How an old federal rule limits inpatient mental health beds in Washington

Aug. 17—When adults in Washington are in need of inpatient psychiatric care, a lengthy list of systemic barriers can prevent them from getting a bed.

Care is costly. Stigma is real. The closest treatment facility might be hours from home.

But more than a half-century ago, one of the biggest hurdles was formally enshrined in federal law.

Enter the so-called Institutions for Mental Disease Exclusion: a federal rule that dates back to the 1960s and says the federal government won't pay for inpatient care at psychiatric facilities with more than 16 beds. Now, as demand for mental health care intensifies — and bed shortages tick upward — the once-obscure rule is gaining renewed attention as one of the most significant obstacles to adding psychiatric beds.

The takeaway is this: Federal Medicaid dollars generally can't be used for inpatient care at large psychiatric facilities. Many experts agree the rule is responsible, at least in part, for limiting people's access to inpatient psychiatric care.

"It does prevent the expansion of beds," said David Johnson, a federal programs manager at the Washington State Health Care Authority. "While we have facilities that are large ... and we could have other facilities with more than 16 beds, I don't think the state wants to promote facilities that are not able to draw down federal funds effectively."

If the 16-bed rule sounds wonky, that's because it is. It has lots of caveats, only affects certain age groups and includes temporary exceptions for some states, including Washington.

Repealing the rule would also be difficult, many experts agree. But expanding access to inpatient care is an idea that a large swath of the mental health care community is getting behind. In Washington, repealing the exclusion has support from both the state's largest hospital association and the largest mental health advocacy organization, NAMI Washington; Disability Rights Washington opposes repeal.

The rule was created on the heels of the discovery of the first psychiatric drugs in the mid-20th century, a hopeful feat that suggested many people with mental illnesses could recover in their communities instead of inside large residential institutions. The deinstitutionalization movement had already begun. The rule served to accelerate the move away from institutional care and warehousing patients in facilities where, in some cases, patient abuses and experimental treatments existed.

The thinking was that smaller, community-based settings should replace large-scale mental health facilities, and withholding federal funds for big institutions would hasten that transition. But community-based care has been slow to take hold. Meanwhile, emergency departments, emergency responders, jails and prisons have taken on increasingly large roles in providing mental health care.

"It's understandable to have that negative connotation with long-term inpatient care ... because there is a history of misuse and mistreatment," said Anna Nepomuceno, director of public policy at NAMI Washington.

But the 16-bed rule is outdated, she said. "We have come a long way," she said. "We need to look at it from where we are now and not where we were in the past."

Costly consequences

The rule has had costly effects on how inpatient care facilities are built and operated. The standard size of community-based psychiatric and substance-use treatment centers is now 16 beds or fewer. (The rule only applies to psychiatric facilities: Large hospitals where a majority of care is for nonpsychiatric conditions, like Harborview Medical Center, can have more than 16 psychiatric beds and receive Medicaid reimbursement.)

Psychiatric providers interested in serving more people may be forced to build separate treatment buildings — and hire separate clinical staff — to serve separate sets of 16 patients, increasing construction and other costs. In Clark County, for instance, a proposed 48-bed facility set to open in 2023 is being split into three separate 16-bed buildings.

Some experts say the rule's consequences stretch far beyond finances. "These individuals have such complex needs it's incredibly hard to provide those various types of programs within such a small facility," said Elizabeth Hancq, director of research at the national nonprofit Treatment Advocacy Center.

Carving out mental health care from government benefit packages also perpetuates stigma and the idea that mental health is separate from other types of health, others say. And since Medicaid primarily serves people who are low-income, pregnant or have a disability, they're the ones most affected.

"It is an explicitly discriminatory policy," said Dominic Sisti, associate professor of medical ethics and health policy at the University of Pennsylvania, who with a colleague in 2019 wrote an academic paper arguing for the rule's repeal. "From a symbolic, ethical perspective it should be repealed simply on those grounds. That should send a message to the public that we've evolved and we need to think about mental illness as illness."

