports and care coordination, particularly coordination of care surrounding hospitalization, discharge planning, home care and school health services, as areas that could benefit from improvement. Focus group discussions confirmed these survey findings. They also provided anecdotal information from parents about concerns regarding uncovered or under-covered services. Areas in which parents felt there to be gaps in services included durable medical equipment; dental health services; mental health services; transportation; and interpreter services.

The problems of family supports and gaps in services are not unrelated to those of information and care coordination. Interventions that improve the dissemination of information to both families and primary care physicians may also address the problem of limited access to family supports and perceived gaps in services.

PRIMARY CARE CLINICIAN NEEDS ASSESSMENT

Surveys were received from 285 PCCs: 194 surveys were used for analysis. (91 PCCs were not eligible to complete the entire survey and were therefore excluded from analysis.) Two PCC focus groups were held. Table VI describes selected survey results. Table VII summarizes the PCC needs assessment by incorporating key findings of both the survey and focus groups.

Overall PCC satisfaction in three areas measured by the survey was high. Most respondents reported being satisfied in most of the specific areas measured. In general, respondents reported that "making a difference," and watching a patient progress, grow and develop were key factors contributing to their satisfaction. However, when probed, several areas emerged as areas in which there is room for improvement. Table VI includes a summary of these findings.

Primary Care Clinicians identified several areas of care that could benefit from improvement. The areas identified were those related to care coordination and information regarding the care of children with special health care needs. A summary of key findings of the PCC needs assessment, highlighting PCC concerns, is presented in Table VII.

Summary of PCC Needs Assessment

PCCs identified coordination of care of children with special health care needs, mostly related to the provision of home care services, hospital discharge planning, specialists, schools and parents, as an area in need of improvement. Coordination of care was described as particularly difficult for those children with multiple needs who are serviced by many agencies. PCCs also identified a lack of information--or difficulty in accessing information--regarding the care of children with special health care needs as a problem both for themselves and for parents. In addition, PCCs reported a concern that time limitations prevent them from meeting all of the needs of the child and family. Interventions that improve the dissemination of information and strategies to improve care coordination may, in fact, reduce this problem of time limitations.

[Table of Contents]

SESSION 2: IMPACT OF MANAGED CARE ON ADULTS WITH MENTAL ILLNESS

Reactor Biographies

Howard H. Goldman, M.D., M.P.H., Ph.D.
Howard Goldman is Professor of Psychiatry at the University of Maryland, School of Medicine at Baltimore, where he is Director of Mental Health Policy Studies. From 1983-1985 he served as Assistant Institute Director at the NIMH, where he was responsible for mental health care financing policy and related research. He continues to consult to the Federal Government on health care finance, including his service in 1993 on the President's Task Force on Health Care Reform.

As Assistant Director of NIMH, he worked with the Social Security Administration (SSA) on the revision of the mental impairment standards for the disability program. Subsequently, he consulted to the American Psychiatric Association on a SSA contract to assess the reliability and validity of those standards. Dr. Goldman has written several articles in the professional literature on the SSA disability program and recently conducted a published review of measures of functional assessment. He also consulted to Westat on the design of the Disability Examination Study for SSA, and he is a member of the National Academy of Social Insurance Policy Panel on Disability.

Dr. Goldman is a frequent contributor to the professional literature in mental health services research and economics. His resume lists ten books, 20 monographs and reports, and over 150 articles and chapters. Dr. Goldman's editorial board appointments have included Health Affairs, Journal of Mental Health Administration, Psychiatric Services (formerly Hospital and Community Psychiatry), and the American Journal of Psychiatry. In addition, he has just completed the fourth edition of his textbook for medical students, Review of General Psychiatry.

Michael F. Hogan, Ph.D.
Michael Hogan has served as Director of the Ohio Department of Mental Health since March 1991. He was Commissioner of Mental Health in Connecticut from 1987-1991 and was credited with leading that State to a fourth place ranking among the State mental health systems in 1990--tied with Ohio. Previously, he served as a Regional Director and State Hospital Superintendent in Massachusetts, and was responsible for administering mental health and mental retardation programs in Western Massachusetts.

Dr. Hogan holds a bachelor's degree from Cornell University and a Ph.D. from Syracuse University. He is President of the Board of the National Association of State Mental Health Program Directors (NASMHPD) Research Institute and serves on the National Advisory Council, which approves NIHM research grants. He has authored a text and numerous book chapters and papers on mental health care, with his most recent publications focussed on The Organization and Financing of Mental Health Care and Managing the Whole System Under Managed Care. He is married and has three sons.

[Table of Contents]

Severely Mentally Ill HMO Members

Bentson H. McFarland, M.D., Ph.D.
Bentson McFarland is Professor of Psychiatry, Public Health and Preventive Medicine at Oregon Health Sciences University and Adjunct Investigator at the Kaiser Permanente Center for Health Research in Portland, Oregon. He received his M.D. degree and a Ph.D. in biostatistics from the University of Washington in Seattle. He conducts research on mental health services, pharmacoeconomics, and pharmacoepidemiology.

RESEARCHERS

• Bentson H. McFarland, M.D., Ph.D.
• Richard E. Johnson, Ph.D.
• Mark C. Hornbrook, Ph.D.

