Behavioral Health under Managed Care in New York Medicaid

Foreword by Paul Francis

Issue Brief by Adrienne Anderson

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S2P Behavioral Health under Managed Care in New York Medicaid 3.25.2026.pdf

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Foreword by Paul Francis 

The central organizing principle of Gov. Cuomo’s first Medicaid Redesign Team (MRT) was "care management for all" – a policy whose goal was to include all Medicaid services under managed care. The rationale for this mandate was grounded in a clear conceptual foundation: the view that fragmented, fee-for-service Medicaid was producing poor outcomes and high costs because no single entity was accountable for coordinating and managing care across the full spectrum of a person's needs.

By 2015, New York had already enrolled the bulk of its mainstream Medicaid population in managed care, but large, high-cost populations — people with serious mental illness, those with substance use disorders, the elderly, and people with disabilities — remained in fee-for-service, often through carve-outs justified on the grounds of clinical complexity. The MRT argued this created a structural perversity: the highest-need, highest-cost enrollees were precisely those outside the system designed to manage and coordinate care and be accountable for costs. In 2015, New York received the necessary approvals to move forward with the implementation of the MRT Behavioral Health Work Group recommendation (MRT Recommendation 93) to “carve into” managed care mental health and substance use disorder (SUD) services – collectively referred to as “behavioral health.”

The logic for coordinating these two aspects of an individual’s well-being appeared to be compelling: untreated behavioral health problems cause or exacerbate physical health problems, so effective treatment of behavioral health issues is often an indispensable part of managing chronic physical health issues. The theory was – and remains – that better coordination of care across disciplines, management of treatment adherence among patients with complex needs, and the alignment of payers’ financial incentives would increase accountability, improve outcomes, and achieve financial efficiencies.

In addition to pursuing integrated payer relationships between physical and behavioral health, New York State has also sought greater integration of physical health and behavioral health care delivery. The State, over the last 15 years, has made efforts to reform regulations that inhibit the integrated provision of physical health, mental health, and substance use disorder treatment services. There has been meaningful progress in breaking down regulatory barriers to integrated care, even though physical health, mental health, and substance use disorder treatment still operate under separate regulatory codes, which are overseen by three different State agencies. The FY 27 Executive Budget takes a meaningful step towards improved integration by proposing a single license for providers of mental health and SUD services.[i]

Since the first MRT, the belief in the efficacy of the Medicaid managed care model became an article of faith among New York State policymakers. Efforts by stakeholders to resist being included in managed care, as opposed to continuing in a fee-for-service system, were dismissed as special pleaders seeking to take advantage of inefficiencies in the fee-for-service system. The State’s administrative structure that left control of Medicaid with the Department of Health put the behavioral health agencies – the Office of Mental Health (OMH) and the Office of Addiction Services and Supports (OASAS) – at a disadvantage in policy debates. The decision in 2020 to have separate Deputy Secretaries for Health and for Mental Hygiene (the anachronistic term the State continues to use for OMH and OASAS) exacerbated this problem.

Fifteen years on from the State’s embrace of “care management for all,” there is strong evidence that managed care is not working as intended in all situations. As we described at length in A Review of the Managed Long-Term Care Issues in the FY 25 Executive Budget, the ability to exercise care management in managed long-term care plans (MLTCs) has been so degraded over the years that many observers believe that in long-term care, New York gets almost none of the advantages of care management and all of the drawbacks of a managed care system.

A large part of this problem is that the statutory and regulatory framework in New York for both Medicaid managed care plans and providers regulated by the Department of Health (DOH) are much more heavily weighted towards protecting plans and providers through excessive due process rights and very limited penalties than they are towards ensuring accountability for performance and compliance with State law, regulation, and guidance. This bias is exacerbated by a bureaucratic culture in DOH that is so chastened by past defeats resulting from the State’s limited authority that it rarely even tries to assert a more muscular regulatory and enforcement approach. This is a major problem that goes beyond the scope of this paper but is relevant to the question of whether it makes sense to carve certain sectors from managed care while the larger structural problem is being fixed.

Last year, we also described the efforts of the Department of Health to carve School-Based Health Centers (SBHC) into managed care despite opposition from not only the SBHCs themselves but also from managed care plans, the hospital and federally qualified health center associations whose members sponsor school-based health centers, and healthcare unions. Our conclusion after examining the issue was that carving in SBHCs to managed care would be counterproductive.

We reasoned that the sector's fragmented nature and modest scale made it impractical for providers to contract effectively with managed care organizations. The theoretical benefits of better care management, in our view, were unlikely to be achieved through this Procrustean-bed solution and were outweighed by the negative impact on providers and patients. The legislature has consistently agreed, and the Enacted FY 26 Budget blocked the carve-in to managed care of school-based health centers for another year. In the FY 27 One-House budget proposals, both the Senate and Assembly have once again included language to keep SBHCs permanently carved out of Medicaid managed care.

In the run-up to this year’s Budget, the New York State Council for Community Behavioral Health headed a concerted campaign to carve out community-based behavioral health services from managed care. This campaign follows a decade of dissatisfaction with the way managed care plans have dealt with the behavioral health provider community. The effort will not succeed this year. The proposal was not included in the Executive Budget and was not included in the One-House budget proposals. The carve-out proposal would be a controversial measure in a Budget year which places a premium on avoiding controversy.

Although neither House included a carve-out of community-based behavioral health services from managed care in their One-House budgets, the Senate included a provision at the end of its Budget resolution that stated: 

"The Senate urges the Department of Health to explore the effectiveness of Medicaid managed care and the viability of transitioning programs like managed long-term care, outpatient mental health services, and others to fee for service."

We strongly encourage the legislature and the governor’s office to include this recommendation in the Enacted Budget. The exploration could build on the work of the October 2023 legislatively mandated report on managed care prepared by the Boston Consulting Group (BCG) titled Final Report On Managed Care Organization Services, which raised significant concerns with how managed long-term care plans and behavioral health managed care are functioning.

Issues related to the future of managed care are not going away. One of the few things I remember from law school is that “when you change the facts, you change the result.” I believe that the theory of “care management for all” continues to be correct. But if the evidence suggests that a policy is not working for an extended period of time – and the problems seem too structural to fix – the State should be pragmatic and not dogmatic when it comes to decisions about whether certain services should be carved out from managed care, as the State did with pharmacy benefits and continues to allow in certain other sectors, such as school-based health centers, Certified Community Behavioral Health Clinics, and services for individuals with intellectual and developmental disabilities (IDD).[ii]This Issue Brief by Adrienne Anderson evaluates the policy issue of carving out community-based behavioral health services from managed care. This evaluation is forced to rely on relatively dated and potentially stale information. The State has made little effort to curate, analyze, and regularly publish data on meeting spending targets, claims denials, and other issues that should inform policy decisions, despite the existence of some reporting infrastructure and relevant statutory requirements. Given the valid concerns about the efficacy of managed care raised by community-based behavioral health providers and advocates, the State should examine these issues with up-to-date information and make its findings public. If the State’s position continues to be that community-based behavioral health services should remain in managed care, that decision should be accompanied by changes to improve oversight, transparency, and accountability within the managed care system.

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Introduction 

This Issue Brief examines the issues related to the inclusion of outpatient behavioral health services under managed care. We addressed the related issues of the overlap between care management under specialized, integrated mental health managed care plans known as Health and Recovery Plans (HARP) and care management services delivered under different programs in our Issue Brief, Reforming Care Management for Adults with Behavioral Health Needs in New York Medicaid, last year. Medicaid managed care differs from traditional fee-for-service (FFS) Medicaid in a fundamental way: rather than the State paying providers directly for each service rendered, it pays private health plans (i.e., managed care organizations (MCOs)) a fixed, capitated per member per month (PMPM) rate to coordinate and cover the cost of clinical care of their members and to pay administrative costs. This “capitation rate” reflects actuarial and risk factors, including members’ ages, clinical acuity, and claims history.[iii] MCOs are responsible for contracting directly with providers and then authorizing and reimbursing for services provided, just as health plans do in the commercial market. In New York’s Medicaid managed care program, behavioral health managed care oversight responsibility is shared between DOH and OMH, which review plan submissions, conduct operational and focused surveys, analyze claims data, and issue citations or corrective action requirements when deficiencies are identified.

