An excluded inpatient psychiatric unit is a psychiatric unit of a hospital that meets the requirements of 42 CFR 412.25 and 42 CFR 412.27, which is what allows it to be excluded from the prospective payment systems and paid under the inpatient psychiatric facility prospective payment system. A hospital planning one needs admission criteria, treatment services, medical record standards and a policy set in place before the unit opens. Integral Healthcare Solutions (IHS) builds the criteria checklist, the policy set and the record-content standards and templates, and your clinical leaders approve all clinical content.
Last reviewed: November 2026. The current eCFR text of these sections was read on November 5, 2026; the Title 42 file showed its last amendment as October 8, 2026.
What is an excluded inpatient psychiatric unit?
42 CFR 412.25, “Excluded hospital units: Common requirements,” covers psychiatric and rehabilitation units. Psychiatric units meeting the exclusion requirements are paid under the inpatient psychiatric facility prospective payment system; rehabilitation units use the inpatient rehabilitation facility system. 42 CFR 412.27, “Excluded psychiatric units: Additional requirements,” adds the psychiatric-unit rules. Current eCFR, page opened November 5, 2026.
What must the unit admit and furnish?
Section 412.27(a) says the unit must "Admit only patients whose admission to the unit is required for active treatment, of an intensity that can be provided appropriately only in an inpatient hospital setting, of a psychiatric principal diagnosis that is listed in the International Classification of Diseases, Tenth Revision, Clinical Modification." Section 412.27(b) says it must "Furnish, through the use of qualified personnel, psychological services, social work services, psychiatric nursing, and therapeutic activities."
What must the medical record show?
Section 412.27(c) requires medical records "that permit determination of the degree and intensity of the treatment provided to individuals who are furnished services in the unit."
- Assessment data: "A provisional or admitting diagnosis must be made on every inpatient at the time of admission, and must include the diagnoses of intercurrent diseases as well as the psychiatric diagnoses" ((c)(1)(ii)).
- Psychiatric evaluation: each inpatient must receive one, and it must "Be completed within 60 hours of admission" and also include items such as a medical history and a record of mental status ((c)(2)).
- Treatment plan: based on each inpatient’s strengths and disabilities, with a substantiated diagnosis, short- and long-term goals, specific treatment modalities, each team member’s responsibilities, and documentation justifying the diagnosis, treatment and rehabilitation. Document all active therapeutic efforts (412.27(c)(3)).
- Progress notes: the responsible doctor of medicine or osteopathy, a nurse, a social worker and, when appropriate, others significantly involved in active treatment record notes. Frequency depends on the inpatient’s condition, at least weekly for the first two months and monthly thereafter. Notes include indicated treatment-plan revisions and precise assessment of progress against the original or revised plan (412.27(c)(4)).
- Discharge summary: summarize the hospitalization, appropriate services’ follow-up or aftercare recommendations, and the patient’s condition on discharge (412.27(c)(5)).
Paragraph (d) adds staff requirements, including a clinical director or equivalent, a qualified director of psychiatric nursing services, a registered nurse available 24 hours each day, a director of social services and a therapeutic activities program.
What must the unit keep separate and have in place?
Section 412.25(a) requires the unit to "Have written admission criteria that are applied uniformly to both Medicare and non-Medicare patients" ((a)(2)) and to "Have admission and discharge records that are separately identified from those of the hospital in which it is located and are readily available" ((a)(3)). It also requires, among other items, a clinical-information transfer policy, compliance with State licensure laws, utilization review standards, physically separate beds and a separate cost center ((a)(4) to (a)(9)).
What about changes and the number of units?
Under 412.25(d), a hospital may have only one excluded unit of each type, and an excluded hospital cannot have a unit excluded on the same basis. Paragraph (c) permits changes in either direction between excluded and nonexcluded status during a cost reporting period with written notice to both the fiscal intermediary and CMS Regional Office at least 30 days before the change, accurate information on costs attributable and not attributable to the unit, and retention of that status through the period’s end. Paragraph (f) separately states that classification changes occur only at the start of a cost reporting period; counsel should address how these provisions apply to the proposed change.
What about a critical access hospital?
Section 485.647(a)(1) says that if a CAH provides inpatient psychiatric services in a distinct part unit, the unit's services must comply with the hospital requirements in subparts A, B, C and D of 42 CFR part 482, with 412.25(a)(2) through (f), and with 412.27 (42 CFR 485.647). Under 485.647(b)(1), the facility must provide no more than 10 beds in the distinct part unit.
Who needs it and what triggers it
- A general hospital planning a distinct-part psychiatric unit. Under 412.25(a)(13), the unit must be "fully equipped and staffed" and capable of providing care on the first day of the first cost reporting period for which all other exclusion requirements are met, whether or not it has inpatients that day.
- A hospital changing unit beds or square footage: 412.25(b) generally permits one change per cost reporting period, with written notice to the Medicare contractor and CMS regional office at least 30 days before the change, accurate unit-cost information, and the change retained through period-end. Its exception covers changes necessary because of relocation for construction or renovation required by changes in facility law, or catastrophic events.
Under 412.25(a)(1), the parent institution must have a hospital participation agreement and enough beds paid under its applicable payment system to provide adequate cost information for a psychiatric unit. CAH units follow 485.647, including its reference to 412.25(a)(2)–(f). This is a focused exclusion-readiness overview, not a complete hospital compliance checklist.
