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 Comm unity-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 Medica id regulations to define and describe State plan home and community-based services (H CBS) 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 Act 1 ). 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 re quire 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, St ates will be better able to design and tailor Medicaid services to accommoda te individual needs. This ma y 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 Reconcilia tion Act of 2010, Pub.L. 111-152CMS-2249-P2 2 outcomes and satisfaction, while enabling States to e ffectively manage their Me dicaid resources. This proposed rule would also amend Medi caid regulations consistent with the requirements of the Affordable Care Act, whic h amended the Act to provide authority for a 5- year duration for certain demonstrat ion projects or waivers under th e Act, at the discretion of the Secretary, when they involve individuals dually elig ible for Medicaid and Me dicare benefits. In addition, this proposed rule would provi de 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 practitio ners. This exception would allow payments to be made to other parties to be nefit the providers by ensuring hea lth and welfare, and training. We are including the payment reassignment provi sions 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 ame nd 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 deli ver (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 Hube rt 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 reta in a proof of filing by st amping 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 follo wing the instructions at the end of the "Collection of Information Requireme nts" section in this document. For information on viewing public co mments, see the beginning of theCMS-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, includi ng any personally identif iable 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 av ailable for public inspection as they are received, generally beginning approximately 3 w eeks 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-Bas ed Services for the Elderly and Disabled under section 1915(i) of the Act: Hist ory 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. EligibilityCMS-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 Redete rminations; 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 Participa tion (FFP) For Institutional Level of Care For Individuals Receiving Services As of the Effec tive Date of the State Plan HCBS Amendment 17. State Option to Provide HCBS to Individu als Eligible for Serv ices under a Waiver 18. Establishment of Optional Elig ibility Group to Provide Full Medi caid Benefits to Individuals Receiving State Plan HCBS 19. State Option to Offer HCBS to Specific, Targeted Populations 20. Five-Year Approval for Targeted Sec tion 1915(i) HCBS Benefits and Renewal Requirements 21. Phase-in of Services and Eligibility C. Effective DateCMS-2249-P2 7

D. The State Plan HCBS Benefit in the C ontext of the Medicaid Program as a Whole E. Other Background F. Section 2601 of the Affordable Care Ac t: 5-Year Period for Dem onstration Projects G. Prohibition Against Rea ssignment 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 Ge neral Administration (Part 431) B. Eligibility in the States, District of Colu mbia, the Northern Mariana Islands, and American Samoa (Part 435) and Eligibility in Guam, Puer to Rico and the Virgin Islands (Part 436) C. Services: General Provisions (Part 440) D. Services: Requirements and Limits A pplicable 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: St ate 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 Reassignm ent of Provider Claims (§447.10)
R. Section 2401 of the Affordable Care Act: Commun ity 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 te rms in alphabetical order below. ADA Americans with Disabiliti es 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 facili ty for the mentally retarded LOC Level of care NF Nursing facility OBRA‘81 Omnibus Budget Reconcili ation 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 limitCMS-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-b ased 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 effectivel y manage their Medicaid resources. This proposed rule would also amend Medi caid 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 demonstr ation projects or waivers unde r sections 1115, 1915(b), (c), or (d) of the Act, at the discretion of the Secret ary, when they involve in dividuals who are dually eligible for both Medicaid and Medicare benefits. In addition, this proposed rule would provi de 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 practitio ners. 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 ru le because States’ Medicaid programs often operate as the primary or only payer for the cla ss of practitioners that includes HCBS service providers.CMS-2249-P2 11 This proposed rule would also amend Medi caid regulations to provide home and community-based setting requirements related to s ection 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 Serv ices for the Elderly and Disabled." This provision allows States to provi de HCBS (as an optional progra m) under their State Medicaid plans. This option allows States to receive Federal financial participation for services that were previously eligible for Federa l funds only under waiver or de monstration projects. This provision was further amended by the Affordable Ca re 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 Medi caid regulations to implement HCBS under the DRA. That proposed rule was not finalize d, and with the passage of section 2402 of the Affordable Care Act, some previously proposed regulations would no l onger be in compliance with the current law under section 1915(i) of the Act. In addi tion, several new provisions were added. Specifically, the Affordable Care Ac t 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 Medica id services. After closely analyzing the Affordable Care Act provi sions, we concluded that a new proposed rule was necessary. This proposed ru le retains a large portion of th e policies contained within the April 4, 2008 proposed rule, and updates some of our previous proposal s to reflect commentsCMS-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 provi des 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 th rough which a State serves individuals who are dually eligible for bot h Medicare and Medi caid 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 en tities. Specifically, payment may only be made to an individual practitioner who provided the serv ice. The statute provides several specific exceptions to the general principle of dire ct payment to the individual practitioner. Over the years, some States have reques ted 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 St ate directly to third parties for health and welfare benefits, training costs and other be nefits 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 th e fundamental purpose of this provision. TheCMS-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 pr actitioner’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 re quirement, 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: Co mmunity 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 retarded 2 . We propose to adopt this statutory language in our regulations. Additionally, to provide greater clarity, we are proposing language to establish that home and co mmunity-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 Comm unity 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 pro posed rule to allow for additional public comment before finalizing. Since CFC and section 1915(i) both pe rtain 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 ou tdated, and that “intellectual disability” is the appropriate way to discuss this type of disability, the Social Security Ac t 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. Theref ore, we plan to fully consider all comments received, and align decision making and langua ge 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 ar rangements 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 practiti oners, 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 th e transfer of funds between participating entit ies, 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 co mpliance 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-Bas ed Services for the Elderly and Disabled under Section 1915(i) of the Social Security Ac t: 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 sectio n 1915(i) to the Social Security Act (the Act) to allow States, at their option, to provide home and commun ity-based services (HCBS) under their State Medicaid plans. This option a llows States to receive Federal financial participation (FFP) for services that were prev iously only eligible for FFP under waivers or demonstration projects, such as those authorized under secti ons 1915(c) and 1115 of the Act. Section 1915(i) of the Act wasCMS-2249-P2 16 later amended by sections 2402(b) through (g) of th e Patient Protection and Affordable Care Act of 2010 (Pub. L. 111-148, enacted March 23, 2010) (Affo rdable Care Act) to provide additional options for States to design and implem ent 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 unde r 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. Therefor e, we concluded that a new pr oposed 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 statut ory 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 a nd Individuals with Disabilities The following overview describes the provisi ons 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 re fer to particular home and community-based service(s) offe red under section 1915(i) of the Ac t as "State plan HCBS" or simply "HCBS" 3 . We refer to the "State plan HCBS benefit" when desc ribing the collective requirements of section 1915(i) of th e Act that apply to States elec ting to provide one, or several, of the authorized HCBS. We choos e to use the term "benefit" rath er 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 shar es many features with section 1915(c) waiver
3 Note that the abbreviation HCBS does not distinguis h between singular and plural. Where this could be confusing, we spell out home an d community-based service(s).CMS-2249-P2 17 programs, but it is a State plan benefit, alt hough one with very unique features not common to traditional State plan services. Under section 1915(i) of the Ac t, States can provide HCBS to individuals who require less than institutional level of care (LOC) and wh o would, therefore, not be eligible for HCBS under section 1915(c) waivers, in addition to se rving individuals who have needs that would meet entry requirements for an institu tion. 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 ot her ways. As with othe r State plan services, the benefits must be provided St atewide, and States must not limit the number of eligible people served. 1. Services Section 1915(i)(1) of the Act gr ants States the option to pr ovide, 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 Ac t are as follows:

• Case management.

• Homemaker/home health aide.

• Personal care.

• Adult day health.

• Habilitation.

• Respite care.

• Other services requested by the St ate as the Secretary may approve. In addition, the following services may be pr ovided for individuals with chronic mental illness:CMS-2249-P2 18

• Day treatment

• Other partial hospita lization 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 incl uded under section 1915(i) when it was created in the DRA. However, section 2402(c) of the Affo rdable Care Act amende d section 1915(i)(1) of the Act to permit States to request, and the Secretar y to approve, coverage for such other services in a 1915(i) benefit. We interpret the statute as authorizing Stat es 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 specificit y so that we can determine whether the nature and scope of the service clearly relates to those listed in secti on 1915(c)(4)(B) of the Act. These services are described in §440.180 of this proposed rule. Howeve r, we would not require the same standard for “other services” under secti on 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 requ ire 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 serv ices, including those in the “other services”CMS-2249-P2 19 category, States must include a specific and comple te description of the scope of the service, and not include open-ended statements. We propose to review and approve these “oth er services” not speci fically 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 othe r services available to individuals through the State’s Medicaid State plan. Additionally, these se rvices must be offered in a manner that would comply with section 1902(a)(23) of the Act rega rding free choice of providers, and that permits individuals to receive services in the most integrated setting possibl e and consistent with the best interests of the beneficiaries and the requirements of the Americans with Di sabilities Act (ADA). Section 1915(i) does not incorpor ate 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 woul d 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 hous ing. For example, we would not allow States to establish residential HCBS in provider-owned and/or ope rated settings only, when they do not have comparable HCBS available to individua ls residing in their own homes. 2. Eligibility Eligibility for this op tion 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 betweenCMS-2249-P2 20 these provisions, the following sect ion 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 e xplicitly provides that State plan HCBS may be provided without determining that, but fo r the provision of these services , individuals would require the LOC provided in a hospital, a nurs ing facility (NF), or an intermediate care facility for the mentally retarded 4 (ICF/MR) as is required in section 1915(c) HCBS waivers. While HCBS services provided through sect ion 1915(c) waivers must be "c ost-neutral" as compared to institutional services, no cost ne utrality 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 signific ant distinction allows States to offer HCBS to individuals whose needs are substantial, but not se vere enough to qualify them for institutional or waiver services, and to individuals for whom there is no t 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 opportuni ty to provide HCBS to other individuals with

4 Although we recognize that the language used here is ou tdated, and that “intellectual disability” is the appropriate way to discuss this type of disability, the Social Security Ac t still refers to these types of facilities in this manner.CMS-2249-P2 21 significant needs who do not qualify for an institu tional 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 c onditions may deteriorate to the point where the individuals become eligible for more costly facility-based care. State plan HCBS are intended to enable indivi duals to receive needed services in their own homes, or in alternative li ving arrangements in what is colle ctively 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 comm unity, 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 eligibilit y 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 indi vidual’s eligibility group apply, including any less restric tive income rules used by the St ate 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)(II I) of the Act relating to inco me and resource rules in the community for the medically needy. Under this au thority States are permitted to use institutional eligibility rules in determin ing eligibility for the medica lly needy. The nonapplication requirements are described in section II.B.14 of th e preamble. This eligib ility criterion was not changed by the Affordable Care Act. Section 2402(b) of the Affordable Care Ac t added a new option at section 1915(i)(6) of the Act, to allow States to pr ovide section 1915(i) serv ices to certain indi viduals who meet theCMS-2249-P2 22 needs-based criteria, who would be eligible fo r 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 Ac t also amended secti on 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 grou p, States can elect to cover individuals who are not othe rwise 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 sectio n 1915(i) services, or individuals with income up to 300 percent of the SSI/FBR, who would be e ligible under an existi ng 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 unde r an existing section 1915(c), (d) or (e) waiver or se ction 1115 waiver; the individual just has to be determined eligible for the waiver. c. Needs-Based Criteria Overview In contrast to the institutional LOC requi rement for eligibility in HCBS waivers, section 1915(i)(1)(A) of the Act re quires States to impose needs-ba sed 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 pl an home and community-based service that an individual would receive. Thus, under section 1915(i) of th e Act, States determine elig ibility for State plan HCBS based on the following:

● Individuals eligible for me dical assistance under the State plan whose income is below 150 percent of FPL, as determined by the Stat e under the methodology ap plicable to the group, including any less restrictive income rules in place through section 1902(r)(2) of the Act.

● At the State option, individuals eligib le under the new optional categorical needy group 1902(a)(10)(A)(ii)( XXII) of the Act. This includes: ++ Individuals with income below 300 per cent of the SSI/FBR who are eligible for HCBS through a waiver approved for the Stat e under sections 1115, 1915(c), 1915(d), or 1915(e) of the Act and will receive section 1915(i) services. ++ Individuals who are not othe rwise 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 criter ia in accordance with CMS requirements that the State elects to establish. For more information about the optional elig ibility category for i ndividuals who receive services through the State plan HCBS benefit, please see secti on II.B.18. of this proposed rule. The needs-based criteria for c overage of individual services provided within a State’s section 1915(i) benefit are subject to the same requirements as the needs-based eligibility criteriaCMS-2249-P2 24 for the benefit, and may not limit or target any serv ice based on age, nature or type of disability, disease, condition, or residentia l setting, but could include risk factors or take into account service history. However, section 1915(i)(7) of th e 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 no t 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, pe rmitting 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 exer cise 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 compar ability 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 desc ribes the State plan H CBS benefit as "for Elderly and Disabled Individua ls." 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 base d on need and on eligibility for medical assistance under a State plan group. Thus, we believe that the use of these terms in the stat ute is descriptiv e. Individuals who are eligible for medical a ssistance under a group covered in th e State’s plan and who meetCMS-2249-P2 25 the needs-based eligibility criteria for State pl an HCBS will be likely to have needs stemming either from a disability or fr om being elderly. We note that section 1902(b)(1) of the Act prohibits the Secretary from appr oving any plan for medical assistance that imposes an age requirement of more than 65 year s 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-base d criteria. We propose to provide States with the flexibility to define the speci fic 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 th e 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 individua ls with specific diagnoses, those individuals must meet both the ta rgeting criteria, as well as the State’s needs-based criteria. Section 1915(i)(1)(B) of the Act additionally re quires that the needs-based criteria for determining whether an individua l 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 e ligibility criteria for the State plan HCBS benefit. Institutional/waive r LOC criteria in some States do not include needs-based criteria. Since the two must be comp arable, we interpret this to mean that States without a needs-based component to their ins titutional 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 institu tional/waiver LOC determination proce ss so that stringency of those criteria can be compared to stringency of eligibil ity 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 crit eria will be relative, specific to each State’s unique institutional leve ls 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 simp ly that the needs-based criteria for institutions and for the State plan HCBS benef it be set so that the latter are lower at the time the benefit is implemented. There is no requireme nt that institutional criteria be higher, lower, or unchanged from their level prior to implementing the State pl an HCBS benefit. The only test is that the result of all the needs-based crit eria must be that some individua ls will be served under the State plan HCBS benefit who are not e ligible to be served by Medicai d institutional services. If institutional LOC criteria are changed in im plementing 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 ot her 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 Di sabilities Act and theCMS-2249-P2 27

Olmstead decision, and funding constraint s6. 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 le ave the institutional criteria unchanged (if they already include needs-based criteria). This woul d satisfy the requirement that the institutional criteria be more stringent than the State plan HCBS benefit, meet a goa l to service individuals who have not previously had access to HCBS beca use 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 ta ke 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 choos e (or not) to also include in th e 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 anal ysis of some of the other relevant issues mentioned above. We note that section 1915(i) of the Act does not modify the statutor y coverage provisions governing institutional benefits. States must be cautious not to establish more stringent needsbased criteria for hospitals, NFs or ICFs/MR th at would reduce access to services mandated

