There are two means by which a health plan can affect the intensity of rationing of M/SU health care when it (rather then the employer or other group purchaser) carves out behavioral health care: through the level at which it sets the carve-out health plan’s budget (via the capitation rate) and through the performance requirements specified in a contract. It is common to see capitation rates of $2.00 or less per member per month, a figure generally viewed as being consistent with a minimal level of care.

Direct Purchase of Carve-Out Services by Group Payers

A second prominent approach to purchasing insurance coverage for M/SU health care is for the payer to purchase carve-out services directly. This approach involves separating the risks associated with care for these illnesses from general health care risks and entering into specific contracts for coverage of M/SU care. Such direct purchase of carve-out services is used by approximately one-third of large employers (5,000 employees or more), 5 percent of midsized employers, and about 16 state Medicaid programs (Hodgkin et al., 2000; CMS, 2004). This method of purchasing removes M/SU health care from competition for enrollees, thereby attenuating the selection incentives concerning coverage and quality discussed above. However, use of such carve-out arrangements has implications for care coordination (see Chapter 5).

Direct purchase of carve-out M/SU services by group health care payers uses competition as the means of awarding contracts for these services. That is, a payer will frequently solicit proposals and bids from MBHO carve-out vendors to manage the M/SU health care for a defined population. The requests for proposals specify the areas of performance on which the contract will be awarded. The most common areas of performance are costs, responses of the utilization management system (e.g., speed of telephone response to member calls, speed of referral to a provider), and plan member satisfaction. There is, of course, considerable variation in the specifics, with some payers developing relatively elaborate measures of access and quality. However, the typical contract specifies few indicators of clinical quality, such as depression medication measures.

State Medicaid programs typically operate under state procurement regulations that place great emphasis on pursuing the lowest-cost bid if it is “technically acceptable” to reviewers of the proposal. It should be noted that many states include consumers of M/SU services as advisers to the state in the procurement of MBHO carve-out services. Private payers commonly use consultants as advisers in their procurement process.

The market for MBHO carve-out services consists of several large national vendors (e.g., United Behavioral Health, Magellan, and Value-



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