May 8, 2015
Medicaid’s Institutions for Mental Disease (IMD) Exclusion
Medicaid is a joint federal-state program that finances the
performed by medical personnel, it is considered medical
delivery of primary and acute medical services, as well as
treatment of a mental disease.
long-term services and supports, for a diverse low-income
population, including children, pregnant women, adults,
Legislative History
individuals with disabilities, and people aged 65 and older.
(See CRS Report R43357, Medicaid: An Overview.)
The IMD exclusion was part of the Medicaid program as
enacted in 1965 as part of the Social Security Amendments
Medicaid’s IMD exclusion limits the circumstances under
(P.L. 89-97). The exclusion was designed to assure that
which federal Medicaid matching funds are available for
states rather than the federal government maintained
inpatient mental health care. Policymakers have concerns
primary responsibility for funding inpatient psychiatric
about access to mental health care, and in recent years some
services.
have introduced bills to amend or eliminate the IMD
exclusion. The scope of the unmet need for inpatient mental
As originally enacted, federal Medicaid law included an
health care for individuals with mental illness on Medicaid
exception to the IMD exclusion for individuals aged 65 and
is unknown, as is the extent to which the need might be met
older. Therefore, since the beginning of Medicaid, states
by increasing community-based care or inpatient care in
have had the option to provide Medicaid coverage of
facilities that are not IMDs.
services provided to individuals older than 65 in IMDs. In
2012, 45 states and the District of Columbia (DC) provided
What Is the IMD Exclusion?
this optional coverage.
The IMD exclusion is a long-standing policy under
Medicaid that prohibits the federal government from
providing federal Medicaid matching funds to states for
services rendered to certain Medicaid-eligible individuals
who are patients in IMDs. (§1905(a)(29)(B) of the Social
Security Act [SSA].) When a Medicaid-eligible individual
is a patient in an IMD, he or she cannot receive Medicaid
coverage for services provided inside or outside the IMD.
Due to the exceptions explained in the “Legislative
History” section, the IMD exclusion applies to individuals

aged 21 through 64.
The Social Security Amendments of 1972 (P.L. 92-603)
provided an exception to the IMD exclusion for children
“The term ‘institution for mental diseases’ means a hospital,
under the age of 21, or in certain circumstances under the
nursing facility, or other institution of more than 16 beds, that is
age of 22. (This exception is commonly referred to as the
primarily engaged in providing diagnosis, treatment, or care of
“Psych Under 21” benefit.) With this exception, states have
persons with mental diseases, including medical attention, nursing
the option to provide inpatient psychiatric hospital services
care, and related services.” (SSA §1905(i).)
to children. However, these services are mandatory for
states to cover if an early and periodic screening, diagnosis,
and treatment (EPSDT) screen of a child determines
Determination of whether a facility is an IMD depends on
inpatient psychiatric services are medically necessary. As a
whether its overall character is that of a facility established
result, all states provide Medicaid coverage of inpatient
and maintained primarily to care for and treat individuals
psychiatric services for individuals under the age of 21.
with mental diseases. Examples include a facility that is
licensed or accredited as a psychiatric facility or one in
The Medicare Catastrophic Coverage Act of 1988 (P.L.
which mental disease is the current reason for
100-360) created the statutory definition of an IMD, which
institutionalization for more than 50% of the patients.
followed the regulatory definition with one addition: the
exception for facilities with 16 beds or fewer. Thus, small
For the definition of IMDs, the term mental disease
facilities can receive Medicaid funding, which indicates
includes diseases listed as mental disorders in the
Congress supported the use of smaller facilities rather than
International Classification of Diseases, with a few
large institutions.
exceptions (e.g., mental retardation). (See Centers for
Medicare & Medicaid Services, State Medicaid Manual,
Inpatient Mental Health Services for Persons Aged
Part 4, §4390.) Under this definition, substance use
21 Through 64
disorders are included as mental diseases. If the substance
abuse treatment follows a psychiatric model and is
Taking into consideration all the exceptions, the IMD
exclusion prevents the federal government from providing
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Medicaid’s Institutions for Mental Disease (IMD) Exclusion
federal Medicaid matching funds for any service delivered
many people with mental illness do not have access to
to individuals aged 21 through 64 in an IMD. However,
needed care, including institutional care.
even with an IMD exclusion, states can receive federal
Medicaid matching funding for inpatient mental health
Figure 1. U.S. Psychiatric Beds in 1970, 1990, and 2010
services for individuals aged 21 through 64 outside of an
(includes both hospital inpatient and residential beds)
IMD. States can provide Medicaid coverage for services
rendered in facilities that do not meet the definition of an
600,000
524,878
IMD, such as
500,000
• facilities with 16 or fewer beds and
400,000
• facilities that are not primarily engaged in providing
325,529
care to individuals with mental diseases.
300,000
In addition, Section 2707 of the Patient Protection and
181,622
200,000
Affordable Care Act (ACA; P.L. 111-148, as amended)
included a demonstration project in which participating
100,000
states can reimburse certain IMDs that are not publicly
0
owned or operated for services provided to Medicaid
1970
1990
2010
enrollees, aged 21 through 64, who require medical

