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Rebecca Farley

Director, Policy & Advocacy, National Council for Behavioral Health

CMS Issues Opportunity for Substance Use Delivery Transformation, Including Limited IMD Coverage

July 27, 2015 | Addictions | Comments
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The Centers for Medicare and Medicaid Services (CMS) today issued a State Medicaid Director (SMD) letter outlining new service delivery opportunities for individuals with a substance use disorder (SUD). The letter highlights a new opportunity for states to use Section 1115 waivers to test Medicaid coverage of a full continuum of addiction treatment settings, including settings that would otherwise be prohibited under the Institutions for Mental Disease (IMD) exclusion.

CMS notes that states “have compelling reasons to provide Medicaid coverage for the identification and treatment of SUD, many of which are given urgency by the national opioid epidemic.” The letter also acknowledges that the IMD payment exclusion challenges states’ abilities to offer a full continuum of care and effectively treat individuals living with substance use disorders.


The new Section 1115 waiver opportunity is designed to assist states with comprehensive SUD delivery system transformation. States are expected to engage in both system-level and practice-level reforms to meet these goals. Broadly speaking, the goals of the initiative are to:

  • Promote strategies to identify individuals with substance use issues or disorders;
  • Enhance clinical practices and promote clinical guidelines and decision-making tools for serving youth and adults with SUD;
  • Build aftercare and recovery support services, such as recovery coaching;
  • Coordinate SUD treatment with primary care and long-term care;
  • Coordinate with other sources of local, state and federal funds for an efficient use of resources consistent with program objectives;
  • Encourage increased use of quality and outcome measures to inform benefit design and payment models; and
  • Identify strategies to address prescription and illicit opioid addiction, consistent with national efforts to curb this epidemic.
IMD Exclusion:

Among the expectations CMS outlines for a transformed system is making greater use of evidence-based benefit design. Here, CMS notes that states will be asked to develop a SUD benefit that encompasses a full continuum of evidence-based practices to address the immediate and long-term needs of individuals living with addictions, including short-term inpatient and short-term residential services for individuals in IMDs. Short term stays are defined as being 15 days or less in an inpatient setting (ASAM Level 4.0) and an average of 30 days in a residential setting (ASAM Levels 3.1, 3.3, 3.5, and 3.7). The letter clearly states that payment for IMD services will be considered only in the context of comprehensive SUD system reforms that meet other expectations outlined in the letter. Such coverage should not supplant community-based services nor divert existing state spending on mental and substance use disorder services.

Incentives for Health IT Adoption:

The letter also includes health IT adoption as an example of a desired practice reform to support SUD delivery system transformation. CMS encourages states to support electronic health information exchange among providers, including through the use of certified electronic health records, in ways consistent with federal health privacy and confidentiality requirements outlined in 42 CFR Part 2.

Other Expectations:

CMS also notes that states must engage in: care coordination efforts that include seamless transitions among care settings; a clear approach for integrating SUD care with mental and primary health care; benefit management and payment reform (such as through capitated and managed fee-for-service approaches); and strategies to address the opioid epidemic. Importantly, CMS clearly indicates that states proposing to introduce any financial or treatment limitations must do so in a way that complies with the terms of the parity law.

For more details, read the full text of the letter.