Insurance, system structure, and the use of mental health services by children and adolescents

CI~nzcalPsycholoqy&JEW, Vol. 12, pp. 829-840. Printed in the USA. All rights reserved.

1992 Copyright

0272.7358/92 $5.00 + .oo 0 1992 Pergamon Press Ltd.

INSURANCE, SYSTEM STRUCTURE, AND THE USE OF MENTAL HEALTH SERVICES BY CHILDREN AND ADOLESCENTS Richard C. Frank Carolyn S. Dewa The johns Hopkins

University

ABSTRACT. This paper reviews data on the roles of various types of mental health providers in supplying service to children and adolescents. Data on institutional and community-based provi&rs are analyzed in detail. In addition, the changing ownership structure of mental health providers is studied. Hypotheses regarding a number of explanations for observed patterns of service use are considered. Directions forfuture research are offered based on the existing knowledge base.

A great deal has been written in the past 3 or 4 years on the delivery of mental health services for children. The studies appearing in the literature have described the mental health services system for children and adolescents, examined trends in the pattern of services delivery for mentally ill children, speculated on the reasons for several notable phenomena, and have made policy recommendations for improving the services delivery system (Burns, 1991; Chaulk, 1988; Saxe, Cross, & Silverman, 1988; Tuma, 1989 for four examples). Virtually all policy discussions of the mental health system serving children address concerns

related to (a) the possible overemphasis

of institutional

care as a

treatment modality and (b) the shifting sites of residential treatment that have occurred over the past 15 years (Burns, 1991; Saxe et al., 1988; Thompson, Rosenstein, MilazzoSayre, & MacAskill, 1986). The term children will be used in the remainder of this article to refer to individuals under the age of 19 years. This article focuses on these two issues from the perspective of the field of economics. Inpatient treatment of mental disorders

is generally

care, the most intensive, and the most expensive. psychiatric hospital (or specialty unit of a general

the most restrictive

approach

to

In addition, a child’s admission to a hospital) has a significant impact on

both the child and the child’s family. Thus, there is a desire among policy makers to protect children from casual use of the hospital as a treatment setting. There is also widespread concern regarding the costliness of hospital care for mental disorders in chil-

Correspondence should be addressed to Richard G. Frank, Health Services Research and Development Center, The Johns Hopkins University, 624 North Broadway, Baltimore, MD 21205.

830

R. G. Frank and C. S. Dewa

dren (Stroul & Friedman, 1986). Careful examination of the determinants of inpatient utilization remains vital to the deveiopment fo weIl-formulated public policy, During the past 15 years the mental health sector has undergone important changes that are reflected in the services delivered to children as well as in those to adults. The role of public mental hospitals continued to decline during the 1980s (Burns, 1991). In addition, residential treatment centers for emotionally disturbed children (RTCs) and private psychiatric hospitals gained significant market shares during the 1970s and 1980s (National Institute of Mental Health [NIMH], 1990). Th e substantial growth in ambulatory mental health care for children expanded the role of free-standing outpatient clinics in the sector. The implication of the changing organizational structure in the mental health sector is that different types of organizations

and ownership forms are attending to the needs of the highly

vulnerable population of mentaIIy ill children. The entry of for-profit providers of care is especially alarming to some. This is because quality of care and need for treatment are difficult to observe. In a classic efficient market consumers are fully informed, and a service provider would lose customers if a substandard product was offered or if unnecessary services were provided. In the mental health area in general, and in the case of children in particular, consumers

are poorly informed,

and a provider is therefore less likely to lose customers if

nonoptimal treatment decisions are made. Thus, it may be possible for for-profit organizations to exploit the consumer’s lack of information. These organizations may be able to focus all their energies solely on maximizing

shareholder

earnings

without being concerned

about

marketplace penalties resulting from poor quality care. We will focus attention on the implications of the shifting sites of care within the residential treatment subsector. Our examination of the use of inpatient services and the structure of the residential care treatment system for children is organized into three sections. The first section examines the use of inpatient care for treatment of mentally ill children. The second section examines the structure of the residential mentaf health care industry for children, paying special attention to ownership changes RTCs. The third and final section presents concluding remarks.

