Understanding Insurance Reimbursement for Treatment
Evaluating psychological and drug and alcohol treatment centers can be difficult; especially understanding treatment levels and billing complexities. The nomenclature used to describe different levels of treatment in psychological, eating disorder and drug and alcohol treatment centers is especially confusing. While some programs only offer treatment, many provide both treatment and housing, adding additional confusion. General terms that are used include “inpatient treatment,” “residential treatment” or “day treatment.” Insurance companies, however, use specific designations for billing such as “Residential Treatment,” “Partial Hospitalization,” “Intensive Outpatient Treatment,” or “Outpatient Treatment.” While the general terms are usually related to the living arrangements and design of the clinical program, the insurance company designations are based on (in some cases) the living arrangements and (in all cases) the number of clinical hours of treatment, clinician oversight and other specific criteria (accreditation, state licensing, staffing requirements, etc).
In this article we will explain what all of these designations mean and the impact they have on treatment, upfront costs, reimbursement from the insurance company and length of stay. This information can help a potential client or family to choose a program that offers the best fit for their particular circumstances. Keep in mind that all requirements for treatment levels of care such as residential treatment, partial hospital and intensive outpatient vary by insurance carrier and specific plan. This means that the coverage and reimbursement for any given program is highly variable and dependent not only on the insurance carrier you have chosen, but the individual plan you have selected.
Behavioral health or drug and alcohol treatment can be broadly divided into two categories: clinical treatment in a program that provides housing and meals or treatment alone without housing or meals.
In the first category (with housing), the highest level of care is “Inpatient” which involves treatment in a hospital setting within a locked unit or an unlocked unit where housing and meals are provided. Inpatient treatment may involve emergency stabilization on a locked ward; this level of service is usually limited and is not a long-term treatment plan.
The next (lower) level of insured care is “Residential Treatment” or “RTC.” Residential treatment involves housing a client or patient voluntarily in an unlocked mental health treatment facility, clinic or house. Residential treatment housing can consist of a designated ward in a hospital that is not locked, a stand-alone building on a hospital campus, a house in a residential neighborhood, an apartment complex, a hotel with rooms that are rented out by the treatment center, or other arrangements. Residential treatment is broadly defined as mental, behavioral health or substance abuse treatment that occurs in a residential (overnight) treatment center where the treatment provider is responsible for clinical services, safety, housing, and meals. Residential treatment stays are often authorized on a daily or weekly basis by insurance companies.
Accordingly, “residential treatment” can be a confusing term as it is also commonly used in the behavioral treatment industry to define and differentiate treatment programs that offer a housing option in conjunction with treatment, but may not necessarily bill insurance claims at the “Residential or RTC” level of care for a variety of reasons. These reasons include restrictive state licensure requirements, insurance company billing requirements influencing necessary clinical treatment decisions, or even restrictions related to maximum bed count in each residential facility. Each insurance company has its own definition of services. As an example, here is an excerpt from Blue Cross Blue Shield:
A residential treatment facility is a 24-hour facility that is not a hospital, but which offers treatment for patients that require close monitoring of their behavioral and clinical activities related to their psychiatric treatment, eating disorder, or to their chemical dependency or addiction to drugs or alcohol. These programs are comprehensive and address potential symptoms/behaviors and incorporate psychotherapeutic treatments and education through a multidisciplinary team approach. The treatment plan is individualized and intensive, offering individual therapy, family counseling, group therapy, and recreational activities. The program will generally offer a prolonged after-care component and facilitates peer support. The patient must meet medical necessity criteria for admission into a residential facility.
Most residential treatment facilities provide limited direct MD or Ph.D. patient care. Facility-employed counselors provide most care, which is included in the daily costs. A physician or psychiatrist should evaluate the patient within the first 24 hours. Continuous assessment of the patient’s need for continued residential treatment must be made by a physician or psychiatrist. This level of care is determined by matching the patient’s status and needs to recover and regain the highest level of function to the appropriate level of care. Residential treatment facilities are not for “providing housing”, custodial care, a structured environment whose use is simply to change the person’s environment, or a wilderness center training camp. (Blue Cross Blue Shield Corporate Medical Policy)
Clinical treatment programs without housing have several different designations. Outpatient or “day” programs offer a combination of individual therapy, group therapy and other activities (arts, yoga, exercise, writing, experiential activities, etc.) while the patient or client lives off-site. These programs are generally described as “intensive outpatient,” “outpatient,” “day treatment” or “partial day treatment” depending on the number of days of treatment per week and the number of hours of treatment per day. These non-housing programs are most accurately described by insurance company designations such as “Partial Hospitalization,” “Intensive Outpatient Treatment” or “Outpatient Treatment” as will be explained below.
