Cost Comparison of State Hospital and Community-Based Care for Seriously Mentally Ill Adults

OBJECTIVE: In 1989, Philadelphia began a bold experiment involving the total shutdown of a 500-bed state hospital. This study examines the service utilization and cost of treating individuals with serious mental illness in a community-based care system in which the state hospital was replaced with 60 extended acute care beds in general hospitals and 583 residential beds. METHOD: A pre-post study design was used to determine the utilization and cost differences before and after the state hospital closed for individuals with a diagnosis of schizophrenia who required extended psychiatric hospitalization following an acute care crisis episode in a general hospital. The number and cost of days spent in general and in extended hospital and residential treatment were compared on an episode and an annual basis. RESULTS: The result of this analysis showed that after the state hospital closed, the direct treatment cost of an episode of care increased from $68,446 to $78,929, and the average annual cost of care per patient increased from $48,631 to $66,794 because of an increase in acute care hospitalization. CONCLUSIONS: This study suggests that an “admission” cohort of seriously mentally ill patients requires an optimal mix of acute care, extended care, and residential beds, as well as ambulatory services, in order for cost-efficient care to be delivered during a crisis period. Determining the appropriate allocation and supply of beds in different settings is essential if community mental health systems are to manage the care of individuals with serious mental illness outside of institutional settings.