by Rose Leidl, RN, BSN; Patricia Schano, MeD; Annalisa A. Almendras, PsyD; Barbara Pawley, MPH, MPW

In California, the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), also called “the Parity Act,” is rolling out under the auspices of the state’s Department of Managed Health Care (DMHC) in partnership with the consulting firm, Managed Health Care Unlimited, Inc. (MHU), a leading review agency for full-service and specialty health plans. California is one of the first states to implement MHPAEA, making the DMHC/MHU team an innovative collaboration.

MHU’s job was to assist and review the work of the health plans in their initial efforts to align the treatment and financial parameters of their medical, behavioral health and substance use disorder benefits. The task required in-depth teamwork and an effective working relationship.

Implementation began in early 2014 with a DMHC request for compliance filings from the 26 California health plans that offered medical and mental health/substance use disorder (MH/SUD) services at that time.

Phase 1: Compliance Filings (2014 – 2015)

Compliance filings enabled California health plans to demonstrate how they intended to achieve parity between their medical and MH/SUD benefits. The process involved both a qualitative and quantitative analysis. The qualitative analysis was performed first in order to establish a framework for the comparability of benefits.    

Qualitative Analysis

MHPAEA provisions require health plans to undergo a substantive test for parity of benefits between medical and MH/SUD services across six classifications: Inpatient In-Network, Inpatient Out-Of-Network, Outpatient In-Network, Outpatient Out-Of-Network, Emergency Services, and Prescription Drugs (Pharmacy Services).

The DMHC/MHU team created additional review areas: Other Items and Services within the Outpatient In-Network and Outpatient Out-Of-Network classifications to better compare medical and MH.SUD services that do not fit into an office visit paradigm, Prescription Drug Formulary Design, and Case Management. These classifications were assembled under three umbrellas that reflect how health plans ascribe benefits: prior authorization, concurrent authorization, and retrospective authorization.

To facilitate the compliance filings, the team developed a template (Table 1) to help plans organize their responses and explain their rationale for alignment of benefits.


Table 1: Template for Qualitative Analysis in Compliance Filings







A. Definition of Medical



B. Prior Authorization



Inpatient, In-Network


Outpatient, In-Network: Office Visits


Outpatient, In-Network: Other Items and Services


Inpatient, Out-of-Network


Outpatient, Out-of-Network: Office Visits


Outpatient, Out-of-Network: Other Items and Services


C. Concurrent Review

Inpatient, In-Network (etc)


D. Retrospective Review

Inpatient, In-Network (etc)


E. Emergency Services


F. Pharmacy Services


G. Prescription Drug

     Formulary Design


H. Case Management



The DMHC/MHU team was a resource to the plans, offering support and giving advice as they worked through the qualitative analysis. In particular, the plans’ explanations for grouping services within the required classifications prompted frequent discussions in order to refine thought processes and rationales. MHU’s staff included clinicians, whose expertise was critical in parsing the intricacies of specific services and procedures.

While the grouping of medical and surgical services was relatively straightforward, complications arose in ascribing across-the-board comparisons with MH/SUD services, especially in the outpatient classification, as the following examples demonstrate:

  • MH/SUD group therapy sessions cannot easily be compared to individual therapy sessions or to medical office visits.
  • MH/SUD office visits may incorporate multiple clinical consultations (e.g., chemical counseling and mental health counseling) into a single visit, unlike medical office visits, which usually involve one consultation from a single provider per visit (sometimes involving multiple issues).
  • Behavioral health treatment for autism spectrum disorder is scheduled in the setting where the behavioral problem occurs – usually at school or in the home – not in a provider’s office, thereby adding travel time to what is termed in medical services as an “outpatient office visit.”
  • Partial hospitalization for MH/SUD is considered by most plans to be outpatient treatment but is calculated by number of days or hours and cannot be easily compared to medical office visits, procedures or tests.

The Outpatient Other Items and Services classification proved to be the most challenging. For medical services, this classification describes outpatient health care that cannot be delivered as standard office visits. Complexities in many MH/SUD services set hurdles for comparability. Table 2 exemplifies how a plan might organize and describe its medical and MH/SUD benefits for the Outpatient Other Items and Services classification.

Table 2: Example of Plan Descriptions for

Outpatient Other Items and Services


Medical Benefits

MH/SUD Benefits

Outpatient tests and procedures:

  • Non-emergency air or ground transportation
  • Chondrocyte and cochlear implants
  • Clinical trials
  • Custom orthotics
  • Certain dermatology procedures
  • Dialysis services (notification only)
  • Durable medical equipment
  • Experimental/investigational services & new technologies
  • Genetic testing
  • Home health services
  • Occupational and speech therapy
  • Certain outpatient diagnostic procedures
  • Outpatient surgical procedures
  • Prosthetics
  • Radiation therapy
  • Referrals to non-participating providers
  • Transgender services
  • Transplant-related services
  • Rehabilitative and habilitative therapy

Outpatient services:

  • Travel (visits to patient’s home)
  • Psychological testing
  • Neuropsychological testing
  • Outpatient detoxification
  • Outpatient ECT
  • Transcranial Magnetic Stimulation (TMS)
  • Partial hospitalization, day treatment, half-day partial hospitalization
  • Intensive outpatient program
  • 23-hour outpatient observation
  • Behavioral health treatment, including Applied Behavioral Analysis (ABA)


After listing and grouping the menu of medical and MH/SUD benefits, the plans were required to explain how and why they arrived at the comparability of services. Plans also had to describe their utilization management processes, including their criteria for approving, modifying or denying requests for services during prior-authorization, concurrent and retrospective reviews.

