U.S. Psychiatric Hospitals Under Medicaid’s Institutions for Mental Diseases (IMD) Exclusion
13 Nov 2025
Source: Manhattan Institute
Executive Summary
Many Americans with serious mental illness lack access to inpatient psychiatric care. For decades, Medicaid’s “institutions for mental diseases” (IMD) exclusion has been a major barrier to expanding psychiatric hospital bed capacity, but the ongoing mental-health crisis has recently led policymakers to consider repealing or modifying the IMD exclusion.
This report analyzes the size, ownership, and percentage of Medicaid discharges from freestanding U.S. psychiatric hospitals to show that to meaningfully increase Medicaid beneficiaries’ access to care in this setting, the IMD exclusion should be either completely repealed or significantly reformed.
Key findings include:
- The average size of a U.S. psychiatric hospital is 108 beds—smaller than the average general hospital—and 95% of all psychiatric hospitals are under 305 beds. Perceptions of psychiatric hospitals as very large-scale institutions are therefore misrepresentative.
- Less than 8% of psychiatric hospitals have 16 beds or fewer, the limit for federal financial participation. The vast majority of psychiatric hospitals are therefore not covered settings for Medicaid beneficiaries under the IMD exclusion.
- Since its establishment in 1965, the IMD exclusion has been repeatedly modified. Yet changes have not increased beneficiaries’ access to psychiatric hospital treatment at scale. The number of public psychiatric beds, which are most likely to serve Medicaid patients, is down by over 97% since its peak and remains low despite a decade of exemptions that allow greater Medicaid coverage.
- Analysis of hospital data and prior reforms suggests that further modest modifications of the IMD exclusion will not suffice to increase bed supply. Full repeal would be ideal, but if that’s not politically feasible, IMDs should, at a minimum, be defined as facilities with more than 108 beds (up from the current 16 beds). This would allow as many as 332 existing psychiatric hospitals (with more than 20,000 beds) to receive Medicaid reimbursement for their services.