New York State’s Medicaid Managed Care program was authorized through an 1115 waiver in 1997 and has seen a series of expansions in the decades since.[iv] As noted in the Foreword above, significant changes to New York's managed care program followed recommendations of the Medicaid Redesign Team (MRT) in 2011, which was tasked with identifying ways to reduce Medicaid costs while improving care. A full timeline of managed care transitions is available on the Department of Health website, here.

Prior to the mandatory carve-in to managed care of nearly all behavioral health services in 2015, most such services were delivered through FFS Medicaid and regulated separately from the physical health benefits that previously had been covered by MCOs. The Office of Mental Health (OMH) and the Office of Addiction Services and Supports (OASAS), as it is currently named, administered fee-for-service reimbursement, under which Medicaid paid enrolled, licensed providers directly, as opposed to through limited MCO networks. The MRT Behavioral Health Working Group and policymakers believed that this fragmented delivery and reimbursement system left no single entity accountable for total cost, coordination, or outcomes of care, and likely contributed to higher than necessary inpatient utilization.

A similar but later transition occurred for children’s behavioral health services, which were administered through multiple 1915(c) waivers and fee-for-service programs until a redesign in 2019. That reform consolidated waiver programs and transitioned most services, including Home and Community Based Services (HCBS), Children and Family Treatment and Support Services (CFTSS), and clinic-based behavioral health services, into managed care.[v] Today, children’s behavioral health is administered primarily through MCOs, with specially designated Health Homes providing care management for high-need children. Some stakeholders expect that a carve-out would simplify administrative structures for children's services and clarify lines of accountability, which are time-sensitive topics in light of a recent settlement related to child behavioral health access.

The rationale for the carve-in to managed care of adult behavioral health services in 2015 was to integrate behavioral health care delivery and financing with that of physical health, and to advance the broader goal of value-based care as established in the MRT initiative. The logic was that managed care would help resolve the fee-for-service issues of fragmented care with limited accountability for outcomes, since MCOs would align financial incentives to produce efficiency and control total costs by coordinating care for individuals with complex needs, managing overall utilization, and reducing costly and avoidable acute care use, in part by encouraging preventive care.

However, the manner in which cost containment practices have been implemented in the behavioral services sector, given its already-limited supply of service providers, has proven more complicated.[vi]

Skeptics of managed care maintain that since insurers are paid in advance on a capitated basis, there is an inherent risk that MCOs may seek to limit the services delivered to members to maximize the surplus available from the State’s capitated payment. Whether this structure creates incentives to support proactive, preventive care that will reduce costs, or whether the structure creates incentives to restrict access to expensive, yet needed specialty services, depends heavily on rate adequacy and oversight.

Rate adequacy is one of the factors that impacts the incentives of MCOs. When capitation rates are sufficient and risk adjustment is relatively accurate, plans can invest in care coordination and management. When rates are perceived as tight relative to clinical demand, plans may rely more heavily on prior authorization, narrow networks, or stricter interpretations of medical necessity to remain within budget.[vii]

Although managed care plan rates for outpatient physical health services are not benchmarked to Medicaid fee-for-service rates, New York State requires specialty behavioral health reimbursement to be equal to the State’s established “government rates” for outpatient programs licensed by OMH and OASAS. Plans have been required to pay 100 percent of the Medicaid FFS rate since 2015 for downstate plans and 2016 for upstate plans,[viii] as calculated under the State’s Ambulatory Patient Group (APG) classification system, which groups outpatient services into categories with predetermined base rates and relative weights.

As a result, the floor for MCOs’ reimbursement for behavioral health services is set by residual FFS methodology. Providers may negotiate higher rates with plans, but MCOs cannot negotiate lower rates to control their behavioral health spending. Critics of the managed care carve-in imply that plans’ inability to negotiate rates downward may increase incentives for their more assertive utilization management and network design decisions, which result in reduced access to services.

Moreover, unlike 34 of the 41 other states that utilize managed care in their Medicaid programs,[ix] New York does not contract with MCOs pursuant to a procurement, but has an “any willing plan” certification process, which reduces the State’s ability to hold plans accountable. This policy has also resulted in New York having an unusually high number of MCOs, which disperses the member population, creating smaller risk pools for each plan. Plans experience higher churn and lower volume than in states with more competitive MCO environments, so savings are harder to capture within each plan. The legislatively mandated report from the Boston Consulting Group, Final Report on Managed Care Organization Services (the “BCG Report”), published in October 2023, noted this as a weakness in New York’s managed care system, but the legislature has rejected Budget proposals in several Executive Budgets that would establish a procurement system for managed care in New York.

An important feature of managed care for behavioral health services in New York is the availability of specialty plans known as Health and Recovery Plans (HARP) for individuals who meet behavioral health high-risk eligibility criteria. HARP plans cover the full mainstream physical and behavioral health benefit package, but receive a higher capitation rate and offer additional services, including enhanced care management, and access to Community Oriented Recovery and Empowerment (CORE), and Behavioral Health Home and Community Based Services (BH HCBS).[x] 

Eligibility for HARP is based on clinical factors, and enrollment does not require action by the individual. However, members must affirmatively opt-in to access the programmatic advantages of a HARP plan, namely Health Home care management, and BH-HCBS and CORE, as applicable. Although 86% of those eligible to participate in HARP (149,289 enrolled out of 173,440 eligible, as of December 2025)[xi] are enrolled, only a minority access key HARP services: the BCG Report found that 21% of HARP members were enrolled in a Health Home, despite being automatically eligible, and 3% of members used HCBS or CORE services in the past year.[xii]

Mainstream plans offer their own, typically telephonic, care management to members identified as having high utilization or gaps in their care, who may or may not have behavioral health needs. Health Homes, which contract with MCOs but operate as separate care management intermediaries, serve a defined subset of Medicaid managed care members who meet clinical eligibility criteria (e.g., serious mental illness or multiple chronic conditions) who opt in. Eligible members are identified through plans, providers, or other referral sources, and the MCO pays a PMPM fee to the Health Home, which contracts with care management agencies to deliver more intensive, community-based coordination.

Because behavioral health services require specialized clinical expertise, utilization management, and networks of providers that differ from those of physical health care, some MCOs subcontract with dedicated Behavioral Health Organizations (BHOs) to administer their behavioral health benefits. BHOs (e.g., Carelon, formerly Beacon Health Options) manage prior authorization, utilization review, provider network contracting, and claims adjudication for behavioral health services on behalf of the MCO.

Notwithstanding numerous complaints from providers about Beacon Health Options over the years, some providers maintain that subcontracted BHOs may be better equipped to manage behavioral health services than mainstream MCOs. Others see the involvement of a BHO as a sign that the associated MCO is underperforming or under-resourced. In any case, the involvement of BHOs complicates accountability by splitting responsibility between two separate organizations. While the MCO retains overall responsibility under its contract with the State, in practice, many operational decisions directly affecting patient care are made by third-party administrators operating under separate contractual arrangements with some distance from the State.

Proposed Legislation to Carve Out Outpatient Behavioral Health Services

Community behavioral health providers and advocates have identified concerns with managed care and pushed for a range of reforms in the years since the carve-in. It is widely believed that OMH and OASAS, the State agencies responsible for regulating mental health and substance use disorder services, share many of these concerns, although their ability to make this case publicly is limited by adherence to the administration’s position in favor of managed care. The behavioral health provider community, led by the New York State Council for Community Behavioral Healthcare (“the Council”), has been making a concerted push in recent months in favor of legislation (S8309/A8055) to carve out outpatient behavioral health services from Medicaid managed care and put them back into the fee-for-service system. The position of behavioral health stakeholders reflects their conviction that the promised benefits of integration under managed care—care coordination, improved quality, and opportunities for savings through value-based payment programs—have simply not materialized.

The Hochul administration did not include this provision in the FY 27 Executive Budget, and the legislature did not include it in One-House bills released on March 10. Nevertheless, the Senate’s Budget Resolution (No. 1722) included language urging “the Department of Health to explore the effectiveness of Medicaid managed care and the viability of transitioning programs like managed long-term care, outpatient mental health services, and others to fee for service.”

