The early effects of Medicare's prospective payment system on psychiatry

In this paper, we study the effects on psychiatry of Medicare's prospective payment system (PPS) during 1984, as PPS was implemented. We examined data on psychiatric discharges before and after PPS from three kinds of hospitals--those with psychiatric units exempt from PPS, those with nonexempt units, and those that treated psychiatric patients in scatter beds--as well as data on all hospital discharges. We conclude that the providers of psychiatric services responded to the incentives inherent in PPS much the way hospitals as a whole did--with significantly reduced lengths of stay. Of the three kinds of hospitals that rendered psychiatric care, those that treated patients in scatter beds had the greatest reduction in length of stay. Using readmission rates as a gross indicator of quality, we conclude that quality did not suffer because of the shortened stays.