INPATIENT

TREATMENT

OF CHILDREN

WITH

and the growth of

MENTAL ILLNESS

A number of observers have noted substantial increases in the use of inpatient care for the treatment of mental disorders in children (Burns, 1991; Frank, Salkever, & Sharfstein, 1991; Schwartz,

1985). Such trends have generally been interpreted

as representing

trans-

institutionalization (Saxe et al., 1988). Moreover, there is a perception that communitybased care of mentally ill children has not grown at rates comparable to inpatient treatment. These inferences have generally been made with considerable dismay. We begin our discussion with review of the facts that have been reported to date.

Data on Use of Residential Care Thompson et al. (1986) reviewed the NIMH sample survey data for the 1970 to 1980 period. They found that total inpatient admissions for children increased only modestly (by around 3 %). However, since the lo- to 14-year-old segment of the child popuiation fell by 12%, the rate of psychiatric admissions actually rose substantially for this group. The 14- to 17-year-old portion of the population grew only 1% during the 197Os, indicating a small increase in the rate of inpatient admissions for that population segment. Thompson’s results suggest that there has been unequal growth in inpatient utilization among differing age groups, the younger children being admitted at a greater rate than the older ones. Burns (1991) reported that between 1975 and 1986 the growth rate in

Insurance and

System Structure

831

admissions, for lo- to 17-year-old adolescents, to all forms of mental health services was 60%. Admissions for inpatient hospital treatment rose 33 % during the same period, while admissions for residential treatment rose 72% between 1975 and 1986. One can get a sense of the mix of services provided over time by comparing the ratio of admissions in residential settings (inpatient plus RTCs) to admissions to ambulatory settings (outpatient plus partial hospital care). Burns’ data indicate that the ratio of residential to ambulatory admissions decreased from .47 to .39 between 1975 and 1986. This indicates a 15% reduction

in the residential

to outpatient

admission

ratio during the 12-year period ana-

lyzed. Burns also reported that the length of stay of children did not decline significantly during the 1975 to 1986 time period. She noted the sharp contrast of this finding tot he substantial

reductions

in adult psychiatric

length

of stay (especially

since 1983).

These

findings indicate that there has been an increase in general use of mental health services. Indeed, there appears to be a dramatic increase in the use of inpatient services. Yet, when compared to outpatient services, the growth takes on a new perspective. In fact, there appears to be a decline in inpatient utilization relative to outpatient utilization. It is important to point out that, since Burns (1991) undertook her analysis in order to make temporal comparisons, she was forced to restrict the range of treatment settings for which she analyzed data. The implication of this is that settings which provided primarily outpatient care (which have proliferated in more recent years) were somewhat underrepresented in her data. If we calculate the ratio of residential admissions to ambulatory admissions

using data from NIMH

(1990) for 1986, the larger group of treatment

settings

results in a ratio of. 20. This is nearly one half the value of the ratio based on data used for purposes of temporal comparisons. At the same time, the discrepancy between the two service sectors may still be underestimated. One major reason for this could be attributed to the fact that services provided by the non-mental-health sector have not been taken into consideration. The educational, child welfare, general health care, and juvenile justice systems all provide forms of child mental health services for which there also should be an accounting. For instance, it has been estimated that the general health care sector provides between 11% and 12 % of mental health services to children (Tuma, 1989). Frank et al. (1991) examined data on the health care claims of roughly 1 million employees of mid- to large-size

U.S. corporations

and their dependents

for the years 1986-

1988. They also examined hospital discharge data for privately insured admissions in the states of Maryland and Washington between 1986-1988. The data from the corporate sample indicates that inpatient charges for children comprised roughly 26% of all psychiatric charges per enrollee and 13% of all substance abuse charges in 1988. The trend data showed dramatic

growth in the expenditures

and utilization

of both inpatient

psychiatric

and substance abuse care during the 1986-1988 period. Days of psychiatric care per 100 enrollees increased from 3 to 5 days between 1986 and 1988. Charges for inpatient psychiatric care for children grew 65% during this period. Substance abuse charges for inpatient care of children rose 23% between 1986 and 1988. It is worth pointing out that during the 1986-1988 time period the insurance benefit did not change. Moreover, the structure of the benefit was quite generous. The outpatient benefits had over 30 visits at less than 50 % copay levels. The data from Washington and Maryland revealed no unusual increases in the use of inpatient psychiatric or substance abuse care by children. The fact that Maryland and Washington have far more stringent regulations on the hospital industry than does the rest of the nation may explain the difference between the corporate samples. It is notable that the trend in psychiatric admissions for children does not appear to be universal. The existing data also do not allow one to directly address the question of what are the

R. G. Frank and C. S. Dewa

832

“right” number tient psychiatric

of inpatient admissions

psychiatric

admissions

were for children.

for children.

