CMS Issues New Guidance Aimed at Addressing Care for Mental Illness


On November 13, 2018 CMS (as mandated by Congress in the 21st Century cures Act) issued a State Medicaid Director Letter providing states with guidance on both: (1) existing authority for states to provide support for adults with serious mental illness (SMI) and/or children with a serious emotional disturbance (SED); and (2) a new demonstration opportunity  to permit states to offer care for certain individuals with serious mental illness residing in Institutions for Mental Disease (IMDs). The letter comes at a time when CMS is broadly looking to make gains in addressing mental illness. CMS notes in the letter that more than 10.4 million adults currently suffer from an SMI (defined as a diagnosis with a mental, behavioral, or emotional disorder that has substantially interfered with an individual’s performance of one or more activities daily living, or ADLs), yet the rate of treatment for this population is only 65% (with treatment rates remaining stagnant over the last decade). Rates of treatment for children with a SED (defined as a child diagnosed with a condition that results in a functional impairment in daily life) are worse – rates of treatment for this population are only 41%. Particularly in light of the high costs associated with this population — adults with SMI comprise about half of the dual eligible population — as well as the growing overlap between mental health and substance use disorders, the letter comes at a much needed time for those states and mental health care providers working to address and treat mental illness.

Existing Authorities to Address Mental Illness

The letter begins by addressing strategies states can employ, under existing authorities, to support innovative service delivery systems for adults with SMI and children with SED.  CMS identifies five broad strategies states can employ to address mental illness under existing authority (i.e. without employing a waiver):

  1. Earlier identification and engagement in treatment
  2. Integration of mental health care and primary care
  3. Improved access to services across the continuum of care, including crisis stabilization services
  4. Better care-coordination and transitions to community-based care
  5. Increased access to evidence-based services that address social risk factors

The letter describes each of these strategies in detail, as well as ways in which states can access federal matching funds (FFP) associated with each of the strategies. For example, CMS explains the ability of states to access enhanced Federal matching dollars for the development by the state of data-sharing capabilities between hospitals and community-based mental health providers. CMS also discusses a variety of evidence-based care models that can be employed by states, including the Collaborative Care Model (designed to integrate specialty mental health care into primary care settings) and the Coordinated Specialty Care Model (designed to identify and engage individuals with SMI as soon as possible in treatment with specialized mental health providers.)

SMI/SED Demonstration Opportunity

The State Medicaid Director Letter also announces a new 1115 demonstration project, called the “SMI/SED Demonstration Opportunity.”  The new Demonstration Opportunity is primarily aimed at addressing one of the most significant payment exclusions in the Medicaid program: the Institution for Mental Disease exclusion.  We have previously discussed the IMD exclusion in the past on this blog, but by way of a brief background, section 1905(a)(B) of the Social Security Act generally prohibits “payments with respect to care or services for any individual who has not attained 65 years of age and who is a patient in an institution for mental diseases” except for “inpatient psychiatric hospital services for individuals under age 21.” The law goes on to define “institutions for mental diseases” as any “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.” The IMD exclusion was intended to ensure that states, rather than the federal government, would have principal responsibility for funding inpatient psychiatric services.

States have long loathed the IMD exclusion, noting that it often means that a population in critical need for care (adults between the ages of 21 and 65 with serious mental illness), goes without care (or the right care.) For example, states are often forced to care for this population through inadequate services provided in a general hospital setting, or else patients must wait on long wait-lists for admission into an inpatient psychiatric facility.  In the 2016 Medicaid managed care rule, CMS granted states some additional flexibility in this regard, permitting FFP for monthly capitation payments to managed care plans for enrollees that are inpatients in a hospital providing psychiatric or SUD inpatient care in an IMD  when the stay is for no more than 15 days during the period of the monthly capitation payment and certain other conditions are met.

Despite this additional flexibility, states and mental health care providers often find this 15-day cap inappropriately limits service delivery for this critical population. On November 1, 2017 CMS granted states additional flexibility with regard to the IMD exclusion, specific to improving treatment for substance use disorders (SUDs). Under that Demonstration,  states were permitted to seek waiver authority to provide care to individuals residing in IMDs for the treatment of SUDs. The new SMI/SED Demonstration Opportunity is similar to the November 2017 Demonstration, except under this new opportunity states will focus on improving care for individuals with SMI residing in settings that qualify as IMDs. Under the terms of the demonstration, states will be expected to achieve a statewide average length of stay of 30 days or less for beneficiaries receiving care in IMDs.

CMS states that, as part of the new SMI/SED Demonstration, it is proposing to test the assertion by states that the current IMD payment exclusion acts as “a significant impediment to ensuring adequate access to acute care for beneficiaries with SMI or SED.” CMS notes that stated may participate in both the November 2017 SUD Demonstration, and this Demonstration opportunity. Consistent with other IMD waivers, costs for room and board are generally not reimbursable. Similarly, nursing homes that qualify as IMDs will not be eligible for participation on the basis that CMS believes nursing homes do not specialize in providing mental health treatment. Finally, consistent with section 1115(a), CMS expects Demonstrations to be budget neutral to the Federal government.

Details regarding participation criteria, as well as the process for applying for the new SMI/SED Demonstration Opportunity are available here.


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