A recent review of insurance coverage for psychiatric disorders concluded that while coverage is prévalent, mental and nervous disorders are rarely covered on the same basis as other illness conditions. The noted differences are least in regard to hospital care and physician's inhospital visits and greatest in regard to care for ambulatory patients.1 While the role of private health insurance in financing mental health care has undoubtedly expanded over the last 30 years, these discriminations continue to represent a source of frustration to providers, and an economic burden for the mentally ill and their families.
The extent to which limitations do apply to coverage for treatment of psychiatric illness is a serious problem and new efforts in light of current trends are needed if coverage is to be maintained let alone expanded.1 What are the current trends impinging on psychiatric coverage? What issues and options do they present for the future of thirdparty reimbursement for the care and treatment of psychiatric illness?
PUBLIC/PRIVATE POLICY SHIFT
Since 1965 the primary public policy question regarding health care, including psychiatric care, has been how to best promote access to health care through the removal of financial barriers. Hence, we witnessed the enactment of landmark legislation, the Social Security Amendments of 1965 establishing the Medicare and Medicaid programs. These programs set the ground work for current federal and state public policy which underwrite a significant portion of the costs of health care for the aged, disabled and medically indigent.
Similar social policy for the private sector was promoted through numerous tax advantages which favor employee benefit plans. This favorable tax treatment has become an important reason for employers to provide such benefits for their employees, rather than simply paying higher wages, and has aided significantly in spurring the development of more comprehensive medical coverage in the private sector.
Despite the favorable trends, coverage for mental and nervous disorders never fared as well as that for general illness. The primary question regarding third party reimbursement for psychiatric illness has been how to assure that the social policy goal of access to health care is equitably realized for psychiatric illness as well as for physical illness.
Today, however, containing health care costs rather than access considerations is the central driving force behind health policy. Health care costs are just too high- $287 billion in 1981, or $32 million per hour. This is 9.8% of the gross national product (GNP). The inflation rate for health care is higher than the economy-wide rate, and it has resisted attempts at reduction.2 The cost problem is a key issue on the agendas of Congress, states, hospital administrators, employers and health care providers.
These are watershed years because health care cost problems are severe and previous attempts to control costs have failed. Regulation of health services, such as federal-state planning and certificateof-need, have been unsuccessful. The national Voluntary Cost-Containment Effort produced little impact.
Given the already documented deficiencies in psychiatric coverage and the change in policy focus from access to cost containment, what likely changes and problems are to be expected regarding third party reimbursement for psychiatric care? What issues require resolution and what options do psychiatric providers have for dealing with them? This article will briefly review the status of public and private coverage for the treatment of psychiatric illness, identify key economic trends in health care, decipher implications and suggest the efforts needed by the psychiatric provider community to insure the continued viability of third party reimbursement for psychiatric care.
The principal components of the US health care reimbursement system include Medicare, Medicaid, private sector insurance plans (Blue Cross/ Blue Shield, commercial, self-insured, and pre-paid plans). The first section will briefly describe each segment in terms of those eligible for program benefits, the benefits provided, and the mechanisms by which reimbursement is determined. In the next section we will identify emerging trends including reimbursement changes already underway and those that appear likely.
Medicare is a federal government program that provides health insurance for 29 million people in three major categories: individuals over age 65 who receive Social Security payments or railroad retirement; disabled individuals who have received Social Security or railroad retirement for more than 2 years; and victims of end-stage renal disease eligible for Social Security or railroad retirement. Medicare provides broad coverage for a variety of health services and products although limited with respect to psychiatric care. There are two separate components to the Medicare program: Part A (Hospital Insurance) and Part B (Supplemental Medical Insurance). Medicare coverage under Part A for psychiatric inpatient care is limited to a lifetime maximum of 190 days of hospitalization in a psychiatric facility. Inpatient care rendered for psychiatric treatment in a general hospital is not subject to this 190 day /lifetime limit. Physician services in the hospital are covered under Part B and are not subject to special limits. Medicare Part B provides reimbursement for medical care of a patient with mental illness on an outpatient basis and cannot exceed 50% of the charges or $250 in a calendar year, whichever is less.
Medicare determines reimbursement for Part A and Part B differently. Providers of Part A services were (subject to recent enactments) paid on the basis of their costs incurred for supplying services. These costs are subject to a wide variety of limitations and exclusions. Providers of Part B services are basically paid on the basis of the average charges in their area for particular services.