6 Under section 2001(b) of the Affordable Care Act, Stat es 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 la sts 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 requir ements for institutions and HCBS waiv ers may have an impact on Medicaid eligibility for some individuals, we encourage States inte rested in using the State plan HCBS to contact CMS for technical assistance in meeting th ese statutory requirements.CMS-2249-P2 28 elsewhere in title XIX, since those other provi sions 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 skil led nursing care, rehabilita tion services, and "[o]n a regular basis, health-related ca re 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 f acilities." To the extent an individual has a medical need for such health-related care and serv ices which are only available in an institutional setting because that needed home or community-b ased health-related care and services are not available, the NF institutional be nefit must remain available to a ll 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 su bject 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 we ll as those section 1115 waivers that include HCBS, as specified in se ction 1915(i)(6)(a) of the Act. Sections 1915(c), (d) and (e) 7 of the Act will have more stringent mi nimum 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 sect ion 1115 demonstration with multiple levels of care for institutional and/or HCBS, we in terpret this requirement to apply to the least stringent institutional LOC criteria within that de monstration 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 incl ude a (d) or (e) waiver, these requirements would apply.CMS-2249-P2 29 In summary, the needs-based eligibility crit eria for the State plan HCBS benefit must have the effect of allowing some individuals who do not meet the n eeds-based criteria for institutionalized care to access HCBS through th e section 1915(i) benefit, but may also allow access to individuals who meet the institutional need s-based eligibility criteria. States may also enroll individuals in both a section 1915(i) be nefit, and a section 1915(c) waiver, as discussed earlier in this rule. 3. Number Served Section 1915(i)(1)(C) of the Act, as amende d by section 2402(e) of the Affordable Care Act, does not permit States to limit the number of eligible individuals rece iving services and to establish waiting lists. Instead, the benefit requ ires 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 pe rmits 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 Secretar y specifies, of the number of individuals to be provided HCBS. We propose to follow the pract ice 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 woul d project the total number of individuals to be served by the be nefit during the initial year. We further propose to specify that States with an approved State plan HCBS benefit annually subm it both the projected number of individuals to be served and the actual number of individuals serv ed in the previous year. We refer to individuals served under the benefit and included in the annual number served as havingCMS-2249-P2 30

been enrolled in the benefit. Th e 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 serv ice under the State plan HCBS benefit, "enrollment" is a useful term to indicate individuals for whom those steps have b een completed, services have been authorized or provided, and who will be accounted for in the an nual 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 S ecretary, and revise the estimate for succeeding
years. 4. Independent Evaluation Section 1915(i)(1)(D) of the Ac t sets forth a requirement fo r 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 unders tood in light of section 1915(i) (1)(H) of the Act, means free from conflict of interest on the part of the eval uator. The independent evaluation is separate from, but related to, the independent assessment (as discussed below). The independent evaluation applies the needs-ba sed 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 el igibility criteria specified in sections 1915(i)(1)(A) and (B) of the Act requires an individualized and indepe ndent evaluation of each person’s support needs and capabilities. We interpret "needs and capab ilities" to mean a balanced approach that considers both needs and strengths. Howeve r, the words "capability" and "ability" areCMS-2249-P2 31 historically connected with a de ficit-oriented approach to asse ssment, which is the opposite of the statute’s person-centered approa ch. 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 indivi dual to perform two or more ac tivities of daily living (ADLs), (which the statute defines by reference to sec tion 7702B(c)(2)(B) of the Internal Revenue Code of 1986), or the need for significan t assistance to perform these act ivities. The State may also assess other risk factors it determines to be appr opriate in determining eligibility for, and receipt of, HCBS. The statute does not li mit the factors a State may take into account in the evaluation. For example, difficulty with in strumental activities of daily living (IADLs) or the need for cueing in order to perform a task could be cons idered. 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 th e Act permits the State to ad just the needs-based criteria described in section 1915(i)(1)(B) of the Act in the event that enroll ment 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 elig ible for the HCBS benefit. To preserve the requirement of section 1915(i)(1)(B) of the Act th at more stringent needs-based criteria be in place for institutionalized care, the adjusted eligib ility criteria must still be less stringent than those applicable to institutional levels of care in the State plan institutiona l benefit, and thus, in any HCBS waivers that require part icipants to meet an institutional LOC. If the State chooses toCMS-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 st atute requires the State to amend the State plan to reflect the adjusted criteria. We believe that the State’s adjustment au thority does not prevent the Secretary from disapproving a State plan amen dment (SPA) that fails to comply with the statute and regulations. This provision of the law must be in terpreted in light of existing Medicaid requirements not waived by section 1 915(i) of the Act. We have, therefore, incorporated within the proposed regulation t hose relevant requirements in addition to the statutory provisions within sec tion 1915(i)(1)(D)(ii) of the Act. Section 441.559(c) provides the greatest degree of authority for ad justment possible within the cons traints of other requirements. The Secretary will evaluate the State’s adjusted criteria for compliance with the provisions of this subparagraph and all requirements of subpa rt K. A State may implement the adjusted criteria as early as 60 days after notifying al l 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 modi fied criteria prior to the Secretary’s final determination with respect to the State plan am endment, 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 previ ous State plan HCBS needs-base d 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 crit eria, (based on the most recent version of theCMS-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 longe r meets the needs-based criteria, and targeting criteria if applicable, under whic h they were originally provided th e 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 main tenance of efforts requirements discussed in section II.B.2. of this proposed rule. We note that the required processes for i ndividual notification and appeals, contained within part 431, subpart E, remain in effect whenever a State modi fies its needs-based criteria. Furthermore, section 1915(i)(5) of the Act provides protections fo r individuals who are receiving services in waivers or institutional settings prio r to the modification of the LOC requirements, as discussed below. It is important to note that th e adjustment authority is a Stat e 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 se veral required functions. Section 1915(i)(1)(E)(i) of the Act refers to the independe nt 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 intr oduces the requirement of an independent assessment following the independent evaluation. Thus, there are two steps to the pro cess: the eligibility determination, which requires the application of the needs-based criter ia and any additional targeting criteria the State el ects to require; and the assessm ent for individuals who wereCMS-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 e ligibility evaluation, the independe nt assessment is based on the individual’s needs and strengths. The Act requ ires that both physical and mental needs and strengths are assessed. These requirements de scribe a person-centered assessment including behavioral health, which will take into account th e 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 se rvices and supports to be provided; prevent the provision of unnecessary or inappr opriate care; and establish a written individualized service plan. To achieve the three purposes of the asse ssment 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 e ffects of conflict of interest would be equally deleterious. These considerations of independenc e 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 behavi oral health conditions trigger a potential need for HCBS. To fulfill this statutory requirement , we would propose that the State must developCMS-2249-P2 35 standards and determine the qualifications neces sary for agencies and individuals who will perform independent assessments and be invol ved with developing the plans of care. Additionally, we recognize that ma ny States are devel oping infrastructure a nd policies to support the use of telemedicine and other ways to provi de distance-care to i ndividuals in order to increase access to services in rural areas or ot her locations with a shor tage of providers. To support these activities, we propos e that the “face-to-face” assessm ent can include any session(s) performed through telemedicine or other info rmation technology medium if the following conditions apply: ++ The health care professional(s) perf orming the assessment meet the provider qualifications defined by the State, including any additional qualific ations or training requirements for the operation of re quired information technology; ++ The individual receives appropriate s upport during the assessmen t, 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 assistan ce to perform the activities is required. We do not interpret "objective" to refer to the indepe ndence required of the assessor as discussed above, but to refer to an additional requirement for reliance on some level of valid measurem ent appropriate to the ADLs in order to ensure that the assessments we re applied uniformly across individuals in the section 1915(i) benefit. For example, an occ upational 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 tr ained assessor is not necessarily responsible for performing theCMS-2249-P2 36 objective evaluation, but should make sure th at the objective evalua tion is performed by qualified individuals. We do not propose methods to achieve this requireme nt, 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 include s the following: bath ing, dressing, toileting, transferring, eating, and c ontinence. This section of the Internal Revenue Code does not define the terms "inability" or "significa nt assistance." While States ha ve some flexibility to define these factors, we interpret "ina bility" to mean need for total support to perform an ADL, and “significant assistance” to mean assistance from another indivi dual or from assistive technology necessary for the successful performance of the task. An objective evaluation of inab ility 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 elem ent of the assessment in order to inform the development of the service plan required by se ction 1915(i)(1)(G) of the Act. Because States may define very diverse needs-based criteria an d 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 assessm ent tool could be used to me asure 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 uni versal core elements to be included in an assessment, through wo rk being done under the Balancing Incentives Payment Program, created under section 10202 of the Affordable Care Act. For consistencyCMS-2249-P2 37 across Medicaid programs, we ther efore, intend to move toward States including any finalized universal core elements developed from this wo rk in carrying out independent assessments under 1915(i), as well as under 1915(k) Community Firs t Choice, and in performing other HCBS assessments as determined by CMS.

● Consultation with any responsible persons appropriate to the indi vidual 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 re presentative, the opportunity to identify appropriate persons who should be cons ulted during this proce ss. The role of the assessor is to facilitate free co mmunication from persons releva nt to the support needs of the individual, while protecting pr ivacy, and promoting the wishes and best interests of the individual. In necessary circumstances, the cons ultations are not required to be performed in person or at the same time and place as the f ace-to-face evaluation, so long as any ancillary contacts are with persons the individual has identified, are di vulged 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 rele vant history, medical records, and care and support needs.

● Knowledge of best practices and resear ch 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 requi res 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 entireCMS-2249-P2 38 process for assessment and service plan developm ent in a comprehensive, coordinated manner. Since the individualized service plan must be based upon th e independent assessment, these requirements for the assessment should be used to inform and strengthen the service plan and, subsequently, the services provide d to the individual.

● If the State offers the option of self -direction and the individual so elects, the assessment should include gathering the informa tion 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 provis ions related to conducting the independent eligibility evaluation, independent assessment, a nd developing the person-centered service plan, States have flexibility in determining whether th ey will require that the functions be performed as one activity by a single agency or individual, or whet her they wish to sepa rate 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 a ssessment. 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 consis tent with the terminology in use with other HCBS, including §1915(c) HCBS waivers, we wish to avoid the misunde rstanding that the plan is a different type of requirement in the State plan H CBS benefit than in other HCBS authorities. We note the reference to “service pl an” 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 dependentCMS-2249-P2 39
connotation, inconsistent with a person-centered approach. Sin ce we see no technical difference between the two terms, we propos e to adopt “service plan”. Underpinning all aspects of successful H CBS is the importance of a complete and inclusive person-cente red planning process that addresses health and long-term services and support needs in a manner that reflects individual pr eferences. The person -centered approach is a process, directed by the individual with l ong-term support needs, and may also include a representative whom the indi vidual has freely chosen. To fully meet individual needs and ensure meaningful access to their surrounding community, systems that deliver HCBS mustbe 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 indivi dualized service plan fo r all individuals to be served by section 1915(i) benefit. This can be ac hieved when States affi rmatively 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 th e process achieves the goal of person-centeredness can only be kno wn with appropriate quality monitoring by the State, which should include substantial feedback provided by individuals who recei ved or are receiving services. The person-centered service plan must identify the strengths, preferences, needs (clinical and support), and desired outcomes of the indivi dual. The person-centered planning process is conducted in a manner that reflects what is importa nt for the individual to meet identified clinical and support needs determined through a person- centered functional need s assessment process and what is important to the indi vidual to ensure delivery of se rvices in a manner that reflects personal preferences and choices.CMS-2249-P2 40 In addition to being driven by the indivi dual receiving services, the person-centered planning process would--

● Include people chosen by the individual;

● Provide necessary support to ensure that the individua l has a meaningful role in directing the process to the maximum extent possi ble, and is enabled to make informed choices and decisions;

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

● Reflects cultural considerations of the individual;

● Include strategies for solv ing conflict or disagreement w ithin the process, including clear conflict of interest guideline s for all planning participants;

● Offers choices to the individual regarding the services and suppor ts they receive and from whom.

● Includes a method for the individu al to request updates to the plan.

