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Cost Reimbursement and Fee-For-Service – R.I.P.

Dan Thorne • Jun 15, 2022

New visions, strategic plans, and thinking about how to make the organization “managed care friendly” are prerequisites in this new world.

Cost reimbursement services will soon be extinct.

With the California Advancing and Innovating Medi-Cal (CalAIM) initiative continuing since its inception in 2019, a drastically new landscape commences on how behavioral health services will be provided. Two main changes occur in the reimbursement phase as it relates to behavioral health organizations. Cost reimbursement and fee-for-service will soon become a thing of the past. These dynamics are occurring as a result of CalAIM’s Behavioral Health Payment Reform.


For cost reimbursement, currently, each county uses a system where organizations billing Medi-Cal are reimbursed based on their costs. For example, if an organization has a contract for $4 million, its billing rates are dependent on how many costs it has and how many units of service it provides. As long as it provides $4 million of services and also has $4 million of allowable expenses, its rates remain. So agencies ensure they have enough costs in terms of salaries, overhead, and other expenses to justify their operations. Reimbursement then is not based on care, but on cost. This system does not reward positive outcomes, only what agencies spent. In the future, counties will change this structure. 


As for fee-for-service, the CalAIM initiatives are to replace the fee-for-service system with value-based reimbursement. As indicated on the CalAIM webpage, Medi-Cal managed care health plans (MCPs) … will provide incentive payments to providers for meeting specific measures aimed at improving care for certain high-cost or high-need populations.” This means that an organization will be paid based not on how many visits they have with the client, but on what outcome measures are achieved. The emphasis shifts away from volume to how well the client improves, in terms of symptom reduction, client satisfaction, reduced hospitalizations, or other factors. 


To prepare for these changes, organizations need to look at the following:


How an organization compensates its staff. With two jobs currently available for each job seeker, organizations will need to look at how they can streamline their workflows and also retain employees. The good news is that CalAIM is also updating the reasons for recoupment and the documentation requirements. So with paperwork reduction, staff can spend more time with clients. 


Treatment protocols and best practices. While many organizations use evidence-based practices, other approaches will need to be developed by diagnosis and age group. Higher intensity services for youths prone to hospitalization, incarceration, or losing placements will need to occur quicker and include the right mix of clinicians, behavioral specialists, and paraprofessionals. New digital technology, such as care coordination and client portals will ensure clients do not fall through the cracks. 


Developing a new philosophy of care. Some organizations have gone along with the “business as usual” mantra for years and are unwilling to change with the times. New visions, strategic plans, and thinking about how to make the organization  “managed care friendly” are prerequisites in this new world.


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