How managed care organizations develop selective contracting networks for psychiatric inpatient care: A Massachusetts case study

Medicaid agencies recently have adopted selective contracting to control us e and costs of publicly financed behavioral health care. This case study de scribes formation of an inpatient network for serving psychiatrically disab led Medicaid beneficiaries in Massachusetts. Network formation is seen as a two-stage process: hospitals first decide to bid for a contract, and form a pool from which the managed care organization chooses hospitals. We used legit models to predict how hospital experience with Medicaid patients, com petition, prior reimbursement rates, and geographic distribution affected t hese two stages. Hospitals are more likely to bid if they have treated more psychiatric inpatients and more disabled Medicaid inpatients receiving Sup plemental Security Income. Managed care organizations take into account hos pitals' experience with Medicaid patients and geographic dispersion but not prior reimbursement rates.