Getting Therapy for the High Cost of Mental Health : Benefits: To cope with soaring costs, more companies turn to contractors who provide thrifty mental health services.


After years of battling the soaring cost of insuring against employees’ physical ailments, American business is starting to focus on mental health costs, which have been growing even faster.

Most employers experienced 12% to 20% annual increases in the overall cost of health-care benefits for the past two years. But a survey by A. Foster Higgins & Co. found that in 1989 alone, among companies with more than 5,000 employees, the cost of mental health benefits rose 47%.

Some experts estimate that mental health coverage now accounts for a third or more of employee health insurance premiums.

Companies’ determination to control these runaway costs has spawned a new industry: consulting firms that specialize in managing mental health benefits for employers and insurers. Such firms provide a range of services, including employee assistance programs that give advice and direction on seeking help for mental health problems.


The consulting firms sometimes design and manage a network of mental health providers, who typically agree to participate in the network at a set fee for patient care. The firms may also provide clinical assessment teams to determine “appropriate” care and utilization review services to monitor patients’ progress.

Although there are still only a handful of these companies, the industry is growing fast and the leading firms exercise enormous influence as gatekeepers determining how millions of workers and their dependents receive psychiatric care and substance abuse treatment.

Some workers--fearful of losing control over their treatment--greet the changes skeptically. Among other things, workers are raising questions about how providers are selected for the networks.

There is skepticism in the medical community as well. The management companies are quite vocal about what constitutes appropriate treatment and have challenged traditional views about how best to use mental health professionals. For example, some firms favor using psychologists over psychiatrists for diagnoses. (Psychiatrists are medical doctors.) The firms tend to see hospitalization as the treatment of last resort, favoring intense outpatient treatment for many problems.


International Business Machines gave the industry a boost last month when it signed the largest managed mental health contract to date, hiring American PsychManagement, a unit of Value Health Inc. of Avon Conn., to serve its 700,000 U.S. employees, retirees and dependents.

American PsychManagement is to assemble a network of some 10,000 psychiatrists, psychologists and other mental health professionals. The incentive for employees to use the network is lower out-of-pocket cost for services. IBM employees will be able to nominate professionals to the network, but they will be screened to see if they meet criteria established by American PsychManagement.

For Armonk, N.Y.-based IBM, the contract is part of a redesign of the company’s entire employee medical benefits plan that began in the mid-1980s in response to big cost increases. In recent years, IBM has managed to get its overall health-care cost growth down to 10% to 11% a year, spokesman Jim Ruderman said. But, he added, “mental health has been one of our largest areas of increase. Those increases have been at 20% a year.”

In general, Americans are availing themselves of more mental health services today than ever before. Doug Fizel, a spokesman for the American Psychological Assn., said that there is a greater supply of such services available and that the stigma traditionally attached to mental health care has diminished.


The National Institute of Mental Health has no figures on how many Americans are getting mental health treatment or how many providers there are, but experts agree that both numbers are rising. The institute found that in 1986, for example, there were nearly 7.5 million “episodes” in which Americans received some form of facility-related mental health care. In 1983, the figure was less than 6.9 million. (These numbers exclude visits to private therapists.)

The Employee Benefit Research Institute says 98% of employers with more than 500 workers provide health insurance that includes mental health coverage, and about 10% of the $164 billion spent by all U.S. employers on health benefits in 1988 (the last year available) went for mental health and substance abuse. But the cost per mental health claim is much higher than the average physical claim, says Bill Custer, the institute’s research director.

Controlling mental health costs is difficult for several reasons. Unlike a fractured wrist, for example, except in the most severe cases there is little agreement on who needs mental health treatment, or even what “treatment” means.

Moreover, fractures usually heal after awhile, and it’s obvious when that has happened. But mental health problems tend to be chronic rather than acute, and it’s often hard to say when the patient is better or to what extent a “cure” is even feasible.


“The demand for mental health care is almost entirely subjective,” Custer said.

Yet people clearly benefit; Custer said some studies indicate that providing mental health care actually lowers physical health care costs.

The growing availability of mental health care also helps drive costs up. As an example, analysts point to the supply of expensive psychiatric beds for insured patients.

The deinstitutionalization of the mentally ill in America during the past two decades has been well publicized. With that change in treatment philosophy has come a sharp drop in psychiatric beds. Between 1970 and 1986, the number of beds in state and county hospitals per 100,000 people dropped to 49.7 from 207.4, according to the U.S. Department of Health and Human Services.


But a less-noted development is that over the same period, the number of beds in private psychiatric hospitals actually rose by 75%, to 12.6 from 7.2 per 100,000. The number of beds in general hospitals with psychiatric services increased even more dramatically.

