Medicare Proposes Outpatient Payment Cuts

The Centers for Medicare and Medicaid Services (CMS) wants to again cut its payment to hospitals and community mental health centers (CMHCs) for outpatient psychiatric care in 2007. The benefit on which the CMS is focusing is called partial hospitalization; it is paid to a facility for treatment of a patient recovering from an acute psychiatric episode. Physicians must certify that in the absence of treatment in the partial hospitalization program (PHP), a patient would require inpatient psychiatric care. Typically, patients in a PHP spend 4 to 8 hours a day, 4 days a week, receiving intensive outpatient psychiatric care.

The CMS wants to cut the per diem payment to $208 starting in 2007, a 15% decline from its level in 2006. Linda Rosenberg, MSW, CSW, president and CEO of the National Council for Community Behavioral Healthcare, argued that the $208 does not even cover the cost of 4 sessions per day of group psychotherapy, which are required under the PHP. "Using the current recommended rate of group psychotherapy, the lowest-cost applicable treatment procedure at $66.40 per group, this translates to $265.60 per patient per day," she stated.

The PHP payment has been dropping steadily over the past 5 years because of the formula the CMS uses to calculate it. The formula is based largely on an average of the hospitals' and CMHCs' median outpatient daily costs. The per diem rate was $286 in 2004. As a result of the drop, hospitals have been closing their programs at a healthy clip. The Lewin Group, a consulting company brought in by the National Association of Psychiatric Health Systems (NAPHS), found that there was a 19% decline in the number of hospital-based PHPs from 2003 to 2005 and a 21% decline in hospital-based PHP claims.

Mark Covall, executive director of NAPHS, said that the CMS is boxed in because the formula it uses is statutorily prescribed by Congress. However, he argued that the CMS should be using the median costs for providing the partial hospitalization benefit, not the median costs for all outpatient services. The partial hospitalization benefit is much "richer" in terms of the range and intensity of services provided than a typical outpatient service-individual psychotherapy, for example.

If the CMS accepted NAPHS's recommendation, the per diem payment in 2007 would be 48% higher for hospital-based PHPs, or $308. Assuming that the payment for CMHCs would increase by about the same percentage, the blended (or final) per diem rate would rise about 40% to 50%.

Cutting the payment for PHPs means that Medicare's costs may be higher as hospitals struggle to find facilities that provide a PHP and, as a result, may be forced to keep psychiatric patients in far more expensive inpatient wards longer. The impact on patients could be equally drastic. Rosenberg said, "A result of this kind is clearly contrary to congressional intent and would represent a tragedy to many individuals with serious mental illnesses currently served by PHP programs."