On November 13, 2018, CMS notified state Medicaid directors of a new 1115 waiver opportunity for adults and children with serious mental health conditions. This new authority, similar to the agency’s substance use disorder waiver authority issued in November 2017, will allow states to pay for short-term inpatient treatment in Institutions of Mental Disease (IMD), waiving an existing prohibition on federal dollars being used to cover services in these types of residential treatment centers (the “IMD exclusion”). Under the 2016 Medicaid managed care rule, CMS waived the prohibition for up to 15 days for beneficiaries enrolled in managed care plans. This waiver opportunity doubles that length of stay to 30 days and expands it to beneficiaries in fee-for-service Medicaid as well. The State Medicaid Director Letter also outlines strategies for improving mental health services using existing authorities.