The Institutions for Mental Diseases Exclusion Rule is an Anachronism

The opioid epidemic, the high prevalence of mental illness among prison inmates, and the national shortages of psychiatric beds and providers are constant reminders of the poor state of American mental health care. Not only is the U.S. mental health care system fragmented and disconnected from the broader health system, it also faces numerous distinct problems, such as severe resource constraints, low provider reimbursement rates, and long-standing stigma. In light of these problems, reform of mental health regulation is crucial. One controversial feature of the national mental health regulatory regime is the decades-long exclusion of Medicaid payments for so-called Institutions for Mental Diseases (IMDs). The IMD exclusion prevents state governments from using federal Medicaid dollars to pay for adult inpatient care provided in most long-term mental health care facilities. The regulation dates to the original Medicaid legislation—the Social Security Amendments of 1965—and the historically specific effort to prevent that law from financing state and county mental hospitals. Although the practice and societal context of mental health care have changed dramatically since the 1960s, the campaign to repeal the IMD exclusion has often lacked political momentum. Renewed federal attention to the issue, however, underscores that repealing the rule is politically defensible, clinically appropriate, and ethically imperative. Proponents of the IMD exclusion argue that it has directed funds away from inappropriate institutional care and toward community-based mental health services. They are correct in some respects. Large psychiatric institutions no longer warehouse vulnerable individuals with behavioral and intellectual disabilities. The IMD rule, however, has failed to prevent the coercive institutionalization of seriously mentally ill individuals. Prisons and jails have simply become the “new asylums.” Some mental health conditions require structured inpatient care in IMDs, but needs far outweigh supply. The number of psychiatric beds plummeted after mental hospitals depopulated in the late twentieth century. In 1955, the number of state hospital psychiatric beds exceeded 560,000 nationwide. Only a small fraction of those beds remain. Today, there are just over 33,000 public inpatient beds and roughly 30,000 private beds. Some of these reductions were appropriate and necessary, though by many accounts, the process went too far: A 2015 survey by the National Association of State Mental Health Program Directors found that most states face a shortage of psychiatric beds. Lifting the IMD exclusion can remedy the psychiatric bed shortage. Unlike the supply of general health care, the supply of mental health care depends on public financing. People with chronic and severe behavioral health needs rarely have the means to afford their own care. Patients often turn to the Medicaid program and other public financing schemes to cover the high costs of chronic and complex mental health care. As a result, the Medicaid program is a crucial source of mental health financing. Services excluded from Medicaid reimbursement—like IMDs—are financially unsustainable and, therefore, in short supply. Additionally, little empirical evidence supports the claim made by proponents of the IMD exclusion that the rule diverts resources away from inpatient care and toward community-based care services. In fact, a study conducted by the Centers for Medicare and Medicaid Services found that reprieving 11 states and the District of Columbia from the IMD exclusion affected neither institutionalization rates nor outpatient care supply. Specifically, the study found that, across more than 16,000 admissions to IMDs, the median length of stay was seven days. 89 percent of stays lasted fewer than 31.4 days, and the IMDs discharged the vast majority of patients to their homes. Interviews with Medicaid beneficiaries and program staff reported satisfaction with the quality of care they received. Proponents of the IMD exclusion also say that reducing funds for inpatient care will reduce rates of institutionalization. Not only does this argument overlook the inappropriate institutionalization of people with mental illness in jails and prisons, but it also overlooks the inappropriate use of emergency departments and unspecialized “scatter beds” in general hospitals. As patients with behavioral health needs increasingly turn to emergency departments for care, providers struggle to place them in more appropriate settings. Psychiatric patients in emergency rooms often wait in beds, hallways, and locked rooms until inpatient beds become available—a practice euphemistically referred to as “boarding.” Surveys of emergency department medical directors find that half of them board psychiatric patients on a daily basis, and nearly all of them do so on a weekly basis. The other option for medical directors—to simply discharge the patient—is neither charitable nor effective. Medicaid beneficiaries with mental illness are twice as likely to be readmitted to hospitals within 30 days than peers with private insurance. The tendency to frame investments in inpatient care versus community care as a zero-sum scenario is misguided. In fact, the opposite might be true. Appropriate hospital capacity actually enhances the delivery of community care. By providing intensive care in the appropriate setting, individuals in crisis may be fully stabilized and then supported on their path toward recovery in the community. A number of recent regulatory changes have chipped away at the IMD exclusion, and these changes are a useful first step toward needed reform. First, the federal government modified the exclusion in 2016 to allow Medicaid managed care beneficiaries to stay in IMDs for a short period of time. Second, the federal government now allows states to implement demonstration projects on IMDs. As of November 2017, states may apply for a waiver of the IMD exclusion for individuals with substance abuse disorder and, as of November 2018, for individuals with severe mental illnesses. State applications for waivers of the IMD exclusion are rising significantly. In November 2017, 14 states had either obtained or applied for waivers to provide substance abuse treatments in IMDs, and three had either obtained or applied for waivers to provide mental health services in IMDs. By March 2019, the federal government had waived the IMD exclusion in substance abuse treatment for 21 states, with 7 more pending. Both the diversity of requests from across the political divide and the rapidity of approvals—an otherwise slow bureaucratic process—reveals the high need for IMD payments. Moreover, the federal government has framed the increase in waiver applications as an attempt to measure the effect of the IMD exclusion on emergency department wait times, readmissions rates, and mental health care quality. This framing is admirable, as much of the debate over inpatient versus community care has been stuck in appeals to counterfactuals. But despite these positive trends, it is also worth considering how the IMD exclusion can be seen in another light: a violation of mental health parity. Recent legislation mandated insurance parity across mental and somatic health care services. But beyond disparities in insurance coverage, a more fundamental “conceptual parity” exists between physical and mental illness. The implicit view that physical health and mental health are not the same is pervasive—even though there is no physical health without mental health. Meeting the requirements of such conceptual parity, in which mental illness is an illness like any other, requires looking beyond insurance coverage to find instances of injustice in public policy. The IMD exclusion is one such policy. Medicaid has no analogous restrictions on inpatient reimbursement for physical health, and the arbitrary throttling of Medicaid payments for mental health patients reinforces an anachronistic divide between mental and physical health. Repealing it is ethically appropriate to achieve conceptual parity