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***Excerpt from report***

A key premise of North Carolina’s mental health reform is that the management and oversight of public MH/DD/SAS programs is transferred from the current quasi-independent mental health area authorities to fully accountable single-county or multi-county programs—so-called Local Management Entities (LMEs). Under the current system, most MH/DD/SA clinical services are directly provided by Area authorities. The reform plan calls for full divestiture of clinical services from public providers to non-profit and for-profit provider groups. In this privatization of clinical services, LMEs purchase services from a broad array of providers and vendors. Privatization is not unique to North Carolina and represents a common shift nationally in management of human services over the past three decades (Dorwart and Epstein, 1993). Indeed, even in North Carolina, many services provided by area programs are already contracted out to community providers.

Privatization offers the promise of increased administrative efficiency by separating management and oversight from the provision of services, allowing decentralization of administrative functions through regional contracting, and a way to buffer clinical services from the constraints of government personnel policies. Advocates of privatization argue that private sector providers, incentivized to maximize productivity, are quicker to innovate and bring new treatment technologies to the clinical arena. It is also promoted as a mechanism to increase competition among service providers, and further stimulate innovation, new efficiencies and create less costly, more flexible service delivery (Clark, Dorwart & Epstein, 1994; Dorwart, Schlesinger & Pulice,1986). The competitive process, by this reckoning, will also weed out inefficient and ineffective providers. All of this, it is further argued, should lead to lower cost and higher quality of care.

Despite several decades of experience with human service privatization many questions about its advantages remain unanswered. Key among these is: Will MH/DD/SAS privatization: 1) promote innovation in services provision? 2) enhance provider quality? 3) lead to meaningful competition?; 4) fragment care? and, 5) co-opt advocates?

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