DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Centers for Medicare & Medicaid Services 

42 CFR Parts 430, 431, 435, 436, 440, 441, and 447 

[CMS-2249-P2] 

RIN 0938-AO53 

Medicaid Program; State Plan Home and Community-Based Services, 5-Year Period for 

Waivers, Provider Payment Reassignment, and Setting Requirements for Community First 

Choice

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule. 

SUMMARY: This proposed rule would revise Medicaid regulations to define and describe 

State plan home and community-based services (HCBS) under the Social Security Act (the Act) 

as added by the Deficit Reduction Act of 2005 and amended by the Patient Protection and 

Affordable Care Act of 2010 (Affordable Care Act1

). This proposed rule offers States new 

flexibility in providing necessary and appropriate services to elderly and disabled populations 

and reflects CMS’ commitment to the general principles of the President’s Executive Order 

released January 18, 2011, entitled “Improving Regulation and Regulatory Review.” In 

particular, this rule does not require the eligibility link between HCBS and institutional care that 

exists under the Medicaid HCBS waiver program. This regulation would describe Medicaid 

coverage of the optional State plan benefit to furnish home and community-based services and 

receive Federal matching funds. As a result, States will be better able to design and tailor 

Medicaid services to accommodate individual needs. This may result in improved patient 

 

1

Affordable Care Act: Patient Protection and Affordable Care Act of 2010, Pub. L. 111-148 as amended by the 

Health Care and Education Reconciliation Act of 2010, Pub.L. 111-152 
CMS-2249-P2 2 

outcomes and satisfaction, while enabling States to effectively manage their Medicaid resources. 

This proposed rule would also amend Medicaid regulations consistent with the 

requirements of the Affordable Care Act, which amended the Act to provide authority for a 5-

year duration for certain demonstration projects or waivers under the Act, at the discretion of the 

Secretary, when they involve individuals dually eligible for Medicaid and Medicare benefits. 

In addition, this proposed rule would provide an additional limited exception to the 

general requirement that payment for services under a State plan must be made directly to the 

individual practitioner providing a service when the Medicaid program is the primary source of 

reimbursement for a class of individual practitioners. This exception would allow payments to 

be made to other parties to benefit the providers by ensuring health and welfare, and training. 

We are including the payment reassignment provisions in this HCBS proposed rule because 

State’s Medicaid programs often operate as the primary or only payer for the class of 

practitioners that includes HCBS service providers. 

Finally, this proposed rule would also amend Medicaid regulations to provide home and 

community-based setting requirements of the Affordable Care Act for the Community First 

Choice State plan option. 

 DATES: To be assured consideration, comments must be received at one of the 

addresses provided below, no later than 5 p.m., e.d.t., on [OFR--insert date 30 days after date of 

publication in the Federal Register]. 

 ADDRESSES: In commenting, please refer to file code CMS-2249-P2. Because of staff 

and resource limitations, we cannot accept comments by facsimile (FAX) transmission. 

 You may submit comments in one of four ways (please choose only one of the ways 

listed): 
CMS-2249-P2 3 

1. Electronically. You may submit electronic comments on this regulation to 

http://www.regulations.gov. Follow the "Submit a comment" instructions. 

 2. By regular mail. You may mail written comments to the following address ONLY: 

 Centers for Medicare & Medicaid Services, 

Department of Health and Human Services, 

Attention: CMS-2249-P2, 

P.O. Box 8016, 

Baltimore, MD 21244-8016. 

Please allow sufficient time for mailed comments to be received before the close of the 

comment period. 

3. By express or overnight mail. You may send written comments to the following 

address ONLY: 

 Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

 Attention: CMS-2249-P2, 

 Mail Stop C4-26-05, 

 7500 Security Boulevard, 

Baltimore, MD 21244-1850.

4. By hand or courier. If you prefer, you may deliver (by hand or courier) your 

written comments before the close of the comment period to either of the following addresses: 

a. For delivery in Washington, DC-- 
CMS-2249-P2 4 

 Centers for Medicare & Medicaid Services, 

Department of Health and Human Services, 

Room 445-G, Hubert H. Humphrey Building, 

 200 Independence Avenue, SW., 

 Washington, DC 20201 

(Because access to the interior of the Hubert H. Humphrey Building is not readily 

available to persons without Federal government identification, commenters are encouraged to 

leave their comments in the CMS drop slots located in the main lobby of the building. A stampin clock is available for persons wishing to retain a proof of filing by stamping in and retaining 

an extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD-- 

 Centers for Medicare & Medicaid Services, 

Department of Health and Human Services, 

7500 Security Boulevard, 

Baltimore, MD 21244-1850. 

If you intend to deliver your comments to the Baltimore address, please call telephone 

number (410) 786-7195 in advance to schedule your arrival with one of our staff members. 

 Comments mailed to the addresses indicated as appropriate for hand or courier delivery 

may be delayed and received after the comment period. 

Submission of comments on paperwork requirements. You may submit comments on 

this document's paperwork requirements by following the instructions at the end of the 

"Collection of Information Requirements" section in this document. 

For information on viewing public comments, see the beginning of the 
CMS-2249-P2 5 

"SUPPLEMENTARY INFORMATION" section. 

FOR FURTHER INFORMATION CONTACT: Kathy Poisal, (410)786-5940. 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All comments received before the close of the comment period 

are available for viewing by the public, including any personally identifiable or confidential 

business information that is included in a comment. We post all comments received before the 

close of the comment period on the following web site as soon as possible after they have been 

received: http://www.regulations.gov. Follow the search instructions on that Web site to view 

public comments. 

 Comments received timely will also be available for public inspection as they are 

received, generally beginning approximately 3 weeks after publication of a document, at the 

headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To 

schedule an appointment to view public comments, phone 1-800-743-3951. 

Table of Contents 

I. Executive Summary 

II. Background 

A. Expanded Access to Home and Community-Based Services for the Elderly and Disabled 

under section 1915(i) of the Act: History of section 1915(i) of the Act 

B. Overview of the State Plan Home and Community-Based Services (HCBS) Benefit to 

Provide HCBS for the Elderly and Individuals with Disabilities 

1. Services 

2. Eligibility 
CMS-2249-P2 6 

3. Number Served 

4. Independent Evaluation 

5. Adjustment Authority 

6. Independent Assessment 

7. Person-Centered Service plan 

8. Self-Direction 

9. Quality Assurance 

10. Conflict Of Interest 

11. Eligibility Redeterminations; Appeals 

12. Option for Presumptive Eligibility for Assessment 

13. Individual’s Representative 

14. Nonapplication 

15. No Effect on Waiver Authority 

16. Continuation of Federal Financial Participation (FFP) For Institutional Level of Care For 

Individuals Receiving Services As of the Effective Date of the State Plan HCBS Amendment 

17. State Option to Provide HCBS to Individuals Eligible for Services under a Waiver 

18. Establishment of Optional Eligibility Group to Provide Full Medicaid Benefits to Individuals 

Receiving State Plan HCBS 

19. State Option to Offer HCBS to Specific, Targeted Populations 

20. Five-Year Approval for Targeted Section 1915(i) HCBS Benefits and Renewal 

Requirements 

21. Phase-in of Services and Eligibility 

C. Effective Date 
CMS-2249-P2 7 

D. The State Plan HCBS Benefit in the Context of the Medicaid Program as a Whole 

E. Other Background 

F. Section 2601 of the Affordable Care Act: 5-Year Period for Demonstration Projects 

G. Prohibition Against Reassignment of Provider Claims 

H. Definition of Home and Community-Based Settings for the 1915(k) Community First Choice 

State plan Option

III. Provisions of the Proposed Rule 

A. State Organization and General Administration (Part 431) 

B. Eligibility in the States, District of Columbia, the Northern Mariana Islands, and American 

Samoa (Part 435) and Eligibility in Guam, Puerto Rico and the Virgin Islands (Part 436) 

C. Services: General Provisions (Part 440) 

D. Services: Requirements and Limits Applicable to Specific Services (Part 441) 

E. Basis and purpose (§441.650) 

F. State Plan Requirements (§441.653) 

G. Eligibility for Home and Community-based Services under section 1915(i)(1) of the Act 

(§441.656) 

H. Needs-based Criteria and Evaluation (§441.659) 

I. Independent assessment (§441.662) 

J. Service plan (§441.665) 

K. Provider qualifications (§441.668) 

L. Definition of Individual’s Representative (§441.671) 

M. Self-directed Services (§441.674) 
CMS-2249-P2 8 

N. State Plan HCBS Administration: State Responsibilities and Quality Improvement 

(§441.677) 

P. Section 2601 of the Affordable Care Act: 5-Year Period for Demonstration Projects: Waiver 

Requirements (§430.25) 

Q. Prohibition Against Reassignment of Provider Claims (§447.10) 

R. Section 2401 of the Affordable Care Act: Community First Choice State Plan Option: Home 

and Community-Based Setting Requirements (§441.530) 

IV. Response to Comments 

V. Collection of Information Requirements 

VI. Regulatory Impact Analysis

VII. Regulatory Flexibility Act Analysis 

VIII. Unfunded Mandates Reform Act Analysis 

IX. Federalism Analysis 

Regulation Text 

Acronyms 

Because of the many terms to which we refer by acronym in this proposed rule, we are listing the 

acronyms used and their corresponding terms in alphabetical order below. 

ADA Americans with Disabilities Act of 1990 (Pub. L. 110-325) 

ADLs Activities of daily living 

AHRQ Agency for Healthcare Research and Quality 

ANPRM Advance Notice of Proposed Rulemaking 

CFC Community First Choice (1915(k) State plan Option) 

CHIPRA Children’s Health Insurance Program Reauthorization of 2009 (Pub. L. 111-3) 
CMS-2249-P2 9 

CMS Centers for Medicare & Medicaid Services 

DRA Deficit Reduction Act of 2005 (Pub. L. 109-171) 

EPSDT Early and Periodic Screening, Diagnosis and Treatment 

FBR Federal benefit rate 

FFP Federal financial participation 

FPL Federal poverty line 

FY Federal fiscal year 

HCBS Home and Community-Based Services 

HHS Department of Health and Human Services 

IADLs Instrumental activities of daily living 

ICF/MR Intermediate care facility for the mentally retarded 

LOC Level of care 

NF Nursing facility 

OBRA‘81 Omnibus Budget Reconciliation Act of 1981 (Pub. L. 97-35) 

OT Occupational therapy 

PT Physical therapy 

RFA Regulatory Flexibility Act 

SPA State Plan Amendments 

SSI Supplemental Security Income 

SSI/FBR Supplemental Security Income Federal Benefit Rate 

UPL Upper payment limit 
CMS-2249-P2 10 

I. Executive Summary 

A. Purpose 

This proposed rule would amend the Medicaid regulations to define and describe State 

plan home and community-based services (HCBS). This regulation outlines the optional State 

plan benefit to furnish home and community-based State plan services and draw Federal 

matching funds. As a result, States will be able to design and tailor Medicaid services to better 

accommodate individual needs. This may result in improved patient outcomes and satisfaction, 

while enabling States to effectively manage their Medicaid resources. 

This proposed rule would also amend Medicaid regulations consistent with the 

requirements of section 2601 of the Patient Protection and Affordable Care Act of 2010 

(Affordable Care Act), which added section 1915(h)(2) to the Act to provide authority for a 5-

year duration for certain demonstration projects or waivers under sections 1115, 1915(b), (c), or 

(d) of the Act, at the discretion of the Secretary, when they involve individuals who are dually 

eligible for both Medicaid and Medicare benefits. 

In addition, this proposed rule would provide an additional limited exception to the 

general requirement that payment for services under a State plan must be made directly to the 

individual practitioner providing a service when the Medicaid program is the primary source of 

reimbursement for a class of individual practitioners. This exception would allow payments to 

be made to other parties to benefit the providers by ensuring workforce stability, health and 

welfare, and trainings, and provide added flexibility to the State. We are including the payment 

reassignment provision in the HCBS proposed rule because States’ Medicaid programs often 

operate as the primary or only payer for the class of practitioners that includes HCBS service 

providers. 
CMS-2249-P2 11 

This proposed rule would also amend Medicaid regulations to provide home and 

community-based setting requirements related to section 2401 of the Affordable Care Act for the 

section 1915(k) Community First Choice State plan option. 

B. Summary of the Major Provisions

1. Section 1915(i) State Plan Home Community-Based Services 

The Deficit Reduction Act (DRA) added a new provision to the Medicaid statute entitled 

"Expanded Access to Home and Community-Based Services for the Elderly and Disabled." This 

provision allows States to provide HCBS (as an optional program) under their State Medicaid 

plans. This option allows States to receive Federal financial participation for services that were 

previously eligible for Federal funds only under waiver or demonstration projects. This 

provision was further amended by the Affordable Care Act. The statute now provides additional 

options for States to design and implement HCBS under the Medicaid State Plan. In April 4, 

2008, we published a proposed rule to amend Medicaid regulations to implement HCBS under 

the DRA. That proposed rule was not finalized, and with the passage of section 2402 of the 

Affordable Care Act, some previously proposed regulations would no longer be in compliance 

with the current law under section 1915(i) of the Act. In addition, several new provisions were 

added. Specifically, the Affordable Care Act amended the statute by adding a new optional 

categorical eligibility group for individuals to provide full Medicaid benefits to certain 

individuals who will be receiving HCBS. It also authorized States to elect not to comply with 

section 1902(a)(10)(B) of the Act pertaining to comparability of Medicaid services. After 

closely analyzing the Affordable Care Act provisions, we concluded that a new proposed rule 

was necessary. This proposed rule retains a large portion of the policies contained within the 

April 4, 2008 proposed rule, and updates some of our previous proposals to reflect comments 
CMS-2249-P2 12 

that we received on the April 4, 2008 proposed rule as well as the statutory changes that were 

made by the Affordable Care Act. 

2. Section 2601 of the Affordable Care Act: 5-Year Period for Certain Demonstration Projects 

and Waivers 

This proposed rule also provides for a 5-year approval or renewal period, subject to the 

discretion of the Secretary, for certain Medicaid waivers. Specifically, this time period would 

apply for demonstration and waiver programs through which a State serves individuals who are 

dually eligible for both Medicare and Medicaid benefits. 

3. Provider Payment Reassignments 

Section 1902(a)(32) of the Act provides that State plans can allow payments to be made 

only to certain individuals or entities. Specifically, payment may only be made to an individual 

practitioner who provided the service. The statute provides several specific exceptions to the 

general principle of direct payment to the individual practitioner. 

Over the years, some States have requested that we consider adopting additional 

exceptions to the direct payment principle to permit withholding from the payment due to the 

individual practitioner for amounts paid by the State directly to third parties for health and 

welfare benefits, training costs and other benefits customary for employees. These amounts 

would not be retained by the State, but would be remitted to third parties on behalf of the 

practitioner for the stated purpose. 

While the statute does not expressly provide for additional exceptions to the direct 

payment principle, we believe the circumstances at issue were not contemplated under the 

statute. Therefore, we are proposing that the direct payment principle should not apply because 

we think its application would contravene the fundamental purpose of this provision. The 
CMS-2249-P2 13 

apparent purpose of the direct payment principle was to prohibit factoring arrangements, and not 

to preclude a Medicaid program that is functioning as the practitioner’s primary source of 

revenue from fulfilling the basic responsibilities that are associated with that role. Therefore, we 

are proposing an additional exception to describe payments that we do not see as within the 

intended scope of the statutory direct payment requirement, that would allow the State to claim 

as a provider payment amounts that are not directly paid to the provider, but are withheld and 

remitted to a third party on behalf of the provider for health and welfare benefit contributions, 

training costs, and other benefits customary for employees. 

4. Section 2401 of the Affordable Care Act: Community First Choice State Plan Option: Home 

and Community-Based Setting Requirements 

Section 1915(k)(1)(A)(ii) of the Act provides that home and community-based attendant 

services and supports must be provided in a home and community-based setting. The statute 

specifies that home and community-based settings do not include a nursing facility, institution 

for mental diseases, or an intermediate care facility for the mentally retarded2

. We propose to 

adopt this statutory language in our regulations. Additionally, to provide greater clarity, we are 

proposing language to establish that home and community-based settings must exhibit specific 

qualities to be eligible sites for delivery of home and community-based services. 

After consideration of comments received in response to the Community First Choice 

(CFC) proposed rule published on February 25, 2011, we decided to revise the setting provision 

and publish our proposed definition as a new proposed rule to allow for additional public 

comment before finalizing. Since CFC and section 1915(i) both pertain to home and 

community-based services, we have aligned this CFC proposed language with the section 

 

2 Although we recognize that the language used here is outdated, and that “intellectual disability” is the appropriate 

way to discuss this type of disability, the Social Security Act still refers to these types of facilities in this manner. 
CMS-2249-P2 14 

1915(i) proposed home and community-based setting requirements also included in this rule. 

We find the public comment process to be valuable in our attempt to develop the best policy on 

this issue for Medicaid beneficiaries. Therefore, we plan to fully consider all comments 

received, and align decision making and language pertaining to home and community-based 

setting requirements across CFC, section 1915(i) State plan HCBS, as well as section 1915(c) 

HCBS waivers. 

C. Summary of Costs and Benefits

Provision Description Total Costs Total Benefits 

1915(i) State Plan Home 

Community-Based 

Services

We estimate that, 

adjusted for a phase-in 

period during which 

States gradually elect 

to offer the State plan 

HCBS benefit, in fiscal 

year (FY) 2012 the 

estimated Federal cost 

would be $80 million, 

and the estimated State 

cost would be $60 

million. 

We anticipate that States will make varying 

use of the State plan HCBS benefit 

provisions to provide needed long-term care 

services for Medicaid beneficiaries. These 

services will be provided in the home or 

alternative living arrangements in the 

community, which is of benefit to the 

beneficiary, and is less costly than 

institutional care. 

Section 2601 of the 

Affordable Care Act: 5-

Year Period for 

Demonstration Projects 

(Waivers) 

No impact on Federal 

or State Medicaid 

funding. This rule is 

voluntary on the part of 

States. 

As this provision elongates the time period 

under which States may operate certain 

waiver programs without renewal, it will help 

States to minimize administrative and 

renewal requirements in order to better focus 

on program implementation and quality 

oversight. 
CMS-2249-P2 15 

Provision Description Total Costs Total Benefits 

Provider Payment 

Reassignments 

We do not anticipate 

any impact on Federal 

Medicaid funding. 

This rule is voluntary 

on the part of States. 

This rule proposes additional operational 

flexibilities for States to ensure a strong 

provider workforce. There is also no impact 

on individual practitioners, even though the 

proposed rule would allow States to deduct 

or withhold portions of such payments under 

the specific circumstances described in the 

proposed rule. State budgets will not likely 

be significantly affected because the 

operational flexibilities in the proposed rule 

would only facilitate the transfer of funds 

between participating entities, rather than the 

addition or subtraction of new funds. 

Section 2401 of the 

Affordable Care Act: 

Community First Choice 

State Plan Option: Home 

and Community-Based 

Setting Requirements 

We do not believe there 

is an impact on Federal 

or State Medicaid 

funding as the purpose 

of the rule is merely to 

define home and 

community-based 

settings in which CFC 

services may be 

provided. 

This rule will provide States with necessary 

guidance to support compliance with the 

requirement that CFC services are provided 

in a home or community based-setting. This 

rule also provides beneficiary protections to 

support an individual’s choice to receive 

home and community-based services in a 

manner that allows for integration with the 

greater community. 

II. Background 

A. Expanded Access to Home and Community-Based Services for the Elderly and Disabled 

under Section 1915(i) of the Social Security Act: History of Section 1915(i) of the Act

Section 6086 of the Deficit Reduction Act of 2005 (Pub. L. 109-171, enacted February 8, 

2006) (DRA) entitled "Expanded Access to Home and Community-Based Services for the 

Elderly and Disabled," added section 1915(i) to the Social Security Act (the Act) to allow States, 

at their option, to provide home and community-based services (HCBS) under their State 

Medicaid plans. This option allows States to receive Federal financial participation (FFP) for 

services that were previously only eligible for FFP under waivers or demonstration projects, such 

as those authorized under sections 1915(c) and 1115 of the Act. Section 1915(i) of the Act was 
CMS-2249-P2 16 

later amended by sections 2402(b) through (g) of the Patient Protection and Affordable Care Act 

of 2010 (Pub. L. 111-148, enacted March 23, 2010) (Affordable Care Act) to provide additional 

options for States to design and implement HCBS under the Medicaid State Plan. 

In the April 4, 2008 Federal Register (73 FR 18676), we published a proposed rule to 

amend Medicaid regulations to implement HCBS under section 1915(i) of the Act. This rule was 

never finalized, and with the passage of the Affordable Care Act some of the proposed 

regulations would no longer be in compliance with the statute, as several new provisions were 

added to the statute. Therefore, we concluded that a new proposed rule and a new period of 

public comment were necessary. This proposed rule retains a large portion of the policies 

contained within the April 4, 2008 proposed rule. However, we have updated some of our 

proposals to reflect the statutory changes that were made by the Affordable Care Act. 

B. Overview of the State Plan Home and Community-Based Services (HCBS) Benefit to 

Provide HCBS for the Elderly and Individuals with Disabilities

The following overview describes the provisions of section 1915(i) of the Act as 

established by the DRA and amended by the Affordable Care Act. 

In the following discussion and the proposed regulation, we refer to particular home and 

community-based service(s) offered under section 1915(i) of the Act as "State plan HCBS" or 

simply "HCBS"3

. We refer to the "State plan HCBS benefit" when describing the collective 

requirements of section 1915(i) of the Act that apply to States electing to provide one, or several, 

of the authorized HCBS. We choose to use the term "benefit" rather than "program" to describe 

section 1915(i) of the Act to avoid possible confusion with section 1915(c) HCBS waiver 

programs. The State plan HCBS benefit shares many features with section 1915(c) waiver 

 

3 Note that the abbreviation HCBS does not distinguish between singular and plural. Where this could be 

confusing, we spell out home and community-based service(s). 
CMS-2249-P2 17 

programs, but it is a State plan benefit, although one with very unique features not common to 

traditional State plan services. 

Under section 1915(i) of the Act, States can provide HCBS to individuals who require 

less than institutional level of care (LOC) and who would, therefore, not be eligible for HCBS 

under section 1915(c) waivers, in addition to serving individuals who have needs that would 

meet entry requirements for an institution. As it is a State plan benefit, section 1915(i) of the 

Act also does not require cost neutrality compared to institutional services. Section 1915(i) of 

the Act differs from section 1915(c) waivers in other ways. As with other State plan services, 

the benefits must be provided Statewide, and States must not limit the number of eligible people 

served. 

1. Services 

Section 1915(i)(1) of the Act grants States the option to provide, under the State plan, the 

services and supports listed in section 1915(c)(4)(B) of the Act governing HCBS waivers. The 

services specifically listed in section 1915(c)(4)(B) of the Act are as follows: 

• Case management. 

• Homemaker/home health aide. 

• Personal care. 

• Adult day health. 

• Habilitation. 

• Respite care. 

• Other services requested by the State as the Secretary may approve. 

In addition, the following services may be provided for individuals with chronic mental 

illness: 
CMS-2249-P2 18 

• Day treatment 

• Other partial hospitalization services. 

• Psychosocial rehabilitation services. 

• Clinic services (whether or not furnished in a facility). 

The HCBS may not include payment for room and board (see additional discussion in 

section II.E.3. of this proposed rule). 

Section 1915(c)(4)(B) of the Act also permits States to request, and the Secretary to 

approve, coverage of other services not specifically designated in the list of specific services in 

the subparagraph. This authority was not included under section 1915(i) when it was created in 

the DRA. However, section 2402(c) of the Affordable Care Act amended section 1915(i)(1) of 

the Act to permit States to request, and the Secretary to approve, coverage for such other services 

in a 1915(i) benefit. 

We interpret the statute as authorizing States to cover in their 1915(i) benefit both the 

services specifically identified in section 1915(c)(4)(B) of the Act, and any other services States 

request to include and which the Secretary approves. Therefore, we would expect States to 

define State plan HCBS with sufficient specificity so that we can determine whether the nature 

and scope of the service clearly relates to those listed in section 1915(c)(4)(B) of the Act. These 

services are described in §440.180 of this proposed rule. However, we would not require the 

same standard for “other services” under section 1915(i) State plan HCBS that we would apply 

under section 1915(c) of the Act. Since section 1915(i) of the Act does not require an individual 

to meet the criteria for institutional LOC, there is no authority to apply the standard that the 

“other services” defined and provided through State plan HCBS be necessary to prevent 

institutionalization. We note that for all services, including those in the “other services” 
CMS-2249-P2 19 

category, States must include a specific and complete description of the scope of the service, and 

not include open-ended statements. 

We propose to review and approve these “other services” not specifically listed in 

section 1915(c)(4)(A) of the Act based upon the applicability to and consistency with the support 

needs as indicated in the needs-based criteria that a State defines for the HCBS benefit, and with 

assurance that the service will not duplicate other services available to individuals through the 

State’s Medicaid State plan. Additionally, these services must be offered in a manner that would 

comply with section 1902(a)(23) of the Act regarding free choice of providers, and that permits 

individuals to receive services in the most integrated setting possible and consistent with the best 

interests of the beneficiaries and the requirements of the Americans with Disabilities Act (ADA). 

Section 1915(i) does not incorporate waiver authority or other exceptions from these legal 

requirements. Therefore, the services offered cannot have the impact of limiting the pool of 

qualified providers from which individuals would receive services, or have the impact of 

requiring/only allowing individuals to receive services from the same entity from which they 

purchase or who provide their housing. For example, we would not allow States to establish 

residential HCBS in provider-owned and/or operated settings only, when they do not have 

comparable HCBS available to individuals residing in their own homes. 

2. Eligibility 

Eligibility for this option is based upon several different factors that are either specified 

by the statute or that a State may define. These include financial eligibility, the establishment of 

needs-based criteria, and the State option to target the benefit and to offer benefits differing in 

type, amount, duration or scope to specific populations. Due to the complex interaction between 
CMS-2249-P2 20 

these provisions, the following section is divided into subsections that address eligibility for the 

benefits. These include: 

● Eligibility Overview. 

● Income Eligibility. 

● Needs-Based Criteria Overview. 

● Option to Disregard Comparability. 

● Establishing Needs-Based Criteria. 

a. Section 1915(i) of the Act: Eligibility Overview 

Section 1915(i) of the Act explicitly provides that State plan HCBS may be provided 

without determining that, but for the provision of these services, individuals would require the 

LOC provided in a hospital, a nursing facility (NF), or an intermediate care facility for the 

mentally retarded4

 (ICF/MR) as is required in section 1915(c) HCBS waivers. While HCBS 

services provided through section 1915(c) waivers must be "cost-neutral" as compared to 

institutional services, no cost neutrality requirement applies to the section 1915(i) State plan 

HCBS benefit. States are not required to produce comparative cost estimates of institutional care 

and the State plan HCBS benefit. This significant distinction allows States to offer HCBS to 

individuals whose needs are substantial, but not severe enough to qualify them for institutional or 

waiver services, and to individuals for whom there is not an offset for cost savings in NFs, 

ICFs/MR, or hospitals. 

One particular result of this distinction is that, through the section 1915(i) benefit, States 

have the ability to provide a full array of HCBS to adults with mental health and substance use 

disorders. The benefit also creates an opportunity to provide HCBS to other individuals with 

 

4 Although we recognize that the language used here is outdated, and that “intellectual disability” is the appropriate 

way to discuss this type of disability, the Social Security Act still refers to these types of facilities in this manner. 
CMS-2249-P2 21 

significant needs who do not qualify for an institutional LOC, such as some individuals with 

Autism Spectrum Disorder, diabetes, acquired immune deficiency syndrome, or Alzheimer’s 

disease. In many cases, without the provision of HCBS, these conditions may deteriorate to the 

point where the individuals become eligible for more costly facility-based care. 

State plan HCBS are intended to enable individuals to receive needed services in their 

own homes, or in alternative living arrangements in what is collectively termed the "community" 

in this context. (See additional discussion in section II.E.2. of this proposed rule regarding 

institutions not considered to be in the community, and in which State plan HCBS will not be 

available.) 

b. Income Eligibility 

Section 1915(i)(1) of the Act requires that in order to receive State plan HCBS, 

individuals must be eligible for Medicaid under an eligibility group covered under the State’s 

Medicaid plan. In determining whether either of the relevant income requirements (discussed) is 

met, the regular rules for determining income eligibility for the individual’s eligibility group 

apply, including any less restrictive income rules used by the State for that group under section 

1902(r)(2) of the Act. Section 1915(i)(3) of the Act permits States to not apply the requirements 

of section 1902(a)(10)(C)(i)(III) of the Act relating to income and resource rules in the 

community for the medically needy. Under this authority States are permitted to use institutional 

eligibility rules in determining eligibility for the medically needy. The nonapplication 

requirements are described in section II.B.14 of the preamble. This eligibility criterion was not 

changed by the Affordable Care Act. 

Section 2402(b) of the Affordable Care Act added a new option at section 1915(i)(6) of 

the Act, to allow States to provide section 1915(i) services to certain individuals who meet the 
CMS-2249-P2 22 

needs-based criteria, who would be eligible for HCBS under section 1915(c), (d) or (e) waivers 

or a section 1115 waiver approved for the State, and who have income up to 300 percent of the 

Supplemental Security Income Federal Benefit Rate (SSI/FBR). 

Section 2402(d) of the Affordable Care Act also amended section 1902(a)(10)(A)(ii) of 

the Act by adding a new optional categorically needy eligibility group specified at section 

1902(a)(10)(A)(ii)(XXII) of the Act to provide full Medicaid benefits to certain individuals who 

will be receiving section 1915(i) services. This eligibility group has two parts, and States can 

cover individuals under either or both parts of the group. Under this group, States can elect to 

cover individuals who are not otherwise eligible for Medicaid who meet the needs-based criteria 

of the section 1915(i) benefit, have income up to 150 percent of the Federal poverty line (FPL) 

with no resource test and who will receive section 1915(i) services, or individuals with income 

up to 300 percent of the SSI/FBR, who would be eligible under an existing section 1915(c), (d) 

or (e)5

 waiver or section 1115 waiver approved for the State and who will receive section 1915(i) 

services. These individuals do not have to be receiving services under an existing section 

1915(c), (d) or (e) waiver or section 1115 waiver; the individual just has to be determined 

eligible for the waiver. 

c. Needs-Based Criteria Overview 

In contrast to the institutional LOC requirement for eligibility in HCBS waivers, 

section 1915(i)(1)(A) of the Act requires States to impose needs-based criteria for eligibility for 

the State plan HCBS benefit. Institutional level of care criteria must be more stringent than the 

needs-based criteria for the State plan HCBS benefit. Additionally, the State may establish 

 

5 1915(d) and (e) waivers are State options to provide HCBS to the elderly and to individuals with disabilities, 

respectively. Currently, no State elects to provide services under either of these authorities. 
CMS-2249-P2 23 

needs-based criteria for each specific State plan home and community-based service that an 

individual would receive. 

Thus, under section 1915(i) of the Act, States determine eligibility for State plan HCBS 

based on the following: 

● Individuals eligible for medical assistance under the State plan whose income is below 

150 percent of FPL, as determined by the State under the methodology applicable to the group, 

including any less restrictive income rules in place through section 1902(r)(2) of the Act. 

● At the State option, individuals eligible under the new optional categorical needy 

group 1902(a)(10)(A)(ii)(XXII) of the Act. This includes: 

++ Individuals with income below 300 percent of the SSI/FBR who are eligible for 

HCBS through a waiver approved for the State under sections 1115, 1915(c), 1915(d), or 1915(e) 

of the Act and will receive section 1915(i) services. 

