DEPARTMENT OF HEALTH AND HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, MD 21244-1850 
 
 
 
                  SMD # 17-003 
RE: Strategies to Address 
the Opioid Epidemic 
 
November 1, 2017 
 
Dear State Medicaid Director: 
 
The purpose of this letter is to announce a new direction in how the Centers for Medicare & 
Medicaid Services (CMS) would like to work with states on section 1115(a) demonstrations to 
improve access to and quality of treatment for Medicaid beneficiaries as part of a Department-
wide effort to combat the ongoing opioid crisis.  This revised policy will take the place of the 
initiative announced in the State Medicaid Directors letter issued on July 27, 2015.   
 
CMS is now offering a more flexible, streamlined approach to accelerate states ability to 
respond to the national opioid crisis while enhancing states monitoring and reporting of the 
impact of any changes implemented through these demonstrations.  As the opioid crisis 
continues to raise alarm and highlight the need for better access to high quality, evidence-based 
treatment, CMS would like to partner with states to support ways to progressively improve 
outcomes for Medicaid beneficiaries struggling with addiction in the context of 5-year 
demonstrations. In addition to these efforts, CMS will ensure states take significant steps to 
prevent inappropriate prescribing of opioids for Medicaid beneficiaries.  
 
The Administrations March 14, 2017, letter to the Governors, expressed interest in exploring 
additional opportunities for states to provide a full continuum of care for people struggling with 
addiction and in developing a more streamlined approach for section 1115 substance abuse 
treatment demonstration opportunities.  This letter also pointed out the need to properly 
account for demographic and geographic considerations, as well as health system variables, 
which vary in degree from one state to the next and offered to support state efforts to advance 
the next wave of innovative solutions to Medicaids challenges  solutions that focus on 
improving quality, accessibility, and outcomes in the most cost-effective manner. 
 
In keeping with these objectives, the new initiative described in this letter is aimed at giving 
states flexibility to design demonstrations that improve access to high quality, clinically 
appropriate treatment for opioid use disorder (OUD) and other substance use disorders (SUDs) 
while incorporating metrics for demonstrating that outcomes for Medicaid beneficiaries are in 
fact improving under these demonstrations.  Further, through this initiative, CMS offers states 
the opportunity to demonstrate how to implement best practices for improving OUD and other 
SUD treatment in ways that take into account the particular challenges raised by the opioid 
epidemic in each state.  Participating states would also conduct rigorous evaluations of these  Page 2  State Medicaid Director 
 
demonstrations, with CMS approval of the evaluation design.  Information on states progress 
and the outcomes of these demonstrations and evaluations will be made public in a timely and 
readily accessible manner on the Medicaid.gov website so that states can learn from these 
programs. This cycle of evaluation and reporting will be critical to informing our evolving 
response to the national opioid crisis. 
 
Under the demonstration authority granted by section 1115 of the Social Security Act, CMS can 
waive certain federal requirements so that states can test new or existing ways to deliver and pay 
for health care services in Medicaid to the extent that the demonstration is likely to promote the 
objectives of the Medicaid program.  Section 1115 demonstrations must be budget neutral, which 
means that the proposed demonstration cannot cost the federal government more than costs 
would be absent the demonstration.  
 
Through this new section 1115 initiative, states will have an opportunity to receive federal 
financial participation (FFP) for the continuum of services to treat addiction to opioids or other 
substances, including services provided to Medicaid enrollees residing in residential treatment 
facilities. Ordinarily such residential treatment services are not eligible for federal Medicaid 
reimbursement due to the exclusion in the Medicaid statute of services provided to patients in 
institutions for mental diseases (IMDs).  As part of this initiative, states should indicate how 
inpatient and residential care will supplement and coordinate with community-based care in a 
robust continuum of care in the state.  CMS will closely monitor spending in these 
demonstrations on services in IMDs to accurately capture the costs and ensure adherence to 
budget neutrality requirements.  CMS encourages states to maintain their current funding levels 
for a continuum of services, and this initiative should not reduce or divert state spending on 
mental health and addiction treatment services as a result of available federal funding for 
services in IMDs. 
 
