Colorado’s decision to include the costs of state hospital stays in its capitated managed mental health program has helped to drive down the state’s inpatient costs by two-thirds for some patients in only one year. In a very upbeat report to the Colorado General Assembly last month, the departments of Human Services and Health Care Policy and Financing urged expansion of the 18-month-old managed care program to the remaining 12 counties still under fee-for-service, including the City of Denver. Under the agencies’ plan, the program would be expanded by January 1998. In Colorado’s mental health program, stays in state hospitals are paid out of the capitation rate for Medicaid-eligible children, adolescents and some elderly, but state hospital stays for adults continue to be paid on a fee-for-service basis. While the state may have accomplished some of its goals by capitating the program and including state hospital stays in the capitated rate, critics say substituting outpatient or residential services for hospital days is not always being handled appropriately. They also cite problems with cost-shifting to the public sector. A top official at one of the state’s two hospitals for the mentally ill and the director of a mental health advocacy group warn that many children and adolescents with serious mental illness are not being adequately stabilized in hospitals before entering one of the new alternative services. "They’re putting bandages on some really sick kids, and it’s going to show up," warns George Kerin, division chief for the past 12 years of the children and adolescents unit at the Colorado Mental Health Institute at Fort Logan, Denver, CO, one of the two state hospitals. "We’re convinced that many of the kids that used to come here are in youth corrections," which is not paid for through the Medicaid budget, says Mr. Kerin. Thomas J. Barrett, state director of Mental Health Services, says the rapid movement away from lengthy hospital stays (averaging 90 days at the Fort Logan children’s unit) will save the state about $6.5 million in the first two years, most of which will spent on improving services to the non-Medicaid population. Many outpatient services that did not exist under fee-for-service are being developed under the new financial incentives of managed care. Expenditures for those outpatient services have climbed significantly. The dramatic reduction in hospitalization was possible in part because the state’s rate of inpatient services "was really excessive,"—one of the highest in the country, says Bill Bush, the state’s capitation program manager. Patients are still hospitalized when necessary, but often for much shorter time periods before they are referred to less-intensive settings, he says. Mr. Bush says many of the children and adolescents formerly hospitalized at Fort Logan are now being stabilized at private hospitals, which have drastically lowered their rates from the $700-$800 a day some charged before capitation. He says that the trend toward increased use of juvenile corrections services by youths with a history of mental illness is part of a seven-year pattern that long preceded capitation. At one juvenile correctional facility for adolescents who have committed serious crimes, the Lookout Mountain Youth Center in Golden, CO, the number of youths with "significant mental health needs" rose from 24 on a sample day in April 1994 to a total of 60 on one sample day in September 1996, according to Debbie R. Carter, a child and adolescent psychiatrist with the University of Colorado Health Science Center. Lookout Mountain Youth Center recently added a new unit targeted specifically at youths with serious mental health needs, but Ms. Carter says adolescents are still referred to the Center based on criminal behavior, not because of their need for mental health services. The psychiatrist cautions that there may be other causes aside from capitation driving the increase, including better community identification of mental illness in school-based programs. Before the managed mental health program was implemented, Mr. Kerin says the children and adolescents’ unit at Fort Logan boasted a low rehospitalization rate and a short waiting list. "In 1994-’95, the year before capitation started, I discharged 257 kids and only had 17 come back. We had a waiting list of 20 kids, an average length of stay of about 90 days and a readmission rate of only 6%—by far the best in the United States."’ The children, all referred by community mental health centers, were "the sickest kids in Colorado and they stayed long enough to get better," says Mr. Kerin. He acknowledges, however, that the hospital is an expensive facility, averaging $350 a day per patient. "As soon as capitation started, the MHASAs dragged their kids out of here because it was the only way to ensure they wouldn’t go bankrupt," he says. Fort Logan’s children and adolescent unit will be soon be down to 38 beds from 100 previously. Mr. Kerin’s solution: Establish "a separate pot of money to run state psychiatric hospital beds for kids" on a fee-for-service basis. "We haven’t seen any evidence of systematic underserving of people," responds Mr. Bush, but he acknowledges that "the pendulum may have swung a little too far" in the effort to limit hospital stays and admissions. In the future, the state hopes to develop more specific criteria to help make hospitalization decisions, he says. Some, but not all, of the seven contractors who administer the program, known as Mental Health Assessment and Services Agencies (MHASAs), already have such criteria, he says. State and MHASA officials note that some patients formerly treated in state hospitals are now receiving good care in less-expensive acute-treatment units or in new, licensed, county-funded residential treatment centers (RTCs) that offer therapeutic treatment. A large portion of the costs of the RTCs is picked up by the counties and by the state rather than through capitated dollars, which has spurred charges from some critics that the MHASAs are seeking to cost shift to the RTCs rather than provide services they must pay for themselves. Carolyn Nava, executive director of the Colorado chapter of the Federation of Families for Children’s Mental Health, says there is another serious problem with the RTCs: Parents, who often feel they have no other good treatment option for their children, must give up custody to the county to gain admittance. Ms. Nava stresses that respite care, or emergency crisis intervention for six to eight days "is not effective support for children with bipolar disorder or other chronic, permanent, intense disabilities." Despite these criticisms, the MHASAs say the much greater flexibility they have to pay for services not funded under Medicaid fee-for-service has helped them prevent many problems before they reach the emergency stage. "I had thought that a key piece of decreasing hospitalization would be use of acute treatment units, says Harriet Hall, CEO of Jefferson Center for Mental Health, "but they have been important much less than I thought they would be." A range of "wraparound" services including an in-home respite program, which offers time off and other assistance to caretakers, and school-based counselors that provide outreach to families often defuse tension sufficiently to keep children and adolescents at home, Dr. Hall says. Sandy Forquer, senior regional vice president in charge of for-profit Options Mental Health’s limited partnerships with three community mental health centers, stresses that Options’ heavy reliance on a clinical advisory committee to develop guidelines for utilization management helps ensure appropriate treatment. Contact Mr. Bush at 303-762-4085; Dr. Carter at 303-273-2741; Ms. Forquer at 719-583-7600, Mr. Kerin at 303-761-0220; Ms Nava at 303-377-3040; and Dr. Hall at 303-425-0300. Colorado officials say numbers reflect program’s success Colorado’s capitated mental health program now operates in 51 counties, offering services to about 189, 000 of the state’s 274,000 Medicaid eligibles. The state estimates that the cost of inpatient psychiatric hospital services dropped by more than two-thirds to $9.8 million in fiscal 1996 from $30.1 million in fiscal 1995, the last year of fee-for-service. Capitated Medicaid expenditures for outpatient, residential and other services such as respite care, school-based services, drop-in centers, and teen mother’s programs, jumped to $46.9 million from $29.5 million over the same period. Other key facts cited in a recent report to the state legislature include: • During fiscal 1995-’96, the first year of managed care, the percentage of total resources spent on inpatient services declined to 17.2% from 50.6% a year earlier. The number of in-patient days dropped to 19,959 from 93,151. The percentage spent on all other services soared to 82.% from 49.4%. • The number of individuals waiting at least two weeks for services decreased from 1,314 in April 1996 to 973 in September 1996. But Paul Sherman, a behavioral health care consultant and a former acting deputy commissioner in the state’s Division of Mental Health, says the state actually has 35% less money to buy services over the first two years of the program than it had under fee-for-service. Along with the lower amount the state is paying under capitation, there are administrative costs, profits earned by the for-profit, Options Mental Health and reserves put aside by the MHASAs taking dollars out of services. "Now that we have pulled a third of the dollars out of the system, I’m not optimistic that things are that rosy," he says. Bill Bush, the state’s capitation program manager, says Mr. Sherman’s numbers are greatly inflated, adding that he fails to account for many expenses the state had previously under fee-for-service. Contact Mr. Sherman at 303-273-2741.