How Do Psychiatric Residential Treatment Centers Get Paid?

For patients under 21, psychiatric residential treatment is paid by Medicaid and TRICARE, and commercial plans pay under their own contracts. Medicare doesn't pay the residential per diem codes.

Medicaid's psych under 21 benefit is optional for states, but it must be provided when an EPSDT screen finds a child needs this type of inpatient psychiatric care (CMS PRTF providers page). Many states provide it through psychiatric residential treatment facilities, or PRTFs (Medicaid.gov psych under 21 page).

Medicaid services must start before age 21. A patient already in care at 21 can continue until they no longer need it or turn 22, whichever comes first (42 CFR 441.151).

TRICARE defines an RTC as a facility that provides beneficiaries under 21 years of age a medically supervised, interdisciplinary program of mental health treatment (32 CFR 199.6). Preadmission and continued stay authorization are required, and admission primarily for substance use disorder (SUD) rehabilitation is not authorized (TRICARE Policy Manual, Chapter 7, Section 3.2).

Medicare is different. CMS lists H0017, H0018 and H0019 with status I, which means not valid for Medicare purposes (CMS RVU26D file). Medicare's inpatient psychiatric coverage runs through certified inpatient psychiatric facilities paid under the IPF Prospective Payment System (CMS MLN1986542, p. 32).

Next step: sort your census by payer and age so you know which rules apply to each bed.

The IMD exclusion blocks federal Medicaid matching funds for most patients aged 21 to 64 in a mental health facility with more than 16 beds.

An institution for mental diseases is a hospital, nursing facility or other institution of more than 16 beds that is primarily engaged in diagnosis, treatment or care of persons with mental diseases (42 CFR 435.1010). Federal matching funds aren't available for patients under 65 in an IMD unless they are under 22 and receiving inpatient psychiatric services under 42 CFR 440.160 (42 CFR 435.1009).

So in a facility that counts as an IMD, the under 21 benefit is the exception that keeps federal Medicaid match for younger patients. Bed count isn't the whole test either, because IMD status is determined by the facility's overall character (IMD definition, 42 CFR 435.1010).

States can get some IMD flexibility through section 1115 SMI/SED demonstrations. CMS expects those states to reach a statewide average length of stay of 30 days, and the demonstrations don't allow room and board payments in residential treatment settings unless they qualify as inpatient facilities (CMS SMD #18-011, pp. 12 and 13).

This is general information, not legal advice. Ask your counsel how the IMD rule applies to your facility.

Next step: count your beds and flag any adult Medicaid patients in a facility that could be an IMD.

Per diem billing means the payer pays one set rate for each covered resident day. That rate covers a bundle of care, and what sits inside the bundle depends on the code and the payer.

H0017, H0018 and H0019 are all per diem codes, and all three exclude room and board. H0017 describes a hospital residential treatment program, H0018 a short-term non-hospital program and H0019 a long-term program where the stay is typically longer than 30 days (CMS HCPCS quarterly update, October 2026 file).

TRICARE's per diem is all-inclusive. It covers all mental health services rendered to the patient and the patient's family as part of the approved treatment plan (32 CFR 199.14(f)).

The same rule sets how each RTC's rate is calculated and capped. For later years TRICARE updates RTC rates by the Medicare update factor for hospitals and units exempt from the Medicare prospective payment system (RTC rate rule, 32 CFR 199.14(f)(5)). The updated rates take effect on October 1 of each year (TRICARE Reimbursement Manual, Chapter 7, Section 4).

This post gives no per diem amounts. Take the rate from each payer's fee schedule or your signed contract.

What the TRICARE per diem includes

• Room and board, including food service, laundry and supervised recreation.
• Patient assessment.
• Diagnostic services such as lab work and x-rays.
• Psychological evaluation tests.
• Treatment of mental disorders.

That list comes from the RTC benefit rules (32 CFR 199.4(b)(4)).

What can be billed outside it

Claims from individual professionals for patients in an RTC paid on an all-inclusive per diem are denied. The exceptions are geographically distant family therapy for a family member living at least 250 miles from the RTC and covered care for a non-mental-health condition rendered outside the RTC (32 CFR 199.14).

Educational costs are excluded from the daily rate. An RTC can ask TRICARE to approve them case by case when appropriate education isn't available from a public entity, and approved costs show separately on the claim (educational cost rule, 32 CFR 199.14(f)).

Next step: write down for each payer what its per diem covers and what may be billed outside it.

To start billing, a residential provider needs the facility standards met, each payer's enrollment finished and the certification and plan of care records each payer requires. TRICARE won't pay for days before your agreement is signed.

For Medicaid, a PRTF must meet the CMS Conditions of Participation at 42 CFR 483.350 to 483.376 (CMS PRTF providers page). Services must be provided under the direction of a physician and certified in writing as necessary in that setting (42 CFR 441.151).

