A Comparison of Acute Psychiatric Care under Medicaid Carve-Outs, HMOs, and Fee-for-Service Plans

1. A Comparison of Acute Psychiatric Care under Medicaid Carve-Outs, HMOs, and Fee-for-Service Plans Society for Social Work Research Washington DC, 2008

2. Questions motivating this study� 2 An accumulating body of research has provided persuasive evidence that managed care effectively contains service costs through the minimization of expensive inpatient services (Shepard et al. 2001, Stein, Reardon, & Sturm, 1999). However, considerably less data has been forthcoming on the reasons for these effects, as well as the longer term impacts of such declines. Do they result from reduced per diem costs, lower rates of hospitalization, shorter lengths of stay, diminished rehospitalization, greater outpatient service provision, or some combination? Most important is the question of the long term balance of the benefits and costs of reduced hospitalization for patients. There is also the need for a better understanding of the impact of diverse incentives associated with some of the major managed care options, in particular, those involving health maintenance organizations (HMOs) and carve-outs.

3. Background 3 The concept of managed care dates back to the prepaid health plans of the early 1900s, such as a rural farmers' cooperative health plan in Elk City, Oklahoma which was launched in 1929 (Tufts, 2007). There has been a very slow introduction of managed care into the public sector has characterized the U.S. Medicaid program, one jointly financed by the state and federal governments, but administered primarily by the states. The adoption of managed care plans under Medicaid has required waivers of the 1915b section of the Social Security Act that guarantees freedom of choice on the part of Medicaid recipients (Hudson, 2001). One of the first states to successfully apply for and be granted a 1915b waiver was Massachusetts, which in 1992 initiated a statewide managed care program for all those who are not also on Medicare (Dickey et al.,1998; Hudson, 1999).

4. Background, continued 4 Under this plan, Medicaid beneficiaries are asked to select either an HMO to provide for all of their medical & psychiatric needs, or a Primary Care Clinician (PCC), to coordinate medical services. Enrollees in the PCC option receive required mental health or substance abuse services from a carve-out, at the time of this study, the Massachusetts Behavioral Health Program (MBHP). These are specialty plans managed by a private corporation, that in turn subcontracts with a variety of institutional and individual providers for the actual services. The carve-out differs from the HMOs both because of its specialized nature, its statewide coverage, and also, because incentives for cost containment are reduced due to the unpredictable service needs of the target population (it represents a kind of partial or �soft capitation�). The plan represents a privatization of health care oversight, a development that transcends the privatization of health care delivery. Also, the Fee-for-Service (FFS) option, which is reserved for �dual eligibles�, those who receive both Medicaid and Medicare, is used a comparison group in this study.

5. Background, continued 5 Most evaluations of managed care plans have either explicitly or implicitly employed economic agency theory (Robinson, 2001). This perspective is based on the notion that the economic incentives associated with payment mechanisms are the driving force behind the behavior of health care providers, and thus determine their costs. Whereas the after-the-fact payment in indemnity plans for defined service units creates an incentive for maximizing service provision, especially of expensive procedures such as psychiatric inpatient care, prepaid capitated plans are assumed to create the opposite incentive, that is, for reducing service provision and maximizing profit. This theory would suggest that while HMOs would have the greatest impact in minimizing services, fee-for-service plans would tend to maximize profitable services. Carve-outs are expected to have an intermediate impact, but one closer to HMO than FFS plans. It may be that payment structures that minimize the incentives for either under- or over-provision of services, will best support evidence-based clinical decision making.

6. Recap of literature review 6 There is considerable evidence that both managed care options � the HMO and carve-out programs � have reduced costs compared with the FFS option, mainly through the reduction in inpatient utilization, with some evidence for increases in outpatient services. This has been found in overall statewide evaluations, as well as in the evaluation of particular systems or sectors of care, such as children and substance abuse. Although the two studies that have specifically compared the HMO and carve-out models in Massachusetts have not revealed major differences between these two managed care strategies in terms of outcomes, there is some data from each that suggests that HMOs provide additional savings over and above the carve-out, even after differences in case mix are controlled for.

7. Hypotheses 7 This study builds on these earlier studies by extending both the sample size and the time frame examined, by considering the critical issue of rehospitalization rates, and by examining several new indicators of utilization, costs, outcome, and continuity of care. The study specifically includes tests of the following hypotheses: Both managed care options � HMOs and COs -- will demonstrate reduced utilization of acute psychiatric inpatient care compared with the FFS program, with the HMOs showing the greatest reductions. The FFS and CO options will have lower continuity of care, compared with the HMO plan. Both managed care options under the Massachusetts Medicaid program will have reduced costs compared with the FFS option, with the HMOs showing the greatest savings. The most favorable clinical outcomes will be associated with the CO option. The managed care options will show decreased rehospitalization, with the greatest reductions associated with the HMO option.

