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On Sabbatical


Abridged from The National Psychologist, July/August, 1998 (color emphasis added)

Case Rates: The good, bad and ugly

By John Thomas, Associate Editor

The switch from fee-for-service reimbursement to "case rates" has been growing steadily in some locations, such as California and Colorado, while it is virtually unheard of in other parts of the country, including large parts of New England.

But, there are signs of growing resistance to case rates. Indeed, the Rhode Island Legislature has approved a bill that bans the use of case rates in that state after Blue Cross and Blue Shield of Rhode Island reached agreement with two Providence hospitals to initiate this kind of reimbursement plan for outpatient behavioral health clients.

In case rates, a managed care firm pays a psychologist or other mental health professional a flat rate - $200 or $300, for example - to hold up to 10 sessions with a depressed patient. The psychologist is spared second-guessing by managed care bureaucrats about the treatment plan, but there are financial incentives to cut it short. If the patient's problems are resolved after one or two sessions, the psychologist makes money. But, if treatment continues for the maximum number of sessions, the psychologist suffers a loss-potentially, a substantial loss.

Some psychologists and other mental health professionals, tired of the vexations of case review under managed care, welcome the new autonomy the case rate system gives them. But most behavioral health care providers argue that case rates put them in an ethically untenable position, forcing them to choose between losing money or reducing the level of care. Their view of case rates mirrors their thoughts about managed care generally.

However controversial the case rate issue is, this new billing system has considerable appeal for large managed care firms specializing in behavioral health. These include Magellan Health Services, which recently acquired Merit Behavioral Care Corp. and Human Affairs International, and PacifCare Behavioral Health, Inc., a unit of PacifCare Health Systems, Inc. American Psych Systems wants to converts its entire 7,000 network clinicians to case rates by 1999.

Two recent studies confirmed what behavioral health professionals have suspected all along: Both the percentage and the number or real dollars devoted to mental health services have declined precipitously during the last 10 years.

A study by Coopers & Lybrand showed that the costs of mental health care have been reduced from 15% of many employers' total health care tab to around 5% today.

The Hay Group, an actuarial and benefits consulting firm in Washington, D.C., found that behavioral health care benefit costs have been slashed six times the general health care benefit costs since 1988.

Where the value of general health care benefits has declined 7%, the value of behavioral health care benefits has dropped 54%, the study showed. Behavioral health as a percent of the total health care benefit has plummeted 50% in 10 years, dropping from 6.2% in.' 1988 to 3.1% in 1997, according to the Hay Group.

Under fee-for-service managed care, therapists and patients alike have complained about arbitrary limits on care and meddling by case reviewers. Managed care firms themselves have wearied of tangling with angry therapists. Managed care firms have also learned how expensive the case review process has become.

One study revealed that a single case review phone call between a therapist and a managed care firm can cost $40 to $70 in administrative overhead. There can be many calls during the course of a patient's treatment.

Still, horror stories about case rates abound.

Donald Bernstein, Ph.D., director of professional affairs for the New Jersey Psychological Association, recalls that a group practice was started in that state several years ago to provide mental health services on a case rate basis.

When the managed care company failed to screen referrals as it had promised, the group practice went bankrupt Lack of proper screening, Bernstein said, meant patients with more serious mental health problems were being referred to the new practice.

"There is an assumption on the part of managed care companies that treatment will be brief, and that's not always the case," Bernstein said.

William Schonberg, Ph.D., of Mansfield, OH, said he tried case rates when he began his practice many years ago, but returned to fee-for-service after two years.

"I was just starting out and didn't realize that case rates just wouldn't work," Schonberg said.

He said case rates required a change in the focus of treatment and that he couldn't get comfortable with the, idea that a dollar figure was more important than his patients' problems. He' said he couldn't work with that kind of mind-set.

Jerome Vaccaro, M.D., medical, director of PacifiCare Behavioral in California, is the first to admit that case rates are not for everybody, and certainly not for psychologists who are not in a group practice.

"It's not a panacea," Vaccaro said of case rates, although 30% to 40% of its California subscribers are being treated under case rates. He said the "free fall in behavioral health care pricing is of particular concern to us. If providers aren't making a living, it would make more sense to quit the practice and become a plumber."

PacifiCare started offering case rates for mental health service in 1995.

Charles Faltz, Ph.D., director of professional affairs for the California Psychological Association, said competitive economic pressures in California by mental health providers can tempt practitioners to accept fees under case rates that will present an incentive not to provide the appropriate level of care.

Vaccaro agreed "Both sides have to be very cautious," he said. "We have to be sure that patients are not undertreated and at the same time make sure the providers don't go belly up"' he said.

Asked if he thought case rates would grow in future years. Vaccaro said, "If you had asked me that question six months ago, I would have said 'yes,' based on our experience in the first two or three years. But, today I'm not so sure. I would have to answer, 'yes, probably'."

He noted the legislation in Rhode Island as an example of what appears to be a growing opposition to case rates. He also said that growing opposition to case rates mirrors the public's displeasure with all forms of managed care.

"There's the good, the bad and the ugly, but it seems like only the ugly gets shown," Vaccaro said, referring to the negative image in which managed care is cast by the media.

The legislative attempt to ban case rates in Rhode Island began after Blue Cross and Blue Shield of Rhode Island contracted with a new joint venture of the state's two major hospital networks, Lifespan and Care New England, to provide and manage the mental health care of 340,000 subscribers.

Despite the outcry from many mental health professionals, 225 psychiatrists, psychologists and social workers agreed to accept case rates. However, since the introduction of the legislation, the joint venture has decided to withdraw from its contracts with the Blues.

Carl Young, Ph.D., vice president of Blue Cross and Blue Shield of Rhode Island, said he was disappointed that the case rate issue did not receive more extensive hearings. The bill was approved in the House of Representatives by an overwhelming majority after one hearing in early May.

Young said that despite the feelings about case rates in the legislature, "Some alternative to fee-for-service has to be found."

Don Fowler, Ph.D., executive director of the Rhode Island Psychological Association, said the Organization was part of a coalition that pushed for passage of the anti-case rate legislation.

"No psychologist should have to make a decision between providing high quality care and making money," he said.

There are success stories and new group practices are being started to under-take case rates.

Pacific Applied Psychology Associates, a 70-provider group in Northern California and Colorado, have seen about 4,000 patients on a case rate basis, and has enjoyed financial success.

Jeffrey Simon, Ph.D., said his group practice, Carmel Psychological Associates in Carmel, NY, started accepting case rate patients from Oxford Specialty Management on April 13.

"It's too early to tell, but at this point I am cautiously optimistic. I'm particularly interested in seeing if there really is ease of administration as promised," Simon said.

"We felt comfortable as one can with the new arrangement. If we can conduct business as usual, we think it will be successful. He said his group practice has around 200 patients on case rates.

Still, his group practice hasn't gone completely out on the limb over case rates.

"We have a 90-day cancellation agreement with Qxford. We insisted on that," Simon explained.

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On Sabbatical!

When my office lease expired at the end of 2004, I decided to turn it into a "sabbatical" from my private practice. Many years ago, in my grandfather's 89th year of life, he told me, "John, it is important to smell the roses while you can still smell them." His life gave living a very good reputation. It is also true that the pursuit of that philosophy required my grandfather to to re-open his assay office/ore market in Wickenburg, Arizona as a 75-year-old because he had run a little short of retirement money. Thus, if blessed with his luck and health, I'll be back.. --jjh

Copyright 1998-2007  John J. Herr, Ph.D.                                   Please send comments to