Western Interstate Commission for Higher Education

Effective Management Strategies For Frontier Mental Health Organizations

Letter to the Field No. 14

by James E. Sorensen, Ph.D., CPA, School of Accountancy, University of Denver
A special note of appreciation to the mental health executives who participated in the focus groups. Because of our confidentiality agreement, we are not permitted to cite individual contributions.

Table of Contents
Integration of Caregivers | Medical Cost Offset Effect | Other Integration Options | Reintegration of the Client into the Community | Information Management | Estimating Out-of-System Costs | Staffing Options | Conclusion | References

Managers of mental health organizations need to acquire and use resources to create effective and efficient mental health services. The fast emerging managed care environment now requires even more than just efficient cost management. Managed behavioral health care seeks to reduce or eliminate unnecessary services, reduce and control the costs of care, and maintain or increase outcomes and effectiveness. Serving frontier areas offers a greater challenge because of limited resources. This Letter is the third installment of a three-part series on cost, outcomes, and effective management strategies for frontier mental health organizations. This report focuses on how integrated primary and mental health services should aid the manager of frontier mental health programs in the developing managed care environment by increasing effectiveness. Also discussed will be how the integration actually works, how to improve the reintegration of the client into the community, and how to increase the yields from limited resources. In addition to literature reviews, this paper reports the results of several focus groups conducted by the Frontier Mental Health Services Resource Network with mental health executives. The focus group attendees were able to provide "on the scene" perspective and to document many of the operating examples described in this paper.

Integration of Caregivers. Rural primary care providers have strong incentives and significant opportunities to form linkages with mental health providers. They include large and diverse caseloads, severe time constraints, changing mental health treatment modalities and medications, fluid Medicare and Medicaid reimbursement, and vertically integrated health networks (Lambert, Bird, Hartley, & Genova, 1996). While arguments for the integration of services emerged during the 1970's (Borus, et al., 1985) and 1980's (Goldman, Burns, & Burke, 1980), the development of health care networks and managed care has stimulated renewed interest in integration (Zimmerman & Wienckowski, 1991; Mechanic, 1994).

What can happen when primary and mental health care are integrated? When clients access comprehensive health services that include mental health care, the demand for medical and surgical services may decrease as much as 72 percent (Mumford, Shlesinger, Glass, Patrick, & Cuerdon, 1984). Because this reduction in demand significantly reduces net medical costs, the result is labeled the medical cost offset effect. These dramatic savings in medical and surgical services costs could finance cost reductions and expanded services for all health care. Another major implication is integrated treatment through teamwork. The integrated team of both health and behavioral health care providers can not only reduce the cost of health care, but also improve its effectiveness (Sloan & Chmel, 1991). This integrated approach is especially appealing in frontier mental health environments where resources are nearly always limited. Alliances and collaborations between health care and behavioral health care providers can restore physical and psychological health and also establish healthy habits in their clients. Frontier mental health leaders should be encouraged to take the initiative in integrating behavioral health with other health care to develop world-class health care.

Medical Cost Offset Effect. Table 1 offers a practical way to see how medical cost-offset works. Total health care expenditures are assumed to be $100 million with 90% for medical care, 6% for behavioral care and 4% for other types of health care. The model examines the introduction of behavioral health care over a five year time period. All health care costs are assumed to increase at 10% over the prior year (including inflation) and new additional behavioral health care costs are added yearly at 5% over the prior year to accommodate increased behavioral health services. The medical cost-offset is assumed to have a first year reduction of 20% and graduated increases up to 50% by the end of the fourth year and subsequent years. The offset percentages are estimates derived from the cost-offset literature (Mumford, et al., 1984; Holder & Blose, 1987).

Integration of services reduces the combined costs of medical and behavioral care dramatically. In the first year, the cost reduction in Table 1 is almost 19% (20/106 = 18.9%) while in year five the cost reduction is 46% (72/157 = 46%). In each year the combined medical and behavioral costs are reduced until year five when the costs in total begin to rise. (See Figure 1.) Even after five years, the total combined costs in year 5 ($85 million) are still lower than the year one combined costs before offset ($106 million) by 20% ($106-$85/$106 = 20%). During years four and five, the percentage distribution between medical and behavioral costs begins to stabilize at 86% and 14%, respectively, as shown in Figure 2. The results, while illustrative, provide a powerful insight into how behavioral health care introduced before medical health care can improve the total cost picture. The cost-offset percentages can be lowered (or increased), but the patterns are generally similar. When people have access to comprehensive mental health services, the demand for medical and surgical services decreases. The alliance between mental health and primary care can become a strategic one for survival and success as both areas face limited resources and pressure for quality outcomes.

Current arguments against requiring insurance coverage for mental illness to be in parity with coverage for other illnesses (Pear, 1996) seem not to take into account the cost-offset research (Suinn, 1996). If funding comprehensive mental health services can reduce total health care costs, there should be an eagerness to fund mental health services. Efforts to limit the funding of mental health services will only increase total health care costs not decrease them.

