Fix the foundation: Unfair rate setting leads to inaccessible mental health care

Note: The terms “mental health” and “behavioral health” are used somewhat interchangeably in this blog because the Centers for Medicare & Medicaid Services and other government offices use “behavioral” in official rules and regulations. However, Mental Health America prefers the term “mental health” in standard use to refer to mental health and substance use services.

Access to mental health care is a well-known problem. Providers are scarce, those covered by insurance are even harder to find, and their waitlists are long. A recent Government Accountability Office (GAO) report revealed that mental health organizations cited inadequate reimbursement rates for services as one of the main reasons individuals cannot access mental health care, even when they have insurance. In other words, there is not much of an incentive for providers to take insurance if they aren’t guaranteed adequate payment.

In mental health care, market failures are easy to see because so many providers do not take insurance. A psychiatrist could make more than double from seeing a patient and billing them directly rather than taking Medicare and make three times as much compared to Medicaid. For example, last year, I received an email from a Washington, D.C., provider that I had seen in the past. They do not participate in any insurance networks and were increasing rates so that a one-hour initial consultation from a psychiatrist would cost $550. The published rates for D.C. indicate that Medicare pays $216.44 for a similar visit and Medicaid reimburses $177.44. The psychologists at this provider also billed at reimbursement rates that were double what they could make in the public programs.

Private insurance also pays reimbursement rates that are not comparable to what providers can make in the out-of-network market. A study of 2017 insurance claims data found 17.2% of behavioral office visits were to an out-of-network provider compared to 3.2% for primary care providers and 4.3% for medical/surgical specialists, and reimbursement rates as a percentage of Medicare payments were lower for behavioral health than for primary care. This study found that out-of-network and low reimbursements were worse than the 2015 data. Although we do not have recent comparisons, we can be confident that disparities have continued to increase given the increased demands from the pandemic.

A psychiatrist could make more than double from seeing a patient and billing them directly rather than taking Medicare and make three times as much compared to Medicaid.

Congress and the Administration have focused on network adequacy requirements, reasoning that if you can attract sufficient providers at the rates you pay, that is all government should be concerned about. That might work if it was not so difficult to determine whether networks are providing access. The underlying data is inaccurate, with a recent study finding that over half of providers in the Medicaid provider directories had not actually seen patients the year before, meaning the government was counting providers that were not actually part of the network. In addition, many in-network providers are at capacity, so they count toward meeting the time and distance standards, but people still cannot get help.

The reimbursement rate system in every insurance program is also very complicated, and policymakers do not want to be seen as interfering in the market. However, the market is not setting rates, and high demand for services never enters the equation. Commercial insurers set their rates and have discretion to do so. Typically, they set them as a percentage of Medicare, but they can consider other factors. Medicare uses a process that a Washington Monthly article described as “The AMA’s Dark Secret,” because the American Medical Association has a committee process that is not well-known and sets rates based on a value system that weighs certain factors such as time and complexity. The Centers for Medicare & Medicaid Services (CMS) relies on those values, as well as a formula for practice expenses, to set reimbursement rates in a fee schedule. Importantly, Congress has made the process a zero-sum game, so increasing reimbursement rates in one area requires across-the-board or targeted cuts elsewhere. As I will explain below, behavioral health does not do well in this system, and the fact that the pie cannot expand makes it very hard to fix.

Medicare: Looking for value in all the wrong places

Medicare is the foundation of reimbursement rate setting in the insurance market, with Medicaid usually paying less than Medicare, and private insurance paying somewhat better. You may think that Medicare reimbursement rates are set by the market in response to supply and demand. In reality, demand – what patients want and need – is completely left out of the calculation.

Instead, the process sets value based on the supply costs – how long it take to see the patient, the costs involved in the visit, and the practice expenses. All these factors disadvantage behavioral health. Mental health care providers generally don’t hook patients up to any machines or do surgery, and these providers have low practice expenses. One commentator noted, “Existing service codes are especially flawed when it comes to measuring cognitive work.” Cognitive work focuses on the critical thinking that providers must do, such as researching, analyzing, decision-making, and managing individuals in tense situations. A study concluded that Medicare reimburses physicians 3 to 5 times more for procedural work compared to cognitive work. Recent efforts to adjust some codes were insufficient and did little for non-physicians who do not bill the codes affected by the changes.