In 1986, 7% of all inpa-

Yet, since the length of stay for children

with mental problems is long relative to adults, 10% of inpatients actually receiving treatment were children. There is currently great interest in developing standards for “ appropriate” use of hospitals for treatment of childhood mental disorders (Costello, Dulcan, & Kalas, 1991). The clinical benefits of treating various types of mental illness in children remains controversiai (Blotcky, Dimperio, & Gossett, 1984). The criteria proposed in the literature whether

to judge

the net therapeutic

the value of psychiatric

hospitalization

benefit to the child is greater

for children

is

in the hospital than in a less

restrictive alternate setting. A parallel economic standard for judging the value of a hospitalization is whether the increased benefit to all parties (including parents and classrooms) of a hospital episode is at least as large as the additional costs (to all parties) of treating the patient in a hospital as compared to other settings. Unfortunately, there does not appear to be a strong enough set of empirical assessments of hospital treatment to make broad judgments about the aggregate use of inpatient psychiatric care by children. Nevertheless, there is a strong body of informed opinion which suggests that there is an overemphasis on residential treatment and hospitalization in particular (Burns & Friedman, 1990; Willie, M. v. James B. Hunt, Jr. et al., 1980). Indeed, much of the policy literature on mental health services for children has advanced the positions that {a) there is too much residential care of children and (b) the trend suggests that this will continue

to be the case. However, up to this point there

have been no studies that convincingly support these assertions. The existing data on residential psychiatric admissions for children point to substantial increases in the number of admissions over time. The total number of admissions to all types of psychiatric care for children has also grown significantly during the 1975 to 1986 time period. In fact, the data reveal that admissions to ambulatory treatments have grown more rapidly than residential admissions. Thus, the data are unclear. Depending on the settings examined, one can conclude that there has been at least a modest decline in the share of all admissions

that are for residential

Two forces that are generally

identified

treatment

with producing

of some kind.

increases

in use of residential

treatments are (a) rigidities in the structure of insurance coverage for mental health treatment of children and (b) the growth of for-profit psychiatric hospitals. We examine each of these in turn. Two versions of the insurance rigidity hypothesis appear in the literature. The first, which we term the simple hypothesis, posits that insurance coverage for inpatient care is generally more generous than is coverage for ambulatory treatment, thus creating a strong financial incentive to hospitalize children with mental disorders. The second version, which we term the sophistic&d hypothesis, suggests that the types of residential care that are typically covered under private insurance are very narrow and emphasize hospital settings. This creates an incentive to hospitalize most children who might benefit from some form of residential treatment (Saxe et al., 1988). The simple hypothesis is based on the proposition

that inpatient

and ambulatory

care

are substitutes in terms of demand. That is, as the out-of-pocket price of ambulatory care falls (due to insurance coverage), the use of inpatient psychiatric care by children will also fall. The evidence in support of this proposition is quite weak. While there is considerable intuitive appeal to the notion that a strong ambulatory

treatment

system would reduce

833

Insurance and System Structure

hospital use by children

with specific types of problems

not clear that it is “consumer”

(Burns

& Friedman,

1990)

it is

response to relative prices that drives this type of behavior.

The evidence on substitution has not produced results suggesting that it is the structure of insurance that is primarily responsible for the observed pattern of treatment for children with mental disorders (Goldstein & Horgan, 1988). Data developed by McGuire (1991) sh ow that the joint distributions outpatient charges insured population.

of inpatient

and

for mental health care are essentially independent in a large wellThis means that changes in the charges for one type of service have no

clear impact on the charges for the other service. The dramatic growth in inpatient charges for psychiatric care of children reported by Frank, Salkever, and Sharfstein (1991) occurred

within the context of a generous

outpatient

mental health benefit.

