Concerns over the financial health of debt-laden Magellan Health Services has prompted Blue Cross and Blue Shield of Rhode Island to dump the company that manages mental-health services for its Blue CHiP HMO.
Maryland-based Magellan manages psychiatric care provided in all Blue CHiP plans, which includes 123,000 Rhode Islanders, according to Blue Cross spokesman Scott Fraser. Magellan handles patient claims, utilization review and pays reimbursement to roughly 1,500 mental-health practitioners on behalf of Blue CHiP, which is owned by Blue Cross.
“We had a good working relationship with Magellan, but we’re concerned about their financial situation, and we couldn’t agree on price,” Fraser said. He said last week that Blue Cross would not renew Magellan’s contract, which expires at the end of the year.
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“We’re in negotiations with another company to see if we can reach an agreement to handle (Blue CHiP’s) mental-health services,” Fraser said, although he declined to name the company because they had not agreed on a contract.
Magellan is the country’s largest mental-health managed-care company, covering 70 million people nationwide, often in a third-party role through contracts with health insurers such as Blue Cross.
Although it has remained profitable, Magellan has seen its debt mount to about $1 billion after an aggressive acquisition spree. Its stock price, which hovered around $10 a share earlier this year, sank to as low as 10 cents in recent months, and it recently was delisted from the New York Stock Exchange.
Some analysts have said that Megallan is headed for bankruptcy, althoughthe company denies those predictions. Magellan has said it is working to reduce its debt and can make good on its payments, paying 98 percent of its claims in August.
“We have a debt problem, not a cash-flow problem, and cash flow is what we’re using to pay our practitioners,” said Erin Somers, a Magellan spokeswoman.
As Magellan’s fiscal woes have come to light in recent months, some mental-health providers in Rhode Island have grown concerned that reimbursement owed to them by Magellan would go unpaid.
Daniel Even, a clinical social worker at Group By Design, a small psychotherapy practice on the East Side, said he was alerted to Magellan’s fiscal slide by an article in an industry trade publication. Even said he is concerned because roughly 20 percent of the practice’s 120 patients are covered by Magellan.
“The question is, if Magellan were to go under, would Blue Cross stand behind its providers and clients and make good on its bills?” Even asked. He added that he would be contractually and morally obligated to continue seeing his Magellan patients even if he wasn’t getting reimbursed for their care.
Fraser said it would be speculative to discuss what would happen in the event of a Magellan bankruptcy, and said the point was moot anyway because Blue Cross plans to drop the company at year’s end.
G. Rollin Bartlett, chief life, accident and health analyst at the state Department of Business Regulation’s insurance division, said that the ultimate responsibility of unpaid claims by a third-party administrator would fall to the health insurer.
Some practitioners question why Blue Cross and other insurers use third parties to handle their mental-health business in the first place.
“They never seem to learn that this subcontracting to a managed care company doesn’t work,” said Dr. Peter M. Oppenheimer, a Barrington psychologist who said he has few if any patients covered by Magellan. “I have not seen one of these insurers justify the existence of (a third-party administrator). It’s just a game that takes a ton of money out of the system.”
Fraser said Blue Cross contracts out the administration of its mental-health services for the good of Blue CHiP members.
“If we were to have it done in-house, I guarantee there would be providers saying ‘Well, they don’t have mental-health expertise, they’re making decisions based on cost,’” Fraser said. “We thought we should go with someone who specializes in mental health.”
UnitedHealthcare of New England also uses a separate party, United Behavioral Health, to handle its behavioral-health business.
Nicki Sahlin, executive director of NAMI Rhode Island (formerly the National Alliance for the Mentally Ill), a mental-health advocacy group, said behavioral managed-care companies sometimes have a better understanding than regular HMOs of treatment options for mental illnesses. She used the hypothetical example of a behavioral-health specialist who approves frequent therapist visits for a patient suffering from post-traumatic stress disorder – a regimen that ultimately could prevent an extended and costly hospital stay.
Blue Cross entered its contract with Magellan in the spring of 2001, after the state Department of Health shut down Blue Cross’s last mental-health administrator, Continuum Behavioral Care. The department said Continuum – which was a joint venture between Magellan and the Providence Center, the state’s largest community mental-health center – violated a number of clinical regulations.
But it appears financial reasons and not clinical violations are behind Blue Cross’s latest switch. Donald Williams, the associate director of health services regulation at the DOH, said Magellan has not violated any regulations.
He added that the “use of utilization review companies to oversee mental-health services has been a problem for Blue Cross.” The insurer has contracted with three such companies in the past two years, he said.
