[Federal Register Volume 72, Number 155 (Monday, August 13, 2007)]
[Proposed Rules]
[Pages 45201-45213]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-3925]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 440 and 441

[CMS 2261-P]
RIN 0938-A081


Medicaid Program; Coverage for Rehabilitative Services

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend the definition of Medicaid 
rehabilitative services in order to provide for important beneficiary 
protections such as a person-centered written rehabilitation plan and 
maintenance of case records. The proposed rule would also ensure the 
fiscal integrity of claimed Medicaid expenditures by clarifying the 
service definition and providing that Medicaid rehabilitative services 
must be coordinated with but do not include services furnished by other 
programs that are focused on social or educational development goals 
and available as part of other services or programs. These services and 
programs include, but are not limited to, foster care, child welfare, 
education, child care, prevocational and vocational services, housing, 
parole and probation, juvenile justice, public guardianship, and any 
other non-Medicaid services from Federal, State, or local programs.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on October 12, 2007.

ADDRESSES: In commenting, please refer to file code CMS-2261-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click 
on the link ``Submit electronic

[[Page 45202]]

comments on CMS regulations with an open comment period.'' (Attachments 
should be in Microsoft Word, WordPerfect, or Excel; however, we prefer 
Microsoft Word.)
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-2261-P, P.O. Box 8018, Baltimore, MD 21244-8018.
    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 (one 
original and two copies) to the following address ONLY: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-2261-P, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-3685 in advance to schedule your arrival 
with one of our staff members.

Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201; or
7500 Security Boulevard, Baltimore, MD 21244-1850.

    (Because access to the interior of the HHH 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 stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    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 mailing your 
comments to the addresses provided at the end of the ``Collection of 
Information Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Maria Reed, (410) 786-2255 or Shawn 
Terrell, (410) 786-0672.

SUPPLEMENTARY INFORMATION:
    Submitting Comments: We welcome comments from the public on all 
issues set forth in this rule to assist us in fully considering issues 
and developing policies. You can assist us by referencing the file code 
CMS-2261-P and the specific ``issue identifier'' that precedes the 
section on which you choose to comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable (for example, names, addresses, 
social security numbers, and medical diagnoses) or confidential 
business information (including proprietary 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.cms.hhs.gov/eRulemaking. 
Click on the link ``Electronic Comments on CMS Regulations'' on that 
Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

I. Background

A. Overview

    Section 1905(a)(13) of the Social Security Act (the Act) includes 
rehabilitative services as an optional Medicaid State plan benefit. 
Current Medicaid regulations at 42 CFR 440.130(d) provide a broad 
definition of rehabilitative services. Rehabilitative services are 
defined as ``any medical or remedial services recommended by a 
physician or other licensed practitioner of the healing arts, within 
the scope of his or her practice under State law, for maximum reduction 
of physical or mental disability and restoration of a recipient to his 
best possible functional level.'' The broad general language in this 
regulatory definition has afforded States considerable flexibility 
under their State plans to meet the needs of their State's Medicaid 
population.
    Over the years the scope of services States have provided under the 
rehabilitation benefit has expanded from physical rehabilitative 
services to also include mental health and substance abuse treatment 
rehabilitative services. For example, services currently provided by 
States under the rehabilitative benefit include services aimed at 
improving physical disabilities, including physical, occupational, and 
speech therapies; mental health services, such as individual and group 
therapy, psychosocial therapy services; and services for substance-
related disorders (for example, substance use disorders and substance 
induced disorders). These Medicaid services may be delivered through 
various models of care and in a variety of settings.
    The broad language of the current statutory and regulatory 
definition has, however, had some unintended consequences. It has also 
led to some confusion over whether otherwise applicable statutory or 
regulatory provider standards would apply under the rehabilitative 
services benefit.
    As the number of States providing rehabilitative services has 
increased, some States have viewed the rehabilitation benefit as a 
``catch-all'' category to cover services included in other Federal, 
State and local programs. For example, it appears some States have used 
Medicaid to fund services that are included in the provision of foster 
care and in the Individuals with Disabilities Education Improvement Act 
(IDEA). Our audit reviews have recently revealed that Medicaid funds 
have also been used to pay for behavioral treatment services in 
``wilderness camps,'' juvenile detention, and similar facilities where 
youth are involuntarily confined. These facilities are under the domain 
of the juvenile justice or youth systems in the State, rather than 
Medicaid, and there is no assurance that the claimed services reflect 
an independent evaluation of individual rehabilitative needs.
    This proposed regulation is designed to clarify the broad general 
language of the current regulation to ensure that rehabilitative 
services are provided in a coordinated manner that is in the best 
interest of the individuals, are limited to rehabilitative purposes and 
are furnished by qualified providers. This proposed regulation would 
rectify the improper reliance on the Medicaid rehabilitation benefit 
for services furnished by other programs that are focused on social or 
educational development goals in programs other than Medicaid.
    This proposed regulation would provide guidance to ensure that 
services claimed under the optional Medicaid rehabilitative benefit are 
in fact rehabilitative out-patient services, are furnished by qualified 
providers, are

[[Page 45203]]

provided to Medicaid eligible individuals according to a goal-oriented 
rehabilitation plan, and are not for services that are included in 
programs with a focus other than that of Medicaid.

B. Habilitation Services

    Section 6411(g) of the Omnibus Budget Reconciliation Act of 1989 
(OBRA 89) prohibits us from taking adverse action against States with 
approved habilitation provisions pending the issuance of a regulation 
that ``specifies types of day habilitation services that a State may 
cover under paragraphs (9) (clinic services) or (13) (rehabilitative 
services) of section 1905(a) of the Act on behalf of persons with 
mental retardation or with related conditions.'' We believe that 
issuance of a final rule based on this proposed rule will satisfy this 
condition. We intend to work with those States that have habilitation 
programs under the clinic services or rehabilitative services benefits 
in their State plans to transition to appropriate Medicaid coverage 
authorities, such as section 1915(c) waivers or the Home and Community-
Based Services State plan option under section 1915 (i) of the Deficit 
Reduction Act (DRA) of 2005 (Pub. L. 107-171), enacted on February 8, 
2006.

II. Provisions of the Proposed Rule

    [If you choose to comment on issues in this section, please include 
the caption ``PROVISIONS OF THE PROPOSED REGULATIONS'' at the beginning 
of your comments.]

