Medicaid Financing of State and County Psychiatric Hospitals

Despite the perception that few people are served by public psychiatric hospitals, they play a critical role in the continuum of care for people with mental illness. Although the capacity of these hospitals has diminished as a result of deinstitutionalization, they continue to serve people with severe and chronic mental illness who do not have the resources to seek care elsewhere, as well as a forensic population with mental illness. Furthermore, Medicaid is funding an increasing share of their operations, with states accessing a variety of Medicaid funding sources, including Disproportionate Share Hospital payments, Institutions for Mental Diseases optional services, and Medicaid managed care.