Using Medicaid to Support Working Age Adults with Serious Mental Illnesses in the Community: A Handbook. Community Integration


Community living is the overarching goal for all individuals with disabilities. The U.S. Supreme Court’s landmark 1999 Olmstead v. L.C. & E.W. decision has sparked considerable activity at both the federal and state levels to identify policy and other changes to reduce institutionalization and facilitate the transition of institutionalized persons to the community. The Court’s decision affirmed that individuals with disabilities must be served in the most integrated setting appropriate to their needs and that states must make “reasonable modifications” in their programs to foster community integration, provided that such changes do not require a “fundamental alteration” in their programs. As an outgrowth of the decision, the majority of states have developed “Olmstead” plans to identify barriers to community integration and potential remedies.1

There is growing awareness that institutionalization can be avoided when community systems have the capacity to support individuals, regardless of the severity of their disability or condition. Moreover, it is increasingly evident that many of the major barriers to community living are structural rather than programmatic. These barriers include the lack of funding portability (e.g., impediments to “money following the person” from institutional to community services) and limitations or restrictions placed on community services that leave individuals no choice but to accept institutionalization. Many states are examining their policies with an eye toward rebalancing their service systems by strengthening community services to reduce reliance on institutional services.

Along these lines, several federal initiatives have aimed at promoting community integration. President Bush’s New Freedom Initiative directed federal agencies to identify how their policies could be altered to promote community living for people with disabilities.2 An important outgrowth of the New Freedom Initiative was the formation of the President’s New Freedom Commission on Mental Health. As part of the New Freedom Initiative, each year since 2001, CMS has made federal Real Choice Systems Change grants to states and other entities.3 The purpose of these grants has been to provide states with additional resources to make essential system changes that promote community living and strengthen community services.

CMS has also stepped up its guidance and technical assistance to states concerning Medicaid community services. For example, CMS clarified that case management services for institutionalized persons to facilitate their community transition may be eligible for federal financial participation.4

There has been a steady decline in the number of individuals served in large state and county psychiatric facilities. Between 1996 and 2001, the number of individuals served in state psychiatric facilities declined by about one-third5 and many facilities were closed.6 Facility stays have become shorter as the focus shifts to short-stay treatments and quickly returning individuals to the community.

Nonetheless, unnecessary institutionalization con-tinues to affect people with serious mental illnesses. In several states there are many individuals in public psychiatric facilities whose return to the community is hindered by a lack of community services and supports. In addition, a significant percentage of nursing facility residents has a mental disorder.7 Many are working-age adults with serious mental illnesses, although estimates of the number of these individuals vary widely.8 In 1987, Congress enacted the Nursing Home Reform Act (described below) that included provisions aimed at preventing the inappropriate admission of individuals with serious mental illnesses into nursing facilities. However, the legislation’s effectiveness has been questioned.9 In some states, many individuals with serious mental illnesses reside in other types of large congregate settings, often called “board and care.”

Coordinated strategies are needed to promote community integration. Medicaid funding can underwrite the costs of the direct services that people require to live in the community. States are modifying their management of long-term care services to allow nursing facility dollars to follow individuals into the community. However, the lack of affordable housing remains one of the most challenging barriers to community integration for people with all types of disabilities, including individuals with serious mental illnesses. This problem, of course, affects not only the transition of institutionalized persons to the community but also people in the community who lack housing or are in substandard housing. Present federal policy, however, does not permit states to receive federal financial participation in the costs of housing except in Medicaid-reimbursable institutional settings. As a consequence, in order to succeed, community integration strategies must combine services funding with housing support.

States can pursue a variety of strategies to promote community integration. In particular:

  • Shift State Facility Dollars to Community Services. In states that continue to have relatively large financial commitments to state facilities, opportunities exist to shift state dollars from non-Medicaid IMD settings to community services which may be matchable with federal Medicaid dollars. In 2004, Nebraska and Virginia announced that they would be closing facilities and shifting the dollars to community services. Nebraska also intends to revamp its coverage of Medicaid mental health services in order to strengthen community services.
  • Nursing Home Transition Strategies. Aided by CMS grants, several states have launched initiatives to develop individualized strategies to assist nursing facility residents to return to the community. The Wisconsin Homecoming Project demonstrated substantial success in transitioning individuals with disabilities to the community, including younger adults with serious mental illnesses.12 Based on its success, Wisconsin has launched a follow-up Homecoming II project. Over 30 states have received Nursing Facility Transition Grants from CMS under the Real Choice Systems Change Grants Program.
Nursing Facility Preadmission Screening and Resident Review (PASRR)
In 1987, Congress enacted the Nursing Home Reform Act (NHRA) of 1987.10 This legislation substantially changed Medicaid law regarding the provision of nursing facility services. NHRA included provisions affecting nursing facility services for individuals with mental retardation and mental illnesses. These provisions stemmed from widespread concern about the inappropriate admission of such individuals to nursing facilities and the lack of appropriate services for them once admitted.

Under NHRA, states are required to screen individuals for mental illnesses and developmental disabilities before admission to a nursing facility [Preadmission Screening (PAS)] and review their status post admission when their condition changes [Resident Review (RR)].11 A two-stage screening process is employed. Individuals suspected of having a serious mental illness after a “Level I” screen is conducted are referred for a more comprehensive “Level II” screen. Based on the results of the Level II screen, the State Mental Health Authority (SMHA) must make a determination whether nursing facility services alone will meet the person’s needs or whether such services must be augmented by “specialized services” to address the person’s mental health service needs. Absent such a determination, the person may not be admitted to the nursing facility. Specialized mental health services are eligible for federal financial participation to the extent that such services are covered under the state’s Medicaid plan. States have the latitude to define specialized services. NHRA did not foreclose the admission of individuals with serious mental illnesses to nursing facilities but established a framework for assuring that their needs would be met if they were admitted.

Nursing facility admission is not confined to individuals whose need for care stems from physical health problems or conditions. Individuals with mental illnesses may qualify for nursing facility admission due to other functional limitations. In the case of many individuals with serious mental illnesses who could live in the community, a lack of community mental health services and residential options results in their admission to nursing facilities.

  • Community Transition Funding. CMS has issued guidance to states that they may furnish “community transition services” through their HCBS waiver programs.13 Such services include making rent and utility deposits for individuals transitioning to the community, along with purchasing other goods and services that enable a person to move into a community living arrangement. In its 1915(b)/(c) waiver program, Michigan is making this service available to individuals with mental illnesses and those with developmental disabilities. While the use of such services is limited to waiver programs, it provides a potential avenue to facilitate community transition. Some states make such funding available from state resources.14
  • HCBS Waiver Program. Finally, the HCBS waiver program -- though not generally em-ployed for persons with mental illnesses -- is another potential tool that can be used on their behalf to facilitate community integration; either in the form of a program that targets individuals with serious mental illnesses, or through a state’s HCBS waiver programs for people with disabilities who meet the level of care criteria.

Effective strategies to promote community integration require marshaling many types of resources and, frequently, changes in state policies. Federal Medicaid dollars can play an important role in underwriting services for people returning to the community; however, they frequently must be supplemented with funds from other sources.

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