Youth Health Enters Age of Managed Care

Heather Szerlag
November 1, 1995

“Only in eight of your will survive the jump to the managed care environment!"

This bombshell prediction was dropped a few weeks ago by insurance consultant Anthony Gruppo of Henry S. Lehr, Inc., on a roomful of residential treatment agency executives attending a National Association of Homes and Services for Children's (NAHSC) conference. And he got their attention.

Indeed, if there is any one subject guaranteed to raise the angst level of child health and welfare operators these days it is "managed care" — the fiercely competitive yet little understood sea change sweeping America's health industry.

Not only is agency survival at stake, but so is the very quality and scope of medical care — including mental health — to young and old alike, and the needy in particular. For managed care means in-most cases placing the delivery of health services in the hands of large for-profit companies—health maintenance organizations (HMOs). In managed care, the state or an insurer pays HMOs a fixed fee. The HMO then contracts with public or private agencies — known as managed care organizations (MCOs) which also may be profit-making — to deliver health care, oftentimes at a capitaled rate, or a fixed fee per participant each month.

Currently, 38 states have received or are applying for waivers from the federal Department of Health and Human Services to shift their Medicaid populations into a managed care system. Medicaid is a payer of health services for needy young and old people. Fifty-four percent of the insured general population already is in some form of managed care as well. And the Republican-led Congress is pressing for savings in Medicare through HMO options for the elderly, disabled and children in public care.

Hence, to experts like Madelyn DeWoody, coauthor of a Child Welfare League of America (CWLA) guide on the subject, it is no longer a question of if, but when, managed care will completely take over the health care system — including those providers serving youth.

In theory, managed care encourages cheaper and more medically advisable primary care. Through shared risk — where the managed care organization pays costs above a fixed amount allocated — the HMOs (and other similar groups) are motivated to negotiate reduced fees from doctors, hospitals, and other providers. But the jury is still out on whether managed care actually does achieve savings.

Young Patient Driven?

Formerly, providers in the child welfare field could contract to offer a range of services with payment methods ranging from per diem rates, to fee schedules, to per unit or negotiated total amount. No longer. Every procedure and the level of treatment must be determined first by a "gatekeeper," usually a primary care physician or health care provider employed by the managed care agency.

Moreover, the new system involves a philosophical shift. Where previously there was often a clear division between those deciding on health services for patients — the providers — and those making the payments, says Madelyn DeWoody, "now the payer is radically involved in accountability around what services are provided."

"It goes way beyond an oversight role to where payers now are involved in the type, how much and at what quality level services are delivered. The pervasive influence of payment sources is affecting how services are designed and delivered." DeWoody is associate director for program planning for the Massachusetts Society for the Prevention of Cruelty to Children.

Put another way, treatment decisions determined by the payer— not the attending physician or therapist — also may put the patient more at risk. Not everyone has reservations about the coming age of managed care, however. Floyd Alwon, executive director of the Albert Treischman Center, a residential child welfare training unit within Boston's Walker Home and School that helps agencies adapt to managed care. said: "Everyone has been upset, any change is upsetting... with change people are going to get hurt, organizations are going to get hurt." But he added, "I think the downsides of managed care are overly balanced by the upsides — helping our field do what it does better. Kids are getting tested earlier and more frequently. Everything is driven by the interests of the child. It's patient driven."

Dr. Curtis Mooney, director of the Kentucky Baptist Homes for Children and, until recently, the president of NAHSC, concurred, saying, "I'm excited about the change ... but it's a challenge ... and basically this is not going to be all sunshine. No one knows how this is going to work out?

Funding Squeeze

Social service providers have cause for worry. While the avowed reason for introducing managed care is to check rising health care costs, many states also are trying to carve savings out of their health care budgets.

"When we know that a number of people with mental health problems don't get the services they need, it's short-sighted not to invest in services... but that's what we see in many states. The main thing states are doing is trying to cut costs," says youth expert Eric Goplorud, director of the Department of Health and Human Services’ Substance Abuse and Mental Health Administration's Office of Managed Care Initiative.

Beyond the funding squeeze, child health providers may be dealing with managed care organizations that know little about serving a youth population.

"Research shows adolescents are not being adequately served," says Elizabeth Jameson, longtime staffer of the San Francisco-based Youth Law Center and now the director of the California Project on Children and Managed Care. "In my experience, oftentimes they're just treated as an adult. Burn victims 12 and up go to adult rehabilitation clinics. Oftentimes it's cheaper, but adolescents are not adults — there are unique psychological and developmental issues. The question is, who makes the decision and with what input?"

The Project on Children and Managed Care does research on the quality of services for children under managed care and provides pro bono services to aggrieved children, pediatricians and families.

Insurance executive Anthony Gruppo warns that child welfare providers may have even greater cause for worry if they don't enter the managed care arena. They could find themselves completely shut out by big operators.

