Implementing publicly funded risk contracts with community mental health organizations

The study analyzed the experience of the Los Angeles Count? Department of M ental Health with implementation of new contractual arrangements for servic es for patients with severe mental illness. The arrangements shifted the fi nancial risk for treatment to community organizations and paid a fixed annu al rate per enrolled patient without further adjustment for severity of ill ness. Patients were assigned to the program based on high prior treatment c osts. The new contractual approach enhanced programs' flexibility and accou ntability and increased their emphasis on principles of psychosocial rehabi litation. Challenges in implementation included disenrollment of the majori ty of assigned patients by the community organizations at risk for high tre atment costs. Prior treatment costs for continuing cases, while high, were lower than those for disenrolled cases. Existing information systems provid ed limited clinical and cost data, making it difficult to monitor providers ' performance. Risk contracting required substantial clinical, fiscal, and management changes at community organizations and the mental health authori ty. The analysis suggests that mental health authorities that are planning to institute risk contracts need to balance fiscal incentives with performa nce guarantees and to pall particular attention to information systems requ irements and to the severity. of patients illness. Although risk contracts present challenges, the, can lead to implements in service delivery that pe rsist beyond the implementation phase.