BACKGROUND: MEDICAL OUTCOMES STUDY

• Depressed psychiatric patients disenrolled from HMO sooner than comparable fee for service patients
• No HMO controls

OBJECTIVES

• Enrollment duration
• Service use
• Cost of care

SEVERELY MENTALLY ILL HMO MEMBERS

• Specialty mental health users
• Diagnosis of schizophrenia or bipolar disorder
• Cohort #1
  • Outpatient records 1986-1987
  • Follow-up through 1990
• Cohort #2
  • Inpatient records 1990-1991
  • Follow-up through 1995

CONTROLS (AGE AND SEX MATCHED)

• Membership
• Pharmacy users
• Diabetic patients

SEVERELY MENTALLY ILL SURJECTS (COHORT #1)

• N = 250
• Age = 32
• Male = 50%
• Schizophrenia = 32%
• Prior state hospital use = 41%

PREDICTORS OF LONGER ENROLLMENT FOR SEVERELY MENTALLY ILL SUBJECTS (COHORT #1)

• Prior enrollment duration (p < .006 )
• Community mental health center use (p < .05 )

Note: HMO costs of care not predictive of enrollment duration

CONCLUSIONS

• Severely mentally ill HMO members maintain HMO enrollment (as do other ill HMO members)
• Community mental health center use associated with longer enrollment
• HMO costs of care not related to enrollment duration

[Table of Contents]

Colorado's Early and Preliminary Experience with Capitation for the Severely and Persistently Mentally Ill Adults

Joan R. Bloom, Ph.D.
Joan Bloom is Professor of Health Policy and Administration at the University of California, Berkeley in the School of Public Health. She received her doctorate in Sociology of Education at Stanford University. She is a Co-Investigator at the Center for Mental Health Services Research. In addition, she is an Affiliated Investigator at the Northern California Cancer Center and a Consultant for the Stanford University Medical Center. Her research interests include organizational studies and community services focused on the delivery of medical and mental health services. She has had a long-standing interest in prevention and early detection of chronic disease. She is currently the Principal Investigator of two NIH funded studies: (1) the Colorado Capitation Study in which mental health services are being capitated for the Medicaid eligible population in the State of Colorado funded by the National Institute of Mental Health; and (2) Young Women with Breast Cancer, funded by the National Cancer Institute in which ethnically diverse, newly diagnosed younger women in the greater Bay Area are assessed and provided with a psychosocial support intervention. She is also involved in a longitudinal study focused on work redesign of hospital nurses. She serves on the Board of Directors of the Northern California Cancer Center and on the editorial boards of Cancer Prevention, Epidemiology and Biomarkers and International Journal of PsychoOncology. She serves on the Breast and Cervical Cancer Advisory Committee for the State of California and is Chair of their Evaluation Committee.

Dr. Bloom's teaching interests include organizational sociology, health care management, and program planning and evaluation. She teaches courses in program planning and evaluation, and master and doctoral level courses in organizational studies plus a variety of seminars.

RESEARCHERS

• University of California, Berkeley
  • Joan R. Bloom, Ph.D.
  • Teh-wei Hu, Ph.D.
  • Jaclyn W. Hausman, M.P.H., M.P.P.
  • Neal Wallace, M.P.A.
  • Richard Scheffler, Ph.D.
• MEDSTAT, Washington, DC
  • Brian Cuffel, Ph.D.

COLORADO'S MENTAL HEALTH SYSTEM

• Seventeen Community Mental Health Centers (CMHCs) provide the majority of outpatient services.
• Two state hospitals provide short and long term psychiatric services.
• Additional emergency services are provided in private facilities.

FEATURES OF CAPITATION PROGRAM

• Pilot program.
• Fully capitated--inpatient and outpatient.
• Carve-out.
• Covers all Medicaid beneficiaries needing mental health services.
• August/September 1995 program began.

SPECIFIC AIMS:

• Consumer Outcomes:
  • Do consumer outcomes differ?
• Access and Utilization:
  • Does access and utilization of mental health services change?
• Cost:
  • Does the cost of services differ?
• Cost-Effectiveness:
  • Does cost-effectiveness differ?
• Implementation and Innovation:
  • Does capitation facilitate innovation in public mental health systems?

SUBJECT CHARACTERISTICS

• Medicaid Eligible
• Gender (50% female, 50% male)
• Diagnosis:
  • Schizophrenia OR
  • Bipolar Affective Disorder OR
  • Any diagnosis and 24-hour care episode in previous year
• Cost (High cost/Low cost)*

*Only for 1994 sample

ORGANIZATIONAL CHANGE MEASURES:

• Community Program Philosophy Scale
• Organizational Culture Questionnaire
• Organizational Structure Survey
• Key Informant Interviews

[Table of Contents]

The Effects of Private Sector Mental Health Carve-Outs

Thomas G. McGuire, Ph.D.
Thomas McGuire is a Professor of Economics at Boston University. He has authored or edited three books and more than 100 published articles on health and mental health economics and policy. In 1983, his book, Financing Psychotherapy, received the Elizur Wright Award from the American Risk and Insurance Association recognizing an outstanding contribution to the literature on risk and insurance. He received the Carl Taube Award for outstanding contributions to mental health services research from the American Public Health Association in 1991. He has served as co-chair of three NIMH-sponsored conferences on economics and mental health, and has been the Research Director of a training program in economics and mental health at the Heller School at Brandeis University since 1981.

