The past quarter century has been marked by vast changes in the publicly-funded specialty services system - the intricate network of state facilities, local governmental programs and private service providers which collectively deliver necessary treatments, services and supports to persons with mental illness, developmental disabilities and addictive disorders. In the first wave of change, responsibility and funding for specialty services was devolved from the state to the counties and local systems of specialty care were developed. Today, the forces of competition, integration and consumer choice have unleashed a second wave of change in the public system.

Michigan's publicly-funded system for providing care, treatment, services and supports to adults with serious mental illness, children with serious emotional disorders, persons with developmental disabilities and individuals with substance abuse disorders has been transformed over the past twenty-five years. The passage of P.A. 258 (the Mental Health Code) in 1974 promoted the transfer of authority and funding for specialty mental health and developmental disability services from the state to county-sponsored community mental health services programs (CMHSPs). The revision of the Public Health Code in 1978 sanctioned the creation of county designated substance abuse coordinating agencies (CAs) to organize and manage publicly-funded substance abuse services.

Reflecting the devolution of authority and funding, the public mental health system (which serves individuals with mental illness and persons with developmental disabilities) has rapidly shifted from state-operated institutional programs to county organized community-based care arrangements. During this same period, the publicly-funded substance abuse system has developed from the ground up, establishing local administrative capabilities and community service delivery capacity.

Compared to historic patterns of neglect and/or institutional confinement, the last quarter-century has been a period of explosive growth and steady improvement in publicly-funded services for adults with serious mental illness, children with serious emotional disorders, persons with developmental disabilities and individuals with addictive disorders. County-sponsored entities (CMHSPs and CAs) have assumed full responsibility for organizing and managing local systems of specialty care, and as the capacity of county systems has increased, utilization of state institutions has fallen dramatically, leading to the closure of many antiquated facilities.

The expansion of county-organized specialty care systems has reflected a core civic value -codified in law - that persons with mental illness, addictive disorders and developmental disabilities should be fully included as participating members of local communities. Inclusion implies accommodation and ongoing assistance for individuals with disabilities and addictions, and has required local publicly-funded systems to develop service options which support consumers in the community.

Funding to support community-based services initially was confined to state and county general fund appropriations. These funds were used to build the organizational and service delivery infrastructure for community care and to provide services and supports to priority populations. Gradually, funds connected with federal grants and reimbursement related to federal/state match programs (Medicaid) were introduced into the public system and were used along with state/local funds to support the evolving system of community care. These different funding sources caused confusion and service delivery problems for CMHSPs, CAs and consumers, since each funding source had different regulations and did not pay for the full range of appropriate alternative services desired by consumers.

In the 1990s, the state has pursued a number of groundbreaking strategies to simplify service administration, integrate funding streams, and increase service and support options. Unnecessary state institutional capacity was eliminated and savings were directed back into the community system. Revisions were made to the Mental Health Code to increase the flexibility of funding arrangements (carry-forward) and to promote consumer-directed service models. Governor Engler unified state administration of health and health-related services by creating the Department of Community Health. Finally, in October 1998, the department introduced managed care into the publicly-funded specialty service system.

With the implementation of the managed care program, multiple sources of public funding (Medicaid, state general fund appropriations, federal block grant dollars, etc.) which support vulnerable populations and specialty care services were consolidated under the authority of local, county-sponsored entities (community mental health services programs and substance abuse coordinating agencies).

To utilize Medicaid funds in the managed specialty services program, the state had to seek approval from the federal government. As a condition of approval, the federal government stipulated that the department must submit a plan to begin competitive procurement for management of the Medicaid specialty services and supports covered under the plan. The introduction of competitive selection into the publicly-funded specialty care system would allow non-governmental organizations (both non-profit and for-profit entities) to compete with CMHSPs and CAs for the right to manage certain public funds for specialty services.

Even before the federal government had stipulated competitive selection for management of Medicaid-funded specialty services, the department had considered the benefits that competition could bring to the public system. However, despite the attraction of competition, a workable model - one that addressed legal constraints, funding restrictions, legacy assets, workforce commitments and residual obligations to public capital investment - had not been developed. Federal requirements have accelerated the search for a practical model of competition.

The department believes that rather than merely meeting federal stipulations, a plan for competition must go beyond these stipulations and incorporate system change objectives that benefit communities and consumers. These additional system change objectives include closer integration with organized community health systems and increased choice for consumers.

Funding streams (e.g., Medicaid funds, state general fund allocations, federal block grants, restricted purpose revenues, local match, etc.) that support specialty services and underwrite local systems of care are deeply interrelated and entwined. State law compels a preferential role for county-sponsored entities in the management of specialty services, but this favoritism clashes with federal regulations regarding Medicaid, which require competitive bidding. How can this tension between state preferences and federal stipulations be resolved?

Various models for competition or for reconfiguration of the existing specialty services system have been proposed (e.g., bidding Medicaid funds and services; county right of first opportunity; generic long-term care plan; splitting DD services from MH/SA services; etc.), but the department does not regard these alternative models as viable options.

Instead of preserving state preferential treatment for county-sponsored entities, the department proposes to extend competitive procurement to include all service populations (state priorities, eligible beneficiaries, federally mandated groups), all management responsibilities, all service options and settings, and all available funding for specialty services (state appropriations - with concomitant local match obligations - federal block grant dollars and Medicaid capitation).

Under this proposition, the department would bid out management of both the Medicaid funds for specialty services and other funds currently assigned by state statute or practice exclusively to county-sponsored entities. In a competitively "neutral" process (level playing field), the department would award management contracts for each designated service area to a single public, private, or public-private partnership organization in that locality or region which submitted a proposal most responsive to the purchasing specifications outlined in the bid packet. Organizations selected through the competitive process will manage all specialty services (mental health, developmental disabilities and substance abuse) in the designated service area.

The department's plan maintains the service carve-out structure for specialty care and preserves the principle that system management should be decentralized and devolved to a single managing entity in each defined geographic service area. However, while sustaining the concepts of a specialty system (carve-out structure) and decentralized system management, the department's plan allows new entrants (private sector entities) to compete to become both the manager of Medicaid-funded specialty services and the designated entity for managing non-Medicaid public funds for priority populations. The plan calls for a reduction in the number of managing entities (compared to the current structure) by introducing size, scope and efficiency requirements for managing entities.

The department's plan also requires managing entities to adopt an innovative model of managed care, one which permits consumers to use vouchers, individual budgets and other forms of consumer-directed purchasing to obtain routine community and personal supports, while retaining more systematic and traditional managed care techniques if service and support needs intensify and require higher cost interventions.

Finally, the department's plan encourages new organizational and service delivery configurations that link the specialty services system with the provision of physical health care. The state is keenly interested in proposals which achieve administrative, operational and clinical integration between the managed specialty plan and an organized community health care delivery system, an established health care network or a Qualified Health Plan.