A decades-old policy incentivizes Colorado health providers to prematurely discharge patients with serious mental illness from psychiatric hospitals, crisis stabilization units, residential treatment centers and nursing homes, state leaders said.
Now, legislators are working to address the issue by recommending that $7.2 million is allocated to the Colorado Medicaid department to reimburse providers that work with patients who need care for up to 30 days.
The additional funding would also allow the state Medicaid department to reimburse facilities for patients who stay for up to 60 days in rare instances when mental health providers deem it medically necessary.
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The Colorado behavioral health care community has been advocating for the policy change for years.
“We are pleased with the Joint Budget Committee’s recommendation to expand coverage for inpatient mental health services,” Cristen Bates, deputy Medicaid director for the state Medicaid department, wrote in an email to The Colorado Sun.
“This is going to help make sure people are leaving psychiatric facilities stabilized, making the recovery process more successful,” she wrote. “We hope that this will reduce people having to come back to the emergency department, hospital, or even entering into the criminal justice system.”
To implement the new policy, state Medicaid leaders said they plan to submit a waiver to the federal Centers for Medicare and Medicaid Services by April 1.
However, it could take six to 18 months for the Centers for Medicare and Medicaid Services to approve the waiver.
And that’s if the Joint Budget Committee’s recommendation makes it into the final spending plan. The Joint Budget Committee meets throughout this week to finalize its budget proposal for 2024-25, but the bill has to be passed by both chambers and be signed into law by Gov. Jared Polis before federal approval for the waiver can be secured.
Still, state Medicaid department leaders said they hope the new funds are available by January.
Changing a decades-old policy
Some Joint Budget Committee members said the “Institutions for Mental Disease exclusion,” a nationwide policy passed by the federal government in 1965, is inhumane.
A section of the Social Security Act bars states from receiving federal Medicaid funding for any medical or behavioral health service provided to people age 21 to 64 at “institutions for mental disease” that have more than 16 beds.
“Institutions for mental disease,” or IMD, is an outdated term, mental health advocates say, used to describe psychiatric hospitals, crisis stabilization units, residential treatment facilities and nursing homes. These facilities primarily provide diagnosis, treatment or other care to people with mental health and substance use disorders.
At a meeting March 11, Joint Budget Committee members said the IMD policy incentivizes providers to prematurely discharge patients by the 15th day of their stay and deprives their mental health providers of the reimbursement payments they deserve for administering the care.
If a patient with Medicaid stays at one of these facilities for 16 days or more per calendar month, the facility is not reimbursed at all by the state Medicaid department.
The IMD policy was passed during the deinstitutionalization movement and the goal was to get people out of asylums and back into their communities while also increasing availability of publicly funded, community-based mental health services.
“The thought was, states would be less likely to institutionalize people with serious mental health conditions, if the federal government wouldn’t pay for long lengths of stay and would instead pay for services in the community, which was wonderful,” said Lauren Snyder, vice president of government affairs for Mental Health Colorado, which is part of a coalition asking the state to reimburse providers for the longer stays.
“However, what has happened is, people who need longer lengths of stay can’t get inpatient services because our state mental health hospitals are full or have long waiting lists,” she said. “People are still being institutionalized, in jail, when they really need a longer stabilization stay at a psychiatric facility.”
Some Medicaid benefits have been updated and modernized, while others like the IMD exclusion, have been in place since the inception of the program.
The IMD exclusion is the only part of federal Medicaid law that prohibits payment for the cost of providing medical care because of the kind of illness being treated, according to the National Alliance on Mental Illness.
And the “discriminatory” policy has resulted in unequal coverage for mental health care, according to the organization.
In 2018, states were given the option to apply for waivers from the federal government that allow them to receive reimbursement from Medicaid to cover up to 30-day stays at IMD facilities.
Currently, 12 states have those waivers.
In 2016, Colorado’s Medicaid department secured a waiver from the federal government that allows it to cover up to 15-day stays at facilities statewide.
It then secured an additional waiver Jan. 1, 2021, that allows it to cover substance use services at IMD facilities for an average of 30 days or up to 60 days in rare cases.
The state Medicaid department is asking for an amendment to the waiver to allow it to reimburse providers at these facilities when patients with serious mental illness need longer stays.
Providing uncompensated care
While the waiver option shows progress, the IMD rule should be removed completely to help strengthen the mental health care system, according to the National Alliance on Mental Illness.
