Even as state mental health spending rises, private psychiatric hospitals struggle to stay open

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As Texas embarks on a $2.5 billion expansion of its 163-year-old state psychiatric hospital system, the private psychiatric hospital industry, which offers a more accessible entry point for those who are seriously mentally ill, would like a word.

How about a raise to the Medicaid rate for inpatient psychiatric care?

In the past year, 65 private psychiatric hospitals have banded together to form the Texas Association of Behavioral Health Systems (TABHS), bringing more attention to how the rate paid for Medicaid patients hospitalized in their facilities hasn’t budged in 16 years. The inattention has crippled this critical mental health industry, forcing some hospitals to close their doors in communities with few treatment options.

A letter sent nearly a year ago by TABHS to the Texas Health and Human Services Commission outlined their concerns.

“As HHSC is aware, inpatient psychiatric hospital Medicaid rates have not increased in Texas since 2008 and in fact, the Legislature decreased the rates by 8% in 2011,” the letter, signed last October by Oceans Healthcare CEO Stuart Archer, the group’s president, stated. “These 15-year-old rates are unsustainable. HHSC must act now to protect and support the Texas behavioral health safety net.”

That rate sits at about $529 a day. Care for each patient costs nearly twice that.

“Ballpark? It’s about $700 to $900 a day,” said Alan Eaks, senior vice president and CEO of Signature Healthcare Services, which operates five psychiatric facilities in Texas, including ones located in San Antonio, Georgetown, DeSoto, Houston and Lockhart.

Although the number of private beds is small – about 3,658 are located statewide in these standalone hospitals – 80% of Texas inpatient Medicaid claims for mental health and substance use treatment come from private psychiatric hospitals, Archer said.

While the Texas Medicaid program is so restrictive that the only adults who qualify are low-income moms of young children or disabled individuals, this group can make up a third of a private hospital’s patient load.

And now after more than a decade of no rate increase, Texas’ reimbursement rate is now less than several other states, including Oklahoma ($665), Louisiana ($738) and Mississippi ($648). By comparison, Medicare, the federal health insurance plan for Americans aged 65 and older, pays $896 a day per patient to psychiatric hospitals for inpatient care.

Mental health spending and state-run psych hospitals

For years, Texas has been held up as a stingy national example when it comes to mental health care, cited often as ranking dead last when it comes to finding help.

But those statistics often fail to account for what the Texas Medicaid health insurance program – designed to cover mostly poor children, their mothers and disabled adults, as well as to provide nursing home care for qualifying seniors – spends on behavioral health: about $3 billion every two years since 2015, according to the Meadows Mental Health Policy.

Factoring that in, Texas climbs the ranks to 33rd.

However, the figure includes all Medicaid mental health spending: counseling sessions for children, prescriptions and emergency room care.

Overall, Texas has spent more on mental health care in recent years. State expenditures on behavioral health by all agencies have soared from $6.9 billion in 2015 to $11.6 billion in 2023. A sizable chunk of the increase includes millions to construct new local mental health facilities and the $2.5 billion expansion of the state’s state psychiatric hospital system, many of the beds of which are reserved for the seriously mentally ill patients now confined in jails and not competent to stand trial.

The state health commission operates nine state psychiatric hospitals and its multi-billion dollar makeover will add at least 700 new inpatient beds. Many state-operated psychiatric beds have been set aside as “forensic” or “maximum security unit,” reserved for inmates in the state’s jails or prison system. In 2023, more than 60% of patients in the state hospital system came from the criminal justice system. The construction project will build more forensic and general public beds.

The few beds available to the general public in these facilities must meet certain criteria and patients must first go through a local mental health authority.

The move to expand the state hospital system comes following years of reports of mentally ill individuals found languishing in jails without treatment. The inmate waitlist for these psychiatric beds, a chronic problem, has dropped dramatically in the past year – from 1,056 in February 2023 to 645 last July. There was also a similar drop in the waitlist for non-forensic beds. But it is creeping back up, and in July 1,181 Texans outside the criminal justice system were on a waitlist for a psychiatric inpatient bed.

So where do people suffering a mental health crisis go?

According to Archer and others, they are typically treated first in hospital emergency rooms. While some general hospitals have psychiatric beds, hospital stays are very limited there and depending on where you are in the state the number of those ER beds can vary.

“Parkland barely has 20 beds,” Eaks said, referring to Parkland Memorial Hospital in Dallas. “Where Houston (UT Health Harris County Psychiatric Center) has around 100 beds.”

Who is a private psychiatric hospital patient?

That’s where the little-discussed private psychiatric hospital industry, clustered in Texas’ larger cities, enters.

These facilities concentrate too on the most seriously mentally ill and those in need of substance abuse treatment. Their patient load typically comes from acute hospital ERs, law enforcement or schools. This is where families take loved ones for intensive extended care.

While most people pay for treatment through private insurance, the Medicaid patients treated in private psychiatric hospitals have been a known loss leader in Texas for years, hospital officials say.

“We’re 90% percent full and we’re losing money,” said Eaks, with Signature Healthcare. “That’s why we’re sounding the alarm. We really are the safety net.”

Adds Steve Page, CEO of Sun Behavioral, which also operates in Texas: “Addressing the base (Medicaid) rate would create stability.”

Fragile industry

Overall, providers say doing business in Texas has always been tough and they, too, wince at headlines announcing another closure or sale of competitors’ hospitals.

In August 2019, Nix Medical Center in downtown San Antonio, which had 15 geriatric psychiatry beds, closed. Three months later, the company operating Nix closed two other locations, removing 115 adult beds and 31 child beds from the inpatient psychiatric industry in Texas.

In January 2023, New Jersey-based Cedar Health Group bought one of the Nix properties with plans to reopen it as a mental health facility. The main Nix tower was sold to a hotel operator and another Nix property was sold to a Houston-based hospital chain, according to local news reports. It is not clear at this time whether Cedar Health plans inpatient or outpatient mental health services.

“Houston and Dallas have been graveyards for psych hospitals in the state,” Archer said.

The problem is widespread – more than half of the nation’s inpatient psychiatric facilities report operating in the red, Archer wrote in the letter to the state last year.

Raising the Medicaid rate would be a boon but TABHS members also say it’s time to allow psychiatric hospitals better access to federal money that general hospitals have been able to tap. They point to the complicated, decades-old exclusion of psychiatric hospitals from other federal funding that general hospitals access.

After last year’s letter, the state health commission confirmed to The Texas Tribune that officials met with providers to hear more about their concerns. There’s no word yet on whether a rate increase is in the offing.

“It’s just a complicating factor for us. That’s something most of our legislators don’t understand,” Eaks said.