Medicaid

In 1996, state psychiatric hospitals in the six states GAO reviewed received between 20 and 89 percent of the total Medicaid disproportionate share hospital payments, even though state psychiatric hospitals represented a much smaller portion of the number of hospitals in the states and even though state psychiatric hospitals often had lower Medicaid utilization rates than did other hospitals. In each of the six states, payments to state psychiatric hospitals covered more than 90 percent of the maximum allowable payment to such facilities. These large payments have enabled states to obtain federal matching funds that indirectly cover costs of services that state Medicaid programs cannot pay for directly. Implementation of restrictions on payments to mental institutions in the Balanced Budget Act of 1997 should reduce some of these large payments.

GAO noted that: (1) Medicaid DSH payments to state psychiatric hospitals were far larger on average than payments made to other types of local public and private hospitals in states GAO contacted, enabling the states to obtain federal matching funds to indirectly cover costs of services provided to patients in institutions for mental diseases (IMD) that Medicaid cannot pay for directly; (2) overall, DSH payments to state psychiatric hospitals averaged about $29 million per hospital compared with $1.75 million for private hospitals; (3) in four of the six states, the average DSH payments to state psychiatric hospitals were also much larger than those to other state-owned hospitals; (4) in the two other states, DSH payments to the other state-owned hospitals were larger than payments to state psychiatric hospitals; (5) in all but one state, the average DSH payment per bed day was also much higher for state psychiatric hospitals than for other types of hospitals, indicating that the large DSH payments were not simply a function of hospital size; (6) the Balanced Budget Act of 1997 limits the proportion of a state's DSH payment that can be paid to IMDs, which should reduce such payments to state psychiatric hospitals in at least some cases; (7) state psychiatric hospitals receiving DSH payments in five of the six states GAO reviewed often served smaller proportions of Medicaid patients than other state-owned, local public, and private hospitals; (8) for example, the 1996 average Medicaid utilization rate at Texas state psychiatric hospitals was about 3 percent, while the average rate at other types of hospitals was much higher, up to 37 percent at local public hospitals; (9) however, in one state, the state psychiatric hospital served a higher proportion of Medicaid patients than other hospitals receiving DSH payments; (10) the states in GAO's review allocated DSH funds to state psychiatric hospitals at or near the maximum allowed by Medicaid rules and made DSH payments to other hospitals that were far below their limits; (11) each of the six states made 1996 DSH payments to its state psychiatric hospitals at more than 90 percent of the maximum allowable amount, and four of the six states paid these hospitals the maximum allowed; (12) other types of hospitals often received much less; and (13) for example, local public hospitals in Kansas as well as private hospitals in Michigan and North Carolina all received, on average, less than 10 percent of their allowed maximum.