Evaluation of agreements between managed care organizations and providers of community-based mental illness and addiction disorder treatments

Document Type

Journal Article

Publication Date



American Journal of Managed Care


Volume 8, Issue 2

Inclusive Pages



Community Mental Health Services--organization & administration; Contract Services--organization & administration; Managed Care Programs--organization & administration; Mental Disorders--therapy; Substance-Related Disorders--therapy; Hospital Services; Mental Health


Research Objective: This study, which builds on an ongoing body of research into the policy framework of managed care, analyzes contracts between managed care organizations (MCOs) and community-based mental illness and addiction disorder treatment and prevention service providers (MI/AD providers), focusing on implications for both managed care policy and health services research. Study Design: A purposive 50-state sample of 505 MI/AD providers was contacted for study participation in fall of 1998. The database, analyzed in 1999, consisted of 107 provider contracts from 17 states. The low response rate (a potential artifact of the penalties attached to contract disclosure) was offset by the striking similarity in terms. Data were aggregated on MCO and provider demographics, scope of MI/AD services, contractual obligations, and financial reimbursement mechanisms using a review instrument developed with the advice of MI/AD experts.Population Studied: 107 MI/AD provider contracts from 17 states involving MCOs that both directly insure and act as third-party administrators.Principal

Findings: MCOs purchase relatively few services from providers, omitting many services that would be integral to the proper ambulatory management of MI/AD disorders. Network provider service duties tend to be ambiguously described (particularly in the case of emergency care), leading to potentially significant and unanticipated financial risk in the case of capitated providers. MCOs exert strong control over treatment decision-making and the allocation of plan resources to individual patients. Capitation and case rate payment arrangements are increasingly common, although 80% of contracts show the use of fee-for-service reimbursement mechanisms for one or more services. Contracts are structured to remove provider bargaining power; they allow MCOs to unilaterally amend all provisions upon notice and without negotiation and to permit termination "at will."

Conclusions: Managed care contracts favor the needs of the managed care industry and are constructed to: 1) shift significant amounts of financial risk onto individual health professionals; and 2) manage and restrain providers' discretionary choices over the use of health plan benefits through both close oversight and financial controls and incentives. Because a signed contract is a precondition to access to patients and insurance revenues, health professionals must sign them and indicate a general inability to negotiate their terms. Key issues for health services research are: the effects of contractual terms on patient management choices; provider knowledge of contract implications; access to non-contractual services; provider compensation experiences under different contractual arrangements; and the effects of physician practice management companies on contract terms.

Implications for Policy, Delivery or Practice: These contracts are products of deliberate policy choices made by courts and legislative bodies alike in the face of demands for change by health care providers. A series of lawsuits have sought to have the agreements either completely or partially voided, as void for public policy, as unlawful restraint on trade, or for other reasons. These challenges have mostly failed, as have national and state-level efforts to legislatively outlaw the use of contracts-at-will that create substantial financial risk and control treatment decision-making. These losses underscore how resistant judges and policymakers may be to the notion of interfering with the workings of the market, particularly given the lack of data on the consequences of such agreements for patient health. Primary Funding Source: The Substance Abuse and Mental Health Services Administration (SAMHSA), U.S. Department of Health and Human Services.

Peer Reviewed