Fact Sheet: Medicaid Discrimination Against the Severely Mentally Ill

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Fact Sheet

MEDICAID DISCRIMINATION AGAINST PEOPLE WITH SEVERE MENTAL ILLNESSES

"Increasingly, individuals with mental illnesses are left to fend for themselves on the streets, where they victimize others or, more frequently, are victimized themselves. Eventually, many wind up in prison, where the likelihood of treatment is nearly as remote."
---Sen. Daniel Patrick Moynihan in the Congressional Record, July 12, 1999

The widespread introduction of the first, effective anti-psychotic medication chlorpromazine, or Thorazine, in 1955 launched deinstitutionalization, the moving of patients out of psychiatric hospital settings and into the community. The pace of deinstitutionalization accelerated significantly following the enactment of Medicaid and Medicare in 1965. While in state hospitals, patients were the fiscal responsibility of the states, but by discharging them, the states effectively shifted the majority of that responsibility to the federal government.

Discriminatory Provision

When enacting Medicaid, the federal government specifically excluded payments for patients in state psychiatric hospitals and other "institutions for mental diseases," or IMDs, to accomplish two goals: 1) to foster deinstitutionalization; and 2) to shift the costs back to the states which were viewed by the federal government as traditionally responsible for such care. States proceeded to transfer massive numbers of patients from state hospitals to nursing homes and the community where Medicaid reimbursement was available. ("[t]he term ‘institution for mental diseases’ means a hospital, nursing facility, or other institution of more than 16 beds, that is primarily engaged in providing diagnosis, treatment, or care of persons with mental diseases, including medical attention, nursing care, and related services." 42 U.S.C. �1396d(i))

Indigent persons who need treatment in a hospital can count on Medicaid to pay for diseases of the heart, liver, blood and most other body organs. Medicaid will not cover the individual if he or she is between the ages of 21 and 65, has a disease in his or her brain and needs care in a psychiatric hospital. The Federal government’s IMD Exclusion prohibits Medicaid from covering any treatment (even non-psychiatric) in state and private psychiatric hospitals and other IMDs.

For the most severely mentally ill, private insurance is essentially meaningless. Because of their illnesses, most individuals with the severest forms of brain disease are unemployed and private insurance is a luxury they cannot afford. While the federal government seeks "parity" for treatment of lesser forms of mental illness by private insurers, it continues to discriminate against those with severe mental illnesses by denying them coverage under Medicaid when they require hospitalization in a psychiatric hospital.

State Reimbursement

The federal government reimburses states for between 50 and 80 percent of treatment under Medicaid. Because treatment in an IMD is excluded from Medicaid reimbursement, the states have a significant fiscal incentive to limit treatment in psychiatric hospitals. This is the driving force behind deinstitutionalization as states seek to push patients out of the hospitals and into Medicaid-eligible services where the federal government picks up most of the cost, even though treatment may be unsatisfactory, more costly and less effective.

Hospital Closures

Approximately 500,000 individuals were in inpatient psychiatric care in state psychiatric hospitals when the Medicaid program started, compared with fewer than 60,000 in 1999. Hospital closures have actually accelerated in recent years. Forty state hospitals completely shut their doors between 1990 and 1997, nearly three times as many as during the entire period from 1970 to 1990, and many more closures are planned.

As state psychiatric hospitals improved in quality, it became increasingly common to discharge patients from relatively good hospitals with active rehabilitation programs and transinstitutionalize them to nursing homes, general hospitals or similar institutions with markedly inferior psychiatric care and no rehabilitation programs at all. States save state funds, but transinstitutionalized patients pay a substantial price for the substandard care.

Costs in general hospitals are generally $200 per day more than the costs in public psychiatric hospitals. These additional costs are of little consequence to the states since federal Medicaid dollars are paying the majority of the bill; the states’ costs are lower and that is the limit of their concern. Unfortunately, evidence shows that general hospitals admit psychiatric patients with less severe illnesses, but turn away those who are more seriously ill. Inpatient stays for people with serious brain disorders are typically shorter in general hospitals, which compromises the person’s ability to stabilize on medication.

Consequences of Discrimination

Medicaid’s denial of coverage results in homelessness, incarceration, victimization and even death for many people who are so ill they are unable to care for themselves. Of the 3.5 million Americans with schizophrenia and manic-depression, 40 percent (1.4 million) are not being treated on any given day. By the Justice Department's own statistics, there are currently about 283,800 mentally ill people locked up in the nation's jails and prisons. The Los Angeles County Jail and New York's Riker's Island are currently the two largest "treatment facilities" for the mentally ill in the country. Another 150,000 to 200,000 mentally ill are homeless, and 28 percent get at least some of their meals from garbage cans. More than ten percent will die from suicide. Others will commit acts of violence against family, friends and total strangers.

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