● Records the alternative home and community-b ased settings that were considered by the individual. The plan resulting from this process should refl ect that the setting in which the individual resides is chosen by the indivi dual. The plan should reflect the individual’s strengths and preferences, as well as clin ical and support needs (as iden tified through an assessment of functional need). The plan should include indi vidually identified goals, which may include goals and preferences related to relationships, commu nity participation, employment, income and savings, health care and wellne ss, education, and others (we not e that not all goals will have comparable services covered under Medicaid). The plan should re flect the services and supports (paid and unpaid) that will assi st the individual to achieve id entified goals, and who providesCMS-2249-P2 41 them. The plan should reflect risk factors a nd measures in place to minimize them, including individualized back-up plans. The plan mu st 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 mu st be provided to individuals and others involved in the plan. Consistent with these person-centered prin ciples and the requirements for community integration under the Americans w ith 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 reflec t 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 incl ude activities that may not themselves be funded through medical assistance, the coordination of Medicaid serv ices 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 activi ties, and/or other activi ties that occur regularly for individuals living in the community. Subject to any additional need s-based criteria established for individual services, the State must make the services available to all elig ible 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 n eeds, not based on available funds. Just as significantly, individuals who qua lify for HCBS may not be co mpelled to receive them.CMS-2249-P2 42 Individuals may also exercise their freedom to choose among qualified pr oviders in the planning
process. The State Medicaid agency may delegate othe r agents to develop the service plan, but remains responsible for ensuring compliance w ith all requirements for each service plan developed. While the agency may delegate the au thority 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 establ ishment of appropriate controls, including monitoring and a quality improvement process. Section 1915(i)(1)(G)(ii)(I)(aa) of the Act requires that the se rvice plan is developed in consultation with the individual. The require ments for who is consulted in developing the service plan parallel those de scribing who may be consulted du ring 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 th e 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 th e 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 require s that such plan identify needed services. We interpret these prov isions to indicate that to the extent available, natural supports should be explic itly included in the service plan. This means that individuals with equivalent needs for support but differing leve ls of family or other natural supports may beCMS-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 th e service plan should neither duplicate, nor compel, natural supports. Section 1915(i)(1)(G)(ii)(III) of the Act provide s that plans of care will be reviewed at least annually and upon significant change in the i ndividual’s circumstances. We interpret this provision to indicate that diagnos tic or functional changes are not required in order to adjust a service plan. Changes in external factors such as gain or loss of othe r 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 revi ew indicates that revisi on is appropriate. By "annually," we mean not less often than every 12 months. Finally, we would relate this requirement to the independent as sessment, since the development or revision of the service plan is based on the assessment. Therefore, we w ould propose that the independent assessment (See section II.B.6.) is required at le ast 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-d irection into section 1915(c) waiver programs as well as section 1115 demonstration programs. Self-directed Stat e plan HCBS allow States another avenue by which they may afford individuals maximum choi ce 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 cr iteria and guidance to States surrounding selfdirection (also referred to as pa rticipant-direction), and establis hed a process by which States are encouraged, to whatever degree f easible, to include self-direction as a component of their overall HCBS waiver programs. While s ection 1915(i) of the Act does not require that States follow the guidelines for section 1915(c) waivers in implem enting self-direction in the HCBS State plan benefit, we anticipate that States will make us e of their experience with section 1915(c) waivers to offer a similar pattern of se lf-directed opportunities with meaningful supports and effective protections. Individuals who choose to self-direc t 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 define s self-direction, and re quires that there be an assessment and service plan. We do not interp ret these requirements to indicate assessments and plans in addition to those ge nerally required in sections 1 915(i)(1)(F) and (G) of the Act. Accordingly, we would propose that the requir ements for a self-direct ed service plan under section 1915(i)(1)(G)(iii)(III) of the Act be incorporated as co mponents of the assessment and service plan required for all enrollees in the State plan HCBS benefit. Section 1915(i)(1)(G)(iii)(III) ofthe Act contains specific requirements for the selfdirected service plan, for which we describe pr oposed regulations in section III. The proposed regulations are consistent with our requirements for self-dir ection 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 not ed above, we would propose to require of all service plans for the Stat e plan HCBS benefit. Section 1915(i)(1)(G)(iii)(IV) of the Act desc ribes certain aspects of a self-directed budget, which we have termed “budget authority.” Section 1915(i)(1) (G)(i ii)(III)(bb) of the ActCMS-2249-P2 45 provides for self-directed selec ting, managing, and/or dismissing of providers of the State plan HCBS, which we term “employer authority.” We in terpret selecting to include the authority to hire a provider, as well as to direct an agency to hire a speci fic provider. Currently, section 1915(c) HCBS waivers include varying degrees of self-direction. The proposed rule explains both budget authority and employer au thority in a manner consistent with section 1915(c) HCBS waiver policy. Individuals require informati on and assistance to support them in successfully directing their services. Therefore, we would require Stat es 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, info rmation and assistance consistent with sound principles and practice of se lf-direction, and financial mana gement supports to serve as fiscal/employer agents or co-employers. The availa bility of an independent advocate to assist the individual with the access to and oversight of th eir 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-directio n will be important elements of the State’s quality assurance strategy, which is required by sect ion 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 w ith current trends in he alth care, the language of quality assurance has evolved to mean quality improvement, a systems approach designed to continuously improve services and support a nd prevent or minimize problems prior to occurrences. Guidelines for quality improveme nt have been made available through CMSCMS-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 cons iderable 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 indicato rs approved and/or prescr ibed by the Secretary. These measures must take into account the rele vant, targeted assurances , and include measures established through the DRA, CHIPRA, Affordable Care Act, and/or any other relevant health care indicators or quality measur es developed by HHS, as applicab le to the population(s) served by the section 1915(i) benefit. We would require States to ma ke 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 speci fic 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 mo re 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 inde pendent evaluation and independ ent assessment. For reasons described above under independent assessment, we believe that the same independence is necessary for those involved w ith developing the person-center ed service plan. In this discussion, we will refer to persons or entiti es responsible for the independent evaluation, independent assessment, and the service plan as “a gents” 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-util ization of services; subtle problems such as interest in retaining the in dividual as a client rather than promoting independence; or issues that focus on the convenience of the ag ent 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 responsib le 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, e ither locally or from the State. The service plan must offer each individual all of the HCBS that are covered by the St ate 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 necess ity (for example, needs-based criteria), not on available funding. When local ent ities directly expend funds or direct allocated resources for services, in accordance with secti on 1902(a)(2) of the Act, the State must have a mechanism to ensure that availa bility of local funds does not af fect 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 St ate 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 referra ls 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 pr ovider available to serve as both the agent performing independent assessme nts and developing plans of care, and the provider of one or more of the HCBS. To addr ess this potential probl em we would propose to permit providers in some cases to serve as bot h agent and provider of services, but withCMS-2249-P2 48 guarantees of independence of function within th e provider entity. In certain circumstances, we may require that States develop "firewall" policie s, 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 indi viduals and representativ es to appeal to the State. We would not permit States to circumve nt these requirements by adopting State or local policies that suppress enrollment of any qualified and willing provi der. We do not believe that under any circumstances determination of eligibi lity for the State plan HCBS benefit should be performed by parties with an inte rest in providers of HCBS. We understand that the development of appr opriate plans of care often requires the inclusion of individuals with expe rtise in the provision of long-ter m services and supports or the delivery of acute care medical services. As disc ussed previously, this rule is not intended to prevent providers from participa ting in these functions, but to en sure that an independent agent retains the final respon sibility for the evaluation, assessmen t, and service plan functions. 11. Eligibility Redete rminations; Appeals Section 1915(i)(1)(I) of the Act requires the State to conduct redeterminations of eligibility at least annua lly. 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 he arings consistent with the requir ements 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, fo r 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 th at 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 connot e 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 no t eligible for Medicaid may not receive State plan HCBS.

● "Evaluation and assessment" under section 1915(i)(1)(E) of the Ac t, is described as evaluation for eligibility for the benefit and asse ssment 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 describi ng the assessment under sec tion 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 “med ical 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 serv ices, as well as administrative co sts to determin e eligibility for the State plan HCBS benefit. ,We interpret secti on 1915(i)(1)(J) of the Ac t 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 St ate 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 StateCMS-2249-P2 50 plan HCBS, and would not be cons idered 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 interpre tations of this presumptive payment option and that comport with exis ting 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 assi sted or represented by another person. Section 1915(i)(2) of the Act defines the term "individual’s representative" by listing certain examples, but also provide s that "... any other individual w ho 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 representati ves conform to good practice concerning free choice of the individual, and assess for abuse or exce ssive 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 provid ed so the individual can meaningfully participate and direct the proc ess to the maximum extent possible. We are proposing to provide that the Stat e 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 indivi dual or cannot perform the required functions. 14. NonapplicationCMS-2249-P2 51 As amended by the Affordable Care Act, secti on 1915(i)(3) of the Act allows States to be exempted from the requirements of two sections of the Medicaid statut e: section 1902(a)(10)(B) of the Act, regarding comparability; and sect ion 1902(a)(10)(C)(i)(III) of the Act, regarding income and resource rules for the medically nee dy in the community. The statute uses the terms "nonapplication" and "may chose not to comply w ith" rather than "waive". We would use this terminology to maintain clarity between HCBS waiver progra ms under section 1915(c) of the Act and State plan HCBS under section 1915(i) of th e Act. However, it is important to reiterate that the choice not to apply these requirements app lies only with regard to the provision of State plan HCBS. Nonapplication of the requirement of comparabil ity allows States to furnish the State plan HCBS benefit to specific targeted populations, sim ilar to section 1915(c) waivers. Regardless of whether a State chooses to apply comparability re quirements, it must define needs-based criteria to establish eligibility for th e 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 se ction 1915(i) benefit. See the discussion in I.B.19 of this proposed rule for more detail regarding th e option not to apply Medicaid comparability requirements and to ta rget the benefit to a specific population or populations. The nonapplication of the requi rements of section 1902(a)(1 0)(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 inst itution 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 ch ild with a disability.CMS-2249-P2 52 However, nonapplication of the income and resour ce rules applicable in the community applies only to the medically needy and only for the pur poses 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 stat ute to mean that individua ls made eligible on the basis of nonapplication of section 1902(a)(10)(C)(i)(II I) 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)(II I) of the Act for the medically n eedy, 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 dete rmined to meet the 150 percent of the FPL limit, the individual would only be eligib le for State plan HCBS under se ction 1915(i) of the Act. The individual would not be eligible for any ot her Medicaid State plan services. However, individuals who are eligible fo r 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 St ate 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 th e 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 19 15(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 fo r the 1915(i) benefit.CMS-2249-P2 53 16. Continuation of Federal Financial Participa tion (FFP) For Institutiona l Level of Care For Individuals Receiving Services As of the Effec tive Date of the State Plan HCBS Amendment If the State modifies institutional LOC require ments so that they will be more stringent than the needs-based criteria for the State plan HCBS benefit, secti on 1915(i)(5) of the Act permits States the option to continue rece iving FFP for individuals who are receiving institutional services in NFs, ICFs/MR, and app licable hospitals or who are receiving services under a section 1915 waiver or through an 1115 HCBS demonstration project th at is in effect at the time of the modification. We interpret th e 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 th at the institutional LOC is modified would not have to satisfy the more string ent 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. Therefor e, 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 fo r institutional care and HCBS until they no longer meet the less stringent LOC requirements or un til 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 indi vidual aged out of a waiver , or if an increase in income or resources caused the indivi dual to lose Medicaid eligibility.CMS-2249-P2 54 In section 1915(i)(5) of the Act, the statute indicates th at FFP remains available for individuals who meet the previous institutional cr iteria. 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 maintain ing eligibility standa rds, methodologies and procedures, we encourage States to consult wi th CMS before institut ing any changes to LOC requirements. 17. State Option to Provide HCBS to Individu als Eligible for Serv ices 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 H CBS 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 ar e eligible for a waiver may receive State plan HCBS under the authority of section 1915(i ) if they satisfy the needs-based crite ria under such section and if their income is less than 300 percent of the supplemental security inco me (SSI) Federal benefit rate (FBR), as established by secti on 1611(b)(1) of the Act. We interpret this statute as creating an op tion for States to increase the income limit for the State plan HCBS benefit, but only for indi viduals 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 entr ance 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 ra te, 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. Regard less of whether a State elects the option establ ished by this section, the State c ould provide HCBS through both the section 1915(i) benefit, as well as through a HC BS 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 th e State plan HCBS benefit, and has income below 150 percent of the FPL, the individual coul d 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 thei r section 1915(i) benefit). When a State elects to incl ude this option, section 1915(i) (6)(C) of the Act allows services to differ in type, amount, duration, or sc ope from services provided to individuals who are eligible for the sect ion 1915(i) benefit without also being eligible for a waiver. A State may choose to provide additional 1915(i) State plan H CBS to individuals who are eligible for HCBS under an approved waiver. If a State does so, itmay also elect to establish additional needsbased criteria for those services . The establishment of additi onal criteria would be under the State authority to establish need s-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 St ate and approved by the Secret ary, within the package ofCMS-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 rece ive State plan HCBS, a State may not restrict access to benefits that are available to other individuals who r eceive the State Plan HCBS, except through a targeting criteria, or through the es tablishment of a needs-based crit eria that applies uniformly to all individuals. 18. Establishment of Optional Elig ibility Group to Provide Full Medi caid Benefits to Individuals Receiving State Plan HCBS Section 2402(d) of the Affordable Care Ac t creates a new optiona l 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 establishe d under (1)(A) of 1915(i), or who are eligible for home and commun ity-based services under paragr aph (6) of such section, and who will receive home and community-based servi ces pursuant to a State plan amendment under such subsection.” Under this group States can elect to cover in dividuals who are not ot herwise 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 re sources to qualify for Medical Assistance under a State’s Medicaid plan, could be eligible for sect ion 1915(i) services if he/she meets the needs-based criteria fo r 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 se ction 1115 waiver and w ho will receive section 1915(i) services. These indivi duals do not have to be recei ving services under an existingCMS-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 woul d be eligible for full Medicaid benefits. The State mu st also elect the option under sect ion 1915(i)(6) of the Act if the State intends to cover indi viduals 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 withou t regard to the compar ability requirements contained in section 1902(a )(10)(B) of the Act. As a result, th e State may “target” services, that is, either provide the 1915(i) benefit only to indi viduals in certain Medica id 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 th at 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 cr iteria to establish eligibility fo r 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 th e 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 crit eria may define a target population or multipleCMS-2249-P2 58 target populations within parameters of diagnosis, disability, Medicaid elig ibility groups, and/or age. Within these parameters, targeting criteria may be similar to those available through section 1915(c) waivers, as de fined in §441.301, but we note that based on experience, these target groups may not aptly captu re the universe of individuals who could benefit from section 1915(i) of the Act. Therefore, a State may also establish broader criteri a 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 Individu als.” Therefore, we would e xpect any target ing criteria to apply to eligibility groups servi ng those individuals. We would al so expect targeting criteria to align with the needs-based criteria established for the benefit. For example, a State could target the benef it package to any children under the age of 21 with an intellectual disability, a developmenta l disability, autism, or a behavioral health condition. A State could also ta rget the benefit using traditi onal section 1915(c) groups. An example of this would be to target the benef it 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 provi ders, or that forestalls the opportunity for individuals to receiv e 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 th e 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 th at would restrict eligib ility 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 populati on or populations, it must still establish needs-based criteria that individuals must meet in orde r to be eligible for section 1915(i) services and the State may also establis h 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 genera l needs that apply acro ss all of the populations included in the benefit. 20. Five-Year Approval for Target ed Section 1915(i) HCBS Bene fits and Renewal Requirements Under sections 1915(i)(7)(B )(i) and (C) of the Act, if a St ate chooses to target State plan HCBS, the SPA approval will last for a 5-year period with the opti on for 5-year renewal periods. There is no statutory limit on the nu mber of renewal periods availabl e under this section. At the end of the initial 5-year period, and any subs equent renewals, CMS w ill 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 writte n 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 qu ality improvement strategy in or der 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 Stat e’s section 1915(i) be nefit 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 Federa l requirements, including adherence to the State’s phase-in plan, as approved by CMS. 21. Phase-in of Services and EligibilityCMS-2249-P2 60 Section 1915(i)(7)(B)(ii) allows States to pha se-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 eligib le individuals and provide all of the services it has elected to include in the benefit by the e nd of the initial 5-year approval. Although the option to phase-in services and/or eligibility ma y 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 indivi duals with the highest n eed 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 el igible individuals, based upon the assessment for eligibility to the benefit. In th is instance, the needs-based criteri a would allow States to identify individuals at greatest risk for health and safety, and to prioriti ze services to t hose individuals. Services would then be phased- in to individuals w ho qualify for the benefit but who have less assessed need. States are permitted to modify the available se rvices 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 enro lled individuals. However, at the option of a State, a phase-in plan might temp orarily 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 numb er of qualified providers.CMS-2249-P2 61 We propose that a State that el ects to target the State plan HCBS benefit and to phase-in enrollment and/or services must submit a phase-i n 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 se rvices 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 mu st enroll all eligible individuals and provide all of the services it has elected to include in the benefit by the end of the in itial 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 s ection 1915(i) submission of a si milar design with a phase-in period when a similar benefit w ith phase-in is discontinued before full implementation. We are soliciting comments on alternative st rategies 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 Stat e plan, as set forth by the DRA, is January 1, 2007. The effective da te 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 C ontext of the Medicaid Program as a WholeCMS-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 bene fit, an individual mu st be included in an eligibility group that is contai ned in the State plan, includi ng if the State elects, the new eligibility group defined at secti on 1902(a)(10)(A)(ii)(XXII) of the Act. Each individual must meet all financial and non-financia l criteria set forth in the plan for the applicable eligibility
group. Children included in eligibil ity 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 thro ugh 1905(a) State plan services under the Medicaid Early and Periodic Screenin g, Diagnostic, and Treatment (EPSDT) benefit may be furnished to Medicaid eligible childre n who meet the State plan HCBS needs-based eligibility criteria, and who meet the State’s medical necessity criter ia for the receipt of services. In addition to meeting EPSDT requirements thr ough 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. Howe ver, all Medicaid-elig ible children must have full access to services required under EPSDT, and the provision of 1915(i) Stat e plan HCBS should in no way hinder their access to such services. We further note that the mandate under EPSDT applies only to servi ces authorized by section 1905(a) of the Act. Ther efore, HCBS under section 1915( i) of the Act are not requiredCMS-2249-P2 63 under the EPSDT program. Children who are elig ible for the State plan HCBS benefit are eligible to receive medically nece ssary State plan HCBS, but the St ate 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 covere d in the State plan HCBS benefit. If a State chooses to offer these services, they will be su bject to the clinic upper payment limit (UPL) at §447.321. We also note that these services are defi ned differently than ot her clinic services offered under the State Plan in th at they include services whethe r 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, in cluding actuarial soundness of rates, cost effectiveness of services, and CM S contract review and approval. Additionally, since this benef it is established through a Stat e 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 s eek 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 BackgroundCMS-2249-P2 64 1. Serving all eligible individuals while targeting limited resources As noted above, section 1915(i) of the Act applies the ge neral Medicaid requirements regarding statewideness and, like other State plan options, does not allow States to limit enrollment. Nevertheless, the law offers si gnificant discretion for defining the population served. Specifically, States may limit utiliz ation of the State plan HCBS benefit through application of the following provisi ons of section 1915(i) of the Act:

● The requirement to set eligibility standa rds built on needs-base d 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 speci fic populations. States may combine needsbased criteria with targeting criteria in order to create a very specific be nefit 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 r eceipt of a particular State plan HCBS.

