MARKET BEHAVIOR
AND BEHAVIORAL MENTAL HEALTH MANAGED CARE
UNDERSTANDING MANAGED
BEHAVIORAL HEALTH CARE:
BUSINESS AND ORGANIZATIONAL
PRINCIPLES
A DIAGRAMMATIC OVERVIEW
PAYER
EMPLOYER
Contractee
MBHO
Providers
Management +
Professional
Services
Utilization Review.
BASIC MANAGED BEHAVIORAL HEALTH CARE
INTER-ORGANIZATIONAL RELATIONSHIPS
2
MANAGED BEHAVIORAL HEALTH CARE (MBHC) IN PROFILE
PRINCIPLE FEATURES
RAPID GROWTH: Since 1987 virtually
every large and most mid-size American
companies have come to rely on
managed health care plans The same
dynamic trend is evident in the public
sector.
DIVERSIFIED PRODUCTS: The industry
offers a varied product line that includes
“carve outs,” “carve ins,” specialized
services, EAP managed care,
administrative service only products
(“ASOs”). The complexity of such
arrangements is probably greatest in the
public sector.
PROFIT OUTLOOK: Fierce competition
has helped to restrain industry profits,
but the profit outlook is brightened by a
number of factors: e.g., continued
increases in Medicaid enrollment and an
increase in specialized services.
STATISTICS
MBHC is now a $4.4b industry covering
177m Americans. Since 1993 there has
been a doubling in the number of
Americans enrolled in mental
health/substance abuse (MH/SA)
managed care programs.
-------------------------------------------------------MHBC CONTRACTS BY TYPE
8%
28%
24%
Risk - based
ASO
UR - CM
EAP
EAP/MHBC
21%
--------------------------------------------------------------19%
1998 – 1999 industry revenues are
projected to decline by approximately
half a billion dollars. These losses
reflected the overall decline in HMO
profits, but are difficult to calculate
precisely because many MBHC
companies are either privately held or
integrated components of larger firms.
MANAGED BEHAVIORAL HEALTH CARE
BUSINESS BASICS
RISK MANAGEMENT
2. INDUSTRY TRENDS
3. “PRESSURE POINTS”
1.
UNDERSTANDING THE MANAGED BEHAVIORAL CARE BUSINESS



The typical MSW student has had little exposure to the
business side of social work practice. Yet, in addition to
being a human services profession, social work is of
course also a business---now more so than ever, given the
on-going privatization of both the social services and
behavioral health care.
It is thus essential that MSW candidates understand the
business principles behind managed behavioral health
care, especially since they themselves will be obliged to
work in that environment.
The module aims to acquaint students with the basic
business principles of managed behavioral health care
organizations (MBHOs). Since most of the surveyed
material have yet to enter the standard MSW curriculum,
those familiar with them will presumably enjoy a
competitive edge in their new careers.
SOME GENERAL RULES OF THE GAME
THE DYNAMICS OF MARKET RISK
Although an unavoidable fact of business life, prudent firms seek to limit
risk through various “risk management” techniques.
 In general, the greater the degree of risk assumed, the greater the
potential reward. Some portion of profit can thus be regarded as the
“fee” earned for successfully taking on a particular degree of risk. By
the same token, however, assumption of an imprudently high degree of
risk can and not infrequently does result in firm failure---hence the
importance of “risk management.”

Risk also increases with the intensity of inter - firm competition.
Competitive pressures force firms to offer products or services at
prices that reflect those pressures. Thus, by forcing prices lower,
harshly competitive conditions also increases risks of bankruptcy,
despite prospects for reduced rewards.

