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Issues in Medicaid Policy and System Transformation: Recommendations From the President's Commission
Stephen L. Day, M.S.W.
Psychiatric Services 2006; doi: 10.1176/appi.ps.57.12.1713
Abstract

Efforts to ensure that people with disabilities participate fully in their communities have raised awareness of current Medicaid policies that impede provision of best-practice mental health services. The author summarizes issues that were examined by the Medicaid Subcommittee of the President's New Freedom Commission and its recommendations in four areas: access, service delivery, service coordination, and quality. Because of Medicaid's substantial role as a payer for mental health services, more creative and flexible program policies can promote system transformation. Current eligibility rules and time-consuming procedures can inhibit timely access to Medicaid coverage for people with mental illness. Medicaid benefit plans may create financial incentives for maintaining more traditional but less effective models of care. Some policies impede states' ability to coordinate Medicaid funding with other sources of funding to create systems of community-based care. Medicaid does not provide specific requirements to ensure that individuals with depression are identified and offered informed choices about treatment through primary or specialty care providers. Action steps to address these and other issues include use of presumptive eligibility and parity, retention of coverage as enrollees enter the workplace, guidance to states on evidence-based practices and service coordination with other agencies, more flexible financing mechanisms, improved data collection and reporting, and enhanced integration of primary and mental health care. (Psychiatric Services 57:1713-1718, 2006)

Abstract Teaser
Figures in this Article

The author is executive director of the Technical Assistance Collaborative, 535 Boylston Street, Suite 1301, Boston, MA 02116 (e-mail: info@tacinc.org).

In 2002 President Bush charged the New Freedom Commission on Mental Health with recommending strategies to enable people with mental illnesses to live, work, learn, and participate fully in their communities. The Commission established several working subcommittees to identify issues and make recommendations related to this overarching goal. The Medicaid Subcommittee examined a range of Medicaid requirements and practices that influence the financing and delivery of mental health services. The subcommittee also received information from a variety of stakeholders, including consumers, family members, providers, state mental authority leaders, and other interested parties. The subcommittee reviewed the work of other subcommittees of the President's Commission to see how the recommendations of those groups might interact with the Medicaid recommendations. I assisted the committee to analyze the Medicaid issues presented and drafted the report and recommendations that were adopted by the Commission.

Editor's Note: This article is the fourth in a series of papers addressing the goals that were established by the President's New Freedom Commission on Mental Health. The commission called for the transformation of the mental health system so that all Americans have access to high-quality services that promote recovery and opportunities to pursue a meaningful life in the community. The series is supported by a contract with the Substance Abuse and Mental Health Services Administration (SAMHSA). Jeffrey A. Buck, Ph.D., and Anita Everett, M.D., developed the project and are overseeing it for SAMHSA. The series will feature 15 papers on topics such as employment, housing, and leadership, which will be solicited by the journal's editor and peer reviewed. Also planned are case studies from each of the states that received a SAMHSA-funded State Incentive Mental Health Transformation Grant.

This article summarizes policy implications of the Medicaid program for mental health services as adopted by the Medicaid Subcommittee. The subcommittee accepted the recommendations summarized here and sent them forward to the Commission for final action. Many of the subcommittee's recommendations were incorporated in the final report of the Commission. The article provides background information on the role of Medicaid in funding public mental health services, and issues and barriers related to the use of Medicaid for best-practice mental health services are identified. The recommendations that were made to and adopted by the New Freedom Commission on Mental Health are listed.

Several events have taken place at the federal and state levels since the Medicaid working paper was developed and the Commission's final report was published (1). The most significant federal actions have been implementation of the new Medicare Part D pharmacy benefit and enactment of the 2006 Deficit Reduction Act. Implications of the act for mental health are discussed in a column on page 1711 of this issue (2). In addition, since 2002 many states have implemented changes in their Medicaid plans, in part to reduce future costs and in part to expand Medicaid funding for best-practice community service models. Despite these changes, the key findings of the Medicaid Subcommittee and the recommendations it made in 2002 to the President's New Freedom Commission remain as relevant today as they were then.

