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 attention to cost containment and cost shifting.

Methods: Comprehensive service utilization information was obtained 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 illnesses 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 pharmaceuticals.