The CMS on Wednesday approved Washington, D.C.'s request to essentially waive a longstanding federal rule that prohibited reimbursing behavioral healthcare and substance use disorder services performed in large residential psychiatric institutions and treatment centers.
D.C. becomes the first Medicaid program in the country to score approval for a demonstration that will use federal Medicaid money to pay for treatment of patients with severe mental illness in "Institutions for Mental Diseases", which Medicaid currently prohibits under its exclusion payment rule.
The IMD exclusion rule bars Medicaid from paying for treatment for adults under age 65 in psychiatric residential facilities with more than 16 beds.
"For too long, our system has failed to provide Americans with serious mental illness and their families the treatment and assistance that they need," HHS Secretary Alex Azar said in a statement. "President Trump has made it a priority for HHS to expand access to evidence-based treatment for serious mental illness and substance use disorders, and this waiver is a significant step in that broader agenda."
The CMS issued a letter to state Medicaid directors last November telling states it would allow them to submit proposals for demonstrations to cover an average of 30 days of care at IMDs.
The agency currently reimburses IMDs up to 15 days for patients enrolled in Medicaid managed-care plans. The new demonstration will apply to all Medicaid beneficiaries.
So far, Indiana and Vermont are the only two states that have applied for similar IMD mental health waivers and their requests are still pending.
The D.C. demonstration also allows for the use of Medicaid funds to pay for treatment services for patients with substance use disorders within residential treatment facilities. The CMS began making IMD waivers for substance use disorder available in 2015 and has since approved them in 26 states as the demand for treatment has surged in light of the opioid epidemic.
"Today's historic approval will substantially increase the range of services that are available to meet the needs of the District's Medicaid beneficiaries who are diagnosed with serious mental illness and substance use disorder," CMS Administrator Seema Verma said.
D.C.'s demonstration approval is likely to spur more states to look to apply for IMD mental health waivers. Experts say the funding could significantly reduce the financial burden many states experience as they provide mental health residential services in medical treatment facilities and through the prison system.
A number of behavioral health advocacy groups have called for a repeal of the IMD exclusion arguing it has contributed to the high share of unmet need for treatment of both mental health and substance use disorders.
An analysis released Wednesday by the Kaiser Family Foundation found that in 2017, 36% of non-elderly adults with substance use disorder who had any mental illness covered by Medicaid reported having an unmet need for mental health treatment, while 91% of reported having an unmet need for addiction treatment.