The Structural Disadvantage Behavioral Residential Facilities Face

For a long while it seemed like things were going in the right direction in the behavioral health space. The landmark behavioral health regulations such as the Mental Health Parity Act (MHPA) in 1996 and the The Affordable Care Act (MHPAEA) in 2008 both expanded the amount of lifetime behavioral health benefits patients and mandated that behavioral health benefits be covered by all insurance plans. Even as recently as 2021, when the Consolidated Appropriations Act (CAA) was passed, it seemed that transparency and equity ailments that plagued behavioral health for decades would finally be solved. The final frontier of this was the disclosement of insurance reimbursement rates; this likely would have come to fruition with the passing of the MHPAEA Final Rule in September 2024 which would have required them to increase the aforementioned rates. Following the lawsuit of ERISA Industry Committee (ERIC), which represents large self-insured employers however, portions of the MHPAEA Final Rule will not be enforced. While we have seen progress over the last 30 years in the behavioral health space, recent policy decisions have ensured that reimbursement rates will remain a blackbox for the foreseeable future.

Another key input into this equation is that in-network reimbursement rates for behavioral health are remarkably low. According to a report by the American Hospital Organization, Medicare, on average, reimburses outpatient behavioral health services at 28.9%. The commercial side is not much better. According to RTI International commercial insurers on average pay 22% less for in-network behavioral health reimbursements than normal in-network health reimbursements. This is also being seen in the data. Patients were 3.5 times more likely to go out of network to see a behavioral clinician than a regular doctor, and for sub-acute behavioral care they were 19.9 times more likely to go out-of-network. This is not because there is a lack of providers; in fact there are plenty. This is because behavioral health providers simply choose not to operate in networks because it is financially catastrophic.

In response to this many providers choose to intake patients out-of-network; but even operating on purely out-of-network insurance can be financially perilous. As I'm sure you know there are thousands of different insurance plans, and each one has their own methodology on how and what percentage they pay out-of-network reimbursement. The internal algorithms they use are called Usual and Customary (U&C) or Allowed Amount. In either case the equation on how much providers get paid is done internally at the insurance companies, leaving providers with a lack of reimbursement visibility. In many cases this leads to providers' per-day reimbursement for each individual level of care being drastically lower than what they were expecting. When this happens the financial windfall falls on either the behavioral residential facility or the patient, not the payer. For care that costs $8500 per day and has an average length of stay of 30 to 60 days, overestimates of insurance reimbursement can cost thousands of dollars. Our initial pilot has said that they lose $36,000 a month to this very issue.

These are the core structural disadvantages. Behavioral health facility providers can either choose to go in-network and have low insurance reimbursement and potentially face bankruptcy, or go with the former and choose primarily out-of-network insurance but face the lack of visibility into how much they'll be getting paid. In either case facility operators face squeezed margins and patients pay the consequences with worse care or higher financial responsibility.

In most cases the behavioral residential facilities decide to go with out of network versus the in-network option. In-network reimbursements are guaranteed to be low. When going out of the network these operators still have a fighting chance. What we are doing at Diaspora looks to turn this fighting chance into a guarantee. By building an aggregated database of out-of-network insurance reimbursement claims, our predictive tool allows providers to know exactly how much they will be getting reimbursed for each insurance plan pre-intake, based on the patient's insurance plan, zip code, and member ID. This will allow facility operators to know in advance how much they will be getting paid per day for each individual level of care per insurance company. What we are building will also benefit the patients. In 2024 collections from insured patients dropped to 34.46%, meaning patients with potentially extreme mental stress also were now handicapped by thousands of dollars treatment debt. Our solution will allow facility providers to tell patients up front how much they can expect to pay out of pocket, allowing patients to make the optimal financial decision.

Operating a behavioral residential facility we know can be quite complex, and we are simply looking to simplify it. Please contact us at sales@joindiaspora.ai.