The financial incentives in a shift to capitation for state mental health services

The State of Washington’s Mental Health Division (MHD) is the State agency responsible for providing state sponsored mental health services. In 1993, the MHD received a Health Care Financing Administration (HCFA) waiver to implement a statewide system of managed care for outpatient mental health rehabilitation services. Payments were to be prepaid and capitated and based on the numbers of clients in each of at least 3 payment tiers. This paper describes financial findings from a HCFA-mandated evaluation of the waiver. It looks at payment rates for children and adults, by tier, and for separately rated groups such as the categorically needy, medically needy, and disabled clients. Three types of State expenditures are compared in this paper: predicted expenditures based on actuarial projections, expenditures made on the basis of service utilization, and expenditures made after being adjusted for over payment controls. Expenditure predictions were consistently lower than actual expenditures, even after adjustments for over payment.