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A number of States now use Section 1115 Medicaid waivers to provide managed care for their Medicaid patients or as a main building block of comprehensive State health care reform. The Health Care Financing Administration (HCFA) seeks to use this waiver process as an important tool for States in the development and testing of new, innovative health care approaches. A recent issue of the Federal Register¹ carries a public notice about the policies and procedures for States to follow in applying for demonstration proposals under Section 1115(a) of the Social Security Act. These waivers will be granted for demonstration programs of all sizes and types, ranging from reasonably small to statewide or multistate in scale.

Delaware and Rhode Island are now in the initial stage of applying to HCFA for a waiver that would provide limited substance abuse and/or mental health services through an HMO or other managed care entity. In mid-November, HCFA announced that South Carolina 's waiver application to expand coverage for low-income residents has been approved in principle. HCFA will work with the State to help them meet a series of milestones required for final Federal approval. Now that Federal health care reform has been put on hold, additional States may also start looking at managed care as a way of controlling their Medicaid costs.

The Need for Early Involvement

Experience in some States has shown that substance abuse and mental health services are vulnerable in managed care settings; how the plan is designed can be critical. Single State Agencies (SSAs) and treatment providers need to be involved in designing their State 's waiver proposal, and this can happen only if the SSA is alert to any potential waivers planned by the State Medicaid agency. Participating in the development process makes it possible to build in factors that are important for substance abuse treatment providers and clients. Once a waiver proposal has been submitted to HCFA, the possibilities for change become more limited, since the outlines of the plan have already been decided.

To be sure of being involved, SSA directors need to be talking to their counterparts in the State' s Medicaid agency or in cabinet-level positions. In some cases, Governors may need to be involved to assure that SSAs are consulted and have a role in waiver planning.

The new demonstration waivers require that States also involve the public in the development of the proposed demonstration projects. HCFA will be publishing a monthly notice in the Federal Register of all new and pending proposals and will also maintain a list of organizations that request to be notified when a particular proposal has been received.

In States where the Medicaid agency plans to submit a waiver to HCFA, the SSA and treatment providers will find it useful to look into the experiences of States that have already gone through the process of applying for waivers or are actually implementing managed care arrangements with their Medicaid clients. These States include Florida, Ohio, Oregon, Massachusetts, and Tennessee. Short summaries of the plans of these five States can be found below.

CSAT 's Role in the Waiver Process

The Center for Substance Abuse Treatment (CSAT) has recently taken on an active, advocacy role for SSAs in the HCFA waiver process. Representatives from both agencies have met to share information, and CSAT staff now participates in the initial written review of every 1115 waiver proposal received by HCFA. The questions raised by CSAT will become part of HCFA 's response to the application, in which the State Medicaid agency will be asked to respond, clarify, and expand on the initial proposal. CSAT will be calling attention to, and assessing, the substance abuse treatment components in each application. The CSAT review will question:

• What is the plan' s substance abuse treatment component, and how is this component managed?

• What does the SSA director think about this Medicaid waiver? The Medicaid agency will be specifically asked to address whether the SSA director has had input into the development of the application.

The Substance Abuse and Mental Health Services Administration (SAMHSA) is also assisting HCFA with the evaluation component of the demonstration program. All these service delivery demonstrations will be collecting data to monitor the impact of their new systems. SAMHSA staff is currently helping to design and refine the data elements to be used for this comparative evaluation. Some major areas of interest are likely to be 1) access, such as the geographic accessibility of the provider network and the continuity of care provided; 2)utilization, including mix of services, average length of stay by service type, and admission per 1,000 enrollees; 3) outcomes, including patient satisfaction; and 4) cost.

Components of the Demonstration Program

Under a proposed 1115 waiver demonstration, a State must continue to provide the same level of substance abuse treatment services as under their current Medicaid plan. The overall 1115 proposal is also expected to be " cost neutral " ; that is, to cost the Federal government no more than the State' s existing Medicaid program. However, HCFA will be flexible and assess cost neutrality over the life of a demonstration, not on a year-by-year basis, since many demonstrations involve making " up-front " investments in order to achieve out-year savings.

HCFA appreciates that these demonstration projects are likely to be dealing with a complex range of policy issues, design methodologies, and unanticipated events. The agency expects to be flexible in a number of areas, including:

• Working with each State during the waiver development process, so the State has sufficient time to address and resolve questions and issues that arise before actual implementation starts

• Providing a varying duration of project time, depending on the magnitude and complexity of the project, with large-scale statewide reform efforts typically requiring 5 years for a fair test

• Recognizing that new approaches may require considerable start-up time

• Allowing for project-specific evaluation designs and a reasonable timeframe for projects, so they can prepare meaningful evaluation results prior to the conclusion of the demonstration

• Working with State governments, based on demonstration project success, to seek permanent statutory changes incorporating these results

Medicaid Reform: Selected States With 1115 Waivers

State summaries provided by Lee Dixon, Deputy Director, Intergovernmental Health Policy Project

Florida

The Health Care Financing Administration has approved the State 's 1115 Medicaid waiver to implement the Florida Health Security plan. The Florida Health Security Act (FHS) – a government-subsidized, low-premium health insurance program for people who are uninsured and have incomes below 250 percent of the Federal poverty level (FPL) – would guarantee coverage through private plans. HCFA' s approval of the waiver is an empty victory at this time, given the legislature 's failure to pass FHS during its regular and special sessions. While Governor Chiles refuses to comment, he is expected to call another session of the legislature to address FHS. Sources now predict that it will be enacted.

