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Abstract:
Despite the popularity of pay-for-performance (P4P) among health policymakers and private insurers as a tool for improving quality of care, there is little empirical basis for its effectiveness. The authors use data from published performance reports of physician medical groups contracting with a large network HMO to compare clinical quality before and after the implementation of P4P, relative to a control group. They consider the effect of P4P on both rewarded and unrewarded dimensions of quality. In the end, they fail to find evidence that a large P4P initiative either resulted in major improvement in quality or notable disruption in care.

pay-for-performance, healthcare, quality, multitasking

Abstract:
The health sector is filled with institutions and decision-making circumstances that create friction in markets and cognitive errors by decision makers. This paper examines the potential contributions to health economics of the ideas of behavioral economics. The discussion presented here focuses on the economics of doctor-patient interactions and some aspects of quality of care. It also touches on issues related to insurance and the demand for health care. The paper argues that long standing research impasses may be aided by applying concepts from behavioral economics.

Abstract:
This paper is concerned with the economics of mental health. We argue that mental health economics is like health economics only more so: uncertainty and variation in treatments are greater; the assumption of patient self-interested behavior is more dubious; response to financial incentives such as insurance is exacerbated; the social consequences and external costs of illness are formidable. We elaborate on these statements and consider their implications throughout the chapter. Special characteristics' of mental illness and persons with mental illness are identified and related to observations on institutions paying for and providing mental health services. We show that adverse selection and moral hazard appear to hit mental health markets with special force. We discuss the emergence of new institutions within managed care that address long-standing problems in the sector. Finally, we trace the shifting role of government in this sector of the health economy.

Abstract:
During the 1980s the share of prescriptions sold by retail pharmacies that was accounted for by generic products roughly doubled. The price response to generic entry of brand-name products has been a source of controversy. In this paper we estimate models of price responses to generic entry in the market for brand-name and generic drugs. We study a sample of 32 drugs that lost patent protection during the early to mid-1980s. Our results provide strong evidence that brand-name prices increase after entry and are accompanied by large price decreases in the price of generic drugs.

Abstract:
Empirical studies suggest that entry of generic competitors results in minimal decreases or even increases in brand-name drug prices as well as sharp declines in brand-name advertising. This paper examines circumstances under which this empirical pattern could be observed.

The analysis focuses on models where the demand for brand-name pharmaceuticals is divided into two segments, only one of which is cross-price-sensitive. Brand-name firms are assumed to set price and advertising in a Stackelberg context; they allow for responses by generic producers but the latter take decisions by brand-name firms as given. Brand-name price and advertising responses to entry are shown to depend upon the properties of the reduced-form brand-name demand function. Conditions for positive price responses and negative advertising responses are derived.

We also examine the implications for brand-name price levels, and for the brand-name price response to entry, of health sector trends (such as increasing HMO enrollments) that may have the effect of expanding the size of the cross-price-sensitive segment of the market. The paper concludes with a review of recent empirical research and suggestions for future work on the effects of generic entry.

Abstract:
We review in considerable detail the conceptual and measurement issues that underlie construction of medical care price indexes in the U.S., particularly the medical care consumer price indexes (MCPIs) and medical-related producer price indexes (MPPIs). We outline salient features of the medical care marketplace, including the impacts of insurance, moral hazard, principal-agent relationships, technological progress and organizational changes. Since observed data are unlikely to correspond with efficient outcomes, we discuss implications of the failure of transactions data in this market to reveal reliable marginal valuations, and the consequent need to augment traditional transactions data with information based on cost-effectiveness and outcomes studies.

We describe procedures currently used by the BLS in constructing MCPIs and MPPIs, including recent revisions, and then consider alternative notions of medical care output pricing that involve the price or cost of an episode of treatment, rather than prices of fixed bundles of inputs. We outline features of a proposed new experimental price index -- a medical care expenditure price index -- that is more suitable for evaluation and analyses of medical care cost changes, than are the current MCPIs and MPPIs. We conclude by suggesting future research and measurement issues that are most likely to be fruitful.

Abstract:
We review in considerable detail the conceptual and measurement issues that underlie construction of medical care price indexes in the U.S., particularly the medical care consumer price indexes (MCPIs) and medical-related producer price indexes (MPPIs). We outline salient features of the medical care marketplace, including the impacts of insurance, moral hazard, principal-agent relationships, technological progress and organizational changes. Since observed data are unlikely to correspond with efficient outcomes, we discuss implications of the failure of transactions data in this market to reveal reliable marginal valuations, and the consequent need to augment traditional transactions data with information based on cost-effectiveness and outcomes studies.