The qualitative analysis entailed multiple drafts by the plans. Each draft was assessed by the DMHC/MHU team, and amendments to the filings were suggested until a refined and compliant product was produced.


Quantitative Analysis

As outlined in MHPAEA, the quantitative analysis is a process by which a plan establishes parity between its medical and MH/SUD benefits in terms of enrollee financial requirements (e.g., copay or coinsurance) and/or treatment limitations (e.g., hospital days or number of outpatient visits). In most cases, the basis of this analysis is the development of a predominant financial requirement for each classification (e.g., Inpatient, In-Network), which is a two-step process.

The first step determines if a plan must apply a predominant financial requirement to the medical and MH/SUD services in a classification. The statute states that if a plan applies any financial requirements to at least two-thirds of all the medical services within a classification, it must develop a predominant financial requirement for that classification. If a classification does not meet the two-thirds threshold, then the Plan does not need to develop a predominant financial requirement for the classification. Table 3 shows that in the Inpatient, In-Network category, the plan met the two-thirds threshold as three of the four types of medical services provided by the plan have a financial requirement, i.e., enrollee coinsurance.

The second step determines the level of the predominant financial requirement within a classification if a two-thirds threshold is met. The level is determined by the financial requirement, e.g., copay or co-insurance, that the plan applies to more than one-half of the medical services in the classification.

Table 3 shows that the plan meets the one-half threshold – three of the four types of medical services within the Inpatient, In-Network category require a coinsurance. Developing the predominant financial requirement in this case is a simple extrapolation because in all of the plan’s medical services, with the exception of hospice, the coinsurance is the same, i.e., 20%. Therefore, the predominant financial requirement is a 20% coinsurance. This analysis creates a bar for MH/SUD services: The plan may not charge more for its MH/SUD services than the predominant financial requirement established for its medical services, even if the plan previously charged enrollees a higher coinsurance for some MH/SUD services. The plan may, however, charge less than the 20% coinsurance for MH/SUD services.

DMHC’s Office of Financial Review (OFR) performed the quantitative analysis, which was more complicated in categories (e.g., Outpatient Other Items and Services) where the range of financial requirements or quantitative treatment limitations were significant.

The DMHC/MHU team served in a consultative capacity throughout the quantitative analysis, helping the OFR to understand the medical services in comparison to the MH/SUD services in each classification.

Table 3 demonstrates the final product of the quantitative analysis in one classification.

Table 3: Example of a Predominant Financial Requirement

in the Inpatient, In-Network Category

Inpatient, In-Network Medical


Predominant Financial Requirement

Inpatient, In-Network MH/SUD


1.  Inpatient admission – room and board in a medically necessary private room, semi-private room or ICU with ancillary services (includes maternity services).



1.  Inpatient psychiatric admission – room and board in a medically necessary private room, semi-private room with ancillary services (includes laboratory, and ECT facility services).


2.  Confinement in a skilled nursing facility.


2.  Inpatient detoxification admission – room and board in a medically necessary private room, semi-private room with ancillary services (includes laboratory services).


3  Inpatient hospice care


3.  Residential MH treatment and




4.  Physician visit to hospital or skilled nursing facility (excluding care for mental disorders)


4.  Physician visit to hospital, behavioral health facility or residential treatment center (includes professional services for ECT, psychological testing, and neuropsychological testing)



Phase 2: Audits (2016 – 2017)

Upon completion of the compliance filings in 2015, the DMHC/MHU team launched Phase 2, a series of desk and onsite audits for all of the participating health plans to determine whether they were meeting parity expectations.

While the compliance filings show how the plans intend to maintain parity between their medical and MH/SUD services, the audits show where and how the plans are in (and out of) compliance with their own guidelines, in practice.

The audits were conducted through retrospective file reviews and interviews with plan staff. The focus was on plan oversight of delegated services, which is a key component of traditional medical and behavioral health audits required under California’s Knox-Keene Act, the regulations governing health plan oversight.

Most plans delegate medical services to health systems, clinics, doctors and hospitals, which can require oversight of a hundred or more delegates who have their own policies, procedures and practices – including individual criteria for medical necessity decisions and authorization of services. Under Knox-Keene, if delegates do not conform to plan policies, which have been reviewed and approved by DMHC, the plan is found to be deficient in its oversight responsibilities.

The Parity Act added a layer of difficulty to plan oversight of its delegates because plans routinely delegate their MH/SUD services to other specialized health plans, including ones under the auspices of city and county governments. As part of the parity audits, the plans had to demonstrate that MH/SUD delegates’ guidelines and criteria complied with those of the plan and had parity with delegated medical services in terms of utilization, authorization, cost-sharing and quality of services.   

Upon completion of each audit, the DMHC/MHU team prepared a preliminary report, outlining their findings. Final reports released to the plans will serve as guidelines for the adjustments they need to make in their operations in order to comply with the Parity Act going forward.


S5 Box



You need to enable user registration from User Manager/Options in the backend of Joomla before this module will activate.