The issue of highest priority in administrative psychiatry, at the moment, is the containment of health care costs. Among the strategies proposed to reduce costs are prospective payment plans that have the potential for changing the present system of service delivery to both inpatients and outpatients. With little warning, a new system of financing is in place, as are new arrangements fostering competition. The possible consequences of the new programs upon the standards and quality of patient care are enormous.
In this collection of articles, the authors provide an overview of multihospital systems, consider strategic planning and marketing mental health services, examine a model designed to make a nonprofit organization competitive; pause to ponder the realities of policy formation in organizations, and conclude with the issues and options in the payment for psychiatric care. There are, however, other issues in administrative psychiatry that deserve mention.
Computer usage in psychiatry has been studied for over 15 years. Suddenly computers are in businesses of all sizes as well as in the home. Their use in the mental health system is spreading rapidly. From billing, inventory control, payroll and accounting, computers are the tool essential to management information systems generating required records and reports. The trend will continue until the computer is established as an everyday clinical aid in diagnosis, treatment and indicator of drug of choice.
The backlash to desinstitutionalization is a current administrative issue. Stress in the family, community uneasiness with street people, the lack of appropriate psychiatric treatment in nursing homes, the failure of the community mental health system to give sufficient support and the increasing number of mentally ill in jails and prisons is a growing concern. The use of the correctional system instead of the mental hospital is a consequence of legal activism that limited admissions to those dangerous to self or others.
What went wrong with deinstitutionalization, beyond the legal barrier to ease of readmission for a recurrent episode of chronic mental disorders? It was the lack of low cost housing, the failure of the community mental health system to fill the unexpected role of monitoring released chronic patients, and the conceptual barrier to the use of the mental hospital even briefly for short intensive therapy. The essential action requires correction of the deficiencies, not the abandonment of care in the community where appropriate.
Administrators are required to participate in the political process for survival. The scarcity of resources essential to goal attainment generates political infighting to get a fair share of them. An aggressive public relations effort helps keep the public aware of both the benefits of a mental health program and the need for public support.1
Another current issue is the extent of external controls, regulation, legislative and judicial, that limit administrative and clinical judgment in service to perceived patient needs. The law has narrowed the indications for admission; judicial decisions have proscribed standards of care, restricted the use of somatic therapies and on occasion pharmacotherapy as "intrusive." The right to treatment and the right to refuse it has been stated by the courts. Informed consent is a legal requirement very difficult to apply in practice with psychotic patients. Liability for one's actions, with astronomical claims and awards, is an ever-present threat to the administrator. Mistakes and accidents occur in spite of care to prevent them; so do side reactions to necessary neuroleptic drugs. In a period where effort is expended for deregulation, Arizona voted in November 1984 to regulate its hospital system as a public utility.2
The need for training in administration, discussed for years, has at long last emerged as a timely issue. The demand for efficiency in management is insistent. The complexity of problems defies simple solutions and trial and error learning has become too costly. An expanding body of knowledge, based upon theory is now available. Skills can be learned and applied to improve system function. What remains to be done is to increase the number of psychiatrists and mental health workers in training in administrative psychiatry and to require formal training for leadership posts in the mental health field.
Quality control becomes an even more important issue as budgets are cut and new service systems are developed with the intent to reduce costs. There is a very real concern that as for profit multihospital chains continue to grow, profit motives will displace the value: quality care of the patient. Too often reductions in the health care budget have adversely affected the mentally ill and retarded poor in society. There is a concern that budget reductions and limited resources will undo the progress made over the years in mental health care.
Ethical issues are in the forefront of professional concern. When resources are limited, how will health care be rationed? Will renal dialysis and coronary by-pass surgery be funded and care of the mentally ill and mentally disabled be reduced? is it morally wrong for hospitals treating the sick to make a profit? As technological science advances, ethical issues multiply.
As the number of individuals over the age of 65 in the population climbs and as the "old-old" among them multiplies, the proportion of those at risk for mental disorders increases. Most attention has been given to acute care, and only recently to the issue of chronic illness. The elderly have more chronic disorders than younger age groups. The trend toward an aging population is clear but the development of comprehensive psychogeriatric programs has not kept pace with the growing population of aged. Only fragments of a care system are in place. Much remains to be done.