8. METHODOLOGY -- OVERVIEW 8 Secondary analysis of the Commonwealth of Massachusetts� Case Mix database, maintained by the Division of Health Care Finance and Policy, Supplemented by data from the STF-3C file of the 2000 U.S. Census and from 403 Financial Reports . It uses a quasi-experimental design involving the comparison of three distinct cohorts of patients: those in the Commonwealth�s Medicaid FFS, HMO, and carve-out programs. It is also longitudinal in that data is analyzed on the 58,881 Medicaid patients who were hospitalized in acute psychiatric facilities during the seven year period from FY1994 to FY2000, with comparisons made for key subgroups of patients between their first and last recorded hospitalizations. A key feature of this study is the unduplication of records of hospital episodes to the patient level, and the tracking of patients between units (medical versus psychiatric), hospitals, insurance programs, and communities. One of the central outcomes examined involves the varying rates of psychiatric rehospitalization, and this was done using event history analysis, specifically, Cox regression.

9. Data Reliability 9 Analyses of administrative data are often confronted with questions about data reliability, especially when such data is obtained through multiple sources. The reliability of the data on age, gender, and race was assessed by this researcher through an analysis of the consistency of these fields across multiple hospitalizations of the same individuals. Very high levels of reliability or interrater agreement among the three different facilities of a subgroup of patients with multiple hospitalizations within any three month time span. Agreement about gender, age, and racial affiliation were all very high, at 0.93 or above (34). A parallel procedure was used to examine agreement between separate facilities as to patients� diagnoses: Kappa reliabilities range from the slight (0-.19) to the substantial (.60-.79). Substantial reliabilities were found for senile/presenile organic psychosis (.67), as well as schizophrenia (.74), and moderately strong reliabilities were found for affective disorders (.54), Adjustment reaction (.48), alcohol dependence (.59). Particularly important are variables involving the identification of the patient�s insurer. DHCFP completed an analysis of these fields, comparing their own data with that of selected facilities and insurers, including Medicaid, for 1994 (35). This analysis indicated a good to a very good level of agreement. In the case of Medicaid, there were precise matches in 69.4% of the cases.

10. ANALYSIS 10 Preparatory steps included the preparation of SPSS data files for each of the seven years, and the merging of these files into a single master file containing 5.2 million discharge records, based on a uniform health identifier field, an encrypted social security number that links episodes of the same individual over the multiple years. Upon consolidation, records were aggregated into a person-level file of 1.8 million individuals, with those with Medicaid admissions to psychiatric or substance abuse units were selected out for most of the analyses reported in this article. For the subset of data on Medicaid patients used in this analysis, 90.7% of the episode records had valid identifiers (58,881 individuals).

11. ANALYSIS, CONTINUED 11 Preliminary analyses: Computation of various descriptive statistics on patient demographics, service patterns, and the like, typically broken down by Medicaid program. In the descriptive statistical analyses, an adjustment weight was used to control for the varying demographic profiles of each of the subgroups of patients, based on age, sex, race, and presence of a psychotic diagnosis. This procedure, in effect, makes each Medicaid program group comparable in respect to these four variables by weighting individuals using their inverse probability of selection based on their demographic & diagnostic characteristics, as well as programmatic assignments.

12. ANALYSIS, CONTINUED 12 Finally, an event history analysis using Cox regression, as implemented in SPSS version 11.0, was conducted to compare rehospitalization rates for the three cohorts. This procedure used episode level data, specifically, the first recorded episode for each patient so as not to violate the assumption of independence of observation. This procedure serves to estimate risk for rehospitalization, and takes into account the fact that the data is censored and that some individuals may be hospitalized after the end of the data collection period. It provides an estimate of the risk of rehospitalization for each of the cohorts, while statistically controlling for a wider range of predictor variables than can be used in the descriptive procedure outlined in the previous paragraph. The assumption of proportional hazards for various subgroups of patients was assessed through inspection of the survival graphs, and none of the survival functions were found to be disproportionate. After preliminary analyses using the Cox procedure, those predictors that did not significantly contribute to the model were dropped, and the model was re-computed. In addition, the overall predictability of the model was assessed by a comparison of the predicted with the actual occurrence of rehospitalization.

13. Table 1. Demographic and Diagnostic Characteristics of Medicaid Samples (n=58,881) 13

14. Table 2. Patterns of Acute Psychiatric Hospital Usage by Massachusetts Medicaid Recipients, FY1994-FY2000  14

15. Table 3. Selected Outcome IndicatorsNOTE: Figures are adjusted to assure for group comparability based on program, age, gender, race, and psychotic diagnosis.  15

16. Table 4. Rehospitalization Rates, by Type of Medicaid Program 16

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18. Table 5. Acute Psychiatric Rehospitalization of Medicaid Patients, Regressed on Selected Diagnostic, Treatment, Demographic, and Insurance Covariates,Using Cox Regression (n=45,145) 18

