America's Mental Health Care System in Shambles

Personal Health

It may seem arcane, but the reimbursement and spending priorities of government health agencies can literally have life and death consequences for people with mental illness. Just ask the family of Carolyn Howard, who was bludgeoned to death in 2005 on her front lawn by her adult son Keith, who suffers from paranoid schizophrenia.

The tragedy unfolded after the Florida Medicaid program abruptly dropped Zyprexa, the expensive antipsychotic medication upon which Keith Howard had depended, from its formulary of approved drugs. As a result, Howard was hospitalized twice in the two months before the killing, having heard voices telling him his mother conspired with murderers like Lee Harvey Oswald. An investigation by The Orlando Sentinel last year found that Howard was prescribed substitute medications but that they didn't help. Today, compelling federally funded studies question, in general, the effectiveness of such "second generation" antipsychotic medications as Zyprexa; these drugs, although they may work for certain individuals like Howard, also pose health risks like diabetes while boosting Medicaid's antipsychotic drug costs 10-fold in barely a decade. But Florida's inflexible, ham-handed approach to cost cutting, as opposed to more humane cost-effectiveness strategies in a few other states, shows the devastating impact of shortsighted budgetary policies.

On virtually every front, Medicaid and other government agencies, the drug industry, and health-care providers all play a part in a fragmented system that uses taxpayers' dollars to pay for treatments and drugs that too often don't work. At the same time, wholesale budget cuts, convoluted reimbursement rules, and conflicting funding agencies have helped create a perfect storm of waste, needless deaths, and ineffectiveness. Tragically, this has diverted scarce resources from proven, recovery-oriented programs such as "supported employment" that promotes a guided return to work, or integrated "dual diagnosis" treatment for the 50 percent or more of seriously mentally ill people who are also substance abusers. "Medicaid hasn't given much attention to mental-health reform, just to cutting costs," observes Dr. Robert Drake, the director of the multiyear National Evidence-Based Practices Project who also leads the Dartmouth Psychiatric Research Center. "We're funding vested interests to suck profits out of the system rather than helping the patient."

All told, financing policy plays a central role in a system that President Bush's own New Freedom Commission on Mental Health declared nearly six years ago to be in "shambles." Indeed, Medicaid and the broader public system of health care for people with mental illness is such an uncoordinated mess that a study last year by the National Association of State Mental Health Program Directors reached a shocking conclusion: Mentally ill adults who receive treatment in the public-health system die 25 years sooner, on average, than Americans overall.


One victim of the flawed system was Robin Eckman, a 53-year-old Fort Lauderdale resident with clinical depression who fell into a diabetic coma last year after her Medicaid-sponsored managed health-care plan refused to pay for her insulin. "If a friend didn't come out and take me to the hospital, I would have died," she says now. Eckman is allergic to the cheaper form of insulin approved by the HMO, run by StayWell, which also refused to pay for her antidepressants. Eckman is just one of 210,000 other Medicaid recipients, many with mental illness, who have been forced into for-profit managed-care plans as part of a free-market Medicaid experiment in Florida's Broward and Duval counties, along with three other rural counties. Yet this federally supported showcase for corporate-run Medicaid flexibility and efficiency promoted by former Gov. Jeb Bush has turned into a nightmare for some patients, according to critics, including a state inspector general. To top it off, the primary HMO provider, StayWell, was raided last October by FBI agents investigating it for fraud.

Given such abuses and chaotic care, it is especially ominous that the life expectancy of seriously mentally ill Medicaid patients has sharply dropped since the early 1990s. "What other group in America has lost 10 years of life expectancy in the last decade and a half?" asks Joseph Parks, the chief clinical officer for the Missouri Department of Mental Health and lead author of the 2007 report by the state mental-health program directors that partly blames the lack of coordinated care serving the mentally ill for the drop in life expectancy. Parks also says that the side effects of the new generation of "atypical" drugs -- primarily dangerous weight gain and diabetes -- are also "a contributing factor" to the sharp rise in early deaths for people with mental illness.

The early industry-funded hype and research to promote these costly drugs seems to have created a public-health and financing crisis for programs serving the mentally ill. Only now are state officials and psychiatrists starting to seriously address the problems. "Most psychiatrists can't believe they were hoodwinked, but they're reluctant to change [their prescribing]," says Dr. Robert Rosenheck, the Yale psychiatry professor who co-authored the definitive study in 2005 that showed these new drugs were generally no safer or more effective than older, cheaper drugs; they were just ballyhooed more through industry funding of researchers. The new medications were as much as 20 times more expensive than the old drugs, leading to billions in extra profits for the drug companies that raided Medicaid's coffers.

