NADD U.S. Policy Update (from the NADD Bulletin Volume VIII Number 6)

Complete listing

Health Insurance and Psychiatric Inpatient Care

William O'Brien, MSW

Change has been a consistent theme in inpatient psychiatry over the past fifteen or more years. In the late 1980's the average length of stay for a psychiatric patient was over thirty days. Reimbursements equaled or exceeded the cost of providing the service. The treating psychiatrist was solely responsible for care provided to their patient. External clinical oversight was minimal. Psychiatrists addressed a series of symptoms and used the inpatient experience as a time to complete a number of tasks.


By 2005 lengths of stay have decreased by 75% or more. Reimbursements from most payors have fallen short of the cost of providing the service. Psychiatrists recognize that the treatment team now includes the insurer and they must allot valuable time for the insurance interface.


The insurers have developed or hired behavioral health managed care organizations (BHMCO) that seek to decrease costs by encouraging early assessment, rapid treatment for only the presenting symptom(s) and rapid referral to community resources for follow-up treatment for the presenting symptoms(s) and any other issues that may be of concern but did not get addressed during the short admission.


Management of care in inpatient psychiatry started at a time when hospitals paid little attention to the insurer's cost of supporting inpatient psychiatric care. The BHMCOs helped the insurers understand the complex issues relating to mental illness and its treatments. They reduced insurers costs by decreasing rates and narrowing the scope of service that they would support on an inpatient basis and they sought to do this without creating negative outcomes. It is of note that many of the BHMCOs are proprietary organizations that go at financial risk and share the savings, in spite of the fact that many of the insurers were not for profit organizations.


Managed care's move into inpatient psychiatry was a hard fought battle but in most cases, the hospitals and their BHMCOs came to some form of clinical common ground. While the rate battles have and will continue, the hospitals have had to either adapt, go out of business or choose to not accept insurance dollars or regulation.


In January 2005, the Center For Medicare and Medicaid Services, as required by the Balanced Budget Refinement Act of 1999 (BBRA), implemented Medicare's new per-diem Prospective Payment System (PPS) for inpatient psychiatric facilities. Previously most inpatient psychiatric services for Medicare recipients were reimbursed under an exceptionally complex series of formulas that took into account that hospital's cost of providing the care. Beginning in 2005 Medicare moved away from a hospital's cost based formula to an equally complex reimbursement system that defined a nation-wide per diem that is then adjusted for psychiatric diagnosis, medical cormorbidities, urban and rural staffing costs, residency training, emergency room evaluation costs and length of stay. By implementing the new PPS system Medicare did not plan to put additional dollars into the system, only to distribute them differently. However, Medicare did anticipate that hospitals would change treatment patterns, most specifically length of stay, in order to capture incentives found within the reimbursement formulas.


In the late 1980's, change of this nature would have been a battle. In 2005, most inpatient units understand the issues and have actually developed similar treatment strategies for other payors. Medicare has been interactive as they developed this approach and they have accepted feedback throughout the process.


Unfortunately lost in the larger picture are the clinical needs of the Dually Diagnosed patient who has both intellectual disabilities and significant mental illness. Medicare initially failed to even acknowledge mental retardation as a comorbid condition requiring an adjustment to the per diem. Later, after receiving some feedback, they recognized the oversight and offered an adjustment of 4% or $23.04 per day! On the Neuropsychiatric Disabilities Unit (NDU) at UMass Memorial Medical Center, our cost for providing care to this population is approximately 35% higher than it is to provide care on our general units, including units designed to deal with the most severe mental illnesses. One of many additional costs incurred by the NDU is specialing. The NDU successfully uses one-to-one specialing as a means of decreasing violence, decreasing the use of PRN medications and decreasing patient restraints. Specialing for a 24-hour period costs total to twenty times the 4% adjustment. The cost of providing PRN medications is negligible. Will the CMS's PPS changes force a change in practice and at what cost to patients with this dual diagnosis?


Unfortunately the CMS change that will have the most significant impact on the treatment of this population relates to the length of stay. CMS is providing a day one adjustment of 31%, a day two adjustment of 12%, a day three adjustment of 8%, etc. Most general psychiatry units have somewhat of a bi-modal LOS with some short admissions (1 to 4 days), a large number of average admissions (5 to 8) and a small number of outliers with stays of 15 days, 30 days and longer. Patients with this form of dual diagnosis do not have this LOS profile and they do not have it because effective assessment and treatment cannot be accomplished in this manner. Accurate diagnosis involves not just a comprehensive psychiatric evaluation but also a thorough medical evaluation. We know that allowing time to develop accurate diagnoses before implementing aggressive inpatient treatment creates better health outcomes. In 2005, Medicare has created a financial disincentive for the programs that continue to provide this form of effective care. Surprisingly, the BHMCOs have recognized the difficulty of effectively treating this population. On the NDU they do not balk at our longer lengths of stay. They understand that the accurate diagnosis and treatment that their patients receive creates better outcomes and decreased costs down the line. Shorter lengths of stay should not be a driver for reimbursement for this population. The question remains; will the CMS's PPS changes force a change in practice and at what cost to patients with this dual diagnosis?


Mr. O'Brien can be reached at