Summary: To control Medicaid costs and improve services, many states began, in the early 1990s, to place their mental health and physical health services under separate financing and administrative arrangements. In the four states GAO studied, these mental health "carveouts" limited beneficiaries to one prepaid mental health plan. To help ensure that such plans did not try to contain costs by inappropriately limiting beneficiaries' access to care, the Health Care Financing Administration (HCFA) required the states to allow beneficiaries to choose their providers, set contract standards for service levels, and reduce or eliminate requirements for prior authorization for outpatient care. The states took several other steps to discourage the underprovision of services. To monitor the quality of their carveouts, the states supplemented federal requirements with other strategies, such as site visits, ombudsmen, and monetarily rewarded quantitative mental health performance goals. HCFA's oversight consisted mainly of reviewing and approving carveout applications, targeting specific issues, and providing minimal written guidance and limited staff expertise in mental health managed care issues. HCFA is strengthening its oversight by collaborating with the Substances Abuse and Mental Health Services Administration and test-piloting an early monitoring program.