Now the drug manufacturers responsible are facing tens of thousands of lawsuits by irate consumers; Eli Lilly alone has reported paying over $1 billion to settle 30,000 suits from patients claiming they developed diabetes and other illnesses. And roughly two dozen state attorneys general have launched investigations and filed lawsuits, asserting that the drug companies improperly marketed these drugs, leading to increased medical costs. But the $11 billion spent annually on these dubious atypicals, often for unapproved uses, also has another dire effect: Drugs now take up as much as 25 percent of Medicaid's mental-health budget, siphoning off money needed for direct services to people with mental illness. As Rosenheck observes, that $11 billion is more money than the income of all 47,000 U.S. psychiatrists combined, and more than enough to pay for 150,000 additional case managers who could help provide intensive evidence-based services.

So the miracle atypicals that were supposed to be the saviors of the mentally ill now appear to have drained Medicaid funds, proved relatively ineffective, and possibly helped kill off their patients years early. "It's all based on false advertising," Drake contends. "We spend billions on ineffective medications, and we won't spend a few million to get people back to work and off of the Social Security rolls. Does that make any sense?"

Indeed, the perverse incentives and chaos of the mental-health system would only get worse under changes proposed by the Bush administration for the federal Centers for Medicare and Medicaid Services (CMS). Those reforms aim to slash nearly $50 billion, by state government estimates, in federal support for coordinated, intensive services. "People are already caught in a fractured system, and this will only fracture it further," says Robert Bernstein, the executive director of the Bazelon Center for Mental Health Law. Key federal agencies have previously urged states to use two of the programs under attack, Medicaid's rehabilitation option and targeted case management. Both are designed to promote coordinated, personalized care and well-integrated programs such as assertive community treatment (ACT) teams of clinicians and social workers who serve people with disabling mental illness where they live -- and help them avoid hospitalization and jail. The spread of ACT, discussed in detail on page A16, would not have been possible without the influential advocacy of the National Alliance on Mental Illness (NAMI) and its chapters across the country.

But the proposed rules could threaten proven programs like this by sharply limiting payments for such integrated services, critics say. "The people most at risk and dependent on Medicaid, the seriously mentally ill, will end up inappropriately in jail, on the streets -- or dead," says Dr. Steven Sharfstein, the former president of the American Psychiatric Association.

Yet Dennis Smith, the director of CMS, insisted at House oversight hearings last year that these roll-backs were essential to ensure that taxpayers get "full value" for their Medicaid dollars. Opposition to these and other new restrictions now includes not only stalwart advocacy groups like NAMI but the National Governors Association as well, so support is building in Congress for a bill that would freeze these measures until next year. In late April, the House passed legislation postponing the regulations by a lopsided 349-62 margin and, despite a veto threat by President Bush, the Senate backed in May the moratorium with a veto-proof 75-22 vote as part of an Iraq War funding bill.

While invoking "fiscal integrity" for its cutbacks, CMS has done little to halt a wave of corporate drug fraud that has looted billions from Medicaid treasuries. Meanwhile, the Medicaid agency and other federal agencies, largely to save money, still throw regulatory roadblocks in the way of recovery-oriented programs, such as supported employment. Up to 90 percent of people with serious mental illness are unemployed for life, absorbing $25 billion annually in disability payments. But based on the research of Drake and others, supported employment is the single most effective mental-health treatment, using a "job coach" as part of an integrated clinical team that can help most of the seriously mentally ill return to work and lead fulfilling lives. Sadly, less than 5 percent of people with disabling mental illnesses are even enrolled in such a program -- while Medicaid lavishes billions on near-useless "day treatment" programs to warehouse the mentally ill. "They get the services that are billable -- not the services they want or need," notes Doug Devoe, president of Ohio Advocates for Mental Health.

These Kafkaesque absurdities play out with grave consequences to physical and mental health. Devoe notes, for instance, that although a woman who was sexually abused needed private counseling, "they sit you in a group so the therapist can charge all 10 of you for an hour each." And Dr. Daniel Fisher, a psychiatrist who has recovered from schizophrenia and heads the National Empowerment Center, can't get reimbursed to help a recovering addict in group therapy adjust his antidepressant medication in an individual session. "It's artificially divided into two diagnoses," Fisher points out.

