Groups ranging from Community Anti-Drug Coalitions of America (CADCA) to the National Association of State Alcohol and Drug Abuse Directors (NASADAD) are urging Department of Health and Human Services Secretary Donna Shalala to lift the so-called "IMD exclusion" -- a piece of Health Care Financing Administration (HCFA) regulatory language that effectively prohibits Medicaid funding of most residential treatment.

Medicaid rules established in 1965 prohibit payment for services delivered to individuals between the ages of 21 and 65 in an institution for mental disease (IMD), defined as a hospital, nursing facility or other institution with more than 16 beds. HCFA has long interpreted this rule to include residential addiction programs, while over the years field advocates have called for the restriction to be lifted. "The unintended consequences of the IMD exclusion has been that substance-abuse treatment that might be provided in less-costly community-based residential facilities is provided in a costly inpatient hospital setting," NASADAD pointed out in a Feb. 16 letter to Shalala.

The subject of the IMD exclusion arose at a December, 1999 meeting on drug abuse and criminal offenders, sponsored by the Office of National Drug Control Policy and attended by Shalala, drug czar Barry McCaffrey and Attorney General Janet Reno. According to meeting attendee Deb Beck, president of the Drug and Alcohol Service Providers Organization of Pennsylvania, advocates told policymakers that changing the IMD rules would provide more treatment capacity for addicted criminal offenders.

Encouraged by a positive reception from federal officials, field groups began writing to Shalala and encouraging her to amend the Medicaid rules. Supporters of the change argue that making the change not only would help break the cycle of addiction and crime, but also provide support to pregnant women and other Temporary Assistance to Needy Families (TANF) recipients, as well as Welfare to Work participants who need to be clean and sober in order to get jobs. "Families who receive TANF or who are in the child abuse/neglect system can either lose their income or custody of their children if they do not receive substance abuse treatment benefits," according to CADCA. "Long waiting lists face these families and other vulnerable populations, including youth. Lifting the IMD exclusion for substance abuse would help tremendously."

In response, Shalala appointed a work group to look at the problem, comprised of officials from the Substance Abuse and Mental Health Services Administration, HCFA, the Public Health Service, the National Institute on Drug Abuse and the National Institute on Alcohol Abuse and Alcoholism. The working group has completed a report detailing the history of the IMD exclusion, the current addiction treatment system, the need for increased services and a list of policy options, which has been forwarded to Shalala's office.

Advocates for addiction treatment say that the cost benefits of changing the IMD rule -- in terms of employability, utilization of other health care services and decreased crime -- would far outweigh any additional expenditures. Beck, for instance, notes that addiction treatment accounts for a far smaller percentage of behavioral health care costs than mental health, and that the welfare reform of the 1990s has meant a far smaller population of people eligible for Medicaid benefits.

However, with a behavioral health care system where the lines between addiction and mental health care have become increasingly blurry, federal officials reportedly are concerned that tinkering with the IMD language could cause of flood of claims for reimbursement for people with cooccurring addiction and mental health problems. Policymakers also are wary about potential cost-shifting by states, which could take advantage of the new IMD language to obtain Medicaid reimbursement for existing services without necessarily increasing capacity.

Advocates stress that Shalala has the power to amend the rule herself, since the inclusion of addiction treatment under the IMD exclusion is a matter of interpretation, and thus does not require legislation to amend. But the IMD regulations were written to prevent abuses of a institution-based mental health system that has changed radically over the past 35 years. If HHS determines that the rules need to be completely overhauled, then legislative action may indeed be necessary.

In addition to NASADAD and CADCA, a wide range of treatment groups, lawmakers, law-enforcement officials and judges have written in support of the change, including Mississippi Attorney General Mike Moore and Maryland Lt. Gov. Kathleen Kennedy Townshend. ONDCP's McCaffrey also has publicly stated his support for lifting the IMD exclusion.