John T. Stallworth, J.D., Ph.D.
David S. Litton, Ph.D.
Carol Pierce-Davis, Ph.D.
Rebecca Redwood, LMSW-ACP
Theodore Carlos, M.A., LPC
Whitney Humphrey, M.A., LMFT-A
Dona Stallworth, Ph.D.

An Explanation of Managed Care

The following explanation of the managed care system was written by Dana Ackley, Ph.D. a Virginia psychologist. It offers some clear insights into the issues managed care presents to both consumers and therapists.

"How managed care affects mental health treatment" It is an issue that many children, adolescents, and their parents are facing. Those who refer clients/patients to mental health professionals need this information to understand how services are being changed.


Health care reform is happening, whether Congress acts or not. Changes in health insurance design are multiplying. They affect what problems are covered, which providers are covered, and which clients qualify for reimbursement.

The changes increasingly pressure health care providers to change how they handle both the business aspects of practice and the services themselves. In mental health, the impact of managed care (MC) on the very nature of services is dramatic.

Changes may go unnoticed until people seek services. Many then discover that their coverage is only on paper. For example, one large employer in Virginia has a generous plan that offers 50 outpatient visits per year. However, the MC company hired to manage that benefit makes sure that few people ever actually have those visits. The reason is money.


The purpose of MC is, of course, to save money. All forms of MC cut costs by limiting services. When unnecessary or wasteful services are restricted, the system has great appeal. But who decides what is wasteful?
Today, MC firms are given this task. To stay in business, economics dominate the criteria used to decide which services are wasteful. Otherwise, their competition puts them out of business.

It works like this: A MC firm offers to provide employees of the ABC Company mental health services for $X. It uses that money to pay providers and cover its other expenses. They assure the employer that they will provide žquality care.

Few employers are experts in mental health. They leave the definition of quality to the MC company. The heavy burden of today's health care costs encourages employers to believe the MC company's assurances. Unfortunately, professionals have done a poor job of defining quality to employers. Thus, employers are not to blame for believing that what MC companies offer is quality care, even though it often is not

Since it has many competitors, the MC company is motivated to bid as low as possible. The lower the winning bid, the more services must be restricted. If the MC company can administer and deliver the services for less than $X, it makes a profit. If it spends more than $X, it loses money.


To save money, MC must deliver services for less than the employer was already spending while adding another layer of bureaucracy. To meet this goal MC typically restricts services in three ways: (1) MC creates obstacles to initial access, (2) MC limits choice of provider, and (3) MC limits treatment through žutilization review.

INITIAL OBSTACLES: Many people covered by a MC plan must first call an 800 number for "pre-authorization." This means that the caller must justify his/her need to the MC company. The MC representative, who may or may not be a mental health professional, will then decide if services will be allowed.

Those who have struggled to convince someone to seek services know how fragile that decision can be. An estimated 20% drop out rather than make this call. This reduces costs for the MC company. If the initial call is allowed to ring 8 times or more before being answered, another significant percentage give up.


When the MC company does authorize initial visits, the caller is referred to someone on its provider panel. Practitioners selected for the panel usually have had to agree to use primarily short-term treatment and have agreed to accept discounted fees. Reimbursement for clients who opt to see a therapist not on the panel is either sharply reduced or eliminated.

This means that clients are not free to select a therapist recommended by their doctor, minister, child's guidance counselor or other traditional source of useful information. Trust is one key to successful therapy. Referrals to a therapist from a trusted professional go a long way toward building trust between client and therapist. Referrals from MC companies are based on the economics of discounted fees and short term treatment, not trust.

UTILIZATION REVIEW: Utilization review is a process MC companies use to control how much care is given. They review each client's treatment to be sure it meets company guidelines.

If utilization review meant that professionals worked together to make the best possible treatment plan, this would be an excellent process. However, this is not what happens: (1) case reviewers usually have less training than the therapist; (2) reviewers have no direct contact with the client; and (3) MC companies have economic agendas that reviewers must serve.

For example, one large MC company demands that therapists average no more than six sessions per client. Reviewers must support those guidelines or lose their jobs.

When visits are authorized, most commonly only a few sessions are granted at any one time. When those are gone, a delay in treatment may be required while the bureaucratic process is repeated. Often no further visits are authorized, for reasons that mystify therapists.

Two side effects of this process impair the trust critical to the success of therapy. First, the stability of the therapeutic relationship is constantly in question. Second, the long tradition of therapy as a sanctuary of privacy is sacrificed.

Medical Necessity: Increasingly, the phrase "medical necessity" is used as the benchmark for deciding when sessions are authorized. While this sounds reasonable, medical necessity is a MC term, not a medical one. MC defines medical necessity as helping someone get to a basic level of functioning. Anything more is considered beyond medical necessity and not the responsibility of the insurance carrier.


