Online NewsLetter

Does the Psychiatric Hospital Have a Future?

One week after I arrived at Sheppard Pratt Hospital in September 1986 to start my new job as Vice President and Medical Director, I was asked to re-evaluate a patient on one of our long term units. It had been a long time policy to clinically assess chronically hospitalized patients every three months to determine the need for continued inpatient care. The patient, a 36-year-old woman, had been at Sheppard Pratt for two years. Prior to that, she had been in general hospital psychiatric units from which she would be discharged, only to promptly relapse. Her diagnosis was that of a borderline personality disorder manifested by self-mutilation, impulsivity, rage outbursts, and polysubstance abuse. She had excellent private insurance (a $1 million lifetime policy), which was not unusual in those days. Within a week after admission to Sheppard Pratt – and over a year before her assessment by me – she had pulled herself together, as was her custom, and decided to leave the facility. As she was a voluntary patient, it took much work on the part of staff to persuade her to stay. Just after retracting her three-day notice, she was found huddled in the corner of her room after burning herself on both arms with a cigarette. Suicidal crises ensued, including an attempted drowning. Interventions were many – episodes of locked-door seclusion, the administration of cold wet sheet packs, and intensive therapy and medications. In hours of team meetings, discussions took place regarding the patient’s developmental struggles and history of abuse and her tendency to split staff. All these dynamics, as well as the patient’s regressions, were viewed as merely components of the “holding environment.” And staff saw the patient’s acting out behaviors as the necessary, often unavoidable, but ultimately therapeutic detours to improvement and health.

When Bob Gibson recruited me to Sheppard Pratt in 1986 as Medical Director, he knew me from my residency days in the ‘60s when I had been a Ginsberg Fellow in the Group for Advancement in Psychiatry. He was also aware of my 13 years in the U.S. Public Health Service where I had headed the Evaluation Research Program for the Federal Community Mental Health Centers; later, I became the Director of Mental Health Service Programs. This division of NIMH provided the grants and oversight of community mental health centers across the country. My own research focused on the utilization of psychiatric care with an emphasis on the cost-efficacy of outpatient alternatives to inpatient treatments, and I had many publications to my credit. After my work at NIMH, I became Deputy Medical Director of the American Psychiatric Association, where I continued to write and lecture on a variety of financial issues of concern to our profession. So, with my background as a community psychiatrist, and with a belief in short term inpatient care, I wondered why there existed not even a remote plan for discharge and reintegration into the community of this patient who had been at Sheppard Pratt for such a long time. As commendable as staff efforts were, why was there not a more effective and efficient treatment alternative such as partial hospitalization or day care? Why, I asked, was the staff waiting for the patient to exhaust her inpatient insurance to implement such a treatment plan?

Sheppard Pratt clearly was in a time warp in 1986, and Bob Gibson recognized this. Licensed at 322 beds, the hospital’s average length of stay was 73.5 days for adults and 125 days for children and adolescents. There was a waiting list for admissions, with an average daily census of over 300. There were about 1,000 inpatient admissions a year and 90 percent of Sheppard Pratt’s revenue came from the inpatient hospital. Sheppard Pratt had two inpatient units that were 28-day programs for patients with addictions. One unit was for hardened addicts and one for alcoholics and less severe drug users such as those who abused prescription medication. Since hospital rates were regulated by the state, we had no control over charges. Sheppard Pratt’s budget was quite straightforward. Monthly, we reviewed our budget and focused on such topics as the library, vending machines, or laundry or building maintenance. These were the simple “good old days” and there were nearly 100 years of them, with 98 out of 100 being profitable. One of the years when Sheppard Pratt was in the “red” was at the time of Bob Gibson’s arrival in 1961. And in one of his many mentoring stories to me, he described how he “cured” this red ink at that time by increasing the daily fee from $20 to $25 a day! The trustees were so concerned about losing census and the ultimate demise of the psychiatric hospital that they recommended closing Sheppard Pratt and developing a much smaller residential program. Bob opposed this, and his economic solution led to another 30 years of business survival and growth. In 1986, 92 percent of our payer mix was private (mostly insurance) and eight percent was Medicare. In the meantime, Sheppard Pratt had become the only private psychiatric hospital that sponsored a private community mental health center, which was located seven miles away from the main campus. This small program, begun in 1973, was part of the hospital’s Quaker heritage of commitment to the community. It was an important part of my decision to come to Sheppard Pratt in 1986, as was the hospital’s partnership with the University of Maryland, an outstanding teaching institution with excellent residents. Sheppard Pratt and the University of Maryland have now joined in a combined residency program of some 74 residents.

