Report Shows Ten-Year Decline in Overall Spending for Behavioral Health Care, While Public-Sector Share Grows

Between 1987 and 1997, national expenditures for mental health and substance abuse treatment fell by 1 percent, according to a joint report released in July by the Substance Abuse and Mental Health Services Administration. In 1997 spending on direct care for mental and substance use disorders constituted 7.8 percent of all U.S. health care spending, down from 8.8 percent in 1987.

Of the $82.2 billion spent in 1997 on behavioral health care, 86 percent was for treatment of mental illness and 14 percent for alcohol and drug treatment. The public sector paid 58 percent of the behavioral health bill—30 percent from the federal government and 28 percent from state and local sources. Ten years earlier, in 1987, the public sector's share was 55 percent. For all health care expenditures, which totaled $1,057.5 billion in 1997, public-sector spending accounted for 46 percent, according to the report, up from 41 percent in 1987.

The report, entitled National Expenditures for Mental Health and Substance Abuse Treatment, 1997, was prepared jointly by the Center for Mental Health Services and the Center for Substance Abuse Treatment. It used a methodology that for the first time allows expenditures for behavioral health care to be compared directly with figures for all health care spending produced by the federal Health Care Financing Administration.

Only direct care costs were estimated, not the costs of disease burden or the costs for treating comorbid health conditions. Other costs of caring for mental health and substance abuse clients, such as job training and subsidized housing, were also excluded, as were treatment costs for dementia and mental retardation.

Other key findings of the study are summarized below.

• Spending on substance abuse and mental health treatment grew more slowly than spending for all health care between 1987 and 1997. Adjusted for inflation, behavioral health expenditures grew by 3.7 percent each year, while all health care expenditures grew by 5 percent each year.

• Spending by private insurers for substance abuse services fell by .6 percent annually over the ten-year period. In 1997 the public sector paid for almost two-thirds—64 percent—of all substance abuse treatment.

• Spending by private insurers for mental health services rose 4.7 percent over ten years, compared with a 5.4 percent increase for all health care.

• In 1997 patients and their families absorbed high out-of-pocket costs—41 to 44 percent of costs—for office visits to psychiatrists, psychologists, social workers, and counselors. However, the proportion paid out of pocket for behavioral health treatment by nonspecialty physicians was 18 percent.

• Psychiatrists received almost 10 percent of mental health dollars in 1997 but only 2 percent of the funds spent on alcohol and drug treatment.

Specialty providers are a much larger force in mental health and substance abuse treatment than are general health care providers, according to the report. Specialty providers received 71 percent of total expenditures in 1997, and general providers received 14 percent. The remaining 15 percent of behavioral health dollars was spent on prescription drugs and the administrative expenses of insurance.

Expenditures for psychotropic prescription drugs grew by 9.3 percent annually, outpacing spending for all health care drugs, which grew 8.3 percent a year over the ten-year period. For mental health care, prescription drug spending increased from 8 percent of total expenditures in 1987 to 13 percent in 1997. Spending for prescription drugs accounted for 7 percent of all health care spending in 1997. The report does not present data on increases in expenditures for psychotropic drugs that were due to higher prices. However, it does point out that over the ten years of the study, physicians increased the number of psychotropic drugs prescribed by 5.1 percent per year, while all types of drug prescribing increased by about 2 percent a year.

The report cites the introduction of new antidepressant and antipsychotic medications as a reason for the large increases in prescribing. The number of antidepressant prescriptions grew 10.8 percent per year—three times the growth rate for any other class of psychotropic drug.

Expenditures for hospital-based services for mental and substance abuse treatment grew slowly over the ten-year period—.5 percent per year, or barely above inflation, according to the report. For all health care, spending for hospital treatment grew by 3.6 percent per year. Costs for hospital treatment of behavioral disorders now constitute only about a third of total costs, down from 40 percent in 1987. The report attributes the slow growth in hospital-based care primarily to changes in treatment philosophy, new technologies such as better drug treatments, and managed care.

The report points out that spending for mental health and substance abuse treatment is a major component of the U.S. economy. In 1997 Americans spent more on behavioral health treatment ($82.2 billion) than they did on software ($61.7 billion), home furnishings ($71.8 billion), and movies and records ($55.9 billion). Behavioral health care expenditures were greater than the costs for treating cancer ($41.2 billion), respiratory disease ($59.3 billion), and injury and poisoning ($69 billion), but less than treatment costs for digestive disease ($86.7 billion) and circulatory disease ($127.8 billion).

