Marketing Department
Practice Directorate

1. Most Mental Health Expenditures are for Inpatient Treatment -- The Treatment Type Primarily Responsible for Rising Mental Health Costs.

• Approximately 70% of all mental health costs are for inpatient treatment. (Stanton, 1989)

• In 1981, inpatient treatment accounted for 83% of total mental health expenditures under the Medicare program. (English, et. al., 1986)

• In 1985, the states spent 65% of their mental health agency budgets on inpatient care, 19% on ambulatory care, 5% on residential programs, and the balance on research and administration. (NASMHPD, 1987)

• Blue Cross/Blue Shield and other indemnity insurance plans spend two-thirds of their mental health budgets for inpatient care. (Levin, 1984)

• In FY 89, CHAMPUS spent over $500 million of $630 million total mental health expenditures on inpatient care. (Lewin/ICF, 1990)

• A recent study of expenditure and utilization patterns for mental illness and substance abuse services under private health insurance found that inpatient substance abuse services grew 30% between 1986 and 1988 and adolescent inpatient mental health treatment grew 65%. (Frank, 1990)

• The cost of inpatient psychiatric services under CHAMPUS increased 128% between FY 86 and FY 89 -- and increase 2 1/2 times the increase of outpatient psychiatric services. (Lewin/ICF 1990)

• In 1989, over 128,000 children were treated in short-term, non-federal general hospitals at an estimated cost of over $1.5 billion. (Kiesler, Simpkins, & Morton, 1989)

• Psychiatric hospitalization occurs for less than 1 percent of the general population but accounts for half or more of the total cost of treatment. (McGuire, 1989)

2. Much of This Inpatient Treatment can be as Effectively Delivered in Outpatient Settings

• A study of alcoholics was conducted to determine the relative efficacy of inpatient treatment, outpatient treatment, and combination inpatient- to- outpatient treatment. Six months after treatment, the patients revealed a 67% abstinence rate with no significant differences by treatment setting. (Harrison, et. al., 1988)

• Twenty-six controlled comparisons of treatment settings for alcohol abuses have consistently shown no overall advantage for residential over nonresidential settings, for longer over shhorter inpatient programs, or for more intensive over less intensive interventions. (Miller & Hester, 1986)

• Studies suggest at least 40% of the hospital placements of children are inappropriate, either because they have been hospitalized too long, or they never should have been hospitalizedd at all. (NMHA, 1989)

• In a review of reported outcome studies, Herz (1982) concluded that adult partial hospitalization was as effective or more effective than inpatient hospitalization in symptom reduction and community functioning. (Kiser, 1990)

• A retrospective study of behaviorally disordered adolescents discharged from a comprehensive residential or partial hospitalization program found that successful follow-up patients wwere most likely day students, rather than residential students. (Leone, Fitzmartin, & Foster, 1986)

3. Outpatient Treatment is Less Costly Than Inpatient Treatment

• After data analysis, one company found that 'the benefit design encouraged the use of inpatient services rather than less expensive and often more appropriate outpatient services. The indiividual would pay $2,750 for $3,750 worth of outpatient care in comparison to paying $1000 of the total comparable inpatient charge of $9,349. Based on historical data, shifting affective psychoses cases which could have been appropriately treated in the outpatient setting would have produced over $41,000 in savings over the two-and-a-half year period.' (Vaccaro, 1991)

• A retrospective study of the records of an intensive outpatient community support and treatment program found substantial decreases in hospital costs as a result of clientts participation in the program. Savings in hospital costs alone were $8,006 per client and the cost of initial commitments was reduced by 80 percent. Even when the cost of the program itself was included, annual savings from decreased hospitalizations were $272,767 (Dickstein, Hanig & Grosskopf, 1988)

• In Maine, intensive home-based services for emotionally or behaviorally disturbed children prevented placement in residential treatment settings in 76%- 95% of the cases and saved betweenn $3,000 and $12,000 per family. (Hinckley & Ellis, 1985)

• After the creation of an inter-agency system of care, state hospitalizations of children in Ventura county fell by 25%, saving an average of $428,000 annually. (U.S. House of Reprresentatives Select Committee on Children, Youth, and Families, 1987)

• In a cost-benefit analysis of outpatient psychosocial rehabilitation for frequent psychiatric recidivists, the average number of hospital days declined from 87.1 to 36.6,, resulting in an annual savings of over $5,000 per client following outpatient treatment. (Witheridge, et. al., 1982)

