Medicaid Fee for Service Reimbursement and the Delivery of Human Services for Individuals with Developmental Disabilities or Severe Mental Illness: Negotiating Cost

By Walker, Melissa A.; Osterhaus, Jason E. | Journal of Health and Human Services Administration, Spring 2010 | Go to article overview

Medicaid Fee for Service Reimbursement and the Delivery of Human Services for Individuals with Developmental Disabilities or Severe Mental Illness: Negotiating Cost


Walker, Melissa A., Osterhaus, Jason E., Journal of Health and Human Services Administration


In the delivery of human services, fee for service reimbursement from Medicaid is common. This is the case with respect to services for individuals with a: 1.) developmental disability such as autism, Down's syndrome or cerebral palsy; or a 2.) severe mental illness such as bipolar disorder, schizophrenia or severe depression. These services are delivered in the community, primarily by nonprofit organizations. Previous research has examined the role of government as a broker of human services. This case study considers another important dimension of the partnership between government and nonprofit organizations: cost.

Medicaid fee for service reimbursement has facilitated a movement away from institutional to community-based care (Auger, 1999; Thompson & Dilulio, 1998; Romzek & Johnston, 2002; Johnston & Romzek, 1999). This is particularly true for individuals with developmental disabilities (Vladeck, 2003; Miller, Kitchener, Elder, Kang, Rubin, & Harrington, 2005). Community-based services is a central tenet of Medicaid (Tallon & Brown, 1998).

The state practice of maximizing Medicaid has contributed to an increase in community-based care. Medicaid spending and enrollment in Kansas are typical compared to the nation as a whole (Boyd, 1998; Tallon & Brown, 1998). Medicaid accounts for 25 percent of all Kansas state expenditure. After public education (grades kindergarten through 12), Medicaid is the second largest expenditure.

Sedgwick County, which includes the largest city in Kansas, Wichita, has engaged local nonprofits to serve individuals with developmental disabilities or severe mental illness. In Kansas, a community developmental disability organization (CDDO) and community mental health center (CMHC) are designated as the local authority. At the time of the study there were 28 CDDOs and 28 CMHCs. Nonprofit organizations in Sedgwick County "affililate" or have a formal written agreement with the CDDO and/or CMHC. This allows organizations to bill through the CMHC or CDDO and be reimbursed by Medicaid. Service providers are paid at a set rate for each service covered by the state's Medicaid plan or one of the HCBS (Home and Community Based Services) waivers.

The CDDO does not deliver services. It has agreements with 60 private, primarily nonprofit organizations to provide services. Six of the largest developmental disability service providers in Sedgwick County were included in this case study. One nonprofit agency also provides mental health services. At the time of the study, this organization and three other nonprofits were affiliated with the CMHC. All four mental health affiliates were included in the study. The analysis shows cost is a central concern for the nonprofit service providers as well as for the Sedgwick County and the State of Kansas.

Government depends on nonprofit organizations to deliver human services (Salamon, 1999 & 1995; Ferris & Graddy, 1986). A 1997 ICMA (International City/County Management Association) survey of local governments found 28 percent of all respondents relied on nonprofit organizations to provide mental health and mental retardation services (Martin, 1999). Government depends on nonprofits to deliver services and, as Smith and Lipsky (1993) point out, nonprofit organizations depend on government for support.

Fee for service arrangements involve negotiating with a small number of providers (DeHoog & Salamon, 2002; DeHoog, 1990). Cooper (2003) characterizes this as "governance by agreement." One benefit is government has more flexibility in meeting changing service needs (Goldsmith & Eggers, 2004). This is the role of government as a broker of service (Zanetich, 2000). There is another important consideration with respect to fee for service arrangements in the delivery of human services and that is cost.

Fee for service arrangements spread the cost of human service delivery across federal, state and local government. …

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