‘It’s Penny Wise and Pound Foolish’: SUD Treatment Stakeholders Slam Medicare’s Coverage Gaps

When it comes to substance use disorder (SUD) treatment, Medicare has major gaps in coverage.

Specifically, Medicare, which is the largest payer in the country, does not cover residential or intensive outpatient SUD services.

This could be changing, as the Biden administration continues to prioritize SUD treatment and behavioral health parity – and as public support for more SUD treatment grows. Additionally, new research has demonstrated that adding more SUD services for Medicare beneficiaries could make sense financially.


While Medicare does cover inpatient services, advocates have noted there is a lack of step-down care options for beneficiaries.

“I would bet you dollars to doughnuts that would actually save the government money, if they permitted treatment at a lower level of care,” Landmark Recovery CEO Matt Boyle told Behavioral Health Business. “Because it’s more cost effective.”

Landmark Recovery was founded in 2016. It offers a number of SUD programs.


The organization offers medical detox, inpatient and outpatient rehab, partial hospitalization, medication assisted treatment and therapy programs. The company is currently executing an expansion plan and intends to have 40 facilities by the end of 2023.

Landmark Recovery CEO Matthew Boyle talks expansion efforts. Interior of a Landmark Recovery facility in Louisville, Kentucky (Photo courtesy of Landmark Recovery)

This history of Medicare’s SUD coverage

In 1996, the Mental Health Parity Act excluded SUD reimbursement and treatment. That changed in 2008, with a new parity act, which required commercial insurance and Medicaid – but not Medicare – to cover SUD treatment.

“Fee-for-service Medicare has never been under [a] parity plan similar to commercial, Medicaid managed care or Medicare Advantage plans,” Jena Grady, a health care-focused attorney at Nixon Peabody LLP, told BHB. “So basically Medicare gets to set its own rules.”

Support of SUD coverage is changing both on the federal level and in public opinion.

In fact, 75% of Americans support spending $10 billion to fund SUD treatment for all that would like care but cannot access it, according to new research from the Program for Public Consultation.

“Now people are saying, ‘Okay, well, we’re increasing enforcement of parity for commercial brands. Let’s start focusing on Medicare,’” Grady said. “Why is there such a reduction in access to services that are usually … in the middle of screening versus you’re being hospitalized? And why aren’t we covering Medicare for these residential and intensive outpatient services.”

Cost may be a nonfactor

The net cost associated with broadening coverage may be marginal.

New research shows the cost of expanding Medicare SUD coverage to include more services such as residential and intensive outpatient programs would almost offset additional medical expenses related to SUD.

Expanding the scope of Medicare SUD coverage would cost roughly $1.9 billion each year, according to the Legal Action Center (LAC). Yet Medicare would save about $1.6 billion a year due to the decrease in medical costs and hospitalizations associated with SUD.

“The lack of Medicare coverage for SUD treatment is penny wise and pound foolish,” Ellen Weber, LAC’s senior vice president for health initiatives, said in a statement. “It leaves millions of beneficiaries without adequate treatment of their substance use disorder until their conditions become acute enough to require hospitalization. Medicaid and the VA both cover comprehensive SUD treatment. Why are our nation’s older adults denied the opportunity to receive [life-saving health care]?”

If the services were expanded, the net impact on Medicare spending would be $362 million per year, which accounts for roughly 0.04% of the Medicare budget.

“I would bet you dollars to doughnuts that would actually save the government money, if they permitted treatment at a lower level of care.”

– Landmark Recovery CEO Matt Boyle

The need for services

About 1.7 million Medicare beneficiaries have an SUD, according to LAC research. Only 11% of beneficiaries with a SUD receive treatment.

About 1 million adults over the age of 65 are living with a SUD, according to the American Addiction Centers. But Medicare isn’t just for the senior population. In fact, 14% of Medicare beneficiaries are under age 65.

“Most people don’t realize this, but between 10% and 15% of Medicare beneficiaries are not seniors,” Boyle said. “So that’s people on disability. People on disability are highly, highly likely to be abusing substances in some way, shape or form.”

While Medicare beneficiaries do have access to inpatient psychiatric services, this might not be the best place for them to receive care.

“A psych hospital is a generalist facility for really, really sick people who are actively suicidal or who have uncontrollable schizophrenia. …. That’s what the license exists for, and that’s kind of how they’re staffed,” Boyle said. “And the vast majority of people with substance use disorder don’t really need to be in a setting that’s that restrictive.”

Medicare beneficiaries can access outpatient treatment; however, it needs to be provided in a “primary care setting, hospital outpatient program, Medicare-enrolled treatment program, or a community mental health center,” according to Medicare Resources.

Legislation could support more SUD services

The push for parity in the Medicare market has been widely anticipated across the industry for some time.

“When Biden first came into office, he had his statement of drug policy priorities for the first year. I think a lot of stakeholders were shocked that parity for substance use disorder treatment was not included in that,” Grady said. “Then we had the proposed fiscal year budget plan for HHS in 2022 that has no metrics of parity for substance use disorder treatment. Then all of a sudden, the 2023 budget proposal specifically [says] one of the focuses for the Biden-Harris administration is a … push for the Mental Health Parity and Addiction Act of 2008 to apply to Medicare.”

In the president’s 2023 fiscal budget, the Department of Health and Human Services (HHS) has proposed $3.5 billion to improve Medicare’s mental health coverage. If passed, this would eliminate the 190-day lifetime limit on psychiatric hospital services and apply the Mental Health Parity and Addiction Equity Act to Medicare.

“Medicare is allowed to not cover residential treatment. … If you’re Blue Cross Blue Shield, you couldn’t not cover residential treatment,” Boyle said. “It’s the law, since the Affordable Care Act and the Mental Health Parity Act. And so yeah, I don’t think I’m looking for anything that’s that radical.”

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