Study: Medicare compliance costing psychiatric facilities nearly $2B a year

Hospital bed
Medicare regulations are costing inpatient psychiatric facilities close to $2 billion a year. (Getty/gorodenkoff)

A new study reveals that inpatient psychiatric facilities are spending vast amounts of their budgets to comply with CMS regulations. 

Medicare costs these facilities an average of $1.7 billion annually, about 4.8% of a facility’s annual revenue, according to the study (PDF) released by the National Association for Behavioral Healthcare (NABH) and conducted by Manatt Health. 

The report's recommendations are designed to aid the Centers for Medicare & Medicaid Services in its “Patients Over Paperwork” initiative, which aims to improve the patient experience while decreasing the hours and funds clinicians and providers spend on CMS-mandated compliance. 


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The report stated that as of 2016, more than half of the nation’s 1,738 inpatient psychiatric facilities had negative net operating margins.

"It was surprising to see how much compliance costs were associated with relatively few requirements of these three regulatory domains," Fatema Zanzi, J.D., a partner with Manatt Health, told FierceHealthcare. "More than a third of those costs (estimated $638 million per year) was related just to modifications inpatient psychiatric facilities needed to make to their physical space in order to comply with the evolving interpretations of a ligature-resistant environment. It is important to note that these costs do not account for the costs associated with lost revenue to the facility if certain parts of the facility are closed for renovations or the cost to the community for losing access to beds or services during such renovations."

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The first regulation noted in the report is the "B-tag" requirements, a set of standards for all patient evaluations, medical records and staffing. Compliance with B-tags costs an estimated $622 million each year. The NABH suggest that CMS convene a commission to revise these regulations.

Potential revisions include not requiring detailed treatment plans and progress notes but instead letting the clinician use professional judgment. The report also recommends lifting the requirement that a psychiatrist do all intake evaluations and that all nursing directors have an advanced degree. 

Another rule at issue relates to ligature risk points, or elements in the physical environment that could be used for self-harm. Those surveyed projected an average of $15,600 per psychiatric bed in compliance costs to address ligature-related issues.

Instead, the report recommends identifying physical areas in facilities that are the greatest risk. Another solution would be to minimize the risk of redundancy by getting a preapproved design feature, instead of requiring facilities to design highly ligature-resistant spaces in areas under constant supervision. 

In addition, facilities are bound by compliance with the Emergency Medical Treatment and Labor Act (EMTALA), which obligates a hospital to screen all patients for emergency medical conditions.

RELATED: More people are seeking out mental healthcare—if they can afford it 

NABH recommends that EMTALA be adjusted to permit each provider to decide which medical staff is competent to screen for emergency medical conditions. Facilities should also not be forced to accept involuntarily committed patients, the report recommends. 

NABH said that while the regulations are important to patient safety and high-quality care, the organization believes some of these regulations are outdated, and many are applied inconsistently by surveyors in the field. The idea is that removing compliance burdens would free up clinician time and financial resources that can improve inpatient care. 

“This report emphasizes what our members have been saying for too long: regulatory overload takes time away from patient care," Mark Covall, NABH's president and CEO, said in a statement. “As our nation works to address its deadly opioid and suicide crises, we need our behavioral healthcare providers to focus on what they do best: provide mental health and substance use disorder patients with the right care, in the right setting, at the right time.”

Zanzi says that the next big hurdle will be getting CMS to prioritize these reforms over other reforms that are needed.

"Every dollar spent on such costs is a dollar that could have been used on expanding access and improving care," she added. "Mobilizing CMS to prioritize these reforms is the next step on the path to reducing these costs."

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