Medicaid is a major target for states seeking to contain budget pressures in the face of rising costs and demands for health care.   As states search for cost containment through managerial and budgetary reform, they create new challenges for nonprofit health providers, who must adapt their services to changing reimbursement and managerial requirements.  This study explores how state austerity measures work their way down to health care providers, examining the processes of adaptation and change in a nonprofit mental health agency.  This project adopts an organizational perspective.  It recognizes nonprofit providers of mental health services as “street-level organizations” (SLO’s) that operate at the interface of policy and disadvantaged populations.  As SLO’s, they may use discretion to adapt to changing conditions in ways that standardized measures of performance often cannot capture. 

This case study peers inside the street-level practices of a community mental health agency in order to illuminate how state efforts to manage austerity may re-shape the everyday practices of service delivery.  It utilizes street-level analysis to illuminate both formal and informal strategies through which organizations may adapt to federal and state efforts to control Medicaid costs and reform administration.  This case study provides an opportunity to trace managerial and budgetary strategies from the federal level to the state level to the street level and to illuminate what that means for policy-as-produced in everyday organizational practice.

This study of a Chicago-based community mental agency begins with Medicaid reforms in Illinois.  Under a statewide restructuring initiative, Medicaid reform replaced state block grants with fee-for-service contracts, altered the terms of financing from guaranteed, prospective sums to retrospective payments subject to auditing.  The state also introduced managerial reforms to contain (or reduce) state Medicaid expenditures.  These managerial reforms are hardly exclusive to this state or this case.  Similar strategies have been used in a variety of other states and in other policy domains.  These strategies include contracting, performance-based payment arrangements, standardized units of care, and administrative restrictions on service provision.  As more states turn to these types of measures, it is important understand how street-level organizations adapt to them. 

This case study offers a street-level perspective of the organizational responses to state austerity and management reform.  It also offers insights into how Medicaid is being reshaped by financing and management reforms, often in ways that are not revealed through standard management metrics.  Using interviewing and organizational ethnographic methods, this study investigates in “real time” evolving patterns of street-level practice that emerge as practitioners struggle to adapt to a changing environment.  It offers a preliminary assessment of the implications for the provision of community mental health services to disadvantaged populations.  More broadly, it suggests how pressures for austerity and cost control make their way into street-level practice.