A. Definitions

    In 440.130(d)(1), we propose to define the terms used in this rule, 
as listed below:
    <bullet> Recommended by a physician or other licensed practitioner 
of the healing arts.
    <bullet> Other licensed practitioner of the healing arts.
    <bullet> Qualified providers of rehabilitative services.
    <bullet> Under the direction of.
    <bullet> Written rehabilitation plan.
    <bullet> Restorative services.
    <bullet> Medical services.
    <bullet> Remedial services.
    In Sec.  440.130(d)(1)(iii), we would define ``qualified providers 
of rehabilitative services'' to require that individuals providing 
rehabilitative services meet the provider qualification requirements 
applicable to the same service when it is furnished under other benefit 
categories. Further, the provider qualifications must be set forth in 
the Medicaid State plan. These qualifications may include education, 
work experience, training, credentialing, supervision and licensing, 
that are applied uniformly. Provider qualifications must be reasonable 
given the nature of the service provided and the population being 
served. We require uniform application of these qualifications to 
ensure the individual free choice of qualified providers, consistent 
with section 1902(a)(23) of the Act.
    Under this proposed definition, if specific provider qualifications 
are set forth elsewhere in subpart A of part 440, those provider 
qualifications take precedence when those services are provided under 
the rehabilitation option. Thus, if a State chooses to provide the 
various therapies discussed at Sec.  440.110 (physical therapy, 
occupational therapy, speech, language and hearing services) under 
Sec.  440.130(d), the requirements of Sec.  440.110 applicable to those 
services would apply. For example, speech therapy is addressed in 
regulation at Sec.  440.110(c) with specific provider requirements for 
speech pathologists and audiologists that must be met. If a State 
offers speech therapy as a rehabilitative service, the specific 
provider requirements at Sec.  440.110(c) must be met. It should be 
noted that the definition of Occupational Therapy in Sec.  440.110 is 
not correct insofar as the following--Occupational Therapists must be 
certified through the National Board of Certification for Occupational 
Therapy, not the American Occupational Therapy Association.
    We are proposing a definition of the term ``under the direction 
of'' because it is a key issue in the provision of therapy services 
through the rehabilitative services benefit. Therapy services may be 
furnished by or ``under the direction of'' a qualified provider under 
the provisions of Sec.  440.110. We are proposing to clarify that the 
term means that the therapist providing direction is supervising the 
individual's care which, at a minimum, includes seeing the individual 
initially, prescribing the type of care to be provided, reviewing the 
need for continued services throughout treatment, assuming professional 
responsibility for services provided, and ensuring that all services 
are medically necessary. The term ``under the direction of'' requires 
each of these elements; in particular, professional responsibility 
requires face-to-face contact by the therapist at least at the 
beginning of treatment and periodically thereafter. Note that this 
definition applies specifically to providers of physical therapy, 
occupational therapy, and services for individuals with speech, hearing 
and language disorders. This language is not meant to exclude 
appropriate supervision arrangements for other rehabilitative services.

B. Scope of Services

    Consistent with the provision of section 1905(a)(13) of the Act, we 
have retained the current definition of rehabilitative services in 
Sec.  440.130(d)(2) as including ``medical or remedial services 
recommended by a physician or other licensed practitioner of the 
healing arts, within the scope of his practice under State law, for 
maximum reduction of physical or mental disability and restoration of a 
recipient to his best possible functional level.'' We would, however, 
clarify that rehabilitative services do not include room and board in 
an institution, consistent with the longstanding CMS interpretation 
that section 1905(a) of the Act has specifically identified 
circumstances in which Medicaid would pay for coverage of room and 
board in an inpatient setting. This interpretation was upheld in Texas 
v. U.S. Dep't Health and Human Servs., 61 F.3d 438 (5th Cir. 1995).

C. Written Rehabilitation Plan

    We propose to add a new requirement, at Sec.  440.130(d)(3), that 
covered rehabilitative services for each individual must be identified 
under a written rehabilitation plan. This rehabilitation plan would 
ensure that the services are designed and coordinated to lead to the 
goals set forth in statute and regulation (maximum reduction of 
physical or mental disability and restoration to the best possible 
functional level). It would ensure transparency of coverage and medical 
necessity determinations, so that the beneficiary, and family or other 
responsible individuals, would have a clear understanding of the 
services that are being made available to the beneficiary. In all 
situations, the ultimate goal is to reduce the duration and intensity 
of medical care to the least intrusive level possible which sustains 
health. The Medicaid goal is to deliver and pay for the clinically-
appropriate, Medicaid-covered services that would contribute to the 
treatment goal. It is our expectation that, for persons with mental 
illnesses and substance-related disorders, the rehabilitation plan 
would include recovery goals. The rehabilitation plan would establish a 
basis for evaluating the effectiveness of the care offered in meeting 
the stated goals. It would provide for a process to involve the 
beneficiary, and family or other responsible individuals, in the 
overall management of rehabilitative care. The rehabilitation plan 
would also

[[Page 45204]]

document that the services have been determined to be rehabilitative 
services consistent with the regulatory definition, and will have a 
timeline, based on the individual's assessed needs and anticipated 
progress, for reevaluation of the plan, not longer than one year. It is 
our expectation that the reevaluation of the plan would involve the 
beneficiary, family, or other responsible individuals and would include 
a review of whether the goals set forth in the plan are being met and 
whether each of the services described in the plan has contributed to 
meeting the stated goals. If it is determined that there has been no 
measurable reduction of disability and restoration of functional level, 
any new plan would need to pursue a different rehabilitation strategy 
including revision of the rehabilitative goals, services and/or 
methods. It is important to note that this benefit is not a custodial 
care benefit for individuals with chronic conditions but should result 
in a change in status. The rehabilitation plan should identify the 
rehabilitation objectives that would be achieved under the plan in 
terms of measurable reductions in a diagnosed physical or mental 
disability and in terms of restored functional abilities. We recognize, 
however, that rehabilitation goals are often contingent on the 
individual's maintenance of a current level of functioning. In these 
instances, services that provide assistance in maintaining functioning 
may be considered rehabilitative only when necessary to help an 
individual achieve a rehabilitation goal as defined in the 
rehabilitation plan. Services provided primarily in order to maintain a 
level of functioning in the absence of a rehabilitation goal are not 
rehabilitation services.
    It is our further expectation that the rehabilitation plan be 
reasonable and based on the individual's diagnosed condition(s) and on 
the standards of practice for provisions of rehabilitative services to 
an individual with the individual's condition(s). The rehabilitation 
plan is not intended to limit or restrict the State's ability to 
require prior authorization for services. The proposed requirements 
state that the written rehabilitation plan must:
    <bullet> Be based on a comprehensive assessment of an individual's 
rehabilitation needs including diagnoses and presence of a functional 
impairment in daily living;
    <bullet> Be developed by qualified provider(s) working within the 
State scope of practice acts with input from the individual, 
individual's family, the individual's authorized health care decision 
maker and/or persons of the individual's choosing;
    <bullet> Ensure the active participation of the individual, 
individual's family, the individual's authorized health care decision 
maker and/or persons of the individual's choosing in the development, 
review and modification of these goals and services;
    <bullet> Specify the individual's rehabilitation goals to be 
achieved, including recovery goals for persons with mental health and/
or substance related disorders;
    <bullet> Specify the physical impairment, mental health and/or 
substance related disorder that is being addressed;
    <bullet> Identify the medical and remedial services intended to 
reduce the identified physical impairment, mental health and/or 
substance related disorder;
    <bullet> Identify the methods that would be used to deliver 
services;
    <bullet> Specify the anticipated outcomes;
    <bullet> Indicate the frequency, amount and duration of the 
services;
    <bullet> Be signed by the individual responsible for developing the 
rehabilitation plan;
    <bullet> Indicate the anticipated provider(s) of the service(s) and 
the extent to which the services may be available from alternate 
provider(s) of the same service;
    <bullet> Specify a timeline for reevaluation of the plan, based on 
the individual's assessed needs and anticipated progress, but not 
longer than one year;
    <bullet> Document that the individual or representative 
participated in the development of the plan, signed the plan, and 
received a copy of the rehabilitation plan; and
    <bullet> Document that the services have been determined to be 
rehabilitative services consistent with the regulatory definition.
    We believe that a written rehabilitation plan would ensure that 
services are provided within the scope of the rehabilitative services 
and would increase the likelihood that an individual's disability would 
be reduced and functional level restored. In order to determine whether 
a specific service is a covered rehabilitative benefit, it is helpful 
to scrutinize the purpose of the service as defined in the care plan.
    For example, an activity that may appear to be a recreational 
activity may be rehabilitative if it is furnished with a focus on 
medical or remedial outcomes to address a particular impairment and 
functional loss. Such an activity, if provided by a Medicaid qualified 
provider, could address a physical or mental impairment that would help 
to increase motor skills in an individual who has suffered a stroke, or 
help to restore social functioning and personal interaction skills for 
a person with a mental illness.
    We are proposing to require in Sec.  440.130(d)(3)(iii) that the 
written rehabilitation plan include the active participation of the 
individual (or the individual's authorized health care decision maker) 
in the development, review, and reevaluation of the rehabilitation 
goals and services. We recommend the use of a person-centered planning 
process. Since the rehabilitation plan identifies recovery-oriented 
goals, the individual must be at the center of the planning process.

D. Impairments to be Addressed

    We propose in Sec.  440.130(d)(4) that rehabilitative services 
include services provided to an eligible individual to address the 
individual's physical needs, mental health needs, and/or substance-
related disorder treatment needs. Because rehabilitative services are 
an optional service for adults, a State has flexibility to determine 
whether rehabilitative services would be limited to certain 
rehabilitative services (for example, only physical rehabilitative 
services) or will include rehabilitative treatment for mental health or 
substance-related disorders as well.
    Provision of rehabilitative services to individuals with mental 
health or substance-related disorders is consistent with the 
recommendations of the New Freedom Commission on Mental Health. The 
Commission challenged States, among others, to expand access to quality 
mental health care and noted that States are at the very center of 
mental health system transformation. Thus, while States are not 
required to provide rehabilitative services for treatment of mental 
health and substance-related disorders, they are encouraged to do so. 
The Commission noted in its report that, ``[m]ore individuals would 
recover from even the most serious mental illnesses and emotional 
disturbances if they had earlier access in their communities to 
treatment and supports that are evidence-based and tailored to their 
needs.''
    Under existing provisions at Sec.  440.230(a), States are required 
to provide in the State plan a detailed description of the services to 
be provided. In reviewing a State plan amendment that proposes 
rehabilitative services, we would consider whether the proposed 
services are consistent with the requirements in Sec.  440.130(d) and 
section 1905(a)(13) of the Act. We would also consider whether the 
proposed scope of rehabilitative services

[[Page 45205]]

is ``sufficient in amount, duration and scope to reasonably achieve its 
purpose'' as required at Sec.  440.230(b). For that analysis, we will 
review whether any assistive devices, supplies, and equipment necessary 
to the provision of those services are covered either under the 
rehabilitative services benefit or elsewhere under the plan.

E. Settings

    In Sec.  440.130(d)(5), consistent with the provisions of section 
1905(a)(13) of the Act, we propose that rehabilitative services may be 
provided in a facility, home, or other setting. For example, 
rehabilitative services may be furnished in freestanding outpatient 
clinics and to supplement services otherwise available as an integral 
part of the services of facilities such as schools, community mental 
health centers, or substance abuse treatment centers. Other settings 
may include the office of qualified independent practitioners, mobile 
crisis vehicles, and appropriate community settings. The State has the 
authority to determine in which settings a particular service may be 
provided. While services may be provided in a variety of settings, the 
rehabilitative services benefit is not an inpatient benefit. 
Rehabilitative services do not include room and board in an 
institutional, community or home setting.

F. Requirements and Limitations for Rehabilitative Services

1. Requirements for Rehabilitative Services
    In Sec.  441.45(a), we set forth the assurances required in a State 
plan amendment that provides for rehabilitative services in this 
proposed rule. In Sec.  441.45(b) we set forth the expenditures for 
which Federal financial participation (FFP) would not be available.
    As with most Medicaid services, rehabilitative services are subject 
to the requirements of section 1902(a) of the Act. These include 
statewideness at section 1902(a)(1) of the Act, comparability at 
section 1902(a)(10)(B), and freedom of choice of qualified providers at 
section 1902(a)(23) of the Act. Accordingly, at Sec.  441.45(a)(1), we 
propose to require that States comport with the listed requirements.
    At Sec.  441.45(a)(2), we propose to require that the State ensure 
that rehabilitative services claimed for Medicaid payment are only 
those provided for the maximum reduction of physical or mental 
disability and restoration of the individual to the best possible 
functional level.
    In Sec.  441.45(a)(3) and (a)(4), we propose to require that 
providers of the rehabilitative services maintain case records that 
contain a copy of the rehabilitation plan. We also propose to require 
that the provider document the following for all individuals receiving 
rehabilitative services:
    <bullet> The name of the individual;
    <bullet> The date of the rehabilitative service or services 
provided;
    <bullet> The nature, content, and units of rehabilitative services 
provided; and
    <bullet> The progress made toward functional improvement and 
attainment of the individual's goals.
    We believe this information is necessary to establish an audit 
trail for rehabilitative services provided, and to establish whether or 
not the services have achieved the maximum reduction of physical or 
mental disability, and to restore the individual to his or her best 
possible functional level.
    A State that opts to provide rehabilitative services must do so by 
amending its State plan in accordance with proposed Sec.  441.45(a)(5). 
The amendment must (1) describe the rehabilitative services proposed to 
be furnished, (2) specify the provider type and provider qualifications 
that are reasonably related to each of the rehabilitative services, and 
(3) specify the methodology under which rehabilitation providers would 
be paid.
2. Limitations for Rehabilitative Services
    In Sec.  441.45(b)(1) through (b)(8) we set forth limitations on 
coverage of rehabilitative services in this proposed rule.
    We propose in Sec.  441.45(b)(1) that coverage of rehabilitative 
services would not include services that are furnished through a non-
medical program as either a benefit or administrative activity, 
including programs other than Medicaid, such as foster care, child 
welfare, education, child care, vocational and prevocational training, 
housing, parole and probation, juvenile justice, or public 
guardianship. We also propose in Sec.  441.45(b)(1) that coverage of 
rehabilitative services would not include services that are intrinsic 
elements of programs other than Medicaid.
    It should be noted however, that enrollment in these non-medical 
programs does not affect eligibility for Title XIX services. 
Rehabilitation services may be covered by Medicaid if they are not the 
responsibility of other programs and if all applicable requirements of 
the Medicaid program are met. Medicaid rehabilitative services must be 
coordinated with, but do not include, services furnished by other 
programs that are focused on social or educational development goals 
and are available as part of other services or programs. Further, 
Medicaid rehabilitation services must be available for all participants 
based on an identified medical need and otherwise would have been 
provided to the individual outside of the foster care, juvenile 
justice, parole and probation systems and other non-Medicaid systems. 
Individuals must have free choice of providers and all willing and 
qualified providers must be permitted to enroll in Medicaid.
    For instance, therapeutic foster care is a model of care, not a 
medically necessary service defined under Title XIX of the Act. States 
have used it as an umbrella to package an array of services, some of 
which may be medically necessary services, some of which are not. In 
order for a service to be reimbursable by Medicaid, states must 
specifically define all of the services that are to be provided, 
provider qualifications, and payment methodology. It is important to 
note that provider qualifications for those who furnish care to 
children in foster care must be the same as provider qualifications for 
those who furnish the same care to children not in foster care. 
Examples of therapeutic foster care components that would not be 
Medicaid coverable services include provider recruitment, foster parent 
training and other such services that are the responsibility of the 
foster care system.
    In Sec.  441.45(b)(2), we propose to exclude FFP for expenditures 
for habilitation services including those provided to individuals with 
mental retardation or ``related conditions'' as defined in the State 
Medicaid Manual Sec.  4398. Physical impairments and mental health and/
or substance related disorder are not considered ``related conditions'' 
and are therefore medical conditions for which rehabilitation services 
may be appropriately provided. As a matter of general usage in the 
medical community, there is a distinction between the terms 
``habilitation'' and ``rehabilitation.'' Rehabilitation refers to 
measures used to restore individuals to their best functional levels. 
The emphasis in covering rehabilitation services is the restoration of 
a functional ability. Individuals receiving rehabilitation services 
must have had the capability to perform an activity in the past rather 
than to actually have performed the activity. For example, a person may 
not have needed to drive a car in the past, but may have had the 
capability to do so prior to having the disability.