The certification has to confirm that ambulatory care in the community doesn't meet the patient's needs, that treatment on an inpatient basis under a physician's direction is required, and that the services can reasonably be expected to improve the patient's condition or prevent further regression (42 CFR 441.152). Each patient also needs a written plan of care that the team reviews every 30 days (42 CFR 441.155).

For TRICARE, the RTC must sign a participation agreement, generally for not more than five years, and an on-site inspection may be required first. Benefits aren't paid for services before the date the agreement is signed, and retroactive approval isn't given (32 CFR 199.6).

The agreement also commits the RTC to these terms:

• Accept the all-inclusive per diem as payment in full.
• Collect from the family only their cost share and charges for services that aren't a benefit.
• Submit claims at least every 30 days.
• Name one liaison for TRICARE inquiries.
• Allow quality and accounting audits, scheduled or unannounced.

Staffing follows from these rules. The Medicaid plan of care is developed by an interdisciplinary team (Medicaid.gov psych under 21 page), and TRICARE expects the family to take part in care unless it's therapeutically contraindicated (RTC necessity criteria, 32 CFR 199.4(b)(4)). We don't give salary or start-up figures here.

Start payer enrollment and participation agreements early, because nothing before the start date can be billed.

Next step: list each payer's billing start date before you admit the first patient under it.

Residential revenue can go unbilled through days that don't qualify, costs nobody got approved and services billed by the wrong party.

• Leave days. TRICARE doesn't pay for days the patient is absent on leave, and the RTC must identify those days on the claim (32 CFR 199.14(f)(6)).
• Time away. A patient absent without leave for up to 10 calendar days needs a staffing report, and more than 10 calendar days away needs a new admission approval with an updated treatment plan and progress report (TRM Chapter 7, Section 4, para 3.3.1).
• Late claims. If claims aren't submitted at least every 30 days, the RTC agrees not to bill the family for amounts TRICARE disallows (participation agreement terms, 32 CFR 199.6).
• Educational costs. If the RTC doesn't request approval for a case, it agrees not to bill the family for amounts TRICARE disallows (educational cost approval, 32 CFR 199.14(f)).
• Services outside the per diem. Distant family therapy and non-mental-health care outside the facility are billed separately, so check that the right provider bills them.
• Medicaid days outside the under 21 rules or without a current 30-day plan of care review.

If denied days are piling up, set up denied resident-day follow-up before they get old.

An audit of denied and unbilled resident days shows which of these gaps you actually have.

Next step: pull last quarter's leave days, late claims and educational cost requests and check each one against these rules.

Under TRICARE, when a stay isn't authorized and reviewed the way the program requires, the facility can end up carrying the loss instead of the family.

The participation agreement commits an RTC to TRICARE's preauthorization and concurrent care review requirements (32 CFR 199.6).

Send preauthorization requests at least two business days before the planned admission. The decision generally comes within one business day of complete information (TPM Chapter 7, Section 3.2, para 3.3.2). Concurrent review happens at least every 30 calendar days, with the decision generally within three business days (TPM concurrent review, para 3.5).

When care is later found not medically necessary, the beneficiary may not be held liable if they didn't know and couldn't reasonably have known, and the provider knew or should have known (32 CFR 199.4(h)). A provider is treated as having known when preadmission authorization was available but not requested, or concurrent review requirements weren't followed (provider knowledge criteria, 32 CFR 199.4(h)(5)).

Providers also may not seek payment from the patient or family for services disallowed under these review and preauthorization rules (exclusion of beneficiary liability, 32 CFR 199.6(a)).

If an admission skipped preauthorization or concurrent review and is found not medically necessary, the family isn't responsible for the cost until it gets written notice from TRICARE or a TRICARE contractor that the services aren't authorized, or signs a written statement from the provider that names the services that won't be reimbursed and agrees in writing to pay. General statements, such as those signed at admission, don't qualify (TPM payment responsibility, para 3.4).

This is general information, not legal advice. Appeal rights and deadlines depend on the payer and the plan.

Put prior authorization and concurrent review support in place before the first admission, not after the first denial.

Next step: check that every current resident has an active authorization and a review date on the calendar.

Residential days are described by per diem HCPCS codes H0017, H0018 and H0019 and by revenue codes such as 1001 and 1002 (HCPCS codes, CMS October 2026 file; revenue codes, Noridian, Medicare contractor). Which ones go on the claim is set by each payer's contract and billing instructions.

On the facility side, a Medicare contractor's revenue code table lists 1001 for psychiatric residential treatment and 1002 for chemical dependency residential treatment (Noridian JE Part A revenue codes, Medicare contractor). Medicare contractor articles can also be searched in the CMS Medicare Coverage Database.

Send these on an institutional claim, the UB-04 or 837I, following each payer's instructions. For substance use programs, see our post on SUD residential levels of care.

Next step: check that your chargemaster maps each residential program to the revenue code and HCPCS code your contracts name.