We describe procedures currently used by the BLS in constructing MCPIs and MPPIs, including recent revisions, and then consider alternative notions of medical care output pricing that involve the price or cost of an episode of treatment, rather than prices of fixed bundles of inputs. We outline features of a proposed new experimental price index -- a medical care expenditure price index -- that is more suitable for evaluation and analyses of medical care cost changes, than are the current MCPIs and MPPIs. We conclude by suggesting future research and measurement issues that are most likely to be fruitful.

Abstract:
The United States and other nations rely on consumer choice and price competition among competing health plans to allocate resources in the health sector. A great deal of research has examined the efficiency consequences of adverse selection in health insurance markets, less attention has been devoted to other aspects of consumer choice. The nation of Switzerland offers a unique opportunity to study price competition in health insurance markets. Switzerland regulates health insurance markets with the aim of minimizing adverse selection and encouraging strong price competition. We examine consumer responses to price differences in local markets and the degree of price variation in local markets. Using both survey data and observations on local markets we obtain evidence suggesting that as the number of choices offered to individuals grow their willingness to switch plans given a set of price dispersion differences declines allowing large price differences for relatively homogeneous products to persist. We consider explanations for this phenomenon from economics and psychology.

Abstract:
We estimate the increment in Massachusetts Medicaid program costs attributable to smoking from December 20, 1991, to 1998. We describe how our methods improve upon earlier estimates of analogous costs at the national level. Current costs to the Massachusetts Medicaid program approximate the payments to Massachusetts under the tobacco settlement of November 1998. Whether these payments are viewed as appropriate compensation for Medicaid costs over time depends upon the rate of increase in future health care costs, the rate of decline in smoking, the proportion of smoking that should be attributed to the actions of the tobacco companies and the liklihood that state would have prevailed at trial. The costs to the Medicaid program are dwarfed by the internal costs to smokers themselves.

Abstract:
We examine the price of treating episodes of acute phase major depression over the 1991-1996 time period. We combine data from a large retrospective medical claims data base (MarketScanTM, from the MedStat Group) with clinical literature and expert clinical opinion elicited from a two-state Delphi procedure. This enables us to construct a variety of treatment price indexes that include variations over time in the proportion of 'off-frontier' production, as well as the corresponding variations in expected treatment outcomes. We also incorporate the fact that the no treatment option ('waiting list') frequently results in spontaneous remission of depressive symptoms. We find that in general the incremental cost of successfully treating an episode of acute phase major depression has generally fallen over the 1991-96 time period. Based on hedonic regression equations that account for the effects of changing patient mix, we find price reductions that range from about -1.66% to -2.13% per year. An implication of this is that, since expenditures on depression are thought to be increasing since at least 1991, the source of the spending increases is volume (quantity) increases, and not price increases.

Abstract:
We examine the price of treating episodes of acute phase major depression over the 1991-1996 time period. We combine data from a large retrospective medical claims data base (MarketScanTM, from the MedStat Group) with clinical literature and expert clinical opinion elicited from a two-state Delphi procedure. This enables us to construct a variety of treatment price indexes that include variations over time in the proportion of 'off-frontier' production, as well as the corresponding variations in expected treatment outcomes. We also incorporate the fact that the no treatment option ('waiting list') frequently results in spontaneous remission of depressive symptoms. We find that in general the incremental cost of successfully treating an episode of acute phase major depression has generally fallen over the 1991-96 time period. Based on hedonic regression equations that account for the effects of changing patient mix, we find price reductions that range from about -1.66% to -2.13% per year. An implication of this is that, since expenditures on depression are thought to be increasing since at least 1991, the source of the spending increases is volume (quantity) increases, and not price increases.

Abstract:
Health plans paid by capitation have an incentive to distort the quality of services they offer to attract profitable and to deter unprofitable enrollees. We characterize plans' rationing as imposing a show that the profit maximizing "shadow price" depends on the dispersion in health costs, how well individuals forecast their health costs, the correlation between use in different illness categories, and the risk adjustment system used for payment. We further show how these factors can be combined in an empirically implementable index that can be used to identify the services that will be most distorted in competition among managed care plans. A simple welfare measure is developed to quantify the distortion caused by selection incentives. We illustrate the application of our ideas with a Medicaid data set, and conduct policy analyses of risk adjustment and other options for dealing with adverse selection.