Medicaid is a significant force in the development, implementation, and funding of mental health services for adults and children in the United States. In each state a designated Medicaid state agency develops a state Medicaid plan that determines which individuals are covered and for what services, which optional services are included in the plan, what types of providers qualify for Medicaid reimbursement, and how providers are paid for services rendered. The federal Medicaid statute identifies mandatory services that all states must include in their Medicaid state plans. For mental health the only mandatory services are inpatient hospitalization in general hospitals, medical care provided by a psychiatrist, and Early Periodic Screening Diagnosis and Treatment (EPSDT). All other common adult mental health services, such as outpatient therapy, case management, inpatient care in freestanding psychiatric hospitals, psychiatric medications, and rehabilitation services, are optional components that states may or may not include in their Medicaid state plans.

Because most community mental health services are not mandatory, there is considerable variation among the states in covered services and related Medicaid requirements. Almost all states now have some form of Medicaid waivers and managed care arrangements that have an impact on the delivery and administration of public mental health services. These waivers and managed care approaches have helped states overcome some of the policy issues discussed in this article and at the same time have added complexity to state Medicaid programs and have led to variation among programs. It is not possible within the scope of this article to discuss the various local approaches to implementation of mental health services under Medicaid.

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Medicaid as a primary payer for mental health services

Medicaid plays a substantial role as a payer for mental health specialty services, such as inpatient and outpatient services provided by entities and independent practitioners that are specifically organized to provide behavioral health services for Medicaid-enrolled children and adults who have mental health needs and for whom mental health services are a medical necessity. Studies that combined information from Medicaid, mental health, and substance abuse agencies in three states have indicated that between 20 and 25 percent of all nonelderly adult mental health service users receive publicly funded mental health services only through Medicaid and that between 7 and 13 percent of Medicaid enrollees are mental health service users (3,4). Ninety-eight percent of children and adolescents receiving public mental health services receive at least some of their services through Medicaid (5).

In 2001 Medicaid spent almost $27 billion, accounting for 26 percent of all behavioral health spending in the United States and 35 percent of all public expenditures for mental health services (6). Medicaid's role in funding mental health services has grown in recent years and will continue to grow (7). In 2003 Medicaid accounted for more than 50 percent of all public funding for mental health services in the United States and could account for as much as two-thirds of such spending by 2013 (8). As a result, public mental health systems have evolved, or "tilted," in the direction of accommodating Medicaid-covered individuals and services (9). Because state general appropriation funds traditionally used for a variety of generic community mental health services have been converted to Medicaid matching funds and states have typically not increased non-Medicaid funding for mental health in recent years, resources have become proportionately less available for uninsured individuals with low incomes who are not able to qualify for Medicaid (9). Thus, although increased Medicaid funding has substantially expanded access to mental health services, it has also increased the importance of state-level efforts to coordinate Medicaid financing policy within each state's overall public mental health policy framework and service system design.

In addition, the "refinancing" of public mental health services with Medicaid has contributed to the conversion of public mental health systems from a grant-funded provider-driven model to a fee-for-service insurance model (8). This has increased the responsiveness of mental health services to the needs and choices of individual consumers, but it has also resulted in fundamental changes in the nature of relationships between consumers, service providers, and payers for services. To remain financially viable, service providers once considered to be part of the social and mental health safety net now must seek out consumers who are eligible for Medicaid and then must deliver services that qualify for Medicaid reimbursement. At the same time, state mental health authorities must find new ways to ensure that fee-for-service revenues sustain essential safety net services, such as crisis stabilization and flexible community support services, throughout public mental health systems of care.

Medicaid has now surpassed Medicare spending at the federal level and is the single largest component of state spending after education (10). Health care economists project that Medicaid expenditures will rise between 10 and 15 percent each year over the next several years (11). As a consequence, both state and federal policy makers are looking for new ways to decrease or at least contain increasing Medicaid costs (12,13). The growth in expenditures leaves Medicaid a likely target for additional funding cuts to balance both federal and state budgets, especially in the area of optional services. The 2006 Deficit Reduction Act contains provisions that could result in coverage and access limitations for services and reimbursement requirements for targeted case management and rehabilitative services that have become important components of public mental health systems (14).

