‘Juice Might Not be Worth the Squeeze’ for Mental Health IMD Medicaid Waivers

For years, federal rules have prevented Medicaid from paying for patients to stay in inpatient psychiatric treatment facilities with more than 16 beds, which are known as institutions for mental diseases (IMDs). The rule is known as the IMD exclusion.

But in recent years, that’s started to change. Now, states can work around the IMD exclusion by submitting Section 1115 Medicaid waivers. If approved, those waivers allow state Medicaid to pay for certain patients to stay in IMDs.

Previously, these waivers only applied to substance use disorder treatment, but last year, the Centers for Medicare & Medicaid Services (CMS) announced that states could submit waivers for IMD treatment of beneficiaries with serious mental illness (SMI) and serious emotional disturbance (SED).


The move has stirred excitement for some within the behavioral health industry, as it could open up new reimbursement opportunities for some providers and present new treatment options for some Medicaid beneficiaries. However, others question whether the waiver will be worth the work it requires.

“We’re hearing from our mental health directors that the juice may not be worth the squeeze [for the new SMI/SED waiver],” Stuart Gordon, director of policy and communications for the National Association of State Mental Health Program Directors (NASMHPD), said.

Gordon made those comments last week at the Payer’s Behavioral Health Management and Policy Summit in Washington, D.C., where he sat on a panel about 1115 waivers.


The event was hosted by World Congress, a global health care conference provider, and the Association for Behavioral Health and Wellness (ABHW), a national group for payers managing behavioral health insurance benefits.

Meanwhile, Gordon’s organization, NASMHPD, represents state executives who are in charge of public mental health service delivery systems nationwide.

Those executives worry that the requirements that come with the 1115 waivers for mental health could be too much work for their payoff, Gordon told conference attendees.

For example, states whose waivers are approved will be expected to achieve a statewide average length of stay of 30 days for SMI/SED beneficiaries, according to a 2018 letter from CMS outlining the opportunity. On top of that, participating states must commit to “a number of steps to improve their community-based mental health care,” among other requirements, according to a press release from CMS.

“The substance use waiver letter, written three years ago, is a little bit less precise about what the states have to do than the mental illness 1115 waiver letter [is],” Gordon said. “The states are looking at all those requirements as expressed in the letter, and they’re a little less enthusiastic [about the mental health waiver].”

So far, only Washington D.C.’s IMD waiver for SMI/SED beneficiaries has been approved.

Apart from more detailed requirements, the push toward community-based care is also making IMD opportunities for mental health treatment less attractive to some states.

Such is the case in North Carolina, according to Kody Kinsley, deputy secretary for behavioral health and intellectual and developmental disabilities at the North Carolina Department of Health and Human Services. Kinsley was a panelist alongside Gordon at the conference.

“What we’re worried about in North Carolina is that if we’re doubling down and increasing the number of days that we can pay for an inpatient stay, we’re pushing in the wrong direction,” Kinsley told conference attendees. “What we really need is more community-based restoration, more community-based upstream prevention, etc., etc., etc.”

On top of that, North Carolina is not a Medicaid expansion state, making it home to one of the largest uninsured populations in the country. That issue is more pressing than the IMD exclusion, Kinsley said.

“I have a million people without insurance in North Carolina, so my problem is that I needed one million people with insurance,” Kinsley said. “Medicaid paying more for the people who have Medicaid won’t change that game. If we got a few more days for the people that need it, that would be good, but I’m not sure that’s going to swing it where we need to swing it.”

Finally, Gordon pointed to the reduction in the number of state psychiatric hospitals nationwide as another reason why the 1115 mental health waiver might not be worthwhile for states. A large number have closed, and many of those remaining are used to house patients with criminal charges who have been referred by a judge, he said.

“The opportunity to put people in IMDs is less attractive than it should have been,” Gordon said. “There has been a focus in our industry on making sure folks are receiving the crisis services they need and a diversion from inpatient for a while now. That’s where the states are more interested in seeing enhanced Medicaid reimbursement.”

Companies featured in this article:

, ,