Medicaid to test expanded mental health coverage

A new federal program will test the impact of removing a decades-long ban on Medicaid coverage for some mental health treatments.

The Centers for Medicare and Medicaid Services (CMS) announced a demonstration project Tuesday under which Medicaid will cover treatment in psychiatric hospitals with more than 17 beds. The program has never provided that coverage before, in part because of concerns that states would "warehouse" mentally ill patients in large psychiatric hospitals.

Because of that prohibition, CMS said, mentally ill patients often go to an emergency room or are otherwise admitted to a general hospital. Allowing Medicaid to pay for psychiatric facilities could ease the burden on emergency rooms, CMS said.

The program is also intended to determine whether Medicaid patients with mental illnesses receive better care when they use psychiatric facilities and whether the new option is cost-effective.

The demonstration will provide $75 million over three years. Every state can apply for the test program, but CMS said it would only accept a "limited" number of states. The healthcare reform law called for the demonstration and provided the money.