assistance to stabilize a psychiatric emergency medical
Source: CRS, using data from the Substance Abuse and Mental
condition. Eleven states and DC are participating in this
Health Services Administration.
Medicaid Emergency Psychiatric Demonstration, which
Note: Changes in study methods limit comparability of the numbers.
ends in December 2015.
According to the National Association of State Mental
States also can provide Medicaid disproportionate share
Health Program Directors, during FY2010-FY2013, a
hospital (DSH) payments to IMDs, but these are lump-sum
decrease of almost 4,500 hospital inpatient psychiatric beds
payments provided to the facilities rather than payments for
and many community mental health centers coincided with
services rendered. Most states focus their Medicaid DSH
a 28% increase in emergency department use for mental
funding on general hospitals, but some states use this
illness (including substance use disorders). Hospital
funding for IMDs, with one state spending all of its
emergency departments sometimes “board” patients for
Medicaid DSH funding on IMDs. (See CRS Report
hours or days while waiting for an available psychiatric
R42865, Medicaid Disproportionate Share Hospital
bed. (See CRS Report R43812, Hospital-Based Emergency
Payments.)
Departments: Background and Policy Considerations.) In
addition, the Medicaid IMD exclusion may result in certain
Problem: Access to Needed Care
IMDs providing uncompensated care to Medicaid-eligible
individuals with emergency medical conditions.
The current paradigm for psychiatric care relies primarily
on community-based care and often reserves institutional
Proposed Solutions
care for short-term treatment of individuals experiencing
severe episodes. Historically, institutional care was far
Despite general agreement on the problem, disagreement
more common until the deinstitutionalization movement
exists regarding the potential solutions. Some see
reduced the number of psychiatric beds and shifted care to
eliminating or revising the Medicaid IMD exclusion as a
community-based settings.
means to increase the availability of psychiatric beds. They
argue that increased Medicaid funding for IMDs not only
For roughly a century leading up to the 1950s, psychiatric
would help non-elderly adults on Medicaid have access to
care relied increasingly on institutional care in state
institutional mental health care but also would help others
psychiatric hospitals that were growing in both number and
(not on Medicaid) by creating an incentive to increase the
size, at state expense. The psychiatric deinstitutionalization
number of beds in IMDs.
movement responded to concerns about the living
conditions and civil rights of institutionalized individuals
Others oppose eliminating the IMD exclusion or creating
and was facilitated by advances in psychiatric medications
more exceptions out of concern that doing so will lead to
and new federal funding for community-based mental
unnecessary institutionalization. They argue for more
health services. The number of psychiatric beds, which
access to and increased quality of community-based care,
reportedly peaked in 1955, declined between 1970 and
which they believe can reduce the demand for institutional
2010 (as illustrated in Figure 1) and has continued to
care by preventing many of the crises that precipitate
decline since then.
emergency department visits and institutionalization.
Medicaid was established at about the time psychiatric
Erin Bagalman, ebagalman@crs.loc.gov, 7-5345
deinstitutionalization began and may have contributed to
Alison Mitchell, amitchell@crs.loc.gov, 7-0152
the shift by providing a new source of federal funding for

outpatient psychiatric care while continuing the tradition of
making inpatient psychiatric care primarily a state
IF10222
responsibility. At present, there is general agreement that
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