The resources in behavioral health are often inadequate and one way to argue for an increase in resources is to show its impact on other health care systems through the medical cost offset. However, some mental health administrators suggest that while savings from offsets to physical health may accrue to society; integration often leads to unfavorable outcomes for mental health. The end result can be a reduction in the costs of other health care systems, but not an increase in behavioral health resources. The fear of losing resources is part of the choice to carve-out mental health and alcohol and other drugs of abuse services rather than integrating behavioral health into an HMO managed care system. As one mental health executive explains: "The choice to carve-out behavioral health stems, in part, from the experience that behavioral health suffers when it is included in a physical health HMO. HMOs may serve the mildly ill adequately, but those who have traditionally been the purview of the state mental health agency tend to get the worst care. It is a matter of time before the client goes from the HMO to the mental health center. The clients exhaust their benefits with the HMO, get transferred to the public system, and there is no symptom change from the time they entered the HMO until they came to the public system. HMOs do not know how to deal with serious and persistent mental illness, but they know how to deal with mild depression."

Carve-in models may work better if you retain a specialization (e.g., mental health, substance abuse). A subcontract with a specialty program (as opposed to a total carve-out) is another possible option for integrating physical health and mental health. Outsourcing the mental health component (which is a small piece of the general health care costs) can reduce threats to both medical/surgical and mental health professionals. Co-location offers yet another possible solution for physical and behavioral health care integration. In a building in a Midwestern state, a new health care clinic occupied one wing, behavioral health occupied the other, and space in the middle was used by both. "It was beneficial to combine these two functions in a rural community and it helped to de-stigmatize the behavioral health part," observed a mental health executive who visited the center's open-house ceremony.

Other Integration Options. Some states are now pushing integration, collaboration and partnerships between mental health systems and other human services organizations such as social services, child welfare, but not physical health. Co-locations, joint sites, joint assessments and joint treatment plans are examples of this new collaboration. "Co-location in child welfare can place mental health assessment staff and child welfare personnel can do front-end assessments as opposed to a referral three or six months later when the child is being reviewed for an out-of-home placement," noted another seasoned administrator.

Front-end partnerships can achieve cost-offsets and cost savings while maintaining the specialization of both the mental health professional and the partner professionals. Out-stationing mental health professionals in the emergency rooms in hospitals can integrate the behavioral health care and physical medical care. Psychiatric nurses in the city jail performing pre-arraignment screenings can divert individuals into the mental health system as opposed to the correctional system. Counselors stationed at the desk of social services in high schools solves the problem of contacting potential clients. "If they are unlikely to come to you, then you go to them," commented one provider. "Frequently the first warning signs of a child with severe emotional disturbance appears in the schools. By getting the clinician [at school] instead of downstream, they can front-end services and avoid later and more costly services" he concluded. Mental health can join with other public agencies in site visits to migrant populations. "It is easy for mental health to tag along with the other services that are being done and are more acceptable than mental health," stated one focus group member.

Some examples that work include using existing facilities, with minor changes and using night staff as necessary-not necessarily 24 hours. Mental health and mental retardation in one program shared after-hours location and staff, where mental health was using someone else's building and a staff person paid for by two different agencies. In another example, a large nursing home is now used for brain injury cases while one of the houses is a children's unit with 24 hour staff on campus.

Unfortunately, existing programs and staff are often resistant to integration. In one Rocky Mountain state, counties were given the opportunity by the state legislature to restructure at the local level. As one executive summarized the effort: "We were going to combine all of our behavioral health or all of our human services under a single service authority. We were going to combine the health department and human services. However, nearly all of the counties came back with the decision to keep all of the organizations the same as they were! The most dramatic change was using a common database and computer screen. Bureaucratic inertia overwhelms change!"

Reintegration of the Client into the Community. Focus group members offered several options for transitioning clients back into a rural community. Often in frontier areas there are no established group homes, so "foster homes" or "host homes" are used to stream an individual back into the community. Sometimes the community does not want the individual back; or worse, the families do not want them. "So you have to provide a lot of case management and therapy in the home. I mean you have to put staff in the house." Even legislators may reflect this mind-set, "As one said, 'We pay you good !?*$! cash money to keep those kind of folks away from us!'"

On the other hand, there may be greater community acceptance for mental health consumers in frontier areas. The different professionals know each other in these areas and are better able to negotiate the best options for the client through integration of services. As an example, when one client in a rural area would take off his clothes and direct traffic on main street, the chief of police would call the director of the mental health center and say "Harold's at it again!" The director would bring clothing and take Harold back to his group home. If someone did the same thing in a large city, the director of mental health would not get the call! While the options may be fewer, the opportunity for integration is greater in a rural environment.

