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Medicaid waivers that relax a long-standing federal funding ban on larger psychiatric hospitals are linked to fewer hospitalizations, emergency visits, and incarcerations among adults with serious mental illness, according to a study led by CUNY SPH Associate Professor Onur Baser.
The study, published in The American Journal of Managed Care, suggests that allowing states to use federal Medicaid dollars for care in so-called Institutions for Mental Diseases (IMDs) does not drive up psychiatric hospital use and may instead support broader shifts toward outpatient and community-based treatment.
Researchers analyzed data from more than 3.2 million Medicaid beneficiaries with serious mental illness in all 50 states between 2016 and 2023, comparing outcomes in 11 states with IMD waivers to 39 without them. Using fixed-effect models that accounted for differences in patient characteristics and state policies, the team assessed health care utilization, costs, homelessness, and incarceration.
After adjustment, patients in waiver states were 14% less likely to have psychiatric inpatient admissions and 26% less likely to have psychiatric emergency department visits than those in nonwaiver states. They were also 9% less likely to be hospitalized or visit the emergency department for any cause, while overall psychiatric-specific costs were 41% lower in waiver states, driven largely by reduced inpatient and emergency care spending.
States with IMD waivers recorded an 11% reduction in incarcerations, equivalent to about 250 fewer jail cases per year on average, while waivers showed no significant effect on homelessness. Medicaid expansion and Medicaid Health Homes for mental illness or substance use disorder were also associated with fewer incarcerations, underscoring the role of broader behavioral health policy investments.
The authors say IMD waivers “underscore the beneficial impact” of relaxing the federal exclusion on both health care use and incarceration for people with serious mental illness, without increasing psychiatric hospitalization. They argue that the findings support continued consideration of IMD waivers—and potentially removing the IMD exclusion from Medicaid law—alongside investments such as Medicaid expansion, Health Homes, and federal block grants to strengthen community-based mental health care.
