Privatization: Part 3

By Todd Cohen

Government efforts to hire private contractors to curb costs while maintaining or improving social services have run afoul of unrealistic expectations and contractual problems, experts say.

In the area of mental health, some private firms “didn’t understand the full needs of people who are reliant on public assistance,” says Michael Faenza, president and CEO of the National Mental Health Association in Alexandria, Va.

Intent on cutting costs, he says, public agencies wrote flawed contracts with managed-care firms, neglecting to take a “holistic approach” that would have provided critical services like housing, vocational training and psycho-social rehabilitation for people with serious mental health problems.

And while their pitch to public agencies promised to pay attention to preventive services that ultimately would reduce patient costs, managed-care firms instead focused on reducing symptoms, he says.

Once they recognized their agreements put them at financial risk, managed-care firms responsible for hundreds of thousands of patients broke their contracts, he says.

And because public agencies had invested so much in farming out the services, they lacked the resources to provide them, leaving patients without services.

Now, Faenza says, escalating health-care costs and the public sector’s economic crisis are “really making the situation worse and putting more pressure on the need to control costs.”

Compounding the problem, he says, are new and proposed federal policies and budget cuts that are tightening eligibility requirements for many services, forcing massive layoffs of health-care professionals, and letting states spend money free of federal oversight.

Other stories in series:

Part 1: Social-services market adapts to lessons of outsourcing.

Part 2: For-profit firms turned to nonprofits to deliver social services. 

Part 4: Drive for profits can create gaps in delivery of social services. 

Part 5: Nonprofits last resort for delivering social services.

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