IMD Waivers Expand Both Inpatient and Outpatient Substance Use Disorder Treatment Access for Medicaid Beneficiaries
States that have secured waivers allowing them to bypass the longstanding Institutions for Mental Diseases exclusion provide substantially broader substance use disorder treatment access to Medicaid beneficiaries compared to states operating under the restrictive federal rule, with new research published in Health Affairs demonstrating that waivered states experienced significant increases in both residential and outpatient treatment capacity accepting Medicaid coverage. The study found that two years after obtaining IMD waivers, states saw a 34% increase in residential SUD treatment facilities accepting Medicaid alongside a 9% expansion in intensive outpatient program facilities serving Medicaid beneficiaries, while also experiencing modest increases in medication-assisted treatment availability at outpatient facilities. These findings validate what behavioral health advocates have argued for years: the IMD exclusion creates artificial barriers preventing Medicaid beneficiaries from accessing clinically appropriate treatment settings, with waivers providing partial relief from restrictions that many stakeholders characterize as outdated policy hindering effective addiction treatment delivery.
The Institutions for Mental Diseases exclusion, a rule dating to Medicaid’s 1965 inception, effectively prohibits federal Medicaid funding from paying for treatment provided to beneficiaries aged 21 to 64 in behavioral health facilities with more than 16 beds. This arbitrary bed count threshold creates perverse incentives where facilities must remain small to accept Medicaid payment or grow larger while excluding Medicaid patients, fragmenting treatment systems and limiting capacity serving low-income populations disproportionately affected by substance use disorders. The policy’s original intent involved preventing states from shifting costs for psychiatric institutionalization from state budgets to the federal Medicaid program, but decades later the exclusion persists despite fundamental transformations in behavioral health treatment philosophies, delivery models, and evidence bases that render the restriction counterproductive to contemporary policy objectives around expanding addiction treatment access.
Waiver Program Enables State-Level IMD Exclusion Relief
The federal government created a waiver pathway in 2015 allowing states to receive approval for Medicaid coverage of residential substance use disorder treatment in facilities exceeding the 16-bed threshold, providing relief from IMD exclusion restrictions while maintaining federal oversight through waiver conditions requiring states to demonstrate comprehensive SUD treatment system development, evidence-based practice implementation, and quality measurement. These Section 1115 demonstration waivers enable states to expand treatment capacity for Medicaid beneficiaries while testing approaches to addiction treatment delivery that the federal government can evaluate for potential broader policy application.
Thirty-one states have obtained SUD Medicaid waivers as of the study’s publication, representing substantial geographic coverage though leaving significant populations in non-waivered states without access to residential treatment through Medicaid coverage. The waiver application and approval process requires states to develop comprehensive proposals addressing treatment continuum development, provider network adequacy, quality standards, outcome measurement, and sustainability planning, creating administrative burden that may deter some states from pursuing waivers despite potential benefits for their Medicaid populations.
Virginia’s experience illustrates the dramatic impact that IMD waivers can generate, with the state experiencing a 104% increase in Medicaid beneficiaries receiving SUD treatment following waiver implementation according to Centers for Medicare and Medicaid Services data. This enrollment doubling suggests that the IMD exclusion had previously prevented substantial numbers of individuals from accessing needed treatment, with waiver authorization removing barriers that kept beneficiaries from engaging with residential programs offering intensive services appropriate for severe addiction.
Research Methodology and Findings
Researchers analyzed data from the National Survey of Substance Abuse Treatment Services examining treatment facilities in nine states that received IMD waivers between 2015 and 2018, comparing facility characteristics and service availability before and after waiver implementation while controlling for trends in non-waivered states. This analytical approach enables attribution of observed changes to waiver policies rather than broader industry trends affecting all states regardless of waiver status.
The 34% increase in residential SUD treatment facilities accepting Medicaid two years post-waiver represents substantial capacity expansion, suggesting that facilities either newly enrolled in Medicaid networks knowing that coverage would now reimburse residential services or that new residential facilities opened specifically to serve Medicaid populations once payment became available. This residential capacity growth directly addresses the treatment gap that the IMD exclusion created, enabling Medicaid beneficiaries to access intensive residential programming when their clinical needs warrant that level of care rather than being forced into less intensive outpatient settings inadequate for severe addiction or more expensive acute medical settings like emergency departments and hospitals.
The 9% increase in intensive outpatient program facilities accepting Medicaid demonstrates that IMD waivers generate spillover effects beyond residential treatment, with outpatient capacity also expanding in waivered states. This finding suggests several possible mechanisms: residential facilities may develop affiliated IOP programs providing step-down care for patients transitioning from residential treatment, the broader SUD system investments and planning required for waiver approval may catalyze outpatient capacity development alongside residential expansion, or Medicaid managed care organizations may improve SUD network development overall once waivers enable comprehensive continuum construction.
Modest increases in medication-assisted treatment availability at outpatient facilities indicate that waivers may facilitate evidence-based practice adoption, though the relatively small effect size suggests that other barriers beyond IMD exclusion continue limiting MAT expansion including prescriber shortage, regulatory restrictions, stigma, and inadequate reimbursement.
