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Fund Reports


State Strategies for Integrating Physical and Behavioral Health Services in a Changing Medicaid Environment

mental health

Executive Summary

States across the country are promoting integrated care delivery as part of their efforts to deliver high-quality, cost-effective care to Medicaid beneficiaries with comorbid physical and behavioral health conditions. The Medicaid expansion authorized by the Affordable Care Act (ACA) brings greater import to these efforts, as millions of uninsured low-income adults, many at increased risk for behavioral health conditions, gain coverage and states are required to provide behavioral health services and meet federal parity laws. State efforts to ensure that Medicaid beneficiaries have access to integrated care, however, are hindered by a fragmented behavioral health system that is administered and regulated by multiple state agencies and levels of government, and by purchasing models that segregate behavioral health services from other Medicaid-covered services.

Drawing on a review of the literature and interviews with diverse stakeholders, this report explores strategies states are deploying to address or eliminate system-level barriers to integrated care for this medically complex and high-cost Medicaid population.

Administrative Strategies
Most states vest responsibility for Medicaid physical health, mental health, and substance use disorder (SUD) services in two or more separate agencies, each with different missions, leadership, expertise, and constituencies. This fragmented administration often leads to misaligned purchasing strategies and conflicting and redundant regulation of physical and behavioral health providers.

Consolidating the various agencies responsible for physical and mental health and SUD services can help, though it can be politically and structurally difficult to implement given longstanding differences in agencies’ mission and constituencies. Thus, it is more common for states to consolidate behavioral health purchasing, contracting, and rate-setting in their Medicaid agency and retain licensing and clinical policy in the behavioral health agencies. Where even that level of consolidation is not feasible states rely on informal collaborations to rationalize strategies across agencies. Informal collaborations are the most tenuous as they are dependent on personal relationships among agency leadership and staff.

Purchasing Strategies

Medicaid managed care is the preferred delivery model in most states. However, few states offer integrated benefits in managed care; most “carve out,” or create separate reimbursement streams for at least some behavioral health services. Early decisions to carve out behavioral health services grew out of political, financial, and policy pressures ranging from stakeholder opposition to cost control to concerns about the ability of Medicaid managed care plans to manage behavioral health services. These carve-out arrangements continue despite mounting evidence that they create barriers to care coordination and information-sharing. Cognizant of these issues, states committed to the carve-out model are adopting various policies to create linkages across providers and systems.

At the same time, a growing number of states are implementing fully integrated managed care approaches, in some cases targeted to individuals with serious mental illness.

Regulatory Strategies
State regulations governing licensure and certification, billing, and health information exchange also can impede the delivery of integrated care. With authority over Medicaid physical and behavioral services vested in separate agencies or offices, state regulation of these sectors is rarely cohesive and frequently redundant or contradictory. Today, states are seeking to streamline their licensing rules and creating credentialing programs for nontraditional providers, such as community health workers and peer counselors, who increasingly play a role in integrated care models. States also are revising their Medicaid same-day visit policies and establishing billing codes for emerging treatments.

Finally, slower rates of adoption of information technology among behavioral health providers and state and federal constraints on sharing behavioral health data also can impede integrated care delivery. State strategies to support greater information exchange include technical assistance funding for electronic health record implementation, policy guidance, streamlined privacy standards, and standardized, multiprovider consent forms.

Looking Ahead
While Medicaid has long been the dominant payer for behavioral health services and Medicaid beneficiaries with comorbid physical and behavioral health conditions are among the program’s most medically complex and costly, state administrative, purchasing, and regulatory structures have not kept pace with best practices in the field. There is a large body of evidence showing that patients fare best when their physical and behavioral health needs are addressed in tandem. There is no single pathway through which all states will be able to achieve integrated behavioral and physical health care; the best strategy or combination of strategies will depend on a state’s political and health care environment. However, regardless of the approach, states will succeed only if they put in place a cohesive framework that enables providers to deliver integrated care to Medicaid patients with comorbid physical and behavioral health needs.

Publication Details



Deborah Bachrach, Partner, Manatt, Phelps & Phillips, LLP

[email protected]


D. Bachrach, S. Anthony, and A. Detty, State Strategies for Integrating Physical and Behavioral Health Services in a Changing Medicaid Environment, The Commonwealth Fund, August 2014.