++ Individuals who are not otherwise eligible for medical assistance who have income 

below 150 percent and who will receive section 1915(i) services. There will be no resource test 

for this group. 

● The individual resides in the home or community. 

● The individual meets the needs-based criteria established by the State. 

● The individual meets any targeting criteria in accordance with CMS requirements that 

the State elects to establish. 

For more information about the optional eligibility category for individuals who receive 

services through the State plan HCBS benefit, please see section II.B.18. of this proposed rule. 

The needs-based criteria for coverage of individual services provided within a State’s 

section 1915(i) benefit are subject to the same requirements as the needs-based eligibility criteria 
CMS-2249-P2 24 

for the benefit, and may not limit or target any service based on age, nature or type of disability, 

disease, condition, or residential setting, but could include risk factors or take into account 

service history. However, section 1915(i)(7) of the Act provides States with the option to target 

eligibility for the benefit to specific populations. 

d. Option to Disregard Comparability 

Effective October 1, 2010, section 2402(f) of the Affordable Care Act, amended section 

1915(i)(3) of the Act to permit States to elect not to comply with the requirement of section 

1902(a)(10)(B) of the Act relating to comparability of services. A waiver of comparability is a 

key feature of section 1915(c) HCBS waivers, permitting a State to target the HCBS benefit to 

certain populations by defining which groups will be eligible for waiver services, and by having 

separate waivers for different groups. With this change, States may exercise the authority to 

target the section 1915(i) benefit similarly, but are not required to do so. A State must establish 

needs-based criteria for eligibility for and receipt of State plan HCBS regardless of whether it 

elects the option to not comply with the comparability requirement. For additional information 

regarding the option for targeting in the benefit, please see the discussion at (section II.B.19 of 

the proposed rule). 

e. Establishing Needs-Based Criteria 

The heading of section 1915(i) of the Act describes the State plan HCBS benefit as "for 

Elderly and Disabled Individuals." However, section 1915(i) of the Act does not include 

definitions of the terms “elderly” or “disabled” in setting forth eligibility criteria, and instead 

requires eligibility to be based on need and on eligibility for medical assistance under a State 

plan group. Thus, we believe that the use of these terms in the statute is descriptive. Individuals 

who are eligible for medical assistance under a group covered in the State’s plan and who meet 
CMS-2249-P2 25 

the needs-based eligibility criteria for State plan HCBS will be likely to have needs stemming 

either from a disability or from being elderly. We note that section 1902(b)(1) of the Act 

prohibits the Secretary from approving any plan for medical assistance that imposes an age 

requirement of more than 65 years as a condition of eligibility. 

The statute does not define "needs-based." We are proposing to define the nature of 

needs-based criteria to distinguish them from targeting criteria, which are permitted under the 

statute as a State option and are distinct from the needs-based criteria. We propose to provide 

States with the flexibility to define the specific needs-based criteria they will establish. 

We believe that the statute distinguishes needs-based criteria from other possible 

descriptors of an individual’s medical condition or diagnosis. We interpret needs-based criteria 

as describing the individual’s particular need for support, regardless of the conditions and 

diagnoses that may cause the need. However, as discussed in section II.B.19. of this proposed 

rule, States may also disregard comparability requirements contained in section 1902(a)(10)(B) 

of the Act, and thus, target the section 1915(i) benefit (or multiple benefits) to individuals with 

specific diagnoses and conditions. We interpret the statute to mean that, when a State elects to 

disregard comparability in order to target the benefit to individuals with specific diagnoses, those 

individuals must meet both the targeting criteria, as well as the State’s needs-based criteria. 

Section 1915(i)(1)(B) of the Act additionally requires that the needs-based criteria for 

determining whether an individual requires the LOC provided in a hospital, NF, or ICF/MR or 

under a waiver of the State plan be more stringent than the needs-based eligibility criteria for the 

State plan HCBS benefit. Institutional/waiver LOC criteria in some States do not include 

needs-based criteria. Since the two must be comparable, we interpret this to mean that States 

without a needs-based component to their institutional LOC evaluation must establish needs-
CMS-2249-P2 26 

based criteria for those services, as well as for the State plan HCBS benefit. We also believe that 

States electing to implement a section 1915(i) benefit must include a needs-based evaluation 

component of the institutional/waiver LOC determination process so that stringency of those 

criteria can be compared to stringency of eligibility criteria for the State plan HCBS benefit. 

“Stringency" is not defined in the statute. The requirement is simply that there be a 

differential between the threshold of need for the State plan HCBS benefit as compared to the 

threshold of need for institutional services. The required difference in criteria will be relative, 

specific to each State’s unique institutional levels of care, and can be constructed in several 

ways. Because we have received many questions on the stringency requirements of the statute 

we will illustrate some of the possible options. We want to be clear, however, that the 

requirement of section 1915(i) of the Act is simply that the needs-based criteria for institutions 

and for the State plan HCBS benefit be set so that the latter are lower at the time the benefit is 

implemented. There is no requirement that institutional criteria be higher, lower, or unchanged 

from their level prior to implementing the State plan HCBS benefit. The only test is that the 

result of all the needs-based criteria must be that some individuals will be served under the State 

plan HCBS benefit who are not eligible to be served by Medicaid institutional services. If 

institutional LOC criteria are changed in implementing the benefit, States may provide 

protections for individuals who lose eligibility due to the application of those new criteria (see 

section II.B.16. of this proposed rule). 

There are issues for States to consider other than section 1915(i) of the Act that will 

influence decisions on levels of care and needs-based criteria, that are far beyond the scope of 

this document, for example, statutory requirements for maintenance of effort (MOE) in effect at 

the time of this proposed rule, requirements of the Americans with Disabilities Act and the 
CMS-2249-P2 27 

Olmstead decision, and funding constraints6. In this proposed rule, we focus on the choices a 

State may make in setting up a State plan HCBS benefit in ways that are consistent with 

requirements of section 1915(i) of the Act. As an illustration, this proposed regulation would 

permit a State to define the needs-based criteria for a new HCBS benefit at a lower level than the 

State’s existing institutional levels of care, and leave the institutional criteria unchanged (if they 

already include needs-based criteria). This would satisfy the requirement that the institutional 

criteria be more stringent than the State plan HCBS benefit, meet a goal to service individuals 

who have not previously had access to HCBS because they have not yet reached the level of 

need for admission to an institution, without making any change to existing services. This 

proposed regulation would also permit States to take other approaches. A State could raise one 

or more institutional levels of care, and provide HCBS under the State plan benefit for some or 

all of the individuals who would have not yet reached the level of need for admission to an 

institution. The State could choose (or not) to also include in the benefit individuals below the 

former institutional level of care. This scenario would also satisfy the stringency requirement, 

but would be more complex and would require analysis of some of the other relevant issues 

mentioned above. 

We note that section 1915(i) of the Act does not modify the statutory coverage provisions 

governing institutional benefits. States must be cautious not to establish more stringent needsbased criteria for hospitals, NFs or ICFs/MR that would reduce access to services mandated 

 

6 Under section 2001(b) of the Affordable Care Act, States are not permitted to establish eligibility standards, 

methodologies, or procedures that are more restrictive than those in place on the date of the Affordable Care Act’s 

enactment (March 23, 2010). For adults, this requirement lasts until the Secretary determines that a health insurance 

exchange is fully operational in the State; for children under the age of 19, the requirement lasts until September 30, 

2019. 

Because the application of LOC requirements for institutions and HCBS waivers may have an impact on Medicaid 

eligibility for some individuals, we encourage States interested in using the State plan HCBS to contact CMS for 

technical assistance in meeting these statutory requirements. 
CMS-2249-P2 28 

elsewhere in title XIX, since those other provisions of the statute were not amended. For 

example, the NF benefit is defined in section 1919(a)(1) of the Act as an institution that is 

primarily engaged in providing to residents skilled nursing care, rehabilitation services, and "[o]n 

a regular basis, health-related care and services to individuals who because of their mental or 

physical condition require care and services (above the level of room and board) which can be 

made available to them only through institutional facilities." To the extent an individual has a 

medical need for such health-related care and services which are only available in an institutional 

setting because that needed home or community-based health-related care and services are not 

available, the NF institutional benefit must remain available to all Medicaid eligible individuals 

described in section 1919(a)(1)(C) of the Act. 

We interpret the reference to hospitals in section 1915(i)(1)(B) of the Act to mean 

facilities certified by Medicaid as hospitals that are providing long-term care services. General 

acute care Medicaid hospital services are not subject to LOC determinations by the State. 

We interpret the reference in section 1915(i)(1)(B) of the Act "under any waiver of such 

plan" to apply to section 1915(c), 1915(d) and 1915(e) waivers, as well as those section 1115 

waivers that include HCBS, as specified in section 1915(i)(6)(a) of the Act. Sections 1915(c), 

(d) and (e)7

 of the Act will have more stringent minimum criteria than the State plan HCBS 

benefit, as the waivers are required to use LOC assessments equivalent to one or more of the 

institutional levels of care. If a State has an approved section 1115 demonstration with multiple 

levels of care for institutional and/or HCBS, we interpret this requirement to apply to the least 

stringent institutional LOC criteria within that demonstration that would likely be the comparison 

for purposes of section 1915(i) of the Act. 

 

7 Although the statute references waivers under Section 1915(d) and (e), no State currently operates a waiver under 

either authority. In the event that a State elects to include a (d) or (e) waiver, these requirements would apply. 
CMS-2249-P2 29 

 In summary, the needs-based eligibility criteria for the State plan HCBS benefit must 

have the effect of allowing some individuals who do not meet the needs-based criteria for 

institutionalized care to access HCBS through the section 1915(i) benefit, but may also allow 

access to individuals who meet the institutional needs-based eligibility criteria. States may also 

enroll individuals in both a section 1915(i) benefit, and a section 1915(c) waiver, as discussed 

earlier in this rule. 

3. Number Served 

Section 1915(i)(1)(C) of the Act, as amended by section 2402(e) of the Affordable Care 

Act, does not permit States to limit the number of eligible individuals receiving services and to 

establish waiting lists. Instead, the benefit requires a State to provide to the Secretary a 

projection of the number of individuals expected to receive services. If this projection is 

exceeded, section 1915(i)(1)(D)(ii) of the Act permits the State to constrict its needs-based 

eligibility thresholds for State plan HCBS (see the discussion on Adjustment Authority in I.B.5. 

of this proposed rule). 

Section 1915(i)(1)(C) of the Act requires that the State submit projections, in the form 

and manner, and upon the frequency as the Secretary specifies, of the number of individuals to 

be provided HCBS. We propose to follow the practice used in HCBS waivers to calculate the 

number served as unduplicated persons receiving services during a 12-month period. We further 

propose to specify that, during the application process, States would project the total number of 

individuals to be served by the benefit during the initial year. We further propose to specify that 

States with an approved State plan HCBS benefit annually submit both the projected number of 

individuals to be served and the actual number of individuals served in the previous year. We 

refer to individuals served under the benefit and included in the annual number served as having 
CMS-2249-P2 30 

been enrolled in the benefit. The statute refers to “enrollment” in section 1915(i)(1)(D)(ii) of the 

Act concerning “Adjustment Authority.” Because there are a number of steps involved in an 

individual initiating service under the State plan HCBS benefit, "enrollment" is a useful term to 

indicate individuals for whom those steps have been completed, services have been authorized or 

provided, and who will be accounted for in the annual number served under the benefit. If the 

State exceeds its enrollment estimate, the State would report the number of individuals actually 

served in the required annual report to the Secretary, and revise the estimate for succeeding 

years. 

4. Independent Evaluation 

Section 1915(i)(1)(D) of the Act sets forth a requirement for an individual evaluation of 

need for each person seeking coverage of the State plan HCBS benefit. The statute here uses the 

term "assessment," while sections 1915(i)(1)(E) and (H) of the Act refer to the initial eligibility 

determination as the "independent evaluation.” We would use the latter term for consistency. 

"Independent evaluation,” as understood in light of section 1915(i)(1)(H) of the Act, means free 

from conflict of interest on the part of the evaluator. The independent evaluation is separate 

from, but related to, the independent assessment (as discussed below). 

The independent evaluation applies the needs-based HCBS eligibility criteria (established 

by the State according to section 1915(i)(1)(A) of the Act), to an applicant for the State plan 

HCBS benefit. Section 1915(i)(1)(D) of the Act establishes that determining whether an 

individual meets the needs-based eligibility criteria specified in sections 1915(i)(1)(A) and (B) of 

the Act requires an individualized and independent evaluation of each person’s support needs 

and capabilities. We interpret "needs and capabilities" to mean a balanced approach that 

considers both needs and strengths. However, the words "capability" and "ability" are 
CMS-2249-P2 31 

historically connected with a deficit-oriented approach to assessment, which is the opposite of 

the statute’s person-centered approach. Therefore, we would refer to needs and strengths in this 

discussion and in the regulation. 

 Section 1915(i)(1)(D) of the Act indicates that the independent evaluation “may take into 

account" the inability of the individual to perform two or more activities of daily living (ADLs), 

(which the statute defines by reference to section 7702B(c)(2)(B) of the Internal Revenue Code 

of 1986), or the need for significant assistance to perform these activities. The State may also 

assess other risk factors it determines to be appropriate in determining eligibility for, and receipt 

of, HCBS. The statute does not limit the factors a State may take into account in the evaluation. 

For example, difficulty with instrumental activities of daily living (IADLs) or the need for 

cueing in order to perform a task could be considered. A State could choose to use a personcentered functional assessment tool or strategy to fulfill this requirement. 

5. Adjustment Authority 

Section 1915(i)(1)(D)(ii) of the Act permits the State to adjust the needs-based criteria 

described in section 1915(i)(1)(B) of the Act in the event that enrollment exceeds the annual 

maximum number of individuals that the State has projected it would serve within parameters as 

noted above. The purpose of an adjustment would be to revise the State’s needs-based criteria to 

reduce the number of individuals who would be eligible for the HCBS benefit. To preserve the 

requirement of section 1915(i)(1)(B) of the Act that more stringent needs-based criteria be in 

place for institutionalized care, the adjusted eligibility criteria must still be less stringent than 

those applicable to institutional levels of care in the State plan institutional benefit, and thus, in 

any HCBS waivers that require participants to meet an institutional LOC. If the State chooses to 
CMS-2249-P2 32 

make this adjustment, it must provide at least 60 days written notice to the Secretary and to the 

public, stating the revisions it proposes. 

While the adjustment authority is granted to States without having to obtain prior 

approval from the Secretary, we believe that the statute requires the State to amend the State plan 

to reflect the adjusted criteria. We believe that the State’s adjustment authority does not prevent 

the Secretary from disapproving a State plan amendment (SPA) that fails to comply with the 

statute and regulations. This provision of the law must be interpreted in light of existing 

Medicaid requirements not waived by section 1915(i) of the Act. We have, therefore, 

incorporated within the proposed regulation those relevant requirements in addition to the 

statutory provisions within section 1915(i)(1)(D)(ii) of the Act. Section 441.559(c) provides the 

greatest degree of authority for adjustment possible within the constraints of other requirements. 

The Secretary will evaluate the State’s adjusted criteria for compliance with the provisions of 

this subparagraph and all requirements of subpart K. A State may implement the adjusted 

criteria as early as 60 days after notifying all required parties. Section 430.16 provides the 

Secretary 90 days to approve or disapprove a State plan amendment, or request additional 

information. If the State implements the modified criteria prior to the Secretary’s final 

determination with respect to the State plan amendment, the State would be at risk for any 

actions it takes that are later disapproved. 

After needs-based criteria are adjusted under this authority, the statute requires that 

individuals served under the previous State plan HCBS needs-based criteria would continue to 

receive HCBS. As amended by section 2402(e) of the Affordable Care Act, 

section 1915(i)(1)(D)(ii)(II) of the Act provides that an individual who is receiving HCBS before 

the effective date for modified needs-based criteria, (based on the most recent version of the 
CMS-2249-P2 33 

criteria in effect before the modification), must be deemed by the State to continue to be eligible 

for State plan HCBS until the individual no longer meets the needs-based criteria, and targeting 

criteria if applicable, under which they were originally provided the benefit. Any changes to the 

institutional LOC criteria under this section are subject to the same requirements as described in 

1915(i)(5) (see section II.B.16. of this proposed rule). 

However, we would remind States of the maintenance of efforts requirements discussed 

in section II.B.2. of this proposed rule. 

We note that the required processes for individual notification and appeals, contained 

within part 431, subpart E, remain in effect whenever a State modifies its needs-based criteria. 

Furthermore, section 1915(i)(5) of the Act provides protections for individuals who are receiving 

services in waivers or institutional settings prior to the modification of the LOC requirements, as 

discussed below. 

It is important to note that the adjustment authority is a State option; there is nothing in 

the law that requires a State to constrict its needs-based criteria if enrollment exceeds 

projections. 

6. Independent Assessment 

Section 1915(i)(1)(E) of the Act describes the relationship of several required functions. 

Section 1915(i)(1)(E)(i) of the Act refers to the independent evaluation of eligibility in 

section 1915(i)(1)(A) and (B) of the Act, emphasizing the independence requirement. Section 

1915(i)(1)(E)(ii) of the Act introduces the requirement of an independent assessment following 

the independent evaluation. Thus, there are two steps to the process: the eligibility 

determination, which requires the application of the needs-based criteria and any additional 

targeting criteria the State elects to require; and the assessment for individuals who were 
CMS-2249-P2 34 

determined to be eligible under the first step, to determine specific needed services and supports. 

The assessment also applies the needs-based criteria for each service (if the State has adopted 

such criteria). Like the eligibility evaluation, the independent assessment is based on the 

individual’s needs and strengths. The Act requires that both physical and mental needs and 

strengths are assessed. These requirements describe a person-centered assessment including 

behavioral health, which will take into account the individual’s total support needs as well as the 

need for the HCBS to be offered. Section 1915(i)(1)(E)(ii) of the Act requires that States use the 

assessment to: determine the necessary level of services and supports to be provided; prevent the 

provision of unnecessary or inappropriate care; and establish a written individualized service 

plan. 

To achieve the three purposes of the assessment listed above, the assessor must be 

independent; that is, free from conflict of interest with regard to providers, to the individual and 

related parties, and to budgetary concerns. Therefore, we are proposing specific requirements for 

independence of the assessor in accordance with section 1915(i)(1)(H)(ii) of the Act, and we 

would apply these also to the evaluator and the person involved with developing the personcentered service plan, where the effects of conflict of interest would be equally deleterious. 

These considerations of independence inform the discussion below under 

section 1915(i)(1)(H)(ii) of the Act regarding conflict of interest standards. 

Section 1915(i)(1)(F) of the Act provides detailed requirements for the independent 

assessment: 

● A face-to-face evaluation of the individual by an assessor trained in the assessment 

and evaluation of persons whose physical or behavioral health conditions trigger a potential need 

for HCBS. To fulfill this statutory requirement, we would propose that the State must develop 
CMS-2249-P2 35 

standards and determine the qualifications necessary for agencies and individuals who will 

perform independent assessments and be involved with developing the plans of care. 

Additionally, we recognize that many States are developing infrastructure and policies to support 

the use of telemedicine and other ways to provide distance-care to individuals in order to 

increase access to services in rural areas or other locations with a shortage of providers. To 

support these activities, we propose that the “face-to-face” assessment can include any session(s) 

performed through telemedicine or other information technology medium if the following 

conditions apply: 

++ The health care professional(s) performing the assessment meet the provider 

qualifications defined by the State, including any additional qualifications or training 

requirements for the operation of required information technology; 

++ The individual receives appropriate support during the assessment, including the use 

of any necessary on-site support-staff; and 

++ The individual is provided the opportunity to request an in-person assessment in lieu 

of one performed via telemedicine. 

● An objective evaluation of the individual’s inability to perform two or more ADLs, or 

the need for significant assistance to perform the activities is required. We do not interpret 

"objective" to refer to the independence required of the assessor as discussed above, but to refer 

to an additional requirement for reliance on some level of valid measurement appropriate to the 

ADLs in order to ensure that the assessments were applied uniformly across individuals in the 

section 1915(i) benefit. For example, an occupational therapy (OT) or physical therapy (PT) 

evaluation or a trauma screening could be required, the results of which would be utilized by the 

assessor. We note that the trained assessor is not necessarily responsible for performing the 
CMS-2249-P2 36 

objective evaluation, but should make sure that the objective evaluation is performed by 

qualified individuals. We do not propose methods to achieve this requirement, as the nature of 

the HCBS to be provided and the needs-based criteria for the State plan HCBS benefit will 

determine the appropriate means of evaluating ADLs. 

Section 1915(i)(1)(F) of the Act defines ADLs in terms of section 7702B(c)(2)(B) of the 

Internal Revenue Code of 1986, which includes the following: bathing, dressing, toileting, 

transferring, eating, and continence. This section of the Internal Revenue Code does not define 

the terms "inability" or "significant assistance." While States have some flexibility to define 

these factors, we interpret "inability" to mean need for total support to perform an ADL, and 

“significant assistance” to mean assistance from another individual or from assistive technology 

necessary for the successful performance of the task. 

An objective evaluation of inability to perform two or more ADLs is a required element 

of the assessment but only a suggested element of the eligibility evaluation. We conclude that 

partial or complete inability to perform two or more ADLs is not a statutory prerequisite to 

receive State plan HCBS, but is a required element of the assessment in order to inform the 

development of the service plan required by section 1915(i)(1)(G) of the Act. Because States 

may define very diverse needs-based criteria and HCBS service definitions, we do not believe it 

is possible to be more specific in regulation about the criteria for assessment. However, we 

would note that a functional assessment tool could be used to measure objectively an individual’s 

needs to establish eligibility as well as to develop an appropriate service plan. 

We note that we are currently engaged in an initiative to develop universal core elements 

to be included in an assessment, through work being done under the Balancing Incentives 

Payment Program, created under section 10202 of the Affordable Care Act. For consistency 
CMS-2249-P2 37 

across Medicaid programs, we therefore, intend to move toward States including any finalized 

universal core elements developed from this work in carrying out independent assessments under 

1915(i), as well as under 1915(k) Community First Choice, and in performing other HCBS 

assessments as determined by CMS. 

● Consultation with any responsible persons appropriate to the individual and the needed 

supports, including family, spouse, guardian, or healthcare and support providers. We do not 

believe the examples listed in the statute to be prescriptive or limiting. The assessor must give 

the individual and, if applicable, the individual’s authorized representative, the opportunity to 

identify appropriate persons who should be consulted during this process. The role of the 

assessor is to facilitate free communication from persons relevant to the support needs of the 

individual, while protecting privacy, and promoting the wishes and best interests of the 

individual. In necessary circumstances, the consultations are not required to be performed in 

person or at the same time and place as the face-to-face evaluation, so long as any ancillary 

contacts are with persons the individual has identified, are divulged and discussed with the 

individual/representative, and documented. For example, telephone communications with parties 

not available for an in-person meeting would be permitted. 

● An examination of the individual’s relevant history, medical records, and care and 

support needs. 

● Knowledge of best practices and research on effective strategies that result in 

improved health and quality of life outcomes, and knowledge of the adult and child public 

service systems. At section 1915(i)(1)(F)(v) of the Act, the statute requires that the examination 

of the individual’s history, medical records, and care and support needs be guided by this 

knowledge, and we would propose that this evidence-based approach should apply to the entire 
CMS-2249-P2 38 

process for assessment and service plan development in a comprehensive, coordinated manner. 

Since the individualized service plan must be based upon the independent assessment, these 

requirements for the assessment should be used to inform and strengthen the service plan and, 

subsequently, the services provided to the individual. 

● If the State offers the option of self-direction and the individual so elects, the 

assessment should include gathering the information required to establish self-direction of 

services. We do not propose to require States to conduct a separate or additional assessment 

process for self-direction. 

As long as States comply with all provisions related to conducting the independent 

eligibility evaluation, independent assessment, and developing the person-centered service plan, 

States have flexibility in determining whether they will require that the functions be performed 

as one activity by a single agency or individual, or whether they wish to separate those functions 

and have different entities involved. 

7. Person-Centered Service plan 

Section 1915(i)(1)(G) of the Act requires that the State plan HCBS benefit be furnished 

under an individualized care plan based on the assessment. The terms “care plan” and “service 

plan” are used interchangeably in practice. We will adopt the term “service plan” in this 

regulation for two reasons. First, to be consistent with the terminology in use with other HCBS, 

including §1915(c) HCBS waivers, we wish to avoid the misunderstanding that the plan is a 

different type of requirement in the State plan HCBS benefit than in other HCBS authorities. We 

note the reference to “service plan” for self-directed HCBS at 1915(i)(1)(G)(iii)(II)(bb). Second, 

some individuals and advocates have commented that “care plan” has a medical or dependent 
CMS-2249-P2 39 

connotation, inconsistent with a person-centered approach. Since we see no technical difference 

between the two terms, we propose to adopt “service plan”. 

Underpinning all aspects of successful HCBS is the importance of a complete and 

inclusive person-centered planning process that addresses health and long-term services and 

support needs in a manner that reflects individual preferences. The person-centered approach is 

a process, directed by the individual with long-term support needs, and may also include a 

representative whom the individual has freely chosen. 

To fully meet individual needs and ensure meaningful access to their surrounding 

community, systems that deliver HCBS must be based upon a strong foundation of personcentered planning and approaches to service delivery. Thus, we propose to require such a 

process be used in the development of the individualized service plan for all individuals to be 

served by section 1915(i) benefit. This can be achieved when States affirmatively and creatively 

support individuals in the planning process. We would propose certain requirements for 

developing the service plan, but note that the degree to which the process achieves the goal of 

person-centeredness can only be known with appropriate quality monitoring by the State, which 

should include substantial feedback provided by individuals who received or are receiving 

services. 

The person-centered service plan must identify the strengths, preferences, needs (clinical 

and support), and desired outcomes of the individual. The person-centered planning process is 

conducted in a manner that reflects what is important for the individual to meet identified clinical 

and support needs determined through a person-centered functional needs assessment process 

and what is important to the individual to ensure delivery of services in a manner that reflects 

personal preferences and choices. 
CMS-2249-P2 40 

In addition to being driven by the individual receiving services, the person-centered 

planning process would-- 

● Include people chosen by the individual; 

● Provide necessary support to ensure that the individual has a meaningful role in 

directing the process to the maximum extent possible, and is enabled to make informed choices 

and decisions; 

● Is timely and occurs at times and locations of convenience to the individual; 

● Reflects cultural considerations of the individual; 

● Include strategies for solving conflict or disagreement within the process, including 

clear conflict of interest guidelines for all planning participants; 

● Offers choices to the individual regarding the services and supports they receive and 

from whom. 

● Includes a method for the individual to request updates to the plan. 

● Records the alternative home and community-based settings that were considered by 

the individual. 

 The plan resulting from this process should reflect that the setting in which the individual 

resides is chosen by the individual. The plan should reflect the individual’s strengths and 

preferences, as well as clinical and support needs (as identified through an assessment of 

functional need). The plan should include individually identified goals, which may include goals 

and preferences related to relationships, community participation, employment, income and 

savings, health care and wellness, education, and others (we note that not all goals will have 

comparable services covered under Medicaid). The plan should reflect the services and supports 

(paid and unpaid) that will assist the individual to achieve identified goals, and who provides 
CMS-2249-P2 41 

them. The plan should reflect risk factors and measures in place to minimize them, including 

individualized back-up plans. The plan must be signed by all individuals and providers 

responsible for its implementation, and should reflect the approach in place to ensure that it is 

implemented as intended. A copy of the plan must be provided to individuals and others 

involved in the plan. 

Consistent with these person-centered principles and the requirements for community 

integration under the Americans with Disabilities Act, we are proposing that the service plan 

should be constructed in a manner that promotes service delivery and independent living in the 

most integrated setting possible. Therefore, we propose that the plan must not only address 

medical and support needs, but should also reflect other individual goals related to community 

living to the extent that services covered under the State Medicaid plan would be available to 

support such goals. Although these goals may include activities that may not themselves be 

funded through medical assistance, the coordination of Medicaid services with other activities in 

which the individual would be engaged as part of community living is an essential part of 

ensuring community integration. These activities might include employment, education, 

recreation or social activities, and/or other activities that occur regularly for individuals living in 

the community. 

Subject to any additional needs-based criteria established for individual services, the 

State must make the services available to all eligible individuals who are assessed to need them. 

We conclude that the statute permits determining the level of services required by an individual 

only according to assessment of the individual’s needs, not based on available funds. Just as 

significantly, individuals who qualify for HCBS may not be compelled to receive them. 
CMS-2249-P2 42 

Individuals may also exercise their freedom to choose among qualified providers in the planning 

process. 

The State Medicaid agency may delegate other agents to develop the service plan, but 

remains responsible for ensuring compliance with all requirements for each service plan 

developed. While the agency may delegate the authority for plan development and approval, the 

Medicaid agency is ultimately responsible for ensuring that the plans are completed according to 

the requirements of this regulation. This can be done through the establishment of appropriate 

controls, including monitoring and a quality improvement process. 

Section 1915(i)(1)(G)(ii)(I)(aa) of the Act requires that the service plan is developed in 

consultation with the individual. The requirements for who is consulted in developing the 

service plan parallel those describing who may be consulted during the assessment process as 

determined by the State. As with the assessment, providers or others who may be responsible for 

providing services identified in the plan may be involved in the process. For example, providers 

may contribute to these processes by providing portions of an assessment and recommending a 

service plan, so long as the entity that retains final responsibility for the assessment or service 

plan meets all of the requirements of this final rule, including meeting the conflict of interest 

standards (See section II.B.10. for further discussion of conflict of interest). 

Section 1915(i)(1)(G)(ii)(I)(bb) of the Act requires that the development of the service 

plan take into account the extent of family or other supports, which we refer to as “natural 

supports,” for the individual, and section 1915(i)(1)(G)(ii)(II) of the Act requires that such plan 

identify needed services. We interpret these provisions to indicate that to the extent available, 

natural supports should be explicitly included in the service plan. This means that individuals 

with equivalent needs for support but differing levels of family or other natural supports may be 
CMS-2249-P2 43 

authorized for different levels of HCBS. In the context of person-centered planning and 

consultation with natural supports, we conclude that the statute requires that the service plan 

should neither duplicate, nor compel, natural supports. 

Section 1915(i)(1)(G)(ii)(III) of the Act provides that plans of care will be reviewed at 

least annually and upon significant change in the individual’s circumstances. We interpret this 

provision to indicate that diagnostic or functional changes are not required in order to adjust a 

service plan. Changes in external factors such as gain or loss of other supports may trigger a 

review. Additionally, an individual may request a review of the plan at any time. We would 

require revision of the service plan if the review indicates that revision is appropriate. By 

"annually," we mean not less often than every 12 months. Finally, we would relate this 

requirement to the independent assessment, since the development or revision of the service plan 

is based on the assessment. Therefore, we would propose that the independent assessment (See 

section II.B.6.) is required at least annually, and when needed upon a change in circumstances, in 

order to comply with the requirement to review plans of care with that frequency. 

