The Cost-Shifting Consequences of Failed Managed Care Regulation: Some Lessons from Pennsylvania’s Experience with Addiction Treatment

Greg Heller

Abstract

When managed care companies fail to pay for medical treatment, the costs of treatment are sometimes shifted to the public. This phenomenon is particularly common in the area of addiction treatment, because the incentives and opportunities for cost shifting are so great. This article sets forth the results of an empirical analysis that examines the extent of cost shifting for addiction treatment in Pennsylvania. Pennsylvania has a strong law mandating coverage for addiction treatment, and much of the cost shifting was in violation of Pennsylvania law. This behavior was almost entirely missed by regulators. The article explores these regulatory failures, and some lessons that can be drawn from them. The article also sets forth a roadmap for restoring, to the public fisc, amounts that were wrongfully shifted to the public.