Economic Grand Rounds: Maryland's Medicaid Reform: Will the Gain Outweigh the Pain?

July 1, 1997, marked the first day of chaos in Maryland's public mental health system, when the state enacted its Medicaid 1115 waiver proposal. Literally overnight the entire system—for both general medical care and mental health care—underwent enormous changes in service delivery.

The waiver, approved by the Health Care Financing Administration, allows the state to combine multiple state and federal health care funds and bypass traditional Medicaid regulations. Maryland is not alone in this initiative; nearly every state in the country either has or is proposing a Medicaid grant waiver in an attempt to control the skyrocketing costs of Medicaid.

According to the director of Maryland's Mental Hygiene Administration, the new mental health system is seen as a model for other states. Yet in Maryland the system changes continue to be controversial. Many providers are concerned that new fiscal and administrative burdens have undermined their ability to serve patients. This column focuses on how policy decisions have affected clinical service and practice during the first few months of implementation of the Medicaid waiver, as well as on the important questions that remain to be answered.

The Medicaid waiver plan

Before the waiver, Maryland's public mental health system was organized around local mental health authorities, known as core service agencies, that disbursed grants to providers and had oversight of local programs and providers. Providers and outpatient mental health centers received fees for services, primarily from Medicaid and Medicare. In addition, outpatient mental health centers received grants for gray-zone patients—those who do not qualify for Medicaid, or Medicare patients who require services not covered by Medicare—and others for services not readily billable, such as community education programs.

Patients were assigned to an outpatient mental health center based on whether they lived within its geographical boundaries, or catchment area. Each center was obligated to treat patients in its catchment area regardless of their ability to pay.

Maryland's new Medicaid system is a hybrid. General medical care is provided by managed care organizations, which are also responsible for treating uncomplicated primary psychiatric illness and substance abuse without comorbid mental illness. These organizations are capitated and assume risk. Patients are given a choice of organizations.

However, the Maryland public mental health system operates on an entirely fee-for-service basis in a carve-out arrangement in which any willing provider may participate. Mental health providers assume no risk. Cost control is based on medical necessity criteria that were newly established by the Mental Hygiene Administration and on diversion of patients to less intensive alternatives of care.

For a fee of nearly $11 million over 18 months, Maryland Health Partners, a conglomerate organization formed by two behavioral health companies—CMG Health, Inc., and Green Spring Health Services, Inc.—contracted to be the statewide administrative service organization. In addition to processing authorizations and claims, the administrative service organization is responsible for gathering utilization and quality improvement data.

The administrative service organization assumes no risk, except that the state might not renew the contract if it is dissatisfied with the organization's performance. The organization is subject to a 10 percent withholding of its fee based on performance criteria established by the Mental Hygiene Administration. As of the fall of 1997, the performance criteria do not include having to generate financial savings. Instead, the criteria establish specific expectations for the administrative service organization, such as meeting with other stakeholders, including the core service agencies, providers, and consumer advocates; establishing appropriate telephone access lines and staffing them; and meeting goals to ensure participation of minority businesses.

Although the impetus for change was cost control, the waiver was also designed to bring some improvements to the public mental health system. For example, the new system extends access to comprehensive mental health services for the children of mothers who receive Aid to Families With Dependent Children (AFDC). Patients are no longer geographically bound to a particular outpatient mental health center, and the centers do not have a geographical population to which they must provide care. Also, before the Medicaid waiver was granted, the mental health data system was fragmented, and data gathering was very difficult; meaningful utilization data were nonexistent. The waiver established a more comprehensive, although still imperfect, database that it is hoped will go beyond tracking utilization and begin to assess quality and create the foundation for improving care.

When Medicaid and other public funds are placed into a managed care system, major concerns are preserving traditional mental health funds for mental health treatment, maintaining continuity of care, and protecting safety-net providers—that is, the outpatient mental health centers. Maryland's waiver design addresses these concerns. First, mental health advocates strenuously lobbied for the preservation of mental health funds for mental health treatment, and they were preserved in the carve-out model.

Second, the design allows any willing provider to participate, which preserves continuity of care for patients as long as the provider chooses to participate in the public mental health system. Third, after considerable lobbying by provider groups, the legislature adopted a one-year transition plan to protect traditional outpatient mental health centers. The plan allowed the centers to continue to receive 90 percent of their previous grants in exchange for not collecting fee-for-service reimbursements for gray-zone patients and for accepting 90 percent of the new Medicaid rate. This strategy ensured that if the traditional providers lost any revenue, it would not be more than 10 percent. Also, to promote continuity of care, the Mental Hygiene Administration decided that during the first two months after implementation of the waiver no services would be denied.

