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Funding Substance Use Disorder (SUD) services


Opioid overdose deaths have increased every year for the past 20 years, with over 47,600 dying of an opioid overdose in 2017. Yet in 2016, only 3.8 million of an estimated 21 million Americans with a SUD received treatment. To address this growing public health crisis, cities, counties, and states are looking for ways to lower costs and increase revenues for their SUD treatment programs.

There are a variety of federal funding sources that can be used to fund SUD services, but it is challenging for public health agencies to navigate compliance and regulations to identify how to fund these programs that address the opioid epidemic and other SUD issues.

Medicaid restrictions on Institutes of Mental Disease (IMD)
An IMD is a facility with more than 16 beds that primarily operates to care for and treat individuals with mental diseases. SUD is considered a mental disease and thus its treatment is subject to IMD requirements. Most residential SUD treatment is provided in facilities of more than 16 beds. Therefore, unless there is an exception to the IMD exclusion, states cannot use Medicaid to fund most residential SUD services. However, states may pay for SUD services in an IMD setting under the following circumstances:

  • Patients over 65 – The IMD restriction does not  apply to people under the age of 65
  • Patients under 21 – The IMD exclusion does not apply to a child under 21 who is placed in:
    • Psychiatric hospital
    • Psychiatric wings at a hospital
    • Psychiatric Residential Treatment Facility (PRTF)
  • Disproportionate Share Hospital (DSH) payments are lump sum payments to hospitals that serve a disproportionate share of low income, uninsured patients and states can use DSH funds to support IMDs
  • Medicaid Managed Care Organizations (MMCOs) – States may pay MMCOs for enrollees aged 21 through 64 who are in an IMD receiving SUD services, provided the patient stays fewer than 16 days during the month of the payment
  • Support for Patients and Communities Act – Allows states to develop new Medicaid state plan amendments for SUD patients in an eligible IMD for no more than a period of 30 days during a 12-month period 

1115 SUD waivers
Centers for Medicare and Medicaid Services (CMS) offers states the flexibility under Section 1115 (a) of the Social Security Act, to change their Medicaid programs. With the growing drug crises, more and more states are turning to 1115 waivers to improve their SUD service delivery array. In 2015, CMS issued guidance to states on how to develop 1115 SUD waivers and updated that guidance in 2017.

As of August 2019, CMS had approved 1115 waivers in 31 states, and an additional 9 states have pending applications for changes in states’ behavioral health programs. Many of these states are using the 1115 waivers to expand SUD services. 

Massachusetts 1115 SUD waiver
Massachusetts is working to create a continuum for SUD treatment, aligned with the American Society for Addiction Medicine (ASAM) criteria, ranging from:

  • Outpatient services
  • Lower-intensity residential services, called residential rehabilitation services (RRS) medically-managed intensive inpatient services 

Prior to the waiver, Massachusetts could not reimburse for RRS, because the majority of RRS facilities are IMDs. This created a gap in the SUD treatment coverage continuum. However, Massachusetts found that patients with unmanaged or untreated SUD diagnoses often presented in acute settings where their addiction was not identified and addressed, so providing care in RRS facilities lowers costs. Massachusetts’ MMCOs began coverage of the RRS benefit under the waiver on March 1, 2018.

Individuals with SUD had disproportionately higher annualized costs of care, as compared to other Medicaid members. These higher costs were largely driven by expenditures in acute settings. A continuum of care, including RRS, can reduce avoidable utilization in acute settings and support appropriate placements in community settings. Community settings are often more cost-effective and better equipped to support members’ long-term treatment and recovery.

Support for Patients and Communities Act
The Support for Patients and Communities Act was passed in 2018 and it included a variety of initiatives to increase access to SUD services:

  • Children’s Health Insurance Program (CHIP) must provide mental health and SUD benefits on par with those for physical health conditions
  • States may use Medicaid to pay for services for babies with neonatal abstinence syndrome, including counseling and other services for mothers 
  • Medicare must cover services provided in opioid treatment programs, including Medication Assisted Treatment (MAT) and related counseling
  • Medicaid may cover up to 30 days per year of treatment in certain IMDs for people with a SUD who are 21 to 64 years of age
  • Nurse practitioners and physician assistants are authorized to prescribe buprenorphine to treat Opioid Use Disorders (OUD)
  • Other nurses are temporarily permitted to prescribe the medication, and this liberalizes the patient cap
  • DHHS is required to issue guidance on Medicaid reimbursement for assessment, MAT, counseling, and related SUD services delivered using telehealth
  • Clarifies that buprenorphine may be prescribed using telemedicine
  • Expands Medicare payment for some SUD services provided using telehealth

BerryDunn’s cost analysts, actuaries, health economists, statisticians, government accountants, and lawyers stand ready to help public health agencies identify ways to use these programs to fund critical SUD support services and improve the lives of citizens across the country.