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-Jeffrey N. Kushner, Director, Office of Alcohol and Drug Abuse Programs, Oregon Department of Human Resources

Major changes are occurring in the health care and health insurance industry in this country as we continue to move closer to health care reform and managed care. At last count, nearly 30 States were moving to some type of health care reform that would include alcohol and other drug (AOD) treatment services, to say nothing of what may occur at the Federal level.

At the State level, this move to managed care creates tremendous challenges. There is much that States can do to establish workable, positive contracts with managed care providers for the benefit of our AOD clients. But, before we can take these positive steps, it 's important to understand how – and why – the field has come to face these issues.

My intent in this article is, therefore, to provide a short history of what has led us to our current status regarding health care reform as a background to understanding:

• Why we moved to managed care organizations (MCOs)

• The potential positives and negatives of managed care organizations

• Why and how we need to protect our clients and our programs by assuring that contracts between States and MCOs are comprehensive and equitable for all

The Past as Prologue to Managed Care

As of 1990, 138 million Americans were covered by some form of employer- sponsored group health insurance. According to the U.S. Bureau of Labor Statistics, 80 percent were covered for alcoholism treatment and 74 percent were covered for drug abuse treatment. Of all plan participants with alcoholism treatment benefits:

• 95 percent were covered for inpatient detoxification and 78 percent for inpatient services (two of the most costly treatment services)

• 84 percent of participants were covered for outpatient treatment.

Coverage patterns were similar for drug dependence other than alcohol.

The 1970s: Start of AOD Treatment Benefits and Cost Containment

The Hughes Act, passed by Congress in 1970, initiated the National Institute on Alcohol Abuse and Alcoholism (NIAAA) and Federal involvement in AOD care by providing funds for specialized treatment. Had it not been for this legislation, it is questionable to what extent alcohol and other drug treatment would be an issue today in health care insurance benefits. For one of the first and most important pragmatic initiatives undertaken by NIAAA was the training of 100 occupa- tional alcoholism consultants, two for each State. Government and corporate involvement spurred the insurance industry to risk investing in what was, at that time, an unproven therapy.

During the 1970s, the U.S. economy entered a long period of inflation. Like all other costs, general medical costs soared. There was agreement that much of this problem resulted from the fee-for-service reimbursement system. This method of payment offered providers no incentive to lower costs and encouraged waste and fraud. The Federal government– not a major purchaser of health services – began to intervene to curtail spiraling costs.

By the late 1970s, the Health Care Financing Administration (HCFA) had instituted a revolutionary new way of purchasing medical services for the poor: a fixed price for each of 470 diagnostic-related groups (DRGs). The fixed price was paid to the provider regardless of how many days the patient remained in a hospital.

The DRG no longer provided any incentive to keep patients for lengthy and unneeded stays. The DRG was the first insurance-based incentive that medical institutions had to decrease their costs. The impact of the DRG is not hard to comprehend, since it became the forerunner of the health care reform efforts we know today.

The 1980s: Rise of Managed Care

In the past few years, costs for psychiatric and chemical dependency treatment services have increased more rapidly than costs for other types of health care– twice as fast as the medical component of the Consumer Price Index. It should therefore be no surprise, except perhaps to some publicly-supported AOD treatment providers, that utilization management (also known as cost containment or managed care) has come to the alcohol and drug treatment industry.

What is managed care? Managed care is a " set of techniques and procedures used by or on behalf of purchasers of health benefits to manage health care costs by influencing patient care decisionmaking through case-by-case assessments of the appropriateness of care prior to or during its provision." Managed care is any type of intervention in the delivery and financing of health care that is intended to eliminate unnecessary and inappropriate care and thereby reduce costs.

What is the HMO promise? Fully integrated health management organizations (HMOs) are the forms of managed care that demonstrate the greatest cost savings. According to the Congressional Budget Office, HMOs reduce health care expenditures by approximately 15 percent below the levels typical under traditional health insurance schemes. An HMO offers a predetermined set of comprehensive health maintenance and treatment services to an enrolled population for a pre-negotiated and fixed premium payment.

HMOs include three components:

• The health plan, which provides organization and management

• The providers, such as physicians, hospitals, and AOD treatment providers

• The consumers, including subscribers, members, and enrollees

HMOs negotiate preferred provider organization (PPO) agreements with residential and outpatient programs. They conduct utilization review by prior authorization of any client admitted to an inpatient/residential service and, at a minimum, monitor the utilization of outpatient care. In 1983, prior authorization on a case-by-case basis covered fewer than 5 percent of Americans.

The 1990s: An Important New Role for States

Today, virtually all covered Americans are subject to prospective utilization management, according to the accounting firm of Peat Marwick. It is critical that we establish uniform utilization review criteria for all HMOs to use, because managed care organizations: (a) are different, one-to-another in the criteria they use, and (b) are nearly unanimous in their refusal to reveal just what specific criteria they' re using.