Carving out a service from managed care is not unprecedented, although the reasons for doing so vary. Most notably, in 2023, the State carved out the pharmacy benefit, returning it to a fee-for-service structure under the State’s Medicaid pharmacy program called NYRx. The pharmacy carve-out was designed to disintermediate pharmacy benefit managers from the supply chain; they have been widely criticized for spread pricing and ballooning pharmacy costs. The carve-out is thought to have generated net savings for the Medicaid program, even after the State provided compensating benefits to providers who were financially harmed by the change. The carve-out applied to mainstream, HARP, and HIV Special Needs Plans (HIV SNP) members. Although health plans argued that the carve-out would be quite disruptive administratively, that has not proven to be the case, and members still carry one MCO card.

A few populations and provider types have avoided being carved into Medicaid managed care. The Office for People with Developmental Disabilities explored bringing this population into managed care through provider-led specialty plans (SIP-PLs), which would have covered the full Medicaid benefit package under Article 44. Although a policy and regulatory framework was developed between 2018 and 2020, implementation was paused during the COVID-19 pandemic and has not resumed.[xiii]

School-based health center (SBHC) services have been provided on a FFS basis since the 1980s.[xiv] The State has pushed to carve SBHCs into the managed care benefit over the last several years. Advocates have, in turn, petitioned for the permanence of the carve-out through a series of bills, the most recent of which was vetoed by Governor Hochul (S1224/A957, 2025-2026 Legislative Session). The State has delayed the carve-in date seven times.[xv] It is scheduled to take effect “no sooner than” April 1, 2026, though both the Assembly and the Senate included permanent carve-out language in their One-House bills and will likely prevail in at least deferring the carve-in of SBHCs into managed care.

Finally, New York’s participation in the federal Certified Community Behavioral Health Clinic (CCBHC) demonstration provides a limited but relevant example of the State acting as the direct payer for outpatient behavioral health services. CCBHCs are designated community providers that are required to deliver an array of nine services, including outpatient mental health and substance use treatment, targeted case management, and primary care-based screening.

CCBHC services are carved out of NYS Medicaid Managed Care and reimbursed directly by the State using a clinic-specific Prospective Payment System (PPS) daily rate,[xvi] bypassing APG billing. The daily rate is derived from each clinic's CCBHC cost report and covers all required services delivered on a given day, including activities that would generate no billable procedure code under standard fee-for-service. In this respect, CCBHC payment is neither traditional fee-for-service nor managed care capitation, but a prospective, cost-based payment model administered directly by the State.

The carve-out applies to payment administration rather than to plan enrollment: individuals receiving CCBHC services may remain enrolled in mainstream plans or HARPs, and managed care organizations continue to manage members’ physical health benefits and other covered services. The CCBHC model, therefore, demonstrates that behavioral health reimbursement can be separated from plan payment control while preserving broader managed care structures.

Arguments in Favor of Carving Out Outpatient Behavioral Health Services 

Proponents of the carve-out of outpatient behavioral health services argue that the policy experiment of managed care has failed. They point to perverse incentives that lead MCOs to engage in excessive gatekeeping of care that is already difficult to access, given persistent workforce shortages and limited provider networks.

They argue that insurers operate with an inherent conflict of interest, in part because capitated payment arrangements reward plans for controlling utilization and allow them to earn investment income on reserves prior to reimbursing providers. Three of the 14 parent companies operating Medicaid managed care organizations in New York are for-profit.[xvii] Critics are concerned that obligations to shareholders intensify pressures to cut costs in ways that are fundamentally at odds with population health goals, especially disadvantaging members with complex medical and behavioral health needs.

Budget testimony submitted last month by the New York State Council for Community Behavioral Healthcare argued that providers experience regular claims denials, delayed payments, and inadequate reimbursement, all of which reinforce workforce instability and add to ever-growing waitlists.[xviii] The Council further argues that weak State enforcement of managed care contract standards has allowed these patterns to persist.

There are also considerable administrative costs for providers in working with MCOs. A 2025 statewide survey of community behavioral health providers by the Council found that 58% of responding organizations reported spending between $200,000 and $1 million annually on administrative functions associated with managed care billing, appeals, compliance, and reimbursement reconciliation. Three-quarters of providers reported maintaining contracts with between five and nine separate managed care plans, each with distinct protocols. Additionally, 58% of responding providers indicated that they were owed more than $25,000 for over 90 days, for claims submitted to plans. This strains providers’ liquidity, which advocates say makes it difficult to recruit and retain staff.

The Council’s Budget testimony is consistent with criticism about the implementation of behavioral health managed care from the State’s own consultants. The BCG Report highlighted numerous problems with several of the State’s managed care programs, especially in behavioral health and managed long-term care. The report found that behavioral health access challenges persisted across both mainstream plans and HARPs, including psychiatrist shortages, network deficiencies, and the presence of “inactive providers” who were listed in plan directories but had no Medicaid billing.

In addition, the BCG Report cited compliance problems among providers with State and federal mental health parity laws, inappropriate claims denials, and the return of unspent behavioral health premium dollars to the State, which suggested that plans had not fully deployed the financial resources available to them to expand access to or improve the quality of behavioral health services.

The concerns identified in the BCG Report mirror findings from national literature. RAND's 2022 review of states that have moved from carve-out to carve-in found that carve-in states have not necessarily achieved expected outcomes and have had to take significant additional regulatory action to promote integration, suggesting that administrative structure alone does not produce integration.[xix] A 2023 Health Affairs Forefront analysis reviewing states’ experience with behavioral health carve-ins found little empirical evidence that simply integrating behavioral health financing into comprehensive managed care improves access, quality, or cost outcomes on its own.[xx] Integration in form does not guarantee financial, organizational, or clinical integration in function; instead, outcomes depend on contract design, payment adequacy, data infrastructure, and enforcement capacity. Structural integration must be paired with strong governance and oversight tools to achieve intended benefits.

The argument that the behavioral health system is not working well under Medicaid managed care begins with the observation that, while the need for behavioral health services continues to rise, the amount of and spending on services actually delivered often fails to meet expected levels. When this is coupled with barriers to care imposed by managed care plans, including claims denials and inadequate networks, it raises questions about the extent to which managed care is itself part of the problem.

The arguments in favor of the carve-out are based on the following concerns:

• Failure to meet targeted spending ratios;

• High rate of claims denials;

• Under-reimbursement and non-compliance with government rates;

• Non-compliance with mental health parity requirements;

• Network inadequacy;

• Limitations on regulatory enforcement and penalties for MCO violations; and

• Inability to exclude underperforming MCOs through competitive procurement.

Failure to Meet Medical Loss Ratio and Behavioral Health Expenditure Targets 

New York’s Medicaid managed care program has two mechanisms to ensure that behavioral health premium dollars are spent on care: the federal Medical Loss Ratio (MLR) requirement and the State-specific Behavioral Health Expenditure Target (BHET).

Under federal Medicaid managed care regulations (42 CFR Part 438), plans must meet a minimum MLR threshold, such that a certain percentage of premium revenue must be spent on medical services, care coordination, and quality improvement, rather than on administration and surplus. The federal MLR threshold for Medicaid managed care plans is 85%;[xxi] New York set a higher MLR of 86% for mainstream plans and 89% for HARPs.[xxii] Plans that fail to meet the required ratio must remit the difference to the State after an end-of-year reconciliation. The MLR applies to the entire capitation payment and does not differentiate between physical and behavioral health spending, though the State does distinguish HARP and mainstream plans’ MLR and reinvests HARP MLR remittances in behavioral health services.

The State established the BHET in FY 16 in response to complaints from behavioral health stakeholders, OMH, and OASAS, that MLR was an insufficient mechanism to ensure that behavioral health was receiving a sufficient share of capitation payments. The BHET requires plans to expend at least 96% of the behavioral health premium allocation in their capitation rates. If a plan’s behavioral health spending does not meet that target, the State calculates the shortfall and the plan remits that amount to the State. The BHET is designed to ensure that behavioral health funding remains dedicated to behavioral health services. Remittances are reinvested through Medicaid Managed Care and have been used to support OMH’s Behavioral Health Centers of Excellence Program and support rate increases.

