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Mental Health, Medicaid, and Managed Care: Building a Unified System in Massachusetts

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This case study depicts the revolution in the mental health care system in Massachusetts. The 90s of the last century were a turning point in the management, governance, and deliverance of publicly funded mental care. Massachusetts was the first state to introduce a statewide mental health managed care plan in Medicaid. When begun, it was the largest managed care program with capitated mental health care.

Massachusetts Department of Mental Health (DMH) had been given the trust to manage and treat the most seriously and severely mentally ill of the state, what called “priority clients” (children & adults), the department was first governed by commissioner Eilleen Elias who was the leader in the path of the reinvention of the system by the proposal of a managed care approach backed by her superior Charles Baker, suggesting that enrolling the Medicaid recipients in a private health plan would be better, and the reason behind that they would be treated, with a low cost than they would be by public suppliers in the state hospitals, which most of them date back many years ago.

On the other hand, the state’s lead Medicaid agency; Division of Medical Assistance (DMA) was entrusted the management of the managed-care contracts with private providers, it was the financial body for individuals who have Medicaid (poor, mentally ill…) and the administration body of Medicaid. Commissioning of the DMA was assigned to Bruce Bullen, who was trying to stop the fast growth of Medicaid costs.

Within the context of state fiscal crisis, legislation was approved in 1980s mandating a Medicaid managed care program to control speedily growing Medicaid costs. The DMH was required to stabilize the Medicaid budget without diminishing recipients’ admission to mental health care. In response, the Medicaid carried out a Managed Care Organization (MCO) to manage and operate the needs of Medicaid recipients. Managed care directed changes in acute care, both inpatient and outpatient, consolidating facilities and state hospitals, privatization of acute inpatient care, and shifted the resources of DMH, and those savings were reinvested, to expand emergency, and diversionary services; add new residential beds, and expand other community-based services. Restructuring of residential programming ensured that services meet consumers’ needs, rather than making consumers “fit” into various residential sites.

During the major fiscal, administrative, and political issues, the DMH and DMA were challenged to cooperate and work together in order to overcome the issue, as a result, they both worked toward integration of their systems. The joint planning specified in the framework agreement “Interagency Service Agreement” (ISA), capitalized on both agencies’ assets as to arrive to the One-Tier System of care, regardless of payment source.

As the agreement was about to be formalized, the Department of Mental Health welcomed a new commissioner Marylou Sudders. Now Sudders should decide whether to sign the ISA and before to do that she needs to be aware in weighing the outcomes of the agreement and whether it is representing the right decision. She would need also to assess the potential obstacles that could arise preventing the DMH from carrying out its mission, as well as the support the agreement might offer.

Evolution of DMH, from a traditional role to the CEO of the System Care

Historically, the DMH had been known for its central mission, which is providing the adequate medical services to the mental ill individuals in general and to the special kind of individuals with such difficult illnesses, like bipolar disorder and schizophrenia, which usually require special treatment and who need care at the general state hospitals. In other words the traditional job of DMH was taking care of serious mental ill and being the last resort for state ill people, through its hospital which has general acute medical care, and local services.

The department was mainly relying on state and public funds in providing its treatment to the priority clients, however, this system was clear that generate more burdens than its generate benefits to the state besides delivering low-quality care. In the mid-1980s the use of some alternative settings took place mainly, the integration in the system of “local services” in addition to the use of new generation of pills and drugs which alleviate the most severe symptoms of the disease. The local services were delivered thanks to residential care units, delivered by the community to prevent the need to the hospitalization, and group homes who provide support for individuals who live on their own, the out-patient care indeed contribute in a huge decrease in the total cost of the state and induces considerable savings (number of state mental hospitals had shrunk, only seven remaining and savings increased by almost 45 %).

However the hit of the crisis on the state budget pushed a wide cut, which hits in particular the alternatives for the mentally ill, and inducing more reliance on the private providers in a system of full independence on the state-run hospitals, the motive of such reliance comes from the federal government’s health insurance program, where the latter reimbursed the state half of the cost deemed medically required for those eligible, three-quarters of the department’s clients were believed eligible for Medicaid. Four of the seven remaining state mental hospitals were ready to provide the inpatient care and serving the clients who require long-term, acute treatment when no other option is in place.