Level of Care Descriptions
(From Anthem Blue Cross)
Acute Inpatient Hospitalization – Acute inpatient psychiatric hospitalization is defined as treatment in a hospital psychiatric unit that includes 24-hour nursing and daily active treatment under the direction of a psychiatrist and certified by The Joint Commission (JCAHO) or the National Integrated Accreditation for Healthcare Organizations (NIAHO) as a hospital. Acute psychiatric treatment is appropriate in an inpatient setting when required to stabilize Covered Individuals who are in acute distress and return them to a level of functioning in which a lesser level of intense treatment can be provided. A need for acute inpatient care occurs when the Covered Individual requires 24-hour nursing care, close observation, assessment, treatment and a structured therapeutic environment that is available only in an acute inpatient setting.
Residential Treatment – Residential treatment is defined as specialized treatment that occurs in a residential treatment center. Licensure may differ somewhat by state, but these facilities are typically designated residential, subacute, or intermediate care facilities and may occur in care systems that provide multiple levels of care. Residential treatment is 24 hours per day and requires a minimum of one physician visit per week in a facility based setting. Wilderness programs are not considered residential treatment programs.
Partial Hospitalization – Partial hospitalization (sometimes called day treatment) is a structured, short-term treatment modality that offers nursing care and active treatment in a program that is operable at a minimum of six (6) hours per day, five (5) days per week. Covered Individuals must attend a minimum of 6 hours per day when participating in a partial hospitalization program. Covered Individuals are not cared for on a 24-hour per day basis, and typically leave the program each evening and/or weekends. Partial hospitalization treatment is provided by a multidisciplinary treatment team, which includes a psychiatrist. Partial hospitalization is an alternative to acute inpatient hospital care and offers intensive, coordinated, multidisciplinary clinical services for Covered Individuals that are able to function in the community at a minimally appropriate level and do not present an imminent potential for harm to themselves or others.
Intensive Outpatient Treatment – Intensive outpatient is a structured, short-term treatment modality that provides a combination of individual, group and family therapy. Intensive outpatient programs meet at least three times per week, providing a minimum of three (3) hours of treatment per session. Intensive outpatient programs must be supervised by a licensed mental health professional. Intensive outpatient treatment is an alternative to inpatient or partial hospital care and offers intensive, coordinated, multidisciplinary services for Covered Individuals with an active psychiatric or substance related illness who are able to function in the community at a minimally appropriate level and present no imminent potential for harm to themselves or others.
Outpatient Treatment – Outpatient treatment is a level of care in which a mental health professional licensed to practice independently provides care to individuals in an outpatient setting, whether to the Covered Individual individually, in family therapy, or in a group modality. Traditional outpatient treatment ranges in time from medication management (e.g. 15 – 20 minutes) to 30 – 50 minutes or more for the psychotherapies.
What does it mean?
When a family member plans on entering any type of treatment program, the first step is to determine whether the program:
- fully accepts insurance (leaving only deductible and co-pay)
- partially accepts insurance (you pay something up front such as deductible, co-pay and/or some other amount or deposit)
- is cash-pay with insurance billing (you pay completely up front and receive insurance reimbursement)
- is cash-pay only (no insurance billing services). Some cash-pay only centers will provide a superbill or CMS-1500 sheet that you can submit to insurance, but reimbursement will be a low percentage of treatment costs.
If you are choosing a program that partially accepts insurance or is cash-pay with insurance reimbursement, you must first obtain a verification of benefits (whether your insurance plan will cover treatment at the chosen facility). You will then need a pre-authorization, which is permission to use your insurance at that particular program. Most hospitals will meet all of the insurance company criteria for coverage, but residential treatment centers and outpatient programs may not.
For a non-hospital treatment program with housing, insurance reimbursement will depend on many factors. You need to check with the prospective program to determine what level the facility bills at and whether the facility can bill at an inpatient, residential, or partial hospitalization level – to do so they often require (depending on the insurance company requirements) state licensure (DHCS) and/or accreditation (CARF, JCAHO). If the facility is not state licensed or accredited, the insurance may not allow reimbursement at one or all of these levels. Here things become more complex, as you have to look at the daily rate the facility is charging. The program may be able to charge a PHP daily rate that is close to residential reimbursement.