As we shall see in the next and in subsequent slides, these “general
rules” have specific relevance in MBHO’s strategies.
MANAGED BEHAVIORAL HEALTH CARE: A RISKY BUSINESS
MBHO operations are often funded by “all risk” capitation contracts, whereby
the MBHO agrees to provide all necessary behavioral health services for the
payer’s enrollees in return for a fixed “per head” fee. Profits thus depend on
keeping the total cost of provided services below the capitated funding level. This
can be difficult, however, in part because enrollee usage projections----i.e.,
estimates of which services will be required and in what quantities---tend to be
unreliable. In industry lingo, “risk technology” is still evolving, so that there can
be significant shortfalls between funding resources and the aggregate costs of
providing services.
 Risks are further accentuated in competitive markets, in which MBHOs may
settle for relatively low rates rather than lose market share. MBHOs may then
apply stringent utilization management techniques in order to limit enrollee
access to services. Such a strategy is itself risky, however, because it can spark
discontent among both payers and enrollees, leading to the eventual loss of
business. MBHOs may therefore prefer to focus on lowering provider payments,
especially if there is an absolute oversupply of providers or if competition leaves
only a few firms (an “oligopoly”), thereby leaving providers themselves with no
choice but to accept lower fees.
 Sharing risk is another, less controversial, profit-protecting strategy, evident in
the widespread preference for “soft capitation” contracts. These reduce MBHO
exposure by stipulating that losse or, alternatively, profits are to be shared with
the payer. Similar risk – sharing arrangements are often concluded between
MBHOs and providers (see # 17 for details).

MBHO COST/RISK REDUCTION TECHNIQUES:
SUMMARY AND COMMENTARY





REDUCE VOLUME OF SERVICES THROUGH INTENSIFIED UTILIZATION
REVIEW---BUT THIS MAY LEAD TO INCREASED COMPLAINTS ABOUT
QUALITY AND EVENTUAL LOSS OF CONTRACT.
REDUCE PROVIDER PAYMENTS – POSSIBLE ESPECIALLY IF PROVIDER
MARKET IS OVERSUPPLIED OR IF THE MBHO IS AN OLIGOPOLY.
ALTER PROVIDER BEHAVIOR BY REWARDING EFFORTS TO REDUCE
SERVICE VOLUME. A CONTROVERSIAL STRATEGY, HOWEVER, SINCE IT
MAY INVOLVE ETHICAL CONFLICTS OF VARIOUS KINDS.
REDUCE COSTS THROUGH ASSURING THAT MEMBER USE AND PROVIDER
PRACTICE PATTERNS ARE IN LINE WITH COST PROJECTIONS. HOWEVER,
AS NOTED, “RISK TECHNOLOGY” IS STILL UNDER DEVELOPMENT
MOREOVER, MAKING SUCH CALCULATIONS REQUIRES STATE-OF-THE ART
MANAGEMENT INFORMATION SYSTEMS (MIS), WHICH ARE VERY
EXPENSIVE, SO THAT MARGINALFIRMS MAY NOT BE ABLE TO AFFORD
THEM---A “CATCH – 22” SITUATION.
RECRUIT AND/OR RETAIN ONLY THOSE PROVIDERS WITH EXCELLENT
RECORDS OF QUALITY CARE AND RESOURCE MANAGEMENT.
INDUSTRY TRENDS
Managed behavioral health care is a relatively new industry----its growth over
the past decade has in fact been phenomenal: since 1993 alone the number of
Americans enrolled in a mental health/substance abuse health plan has doubled.
 Managed behavioral care has had its share of mergers and bankruptcies during
this intensely competitive phase, with collective losses of over $760m in 1997
alone, mostly in risk-based contracts.
 Nor are competitive pressures likely to ease. The market is now increasingly
dominated by a handful of very large MBHOs, but payers’ insistence on lower
prices will require continued cost-cutting by these surviving companies.
 Nevertheless, many Wall St. analysts predict that the industry is now moving
into a more stable developmental phase, marked by more specialized product
lines and a more sophisticated approach to risk management. Indeed, most
sources agree that payer and popular demands will result in quality of service
becoming an increasingly important MBHO consideration.
 Finally, long-term prospects for growth look promising, not least because there
are still so many people to be covered---notably, the nearly 45m Americans
without heath coverage of any sort and the 35m Medicare recipients (85% of the
total) not yet enrolled in managed care plans. Future government programs are
likely to extend managed care coverage to members of both groups.

