A publicly managed Medicaid substance abuse carve-out: effects on spending and utilization

In 1998, Michigan Medicaid "carved out" substance abuse treatment from its medical plans, transferring the management responsibility and substantial financial risk to 15 specialized local entities called coordinating agencies. All these agencies were either non-profit or publicly owned, unlike carve-out entities in many other states. By the second year of the risk-based carve-out (2000), Medicaid payments per eligible were 9.1% lower than in the last year before the carve-out (1998). Reductions were largely achieved by serving fewer clients, not by reducing payments per client. Agencies faced with revenue reductions or small increases were more likely to reduce treatment spending.