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Research Questions

  1. What evidence is there about the effects of a carve-in approach for Medicaid enrollees with serious mental illnesses and/or substance use disorders on outcomes such as financial, organizational, and clinical integration; access to, the quality of, and the value of behavioral and physical health care; patient outcomes; equity; integrity of behavioral health budgets following carve-in; and cost?
  2. How do different features of carve-in design and implementation affect those outcomes?
  3. What lessons do other states' experiences offer for California?

Many states separate, or "carve out," Medicaid financing of behavioral health services from financing for other types of health care, but there has been a recent trend in some states toward "carve-ins," whereby financing for behavioral health services is combined with the larger pool of Medicaid-covered services. This trend has been driven by evidence that strategies to enhance clinical integration of behavioral and physical health care can improve physical health care outcomes for individuals with serious mental illnesses.

California's Medi-Cal system uses a carve-out approach to finance specialty behavioral health services for enrollees with serious mental illnesses and/or substance use disorders, but the state has planned to pilot carve-in contracts as part of a broad reform of Medicaid delivery and payment. To inform the policy discussion, the authors of this report examined other states' experiences with carve-ins, the evidence on the impacts of this approach, and the implications for California.

Key Findings

Evidence on the carve-in model's impacts is surprisingly limited

  • A review of the research literature uncovered only three rigorous studies.
  • Although this evidence suggests some potential benefits for carve-ins, its generalizability to California is uncertain because of differences between the policy contexts.

However, a review of the qualitative evidence and key informant interviews generated valuable evidence

  • Carve-in does not necessarily result in financial, organizational, or clinical integration, or expected outcomes.
  • Carve-in states have taken additional regulatory actions to promote organizational and clinical integration, and other expected outcomes.
  • Carve-in states have used other approaches to mitigate potential risks of the carve-in model.
  • Carve-in implementation requires an incremental, stakeholder-engaged process.

The expected benefits of carve-in models can be achieved in a carve-out environment

  • Carve-in and carve-out models can have comparable performance if designed to both facilitate their expected benefits and minimize their potential risks.
  • Whereas the carve-in model's main expected benefit is clinical integration and its main potential risk is adverse selection, the carve-out model's main expected benefit is adequate access to specialty behavioral health care and its main potential risk is inadequate access to physical health care/poorer physical health outcomes.
  • Design considerations are more important than the decision to finance behavioral health services as a carve-in versus carve-out, with key design features including contracts and data analytics, payment, and regulations and administrative processes.
  • States can use additional approaches — including screening, navigators, colocation, and health homes — to reduce care fragmentation and improve integration, regardless of the behavioral health financing model.


  • Provide adequate and timely payment to payers and their contracted providers to enable the delivery of evidence- and need-based specialty behavioral health care. Budgets should reflect the high likelihood that Medi-Cal enrollees with serious mental illnesses and/or substance use disorders will need intensive and costly care. Also consider gradually moving to a value-based payment model that rewards good performance on specific targets of high significance for this enrollee population.
  • Strengthen state capacity for monitoring performance and conducting oversight. State expertise in behavioral health care and a robust regulatory capacity are key to the success of the state's chosen model. Expertise in contract-writing is also critical.
  • Promote the integration of behavioral and physical health care through investments in linking structures that enhance organizational integration. Investments in health information technology might have particularly high returns. Also consider strengthening case management systems and expanding reverse integration.

Research conducted by

This research was funded by the County Behavioral Health Directors Association of California (CBHDA) and carried out within the Payment, Cost, and Coverage Program in RAND Health Care.

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