CMS to Expand Mental Health Treatment Services via Medicaid Demo

The Centers for Medicare & Medicaid Services (CMS) has informed state Medicaid directors that it intends to expand mental health treatment services via a new Medicaid demonstration project, the agency announced in a press release issued Tuesday.

In a letter to the state Medicaid directors, CMS reportedly outlined existing and new opportunities for states to design their own service delivery systems for adults with serious mental illness (SMI) and children with serious emotional disturbance (SED). The letter also cited a new opportunity for states to receive authority to pay for short-term residential treatment services in an institution for mental disease (IMD) for such patients, marking a concerted effort to offer states “the flexibility to make significant improvements on access to quality behavioral healthcare.”

Medicaid is the nation’s single largest payer of behavioral health services, including mental health and substance use services; by one estimate, more than a quarter of adults with a serious mental illness rely on it. Approximately 10.4 million adults in the United States had an SMI in 2016, but only 65 percent received mental health services that year.

“More treatment options for serious mental illness are needed, and that includes more inpatient and residential options. As with the SUD waivers, we will strongly emphasize that inpatient treatment is just one part of what needs to be a complete continuum of care, and participating states will be expected to take action to improve community-based mental healthcare,” U.S. Department of Health and Human Services (HHS) Secretary Alex Azar said in a statement accompanying the press release. “There are effective methods for treating the seriously mentally ill in the outpatient setting, which have a strong track record of success and which this administration supports. We can support both inpatient and outpatient investments at the same time. Both tools are necessary, and both are too hard to access today.”

CMS noted in its press release that it currently offers states the ability to pursue similar demonstration projects under Section 1115(a) of the Social Security Act regarding substance use disorders (SUDs), including opioid use disorder. To date, CMS has approved this authority in 17 states. Early results have been described as promising; in Virginia, for example, there has been a 39 percent decrease in opioid-related emergency room visits, and a 31 percent decrease in substance-use related ER visits overall, post-implementation. 

“With this new opportunity, CMS will be able to offer a pathway forward to the 12 states who have already expressed interest in expanding access to community and residential treatment services for the full continuum of mental health and substance use disorders,” the agency said in its release. “States participating in the SMI/SED demonstration opportunity will be expected to commit to taking a number of actions to improve community-based mental healthcare.”

Some of those expectations include implementing metric-based milestones to ensure quality of care in IMDs, improving connections to community-based care following stays in acute-care settings, and ensuring that a continuum of care is available to address more chronic, ongoing mental healthcare needs of beneficiaries with SMI or SED, CMS said. The agency also wants participants to provide a full array of crisis stabilization services and to engage beneficiaries with SMI or SED in treatment as soon as possible.

“Through this demonstration opportunity, federal Medicaid reimbursement for services will be limited to beneficiaries who are short-term residents in IMDs, primarily to receive mental health treatment,” CMS clarified. “CMS (also) will not approve a demonstration project unless the project is expected to be budget-neutral to the federal government.” 

In addition to outlining the 1115 demonstration opportunity, CMS’s letter to states described strategies under existing authorities to support service delivery systems for adults with SMI and children with SED, specifically addressing the following issues:

  • Earlier identification and engagement in treatment, including improved data-sharing between schools, hospitals, primary care, the criminal justice system, and specialized mental health providers to improve communications;
  • Integration of mental healthcare and primary care that can help ensure that individuals with SMI or SED are identified earlier and connected with the appropriate treatment sooner;
  • Improved access to services for patients across the continuum of care including crisis stabilization services and support to help transition from acute care back into their communities;
  • Better care coordination and transitions to community-based care; and
  • Increased access to evidence-based services that address social risk factors, including services designed to help individuals with SMI or SED maintain a job or stay in school.

CMS’s announcement of the new demonstration closely followed the publication of the Medicaid Managed Care proposed rule.

“States identified key concerns in the 2016 final rules limitation regarding the 15-day length of stay for managed care beneficiaries in an IMD,” the agency noted in its press release. “CMS did not propose any changes to this requirement at this time; however, CMS is asking for comment from states for data that could support a revision to this policy. 

Meanwhile, this new demonstration opportunity will give interested states the ability to seek federal authority to have greater flexibility to pay for residential treatment services in an IMD as part of broader delivery system improvements.”

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Mark Spivey

Mark Spivey is a national correspondent for,, and Auditor Monitor who has been writing and editing material about the federal oversight of American healthcare for more than a decade.

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