California is overhauling its substance abuse treatment system for low-income people, embarking on a massive experiment to create a smoother path for addicts from detox through recovery.

The state is the first to receive federal permission to revamp drug and alcohol treatment for beneficiaries of Medicaid, known as Medi-Cal in California. Through what’s known as a drug waiver, state officials will have new spending flexibility as they try to help people get sober and reduce social and financial costs of people with substance abuse disorders.

Under the waiver, the state plans to expand treatment services, including inpatient care, case management, recovery services and added medication. Beginning next year, drug treatment centers will be able to get reimbursed for providing this much wider range of options to people on Medi-Cal.

Only a small fraction of low-income Californians with substance abuse disorders receive treatment, largely because of restrictions on what Medicaid will pay for.

“This was a long time coming,” said Keith Lewis, executive director of Horizon Services, which provides treatment in San Mateo, Santa Clara and Alameda counties. “It’s a win/win for people with substance use issues and their families … and for the people providing those services.”

The changes, which will be phased in starting next year, stem in part from the Affordable Care Act, which required that substance abuse treatment be covered for people newly insured through Medicaid or insurance exchanges. The health law allowed states to expand Medicaid to cover millions more people.

Drug rehabilitation providers say the changes will give addicts a better chance at getting — and staying — clean. But they fear the state won’t raise the traditionally low Medi-Cal reimbursement rates for treatment, making it harder to provide services and produce the outcomes California is hoping for.

Lewis, of Horizon Services, said that under the waiver he expects drug treatment services to be higher quality and the workforce better trained. But he said that “Medi-Cal rates, which have always been too low, have to go up.”

California’s Medi-Cal drug treatment program currently costs about $180 million annually, paid through a combination of state and federal funds. There aren’t any estimates for costs under the new approach. But the idea is that the changes will help health care expenses overall by enabling more people to get sober and healthier so they stop rotating through treatment centers, jails and hospitals.

Nearly 14 percent of Medicaid recipients are believed to have a substance abuse disorder, according to the National Survey on Drug Use and Health.

The five-year pilot project in California was approved by the federal Centers for Medicare & Medicaid Services in August. Under the waiver, counties will approve treatment for Medi-Cal patients based on medical necessity and criteria established by the American Society of Addiction Medicine.

The Tarzana Treatment Centers in Los Angeles County provide outpatient and inpatient care for substance use disorders. Anna Gorman/KHN hide caption

toggle caption Anna Gorman/KHN

Current federal rules limit drug treatment centers’ ability to get reimbursed under Medicaid for residential care. Clinics with more than 16 beds essentially cannot get paid, except for treating pregnant and postpartum women. That restriction will be dropped for California under the waiver.

As a result, Medi-Cal beneficiaries will be able to access up to two 90-day residential stays each year, with the possibility of one 30-day extension if providers determine that it is medically necessary. Certain populations, including those in the criminal justice system, can get approval for longer stays.

The waiver is also designed to provide better coordination between physical, mental health and substance abuse services,” according to John Connolly, deputy director of substance abuse prevention and control for the Los Angeles County Department of Public Health. That along with more access could result in fewer emergency room visits and hospitalizations, he said.

That’s potentially good news for people like Caitlin Knoles, a resident of Orange County who says she gets turned down for treatment of her methamphetamine addiction every time she tells residential centers she’s on Medi-Cal. She has ended up in the hospital more than once because of her addiction.

“It’s hard,” Knoles said. “I can’t get help.”

The only way she can reliably get clean now is in jail, she says.

“It’d be nice to have a job and have my family back and just be normal,” said Knoles, 24, as she sat outside a liquor store in Laguna Hills.

For the first time, substance abuse disorders will be treated like a disease rather than a short-term illness, said Marlies Perez, chief of the substance use disorder compliance division for the state Department of Health Care Services. “Even though we know it’s a chronic condition, we have treated it acutely,” she said.

Much depends, however, on reimbursement rates, which are still being negotiated. Clinic officials say they need higher rates to expand services and handle the anticipated influx of clients, many of whom will be seeking rehab for the first time.

“There is a cost to raising the bar on treatment,” said Albert Senella, president of the California Association of Alcohol and Drug Program Executives. “If the rates aren’t adequate … we are not going to be able to effectively meet the [new requirements] and the needs of the population.”

Senella, who is also CEO of Tarzana Treatment Centers in Tarzana, Calif., said many clinics across the state don’t have money to prepare for the overhaul, which will require improving technology and adding and training staff. For now, no plans are in place to provide counties or clinics with startup funds.

Eli Veitzer, interim CEO of Prototypes, which provides treatment services in Los Angeles, Orange and Ventura counties, said the waiver provides an “incredible opportunity” to transform care.

But in addition to fears about rates, Veitzer said he is also worried that 90 days of residential treatment won’t be enough for many people. Someone may be able to stem their addiction in three months but will still need more time in a treatment facility to prepare for life outside.

“If their ability to function independently in the community is not addressed, they are likely to relapse,” he said.

Danny Montgomery, a 33-year-old patient at Tarzana Treatment Centers, said he needed more than a few months to get clean after nearly a decade on heroin. The addiction, which he estimated cost him up to $100 a day, caused him to lose his job and nearly lose his family.

“The whole thing is a process,” said Montgomery, who lives in the San Fernando Valley. “You get the substance removed from your body, but you have to retrain your mind.” Montgomery said he tried to get a bed in a residential treatment center but couldn’t find one that would take Medi-Cal.

He tried to get clean on his own but it never lasted. Months after beginning his search, Montgomery was finally able to get a spot at Tarzana. He said Los Angeles County is paying for his stay, which began in May.

As worried as they are about reimbursements, clinic operators said a big advantage of the new approach is that it could help stabilize their funding. Providers now depend largely on counties to pay for residential treatment for low-income residents.

“You always suffered the vagaries of the budget cycle,” said Vitka Eisen, CEO of HealthRIGHT 360, which provides drug treatment in the Bay Area.

The waiver also means increased oversight of treatment centers.

Last year, a state audit found widespread fraud and questionable billing among Medi-Cal drug treatment providers. The audit followed reports by the Center for Investigative Reporting that clinics were billing for fake clients.

The new system will include more levels of accountability, Perez says, including more stringent requirements for clinics and more local control over contracting.

Knoles, who is addicted to methamphetamine, said she hopes that more people like her will be able to get treatment.

“I’ve had a lot of friends die from addiction,” she said. “Imagine if they’d gotten the help they wanted and needed. Things would have been different.”

Anna Gorman is a reporter with Kaiser Health News, a nonprofit news organization covering health care policy and politics. A version of this story appeared on KQED’s State of Health blog.

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