Congress passed legislation in the Affordable Care Act to allow CMS to examine misvalued codes and conduct its own surveys and data collection. CMS has engaged a contractor to look at these issues but has not indicated that they are specifically looking at behavioral health care. They should turn their attention to behavioral health and examine the current system – can value better reflect cognitive work, and can practice expenses be calculated differently? In addition, policymakers should address the underlying assumption that CMS should only consider supply costs.

Imagine if Nike set its prices by only looking at the cost of the raw materials to make sneakers. They would completely miss out on the demand side and how that affects price. Data indicate that more individuals are experiencing mental health conditions and seeking help, and the supply of providers who will take Medicare is shrinking. CMS should be able to consider demand factors, such as out-of-network usage, availability of providers in the network, and other means of measuring so rates can be adjusted accordingly. For example, a study by the Kaiser Family Foundation found that only 1% of physicians have opted out of the Medicare program, but psychiatrists were disproportionally represented, making up 42% of those opting out, followed by physicians in family medicine (19%), internal medicine (12%), and obstetrics/gynecology (7%).

Medicaid: How low can you go

Medicaid is perhaps the most broken of health insurance programs as it relates to reimbursement rate setting. Data clearly demonstrate that Medicaid programs in most states pay less than Medicare, with some states paying less than half of Medicare reimbursement rates for primary and maternity care. Reimbursement rates are sometimes set by state Medicaid agencies in a fee for service system, but increasingly, they are folded into a managed care contract that pays a per member rate. The actual rate paid to specific behavioral health providers is then determined by the managed care entity and is not transparent.

This blog addresses inadequate reimbursement rates, but it should be noted that the reimbursement rate does not get passed down directly in wages, so the person delivering the service likely gets even less of an already inadequate reimbursement amount.

Health researchers have underscored the racial injustice inherent in this reimbursement rate-setting structure. People of color are disproportionately served by Medicaid, and providers are less willing to serve Medicaid patients and are incentivized to treat them more quickly and with less care. People with mental health conditions are also disadvantaged by low rates. A recent data analysis by the Kaiser Family Foundation indicated that people with behavioral health conditions are more likely to be covered by Medicaid, and a higher percentage of Medicaid-covered individuals have mental illness and substance use conditions compared to those on private insurance.

Inadequate reimbursement rates in Medicaid also disproportionately harm children. An analysis of 2019 data indicated almost half of the nation’s children, 40 million young people, are covered by Medicaid or the Child Health Insurance Program (CHIP), with the majority on Medicaid.

By 2014-2015, only 35% of psychiatrists accepted Medicaid compared to 73% of primary care physicians.

A deeply concerning research study comparing psychiatrists accepting Medicaid over time noted that the acceptance rate declined and was much lower in psychiatry than other physicians. By 2014-2015, only 35% of psychiatrists accepted Medicaid compared to 73% of primary care physicians. The shortage of child and adolescent psychiatrists taking Medicaid is even more acute. Recently, the leader of the Community Behavioral Health Association in New Hampshire stated that a master’s level therapist in the state could bill $29 per hour under Medicaid when the market rate was $45 per hour, leading to critical shortages. The Senate Finance Committee proposed draft legislation requiring the Government Accountability Office to systematically study and report on these disparities across states, an important first step in addressing the problem.

CMS was scheduled to release regulations in October 2022 that will address Medicaid access and provide a framework for evaluating whether Medicaid beneficiaries have access to services. The proposed regulation is now slated for spring 2023. If it is going to be meaningful, CMS will need to grapple with provider reimbursement rates, especially when they are set by managed care companies and often hidden from view. Transparency and enforcement will be critical to ensuring people have access to needed behavioral health care.

Private insurance: These dollars make no sense

It is generally accepted in health care financing that private insurance pays more than Medicare. Given that mental health and substance use providers have some of the greatest shortages and highest out-of-network participation, it would be logical to assume that these providers would be given the biggest increases in reimbursement in private insurance relative to Medicare.