MBHO “PRESSURE POINTS”




Although a fairly new phenomenon, managed care has generated
considerable controversy over its methods and purposes.
As the following slide (#9) makes clear, MBHOs have experienced
pressures from many different quarters, with some conflicting
demands being difficult to reconcile: e.g., quality and cost savings.
The industry is also been challenged by humanistic individuals often
unacquainted with business realities and unwilling to grant the
necessity for realistic restraints on expenditures.
The industry has also come under increased scrutiny from
government, in part because politicians correctly perceive health care
as a priority issue among many voters.
Nor has the industry itself been blameless. It is well to keep in mind,
however, that managed care has only recently emerged as the
dominant form of health care, so that all parties to it---providers,
patients, payers, and business, too---are still in an intense learning
phase of industry evolution.
FIELDS OF FORCE: THE MBHO AND ITS “PRESSURE POINTS”
State the main ideas you’ll be talking about
Lower prices
1. MARKET
PRESSURES
4. PATIENT
PRESSURES
More
services
MBHO
2. PAYER
PRESSURES
Lower prices
&
Higher quality
3. GOVERNMENT
PRESSURES
Privacy &
other
regulations
FIELDS OF COUNTERFORCE: MBHO RESPONSES
State the main ideas you’llIncreased
be talking Utilization
about
Review (UR)
Lower Provider Rates
MARKET
PRESSURES
PATIENT
PRESSURES
Relaxed UR
and more
elastic clinical
guidelines
MBHO
PAYER
PRESSURES
Lower Provider rates
GOVERNMENT
PRESSURES
Lobbying
THE MANAGED BEHAVIORAL CARE
SYSTEM:
HOW ITS COMPONENTS FIT TOGETHER
avid Katz
BASIC SYSTEM COMPONENTS
PAYER
EMPLOYER
Contractee
MBHO
Providers
Management +
Professional
Services
Utilization Review.
14
PAYER
EMPLOYER
Contractee
MBCO
Providers
Management
Professional
Services
Utilization Review.
FOCUS A: PAYER – MBCO RELATIONS
15
PAYER
EMPLOYER
BMCO
ASO
Cap.
Contract
Contract
PERFORMANCE
RANGE
“Soft”
Full
Risk
ASO
+
PERFORMANCE
VARIATIONS IN PAYER - BMCO
CONTRACTUAL ARRANGEMENTS
16
PAYER
EMPLOYER
Contractee
MBHO
Providers
Management
Professional
Services
Utilization Review.
FOCUS B: MBHO – PROVIDER RELATIONS
17
MBHO
PROVIDER
FEE FOR SERVICE
CAPITATION
(INDEMNITY)
CASE RATECONTRACT
PARTIAL
SUB
WITHOLDS
VARIATIONS IN BMCO - PROVIDER
CONTRACTUAL ARRANGEMENTS
18
MBCO – PROVIDER CONTRACTUAL ARRANGEMENTS (2)
FEE FOR SERVICE (FFS): TRADITIONAL INDEMNITY COVERAGE,
WITH PROVIDERS PAID ON PER SERVICE BASIS.
Risk
of overpayment as providers seek to maximize income by providing as
many services per contracted group member as possible. Also, lack of adequate
utilization controls may result in excess member demand. Relatively costly FFS
coverage provided incentive for creation of current managed care system, and is
now fading in importance.
CAPITATION: FIXED PER MEMBER FEE FOR A SPECIFIED PERIOD.
Risk
to provider if total cost of services exceeds contract revenues based on
faulty usage projections. This is a real danger since “risk adjustment
technology”---in plain language, the ability to predict future usage patterns
based on the demographics (e.g., age, past illnesses, etc) of the covered
population---is still not reliable. MBHOs may accordingly limit the number of
providers, in order to assure that each is responsible for a sufficient number of
members. Doing so substitutes a purely quantitative ”random chance” model for
a more qualitatively sophisticated but relatively less reliable one. The principle
involved is simple: the larger each provider’s group, the less risk that the total
usage pattern will exceed projections; under-use by some will simply balance
out overuse by others. “Sub” or “partial” capitation contracts also lessen risk by
sharing it between providers and MBHOs, much as “soft” and “full” capitation
contracts do likewise between payers and MBHOs.
MBHO – PROVIDER CONTRACTUAL RELATIONS (3)
WITHOLDS: PART OF CAPITATED PAYMENT TO PROVIDER MAY BE
“WITHELD,” WITH PAYMENT DEPENDENT ON MEETING CRITERIA
ESTABLISHED BY THE MBHO.
“Withholds” are in effect bonuses paid to providers demonstrating exemplary
skill in saving money while also satisfying member need for quality care. That at
least is the theory, but critics charge that “withholds” can actually subvert
prospects for quality care by encouraging providers to skimp on or indeed even
“withhold” clinically desirable treatment.
CASE RATE CONTRACT: PROVIDER AGREES TO A PER CAPITA RATE
COVERING A SPECIFIC PATIENT FOR A SPECIFIC PERIOD OF TIME.
Case rate contract fees might in principle appear more reliable than group rates:
after all, such fees can be based on detailed individualized assessment of
symptamology and usage history. But in fact, as with capitation in general,
inaccurate projections of future treatment costs are a real possibility, especially
when the patient is afflicted with multiple behavioral disorders, which necessarily
complicate any attempts at projecting the frequency or intensity of future
treatment needs. Thus, here, too, it is prudent for the provider to share risks with
the MBHO, perhaps by “bundling” such contracted members together so that
volume can once again be used to arrive at roughly accurate mean estimates of
total usage. However, this can be difficult to achieve if the number of covered
patients sharing similarly severe problems is small.
MBHO – PROVIDER RELATIONS:UTILIZATION MANAGEMENT (UM)
Simultaneously the most critical and most controversial feature of MBHO
operations: as G. Mihailik/M.Scherer (1998)* note: “Managed care, or utilization
that is implicitly or explicitly regulated, can be seen as the defining service
provided by MHBOs. [italics added]”