8. Self-Direction 

Section 1915(i)(1)(G)(iii)(I) and (II) provides that States may offer enrolled individuals 

the option to self-direct some or all of the State Plan HCBS that they require. Many States have 

incorporated elements of self-direction into section 1915(c) waiver programs as well as section 

1115 demonstration programs. Self-directed State plan HCBS allow States another avenue by 

which they may afford individuals maximum choice and control over the delivery of services, 

while comporting with all other applicable provisions of Medicaid law. We have urged all States 

to afford waiver participants the opportunity to direct some or all of their waiver services, 

without regard to their support needs. With the release of an updated, revised section 1915(c) 
CMS-2249-P2 44 

waiver application in 2008, we refined the criteria and guidance to States surrounding selfdirection (also referred to as participant-direction), and established a process by which States are 

encouraged, to whatever degree feasible, to include self-direction as a component of their overall 

HCBS waiver programs. While section 1915(i) of the Act does not require that States follow the 

guidelines for section 1915(c) waivers in implementing self-direction in the HCBS State plan 

benefit, we anticipate that States will make use of their experience with section 1915(c) waivers 

to offer a similar pattern of self-directed opportunities with meaningful supports and effective 

protections. Individuals who choose to self-direct will be subject to the same requirements as 

other enrollees in the State plan HCBS benefit. 

Section 1915(i)(1)(G)(iii)(II) of the Act defines self-direction, and requires that there be 

an assessment and service plan. We do not interpret these requirements to indicate assessments 

and plans in addition to those generally required in sections 1915(i)(1)(F) and (G) of the Act. 

Accordingly, we would propose that the requirements for a self-directed service plan under 

section 1915(i)(1)(G)(iii)(III) of the Act be incorporated as components of the assessment and 

service plan required for all enrollees in the State plan HCBS benefit. 

Section 1915(i)(1)(G)(iii)(III) of the Act contains specific requirements for the selfdirected service plan, for which we describe proposed regulations in section III. The proposed 

regulations are consistent with our requirements for self-direction under section 1915(c) HCBS 

waivers. Section 1915(i)(1)(G)(iii)(III)(dd) of the Act requires that the service plan be developed 

with a person-centered process, which, as noted above, we would propose to require of all 

service plans for the State plan HCBS benefit. 

Section 1915(i)(1)(G)(iii)(IV) of the Act describes certain aspects of a self-directed 

budget, which we have termed “budget authority.” Section 1915(i)(1) (G)(iii)(III)(bb) of the Act 
CMS-2249-P2 45 

provides for self-directed selecting, managing, and/or dismissing of providers of the State plan 

HCBS, which we term “employer authority.” We interpret selecting to include the authority to 

hire a provider, as well as to direct an agency to hire a specific provider. Currently, section 

1915(c) HCBS waivers include varying degrees of self-direction. The proposed rule explains 

both budget authority and employer authority in a manner consistent with section 1915(c) HCBS 

waiver policy. 

Individuals require information and assistance to support them in successfully directing 

their services. Therefore, we would require States to design and provide functions in support of 

self-direction that are individualized according to the support needs of each enrollee. These 

functions should include, at a minimum, information and assistance consistent with sound 

principles and practice of self-direction, and financial management supports to serve as 

fiscal/employer agents or co-employers. The availability of an independent advocate to assist the 

individual with the access to and oversight of their waiver services, including self-direction, is 

also an important component of a strong self-directed system. We note that the adequacy of 

supports for successful self-direction will be important elements of the State’s quality assurance 

strategy, which is required by section 1915(i)(1)(H) of the Act. 

9. Quality Assurance 

Section 1915(i)(1)(H)(i) of the Act requires the State to ensure that the State plan HCBS 

benefit meets Federal and State guidelines for quality assurance, which we interpret as 

assurances of quality improvement. Consistent with current trends in health care, the language 

of quality assurance has evolved to mean quality improvement, a systems approach designed to 

continuously improve services and support and prevent or minimize problems prior to 

occurrences. Guidelines for quality improvement have been made available through CMS 
CMS-2249-P2 46 

policies governing section 1915(c) HCBS waivers available at www.hcbswaivers.net and 

published manuscripts available at www.nationalqualityenterprise.com. 

Consistent with recent legislation with considerable focus on evidence-based quality and 

measurement, we would require States to have a quality improvement strategy, and to measure 

and maintain evidence of quality improvement including system performance, individual quality 

of care, and individual experience of care indicators approved and/or prescribed by the Secretary. 

These measures must take into account the relevant, targeted assurances, and include measures 

established through the DRA, CHIPRA, Affordable Care Act, and/or any other relevant health 

care indicators or quality measures developed by HHS, as applicable to the population(s) served 

by the section 1915(i) benefit. We would require States to make this information on their 

identified measures available to CMS upon request. In the event that a State elects to target the 

section 1915(i) benefit to specific populations, the State must submit evidence of quality 

improvement no later than 180 days before the end of each 5-year approval period. (See the 

discussion at I.B.19 of this proposed rule for more information regarding targeting and approval 

periods). 

10. Conflict Of Interest 

Section 1915(i)(1)(H)(ii) of the Act provides that the State will establish conflict of 

interest standards for the independent evaluation and independent assessment. For reasons 

described above under independent assessment, we believe that the same independence is 

necessary for those involved with developing the person-centered service plan. In this 

discussion, we will refer to persons or entities responsible for the independent evaluation, 

independent assessment, and the service plan as “agents” to distinguish them from “providers” of 

home and community–based services. 
CMS-2249-P2 47 

Conflicts can arise from incentives for either over- or under-utilization of services; subtle 

problems such as interest in retaining the individual as a client rather than promoting 

independence; or issues that focus on the convenience of the agent or service provider rather than 

being person-centered. Many of these conflicts of interest may not be conscious decisions on the 

part of individuals or entities responsible for the provisions of service. 

To mitigate any explicit or implicit conflicts of interest, the independent agent must not 

be influenced by variations in available funding, either locally or from the State. The service 

plan must offer each individual all of the HCBS that are covered by the State that the individual 

qualifies for, and that are demonstrated to be necessary through the evaluation and assessment 

process. The service plan must be based only on medical necessity (for example, needs-based 

criteria), not on available funding. When local entities directly expend funds or direct allocated 

resources for services, in accordance with section 1902(a)(2) of the Act, the State must have a 

mechanism to ensure that availability of local funds does not affect access to services, such as 

using State resources to compensate for variability in local funding. 

In this proposed regulation, we would require States to define conflict of interest 

standards to include criteria that reflect State and Federal experience with the issue in 

administering HCBS waivers, and that reflect the principles of section 1877 of the Act. Section 

1877 of the Act prohibits certain types of referrals for services when there is a financial 

relationship between the referring entity and the provider of services. 

We are aware that in certain areas there may only be one provider available to serve as 

both the agent performing independent assessments and developing plans of care, and the 

provider of one or more of the HCBS. To address this potential problem we would propose to 

permit providers in some cases to serve as both agent and provider of services, but with 
CMS-2249-P2 48 

guarantees of independence of function within the provider entity. In certain circumstances, we 

may require that States develop "firewall" policies, for example, separating staff that perform 

assessments and develop plans of care from those that provide any of the services in the plan; 

and meaningful and accessible procedures for individuals and representatives to appeal to the 

State. We would not permit States to circumvent these requirements by adopting State or local 

policies that suppress enrollment of any qualified and willing provider. We do not believe that 

under any circumstances determination of eligibility for the State plan HCBS benefit should be 

performed by parties with an interest in providers of HCBS. 

We understand that the development of appropriate plans of care often requires the 

inclusion of individuals with expertise in the provision of long-term services and supports or the 

delivery of acute care medical services. As discussed previously, this rule is not intended to 

prevent providers from participating in these functions, but to ensure that an independent agent 

retains the final responsibility for the evaluation, assessment, and service plan functions. 

11. Eligibility Redeterminations; Appeals 

Section 1915(i)(1)(I) of the Act requires the State to conduct redeterminations of 

eligibility at least annually. We interpret "annually" to mean not less than every 12 months. The 

State must conduct redeterminations and appeals in the same manner as required under the State 

plan. States must grant fair hearings consistent with the requirements of part 431, subpart E. 

12. Option for Presumptive Eligibility for Assessment 

Section 1915(i)(1)(J) of the Act gives States the option of providing for a period of 

presumptive eligibility, not to exceed 60 days, for individuals the State has reason to believe may 

be eligible for the State plan HCBS benefit. 

We interpret this provision as follows: 
CMS-2249-P2 49 

● "Presumptive" we interpret to indicate that FFP will be available for evaluation even 

when an individual is subsequently found not to be eligible for the State plan HCBS benefit. 

● "Eligibility" does not connote eligibility for Medicaid generally, as this provision 

"shall be limited to medical assistance for carrying out the independent evaluation and 

assessment” under section 1915(i)(1)(E) of the Act. For clarity, we would refer to this limited 

option as "presumptive payment”. Individuals not eligible for Medicaid may not receive State 

plan HCBS. 

● "Evaluation and assessment" under section 1915(i)(1)(E) of the Act, is described as 

evaluation for eligibility for the benefit and assessment to determine necessary services. We 

believe the statutory phrase "and if the individual is so eligible, the specific HCBS that the 

individual will receive" is further describing the assessment under section 1915(i)(1)(E) of the 

Act for which presumptive payment is available, and that this phrase is not offering presumptive 

payment for the actual services. The phrase “if the individual is so eligible” indicates that 

payment is available once the individual is determined eligible, and not prior to that point. 

● In section 1915(i)(1)(J) of the Act, we interpret the term “medical assistance for 

carrying out the independent evaluation and assessment under subparagraph E” to mean 

expenditures for both costs of evaluative services that are described in section 1905(a), such as 

physician or other practitioner services, as well as administrative costs to determine eligibility 

for the State plan HCBS benefit. ,We interpret section 1915(i)(1)(J) of the Act to offer the State 

an option for a period of presumptive payment, not to exceed 60 days, for individuals the State 

has reason to believe may be eligible for the State plan HCBS benefit. FFP would be available 

for both medical services and administrative costs incurred for evaluation and assessment 

activities. During the period of presumptive payment, the individual would not receive State 
CMS-2249-P2 50 

plan HCBS, and would not be considered to be enrolled in Medicaid or eligible for the HCBS 

benefit for purposes of computing the number of individuals being served under the benefit. 

We invite comments that offer other interpretations of this presumptive payment option 

and that comport with existing Federal requirements. 

13. Individual’s Representative 

When an individual is not capable of giving consent, or requires assistance in making 

decisions regarding his or her care, the individual may be assisted or represented by another 

person. Section 1915(i)(2) of the Act defines the term "individual’s representative" by listing 

certain examples, but also provides that "... any other individual who is authorized to represent 

the individual" may be included. We believe that "authorized" refers to State rules concerning 

guardians, legal representatives, power of attorney, or persons of other status recognized under 

State law or under the policies of the State Medicaid program. 

States should ensure that the representatives conform to good practice concerning free 

choice of the individual, and assess for abuse or excessive control. States should also ensure that 

the person-centered planning process continues to be focused on the individual with HCBS 

support needs and his or her preferences and goals, and supports are provided so the individual 

can meaningfully participate and direct the process to the maximum extent possible. We are 

proposing to provide that the State may not refuse to recognize an authorized representative that 

the individual chooses, unless the State discovers and can document evidence that the 

representative is not acting in the best interest of the individual or cannot perform the required 

functions. 

14. Nonapplication 
CMS-2249-P2 51 

As amended by the Affordable Care Act, section 1915(i)(3) of the Act allows States to be 

exempted from the requirements of two sections of the Medicaid statute: section 1902(a)(10)(B) 

of the Act, regarding comparability; and section 1902(a)(10)(C)(i)(III) of the Act, regarding 

income and resource rules for the medically needy in the community. The statute uses the terms 

"nonapplication" and "may chose not to comply with" rather than "waive". We would use this 

terminology to maintain clarity between HCBS waiver programs under section 1915(c) of the 

Act and State plan HCBS under section 1915(i) of the Act. However, it is important to reiterate 

that the choice not to apply these requirements applies only with regard to the provision of State 

plan HCBS. 

Nonapplication of the requirement of comparability allows States to furnish the State plan 

HCBS benefit to specific targeted populations, similar to section 1915(c) waivers. Regardless of 

whether a State chooses to apply comparability requirements, it must define needs-based criteria 

to establish eligibility for the section 1915(i) benefit. If a State chooses not to apply 

comparability and to target the benefit, individuals must meet both the targeting criteria and the 

needs-based criteria in order to receive services through the section 1915(i) benefit. See the 

discussion in I.B.19 of this proposed rule for more detail regarding the option not to apply 

Medicaid comparability requirements and to target the benefit to a specific population or 

populations. 

The nonapplication of the requirements of section 1902(a)(10)(C)(i)(III) of the Act 

enables States to provide medical assistance to medically needy individuals in the community by 

electing to treat the individuals as if they are living in an institution for purposes of determining 

income and resources. This would result in the State not deeming/counting income and 

resources from an ineligible spouse to an applicant or from a parent to a child with a disability. 
CMS-2249-P2 52 

However, nonapplication of the income and resource rules applicable in the community applies 

only to the medically needy and only for the purposes of providing HCBS in accordance with the 

State plan amendment implementing section 1915(i) of the Act. Based on this language, we are 

interpreting the statute to mean that individuals made eligible on the basis of nonapplication of 

section 1902(a)(10)(C)(i)(III) of the Act may only be eligible for section 1915(i) services. In 

other words, for medically needy applicants, the State can elect not to deem income from an 

ineligible spouse, or from a parent to a child. If the State elects not to apply the requirements of 

section 1902(a)(10)(C)(i)(III) of the Act for the medically needy, it would determine Medicaid 

eligibility for section 1915(i) eligible medically needy individuals using institutional rules rather 

than community rules. Once the individual has been determined to be eligible as medically 

needy using institutional rules, and has been determined to meet the 150 percent of the FPL limit, 

the individual would only be eligible for State plan HCBS under section 1915(i) of the Act. The 

individual would not be eligible for any other Medicaid State plan services. However, 

individuals who are eligible for Medicaid as medically needy under income and resource rules 

applicable in the community, and whose income does not exceed the 150 percent of the FPL 

limit, would be eligible for State plan HCBS as well as all Medicaid State plan services. 

15. No Effect on Waiver Authority 

Section 1915(i)(4) of the Act emphasizes that State election to provide the State plan 

HCBS benefit does not in any way affect the State’s ability to offer programs through a 

section 1915(b) or (c) waiver, or under section 1115 of the Act. We further note that States may 

consider including 1915(i) services as a part of capitation under section 1915(b) waivers or other 

authorities for managed care arrangements. A State could use joint authority of 1915(b) and 

1915(i) to provide HCBS to individuals eligible for the 1915(i) benefit. 
CMS-2249-P2 53 

16. Continuation of Federal Financial Participation (FFP) For Institutional Level of Care For 

Individuals Receiving Services As of the Effective Date of the State Plan HCBS Amendment 

If the State modifies institutional LOC requirements so that they will be more stringent 

than the needs-based criteria for the State plan HCBS benefit, section 1915(i)(5) of the Act 

permits States the option to continue receiving FFP for individuals who are receiving 

institutional services in NFs, ICFs/MR, and applicable hospitals or who are receiving services 

under a section 1915 waiver or through an 1115 HCBS demonstration project that is in effect at 

the time of the modification. We interpret the reference to section 1915 waivers to include 

waivers under sections 1915(c), 1915(d) or 1915(e) of the Act, which are the section 1915 

waivers explicitly identified in section 1915(i)(6)(A) of the Act. Individuals receiving 

institutional care or HCBS under these authorities at the time that the institutional LOC is 

modified would not have to satisfy the more stringent criteria in order to continue receiving that 

care. 

FFP under the unmodified criteria would continue to be available until such time as the 

individual is discharged from the institution, waiver program, or demonstration, or no longer 

requires this LOC. Moving between a waiver and an institution at the same LOC, or vice versa, 

by definition is not a change in LOC. Therefore, individuals who transition between waivers and 

institutions (for example, transitioning from an institution to waiver through the Money Follows 

the person program) would retain eligibility for institutional care and HCBS until they no longer 

meet the less stringent LOC requirements or until they lose eligibility for Medicaid or for 

institutional or waiver services due to a reason other than the application of the modified LOC 

criteria. An example of this would be if the individual aged out of a waiver, or if an increase in 

income or resources caused the individual to lose Medicaid eligibility. 
CMS-2249-P2 54 

In section 1915(i)(5) of the Act, the statute indicates that FFP remains available for 

individuals who meet the previous institutional criteria. We note that this does not create a 

requirement for States to continue to serve these individuals; rather, it creates an option for States 

to continue to receive FFP in order to provide care for individuals who would otherwise lose 

eligibility due to the implementation of the new criteria. 

Due to the current requirements on maintaining eligibility standards, methodologies and 

procedures, we encourage States to consult with CMS before instituting any changes to LOC 

requirements. 

17. State Option to Provide HCBS to Individuals Eligible for Services under a Waiver 

 Section 2402(b) of the Affordable Care Act added section 1915(i)(6) to the Act, 

specifying that States may elect to provide HCBS to an individual who is eligible for an 

approved waiver under sections 1915(c), (d), (e), or 1115 of the Act. Section 1915(i)(6)(A) 

specifies that individuals who are eligible for a waiver may receive State plan HCBS under the 

authority of section 1915(i) if they satisfy the needs-based criteria under such section and if their 

income is less than 300 percent of the supplemental security income (SSI) Federal benefit rate 

(FBR), as established by section 1611(b)(1) of the Act. 

 We interpret this statute as creating an option for States to increase the income limit for 

the State plan HCBS benefit, but only for individuals who are eligible for HCBS through an 

approved waiver within the State. We interpret “eligible” to mean that the individual meets all 

of the criteria required for entrance into a HCBS waiver that is approved within the State, 

regardless of whether the individual is actually enrolled and receiving services through that 

waiver. As discussed below, if a State elects this option, the State must cover the new optional 

categorically needy eligibility group specified at section 1902(a)(10)(A)(ii)(XXII) of the Act, 
CMS-2249-P2 55 

and individuals who are eligible for a waiver with income above 150 percent of the FPL, but 

below 300 percent of the SSI benefit rate, may receive State plan HCBS. 

When establishing whether an individual’s income is below 300 percent of SSI, under 

section 1915(i)(6)(B), the State should use the same rules that are applied for the special income 

level group specified at section 1902(a)(10)(A)(ii)(V) of the Act. Regardless of whether a State 

elects the option established by this section, the State could provide HCBS through both the 

section 1915(i) benefit, as well as through a HCBS waiver to any individual who meets the 

financial and needs-based criteria for both programs (that is, if an individual meets the waiver 

LOC criteria, and the needs-based criteria for the State plan HCBS benefit, and has income 

below 150 percent of the FPL, the individual could receive services under both authorities, 

provided that the services are not duplicative, whether or not the State elects to include the 

higher income level in their section 1915(i) benefit). 

When a State elects to include this option, section 1915(i)(6)(C) of the Act allows 

services to differ in type, amount, duration, or scope from services provided to individuals who 

are eligible for the section 1915(i) benefit without also being eligible for a waiver. A State may 

choose to provide additional 1915(i) State plan HCBS to individuals who are eligible for HCBS 

under an approved waiver. If a State does so, it may also elect to establish additional needsbased criteria for those services. The establishment of additional criteria would be under the 

State authority to establish needs-based criteria for any service in the 1915(i) benefit (see the 

discussion in I.B.2 of this proposed rule for more discussion). 

Any additional service(s) provided through this subsection must be allowable under 

section 1915(c)(4)(B) and may not include room and board. A State may also include “other” 

services, as defined by the State and approved by the Secretary, within the package of 
CMS-2249-P2 56 

section 1915(i) services that are limited to individuals who are eligible for a waiver. However, 

because individuals eligible for a waiver must also satisfy the needs-based criteria established for 

the section 1915(i) benefit to receive State plan HCBS, a State may not restrict access to benefits 

that are available to other individuals who receive the State Plan HCBS, except through a 

targeting criteria, or through the establishment of a needs-based criteria that applies uniformly to 

all individuals. 

18. Establishment of Optional Eligibility Group to Provide Full Medicaid Benefits to Individuals 

Receiving State Plan HCBS 

Section 2402(d) of the Affordable Care Act creates a new optional categorically needy 

eligibility group, specified at section 1902(a)(10)(A)(ii)(XXII) of the Act, for individuals “who 

are eligible for HCBS under the needs-based criteria established under (1)(A) of 1915(i), or who 

are eligible for home and community-based services under paragraph (6) of such section, and 

who will receive home and community-based services pursuant to a State plan amendment under 

such subsection.” 

Under this group States can elect to cover individuals who are not otherwise eligible for 

Medicaid. For example, an individual age 65 or older, who has chronic needs but not at an 

institutional level of care and has too much income and/or resources to qualify for Medical 

Assistance under a State’s Medicaid plan, could be eligible for section 1915(i) services if he/she 

meets the needs-based criteria for the section 1915(i) benefit, has income up to 150 percent of 

the FPL and will receive section 1915(i) services. Under this group, States may also elect to 

cover individuals with income up to 300 percent of the SSI/FBR who would be eligible under an 

existing section 1915(c),(d),(e) waiver or section 1115 waiver and who will receive section 

1915(i) services. These individuals do not have to be receiving services under an existing 
CMS-2249-P2 57 

section 1915(c),(d),(e) waiver or section 1115 waiver; the individual only has to be eligible for 

the waiver. Individuals eligible for Medicaid under this group would be eligible for full 

Medicaid benefits. The State must also elect the option under section 1915(i)(6) of the Act if the 

State intends to cover individuals with income up to 300 percent of the SSI/FBR. 

19. State Option to Offer HCBS to Specific, Targeted Populations 

 The Affordable Care Act added section 1915(i)(7) to the Act, which allows States to 

target the section 1915(i) benefit to specific populations. In addition, as of October 1, 2010, 

States may design section 1915(i) benefits without regard to the comparability requirements 

contained in section 1902(a)(10)(B) of the Act. As a result, the State may “target” services, that 

is, either provide the 1915(i) benefit only to individuals in certain Medicaid eligibility groups, or 

provide different services within the 1915(i) benefit to different groups. Due to the ability to 

define targeted populations, a State may now propose more than one set of section 1915(i) 

benefits, with each benefit package targeted toward a specific population. A State may also 

propose one set of section 1915(i) benefits that targets multiple populations, and may offer 

different services to each of the defined target groups within the benefit. Additionally, a State 

may propose a section 1915(i) benefit that does not choose nonapplication of comparability and 

instead uses only the needs-based criteria to establish eligibility for the benefit. States may find 

this to be a less administratively burdensome approach, as there is no renewal requirement or 

limit to the approval period if the State does not target the HCBS benefit (see below for a 

discussion on limits to the approval period). 

 We propose to require that a State that elects to target the benefit to specific groups of 

individuals must submit objective targeting criteria in the SPA implementing the HCBS benefit, 

subject to approval by CMS. These targeting criteria may define a target population or multiple 
CMS-2249-P2 58 

target populations within parameters of diagnosis, disability, Medicaid eligibility groups, and/or 

age. Within these parameters, targeting criteria may be similar to those available through 

section 1915(c) waivers, as defined in §441.301, but we note that based on experience, these 

target groups may not aptly capture the universe of individuals who could benefit from section 

1915(i) of the Act. Therefore, a State may also establish broader criteria that encompass more 

than one of the three groups defined in §441.301, or that target enrollees based on separate 

criteria. However, we note that the section 1915(i) benefit is described in the statute as “HCBS 

for Elderly and Disabled Individuals.” Therefore, we would expect any targeting criteria to 

apply to eligibility groups serving those individuals. We would also expect targeting criteria to 

align with the needs-based criteria established for the benefit. 

For example, a State could target the benefit package to any children under the age of 21 

with an intellectual disability, a developmental disability, autism, or a behavioral health 

condition. A State could also target the benefit using traditional section 1915(c) groups. An 

example of this would be to target the benefit to individuals age 65 and up. Further, this 

targeting option does not permit States to target the benefit in a manner that would not comply 

with section 1902(a)(23) of the Act regarding free choice of providers, or that forestalls the 

opportunity for individuals to receive services in the most integrated setting possible. Therefore, 

targeting criteria cannot have the impact of limiting the pool of qualified providers from which 

an individual would receive services, or have the impact of requiring an individual to receive 

services from the same entity from which they purchase their housing. For example, we would 

not allow States to establish targeting criteria that would restrict eligibility to only individuals 

who reside in provider-owned and/or operated settings. 
CMS-2249-P2 59 

If a State elects to target the benefit to a specific population or populations, it must still 

establish needs-based criteria that individuals must meet in order to be eligible for section 

1915(i) services and the State may also establish needs-based criteria for individual services 

within the benefit. The needs-based criteria may include specific needs that are applicable to the 

targeting criteria, but may also include general needs that apply across all of the populations 

included in the benefit. 

20. Five-Year Approval for Targeted Section 1915(i) HCBS Benefits and Renewal Requirements 

Under sections 1915(i)(7)(B)(i) and (C) of the Act, if a State chooses to target State plan 

HCBS, the SPA approval will last for a 5-year period with the option for 5-year renewal periods. 

There is no statutory limit on the number of renewal periods available under this section. At the 

end of the initial 5-year period, and any subsequent renewals, CMS will review the State’s 

approved SPA and evaluate State performance based upon the requirements contained within 

that SPA and the State plan HCBS quality outcomes. 

We propose that a State must provide a written request for renewal at least 180 days prior 

to the end of the approval period. The request must be accompanied by a description of any 

proposed changes to the benefit, if applicable. Prior to renewal, CMS will request evidence of 

implementation of the State’s quality improvement strategy in order to verify compliance with 

State plan HCBS requirements. Results of the quality monitoring process will be used to identify 

and make recommendations on areas of a State’s section 1915(i) benefit that require 

modification prior to renewal. In accordance with section 1915(i)(7)(C) of the Act, we will 

approve renewals based upon adherence to Federal requirements, including adherence to the 

State’s phase-in plan, as approved by CMS. 

21. Phase-in of Services and Eligibility 
CMS-2249-P2 60 

Section 1915(i)(7)(B)(ii) allows States to phase-in the enrollment of individuals and/or 

the provision of services if the State elects to target the benefit to specific populations. The 

statute indicates that the State must enroll all eligible individuals and provide all of the services it 

has elected to include in the benefit by the end of the initial 5-year approval. Although the 

option to phase-in services and/or eligibility may seem contradictory with the requirements that 

the benefit be statewide and not limit enrollment, we interpret this section to provide States with 

the flexibility to prioritize enrollment to individuals with the highest need and/or to develop 

adequate infrastructure to ensure quality of care, and the health and safety of participants, prior 

to the provision of services. We do not interpret this option as providing States the authority to 

limit statewideness or to set a numerical limit on enrollment. 

As an example, a State could elect to begin the provision of services to individuals with 

higher needs prior to the enrollment of all eligible individuals, based upon the assessment for 

eligibility to the benefit. In this instance, the needs-based criteria would allow States to identify 

individuals at greatest risk for health and safety, and to prioritize services to those individuals. 

Services would then be phased-in to individuals who qualify for the benefit but who have less 

assessed need. 

States are permitted to modify the available services in a section 1915(i) benefit through a 

SPA at any time. Therefore, we do not believe that this option permits a State to include a 

service within the benefit without providing it to at least some enrolled individuals. However, at 

the option of a State, a phase-in plan might temporarily limit the provision of the entire benefit 

package, or of some specific services, based upon infrastructure considerations, such as the need 

to enroll an adequate number of qualified providers. 
CMS-2249-P2 61 

We propose that a State that elects to target the State plan HCBS benefit and to phase-in 

enrollment and/or services must submit a phase-in plan for approval by CMS that describes, at a 

minimum: 

● The criteria used to phase-in enrollment or service delivery; 

● The rationale for phasing-in services and/or eligibility; and 

● Timelines and benchmarks to ensure that the benefit is available Statewide to all 

eligible individuals within the initial 5-year approval. 

If a State elects and CMS approves a phase-in of services and/or eligibility in the section 

1915(i) SPA, the statute indicates that the State must enroll all eligible individuals and provide 

all of the services it has elected to include in the benefit by the end of the initial 5-year approval. 

Therefore, if a State does not meet its phase-in plan by the end of the initial 5-year approval of 

the section 1915(i) benefit, the State will not be able to renew the benefit. 

States are also prohibited from having a phase-in period longer than 5 years, and from 

receiving approval for a new section 1915(i) submission of a similar design with a phase-in 

period when a similar benefit with phase-in is discontinued before full implementation. 

We are soliciting comments on alternative strategies and approaches for evaluating and 

approving the option to phase-in eligibility and enrollment. 

C. Effective Date 

The effective date on which States may provide HCBS through the State plan, as set forth 

by the DRA, is January 1, 2007. The effective date of the amendments to the section 1915(i) 

benefit, as established by the Affordable Care Act, is October 1, 2010. 

D. The State Plan HCBS Benefit in the Context of the Medicaid Program as a Whole 
CMS-2249-P2 62 

The section 1915(i) State plan HCBS benefit is subject to provisions of the Medicaid 

program as a whole. Therefore, it is useful to note certain requirements of the Medicaid program 

that have an impact on the administration of the State plan HCBS benefit and that are not 

explicitly referenced in the regulation. 

To be eligible for the State plan HCBS benefit, an individual must be included in an 

eligibility group that is contained in the State plan, including if the State elects, the new 

eligibility group defined at section 1902(a)(10)(A)(ii)(XXII) of the Act. Each individual must 

meet all financial and non-financial criteria set forth in the plan for the applicable eligibility 

group. 

Children included in eligibility groups under the State plan may meet the needs-based 

criteria and qualify for benefits under the State plan HCBS benefit. States may also choose to 

target the benefit in a manner that either excludes children, or limits the benefit solely to 

children. HCBS benefits that are not otherwise available through 1905(a) State plan services 

under the Medicaid Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) benefit 

may be furnished to Medicaid eligible children who meet the State plan HCBS needs-based 

eligibility criteria, and who meet the State’s medical necessity criteria for the receipt of services. 

In addition to meeting EPSDT requirements through the provision of 1905(a) services, a State 

may also meet a particular child’s needs under EPSDT through services that are also available 

through the 1915(i) benefit. However, all Medicaid-eligible children must have full access to 

services required under EPSDT, and the provision of 1915(i) State plan HCBS should in no way 

hinder their access to such services. 

We further note that the mandate under EPSDT applies only to services authorized by 

section 1905(a) of the Act. Therefore, HCBS under section 1915(i) of the Act are not required 
CMS-2249-P2 63 

under the EPSDT program. Children who are eligible for the State plan HCBS benefit are 

eligible to receive medically necessary State plan HCBS, but the State is not required to provide 

1915(i) State plan HCBS as part of its EPSDT program. Clinic services (whether or not 

furnished in a facility) for individuals with chronic mental illness are listed in section 

1915(c)(4)(B) of the Act and therefore may be covered in the State plan HCBS benefit. If a State 

chooses to offer these services, they will be subject to the clinic upper payment limit (UPL) at 

§447.321. We also note that these services are defined differently than other clinic services 

offered under the State Plan in that they include services whether or not they are offered in a 

facility. 

States may also elect to include 1915(i) benefits as part of a managed care contract. In 

the event that State plan HCBS are included in a managed care contract, they must meet all 

applicable requirements contained in §438, including actuarial soundness of rates, cost 

effectiveness of services, and CMS contract review and approval. 

Additionally, since this benefit is established through a State plan amendment process, 

section 5006(e) of the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5, 

enacted on February 17, 2009) requires the State to seek advice from Indian health programs and 

Urban Indian Organizations on the establishment of or modification to any State plan HCBS 

benefits. 

FFP for the 1915(i) benefit is also subject to deferrals, withholding and disallowances in 

accordance with the requirements of subpart C of 42 CFR part 440. In the event that CMS 

determines a State to be out of compliance with the requirements of the HCBS benefit, standard 

Medicaid compliance actions will apply. 

