Nearly Every State Bypassing IMD Exclusion in Some Way

The IMD exclusion is as old is the Medicaid program itself — and so are the complaints against it. Oftentimes, those complaints come from the behavioral health providers affected by the rule.

But, nationwide, loopholes in the federal exclusion are helping providers get paid to provide services they otherwise wouldn’t be reimbursed for. 

In fact, nearly every state has found a way to at least partially get around the IMD exclusion, which generally prohibits Medicaid from paying for beneficiaries with mental or substance use disorders (SUD) to be treated in “institutions for mental diseases” (IMD).


That’s according to a report released this week by the Medicaid and CHIP Payment and Access Commission (MACPAC), a non-partisan agency that advises Congress and other government bodies on issues related to Medicaid and the Children’s Health Insurance Program (CHIP).

“Despite the exclusion, we found most states are using multiple legal authorities to pay for residential and inpatient behavioral health treatment with Medicaid funds,” MACPAC chair Melanie Bella said in a statement.

Researchers found that the vast majority of states use exemptions to legally bypass the IMD exclusion in one way or another. Those include Section 1115 demonstration waivers, managed care arrangements, state plan options and age exclusions, according to MACPAC.  


Additionally, the study suggests IMD regulations are highly fragmented and vary by state.

“Findings from this report will be especially valuable as we grapple with how best to direct vital mental health and SUD treatment resources to people in need,” Bella said. 

However, MACPAC does not go so far as to recommend specific next steps regarding the IMD exclusion.

The study comes in response to the 2018 Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment (SUPPORT) for Patients and Communities Act. It mandated MACPAC study IMDs and the services such facilities offer.

The goal of the IMD exclusion to ensure that states — rather than the federal government — are responsible for funding inpatient psychiatric care, according to MACPAC.

The rule dates back to 1965 and applies to Medicaid beneficiaries between 21 and 64.

The federal government defines an IMD 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, including medical attention, nursing care and related services.” However, determining what constitutes an IMD can be difficult.

Behavioral health providers have long taken issue with the IMD exclusion. They argue it hinders Medicaid beneficiaries’ ability to access necessary services, as an IMD could be the appropriate care setting for certain people.

MACPAC’s report puts some — but far from all — of those fears to rest.

The study suggests there’s often a way for Medicaid beneficiaries to receive treatment in IMDs, despite the exclusion. But that’s not true in every state or for every beneficiary.

For example, Medicaid beneficiaries younger than 21 and older than 64 aren’t affected by the rule and can be treated in IMDs. On top of that, states can apply for Section 1115 waivers to effectively nullify the rule for Medicaid beneficiaries of all ages in a given state.  

However, only about 30 states have waivers allowing IMDs to treat Medicaid beneficiaries with SUD, and less than five have obtained waivers for mental health treatment. 

Managed care arrangements and state plan options also allow states to circumvent the rule.

However, beneficiaries nationwide are still liable to fall through the cracks with the IMD exclusion in place.