By Rebecca A. Clay
In the past, many providers of public mental health
services simply avoided Medicaid.
"They didn't like the paperwork, didn't like Medicaid's
orientation to services, that sort of thing," said
Jeffrey A. Buck, Ph.D., Associate Director for Organization
and Financing in SAMHSA's Center for Mental Health Services
(CMHS). "Now it's impossible for providers in most
states to think they're going to be able to remain in
business and get along nicely without in some way dealing
Today, Medicaid—the Federal/state partnership
that pays the medical and long-term care expenses of
many of the Nation's most vulnerable people—has
become the largest payer of public mental health services.
Providers need to acknowledge the program's growing
prominence, Dr. Buck said. They need to be aware of emerging
trends and new regulations that may affect their provision
of services to both Medicaid recipients and non-recipients
alike. And they should know about resources available
from SAMHSA and other organizations that can help them
navigate this complex program (see Medicaid-Related
Back to Top
A Safety Net
Created in 1965 as part of the Social Security Act,
Medicaid is basically a health insurance program for
certain individuals and families who lack the income
or resources to pay for medical care. The program covers
doctor and hospital bills, prescription drug costs, and
other medical expenses, providing payment directly to
health care providers.
Medicaid is financed jointly by the Federal Government
and state governments, with the Federal Government matching
the amount that states spend.
The Federal Government sets broad standards; states
decide the details. Subject to Federal approval, states
decide who is eligible for the program, what services
the program will cover, how much providers will be paid,
and so forth. While the Federal Government requires states
to offer coverage for such basic services as doctor visits
and inpatient hospital stays, for example, states can
also offer certain optional services. This flexibility
means that eligibility, services, and other details may
vary from state to state and from year to year.
It's important to keep in mind that Medicaid is primarily
a medical program, emphasized Dr. Buck. "People
sometimes expect Medicaid to pay for everything,"
he said, citing as examples some advocates' calls for
housing and educational support to be covered. "But
Medicaid is intended to be a medical assistance program
similar to other kinds of health insurance."
Back to Top
A Growing Role
Mental health service providers need to be aware of
several trends, according to Dr. Buck and other Medicaid
The most important of these trends is Medicaid's increasingly
dominant role in the provision of mental health services.
Over the last 10 or 15 years, said Dr. Buck, a major
shift took place in the way that states fund, organize,
and deliver public mental health services. In the old
days, he explained, state mental health authorities set
their own policies and paid designated providers directly
for the services they provided. Now that system is being
displaced by state Medicaid programs, which are more
like health insurance plans in their approach to organization
"States have moved more and more services into
Medicaid that weren't Medicaid services before,"
said Dr. Buck, noting that the budget crunch affecting
many states has accelerated the trend. Coupled with changes
that broadened eligibility in the late 1980s, this trend
led to explosive growth in the size of state Medicaid
"Medicaid is already the largest single payer
of mental health services in the United States,"
CMHS Director Kathryn Power, M.Ed., told participants
at the 2004 Invitational Conference on Medicaid and Mental
Health Services in Baltimore, MD, last October. "It's
larger than private insurers. Larger than Medicare. Larger
than all other state and local payers combined!"
Medicaid already funds more than half of all public
mental health services that states provide, Ms. Power
noted. And if current trends continue as predicted, that
number could jump to two-thirds over the next 10 to 15
This growing dominance also makes Medicaid a key player
in another trend—the call to transform the mental
health system, issued by the President's New Freedom
Commission on Mental Health. "Medicaid figures so
prominently in the transformation equation that without
Medicaid on board, transformation will not happen,"
Ms. Power told the audience in Baltimore.
SAMHSA has already launched a number of projects designed
to ensure that the mental health system's transformation
takes Medicaid into account.
One key activity is data collection and analysis. For
the first time ever, for example, SAMHSA is developing
comprehensive statistics on Medicaid mental health services
in every state. SAMHSA is also surveying state Medicaid
authorities about how they administer mental health services,
developing profiles of all Medicaid-funded mental health
programs, and working with one state to develop a program
for integrating de-institutionalized patients back into
the community with Medicaid's help.
Collaboration between SAMHSA and the Centers for Medicare
& Medicaid Services (CMS) is also critical. The agencies
will be working together to help states develop plans
for financing mental health services that take into account
the growing role
that Medicaid plays. SAMHSA and CMS are also collaborating
on technical assistance papers about specific Medicaid
Back to Top
In addition to these broad trends, there have been
several recent changes that affect the provision of mental
health services by state Medicaid programs.
The Balanced Budget Act (BBA) of 1997 institutionalized
the use of managed care in Medicaid and applied specific
beneficiary protections. States continued to require
waivers for services to disabled children and children's
mental health programs.
One important change concerns calculating capitation
rates, the fixed amount that a provider receives per
patient over a set period of time, no matter how much
or how little service that patient actually receives.
Pre-BBA, states paid capitated providers in the form
of an upper payment limit based on the traditional Medicaid
funding. Post-BBA, capitation rates must be "actuarially
sound," or based on the actual cost of services
provided in the managed care setting. Regardless of how
the rates were set, pre-BBA or post-BBA, all Medicaid
funds were to be spent only on Medicaid services to Medicaid
"Before the BBA, a lot of states thought they
didn't have to track every unit of service," Dale
Jarvis, C.P.A., managing consultant and Director at Seattle's
MCPP Healthcare Consulting, Inc., told the Baltimore
conference participants. "Folks assumed that under
managed care, there was added flexibility to give clients
what they need, even if it didn't fit into a defined
service code, and recording and tracking every unit of
service was not as important as ‘doing the right
thing' for the client."
The shift to actuarial soundness also inadvertently
revealed cases of the improper use of Medicaid. This
means more careful recordkeeping for some providers.
"We discovered that Medicaid funds were being
used inappropriately," explained Brenda Jackson,
M.P.P., a health insurance specialist in the Kansas City,
MO, CMS Regional Office.
Some states were using their savings—the difference
between a $1 capitation rate and the 80 cents actually
spent—on non-eligible services to non-eligible
individuals. Furthermore, some states used leftover money
to enhance their overall system for non-Medicaid eligibles.
One state used the Medicaid mental health money to purchase
county sheriff cars.
The increased awareness of the inappropriate uses of
Medicaid funds may mean budget trouble ahead for some
states that used Medicaid to fund public systems for
non-Medicaid enrollees. Before this recent change, for
example, a state might have received a capitation rate
of $1 per patient per month but only spent 80 cents on
Medicaid services to Medicaid eligibles. Under the new
regulations requiring that capitation rates must be actuarially
sound, that state would receive only 80 cents from Medicaid
the following year. Even before this change, some states
were already trimming services, eligible populations,
Another piece of legislation that may have an impact
on the provision of state mental health services is the
Medicare Modernization Act, which provides a prescription
drug benefit to Medicare beneficiaries.
Although the legislation focuses on Medicare—the
Federal Government's health care program for older Americans
and some people with disabilities—it will affect
some beneficiaries who are eligible for both Medicare
and Medicaid. These "dual-eligibles" may see
changes in what they pay for their medications, where
they obtain them, and whether they have access to specific
drugs at all—a big concern for those who depend
on psychotropic medications.
"The Medicare prescription drug benefit is the
most significant thing coming down the pike," said
Dr. Buck. "But since the rules are still in development,
it's difficult to say what the potential impact will
« See AlsoPrevious Article
See Also Related ContentMedicaid-Related Resources »
See AlsoNext Article »
Back to Top