Abstract:
Data on 2225 men and 2401 women from the National Comorbidity Survey were used to examine the impact of psychiatric disorders on employment and conditional work hours and income. Two-stage instrumental variables methods were used to correct for the potential endogeneity of psychiatric disorders. The instruments used (the psychiatric disorder history of the respondent and respondent`s parents) passed tests of the overidentifying restrictions. Psychiatric disorders significantly reduced employment among both men and women. Evidence was also found of small reductions in the conditional work hours of men and a substantial drop in the conditional earnings of men and women, although these findings were somewhat more sensitive to the estimation methods and specification of the model.

Abstract:
Analyzing data on 2,225 men and 2,401 women from the National Comorbidity Survey, the authors examine the impact of psychiatric disorders on employment and, among those employed, work hours and income. They find that psychiatric disorders significantly reduced employment among both men and women. They also find evidence of small reductions in the conditional work hours of men and a substantial drop in the conditional income of men and women, although these findings are somewhat sensitive to the estimation methods and specification of the model.

Abstract:
We construct price indexes for treatment of a specific illness, acute phase major depression, using treatment episodes of care (rather than fixed input bundles) to define quantity. We identify different treatment service bundles that combine varying quantities of prescription drugs, medical management and psychotherapy. We make use of results from clinical research and official government guidelines for standards of care to identify therapeutically similar treatment bundles. We then employ various index number formulae that involve differing assumptions on the extent of ex ante substitutability among these treatment bundles. Rather than using list prices, we utilize actual transactions data based on a MEDSTAT retrospective medical claims data base covering more than 400,000 individuals over the 1991-95 time period. We distinguish between consumers' direct payments (a CPI index) and total payments received by providers (a PPI). Although not directly comparable to BLS indexes indicating 15-25% price growth 1991-95, our CPI and PPI price indexes decline 20-30%, implying an average annual price differential from BLS indexes of about -15%.

Abstract:
Despite the popularity of pay-for-performance (P4P) among health policymakers and private insurers as a tool for improving quality of care, there is little empirical basis for its effectiveness. We use data from published performance reports of physician medical groups contracting with a large network HMO to compare clinical quality before and after the implementation of P4P, relative to a control group. We consider the effect of P4P on both rewarded and unrewarded dimensions of quality. In the end, we fail to find evidence that a large P4P initiative either resulted in major improvement in quality or notable disruption in care.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Abstract:
Federal purchases of major childhood vaccines account for roughly half of the total market for these vaccines. This paper examines Federal purchasing practices in the context of the recent literature on bidding and procurement, and compares these practices to UNICEF vaccine procurement arrangements. Federal contracts were awarded to a single winner and the firms eligible to bid were limited in number (since the number of U.S. licensed firms is small). Since production capacity cannot be expanded quickly, and the Federal share of purchases is large, it is hypothesized that firms' bid prices will be higher for larger contracts. The paper analyzes contracts over the period 1977 through 1992 to determine the contract size-price relationship, as well as effects on contract prices of 1) the National Vaccine Injury Compensation Program enacted in 1987 and 2) changes in numbers of firms in the market. Results provide equivocal support for a positive size-price relationship and evidence of a positive price effect of the injury compensation program.

Abstract:
Health accounts document changes over time in the level and composition of health spending. There has been a continued evolution in the ability to track such outlays. Less rapid has been the ability to interpret changes in spending. In this paper we apply quality adjusted price indexes for several major mental disorders to national mental health account estimates to assess changes in real "output". We show that using the new price indexes reveals large gains in real output relative to application of BLS indexes.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Abstract:
Although broad trends in medical spending in the U.S. over the last decade have received widespread attention from policymakers, very little attention has focused on the components of those changes. For many other industries, economists typically divide nominal expenditures by an official government price index to decompose these expenditures into price and quantity components. In this paper we construct a new price index for the treatment of one illness depression. Making use of results from the published clinical literature and from official treatment guideline standards, we identify therapeutically similar treatment bundles. These bundles can then be linked and weighted to construct price indexes for specific forms of major depression. In doing so, we construct CPI and PPI-like medical price indexes that deal with prices of treatment episodes rather than prices of discrete inputs, that are based on transaction rather than list prices, that take quality changes and expected outcomes into account employ current, time-varying expenditure weights in the aggregation computations. We find that regardless of which index number procedure is employed time period the treatment price index for the acute phase of major depression has hardly changed remaining at 1.00 or falling slightly to around 0.97. This index grows considerably less rapidly than the various official PPIs -- thus the price index for the treatment of the acute phase of major depression has fallen over the 1991-95 time period. A hedonic approach to price index measurement yields broadly similar results. These results imply that given a budget for treatment of depression accomplished in 1995 than in 1991. Our results suggest that at least in the case of acute phase major depression, aggregate spending increases are due to a larger number of effective treatments being provided.

