Cost-shifting in manged care

We conducted a study of the change from fee-for-service to managed care for mental health services in the Massachusetts Medicaid program, which occurred in fiscal year 1993. We estimated the effect of managed care on total public expenditures over both the short and the long term. Per person expenditures were lower by 24% in the first year of managed care but only lower by 5% in the second and third years. We also tested for cost-shifting by estimating expenditures for five specific services paid by three public agencies. Expenditures on services paid by the managed care vendor decreased, expenditures paid by Medicaid increased, and expenditures paid by the Department of Mental Health decreased. We discuss the implications for both cost-shifting and quality of care improvements. The results from two-part expenditure models indicate that some cost-shifting may be related to quality improvement. The effects are generally stronger for the beneficiaries in the highest quartile of expenditures.