CMS gives states permission to waive Medicaid's IMD exclusion, expanding mental health treatment

The Centers for Medicare and Medicaid Services (CMS) is allowing states to cover a broader range of mental health services under Medicaid by waiving one of its most controversial provisions.

The agency will now consider Medicaid demonstration waivers covering short-term stays for acute care provided in psychiatric hospitals or residential treatment centers. In return, the state must expand access to community-based mental health services. 

These proposals would waive the so-called institutions for mental diseases (IMD) exclusion, a section of the Medicaid law (within the Social Security Act) that prohibits the use of federal Medicaid funding for most inpatient psychiatric services. 

Department of Health and Human Services (HHS) Secretary Alex Azar announced the new IMD waiver policy in a speech to the National Association of Medicaid Directors on Tuesday, where he encouraged “everyone involved in state Medicaid programs” to consider submitting a §1115 waiver. 

"It is the responsibility of state and federal governments together, alongside communities and families, to right this wrong," Azar said. "More treatment options are needed, and that includes more inpatient and residential options that can help stabilize Americans with serious mental illness."

CMS also issued a letter to state Medicaid directors (PDF) that explained how states can apply for, implement and report their progress with new demonstration programs.

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The change supports a long-held policy by the American Psychiatric Association that states should be able to request an exemption from the IMD exclusion. The National Alliance on Mental Illness believes Congress should amend the law so Medicaid can pay for short-term stays in psychiatric facilities.

CMS released guidance allowing states to work around the IMD exclusion during both the Obama administration (PDF) and the Trump administration (PDF). However, these policies only expanded substance use disorder treatment as part of combatting the opioid crisis.

While inpatient treatment is just one possible solution for patients struggling with mental health services, restricting access to it is unnecessary, Azar said on Tuesday.

Life expectancy for people with serious mental illnesses is ten years shorter than average, “a tragic outcome for illnesses that we know how to treat,” he said.

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And the fact that ten times more Americans with serious mental illnesses are in jail or prison than inpatient psychiatric treatment is “a disturbing, systemic failure,” he added.

A CMS press release also pointed out the broader, long-term effects of limited mental health treatment: Individuals with mental health conditions are less likely to finish school and pursue a higher education, which can make it difficult for them to find employment.

“We can support both inpatient and outpatient investments at the same time,” Azar said. “Both tools are necessary and both are too hard to access today.”