The Changing Economics of Mental Health Private Practice by Ken Clark
Jan 11, 2022
Trigger warning for bad news, pessimism, etc.
Background on this post:
Someone had started another thread about what they fear are the long-term implications of the NSA. What follows are my opinions and could definitely be wrong, but also reflect my prior career as a Wall Street professional who analyzed industry directions as part of what I did. It also reflects my experience writing an insurance licensing textbook prior to grad school and the insight I've gathered running a 200+ clinician practice (which makes me privy to some higher level discussions with payers, industry analysts, etc). Let me preface all this by saying, what lies ahead for outpatient mental health has already happened in other healthcare sectors, so none of this is too surprising. It's simply the economic reality of the exploding demand for mental health, as well as the relative lack of regulations around how much services are accessed and how outcomes are measured.
A Quick Primer on Insurance Theory:
At its core, insurance is based on risk pooling, or the idea that a lot of people pay a relatively small amount into a "risk pool," to cover the rare, but catastrophic losses of a few.
For example, we all pay into car insurance more than it costs if you never get in accident ($1,000 / year), but far less than it costs the few people who get into really bad accidents ($100,000 - $1,000,000 in damages and costs). This pooling of risk only really works if the total contributed by the tens of thousands of people with their $1,000 premiums, ends up being MORE than what is paid out for the few hundred that have major accidents.
If more is paid out than is brought in, rates have to be raised to account for this OR the insurance company has to find a way to crack down on claims (or both). This, albeit very over-simplified explanation, is true of auto insurance and is basically how life insurance, professional liability insurance, and health insurance work. They're all exercises in pooled risk, that are only sustainable if more is consistently paid IN (premiums) than is paid OUT (claims).
Insurance in 2022 and Mental Health:
In our current environment, mental health is putting a massive strain on the old formulas for insuring the average person or household. It doesn't matter if we don't like it, how important we as providers think mental health is, or whether we think insurance companies are ultimately greedy.
In the end, if the math doesn't work (more money in, than out), insurance companies have to do something to ensure their sustainability (yes, I know they show ridiculous profits some years).
A very simple mathematical example shows how their formula has been impacted... If a decade ago, when mental health was less embraced and not as widely covered, the average household might have paid $800 per month for basic coverage, or $9,600 per year.
Out of that, in a typical year for that family, the insurance company paid for some prescriptions, a broken arm, a case of strep throat, and some annual wellness stuff. All that might cost a few thousand dollars in payments to providers, compared to the $9,600 they collected in premiums (which feels like a ripoff, right?!).
But, insurance as a concept is not there to pay for the small, routine stuff and seems like a bad deal when you don't need it. That's because it is there to protect you against the huge stuff that you couldn't afford or would spend the rest of your life paying off.
It's there, in concept, to protect a small group of people who needed new kidneys, had a stroke, or needed a triple bypass, which all cost hundreds of thousands of dollars (or more). That's where a large portion of the leftover $7,600 in unused premium went for that family.
Now, introduce regular, recurring mental health to that model. Let's say two people in the family start getting regular therapy at $100 per session, for a total of 40 sessions in a year.
This now requires the same plan that took in the same $9,600, to payout $4,000 more than before. That starts to eat up a huge portion of the cushion that was used to ensure the person who needs a new kidney also gets that, as well as pay the operations of the insurance company and ensure they make a profit for their shareholders.
This leaves the insurance company with two real mathematical options to return to their economic homeostasis. They can either raise the amount of money that goes into the pool (what they charge families for premiums) or decrease the flow of money out of the pool (what they pay providers for procedures and how often).
This is the crossroads we find ourselves at today with the explosion in mental health utilization. YAY for decreased stigma, but BOO for the reality that the money has to come from somewhere.
The NSA and Industry Change:
Since I believe rates don't have much room to go up on the average American consumer, the majority of the economic pivot for insurance companies has to come in the form of cost and frequency controls... they need to lower what they pay providers and/or places limits on how often services can be used (co-pays / co-insurance also are designed to help control this).
This is, I believe, where the No Surprises Acts and GFE's are going to be an absolute Godsend to insurance companies. Namely, through two mechanisms that seem inevitable to me, with the second being the real game-changer.
Higher out-of-network reimbursement will go away and also become increasingly difficult to file compared to in-network. The end result will be folks saying to themselves, "if rates are the same but it is easier to file claims in-network, I might as well be in-network."
Limitations on the frequency of services (this will be the game changer in my opinion). Once we start submitting GFE's on in-network care, under the auspices that the insurers need that info to help consumers know cost, it's going to open them up to immediately questioning the validity of long-term mental health services. The 50+ sessions we're putting on our GFE's will result in in-network provider scrutiny, including ongoing utilization review by insurers, who will point to 8 - 20 sessions being the evidence-based standard and the most they are willing to pay for.
Bottomline, even though we think this is all about lowering rates, the insurance companies are FAR MORE CONCERNED about lowering frequency of sessions.
$100 versus $125 per session on 8 sessions is chump change compared to providers who provide 26, 52, or 100+ sessions, regardless of the rate.
This is where / how we will see the most game-changing pressure applied by insurers, who I believe, will use the GFE as the catalyst for the confrontations.
The Future of Private Practice:
Will this drive providers to push back, demand higher rates, or leave networks?
Yes, but it won't change the inevitability of this much, just like it didn't change much for primary care physicians and other core specialties that went through similar cost control measures in the past, with much better lobbyists than we have in our space.
The 800-lb gorillas will consider your appeals for better rates and more sessions... But in the end, they'll decline them and apologize, knowing full well that they both need to hold or lowers their rates and utilization to survive and that there are plenty of providers in the market to take your place if needed.
For the providers that go private pay, some will find it to be the best thing they've ever done, making more money than they ever did on insurance, while working the less.
But I believe the majority will face downward pressure on their prices as more and more providers are forced in-network to survive, leaving private pay clinicians lowering their prices as a way of trying to attract a shrinking base of private pay clients (what is sometimes called a "race to the bottom" in pricing theory).
This will all set up us up for an inevitable move towards value-based reimbursement for care, where what you earn every year will be determined by an algorithm that takes into account outcome measures, utilization rates, client satisfaction and a number of other factors.
Clinicians will still be able to earn a solid living, but will have to work harder to make the same amount of money they're making today.
This will lead to a rise in larger and larger group practices and "networks" where billing, data collection and other operations can be centralized and streamlined to maximize clinician income. This is very similar to what we see now, where the there are very few truly independent primary care doctors, etc.
Argh... I know it sounds grim to a lot you and I'm already anticipating some hate in the comments.
It's not dissuading me from trying to build something that matters as a practice, providing transformational care for clients, and a job of choice for folks on our team.
It just means I'm doing it with an eye on the future and figuring out how to adapt our practice to those realities.