How managed care caused the mental health care crisis

by George H. Northrup, PhD

No one becomes a mental health professional—in my case, a clinical psychologist—for the financial rewards.

With comparable (or less) education, far more lucrative careers exist in law, business, or other health care specialties.  Psychotherapy tends to draw practitioners who are fascinated by the mysteries of the mind and who find satisfaction helping others in distress.   Money has typically been a secondary consideration.

Until about 15 years ago, one could, nonetheless, enjoy the satisfactions of a worthwhile occupation, a reasonable degree of professional autonomy, and some genuine financial security.  Since then, mental health care has been slipping into crisis, and the crisis is largely about money.

Previously, psychologists set fees based on their training and experience, and health insurance companies typically reimbursed patients a portion of that amount.  Traditional indemnity plans still work that way.  But mental health benefits are now commonly “managed,” such that patients may be restricted to doctors in the insurance company’s network, and doctors who want to be in the network must accept drastically-reduced fees.  Anti-trust laws prohibit health care providers in private practice from organizing to negotiate more equitable fees, so the drastically lower rates are “take it or leave it.”

How much lower? A psychologist working with managed care today receives a total fee about equal to what I charged in 1987.  Adjusted for inflation, per session fees have declined 47 per cent over that period of time.

Managed care had been introduced as a means of bringing equity to health care utilization by ensuring that those who receive treatment actually need it, based on their symptoms and level of impairment.  So far, so good. But managed care companies can only justify their existence (and cover their own costs) by finding more “waste” to trim.  Hence the downward pressure on fees.

Mental health has proved especially vulnerable to the ravages of managed care because its patients tend not to be assertive about their right to treatment and because the subjective nature of emotional distress makes it easier to deny or restrict, by way of pre-approvals and treatment reviews, than many medical conditions whose symptoms can be documented with blood tests or x-rays.

Instead of bringing equity, managed care fees have begun to restrict access to care.  Prospective patients have more trouble finding therapists with time to see them or who will accept fees that barely cover taxes and operating costs.  Reimbursements are now so low that even large medical centers are feeling the squeeze.  A prestigious teaching hospital near my office realized a few years ago it was losing money on mental health care.  Waves of layoffs followed, including ultimately the closing of a day treatment center and an inpatient unit.  Children’s services were hit hardest of all.

While managed care has been keeping psychotherapy costs artificially low, its business model has been thriving.  The New York Times reported in May, 2011 that health insurance companies were experiencing their third consecutive year of record profits, while at the same time defending double-digit increases in the premiums they charge.  Locally, the Health Insurance Plan of New York several years ago doubled the compensation of its top executives.  On a national level, the ten highest-paid managed care executives collectively took home (including stock awards, options, and bonuses) enough money to finance a million psychotherapy sessions per year at a reasonable fee, or two million at current rates.  There is no shortage of people in need of help: current estimates are that more than one third of mental health disorders (affecting eleven million persons) remain untreated.

Publicly-funded reimbursements are also lower.  Medicare, which formerly set fees based on the complexity of the service, indexing these annually for inflation, has cut payments to psychologists almost every year since 2005.  In New York, Medicaid payments to psychologists in private practice are sharply lower than managed care rates.

Although the overall cost of health care gallops ahead at an unsustainable level, cost-containment in mental health has been more than successful.  Even with many more people making use of treatment, mental health and substance abuse dropped from 8.3 per cent of total expenditures in 1993 to about 7.5 per cent more recently.  Cost-effective outpatient psychotherapy represents less than one-third of that amount.

Feeling this financial squeeze, practitioners nearing retirement are waiting for their Social Security retirement benefits to supplement their earnings as psychologists.  New graduates wonder how to pay for their student loans or support a family on the income they can generate as psychologists.  Although nearly all still love their work, no one I talk to would recommend the field to a son or daughter.  Perhaps most telling of all, the American Psychological Association has for years now encouraged its members who practice psychotherapy to find other occupational niches.

The enormous burden of the nation’s total medical bill, now over $2.5 trillion and growing faster than GNP, will have to be addressed eventually.  When the ax threatens to fall, no doubt every branch of health care will protest.  The most influential players—insurance and pharmaceutical companies, healthcare conglomerates—will strive to protect their financial interests at the expense of less powerful sectors.  By comparison, the amount of clout that mental health can bring to these negotiations is trivial.

As recent reform has focused the nation on the costs and inequities in health care, the field of mental health will need extraordinary infusions of popular and political support to reverse these recent trends and preserve a vibrant and effective network of psychologists offering psychotherapy.  Nearly every family in America has felt the impact of psychological problems.  A significant body of research demonstrates that psychological treatments are highly effective.  Now the question is: will help still be there when it’s needed?

George H. Northrup is past president of the New York State Psychological Association.

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  • Christine Allen

    I am a psychologist who is branching out into professional coaching. I have had a private psychotherapy practice since 1991 but as you say I make about 50% less (taking inflation into account) than I did at the beginning of my career. How many people, even teachers, can say that?

    I don’t know how I will afford to put my kids through college or save for retirement. I imagine I will always work, which is okay because primarily I love helping people grow and change.

    Practicing psychotherapy is emotionally challenging but rewarding and makes a difference in many peoples’ lives. I know this. We passed mental health parity laws, but still do not recognize the medical cost-offset of behavioral health treatments. Two-thirds of visits to primary care doctors are for symptoms that have a behavioral or stress-related component.

    You wrote an important and timely article; I hope it will be widely read!

  • buzzkillersmith

    3 points: 1. Post is too long .2. 47% –ouch. 3. As a primary care doc, I’m feeling your pain.