In 1992, I became the fifth director of the hospital in 100 years. In January of 1992, we found ourselves in a sea of red ink, losing over $5 million in a revenue stream of about $50 million. The hurricane of managed care had arrived. Greenspring Mental Health Services (now Magellan) had been founded in Maryland and contracted to manage psychiatric care for Maryland Blue Cross/Blue Shield. Since Blue Cross/Blue Shield coverage accounted for one-third of our patients in the hospital, we saw a rapid decrease in our average lengths of stay. By 1992, it had become 33 days and we had already closed our first unit. We were obviously not alone. Within ten years, the nation’s oldest psychiatric hospital, the Institute of Pennsylvania Hospital, closed. Chestnut Lodge in Rockville, Maryland, became bankrupt, and Menninger began looking for a merger partner in order to leave Topeka.

A small digression is in order. I had imagined managed care way back in 1976 when, as a young researcher at NIMH, I had the opportunity to sit with a utilization reviewer for several days in Washington, D.C. He was a psychiatrist who was reviewing hospital stays paid for by the federal program, and it occurred to me that an entrepreneur might seek to develop a business based on being paid a percentage of what his utilization review could save a payer. Of course, this is exactly what happened, with the inevitable compromises in the quality of treatment. I have continued to remain a critic and foe of managed care. One of the dire outcomes of managed care has been the dismissal of psychodynamic assessments, and I have always valued psychodynamic values and thinking and felt them crucial to any type of patient treatment. In fact, I still see patients in my office for individual psychotherapy. While at NIMH, I underwent psychoanalysis at Sheppard Pratt’s sister institution, Chestnut Lodge. Visiting this facility five days a week may have played a role in my decision to ultimately move to Sheppard Pratt. Both Bob Gibson and Clarence Schultz had worked at The Lodge prior to coming to Sheppard Pratt in the 1960s.

Armed with a degree in 1991 from the Advanced Management Program at the Harvard Business School, my colleagues and I set to work to reinvent what is now called the Sheppard Pratt Health System. Ten years later, having cut costs, experiencing one significant layoff, and closing half of our beds, our length of stay has decreased to just over eight days, with five times more admissions than in 1986. Now, however, only 40 percent of our revenues (of a total of $120 million) comes from inpatient sources and they include not only the main hospital but other general hospital units we manage. Counter intuitively, we expanded into the community. We became a comprehensive behavioral health system, a hospital without walls. Sheppard Pratt presently treats more than 40,000 individuals in 26 different sites throughout Maryland. (This compares to approximately 2,000 individuals in two sites in 1986.) Through our five wholly owned affiliates across the state, we provide rehabilitation, outpatient treatment, and housing for nearly 1,000 individuals with severe and persistent mental illness. We have over 100 children and adolescents in residential treatment and another 400 in special schools at several locations. And we manage the inpatient psychiatric care in eight general hospitals. We also staff their emergency rooms as well as the emergency rooms of two additional hospitals that have no inpatient services. Hospitalization today is mainly for crisis stabilization, acute safety, and the assessment and treatment of complex patient diagnoses. But the need for the mental hospital will never disappear. Indeed, Sheppard Pratt’s trustees have decided that it is time to make a $90 million investment in a new hospital as a flagship for tertiary care.

It remains my view, however, that the main function of the psychiatric hospital will be to promulgate services well beyond its confines. Asked today what I do, I reply by stating that I run a big non-profit community health system in Baltimore with a catchment area the size of the whole state of Maryland, even extending into the mid-Atlantic region. That health system not only treats patients, it also trains mental health professionals, conducts research, and actively educates the public. The psychiatric hospital has a distinct future, but it must be one broader than its architectural structure. It must offer therapies to patients who cannot commute to its clinics, and it must make itself felt as a presence within those hospitals devoid of mental health psychiatric services. It must provide all manner of aftercare and education. Most important of all, tomorrow’s psychiatric hospital must represent multiple sources of healing and learning for the many communities beyond its borders.



This paper is adapted from a lecture given in receipt of the Administrative Psychiatry Award at the May 2002 APA Annual Meeting in Philadelphia.


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