Medicaid, Mentally Ill, and state hospitals

(two articles)

How changing a federal law can reduce pressure to close your state hospital


In many states the government is promising (threatening) to close the state psychiatric hospitals. In some states, they are promising to reinvest the savings that come from closing state psychiatric hospitals in community based  services. In some states, this works. In other states, the hospitals close and the community-based services are not funded. Some advocates want to help  close hospitals, while others want to keep them open.

It is my own personal opinion, that psychiatric hospitals should not close until after, not before, community based services are built. Otherwise, too  often, we end up trading real services for real promises. And as Curt Flory and Rose Marie Friedrich of the NAMI Long Term Care Project point out, there are over 1.000,000 individuals with NBD who may need some form of long term care. This is because they be treatment-resistant, treatment non-responsive, suffering from side effects, or other reasons.

However, there is intense pressure on states to close psychiatric hospitals due to a little known, but very important provision of Medicaid law referred to as the “Institute for Mental Disease (IMD) Exclusion” The IMD Exclusion prevents federal Medicaid funds from being used by states to care for individuals between 21 years old and 65 years old who live in institutions which specialize in the treatment of psychiatric disorders (IMDs).

The IMD exclusion was included in Medicaid legislation because the federal government did not want to pick up what had historically been a state responsibility: caring for individuals with NBD. But the IMD Exclusion has had the exact opposite effect: it forces states to kick people out of hospitals so the state can get reimbursed (generally 50%) from the federal government for their care in the community.

In order for states to access the federal Medicaid funds, they have to kick the individual out of the psychiatric hospital, no matter how sick or inappropriate discharge is. Hence we see a trend for hospitals to release individuals sicker and quicker and without appropriate referrals to community based care. This on-going form of deinstitutionalization is being done for one reason above all. It has nothing to do with the advent of new treatments, the desire to treat in the least restrictive environment, or patient needs and wants. It is simply a way to turn non-Medicaid eligible individuals into Medicaid eligible individuals so the state can access federal dollars for their care.

Repealing the IMD exclusion will still allow the states to close hospitals and discharge individuals. And it will still allow them to invest in community-based services. But the rationale will now be driven by quality of care, rather than a desire to shift costs.

NAMI already has a policy to oppose discrimination. NAMI also has a policy opposing the IMD Exclusion.


“Increasingly, individuals with mental illnesses are left to fend for themselves on the streets, where they victimize others or, more frequently, are victimized themselves. Eventually, many wind up in prison, where the likelihood of treatment is nearly as remote.”
—Sen. Daniel Patrick Moynihan in the Congressional Record, July 12, 1999

The widespread introduction of the first, effective anti-psychotic medication chlorpromazine, or Thorazine, in 1955 launched deinstitutionalization, the moving of patients out of psychiatric hospital settings and into the community. The pace of deinstitutionalization accelerated significantly following the enactment of Medicaid and Medicare in 1965. While in state hospitals, patients were the fiscal responsibility of the states, but by discharging them, the states effectively shifted the majority of that responsibility to the federal government.

Discriminatory Provision

When enacting Medicaid, the federal government specifically excluded payments for patients in state psychiatric hospitals and other “institutions for mental diseases,” or IMDs, to accomplish two goals: 1) to foster deinstitutionalization; and 2) to shift the costs back to the states which were viewed by the federal government as traditionally responsible for such care. States proceeded to transfer massive numbers of patients from state hospitals to nursing homes and the community where Medicaid reimbursement was available. (“[t]he term ‘institution for mental diseases’ means 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.” 42 U.S.C. §1396d(i))

Indigent persons who need treatment in a hospital can count on Medicaid to pay for diseases of the heart, liver, blood and most other body organs. Medicaid will not cover the individual if he or she is between the ages of 21 and 65, has a disease in his or her brain and needs care in a psychiatric hospital. The Federal government’s IMD Exclusion prohibits Medicaid from covering any treatment (even non-psychiatric) in state and private psychiatric hospitals and other IMDs.

