The Economics of Long-Term Care for the Mentally Ill

Systems of long-term care for the mentally ill have been largely shaped by financing and reimbursement, rather than sound treatment principles. An undue emphasis on institutional care and the lack of coordination among providers can be attributed to perverse economic incentives and multiple payers. This article argues that, because of the special nature of long-term psychiatric disabilities, there is a predictable underutilization of long-term psychiatric services. It considers three types of settings: state hospitals, nursing homes, and community care, discussing current financing mechanisms in each. Finally, it presents characteristics of ideal systems and examines several proposed financing models according to these characteristics. (Fall 1989)