MEDICAID FINANCING OF PUBLIC MEDICAID FINANCING OF PUBLIC PSYCHIATRIC HOSPITALSPSYCHIATRIC HOSPITALS

Debra A. Draper, Ph.D.Debra A. Draper, Ph.D.& &

Lori Achman, M.P.P.Lori Achman, M.P.P.

Presentation for the Conference on Medicaid and Presentation for the Conference on Medicaid and Mental Health ServicesMental Health Services

Baltimore, MDBaltimore, MD

September 17, 2002September 17, 2002

Acknowledgements

!! Project Team:Project Team:>> Debbie DraperDebbie Draper>> Lori AchmanLori Achman>> Megan McHughMegan McHugh>> Sylvia KuoSylvia Kuo>> Jim VerdierJim Verdier

!! Project funded by the Substance Abuse and Project funded by the Substance Abuse and Mental Health Services Administration Mental Health Services Administration (SAMHSA)(SAMHSA)

Myth or Reality?

!! Few people are served by public psychiatric Few people are served by public psychiatric hospitals todayhospitals today

!! Public psychiatric hospitals receive no Public psychiatric hospitals receive no Medicaid funds because of certain statutory Medicaid funds because of certain statutory exclusionsexclusions

This Project Examines

!! The sources and magnitude of Medicaid The sources and magnitude of Medicaid funds that public psychiatric hospitals funds that public psychiatric hospitals receivereceive

!! Changes in Medicaid funding policy over the Changes in Medicaid funding policy over the past 10 years affecting these public past 10 years affecting these public institutionsinstitutions

!! Forces currently affecting funding of these Forces currently affecting funding of these public institutionspublic institutions

Policy Importance of This Project

To better understand the potential impact, if To better understand the potential impact, if any, of changes in Medicaid financing any, of changes in Medicaid financing policies on public psychiatric hospitalspolicies on public psychiatric hospitals

Primary Research Methods

!! Literature reviewLiterature review

!! Expert advisory panelExpert advisory panel

!! Case studies of 5 states Case studies of 5 states –– Iowa, California, Iowa, California, Maryland, Arkansas, and New JerseyMaryland, Arkansas, and New Jersey

!! Telephone interviews of CMS regional office Telephone interviews of CMS regional office staff staff

Respondents

SemiSemi--structured interviews using standardized structured interviews using standardized interview protocols:interview protocols:

!! State mental health authorityState mental health authority!! State Medicaid agencyState Medicaid agency!! State budget officeState budget office!! Governor’s officeGovernor’s office!! State psychiatric hospitalsState psychiatric hospitals!! County psychiatric hospitalsCounty psychiatric hospitals!! Advocacy groupsAdvocacy groups!! Other state specific organizations Other state specific organizations

Presentation Overview

!! Contextual background on Medicaid funding Contextual background on Medicaid funding of public psychiatric hospitalsof public psychiatric hospitals

!! Potential sources of Medicaid funding Potential sources of Medicaid funding

!! Current funding pressuresCurrent funding pressures

Historical Factors Influencing Public Psychiatric Hospitals’ Funding

!! Growth of community mental health centersGrowth of community mental health centers

!! Creation of the Medicaid ProgramCreation of the Medicaid Program

!! DeinstitutionalizationDeinstitutionalization

!! Advent of managed careAdvent of managed care

Growth of Community Mental Health Centers

!! The goal of CMHCs was to reduce state The goal of CMHCs was to reduce state hospital admissions by 50% over a 10 year hospital admissions by 50% over a 10 year period of timeperiod of time Sources: Gronfein 1985; Foley and Sharfstein 1983Sources: Gronfein 1985; Foley and Sharfstein 1983

!! CMHCs grew rapidly during the 1960s and CMHCs grew rapidly during the 1960s and 1970s1970s Sources: Gronfein 1985; Foley and Sharfstein 1983Sources: Gronfein 1985; Foley and Sharfstein 1983

