[Federal Register Volume 73, Number 66 (Friday, April 4, 2008)]
[Proposed Rules]
[Pages 18676-18700]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 08-1084]



[[Page 18675]]

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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 431, 440, and 441



 Medicaid Program: Home and Community-Based State Plan Services; 
Proposed Rule

Federal Register / Vol. 73, No. 66 / Friday, April 4, 2008 / Proposed 
Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 431, 440, and 441

[CMS-2249-P]
RIN 0938-AO53


Medicaid Program: Home and Community-Based State Plan Services

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend the Medicaid regulations to 
define and describe home and community-based State plan services 
implementing new section 1915(i) of the Social Security Act as added by 
section 6086 of the Deficit Reduction Act of 2005.

DATES: Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on June 3, 2008.

ADDRESSES: In commenting, please refer to file code CMS-2249-P. 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):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the instructions for 
``Comment or Submission'' and enter the filecode to find the document 
accepting comments.
    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-2249-P, 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 (one 
original and two copies) to the following address ONLY: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-2249-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 either of the following addresses:
    a. Room 445-G, Hubert H. Humphrey Building, 200 Independence 
Avenue, SW., Washington, DC 20201; or

    (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.)

    b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

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

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. We 
post all comments received before the close of the comment period on 
the following Web site as soon as possible after they have been 
received: http://www.regulations.gov. Follow the search instructions on 
that Web site to view public comments.
    Comments received timely also will 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

    [If you choose to comment on issues in this section, please include 
the caption ``BACKGROUND'' at the beginning of your comments.]
    On February 8, 2006, the Deficit Reduction Act of 2005 (DRA 2005) 
(Pub. L. 109-171) was signed into law. Section 6086 of the DRA is 
entitled ``Expanded Access to Home and Community-Based Services for the 
Elderly and Disabled.'' Section 6086(a) of the DRA adds a new section 
1915(i) to the Social Security Act (the Act) that allows States, at 
their option, to provide home and community-based services (HCBS) under 
their regular State Medicaid plans. This option allows States to 
receive Federal financial participation (FFP) for services that were 
previously eligible for the funds only under waiver or demonstration 
projects, including those under sections 1915(c) and 1115 of the Act. 
Section 1915(i) of the Act sets forth several conditions that States 
must meet, and actions they must take, if they choose to add State plan 
HCBS to services available through the State plan. Section 6086(b) of 
the DRA provides for the Secretary to develop, through the Agency for 
Healthcare Research and Quality, quality of care measures to assess 
Medicaid HCBS.
    Under section 1915(i) of the Act, States can provide HCBS to 
individuals who require less than institutional level of care and who 
would therefore not be eligible for HCBS under 1915(c) waivers. Section 
1915(i) of the Act does not link HCBS to institutional level of care or 
require cost savings over institutional services, permitting States to 
provide the State Plan HCBS benefit to individuals whether or not they 
meet an institutional level of care, and based on need for support 
rather than population characteristics.
    Section 1915(i) of the Act does impose other limits not required by 
section 1915(c) waivers, including a prescribed set of services States 
may choose to offer, and exclusion of individuals with income above 150 
percent of the Federal Poverty Level (FPL). HCBS under the State plan 
are limited to elderly and disabled individuals.
    HCBS are available in some States in demonstration programs under 
section 1115 of the Act. Each demonstration under section 1115 of the 
Act is unique with respect to the Medicaid requirements waived, type 
and scope of services offered and population served, and cannot be 
generally characterized. Therefore, we are not including HCBS provided 
under section 1115

[[Page 18677]]

demonstrations in this discussion except to note that the section 1115 
authority has been used by States to provide services in the home and 
community. States can also provide Medicaid long-term care services to 
individuals in the community through the mandatory State plan home 
health benefit, and the optional State plan personal care services 
benefit. These services are occasionally referred to as home and 
community-based, but are not included as HCBS in this discussion. The 
section 1915(i) benefit does not diminish the State's ability to 
provide any of these existing community services. States opting to 
offer State plan HCBS under section 1915(i) of the Act can continue to 
provide the full array of community services under section 1915(c) 
waivers, section 1115 demonstration programs, mandatory State plan home 
health benefits, and the optional State plan personal care services 
benefit.
    Before 1981, the Medicaid program provided limited coverage for 
long-term care services in non-institutional, community-based settings. 
Medicaid's complex eligibility criteria and other factors made 
institutional care much more accessible than care in the community.
    Medicaid HCBS were established in 1981 as an alternative to care in 
Medicaid institutions, by permitting States to waive certain Medicaid 
requirements upon approval by the Secretary. Section 1915(c) of the Act 
was added to title XIX by the Omnibus Budget Reconciliation Act of 1981 
(OBRA 1981) (Pub. L. 97-35). Programs of HCBS under section 1915(c) of 
the Act are known as ``waiver programs'', or simply ``waivers'' due to 
the authority to waive Medicaid requirements.
    Since 1981, the section 1915(c) HCBS waiver program has afforded 
States considerable latitude in designing services to meet the needs of 
people who would otherwise require institutional care. In 2007, 
approximately 300 HCBS waivers under section 1915(c) of the Act serve 
over 1 million elderly and disabled individuals in their homes or 
alternative residential community settings. States have used HCBS 
waiver programs to provide numerous services designed to foster 
independence; assist eligible individuals in integrating into their 
communities; and promote self-direction, personal choice, and control 
over services and providers. The addition of section 1915(i) of the Act 
affords some of the same flexibility through the State plan.
    Another important aspect to this background is the passage of the 
Americans with Disabilities Act of 1990 (ADA) and the Olmstead v. L.C., 
527 U.S. 581 (1999) U.S. Supreme Court decision. In particular, Title 
II of the ADA prohibits discrimination on the basis of disability by 
State and local governments and requires these entities to administer 
services, programs, and activities in the most integrated setting 
appropriate to the needs of qualified individuals with disabilities. In 
applying the most integrated setting mandate, the U.S. Supreme Court 
ruled in Olmstead v. L.C. that unnecessary institutionalization of 
individuals with disabilities may constitute discrimination under the 
ADA. Under Olmstead, States may not deny a qualified individual with a 
disability a community placement when: (1) Treating professionals 
determine that community placement is appropriate; (2) the community 
placement is not opposed by the individual with a disability; and (3) 
the community placement can be reasonably accommodated.
    In the following discussion and the proposed regulation, we refer 
to particular home and community-based service(s) offered under section 
1915(i) of the Act as ``State plan HCBS'' or simply ``HCBS''.\1\ We 
refer to the ``State plan home and community-based services benefit'' 
when describing the collective requirements of section 1915(i) of the 
Act that apply to States electing to provide one, or several, of the 
authorized HCBS. We choose to use the term ``benefit'' rather than 
``program'' to describe section 1915(i) of the Act to avoid possible 
confusion with HCBS waiver programs. The State plan HCBS benefit shares 
many features with section 1915(c) waiver programs, and in other 
respects is similar to other State plan services, but differs from both 
in important respects.
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    \1\ Note that the abbreviation HCBS does not distinguish between 
singular and plural. Where this could be confusing, we spell out 
home and community-based service(s).
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    The Secretary has delegated administration of the Medicaid program, 
including the State plan HCBS benefit furnished under Medicaid, to the 
Centers for Medicare & Medicaid Services (CMS). Effective January 2007, 
States that demonstrate they meet certain requirements may choose to 
furnish HCBS under the State plan. States may elect to provide HCBS 
through waiver programs, State plan services, or both. The availability 
of the State plan HCBS benefit does not foreclose, or otherwise 
restrict, a State's ability to operate its HCBS waiver programs, nor 
does the availability of HCBS waiver services within a State affect its 
ability to add the HCBS benefit to its State plan.

A. Overview of the State Plan HCBS Benefit

    The following overview describes the provisions of the DRA in the 
order they are presented in section 1915(i) of the Act. The proposed 
regulation and the explanation of each proposed requirement in section 
II. are arranged so that related requirements are grouped for clarity.
1. General Provisions of the State Plan Amendment Option To Provide 
Home and Community-Based Services for Elderly and Disabled Individuals
    Section 1915(i)(1) of the Act grants States the option to provide, 
under the State plan, the services and supports listed in section 
1915(c)(4)(B) of the Act governing HCBS waivers, not including the 
``other services'' described therein. The services specifically listed 
in section 1915(c)(4)(B) of the Act are as follows: Case management, 
homemaker/home health aide, personal care, adult day health, 
habilitation, respite care, and for individuals with chronic mental 
illness: Day treatment, other partial hospitalization services, 
psychosocial rehabilitation services, and clinic services (whether or 
not furnished in a facility). The HCBS may not include payment for room 
and board (see additional discussion in section I.D.3.).
    We interpret the statute as authorizing the services as titled in 
section 1915(c)(4)(B) of the Act. Therefore, we would expect States to 
define State plan HCBS with sufficient specificity that the nature and 
scope of the service clearly relates to those listed in section 
1915(c)(4)(B) of the Act.
    Section 1915(i) of the Act explicitly provides that State plan HCBS 
may be provided without determining that, but for the provision of such 
services, individuals would require the level of care provided in a 
hospital, a nursing facility (NF), or an intermediate care facility for 
the mentally retarded (ICF/MR) as is required in section 1915(c) HCBS 
waivers. While HCBS waivers must be ``cost-neutral'' to Medicaid, no 
cost neutrality requirement applies to the section 1915(i) State plan 
HCBS benefit. States are not required to produce comparative cost 
estimates of institutional care and the State plan HCBS benefit. This 
significant distinction allows States to offer HCBS to individuals 
whose needs are substantial, but not severe enough to qualify them for 
institutional or waiver services, and to individuals for whom

