Michigan County’s Mental Health Agency Aims to Cut Costs Through Partial Privatization of Services

Facing a $6.3 million deficit, the Detroit-Wayne County Mental Health Agency will likely privatize some of its public health services and cut others, the Detroit News reports. The agency serves more than 35,000 county residents without private insurance who have mental health problems and substance abuse problems. The agency does not provide services directly, but contracts with about 80 outside agencies, "most of which" provide treatment on an outpatient basis. However, the agency's spending has risen more than 50% since 1998, increasing from $356 million in 1998 to $543 million in 2001. To stem the growing expenditures, the county may cut funding for outside groups that provide counseling, therapy, prescription drugs or temporary hospitalization. In addition, the Wayne County Commission, which oversees the administration of the agency, is expected to approve today a four-year, $20.3 million contract with Maryland-based Magellan Behavioral Health Inc. to "partly privatize" county services for the mentally ill. Under the contract, Magellan will administer access to county mental health services and will handle claims (Egan, Detroit News, 6/7). The risk, however, will be assumed by the county, which will continue to pay the bills, the Detroit News reports. Magellan, the nation's largest managed behavioral health organization, already manages the care of about 3 million Michigan residents through contracts with Blue Cross Blue Shield of Michigan, the State of Michigan Employees and Retirees and several other health plans (Webster, Detroit News, 6/7). Michigan has been "pressuring" the county to demonstrate that "it's ready to compete with the private sector to provide mental health services or risk losing the responsibility"; beginning next year, the state will allow private companies to outbid any county agencies that "haven't shown they're efficient enough to handle the job" (Egan, Detroit News, 6/7).

Will it Work?
Although Magellan views the privatization of government mental health services as a "potential area of growth," it has taken "major lumps" in past contracts with states. When it assumed responsibility over a statewide mental health privatization effort in Montana, for example, Magellan failed to pay bills to mental health providers and lost $15.7 million in its first year before it abandoned the effort. Magellan spokesperson Erin Somers said that the company has "learned from its mistakes" and will perform better in Michigan (Webster, Detroit News, 6/7). However, some analysts and mental health advocates question whether mental health patients will receive an adequate level of care from a company that seeks to keep control costs and turn a profit. Mary Graham, senior policy adviser for the National Mental Health Association, said that if the government agency contracting for the services provides sufficient funding for the care, "the results can be decent." However, she cautioned that since a shift to managed care is often made to save money, government agencies "take the lowest bidder ... leaving the program without the funds it needs to do the job properly." She said, "The costs have gone down simply because they're taking the contracts for less money. Adding another layer of administration isn't going to fix the problem." She said that "[i]n the long run," managed care companies have generally shown "reluctance to provide the most expensive care, such as hospitalization and costly medications." Steven Findlay, research director at the National Institute for Health Care Management, said that shifting administration to managed care can initially benefit patients, since it usually results in an "expansion of care for the mentally ill, with more doctors to choose from and greater access to an initial assessment and a few therapy visits." However, he warned that companies might put profit margins over patients, stating, "[The companies] don't have a social contract with the people. Managed care has administrative fees that (the government) didn't have before plus the company needs to make a profit," Findlay said. He stated that although the shift often saves money, it is "not clear" whether the quality of patient care improves (Webster, Detroit News, 6/7).