E. Other Background
CMS-2249-P2 64 

1. Serving all eligible individuals while targeting limited resources 

As noted above, section 1915(i) of the Act applies the general Medicaid requirements 

regarding statewideness and, like other State plan options, does not allow States to limit 

enrollment. Nevertheless, the law offers significant discretion for defining the population 

served. Specifically, States may limit utilization of the State plan HCBS benefit through 

application of the following provisions of section 1915(i) of the Act: 

● The requirement to set eligibility standards built on needs-based criteria. States 

choose the needs-based criteria used to establish the thresholds of program eligibility. States 

must set a lower threshold of need, but may also optionally define an upper threshold of need 

beyond which individuals may not be served under this provision. 

● The option to target the benefit to specific populations. States may combine needsbased criteria with targeting criteria in order to create a very specific benefit that applies to 

defined groups of individuals. 

● The option to establish needs-based criteria to determine eligibility for each State plan 

HCBS. These criteria may vary from service to service, and should assist States in identifying 

the individuals who could benefit from receipt of a particular State plan HCBS. 

● The choice to offer a limited number of services under the State plan HCBS benefit. 

The scope of services that the State chooses to offer may include any, but need not include all, of 

the services permitted under section 1915(c)(4)(B) of the Act. 

● The option to limit the amount or duration of each service, in accordance with all 

Medicaid rules and requirements. 
CMS-2249-P2 65 

Since all State plan HCBS must be provided under a written service plan, States have the 

opportunity to review an individual’s service plan to ensure that HCBS continue to be responsive 

to the needs of the individual. 

Additionally, as a reminder, general Medicaid requirements also apply to the State plan 

HCBS benefit. All Medicaid services are to be provided only to those who need them according 

to medical necessity and needs-based criteria, as defined by the State. Prior authorization is 

available to the State. 

2. HCBS Provided in the Community, Not in Institutions 

 Section 1915(i) provides States the option to provide home and community-based 

services, but does not define “home and community-based.” Along with our overarching interest 

in making improvements to Medicaid HCBS, we seek to ensure that Medicaid is supporting 

needed strategies for States in their efforts to meet their obligations under the ADA and the 

Supreme Court decision in Olmstead v. L.C., 527 U.S. 581 (1999). In the Olmstead decision, the 

Court affirmed a State’s obligations to serve individuals in the most integrated setting 

appropriate to their needs. A State’s obligations under the ADA and section 504 of the 

Rehabilitation Act are not defined by, or limited to, the scope of requirements of the Medicaid 

program. However, the Medicaid program can provide an opportunity to obtain partial Federal 

funding that supports compliance with the ADA, section 504 of the Rehabilitation Act , and 

Olmstead through the provision of Medicaid services to Medicaid-eligible individuals. 

In the April 4, 2008 Federal Register (73 FR 18676), we proposed to define home and 

community settings for this new benefit. Then in the June 22, 2009 Federal Register (74 FR 

29453), we published an advance notice of proposed rulemaking (ANPRM) that solicited 

comments on potential rulemaking for a number of areas within the section 1915(c) HCBS 
CMS-2249-P2 66 

waiver program. Specifically, we requested public input on strategies to define home and 

community-based settings where waiver participants may receive services. Although the 

ANPRM is specific to section 1915(c) waivers, the services delivered and the settings they are 

available in are parallel to the section 1915(i) benefit. We recognize a need for a consistent 

definition of this term across Medicaid HCBS. 

 In response to the 1915(c) ANPRM, we received comments that supported the underlying 

goals to promote independence, community inclusion, and the goals of the Olmstead decision. 

However, many commenters also expressed concern about definitions of home and communitybased settings that limited participant choice, and that excluded settings that may, in fact, 

promote independence and integration. Since that time, we have facilitated and participated in 

multiple stakeholder discussions related to this issue, and we also included proposed language 

for settings in which HCBS could be provided to elicit further comments on this issue in the 

section 1915(k) proposed rule published on February 25, 2011 and in the 1915(c) proposed rule 

published on April 15, 2011. We find the public comment process to be valuable in our attempt 

to develop the best policy on this issue for Medicaid beneficiaries. Therefore, with this rule, we 

again invite public comments on proposed language to establish the qualities for home and 

community-based settings under both sections 1915(i) State plan HCBS and the 1915(k) 

Community First Choice State plan option. It is our goal to align the final language pertaining to 

this topic across the sections 1915(k), 1915(i), and 1915(c) Medicaid HCBS authorities. 

We have included proposed language for settings in which section 1915(i) services and 

supports could be provided to elicit additional comments on this issue. While it is not practical 

to create one singular definition that encompasses all settings that are home and communitybased, with this rule we propose quality principles essential in determining whether a setting is 
CMS-2249-P2 67 

community-based. We expect States electing to provide HCBS benefits under section 1915(i) to 

include a definition of home and community-based setting that incorporates these principles and 

will review all SPAs to determine whether they propose settings that are home or communitybased. We will permit States with approved section 1915(i) SPAs a reasonable transition period, 

a minimum of one year, to come into compliance with the HCBS setting requirements as 

promulgated in our final rule. 

Recognizing the imperative to provide clear guidance to States and in consideration of 

recent proposals from States that have clearly exceeded reasonable standards for HCBS, we are 

proposing to clarify now that home and community-based settings must exhibit the following 

qualities, and such other qualities as the Secretary determines to be appropriate, based on the 

needs of the individual as indicated in their person-centered service plan, in order to be eligible 

sites for delivery of home and community-based services: 

• The setting is integrated in, and facilitates the individual’s full access to, the greater 

community, including opportunities to seek employment and work in competitive integrated 

settings, engage in community life, control personal resources, and receive services in the 

community, like individuals without disabilities; 

• The setting is selected by the individual among all available alternatives and 

identified in the person-centered service plan; 

• An individual’s essential personal rights of privacy, dignity and respect, and freedom 

from coercion and restraint are protected; 

• Individual initiative, autonomy, and independence in making major life choices, 

including but not limited to, daily activities, physical environment, and with whom to interact are 

optimized and not regimented; and 
CMS-2249-P2 68 

• Individual choice regarding services and supports, and who provides them, is 

facilitated. 

 In a provider-owned or controlled residential setting, the following additional 

conditions must be met. Any modifications of the conditions (for example to address the safety 

needs of an individual with dementia) must be supported by a specific assessed need and 

documented in the person-centered service plan: 

++ The unit or room is a specific physical place that can be owned, rented, or occupied 

under a legally enforceable agreement by the individual receiving services, and the 

individual has, at a minimum, the same responsibilities and protections from eviction that 

the tenants have under the landlord/tenant laws of the State, county, city, or other 

designated entity. We are soliciting comments as to whether there are other protections, 

not addressed by landlord tenant law, that should be included; 

++ Each individual has privacy in their sleeping or living unit: 

--Units have lockable entrance doors, with appropriate staff having keys to doors; 

--Individuals share units only at the individual’s choice; and 

--Individuals have the freedom to furnish and decorate their sleeping or living 

units; 

++ Individuals have the freedom and support to control their own schedules and 

activities, and have access to food at any time; 

++ Individuals are able to have visitors of their choosing at any time; and 

++ The setting is physically accessible to the individual.

In addition to the aforementioned criteria there are two criteria that we have not included 

in the proposed regulation, but wish to solicit comment regarding whether they should be added. 
CMS-2249-P2 69 

The first is related to the proposed requirement that in a provider-owned or controlled residential 

setting, any modification of the conditions must be supported by specific assessed needs and 

documented in the person centered service plan. This requirement is meant to address two 

issues: 

● Individuals receiving HCBS must not have their independence or freedoms abridged 

by providers for convenience, or well-meaning but unnecessarily restrictive methods for 

providing person-centered services and supports; and 

● Individuals with cognitive disabilities and other impairments may require 

modifications of the aforementioned conditions for their safety and welfare. 

This provision is meant to establish that service planning is the process in which these 

decisions are made, rather than ad hoc on a daily basis. While the proposed text establishes the 

requirement that any modification to the conditions are supported by a specific assessed need and 

documented in the person-centered service plan, we are also considering including language to 

explicitly set forth these activities. We are considering requiring the following points to be 

identified: identify a specific and individualized assessed safety need; document less intrusive 

methods that have been tried but did not work; include a clear description of the condition that is 

directly proportionate to the specific assessed safety need; include regular collection and review 

of data to measure the ongoing effectiveness of the modification; and establishing time limits for 

periodic reviews to determine if the modification can be lifted. We solicit comment on these 

points and any other potential requirements regarding modifications of the conditions set forth in 

this proposed rule. We also wish to solicit comment on a second criterion that would include a 

requirement that receipt of any particular service or support cannot be a condition for living in 

the unit. In discussing this specific criterion, we discovered that it could be read one of two 
CMS-2249-P2 70 

ways. One interpretation is that this language does not require an individual residing in a 

provider owned or operated setting to receive HCBS from the setting provider. Rather the 

individual could choose another qualified individual to provide HCBS. The other interpretation 

is that this language would prevent the owner of the setting from evicting an individual because 

the individual refused to accept a particular service. This interpretation could have an effect on 

residential settings, such as housing programs to address homelessness. Some of these settings 

include a structure in which individuals are required to participate in treatment (substance use, 

for example) as a condition of residing there. We acknowledge the complexities that arise, when 

trying to support an individual’s right to choose while recognizing that there are programs and 

services that have been developed as a result of identified service needs. As indicated earlier, we 

are specifically soliciting comments on whether these two criteria should be included as 

regulatory requirements. 

We note that home and community-based settings do not include nursing facilities, 

institutions for mental diseases, intermediate care facilities for mentally retarded, hospitals, or 

any other locations that have the qualities of an institutional setting as determined by the 

Secretary. In considering whether a setting has the qualities of an institutional setting, we will 

exercise a rebuttable presumption that a setting is not a home and community-based setting, and 

will engage in heightened scrutiny, for any setting that is located in a building that is also a 

publicly or privately operated facility that provides inpatient institutional treatment, or in a 

building on the grounds of, or immediately adjacent to, a public institution, or disability-specific 

housing complex. We expect to issue further guidance regarding such settings. Other 

characteristics that could cause CMS to consider a setting as “institutional” or having the 

qualities of an institution would include, but not be limited to, settings which are isolated from 
CMS-2249-P2 71 

the larger community, do not allow individuals to choose whether or with whom they share a 

room, limit individuals’ freedom of choice on daily living experiences such as meals, visitors, 

and activities, or limit individuals’ opportunities to pursue community activities. 

We have included these provisions to move toward a stronger articulation of the qualities 

that make a setting a home or truly integrated in the greater community for individuals living 

with disabilities. We believe that these principles of home and community-based settings will 

support the use of the Medicaid program to maximize the opportunities for individuals to access 

the benefits of home and community living. 

We specifically invite comments on whether there are settings in addition to those currently 

enumerated in statute, that are, by their nature, location or administration inherently noncommunity based, and therefore, should be expressly excluded from HCBS. We also invite 

comments on the community-based qualities we have proposed in this rule to ascertain whether 

additional or different characteristics should be included. 

In considering comments received pertaining to this provision of the rule, we will also 

include consideration of all comments received pertaining to the aligned home and communitybased setting requirements being proposed in this rule for the section 1915(k) Community First 

Choice State Plan Option. In recognizing the need for a consistent definition of this term across 

Medicaid HCBS, it is our goal to align the final language pertaining to this topic across the 

regulations for sections 1915(i), 1915(k), and 1915(c) Medicaid HCBS authorities. 

We note that this proposal in no way preempts broad Medicaid requirements, such as an 

individual’s right to obtain services from any willing and qualified provider of a service. 

We further note that States are not prohibited from funding institutional care under 

Medicaid. The exclusion of these settings from HCBS waivers and from the State plan HCBS 
CMS-2249-P2 72 

benefit does not limit the availability of institutional and facility-based care for those individuals 

who require long-term services and supports, and who freely choose to receive services in those 

settings. However, we believe that these types of services should not be funded through 

authorities that are intended to promote community-based alternatives to institutional care. 

Furthermore, we believe that the fundamental requirement that the needs-based criteria for 

section 1915(i) be less stringent than that for institutional care creates a mandate to ensure that 

services are provided in settings that are not institutional in nature. 

While HCBS are not available while an individual resides in an institution, HCBS should 

be available to assist individuals to leave an institution. Recognizing that individuals leaving 

institutions require assistance to establish themselves in the community, we would allow States 

to include in a section 1915(i) benefit, as an “other” service, certain transition services to be 

offered to individuals to assist them in their return to the community. We propose that 

community transition services could be commenced prior to discharge and could be used to assist 

individuals during the period of transition from an institutional residence. Additionally, services 

could be provided to assist individuals transitioning to independent living in the community, as 

described in a letter to the State Medicaid Directors on May 9, 2002 (SMDL #02-008). We 

further recognize that, for short hospital stays, an individual may benefit from ongoing support 

through the HCBS State Plan for physical needs over and above such services available in a 

hospital, to ensure smooth transition from clinical setting to home, and to preserve a sense of 

continuity and normalcy (a notion particularly important for individuals with intellectual 

disabilities, cognitive disabilities associated with aging, and behavioral health support needs). 

Importantly, these services must be exclusively for the benefit of the individual, not the hospital, 

and must not substitute for services that the hospital is obligated to provide through its conditions 
CMS-2249-P2 73 

of participation or through its obligations under the ADA. 

3. Home and Community-Based Services do not Include Room and Board 

Payments for room and board are expressly prohibited by section 1915(i)(1) of the Act. 

Except for respite care furnished in a setting approved by the State that is not the individual’s 

residence, no service or combination of services may be used to furnish room and board through 

the State plan HCBS benefit. 

When an individual must be absent from his or her residence in order to receive a service 

authorized by the individualized service plan, it may be impractical to obtain a meal outside the 

venue in which the service is provided. Therefore, in some instances and when it does not 

constitute a full nutritional regimen, the provision of food may be included as an incidental part 

of service delivery. When meals are furnished as an integral component of the service, we are 

proposing to permit the State to consider the cost of food in the rate it pays for the State plan 

HCBS, as the cost is then considered part of the service itself. We would not consider the meal 

to be an integral part of the State plan HCBS when two rates are charged to the public, one that 

includes a meal and one that does not include a meal. 

4. Timing of Amendments 

 We seek to clarify expectations regarding timing of amendments when States propose 

modifications to the 1915(i) benefit. For the purposes of the 1915(i) benefit, we propose that 

amendments which result in a reduction of eligibility or services to 1915(i) participants must be 

submitted with a prospective, rather than retroactive, effective date. 

F. Section 2601 of the Affordable Care Act: 5-Year Period for Demonstration Projects

This proposed rule includes changes to §430.25 to implement section 2601 of the 

Affordable Care Act. 
CMS-2249-P2 74 

Section 2601 of the Affordable Care Act adds a new paragraph (2) to section 1915(h) to 

permit the Secretary, at her discretion, to approve a waiver that provides medical assistance for 

individuals dually eligible for Medicare and Medicaid (“dual eligibles”) for an initial period of 

up to 5 years and renewed for up to 5 years, at the State’s request. The statute defines a dual 

eligible as: “an individual who is entitled to, or enrolled for, benefits under part A of title XVIII, 

or enrolled for benefits under part B of title XVIII, and is eligible for medical assistance under 

the State plan under this title or under a waiver of such plan.” This new authority enhances 

existing tools available to improve and coordinate care and services for this particularly 

vulnerable group of beneficiaries. This change provides an important tool for States to design 

programs to better coordinate services for dual eligible individuals. 

While section 2601 of the Affordable Care Act does not provide a new type of waiver, it 

does provide an important opportunity for States to simplify the operation of existing waivers 

that serve dually eligible individuals, especially important when States combine waiver 

authorities that have different approval periods.

 A growing number of States provide care to dual eligible individuals in a managed care 

service system. To be successful, these systems often include community and institutional longterm services and supports, utilize or partner with Medicare managed care plans or fee-forservice providers to improve care continuity and individual outcomes, and minimize 

disincentives to community-based or preventive care. 

The Medicaid tools available to establish such an arrangement vary, but many States seek 

to use a 1915(b) Managed Care waiver concurrently with a 1915(c) Home and CommunityBased Services waiver. Some States interested in offering home and community-based supports 

to dual eligibles in a managed care delivery system raised concerns with the 2-year approval 
CMS-2249-P2 75 

period for the 1915(b) managed care waivers and the 3 and 5-year approval periods for the 

1915(c) HCBS waiver program. These different approval periods present administrative 

challenges for States that pose hurdles to operational success. 

 Section 2601 of the Affordable Care Act provides a solution for these situations, and 

others where States may wish to minimize administrative and renewal requirements in order to 

better focus on program implementation and quality oversight. Section 2601 of the Affordable 

Care Act includes an opportunity for extended approval periods for sections 1915(b), 1915(c), 

1915(d) and 1115 of the Act. 

For a State to apply for the extended approval periods, the demonstration or waiver 

program must provide services for individuals who are dually-eligible for Medicare and 

Medicaid. The approval of such periods is at the Secretary’s discretion, and determinations will 

be made regarding applications for 5-year waivers in a manner consistent with the interests of 

beneficiaries and the objectives of the Medicaid program. 

We are proposing that if a demonstration or waiver program does not serve or excludes 

dually eligible individuals, the 5-year approval period will not be available, and existing 

approval period requirements will apply. In addition, we are proposing to that in order for 

coverage-related waivers to be approved for 5 years periods, they must meet all necessary 

programmatic, financial, and quality requirements. 

The statute provides that the State’s request for extension of the waiver for additional 5-

year periods will be approved unless the Secretary determines that one or more conditions of the 

waiver have not been met, that the waiver would no longer be cost neutral (for 1915(c) waivers), 

cost-effective (for 1915(b) waivers) or budget neutral (for 1115 demonstrations), that it would 

not be efficient to extend the waiver, or that it would no longer be consistent with the purposes of 
CMS-2249-P2 76 

the Medicaid program. We are proposing to require that quality oversight mechanisms must be 

in place and that the State must demonstrate compliance with applicable program requirements, 

as well as the terms and conditions of the waiver as specified by the Secretary. 

G. Prohibition Against Reassignment of Provider Claims

1. Prohibition on Payment Reassignment 

Section 1902(a)(32) of the Act provides generally that “no payment under the plan for 

care and services provided to an individual shall be made to anyone other than such individual or 

the person or institution providing such care or service, under an assignment or power of attorney 

or otherwise.” 

The legislative history for this provision indicates that a primary purpose of the provision 

was to curb perceived abuses that stemmed from “factoring” of accounts receivable by 

physicians and individual practitioners. Factoring is when an individual or an organization, such 

as a collection agency or service bureau, purchases accounts receivable from a practitioner for a 

percentage of their face value. 

Section 1902(a)(32) of the Act contains several specific exceptions to the general 

principle of direct payment to individual practitioners. There are exceptions for payments for 

practitioner services where payment is made to the employer of the practitioner, and the 

practitioner is required as a condition of employment to turn over fees to the employer; payments 

for practitioner services furnished in a facility when there is a contractual arrangement under 

which the facility bills on behalf of the practitioner; reassignments to a governmental agency, 

through a court order, or to a billing agent; payments to a practitioner whose patients were 

temporarily served by another identified practitioner; or payments for a childhood vaccine 

administered before October 1, 1994. 
CMS-2249-P2 77 

Similar provisions were enacted in title XVIII of the Act governing the Medicare 

program, at sections 1815(c) and 1842(b)(6) of the Act. Medicare payment assignment 

regulations are codified at 42 CFR part 424, subpart F (Limitations on Assignment and 

Reassignment of Claims). Because CMS is not proposing to amend or revise the regulations 

governing assignment of Medicare payments in this notice, we do not further discuss the 

Medicare rules. However, we are specifically soliciting public comment on the issue of 

consistency with Medicare payment policies, as discussed below. 

2. Current Medicaid Payment Assignment Regulations 

Medicaid regulations at §447.10 implement the requirements of section 1902(a)(32) of 

the Act by providing that State plans can allow payments to be made only to certain individuals 

or entities. Specifically, payment may only be made to the individual practitioner that provided 

the service or the recipient, if he or she is a non-cash recipient eligible to receive payment under 

§447.25, or under one of the limited exemptions. In addition, the regulations specifically state 

that "[P]ayment for any service furnished to a recipient by a provider may not be made to or 

through a factor, either directly or by power of attorney." 

3. Medicaid Payment Reassignment 

The regulations at §447.10 contain several enumerated exceptions to the general direct 

payment principle that implement and interpret the statutory exceptions. There is an exception 

for payment in accordance with a reassignment to a government agency, or by a court order. 

There is another exception for payment to a business agent, such as a billing service or 

accounting firm, that furnishes statements and receives payments in the name of the individual 

practitioner, if the business agent’s compensation for this service is related to the cost of 

processing the billing, and not dependent on the collection of the payment. 
CMS-2249-P2 78 

There are also three exceptions for payments to individual practitioners that reflect 

statutory exceptions discussed above. 

4. Individual Practitioner Workforce Stability and Development Concerns 

Since the direct payment principle was originally enacted in 1972 and expanded in 1977, 

the definition of medical assistance under section 1905(a) of the Act has been changed to permit 

States to offer coverage of categories of practitioner services, such as personal care services, that 

may be viewed as unique to the Medicaid program. For these practitioners, the Medicaid 

program may be the primary, or only, source of payment. Some States have sought methods to 

improve and stabilize the workforce by offering health and welfare benefits to such practitioners, 

and by requiring that such practitioners pursue periodic training. 

Several States have requested that we consider adopting additional exceptions to the 

direct payment principle to permit withholding from the payment due to the individual 

practitioner for amounts paid by the State directly to third parties for health and welfare benefits, 

training costs, and other benefits customary for employees. These amounts would not be 

retained by the State, but would be paid to third parties on behalf of the practitioner for the stated 

purpose. 

While section 1902(a)(32) of the Act does not expressly provide for additional exceptions 

to the direct payment principle, we believe the circumstances at issue were not contemplated 

under section 1902(a)(32) of the Act and, therefore, that the direct payment principle should not 

apply. In light of the statutory silence in addressing this circumstance, we are proposing that the 

direct payment principle should not apply because we think its application would contravene the 

fundamental purpose of the provision. As noted above, the apparent purpose of the direct 

payment principle was to prohibit factoring arrangements. Therefore, we are proposing an 
CMS-2249-P2 79 

additional exception to describe payments that we do not see as within the intended scope of the 

statutory direct payment requirement. Under this exception, a State could claim as a provider 

payment amounts that are not directly paid to the provider, but are withheld and paid on behalf of 

the provider, such as health and welfare benefit contributions, training costs, or other benefits 

customary for employees. 

H. Definition of Home and Community-Based Settings for the 1915(k) Community First Choice 

State plan Option

Section 1915(k)(1)(A)(ii) of the Act provides that home and community-based attendant 

services and supports must be provided in a home and community-based setting. The statute 

specifies that home and community-based settings do not include a nursing facility, institution 

for mental diseases, or an intermediate care facility for the mentally retarded. Through the 

application process of sections 1915(c) waivers, 1915(i) HCBS State plan amendments and 

section 1905(a) State plan amendments, we are aware of settings other than those specified in 

section 1915(k)(1)(A)(ii) of the Act that exhibit qualities of an institutional setting. 

Over the past several years, we have sought input on how to define the characteristics of 

what makes a setting “home and community-based.” In the section 1915(i) proposed rule 

published on April 4, 2008 (73 FR 18676), we proposed to define home and community settings 

for this benefit. In the advanced notice of proposed rulemaking published on June 22, 2009 (74 

FR 29453), we solicited comments on potential rulemaking for a number of areas within the 

section 1915(c) waiver program. Specifically, we sought public input on strategies to define 

home and community-based settings where waiver participants may receive services. Since that 

time, we have facilitated and participated in multiple stakeholder discussions related to this issue. 

In the proposed rule for section 1915(k) Community First Choice (CFC) State plan option 
CMS-2249-P2 80 

published on February 25, 2011 (76 FR 10736), we included the proposed language for settings 

in which CFC services and supports could be provided to elicit additional comments on this 

issue. In an effort to maintain consistency with this policy we also proposed similar language in 

the section 1915(c) proposed rule that published on April 15, 2011. We received many 

thoughtful comments on the proposed setting provisions published in the CFC proposed rule 

published on February 25, 2011. The comments received indicated to us that the proposed 

setting provisions caused more confusion and disagreement than clarity. In consideration of 

these comments, we decided to revise the setting provision and publish as a new proposed rule to 

allow for additional public comment before finalizing. We find the public comment process to 

be valuable in our attempt to develop the best policy on this issue for Medicaid beneficiaries. 

Our policy regarding appropriate settings for the delivery of HCBS, as evidenced by our 

review of section 1915(c) waiver requests, has included a general prohibition on allowing HCBS 

in settings that are located on or adjacent to the campus of a public institution. We included this 

prohibition in the CFC proposed rule published on February 25, 2011. In response to the 

proposed rule, many commenters indicated strong support for this policy being incorporated into 

the final regulation, along with the proposal that buildings that included the delivery of inpatient 

services would not constitute acceptable settings for delivery of HCBS. Another commenter 

indicated that CMS should go a step further and in addition to excluding settings that are colocated with current institutions, also exclude settings on the grounds of former institutions to be 

clear that reorganizing and reclassifying an institution would not meet the criteria of a 

community-based setting. Many commenters believe that it is not possible for such a setting to 

ever be home and community-based. Others stated that all the characteristics of the setting 

should be given weight, and that we should not establish requirements based solely on the setting 
CMS-2249-P2 81 

locations or types (for example, size or the presence of institutional services offered within the 

same building), which would automatically disqualify a setting from being appropriate for 

delivery of HCBS. 

In particular, we heard concerns that a general prohibition on setting locations or types 

could significantly restrict access to services in settings that promote aging in place for elderly 

individuals, disrupt effective treatment and support opportunities for individuals with significant 

brain injury, and potentially restrict access to services in rural areas. Commenters also expressed 

concerns that by focusing our policy on setting locations or physical characteristics, we were 

inappropriately implying that smaller or more scattered settings were automatically appropriate, 

regardless of the quality of care or degree to which individuals receiving services in those 

settings were actually able to participate in community life, be assured of health and safety, or 

able to control their own daily activities. Many commenters stated that listing the excluded 

settings created unintended consequences, and could exclude living arrangements for individuals 

receiving attendant services and supports that we did not intend to prohibit, as well as permit 

others that are not integrated and person-centered. 

In response to public comment, we have developed proposed regulatory language to 

focus primarily on those qualities we deem essential in determining whether a setting of care is 

community-based. We believe the most effective and consistent way to assure that individuals 

with disabilities, regardless of age or type of disability, are offered home and community-based 

services in the most integrated setting appropriate to their needs and preferences, is to focus on 

the quality and characteristics of “home” and “community” that assure independence and 

integration from the individuals’ perspective. We agree with the many commenters who 

suggested this type of approach is most consistent with a person-centered system for delivering 
CMS-2249-P2 82 

care and services. 

Some commenters stated that if an individual or his or her family “chooses” a residence, 

it is therefore a “home and community-based” setting. We disagree, as individuals can and do 

choose to receive services in institutional settings. In addition, this reasoning is especially 

suspect in situations where an individual may not be given the option of receiving services in a 

variety of settings outside of an institution (for example, in their own home or apartment or, 

depending on the service, in a competitive employment situation), but rather is offered services 

only in a provider-owned or operated congregate setting. 

We received a range of responses as to whether disability-specific congregate settings are 

appropriate settings for delivery of HCBS. Some individuals and organizations are articulate 

about their right to live with anyone of their choosing, including those with disabilities. Others 

maintain that the only way to end unwanted segregation and forced “choices” is to forbid all 

segregation by disability, and that integration by definition means interaction with non-disabled 

individuals. All agree that unwilling segregation is a violation of civil rights. The Department of 

Justice has initiated a number of actions finding that States are violating the ADA by failing to 

provide more integrated alternatives to individuals in congregate settings whose residents are 

primarily or exclusively individuals with disabilities. States’ obligations under the ADA and 

Section 504 of the Rehabilitation Act are independent of, and are not limited by, their obligations 

under Medicaid, including the requirements of CFC, section 1915(c) of the Act, or section 

1915(i) of the Act. States should carefully evaluate their strategies for offering services in 

community-based settings and consider whether individuals have meaningful options beyond a 

segregated option. 

In addition, some commenters stated that community can be defined in many ways, and 
CMS-2249-P2 83 

therefore that home and community-based care could include integration into a community of 

peers; that is, in a disability-specific congregate or campus setting that includes a rich array of 

supports and activities within the setting of care. We acknowledge the importance of peer 

relationships but we do not agree that a community of one’s peers is the same as “community 

based” in terms of settings in which HCBS is delivered. An important purpose of home and 

community-based services is to assist individuals to be able to live fully integrated in the greater, 

non-disabled community. 

To provide greater clarity, we are proposing language to establish that home and 

community-based settings must exhibit specific qualities to be eligible sites for delivery of home 

and community-based services. We have included these provisions to move toward a stronger 

articulation of the qualities that make a setting a home or truly integrated in the broader 

community for individuals living with disabilities. These are the qualities most often articulated 

by persons with disabilities as key determinants of independence and community integration. 

We believe that these principles of home and community-based settings will support the use of 

the Medicaid program to maximize the opportunities for individuals to access the benefits of 

home and community living. We expect States electing to provide benefits under section 

1915(k) to include a definition of home and community-based setting that incorporates these 

principles and will review all SPAs to determine whether they propose settings that are home or 

community-based. We will permit States with approved section 1915(k) SPAs a reasonable 

transition period, a minimum of one year, to come into compliance with the HCBS setting 

requirements as promulgated in our final rule. Under the regulation, settings must exhibit the 

following qualities, and such other qualities as the Secretary determines to be appropriate, based 
CMS-2249-P2 84 

on the needs of the individual as indicated in their person-centered service plan, in order to be 

eligible sites for delivery of home and community-based services: 

● The setting is integrated in, and facilitates the individual’s full access to, the greater 

community including opportunities to seek employment and work in competitive integrated 

settings, engage in community life, control personal resources, and receive services in the 

community, like individuals without disabilities; 

● The setting is selected by the individual among all available alternatives and is 

identified in the person-centered service plan; 

● An individual’s essential personal rights of privacy, dignity and respect, and freedom 

from coercion and restraint are protected; 

● Individual initiative, autonomy, and independence in making life choices, including 

but not limited to, daily activities, physical environment, and with whom to interact are 

optimized and not regimented; and 

● Individual choice regarding services and supports, and who provides them, is 

facilitated. 

In a provider-owned or controlled residential setting, the following additional conditions 

must be met. Any modification of the conditions, for example to address the safety needs of an 

individual with dementia, must be supported by specific assessed needs and documented in the 

person centered service plan: 

● The unit or room is a specific physical place that can be owned, rented or occupied 

under another legally enforceable agreement by the individual receiving services, and the 

individual has, at a minimum, the same responsibilities and protections from eviction that the 

tenants have under the landlord tenant laws of the State, county, city, or other designated entity. 
CMS-2249-P2 85 

We are soliciting comments as to whether there are other protections, not addressed by landlord 

tenant laws that should be included. 

++ Each individual has privacy in their sleeping or living unit: 

--Units have lockable entrance doors, with appropriate staff having keys to doors; 

--Individuals share units only at the individual’s choice; and 

-- Individuals have the freedom to furnish and decorate their sleeping or living units; 

++ Individuals have the freedom and support to control their own schedules and 

activities, and have access to food at any time; 

++ Individuals are able to have visitors of their choosing at any time; and 

++ The setting is physically accessible to the individual.

