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Privatization Can Transform the Delivery of State Psychiatric Services

Governor Kaine’s package of budget cuts includes proposals that may foster a paradigm shift in how the Commonwealth delivers mental health services. Calling Virginia a “dinosaur,” Gov. Kaine noted how other states have embraced the advice of many in the mental health profession by transitioning most psychiatric patients out of state institutions and into community-based care centers closer to family members and social and economic opportunities. To this end, the Governor’s budget includes proposals to close bzeoth the Commonwealth’s Center for Children and Adolescents (a juvenile psychiatric home in Staunton) and the Southeastern Virginia Training Center (an adult psychiatric facility in Chesapeake), shifting those facilities’ patients to community care and reducing the number of institutionalized Virginians by almost one-third.


Gov. Kaine’s proposals are a sensible approach, but the state operates over a dozen other psychiatric facilities, so there’s an opportunity to go much further. As one innovative project in Williamsburg—plus others in Florida, Georgia, and elsewhere—demonstrates, innovative policymakers around the country are increasingly turning to privatization to dramatically improve the quality of mental health services while holding down costs.


The Virginia Department of Mental Health, Mental Retardation and Substance Abuse Services currently operates sixteen mental health and other residential treatment facilities, including Williamsburg’s Eastern State Hospital (ESH)—the nation’s first public psychiatric hospital dating back to 1773. By the late 1990s, conditions at ESH had deteriorated to the point that it became the subject of a U.S. Justice Department lawsuit to rectify substandard care and living conditions.


To turn things around, the Department initiated a large-scale ESH modernization project facilitated by an innovative public-private partnership. This multi-phase project involves partnering with a private contractor to consolidate 26 buildings into six; deliver new, state-of-the-art facilities; and develop a strategic plan for surplus acreage. The first phase of the project—the new Hancock Geriatric Treatment Center—opened in April 2008 and recently won an innovation award from the National Council of Public-Private Partnerships. The next phase of the ESH modernization—a new adult mental health treatment center—is set to open in 2010.


One of the more notable aspects of the ESH modernization is that the initiative did not come from within, but was received as an unsolicited, private sector proposal for turnkey development submitted under the state’s Public-Private Education Facilities and Infrastructure Act (PPEA).

The contractor is not only delivering the new facilities on an accelerated schedule, but because of the more efficient use of space on the campus and the patient-centric design of the new facilities, the partnership will deliver where it really counts—improving patient care, outcomes and safety.


While this project demonstrates a significant advance in Virginia, the potential for further innovation in service delivery is now prominently on the horizon. In October 2008, for example, the District of Columbia’s Department of Mental Health announced that it would be closing all of its mental health centers and replacing them with privately-run facilities, expanding the number of patients treated while generating tens of millions in cost savings.


Georgia is pursuing a similar initiative on a much larger scale. Like many states, Georgia faces rapidly escalating costs to maintain its aging mental health facilities. At the same time, the state has also become the focus of a U.S. Justice Department investigation into civil rights violations after the Atlanta Journal-Constitution exposed appalling conditions in Georgia’s state-run mental hospitals. Since 2002, the paper found that over 130 patients have died from neglect, abuse or poor medical care in the state-run facilities, and there have been nearly 200 cases of patient abuse.


To clean up its act and avoid a federal civil rights lawsuit, Georgia’s Department of Human Resources plans to privatize the operations and management of all of its state psychiatric hospitals. The initiative would close all seven of its existing state hospitals and replacing them with three new, privately-financed, privately-operated facilities—all by 2012. The central goal of the privatization initiative is to dramatically improve service quality and patient outcomes while lowering spending from current levels.


The Georgia and D.C. cases should dispel the myth that providing care to psychiatric patients is somehow an “inherently governmental” function. Just look at Florida, which has been the state leader in mental health services privatization.


Florida’s efforts began in November 1998 when it contracted with a private company to operate South Florida State Hospital, an aging, non-accredited facility which was facing a major class action lawsuit concerning patient abuse and poor conditions. Within two years the private operator achieved accreditation for the existing facility (removing the lawsuit), while at the same time financing and building a new, modern facility to replace it. No capital dollars were involved and the state will own the new facility when the debt is retired.


The results speak for themselves—after privatization, the hospital reached some significant operational milestones, such as eliminating waiting lists for patient admissions, reducing the average patient stay from eight years to less than one year and nearly eliminating the use of seclusion and restraints to manage patient behavior. Cost savings in Florida have also been impressive. The state’s Department of Children and Families reported to a legislative committee in 2007 that the average cost per bed in the privately operated facilities was as much as 15 percent lower than at the state-run hospitals.


Virginia’s success with the Eastern State Hospital project is a great stepping stone to a larger transformation of psychiatric services delivery. That project has proven that private sector innovation can deliver high-quality psychiatric facilities; the next step for the Commonwealth is to extend that model further into operations, along the lines of Florida and Georgia.


In this sort of arrangement, the state would negotiate a performance-based contract that would establish care standards and performance mandates (with appropriate financial penalties for non-compliance) to ensure a higher level of service than achieved under state operation. The state’s role then shifts to contract monitoring and holding the operator accountable for results.

Moving forward, Virginia policymakers need to ask a critical question: does the Commonwealth need to be in the business of running hospitals, or could it achieve better outcomes at a lower cost through contracting for performance with experienced private sector operators? The experience in Florida and elsewhere strongly suggests the latter approach may be the best answer in Virginia.

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