Study Implications for Treatment Access and Policy
The research authors concluded that IMD waivers may represent important tools for advancing access to comprehensive SUD treatment continuums for Medicaid enrollees, with study findings supporting waiver program expansion while providing evidence that could inform broader IMD exclusion reform. The qualified language suggesting waivers “may be” important tools rather than definitively characterizing them as effective reflects appropriate scientific caution, though the magnitude and consistency of observed effects across residential and outpatient settings provides compelling evidence supporting waiver benefits.
The findings align with longstanding behavioral health advocacy arguing that the IMD exclusion hinders Medicaid beneficiaries’ ability to access clinically necessary SUD services, creating artificial distinctions between facility types based on bed counts rather than clinical appropriateness, treatment quality, or patient needs. Advocates have consistently argued that the exclusion represents outdated policy reflecting mid-20th century concerns about psychiatric institutionalization that bear little relationship to contemporary addiction treatment delivered in time-limited residential programs emphasizing evidence-based practices, community reintegration, and recovery support rather than indefinite warehousing that the original policy sought to prevent.
The waiver approach provides proof of concept demonstrating that Medicaid coverage for residential SUD treatment does not generate the fiscal catastrophe or institutional overutilization that some policymakers feared, with states successfully implementing residential treatment coverage while managing costs and maintaining quality oversight. This real-world evidence strengthens the case for comprehensive IMD exclusion elimination rather than continuing the piecemeal waiver approach that leaves treatment access dependent on state policy choices and creates administrative burden through waiver application, approval, and ongoing compliance processes.
Advocacy for Complete IMD Exclusion Elimination
Many behavioral health stakeholders advocate for eliminating the IMD exclusion entirely rather than continuing to rely on waivers that require state initiative and federal approval creating inconsistent access across states and populations. Shawn Coughlin, president and CEO of the National Association for Behavioral Healthcare, previously characterized the Medicaid IMD exclusion as the government flat out saying they won’t cover any benefits for anybody within ages 21 to 65, describing this as a blatant parity violation that contradicts federal mental health parity legislation requiring equivalent coverage for behavioral and physical health conditions.
This parity argument proves particularly compelling given that Medicaid readily covers medical and surgical care in large hospitals and specialty facilities without arbitrary bed count restrictions, revealing the discriminatory nature of policies treating behavioral health facilities differently despite parity laws ostensibly requiring equivalent treatment. The cognitive dissonance between parity requirements and IMD exclusion persistence illustrates how historical policy artifacts can survive despite contradicting current policy frameworks, requiring explicit legislative action to resolve rather than gradual regulatory evolution.
Complete IMD exclusion elimination would provide uniform national treatment access rather than creating the state-by-state patchwork that waivers generate, ensuring that Medicaid beneficiaries’ ability to access residential addiction treatment does not depend on which state they reside in or whether their state government has prioritized waiver pursuit. National policy coherence proves particularly important for addiction treatment given that substance use disorders do not respect state boundaries, with individuals potentially needing treatment while traveling, residing temporarily in different states, or relocating for employment, education, or family reasons.
Congressional action would be required to eliminate the IMD exclusion as the restriction is embedded in Medicaid statute rather than regulatory policy that administrative agencies could modify independently. Legislative proposals to repeal the IMD exclusion have been introduced multiple times but have not advanced to enactment, facing concerns about federal cost implications, state implementation challenges, and competing policy priorities that crowd limited legislative bandwidth. However, the opioid crisis’s devastating toll, growing recognition of addiction as a treatable medical condition, and mounting evidence that the IMD exclusion impedes effective treatment delivery create increasingly favorable conditions for legislative reform that advocates continue pursuing.
Implementation Considerations and System Development
States pursuing or implementing IMD waivers must address multiple system development components beyond simply obtaining federal approval, including developing adequate residential treatment capacity, establishing quality standards and oversight mechanisms, implementing outcome measurement and reporting systems, coordinating across treatment levels and community services, training workforce, and ensuring financial sustainability once waiver periods conclude. These requirements reflect appropriate federal oversight ensuring that waivers generate comprehensive system improvements rather than merely expanding isolated residential capacity without corresponding attention to treatment quality, care coordination, or evidence-based practice implementation.
Waiver conditions typically require states to demonstrate that they are developing full treatment continuums spanning prevention, early intervention, outpatient services, intensive outpatient and partial hospitalization, residential treatment, medically managed withdrawal, medication-assisted treatment, recovery support, and care coordination rather than viewing residential treatment as isolated intervention. This continuum emphasis reflects clinical understanding that effective addiction treatment involves matching service intensity to individual needs over time, with patients often requiring different levels of care during various recovery stages as their clinical status, risk factors, and support needs evolve.
As more states obtain IMD waivers and accumulate implementation experience, best practices are emerging around network development, quality assurance, outcome tracking, and sustainability that can inform other states pursuing waivers while building the evidence base supporting broader policy reform. The Health Affairs study contributes to this growing literature documenting waiver impacts and providing empirical foundation for policy discussions about whether the IMD exclusion should be eliminated, modified, or maintained with expanded waiver availability.
The research findings demonstrating that IMD waivers expand both residential and outpatient SUD treatment capacity accepting Medicaid provide compelling evidence that removing IMD exclusion barriers enables treatment system development benefiting Medicaid beneficiaries while supporting advocate arguments that the longstanding restriction represents outdated policy impeding effective addiction treatment delivery during a national overdose crisis demanding all available tools for expanding evidence-based care access.
