CMS Publishes Final Rule Regarding IMD Exclusion

Posted by Adam Freed on Tuesday, May 17, 2016

Since its enactment in 1965, Medicaid has generally prohibited federal money from being used to pay for inpatient services in an institution for mental disease, or “IMD,” for Medicaid enrollees who are aged 21 to 64.  This restriction is commonly known as the “IMD Exclusion.”  The Social Security Act defines an “IMD” as an institution of more than 16 beds that is primarily engaged in diagnoses, treatment, or care of persons with mental diseases.  Congress included the IMD exclusion in the enacting legislation for Medicaid to discourage institutionalization of persons with mental disease and to promote more community-based care. 

On May 6, 2016, CMS published in the Federal Register a final rule that has the potential to provide additional flexibility under the IMD exclusion for states that have contracted with managed care organizations to administer their Medicaid programs.  Under the final rule, states would be allowed to make a monthly capitation payment to a managed care organization for a Medicaid enrollee aged 21 to 64 who receives inpatient treatment in an IMD.  The coverage would only be available for short-term stays in the IMD of no more than 15 days.  In addition, the services provided would have to meet the CMS rules for “in lieu of services,” meaning that the IMD services would have to be medically appropriate, cost-effective substitutes for the services that would otherwise be available.

It is important to note that the coverage available under the new rule would only be available if a managed care state affirmatively elects to provide this coverage.  At this time, the Iowa Department of Human Services has provided no indication that it intends to elect to provide this coverage or, if it does, how it would administer such coverage and in which settings it would provide the coverage.  We will continue to monitor carefully any developments related to the IMD exclusion and the new CMS final rule.