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Special Report
Contracting for Public Mental Health
Services Opinions of Managed
Behavioral Health Care Organizations
Introduction
Public sector contracting for behavioral health services raises a number of issues between States and managed care organizations (MCOs). These issues reflect the background of the
public agency staff involved in contracting, the agency’s unique needs for the managed care contracts, an overall litigious environment, and multiple mergers among MCOs.
As States have moved from a traditional fee-for-service and grant-funded system to a
managed care system based on negotiated rates and competition among bidders, they
discovered that the procurement and contract processes were much more complicated
and much less forgiving than under the traditional fee-for-service system. Developing
an RFP and managing a competitive procurement demanded experience and skills
not previously required for mental health and substance abuse authorities. Initially,
these agencies were not adequately prepared for the intracacies involved in managed care
contracts, a situation that has produced many challenges and lawsuits (Kaiser Family
Foundation, 1997).
In the past few years, a number of public managed care contracts have expired, requiring
renewals and new contracts. MCOs have noticed that these contracts are becoming
more complex as States seek to ensure quality and breadth of services. States are also
beginning to specify levels of treatment and prevention services for behavioral health care
("New Study Urges Close Scrutiny," 1998). In an attempt to hold MCOs to a higher
standard, some States have expanded their contracts by replicating requirements included
in other States’ RFPs. Unfortunately, some of these requirements have proven to be
unduly costly, complicated, ineffective, and duplicative.
Lawsuits facing States and MCOs make the market seem risky. States, providers, and
consumers have sued MCOs for what they allege to be unfair or dangerous practices. In
turn, MCOs have sued States for unfair bidding processes and have withdrawn from
programs they believe to be inadequately funded.
Rapid changes in the managed behavioral health care industry have further complicated
contracting relationships. In recent years, the industry has experienced a flurry of
merger and acquisition activity, reducing the number of MBHOs and increasing the size of those that remain. Consequently, in the past 2 years the number of national MBHOs active in public sector procurements has fallen from eight to three.
As a result of the above factors, fewer MBHOs are bidding on State and local public
sector contracts. Preparing a responsive proposal has become extremely expensive;
complying with the increasing number of program design specifications introduces
new and sometimes prohibitively high administrative costs. In some instances,
only one bidder has come forward in response to an RFP. Given the potential
barriers to executing successful contracts, it is essential that States and MBHOs communicate,
cooperate, and coordinate. The next sections contain the findings from focus
group research on the critical issues faced by MBHOs currently providing managed behavioral
health services to public sector clients.
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