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NAMI Policy Paper

IMD Exclusion: Implications of Repeal

Congress may consider repeal of the IMD exclusion this year. Given NAMI's unique voice representing persons with severe brain disorders (mental Illness), it is important for us to have a clear position. This paper is a framework for the NAMI Board's Committee on Public Policy & Communications. Its purpose is to update committee members on the status of IMD exclusion policy and the implications of eliminating the IMD exclusion. Suggested additional guidelines for staff are offered for consideration.

Current Medicaid Law

Institutions for Mental Disease (IMDs) are inpatient facilities of more than 16 beds whose patient roster is more than 51% severe brain disorders by primary admitting diagnosis. Federal Medicaid matching payments are prohibited for IMDs with a population between the ages of 22 and 64. IMDs for persons under age 22 or over age 64 are permitted, at state option, to draw federal Medicaid matching funds.

Implications of current policy

Because Medicaid will, however, pay for inpatient services to the 22-64 group in Psych Services of general care hospitals, and in "scattered beds" in community hospitals, the policy is not airtight. (And these loopholes may lead to more fragmented care, or to reimbursement for care of lesser quality.)

History

The policy is grounded in the public care situation extant in 1965 when Medicaid was enacted. State mental hospitals and county mental homes housed large numbers of persons with severe brain disorders at (non-federal) public expense. The Congress made clear that the new Medicaid dollars were not to supplant this public effort that was already going on with resources from state and local governments. The exemptions for children and the elderly were added by amendment. The exclusion for adults was upheld in a Supreme Court case. In the early 80s, the 16-bed exemption was legislated as a response to the Court's decision. It made a moderate concession to the realities of deinstitutionalization, and re-stated opposition to financing "warehousing" in state hospitals.

Discriminatory aspects of IMD exclusion

The treatment system has changed radically in the more than thirty years since the Congress forbade cost-shifting to the federal government of what was clearly then a state and county responsibility. Medicaid has been amended to permit treatment of children and adolescents, and treatment of seniors through the state options for inpatient care for those not yet 22 and those over 64. Without use of an option, inpatient nursing home care is available to seniors and persons disabled by other than severe brain disorders. This leaves adults with severe brain disorders the sole category for whose inpatient care Medicaid will not reimburse except under circumstances which narrowly limit choice, and likely compromise quality. Thirty years after enactment, this has become discriminatory treatment.

An equity argument can be made via comparison to adults with mental retardation. Residential treatment for these became eligible for Medicaid reimbursement in 1971, in facilities which meet the nursing home requirements for Intermediate Care Facilities for the Mentally Retarded (ICFs/MR). When such persons are discharged from an ICF/MR back into the community they may continue to be eligible for Medicaid wrap-around services through a "community options" waiver. (The "option" notion is that a facility bed can be converted to a community "slot" with no increased cost to Medicaid.)

 These waivers are not available as an additional resource for persons with post-discharge from an IMD, because there was no Medicaid eligibility for person or facility while they were inpatients. Hence there is no "bed" available to swap for a community slot.

Medicaid also pays for nursing home care for a significant proportion of residents who are elderly -- directly for Medicaid eligibles, and through spend-down provisions with "community spouse" protections for persons not eligible at the time of admission.

Impact of IMD exclusion on care

The hospital care received by persons with severe brain disorders moved to general care hospital psychiatric wards has been criticized. It has been characterized, in terms of constancy and quality of care, as being poorer than care in private psychiatric or even state hospitals.

One unacceptable consequence of the present situation is that not only is a facility precluded from being reimbursed by Medicaid, but individual patients' eligibility for Medicaid is extinguished while they are inpatients in an IMD. Consequently, for treatment of medical disorders not related to their severe brain disorders diagnosis, they must be discharged from the IMD, have their Medicaid eligibility reinstated, be treated in a med/surg setting, and then be readmitted to the IMD.

Medicaid federal match can generally be utilized (for 22 to 64-year olds) only in support of community-based care. (Psychiatric units and scattered beds in acute general care hospitals are the exception.) This may encourage poor coordination with state hospitals. The cost advantage to the state can drain state dollars from the system entirely, simply cost-shifting in substantial part to the federal Medicaid match. A state that, for example, saves $100 million from closing or downsizing hospitals can deliver $100 million worth of community-based care for only $50 million at a maximum, with at least $50 million in federal Medicaid matching. The other $50 million in state funds probably leaves the mental health system for tax relief or other public purposes.

