CMS Announces Section 1115 Waiver Allowing Medicaid Payments for Inpatient Mental Health Treatment

November 21, 2018Legal Alerts

In a letter to state Medicaid directors on Nov.13, 2018, the Secretary of the U.S. Department of Health and Human Services, Alexander Azar, announced a new demonstration opportunity that will allow states to provide improved care for adults with a serious mental illness (SMI) and children with serious emotional disturbance (SED).  Secretary Azar discussed the waiver in a speech to state Medicaid directors stating that the United States currently has “the worst of both worlds: limited access to inpatient treatment and limited access to other options.”

Since its creation in 1965, except in limited circumstances, Medicaid has not paid for care delivered in an institution for mental diseases (IMD),[1] which 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.”[2]    In 2016, CMS promulgated regulations that clarified that Medicaid managed care organizations may reimburse for care in an IMD for up to 15 days as an “in lieu of” service.[3]  As announced in the letter, the SMI/SED Demonstration Opportunity permits states to submit a waiver pursuant to section 1115(a) of the Social Security Act so that individuals with a SMI/SED can be treated in an IMD for approximately 30 days.  However, the waiver may not be used to provide care in nursing homes. 

If granted a waiver, states are expected to expand community-based services and Secretary Azar’s letter also addresses how states can leverage techniques permitted under existing authorities to do so, including increased screening for mental illness in schools; integrating mental health care and primary care; improving access to crisis stabilization services and evidence based services that address social risk factors; and bettering care coordination and transitions to community based care.

IMDs and those that provide community based services should be aware of these changes as more Medicaid beneficiaries will be able to access their services.

If your organization would like to learn more about the rule, please contact Daniel S. Zinsmaster or Margaret L. Power.


[1] 42 U.S.C. § 1396d(a)(xvii)(29)(b).

[2] 42 USCS § 1396d(i).

[3] 42 C.F.R. § 438.6(e).