Medicaid is a health insurance program for the poor, which is jointly financed by federal and state governments, and administered by states under federal guidelines. It provides health insurance coverage for 23 million poor or near-poor people. Federal Medicaid guidelines allow wide flexibility in the coverage of health care services. Therefore, state program authorizations vary greatly "in the scope and extent of services offered, the providers of those services, as well as who is eligible for care.
Generally, inpatient psychiatric care is only covered under Medicaid's mandatory service if provided through a general hospital. Physicians' services are included in Medicaid's mandatory services, and under the law states may not discriminate on the basis of diagnosis. It would therefore seem that care provided by a psychiatrist would be covered under Medicaid to the same extent as physician care for other illnesses. In fact, this is very often not the case. States may place limitations On the number or the frequency of treatment and, in addition, many states require prior authorization for certain services or limit fees for services rendered. Through these mechanisms, states can restrict psychiatric services under Medicaid and many are, in effect, discriminating against those with mental illness in this manner. A recent review of Medicaid coverage by the authors reveals that the following limits typically apply: for inpatient hospital care most states limit the number of days allowable to 30 or less per year. Inpatient physician visits are generally provided for but allowed charges are usually set unrealistically low. Outpatient physician visits for psychiatric care are typically limited to 20 to 30 visits per year with maximum fees per visit usually set well below prevailing charges.
In addition to the above-noted mandatory services, Title XIX authorizes inclusion in state Medicaid plans of any or all of a number of additional services at the option of the state (Table I). These optional services include the following services: 1) medical care, or any other type of remedial care recognized under state law, furnished by licensed practitioners within the scope of their practice as defined in state law (this can include psychologists and psychiatric social workers); 2) clinic services; 3) prescribed drugs; 4) other diagnostic, screening, preventive and rehabilitative services; 5) inpatient hospital services, skilled nursing facility services and intermediate care facility services for individuals 65 years of age or over in institutions for mental diseases; 6) inpatient psychiatric hospital services for individuals under age 21 ; 7) reimbursement for inpatient services for those over 65 are limited to institutions meeting the standards set for hospitals by the Joint Commission on Accreditation of Hospitals (JCAH); 8) reimbursements for services to inpatients under 21 are also limited to institutions meeting the ICAH psychiatric hospital standards; medical or remedial care by a licensed mental health provider, if a state includes any mental health providers such coverage is generally restricted to services provided by psychologists (Table 1).
Medicaid programs also have wide flexibility regarding reimbursement levels and mechanisms. Reimbursements provided under state Medicaid programs are frequently less than that paid by other insurers of psychiatric care. States do not establish a fixed relationship between rates and costs. Instead, most use an arbitrary method of rate determination, usually based on dividing the funds available for Medicaid by the expected number of claims. This produces rates which are characteristically low relative to costs. For example, inpatient hospital and nursing home care reimbursement must only be adequate to meet the costs of "efficiently and economically operated facilities." Consequently, payments vary dramatically by state. For physician care and most other services, states have equally wide leeway to set fee schedules or design other reimbursement mechanisms as long as they do not exceed Medicaid reimbursement levels.
COVERAGE FOR SELECTED OPTIONAL PSYCHIATRIC SERVICES IN STATE MEDICAID PLANS
PRIVATE HEALTH INSURANCE COVERAGE
At the end of 1981, more than 188 million Americans - 84% of the civilian non-institutional population were protected by one or more forms of private health insurance. This includes 173 million persons under 65 or 86% of this age group. Some 16 million older persons held private insurance policies to supplement benefits available through Medicare.3 Numerous forms of private health insurance coverage are available from several different types of insurors; hospital and medical service plans such as Blue Cross/Blue Shield, insurance companies, group medical plans operating on a prepaid basis such as health maintenance organizations (HMOs) and others.
Blue Cross or Blue Shield insurance is typically provided to those who purchase policies as individuals or as group plan members through employers. Plans usually operate within a single state, and rarely compete with each other. There are 100 separate Blue Cross and Blue Shield plans nationally with 102 million eligible policyholders. Of these, about 85 million are regular Blue Cross and/or Blue Shield plan subscribers which include persons in the Federal Employees Health Benefits Program. The other 1 7 million are served by Blue Cross and Blue Shield through Medicare and military dependents' programs such as CHAMPUS.4
Blue Cross plans offer coverage primarily for hospital care, whereas Blue Shield plans generally provide coverage for physician and surgical services. Plans often cooperate within a state to supply combined coverage, as well as major medical insurance for outpatients, home health, and a wide variety of other medical services. Covered services vary greatly from contract to contract. However, Blue Cross/Blue Shield coverage tends to be extremely comprehensive for physical illness, but not for mental disorders.