Among the current issues in mental health administration, none is more important than cost containment. Health care consumers comprise both the users of the service and those who pay for it (corporations who pay health benefits for their employees, insurance companies and the government). Users of the service complain that costs are too high and if they have no insurance and are ineligible for federal assistance, necessary care may be delayed. Businesses with losses due to the 1981 recession and increasing competition from abroad, became acutely aware of unabated 15% to 20% yearly increases in insurance costs for health care. For example, "... health care costs contributed $483 to the cost of every General Motors car and truck produced in the country" in 1982 (total health care bill of GM in 1983 was estimated at $2.2 billion).3 It is little wonder that US corporations aggressively sought ways to cut health care costs.
"The federal role in financing mental health services is principally through Medicare, Medicaid, VA, Federal Employees Health Benefits, CHAMPUS, community mental health center, alcohol and drug programs."4 Forty-two percent of mental health costs are paid out of federal funds, while states pay 25%. Both federal and state governments have sought ways to control costs by regulation, caps on expenditure, prospective payment schemes and others. We are going through a period of intensi ve research and development in the organization and financing of health care. Because "... much of health care is immune to the economic forces that shape more conventional markets," the effort must be to change behavior of patients, physicians, and others to affect the individual decisions controlling use.5
The number of private psychiatric hospitals owned by for-profit organizations that operate multi hospital systems has nearly doubled since 1980. Of 198 private psychiatric hospitals in 1982, 65% were for-profit and 35% were non-profit. Fortythree percent of the for-profit were investor owned and 22% were independent and not in chains. Half of the beds were in multihospital systems.6
Four organizations own most of the psychiatric hospitals that are investor owned: Hospital Corporation of America owns 22 psychiatric hospitals and over 300 general hospitals; National Medical Enterprises operates 19 psychiatric hospitals, 60 general hospitals and 200 nursing homes; Community Psychiatric Centers own 17 psychiatric hospitals and 40 renal dialysis centers; Charter Medical Corporation owns five psychiatric hospitals plus retirement living centers, remedial and support facilities and sells institutional heating and cooling systems.6
Humana Corporation, one of the largest of the multihospital systems, also operates 67 Med First Urgent- Care Centers. There are now 950 freestanding emergency centers (with 4,000 predicted by 1990) and 175 one-day Surgical Centers. To meet the competition of such chain operation, 70% of general hospitals now offer outpatient surgery (US News and World Report 95:75-77, December 5, 1983).
The principal reasons for the success of investorowned chains are:
1. Access to capital for new facilities or for renovations.
2. Economics of scale with purchasing in volume and a headquarters staff of experts to facilitate processing certificates of need, design of buildings, liability issues, and management systems with access to computers.
3. Available revenues from Medicare, Medicaid and insurance.
4. Geography, selection of sites where population is growing and in states without rate control programs.
5. Diversification, with corporations engaged in other than hospital health care programs, in contractual services, and in operating office buildings, etc.6
While greater efficiency in management has been claimed for the successful growth of hospital chains, two studies dispute this view. One showed greater use of and higher charges for auxiliary services with total inpatient charges 24% higher in chains.7 The other showed costs and charges higher in for-profit hospitals than in non-profit ones. Aggressive marketing and pricing strategies were responsible for generating higher profitability.8 The class of patients treated in the profit and nonprofit systems seemed similar.
Whether the present phenomenal rate of growth of multihospital chains will continue remains to be seen as the reimbursement system changes to prospective rate setting with incentives to reduce costs. Will payment on primary diagnosis skew labeling to use a diagnosis that assures the highest payment? It seems possible that some hospitals will go out of business operating under a system that does not pay actual costs.
For years, the only contracts made for services in the mental health field were for typewriters, elevator and xerox machine maintenance. Then contracts extended to food service, laundry, heating, grounds care, and housekeeping services. In recent years, the trend has expanded to include laboratory services, emergency room operation, alcoholism rehabilitation programs, equipment rental, and to organizations offering comprehensive health care by contract. Corporations or government may seek bids from a group or organization and award the contract to the lowest bidder as a means of reducing costs.
Since 1 977, a national health plan has been advocated for legislated competition in the delivery of health care services.9 Although Congress has not passed legislation to initiate this national approach, competition has been generated by Preferred Provider Services that bid on contracts for service. Already described has been the competition between for-profit and non-profit hospitals and between hospital ambulatory services and freestanding emergency and walk-in surgical clinics. Health Maintenance Organizations (HMOs) offer the potential patient another choice among services. Employers also increasingly offer their workers options for health care. The trend toward additional choices through competition among organizations offering health care is well-established and likely to grow as the number of physicians becomes a surplus. Consumers will begin to "shop around" for the least costly service that gives them what they want.10
Psychiatrists and mental health workers are uneasy with product and market analysis borrowed from industry and utilized in health care by, for example, multihospital systems and corporateowned emergency centers or surgical clinics. The products are the kinds of service offered (long-term psychotherapy, adult or child services, evaluations for risk of liability or evaluations for the correctional system). Each of the products cited offers a choice among different providers of the same service at differing prices.
