Response to the Presidential Address—The Systematic Defunding of Psychiatric Care: A Crisis at Our Doorstep

You have heard from Dr. Harding about Philadelphia’s role as the birthplace of American psychiatry. Today, however, the principle that inspired the founders of the Pennsylvania Hospital, the Friends Asylum, and the American Psychiatric Association—that a civilized society is obligated to care for those of its members who suffer from the consequences of mental illness—seems everywhere to be honored in the breach. The moral obligation of a just society to provide for the needs of the less fortunate, as we would want our needs met were we in their places, teeters on a precipice. Wishing that mental illness would not exist has led our policy makers to shape a health care system as if it did not exist. The result can only be described as an incipient disaster.

Consider the situation in our public mental health systems, the traditional refuge of the indigent mentally ill. As detailed in a report from the Bazelon Center for Mental Health Law (1), our states now spend 30% less on mental health care, adjusted for inflation, than they did in 1955. If anything, the states’ withdrawal from their historic role as keepers of the safety net for those who cannot obtain care anywhere else has accelerated in the last decade. More state hospitals closed in the 5 years from 1990 to 1995 than in the preceding 20 years. From 1990 to 1997, per capita state expenditures on mental health dropped 7%, to the point where states accounted for fewer than 2% of all dollars spent for mental health care. In 2001, mental health ranked among the top three priorities in only 17 of our 50 states (1).

What does this retreat from responsibility for persons with mental illness mean in practice? In some places, like my home state of Massachusetts, the state no longer provides any acute psychiatric hospital care, turning the burden—and half of the cost—over to the federally subsidized Medicaid program. Unfortunately, on average Medicaid covers only 80% of the cost of inpatient care in the state (2). To make matters worse, for uninsured patients who do not qualify for Medicaid coverage, the state requires that hospitals agree to admit these patients and absorb the costs of their care, if they want to remain part of the Medicaid program. (In retrospect, it is only surprising that it took Massachusetts 200 years to come up with such an elegant solution to the problem of providing care for uninsured populations—at no cost to the state!)

Nor is it only acute inpatient services for which the states are shirking their responsibility. A report from Montgomery County, Md., one of the wealthiest counties in the country, reveals that Medicaid rates are so much below the cost of delivering services that five clinics closed in the last year, the largest provider went bankrupt, and closings of three of the eight remaining clinics are threatened in 2002 (3). As a consequence, psychiatric emergency room visits in the four general hospitals that still provide this service increased last year between 17% and 33%. Simultaneously, the number of state hospital beds has continued to drop, as the Springfield Hospital Center, which serves the county, operates at an average daily capacity of 100% (D.F. Silver, D.E. Warner, unpublished memo, Dec. 17, 2001).

Now for the coup de grâce: with many states facing budget deficits in the current economic slowdown, mental health services and Medicaid—as well as other human service programs used by persons with chronic mental illness—are being targeted, as we speak, for additional cuts (4).

Perhaps you are thinking that this litany of failures of the public sector to meet the needs of indigent persons with mental illness, although sad, is not surprising. It was, after all, an earlier incarnation of this inadequate system of care that Albert Deutsch described more than 50 years ago as “The Shame of the States” (5). But the systematic defunding of the mental health system is by no means limited to the public sector. Indeed, the situation for people who have private insurance or Medicare is at least as bad, and in some respects worse.

The most recent data indicate that for roughly 160 million Americans the mental health benefits to which they are entitled by their health insurance plans are now overseen by for-profit managed care companies (6). With control over large groups of patients, the managed care companies negotiate below-cost rates for inpatient and outpatient care. Hospitals and clinicians, fearful of losing access to the patients they have treated for years if they do not join the new managed care networks, agree to accept these rates. From 1988 to 1998, managed care plans cut the amount of money they were spending on psychiatric care by 55%, compared with reductions of 12% in dollars spent on care for all other conditions (7). The Washington Post (3), in reporting on the previously mentioned closures of clinics in Montgomery County, Md., noted that private insurers pay $37 for a 15-minute medication consultation that costs $64 to provide, and $52 for an hour-long therapy session that costs the clinic $83.