“It’s been a pain point for us as a hospital trying to do this work, and it’s one that’s been rather immutable,” said David Conklin, chief medical officer for Mind Springs Health and West Springs Hospital. “When it comes to patient care, you’ve always got to take the high road and we always get stuck with the short end of the financial stick.”
The IMD rule affects West Springs Hospital in Grand Junction, which has 48 beds for patients with serious mental illness. Many of those patients also have substance use disorders, he said.
When a patient stays for more than 15 days at the hospital, they aren’t automatically discharged if their care isn’t complete, he said. “It just means we don’t get paid for caring for them.”
In 2023, West Springs Hospital didn’t receive reimbursement payments 24 times, because of the IMD exclusion, Conklin said.
That means the hospital provided $763,000 or 467 days worth of uncompensated care to patients during that year because of the IMD policy, Conklin said.
If two Medicaid patients stay for longer than 15 days during one month at West Springs Hospital, the amount of money the facility loses because it isn’t reimbursed is about the same as a one-year salary for an outpatient case manager working there, Conklin said.
The average length of stay at the hospital is about six and a half days, slightly lower than the national average, and so most patients are not affected by the IMD exclusion, he said.
But patients who are there for longer than 15 days are the sickest and most vulnerable and need the care, he said.
The IMD policy shames and stigmatizes the sickest Medicaid members with serious mental illness and insinuates their health care should not be paid for at all, or equally, when compared to others with the same behavioral health conditions who have other kinds of insurance plans, Conklin said.
The policy also deprives the mental health system of needed resources and drives hospital bed shortages, he added.
“Why would someone build a freestanding psychiatric hospital if they knew they weren’t going to be paid for some percentage of patients that come there?” Conklin asked. “In an age where we’re more aware of parity, it doesn’t seem like this aligns with the concept of parity anymore.”
One mother’s struggle
The state Medicaid department worked with consulting firm Health Management Associates to evaluate the impact of covering longer stays at psychiatric hospitals, crisis stabilization units, residential treatment centers and nursing homes.
The analysis concluded 2.7% of stays exceeded 15 days at those facilities statewide. Less than 1% of people stay for more than 30 days, said Bates, the Medicaid deputy director for Colorado.
Medicaid reimbursement for longer stays at these facilities will likely save the state money, Bates said, because untreated mental health conditions can exacerbate physical ailments and can lead to job loss, economic instability and other problems that drive up the total cost for health care and human services.
There are improved health and access to services outcomes for people with serious mental illness in states with IMD exclusion waivers.
Vermont’s waiver evaluation from 2013 to 2016 found decreases in emergency room visits and inpatient hospitalizations. It also found increased rates of initiation and engagement at community-based treatment centers after people were discharged from inpatient facilities.
Barbara Vassis is hopeful people with serious mental illness will fare better in facilities affected by the IMD exclusion.
Her daughter, Erin, 33, is on her seventh round of competency restoration and has been placed on mental health holds at least four times.
Erin has stayed at inpatient facilities about 10 times, and at the 13- or 14-day mark during most of those stays, facility leaders say she’s ready to leave or they send her to another facility, even though she’s not yet stable, Vassis said.
“How coincidental is it that she gets out right at that 13-, 14-day mark over and over and over and over again?” her mother asked. “It’s b–s and you really need to make sure someone is stable because, otherwise, if they don’t have a home to come home to, they’re at risk for homelessness and recidivism.”
In June 2021, Erin spent 20 nights at an emergency room, crisis center, detox facility or homeless shelter because she had nowhere else to go and couldn’t get the medical care she needed, her mother said.
In August 2022, Erin broke into her mother’s house and stole Vassis’ belongings and vehicle. Since then, she’s spent two stints in the Boulder County Jail, for the burglary and for failing to appear in court.
Vassis said when her daughter is in jail, she’s not required to take medications and her health is declining, as a result.
“She works on a multidimensional and intergalactic world and she’s happy doing that work, but it’s not real, and the longer she’s allowed to live in her head, in that space, the more those synapses and pathways are being reinforced,” Vassis said.
“The Erin that can live in our 3D world is eventually going to cease to exist,” Vassis said. “If they let her out tomorrow, she would not be able to care for herself.”
People with mental illness have potential, Vassis said.
Erin is an artist, has worked as a chef and was able to live on her own, her mother said.
“These are not just throwaway people. We’ve had these problems for a long time and not much has changed,” Vassis said. “I’ve seen instances where 30 days is not enough time to get her stable but I’m hopeful 30 days is a whole lot better than 15.”
MORE: Email HCPF_IMD@state.co.us for more information about the IMD exclusion.