Modernize the Medicaid Institutions for Mental Diseases (IMD) Exclusion

ACTION NEEDED:

Urge your members of Congress to modernize the Medicaid Institution for Mental Diseases (IMD) exclusion to ensure counties can provide timely, clinically appropriate behavioral health treatment. For nearly six decades, the IMD exclusion has restricted federal Medicaid funds for services in mental health and substance use disorder treatment facilities with more than 16 beds. This outdated limitation prevents counties, who operate and fund much of the nation’s behavioral health system, from meeting increasing community needs, driving patients to emergency departments and jails or leaving them with insufficient treatment.

BACKGROUND:

The IMD exclusion was created in 1965 to prevent the federal government from financing large psychiatric institutions at a time when states were shifting toward deinstitutionalization. Under this policy, Medicaid cannot reimburse care provided to beneficiaries ages 21–64 in facilities with more than 16 beds whose primary purpose is treating behavioral health conditions. The exclusion has remained largely unchanged for decades, even as the behavioral health landscape has evolved to emphasize short-term, recovery-oriented and medically appropriate inpatient and subacute care.

Today, the IMD exclusion has become a barrier to care rather than a safeguard. Behavioral health needs have grown significantly with 75 percent of counties reporting an increase in the incidence of behavioral health conditions over the past year and 89 percent reported an increase compared to five years ago, according to a 2023 NACo survey. Yet, counties cannot expand treatment beds or operate appropriately sized facilities without losing Medicaid reimbursement, which is the primary funding source for behavioral health services nationwide.

As a result of this restriction, some counties have been forced to find work arounds, building multiple, artificially small facilities to remain under the federal bed cap. Although this strategy increases the total number of beds, it substantially increases construction, staffing and operational costs for each facility and does not fully address limited treatment capacity. In addition, the vast majority of counties cannot afford to build or maintain these fragmented behavioral health campuses, leaving them with no viable way to expand bed counts to meet rising community needs. As a result, residents in crisis are frequently turned away due to lack of beds and must wait weeks or months for placement. Left with few other options, those facing severe behavioral health crisis are often diverted to emergency departments or jails, neither of which are designed to provide sustained behavioral health treatment.

The exclusion also disproportionately impacts residents with complex or co-occurring medical and behavioral health needs. Some individuals cannot be placed in residential or skilled nursing facilities simply because their primary diagnosis is psychiatric, despite having conditions that require higher-level support. These gaps in the care continuum place significant strain on county systems, increase uncompensated care costs and perpetuate inequities between physical and behavioral health treatment. Reforming the IMD exclusion is essential to empowering counties to deliver comprehensive, clinically appropriate behavioral health services.

KEY TALKING POINTS:

• Modernizing the IMD exclusion would expand access to clinically appropriate inpatient and subacute behavioral health treatment, reducing unnecessary diversion to emergency rooms and county jails.
• Updating the outdated 16-bed cap would improve equity for Medicaid beneficiaries, who currently face restricted access to behavioral health services simply because federal policy limits which facilities can be reimbursed.
• Congress should advance legislation that increases or removes the IMD bed cap, such as the Michelle Alyssa Go Act (H.R. 5462). This legislation increases the number of federal Medicaid-eligible in-patient psychiatric beds from 16 to 36, providing critical support for individuals seeking treatment for mental health and substance use disorders.
• Modernization of the IMD exclusion would support the full continuum of care, enabling counties to connect residents to the right behavioral health treatment at the right time and reduce long waitlists and treatment delays.