Payment for services in institutions for mental diseases (IMDs)

Substance Use Disorder

The institutions for mental diseases (IMD) exclusion has been in place in Medicaid statute since 1965. An IMD is defined as a hospital, nursing facility, or other institution of more than 16 beds that is primarily engaged in providing diagnosis, treatment, or care of persons with mental diseases, which includes substance use disorders (SUDs).

Historically, IMDs have not been eligible to receive Medicaid payment for services provided to individuals age 21–64. However, Medicaid payment is available to IMD facilities that serve this population under certain authorities:

  • Section 1115 demonstration waivers for serious mental illness (SMI) and serious emotional disturbance (SED). Guidance issued by the Centers for Medicare & Medicaid Services (CMS) in November 2018 allows states to pay for short-term psychiatric care for adults in IMD settings. In addition, states may also seek Medicaid payment for services provided to individuals 21 years of age or younger in settings that do not meet CMS requirements to qualify for the inpatient psychiatric services for individuals under age 21 benefit (commonly referred to as the psych under 21 benefit). In order to receive demonstration approval, states must meet several criteria, including providing access to a continuum of mental health services, use of a utilization review entity, and certain provider requirements.
  • Section 1115 SUD demonstration waivers. CMS guidance issued in November 2017 outlines the parameters for states to obtain a Section 1115 waiver to pay for short-term residential SUD treatment in IMDs. This criteria is meant to encourage development of a comprehensive approach to treating SUDs. Among other things, criteria address coverage of certain outpatient and residential services, provider requirements, and evaluation and reporting milestones.
  • The state plan. The SUPPORT for Patients and Communities Act of 2018 (P.L. 115-271) created a new state plan option to allow states to pay for care for Medicaid beneficiaries age 21–64 with at least one SUD in certain IMDs. States may use this option from October 1, 2019 to September 30, 2023. In order for a state to receive state plan approval, several requirements must be meant including coverage of outpatient, residential, and inpatient services, as well as maintenance of effort requirements.
  • In-lieu of payments. Current Medicaid regulations indicate when managed care organizations (MCOs) can pay for treatment in IMDs as an in-lieu of service. An in-lieu of service is a service that is not included under the state plan, but is a clinically appropriate, cost-effective substitution for a similar, covered service. Medicaid payment for IMD services under this authority is limited to 15 days per month. The SUPPORT for Patients and Communities Act of 2018 recently codified this provision (or any successor regulation) into statute.
  • Disproportionate share hospital (DSH) payments. State Medicaid programs are statutorily required to make DSH payments to hospitals that serve a high proportion of Medicaid beneficiaries and other low income patients. States can make DSH payments for uncompensated care costs at IMDs as long as such payments do not exceed the lesser amount of the amount of DSH funds that the state paid IMDs in fiscal year (FY) 1995 or 33 percent of the state’s FY 1995 DSH allotment for all hospitals. In state plan rate year 2014, states made $2.4 billion in DSH payments to IMDs. Maine made DSH payments exclusively to IMDs and four states (Alaska, Connecticut, Maryland, and North Dakota) spent more than half of their DSH allotments on DSH payments to IMDs.

Many states are using multiple authorities to pay for services in these settings.