In addition to the aforementioned criteria there are two criteria that we have not included 

in the proposed regulation, but wish to solicit comment regarding whether they should be added. 

The first is related to the proposed requirement that in a provider-owned or controlled residential 

setting, any modification of the conditions must be supported by specific assessed needs and 

documented in the person centered service plan. This requirement is meant to address two 

issues: 

(1) Individuals receiving HCBS must not have their independence or freedoms abridged 

by providers for convenience, or well-meaning but unnecessarily restrictive methods for 

providing services and supports; and 

(2) Individuals with cognitive disabilities and other impairments may require 

modifications of the aforementioned conditions for their safety and welfare. 

This provision is meant to establish that service planning is the process in which these 

decisions are made, rather than ad hoc on a daily basis. While the proposed text establishes the 
CMS-2249-P2 86 

requirement that any modification to the conditions are supported by a specific assessed need and 

documented in the person-centered service plan, we are also considering including language to 

explicitly set forth these activities. We are considering requiring the following points to be 

identified: identify a specific and individualized assessed safety need; document less intrusive 

methods of meeting that have been tried but did not work; include a clear description of the 

condition that is directly proportionate to the specific assessed safety need; include regular 

collection and review of data to measure the ongoing effectiveness of the modification; and 

establishing time limits for periodic reviews to determine if the modification can be lifted. We 

solicit comment on these points and any other potential requirements regarding modifications of 

the conditions set forth in this proposed rule. We also wish to solicit comment on a second 

criterion that would include a requirement that receipt of any particular service or support cannot 

be a condition for living in the unit. In discussing this specific criterion, we discovered that it 

could be read one of two ways. One interpretation is that this language does not require an 

individual residing in a provider owned or operated setting to receive HCBS from the setting 

provider. Rather the individual could choose another qualified individual to provide HCBS. The 

other interpretation is that this language would prevent the owner of the setting from evicting an 

individual because the individual refused to accept a particular service. This interpretation could 

have an effect on residential settings, such as housing programs to address homelessness. Some 

of these settings include a structure in which individuals are required to participate in treatment 

(substance use, for example) as a condition of residing there. We acknowledge the complexities 

that arise, when trying to support an individual’s right to choose while recognizing that there are 

programs and services that have been developed as a result of identified service needs. As 
CMS-2249-P2 87 

indicated earlier, we are specifically soliciting comments on whether these two criteria should be 

included as regulatory requirements. 

Additionally, in an effort to be consistent with other authorities providing home and 

community-based services, we propose to exclude hospitals as a community setting for the 

provision of Community First Choice Option. We believe this exclusion aligns with section 

1915(k)(1)(A)(ii) of the Act requiring that services are provided in a home and community-based 

setting and section 1915(k)(3)(B) of the Act requiring services are provided in the most 

integrated setting appropriate to the individual’s needs. We would like to clarify that the hospital 

prohibition applies to hospitals certified for the provision of long-term care services. We 

recognize that individuals with disabilities utilize personal attendant services and supports for 

various activities of daily living and instrumental activities of daily living. As a result, we 

understand that individuals will likely have a continued need for assistance while experiencing a 

short-term stay in general acute hospital settings. Therefore, while services provided in a general 

acute care hospital are not CFC services, individuals who have an assessed need for assistance 

with IADLs may continue to receive such services while an inpatient in an acute hospital setting. 

We would like to invite comment on this approach. 

Lastly, we are proposing to include the list of the three prohibited institutional settings 

specified in statute, as settings in which CFC services and supports may not be provided, along 

with a general prohibition on any other locations that have qualities of an institutional setting, as 

determined by the Secretary. 

In considering whether a setting has the qualities of an institutional setting for 

implementation of CFC, we will exercise a rebuttable presumption, as we will for the 1915(i) 

State plan HCBS benefit, that a setting is not a home and community-based setting, and will 
CMS-2249-P2 88 

engage in heightened scrutiny, for any setting that is located in a building that is also a publicly 

or privately operated facility that provides inpatient institutional treatment, or in a building on 

the grounds of, or immediately adjacent to, a public institution, or disability-specific housing 

complex. We expect to issue further guidance regarding such settings. Other characteristics that 

could cause us to consider a setting as “institutional” or having the qualities of an institution 

would include, but not be limited to, settings which are isolated from the broader community, do 

not allow individuals to choose whether or with whom they share a room, limit individuals’ 

freedom of choice on daily living experiences such as meals, visitors, and activities, or limit 

individuals’ opportunities to pursue community activities. 

Specifically, as with the 1915(i) proposed rule, we would invite comments on the specific 

qualities we have proposed. In addition, we are soliciting comments as to whether there are 

settings in addition to those currently enumerated in statute, that are, by their nature, location or 

administration inherently non-community based, regardless of the nature of an individual’s 

disability or age, and therefore, should be expressly excluded from HCBS. Issuing the revised 

setting provisions as a proposed notice will allow us to consider additional perspectives from the 

public on the modifications. In considering comments received pertaining to the setting 

provision of the section 1915(k) rule, we will also include full consideration of all comments 

received regarding the aligned home and community-based setting requirements being proposed 

in this rule and section 1915(i). In recognizing the need for a consistent definition of this term 

across Medicaid HCBS, it is our goal to align the final language pertaining to this topic across 

the regulations pertaining to sections 1915(i), 1915(k), and 1915(c) Medicaid HCBS authorities. 

Along with our overarching interest in making improvements to Medicaid HCBS, we 

seek to ensure that Medicaid is supporting needed strategies for States in their efforts to meet 
CMS-2249-P2 89 

their obligations under the ADA and the Supreme Court decision in Olmstead v. LC, 527 US 581 

(1999). In the Olmstead decision, the Court affirmed a State’s obligations to serve individuals in 

the most integrated setting appropriate to their needs. A State’s obligations under the ADA and 

section 504 of the Rehabilitation Act are not defined by, or limited to, the scope or requirements 

of the Medicaid program. However, the Medicaid program can provide an important opportunity 

to obtain Federal funding that supports compliance with the ADA, section 504 of the 

Rehabilitation Act, and Olmstead through the provision of Medicaid services to Medicaideligible individuals. Additionally, we expect States through the requirement at §441.677(b) to 

have a comprehensive quality assurance system, to develop individual outcome measures that 

would support the State’s compliance with providing CFC services in accordance with the 

individual’s person-centered plan and in a setting that meets the home and community-based 

setting criteria set forth in this regulation. 

III. Provisions of the Proposed Rule 

To incorporate the policies and implement the statutory provisions described above, we 

are proposing the following revisions: 

A. State Organization and General Administration (Part 431)

In §431.54, we are proposing to add paragraphs (a)(3) and (h) to include State plan 

HCBS as exceptions to comparability and community income and resource rules. 

B. Eligibility in the States, District of Columbia, the Northern Mariana Islands, and American 

Samoa (Part 435) and Eligibility in Guam, Puerto Rico and the Virgin Islands (Part 436)

In §435.219 and §436.219, we are proposing to add a provision to implement the optional 

categorical eligibility group created by section 1902(a)(10)(A)(ii)(XXII) of the Act for 

individuals, “who are eligible for home and community-based services under the needs-based 
CMS-2249-P2 90 

criteria established under (1)(A) of 1915(i), or who are eligible for home and community-based 

services under paragraph (6) of such section, and who will receive home and community-based 

services pursuant to a State plan amendment under such subsection.” By using the word “or” we 

interpret that the statute creates two distinct eligibility groups under section 

1902(a)(10)(A)(ii)(XXII) of the Act with two sets of requirements, as follows: 

(1) Those who are eligible for HCBS under the needs-based criteria established under 

section 1915(i)(1)(A) of the Act; or 

(2) Those who are eligible for HCBS under paragraph (6) of such section, and who will 

receive HCBS pursuant to a State plan amendment under such subsection. 

We believe that we have the following flexibility in defining eligibility for the first subset of this 

group of individuals: 

● The first subset is made up of individuals who are not otherwise eligible for Medicaid. 

We believe that this interpretation is consistent with Congressional intent because this policy 

allows individuals who would not otherwise be eligible for Medicaid because they are not in a 

category (for example, certain adults prior to January 1, 2014) to become Medicaid eligible and 

receive section 1915(i) services. The early option established by section 1902(k)(2) of the Act 

covers individuals who are not otherwise categorically eligible for Medicaid. The new group 

defined in section 1902(a)(10)(A)(i)(VIII) of the Act, which goes into effect in 2014, also will 

cover individuals not eligible under the existing categorical groups listed in section 1902(a)(10) 

of the Act. 

● Even though the description of the eligibility group in the statute at section 

1902(a)(10)(A)(ii)(XXII) of the Act does not explicitly include an income cap we believe that a 

standard of 150 percent of the FPL, which is the same as the current income cap for individuals 
CMS-2249-P2 91 

eligible under the State plan receiving section 1915(i) services, is reasonable. The needs-based 

criteria are described in section 1915(i)(1)(A) of the Act, which provides additional conditions 

for the provision of State plan HCBS under section 1915(i)(1) to individuals who are eligible 

under the State Medicaid plan and whose income does not exceed 150 percent of the FPL. In 

addition, the amendments to section 1915(i) of the Act in section 2402(b) of the Affordable Care 

Act which establish a new option to cover individuals eligible for HCBS under a waiver, gives 

States this option “in addition to continuing to provide such services” to individuals satisfying 

the needs-based criteria. Prior to the effective date of the new eligibility group under section 

1902(a)(10)(A)(ii)(XXII) of the Act, States could only provide HCBS under section 1915(i) to 

those eligible under an existing State plan group whose income did not exceed 150 percent of the 

FPL and who met the needs-based criteria. 

● Section 1902 of the Act requires States to use methods of determining income that are 

reasonable, consistent with the objectives of the Medicaid program, simple to administer, and in 

the best interests of the beneficiary. For purposes of determining income for this group, we 

believe the SSI program’s rules (which are currently used in Medicaid for determining income 

eligibility for individuals aged 65 or older and people with disabilities) meet these criteria. Like 

the individuals covered under the SSI-related Medicaid eligibility category, many individuals 

eligible under this group will have disabilities or chronic illnesses. The SSI program provides 

for a number of income disregards specifically applicable to persons with disabilities that are not 

available under other program methodologies. States may also elect to use less restrictive 

income methodologies than are used under SSI. Any less restrictive methodology should apply 

to all members of the group. 

● While the rules of the SSI program are an example of a methodology that we believe 
CMS-2249-P2 92 

meets the requirements for determining income eligibility for this group, this does not preclude 

States from describing other methodologies in their SPAs that they believe also meet those 

requirements. We encourage States considering the use of other methodologies to discuss them 

with CMS before actually submitting a SPA. 

● The statute does not refer to any resource test for this group and we are proposing that 

States may not apply a resource test in determining eligibility for this subset of the new group. 

We believe that not applying a resource test for this subset would be consistent with the absence 

of a resource test for the eligibility group described under section 1902(a)(10)(A)(i)(VIII) of the 

Act and the option for States to cover such individuals prior to January 1, 2014. 

● The section 1915(i) statute does require that these individuals must receive section 

1915(i) services in order to be eligible for Medicaid. 

● Once eligible for Medicaid in this group, the individual will be eligible for all 

Medicaid services, not just section 1915(i) services. 

The second subset of this group consists of individuals eligible for home and communitybased services under an existing State waiver or demonstration. In determining eligibility for 

individuals with income that does not exceed 300 percent of the SSI/FBR, individuals must be 

eligible for an existing section 1915(c), (d), or (e) waiver or a waiver under section 1115, even 

though they do not have to receive services under these authorities. For individuals with income 

that does not exceed 300 percent of the SSI/FBR, we believe that there is little flexibility under 

the statue in determining eligibility for this subset, therefore-- 

● The individual must be eligible for a section 1915(c) waiver; 

● The State must follow eligibility and post eligibility rules of an approved section 

1915(c) waiver. More information regarding HCBS waiver eligibility and post eligibility rules is 
CMS-2249-P2 93 

available in the HCBS waiver Technical Guide, online at www.hcbswaivers.net; 

● Income and resource rules of the special income level group apply; 

● Section 1902(r)(2) of the Act income disregards do not apply because income 

eligibility under the special income level group is determined using a gross income test that caps 

income at 300 percent of the SSI/FBR; 

● Section 1902(r)(2) of the Act resource disregards apply; 

● The individual must receive section 1915(i) services as a condition of Medicaid 

eligibility; 

● If the State elects to cover individuals with income up to 300 percent of the SSI/FBR, 

it must elect the option under section 1915(i)(6) under the State plan; and 

● The individual will be eligible for all Medicaid services, not just section 1915(i) 

services. 

Additionally, when electing this new eligibility group States will have multiple options. 

States can cover- 

(1) Individuals who meet the needs-based criteria established under section 1915(i)(1)(A) 

of the Act with income up to 150 percent of the FPL and individuals who meet the needs-based 

criteria established under 1915(i)(1)(A) eligible for HCBS under a waiver with income up to 300 

percent of the SSI/FBR; or 

(2) The subset of individuals who meet the needs-based criteria established under section 

1915(i)(1)(A) of the Act with income up to 150 percent of the FPL; or 

(3) The subset of individuals who meet the needs-based criteria established under section 

1915(i)(1)(A) of the Act eligible for HCBS under a waiver with income up to 300 percent of the 

SSI/FBR. 
CMS-2249-P2 94 

In order for States to elect any of the options listed above with respect to the new 

eligibility group, they must continue to cover individuals described in 1915(i)(1). 

This is not the first time that an eligibility group has been treated in this manner; the aged 

or disabled poverty level group described at section 1902(m)(1) of the Act permits States to 

cover aged and disabled individuals, the aged only, or disabled only individuals. 

We invite comment on the eligibility provisions of §435.219 and §436.219 of the 

regulation. 

C. Services: General Provisions (Part 440)

In §440.1, we are proposing to add a reference to a new statutory basis to read "1915(i) 

HCBS furnished under a State plan to elderly and disabled individuals under the provisions of 

part 441, subpart L." 

In §440.180, we are proposing to revise the heading "Home or community-based 

services" to read "Home and community-based waiver services" to standardize the term "home 

and community-based services" and clarify that this section concerns only HCBS provided 

through 1915(c) waivers. 

In part 440 subpart A, we are proposing to add §440.182, "State plan home and 

community-based services”, which would define a new optional Medicaid service for which FFP 

is available to States, as specified in part 441, subpart K. 

In §440.182(a), we propose that the services authorized in section 1915(i) of the Act, and 

meeting the requirements outlined in proposed subpart K, be known as "State plan home and 

community-based services.” When referring to the specific service(s) offered under the State 

plan HCBS benefit listed in §440.180(b), we use the term "State plan HCBS." When referring to 

overall State activities under section 1915(i) of the Act as described in subpart K, we use the 
CMS-2249-P2 95 

term "benefit", or “State plan HCBS benefit”. 

In §440.182(b) and §440.182(c)(1), we propose that the optional State plan HCBS benefit 

may consist of any or all of the HCBS listed in section 1915(c)(4) for waiver programs, as 

specified in regulation at §440.180. Because section 1915(i) of the Act defines services by 

reference to section 1915(c) of the Act, we believe that the regulatory requirements should be 

parallel, except for the "other" services which the Secretary has the authority to approve for an 

HCBS waiver. In HCBS waivers, other services must be cost-effective and must be necessary to 

prevent institutionalization. However, the State plan HCBS does not require cost-neutrality and 

some individuals will be eligible for section 1915(i) of the Act without meeting an institutional 

LOC. Therefore, we list the permitted services for the State plan HCBS benefit in §440.182 

identically to the services specified in §440.180 for HCBS waivers, except for “other” services. 

We require “other” services to be appropriate for individuals who meet the needs-based criteria 

that the State defines for the benefit. We further specify that the conditions set forth in 

§440.180(b) for services to individuals with chronic mental illness, and in §440.180(c) for 

expanded habilitation services, apply to State plan HCBS services. 

In particular, due to concern over duplication of habilitation services and the Statedefined “other services,” we propose to require at §441.662(a)(7) and §441.662(a)(8) (regarding 

requirements for independent assessment), explanations of the manner in which non-duplication 

of services will be documented in the assessment of each individual receiving habilitation 

services or Secretary approved other services. Additionally, since some individuals may be 

simultaneously receiving services through a HCBS waiver and the section 1915(i) benefit, we 

require in §441.662(a)(9) documentation that the services provided through 1915(c) and 1915(i) 

authorities may not be duplicative for the same individual. This would also include coordination 
CMS-2249-P2 96 

of assessments, service plan development, and case-management to ensure that individuals 

receiving services under both authorities are not subject to multiple assessments and service 

plans. 

Section 1915(i) of the Act prohibits reimbursement for room and board. At §440.182(c), 

we propose to state that, except for respite care furnished in a setting approved by the State that 

is not the individual’s residence, no service or combination of services may be used to furnish 

room and board through the State plan HCBS benefit. When meals are furnished as an integral 

component of the service, we are proposing to permit the State to consider the cost of food in the 

rate it pays for the State plan HCBS, as the cost is then considered part of the service itself. We 

would not consider the meal to be an integral part of the State plan HCBS when two rates are 

charged to the public, one that includes a meal and one that does not include a meal. 

Finally, we propose that a State may claim FFP for a portion of the rent and food 

expenses that may be reasonably attributed as a service cost to compensate an unrelated 

caregiver providing State plan HCBS, who is residing in the same household with the recipient. 

We propose, as is permitted in HCBS waivers under section 1915(c)(1) and §441.310(a)(2)(ii), 

that FFP is available only for the reasonable additional rent and food costs of the caregiver 

residing in the recipient’s home, not to support the cost of a caregiver’s household in which the 

recipient resides. We would therefore provide that FFP not be available for caregiver rent and 

food costs when the residence is owned or leased by the caregiver. 

D. Services: Requirements and Limits Applicable to Specific Services (Part 441) 

In April 4, 2008, we issued a proposed rule in the Federal Register titled “Medicaid 

Program; Home and Community-Based State Plan Services.” In that proposed ruled, we 

specified that we would set forth our proposals in 42 CFR part 441initially proposed in new 
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subpart K titled "State Plan Home and Community-Based Services for Elderly and Disabled 

Individuals," consisting of §441.650 through §441.677, which describes requirements for 

providing the State plan HCBS benefit. This construction parallels that for HCBS waivers, 

which are the subject of subpart G of part 441. Subsequently, we published a proposed rule (76 

FR 10736) on February 25, 2011 in the Federal Register titled “Medicaid Program; Community 

First Choice Option,” which also proposed the addition of subpart K to part 441. Therefore, we 

are proposing to specify that the proposed provisions for the “State Plan Home and CommunityBased Services for Elderly and Disabled Individuals” in subpart K under §441.550 through 

§441.577 be redesignated as subpart L (§441.650 through §441.677), 

In this new subpart, it is necessary in several paragraphs to indicate that certain 

provisions apply to an individual or an individual’s representative. To reduce redundancy, we 

indicate in those paragraphs that "individual" means the eligible individual and, if applicable, the 

individual’s representative, to the extent of the representative’s authority recognized by the State. 

“Individual and representative” more accurately convey the person-centered process than 

“individual or representative”. This provision clarifies that there is no implication that 

individuals will or will not have representatives. 

E. Basis and purpose (§441.650)

We set forth in §441.650 language to implement the provisions of section 1915(i) of the 

Act permitting States to offer HCBS to qualified elderly and disabled individuals under the State 

plan. Those services are listed in §440.182, and are described by the State, including any 

limitations of the services. This optional benefit is known as the State plan HCBS benefit. This 

subpart describes what a State Medicaid plan must provide, and defines State responsibilities. 

F. State Plan Requirements (§441.653)
CMS-2249-P2 98 

In §441.653, we propose that a State plan that includes HCBS for elderly and disabled 

individuals must meet the requirements of this subpart. We would require that the State plan 

amendment in which the State establishes the State plan HCBS benefit satisfy the requirements 

set forth in this proposed regulation. 

G. Eligibility for Home and Community-based Services under Section 1915(i)(1) of the Act 

(§441.656)

We propose in §441.656 (a)(1) to require that if the State Medicaid agency elects to 

provide the 1915(i) HCBS benefit, it must provide services to categorically needy individuals 

who are eligible for Medicaid under an eligibility group that is covered under its State Medicaid 

plan and who have income that does not exceed 150 percent of the FPL. The State may also 

elect to provide the section 1915(i) HCBS benefit to medically needy individuals. 

To implement the intent of the Congress that the benefit be "home and communitybased," we would require in §441.656(a) that the individual reside in the home or community, 

not in an institution, according to quality principles for community-based settings prescribed by 

the Secretary. As discussed in section II.E.2. of this proposed rule, there are a variety of living 

arrangements that promote independence and community integration, as well as arrangements 

that do not. 

We would require in §441.656(b) that the individual must meet the needs-based 

eligibility criteria as set forth in §441.659. We propose in §441.656(c) that individuals are not 

eligible for the State plan HCBS benefit until they have met all eligibility requirements, 

including the need for at least one service provided under the State plan as part of the HCBS 

benefit at a frequency identified by the State. Finally, we require that, in the event that a State 
CMS-2249-P2 99 

elects not to apply comparability requirements to the benefit, an individual must meet the Statedefined and CMS approved targeting criteria in order to establish eligibility. 

We propose in §435.219(b) and §436.219(b) that States may elect under section 

1915(i)(6) of the Act the option to provide home and community-based State plan services to 

individuals eligible under a section 1915(c),(d),(e) or section 1115 waiver who have income up 

to 300 percent of the SSI/FBR. 

We also propose in §441.656(e)(1) that States may elect to follow institutional income 

and resource eligibility rules for the medically needy living in the community. Nonapplication 

of the requirements of section 1902(a)(10)(C)(i)(III) of the Act allows States to treat medically 

needy individuals as if they are living in an institution by not deeming income and resources 

from an ineligible family member. We use the term "not to apply" instead of "waive" since this 

is an election made by the State and does not require a waiver by the Secretary. We further 

propose that States may elect not to apply section 1902(a)(10)(B) of the Act, concerning 

comparability of services in Medicaid, which permits the State plan HCBS benefit to be targeted 

towards specific populations. In this section, we indicate that a State may elect to establish 

targeting criteria for the section 1915(i) benefit and for any specific services within that benefit, 

subject to CMS approval, based on factors such as age, diagnosis, and/or disability. These 

criteria provide States with the option to provide State plan HCBS services to specific 

populations, including specific Medicaid eligibility groups, but allows flexibility to combine 

multiple target groups within one benefit and to provide different services to each group. 

Targeting criteria cannot have the impact of limiting the pool of qualified providers from which 

an individual would receive services, or have the impact of requiring an individual to receive 

services from the same entity from which they purchase their housing. 
CMS-2249-P2 100 

H. Needs-based Criteria and Evaluation (§441.659)

The statute uses a number of terms at times interchangeably. In general, in §441.659 we 

adopt the wording used most frequently in the law, and specify a term for each requirement. For 

example, regarding the terms "assessment" and "evaluation," we would adopt the language in 

section 1915(i)(1)(H)(ii) of the Act, which refers to the "independent evaluation" and the 

"independent assessment." 

1. Needs-based eligibility criteria 

In §441.659(a), we propose that States establish needs-based criteria for determining an 

individual’s eligibility under the State plan for HCBS, and may establish needs-based criteria for 

each specific service. We do not define support needs, as we believe that States should have the 

flexibility to match eligibility criteria to the nature of the services they would provide under the 

HCBS benefit. By statute, the needs-based criteria would consist of needs for specified types of 

support, such as assistance with ADLs, IADLs, or other risk factors defined by the State. We 

propose to require that State-defined risk factors affecting eligibility may be included as needsbased eligibility criteria in the State plan amendment. While we do not propose requirements for 

State-defined risk factors, we believe that as needs-based criteria, risk factors should be related to 

support needs, such as lack of availability of family members or other unpaid caregivers willing 

and able to provide necessary care. 

We distinguish support needs from other types of characteristics. We propose that a 

distinguishing characteristic of needs-based criteria is that they can only be ascertained for a 

given person through an individual evaluation. This differentiates a targeting criterion such as a 

diagnosis, which many individuals may identically share, from a support need, which will vary 

widely among those individuals with the same diagnosis. 
CMS-2249-P2 101 

We note that the regulation requires only that the needs-based criteria for the State plan 

HCBS benefit establish the lowest threshold of need to enroll in the benefit. There is an upper 

limit of need to be eligible for the HCBS benefit only if the State so specifies in the needs-based 

eligibility criteria. The more stringent institutional criteria required in §441.559(b) of this 

section do not constitute an upper limit of need to be eligible for the State plan HCBS benefit. 

The institutional criteria are only a lowest threshold of need to receive institutional services. We 

also note that section 1915(i)(1) of the Act clarifies that State plan HCBS are not required to be 

direct alternatives to institutional care. The statute specifically provides that the State plan 

HCBS benefit does not need to meet the section 1915(c) requirement that, but for the services 

provided under the HCBS waiver, the individual would require institutional care. 

2. More stringent institutional and waiver needs-based criteria 

In §441.659(b), we propose that the State plan HCBS benefit is available to a State only 

if individuals may demonstrate a lower level of need to obtain State plan HCBS than is required 

to obtain institutional or waiver services. States that have functional LOC criteria for institutions 

(that meet the requirements in §441.659(a)(1)), may have no need to modify their existing 

institutional criteria so long as the needs-based eligibility criteria established for State plan 

HCBS are less stringent. States without need-based institutional LOC criteria must add needbased requirements to their LOC assessments in order to establish the State plan HCBS benefit. 

We propose in §441.659(b) to define by reference to statute and regulation the 

institutions for which section 1915(i) of the Act requires more stringent eligibility criteria. NF 

and ICF/MR are so cited. We interpret the reference in section 1915(i)(1)(B) of the Act to 

hospitals to mean facilities certified by Medicaid as hospitals that are providing long-term care 

services or services related to the HCBS to be provided under the benefit. The proposed 
CMS-2249-P2 102 

regulation requires that States have or establish for such hospitals (if any), needs–based criteria 

for admission that are more stringent than those for eligibility in the State plan HCBS benefit. 

We further propose, when the State covers more than one service in the State plan HCBS benefit, 

to require that any needs-based criteria for individual HCBS may not have the effect of limiting 

who can benefit from the State plan HCBS in an unreasonable way, as determined by the 

Secretary. 

In §441.659(b), we further propose to require that the more stringent needs-based criteria 

for institutions and waivers be part of the State’s LOC processes, to ensure that the criteria are 

uniformly utilized. We would require that these more-stringent needs-based criteria be 

submitted for comparison with the State plan amendment that establishes the State plan HCBS 

benefit. We note that needs-based criteria, as defined in §441.659(a) require an evaluation to 

determine the individual’s support needs. Therefore, the assessment process for institutional 

levels of care that include needs-based criteria must include an individual evaluation of support 

needs. We also propose to require that the State’s more stringent institutional and waiver needsbased criteria be in effect by the effective date of the State plan HCBS benefit8

. 

Finally, in §441.659(b)(2), we propose that if a State modifies its institutional level of 

criteria in order to satisfy the requirement that the levels of care be more stringent than the 

needs-based eligibility criteria for the State plan HCBS benefit, the States may continue to 

receive FFP when serving individuals who were eligible under the previous criteria. Exemption 

from the more stringent criteria is indefinite, but ends when the individual is discharged from the 

facility or waiver, the individual becomes ineligible for Medicaid due to factors unrelated to the 

LOC determination, or the individual no longer meets the criteria for the applicable LOC. We 

 

8 Although not included in the regulation, we would caution states against raising the LOC due to the maintenance 

of eligibility requirements included in the Affordable Care Act. 
CMS-2249-P2 103 

note that in long-term care facilities a transfer is not a discharge and would not cause the 

individual to lose this exemption. Similarly, if an individual transitions from an institution to a 

waiver it would not result in a separate LOC, and would not cause the individual to lose this 

exemption. States would determine the effect of any subsequent changes to general LOC 

requirements (unrelated to the more stringent criteria) upon individuals with this exemption. 

Additionally, nothing in this subsection would prevent the State from determining whether the 

person remains eligible for Medicaid based on other factors, such as income or residency. 

3. Adjustment authority 

In §441.659(c), we propose to permit States under certain conditions to adjust, without 

prior approval from the Secretary, the needs-based eligibility criteria and service criteria (if any) 

established under §441.659(a), in the event that the State experiences enrollment in excess of the 

number projected to be served by the HCBS benefit. We propose a retroactive effective date, as 

approved by the Secretary, for the State plan amendment modifying the needs-based criteria 

under §441.659(c)(1). We set forth the following conditions required by the statute. 

The State must provide for at least 60 days notice to the Secretary, the public, and we 

would propose to require, each enrollee. Since the effect of adjusted criteria would be to reduce 

the scope of services, eligibility for services, or eligibility for the entire State plan HCBS benefit, 

the adjusted criteria established under this subsection would not apply to individuals already 

enrolled in the State plan HCBS. If the State also adjusts institutional levels of care, the adjusted 

institutional levels of care may not be less stringent than the institutional LOC prior to the 

effective date of the State plan HCBS benefit. 

Additionally, in §441.659(b), we indicate that any changes to the institutional LOC 

criteria under the State adjustment authority contained in §441.659(c) are subject to the same 
CMS-2249-P2 104 

requirements as an adjustment to the institutional LOC criteria under §441.659(b). 

In §441.659(c), we further propose to explicitly require that the adjusted needs-based 

eligibility criteria for the State plan HCBS benefit must be less stringent than needs-based 

institutional LOC criteria in effect at the time of the adjustment. 

We propose that the notice to the Secretary be submitted as a State plan amendment. In 

order to implement the adjustment authority without prior approval of the Secretary, the 

Secretary would approve a State plan amendment adjusting the needs-based HCBS benefit 

eligibility criteria with a retroactive effective date, as early as 60 days after the State notified 

each enrollee, the Secretary, and the public, (or whichever is later). Under the provision of 

section 1915(i)(1)(D)(ii) of the Act, the Secretary will evaluate the State’s adjusted criteria for 

compliance with the provisions of this paragraph and subpart L. We also note that while the 

State may under this provision implement the adjusted criteria as early as 60 days after 

notification and before the State plan amendment is retroactively approved, the State is at risk for 

any actions it takes that are later disapproved. 

Finally, we would require that the State notify affected individuals of their right to a fair 

hearing in accordance with 42 CFR part 431, subpart E. 

4. Independent evaluation and determination of eligibility 

In §441.659(d), we propose that eligibility for the State plan HCBS benefit be determined 

by an independent evaluation of each individual, applying the general eligibility requirements in 

§441.656 of this subpart, and the needs-based criteria that the State has established under 

§441.659(a). Independence of the review requires meeting the conflict of interest standards set 

forth in §441.568, where provider qualifications for evaluators are specified. 

The evaluation must assess an individual’s support needs and strengths. We interpret this 
CMS-2249-P2 105 

provision of the statute to indicate that the evaluation process draws conclusions about supports 

that the individual requires because of age or disability, and supports that the individual does not 

require because of abilities to perform those functions independently. The evaluation compares 

those conclusions with the needs-based eligibility criteria for the State plan HCBS benefit to 

determine eligibility for the benefit. Section 1915(i)(1)(D)(i) of the Act provides that the State 

may take into account the need for significant assistance to perform ADLs, indicating that the 

statute does not require that eligibility be dependent upon assistance for ADLs. 

We note that appraisal of whether an individual has need for, and meets additional needsbased criteria (if any) for specific HCBS offered under the benefit, is part of the independent 

assessment and service plan development process. However, this assessment affects eligibility 

for the benefit in that we propose at §441.656(a)(ii)(5) that individuals are considered enrolled in 

the State plan HCBS benefit only if they are assessed to require at least one home and 

community-based service offered under the State plan benefit in addition to meeting the 

eligibility and needs-based criteria for the benefit. 