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there is not an offset cost savings in NFs, ICFs/MR, or hospitals.
    While eligibility for State plan HCBS does not require that the 
individual would otherwise need an institutional level of care, the 
services are intended to prevent progression to institutionalization 
and to enable individuals to receive needed services in their own 
homes, or in alternative living arrangements in what is collectively 
termed the ``community'' in this context. (See additional discussion in 
section I.D.2. regarding institutions not considered to be in the 
community, and in which State plan HCBS will not be available.)
    Section 1915(i)(1) of the Act requires that in order to receive 
State plan HCBS, individuals must be eligible for Medicaid under an 
eligibility group covered by the State plan. This section does not 
create a new eligibility group. Individuals who have not been found 
eligible for Medicaid cannot be enrolled in the State plan HCBS 
benefit, even if they otherwise meet the requirements for the benefit. 
In addition, individuals may not be enrolled in the State plan benefit 
if their income exceeds 150 percent of the FPL.\2\ In determining 
whether the 150 percent of the FPL requirement is met, the regular 
rules for determining income eligibility for the individual's 
eligibility group apply, including any more liberal income disregards 
used by the State for that group under section 1902(r)(2) of the Act.
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    \2\ The statute refers to ``the poverty line as defined in 
section 2110(c)(5)''. The poverty guidelines are formally referenced 
as ``the poverty guidelines updated periodically in the Federal 
Register by the U.S. Department of Health and Human Services under 
the authority of 42 U.S.C. 9902(2).'' Commonly referred to as the 
``Federal Poverty Level'' or ``Federal Poverty Line'' (FPL), we will 
adopt the term FPL in this regulation.
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2. Needs-Based Criteria
    In contrast to the institutional level of care requirement for 
eligibility in HCBS waivers, section 1915(i)(1)(A) of the Act requires 
States to impose needs-based criteria for eligibility for the State 
plan HCBS benefit. Additionally, the State may establish needs-based 
criteria for each specific State plan home and community-based service 
that an individual would receive.
    Section 1915(i) of the Act does not authorize States to waive the 
requirement of section 1902(a)(10)(B) of the Act relating to 
comparability, as does section 1915(c) of the Act. Waiver of 
comparability is a key feature of HCBS waivers, permitting the 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. Through use of eligibility criteria, States can 
provide services for certain high need target groups that are not 
comparable to the services received by other Medicaid beneficiaries in 
the State. Under section 1915(i) of the Act, States are not authorized 
to establish eligibility criteria in order to target services to 
certain populations. Since comparability may not be waived, States must 
determine eligibility for State plan HCBS on the basis of the following 
criteria only:
    <bullet> The individual is eligible for medical assistance under 
the State plan.
    <bullet> The individual's income does not exceed 150 percent of the 
FPL.
    <bullet> The individual resides in the home or community.
    <bullet> The individual meets the needs-based criteria established 
by the State.
    Needs-based criteria for an individual service are subject to the 
same requirements as needs-based eligibility criteria, and may not 
limit or target any service based on age, nature or type of disability, 
disease, or condition.
    The heading of section 1915(i) of the Act describes the State plan 
HCBS benefit as ``for Elderly and Disabled Individuals.'' However, 
section 1915(i) of the Act does not include definitions of the terms 
``elderly'' or ``disabled'' in setting forth eligibility criteria, and 
instead requires eligibility to be based on need and on eligibility for 
medical assistance under a State plan group. Thus, we believe that the 
use of these terms in the statute is descriptive. Individuals who are 
eligible for medical assistance under a group covered in the State's 
plan and who meet the needs-based eligibility criteria for State plan 
HCBS will have needs stemming either from a disability or from being 
elderly. We note that section 1902(b)(1) of the Act prohibits the 
Secretary from approving any plan for medical assistance that imposes 
an age requirement of more than 65 years as a condition of eligibility.
    The statute does not define ``needs-based.'' We are proposing to 
define the nature of needs-based criteria to distinguish them from 
targeting criteria, which are not permitted under the statute. However, 
we would propose to provide States with the flexibility to define the 
specific needs-based criteria they will establish. (See discussion 
below of section 1915(i)(1)(D) of the Act.)
    Section 1915(i)(1)(B) of the Act additionally requires that the 
needs-based criteria for determining whether an individual requires the 
level of care provided in a hospital, NF, or ICF/MR or under a waiver 
of the State plan be more stringent than the needs-based eligibility 
criteria for the State plan HCBS benefit. ``Stringency'' is not defined 
in the statute. States establish stringency in defining particular 
needs-based criteria. There is no expectation that States will modify 
institutional levels of care to make them more stringent, in order to 
satisfy this requirement. If the State's existing criteria for receipt 
of institutional and HCBS waiver care are needs-based, and more 
stringent than the criteria it will use for the State plan HCBS 
benefit, the State need not modify its institutional criteria. We 
anticipate that States will adopt the much simpler strategy of defining 
the new State plan HCBS needs-based eligibility criteria at a less 
stringent level than existing institutional criteria. In order to 
implement the State plan HCBS benefit, States may need to add needs-
based criteria to their institutional level of care requirements, if 
none presently exist. Section 1915(i) of the Act does not require that 
such added needs-based institutional level of care criteria necessarily 
result in excluding individuals who would be served without the added 
criteria. In fact, the purpose of section 1915(i) of the Act appears to 
be to expand access to HCBS to individuals who are not at an 
institutional level of care, rather than to reduce access to 
institutional and waiver services.
    We note that section 1915(i) of the Act does not modify the 
statutory coverage provisions of institutional benefits. States must be 
cautious not to establish more stringent needs-based criteria for 
hospitals, NFs or ICFs/MR that would reduce access to services mandated 
elsewhere in title XIX, since those other provisions of the statute 
were not amended. For example, the NF benefit is defined in section 
1919(a)(1) of the Act as an institution that is primarily engaged in 
providing to residents skilled nursing care, rehabilitation services, 
and ``[o]n a regular basis, health-related care and services to 
individuals who because of their mental or physical condition require 
care and services (above the level of room and board) which can be made 
available to them only through institutional facilities.'' To the 
extent that needed health-related care and services above the level of 
room and board are not available in the community, the NF institutional 
benefit must remain available to all Medicaid eligible individuals 
described in section 1919(a)(1)(C) of the Act.
    We interpret the reference to hospitals in section 1915(i)(1)(B) of 
the Act to

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mean facilities certified by Medicaid as hospitals that are providing 
long-term care services or services related to the HCBS to be provided 
under the State plan HCBS benefit. General acute care Medicaid hospital 
services are not subject to level of care 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) waivers, 
as well as those section 1115 waivers that include HCBS. Section 
1915(c) waivers by definition will have more stringent criteria than 
the State plan HCBS benefit, as the waivers are required to use level 
of care assessments equivalent to one or more of the institutional 
levels of care.
    In summary, the needs-based eligibility criteria for the State plan 
HCBS benefit must have the effect of potentially admitting to the 
benefit some individuals who do not meet the needs-based criteria for 
institutionalized care, and may admit to the benefit individuals who do 
meet the institutional needs-based eligibility criteria. We note that 
individuals who meet eligibility requirements for both an institutional 
benefit and the State plan HCBS benefit must be offered a choice of 
either benefit.
3. Number Served
    Section 1915(i)(1)(C) of the Act contains two provisions regarding 
the number of individuals served. The first provision requires a State 
to provide to the Secretary a projection of the number of individuals 
expected to receive services. If this projection is exceeded, section 
1915(i)(1)(D)(ii) permits the State to constrict its needs-based 
eligibility thresholds for State plan HCBS. The second provision allows 
the State to impose a maximum limit to the number of individuals to be 
served through the State plan HCBS benefit. The latter provision 
carries with it authority for the State to establish waiting lists for 
the State plan HCBS benefit.
    Section 1915(i)(1)(C)(i) of the Act requires that the State submit 
projections of the number of individuals to be provided HCBS, in the 
form and manner, and upon the frequency as the Secretary specifies. We 
would propose to follow the practice used in HCBS waivers to calculate 
the number served as unduplicated persons receiving services during a 
12-month period. We would specify that States annually submit both the 
projected number of individuals to be served and the actual number of 
individuals served in the previous year. We refer to individuals served 
under the benefit and included in the annual number served as having 
been enrolled in the benefit. The statute refers to ``enrollment'' in 
section 1915(i)(1)(D)(ii) of the Act concerning Adjustment Authority. 
Because there are a number of steps involved in an individual 
initiating service under the State plan HCBS benefit, ``enrollment'' is 
a useful term to indicate individuals for whom those steps have been 
completed, services have been authorized or provided, and who will be 
accounted for in the annual number served under the benefit.
    If the State exceeds its enrollment estimate, the State would 
report the number of individuals actually served in the required annual 
report to the Secretary, and revise the estimate for succeeding years.
    Section 1915(i)(1)(C)(ii) of the Act provides an option for the 
State to limit the number of eligible individuals to whom it will 
provide the State plan HCBS benefit. The limit does not need to be the 
same as the projected number of individuals to be served. As with the 
projected number, we would specify that the limit be expressed in terms 
of the number of unduplicated recipients eligible to receive the State 
plan HCBS benefit, for a period of 12 months. We would propose that 
States may establish limits for individuals to be served annually. 
States may establish a phase-in and phase-out schedule for limits. The 
State may also elect to place a limit on the number of individuals to 
be served at any given time in the year (``slot'' methodology), so long 
as the State also provides the annual report of actual unduplicated 
recipients.
    We would specify that the State submit a State plan amendment to 
initiate or adjust the limit on the number of individuals to be served. 
Consistent with 42 CFR 430.20, we would permit a service expansion to 
become effective on the first date of the calendar quarter in which an 
approvable amendment is received in CMS.
    A State electing to use a waiting list must develop policies for 
establishing and maintaining the list, if it elects to establish a 
limit to the number of individuals served. We do not believe it would 
be appropriate for us to describe waiting list policies that must 
operate in each State. Rather, we would require the State to assure 
that its policies are published with opportunity for comment, 
equitable, and meet all applicable State and Federal requirements. 
Those requirements include but are not limited to Medicaid provisions 
such as timely evaluation and right to fair hearing; civil rights 
protections such as the State's compliance with the Americans with 
Disabilities Act (ADA) and the decision of the United States Supreme 
Court in Olmstead v. L.C. and, in some cases, other judicial decisions 
or procedures for court monitoring. Waiting list policies will also be 
affected by the option in section 1915(i)(3) of the Act for the State 
to elect not to comply with the requirement for statewideness (see 
discussion in section I.14. of this proposed rule).
4. Independent Evaluation
    Section 1915(i)(1)(D) of the Act sets forth a requirement for an 
individual evaluation of need for each person applying for the State 
plan HCBS benefit. The statute here uses the term ``assessment,'' while 
sections 1915(i)(1)(E) and (H) of the Act refer to the initial 
eligibility determination as the ``independent evaluation.'' We would 
use the latter term for consistency. ``Independent evaluation,'' as 
understood in light of section 1915(i)(1)(H) of the Act, means free 
from conflict of interest on the part of the evaluator.
    The independent evaluation applies the needs-based HCBS eligibility 
criteria (established by the State according to section 1915(i)(1)(A) 
of the Act), to an applicant for the State plan HCBS benefit. Section 
1915(i)(1)(D) of the Act establishes that determining whether an 
individual meets the needs-based eligibility criteria specified in 
sections 1915(i)(1)(A) and (B) of the Act requires an individualized 
and independent evaluation of each person's support needs and 
capabilities. We interpret ``needs and capabilities'' to mean a 
balanced approach that considers both needs and strengths. However, the 
words ``capability'' and ``ability'' are historically connected with a 
deficit-oriented approach to assessment, which is the opposite of the 
statute's person-centered approach. Therefore, we would refer to needs 
and strengths in this discussion and in the regulation.
    We believe that the statute distinguishes needs-based criteria from 
other possible descriptors of an individual's medical condition or 
demographic situation, for example a 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. Therefore, we would propose that a useful test of whether a 
criterion is needs-based will be the type of data that would be needed 
to complete that item in an evaluation. A needs-based criterion 
requires the evaluator to determine the unique requirements of the 
applicant, through interview if necessary.

[[Page 18680]]

    Institutional/waiver level of care (LOC) criteria in some States do 
not include needs-based criteria. We believe that States must include a 
needs-based evaluation component of the institutional/waiver LOC 
determination process so that stringency of those criteria can be 
compared to stringency of eligibility criteria for the State plan HCBS 
benefit.
    Section 1915(i)(1)(D) of the Act indicates that the independent 
evaluation may ``take into account'' the inability of the individual to 
perform two or more activities of daily living (ADLs), (which the 
statute defines by reference to section 7702B(c)(2)(B) of the Internal 
Revenue Code of 1986), or the need for significant assistance to 
perform these activities. The State may also assess other risk factors 
it determines to be appropriate in determining eligibility for, and 
receipt of, HCBS. The statute does not limit the factors a State may 
take into account in the evaluation. For example, instrumental 
activities of daily living (IADLs) could be considered.
5. Adjustment Authority
    Section 1915(i)(1)(D)(ii) of the Act permits the State to adjust 
the needs-based criteria described in section 1915(i)(1)(B) of the Act 
in the event that enrollment exceeds the annual maximum number of 
individuals that the State has projected it would serve. The purpose of 
such an adjustment would be to revise its needs-based criteria in order 
to reduce the number of individuals in the State who would be eligible 
for the HCBS benefit. To preserve the requirement of 1915(i)(1)(B) that 
more stringent needs-based criteria be in place for institutionalized 
care, the adjusted eligibility criteria must still be less stringent 
than those applicable to institutional levels of care. If the State 
chooses to make this adjustment, it must provide at least 60 days 
written notice to the Secretary and the public, stating the revisions 
it proposes.
    While the adjustment authority is granted to States without having 
to obtain prior approval from the Secretary, we believe that the 
statute requires the State to amend the State plan to reflect the 
adjusted criteria. We believe that the State's adjustment authority 
does not prevent the Secretary from disapproving a State plan amendment 
that fails to comply with the statute and regulations. Therefore, the 
Secretary would evaluate the State's adjusted criteria for compliance 
with the provisions of this subparagraph and all requirements of 
subpart K. A State may implement the adjusted criteria as early as 60 
days after notifying all required parties. Section 430.16 provides the 
Secretary 90 days to approve or disapprove a State plan amendment, or 
request additional information. If the State implements the modified 
criteria prior to the Secretary's final determination with respect to 
the State plan amendment, the State would be at risk for any actions it 
takes that are later disapproved.
    After needs-based criteria are adjusted under this authority, the 
statute provides for a period during which individuals previously 
served under the State plan HCBS benefit would continue to receive 
HCBS. Section 1915(i)(1)(D)(ii)(II) of the Act provides that an 
individual who is receiving HCBS before the effective date for modified 
needs-based criteria, (based on the most recent version of the criteria 
in effect before the modification), must be deemed by the State to 
continue to be eligible for State plan HCBS for a period of at least 12 
months, beginning on the date on which the individual first received a 
covered State plan HCBS. In order to ensure that an individual who has 
been receiving HCBS for a year or more would not be subject to 
immediate discontinuation of service, we are proposing to apply the 
phrase ``at least'' in this context to require that regardless of the 
length of time HCBS has been provided, the State must continue to deem 
the individual eligible for services for no less than 60 days after 
official notification of all required parties.
    The statute does not provide any new remedy for individuals who 
will lose services due to the adjustment in eligibility criteria for 
the HCBS benefit. However, the requirements of 42 CFR subpart E would 
apply. Loss of eligibility for the HCBS benefit does not affect 
eligibility for other services for which the individual would be 
eligible under the State plan.
    We interpret section 1915(i)(1)(D)(III) of the Act to require that 
if the State chooses to modify the needs-based criteria under the 
adjustment authority of section 1915(d)(1)(D)(ii) of the Act, the 
eligibility criteria for institutional levels of care (hospital, NF, 
ICF/MR, and HCBS waiver services) applied by the State may be no less 
stringent than those that were in effect before the inception of the 
State plan HCBS benefit. Criteria for determining whether an individual 
requires an institutional level of care must also be more stringent 
than the adjusted needs-based eligibility criteria for the State plan 
HCBS benefit.
    Finally, we conclude that the State may choose to modify its needs-
based criteria at any time through the usual process of a State plan 
amendment, whether or not the projected enrollment is exceeded.
6. Independent Assessment
    Section 1915(i)(1)(E) of the Act describes the relationship of 
several required functions. Section 1915(i)(1)(E)(i) of the Act refers 
to the independent evaluation of eligibility in section 1915(i)(1)(A) 
and (B), emphasizing the independence requirement. Section 
1915(i)(1)(E)(ii) of the Act introduces the requirement of an 
independent assessment following the independent evaluation. Thus, 
there are two steps to the process: the eligibility determination, 
which requires the application of the needs-based criteria, and the 
assessment for individuals who were 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 
any). Like the eligibility evaluation, the independent assessment is 
based on the individual's needs and strengths. More specifically, both 
physical and mental needs and strengths are assessed. These 
requirements describe a person-centered assessment including mental 
health, which will take into account the individual's total support 
needs as well as need for the HCBS to be offered. The State must use 
the assessment to: determine the necessary level of services and 
supports to be provided; prevent the provision of unnecessary or 
inappropriate care; and establish a written individualized plan of 
care.
    In order to achieve the three purposes of the assessment listed 
above, the assessor must be independent; that is, free from conflict of 
interest with providers, with the individual and related parties, and 
with concern for budget. HCBS provided under the State plan may be 
limited only by the needs-based criteria and medical necessity, not 
budget controls. Therefore, we would propose specific requirements for 
independence of the assessor in accord 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 plan of care, where the effects of 
conflict of interest would be equally deleterious. These considerations 
of independence inform the discussion below under section 
1915(i)(1)(H)(ii) of the Act regarding conflict of interest standards.
    Section 1915(i)(1)(F) of the Act provides detailed requirements for 
the independent assessment:
    <bullet> An objective evaluation of the individual's inability to 
perform two or more ADLs, or the need for significant assistance to 
perform such activities is