Changing public sector environment

The state public mental health system, the state hospitals, and Medicaid itself have undergone enormous change over the past three decades. Between 1970 and 1990 the total number of state (and county) psychiatric beds decreased to 272,253, from 525,878 -- nearly a 50% drop. Yet during this time the number of state psychiatric hospitals dropped by only about 5% -- from 277 to 263 (More were closed, but new ones were built.) Since 1990 states have closed 34 hospitals, and are planning to close 10 more.

States which utilized the option to treat those over 65 and or under 22 in state psychiatric hospitals thereby qualified the facility as a Medicaid-certified provider. Despite the fact that the same facility remained an IMD, this provider status qualified it to apply for DSH (disproportionate share hospital) payments. Of the slightly under $3 billion spent by Medicaid on hospitalization under control of the state MHAs for persons with severe brain disorders , $1.8 billion was in DSH payments (1993).

Political pressures to gain greater control over growth in entitlements still abound. Returning to the vote on a Constitutional amendment to balance the budget is evidence of this, if any is needed. Nevertheless, Medicaid may escape being capped at the federal level this year according to one school of thought inside the beltway. (DSH could still be cut, even if overall modification doesn't happen.)

The President had been expected to re-offer his per capita cap proposal from the last Congress, and HHS expected the Majority to counter again with the block grant model. Because the Medicaid growth rate is reportedly down anyway, and because the re-distributional effects of either model across the states would likely provoke an unwinnable formula fight, those who say nothing will happen may be correct. The point for us is that Medicaid could still be cut by federal law.

Previous NAMI strategy

NAMI argued during the comprehensive health care reform debate in the 103rd Congress that some of the most highly regarded psychiatric treatment facilities were off limits to public patients because of the exclusion. Sheppard Pratt or McLean, for example, are closed to Medicaid recipients. This argument was effective with Members and staff, who instinctively would want the best treatment for their loved one, if a severe brain disorder were present. (This position was taken in the context of a greater integration of Medicaid with private insurance than is now under consideration.)

NAMI also argued strongly throughout the debate on comprehensive healthcare reform that inpatient days must not be subject to arbitrary limits, because severe psychotic episodes may require more than thirty days per episode or sixty days per year to stabilize a patient to the point that they may be safely discharged to the community. NAMI believes that the clinical course of the illness in each case must be the determinant of length of stay, not arbitrary limits.

Implicitly this position endorses inpatient treatment when clinically indicated, and denies the claims of those who believe any case can be successfully treated in a community setting with little or no inpatient component. This leads to a conclusion that inpatient options ought to be available.

Record of some specialty hospitals

On the other hand, the scandals that some private psychiatric hospitals have perpetrated on the private insurance sector (a recent one in Florida just this year), make advocates and public purchasers leery of permitting unrestricted Medicaid reimbursement to the specialty hospitals.

Total repeal: states' possible responses

If the IMD rule were repealed entirely, states would be able to draw federal Medicaid matching for their mental hospitals -- arguably creating an incentive to keep beds occupied and thereby diverting funds from community services. It is not an unreasonable assumption that the state dollars replaced by such federal matching could be removed entirely from the treatment and supports for persons with severe brain disorders in the public programs. A state budget director under duress to find dollars for another public purpose, perhaps under court order or consent decree, would take the freed-up dollars out of the mental health system without hesitation. (Apprehension over this potential outcome was voiced by NAMI in connection with the House version of the Medicaid block grant in the last Congress.)

The counter argument is that states know well that their state Medicaid matching dollar goes much further in the community services network than it does supporting very expensive bed days in state hospitals. This is certainly true, but subject to external conditions that vary from state to state -- such as AFSCME contracts with hospital employees (Northeastern and Midwestern states, principally), and the power in the legislature of the Senators and Assemblymen in whose districts the hospitals/jobs are located.

Total repeal: specialty hospital response

The question of private specialty hospitals being accorded Medicaid reimbursements is another matter. The mental health advocacy community in DC has told the National Association of Psychiatric Health Systems (NAPHS) that it will strongly oppose complete repeal. It might support admission of the specialty hospitals to the Medicaid funding stream, if it were only for "acute" care -- not yet defined, and in a managed system to prevent inappropriate lengths of stay.

States have seen the wisdom of a significantly less costly bed day (according to NAPHS) than in state facilities, and in some cases have re-allocated waiver savings to purchase such private bed days. In such cases HCFA has not waived the IMD prohibition, but it has approved the states' plans for investment of the savings.

