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Why Medicaid Does Not Pay for Mental Health Services

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at January 28, 2016

The American Health Lawyers Association’s Behavioral Health Task Force (Gerald “Jud” DeLoss, Chair) has reported that, on January 20, the Senate Health, Education, Labor, and Pensions (HELP) Committee held a hearing on making changes to—and potentially eliminating—the federal law that prohibits Medicaid funds from flowing to “institutes of mental diseases” (IMDs). These facilities, categorized as having 17 or more beds and serving individuals with a primary diagnosis of mental illness, have been prohibited from receiving federal dollars since the creation of the Medicaid program.

During the enactment of the Medicaid program, which will celebrate its 50th anniversary this summer, policymakers were concerned about supplanting existing state resources for treating mental illness—primarily large, state-run psychiatric hospitals. Today, the landscape of behavioral health looks different. Still, the IMD exclusion has left a gaping hole for Medicaid recipients between the ages of 21 and 64 to receive needed acute psychiatric care.

Section 2707 of the Affordable Care Act included a $75 million, three-year demonstration program to pay for psychiatric services in facilities that would otherwise be designated IMDs. Known as the Medicaid Emergency Psychiatric Demonstration, participants included 11 states and the District of Columbia. More than 20 IMDs participated in the demonstration. The program spanned from July 2012 to early 2015. Due to limited funds, the program ended early.

Despite the shortage of funds, mental health advocates and lawmakers at the January 20 Senate HELP Committee hearing concurred that the demonstration program had been a success.

In December 2015, President Barack Obama signed legislation extending the demonstration program through the fall of 2016. The legislative extension also requires the U.S. Department of Health and Human Services to provide a report to Congress and the President on whether the demonstration program should be continued and expanded.

The Mental Health Reform Act of 2015 and the Helping Families in Mental Health Crisis Act of 2015, which are both currently pending in Congress, eliminate the IMD exclusion for stays at psychiatric hospitals with an average length of stay of less than a month. This limitation would only become effective, however, if an actuary with the Centers for Medicare & Medicaid Services (CMS) certified that the change would not lead to a net increase in federal spending.

In June 2015, CMS proposed a rule that would permit Medicaid managed-care plans to pay IMDs for stays of 15 days or less in a month. Currently, some states allow managed care organizations or prepaid inpatient health plans to avoid the exclusion by using the IMD as a substitute provider for covered services. The proposed change is part of a more sweeping set of Medicaid managed care regulatory changes. No timeframe has been set on when these rules will be finalized.

In 2013, the National Association of Medicaid Directors sent the Senate HELP Committee a letter calling for the repeal of the IMD exclusion. Mental health advocates also have been seeking the repeal for many years. According to Senate Committee members, bipartisan support exists for limiting the IMD exclusion, particularly for short-term psychiatric stays.

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