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Since Medicaid’s inception in 1965, the program has not been able to use federal matching funds for inpatient treatment at facilities (with 16 beds or more) that primarily serve people with mental illness. This rule—known as the “institutions for mental disease” (IMD) exclusion—was intended to maintain state, rather than federal, responsibility for inpatient care in larger mental institutions for adults ages 21 to 64. It was also intended to encourage community-based care as an alternative to institutionalization for patients with mental illness. Although Medicaid will reimburse general hospitals and smaller community-based crisis alternatives for beneficiaries who receive inpatient psychiatric treatment, many IMDs, states, and other stakeholders support a repeal of the IMD exclusion. 

Chief among their concerns is that the statute restricts funding for Medicaid patients who need specialized treatment and, as a result, may limit their access to needed care. To address this concern, the Affordable Care Act of 2010 authorized the creation of the Medicaid Emergency Psychiatric Services Demonstration (MEPD). Launched by the Centers for Medicare & Medicaid Services (CMS) in 2012, MEPD waived the IMD exclusion for beneficiaries admitted to 28 private IMDs in 11 states and the District of Columbia. The waiver was limited to beneficiaries who were suicidal, homicidal, or dangerous to themselves or others. 

A rigorous evaluation of MEPD tested the effects of waiving the IMD exclusion in the following areas: Medicaid inpatient access, length of stay, and emergency room (ER) visits; discharge planning by participating hospitals; the impact on costs of the full range of mental health services, including inpatient, emergency, and ambulatory care; and the percentage of individuals admitted to participating IMDs as a result of the demonstration compared with those admitted to the same facilities through other means. For states participating in the demonstration, evaluators found that MEPD had little to no effect on inpatient IMD admissions, length of stay, or ER visits. It also had no impact on the length of time Medicaid beneficiaries spend in ERs waiting for an inpatient bed, nor did it decrease the number of people admitted to general hospitals’ medical-surgical units that are not equipped to treat psychiatric conditions. CMS decided not to extend or expand the demonstration in part due to the results in the final evaluation report, which showed that the federal government would likely incur more costs should the demonstration continue. The final evaluation report and accompanying executive summary present findings from this work.