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March 24, 2023

The IMD Exclusion: An Obstacle to Behavioral Health Care Parity for 50 Years

The institutions for mental disease (IMD) exclusion is a Medicaid policy that prohibits the federal government from providing federal Medicaid funds to states for services provided to certain Medicaid-eligible individuals who are patients in IMDs. The exclusion was part of the original Medicaid policy enacted in 1965. As originally enacted, federal Medicaid law included an exception to the IMD exclusion for individuals 65 years old and older. Facilities that care for children and adolescents under 21 years old are also exempted from the exclusion.

An IMD is defined as “a hospital, nursing facility, or other institution of more than 16 beds, that is primarily engaged in providing diagnosis, treatment, or care of persons with mental diseases, including medical attention, nursing care, and related services.”1  Amendments enacted in 2018 created exemptions allowing Medicaid payments for certain substance use disorder (SUD) treatments.2  A facility falls within the IMD exclusion if it is licensed or certified as an inpatient behavioral health care facility or a facility that was established primarily to provide behavioral health care. A facility is considered to be primarily providing behavioral health care when 50 percent or more of the patients are there to receive behavioral health care.

To summarize, behavioral health care facilities with more than 16 beds do not receive Medicaid reimbursement for treating individuals between 21 and 65 years old. While this does not typically impact general hospitals with psychiatric inpatient units, because they do not meet the 50 percent threshold, it has had, and still has, a direct impact on private psychiatric hospitals and a broader effect that reverberates through the entire continuum of care.

The IMD exclusion is a component of the current psychiatric inpatient bed shortage in New York State because it is a deliberate barrier to federal financial support for these beds. In every part of New York, local health care officials, mental health officials, public safety officials, police, hospitals, and mental health providers have encountered challenges resulting from the lack of availability of inpatient beds. Bed availability often causes significant delays in the emergency department environment, where patients may wait for days while the hospital tries to find an appropriate inpatient placement, and discharge decisions are inevitably influenced by bed scarcity. Short-term and intermediate care facilities are squeezed between the pressure to admit more patients from acute care settings and the pressure to discharge patients. Patients who may need longer-term care are faced with waiting lists and otherwise limited options that may be far from their home and community.

There is much discussion in the behavioral health care community about the continuum of care. The New York State Office of Mental Health (OMH) has expressed its commitment to the continuum of care and has committed to providing resources to reinforce access to services at different points on that continuum. There has been innovation in the redevelopment of the crisis residence model, the creation of crisis intervention centers, and other purposeful efforts to fill the gaps in the continuum of care. Nevertheless, the OMH cannot by itself alter the federal landscape that by its very terms “excludes” behavioral health care for the persons with the most significant needs and whose safety and well-being is in the most significant jeopardy.

The IMD exclusion does not directly apply to psychiatric inpatient units in general hospitals licensed by the New York State Department of Health. They are also licensed by the OMH, but do not meet the 50 percent threshold for the exclusion. New York State Governor Kathy Hochul and the commissioner of the OMH recently announced the plan to create hundreds of new hospital inpatient unit beds across the state and to propose legislation creating penalties for general hospitals with offline beds—the term for beds within the capacity of a hospital’s licensed inpatient unit but are not being utilized for behavioral health care.

Some of the offline beds are the result of hospitals reallocating resources as a necessary response to the COVID-19 pandemic. However, there were many psychiatric beds in all parts of New York State with offline status prior to the pandemic. This is because psychiatric inpatient beds are more costly to operate and present unique safety and staffing challenges relative to the average medical-surgical allocated bed. If inadequate funding for general hospital inpatient units is among the causes for the bed shortage crisis, creating more inadequately funded beds is not a long-term solution and places a disproportionate burden on those hospitals that continue to operate psychiatric inpatient units.

Some hospital inpatient units have closed, beds have gone offline, and hospitals have been reluctant to add new beds—because they don’t have to. The threat of fines and punishment may be designed to discourage hospitals from taking psychiatric inpatient beds offline, but this practice runs the risk of encouraging hospitals to decertify beds altogether rather than put them back online. The truth of the matter is that hospitals that are not owned and operated by state or local governments have no absolute obligation to operate psychiatric inpatient units, and ultimately there are no legal or administrative mechanisms to force hospitals to do so.

The Mental Hygiene Law in New York State also permits the licensing of standalone private psychiatric hospitals, which are not part of a general hospital. The number of available beds in private psychiatric hospitals has been significantly reduced in the past few decades, as a number of hospitals have ceased operation, and the remaining private hospitals are in a chronic state of fiscal stress because they receive no support from Medicaid. It is axiomatic that removing barriers to the creation of more private psychiatric hospital beds directly affects the bed shortage. Private psychiatric hospitals are part of the continuum of care and provide care and treatment for patients with significant needs. Decreasing the number of private hospital beds only increases the pressure on general hospital inpatient units and OMH-operated psychiatric hospitals, and the result will have a profound impact on emergency departments and acute care settings, residential treatment programs, and other health care providers.

One immediate solution to the IMD exclusion problem is found in the waiver provisions of Medicaid itself. By requesting a Section 1115 waiver, states can receive federal Medicaid funds for specific services provided to patients in IMDs. Prior to 2010, nine states had Section 1115 waivers approved and consequently received some Medicaid funds for behavioral health care in IMDs. All except one of these waivers expired. By 2020, nearly half of the states received federal Medicaid funds for SUD services in IMDs as a result of Section 1115 waivers, and only one state had a waiver approved for mental health services. There continue to be state waiver applications; some are pending, and some will likely be approved. But 1115 waivers are time-limited demonstration projects, and experience teaches us they are not long-term solutions unless the changes they introduce ripen into legislative reform benefitting everybody. There is some discussion that a Section 1115 waiver for providers in New York State is in the works, which is encouraging news.

Also very encouraging are efforts by New York State Congressman Dan Goldman to reintroduce the Michelle Alyssa Go Act. The act is named after Michelle Go, a young woman pushed to her death in front of a subway train by a person with serious mental illness, and seeks to reform the IMD exclusion. 

The IMD exclusion is based on a perception of institutional reform from 50 years ago, when there was a focus on reducing inpatient populations that were twentyfold what they are today. It was a world where thousands and thousands of people lived their adult lives in institutional settings. It was a time when outpatient services and the community components of the continuum of care were nonexistent. But this is not that world, and this is not that time. The IMD exclusion must be addressed to end the longstanding second-class status assigned to behavioral health care patients with significant needs.

Presently, the OMH is committed to creating 1,000 new inpatient beds, adding 3,500 residential units, and dramatically expanding outpatient services, among other enhancements. This will involve many obstacles for providers and other stakeholders, including regulatory processes, site selection, staff recruitment, potential audits, and compliance challenges. The scale envisioned by the OMH’s plan will add to the complexity, but providers stand to gain with more services in more places for more people. This is indicative of progress toward behavioral health care parity despite the legacy of the IMD exclusion. As such, we recommend that providers take advantage of these opportunities and work with counsel to navigate the regulatory process.

1See Social Security Act § 1905(i).
2Substance use treatment that follows a psychiatric model and is performed by medical personnel is considered medical treatment of a mental disease and falls within the exclusion.

If you have questions regarding the content of this blog, please contact Keith Brennan, of counsel, at, or another member of the firm’s Health & Human Services Providers Team. 

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