When prices are set too low

Kaiser Health News published an article about psychiatric residential treatment facilities preferring residents from certain other states because the compensation for those residents are higher than that of in-state residents. In one example, "133 of 150 psychiatric beds were filled with patients covered by out-of-state Medicaid plans last summer," even though experts suggest that children who are treated close to home are more likely to experience successful outcomes. This preference for out-of-state residents is understandable given that some of those states reimburse over twice as much as the South Carolina does. Instead, it seems that some number of children from South Carolina are being sent to some other states where, presumably, some providers charge even less. Paying less can result in sub-optimal outcomes in unexpected ways.

South Carolina appears to be addressing the problem by raising its reimbursement rates, although there are concerns that other states might feel increased pressure to raise theirs. Perhaps with the increased reimbursements, facilities will be able to better recruit and retain staff (a problem for many industries currently), and perhaps even new competitors will join in.