California is in its second year of a five-year initiative to reform how its Medicaid program, Medi-Cal, is financed and organized. The initiative, known as CalAIM (California Advancing and Innovating Medi-Cal), seeks to orient the Medi-Cal program toward whole-person care, social influences on health, and reduction of health disparities. Achieving these goals will require that CalAIM addresses the state’s complex system for financing and delivering behavioral health care. Behavioral health care is critical to the success of CalAIM because of the complex social and medical needs of people with mental illnesses and substance use disorders and the complexity of the delivery systems that treat people with these conditions.

One component of CalAIM is a change in the way that specialty mental health services provided through California’s county-based systems of care are financed. Under CalAIM, financing for these county-based systems will transition from cost-based reimbursement to a fee-for-service (FFS) system. The FFS system is also intended as a potential stepping stone to further financial reforms, laying the foundation for potential introduction of new payment models. These value-based payment (VBP) models would give county behavioral health plans and behavioral health care providers added flexibility in providing care while conditioning payment on the quality of care provided to Medi-Cal enrollees with serious mental illness, serious emotional disturbance, and substance use disorders.

To inform discussion about the next steps California might take in this policy direction, RAND Health Care, with support from the California Health Care Foundation, analyzed VBP in behavioral health. The team conducted these activities:

• Reviewed the literature on VBP in Medicaid behavioral health
• Interviewed national policy experts as well as California county and state policymakers
• Compiled case studies of five examples of VBP implementation in other states

This paper summarizes RAND’s findings. It includes a series of recommendations California could use to inform its VBP decisions.

Conclusions

The authors suggest two sets of recommendations the state can follow to inform behavioral health payment reforms.

The first set represents actions that California can take now as it transitions to FFS payment for Medi-Cal specialty behavioral health services. These recommendations will benefit patients today and improve California’s capacity to make decisions about VBP in the future:

• Develop a comprehensive behavioral health quality strategy.
• Build analytic capacity and expertise in contracting at the state level.

The second set of recommendations will help California design and implement VBP in the future if it chooses to follow that path:

• Incentivize services for patients with complex needs.
• Allow for flexibility in tailoring VBP models to local circumstances.
• Address equity and population health issues in VBP designs.
• Use VBP models to promote delivery system integration.

Together, these recommendations will benefit patients in the short run while laying a foundation for successfully implementing VBP models in the future.