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Medicaid as a force for system transformation

At the same time that Medicaid has become the primary source of financing for mental health services, it has also become an important source of resources to reform traditional long-term care and behavioral health services within the states. Early in his administration, on June 19, 2001, President Bush issued an Executive Order requiring swift and effective implementation of the U.S. Supreme Court's 1999 opinion in Olmstead v. L.C. The Olmstead decision affirmed that people with disabilities have a right under the Americans With Disabilities Act to live in integrated community settings as opposed to institutions. That 2001 Executive Order is the logical precursor of the Executive Order on April 29, 2002, that established the President's New Freedom Commission on Mental Heath.

These efforts have resulted in progress at the federal and state levels to ensure that people with psychiatric disabilities have maximum opportunities to "live, work, learn, and participate fully in their communities" (1). At the same time, these efforts have resulted in increased understanding at the federal and state levels of limitations in current Medicaid policies and practices that impede use of Medicaid for a range of best-practice services focused on community living. Some of these limitations also affect the ability of states to coordinate Medicaid funding with other sources of funding to create comprehensive systems of community-based mental health services and supports for children, adolescents, and adults.

For example, Medicaid medical-necessity criteria and unit-of-service documentation requirements sometimes make it difficult to deliver flexible and mobile community supports as opposed to facility-based services for people with serious mental illness. Medicaid service definitions or provider requirements often differ from child welfare service policies, which can impede the integration of mental health and child welfare social services for children and their families. In addition, given the extensive statutory and regulatory basis of Medicaid at both the federal and state levels, it often takes a considerable amount of time for the rules and regulations to catch up with the science of best-practice mental health services.

The Medicaid Subcommittee identified several critical operational issues and barriers associated with Medicaid requirements. For example, complex eligibility rules and time-consuming procedures can inhibit timely access to Medicaid coverage for people with mental illness, particularly when disability must be established as a condition for Medicaid eligibility (for example, for single adults between the ages of 22 and 64 in states where Medicaid eligibility is linked to eligibility for Supplemental Security Income). Some states also have different eligibility requirements for children than for adults, which can impede smooth transition from the child mental health system to the adult mental health system. In addition, eligibility rules in some states result in parents' having to relinquish custody to gain Medicaid eligibility for children in need of residential treatment or other Medicaid-reimbursed interventions. Some states have used Medicaid waivers to overcome barriers to eligibility, particularly with regard to disability criteria applied to single adults between the ages of 22 and 64.

In regard to covered services, traditional Medicaid benefit plan definitions and provider qualifications frequently do not reflect best practices and may have the unintended effect of maintaining financial incentives for more traditional but less effective models of care for both children and adults. For example, established evidence-based best practices such as assertive community treatment and multisystemic therapy are not yet included in all state Medicaid plans.

Furthermore, the Medicaid exclusion of service coverage for adults in an Institution for Mental Disease (IMD) makes many state-funded psychiatric hospital services and residential services ineligible for Medicaid reimbursement. This increases state costs and reduces opportunities for coordination of services across service modalities. Also, because the costs of IMD services are not reimbursed by Medicaid, states found it difficult before 2006 to meet the requirement for "revenue neutrality" in the Medicaid Home and Community Based Waiver Program as it applies to people with mental illness. Since the DRA was enacted in 2006, the specific revenue neutrality provision has been removed. The Home and Community Based Waiver Program has allowed states to develop flexible community-based services as opposed to institutional care for people with developmental disabilities or physical disabilities or elderly persons with needs for assistance with activities of daily living.

Another key issue is employment, which is viewed by consumers and professionals as a key element of recovery. The supported employment service model is one of the recognized evidence-based practices. Nonetheless, there remain eligibility and service definition limitations within the Medicaid program that provide disincentives to supported employment and moving toward self-sufficiency. Few states have implemented the Medicaid buy-in option associated with the federal Ticket to Work program, which means that most Medicaid recipients face the loss of needed medications, clinical treatment, and community supports as they increase their wages through employment. Also, because the Medicaid regulations specifically prohibit reimbursement for employment, states have had to be cautious in the degree to which Medicaid is used to fund services associated with the supported employment best-practice model.

