The role of the "IMD" exclusion in the mental health system

System Transformation Issues

Summary

Since its creation in 1965, the Federal Medicaid program has not paid for inpatient mental health services in large, stand-alone facilities for persons between 21 and 65 years of age.1 These facilities are referred to in the Medicaid statute as “institutes for mental diseases ”2 or “IMDs.”3

There are currently efforts to modify4 or even eliminate5 the IMD exclusion. These efforts are based upon the following concerns:

  • People are being denied needed inpatient mental health care
  • We need more long-term inpatient psychiatric care
  • The quality of inpatient psychiatric care needs improvement
  • There are large numbers of persons with serious mental illnesses who are homeless

MHA opposes the elimination of the IMD exclusion because: (a) these serious problems are not the result of the IMD exclusion and, therefore, repealing or modifying the exclusion will not help solve them and (b) there are better ways to address these problems; and, (c) repealing the IMD exclusion may worsen care for some persons with serious mental illnesses.

Main message

Repealing the IMD Exclusion Will not Solve the Problems in the Mental Health System.6

  1. To the extent that there are insufficient inpatient psychiatric beds,7 this is primarily due to the fact that Medicaid does not reimburse hospitals adequately for inpatient psychiatric care, which discourages hospitals from creating new beds or maintaining existing beds.8
  2. The lack of inpatient psychiatric beds is also caused by the nationwide shortage of mental health professionals needed to staff these beds.9 Repealing the IMD exclusion will not solve this serious problem.
  3. One of the reasons that persons in need of inpatient care are turned away is that beds are being used by persons who do not need inpatient care. This occurs for at least two reasons:
    1. State-operated psychiatric hospital beds are now overwhelmingly occupied by “forensic patients,”10 many of whom could be treated in the community.11
    2. The lack of alternatives to hospitalization often forces clinicians in emergency rooms to chose between admitting a person with a serious mental illness who may pose some risk of harm or an uncertain referral to less than adequate community care. This results in avoidable admissions.
  4. Medicaid, like all health insurance programs, will only reimburse hospitals for care which is “medically necessary.” Thus, if a person can be treated safely and effectively in the community, Medicaid will not pay for inpatient care. Importantly, this determination is not made based on the actual availability of community mental health services. The “medical necessity’ standard encourages hospitals to discharge patients who remain in need of mental health services as soon as they no long need inpatient care. Ending the IMD exclusion is unlikely to lead to more long-term care because persons who would be admitted with Medicaid funding will still be subject to the “medical necessity" standard.12
  5. Repealing the IMD exclusion will not reduce the number of people with mental illness who are homeless. People (with and without mental illnesses) are homeless because they cannot afford to rent or buy a home.13 Hospitalizing someone who is homeless and has a mental illness may, of course, be a necessary and appropriate intervention. However, since public and private psychiatric hospitals generally lack the ability to arrange housing for people who are homeless, these individuals are quite frequently discharged to homelessness.

Supporting messages

  1. Repealing the IMD exclusion may have serious negative effects.
    1. The IMD exclusion was created, in part, to encourage states to reduce the number of persons held for extended periods of time in psychiatric hospitals because of the negative effects of such hospitalization. There is reason to be concerned that increasing the number of persons subjected to long-term inpatient will re-introduce those negative effects.
    2. The IMD exclusion was also created to relieve the Federal budget of the substantial cost of reimbursing states for half of the cost of operating all of the state psychiatric hospitals. The Congressional Budge Office “estimates that [eliminating the IMD exclusion] would increase federal outlays by between $7.7 billion and $38.4 billion over the 2024–2033 period...”14 MHA believes that these funds would be better spent on preventive and outpatient services as described below in the “Call to Action.”

  2. Existing IMD Waivers Have Shown Mixed Results. For a number of years, Medicaid has granted waivers to states to allow reimbursement for short-term stays in IMDs.15 A recent study from Mathematica Policy Research of these waivers found: (a) no decrease in emergency room admissions or lengths of stay; (b) no decrease in general hospital admissions or lengths of stay; and (c) no improvements in access to inpatient care or follow-up outpatient care\no cost savings.16

    However, there is evidence from Indiana that its IMD waiver program has been successful.17 MHA believes that more research is needed because the Mathematica study has data limitations and the Indiana study was of only one state.

  3. Lack of Clarity about the Application of the IMD Exclusion to Crisis Services. Most states have created non-hospital centers where persons in a mental health crisis can go for short periods for support and voluntary assistance.18 These centers have been effective in responding to crisis and reducing the need for inpatient care.19 It is unclear whether such facilities are IMDs and, therefore, excluded from Medicaid funding.

Call to Action

  1. MHA Urges Congress Not to Repeal the IMD Exclusion Unless and Until There is Substantial Evidence That Such a Repeal Would Do More Good than Harm.20
  2. MHA Urges Policymakers and Advocates to Support Alternatives to Repeal of the IMD Exclusion. Such alternatives include:
    1. Increase the Medicaid Rate for Inpatient Psychiatric Care. Since the low rates paid by Medicaid are the primary reason for the lack of inpatient psychiatric care, increasing the rates would go a long way toward increasing the number of beds.
    2. Fully implement the 988 system. Recently, the Federal government created a new crisis response program that will provide (a) a new number to call for mental health emergencies: “988;" (b) a trained mental health person to send when needed; and ( c ) a “non-medical” place to go for up to 24 hours. When these three elements are fully funded and implemented, they will divert large numbers of people from inpatient psychiatric hospitals.21 Doing so will free up beds for those who truly need them. MHA supports increased Federal and state funding to fully and quickly implement the 988 system
    3. Require Medicaid to Cover Transition Services for Persons in IMDs. Currently, Medicaid will not pay for services to transition people out of IMDs. This keeps people in such facilities longer than needed, which is both costly to taxpayers and harmful to persons with mental health conditions. Medicaid should change its rules to require that these services be covered.
    4. Increase funding for community mental health services. There are many effective and cost-effective community mental health services that are not adequately funded. These include: supported housing, supportive employment, Assertive Community Treatment and peer support services. These community services are almost always less expensive than inpatient care and almost always preferred to hospitalization by persons with mental illnesses
    5. Review and Revise Polices Which Result in State-Operated Facilities Housing Too Many Forensic Patients. MHA encourages states to rethink the use of their state hospital beds.22 For example, many states have developed safe and effective programs for treating persons found unfit to stand trial on criminal charges in the community, rather than in state hospitals,23 or even completely diverting unfit misdemeanants from the criminal justice system and from inpatient care.24 These programs will free up state-operated psychiatric beds for persons who are more in need of inpatient care.
  3. MHA Urges Further Study of the Effect of the Existing IMD Waivers. Given the financial burden of repealing the IMD exclusion and the risks to patient care of doing so, MHA urges substantial further research about the effectiveness and cost-effectiveness of the existing IMD waivers.
  4. MHA Urges the Center for Medicare and Medicaid Services (CMS) to Clarify that Mental Health Crisis Centers Do Not Constitute IMDs So Long as the Duration of Stay is Less than 24 Hours.25

EFFECTIVE DATE: This Position Statement was approved by the Board of Directors on September 19, 2024 and will expire in 2029 subject to further review by the Public Policy Committee and the Board.

