March 2007

Grant Results


From 1996 to 1999, staff at Harvard Medical School established the Managed Care Industry Center (MCIC) at Harvard University. Sponsored primarily by the Alfred P. Sloan Foundation, the center works to engage leaders of the managed care industry in developing a research agenda that addresses questions of common interest.

Key Results
Initial accomplishments of staff at the Managed Care Industry Center include:

  • Conducting two studies on the effects of contracting arrangements that "carve-out" coverage for mental health and substance abuse from a primary insurance plan.
  • Publishing three papers on managed behavioral health care and parity in coverage for mental and physical illnesses.
  • Creating a consortium of 10 employers and a managed behavioral health company to foster new research opportunities in managed behavioral health care.
  • Hosting a national conference to encourage dialogue between industry leaders, academic researchers and policy-makers; entitled "Managed Care Enters the 21st Century," the conference was held in Boston in January 1999 and drew 120 people.

The Robert Wood Johnson Foundation (RWJF) supported this project through a grant of $199,890.

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This grant from RWJF provided partial support for the establishment of the MCIC at Harvard University. The managed care industry is a crucial player in the current transformation of the nation's health delivery system. Over the next 10 years, industry leaders and policymakers have an important opportunity to ensure that the industry evolves in ways that continue to control costs and maintain the quality of health care.

The goal of MCIC is to engage leaders of the managed care industry in developing and conducting a research agenda that addresses questions of common interest. The hope is that this research agenda will help improve the productivity, quality, and use of manpower resources across the entire industry.

MCIC draws upon leaders from the managed care industry and faculty from across Harvard University as well as from other universities. In addition, MCIC plans to encourage doctoral students from a range of disciplines to do dissertation work related to managed care. MCIC's activities focus both on managed health care and on managed behavioral health care.

Although organizational and analytical issues are often similar across managed care companies focusing on each type of care, two distinct industries appear to be emerging — one that focuses on general health care and one that concentrates on mental health and substance abuse services.

MCIC's primary sponsor is the Alfred P. Sloan Foundation (APSF), which contributed $1.2 million during this grant period. The California Health Care Foundation and Eli Lilly & Co. also provided funding over the grant period. The grant from RWJF supported a greater focus on managed behavioral health care and enabled MCIC to hold an industry-wide conference to enhance dissemination of its work.

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  • MCIC investigators conducted two studies of "carve-out" contracting for mental health and substance abuse services. Under these contracts, insurers typically separate coverage for mental health and substance abuse services from the principal health insurance plan covering general medical care, and they contract with another firm to provide the mental health and substance abuse coverage. As reported in Psychiatric Services and in two unpublished papers, the investigators found that:
    • Even as mental health and substance abuse benefits may expand with the introduction of a carve-out, the probability that enrollees will use any of the services offered actually declines significantly.
    • Total costs per episode of illness decline with the introduction of a mental health and substance abuse carve-out.
    • The primary setting for mental health and substance abuse care shifts from inpatient facilities to outpatient settings.
  • MCIC investigators published two additional papers on current challenges facing the managed behavioral health care industry.
    • In Health Affairs, the investigators describe the economic forces that traditionally limit coverage of mental illness, the evolution of legislation mandating partial parity between mental health and medical/surgical benefits, and the challenges of ensuring access to care in today's managed care world.
    • In Health Care Financing Review, the investigators argue that managed behavioral health care companies have strong incentives to discourage enrollment of high-cost patients, such as those with mental illness. The authors suggest that "adverse selection," as this practice is known, can best be controlled by carving out the mental health and substance abuse benefit and introducing cost-sharing between payors and insurance plans.
  • MCIC created a consortium that included 10 employers, one managed behavioral health care company, and investigators from MCIC to study the effects of benefit design and financial incentives on treatment decisions for anxiety disorders, depression, and alcohol abuse and their impact on workplace outcomes. The consortium included Levi-Strauss, US West, USAir, Eli Lilly, Northeast Utilities, the state of Ohio, Time-Warner Cable, Alcan Aluminum, Blockbuster, Niagara Mohawk, and B.F. Goodrich.
  • MCIC convened an industry-wide conference designed to enhance dissemination of the center's work. "Managed Care Enters the 21st Century: Greater Accountability, Changing Relationships, Evolving Responsibilities. A Dialogue with the Managed Care Industry," was held in Boston, Mass. on January 11–13, 1999, and was attended by approximately 120 people representing 58 organizations. Preceding the conference, the center's consortium of employers and managed behavioral health care companies met to discuss progress to date and strategies for maintaining the consortium.


Project staff completed five papers, four of which have been published. A sixth paper on the consequences of mental health parity legislation under managed care is in progress. The industry-wide conference — "Managed Care Enters the 21st Century" — also enhanced dissemination of MCIC's work.