Abstract:
Health care expenditures have been increasing sharply in the last ten years, with spending on mental health disorders being particularly prominent. Over the same time period, a number of new antipsychotic medications have been added to the armamentarium for treatment of persons diagnosed with schizophrenia. Due in part to the sharply increased expenditures by Medicaid on mental health disorders such as schizophrenia, controversies have arisen as to the use of these more costly innovative medications, particularly their impact on the annualized cost of treating patients. Using Medicaid data on 12,864 person years from two counties in Florida over the 1994-95 to 1999-2000 time period, in this study we address three issues: (i) On a per person year basis, what is happening over time to the mental health-related costs of treating schizophrenia? (ii) How is the composition and quality of care changing over time? and (iii) Holding quality of care constant, on a per person year basis, by how much are the costs for the ongoing treatment of schizophrenia changing? We find that unadjusted for changes in quality of care over time, the annualized costs for the ongoing treatment of schizophrenia per person have increased about 0.5% per year. The composition of treatments for schizophrenia has changed substantially over this six-year time period, toward more intensive use of atypical antipsychotics, and away from psychotherapy. Holding treatment quality type and patient characteristics constant over time, mean treatment costs have fallen about 5.5% per year between 1994-1995 and 1999-2000.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Abstract:
This paper investigates the impact of depression on labor force participation among older workers. Empirically, we use two analytic strategies and rely on a sample drawn from the Health and Retirement Survey. Depression directly and indirectly increases individuals' probability of retiring early and applying for DI benefits, after accounting for other predictors of labor force exit. Accounting for the independent effects of depression, disability associated with physical illness may be smaller than the official statistics suggest. There may be great economic gains in increasing depression treatment awareness and access to treatment for individuals, employers and society.

Abstract:
Broad claims are frequently made that new medications will offset all or part of their costs by reducing other areas of Medicaid spending. In this paper we examine the net impact on spending for new drugs used to treat schizophrenia. We extend research in this area by taking a new approach to identification of spending impacts of new drugs. We specify and estimate models of spending on treatment of schizophrenia using 7 years of Florida Medicaid data. The estimates indicate that use of the new drugs result in net spending increases. This may be due to increased adherence to treatment.

Abstract:
In this study we examine a case study of a carve-out for mental health and substance abuse services between a local plan of a national HMO (N=120,213) and a local managed behavioral health care vendor (MBHC). This is one of the first studies which estimates the impact of an HMO carve-out on costs and patterns of MH/SA care. Three years of insurance claims data (1993-1995) were used for the analyses, with a new carve-out contract implemented in May 1994. The new carve-out arrangement included a new vendor, a change in the organizational structure of clinical services, and increased financial risk to the vendor for inpatient care. Descriptive and empirical analyses are reported on a continuously enrolled population (N=49,529). Results from the analyses showed the new carve-out arrangements had a significant impact on spending and utilization of services. Enrollees were 20% less likely to use MH/SA services after the implementation of the new carve-out, and inpatient MH/SA utilization dropped 50% under the new carve-out. Overall, MH/SA spending per enrollee dropped from approximately $4.90 per month to $2.20 per month. Outpatient MH/SA spending per user dropped 35% after the implementation of the new carve-out. Further research should be conducted to evaluate the impact on access and quality of care, given the substantial decrease in utilization and spending.

Abstract:
The Personal Responsibility and Work Opportunity Reconciliation Act imposed work requirements on welfare recipients. Using 1999-2001 data from Boston, Chicago, and San Antonio, we compared the labor market and welfare experience of women with four employment barriers: poor mental health, moderate to heavy drug and alcohol use, a child with a behavior problem, and a child under the age of 3. Women with poor mental health and drug and alcohol users were much less likely to move into work than other groups, and more likely to be sanctioned for noncompliance with welfare requirements in 2000-2001 as federal work participation requirements increased.

