Appendix C–Managed Healthcare Organizational Readiness Guide and Checklist: Special Report

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.

Introduction

A 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.

Purpose

The 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 Objectives

The 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.

Background

The 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 Checklist

The 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:

• In meetings of regional or local networks of providers

• By providers or networks and their consultants

• By providers as a self-assessment tool

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:

• Increased public acceptance of the need for care

• Increased benefit coverages in many health plans

• State activities to include substance abuse services in State Medicaid programs

• A rapid growth in inpatient hospital-based substance abuse and psychiatric units, supported by benefit plans that paid for inpatient treatment and a surplus of hospital beds

• Increases in State and Federal funding of community services, such as the Substance Abuse Prevention and Treatment Block Grant program

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:

• 20.0 million in employee assistance programs (EAPs)

• 6.6 million in integrated managed behavioral health/EAPs

• 20.5 million in risk-based behavioral health network programs

• 15.0 million in nonrisk-based network programs

• 37.0 million in stand-alone behavioral health utilization review programs (Oss 1994)

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:

• Overuse of hospitalization

• Purchase of services without any indication of clinical effectiveness–making it difficult to identify good care and good providers

• Incentives in traditional benefit plans to use hospitalization rather than outpatient alternatives

• Fragmented service delivery and the lack of coverage for case management services in traditional indemnity plans (England and Vacarro 1991).

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:

• Access to care and a provider's response time; i.e., the availability of inpatient and residential beds as needed, and access to outpatient services based on:
  • Emergencies: immediate access
  • Urgent services: 1-2 days
  • Routine services: 4-6 days
• Minimal delays for patients transferring from one service to another, particularly within a single provider

• Administrative and clinical responsiveness

• Use of brief, problem-centered clinical approaches rather than long-term rehabilitative approaches

• Positive practice profiles; i.e., providers who are pragmatic, innovative, team-oriented, consumer-oriented, case management-oriented, and outcomes-oriented

• Cultural competence

• Willingness to arrange for related social services as needed, e.g., housing or job placements

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 Strategies

Short-range strategies could include:

• Strengthening relationships with businesses through relationships with EAPs

• Maximizing Medicaid reimbursements and positioning the provider organization to expand its participation in Medicaid as managed care arrangements are implemented

• Becoming a preferred provider for several managed care organizations

Longer Range Strategies

Longer range strategies to be considered might include:

• Determining the extent to which the provider organization will address a broad client group by delivering a range of services or by focusing on one or more niche markets, i.e., specialty services for a limited population

• Joining or forming a regionally integrated substance abuse and/or behavioral health service network, which can seek preferred provider and other contracts

• Marketing to primary care medical group practices and multipractice physician groups, which have an increasingly critical "gatekeeper/service manager" role in healthcare reform

• Marketing directly to payers, such as HMOs, insurance carriers, and self-insured businesses

• Integrating fully into the healthcare system by becoming part of a physician-hospital organization or an arm of a large physician group practice.

Use the following checklist to assist you in developing your agency's individualized plan for future challenges.

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