The Institutions for Mental Diseases (IMD) exclusion is a policy that restricts Medicaid funding for certain residential facilities with more than 16 beds, primarily focusing on those providing mental health and substance abuse treatment. While the policy aims to regulate and improve the quality of care, it inadvertently creates discrimination and prejudice against individuals with serious mental illness (SMI). This case highlights the adverse effects of the IMD exclusion policy on vulnerable individuals and the need for reforms to ensure equitable access to mental healthcare.

Case Summary: John, a 32-year-old man diagnosed with schizophrenia, resides in a state that strictly enforces the IMD exclusion policy. Due to the limited availability of community-based mental health services, John has been repeatedly denied admission to residential treatment facilities due to their size exceeding the exclusion threshold. This policy restriction exacerbates John’s condition, denying him access to appropriate care and causing a detrimental impact on his overall well-being.

  1. Limited Access to Intensive Treatment: John requires intensive psychiatric care and monitoring due to the severity of his symptoms. However, as a result of the IMD exclusion, the only available options for him are outpatient clinics or smaller residential facilities that lack the resources and staff to provide the level of care he needs. This restricted access prevents him from receiving adequate treatment and support to manage his condition effectively.
  2. Increased Risk of Homelessness and Incarceration: Without access to appropriate residential treatment, John’s mental health deteriorates rapidly, leading to frequent hospitalizations or encounters with law enforcement. The lack of suitable options under the IMD exclusion policy forces individuals like John into a cycle of homelessness or incarceration, where their mental health worsens, perpetuating the stigmatization of mental illness.
  3. Disproportionate Impact on Low-Income Individuals: The IMD exclusion disproportionately affects low-income individuals who rely on Medicaid for their healthcare needs. Private residential facilities, not subject to the exclusion, often charge exorbitant fees, making them unaffordable for those with limited financial resources. Consequently, the policy further entrenches socioeconomic disparities and denies individuals from lower-income backgrounds equal access to critical mental health services.
  4. Inequity in the Healthcare System: The IMD exclusion policy perpetuates a two-tiered healthcare system, with individuals with SMI receiving suboptimal care compared to those with physical health conditions. While patients with chronic medical conditions can access specialized facilities without similar restrictions, individuals with mental illnesses face discrimination due to the arbitrary limitations imposed by the exclusion policy, denying them their right to equitable healthcare.

Conclusion: The IMD exclusion policy, though well-intentioned, inadvertently perpetuates discrimination and prejudice against individuals with serious mental illness. The policy’s impact on individuals like John highlights the urgent need for reforms to ensure equitable access to comprehensive mental healthcare. Revisiting the IMD exclusion and advocating for increased funding, expanding community-based treatment options, and encouraging parity between mental and physical health services are essential steps towards dismantling the systemic barriers faced by those with SMI.

Laurie Goldstein


After deinstitutionalization, California has tragically come full circle on mental illness treatment – CalMatters


A person sits in a makeshift tent along a barbed wire fence near Highway 99 in southwest Fresno on Feb. 11, 2022. The fence blocks out a grass area that used to be a homeless encampment. Photo by Larry Valenzuela for CalMatters/CatchLight Local
A person sits in a makeshift tent along a barbed wire fence near Highway 99 in southwest Fresno on Feb. 11, 2022. The fence blocks out a grass area that used to be a homeless encampment. Photo by Larry Valenzuela for CalMatters/CatchLight Local


California psychiatric hospitals began closing their doors in the 1960s, starting a nationwide movement known as “deinstitutionalization.” Today, most inpatient treatment for severe mental illness occurs behind bars. Two changes could help rectify this tragic reality.


Alice Feller

Alice Feller

Alice Feller is a psychiatrist and writer based in Berkeley. Her work has appeared in the Journal of the American Psychoanalytic Association, East Bay Express, Laney Tower and the opinion pages of the San Francisco Chronicle and New York Times.

Robbie, our young patient at the county hospital in San Mateo, believed his parents were trying to poison him. 

He refused to come into the house and foraged in the neighbors’ garbage cans for all his meals. Nevertheless, since he was able to survive on garbage, he was judged no longer in need of treatment. 

I was shocked. It was so callous – such a breach of our usual standard of care. But then I spent a year working as a staff psychiatrist at the county hospital in Oakland. I learned that Robbie’s experience was not out of the ordinary; it was the usual state of care in California.

In the 1960s, American psychiatric hospitals began to close their doors. The movement began in California, first with the large state hospitals and then the small community hospitals as well.

By 1994 nearly half a million former patients had been sent back to live with their families, who were often unable to care for them. A quarter million newly discharged patients ended up on the streets or behind bars. 

So many were incarcerated that jails and prisons have become our de facto mental hospitals. Today, the vast majority of inpatient psychiatric care in America is provided behind bars.

Deinstitutionalization,” as the movement to close these hospitals is known, began as a cost-saving measure. In 1965 the federal government abruptly withdrew its financial support for the state hospitals, as well as the small community hospitals providing psychiatric care. 

This was accomplished through a little-known law, the Medicaid IMD exclusion, passed by Congress in 1965 along with the creation of Medicaid. The provision forbids the use of Medicaid dollars to pay for care in a mental hospital. Any psychiatric hospital with more than 16 beds is forbidden to take Medicaid.

Hospital treatment for severe mental illness can mean the difference between life and death, but because of this law such treatment is specifically denied to the people who need it most. No other severe illness is subject to such discrimination.

We have come full circle from the early 19th century, when Dorothea Dix campaigned to rescue the mentally ill from the prisons where they languished, often under shockingly inhumane conditions. Due to her work, people with mental illness were rescued from prisons and cared for in hospitals. 

But today that trend has been reversed. Once again, Americans with serious mental illness are being warehoused out of sight in our prisons. And many more are living unsheltered on our streets. A third of our homeless population today suffer from untreated severe mental illness, most commonly schizophrenia.

Schizophrenia is a brain disorder. It affects 1 out of every 100 human beings on Earth. Good parenting doesn’t prevent it, and bad parenting doesn’t cause it. It begins in adolescence or early adulthood, and without treatment it will be permanently disabling. It leaves the afflicted person living in a psychotic world, unable to tell reality from delusion. 

Lives are derailed. Suicide is common.

Treatment requires early intervention by a specialized team of clinicians who collaborate on patient care. Unfortunately these dedicated programs are rare. Despite mountains of evidence showing their effectiveness, insurers refuse to cover early intervention programs.

While hospital care can provide stabilization and enable the patient to use outpatient treatment, insurance coverage for inpatient treatment is rare.

California can rectify this situation by obtaining a waiver of the IMD exclusion. We need to restore hospital care to stabilize our patients and enable them to use outpatient treatment. We need to mandate early intervention programs and require insurance coverage for this vital treatment. 

These two interventions would do more than anything else to help our mentally ill homeless citizens. It is not a simple lack of housing that leaves so many homeless. Like Robbie, our patient who ate out of garbage cans, they are unable to use available housing due to their mental illness.