In the commercial insurance sector, over 1,000 commercial insurers, or self-insured employer plans, insure some 86 million enrollees in the US under individual or group policies.5 As for Blue Cross/Blue Shield, commercial insurance coverage varies widely by plan, contract, and state. Commercial insurers write coverage for virtually any hospital, surgical, physician, or other medical service desired. Since these plans compete with the Blues, most commercial policies provide a comprehensive set of benefits including major medical coverage.
Health care coverage is also provided through HMOs which provide comprehensive health care services for the members for a fixed periodic payment. The number of operational HMOs is currently estimated at 277 with a total subscriber population of 10.8 million.3 Again coverage varies from plan to plan, and perhaps more importantly, regardless of stated coverage, real (ie, effective) coverage seems to be a function of budget allocated to psychiatric care within the HMO. Typical stated limits for psychiatric care are 30 days per year for inpatient care, usually without patient cost-sharing, and 20 outpatient visits with various levels of cost-sharing.
In terms of overall size (ranked according to premium volume) the private health insurance sector shows Blue Cross/Blue Shield ranked first and Prudential second. Others of magnitude in descending order are Aetna, Travelers, CIGNA, Equitable, and Metropolitan Life. The Kaiser Foundation Health Plan, the nation's largest HMO, is ranked tenth.5
The extent of insurance protection against mental illness, both in numbers of persons with some degree of coverage and in the benefits available to them, has not been precisely determined; however, a number of important recent investigations have made substantial progress toward identifying the current status of coverage. A comprehensive analysis of coverage patterns for the individuals blanketed by policies in the private health insurance sector is revealed in Table 2. Other recent insurance reviews reveal similar results.7 From this data, we can see that for slightly over 40% of the participants in plans with mental health benefits, coverage for in-hospital psychiatric care is subject to more stringent limitations than for hospitalization due to other illnesses. This restriction is most often on the duration of the hospital stay (often only 30 days for mental health care as compared to 120 or 365 days for other illnesses). Even more restrictive was coverage for mental health care outside the hospital (ie, psychiatric office visits); less than 10% of the participants had this type of care covered to the same extent as other illnesses. Outpatient mental health care was usually covered in the major medical portion of a plan where there are often ceilings on the amounts payable for mental health care for each visit and/or each year, and where the coinsurance for nonhospital treatment of mental illnesses is often 50% compared to 80% for physical illnesses. Variations in benefit design coverage approaches for treatment of mental disorders on an outpatient basis are generally of three types: full coverage for treatment of mental illness with few cost sharing provisions; full coverage for initial visits with subsequent visit limitations and/ or substantial increases in cost-sharing with no other limits; or considerable cost sharing with strict ($500 to $1,000) limits on coverage.
Blue Cross plans, which typically pay hospitals, reimburse either on a negotiated-cost or billedcharge basis. Blue Shield plans generally reimburse doctors on a reasonable charge basis, much like Medicare. Depending on the contract, patients may incur copayments or deductibles, which typically are required only to the major medical benefits portion of comprehensive contracts. Commercial insurance reimbursement varies as much as coverage. Many commercial insurers pay hospital charges; others pay indemnities; and most pay doctors' reasonable charges on the basis of fee schedules. Commercial insurers have often been forced to underwrite the cutbacks in Medicare and Medicaid reimbursement to hospitals by paying higher and higher hospital charges.
As noted earlier, an era is ending - cost concerns are spurring substantial changes in health care reimbursement and delivery. Given the apparent unacceptably high price tag associated with public policy that promotes access, attention by necessity is shifting to health care resource allocation on a priority basis, ie, care and treatment for those conditions deemed "most medically necessary" and the introduction of various consumer cost sharing measures.
Specifically, in an effort to moderate the rapid growth in health care costs and insurer outlays, third-party payors are making major changes in program eligibility, coverage, and reimbursement mechanisms. Generally, reimbursement policy trends are moving in the direction of prospective (prices fixed in advance) rather than cost-based hospital payment, increasing beneficiary cost-sharing to moderate utilization, and shifting the location of care toward low-cost treatment settings. A brief overview of the most significant changes follows.