Such therapy focuses on symptoms while ignoring the underlying human issues that create them. It is like taking only enough antibiotic to diminish the symptoms of an infection. The infection comes back. Thus, insurance coverage is now covering mostly short-term therapy limited to problems that endanger life and basic welfare. It is a crisis oriented system.

People who rely on a crisis oriented system are in danger of having the same problems repeatedly, despite seeking professional help. This is because the real issues do not get needed attention. If this form of care becomes all that is offered, then people will believe they have failed therapy. They will not realize therapy has failed them.

The net result is this: whereas the provision of outpatient mental health services has been, until recently, a quality driven process, it is now rapidly becoming a cost driven process.


MC troubles many therapists. Yet there is intense pressure to cooperate or being forced out of business. Cooperation means that providers must agree to offer primarily brief therapy. They must avoid asking for additional sessions "too often." Otherwise, their provider contract can be summarily canceled. The MC industry contends there are three times more therapists than are needed. So, does a therapist accede to the demands of the MC system or risk financial disaster?

Contrary to what the MC industry tells employers, outpatient therapists, as a group, have always been cost-effective. I know because part of my response to the current changes was to seriously question my own style of practice. I wanted to know whether my practice pattern was wrong or if the changes demanded by MC were inappropriate. Therefore, I studied the research on mental health costs, outcomes, and cost effectiveness.

The MC industry has alleged that mental health costs are out of control. Research consistently shows that, in the outpatient area, this is not so. Outpatient costs have represented 3 - 4% of the nation's health care bill annually since 1977.

The MC industry alleges that outpatient therapists keep people in treatment too long. The truth is that 90% of episodes of care are concluded by visit 25. A study of my own practice showed that 50% of my clients finish by the 13th visit.

Some people do need a year or two (or more) of therapy. In return, many of these people turn their lives around. Sometimes, in our "hurried child/hurried adult society," it is hard for people to be patient. With that mind set, long term therapy is valued less than it deserves.


Each therapist must make a decision about how to react to MC. Many therapists have signed up with one or more MC panels. They have worked out a relationship with MC that they feel they can live with.

I will go to reasonable lengths, in terms of paper work etc., to help clients to access their insurance benefits but will not allow benefits to control treatment.

I will continue to deliver treatment that goes beyond crisis and symptoms. This means seeing people enough to get beyond the surface. It means realizing that symptoms are attempts to deal with a problem, not the problem itself. Adequately assessing the reason for symptoms and then dealing with them takes time. Part of good therapy is about taking enough time. I will continue to offer my clients that choice.


People are often misled by MC companies who say: "You cannot see Dr. So and So because she/he is not on our list." Or MC companies imply that treatment must end because reimbursement ends. Neither is true. People in America can still see who they choose to see for as long as they wish to see them.

Sadly, it will be increasingly true that more people, to get good care, will have to pay out of pocket. This may not be as bad as it seems. First, because of limits that exist even in traditional insurance plans, many clients have had only 40% or less of their charges reimbursed by insurance anyway.

Second, an unintended side effect of having had insurance reimbursement for mental health care is that many have come to believe they cannot afford treatment if insurance does not cover it. Even many mental health professionals, who should know better, have come to believe that myth.

In truth what most people can afford is matter of priorities. Few people are wealthy enough to have everything they want. The rest of us make choices about what is important and what has long term value.

Money invested in timely, well-conducted therapy earns money in the long run. In the past 15 years, research has clearly shown that people who obtain appropriate outpatient therapy lower their general health costs more than the cost of therapy. People who have had successful therapy increase their earnings more than those who need but do not get it. The economic value of outpatient therapy far outstrips its cost.

When people have a clear picture of cost effectiveness, know that 90% of episodes of care last less than 25 visits, and can foresee the changes possible in quality of life, the priority of outpatient mental health care increases.

Certainly some people cannot afford therapy at all. For them the issue is economic survival. While most therapists offer pro bono services in one form or another, the reality is that the private sector cannot serve all of those individuals. Our society must make a concerted effort to adequately fund programs such as the Blue Ridge Community Services, Family Services and The Family Place.

However, many who now believe they cannot afford therapy will find it possible as they come to better understand the issues.


Today, many people who seek services have decided to forego their mental health insurance benefits entirely. They are finding advantages to this that include but go beyond quality of care.

First, privacy is maintained. MC, as you can see from its procedures, results in a sharp reduction in privacy. In an electronic age, increasing access to personal information exists as it floats around bureaucratic organizations. Disturbing reports of inappropriate access have been increasing.

Second, access to care is on the clients' terms. They may see whomever they wish, whenever they wish, and for as long as they feel it is necessary. Treatment decisions are made jointly by clients and their therapists, not some third party in Minnesota. No paperwork comes through the personnel office of the clients' employers.

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