Dr. McGuire is the recipient of two sequential five-year Research Scientist Awards from the National Institute of Mental Health to study payment and financing of mental health services. Currently, he is also a recipient of an Investigator Award in Health Policy from the Robert Wood Johnson Foundation (joint with Richard Frank) to study reform of the organization and financing of mental health and substance abuse.

PRESENTATION NOT AVAILABLE AT TIME OF PRINTING. PLEASE REFER TO THE BACKGROUND PAPER COSTS AND INCENTIVES IN A MENTAL HEALTH AND SUBSTANCE ABUSE CARVE OUT.

[Table of Contents]

The Massachusetts Mental Health System Change

Barbara Dickey, Ph.D.
Barbara Dickey is Associate Professor, Department of Psychiatry, Harvard Medical School and Director of Mental Health Services Research at McLean Hospital. She has been studying the costs and outcomes of care for the seriously mentally ill in different treatment settings for many years, including studies of hospital alternatives, community-based systems and comprehensive treatment models that integrate acute and long-term care for the psychiatrically disabled. She has been a frequent contributor to the professional literature and has recently co-edited a book on measuring behavioral health outcomes in clinical practice. With NIMH funding, she recently completed a cost-effectiveness study of housing and treatment for adults who are homeless and mentally ill and she is current the Principal Investigator of an NIMH study of managed care in Massachusetts.

PRESENTATION NOT AVAILABLE AT TIME OF PRINTING. PLEASE REFER TO THE BACKGROUND PAPER MANAGING THE CARE OF SCHIZOPHRENIA.

[Table of Contents]

Costs and Incentives in a Mental Health and Substance Abuse Carve Out

Ching-to Albert Ma and Thomas G. McGuire
Draft; preliminary and unfinished
DO NOT QUOTE OR CIRCULATE

ACKNOWLEDGEMENT

Financial support from National Institute of Drug Abuse Cooperative Agreement 1-P50-DA10233-01 and grant K05-MH01263 from the National Institute of Mental Health is gratefully acknowledged. We thank our research assistant Didem Bernard for her excellent help. We are grateful to the Group Insurance Commission of the Commonwealth of Massachusetts for allowing us access to the data.

ABSTRACT

This paper examines the overall change in costs of mental health and substance abuse services in a carve out program initiated in 1993 by the General Insurance Commission (GIC) of the Commonwealth of Massachusetts. Claims data for two years before (July 1991-June 1993) and two years after (July 1993-June 1995) the carve out were obtained from the GIC. These data were accompanied by an eligibility file for the four-year sample period. The exact financial arrangements in the vendor-payer contract are examined and described. The paper provides a full description of incentives, including multi-year contract renewals, and the payments and incentives associated with the administrative portion of the payments. We use those incentives to generate hypotheses about the effects of managed care on patterns of service use and cost.

The paper quantifies the changes in costs between the two years before the carve out and the two years after. By examining patterns of services in a population of continuously enrolled individuals, we eliminate selection-related changes in characteristics of the population.

The paper's main contribution is to describe and decompose the effect of managed care for mental health and substance abuse and to relate the observed effects to the incentives in the contract. We show the total plan and employee payments by month of service date for all major categories of expenditures, such as inpatient, other residential, and office visits. Trends in medical care prices will be used to adjust the data. Our basic decomposition therefore show impact by type of services, and show this separately for plan and employee-paid costs.

Our findings indicated significant savings after the carve out. Total and plan costs reduced by 50% to 70% over the four-year period. The pattern of cost reductions are similar with respect to outpatient and inpatient services, as well as to mental health and substance abuse services. The estimated average price of a mental health outpatient visit increased over time in the sample period, whereas that of a substance abuse outpatient visit decreased slightly.

INTRODUCTION

Many big employers and payers have contracted with specialty management firms to administer the delivery of mental health and substance abuse (MHSA) benefits to their enrollees. This so-called MHSA "carve out" appears to be a most significant recent development, and has led to a new "behavioral healthcare" industry consisting of firms specializing in this service. Oss (1994) estimates that in 1994 over 50 million people in the U.S. are in some carve out program. "Risk-based" contracts, in which the specialty vendor (usually a for-profit corporation) bears some or all of the financial risk associated with MHSA services, are used in about half of all carve out programs. The rapidly growing use of separate carve-out contracts has been stimulated by reports of very favorable cost experience for many payers, with some savings reported to be in the range of 40 percent or more (Frank, McGuire and Newhouse 1995).

From an employer's or a payer's point of view, a carve out contract addresses the longstanding issues of moral hazard and adverse selection associated with insurance for mental health services (McGuire 1981; Frank, Huskamp, McGuire and Newhouse forthcoming; Frank, Glazer and McGuire 1996). Moral hazard is contained by the techniques associated with managed care--price negotiations, provider network selection and monitoring, prior authorization and utilization review. Adverse selection can be addressed by unification of the financial risks associated with mental health within a single contract; by pooling all persons in the same contract, no plans compete to avoid costly MHSA users.

Although the carve out approach offers these potential advantages in principle, the practical importance of this new form of insurance contract remains to be established. Favorable experience of innovative firms need not be a good predictor of what happens to the typical employer. First, if payers who first adopted carve out methods for MHSA services management are those with below average management efficiency in their previous existing plan ("low-hanging fruit" in the language of the industry), then the effectiveness of carve outs may be much less for payers with well-run plans (Frank, McGuire and Newhouse 1995). Second, the experience of a particular payer and population is often influenced by many specific factors, some of which may not apply to other payers. Therefore, it appears important to study the diversity of payer and population characteristics, vendors' management techniques, and the actual contracts between them carefully, before generalizations are made.