Congress has recently enacted legislation establishing a per case prospective reimbursement system (Diagnostic-Related Groups - DRGs) for payment of hospital care under the Medicare program.8 Currently, free-standing psychiatric hospitals and certain psychiatric units of general hospitals are exempted until 1985 at which time this exemption will be reviewed. The DRG concept is a classification scheme that categorizes patients on similar diagnostic characteristics and establishes a price for treatment of the patient based on this categorization. The question of prospective pricing for health services is not limited however, to payment for hospital care; nor solely to the Medicare program. The DHHS Secretary as part of the Social Security Act Amendments establishing Medicare for DRGs is required to report by July 1, 1985 on recommendations for determining payment for physicians' services to hospital inpatients under a DRG classification; as well as the appropriateness of extending the DRG payment methodology to payment by all payors for inpatient hospital services. Developmental work is also underway to extend prospective payment methods to outpatient and long-term care.
Recent reviews of state Medicaid program policy changes reveal eligibility cutbacks, new covered service restrictions and numerous reimbursement reforms underway as a result of the new options afforded states with the enactment of Medicaid reforms under the Federal Omnibus Reconciliation Actof 198I.9
Some states have taken advantage of these newly created opportunities to apply for waivers from "freedom of choice" provisions, so that the Medicaid beneficiary can be directed to a particular provider. The state may contract with less expensive physicians and hospitals for provision of care to Medicaid patients, so some hospitals will be encouraged to cut costs (and it is likely that certain hospitals may be excluded if too costly). This may result in greater use of health maintenance organizations. A popular innovation being implemented by various states is a "primary care network," in which a particular primary care physician becomes responsible for all medical care services used by a Medicaid recipient; there are financial incentives for the physician to keep care costs low which establishes incentives to restrict access to specialty care such as psychiatric. Other recent innovations include primary care case-management programs specifically for mental health benefits in several states.10
Congress as part of its enactment of legislation establishing a per case reimbursement system (DRGs) for the Medicare program, also established incentives for states to adopt similar programs for Medicaid.
PRIVATE HEALTH INSURANCE
As private insurance premiums have been increasing very rapidly over the past year, many employers and insurors have sought ways to reduce those costs. Some definitive trends are now evident. Employers have changed their plans' benefit structures, introduced more cost sharing, offered financial incentives to use low-cost providers, increased HMO enrollments, and promoted growth of alternative delivery mechanisms such as Preferred Provider Organizations (PPOs)." The substantial tax subsidies to employment-related health insurance, estimated to be in excess of $20 billion annually, dilute incentives to restructure employee health insurance policies in an attempt to contain costs. All employer contributions to health insurance plans are excluded from the individual's personal income tax and the company's payroll taxes. Congress is actively discussing placing a limit on this subsidy to employment-based health insurance, but no action has yet been taken.
The Medicare reimbursement reductions for hospitals portended by DRG implementation and other legislative changes will put commercial insurers at a competitive disadvantage because they generally reimburse charges, in contrast to Blue Cross, which reimburses costs. Hospitals then shift these costs from Medicare to private insurors. Cost-shifting is motivating innovation by commercial insurers in response to the competitive threat that indirectly results from Medicare changes.12 In fact, numerous private third party payors - commercial, self-insured, and Blue Cross/Blue Shield plans have adopted or are developing similar prospective payment systems. These private sector plans will also apply to both hospitals and doctors.
CONCERNS AND IMPLICATIONS
We have briefly reviewed the extent of coverage and emerging trends respecting third-party financing of psychiatric care. Since reimbursement and treatment patterns are obviously interdependent, a number of implications are obvious.
Overall, on the basis of the trends in morion, one can reasonably conclude that public and private fiscal resources to be allocated for health care are finite and diminishing. Significant reductions in outlays have already been experienced by both the Medicare and Medicaid programs; and further reductions in Medicare benefits and further caps on Medicaid are likely in 1984. In the private sector, insuror and purchaser activities demonstrate a commitment to containing the costs of health care with little indication of a willingness to expand coverage.
Given this "macro-trend" and the existing deficiencies in coverage for psychiatric illness a key question emerges: What strategy choice by providers and advocates for the mentally ill is appropriate?
Coverage expansion is one choice. However, it may be difficult to realize in the current environment. Further, even if coverage expansions are achieved, this strategy ignores emerging trends. For example, an expansion in stated hospital coverage from 30 years prior to 60 is incomplete in light of prospective pricing systems which will set the price to be paid for treatment in advance based on diagnosis. Treatment options become a function of the price paid per episode rather than days of allowed coverage per year.
