Medicaid Cuts Could Strain Already Struggling Psychiatric Units

Federal Medicaid reductions may force hospitals to scale back mental health services as demand rises.

Mar. 24, 2026 at 1:38am

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Federal Medicaid cuts could have a significant impact on psychiatric units at hospitals across the country, many of which are already struggling to keep their doors open but provide essential mental health care. Psychiatric units are costly and tend to be reimbursed at lower rates than other health services, leading many hospitals to subsidize them with revenue from other departments. The new federal law that will cut Medicaid spending by an estimated $886.8 billion over the next decade is expected to worsen the situation, forcing hospitals to provide care to more uninsured patients while limiting their ability to maximize federal funding.

Why it matters

Medicaid is the largest payer for mental health services, covering about 29% of the estimated 52 million nonelderly adults with mental illness. Cuts to Medicaid could significantly impact access to inpatient psychiatric care, especially in rural areas that already face workforce shortages. This could lead to more crowding in emergency rooms and jails, which often end up providing inadequate mental health care for those who lack access to the right settings.

The details

Between 2023 and 2024, 126 hospitals across the U.S. shut down their inpatient psychiatric units. The new federal law will add to the strain by cutting Medicaid spending, limiting states' ability to maximize federal funding, and capping provider taxes - tools states have used to boost Medicaid dollars. This will force states to either replace lost federal money with state dollars, scale back services, or provide coverage to fewer people. Psychiatric units typically operate at a loss, with Medicaid accounting for a much higher share of patients compared to other hospital departments.

  • Between 2023 and 2024, 126 hospitals across the U.S. shut down their inpatient psychiatric units.
  • The new federal law that will cut Medicaid spending is projected to take effect over the next decade.

The players

Sarah Steverman

Oversees regulatory affairs and is the liaison for a committee of hospital psychiatric unit administrators and clinicians at the National Association for Behavioral Healthcare.

Angela Kimball

Chief advocacy officer at Inseparable, a mental health advocacy organization.

Dr. Arpan Waghray

A psychiatrist and CEO of Providence's Well Being Trust, who serves as a member of the American Psychiatric Association's Council on Healthcare Systems and Financing.

Gretchen Clark Bower

Senior director of Behavioral Health Services at Providence Regional Medical Center Everett in Washington state.

Dr. Mehmet Oz

The administrator of the federal Centers for Medicare & Medicaid Services.

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What they’re saying

“For the mental health system, and particularly for facility-based care, it (Medicaid) is the financial foundation. And when you simultaneously reduce who's covered, what providers get paid, and limit the tools states have to make up the difference, you're not just trimming around the edges; you're undermining the whole structure.”

— Angela Kimball, Chief advocacy officer at Inseparable

“Inpatient psychiatric units, especially when they're part of larger hospitals and academic centers, like our community hospitals … they generally tend to operate on a loss. We are no exception to that.”

— Dr. Arpan Waghray, Psychiatrist and CEO of Providence's Well Being Trust

“The costs of providing care are far more than what we're getting reimbursed. And that is extremely challenging.”

— Gretchen Clark Bower, Senior director of Behavioral Health Services at Providence Regional Medical Center Everett

What’s next

The new federal law that will cut Medicaid spending is projected to take effect over the next decade, so the full impact on psychiatric units remains to be seen. However, experts warn that the cuts could force more hospitals to shut down their inpatient psychiatric units, leading to increased strain on emergency rooms and jails.

The takeaway

The impending Medicaid cuts threaten to further destabilize an already fragile mental health care system, potentially limiting access to critical inpatient psychiatric services. This could have far-reaching consequences, including overcrowding in emergency rooms and jails, which often end up providing inadequate care for those with mental health crises. Policymakers will need to carefully consider the broader implications of these cuts and explore alternative solutions to ensure that vulnerable populations can access the mental health support they need.