Contractor pulls out of Texas pilot mental health program — NorthSTAR

The NorthSTAR program, a managed care approach to delivering mental health and chemical dependency services to Medicaid recipients and the indigent in seven counties around Dallas, is losing one of its two contractors because of rising pharmaceutical costs.

Using Medicaid, state general revenue and federal block grant funds, the pilot, which officially started July 1, 1999, but didn’t bring in Medicaid patients until the end of that year, was intended to demonstrate a better-coordinated system of behavioral health care.

The NorthSTAR contracts were awarded to Magellan Behavioral Health in Columbia, MD, and ValueOptions in Falls Church, VA, two national behavioral health firms with extensive experience in managed mental health care. Magellan announced in early July that it would not renew its contract with the Texas Department of Mental Health and Mental Retardation (MHMR) and will leave the pilot as of Sept. 30.

Steve Niemi, senior vice president with Magellan Public Solutions Group, tells State Health Watch that pharmaceutical costs have more than doubled over initial projections in the months the program has been operational. "We had projected pharmacy costs of $300,000 per month based on the area’s experience before NorthSTAR, but the costs have been averaging more than $700,000 a month. We worked with the state to explore ways we could address the problem, perhaps through sharing the risk, but couldn’t agree on terms to do that, and the department couldn’t see a way to drop pharmacy from the benefit design."

Mr. Niemi says the problem was not only caused by inflation in pharmacy costs but by the program having more people taking prescription drugs than were doing so before the pilot started.

One of the advantages seen in the program by state officials is that more people are receiving care. They report that in the first six months of NorthSTAR, 15,360 low-income people in the seven counties received mental health care, an increase of 21% over the same time period the previous year. An additional 3,731 people received treatment for drug or alcohol abuse during the first six months of the new system, also an increase.

An executive with the other contractor, ValueOptions, says the "whole industry has problems with pharmaceutical costs, and all of us are looking at it." But Howard Glassroth, vice president for ValueOptions, tells State Health Watch, "There is no reason at this point for us to change our current contract."

He declined to comment on reports that the state agency is seeking to have ValueOptions take over Magellan’s clients until the contract is re-bid in 2001. "There would be a lot of issues for us to weigh and look at. We intend to discuss all kinds of things with the state."

Consumer and provider reactions to NorthSTAR haven’t been solicited yet, although state officials say they’ve heard few complaints; they add that if people were getting out of care and were really upset about the system, they would be complaining.

Underfunding may be the Achilles’ heel for the innovative program that was intended to increase access to care, improve quality of care, improve member and provider satisfaction, improve cost effectiveness, integrate mental health and chemical dependency service delivery systems, and use managed care to improve quality of services and cost efficiency through competition.

Mr. Niemi says having two contractors was a key to giving patients a choice, and he says that even if ValueOptions handles all patients for an interim period, when the program is re-bid, the goal will be to have more than one contractor. Previously, Medicaid recipients and other low-income people could get mental health care only from MHMR centers in each of the seven-member counties. NorthSTAR brought private providers into the mix, although recipients sometimes complain that Magellan and ValueOptions favor short-term treatments over more intensive long-term care.

Texas reportedly has been near the bottom of the list historically in terms of state funding for mental health care. The executive director of the Mental Health Association of Greater Dallas told news media there that the "amount of money put in [for NorthSTAR] was ridiculous. Any time for-profit entities come into a system . . . and still cannot turn it around, it speaks very loudly to the fact that this system is terribly underfunded." And state Sen. John Carona said that managed care "can never be a substitute for adequate funding. If the base funding continues to be as meager per capita as it has been, I don’t think NorthSTAR or any system like it can work."

Mr. Niemi says that as a result of its experience with NorthSTAR, Magellan will be much more selective in contracting for public-sector programs in which it assumes risk, especially for pharmacy costs. "I think we’re going to be reluctant to take a contract that has pharmacy on a risk basis."

Mr. Niemi says public agencies are going to have to become much more concerned with how adequately a program is funded. "Agencies will need to explore how extensively programs are funded now and what will happen when they go into managed care. Success in new programs usually is measured by how much money is saved and how much of an increase there is in people accessing services. [Public agencies] need to look at the service continuum before and after managed care funding and ask themselves if there is pent-up demand" that is going to explode once a contractor is in place.

Despite the Magellan decision, Tom Turnage, MD, executive director of the Dallas Area NorthSTAR Authority says, "I think for the most part it’s been a good year. Any time you have a project of this size . . . you’re going to run into some issues."

[Contact Mr. Niemi at (800) 458-2740 and Mr. Glassroth at (800) 236-4648.]