Some experts say the federal government inadvertently helped fuel the boom because when it restricted reimbursements for hospitals in the early 1980s, it exempted psychiatric treatment. That spurred some general hospitals to switch more beds to psychiatric care to maintain their revenue, analysts say.

And to fill their beds, the hospitals and inpatient substance abuse centers have taken to the airwaves.

“Daily, television ads tout psychiatric hospitals’ treatment programs for problems ranging from depression to substance abuse and give the impression that intensive inpatient care is the treatment of choice for many emotional problems,” said psychiatrist S. Alan Savitz, medical director of Los Angeles-based Managed Health Network.


He and others in the managed mental health industry want to rein in what they see as inappropriate care, particularly unnecessary hospitalization. Savitz cited as one example parents’ efforts to restrain teen-agers’ sexual activity by placing them in psychiatric centers.

“There is a lot of inappropriate hospitalization. . . . According to the AMA (American Medical Association), adolescent hospitalization increased 35% between 1982 and 1987,” said Dr. John Bartlett, a psychiatrist who is vice president and medical director for MCC Cos., Cigna Corp.'s Minneapolis-based mental health managed care company.

Of all mental health care costs, adolescent care is singled out as particularly expensive. The Employee Benefit Research Institute recently cited an average $9,400 cost per mental hospital admission for an employee or spouse, but more than $18,000 for a dependent--who was most likely a teen-ager.

Psychiatric hospital companies deny that they hospitalize inappropriately.


“Most of the patients we treat have been in some type of outpatient program and failed. Most responsible physicians try outpatient services first. These are people who flunked out or are too sick for outpatient programs,” said Norman A. Zober, president and chief executive of Santa Monica-based National Medical Enterprises’ specialty hospital group.

Many employers now acknowledge that the design of their benefit programs favored expensive inpatient care because reimbursement was more generous for hospitalization, Bartlett said. Much of the design was motivated by compassion, he says, explaining that the desire was to make sure that the sickest people could get care. Some of it was rooted in misunderstanding of outpatient programs, he added.

Gary Weaver, benefits director for Walt Disney Co., said Disney’s mental health benefit program was changed to encourage greater use of outpatient services so that workers would get help before they became seriously impaired.

The costs of mental health problems are unpredictable, with actuaries unable to predict the general frequency of mental illness the way they can for physical problems, he said. And unlike treatment of physical diseases, there are many theories of treatments for the same mental disorder.


“The problem has been that mental health care people have refused to look at treatment outcomes across models for effectiveness. Every therapy does not produce the same kind of results cost effectively,” he says.

San Francisco-based American Biodyne, which provides managed mental health services to insurers, ran into a turf battle when it started a program for Blue Cross and Blue Shield of Illinois that used psychologists for initial screenings of patients rather than psychiatrists. Biodyne’s pilot project for the program showed that using psychologists greatly reduced the number of hospitalizations.

“Our program is very much oriented toward the most efficient, least intrusive therapy. That translates into mostly outpatient treatment,” says Sherman Kennedy, Biodyne’s vice president for marketing and sales.

Companies’ experience with managed mental health care consultants hasn’t been without problems. First Interstate Bank revamped its entire employee health benefits programs to control cost and contracted with Managed Health Network to manage its psychiatric benefits.


Susan Hinkle, manager of First Interstate’s employee assistance program, said Managed Health’s rapid growth--it went from a $2.5-million company to $31 million in just three years--brought administrative problems that detracted from its service to the bank’s employees. The problems prompted the bank to put its mental health management contract up for bid again, she said.

As business clamps down on mental health benefit costs, some analysts see psychiatric hospital companies feeling the pinch. The average length of stay in mental hospitals is gradually declining, and in the past two years, the rate of growth in the number of psychiatric beds slowed to single digits after double-digit growth between 1985 and 1988.

Macon, Ga.-based Charter Medical Corp., which owns three Southern California hospitals, partly blames stricter reimbursement policies for its big loss last year.

There’s no question that psychiatric hospital companies are feeling the effect of cost cutting, says Juan Noble, an analyst at Argus Research in New York. But some companies, such as National Medical, are more efficient operators than others, which mitigates the effect on profits of pressure from insurers to cut cost, he says. Some hospitals that can get away with it will raise rates in the face of declining average stays, he adds.


Zober, of National Medical, disagrees with less optimistic views of the industry’s future. He says the length of patient stays is declining because of better psychiatric treatments, rather than cost cutting. National Medical, he said, is still adding psychiatric beds and its psychiatric unit is about to publish a report showing growing demand for psychiatric services.