‘You’re Constantly on This Hamster Wheel’:  Psychiatric Facilities at a Crossroads

A slew of psychiatric facilities have closed as the industry faces growing pains. These closures come in the wake of several of the largest players in the space facing misconduct allegations.

The result has been several facility closures, exacerbating the shortage of inpatient and acute psychiatric services at a time when such health issues continue to worsen in the U.S.

Announcements and reports of psychiatric facility closures continued steadily throughout 2024. Leaders in the space say that the crush of the coronavirus pandemic as well as elevating pain from the fundamental problem of the industry — stagnant payer rates and elevating costs — continue to grind away psychiatric facility providers of all types. 

“COVID really overloaded the medical system in general, and, even though COVID wasn’t a behavioral health crisis, it definitely like bled over,” Dr. Max Doshay, clinical psychologist and CEO at Monima Wellness Center, a multidisciplinary mental health provider for women, told Behavioral Health Business.

At the core of the problem, the elevated cost of living all over the U.S. has continued to increase wages for health care workers. State mandates to increase minimum wages have made hiring administrative staff and technicians more difficult. California has a health care-specific minimum wage law that impacts the behavioral health industry.

Doshay said that health plan reimbursement rates are not meeting the  constant climb of wages. This creates incredible pressure on psychiatric facilities that already face high turnover due to the intense and potentially traumatic environments created by people experiencing psychiatric distress. 

“Retention is extremely difficult in a psych hospital setting. So you’re constantly on this hamster wheel,” Doshay said. “Sure, you can hire people, but you’re having to rehire for that same position 12 months later.”

The challenge extends to clinical staff with higher levels of training, but for different reasons.

Psychiatrists and therapists have more options to work outside of the psychiatric hospital settings, Doshay said. The rise of telehealth services has made private practice more tenable and increased the opportunity to work in an outpatient setting, even in the comfort of a clinician’s own home in some instances.

However, a wider picture of the psychiatric facility workforce reveals that trends are heading in the right direction.

Stuart Archer, CEO of Plano, Texas-based Oceans Healthcare, told BHB that the rates of temporary and contract labor are at levels that are much more in line with the pre-COVID era. For his organization, hiring overall has picked up to the point where Oceans can focus especially on its retention efforts.

“We were just trying to make sure our buildings were safe, that we had adequate coverage,” Archer said. “Now it’s shifting back to that retention mindset within our buildings.”

The workforce and staffing shortages also worsened capital expenditure issues. In some cases, especially within the state hospital segment (sometimes called forensic hospitals), buildings were nearing a century in age and neither the private nor the public sector could keep them open.

This has led to some eye-popping investments into new facilities on the state hospital front. In Texas, the state government has appropriated $2.5 billion to go into new state psychiatric hospitals. In Washington, a $947 million hospital project is underway to expand the capacity of Western State Hospital, one of the largest state psychiatric facilities in the nation. 

While private investment entities are interested in psychiatric hospitals, there has not been a comparable windfall for reinvestment in facilities in the psychiatric hospital industry.

Archer notes that this is not problematic for the rest of the psychiatric hospital industry; for the most part, state psychiatric hospitals are involved in caring for patients who are engaged with the criminal justice system. “Civil” cases are often handled by the private sector, but that varies by state.

Investments in new facilities are a more sure bet in the future than a key to addressing another fundamental challenge bedeviling this segment of the behavioral health industry: payer rates, specifically Medicaid rates.

Uncertainty about Medicaid

Medicaid rates are relevant for all providers, regardless of who they contract with. Most directly, providers that do work with state Medicaid programs often get especially low rates due to the federal ban on matching dollars going to most psychiatric facilities due to Medicaid’s Institution for Mental Diseases (IMD) exclusion. In some cases, states have workarounds, such as waivers to boost rates. But even if a facility doesn’t engage with Medicaid, public payers such as Medicaid and its sister program, Medicare, are often used to benchmark private health plan rates.

With the election of President Donald Trump and the control of both chambers of Congress going Republican, there has been wide concern that cost-cutting-focused politicians will have their way and impact Medicaid spending. There is also some concern that state governments, 28 of which have legislatures that are majority Republican, will find a federal government that is more friendly to attempts to rework Medicaid by potentially adding work requirements, clean drug tests to maintain benefits, diminishing rates, or undo waiver programs.

“Any time there are cuts, it is usually our patients that bear the biggest brunt of those cuts,” Archer said. “They’re the most vulnerable.”

However, there is some reason for optimism for the maintenance of the status quo and even improvements in the regulatory and rate environment. Still, behavioral health issues are often widely bipartisan.

Archer pointed to his and Oceans Healthcare’s advocacy efforts, highlighting engagements with the office of U.S. Senator Bill Cassidy. Cassidy, who is a doctor, and Archer both hail from Louisiana. Cassidy is a member of the U.S. Senate Committee on Finance, which oversees Medicare and Medicaid.

What changes to Medicaid that come, if any, could lean toward the positive, Shawn Coughlin, president of the National Association for Behavioral Healthcare, told BHB.

“These folks are among the most vulnerable,” Coughlin said. “We’re seeing growth in people with substance use disorders, and that is an issue with bipartisan interest.”

Looking forward

Coughlin also noted that several legislative reforms for the behavioral health industry came during the first Trump administration. He pointed to the passage of the SUPPORT Act. It was passed in 2018 and failed to get reauthorized during the Biden administration. It was included in the initial temporary funding bill meant to kick congressional budget talks down the road until the Trump administration and the new majorities could take office. However, it was stripped out after Trump and allies opposed that bill. A slimmed-down version of the bill was signed into law just before Christmas.

Coughlin, Archer and Doshay all pointed to hopes that progress on parity enforcement would translate to better treatment of behavioral health providers generally in the coming years. While not terribly specific, the overall Trump and Republican election agenda calls for driving down costs for Americans, including health care costs.

Coughlin also pointed to improving economic conditions that might spur additional investment in the space.

Given the uncertainty but potentially receptive federal government coming in 2025, advocates have a prime opportunity to effect change both at the state and federal levels.

“I can’t think of a year in which advocacy is going to be more important for our industry,” Archer said. He and Oceans Healthcare helped establish the Texas Association of Behavioral Health Systems in July to “carve out a place for us at tables that previously we weren’t included.”

However, trends continue to push potential demand for psychiatric hospitals downward. With decreases in stigma and major investments in lower-acuity options for care, more people could be addressing their behavioral health issues before the dissemble to the point of requiring a psychiatric hospital.

Overall, the industry is seeing big investments and sustained interest in outpatient care settings. Oceans Healthcare, for example, has increased its investments in outpatient clinics and more acute settings, such as intensive outpatient and partial hospitalization programs, to meet demand often driven by payers.

“The treatment landscape has been fleshed out enough now to where there are so many layers to be proactive before it gets to the point of needing a psychiatric hospital,” Doshay said. “There’s more of a system to interact with, which is a good thing.”