Creation of the Medicaid Program

!! Created in 1965 (as was the Medicare Created in 1965 (as was the Medicare program)program)

!! Customized programs by state with wide Customized programs by state with wide statestate--toto--state variationstate variation

!! Shifted sites of care for many persons with Shifted sites of care for many persons with mental illnessmental illness

The IMD Exclusion

!! Precludes Medicaid reimbursement, and any Precludes Medicaid reimbursement, and any federal matching dollars, for services federal matching dollars, for services received by IMD patients (ages 21received by IMD patients (ages 21--64)64)

!! Does not imply the loss of individuals’ Does not imply the loss of individuals’ Medicaid eligibilityMedicaid eligibility

Sources: DHHS 1994; HCFA 1992

Inpatients by Age in Public Psychiatric Hospitals, 1997

18-6483%

65 and Older12%

Under 185%

Source: Milazzo-Sayre et al. 2001.

Policy Underlying the IMD Exclusion

LongLong--term care of persons being treated in term care of persons being treated in public or private psychiatric hospitals is the public or private psychiatric hospitals is the responsibility of the statesresponsibility of the states

Source: DHHS 1992

Historical Context of the IMD Exclusion

!! Predates MedicaidPredates Medicaid

!! Relaxed under the creation of the Medicaid Relaxed under the creation of the Medicaid program in 1965 and with the passage of program in 1965 and with the passage of subsequent amendments in 1972subsequent amendments in 1972

Source: DHHS 1992

Generally, The IMD Exclusion Today Pertains To…

!! Public and private psychiatric hospitals and Public and private psychiatric hospitals and residential substance abuse programsresidential substance abuse programs

!! Other facilities such as nursing homes may Other facilities such as nursing homes may also be designated as IMDs if they meet also be designated as IMDs if they meet certain criteriacertain criteria

Source: DHHS 1992

Medicaid’s Impact on Nursing Homes

!! Until 1970, nursing homes ranked second to Until 1970, nursing homes ranked second to psychiatric hospitals in terms of the number psychiatric hospitals in terms of the number of institutionalized persons of institutionalized persons Sources: Gronfein 1985; Kramer 1977

!! The shift is largely due to the transfer of The shift is largely due to the transfer of elderly with symptoms of mental illness from elderly with symptoms of mental illness from public psychiatric hospitals to nursing public psychiatric hospitals to nursing homeshomes Sources: Grob 2001; GAO 1977Sources: Grob 2001; GAO 1977

Deinstitutionalization

“Deinstitutionalization has been the formal “Deinstitutionalization has been the formal policy of the Federal government with regard policy of the Federal government with regard to mental illness since 1963.” to mental illness since 1963.” Source: Gronfein 1985Source: Gronfein 1985

Besides CMHCs and Medicaid…

Other factors also facilitating deinstitutionalization:Other factors also facilitating deinstitutionalization:

!! Psychotropic drugsPsychotropic drugs

!! Patient rights movementPatient rights movement

Source: Gronfein 1985

Number of Psychiatric Hospitals by Ownership Type, 1970-1998

310 273 229348

843

1593

280

150

462

184

664

1571

0200400600800

10001200140016001800

1970 1980 1990 1998Year

# H

ospi

tals

Public

Private

Non-Federal GeneralHospitals w/PsychiatricUnits

Source: Manderscheid et al. 2001.

Number of Psychiatric Hospital Beds by Ownership Type, 1970-1998

413066

156482

6352533,63554,266

98789

14,295 17,157 44,87122,394 29,384

53,479

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

1970 1980 1990 1998Year

# B

eds

Public

Private

Non-Federal GeneralHospitalsw/Psychiatric Units

Source: Manderscheid et al. 2001.

