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Government Health Care: When Only Money Matters

Opinion Editorial
March 21, 2001

By Linda Gorman

Colorado health care “reformers” usually claim that government control of health care raises quality and lowers cost. In fact, government involvement does just the opposite. For proof, one need look no further than the way the state Medicaid programs treat the severely mentally ill.

The severely mentally ill in Colorado Medicaid wait for care and  must get their care from a monopoly provider chosen by the state. The Romer administration was so sure that it would save the state money by capitating mental health payments, paying a flat annual fee for each person enrolled in the program regardless of the amount of care needed, that it funded the state mental health care contracts at only 95% of the projected fee-for-services costs. It also required that providers offer a number of new services not specifically aimed at the severely mentally ill.

This touching faith in the miraculous powers of government cost control manifested itself again during the legislative budget process in October 2000. Under a proposed pilot project, prescription drug spending for the mentally ill would be included in the annual per-person fee for mental health care and the state and providers would split any savings that materialize. Left unmentioned was the fact that this gives both the provider and the state an incentive to withhold treatment.

As far as is known, the Romer reorganization didnt save a dime. In October of 1998 the Office of the State Auditor concluded that under the costs per person served increased at a faster rate than national health care costs under the capitated mental health program while services declined. For this, the state paid $27 million more under the capitated system of care than it would have paid under the old fee-for-service plan.

In addition to costing more, capitated care systems may be more likely to limit access to important new therapies for people with severe mental illnesses like schizophrenia. People with schizophrenia may hear voices, believe against all evidence that they are being spied upon, have racing thoughts that make thinking disorganized and fragmented, or withdraw from social interaction. Their motor coordination may be impaired, they may be unable to feel or show emotions, and they may suffer severe depression. An estimated 30% attempt suicide.

Though some people recover completely, most dont. Since schizophrenia typically disrupts normal social functioning, people with the disease are often dependent on public assistance. According to the U.S. Department of Health and Human Services, approximately 90% of U.S. schizophrenia patients are Medicaid recipients. 1

The drugs traditionally used to treat schizophrenia were developed in the 1950s. They are powerful drugs with nasty side effects that include irreversible tremors, permanent facial tics, deterioration in cognitive abilities, numbed senses, and diminished willpower. Patients often hate taking them so much that they refuse to comply with medication schemes. Aside from the high cost of inpatient hospitalization for someone who has a psychotic break, recent evidence suggests that untreated psychotic episodes are associated with slower or less complete recoveries.

The early 1990s saw the introduction of new psychoactive drugs tailored to affect certain receptors in the brain. Called atypical antipsychotics, the new drugs had much lower rates of irreversible muscular side effects, gave patients their feelings back, and did not cause the same cognitive losses. They helped patients who had been helped by nothing else. They also cost thousands of dollars a year more than the older ones.

State Medicaid officials, focused on their cost, immediately tried to limit their use. The Kentucky strategy was typical. Kentucky required prior approval, which was withheld until a patient suffered a psychotic break while taking the old medications. To save money, patients were kept on drugs known to cause permanent damage even though safer alternatives were available.

As is usually the case with rapidly adopted new technologies, doctors and patients who wanted the new drugs knew what they were doing. In the long run, the expensive new drugs ended up saving money. Because they made patients better, the cost of hospitalization and institutionalization fell. But declines in the rate of increases in payments for hospitalization or state mental institutions were in other budgets and were, in any case, difficult to isolate.

As a result, officials continue to focus on drug costs and promote schemes designed to limit drug choice. On February 1, 2001, Colorado Access, the states largest Medicaid contractor, informed pharmacies that prior approval would be required for more than one pill a day in certain dosages of the atypical antipsychotics Risperdal and Zyprexia. Providers were asked to put patients on a single daily dose regimen where appropriate. Closed formularies, even those that approve all FDA-approved when they are used for FDA-approved purposes, are also used to limit access. Twenty-five percent of the standard chemotherapy drugs, for example, lack FDA approval when used to fight cancer.

With government, you almost always get less than you pay for.


1. (Office of the Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services, Market Barriers to the Development of Pharmaceuticals: LAAM, Naltrexone, Clozapine, and Nicorett, p. 27.)

Linda Gorman a Senior Fellow in health care policy at the Independence Institute, a free-market think tank in Golden, https://i2i.org.

This article, from the Independence Institute staff, fellows and research network, is offered for your use at no charge. Independence Feature Syndicate articles are published for educational purposes only, and the authors speak for themselves. Nothing written here is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action.

Please send comments to Editorial Coordinator, Independence Institute, 14142 Denver West Pkwy., suite 185, Golden, CO 80401 Phone 303-279-6536 (fax) 303-279-4176 (email)webmngr@i2i.org

Copyright 2001