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Critical Time Intervention (CTI) is a time-limited care coordination intervention designed to reduce homelessness and other adverse outcomes for persons living with serious mental illness during the transition period between institutions and community living. This study assesses whether CTI improves the quality of family relationships between family members and individuals living with serious mental illness, and examines whether changes in quality of family relationship mediated the association between the intervention and psychiatric rehospitalization outcomes.This study utilizes data from a randomized controlled trial that assessed the effect of CTI in preventing homelessness. Following discharge from inpatient psychiatric treatment in New York City, 150 previously homeless persons living with serious mental illness were randomly assigned to receive usual services only or 9 months of CTI in addition to usual services.Findings from mixed-effects regression models indicated that those assigned to the CTI group reported greater frequency of family contact and greater improvement in satisfaction with family relations than the comparison group during the 18-month follow-up period. Mediation analysis revealed that greater improvement in satisfaction with family relations mediated the effect of CTI on psychiatric rehospitalization outcome, but only at a modest level.These findings suggest that a relatively brief but targeted intervention delivered at the point of hospital discharge may contribute to strengthening family relations and that improvement in perceived family relationship quality can contribute to a reduction in psychiatric rehospitalization.