In my opinion, the criteria on environment, intensity, and duration of services must be established by the government, and preferably by the State alcohol and drug authority, to ensure appropriate service outcomes for the drug-dependent citizen and to eliminate a potential conflict of interest by the HMO and even the State financing agency. Standardized placement criteria also help establish a level playing field for all MCOs to compete in.

Potential negative impact of managed care. There are potential positives and negatives to managed care. Part of our job is to reduce the negatives and maximize the positives for our AOD clients. When misapplied, managed care can:

• Reduce access to care

• Reduce the scope of covered benefits

• Reduce coverage for certain treatment modalities

• Shut out or reduce services to difficult populations, such as pregnant women, parolees, and probationers

• Reduce special services to special populations, including adolescents and ethnic and racial minorities

• Reduce quality assurance

• Increase emphasis on short-term cost cutting rather than on long-term savings

These are some of the negative impacts that necessitate the Single State Agencies for alcohol and drug abuse and local constituencies to work together to make health care reform work to the benefit of our clients.

Potential benefits of managed care. There are just as many reasons – perhaps more – that we need to be a part of health care reform. When applied correctly, managed care presents the opportunity to:

• Significantly expand the potential to serve all citizens with alcohol and other drug dependence who want treatment. Waitlists could be eliminated and treatment on request could become the norm.

• Improve the quality of care for some existing programs and improve the efficiency of service delivery by assuring an appropriate environment and duration for delivering services.

• Solidify the linkages and mainstream alcohol and drug abuse problems and services with medical/surgical systems, requiring at a minimum that all patients receive an alcohol/drug problem screen to improve the identification of those who have chemical dependency problems and to ensure their referral to appropriate treatment. This includes providing non-alcohol/drug services to poor people with chemical dependency problems (medical, case management, treatment of tuberculosis and sexually transmitted diseases, as well as other medically oriented services).

• Improve service efficiency. This could include, for example, significantly reducing or even eliminating chemical dependency service delivery in hospital settings, reducing excessively long lengths of stay, improving utilization of the whole continuum of services, and assuring utilization of standardized and acceptable assessment criteria and instructions, placement criteria, and discharge review criteria.

• Improve core services to clients needing them. With a single system and comprehensive assessment, it should be easier to access vocational, employment, housing, mental health, legal, financial, and other services for clients. Plans must be helped to realize that for long-term economic benefit, these core services will improve results and reduce relapse, treatment costs, and medical costs in the long run. Plans must be required to case manage clients into these essential core services.

• Educate managed care plan personnel about outcome accountability in the field. Appropriate outcomes could include: measuring reduction in use/abstinence, participation in self-help, academic achievement, employment improvement, and reduced criminality. Plan personnel need to understand the long-term cost savings of looking beyond client satisfaction, alone, at discharge.

Designing the Managed Care Contract

One critical way – perhaps the most critical way – to assure appropriate emphasis on the benefit side (when balancing with the cost side) has to do with the contract. What is critical is how the chemical dependency benefit is written into the contracts, monitored, and enforced.

I continue to give this area a lot of thought, both as the chairperson of a CSAT panel charged with developing a publication on this subject, and as the person in Oregon with current responsibility for developing contract conditions in the master HMO contract between the financing agency of Oregon State government and the HMOs.

I believe nothing can be more important at this particular time than the specific contract stipulations between the State and HMOs regarding the provision of alcohol and drug services. Clearly the document is important if we are to protect and provide adequate services to our clients in publicly supported treatment programs. It is also important if we are to provide the previously publicly-funded providers with the opportunity to continue their services – the providers who have worked so hard for so long to provide services to these difficult populations.

HMO/MCO perceptions. For the most part, HMOs have no concept of the needs of the client currently served in the publicly supported treatment system. Clients in publicly funded services are not at all like the commercial population HMOs traditionally have served. Too, there is a basic misunderstanding between States and managed care organizations (MCOs). MCOs are not sure who the customer is– is it the client, the State financing agency, the Federal government, the taxpayer, or the State legislature?

Some MCOs act as if they are the customer– and are doing the State a favor by treating this population. I believe that the State government is the customer. We must act like the customer and, to the degree possible, assure adequate service for the clients we represent and that the taxpayer is paying for.

Contract questions. As Single State Agencies develop contracts with managed care providers, they need to be prepared to work through a wide range of issues. The box, Contracts Between Single State Agencies and MCOs, lists a number of questions that must be considered for contract stipulations between the State and MCOs.

As one can see, there are more than a few items to be concerned about as we develop these contracts between States and MCOs. And, one cannot afford to disregard anything, because there will be no stronger determinant of whether alcohol and drug services will really meet the needs of our clients...than a sound contract seriously applied by all parties. Negotiations in many States are occurring right now. This is the most important opportunity that has come along in years...get involved !!!

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