[[Page 18681]]

required. We do not interpret ``objective'' to refer to the 
independence required of the assessor as discussed above, but to refer 
to an additional requirement for reliance on some level of valid 
measurement appropriate to the ADLs. For example, an occupational 
therapy (OT) or physical therapy (PT) evaluation could be required, the 
results of which would be utilized by the assessor. We note that the 
trained assessor is not necessarily responsible for performing the 
objective evaluation, but should make sure that the objective 
evaluation is performed by qualified individuals. We do not propose 
methods to achieve this requirement, as the nature of the HCBS to be 
provided and the needs-based criteria for the State plan HCBS benefit 
will determine the appropriate means of evaluating ADLs.
    Section 1915(i)(1)(F) of the Act defines ADLs in terms of section 
7702B(c)(2)(B) of the Internal Revenue Code of 1986, which includes the 
following: Bathing, dressing, toileting, transferring, eating, and 
continence. This section of the Internal Revenue Code does not define 
the terms ``inability'' or ``significant assistance.'' While States 
have some flexibility to define these factors, we interpret 
``inability'' to mean need for total support to perform an ADL, and 
``significant assistance'' to mean assistance from another individual 
or from assistive technology necessary for the successful performance 
of the task.
    An objective evaluation of ability to perform two or more ADLs is a 
required element of the assessment but only a suggested element of the 
eligibility evaluation. We conclude that partial or complete inability 
to perform two or more ADLs is not a statutory prerequisite to receive 
State plan HCBS, but is a required element of the assessment.
    <bullet> A face-to-face evaluation of the individual by an assessor 
trained in the assessment and evaluation of persons whose physical or 
mental conditions trigger a potential need for HCBS. To fulfill this 
statutory requirement, we would propose that the State shall develop 
standards and determine the qualifications necessary for agencies and 
individuals who will perform independent assessments and be involved 
with developing the plans of care.
    <bullet> Consultation with any responsible persons appropriate to 
the individual and the needed supports, including family, spouse, 
guardian, or healthcare and support providers. We do not believe the 
examples listed in the statute to be prescriptive or limiting. The 
assessor must give the individual and, if applicable, the individual's 
authorized representative, the opportunity to identify appropriate 
persons who should be consulted during this process. The role of the 
assessor is to facilitate free communication from persons relevant to 
the support needs of the individual, while protecting privacy, and 
promoting the wishes and best interests of the individual. In necessary 
circumstances, such as telephone communication with parties not 
available for the meeting, consultations are not required to be 
performed in person or at the same time and place as the face-to-face 
evaluation, so long as any ancillary contacts are with persons the 
individual has identified, are divulged and discussed with the 
individual/representative, and documented.
    <bullet> An examination of the individual's relevant history, 
medical records, and care and support needs.
    <bullet> Knowledge of best practices, and research on effective 
strategies that result in improved health and quality of life outcomes. 
The statute requires that the examination of the individual's history, 
medical records, and care and support needs be guided by this 
knowledge, and we would propose that this evidence-based approach 
should apply to the entire process for assessment and plan of care 
development.
    <bullet> If the State offers the option of self-direction and the 
individual so elects, the assessment should include gathering the 
information required to establish self-direction of services. We do not 
propose to require States to conduct a separate or additional 
assessment process for self-direction.
    As long as States comply with all provisions related to conducting 
the eligibility evaluation, independent assessment, and developing the 
plan of care, States have flexibility in determining whether they will 
require that the functions be performed as one activity by a single 
agency or individual, or whether they wish to separate those functions 
and have different entities involved.
7. Plan of Care
    Section 1915(i)(1)(G) of the Act requires that the State plan HCBS 
benefit be furnished under an individualized plan of care based on the 
assessment. The statute describes a person-centered planning process, 
which can only be achieved when States affirmatively and creatively 
support individuals in the planning process. We would propose certain 
requirements for developing the plan of care, but note that the degree 
to which the process achieves the goal of person-centeredness can only 
be known with appropriate quality monitoring by the State.
    Unless the State has elected to impose a limit on the number of 
individuals it would serve through its State plan HCBS benefit, the 
State must make the services available to all eligible individuals as 
they 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 need, not according to 
available funds. Individuals who qualify for HCBS may not be compelled 
to receive them. Individuals may exercise their freedom to choose among 
qualified providers in the planning process.
    The State Medicaid agency may delegate other agents to develop the 
plan of care, but remains responsible for ensuring compliance with all 
requirements and must approve each plan of care developed.
    Section 1915(i)(1)(G)(ii)(I)(aa) of the Act requires that the plan 
of care is developed in consultation with the individual. The 
requirements for who is consulted in developing the plan of care 
parallel those describing who may be consulted during the assessment 
process.
    Section 1915(i)(1)(G)(ii)(I)(bb) of the Act requires that the 
development of the plan of care take into account the extent of, and 
need for family or other supports for the individual, and section 
1915(i)(1)(G)(ii)(II) of the Act requires that the individualized plan 
of care identify needed services. We interpret these provisions to 
indicate that natural supports are explicitly included in the plan of 
care. This means that individuals with equivalent need for support but 
differing levels of family or other natural supports may be authorized 
for different levels of HCBS. In the context of person-centered 
planning and consultation with natural supports, we conclude that the 
statute requires that the plan of care should neither duplicate, nor 
compel, natural supports.
    Section 1915(i)(1)(G)(ii)(III) of the Act provides that plans of 
care will be reviewed at least annually and upon significant change in 
the individual's circumstances. We interpret this provision to indicate 
that diagnostic or functional changes are not required in order to 
adjust a plan of care. Changes in external factors such as gain or loss 
of other supports may trigger a review. We would require revision of 
the plan of care if the review indicates that revision is appropriate. 
By ``annually,'' we mean not less often than every 12

[[Page 18682]]

months. Finally, we would relate this requirement to the independent 
assessment, since developing or revising the plan of care is based on 
the assessment. We therefore would propose that the independent 
assessment (number 6. above) is required at least annually, and when 
needed upon change in circumstances, in order to comply with the 
requirement to review plans of care with that frequency.
8. Self-Direction
    Section 1915(i)(1)(G)(iii)(I) and (II) provides that States may 
offer enrolled individuals the option to self-direct some or all of the 
State Plan HCBS that they require. Many States have incorporated 
elements of self-direction into section 1915(c) waiver programs as well 
as section 1115 demonstration programs. Self-directed State plan HCBS 
allow States another avenue by which they may afford individuals 
maximum choice and control over the delivery of services, while 
comporting with all other applicable provisions of Medicaid law. We 
have urged all States to afford waiver participants the opportunity to 
direct some or all of their waiver services. With the release of an 
updated, revised section 1915(c) waiver application in 2005, we refined 
the criteria and guidance to States surrounding self-direction (also 
referred to as participant-direction), and established a process by 
which States are encouraged, to whatever degree feasible, to include 
self-direction as a component of their overall HCBS waiver programs. 
While section 1915(i) of the Act does not require that States follow 
the guidelines for section 1915(c) waivers in implementing self-
direction in the HCBS State plan benefit, we anticipate that States 
will make use of their experience with 1915(c) waivers to offer a 
similar pattern of self-directed opportunities with meaningful supports 
and effective protections. Individuals who choose to self-direct will 
be subject to the same requirements as other enrollees in the State 
plan HCBS benefit.
    Section 1915(i)(1)(G)(iii)(II) of the Act defines self-direction, 
and requires that there be an assessment and plan of care. We do not 
interpret these requirements to indicate assessments and plans in 
addition to those required in sections 1915(i)(1)(F) and (G) of the 
Act. Accordingly, we would propose that the requirements for a self-
directed plan of care at section 1915(i)(1)(G)(iii)(III) of the Act be 
components of the assessment and plan of care required for all 
enrollees in the State plan HCBS benefit.
    Section 1915(i)(1)(G)(iii)(III) of the Act contains specific 
requirements for the self-directed plan of care, for which we describe 
proposed regulations in Section II. of this proposed rule. The proposed 
regulations are consistent with our requirements for self-direction 
under section 1915(c) HCBS waivers. Section 1915(i)(1)(G)(iii)(III)(dd) 
of the Act requires that the plan of care be developed with a person-
centered process, which we would propose to require of all plans of 
care for the State plan HCBS benefit.
    Section 1915(i)(1)(G)(iii)(IV) of the Act describes certain aspects 
of a self-directed budget, which we have termed budget authority. 
Section 1915(i)(1) (G)(iii)(III)(bb) of the Act provides for self-
directed selecting, managing, or dismissing of providers of the State 
plan HCBS, which we term employer authority. The proposed rule explains 
both budget authority and employer authority in a manner consistent 
with Section 1915(c) HCBS waiver policy.
    Individuals require information and assistance to support them in 
successfully directing their services. Therefore, we would require 
States to design and provide functions in support of self-direction 
that are individualized according to the support needs of each 
enrollee. These functions should include information and assistance 
consistent with sound principles and practice of self-direction, and 
financial management supports.
    Section 6087 of the DRA also amended the Act to add a new section 
1915(j), that permits States to provide medical assistance for the 
``Optional Choice of Self-Directed Personal Assistance Services (Cash 
and Counseling).'' Section 6087 of the DRA is similar, but more 
expansive than, the self-direction provisions in section 6086 of the 
DRA. States should carefully examine the opportunities for providing 
self-directed HCBS under either or both sections 1915(i) or 1915(j) of 
the Act, depending on the goals and objectives of their Medicaid 
programs.
9. Quality Assurance
    Section 1915(i)(1)(H)(i) of the Act requires the State to ensure 
that the State plan HCBS benefit meets Federal and State guidelines for 
quality assurance, which we interpret as assurances of quality 
improvement. Consistent with current trends in health care, the 
language of quality assurance has evolved to mean quality improvement, 
a systems approach designed to continuously improve care and prevent or 
minimize problems prior to occurrences. This approach to quality is 
consistent with guidelines developed by CMS in the CMS Quality 
Improvement Roadmap and The Medicaid/SCHIP Quality Strategy. Guidelines 
for quality improvement have also been made available through CMS 
policies governing section 1915(c) HCBS waivers.
    Additionally, section 6086(b) of the DRA requires the Secretary to 
act through the Agency for Healthcare Research and Quality to develop 
program performance and quality of care measures for Medicaid HCBS. The 
Secretary is to use the indicators and measures to assess and compare 
State plan HCBS, particularly with respect to the health and welfare of 
the recipients of the services.
    We would require States to have a quality improvement strategy, and 
to measure and maintain evidence of quality improvement, including 
system performance and individual quality of care indicators approved 
or prescribed by the Secretary. We would require States to make this 
information available to CMS upon request.
10. Conflict of Interest
    Section 1915(i)(1)(H)(ii) of the Act provides that the State will 
establish conflict of interest standards for the independent evaluation 
and independent assessment. For reasons described above under 
independent assessment, we believe that the same independence is 
necessary for those involved with developing the plan of care. In this 
discussion, we will refer to persons or entities responsible for the 
independent evaluation, independent assessment, and the plan of care as 
``agents'' to distinguish them from ``providers'' of home and 
community-based services.
    The design of services, rates and payment, and method of 
administration by the State Medicaid agency all may contribute to 
potential conflicts of interest. These contributing factors can include 
obvious conflicts such as incentives for either over-or under-
utilization of services, subtle problems such as interest in retaining 
the individual as a client rather than promoting independence, or 
practices that focus on the convenience of the agent or service 
provider rather than being person-centered.
    The independent agent must not be influenced by variations in 
available funding, either locally or from the State. Within the 
services the State decides to offer, the plan of care must offer to 
each enrollee the home and community-based services for which they 
demonstrate need. The plan of care must be based on medical necessity 
only, not funding levels. When local

