The decision could apply to thousands of needy Indiana youths who are eligible for Medicaid. Until now, this costly form of psychiatric care has been tough to get and has been paid for mostly with local property taxes. Previously, Indiana's $4 billion-a-year Medicaid program paid only for short stays by youths in psychiatric hospitals.

In October 2002, the district court ruled that Medicaid's refusal to pay for long-term residential treatment ordered by physicians violated federal law. In the opinion, the judge stated, "The state has decided these children are 'lost causes.' In other words, they are 'too disabled' for treatment. The court does not believe this was the intent of Congress." The court went on to rule that federal law requires Indiana Medicaid program to pay for the care of children and adolescents who qualify for Medicaid and require psychiatric care at accredited residential centers. The federal court of appeal agreed.

In response to the lower court's ruling, the Indiana General Assembly this year created a new property tax levy that counties can use to get federal matching money. State officials have said they hope local property tax money and federal Medicaid dollars will be enough to cover any increased expenses of caring for these youths.

Long-term treatment for the most severely disabled youths in Indiana typically costs $110,000 a year per child, according to IARCCA, a trade group representing more than 100 agencies serving abused, neglected and emotionally disturbed children. The decision requires Indiana Medicaid to pay for the costs of treating youths who have to be sent out of state for care as well as those who stay in the state.