This division between drug treatment and mental-health care puts both recovery and sanity at risk every day. "There's drug treatment here, and there's mental-health treatment over there, and never the twain shall meet," says Peggy Loveless, the mother of a 34-year-old woman, Amy, with paranoid schizophrenia. Her daughter has been in and out of drug-treatment centers, juvenile detention, and psychiatric facilities since she was a drug-abusing teenager. But despite widespread evidence about the prevalence of "co-occurring" mental and addiction disorders, when Amy had another relapse, the Medicaid-funded drug treatment staff insisted that she stop taking her life-saving antipsychotic medication at night so she wouldn't be too sleepy in the morning to participate in group therapy. Such barbaric ignorance is only reinforced by a Medicaid reimbursement policy that pays for certain services, regardless of quality, with virtually no incentives for effective outcomes. As the vice president of the NAMI chapter in Johnson County, Iowa, Loveless knew what was missing and signed her daughter out. "They had no concept about psychotropic medications," Loveless recalls, while the mental-health facility across town didn't really treat her substance abuse.

The chasm between the two types of treatment is rooted in everything from two different funding streams to conflicting cultures of treatment, with peer-supported abstinence facing off against the biological approach to mental illness. To counter that, there's a small but growing movement toward peer support for the dually diagnosed. Underlying these treatment divisions, though, are longstanding conflicts over turf and money. "People want to protect their own finances, and the drug-treatment agencies believe if they integrate their services with mental health, they'll lose control," Dr. Drake says, noting that even federal research agencies refuse to cooperate with each other.


Fortunately, some innovative state Medicaid and mental-health officials are undertaking cost-effective, integrated services that challenge conventional shibboleths and archaic practices. While advocacy groups have good reason to be wary of "one size fits all" prescribing of antipsychotics based on cost alone, they've also formed an informal alliance with big drug companies to oppose or criticize the use of even evidence-based Preferred Drug Lists, which use unbiased, well-designed research on drugs as a key factor in determining which medications are included in a formulary. Washington state, for instance, uses the independent research on comparative drug effectiveness compiled by Oregon Health Sciences University in a careful way that appears to protect patients while reining in costs, saving between $20 million and $40 million annually on all classes of drugs. While its antipsychotics policy is still being developed, the state Medicaid program's approach to other drugs appears sensible: Antidepressants for adults are "grandfathered," no matter how costly, if they've been shown to be effective for individual patients. The program also creates incentives to use well-proven, less expensive generic drugs for first-time patients. Oregon and Missouri also use sophisticated software and expert advisers to flag dangerous over-prescribing.

Some states are trying to tackle fragmented care as well. In New Mexico, Gov. Bill Richardson has blended 17 different agencies into one network, offering reimbursement for all mental-health and substance-abuse services through a single managed-care company held to strict performance standards. Missouri aims to bridge the gap between mental-health and drug treatment by offering extra funds to facilities whose staff are trained to provide integrated dual-diagnosis care. The state also seeks to streamline physical- and mental-health services by providing summary reports to the physicians and psychiatrists of each high-cost patient (average annual bill: $50,000). But even some forward-looking officials working to end uncoordinated treatment are skeptical about the chances for such widespread reform. Says Mike Hogan, the commissioner of New York's mental-health department and the former chairman of the president's mental-health panel: "Unless we become a socialist democracy, it's not going to be fixed."

Yet at clinics at the state and local level, where mental-health staffers are supported by extra training and a state government able to streamline reimbursement without federal interference, these clinics are able to offer effective, evidence-based treatments. That's what Dr. Drake's Dartmouth team showed in a two-year study of 53 clinics in eight states, including New York. But Gregory McHugo, a research professor of psychiatry at Dartmouth and a co-author of the study, isn't sure those gains will continue. "They were doing things on a shoestring," he observes. "The feds just don't provide enough money for this. You have to put incentives in place to make [clinicians] do the right thing. People in the field respond to incentives and go where the money is."

It's up to the rest of us, though, to make sure that when health-care providers do follow the money, government spending priorities actually serve the interests of the people who receive treatment and the taxpayers who are footing most of the bill.

Reprinted with permission from Art Levine, "Follow the Money," The American Prospect Online: June 23, 2008. The American Prospect, 2000 L Street NW, Suite 717, Washington DC 20036. All rights reserved.

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