[[Page 18683]]

entities directly expend funds or direct allocated resources for 
services, in accordance with Sec.  433.53(c)(2), the State must have a 
mechanism to ensure that availability of local funds does not affect 
access to services, for example, using State resources to compensate 
for variability in local funding. However, States may elect not to 
apply statewideness requirements, making the benefit available only in 
selected localities, possibly those that can provide greater resources.
    We would require States to define conflict of interest standards, 
to include criteria that reflect our experience with the issue in 
administering HCBS waivers, and that reflect the principles of section 
1877 of the Act.
    We are aware that in certain areas there may be only one provider 
available to serve as both the agent performing independent assessments 
and developing plans of care, and the provider of one or more of the 
home and community-based services. To address this potential problem we 
would propose to permit providers in some cases to serve as both agent 
and provider of services, but with guarantees of independence of 
function within the provider entity. In certain circumstances, we may 
require that States develop ``firewall'' policies, for example, 
separating staff that perform assessments and develop plans of care, 
from those that provide any of the services in the plan; and meaningful 
and accessible procedures for individuals and representatives to appeal 
to the State. We would not permit States to circumvent these 
requirements by adopting State or local policies that suppress 
enrollment of any qualified and willing provider. We do not believe 
that under any circumstances determination of eligibility for the State 
plan HCBS benefit should be performed by parties with an interest in 
providers of HCBS. We invite comment on practical solutions to this 
important balance of independence and access.
11. Eligibility Redeterminations; Appeals
    Section 1915(i)(1)(I) of the Act requires the State to conduct 
redeterminations of eligibility at least annually. We interpret 
``annually'' to mean not less than every 12 months. The State must 
conduct redeterminations and appeals in the same manner as required 
under the State plan. States must grant fair hearings consistent with 
the requirements of part 431, subpart E.
12. Option for Presumptive Eligibility for Assessment
    Section 1915(i)(1)(J) of the Act gives States the option of 
providing for a period of presumptive eligibility, not to exceed 60 
days, for individuals the State has reason to believe may be eligible 
for the State plan HCBS benefit.
    We interpret this provision as follows:
    <bullet> ``Presumptive'' we interpret to indicate that medical 
assistance will be available for evaluation even when an individual is 
subsequently found not to be eligible for the State plan HCBS benefit.
    <bullet> ``Eligibility'' does not connote eligibility for Medicaid 
generally, as this provision ``shall be limited to medical assistance 
for carrying out the independent evaluation and assessment'' under 
section 1915(i)(1)(E) of the Act. For clarity, we would refer to this 
limited option as ``presumptive payment''. Individuals not eligible for 
Medicaid may not receive State plan HCBS.
    <bullet> ``Evaluation and assessment'' under section 1915(i)(1)(E) 
of the Act, is described as evaluation for eligibility for the benefit 
and assessment to determine necessary services. We believe the 
statutory phrase ``and if the individual is so eligible, the specific 
home and community-based services that the individual will receive'' is 
further describing the assessment under section 1915(i)(1)(E) of the 
Act for which presumptive payment is available, and that this phrase is 
not offering presumptive payment for the actual services.
    <bullet> ``Medical assistance'' we interpret to mean FFP for 
administration of the approved State plan, as we believe that 
determination of eligibility for the State plan HCBS benefit and 
assessment of need for specific HCBS are administrative activities of 
the Medicaid or single State agency rather than a medical service to 
individuals. Even if the evaluation and assessment could be considered 
a medical service, none of the services permitted under section 1915(i) 
of the Act could be construed to include these activities. ``Medical 
assistance'' in this provision would not refer to other Medicaid State 
plan services because individuals being considered for eligibility for 
the State plan HCBS benefit must be Medicaid eligible and so already 
have access to those services. Therefore, we interpret section 
1915(i)(1)(J) of the Act to offer the State an option for a period of 
presumptive payment, not to exceed 60 days, for Medicaid eligible 
individuals the State has reason to believe may be eligible for the 
State plan HCBS benefit. FFP would be available as administration of 
the approved State plan for evaluation of eligibility for the State 
plan HCBS benefit and assessment of need for specific HCBS. During the 
period of presumptive payment, the individual would not receive State 
plan HCBS, and would not be considered to be enrolled in the State plan 
HCBS benefit for purposes of computing the number of individuals being 
served under the benefit. We invite comments that offer other 
interpretations of this presumptive payment option and comport with 
existing Federal requirements.
13. Individual's Representative
    When an individual is not capable of giving consent, or requires 
assistance in making decisions regarding his or her care, the 
individual may be assisted or represented by another person. Section 
1915(i)(2) of the Act defines the term ``individual's representative'' 
by listing certain examples, but also provides that ``* * * any other 
individual who is authorized to represent the individual'' [m]ay 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 such 
representatives conform to good practice concerning free choice of the 
individual, and assess for abuse or excessive control.
14. Nonapplication
    Section 1915(i)(3) of the Act allows States to be exempted from the 
requirements of two sections of the Medicaid statute: section 
1902(a)(1) of the Act, regarding statewideness; and section 
1902(a)(10)(C)(i)(III) of the Act, regarding income and resource rules 
for the medically needy in the community. The statute uses the terms 
``nonapplication'' and ``may chose not to comply with'' rather than 
``waive''. We would use this terminology to maintain clarity between 
HCBS waiver programs under section 1915(c) of the Act, and State plan 
HCBS under section 1915(i) of the Act. However, these non-applications 
apply only with regard to the provision of State plan HCBS. The State 
is not exempted from these requirements as they apply to the provision 
of any other medical assistance under the plan, or with regard to the 
provision of institutional services.
    Non-application of the requirement of statewideness allows States 
to furnish the State plan HCBS benefit in particular areas of the 
State, for

[[Page 18684]]

example, where the need is greatest, or where certain types of 
providers are available. States may choose to be exempted from the 
requirements of statewideness in order to begin services on a limited 
basis, perhaps with a view towards later expansion. If a State intends 
to offer the HCBS State plan benefit throughout the State, but 
anticipates that services would be phased in as providers and enrollees 
are identified, it is not necessary to elect non-application of 
statewideness requirements.
    Being exempt from the requirements of section 
1902(a)(10)(C)(i)(III) of the Act enables States to provide medical 
assistance to medically needy individuals in the community by electing 
to treat such individuals as if they are living in an institution for 
purposes of determining income and resources. This would result in the 
State not deeming income and resources from an ineligible spouse to an 
applicant or from a parent to a child with a disability.
    Section 1915(i)(4) of the Act emphasizes that State election to 
provide the State plan HCBS benefit does not in any way affect the 
State's ability to offer programs through a section 1915(b) or (c) 
waiver, or under section 1115 of the Act.
    However, we note that section 1915(c) HCBS waivers may be affected 
when a State implements a State plan HCBS benefit if institutional 
levels of care are modified to make them more stringent than needs-
based eligibility criteria for the State plan HCBS benefit.
15. Federal Financial Participation for Institutional Level of Care 
Shall Continue for Individuals Receiving Services as of the HCBS State 
Plan Amendment's Effective Date
    If the State modifies institutional level of care requirements so 
that they will be more stringent than the needs-based criteria for the 
State plan HCBS benefit, Section 1915(i)(5) of the Act provides 
protection for individuals who are receiving services in NFs, ICFs/MR, 
applicable hospitals or under section 1915(c) or section 1115 HCBS 
demonstration projects before the modification. These individuals need 
not satisfy the more stringent institutional eligibility criteria. FFP 
under the unmodified criteria continues until such time as the 
individual is discharged from the institution, waiver program, or 
demonstration, or no longer requires this level of care. States may 
avoid this requirement and the complications of implementing a dual 
institutional level of care process by preserving existing level of 
care requirements, and defining the State plan HCBS benefit needs-based 
criteria as less stringent than the existing institutional criteria.

B. Effective Date

    The effective date on which States may provide HCBS through the 
State plan, as set forth by the DRA of 2005 is January 1, 2007.

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

    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.
    To be eligible for the State plan HCBS benefit, an individual must 
be included in an eligibility group that is contained in the State 
plan. Each individual must meet all financial and non-financial 
criteria set forth in the plan for the applicable eligibility group.
    Section 1902(a)(8) of the Act requires States to furnish Medicaid 
services with reasonable promptness to individuals found eligible. 
However, under section 1915(i) of the Act, States may place limits on 
the number of persons that they would serve via the State plan HCBS 
benefit. If a State chooses to set a capacity limit for the State plan 
HCBS benefit as permitted in section 1915(i)(1)(C)(ii) of the Act, when 
the HCBS benefit reaches capacity, the requirements of reasonable 
promptness do not apply, since the option to choose these services is 
no longer available to additional individuals. When individuals apply 
for the State plan HCBS benefit after the State has reached capacity, 
the State would not be required to provide the State plan HCBS to the 
individuals, even when they meet otherwise applicable eligibility 
criteria.
    Children included in eligibility groups under the State plan may 
meet the needs-based criteria and qualify for benefits under the State 
plan HCBS benefit. HCBS benefits that are not otherwise available under 
Medicaid's Early and Periodic Screening, Diagnosis and Treatment 
(EPSDT) benefit may be furnished to Medicaid eligible children who meet 
the State plan HCBS needs-based eligibility criteria, and who meet the 
State's medical necessity criteria for the receipt of services. State 
plan HCBS and EPSDT services may be provided concurrently. A mandate 
for EPSDT services applies only to services authorized by section 
1905(a) of the Act. Therefore, HCBS under section 1915(i) of the Act 
are not included in the EPSDT program. Children who are eligible for 
the State plan HCBS benefit are eligible to receive medically necessary 
State plan HCBS, but the State is not required to provide HCBS as part 
of its EPSDT program. States may not reserve or protect ``slots'' for 
either adults or children, but must allow all individuals who meet 
eligibility and medical necessity criteria equal access to the State 
plan HCBS benefit.
    Clinic services (whether or not furnished in a facility) for 
individuals with chronic mental illness are listed in section 
1915(c)(4)(B) of the Act and therefore may be covered in the State plan 
HCBS benefit. If a State chooses to offer these services, they will be 
subject to the clinic upper payment limit (UPL) at 42 CFR 447.321. We 
also note that these services are defined differently than other clinic 
services offered under the State Plan in that they include services 
whether or not they are offered in a facility.