Cost sharing

for psychotherapy was in the 35% range, and an excess of 30 ambulatory visits were covered. Thus, the evidence is generally inconsistent with the simple restricted insurance hypothesis. The sophisticated hypothesis relies on a far weaker set of conditions with respect to substitution in demand. The sophisticated hypothesis requires that there is substitution in demand only between different types of residential care. The implication of the sophisticated hypothesis is that the need for residential treatment has grown over time. Intuitively, the substitution condition underlying the sophisticated hypothesis seems considerably more plausible than the strong substitution in demand between ambulatory and residential care. Little direct evidence on this type of substitution is available. It is worth noting that under the Civilian PUS),

the military

Health and Medical Program of the Uniformed Services (CHAMplan, which has for some time offered coverage of

health insurance

RTCs, there has been substantial use of that treatment setting. That pattern of utilization does not, of course, imply substitution for hospital care. Anecdotal reports on patterns of hospitalization for patients faced with a copayment rate that varied according to whether or not a hospital was part of a Preferred Provider (PPO) network suggest strong substitution in demand between hospitals. Producing careful research on this issue is important for assessing the role of insurance in explaining the growth of residential treatment of children with mental disorders. The second force identified with the continuing

growth of inpatient

psychiatric

care for

children has been the growth of for-profit psychiatric hospitals. While there appears to be a correlation between the number of private psychiatric beds and rates of child psychiatric admissions, the literature is not clear on the precise mechanism by which a for-profit psychiatric hospital might cause increased levels of admissions. In general, the trend is viewed as socially troublesome (Weithorn, 1988). The key question for assessing the role of the for-profit

psychiatric

hospital is to understand

its impact on the demand for inpatient

care. Data on inpatient admissions (NIMH, 1990) suggest that, while children account for 7 % of all admissions, they make up about 2 1% of admissions to private psychiatric hospitals. Thus, hospitals.

serving children is an important

part of the business of private psychiatric

One simple explanation of the observed pattern is simply that for-profit psychiatric hospitals locate where the demand for inpatient care of children is the greatest. The ability to promptly respond to market demand might be made possible by relatively easy access to capital for forprofit hospitals. If this were the case, we should not view the correlation between for-profit beds and admissions as problematic. There is, however, the suspicion that for-profit providers are engaging in practices that result in unnecessary hospitalizations. Economists have for some time wrestled with the problem of provider-induced demand in the health care sector (Sloan & Feldman, 1978, 1988). The explanations of provider-

R. G. Frank and C. S. Dewa

834

induced demand for physicians’ services have typically relied on the dual role of physicians as both a “consultant” to the patient on health care matters and as “sellers” of some services. This dual role contains a potential conflict of interest because physicians may benefit economically parallel relationship

from the advice they give in their role as a consultant. No clearly exists between the psychiatric hospital and members of the local

community. A more appealing approach to understanding the for-profit psychiatric hospital’s iniluence on demand may relate to promotional activities or advertising (Burns, 1991). There exists anecdotal information that for-profit psychiatric hospitals aggressively promote their services in hospital emergency rooms and via the media, among other forums. The literature

on advertising

(Scherer,

1988) suggests that promotional

activities can play two

roles. First, promotional activities can inform consumers of opportunities for service in the market. This type of i~~~~i~~l promotion might describe a service and its benefits, offer information on the quality and price of the service, and otherwise make consumers better informed. This type of promotional activity is viewed as socially beneficiai because it enhances

consumer

decision-making

ket outcomes. The second type of promotional

and should therefore

result in more efficient mar-

activity, known as coercirje promotion,

does not create

new information for consumers, but rather attempts to influence their decisions given a particular knowledge base. For example, approaching the parents of a substance-abusing child in a general hospital’s emergency

room, with only minimal knowiedge of the specific

circumstances of the child’s problems, and suggesting that the child would be best served by being admitted to a private psychiatric hospital is likely to be primarily coercive promotion.

Coercive

promotion

is viewed as sociahy wastefu1.

