Maryland has embarked on its own version of mental health system reform using the section 1115 Medicaid waiver to change its historic approach to providing, purchasing, and managing care. The article by Dr. Oliver (page 735) outlines the conceptual approach selected. The Maryland General Assembly voted for this plan with broad support from the mental health advocacy community.

As the director of an urban comprehensive mental health service system, I offer a provider's perspective on Maryland's mental health plan and its implementation and raise questions relevant for future reform efforts. Well into the first year of the new system, the Mental Hygiene Administration has not clarified many details of the plan, and the leaders of the administrative service organization openly acknowledge that they were not adequately prepared for the transition. The reform's ultimate impact remains the subject of intense speculation.

The fast pace of the reform has threatened the early partnership between the Mental Hygiene Administration and Maryland's mental health community, including providers, consumers, families, and advocacy organizations. It has also raised doubts about the capacity of the Mental Hygiene Administration to manage the full range of carved-out services. In April 1997 the piecemeal release of proposed fee-for-service rates for the upcoming year resulted in a firestorm of community protest as mental health agencies projected that their budgets might be reduced by more than 40 percent. Concerted political pressure was applied, and the Mental Hygiene Administration was forced to quickly put together a transition plan in which community mental health centers were offered up to a year to convert to fee-for-service financing if they were willing to take a 10 percent reduction in grant funds and revenue. Most eligible providers took this option as the lesser of two evils.

The reform proposal and resulting debate have shifted the focus from clinical outcomes to fiscal solvency for participating providers and the state. Faced with inadequate resources for decades, public mental health systems have already introduced many efficiencies and low-cost alternative care strategies. Therefore, the easier cost reductions derived from applying managed care principles to private care systems are not as feasible in some public settings.

Facing budget shortfalls, community providers in Maryland, such as county health departments, were forced to reconsider their commitment to providing mental health care. Several counties announced their intentions to end the direct provision of mental health services, and they have subsequently closed outpatient clinic services. Other providers reduced clinical staff, increased caseloads, and discontinued nonreimbursable activities. For example, our agency has eliminated a variety of clinical case conferences so that clinicians can meet the higher productivity standards required in the plan. Traditional community providers, who developed substantive expertise and continuous therapeutic relationships while delivering services under state regulations, have seemingly been cast as part of the problem rather than identified as crucial to solutions. The states' traditional commitment to a stable and long-term relationship with providers is yielding to pressure for competitive bidding.

All state reform approaches must trade off a range of benefits and drawbacks, and no perfect model is likely to be clinically, economically, and politically practical. As such, many strengths and weaknesses in the structure of Maryland's reform initiative exist.

A fundamental strength is the carving-out of all historic Medicaid expenditures for mental health services, which has created an opportunity for the Mental Hygiene Administration to pool and control the allocation of these scarce resources. The Maryland carve-out protects its mental health dollars from the risk that plan managers view mental health treatment as discretionary due to the stiff competition with physical health care.

Despite the validity of arguments for integration of somatic and behavioral services, an equitable allocation of expenditures for behavioral services in carved-in plans cannot be guaranteed. That mental health services will receive equitable funds remains a risky assumption despite significant efforts to reduce the stigma of mental disorders and its attendant discrimination. The inherent incentive for Maryland's medical care organizations to refer all mental health treatment of Medicaid recipients to the carve-out mental health sector will likely improve access to quality specialty care for those without severe disabilities, while those with severe disabilities will continue to get service in comprehensive mental health service systems.

Another positive aspect of Maryland's approach has been to structure the administrative service contract to purchase specific services from a behavioral health organization. The state retains the risk for overall system management and its role as the "provider of last resort." Underutilization or underpayment leaves unspent funds in state control. One cannot overstate the importance of this contractual protection of public tax dollars in that it limits the conversion of scarce service dollars to shareholder profit.

On the other hand, the Maryland design has significant shortcomings, not the least of which was the inability to bring substance abuse services into the carved-out mental health sector. Exclusion of substance abuse services has reinforced a boundary that, until these services are reintegrated, will haunt efforts to provide effective integrated care to the many individuals with co-occurring addictive and mental disorders. The willingness of medical care organizations to adequately fund substance abuse services out of their capitation rates remains unknown as negotiations with a subcontracted addictions services care management company proceed.

At the time of this writing, protocols for referring dually diagnosed individuals across the somatic-mental health boundary do not exist, and it is not clear who pays for which services. This artificial fragmentation of services will also be problematic for persons with developmental disabilities, dementias, and antisocial personality disorder—diagnostic categories that are deemed by Maryland's Medicaid waiver plan not to be the responsibility of the mental health carve-out providers.