States should continue to adhere to existing regulations intended to ensure Medicaid 
beneficiaries are accessing high-quality treatment providers and to guard against fraudulent 
practices. Specifically, states must screen all newly enrolling providers and reevaluate existing 
providers pursuant to the rules in 42 CFR Part 455 Subparts B and E, ensure addiction treatment 
providers have entered into Medicaid provider agreements pursuant to 42 CFR 431.107, and 
establish rigorous program integrity protocols to safeguard against fraudulent billing and other 
compliance issues. 
 
To further support this initiative, the Medicaid Innovation Accelerator Program (IAP) will 
continue to be available to states that would benefit from strategic design support related to 
improving their treatment delivery systems.  The IAP provides states with access to national 
learning opportunities and technical expert resources, including strategic design support to states 
planning targeted addiction treatment delivery system reforms and developing 1115 proposals. 
 
 
 
 
 
  Page 3  State Medicaid Director 
 
Background 
 
Rates of drug overdose deaths have continued to increase rapidly over the past fifteen years, and 
the rise in prescription and illicit opioid abuse has been the primary driver of this increase.  In 
2015, the rate of drug overdose deaths was more than 2.5 times the rate in 1999 with deaths from 
heroin overdoses triple the rate in 2010, 1 and more recently, an influx of illicitly made fentanyl 
and fentanyl analogs has fueled a substantial increase in synthetic opioid overdose deaths.2  
Despite the fact that there are effective evidence-based treatments for OUD, only about one in 
five people who currently need treatment for this condition actually receive it.3  Moreover, 
Medicaid beneficiaries tend to have higher rates of OUD than the general population, comprising 
about 25 percent of adults with OUD in 2015.4  However, only about 32 percent of Medicaid 
beneficiaries with OUD received treatment in 2015.5 
 
To improve access to OUD and other SUD treatment services for Medicaid beneficiaries, it is 
important to offer a variety of evidence-based services at different levels of intensity across a 
continuum of care since the type of treatment or level of care needed may be more or less 
effective depending on the individual beneficiary.  Moreover, treatment needs of individual 
beneficiaries can greatly vary over time.  States should demonstrate how they are implementing 
evidence-based treatment guidelines, such as those published by the American Society of 
Addiction Medicine (ASAM), including by covering critical levels of care including outpatient, 
intensive outpatient (IOP), medication assisted treatment (MAT), residential, inpatient, and 
medically supervised withdrawal management. 
 
Medicaid beneficiaries who struggle with addiction to opioids or other substances have high 
rates of comorbid physical and mental health conditions, resulting in higher spending for general 
medical services.6  Recent research has reaffirmed that most spending on individuals struggling 
with addiction is not on treatment for those conditions, but instead on co-morbid physical 
conditions.7  Between 2010 and 2013, among adult Medicaid beneficiaries treated for a 
behavioral health disorder, 75 percent of spending for these individuals was for treatment of co-
morbid conditions as opposed to their behavioral health condition.  At least one state has found 
                                                           
1 Centers for Disease Control and Prevention (CDC), National Center for Health Statistics Data Brief, Drug Overdose 
Deaths in the United States, 1999-2015 (Feb. 2017). 
2 Katz J, Drug Deaths in America are Rising Faster than Ever, The New York Times, June 5, 2017. 
3 Saloner B, Karthikeyan S, National Changes in 12-Month Substance Abuse Treatment Utilization Among 
Individuals with 2 Opioid Use Disorders, 2004-2013, JAMA (Oct. 13, 2015). 
4 Medicaid and CHIP Payment and Access Commission (MACPAC), Report to Congress on Medicaid and CHIP, 
Chapter 2, Medicaid and the Opioid Epidemic (June 2017).   
5 Ibid. 
6 Freeman E, McGuire CA, Thomas JW, Thayer DA, Factors Affecting Costs in Medicaid Populations with Behavioral 
Health Disorders, Med Care, 52: S60-66 (2014). 
7 Thorpe K, Jain S, Joski P, Prevalence and Spending Associated with Patients Who have a Behavioral Health 
Disorder, Health Affairs, 36 (1): 124-132 (2017). 
 
