Economic Determinism and Medicaid


Ok, I’ll admit to trying an academic title to talk about bureaucratic history. What a combination!
But I think it adds up to something. We are in the predicament that often comes with yesterday’s solutions—they become today’s problems. By reference to economic determinism, I am referring to the way in which in the American states’ search for funding more and more community mental health services led to Medicaid; and this in turn has created an increasingly “medicalized” system of care—a mixed blessing.
The basic primer on US state funding for mental health and addictions goes like this—if you can convert state General Funds to Medicaid, the federal government ends up picking up roughly 60% of the costs previously borne 100% by state funding. The most obvious example in the state I served (Oregon) as mental health commissioner was that we could close state hospital wards and create a larger number of placements in community settings—and still save the state money. In the early to mid-1990s, long before the Olmstead Supreme Court decision, we began doing just that and closed a fairly troubled state hospital and created specialized residential services to support all of the patients discharged. Those who we couldn’t place, we transferred to other state hospital “beds.” Later, we stopped sending children and adolescents to our state hospitals by creating and expanding community residential programs.
This was all mostly well and good. These extended care services were based on several key Medicaid requirements—they couldn’t be in facilities larger than 16 beds. And more to the point of this blog entry, they had to be “medically necessary” or “medically appropriate.” This meant, as noted above, an increasingly “medicalized” approach. Medical practitioners had to “prescribe” services using the medical model as the key conceptual and operational requirement.
As funding pressures increased, Oregon expanded not only the types of services available in the community but also expanded eligibility for Medicaid by 2 maneuvers—first and earliest, by getting more people to qualify for disability payments through the SSI and SSDI. As a case manager in the 1980s, I learned from a couple of buddies (who worked for the disability determination offices) how to draft reports using the “listings” which determined whether a person qualified for disability. Like many other case managers, I could write honest and strategic letters that would get just about anyone with a major mental health challenge approved for monthly income payments and Medicaid eligibility to support their community mental health programs. Later, Oregon expanded its Medicaid eligibility to persons who were not necessarily disabled but qualified on the basis of low incomes and on the basis of psychiatric/medical diagnoses that were considered “treatable.”
So these kinds of planning and direct service interventions were heavily conditioned on the principle that economics drives history. Like most other states, we moved more and more toward systems of care that were highly medical in orientation. Following the generalized use of the term, “chronic mental illness,” the recovery concept could even be considered somewhat threatening to all these financial strategies to preserve services. As good stewards of the public’s money, we did all we could to legitimately claim as much as possible—both services and clients–for that holy 60% federal contribution.
While we did a lot of good things and preserved a lot of the community mental health system that would have been otherwise decimated, we now should step back and see if there are ways to, in some sense, “de-medicalize Medicaid.” I will throw one simple idea into the pot: Instead of Medicaid waivers using the terms “medically necessary” or “medically appropriate,” why don’t we see if the current federal administration would be open to the idea of “health necessity?” Many people in the health care reform world know of Steven Schroeder’s seminal article in the New England Journal of Medicine, in September 2007, in which he points out that only 10% of the determinants of health and premature death are actually attributable to medical care factors. The other 90% are a combination of social circumstances, environmental exposure, genetic predisposition, and behavioral patterns.
Health, therefore, should be considered the key goal driving the funding of services and supports; and we should open up Medicaid to much more than “medically appropriate” interventions. This would truly be transformational and would fit perfectly with the push toward “block granting” Medicaid funding. It would allow more flexibility than we’ve been able to imagine under our past allegiance to a narrow conception of health care. And with people having major mental health challenges dying 20-25 years earlier than the average American, can we really afford to do less?


Mad in America hosts blogs by a diverse group of writers. These posts are designed to serve as a public forum for a discussion—broadly speaking—of psychiatry and its treatments. The opinions expressed are the writers’ own.


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  1. Bob,

    I am grateful that you’ve made your years of experience and expertise available to readers on MIA.

    I had no idea that the Federal financial pressures were driving the “medicalization” of mental health. I experience this as the pressure to be a “prescriber” and nothing more in community mental health. Folks act as if I have nothing else to offer; a prescription and a signature on state and federal paperwork.