We contribute to the accumulating evidence on carve outs and managed care by reporting on the experience of the MHSA carve out of a major employer in Massachusetts--the Commonwealth itself. In this first paper in a continuing project on this case, we relate the incentives in the contract to the aggregate experience. First, we describe the MHSA carve out contract between the Commonwealth of Massachusetts and the vendor, and identify its incentive implications. Second, we analyze insurance claims data for two-year periods before and after the carve out. We examine the association between the contract incentives and the actual cost outcomes, and use the period before the carve out as a benchmark for comparison. Before-and-after comparisons can be problematic because the underlying population can change. We have therefore selected for detailed analysis a group of enrollees who are continuously covered for the entire four-year data period, and examine the actual use and cost experience for them before and after the carve out.

BACKGROUND AND LITERATURE REVIEW

A behavioral health carve-out program was initiated in 1993 by the GIC of the Commonwealth of Massachusetts. The largest private payer in the state with an enrollment base of about 120,000, the GIC is responsible for providing health insurance to state and some local employees and their dependents. The GIC contracted with a combination of traditional indemnity insurers as well as HMOs since the middle of the 1970s. Between fiscal years 1989 and 1992, the State Hancock Plan, administered by John Hancock Mutual Life Insurance Company, was the indemnity plan for GIC enrollees. This managed fee-for-service plan included preadmission certification, utilization and concurrent reviews, second opinions and discharge planning, as well as pharmacy provider networks as managed-care features. These provisions applied to all areas of medical care, including MHSA services. In addition, GIC contracted with 14 HMOs (staff/group and network models) and offered them as enrollment options to employees.

The GIC voted to change its health benefit plans in late 1991. The stated goal was to improve the value of services to employees given the overall expenditure level, increase enrollment in managed care, and reduce risk fragmentation and adverse selection problems (Group Insurance Commission, Request for Proposal, 1992, p.1-3). To achieve this, the GIC retained services of a management consulting firm to assist with the evaluation of its existing benefits program, and the search for alternative benefit designs. One of the consultant's recommendations adopted by the GIC was the development of a separate MHSA carve-out progarm for enrollees. By a proposal request and subsequent biddings and negotiations, GIC selected a behavioral health care firm, Options Mental Health, Inc., from among five applicants, to set up a managed care mental health network of physicians and providers, and to manage mental health and substance abuse care on a partially at-risk basis.

The trade press contains many favorable reports of the experience of employers with carve out plans. Battagliola (1994) summarizes the experience of IBM which implemented a behavioral health carve out in 1991. In 1989, IBM was spending $106 million on MHSA benefits for its employees and dependents; this was going up at 10 percent per year, and consuming 15 percent of all health benefit costs. The carve out (with Value Behavioral Health [VBH]) consisted of a PPO with differential in-network and out-of-network cost sharing, expansion of alternative treatments, strengthening of an Employee Assistance Plan (EAP), and utilization review. By 1993, IBM's mental health costs had fallen to $59.2 million and only 10 percent of health benefit costs. Clearly, something happened here! The article provides some information about enrollment changes (the number of employees was falling by 3-4 percent per year in the later years of the data), prices (inpatient cost per day fell by 40% between the pre and post periods), and benefit changes, but understanding what happened is difficult because no information is provided on the nature of the contract between IBM and VBH, or on the composition of the expenditure changes. Finally, it is worth mentioning that IBM began the initiative with a very generous plan and very high rates of spending per employee, approximately $660 per employee per year on MHSA, more than double the national average for the period. Reducing costs by 30 percent (in real terms) still leaves IBM far above average rates of spending.¹

The formal research literature on carve outs is just emerging. Grazier et al. (1993) examine outpatient utilization data one year before and one year after implementation of a PPO point-of-service plan with a benefit change for 4,220 continuously enrolled, active employees. Overall the rate of outpatient use went up slightly, but the visits per user fell slightly. The employer/vendor contract was "administrative services only" or ASO, so the vendor bore no explicit financial risk associated with utilization.

Frank and McGuire (1996) describe the experience of a carve out plan for MHSA in Massachusetts Medicaid with aggregate data from one-year pre and three and a half years post institution of a behavioral healthcare carve out. Price reductions for inpatient care and the virtual elimination of inpatient treatment for substance abuse appear to have been the main mechanism generating savings of approximately 25 percent per enrollee in real terms. The reduction in services was experienced virtually entirely by the disabled Medicaid beneficiaries. AFDC enrollees saw their costs (adjusted for medical price inflation) go up slightly over the course of the contract. The one-year contracts between the state and the vendor, Mental Health Management of America (MHMA) were almost entirely ASO contracts, and gave the vendor small incentives to reduce costs. Massachusetts began the period ranking third among the state in terms of overall health care spending for per Medicaid beneficiary. [ref]

DATA: ELIGIBILITY AND CLAIMS FILES

Data for this project come from eligibility and health claims files, covering the period July 1991 through June 1995, and provided to us by MEDSTAT. Identifying information about the contract holder was scrambled so that claims data could be merged with eligibility information without identifying contract holders. The eligibility data allow us to calculate the average number of Primary Insured Participations, or PIPs for each month. A PIP is essentially a contract holder.² Family contracts may cover more than one individual. We use relation, sex and date of birth information to identify individuals.