  Page 4  State Medicaid Director 
 
significant reductions in medical costs among Medicaid beneficiaries who accessed addiction 
treatment compared to those who did not.8   
 
Moreover, many people who receive acute care for withdrawal management do not become 
engaged in any form of treatment following discharge.9 Among Medicaid beneficiaries 
struggling with addiction (in 2008), over two-thirds (67.7 percent) did not receive any follow-up 
services within 14 days following an inpatient stay or residential detoxification.10  Common 
consequences of not engaging in treatment are rapid readmission to an intensive care facility and 
increased risk of overdose as an individuals acquired tolerance is lessened by withdrawal 
management therapies.  Engaging in treatment for addiction within 14 days of discharge from 
withdrawal management has been shown to reduce readmission rates.11 
 
In general, a lack of availability of treatment options is often cited as an important factor in the 
low rate at which individuals receive treatment.  In a 2013 report to Congress, SAMHSA 
highlighted a widespread shortage of addiction treatment providers.12  According to one recent 
study, 40 percent of counties in the U.S. do not have an addiction treatment facility that provides 
outpatient care and accepts Medicaid.13  This lack of treatment capacity is most prevalent in rural 
counties in Southern and Midwestern states and in areas with a higher proportion of racial and 
ethnic minorities.14   
 
In recognition of these findings, CMS seeks to work with states through demonstrations 
authorized under the section 1115 authority described in this letter to improve Medicaid 
beneficiaries access to high quality, evidence-based treatment services for addiction to opioids 
or other substances, ranging from acute withdrawal management to on-going chronic care for 
these conditions in cost-effective treatment settings while also improving care coordination and 
care for comorbid physical and mental health conditions. 
 
Goals and Milestones to be addressed in State Applications and Implementation Plans 
 
As the March 2017 letter to the Governors highlighted, we are interested in working with states 
to provide a full continuum of care for people struggling with addiction, and in hearing state-
                                                           
8 Wickizer TM, Krupski A, Stark KD, Mancuso D, et al, The Effect of Substance Abuse Treatment on Medicaid 
Expenditures among General Assistance Welfare Clients in Washington State, Milbank Quarterly 84(3): 555-576 
(2006). 
9 Mark, TL, Dilonardo, JD, Chalk, M, et al, Trends in Inpatient Detoxification Services, 1992-1997, Journal of 
Substance Abuse Treatment, 23(4):253-260 (2002).  
10 Reif S, Acevedo A, Garnick DW, et al, Reducing Behavioral Health Inpatient Readmissions for People with 
Substance Use Disorders: Do Follow-Up Services Matter?, Psych Services Advance On-line, April 18, 2017. 
11 Lee MT, Horgan CM, Garnick DW, et al, A Performance Measure for Continuity of Care After Detoxification: 
Relationship with Outcomes, Journal of Substance Abuse Treatment, 47 (2), 130-139 (2014). 
12 SAMHSA, Report to Congress on the Nations Substance Abuse and Mental Health Workforce Issues, Vol. 24 (Jan, 
2013). 
13 Cummings JR, Wen H, Ko M, et al, Race/Ethnicity and Geographic Access to Medicaid Substance Use 
Disorder Treatment Facilities in the United States, JAMA Psychiatry, 71(2): 190-196 (Feb 2014). 
14 Ibid. 
 
  Page 5  State Medicaid Director 
 
proposed solutions that focus on improving quality, accessibility, and outcomes in the most 
cost-effective manner.  This initiative offers states the flexibility to design 1115 demonstrations 
aimed at making significant improvements over the course of a five-year period on the following 
6 goals and 6 milestones specific to addiction to opioids or other substances:  
 
Goals: 
1.  Increased rates of identification, initiation, and engagement in treatment; 
2.  Increased adherence to and retention in treatment;  
3.  Reductions in overdose deaths, particularly those due to opioids; 
4.  Reduced utilization of emergency departments and inpatient hospital settings for   
treatment where the utilization is preventable or medically inappropriate through 
improved access to other continuum of care services;  
5.  Fewer readmissions to the same or higher level of care where the readmission is 
preventable or medically inappropriate; and 
6.  Improved access to care for physical health conditions among beneficiaries. 
 