● The choice to offer a limited number of se rvices under the State plan HCBS benefit. The scope of services that the State chooses to o ffer may include any, but ne ed 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 en sure that HCBS conti nue to be responsive to the needs of the individual. Additionally, as a reminder, ge neral Medicaid requirements al so 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 St ates 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 s eek to ensure that Medicaid is supporting needed strategies for States in their effort s 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 obliga tions to serve individuals in the most integrated setting appropriate to their needs. A State’s ob ligations under the ADA and section 504 of the Rehabilitation Act are not defined by, or limited to, the scope of require ments of the Medicaid program. However, the Medicaid program can pr ovide 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 Medi caid 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 pr oposed rulemaking (ANPRM) that solicited comments on potential rulemaking for a number of areas within the section 1915(c) HCBSCMS-2249-P2 66 waiver program. Specifically, we requested public input on strategies to define home and community-based settings where waiver partic ipants may receive services. Although the ANPRM is specific to section 1915(c ) waivers, the services deliver ed and the settings they are available in are parallel to th e 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 r eceived 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, an d 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 pub lished on February 25, 2011 and in the 1915(c) proposed rule published on April 15, 2011. We find the public co mment 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 langua ge to establish the qualities for home and community-based settings under both sections 1915(i) State plan H CBS and the 1915(k) Community First Choice State plan option. It is our goal to align the fina l language pertaining to this topic across the sections 1915(k), 1915(i), and 1915(c) Medicaid HCBS authorities. We have included proposed language for settin gs in which section 1915(i) services and supports could be provided to elicit additional co mments on this issue. While it is not practical to create one singular definition that encompa sses all settings that are home and communitybased, with this rule we propose quality principles essential in determining whether a setting isCMS-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 determin e whether they propose settings that are home or communitybased. We will permit States with approved se ction 1915(i) SPAs a reasonable transition period, a minimum of one year, to come into comp liance with the HCBS setting requirements as promulgated in our final rule. Recognizing the imperative to provide clear guidance to Stat es 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 qualitie s as the Secretary determines to be appropriate, based on the needs of the individual as indica ted in their person-centered servic e plan, in order to be eligible sites for delivery of home a nd 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 pe rsonal resources, and receive services in the community, like individual s without disabilities;

• The setting is selected by the individu al among all available alternatives and identified in the person-centered service plan;

• An individual’s essential pe rsonal rights of privacy, dignity and respect, and freedom from coercion and restraint are protected;

• Individual initiative, autonomy, and i ndependence in making major life choices, including but not limited to, daily activities, physical environment, and with whom to interact are optimized and not regimented; andCMS-2249-P2 68

• Individual choice regarding services and supports, and who provides them, is facilitated. In a provider-owned or controlled resi dential setting, the following additional conditions must be met. Any m odifications 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 plac e that can be owned, rented, or occupied under a legally enforceable agreement by th e individual receiving services, and the individual has, at a minimum, the same res ponsibilities and protections from eviction that the tenants have under the landlord/tenant la ws 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 la w, 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 furnis h and decorate their sleeping or living units; ++ Individuals have the freedom and suppor t to control their own schedules and activities, and have access to food at any time; ++ Individuals are able to have visito rs of their choosi ng at any time; and

++ The setting is physically accessible to the individual

. In addition to the aforementione d criteria there are two criteria that we have not included in the proposed regulation, but wish to solicit comment regarding wh ether they should be added.CMS-2249-P2 69 The first is related to the proposed requirement th at in a provider-owned or controlled residential setting, any modification of the conditions mu st be supported by specific assessed needs and documented in the person centered service plan. This requirement is meant to address two issues:

● Individuals receiv ing HCBS must not have their independence or freedoms abridged by providers for convenience, or well-meani ng but unnecessarily restrictive methods for providing person-centered serv ices and supports; and

● Individuals with cognitive disabilities and other impairments may require modifications of the aforementioned conditi ons for their safety and welfare. This provision is meant to establish that se rvice planning is the pr ocess 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 consideri ng 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; in clude a clear description of the condition that is directly proportionate to the specific assessed sa fety need; include regula r collection and review of data to measure the ongoing e ffectiveness of the modification; and establishing time limits for periodic reviews to determine if the modificatio n can be lifted. We solicit comment on these points and any other potential requ irements regarding modifications of the conditions set forth in this proposed rule. We also wi sh to solicit comment on a second criterion that would include a requirement that receipt of any particular service or support ca nnot be a condition for living in the unit. In discussing this spec ific criterion, we discovered that it could be read one of twoCMS-2249-P2 70 ways. One interpretation is that this language does not require an i ndividual residing in a provider owned or operated setting to receive H CBS from the setting provider. Rather the individual could choose another qu alified 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 servi ce. 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 requir ed 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 recognizi ng 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 se ttings do not include nursing facilities, institutions for mental diseases, intermediate car e 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 th e qualities of an institutional setting, we will exercise a rebuttable presumption that a setti ng 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 provi des inpatient institutional treatment, or in a building on the grounds of, or immedi ately adjacent to, a public inst itution, or disability-specific housing complex. We expect to issue furthe r guidance regarding such settings. Other characteristics that could cause CMS to consider a setting as “institutional” or having the qualities of an institution would in clude, but not be limited to, sett ings which are isolated fromCMS-2249-P2 71 the larger community, do not allo w individuals to choose whether or with whom they share a room, limit individuals’ freedom of choice on dail y living experiences such as meals, visitors, and activities, or limit indi viduals’ opportunities to pursue community activities. We have included these provisions to move towa rd a stronger articulat ion 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 princi ples of home and community-based settings will support the use of the Medicaid program to maximize the opportuni ties 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 na ture, location or admini stration inherently noncommunity based, and therefore, should be expre ssly excluded from HCBS. We also invite comments on the community-based qualities we have proposed in this rule to ascertain whether additional or different characte ristics should be included. In considering comments received pertaining to this provision of the rule, we will also include consideration of all co mments 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 pertai ning to this topic across the regulations for sections 1915(i), 1915(k), a nd 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 a ny willing and qualified provider of a service. We further note that States are not pr ohibited from funding institutional care under Medicaid. The exclusion of thes e settings from HCBS waivers and from the State plan HCBSCMS-2249-P2 72 benefit does not limit the availability of institutiona l 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 t ypes of services should not be funded through authorities that are intended to promote commun ity-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 cr eates a mandate to ensure that services are provided in settings that are not instituti onal in nature. While HCBS are not available while an indivi dual resides in an institution, HCBS should be available to assist individua ls to leave an institution. Reco gnizing that individuals leaving institutions require assistance to establish them selves in the community, we would allow States to include in a section 1915(i) benefit, as an “o ther” service, certain transition services to be offered to individuals to assist them in th eir return to the community. We propose that community transition services could be commenced pr ior to discharge and could be used to assist individuals during the period of tr ansition from an institutional re sidence. Additi onally, services could be provided to assist individuals transi tioning to independent living in the community, as described in a letter to th e 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 ov er 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 disabiliti es associated with aging, and be havioral health support needs). Importantly, these services must be exclusively fo r the benefit of the individual, not the hospital, and must not substitute for servi ces that the hospital is obligated to provide through its conditionsCMS-2249-P2 73 of participation or through its obligations under the ADA. 3. Home and Community-Based Servi ces do not Include Room and Board Payments for room and board are expressly pr ohibited by section 1915(i)(1) of the Act. Except for respite care furnished in a setting approved by the Stat e 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 orde r 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 c onsider the cost of food in the rate it pays for the State plan HCBS, as the cost is then consid ered 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 charge d to the public, one that includes a meal and one that does not include a meal. 4. Timing of Amendments We seek to clarify expectat ions regarding timing of amen dments 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 eligibi lity 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 discre tion, to approve a waiver that provides medical assistance for individuals dually e ligible 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 XVI II, 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 coordina te care and services for this particularly vulnerable group of beneficiaries. This change provides an important tool for States to design programs to better coordinate servi ces 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, esp ecially important when States combine waiver authorities that have different approval periods

. A growing number of States provide care to dual eligible i ndividuals in a managed care service system. To be successful, these system s 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 indivi dual 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 concu rrently with a 1915(c) Home and CommunityBased Services waiver. Some St ates interested in offering home and community-based supports to dual eligibles in a managed care delivery syst em raised concerns with the 2-year approvalCMS-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 admini strative 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 extende d approval periods for sections 1915(b), 1915(c), 1915(d) and 1115 of the Act. For a State to apply for the extended appr oval periods, the demonstration or waiver program must provide services for individuals who are duall y-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 waiver s 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 ad dition, 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, a nd quality requirements. The statute provides that the St ate’s request for extension of the waiver for additional 5- year periods will be approved unle ss the Secretary determines that one or more conditions of the waiver have not been met, that the waiver woul d no longer be cost neutra l (for 1915(c) waivers), cost-effective (for 1915(b) waiver s) or budget neutral (for 1115 de monstrations), that it would not be efficient to extend the waiver, or that it would no longer be consiste nt with the purposes ofCMS-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 th e waiver as specified by the Secretary. G. Prohibition Against Rea ssignment of Provider Claims 1. Prohibition on Payment Reassignment Section 1902(a)(32) of the Act provides gene rally 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 su ch care or service, under an a ssignment or power of attorney or otherwise.” The legislative history for this provision indi cates that a primary pur pose of the provision was to curb perceived abuses that stemmed from “factoring” of accounts receivable by physicians and individual practitione rs. Factoring is when an indi vidual or an organization, such as a collection agency or service bureau, purchas es 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 condi tion of employment to turn over fees to the employer; payments for practitioner services furnishe d in a facility when there is a contractual arrangement under which the facility bills on behalf of the prac titioner; reassignments to a governmental agency, through a court order, or to a billing agent; paym ents to a practitioner whose patients were temporarily served by another identified prac titioner; 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 gove rning 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 specifi cally soliciting public comment on the issue of consistency with Medicare payment policies, as discussed below. 2. Current Medicaid Paymen t 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 paym ents to be made only to certain individuals or entities. Specifically, paymen t may only be made to the indivi dual 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 regulati ons 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 enum erated 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 bu siness agent, such as a billing service or accounting firm, that furnishes statements and r eceives payments in the name of the individual practitioner, if the business agen t’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 orig inally enacted in 1 972 and expanded in 1977, the definition of medical assist ance under section 1905(a) of the Act has been changed to permit States to offer coverage of cate gories of practitioner services, such as personal care services, that may be viewed as unique to the Medicaid prog ram. For these practitioners, the Medicaid program may be the primary, or only, source of pa yment. Some States have sought methods to improve and stabilize the workforce by offering hea lth and welfare benefits to such practitioners, and by requiring that such practiti oners pursue periodic training. Several States have requested that we c onsider adopting additi onal exceptions to the direct payment principle to permit withholdi ng 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 pr actitioner 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 th e circumstances at issue were not contemplated under section 1902(a)(32) of the Ac t and, therefore, that the dire ct payment principle should not apply. In light of the statutory silence in addressing this circum stance, 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 pu rpose of the direct payment principle was to prohibit factoring arra ngements. Therefore, we are proposing anCMS-2249-P2 79 additional exception to describe pa yments that we do not see as w ithin the intended scope of the statutory direct payment requirement. Under th is exception, a State coul d 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 cost s, 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 sectio ns 1915(c) waivers, 1915(i) HCBS State plan amendments and section 1905(a) State plan amendments, we are awar e of settings other th an those specified in section 1915(k)(1)(A)(ii) of the Act that exhib it 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-bas ed.” In the section 1915(i) proposed rule published on April 4, 2008 (73 FR 18676), we propos ed to define home and community settings for this benefit. In the a dvanced notice of proposed rule making 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 st rategies 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) Commu nity First Choice (CFC) State plan optionCMS-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 prov isions published in the CFC proposed rule published on February 25, 2011. The comments r eceived 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 setti ng provision and publish as a new proposed rule to allow for additional public comment before fina lizing. We find the public comment process to be valuable in our attempt to develop the best pol icy on this issue for Medicaid beneficiaries. Our policy regarding appropriate settings fo r the delivery of HCBS , as evidenced by our review of section 1915(c) waiver requests, ha s included a general prohibition on allowing HCBS in settings that are loca ted 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 indi cated strong support for this poli cy being incorporated into the final regulation, along with th e proposal that buildings that in cluded the delivery of inpatient services would not constitute acceptable setti ngs 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 se ttings 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 stat ed that all the characteristics of the setting should be given weight, and that we should not establish requirem ents based solely on the settingCMS-2249-P2 81 locations or types (for example, size or the presence of instituti onal services offered within the same building), which would automatically di squalify a setting from being appropriate for delivery of HCBS. In particular, we heard concerns that a ge neral prohibition on setti ng locations or types could significantly restrict access to services in settings that pr omote aging in place for elderly individuals, disrupt effective tr eatment and support opportunities for individuals with significant brain injury, and potentially restrict access to servi ces in rural areas. Commenters also expressed concerns that by focusing our pol icy on setting locations or phys ical characteristics, we were inappropriately implying that smaller or more scattered settings were automatically appropriate, regardless of the quality of car e or degree to which individual s receiving services in those settings were actually able to participate in comm unity life, be assured of health and safety, or able to control their own daily activities. Many commenters stated th at listing the excluded settings created unintended consequences, and co uld exclude living arrang ements for individuals receiving attendant services and supports that we did not intend to prohibit, as well as permit others that are not integrat ed and person-centered. In response to public comment, we have developed proposed re gulatory language to focus primarily on those qualities we deem essentia l in determining whether a setting of care is community-based. We believe the most effective and consistent way to a ssure 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” a nd “community” that assure independence and integration from the individuals’ perspective. We agree with the many commenters who suggested this type of approach is most consis tent with a person-centered system for deliveringCMS-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 comm unity-based” setting. We disagr ee, as individuals can and do choose to receive services in institutional settin gs. 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 outsid e of an institution (for example, in their own home or apartment or, depending on the service, in a competitive employme nt situation), but rather is offered services only in a provider-owned or operated congregate setting. We received a range of responses as to whethe r disability-specific c ongregate settings are appropriate settings for delivery of HCBS. Some individuals a nd organizations are articulate about their right to live with a nyone of their choosing, including t hose with disabilities. Others maintain that the only way to end unwanted se gregation and forced “choices” is to forbid all segregation by disability, and th at integration by definition mean s interaction with non-disabled individuals. All agree th at 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 alternat ives to individuals in congregat e settings whose residents are primarily or exclusively indivi duals with disabilities. Stat es’ obligations under the ADA and Section 504 of the Rehabilitation Act are independ ent of, and are not limite d by, their obligations under Medicaid, including the requirements of CF C, section 1915(c) of the Act, or section 1915(i) of the Act. States should carefully eval uate their strategies fo r offering services in community-based settings and consider whethe r individuals have mean ingful options beyond a segregated option. In addition, some commenters stated that community can be defined in many ways, andCMS-2249-P2 83 therefore that home and community-based care c ould include integration into a community of peers; that is, in a disability-s pecific congregate or campus setti ng that includes a rich array of supports and activities within th e setting of care. We acknow ledge 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 assi st individuals to be able to live fully integrated in the greater, non-disabled community. To provide greater clarity, we are proposi ng language to establish that home and community-based settings must exhibit specific quali ties 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 tr uly 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 determin e whether they propose settings that are home or community-based. We will permit States wi th 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 th e Secretary determines to be appropriate, basedCMS-2249-P2 84

on the needs of the individual as indicated in thei r 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 employ ment and work in competitive integrated settings, engage in community life, control pe rsonal resources, and receive services in the community, like individual s without disabilities;

