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Marjorie L. Baldwin Ph.D.
Marjorie L. Baldwin Ph.D.

Help for the Psychiatric Ward

After half a century, Medicaid relaxes the IMD exclusion.

In almost every state in the country, the supply of inpatient psychiatric care is insufficient to meet the demand. In a 2006 survey, 34 state mental health authorities reported a shortage of beds for acute psychiatric care.[1] The shortages mean that patients who enter an emergency room with an acute psychiatric crisis may wait days or weeks for a bed, inmates who qualify for psychiatric care may wait in jail for several months before a bed becomes available, and patients who are admitted to a psychiatric hospital are often released too soon, in order to make room for other patients. In a 2014 survey, 19 state mental health directors said the judicial system had found them in contempt, or threatened to, for failure to admit jailed inmates to psychiatric hospitals in a timely manner.[2]

Pablo Padilla/Unsplash
Source: Pablo Padilla/Unsplash

Today, there are fewer than 40,000 beds in state psychiatric hospitals in the U.S., down from a peak of more than 550,000 in 1955. Despite the shortages, the number of beds continues to decline—down 13 percent since 2010.[2] As a result, thousands of persons with serious mental illness are living on the streets, or in jail, or with families who are ill-equipped to cope with the acute symptoms of mental illness. Why have the states not acted to address the issue? Why are we not providing adequate facilities for these desperately ill people?

The IMD exclusion

Part of the problem is a provision, embedded in the 1965 law that established the Medicare and Medicaid programs, known as the IMD exclusion. The exclusion prohibits federal Medicaid matching funds from paying for care in an Institution for Mental Disease (IMD). (An IMD is defined as an inpatient facility, with more than 16 beds, in which the majority of patients are diagnosed with a severe mental illness.) In other words, if a Medicaid-eligible person with serious mental illness is treated in a community outpatient setting, or in a nursing home, the state receives federal matching funds to help pay for their care. If the same individual is admitted to a state psychiatric hospital, the state bears 100 percent of the costs.

The response to the financial incentives in Medicaid was dramatic. Between 1965 and 1975, the inpatient population in state hospitals declined by nearly 60 percent.[3] The exodus from inpatient psychiatric care continues to the present day, fueled by changing legal standards for involuntary commitment and the mistaken belief that persons with acute symptoms of serious mental illness can be adequately treated in the community. And so we find ourselves in 2019, with too few psychiatric beds, too many homeless people on the streets, and too many people with serious mental illness in jail instead of in a hospital. However, the situation may be about to change.

CMS issues new rules

In November 2018, the Centers for Medicare and Medicaid Services (CMS) issued new guidance pertaining to the IMD exclusion. States may now apply for waivers to obtain Medicaid matching funds for inpatient stays in psychiatric hospitals for up to 30 days.[4] Such waivers have previously been used to cover residential treatment for persons with substance use disorders. The new ruling, however, marks the first time that Medicaid matching funds may be used to cover residential care for persons with serious mental illness in an IMD.

We can be optimistic that the change in policy will result in a marked improvement in the quality of care available to persons with the most serious mental illnesses. Medicaid is the single largest payer for mental health services in the U.S. The IMD exclusion has, therefore, cut off a much-needed source of funding for inpatient psychiatric care, and is at least partly responsible for the current shortage of inpatient beds. Under the new guidance, states have a source of funding which can help them expand their capacity to treat patients with serious mental illness in an institution which specializes in psychiatric care.

The guidance does not provide funding for long-term stays in a psychiatric hospital, and there is no need to return to the time when patients with mental illness were hospitalized for months, or years, or for a lifetime. However, community-based care for serious mental illness often fails because a person does not recognize that they are ill and does not adhere to their medication regimen. Two to three weeks of regular administration of antipsychotic drugs in an inpatient setting can relieve the acute symptoms of mental illness for many patients. The guidance provides funding for up to 30 days, which should be sufficient to stabilize symptoms for those who respond to treatment.

Why did it take 50+ years?

Mary Bettini Blank/Pixabay
Source: Mary Bettini Blank/Pixabay

When the legislation establishing Medicaid was passed in 1965, the reputation of the state mental hospitals was near an all-time low. With inadequate funds and shortness of staff, the care provided to patients often ranged from poor to inhumane, despite the efforts of many dedicated physicians and staff. Advocates argued that the prognosis for patients would improve if they lived and received treatment within their community. The dream was that patients would be discharged from the hospitals and return to live with their families. Their care would be provided on an outpatient basis at federally funded Community Mental Health Centers.

Unfortunately, the community care model did not evolve as planned. Many patients who were discharged from the state hospitals had no family; many others had families that were not equipped to care for the patient at home. Only a tiny fraction of discharged patients found their way to a Community Mental Health Center. Outside the hospital, many patients stopped taking their medications, so their acute symptoms returned. Thousands of ex-mental patients ended up living on the streets, or in prison after deviant behavior caused an encounter with the justice system. The dream had collapsed, but the IMD exclusion persisted. (It is difficult for individuals, and for federal agencies, to admit that they have made a mistake, and even more difficult to change course.)

We can be thankful that CMS delivered relief to persons with serious mental illness and their families. After 54 years, the federal government has stopped discriminating against psychiatric hospitals in the Medicaid program.


[1] Sharfstein SS, Dickerson FB. “Hospital Psychiatry for the Twenty-first Century.” Health Affairs 28 (2009): 686.

[2] Ollove M. “Amid Shortage of Psychiatric Beds, Mentally Ill Face Long Waits for Treatment.” PBS News Hour (August 2, 2016). Retrieved from….

[3] Gronfein W. “Psychotropic Drugs and the Origins of Deinstitutionalization.” Social Problems 32 (1985): 440.

[4] Newsroom. “CMS Announces New Medicaid Demonstration Opportunity to Expand Mental Health Treatment Services.” Centers for Medicare and Medicaid Services (November 13, 2018). Retrieved from….

About the Author
Marjorie L. Baldwin Ph.D.

Marjorie L. Baldwin, Ph.D., a health economist and economics professor at Arizona State University, is author of the forthcoming book, Beyond Schizophrenia: Living and Working with a Serious Mental Illness.

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