From Fragmentation to Coordination: A Guide to Medicaid Behavioral Health Integration

Written by Meghan Harris | Jun 2, 2026 1:27:44 PM

By Meghan Harris, President and Chief Operations Officer

Mental Health Burden

According to the World Health Organization, an estimated one billion people^[1] live with a mental health or addictive disorder. That’s one out of every eight people on the planet. In the U.S., estimates suggest that only half of people with mental illnesses receive treatment.^[2] And according to the Substance Abuse and Mental Health Service Administration (SAMHSA)’s National Survey on Drug Use and Health, only a small proportion of individuals who need substance use treatment receive it, leaving approximately 90% who go without treatment.^[3] The burden of mental health disorders and the associated economic costs are enormous — to individuals, the economy, and society.

Despite growing awareness, physical and behavioral health services largely operate separately, with minimal coordination. This fragmentation leads to gaps in care, inappropriate treatment, increased hospitalizations, and, ultimately, higher costs.^[⁴^]

CMS and Medicaid use “behavioral health” as an umbrella term that encompasses mental health, substance use disorders (SUD), and other behavioral conditions.^[⁵^]

Medicaid and Behavioral Health

Mental health issues disproportionately affect those on Medicaid. According to the Kaiser Family Foundation, more than one in three adult Medicaid enrollees have a mental illness and Medicaid enrollees diagnosed with mental illness have higher rates of chronic conditions and substance use disorder compared to those without a mental health diagnosis.^[⁶^]

Given this, it’s no surprise that Medicaid is also a major source of financing for mental health services. The Medicaid program finances more than one-quarter of the U.S. spending on behavioral health care; it is, by far, the largest single source of funding for public mental health services.

However, Medicaid coverage for mental and behavioral health services varies significantly by city, county, and state. While all state Medicaid programs must cover certain behavioral health services, no universal list of services, conditions, or treatments exists.^[⁷^] However, all behavioral health services are subject to limits.^[⁸^]

For example, a life-threatening drug overdose requiring an emergency room visit and overnight hospitalization would likely be covered in most cases. However, ongoing addiction therapy after hospitalization may not be considered medically necessary and may not be covered.

Integrated care emphasizes collaboration and communication among health professionals. Team members establish a comprehensive treatment plan to address the biological, psychological, and social needs of the patient.^[⁹^]

Benefits of Integrated Physical and Behavioral Health

The good news is twofold. For one, behavioral health is a high priority for the Centers for Medicare and Medicaid Services (CMS), and second, a growing body of research shows powerful improvements from integrated care. Evidence from multiple randomized trials^[¹⁰^] suggests that integrating behavioral health care and primary care can:^[1¹^]

Improve chronic health conditions: Research shows that treating behavioral health conditions in tandem with physical ailments can improve control of chronic conditions like diabetes and heart disease.^[1²^]

Simplify access: Integration enables shared data systems, streamlined referrals, and unified care plans. By allowing providers to connect with other providers, patients benefit by no longer struggling through navigation, conflicting recommendations, or repeated information sharing.^[1³^]
Reduce costs: Integrated care models can decrease emergency department visits and lower hospitalization rates,^[1⁴^] reducing Medicaid spending.
Improve outcomes: Individuals are more likely to follow up on referrals to mental healthcare if such care is provided in the same location as their physical healthcare.^[15] Collaborative care improves patient medication compliance and improves overall health metrics. The evidence is strong enough that the Cochrane Database, the gold standard of evidence-based medicine, declared, “Collaborative care is associated with significant improvement in depression and anxiety outcomes compared with usual care.”^[1⁶^]

Medicaid Models of Success

Below are examples of Medicaid agencies implementing whole-person care through mental and physical health integration. They showcase creativity and the breadth of opportunity.

Certified Community Behavioral Health Clinics (CCBHCs)
CCBHCs offer comprehensive services, including 24/7 crisis response, primary care screening, and easy referrals. 87% of Medicaid CCBHCs and established grantees offer one or more forms of medication-assisted treatment for opioid use disorder, compared to 64% of substance use treatment facilities nationwide.^[1⁷^]

Specifically, Missouri saw a 23% reduction in hospital admissions, improved follow-up care after mental health hospitalizations, and better patient engagement in integrated care centers.^[1⁸^] Oklahoma’s three CCBHCs reduced the proportion of their clients seen in emergency departments by 18-47% (rates varied by clinic) and those admitted to inpatient care by 20-69% in four years, compared to the baseline.^[1⁹^]
Medicaid Health Homes
Health homes focus on Medicaid beneficiaries with complex health needs, integrating physical, mental, and behavioral health services. The model shows promise as a tool for improving care and achieving cost savings.