19. Cost comparisons 19 HMO model seen the greatest reductions in service utilization, including rehospitalization, as well as the greatest cost savings. Costs, as reported by the hospitals, can be analyzed from several perspectives, ranging from per diem to per enrollee costs. Per enrollee psychiatric hospitalization costs for the year FY2000, which includes both those hospitalized and those not hospitalized, was $1,980 per HMO enrollee, compared with $4,984 for the carve-out and $5,905 for the FFS program. For just psychiatrically hospitalized individuals, a similar pattern is found: For the HMOs, the rate is $11,796, compared with $15,916 for the carve-out, and $18,538 for the FFS program. Per episode costs the highest for HMOs, at $7,474, compared with $6,444 for the carve-out, and $6,507 for the FFS program. HMO per diem costs are also the highest, at $960, compared with $723 for the carve-out, and $872 for the FFS option. The cost to charge ratio for HMO patients averaged 65.8%, compared with 74.0% for the carve out, and 67.1% for the FFS program. These breakdowns of charges and costs do not reflect the actual payments that are eventually received from the various public and private payors.

20. Discussion 20 HYPOTHESES LARGELY SUPPORTED: Both the carve-out and HMO options have reduced levels of hospitalization, compared with the FFS, with the reductions associated with the HMOs being most pronounced. A KEY FINDING: These differences result from a combination of lower rates of hospitalization, shortened lengths of stay, fewer total stays, and reduced rates of rehospitalization. THEORETICAL INTERPRETATION: The patterns of these reductions are consistent with economic agency theory with the greatest incentives (under HMOs) associated with greatest reductions (HMOs reductions > CO > FFS)

21. Discussion, continued 21 SOME AREAS OF CONCERN: Savings of the HMOs actually resulted from a displacement of individuals with primary psychiatric diagnoses on to medical units, in fact, about half of them, much more than in the other two programs examined. In addition, when their patients were hospitalized on psychiatric units, they left against medical advice at more than twice the rate as in the carve-out, and at four times the rate of the FFS program. OTHER OUTCOMES MIXED: Despite the fact that the HMO�s rehospitalization rates were the lowest of the three cohorts. .. There was some evidence that the HMOs saw higher rates of improvement in psychotic diagnoses compared with the carve-out, but with relatively low levels of improvement in condition severity between the first and last recorded hospitalizations. Disparate patterns such as these may reflect a greater tendency for HMOs to avoid repeatedly hospitalizing patients with psychosis, or alternatively, measurement error.

22. Discussion, continued 22 This study demonstrates the precariousness of a sole reliance on rehospitalization rates as an outcome measure, given the obvious possibility that lessened rehospitalization may reflect decreased service access rather than improved community functioning. The former interpretation, in this case, is the more plausible one given the fact that these HMOs, with their very low rehospitalization rates, provide psychiatric hospitalization at the greatest mean distance, about 31 miles between hospital and home for these patients, much more than for the other two cohorts. Yet, the HMO patients did experience the highest continuity of care of assigned doctors, as would be expected in a single gatekeeper system. The low rehospitalization rates of the managed care groups in this study are particularly noteworthy since they were examined on a statewide basis for close to a seven year period. These reduced rates reflect statistical controls for the most obvious differences in the demographic and clinical profiles of these populations.

23. Concluding Comments Since much of the initial savings from the implementation of managed care programs in public inpatient psychiatry have already been realized, there has been a renewed interest in extracting further savings through the expanded use of HMOs for indigent and seriously mentally ill persons. This study, however, raises serious questions about the trade-offs and other non-monetary costs involved with such a policy. Nonetheless, the carve-outs are not without considerable problems. Yet, the greater specialization in programming for this population available under carve-outs, as well as the less severe incentives for service minimization for its heavy service users, suggests that it may be a mistake to sacrifice this alternative in search for even greater cost savings. 23

24. Some selected references � Hudson, C.G. (1999). System reform in public mental health: The Massachusetts experience, in Managed Care in Human Services, ed. S.P. Wernet (Chicago: Lyceum, 1999), 74-99. Hudson, C.G. (2001). Changing patterns of acute psychiatric hospitalization under a public managed care program,� Journal of Sociology and Social Welfare, 28, (2),141. Hudson, C.G., Dorwart, D.R. & Wieman, D.A. (1998). The impact of a Medicaid behavioral carve-out program on patterns of acute psychiatric hospitalization: The Massachusetts experience, FY 1996 - FY 1997", Center for Applied Research and Development, Salem State College. Robinson, J.C.. (2001). Theory and practice in the design of physician payment incentives, The Milbank Quarterly 79, (2), 149-177. Shepard , D.S., et al. (2001). Effects of a statewide carve out on spending and access to substance abuse treatment in Massachusetts, 1992 to 1996, Health Services Research, 30, (6), 32-44. Stein, B., Reardon, E., & Sturm, R. (1999). Substance abuse service utilization under managed care: HMOs versus carve-out plans,� The Journal of Behavioral Health Services and Research 26, no. 4 (1999): 451-456. Tufts Managed Care Institute. (2007). A Brief History of Managed Care (Website: http://www.thci.org/downloads/ riefHist.pdf). 24

25. This concludes the presentation � Thank you for listening! 25