Abstract
Objective:
This article describes the federal Medicaid Institutions for Mental Diseases (IMD) exclusion and compares legislative proposals introduced in the 119th Congress—House of Representatives Bill (H.R.) 5662 and H.R. 6727—that seek to repeal this policy.
Methods:
A descriptive policy analysis was conducted using publicly available legislative texts, related federal policy documents, and earlier reviews examining potential impacts of the repeal of the IMD exclusion. The analysis summarizes the statutory basis of the IMD exclusion, reviews existing workarounds, and compares the key mechanisms proposed in H.R. 5662 and H.R. 6727. Potential implications for Medicaid financing and inpatient psychiatric capacity are discussed.
Results:
The IMD exclusion prohibits federal Medicaid reimbursement for most inpatient psychiatric facilities with more than 16 beds for adults aged 21–64 years, contributing to reliance on state financing and temporary waiver programs. Both H.R. 5662 and H.R. 6727 propose repealing this exclusion. H.R. 5662 would repeal the policy without additional requirements, while H.R. 6727 would also require the U.S. Department of Health and Human Services to establish standards for participating facilities. Repeal would expand eligibility for federal Medicaid funding but would not mandate changes in state utilization or capacity.
Conclusions:
Recent legislative efforts to repeal the IMD exclusion reflect a growing concern regarding inpatient psychiatric bed shortages and mental health system strain. Understanding the differences between proposed repeal strategies is essential for evaluating how changes in Medicaid financing could affect inpatient psychiatric care and broader behavioral health systems.
Introduction
Medicaid is the largest payer for behavioral health services in the United States (US) (Medicaid and CHIP Payment and Access Commission, n.d.). Persistent shortages in inpatient psychiatric beds continue to strain emergency departments and community mental health systems (Lindenfeld et al., 2025). Federal policy significantly shapes access to inpatient psychiatric treatment through Medicaid regulations. One such policy is the Institutions for Mental Diseases (IMD) exclusion, first enacted in 1965 as part of the deinstitutionalization movement, which restricts Medicaid reimbursements for inpatient facilities with more than 16 beds serving adults between the ages of 21 and 64 (Pub. L. No. 89-97, 1965).
Limits on Medicaid reimbursement for IMDs are argued to contribute to national shortages in psychiatric beds and have led states to rely on waivers or patchwork solutions to provide care for individuals with severe mental illness (Congressional Research Service, 2025). In late 2025, two House of Representatives Bills (H.R. 5662 and H.R. 6727) were introduced to propose eliminating the IMD exclusion. The purpose of this paper is to provide a descriptive analysis of the IMD exclusion and summarize the legislative mechanisms proposed in H.R. 5662 and H.R. 6727 while highlighting potential implications for psychiatric-mental health nursing.
Background
Definition of IMD
IMD refers to hospitals, nursing facilities, or other institutions of more than 16 beds that provide diagnosis, treatment, or care for individuals with mental diseases (42 U.S.C. § 1396d(a)(30)(B)). To determine whether a facility is an IMD, the primary purpose of the facility is considered; only facilities that primarily treat mental diseases (including substance use disorders) are qualified as IMDs (Congressional Research Service, 2025). Another way a facility may qualify as an IMD is if over 50% of individuals receiving treatment at the location are receiving treatment primarily for mental disease, regardless of the original intention of the facility (Congressional Research Service, 2025).
History of IMD Exclusion Statutes
To understand the IMD Exclusion Act, it is essential to understand the state of psychiatric care prior to the 1950s. For most of the US’s early history, psychiatric care was primarily provided through poorly run mental institutions, commonly known as “insane asylums” (National Association of Medicaid Directors [NAMD], 2022). As a result of the “deinstitutionalization movement,” the government gradually removed care from these state-run facilities with the intention to promote community-based care (NAMD, 2022). As part of this movement, a 1965 exclusion on IMD Medicaid reimbursement for all individuals except those aged 65 years or older was enacted (Congressional Research Service, 2025; Pub. L. No. 89-97, 1965). Those under 21 years of age were excluded a few years after (Pub. L. No. 92-603, 1972). The statutory exception for facilities with 16 beds or fewer was further included in the Medicare Catastrophic Coverage Act of 1988 (Pub. L. No. 100-360, 1988).
Several bills have been introduced in recent years to fully repeal the IMD exclusion, but none have ever gotten out of committee (Congressional Research Service, 2025). H.R. 5662 and H.R. 6727 are the applicable bills in front of the current 119th Congress.
Current Patchwork Workarounds
Some states have applied for waivers of the IMD exclusion for short-term treatment of substance use disorders and/or mental health treatment, first allowed in 1993 (Congressional Research Service, 2025). The SUPPORT Act of 2018 added two additional loopholes, allowing individuals enrolled in Medicaid managed care plans to receive treatment in IMDs for up to 15 days per month, as well as introducing a new Medicaid option that lets states cover IMD stays for up to 30 days per year provided the facilities use evidence-based practices and offer at least two types of medication-assisted treatment (Congressional Research Service, 2025; Pub. L. No. 115-271, 2018).
The last option for coverage is more roundabout than the others: Medicaid Disproportionate Share Hospital (DSH) Payments. These payments are lump-sum funding that states receive to supplement the added costs of Medicaid patients in facilities, and the law allows states to allot the money as they see fit—including to IMDs (Congressional Research Service, 2025). Of note, both Maine and Massachusetts used all their DSH funds on IMDs in Fiscal Year 2023 (Congressional Research Service, 2025).