Partial repeal/bed-limit change

One variant of modifying the current prohibition for facilities of over 16 beds would increase the number of beds allowable. New York proposed 30 beds in the past. SAMHSA recommended a 50-bed limit to the Secretary of HHS in the last Congress. SAMHSA's objective was residential drug treatment for mothers who could then move their children into the facility as well without causing the facility to lose payment eligibility through exceeding the bed limit.

A likely concession of the NAPHS proponents of amendment of the IMD "rule" is that there be no greater cost to the Medicaid program than if there were no change. How this is to be accomplished administratively is not completely spelled out. It could result in an artificial cap on all inpatient care at a baseline level, with the state and its agents thereafter having only that dollar amount within which to manage unpredictable inpatient demands.

Effect on substance abuse treatment

This raises a different issue: that of perhaps diluting Medicaid resources which may about to be capped by broadening the allowable services for which they may reimburse. This may be sound and humane public policy which could take resources from NAMI's prime objective.

Relationship to DSH

Policy Committee Chairman Sue Davis wanted the consideration of the possible repeal of the IMD exclusion considered together with the loss of some DSH payments to the states.

The President's proposal for Medicaid will be released as part of the Budget proposal, following the State of the Union Message in the first week of February. It will reportedly contain a $22 billion reduction over five years. $7 billion of this comes from the per capita cap change, and the remaining $15 billion comes from DSH (disproportionate share hospitals). This $15 billion represents about a third of current DSH payments.

The big question is how such a DSH cut would be allocated among states. Will it be pro rata or targeted? Targeted would mean that a de novo census of hospitals that furnish more than 25% of their billings in "uncompensated care" would be developed, and remaining DSH payments would follow this formula. The alternative would be to leave the money where it has been historically and reduce it proportionally. The latter may be easier politically because it doesn't take away what communities have now to give to communities which have less or none currently.

The likelihood of a DSH cut is greater than that of an IMD repeal, partial or entire. So every state could assume a drop in federal medicaid reimbursement for uncompensated care. Some states have drawn DSH payments to their state hospitals. This is uneven across states.

If a state whose mental hospital(s) have received DSH payments in the past were to be able to draw federal Medicaid matching directly, would they still be able to draw DSH? For cases that still would not become Medicaid eligible, and would remain "uncompensated", yes. But for those cases made Medicaid eligible by IMD repeal, DSH claims would be over.

Why would this matter, since now the state would be able to claim such cases under Medicaid? If Medicaid were effectively capped, either by Act of Congress or through the state's budget limits for matching funds, the state's ability to use Medicaid for eligibles in the state hospital could take money from other programs supported by Medicaid.

At the same time that a state could be taking a proportional DSH cut at the federal level with all other states, many of the persons in its hospital census who counted toward the DSH formula would no longer be "uncompensated" cases due to restored Medicaid eligibility, and so would no longer count toward the DSH payment formula. As a result states could take a double hit on DSH, while only moving Medicaid dollars around -- not attracting any additional federal Medicaid matching. This situation could create an incentive to claim Medicaid reimbursement for inpatient care at the state hospital(s), where an extraneous condition exists that requires keeping the hospital(s) open.

Suggested guidelines for NAMI position

Modification of the IMD exclusion must not result in

• withdrawal of public funds from the treatment system;
• warehousing of persons with severe brain disorders in state mental hospitals;
• denial of lengths of stay appropriate to what is clinically indicated case-by-case;
• diminished funding for the treatment of persons with serious brain disorders;
• diminished community-based systems of care for persons with serious brain disorders.

Changes in IMD Exclusion should:

• eliminate discrimination against people with serious brain disorders;
• eliminate bureaucratic barriers to treatment (at the very least it should not enhance bureaucratic barriers);
• eliminate perverse incentives on treatment systems by ceasing to finance policy that impairs treatment of people with serious brain disorders;
• let clinical need--for acute hospitalizations or long-term care--determine the intervention needed by the patient.

The above guidance would help NAMI Board and staff in screening specific proposals that come forward for acceptability to NAMI.

Existing Board Policy on IMDs is as follows, squarely placing NAMI on record as supporting repeal of the IMD exclusion:

Papers from the Legal Action Center which takes a firm position in favor of coverage of inpatient treatment for drug abuse; from SAMHSA which lays out options and makes recommendations; and from NAPHS which supports a "level playing field" in a budget neutral, acute care environment are enclosed.

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