Testing the market-knows-best hypothesis

A boom in in-patient psychiatric hospital beds in Massachusetts is addressing a need without the typical level of government coordination

MASSACHUSETTS, HOME OF the world’s most expensive health care system, is in the midst of a boom in the development of in-patient psychiatric hospital beds. Responding to perceived market demand, developers on their own initiative are planning, building, or completing projects around the state that will add more than 500 beds for people who have acute mental health needs, expanding the existing bed capacity in the state by about 20 percent. There are rumors of additional projects that could push the growth even higher. This expansion is remarkable for its size and for its uncoordinated spontaneity.

Edward M. Murphy

Edward M. Murphy

A new 120-bed psychiatric hospital has just opened in Dartmouth. Another 72-bed hospital has come on- line in Middleborough. A third, planned for 104 beds, is rising out of the ground at the former Fort Devens property. McLean Hospital in Belmont is adding 32 new beds. In addition, several of the state’s largest health care systems are increasing mental health inpatient beds within their general acute care hospitals. Last year, Steward Health Care System said it would add 70 beds at several sites among its 10 campuses. Partners Healthcare has announced plans to consolidate existing beds and add 50 more to create a new psychiatric facility as part of its North Shore Medical Center in Salem. There also are a number of smaller projects going on around the state. The mental health field has not seen this level of expansion in decades.

Three main factors are contributing to this burst of activity. First, Massachusetts has the lowest percentage of uninsured people in the country. At the same time, new “parity” laws forbid insurers from continuing their practice of putting lower benefit limits on mental health treatments than they allow for other medical care. This means that inpatient psychiatric services have more reliable and attractive payment sources than was historically the case.

Second, the existing array of inpatient beds is running near capacity. It is hard to find an open bed and there is a persistent problem with mentally ill patients backing up in hospital emergency rooms. Lengthy delays in ERs are not good for the hospital or for the patient and there are frequent complaints about the absence of appropriate beds to absorb those patients.

Third, by the normal standards of regulation in Massachusetts, the barriers to entry are low. Free-standing psychiatric hospitals are not subject to the state’s Determination of Need Law, a complex and time-intensive process by which the Commonwealth seeks to insure that expensive excess hospital capacity is not built. The new behavioral health hospitals in Massachusetts are coming on-line unimpeded by a policy judgment from the state government about whether and where they are needed.

 

Government, nevertheless, has substantial economic and policy interests in the nature and size of this expansion. Approximately two-thirds of psychiatric in-patients are paid for by programs such as Medicare and Medicaid, so if the new beds are filled, it will cost many millions in public funds. Equally important are the clinical and policy implications of the uncoordinated development if the new facilities fail to address pressing needs. For example, some of the new beds should target certain subpopulations of mentally ill patients—such as those who are substance abusers, forensic patients, or people with medical co-morbidities—whose treatment options are limited because their care is difficult and expensive. There is also the risk that the market will create too many hospital beds at the expense of developing needed community-based programs which are less expensive and can serve to reduce the need for hospitalization.

This situation presents clearly the contrast between market-driven healthcare-decision-making and more traditional government policy-driven planning. In the healthcare system generally, some critics have urged for years that patients, providers, and payers should interact with each other guided only by the economic incentives of the market, making the system more efficient. Government planning efforts, they assert, are misdirected, counterproductive, and expensive. The current evolution of psychiatric hospital care in the Commonwealth is a live test of the market-knows-best hypothesis. Massachusetts is trading the benefit of a rapid expansion of psychiatric beds in exchange for accepting uncoordinated development. The risk is that uncoordinated development will not congeal into a coherent delivery system.

These risks and trade-offs are visible to stakeholders in the system. State mental health commissioner Joan Mikula welcomes additional investment in services for people with mental illness, but says she’s concerned that it is happening “without a comprehensive assessment of in-patient needs” and with the “absence of more community resources that could serve to avert hospitalization.”