Still, between 2017 and 2020, MCOs remitted more than $220 million in total funds from BHET and MLR shortfalls, averaging roughly $70–75 million per year (approximately $43 million annually from MLR and $30 million from BHET).[xxiii] Although remittance totals were not published for FYs 2022 and 2023, the FY 25 Enacted Financial Plan cited reinvestments from HARP plans’ MLR underspending and Mainstream MCOs’ BHET underspending of $30 million in State share dollars for FY 2024, which would be roughly half of the year’s total remittances (accounting for the federal portion). The FY 26 Enacted Financial Plan reported $39 million in (State share) reinvestments for FY 25. The presence of significant remittances over a period characterized by documented workforce shortages and access barriers raises questions about whether the managed care structure is effectively translating premium dollars into behavioral health service capacity, and why plans are consistently underspending relative to established targets.

Claims Denials and Government Rate Compliance

The BCG Report documented OMH analysis of claims data from December 2017 through May 2018, which estimated $39 million in inappropriate claims denials above a 20% administrative claims denials threshold set by OMH; $11.6 million was subsequently reprocessed and paid following State intervention. Focused surveys during this period identified various violations by five MCOs that had delegated claims processing to Beacon Health Options. The State issued citations in May 2019, and a later review covering April to September 2021 estimated $11.5 million in denials above that 20% threshold, indicating only a slight reduction, and persistent non-compliance. In November 2023, the State announced its enforcement action of $2.7 million in fines across the five plans,[xxiv] more than six years after the initial violations and four years after citations were issued.

There are other sources of claims-related, publicly reported data, but each has limitations. Plans report claims data to OMH monthly, but the data are not regularly published (even in summary), and public documentation of focused survey findings does not include dollar values associated with observed violations. MCOs are required to submit Health Care Claims Reports to the NYS Department of Financial Services (DFS) quarterly and annually. Those reports stratify claims by payer type and setting, but do not distinguish behavioral health claims from other types of care, so they cannot be used to facilitate analysis specific to the dollar value of behavioral health claims, either paid or denied.

DFS also receives biennial Mental Health and Substance Use Disorder Parity Reports, the latest of which cover through CY 24. The workbooks compare mental health and substance use disorder services with medical and surgical services across metrics such as the number of members receiving services, claims volume, approval and denial rates for inpatient and outpatient care, prior authorization and other medical-necessity reviews, and appeals outcomes. However, they do not include dollar amounts and do not distinguish Medicaid from other plan types.

Analysis of the DFS database of external appeals showed that among Medicaid MCOs, 52% of external appeals involving mental health and 64% of those involving substance use disorder diagnoses were overturned between 2019 and 2023, compared to a 40% average overturn rate for Medicaid MCOs overall.[xxv] While external appeal data does not, by itself, prove systemic noncompliance, above-average (and >50%) overturn rates for behavioral health claims raise concerns about the consistency of utilization management practices. High external appeal overturn rates may reflect inappropriate initial determinations, overly restrictive utilization management criteria, or inconsistent application of medical necessity criteria.

Beyond denial patterns, compliance with State-set reimbursement standards has also required regulatory attention. Providers have raised concerns that rate increases, which often become effective as of April 1 (the first day of a new fiscal year), do not take effect in a timely manner. The increases are operationalized through State Plan Amendments, which can involve significant delays in federal approvals. Although increases are paid out retroactively, delays in rate approvals and updates to plans’ claims-processing systems and protocols can result in lagged pass-through of rate enhancements, adding to providers’ financial strain. In 2024, the State cited three plans for underpayment of government rates due to delays in applying Cost of Living Adjustments (COLA) and Enhanced Federal Match Assistance Percentage (eFMAP) increases.

Parity Compliance

Federal and state mental health parity laws (i.e., the Mental Health Parity and Addiction Equity Act (MHPAEA) and provisions within the Affordable Care Act, and “Timothy’s Law” and the NYS Mental Health and Substance Use Disorder Parity Reporting Act, respectively) require that coverage for mental health and substance use disorder services be comparable to coverage for medical and surgical services.

Under MHPAEA, plans may not impose more restrictive financial requirements, “quantitative treatment limits,” or “non-quantitative treatment limitations” (e.g., prior authorization, medical necessity criteria, network design) on behavioral health benefits than on analogous physical health benefits. While MHPAEA applies to both commercial insurance and Medicaid managed care, parity violations manifest differently in each context. Most high-profile parity litigation has involved commercial insurers' refusal to pay Medicaid rates to out-of-network behavioral health providers. However, since Medicaid MCOs must, at minimum, pay predetermined government rates in New York, parity violations typically focus on utilization management practices that limit treatment.

MCOs that delegate behavioral health management to BHOs have often been cited for MHPAEA-related violations. These plans have difficulty producing MHPAEA-required comparative analyses, as they lack direct operational visibility into behavioral health services as administered by their subcontractors, and must request relevant data from them.

Behavioral health parity enforcement currently depends on the State's ability to monitor plans and their subcontractors through plan-submitted reporting and periodic reviews. A carve-out (i.e., FFS model) would technically simplify this structure: the State would directly administer utilization review, network management, and claims processing for behavioral health services, eliminating the need to monitor intermediary payers’ compliance.

In 2024, the federal government issued a Final Rule updating the implementation of the Mental Health Parity and Addiction Equity Act. The rule tightened expectations that plans must produce meaningful comparative analyses of non-quantitative treatment limitations and placed greater weight on measures such as denial rates and out-of-network utilization as indicators of potential parity violations.

However, following a complaint filed by an employer coalition, the current federal administration filed a motion of abeyance, indicating that it would not enforce key components of the 2024 rule while it reconsiders its position.[xxvi] Statutory parity requirements remain in place, but the decision not to enforce the updated standards creates uncertainty about how aggressively parity will be enforced at the federal level.[xxvii] This intensifies the responsibility of DOH and OMH to monitor plans and address parity deficiencies through surveys, citations, and corrective action plans.

Network Adequacy and “Ghost Networks”

Network adequacy standards are intended to ensure timely access to care by requiring plans to maintain sufficient provider networks within specified geographic areas and appointment timeframes (i.e., “time and distance requirements”). However, a plan may meet contractual time and distance standards, yet members may still struggle to locate providers who are accepting new Medicaid patients and able to offer timely appointments. Shortages of psychiatrists, clinical social workers, and other behavioral health clinicians, and the disincentives for them to participate in Medicaid due to relatively low reimbursement, make it difficult to determine the extent to which access gaps reflect underlying provider scarcity versus network design within managed care.

Compounding this challenge is the issue of “ghost networks,” which have received increasing scrutiny nationally and in New York. A ghost network typically refers to a provider directory that includes clinicians who are not accepting new patients, are not actively participating in the plan (in this instance, Medicaid), or do not, in practice, provide their listed services. This gives members the impression of more clinician availability than actually exists.

Directory inaccuracies may reflect both administrative lag and deeper network capacity problems. It can be difficult for the State to distinguish between negligent directory maintenance and genuine network deficiencies when adequacy determinations rely primarily on plan-reported information. In any case, erroneous directories directly impact members, who may already be facing symptoms of a mental illness or substance use disorder, and must contact providers until they find one who is in-network and accepting new patients.

The BCG Report found that 14% of behavioral health service networks were deficient under existing standards, and 43% of behavioral health providers listed in plan directories did not bill for any Medicaid services during the review period.[xxviii] In 2026, the New York Attorney General (AG) entered into an Assurance of Discontinuance with EmblemHealth following a secret shopper investigation that included Medicaid Managed Care behavioral health networks. In the AG’s survey of behavioral health providers listed as accepting new patients, only 18% were able to offer an appointment; the remainder were unreachable, not accepting new patients, or otherwise unavailable despite being listed as participating. The Assurance documented weaknesses in directory verification processes and instances in which providers listed in the network had not treated members in the prior year.

A 2024 federal HHS Office of Inspector General (OIG) brief examining Medicaid managed care behavioral health networks across the U.S. found that, on average, more than half of listed behavioral health providers were “inactive” (defined as not having provided a single service to enrollees over the course of a year). The OIG cautioned that network adequacy determinations often rely on plan-reported participation data, which may not accurately reflect access if directories are inaccurate.

These dynamics complicate the evaluation of access under managed care, since there are many reasons for network inadequacy and providers’ choices not to participate in Medicaid that would not be resolved by a FFS arrangement.

