HHS Lifting IMD Exclusion for Medicaid Payment for Inpatient Mental Health Treatment

In a speech to the National Association of Medicaid Directors, HHS Secretary Alex Azar said CMS is giving states more flexibility to enact inpatient mental health treatment for Medicaid beneficiaries, reversing a rule known as the "IMD exclusion.”

IMD stands for institution for mental diseases, and until now the exclusion has barred Medicaid from paying for treatment in mental health facilities with more than 16 beds. Historically, the intent was to prevent states from “warehousing” people in facilities using federal funds.

But amid a growing crisis of mass shootings, homelessness, and other societal ills, advocates and state officials had been pressing the Trump administration to change course on the policy. The Obama administration began granting demonstration waivers in 2015 that provided flexibility around this restriction.

Azar said the IMD exclusion led to “the worst of both worlds: limited access to inpatient treatment and limited access to other options. Given the history, it is the responsibility of state and federal governments together, alongside communities and families, to right this wrong.”

Azar said states will now be able to apply for waivers from that restriction, provided they are also maintaining robust community-based treatment programs. CMS will send a letter to state Medicaid directors Tuesday detailing how they can apply for a waiver.

Waivers are already allowed for treating substance use disorder (SUD), and Azar noted that “maybe the single most pressing need for inpatient treatment is where someone is experiencing a co-occurring substance use disorder and a serious mental illness.”

Azar said more than a quarter of adults with a serious mental illness are on Medicaid. He also said that more than 10 million American adults annually experience a serious mental illness and that mental illness cuts lifespans by about 10 years or more. He also said it is a “systemic failure” that more people with mental illness are in jail or prison rather than in treatment.

He said the Trump administration has approved 13 waivers, and there are more on the way. Azar cited a positive assessment of a 2016 SUD waiver for Virginia, which saw a 39% decrease in opioid-related emergency department (ED) visits and a 31% decrease in substance use—related ED visits overall.

In addition, the number of residential treatment centers expanded, as did the number of opioid-specific treatment programs. The SUD waiver demonstration also helped increase, by almost half, the number of intensive outpatient treatment providers in Virginia, Azar said.

Azar also touted legislation signed last month that will allow Medicaid reimbursement at pediatric recovery centers, which help support new mothers struggling with opioid addiction, as well as the new Maternal Opioid Misuse payment model, which aims to align and coordinate prenatal care through a child's early years. CMS said Medicaid pays the largest portion of hospital charges for maternal substance use, as well as a majority of the $1.5 billion annual cost of neonatal abstinence syndrome.