For some analyses we use a subsample of PIPs consisting of those covered by the GIC for the entire four-year sample period.³ The purpose of identifying this "continuously covered" population was for a better control of sample characteristics. All of these individuals have been covered by the GIC before and after the carve out. Cost outcomes of the continuously covered subsample will be compared to those of the entire sample. About 40,000 individuals are in our continuously covered population.

In the post carve out period after July 1993 we sought information about any claim for MHSA that would be covered by the carve out contract. Inpatient and other residential care was included in the sample. For outpatient care, we extracted any claim with a mental health procedure. A comparable selection criteria was used for the pre period as well, to make utilization in the pre period comparable to utilization in the post period.⁴

The claims data contain several cost related fields. The contract between GIC and Options is driven by the amount that the GIC has to pay, so some of our analysis will be based on the payments by GIC reported on the claim. Claims also contain information about payment amounts that are the responsibility of the beneficiary such as copayments and deductibles. Finally, covered charges represent the total negotiated price that Options has arrived at with the provider. Normally, the sum of GIC payments, beneficiary payments, and other payer obligations (if any) will be covered charges. Providers also report charges, but we will not use this information in this paper.

Units of services such as length of stay (LOS) and visits on some outpatient claims are also reported on claims. Price per unit will be calculated by dividing covered charges by the appropriate units.

Claims data for the last two months in the sample period appear to be incomplete, apparently because of delays in the submission and processing of claims. We requested data as of November 1995, allowing three months past the final service date, but this was not long enough to accumulate almost all claims for the last quarter of data. For this reason, we discarded the claims data for the last three months in the sample period, and instead base the last year's figures on seasonally adjusted nine-month data.

By any standard the data show a very significant cost reduction after the carve out. Table 1 summarizes the findings for the entire enrolled population; all prices and costs are in current year dollars. For this population, the total net payment from GIC for all MHSA services was about $9.32 million for fiscal year 94 (July 1993-June 1994), and $7.29 million for fiscal 95. These compare to $16.93 million in fiscal 92 and $14.87 million in fiscal 93, the two years before the carve out. The average GIC payment per PIP per month for the four years between 1992 and 1995 were, respectively, $20.32, $17.84, $9.52, and $7.49. The average GIC payment per enrollee per month for these years were, respectively, $13.91, $12.22, $6.04, and $4.76.

Table 2 presents similar cost figures for the continuously covered population, and all price and cost figures are in constant 1995 dollars, with medical price index adjustment. Here the total GIC payment between 1992 and 1995 were, respectively, $10.45, $8.47, $4.60, and $3.89 millions. The average payments per PIP per month were, respectively, $32.41, $26.24, $14.26, and $12.08; per enrollee per month figures were, respectively, $22.03, $17.84, $9.70, and $8.22. Overall various indicators of "costs" have decreased between 50% and 70% in four years. We also find that total costs of MHSA services--the total paid by GIC, enrollees, as well as any third parties--show a similar pattern. Thus, the savings were not simply achieved by shifting costs from the GIC to enrollees or another payer.

Table 3 categorizes the plan and total costs of the continuously enrollees according to inpatient versus outpatient services: inpatient costs declined by about 50% while outpatient costs by more than 60%. The breakdown of these changes according to MHSA care are illustrated in Table 4.

THE CONTRACT BETWEEN THE GIC AND OPTIONS

To understand the contract between Options and the GIC, it is useful to provide some background about the proposal request and negotiation processes. In the Request for Proposal (RFP), each potential bidder was provided with a summary of the plan enrollment, costs, and utilization pattern data for two years before the RFP was released. For each of the two years, the data included hospital admission and outpatient visit rates per 1,000 enrollees, number of hospital days per 1,000 enrollees, costs per hospital admission and outpatient visit, and costs per employee. These data were given for MHSA services, both separate and combined, for all employee groups.⁵ Utilization pattern data, such as distribution of admissions by diagnosis and outpatient visits, readmission rates, patterns of large claims, were also provided.

The GIC and its consultants first used the data to establish a set of benchmark projections of costs and savings. Each potential vendor was asked to provide its own set of projections, and the two sets of projections were compared and evaluated after the bids were submitted.⁶ Finally, Options was selected as the winner, and the details of the final MHSA contract were decided.

We now describe the contracts between the GIC and Options. The initial contract was for a one-year duration, and began in July 1993. It was expected at the time that the contract renewal for a second year would happen when the initial contract expired. We will briefly describe the benefit and coverage design. Detailed descriptions of the financial arrangements between GIC and Options will then be provided.

Important dimensions of the new benefit plan for MHSA were dictated by the GIC in the RFP. The MHSA carve out would be a managed care plan, nominally similar to the "managed care" in the previous Hancock plan, but expected to be more aggressive. The GIC specified the in-network and out-of-network benefits, goals for provider networks, and even the utilization levels (10, 20, 30 visits) at which the vendor should be intervening in the care process. Implementation of these features were of course to be left to the vendor. Benefits to enrollees choosing in-network care in the point-of-service plan were expanded from coverage before the carve out. Providers were to be precertified by Options before being admitted to the network. Whether an enrollee receives care from a network provider or not, precertification must be obtained from Options by calling a toll-free telephone number before care began (except for emergencies). A Clinical Case Manager was responsible for precertification. Options must be notified within 24 hours of any hospitalization, whether emergency (life-threatening), urgent, or routine. Complaints and grievances were reviewed by Options representatives, as are disagreements with clinical determinations.⁷

Financial aspects of the carve out that are relevant to enrollees are as follows.⁸ Generally, in-network coverage for inpatient services is complete with no deductibles; out-of-network inpatient coverage is 80% of allowed charges, with a 60 days limit per year and with a two-admission or two-episode lifetime limit on substance abuse treatments. In-network outpatient visits are free for the first four, subject to a $20 copayment for the fifth to twenty-fifth, and subject to a $40 copayment thereafter. Out-of-network outpatient coverage is 50% of allowed charges, and subject to a maximum of 15 visits per year. In-network out-of-pocket expenses are limited to $1,000 per individual and $2,000 per family. Finally, the lifetime benefit maximum is $1 million.

