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This page contains links to external Web sites. Appendix A–GlossaryAccess: Degree to which appropriate treatment is available, timely, geographically feasible, culturally sensitive, and affordable. Actuarial Study: Analysis of past utilization data for specified groups in order to estimate future costs for each group. Built upon assumptions where necessary, the final analysis combines all estimates to compute the cost per covered person per month (PMPM). Administrative Services Only (ASO): Health care organization provides administrative support services only for a self-funded plan or startup MCO. Adverse Selection: Situation where a health care organization has a disproportionate share of high utilizing, high risk recipients and/or expensive-to-treat enrollees. Average Length of Stay (ALOS): Duration of treatment in a 24-hour treatment setting, usually expressed in days. At Risk: Situation where a health care organization is vulnerable to providing or paying for more service delivery than is paid through premiums or per capita payments. Beneficiary: A subscriber or dependent eligible for health care services (also: enrollee, member). Benefit Package: Contractually defined set of services in which the costs, in full or in part, are borne by the insurer. Capitation: A method of health care financing and delivery which pays a fixed amount of money per member for a specified set of services for a specified time. Carveout: Within the managed care industry, it generally refers to a situation where mental health and/or AOD treatment is separated from physical medical care and managed as a separate entity. Case Mix: The overall clinical and diagnostic profile of a defined population which influences intensity, cost, and scope of services typically provided. Case Rate: A predetermined "package rate" for delivery of a specified set of procedures or services to a specified population. Closed Panel: PPO (see below) in which enrollees can only use a specified group of providers in order to receive benefits. Coinsurance: Percentage of covered expenses the insured party must pay for health care services above and beyond the deductible. Community Rating: A method of establishing a capitation rate which is based on the average cost of actual or anticipated health care used by all enrollees in a given geographic region, community, or defined population. Copayment: A form of cost-sharing in which the enrollee pays a fixed amount of money per unit or time of treatment service (e.g., $2 per visit, $20 per inpatient day) designed to reduce utilization of a treatment service. Cost-Based Reimbursement: Method of reimbursement in which third parties pay providers for services provided based upon the documented costs of providing that service. Cost Sharing: Health insurance practice which requires the insured person to pay some portion of covered expenses (e.g., deductibles, coinsurance, copayments) in an attempt to control utilization and allow lower premium payments. Covered Days: Maximum number of days for which an insurer will reimburse for services rendered. Days may be limited per episode of illness, per year, per lifetime, or per length of policy. Deductible: A fixed amount of money that the member must pay for specified medical services before the insurer will pay for further services within a defined period of time. Enrollee: See beneficiary. Exclusive Provider Organization (EPO): A "closed panel" PPO in which patients may only use a specified group of providers in order to receive benefits. Experience Rating: A method of establishing health insurance premiums in which a premium for a specified population is based on the average cost of actual or anticipated health care used by members of that population. Variables such as age, gender, and health status affect that rating. Federally Qualified HMOs: An HMO that has applied for and met Federal HMO requirements and laws. Fee-for-Service: A common and traditional method of reimbursement for services rendered. First-Dollar Coverage: Health insurance coverage that has no deductible. Copayments and coinsurance may be present. Freestanding Facility: Usually refers to an autonomous treatment service that is not physically connected to a hospital or to other services (e.g., a freestanding detoxification unit). Gatekeeper: A person or entity at the entry point of treatment who either provides all care, triages enrollees to appropriate care, and/or has the power to authorize or deny the delivery of care. Group Model HMO: An HMO which contracts for services of treatment professionals in an existing group practice, usually with financial incentives for treatment efficiency. Health Maintenance Organization (HMO): Organization which provides, or ensures the delivery of, a specified set of prevention, treatment, and rehabilitation services to enrollees for a prepaid amount of money. Holdback: A portion of a fee which is withheld pending the achievement of a specified outcome or result. Often used in a risk situation, it can be used to strengthen the capacity to enforce a contract provision. Hold Harmless: A clause sometimes included in a managed care contract which protects the MCO from all costs related to patient claims of injury, regardless of potential malpractice, negligence, or policies of the MCO. Incentives: Financial incentives (and disincentives) used in managed care contracts to increase the likelihood of specified processes or results. Indemnity Benefits: Insurance benefits based on payment of a defined amount of money for a specified range of covered services, usually incorporating maximum limits. Individual Practice Association (IPA): A model in which a management organization is contracted to administer a plan and contract with an association of independent treatment professionals. Last-Dollar Coverage: Insurance coverage without the imposition of arbitrary upper limits or maximums on treatment or dollars spent. Length of Stay (LOS): Length of time patients are treated in a 24-hour treatment setting, usually reported as the average number of days of treatment per discharge. Lock-in Feature: A feature requiring that individual enrollees receive all nonemergency care from the MCO. Care provided outside of the MCO will not be reimbursed by the MCO. Medical Necessity: The decision by an MCO regarding the need for a particular clinical service. Historically, this term has sometimes been interpreted in an overly restrictive way that is insensitive to the full biopsychosocial nature of addiction treatment. Member: An alternative term for enrollee, beneficiary, or recipient of health insurance benefits. Open Panel: Usually refers to an MCO which contracts with a variety of treatment provider subtypes. Out-of-Area Coverage: Payment for services provided outside of a defined geographic area, with costs paid by the MCO or shared with the treating provider. Overutilization: Rendering of a service, or demand for services, which are judged to be unnecessary and/or excessive. Penetration: Generally, a marketing concept which describes what proportion of a given market or population has contracted for services with a specific MCO. Per Capita: Payment for specified health care services based on the number of enrollees covered, regardless of the number actually receiving services or the amount of services delivered (related to capitation, prospective payment, risk). Preferred Provider Organization (PPO): Payer directly contracts with individual providers at reduced fees, usually fee-for-service, with a commitment to guaranteed volume. Enrollees have incentives to utilize these providers. Prepaid Group Practice: A group model HMO in which the group has a set amount of payment to provide service to a defined population; this set amount of payment is determined in advance for the coming year. Prepaid Health Plan: A contract between an insurer and a group of enrollees, whereby the insurer provides a defined set of services for a fixed premium payment. Prior Authorization: A requirement imposed by a utilization review system that, in order to be reimbursed for a treatment, the provider must justify the need for this particular treatment to a utilization review clinician before delivering it (also called pre-authorization, precertification, and predetermination). Proprietary: Generally refers to a for-profit company or to materials "owned" by a company that are not to be shared outside of that company. Prospective Reimbursement: A reimbursement method in which a provider or other health care system has the amount or rate of payment for defined services to a defined population determined in advance for the coming year. That amount is paid regardless of the number of enrollees served or the amount of services delivered. Provider-Based PPO: An organized system of treatment providers forming a preferred provider organization (PPO) for the purpose of providing, managing, and overseeing the delivery of care. Quality Assurance: An organized set of activities intended systematically to ensure quality of care. Deficiencies in care are identified, measured, and systematically remeasured in the context of ongoing staff training and monitoring until an acceptable level of practice is consistently maintained. Quality Improvement: An organized set of activities, programs, and philosophies intended to assure continuous improvement of specified practices focusing on customer definition, customer satisfaction, active utilization of data, non-hierarchical decisionmaking, efficient group process, teamwork, and a respect for the individual. Risk: The situation when a provider or other healthcare organization is in a prospective payment system where reimbursement is a predetermined amount per covered enrollee regardless of amount of services provided. The provider is thus liable (i.e., at risk) for any losses or profits which result from how service is allocated. When spending exceeds budget, shortages occur and loss is experienced. When spending is less than budget, profits occur. (See also Shared Risk below.) Self Insurance: A practice by which an organization assumes complete financial responsibility for medical and/or behavior health treatment costs for its defined group members. Insurance protection against excessive loss can be purchased. Service Area: A geographic area generally defined by natural geographic boundaries, population distribution, and/or transportation accessibility, whose population is served by a healthcare organization. Shared Risk: A variation of a risk-based reimbursement system (see Risk above) in which any financial profits or liabilities are "shared" between two or more entities in a contractually defined manner, thereby spreading the risk of unplanned financial loss resulting from underestimates of service needs. Skimming: A practice by a healthcare organization which attempts to ensure, by a wide variety of practices and processes, that the most healthy, least difficult, lower risk, and/or least expensive to treat are enrolled within the MCO as a means of controlling costs. Stop-Loss Insurance: Insuring against a specified level of financial risk with a third party. Stop-Loss Provision: A provision in a risk-based contract that (1) caps the amount of money for which a healthcare organization is responsible when spending for services exceeds budgeted amounts, and (2) that identifies a means (e.g., stop loss insurance) to pay for these services. Subscriber: The individual who contracts with a healthcare or insurance plan for a defined set of services. The term "subscriber" does not include other individuals (e.g., family members) who may receive services as a result of this contract. Third Party Payor/Administrator: Generally refers to the organization (e.g., insurer, State agency) that pays for, insures, and/or is responsible for the payment of specified health care expenses. Utilization