Catasys Program to Benefit from Health Care Reform

LOS ANGELES--(BUSINESS WIRE)-- Catasys, Inc. (OTCBB:CATS) commented today on the impact of the Affordable Care Act and the implementing regulations for the Wellstone-Domenici Mental Health Parity act on the Company’s integrated substance dependence program. Last year’s uncertainty surrounding health care reform has been replaced with greater clarity by the passing of the Affordable Care Act and the issuance of several of the related implementing regulations. In combination with implementing regulations for parity, which went into effect for most health plans in January 2011, health care reform has given health plans a framework they must address.

“There are a number of regulatory, legislative and market factors that are coming together to increase focus on lowering the cost of health insurance, healthcare costs and improving outcomes. This focus has increased health plans’ interest in new ways to reduce healthcare costs,” said Rick Anderson, Catasys’s President and COO. “The Company’s integrated substance abuse program is well positioned against this backdrop and we expect that a continued focus on reducing healthcare costs, along with our recently announced health plan contracts, will continue to heighten interest in our program.”

The combined effect of these legislative initiatives is to provide an impetus for health plans to focus on controlling costs while maintaining or increasing coverage for beneficiaries, including in the area of substance dependence. While the future implementing regulations will provide more specifics, this confluence of requirements represents a broad mandate for providing substance dependence coverage. Coupled with the requirements under the Wellstone Domenici parity law, this represents a significant expansion in coverage and is anticipated to increase the overall cost of care to payors. The Catasys program is designed to reduce overall health care costs through better clinical outcomes and increased compliance for any other mental health or medical conditions a member has in an integrated management program.

Over the last decade the cost of health care premiums has increased significantly. These increases have largely been driven by increasing costs of delivering care to members. However, now that premium increases are receiving greater scrutiny from state and federal regulators, health plans will likely proceed with caution and look to minimize all cost increases that would require greater proposed increases. This translates into a need for payors to reduce their underlying costs, including the cost of clinical care. Programs that change the composition of overall health care costs through addressing underlying cost drivers, such as the Catasys program, are increasingly being recognized as a necessary part of the solution to controlling costs.

Under the interim final implementing regulations, health insurers are required to have a Medical Loss Ratio ("MLR") of at least 80% for group plans. The cost of clinical services and quality improvements (i.e., the costs of the care provided to plan members versus administrative expenses required to run the plan) as a portion of the total premium that a health plan collects is commonly referred to as the MLR. In the event that the MLR is less than the required percentage threshold, health plans will have to refund the difference to their customers. Therefore, there is a significant advantage to programs that qualify as clinical services and quality improvements, and that also provide health plans a net cost savings in medical costs. The services Catasys offers are designed to qualify to be treated as clinical services and quality improvements under the interim final regulations. The effect of parity and the MLR is to disincentivize health plan cost control methods such as coverage reductions, utilization management and bill review, and incentivize the use of programs like Catasys offers to control costs.

The Company recently announced its third health plan client further validating the market interest in the Catasys program. The Company’s first agreement with a self-insured employer also helped validate Catasys and facilitated additional adoption. Employers generally cover significantly smaller populations than health plans and represent a much smaller discrete revenue opportunity. Most regional health plans have memberships that are at least 10-20 times the size of large employers and reach upwards of 4 million members in a state for the largest regional plans — plus, their membership is generally concentrated in one state or geographic region. The Company continues to primarily focus on engaging regional health plans, and is strategically positioned to drive further adoption of Catasys based on the momentum created from recently signed contracts, and on the beneficial landscape of health care reform and parity.

About Catasys®

Catasys, Inc. provides specialized behavioral health management services to health plans, employers and unions through a network of licensed and company managed health care providers. The Catasys substance dependence program was designed to address substance dependence as a chronic disease. The program seeks to lower costs and improve member health through the delivery of integrated medical and psychosocial interventions in combination with long term care coaching, including their proprietary treatment program for alcoholism and stimulant dependence. For further information, please visit

Forward-Looking Statements

Except for statements of historical fact, the matters discussed in this press release are forward looking and made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect numerous assumptions and involve a variety of risks and uncertainties, many of which are beyond the company's control that may cause actual results to differ materially from stated expectations. These risk factors include, among others, changes in regulations or issuance of new regulations or interpretations, limited operating history and lack of outcomes and statistically significant formal research studies, difficulty enrolling members in our programs, the risk that treatment programs might not be effective, difficulty in developing, exploiting and protecting proprietary technologies, intense competition and substantial regulation in the health care industry; and additional risks factors as discussed in the reports filed by the company with the Securities and Exchange Commission, which are available on its website at


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