    It’s easy to make a “medically necessary” case for getting paid for your work when precription medicines are involved. Every person recieving a doctor’s prescription would therefore be eligible for funding to provide for that care.

    What I see as the devolution of the practice of psychiatry to a presciption and signature machine has real economic forces behind it.

    This approach to funding mental health services has brought us to the point where not much is funded except prescription writing. So not much else happens. The spread-sheet economics mentality of medical care dictates that if it’s not reimbursed, it can’t happen.

    Thanks for a real “A HA” moment for me this morning.Keep writing.


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  2. The states left the doors open to drugmakers.
    And the rest was history.

    The states have been able to recover some of their financial losses due to fraud, but what about the children/families who were injured by the “magic pills”? They’ve seen no compensation for their losses – many of the kids from poor families will never be able to work, due to the “medical intervention” on the part of the mental health system.

    Medicaid fraud is what has been allowed to take place… Medicaid fraud big-time, with children placed on drugs out the gazoo – drugs that were often prescribed “off-label”…

    The few drugs that were approved by the FDA should have never been approved. We missed the call to do right by children. To offer them real service – treating underlying medical conditions; providing a safe place for them to stay during a crisis; helping them more fully understand their own trauma; helping them overcome their human suffering.

    We traded this opportunity for a “medical model”… a bio-psychiatric approach, that only made things worse.

    These children now have psychiatric label.
    They now have to deal with the injury done to their bodies/brains by psychiatric drugs.
    They have to deal with the trauma of all the “professional care” they received along the way.

    We have to create a new paradigm.
    One that offers hope.

    We cannot afford to do “business as usual”
    The states are going bankrupt paying for this “care”.
    And we are becoming morally bankrupt by putting our children into such a “system”.

    We can do better.
    And we will.


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      • Duane,

        I like Bob Nikkel’s idea to de-medicalize the payment system and move back to providing funding for the kind of health care that we know works.

        This will be better than the continued “medical necessity” model that depends solely on a “prescriber” in order to be paid for their time.


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        • Dr. Keys,

          I’m with you.

          But I take it a step further – vouchers for families to choose. It’s addressed in this vision (scroll down to ‘Mental Health Recovery Centers’) –

          You have to excuse me, but I have some strong libertarian tendencies (inside someone who spent most of his adult life working with people with severe disabilities.. go figure, huh?).

          People deserve choices.
          Including the choice to say, “No” to the current system, and “Yes” to one of a variety of options… Plenty of options!

          I am also wholeheartedly behind keeping Medicaid (and Medicare) solvent. We made a committment to low-income folks with children, people with severe and catastrophic disabilities, and seniors who rely on these programs. Which is why they need to be reformed – so we can keep them!


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  3. Thanks for this interesting post. The notion of “medical necessity” has never been defined satisfactorily for me but I do not think it is the driver for physicians to prescribe medications. What is has done in addition to what you have described above – at least on a micro level – is to set up a false standard where physicians are required to sign off on treatment plans to “order” all services, including psychotherapy.

    I agree that it would be better to have standards that promote health. SAMSHA currently has a big push to integrate primary care into the CMHC’s. While I applaud the initiative for integrated care, in my experience getting our clients to visit a primary care doctor does not in and of itself improve health. Perhaps that is what Schroeder was getting at in his article. I would like to see us have the resources and supports to hire health coaches who could work individually with people to work with them on health promoting activities such as exercise and food preparation. I believe that this model has been used with good outcomes.

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  4. Thank you Bob for the history lesson and the candid representation of the path taken by the states and industry over time. The concept of “institutional memory” can help us look at the path taken to get where we are and if used properly can help suggest new directions to take for improvement.

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  5. When I was a resident, we were chastised if we did not spend at least a week preparing a person for discharge. Just a short time later, we could not even mention the word “discharge” in the chart or else we would have to actually send the person home. It has amazed me how the term “meeting acute care stay criteria” crept into the lexicon as if it had some meaning and validity beyond being the construct of an insurance executive.

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  6. It is not about healing anymore about caring and wellbeing; it is all about bureaucracy.The day Ken Clark introduced “The American model” in the NHS, my husband, a hospital doctor, started hating his job.

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