Setting rates for Medicaid managed behavioral health care: lessons learned

This paper reviews Tennessee's experience setting, monitoring, and updating capitation rates for Medicaid managed behavioral health care, and draws lessons from those experiences for other states. Our review of assumptions about four components of Tennessee's rate-setting process--data, benefit design, savings expectations, and processes for monitoring and updating rates--suggests that the initial rate established by Tennessee was inadequate, and its inadequacy resulted primarily from the way available information was used to set the rate, rather than from the method of rate setting selected. Tennessee's experiences illustrate how difficult rate setting is and illuminate several key lessons about the rate-setting process.