In other words, UM is the “management” in managed care: it is the process
whereby providers receive authorization to initiate and continue treatment
according to a provider diagnosis validated by MHBO utilization managers.
Once medical necessity for treatment has thereby been established, UM may
also require that treatment itself conform to MHBO clinical practice guidelines
(CPGs) intended to promote clear therapeutic outcomes efficiently arrived at.
MBHOs may also retain outside consultants to assure that providers are
pursuing these same results. (See next slide for a diagrammtic representation
of the entire UM process.)

Since UM involves consultation between providers and MHBO utilization
managers, some critics regard it as tantamount to provider “deskilling.”
Certainly UM helps to “define” the quality of MBHO operations: excellent
MHBOs “walk the fine line” between, on the one hand, excessive intrusion on
the provider – patient relationship and, on the other, meeting their obligations
to payers, who seek both quality and cost – effectiveness.
* Fundamental mechanisms of managed behavioral health care, J. of Health Care
Finance, Spring, 1998, 1-15.

MBHO – PROVIDER RELATIONS:UTILIZATION MANAGEMENT (UM)
N.B. UM is a broader concept than utilization review (UR). The former refers to a bro
array of mechanisms designed to control access to care and regulate such care as i
authorized and provided. UM may, for example, include design of scaled co-paymen
aimed at discouraging excessive treatment. In contrast, UR usually refers more
particularly to the monitoring & supervision of provider performance.
*Pre-certification
required to determine
the nature & severity
of the patient’s
illness.
Utilization Management
PreCertification*
concurrent
review
CPGs
Provider