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Dr. Chung, of American Biodyne’s successor firm, Medco Behav

July 13, 1995

Dr. Chung, of American Biodyne’s successor firm, Medco Behavioral, defends the company’s treatment decisions and cautions against making too much of therapists’ complaints about the denial of coverage. Regarding one patient who a therapist said was suicidal and claims that Medco didn’t authorize enough care, Dr. Chung points out that ``suicidal ideation is quite frequent, if not common, in our business. . . . That alone has to be put in context. We have all thought of killing our kids, but few of us would.″

Medco Contests Audit

Lisa Suennen, a Medco Behavioral senior vice president, also says patients in the Medco Behavioral system have a lower suicide rate than the general population, reflecting the firm’s ``exemplary record″ with potentially suicidal individuals.

Responding to Mr. Dusenberry’s case, which was outlined in the audit, Ms. Suennen says that while his death was regrettable, the behavior of substance abusers is often ``very difficult to control regardless of how well clinically you’ve done, managed care or no managed care.″

She calls the audit’s financial findings ``absolutely, blatantly false″ and its overall conclusions unfair and inaccurate. ``This is a very new industry and frankly you see a lot of complaints about mental health (treatment) generally,″ Ms. Suennen says. Until the audit, she adds, Ohio was ``very pleased with our ability to balance quality and cost.″

Nonetheless, Garry Hall, a benefits analyst for the Ohio Department of Administrative Services who dealt with Mr. Wrich, says, ``We believed the audit.″ Because the state thought it was accurate, he adds, it implemented 75 percent to 80 percent of Mr. Wrich’s 40 recommendations when it renegotiated its contract with American Biodyne in 1993. The firm returned $320,000 to the state and agreed to reduce Ohio’s annual bill by $1 million. It also agreed, among other things, to improve its diagnosis of substance abusers and to remove the most stringent barriers to hospital care. But any hospital treatment that lasts more than a few days remains very difficult to get, as is long-term outpatient care.

Switching Vendors

``We all learned as we went through the process, and (the firm) worked with us to make changes,″ says benefits administrator Nan Neff of Ohio’s human-resources department. But when the most recent contract expires this month, Ohio plans to switch vendors, to Emeryville, Calif.’s U.S. Behavioral Health, which gave it a better price. Instead of the $140 per employee it was paying Medco each year, it will pay U.S. Behavioral $79 _ a decision dictated by price, not quality.

Ohio’s experience reflects the fast-moving changes occurring in the managed-care market as the industry grows. Today, the benefits of about 100 million people are in the hands of industry giants such as Medco Behavioral (which KKR intends to call MBC); Human Affairs International Inc., a Salt Lake City unit of Aetna Life & Casualty Co.; and Value Behavioral Health Inc., a subsidiary of Value Health Inc., Avon, Conn., as well as smaller companies. The top 14 companies control about two-thirds of the industry.

The good news for employers is that the intense competition is bringing prices down. Chip Tooke, president of Value Behavioral, which oversees 21 million beneficiaries, acknowledges that margins had been very high but says that 15 percent is more typical today. ``It’s a tough, tough business and it’s getting tougher,″ he adds.

Last year Medco Behavioral, which oversees 14 million beneficiaries, won two huge corporate contracts away from Value Behavioral _ International Business Machines Corp. and Federal Express Corp. _ with benefits covering 800,000 people, including employees’ dependents. In addition, Medco Behavioral won the state of Iowa’s Medicaid contract after a bitter court fight with Value, which had been awarded the contract initially.

Incentive to Undertreat

Yet while such intense competition may lead to better-quality goods or services in other industries, some mental-health professionals contend that the reverse may be true in their field. Though he supports managed care in general, Dr. Freeman of the Institute of Behavioral Health Care says he worries that as firms fight for customers and profits, ``there is a perverse incentive to undertreat and to deny care.″

Therapists can appeal case-managers’ treatment plans and request more sessions or more hospital time. But companies count appeals, and uncooperative therapists can be booted out of managed-care networks and thus deprived of what may be their most significant source of referrals, therapists say.

While Medco Behavioral has 20,000 providers nationwide, it gives 70 percent of its business to only 5,000, generally those who work well with the managed-care firm, Dr. Chung says. The company also is buying up practices and forming joint ventures with clinicians. These providers have little incentive to contest decisions made by Medco Behavioral.

Psychologists Complain

But if the San Francisco-area survey of psychologists provides any indication, therapists are troubled by the effects of working under a managed-care regime. In the poll of 173 practitioners, 54 percent thought that case managers were inadequately trained; 90 percent complained of additional paperwork and administrative demands; 27 percent said a case manager had insisted that a patient be treated with drugs over the opposition of the therapist and the patient; and 44 percent said they were considering leaving the field altogether as a result of managed care.

The long-term question is whether proper mental-health care can be provided by a system that favors therapists who, in the words of an official at Laguna Hills, Calif., PacifiCare Behavioral Health Inc., ``believe in cost-effective, time-limited treatment.″

One employer that has tried keeping control over costs without using managed care is Hewlett-Packard Co. ``We have a very strong feeling that if you don’t provide adequate coverage for mental-health problems, they show up somewhere else as not-easily-diagnosed intestinal problems or as stress problems,″ says Susan Moriconi, health-benefits manager.

The computer concern’s answer is to offer a lifetime maximum benefit of $300,000 for mental-health treatment for each individual covered by its health plan. To contain costs, it sets some limits on outpatient care, covering 31 therapy sessions a year. But employees needing inpatient treatment can spend the lifetime benefit over whatever period they choose.

``There’s often a synergy between mental health and physical health, and we want to treat the whole person,″ Ms. Moriconi says. ``You don’t save any money if you don’t handle it right, but you subject employees and their families to a great deal of pain.″

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