Severe mental illnesses (SMIs) have long been a source of frustration for healthcare professionals, patients, and families. Individuals with conditions such as schizophrenia, bipolar disorder, and major depression often find themselves caught in a cycle of homelessness, hospitalization, and incarceration, without receiving the consistent, long-term care they need to manage their conditions. The system designed to care for them, however, is often fragmented, underfunded, and misaligned with the needs of those who are seriously ill. A core issue that contributes to this problem is the way mental health treatment is reimbursed—reimbursement models designed for physical health services do not always work for mental health care. Behavioral health experts are calling for a fundamental rethinking of how mental health services are reimbursed, arguing that a value-based model, rather than a procedure-based one, is key to improving patient outcomes and reducing societal costs in the long run.
The Current System: Short-Term Focus and the Underappreciation of Behavioral Health
In a recent panel discussion on the state of mental health care, several key figures, including psychiatrist and documentarian Kenneth Rosenberg, Acadia Healthcare’s Chief Medical Officer Michael Genovese, former U.S. Representative Patrick Kennedy, and American Academy of Addiction Psychiatry president Kevin Sevarino, explored how reimbursement structures in mental health care hinder the ability to provide consistent and comprehensive care for those with severe mental illness. As Rosenberg, who released the PBS documentary Bedlam, noted, “Our mental health care payment system is really not geared toward people with serious mental illness.” This is a significant problem, especially since the majority of people with SMIs are not able to comply with short-term, episode-based care models. The existing reimbursement structures do not always take into account the long-term, intensive care and consistent support that people with serious mental illnesses require.
In today’s mental health system, reimbursement is often centered around short-term, episodic care. Insurers typically reimburse for services only when they are provided, but the system largely overlooks the long-term benefits of continuous care or early intervention. This model often fails to address the needs of people with SMIs, who may require ongoing care over extended periods of time. For example, a person with schizophrenia may experience repeated hospitalizations or emergency room visits unless they receive regular outpatient care and support. Without a reimbursement model that supports ongoing care, these individuals may continue cycling through expensive and inefficient interventions that fail to address the root causes of their illness.
A Call for Value-Based Care
The panelists were united in their call for a shift away from a procedure-based reimbursement system and toward a value-based care model that prioritizes long-term outcomes. Kevin Sevarino explained that a focus on long-term care would allow mental health providers to consider the broader impact of early intervention and treatment. “We need to move away from a procedure-based system that only looks at the outcome on what I billed for that day,” Sevarino said. “Instead, look at, if I treated this psychosis earlier, five years down the line, what’s the cost to society that I treated it?”
Under the current system, when a person with a severe mental illness receives care, the treatment is typically only reimbursed if it is rendered within a hospital or other acute care setting. When the person transitions to outpatient care or is stable enough to avoid hospitalization, reimbursement becomes far more difficult to obtain. A value-based care system, however, would allow for reimbursement that recognizes the benefits of early intervention and ongoing care, instead of only paying for services provided in the moment.
The Impact of Low Reimbursement Rates and Insurance Denials
While the shift toward value-based care is seen as a long-term solution, the problems of low reimbursement rates and insurance denials for behavioral health services are acute issues that need to be addressed immediately. Mental health providers often face the challenge of having necessary services rejected by insurance companies because the treatments are deemed “not medically necessary.” This is especially problematic for individuals with severe mental illnesses, who may require intensive or continuous treatment that is not recognized by insurers as essential at a given moment.
Acadia’s Michael Genovese emphasized that, unlike physical medicine, mental health care is subject to insurance limitations that can prevent patients from accessing the care they need. “Sometimes we are either limited by an outside party in what we can provide as care, or we are sometimes forced outside of the insurance system altogether because it’s impossible to render the type of care that we think is appropriate,” Genovese said. These challenges highlight a broader systemic issue within behavioral health care: the reimbursement model is ill-suited to the complexity of treating mental illness.
As the panel discussion revealed, clinicians often feel frustrated by these restrictions, as they limit their ability to provide the necessary care. One psychiatrist in the audience shared their frustration by stating, “Finding intensive treatment covered by insurance is a source of frustration.” This is not only a personal challenge for healthcare providers but also an issue that ultimately harms the patients they seek to help.
The Need for Advocacy
Another critical point raised during the discussion was the need for more advocacy within the mental health field to push for better reimbursement structures. Patrick Kennedy, a staunch mental health advocate, pointed out that psychiatrists and other mental health professionals often do not have the same level of advocacy and lobbying power as their counterparts in physical health. “The mental health community and psychiatry do not do a good job advocating within the American Medical Association to ensure that they get proper value points for the delivery of their care the way surgeons and hospitalists do,” Kennedy said.
In contrast, advocates for physical health conditions are often able to secure higher reimbursement rates for their services through robust lobbying efforts. Kennedy argued that the mental health community could benefit from similar efforts. Without strong advocacy, the behavioral health sector will continue to face challenges in improving reimbursement rates and getting the necessary funding for the care it provides.
Creative Solutions: Pooling Resources and Capitated Models
Kennedy also suggested that the mental health community should explore new financing mechanisms to address the issue of underfunded care. One potential solution is the creation of a pooled funding system, which could help address the long-term costs of mental health care. By pooling resources from both private payers and government entities, a capitated model could help incentivize better care and prevention strategies.
Under a capitated model, the health system would receive a set amount of funding for each person served, regardless of how much care that person actually needs. This type of system could encourage more preventive care, as providers would be incentivized to ensure patients receive the care they need to avoid costly hospitalizations or emergency room visits in the future.
Kennedy’s suggestion echoes the concept of a prevention fund, similar to how well-child visits and inoculations are funded. By creating a prevention pool, which could be allocated toward mental health services, it might be possible to reduce long-term costs for the healthcare system while also improving outcomes for people with SMIs.
Conclusion: The Path Forward
The current system of reimbursement for mental health care is not working for people with severe mental illnesses, who often end up in cycles of homelessness, hospitalization, and incarceration due to a lack of ongoing, appropriate care. The key to addressing this issue lies in reimagining how mental health care is reimbursed. Moving away from a procedure-based system toward a value-based model focused on long-term outcomes is essential for improving care and reducing costs over time. Additionally, better advocacy, more creative financing solutions, and a collective effort to pool resources from both public and private sources can help create a more sustainable and effective mental health care system.
By prioritizing long-term value and early intervention, we can create a system that truly meets the needs of people with severe mental illnesses—ultimately leading to better outcomes for patients, reduced costs for society, and a more equitable healthcare system overall.