The evaluation process designed by the State would reflect the nature of the State plan 

HCBS benefit designed by the State. However, in order to meet the forgoing requirements, all 

independent evaluations require specific information about each individual’s support needs, 

sufficient to draw the appropriate conclusions. In some cases this information may be well 

documented and current in the individual’s existing records. In other cases, we would require 

that the evaluator obtain this information by whatever means are appropriate to secure a valid 

appraisal of the individual’s current needs. This requirement could include professional 

assessment of certain functional abilities. State evaluation procedures that rely solely on review 

of medical records would not meet these requirements. 
CMS-2249-P2 106 

5. Periodic redetermination 

In §441.659(e), we propose that individuals receiving the State plan HCBS benefit must 

be reevaluated at a frequency defined by the State, but not less than every 12 months, to 

determine whether the individuals continue to meet eligibility requirements. The independent 

reevaluations must meet the requirements for initial independent evaluations specified in 

§441.659(d). 

I. Independent assessment (§441.662)

In §441.662, we propose requirements for independent assessment of need of each 

individual who has been determined by the independent evaluation to be eligible for the State 

plan HCBS benefit. The purpose of the assessment is to obtain, in combination with the findings 

of the independent eligibility evaluation, all the information necessary to establish a service plan. 

The assessment is based on the needs of the individual, which we believe precludes assessment 

protocols that primarily determine diagnoses, or only assess function. Assessment protocols 

must not assign supports automatically by functional limitation. The independent assessment 

must determine the specific supports needed to address the individual’s unique circumstances 

and needs, including other services available through Medicaid and other State and Federal 

programs. 

The assessment also applies the State’s needs-based criteria (if any) for each service. We 

propose that an individual be considered enrolled in the State plan HCBS benefit only if the 

assessment finds that the individual needs and meets the needs-based criteria (if any) for at least 

one State plan HCBS. This proposed requirement is to provide States with a mechanism to 

prevent the situation of an individual being eligible for the State plan HCBS benefit but not able 

to receive any of the services it offers; or for establishing Medicaid eligibility through the benefit 
CMS-2249-P2 107 

without actually receiving State plan HCBS services. Such a circumstance could, among other 

problems, be of no utility to the individual, and may make it difficult for the State to meet an 

assessed need. Furthermore, the eligibility group defined in section 1902(a)(10)(a)(ii)(XXII) of 

the Act requires an individual to receive State plan HCBS in order to establish Medicaid 

eligibility through that category. 

We propose to require in §441.662(a)(1) that the assessment include a face-to-face 

meeting with the individual ("individual" meaning in this context, if applicable, the individual 

and the individual's authorized representative). We further propose that a “face-to-face” meeting 

could be performed through telemedicine or other information technology medium, if the health 

care professional performing the assessment meets provider qualifications that includes 

additional training requirements for the operation of the information technology, the individual 

receives support during the assessment including the use of any necessary on-site staff, and the 

individual provides informed consent. In §441.662(a)(1)(i), we propose to require that the 

assessment is performed by an agent that is independent and qualified as defined in §441.668. 

The assessment is to be guided by best practice and research on effective strategies that result in 

improved health and quality of life outcomes. We further propose that the assessment includes 

consultation, as appropriate, with other responsible parties. The assessment must include an 

examination of the individual’s relevant history, medical records, and care and support needs, 

including the findings from the independent eligibility evaluation. 

If self-direction of services is offered by the State and elected by the individual, the 

independent assessment must include a self-direction appraisal as described in §441.674. 

For individuals receiving habilitation services, we propose to require documentation that 

no services are provided under Medicaid that would otherwise be available to the individual, 
CMS-2249-P2 108 

specifically including but not limited to services available to the individual through a program 

funded under section 110 of the Rehabilitation Act of 1973. We believe that these 

documentation requirements would provide a clear method for States to comply with Federal 

requirements, focus only on the individuals for whom these circumstances could apply, and 

would not add significantly to the burden of the assessment. We further propose that the 

assessment must ensure that services received through Secretary-approved “other” services are 

not duplicative of any other services provided through the Medicaid State-plan or through 

another State or Federal program. We note that extended State plan services would not be 

considered duplicative, since those services are not available to individuals through the State 

plan. We further note that payments must also be in accordance with section1903(c) of the Act. 

Finally, we require that the assessment must ensure that any individual simultaneously enrolled 

in State plan HCBS and receiving HCBS through a waiver does not receive duplicative services. 

We would include case management, assessment, and service plan development in the services 

that may not be duplicative. This does not necessarily mean that an individual cannot have more 

than one case manager, but instead is meant to ensure that services are coordinated across 

multiple programs, and that individuals are not required to develop multiple service plans. 

Finally, in §441.662(b), we propose to require that the independent assessment of need is 

conducted at least every 12 months and as needed when the individual’s needs and circumstances 

change significantly, in order to revise the service plan. 

J. Service plan (§441.665)

In §441.665 we propose to require that based on the independent assessment specified in 

§441.662, the State develops (or approves, if the plan is developed by others) a service plan 

through a person-centered planning process. 
CMS-2249-P2 109 

We propose that the service plan must be developed jointly with the individual. While 

we propose several specific requirements for the process of developing a service plan, we note 

that the intent of these requirements is to ensure a process with shared authority between the 

individual and the agency or agent. To achieve this intent, States must affirmatively and 

creatively work to establish such shared authority. 

The assessment must include consultation with appropriate persons. While we include 

examples, we do not propose any required or excluded category of persons to consult. When the 

service plan is finalized between the parties, a written copy is provided to the individual. 

Also, in §441.665(a), we propose certain content to be required in the service plan. The 

person-centered service plan must identify the specific State plan HCBS to be provided to the 

individual, that take into account the individual’s strengths, preferences, needs (clinical and 

support), and desired outcomes. We are proposing that the service plan should be constructed in 

a manner that promotes service delivery and independent living in the most integrated setting 

possible. Therefore, we propose that the plan must not only address medical and support needs, 

but should also reflect other individual goals related to community living to the extent that 

services covered under the State Medicaid plan would be available to support such goals. In the 

planning process, the degree of assistance with ADLs available to the individual outside of the 

State plan HCBS benefit may be taken into account in planning the scope and frequency of 

HCBS to be provided. Thus, the service plan provides for all needed services to the individual 

while preventing provision of duplicative or unnecessary services. 

We propose a single service plan for both self-directed and non self-directed services. 

When individuals self-direct some or all of their HCBS, the service plan includes the information 

required in §441.674. 
CMS-2249-P2 110 

We further propose to require that the service plan be reviewed and revised at least every 

12 months, and as needed when the individual’s circumstances or needs change significantly. 

Finally, we propose that the individual must share the authority for developing and 

implementing the service plan. This shared authority increases the individual’s self-efficacy and 

involvement in the activities and outcomes contained within the service plan. 

K. Provider qualifications (§441.668)

In §441.668, we propose to require that the State provide assurance that necessary 

safeguards have been taken to protect the health and welfare of the enrollees in State plan HCBS 

by provision of adequate standards for all types of providers of HCBS. States must define 

qualifications for providers of HCBS services, and for those persons who conduct independent 

evaluation of eligibility for State plan HCBS, independent assessment of need, and are involved 

with developing the service plan. 

We propose at §441.668(b) and (c) to require minimum qualifications for individuals and 

agencies who conduct independent evaluation of eligibility for State plan HCBS, independent 

assessment of need, and are involved with developing the service plan. We will refer to these 

individuals and entities involved with determining access to care as “agents” to distinguish this 

role from providers of services. We believe that these qualifications are important safeguards for 

individuals enrolled in the State plan HCBS benefit and propose that they be required whether 

activities of the agents are provided as an administrative activity or whether some of the 

activities are provided as a Medicaid service. At a minimum, these qualifications include 

conflict of interest standards, and for providers of assessment and service plan development, 

these qualifications must include training in assessment of individuals whose physical or mental 

condition may trigger a need for HCBS and supports, and an ongoing knowledge of current best 
CMS-2249-P2 111 

practices to improve health and quality of life outcomes. 

The minimum conflict of interest standards we propose to require ensure that the agent is 

not a relative of the individual or responsible for the individual’s finances or health-related 

decisions. The standards also require that the agent must not hold financial interest in any of the 

entities that provide care. Relatives and decision makers are required to be permitted in the 

assessment and planning process, as appropriate, but we do not see any necessity or value in 

family members being responsible for evaluation, assessment, or planning. Our experience with 

HCBS in waivers indicates that assessment and service plan development should not be 

performed by providers of the services prescribed. However, we recognize that in some 

circumstances there are acceptable reasons for a single provider of service that performs all of 

those functions. In this case, the Secretary would require the State Plan to include provisions 

assuring separation of functions within the provider entity. 

L. Definition of Individual’s Representative (§441.671)

In §441.671, we propose to define the term "individual’s representative" to encompass 

any party that is authorized to represent the individual for the purpose of making personal or 

health care decisions, either under State law or under the policies of the State Medicaid agency. 

We do not propose to regulate the relationship between an individual enrolled in the State plan 

HCBS benefit and his or her authorized representative, but note that States should have policies 

to assess for abuse or excessive control and ensure that representatives conform to applicable 

State requirements. We note that States must not refuse to allow a freely-chosen person to serve 

as a representative unless the State has tangible evidence that the representative is not acting in 

the best interest of the individual, or that the representative is incapable of performing the 

required functions. 
CMS-2249-P2 112 

M. Self-directed Services (§441.674) 

We propose in §441.674 to permit States to offer an election for self-directing HCBS. 

We propose regulations containing the specific requirements for self-direction found in section 

1915(i)(1)(G)(iii) of the Act. In §441.674(a), we define "self-direction." Provisions related to 

self-direction apply to an individual or an individual’s representative. In §441.674(b), we 

propose that when an individual chooses self-direction, the independent assessment and personcentered planning required under §441.662 and §441.665 would include examination of the 

support needs of the individual to self-direct the purchase of, or control the receipt of, such 

services. The evaluation should not reject election to self-direct based solely on the individual’s 

disability or a manifestation of his or her disability. We therefore propose to require that the 

evaluation for self-direction result in a determination of ability to self-direct both with and 

without specified supports. 

These regulations are consistent with our policy for self-direction under section 1915(c) 

HCBS waivers. We propose to require in §441.674(b) that the service plan indicate the HCBS to 

be self-directed and the methods by which the individual will plan, direct, or control the services; 

the role of family or others who will participate in the HCBS; and risk management techniques. 

Our experience with HCBS waivers indicates that contingency plans are an important protection 

for the individual, in the absence of an agency that would otherwise be responsible for absent 

workers or other common problems. Contingency plans are most effective when designed for 

the unique circumstances of each self-directing individual. We propose that the service plan 

describe the process for facilitating voluntary and involuntary transition from self-direction. 

When the service plan is finalized between the parties, a written copy is provided to the 

individual, as required in the proposed plan on care requirements at §441.665(a). 
CMS-2249-P2 113 

In §441.674(c) and (d), we define self-direction of services in terms of employer 

authority and budget authority, as we have with self-directed HCBS in Medicaid section 1915(c) 

waivers. In §441.674(c), employer authority is defined as the ability to select, manage, or 

dismiss providers of the State plan HCBS. We propose that the service plan must specify the 

authority to be assumed by the individual and the individual’s representative, any parties 

responsible for functions outside the assumed authority, and the financial management supports 

to be provided as required in §441.674(e). 

In §441.674(d), we propose to define budget authority as an individualized budget which 

identifies the dollar value of the services and supports under the control and direction of the 

individual. We propose that the service plan must specify the method for calculating the dollar 

values in the budget, a process for adjusting the budget to reflect changes in assessment and 

service plan, a procedure to evaluate expenditures under the budget, and the financial 

management supports, as required in §441.674(e), to be provided. We clarify here that while 

budget authority grants control of expenditures to the individual, it does not include performing 

the transactions or conveying cash to the individual or representative. 

In §441.674(e), we propose to define functions in support of self-direction that the State 

must offer, based on our experience with self-directed HCBS in section 1915(c) waivers and 

section 1115 demonstrations. These provisions are required in order to equip individuals for 

success in managing their services, and to comply with Federal, State, and local requirements, 

particularly the many tax, labor, and insurance issues that arise when the self-directing individual 

is the employer of record. Supports for self-direction should provide the technical expertise and 

business functions that will free individuals to exercise choice and control over their experience 

of the HCBS provided to them. 
CMS-2249-P2 114 

N. State Plan HCBS Administration: State Responsibilities and Quality Improvement 

(§441.677) 

1. State responsibilities 

We would require in §441.677(a)(1)(i) that the State annually provide CMS with the 

projected number of individuals to be enrolled in the benefit, and the actual number of 

unduplicated individuals enrolled in the State plan HCBS benefit in the previous year. 

Section 1915(i) of the Act authorizes a State to elect not to apply comparability 

requirements, thus permitting States to target the entire 1915(i) benefit, specific services within 

the benefit, or both. We clarify in §441.677(a)(1)(ii) that the State may not limit enrollee access 

to services in the benefit for any reason other than assessed need or targeting criteria. This 

includes the requirement that services be provided to all individuals who are assessed to meet the 

targeting criteria and needs-based criteria, regardless of income. This is an important distinction 

between the limits States place on the services to be offered when they design the benefit, as 

opposed to limiting access to the services that are in the benefit for particular enrolled 

individuals. As discussed in section II.E.1 of this proposed rule, States have a number of 

permitted methods to control utilization. We propose that once an individual is found eligible 

and enrolled in the benefit, access to offered services can only be limited by medical necessity. 

Medical necessity in the State plan HCBS benefit is determined by the needs-based criteria, as 

evaluated by the independent assessment and person centered service plan. By not limiting 

access, we mean that an enrollee must receive any or all of the HCBS offered by the benefit, in 

scope and frequency up to any limits on those services defined in the State plan, to the degree the 

enrollee is determined to need them. Enrollees should receive no more, and no fewer, HCBS 

than they are determined to require. We note that one function of the service plan as proposed at 
CMS-2249-P2 115 

§441.665(a)(3) is to prevent the provision of unnecessary, duplicative, or inappropriate care. 

2. Administration 

We propose in §441.677(a)(2)(i) an option for presumptive payment. In accordance with 

section 1915(i) of the Act, the State may provide for a period of presumptive payment, not to 

exceed 60 days, for evaluation of eligibility for the State plan HCBS benefit and assessment of 

need for HCBS. This period of presumptive payment would be available for individuals who 

have been determined to be Medicaid eligible, and whom the State has reason to believe may be 

eligible for the State plan HCBS benefit. We propose that FFP would be available for evaluation 

and assessment as administration of the approved State plan prior to an individual’s 

determination of eligibility for and receipt of other 1915(i) services. If the individual is found 

not eligible for the State plan HCBS benefit, the State may claim the evaluation and assessment 

as administration, even though the individual would not be considered to have participated in the 

benefit for purposes of determining the annual number of individuals served by the benefit. FFP 

would not be available during this presumptive period for receipt of State plan HCBS. 

In §441.677(a)(2)(ii), we indicate that a State may elect to phase-in the provision of 

services or the enrollment of individuals if the State also elects not to apply comparability 

requirements and to target the benefit to specific populations. However, there is no authority to 

limit the numerical enrollment in the benefit or to create waiting lists. Therefore, we propose 

that any phase-in of services may not be based on a numerical cap on enrollees. Instead, a State 

may choose to phase-in the benefit or the provision of specific services based on the assessed 

need of individuals, the availability of infrastructure to provide services, or both. Infrastructure 

is defined as the availability of qualified providers or of physical structures and information 

technology necessary to provide any service or set of services. 
CMS-2249-P2 116 

A State that elects to phase-in the benefit must submit a plan, subject to CMS approval, 

that details the criteria used for phasing in the benefit. In the event that a State elects to phase-in 

the benefit based on needs, all individuals who meet the criteria described in the phase-in plan 

must receive services. If a State elects to phase-in services based upon infrastructure, the plan 

must describe the capacity limits, strategies to increase capacity, and must assure that services 

will be provided to all individuals who are able to acquire a willing and qualified provider. Any 

phase-in plan must provide assurance that the benefit, and all included services, will be available 

statewide to all eligible individuals within the first 5-year approval period. 

In §441.677(a)(2)(iii), we propose that a State plan amendment submitted to establish the 

State plan HCBS benefit must include a reimbursement methodology for each covered service. 

In some States, reimbursement methods for self-directed services may differ from the same 

service provided without self-direction. In such cases, the reimbursement methodology for the 

self-directed services must also be described. 

In §441.677(a)(2)(iv), we propose that the State Medicaid agency describe the line of 

authority for operating the State plan HCBS benefit. The State plan HCBS benefit requires 

several functions to be performed in addition to the service(s) provided, such as eligibility 

evaluation, assessment, and developing a service plan. To the extent that the State Medicaid 

agency delegates these functions to other entities, we propose that the agency describe the 

methods by which it will retain oversight and responsibility for those activities, and for the 

operation and quality improvement of the benefit as a whole. 

In §441.677(a)(2)(v), we include a provision regarding the effective dates of amendments 

with substantive changes. Substantive changes may include, but are not limited to changes in 

eligible populations, constriction of service amount, duration or scope, or other modifications as 
CMS-2249-P2 117 

determined by the Secretary. We would add regulatory language reflective of our guidance that 

1915(i) amendments with changes that CMS determines to be substantive may only take effect 

on or after the date when the amendment is approved by CMS, and must be accompanied by 

information on how the State has assured smooth transitions and minimal adverse impact on 

individuals impacted by the change. 

In §441.677(a)(2)(vi), we indicate that State plan amendments including targeting criteria 

are subject to a 5-year approval period and that successive approval periods are subject to CMS 

approval, contingent upon State adherence to Federal requirements. In order to renew State plan 

HCBS for an additional 5-year period, the State must provide a written request for renewal to 

CMS at least 180 days prior to the end of each approval period. 

3. Quality improvement strategy 

We propose in §441.677(b) the guidelines for quality assurance required in the statute at 

section 1915(i)(1)(H)(i) of the Act. We propose to require a State, for quality assurance 

purposes, to maintain a quality improvement strategy for its State plan HCBS benefit. The 

State’s quality improvement strategy should reflect the nature and scope of the benefit the State 

will provide. 

We propose that the State plan HCBS benefit include a quality improvement strategy 

consisting of a continuous quality improvement process, and outcome measures for program 

performance, quality of care, and individual experience, as approved and prescribed by the 

Secretary, and applicable to the nature of the benefit. 

In §441.677(b), we propose to require States to have program performance measures, 

appropriate to the scope of the benefit, designed to evaluate the State’s overall system for 

providing HCBS. “Program performance” measures can be described as process and 
CMS-2249-P2 118 

infrastructure measures, such as whether plans of care are developed in a timely and appropriate 

manner, or whether all providers meet the required qualifications to provide services under the 

benefit. In §441.677(b)(1), we also propose to require States to have quality of care measures as 

approved or prescribed by the Secretary. Quality of care measures may focus on program 

standards, systems performance, and individual outcomes. 

P. Section 2601 of the Affordable Care Act: 5-Year Period for Demonstration Projects: Waiver 

Requirements (§430.25)

 Section 2601 of the Affordable Care Act provides the opportunity for the Secretary to 

approve certain waivers for periods of up to 5 years. The proposed regulation includes an 

addition at §430.25(h)(2)(i) and §430.25(h)(2)(ii) to indicate the availability of extended 

approval periods for initial section 1915(c) waivers which are currently approved for 3-year 

periods (the renewals are already 5-year intervals), and for initial and renewal section 1915(b) 

waivers, which are currently approved for 2-year periods. In all cases, the extended approval 

period is only available for waivers that provide medical assistance to dual eligible individuals, 

and that meet all applicable statutory, regulatory, quality and programmatic requirements. The 

current §430.25(h)(2)(ii) also includes reference to section 1916 of the Act, which remains 

unchanged by the Affordable Care Act. As such, we have created a new §430.25(h)(2)(iii) to 

retain the original regulatory text specific to section 1916 of the Act. 

Q. Prohibition Against Reassignment of Provider Claims (§447.10) 

Under title XIX of the Act, State Medicaid programs generally can only pay for 

Medicaid-covered practitioner services through direct payments to the treating practitioners. 

States can develop payment rates that include considerations for costs related to health and 

welfare benefits, training, and other costs. Consistent with the statutory provision at 
CMS-2249-P2 119 

section 1902(a)(32) of the Act, and reflected in current regulations at §447.10, the entire rate 

must be paid to the individual practitioner who provided the service, unless certain statutory 

exceptions apply. 

With respect to classes of practitioners for whom the State’s Medicaid program is the 

only or primary payer, the ability of the State to ensure a stable and qualified workforce may be 

adversely affected by the inability to withhold funds and make payments on behalf of the 

individual practitioner for health and welfare benefit contributions, training costs, and other 

benefits customary for employees. Withholding funds for these purposes is an efficient and 

effective method for ensuring that the workforce has provision for basic needs and is adequately 

trained for their functions. Direct payment of funds to third parties on behalf of the practitioner 

may simplify program operations for the State and be viewed as advantageous by the 

practitioner. In addition, direct payment of funds to third parties on behalf of the practitioners 

may ensure that beneficiaries have greater access to such practitioners and higher quality 

services. 

The statutory direct payment provision was intended to address the issue of factoring, and 

there is no indication that its purpose was to restrict State flexibility in investing in its workforce 

or quality improvement programs. In particular, we do not believe that the statutory direct 

payment provision addresses the unique circumstances that arise when the Medicaid program is 

the primary source of reimbursement for a class of practitioners. 

We propose to interpret the scope of the direct payment provision to not include the 

circumstance when the Medicaid program operates as a primary payer for a class of practitioners, 

and assumes the ordinary responsibilities required in that circumstance to assure workforce 

stability and quality. This exception from the scope of the direct payment provision would be 
CMS-2249-P2 120 

limited to situations in which payment is made under a State law that authorizes payments on 

behalf of an individual practitioner to a third party for health and welfare benefit costs, training 

costs, or other benefits customary for employees. The legislative history of section 1902(a)(32) 

of the Act indicates that such a situation is not within the scope of “assignments” or “powers of 

attorney” that were considered at the time, or even of the same nature. Instead, such payments 

are more of an ordinary arrangement to further workforce stability and quality. 

The proposed change would permit each State the option to elect such payment 

arrangements to the extent that the State determines that they would further State objectives; 

however, States would not be required to elect the payment arrangements. States will need to 

review their individual circumstances and workforce needs to determine if the measures would 

help ensure a stable, high-performing workforce for the benefit of the entire Medicaid population 

seeking the services. 

Within broad Federal Medicaid law and regulation, CMS has long sought to ensure 

maximum State flexibility to design State-specific payment methodologies that help ensure a 

strong, committed, and well-trained work force. Currently, certain categories of Medicaid 

covered services, for which Medicaid is a primary payer, such as home health and personal care 

services, suffer from especially high rates of turnover and low levels of participation. This 

proposed rule would provide to States additional tools to help foster a stable and high-performing 

workforce. Medicaid programs would be able, as authorized under State law, to deduct from the 

practitioner’s reimbursement and remit to third parties amounts for health and welfare benefit 

contributions, training costs, and other benefits customary for employees. 

We believe that permitting such payment arrangements would enhance the ability of the 

practitioners to perform their functions as health care professionals. The Medicaid program, at 
CMS-2249-P2 121 

both the State and Federal levels, has a strong interest in ensuring the development and 

maintenance of a committed, well-trained workforce. 

We propose to provide States this flexibility by enumerating an additional exception to 

the payment limitations for individual practitioners at §447.10(g). Specifically, the proposed 

rule would add a new provision at §447.10(g)(4) to define permissible payments in the case of 

individual practitioners for whom the Medicaid program is the primary source of revenue to 

include payment authorized by State law to be made to a third party on behalf of the individual 

practitioner for health and welfare benefit contributions, training costs, and other benefits 

customary for employees. 

To the extent that State laws require practitioners to participate in such a payment 

arrangement, a State could elect in its Medicaid State plan that the payment arrangement would 

be automatic. If, however, State law does not require participation by individual practitioners in 

such payment arrangements, but authorizes voluntary participation, the State would only be 

allowed to deduct amounts from the payment rate and forward them to a third party with the 

express permission of each individual practitioner. In that instance, the individual practitioner 

would need to authorize the payment arrangement on a voluntary basis, prior to any deduction 

from the provider payment. In either case, the amounts remitted to a third party would be on 

behalf of the individual practitioner. 

As proposed, a State would not be able to claim as a separate expenditure under its 

approved Medicaid State plan amounts that are withheld from payments to individual 

practitioners for these cost categories (health and welfare benefit contributions, training, and 

similar benefits customary for employees). Under the proposed rule, should a State wish to 

recognize such costs, they would need to be included as part of the rate paid for the service in 
CMS-2249-P2 122 

order to eligible for Federal matching funds. No Federal matching funds would available for 

such amounts apart from the Federal match available for rate paid by the State for the medical 

assistance service. These costs could not be claimed by the Medicaid agency separately as an 

administrative expense. As a result, the proposed rule would have little to no impact on Federal 

Medicaid funding levels. 

We are specifically soliciting public comments on the extent to which the proposed 

payment arrangements would benefit States and practitioners, as well as any adverse impacts it 

may have that have not been anticipated. Additionally, we are seeking comments on other 

exceptions to the general prohibition on assignment of practitioner claims that might similarly 

simplify and streamline States’ operations of their Medicaid plans and payment processes. 

Finally, we are specifically requesting comments on the intersection between Medicaid and 

Medicare regulations governing assignment of payments and any potential contradictions 

therein. 

R. Section 2401 of the Affordable Care Act: Community First Choice State Plan Option: Home 

and Community-Based Setting Requirements (§441.530) 

Section 1915(k)(1)(A)(ii) of the Act provides that a home and community-based setting 

does not include a nursing facility, institution for mental diseases, or an intermediate care facility 

for the mentally retarded. We propose at §441.530 to adopt this statutory language in our 

regulations. Additionally, to provide greater clarity, we are proposing language to establish that 

home and community-based settings must exhibit specific qualities to be eligible sites for 

delivery of home and community-based services. 
CMS-2249-P2 123 

IV. Response to Comments 

Because of the large number of public comments we normally receive on Federal 

Register documents, we are not able to acknowledge or respond to them individually. We will 

consider all comments we receive by the date and time specified in the "DATES" section of this 

preamble, and, when we proceed with a subsequent document, we will respond to the comments 

in the preamble to that document.

V. Collection of Information Requirements

 Under the Paperwork Reduction Act of 1995, we are required to provide 60-day notice in 

the Federal Register and solicit public comment before a collection of information requirement 

is submitted to the Office of Management and Budget (OMB) for review and approval. In order 

to fairly evaluate whether an information collection should be approved by OMB, section 

3506(c)(2)(A) of the Paperwork Reduction Act of 1995 requires that we solicit comment on the 

following issues: 

● The need for the information collection and its usefulness in carrying out the proper 

functions of our agency. 

● The accuracy of our estimate of the information collection burden. 

● The quality, utility, and clarity of the information to be collected. 

● Recommendations to minimize the information collection burden on the affected 

public, including automated collection techniques. 

We are soliciting public comment on each of these issues for the following sections of 

this document that contain information collection requirements: 

A. ICRs Regarding Individuals Receiving State Plan Home and Community-based Services 

(§435.219(b) and §436.219(b))
CMS-2249-P2 124 

 To cover the categorically needy eligibility group, the State would be required to submit 

a SPA and may elect to cover individuals who meet certain requirements in §435.219(a) or 

§436.219(a). The burden associated with this requirement is the time and effort put forth by the 

State to complete, review, process and transmit/submit the pre-print which describes the 

eligibility criteria for the group. We estimate it would take each State 30 hours to meet this onetime requirement. We estimate that on an annual basis, 3 States will submit a SPA to meet these 

requirements; therefore, the total annual burden hours for this requirement is 90 hours. We 

believe that a State employee, with pay equivalent to GS-13 step one ($34.34 per hour) would be 

responsible for this requirement. Thus, the cost for each State is anticipated to be $1,030; this 

equates to an annual cost of $3,091. 

B. ICRs Regarding Eligibility for State Plan HCBS (§441.656)

 If a State elects to target the benefit to specific populations, §441.656(b)(2) requires 

submission of targeting criteria to CMS. The burden associated with this requirement is the time 

and effort put forth by the State to establish such criteria. We estimate it would take 1 State 10 

hours to meet this one-time requirement. We estimate that on an annual basis, 3 States will 

submit a SPA to offer the State plan HCBS benefit that targets specific populations, and be 

affected by this requirement; therefore, the total annual burden hours for this requirement is 30

hours. We believe that a State employee, with pay equivalent to GS-13 step one ($34.34 per 

hour) would be responsible for this requirement. Thus, the cost for each State is anticipated to be 

$343; this equates to an annual cost of $1,030. 

C. ICRs Regarding Needs-based Criteria and Evaluation (§441.659)

 Section 441.659(a) requires a State to establish needs-based criteria for determining an 

individual's eligibility under the State plan for the HCBS benefit, and may establish needs-based 
CMS-2249-P2 125 

criteria for each specific service. The burden associated with this requirement is the time and 

effort put forth by the State to establish such criteria. We estimate it would take 1 State 24 hours 

to meet this requirement. We estimate that on an annual basis, 3 States will submit a SPA to 

offer the State plan HCBS benefit, and be affected by this one-time requirement; therefore, the 

total annual burden hours for this requirement is 72 hours. We believe that a State employee, 

with pay equivalent to GS-13 step one ($34.34 per hour) would be responsible for this 

requirement. Thus, the cost for each responding State is anticipated to be $824; this equates to 

an annual cost of $2,472. 

 Section 441.659(b) reads that if a State defines needs-based criteria for individual State 

plan home and community-based services, the needs-based institutional eligibility criteria must 

be more stringent than the combined effect of needs-based State plan HCBS benefit eligibility 

criteria and individual service criteria. Section 441.659(b)(1)(ii) requires the State to submit the 

more stringent criteria to CMS for inspection with the State plan amendment that establishes the 

State Plan HCBS benefit. 

 The burden associated with this requirement is the time and effort for the State to define 

the more stringent criteria and submit it to CMS along with the State plan amendment that 

establishes the HCBS benefit. We anticipate 3 States would be affected by this requirement on 

an annual basis and it would require 1 hour to prepare and submit this information. The one-time 

burden associated with this requirement is 3 hours. We believe that a State employee, with pay 

equivalent to GS-13 step one ($34.34 per hour) would be responsible for this requirement. Thus, 

the cost for each State is anticipated to be $34; this equates to an annual cost of $102. This 

would be a one time burden for each responding State. 

 Section 441.659(c) reads that a State may modify the needs-based criteria established 
CMS-2249-P2 126 

under paragraph (a) of this section, without prior approval from the Secretary, if the number of 

individuals enrolled in the State plan HCBS benefit exceeds the projected number submitted 

annually to CMS. 

 Section 441.659(c)(1) requires the State to provide at least 60 days notice of the proposed 

modification to the Secretary, the public, and each individual enrolled in the State plan HCBS 

benefit. The State notice to the Secretary will be considered an amendment to the State plan. 

 Section 441.659(c)(2) requires the State notice to the Secretary be submitted as an 

amendment to the State plan. 

 The burden associated with the requirements found under §441.659(c) is the time and 

effort put forth by the State to modify the needs-based criteria and provide notification of the 

proposed modification to the Secretary. We estimate it would take 1 State 24 hours to make the 

modifications and provide notification. This would be a one-time burden. 