Advocates in the reimbursement arena must also therefore consider and undertake strategies respecting reimbursement which account for national trends in the environment. We would suggest that the following actions deserve priority in fight of these emerging trends.
A large section of the indigent community who need care will have reduced access to treatment. These individuals will increasingly require financial support from the private sector. Methods'to respond to populations previously covered by public funds will be needed. New coverage mechanisms will develop for those in receipt of public funds. Possible opportunities include the management of public institutions by contract and the packaging and offering of services to these populations in a different manner, eg, capitation. The catastrophic nature of mental illness must be recognized, however.
Existing levels are already inadequate. There are numerous indications that insurers and corporations are prepared to take more action to control psychiatric benefits costs than in other areas of health care.
Therefore, in addition to the development of strategies to insure rational allocation of resources within existing coverage, strategies defined for maintenance of coverage for psychiatric illness are indicated. Patterns of coverage for psychiatric care under the newly emerging PPOs and other alternative delivery schemes are not yet known but bear careful monitoring as their objectives parallel those of HMOs and IPAs. Increased lobbying, marketing and educational efforts are therefore required in both public and private arenas for maintenance of existing coverage and to capitalize on possible expansionary developments in funding.
Cost Containment pressure from purchasers, regulators, payors and consumers will require the development of new criteria for treatment payment, utilization review mechanisms and new treatment programming. Specifically efforts to control costs have spawned a sharp interest on the part of payors to shift the focus of care from inpatient to outpatient care. Further, purchasers are demanding increased accountability from providers in regard to whether care is necessary and in terms of cost effectiveness. Providers will have to develop alternatives to inpatient care where feasible, as well as diagnostic criteria for this determination if reimbursement is to be maximized.
In this regard providers should realize that an increasingly sophisticated management information system will be needed to monitor sources of payment for patients. The maintenance of such a system will enable providers to continually monitor the changing reimbursement and target their programs to particular patient groups, thus ensuring financial viability for their programs and practice. It will become important to prove to payors and regulators that treatment programs are cost efficient and effective in terms of patient recovery, both from the standpoint of the individual provider in a competitive sense, and to contribute to the body of knowledge demonstrating overall effectiveness of services.
Prospective Pricing of services for inpatient care now appears to be a rapidly emerging and permanent addition to health care reimbursement. Given the nature of prospective payment for health services, treatment choice will become less a matter of provider preference and patient insurance coverage and increasingly dependent on careful diagnostic assessment. The need for the development oî a competent prospective pricing mechanism for psychiatric care is pressing. Coverage for catastrophic mental conditions and treatments must also be developed.
These are formidable tasks. Nonetheless they are indicated as vital undertakings. Will innovation and progress prevail or cause a retrenchment? Will we find a balance between cost-management and access for psychiatric patients? On balance, given existing coverage and reimbursement methods, as well as the changes outlined above, strategies which address the threats to existing coverage and are responsive to key operative trends respecting reimbursement will succeed.
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3. 1982-5983 Source Book of Health Insurance Data. Washington. DC. The Health Insurance Association of America, pp 1 ·2.
4. Blue Cross/Blue Shield Covers Almost Half the Nation's Population. Business Insurance 1983; 17(March 141:24.
5. Blues Dominate Group Benefit Market: Sludy. Business Insurance 1983; 18(July ):1, 43.
6. Employee Benefits in Medium and Large Firms, /9S2- US Dept of Labor. Bureau of Labor Statistics publication No. 21 76. 1983.
7. Muszynski S, Brady I. Sharfstein SS: Coverage for Mental and Nen>ous Disorders: Summaries of 500 !'rivale Sector Health Insurance Plans. Washington, DC. American Psychiatric Press. Inc. 1983.
8. Inglehardt JK: Medicare begins prospective payment of hospitals. N Engl} Med 1983; 308:1428-1432.
9. Inglehardt JK: Medicaid in Transition. N Engl I Med 1984; 309:868-872.
10. Medicaid Waivers: Section 2175 Freedom-of-Choice. State Health Reports, Intergovernmental Health Policy Project 1983: 3(September):1.
11. Managing Health Costs: Strategies for Coalitions and Business. Clearinghouse on Business Coalitions for Health Action. Chamber of Commerce of the US, 1983.
12. Prospective Payment: A Sound Approach to Containing Hospital Costs. Health Insurance Association of America, Washington. DC, 1985.
COVERAGE FOR SELECTED OPTIONAL PSYCHIATRIC SERVICES IN STATE MEDICAID PLANS