Benefits and cost sharing in the MHSA carve out program were substantially better for the enrollees than their previous plan. Before the carve out, mental health inpatient coverage at a general hospital was complete for 120 days (after a $150 deductible), then 96% after annual deductible. But mental health coverage at a psychiatric hospital was complete for only 60 days, and at 80% thereafter with a limit of 300 days. Perhaps, the most striking difference was that before the carve out, substance abuse coverage at a substance abuse facility was at 80% and only up to $10,000 a year after deductible. Outpatient MHSA coverages were respectively at 50% and 80%, with respective limits of $1,500 and $2,500 per year after deductible. The annual benefit limit was $500,000; lifetime, $1,000,000. The benefits after the MHSA carve out represented significant improvements, especially for in-network care.

The financial contract between the GIC and Options consisted of two main parts. First, for the fiscal year beginning July 1993, each month Options received from the GIC a fee (the ASO fee), which was calculated by multiplying the number of PIPs by $3.43. Second, this rate would be adjusted upward by 5% in the second year unless otherwise agreed upon by the GIC and Options.⁹ The contract for fiscal 1993-4 also specified a target claims cost of $20.72 per month per PIP. Besides serving as a benchmark to evaluate cost effectiveness of the contract, it would be used to adjust the ASO fee. In the actual implementation, for the fiscal year beginning July 1994, the ASO was revised to $3.17 per month per PIP, and the target level lowered to $15.39 per month per PIP.

For the fiscal year beginning July 1993, the target was established at $20.72 per month per PIP. The $20.72 refers to the portion of costs paid by the GIC, and does not include enrollee cost sharing. At the end of the fiscal year, the actual claims costs would be compared with the aggregate claim target (aggregate, because the rate was stated in terms of per month per PIP), and the ASO fee would be reduced by an amount equal to 20% of the excess of actual claims over the target, but this reduction would not be more than 20% of the ASO fee for the contract year. For example, if the claims cost turned out to be $21.72 per month per PIP, then the ASO fee would be reduced by $0.2 (20% of $21.72-$20.72) per month per PIP. The maximum cost overrun for which Options's ASO was reduced was $(20.72+3.43)=$24.15. For fiscal year 1995-6, the target was reduced to $11.19 per month per enrollee, but the ASO fee was raised to $5.18 per enrollee per month. The adjustment of the ASO fee according to the excess of claims costs over target remained unchanged.

Besides the adjustment of the ASO fee according to the discrepancy between actual claims cost and the target, Options was required to satisfy performance targets. During the first year, the set of performance guarantees consisted of five items, but expanded to sixteen in the second. The following is a sample from those in both years:¹⁰

• At least 90% of enrollees surveyed by an independent contractor should be satisfied with the services they received.
• Options should deliver reports by due dates.
• Options should guarantee claims financial accuracy to be no less than 99%; payment accuracy, 97%; procedural and coding accuracy, 95%.
• In the event that any of these guarantees was not met, Options must pay a penalty to GIC equal to 2% of the ASO fee for each guarantee violation, but the maximum of such penalty payment could not exceed 23% of the ASO fee.

It is important to keep in mind that the overall benefit package was expanded substantially after the carve out. In particular, coverage for in-network outpatient care was greatly improved. If enrollees' copayment and deductible remain unchanged, this coverage improvement must tend to increase use. Furthermore, even if use did not increase due to the benefit expansion, the improvement in coverage for in network care would tend to shift costs to the GIC from other payers whohave contracts with the GIC enrollees. Thus, Options would have to implement some cost savings measure simply to be able to maintain costs to the GIC at existing levels. Indeed, the initial claims target of $20.72 per PIP was such a level that savings by Options would just offset any cost increasing effects of the benefit expansion.

INCENTIVES IN THE CONTRACT

First consider the explicit incentives in the first year of the contract, and focus on the financial penalty and rewards associated with the claims target. Up to 20% of the ASO fee could be refunded to the GIC in case the actual cost was higher than the target level. The ASO fee to Options was the result to negotiations, and was paid regardless of the costs actually incurred in administration; thus, it was a type of prospective payment. The ASO fee included a profit allowance, but the actual profit or loss might be higher or lower depending on the costs actually incurred by Options.

Clearly, Options would attempt to economize on its own administrative expenses. If controlling MHSA costs requires Options' resources, such resources would only be provided if Options is properly motivated. Indeed, the carve-out contract does contain explicit incentives for Options to control MHSA service costs. The most explicit of such incentives is associated with the claims target. The ASO fee could be reduced by up to 20% in response to costs accumulating above the claims target. To such a small company, this probably represented a significant amount of potential earnings. Nevertheless, most of the financial risks remain with the GIC. In spite of the fact that the contract is written in terms of a per PIP per month payment, the contract is very far from being a "capitation" contract in which risk is shifted largely to the vendor.