[[Page 45206]]

Habilitation typically refers to services that are for the purpose of 
helping persons acquire new functional abilities. Current Medicaid 
policy explicitly covers habilitation services in two ways: (1) When 
provided in an intermediate care facility for persons with mental 
retardation (ICF/MR); or (2) when covered under sections 1915(c), (d), 
or (i) of the Act as a home and community-based service. Habilitation 
services may also be provided under some 1905(a) service authorities 
such as Physician services defined at 42 CFR 440.50, Therapy services 
defined at 42 CFR 440.110 (such as, Physical Therapy, Occupational 
Therapy, and Speech/Language/Audiology Therapy), and Medical or other 
remedial care provided by licensed practitioners, defined at 42 CFR 
440.60. Habilitative services can also be provided under the 1915(i) 
State Plan Home and Community Based Services pursuant to the Deficit 
Reduction Act of 2005. In the late 1980s, the Congress responded to 
State concerns about disallowances for habilitation services provided 
under the State's rehabilitative services benefit by passing section 
6411(g) of the OBRA 89. This provision prohibited us from taking 
adverse actions against States with approved habilitation provisions 
pending the issuance of a regulation that ``specifies types of day 
habilitation services that a State may cover under paragraphs (9) 
[clinic services] or (13) [rehabilitative services] of section 1905(a) 
of the Act on behalf of persons with mental retardation or with related 
conditions.'' Accordingly, this regulation would specify that all such 
habilitation services would not be covered under sections 1905(a)(9) or 
1905(a)(13) of the Act. If this regulation is issued in final form, the 
protections provided to certain States by section 6411(g) of OBRA 89 
for day habilitation services will no longer be in force. We intend to 
provide for a delayed compliance date so that States will have a 
transition period of the lesser of 2 years or 1 year after the close of 
the first regular session of the State legislature that begins after 
this regulation becomes final before we will take enforcement action. 
This transition period will permit States an opportunity to transfer 
coverage of habilitation services from the rehabilitation option into 
another appropriate Medicaid authority. We are available to States as 
needed for technical assistance during this transition period.
    In Sec.  441.45(b)(3), we propose to provide that rehabilitative 
services would not include recreational and social activities that are 
not specifically focused on the improvement of physical or mental 
health impairment and achievement of a specific rehabilitative goal 
specified in the rehabilitation plan, and provided by a Medicaid 
qualified provider recognized under State law. We would also specify in 
this provision that rehabilitative services would not include personal 
care services; transportation; vocational and prevocational services; 
or patient education not related to the improvement of physical or 
mental health impairment and achievement of a specific rehabilitative 
goal specified in the rehabilitation plan. The first two of these 
services may be otherwise covered under the State plan. But these 
services are not primarily focused on rehabilitation, and thus do not 
meet the definition of medical or remedial services for rehabilitative 
purposes that would be contained in Sec.  440.130(d)(1).
    It is possible that some recreational or social activities are 
reimbursable as rehabilitative services if they are provided for the 
purpose allowed under the benefit and meet all the requirements 
governing rehabilitative services. For example, in one instance the 
activity of throwing a ball to an individual and having her/him throw 
it back, may be a recreational activity. In another instance, the 
activity may be part of a program of physical therapy that is provided 
by, or under the direction of, a qualified therapist for the purpose of 
restoring motor skills and balance in an individual who has suffered a 
stroke. Likewise, for an individual suffering from mental illness, what 
may appear to be a social activity may in fact be addressing the 
rehabilitation goal of social skills development as identified in the 
rehabilitation plan. The service would need to be specifically related 
to an identified rehabilitative goal as documented in the 
rehabilitation plan with specific time-limited treatment goals and 
outcomes. The rehabilitative service would further need to be provided 
by a qualified provider, be documented in the case record, and meet all 
requirements of this proposed regulation.
    When personal care services are provided during the course of the 
provision of a rehabilitative service, they are an incidental activity 
and separate payment may not be made for the performance of the 
incidental activity. For example, an individual recovering from the 
effects of a stroke may receive occupational therapy services from a 
qualified occupational therapy provider under the rehabilitation option 
to regain the capacity to feed himself or herself. If during the course 
of those services the individual's clothing becomes soiled and the 
therapist assists the individual with changing his or her clothing, no 
separate payment may be made for assisting the individual with dressing 
under the rehabilitation option. However, FFP may be available for 
optional State plan personal care services under Sec.  440.167 if 
provided by an enrolled, qualified personal care services provider.
    Similarly, transportation is not within the scope of the definition 
of rehabilitative services proposed by this regulation since the 
transportation service itself does not result in the maximum reduction 
of a physical or mental disability and restoration of the individual to 
the best possible functional level. However, transportation is a 
Medicaid covered service and may be billed separately as a medical 
assistance service under Sec.  440.170, if provided by an enrolled, 
qualified provider, or may be provided under the Medicaid program as an 
administrative activity necessary for the proper and efficient 
administration of the State's Medicaid program.
    Generally, vocational services are those that teach specific skills 
required by an individual to perform tasks associated with performing a 
job. Prevocational services address underlying habilitative goals that 
are associated with performing compensated work. To the extent that the 
primary purpose of these services is to help individuals acquire a 
specific job skill, and are not provided for the purpose of reducing 
disability and restoring a person to a previous functional level, they 
would not be construed as covered rehabilitative services. For example, 
teaching an individual to cook a meal to train for a job as a chef 
would not be covered, whereas, teaching an individual to cook in order 
to re-establish the use of her or his hands or to restore living skills 
may be coverable. While it may be possible for Medicaid to cover 
prevocational services when provided under the section 1915(c) of the 
Act, home and community based services waiver programs, funding for 
vocational services rests with other, non-Medicaid Federal and State 
funding sources.
    Similarly, the purpose of patient education is one important 
determinant to whether the activity is a rehabilitative activity 
covered under Sec.  440.130(d). While taking classes in an academic 
setting may increase an individual's integration into the community and 
enable the individual to learn social skills, the primary purpose of 
this activity is academic enhancement.

[[Page 45207]]

