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Manhattan Lawmaker Takes Aim at 1960s Law That Blocks Medicaid Funds for Psych Care

Sen. Brad Hoylman wants New York to pursue a waiver to allow federal funding for long-term residential treatment, which could include innovative alternatives to incarceration.

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Amtrak police try to remove a person who started to disrupt a press conference in Penn Station, June 28, 2021.

Ben Fractenberg/THE CITY

As New York struggles to get treatment to people with serious mental illness, one barrier hasn’t budged: Medicaid is forbidden from covering long-term stays for most patients receiving mental health or substance abuse treatment in a facility with over 16 beds.

That federal law, in place for more than half a century, blocks a major source of funding that could pay for residences that provide long-term treatment — anything from traditional psychiatric care to innovative efforts to divert people to therapy instead of prison.

But that could change in New York, under a bill recently introduced in Albany by State Sen. Brad Hoylman (D-Manhattan). It would require the state health commissioner to seek a waiver from the federal Centers for Medicare and Medicaid Services to make payments for long-term stays at large mental health institutions.

“Through this we will be creating an incentive to create new beds,” Hoylman told THE CITY. “We have to move swiftly to address this crisis. We see human suffering in our midst and it’s really time to take decisive action like this legislation. New Yorkers are in desperate need of treatment.”

Hoylman’s West Midtown district has been in the spotlight for a mental health crisis playing out in its streets and transit stations. One man with untreated mental illness is accused of fatally shoving Michelle Go into the path of a subway train at Times Square.

A spokesperson for the state Department of Health, Erin Silk, said the agency won’t comment on pending legislation.

State Sen. Brad Hoylman (D-Manhattan)

Hiram Alejandro Durán/THE CITY

The number of inpatient psych beds has sharply declined over the last two decades. A 2020 report from the New York State Nurses Association found that the state had reduced the number of overall psychiatric beds from 6,055 to 5,419 from 2000 to 2018 –– a 12% loss, with the bulk of the reduction coming from the private sector. 

New York City has 3,991 inpatient psychiatric beds, according to the state Office of Mental Health, but about 600 aren’t in service. The state repurposed many of those beds for COVID patients at the start of the pandemic and is working to get them back, according to OMH spokesperson James Plastiras.

Under Medicaid, the federal government picks up half of the costs and state government the other half, with New York budgeting $170 billion on all Medicaid services for this year and the next combined. 

Already, Maryland, Oklahoma, Utah, Vermont, Washington, Idaho, Indiana and Washington, D.C. have successfully applied for such waivers to the ban on funding for “Institutions for Mental Disease” (IMDs), while several more states have applications pending.

New York State is already exploring the possibility. “The Department of Health is actively considering a waiver request to the Centers for Medicare & Medicaid Services,” Silk told THE CITY.

Hoylman decided to force the issue because the state hasn’t submitted an application or committed to sending one. He didn’t offer a cost estimate for a waiver, but claimed that it would save money in the long run by bringing down street crime.

Even within the current restrictions, Gov. Kathy Hochul is attempting to invest more in mental health care.

In February, she announced a $49 million initiative to improve psychiatric services across New York state. That includes $27.5 million to increase Medicaid’s payout for the psychiatric beds it does cover by 20%, which the state projects will bring at least 600 psychiatric beds back online in New York City. It also earmarks $9 million to recruit nurses and other staff as well as create 500 more supportive housing beds for people experiencing homelessness.

Good Intentions

The federal prohibition on Medicaid mental health payments to states applies to patients between the ages of 21 and 64, and dates back to the original creation of the health program in 1965.

Congress intended to discourage the creation of large psychiatric facilities in response to exposés documenting horrors of large residential institutions, and to shift the costs of mental health care onto the states, according to the Treatment Advocacy Center, an organization that promotes investment in inpatient mental health services. 

“The point of the policy was to disincentivize long-term hospital care for people with the most severe illnesses. It was supposed to be accompanied by a massive investment in community based care that incidentally never really happened,” said Brian Stettin, policy director at the group. 

Yet the need for long term hospitalization never went away for many individuals with mental illnesses, he added. “The idea was that hospital care is a bad thing, per se, which is clearly an overgeneralization of a well intentioned policy that was taken too far.”

Michelle Go’s image was illuminated over Times Square during a vigil after she was fatally pushed onto the subway tracks in a random attack, Jan. 18, 2022.

Ben Fractenberg/THE CITY

The Treatment Advocacy Center and others are pushing Congress for a full federal repeal of the exclusion, but has also supported states that are seeking waivers.

Supporters of a waiver say that the 16-bed limit hurts people who really need care by discouraging the creation of innovative, high quality treatment centers. 

The nonprofit Greenburger Center for Social and Criminal Justice, which advocates for alternatives to incarceration, has for years been trying to build Hope House, a residential treatment center for women who’ve been convicted of felonies and have mental illnesses. They have a site near Crotona Park in The Bronx, but no ability to receive Medicaid reimbursement for inpatient psychiatric beds. 

“We can’t go above 16 beds and get Medicaid because of the IMD exclusion. When you go above 16 beds, our folks can’t get Medicaid. So these kinds of facilities never get built,” said Cheryl Roberts, executive director of the Greenburger Center. 

“You can’t really, without a lot of gap funding, make a facility that has high quality care work with 16 beds. You need more beds, not a lot more, but a few more to make the economies of scale work.”

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