● The setting is selected by the individua l among all available alternatives and is identified in the person-centered service plan;

● An individual’s essential personal rights of privacy, di gnity and respect, and freedom from coercion and restraint are protected;

● Individual initiative, au tonomy, and independence in making life choices, including but not limited to, daily activit ies, physical environment, a nd with whom to interact are optimized and not regimented; and

● Individual choice rega rding services and supports , and who provides them, is facilitated. In a provider-owned or controlled residentia l 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 speci fic 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 respons ibilities and protections from eviction that the tenants have under the landlord tenant laws of the St ate, county, city, or ot her designated entity.CMS-2249-P2 85 We are soliciting comments as to whether there are other protec tions, 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 sl eeping or living units; ++ Individuals have the freedom and suppor t to control their own schedules and activities, and have access to food at any time; ++ Individuals are able to have visito rs of their choosi ng at any time; and ++ The setting is physically accessible to the individual. In addition to the aforementione d criteria there are two criteria that we have not included in the proposed regulation, but wish to solicit comment regarding wh ether they should be added. The first is related to the proposed requirement th at in a provider-owned or controlled residential setting, any modification of the conditions mu st 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 indepe ndence or freedoms abridged by providers for convenience, or well-meani ng but unnecessarily restrictive methods for providing services and supports; and (2) Individuals with cognitive disabilities and other impairments may require modifications of the aforementioned conditi ons for their safety and welfare. This provision is meant to establish that se rvice planning is the pr ocess in which these decisions are made, rather than ad hoc on a daily basis. While the proposed text establishes theCMS-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 consideri ng 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 di d not work; include a cl ear description of the condition that is directly propor tionate to the specific assesse d safety need; include regular collection and review of data to measure the ongoing effectiven ess of the modification; and establishing time limits for periodic reviews to de termine if the modification can be lifted. We solicit comment on these points and any other pote ntial 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 r eceipt 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 interpretati on 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 an other 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 re fused to accept a particular serv ice. This interpretation could have an effect on residential se ttings, such as housing programs to address homelessness. Some of these settings include a structure in which i ndividuals are required to participate in treatment (substance use, for example) as a condition of re siding there. We acknowledge the complexities that arise, when trying to suppor t 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. AsCMS-2249-P2 87 indicated earlier, we are specifi cally soliciting comments on whethe r 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 excl ude hospitals as a community setting for the provision of Community First Choi ce Option. We believe this ex clusion aligns with section 1915(k)(1)(A)(ii) of the Ac t requiring that services are provided in a home and community-based setting and section 1915(k)(3)(B) of the Act re quiring services are pr ovided in the most integrated setting appropriate to th e individual’s needs. We would like to clarify that the hospital prohibition applies to ho spitals certified for the provision of long-term care services. We recognize that individuals with di sabilities utilize pers onal attendant services and supports for various activities of daily living and instrumental activities of daily living. As a result, we understand that individuals will li kely 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, indivi duals 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 sup ports may not be provided, along with a general prohibition on any ot her locations that have qualities of an institutional setting, as determined by the Secretary. In considering whether a setting has the qua lities of an instit utional setting for implementation of CFC, we will exercise a re buttable presumption, as we will for the 1915(i) State plan HCBS benefit, that a setting is not a home and community-based setting, and willCMS-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 in patient institutional treatment, or in a building on the grounds of, or immediately ad jacent to, a public institution, or disability-specific housing complex. We expect to issue further guidance rega rding such settings. Ot her characteristics that could cause us to consider a setting as “institu tional” or having the qualities of an institution would include, but not be limited to, settings wh ich are isolated from the broader community, do not allow individuals to choose whether or w ith 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 pur sue community activities. Specifically, as with the 1915(i) proposed rule, we would invite comments on the specific qualities we have proposed. In addition, we ar e soliciting comments as to whether there are settings in addition to those curr ently enumerated in statute, that are, by their nature, location or administration inherently non-community based, re gardless of the nature of an individual’s disability or age, and therefore, should be expr essly 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 co mments received pertaining to the setting provision of the section 1915(k) ru le, we will also include full consideration of all comments received regarding the aligned home and commun ity-based setting requirements being proposed in this rule and section 1915(i). In recognizing the need for a cons istent definition of this term across Medicaid HCBS, it is our goa l to align the final language pe rtaining to this topic across the regulations pertaining to sections 1915(i), 1915(k), and 1915(c) Medi caid HCBS authorities. Along with our overarching interest in ma king improvements to Medicaid HCBS, we seek to ensure that Medicaid is supporting needed strategies for States in their efforts to meetCMS-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 thei r needs. A State’s obligations under the ADA and section 504 of the Rehabilitation Ac t are not defined by, or limited to, the scope or requirements of the Medicaid program. However, the Medica id program can provide an important opportunity to obtain Federal funding that supports co mpliance with the ADA, section 504 of the Rehabilitation Act, and Olmstead through the provision of Medi caid services to Medicaideligible individuals. Additionally, we expect States through the requirement at §441.677(b) to have a comprehensive quality a ssurance system, to develop indi vidual outcome measures that would support the State’s compliance with prov iding CFC services in accordance with the individual’s person-cent ered 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 a nd implement the statutory prov isions described above, we are proposing the following revisions: A. State Organization and Ge neral 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 Colu mbia, the Northern Mariana Islands, and American Samoa (Part 435) and Eligibility in Guam, Puer to 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 sect ion 1902(a)(10)(A)(ii)(XXII) of the Act for individuals, “who are eligible for home and co mmunity-based services under the needs-basedCMS-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 secti on, 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 distin ct eligibility gr oups under section 1902(a)(10)(A)(ii)(XXII) of the Act with tw o 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 pa ragraph (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 el igible for Medicaid. We believe that this interpretation is consiste nt with Congressional intent because this policy allows individuals who would not otherwise be eligible for Medica id because they are not in a category (for example, certain a dults prior to January 1, 2014) to become Medicaid eligible and receive section 1915(i) services. The early op tion established by secti on 1902(k)(2) of the Act covers individuals who are not otherwise categor ically eligible for Medicaid. The new group defined in section 1902(a)(10)(A)(i )(VIII) of the Act, which goes in to 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 descript ion of the eligibility group in the statute at section 1902(a)(10)(A)(ii)(XXII) of the Act does not explicit ly include an income cap we believe that a standard of 150 percent of the FPL , which is the same as the curre nt income cap for individualsCMS-2249-P2 91 eligible under the State plan re ceiving 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 sec tion 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 indivi duals eligible for HCBS under a waiver, gives States this option “in addition to continuing to provide such serv ices” to individuals satisfying the needs-based criteria. Prior to the effectiv e date of the new eligibility group under section 1902(a)(10)(A)(ii)(XXII) of the Act, States c ould only provide HCBS unde r 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 benefi ciary. For purposes of determining income for this group, we believe the SSI program’s rules (w hich are currently used in Me dicaid 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 Me dicaid eligibility cate gory, many individuals eligible under this group will have disabilities or chronic illnesses. The SSI program provides for a number of income disregards specifically app licable to persons with disabilities that are not available under other program me thodologies. 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 met hodology that we believeCMS-2249-P2 92 meets the requirements for determining income e ligibility for this group, this does not preclude States from describing other me thodologies in their SPAs that th ey 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 te st for this group and we are proposing that States may not apply a resource test in determin ing eligibility for this subset of the new group. We believe that not applying a resource test for th is subset would be consistent with the absence of a resource test for the eligibility group de scribed under section 1902(a) (10)(A)(i)(VIII) of the Act and the option for States to cover su ch individuals prior to January 1, 2014.

● The section 1915(i) statute does require that these indi viduals 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 St ate 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 in dividuals 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 eligib le for a section 1915(c) waiver;

● The State must follow eligibility and pos t eligibility rules of an approved section 1915(c) waiver. More information regarding HCBS waiver eligibility and post eligib ility rules isCMS-2249-P2 93

available in the HCBS waiver Technical Guide, online at www.hcbswaivers.net;

● Income and resource rules of th e special income level group apply;

● Section 1902(r)(2) of th e Act income disregards do not apply because income eligibility under the spec ial income level group is determined us ing a gross income test that caps income at 300 percent of the SSI/FBR;

● Section 1902(r)(2) of the Ac t resource disregards apply;

● The individual must receive section 1915( i) services as a condition of Medicaid eligibility;

● If the State elects to c over individuals with income up to 300 percent of the SSI/FBR, it must elect the option under secti on 1915(i)(6) under th e State plan; and

● The individual will be elig ible for all Medicaid servic es, not just section 1915(i) services. Additionally, when electing this new eligibil ity group States will have multiple options.
States can cover- (1) Individuals who meet the needs-based cr iteria 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 es tablished 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 es tablished 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 op tions listed above with respect to the new eligibility group, they must continue to c over individuals descri bed in 1915(i)(1). This is not the first time that an eligibility group has been trea ted in this manner; the aged or disabled poverty level group de scribed at section 1902(m)(1) of the Act permits States to cover aged and disabled individuals, the ag ed only, or disabled only individuals. We invite comment on the eligibil ity 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 basi s to read "1915(i) HCBS furnished under a State plan to elderly an d disabled individuals under the provisions of part 441, subpart L." In §440.180, we are proposing to revise th e heading "Home or community-based services" to read "Home and community-based wa iver services" to stan dardize 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 proposi ng 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 speci fied in part 441, subpart K. In §440.182(a), we propose that the services aut horized 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 sec tion 1915(i) of the Act as described in subpart K, we use theCMS-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 sec tion 1915(i) of the Act defines services by reference to section 1915(c) of th e Act, we believe that the regu latory requirements should be parallel, except for the "other" services which th e Secretary has the authority to approve for an HCBS waiver. In HCBS waivers, other services must be cost-eff ective 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 servic es for the State plan HCBS benefit in §440.182 identically to the services specified in §440.180 fo r HCBS waivers, except for “other” services. We require “other” services to be appropriate for individuals w ho meet the needs-based criteria that the State defines for the benefit. We fu rther specify that the conditions set forth in §440.180(b) for services to individuals with ch ronic mental illness, and in §440.180(c) for expanded habilitation services, apply to State plan HCBS services. In particular, due to concer n over duplication of habilita tion services and the Statedefined “other services,” we propose to re quire at §441.662(a)(7) and §441.662(a)(8) (regarding requirements for independent assessment), explan ations of the manner in which non-duplication of services will be documented in the assessm ent 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 th e 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 i ndividual. This would al so include coordinationCMS-2249-P2 96 of assessments, service plan de velopment, 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 reim bursement for room and board. At §440.182(c), we propose to state that, except for respite care fu rnished in a setting approved by the State that is not the individual’s re sidence, no service or combination of services may be used to furnish room and board through the State pl an HCBS benefit. When meals are furnished as an integral component of the service, we are proposing to perm it 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 clai m 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 residi ng in the same household with the recipient. We propose, as is permitted in HCBS waiver s under section 1915(c)(1) and §441.310(a)(2)(ii), that FFP is available only for the reasonable ad ditional rent and food costs of the caregiver residing in the recipient’s home, not to support the cost of a care giver’s household in which the recipient resides. We would th erefore provide that FFP not be av ailable for caregiver rent and food costs when the residence is owned or leased by the caregiver. D. Services: Requirements and Limits A pplicable 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 fo rth our proposals in 42 CFR part 441initially proposed in newCMS-2249-P2 97 subpart K titled "State Plan Home and Community-Based Servi ces for Elderly and Disabled Individuals," consisting of §441.650 through §441.677, which de scribes requirements for providing the State plan HCBS be nefit. 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 add ition of subpart K to part 441. Therefore, we are proposing to specify that the proposed provisions for th e “State Plan Home and CommunityBased Services for Elderly and Disabled Individuals” in subpart K under §441.550 through §441.577 be redesignated as subpa rt L (§441.650 through §441.677), In this new subpart, it is necessary in se veral paragraphs to indicate that certain provisions apply to an individua l or an individual’s represen tative. To reduce redundancy, we indicate in those paragraphs that "individual" means th e eligible individual a nd, if applicable, the individual’s representative , to the extent of the re presentative’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 se ction 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, a nd 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, an d 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 el derly and disabled individuals must meet the requirements of this subpart. We would require that the State plan amendment in which the State establishes the Stat e 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 c overed 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 secti on 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 §441.6 56(a) that the individual reside in the home or community, not in an institution, according to quality princi ples for community-based settings prescribed by the Secretary. As discussed in section II.E.2. of this proposed ru le, there are a variety of living arrangements that promote independence and co mmunity 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 indi viduals 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 Stat e plan as part of the HCBS benefit at a frequency identified by the State. Finally, we require that, in the event that a StateCMS-2249-P2 99 elects not to apply comparability requirements to the benefit, an individual must meet the Statedefined and CMS approved targeting criter ia 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 hom e and community-based State plan services to individuals eligible und er a section 1915(c),(d),(e) or sect ion 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 th e 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 te rm "not to apply" instead of "waive" since this is an election made by the State and does not re quire 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 Me dicaid eligibility groups, but al lows flexibility to combine multiple target groups within one benefit and to provide different services to each group. Targeting criteria cannot have th e impact of limiting the pool of qualified providers from which an individual would receive services, or have th e 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 la w, and specify a term for each requirement. For example, regarding the terms "assessment" and "e valuation," we would adopt the language in section 1915(i)(1)(H)(ii) of the Act, which re fers to the "independent evaluation" and the "independent assessment." 1. Needs-based eligibility criteria In §441.659(a), we propose that States establis h needs-based criteria for determining an individual’s eligibility under th e State plan for HCBS, and may establish needs-based criteria for each specific service. We do not define support need s, as we believe that States should have the flexibility to match elig ibility criteria to the na ture of the services th ey would provide under the HCBS benefit. By statute, the needs-based crite ria 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-defi ned risk factors affecting eligib ility may be included as needsbased eligibility criteria in the State plan am endment. While we do not propose requirements for State-defined risk factors, we belie ve that as needs-based criteria, risk factors should be related to support needs, such as lack of availability of fa mily members or other unpaid caregivers willing and able to provide necessary care. We distinguish support needs from other type s of characteristics. We propose that a distinguishing characteristic of needs-based criteria is that th ey can only be ascertained for a given person through an individual evaluation. This differentiates a targeti ng 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 inst itutional criteria required in §441.559(b) of this section do not constitute an upper limit of need to be eligible for the Stat e 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 pl an HCBS are not required to be direct alternatives to institutional care. The st atute 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 indi vidual would require institutional care. 2. More stringent institutional a nd waiver needs-based criteria In §441.659(b), we propose that the State plan H CBS benefit is available to a State only if individuals may demonstrate a lower level of n eed 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 n eed to modify their existing institutional criteria so long as the needs-based eligibility crit eria established for State plan HCBS are less stringent. States without need-b ased institutional LOC criteria must add needbased requirements to their LOC assessments in or der to establish the Stat e plan HCBS benefit. We propose in §441.659(b) to define by refe rence to statute and regulation the institutions for which section 1915(i) of the Act re quires more stringent eligibility criteria. NF and ICF/MR are so cited. We interpret the reference in sec tion 1915(i)(1)(B) of the Act to hospitals to mean facilities cer tified by Medicaid as hospitals that are providing long-term care services or services related to the HCBS to be provided under the benefit. The proposedCMS-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 fo r eligibility in the State plan HCBS benefit. We further propose, when the State covers more th an one service in the St ate 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 th ese more-stringent needs-based criteria be submitted for comparison with the State plan amen dment 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. Theref ore, the assessment proc ess for institutional levels of care that include need s-based criteria must include an individual evaluation of support needs. We also propose to require that the Stat e’s more stringent institutional and waiver needsbased criteria be in effect by the effec tive date of the State plan HCBS benefit 8

