Medicare’s Shrinking Psychologist Reimbursement Rates

March 2015

Medicare reimbursement rates for psychologists have been falling steadily for years. In 2001, Medicare paid $102 for a 45-minute psychotherapy session (the most common mental health service). Today, the program pays just $84.74 for the same service, a more than 30 percent decline, adjusted for inflation. Rates for other psychologist services have dropped by similar amounts. Most of the decline in Medicare reimbursement rates for psychologists has happened since 2007, with the advent of new methodologies for calculating providers’ practice expenses.

These deep reimbursement declines are leading psychologists to leave the program, reduce their Medicare patient loads, and stop taking new Medicare patients. A 2013 American Psychological Association Practice Organization member survey revealed that 26 percent of responding psychologists were previously Medicare providers but left the program, primarily due to low reimbursement rates. Nearly half of those psychologists had left since 2008, coincident with the new practice expense methodology.

Medicare’s falling payment rates are endangering beneficiaries’ access to mental and behavioral health treatment, due to the fact that psychologists are a cornerstone provider of these services in the program. Psychologists are the predominant provider of behavioral health services to Medicare beneficiaries, providing nearly half of outpatient psychotherapy services and 70 percent of inpatient psychotherapy services. Psychologists provide almost all mental health diagnostic, testing, and assessment services under Medicare.

Beneficiaries are suffering because of this inadequate access. A recent report by the Institute of Medicine (IOM) states that the burden of mental illness and substance use disorders in older Americans “borders on a crisis,” and that there is a “serious workforce shortage” of mental health professionals available to meet the treatment needs of this population. Each year, about 26 percent of all Medicare beneficiaries experience some mental disorder, including cognitive disorders like Alzheimer's disease. Studies show that roughly 70 percent of older adults who meet diagnostic criteria for major depressive disorder or for anxiety disorder do not receive mental health treatment.

The reduced access to psychologists caused by Medicare's low reimbursement rates contributes to the dangerous trend toward inappropriate use of psychotropic medications. This issue is highlighted in a recent report from the Government Accountability Office (GAO), which found that while a large proportion of prescriptions for antipsychotic drugs for adults with dementia are used to treat behavioral symptoms, these drugs are not approved for this use, and carry significant health risks, including death. The link between inappropriate use of psychotropic medications and inadequate access to psychological services is demonstrated by the fact that in the U.S., nearly four out of every five antidepressant prescriptions are written by physicians who are not psychiatrists. Despite this trend, depressed primary care patients seeking treatment prefer psychotherapy to medication by a two-to-one margin.

• Psychologists have low, and steady, overhead costs. While other providers have increases in practice expenses year-to-year due to innovations in medical technology and equipment, psychologists’ primary practice expenses are low, and stay relatively steady from year to year. However, Medicare’s payment formula indexes all providers practice expenses to each other, and as a result, psychologists’ practice expense-related reimbursements are repeatedly squeezed to make room for increases in practice expense payments to other providers.
• Psychologists are the predominant provider of the few procedures for which they bill Medicare. Under Medicare's payment formula, a lower-paid specialty can have its payment rates lifted when higher practice expenses incurred by other specialties providing the same service are factored in. Since almost no other health care professionals provide the services that psychologists provide, there are seldom other specialties with higher practice expense payments to help raise payment rates for the service. The "rising tide" effect that occurs with practice expenses under Medicare's formula works for some specialties, but not psychologists.
• Psychologists bill only a small number of different services; the average psychologist bills only two Current Procedural Terminology (CPT) codes. This means that  reductions in payments for the few CPT codes they provide are not balanced out by increases in reimbursement rates for other services, as happens for many other providers.