The Institutions for Mental Diseases (IMD) exclusion has been a part of Medicaid’s rules since the program’s inception in 1965. It is a regulation that limits Medicaid from paying for the care of individuals with mental health or substance use disorders (SUD) in certain institutional settings. In particular, it prohibits Medicaid reimbursement for treatment provided in residential facilities with more than 16 beds that are primarily focused on diagnosing, treating, and caring for individuals with mental diseases. Despite being one of the cornerstones of Medicaid policy, the IMD exclusion has long been a source of contention, particularly for behavioral health providers who argue that it restricts access to necessary care for Medicaid beneficiaries.
Despite the longstanding challenges posed by the IMD exclusion, a recent report from the Medicaid and CHIP Payment and Access Commission (MACPAC) reveals that states have found ways to bypass the restrictions. While the IMD exclusion remains largely intact, most states have successfully implemented various strategies to ensure that Medicaid beneficiaries can still receive residential and inpatient behavioral health treatment. As the nation grapples with increasing rates of mental health and substance use disorders, these workarounds have become essential in ensuring that vulnerable populations are not left without care.
What is the IMD Exclusion?
The IMD exclusion is a regulation that prohibits Medicaid from reimbursing facilities for inpatient psychiatric care for individuals aged 21 to 64 who are receiving treatment in facilities that are classified as IMDs. According to the federal definition, an IMD is any facility with more than 16 beds that provides diagnosis, treatment, or care for individuals with mental diseases, including nursing care and medical services. The intent behind the IMD exclusion was to encourage states to invest in community-based mental health services, rather than institutionalizing patients in large, long-term care facilities.
However, the practical impact of this exclusion has been far-reaching and, for many, detrimental. Providers argue that the IMD exclusion limits access to inpatient psychiatric care when such care is appropriate, pushing individuals into less effective settings or preventing them from receiving the care they need at all. Critics also point out that many large treatment centers, especially those that offer addiction recovery services, provide necessary care in large institutions, and these facilities are unfairly penalized due to the exclusion.
A Historic Barrier to Access
Over the years, the IMD exclusion has faced significant pushback from both behavioral health providers and advocacy groups. These stakeholders argue that the exclusion prevents people with severe behavioral health and addiction issues from accessing the care they need, especially in cases where residential care in an institution would be the most appropriate setting. In addition, the exclusion has been criticized for disproportionately affecting people with serious mental illness (SMI) and opioid use disorder (OUD), as these conditions often require extended inpatient or residential care.
The exclusion has contributed to a broader challenge in the mental health and addiction treatment system: the lack of sufficient community-based care options to meet the needs of all patients. With community resources often limited, individuals with complex mental health or addiction issues are forced to seek care in settings that do not provide the same level of care or support. This has led to a reliance on emergency rooms, prisons, or homelessness — all outcomes that contribute to further trauma and exacerbation of mental health issues.
States Find Loopholes to Get Around the IMD Exclusion
Despite the longstanding IMD exclusion, the MACPAC report reveals that most states have found ways to circumvent the rule using various legal authorities. The report, which looks at how states have navigated the IMD exclusion, reveals that nearly every state has implemented some workaround to ensure that Medicaid beneficiaries receive access to inpatient psychiatric and substance use treatment, though the methods vary widely by state.
The most commonly used method for bypassing the IMD exclusion is through Section 1115 demonstration waivers. These waivers allow states to receive federal approval to deviate from certain Medicaid rules in exchange for testing new or innovative approaches to care. According to the MACPAC report, roughly 30 states have secured Section 1115 waivers that enable them to provide Medicaid reimbursement for substance use treatment at IMDs. However, far fewer states (less than five) have secured these waivers for mental health treatment, leaving a significant gap in services for individuals with serious mental illness.
Another mechanism states use to circumvent the IMD exclusion is through managed care arrangements. In a managed care model, states contract with private insurance companies to provide Medicaid services to beneficiaries. These companies, in turn, have more flexibility in determining how and where services are delivered, often including reimbursement for services in larger institutions that would typically fall under the IMD exclusion. Similarly, state plan options also provide states with a way to bypass the rule, though these options are less widely utilized than Section 1115 waivers.
Variability and Fragmentation in the IMD Rule
One of the most striking findings from the MACPAC report is the variability in how the IMD exclusion is implemented and bypassed across states. While most states have found a way to legally provide Medicaid reimbursement for inpatient psychiatric and substance use disorder services, the specific methods they use and the populations they serve differ greatly. For instance, some states only provide reimbursement for individuals under the age of 21 or over the age of 64, who are exempt from the IMD exclusion. Other states have created exceptions for certain types of facilities or specific treatment programs.
This fragmentation in how the IMD exclusion is applied creates significant challenges for behavioral health providers, as the rules differ so widely between states. For providers who operate in multiple states, keeping track of the varying rules and regulations is a time-consuming and complex task. Moreover, this inconsistency leads to inequities in access to care, as some individuals in certain states may have more opportunities to receive treatment in a facility that would be classified as an IMD, while others may not.
The MACPAC Report and Its Implications
The MACPAC report sheds light on how states have navigated the IMD exclusion, but it stops short of offering concrete recommendations for how to address the fundamental issues with the rule. While the report acknowledges that there is a growing need for residential and inpatient behavioral health services, it does not propose any sweeping changes to the IMD exclusion itself. Instead, the report suggests that the findings could help guide policymakers in their efforts to improve mental health and substance use disorder treatment systems.
One of the main takeaways from the report is that there is no one-size-fits-all solution when it comes to addressing the IMD exclusion. Each state has unique needs and challenges when it comes to mental health and addiction treatment, and the current patchwork of regulations reflects these differences. However, the report also underscores the importance of finding ways to ensure that Medicaid beneficiaries are able to access the care they need, especially as the opioid crisis continues to strain the mental health and addiction treatment systems across the country.
The Future of the IMD Exclusion
As states continue to experiment with different ways of bypassing the IMD exclusion, the conversation around this regulation will undoubtedly continue to evolve. Behavioral health providers and advocacy groups are likely to keep pushing for a more comprehensive solution that ensures all Medicaid beneficiaries have access to necessary care, regardless of where they live or the severity of their condition.
For now, the IMD exclusion remains a significant barrier to accessing high-quality behavioral health care for many individuals in need. While states have found ways to work around the rule, it is clear that the exclusion’s impact on access to care is still a major issue for both providers and patients alike. As the nation continues to grapple with the mental health and addiction crises, addressing the IMD exclusion will remain a critical component of efforts to improve the overall behavioral health system.