. 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 pl an HCBS benefit, the St ates may continue to receive FFP when serving individual s 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 ineligib le for Medicaid due to f actors unrelated to the LOC determination, or the indivi dual 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 faci lities a transfer is not a di scharge 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 subs ection would prevent the State from determining whether the person remains eligible for Medicaid based on othe r factors, such as income or residency. 3. Adjustment authority In §441.659(c), we propose to permit States unde r 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 enrollm ent 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 th e needs-based criteria under §441.659(c)(1). We set forth the followi ng conditions required by the statute. The State must provide for at least 60 days notice to the Secretar y, the public, and we would propose to require, each enrollee. Since the effect of adjusted crit eria would be to reduce the scope of services, eligibility for services, or e ligibility for the entire State plan HCBS benefit, the adjusted criteria established under this s ubsection 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 stri ngent 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 co ntained in §441.659(c) are subject to the sameCMS-2249-P2 104 requirements as an adjustment to the institutional LOC cr iteria under §441.659(b). In §441.659(c), we further propose to explicitly require that the ad justed needs-based eligibility criteria for the State plan HCBS be nefit 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 amendm ent adjusting the need s-based HCBS benefit eligibility criteria with a retro active 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 paragrap h and subpart L. We also note that while the State may under this provision implement the ad justed criteria as ea rly 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 a ffected individuals of their right to a fair hearing in accordance with 42 CFR part 431, subpart E. 4. Independent evaluation and de termination of eligibility In §441.659(d), we propose that eligibility for th e State plan HCBS benefit be determined by an independent evaluation of each individual, applying the genera l eligibility requirements in §441.656 of this subpart, and the needs-based crite ria that the State has established under §441.659(a). Independence of the review requires m eeting the conflict of in terest standards set forth in §441.568, where provider qualifica tions for evaluators are specified. The evaluation must assess an individual’s suppo rt needs and strengths. We interpret thisCMS-2249-P2 105 provision of the statute to indica te that the evaluation process draws conclusions about supports that the individual requires becaus e of age or disability, and suppor ts that the individual does not require because of abilities to perform those f unctions 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 191 5(i)(1)(D)(i) of the Act provides that the State may take into account the need for significant as sistance 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 individu al 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 develo pment process. However, this assessment affects eligibility for the benefit in that we propos e at §441.656(a)(ii)(5) that individua ls are considered enrolled in the State plan HCBS benefit only if they ar e assessed to require at least one home and community-based service offered under the Stat e plan benefit in addition to meeting the eligibility and needs-based criteria for the benefit. The evaluation process designed by the State wo uld 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 eac h individual’s support needs, sufficient to draw the appropria te conclusions. In some cases this information may be well documented and current in the i ndividual’s existing records. In other cases, we would require that the evaluator obtain this information by wh atever means are appropriate to secure a valid appraisal of the individual’s current needs. This requirement coul d include professional assessment of certain functional abilities. State ev aluation 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 rece iving the State plan HCBS benefit must be reevaluated at a frequency defined by the St ate, 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 eval uations specified in §441.659(d). I. Independent assessment (§441.662) In §441.662, we propose requirements for indepe ndent assessment of need of each individual who has been determined by the indepe ndent evaluation to be eligible for the State plan HCBS benefit. The purpose of the assessment is to obtain, in combin ation with the findings of the independent eligibility eval uation, all the information necessary to establish a service plan. The assessment is based on the needs of the indi vidual, which we believe precludes assessment protocols that primarily determine diagnoses, or only assess function. Assessment protocols must not assign supports automatically by func tional 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 ot her State and Federal
programs. The assessment also applies the State’s needs-ba sed criteria (if any) for each service. We propose that an individual be c onsidered enrolled in the State plan HCBS benefit only if the assessment finds that the individual needs and meet s 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 indivi dual being eligible for the State plan HCBS benefit but not able to receive any of the services it offers; or for establishing Medi caid eligibility through the benefitCMS-2249-P2 107 without actually receiv ing State plan HCBS services. Su ch a circumstance could, among other problems, be of no utility to the individual, a nd may make it difficult for the State to meet an assessed need. Furthermore, the eligibility gr oup 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 othe r information technology medium, if the health care professional performing the assessment meet s provider qualifications that includes additional training requirements for the operatio n of the information technology, the individual receives support during the assessment including th e 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 i ndependent 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 responsi ble 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 i ndependent eligibil ity evaluation. If self-direction of services is offered by the State and elected by the individual, the independent assessment must include a self-d irection appraisal as described in §441.674. For individuals receiving habi litation services, we propose to require documentation that no services are provided under Me dicaid that would othe rwise be available to the individual,CMS-2249-P2 108 specifically including but not lim ited to services available to the individual through a program funded under section 110 of the Rehabilita tion 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 se rvices provided through the Me dicaid State-plan or through another State or Federal program. We note that extended State plan services would not be considered duplicative, since t hose 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 ensu re that any individual simultaneously enrolled in State plan HCBS and receivi ng 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 nece ssarily mean that an i ndividual 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 independe nt 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 assess ment specified in §441.662, the State develops (or approves, if the pl an 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 de veloped jointly with th e individual. While we propose several specific requ irements for the process of de veloping a service plan, we note that the intent of these requirements is to ensu re a process with shared authority between the individual and the agency or agent. To achie ve 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 excl uded 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 sp ecific State plan HCBS to be provided to the individual, that take into account the individual’s strengths, preferences, need s (clinical and support), and desired outcomes. We are proposing that the service plan should be constructed in a manner that promotes service delivery and inde pendent living in the most integrated setting possible. Therefore, we propose that the plan mu st not only address medi cal and support needs, but should also reflect other individual goals re lated to community living to the extent that services covered under the State Me dicaid plan would be available to support such goals. In the planning process, the degree of assistance with AD Ls available to the individual outside of the State plan HCBS benefit may be taken into ac count in planning the scope and frequency of HCBS to be provided. Thus, the service plan prov ides for all needed serv ices to the individual while preventing provision of duplic ative 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 thei r HCBS, the service plan includes the information required in §441.674.CMS-2249-P2 110 We further propose to require th at the service plan be review ed 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 mu st share the authority for developing and implementing the service plan. This shared auth ority 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 St ate provide assuran ce that necessary safeguards have been taken to protect the health and welfare of the enrollees in State plan HCBS by provision of adequate standard s 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 mi nimum qualifications for individuals and agencies who conduct independent evaluation of eligibility for State pl an 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 th at these qualifications ar e important safeguards for individuals enrolled in the Stat e plan HCBS benefit and propose that they be required whether activities of the agents are provided as an ad ministrative activity or whether some of the activities are provided as a Medi caid service. At a minimum, these qualifications include conflict of interest standards, and for providers of assessment and serv ice plan development, these qualifications must include training in asse ssment of individuals whose physical or mental condition may trigger a need for HCBS and s upports, and an ongoing knowledge of current bestCMS-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 fo r the individual’s finan ces or health-related decisions. The standards also require that the agen t must not hold financial interest in any of the entities that provide care. Relatives and decisi on 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 prescr ibed. 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 St ate 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 "i ndividual’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 individua l enrolled in the State plan HCBS benefit and his or her authorized representa tive, but note that Stat es should have policies to assess for abuse or excessive control and ensu re 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 indivi dual, 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 offe r an election for se lf-directing HCBS. We propose regulations containi ng the specific requirements for self-direction found in section 1915(i)(1)(G)(iii) of the Act. In §441.674(a), we de fine "self-direction." Provisions related to self-direction apply to an indi vidual or an individual’s re presentative. In §441.674(b), we propose that when an individual chooses self-d irection, 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 th e purchase of, or control the receipt of, such services. The evaluation should not reject election to self-direc t based solely on the individual’s disability or a manifestation of his or her disability. We ther efore 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 consiste nt with our policy for self -direction under section 1915(c) HCBS waivers. We propose to re quire in §441.674(b) that the servi ce 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 participat e 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. Contingenc y 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 th e 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-direc tion 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 au thority is defined as the ab ility 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 repres entative, 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 au thority as an individualized budget which identifies the dollar value of th e services and supports under th e control and di rection of the individual. We propose that th e service plan must specify th e method for calculating the dollar values in the budget, a process for adjusting th e budget to reflect changes in assessment and service plan, a procedure to evaluate expe nditures 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-direc tion that the State must offer, based on our experience with self-d irected HCBS in secti on 1915(c) waivers and section 1115 demonstrations. Th ese 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. S upports for self-direction should pr ovide 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: St ate Responsibilities and Quality Improvement (§441.677) 1. State responsibilities We would require in §441.677(a )(1)(i) that the State annua lly provide CMS with the projected number of individuals to be enrolled in the benef it, 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 St ate to elect not to apply comparability requirements, thus permitting States to target the entire 1915(i) be nefit, specific services within the benefit, or both. We clarify in §441.677(a)(1 )(ii) that the State ma y not limit enrollee access to services in the benefit for any reason other than assessed need or targeting criteria. This includes the requirement that servi ces be provided to all individuals who are assessed to meet the targeting criteria and needs-based criteria, regardless of income. Th is 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 pro pose that once an individual is found eligible and enrolled in the benefit, access to offered se rvices can only be limite d by medical necessity. Medical necessity in the State pl an 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 offe red by the benefit, in scope and frequency up to any limits on those services defined in the State pl an, to the degree the enrollee is determined to need them. Enrolle es should receive no more, and no fewer, HCBS than they are determined to requ ire. We note that one function of the service plan as proposed atCMS-2249-P2 115 §441.665(a)(3) is to prevent the provision of unnece ssary, 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 St ate 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 pa yment 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 appr oved State plan prior to an individual’s determination of eligibility for and receipt of ot her 1915(i) services. If the individual is found not eligible for the State plan HCBS benefit, the State may cl aim the evaluation and assessment as administration, even though the in dividual would not be considered to have participated in the benefit for purposes of determining the annual numb er of individuals served by the benefit. FFP would not be available during this presump tive period for receipt of State plan HCBS. In §441.677(a)(2)(ii), we indicate that a Stat e may elect to phase-in the provision of services or the enrollment of individuals if th e State also elects not to apply comparability requirements and to target the benefit to specific populations. However, th ere is no authority to limit the numerical enrollment in th e benefit or to create waiti ng 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 provis ion of specific services based on the assessed need of individuals, the availabil ity of infrastructure to provide services, or both. Infrastructure is defined as the availability of qualified prov iders 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 bene fit. In the event that a State elects to phase-in the benefit based on needs, all individuals who m eet the criteria describe d in the phase-in plan must receive services. If a State elects to pha se-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 assura nce that the benefit, and all in cluded services, will be available statewide to all eligible i ndividuals within the first 5-year approva l 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 reim bursement methodology for each covered service. In some States, reimbursement methods for sel f-directed services may differ from the same service provided without self-d irection. 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 bene fit. The State plan HCBS benefit requires several functions to be performed in addition to the service(s) provide d, such as eligibility evaluation, assessment, and devel oping a service plan. To the ex tent that the State Medicaid agency delegates these functions to other enti ties, we propose that th e 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 rega rding the effective da tes of amendments with substantive changes. Subs tantive changes may include, but are not limited to changes in eligible populations, constriction of service amount, duration or sc ope, or other modifications asCMS-2249-P2 117 determined by the Secretary. We would add regula tory language reflective of our guidance that 1915(i) amendments with changes that CMS determ ines 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 smoot h transitions and mini mal 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 ad herence to Federal requirements. In order to renew State plan HCBS for an additional 5-year pe riod, 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 qual ity assurance required in the statute at section 1915(i)(1)(H)(i) of the Act. We propos e to require a State, for quality assurance purposes, to maintain a quality improvement stra tegy 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 be nefit include a quality improvement strategy consisting of a continuous quality improvement process, and outcome measures for program performance, quality of care, and individual ex perience, as approved and prescribed by the Secretary, and applicable to th e 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 andCMS-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 requi re States to have qual ity of care measures as approved or prescribed by the Secretary. Qu ality of care measures may focus on program standards, systems performance, and individual outcomes. P. Section 2601 of the Affordable Care Act: 5-Ye ar Period for Demonstrat ion 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) waiv ers which are currently approved for 3-year periods (the renewals are alrea dy 5-year intervals), and for in itial and renewal section 1915(b) waivers, which are currently approved for 2-year periods. In all case s, the extended approval period is only available for waivers that provide medical assistance to dual eligible individuals, and that meet all applicable statutory, regulat ory, quality and programma tic requirements. The current §430.25(h)(2)(ii) also in cludes reference to section 19 16 of the Act, which remains unchanged by the Affordable Care Act. As su ch, 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 Reassignm ent of Provider Claims (§447.10) Under title XIX of the Act, State Medica id programs generally can only pay for Medicaid-covered practitioner services through di rect 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 atCMS-2249-P2 119 section 1902(a)(32) of the Act, and reflected in current regula tions at §447.10, the entire rate must be paid to the individual practitioner w ho provided the service, unless certain statutory exceptions apply. With respect to classes of practitioners fo r 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 withhol d funds and make payments on behalf of the individual practitioner for heal th and welfare benefit contribu tions, training costs, and other benefits customary for employees. Withholding funds for these purposes is an efficient and effective method for ensuring that the workforce ha s provision for basic needs and is adequately trained for their functions. Dir ect payment of funds to third part ies on behalf of the practitioner may simplify program operations for the Stat e and be viewed as advantageous by the practitioner. In addition, direct payment of funds to third partie s 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 intend ed to address the issu e of factoring, and there is no indication that its purpos e 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 circumstan ces 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 di rect 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 respons ibilities required in that circumstance to assure workforce stability and quality. This exception from the scope of the direct payment provision would beCMS-2249-P2 120 limited to situations in which payment is made under a State law that authorizes payments on behalf of an individual practiti oner to a third party for health a nd 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 ev en 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 th e payment arrangements. States will need to review their individual circumst ances 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 de sign State-specific payment met hodologies that help ensure a strong, committed, and well-trained work force. Currently, certain categories of Medicaid covered services, for which Medicaid is a primar y payer, such as home health and personal care services, suffer from especially high rates of tu rnover and low levels of participation. This proposed rule would provide to States additional t ools 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 heal th care professionals. Th e Medicaid program, atCMS-2249-P2 121