Little systematic information on the promotions activities of for-profit psychiatric hospitals has been developed. A careful assessment of the types of promotional activities engaged in by for-profit psychiatric hospitals and their effect on the demand for inpatient care is necessary in order to make judgments about the growth of private psychiatric hospitals and the social benefits (or problems) tion between growth of for-profit psychiatric these facilities lends some importance

THE STRUCTURE

they produce. Certainly, the strong associahospitais and the voIume of admissions to

to such analyses.

OF THE RESIDENTIAL

CARE SECTOR

The preceding discussion suggests that the use of residential treatment for mental disorders in children has grown substantially over the past 15 years. While residential treatment may have declined

somewhat

as a percentage

of alf mental

health treatment

for

children, there appear to have been substantial shifts in the utilization patterns of specific types of organizations that provide residential treatment. In this section we describe some of those shifts and explore the implications

of those trends.

Table 1 presents the number of beds per 100,000 population in various mental health treatment facilities in 1970 and 1986 (NIMH, 1990). The total number of beds fell by 64% during the 1970 to 1986 time period. The reduction is entirely accounted for by the dramatic declines in the number of state mental hospital beds and the number of Veterans Administration psychiatric beds. The number of beds per 100,000 population increased in private psychiatric facilities, genera1 hospital psychiatric units, and RTcs. The market shares for each of these three types of residential

treatment

providers have shifted notably

Znsumnce

and System Structure

835

TABLE 1. Residential Beds Per 100,000 Population 1970 and 1986 1970

1986

207.4

49.7

7.2

12.6

11.2

19.1

R-K

7.6

10.3

VA

25.5

11.2

State Mental

Hospitals

Private

Psychiatric

General

Hospital

Other Total

4.7

8.8

263.6

111.7

Note. The data are from Mental Health, United States, 1990 by the National Health, 1990, Rockville, MD: Author.

during

the 16-year

period.

The

share

of beds accounted

Institute

for by private psychiatric

of Mental

hospitals

grew from 2.7 % in 1970 to 11.3 % in 1986. Similarly, the share of beds of general hospital psychiatric units grew from 4.3% to 17.0%, while that of RTCs went from 2.8% to 9.2%. Burns (199 1) has documented a related pattern by examining the relative market share of inpatient admissions (percentage of admissions) for children in general hospitals, state mental hospitals, and private psychiatric hospitals. Her data show a small decline in the share of general hospitals, a 57 % decline in the market share of state mental hospitals, and a 117% increase in the market share of private psychiatric hospitals. Thus, the evidence strongly suggests substantial growth in the market share of both RTcs and private psychiatric hospitals in the treatment of children. It also should be noted that part of the apparent increase in RTC market share may be attributed to an increase in residential placement of children in juvenile justice and social welfare facilities. Many of the children placed in these sectors will meet the criteria for a psychiatric disorder. Thus, the observed shifts may not only be structural Implications In examining distinctions

of Structural

but across government

agencies as well.

Shifts

the implications

of the trends described

above, we begin by making several

within the sector that have been found to be generally

important

in under-

standing the behavior of health sector organizations (Salkever & Frank, in press). We will initially treat inpatient hospital care as being distinct from residential care in an RIG. A second key distinction relates to ownership of providers. As pointed out in Table 1, privatization in mental health, overall, has meant a reduction in the role of public mental hospitals and a rise in general hospital psychiatric units, which are largely privately owned and nonprofit, and an increase in private psychiatric hospitals, which are largely for-profit firms. In order to evaluate the consequences

of the continuing

privatization,

especially in the

area of child mental health services, we ask several policy questions have been raised regarding the role of private health care providers. These are: (a) Are private providers, as a group, treating the same patients that the public sector treated in the past? (b) Do nonprofit and for-profit providers differentially serve the needs of disadvantaged populations that were formerly cared for by public providers? and (c) Do nonprofit providers provide sufficiently more care, especially free care, to disadvantaged populations to justify their special treatment in the tax code? According to the NIMH client sample survey (a data base constructed by NIMH

R. G. Frank ami C. S. Dcwa

836

TABLE 2. Inpatient Hospital Admission of Children by Insurance Coverage and Ownership Private/ Medicare

Medicaid

Other Public

Uninsured

81.34 69.51 32.06

4.85 11.00 27.65

10.53 11.39 15.14

3.28 8.11 25.13

For Profit Nonprofit Public

containing

information

on patient and facility characteristics

roughly 1,900 programs), children were to for-profit owned providers.

