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.