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Updated June 15, 2018
Medicaid’s Institutions for Mental Disease (IMD) Exclusion
Medicaid is a joint federal-state program that finances the
is 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.
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As originally enacted, federal Medicaid law included an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 aged 65 and older in IMDs.
In 2012, 45 states and the District of Columbia (DC)
What Is the IMD Exclusion?
provided this optional coverage (most recent data
The IMD exclusion is a long-standing policy under
available).
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
under the age of 21, or in certain circumstances under the
hospital, nursing facility, or other institution of more
age of 22. (This exception is commonly referred to as the
than 16 beds, that is primarily engaged in providing
“Psych Under 21” benefit.) With this exception, states have
diagnosis, treatment, or care of persons with mental
the option to provide inpatient psychiatric hospital services
diseases, including medical attention, nursing care, and
to children. However, these services are mandatory for
related services.” (SSA §1905(i).)
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 (SUD) are included as mental diseases. If the
Taking into consideration all the statutory exceptions, the
substance abuse treatment follows a psychiatric model and
IMD exclusion prevents the federal government from
providing federal Medicaid matching funds for any service
https://crsreports.congress.gov
Medicaid’s Institutions for Mental Disease (IMD) Exclusion
delivered to individuals aged 21 through 64 in an IMD.
Problem: Access to Needed Care
However, even with the IMD exclusion, states can receive
The current paradigm for psychiatric care relies primarily
federal Medicaid matching funding for inpatient mental
on community-based care and often reserves institutional
health services for individuals aged 21 through 64 outside
care for short-term treatment of individuals experiencing
of an IMD. States can provide Medicaid coverage for
severe episodes. Historically, institutional care was far
services rendered in facilities that do not meet the definition
more common until the deinstitutionalization movement
of an IMD, such as facilities with 16 or fewer beds and
reduced the number of psychiatric beds and shifted care to
facilities that are not primarily engaged in providing care to
community-based settings.
individuals with mental diseases.
For roughly a century leading up to the 1950s, psychiatric
States also can provide Medicaid disproportionate share
care relied increasingly on institutional care in state
hospital (DSH) payments to IMDs, but these are lump-sum
psychiatric hospitals. The psychiatric deinstitutionalization
payments provided to the facilities rather than payments for
movement responded to concerns about the living
services rendered. Most states focus their Medicaid DSH
conditions and civil rights of institutionalized individuals
funding on general hospitals, but some states use this
and was facilitated by advances in psychiatric medications
funding for IMDs. In FY2016, 32 states provided Medicaid
and new federal funding for community-based mental
DSH payments to IMDs, and 1 of these states spent all of
health services. The number of psychiatric beds, which
its Medicaid DSH funding on IMDs. (See CRS Report
reportedly peaked in 1955, declined between 1970 and
R42865, Medicaid Disproportionate Share Hospital
2010 and has continued to decline since then.
Payments.)
Medicaid was established at about the time psychiatric
States may request a Section 1115 waiver to receive federal
deinstitutionalization began and may have contributed to
Medicaid matching funds for services provided to
the shift by providing a new source of federal funding for
individuals who are patients in IMDs. Between 1993 and
outpatient psychiatric care while continuing the tradition of
2009, nine states had approved Section 1115 waivers
making inpatient psychiatric care primarily a state
allowing the states to receive federal Medicaid matching
responsibility. At present, there is general agreement that
funds for behavioral health services in IMDs. All except
many people with mental illness do not have access to
one of these waivers were phased out. Then, in July 2015,
needed care, including institutional care.
the Centers for Medicare & Medicaid Services (CMS)
issued a State Medicaid Director letter notifying states that
According to the National Association of State Mental
certain Section 1115 waivers would be approved for short-
Health Program Directors, during FY2010-FY2013, a
term stays in IMDs for individuals receiving SUD
decrease of almost 4,500 hospital inpatient psychiatric beds
treatment. The CMS guidance for these waivers was
and the closure of many community mental health centers
amended in November 2017. According to the Kaiser
coincided with a 28% increase in emergency department
Family Foundation, as of June 12, 2018, 13 states had
use for mental illness (including SUD). Hospital emergency
approved waivers allowing for federal Medicaid matching
departments sometimes “board” patients for hours or days
funds for behavioral health services in IMDs, and 12 of the
while waiting for an available psychiatric bed. In addition,
waivers were specific to SUD services. At that time, 12
the Medicaid IMD exclusion may result in certain IMDs
states had pending waivers.
providing uncompensated care to Medicaid-eligible
individuals with emergency medical conditions.
Under Medicaid managed care coverage, states may make
monthly payments to managed care organizations for
Proposed Solutions
enrollees aged 21 through 64 who are patients in an IMD.
Despite general agreement on the problem, disagreement
In May 2016, CMS codified this policy and specified that
exists regarding the potential solutions. Some see
states may make payments to managed care organizations
eliminating or revising the Medicaid IMD exclusion as a
for enrollees aged 21 through 64 who are patients in an
means to increase the availability of psychiatric beds. They
IMD as long as the length of stay in the IMD is no more
argue that increased Medicaid funding for IMDs not only
than 15 days during the month of the payment. According
would help non-elderly adults on Medicaid have access to
to the Government Accountability Office, as of August
institutional mental health care but also would help others
2017, potentially 26 states were providing this IMD
(not on Medicaid) by creating an incentive to increase the
coverage through their managed care programs.
number of beds in IMDs.
From 2012 to 2015, a demonstration program authorized by
Section 2707 of the Patient Protection and Affordable Care
Others oppose eliminating the IMD exclusion or creating
Act (ACA; P.L. 111-148, as amended) allowed
more exceptions out of concern that doing so will lead to
participating states to reimburse certain IMDs that were not
unnecessary institutionalization. They argue for more
publicly owned or operated for services provided to
access to and increased quality of community-based care,
Medicaid enrollees, aged 21 through 64, who required
which they believe can reduce the demand for institutional
medical assistance to stabilize a psychiatric emergency
care by preventing many of the crises that precipitate
medical condition. Eleven states and DC participated in this
emergency department visits and institutionalization.
Medicaid Emergency Psychiatric Demonstration. In August
Alison Mitchell, Specialist in Health Care Financing
2016, the CMS Office of the Actuary was unable to certify
budget neutrality of the demonstration, which was a
IF10222
statutory requirement for extending it (per P.L. 114-97).
https://crsreports.congress.gov
Medicaid’s Institutions for Mental Disease (IMD) Exclusion
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https://crsreports.congress.gov | IF10222 · VERSION 9 · UPDATED