The Cost of Health Risk Contracts

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Table of Contents

Introduction
Background Information
Definitions
Considerations for negotiating a risk contract
Ways of Reducing Financial Risks
Works Cited

Introduction

This case study is for the Los Angeles County Department of Mental Health with new implementations that are dedicated to serving patients with severe mental illnesses. The organization uses more than $100,000 to treat medical cases in the hospital. The department started due to an increasing level of mental cases in the streets of Los Angels which went untreated and it felt necessary that if appropriate actions were not to be put to place then the whole town was to be flooded with people having mental disabilities. The expenses annually in the hospital are more than the revenue as many of the patients with mental illness don’t have anybody to settle the bills for themselves but this is catered by revenue from the county council (Frank, 94).

For example, a report released by The American Psychiatric Association by Alexander Klein Y. et al (1998, p 495) shows that’ patients retained by the integrated service agencies had average costs during the year before assignment that was not far above the per-patient contract rates ($21,410), whereas patients disenrolled as inappropriate for the Partners Program had average costs that were substantially higher ($48,332)… Not surprisingly, patients disenrolled due to a history of prolonged hospitalization had an average cost that was much higher than that of patients disenrolled for other reasons ($60,778 versus $34,620).’ From the figures provided it is evident that some health risk contracts sometimes can be very costly to the organizations undertaking them (Hurley 24).

Background Information

As for the fiscal year that ended in 1996, the Los Angels County Department of Mental Health used $275 million in funding three state hospitals, 753 mental contracts that had 100 community agencies, and two county hospitals. During the year the county department of mental health served roughly 7,000 patients. The figures provided are alarming if donors and stakeholders won’t be kind enough in good time (Hurley, 34)

Definitions

According to Krentz Slip, ‘risk contracts can be defined as those rendered on the probability of loss arising from failure in contract performance in this case Vendors have the highest risk in fixed-price contracts and least in the cost-type contracts, on the other hand, non-risk management contracts comply fully with the probability of loss arising from the contract (Wagner, 730)

Considerations for negotiating a risk contract

Risk contracting has provided the opportunity for the Los Angeles County Department of Mental Health to implement new clinical programs with enhanced accountability and flexibility and an increased emphasis on psychosocial rehabilitation principles. This is aimed at reducing the number of dienrolments and on the other hand, increasing the number of people in the streets with mental problems. There was the successful enrolment of 500 high-cost patients by the agencies and none withdrew from the project. It’s evident that these agencies provided efficient services and were still cost-effective compared to the usual services (Schlesinger, 23). Therefore to curb these, the private sector has to be integrated to cater to the needs of absolute poverty cases. Some potential stakeholders, people of goodwill, have to be identified to help when there is an absolute need.

Ways of Reducing Financial Risks

Medicare Risk Contracts typically need to be reviewed annually.
Through the development of adequate policies and procedures will ensure that all future claims for administrative costs and risks as well as the managed care risks comply fully with the federal systems
Being careful about conditions. When it’s time to renew, if you don’t maintain all of the requirements for obtaining a Medicare risk contract, you may get canceled. (Krentz, 10)

Works Cited

Alexander, Klein, Y. et al. The American Psychiatric Association, Subjective literature review. British Journal of Psychiatry, 1998, 183, 491–497.

Frank, New house : Risk contracts in managed mental health care. Health Affairs, 1995.

Hurley, Robert. Risk Contracting Reconsidered. 2001. Web.

Krentz, Elip. Risk versus uncertainty in managed care contracting. Healthcare Financial Management, 48 (10), 1994. Web.

Mechanic, Schlesinger. Management of mental health and substance abuse services: state of the art and early results. Milbank Quarterly 1995, 73:19-55.

Wagner, Ellen. Managed care and chronic illness: health services research needs. Health Services Research, Cambridge, Harvard University Press, 1997, 32:702-714.

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The Cost of Health Risk Contracts

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