The state chapter of the National Alliance on Mental Illness, representing individuals who have experienced mental illness and their families, is enthusiastic about the expansion. Laurie Martinelli, the Alliance’s executive director, says the new beds are “really great news—adding 500 beds to the mental health system is a great step forward.” But her group hopes that a portion of the new capacity will focus on patients who are mentally ill substance abusers. She says in-patient programs for that difficult population “really don’t exist in needed numbers.” The Alliance also sees a need for more community-based programs.

The leadership of the Massachusetts Association for Mental Health, a century-old advocacy organization, would have preferred expansion arising from coordinated  planning rather than from disjointed initiatives. President and CEO Danna Mauch said the system needs “the right kind of beds, not just more beds.” She points to specific underserved populations that need in-patient services and to geographic disparities in access to hospital care. She also says in-patient care is not well integrated with community service delivery around the state and these concerns are not addressed by the current developments. Dr. Mauch is also concerned that “there are big gaps in community services” that, if filled, would reduce the reliance on hospitalization. This leaves open the question of how many beds are actually needed.

David Matteodo, executive director of the Massachu-setts Association of Behavioral Health Systems, speaks for the psychiatric hospital industry when he says that the new beds are “a positive development that will give people access to the care they need.” He acknowledges that, with many different hospital organizations acting on their own, there is not a comprehensive plan to create treatment options for difficult special populations but he believes that there is now “a great opportunity to meet complex needs if there is a collective will to do it” on the part of the state, the industry, and the insurance companies.

The market forces driving new psychiatric in-patient capacity in Massachusetts are occurring in other states as well, reflecting a national trend. Behavioral health has become a hot topic among investors on Wall Street and elsewhere. Investors believe that the adoption of the Affordable Care Act and the emphasis on mental health parity is providing a growing population of people who need psychiatric care with a means to pay for their treatment. Investors are looking for companies well positioned to ride these trends to  increased growth  and profitability.

Among the companies active in the Massachusetts psychiatric hospital market are two large publically traded enterprises. Universal Health Services, the largest mental health inpatient operator in the state, owns five psychiatric hospitals. Meanwhile, Acadia Healthcare Co., which describes itself as the “leading publicly traded pure-play provider of in-patient behavioral health care services in the United States,” just opened its first psychiatric hospital here. Such firms are searching for ways to accelerate their growth and to take advantage of the opportunities they see. Acadia, Universal, and other smaller but equally aggressive competitors are creating the future of mental health care in Massachusetts. Their decisions are naturally guided by the goals of their businesses.

Market forces have brought the psychiatric hospital world in Massachusetts to a moment of significant change. It is not an anti-market sentiment to say that the moment calls for intelligent design. There is a hybrid path that may guide this unguided expansion to minimize the risks and maximize the benefits.

Meet the Author

Edward M Murphy

Guest Contributor

About Edward M Murphy

Edward M. Murphy worked in state government from 1979-1995, serving as the commissioner of the Department of Youth Services, commissioner of the Department of Mental Health, and executive director of the Health and Educational Facilities Authority. He recently retired as CEO and chairman of one of the country’s largest providers of services to people with disabilities.

About Edward M Murphy

Edward M. Murphy worked in state government from 1979-1995, serving as the commissioner of the Department of Youth Services, commissioner of the Department of Mental Health, and executive director of the Health and Educational Facilities Authority. He recently retired as CEO and chairman of one of the country’s largest providers of services to people with disabilities.

The absence of a strong regulatory framework does not preclude state officials from convening, jawboning, and persuading the parties that a thoughtful, more coordinated approach can leverage the energy of the market to meet the widest array of needs. The entrepreneurs need a return. The insurers need reliable providers at reasonable rates. The state needs a coherent and workable system. Most of all, people struggling with serious mental illness need ready access to specialized care in the most appropriate setting.

Edward M. Murphy worked in state government from 1979 to 1995 at the Department of Youth Services, the Department of Mental Health, and the Massachusetts Health and Educational Facilities Authority. He has been in the private sector ever since and recently retired as executive chairman of the board of one of the country’s largest providers of services to people with disabilities.