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Managed Care Shifts Costs, but Doesn't Eliminate Them

Managed care strategies may save costs for public payers such as Medicaid, but may also shift costs to private payers, such as friends and family, resulting in an increase in societal costs.

Understanding the impact of societal costs is essential to the process of structuring mental health financing strategies, according to a mental health advocate and lead author of a new study showing that while one managed care plan saved money in some areas, the burden of cost may have been shifted rather than avoided.

In a cost analysis of three Medicaid plans in Florida, managed care was associated with a tendency toward reduced costs to Medicaid but increased societal costs, which include those to family and friends of people with mental illness. The results appeared in the February American Journal of Psychiatry (AJP).

"It is critical to examine societal costs when forming sensible social policy" that guides health care financing schemes, said David Shern, Ph.D., lead author of the study and president of Mental Health America, in an interview with Psychiatric News.

AJP Editor in Chief Robert Freedman, M.D., noted in a press release announcing the study results that "the wider perspective is especially important for patients with long-term disabling illnesses who have multiple needs that cross different types of services and payers."

Shern and colleagues at the Louis de la Parte Florida Mental Health Institute at the University of South Florida examined costs related to a Medicaid waiver in the Tampa Bay area that established mandatory enrollment for Medicaid recipients either in an HMO that charges beneficiaries a premium or in a mental health carveout plan run by a national behavioral health care company.

They compared those costs with costs related to Medicaid mental health services reimbursed on a fee-for-service basis in Jacksonville, an area that resembles Tampa Bay in terms of its health care delivery system.

To recruit study subjects, Shern identified 688 Medicaid enrollees with severe mental illness through a mail screening procedure, and colleagues interviewed the enrollees on a face-to-face basis from October 1997 to November 1999 about general health and mental health service use and expenditures related to those services.

The researchers compiled service costs by using Medicaid fee-for-service reimbursement rates from 1997 and collecting cost estimates of service use from different health facilities. In addition, they estimated the costs associated with time contributed by friends and family using minimum wage rates from 1997.

Costs were categorized as Medicaid-financed costs, other publicly funded costs, and privately financed costs, which included income and time and financial support provided by friends and family of enrollees.

Societal costs were intended to reflect total resource consumption and were calculated by adding together all service costs, housing subsidies, legal costs, and support from family and friends.

Shern and colleagues found that HMO enrollees had significantly lower Medicaid costs than those in the fee-for-service or carveout conditions (p<.05). Those enrolled in either managed care plan, however, had significantly greater private costs than those in the fee-for-service conditions, with HMO enrollees registering the highest private costs.

The researchers found that although those enrolled in the HMO did save money for the Medicaid program and showed the greatest overall reduction of Medicaid service use compared with the other plans, "there were no net savings when we considered overall societal costs," Shern said.

These societal costs were due to an increase in legal costs incurred by HMO enrollees, which included time spent in jail, in prison, on probation, or on community service work, as well as frequency of police contact, court appearances, and attorney services.

Societal costs for HMO enrollees also included increased expenditures by friends and family members compared with those in the carveout and fee-for-service plans.

"People enrolled in managed care had much greater private costs, consisting mostly of friends and family members' contributions" of time and money, Shern said. Such contributions included family members staying home from work to care for the relative with mental illness or giving the ill family member money for food or medications.

Due to the study's design, Shern noted, he couldn't draw definite conclusions about cost shifting from one payer to another, but was able to pinpoint trends in cost shifting and emphasized that when exploring options for health care financing strategies, societal costs must be considered.

"One problem we must take into account when talking about people with severe mental illness is the fragmentation of the mental health system and the multiple payers who are involved in financing care for those patients," said Shern. "This study shows that if you constrain payment in one of those systems through a managed care arrangement, you may inadvertently distribute cost to other payers."

"Medicaid Managed Care and the Distribution of Societal Costs for Persons With Severe Mental Illness" is posted at <ajp.psychiatryonline.org/cgi/reprint/appi.ajp.2007.06122089v1>.

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