For the most severely mentally ill, private insurance is essentially meaningless. Because of their illnesses, most individuals with the severest forms of brain disease are unemployed and private insurance is a luxury they cannot afford. While the federal government seeks “parity” for treatment of lesser forms of mental illness by private insurers, it continues to discriminate against those with severe mental illnesses by denying them coverage under Medicaid when they require hospitalization in a psychiatric hospital.

State Reimbursement

The federal government reimburses states for between 50 and 80 percent of treatment under Medicaid. Because treatment in an IMD is excluded from Medicaid reimbursement, the states have a significant fiscal incentive to limit treatment in psychiatric hospitals. This is the driving force behind deinstitutionalization as states seek to push patients out of the hospitals and into Medicaid-eligible services where the federal government picks up most of the cost, even though treatment may be unsatisfactory, more costly and less effective.

Hospital Closures

Approximately 500,000 individuals were in inpatient psychiatric care in state psychiatric hospitals when the Medicaid program started, compared with fewer than 60,000 in 1999. Hospital closures have actually accelerated in recent years. Forty state hospitals completely shut their doors between 1990 and 1997, nearly three times as many as during the entire period from 1970 to 1990, and many more closures are planned.

As state psychiatric hospitals improved in quality, it became increasingly common to discharge patients from relatively good hospitals with active rehabilitation programs and transinstitutionalize them to nursing homes, general hospitals or similar institutions with markedly inferior psychiatric care and no rehabilitation programs at all. States save state funds, but transinstitutionalized patients pay a substantial price for the substandard care.

Costs in general hospitals are generally $200 per day more than the costs in public psychiatric hospitals. These additional costs are of little consequence to the states since federal Medicaid dollars are paying the majority of the bill; the states’ costs are lower and that is the limit of their concern. Unfortunately, evidence shows that general hospitals admit psychiatric patients with less severe illnesses, but turn away those who are more seriously ill. Inpatient stays for people with serious brain disorders are typically shorter in general hospitals, which compromises the person’s ability to stabilize on medication.

Consequences of Discrimination

Medicaid’s denial of coverage results in homelessness, incarceration, victimization and even death for many people who are so ill they are unable to care for themselves. Of the 4 million Americans with schizophrenia and manic-depression, approximately 50 percent (2 million) are not being treated on any given day. By the Justice Department’s own statistics, there are currently about 283,800 mentally ill people locked up in the nation’s jails and prisons. The Los Angeles County Jail and New York’s Riker’s Island are currently the two largest “treatment facilities” for the mentally ill in the country. Another 150,000 to 200,000 mentally ill are homeless, and 28 percent get at least some of their meals from garbage cans. More than ten percent will die from suicide. Others will commit acts of violence against family, friends and total strangers.

Source: Treatment Advocacy Center (

Repealing the IMD exclusion would involve repealing section 1905(i) of Title XIX of the Social Security Act (which defines “IMD”) and striking in section 1905 (a) (1) the words “other than services in an IMD” If you are interested in working towards it’s repeal, you should

1. Write your Senator and Congressman, and DMH Commissioner.

2. Contact Cidett Perrin, Director of Legislation at the National Assoc. of  Psychiatric Health Systems (1317 F St. NW; Suite 3-1; Washington DC 20004-1105) and ask for a copy of their report on this.

DJ Jaffe is Executive Director of the non-partisan Mental Illness Policy Org., and author of Insane Consequences: How the Mental Health Industry Fails the Mentally Ill. He is a critic of the mental health industry for ignoring the seriously ill, and has been advocating for better treatment for individuals with serious mental illness for over 30 years. He has written op-eds on the intersection of mental health and criminal justice policy for the New York Times, Wall St. Journal and the Washington Post. New York Magazine has credited him with being the driving force behind the passage of New York’s Kendra’s Law and Congress incorporated ideas proposed by DJ in the Helping Families in Mental Health Crisis Act.