SAVINGS FROM A MEDICAID CARVE-OUT FOR MENTAL-HEALTH AND SUBSTANCE-ABUSE SERVICES IN MASSACHUSETTS

Objectives: The study examined the financial performance of a managed behavioral health care organization responsible for mental health and substance abuse services under the Massachusetts Medicaid program, Fin ancial performance is considered in light of incentives in the contrac t between the managed care firm and Medicaid. Methods: Data on the fin ancial performance of the managed care organization were obtained from documents related to a recent rebidding of the contract and other pub licly available documents, Financial incentives associated with claims costs and administrative services are also reported. Results: Spendin g by the managed care organization was about 25 percent lower than pro jected expenditures adjusted for inflation. Explicit financial incenti ves associated with cost reduction did not give the managed care organ ization strong inducements to attain these savings. The profit and los s features based on cost targets were quite limited, The organization had a much greater incentive and opportunity to make profits by conser ving its administrative costs rather than by controlling Medicaid clai ms costs. Conclusions: In light of the contract's weak cost-saving inc entives, it may be surprising that so much was saved. One explanation is that it was easy to achieve such savings in a state with high expen ditures. How-ever, in examining the particular amounts saved, it is cl ear that the organization came close to contract targets even when inc entives to achieve them were weak, The authors label this behavior ''m anaging to the contract'' and discuss some reasons why a managed care organization might behave in this way and the implications this behavi or has for contract design.