Paying for Value in Behavioral Health

What California can learn from other states' Medicaid programs

Robert Belfort, Manatt, Phelps & Phillips
Adam Striar, Manatt, Phelps & Phillips


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In recent years, state Medicaid programs and the US health care system as a whole have shifted from traditional fee-for-service (FFS) payment methodologies toward value-based purchasing (VBP) models. While FFS rewards providers based on the volume of their services, VBP aims to spur high-quality medical care and to improve outcomes while reducing unnecessary spending. To date, most VBP efforts have focused on physical health. However, given the significant share of Medicaid dollars spent on enrollees with serious mental illness and substance use disorders, there is increasing interest among state Medicaid programs in exploring ways to expand VBP to behavioral health providers and services.

This report, Paying for Value in Behavioral Health: What California Can Learn from Other States’ Medicaid Programs, explores lessons learned by three states that have developed behavioral health VBP initiatives. The authors reviewed Medicaid initiatives in:

  • Vermont: The state’s hub and spoke model has increased access to addiction treatment in the state, while the more recent Mental Health Payment Reform, Residential Substance Use Disorder Treatment Case Rate, and Applied Behavior Analysis Case Rate methodologies are attempting to expand behavioral health VBP to new types of services.
  • New York: The Behavioral Health VBP Readiness Program has invested considerable resources to assist behavioral health providers with forming networks that can participate in total cost of care and other VBP arrangements.
  • Tennessee: Tennessee Health Link’s Episodes of Care program has demonstrated a promising new approach to VBP for discrete behavioral health conditions.

The report synthesizes key lessons learned from these states, including their challenges, successes, failures, and adjustments. It also discusses California-specific considerations for implementing VBP for behavioral health care and recommends next steps for the Medi-Cal program.