How IHS helps
IHS is a consulting firm with three practice lines: accreditation consulting, compliance services and program development. Unit readiness is compliance services with program-development content for the policy set. Thomas G. Goddard, JD, PhD, who founded IHS in 2002 and is a former URAC Chief Operating Officer and General Counsel, leads it.
- Assess gaps against 412.25 and 412.27 and map existing documents and evidence to the requirements.
- Draft admission, treatment and record policies and templates for clinical approval, including separate unit records.
- Conduct a mock review and help leaders organize remaining readiness work.
What you supply: existing policies, record templates, staffing and unit plans, clinical approvers, hospital leaders responsible for notices, and counsel.
The real limit: this page reads the regulation text. CMS guidance on forms and procedure for requesting exclusion is not summarized here, and IHS does not file with CMS or communicate with its regional office for you; your hospital does.
What to have ready
Checklist sources: 42 CFR 412.25 and 42 CFR 412.27, current eCFR, pages opened November 5, 2026.
- Written admission criteria applied uniformly to Medicare and non-Medicare patients, per 412.25(a)(2).
- Admission criteria permitting only patients meeting 412.27(a): inpatient-only intensity of active treatment for an ICD-10-CM psychiatric principal diagnosis.
- Staffing plans for qualified personnel in psychological services, social work, psychiatric nursing and therapeutic activities, per 412.27(b) and (d).
- An admission process recording a provisional or admitting diagnosis at admission for every inpatient, including psychiatric and intercurrent disease diagnoses, per 412.27(c)(1)(ii).
- A psychiatric evaluation workflow that completes within 60 hours of admission, per 412.27(c)(2)(i).
- A treatment plan template based on an inventory of the inpatient's strengths and disabilities and carrying the listed plan elements, per 412.27(c)(3).
- A condition-based progress-note schedule meeting the minimum intervals and content requirements, plus the discharge-summary contents, in 412.27(c)(4)–(5).
- Admission and discharge records identified separately from the hospital's and readily available, per 412.25(a)(3).
- Policies transferring necessary clinical information when hospital patients move to the unit, utilization review standards for the care offered, and compliance with applicable State licensure laws, per 412.25(a)(4)–(6).
- Separate cost-center, accounting, allocation-data and cost-report arrangements, per 412.25(a)(9)–(12).
To see where your file stands, start with the introductory call.
How it compares
A distinct-part unit is part of a hospital; a freestanding psychiatric hospital is the hospital itself. This service focuses on unit exclusion under 412.25 and 412.27. 42 CFR 482.60, 482.61 and 482.62 address psychiatric hospitals (current eCFR, pages opened November 5, 2026). These headings do not alone settle every hospital-level obligation affecting a unit. Counsel should assess the proposed structure.
What it costs
CMS does not publish a fee schedule on the pages we reviewed; fees depend on scope. IHS scopes each engagement after a free introductory call. Engagement scope depends on the planned services and document gaps; hospital leaders, clinical leaders and counsel also need time to review the work.
What this is not
- It is not legal advice. IHS is a consulting firm, not a law firm.
- It is not clinical direction. Clinical leaders approve all clinical content.
- It is not a guarantee of CMS exclusion or of any survey result.
Frequently asked questions
What is an excluded psychiatric unit?
An excluded psychiatric unit is a hospital unit meeting 42 CFR 412.25 and 412.27. Those provisions govern exclusion from the specified hospital payment systems and payment under the inpatient psychiatric facility prospective payment system.
What must the unit admit?
The unit may admit only patients needing active treatment of an intensity appropriate only in an inpatient hospital setting. The psychiatric principal diagnosis must be listed in ICD-10-CM (42 CFR 412.27(a)).
What services must the unit furnish?
The unit must furnish psychological services, social work services, psychiatric nursing and therapeutic activities. These services must use qualified personnel (42 CFR 412.27(b)).
How soon must each patient get a psychiatric evaluation?
Each inpatient must receive a psychiatric evaluation completed within 60 hours of admission. Section 412.27(c)(2) also specifies its content, including medical history and mental status.
What must the treatment plan include?
Each inpatient needs an individual comprehensive plan based on strengths and disabilities. It must include a substantiated diagnosis, short- and long-term goals, specific treatment modalities, each team member’s responsibilities, and documentation justifying diagnosis, treatment and rehabilitation. All active therapeutic efforts must be documented (42 CFR 412.27(c)(3)).
What records must the unit keep?
The unit must keep medical records showing the degree and intensity of treatment. Section 412.27(c) specifies assessment data, psychiatric evaluation, treatment plan, progress notes and discharge summary requirements.
How are the unit records separate from the hospital's?
Unit admission and discharge records must be separately identified from the hospital’s records. They must also be readily available (42 CFR 412.25(a)(3)).
Does a critical access hospital have its own rule?
Yes. A CAH psychiatric distinct-part unit must meet part 482 subparts A–D, 412.25(a)(2)–(f) and 412.27; Medicare payment eligibility requires no more than 10 unit beds (42 CFR 485.647). If the unit fails 485.647 for a cost reporting period, 412.25(g) bars payment for that period; payment may resume only after the start of the first cost reporting period beginning after the unit demonstrates compliance to CMS.
What is the difference between a unit and a psychiatric hospital?
A unit is part of a hospital and its exclusion requirements appear in 412.25 and 412.27. Sections 482.60–482.62 address psychiatric hospitals; those headings alone do not resolve all hospital-level obligations affecting a unit.
What does IHS draft and what do clinical leaders approve?
IHS drafts the criteria checklist, policy set and record templates. Clinical leaders approve all clinical content, and your hospital gives any notice to CMS; IHS does not file or communicate with CMS for you.