Medicare Looks to Expand Substance Use Disorder Treatment and Mental Health Services

Footnotes for this article are available at the end of this page.

On July 13, 2023, the Centers for Medicare & Medicaid Services (“CMS”) announced proposed Medicare payment rates for hospital outpatient and Ambulatory Surgical Center (“ASC”) services.1 In the Calendar Year 2024 Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems Proposed Rule, CMS is proposing to establish the Intensive Outpatient Program (“IOP”) under Medicare — building off of the initiatives laid out in the Consolidated Appropriations Act of 2023 (“CAA”).2 The COVID-19 pandemic brought more awareness to mental health needs and policymakers have directed their attention toward implementing strategies to improve access to mental health and substance use disorder (“SUD”) services generally, and in Medicare specifically.

Historically, SUD services were available under Medicare, as long as those services are reasonable and necessary. Those services included inpatient and outpatient treatment services, as well as prescription drug benefits under Part D. However, the category of providers eligible to render services under Medicare was largely limited to professionals in outpatient settings, which is contrary to how many SUD treatment programs operate outpatient programs in freestanding programs. Further, SUD treatment facilities were excluded from enrolling as an independent provider and there was not an integrated payment model to support this system.3

Partial hospitalization, which historically requires 20 hours of therapeutic services a week was previously recognized as a service, but it could only be provided in local hospital outpatient departments and community mental health centers (“CMHCs”).4 The proposed rule includes the scope of benefits, physician certification requirements, coding and billing, and payment rates under the IOP benefit, as set forth by section 4124 of the CAA. If finalized, IOP services may be furnished in:

  • hospital outpatient departments;
  • CMHCs;
  • federally qualified health centers (“FQHCs”); and
  • rural health clinics (“RHCs”).

Freestanding SUD treatment facilities are not covered in these proposed rules and SUD treatment facilities are still excluded providers from Medicare.

An IOP is a distinct and organized outpatient program of psychiatric services provided for individuals who have an acute mental illness or SUD, consisting of a specified group of behavioral health services paid on a per diem basis under the Hospital Outpatient Prospective Payment System (“OPPS”) or other applicable payment system when furnished in hospital outpatient departments, CMHCs, FQHCs, and RHCs. CMS is proposing to base the per diem costs of items and services included in IOP that have been, and are, paid for by Medicare either as part of the Partial Hospitalization Program (“PHP”) benefit or under the OPPS more generally.

While the changes mandated in the CAA and the proposed rule take steps to improve access to treatment for SUDs, large categories of providers are still excluded from participation in Medicare, which may continue to create additional barriers to treatment. Additional legislation to expand eligible providers would be needed to continue to improve the availability of services for all Medicare beneficiaries.

The Calendar Year 2024 Hospital Outpatient Prospective Payment System and ASC Payment System Proposed Rule is published annually and will have a 60-day comment period. The final rule will be issued in early November.


[1]  CY 2024 Medicare Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System Proposed Rule CMS 1786-P (To be published July 31, 2023), available at

[2] Consolidated Appropriations Act, 2023, Pub. L. No. 117-328 (2023).

[3] See Cntrs Medicare and Medicaid Servs. Medicare Coverage of Substance Abuse Services, available at

[4] Id.