for 17,000 patients treated in

in 1986: 28.6% of inpatient psychiatric hospital admissions for providers, 42.7 % to nonprofit providers, and 28.7 % to publicly

Admissions

to RX&

in contrast,

were overwhelmingly

in nonprofit

facilities, accounting for 96% of all children admitted to RTCs. Public RTcs make up 2.5% of child admissions, while for-profit facilities account for 1.5 % Table 2 presents data on the distribution of patients by insurance type for each ownership class of inpatient hospital care. In examining these data, it is important to note that Medicaid usually pays rates that are below average costs for treatment. For example, data on Medicaid hospital expenditures and average costs suggest that in 1981 Medicaid programs paid rates that were on average about 70% of costs. This suggests that treating Medicaid

patients

usually

requires

some subsidy

from facilities.

Also,

revenues

from

public grants and contracts are often not directly tied to the number of patients served, so that the incremental revenues received from treating an additional patient are likely to be below the cost of treatment, again implying a subsidy. Table 2 shows that for-profit providers offer far less care to children covered by Medicaid (4.85%) or lacking insurance (patients who either receive no charge or who are self-pay) (3.28%) than either nonprofit respectively) or public providers (27.65% and 25.13%). providers (11% and 8.11%) However, the differences in Medicaid between for-profit and nonprofit providers may be influenced by federal Medicaid rules that limit treatment in free-standing psychiatric hospitals. Because the majority of nonprofit admissions of children are to general hospitals, while those in for-profits

are to free-standing

psychiatric

hospitals,

the ownership

differences may be somewhat overstated. On the other hand, no such bias exists in the area of treating the uninsured. Nonprofits carry nearly 2.5 times the uninsured case load of for-profit providers. As might be expected, public providers have much higher portions of their clientele covered by Medicaid, or an uninsured. It is surprising to note that there are only modest differences in reliance on public grants and contracts across the three ownership forms. The financing of treatment in RTCs is dramatically different from inpatient hospital care of children. For-profit providers rely on private insurance for 67 % of their revenues, and public grants and contracts for 33%. Nonprofit RTCs rely primarily on a combination of state (34.4?7)o and local government funds (36%) for their revenues. Forty-three percent of children admitted to RTCs have no insurance, while only 26% have any kind of private insurance. The remainder of patients have either some Medicaid coverage or some form of public financing for care. In public RTcs, roughly 7+% of the children admitted have no insurance coverage of any type. It is remarkable how similar the insurance coverage patterns in nonprofit RTCs are to those found in public mental hospitals. The 1986 NIMH sample survey data also reveal that children who are members

of

Insuranceand System Structure

minority

groups represent

to inpatient psychiatric

a larger proportion

admissions

(20%).

837

of RTC admissions

(33 %) when compared

About 33 Yo o f a 11a d missions to public psychiat-

ric hospitals are from minority groups, compared and 24% for general hospital psychiatric units.

to 15 % for private psychiatric

hospitals

These results lead to several initial conclusions. The total number of beds available to children has not changed dramatically. This is due to the fact that the types of facilities that have gained beds (private psychiatric hospitals and general hospital psychiatric units) have generally carried higher case loads of children than those which lost beds (state hospitals). The types of children treated in inpatient hospital settings are not the same under various ownership forms. Children treated in for-profit private psychiatric hospitals are overwhelmingly white and privately insured. Although there is a greater likelihood of finding children who are either poor (as measured by lack of insurance and Medicaid coverage) or are members of a minority group being treated in general hospitals, the same trend persists even in these hospitals. As in private psychiatric hospitals, the predominantly privately insured patients (70%) are white. In contrast, public hospital clients are primarily poor and uninsured,

