Advocates Hope Managed Care Rule Spurs Hill Action on Mental Health

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By Nathaniel Weixel

May 2 — Mental health advocates hope that a provision included in recent Medicaid managed care regulations will jump-start discussions in Congress about fixing a decades-old policy that limits Medicaid reimbursement for certain inpatient mental health care.

Deep within its final rule for Medicaid managed care plans, the CMS said it would allow Medicaid reimbursement for so-called institutions of mental disease (IMD). According to the rule, if certain conditions are met—such as a stay lasting no longer than 15 days—the facility can treat patients for psychiatric or substance abuse disorder and the state Medicaid program will reimburse it.

Federal Medicaid law excludes payments for adult beneficiaries ages 21-64 who are residents of an IMD, so allowing managed care plans to cover those services could be a potential game changer, stakeholders said. An IMD is defined in the law as a hospital nursing facility or other institution greater than 16 beds that is engaged in providing diagnosis, treatment or care of people with mental diseases. The exclusion for paying for a stay in an IMD, which dates to Medicaid’s enactment, has been called outdated and generally harmful.

The long-awaited final rule would completely overhaul the Medicaid managed care industry. The final rule was released April 25 and aims to align Medicaid and Children's Health Insurance Program (CHIP) managed care plans with other sources of health insurance coverage (80 HCDR, 4/26/16).

Current Bills

Lawmakers in both the House and Senate are working on legislation to overhaul the country's mental health treatment system, and advocates have been pressing them to include a repeal of the IMD exclusion.

“This is a really important development. It's the first time the federal government has put in a regulation an interpretation of the IMD exclusion that allows for payments to psychiatric hospitals,” Mark Covall, president and CEO of the National Association of Psychiatric Health Systems (NAPHS), told Bloomberg BNA. “The rule shows the administration knows we have a crisis on our hands with respect to inpatient psych care. So now it’s really about crafting something, a targeted exception, so we can give people in Medicaid access to psychiatric care.”

According to Covall, the ban on IMD coverage was limiting access to care, so Medicaid beneficiaries weren't getting the same level of treatment as people in the commercial sector. The final rule will allow the almost two-thirds of the 72 million Medicaid beneficiaries enrolled in managed care plans access to the care they need, Covall said. According to the CMS, about 7 percent of adults in the 21-64 age category meet the criteria for serious mental illness requiring at least some inpatient treatment, and 13.8 percent experience serious substance abuse disorders.

“The rule affects more than half of Medicaid beneficiaries,” Covall said. “This rule provides an opportunity for Congress to finish the job.”

A former Senate Republican staffer told Bloomberg BNA May 2 that the final rule creates a structural disadvantage between fee-for-service Medicaid and managed care, which could make an argument for lawmakers to take up the IMD exclusion issue. However, the window for action is closing fast, he said.

Cost Concerns

Senators are still negotiating the future of a broad bipartisan mental health reform bill. The Mental Health Reform Act (S. 2680) was approved in March by the Senate Health, Education, Labor and Pensions Committee, but more work needs to be done before the Senate can have a vote. A repeal of the IMD exclusion wasn't included, but senators will seek to include such an amendment once the bill gets taken up on the floor.

A House mental health reform bill (H.R. 2646) does include an IMD repeal provision, but the Congressional Budget Office said the change would cost between $40 billion and $80 billion over 10 years. The bill's sponsor, Rep. Tim Murphy Murphy (R-Pa.), and mental health advocates say that number isn't realistic and are working with the CBO to bring the cost down.

According to the former staffer, the CMS could argue that its change was cost neutral. There are a significant number of additional providers available for managed care plans to utilize, but they won't be paid any differently than they would have under their already capitated payment. There will be a cost for Congress to change the policy for fee-for-service, and they need to find a pay-for, he said.

Future Action

The House bill is awaiting a markup in the Energy and Commerce Committee.

The committee's chairman, Rep. Fred Upton (R-Mich.), praised the CMS final rule.

“This commonsense change will have an important impact on families focused on getting their loved ones the care they need, and that’s good news,” Upton said. “We still have work to do to bring this Great Society program into the 21st century, but this modernization of policy represents a real win when it comes to providing care for the mentally ill.”

Daniel Raymond, policy director for the Harm Reduction Coalition, told Bloomberg BNA the price tag of repeal has given lawmakers some pause. However, because the rule makes short-term stays in inpatient psychiatric hospitals available for the managed care population, it could “force the issue” with Congress.

Covall agreed that finding a pay-for would be difficult, but because half the Medicaid population is already covered under the rule, it would be significantly less than any previous estimates—especially if the law limits the inpatient stays to 15 days, like the final rule.

Passing a mental health reform bill that doesn't address the IMD exclusion will be challenging, the former staffer said. Congress will also be pressured to act by over-burdened psychiatric hospitals. Allowing Medicaid coverage of inpatient psychiatric services would take pressure off them. In addition, the handful of weeks left in the congressional session are all about the lawmakers who want to put points on the board during the re-election season, and mental health would look good, he said.

To contact the reporter on this story: Nathaniel Weixel in Washington at

To contact the editor responsible for this story: Brian Broderick at

Request Health Care on Bloomberg Law