Abstract:
No abstract is available for this paper.

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No abstract is available for this paper.

Abstract:
Background: Parity in insurance coverage for mental health and substance abuse has been a key goal of mental health and substance abuse care advocates in the United States during most of the past 20 years. The push for parity began during the era of indemnity insurance and fee for service payment when benefit design was the main rationing device in health care. The central economic argument for enacting legislation aimed at regulating the insurance benefit was to address market failure stemming from adverse selection. The case against parity was based on inefficiency related to moral hazard. Empirical analyses provided evidence that ambulatory mental health services were considerably more responsive to the terms of insurance than were ambulatory medical services.

Aims: Our goal in this research is to reexamine the economics of parity in the light of recent changes in the delivery of health care in the United States. Specifically managed care has fundamentally altered the way in which health services are rationed. Benefit design is now only one mechanism among many that are used to allocate health care resources and control costs. We examine the implication of these changes for policies aimed at achieving parity in insurance coverage.

Method: We develop a theoretical approach to characterizing rationing under managed care. We then analyze the traditional efficiency concerns in insurance, adverse selection and moral hazard in the context of policy aimed at regulating health and mental health benefits under private insurance.

Results: We show that since managed care control costs and utilization in new ways parity in benefit no longer implies equal access to and quality of mental health and substance abuse care. Because costs are controlled by management under managed care and not primarily by out of pocket prices paid by consumers, demand response recedes as an efficiency argument against parity. At the same time parity in benefit design may accomplish less with respect to providing a remedy to problems related to adverse selection.

Abstract:
This paper estimates a quasi-structural birthweight production function using data on countries for the years 1975-1984. The analysis focuses on the effects of first trimester initiation of prenatal care, controlling for use of abortion services, cigarette smoking, birth order and income. Fixed effects model is used to control for unmeasured differences in health endowments across countries. The results indicate that early first trimester initiation of prenatal care leads to a reduction in low birthweight for both blacks and whites. Differences in use of prenatal care by race explain only a small part of the black-white differences in the fraction of low birthweight births.

Abstract:
No abstract is available for this paper.

Abstract:
In this paper we investigate the incentives present in intergovernmental transfers for public mental health care. This represents an important issue due to the large portion of mental health care that is provided by local governments, the central role of states in financing care via intergovernmental transfers, and recent innovations adopted by some states altering the traditional terms of these transfers. Using a relatively simple model we show that when a state government provides both financing and a free input into local government production there will be excessive use of that input. If the preferences of society and those of the local provider of service are identical, this problem can be remedied by simply charging the provider a price equal to marginal cost for use of the input. If, however, the provider and society differ in their preferences, setting the price of the input at marginal cost will not induce optimal behavior, nor will the imposition of capacity constraints. Setting the correct Pigovian subsidies and taxes may induce social optimality. However it is unlikely that optimality will be achieved if the budget for the public good is fixed. The optimal prices are proportional to the sum of the elasticities of the provider's supply of services with respect to the subsidy (tax). These results are directly analogous to those for optimal commodity taxation.

Examination of the transfer contracts for Wisconsin, Ohio, and for Texas reveals that these contracts may not be optimal. These departures from optimal decisions may be partially due to the practical issues related to implementation of optimal transfer arrangements, e.g., setting subsidy or tax levels or imposing budget restrictions.

Abstract:
To customize treatments to individual patients entails costs of coordination and cognition. Thus, providers sometimes choose treatments based on norms for broad classes of patients. We develop behavioral hypotheses explaining when and why doctors customize to the particular patient, and when instead they employ ready-to-wear treatments. Our empirical studies examining length of office visits and physician prescribing behavior find evidence of norm-following behavior. Some such behavior, from our studies and from the literature, proves sensible; but other behavior seems far from optimal.

Abstract:
No abstract is available for this paper.

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No abstract is available for this paper.

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No abstract is available for this paper.

Abstract:
We employ a unique data set from a community based survey to assess the effect of mental distress on earnings. The main advantage of the data is that detailed measurements of mental health status were made on all subjects in the study. This means that our population-based measure of mental distress does not rely on a patient having had contact with the health care system and obtaining a diagnosis from a provider. The use of diagnosis-based measures may introduce measurement-error bias into the estimates. Our results show that the presence of mental distress reduces earnings by approximately 21% to 33%. To assess the magnitude of any measurement-error bias we present a estimates of models using measures of mental health both on a population-wide basis and on a diagnosis basis. The estimated impact of mental illness on earning is only 9% lower using the using the diagnosis-based measure. The conclusion drawn from this is that little bias is introduced by using the diagnosis-based measure.

Abstract:
Using insurance claims data from nine large self-insured employers offering 26 alternative health benefit plans, we examine empirically how the composition and utilization for the treatment of depression vary under alternative organizational forms of insurance (indemnity, preferred provider organization networks or PPOs, and mental health carve-outs), and variations in patient cost-sharing (copayments for psychotherapy and for prescription drugs). Although total outpatient mental health/substance abuse (MHSA) expenditures per treated individual do not vary significantly across insurance forms, the depressed outpatient is more likely to receive anti-depressant drug (ADD) medications in PPOs and carve-outs than under indemnity insurance. Those individuals facing higher copayments for psychotherapy are more likely to receive ADD medications. For those receiving ADD treatment, increases in prescription drug copay tend to increase the share of ADD medication costs accounted for by the newest (and more costly) generation of drugs, the selective serotonin reuptake inhibitors.

Abstract:
The advent of novel psychotropic medications has revolutionized treatments for mental illnesses over the past few decades. Concurrently, changes in mental health coverage, particularly for Medicaid patients, created economic incentives for insurance carriers to shift costs and to encourage the use of psychotropic drugs. To quantify these effects, based on the framework in Griliches seminal study on hybrid corn, we estimate logistic diffusion models using a longitudinal data set on Medicaid drug utilization. We find that financial incentives played a significant role in encouraging use of new medications that have lower physician specialty skill requirements.

Abstract:
Recent models of human capital formation represent a synthesis of the human capital approach and a life cycle view of human development that is grounded in neuroscience (Heckman 2007). This model of human development, the stability of the home and parental mental health can have notable impacts on skill development in children that may affect the stock of human capital in adults (Knudsen, Heckman et al. 2006; Heckman 2007). We study effects of maternal depression and substance abuse on children born to mothers in the initial cohort of the 1979 National Longitudinal Survey of Youth (NLSY), a national household survey of high school students aged 14-22 in 1979. We follow 1587 children aged 1-5 in 1987, observing them throughout childhood and into high school. We employ a variety of methods to identify the effect of maternal depression and substance abuse on child behavioral, cognitive, and educational related outcomes. We find no evidence that maternal symptoms of depression affect contemporaneous cognitive scores in children. However, maternal depression symptoms have a moderately large effect on child behavioral problems. These findings suggest that the social benefits of effective behavioral health interventions may be understated. Based on evidence linking early life outcomes to later well-being, efforts to prevent and/or treat mental and addictive disorders in mothers and other women of childbearing age have the potential to improve outcomes of their children not only early in life, but throughout the life cycle.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Abstract:
We use 1996 Medical Expenditure Panel Survey to examine the demand response of ambulatory medical services to demand-side cost sharing under managed health care and find that demand response to a coinsurance rate is less than that under conventional plans. To address the selection problem, only respondents who were offered a single insurance plan from private establishments are studied. Our results show that managed care, relying on different approaches to ration, has blunted demand response. This suggests that in a managed care context, increasing demand-side cost sharing will reduce costs to plans mainly by shifting costs to enrollees.

Abstract:
As the managed behavioral health care market has matured, behavioral health carve-outs have solved many problems facing the delivery of behavioral health services; at the same time, they have exacerbated existing difficulties or created new problems. Carve-outs developed to address rising inpatient behavioral health costs and limited insurance coverage. They are based on the economic principles of economies of specialization, economies of scale, price negotiation, and selection. Literature shows that carve-outs have been successful in lowering costs and maintaining or improving access, but results on their impact on quality of care are mixed. In recent years, carve-outs have evolved to take on new roles within the health system, such as coordinating mental and physical health, addressing fragmented public financing systems, and using market power to implement quality improvement. Although not perfect, carve-outs have been instrumental in addressing long-standing challenges in utilization, access, and cost of behavioral health care.

managed care, substance abuse, mental health