New York state hopes to strengthen and remake state-managed behavioral health care by getting around the so-called IMD exclusion.
It’s doing so by securing federal Medicaid funds typically forbidden from covering facility-based behavioral health through its latest 1115 waiver amendment.
On Jan. 5, the Centers for Medicare & Medicaid Services (CMS) announced New York applied for a waiver to Medicaid’s now-antiquated institution for mental disease (IMD) exclusion. New York has asked for federal matching funds for Medicaid to be allowed to cover IMD services to address serious mental illness (SMI), substance use disorder (SUD) and serious emotional disturbance (SED) for adults and children.
New York specifically is seeking matching funds to reimburse short-term inpatient, residential and other services for SMI and SUD by IMDs. The state is also applying for matching funds to help transition patients in state psychiatric facilities back to the community up to 30 days before their discharge.
“The objective of the demonstration is to transform the role of some state psychiatric inpatient facilities and [SUD] residential treatment facilities, improve care transitions and access to community-based treatment and support services, and improve health and behavioral health outcomes in individuals with chronic and/or [SMIs] by transforming selected (pilot site) state-run psychiatric hospitals, facilities, and campuses from long-term care institutions to community-based enhanced service delivery systems,” the 1115 waiver amendment proposal states.
Since the beginning of Medicaid in 1965, the Social Security Act forbade federal funds for Medicaid from covering treatment provided by facilities where 16 or more beds are dedicated to treating behavioral health issues of people aged 21 to 64.
This move was intended to prevent states from offloading state psychiatric hospital costs on the federal government through the jointly funded and managed Medicaid program. It was also part of a political and regulatory retreat from treating behavioral health issues in large hospital-like settings, with champions of that movement including President John F. Kennedy.
The movement is sometimes referred to as deinstitutionalization.
However, some see the start of the deinstitutionalization movement as the start of the present psychiatric bed shortage, even within the federal government.
“There’s been an understanding in the past several years that this lack of federal funding contributes to high levels of unmet need,” Madeline Guth, senior policy analyst for Kaiser Family Foundation (KFF), told Behavioral Health Business. “The federal government has been providing some new mechanisms in the past few years for states to get an exception to this exclusion and get some federal financing for IMD services for non-elderly adults.”
The mechanisms, including the Medicaid 1115 waiver, allow states to secure some federal funding for certain IMD-related services.
Medicaid 1115 waivers, if approved by the federal government, allow states to experiment with different ways of implementing the Medicaid program.
There are three specific 1115 waiver benefit expansions that are related to behavioral health.
KFF, which tracks these waivers, found that 34 states have received approvals for an IMD exclusion payment exemption for SUDs. Additionally, 10 states have an exemption for mental health treatment, with 23 states having other exemptions for community-based health and behavioral health.
Recent presidential administrations have enabled ways around the IMD exclusion through the 1115 waiver.
In July 2015, the Obama administration allowed for 1115 waivers to “develop a full continuum of care for individuals with SUD, including coverage for short-term residential treatment services not otherwise covered by Medicaid,” which included the IMD exclusion.
The Trump administration announced in November 2019 that it approved the first-ever 1115 waiver related to IMD exclusion for SMIs and SEDs for adults and children.
Addressing the IMD exclusion did come up during the legislative work in 2022 that culminated in a sweeping behavioral health bill included in the omnibus funding bill passed just before Christmas. However, it was not included in the final bill that was signed into law on Dec. 29.
While New York’s latest 1115 waiver application is not unprecedented, it does reflect a two-for-one application for two IMD exclusion exemptions — including both SMI and SUD funding.
Further, the New York waiver and the other waivers tracked by KFF show that states of all political leanings seek to address mental health via innovations to Medicaid.
Medicaid is the single largest payer of mental health services in the U.S.
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