• A comparison of the financial costs during the first year of treatment of patients receiving home-based psychiatric treatment and patients receiving hospital-based treatment was conducted using two estimates of manpower and operating costs. Under both cost models, hospital-based treatment was more expensive: 64.1% more expensive in one case and 108.9% more in the other. (Fentoon, et al., 1982)

• In 1987, substance abuse treatment cost per patient per year were:

                 $ 3,000 = outpatient methadone maintenance
                 $ 2,300 = outpatient drug-free
                 $14,600 = non-hospital residential drug-free. (NASADAD, 1990)
  

• Costs for adolescent treatment ranges from $1,100 for intensive in-home crisis services per episode to $52,300 for residential treatment facilities per episode. (NMHA, 1989)

• A 12-day stay in a community hospital costs about $4,000; that amount would cover the cost of a halfway house plus regular outpatient treatment at a mental health center for about 100 days. (Dickstein, Hanig & Grosskopf, 1988)

References

Dickstein, D., Hanig, D., & Grosskopf, B. (1988). Reducing treatment costs in a community support program. Hospital and Community Psychiatry, 39(10), 1033-1035.

English, J., Sharfstein, S., Scherl, D., Astrachan, B., & Muszynski, I. (1986). Diagnosis-related groups and general hospital psychiatry. American Journal of Psychiatry, 143, 131-139.

Fenton, F., Tessier, L., Contrandriopoulos, A., Nguyen, H., & Stuening, E. (1982). A comparative trial of home and hospital psychiatric treatment: Financial costs. Canadian Journal of Psychiatry, 27, 177-187.

Frank, R. & Salkever, D. (1990). Report on Expenditure and Utilization Patterns for Mental Illness and Substance Services Under Private Health Insurance. A report prepared for the American Psychiatric Association's Committee on Managed Care. Baltimore: The Johns hopkins University.

Harrison, P., Hoffman, N., Gibbs, L., Hollister, C.D., & Luxenberg, M. (1988). Determinants of chemical dependency treatment placement: Clinical economic, and logistic factors. Psychotherapy, 25(3), 356-364.

Hinckley, E. & Ellis, W.F. (1985). An effective alternative to residential placement: Home-based services. Journal of Clinical Child Psychology, 14(3), 209-213.

Kiesler, C., Simpkins, C., & Morton, T. (1989). The Psychiatric Inpatient Treatment of Children and Youth in General Hospitals. under editorial review.

Kiser, L. (1990). Treatment Effectiveness Research in Child and Adolescent Partial Hospitalization. Memphis: University of Tennessee Department of Psychiatry.

Leone, P., Fitzmartin, R., & Stetson, F. (1986). A retrospective follow-up of behaviorally disordered adolescents: Indentifying predictors of treatment outcome. Behavioral Disorders, 11(2), 87-97.

Levin, B., Glasser, J., & Roberts, R. (1984). Changing patterns in mental health service coverage within health maintenance organizations. American Journal of Public Health, 74, 453-458.

Lewin/ICF, (1990). Analysis of CHAMPUS Mental Health Policies. Final report submitted to the Department of Defense, Health Affairs Health Program management.

McGuire, T. (1989). Financing and reimbursement for mental health services. In C. Taube, D. Mechanic, and A. Hohmann (Eds.). The Future of Mental Health Services Research (pp 87-111). (DHHS Publication No. (ADM) 89-1600). Washington, D.C.: U.S. Government Printing Office.

Miller, W. & Hester, R. (1986). Inpatient alcoholism treatment, Who benefits? American Psychologist, 41(7), 794-805.

National Association of State Alcohol and Drug Abuse Directors. (1990). Treatment Works, The Tragic Cost of Undervaluing Treatment in the 'Drug War.' Washington, D.C.

National Association of State Mental Health Program Directors. (1987). Funding Sources and Expenditures of State mental Health Agencies: Revenue/Expenditure Study Results, Fiscal year 1985. Alexandria, VA: National Association of State mental health Program Directors.

National Mental Health Association. (1989). Invisible Children Project. Alexandria, VA: National Mental Health Association.

Staton, D. (1989). Mental health care economics and the future of psychiatric practice. Psychiatric Annals, 19(8), 421-427.

U.S. House of Representatives Select Committee on Children, Youth, and Families. (1987). Children's Mental Health: Promising Responses to Neglected Problems -- A Fact Sheet. Washington, D.C.: U.S. Government Printing Office.

Vacaro, V.A. (1991). Depression: corporate experiences and innovations. Washington Business Group on Health. (in press).

Witheridge, T., Dincin, J., & Appleby, L. (1982). Working with the most frequent recidivists: A total team approach to assertive resource management. Psychosocial Rehabilitation Journal, 5, 9-11.