Limitations of the State’s Regulatory and Enforcement Mechanisms

The BCG Report emphasized that New York’s ability to hold plans accountable is limited both by oversight capacity and weak enforcement tools. The report noted that the State’s unusually large number of managed care plans stretches DOH’s ability to proactively manage contracts. Oversight, as a result, is often compliance-driven and reactive, focused on addressing discrete deficiencies rather than continuous performance monitoring and compliance management.

Oversight is further constrained by the State’s reliance on plan-reported data, and on limited resources for reviewing it as it comes in. The State conducts operational surveys every two to three years, which may prompt targeted reviews by OMH. Yet more regular, independent auditing and quality control of plans’ submitted data is limited. For example, DFS’s overall Health Care Claims Reports webpage notes that reports have not been reviewed by the agency for accuracy.

When deficiencies are identified, the State requires plans to implement corrective action plans before pursuing material enforcement action. The process of negotiating corrective measures, implementing operational changes, and verifying compliance can take several years, during which the State relies mostly on plans’ assurances that remediation efforts are underway. Plans generally have an opportunity to address deficiencies before enforcement actions escalate, so the State needs to document recurring issues across multiple review cycles before it can impose stronger sanctions. This functions, in effect, as a form of procedural due process for MCOs.

The 2023 Health Affairs Forefront review of carve-in states, cited earlier, underscored that contract specificity, analytics capacity, and meaningful penalties are central to ensuring quality and access in managed care. Where enforcement tools are weak or difficult to operationalize, carve-in structures may fail to deliver promised improvements, despite parity statutes and network adequacy standards.

The overlap between the BCG Report’s critique of New York’s enforcement architecture and the broader academic literature suggests that the central policy question may be less about carve-in versus carve-out, and more about whether the State’s current statutory and regulatory oversight authority is robust enough to manage behavioral health care delivery within a managed care environment.

Penalties

When compared to the levers available in other states, New York’s statutory caps on financial penalties are not proportionate to violations, which undermines the risks that plans face and weakens incentives for them to improve. Under New York Public Health Law § 12, financial penalties are capped at $2,000 per infraction. The cap may be increased to $5,000 for repeat violations within twelve months that pose serious threats to health and safety, and to $10,000 if violations directly result in serious physical harm to a patient. However, aggregate penalties can easily exceed per-infraction limits depending on how violations are counted. The State has several options for defining infractions, for example: treating each denied claim as a separate violation versus grouping all similar noncompliant denials as one infraction; counting each day of continued non-compliance as a distinct violation; or for parity compliance, treating each of the 19 non-quantitative treatment limitations and their six required compliance steps as separate infractions. This flexibility of interpretation is how the State was able to issue intermediate sanctions of $2.6 million to five MCOs in 2023.

In contrast to New York’s low per-infraction caps, California is authorized to assess penalties ranging from $25,000 to over $400,000 per infraction, and in 2022 issued a $55 million sanction against a major MCO for access failures.[xxix] In January 2026, the Georgia Insurance Commissioner issued nearly $25 million in fines across eleven insurers following market conduct examinations that identified thousands of violations of state and federal mental health parity laws.[xxx]

In New York, enforcement proceeds through corrective action plans, stipulations, and negotiated remediation rather than immediate financial sanctions. Citations alone do not necessarily result in significant monetary penalties or market consequences. There is no recent precedent of MCO decertification for performance-related deficiencies.[xxxi] Providers have also noted that the complaints process requires time, documentation, and administrative capacity that not all providers can spare.

According to the most recent State data as of January 2026, a total of 205 citations have been publicly posted by OMH and DOH:

• Behavioral Health Parity Compliance: 115

• Government Rate Compliance: 60

• Network Adequacy Compliance: 17

• Key Staffing Requirements: 13

Procedurally, a citation is issued through either a Statement of Deficiency (SOD) for violations of state and federal laws, rules, or regulations, or a Statement of Finding (SOF) for failure to comply with the Medicaid Model Contract.[xxxii] The MCO must respond with a Plan of Correction within 15 business days, outlining how it will address each identified deficiency or violation and by a specified date (i.e., “date certain”). Citations are not posted publicly until the date certain has passed and the plan is back in compliance. The correction process can take several months, and the date certain can be years out. The prolonged timeline between identifying noncompliance, issuing citations, and handing down penalties compounds the structural weaknesses in New York's enforcement framework as identified in the BCG Report, including low penalty caps and a multi-stage correction process with rights to dispute and the opportunity to negotiate penalties. Ultimately, penalties that are not proportionate to the scale of noncompliance serve as weak deterrents.

Contracts and “Any Willing Plan” Certification

New York certifies MCOs under an “any willing plan” framework. Plans agree to a “model contract” with the Department of Health, which articulates standards set by New York Public Health Law and Department of Health regulations.

Managing such a substantial program through the certification approach has inherent limitations. Because plan participation is not contingent upon competitive selection, the State has less leverage to restructure participation, reduce the number of plans, or impose material contract revisions outside of statutory change.[xxxiii] The Medicaid managed care model contract contains several provisions that could serve as accountability levers, including requirements governing network adequacy, claims processing timeliness, parity compliance, encounter data reporting, and quality performance metrics. However, the effectiveness of these provisions is constrained by the limited enforcement mechanisms and penalties described above. The certification approach limits the State’s ability to use selection decisions as additional levers of compliance and enforcement.

In contrast, most other states with a Medicaid managed care program competitively procure their plans, often setting a target for the total number of participating plans. These states still utilize model contracts and iterate the language in accordance with the respective RFP.[xxxiv] Critically, procurement allows them to materially revise contractual terms without making statutory changes, impose performance conditions, and remove underperforming plans at the next procurement cycle. The BCG Report endorsed the competitive procurement of managed care plans as an intermediate improvement measure. The proposal was included in the Governor’s FY 23 Executive Budget proposal and gained traction among advocates, but failed to be included in the Enacted Budget.

Arguments in Favor of the Status Quo Managed Care Structure 

Champions of the current system defend the value of managed care organizations as facilitating integration and coordination, especially for high-need members, citing Health Home care management and investments in behavioral health integration as examples of value added under managed care. They argue that a carve-out would disrupt the architecture through which MCOs identify, attribute, and pay for care management for high-need members.

Skepticism of Estimated Savings

Advocates of the proposal to carve outpatient behavioral health services out of managed care estimate savings of $400 million from removing the “middlemen” (i.e., MCOs). They expect to improve access to care by reinvesting these savings to fund a 2.7% targeted inflationary increase (TII), formerly known as a COLA, which they argue would help stabilize chronic workforce issues. The Governor’s FY 27 Executive Budget Proposal included a TII of 1.7% at a cost of $162.2M (federally matched to $268.4 million).

However, the extent to which advocates’ estimated $400 million in savings from the carve-out is realistic depends on several assumptions. Administrative functions would not disappear entirely under fee-for-service; some oversight, utilization review, and claims administration costs would have to remain within the State. A carve-out would also alter risk adjustment, federal matching, and the distribution of actuarial risk MCOs currently bear. Further, among the eight states that carve out behavioral health (as of 2022),[xxxv] there are models in which the State contracts with an administrative services organization to deliver services on a FFS basis (see: Maryland). If the State—in a hypothetical carve-out environment—opts to incorporate a third-party to support FFS delivery, that could erode the net savings of the transition.

The practical question about this aspect of the carve-out proposal is how MCOs’ costs compare to the infrastructure the State, or any subcontractors, would need to operate behavioral health services directly under fee-for-service, and whether the difference could reasonably fund provider rate increases and an enhanced TII.

Community behavioral health providers have reported needing to hire two to three times as many billing staff to accommodate the administrative burden of operating under managed care. Proponents of the carve-out ascertain that a FFS model would require much less administrative processing, so some of these added billing, coding, and reimbursement staff could be reallocated to support other practice functions.

The logic that a reversion to the simpler FFS environment would reduce providers’ administrative responsibilities is superficially compelling but not a complete accounting of the situation. Billing, coding, and reimbursement resources would continue to be warranted in a FFS context, though the need to file complaints and proceed through appeals processes would likely be reduced.

Transition costs are a legitimate but bounded concern. Standing up utilization review, data infrastructure, and care management functions outside of MCOs would carry one-time and ongoing costs, though these are arguably manageable relative to the scale of projected savings.

