On Monday, CMS finalized their long-awaited Medicaid managed care regulation. Deep in the regulation was a change to allow Medicaid reimbursement for facilities that had previously been excluded from receiving payments. Known as the Institution for Mental Disease (IMD) Exclusion, this change has a significant impact on mental health and substance abuse treatment now and in the future.

Federal funding for states to provide mental health and substance abuse treatment through IMDs for non-elderly adults has been forbidden since the founding of the Medicaid program. An IMD is defined as a hospital nursing facility or other institution greater than 16 beds that is engaged in providing diagnosis, treatment or care of persons with mental diseases.

CMS proposes at page 220 of the regulation “…to permit FFP for a full monthly capitation payment on behalf of an enrollee aged 21 to 64 who is a patient in an IMD for part of that month to cases in which: (1) the enrollee elects such services in an IMD as an alternative to otherwise covered settings for such services; (2) the IMD is a hospital providing psychiatric or substance use disorder (SUD) inpatient care or a sub-acute facility providing psychiatric or SUD crisis residential services; and (3) the stay in the IMD is for no more than 15 days in that month.” If a facility that would be considered an IMD under the statute is providing psychiatric or substance abuse care to an adult ages 21 to 64 for a Medicaid-covered individual in a managed care plan, the facility can treat that patient for 15 days and be paid by the state Medicaid program with the state receiving the federal matching payment for the service.

Many in the mental health and substance abuse community have been pushing for this change for years. Congress will now be under intense pressure to provide the same authority for fee-for-service Medicaid. With the finalizing of this regulation, there is now an imbalance between managed care and fee-for-service. A patient on Medicaid in a state with managed care will have access to an IMD while a similarly situated patient in a state that uses fee-for-service will not.

One important caveat. CMS could make the change to managed care and argue that it was cost neutral. The managed care plan will be paid no more or less than they would have previously. The regulation simply allows them to use an additional provider under their already capitated payment. For Congress to make federal payment available under fee-for-service, there is likely to be a cost associated with providing access to an additional provider. That doesn’t mean Congress won’t consider synchronizing fee-for-service and managed care under Medicaid, it just means it will be a bit more complicated because Congress will likely have to find a way to pay for it.

Bottom line: with policymakers searching for ways to better address mental health and substance abuse challenges, the playing field of available providers has now been increased and may increase further.