SHELTERED WORKSHOP SERVICES PROVIDED

RESIDENTS OF INTRMEDIATE CARE

FACIUTIES FOR THE MENTALLY RETARDED

National Program Inspection 
-: Si.ilV'CES" 
.l/tYd1a 
GENERAL 
OFFICE  OF INSPECTOR 
OFFICE OF ANALYSIS AND INSPECTIONS 
January 1987
 Office of the Inspector General

The mission of the Office of the Inspector General (OIG) is
to promote the efficiency, effectiveness and in tegri ty of
programs in the United States Department of Health and Human
Services 
(HHS). It does this by developing methods to 
detect and prevent fraud, waste and abuse. Created by
statute in 1976, the Inspector General keeps both the

Secretary and the Congress fully and currently informed

about programs or management problems and recommends

correcti ve action. The OIG performs its mission by
conducting audi 
ts, investigations and inspections wi
approximately 1, 
200 staff strategically located around the
country. 
Office of Analysis and Inspections

This report is produced by the Office of Analysis and
Inspections (OAI), one of the three major offices wi 
thin the
OIG. 
The other two are the Office of Audi t and the Off ice 
of Investigations. OAI conducts inspections which are 
typically, short-term studies designed to determine program
effecti veness, efficiency 
and vulnerabili ty to fraud or
abus e . 
This Report

Entitled " 
Sheltered Workshop Services Provided Residents of 
Intermediate Care Facilities for the Mentally Retarded 
thi3 inspection was conducted to determine if Medicaid was 
participating in the costs of subsidized work activities of 
residents of Intermediate Care Facili 
adul t  ties for the
Mentally Retarded. 
The report was prepared by the Regional Inspector General, 
Office of Analysis and Inspections, Region IX 
Participating in thi3 project were the following people: 
Ronald Benoy, Program Analyst, Region IX, Seattle, WA

Robert Grauman , Program Analyst, Region IX, Seattle, WA
 ,,  '.
SHELTERED WORKSHOP SERVICES PROVIDED

RESIDENTS OF INTERMEDIATE CARE

FACILITIES FOR THE MENTALLY RETARED

e ..

RICHA P. 
KUSSEROW 
INSPECTOR GENERA  JANUARY 1987 
CONTROL #OAI-09-86-00048
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TABLE OF CONTENTS 
PAGE 
EXECUTIVE  SUMMARY 
II. 
INTRODUCTION 
III. 
FINDING 
IV.  RECOMMENDATION 
APPENDIX  TABLE SUMMIZING THE DOLLAR EFFECTS 
OF THE REPORTED FINDING 
APPENDIX II: COMMENTS 
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EXECUTIVE SUMMARY

The inspection showed that many States were claiming Federal 
Financial Participation (FFP) for the costs of subsidized
work activities. Of the 47 States with sheltered workshop 
programs for adult residents of Intermediate Care Facilities 
for the Mentally Retarded (ICF /MRs), 
23 claimed Medicaid 
reimbursement for the costs of the workshop 
services. We
estimate this resulted in Medicaid overpayments totaling $27 
1984. 
million during FY  The remaining 24 States did not
seek Medicaid reimbursement for the estimated $68 million in 
shel tered 
workshop costs they incurred during FY 
1984. We
did not make any recommendations for financial adjustment 
since this report pertained to a period prior to a 
clarification by the Department. 
The confusion over whether or not to claim FFP for the costs 
of sheltered workshops can be attributed to a lack of
clari ty in 
the Health Care Financing Administration' 
(HCFA' s) instructions defining what is meant by the term 
vocational activities.  The need for these guidelines is
ts of " 
critical since the co  vocational activities" provided 
adul t residents of ICF /MRs are specifically excluded from
Medicaid reimbursement by 42 CFR 441. 
13 (b) . To correct this

problem, we recommended HCFA issue guidelines specifically

disallowing cost for sheltered workshops.

