The effect of capitated financing on mental health services for children and youth: The Colorado experience

Objectives. This study tested 2 propositions concerning the effect of capitated financing on mental health services for Medicaid-eligible children and youth in Colorado. The first is that capitation reduces costs. The second is that shifting providers from fee-for-service to capitated financing will increase their efforts to prevent illness. Methods. Interrupted time-series designs were applied to a naturally occurring quasi experiment occasioned by the state of Colorado's reorganization of mental health services financing. Results. The cost of services was significantly lower in counties with capitated services compared with counties with fee-for-service financing. Findings also suggested that economic incentives may lead to greater efforts at secondary and tertiary prevention. Conclusions. Policymakers and the public can expect that capitation will reduce the costs of children's mental health services below those likely with fee-for-service financing. Capitation per se, however, may not increase prevention as surely or swiftly as it lowers costs.