D. Other Background

1. Comparability and State Control of Costs
    Section 1915(i) of the Act contains no provisions for waiving 
Medicaid amount, duration, and scope (``comparability'') requirements 
described under section 1902(a)(10)(B) of the Act. This provision has 
two important implications. First, States may not ``target'' the State 
plan HCBS benefit as is permitted with HCBS provided under section 
1915(c) of the Act, which does provide the Secretary authority to waive 
comparability. Second, without targeting, States may not offer multiple 
versions of the State Plan HCBS benefit, each designed to serve 
different groups, as is permitted with HCBS waivers. States may design 
one State plan HCBS benefit, in which one or any combination of the 
permitted services is offered, and which includes needs-based 
eligibility and (optionally) service criteria. However, all individuals 
who meet the needs-based and other eligibility criteria for the State 
plan HCBS benefit must be served in the benefit (up to any limit the 
State optionally sets to the number of individuals the benefit will 
serve) regardless of how individuals may relate to target groups or 
other classifications.
    States may assure appropriate utilization of the State plan HCBS 
benefit through application of the following provisions of 1915(i).
    <bullet> The requirement to set eligibility standards built on 
needs-based criteria. States choose the needs-based criteria used to 
establish the thresholds of

[[Page 18685]]

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 on the benefit.
    <bullet> Optionally, establishing needs-based criteria to determine 
eligibility for each State plan HCBS. These additional criteria may 
vary from service to service, and should assist States in identifying 
the individuals who could benefit from receipt of a particular State 
plan HCBS.
    <bullet> The scope of services that the State chooses to offer may 
include any, but need not include all, of the services permitted under 
Section 1915(c)(4)(B). States can elect to offer a limited number of 
services under the State plan HCBS benefit.
    <bullet> Limits on the amount or duration of each service.
    <bullet> Since all State plan HCBS must be provided under a written 
plan of care, States have the opportunity to review an individual's 
plan of care to ensure that HCBS continue to be responsive to the needs 
of the individual, without being excessive.
    General Medicaid requirements apply to the State plan HCBS benefit. 
All Medicaid services are to be provided only to those who need them 
according to medical necessity as defined by the State. Prior 
authorization or other utilization controls methods are available to 
the State.
2. HCBS Provided in the Community, Not in Institutions
    Home and community-based services are not available in Medicaid-
certified NFs, ICFs/MR, and hospitals, as these institutions are 
defined in statute and regulation. HCBS are available in private homes, 
apartments, or other non-institutional residential settings. While a 
simple definition of ``home and community-based'' would be any 
residence other than the three Medicaid certified institutions 
referenced above, this definition is insufficient to ensure that 
enrollees in this State plan benefit receive services in the type of 
setting intended. There are other public and private, large and small, 
residences whose character is equally institutional in the experience 
of residents. Therefore, we would propose that at the outset of this 
new Medicaid benefit, States should distinguish between institutional 
and community living arrangements for individuals being evaluated for 
enrollment in the State plan HCBS benefit.
    Opportunities for independence and community integration in a 
variety of alternative living arrangements have been demonstrated for 
those receiving HCBS provided under section 1915(c) waivers and section 
1115 demonstrations. The new Medicaid State plan HCBS benefit should be 
implemented based on those practices, and in the context discussed 
previously of the ADA and the Olmstead decision. We recognize that 
defining home and community is complex, and invite comments on this 
aspect of the proposed rule. We also believe that enough is known about 
methods to provide elderly and disabled individuals with housing that 
encourages independence and community participation to justify the need 
to establish standards around this important issue at the inception of 
a new benefit offering HCBS.
    We interpret the distinction between ``institutional services'' and 
``home or community-based services'' in terms of opportunities for 
independence and community integration as well as the size of a 
residence. Applicable factors include the resident's ability to control 
access to private personal quarters, and the option to furnish and 
decorate that area; if the personal quarters are not a private room, 
then unscheduled access to private areas for telephone and visitors, 
and the option to choose with whom they share their personal living 
space; unscheduled access to food and food preparation facilities; 
assistance coordinating and arranging for the resident's choice of 
community pursuits outside the residence; and the right to assume risk. 
Services provided in settings lacking these characteristics, with 
scheduled daily routines that reduce personal choice and initiative, or 
without personal living spaces, cannot be considered services provided 
in the home or community.
    We would propose two mechanisms for the State to determine that 
residents are residing in the community rather than in an institution. 
First, we would require minimum standards, as prescribed by the 
Secretary, for community living facilities that take into account the 
factors discussed above.
    Individuals vary widely in both support needs and preferences, so 
that a residence that meets the minimum standards for community living 
facilities may be homelike and community-integrated for one individual 
but may not be for another individual. While we do not find there to be 
any objective criteria, such as numbers of residents, to reliably 
distinguish facilities with institutional character from those with 
community character, we do believe that it is reasonable to use number 
of residents to trigger an assessment of the nature of the residence 
for a specific individual. We would therefore additionally propose that 
for individuals in larger residential settings there be an 
individualized determination that the residence is a community setting 
appropriate to the individual's need for independence, choice, and 
community integration. We believe that the person-centered assessment 
and plan of care required by section 1915(i) of the Act offers an 
efficient opportunity for such an individualized assessment of 
community residence. Therefore, we would propose to require that for 
individuals in residential settings meeting the standards for community 
living facilities, that house four or more persons unrelated to the 
proprietor and provide one or more services or treatments to the 
residents, the person-centered assessment and plan of care must include 
a determination that the residence is a community setting appropriate 
to the individual's need for independence, choice, and community 
integration.
    We believe that these two mechanisms will provide States the 
flexibility to approve a variety of settings appropriate to the needs 
of the individuals served while also maximizing independence and 
opportunities for community integration.
    For example, we anticipate that States could devise standards 
indicating that a residence with multiple independent living units 
(apartments) would not be considered to be housing four or more people 
together, and would therefore not trigger the requirement for the 
assessment to include documentation of community character.
    The State plan HCBS benefit may be defined by States to serve 
individuals with widely varying degrees of independence. The person-
centered assessment and plan of care will provide flexibility to 
approve different types of living arrangements according to need. For 
example, if physical or cognitive impairment makes unsupervised access 
to some food preparation facilities unsafe, and the person-centered 
plan reflects that there must be safeguards against this risk, then 
those portions of the kitchen would be made inaccessible when staff is 
not present. In this example, barring residents from the home's kitchen 
altogether would be an institutional, rather an integrated solution in 
all but the rarest of circumstances. A residence in which only the high 
risk equipment would be inaccessible when staff are not present, and 
the resident would have access to the kitchen, food, and equipment that 
does not pose a danger,

[[Page 18686]]

could be approved as a community living arrangement.
    While HCBS are not available while an individual resides in an 
institution, HCBS should be available to individuals once they leave an 
institution. Recognizing that individuals leaving institutions require 
assistance to establish themselves in the community, we would allow for 
transition services to be claimed after the date of discharge from the 
institution. We propose that of the HCBS permitted under section 
1915(i) of the Act, case management is the only service that could be 
commenced prior to discharge and could be used to assist individuals 
during the transition period of institutional residence.
3. HCBS Do Not Provide Room and Board
    Payments for room and board are prohibited by section 1915(i)(1) of 
the Act. Except for respite care furnished in a facility approved by 
the State that is not a private residence, no service or combination of 
services may be used to furnish a full nutritional regimen (3 meals a 
day) through the State plan HCBS benefit. FFP for State plan HCBS is 
not available in the cost of meals that are furnished in alternative 
residential facilities in the community, regardless of whether services 
(other than respite care) are provided by or through the setting in 
which the individual resides.
    When an individual must be absent from his or her residence in 
order to receive a service authorized by the individualized plan of 
care, it may be impractical to obtain a meal outside the venue in which 
the service is provided. This may occur during the receipt of facility-
based respite care, adult day care, or site-based habilitation. In 
these instances, the individual may be unable to leave the site to 
obtain food at mealtime. Therefore, the State plan HCBS provider may 
elect to furnish the meal. When meals are furnished as an integral 
component of the service, the State may consider the cost of food in 
setting the rate it would pay 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.

II. Provisions of the Proposed Rule

    [If you choose to comment on issues in this section, please 
indicate the caption ``Provisions of the Proposed Rule'' at the 
beginning of your comments.]
    To incorporate the policies and implement the statutory provisions 
described above, we are proposing the following revisions:

Part 431 (State Organization and General Administration)

    <bullet> In Sec.  431.40, we are proposing to amend paragraph 
(a)(7), by adding reference to section 1915(i) of the Act to the scope 
of subpart B, as an exception to statewide operation, and correcting 
the paragraph to include reference to sections 1915(d) and (e) of the 
Act.
    <bullet> In Sec.  431.50, we are proposing to amend paragraph (c) 
to include HCBS (under waivers and the State plan) as an exception to 
statewide operation.

Part 440 (Services: General Provisions)

    <bullet> In Sec.  440.1, we are proposing to add a reference to a 
new statutory basis to read ``1915(i) Home and community-based services 
furnished under a State plan to elderly and disabled individuals under 
the provisions of part 441, subpart K.''
    <bullet> In Sec.  440.180, we are proposing to revise the heading 
``Home or community-based services'' to read ``Home and community-based 
waiver services'' to standardize the term ``home and community-based 
services'' and clarify that this section concerns only HCBS provided 
through 1915(c) waivers.
    <bullet> In part 440 subpart A, we are proposing to add Sec.  
440.182, ``State plan home and community-based services'', which would 
define a new optional Medicaid service for which FFP is available to 
States, as specified in part 441, subpart K.
Section 440.182 (State Plan Home and Community-Based Services Benefit)
    In Sec.  440.182(a), we propose that the services authorized in 
section 1915(i) of the Act, and meeting the requirements outlined in 
proposed subpart K, be known as ``State plan home and community-based 
services.'' When referring to the specific service(s) offered under the 
State plan HCBS benefit listed in Sec.  440.180(b), we use the term 
``State plan HCBS.'' When referring to overall State activities under 
section 1915(i) of the Act as described in subpart K, we use the term 
``benefit'', or ``State plan HCBS benefit''.
    In Sec.  440.182(b) and Sec.  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 Sec.  440.180, except for the ``other'' services which 
the Secretary has the authority to approve for an HCBS waiver. Because 
section 1915(i) of the Act defines services by reference to section 
1915(c) of the Act, we believe that the regulatory requirements should 
be parallel. Therefore, we list the permitted services for the State 
plan HCBS benefit in Sec.  440.182 identically to the services 
specified in Sec.  440.180 for HCBS waivers. We further specify that 
the conditions set forth in Sec.  440.180(b) for services to 
individuals with chronic mental illness, and in Sec.  440.180(c) for 
expanded habilitation services, apply to State plan HCBS services. In 
particular, due to concern over duplication of habilitation services, 
we propose to require at Sec.  441.562(a)(2)(vix) an explanation of the 
manner in which nonduplication of services will be documented in the 
assessment of each individual receiving habilitation services. Section 
1915(i) of the Act prohibits reimbursement for room and board. At Sec.  
440.182(c)(2) we define the term ``room'' to mean shelter type 
expenses, including all property-related costs such as rental or 
purchase of real estate and furnishings, maintenance, utilities, and 
related administrative services. The term ``board'' means three meals a 
day or any other full nutritional regimen. We propose in Sec.  
440.182(c)(2) to require an assurance that the State has a methodology 
to prevent claims and ensure that no payment is made for room and board 
in State plan HCBS. We propose to specify three types of service costs 
involving food and housing that are not considered room and board. We 
adopt the existing requirement for HCBS waivers in Sec.  441.310(a)(2), 
to permit the cost of food and residence to be claimed for respite 
services furnished in State-approved settings that are not private 
residences. We clarify that a State may claim FFP for the costs of 
meals that are furnished as part of a program of adult day health or a 
similar activity conducted outside the participant's living arrangement 
on a partial day basis. Finally, we propose that a State may claim FFP 
for a portion of the housing expense and food that may be reasonably 
attributed as a service cost to compensate an unrelated caregiver 
providing State plan HCBS, who is residing in the same household with 
the recipient. We propose, as is the policy in HCBS waivers that FFP is 
available only for the reasonable additional costs of the caregiver 
residing in the recipient's home, not to support the cost of a 
caregiver's household in which the recipient resides. We would 
therefore provide that FFP not be available for caregiver living costs 
when the residence is owned or leased by the caregiver.

