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Updated July 30, 2019
Medicaid’s Institutions for Mental Disease (IMD) Exclusion
Medicaid is a joint federal-state program that finances the
Legislative History
delivery of primary and acute medical services, as well as
The IMD exclusion was part of the Medicaid program as
long-term services and supports, for a diverse low-income
enacted in 1965 as part of the Social Security Amendments
population, including children, pregnant women, adults,
(P.L. 89-97). The exclusion was designed to assure that
individuals with disabilities, and people aged 65 and older.
states rather than the federal government maintained
primary responsibility for funding inpatient psychiatric
Medicaid’s IMD exclusion limits the circumstances under
services.
which federal Medicaid funding to states is available for
inpatient mental health care. Policymakers have concerns
As originally enacted, federal Medicaid law included an
about access to mental health care, and, in recent years,
exception to the IMD exclusion for individuals aged 65 and
federal guidance and the Substance Use-Disorder
older. Therefore, since the beginning of Medicaid, states
Prevention That Promotes Opioid Recovery and Treatment
have had the option to provide Medicaid coverage of
for Patients and Communities Act (SUPPORT Act; P.L.
services provided to individuals aged 65 and older in IMDs.
115-271) have amended the IMD exclusion.
In 2018, 42 states provided this optional coverage.
What Is the IMD Exclusion?
The IMD exclusion is a long-standing policy under
Medicaid that prohibits the federal government from
providing federal Medicaid funds to states for services
rendered to certain Medicaid-eligible individuals who are
patients in IMDs (§1905(a)(30)(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
The Social Security Amendments of 1972 (P.L. 92-603)
History” section, the IMD exclusion applies to individuals
provided an exception to the IMD exclusion for children
aged 21 through 64.
under the age of 21, or in certain circumstances under the
age of 22. (This exception is commonly referred to as the
“Psych Under 21” benefit.) With this exception, states have
“The term ‘institution for mental diseases’ means a
the option to provide inpatient psychiatric hospital services
hospital, nursing facility, or other institution of more
to children. However, these services are mandatory for
than 16 beds, that is primarily engaged in providing
states to cover if an early and periodic screening, diagnosis,
diagnosis, treatment, or care of persons with mental
and treatment (EPSDT) screen of a child determines
diseases, including medical attention, nursing care, and
inpatient psychiatric services are medically necessary. As a
related services.” (SSA §1905(i).)
result, all states provide Medicaid coverage of inpatient
psychiatric services for individuals under the age of 21.
Determination of whether a facility is an IMD depends on
whether its overall character is that of a facility established
The Medicare Catastrophic Coverage Act of 1988 (P.L.
and maintained primarily to care for and treat individuals
100-360) created the statutory definition of an IMD, which
with mental diseases. Examples include a facility that is
followed the regulatory definition with one addition: the
licensed or accredited as a psychiatric facility or one in
exception for facilities with 16 beds or fewer. Thus, small
which mental disease is the current reason for
facilities can receive Medicaid funding, which indicates
institutionalization for more than 50% of the patients.
Congress supported the use of smaller facilities rather than
larger institutions.
For the definition of IMDs, the term mental disease
includes diseases listed as mental disorders in the
The SUPPORT Act included a number of provisions that
International Classification of Diseases, with a few
provide additional exceptions to the IMD exclusion in
exceptions (e.g., mental retardation). (See Centers for
certain situations. See “The SUPPORT Act” section for
Medicare & Medicaid Services [CMS], State Medicaid
more detail on these provisions.
Manual, Part 4, §4390.) Under this definition, substance use
disorders (SUDs) are included as mental diseases. If the
Inpatient Mental Health Services for
substance abuse treatment follows a psychiatric model and
Persons Aged 21 Through 64
is performed by medical personnel, it is considered medical
Taking into consideration all the statutory exceptions, the
treatment of a mental disease.
IMD exclusion prevents the federal government from
providing federal Medicaid funds to states for any service
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Medicaid’s Institutions for Mental Disease (IMD) Exclusion
delivered to individuals aged 21 through 64 in an IMD.
IMD coverage through their managed care programs in
However, even with the IMD exclusion, states can receive
state fiscal year 2018.
federal Medicaid funding for inpatient mental health
services for individuals aged 21 through 64 outside of an
The SUPPORT Act
IMD. States can provide Medicaid coverage for services
The SUPPORT Act, enacted on October 24, 2018, includes
rendered in facilities that do not meet the definition of an
the following provisions that affect the IMD exclusion.