Milestones: 
1.  Access to critical levels of care for OUD and other SUDs; 
2.  Widespread use of evidence-based, SUD-specific patient placement criteria; 
3.  Use of nationally recognized, evidence-based SUD program standards to set residential 
treatment provider qualifications; 
4.  Sufficient provider capacity at each level of care; 
5.  Implementation of comprehensive treatment and prevention strategies to address opioid 
abuse and OUD; and 
6.  Improved care coordination and transitions between levels of care. 
 
Demonstration Application 
 
States wishing to participate in this initiative can submit a demonstration application to CMS 
outlining the states strategy for achieving the goals of this demonstration opportunity, including 
a commitment to meeting the six milestones that are critical steps for achieving these goals over 
the course of the demonstration. Given the magnitude of the opioid epidemic in the U.S. and the 
increased focus by the Administration to combat the crisis, CMS strongly encourages states to 
articulate in their demonstration application how their proposal will apply evidence-based 
programs to meet the needs of people struggling with addiction to opioids in their state.  
    
States applications should also describe the states capacity for regular reporting on progress 
toward meeting these milestones as well as for collecting and reporting data on performance 
measures.  In addition, states applications should confirm their commitment to assuring the 
necessary resources will be available to effectively support a robust monitoring protocol and 
evaluation. 
 
 
 
 
  Page 6  State Medicaid Director 
 
Implementation Plan 
 
Participating states will also develop implementation plans describing the various timelines and 
activities the state will undertake to achieve the milestones listed above.  States will have the 
option of submitting their implementation plan as part of their application or as a post-approval 
protocol.  Either way, FFP for services provided in IMDs will be prospective only and contingent 
upon CMS approval of the states implementation plan as a part of the application or in a post-
approval protocol.  If a state chooses to use a post-approval protocol, the timeframe for 
submitting the post-approval protocol will be specified in the Special Terms and Conditions 
(STCs) agreement between CMS and the state.  Through this 1115 opportunity states may 
receive federal matching funds for Medicaid-coverable services provided to individuals residing 
in residential treatment facilities that are not ordinarily matchable because these facilities qualify 
as IMDs; however, this 1115 opportunity does not allow for room and board payments in those 
facilities unless they qualify as inpatient facilities under section 1905(a) of the Social Security 
Act.  
 
CMS will work with states through these demonstrations to establish residential treatment 
provider qualifications that meet nationally recognized, SUD-specific, evidence-based program 
standards (Milestone #3).  Implementation of these program standards is identified as a critical 
milestone that states will address as part of these demonstrations.  While states are working 
toward implementing nationally recognized SUD-specific program standards as provider 
qualifications for residential treatment facilities, the STCs will specify the provider qualifications 
states will use in the interim for residential treatment facilities that qualify as IMDs but would 
receive FFP through these demonstrations.  The STCs will also describe the states processes for 
ensuring those qualifications are met.  Offering states the flexibility to implement the nationally 
recognized SUD-specific standards for residential treatment providers as the demonstration 
progresses will promote the objectives of the Medicaid program by encouraging more states to 
work with CMS on meeting the milestones and goals of these demonstrations outlined above, 
thus expanding rapid access to these services while, ensuring adequate quality and safety 
standards and incentivizing improvements in quality over time.   
 
As a states demonstration progresses, the state will be expected to include, in its regular section 
1115 demonstration monitoring reports, information on the states progress toward meeting the 
milestones identified in Table 1 in accordance with the timeframes specified in the states 
implementation plan and financial data to ensure compliance with budget neutrality 
requirements. 
 
