Examination of the Effects of Financial Risk on the Formal Treatment Costs for a Medicaid Population With Psychiatric Disabilities

Objectives: We examined the effects of differing financial risk arrangements for mental health, physical health, and pharmacy services on the overall costs of these services with particular atten- tion to cost containment and cost shifting. Methods: Comprehensive service utilization information was ob- tained from a sample of 458 adults with severe mental illnesses during a 12-month period. Rate information was used to calculate costs for health, mental health and pharmacy. A 2-part model was employed to test for differences among financial risk conditions. Results: Total treatment costs, both those financed by Medicaid and those paid by other sources, were lower in plans that had a broader array of services for which they were at risk. Pharmacy costs were principally responsible for these differences. Conclusions: Treatment costs for adults with severe mental ill- nesses can be contained by placing providers at financial risk. However, risk arrangements may also increase treatment costs borne by other payers including charity services and self-pay. Evaluating the impact of at-risk financing mechanisms from a public health perspective requires assessing cost shifting, particularly for pharma- ceutical