An academic department of psychiatry in New York City eliminated the n
eed for behavioral managed care intermediaries by transforming itself
from a fee-for-service system to a system able to engage in full-risk
capitation contracts. The first step was to require health maintenance
organizations to contract directly with the department. The departmen
t formed two legal entities, a behavioral management services organiza
tion for utilization management and a behavioral integrated provider a
ssociation. The authors describe these entities and review the first y
ear of operation, presenting data on enrollees, capitation rates, and
service utilization for the first three contracts. The fundamental dif
ferences in the treatment model under managed care and under a fee-for
-service system are highlighted. The authors conclude that by contract
ing directly with insurers on a full-risk capitation basis, department
s of psychiatry will be better able to face the economic threats posed
by the cost constraints inherent in managed care and maintain or re-e
stablish their autonomy as care managers as well as high-quality care
providers.