and are substantially

more likely to be members

of minority

groups. Thus, if current patterns of utilization and financing hold, and for-profit psychiatric hospitals and general hospital psychiatric units continue to expand, the supply of inpatient psychiatric care to disadvantaged children with mental problems will be substantially reduced. This, in fact, may have occurred in the 1975 to 1986 period. If we assume, for example, that insurance patterns as shown in Table 2 have remained relatively stable, then the change in admission rates implies that there were roughly 2,546 fewer uninsured children admitted to state hospitals in 1986 when compared to 1975. General hospital psychiatric unit admissions and private psychiatric hospital admissions of uninsured children in 1986 only increased by a total of 1,395 (810 and 585, respectively) over 1975 levels. This means that roughly 1,15 1 uninsured children who would have previously been treated in a hospital setting were not admitted to such a facility. However, the number of uninsured children in the U.S. grew significantly during the 1975 to 1986 time period. Clearly, the implication is that uninsured children with mental disorders are decreasingly represented in the population of children served in psychiatric well as in inpatient psychiatric units of general hospitals.

hospitals,

as

The Role of the RTC The RTC may have filled in for some inpatient psychiatric

care of disadvantaged

children,

and by any measure, the growth of RTcs over the past 15 years has been large. The number of these facilities has grown by 67%, from 261 in 1970 to 437 in 1986 (NIMH, 1990), and the number of beds has grown from 15,129 to 24,547 during the same period. This has resulted in an 83 % growth in the number of days of care, from 4.5 million days to 8.3 million days. Further, this growth has resulted in a substantial new inflow of resources into this subsector of the mental health services system. Nominal expenditures have increased from $122.7 million in 1970 to $977.6 million in 1986. Thus, RTCs represented a billion dollar industry in 1991. Even after adjusting for inflation, the real growth in expenditures between 1970 and 1986 has been 108%. As mentioned above, the patterns in the types of children treated by RTCs and the sources of funding for those treatments strongly resemble those in public mental hospitals. Given the suggestion that access to hospital care for disadvantaged children with mental disorders may have decreased, one suspects that RTCs may serve as an alternative to public mental hospital care. The growth in beds and admissions to RTCs has more than

838

R. G. Frank and C. S. Dewa

compensated for the decline in admission of children to state mental hospitals during the 1970 to 1986 period. As a test of the hypothesis that REs have taken over a substantial portion of the role as provider of last resort for indigent children, we discuss issues related to viewing RTCs as a form of privatization of residential mental health care for medically indigent children with mental disorders. There are several advantages associated with increased reliance on RXs as opposed to state hospitals. RTCs are generally far less restrictive institutions than state mental hospitals. These facilities generally specialize in the treatment of children, and therefore children are not part of an institution that is largely structured for the treatment of mentally ill adults. Another possible advantage is that RTCs may be less costly. However, measuring the relative costs of the two treatment settings is controversial (Burns & Freidman, 1990). Different data sources lead to different estimates of the cost of care in state hospitals versus RTCs. For example, the National Mental Health Association (NMHA, 1989) reports that the per diem cost in a state mental hospital for treatment of a child was $299, compared to $12 in an RTC. Although comparable data from state hospitals are not directly available from the NIMH sample survey, the per diem cost of treating all types of patients in a state hospital was $22 1. This is generally consistent with the view that children are more costly to treat. The average cost of an RTC day is $118, according to NIMH (1990). Again, this is generally consistent across the data sources. The discrepancy occurs when one compares the mean or median stays in state mental hospitals and RTCs for the two data sets. The NIMH (1990) data indicates that the median length of stay for individuals

under 18 is 43 days. Data from the NIMH

sample

survey also suggests a Gl-day median stay in an RTC. In contrast, the NMHA data suggest a mean length of stay of 4.2 months (128 days) in a state hospital and 15.4 months (468 days) in an RX.

This difference

is critical for assessing costs of treatment

in each

setting. If we accept the NMHA per diem figures and use the NIMH median stay figures, most episodes of care will cost no more than $12,857 in a state hospital and $6,811 in an RTC. If the NMHA episode duration figures are used, a state hospital episode would cost $38,218 and an RTC episode $52,300, a reversal of the relative episode costs. Neither set of data is entirely consistent with aggregate expenditure data for RTCs. The NMHA data implies

