Estimates of use and costs of behavioural health care: A comparison of standard and finite mixture models

Estimates of health care demand are known to depend on the empirical specif ication used in the analysis. In this paper, an innovative specification, t he finite mixture model (FMM), is employed to estimate the utilization of a nd expenditures on behavioural health care. Unlike standard specifications, the FMM has the ability to distinguish between distinct classes of users o f behavioural health care (e.g. the 'worried well' and the severely mentall y ill). This new model is tested against standard empirical specifications using data from the National Medical Expenditure Survey. Using common risk stratifiers, estimates of utilization and costs are generated with each spe cification. It is found that the FMM provides a much better fit of both exp enditure and utilization data than standard specifications, particularly am ong high intensity users that standard models have been unable to represent adequately. Furthermore, the results provide preliminary evidence that the re are (at least) two distinct groups of users of behavioural health care. The empirical advantages of the FMM translate into superior estimates of me an costs and utilization that have widespread application in rate-setting e xercises. Copyright (C) 2000 John Wiley & Sons, Ltd.