SMD: Opportunities to Design Innovative Service Delivery Systems for Adults with a Serious Mental Illness or Children with a Serious Emotional Disturbance


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Today, the Centers for Medicare & Medicaid Services (CMS) is sending a letter to State Medicaid Directors that outlines both existing and new opportunities for states to design innovative service delivery systems for adults with serious mental illness (SMI) and children with serious emotional disturbance (SED).  The letter includes a new opportunity, under section 1115(a) of the Social Security Act, for states to receive authority to pay for treatment services provided to beneficiaries who are short-term residents of psychiatric hospitals or residential treatment settings that qualify as institutions for mental disease (IMDs) if those states are also committing to taking action to ensure good quality of care in those settings and to improve access to community-based services as well.  

CMS currently offers states the opportunity to pursue similar demonstration projects focused on improving treatment for substance use disorders (SUDs), including opioid use disorder, under section 1115(a) of the Act.  Through these SUD-focused demonstrations, CMS has been working with participating states to cover treatment in IMDs while also improving access for beneficiaries to a full continuum of care including community-based outpatient services and also ensuring the quality of SUD treatment provided to beneficiaries while residing in IMDs.  To date, CMS has approved these SUD-focused demonstrations in 17 states, and there are already indications of improved outcomes for beneficiaries.

Similar to the SUD 1115(a) demonstration initiative, this SMI/SED demonstration opportunity outlines a number of milestones that states will be expected to achieve as part of these demonstrations aimed at making progress on a number of overarching goals.   These milestones include specific activities to –

  • Ensure good quality of care in psychiatric hospitals and residential treatment settings;
  • Improve care coordination and transitions to community-based care following stays in acute care settings;
  • Increase access to a continuum of care including crisis stabilization services and community-based services to address chronic, on-going mental health care needs; and
  • Identify individuals with SMI or SED earlier and engage them in treatment sooner.

States are encouraged to build on the evidence-based models discussed in the first part of the letter in order to achieve these milestones.

As a state’s SMI/SED demonstration progresses, states will be expected to include, in their section 1115(a) demonstration monitoring reports, information detailing the state’s progress toward meeting the milestones and timeframes for specific actions.  These reports will also include information and data so that CMS can monitor the impact of these demonstrations and progress on the goals as well as ensure budget neutrality.

CMS will work closely with states on implementation and evaluation of these demonstrations and is hopeful that this policy guidance will create new opportunities to partner with states committed to implementing innovative service delivery reforms to improve care for beneficiaries with SMI or SED.

The State Medicaid Director Letter is available on here: