How managed care organizations develop selective contracting networks for psychiatric inpatient care: a Massachusetts...

Medicaid agencies recently have adopted selective contracting to control use and costs of publicly financed behavioral health care. This case study describes formation of an inpatient network for serving psychiatrically disabled Medicaid beneficiaries in Massachusetts. Network formation is seen as a two-stage process: hospitals first decide to bid for a contract, and form a pool from which the managed care organization chooses hospitals. We used logit models to predict how hospital experience with Medicaid patients, competition, prior reimbursement rates, and geographic distribution affected these two stages. Hospitals are more likely to bid if they have treated more psychiatric inpatients and more disabled Medicaid inpatients receiving Supplemental Security Income. Managed care organizations take into account hospitals' experience with Medicaid patients and geographic dispersion, but not prior reimbursement rates.