The $400 million savings estimate may not fully account for residual administrative costs the State would absorb under FFS, though the methodological question may be more about the magnitude of the savings rather than whether net savings would materialize at all.

Concerns with the FFS Alternative

The 2022 RAND report identifies the two original rationales for carve-outs in states that have them: mainstream MCOs lacked the specialized expertise to manage complex behavioral health populations, and capitated payment created financial incentives for adverse selection, avoiding high-cost enrollees with serious mental illness.

Given that New York’s original behavioral health carve-in was based on issues stakeholders associated with the fee-for-service model, critics of the carve-out proposal may be concerned that care coordination— and other perceived positive outcomes from managed care— would suffer under FFS. If one believes that managed care has produced quality improvement and care coordination, it would follow that care management services would suffer in its absence.

The most substantive argument in this debate is about whether carve-in financing promotes care integration. The 2022 RAND review of states that have transitioned between carve-in and carve-out models found that clinical integration between behavioral and physical health is driven more by “organizational integration” from effective case management and shared data systems— and is undermined when those functions are inadequate, regardless of the financing model.

The authors of the 2023 Health Affairs Forefront review cautioned that neither financing structure guarantees integration. Both require deliberate design choices around data sharing, care management roles, and accountability. Carve-outs can create fragmentation unless strong coordination mechanisms exist between physical and behavioral health systems. And carve-ins can create many of the challenges already articulated in this brief.

This reinforces the importance of distinguishing between structural financing decisions and operational oversight and administration. The BCG Report findings certainly reflect shortcomings in implementation and oversight; they do not necessarily prove that carve-in financing is inherently and inevitably unsound. Evidently, governance capacity, clinical program design, and other characteristics, not limited to financing structure, ultimately determine whether integration functions in practice.

In the absence of a comparable evidence base demonstrating how managed care has performed, the case for maintaining the carve-in has rested more on its original intent than on demonstrated results. Publicly available evidence of similar scope and depth to that included in the BCG Report on savings or measurable gains in access, quality, outcomes, or integration from managed care is limited. This may reflect data transparency issues rather than indicating that managed care has not delivered benefits, and more consistent reporting and public dissemination of relevant data would help substantiate its value.

Finally, the concern about program integrity, that MCOs' utilization management provides a check on waste, fraud, and abuse that would need to be recreated under FFS, is legitimate, but cuts both ways. The same utilization management practices that theoretically limit inappropriate use have, as documented throughout the section on pro-carve-out arguments, also yielded inappropriate denials, parity violations, and underspending on care, which can be examined as waste and abuse. Any State-administered FFS model would need robust prior authorization and audit functions, but those tools are not exclusive to managed care.

Operational Considerations

Even if policymakers were to agree to carving outpatient behavioral health services out of managed care, the transition would involve a number of practical considerations as to how and when a carve-out could realistically occur.

With respect to administrative capacity, New York’s Medicaid claims system, eMedNY, already processes fee-for-service claims for a variety of services, including some behavioral health services that are delivered outside of managed care. A carve-out would increase the volume of claims processed through that system and would require adjustments to payment workflows, provider enrollment processes, and rate-setting procedures. These functions are within the State’s administrative capabilities, but they would require planning and testing before a transition.

Provider billing transitions are another concern. Behavioral health providers currently bill plans directly, navigating plan-specific formats, appeal processes, and other nuances. A transition to fee-for-service would require providers to adapt to the State’s FFS payment process. Some providers and advocates (including those who were providers in the era before the carve-in) believe a standardized fee-for-service environment would ultimately simplify their administrative operations, but a transition without adequate preparation could create additional cash flow risk if billing systems or payment timelines are not ready on time.

Community behavioral health providers commonly cite the burden of maintaining significant billing and administrative infrastructure simply to manage the variation across multiple managed care plans. A State-administered payment model would not eliminate administrative work: billing, coding, and compliance functions would remain necessary, but a more standardized reimbursement system could reduce some of the administrative burden associated with operating across multiple plans.

Care management infrastructure also raises questions. At present, care coordination for high-need Medicaid populations is often linked to managed care enrollment and attribution mechanisms, particularly for HARP members. If payment for behavioral health services were separated from plan control, the State would need to determine how some affected care management responsibilities would be reorganized and how HARP members would be reallocated among mainstream plans. Notably, the current carve-out discussion is limited to outpatient behavioral health services, and Health Homes and MCOs’ internal care managers are not exclusively managing behavioral health services, so their care management functions would continue.

Finally, policymakers would need to determine how a transition would occur in practice. Phased implementation, including by limiting the scope of the carve-out to outpatient specialty behavioral health services as was proposed most recently, would be more manageable than a system-wide overhaul. In practice, the success of a carve-out would depend less on the principle of separating behavioral health financing from managed care than on how carefully these operational considerations are addressed.

Regardless of whether a carve-out ultimately occurs, the debate has surfaced several areas where oversight and accountability within the current managed care framework could be strengthened.

Policy Recommendations

There is a perspective that MCOs are responsible for some of the mismanagement and profit-seeking of which they have been accused, but that a carve-out is not the solution. In any case, given the omission of the carve-out proposal from the Executive Budget and the One-House bills released on March 10, it is unlikely to come to pass this year. Anticipating continued attention to this area in subsequent legislative cycles, the State could take a number of intermediate steps to meaningfully increase MCO accountability and preserve access to care for Medicaid managed care members. The State could pursue the following steps independently of the carve-out debate, and should do so regardless of its outcome.

Mandate a Legislative Report on Managed Care Performance in Behavioral Health

The Budget approved in April 2013 included language requiring a one-time report on “performance metrics” related to the transition to managed care (i.e., the carve-in). The report was to be completed by DOH, OMH, and OASAS collaboratively and submitted by August 31, 2016. The FY 15 Enacted Budget expanded the report’s original scope and required its annual preparation by January 1, but amended the language to expire in 2018. Stakeholders believe these reports were never finalized; if they were, they were not made publicly available. Without such reporting, policymakers and stakeholders lack a consistent empirical basis for evaluating whether the carve-in has improved access, quality, or system efficiency over time.

We recommend that this “performance metrics” report be mandated in the FY 27 Budget and made public upon completion. These metrics should be reported on a recurring basis to avoid the current situation of lacking uninterrupted, comprehensive data to inform policy decisions. The parameters of such a report could follow the original legislative directives, which are set forth below, and address topics outlined in the Appendix.

The initial legislative language (N.Y. Laws of 2013, ch. 56, Part A, §45-c) mandated the report to examine:

“(i) the adequacy of rates; (ii) the ability of managed care plans to arrange and manage covered services for eligible enrollees; (iii) the ability of managed care plans to provide an adequate network of providers to meet the needs of enrollees; (iv) the use of evidence-based tools or guidelines by managed care plans when determining the appropriate level of care or coverage for enrollees; (v) the ability of managed care plans to provide eligible enrollees with both the appropriate amount and type of services; (vi) the quality assurance mechanisms used by managed care plans, including processes to ensure enrollee satisfaction; (vii) the manner in which managed care plans address the cultural and linguistic needs of enrollees; and (viii) any other quality-of-care criteria deemed appropriate by the commissioners to ensure the adequacy of rates, continuity of care, and the quality of life, health, and safety of enrollees during the transition of the behavioral health benefit.”

Additional terms from the next year’s budget (N.Y. Laws of 2014, ch. 56, Part A, § 16-a (amending § 45-c of Part A of ch. 56 of the Laws of 2013)) were:

“(ix) details regarding the implementation of reinvestment allocation plans pursuant to reductions of inpatient behavioral health services, including but not limited to the location and scope of service reductions resulting from the reduction or closure of programs licensed pursuant to article 31 or 32 of the mental hygiene law, and a description of services to be funded pursuant to allocation plans; (x) detailed descriptions of the methodology used to calculate the amount of savings resulting from the transition of individuals into managed care realized under subdivision 5 of section 365-m of the social services law, and the manner in which the reinvestment will address the service needs; (xi) details regarding the implementation of the collaborative care clinical delivery model; (xii) a description of, and rationale for, any waiver of existing regulations or any promulgation of emergency regulations pursuant to the behavioral health services transition authorized by sections 10 through 17 of part C of a chapter of the laws of 2014 which amended this section, relating to the implementation of the health and mental hygiene budget; (xiii) implementation of infrastructure and organizational modifications and investments in health information technology and training and technical assistance; and (xiv) details regarding the implementation of the plan to transition adult and children’s behavioral health providers and services into managed care.”