Ron Morman, director of the Child Care Association of Illinois, said of his 85 nonprofit members: "Managed care has scared the hell out of them. Our members are very apprehensive and concerned as to whether they can compete."

Many child welfare providers may have difficulties persuading HMOs to contract for their services. Some school-based health clinics (SBHCs), for example, already are finding it a hard sell to tie up with HMOs.

"Most everyone agrees that increased access to health care does have an effect on school performance and health status indicators, but as to measurable outcomes, there haven't been many studies to date, and there's not a lot of funding," says Julia Grahman Lear of Making the Grade. "There are bits and pieces out there but not enough for managed care providers to be satisfied, especially since they see school-based health centers as expensive ...."

Making the Grade is an arm of the Robert Wood Johnson Foundation that invested over $23 million this year alone to ensure that SBHC's are an established part of adolescent health care.

Delivery of health services by large managed care organizations already is well advanced, or threatening, in some states.

Texas foster care providers, for example, were faced with possible extinction when the for-profit Charter Hospital Corporation, owner of Mentor Therapeutic Foster Care Company, went after the foster care contract for the entire state.

“They weren't ready to do it, they don't have a thousand foster care homes," said Bob Barker of the DePelchin Children Center in Houston. "But they went to the state and said if you give us the contract, we’ll get them. Multi-state, for-profit providers have the capacity to put bids together, and they have deep pockets. One of the challenges facing the field is not to be shutout."

DePelchin Center, a 100-year-old child welfare provider, is trying to avoid that fate. It is in the process of forging links with other agencies in two networks — the Behavioral Health Network of Texas, a regional, four-agency network, and South Behavioral Health Inc., a statewide, nine-agency network providing services to children — so they may compete with large, for-profit outfits.

Life in a Darvinian Climate

Survival in the highly competitive managed care field means child health and welfare providers must adapt to a system that in many ways is antithetical to their philosophies of service. They now have to wheel and deal, and form consortiums to negotiate with managed care contractors that may leave other nonprofits out in the cold.

"The system is creating a level of competition that people are not used to," says Treischman’s Floyd Alwon. "It's forcing people to be sharper business folk and they're having a hard time swallowing it. They got into this business because they were do-gooders, and now they find themselves worrying about capitation.”

The move towards a more Darwinian business climate is not the only cause for cognitive dissonance on the part of child welfare providers and advocates. Many people in the field resent the profits made by MCOs. A Florida Sun-Sentinel investigative series called the state's managed care system an "opportunity for rampant profiteering," noting that taxpayers shelled out more than $8 million in one year in salary and benefits to the three owners of an HMO rated as poor by state reviewers.

"These services have been underfunded for years and years and years," Alwon said. "Manager care got created, taking 5 to 10 percent off the top. Obviously, this money is not going to the kids — it's going to people with nice offices. And when a provider hasn't been able to give its staff raises, it's obvious there are going to be bad feelings and people saying, geez, how can you do it?"

A dearth of raises is not the only source of staff resentment. Managed care providers seek to keep costs down by applying the most efficient — read cheapest — ways to treat patients. In theory, this means greater emphasis on preventive medicine. But the push for profits also means cost-cutting will limit the clinicians ability to prescribe treatments. As Madelyn DeWoody noted, managed care marks the end of social worker and therapist independence in advocating treatment regimens.

Situations will arise where the therapist isn't able to provide the treatment they want to give. For example, an abused child comes in and the therapist wants to treat the parent as well, and that may not always be possible, says Barker. "There's no short cut to making sure the staff have an opportunity to work through their feelings."

Frustration levels are also likely to rise as clinicians find themselves spending less time providing services and more time doing paperwork. The paperwork associated with managed care is greater, because managed care agencies shift administrative responsibilities to agencies as a way to lower their costs and increase their profit margin.

A Brandeis University study, "Evaluations of the Massachusetts Mental Health Substance Abuse Program," issued in 1994 found this to be true even of MHMA (its proper name), the agency that holds the behavioral health con-tract for all of Massachusetts' Medicaid population, which Is considered one of the best in the nation.

One Way to Make Money

All is not doom and gloom for agencies making the shift to managed care. Child welfare providers may have opportunities to present themselves as an alternative to expensive hospitalizations and thereby expand their revenue base. A youth emergency shelter can diversify, for example, adding on an acute residential treatment center.

"A state was paying $130 per bed per day for runaways, and with acute residents, the center makes $275 a day...not only are you offering a new service but you're making money to plow back into the agency to help support original programs," says Tim Coakly of the one-man firm, Coakly Consulting, Coakly has helped implement managed care programs in Iowa, Tennessee and Massachusetts.

But to grab such opportunities, agencies need to be more proactive. The best time to negotiate with managed care agencies is when they are proposing original bids for either state or insurer contracts.

