National Alliance on Mental Illness
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Background Information on IMD Exclusion

Current Medicaid Law

Institutions for Mental Disease (IMDs) are inpatient facilities of more than 16 beds whose patient roster is more than 51% people with severe mental illness. Federal Medicaid matching payments are prohibited for IMDs with a population between the ages of 22 and 64. IMDs for persons under age 22 or over age 64 are permitted, at state option, to draw federal Medicaid matching funds.


The policy has been in place since 1965 when Medicaid was enacted. State and local psychiatric hospitals housed large numbers of persons with severe mental illness at (non-federal) public expense. The Congress made clear that the new Medicaid dollars were not to supplant this public effort that was already going on with resources from state and local governments. Later, exemptions for children and the elderly were added by amendment. The exclusion for adults was upheld in a Supreme Court case. In the early 1980s, the 16-bed exemption was legislated as a response to the Court's decision. It made a moderate concession to the realities of deinstitutionalization, and re-stated opposition to financing "warehousing" in state hospitals.

Discriminatory aspects of IMD exclusion

The treatment system has changed radically in the more than forty years since the Congress forbade cost-shifting to the federal government of what was clearly then a state and county responsibility. Medicaid has been amended to permit treatment of children and adolescents, and treatment of seniors through the state options for inpatient care for those not yet 22 and those over 64. Without use of an option, inpatient nursing home care is available to seniors and persons disabled by other than severe mental illness. This leaves adults with severe mental illness the sole category for whose inpatient care Medicaid will not reimburse except under circumstances which narrowly limit choice, and likely compromise quality. Forty years after enactment, this has become discriminatory treatment.

By comparison, Medicaid will cover residential treatment for adults with mental retardation. Medicaid reimbursement for these services became available in 1971 in facilities which meet the definition of Intermediate Care Facilities for the Mentally Retarded (ICFs/MR). When such persons are discharged from an ICF/MR back into the community they may continue to be eligible for Medicaid wrap-around services through a "community options" waiver. (The "option" notion is that a facility bed can be converted to a community "slot" with no increased cost to Medicaid.)

These waivers are not available as an additional resource for persons with post-discharge from an IMD, because there was no Medicaid eligibility for person or facility while they were inpatients. Hence there is no "bed" available to swap for a community slot.

Medicaid also pays for nursing home care for a significant proportion of residents who are elderly -- directly for Medicaid eligibles, and through spend-down provisions with "community spouse" protections for persons not eligible at the time of admission.

Impact of IMD exclusion on care

One unacceptable consequence of the present situation is that not only is a facility precluded from being reimbursed by Medicaid, but individual patients' eligibility for Medicaid is extinguished while they are inpatients in an IMD. Consequently, to receive treatment for medical disorders not related to their severe mental illness, they must be discharged from the IMD, have their Medicaid eligibility reinstated, be treated in a medical/surgical setting, and then be readmitted to the IMD.

NAMI’s Position

Modification of the IMD exclusion must not result in

  • withdrawal of public funds from the treatment system;
  • warehousing of persons with severe mental illness in state psychiatric hospitals;
  • denial of lengths of stay appropriate to what is clinically indicated on a   case-by-case basis;
  • diminished resources for community-based systems of care for persons with severe mental illness.

Changes in IMD Exclusion should:

  • eliminate discrimination in Medicaid against people with severe mental illness;
  • eliminate bureaucratic barriers to treatment (at the very least it should not enhance bureaucratic barriers);
  • eliminate perverse incentives on treatment systems by ceasing to finance policy that impairs treatment of people with severe mental illness; and;
  • allow clinical need--for acute hospitalizations or long-term care--determine the intervention needed for individual patients.