Patience ... Patients: How Universal Health Systems became the top inpatient psychiatric services provider | Behavioral Healthcare Executive Skip to content Skip to navigation

Patience ... Patients: How Universal Health Systems became the top inpatient psychiatric services provider

January 1, 2011
by Dennis Grantham, Editor-in-Chief
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How UHS postitioned itself to take the top spot in our industry's fastest-growing segment
5) “Transient” budget shortfalls. Like every provider, UHS is concerned about state budget deficits and Medicaid cuts, which Filton calls “the biggest headwind to our business.” But, as he explained, “I don't think that the risk is exacerbated by the [acquisition].” He maintains that the public funding shortfalls, which affect only a portion of UHS' payer mix, are “relatively transient” and that the risk will diminish as the economy improves.

Could history repeat itself? Not likely.

To longtime industry watchers, the rise of UHS as the industry's new giant seems vaguely similar to the emergence of NMS and Charter, the industry's first huge operators, both of whom collapsed. But that's about as close as the similarity gets, according to Mark Covall of NAPHS. While demand for inpatient psychiatric services is up due to a market shakeout that thinned the provider base by some 40 percent and finally bottomed out in 2004-2005, the market isn't nearly as attractive to newcomers as it was in the late 1980s. Why?
Payers are far more sophisticated, and cost-based reimbursement is gone for good. Two things have done it in, says Covall. On the public side, both Medicare and Medicaid have introduced “prospective payment systems” or PPS, which provide fixed payments (adjusted for patient acuity) that drive inpatient psychiatric facilities toward service efficiency. Private insurers have instituted rigorous care pre-certification, authorization and review practices, in part because of the fraud generated by a handful of psychiatric services providers in the late-1980s and into the 1990s. Overall payments are lower, in real dollars, than before, Covall adds, while “there's no way to get back to the longer stays and additional services of the past.” The difference between payers, then and now, “is night and day.”

Operating margins have tightened substantially. The trend toward consolidation, typified by the big UHS acquisition, is likely to continue as good operators seek to drive costs down and spread them over more facilities. “It used to be that you could make it at 40 percent occupancy,” Covall recalls, adding that “now the economics have greatly changed.” This makes it “very difficult to move into a market and open a hospital absent very strong demand.” Future overbuilding of psychiatric hospitals is unlikely, he concludes.

Psychiatric hospitals have entered healthcare's mainstream. The increased scrutiny, focus on quality, and drive to greater efficiency “shows that we're very much mainstream, like other hospital facilities,” says Covall. “When you see a company like UHS, who has built its reputation on acute care, come in and acquire behavioral health facilities, it says a lot about how closely the two areas have come together.” Soon, new measures will track inpatient psychiatric quality more closely than ever before, putting psychiatric hospital quality measures “on par” with those of acute care, says Covall. These Hospital Based Inpatient Psychiatric Services (HBIPS) measures, which were piloted at UHS, PSI, and other facilities around the country, become mandatory for all Joint Commission-accredited inpatient psychiatric hospitals and psychiatric care units in January 2011. Despite higher payer scrutiny, higher barriers to entry, and more challenging economics for NAPHS member organizations like UHS, Covall continues to see strong demand signals in the marketplace:

  • Parity has taken hold, meaning that patients and families seeking psychiatric services will find, over time, that punitively higher copays for psychiatric services (relative to medical services) are being eliminated thanks to parity's “no more restrictive” standard.
  • The reauthorization and expansion of the federal Childrens' Health Insurance Program (CHIP) in February 2009, from four million to seven million children, bodes well for residential treatment centers-a preferred treatment setting for young people.
  • The industry is also pressing for an end to the Institutions for Mental Disease (IMD) exclusion, which prevents Medicaid from paying for inpatient services at freestanding psychiatric hospitals. Advocates for the end of the exclusion say that it perpetuates the myth that mental illness is not a medical condition and that recovery from mental illness is not possible. Currently, CMS is working with inpatient facilities on a demonstration project.
  • Finally, and tragically, the critical shortage of state mental hospital beds, especially short-term acute beds, will continue to drive inpatient psychiatric service demand nationwide. He says that the costs of the shortfall in acute inpatient care are seen throughout society: in rising mental health admissions at hospital ERs, increased homelessness, and higher rates of incarceration.

What do you think?

Behavioral Healthcare wants to know.
E-mail Dennis Grantham at

Behavioral Healthcare 2011 January-February;31(1):15-20