Higher Medicaid pay for psychiatrists linked to lower costs in serious mental illness

A new multi-state study found that Medicaid patients with serious mental illness had fewer emergency visits, fewer hospitalizations and lower total costs in states that paid psychiatrists more. The findings suggest higher reimbursement could be a relatively low-cost way to reduce crisis care and overall spending. Why it matters: - Medicaid covers about 26% of American adults with serious mental illness, but psychiatrists are paid less than almost any other specialty and less than Medicare pays for the same services. - The study links higher psychiatrist reimbursement to lower use of emergency and inpatient care, which is where mental health costs can escalate fastest. - The findings suggest that raising pay for a small share of psychiatric services could reduce much larger downstream spending. What happened: - Researchers led by Professor Onur Baser of the CUNY Graduate School of Public Health and Columbia Data Analytics analyzed Medicaid data from more than 250,000 patients with schizophrenia, bipolar disorder, major depressive disorder and related conditions. - The study covered all 50 states from 2021 to 2023 and compared outcomes in states that paid psychiatrists the most for common services with states that paid the least. - The payment gap exceeded a factor of five between the highest-paying and lowest-paying states. The details: - Patients in higher-reimbursement states had 23% fewer psychiatric emergency department visits. - Those states also posted 24% lower annual healthcare costs. - Psychiatric-specific annual costs were 19% lower. - Psychiatric inpatient admissions fell 5%. - All-cause inpatient and emergency department visits were 6% lower. - Inpatient and outpatient costs were 12% to 29% lower across all-cause and psychiatric categories. - The study also found better outcomes in states with Medicaid expansion, Medicaid Health Homes for mental illness and substance use disorder, higher per-capita SAMHSA block grant funding and more behavioral health providers. - Medicaid reimburses psychiatrists at about 81% of the rate paid to other physicians for equivalent services. - Psychiatrist acceptance of Medicaid patients has been declining for years. - The 20 most frequently billed psychiatric procedures account for about 27% of total psychiatric costs. - A 20% reimbursement increase for those services would directly affect about 5.5% of total Medicaid spending. - The authors estimate that change could help drive a 24% reduction in total healthcare costs per patient through less crisis utilization. - The study was published in The American Journal of Managed Care. - The study was funded by Otsuka Pharmaceutical Development & Commercialization, Inc. - Columbia Data Analytics conducted the data analysis using Kythera Labs Medicaid claims data covering more than 44 million patients and 900 million claims from 2021 to 2023. Between the lines: - The core economics are simple: when reimbursement is too low, fewer psychiatrists take Medicaid, access tightens and patients are more likely to cycle into crisis care. - The study’s authors caution that the results show association, not proof of causation. - Differences in managed care arrangements, utilization review practices and care delivery models across states could also shape the results. - The pattern held across sensitivity analyses, including propensity score matching and falsification testing. What’s next: - State Medicaid programs may use the findings to reconsider psychiatrist payment rates as budgets tighten and mental health demand rises. - Policy changes that pair higher reimbursement with Medicaid expansion, Health Homes and stronger behavioral health capacity could have the biggest effect. - The research could fuel debate over whether paying more up front for psychiatric care can lower overall Medicaid spending. The bottom line: - Paying psychiatrists more may be one of the cheaper ways to cut crisis care and total costs for Medicaid patients with serious mental illness.