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Brief Report   |    
A Survival Strategy for an Academic Psychiatry Department in a Managed Care Environment
Emily S. Harris, M.D.; Jonathan Neufeld, Ph.D.; Robert E. Hales, M.D., M.B.A.; Donald Hilty, M.D.
Psychiatric Services 2001; doi: 10.1176/appi.ps.52.12.1654
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The changing economics of medical practice have had a profound effect on the educational, research, and service missions of academic departments of psychiatry across the country. The authors describe the development of a managed behavioral health care organization in their parent academic health system as a survival strategy for allowing their department to function in a managed care environment. They present a series of lessons learned in this effort to adapt to a highly volatile managed behavioral health care market: know how you fit into your market as well as your institution, form cooperative alliances within and outside of your institution, provide incentives to manage risk, focus on core competencies, innovate in your areas of strength, and collect data.

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Economic factors have dramatically changed the teaching of psychiatry and the delivery of mental health services (1). Efforts to contain costs have encouraged less intensive and more cost-effective patient care services (2). The advent of managed care has also shifted the burden of primary mental health care to primary care physicians by limiting the number of specialty visits, reducing coverage for psychotherapy by psychiatrists, and applying standards of "medical necessity" to psychological and psychiatric services. In addition, changes in federal regulations have eliminated reimbursement for resident services.

Academic departments of psychiatry must retool in order to fulfill their mission of providing research, training, and clinical service in a new and constantly changing health care system (3). In this paper we present the survival strategy adopted by an academic psychiatry department in one of the country's most highly penetrated managed care environments—Sacramento, California. We hope that the lessons we learned from this process can benefit other departments that are considering their options in the current health care climate.

Know how you fit into your market as well as your institution. Local economic and demographic characteristics are major determinants of the practice and delivery of medical care. Sacramento proper has a population of about 400,000, with a suburban community close to 1.1 million, and managed care insurance plans account for 90 percent of the employer-sponsored health care coverage. The University of California, Davis, Health System (UCDHS) is an active player in this market and currently provides comprehensive managed health care for about 90,000 lives, 18,000 (20 percent) of which are covered through managed Medicaid (Medi-Cal).

In anticipation of the changing behavioral health care market, UCDHS established a "carved-in" subcapitated mental health management organization five years ago. Under this arrangement, mental health services were funded by a percentage of the per-member, per-month capitation fee received by the health system. This arrangement provided stable revenue to support a newly formed behavioral health center and independent utilization management for the university's providers. The department of psychiatry and its partners in this venture assumed financial risk, a situation without precedent in the health system. This arrangement was risky, partly because the behavioral health center was the only subcapitated specialty service in the system and there were no disincentives to referrals by primary care physicians.

UCDHS planners played a significant role in planning and budgeting for the new service. With the development and approval of a well-crafted business plan, the behavioral health center was initiated with a negotiated rate of $2.50 per member per month, covering all levels of services—full risk—for the first year. This was supplemented for the first year by an additional $150,000 to cover initial administrative and start-up costs.

Form cooperative alliances within and outside of your institution. The behavioral health center is organized as a multidepartmental effort based in the department of family and community medicine and the department of psychiatry. Core clinical and administrative functions are housed in the department of psychiatry. The management team represents a spectrum of clinical disciplines—for example, psychiatry, psychology, social work, and nursing—and includes leadership from the employee assistance program, fiscal planning, and clinical social services. Clinical providers are based in the departments of physical medicine and rehabilitation, pediatrics, and anesthesiology and pain management as well as in the community. By maintaining a broad panel of clinicians, the behavioral health center is able to provide a full spectrum of mental health services, including direct consultation and education at primary care offices (4,5).

Provide incentives to manage risk. Financial reserves were created in part by withholding 40 percent of the psychiatry department's faculty reimbursement charges during the first year of operation. These charges were redistributed quarterly on the basis of services provided to patients of the behavioral health center. The policy was discontinued as the financial status of the behavioral health center improved.

Payment rate policies encourage providers to manage care responsibly. Providers of inpatient care receive a case rate for patient care services—a set fee per episode of inpatient treatment. The case rate for inpatient professional services is currently $400; for partial hospitalization, the rate is $300. A case rate is also paid for faculty and trainee outpatient services; that rate is currently $450 per case. Community providers are paid on a fee-for-service basis and have benefited from rate increases as the behavioral health center has become financially stable. Thus providers are rewarded for appropriate cost containment and are reassured that they share the benefits of overall cost savings.

Focus on core competencies that add value to patient care. Continuous quality improvement initiatives have focused on collaboration with primary care providers and practice sites. One project included on-site and on-call mental health consultation to the largest primary care sites. Another focused on communication between mental health clinicians and primary care physicians. Clinicians are required to provide a one-page standardized summary to the primary care physician after a referred patient has been evaluated or discharged. Currently, more than 70 percent of these summaries become a permanent part of the primary care record and serve to support ongoing comprehensive care by the primary care physician in the community.

Innovate in your areas of strength. In addition to telephone and on-site consultation, telemedicine services have been developed to support psychiatric consultation in rural settings (6). The number of telemedicine referrals increased from 22 to 102 in the first two years, with high levels of patient satisfaction. In addition to addressing clinical need, telepsychiatry has provided a basis for academic and research development and funding.

The behavioral health center also supported the development of an outpatient group therapy program in the department of psychiatry. This program provides cost-effective patient care and education that targets a range of service needs. Current options include medication groups for severely ill patients; time-limited, focused group treatment for anxiety and depression; and ongoing treatment groups for high-risk patients, such as those who have recently been discharged from the hospital or those who have required frequent hospitalizations in the past.

Collect data—your business depends on it. The behavioral health center has adapted to numerous changes over the past five years. The number of subcapitated mental health lives covered increased from 40,000 to nearly 80,000 during this period. Inpatient care now averages between 20 and 30 days per thousand covered lives, which compares favorably with industry benchmarks of 18 to 50 days for aggressive to moderately managed care. Over the past three years, the average inpatient stay has decreased from eight to five or six days, whereas the number of partial hospitalization days has increased. The average number of outpatient visits is less than 200 per thousand covered lives, far lower than the standard benchmark value of 334 for aggressively managed care (7). This difference may reflect the population mix and the use of primary care physicians as the entry point for mental health services.

Academic psychiatry faces a number of challenges in the current health care economy. We have pursued a survival strategy that entails managing care, not just providing it. Although it can be daunting to manage the intricacies of multiple plan benefits and patient groups, fluctuations in the numbers of covered lives, and retroactive authorizations, the success of such efforts can help secure the future of academic psychiatry in the face of diminishing resources for medical education and research.

Dr. Harris is associate professor, Dr. Neufeld is assistant professor, Dr. Hales is professor and chair, and Dr. Hilty is assistant professor in the department of psychiatry of the University of California, Davis, in Sacramento. Send correspondence to Dr. Hales at the Department of Psychiatry, University of California, Davis, 2230 Stockton Boulevard, Sacramento, California 95817 (e-mail, rehales@ucdavis.edu). A version of this paper was presented at the American Psychiatric Association's Institute on Psychiatric Services held October 2-6, 1998, in Los Angeles.

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