If the FHS debate is revived this year, the level of substance abuse and mental health coverage in the standard benefits package will be on the table as well. At the time of adjournment, the legislature was considering an amendment authored by the State 's Agency for Health Care Administration. For substance abuse, the amendment proposed a benefit of:

• 7 inpatient days

• 30 residential days

• 40 outpatient visits

A similar level of services is proposed for mental health. The legislation as originally introduced contained a proposal by the Department of Insurance to provide 10 inpatient days and 20 outpatient visits per year for mental health and no coverage of substance abuse. The insurance department felt that treatment for substance abuse should remain a line item in the State budget.

Oregon

Characterized as rationing by some and rational by others, Oregon 's controversial health plan extends eligibility to 120,000 low-income uninsured residents, paying for the added coverage by restricting services to a " prioritized " list of 587 treatments. As of mid-August, 90,000 people– far in excess of the early projections – were enrolled, most of them in managed care plans. Initially, only services for physical health conditions are being covered. If a pending waiver amendment wins Federal approval, however, the plan will be expanded, bringing chemical dependency and mental health services into the managed care setting starting on January 1, 1995. All outpatient chemical dependency services currently reimbursed by Medicaid will be offered statewide. Mental health treatment will be phased in, with 25 percent of the population that is potentially eligible being brought into the integrated system beginning in January 1995 and fully phased in by July 1996.

In a recent interview for State Health Notes, Jean Thorne, the State 's Medicaid director, discussed the issues surrounding bringing those services into the mainstream plan. Following is an edited version of what she had to say:

We actually have two priority lists– one for physical health services and an integrated list, which has another 50 lines or so on mental health and chemical dependency services. The plan is to bring chemical dependency into managed care completely beginning in January. On mental health, though, legislators had a number of concerns about costs and how to provide those services in a managed care setting, so they directed us to bring up to 25 percent of the eligibles into an integrated system, using the integrated list, beginning in January and then fully phase it in for all health plan eligibles by July of ' 96. The phase-in certainly is a complication, even though it is probably the smart way to go in an area we' ve never tackled before.

Massachusetts

Medicaid and substance abuse agency officials are touting the success of the Medicaid managed care program. Under MassHealth, two options are available to Medicaid beneficiaries in need of substance abuse services:

1. Participation in the HMO program, which includes 13 HMOs and provides substance abuse services to approximately 92,000 beneficiaries
2. Enrollment in the Mental Health/ Substance Abuse Program with medical care provided through a Primary Care Clinician (PCC) system

Mental health and substance abuse treatment for PCC enrollees is coordinated by First Mental Health/ MHMA, Inc. This capitated, full-risk managed care program saved the State $47 million in substance abuse and mental health treatment in FY 1993, according to a first year evaluation by Brandeis University researchers. A major part of these savings came from diversion of hospital admissions and selective contracting of participating psychiatric and substance abuse hospitals. State officials are pleased to report that the quality of care available to Medicaid clients has not been affected by the reduction in the number of hospital providers. Rather selective contracting has helped curtail overutilization of hospital-based services.

An article describing this Massachusetts program in more detail appears under "The Massachusetts Experience".

Ohio

State officials are waiting for the go-ahead from HCFA to implement a Section 1115 Medicaid managed care project on July 1, 1995. With a half million uninsured residents who have incomes below the Federal poverty level (FPL), OhioCare is billed as the first phase of a plan that will eventually provide access to health care coverage for all uninsured residents. The waiver demonstration will expand coverage to those at or below 100 percent of the FPL. Using a capitated arrangement, benefits will be provided through:

1. A basic physical medical services plan
2. A special health-related services plan

The basic package includes limited short- term mental health services provided by family and general practitioners (e.g., outpatient evaluation and management services). Four categories of services are " carved out " to be offered through special plans: mental health; alcohol and drug addiction; mental retardation and developmental disabilities; and services to children in foster care.

OhioCare proposes to replace the current fee-for-service reimbursement system with the following arrangement: The Department of Human Services should contract with appropriate State departments to deliver services on a capitated basis. Specific departments would then contract with public agency providers for service delivery. All special health-related services, including those that were previously offered through the Medicaid basic benefit package, will be delivered through the carved-out system. Mental health care would include hospitalization, drug therapy, and outpatient treatment, such as crisis intervention, counseling, and medication monitoring. All abstinence-based alcohol and drug treatment services would be covered, including detoxification.

Tennessee

The State 's Medicaid waiver program– TennCare – has greatly affected the State mental health agency and community mental health programs. It has far less effect on the AOD system. The gravity of TennCare for the substance abuse field lies in the many issues and attitudes that the mental health system has had to address in working with managed care entities.

Despite 9 months of ongoing negotiations, the Tennessee Department of Mental Health and Mental Retardation (DMHMR) and the TennCare managed care organizations (MCOs) have failed to reach agreement on a capitated rate for providing case management services to adults with severe mental illnesses. Since June, DMHMR has been financing the care through existing contracts with community providers. Advocates are frustrated and annoyed with MCO staffs who think that individuals in this population are not deserving of their attention. The MCOs ' idea of case management is to telephone the client, review medications, and confirm a future appointment. This type of treatment may foretell the way in which substance abuse clients could be treated.

Federal approval seems imminent for an amendment to the original TennCare waiver that could resolve the situation. The request asks to use $340 million in TennCare funds (to be taken from monies currently in an " adverse selection pool " ) to provide services to special populations, including adults with severe mental illnesses. Up to $150 million would be available. That equates to $400-600 per member per month for the MCOs – on top of the $105 they receive monthly for each member' s physical and acute mental health services.

Under this waiver amendment, the 12 MCOs would then subcontract with one or two statewide organizations to provide the specialized treatment. Among the potential subcontractors: TennNet, representing 28 State community mental health centers; Blue Cross ' Green Spring, a national mental health and substance abuse care firm; and Foundation Health PsychCare Services.

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