State Closing In on Federal Waiver for Residential Care in Drug Medi-Cal Plan

State officials during a joint Senate hearing this week laid out a plan for a revamped Drug Medi-Cal Program — a vision that depends on a federal waiver of a restriction on residential care facilities.

California may be on the verge of securing that federal exception. Negotiations with CMS have gone well so far, according to Karen Baylor, deputy director of Mental Health and Substance Use Disorder Services at the Department of Health Care Services, which oversees Medi-Cal.

“The Obama Administration recently agreed to have a few states to pilot residential services without a bed limit,” Baylor said, and it appears now that California is among those pilot states, she said.

At issue is a federal restriction called the Institutes for Mental Disease exclusion — or the IMD exclusion, for short. It was set up to prevent warehousing of the mentally ill, by setting a 16-bed limit for facilities handling some of those patients. The federal definition under the IMD exclusion includes substance abuse disorders.

At the joint hearing Tuesday of the Senate Committee on Health and the Senate Committee on Budget and Fiscal Review, one legislator said exclusion severely restricts the state’s ability to adequately help people with substance use disorders.

“This is a critical issue. We simply don’t have enough beds,” said Sen. Jim Beall (D-San Jose). “As a default, we send them to state hospitals, to the county jails and state prisons, to emergency rooms at county hospitals — which costs the state way more money. I think it should be easy to prove that those kind of options are more expensive than providing a residential, safe treatment option for people.”

That’s what the state has in mind with its federal waiver request, which would be amended onto the current 1115 “Bridge to Reform” waiver, and will likely be submitted to CMS in November. 

“We’re still working on the financing details,” said Mari Cantwell, chief deputy director of health care programs at DHCS. “We are developing the budget neutrality component.”

California officials hope to convince CMS officials that the federal government won’t be spending any extra money on California’s overall waiver. Savings from the rest of the current waiver, much of it coming from managed care implementation, Cantwell said, could make up for the cost of revamping the Drug Medi-Cal Program.

“There are costs [of the current Drug Medi-Cal Program] to the state government, the federal government and then local governments too, in terms of police officers and firefighters,” Beall said. “It all kind of adds up to a system that doesn’t work very well, unless we get an IMD waiver.”

The state last week released the second draft of its “Special Terms and Conditions,” and plans to have its final stakeholder meeting in early November. The waiver will be submitted to CMS “sometime after that,” Baylor said. After receiving the proposal, CMS officials have 120 days to approve or deny it.