Committed to improving the health and well-being of all people across every state.

Funding Options for States

As overdose fatalities continue to rise, driven by both the ongoing COVID-19 pandemic as well as highly potent forms of illicit opioids, states are considering how to target various funding sources to effectively provide treatment and recovery services for substance use disorder (SUD).

Recent increases in federal funding for opioid and SUD-related activities, along with existing grants, Medicaid payments, and legal settlements, are augmenting state SUD budgets. While further funding can help states to develop and improve infrastructure and services, strategic use of that funding becomes more challenging as new resources are introduced.

Because these resources flow through different state agencies and different parts of state budgets, an organized approach, which includes assessing and tracking these multiple funding streams and their uses in supporting a full continuum of SUD services, is key.

State Funding Sources for SUD Treatment

Key Funding Sources (in Order of Total Investment)

1. Medicaid

State Medicaid programs cover SUD treatment and supportive services for Medicaid beneficiaries using multiple Medicaid authorities. The total Medicaid spend on SUD services varies by state depending on program design, services delivered, and federal medical assistance percentage (FMAP). Federal dataindicates that about 8 percent of all individuals enrolled in Medicaid received SUD treatment services in 2019. States partner with the federal government to receive federal matching funds and follow federal requirements, but each state Medicaid agency administers their program, with significant flexibility to design services and how they are delivered.

Learn more about Medicaid and SUD

The American Rescue Plan Act (ARPA) created several specific opportunities for states to further leverage federal Medicaid funding for SUD.

  • Section 9817 allows states to receive an additional 10 percent FMAP match for home and community-based services and infrastructure, including efforts to recruit and retain workforce, support transitional services from institutional care, and develop data and telehealth connections.
  • Section 9813 creates an 85 percent FMAP match for up to three years for mobile crisis services and infrastructure, which can include supports for SUD-related crises and encourages crisis response harm reduction capacity.

Key Requirements and Limitations

  • Eligibility. A fundamental limitation of state Medicaid programs, especially in non-expansion states, is that services are only available to people who are categorically and financially eligible for and enrolled in state programs.
  • Inmate exclusion. Individuals who are incarcerated are ineligible for Medicaid coverage, meaning that jails and prisons must use other funds to address SUD treatment needs.
  • Medication coverage. Per the Substance Use Disorder Prevention that Promotes Recovery and Treatment (SUPPORT) Act, state Medicaid programs must cover all three forms of medications for opioid use disorder (MOUD).
  • Institutes of Mental Disease (IMD) exclusion. While states are statutorily precluded from coverage of services in IMDs under Medicaid (defined in the Social Security Act as hospitals, nursing facilities, or other institutions with over sixteen beds that primarily treat mental health conditions), a time-limited state plan option established through section 1915(l) of the SUPPORT Act allows for coverage of IMD services. The SUPPORT Act also created an exception in section 1012(a) for states to allow Medicaid coverage of SUD treatment for pregnant and postpartum individuals in IMDs. States can also request an exception to the IMD exclusion through Medicaid Section 1115 demonstration waivers.
  • Housing. Although state Medicaid programs generally cannot cover room and board, some states have received federal approval through different authorities to pay for supports for people transitioning into housing.
  • Third Party Liability (TPL) rule. Medicaid must be the final payer, or the “payer of last resort,” for billable services. Other forms of health insurance coverage must be billed before a state can pay a Medicaid claim.

2. Substance Abuse Prevention and Treatment Block Grants (SABG)

These non-competitive federal grants were established in 1993, providing funding to states, totaling $3.5B in FFY22 to support planning, implementation, and evaluation for prevention and treatment activities for all SUD. Single state agencies (SAA) for behavioral health are required to administer these funds in states.

Learn more about SABG

Key Requirements and limitations (per SAMHSA)

  • Administration. No more than 5 percent of funding may be used for administrative costs. SAMHSA also requires a 5 percent set-aside for data collection and other technical assistance activities.
  • Primary prevention. States must use no less than 20 percent of SABG funds for primary prevention efforts for individuals who do not yet meet criteria for SUD but are at risk.
  • Treatment and prevention. States must use the remaining 70 percent of funds for both alcohol use disorder (AUD) and other SUD prevention, early intervention, treatment, and recovery. States can use SABG dollars to fund treatment services for individuals who are uninsured, experiencing gaps in coverage, or for SUD services that are not covered under insurance. These funds are, however, restricted from paying for inpatient hospitalization and treatment in incarceration settings.
  • Coordination with Medicaid. States may use SABG funds to supplement but not supplant Medicaid coverage for treatment services. SABG covers gaps in payment to providers for non-covered or limited Medicaid services that have demonstrated effectiveness. SAMHSA has also provided guidance for states indicating that SABG funds may also be used to cover Medicaid spend-down for individuals, as well as cost-sharing requirements for individuals with private insurance for SUD treatment services.

3. State Opioid Response (SOR) Grants

These non-competitive, two-year federal grants totaled $1.5B in FFY21 and $2.25B in FFY22 and are used to support both opioid and other SUD-related activities in states, allocated by Congress to each state on a needs-based formula methodology. In addition to SABG funds, SSA are required to administer these funds in states as well.

