FREE KEVIN WALSH

Maricopa health firm bidding to serve state

Provider rated poor on mental services

Susie Steckner and Jodie Snyder
The Arizona Republic
Sept. 7, 2004 12:00 AM

On the heels of a troubling performance audit, the Virginia-based firm that runs Maricopa County's mental-health system for the poor and uninsured wants to expand in Arizona.

Five state contracts to provide mental-health services are up for bid. As the state's first and only for-profit mental-health contractor, the move by ValueOptions would further change the landscape of a public mental-health system otherwise run by non-profit organizations.

The potential expansion is causing concern with some mental-health advocates after an audit released last month showed that care for some ValueOptions patients is worse than it was four years ago, with poor case management and a lack of oversight by the firm or state health officials. The failing grade comes as the Maricopa system has seen increased funding, $231 million, for mental-health and substance-abuse services since 2000. During that time, the number of clients has more than tripled.

ValueOptions won't say which areas of the state it is interested in, only that it is. If it expanded:

• The firm would have one of the largest contracts in the state, mental health or otherwise, and with it the potential to make substantial profits in Arizona. Its current contract is valued at $1.3 billion; the combined value of the five open contracts is $450 million.
• The firm would also be responsible for thousands of new clients. Right now it provides care to 54,000 adults and children with serious mental illnesses and other conditions. Statewide, about 125,000 such people are enrolled in the public system.
• The firm would bear even more community responsibility. A mental-health contractor is an integral part of the community it serves, and if it fails, homeless shelters, jails and emergency rooms can become overrun by mentally ill people in crisis.

In a statement, ValueOptions said: "ValueOptions is passionate about providing and improving services to individuals who suffer with a serious mental illness.

"We have been successful in implementing a number of improvements to the Maricopa County behavioral-health system over the past five years and are looking forward to bringing that passion for providing quality services, more choice, and enrolling more individuals to receive care in other markets."

The state's other mental-health contractors have had little or no competition in the past decade. They expect that to change this year, with potential bidders including not only ValueOptions but other national, for-profit behavioral-health firms.

Fred Chaffee, chief executive officer of Arizona's Children Association, which subcontracts throughout the state to provide care, doesn't remember the bidding ever being this intense.

"More money has come in for children and adults, and that makes the state look better to some of the large national companies," said Chaffee, who also sits on the board of trustees for the southern Arizona mental-health contractor.

"A little competition is not a bad thing," he said. "It keeps us sharp."

Some advocates oppose the possibility of ValueOptions' expanding.

"We think it is absolutely absurd to give them another contract given the record that right now is so poor," said Kathy Palmer, executive director of the Mental Health Advocates Coalition of Maricopa County. "They need to improve the system to assist people who are currently their customers. Once it is working well, then they go for other bids."

Palmer and other advocates are particularly concerned about the recent audit by the Office of the Court Monitor, which is a specially appointed watchdog for the Valley's system. But in the past five years, advocates have had ongoing criticisms of the firm, arguing that it has put profits over patient care by denying or reducing services.

In that time, some advocates, clients and others have given ValueOptions good marks as well, saying it has stabilized the system and improved areas like housing and recovery services for adults.

Officials at the state Department of Health Services, which will award the contracts, would not comment on any aspect of the confidential bidding process. At a recent meeting for potential bidders, DHS officials stressed that any future contractor must bring a managed-care approach.

Leslie Schwalbe, DHS deputy director over the Behavioral Health Services division, said contractors should use "managed-care practices to promote effective treatment, not hinder it."

DHS hires contractors to run public mental-health systems in six geographic areas around the state; Maricopa serves the largest number of people. The contractors in turn provide services, such as hospitalization, doctor visits, therapy and housing. The entire mental-health system is funded by a combination of federal and state dollars.

Bids for the open contracts must be submitted by mid-October; a decision will be made early next year.

ValueOptions won its first Maricopa contract in 1998 and its second in February. ValueOptions' new three-year contract is valued at $1.3 billion and comes with two one-year renewals. Roughly one in 63 Valley residents gets services from ValueOptions.

The Arizona contract is a jewel in the crown of ValueOptions' parent company, FHC Health Systems. The Arizona contract represented about a third of the company's revenues in 2003. ValueOptions provides services in 14 other states.

All of Arizona's mental-health contractors are allowed by the state to make a profit on services, though such profits are capped. The state this year also is offering incentive pay for meeting certain marks.

ValueOptions has made a total before-tax profit of $84 million in Arizona since getting the Maricopa contract. It hasn't lost money any of those years; other current contractors have made and lost money in recent years.

Jack Beveridge, chief executive officer over the Pinal and Gila county mental-health contract, predicts there will be resistance to change by mental-health agencies and advocates.

"We have a pretty clear identity as a community here in Gila and Pinal counties," he said.

"They don't really like to be told to do things like Maricopa County neighbors.

"There's some concern about someone outside our region, much less outside the state, coming in and taking over the services."

Reach the reporters at susie. steckner@arizonarepublic.com or jodie.snyder@arizonarepublic.com.