Implementing the waiver

Despite these protections, enactment of the Medicaid waiver on July 1, 1997, placed massive strain on Maryland's public mental health system. The administrative burden of registering all Medicaid and gray-zone patients was overwhelming both for providers and for the administrative service organization. The Mental Hygiene Administration had not adequately communicated to the organization the number of patients already enrolled in the system—more than 30,000—and the organization was unprepared for the onslaught.

Five hundred phone calls a day were expected, but 1,000 were received. Providers complained of long waits on the phone to speak with a representative of the administrative service organization, as well as long waits to hear from a care manager about authorization. Treatment plans were faxed in at the rate of 2,000 a day. Providers were inadvertently filling out treatment plans incorrectly, and the organization became overwhelmed trying to correct them. In some cases, when treatment plans were sent back to providers with requests to resubmit them, the errors were not clearly indicated. Accessing Medlink, the claims intermediary, was often difficult; merely changing computer printers could make a provider's system incompatible with Medlink.

Many providers were concerned that they would not be able to meet the state's new expectation that outpatient mental health centers increase productivity, or the percentage of the workday spent in direct patient care, from 50 percent to 65 percent. They felt that this standard would be difficult to attain in the public mental heath system. This concern, coupled with the tremendous increase in administrative burden on providers during the transition, was extraordinarily stressful to many. The administrative service organization was slow in disbursing claims payments, and many outpatient mental health centers required cash advances—in effect, nonsecure loans—from the core service agencies.

By late November 1997, the Mental Hygiene Administration began to increase pressure on the administrative service organization to resolve its administrative problems and ease the burden on providers or risk being in default of its contract. The organization responded by significantly increasing its staff, changing phone management systems to decrease waiting time, increasing the frequency of check writing, assigning liaisons to the core service agencies, supplying computers to providers who needed them for billing and claims, and increasing the authorization period for certain services. These efforts alleviated some stress on providers.

As of mid-December 1997, the administrative service organization had denied only 166 authorization requests, most of them for outpatient care. (This total does not include cases in which a suggested alternative level of care was accepted.) But several months before—by early fall 1997—providers knew that the administrative service organization was not closely managing the system. They began to worry that spending was out of control and that by the middle of the fiscal year the Mental Hygiene Administration would have to enforce dangerously stringent cost containment. Equally troubling to the core service agencies and providers was the fact that the authorization and claims data supplied by the organization were not very useful because they were not in aggregate form and were difficult to access. Thus utilization projections and forecasting were impossible.

Policy decisions often did not translate easily into administrative or clinical practice, and new policy had to be articulated or existing policy elaborated. Many stakeholder groups felt that the Mental Hygiene Administration did a poor job of communicating policy as it evolved during this period, leaving providers confused. Even though the administration's director stated that the administrative service organization would follow the Mental Hygiene Administration's policy decisions rather than setting policy itself, many providers are skeptical. Whether it was the intention of the Mental Hygiene Administration or not, this confusion about policy, and resulting skepticism, has created a situation in which the administrative service organization can be utilized as a scapegoat for unpopular policy decisions.

Tension and confusion also mounted over the role of the core service agencies in the newly centralized system. Overwhelmed by the changes, many providers began to question the agencies' ability to influence the now-statewide system on their behalf. In addition, the core service agencies are struggling to articulate how to locally manage in the newly centralized system. A possible solution is the Mental Hygiene Administration's decision in the fall of 1997 to allow individual core service agencies to decide whether or not to continue the one-year transition plans for their outpatient mental health centers for another fiscal year. Core service agencies will then be held accountable for helping their providers find new and creative ways to meet the challenges of the system, so that eventually providers will not be dependent on transition grants.

As expected, the fiscal, and therefore clinical, impact of the statewide Medicaid waiver differed regionally. Some county governments anticipated they could not be fiscally solvent in a fee-for-service system. These counties closed their clinics and transferred their patients to other providers. The director of one core service agency whose clinics were closed was not happy with the process but believed that patients had successfully transferred to the new providers. She offered as evidence the fact that in the several weeks after the clinics closed, there was no increase in inpatient hospitalization or use of crisis services. Another director was concerned that care managers from the administrative service organization were continuing to refer patients to clinics that had closed.

Although outpatient mental health centers in Baltimore City have not closed, their first-quarter-year fiscal reports indicated that they had lost approximately 5 percent of their revenue, compared with the 35 to 50 percent loss they calculated based on utilization data if they had not participated in the transition plan. One core service agency benefited by having more crisis beds created, and another agency reported having difficulties referring patients to crisis services, thereby jeopardizing the continued existence of those needed services in that jurisdiction.