National Expenditures for Mental Health and Substance Abuse Treatment, 1997, by Rosanna M. Coffey, Ph.D., Tami Mark, Ph.D., M.B.A., Edward King, and others is available on the Web site of the Substance Abuse and Mental Health Services Administration, at www.samhsa.gov. It can be ordered free of charge from the National Clearinghouse for Alcohol and Drug Information at 800-729-6686. The findings also appear in the July-August issue of Health Affairs.

Supreme Court Upholds HMOs' Practice of Providing Financial Incentives to Physicians

In a decision regarded as a victory for the managed care industry, the U.S. Supreme Court ruled unanimously that patients cannot sue health maintenance organizations (HMOs) under federal law for offering physicians financial incentives to hold down treatment costs for their patients. The closely watched case, Pegram et al. v. Herdrich, was heard in February, and the decision was handed down in June.

The court's decision hinged on its view that the mixed determination of benefits coverage and appropriate treatment made in this case did not constitute a function for which HMO physicians have a fiduciary responsibility to patients under the Employee Retirement Income Security Act of 1974 (ERISA).

Writing for the court, Justice David Souter stated that to allow such lawsuits under ERISA would result in "nothing less than elimination of the for-profit HMO" and would "undermine the intent of Congress, which for over 27 years has promoted the formation of HMO practices." A 1972 law specifically authorized HMOs to financially reward physicians for minimizing expensive treatment.

The American Psychiatric Association submitted a friend-of-the-court brief in support of Cynthia Herdrich of Illinois, whose appendix burst, leading to peritonitis, after her doctor delayed tests until they could be done in an HMO-sanctioned facility. She successfully sued the physician for malpractice in a state court and also sued the HMO in federal court for breach of fiduciary duty under ERISA.

In an initial complaint, which Herdrich dropped, she alleged a breach of fiduciary duty by the HMO in not disclosing the financial incentives it paid to physicians. Her amended complaint, which was the one reviewed by the Supreme Court, alleged that an HMO has an obligation to avoid such incentives. Referring to the initial complaint, Souter wrote that it could be argued that an HMO "is a fiduciary insofar as it has discretionary authority to administer the plan and so is obligated to disclose characteristics of the plan and of those who provide services to the plan, if that information affects beneficiaries' material interests." However, the court's decision does not deal with the HMO's obligation to disclose the use of financial incentives.

Number of States With Managed Behavioral Health Care Programs Triples Over Three Years

Between 1996 and 1999 the number of state governments with managed behavioral health care programs tripled. In 1996 only 14 states had implemented such programs, according to a report released in July by the Substance Abuse and Mental Health Services Administration. By 1999 a total of 42 states, including the District of Columbia, operated some form of managed behavioral health care. In 1999 two states—Montana and North Carolina—terminated their managed behavioral health care programs and reverted to fee-for-service systems.

A key finding of the report, entitled State Profiles, 1999, on Public Sector Managed Behavioral Health Care, is the enormous variation from state to state in the organization, financing, and structure of programs. Some are comprehensive and cover several populations or geographic areas, and some target certain populations or areas. Some are risk based, while some remain fee-for-service systems, with the managed care organization providing administrative services only. Twenty-three of the 42 states operate more than one program.

The report cites Medicaid as the largest source of funding for these public programs. Ninety-eight percent of all states with managed behavioral health programs use Medicaid to fully or partly fund their programs. Medicaid agencies most often serve as the primary purchaser for the programs. However, state mental health and substance abuse authorities work in collaboration with Medicaid agencies, particularly when the behavioral health contract is carved out of general medical services, according to the report.

Of the 29 states that operate carve-out programs, 17 (59 percent) contract with a public entity, primarily with county or local governments (nine states) and community mental health centers (four states). Carve-out programs are most likely to cover specialty services such as residential and rehabilitation services. More than half of carve-outs provide methadone treatment, residential services, crisis and emergency care, and detoxification. Sixteen of the 29 states place both mental health and substance abuse services in the same carve-out, ten states have carve-outs for mental health services only, and six states have implemented carve-out programs for substance abuse treatment only.

Carve-outs are much more likely than integrated programs to have funding sources in addition to Medicaid. These programs are supported by state substance abuse funds (41 percent of states with carve-outs), substance abuse block grants (38 percent), county funds (38 percent), state mental health funds (34 percent), and mental health block grants (21 percent).