Learn more about SOR grants

Requirements and limitations (per SAMHSA)

  • Activities. Funds must be used to supplement existing SUD-related activities and programs in states and cannot be used to supplant other federal funds. This presents an opportunity for states to fund treatment for individuals and services that are not eligible for Medicaid reimbursement. States must use SOR grants to implement not only treatment, but community recovery supports and prevention activities as well, including for individuals transitioning into the community from incarceration or institutional settings.
  • Administration. No more than 5 percent of funds can be used for administrative and infrastructure purposes, although up to 2 percent can be used for data collection.
  • MOUD. States may only use funds for FDA approved forms of MOUD. Further, states may not use funds toward programs or sub-awardees that deny services to individuals who are on prescribed MOUD for treatment.
  • Prescriber waivers. States are required to use funds to ensure that all eligible providers receiving SOR grant funds obtain buprenorphine prescribing waivers. States may not, however, use funds to pay for buprenorphine waiver training, which is provided at no charge through SAMHSA.
  • Medicaid interaction. States can use SOR funds to provide treatment services but cannot use these funds to supplant other resources. Providers are generally directed to bill Medicaid for eligible patients/services first and use these funds to supplement billable treatment services. 

4. Other federal SUD funding for states

  • Families First Prevention Services Act (FFPSA): In order to coordinate federal and state treatment and social services funding, the FFPSA provides funding for treatment supports to parents with SUD. These funds are administered by state child protection/child welfare agencies.
    • Enables states to use Title IV-E dollars to provide behavioral health prevention and treatment services to parents of children who are at risk of entering the state foster care system.
    • Services delivered using this federal funding must be trauma informed and meet criteria demonstrating that they are “promising, supported, or well-supported” practices. This can limit how states use these dollars – not all Medicaid SUD services may pass this test.
    • States must report on the services delivered in support of each child, including specific services delivered and the duration of services.
    • Title IV-E is the program of last resort and not available for services payable under Medicaid to eligible parents.

Federal agencies are encouraging coordination across state systems that administer these programs to take advantage of Medicaid matching as well as foster care dollars. States are currently submitting spending plans to the federal Office of the Administration for Children and Families defining how they will implement these and other support services.

  • Department of Justice grants: Several grant opportunities exist for state departments of corrections to provide treatment to individuals who are incarcerated or re-entering. Because people who are incarcerated are ineligible for Medicaid coverage for most services, these grants are used in states to provide direct SUD treatment. The Residential Substance Abuse Treatment (RSAT) for State Prisoners Program provides funding and technical assistance to states to provide residential SUD treatment within state and local correctional facilities. States are also eligible to receive funding through the Comprehensive Opioid, Stimulant, and Substance Abuse Site-based Program (COSSAP), which can be used to support coordination across state public safety and behavioral health systems. Currently, COSSAP funds 14 state projects at a total of $65M. 
  • SAMHSA Harm Reduction Grant Program: Beginning in the 2022 fiscal year, dedicated federal support for state harm reduction services became available through ARPA-funded grants to states and other entities of up to $400,000. State Medicaid programs can and do cover overdose reversal medications, and these can be purchased for broader distribution with other federal grant funds. While other supportive services like counseling, care planning, and psychoeducation as part of harm reduction programs can be supported through Medicaid funds — for example, New York’s approach through a state plan amendment — Medicaid and other federal grants may not cover the syringe services that are often part of harm reduction. This new grant requires, among other activities in support of harm reduction, that funds are used to purchase supplies and equipment, which can include syringes per ARPA section 2706, as well as fentanyl test strips.

5. Legal Settlements

Significant funding has been awarded to states and localities through settlements of lawsuits against pharmaceutical companies and others involved in distribution and sale of prescription opioids. States and localities have pursued these actions both independently and together. Administration of settlement dollars is at the discretion of each state and locality and remains an active policy conversation. The Office of National Drug Control Policy has promoted model legislation for states to develop abatement funds and administration processes. Some states are creating distinct abatement funds within their state budgets, and many are identifying cross-agency executive and judicial branch leaders to create workgroups and ensure stakeholder engagement.

With different restrictions and requirements, settlement awards present states with options to fund what grants and Medicaid reimbursement cannot. This includes infrastructure such as data integration and platforms to upgrade data sharing capability among relevant systems, but also workforce development and provider capacity, telehealth equipment, recovery housing infrastructure, and treatment for populations who are not eligible for Medicaid or other coverage. These dollars — intended specifically to address the damage to communities caused by the opioid epidemic — can be flexible resources for states to target specific needs without the restrictions that often come with federal programs.

Key current and pending opioid legal settlement cases involving states

  • A “global settlement” that includes agreements with Johnson and Johnson as well as McKesson, AmerisourceBergen, and Cardinal Health, totals $26 billion and will be distributed among the 46 states that have signed on. Distribution in each state will be broken down at 15 percent for the state, 15 percent for cities/counties, and 70 percent to a distinct Abatement Accounts Fund.
  • Purdue Pharma’s Chapter 11 bankruptcy report released in March 2022 indicates that the company will agree to a $6 billion settlement to which all states have agreed. The settlement will also include provisions that will prevent future civil litigation against the family that owns the pharmaceutical company.
  • People v. McKinsey & Company Inc. resulted in a $573 million settlement between the company and 47 states. Of that, $559 million will be distributed to the participating states “to remediate the harms caused to the Settling States and their citizens by the opioid epidemic” and to recover the costs incurred by pursuing the lawsuit.
  • State of Oklahoma v. Purdue Pharma et al. resulted in a $465 million settlement to fund the state’s Abatement Plan, which outlined comprehensive OUD treatment, housing and employment supports, primary care treatment approaches, prevention efforts, and other opioid and SUD-related needs. This settlement was overturned in November 2021.

Other pending and ongoing litigation, including locally driven cases, may affect opioid abatement dollars in states.

Search

Sign Up for Our Weekly Newsletter

* indicates required
Please enter a valid email address.
Areas of Interest