Medicaid Managed Care

To control Medicaid costs and improve services, many states began, in the early 1990s, to place their mental health and physical health services under separate financing and administrative arrangements. In the four states GAO studied, these mental health "carveouts" limited beneficiaries to one prepaid mental health plan. To help ensure that such plans did not try to contain costs by inappropriately limiting beneficiaries' access to care, the Health Care Financing Administration (HCFA) required the states to allow beneficiaries to choose their providers, set contract standards for service levels, and reduce or eliminate requirements for prior authorization for outpatient care. The states took several other steps to discourage the underprovision of services. To monitor the quality of their carveouts, the states supplemented federal requirements with other strategies, such as site visits, ombudsmen, and monetarily rewarded quantitative mental health performance goals. HCFA's oversight consisted mainly of reviewing and approving carveout applications, targeting specific issues, and providing minimal written guidance and limited staff expertise in mental health managed care issues. HCFA is strengthening its oversight by collaborating with the Substances Abuse and Mental Health Services Administration and test-piloting an early monitoring program.

GAO noted that: (1) in Colorado, Iowa, Massachusetts, and Washington, the mental health carveouts limited Medicaid beneficiaries to a single prepaid mental health plan; (2) because there was no choice of carveout plan, these states generally tried through contractual provisions to ensure that prepaid health plans (PHP) did not limit beneficiaries' access to services inappropriately in order to contain costs; (3) the states also set standards in their contracts for determining appropriate levels of services, using broad definitions of medical necessity, and the states and plans generally reduced or eliminated requirements for prior authorization for access to outpatient care; (4) the states generally expanded the range of covered community-based mental health services, compared with their prior fee-for-service (FFS) programs, and reduced the use of inpatient services; (5) to discourage the underprovision of services, these states also capped PHPs' profits, losses, or administrative expenditures; (6) Colorado and Iowa required PHPs to invest a portion of their profits in new community-based mental health services; (7) the states' approaches to monitoring the quality of their Medicaid mental health carveouts were based on federal laws and HCFA's regulations governing quality assurance systems, grievance and appeals systems, medical audits, independent assessments of waiver programs, and data requirements; (8) these federal requirements for managed care programs are more extensive than those for FFS programs because of the need to compensate for capitated plans' incentives to underserve beneficiaries; (9) each of the four states supplemented these federal requirements with additional strategies for monitoring quality; (10) the states' supplemental strategies included the use of site visits to PHPs to analyze access to services and choice of provider, among other issues; (11) some of the states GAO studied established ombudsman programs and advisory committees, composed of mental health providers and consumers; (12) however, the states did not widely use some potentially powerful tools; (13) the four states also generally did not use HCFA's optional quality guidance because they considered it too general for their mental health carveouts; (14) HCFA's oversight of the four mental health carveouts consisted primarily of reviewing and approving states' applications for Medicaid waivers and requests for waiver renewal; and (15) HCFA has recently taken several steps to strengthen its oversight of Medicaid mental health programs.