The total annual burden of these requirements (§441.659(c), §441.659(c)(1), and 

§441.659(c)(2)) would vary according to the number of States who choose to modify their needsbased criteria. We do not expect any States to make this modification in the next 3 years, thus 

there is no anticipated burden. 

 Section 441.659(d) states that eligibility for the State plan HCBS benefit is determined, 

for individuals who meet the requirements of §441.656(a)(1) through (5), through an 

independent evaluation of each individual that meets the specified requirements. Section 

441.659(d)(5) requires the evaluator to obtain information from existing records, and when 

documentation is not current and accurate, obtain any additional information necessary to draw a 

valid conclusion about the individual's support needs. Section 441.659(e) requires at least annual 

reevaluations. 
CMS-2249-P2 127 

The burden associated with this requirement is the time and effort put forth by the 

evaluator to obtain information to support their conclusion. We estimate it would take one 

evaluator 2 hours per participant to obtain information as necessary. The total annual burden of 

this requirement would vary according to the number of participants in each State who may 

require and be eligible for home and community-based services under the State plan. The 

individuals performing this assessment would vary based upon State benefit design, but will 

likely include individuals such as registered nurses, qualified mental retardation professionals, 

qualified mental health professionals, case managers, or other professional staff with experience 

providing services to individuals with disabilities or the elderly. While there is burden 

associated with this requirement, we believe the burden is exempt as defined in 5 CFR 

1320.3(b)(2) because the time, effort, and financial resources necessary to comply with this 

requirement would be incurred by persons in the normal course of their activities. 

D. ICRs Regarding Independent Assessments (§ 441.662)

 Section 441.662 requires the State to provide for an independent assessment of need in 

order to establish a service plan. At a minimum, the plan must meet the requirements as 

discussed under §441.665. 

 While the burden associated with the requirements under §441.662 is subject to the PRA, 

we believe the burden is exempt as defined in 5 CFR 1320.3(b)(2) because the time, effort, and 

financial resources necessary to comply with this requirement would be incurred by persons in 

the normal course of their activities. 

E. ICRs Regarding State Plan HCBS Administration: State Responsibilities and Quality 

Improvement (§441.677)

Section 441.677(a)(1)(i) reads that a State will annually provide CMS with the projected 
CMS-2249-P2 128 

number of individuals to be enrolled in the benefit, and the actual number of unduplicated 

individuals enrolled in State plan HCBS in the previous year. 

The burden associated with this requirement is the time and effort put forth by the State 

to annually project the number of individuals who will enroll in State plan HCBS. We estimate 

it will take one State 2 hours to meet this requirement. The total annual burden of these 

requirements would vary according to the number of States offering the State plan HCBS 

benefit. The maximum total annual burden is 112 hours (56 States x 2 hours = 112 hours). We 

believe that a State employee, with pay equivalent to GS-13 step one ($34.34 per hour) would be 

responsible for this requirement. Thus, the anticipated for each State is anticipated to be $69; 

this equates to a maximum annual cost of $3,864 if all 56 States elect to provide this benefit. 

There are currently six States with approved State plan HCBS benefits. Thus, we anticipate 

based on current benefits that the total annual aggregated burden will be $414. 

Section 441.677(a)(2)(iii) reads that the SPA to provide State plan HCBS must contain a 

description of the reimbursement methodology for each covered service. 

The burden associated with this requirement is the time and effort put forth by the State 

to describe the reimbursement methodology for each State plan HCBS. We estimate that it will 

take one State an average of 2 hours to determine the reimbursement methodology for one 

covered HCBS. This would be a one-time burden. The total annual burden for this requirement 

would vary according to the number of services that the State chooses to include in the State plan 

HCBS benefit. We believe that a State employee, with pay equivalent to GS-13 step one ($34.34 

per hour) would be responsible for this requirement. Thus, the cost to each State for each 

covered service is anticipated to be $69; this would vary based upon the number of services 

covered. This would be an annual burden for each responding State. Since we have estimated 
CMS-2249-P2 129 

that 3 States will annually describe the reimbursement methodology, the total annual aggregated 

burden associated with this requirement is estimated to be $207. 

Section 441.677(a)(2)(iv) reads that the SPA to provide State plan HCBS must contain a 

description of the State Medicaid agency line of authority for operating the State plan HCBS 

benefit, including distribution of functions to other entities. 

The burden associated with this requirement is the time and effort put forth by the State 

to describe the State Medicaid agency line of authority. We estimate it will take one State 2 

hours to meet this requirement. Since we have estimated that 3 States will annually request State 

plan HCBS, the total annual burden associated with this requirement is estimated to be 6 hours. 

This would be a one-time burden for each responding State. We believe that a State employee, 

with pay equivalent to GS-13 step one ($34.34 per hour) would be responsible for this 

requirement. Thus, the cost for each State is anticipated to be $69. 

Section 441.677(a)(2)(vi) limits the approval period for States that target the benefit to 

specific populations. If a State elects to target the benefit, this section requires a renewal 

application every 5 years in order to continue operation of the benefit. Actual time to meet this 

requirement will vary depending on the scope of the program and any changes the State includes. 

However, we estimate that it will take one State an average of 40 hours to meet this requirement. 

This includes reviewing the previous submission, making any necessary changes to the State 

plan document(s), and communicating with CMS regarding the renewal. This burden would 

occur once every five years and would be recurring. We estimate that, beginning in 2016, 3 

States will annually request renewal and the total burden will be 120 hours. We believe that a 

State employee, with pay equivalent to GS-13 step one ($34.34 per hour) would be responsible 

for this requirement. Thus, the cost for each State is anticipated to be $1,374; this equates to an 
CMS-2249-P2 130 

annual cost of $4,122. This would be a burden for each State that targets its benefit once every 5 

years; however, this burden will not take effect until 2016. 

Section 441.677(b) requires States to develop and implement a quality improvement 

strategy that includes methods for ongoing measurement of program performance, quality of 

care, and mechanisms for remediation and improvement proportionate to the scope of services in 

the State plan HCBS benefit and the number of individuals to be served, and make this 

information available to CMS upon the frequency determined by the Secretary or upon request. 

 The burden associated with this requirement is the time and effort put forth by the State 

to develop and implement a quality improvement strategy, and to make this information 

available to CMS upon the frequency determined by the Secretary or upon request. We estimate 

it will take one State 45 hours for the development of the strategy, and for making information 

available to CMS. The total annual burden of these requirements would vary according to the 

number of States offering the State plan HCBS benefit. The maximum total annual burden is 

estimated to be 2,520 hours (56 States x 45 hours = 2,520 hours). We estimate that the burden 

associated with implementation of the quality improvement strategy will greatly vary, as the 

necessary time and effort to perform these activities is dependent upon the scope of the benefit 

and the number of persons receiving State plan HCBS. We believe that a State employee, with 

pay equivalent to GS-13 step one ($34.34 per hour) would be responsible for this requirement. 

Thus, the cost for each State is anticipated to be $1,545; this equates to a maximum annual cost 

of $86,537. Currently, there are six States with approved benefits, thus we anticipate an annual 

burden based on current States of $9,270. 

TABLE 1: Annual Recordkeeping and Reporting Requirements 

Regulation 

Section(s) 

OMB Control 

No. 

Respondents Responses Burden 

per 

Response 

Total 

Annual 

Burden 

Hourly 

Labor 

Cost of 

Total 

Labor 

Cost of 

Total 

Capital/ 

Maintenance 

Total 

Cost 

($) 
CMS-2249-P2 131 

(hours) (hours) Reporting 

($) 

Reporting 

($) 

Costs ($) 

435.219(b) and 

436.219(b) 

0938-1148 3 3 30 90 34.34 1,030 0 1,030 

441.656(b)(2) 0938-1148 3 3 10 30 34.34 1,030 0 1,030 

441.659(a) 0938-1148 3 3 24 72 34.34 2,472 0 2,472 

441.659(b) 0938-1148 3 3 1 3 34.34 103 0 103 

441.677(a)(1)(i) 0938-1148 6 6 2 12 34.34 414 0 414 

441.677(a)(2)(iii) 0938-1148 3 3 2 6 34.34 207 0 207 

441.677(a)(2)(iv) 0938-1148 3 3 2 6 34.34 207 0 207 

441.677(b) 0938-1148 6 6 45 270 34.34 9,270 0 9,270 

Total 489 14,733 0 14,733

 We have submitted a copy of this proposed rule to OMB for its review of the information 

collection requirements described above. These requirements are not effective until they have 

been approved by OMB. 

If you have comments on these information collection and record keeping requirements, 

please do either of the following: 

1. Submit your comments electronically as specified in the ADDRESSES section of this 

proposed rule; or 

2. Submit your comments to the Office of Information and Regulatory Affairs, Office of 

Management and Budget, Attention: CMS Desk Officer, CMS-2249-P2. 

Fax: (202) 395-5806; or Email: OIRA submission@omb.eop.gov. 

VI. Regulatory Impact Analysis 

A. Introduction

 We have examined the impacts of this rule as required by Executive Order 12866 on 

Regulatory Planning and Review (September 30, 1993) and Executive 13563 on Improving 

Regulation and Regulatory Review (January 18, 2011). Executive Orders 12866 and 13563 

direct agencies to assess all costs and benefits of available regulatory alternatives and, if 
CMS-2249-P2 132 

regulation is necessary, to select regulatory approaches that maximize net benefits (including 

potential economic, environmental, public health and safety effects, distributive impacts, and 

equity). Executive Order 13563 emphasizes the importance of quantifying both costs and 

benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. A regulatory 

impact analysis (RIA) must be prepared for major rules with economically significant effects 

($100 million or more in any one year). This proposed rule has been designated an 

“economically significant” rule under section 3(f)(1) of Executive Order 12866. Accordingly, 

the rule has been reviewed by the Office of Management and Budget. 

B. Statement of Need

The State plan HCBS benefit is authorized under section 1915(i) of the Act. Section 

1915(i) was created by the Deficit Reduction Act of 2005 and was amended by the Affordable 

Care Act of 2010. The resulting statute provides States with authority to establish State plan 

HCBS benefits in their Medicaid program. 

 These regulations are necessary in order to include the State plan HCBS within the Code 

of Federal Regulations. Additionally, these regulations provide States with direction and clarity 

regarding the framework under which the programs can be established. 

C. Overall Impacts

We estimate that, as a result of this proposed rule, the Medicaid cost impact for fiscal 

year (FY) 2012 would be $80 million for the Federal share and $60 million for the State share. 

The estimates are adjusted for a phase-in period during which States gradually elect to offer the 

State plan HCBS benefit. 

D. Detailed Impacts

1. State Plan HCBS 
CMS-2249-P2 133 

State Medicaid programs will make use of the optional flexibility afforded by the State 

plan HCBS benefit to provide needed long-term care HCBS to eligible individuals the State has 

not had means to serve previously, or to provide services to these individuals more efficiently 

and effectively. The State plan HCBS benefit will afford States a new means to comply with 

requirements of the Olmstead decision, to serve individuals in the most integrated setting. 

The cost of these services will be dependent upon the number of States electing to offer 

the benefit, the scope of the benefits States design, and the degree to which the benefits replace 

existing Medicaid services. States have more control over expenditures for this benefit than over 

other State plan services. For States that choose to offer these services, States may specify limits 

to the scope of HCBS, target the benefit to specific populations, and have the option to tighten 

needs-based criteria requirements if costs escalate too rapidly. 

If States elect to include the new optional group, eligibility could be expanded because 

the group may include individuals who would not otherwise be eligible for Medicaid. However, 

costs of the State plan HCBS benefit may be offset by lowered potential Federal and State costs 

of more expensive institutional care. Additionally, the requirement for a written individualized 

service plan, and the provision of needed HCBS in accordance with the individualized service 

plan, may discourage inappropriate utilization of costly services such as emergency room care 

for routine procedures, which may be beneficial to Medicare and Medicaid when individuals are 

eligible for both programs. If a State targets this benefit, only individuals who meet the targeting 

criteria would receive 1915(i) services and be eligible for the group, thus limiting Medicaid 

expansion. 

After considering these factors, we assumed that, if all States adopted this measure, 

program expenditures would increase by 1 percent of current HCBS expenditure projections. 
CMS-2249-P2 134 

We further assumed that ultimately, States representing 50 percent of the eligible population 

would elect to offer this benefit, and that this ultimate level would be reached in FY 2014, with a 

phase-in period until then. Based on these assumptions, the Federal and State cost estimates are 

shown in Table 2. 

TABLE 2: Medicaid Cost Estimates Resulting From Changes to the State Plan 

HCBS Benefit (FYs 2012-2016, in $Millions) 

 FY12 FY13 FY14 FY15 FY16 

Federal Share $80 $120 $170 $190 $215 

State Share $60 $90 $125 $145 $160 

The effect on Medicaid beneficiaries who receive the State plan HCBS benefit will be 

substantial and beneficial in States where optional 1915(i) State plan HCBS are included, as it 

will provide eligible individuals with the opportunity to receive needed long-term care services 

and supports in their homes and communities. 

The State plan HCBS benefit will afford business opportunities for providers of the 

HCBS. We do not anticipate any effects on other providers. Section 1915(i) of the Act delinks 

the HCBS from institutional LOC, and requires that eligibility criteria for the benefit include a 

threshold of need less than that for institutional LOC, so that it is unlikely that large numbers of 

participants in the State plan HCBS benefit will be discharged from the facilities of Medicaid 

institutional providers. There may be some redistribution of services among providers of 

existing non-institutional Medicaid services into State plan HCBS, but providers who meet 

qualifications for the State plan HCBS benefit have the option to enroll as providers of HCBS. 
CMS-2249-P2 135 

This rule has no direct effect on the Medicare program; however, an indirect and 

beneficial effect may occur if individuals eligible for both Medicare and Medicaid are enrolled in 

a State plan HCBS program. 

E. Alternatives Considered

This proposed rule incorporates provisions of new section 1915(i) of the Act into Federal 

regulations, providing for Medicaid coverage of a new optional State plan benefit to furnish 

home and community-based State plan services. The statute provides States with an option 

under which to draw Federal matching funds; it does not impose any requirements or costs on 

existing State programs, on providers, or upon beneficiaries. States retain their existing authority 

to offer HCBS through the existing authority granted under section 1915(c) waivers and under 

section 1115 waivers. States can also continue to offer, and individuals can choose to receive, 

some but not all components of HCBS allowable under section 1915(i) through existing State 

plan services such as personal care or targeted case management services. Therefore, this rule is 

entirely optional for States. We solicit comment on the analysis within the “Alternatives 

Considered” section. 

Alternatives to this proposed rule include: 

(1) Not Publishing a Rule: Section 1915(i) of the Act was effective January 1, 2007. 

States may propose SPAs to establish the State plan HCBS benefit with or without this proposed 

rule. We considered whether this statute could be self-implementing and require no regulation. 

Section 1915(i) of the Act is complex; many States have contacted us for technical assistance in 

the absence of published guidance, and some have indicated they are waiting to submit a State 

plan amendment until there is a rule. We further considered whether a State Medicaid Director 

letter would provide sufficient guidance regarding CMS review criteria for approval of an SPA. 
CMS-2249-P2 136 

We conclude that section 1915(i) of the Act establishes significant new features in the Medicaid 

program, and that it was important to provide States and the public the published invitation for 

comment provided by this proposed rule. Finally, State legislation and judicial decisions are not 

alternatives to a Federal rule in this case since section 1915(i) of the Act provides Federal 

benefits. 

(2) Modification of Existing Rules: We considered modifying existing regulations at 42 

CFR part 440.180, part 441 subpart G, Home and Community-Based Services: Waiver 

Requirements, which implement the section 1915(c) HCBS waivers, to include the authority to 

offer the State plan HCBS benefit. This would have the advantage of not duplicating certain 

requirements common to both types of HCBS. However, we believe that any such efficiency 

would be outweighed by the substantial discussion that would be required of the differences 

between the Secretary’s discretion to approve waivers under section 1915(c) of the Act, and 

authority to offer HCBS under the State plan at section 1915(i) of the Act. While Congress 

clearly considered the experience to date with HCBS under waivers when constructing section 

1915(i) of the Act, it did not choose to modify section 1915(c) of the Act, but chose instead to 

create a new authority at section 1915(i) of the Act. 

F. Accounting Statement

As required by OMB Circular A-4 (available at 

http://www.whitehouse.gov/omb/circulars_a004_a-4), in the Table 3, we have prepared an 

accounting statement showing the classification of the transfers associated with the provisions of 

this proposed rule. This table provides our best estimate of the proposed increase in aggregate 

Medicaid outlays resulting from offering States the option to provide the State plan HCBS 

benefit established in section 1915(i) of the Act and proposed by CMS-2249-P (Medicaid 
CMS-2249-P2 137 

program; Home and Community-Based State Plan Services). 

TABLE 3: Accounting Statement: Classification of Estimated Transfers, from FYs 

2012 to 2016 

(in $Millions)

Category TRANSFERS 

Annualized 

Monetized Transfers 

3% Units Discount Rate 

$153.0 

7% Units Discount Rate 

$150.4 

From Whom To 

Whom? 

Federal Government to Providers 

Category TRANSFERS 

Other Annualized 

Monetized Transfers 

3% Units Discount Rate 

$114.5 

7% Units Discount Rate 

$112.5 

From Whom To 

Whom? 

State Governments to Providers 

G. Conclusion 

We anticipate that States will make widely varying use of the section 1915(i) State plan 

HCBS benefit to provide needed long-term care services for Medicaid beneficiaries. These 

services will be provided in the home or alternative living arrangements in the community, 

which is of benefit to the beneficiary and is less costly than institutional care. Requirements for 

independent evaluation and assessment, individualized care planning, and requirements for a 

quality improvement program will promote efficient and effective use of Medicaid expenditures 

for these services. 

VII. Regulatory Flexibility Act Analysis

The Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), as modified 

by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) (Pub. L. 104-

121), requires agencies to determine whether proposed or final rules would have a significant 

economic impact on a substantial number of small entities and, if so, to prepare a Regulatory 
CMS-2249-P2 138 

Flexibility Analysis and to identify in the notice of proposed rulemaking or final rulemaking any 

regulatory options that could mitigate the impact of the proposed regulation on small businesses. 

For purposes of the RFA, small entities include businesses that are small as determined by size 

standards issued by the Small Business Administration, nonprofit organizations, and small 

governmental jurisdictions). Individuals and States are not included in the definition of a small 

business entity. 

For purposes of the RFA, we assume that approximately 75 percent of Medicaid 

providers are considered small businesses according to the Small Business Administration's size 

standards (with total revenues of $35 million or less in any one year), and 80 percent are 

nonprofit organizations. Medicaid providers are required, as a matter of course, to follow the 

guidelines and procedures as specified in State and Federal laws and regulations. Furthermore, 

this rule imposes no requirements or costs on providers or suppliers for their existing activities. 

The rule implements a new optional State plan benefit established in section 1915(i) of the Act. 

Small entities that meet provider qualifications and choose to provide HCBS under the State plan 

will have a business opportunity under this proposed rule. The Secretary has determined that this 

proposed rule will not have a significant economic impact on a substantial number of small 

entities. 

In addition, section 1102(b) of the Social Security Act requires us to prepare a regulatory 

impact analysis if a rule may have a significant impact on the operations of a substantial number 

of small rural hospitals. This analysis must conform to the provisions of section 603 of the RFA. 

For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is 

located outside of a metropolitan statistical area and has fewer than 100 beds. This proposed rule 

does not offer a change in the administration of the provisions related to small rural hospitals. 
CMS-2249-P2 139 

Therefore, the Secretary has determined that this proposed rule will not have a significant impact 

on the operations of a substantial number of small rural hospitals. 

VIII. Unfunded Mandates Reform Act Analysis

Section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995, Pub. L. 

104-4) requires that agencies assess anticipated costs and benefits before issuing any rule whose 

mandates require spending in any one year of $100 million in 1995 dollars, updated annually for 

inflation. In 2012, that threshold is approximately $139 million. This proposed rule does not 

mandate any spending by State, local, or tribal governments, in the aggregate, or by the private 

sector, of $139 million. 

IX. Federalism Analysis

Executive Order 13132 on Federalism (August 4, 1999) establishes certain requirements 

that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that 

imposes substantial direct requirement costs on State and local governments, preempts State law, 

or otherwise has Federalism implications. Since this regulation does not impose any costs on 

State or local governments, the requirements of E.O. 13132 are not applicable. 
CMS-2249-P2 140 

List of Subjects 

42 CFR Part 430

Administrative practice and procedure, Grant programs-health, Medicaid, Reporting and 

recordkeeping requirements. 

42 CFR Part 431 

Grant programs-health, Health facilities, Medicaid, Privacy, Reporting and recordkeeping 

requirements. 

42 CFR Part 435 

Aid to Families with Dependent Children, Grant programs-health, Medicaid, Reporting 

and recordkeeping requirements, Supplemental Security Income, Wages. 

42 CFR Part 436

Aid to Families with Dependent Children, Grant programs-health, Guam, Medicaid 

Puerto Rico, Supplemental Security Income (SSI), Virgin Islands 

42 CFR Part 440 

Grant programs-health, Medicaid. 

42 CFR Part 441 

Aged, Family planning, Grant programs-health, Infants and children, Medicaid, Penalties, 

Reporting and recordkeeping requirements. 

42 CFR Part 447 

Accounting, Administrative practice and procedure, Drugs, Grant programs-health, 

Health facilities, Health professions, Medicaid, Reporting and recordkeeping requirements, Rural 

areas
CMS-2249-P2 141 

 For the reasons set forth in the preamble, the Centers for Medicare & Medicaid Services 

proposes to amend 42 CFR chapter IV as set forth below: 

PART 430—GRANTS TO STATES FOR MEDICAL ASSISTANCE PROGRAMS 

1. The authority citation for part 430 continues to read as follows: 

Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302). 

Subpart B—State Plans 

 2. Section 430.25 is amended by-- 

A. Revising paragraphs (h)(2)(i) and (ii). 

B. Adding paragraph (h)(2)(iii). 

The revisions and addition read as follows: 

§430.25 Waivers of State plan requirements. 

* * * * * 

(h) * * * 

(2) Duration of waivers. (i) Home and community-based services under section 1915(c) 

of the Act. The initial waiver is for a period of 3 years and may be renewed thereafter for 

periods of 5 years. For waivers that include individuals who are dually eligible for Medicare and 

Medicaid, 5-year initial approval periods may be granted at the discretion of the Secretary for 

waivers meeting all necessary programmatic, financial and quality requirements. 

 (ii) Waivers under section 1915(b) of the Act. The initial waiver is for a period of 2 

years and may be renewed for additional periods of up to 2 years as determined by the 

Administrator. For waivers that include individuals who are dually eligible for Medicare and 

Medicaid, 5-year initial and renewal approval periods may be granted at the discretion of the 

Secretary for waivers meeting all necessary programmatic, financial and quality requirements. 
CMS-2249-P2 142 

 (iii) Waivers under section 1916 of the Act. The initial waiver is for a period of 2 years 

and may be renewed for additional periods of up to 2 years as determined by the Administrator. 

* * * * * 

PART 431--STATE ORGANIZATION AND GENERAL ADMINISTRATION

3. The authority citation for part 431 continues to read as follows: 

Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302). 

Subpart B—General Administrative Requirements 

4. Section 431.54 is amended by adding paragraphs (a)(3) and (h) to read as follows: 

§431.54 Exceptions to certain State plan requirements 

(a) * * * 

(3) Section 1915(i) of the Act provides that a State may provide, as medical assistance, 

home and community-based services under an approved State plan amendment that meets certain 

requirements, without regard to the requirements of sections 1902(a)(10)(B) and 

1902(a)(10)(C)(i)(III) of the Act, with respect to such services. 

* * * * * 

(h) State plan home and community-based services. The requirements of §440.240 of 

this chapter related to comparability of services do not apply with respect to State plan home and 

community-based services defined in §440.182 of this chapter. 

PART 435--ELIGIBILITY IN THE STATES, DISTRICT OF COLUMBIA, THE 

NORTHERN MARIANA ISLANDS, AND AMERICAN SAMOA 

5. The authority citation for part 435 continues to read as follows: 

Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302). 

Subpart C—Options for Coverage 
CMS-2249-P2 143 

6. Section 435.219 is added to subpart C to read as follows:

§435.219 Individuals receiving State plan home and community-based services. 

If the agency provides home and community-based services to individuals described in 

section 1915(i)(1), the agency, under its State plan, may, in addition, provide Medicaid to any 

group or groups of individuals in the community who are described in one or both of the 

paragraphs under paragraphs (a) or (b) of this section. 

 (a) Individuals who-- 

 (1) Are not otherwise eligible for Medicaid; 

 (2) Have income that does not exceed 150 percent of the Federal poverty line (FPL); 

(3) Meet the needs-based criteria under §441.659 of this chapter; and 

(4) Will receive State plan home and community-based services as defined in §440.182 

of this chapter. 

 (b) Individuals who-- 

(1) Would be determined eligible by the agency under an existing waiver or 

demonstration project under sections 1915(c), 1915(d), 1915(e) or 1115 of the Act, but are not 

required to receive services under such waivers or demonstration projects; 

(2) Have income that does not exceed 300 percent of the Supplemental Security Income 

Federal Benefit Rate (SSI/FBR); and 

(3) Will receive State plan home and community-based services as defined in §440.182 

of this chapter. 

(c) For purposes of determining eligibility under paragraph (a) of this section, the agency 

may not take into account an individual’s resources and must use income standards that are 

reasonable, consistent with the objectives of the Medicaid program, simple to administer, and in 
CMS-2249-P2 144 

the best interests of the beneficiary. Income methodologies may include use of existing income 

methodologies, such as the SSI program rules. However, subject to the Secretary’s approval, the 

agency may use other income methodologies that meet the requirements of this paragraph (c). 

PART 436--ELIGIBILITY IN GUAM, PUERTO RICO AND THE VIRGIN ISLANDS

7. The authority citation for part 436 continues to read as follows: 

Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302). 

Subpart C—Options for Coverage 

8. Section 436.219 is added to subpart C to read as follows:

§436.219 Individuals receiving State plan home and community-based services. 

 If the agency provides home and community-based services to individuals described in 

section 1915(i)(1) of the Act, the agency, under its State plan, may, in addition, provide 

Medicaid to any group or groups of individuals in the community who are described in one or 

both of paragraphs (a) or (b) of this section. 

(a) Individuals who-- 

(1) Are not otherwise eligible for Medicaid; 

(2) Have income that does not exceed 150 percent of the Federal poverty line (FPL); 

(3) Meet the needs-based criteria under §441.659 of this chapter; and 

(4) Will receive State plan home and community-based services as defined in §440.182 

of this chapter. 

(b) Individuals who-- 

(1)Would be determined eligible by the agency under an existing waiver or 

demonstration project under sections 1915(c), 1915(d), 1915(e) or 1115 of the Act, but are not 

required to receive services under such waivers or demonstration projects; 
CMS-2249-P2 145 

(2) Have income that does not exceed 300 percent of the Supplemental Security Income 

Federal Benefit Rate (SSI/FBR); and 

(3) Will receive State plan home and community-based services as defined in §440.182 

of this chapter. 

(c) For purposes of determining eligibility under paragraph (a) of this section, the agency 

may not take into account an individual’s resources and must use income standards that are 

reasonable, consistent with the objectives of the Medicaid program, simple to administer, and in 

the best interests of the beneficiary. Income methodologies may include use of existing income 

methodologies, such as the rules of the OAA, AB, APTD or AABD programs. However, subject 

to the Secretary’s approval, the agency may use other income methodologies that meet the 

requirements of this paragraph (c). 

PART 440 SERVICES: GENERAL PROVISIONS 

9. The authority citation for part 440 continues to read as follows: 

Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302). 

Subpart A—Definitions 

10. Section 440.1 is amended by adding the new statutory basis in alphanumerical order 

to read as follows: 

§440.1 Basis and purpose. 

* * * * * 

1915(i) Home and community-based services furnished under a State plan to elderly and 

disabled individuals. 

11. Section 440.180 is amended by revising the heading to read as follows: 

§440.180 Home and community-based waiver services. 
CMS-2249-P2 146 

* * * * * 

12. Section 440.182 is added to subpart A to read as follows: 

§440.182 State plan home and community-based services. 

(a) Definition. State plan home and community-based services (HCBS) benefit means 

the services listed in paragraph (c) of this section when provided under the State’s plan (rather 

than through an HCBS waiver program) for individuals described in paragraph (b) of this 

section. 

(b) State plan HCBS coverage. State plan HCBS can be made available to individuals 

who-- 

(1) Are eligible under the State plan and have income, calculated using the otherwise 

applicable rules, including any less restrictive income disregards used by the State for that group 

under section 1902(r)(2) of the Act, that does not exceed 150 percent of the Federal Poverty Line 

(FPL); and 

(2) In addition to the individuals described in paragraph (b)(1) of this section, to 

individuals based on the State’s election of the eligibility groups described in §435.219(b) or 

§436.219(b) of this chapter. 

(c) Services. The State plan HCBS benefit consists of one or more of the following 

services: 

(1) Case management services. 

(2) Homemaker services. 

(3) Home health aide services. 

(4) Personal care services. 

(5) Adult day health services. 
CMS-2249-P2 147 

(6) Habilitation services, which include expanded habilitation services as specified in 

§440.180(c) of this subpart. 

(7) Respite care services. 

(8) Subject to the conditions in §440.180 of this subpart, for individuals with chronic 

mental illness: 

(i) Day treatment or other partial hospitalization services; 

(ii) Psychosocial rehabilitation services; 

(iii) Clinic services (whether or not furnished in a facility). 

(9) Other services requested by the agency and approved by the Secretary as 

consistent with the purpose of the benefit. 

(d) Exclusion. FFP is not available for the cost of room and board in State plan HCBS. 

The following HCBS costs are not considered room or board for purposes of this exclusion: 

(1) The cost of temporary food and shelter provided as an integral part of respite care 

services in a facility approved by the State. 

(2) Meals provided as an integral component of a program of adult day health services or 

another service and consistent with standard procedures in the State for such a program. 

(3) A portion of the rent and food costs that may be reasonably attributed to an unrelated 

caregiver providing State plan HCBS who is residing in the same household with the recipient, 

but not if the recipient is living in the home of the caregiver or in a residence that is owned or 

leased by the caregiver. 

PART 441--SERVICES: REQUIREMENTS AND LIMITS APPLICABLE TO SPECIFIC 

SERVICES 

13. The authority citation for part 441 continues to read as follows: 
CMS-2249-P2 148 

Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302). 

14. Section 441.530 is added to read as follows: 

§441.530 Home and Community-Based Setting. 

(a) States must make available attendant services and supports in a home and communitybased setting consistent with both paragraphs (a)(1) and (2) of this section. 

(1) Home and community-based settings shall have all of the following qualities, and 

such other qualities as the Secretary determines to be appropriate, based on the needs of the 

individual as indicated in their person-centered service plan: 

(i) The setting is integrated in, and facilitates the individual’s full access to, the greater 

community, including opportunities to seek employment and work in competitive integrated 

settings, engage in community life, control personal resources, and receive services in the 

community, in the same manner as individuals without disabilities. 

(ii) The setting is selected by the individual from among all available alternatives and is 

identified in the person-centered service plan. 

(iii) An individual’s essential personal rights of privacy, dignity and respect, and freedom 

from coercion and restraint are protected. 

(iv) Individual initiative, autonomy, and independence in making life choices, including 

but not limited to, daily activities, physical environment, and with whom to interact are 

optimized and not regimented. 

