• Elaine Fleming, Hsienming Lien, Ching-To Albert Ma, and Thomas G McGuire.
• Department of Economics, Boston College, Boston, MA, USA.
• J Ment Health Policy Econ. 2003 Mar 1; 6 (1): 3-12.

BackgroundRates of inpatient care for mental health and substance abuse treatment have been reported to fall after the introduction of managed care, but the actual decline may be overstated. Almost all managed care impact studies are based on pre-post comparisons, which have two drawbacks: secular downward trends may be attributed to a managed care effect and self-selection may exaggerate the impact of managed care. Therefore it is useful to examine long-term population-based trends in use associated with the growth of managed care.Aims Of StudyThis paper examines trends in inpatient care for mental health and substance abuse treatment in Massachusetts between 1994 and 1999 by service provider and payer. We analyze how managed care impacts the trends in mental health and substance abuse care.MethodsWe provide an overview of the health market in Massachusetts and compare trends in mental health and substance abuse services with all inpatient services. To analyze the impact of managed care, we compare the per discharge cost of managed care and fee for service plans in Medicare and Medicaid. Finally, we examine the role played by hospital networks in managed care.ResultsThe reduction in service costs for mental health and substance abuse, about 25% in six years, is mostly due to the decline in the average cost per inpatient episode. This is only slightly greater than the decline in costs for all inpatient care. Managed care has reduced both the quantity (average length of stay) and intensity of health care (expenditure per day). Simulations suggest that the creation of hospital networks by managed care accounts for around 50% of the differential between the average costs of the HMO and FFS sectors.DiscussionWe find that the cost reductions in mental health and substance abuse services are larger than for physical health, but not by much. The average length of stay and average day cost is lower for managed care plans than for FFS plans, and much of this difference is attributable to the hospitals managed care plans select to participate in their networks. The data are limited to inpatient discharges from Massachusetts and therefore our conclusions may not be readily extended to other places. Furthermore, our analysis is based on the estimated cost rather than the actual payments to hospitals. IMPLICATION FOR HEALTH CARE PROVISION AND USE: The analysis highlights the importance of hospital selection and networks in affecting the cost of care.Implications For Health PoliciesContrary to popular belief, the analysis shows that the experience of mental health and substance abuse and non-mental health and substance abuse services is similar. Creation of networks is an important strategy in managed care.Implications For Further ResearchThis paper provides the groundwork for extending the analysis to areas with market characteristics different to those of Massachusetts. Further research should focus on the long-term trends in health outcomes between managed care and fee for service patients.

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