This report synthesizes the collective experiences of four managed behavioral health care organizations (MBHOs) that hold public sector managed care carve-out contracts. Four representatives of these MBHOs participated in a daylong focus group meeting, and two others were interviewed by telephone. The views presented are solely those of the focus group participants.

The focus group participants represented the majority of the total managed behavioral health care market. In the public sector, over 70 percent of the 21 States with Medicaid carve-outs for behavioral health services contract with these MBHOs. The discussion and interviews examined practices used in public sector managed care contracting.

Today, fewer MBHOs are bidding on State and local public sector contracts. Preparing a responsive proposal has become extremely expensive because of an increasing number of program design specifications. Study participants predicted that States will see even less competition for those programs that require a large investment from MBHOs for marketing, start-up, and ongoing administration yet offer little potential for financial reward. The following are some of the specific problems that they cited:

• Public payers often fail to resolve design issues before the procurement process and do not provide necessary information and data to bidders. This can create confusion for both bidders and administrators.
• Excessive financial requirements may preclude generally desirable bidders from competition for managed care contracts. Limits on profits that do not recognize the potential risk involved also may significantly reduce the attractiveness of requests for proposals (RFPs) for some organizations.
• Benefits may be vague and/or reflect a 'wish list' of the agency's stakeholders.
• Contracts may identify specific providers as essential and exempt them from utilization management requirements imposed on other network providers. The role of State facilities and their relationship to the MBHO may be ambiguous.
• Performance measures may not be consistent with program goals or may be beyond the ability of the MBHO to measure.
• County-based programs may be too small to properly support a fully capitated program and may require excessive protections for county providers.

Focus group participants expressed the belief that the future of contracting in public sector managed behavioral health care will depend on public payers' willingness to design and administer programs that permit the contractors to succeed. Participants offered specific recommendations concerning managed care contracting, financial requirements and reimbursement, procurement processes, and implementation and ongoing administration of managed care programs. These include the following:

• RFPs should specify the requirements of the payer and ask offerors to describe how they will operationalize these requirements. Payers should avoid requirements that are overly prescriptive and that redefine an MBHO's management techniques and operational processes.
• The core benefit package should be specific and clear in the contract. Expectations for service coordination across health care and social support programs should be reasonable and should support additional service requirements appropriately.
• Clear and specific procurement specifications should be developed before the bidding process.
• Financial design should be compatible with the program design and should permit profit making. At-risk programs must include a sufficient scope of services and population size to be financially viable and actuarially sound. Reimbursement should accommodate start-up and ongoing administrative costs.
• Consumers should play an active role in advisory committees focusing on service delivery issues and member services. Contracts should not require consumer representation on an MBHO's governing board.
• Performance measures should be tied to program objectives and should reflect those factors the MBHO can reasonably be expected to track.