However, studies indicate that private insurers actually pay a smaller premium for mental health care than for other areas of health care. Milliman conducted a study of 2015 and 2017 data found that disparities between private rates and Medicare for behavioral health versus physical health care had increased over time. The Congressional Budget Office reached similar conclusions of unfair reimbursement rates in insurance plans, finding that commercial and Medicare Advantage plans paid on average 13-14% less than Medicare fee-for-service rates for mental health care and 12% more than the fee-for-service rates for other specialties. At the same time, patients went out of network more frequently for mental health care and paid higher cost-sharing as a result. The provider group that was most needed in the plan network was receiving the least incentive to do so.

Studies indicate that private insurers actually pay a smaller premium for mental health care than for other areas of health care.

Solutions: The building blocks of transparency, equality, and incentives

1. Increase transparency 

Congress should require the GAO or the U.S. Department of Labor/Health and Human Services to report to Congress on the current reimbursement rates paid for behavioral health services such as psychiatry, psychotherapy, and peer support under relevant payers: Medicaid, Medicare, and private insurance, both in-network and out-of-network. It is time to shed light on the absurdity of believing a public or private insurer can have an adequate network when the rates are half or one-third of market rates.

2. Focus on reimbursement rates

Focus on reimbursement rates to ensure behavioral health services are valued equally to other services and enforce requirements for reasonable rates, adequate networks, and equal access to behavioral health care. The U.S. Departments of Labor, Treasury, and Health and Human Services should issue strong parity regulations (meaning coverage of mental health and substance use disorders is comparable to coverage of other health issues) that focus on reimbursement rate-setting processes. The agencies should look to the out-of-network market as a benchmark, as well as Medicare, and understand why insurers are failing to raise rates to attract providers as they do for other specialties. Where rate setting is discriminatory, enforcement action should follow.

For Medicaid, CMS should add economic analysts and legal staff in a dedicated division designed to oversee and enforce parity compliance, access, and reimbursement rates, especially for children’s behavioral health services. Under Medicaid law, children have the right to any services needed to treat a physical or mental health condition. CMS should develop a more robust process for determining access that includes rates. Congress should enact legislation that gives CMS greater authority to review reimbursement rates, especially in behavioral health, and allow providers and beneficiaries to challenge low Medicaid reimbursement rates in court. Congress should also expand parity protections, which include reimbursement rate setting, to Medicare fee-for-service and Medicare Advantage programs.

For Medicare, CMS should use its authority under the Affordable Care Act to examine reimbursement data and adjust rates to better reflect the cognitive work involved in behavioral health care and to re-evaluate how practice expenses are calculated.

Congress and CMS should examine data on the disparity between payments to in-network and out-of-network behavioral health providers and the effect on provider access. These data can be used to revise the current rate-setting methodology to address market disequilibrium.

3. Increase reimbursement rates for behavioral health care

Increase reimbursement rates for behavioral health care, especially integrated and quality care. This is the most straightforward solution, but also the most expensive. To make it more affordable and impactful, Congress and states could do this in phases – first increasing reimbursement rates for primary care practices that provide integrated behavioral health care or for integrated care services in primary care and other community settings. Reimbursement rates could be increased in exchange for quality, such as evidence-based psychotherapies.

The U.S. Senate Committee on Finance in 2022 proposed a Medicaid demonstration project to address behavioral health workforce shortages, including reimbursement rates. States are beginning to recognize that low Medicaid reimbursement rates are worsening provider shortages, so they are likely to participate in such a demonstration if it were passed. Recent reports from Virginia and New Mexico recommend increasing reimbursement rates and ensuring that increased rates are passed to providers by the managed care entities, which should be included in any legislative fix. The New Mexico report noted the consequences of low rates: Secret shoppers were only able to secure appointments for primary care and behavioral healthcare 13% of the time and often with long waits.

Current policies are like measuring windows for drapes when the foundation is cracked

The United States has a mental health and substance use crisis, and too many people are not able to get the care they desperately need. The current rate-setting processes are specifically designed to disadvantage behavioral health because of who sets the rates and what they consider. The market reimbursement rate for out of network behavioral health care is so much higher than in-network rates in Medicaid, Medicare and private insurance, showing that the current reimbursement rate-setting process is failing. Policymakers have not addressed this fundamental problem because of the cost, complexity, and the political power of insurers and providers who benefit from the status quo. If the goal is to improve access to behavioral health care, the fundamental place to start is fair rate setting. Until the foundation is fixed, everything else is just window dressing.