Medicaid Financing for Services in Supportive Housing for Chronically Homeless People: Current Practices and Opportunities. 3. Mental Health Services


Given the prevalence of mental illness among chronically homeless people, providing mental health services in a community setting is essential for meeting the needs of chronically homeless people who move into PSH. Nearly every state uses the Medicaid Rehabilitation Option (MRO) to provide Medicaid reimbursement for some community-based mental health services--that is, services provided outside an institutional setting for people with mental illnesses. Because these are optional Medicaid benefits, states vary widely in the scope of covered services and the criteria used to determine who is eligible to receive services.15

Federal law also provides flexibility that states can use in determining the types of staff who can deliver services covered under Medicaid’s Rehabilitation Option. Licensed Practitioners of the Healing Arts (LPHA) are qualified to provide Medicaid-reimbursed MRO services.16 States have some flexibility in defining LPHAs for purposes of Medicaid reimbursement, and state policies often include several types of licensed mental health providers, providing more flexibility than the FQHC reimbursement mechanism.

Most states have fairly flexible provisions regarding the qualifications (education, skills) of unlicensed mental health workers who can deliver services under the supervision of LPHAs. In some states, services can be reimbursed when given by peer counselors. This allows agencies to employ staff whose personal experiences (for example, with homelessness or mental health issues) make them effective at providing PSH services.

In many states, MRO mental health services as well as other “specialty mental health services”17 are financed through “carve-out” arrangements, under which services are administered and reimbursed separately from other Medicaid-reimbursed health care services. The services available under the carve-out are sometimes administered by behavioral health managed care plans. Medicaid waivers may allow a government agency or a managed care plan to contract selectively with specific providers, by waiving the program's “freedom of choice” requirements.

In a few states some or all Medicaid-covered services for a broad range of behavioral health needs and conditions including substance use disorders are also included in these carve-out or managed care arrangements. In other states the carve-out or managed care arrangement covers only services for persons with SMI or children who are severely emotionally disturbed (SED), while more limited Medicaid-covered services for persons without SMI/SED may be delivered by other health care providers, and treatment services for substance use issues are administered separately.

Depending on the state, fiscal responsibility for the non-federal share of costs for services provided under a carve-out may differ from cost-sharing for other Medicaid services, which usually falls on states to provide. As a result these benefits may be administered separately by a different government agency (e.g., a county mental health agency) that is responsible for determining which providers qualify to receive reimbursement for covered services.

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