Managed Care

!! Encourages the use of less restrictive levels Encourages the use of less restrictive levels of careof care

!! Often there are different care delivery Often there are different care delivery systems for mental health servicessystems for mental health services

!! Medicaid managed care grew rapidly after Medicaid managed care grew rapidly after 19931993 Source: Draper 2000Source: Draper 2000

!! Nearly 21 million Medicaid beneficiaries are Nearly 21 million Medicaid beneficiaries are enrolled in managed care enrolled in managed care Source: CMS 2002Source: CMS 2002

Previous Research Suggests

Medicaid provides 18% of the funding of Medicaid provides 18% of the funding of public psychiatric hospitals (based on 1994 public psychiatric hospitals (based on 1994 data)data)

Source: Manderscheid et al. 2001

Which Brings Us to Our Current Research Interests

!! What financing role does Medicaid currently What financing role does Medicaid currently play in public psychiatric hospitals?play in public psychiatric hospitals?

!! How might this role be changing?How might this role be changing?

!! What pressures are influencing change?What pressures are influencing change?

Medicaid Funding Sources of Interest

!! Optional servicesOptional services

!! Medicaid managed careMedicaid managed care

!! Disproportionate share hospital (DSH) Disproportionate share hospital (DSH) paymentspayments

!! Enhanced payments/upper payment limitsEnhanced payments/upper payment limits

!! Administrative payments Administrative payments

Medicaid State Plan Options for IMDs

!! Under age 21 population Under age 21 population –– inpatient inpatient psychiatric carepsychiatric care

!! Age 65 and older population Age 65 and older population –– inpatient inpatient psychiatric care and hospital and nursing psychiatric care and hospital and nursing care care

Sources: State Medicaid Plans; NASMHPD 2001

Medicaid Managed Care and Behavioral Health

!! Eight states have IMD expenditure authority Eight states have IMD expenditure authority under 1115 waivers under 1115 waivers Sources: Kuo and Draper 2002; CMS 2001Sources: Kuo and Draper 2002; CMS 2001

!! Public psychiatric hospitals are not Public psychiatric hospitals are not precluded from participating in behavioral precluded from participating in behavioral managed care provider networksmanaged care provider networks

DSH Payments

Supplemental funding provided to hospitals Supplemental funding provided to hospitals serving a disproportionate share of Medicaid serving a disproportionate share of Medicaid and/or lowand/or low--income personsincome persons

DSH Payments and IMDs

!! In the early 1990s, states’ Medicaid DSH In the early 1990s, states’ Medicaid DSH strategies began to include IMDs strategies began to include IMDs

!! For states, the inclusion of IMDs increased For states, the inclusion of IMDs increased the number of hospitals eligible for DSH the number of hospitals eligible for DSH paymentspayments

Source: Coughlin and Liska 1998

IMD DSH Caps Created by the Balanced Budget Act of 1997

!! FY 1998FY 1998--2000 2000 –– states could spend no more states could spend no more on DSH for IMDs than it did in 1995on DSH for IMDs than it did in 1995

!! DSH allocation on IMDs is limited to:DSH allocation on IMDs is limited to:> FY 2001 > FY 2001 –– 50%50%> FY 2002 > FY 2002 –– 40%40%> FY 2003 and after > FY 2003 and after –– 33%33%

!! Based on 1999 DSH payments, 10 states are Based on 1999 DSH payments, 10 states are subject to IMD capssubject to IMD caps

Sources: CMS 2001; HCFA 1997

Upper Payment Limits (UPL)/ Enhanced Payments

!! Under UPL programs, states pay facilities Under UPL programs, states pay facilities more than their costs in order to increase more than their costs in order to increase federal reimbursementsfederal reimbursements

!! States appear to use UPL strategies mainly States appear to use UPL strategies mainly for general hospitals and nursing homesfor general hospitals and nursing homes

!! Unclear whether any public psychiatric Unclear whether any public psychiatric hospitals participatehospitals participate

Administrative Payments

!! The IMD exclusion applies to services and The IMD exclusion applies to services and may not apply to administrative costsmay not apply to administrative costs

