07. Financing

Steering committee members and advisors participated in a ASH Redesign workshop at the Design Institute for Health that explored system models including financing, policy, partners, data, facilities, and more.

Steering committee members and advisors participated in a ASH Redesign workshop at the Design Institute for Health that explored system models including financing, policy, partners, data, facilities, and more.



The direct costs incurred by Texas governments (both state and local) to provide mental health care in the ASH Service Area include indirect costs to local systems (typically born by counties and local hospitals), direct expenditures for providing community mental health outpatient and inpatient services, and the operational costs for ASH.

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The indirect costs to local systems accumulate largely from the local criminal justice and emergency services systems. These costs are substantial and real, as multiple systems must pay for services to community members whose mental health needs are not being met. Table 20 estimates the costs to communities in the ASH Service Area for unmet mental health needs in the criminal justice systems for youth and adults. These systems spend over $300,000,000 annually on people with mental health disorders, who in nearly all cases could be better served in mental health settings in the communities. The table also summarizes costs incurred in emergency departments of local community hospitals, which are often ill equipped to address psychiatric needs of each individuals. Acknowledging these expenses (which are often ignored) more than doubles the cost to communities for managing mental health needs. Because these costs are not specifically managed as part of mental health care delivery, they are not optimized toward the care of people needing mental health services. It is often stated that mental health care is ‘too expensive’ to support; however, these significant indirect costs indicate that failing to fund adequate mental health services simply shifts the costs into different areas, where they accumulate as poorly understood, difficult to manage and virtually impossible to leverage expenses to optimize care. As new models of care are developed, shifting costs across different areas to specific care pathways will be required to manage these expenses effectively.

Specific Factors Affecting Mental Health System Financing

Planning for ASH’s future will need to include redesigning financing for both ASH operations and the Service Area’s community systems that provide services and supports for people in need of mental health care. As these systems gain effectiveness, costs currently borne indirectly through other venues will be reduced. Moreover, the expenses are then more easily tracked and consequently managed, to ensure the dollars are optimally committed to brain health care.

…systems spend over $150,000,000 annually on people with mental health disorders…

Hospital Financing

The current state hospital system is financed through appropriations made by the Texas Legislature to the Health and Human Services Commission under a budget strategy specific to state hospitals. This financing includes a combination of state general revenue, federal funds, and third-party reimbursements (e.g., Medicaid). ASH receives approximately $50M annually to fund operations.  It is operated by HHSC employees on the ASH campus, and daily bed cost calculations typically only include direct costs on the campus.  Excluded from ASH’s calculations area wide array of centralized supports provided by HHSC across all state-run facilities (such as electronic health record costs) and the agency more broadly (such as employee benefits and legal costs). While the state hospital system is a large health care organization, it generally operates like the rest of HHSC, with the concomitant constraints of a state procurement agency, including inflexible standardized salaries (often below local market rates), hiring freezes, and many layers of approvals to get policy and operational decisions made. The state hospital system is relatively unique within HHSC as it operates 24 hours a day, seven days a week, 365 days a year to treat vulnerable patients, and it is required to provide a constitutional level of care at all times. Its ability to be nimble in meeting patient needs is often hampered by its position in a large state bureaucracy. This system experiences high turnover rates, extended vacancies, and long lengths of stay for the people it serves, as previously reviewed throughout this report.

In July 2018, 71 of 252 operating beds at ASH (over one quarter of capacity) were filled with people who had been hospitalized at least one year, with an average duration approaching 3 years.

Funding for state hospitals has increasingly become dependent on state general revenue. The ability of State hospitals to receive disproportionate share funds and earn third party revenue from private and public insurance has diminished over time as the population of people on forensic commitments has increased dramatically. People on forensic commitments are not eligible for reimbursement (e.g., Medicaid).

Costs per episode of care have increased over time. As detailed in Appendix 8 and throughout several sections of this report, from FY15 to FY17, lengths of stay for civil (non-forensic) patients at ASH grew 80%, from 45 to 81 days on average. As a result, while costs per day only increased 3.8% during that period (from $654 to $679), costs per episode of civil care (for people discharged) increased from $29,430 to $54,999 on average. Forensic episode costs for people discharged grew only 38% (from $51,666 to $71,295), but forensic lengths of stay started much higher (79 days) and in FY17 reached 105 days. Moreover, these costs are only for people discharged. A growing population at ASH (and other state hospitals) are people who stay longer than one year, and whose lengths of stay continue to increase. In a complex reporting decision, these lengths of stay are often not included in calculations unless the person is discharged (minimizing the actual time people are in ASH). In July 2018, 71 of 252 operating beds at ASH (over one quarter of capacity) were filled with people who had been hospitalized at least one year, with an average duration approaching 3 years. One person per year served at ASH costs tax payers approximately $275,000.

