Medicaid Expansion and Retrenchment: How a Street-Level Organization Responds to Financial and Managerial Reform

Background and Purpose: Between 1985 and 2006 revenue generated through Medicaid for community mental health services increased from 8 to 44 percent. Between 1999 and 2005, expenditures for Medicaid rehabilitation services increased from $3.6 to $6.4 billion. To manage new revenue streams, especially fee-for-service contracts, nonprofit community mental health providers widely adopted new public management strategies, which included performance- and outcome-based incentives. Literature exploring the effects of this transition on community mental health organizations has been limited. Recently, Medicaid expenditures have been particularly vulnerable to a retrenchment backlash against decades of growth. Because states have limited capacity to cap Medicaid use directly for eligible populations, austerity reforms have targeted administrative processes of eligibility review, service redefinition, and utilization management (IL, PA 96-1501). These retrenchment efforts have raised the stakes for understanding how changing financial arrangements interact with organizational practice. This study uses a street-level organization framework to investigate frontline work in a community mental health agency, asking how changing conditions of government contracting and management under Medicaid have changed organizational practice at the street-level.

Methods: This study uses three ethnographic methods common to street-level organizational analysis: observation; interviewing; and archival research. Over a twelve-month period, the author spent 1100 hours observing the day-to-day routines of street-level workers in a community mental health organization, using field notes to track emerging patterns of practice. Semi-structured interviews were conducted with 53 case managers and agency administrators to understand the challenges workers faced. Interviews were also conducted with 11 state policymakers and stakeholders to provide high-level accounts of how mental health policy changed in Illinois between 2008 and 2011. Field notes, transcriptions, and archival documents were analyzed thematically and continuously using NVivo.

Results: This study finds that within a climate of fiscal austerity, new public management implemented in the Medicaid program came into direct conflict with three core missions of community mental health services: to enhance access, promote consumer-driven programming, and enable social integration. Access to services was curtailed by new austerity measures and routinized under new managerial arrangements. Consumers had less voice in shaping programming. And services that adhere to manual protocols and produce measurable outcomes replaced those that were harder to commoditize but that foster the goal of social integration. When workers sponsor consumer-driven programming and social activities, they did so at an increased cost to themselves. The tension between managerial reform and mission produced a work setting that is stressful and antagonistic, enhancing fatigue and turnover.

Conclusions and Implications: This study looked at how reform is actively remade through informal organizational processes of financial and managerial restructuring, attending to the street-level response to state-level policy. Its findings are especially important for community mental health research, which has traditionally lacked an organizational lens for understanding service implementation. This study provides organizational insight into the gap between macro-level policies and real-world practice, illuminating the ways in which service delivery in nonprofit settings is shaped by political, financial, and managerial reform under Medicaid.