Simultaneously, managed care companies impose huge additional costs on care providers and patients. Prospective approval is required before hospitalization can take place or outpatient treatment begin. Repeated approvals are needed as treatment continues—often every day of hospitalization and every other outpatient session require a separate approval. Hospital staff and clinicians spend untold hours on the telephone seeking these approvals. Without them, they receive no payment for the care they render.

In the midst of all this, the federal government decided that the goal of a balanced budget could be reached only by cutting back Medicare payments, especially to teaching hospitals. A 5-year series of progressive reductions was ordered, continuing through this fiscal year. The last payer that offered to cover something approximating the cost of care had now decided that it to wanted to pile on. In addition, aggressive postpayment Medicare audits were targeted specifically at mental health units, looking to recover monies whenever technical lapses occurred in the documentation of care. On top of all this, this year Medicare initiated a reduction in physician payments that, if not reversed, will drop reimbursements by 17% over the next 4 years (8).

What are the consequences of these startling reductions in the resources available for psychiatric care? With hospitals and clinics losing money on every patient they treat, inpatient units are closing across the country and outpatient services shutting their doors. A few examples out of many follow:

What can we do to avert a wholesale collapse of our mental health care system? First, those of us who are aware of the problem have a responsibility to sound the alarm. We need to make sure that the public at large, the media, opinion makers, and political leaders become aware of the perilous state of financing for mental health care today. They need to understand the cause of the crisis and what the inevitable consequences will be if something does not change: when their family members need help—there may simply be no place to obtain it.

Next, we need to press Congress to pass the legislation that is before it this year that would establish parity in insurance coverage between mental illness and all other disorders. Almost all existing health insurance policies place limits on the number of hospital days or outpatient visits available for psychiatric care, while almost no policy has comparable limits on any other kind of medical care. Senators Wellstone and Domenici have sponsored legislation that would ban these discriminatory practices.

But parity on paper is not enough. State and federal legislation must require comparable procedures for reviewing claims for psychiatric care as for other medical care. The petty harassment that bleeds providers and hassles patients—such as requiring advance approvals for every few visits, and delaying payment indefinitely—has to end.

The business community has a role to play here, too. As the purchasers of most insurance coverage for their workers, they have the responsibility of ascertaining that the insurers with which they deal are providing effective coverage to their employees. This means 1) adequate payments to cover the costs of providers, 2) a large enough network to meet the needs of the insured population, 3) minimal hassles for patients and providers in getting authorization for treatment, 4) independent appeals mechanisms when requests for care are denied by the insurer or managed care company, and 5) defined performance measures to demonstrate that patients actually get the care they need.

Finally, government has a part to play as well. Medicare and Medicaid payments must be realistically gauged to cover the actual costs of care. States cannot be allowed to shirk their historic responsibilities to provide a safety net for indigent patients—regardless of diagnosis. Their support is particularly needed for residential and rehabilitation services. Turning public care over to the managed care industry is a not a solution; indeed, it simply exacerbates the problem.

Each of these objectives addresses a piece of the problem. But this focus on details ought not to distract us from attending to the larger picture. Not since the Community Mental Health Centers Act of 1963 have we had a comprehensive vision of a system of care for persons with mental illness. Developing that vision, building a consensus around it by working with other key groups, such as the National Alliance for the Mentally Ill, and placing it on the national policy agenda have to be part of our strategy as well. It is up to us to redeem the implicit promise of the physicians and laypeople who created the Pennsylvania Hospital and the Friends Asylum and founded this organization here in Philadelphia so many years ago: to offer compassion and care to persons with mental illness, to relieve suffering and to restore function, to advance knowledge and to transmit it to a new generation, to be the best physicians that we can be so that our patients can be everything they are capable of being.

I look forward to working with all of you over the coming year and beyond to make these aspirations a reality.