Medicaid Managed Care:

Four States' Experiences With Mental Health Carveout Programs

HEHS-99-118: Published: Sep 17, 1999. Publicly Released: Sep 17, 1999.

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Pursuant to a congressional request, GAO provided information on how states design and monitor Medicaid mental health programs, and how, at the federal level, the Health Care Financing Administration (HCFA) exercises its oversight of the Medicaid program, focusing on: (1) the extent of beneficiary choice in capitated mental health carveouts, the range of covered mental health services, and access to these services; (2) the states' approaches to monitoring the quality of care in their Medicaid mental health carveouts; and (3) HCFA's oversight of states' mental health carveouts.

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.

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