Competitive bidding and states' purchase of services: The case of mental health care in Massachusetts

Over the past two decades states have significantly increased their use of competitive bidding to purchase health and social services from private agencies. Competitive contracting is thought to facilitate program administration, to reduce costs, and to increase the quality of delivered services. We evaluate these claims in light of Massachusetts' experience with competitive contracting for mental health care. We find that few of the expected benefits are achieved. In practice, supposedly competitive bidding systems often degenerate into administratively complicated negotiations between the state and private monopolies. This results in higher costs and lower quality of services. In light of this negative assessment, three strategies for reform are proposed and evaluated.