Although these reports would be out of date to refer to today, they would have provided useful insights about the process of the transition and the status of the system several years in. The fact that the reports were not completed or made public has drawn the frustration of stakeholders and likely reflects a bandwidth issue on the part of the State agencies implicated in the mandate, a data transparency issue—a theme Step Two has discussed in several of our publications—or a combination thereof.

The most recent publications covering some of the scope of those early legislative mandates are the 2023 Behavioral Health Managed Care report by OMH (which includes data through just FY 21) and the BCG Report, which includes the data presented in the 2023 OMH report.

April 1, 2026, will mark ten years since the due date of the original legislative report, which never came to light, and five years since the most recent fiscal data included in the OMH and BCG reports. The three State agencies named in the original mandates, as well as DFS, should produce a report that collates the data necessary to empirically evaluate the performance of the carve-in, and publish select metrics annually to allow for longitudinal tracking without several-year gaps.

Several relevant data components are already collected regularly, including: the quarterly and annual plan submissions to DFS by line of business (which do not indicate whether services are behavioral health); monthly plan submissions to OMH (which are not public); and parity reports plans submit to DFS (which do not indicate the dollar value of claims or denials). A legislative report would present an opportunity to ask plans for data that could connect the dots between these existing reports, and address important, timely questions (see Appendix).

In addition to the reporting described above, the State must increase the publicity and transparency of already-required reporting. Providing more current data and information to inform policy decisions going forward is essential. If even part of the logic of maintaining the carve-in is the preservation of consumer choice within Medicaid, then consumers should have access to information relevant to their coverage decisions. And since the traditional logic behind managed care is the expectation of savings under value-based payment, we ought to be able to measure its added value and associated costs, both financially and in members’ outcomes.

If a carve-out fails to materialize, there are still specific actions available to strengthen the managed care system. And since the proposed carve-out would be limited to outpatient behavioral health, the broader managed care environment still stands to benefit.

Tighten Network Adequacy Standards

Last year, New York strengthened its behavioral health network adequacy regulations under 10 NYCRR Part 98-5, including appointment wait-time standards, directory verification requirements, and periodic claims review. The regulation requires MCOs to proactively verify directory accuracy at least annually and to review claims activity every six months to identify providers who have not billed for services, rather than relying solely on provider self-reporting or portal updates. Still, regulatory standards operate within practical constraints: compliance is assessed through reporting, audits, and corrective action processes, and enforcement tools are limited.

More granular data on provider participation and service delivery from the legislatively mandated reporting suggested above would also help clarify the extent to which under-provision of behavioral health services reflects provider scarcity or network limitations.

Revise the Medicaid Managed Care Model Contract

Short of procurement, the model contract is the State's most immediate tool for strengthening MCO accountability without statutory change, and plans operating under the "any willing plan" certification framework agree to it as a condition of participation. Despite the State’s weak leverage for enforcing compliance, DOH can still revise the model contract's substantive terms between certification cycles. The BCG Report noted that states may need to procure in order to make significant contract changes, but incremental revisions, such as strengthening reporting obligations, tightening compliance timelines, and expanding disclosure requirements, are within the State's existing authority and do not require procurement to implement.

The model contract already contains provisions governing network adequacy, claims processing timeliness, parity compliance, encounter data reporting, and quality performance metrics. However, these provisions have proven insufficient to ensure compliance, as documented throughout this Brief.

Specific revisions worth pursuing include: requiring plans to publicly report behavioral health encounter data stratified by service type, denial reason, and provider billing activity; requiring that subcontracts with BHOs be disclosed to DOH and subject to the same performance standards as the MCO itself; and conditioning MCO certification renewal on demonstrated progress against ghost network remediation timelines established under the 2025 network adequacy regulation.

Strengthening the specificity and enforceability of model contract provisions and making compliance a more explicit condition of ongoing certification, would give the State meaningful leverage in the near term while the case for procurement continues to be made.

Strengthen Enforcement Authority And Penalties

New York should implement more robust enforcement mechanisms and higher-stakes penalties to compel real compliance, both in the service of Medicaid members and as an act of financial stewardship on account of the state budget. This is not a silver bullet, managed care plans will always have more information about their own operations than regulators do, and no penalty structure fully closes that gap.

The current framework is plainly inadequate. Sanctions are infrequent, fines are modest relative to plan revenue and the long-term costs associated with limiting access to care, and corrective action plans are not punitive measures. An enforcement schema with more “teeth” would include penalties scaled to plan revenue and the severity of violations, public reporting of deficiencies, and, for persistent or serious failures, intermediate sanctions such as enrollment freezes, restrictions on new service areas, or enhanced oversight for plans with recurring violations. The State should consider the potential for contract termination and other operational restrictions in the most extreme instances.

The State should also consider opportunities to compress the timeline between initial investigation, citations, and further enforcement actions, and should longitudinally monitor whether penalties have a measurable deterrent effect on MCOs’ behavior.

Competitively Procure Plans

Strengthening enforcement authority would improve the State’s ability to hold plans accountable within the existing system. But the State’s enforcement mechanisms work reactively and depend on the State’s ability to detect and document violations, and on providers’ capacity to file complaints. Rather than responding to plan failures after the fact, the State could condition MCO participation on standards set through competitive procurement, an approach the Hochul administration unsuccessfully advanced in both the FY 23 and FY 24 Executive Budgets. The mechanism remains relevant to the managed care environment, since even in a behavioral health carve-out situation, MCOs would still administer members’ overall care. A procurement model would give the State substantially more leverage over plan participation than its enforcement tools and its “any willing plan” approach currently provide.

Unlike the current structure, procurement would allow the State to periodically reassess which plans participate in Medicaid and under what conditions. This could establish clearer expectations regarding quality of service, operational capacity, provider network adequacy, and performance standards as prerequisites for participation in the program.

Procurement would help ensure that the structure and quality of participating plans meet State-established standards. Concentrating the delivery of managed care through fewer plans with greater expertise and resources would create administrative efficiencies for providers who have to manage the nuances of billing across all of their contracted plans. According to the BCG Report, this change would also potentially deliver substantial savings to the State.

Procurement creates long-term accountability: plans that consistently fail to meet performance standards would not be selected in the next procurement cycle. This is a fundamentally different enforcement dynamic than the current system, where certification continues unless the State can document egregious violations and navigate the lengthy corrective action and appeals process.

Despite political opposition from the Legislature and Medicaid managed care plans, the procurement strategy makes programmatic sense as a tool for strengthening accountability and improving plan performance. Even absent broader structural reforms such as a behavioral health carve-out, procurement could allow the State to recalibrate participation standards and ensure that plans operating in the Medicaid program are equipped to meet members’ needs.

Reconsider Government as a FFS Payer

The Senate's FY 27 One-House Budget Resolution language urging DOH to explore the viability of transitioning outpatient mental health services to fee-for-service should be enacted. This language presents an opportunity for formal analysis of what a carve-out process would cost, how it would interact with existing care management infrastructure, and whether the administrative and technological tools available today could address the coordination failures historically associated with FFS. Some such questions are included in the Appendix, summarizing topics for the recommended legislative report.

Without this analysis, the carve-out debate will continue to rely on dated data and competing assumptions about savings that neither side can fully substantiate. Indeed, the calculus has likely shifted since the original carve-in. A decade ago, the administrative cost to the State of directly managing behavioral health services may have consumed potential savings. Today, with vastly improved claims processing technology and data infrastructure, and given that the State already administers some of the Medicaid program on a fee-for-service basis through eMedNY, the administrative case for the State resuming a direct payer role in outpatient behavioral health is stronger than it was at the time of the carve-in. It is at least plausible that the State could operationalize a payment system that captures some of the coordination benefits managed care was meant to deliver, without the access and accountability challenges documented throughout this Brief.