!! Examples: discharge planning, eligibility Examples: discharge planning, eligibility determinations, medication managementdeterminations, medication management

!! Administrative payments do not appear to be Administrative payments do not appear to be a major source of Medicaid funding, if any, a major source of Medicaid funding, if any, for public psychiatric hospitalsfor public psychiatric hospitals

Current Pressures

!! States’ fiscal challengesStates’ fiscal challenges

!! Continuing shift to communityContinuing shift to community--based based treatmenttreatment

!! Changing configurations and roles of public Changing configurations and roles of public psychiatric hospitalspsychiatric hospitals

!! Mental health parityMental health parity

States Face Major Fiscal Challenges

!! At least 40 states are facing major budget At least 40 states are facing major budget shortfalls, totaling $40 billionshortfalls, totaling $40 billion

!! Medicaid accounts for about 15 percent of Medicaid accounts for about 15 percent of states’ spendingstates’ spending

!! Annual increases in Medicaid spending are in Annual increases in Medicaid spending are in the double digits the double digits

Source: NGA 2002, KFF 2002

Shortfalls in States’ Medicaid Programs

!! 2001 2001 -- 39 states 39 states

!! 2002 2002 -- 28 states28 states

!! Total expected shortfall for all states for Total expected shortfall for all states for FY2001 and FY2002 = approximately $7.1 FY2001 and FY2002 = approximately $7.1 billion (combined)billion (combined)

Source: NGA 2002

Medicaid Cost Pressures

!! 15%+ annual increases in overall 15%+ annual increases in overall prescription drug costsprescription drug costs

!! Eligibility expansions Eligibility expansions

!! Service utilization increasesService utilization increases

!! Higher unit costsHigher unit costs

!! New technologiesNew technologies

!! Plan and provider payment rate increasesPlan and provider payment rate increases

Source: NGA 2002

Continued Shift to Community-Based Treatment

!! Continued emphasis on communityContinued emphasis on community--based based treatment options vs. institutional caretreatment options vs. institutional care

!! Olmstead Supreme Court decisionOlmstead Supreme Court decision

Changing Configurations and Roles of Public Psychiatric Hospitals

In 2001, for example, states reported:In 2001, for example, states reported:

!! Closing one or more hospitals (17) Closing one or more hospitals (17)

!! Downsizing one or more hospitals (10)Downsizing one or more hospitals (10)

!! Reorganizing within one or more hospitals Reorganizing within one or more hospitals (2)(2)

!! Consolidating 2 or more hospitals into 1 Consolidating 2 or more hospitals into 1 hospital (1)hospital (1)

Source: NASMPD 2001

Growing Forensic Population

!! For at least 4 states in 2001, the percentage For at least 4 states in 2001, the percentage of criminally committed patients exceeded of criminally committed patients exceeded the percentage civil commitments the percentage civil commitments Source: NASMHPD 2001.Source: NASMHPD 2001.

!! Reduces the number of Medicaid beds Reduces the number of Medicaid beds availableavailable

Lack of Mental Health Parity

The lack of parity between medical and The lack of parity between medical and mental health insurance coverage places mental health insurance coverage places additional pressure on public providers of additional pressure on public providers of care when benefit limits are metcare when benefit limits are met

More Reality Than Myth

!! Public psychiatric hospitals continue to Public psychiatric hospitals continue to serve large numbers of persons with mental serve large numbers of persons with mental illness illness

!! Medicaid does play a role in the financing of Medicaid does play a role in the financing of these facilitiesthese facilities

Focus of the Final Report

!! Current Medicaid funding sources and how these Current Medicaid funding sources and how these vary by state vary by state

!! Local circumstances that influence the particular Local circumstances that influence the particular Medicaid funding strategies states pursueMedicaid funding strategies states pursue

!! Forces affecting Medicaid funding of public Forces affecting Medicaid funding of public psychiatric hospitalspsychiatric hospitals