Monitoring Protocol for Performance Measures Aligned with Initiative Goals 
 
Over the course of these demonstrations, states will also include, in their regular 1115 
demonstration reports, information on milestones and performance measures representing key 
indicators of progress toward meeting the goals for this demonstration initiative.  There will be a 
core set of measures that all states that elect to implement this demonstration model will report 
on, as well as additional measures specific to particular state demonstration parameters.  CMS  
 
  Page 7  State Medicaid Director 
 
 
has been working with a contractor to identify measures for these demonstrations (see examples 
in Table 2 below) and will seek additional input from states.  Information about the specific 
measures and reporting being finalized by CMS with state input will be detailed in a monitoring 
protocol agreed upon by CMS and the state after approval of the demonstration.   
  
CMS will also work with participating states to develop monitoring protocols that will identify 
reasonable degrees of improvement on each of the agreed upon performance measures as well as 
specifics regarding data collection, analytic methodology, and how the states will construct 
baselines for each data point and performance measure against which the states progress will be 
measured.  If a state has not previously collected data on any of the finalized performance 
measures agreed to, the first year of data collected for this demonstration may be used as a 
baseline.  CMS will also work with the states to determine the frequency of reporting on each of 
these milestones and performance measures.  This monitoring protocol, which will be a 
collaborative effort between CMS and the states, can be developed after approval of the 
demonstration, and a timeframe for finalizing the monitoring protocol will be included in the 
STCs.  States will submit quarterly financial data which CMS will review regularly to assure 
states are in compliance with the budget neutrality requirements.  
 
The data reported by the state will inform a mid-point assessment between years two and three of 
the demonstration during which CMS will evaluate whether states are making sufficient progress 
toward meeting the milestones and performance measure targets. In addition to its ongoing 
monitoring of budget neutrality compliance, CMS will also assess whether states are on track to 
meet the budget neutrality requirements as part of this mid-point assessment.  States at risk of not 
meeting these targets will submit modifications to their implementation plans, which shall be 
subject to CMS approval.  CMS may require states to provide corrective action plans if a state 
fails to meet the required annual triggers indicating that waiver spending is diverting from the 
expected trajectory under the budget neutrality requirements.  In addition, FFP for services in 
IMDs may be withheld if states are not making adequate progress on meeting the milestones and 
goals as evidenced by reporting on the milestones in Table 1 and the required performance 
measures in the monitoring protocol agreed upon by the state and CMS.  States must be in full 
compliance with the budget neutrality requirement at the end of the demonstration period or 
CMS will recover the difference. In addition, achievement of the milestones and performance 
measure targets will be taken into consideration by CMS if a state were to request an extension 
of their demonstration. 
 
States will also be required to conduct independent and robust interim and final evaluations that 
will draw on the data collected for the milestones and performance measures, as well as other 
data and information needed to support the evaluation that will describe the effectiveness and 
impact of the demonstration using quantitative and qualitative outcomes.  An evaluation design 
will be developed by the state, with technical assistance from CMS, to be finalized within nine 
months of the demonstration approval.  The evaluation design will include detailed analytic 
plans, data development, collection, and reporting details and will be subject to CMS approval.  
States that fail to submit an acceptable and timely evaluation design as well as any required 
 
  Page 8  State Medicaid Director 
 
monitoring, expenditure or other evaluation reporting, are subject to a $5 million deferral per 
item. The interim evaluation will be required one year before expiration of the demonstration or 
when the state submits a proposal to renew the demonstration.  The final evaluations will be due 
eighteen months after the demonstration period ends. 
 
Public Availability of Data on State Progress toward Meeting Milestones and Performance 
Measure Targets as well as Evaluation Reports 
 
CMS will regularly post information on the Medicaid.gov website regarding the states progress 
in meeting the agreed upon milestones and performance measure targets.  In addition, states 
regular 1115 reports, as well as their evaluation reports, will be posted, as required by section 
1115 transparency rules. 
 
