Tap 22 — TAPs <<<Documents<<<Home

CHAPTER I

Introduction

Key issues in this chapter: The managed care trend Challenges for managed care initiatives in the public sector The critical importance of a good contract Uses and limitations of this guide

In recent years, State Medicaid agencies and other public sector entities--in particular, State, county, and local substance abuse and mental health authorities--have increasingly been taking the initiative to purchase substance abuse and mental health managed care services from private sector organizations or specialized nonprofit agencies. Developing requests for proposals (RFPs)(1) and then contracting for outside managed care services is a significant vehicle for introducing managed care into the public sector while responding to complex financial and political pressures. In most States, the State Medicaid agencies or other public purchasers have already begun contracting with managed care organizations (MCOs), and in many other States managed care initiatives are under way or are being considered.

This document is a practical guide for public purchasers and others involved in the design and development of managed care initiatives involving substance abuse and/or mental health services. The Center for Substance Abuse Treatment (CSAT), the Center for Mental Health Services, and their parent agency, the Substance Abuse and Mental Health Services Administration (SAMHSA), developed this publication to help State Medicaid agencies, State substance abuse and mental health authorities, and other public purchasers translate rapidly evolving policy goals into effective RFPs and contracts that are the basis for sound managed care initiatives. To develop this document, CSAT, the Center for Mental Health Services, and SAMHSA sought guidance and direction from an expert panel and field reviewers that included State Medicaid agencies, substance abuse and mental health authorities, managed care contracting experts, health care attorneys, providers, and consumers.

Chapters II through VIII of this guide describe several important issues pertaining to contracts for managed behavioral health care:

Chapter II discusses the process of designing, procuring, and implementing a managed care system--from preliminary design, through development of an RFP, through the signing and subsequent monitoring of the contract.

Chapter III considers the essential decisions concerning the services to be covered in a managed care plan, medical necessity, and the impact of funding streams on coverage.

Chapter IV examines the establishment and maintenance of provider networks, including network design, selecting network providers, ensuring enrollees' access to services, subcontracting with network providers, establishing provider standards, and monitoring provider performance.

Chapter V concentrates on the key features of a management information system (MIS) that would be most effective in a managed care system, including data requirements and hardware and software needs.

Chapter VI addresses issues pertaining to quality of care, including measures of quality, accreditation standards, report cards, measures of consumer satisfaction, and internal and external quality management systems for MCOs.

Chapter VII examines different aspects of financing in a managed care environment, including such topics as risk-sharing arrangements, incentives and sanctions, third-party reimbursement, copayments and deductibles, cash flow management, reinvestment requirements, and financial reporting.

Chapter VIII provides an examination of important consumer protection issues, including various consumer rights and the complaints, grievances, and appeals process.

At the end of the document, there is a resource list with the names, addresses, and phone numbers of a variety of organizations involved in the fields related to managed behavioral health care. There is also a comprehensive glossary of terms.

In a single generation, we have witnessed a major transformation of the public and private health insurance system in the United States. Twenty-five years ago, thousands of small and mid-sized public and private health care providers sold health services to individuals with commercial health insurance, charging what they believed was appropriate and rendering treatment in accordance with individual professional judgment. The insurance companies then paid the health care providers' bills (either fully or nearly completely) and did not question the providers' practice style. Medicaid and Medicare operated in a similar fashion.

Today more than three-quarters of commercially insured persons, more than 12 percent of Medicare beneficiaries, and almost 40 percent of Medicaid beneficiaries get their health coverage from managed care enterprises that combine the financing of health care services with their delivery. Managed care entities affiliate with networks of hospitals, community-based organizations, pharmacies, physicians, and/or other health care professionals and limit payment for covered services to services provided through those networks. The selection of providers for an MCO's network is primarily the responsibility of the MCO, although the purchaser of managed care services can influence these choices. For providers, membership in an MCO's network is dependent upon both an adherence to the MCO's practice requirements and the acceptance of financial risk and/or stringent payment controls.

A growing number of State, county, and local agencies are now developing or contracting with MCOs to manage substance abuse and/or mental health (i.e., behavioral health) services for their populations. Approximately 20 States have implemented some form of managed behavioral health care for Medicaid recipients, serving approximately 5 million enrollees, and the number continues to climb. Many MCOs, which formerly focused only on private sector health care, are eager to enter this emerging and lucrative market in the public sector.

Many State, county, and local agencies have successfully reorganized their infrastructure to implement certain managed care principles and technologies. Yet numerous agencies have chosen to contract externally with MCOs to manage the delivery of some or all substance abuse and mental health services. In many cases, the movement toward the purchase of behavioral health care is part of a broad trend to transfer the management and delivery of Medicaid, Medicare, and other publicly funded services to MCOs.