These points are extremely important and illustrated in different ways in Figures 1 and 2. Figure 1 shows how the ASO fee to Options, and costs to the GIC vary with the actual level of claims costs per PIP in the contract's first year. Options faces some risk, but this is quite small in comparison with the possible cost variations faced by the GIC. Given the different sizes of Options and the Commonwealth of Massachusetts, the risk sharing arrangement appears to be sensible. Although GIC does bear most of the MHSA service costs, the remaining cost responsibility assumed by Options still seems significant for providing incentives for Options to meet the cost target. Figure 2 depicts the same risk sharing arrangement in a "proportional" way. Here, it is clear that the carve-out contract does not shift all cost responsibilities to the vendor.

As we noted above, the contract between GIC and Options was subject to renewal after the first year. The initial contract did specify an automatic adjustment on the ASO fee by 5% but other details of the contracts were open to revisions. In fact, in the second year, the same type of contract was signed by the GIC and Options, but the cost target was lowered from $20.72 per month per enrollee to $15.39 (or about 25%).

INTERPRETATION: INCENTIVE CONTRACTS AND PERFORMANCE

The ASO fee arrangements for Options contained a number of very interesting features. First, the contract did not allow the ASO fee to increase when Options was able to lower costs below the target level, but was subject to the risk of up to 20% of the fee for cost overruns. For a company of the size of Options, the total risk does not appear to be totally insignificant. This perhaps contrasts with the Massachusetts Medicaid behavioral health carve out (see Frank and McGuire, 1996), where the "at-risk" contract imposed a maximum penalty of $300,000 in the first year of the contract. In contrast, if the ASO fee was $3.43 per month per enrollee, for a population of 70,000 PIPs, Option's potential penalty in a year could be more than $560,000. If the use of aggressive managed care to reduce claims costs meant higher administrative expenses, the incentives established by the ASO fee mechanism would imply that costs should not be expected to fall significantly below the target level. But in actual fact, the first-year claims costs did fall significantly below the target. This brings us to the second point.

Options might have correctly anticipated that significant cost savings in the first year could have two effects. First, its superior performance might prompt the GIC to raise its expectation about cost saving potentials. A likely consequence was that GIC would lower the target rate. This phenomenon of superior contract performance resulting in more demanding terms in the future is called the "ratchet effect" in the contracting literature (see Laffont and Tirole, 1986, for example). Second, Options might think that it could convince the GIC that its value to the behavioral mental health carve out was high by demonstrating excellent performance in the first fiscal year. This could enhance Options's bargaining power in the contract renewal for the third year. In addition, it might also be a good signal to the market, so that Options's prospect of winning new contracts would be improved. We will call this the "reputation effect."

Clearly, the ratchet and reputation effects act against each other: the former induces Options to lower its performance, but the latter provides the opposite inducement. We can argue that Options in fact chose a performance level that traded off these two opposing effects. It was interesting to observe that the target rate was lowered in the second year by about 25% (in normal terms), and further reduced in the third year, but the administrative fee was reduced by a little in the second year, and then raised significantly in the third year.

From the perspective of incentives, the existence of a penalty for cost levels that are above the target does not necessarily imply that the target level will be achieved. In fact, Options might optimally choose to violate the target, incurring some penalty while saving administrative expenses. Nevertheless, the contract did not provide any incentive for Options to lower costs below the target level, since Options was unable to keep any savings. Therefore, it seems to us that what needs to be explained was the fact that Options achieved much more: in each of the years after the carve out, the actual costs were lower than the target level by a significant amount. Here, our hypothesis is that the reputation effect initially dominated the ratchet effect: for small cost reductions beyond the target level, Options's reputation began to build up, but the ratchet effect did not become important until significant savings beyond the target level was attained.

To understand the impact of the carve out, it is important to distinguish different two sets of relationship changes. First, Options was brought in to implement the provision of MHSA services by managed care. Whereas before the carve out, only those enrollees with the HMOs had their care delivered via managed care, all enrollees were under the management of Options since the carve out. This is a form of demand-side management. Second, Options set up a network of providers for enrollees. Before the carve out, providers negotiated individually with the GIC. After the carve out, Options, on behalf of the GIC, centralized all negotiations with providers. This affects the supply side. The first change may have the effect of reducing inappropriate use of MHSA services, since preadmission authorization, utilization review, and other monitoring may deter or screen out some demands for services. The centralization of bargaining makes Options a "monopsonist" buyer with market power, and enables it to use the size of the GIC population to secure a lower price from providers.

The above arguments suggest the following decomposition analysis. Consider any single type of service, say an outpatient visit. By definition, the total cost of this service in a given period of time is equal to the total number of times this service is used multiplied by the average price of each service. A reduction in total cost of this service can come about through a reduction in the quantity, the price, or both. From the claims data, we calculate the total number of outpatient visits for the periods before and after the carve out. Using the data of outpatient costs, we can estimate the average price per visit. For inpatient services, we calculate LOS of each episode and obtain the average LOS by dividing by the number of inpatient episodes. Using the inpatient costs data, we then estimate the average price per inpatient day. As it turns out, after the carve out, the claims data separated out from all inpatient services an additional class: inpatient service at an alternative setting. These are inpatient services performed at a less intensive setting such as residential facility, partial facility, intensive outpatient, residential professional and partial professional settings.

