Selective contracting in managed care: The case of substance abuse treatment

The authors address two critical questions concerning managed care and outpatient substance abuse treatment organizations. Specifically, they consider (1) to what extent selective contracting occurs between managed care firms and treatment providers and (2) what attributes of treatment providers and their operating environments are associated with selective contracting. Using data from a nationally representative sample of outpatient treatment organizations, the authors find evidence of systematic selection. Several indicators of providers' quality and costs, including accreditation status, private ownership, size, and prior experience with managed care, are positively associated with managed care contracting. By contrast, units providing methadone treatment are less likely to be involved in managed care. To a lesser extent, characteristics of treatment providers' operating environment, including extent of competition based on costs and attributes of the Medicaid managed care program, are also positively associated with managed care contracting.