[[Page 18687]]

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

    In part 441, ``Requirements and Limits Applicable to Specific 
Services,'' we are proposing to add a new subpart K titled ``State Plan 
Home and Community-Based Services for Elderly and Disabled 
Individuals,'' consisting of Sec.  441.550 through Sec.  441.577, which 
describes requirements for providing the State plan HCBS benefit. This 
construction parallels that for HCBS waivers, which are the subject of 
subpart G of part 441.
    In this new subpart, it is necessary in several paragraphs to 
indicate that certain provisions apply to an individual or an 
individual's representative. To reduce redundancy, we indicate in those 
paragraphs that ``individual'' means the eligible individual and, if 
applicable, the individual's representative, to the extent of the 
representative's authority recognized by the State. ``Individual and 
representative'' more accurately convey the person-centered process 
than ``individual or representative''. This provision clarifies that 
there is no implication that individuals will or will not have 
representatives.
Section 441.550 (Basis and Purpose)
    We set forth in Sec.  441.550 language to implement the provisions 
of section 1915(i) of the Act permitting States to offer HCBS to 
qualified elderly and disabled individuals under the State plan. Those 
services are listed in Sec.  440.182, and are described by the State, 
including any limitations of the services. This optional benefit is 
known as the State plan HCBS benefit. This subpart describes what a 
State Medicaid plan must provide, and defines State responsibilities.
Section 441.553 (State Plan Requirements)
    In Sec.  441.553, we propose that a State plan that includes home 
and community-based services for elderly and disabled individuals must 
meet the requirements of this subpart. We would require that the State 
plan amendment in which the State establishes the State plan HCBS 
benefit satisfy the requirements set forth in this proposed regulation.
Section 441.556 (Eligibility for Home and Community-Based Services 
Under Section 1915(i)(1) of the Act)
    We propose in Sec.  441.556(a)(1) to require that the individual be 
eligible for Medicaid under an eligibility group covered under the 
State's Medicaid plan. Enrollment in the State plan HCBS does not 
confer Medicaid eligibility. In addition to meeting State Medicaid 
eligibility requirements, the statute requires that applicants for 
State plan HCBS must have income that does not exceed 150 percent of 
the Federal Poverty Level (FPL). (The poverty guidelines are updated 
periodically in the Federal Register by the U.S. Department of Health 
and Human Services under the authority of 42 U.S.C. 9902(2).) We 
propose in Sec.  441.556(a)(2) that determinations that the 
individual's income does not exceed 150 percent of FPL must be made 
using the applicable rules for income eligibility for the individual's 
eligibility group, including any more liberal income disregards used by 
the State for that group under section 1902(r)(2) of the Act. We see no 
authority in the statute for States to choose income limits other than 
150 percent of FPL.
    To implement the intent of the Congress that the benefit be ``home 
and community-based,'' we would require in Sec.  441.556(a)(3) that the 
individual reside in the home or community, not in an institution, 
according to standards for community living facilities prescribed by 
the Secretary. As discussed in section I.D.2., there are a variety of 
living arrangements other than a private home or apartment that promote 
independence and community integration, as well as arrangements that do 
not. We propose that the person-centered assessment and plan of care 
required under the State plan HCBS benefit provides an opportunity to 
make individualized determinations of community residence. Therefore, 
we propose to require that if the individual resides in a setting with 
four or more persons unrelated to the proprietor, and which furnishes 
one or more services or treatments, the independent assessment must 
include documentation that the individual is living in a community 
setting, and not in an institution.
    We would require in Sec.  441.556(a)(4) that the individual must 
meet the needs-based eligibility criteria as set forth in Sec.  
441.559. We propose in Sec.  441.556(a)(5) that individuals are not 
eligible for the State plan HCBS benefit until they have met all 
eligibility requirements, including the need for at least one service 
provided under the State plan as part of the HCBS benefit.
    We propose in Sec.  441.556(b) that States may elect to follow 
institutional income and resource eligibility rules for the medically 
needy living in the community. Waiving the requirements of section 
1902(a)(10)(C)(i)(III) of the Act allows States to treat medically 
needy individuals as if they are living in an institution by not 
deeming income and resources from an ineligible family member. We use 
the term ``non-application'' instead of ``waive'' as does the statute. 
We further propose that States may elect non-application of section 
1902(a)(1) of the Act, concerning statewide application of Medicaid, 
which permits the State plan HCBS benefit to be offered only in certain 
defined geographic areas of the State.
Section 441.559 (Needs-Based Criteria and Evaluation)
    The statute uses a number of terms at times interchangeably. We 
adopt the wording used most frequently in the law, and specify a term 
for each requirement. For example, regarding the terms ``assessment'' 
and ``evaluation,'' we would adopt the language in section 
1915(i)(1)(H)(ii) of the Act, which refers to the ``independent 
evaluation'' and the ``independent assessment.''
    <bullet> Needs-based eligibility criteria.
    In Sec.  441.559(a), we propose that States establish needs-based 
criteria for determining an individual's eligibility under the State 
plan for HCBS, and may establish needs-based criteria for each specific 
service. We do not define support needs, as we believe that States 
should have the flexibility to match eligibility criteria to the nature 
of the services they would provide under the HCBS benefit. By statute, 
the needs-based criteria would consist of needs for specified types of 
support, such as assistance with ADLs, or risk factors defined by the 
State. We propose to require that State-defined risk factors affecting 
eligibility must be included as needs-based eligibility criteria in the 
State plan amendment. While we do not propose requirements for State-
defined risk factors, we believe that as needs-based criteria, risk 
factors should be related to support needs, such as availability of 
family members or other unpaid caregivers and their willingness and 
ability to provide necessary care.
    We distinguish support needs from other types of characteristics. 
We propose that a distinguishing characteristic of needs-based criteria 
is that they can only be ascertained for a given person through an 
individual evaluation. This differentiates a targeting criterion such 
as a diagnosis, which many individuals may identically share, from a 
support need, which will vary widely among those individuals with the 
same diagnosis. Also set forth in Sec.  441.559(a) are the examples of 
needs-based eligibility criteria and factors to consider that are 
supplied in the statute. Section 1915(i) of the Act defines ADLs by 
reference to section 7702B(c)(2)(B) of the Internal Revenue Code of 
1986. This section of the Internal Revenue Code lists eating, 
toileting, transferring, bathing, dressing,

[[Page 18688]]

and continence. This mobility-oriented definition of ADLs is one that 
States may consider, meaning that States are free to define criteria in 
other domains such as cognitive or behavioral needs for support.
    We note that the regulation requires only that the needs-based 
criteria for the State plan HCBS benefit establish the lowest threshold 
of need to enroll in the benefit. There is an upper limit of need to be 
eligible for the HCBS benefit only if the State so specifies in the 
needs-based eligibility criteria. The more stringent institutional 
criteria required in Sec.  441.559(b) of this section do not constitute 
an upper limit of need to be eligible for the State plan HCBS benefit. 
The institutional criteria are only a lowest threshold of need to 
receive institutional services. We also note that section 1915(i)(1) of 
the Act clarifies that State plan HCBS are not required to be direct 
alternatives to institutional care. The statute specifically provides 
that the State plan HCBS benefit does not need to meet the section 
1915(c) requirement that, but for the services provided under the HCBS 
waiver, the individual would require institutional care.
    <bullet> More stringent institutional and waiver needs-based 
criteria
    In Sec.  441.559(b), we propose that the State plan HCBS benefit is 
available to a State only if individuals may demonstrate a lower level 
of need to obtain State plan HCBS than is required to obtain 
institutional or waiver services. States that have functional level of 
care criteria for institutions (that meet the requirements in Sec.  
441.559(a)(1)), may have no need to modify their existing institutional 
criteria so long as the needs-based eligibility criteria established 
for State plan HCBS are less stringent. States without need-based 
institutional level of care criteria must add need-based requirements 
to their level of care assessments in order to establish the State plan 
HCBS benefit.
    We propose in Sec.  441.559(b) to define by reference to statute 
and regulation the institutions for which section 1915(i) of the Act 
requires more stringent eligibility criteria. Nursing facility and 
intermediate care facilities for the mentally retarded are so cited. We 
interpret reference in section 1915(i)(1)(B) of the Act to hospitals to 
mean facilities certified by Medicaid as hospitals that are providing 
long-term care services or services related to the HCBS to be provided 
under the benefit. The proposed regulation requires that States have or 
establish for such hospitals (if any), needs based criteria for 
admission that are more stringent than those for eligibility in the 
State plan HCBS benefit. We further propose, when the State covers more 
than one service in the State plan HCBS benefit, to require that any 
needs-based criteria for individual HCBS, combined with the needs-based 
eligibility criteria for the benefit, must be less stringent than 
needs-based eligibility criteria for any related institutional 
services. Without this provision, it would be possible for States to 
define needs-based eligibility criteria that are less stringent than 
those for institutions, but then set each needs-based service criteria 
at a more stringent level, effectively requiring all persons served by 
the benefit to be at a higher level of need than the statute intends.
    In Sec.  441.559(b), we further propose to require that the more 
stringent needs-based criteria for institutions and waivers be part of 
the State's level of care processes, to ensure that the criteria are 
uniformly utilized. We would require that these more-stringent needs-
based criteria be submitted for comparison with the State plan 
amendment that establishes the State plan HCBS benefit. We note that 
needs-based criteria, as defined in Sec.  441.559(a) require an 
evaluation to determine the individual's support needs. Therefore, the 
assessment process for institutional levels of care that include needs-
based criteria must include an individual evaluation of support needs. 
We also propose to require that the State's more stringent 
institutional and waiver needs-based criteria be in effect on or before 
the effective date of the State plan HCBS benefit.
    Finally, in Sec.  441.559(b)(2), we propose that if States modify 
their institutional levels of care in order to satisfy the requirement 
that the levels of care be more stringent than the needs-based 
eligibility criteria for the State plan HCBS benefit, individuals 
receiving institutional and waiver services as of the date that more 
stringent eligibility criteria for those services become effective, 
would not be subject to the more stringent criteria. Exemption from the 
more stringent criteria is indefinite, but ends when the individual is 
discharged from the facility or waiver, or the individual no longer 
meets the criteria for the applicable level of care. We note that in 
long-term care facilities a transfer is not a discharge and would not 
cause the individual to lose this exemption. States would determine the 
effect of any subsequent changes to general level of care requirements 
(unrelated to the more stringent criteria) upon individuals with this 
exemption.
    <bullet> Adjustment authority
    In Sec.  441.559(c), we propose to permit States under certain 
conditions to adjust, without prior approval from the Secretary, the 
needs-based eligibility criteria and service criteria (if any) 
established under Sec.  441.559(a), in the event that the State 
experiences enrollment in excess of the number projected to be served 
by the HCBS benefit. We propose a retroactive effective date, as 
approved by the Secretary, for the State plan amendment modifying the 
needs-based criteria under Sec.  441.559(c)(1). We set forth the 
following conditions required by the statute.
    The State must provide for at least 60 days notice to the 
Secretary, the public, and we would add, each enrollee. Since the 
effect of adjusted criteria would be to reduce the scope of services, 
eligibility for services, or eligibility for the entire State plan HCBS 
benefit, the adjusted criteria would not apply to individuals already 
enrolled in the State plan HCBS benefit for at least 12 months from 
inception of such services, and we would add, for the additional length 
of the required minimum 60 day notification period. If the State also 
adjusts institutional levels of care, the adjusted institutional levels 
of care may not be less stringent than the institutional level of care 
prior to the effective date of the State plan HCBS benefit.
    In Sec.  441.559(c), we further propose to require explicitly that 
the adjusted needs-based eligibility criteria for the State plan HCBS 
benefit must be less stringent than all needs-based institutional level 
of care criteria in effect at the time of the adjustment.
    We propose that the notice to the Secretary be submitted as a State 
plan amendment. In order to implement the adjustment authority without 
prior approval of the Secretary, the Secretary would approve a State 
plan amendment adjusting the needs-based HCBS benefit eligibility 
criteria with a retroactive effective date, as early as 60 days after 
the State notified each enrollee, the Secretary, and the public, (or 
whichever is later). Under the provision of section 1915(i)(1)(D)(ii) 
of the Act, the Secretary will evaluate the State's adjusted criteria 
for compliance with the provisions of this paragraph and subpart K. We 
also note that while the State may under this provision implement the 
adjusted criteria as early as 60 days after notification and before the 
State plan amendment is retroactively approved, the State is at risk 
for any actions it takes that are later disapproved.
    Finally, we would require that the State notify affected 
individuals of their right to a fair hearing according to 42 CFR part 
431, subpart E.