  1. States with Medicaid manages care plans can pay for treatment in an IMD for up to 15 days per month provided that the enrolled voluntarily agrees to this placement and it is clinically appropriate and cost-effective.
  2. This terminology is archaic and stigmatizing. MHA only uses it here because it is the language in the Federal Medicaid statute at issue.
  3. The IMD exclusion prohibits Federal Medicaid support for psychiatric care for persons between the ages of 21 and 64 who are in inpatient facilities with 17 or more beds where 50% of more of the patients are being primarily treated for a mental illness. Inpatient psychiatric services are covered by Medicaid despite the IMD exclusion for:
    1. treatment in a public or private facility of any size so long as the number of psychiatric patients do not exceed the number of non-psychiatric patients in the facility. Thus Medicaid does cover inpatient psychiatric care in every general hospital with a psychiatric unit or units in the United States.
    2. treatment in a stand-alone public or private psychiatric facility that has 16 or fewer beds.
    3. treatment in a public or private facility of any size so long as the patient is under 21 or over 64. The only inpatient psychiatric services not covered are those provided to persons between 21 and 64 in large, stand-alone psychiatric facilities.
  4. The Michelle Alyssa Go Act would allow Medicaid reimbursements for facilities of up to 32 beds instead of the current 16-bed limit. H.R 7803. https://www.congress.gov/bill/117th-congress/house-bill/7803 
  5. The “Alignment for Progress” from the Kennedy Forum calls for a repeal of the IMD exclusion. https://strategy.alignmentforprogress.org/national-strategy; “Federal Policy Briefs: The IMD Exclusion” National Association of Medicaid Directors, https://medicaiddirectors.org/wp-content/uploads/2022/04/IMD-NAMD-Federal-Policy-Briefs.pdf 
  6. If the shortage of inpatient psychiatric beds were due to the IMD exclusion then we would not be experiencing the same lack of beds for persons under 21 and over 65 who are not subject to the IMD exclusion. That the lack of beds is not caused by the IMD exclusion was recently demonstrated in New York which closed 850 inpatient psychiatric beds due to the COVID pandemic and is only now reopening them.
  7. In fact there is no way to know whether there is a shortage of inpatient psychiatric beds unless and until we have a comprehensive community mental health system.
  8. This is also true for Medicare and most private insurance. The Federal Medicaid law allows states almost complete discretion to decide what rates to pay for any health care service. In most states, the Medicaid rate is substantially lower than the rate paid by Medicare or private insurance. Zhu, et al.“Medicaid Reimbursement For Psychiatric Services: Comparisons Across States And With Medicare” , Health Aff (Millwood). 2023 Apr; 42(4): 556–565 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10125036/ This places a particular burden on hospitals in low-income neighborhood and discourages general hospitals in these neighborhoods. from creating or maintaining inpatient units. MHA is concerned that this also leads to racial disparities in the availability of inpatient psychiatric care.
  9. Health Resources and Services Administration (HRSA), National Center for Health Workforce Analysis, “Behavioral Health Workforce, 2023" https://bhw.hrsa.gov/sites/default/files/bureau-health-workforce/Behavioral-Health-Workforce-Brief-2023.pdf; Counts, Nathaniel “Understanding the Behavioral Workforce Shortage” The Commonwealth Fund, (May 18, 2023) https://www.commonwealthfund.org/publications/explainer/2023/may/understanding-us-behavioral-health-workforce-shortage.
  10. This phrase usually refers to persons found unfit to stand trial on criminal charges or not guilty by reason of insanity.
  11. “Nearly All of Oregon State Hospital Beds Go to Criminal Patients, All But Ending Civil Commitment in Oregon” KGW8 (April 23, 2024) https://www.kgw.com/article/news/investigations/uncommitted/oregon-effectively-criminalized-severe-mental-illness/283-93567f83-75ee-4179-9b7d-fb4d77dd880c 
  12. Medicaid does pay for long-term care in nursing homes. However, the quality of mental health services in nursing homes is often not good. Grabowski, et al., “Quality of Mental Health Care for Nursing Home Residents: A Literature Review.” National Library of Medicine (2010) https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2981653/ 
  13. “Homelessness, Health and Human Needs” National Library of Medicine, https://www.ncbi.nlm.nih.gov/books/NBK218240/; “Homelessness in the US” National Coalition on Homelessness, https://nationalhomeless.org/homelessness-in-the-us/ 