both the State and Federal leve ls, has a strong interest in ensuring the development and maintenance of a committed, well-trained workforce. We propose to provide States this flexibil ity by enumerating an additional exception to the payment limitations for individual practiti oners 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 ma de to a third party on be half of the individual practitioner for health and welf are benefit contributions, traini ng costs, and other benefits customary for employees. To the extent that State laws require pract itioners to participate in such a payment arrangement, a State could elect in its Medicaid State plan that the pa yment arrangement would be automatic. If, however, State law does not requi re participation by indi vidual practitioners in such payment arrangements, but authorizes volu ntary 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 individu al practitioner. In that inst ance, the individual practitioner would need to authorize the payment arrangemen t 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 ar e withheld from payments to individual practitioners for these cost ca tegories (health and welfare bene fit contributions, training, and similar benefits customary for employees). U nder the proposed rule, should a State wish to recognize such costs, they would need to be includ ed as part of the rate paid for the service inCMS-2249-P2 122 order to eligible for Federal matching funds. No Federal matching funds would available for such amounts apart from the Federal match availa ble for rate paid by the State for the medical assistance service. These costs could not be cl aimed by the Medicaid agen cy 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 solic iting public comments on the exte nt to which the proposed payment arrangements would benefit States and pr actitioners, 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 assignmen t of practitioner claims that might similarly simplify and streamline States’ operations of th eir Medicaid plans and payment processes. Finally, we are specifically requesting comme nts on the intersection between Medicaid and Medicare regulations governi ng assignment of payments and any potential contradictions therein. R. Section 2401 of the Affordable Care Act: Co mmunity 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 hom e and community-based setting does not include a nursing facility, institution for ment al diseases, or an intermediate care facility for the mentally retarded. We propose at §441.53 0 to adopt this statutory language in our regulations. Additionally, to provi de greater clarity, we are proposi ng language to establish that home and community-based settings must exhib it 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 subse quent 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 provi de 60-day notice in the Federal Register and solicit public comment before a co llection 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 a nd 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 inform ation collection burden on the affected public, including automate d collection techniques. We are soliciting public comment on each of th ese 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 w ho meet certain requirements in §435.219(a) or §436.219(a). The burden associated w ith this requirement is the time and effort put forth by the State to complete, review, process and tran smit/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 ba sis, 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 equivale nt 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 benef it to specific populati ons, §441.656(b)(2) requires submission of targeting criteria to CMS. The bur den 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 bene fit that targets specifi c populations, and be affected by this requirement; th erefore, the total a nnual 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. T hus, the cost for each Stat e is anticipated to be $343; this equates to an annual cost of $1,030.
C. ICRs Regarding Needs-based Cr iteria and Evaluation (§441.659) Section 441.659(a) requires a State to establis h needs-based criteria for determining an individual's eligibility under th e State plan for the HCBS benef it, and may establish needs-basedCMS-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 cr iteria. 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 affect ed 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) woul d be responsible for this requirement. Thus, the cost for each responding Stat e is anticipated to be $824; this equates to an annual cost of $2,472. Section 441.659(b) reads that if a State defi nes needs-based criteri a for individual State plan home and community-based services, the need s-based institutional eligibility criteria must be more stringent than the combined effect of needs-based State plan HCBS benefit eligibility criteria and individual service cr iteria. Section 441.659( b)(1)(ii) requires the State to submit the more stringent criteria to CMS fo r 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 CM S 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 pr epare and submit this information. The one-time burden associated with this requ irement is 3 hours. We believe that a State employee, with pay equivalent to GS-13 step one ($34.34 per hour) woul d 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 m odify the needs-based criteria establishedCMS-2249-P2 126 under paragraph (a) of this secti on, without prior approval from th e 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) requi res the State to provide at leas t 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 noti ce to the Secretary be submitted as an amendment to the State plan. The burden associated with the requirem ents found under §441.659(c) is the time and effort put forth by the State to modify the need s-based criteria and provi de notification of the proposed modification to the Secretary. We estim ate 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 re quirements (§441.659(c), §441.659(c)(1), and §441.659(c)(2)) would vary according to the number ofStates who choose to modify their needsbased criteria. We do not expect any States to make this modifica tion 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 requirement s 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 info rmation 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 need s. Section 441.659(e) requi res 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 informati on to support their conclusion. We estimate it would take one evaluator 2 hours per partic ipant to obtain information as ne cessary. The total annual burden of this requirement would vary according to the nu mber 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 me ntal retardation professionals, qualified mental health professionals, case managers , or other professional staff with experience providing services to individuals with disabilities or the elde rly. 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 financia l 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 Stat e to provide for an independ ent assessment of need in order to establish a service plan. At a mini mum, the plan must meet the requirements as discussed under §441.665. While the burden associated with the re quirements 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 H CBS Administration: State Responsibilities and Quality Improvement (§441.677) Section 441.677(a)(1)(i) reads th at a State will annually provi de CMS with the projectedCMS-2249-P2 128

number of individuals to be enrolled in th e benefit, and the actua l 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 w ho 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 numbe r 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 equivale nt 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 St ate plan HCBS benefits. Thus, we anticipate based on current benefits that the tota l annual aggregated burden will be $414. Section 441.677(a)(2)(iii) reads that the SPA to provide Stat e 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 de termine the reimbursement methodology for one covered HCBS. This would be a one-time burde n. 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 employ ee, with pay equivalent to GS-13 step one ($34.34 per hour) would be responsible for this requirem ent. 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 eac h responding State. Since we have estimatedCMS-2249-P2 129 that 3 States will annually describe the reimbur sement methodology, the to tal annual aggregated burden associated with this requ irement is estimated to be $207. Section 441.677(a)(2)(iv) reads that the SPA to provide St ate 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 es timated that 3 States wi ll annually request State plan HCBS, the total annual burden associated with this requiremen t is estimated to be 6 hours. This would be a one-time burden for each respondi ng State. We believe that a State employee, with pay equivalent to GS- 13 step one ($34.34 per hour) woul d be responsible for this requirement. Thus, the cost for each State is anticipated to be $69. Section 441.677(a)(2)(vi) limits th e 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 bene fit. 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 submissi on, 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 recu rring. We estimate th at, beginning in 2016, 3 States will annually request rene wal 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 Stat e is anticipated to be $1,374; this equates to anCMS-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 St ates to develop and implement a quality improvement strategy that includes methods for ongoing measur ement of program performance, quality of care, and mechanisms for remediation and improveme nt 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 de termined 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 improveme nt 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 developm ent 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 St ate 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 activ ities is dependent upon the scope of the benefit and the number of persons receiving State plan H CBS. We believe that a State employee, with pay equivalent to GS-13 step one ($34.34 per hour) would be respons ible 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 ap proved benefits, thus we anticipate an annual burden based on current States of $9,270. TABLE 1: Annual Recordkeepin g and Reporting Requirements Regulation Section(s) OMB Control No. Respondents Responses Burden per Response Total Annual Burden Hourly Labor Cost of Total Labor Cost of Total Capital/ Maintenance Total Cost ($)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 co llection and record k eeping requirements, please do either of the following: 1. Submit your comments electronically as sp ecified in the ADDRESSES section of this proposed rule; or 2. Submit your comments to the Office of Info rmation 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 (Septemb er 30, 1993) and Executive 13563 on Improving Regulation and Regulatory Re view (January 18, 2011). Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, ifCMS-2249-P2 132 regulation is necessary, to select regulatory approach es that maximize net benefits (including potential economic, environmental, public health and safety eff ects, distributive impacts, and equity). Executive Order 13563 emphasizes th e importance of quantifying both costs and benefits, of reducing costs, of harmonizing rule s, and of promoting fl exibility. A regulatory impact analysis (RIA) must be prepared for ma jor rules with economica lly 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 Ac t of 2005 and was amended by the Affordable Care Act of 2010. The resulting st atute provides States with aut hority 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. Additiona lly, these regulations provide Stat es 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 Fede ral share and $60 million for the State share. The estimates are adjusted for a phase-in period dur ing which States gradually elect to offer the State plan HCBS benefit. D. Detailed Impacts 1. State Plan HCBSCMS-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 in dividuals 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 wi ll 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 bene fits States design, and the degr ee to which the benefits replace existing Medicaid services. States have more control over expend itures for this benefit than over other State plan services. For St ates that choose to offer these se rvices, States may specify limits to the scope of HCBS, target the benefit to sp ecific 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 elig ible for Medicaid. However, costs of the State plan HCBS benefit may be o ffset by lowered potential Federal and State costs of more expensive institutional care. Additionally, th e requirement for a wr itten individualized service plan, and the provision of needed HCBS in accordance with th e 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 bene fit, only individuals w ho 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 re presenting 50 percent of the eligible population would elect to offer this benefit, and that this ultimate level w ould be reached in FY 2014, with a phase-in period until then. Based on these assump tions, the Federal and State cost estimates are shown in Table 2. TABLE 2: Medicaid Cost Estimates Resu lting 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 r eceive the State plan HCBS benefit will be substantial and beneficial in States where opti onal 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. Sec tion 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 LO C, so that it is unlikely that large numbers of participants in the State plan H CBS benefit will be discharged fr om the facilities of Medicaid institutional providers. There may be some redistribution of servic es among providers of existing non-institutional Medicaid services into State pl an HCBS, but providers who meet qualifications for the State plan H CBS benefit have the option to en roll as providers of HCBS.CMS-2249-P2 135

This rule has no direct effect on the Me dicare program; however , an indirect and beneficial effect may occur if individuals eligib le for both Medicare and Me dicaid 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 St ates 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 benefici aries. 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 allowa ble under section 1915(i) through existing State plan services such as personal care or targeted ca se management services. Therefore, this rule is entirely optional for States. We solicit comm ent on the analysis within the “Alternatives Considered” section. Alternatives to this proposed rule include: (1) Not Publishing a Rule: Section 1915(i) of the Ac t 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 coul d 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 furthe r considered whether a State Medicaid Director letter would provide sufficient guidance regarding CMS review cr iteria for approval of an SPA.CMS-2249-P2 136 We conclude that section 1915(i) of the Act establishes significant new featur es in the Medicaid program, and that it was important to provide Stat es and the public the published invitation for comment provided by this proposed ru le. 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 modifyin g existing regulations at 42 CFR part 440.180, part 441 subpa rt G, Home and Community -Based Services: Waiver Requirements, which implement the section 1915(c) HCBS waivers, to incl ude the authority to offer the State plan HCBS benefit. This woul d 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 discussi on that would be required of the differences between the Secretary’s discre tion to approve waivers under se ction 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 experien ce to date with HCBS under waivers when constructing section 1915(i) of the Act, it did not choos e to modify section 1915(c) of the Act, but chose instead to create a new authority at s ection 1915(i) of the Act. F. Accounting Statement As required by OMB Circul ar A-4 (available at http://www.whitehouse.gov/omb/circul ars_a004_a-4), in the Tabl e 3, we have prepared an accounting statement showing the cla ssification of the transfers associ ated with the provisions of this proposed rule. This table provides our best estimate of the proposed increase in aggregate Medicaid outlays resulti ng from offering States the option to provide the State plan HCBS benefit established in sec tion 1915(i) of the Act and pr oposed by CMS-2249-P (MedicaidCMS-2249-P2 137 program; Home and Community-Based State Plan Services). TABLE 3: Accounting Statemen t: 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 alte rnative living arrangeme nts in the community, which is of benefit to the beneficiary and is le ss costly than institutional care. Requirements for independent evaluation and assessment, indivi dualized 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) (Sep tember 19, 1980, Pub. L. 96-354), as modified by the Small Business Regulatory Enforcemen t Fairness Act of 1996 (SBREFA) (Pub. L. 104- 121), requires agencies to determine whether pro posed or final rules would have a significant economic impact on a substantial number of sma ll entities and, if so, to prepare a RegulatoryCMS-2249-P2 138 Flexibility Analysis and to iden tify in the notice of proposed ru lemaking 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 Admi nistration, nonprofit organizations, and small governmental jurisdictions). Indi viduals and States are not include d 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 accord ing 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 matte r 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 bene fit established in secti on 1915(i) of the Act. Small entities that meet provide r 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 econom ic impact on a substantial number of small entities. In addition, section 1102(b) of th e Social Security Act require s us to prepare a regulatory impact analysis if a rule may have a significant impact on the ope rations of a substantial number of small rural hospitals. This analysis must conf orm to the provisions of section 603 of the RFA. For purposes of section 1102(b) of the Act, we defi ne a small rural hospital as a hospital that is located outside of a metr opolitan 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 nu mber of small rural hospitals. VIII. Unfunded Mandates Reform Act Analysis Section 202 of the Unfunded Mandates Re form Act of 1995 (March 22, 1995, Pub. L. 104-4) requires that agencies as sess 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 m illion. This proposed rule does not mandate any spending by State, local, or tribal go vernments, in the aggreg ate, or by the private sector, of $139 million. IX. Federalism Analysis Executive Order 13132 on Federalism (August 4, 1999) establishes cer tain requirements that an agency must meet when it promulgates a proposed rule (and subseq uent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. Si nce this regulation does not impose any costs on State or local governments, the requireme nts 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, Me dicaid, Privacy, Reporti ng and recordkeeping requirements.
42 CFR Part 435 Aid to Families with Dependent Children, Grant programs-health, Medicaid, Reporting and recordkeeping requirements, Suppl emental Security Income, Wages.
42 CFR Part 436 Aid to Families with Dependent Childre n, 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-healt h, 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 prof essions, Medicaid, Reporting and r ecordkeeping requirements, Rural

areasCMS-2249-P2 141 For the reasons set forth in the preamble, the Centers for Medicar e & 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 43 0 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 indivi duals who are dually eligible for Medicare and Medicaid, 5-year initia l and renewal approval periods may be granted at the discretion of the Secretary for waivers meeting all necessary prog rammatic, 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 43 1 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 paragrap hs (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 appr oved State plan amendment that meets certain requirements, without regard to the re quirements of sections 1902(a)(10)(B) and 1902(a)(10)(C)(i)(III) of the Act, wi th 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 defi ned in §440.182 of this chapter. PART 435--ELIGIBILITY IN THE STA TES, 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 CoverageCMS-2249-P2 143

