The Medicaid Managed Care Final Rule and IMD Exclusion


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The CMS Medicaid and CHIP Managed Care Final Rule, issued in April, is the first overhaul of Medicaid managed care plans in a decade. Spanning over 400 pages in the Federal Register, the rule covers a broad range of topics related to the operation, contracting, oversight, and payment of Medicaid managed care plans. The topic that may be the most impactful for Pennsylvania is the Institution for Mental Diseases (IMD) Exclusion.

The Current IMD Exclusion

The IMD Exclusion, which dates to the creation of Medicaid under Title XIX of the Social Security Act in 1965, bars the use of federal Medicaid matching dollars, also known as Federal Financial Participation (FFP), for treatment of adults between the ages of 21 and 64 in inpatient psychiatric facilities containing more than 16 beds. The purpose of the IMD Exclusion was to reduce the number of people committed to long-term psychiatric hospitals for extensive periods of time without appropriate treatment, and to instead encourage their treatment in less restrictive, community-based settings. Opponents of the IMD Exclusion argue that it places arbitrary restrictions on states’ ability to manage treatment for individuals with serious psychiatric disorders by restricting the type of facility in which these individuals can receive care.

Some states, including Pennsylvania, have been providing treatment for individuals in IMDs by offering alternative services (or services in alternative settings) from those covered under the Medicaid state plan. This practice, referred to providing “in lieu of” services, is currently negotiated individually in each state’s Medicaid managed care plan contract, or is funded through waivers. In Pennsylvania, individuals can currently receive treatment in an IMD for a period longer than 15 days, and the state is receiving money from CMS to help fund this treatment.

Final Rule Changes

In the Final Rule, CMS outlines specific situations in which short stays in an IMD will now be covered. This is good news. However, the rule also imposes new conditions on providing treatment in an IMD as an in lieu of service. This is potentially bad news, especially for states like Pennsylvania, whose current contract with CMS is less restrictive than the Final Rule’s provisions.

The Final Rule states CMS will now allow Managed Care Organizations (MCOs) to be paid, and states to claim FFP, for individuals who spend less than 15 days during a given month in an IMD. In justifying the 15-day threshold, CMS explains that limiting the payment of capitation to 15 days will help ensure access to inpatient care for all individuals, since both the number of people with Medicaid coverage, and the demand for short-term inpatient psychiatric and substance abuse treatment, has increased considerably in recent years.

Another reason for limiting IMD stays to 15 days relates to finances. CMS makes capitation payments based on the risk that MCOs will incur costs for individuals utilizing Medicaid-covered services during the month. Under subparagraph (B) following section 1905(a)(29) of the Social Security Act, it is stated that Medicaid beneficiaries between ages 21 and 64 are not eligible for medical assistance. Therefore, if a person spends the entire month in an IMD, they would not be eligible for assistance at all during that month. However, CMS would still have paid capitation for that person. By limiting IMD stays to 15 days, CMS believes that there is still sufficient opportunity for MCOs to incur risk for that person utilizing covered services during the portion of the month they are eligible for assistance. Thus, CMS is upholding the spirit of the Social Security Act, while still providing a mechanism for individuals to receive short term care in an IMD.

As far as states’ ability to fund IMD stays as in lieu services, CMS instituted new standards in the Final Rule. The cost of IMD treatment as an in lieu of service cannot be calculated based on the actual cost of the IMD; it must be calculated in rate setting based on the cost of providers in the state plan, which is usually much less. And, the 15 day a month limit is now universally applicable, regardless of what may be contained in current state Medicaid contracts. These new restrictions mean that Pennsylvania could end up paying much more to provide IMD services, and Pennsylvania residents could receive reduced services in return.

Impact of the IMD Exclusion Changes

While easing the total IMD Exclusion is a good first step, many do not believe it is a truly workable solution. There are a number of issues still to be addressed. Here are just a few.

It will take considerable time, effort and money to implement and monitor the 15 day per month limit. Who will be responsible for this implementation and monitoring? Will this task fall to the states, or to the MCOs? How will money be recouped if individuals exceed the 15-day limit?

For a person entering an IMD on the 1st of the month, FFP can only be claimed until the 15th. However, for a person entering an IMD on the 16th of the month, FFP can be claimed until the 15th of the next month, as this does not violate the 15 day per month limit. This disparity in FFP based on the time of month a person is admitted to an IMD has the potential to impact care. Some providers may try to time IMD admissions to maximize days across successive months and/or discharge individuals prematurely when they are approaching the 15-day limit.

Experts generally agree that successful substance abuse treatment usually requires longer than a 15-day inpatient rehab stay. Many substances alter brain chemistry so severely that it may take several weeks just to stabilize an individual. Also, with the substantial cost to run treatment centers, it’s usually not economically feasible to run inpatient rehab facilities with fewer than 16 beds, especially while also complying with staff coverage requirements for licensure. And, it’s not clear which facilities will even qualify for FFP under the IMD Exclusion; some literature suggests only American Society of Addiction Medicine (ASAM) Level 4 facilities are eligible.

Finally, what about those states, like Pennsylvania, whose current contract with CMS includes less restrictive provisions for IMD services than is contained in the Final Rule? In a recent joint public hearing concerning the state’s opioid epidemic, The Drug and Alcohol Service Providers Organization of Pennsylvania (DASPOP) testified that the IMD Exclusion has led to gaps in care and restricted access to inpatient substance abuse treatment. And, the revisions included in the Final Rule will further reduce access to appropriate treatment and drive up the cost of care for the state and for substance abuse treatment programs. With the nation in the grips of an opioid epidemic, what is needed is increased access to substance abuse treatment, not descreased.

For many, the provisions related to the IMD Exclusion in the Final Rule are a good first step, but fall well short of the goal of increasing access to service for individuals needing this specialized care. And, for states like Pennsylvania, whose current IMD provisions are more comprehensive, it could be a costly step backward in terms of available services and the federal funds to help pay for those services.