Medicaid Directors Call for End of IMD Exclusion, Oppose Federally Qualified BH Centers Formation

Medicaid Directors Call For The End Of IMD Exclusion & Protest Formation Of Federally Qualified Community Behavioral Health Centers

Open Minds  May 13, 2013


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On April 18, 2013, the National Association of Medicaid Directors (NAMD) sent a letter to the Senate Finance Committee and the Committee on Health, Education, Labor, and Pensions calling for the end of the Medicaid Institution of Mental Disease (IMD) reimbursement exclusion rule and protesting the establishment of federally qualified community behavioral health centers (FQCBHCs). The letter outlined the NAMD’s concerns about pending legislation and discusses how states are utilizing new mental health service delivery and financing options available through the Patient Protection and Affordable Care Act of 2010 (PPACA).


In the letter, the NAMD recommended that Congress end the Medicaid IMD exclusion, which prevents the reimbursement of inpatient psychiatric care provided to adults between the ages of 21 and 64 at a facility with 16 or more beds in which more than 51% of patients have a diagnosis of severe mental illness. The NAMD proposed that ending the IMD exclusion would give states greater capacity to provide mental health services on par with services for beneficiaries with physical health needs. The recommendation noted the following additional reasons why the exclusion, enacted in 1965, should be eliminated:

  • The IMD exclusion was enacted at a time when state and local psychiatric hospitals housed and funded care for most people with severe mental illness. Since 1965, the public mental health system has developed community-based service capacity and reduced reliance on institutional care.
  • The policy is out of step with Medicaid preference that beneficiaries have choice of provider organizations; Medicaid will not reimburse for inpatient psychiatric care for adult Medicaid beneficiaries with severe mental illness except under circumstances that limit choice and "likely compromise" quality.
  • The policy impedes advancement of the federal and state governments' policy priorities and preferred delivery system structures. The Medicaid Emergency Psychiatric Demonstration in which selected states are testing a service delivery and financing model that includes reimbursement for IMD care as part of a continuum of services with the goal of reducing inappropriate psychiatric boarding in emergency departments. Initial reports from the participating states indicate that the demonstration has reduced emergency department stays, decreased psychiatric readmissions, increased the overall quality of service delivery for persons served, and enhanced coordination of services with community mental health center provider organizations.


The  NAMD also stated its opposition to the creation of federally qualified community behavioral health centers (FQCBHCs) eligible for the same type of Medicaid reimbursement as federally qualified health centers (FQHCs). The creation of FQCBHCs-funded by a new prospective payment system (PPS) similar to the FQHC PPS-is the goal of the Excellence in Mental Health Act of 2013, which was introduced in the Senate as S.265 and in the House of Representatives as House Resolution (H.R.) 1263. The legislation would give community behavioral health centers a federal definition and those that meet the criteria of the definition would be eligible for Medicaid reimbursement via a new PPS mandate based on a fee-for-service (FFS) methodology. NAMD opposes the creation of FQCBHCs and new PPS mandates for the following reasons:

  • Payment methodologies-States are moving away from Medicaid FFS toward integrated service delivery and payment approaches. These new approaches include health homes, bundled payments, managed care, and accountable care organizations. Medicaid is still required to reimburse FQHCs on a per-visit basis based on cost. As a result, states are encountering barriers to incorporating FQHCs in care improvement initiatives because of the statutory Medicaid PPS. Establishing a PPS for FQCBHCs does not align with the Medicaid payment and delivery systems states are pursuing; implementing a new FQCBHC PPS would disrupt initiatives already underway.
  • Medicaid provider entitlements-Existing requirements to contract with specific provider organization types has been challenging for state Medicaid programs, especially when the payment methodology is mandatory. These requirements can restrict the ability of states and Medicaid managed care entities to selectively contract with higher quality provider organizations, undermine incentives for quality improvement and efficiency, and lead to higher federal and state costs. Creating a new requirement for a specific type of behavioral health provider organization could create upward cost pressures on all insurers and payers, potentially with little to no improvement in quality of care.
  • Interagency coordination-Two federal agencies oversee Medicaid and FQHCs. The FQHC patient mix is increasing enrolled in Medicaid. The requirements of the Centers for Medicare and Medicaid Services and the Health Research and Services Administration (HRSA), which oversees FQHCs differ. States have found it challenging to align service delivery and payment reforms.


The letter discusses areas where NAMD believes Medicaid is currently providing effective support for mental health services, program and operational considerations as Congress seeks to advance legislation, and initial recommendations for improving the availability, coordination, and efficacy of mental health services. Medicaid is the single largest payer of behavioral health services, and state Medicaid directors have experience with care improvement efforts. Other key points in the letter included the following:

  • Medicaid is currently an effective payer for a range of mental health services. States report that Medicaid reimbursement for mental health service provider organizations is on par with reimbursement by commercial payers.
  • States have developed reimbursement methodologies and rates that support the needs of Medicaid beneficiaries. States can and do tailor programs and services to meet a range of patient needs by covering services such as family support, transportation assistance, supportive services in the home, respite care, and ongoing case management.
  • Medicaid-specific delivery system and payment innovations are poised to strengthen the states' approach to behavioral health services. A number of states are developing and implementing Medicaid "health home" initiatives that tailor the care model to a person's primary need, whether it is behavioral or physical.


Additionally, the NAMD recommended that Congress examine continuity of care issues for individuals with mental illness who transition between Medicaid and Qualified Health Plans (QHPs), which are commercial health plans offered through the PPACA-authorized Health Insurance Marketplace Exchanges. Medicaid currently offers a more comprehensive set of services for individuals with mental illness than the essential health benefits the QHPs are required to offer. Medicaid may have a different provider organization network than the QHPs. As a result, individuals who cycle between Medicaid and QHPs are likely to face multiple continuity of care problems as they cycle in and out of eligibility for Medicaid services.


A link to the full text of “Letter Regarding IMD Exclusion From The National Association Of Medicaid Directors To Senate Finance Committee and the Senate Committee On Health, Education, Labor and Pensions” may be found in The OPEN MINDS Circle Library at


OPEN MINDS recently reported on the Excellence in Mental Health Act of 2013 in “Legislation Introduced To Establish Federally Qualified Community Behavioral Health Centers.” The article is available

OPEN MINDS has reported on the behavioral health services provided by FQHCs in “70% Of FQHCs Provide Mental Health Services.” The article is available at

For more information, contact: Andrea Maresca, Director of Federal Policy and Strategy, National Association of Medicaid Directors, 444 North Capitol Street, Suite 524, Washington, District of Columbia 20001; 202-403-8623; E-mail:; Website:

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