HCFA concurred with our recommendation and published a

policy issuance in the State Medicaid Manual clarifying the

defini tion of vocational training. The instruction excludes

payment for most sheltered workshop care and should ensure

the problem identified during the inspection does not

reoccur. 
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II. 
INTRODUCTION

The inspection was conducted because information indicated

many States were claiming FFP under the Medicaid program for

the costs of sheltered workshop services provided residents

of ICF/MRs.

The Medicaid program participates in the costs' associated 
wi th the care of residents of ICF /MRs , if the residents are
receiving active treatment. According to 
42 CFR 435. 1009,
acti ve treatment requires 
each resident to have an indi vi
dual written plan of care. 
The plan must be designed to

help the individual function at the greatest physical, 
intellectual, social or vocational level he can presently or
potentially achieve. 
Services provided under the plan
, as
defined by 42 CFR 442. 401, must be habilitative and aid the 
intellectual, sensorimotor and emotional development of the 
resident. It is important to note that habili 
services under this defini  tati ve
tion would be limi ted to 
activi ties for the development of skills which the

indi vidual 
needs to achieve maximum independence. 
42 CFR

441. 13(b) further states that payments to ICF/MRs may not

incl ude reimbursement for vocational training.

To address our concerns, the review focused on the following

objecti ves:

Determine which States have ICF/MR programs that include
shel tered 
workshop services and how these services are
funded. 
Ascertain the extent to which the Medicaid program has

participated in the costs of sheltered workshops.

Determine if HCFA guidelines covering sheltered workshop

services provided ICF/MR residents are adequate.

The inspection was conducted nationwide because of the 
significant amount of money being directed towards providing 
vocational opportuni ties to residents of ICF /MRs. During
the period October 1, 1983 through September 30, 1984, we
estimated that 47 States spent over $122 million for
shel tered workshop programs. In addition, the complexi ty of
the issues addressed by the inspection warranted pursuing

the topic from a national rather than a local perspective.

To accomplish the objectives of the inspection
, we first
contacted each State Medicaid agency to determine if 
vocational services were provided residents of ICF /MRs and
whether FFP was claimed for the costs of the 
services. Our 
ini tial telephone contacts revealed that there was a total 
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lack of consistency among States in defining "vocational
training 
" for Medicaid reimbursement purposes. The only
service that a significant number of states would agree 
constituted vocational training was subsidized work provided 
in a sheltered workshop type environment. 
We recontacted each State that had a sheltered workshop

program to ascertain the FFP amounts claimed during FY 1984. 
The data obtained from two States was then verified. On-

si te visi ts 
were also made to several sheltered workshops as 
well as State and local organizations involved in various

phases of the workshop programs. 
The on-site visits were
supplemented by discussions wi 
th people concerned wi 
securing and delivering services to the developmentally

disabled. We also contacted HCFA to obtain a definition of

1 
 vocational training 
" and its policies and guidelines on the
subject. 
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III. 
FINDING 
Medicaid Participation in Sheltered Workshop Acti vi ties 
Our discussions with personnel from the 47 States that 
provide sheltered workshop services to adult residents of 
ICF/MRs identified 23 that claimed FFP for the costs of
these services during FY 1984. 
The remaining 24 States did
not claim FFP because they believed such acti 
vi ties 
were
vocational in nature and the costs
, therefore, unallowable
for Medicaid reimbursement. 
In our discussions, we def ined
a sheltered workshop as a sheltered environment for
producti ve 
employment that pays its workers training fees 
based on production or has received an appropriate Wage and 
Hour Certificate from the Department of Labor. 
The 
certificate recognizes the employer/employee relationship of 
the workshop and allows the payment of subminimum wages to 
workers. A sheltered awosrk:s hop would also provide employment 
support services such  training required in a job
si tuation to 
develop skills needed for new tasks and 
i ty; counseling at the job si 
enhanced versatil 
te; and
assistance in maintaining employment.

Except in rare instances, the sheltered workshop represents

the highest vocational level an ICF/MR resident can achieve.
The workshop services, therefore, must be considered
vocational training rather than habili tati ve 
and the costs 
of the services disallowed for FFP. 
Over the last several years , States have changed their

treatment emphasis for adult residents from tradi tional 
social and living skills development to employment-oriented
training. 
This change appears to have been encouraged by 
some of the HCFA personnel involved in the certification of
ICF/MRs. States also receive 
requests from various
citizens 
' groups involved with the developmentally disabled 
f r	 to increase the vocational opportuni ties available to ICF/MR

lreisfied.e nts as a way to improve the individuals' quality of

i ;

As previously mentioned, 47 States responded to the
suggestions by implementing sheltered workshop programs.
Those States that recognized that workshop services did not

qualify for FFP, arranged for State funding of the programs.
We estimate this is costing the 24 States a total of 
million a year.  $68
The remaining 23 States chose the posi tion
that if HCFA suggested they provide sheltered workshop 
services, Medicaid should participate in the costs of those
services. 
This position was continually reinforced during
our conversations wi 
th State personnel.
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Based on follow-up contacts wi 
th each of the 23 States that 
claimed Medicaid reimbursement for sheltered workshop costs 
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we estimate that $54 million in workshop costs were claimed
during FY 1984. 
This translates into a Medicaid overpayment 
of $27 million, assuming an FFP rate of 50 percent. 
The $54
million estimate was derived by first determining the ratio

of adult sheltered workshop costs to total ICF 
/MR costs

claimed for the eight States that provided our office with

estimates of the workshop costs claimed during our review

period. 
The remaining 15 States were ei ther 
unable or 
unwilling to furnish this information. That ratio obtained

was then applied to the total ICF/MR costs claimed by the

23 States. 
The primary cause of the problems identified in our 
inspection was the lack of specific HCFA guidelines or 
policy interpretations which provide a precise defini 
tion of
the term " vocational training. 
In absence of these 
guidelines, both the State agencies and HCFA regional 

offices made independent and frequently inconsistent pOlicy

interpretations. As a result
, 23 States received FFP for

the costs incurred in their workshOp programs and 24 States

did not.

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IV. 
RECOMMENDATION 
We recommend HCFA issue guidelines clarifying the defini tion
of " vocational training 
" for Medicaid reimbursement purposes 
to specifically disallow costs of subsidized work

ties. 
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APPENDIX I

TABLE SUMMARIZING THE DOLLAR

EFFECTS OF THE REPORTED FINDING

State 
Estimated Overpayment 
765, 026

505  556

492, 638

707, 707

936, 043

493, 136

857, 341

821, 795

567, 532

990, 081

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 187, 260

168, 745

394, 743

354, 185

540, 927

917, 205

709, 281

394, 080

165, 902

310, 678

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530, 638

100, 312

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162, 640

TOTAL  $27, 073, 451

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APPENDIX I I 
..."'C" 
Health Care 
DEPART1'\ENT Of HEALTH & HUMAN SERVICES 
Financing Administration 
10  Memorandum 
CT  21 
illa 
Date  1L-.. Roper, M. 
F,om 
1'dmin"trator
010 Draft Report - Sheltered Workshop Services Provided Residents of Intermediate
SU  bJ"e ct 

Care Facilities for the Mentaly Retarded (P-09-86-o0048) 
The Inspector General 
Office of the Secretary
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We have reviewed the  recommends we isue guidelines clarifying 
drft report that 
the definition of vocational traiing for Medicaid puroses to disalow specificaly 
the costs of subsidized work activities. In September 1986, we published a PQlicy 
issuance in the State " Medicaid Manual clarifyin the definition of vocatiOnal training. 
The intruction excludes payment for most sheltered workshop care, but notes that,
in some cases, further review is needed to determine if the care could be covered 
under Medicaid. Our intruction was developed in concert with a Techncal Advisory
Grup of State Medicd representatives 
This instruction wil enable the OIG and HCF A to conduct audits for purposes of
disowing inappropriate payments. It wil alo help the States which have claimed 
not to know what services are excluded, to know what not to clim as eligible for
Federal financial participation. 
Than you for the opportunity to review this drdt report. 
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