6. Section 435.219 is added to s ubpart C to read as follows: §435.219 Individuals receiving State plan home and community-based services. If the agency provides home and community-bas ed services to indi viduals described in section 1915(i)(1), the agency, under its State pl an, may, in addition, provide Medicaid to any group or groups of individuals in the community who are desc ribed 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 comm unity-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 sec tions 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 pe rcent of the Supplemental Security Income Federal Benefit Rate (SSI/FBR); and (3) Will receive State plan home and comm unity-based services as defined in §440.182 of this chapter. (c) For purposes of determining eligibility unde r paragraph (a) of this section, the agency may not take into account an individual’s res ources and must use inco me standards that are reasonable, consistent with the objectives of the Medicaid program, simple to administer, and inCMS-2249-P2 144 the best interests of the beneficiary. Income methodologies may include use of existing income methodologies, such as the SSI program rules. Ho wever, subject to the Se cretary’s approval, the agency may use other income methodologies that m eet the requirements of this paragraph (c). PART 436--ELIGIBILITY IN GUAM, PU ERTO RICO AND THE VIRGIN ISLANDS 7. The authority citation for part 43 6 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 s ubpart C to read as follows: §436.219 Individuals receiving State plan home and community-based services. If the agency provides home and community-b ased services to indi viduals 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 ar e 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 pe rcent 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 comm unity-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 sec tions 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 pe rcent of the Supplemental Security Income Federal Benefit Rate (SSI/FBR); and (3) Will receive State plan home and comm unity-based services as defined in §440.182 of this chapter. (c) For purposes of determining eligibility unde r paragraph (a) of this section, the agency may not take into account an individual’s res ources and must use inco me 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 44 0 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 fu rnished 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 s ubpart A to read as follows: § 440.182 State plan home and community-based services. (a) Definition . State plan home and community-bas ed services (HCBS) benefit means the services listed in paragraph (c) of this se ction when provided under the State’s plan (rather than through an HCBS waiver program) for individuals describe d 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 le ss 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 consis ts 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 expande d 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 ag ency 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 prov ided 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 resi ding in the same househol d 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 paragra phs (a)(1) and (2) of this section. (1) Home and community-based settings shal l 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 thei r person-centered service plan: (i) The setting is integrated in, and facilitat es 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 pe rsonal resources, and receive services in the community, in the same manner as individuals without disabilities. (ii) The setting is selected by the individual fr om among all available alternatives and is identified in the person-centered service plan. (iii) An individual’s essentia l personal rights of privacy, digni ty and respect, and freedom from coercion and restraint are protected. (iv) Individual initiative, autonomy, and inde pendence in making life choices, including but not limited to, daily activit ies, physical environment, a nd 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 resi dential setting, the following additional conditions must be met. Any modification of th e conditions, for example, to address the safetyCMS-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 plac e 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 responsib ilities and protections from eviction that tenants have under the landlord tenant law of the Stat e, county, city or other designated entity; (B) Each individual has privacy in their sleeping or living unit: (1 ) Units have lockable entran ce doors, with appropriate st aff 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 sl eeping or living units. (C) Individuals have the free dom 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 th at 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 oper ated facility that provides inpatient institutionalCMS-2249-P2 150 treatment, or in a building on the grounds of, or immediately adjacent t o, 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-B ased 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-centere d service plan. 441.668 Provider qualifications. 441.671 Definition of individual's representative. 441.674 Self-directed services. 441.677 State plan HCBS administration: St ate responsibilities and quality improvement. Subpart L State Plan Home and Community-Based Serv ices 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 pl ans to qualified indivi duals with disabilities or individuals who are elderly. Those services are listed in §440.182 of this chapter, and areCMS-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 Me dicaid plan must provide when the State elects to include the optional benefit, and defi nes 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 hom e and community-based setting consistent with both paragraphs (a)(1) and (2) of this section. (1) Home and community-based settings shal l 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 thei r person-centered service plan: (i) The setting is integrated in, and facilita tes the individual’s fu ll access to, the greater community including opportunities to seek employ ment and work in competitive integrated settings, engage in community life, control pe rsonal 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 right s of privacy, dignity a nd 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 activit ies, physical environment, a nd with whom to interact areCMS-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 th e 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 pl ace that can be owned, rented, or occupied under a legally enforceable agreement by the indi vidual receiving servic es, and the individual has, at a minimum, the same responsibilities a nd protections from eviction that tenants have under the landlord/tenant law of the State, county, city, or othe r designated entity; (B) Each individual has privacy in their sleeping or living unit: (1 ) Units have lockable entran ce doors, with appropriate st aff 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 sl eeping or living units. (C) Individuals have the freedom and s upport to control thei r own schedules and activities, and have access to food at any time; (D) Individuals are able to have visi tors of their choosing at any time; and (E) The setting is physica lly 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 ha ve qualities of an institutional setting, as determined by the Secretary. The Secretary will ap ply 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 oper ated facility that provides inpatient institutional treatment, or in a building on the grounds of, or immediately adjacent t o, 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 requi re at least one section 1915(i) home and community-based service at a fr equency 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 in come and resource eligibility rules for the medically needy living in the comm unity, but only for the purposes of providing State plan HCBS. (2) Section 1902(a)(10)(B) of the Act, pertai ning to comparability of Medicaid services, but only for the purposes of providi ng section 1915(i) State plan H CBS. In the event that a State elects not to apply comparability requirements:CMS-2249-P2 154 (i) The State must describe the group(s) r eceiving 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 individu al 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 th e 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 amen dment to limit the availa bility 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 mo re of the group(s) describe d in this paragraph. §441.659 Needs-based criteria and evaluation. (a) Needs-based criteria. The State must establish need s-based criteria for determining an individual’s eligibility under the State plan for the HCBS be nefit, and may establish needsbased criteria for each specific serv ice. Needs-based criteria are factors used to determine an individual’s requirements for s upport, and may include risk fact ors. The criteria are not characteristics that describe th e 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 St ate has in effect needs-based crit eria (as defined in paragraph (a)CMS-2249-P2 155 of this section), for receipt of services in nur sing facilities as defined in section 1919(a) of the Act, intermediate care facilities for the mentally retarded as de fined in §440.150 of this chapter, and hospitals as defined in §440.10 of this chapte r 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 St ate 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 effec tive 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 secti on that such criteria be more stringent than the State plan HCBS needs-based eligibility criteria, States may con tinue to receive FFP for individuals receiving institutional se rvices or waiver HCBS under the LOC criteria previously in effect. (c) Adjustment authority. The State may modify the n eeds-based criteria established under paragraph (a) of this secti on, without prior approval from th e 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 da te for the State planCMS-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 enroll ed 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 crit eria for the State plan HCBS benefit are less stringent than needs-based institutional and waiver LOC criteria in effect af ter 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 need s-based criteria used for the initial determination of eligibility; or (ii) The individual is no longer e ligible for or enrolled in Medi caid or the HCBS benefit. (5) Any changes in service due to the m odification of needs-ba sed criteria under this adjustment authority are trea ted 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 th at 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) th rough (5) of this subpart. The independent evaluation complies with the following requirements: (1) Is performed by an agent that is i ndependent and qualified as defined in §441.668 of this subpart. (2) Applies the needs-based eligibility cr iteria that the State has established under paragraph (a) of this section, and the gene ral eligibility requir ements under §441.656(a)(1) through (3) and (b)(2) of this subpart. (3) Includes consultation with the indivi dual, and if applicab le, the individual’s authorized representative. (4) Assesses the individual’s support needs. (5) Uses only current and accurate informa tion 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. Rede terminations 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 independe nt assessment of needs, which may include the results of a standardized functi onal 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 assessm ent 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 eff ective strategies that result in improved health and quality of life outcomes. (i) For the purposes of this section, a f ace-to-face assessment may include assessments performed by telemedicine, or other informati on technology medium, if the following conditions

are met: (A) The health care professional(s) perf orming the assessment meets the provider qualifications defined by the State, including any additional qualific ations or training requirements for the operation of required information technology. (B) The individual receives appropriate s upport during the assessmen t, 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 co nsultation with the individual, and if applicable, the individual’s authorized represen tative, and include the opportunity for the indivi dual to identify other persons to be consulted, such as, but not limited to, the indivi dual’s spouse, family, guardian, and treating and consul ting health and support profe ssionals responsible for the individual’s care.CMS-2249-P2 159 (3) Examine the individual’s relevant histor y including the findings from the independent evaluation of eligibility, medical records, an obj ective 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, ava ilable service and housi ng options, and when unpaid caregivers will be relied upon to implemen t the service plan, a ca regiver assessment. (5) Apply the State’s needs-based criteria for e ach service (if any) th at 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 offe red under the State plan for medical assistance. (6) Include in the assessment, if the State o ffers individuals the op tion 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 require d in §441.674(b) of this su bpart, including the ability of the individual (with and without supports ) to exercise budget or employer authority. (7) Include in the assessment, for indi viduals receiving habi litation services, documentation that no Medicaid services are provi ded which would otherwis e be available to the individual, specifically including but not limited to services ava ilable to the individual through a program funded under section 110 of the Rehabi litation Act of 1973, or the Individuals with Disabilities Education Improvement Act of 2004. (8) Include in the assessment and subseque nt service plan, for individuals receiving Secretary approved services unde r the authority of §440.182 of this chapter, documentation thatCMS-2249-P2 160 no State plan HCBS services are provided which would otherwise be avai lable to the individual through other Medicaid services or other Federally funded programs. (9) Include in the assessment and subseque nt service plan, for individuals receiving HCBS through a waiver approved under §441.300 of this subpart, documentation that HCBS provided through the State plan a nd waiver are not duplicative. (10) Coordinate the assessment and subsequent service plan with any other assessment or service plan required for serv ices through a waiver authori zed 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 indivi dual’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 independen t assessment required in §441.662 of this subpart, the State must develop (or a pprove, if the plan is developed by others) a written service plan jointly w ith the individual (inc luding, for purposes of this paragraph, the individual and the individual's authorized repres entative if applicable). The person-centered planning process is driven by the individual. The process: (1) Includes people chos en 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 lo cations of convenience to the individual. (4) Reflects cultural considerations of the individual. (5) Includes strategies for so lving conflict or disagreement w ithin the process, includingCMS-2249-P2 161 clear conflict-of-interest guideline s for all planning participants. (6) Offers choices to the individual regard ing the services and s upports they receive and from whom. (7) Includes a method for the individu al 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 in dividual 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 su ch services and supports. Commen surate with the level of need of the individual, and the scope of services and supports available unde r the State plan HCBS benefit, the plan must: (1) Reflect that the setting in which the i ndividual resides is chos en by the individual. (2) Reflect the individual’s strengths and preferences. (3) Reflect clinical and s upport needs as identified through an assessment of functional need. (4) Include individually identif ied goals and desired outcomes. (5) Reflect the services and supports (paid a nd unpaid) that will assi st the individual to achieve identified goals, and th e 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 provide d voluntarily to the individual in lieu of State plan HCBS. (6) Reflect risk factors and m easures in place to minimize th em, 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 m onitoring the plan. (9) Be finalized and agreed to in writi ng by the individual and si gned by all individuals and providers responsible for its implementation. (10) Be distributed to th e individual and other peop le involved in the plan. (11) Include those services, th e 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 circumstan ces or needs change significantly, and at the reque st of the individual. §441.668 Provider qualifications. (a) Requirements . The State must provide assuran ces 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 independe nt evaluation, independent a ssessment, 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 w ho conduct (whether as a service or an administrative activity) the independent evaluation of eligib ility for State plan HCBS, whoCMS-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 standa rds apply to all individuals and entities, public or private. At a minimum, th ese agents must not be any of the following: (1) Related by blood or marriage to the indivi dual, or to any paid caregiver of the individual. (2) Financially responsib le for the individual. (3) Empowered to make financial or health-rela ted 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 w illing and qualified agent to perf orm independent assessments and develop plans of care in a geogr aphic area also provides HCBS, a nd the State devises conflict of interest protections including separation of agen t and provider functions w ithin provider entities, which are described in the State plan for medi cal assistance and approve d by the Secretary, and individuals are provided with a clear and accessi ble alternative dispute resolution process. (c) Training . Qualifications for agents performi ng 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 indi vidual’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 guard ian or other person who is au thorized under State law to represent the individual for the pur pose of making decisions relate d 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 in cluding but not limited to a parent , a family member, or an advocate for the individual. (c) When the State authorizes representative s in accordance with pa ragraph (b) of this section, the State must have pol icies 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 author ized representative that the individual chooses, unless in the process of applying the requiremen ts for authorization, the State discovers and can document evidence that the repres entative is not acting in the best interest of the individual or cannot perf orm 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 St ate plan HCBS listed in §440.182 of this chapter, services that are planned and purchased under the direction and contro l of the individual, including the amount, duration, scop e, provider, and loca tion of the HCBS. For purposes of this paragraph, individual means the indi vidual and, if applicable, the in dividual'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 requiredCMS-2249-P2 165 in §441.665 of this subpart. If the individual choo ses to direct some or all HCBS, the service plan must meet the following additional requirements: (1) Specify the State plan HCBS that the in dividual will be res ponsible for directing. (2) Identify the methods by which the indivi dual will plan, direct or control services, including whether the in dividual will exercise authority over the employment of service providers and/or authority over expend itures from the individualized budget. (3) Include appropriate risk management techniques that explicitly recognize the roles and sharing of responsib ilities in obtaining services in a self-directed manner and assure the appropriateness of this plan based upon the reso urces and support needs of the individual. (4) Describe the process for facilitating vol untary and involuntary transition from selfdirection including any circumstances under which tr ansition out of self-dir ection is involuntary. (c) Employer authority. If the service plan includes authority to select, manage, or dismiss providers of the State plan HCBS, the pl an must meet the following requirements: (1) Specify the authority to be assumed by th e individual, any limits to the authority, and specify parties responsible for functions outside the authority to be assumed. (2) Specify the financial management suppor ts, 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 th e services and supports under th e control and di rection of the individual), the plan must meet the following requirements: (1) Describe the method for calculating the dol lar values in the budge t, 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 eval uate expenditures under the budget. (4) Specify the financial management suppor ts, 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 indi vidualized supports to in dividuals 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 em ployment tax, labor, worker’s compensation, insurance, and other requirements that apply wh en the individual functions as the employer of service providers. (ii) Function as employer of record when the individual elects to exercise supervisory responsibility without empl oyment responsibility. (iii) Make financial transactions on behalf of the individual wh en the individual has personal budget authority. (iv) Maintain separate accounts for each in dividual's budget and provide periodic reports of expenditures against budget in a ma nner understandable to the individual. §441.677 State plan HCBS administration: Stat e 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 admi nistration 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 determin ed to be eligible for the State plan HCBS benefit, subject to the following requirements: (A) A State must determine that provided se rvices meet medical necessity criteria; (B) A State may limit access to services through targeting crit eria 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 indivi dual’s location in the State. (iii) Appeals . A State must provide i ndividuals 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 e ligible 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 specifi c HCBS under §441.662(a) of th is subpart, prior toCMS-2249-P2 168 an individual’s receipt of State plan HCBS services or determin ation 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 th e definition of medical assistance and necessary administrative expenditure s. 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 particip ants 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 subpa rt, the State may limit the enrollment of individuals or the provision serv ices to enrolled indivi duals based upon criteria described in a phase-in plan, subject to CMS appr oval. A State which elects to target the State plan HCBS benefit and to phase-in enrollment and/ or services must subm it 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 serv ices 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 phas e-in the enrollment of individu als based on highest need, the phase-in plan must use the need s-based criteria described in §441.659(a) of this subpart to establish priority for enrollment. Such crit eria must be based upon the assessed need of individuals, with higher-need i ndividuals receiving services pr ior to individuals with lower assessed need.CMS-2249-P2 169 (C) If a State elects to phas e-in the provision of any serv ices, the phase-in plan must include a description of the servi ces 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 ma y 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 i ndividuals receive all included services prior to the e nd 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 descripti on of the reimbursement methodol ogy for each covered service. To the extent that the reimbursement methodolog ies for any self-directed services differ from those descriptions, the method for setting reimbursement me thodology for the self-directed services must also be described. (iv) Operation . The State plan amendment to prov ide 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 modi fications to the benefit be made effective retroactive to the first da y of a fiscal year quart er, or another date af ter the first day of a fiscal year quarter, in which the amendm ent is submitted, unless the amendment involves substantive change. Substantive changes may include, but are not limite d 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 qualificat ions of service providers, ra te 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 ho w the State will ensure for transitions with minimal adverse impact on in dividuals impacted by the change. (2 ) [Reserved] (vi) Periods of approval. (A) If a State elects to esta blish targeting criteria through §441.656(b)(2) of this subpart, the approval of the St ate 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 Stat e must provide a written reques t for renewal to CMS at least 180 days prior to the end of the approval pe riod. 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 th rough §441.656(b)(2) of this subpart, the limitations on lengt h of approval does not apply. (b) Quality improvement strategy: Pr ogram performance and quality of care. States must develop and implement an HCBS quality imp rovement 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 St ate 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 impr ovement process that includes monitoring, remediation, and quality improvement. (ii) Be evidence-based, and include measur es as determined by the Secretary. (iii) Provide evidence of program perfor mance 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 Reassi gnment 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 thir d party on behalf of the individual practitioner for benefits such as health insurance, skills tr aining and other benefits customary for employees.
* * * * *CMS-2249-P2
Authority: (Catalog of Federal Domestic Assistan ce Program No. 93.778, Me dical 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]