Rates: Patterns or rates of use of a single service or type of service usually expressed in rates per unit of population for a defined period of time (e.g., 28 hospital days/per 1,000/per calendar year). Utilization Review: Evaluation by an outside party of the appropriateness, necessity, and/or efficiency of a given clinical service for an enrollee. Appendix B–Field ReviewersDeborah Agus, J.D. Susan B. Blacksher, M.S.W. Elizabeth Breshears Darryl Bruno John F. Bunker, Sc.D., M.H.S. William Butynski, Ph.D. Vic Cappocia, Ph.D. Bill Davis Ken Fleming Susan Galbraith, M.S.W. Julia Griffith, M.A., LLP Bruce Hayden, LMHC, CAP Gary Hestness James G. Hill, Director Norman Hoffman, Ph.D. Paul Ingram, M.S.W., LSW Linda Kaplan, M.A., CAE Frank King Jack R. Leggett, Ph.D. A. Thomas McLellan, Ph.D. Michael M. Miller, M.D. Chris O'Neill Charles G. Ray, M.Ed. Thom Salmon, M.P.H., LICSW Mike Schiks Ian A. Shaffer, M.D. Gerald D. Shulman, M.A., FACATA Alan Shusterman Steve Sommer, M.A., M.B.A., LCSW Jerry Spicer Ellen Weber, J.D. Appendix C–Managed Healthcare Organizational Readiness Guide and Checklist: Special ReportJames B. Bixler, M.S.Managed care has become a primary method of organizing and financing healthcare services in the United States, and the delivery of substance abuse treatment services is being significantly affected. IntroductionA majority of the Fortune 500 companies and more than half of the health maintenance organizations (HMOs) now use managed care arrangements for purchasing substance abuse treatment. Thirty-six State Medicaid programs were using managed care approaches as of early 1993, and another 13 States planned to implement managed care programs by 1994 (U.S. General Accounting Office 1993). Several States have "carved out" substance abuse as well as mental health services for Medicaid recipients. Publicly funded substance abuse treatment providers must adapt to meet the challenge of managed care, which will expand as the healthcare system changes in response to market forces and as healthcare reform discussions continue in Washington. PurposeThe guide and checklist have been prepared to assist publicly funded treatment providers become more competitive in a managed care environment. The document is intended especially for use by treatment providers receiving financial support from State funds, Medicaid, and the Federal Substance Abuse Prevention and Treatment Block Grant. Goals and ObjectivesThe goal of the checklist is to assist State substance abuse agencies and publicly supported treatment providers to design and implement strategies that will result in these providers being able to participate successfully in managed care programs.
BackgroundThe readiness checklist was developed for the technical assistance program of the Center for Substance Abuse Treatment's Division of State Programs. It built upon the Managed Care Readiness Inventory developed in 1993 by the Oregon community mental health providers and the National Community Mental Healthcare Council. The checklist was first used at a workshop on managed care issues for project directors, part of the Fall Training Institute of the Pennsylvania Office of Drug and Alcohol Problems. Attendees completed the checklist, and the presenter conducted an interactive discussion about the importance of the issues identified. After this pilot effort, the checklist was refined during its use in workshops conducted in Oregon, Arkansas, and Tennessee. The guide was added to provide additional information and to help treatment providers use the checklist as a freestanding self-assessment instrument. Ways to Use the Guide and ChecklistThe checklist can be very effective as part of a workshop for treatment providers. Such a workshop would include substantial discussion of strategies for meeting the challenges of healthcare reform, changes in the organization and financing of health care, and the expanded use of managed care. The guide and checklist can also be used:
The checklist can be an important part of the development of an organization's strategic plan, as a treatment provider or service network decides how to improve service delivery and position itself for a more successful future. Why Prepare for Managed Care?The healthcare system is undergoing very rapid change in response to several fundamental economic forces. 1. Healthcare expenditures consumed 13.2 percent of the Gross Domestic Product (GDP) of the United States in 1991 (Letsch 1993) and rose to more than 14 percent in 1993, which means that almost $1 of every $7 is spent for healthcare services. 2. The growth rate of healthcare expenditures in 1991 was four times the growth rate of the national economy (Letsch 1993). 3. Some experts estimate that national healthcare expenditures will reach 18 to 19 percent of the GDP by 1998. 4. Medicaid expenditures, an important source of payment for substance abuse services, doubled between 1988 and 1992. By 1992, the $199 billion cost of Medicaid equalled the total cost of the Medicare program (Holahan et al. 1993). 5. State Medicaid expenditures have grown until they are second only to the combined State costs of elementary and secondary education (Holahan et al. 1993). High inflation in healthcare expenditures has led employers and States to seek ways to limit the growth of their insurance premiums, benefit costs, and Medicaid programs. Substance abuse treatment services and costs increased during the 1980s for many reasons:
