The Centers for Medicare and Medicaid Services (CMS) has released its proposed rule for 2025 that sets forth prospective payment rates and policies for inpatient psychiatric facilities (IPFs) reimbursed by Medicare. These Medicare payment updates for inpatient psychiatric facilities play a critical role in shaping the financial landscape for behavioral health providers and signal CMS’s ongoing commitment to improving mental health care access and quality amid the growing behavioral health crisis in the United States.
Overview of the 2025 Proposed Payment Rate Increase
CMS is proposing a 2.7% increase in the payment rates for inpatient psychiatric facilities for the upcoming year. This adjustment is expected to result in a total increase of approximately 2.6% or $70 million in Medicare payments to IPFs compared to current levels.
To put this in perspective, CMS raised payment rates for inpatient psychiatric facilities by 3.3% in 2024, while overall Medicare spending on IPFs increased by 2.3%. The steady growth in funding underscores CMS’s recognition of the critical role these facilities play in delivering intensive behavioral health treatment to Medicare beneficiaries.
Aligning with the Biden Administration’s Mental Health Priorities
In an official statement, CMS emphasized that the changes proposed for 2025 are designed to support the provision of high-quality behavioral health treatment consistent with the Biden Administration’s Unity Agenda, which prioritizes addressing the nation’s mental health crisis.
The Unity Agenda focuses on expanding access to mental health services, reducing stigma, and improving outcomes for individuals struggling with psychiatric disorders. By increasing reimbursement rates and updating payment methodologies, CMS hopes to empower inpatient psychiatric facilities to deliver comprehensive, evidence-based care that meets the complex needs of their patients.
Modernizing Payment Methodology for Greater Accuracy
One of the most significant aspects of the 2025 proposed rule is the revision of the methodology used to calculate payment rates for inpatient psychiatric facilities. Currently, CMS relies on a regression model implemented in 2005 to determine adjustment factors that account for patient characteristics and facility-level differences.
However, CMS plans to update this model by incorporating more recent data collected from 2019 to 2021. This change is mandated by the Consolidated Appropriations Act of 2023, which requires CMS to refine how payments reflect patient complexity and treatment intensity.
What Are Patient-Level Adjustment Factors?
Patient-level adjustment factors are critical because they help CMS set payment rates that fairly compensate facilities based on the severity of patients’ conditions and the resources required for their care. The proposed updates would revise these adjustments to consider:
- Medicare Severity Diagnosis Related Groups (MS-DRGs) based on the patient’s principal diagnosis
- Selected comorbidities that may increase care complexity
- Patient age as a factor influencing treatment needs
- Variable per diem adjustments, which account for differences in daily treatment costs over the course of a patient’s stay
By adopting this refined approach, CMS aims to improve payment accuracy, ensuring that facilities treating more complex patients receive appropriate funding while promoting efficient use of resources.
These important changes are part of broader Medicare payment updates for inpatient psychiatric facilities aimed at modernizing the system to better reflect current care realities.
Increased Payment for Electroconvulsive Therapy (ECT)
Another important change proposed by CMS concerns electroconvulsive therapy (ECT), a medically recognized treatment option for patients with severe depression, bipolar disorder, and certain other psychiatric conditions that have not responded well to other treatments.
Currently, Medicare reimburses $385.58 per ECT treatment session. Under the 2025 proposal, this rate would increase significantly to $660.30 per treatment—an increase of over 70%.
CMS explains that this substantial boost in reimbursement is intended to improve patient access to ECT, which can be a life-saving intervention for some individuals. The higher payment aims to encourage more providers to offer ECT and ensure facilities can cover the associated costs of equipment, staffing, and monitoring.
This is another key component of the Medicare payment updates for inpatient psychiatric facilities designed to enhance access to critical behavioral health treatments.
Implications for Inpatient Psychiatric Facilities
These proposed changes carry several important implications for inpatient psychiatric facilities:
- Financial sustainability: The 2.7% payment increase will help offset rising operational costs and inflationary pressures, enabling facilities to maintain and potentially expand services.
- Fairer payment models: Updating the patient-level adjustment methodology to reflect recent data allows CMS to better tailor payments to the complexity and severity of cases treated. This can reduce underpayments for facilities serving high-acuity patients.
- Expanded access to advanced treatments: Increasing payments for ECT may incentivize facilities to invest in or continue offering this specialized therapy, benefiting patients who require it.
- Alignment with national mental health priorities: These changes support federal efforts to address the mental health crisis by improving inpatient behavioral health infrastructure and quality of care.
What’s Next?
CMS’s proposed rule is open for public comment before it is finalized. Stakeholders—including inpatient psychiatric providers, patient advocacy groups, and industry experts—have the opportunity to review the proposal and submit feedback or suggestions.
Providers and administrators should carefully review the proposed rule to understand how the changes might affect their operations and reimbursement in 2025. Monitoring CMS’s updates will also be essential for strategic planning and ensuring compliance with any new policies.
Conclusion
The 2025 CMS proposed rule for inpatient psychiatric facilities reflects a deliberate effort to enhance Medicare reimbursement, modernize payment methodologies, and expand access to vital psychiatric treatments like electroconvulsive therapy. By increasing funding and updating payment models based on recent data, CMS is aiming to strengthen behavioral health services during a time of significant need.
These Medicare payment updates for inpatient psychiatric facilities not only help providers sustain quality care but also align with broader federal initiatives to tackle the mental health crisis and improve outcomes for patients nationwide.
If you’re part of the behavioral health community or work with inpatient psychiatric facilities, staying informed about Medicare payment updates for inpatient psychiatric facilities is critical. Let me know if you want help summarizing this update or creating tailored communications for your team or patients.