Community Mental Health Financing

Funding for community mental health has changed dramatically over the last decade and particularly in the past five years. Strong community mental health services decrease utilization at ASH by intervening prior to need for crisis and inpatient care. Several funding streams have particular potential to reduce the use of ASH services over the short to medium term.

In recent years, the state legislature directed HHSC to purchase Community Psychiatric Beds (CPB) outside of state hospitals to reduce shorter-term acute stays at state hospitals, allowing LMHAs (or in some cases the state itself) to purchase beds closer to home for people who need short-term stabilization and community supports. In the ASH Service Area, LMHAs purchased 24,069 bed days (nearly 67 beds per day) with expenditures of $16,746,965 in FY17. This purchasing strategy has provided some relief of the pressure on ASH to admit people elsewhere for shorter-term stabilization, and as reviewed in the “Current State: ASH Service Area” section of this report, there is substantial additional community inpatient capacity across the region that can be further utilized. Local hospitalization also reduces indirect costs (e.g., deputy’s time driving people out of county to ASH). In addition, community hospitals are able under existing statute to provide non-MSU inpatient forensic competency restoration, although this service is rarely if ever used due to the risks to the hospital of accepting a patient they are not allowed to discharge without a writ from a judge. Statutory changes under SB(85R) 1326 created the framework to extend competency restoration programs more broadly (for example, jail-based competency restoration) and prioritized competency restoration in settings other than state hospitals, particularly for people charged with misdemeanors. Increased the bed purchasing program and changes to competency restoration are discussed in the “Statements of Need and Recommendations” section at the end of this report.

Additional community-based capacity to reduce demand on state hospitals for civil and forensic commitments can also be supported by two new funding streams established by the 85th Legislature in 2017. House Bill (85R) 13 established a $10 million a year grant program available to LMHAs and other community providers to fill gaps in care. In addition, LMHAs are able to partner with counties and hospital districts to seek funding under the SB(85R) 292 grant program that specifically focuses on diverting people with mental illness from jails and emergency services and reducing waitlists of people in jails needing admission to a state hospital.

One additional funding stream for community supports that is particularly designed to provide home and community-based supports for people with long-term care needs is the 1915(i) Home and Community Based Services-Adult Mental Health (HCBS-AMH) State Plan Amendment program. The HCBS-AMH program has potential, but its implementation has been slowed by a variety of barriers. The HCBS-AMH program was specifically designed to assist long-term patients at state hospitals to transition to the community with extensive supports, and it has since been adapted to extend eligibility to people with frequent emergency department and jail use. This program can be used to fund development of small group living and other arrangements to support people who are not ready to live without other social support, even including locked facilities (in specialized situations that meet federal criteria) for people whose medical condition requires that level of security for their safety (though not for forensic reasons). Appendix 15 provides an analysis conducted by the Meadows Mental Health Policy Institute (MMHPI) that described the positive features of the program and identifies barriers to broader use that would need to be addressed to accelerate adoption in communities. One of those recommendations is to integrate this program into Medicaid managed care, in which funding for other long-term care programs is available, including skilled nursing facilities for people who need that level of support. Better use of the 1915(i) HCBS-AMH program would allow people to move from state hospitals or other levels of care as their needs change over time.

One current source of funding for community services is in jeopardy, and must be addressed in the next year. Over the last six years, the Centers for Medicare and Medicaid Services (CMS) 1115 Waiver and its associated Delivery Systems Reform Incentives Program (DSRIP) brought an estimated $500 million a year of DSRIP-funded community behavioral health services supports into communities across the state. Many of the services funded by DSRIP have been effective in diverting people in crisis away from jails and inpatient settings, including state hospitals, and into appropriate treatment. The DSRIP project funding is slated to phase out over the next two years, and the state is working with its Medicaid managed care plans to continue to pay for some of these services through value-based payment mechanisms. The state is also exploring other strategies to cover the costs of people without Medicaid who are served through these programs.

Finally, as noted, over $300M is spent annually on indirect costs related to gaps in the mental health care continuum. As these gaps are filled, redirecting these indirect dollars to directly fund solutions will optimize the use of these resources toward the actual goal of improving mental health. In other words, opportunities to fund mental health care gaps exist in the dollars spent to inefficiently managing the gaps through non-care systems.

Key Points – ASH Service Area: Financing

• Underfunded gaps in mental health care in the ASH Service Area cost Texas over $300M annually; better allocation of these dollars to direct mental health care would gain efficiencies and make care more effective in the community.

• Costs for an episode of care depend on both the costs per day and the length of care needed to resolve the episode; these costs are steadily increasing at ASH.

• Better use of 1915(i) HCBS-AMH funds might close some gaps in the care continuum.

• Medicaid 1115 Waiver funds have changed how they can be applied, putting at risk pilot programs that cannot be maintained even if successful

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