Some employers perceived that mental health and substance abuse treatment costs were "out of control" and that service delivery was fragmented. Claire Wilson, in a 1993 article on substance abuse and managed care, wrote: "The skyrocketing utilization and costs of substance abuse treatment during the last 10 years have alarmed corporate benefit managers" (Wilson 1993). England and Vacarro (1991) identified 21 percent increases in 1990 healthcare expenditures to employers/purchasers as the impetus behind managed care, despite cost containment efforts spanning more than a decade. They said: "Mental health and chemical dependency services, with reported cost increases of up to 60 percent per year, are a prime target for managed care." These perceptions also were shared by some insurance carriers and HMOs, forcing payers to seek ways to coordinate care and control costs. The result is greater use of HMOs, preferred provider arrangements, increased competition, and–for substance abuse and mental health services–the development of behavioral health managed care organizations (MCOs) (see chart A). These firms have expanded rapidly in the last 10 years, with the three largest MCOs each reporting more than 10 million persons enrolled, a total of almost 40 million persons for these three firms alone (Oss 1994). A survey conducted in January 1994 determined that more than 102 million Americans, 45.9 percent of those with health insurance, are enrolled in some type of managed behavioral healthcare program (Oss 1994). The survey did not separate managed care for substance abuse from mental health services; however, almost all behavioral MCOs use an integrated approach. There were:
What Is Managed Care and How Is It Changing?Managed care approaches, such as utilization review and second opinions, have been in place for more than a decade for medical-surgical insured health benefits. Their general purpose is to assure payers that consumers receive the appropriate level of care and that excessive, inappropriate, or unnecessary care is not delivered or reimbursed. These practices arose to regulate the functioning of the fee-for-service system, where financial incentives tend to encourage the delivery of more health services and more expensive procedures. Another way to define managed care is by the organizational structures used to deliver treatment. Health maintenance organizations are "managed care," because clinical management and financial incentives exist within staff HMOs and independent-practice model HMOs to encourage preventive care and to reduce cost increases. Feldman and Goldman (1993) indicated that the behavioral health managed care industry "arose as a response to the economic imperatives of spiraling unmanaged mental health and substance abuse costs. In light of escalating costs, payers were essentially faced with two alternatives–cut benefits (which many have done) or manage them so as to control costs and ensure quality." In addition to concerns about costs, purchasers identified several quality-related problems:
Without a doubt, the industry has grown rapidly. In general, it has gone through three major phases since the mid-1980s. 1. The first generation of MCOs managed access to health care, with a primary focus on utilization review (UR). Access was controlled by limiting benefits and requiring significant co-payments to contain costs. MCOs also introduced such administrative barriers as preadmission certification. 2. The second generation of managed care focused on managing benefits. MCOs added fee-for-service provider networks, selective contracting, and treatment planning to the UR function. 3. The current generation of MCOs focuses on managing care, performing utilization management instead of utilization review–with a greater emphasis on treatment planning, delivery of the most appropriate care in the most appropriate setting, and moving patients through a continuum of services. Managed care organizations expect development of a fourth-generation product in which they manage outcomes as part of an integrated services system, moving both public and private patients through a full continuum of treatment services (Waxman 1994). The impact on treatment providers over the last 10 years has been dramatic. Hospitals that deliver substance abuse care have reduced staff and closed units or have integrated their inpatient care for substance abuse within psychiatric units. Many hospitals have expanded ambulatory substance abuse services. Community agencies have scrambled to learn about managed care and to become members of MCO provider panels. These changes are likely to continue as the managed care industry increases its focus on Medicaid recipients, State and local governments, and services to other public clients. How Do Managed Care Organizations Select Treatment Providers?Behavioral health managed care organizations (MCOs) work for self-insured businesses, HMOs, insurance carriers, unions, State Medicaid agencies, and others. Prior to deciding which providers to select, they first listen to their customers. Some payers will dictate the qualifications of substance abuse treatment providers. These payers may require hospitals for residential care and require licensed professionals for outpatient treatment. Increasingly, MCOs are recommending that less expensive yet well-qualified community providers be included on the "provider panel." This enables MCOs to lower costs and to offer a more complete range of services. The selection criteria of MCOs cover several areas:
What Strategies Should a Treatment Provider Consider?The specific strategies that a substance abuse provider adopts will depend on the level of readiness of the provider and the State and local managed care environment. The provider should develop an individualized plan that is specific to the circumstances and locality. The first step can be to complete the readiness checklist and consider potential change strategies within the organization. Providers may find it necessary to make changes in their clinical and management services in order to become more attractive to MCOs and other payers. Short-range StrategiesShort-range strategies could include:
Longer Range StrategiesLonger range strategies to be considered might include:
Use the following checklist to assist you in developing your agency's individualized plan for future challenges. Top of Page
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