IMD, such as facilities with 16 or fewer beds and facilities
that are not primarily engaged in providing care to
IMD State Option for SUD Services
individuals with mental diseases.
Section 5052 adds a new state plan option, beginning
October 1, 2019, and ending September 30, 2023, to
Medicaid DSH Payments
provide Medicaid coverage of Medicaid enrollees aged 21
States also can provide Medicaid disproportionate share
through 64 with at least one SUD who are patients in an
hospital (DSH) payments to IMDs, but these are lump-sum
eligible IMD for no more than a period of 30 days (whether
payments provided to the facilities rather than payments for
or not consecutive) during a 12-month period.
services rendered. (See CRS Report R42865, Medicaid
Disproportionate Share Hospital Payments.) Most states
An eligible IMD is defined as an IMD that (1) follows
focus their Medicaid DSH funding on hospitals, but some
reliable, evidence-based practices and (2) offers at least two
states use this funding for IMDs. In FY2018, 32 states
forms of medication-assisted treatment for substance use
provided Medicaid DSH payments to IMDs, and 2 of these
disorders on site.
states spent all of their Medicaid DSH funding on IMDs.
As a condition of the state plan option, states would have to
Section 1115 Waivers
maintain the annual level of state expenditures for items
States may request a Section 1115 waiver to receive federal
and services furnished to Medicaid enrollees aged 21
Medicaid funds for services provided to individuals who are
through 64 with at least one SUD in (1) eligible IMDs and
patients in IMDs. Between 1993 and 2009, nine states had
(2) outpatient and community-based settings.
approved Section 1115 waivers allowing the states to
receive federal Medicaid funds for behavioral health
Also, as a condition of the state plan option, states are
services in IMDs. All except one of these waivers were
required to ensure that a continuum of services is available
phased out.
by (1) notifying the Secretary of Health and Human
Services of how individuals receive evidence-based clinical
Then, in July 2015, CMS issued guidance notifying states
screening before receiving services in an eligible IMD;
that certain Section 1115 waivers would be approved for
(2) providing coverage of certain outpatient, inpatient, and
short-term stays in IMDs for individuals receiving SUD
residential services; and (3) ensuring appropriate transition
treatment. The CMS guidance for these waivers was
from an eligible IMD to receiving care at a lower level of
amended in November 2017.
clinical intensity.
In November 2018, CMS issued guidance, as mandated by
Under the state option, individuals receiving IMD SUD
Section 12003 of the 21st Century Cures Act (P.L. 114-
services also must receive Medicaid coverage of services
255), about opportunities to design innovative systems for
provided outside the IMD.
adults with serious mental illness (SMI) and children with
serious emotional disturbance (SED). This guidance allows
Services Outside of IMD for Pregnant Women
states to provide Medicaid coverage through Section 1115
Section 1012 permits states to receive federal Medicaid
waivers for short-term stays in IMDs for individuals with
funds for Medicaid services provided only outside of an
SMI and SED.
IMD for patients in IMDs receiving SUD treatment who are
eligible for Medicaid on the basis of being pregnant
According to the Kaiser Family Foundation, as of July 16,
(through 60 days postpartum).
2019, 24 states had approved Section 1115 waivers
allowing states to receive federal Medicaid funds for SUD
Managed Care Coverage
services in IMDs and 1 state had an approved waiver for
Section 1013 codifies the regulation discussed above
mental health services. At that time, 5 states had pending
allowing states to make monthly payments to managed care
waivers for SUD services, and 1 state had a pending waiver
organizations for enrollees aged 21 through 64 who are
for mental health services.
patients in an IMD as long as the length of stay in the IMD
is no more than 15 days during the month of the payment.
Medicaid Managed Care
Under Medicaid managed care coverage, states may make
MACPAC Report
monthly payments to managed care organizations for
Section 5012 requires the Medicaid and CHIP Payment and
enrollees aged 21 through 64 who are patients in an IMD.
Access Commission to submit a report to Congress, not
In May 2016, CMS added this policy to regulations and
later than January 1, 2020, that discusses Medicaid-funded
specified that states may make payments to managed care
services provided to individuals who are patients in IMDs.
organizations for enrollees aged 21 through 64 who are
patients in an IMD as long as the length of stay in the IMD
Alison Mitchell, Specialist in Health Care Financing
is no more than 15 days during the month of the payment.
According to the Kaiser Family Foundation’s State
IF10222
Medicaid Budget Survey, 28 states reported providing this
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Medicaid’s Institutions for Mental Disease (IMD) Exclusion
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https://crsreports.congress.gov | IF10222 · VERSION 10 · UPDATED