Excluding institutions for mental diseases from federal reimbursement for services: Strategy or tragedy?

A key component in the dehospitalization of persons with chronic mental ill nesses and their translocation to a wide range of settings has been the shi ft from state to federal funding encouraged by the Social Security Administ ration's restrictions on funding for institutions for mental diseases (IMDs ), usually referred to as the IMD exclusion, The overall effect of the excl usion, which limits federal funding for mentally ill patients receiving car e in many settings, including state psychiatric hospitals, has been to crea te incentives for states to move patients out of state hospitals, which has contributed to homelessness and inappropriate incarceration. The author tr aces the background and development of the IMD exclusion, starting with the federal government's actions in the 1840s ensuring that the states, not th e federal government, would continue to fund care for their seriously menta lly ill citizens. He also analyzes Congress' many missed opportunities to p ass legislation that would have modified, or perhaps even made moot, the IM D exclusion, including the Clinton administration's efforts at health refor m, the quest for parity of insurance coverage for mental illnesses, and the initiation of public-sector managed care. The consequences of the continua tion of the IMD exclusion are explored, and the intended fiscal consequence s are contrasted with the unintended clinical outcomes.