Redirecting State Hospital Spending
One of the most straightforward ways to finance community services for individuals
who would otherwise be needlessly institutionalized is to redirect institutional
funds to community services.
Since 1955, states have been reducing the capacity of their state psychiatric
institutions. However, until quite recently they accomplished this by reducing
the size of the hospitals, not by closing them down. More recently, states
have begun to close entire institutions, freeing up considerable state resources
that can be redirected to support community living. For example, more state
psychiatric hospitals were closed in the first half of the 1990s than in the
1970s and 1980s combined.(13) Since 1990, a
total of 40 such hospitals have been closed.
Recent experience in Indiana demonstrates how such an approach can produce
both positive outcomes for individuals and savings for the state.(14) Indiana
closed a hospital that was housing individuals with serious mental illness
who had a mean length of stay of over eight years. After the hospital closed,
most went to some form of 24-hour care or monitoring in the community and were
served by programs providing intensive levels of service. The state also provided
three years of special funding to local community programs specifically to
ease the transition for these individuals. This funding, redirected from hospital
spending, allowed communities to meet the needs of dischargees without squeezing
them into existing treatment slots or adding to already overstrained community
programs.
The individuals benefited from services in more integrated settings and showed
positive outcomes, such as improved functioning and quality of life. Savings
for the state were significant. Per-person costs went from $68,400 for a year's
hospital care to $40,600 for those placed in the community. However, some individuals
were placed in alternative institutions (such as a nursing homes, which do
not represent community integration), whose costs were a little higher. As
a result, the overall average cost for the year following closure was $55,417
per person discharged. Still, this represented a saving of 19 percent of funds
expended to maintain these individuals in the state hospital.
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