Thus, patient education in an academic setting is not covered under the 
Medicaid rehabilitation option. On the other hand, some patient 
education directed towards a specific rehabilitative therapy service 
may be provided for the purpose of equipping the individual with 
specific skills that will decrease disability and restore the 
individual to a previous functioning level. For example, an individual 
with a mental disorder that manifests with behavioral difficulties may 
need anger management training to restore his or her ability to 
interact appropriately with others. These services may be covered under 
the rehabilitation option if all of the requirements of this regulation 
are met.
    In Sec.  441.45(b)(4), we propose to exclude payment for services, 
including services that are rehabilitative services that are provided 
to inmates living in the secure custody of law enforcement and residing 
in a public institution. An individual is considered to be living in 
secure custody if serving time for a criminal offense in, or confined 
involuntarily to, State or Federal prisons, local jails, detention 
facilities, or other penal facilities. A facility is a public 
institution when it is under the responsibility of a governmental unit 
or over which a governmental unit exercises administrative control. 
Rehabilitative services could be reimbursed on behalf of Medicaid-
eligible individuals paroled, on probation, on home release, in foster 
care, in a group home, or other community placement, that are not part 
of the public institution system, when the services are identified due 
to a medical condition targeted under the State's Plan, are not used in 
the administration of other non-medical programs.
    We also propose to exclude payment for services that are provided 
to residents of an institution for mental disease (IMD), including 
residents of a community residential treatment facility of over 16 
beds, that is primarily engaged in providing diagnosis, treatment, or 
care of persons with mental illness, and that does not meet the 
requirements at Sec.  440.160. It appears that in the past, certain 
States may have provided services under the rehabilitation option to 
these individuals. Our proposed exclusion of FFP for rehabilitative 
services provided to these populations is consistent with the statutory 
requirements in paragraphs (A) and (B) following section 1905(a)(28) of 
the Act. The statute indicates that ``except as otherwise provided in 
paragraph (16), such term [medical assistance] does not include--(A) 
Any such payments with respect to care or services for any individual 
who is an inmate of a public institution; or (B) any such payments with 
respect to care or services for any individual who has not attained 65 
years and who is a patient in an IMD.'' Section 1905(a)(16) of the Act 
defines as ``medical assistance'' ``* * * inpatient psychiatric 
hospital services for individuals under age 21 * * *''. The Secretary 
has defined the term ``inpatient psychiatric hospital services for 
individuals under age 21'' in regulations at Sec.  440.160 to include 
``a psychiatric facility which is accredited by the Joint Commission on 
Accreditation of Healthcare Organizations, the Council on Accreditation 
of Services for Families and Children, the Commission on Accreditation 
of Rehabilitation Facilities, or by any other accrediting organization, 
with comparable standards, that is recognized by the State.'' Thus, the 
term ``inpatient psychiatric hospital services for individuals under 
age 21'' includes services furnished in accredited children's 
psychiatric residential treatment facilities that are not hospitals. 
The rehabilitative services that are provided by the psychiatric 
hospital or accredited psychiatric residential treatment facility 
(PRTF) providing inpatient psychiatric services for individuals under 
age 21 to its residents would be reimbursed under the benefit for 
inpatient psychiatric services for individuals under age 21 (often 
referred to as the ``psych under 21'' benefit), rather than under the 
rehabilitative services benefit.
    In Sec.  441.45(b)(6), we propose to exclude expenditures for room 
and board from payment under the rehabilitative services option. While 
rehabilitative services may be furnished in a residential setting that 
is not an IMD, the benefit provided by section 1905(a)(13) of the Act 
is primarily intended for community based services. Thus, when 
rehabilitative services are provided in a residential setting, such as 
in a residential substance abuse treatment facility of less than 17 
beds, delivered by qualified providers, only the costs of the specific 
rehabilitative services will be covered.
    In Sec.  441.45(b)(7), we propose to preclude payment for services 
furnished for the rehabilitation of an individual who is not Medicaid 
eligible. This provision reinforces basic program requirements found in 
section 1905(a) of the Act that require medical assistance to be 
furnished only to eligible individuals. An ``eligible individual'' is a 
person who is eligible for Medicaid and requires rehabilitative 
services as defined in the Medicaid State plan at the time the services 
are furnished.
    The provision of rehabilitative services to non-Medicaid eligible 
individuals cannot be covered if it relates directly to the non-
eligible individual's care and treatment. However, effective 
rehabilitation of eligible individuals may require some contact with 
non-eligible individuals. For instance, in developing the 
rehabilitation plan for a child with a mental illness, it may be 
appropriate to include the child's parents, who are not eligible for 
Medicaid, in the process. In addition, counseling sessions for the 
treatment of the child might include the parents and other non-eligible 
family members. In all cases, in order for a service to be a Medicaid 
coverable service, it must be provided to, or directed exclusively 
toward, the treatment of the Medicaid eligible individual.
    Thus, contacts with family members for the purpose of treating the 
Medicaid eligible individual may be covered by Medicaid. If these other 
family members or other individuals also are Medicaid eligible and in 
need of the services covered under the State's rehabilitation plan, 
Medicaid could pay for the services furnished to them.
    In Sec.  441.45(b)(8), we propose that FFP would only be available 
for claims for services provided to a specific individual that are 
documented in an individual's case record.
    We will work with States to implement this rule in a timely fashion 
using existing monitoring and compliance authority.

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.

[[Page 45208]]

    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements:

Section 440.130 Diagnostic, Screening, Preventative, and Rehabilitative 
Services

    This section outlines the scope of service for rehabilitative 
services provided by States. The services discussed in this section 
must be provided under a written rehabilitation plan as defined in 
Sec.  440.130(d)(1)(v). Specifically, Sec.  440.130(d)(3) states that 
the written rehabilitation plan must meet the following requirements:
    (i) Be based on a comprehensive assessment of an individual's 
rehabilitation needs including diagnoses and presence of a functional 
impairment in daily living.
    (ii) Be developed by a qualified provider(s) working within the 
State scope of practice act with input from the individual, 
individual's family, the individual's authorized health care decision 
maker and/or persons of the individual's choosing.
    (iii) Ensure the active participation of the individual, 
individual's family, the individual's authorized health care decision 
maker and/or persons of the individual's choosing in the development, 
review, and modification of these goals and services.
    (iv) Specify the individual's rehabilitation goals to be achieved 
including recovery goals for persons with mental illnesses or substance 
related disorders.
    (v) Specify the physical impairment, mental health and/or substance 
related disorder that is being addressed.
    (vi) Identify the medical and remedial services intended to reduce 
the identified physical impairment, mental health and/or substance 
related disorder.
    (vii) Identify the methods that will be used to deliver services.
    (viii)Specify the anticipated outcomes.
    (ix) Indicate the frequency and duration of the services.
    (x) Be signed by the individual responsible for developing the 
rehabilitation plan.
    (xi) Indicate the anticipated provider(s) of the service(s) and the 
extent to which the services may be available from alternate 
provider(s) of the same service.
    (xii) Specify a timeline for reevaluation of the plan, based on the 
individual's assessed needs and anticipated progress, but not longer 
than one year.
    (xiii) Be reevaluated with the involvement of the beneficiary, 
family or other responsible individuals.
    (xiv) Be reevaluated including a review of whether the goals set 
forth in the plan are being met and whether each of the services 
described in the plan has contributed to meeting the stated goals. If 
it is determined that there has been no measurable reduction of 
disability and restoration of functional level, any new plan would need 
to pursue a different rehabilitation strategy including revision of the 
rehabilitative goals, services and/or methods.
    (xv) Document that the individual or representative participated in 
the development of the plan, signed the plan, and received a copy of 
the rehabilitation plan.
    (xvi) Document that the services have been determined to be 
rehabilitative services consistent with the regulatory definition.
    The burden associated with the requirements in this section is the 
time and effort put forth by the provider to gather the information and 
develop a specific written rehabilitation plan. While these 
requirements are subject to the PRA, we believe they meet the exemption 
requirements for the PRA found at 5 CFR 1320.3(b)(2), and as such, the 
burden associated with these requirements is exempt.

Section 441.45 Rehabilitative Services

    Section 441.45(a)(3) requires that providers maintain case records 
that contain a copy of the rehabilitation plan for all individuals.
    The burden associated with these requirements is the time and 
effort put forth by the provider to maintain the case records. While 
these requirements are subject to the PRA, we believe they meet the 
exemption requirements for the PRA found at 5 CFR 1320.3(b)(2), and as 
such, the burden associated with these requirements is exempt.
    If you comment on these information collection and recordkeeping 
requirements, please mail copies directly to the following:

Centers for Medicare & Medicaid Services, Office of Strategic 
Operations and Regulatory Affairs, Regulations Development Group, Attn: 
Melissa Musotto [CMS-2261-P], Room C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850; and
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Attn: Katherine Astrich, CMS Desk Officer, [CMS-1321-P], 
<a href="/cdn-cgi/l/email-protection#ed868c9985889f848388b28c9e999f848e85ad82808fc388829dc38a829b"><span class="__cf_email__" data-cfemail="127973667a77607b7c774d736166607b717a527d7f703c777d623c757d64">[email protected]</span></a>. Fax (202) 395-6974.

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 final document, we will respond to the 
comments in that document.

V. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
    Executive Order 12866 (as amended by Executive Order 13258, which 
merely reassigns responsibility of duties) directs agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year). 
This is a major rule because of the size of the anticipated reduction 
in Federal financial participation that is estimated to have an 
economically significant effect of more than $100 million in each of 
the Federal fiscal years 2008 through 2012.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$6.5 million to $31.5 million in any 1 year. The Secretary certifies 
that this major rule would not have a direct impact on providers of 
rehabilitative services that furnish services pursuant to section 
1905(a)(13) of the Act. The rule would directly affect states and we do 
not know nor can we predict the manner in which states would adjust or 
respond to the provisions of this rule. CMS is unable to determine the

[[Page 45209]]

percentage of providers of rehabilitative services that are considered 
small businesses according to the Small Business Administration's size 
standards with total revenues of $6.5 million to $31.5 million or less 
in any 1 year. Individuals and States are not included in the 
definition of a small entity. In addition, section 1102(b) of the Act 
requires us to prepare a regulatory impact analysis if a rule may have 
a significant impact on the operations of a substantial number of small 
rural hospitals. This analysis must conform to the provisions of 
section 603 (proposed documents) of the RFA. For purposes of section 
1102(b) of the Act, we define a small rural hospital as a hospital that 
is located outside of a Metropolitan Statistical Area for Medicaid 
payment regulations and has fewer than 100 beds. The Secretary 
certifies that this major rule would not have a direct impact on small 
rural hospitals. The rule would directly affect states and we do not 
know nor can we predict the manner in which states would adjust or 
respond to the provisions of this rule.
    Section 202 of the Unfunded Mandates Reform Act (UMRA) of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $120 million. Since this rule would 
not mandate spending in any 1 year of $120 million or more, the 
requirements of the UMRA are not applicable.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. Since this rule would not impose any costs on State or 
local governments, preempt State law, or otherwise have Federalism 
implications, the requirements of E.O. 13132 are not applicable.

B. Anticipated Effects

    FFP will be available for rehabilitative services for treatment of 
physical, mental health, or substance-related disorder rehabilitation 
treatment if the State elects to provide those services through the 
approved State plan. Individuals retain the right to select among 
qualified providers of rehabilitative services. However, because FFP 
will be excluded for rehabilitative services that are included in other 
Federal, State and local programs, it is estimated that Federal 
Medicaid spending on rehabilitative services would be reduced by 
approximately $180 million in FY 2008 and would be reduced by $2.2 
billion between FY 2008 and FY 2012. This reduction in spending is 
expected to occur because FFP for rehabilitative services would no 
longer be paid to inappropriate other third parties or other Federal, 
State, or local programs.
    The estimated impact on Federal Medicaid spending was calculated 
starting with an estimate of rehabilitative service spending that may 
be subject to this rule. This estimate was developed after consulting 
with several experts, as data for rehabilitative services, particularly 
as it would apply to this rule, is limited. Given this estimate, the 
actuaries discounted this amount to account for four factors: (1) The 
ability of CMS to effectively identify the rehabilitative services 
spending that would be subject to this proposal; (2) the effectiveness 
of CMS's efforts to implement this rule and the potential that some 
identified rehabilitative services spending may still be permissible 
under the rule; (3) the change in States' plans that may regain some of 
the lost Federal funding; and (4) the length of time for CMS to fully 
implement the rule and review all States' plans.
    The actual impact to the Federal Medicaid program may be different 
than the estimate to the extent that the estimate of the amount of 
rehabilitative services spending subject to this rule is different than 
the actual amount and to the extent that the effectiveness of the rule 
is greater than or less than assumed. Because a comprehensive review of 
these rehabilitative services had not been conducted at the time of 
this estimate and because we do not routinely collect data on spending 
for rehabilitative services, particularly as it relates to this rule, 
there is a significantly wide range of possible impacts.
    Thus, we are unable to determine what fiscal impact the publication 
of this rule would have on consumers, individual industries, Federal, 
State, or local government agencies or geographic regions under 
Executive Order 12866. We invite public comment on the potential impact 
of the rule.

C. Alternatives Considered

    This proposed rule would amend the definition of rehabilitative 
services to provide for important individual protections and to clarify 
that Medicaid rehabilitative services must be coordinated with but do 
not include services furnished by other programs that are focused on 
social or educational development goals and available as part of other 
services or programs. We believe this proposed rule is the best 
approach to clarifying the covered rehabilitative services, and also 
because all stakeholders will have the opportunity to comment on the 
proposed rule. These comments will then be considered before the final 
document is published.
    In considering regulatory options, we considered requiring States 
to license all providers as an alternative to only requiring that 
providers to be qualified as defined by the State. However we believe 
that giving States the flexibility to determine how providers are 
credentialed allows for necessary flexibility to States to consider a 
wide range of provider types necessary to cover a variety of 
rehabilitation services. We believe this flexibility will result in 
decreases in administrative and service costs.
    We also considered restricting the rule to only include participant 
protections but not explicitly prohibiting FFP for services that are 
intrinsic elements of other non-Medicaid programs. Had we not 
prohibited FFP for services that are intrinsic elements of other 
programs, States would continue to provide non-Medicaid services to 
participants, the result would have been a less efficient use of 
Medicaid funding because increased Medicaid spending would not result 
in any increase in services to beneficiaries. Instead, increased 
Medicaid funding would have simply replaced other sources of funding.

D. Accounting Statement and Table

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in the table below, we 
have prepared an accounting statement showing the classification of the 
savings associated with the provisions of this proposed rule. This 
table provides our best estimate of the savings to the Federal 
Government as a result of the changes presented in this proposed rule 
that Federal Medicaid spending on rehabilitative services would be 
reduced by approximately $180 million in FY 2008 and would be reduced 
by $2.24 billion between FY 2008 and FY 2012. All savings are 
classified as transfers from the Federal Government to State 
Government. These transfers represent a reduction in the federal share 
of Medicaid spending once the rule goes into effect, as it would limit 
States from claiming Medicaid reimbursement for

[[Page 45210]]

rehabilitation services that could be covered through other programs.

               Accounting Statement: Classification of Estimated Savings, From FY 2008 to FY 2012
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
                                                      Primary                     Units discount
                    Category                         estimates      Year dollar        rate       Period covered
----------------------------------------------------------------------------------------------------------------
Federal Annualized Monetized ($millions/year)...           443.4            2008              7%       2008-2012
                                                  ..............  ..............  ..............  ..............
                                                           441.6            2008              3%       2008-2012
                                                  ..............  ..............  ..............  ..............
                                                             448            2008              0%       2008-2012
                                                 ---------------------------------------------------------------
From Whom to Whom?..............................              Federal Government to State Government
----------------------------------------------------------------------------------------------------------------

    Column 1: Category--Contains the description of the different 
impacts of the rule; it could include monetized, quantitative but not 
monetized, or qualitative but not quantitative or monetized impacts; it 
also may contain unit of measurement (such as, dollars). In this case, 
the only impact is the Federal annualized monetized impact of the rule.
    Column 2: Primary Estimate--Contains the quantitative or 
qualitative impact of the rule for the respective category of impact. 
Monetized amounts are generally shown in real dollar terms. In this 
case, the federalized annualized monetized primary estimate represents 
the equivalent amount that, if paid (saved) each year over the period 
covered, would result in the same net present value of the stream of 
costs (savings) estimated over the period covered.
    Column 3: Year Dollar--Contains the year to which dollars are 
normalized; that is, the first year that dollars are discounted in the 
estimate.
    Column 4: Unit Discount Rate--Contains the discount rate or rates 
used to estimate the annualized monetized impacts. In this case, three 
rates are used: 7 percent; 3 percent; 0 percent.
    Column 5: Period Covered--Contains the years for which the estimate 
was made.
    Rows: The rows contain the estimates associated with each specific 
impact and each discount rate used.
    ``From Whom to Whom?''--In the case of a transfer (as opposed to a 
change in aggregate social welfare as described in the OMB Circular), 
this section describes the parties involved in the transfer of costs. 
In this case, costs previously paid for by the Federal Government would 
be transferred to the State Governments. The table may also contain 
minimum and maximum estimates and sources cited. In this case, there is 
only a primary estimate and there are no additional sources for the 
estimate.
    Estimated Savings--The following table shows the discounted costs 
(savings) for each discount rate and for each year over the period 
covered. ``Total'' represents the net present value of the impact in 
the year the rule takes effect. These numbers represent the anticipated 
annual reduction in Federal Medicaid spending under this rule.

