Medicaid behavioral health carve-outs: a new generation of privatization decisions

This article addresses issues related to the privatization of various functions within the mental health system. It acknowledges the contributions of Robert Dorwart, who explored trends with regard to the privatization of inpatient psychiatric services. The authors then highlight changes in the division of labor between the public and private sectors regarding the financing and delivery of mental health services and the management of the system. Responsibility for funding the mental health system has remained largely a public responsibility while responsibility for production or delivery of services in the mental health system is typically held by private, for-profit, and not-for-profit organizations. The roles of managing the mental health system and setting policy are now shared between the private and public sectors in a number of states that have implemented Medicaid behavioral health carve-out programs. This article explores the impact of such privatization on cost, access, and quality of services by examining the experiences of three states with carve-outs. The authors suggest that while organizational form is an important issue, concerns about privatization should be tempered by attention to the contracting decisions made by purchasers, the level of resources devoted to services, and the adequacy of administration of the system.