As State, county, and local agencies have come to realize the potential value of contracting with MCOs, many have developed specific goals for improving their systems through managed care. These goals often include the following:

To improve coordination of and access to a full continuum of substance abuse and mental health treatment and prevention services;

To improve the quality of services for populations that have substance use and/or mental health disorders;

To allocate limited financial resources more efficiently and effectively;

To improve the predictability of costs, thereby increasing the accuracy of budgets;

To integrate the delivery of general medical and primary health care with behavioral health care;

To expand coverage to a larger proportion of the population; and

To increase accountability for and systematically improve consumer outcomes.

Well-designed managed care systems can best achieve these goals when purchasers and MCOs clearly understand the needs of the population served, the unique requirements imposed by the fiscal and political environment, and the most effective managed care practices. To meet these conditions, purchasers must use the contract development process and the contract to maximize their control over the design, award, operations, and outcomes of the managed care system.

There are several challenges faced by those attempting to build successful managed care initiatives in the public sector:

• The populations served by Medicaid and other public sector service systems tend to be poorer and sicker than populations with commercial insurance, and MCOs may have little experience with these populations.
• Federal, State, and local substance abuse and mental health authorities have little experience with managed care practices and must operate under statutory and regulatory limitations not found in the private sector.
• Many State and local service delivery systems are fragmented, in part because different agencies handle different populations, and separate funding streams for designated populations have created different sets of structures and incentives.

The populations served by public sector service systems pose unique challenges to the success of managed health care initiatives because public sector populations generally require a far broader range of services than individuals with commercial health insurance and also tend to make greater use of "wraparound" services, such as child care, housing assistance, and vocational training. Many people served in the public sector are poor, elderly, undereducated or uneducated, and/or members of disadvantaged ethnic or linguistic minorities. Many of them seek services only when they are already at a late stage of disability. Individuals depending on publicly funded treatment often have the most debilitating addictions and/or the most serious mental illnesses, as well as co-occurring medical complications. Furthermore, the public sector population includes children with the most serious emotional disorders requiring a broad range of specialized services.

MCOs seeking to contract with public sector agencies often have worked exclusively with commercially insured populations consisting primarily of employed adults and their families. The approaches and regimens developed by these MCOs may not fit the special behavioral health care needs of the public sector population. Meeting the ongoing rehabilitation and recovery needs of individuals with the most serious substance abuse and mental health disorders is expensive, and some services do not meet the sometimes restrictive "medical necessity" criteria imposed by MCOs (see medical necessity discussion in Chapter III). In addition, many MCOs may have limited experience with the types of prevention services mandated for individuals served by public sector systems.

Differences between traditional public service systems and private sector methods of operation pose another challenge to public sector managed care initiatives. As Federal, State, and county substance abuse and mental health authorities move away from their former roles as administrators of grants and contracts into new roles as purchasers of managed systems of care, they must work within governmental limitations that are not found in the commercial sector. These include legislative and statutory restrictions, such as mandated services for special populations, restrictions on what types of providers can be utilized, set percentages of funding that must be spent in certain areas (e.g., prevention services) or for specified populations (pregnant women), and underfunding.

Another challenge to a successful managed behavioral health care system is the fragmentation of service delivery systems that characterizes many State and local systems and causes duplication of and gaps in the service continuum. This fragmentation is due in part to a lack of coordination between agencies and separate funding streams that are designated only for specific populations. This lack of integrated services has additional implications for cost and quality of care for individuals with the most severe illnesses, such as seriously and persistently mentally ill persons. Complicating matters further is the fact that many individuals in public substance abuse and mental health treatment are also served by other public agencies and systems, some of which, like the child welfare system, are setting up their own service management systems.

Sound contracts are at the foundation of successful public sector managed care initiatives, which are likely to consume literally billions of dollars in public financing. A contract defines the expectations of the purchaser, the obligations of the MCO and its network of providers, and the rights of consumers. A contract embodies legally enforceable sets of promises that are crucial to accountability. Therefore, it is essential that the contract clearly state what duties are delegated to the MCO and what duties remain with the public purchaser of managed care services.

Public sector managed care contracts are collectively forming a critical component of the legal framework in which public services are delivered. To some degree, the contract and its associated documents (such as RFPs) are the only existing legal framework (Rosenbaum et al., 1997). Because a contract, by definition, constitutes a legally enforceable promise, virtually every issue addressed in it has legal implications in terms of whether the promise is worded in a way that can be enforced by a court of law.

When a contract is poorly drafted, the financial consequences can be enormous, because under the principles of contract law, a contract will be interpreted by the courts against the drafter. In the case of public managed care procurements under Federal and State law, the public agency is the drafter. An unfavorable court ruling can leave the agency legally and financially exposed for services that it assumed were part of the contract but that in fact fall outside the scope of the agreement because of vague or erroneously drafted terms.