Market analysis examines the number of potential users of the service, the demand, the utilization rate, the share of the market one might be able to attract, and the competition (internists, neurologists, psychologists, social workers, marriage and family counselors, etc.). Next one looks at the capital outlay required (for new space, renovation or additional training or time utilization). Public education for which the product is directed and promotion to purchase the service are also essential elements in marketing.11 Marketing is human activity directed at satisfying needs and wants through an exchange process. It encompasses any situation where providers exchange their products with buyers in return for some form of compensation.12
The traditional method of reimbursement for health care services has been to pay the actual cost or a substantial portion of it to hospitals and a feefor-service to the practitioner. After a trial with mixed results in four states,4 the federal government adopted, as of October 1, 1983 (or on the start of the hospital's fiscal year) for comingled psychiatric patients (psychiatric units and psychiatric hospitals have been exempted for the present) a prospective payment plan.13 Under this plan, "Medicare will pay the same amount for any patient within a diagnostic-related group (DRG) regardless of what services are actually used."13
For psychiatry, 300 categories of mental disorders (listed in ICD9CM) have been condensed into 15 DRGs for mental illness and for substance abuse. Hospital days allowed vary from 3.5 days (for alcohol use) to 1 5.4 days for childhood mental disorders. The DRG categories now in use were not based upon the DSM-IU classification system and were introduced without study of the important factor - availability of a support system outside the hospital.
The American Psychiatric Association has appointed a Task Force to Study DRGs for Psychiatry that will consult with the originators of the prospective payment system at Yale. A report is due in two years. The effort will be to build a reliable data base for psychiatric DRGs.14
Corporate systems can make a non-profit organization profitable as in the unique demonstration project related in Vorwaller's article. A corporate entity is permissible to shelter assets and to carry out functions shared by components of the organization.
Mergers and reorganization may make it possible to compete with multihospital systems with the aid of aggressive marketing.
The time is right for the study of service delivery patterns, their cost effectiveness, and the potential impact of new methods of reimbursement. The challenges to the administrator in the 1980s have never been greater.
1. Barton WE: What's new in administration? Hasp Community Psychiatry 1983; 34:441-443.
2. Lefton D: Arizona firms seek hospital regulations. American Medical News 1983: 26(Nov 25): 1-17.
3. Lcfton O: Business aims to trim health costs, American Medical Sews 1983: 26lNov 18): 1-8.
4. Barton WE. Barton GM: Mental Health Administration: Principles and Practice. New York. Human Sciences Press, 1983. 2 vol.
5. Rabkin MT: Control of health care costs: Targeting and coordinating the economic incentives. N Engl I Med 1983: 309:982-984.
6. Levenson Al: Issues surrounding the ownership of privale psychiatric hospitals by investor-owned hospital chains. Hasp Community Psychiatry 1983; 34:1127-1131.
7. Reimen AS: Investor owned hospitals and health care costs. N Engl I Med 1983: 309:370-372.
8. Pattison RV, Katz HM: Investor owned and noi for profit hospitals. N Engl I.Med 1983: 509:347-353.
9. EnthovenAC: Health Plan: the Only Practical Solution to Soaring Health Costs. Reading, MA, Addison-Wesley Publishing Co, 1980.
10. Light DW: Is competition bad? N Engl / Med 1983; 309: 1315-1 319.
11. Rafferty PT: Guide to your product -and market analysis. American Academy of Child Psychiatry Newsletter. Fall 1983.
12. Wright RA, Alien BH: Marketing and medicine: Why advertising is not an issue. IAMA 1983: 250:47-48.
13. New prospective payment system should be examined says APA. Psychiatric News 1983: 18(Nov I8):l-I6.
14. APA Seis Up New Task Force on Psychiatric DRGs. Psychiatric News 1983: t8(Nov 18):16-18.
15. Vorwaller CJ; Profit-minded management in the nonprofit sector. Psychiatric Annals 1984; 14:851-856.