"When managed care systems are implemented, there is a very limited amount of time to put things together and child welfare agencies should play a key role — but they're not. The original system design is not cast in stone, but it's better to get in on the ground floor," Coakly says.

Agencies needn't surrender their original mandates under managed care, either. "If organizations don't give up fund raising, then even if the managed care organization chooses not to pay, services can still be provided," says the DePelfhin Center's Bob Barker. "Managed care is a way to pay for services you're already providing."

Standards For Outcomes

Another managed care plus has been the impetus it has given agencies to professionalize their services as well as stimulate more emphasis on patient satisfaction. The need to establish credibility with potential contractors has meant that many agencies have been seeking out accreditation.

"Some external accreditation is important in building managed care networks," says David Shover, director of the Council on Accreditation of Services for Families and Children, a national nonprofit accreditation body. The New York-based Council has reviewed over 3,500 agencies in 17 years; its sponsoring agencies range from the National Network for Youth Services to Family Service America to the Lutheran Social Service System.

The quest for accreditation promotes higher field standards. The Council's process, for example, requires agencies to go through a peer review and face examination by an accreditation commission that includes directors of managed care organizations and insurers.

Outcome measurements, a system of reviewing the effectiveness of treatments administered, is another area where new standards are being put in place.

"Insurance companies are very good at counting," says Alwon. They have a much better idea of what's a reasonable cost for a service provided, how long a stay is beneficial. This forces us to be more accountable in a field where for good and bad reasons, we never measured things that are hard to measure."

"The people with the numbers will win," Gruppo agrees. By providing managed care operators with a guarantee of customer satisfaction, agencies have a far better chance of being included in managed care contracts.

Unfortunately, child welfare providers are not completely up to speed on outcome measurements, particularly in the behavioral health field. "It's not like appendicitis where there is a very clear clinical assessment," says Madelyn DeWoody.

Organizations like the CWLA arc In the process of putting outcome guidelines together, but as Gruppo noted, "for now they're not where they need to be."

As defensive measures, individual child welfare agencies are creating networks with one other to gain the economy of scale necessary to negotiate with the managed care behemoths for better fees and services for their clients. At the same time, collaborative action can lower overhead as agencies share administrative costs and invest collectively in expensive equipment such as up-to-date computer systems.

"We're up to our eyeballs in managed care," says Ron Morman of the Illinois Child Care Association. "What we've done, apart from a lot of training on various types of networking options, is to form a service organization. Its function is to provide information management, group purchases — anything to allow our members to compete in a managed care environment."

Mergers are also a possibility for smaller agencies trying to stay viable. But they can be brutal, warns Barker, whose organization already has been through two. In nearly every instance, there is attrition among staff members as services are consolidated. "With my bias, it shouldn't be considered first... it's pretty hard on the organizations."

While the ultimate shape and substance of managed care for youth and child welfare services is yet to be determined, it has become increasingly apparent that it is neither the field's nemesis nor panacea.

"With managed care, it's simply a different way that services are done," says Floyd Alwon. "As Bob Dylan says, I don't need a weatherman to see which way the wind blows. Our kids are in trouble. We have more violence, more health problems. But the bottom line is the bottom line. Is the United States willing to make children and families a priority?"

Notwithstanding the bleak prospect of block grants and more budget cutting, agencies do have reason to be concerned. Lowering costs through restriction of services is managed care's raison d'etre.

The issue for child health and welfare advocates is whether they can advance a vision of managed care that provides a more rational and humane distribution.


Managed Care: An Agency Guide to Surviving and Thriving by David Emenhiser

Robert Barker

Madelyn DeWoody


CWLA Book Distribution Center

(908) 225-1900

State and Local Child Health Advocates: A Focus on 'Managed Care

Prepared by National Association of Child Advocates

(202) 828-6950

Available in November

Price not yet known

Market Consolidation, Antitrust, and Public Policy in the Health Care Industry: Agenda for Future Research

Prepared by the Council on the Economic Impact of Health Care Reform

The Institute for Health Policy

The Heller School

Brandeis University

(617) 736-3874

Health Tracking

A Robert Wood Johnson

Foundation project monitoring health system change

The Robert Wood Johnson Foundation

P.O. Box 2316

Princeton, NJ 08543-2316

Contact: Victoria Weisfeld

(609) 243-5926

The Project on Managed Care and Children

12 Brookside Ave.

Berkeley, CA 84705

Contact: Elizabeth Jameson

(510) 655-4887

Council on Accreditation of Services for Families and Children, Inc.

520 Eighth Avenue, Suite 2202B

New York, NY 10018

Contact: David Shover

(212) 714-9399


Youth Health Enters Age of Managed Care : Brightside of Managed Care

Youth Health Enters Age of Managed Care: Definitions

Szerlag, Heather. "Youth Health Enters Age of Managed Care." Youth Today, November/December 1995, p. 1.

©2000 Youth Today. Reprinted with permission from Youth Today. All rights reserved.