[[Page 18689]]

    <bullet> Independent evaluation and determination of eligibility
    In Sec.  441.559(d), we propose that eligibility for the State plan 
HCBS benefit be determined by an independent evaluation of each 
individual, applying the general eligibility requirements in Sec.  
441.556 of this subpart, and the needs-based criteria that the State 
has established under Sec.  441.559(a). Independence of the review 
requires meeting the conflict of interest standards set forth in Sec.  
441.568, where provider qualifications for evaluators are specified.
    The evaluation must assess an individual's support needs and 
strengths. We interpret this provision of the statute to indicate that 
the evaluation process draws conclusions about supports that the 
individual requires because of age or disability, and supports that the 
individual does not require because of abilities to perform those 
functions independently. The evaluation compares those conclusions with 
the needs-based eligibility criteria for the State plan HCBS benefit to 
determine eligibility for the benefit. Section 1915(i)(1)(D)(i) of the 
Act provides that the State may take into account the need for 
significant assistance to perform ADLs, indicating that the statute 
does not require that eligibility be dependent upon lack of natural 
supports.
    We note that appraisal of whether an individual has medical 
necessity for, and meets additional needs-based criteria (if any) for 
specific HCBS offered under the benefit, is part of the independent 
assessment and plan of care development process. However, this 
assessment affects eligibility for the benefit in that we propose at 
Sec.  441.562 that individuals are considered enrolled in the State 
plan HCBS benefit only if they are assessed to require at least one 
home and community-based service offered under the State plan benefit 
in addition to meeting the eligibility and needs-based criteria for the 
benefit.
    The evaluation process designed by the State would reflect the 
nature of the State plan HCBS benefit designed by the State. However, 
in order to meet the forgoing requirements, all independent evaluations 
require specific information about each individual's support needs, 
sufficient to draw the appropriate conclusions. In some cases this 
information may be well documented and current in the individual's 
existing records. In other cases, we would require that the evaluator 
obtain this information by whatever means are appropriate to secure a 
valid appraisal of the individual's current needs. This requirement 
could include professional assessment of certain functional abilities. 
State evaluation procedures that rely solely on review of medical 
records would not meet these requirements.
    <bullet> Periodic redetermination
    In Sec.  441.559(e), we propose that individuals receiving the 
State plan HCBS benefit must be reevaluated at a frequency defined by 
the State, but not less than every 12 months, to determine whether the 
individuals continue to meet eligibility requirements. The independent 
reevaluations must meet the requirements for initial independent 
evaluations specified in Sec.  441.559(d).
Section 441.562 (Independent Assessment)
    In Sec.  441.562, we propose requirements for independent 
assessment of need of each individual who has been determined by the 
independent evaluation to be eligible for the State plan HCBS benefit. 
The purpose of the assessment is to obtain, in combination with the 
findings of the independent eligibility evaluation, all the information 
necessary to establish a plan of care. The assessment is based on the 
needs of the individual, which we believe precludes assessment 
protocols that primarily determine diagnoses, or only assess function. 
Assessment protocols must not assign supports automatically by 
functional limitation. The independent assessment must determine the 
specific supports needed to address the individual's unique 
circumstances and needs.
    The assessment also applies the State's needs-based criteria for 
each service (if any). We propose that an individual be considered 
enrolled in the State plan HCBS benefit only if the assessment finds 
that the individual needs and meets the needs-based criteria (if any) 
for, at least one State plan HCBS. This proposed requirement is to 
provide States with a mechanism to prevent the situation of an 
individual being eligible for the State plan HCBS benefit but not able 
to receive any of the services it offers. Such a circumstance would, 
among other problems, be of no utility to the individual, may make it 
difficult for the State to meet an assessed need, and would count 
towards the maximum number of individuals the State could serve, using 
up a ``slot'' for no purpose.
    We make clear that the assessment must include an objective 
evaluation of the individual's inability to perform two or more 
activities of daily living (ADL) as defined in the Internal Revenue 
Code of 1986, or need for significant assistance to perform ADLs. We 
interpret the statutory term ``objective'' to require an accepted 
method of measuring functioning appropriate to the ADL.
    We propose to require in Sec.  441.562(a)(2) 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). In Sec.  441.562(a)(2)(i), we 
propose to require that the assessment is performed by an agent that is 
independent and qualified as defined in Sec.  441.568. The assessment 
is to be guided by best practice and research on effective strategies 
that result in improved health and quality of life outcomes. We further 
propose that the assessment includes consultation, as appropriate, with 
other responsible parties. The assessment must include an examination 
of the individual's relevant history, medical records, and care and 
support needs, including the findings from the independent eligibility 
evaluation.
    If self-direction of services is offered by the State and elected 
by the individual, the independent assessment must include a self-
direction appraisal as described in Sec.  441.574.
    We propose documentation requirements in the assessment to address 
two specific circumstances. For individuals living in a residence with 
four or more persons unrelated to the proprietor, that furnishes one or 
more treatments or services and meets the criteria listed in paragraph 
(a)(3) of Sec.  441.556, we propose that the assessment must include 
documentation that the individual is living in a community setting, and 
not in an institution.
    For individuals receiving habilitation services, we propose to 
require documentation that no services are provided under Medicaid that 
would otherwise be available to the individual, specifically including 
but not limited to services available to the individual through a 
program funded under section 110 of the Rehabilitation Act of 1973, or 
the Individuals with Disabilities Improvement Act of 2004. 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.
    Finally, in Sec.  441.562(b), we propose to require that the 
independent assessment of need is conducted at least every 12 months 
and as needed when the individual's needs and circumstances change 
significantly, in order to revise the plan of care.

[[Page 18690]]

Section 441.565 (Plan of Care)
    In Sec.  441.565 we propose to require that based on the 
independent assessment specified in Sec.  441.562, the State develops 
(or approves, if the plan is developed by others) a plan of care 
through a person-centered planning process. Section 
1915(i)(1)(G)(iii)(III)(dd) of the Act requires a person-centered 
approach to establishing a plan of care for an individual 
(``individual'' meaning in this context, if applicable, the individual 
and the individual's authorized representative) electing to direct his 
or her own services. We propose to require that person-centered 
principles guide all plans of care for the State plan HCBS benefit.
    We propose that the plan of care must be developed jointly with the 
individual. While we propose several specific requirements for the 
process of developing a plan of care, we note that the intent of these 
requirements is to ensure a process with shared authority between the 
individual and the agency or agent. To achieve this intent, States must 
affirmatively and creatively work to establish such shared authority.
    The assessment must include consultation with appropriate persons. 
Definition of appropriate persons would be determined in each case, and 
while we include examples, we do not propose any required or excluded 
category of persons to consult. When the plan of care is finalized 
between the parties, a written copy is provided to the individual.
    Also, in Sec.  441.565(a), we propose certain content to be 
required in the plan of care. The plan of care must identify the 
specific State plan HCBS to be provided to the individual, that take 
into account the individual's strengths, preferences, and desired 
outcomes, as well as support needs arising from the individual's 
disability. In the planning process, the degree of assistance with ADLS 
available to the individual outside of the State plan HCBS benefit may 
be taken into account in planning the scope and frequency of HCBS to be 
provided. Thus, the plan of care provides for all needed services to 
the individual while preventing provision of unnecessary services.
    We propose a single plan of care for both self-directed and non 
self-directed services. When an individual self-directs some or all of 
their HCBS, the plan of care includes the information required in Sec.  
441.574.
    We further propose to require that the plan of care be reviewed and 
revised at least every 12 months, and as needed when the individual's 
circumstances or needs change significantly.
Section 441.568 (Provider Qualifications)
    In Sec.  441.568, we propose to require that the State provide 
assurance that necessary safeguards have been taken to protect the 
health and welfare of the enrollees in State plan HCBS by provision of 
adequate standards for all types of providers of HCBS. States must 
define qualifications for providers of HCBS services, and for those 
persons who conduct independent evaluation of eligibility for State 
plan HCBS, independent assessment of need, and are involved with 
developing the plan of care.
    We propose at Sec.  441.568(b) and (c) to require minimum 
qualifications for individuals and agencies who conduct independent 
evaluation of eligibility for State plan HCBS, independent assessment 
of need, and are involved with developing the plan of care. We will 
refer to these individuals and entities involved with determining 
access to care as ``agents'' to distinguish this role from providers of 
services. We believe that these qualifications are important safeguards 
for individuals enrolled in the State plan HCBS benefit and propose 
that they be required whether activities of the agents are provided as 
an administrative activity or whether some of the activities are 
provided as a Medicaid service. At a minimum, these qualifications 
include conflict of interest standards, and for providers of assessment 
and plan of care development, these qualifications must include 
training in assessment of individuals whose physical or mental 
condition may trigger a need for home and community-based services and 
supports, and an ongoing knowledge of current best practices to improve 
health and quality of life outcomes.
    The minimum conflict of interest standards we propose to require 
ensure that the provider is not a relative of the individual or 
responsible for the individual's finances or health-related decisions. 
Relatives and decision makers are required to be permitted in the 
assessment and planning process, as appropriate, but we do not see any 
necessity or value in family members being responsible for evaluation, 
assessment, or planning. Our experience with HCBS in waivers indicates 
that assessment and plan of care development should not be performed by 
providers of the services prescribed. However, we recognize, as 
discussed in Section I., that in some circumstances there are 
acceptable reasons for a single provider of service that performs all 
of those functions. In this case, the Secretary would require the State 
Plan to include provisions assuring separation of functions within the 
provider entity.
Section 441.571 (Definition of Individual's Representative)
    In Sec.  441.571, we propose to define the term ``individual's 
representative'' to encompass any party that is authorized to represent 
the individual for the purpose of making personal or health care 
decisions, either under State law or under the policies of the State 
Medicaid agency. We do not propose to regulate the relationship between 
an individual enrolled in the State plan HCBS benefit and his or her 
authorized representative, but note that States should have policies to 
assess for abuse or excessive control and ensure that representatives 
conform to applicable State requirements.
Section 441.574 (Self-Directed Services)
    We propose in Sec.  441.574 to permit States to offer an election 
for self-directing HCBS. In Sec.  441.574(a), we would define ``self-
direction.'' Provisions related to self-direction apply to an 
individual or an individual's representative. In Sec.  441.574(b), we 
propose that when an individual chooses self-direction, the independent 
assessment and person-centered planning required under Sec. Sec.  
441.562 and 441.565 would include examination of the support needs of 
the individual to self-direct the purchase of, or control the receipt 
of, such services. The evaluation should not reject election to self-
direct based solely on the individual's disability or a manifestation 
of his or her disability. We therefore propose to require that the 
evaluation for self-direction result in a determination of ability to 
self-direct both with and without specified supports.
    We propose regulations containing the specific requirements for 
self-direction found in section 1915(i)(1)(G)(iii) of the Act. These 
regulations are consistent with our policy for self-direction under 
section 1915(c) HCBS waivers. We propose to require in Sec.  441.574(b) 
that the plan of care indicate the HCBS to be self-directed and the 
methods by which the individual will plan, direct, or control the 
services; the role of family or others who will participate in the 
HCBS; and risk management techniques. Our experience with HCBS waivers 
indicates that contingency plans are an important protection for the 
individual, in the absence of an agency that would otherwise be 
responsible for absent workers or other common problems.

[[Page 18691]]

