Soaring behavioral health costs growing problem for Medicaid

Medicaid now pays for 26% of total mental health expenditures, and rising costs of these services is a big concern for state Medicaid directors, according to a recent 50-state Medicaid budget survey from the Kaiser Family Foundation's Kaiser Commission on Medicaid and the Uninsured, Headed for a Crunch: An Update on Medicaid Spending, Coverage and Policy Heading into an Economic Downturn.

A total of 44 states indicated "moderate" or "significant" concerns with the growing cost of behavioral health care, behavioral health drug utilization, mental health-related emergency department use and inpatient hospital admissions for mental health services. One state indicated that of the top five prescription drugs paid for by Medicaid, four were for mental health.

"The largest drug category we spend on is atypical antipsychotic medications, closely followed by anticonvulsants and antidepressants, all of which are used for the treatment of mental health conditions both in adults and children," says Charles Duarte, administrator for Nevada's Division of Health Care Financing and Policy.

To address this, new criteria were put in for utilization management for psychotropic medications, particularly their off-label use in children.

In Nevada, state Medicaid is seeing a rapid increase in utilization of mental health rehabilitation services, as opposed to use of medication management and psychotherapy and other more direct therapy services. "Unfortunately, when you open the door a little bit, there tends to be problems when folks have access to that service," says Mr. Duarte. "It's not the biggest issue we are dealing with. Excessive utilization is a concern, but I think we have good strategies in place to manage that."

Changes were made to increase appropriate utilization of mental health services, to improve outcomes and quality, and reduce use of higher-level services such as inpatient psychiatric care.

The program set out to "reduce spending at the high end for hospital-based services by expanding community-based care," says Mr. Duarte, but has not seen an overall reduction in hospital or residential services. Instead, there was a very rapid increase in payments for rehabilitation services, almost 1,000% in some cases, since January 2006.

"We are going to put some utilization limits on use of those rehab services," says Mr. Duarte. "Most of this utilization has been occurring with children, so we have started doing aggressive care coordination for children with serious emotional disturbances," he says. "We are targeting kids with frequent admissions and readmissions to psychiatric residential treatment centers and psychiatric hospitals."

This initiative started in July 2009. "We are starting to see the fruit of that, but it's been a slow going process," says Mr. Duarte. "We are having success child by child, in getting them out of institutions and into community settings. But we don't have anything statistically that we can point to yet."

Mr. Duarte does expect that significant cost savings will occur as a result of the care coordination program, however. "That is my expectation—to see not only cost savings but improved quality of life for the child, because they are no longer a long-term resident of these facilities," he says.

Good news for patients

According to Mr. Duarte, "there is actually good news buried in all of this, particularly from the standpoint of children." He argues that cost-containment strategies such as care coordination and pharmacy policies ultimately result in improved quality of care for patients.

"So, we think we are heading on the right track to get a better bang for our buck with behavioral health, but also make sure the patient gets better care," says Mr. Duarte. "That's assuming we don't have to cut all of this stuff as a result of our budget reductions."

Currently, limits are not being proposed on mental health services in direct response to the state's revenue problem. "We have proposed changing the state law to allow us to more cost effectively manage these classes of antipsychotic meds and anticonvulsant meds. We are currently precluded under state law from managing that by using a preferred drug list, but we will hopefully change that," says Mr. Duarte. "But if things continue to worsen as they have been, we may be looking at making much, much larger cuts in our services, not just with mental health, but in every group and almost every category of medical service."

Virginia's Children's Mental Health Program began in October 2007. It is a five-year demonstration waiver intended to reduce the length of stay for children residing in psychiatric residential treatment facilities (PRTF).

The intent of the waiver is to bring children under age 21 out of the PRTF. That reduces the institutional costs and allows children to be in the community with either their biological or foster family. "This is not only cost-effective, but is a cost savings for the Commonwealth," says Cheryl Roberts, deputy director of the Department of Medical Assistance Services (DMAS). "The average cost in a PRTF is almost double that of those in the community, both actual and projected."

Margarita Alegría, PhD, director of the Center for Multicultural Mental Health Research in Somerville, MA, says she expects that state budget cuts "will devastate behavioral health services. Budget cuts downsize behavioral health units, reduce the scope of hospital contracts, eliminate staff positions or freeze new positions, decrease administrative spending, make eligibility criteria more stringent for users and freeze or lower the payments of providers serving Medicaid population."

State Medicaid directors, she says, "are having to do more with less, since the demand for behavioral health is escalating, but the sources of funding are shrinking."

"Payers have to make tough choices, with negative tradeoffs, such as whether to reduce the pool of eligible patients for behavioral health care, reduce the payment to providers, or both," says Dr. Alegría. "Reduction in provider payments ultimately affect Medicaid eligibility, through worse access for a population that already may have poor access to many services."

The area of prescription drugs is being watched more closely, with more restrictions to use generic medications and greater accountability to curtail expenditures for inpatient hospital services, and emphasis on fewer days of hospitalization unless well justified, she notes.

"Most ancillary services, like transportation, peer counselors, and others, might also be curtailed," says Dr. Alegría. "Whether this reduction of behavioral health services causes a spillover to greater use of emergency health care services, homeless services, and increased criminal and juvenile justice services remains to be seen."

Contact Dr. Alegria at (617) 503-8447 or and Mr. Duarte at (775) 684-3681 or