DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop C2-21-15 
Baltimore, Maryland 21244-1850 
 
Center for Medicaid and State Operations 
 
                    SMDL #03-006 
            July 14, 2003 
 
 
Dear State Medicaid Director: 
 
In this letter, we outline several methods by which states may facilitate the transition of 
individuals from institutional to community settings through Medicaid coverage of medical 
equipment (ME) costs.  This letter also serves to reiterate the July 25, 2000, State Medicaid 
Directors letter on this issue and to encourage states to explore this opportunity for persons with 
disabilities. 
 
Individuals seeking to move to the community from institutions often require ME for their 
personal use.  In the community, ME is a mandatory component of the home health benefit under 
the State Plan.  As Federal regulations do not define ME, each state determines which equipment 
to cover under its State Plan.  Those adaptive aids that are not covered under a State Plan, as well 
as communication devices, can often be covered under Medicaid section 1915(c) waivers, other 
waivers or demonstrations.  
 
Purchases of ME are typically made after the individual has moved into the community.  
However, the delay in receiving and adapting to such equipment often causes hardships for the 
individual and/or caregiver(s).  The delay may also introduce unnecessary hazards into the 
transition and the first few weeks of community dwelling.  In addition, the equipment is most 
effectively employed if it is obtained prior to institutional discharge and tested with the 
individual to ensure proper fit, use, adaptability to individual requirements, and appropriateness 
for the particular community environment to which the person will move.  We further appreciate 
that it may take time, prior to discharge, to make unique accommodations to the equipment or to 
afford the individual reasonable opportunity to learn to use the equipment and become as 
independent and proficient in its use as possible. 
 
We therefore wish to clarify several avenues for states to pursue in order to facilitate successful 
transitions to the community by making medically necessary ME available to beneficiaries in 
advance of placement in the community: 
 
1.  Utilize a Trial Period.  States could arrange for manufacturers and other sellers of ME to 
make the equipment available for a trial period prior to community placement.   
 
2.  Utilize the Nursing Facility Benefit.  States have the ability within their rate setting for 
institutional services to purchase specific ME that has utility within the institutional setting.  
For such institutional ME that is also tailored to the unique needs of an individual and would 
assist the beneficiarys participation in the community, States can arrange for its transition to 
the community with that individual.  Any changes to rate methodologies are subject to  
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  existing upper payment limits.  Pennsylvania, for example, in conjunction with changing its 
case-mix methodology in 1996, created an Exceptional Durable Medical Equipment (DME) 
Grants program under which nursing facilities could purchase certain dedicated equipment 
separately from their per diem rate.  Under Pennsylvania's Exceptional Grants program, one 
option for disposal of such dedicated DME is the transfer of the title to a beneficiary who has 
been discharged to the community. 
 
3.  Utilize an HCBS Waiver.  States may claim for such ME furnished prior to the individuals 
discharge from the institutional setting and admission to the waiver when:  (a) such ME is 
included as a service or a component of a service in an approved HCBS waiver; (b) such 
equipment is obtained no sooner than 60 days prior to the scheduled date of transition to a 
community living arrangement; and (c) the claim is not made until after the individual is 
discharged from the institutional setting and admitted to the waiver.  If the individual dies 
after the ME is furnished and never enters the waiver, the Centers for Medicare & Medicaid 
Services (CMS) would allow the state to claim necessary expenditures as an administrative 
cost.  Please refer to attachment 3-b (relating to environmental modifications) of the July 25, 
2000, State Medicaid Directors letter, for guidance on community transition expenses, 
accessible at Web site www.cms.gov/states/letters/smd725a0.asp. 
 
In addition, CMS has recently established two Healthcare Common Procedure Coding System 
(HCPCS) codes to facilitate provider billing of services that enable beneficiaries to use ME as 
they move into the community:  T1028 (assessment of home, physical, and family environment) 
and S5165 (home modifications, per service).  CMS established these codes in order to enable 
states to comply with the Health Insurance Portability and Accountability Act of 1996 - known 
as HIPPA. 
 
Finally, although ME coverage is required under Medicaid law, states are not required to 
purchase equipment needed in the community prior to a persons discharge.  While CMS has 
highlighted several methods that states may utilize to facilitate provision of medically necessary 
ME to beneficiaries prior to community placement, it remains a matter of state discretion and a 
finding of individual need by the state or its agent(s) as to whether to do so.   
 
Any questions concerning this letter may be referred to Mary Jean Duckett at (410) 786-3294. 
 
Sincerely, 
 
            /s/ 
 
Dennis G. Smith 
Director 
 
cc: 
CMS Regional Administrators 
 
 
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  CMS Associate Regional Administrators 
   for Medicaid and State Operations 
 
CMS Native American Contacts 
 
Kathryn Kotula 
Director, Health Policy Unit 
American Public Human Services Association 
 
Joy Wilson 
Director, Health Committee 
National Conference of State Legislatures 
 
Matt Salo 
Director of Health Legislation 
National Governors Association 
 
Jim Frogue 
Director, Health and Human Services Task Force  
American Legislative Exchange Council 
 
Trudi Matthews 
Senior Health Policy Analyst 
Council of State Governments 
 
Brent Ewig 
Senior Director, Access Policy 
Association of State and Territorial Health Officials