Talbott and Financing Policy: Reducing Fragmentation

Eighteen years ago, before the launch of Prozac, managed behavioral health care, and many other features of modern mental health care delivery, John Talbott and Steven Sharfstein made a proposal aimed at reducing fragmentation in financing care and support of people with severe mental disorders. In that paper, which is reprinted here, they singled out people with severe mental disorders as offering a unique public policy challenge with respect to designing a financing and delivery system that would at once be accountable and respectful of affected individuals and that would result in high-quality, humane, and efficient care.

People with severe mental disorders are largely supported by public resources. Commonly their care is paid for by Medicare, Medicaid, and other state and federal government sources. People disabled by their mental illnesses receive income support through two programs of the Social Security Administration—Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI). In addition, housing subsidies, food stamps, and employment support programs frequently serve people with severe mental illnesses. Therefore, the care of this population is a matter of broad social public policy.

Talbott and Sharfstein called for an identifiable point of public accountability that is equipped with flexible financial resources and administrative tools to care for Americans with severe mental disorders. They argued that pursuing such a path would result in greater flexibility and rationality in caregiving at the level of the clinician-patient interaction. They were prescient in 1986; ironically, the paper might well have been written as a position paper in support of the recent report by the President Bush's New Freedom Commission on Mental Health (1). In this commentary, we identify the key components of the Talbott and Sharfstein proposal and discuss them from the vantage point of mental health policy in the year 2004.

Key elements of the proposal

The Talbott-Sharfstein proposal had five critical building blocks:

• Centralized responsibility and accountability for the care of people with severe mental disorders under the auspices of state government

• Separation of funding and management of care for people with severe mental illness from mainstream health and social insurance programs under the direction of mental health specialists

• Blending of all public funds into a single budget in which regulations of the original funding source are relaxed to permit programmatic and clinical flexibility

• Use of high-powered financial incentives such as capitation payments to encourage efficiency

• A commitment to provider choice for consumers.

The rationale for this approach is based on the observation that the funding arrangements that support the care of people with severe mental illnesses are so complex and so often inconsistent that it is difficult to construct treatment plans for individuals that will be rational and coordinated and that will result in high-quality care. (As Medicaid has replaced state appropriations as the dominant funding source for mental health care, the differentiation and complexity have increased.) For this reason Talbott and Sharfstein pointed out that having a single agency in each state that specializes in financing, managing, and regulating the clinical and support services for this highly vulnerable population would likely result in improved care and outcomes. It would do so by having control over all relevant public funding that could be flexibly applied to deliver services and financial support to a population that is heterogeneous, that has complex needs, and that is frequently subject to neglect and mistreatment. The state agency would receive a prospectively set budget, based on an adjusted capitation payment, and would use what would today be called managed care principles to organize a delivery system for people with severe mental illnesses. The state agency would use a mix of financial incentives and management techniques ranging from contracts to vouchers to case management methods to purchase and coordinate services.

What has been learned?

We make three sets of observations on this plan, addressing the blending of funds across funding streams, the separation of funds and delivery from mainstream health and social insurance programs, and the management of mental health delivery systems by specialized agencies.

Blending of funds has considerable appeal. The problems associated with fragmented funding and some of the unintended and perverse effects created by fragmentation have been widely documented (2). Blending funds and creating a single source of payment and service responsibility eliminate perverse incentives at the systems level and reduce incentives to shift costs, because the responsible agency has control over funds that cover the full continuum of service needs and supports. It is important to note that reducing fragmentation at the systems level does not guarantee coordinated care at the individual patient-program level.

Creating a specialized mental health agency that would operate under a fixed budget takes a step away from the social insurance approaches that govern Medicaid, Medicare, SSI, and SSDI. It returns mental health delivery to a centralized system in which a specialty mental health agency within state government advocates for a budget and then regulates and finances care delivery.

In an era of increasing productivity in mental health treatment, a fixed budget will produce growing amounts of care—because treatment dollars accomplish more. On the other hand, the great resource gains for mental health care over the past 30 years have come about because mental health services and populations have increasingly been integrated into public health insurance and social insurance schemes.

A simple analysis of spending trends for public mental health care illustrates the issue. From 1987 to 1997 public spending on mental health care grew from $19.9 billion to $40.5 billion, an increase of $20.6 billion (3). Of that increase, 72 percent was attributable to growth in Medicare and Medicaid spending. The rates of growth in mental health spending by Medicare and Medicaid have been four to seven times the rate of either state budgeted mental health programs or federal block grant funding. There is a danger in moving from a broad-based set of social insurance programs (Medicare, Medicaid, SSI, and SSDI) to a specialized budgeted program resembling a block grant program. These programs have fared poorly in the political process. We recognize that a specialized program allows for greater application of targeted knowledge and expertise to the complex problems of people with severe mental disorders. Yet our reading of recent history suggests that separating mental health from health and social insurance programs will endanger the long-term sustainability of the program.

Whether the establishment of a specialized agency that controls public funds that are used to care for people with severe mental illnesses can result in greater service coordination and high-quality care depends on how contracts are written, how provider payment systems are designed, and how voucher programs are set up. A review of the varied experience with mental health carve-out programs highlights the point. Some states have designed programs that improved efficiency, expanded access, and maintained quality of care for people with severe mental disorders (4). Other states have implemented Medicaid carve-outs that saved money and expanded access, but people with severe mental illness did not share in the gains in performance. A third example is of a state that aggressively used high-powered financial incentives to pay providers under its Medicaid carve-out program. In that case, clear reductions in quality of care resulted (5). Specialized agencies can do an excellent job of designing programs that improve efficiency and quality of care. They can also enact policies that compromise the care of some of our most vulnerable citizens. Creating a specialized agency with blended funding opens up new possibilities but it hardly guarantees the result.

One of the most complex challenges to such a proposal is the question of whether it is feasible under any realistic scenario. From the 1852 land grant legislation vetoed by President Pierce to the Mental Health Systems Act written out of federal law in President Reagan's 1981 budget proposal, the federal government has resisted centralizing authority for mental health care. Arguably, recent reforms have reduced the prospects for such centralization: mental health funding is wrapped up in programs such as SSI, SSDI, Medicaid, and Medicare. Changing all these programs to facilitate care for a single population is unlikely; acknowledgment of this reality led the President's New Freedom Commission to propose "transformation" rather than reform or reorganization (1).

The vision and sophistication of thinking by these two lions of mental health policy is impressive. It is on the one hand distressing that more progress has not been made in applying the ideas advanced by Talbott and Sharfstein in the succeeding 18 years. However, it is heartening that we have learned a considerable amount that can help us to further craft their ideas. The current debate on organization and financing of mental health care owes a great deal to these men of vision.

Acknowledgment

The authors are grateful for the support of the Network on Mental Health Policy Research, which is funded by the John D. and Catherine T. MacArthur Foundation.

Dr. Frank is affiliated with the department of health care policy at Harvard University Medical School, 180 Longwood Avenue, Boston, Massachusetts 02115 ([email protected]). Dr. Hogan is director of the Ohio Department of Mental Health and chairman of the President's New Freedom Commission on Mental Health. This commentary is part of a tribute to John A. Talbott, M.D., Editor Emeritus, who served as Editor of Hospital and Community Psychiatry and Psychiatric Services from 1981 to 2004.