Table 1: Milestones for 1115 Demonstrations Addressing Opioids and Other Substances 
 
Milestones  Specifications and Proposed Timeframes 
1.  Access to Critical Levels of  1.  Coverage of a) outpatient, b) intensive outpatient 
Care for OUD and other  services, c) medication assisted treatment (medications 
SUDs  as well as counseling and other services with sufficient 
provider capacity to meet needs of Medicaid 
beneficiaries in the state), d) intensive levels of care in 
residential and inpatient settings, and e) medically 
supervised withdrawal management  
Proposed Timeframe:  Within 12 to 24 months of 
demonstration approval  
2.  Use of Evidence-based,  1.  Implementation of requirement that providers assess 
SUD-specific Patient  treatment needs based on SUD-specific, multi-
Placement Criteria  dimensional assessment tools, e.g., the ASAM Criteria, 
or other patient placement assessment tools that reflect 
evidence-based clinical treatment guidelines 
Proposed Timeframe: Within 12 to 24 months of 
demonstration approval  
2.  Implementation of a utilization management approach 
such that a) beneficiaries have access to SUD services at 
the appropriate level of care, b) interventions are 
appropriate for the diagnosis and level of care, and c) 
there is an independent process for reviewing placement 
in residential treatment settings.   
Proposed Timeframe: Within 24 months of 
demonstration approval  
 
  Page 9  State Medicaid Director 
 
Milestones  Specifications and Proposed Timeframes 
3.  Use of Nationally  1.  Implementation of residential treatment provider 
Recognized SUD-specific  qualifications in licensure requirements, policy manuals, 
Program Standards to Set  managed care contracts, or other guidance. Qualification 
Provider Qualifications for  should meet program standards in the ASAM Criteria, 
Residential Treatment  or other nationally recognized, evidence-based SUD-
Facilities   specific program standards regarding in particular the 
types of services, hours of clinical care, and credentials 
of staff for residential treatment settings 
Proposed Timeframe: Within 12 to 24 months of 
demonstration approval  
2.  Implementation of state process for reviewing 
residential treatment providers to assure compliance 
with these standards  
Proposed Timeframe: Within 24 months of 
demonstration approval  
3.  Requirement that residential treatment facilities offer 
MAT on-site or facilitate access off-site  
Proposed Timeframe: Within 12 to 24 months of 
demonstration approval   
4.  Sufficient Provider  1.  Completion of assessment of the availability of 
Capacity at Critical Levels  providers enrolled in Medicaid and accepting new 
of Care including for  patients in the critical levels of care throughout the state 
Medication Assisted  (or at least in participating regions of the state) including 
Treatment for OUD  those that offer MAT. 
Proposed Timeframe: Within 12 months of 
demonstration approval  
5.  Implementation of  1.  Implementation of opioid prescribing guidelines along 
Comprehensive Treatment  with other interventions to prevent opioid abuse  
and Prevention Strategies to 
Proposed Timeframe: Over the course of the 
Address Opioid Abuse and 
demonstration  
OUD 
2.  Expanded coverage of, and access to, naloxone for 
overdose reversal 
Proposed Timeframe: Over the course of the 
demonstration 
3.  Implementation of strategies to increase utilization and 
improve functionality, of prescription drug monitoring 
programs 
 
  Page 10  State Medicaid Director 
 
Milestones  Specifications and Proposed Timeframes 
Proposed Timeframe: Over the course of the 
demonstration 
6.  Improved Care  1.  Implementation of policies to ensure residential and 
Coordination and  inpatient facilities link beneficiaries, especially those 
Transitions between Levels  with OUD, with community-based services and supports 
of Care  following stays in these facilities. 
Proposed Timeframe: Within 12 to 24 months of 
demonstration approval  
 
 
Table 2: Demonstration Performance Measures 
 
Demonstration/SUD Goals   Performance Measures 
   
Increased Rates of  Initiation and Engagement of Alcohol and Other Drug 
Identification, Initiation and  Dependence Treatment (National Committee for Quality 
Engagement in Treatment   Assurance; NQF #0004)* # 
Improved Adherence to  1.  Continuity of Pharmacotherapy for OUD (RAND; NQF 
Treatment   #3175) 
 