The reimbursement of DMA excludes the cost of hospitalization in state-run mental hospitals while reimbursing half of acute mental care delivered in a private hospital. As to move Medicaid repayment acute care out of the state hospitals, the department put in place “Replacement Units” at the general hospitals, these were specific inpatient psychiatric units, which operation costs would be covered by Medicaid partially only, DMH used this units as enticement to hospitals, it used Medicaid money to subsidies a share of replacement beds, as to maintain higher rate. In addition to this units, the Designated Emergency Programs (DEPs) open its door with a role which was standardized from a call day and night to handle mental crises, maintaining short-term “crisis beds”, and providing screening. Those new functions allow the privatization of the care and serve as a tool to DMH to triage clients. Due to this privatization, the fear about the destiny of the state most poor and ill clients was raising.

As a response, Elias and it department and thanks to the funds collected from the closure of many state hospitals and the usage of replacements units were able to fund the expansion of the community-based treatment- outpatient services; day treatment centers, residences, and clubhouses which closely supports its clients where they live and ensuring proximity of the mental health care services and as a result preventing unnecessary hospitalization. Elias believed that to deliver a fair services to all the clients a One-Tier System between her department and DMA should took place.

DMH’s role, once the enforcement of the agreement took place was pronounced more around the setting of the policies and procedures to follow in a system of managed care for mental health, it was responsible in setting the standards for the services as well as the establishing the criteria for medical exigency. As a public body, the DMH played more on protecting the interests and delivering particular mental health, rehabilitative, and social support services for persons with serious mental illness—a population that historically has been discriminated against by private insurers and managed care organizations (yet a managed care approach can enhance the quality and safety of general medical care and meet the continuing care needs of the mentally ill). Therefore, the DMH was proceeding to maintain management of its specialized continuing care system and by clearly establishing oversight authority (through Medicaid) over the contracted acute care program (despite the recognized need for further integration)

DMA – State’s lead Medicaid Agency

To go toward such a model- One-Tier System, the “managed care” deemed fundamental to equitable supply of publicly-funded mental health care, first, reducing the efficiencies of the management of the acute care in order to reduce the costs and the department’s expenses, second, the effective usage of the existing funds, which was much less than inflation in order to respond and meet the clients’ needs. The initiative of managed care program for Medicaid-reimbursable mental health started in 1992 as a response to the state budget crisis and the wide spread of concerns about the swift acceleration of Medicaid costs, Bruce Sudden made his division to lead the beginning of the program and alleviate the “budget buster” and cap its growth. The managed care program sow success, the DMA budget was over $200 million for mental health and serving 650,000 Medicaid beneficiaries across the state, the savings touted by the administration of the Medicaid agency were met and they were directed to move patients from expensive facilities to less costly outpatient ones.

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Traditionally the division existed as the mechanism through which the state’s money go to arrive to the providers of services to the Medicaid beneficiaries, it was a source of security and stability to the efforts made to contain the rise in costs and it was critical to the organization and the system since it was able to effectively negotiate the best private insurance contracts. DMA was the single state agency responsible for administering Medicaid as provided under Title XIX of the Social Security Act.

The access to the Medicaid-reimbursable for mental health care in Massachusetts was offered by Health Maintenance Organizations (HMOs), a medical insurance group providing health services through the arrangement of care due to individuals, health insurance, and health care plans by health care providers, notably hospitals and doctors, at that time, the Primary Care Clinician Program (PCC) did not include a mental health component, which pushes the DMA to contract and create a managed care organization, Mental Health Management of America (MHMA) responsible about the Medicaid mental health beneficiaries of the PCC program. The MHMA was a tool to get in touch with the mentally ill who got the inpatient health care and controlled the network of hospitals who were eligible to deliver inpatient mental care to those clients. In addition, the MHMA used the DEPs as a front door to triage the clients who need hospitalization, the latter needed both authorizations from the DMH’s emergency staff and from the MHMA.

However, the PCC and MHMA were providing similar services, the overlap in providing the mental health care was complete. Indeed the former head said, there were conflicts and confusion between payments and tasks, we did not know who is paying for what and who was actually the commissioner.

Both agencies as they were working together to integrate Medicaid acute care with the DMH’s continuing care systems for the DMH-eligible population, they soon realized that differing service expectations hindered further development. For example, (1) the DMH’s role in coordinating linkage between acute care in the managed care organization and DMH services was imprecise; ambiguity existed concerning the mental health authority—was it the managed care organization or the DMH? (2) the DMH and the managed care organization developed overlapping networks of hospitals and replication of case management services; (3) the DMH and the managed care organization lacked a shared database for joint planning and monitoring; and (4) acute care referral decisions increasingly were made solely on the basis of payment source.

