Capitation of Public Mental Health Services in Colorado: A Five-Year Follow-Up of System-Level Effects

Capitated Medicaid mental health programs have reduced costs over the short term by lowering the utilization of high-cost inpatient services. This study examined the five-year effects of capitated financing in community mental health centers (CMHCs) by comparing not-for-profit with for-profit programs.

Data were from the Medicaid billing system in Colorado for the precapitation year (1994) and a shadow billing system for the postcapitation years (1995–1999). In a panel design, a random-effect approach estimated the impact of two financing systems on service utilization and cost while adjusting for all the covariates.

Consistent with predictions, in both the for-profit and the not-for-profit CMHCs, relative to the precapitation year, there were significant reductions in each postcapitation year in high-cost treatments (inpatient treatment) for all but one comparison (not-for-profit CMHCs in 1999). Also consistent with predictions, the for-profit programs realized significant reductions in cost per user for both outpatient services and total services. In the not-for-profit programs, there were no significant changes in cost per user for total services; a significant reduction in cost per user for outpatient services was found only in the first two years, 1995 and 1996).

The evidence suggests that different strategies were used by the not-for-profit and for-profit programs to control expenditures and utilization and that the for-profit programs were more successful in reducing cost per user. (Psychiatric Services 62:179–185, 2011)