Brief Leveraging In Lieu of Services in Medicaid Managed Care

Most states deliver services in the Medicaid program through managed care organizations (MCOs). One of the arguments in favor of managed care is that MCOs have financial incentives to coordinate care and deliver cost-effective care to keep people healthy. One tool Medicaid MCOs can use—that is not available in other Medicaid delivery systems—is in lieu of services. 

Medicaid in lieu of services (ILOS) are alternative services that Medicaid MCOs can provide instead of traditional Medicaid benefits without the need for waiver approval. ILOS are permitted when they are medically appropriate and cost-effective compared to standard care and may be used as immediate or long-term substitutes for state-covered services to improve health and quality outcomes for enrollees.  

States have used ILOS since 2016 to cover a wide range of services not included in the state plan, such as chiropractic treatment in lieu of physiotherapy, or mobile crisis services as an alternative to inpatient psychiatric treatment.  

In January 2023, the Centers for Medicare and Medicaid Services (CMS) issued new guidance giving states new flexibility to use ILOS to address health-related social needs, such as housing instability and nutrition insecurity. Some states, including the seven states described below, have integrated ILOS into their Medicaid managed care programs. 

State Medicaid ILOS Benefits 

States may approve ILOS benefits for a wide variety of services that are determined to be more cost-effective than covered services. These broadly include services to address health-related social needs, behavioral health and substance use disorder treatment, preventive care, and community health paraprofessionals.  

Health-Related Social Needs 

California was the first Medicaid program to use ILOS to address health-related social needs through Medi-Cal Community Supports benefits. Health-related social needs can include access to safe housing, healthy meals, and services to aid in living healthier lives which may help individuals avoid higher, costlier levels of care. MCOs are encouraged to offer up to 14 Community Supports identified by the state. Of the 14 approved Community Supports, several address health-related social needs, including housing transition navigation services; housing deposits; housing tenancy and sustaining services; respite services; personal care and homemaker services; environmental accessibility adaptations (home modifications); medically tailored meals; and asthma remediation.  

While not specifically identified as ILOS to address health-related social needs, at least two other states, including Kansas and New York, cover ILOS that are related to housing or nutrition.  

Kansas’s Medicaid program, KanCare, typically requires MCOs to run a cost-benefit analysis for a service before approving it as a covered ILOS. KanCare covers assisted living rentals and medical nutrition therapy without prior approval from the state. New York has identified medically tailored meals as appropriate for ILOS coverage, including meal preparation and food shopping.  

Behavioral Health and Substance Use Disorder Services and Settings

Several states have approved ILOS specific to behavioral health and substance use disorder services. 

Oregon ILOS must be approved by the state, included in the MCO contract and must be available to all members who qualify. Seven categories of care are currently approved ILOS and include peer and qualified mental health services and infant mental health pre- and post-testing services. 

Florida MCOs may choose to pay for approved ILOS, which are listed in the Medicaid State Plan and in the MCO’s contract with the state. ILOS may include community-based wrap-around services, crisis stabilization units, family training/counseling for child development, mobile crisis and self-help/peer services, instead of facility-based behavioral health care.  

Texas Senate Bill 1177 (2019) requires Medicaid managed care contracts to include language permitting MCOs to offer ILOS for mental health or substance use disorder services from a list pre-approved by the state. Available ILOS are broken down into three categories:  

• Services in lieu of inpatient services coverage includes crisis respite, crisis stabilization, partial hospitalization, and intensive outpatient program services.  
• Services in lieu of outpatient services coverage includes cognitive rehabilitation, multisystemic therapy and functional family therapy.
• Additional in-lieu-of services coverage includes health and behavior assessment and intervention, treatment/therapeutic foster care, and mobile crisis outreach teams.  

Preventive Care, Devices, and Chronic Disease Management

Several states permit MCOs to use ILOS to cover certain types of preventive care services, devices and chronic disease management.  

Kansas’s KanCare program, covers CPAP and BiPAP devices, cochlear implants, diabetes self-management training and dental services without prior approval from the state.  

Oregon’s seven categories of currently approved ILOS include online diabetes self-management programs, national diabetes prevention program services and chronic disease self-management education programs.  

New York covers the Brook+ Diabetes Prevention Program—a CDC recognized program— as an approved ILOS benefit, which aims to increase accessibility through on-demand smart-device and web-based program delivery. 

Emerging Health Professionals

States have also included certain community health paraprofessionals, like doulas, community or traditional health workers, or lactation consultants as part of approved ILOS benefits. Oregon’s seven categories of currently approved ILOS include community health worker services and lactation consultants. Louisiana’s ILOS include doula services and outpatient lactation support.