Rise of the Agreement “ISA”

The win/win situation resulted from the managed care was not sustainable, the objective of the effective use of the funds could not be achieved as the efficient allocation of resources was difficult to realize, the result was a dual system overlapping the activities of each other’s, they were no sharing of the data between the two agencies, and continuity of care between MHMA and the DMH (MHMA was steering Medicaid eligible recipients towards PCC instead of HMOs, with the belief that HMOs was not experienced enough in dealing with the seriously mentally ill), in addition to the organizations of the staff and managers.

The production of the savings by both the Medicare and Medicaid was not efficient, on one hand, the DMH used those funds with no advice of the DMA, on the other hand, DMA notices the mismanagement of the funds and strove for the minimal possible contact with DMH in implementing it contracts- Managed care contracts.

Commissioner Elias trust that a collaborative initiative is inevitable in other to solve the issue, a second iteration, after the implementation of Medicaid, managed care programs/contracts, the commissioner is asked now to put effort in order to unite the two systems of care- unified systems and bring back the DMH to the scene and conserve it publicly services to the seriously mentally ill clients.

Indeed the negotiations was raised between DMH commissioner Elias and DMA commissioner Bullen and began in the summer of 1994, the discussion concluded on the usage of a single managed care organization in conducting all the services, Elias intention behind such a framework is the ability to contract with all DMH clients and not only who were eligible for Medicaid. The first step towards such a collaboration was a Memorandum addressed to the commissioners and their staff, the highlight of the second step was the elaboration of the “Purchasing Specifications” by DMH, these specifications (reviews of field staff and advisory group) was accepted and grouped by DMA into a “Request for Proposals”, which was out in June of 1995.

Once the negotiation started, the DMA made it clear from the start that for an accepted agreement would be only upon taking the lead on the management of the contract, so as to unify both department voice in negotiating effectively with the managed care organization. The DMA was perceived then as the entity capable in handling the managed care and succeeding in a perfect and successful mental care health in particular and health care in general. It was able to purchase more health services, negotiate best rates with providers, and had access to a national database which allowed to distinguish some extra payers for the client’s expenses.

The ISA contributed in changing the relationship between the two agencies, now DMA sells services which DMH is agreeing to buy, the DMA in words of the agreement manages process of competitive bidding, rate negotiation, execution of contracts, contract management and monitoring, payment, and federal reporting and reconciliation.

On the other hand, the DMH’s scope of control was settled by the ISA, the latter transcribed several points standardizing the services of the department to mental health clients; DMH now is responsible on what should DMH procured taking into account the quality of clinical services and fiscal considerations. DMH was required to provide viable, community-based continuing services to its clients by maintaining a comprehensive network with inpatient mental health services for non-acute types of individuals and in-home and community-based ranging from day programs, housing services, residential treatment to children’s services, outpatient services, and care management.

The agreement’s benefits were recognized, (1) the savings would be generated from lower rates achieved through the procurement of services, and maximizing benefit eligibility determination and revenue collection in avoiding the duplication of services, (2) these savings will be used to invest in more community-based continuing care services, hence preventing unnecessary use of acute services, enhance the quality of clinical and utilization management, as Bullen noted: “…expansion of community-based services would provide the support needed to keep people out of hospitals”.

Regardless of the advocates of the ISA, obstacles, and objections facing ISA were exposed by “the Area Directors”. The first concern was about the replacement units and its priority clients, the Area Directors feared that a managed care organization would not understands the central role that those units played, especially for those without Medicaid. The second concern, which was more serious and focused on the DEPs, the arrangement initiative will let the “front door” of the department to the MCOs, which will result in overrunning the residential and inpatient care programs with patients.

Sudders and the ISA: sign or not

Elias was not lucky to witness the outcomes of what she had been putting in place in terms of efforts and negotiation with DMA commissioner Bullen, nevertheless, the attacks that she went throughout her commissioning and the skepticism of many of her staff, with the departure of Elias and the arrival of commissioner Sudders, the first decision which would face is the signing of the ISA, the fruit of 2 years of dedicated and hard work in unifying the departments, allocated by the ex-commissioner.

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Mental Health, Medicaid, and Managed Care: Building a Unified System in Massachusetts. (2022, September 27). Edubirdie. Retrieved June 6, 2023, from
“Mental Health, Medicaid, and Managed Care: Building a Unified System in Massachusetts.” Edubirdie, 27 Sept. 2022,
Mental Health, Medicaid, and Managed Care: Building a Unified System in Massachusetts. [online]. Available at: <> [Accessed 6 Jun. 2023].
Mental Health, Medicaid, and Managed Care: Building a Unified System in Massachusetts [Internet]. Edubirdie. 2022 Sept 27 [cited 2023 Jun 6]. Available from:
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