                                                       Estimated Savings, From FY 2008 to FY 2012
                                                                      [In millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                Discount rate  (percent)                       2008            2009            2010            2011            2012            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
0.......................................................             180             360             520             570             610           2,288
3.......................................................             175             339             476             506             526           2,069
7.......................................................             168             314             424             435             435           1,822
--------------------------------------------------------------------------------------------------------------------------------------------------------

E. Conclusion

    For these reasons, we are not preparing analyses for either the RFA 
or section 1102(b) of the Act because a comprehensive review of these 
rehabilitative services had not been conducted at the time of this 
estimate and because we do not routinely collect data on spending for 
rehabilitative services. Accordingly, there is a significantly wide 
range of possible impacts due to this rule. As indicated in the 
Estimated Savings table above, we project an estimated savings of $180 
million in FY 2008, $360 million in FY 2009, $520 million in FY 2010, 
$570 million in FY 2011, and $610 million in FY 2012. This reflects a 
total estimated savings of $2.240 billion dollars for FY 2008 through 
FY 2012. We invite public comment on the potential impact of this rule.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 440

    Grant programs--health, Medicaid.

42 CFR Part 441

    Family planning, Grant programs--health, Infants and children, 
Medicaid, Penalties, Prescription drugs, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV as set forth 
below:

PART 440--SERVICES: GENERAL PROVISIONS

    1. The authority citation for part 440 continues to read as 
follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

    2. Section 440.130 is amended by revising paragraph (d) to read as 
follows:

Sec.  440.130 Diagnostic, screening, preventative, and rehabilitative 
services.

* * * * *

[[Page 45211]]

    (d) Rehabilitative Services--(1) Definitions. For purposes of this 
subpart, the following definitions apply:
    (i) Recommended by a physician or other licensed practitioner of 
the healing arts means that a physician or other licensed practitioner 
of the healing arts, based on a comprehensive assessment of the 
individual, has--
    (A) Determined that receipt of rehabilitative services would result 
in reduction of the individual's physical or mental disability and 
restoration to the best possible functional level of the individual; 
and
    (B) Recommended the rehabilitative services to achieve specific 
individualized goals.
    (ii) Other licensed practitioner of the healing arts means any 
health practitioner or practitioner of the healing arts who is licensed 
in the State to diagnose and treat individuals with the physical or 
mental disability or functional limitations at issue, and operating 
within the scope of practice defined in State law.
    (iii) Qualified providers of rehabilitative services means 
individuals who meet any applicable provider qualifications under 
Federal law that would be applicable to the same service when it is 
furnished under other Medicaid benefit categories, qualifications under 
applicable State scope of practice laws, and any additional 
qualifications set forth in the Medicaid State plan. These 
qualifications may include minimum age requirements, education, work 
experience, training, credentialing, supervision and licensing 
requirements that are applied uniformly. Provider qualifications must 
be documented in the State plan and be reasonable given the nature of 
the service provided and the population served. Individuals must have 
free choice of providers and all willing and qualified providers must 
be permitted to enroll in Medicaid.
    (iv) Under the direction of means that for physical therapy, 
occupational therapy, and services for individuals with speech, hearing 
and language disorders (see Sec.  440.110, ``Inpatient hospital 
services, other than services in an institution for mental diseases'') 
the Medicaid qualified therapist providing direction is a licensed 
practitioner of the healing arts qualified under State law to diagnose 
and treat individuals with the disability or functional limitations at 
issue, is working within the scope of practice defined in State law and 
is supervising each individual's care. The supervision must include, at 
a minimum, face-to-face contact with the individual initially and 
periodically as needed, prescribing the services to be provided, and 
reviewing the need for continued services throughout the course of 
treatment. The qualified therapist must also assume professional 
responsibility for the services provided and ensure that the services 
are medically necessary. Therapists must spend as much time as 
necessary directly supervising services to ensure beneficiaries are 
receiving services in a safe and efficient manner in accordance with 
accepted standards of practice. Moreover, documentation must be kept 
supporting the supervision of services and ongoing involvement in the 
treatment. Note that this definition applies specifically to providers 
of physical therapy, occupational therapy, and services for individuals 
with speech, hearing and language disorders. This language is not meant 
to exclude appropriate supervision arrangements for other 
rehabilitative services.
    (v) Rehabilitation plan means a written plan that specifies the 
physical impairment, mental health and/or substance related disorder to 
be addressed, the individualized rehabilitation goals and the medical 
and remedial services to achieve those goals. The plan is developed by 
a qualified provider(s) working within the State scope of practice act, 
with input from the individual, individual's family, the individual's 
authorized decision maker and/or of the individual's choosing and also 
ensures the active participation of the individual, individual's 
family, individual's authorized decision maker and/or of the 
individual's choosing in the development, review, and modification of 
the goals and services. The plan must document that the services have 
been determined to be rehabilitative services consistent with the 
regulatory definition. The plan must have a timeline, based on the 
individual's assessed needs and anticipated progress, for reevaluation 
of the plan, not longer than one year. The plan must be reasonable and 
based on the individual's condition(s) and on general standards of 
practice for provision of rehabilitative services to an individual with 
the individual's condition(s).
    (vi) Restorative services means services that are provided to an 
individual who has had a functional loss and has a specific 
rehabilitative goal toward regaining that function. The emphasis in 
covering rehabilitation services is on the ability to perform a 
function rather than to actually have performed the function in the 
past. For example, a person may not have needed to take public 
transportation in the past, but may have had the ability to do so prior 
to having the disability. Rehabilitation goals are often contingent on 
the individual's maintenance of a current level of functioning. In 
these instances services that provide assistance in maintaining 
functioning may be considered rehabilitative only when necessary to 
help an individual achieve a rehabilitation goal defined in the 
rehabilitation plan. Services provided primarily in order to maintain a 
level of functioning in the absence of a rehabilitation goal are not 
within the scope of rehabilitation services.
    (vii) Medical services means services specified in the 
rehabilitation plan that are required for the diagnosis, treatment, or 
care of a physical or mental disorder and are recommended by a 
physician or other licensed practitioner of the healing arts within the 
scope of his or her practice under State law. Medical services may 
include physical therapy, occupational therapy, speech therapy, and 
mental health and substance-related disorder rehabilitative services.
    (viii) Remedial services means services that are intended to 
correct a physical or mental disorder and are necessary to achieve a 
specific rehabilitative goal specified in the individual's 
rehabilitation plan.
    (2) Scope of services. Except as otherwise provided under this 
subpart, rehabilitative services include medical or remedial services 
recommended by a physician or other licensed practitioner of the 
healing arts, within the scope of his practice under State law, for 
maximum reduction of physical or mental disability and restoration of a 
individual to the best possible functional level. Rehabilitative 
services may include assistive devices, medical equipment and supplies, 
not otherwise covered under the plan, which are determined necessary to 
the achievement of the individual's rehabilitation goals. 
Rehabilitative services do not include room and board in an institution 
or community setting.
    (3) Written rehabilitation plan. The written rehabilitation plan 
shall be reasonable and based on the individual's condition(s) and on 
the standards of practice for provision of rehabilitative services to 
an individual with the individual's condition(s). In addition, the 
written rehabilitation plan must meet the following requirements:
    (i) Be based on a comprehensive assessment of an individual's 
rehabilitation needs including diagnoses and presence of a functional 
impairment in daily living.
    (ii) Be developed by a qualified provider(s) working within the 
State scope of practice act with input from the individual, 
individual's family, the individual's authorized health care