Two final issues identified by the Medicaid Subcommittee are related to depression and the use of Medicaid data for planning. As emphasized in Mental Health: Report of the Surgeon General (15), depression is eminently treatable, and good outcomes can be expected with a combination of medication and related clinical approaches, including psychotherapy. In Medicaid as well as in most other third-party insurance programs, screening and care for depression are typically conducted by primary care physicians or in primary care clinics, and treatment of depression consists primarily of medication prescription and management, with few requirements for, or tracking of, referrals to therapists or psychiatric specialists. Medicaid does not provide specific requirements or incentives to ensure that individuals with depression are identified and offered informed choices about treatment and have opportunities to receive care through health care providers or specialty behavioral health care providers.

Federal data-reporting requirements for Medicaid are extensive, and in most states the Medicaid data files are the best available source of information on mental health service access, utilization, and costs. New service definitions and reporting codes implemented under the Health Insurance Portability and Accountability Act have resulted in consistent and comparable Medicaid data reporting among all Medicaid jurisdictions. However, in most states Medicaid data are not comparable to data collected on non-Medicaid state and local mental health service delivery and expenditures. Also, most state mental health authorities do not have access to the Medicaid data files for planning and for assessing service access and use of best practices. Thus this rich source of Medicaid claims data for planning and accountability has not been tapped in most states.

On the basis of the analysis of Medicaid policy and operational issues presented here, the President's New Freedom Commission on Mental Health concluded that Medicaid is a critical funding source with opportunities for state-level creativity and flexibility. However, the Commission also recognized that Medicaid is very complex and is often administered outside of the mental health arena at the state level. Thus specialized expertise and strong federal encouragement are frequently needed to ensure best use of Medicaid to meet states' objectives for their mental health system. For example, there are well-known evidence-based practices in the mental health field, but few states have taken full advantage of Medicaid financing opportunities to implement these practices.

Nonetheless, the Commission also recognized that Medicaid by itself cannot meet all the financial and program guidance needs of state and local mental health systems. Not all people in need of services will be eligible for Medicaid, and not all services will qualify for Medicaid reimbursement. In addition, Medicaid lacks specific mechanisms or incentives that foster joint planning, collaboration or coordination of funding, and service approaches. For the reasons described above, federal action is needed to ensure that Medicaid is a key component of efforts to transform state mental health systems.

The Medicaid Subcommittee recommended four key policy initiatives that were subsequently accepted by the New Freedom Commission and incorporated into its final report. These are briefly summarized in Table 1.

Many of the recommendations of the Medicaid Subcommittee were incorporated into the final report of the President's New Freedom Commission, Achieving the Promise: Transforming Mental Health Care in America. After the report was published, the federal Substance Abuse and Mental Health Services Administration (SAMHSA) adopted the report's major recommendations and has led in the development of Transforming Mental Health Care in America: The Federal Action Agenda, a federal multiagency action plan to implement many of the Commission's recommendations (16). SAMHSA has also provided funds to seven states—Connecticut, Maryland, Ohio, Oklahoma, New Mexico, Texas, and Washington—to begin multiagency planning for mental health system transformation, with Medicaid as a key participant in and focus of the planning efforts.

The purchasing collaborative model being implemented in New Mexico is a prime example of mental health system transformation that incorporates Medicaid and many other key payers for mental health and substance abuse services and the administering agencies into a unified system with standard service definitions and access criteria, seamless payment mechanisms, and uniform strategies for implementing evidence-based services (17). Experience gained in this initiative could be beneficial in the design and implementation of systems in other federal and state transformation efforts in which Medicaid plays a substantial part.

In addition to SAMHSA's system transformation efforts, several states—Georgia, Hawaii, North Carolina, and New York—as well as the District of Columbia have recently amended their Medicaid plans to incorporate evidence-based or promising practices in their covered benefits for people with mental illness or serious emotional disturbance. These evidence-based services are consistent with the Medicaid policy recommendations contained in the New Freedom Commission's report and provide models that could be implemented in other states with no changes in Medicaid requirements or practices at the federal level.