In choosing a fee-for-service financing mechanism, the Mental Hygiene Administration retained financial risk for costs to the system and created the need to provide quality management to ensure that services are not overutilized. The provider costs of participating in quality management for the system are often subtle, yet significant. The increased administrative burdens of providing extensive documentation for multiple layers of review are enormous. The unpredictable nature of mental health needs ensures repeated requests for preauthorization of crisis services or additional visits.

Responding to the demands to obtain authorization has diverted clinical energy from direct patient care at a time when the Mental Hygiene Administration has assumed in its fee calculations that time spent by clinicians in direct care will increase from 50 percent to 65 percent. My agency has been forced to add additional administrative personnel to keep the paper flowing while vacant clinical positions will remain unfilled.

The reluctance of the Mental Hygiene Administration to embrace either a short-term or a long-term capitation strategy, in which the provider assumes the risk for all necessary mental health care, creates few incentives for providers to develop comprehensive mental health systems and misses the opportunity to link effective care across all service sectors. For example, the proposed plan offers no incentives to providers to reduce hospitalization. Hospitals will compete to fill beds while community providers are not at risk for these costs. Inpatient care will have new gatekeepers—the administrative service organization—but the fee-for-service structure does little to bring the inpatient and community care providers together. The incentives and disincentives within the current proposal promote the fragmentation of service systems and could result in overuse of high-cost inpatient services at the expense of less restrictive, less costly, community-based care.

One of the more troubling aspects of Maryland's proposal is the lack of attention to subpopulation differences at a time when the health maintenance organization industry has little experience managing the mental health care of recipients of Supplemental Security Income. The plan makes no distinction between the service needs of those who are eligible for Medicaid because of their mental disability and those who qualify because of poverty in terms of who should be providing their care and what services they should receive.

This situation is analogous to the Community Mental Health Acts of 1963 and 1965 that helped create many nonprofit agencies but did not create expectations or incentives for reaching out to the most disabled. As a result, agencies did not reach out. Government finally redressed this problem through the development and promulgation of the community support program principles in the late 1970s and early 1980s coupled with federal oversight of mental health block grants.

A bifurcated strategy in the reform structure must be developed and must include appropriate incentives for serving the most disabled populations. This strategy could take the form of a carve-out from the carve-out, using case-rate methods to finance care for adults with serious mental illnesses and children with serious emotional disturbances. Clear expectations for expenditures and outcomes for subpopulations with vastly different service needs must be articulated and monitored.

The Maryland Mental Hygiene Administration has underestimated the energy and resources necessary to capture relevant outcome data and has not earmarked resources for development of community information systems. The validity of data collection efforts depends on the enthusiastic participation of the provider community. No discussion has addressed the burden of data collection on providers, and no plan exists for helping providers gather data necessary for outcomes measurement. The Mental Hygiene Administration should replace the preliminary laundry list of proposed outcome measures with a smaller set focused on basic expectations for the reform effort.

To know whether the reform is moving in the right direction, a vision of administrators' goals must be articulated at the outset. To know whether they are making progress toward that vision, administrators should conduct an independent evaluation beginning at baseline. A clear role in defining minimum standards for reform efforts is evident for the Health Care Financing Administration (HCFA), which must approve all 1115 waivers. Although HCFA requires evaluations, the lack of specificity and standardization of methods and measures limits their utility and generalizability. The federal government's responsibility for reform cannot end with approval of submitted waivers. It must seek information and evaluate the process of reform in an ongoing fashion

The evolution of our current public mental health system has occurred over decades. We have scrutinized each incremental reform and debated its potential impact. The relatively simple addition of the psychiatric rehabilitation option to Maryland's Medicaid program took more than three years to carry out. Now we face a massive and novel proposal with broad implications. It is impossible to design and successfully carry out total public sector mental health reform within one fiscal year without significant unintended effects. While recognizing political and budgetary pressures, one must allow sufficient time for retraining, retooling, and policy development, which may mean several years of incremental reform.

In Maryland, we sit at the brink of a new delivery system with more questions than answers, more anxieties than hope, and more to lose than to gain. The application of managed care principles to the public mental health system has the potential to improve care for those who have traditionally relied on the public system. However, the generalizability of managed care strategies developed in the private sector to the public sector cannot be assumed, and imposition of these strategies poses significant threats to the quality of care.

The whole country should serve witness to these reform efforts and demand to know the effect of restructuring the tax-dollar-financed service system. The outcomes of these massive social experiments will have a profound impact on the lives of poor and disabled citizens who rely on public systems for their behavioral health care.

Dr. Osher is associate professor and director of the division of community psychiatry at the University of Maryland School of Medicine, 701 Pratt Street, Third Floor, Baltimore, Maryland 21201 (e-mail, fosher@umpsy.ab.umd.edu). Howard H. Goldman, M.D., Ph.D., and Colette Croze, M.S.W., are coeditors of this column. On page 735, in a companion column, Karen Anderson Oliver, Ph.D., provides an overview of Maryland's Medicaid reform.