The contract is the means by which compliance with applicable Federal and State mandates and regulations can be established. The Federal laws and regulations governing Medicaid, the Federal Community Mental Health Services (CMHS) Block Grant (Public Law 102-321; 42 U.S.C. §300x-7-§§300x-8), and the Substance Abuse Prevention and Treatment (SAPT) Block Grant (Public Law 102-321; 42 U.S.C. §300x-21-§§300x-35), for example, specify requirements for coverage; if the responsibility for meeting these requirements is not specifically delegated to the MCO in the contract, that obligation remains with the purchaser and may result in unanticipated costs.

In addition, contracts can address such issues as: the relationship between the contract and the RFP; the relationship between the contract and local, State, and Federal law; the MCO's subcontracts with providers; indemnification; the MCO's accountability and reporting responsibilities; and conditions of contract termination in the event of nonperformance. These issues are discussed in later chapters of this document.

A recent analysis of dozens of State Medicaid contracts covering prevention and treatment services for mental and addictive disorders showed that most had significant weaknesses that may leave the purchaser at financial risk and consumers at clinical risk (Rosenbaum et al., 1997). These weaknesses can be attributed to many factors. Strong contracts for managed care are intricate and difficult to write. Purchasers must define a benefit package that meets the special needs of diverse populations and then clearly describe the package in specific contract language. In many cases, the purchaser must translate oftentimes arcane regulatory language into precise, legally binding contract provisions. In addition, under a managed care system, the purchaser must address numerous gray areas that are not covered by existing State regulations. Therefore, strong contracting expertise, an understanding of Federal and State laws and regulations, and public input in the contracting process are crucial as purchasers develop contracts that provide effective services and minimize the purchaser's financial risk.

Contracting for Managed Substance Abuse and Mental Health Services: A Guide for Public Purchasers is intended to provide guidance from both policy and legal perspectives on developing RFPs and contracts between public purchasers and MCOs. This guide is designed to provide strategies for managed care contracting efforts but does not prescribe how these efforts should be developed. Although targeted primarily toward State and county substance abuse and mental health authorities, Medicaid agencies, and other public purchasers of managed care services, this document will prove useful to treatment providers, MCOs, academicians, researchers, consumers, and other stakeholders who will find that it addresses the most pertinent issues in managed behavioral health care contracting. The reader of this document can gain the following:

Familiarity with designing and procuring, and implementing managed care systems, including a review of options for consideration, problems that may be encountered, and key legal issues;

Knowledge of RFP and contract issues related to sound clinical care, network development, quality assurance, management information systems, financing, and consumers' rights; and

Understanding of the importance of developing a comprehensive set of well-conceptualized and well-written RFP and contract provisions to provide a strong structure for public sector managed care initiatives.

Given the rapid evolution of managed care and the many variations with which States and localities are experimenting, no single approach to behavioral managed care contracting can be recommended for all public purchasers. This guide suggests a number of specific issues that purchasers may wish to consider when developing RFPs and controls for behavioral managed care initiatives. Purchasers are cautioned that this document is no substitute for expert legal and other analytic consultation in developing RFPs and contracts; and it does not eliminate the need for legal, actuarial, or other expert assistance (e.g., clinical matters, organizational public policy) in designing the RFP, conducting the procurement, or negotiating the contract. Purchasers are strongly urged by the project's Development Panel to secure the assistance of legal counsel and of actuarial, financial, and managed care experts throughout the design, procurement, and contract implementation processes.

Managed behavioral health care contracting in the public sector is changing rapidly, and to be responsive to public sector purchasers as the field continues to change, Contracting for Managed Substance Abuse and Mental Health Services: A Guide for Public Purchasers is designed as a "living" document. Publishing the guide in a looseleaf modular format makes it possible to periodically update key content areas and contract language to reflect state-of-the-art expertise. In addition, readers will have access to an interactive, electronic version of this guide, located on CSAT's Web site (www.treatment.org).⁽²⁾

The electronic version will contain linkages to other Web sites that will allow readers to explore related contracting issues in more depth. Readers will also be able to review contracts developed by public purchasers, exchange information in an online "chat room," and submit comments and local examples of contract-related experiences, which may be included in later revisions of the document.

^1.  An RFP is a solicitation document issued to obtain offers from contractors that propose to provide products or services under a contract to be awarded using the process of negotiation.

^2.  Readers may find it helpful to note that specific examples of contract language used in States' Medicaid managed behavioral health care contracts are available through the SAMHSA Web site: www.SAMHSA.gov

Last Updated 11-7-02