Medicaid finances integrated programs almost exclusively. Integrated programs most often contract with private-sector managed care organizations. Of 30 states with integrated programs, 93 percent contract with private entities, mostly health maintenance organizations. Six states with integrated programs use public contractors—three contract only with county or local government agencies and three with a mix of public contractors. Integrated programs are more likely than carve-outs to cover pharmacy services, according to the report. Ten states have contracts only for administrative services with private organizations that have no clinical responsibilities or financial risk.

Thirty-seven states, or 88 percent of the states with managed behavioral health programs, contract with a managed care organization on a capitated basis for at least one of their programs. The next most common payment arrangement consists of fixed fees (12 states) and fee for service (ten states). Seven of the 12 states using fixed fees have contracts for administrative services only. Fourteen states operate a program in which the managed care organization receives several types of payments—for example, capitation for Medicaid recipients and state allocations for other enrollees.

In all models, providers are generally paid on a fee-for-service basis (34 states). However, most states use multiple payment mechanisms to reimburse providers. In 27 states some providers receive fully capitated payments, while 18 states pay providers fixed fees, and 17 states pay according to case rates.

More than half of the state managed care programs providing behavioral health services require persons receiving Supplemental Security Income (SSI) to enroll. Of the 71 Medicaid programs in 41 states, 51 percent have mandatory enrollment for those receiving SSI, and 66 percent have mandatory enrollment for persons receiving Temporary Assistance to Needy Families. Non-Medicaid populations are less frequently included in all types of managed behavioral health care programs.

Fewer than half of the states (38 percent) have programs that cover persons receiving general assistance, uninsured persons, those who are underinsured, and medically needy persons. Carve-out programs, largely because of their broader range of funding streams, tend to serve a wider range of populations, according to the report. Carve-outs cover those receiving general assistance (28 percent of the 29 states with carve-outs), uninsured persons (36 percent), underinsured persons (36 percent), and medically needy persons (40 percent).

Besides providing a national synthesis of state-level findings, the report offers a detailed examination of each state and the managed behavioral health care programs it operates, including profiles of how Medicaid and public mental health and substance abuse services are organized and delivered if they are not included in the managed care system. Data sheets summarize information on specific programs.

State Profiles, 1999, on Public Sector Managed Behavioral Health Care is available on the Web site of the Substance Abuse and Mental Health Services Administration at www.samhsa. gov (click on managed care). It can also be ordered free of charge from the National Clearinghouse on Alcohol and Drug Information at 800-729-6686.

News Briefs

Fact sheet on behavioral health care: A fact sheet emphasizing that behavioral health care saves time and money, serves community interests, and is an integral part of overall health has been developed by the National Association of Psychiatric Health Systems (NAPHS). It is available on the NAPHS Web site at www.naphs.org. The fact sheet is intended to help health care providers, policy makers, and community leaders build bridges between behavioral and general health care. The fact sheet points out that of the ten leading causes of disability worldwide, five are psychiatric or addictive conditions. It cites studies reporting the high prevalence of various mental and substance use disorders and the success and cost-effectiveness of treatment.

New APA fact sheet addresses "reparative" therapy: The American Psychiatric Association (APA) has a new fact sheet, "Sexual Orientation" which reviews APA's position on homosexuality. The fact sheet includes statements on "reparative" therapy issued by the APA board of trustees in 1998 and May 2000. The 1998 statement expressed APA opposition to any psychiatric treatment that is based on the assumption that homosexuality is a mental disorder or that a patient should change his or her homosexual orientation. This year's addendum to that statement notes that "there are no scientifically rigorous outcome studies to determine either the actual efficacy or harm of 'reparative' treatment." APA fact sheets can be ordered from APA fastFAX at 1-888-357-7924.

People & Places

Appointments: Edward Greg Koski, Ph.D., M.D., has been appointed the first director of the new Office for Human Research Protections created by the U.S. Department of Health and Human Services (HHS). Dr. Koski was formerly director of human research affairs at Partners HealthCare System, Inc., in Boston. The new office replaces the Office for Protection From Research Risks, which was part of the National Institutes of Health.

Harold Alan Pincus, M.D., former deputy medical director of the American Psychiatric Association (APA) and director of APA's office of research, has been appointed executive vice-chair of the department of psychiatry at the University of Pittsburgh and Western Psychiatric Institute and Clinic. Dr. Pincus has also been named to direct a new health research institute that Rand has established in Pittsburgh.