  14. “Budgetary Effects of Policies to Modify or Eliminate Medicaid’s Institutions for Mental Diseases Exclusion” Congressional Budge Office (April, 2023) https://www.cbo.gov/publication/59071#:~:text=Eliminating%20the%20IMD%20exclusion%20would%20have%20a%20much%20larger%20budgetary,stays%20encompassed%20by%20the%20policy
  15. These waivers were authorized by the 21st Century Cures Act. P.L. 114-255. As of September 26, 2023, 35 states had been granted waivers for substance use disorders (SUD) and 11 states had waivers for mental health services (MH). An additional 6 states had SUD waiver applications pending and 7 states had MH waiver application pending. Houston, Megan “Medicaid’s Institution for Mental Diseases (IMD) Exclusion” Congressional Research Service (October 5, 2023) https://crsreports.congress.gov/product/pdf/IF/IF10222 
  16. “Medicaid Emergency Psychiatric Services Demonstration Evaluation: Final Report” Mathematic Policy Research (August 18, 2016) https://www.cms.gov/priorities/innovation/files/reports/mepd-finalrpt.pdf 
  17. Baywol, Lindsay, “Indiana SUD/SMI Waivers Post-Award Forum: Waiver and Data Updates” Indiana Family & Social Services Administration, https://www.in.gov/fssa/ompp/files/SUD-SMI-Post-MAC-July-2022.pdf 
  18. Balfour, “An Imperfect Guide to Crisis Stabilization Units: Matching the Right Level of Care to Individual Needs” Psychiatric Times (May 5, 2023) https://www.psychiatrictimes.com/view/an-imperfect-guide-to-crisis-stabilization-units-matching-the-right-level-of-care-to-individual-needs; “National Guidelines for Behavioral Health Crisis Care Best Practice Toolkit” SAMHSA (2020) https://www.samhsa.gov/sites/default/files/national-guidelines-for-behavioral-health-crisis-care-02242020.pdf; “Crisis Response” National Association of Medicaid Directors Federal Policy Briefs https://medicaiddirectors.org/wp-content/uploads/2022/02/Federal-Policy-Brief-Crisis-Response-updated-link.pdf 
  19. Rubenstein, Grace “Mental Health Crisis Centers and EMPATH Units: Offering Care that Busy ERs Can’t” STAT (April, 2024)
  20. MHA takes no position on whether and how the IMD exclusion should apply to substance used disorder (SUD) treatment facilities. However, we note with concern the evidence that the use of Medicaid waivers may have resulted in Medicaid funding inappropriate inpatient SUD treatment and reduced funding for more effective community treatment. Hernandez-Delgado, “Institutions for Mental Diseases Exclusion and Substance Use Disorders: Lay of the Land,” National Health Law Program (July 19, 2023) https://healthlaw.org/resource/institutions-for-mental-diseases-imd-exclusion-and-substance-use-disorders-lay-of-the-land/ 
  21. “A Better Response: Policies to Improve America’s Mental Health Crisis System” https://www.inseparable.us/abetterresponse/?refcode=AU_INS_CL_GEN_GEN_AC_20240614_AM1_V1_S1_REPORT&link_id=5&can_id=9caa7fa95f5dd6d8055d56218fa20e84&source=email-a-big-announcement-from-inseparable-2&email_referrer=email_2354732___subject_2886839&email_subject=introducing-a-new-tool-for-mental-health-policymakers; Saunders, et al., “A Behavioral Health Crisis Response: Findings from a Survey of State Medicaid Programs” KFF (May 25, 2023) https://www.kff.org/mental-health/issue-brief/behavioral-health-crisis-response-findings-from-a-survey-of-state-medicaid-programs/ 
  22. See for example, “Mental Health Facility Access Act, 405 ILCS 140/1, et seq.
  23. Fader-Towe & Kelly, “Just and Well: Rethinking How States Approach Competency Restoration,” Council of State Governments Justice Center (April, 2020) https://csgjusticecenter.org/wp-content/uploads/2020/10/Just-and-Well27OCT2020.pdf; Johnson & Candalis, “Outpatient competence restoration: A model and outcomes” World J Psychiatry. 2015 Jun 22; 5(2): 228–233. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4473494/ 
  24. Inglehart, John, “Decriminalizing Mental Illness — The Miami Model” N.E.J. of Medicine (May 5, 2016), https://www.jud11.flcourts.org/docs/New%20England%20JM%202016.pdf. Our current practice which hospitalizes persons found unfit to stand trial of misdemeanors and low-level felonies frequently results in their being confined longer than if they were convicted of the crime(s) charged.
  25. MHA believes that this clarification is consistent with existing law. It is unlikely that the IMD exclusion was intended to apply to facilities where people stay less than a day—such places are not residential institutions. This interpretation allows states the flexibility to obtain Medicaid funding for very short term crisis centers of any size and longer-term facilities of no more than 16 beds. However, there may be a need for longer-term facilities (perhaps, up to 72 hours) that are bigger than 16 beds. MHA would not oppose Medicaid funding for such facilities, but this would likely require a change in law. Additionally, facilities that are too large, more than 20 to 25 persons, are unlikely to provide the environment needed by those in mental health crises.