Legislative Activity Addressing the IMD Exclusion
H. R. 5662
H.R. 5662—Improving Access to Institutional Mental Health Care Act—was reintroduced on September 30, 2025, by Representative Shri Thanedar from Michigan’s 13th District (H.R. 5662, 2025). The proposed bill simply repeals the IMD exclusion without adding any new requirements for IMD facilities to meet to receive Medicaid funding (H.R. 5662, 2025). In a press release during the original release in the 118th Congress, Representative Thanedar (2024) stated that he introduced this bill in remembrance of his first wife who died from a mental health crisis. He further said that the bill aims to extend Medicaid support to institutions that need resources to help individuals experiencing mental health crises.
H. R. 6727
H.R. 6727—Repealing the IMD Exclusion Act—was reintroduced on December 15, 2025, by Representative Ritchie Torres from New York’s 15th District (H.R. 6727, 2025). This bill also proposes the repeal of the IMD exclusion but goes one step further in directing the US Department of Health and Human Services to develop standards for participating facilities to ensure the expansion of coverage does not result in a decrease in quality of care (H.R. 6727, 2025; Torres, 2025). In a press release about the reintroduction, Representative Torres (2025) states that the bill is meant to prevent individuals experiencing mental health crises from cycling through emergency rooms, jails, and homeless shelters.
Comparative Summary
There is only one significant difference between the two proposed bills: H.R. 6727 (2025) includes an additional direction to the US Department of Health and Human Services to establish standards for IMD facilities before they can receive Medicaid funds, while H.R. 5662 (2025) simply repeals the IMD exclusion without any further steps.
Policy Context and Implications
Medicaid Financing Implications
In short, the repeal of the IMD exclusion would shift a portion of inpatient psychiatric costs from state-only or temporary financing structures into standard federal Medicaid funding streams, increasing the availability of federal financial participation. Importantly, repeal would expand financing eligibility rather than require increased inpatient use, leaving implementation decisions largely at the state level. From a systems perspective, changes in Medicaid financing may influence how states balance inpatient and community-based mental health services while maintaining compliance with existing federal requirements related to access, coordination of care, and parity (Congressional Research Service, 2025).
The fiscal impact of repeal would vary across states based on existing inpatient psychiatric capacity, prior reliance on IMD workarounds, and state decisions about service utilization. Over the course of 10 years, the Congressional Budget Office estimates that policies to eliminate or modify the IMD exclusion would increase federal spending from approximately $155 million to $38.4 billion, depending on the scope of repeal (Congressional Budget Office, 2023).
These financing dynamics also raise important health equity concerns. Medicaid disproportionately insures individuals with low incomes, disabilities, and racially and ethnically minoritized populations (American Psychiatric Association [APA], 2023; Burns & Cervantes, 2025; Kaiser Family Foundation, 2024). Because IMD reimbursement limits apply only to Medicaid and not to commercial insurance, adults covered by Medicaid face restricted access to inpatient psychiatric facilities that routinely admit individuals with commercial insurance (Congressional Research Service, 2025). Consequently, many Medicaid enrollees must rely on public psychiatric hospitals, which have limited capacity and uneven availability across states (National Association of State Mental Health Program Directors Research Institute, 2025).
Inpatient Psychiatric Capacity
Between 2011 and 2023, the total number of inpatient psychiatric beds remained relatively stable, even as demand for inpatient psychiatric services increased (Lindenfeld et al., 2025). Geographical access to inpatient psychiatric care also remains uneven, with many counties in the US not having any access to inpatient services during this period (Lindenfeld et al., 2025). From a policy perspective, repeal of the IMD exclusion could enable states to expand access to inpatient psychiatric care by increasing Medicaid financing; however, expanded reimbursement alone may not result in immediate increases in bed capacity, and greater utilization of existing inpatient services could place additional strain on current capacity in the short term (McConnell et al., 2026).
Limitations and Areas for Further Inquiry
This analysis is limited by the fact that both H.R. 5662 and H.R. 6727 are proposed legislation, and their potential effects are contingent on future congressional action and state-level implementation decisions (either within the current Congress or a future session). While repealing the IMD exclusion would expand Medicaid financing eligibility, the extent to which states would alter inpatient psychiatric capacity, use, or funding priorities remains uncertain. In addition, existing analyses have largely focused on fiscal impacts and bed availability, with less empirical evidence regarding downstream effects on patient outcomes, care continuity, or workforce dynamics. If enacted, future evaluation would be needed to assess how changes in Medicaid financing interact with inpatient capacity, community-based mental health services, and access to care across regions and populations.
Conclusion
The IMD exclusion has long influenced Medicaid financing for inpatient psychiatric care, shaping how states support services for adults experiencing acute mental health crises. H.R. 5662 and H.R. 6727 represent renewed congressional efforts to end this long-standing restriction, reflecting increased policy attention to mental health access limitations and system strain associated with the current Medicaid framework (Congressional Research Service, 2025).
While both bills propose repeal of the IMD exclusion, they differ in scope. H.R. 5662 (2025) removes the exclusion without additional conditions, while H.R. 6727 (2025) combines the repeal with federally defined, evidence-based standards for participating facilities. Repeal would expand Medicaid financing eligibility but would not independently decide how states adjust inpatient capacity, utilization, or service delivery.
Accordingly, the effects of these proposals remain contingent on future legislative action and state-level implementation decisions. Understanding the distinctions between these legislative approaches provides important context for evaluating how changes to Medicaid policy may interact with inpatient psychiatric capacity, existing financing mechanisms, and broader mental health system goals.
Footnotes
Author Contributions
All authors contributed to the conception or design of the study or to the acquisition, analysis, or interpretation of the data. All authors drafted the manuscript, or critically revised the manuscript, and gave final approval of the version that was submitted for publication. All authors agree to be accountable for all aspects of the work, ensuring integrity and accuracy.
Funding
The author received no financial support for the research, authorship, and/or publication of this article.
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Data Availability Statement
Data sharing not applicable to this article as no datasets were generated or analyzed during the current study.