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October 1996

Some Economics of Mental Health 'Carve-Outs'

Author Affiliations

From the Departments of Health Care Policy (Drs Frank and Newhouse and Ms Huskamp), and Health Policy and Management (Dr Newhouse), Harvard School of Public Health; Department of Economics, Boston University, Boston, Mass (Dr McGuire); and Kennedy School of Government, Cambridge, Mass (Dr Newhouse).

Arch Gen Psychiatry. 1996;53(10):933-937. doi:10.1001/archpsyc.1996.01830100081010

We discuss the rationale for benefit carve-out contracts in general and for mental health and substance abuse in particular. We focus on the control of adverse selection as a principal explanation and find that this is consistent with the widespread use of sole-source contracting with periodic rebidding. We also find that some degree of risk sharing is common; we interpret this as a method of balancing cost-containment incentives with incentives to maintain access and quality on unmeasured dimensions.

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