In addition, project staff were invited to provide testimony for July 1998 hearings on parity for substance abuse coverage before the Senate Committee on Labor and Human Resources. (See the Bibliography for more detailed information.)

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  1. To engage industry representatives in dialogue with an academically based Center, it is important to organize and promote conferences in a way that clearly promises and delivers a two-way exchange between academic researchers and industry officials. According to the project director, initial mailings for the conference were received with little enthusiasm by industry representatives, who perceived it as an academic conference in which they would have minimal input. Enthusiasm increased when the conference agenda was altered to stress dialogue between industry and researchers.

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MCIC has received another $1.3 million grant from the Alfred P. Sloan Foundation to cover an additional three-year period beginning February 1999. MCIC planned to expand its research into three new areas:

  1. The role of provider-sponsored organizations.
  2. Labor force and human resource issues.
  3. Information systems and organizational performance.

In a March 2007 e-mail, Joe Newhouse, M.D., said the Center still exists but that all funds were earmarked for student training. He did not expect more funding from Sloan.

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Establishment of a Managed Care Industry Research Center


Harvard Medical School (Boston,  MA)

  • Amount: $ 199,890
    Dates: April 1996 to March 1999
    ID#:  028646


Joseph P. Newhouse, Ph.D.
(617) 432-1325

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(Current as of date of this report; as provided by grantee organization; not verified by RWJF; items not available from RWJF.)


Frank RG, Koyanagi C, and McGuire TG. "The Politics and Economics of Mental Health 'Parity' Laws." Health Affairs, 16(4): 108–119, 1997. Abstract available online.

Frank RG, McGuire TG, Bae JP, and Rupp A. "Solutions for Adverse Selection in Behavioral Health Care." Health Care Financing Review, 18(3): 109–122, 1997. Abstract available online.

Huskamp HA. "Episodes of Mental Health and Substance Abuse Treatment under a Managed Behavioral Health Care Carve-out." Inquiry, 36(2): 147–161, 1999. Abstract available online.

Huskamp HA. "How a Managed Behavioral Health Care Carve-out Plan Affected Spending for Episodes of Treatment." Psychiatric Services, 49(12): 1559–1562, 1998. Abstract available online.

Sponsored Conferences

"Managed Care Enters the 21st Century: Greater Accountability, Changing Relationships, Evolving Responsibilities: Dialogue with the Managed Care Industry," January 11–13, 1999, Boston, Mass.

Attended by approximately 120 individuals representing 58 organizations, including Wellpoint Health Systems, PacifiCare, United Health Care, Kaiser Foundation Health Plans, Allina Health System, National Committee for Quality Assurance, the Health Care Financing Administration, the General Accounting Office, Eli Lilly, Pfizer, and the Wall Street Journal. The conference featured two dinner presentations and three content sessions with presentations and breakout groups.


  • Karen Ignagni, "Managed Care: Where Are We Headed?"
  • Robert Blendon, "The Future Politics of Health Care."


  • "Quality — Greater Accountability," Donald M. Berwick (moderator).
    • Arnold M. Epstein, "Public Quality Reporting in New York State and Pennsylvania: Lessons for Managed Care."
    • Paul Cleary, "Consumer Involvement and Public Reporting."
    • Discussion Initiators: Richard Anderson, Sheila Leatherman, Linda Lyons, Paul Schyve, and Cary Sennett.
  • "Changing Relationships and Evolving Responsibilities," Walter Salmon (moderator).
    • Richard G. Frank, "Doctors, Dollars, and Delegation."
    • Discussion Initiators: Gail Amundson, Robert Berenson, Lawrence Casalino, Joseph Dorsey, Marvin Gordon, and Leeba Lessin.
  • "Legislative Perspectives," David Blumenthal (moderator).
    • Leonard Schaeffer, "Regulation and Market-based Managed Care."
    • Sheila Burke, "Public and Legislative Perspectives of Managed Care."
    • Discussion Initiators: Geraldine Dallek, Charles Kahn, Jan Malcolm, and Ronald Winslow.
  • Howard Bailit, "Report on Breakout Groups."

Presentations and Testimony

Haiden A. Huskamp, Richard G. Frank, Kristina W. Hanson, and Thomas G. McGuire, "Empirical Clues About the Consequences of Mental Health Parity Legislation under Managed Care," at the National Institute of Mental Health's Conference on Economics and Mental Health, September 1998, Bethesda, Md.

Richard Frank, at the Hearings on Parity for Substance Abuse Coverage, to the Senate Committee on Labor and Human Resources, July 28, 1998, Washington, D.C. Written request from Senator Jeffords, July 23, 1998.

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Report prepared by: Robert Crum
Reviewed by: Richard Camer
Reviewed by: Molly McKaughan
Program Officer: James R. Knickman