Prospective payment has come to inpatient psychiatry. Last month the
Centers for Medicare and Medicaid Services (CMS) published a final rule
implementing a new prospective payment system (PPS) for the nation's inpatient
psychiatric facilities. The new system will go into effect for payment periods
beginning on or after January 1, 2005.
The new rule implements a per diem system of prospective payment—as
opposed to the per-case system using diagnosis-related groups (DRGs) that has
been in place for many other health care facilities since 1983—with
daily rates adjusted for a host of factors that can influence the cost of
care. The rule marks the end of the two-decade exemption for psychiatric
facilities from prospective payment under Medicare.
Since that time, facilities offering psychiatric services were paid instead
using a cost-based system under rules established by the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA).
APA leaders emphasized the landmark nature of the shift to prospective
payment, a change that will entail the redistribution of billions of federal
dollars for inpatient care of patients with psychiatric disorders.
"The new prospective payment system is an important step forward in
payment for inpatient psychiatric care under the Medicare program, as the
TEFRA payment method has proven problematic for many providers," said
APA President-elect Steven Sharfstein, M.D.
Joseph T. English, M.D., a leader in APA's negotiations with the government
around reimbursement for inpatient psychiatry for the past two decades, said
APA has been heavily involved in working with the government to develop a
workable system of prospective payment for inpatient psychiatry.
He noted that APA has also partnered with the Health Economics and Outcomes
Research Institute (THEORI), a consultant group linked to the Greater New York
Hospital Association, in developing a method of data collection for
reimbursement under the new system that relies on existing Medicare claims
That method replaces a government proposal that would have required
psychiatric hospitals to use a lengthy, costly, and time-consuming "new
patient assessment" instrument to collect data.
"The major point is that the methodology we developed does not place
another major administrative burden on the hospital or the clinician,"
English said. "It means that hospitals that provide psychiatric services
will be reimbursed by a method that allocates resources fairly and based on
information that the hospital already collects."
He is a past president of APA and current chair of APA's Committee on
Reimbursement for Psychiatric Care. He is also chair of the Mental Health and
Substance Abuse Committee of the Greater New York Hospital Association, as
well as chair of psychiatry at St. Vincent Catholic Medical Centers and
professor and chair of psychiatry at New York Medical College.
It was English who led the effort two decades ago to exempt inpatient
psychiatry from prospective payment based on the system of DRGs used for
general hospitals and other health care facilities. That exemption spared
hospital-based psychiatry a reimbursement system that would have cost the
hospitals roughly $200 million a year in lost funding, or $4 billion over the
20-year period, English told Psychiatric News.
English noted that the redistribution of resources under the new payment
system will mean, invariably, that there will be winners and losers. Exactly
how the new system will affect individual hospitals remains to be seen,
An analysis of the new rule is being conducted by APA's Office of
Healthcare Systems and Financing, the APA Committee on Reimbursement for
Psychiatric Care, and THEORI. When the review is complete, a report on how the
rule may affect hospitals in general will appear in Psychiatric
During the first cost-reporting period after the rule goes into effect in
January, hospitals will receive a 25 percent/75 percent blend of PPS and TEFRA
payment methodologies, with a staged increase in prospective payment until
July 1, 2008, by which time all hospitals will be reimbursed under the new
The final rule includes the following key provisions, according to a
preliminary reading by APA's Office of Healthcare Systems and Financing:
Medicare's final rule for prospective payment for inpatient
psychiatric facilities is posted online at<www.cms.hhs.gov/providers/ipfpps/cms-1213-f.pdf>.▪