2.  Follow-up after Discharge from Emergency Department 
for Mental Health or Alcohol or Other Drug Dependence 
(National Committee for Quality Assurance; NQF 
#2605)*# 
 
3.  Percentage of beneficiaries with an SUD diagnosis 
including those with OUD who used the following 
services per month (multiple rates reported):  
  Outpatient;  
  Intensive outpatient services;   
  Medication assisted treatment for OUDs and alcohol; 
  Residential treatment (including average lengths of 
stay (LOS) in residential treatment aiming for a 
statewide average LOS of 30 days); and 
  Medically supervised withdrawal management 
Reduction in Overdose   
Deaths Particularly Those  1.  Use of Opioids at High Dosage in Persons Without 
Due to Opioids  Cancer (Pharmacy Quality Alliance; NQF # 2940)* 
 
 
  Page 11  State Medicaid Director 
 
Demonstration/SUD Goals   Performance Measures 
   
2.  Number of overdose deaths/ 1,000 Medicaid 
beneficiaries/month and specifically overdose deaths due 
to any opioid 
 
3.  Number of overdose deaths, and specifically deaths due 
to overdose of any opioid, among Medicaid beneficiaries 
in the reporting year  
 
Reduced Utilization of  1.  Emergency department visits for SUD-related diagnoses 
Emergency Department and  and specifically for OUD /1,000 member months# 
Inpatient Hospital Settings    
2.  Inpatient admissions for SUD and specifically OUD  
  among Medicaid beneficiaries/1,000 member months# 
 
 
3.  Baseline and periodic updates on spending on 
beneficiaries in residential treatment and outpatient 
settings for SUD treatment and on inpatient and 
emergency room services for beneficiaries with SUD 
diagnoses including spending on physical health 
conditions commonly associated with SUDs 
Fewer Readmissions to the  30 day readmission rate following hospitalization for an 
Same or Higher Level of Care  SUD-related diagnosis# and specifically for OUD 
for  
Improved Access to Care for  Percentage of beneficiaries with an SUD diagnosis, and 
Co-morbid Physical Health  specifically those with OUD, who access physical health care. 
Conditions among   
Beneficiaries  
 
* Denotes measures that are part of the Medicaid Adult Core Set of Measures. 
#  Denotes measures that states with preexisting SUD 1115 demonstrations are already required 
to report on. 
 
CMS will publish a technical specifications manual for a small set of required core measures 
as well as optional measures from which states can choose.  CMS will also provide technical 
assistance to states in the collection and reporting of measures required for the demonstration.  
 
Submission Process for Section 1115 Demonstration Projects  
  
States should follow the usual process for submitting 1115 demonstration proposals as outlined 
in the federal section 1115 demonstration project transparency regulations at 42 CFR 431.412  
 
 
  Page 12  State Medicaid Director 
 
 
and 42 CFR 431.408.  As explained in these regulations, states should submit an application that 
includes the following information: 
 
  A comprehensive description of the demonstration, including the states strategies for 
addressing the goals and milestones discussed above for this demonstration initiative 
(see request below); 
  A comprehensive plan to address opioid abuse, including aggressive preventive 
measures and strategies to improve access to treatment and recovery support services for 
Medicaid beneficiaries and an assessment of how this demonstration will complement 
and not supplant state activities called for or supported by other federal authorities and 
funding streams; 
  A description of the proposed health care delivery system, eligibility requirements, 
benefit coverage and cost sharing (premiums, copayments, and deductibles) required of 
individuals who will be impacted by the demonstration, to the extent such provisions 
would vary from the States current program features and the requirements of the Social 
Security Act; 
  A list of the waivers and expenditure authorities that the state believes to be necessary to 
authorize the demonstration;  
  An estimate of annual aggregate expenditures by population group impacted by the 
demonstration, including development of baseline cost data for these populations.  
Specifically, CMS requests that states' fiscal analysis   demonstrate how the proposed 
changes will be budget neutral, i.e., will not increase federal Medicaid spending.  CMS 
will work closely with states to determine the feasibility of their budget neutrality 
models and suggest changes as necessary;   
  Enrollment data including historical SUD coverage and projected coverage over the life 
of the demonstration,  of each category of beneficiary whose health care coverage is 
impacted by the demonstration; 
  Written documentation of the states compliance with the public notice requirements at 
42 CFR 431.408, with a report of the issues raised by the public during the comment 
period and how the state considered those comments when developing the final 
demonstration application submitted to CMS;  
  The research hypotheses that are related to the demonstrations proposed changes, goals, 
and objectives, and a general plan for testing the hypotheses including, if feasible, the 
identification of appropriate evaluation indicators, and 
  Implementation Plan (if being submitted at the time of application). 
 