[[Page 45212]]

decision maker and/or persons of the individual's choosing.
    (iii) Follow guidance obtained through the active participation of 
the individual, and/or persons of the individual's choosing (which may 
include the individual's family and the individual's authorized health 
care decision maker), in the development, review, and modification of 
plan goals and services.
    (iv) Specify the individual's rehabilitation goals to be achieved, 
including recovery goals for persons with mental health and/or 
substance related disorders.
    (v) Specify the physical impairment, mental health and/or substance 
related disorder that is being addressed.
    (vi) Identify the medical and remedial services intended to reduce 
the identified physical impairment, mental health and/or substance 
related disorder.
    (vii) Identify the methods that will be used to deliver services.
    (viii) Specify the anticipated outcomes.
    (ix) Indicate the frequency, amount and duration of the services.
    (x) Be signed by the individual responsible for developing the 
rehabilitation plan.
    (xi) Indicate the anticipated provider(s) of the service(s) and the 
extent to which the services may be available from alternate 
provider(s) of the same service.
    (xii) Specify a timeline for reevaluation of the plan, based on the 
individual's assessed needs and anticipated progress, but not longer 
than one year.
    (xiii) Be reevaluated with the involvement of the individual, 
family or other responsible individuals.
    (xiv) Be reevaluated including a review of whether the goals set 
forth in the plan are being met and whether each of the services 
described in the plan has contributed to meeting the stated goals. If 
it is determined that there has been no measurable reduction of 
disability and restoration of functional level, any new plan would need 
to pursue a different rehabilitation strategy including revision of the 
rehabilitative goals, services and/or methods.
    (xv) Document that the individual or representative participated in 
the development of the plan, signed the plan, and received a copy of 
the rehabilitation plan.
    (xvi) Document that the services have been determined to be 
rehabilitative services consistent with the regulatory definition.
    (xvii) Include the individual's relevant history, current medical 
findings, contraindications and identify the individual's care 
coordination needs, if any, as needed to achieve the rehabilitation 
goals.
    (4) Impairments to be addressed. For purposes of this section, 
rehabilitative services include services provided to the Medicaid 
eligible individual to address the individual's physical impairments, 
mental health impairments, and/or substance-related disorder treatment 
needs.
    (5) Settings. Rehabilitative services may be provided in a 
facility, home, or other setting.

PART 441--SERVICES: REQUIREMENTS AND LIMITS APPLICABLE TO SPECIFIC 
SERVICES

    1. The authority citation for part 441 continues to read as 
follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

Subpart A--General Provisions

    2. A new Sec.  441.45 is added to subpart A to read as follows:


Sec.  441.45  Rehabilitative services.

    (a) If a State covers rehabilitative services, as defined in Sec.  
440.130(d) of this chapter, the State must meet the following 
requirements:
    (1) Ensure that services are provided in accordance with Sec.  
431.50, Sec.  431.51, Sec.  440.230, and Sec.  440.240 of this chapter.
    (2) Ensure that rehabilitative services are limited to services 
furnished for the maximum reduction of physical or mental disability 
and restoration of the individual to their best possible functional 
level.
    (3) Require that providers maintain case records that contain a 
copy of the rehabilitation plan for all individuals.
    (4) For all individuals receiving rehabilitative services, require 
that providers maintain case records that include the following:
    (i) A copy of the rehabilitative plan.
    (ii) The name of the individual.
    (iii) The date of the rehabilitative services provided.
    (iv) The nature, content, and units of the rehabilitative services.
    (v) The progress made toward functional improvement and attainment 
of the individual's goals as identified in the rehabilitation plan and 
case record.
    (5) Ensure the State plan for rehabilitative services includes the 
following requirements:
    (i) Describes the rehabilitative services furnished.
    (ii) Specifies provider qualifications that are reasonably related 
to the rehabilitative services proposed to be furnished.
    (iii) Specifies the methodology under which rehabilitation 
providers are paid.
    (b) Rehabilitation does not include, and FFP is not available in 
expenditures for, services defined in Sec.  440.130(d) of this chapter 
if the following conditions exist:
    (1) The services are furnished through a non-medical program as 
either a benefit or administrative activity, including services that 
are intrinsic elements of programs other than Medicaid, such as foster 
care, child welfare, education, child care, vocational and 
prevocational training, housing, parole and probation, juvenile 
justice, or public guardianship. Examples of services that are 
intrinsic elements of other programs and that would not be paid under 
Medicaid include, but are not limited to, the following:
    (i) Therapeutic foster care services furnished by foster care 
providers to children, except for medically necessary rehabilitation 
services for an eligible child that are clearly distinct from packaged 
therapeutic foster care services and that are provided by qualified 
Medicaid providers.
    (ii) Packaged services furnished by foster care or child care 
institutions for a foster child except for medically necessary 
rehabilitation services for an eligible child that are clearly distinct 
from packaged therapeutic foster care services and that are provided by 
qualified Medicaid providers.
    (iii) Adoption services, family preservation, and family 
reunification services furnished by public or private social services 
agencies.
    (iv) Routine supervision and non-medical support services provided 
by teacher aides in school settings (sometimes referred to as 
``classroom aides'' and ``recess aides'').
    (2) Habilitation services, including services for which FFP was 
formerly permitted under the Omnibus Budget Reconciliation Act of 1989. 
Habilitation services include ``services provided to individuals'' with 
mental retardation or related conditions. (Most physical impairments, 
and mental health and/or substance related disorders, are not included 
in the scope of related conditions, so rehabilitation services may be 
appropriately provided.)
    (3) Recreational or social activities that are not focused on 
rehabilitation and not provided by a Medicaid qualified provider; 
personal care services; transportation; vocational and prevocational 
services; or patient education not related to reduction of physical or 
mental disability and the restoration of an individual to his or her 
best possible functional level.

[[Page 45213]]

    (4) Services that are provided to inmates living in the secure 
custody of law enforcement and residing in a public institution. An 
individual is considered to be living in secure custody if serving time 
for a criminal offence in, or confined involuntarily to, public 
institutions such as State or Federal prisons, local jails, detention 
facilities, or other penal facilities. A facility is a public 
institution when it is under the responsibility of a governmental unit; 
or over which a governmental unit exercises administrative control. 
Rehabilitative services could be reimbursed on behalf of Medicaid-
eligible individuals paroled, on probation, on home release, in foster 
care, in a group home, or other community placement, that are not part 
of the public institution system, when the services are identified due 
to a medical condition targeted under the State's Plan, are not used in 
the administration of other non-medical programs.
    (5) Services provided to residents of an institution for mental 
disease (IMD) who are under the age of 65, including residents of 
community residential treatment facilities with more than 16 beds that 
do not meet the requirements at Sec.  440.160 of this chapter.
    (6) Room and board.
    (7) Services furnished for the treatment of an individual who is 
not Medicaid eligible.
    (8) Services that are not provided to a specific individual as 
documented in an individual's case record.

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)

    Dated: March 22, 2007.
Leslie V. Norwalk,
Acting Administrator, Centers for Medicare & Medicaid Services.

    Approved: July 12, 2007.
Michael O. Leavitt,
Secretary.
[FR Doc. 07-3925 Filed 8-8-07; 4:00 pm]
BILLING CODE 4120-01-P


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