Deep roots

Hancq began looking into the rule a few years ago in hopes of discovering where the number 16 came from.

"The only answer I was able to find is that it is arbitrary," she said.

In spirit, though, it fits with a longstanding federal practice of placing responsibility for inpatient psychiatric treatment on the states.

This position was rooted largely in stigma against people with mental illnesses, Sisti and others say.

In the 1950s, for example, when federal lawmakers created Social Security Disability Insurance, officials focused on providing benefits to people over 50 instead of people of all ages who had disabilities and were in need. "There was little desire to use Social Security money to subsidize state mental health hospitals," wrote historian Edward Berkowitz in federal testimony on disability and Social Security policies.

Planners of the earliest drafts of the legislation, prepared in the 1930s and 1940s, "argued that most people with mental disabilities were already taken care of in state hospitals [and] that mental disabilities were difficult to diagnose."

Federal officials, Berkowitz said, also worried that paying for inpatient psychiatric care would result in "malingering" — intentionally exaggerating symptoms of mental illness for some supposed personal gains.

When President Lyndon B. Johnson signed off on amendments to the Social Security Act in 1965 — a move that created the health care programs Medicaid and Medicare — psychiatric care was again excluded. Under these programs, the federal government refused funding for patients residing at "Institutions for Mental Disease," defined as facilities that primarily serve people with mental illness and have more than 16 beds.

"I don't think it was well-intentioned," said Chelene Whiteaker, senior vice president of government affairs at the Washington State Hospital Association. "I think it goes back to the federal government not wanting to pay. And the stigma of mental health."

Still, some experts defend the rule, citing ways in which the original policy disincentivized warehousing people in psychiatric institutions, a longstanding goal of patient rights and mental health advocates. They also argue the focus should be on improving community mental health services that would prevent hospitalization in the first place.

"We should not continue to invest in outdated models built on [the] industrial revolution idea of assembly line services delivered in a large setting in order to take advantage of economies of scale," said David Carlson, director of advocacy at Disability Rights Washington.

Constraining care

Each month, dozens of Washingtonians can't get access to a psychiatric bed, Washington State Health Care Authority data shows.

The consequences are many. People might wait hours or days inside an emergency department before they secure a bed, a practice called "boarding." They might get placed in a hospital unit that lacks the specialists they need, delaying access to necessary treatment. Some are turned away from care altogether.

In 2020, Washington got a reprieve from some of the 16-bed rule's constraints, easing the path to care. A new federal waiver allowed Medicaid-enrolled patients ages 21-65 to access inpatient treatment at large psychiatric facilities such as Fairfax, Smokey Point or Rainier Springs.

Large institutions have their own set of problems, most people interviewed for this story agreed, but many said such facilities are a necessary part of the overall mental health care landscape.

Before the waiver, the state used money from its general funds to pay for Medicaid patients at such facilities when they stayed longer than 15 days, said Johnson, at HCA. "So it costs the state more."

The waiver is set to expire at the end of 2022, though the state is pushing for its renewal.

But the waiver has limits: To keep it, Washington has to maintain a statewide average of no more than 30 days of inpatient care among people being treated at large psychiatric facilities. And on an individual basis, if a person stays longer than 60 days, the state is on the hook for the entire cost of treatment. Each year, the state spends about $18 million on people in this situation, Johnson said.

Such state waivers and the limits within them aren't grounded in medical or scientific evidence — and don't solve the treatment capacity problem, Sisti said.

But he's not sure what will fix it.

A pandemic and a growing mental health crisis erupted since Sisti argued against the 16-bed rule in 2019. Severe racial and economic disparities in mental health care were laid bare. The mental health care workforce shortage is acute. Younger and younger people are experiencing mental health crises and overdosing on opioids.

Sisti says he finds himself wondering: "Even if [the rule] were to be repealed or stricken, as it should be, what's the impact?"

Would more private providers open large psychiatric hospitals? Would states partner with the private sector to spur investment in such facilities?

"I'm still not sure it matters that much because our system is so broken."

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