Selection incentives in a performance-based contracting system

Objective. To investigate whether a performance-based contracting (PBC) system provides incentives for nonprofit providers of substance abuse treatment to select less severe clients into treatment. Data Sources. The Maine Addiction Treatment System (MATS) standardized admission and discharge data provided by the Maine Office of Substance Abuse (OSA) for fiscal years 1991-1995, provides demographic, substance abuse, and social functional information on clients of programs receiving public funding. Study Design. We focused on OSA clients (i.e., those patients whose treatment cost was covered by the funding from OSA) and Medicaid clients in outpatient programs. Clients were identified as being most severe or not. We compared the likelihood for OSA clients to be most severe before PBC and after PBC using Medicaid clients as the control. Multivariate regression analysis was employed to predict the marginal effect of PBC on the probability of OSA clients being most severe after controlling for other factors. Principal Findings. The percentage of OSA outpatient clients classified as most severe users dropped by 7 percent (p< = 0.001) after the innovation of performance-based contracting, compared to the increase of 2 percent for Medicaid clients. The regression results also showed that PBC had a significantly negative marginal effect on the probability of OSA clients being most severe. Conclusions. Performance-based contracting gave providers of substance abuse treatment financial incentives to treat less severe OSA clients in order to improve their performance outcomes. Fewer OSA clients with the greatest severity were treated in outpatient programs with the implementation of PBC. These results suggest that regulators, or payers, should evaluate programs comprehensively taking this type of selection behavior into consideration.