At the same time, federal and state budget challenges have overshadowed efforts to expand Medicaid coverage and foster delivery of evidence-based services for adults with mental illness and children with serious emotional disturbance. The 2006 Deficit Reduction Act calls for more than $40 billion in cuts in federal Medicaid expenditures over the next five years. The act does provide states with some additional flexibility in both eligibility and covered benefits, but the assumption is that this flexibility will be used to reduce costs rather than to expand services and eligibility categories. Thus improvements in federal and state Medicaid financing strategies as part of a larger mental health system transformation must be accomplished with fewer dollars rather than with expanded resources.

The President's New Freedom Commission on Mental Health followed in the footsteps of the Surgeon General's report on mental health by recommending feasible strategies and evidence-based service approaches for making the best use of Medicaid in concert with Medicare and state general fund resources to attain positive outcomes and successful community living for people with mental illness or serious emotional disturbance. It is now up to consumers, families, providers, practitioners, and other stakeholders to create demand and support for implementation of these strategies at the state level. Federal leadership is essential, but at this point Medicaid changes to implement best practices and other related recommendations of the Commission can be designed and implemented only at the state level.

For the longer term an opportunity exists to review the current patchwork of Medicaid optional services and state-level variations and to consider a more consistent national Medicaid (and possibly Medicare) benefit plan for adults with serious mental illness and children with serious emotional disturbance. The evidence about what services are most effective and beneficial for individuals and their parents and families is clear. The financing models and interagency planning and implementation mechanisms are in development. The adoption of a standard national benefit plan with local variability has proven effective for more than 30 years for elders, persons with physical disabilities, and persons with developmental disabilities. The 2006 Deficit Reduction Act will allow states to define specialty benefit plans for certain narrowly defined population groups. These provisions could create the incentives necessary to move toward national standards for a benefit plan for adults with serious mental illness and youths with serious emotional disturbance, similar to the plan that now exists for people with intellectual and developmental disabilities.

Achieving the Promise: Transforming Mental Health in America. Pub no SMA-03-3832. Rockville, Md, Department of Health and Human Services, President's New Freedom Commission on Mental Health, 2003
 
Koyanagi C: The Deficit Reduction Act: should we love it or hate it? Psychiatric Services 57:1711-1712, 2006
 
Buck JA: Spending for state mental health care. Psychiatric Services 52:1294, 2001
 
Larson MJ, Farrelly MC, Hodgkin DL, et al: Payments and use of services for mental health, alcohol, and other drug abuse disorders: estimates from Medicare, Medicaid and private health plans, in Mental Health United States, 1998. Edited by Manderscheid RW, Henderson M. DHHS pub no SMA 99-3285. Washington, DC, US Government Printing Office, 1999
 
Teich JL, Buck JA, Graver L, et al: Utilization of public mental health services by children with serious emotional disturbances. Administration and Policy in Mental Health 30:523-534, 2003
 
Mark T, Coffey RM, McKusick D, et al: National Estimates of Expenditures for Mental Health and Substance Abuse Treatment, 1991-2001. SAMHSA pub no SMA-05-3999, Rockville, Md, Substance Abuse and Mental Health Services Administration, 2005
 
Mark TL, Buck JA, Dilonardo JD, et al: Medicaid expenditures on behavioral health care. Psychiatric Services 54:188-194, 2003
 
Buck JA: Medicaid, health care financing trends, and the future of state-based public mental health services. Psychiatric Services 54:969-975, 2003
 
Frank RG, Goldman HH, Hogan M: Medicaid and mental health: be careful what you ask for. Health Affairs 22(1):101-113, 2003
 
Desonia R: Running on Empty: The State Budget Crises Worsen. Issue brief no 783. Washington, DC, George Washington University, National Health Policy Forum, Sept 2002
 
Boyd DJ, Scheppach RC: The Disappearing State Surpluses: How Come, How Long, and How Will They Affect Social Service Programs? Issue brief no 769. Washington, DC, George Washington University, National Health Policy Forum, Oct 2001
 
Guyer J: The Role of Medicaid in State Budgets. Washington, DC, Kaiser Commission on Medicaid and the Uninsured, 2001. Available at www.kff.org/medicaid/4024-index.cfm
 
Medicaid Spending Growth: Results From a 2002 Survey. Washington, DC, Kaiser Commission on Medicaid and the Uninsured, 2002. Available at www.kff.org/medicaid/4064-index.cfm
 
