New Report Identifies $4-$8 Billion Waste and Excess Profits in Mental Health System

Fraud, Waste and Excess Profits: The Fate of Money Intended to Treat People with Serious Mental Illness calculates $4-8 billion in public mental health funds are lost annually to fraud waste and excess profits that go mainly to managed care companies. According to lead author, Dr. E. Fuller Torrey, those funds could provide

  • 3 months of state hospitalization for 112,000 individuals
  • 1 year of Assertive Community Treatment for 267,000 individuals
  • 1 year of Assisted Outpatient Treatment for 800,000 individuals
  • 1 year of a clubhouse rehabilitation program for 364,000 individuals
  • 1 year of supported housing for 333,000 individuals
  • 1 year of standard antipsychotic medication for 6.7 million individuals
  • 1 year of clozapine treatment for 667,000 individuals

Mental health advocates tend to blame the deterioration in mental health services on reductions in funding, but as the authors note in this report, comparing 1981 to 2012, "the amount of money [for mental health] in constant dollars has increased by 36 percent." The problem is that less of it goes to the seriously ill. The authors used media reports and other sources to aggregate total waste fraud and excess profits to estimate the $4 to $8 billion total. Examples include:

  • a nurse in Iowa submitting more than 6,000 false claims;
  • a social worker in North Carolina submitting claims for 64 hours of therapy in a single day;
  • a mental health center in Louisiana submitting $258 million in false Medicare claims;
  • Waste in California's Mental Health Services Act. "The tax produces over $1 billion each year. However, some of the funds have been wasted by being diverted to activities such as yoga, line-dancing, therapeutic drumming, and community gardens."
The report also identifies managed care companies generating their revenue through fraud and siphoning off 20-50 percent of receipts for profits instead of care. A class action suit in California
alleges they improperly denied care to people with serious mental illness leading to their deaths. Last month, a court allowed the case to proceed.

Fraud, Waste and Excess Profits: The Fate of Money Intended to Treat People with Serious Mental Illness makes several suggestions for reform to ensure more of the nation's mental health dollars reach people who have serious mental illness. The 58 page report was commissioned by, and written with the assistance of Mental Illness Policy Org., a non-partisan think tank on serious mental illness. The complete report is available at