CMS requests that these Section 1115 demonstration proposals describe, in as much detail as 
possible the states strategy for improving access to and quality of addiction treatment through 
the proposed demonstration and how the states proposed demonstration will further the goals of 
the initiative described above.  The application should include a description of the activities the 
state plans to undertake to address the milestones specified in Table 1, and to report on the 
milestone markers and performance measures.  If it is not feasible to include in the application a 
detailed implementation plan specifying how and when the state proposes to meet the milestone 
 
  Page 13  State Medicaid Director 
 
markers in Table 1, the state should propose a date by which an implementation plan will be 
submitted by the state, this date will be included in the STCs.  As a reminder, FFP for services in 
IMDs will not be available through the demonstration until the implementation plan/protocol is 
approved by CMS, at which time FFP will be available only prospectively.  In addition, the state 
should indicate what data sources and resources it proposes to use for reporting on performance 
measures.  CMS will work with states to develop a detailed monitoring protocol for these data 
points and performance measures after the application is received from the state. 
 
After states develop 1115 demonstration proposals that include the information listed above, 
states must follow the minimum 30-day public notice and comment procedures outlined in 42 
CFR 431.408, to allow opportunity for public input on the application prior to submission to 
CMS.  This includes consultation with Indian tribes and Indian health providers (to the extent 
there are Indian tribes and Indian health providers located within geographic boundaries of the 
state) to solicit advice from the Indian health providers on ensuring access for American Indian 
and Alaska Native (AI/AN) individuals to the services that are part of the demonstration and that 
these services meet the unique and cultural needs of AI/AN individuals.   
 
CMS is available to provide technical assistance to states on how to meet federal transparency 
requirements as well as to preview states' draft 1115 proposals and public notice documentation 
to help ensure states successfully meet federal requirements. 
 
Section 1115 demonstration applications may be submitted electronically to 
1115DemoRequests@cms.hhs.gov or by mail to:   
  
Judith Cash 
Acting Director 
State Demonstrations Group 
Centers for Medicare & Medicaid Services  
Center for Medicaid & CHIP Services  
Mail Stop:  S2-26-12 
7500 Security Boulevard  
 Baltimore, MD 21244-1850  
 
As required by 42 CFR 431.416, when states submit section 1115 proposals to CMS we will 
send written notice within 15 days of receipt to the state on whether its application met all 
federal transparency requirements and is determined complete for purposes of initiating CMS' 
review and the federal 30-day public notice and comment process.  
 
CMS hopes states will use this opportunity to improve addiction treatment for Medicaid 
beneficiaries. Questions regarding this guidance may be directed to Kirsten Beronio, Senior 
Behavioral Health Policy Advisor, Disabled and Elderly Health Programs Group, at 
Kirsten.Beronio@cms.hhs.gov.  We look forward to continuing our work together on these 
important issues.   
 
 
  Page 14  State Medicaid Director 
 
            Sincerely, 
 
                /s/ 
 
            Brian Neale 
            Director 
 
 
cc: 
National Association of Medicaid Directors 
 
National Academy for State Health Policy 
 
National Governors Association 
 
American Public Human Services Association 
 
Association of State and Territorial Health Officials 
 
Council of State Governments 
 
National Conference of State Legislatures  
 
Academy Health 
 
National Association of State Alcohol and Drug Abuse Directors