  • Dr. Leah

    As a psychologist with many years in private practice, I read this piece with worried recognition of the hard economic truths highlighted. I applaud Dr. Northrup for this timely and informative piece.

  • Dr. Mendoza

    Dr. Northrup is right…pretty soon psychotherapy will not be a viable specialty.

  • Health as a Human Right

    This is a wonderful post pointing out the many issues with managed care (only to get worse with accountable care organizations) and how it impacts our health. It is truly unfortunate how many people suffer because of the insurance policies in place.

  • Marc Gorayeb, MD

    “A significant body of research demonstrates that psychological treatments are highly effective.” You are implying that psychotherapy is highly effective without really critically analyzing the basis for that statement. To convince policy-holders that they should be willing to pay higher policy premiums for the availability of higher quality psychotherapy, you need to convince them with good evidence which specific circumstances this form of treatment is effective and worth paying for. If what you say is true; that most families have felt the impact of psychological problems, then it should not be terribly difficult to convince the average policy-holder that the service is worth paying for.
    The problem you have is identifying the value proposition for psychotherapy, and then to go straight to the people with it. I think psychotherapy may be marginally better than drug therapy for only certain subsets of patients.

    • Barbara Fontana, PhD

      There is research to show that psychotherapy, especially psychodynamic psychotherapy, is more effective than medication alone and even more effective than cognitive behavioral therapy. See Jonathan Shedler, PhD’s articles in the The American Psychologist (2010) and in Scientific American Mind (same year, I think).

  • Tanya Gesek

    I am also a practicing child and adolescent psychologist but do not do it full time. I have felt the pressure to keep my university teaching job for stability in income. I realize however that this restricts access to care for children and families in need, an already underserved population here in Central New York!

  • Robin Lynch

    Thank you for taking the time to write this article. I agree with the comments above that it is both timely and well-written and that it needs more compelling data to prove that this as an alarming public health problem. Also, psychologists must ensure a level of care that apparently now only some psychologists are giving. I cannot tell you the number of clients I have, from all walks of life, who have a long history of being poorly served by health practitioners generally and mental health professionals in particular.

  • Jackie

    For the Dr.s etc. on here… Have you ever thought about all the patients who will NOT get help for their psychological problems due to fear of our government? There are a lot of disclosure laws now that have had a chilling effect on patient candor. How can you get help with thoughts and feelings when you know that if you express them, the care giver will have to report you to various government agencies? It’s all subjective on the care giver’s part, so how would the patient know that their particular counselor isn’t overly zealous in their interpretation of the depth of the problem? It’s a scary world out there. PS I was given Versed against my will, without any information and I had a severe mental reaction to it which is now ameliorated. I would have paid almost anything to talk to a sensitive professional about what I was going though! I NEEDED somebody to talk to, who had insight into what went wrong in my brain after this vile drug assaulted it, somebody with the skill set to actually help, not just prescribe more drugs to offset the Versed problems. No can do in today’s world.

  • Eric Neblung, Ph.D.

    Dear George,

    Great points. I would like to add that this issue is not limited to psychotherapy but extends to other psychological services, such psychological and neuropsychological assessment, as well. Sadly, managed care chooses to cut costs where it is easiest, among the most vulnerable among us.

    Best wishes,

    Eric Neblung, Ph.D.

  • Mick

    Mental health services have a largely silent and politically marginalized constituency. My poor, sometimes homeless, undereducated drug addicted or chronically mentally ill patients do not have the clout to get anyone elected. Therefore, their needs will always come last. Your pay is always assured if you serve the rich and powerful. Little did we know as psychologists that we would be subject to ever reducing reimbursements or serving only those wealthy enough to self-pay for services. As npted in the column, I love my profession and cannot imagine doing anything else, however, I would never encourage a young person to become a psychologist.

  • Barbara Fontana, PhD

    I have been in private practice for 30+ years. Since managed care emerged in the 1980′s, psychologists have not seen an increase in the “in-network” fees for individual psychotherapy. Imagine not getting a raise for 25 years. As Dr. Northrup wrote, managed care companies are showing record profits and their executives are paid millions. Sadly they make money by restricting services.

    I often get calls from people who say they cannot find a psychologist or social worker who takes their insurance and is accepting new patients. Why? Some of us won’t join a network that pays poorly; some have developed other ways to generate income and only provide psychotherapy on a part time basis.

  • Dr. Richard Juman


    Your article makes a lot of great points and couldn’t be more timely, given the struggles on federal and state levels over funding for health care and all of the issues connected to the private market. We need to continue to educate the public, and payers, about the cost-effectiveness of evidence-based psychological services.

  • Dr. Darryl L. Townes, Ph.D., M.S.

    Since many psychiatrists no longer offer psychotherapy as a form of treatment, many psychologists like myself have sought postdoctoral training in clinical psychopharmacology in order to gain prescriptive authority. Medical psychologists in Louisiana and New Mexico as well as the military have been prescribing psychotropic medications safely and without adverse drug events. It is definitely a more cost effective model to see one provider who can both prescribe and treat, than prescribe alone in 15 minute increments as many psychiatrists currently practice. Primary care physicians can prescribe psychotropics, but many do not want that liability as part of their practice and do not receive extensive training in psychotropics, nor do they receive training in diagnosing mental disorders. Physicians argue that psychologists aren’t physicians and shouldn’t prescribe, but neither are nurse practitioners or physicians assistants. There are a great deal of psychologists currently practicing who have pre-med coursework as well as postdoctoral training in neuroscience, neuropharmacology, pathophysiology, clinical pharmacology and psychopharmacology, some of which are prescribing in LA and NM. This is a more cost effective model than seeing multiple providers.

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