In 1993 Oregon became one of the first states to apply for and receive a Health Care Financing Administration (HCFA; now called Centers for Medicare and Medicaid Services) 1115 Medicaid waiver from the U. S. Department of Health and Human Services. Policymakers in Oregon, after the passage of a series of legislative bills (Rutledge, 1997), restructured the state's publicly funded health care services and implemented the landmark Oregon Health Plan (OHP) in February 1994, which included outpatient substance abuse treatment as a benefit.
Before OHP, only a minority of clients seeking publicly funded substance abuse treatment services were eligible for Medicaid. Treatment services delivered to Medicaid clients were paid for by the state using a fee-for-service model. Substance abuse treatment for low-income people not eligible for Medicaid, who accounted for the majority of clients obtaining publicly funded substance abuse treatment, was provided through a "slot" model funded through Oregon's general fund. These outpatient treatment slots were akin to "beds," in that a single person filled each slot. This service delivery model had pervaded the publicly funded outpatient substance abuse treatment system for more than 50 years, influencing the philosophy and the delivery of publicly funded treatment.
The 1115 Medicaid waiver expanded the eligibility criteria for Medicaid, which almost doubled the Medicaid population in the state (Deck, McFarland, Titus, Laws, & Gabriel, 2000). The result of this was that the majority of clients seeking or in publicly funded substance abuse treatment were transferred from the state slot model with a capped capacity to the Medicaid fee-for-service model. The Medicaid model placed no limit on the number of clients providers could serve and reimbursed them for each service provided regardless of the number of clients treated at any one time. The transfer of the majority of state-funded clients to the Medicaid fee-for-service model allowed providers to increase the number of clients they served without adding new treatment agencies or counselors--at least to the extent that treatment providers were willing and able to increase their client load at the individual agency level.
The Oregon Department of Human Services (DHS) allocated most of the general funds it had used to pay for outpatient treatment slots as matching dollars for the federal Medicaid funds. DHS retained some of those general funds (called "directed purpose" funds) to pay for outpatient treatment slots for people ineligible for OHP whose incomes were between 100 percent and 200 percent of the federal poverty level. These people, referred to as the "working poor," had no health insurance and could not pay for treatment. Thus, in 1994 the publicly funded outpatient substance abuse treatment system was primarily funded by Medicaid's fee-for-service system, with some state-funded slots available for clients ineligible for OHP.
In spring 1995 OHP changed the administrative system for outpatient substance abuse treatment services, including methadone maintenance, from a fee-for-service model to a managed care model. The state legislature believed that the integration of substance abuse treatment into the OHP physical health benefit would reduce the inappropriate use and cost of medical and surgical services (Office of Medical Assistance Programs, 1997). Funds continued to be available to certain low-income populations through a limited directed-purpose outpatient treatment (DPOT) slot model, and the distribution of these slots was based on historical use--that is, DHS only allocated these DPOT slots to certain established treatment providers. Despite preparation at the state and provider levels, the transition to a managed care service delivery model created more chaos and problems in a three-year period than had occurred in Oregon's substance abuse treatment system in decades. As one treatment provider remarked, "It was like steamr olling the glass menagerie. …