(v) Individual choice regarding services and supports, and who provides them, is 

facilitated. 

(vi)In a provider-owned or controlled residential setting, the following additional 

conditions must be met. Any modification of the conditions, for example, to address the safety 
CMS-2249-P2 149 

needs of an individual with dementia, must be supported by a specific assessed need and 

documented in the person-centered service plan: 

(A)The unit or room is a specific physical place that can be owned, rented or occupied 

under another legally enforceable agreement by the individual receiving services, and the 

individual has, at a minimum, the same responsibilities and protections from eviction that tenants 

have under the landlord tenant law of the State, county, city or other designated entity; 

(B) Each individual has privacy in their sleeping or living unit: 

(1) Units have lockable entrance doors, with appropriate staff having keys to doors; 

(2) Individuals share units only at the individual’s choice; and 

(3) Individuals have the freedom to furnish and decorate their sleeping or living units. 

(C) Individuals have the freedom and support to control their own schedules and 

activities, and have access to food at any time; 

(D) Individuals are able to have visitors of their choosing at any time; and 

(E) The setting is physically accessible to the individual. 

(2) Home and community-based settings do not include the following: 

(i) A nursing facility; 

(ii) An institution for mental diseases; 

(iii) An intermediate care facility for the mentally retarded; 

(iv) A hospital providing long-term care services; or 

(v) Any other locations that have qualities of an institutional setting, as determined by 

the Secretary. The Secretary will apply a rebuttable presumption that a setting is not a home and 

community-based setting, and engage in heightened scrutiny, for any setting that is located in a 

building that is also a publicly or privately operated facility that provides inpatient institutional 
CMS-2249-P2 150 

treatment, or in a building on the grounds of, or immediately adjacent to, a public institution, or 

disability-specific housing complex. 

15. A new subpart L, consisting of §§441.650 through 441.677, is added to read as 

follows: 

Subpart K State Plan Home and Community-Based Services for Elderly and Disabled 

Individuals 

Sec. 

441.650 Basis and purpose. 

441.653 State plan requirements. 

441.656 State plan home and community-based services under the Act. 

441.659 Needs-based criteria and evaluation. 

441.662 Independent assessment. 

441.665 Person-centered service plan. 

441.668 Provider qualifications. 

441.671 Definition of individual's representative. 

441.674 Self-directed services. 

441.677 State plan HCBS administration: State responsibilities and quality improvement. 

Subpart L State Plan Home and Community-Based Services for the Elderly and 

Individuals with Disabilities 

§441.650 Basis and purpose. 

Section 1915(i) of the Act permits States to offer one or more home and communitybased services (HCBS) under their State Medicaid plans to qualified individuals with disabilities 

or individuals who are elderly. Those services are listed in §440.182 of this chapter, and are 
CMS-2249-P2 151 

described by the State, including any limitations of the services. This optional benefit is known 

as the State plan HCBS benefit. This subpart describes what a State Medicaid plan must provide 

when the State elects to include the optional benefit, and defines State responsibilities. 

§441.653 State plan requirements. 

A State plan that provides 1915(i) State plan home and community-based services must 

meet the requirements of this subpart. 

§441.656 State plan home and community-based services under the Act. 

(a) Home and Community-Based Setting. Under section 1915(i)(1) of the Act, States 

must make State plan HCBS available in a home and community-based setting consistent with 

both paragraphs (a)(1) and (2) of this section. 

(1) Home and community-based settings shall have all of the following qualities, and 

such other qualities as the Secretary determines to be appropriate, based on the needs of the 

individual as indicated in their person-centered service plan: 

(i) The setting is integrated in, and facilitates the individual’s full access to, the greater 

community including opportunities to seek employment and work in competitive integrated 

settings, engage in community life, control personal resources, and receive services in the 

community, in the same manner as individuals without disabilities. 

(ii) The setting is selected by the individual from among all available alternatives and is 

identified in the person–centered service plan. 

(iii) An individual’s essential personal rights of privacy, dignity and respect, and freedom 

from coercion and restraint are protected. 

(iv) Individual initiative, autonomy, and independence in making life choices, including 

but not limited to, daily activities, physical environment, and with whom to interact are 
CMS-2249-P2 152 

optimized and not regimented. 

(v) Individual choice regarding services and supports, and who provides them, is 

facilitated. 

(vi) In a provider-owned or controlled residential setting, the following additional 

conditions must be met. Any modification of the conditions, for example, to address the safety 

needs of an individual with dementia, must be supported by a specific assessed need and 

documented in the person-centered service plan: 

(A) The unit or room is a specific physical place that can be owned, rented, or occupied 

under a legally enforceable agreement by the individual receiving services, and the individual 

has, at a minimum, the same responsibilities and protections from eviction that tenants have 

under the landlord/tenant law of the State, county, city, or other designated entity; 

(B) Each individual has privacy in their sleeping or living unit: 

(1) Units have lockable entrance doors, with appropriate staff having keys to doors; 

(2) Individuals share units only at the individual’s choice; and 

(3) Individuals have the freedom to furnish and decorate their sleeping or living units. 

(C) Individuals have the freedom and support to control their own schedules and 

activities, and have access to food at any time; 

(D) Individuals are able to have visitors of their choosing at any time; and 

(E) The setting is physically accessible to the individual.

(2) Home and community-based settings do not include the following: 

(i) A nursing facility; 

(ii) An institution for mental diseases; 

(iii) An intermediate care facility for the mentally retarded; 
CMS-2249-P2 153 

(iv) A hospital; or 

(v) Any other locations that have qualities of an institutional setting, as determined by the 

Secretary. The Secretary will apply a rebuttable presumption that a setting is not a home and 

community-based setting, and engage in heightened scrutiny, for any setting that is located in a 

building that is also a publicly or privately operated facility that provides inpatient institutional 

treatment, or in a building on the grounds of, or immediately adjacent to, a public institution, or 

disability-specific housing complex. 

(b) Needs-Based Eligibility Requirement. Meet needs-based criteria for eligibility for 

the State plan HCBS benefit, as required in §441.659(a). 

(c) Minimum State plan HCBS Requirement. Be assessed to require at least one section 

1915(i) home and community-based service at a frequency determined by the State, as required 

in §441.662(a)(5). 

(d) Target Population. Meet any applicable targeting criteria defined by the State under 

the authority of paragraph (b)(2) of this section. 

(e) Nonapplication. The State may elect in the State plan amendment approved under 

this subpart not to apply the following requirements when determining eligibility: 

(1) Section 1902(a)(10)(C)(i)(III) of the Act, pertaining to income and resource eligibility 

rules for the medically needy living in the community, but only for the purposes of providing 

State plan HCBS. 

(2) Section 1902(a)(10)(B) of the Act, pertaining to comparability of Medicaid services, 

but only for the purposes of providing section 1915(i) State plan HCBS. In the event that a State 

elects not to apply comparability requirements: 
CMS-2249-P2 154 

(i) The State must describe the group(s) receiving State plan HCBS, subject to the 

Secretary’s approval. Targeting criteria cannot have the impact of limiting the pool of qualified 

providers from which an individual would receive services, or have the impact of requiring an 

individual to receive services from the same entity from which they purchase their housing. 

These groups must be defined on the basis of any combination of-- 

(A) Age; 

(B) Diagnosis; 

(C) Disability; or 

(D) Medicaid Eligibility Group. 

(ii)The State may elect in the State plan amendment to limit the availability of specific 

services defined under the authority of §440.182(b) or to vary the amount, duration, or scope of 

those services, to one or more of the group(s) described in this paragraph. 

§441.659 Needs-based criteria and evaluation. 

(a) Needs-based criteria. The State must establish needs-based criteria for determining 

an individual’s eligibility under the State plan for the HCBS benefit, and may establish needsbased criteria for each specific service. Needs-based criteria are factors used to determine an 

individual’s requirements for support, and may include risk factors. The criteria are not 

characteristics that describe the individual or the individual’s condition. A diagnosis is not a 

sufficient factor on which to base a determination of need. A criterion can be considered needsbased if it is a factor that can only be ascertained for a given person through an individualized 

evaluation of need. 

(b) More stringent institutional and waiver needs-based criteria. The State plan HCBS 

benefit is available only if the State has in effect needs-based criteria (as defined in paragraph (a) 
CMS-2249-P2 155 

of this section), for receipt of services in nursing facilities as defined in section 1919(a) of the 

Act, intermediate care facilities for the mentally retarded as defined in §440.150 of this chapter, 

and hospitals as defined in §440.10 of this chapter for which the State has established long-term 

level of care (LOC) criteria, or waivers offering HCBS, and these needs-based criteria are more 

stringent than the needs-based criteria for the State plan HCBS benefit. If the State defines 

needs-based criteria for individual State plan home and community-based services, it may not 

have the effect of limiting who can benefit from the State plan HCBS in an unreasonable way, as 

determined by the Secretary. 

(1) These more stringent criteria must meet the following requirements: 

(i) Be included in the LOC determination process for each institutional service and 

waiver. 

(ii) Be submitted for inspection by CMS with the State plan amendment that establishes 

the State Plan HCBS benefit. 

(iii) Be in effect on or before the effective date of the State plan HCBS benefit. 

(2) In the event that the State modifies institutional LOC criteria to meet the 

requirements under paragraph (b) or (c)(7) of this section that such criteria be more stringent 

than the State plan HCBS needs-based eligibility criteria, States may continue to receive FFP for 

individuals receiving institutional services or waiver HCBS under the LOC criteria previously in 

effect. 

(c) Adjustment authority. The State may modify the needs-based criteria established 

under paragraph (a) of this section, without prior approval from the Secretary, if the number of 

individuals enrolled in the State plan HCBS benefit exceeds the projected number submitted 

annually to CMS. The Secretary will approve a retroactive effective date for the State plan 
CMS-2249-P2 156 

amendment modifying the criteria, as early as the day following the notification period required 

under paragraph (c)(1) of this section, if all of the following conditions are met: 

(1) The State provides at least 60 days notice of the proposed modification to the 

Secretary, the public, and each individual enrolled in the State plan HCBS benefit. 

(2) The State notice to the Secretary is submitted as an amendment to the State plan. 

(3) The adjusted needs-based eligibility criteria for the State plan HCBS benefit are less 

stringent than needs-based institutional and waiver LOC criteria in effect after the adjustment. 

(4) Individuals who were found eligible for the State plan HCBS benefit before 

modification of the needs-based criteria under this adjustment authority must remain eligible for 

the HCBS benefit until such time as: 

(i) The individual no longer meets the needs-based criteria used for the initial 

determination of eligibility; or 

(ii) The individual is no longer eligible for or enrolled in Medicaid or the HCBS benefit. 

(5) Any changes in service due to the modification of needs-based criteria under this 

adjustment authority are treated as actions as defined in §431.201 and are subject to the 

requirements of Part 431 Subpart E of this chapter. 

(6) In the event that the State also needs to modify institutional LOC criteria to meet the 

requirements under paragraph (b) of this section that such criteria be more stringent than the 

State plan HCBS needs-based eligibility criteria, the State may adjust the modified institutional 

LOC criteria under this adjustment authority. The adjusted institutional LOC criteria must be at 

least as stringent as those in effect before they were modified to meet the requirements in 

paragraph (b) of this section. 
CMS-2249-P2 157 

(d) Independent evaluation and determination of eligibility. Eligibility for the State plan 

HCBS benefit must be determined through an independent evaluation of each individual 

according to the requirements of §441.656(a)(1) through (5) of this subpart. The independent 

evaluation complies with the following requirements: 

(1) Is performed by an agent that is independent and qualified as defined in §441.668 of 

this subpart. 

(2) Applies the needs-based eligibility criteria that the State has established under 

paragraph (a) of this section, and the general eligibility requirements under §441.656(a)(1) 

through (3) and (b)(2) of this subpart. 

(3) Includes consultation with the individual, and if applicable, the individual’s 

authorized representative. 

(4) Assesses the individual’s support needs. 

(5) Uses only current and accurate information from existing records, and obtains any 

additional information necessary to draw valid conclusions about the individual’s support needs. 

(6) Evaluations finding that an individual is not eligible for the State plan HCBS benefit 

are treated as actions defined in §431.201 of this chapter and are subject to the requirements of 

part 431 subpart E of this chapter. 

(e) Periodic redetermination. Independent reevaluations of each individual receiving the 

State plan HCBS benefit must be performed at least every 12 months, to determine whether the 

individual continues to meet eligibility requirements. Redeterminations must meet the 

requirements of paragraph (d) of this section. 

§441.662 Independent assessment. 
CMS-2249-P2 158 

(a) Requirements. For each individual determined to be eligible for the State plan HCBS 

benefit, the State must provide for an independent assessment of needs, which may include the 

results of a standardized functional needs assessment, in order to establish a service plan. In 

applying the requirements of section 1915(i)(1)(F) of the Act, the State must: 

(1) Perform a face-to-face assessment of the individual by an agent that is independent 

and qualified as defined in §441.668 of this subpart and with a person-centered process guided 

by best practice and research on effective strategies that result in improved health and quality of 

life outcomes. 

(i) For the purposes of this section, a face-to-face assessment may include assessments 

performed by telemedicine, or other information technology medium, if the following conditions 

are met: 

(A) The health care professional(s) performing the assessment meets the provider 

qualifications defined by the State, including any additional qualifications or training 

requirements for the operation of required information technology. 

(B) The individual receives appropriate support during the assessment, including the use 

of any necessary on-site support-staff. 

(C) The individual provides informed consent for this type of assessment. 

(ii) [Reserved] 

(2) Conduct the assessment in consultation with the individual, and if applicable, the 

individual’s authorized representative, and include the opportunity for the individual to identify 

other persons to be consulted, such as, but not limited to, the individual’s spouse, family, 

guardian, and treating and consulting health and support professionals responsible for the 

individual’s care. 
CMS-2249-P2 159 

(3) Examine the individual’s relevant history including the findings from the independent 

evaluation of eligibility, medical records, an objective evaluation of functional ability, and any 

other records or information needed to develop the service plan as required in §441.665 of this 

subpart. 

(4) Include in the assessment the individual’s physical and behavioral health care and 

support needs, strengths and preferences, available service and housing options, and when 

unpaid caregivers will be relied upon to implement the service plan, a caregiver assessment. 

(5) Apply the State’s needs-based criteria for each service (if any) that the individual may 

require. Individuals are considered enrolled in the State plan HCBS benefit only if they meet the 

eligibility and needs-based criteria for the benefit, and are also assessed to require and receive at 

least one home and community-based service offered under the State plan for medical assistance. 

(6) Include in the assessment, if the State offers individuals the option to self-direct a 

State plan home and community-based service or services, any information needed for the selfdirected portion of the service plan, as required in §441.674(b) of this subpart, including the 

ability of the individual (with and without supports) to exercise budget or employer authority. 

(7) Include in the assessment, for individuals receiving habilitation services, 

documentation that no Medicaid services are provided which would otherwise be available to the 

individual, specifically including but not limited to services available to the individual through a 

program funded under section 110 of the Rehabilitation Act of 1973, or the Individuals with 

Disabilities Education Improvement Act of 2004. 

(8) Include in the assessment and subsequent service plan, for individuals receiving 

Secretary approved services under the authority of §440.182 of this chapter, documentation that 
CMS-2249-P2 160 

no State plan HCBS services are provided which would otherwise be available to the individual 

through other Medicaid services or other Federally funded programs. 

(9) Include in the assessment and subsequent service plan, for individuals receiving 

HCBS through a waiver approved under §441.300 of this subpart, documentation that HCBS 

provided through the State plan and waiver are not duplicative. 

(10) Coordinate the assessment and subsequent service plan with any other assessment or 

service plan required for services through a waiver authorized under section 1115 or section 

1915 of the Social Security Act. 

(b) Reassessments. The independent assessment of need must be conducted at least 

every 12 months and as needed when the individual’s support needs or circumstances change 

significantly, in order to revise the service plan. 

§441.665 Person-centered service plan. 

 (a) Person-centered planning process. Based on the independent assessment required in 

§441.662 of this subpart, the State must develop (or approve, if the plan is developed by others) a 

written service plan jointly with the individual (including, for purposes of this paragraph, the 

individual and the individual's authorized representative if applicable). The person-centered 

planning process is driven by the individual. The process: 

 (1) Includes people chosen by the individual. 

 (2) Provides necessary information and support to ensure that the individual directs the 

process to the maximum extent possible, and is enabled to make informed choices and decisions. 

 (3) Is timely and occurs at times and locations of convenience to the individual. 

 (4) Reflects cultural considerations of the individual. 

 (5) Includes strategies for solving conflict or disagreement within the process, including 
CMS-2249-P2 161 

clear conflict-of-interest guidelines for all planning participants. 

 (6) Offers choices to the individual regarding the services and supports they receive and 

from whom. 

 (7) Includes a method for the individual to request updates to the plan. 

 (8) Records the alternative home and community-based settings that were considered by 

the individual. 

 (b) The person-centered service plan. The person-centered service plan must reflect the 

services and supports that are important for the individual to meet the needs identified through an 

assessment of functional need, as well as what is important to the individual with regard to 

preferences for the delivery of such services and supports. Commensurate with the level of need 

of the individual, and the scope of services and supports available under the State plan HCBS 

benefit, the plan must: 

 (1) Reflect that the setting in which the individual resides is chosen by the individual. 

 (2) Reflect the individual’s strengths and preferences. 

 (3) Reflect clinical and support needs as identified through an assessment of functional 

need. 

 (4) Include individually identified goals and desired outcomes. 

 (5) Reflect the services and supports (paid and unpaid) that will assist the individual to 

achieve identified goals, and the providers of those services and supports, including natural 

supports. Natural supports cannot supplant needed paid services unless the natural supports are 

unpaid supports that are provided voluntarily to the individual in lieu of State plan HCBS. 

(6) Reflect risk factors and measures in place to minimize them, including Individualized 

backup plans. 
CMS-2249-P2 162 

 (7) Be understandable to the individual receiving services and supports, and the 

individuals important in supporting him or her. 

(8) Identify the individual and/or entity responsible for monitoring the plan. 

 (9) Be finalized and agreed to in writing by the individual and signed by all individuals 

and providers responsible for its implementation. 

 (10) Be distributed to the individual and other people involved in the plan. 

 (11) Include those services, the purchase or control of which the individual elects to selfdirect, meeting the requirements of §441.574(b) through (d) of this subpart. 

 (12) Prevent the provision of unnecessary or inappropriate care. 

 (13) Other requirements as determined by the Secretary. 

 (c) Reviewing the person-centered service plan. The person-centered service plan must 

be reviewed, and revised upon reassessment of functional need as required in §441.662 of this 

subpart, at least every 12 months, when the individual’s circumstances or needs change 

significantly, and at the request of the individual. 

§441.668 Provider qualifications. 

(a) Requirements. The State must provide assurances that necessary safeguards have 

been taken to protect the health and welfare of enrollees in State plan HCBS, and must define in 

writing standards for providers (both agencies and individuals) of HCBS services and for agents 

conducting individualized independent evaluation, independent assessment, and service plan 

development. 

(b) Conflict of interest standards. The State must define conflict of interest standards 

that ensure the independence of individual and agency agents who conduct (whether as a service 

or an administrative activity) the independent evaluation of eligibility for State plan HCBS, who 
CMS-2249-P2 163 

are responsible for the independent assessment of need for HCBS, or who are responsible for the 

development of the service plan. The conflict of interest standards apply to all individuals and 

entities, public or private. At a minimum, these agents must not be any of the following: 

(1) Related by blood or marriage to the individual, or to any paid caregiver of the 

individual. 

(2) Financially responsible for the individual. 

(3) Empowered to make financial or health-related decisions on behalf of the individual. 

(4) Holding financial interest, as defined in §411.354 of this chapter, in any entity that is 

paid to provide care for the individual. 

(5) Providers of State plan HCBS for the individual, or those who have an interest in or 

are employed by a provider of State plan HCBS for the individual, except when the State 

demonstrates that the only willing and qualified agent to perform independent assessments and 

develop plans of care in a geographic area also provides HCBS, and the State devises conflict of 

interest protections including separation of agent and provider functions within provider entities, 

which are described in the State plan for medical assistance and approved by the Secretary, and 

individuals are provided with a clear and accessible alternative dispute resolution process. 

(c) Training. Qualifications for agents performing independent assessments and plans of 

care must include training in assessment of individuals whose physical or mental conditions 

trigger a potential need for home and community-based services and supports, and current 

knowledge of best practices to improve health and quality of life outcomes. 

§441.671 Definition of individual’s representative. 

In this subpart, the term individual’s representative means, with respect to an individual 

being evaluated for, assessed regarding, or receiving State plan HCBS, the following: 
CMS-2249-P2 164 

(a) The individual’s legal guardian or other person who is authorized under State law to 

represent the individual for the purpose of making decisions related to the person’s care or wellbeing. 

(b) Any other person who is authorized by policy of the State Medicaid Agency to 

represent the individual including but not limited to a parent, a family member, or an advocate 

for the individual. 

(c) When the State authorizes representatives in accordance with paragraph (b) of this 

section, the State must have policies describing the process for authorization; the extent of 

decision-making authorized; and safeguards to ensure that the representative functions in the best 

interests of the participant. States may not refuse the authorized representative that the 

individual chooses, unless in the process of applying the requirements for authorization, the State 

discovers and can document evidence that the representative is not acting in the best interest of 

the individual or cannot perform the required functions. 

§441.674 Self-directed services. 

(a) State option. The State may choose to offer an election for self-directing HCBS. The 

term "self-directed" means, with respect to State plan HCBS listed in §440.182 of this chapter, 

services that are planned and purchased under the direction and control of the individual, 

including the amount, duration, scope, provider, and location of the HCBS. For purposes of this 

paragraph, individual means the individual and, if applicable, the individual's representative as 

defined in §441.671 of this subpart. 

(b) Service plan requirement. Based on the independent assessment required in 

§441.662 of this subpart, the State develops a service plan jointly with the individual as required 
CMS-2249-P2 165 

in §441.665 of this subpart. If the individual chooses to direct some or all HCBS, the service 

plan must meet the following additional requirements: 

(1) Specify the State plan HCBS that the individual will be responsible for directing. 

(2) Identify the methods by which the individual will plan, direct or control services, 

including whether the individual will exercise authority over the employment of service 

providers and/or authority over expenditures from the individualized budget. 

(3) Include appropriate risk management techniques that explicitly recognize the roles 

and sharing of responsibilities in obtaining services in a self-directed manner and assure the 

appropriateness of this plan based upon the resources and support needs of the individual. 

(4) Describe the process for facilitating voluntary and involuntary transition from selfdirection including any circumstances under which transition out of self-direction is involuntary. 

(c) Employer authority. If the service plan includes authority to select, manage, or 

dismiss providers of the State plan HCBS, the plan must meet the following requirements: 

(1) Specify the authority to be assumed by the individual, any limits to the authority, and 

specify parties responsible for functions outside the authority to be assumed. 

(2) Specify the financial management supports, as required in paragraph (e) of this 

section, to be provided. 

(d) Budget authority. If the service plan includes an individualized budget (which 

identifies the dollar value of the services and supports under the control and direction of the 

individual), the plan must meet the following requirements: 

(1) Describe the method for calculating the dollar values in the budget, based on reliable 

costs and service utilization. 
CMS-2249-P2 166 

(2) Define a process for making adjustments in dollar values to reflect changes in an 

individual’s assessment and service plan. 

(3) Provide a procedure to evaluate expenditures under the budget. 

(4) Specify the financial management supports, as required in paragraph (e) of this 

section, to be provided. 

(5) Not result in payment for medical assistance to the individual. 

(e) Functions in support of self-direction. When the State elects to offer self-directed 

State plan HCBS, it must offer the following individualized supports to individuals receiving the 

services and their representatives: 

(1) Information and assistance consistent with sound principles and practice of selfdirection. 

(2) Financial management supports to meet the following requirements: 

(i) Manage Federal, State, and local employment tax, labor, worker’s compensation, 

insurance, and other requirements that apply when the individual functions as the employer of 

service providers. 

(ii) Function as employer of record when the individual elects to exercise supervisory 

responsibility without employment responsibility. 

(iii) Make financial transactions on behalf of the individual when the individual has 

personal budget authority. 

(iv) Maintain separate accounts for each individual's budget and provide periodic reports 

of expenditures against budget in a manner understandable to the individual. 

§441.677 State plan HCBS administration: State responsibilities and quality improvement. 
CMS-2249-P2 167 

(a) State plan HCBS administration. (1) State responsibilities. The State must carry out 

the following responsibilities in administration of its State plan HCBS: 

(i) Number served. The State will annually provide CMS with the projected number of 

individuals to be enrolled in the benefit and the actual number of unduplicated individuals 

enrolled in State plan HCBS in the previous year. 

(ii) Access to services. The State must grant access to all State plan HCBS assessed to 

be needed in accordance with a service plan consistent with §441.665 of this subpart, to 

individuals who have been determined to be eligible for the State plan HCBS benefit, subject to 

the following requirements: 

(A) A State must determine that provided services meet medical necessity criteria; 

(B) A State may limit access to services through targeting criteria established by 

§441.656(b)(2) of this subpart; and 

(C) A State may not limit access to services based upon the income of individuals, the 

cost of services, or the individual’s location in the State. 

(iii) Appeals. A State must provide individuals with the right to appeal terminations, 

suspensions, or reductions of Medicaid eligibility or covered services as described in part 431, 

subpart E. 

(2) Administration. (i) Option for presumptive payment. (A) The State may provide 

for a period of presumptive payment, not to exceed 60 days, for Medicaid eligible individuals the 

State has reason to believe may be eligible for the State plan HCBS benefit. FFP is available for 

both services that meet the definition of medical assistance and necessary administrative 

expenditures for evaluation of eligibility for the State plan HCBS benefit under §441.659(d) of 

this subpart and assessment of need for specific HCBS under §441.662(a) of this subpart, prior to 
CMS-2249-P2 168 

an individual’s receipt of State plan HCBS services or determination of ineligibility for the 

benefit. 

(B) If an individual the State has reason to believe may be eligible for the State plan 

HCBS benefit and is evaluated and assessed under the presumptive payment option and found 

not to be eligible for the benefit, FFP is available for services that meet the definition of medical 

assistance and necessary administrative expenditures. The individual so determined will not be 

considered to have enrolled in the State plan HCBS benefit for purposes of determining the 

annual number of participants in the benefit. 

(ii) Option for Phase-in of Services and Eligibility. (A) In the event that a State elects to 

establish targeting criteria through §441.656(b)(2) of this subpart, the State may limit the 

enrollment of individuals or the provision services to enrolled individuals based upon criteria 

described in a phase-in plan, subject to CMS approval. A State which elects to target the State 

plan HCBS benefit and to phase-in enrollment and/or services must submit a phase-in plan for 

approval by CMS that describes, at a minimum: 

(1) The criteria used to limit enrollment or service delivery; 

(2) The rationale for phasing-in services and/or eligibility; and 

(3) Timelines and benchmarks to ensure that the benefit is available statewide to all 

eligible individuals within the initial 5-year approval. 

(B) If a State elects to phase-in the enrollment of individuals based on highest need, the 

phase-in plan must use the needs-based criteria described in §441.659(a) of this subpart to 

establish priority for enrollment. Such criteria must be based upon the assessed need of 

individuals, with higher-need individuals receiving services prior to individuals with lower 

assessed need. 
CMS-2249-P2 169 

(C) If a State elects to phase-in the provision of any services, the phase-in plan must 

include a description of the services that will not be available to all eligible individuals, the 

rationale for limiting the provision of services, and assurance that all individuals with access to a 

willing and qualified provider may receive services. 

(D) The plan may not include a cap on the number of enrollees. 

(E) The plan must include a timeline to assure that all eligible individuals receive all 

included services prior to the end of the first 5-year approval period, described in paragraph 

(a)(2)(vi) of this section. 

(iii) Reimbursement methodology. The State plan amendment to provide State plan 

HCBS must contain a description of the reimbursement methodology for each covered service. 

To the extent that the reimbursement methodologies for any self-directed services differ from 

those descriptions, the method for setting reimbursement methodology for the self-directed 

services must also be described. 

(iv) Operation. The State plan amendment to provide State plan HCBS must contain a 

description of the State Medicaid agency line of authority for operating the State plan HCBS 

benefit, including distribution of functions to other entities. 

(v) Modifications. The agency may request that modifications to the benefit be made 

effective retroactive to the first day of a fiscal year quarter, or another date after the first day of a 

fiscal year quarter, in which the amendment is submitted, unless the amendment involves 

substantive change. Substantive changes may include, but are not limited to, the following: 

(A) Revisions to services available under the benefit including elimination or reduction 

in services, and changes in the scope, amount and duration of the services. 
CMS-2249-P2 170 

(B) Changes in the qualifications of service providers, rate methodology, or the eligible 

population. 

(1) Request for Amendments. A request for an amendment that involves a substantive 

change as determined by CMS-- 

(i) May only take effect on or after the date when the amendment is approved by CMS; 

and 

(ii) Must be accompanied by information on how the State will ensure for transitions 

with minimal adverse impact on individuals impacted by the change. 

(2) [Reserved] 

(vi) Periods of approval. (A) If a State elects to establish targeting criteria through 

§441.656(b)(2) of this subpart, the approval of the State Plan Amendment will be in effect for a 

period of 5 years from the effective date of the amendment. To renew State plan HCBS for an 

additional 5-year period, the State must provide a written request for renewal to CMS at least 

180 days prior to the end of the approval period. CMS approval of a renewal request is 

contingent upon State adherence to Federal requirements. 

(B) If a State does not elect to establish targeting criteria through §441.656(b)(2) of this 

subpart, the limitations on length of approval does not apply. 

(b) Quality improvement strategy: Program performance and quality of care. States 

must develop and implement an HCBS quality improvement strategy that includes a continuous 

improvement process and measures of program performance and experience of care. The 

strategy must be proportionate to the scope of services in the State plan HCBS benefit and the 

number of individuals to be served. The State will make this information available to CMS at a 

frequency determined by the Secretary or upon request. 
CMS-2249-P2 171 

(1) Quality Improvement Strategy. The quality improvement strategy must include all 

of the following: 

(i) Incorporate a continuous quality improvement process that includes monitoring, 

remediation, and quality improvement. 

(ii) Be evidence-based, and include measures as determined by the Secretary. 

(iii) Provide evidence of program performance and the establishment of sufficient 

infrastructure to effectively implement the program. 

(iv) Measure individual outcomes associated with the receipt of HCBS, related to the 

implementation of goals included in the individual service plan. 

(2) [Reserved] 

PART 447—PAYMENTS FOR SERVICES 

16. The authority citation for part 447 continues to read as follows: 

Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302). 

17. Section 447.10 is amended by adding paragraph (g)(4) to read as follows: 

§447.10 Prohibition Against Reassignment of Provider Claims 

(g) * * * 

(4) In the case of a class of practitioners for which the Medicaid program is the primary 

source of revenue, payment may be made to a third party on behalf of the individual practitioner 

for benefits such as health insurance, skills training and other benefits customary for employees. 

* * * * *
CMS-2249-P2 

Authority: (Catalog of Federal Domestic Assistance Program No. 93.778, Medical Assistance 

Program) 

Dated: April 24, 2012. 

_______________________________ 

Marilyn Tavenner, 

Acting Administrator, 

Centers for Medicare & Medicaid Services. 

Approved: April 24, 2012. 

__________________________________ 

Kathleen Sebelius, 

Secretary. 

BILLING CODE 4120-01-P 

[FR Doc. 2012-10385 Filed 04/26/2012 at 4:15 pm; Publication Date: 05/03/2012]