Per the CFR, at 42 CFR 435.1010, an Institution for Mental Diseases (IMD) is 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. Whether an institution is an IMD is determined by its overall character as that of a facility established and maintained primarily for the care and treatment of individuals with mental diseases, whether or not it is licensed as such.
CMS’s guidance on how to determine when the IMD exclusion applies is included in Part 4 of the State Medicaid Manual. A key criterion is if the current need for institutionalization for more than 50 percent of all the residents in the facility results from mental diseases. It is important to note that a NF may be an IMD if more than 50 percent of the NF residents require specialized services for treatment of serious mental illnesses, as defined in 42 CFR 483.102(b).
The Medicaid Institutes for Mental Disease (IMD) exclusion prohibits federal payments to states for services provided to most adult Medicaid beneficiaries who are residents of an IMD, whether services are provided inside or outside the IMD. The exclusion applies only to Medicaid beneficiaries aged 21-64. States may choose to offer inpatient mental health services in their State plan to residents under 21 (the Inpatient Psychiatric under 21 benefit) or over 65 (the IMD over 65 benefit).
The IMD exclusion is intended to ensure that states, and not the federal government, are primarily responsible for funding inpatient and residential behavioral health services. The IMD exclusion creates an incentive for states to identify alternatives to IMD settings, when treatment in small community-based settings would be appropriate.
PASRR regulations at 42 CFR 483.132 require that when a person has a PASRR condition, the evaluator must assess, and the state must determine, whether nursing facility (NF) services and level of care are required. In some instances, when inpatient care is required, but the NF is not the appropriate setting, an IMD providing services to individuals aged 65 or older, or a psychiatric hospital may be the most appropriate institutional setting for meeting those needs. In such instances, or any other instance where the setting meets the 50 percent criterion, the state assumes full responsibility for the cost of the individual’s care, unless the State offers an Inpatient Psychiatric Services under 21 or IMD over 65 benefit for which the individual qualifies.