A Roadmap to Reimbursement for Psychedelics

Psychedelics have been used for millennia, but they have only recently hit the medical mainstream. Given the ongoing toll of mental illness, marked by decades-long increases in suicide deaths, overdose deaths, and alcohol-related mortality in the U.S., clinical trials of psychedelics and other dissociative drugs like ketamine (which I will collectively refer to as psychedelics) are more than encouraging.

The benefits of psychedelics can be seen in hours rather than weeks, and studies have found that psychedelic administration reduces symptoms in patients with difficult-to-treat conditions, including post-traumatic stress disorder (PTSD) and treatment-resistant depression. Additional research on the costs and cost-effectiveness of psychedelics is needed and underway.

Psychedelics present an interesting paradigm when it comes to their delivery, since they are often accompanied by spiritual or psychotherapeutic support, which is sometimes referred to as psychedelic-assisted therapy.

Varun Saraswathula and I developed a useful framework for thinking about psychedelic and psychedelic-assisted therapy regulation: analyzing the two dimensions of medicalization versus guidance. Medicalization refers to the degree to which psychedelics are administered by health care providers, such as physicians or nurse practitioners with prescribing authority, while guidance refers to the degree to which spiritual or psychotherapeutic support accompanies psychedelic administration.

Existing regulatory frameworks, including those in Australia and Canada, require more medicalized and guided delivery models. States such as Oregon and Colorado have left the door open for medicalized, unmedicalized, guided, and unguided options.

The psychedelic delivery paradigm complicates insurance coverage—or the lack thereof. With the exception of Spravato, a derivative of ketamine that was approved by the U.S. Food and Drug Administration (FDA) in 2019, psychedelics and psychedelic-assisted therapy are not typically covered by insurance. Without insurance coverage, these treatments will be inaccessible to many who need them the most. Provider buy-in also matters: Spravato is covered by insurers such as Medicare, yet studies have found that it is rarely prescribed. Fewer than 1,300 Medicare beneficiaries were prescribed Spravato between its FDA approval in March of 2019 to 2020.

What does a roadmap to reimbursement look like? On the medicalization side, FDA approval is the first step. FDA could imminently approve MDMA to treat PTSD, and psilocybin will likely follow. Proponents of psychedelics are hopeful that the U.S. Drug Enforcement Administration (DEA) will respond by rescheduling MDMA and psilocybin, but there is no guarantee.

In the case of Epidiolex, which contains a naturally occurring cannabinoid that treats two rare forms of epilepsy, the DEA rescheduled the FDA-approved formulation but did not reschedule cannabis. As of 2024, cannabis remains a Schedule I drug, alongside drugs with the highest potential for abuse, and patients rely on budtenders rather than trained pharmacists.

When it comes to guidance, the likelihood of insurance coverage is bolstered by the American Medical Association’s (AMA) recent release of three new current procedural terminology (CPT) codes to support “psychedelic drug monitoring services.” Providers use CPT codes to uniformly describe medical procedures or services, which if applied to psychedelics would allow psychedelic-assisted therapy to be tracked. A critical caveat, however, is that neither FDA approval nor the AMA’s introduction of CPT codes mean that insurers will reimburse psychedelics or psychedelic-assisted therapy.

Take ketamine, which was approved by FDA as an analgesic in 1970. Ketamine is frequently prescribed off label for psychiatric conditions and often delivered alongside billable psychotherapeutic support. Yet it is rarely reimbursed by insurance. As a result, some employers have incorporated ketamine-assisted therapy as a workplace benefit using third-party administrators.

Even if insurers decide to cover psychedelics, there are a variety of barriers that patients and providers face. In the case of Spravato, FDA approved its use in combination with an antidepressant for treatment-resistant depression—a diagnosis that typically requires failure of previous antidepressant therapy. Insurers could institute prior authorization to curb patient use, which has been referred to as the “blunt instrument” of utilization management. And, given the proliferation of high deductible health plans, excessive out-of-pocket costs may mean that patients cannot afford care. For example, despite the low cost of intravenous ketamine, a round of ketamine-assisted therapy can cost thousands of dollars.

Who delivers psychedelic-assisted therapy could result in more restrictions, as reimbursement can be limited to specific provider types. For instance, Medicare Part B’s recent decision to cover acupuncture extends to patients with chronic low back pain and must be administered by approved Medicare providers. This decision means most licensed acupuncturists cannot bill Medicare directly. Notably, the University of California, Berkeley’s Psychedelic Facilitation Certification Program is open to health care providers, including physicians, nurses, and social workers, as well as chaplains and “those trained in traditional plant medicine lineages who carry the support of their community.”

There is a regulatory toolkit to increase insurance coverage, which could be harnessed by policymakers if insurers are unwilling to reimburse. In the case of employer-sponsored insurance, state-level mandates were shown to be effective at expanding access to home and community-based services for autism, and had disproportionate effects for patients who used more care.

However, self-insured plans are exempt from state-level mandates due to the Employee Retirement Income Security Act of 1974. Mental health parity laws have also helped expand access to mental health care but enforcement of these laws is inconsistent. Neither of these policies solve the intractable problem of network adequacy, at least in the short-term. According to a national survey, half of psychiatrists do not accept insurance. Secret shopper studies have demonstrated additional challenges that patients face when trying to access therapists.

Where does that leave us? We know that some psychedelics and psychedelic-assisted therapy are effective at treating some of the most intractable mental illnesses. We know that a patchwork of psychedelic legislation, particularly its criminalization, make reimbursement difficult. And we know that, without insurance coverage, many individuals with PTSD, treatment-resistant depression, and other debilitating symptoms will not be able to use these services.

There is more to learn about the safety, efficacy, cost-effectiveness, and iatrogenic effects of psychedelics and psychedelic-assisted therapy. But one thing to prepare for is a future in which the psychedelics boom turns into an inequitable bust unless insurers pave the way.

Molly Candon is an assistant professor at the University of Pennsylvania Center for Mental Health.