Table 5 and 6 present the decomposition of MHSA outpatient services and costs. For the continuously enrolled population, we estimate the prices per MHSA outpatient visit by dividing the total outpatient plan costs (after discarding outliers that may simply reflect adjustments to previous claims) by the total number of visits. We express the estimates both in terms of current year dollars and constant 1995 dollar. Table 5 shows an upward trend for MH outpatient prices, but a downward trend for SA. Nevertheless, we should note that the outpatient coverage of MH was significantly improved after the carve out; before the carve out, MH outpatient coverage was at 50% while SA at 80%. Table 6 presents the our own analysis and that from Options on number of admissions and average LOS per admission. While the data we received from MEDSTAT gave us numbers of admissions that were comparable to those Options reported, the total number of inpatient days were higher from our own analysis. Furthermore, we were unsuccessful in decomposing from our data total inpatient days into "conventional" and "alternative setting" inpatient services. Nevertheless, there is a slight decrease in the total of admissions as well as the ALOS in both analyses. From Table 5 suggests that the dramatic decrease in outpatient costs could be due to reduction in quantities, since "prices" either increased or remained relatively stable. On the other hand, Table 6 suggests that the reduction in inpatient plan costs mainly could be a result of price reduction, since numbers of admissions as well as ALOS did not decreaseas much as the total plan costs.

CONCLUSIONS

• The anticipated cost shifting from enrollees to the plan is offset by decrease in prices. Because of the improved MHSA coverage and benefits for enrollees, expenses for the plan should tend to increase. But in the GIC experience, this increase was more than compensated by the decrease in prices that GIC had to pay providers as well as by the effect of managed care quantities.
• Both outpatient and inpatient costs decrease. Despite the general view that managed care will tend to shift the demand for MHSA services from inpatient to outpatient, the GIC experience shows a mixed result. For mental health services, the decrease in outpatient costs between fiscal 92 and 95 was significantly less than inpatient, while these costs decreases were almost in the same percentage for substance abuse.
• Both MH and SA services decrease in quantity uniformly.
• The target level in the contract must be understood in relation to the penalty. That is, the entire schedule of ASO fees must be analyzed. Although there are penalties for failing to maintain the target, there is no a priori reason to expect that the target will be maintained. The vendor may optimally fail to maintain costs below target, incurring the penalty while avoiding administrative costs.
• In the case of the GIC MHSA carve out, the target level is related to the ratchet and reputation effects. We find that even when Options faces no financial gains from reducing costs below the target, in fact that was what happened. Meeting a target is insignificant when a contract is viewed in isolation, but may have repercussions when contract renewals and bidding for new contracts are considered part of a firm's incentive. As in many other industries, a good reputation is a very valuable asset to a firm. Our finding is consistent with the "long term" perspective of contracting. Whenever a carve out program requires the contracting out of the administrative and management duties of the deliveries of medical services, the long term effects of contracting must be considered.

NOTES

1. For other examples, see Alexander Consulting Group (1990) on McDonnell Douglas; Altman and Price (1993) on Alcan; and Umland (1995).
2. According to the contract, a PIP is a covered person who is an employee, a retired employee (of various classes), a covered student age 24 or over, an individual not part of a family unit covered under some continuation provision (see Appendix D of the Agreement for Managed Mental Health Services by and between Commonwealth of Massachusetts Group Insurance Commission and Options Incs. 1993). Thus, the total number of PIPs does not correspond to the total of all enrollees; rather each PIP roughly corresponds to a unique employee identification number in the enrollment records. In particular, spouses and most dependents are not PIPs.
3. We actually selected these enrollees by identifying contracts with months of enrollment of 46 or greater of a possible 48.
4. Some cost shifting between MHSA and general medical care is possible. For instance, inpatient treatment for alcohol abuse could be reclassified by a clinician as treatment for gastrointestinal problems and paid for under the general health insurance benefit. We are not in a position to evaluate how much of such cost shifting has occurred. For study of this in another context, see Norton et al. (1996).
5. Active employees, retiree and survivors, and all groups.
6. In many instances, potential vendors were asked to justify their projections, or to provide information on the basis of which those calculations were obtained.
7. It is unclear whether any outside arbitration would be allowed.
8. The benefit and enrollees' out-of-pocket payment designs for fiscal years 93-94 and 94-95 are identical.
9. An implementation fee was also paid by the GIC in the first few months. This was calculated at $.35 per PIP per month.
10. See Merrick (1996) for more discussion of the performance targets.

REFERENCES

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Alexander Consulting Group. "The Impact of the ASSIST Program During 1989 at the McDonnell Douglas Helicopter Company." Health Straties Group, May 1990, Westport, CT.

Battagliola, Monica. "Breaking with Tradition." Business and Health, June 1994, pp.53-56.

Frank, Richard G., Haiden A. Huskamp, Thomas G. McGuire, and Joseph P. Newhouse. "Some Economics of Mental Health Carve Outs." Archives of General Psychiatry, forthcoming, 1996.

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[Table of Contents]

Enrollment Duration, Service Use, and Costs of Care for Severely Mentally Ill Members of a Health Maintenance Organization

Bentson H. McFarland, M.D., Ph.D.; Richard E. Johnson, Ph.D.; and Mark C. Hornbrook, Ph.D.
Archives of General Psychiatry 53:938-944 (October 1996)