One must keep in mind that when considering the level of care to be billed, insurance companies will only approve the higher levels of care (Inpatient, Residential) for a limited amount of time, often less than ten days (though it varies by insurance policy). This must be taken into consideration when comparing programs, as the majority of billing often takes place at a lower level of care (PHP, IOP, Outpatient), making comparisons even more difficult.
Usual & Customary
Complicating matters even further, insurance companies will not pay the full amount billed by a treatment center. They will determine what they deem to be “usual & customary” payment for services, which is always less than the total amount billed. This assumes the treatment center is not “in network” and does not have any specific relationship with the insurance company to offer their services at pre-negotiated (and often below published) rates. Once the treatment center / billing agency submits the insurance claim, the insurance company reviews the claim and makes a determination not only on the merits of the treatment provided and the accompanying clinical documentation, but also on the rate billed. The insurance company reserves the right, and frequently exercises said right, to approve the claim at a reduced percentage that they deem “usual and customary,” per their internal policies. Insurance companies don’t share with the treatment provider or the insured their usual & customary percentage. It could be 80% of what’s billed; it could be 60%. It is not until the insurance reimbursement is in process that the treatment center and insured party are informed of what the insurance company has deemed as “usual & customary.” This, of course, reduces the overall treatment reimbursement and allows the insurance company to maintain a level of discretion and control over the total reimbursement amount.
Choosing a program
To compare programs while considering insurance reimbursement, a family must consider the following factors:
- Quality of the clinical program – depth, breadth and amount of programming per day
- Staff credentials – Are the clinicians doctoral and masters level or are they recent graduates or interns (ie MFTI)? Are there board certified psychiatrists on staff?
- Likelihood of treatment success – what reputation does the program have; what information is available from former clients and referring clinicians?
- Specificity of treatment – does the program have expertise in treating the client’s exact psychological condition? For example, many programs say the treat OCD. Do they have therapists focusing on cognitive therapy and an exposure and response team? Do their psychiatrists have familiarity treating OCD?
- Up-front cost of treatment (total price versus partial versus deductible/co-pay)
- Level of care billing (Residential vs. PHP vs. IOP, etc.
- Daily rate of billing and Usual & Customary adjustments
- Likelihood of continuation for long-term treatment (does the facility have good utilization review resources)
- Other factors (location, facilities)
John is a 25-year old male with Bipolar Disorder. He and his family are looking at two programs. Program A is a psychological center that is “cash-pay” with insurance billing. The price is $35,000 for the first month. The program estimates that John’s insurance will cover $18,000 of the first month, after deductible and co-pay. Thus, John’s net out of pocket is $17,000 assuming he receives the full insurance reimbursement. Program B is a dual diagnosis center which accepts insurance plus a “deposit.” Program B costs $50,000 for the first month, but they are willing to accept $10,000 plus insurance. Although Program B is $7000 cheaper for the first month, John and his family must consider other factors: the quality of the clinical program, qualifications of the staff, experience of the program in treating Bipolar Disorder and the quality and logistics of location and living accommodations and other factors.
Kathy is a 34 year old Mother of two children with severe depression and a history of psychological trauma. Kathy is looking at three programs. The prices range from $35,000 to $60,000 per month. However, after Kathy informs the most expensive program that she is considering two other programs with lower prices, they are willing to drop their price to $40,000 for the first month but they will keep insurance billing proceeds. The second program will not adjust their price, but they reimburse Kathy with all insurance proceeds. The third program will charge $28,000 and keep insurance proceeds. In this case, determining which program will have the least financial impact depends on the amount Kathy’s insurance will reimburse. If Kathy receives at least $7000 from insurance for the first month, the second program will have the least out of pocket. If Kathy’s insurance pays less than $7000, the third program will be the cheapest. However, the quality of the clinical program and all associated factors are the most important issue and these factors are weighed in conjunction with financial impact.
If you are considering PCH Treatment Center or any other programs for the treatment of a psychological issue, please contact our admissions and intake department. We can help you determine the financial impact of our program, and help compare and contrast the overall quality of the clinical programs and likelihood of treatment success.