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PRO.A / NEWS IMD Exclusion and New Federal Rule

IMD Exclusion and New Federal Rule

What is the IMD Exclusion and how does it affect access to addiction treatment?

The Institution for Mental Diseases (IMD)ツExclusion is a Federal statute that bars federal Medicaid match for treatment of mental illnesses in facilities with more than 16 beds. Mental health and addiction treatment facilities with more than 16 beds are considered IMDs.

What is the purpose of the IMD Exclusion?

The IMD Exclusion was part of the 60’s press to de-institutionalize the treatment of the mentally ill and encourage treatment to take place in the community. It accomplished this goal by barring Federal matching Medicaid dollars from being utilized to pay for institutional care for people with mental diseases in state mental hospitals. It also prevents patients in IMDs from receiving federally-matched Medicaid for their general health care needs.

The goal was to encourage the provision of treatment for the mentally ill in community-based settings. Ironically, this same provision is also utilized to bar Medicaid coverage of addiction treatment in community-based non-hospital residential programs for people with addictions.

How does the IMD Exclusion affect addiction treatment?

The IMD definition of the term “mental diseases” was construed by the Health Care Financing Administration (HCFA), now the Centers for Medicare & Medicaid Services (CMS), to include alcohol and other drug addiction.

The 16 or less bed restriction makes economic survival impossible while complying with licensure requirements for addiction treatment including staff/patient ratios, counseling and coverage hours, etc.

What is Pennsylvania currently doing?

Currently, CMS permits states to obtain a Medicaid match where treatment is provided in alternative, less expensive settings through Medicaid managed care when they are “in lieu of’ or in place of more expensive covered services.


The new Federal rule will maintain the “in lieu of’ provisions under Medicaid managed care but will limit treatment to 15 days a month in facilities with more than 16 beds. This treatment limitation is inappropriate for people on Medicaid who need residential treatment.

The new Federal rule also promises to ratchet up enforcement of the ban on federally matched Medicaid coverage for other medical services after 15 days.
Additionally, this new Federal rule shifts the rest of a patient’s medical care back to the state and/or to addiction treatment programs.

What steps should Pennsylvania take?

It’s time for change:

1) OPPOSE THE IMPLEMENTATION OF THE FEDERAL REGULATION. If permitted to move forward, it will be a major step backward in PA’s and other states’ efforts to address the treatment needs of people with opiate addictions. Moreover, it will lead to dangerous under-treatment of the illness and is likely to increase the overdose death rate in the state and across the country. The IMD Exclusion and the new regulation both violate the Mental Health Parity & Addiction Equity Act of 2008.

2) URGE ELIMINATION OF THE IMD EXCLUSION IN ITS ENTIRETY for alcohol and other drug addiction treatment. We can’t fight the state’s drug overdose epidemic while reducing access to a major part of the continuum of care needed by many of our neighbors with addictions.

What will you hear in support of the new Federal IMD Rule?

1) The new regulation promulgated by CMS does address the problems of the IMD Exclusion. Yes, but the regulation as promulgated is harmful and will make the problem worse; it lead to under-treatment, increase hospitalizations and increase incarcerations.

2) States can always apply for 1115 Waivers. Yes, but this is a work-around. Why would we require waivers for the most commonly used form of inpatient addiction treatment?

3) States could do demonstration projects. Yes, but demonstration projects were done years ago on the issue as a stall to avoid eliminating the IMD Exclusion from addiction treatment services.

4) Legislation is required to eliminate the IMD Exclusion for drug and alcohol. This is simply not true; it can be done by an administrative order of the Executive Branch.

For questions, please contract the Drug and Alcohol Service Providers Organization of Pennsylvania at