Medicaid SUD IMD Waivers: Examining Access and Outcomes in Substance Use Treatment

As of April 2026, 38 states, including D.C., have approved Section 1115 demonstration waivers to allow federal Medicaid reimbursement for short-term substance use disorder (SUD) treatment in Institutions for Mental Diseases (IMDs). These waivers aim to expand the continuum of care for adults ages 21 to 64, a population historically excluded from such coverage by federal law. Summative evaluations from six states—California, Indiana, Massachusetts, New Hampshire, Utah, and Washington—indicate directional improvements in treatment access and infrastructure, though the ability to isolate these gains from the broader impacts of the COVID-19 pandemic and the fentanyl-driven overdose crisis remains limited.

The IMD Payment Exclusion and Waiver Policy

Federal law, specifically 42 U.S.C. § 1396d(i), has long prohibited Medicaid payments for services provided to nonelderly adults in IMDs—facilities with more than 16 beds primarily engaged in treating mental health or substance use disorders. This policy, known as the IMD payment exclusion, was designed to leave states with the primary responsibility for financing inpatient or residential behavioral health services.

To address gaps in care, the Centers for Medicare and Medicaid Services (CMS) introduced SUD IMD waivers in 2015, with updates in 2017. These waivers allow states to receive federal matching funds for short-term stays in IMDs, provided the care is part of a broader, integrated continuum of services. Beyond the 1115 waivers, states also utilize other mechanisms to cover these services, including “in lieu of” (ILOS) authority within managed care, the SUPPORT Act state plan option, and Disproportionate Share Hospital (DSH) payments.

Treatment Access and Capacity Findings

Evaluations from the six states that have completed summative reports show a general increase in the utilization of residential and inpatient SUD treatment.

* Capacity Growth: Summative evaluations generally suggest increases in SUD residential and inpatient care, along with growth in community-based care or capacity.
* Treatment Initiation: Inpatient or residential treatment utilization increased in five of the six states reporting this measure (CA, IN, MA, NH, and UT).
* Medication for Opioid Use Disorder (MOUD): Summative evaluations generally suggest increased access to medications for opioid use disorder.

Care Transitions and Emergency Department Utilization

A primary goal of the waivers is to reduce preventable emergency department (ED) visits and improve transitions between levels of care. Most states reporting SUD-related emergency department use found decreases.

Follow-up care after discharge also showed improvement, with some states reporting improved follow-up after ED visits or discharge from residential or inpatient care, though follow-up rates often remained relatively low. Evaluators noted that fragmentation and gaps in treatment infrastructure made care transitions harder.

Identified Barriers to Implementation

Despite increased coverage, state evaluations consistently identified structural and administrative hurdles that limit the effectiveness of the waivers:

* Workforce Shortages: Evaluations pointed to workforce shortages as a challenge that may have affected waiver outcomes.
* Administrative Burden: Administrative barriers were reported across multiple evaluations.
* Housing Instability: Housing instability was reported across multiple evaluations and often made it difficult for patients to sustain recovery after discharge.

Overdose Outcomes and Future Policy

The impact of SUD IMD waivers on overdose deaths remains inconclusive. Most evaluation periods coincided with major disruptions, including the fentanyl-driven escalation in overdose deaths, making it difficult to isolate waiver effects.

As of 2026, the policy landscape faces new challenges, including the 2025 Reconciliation Law, which included restrictions in Medicaid financing and coverage that could make it hard to maintain incremental expansions in mental health and SUD benefits. While the SUD IMD waivers have integrated inpatient and residential care into the broader Medicaid continuum, the emerging evidence suggests that long-term success depends on addressing the underlying workforce, housing, and administrative barriers that continue to fragment the treatment system.