Invest in Programmatic Integration

No financing structure automatically produces integrated, coordinated care. New York has not fully leveraged delivery models designed specifically to achieve behavioral health integration. While a comprehensive evaluation of these models is beyond the scope of this paper, their underutilization is relevant to the managed care debate because they represent unrealized potential under the current structure.

Structured models such as CCBHCs, the Collaborative Care Model, and the Patient-Centered Medical Home provide care management and coordination functions at the provider level by embedding care managers, supporting patients’ long-term engagement with a practice or set of providers, and coordinating behavioral, physical, and social services. Notably, behavioral health has generally lagged physical health in health IT adoption, particularly as a remnant of investment during the Meaningful Use era, resulting in relatively limited infrastructure development, interoperability, and data sharing, which can impede coordination. As states continue to strengthen data infrastructure, some have incorporated behavioral health into broader value-based arrangements, such as accountable care organizations or other provider-led models, where accountability for total cost and outcomes reinforces investment in care management and integration infrastructure.

Irrespective of the outcome of the carve-out debate, advancing integration will depend on strengthening provider-level care coordination and care management capacity, incentivizing care delivery and payment design that supports integration, and improving data infrastructure for under-resourced providers. New York's managed care structure has not prevented the State from pursuing provider-based models of integration, but neither has it catalyzed their adoption and scale. The carve-out debate should not obscure the need for further investment and innovation in tools that facilitate integration in practice.

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Appendix

Variations on topics included in early legislative report mandates (that are not specific to the carve-in transition period)

• Are rates and networks adequate?

• Are plans using evidence-based tools or guidelines when determining the appropriate level of care or coverage for enrollees?

• Are plans providing eligible enrollees with both the appropriate amount and type of services?

• What quality assurance mechanisms are plans using, and are they ensuring enrollee satisfaction?

• What methodology is being used to calculate savings from the transition of individuals into managed care, and how is reinvestment addressing service needs?

• How is the collaborative care model being implemented?

Additional Questions

• How much of BHET and MLR remittances reflects supply-side challenges, such as workforce shortages, versus aggressive utilization management tactics?

• What were annual BHET MLR remittances and reinvestments for all years since the State has been tracking them?

• What is the denial rate for outpatient behavioral health claims? How often are denials overturned?

• What is the value of those denials? What is the total value of claims, and how do denials compare?

• How many "in-network" behavioral health providers actively bill Medicaid?

• Under a carve-out model:

  • What would be the transition plan to avoid worsening providers’ cash-flow challenges?

  • How would care management be delivered under FFS?

  • How would the role of the Health Home care management program evolve? The role of MCOs’ in-house care managers?

  • How would the state approach the reattribution of HARP members if that program was dissolved?

• What are enrollment statistics for HARP and the Health Home care management program, and what are utilization trends in HCBS and CORE services among HARP members?

• What more can be done to support State agencies in verifying plans’ compliance with reporting requirements? How can technology help?

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Endnotes

[i] FY2027 New York State Executive Budget Briefing Book. Governor Kathy Hochul and Budget Director Blake Washington. p. 107.

[ii] When I was Deputy Secretary for Health and Human Services, I strongly supported a pilot program that would expand managed care to the IDD populations served by the Office for People with Developmental Disabilities (OPWDD). The crucial distinction between that proposed program – technically titled “Specialized I/DD Plans – Provider Led (SIPs-PL)” is that its structure sought to address the limitations of the State’s managed care programs in other areas. Critically, the managed care plans needed to be “provider-led” so that there was integration not only at the payment level but also integrated with the providers who are actually delivering care. The SIP-PL structure was modeled on the successful PACE program and long-term care. Alas, the program failed to get off the ground for a variety of reasons.

[iii] New York State Medicaid Policy Primer. Sachs Policy Group. September 2025.

[iv] Managed Care in New York. CMS.

[v] Children’s Health and Behavioral Health System Transformation. New York State Office of Mental Health.

[vi] Medicaid Managed Care 101. National Conference of State Legislatures (NCSL). Updated September 21, 2023.

[vii] Managed care’s effect on outcomes. Medicaid and CHIP Payment and Access Commission (MACPAC). September 12, 2023.

[viii] New York State Medicaid Managed Care Behavioral Health Billing and Coding Manual. New York State Office of Mental Health, Office of Addiction Services and Supports, and Department of Health. Updated October 2025. p. 4

[ix] Final Report on Managed Care Organization Services. The Boston Consulting Group (BCG). October 2023. p. 31.

[x] BH HCBS services are available to members of HARPs and HIV-SNPs.

[xi] NYS Behavioral Health (BH) Home and Community Based Services (BH HCBS) and Community Oriented Recovery and Empowerment (CORE) Services Dashboard Data. New York State Office of Mental Health. December 29, 2025.

[xii] BCG Report. p. 10.

[xiii] New York State Office for People With Developmental Disabilities (OPWDD) Managed Care Assessment Final Report. Guidehouse. September 6, 2024. p. 16.

[xiv] Assemblywoman Amy Paulin’s Bill to Protect School-Based Health Centers Passes in the Legislature. July 7, 2025.

[xv] Six times as of the publication of Permanent Carve-Out of School-Based Health Centers Will Provide Sustainability to a Critical Health Care Safety Net for New York’s Most Vulnerable Kids and Teens in 2023, and a seventh time last year.

[xvi] New York State Certified Community Behavioral Health Clinic (CCBHC) Medicaid Billing Guidance. New York State Office of Mental Health and Office of Addiction Services and Supports. March 2026.

[xvii] When consolidated by parent organization, New York has 14 unique Medicaid Managed Care insurers, of which 11 are not-for-profit (Amida Care; Capital District Physician’s Health Plan; Excellus BlueCross BlueShield; EmblemHealth; Healthfirst;* Highmark Blue Cross Blue Shield of Western and Northeastern New York; Independent Health; MetroPlus Health Plan;* MVP Health Care; Fidelis Care; and VNS Choice) and 3 are for-profit (Anthem*, Molina Healthcare of New York, and UnitedHealthcare of New York). Asterisked organizations operate more than one licensed plan under distinct Department of Health plan IDs, for a total of 17 plans.

[xviii] Per the Council, a 2023 survey of OMH Article 31 licensed outpatient clinics found that approximately 43% had waiting lists for clinic services; the 2025 response was slightly higher, at 45%.

[xix] Carve-In Models for Specialty Behavioral Health Services in Medicaid. Horvitz-Lennon, M., Levin, J., Breslau, J., Kushner, J., Eberhart, N., Bhandarkar, M. RAND. February 11, 2022.

[xx] Is Carve-In Financing Of Medicaid Behavioral Health Services Better Than Carve-Out? Horvitz-Lennon, M., McConnell, K. J., Glied, S., Levin, J. S., Eberhart, N. K., & Breslau, J. Health Affairs Forefront. February 7, 2023.

[xxi] 42 CFR Part 438 – Managed Care.

[xxii] Summary of the MLR Calculation and Definition of Terms. New York State Department of Health. Revised September 2025.

[xxiii] BCG Report, see Section 7, mainstream behavioral health findings.

[xxiv] PDFs describing each plan’s intermediate sanctions are available here.

[xxv] Denied: The Harmful Role of Prior Authorization and Claim Denials in New York Health Insurance. People’s Action Institute. October 2025.

[xxvi] Statement of U.S. Departments of Labor, Health and Human Services, and the Treasury regarding enforcement of the final rule on requirements related to the Mental Health Parity and Addiction Equity Act. U.S. Department of Labor. May 15, 2025.

[xxvii] Behavioral Health Parity Takes Step Backward Under Trump Administration. The Commonwealth Fund. January 21, 2026.

[xxviii] BCG Report, p. 9.

[xxix] BCG Report, p. 20.

[xxx] Georgia issues $25M in fines to 11 insurers over mental health parity violations. Becker’s Payer Issues. January 14, 2026.

[xxxi] BCG Report, p. 91.

[xxxii] Focused Survey Citations. New York State Office of Mental Health.

[xxxiii] BCG Report, p. 19.

[xxxiv] BCG Report, p. 19.

[xxxv] How do States Deliver, Administer, and Integrate Behavioral Health Care? Findings from a Survey of State Medicaid Programs. Guth, M., Saunders, H., Niles, L., Bergefurd, A., Gifford, K., Kennedy, R. KFF. May 25, 2023.