Opportunities and risks in Philadelphia's capitation financing of public psychiatric services

The city of Philadelphia was one of nine sites selected by the Robert Wood Johnson (RWJ) Foundation and the U.S. Department of Housing and Urban Development (HUD) to receive five-year funding to improve the delivery, quality and cost efficiency of public mental health services to its chronically mentally ill population. As part of the RWJ project, the city plans to restructure its delivery and reimbursement system, creating a not-for-profit central authority which will function as a health insurance organization (HIO) responsible for coordinating and managing psychiatric care to Medicaid clients. Operating under a model of capitation, the central authority will employ diverse funding mechanisms to finance and manage service delivery. This paper examines the benefits and risks inherent in the reorganization of Philadelphia's mental health service system under a capitation financing model. Issues considered include cost and utilization patterns, treatment outcomes, providers and their staffing patterns, service mix and the overall impact of capitation on clients.