Even with excellent support from health and mental health professionals, clients are often unable to live independently without a support network. Clients want therapy from their therapists, but are also often tired of being told what to do by therapists and advocates. Consumers supporting consumers is a growing movement. It behooves the mental health system to locate customers where they can help each other.

All of these efforts to reintegrate clients into the community can be part of "wrap-around" services. These services are often hard to understand and can be defined many ways. As one executive commented, "It is a form of customization and generally goes beyond case management or outreach to include special needs. You are purchasing special services for a special person. Often the goal is to stabilize the client. Maybe it is hiring a buddy to go to school with the kid for three weeks to help them integrate or to enroll them in a soccer league or rent a phone for their home. The classic case example is the state hospital patient, for example, a female who begins to decompensate when she starts discharge planning. In contrast to the clean environment with regular meals and friendly people, her 'back home' involves an alcoholic husband and filthy house filled with roaches. Clearly she needed other special services."

Information Management. Managed care is data-driven in real-time; it is not retrospective. "It has to be current and enable you to forecast so you change directions quickly," concluded one executive. "You have to know on Wednesday how many individuals you have in patient beds on Wednesday. You need a system that generates reports automatically. You a need a daily 'flash report' on available capacity and time spent in service." For example managers need information on:

  • Alternative Treatment Units (ATU)-available capacity, where, how many, and when?
  • Residential facilities-independent and support-available capacity, where, how many, and when?
  • Outpatient-number of units of service provided yesterday and week-to-date, available capacity?

Estimating Out-of-System Costs. Managers also need to know the prospective liability for out-of-system services based on the number of service authorized for people in your service plan. Costs can vary significantly. One executive gave the following scenario: "If you referred 17 people to out-of-network providers and authorized 170 units of service, and if you know based on experience that 53% of the authorized services are consumed and at an estimated $65 per unit, you have a current estimate of your cost and liability of almost $5,900 (170 units x.53 conversion x $65 estimated cost = $ 5,856.50 potential cost and liability). You must follow-up to see if the 53% is true. In mental health, it is more likely to be 90% and the cost and liability would be almost $10,000 (170 x .90 x $65 = $9,945)."

Later a more complete report on actual results (e.g., rolling averages) can be provided to make sure there is clear understanding of what did happen. Budgeted vs. actual unit costs can identify cost or units of service problems early in the process. "If you have to wait for the annual report, that is too late," observed one administrator.

Staffing Options. If you contract with staff on a piece-work basis, one financial specialist felt "you …rent instead of buying to own. When you hire, you've adopted staff to raise them instead of contracting with them. If you hire on a piece-work basis, you have converted a fix cost into a variable one."

Conclusion. Being efficient and effective in frontier areas with limited resources is a challenge. While integrating primary and behavioral health care may be an ideal solution, the more likely response is an integration with other human services (e.g., welfare), and using shared facilities or staff and joint activities. Low-cost client reintegration approaches, "flash-reports" on availability of resources, and contracting for delivered units of service are other likely responses.


Borus, J.F., Olendzki, M.C., Kessler, L., Burns, B.J., Brandt, U., Broverman, C.A., & Henderson, P.R. (1985). The "offset effect" of mental health treatment on ambulatory medical care utilization and charges: Month-by-month and grouped-month analyses of a five year study. Archives of General Psychiatry, 42, 573-580.

Goldman, H.H., Burns, B.J., & Burke, J.D. (1980). Integrating primary health care and mental health services: A preliminary report. Public Health Reports, 95, 535-539.

Holder, H.D., & Blose, J.O. (1987). Changes in health care costs and utilization associated with mental health treatment. Hospital and Community Psychiatry, 38, 1070-1075.

Lambert, D., Bird, D.C., Hartley, D., & Genova, N. (1996). Integrating primary care and mental health services: Current practices in rural areas. Kansas City, MO: National Rural Health Association.

Mechanic, D. (1994). Integrating mental health into a general health care system. Hospital and Community Psychiatry, 45, 893-897.

Mumford, E., Shlesinger, H.J., Glass, G.V., Patrick, C., & Cuerdon, T. (1984). A new look at evidence about reduced cost of medical utilization following mental health treatment. American Journal of Psychiatry, 41, 1145-1158.

Pear, R. (1996, May 2). Wider mental health policies seen as feasible requirement. New York Times, pp. A1, A11.

Sloan, N.D., & Chmel, M. (1991). The quality revolution and health care: A primer for purchasers and providers. Milwaukee, WI: American Society for Quality Control, ASQC Quality Press.

Suinn, R.M . (1996, May). The case for psychological services in primary health care: medical costs offset. CPA Bulletin (Colorado Psychological Association), p. 8.

Zimmerman, M.A. & Wienckowski, L.A. (1991). Revisiting health and mental health linkages: A policy whose time has come…again. Journal of Public Health Policy, 510-524.

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