Concerns and issues

The transition has been chaotic. However, participants in the system have varying opinions about whether the changes are necessary, negative, or neutral. Those who helped create the policy changes—state and local bureaucrats—tend to describe the changes as necessary and point to some unexpected early benefits. One core service agency director stated that despite the painful process, overall the system is moving in a necessary direction. She noted that the waiver divested local governments of direct care activities, thereby lowering their overhead and taking advantage of the better efficiency of private providers. She pointed to unanticipated but welcome effects, such as an increase in the number of minority providers, which better reflects the cultural diversity of patients, and increased participation by providers in underserved areas.

However, many providers are concerned that they are witnessing the dismantling of the public mental health system. The Mental Hygiene Administration now realizes that it had significantly underestimated the extent to which the previous system supported Medicare recipients. Outpatient mental health centers now strain to meet the same clinical needs with less reimbursement. Some providers are speaking of offering new services that may not be clinically indicated so as to preserve staff in an already overworked provider system. Some are also concerned that their job security is threatened when they voice objections to the changes; they are not reassured by the Mental Hygiene Administration's denial of that threat.

Clearly, one avoidable stress would have been a more gradual system change, rather than an overnight change. A gradual change would have allowed the state, the core service agencies, the administrative service organization, and providers to work out both the predictable and the unpredictable difficulties that result when policy decisions must be translated into clinical practice. Despite the chaos of the transition, most stakeholders—state and local bureaucrats, providers, and consumer advocacy groups—agree that providers have worked hard to protect patients from being adversely affected by the system change and to maintain continuity of care.

The following questions have yet to be resolved.

Will the data ever become useful or meaningful?

The administrative service organization is collaborating with the departments of psychiatry at Johns Hopkins Hospital and the University of Maryland Hospital and with the Johns Hopkins School of Public Health to develop valid and reliable studies to assess outcomes and quality indicators for specific groups of patients. Some data sets will be incomplete, such as inpatient utilization by Medicare recipients and by gray-zone patients as well as Medicare recipients' utilization of most types of outpatient services. The effect of these incomplete data sets on forecasting and quality improvement is unknown. Because the adequacy of prewaiver data is questionable, reliable and valid study of outcomes and quality will be extraordinarily difficult, as will be assessing whether patients are better served in the new system.

What will be the role of the local mental health authorities—the core service agencies?

How can the agencies be held responsible for outcomes in an entirely centralized fee-for-service system in which a provider is rewarded by providing a service and not by being accountable for the outcome? Ideally, the agencies will attempt to nurture creative programs aimed at both improving care and being cost-efficient. However, now that the entire statewide system shares funds, will the agencies stifle each other's initiatives out of fear that a costly new local program may siphon off funds available to other agencies?

What will happen to providers?

Will the Mental Hygiene Administration's higher expectations for productivity encourage creativity, thereby improving services for the chronically ill population, or are these expectations unachievable? Will providers' creativity be directed solely toward maintaining the status quo—both the good and bad aspects? What can reasonably be expected of safety-net providers in regard to both fiscal and clinical accountability for outcomes?

Most important, what will happen to patients?

Despite provisions to maintain continuity of care, whenever widespread system change occurs, some patients are lost to the system no matter how protective providers are. Although at least one core service agency director was confident that patients had transferred as planned to the new providers, it remains to be seen whether patients will stay in the new care arrangements when they have to form new relationships with providers or travel to new locations. Certainly, maintaining continuity of care is important. However, problems of access and outcomes existed in the previous system. Do we dare expect improved outcomes and accessibility for our patients in the new system, or do we simply hope that things do not get worse?

Conclusions

Although Maryland's new public mental health system has several features that attempt to preserve continuity and quality of care, even the director of the Mental Hygiene Administration, who left the administration before the waiver was implemented, likened these changes to "a roll of the dice." Perhaps an entirely smooth transition was not the intent of the plan's orchestrators; tension forces people to rethink how they are doing things. Although the Mental Hygiene Administration may have been hoping that the change would be in the direction of less costly clinical practice, providers and consumer advocates—for better or worse—are eager to use political leverage to reduce the tension that has been created by this system change. It remains to be seen what effect this roll of the dice, and the subsequent gambits by all stakeholders, will have on this evolving system and our patients.

When this paper was written, Dr. Busch was senior psychiatric resident at Johns Hopkins Hospital in Baltimore. She is the member-in-training trustee on the American Psychiatric Association's board of trustees. Send correspondence to her at Harvard Medical School, Department of Health Care Policy, 180 Longwood Avenue, Boston, Massachusetts 02115-5899 (e-mail, [email protected]). Steven S. Sharfstein, M.D., is editor of this column.