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Feb 2018

Government Programs to Reduce Substance Abuse May Create Additional Financial Risks for Hospitals

At least 37 states currently have laws on the books allowing for the involuntary detention and treatment of substance abusers who have not committed a crime. In some states, the legal bar for such detention is high, requiring that the person threaten to harm themselves or another person.  In other instances, a police officer may detain a person if the officer has “reasonable cause” to believe the person is in need of involuntary treatment. The amount of time the person may be held also varies from a few days to up to 90 days. Supporters of these statutes argue that they are a necessary response to the rise in the number of Americans dying from both street and prescription drugs.

At the same time, an increasing number of states are now requiring some form of drug testing of public assistance recipients. According to the National Conference of State Legislatures, at least 15 states have passed some sort of legislation requiring drug testing or screening for public assistance applicants or recipients. At least another 20 have proposed bills that are in some stage of the legislative process. Some of these apply to all applicants while others require such testing only if there is a reason to believe the applicant is engaging in illegal drug activity or has a substance abuse disorder. As would be expected with these types of laws, many are facing some sort of court challenge, whether on the Federal or State level.

These laws all have in common a desire to save public funds and motivate those with substance abuse issues to go through some form of rehabilitation. Measuring how successful these programs are at achieving either or both these objectives depends to a great degree on how they work, who is doing the measuring, and how “success” is being defined.

Even if the politics of these programs are open for debate, the magnitude of the problem – and its impact on families, communities and the healthcare system – cannot be denied. Recent estimates are that at least 8 percent of the U.S. population has suffered at one point or another in their lives from substance abuse. Looking at the population of the U.S. on some sort of public assistance – which currently is estimated at around 20 percent and expanding – most studies show that this group does not necessarily have substance use or abuse levels higher than the general population.  However,  there are others that project that up to 20 percent of these recipients have used an illegal substance in the previous year.

These numbers are significant. Also significant is the impact of requiring even a small percentage of these individuals to participate in outpatient or inpatient treatment programs would have on the healthcare system.

According to the National Institutes of Health, there are some 14,500 specialized drug treatment facilities that provide a variety of services to persons with substance abuse disorders. Unfortunately, this capacity is not projected to be sufficient for the existing demand since, by some reports, there already aren’t enough treatment beds even for the people who want them. In fact, in some states there are waiting lists for treatment. Add to this group those who are compelled into treatment and the lack of capacity becomes even more critical.

Financial Impact on Health Care Providers

The anticipated demand created by involuntary treatment has the potential to make most health care providers’ precarious financial situations even worse if they are required by state authorities to provide these services to these individuals.

There are three key areas hospital providers will need to carefully monitor and manage:

  • Demand will strain already strapped resources: Typically, hospital reimbursement for these type of services is extremely low and made only after a hospital expends huge resources to obtain them from government and private payors. Most hospitals already operate on razor-thin margins of less than 3 percent, so increases in non-reimbursable expenses could wreak havoc on a provider’s balance sheet.  Furthermore, while there is variation across facility type, the average hospital bed occupancy rate is approximately 67 percent. This does not leave much room for re-allocating inpatient beds to inpatient rehabilitation nor to dedicating additional space to outpatient care.
  • Shortage of staff will create upward salary pressure: Current estimates are that by the year 2025 there will be extreme shortages of mental and substance abuse social workers; clinical and counselling psychologists; and psychiatrists.  All of these fields play a role in substance abuse rehabilitation and counseling. As a result, achieving appropriate staffing levels could create greater demand for these professions.  Until that demand is readily met, salaries could increase disproportionately, creating additional drag on sustainability.
  • Uncertainty over who pays: Given the uncertainty of the Medicaid program which, according to the Washington Post, is the “the largest source of funding for behavioral health treatment, like addiction recovery and substance abuse prevention,” any changes to the mental health and substance abuse requirements could greatly impact providers in general and especially if they are required to provide substance abuse rehabilitation services to a growing population.

These programs to force people into rehabilitation do not necessarily mean financial “doom and gloom” for providers. There are steps a prudent provider can take to address the financial and operating challenges posed by the potential increase in demand for substance abuse programs. These include utilizing financial forecasting which appropriately accounts for those costs associated with increasing inpatient and outpatient substance abuse rehab and counseling capacity.

Providers should consider negotiating reimbursement rates that will result in more reasonable compensation for the medically necessary services required by this type of treatment. For example, they can negotiate payments which reduce the administrative burdens caused by nonsensical denials and dilatory payor tactics. These types of payments include a percentage of billed charges and  per diem amounts.  Additionally, any agreement to accept these patients should include an irrebuttable presumption of medical necessity when they are involuntarily admitted. Without these safeguards, hospital providers increase the risks of rendering uncompensated services.

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