costs that are much

higher

than actual

expenditure

levels. The

NIMH

data

produce expenditure estimates that are too low, even when the mean length of stay is used instead of the median. Thus, the relative costs remain unclear. Relying on privately owned nonprofit RTCs to provide residential care to disadvantaged children with mental disorders has several potential pitfalls in addition to the unresolved relative cost issue. Treatment in RTCs may be less intensive than care in a public mental hospital. However, too little information from outcome studies is available to make even a preliminary judgement on this issue. Data on staffing intensity may be informative in the absence of outcome data. There appears to be more professional staff per episode in RTCs, although they tend to be more oriented towards nursing activities than the staff of public mental hospitals. Reliance on private nonprofit providers (96% of RTCs fall into this group) means that public authorities are less in control of REs. The data on the financing of RTCs leads to several inferences regarding the relationship of RTcs to government. As indicated by the referral source data cited earlier, revenue data suggest that 26% of RTC revenues come from state government agencies other than the mental health and Medicaid agencies (NIMH, 1990). Thirty-six percent of RTC revenues are paid by local government, while 12.3% of RTC revenues come from the Medicaid and mental health agencies. Few reve-

nues are therefore

tied to insurance-like

subsidy programs.

tween RTCs and state and local government

is primarily

Thus,

the relationship

be-

one that is governed by contrac-

tual relationships. It is important to consider what is gained and lost by substituting contractual relationships accompanied by regulation for direct authority. The economics literature on privatization identifies several key elements for assessing the relative efficiency of public versus private provision governed by contracts and regulation. One critically important element is the ability to observe the performance of the RTC. The more difficult is to observe the performance of the RX, the more likely that agendas other than those of the state and local governments issuing the contract will be pursued. Since mental health outcomes are generally difficult to observe, and those for children are especially complicated to assess, there is certainly the possibility that other agendas will be pursued. It is probably for this reason that nonprofit providers have taken a dominant position in this market. When contracts are entered into with a nonprofit provider, incentives to take actions that might exploit informational advantages in order to increase profits are weaker than if a for-profit provider were the contractor. ment do not necessarily

Nevertheless,

coincide.

Thus,

the goals of the nonprofit a second critical element

RTC and the governfor assessing the gains

from privatization, via RXs, is the degree to which the nonprofit RTCs’ goals are consistent with those of the government agency that issues the contract. At this stage, information on the behavior their goals and objectives.

of RTcs

is far too limited to make any inferences

regarding

The data on R’ICs suggest that these institutions may be assuming the role of public mental hospitals in the care of mentahy ill children. Further analyses of existing data are needed to establish whether this observation is accurate. If the observation is correct, more data will be needed to determine perspective.

whether such a trend is desirable

from a public policy

CONCLUSIONS Residential treatment of children with mental disorders has continued to grow during the 1970s and 1980s. Ambulatory care for children has grown faster than residential care. While

a variety

of experts

in the field suggest that the current

mix of residential

and

ambulatory care overemphasizes residential care, convincing empirical support of this view continues to be elusive. There have been rather dramatic changes in the structure of the market

for residential

treatment

of children

with mental

disorders.

While

for-profit

psychiatric hospitals have experienced targe increases in market share, RTCs have also grown rapidly, while public mental hospitals have continued to shrink as a provider of residential treatment for mentally ill children. The rise of for-profit psychiatric hospitals has been linked

to continuing

growth

in residential

treatment.

We suggest that it is

necessary to carefully assess the impact of promotional activities by for-profit hospitals to establish the causal link between for-profit beds and admissions, and to interpret whether such trends should be viewed with alarm. The data we analyzed suggest that access to hospital-based residential treatment for disadvantaged children may have been reduced by the structural shifts over the past 15 years. The data also suggest that continuation of the structural changes in the future will probably reduce hospital-based residential care of disadvantaged children with mental disorders. A related observation is that RTCs appear to be serving a population similar to that traditionally cared for by state mental hospitals. This raises the following two questions: (a) Does the growth in RTCs represent privatization of residential care for disadvan-

R. G. Frank and C. S. Dewa

840

taged

children?

make

such judgments

and

(b) If it does, is this trend desirable? are not currently

Acknowledgements-This

research was supported

are grateful to Marilyn

Rosenstein

this analysis.

Unfortunately,

the data needed

to

available. by Grant #MH 44407 from the NIMH.

and Wayne Johnson

Phil Leaf and an anonymous

The authors

for help with use of the NIMH

referee provided helpful comments

data used in

on a previous

draft.

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