Perkins J: Advocacy Tips for Responding to the Deficit Reduction Act of 2005. Washington, DC, National Disability Rights Network, Training and Advocacy Support Center, Apr 27, 2006
 
Mental Health: A Report of the Surgeon General. Washington, DC, US Department of Health and Human Services, US Public Health Service, 1999
 
Transforming Mental Health Care in America: Highlights of the Federal Action Agenda. Rockville, Md, Substance Abuse and Mental Health Services Administration, 2005. Available at www.samhsa.gov/pubs/mhc/mhcagenda.htm
 
Hyde P: A unique approach to designing a comprehensive behavioral health system in New Mexico Psychiatric Services 55:983-985, 2004
 
Table 1  Medicaid policies and action steps recommended by the President's New Freedom Commission on Mental Health
Table 1  Medicaid policies and action steps recommended by the President's New Freedom Commission on Mental Health
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References

Achieving the Promise: Transforming Mental Health in America. Pub no SMA-03-3832. Rockville, Md, Department of Health and Human Services, President's New Freedom Commission on Mental Health, 2003
 
Koyanagi C: The Deficit Reduction Act: should we love it or hate it? Psychiatric Services 57:1711-1712, 2006
 
Buck JA: Spending for state mental health care. Psychiatric Services 52:1294, 2001
 
Larson MJ, Farrelly MC, Hodgkin DL, et al: Payments and use of services for mental health, alcohol, and other drug abuse disorders: estimates from Medicare, Medicaid and private health plans, in Mental Health United States, 1998. Edited by Manderscheid RW, Henderson M. DHHS pub no SMA 99-3285. Washington, DC, US Government Printing Office, 1999
 
Teich JL, Buck JA, Graver L, et al: Utilization of public mental health services by children with serious emotional disturbances. Administration and Policy in Mental Health 30:523-534, 2003
 
Mark T, Coffey RM, McKusick D, et al: National Estimates of Expenditures for Mental Health and Substance Abuse Treatment, 1991-2001. SAMHSA pub no SMA-05-3999, Rockville, Md, Substance Abuse and Mental Health Services Administration, 2005
 
Mark TL, Buck JA, Dilonardo JD, et al: Medicaid expenditures on behavioral health care. Psychiatric Services 54:188-194, 2003
 
Buck JA: Medicaid, health care financing trends, and the future of state-based public mental health services. Psychiatric Services 54:969-975, 2003
 
Frank RG, Goldman HH, Hogan M: Medicaid and mental health: be careful what you ask for. Health Affairs 22(1):101-113, 2003
 
Desonia R: Running on Empty: The State Budget Crises Worsen. Issue brief no 783. Washington, DC, George Washington University, National Health Policy Forum, Sept 2002
 
Boyd DJ, Scheppach RC: The Disappearing State Surpluses: How Come, How Long, and How Will They Affect Social Service Programs? Issue brief no 769. Washington, DC, George Washington University, National Health Policy Forum, Oct 2001
 
Guyer J: The Role of Medicaid in State Budgets. Washington, DC, Kaiser Commission on Medicaid and the Uninsured, 2001. Available at www.kff.org/medicaid/4024-index.cfm
 
Medicaid Spending Growth: Results From a 2002 Survey. Washington, DC, Kaiser Commission on Medicaid and the Uninsured, 2002. Available at www.kff.org/medicaid/4064-index.cfm
 
Perkins J: Advocacy Tips for Responding to the Deficit Reduction Act of 2005. Washington, DC, National Disability Rights Network, Training and Advocacy Support Center, Apr 27, 2006
 
Mental Health: A Report of the Surgeon General. Washington, DC, US Department of Health and Human Services, US Public Health Service, 1999
 
Transforming Mental Health Care in America: Highlights of the Federal Action Agenda. Rockville, Md, Substance Abuse and Mental Health Services Administration, 2005. Available at www.samhsa.gov/pubs/mhc/mhcagenda.htm
 
Hyde P: A unique approach to designing a comprehensive behavioral health system in New Mexico Psychiatric Services 55:983-985, 2004
 
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