The Missouri primary care health home program estimated hospitalization cost savings over $5.7 million, with total savings to the Medicaid program at over $2 million, or an average of $148 per member, per month. The evaluation also found significant improvements in blood sugar, cholesterol, and blood pressure levels among individuals receiving health home services.^[²⁰^]

In Wisconsin, costs, hospital use, and chronic disease diagnoses were lower for those beneficiaries with more prolonged exposure to the health home provider.^[2¹^]
Collaborative Care Model (CoCM)
CoCM embeds mental health professionals within primary care teams. Studies at the University of Washington AIMS Center have found this model improves depression outcomes and reduces overall costs compared to usual care.^[2²^]
Integrated Managed Care Contracts
Some states, such as Arizona, mandate that Medicaid managed care organizations (MCOs) integrate behavioral and physical health services^[2³^] at one single location. Preliminary results showed improvements in preventive screenings, reduced fragmentation, and better follow-up care.
Delivery System Reform Incentive Payment (DSRIP) Waivers
Some states used DSRIP programs to incentivize integration and promote collaboration. Specifically, New York implemented a billing policy allowing providers to bill for two professional services on the same day on a single claim. This eliminated billing barriers to providing integrated clinical services. Results showed fewer potentially preventable admissions and more effective chronic disease management among patients with co-occurring mental health conditions.
Private Sector Partnerships
West Virginia partnered with Acentra Health to offer a single point of entry for families seeking support for children with serious emotional disorders (SED). Rather than navigating 3-4 agencies, processes, and paperwork, families now receive immediate resources, ongoing case management, wraparound services, and administrative support^[2⁴^], significantly reducing barriers to care. Since its initiation, West Virginia has processed claims to support more than 20,000 children with SED.

In 2021, The Association of Medicaid Directors released a set of recommendations, Medicaid Forward: Behavioral Health. The framework offers options to states interested in expanding access to behavioral health services.^[25]

The Future is Comprehensive Behavioral Healthcare

In January 2025, CMS announced two new initiatives supporting behavioral health. The first is funding for the Innovation in Behavioral Health (IBH) Model.

Michigan, one of four states selected for IBH, describes the project as focusing on “improving the quality of care and behavioral and physical health outcomes for adults enrolled in Medicaid and Medicare with moderate to severe mental health conditions and SUD. The model will support aligning payment between Medicaid and Medicare for integrated services and improving quality reporting and data sharing.”^[26]

The second project is a CMS collaboration with the FDA on “a novel approach in the calendar year 2025 Physician Fee Schedule final rule on coding and Medicare payment policies. The final rule will improve access to behavioral health services through safe and effective digital mental health treatments (DMHT).”^[27]

As reported by Stat News, “DMHTs are software devices intended to treat or alleviate behavioral health conditions. These devices hold tremendous promise to help bridge the gap in availability and access to mental health services and providers”.^[28]

Integrating behavioral health into traditional Medicaid health services is a strategic imperative. Whether it happens through integrated service delivery, holistic care, coordinated care models, a medical home, or service co-location, the goal is the same: bridging the distance between behavioral and physical care to serve Medicaid beneficiaries in the most person-centric way possible.

By exploring care models, offering incentives for MCOs to provide integrated service delivery, and joining pilot programs, Medicaid agencies can improve outcomes, reduce costs, and help improve mental health in America.

References

^[1]https://www.thelancet.com/journals/eclinm/article/PIIS2589-5370(22)00405-9/fulltext

^[2] https://www.nimh.nih.gov/health/statistics

^[3] https://www.samhsa.gov/data/data-we-collect/nsduh-national-survey-drug-use-and-health/national-releases

^[⁴^] https://pmc.ncbi.nlm.nih.gov/articles/PMC10426166/

^[⁵^] https://www.cdc.gov/mental-health/about/about-behavioral-health.html

^[⁶^] https://www.kff.org/mental-health/5-key-facts-about-medicaid-coverage-for-adults-with-mental-illness/

^[⁷^] https://www.macpac.gov/subtopic/behavioral-health-services-covered-under-state-plan-authority/

^[⁸^] https://www.macpac.gov/subtopic/behavioral-health-benefits/#_edn1

^[⁹^] https://www.apa.org/health/integrated-health-care

^[¹⁰^] https://www.jabfm.org/content/30/2/130.full

^[1¹^] https://pubmed.ncbi.nlm.nih.gov/23076925/