Contingency plans are most effective when designed for the unique 
circumstances of each self-directing individual. We propose that the 
plan of care describe the process for facilitating voluntary and 
involuntary transition from self-direction. When the plan of care is 
finalized between the parties, a written copy is provided to the 
individual, as required in Sec.  441.565(a).
    In Sec.  441.574(c) and (d), we define self-direction of services 
in terms of employer authority and budget authority, as we have with 
self-directed HCBS in Medicaid section 1915(c) waivers. In Sec.  
441.574(c), employer authority is defined as the ability to select, 
manage, or dismiss providers of the State plan HCBS. We propose that 
the plan of care must specify the authority to be assumed by the 
individual and the individual's representative, any parties responsible 
for functions outside the assumed authority, and the financial 
management supports to be provided as required in Sec.  441.574(e).
    In Sec.  441.574(d), we propose to define budget authority as an 
individualized budget which identifies the dollar value of the services 
and supports under the control and direction of the individual. We 
propose that the plan of care must specify the method for calculating 
the dollar values in the budget, a process for adjusting the budget to 
reflect changes in assessment and plan of care, a procedure to evaluate 
expenditures under the budget, and the financial management supports, 
as required in Sec.  441.574(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 Sec.  441.574(e), we propose to define functions in support of 
self-direction that the State must offer, based on our experience with 
self-directed HCBS in section 1915(c) waivers and section 1115 
demonstrations. These provisions are required in order to equip 
individuals for success in managing their services, and to comply with 
Federal, State, and local requirements, particularly the many tax, 
labor, and insurance issues that arise when the self-directing 
individual is the employer of record. Supports for self-direction 
should provide the technical expertise and business functions that will 
free individuals to exercise choice and control over their experience 
of the HCBS provided to them.
Section 441.577 (State Plan HCBS Administration: State Responsibilities 
and Quality Improvement)
    <bullet> State responsibilities.
    We would require in Sec.  441.577(a)(1)(i) that the State annually 
provide CMS with the projected number of individuals to be enrolled in 
the benefit, and the actual number of unduplicated individuals enrolled 
in the State plan HCBS benefit in the previous year. States may choose 
to limit the number to be served at any point in time, as provided in 
Sec.  441.577(a)(1)(ii). If the State so chooses, we propose that it 
would also provide annually to CMS the maximum number enrolled at one 
time.
    In Sec.  441.577(a)(1)(ii) we propose that a State may elect to set 
a limit on the number of individuals enrolled in the State plan HCBS 
benefit, either as an annual limit or as limit at any one point in 
time. The State must establish or adjust the limit by amending the 
State plan. The State may, but is not required to, establish a waiting 
list. States must consider many legal requirements and competing 
demands in establishing waiting list policy, including the Americans 
with Disabilities Act (ADA). We do not specify waiting list 
requirements, but propose to require that if a State elects to maintain 
a waiting list, it must do so with written and publicly published 
policies to ensure fairness and consistency. The public should have 
opportunity for notice and comment on this important limitation to 
access. We propose to require a formally established schedule and 
procedure for reevaluation and revision to waiting list policy. We also 
would require assurance that States will adhere to all applicable 
Federal and State requirements. For example, individuals who may be 
denied access to services would have all rights required under 42 CFR 
part 431, subpart E.
    Because section 1915(i) of the Act does not authorize waiver of 
comparability requirements, we clarify in Sec.  441.577(a)(1)(iii) that 
the State may not limit enrollee access to services in the benefit for 
any reason other than assessed need, including limits based on type of 
disability or other targeting, or limiting the number of persons 
receiving particular services. This is an important distinction between 
the limits States place on the services to be offered when they design 
the benefit, as opposed to limiting access to the services that are in 
the benefit for particular enrolled individuals. As discussed in 
Section I.D.1 above, States have a number of permitted methods to 
control utilization by placing limits on the overall benefit and 
particular services offered. We propose that once an individual is 
found eligible and enrolled in the benefit, access to offered services 
can only be limited by medical necessity. Medical necessity in the 
State plan HCBS benefit is determined by the independent assessment and 
person-centered plan of care. By not limiting access, we mean that an 
enrollee must receive any or all of the HCBS offered by the benefit, in 
scope and frequency up to any limits on those services defined in the 
State plan, to the degree the enrollee is determined to need them. 
Enrollees should receive no more, and no fewer, services than they are 
determined to require. We note that one function of the plan of care as 
proposed at Sec.  441.565(a)(3) is to prevent the provision of 
unnecessary or inappropriate care.
    <bullet> Administration.
    We propose in Sec.  441.577(a)(2)(i) an option for presumptive 
payment. The State may provide for a period of presumptive payment, not 
to exceed 60 days, for evaluation of eligibility for the State plan 
HCBS benefit and assessment of need for HCBS. This period of 
presumptive payment would be available for individuals who have been 
determined to be Medicaid eligible, and whom the State has reason to 
believe may be eligible for the State plan HCBS benefit. We propose 
that FFP would be available for evaluation and assessment as 
administration of the approved State plan prior to an individual's 
determination of eligibility for and receipt of other 1915(i) services. 
If the individual is found not eligible for the State plan HCBS 
benefit, the State may claim the evaluation and assessment as 
administration, even though the individual would not be considered to 
have participated in the benefit for purposes of determining the annual 
number of individuals served by the benefit. FFP would not be available 
during this presumptive period for receipt of State plan HCBS.
    In Sec.  441.577(a)(2)(ii), we propose that a State plan amendment 
submitted to establish the State plan HCBS benefit must include a 
reimbursement methodology for each covered service. In some States, 
reimbursement methods for self-directed services may differ from the 
same service provided without self-direction. In such cases, the 
reimbursement methodology for the self-directed services must also be 
described.
    In Sec.  441.577(a)(2)(iii), we propose that the State Medicaid 
agency describe the line of authority for operating the State plan HCBS 
benefit. The State plan HCBS benefit requires several functions

[[Page 18692]]

to be performed in addition to the service(s) provided, such as 
eligibility evaluation, assessment, and developing a plan of care. To 
the extent that the State Medicaid agency delegates these functions to 
other entities, we propose that the agency describe the methods by 
which it will retain oversight and responsibility for those activities, 
and for the operation and quality improvement of the benefit as a 
whole.
    <bullet> Quality improvement strategy.
    We propose in Sec.  441.577(b) the guidelines for quality assurance 
required in the statute at section 1915(i)(1)(H)(i) of the Act. We 
propose to require a State to maintain a quality improvement strategy 
for its State plan HCBS benefit. The State's quality improvement 
strategy should reflect the nature and scope of the benefit the State 
will provide.
    As discussed in section I of this preamble, section 6086(a) of the 
DRA established section 1915(i) of the Act, the optional State plan 
HCBS benefit. Section 6086(b), Quality of Care Measures, sets forth 
requirements for the Secretary to develop through the Agency for 
Healthcare Research and Quality (AHRQ) indicators and measures for 
program performance and quality of care to assess HCBS at the State and 
national level, and service outcomes, particularly regarding health and 
welfare of recipients. Likewise, we propose that measures in the State 
quality improvement strategy consist of indicators for program 
performance and quality of care as approved and prescribed by the 
Secretary, and applicable to the nature of the benefit.
    In Sec.  441.577(b)(2), we propose to require States to have 
program performance measures, appropriate to the scope of the benefit, 
designed to assess the State's overall system for providing HCBS.
    In Sec.  441.577(b)(3), we propose to require States to have 
quality of care measures as approved or prescribed by the Secretary 
that may be used to assess individual outcomes of participants in home 
and community-based services, such as client function indicators and 
measures of client satisfaction. Outcome measures may be reflective of 
the design and scope of the benefit and the specific HCBS provided.

III. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the ``DATES'' section of this 
preamble, and, when we proceed with a subsequent document, we will 
respond to the comments in the preamble to that document.

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

Section 441.559 Needs-Based Criteria and Evaluation

    Section 441.559(a) requires a State to establish needs-based 
criteria for determining an individual's eligibility under the State 
plan for the HCBS benefit, and may establish needs-based criteria for 
each specific service.
    The burden associated with this requirement is the time and effort 
put forth by the State to establish such criteria. We estimate it would 
take 1 State 24 hours to meet this requirement. We estimate that on an 
annual basis, 3 States will submit a State plan amendment to offer the 
State plan HCBS benefit, and be affected by this requirement; 
therefore, the total annual burden hours for this requirement is 72 
hours. This would be a one-time burden.
    Section 441.559(c) reads that a State may modify the needs-based 
criteria established under paragraph (a) of this section, without prior 
approval from the Secretary, if the number of individuals enrolled in 
the State plan HCBS benefit exceeds the projected number submitted 
annually to CMS.
    Section 441.559(c)(1) requires the State to provide at least 60 
days' notice of the proposed modification to the Secretary, the public, 
and each individual enrolled in the State plan HCBS benefit. The State 
notice to the Secretary will be considered an amendment to the State 
plan.
    Section 441.559(c)(2) reads that the State may under this provision 
implement the adjusted criteria as early as 60 days after submitting 
the State plan amendment and notifying all required parties.
    The burden associated with the requirements found under 441.559(c) 
is the time and effort put forth by the State to modify the needs-based 
criteria and provide notification of the proposed modification to the 
Secretary. We estimate it would take 1 State 24 hours to make the 
modifications and provide notification. This would be a one-time 
burden. The total annual burden of these requirements would vary 
according to the number of States who choose to modify their needs-
based criteria. We do not expect any States to make this modification 
in the next 3 years.
    Section 441.559(d) states that eligibility for the State plan HCBS 
benefit is determined, for individuals who meet the requirements of 
441.556(a)(1) through (3), through an independent evaluation of each 
individual that meets the specified requirements. Section 441.559(d)(5) 
requires the evaluator to obtain information from existing records, and 
when documentation is not current and accurate, obtain any additional 
information necessary to draw a valid conclusion about the individual's 
support needs. Section 441.559(e) requires at least annual 
reevaluations.
    The burden associated with this requirement is the time and effort 
put forth by the evaluator to obtain information to support their 
conclusion. We estimate it would take one evaluator 2 hours per 
participant to obtain information as necessary. The total annual burden 
of this requirement would vary according to the number of participants 
in each State who may require and be eligible for home and community-
based services under the State plan.
    Section 441.562 requires the State to provide for an independent 
assessment of need in order to establish a plan of care. At a minimum, 
the plan must meet the requirements as discussed under 441.565.
    Section 441.568 requires the State to define in writing adequate 
standards for providers of HCBS services and for providers conducting 
independent evaluation, independent assessment, and plan of care 
development.
    While the burden associated with the requirements under Sec. Sec.  
441.562 and 441.568 is subject to the PRA, we

[[Page 18693]]

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.

Section 441.574 Self-Directed Services

    Section 441.574 reads that a State may choose to offer an election 
for self-directing HCBS.
    The burden associated with this requirement is the time and effort 
put forth by the State to elect for self-directing HCBS. We estimate it 
would take one State 5 hours to meet this requirement; therefore, if 
all of the States and territories estimated to apply for State plan 
HCBS on an annual basis (3) chose to offer an election for self-
directing HCBS the total annual burden would be 15 hours. This would be 
a one-time burden.

Section 441.577 State Plan HCBS Administration: State Responsibilities 
and Quality Improvement

    Section 441.577(a)(1)(i) reads that a 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. If the State chooses to limit the 
number to be served at any point in time, as provided in Sec.  
441.577(a)(1)(ii), the State will annually provide to CMS the maximum 
number enrolled at one time.
    The burden associated with this requirement is the time and effort 
put forth by the State to annually project the number of individuals 
who will enroll in State plan HCBS. We estimate it will take one State 
2 hours to meet this requirement. The total annual burden of these 
requirements would vary according to the number of States offering the 
State plan HCBS benefit. The maximum total annual burden is 112 hours 
(56 States x 2 hours = 112 hours).
    Section 441.577(a)(1)(ii)(B) reads that if a State elects to 
maintain a waiting list for State plan HCBS, the State establishes and 
adheres to policies and procedures for formation and maintenance of a 
waiting list that complies with all applicable Federal and State 
requirements.
    While this burden associated with this requirement 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.
    Section 441.577(a)(2)(ii) reads that the State plan amendment to 
provide State plan HCBS must contain a description of the reimbursement 
methodology for each covered service.
    The burden associated with this requirement is the time and effort 
put forth by the State to describe the reimbursement methodology for 
each State plan HCBS. We estimate that it will take one State an 
average of 2 hours to determine the reimbursement methodology for one 
covered HCBS. This would be a one-time burden. The total annual burden 
for this requirement would vary according to the number of services 
that the State chooses to include in the State plan HCBS benefit.
    Section 441.577(a)(2)(iii) reads that the State plan amendment to 
provide State plan HCBS must contain a description of the State 
Medicaid agency line of authority for operating the State plan HCBS 
benefit, including distribution of functions to other entities.
    The burden associated with this requirement is the time and effort 
put forth by the State to describe the State Medicaid agency line of 
authority. We estimate it will take one State 2 hours to meet this 
requirement. Since we have estimated that 3 States will annually 
request State plan HCBS, the total annual burden associated with this 
requirement is estimated to be 6 hours. This would be a one-time 
burden.
    Section 441.577(b)(1) requires States to maintain a quality 
improvement strategy that includes methods for ongoing measurement of 
program performance and mechanisms of intervention to assure quality of 
care, proportionate to the scope of services in the State plan HCBS 
benefit, the needs-based criteria, and the number of individuals to be 
served.
    The burden associated with this requirement is the time and effort 
put forth by the State to prepare and maintain a quality improvement 
strategy. We estimate it will take one State 45 hours for the 
preparation and maintenance of the strategy. The total annual burden of 
these requirements would vary according to the number of States 
offering the State plan HCBS benefit. The maximum total annual burden 
is estimated to be 2,520 hours (56 States x 45 hours = 2,520 hours).
    We 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 comment on these information collection and recordkeeping 
requirements, please do either of the following:

    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or

    2. Mail copies to the address specified in the ADDRESSES section of 
this proposed rule and to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Room 10235, New Executive 
Office Building, Washington, DC 20503, Attn: Carolyn Lovett, CMS Desk 
Officer, CMS-2249-P, <a href="/cdn-cgi/l/email-protection#16757764797a6f78497a796073626256797b743873796638717960"><span class="__cf_email__" data-cfemail="fe9d9f8c91928790a19291889b8a8abe91939cd09b918ed0999188">[email protected]</span></a>. Fax (202) 395-6974.

V. Regulatory Impact Analysis

    [If you choose to comment on issues in this section, please 
indicate the caption ``Regulatory Impact'' at the beginning of your 
comments.]

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), Executive Order 13132 on 
Federalism, and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866, as amended, directs agencies to identify the 
specific market failure or other problem that warrants agency action, 
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). 
We estimate that, adjusted for a phase-in period during which States 
gradually elect to offer the State plan HCBS benefit, in fiscal year 
2009 the estimated cost would be $114 million. The estimated 5-year (FY 
2007 through FY 2011) cost of this proposed rule would be $563 million. 
Therefore, we estimate that this rulemaking is ``economically 
significant'' as measured by the $100 million standard, and hence also 
a major rule under the Congressional Review Act. Accordingly, we have 
prepared a Regulatory Impact Analysis.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses if a rule would have a

[[Page 18694]]

significant impact on a substantial number of small businesses or small 
entities. 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. Individuals and States are 
not included in the definition of a small entity. This rule imposes no 
requirements or costs on providers or suppliers for their existing 
activities. The rule implements a new optional State plan benefit 
established in section 1915(i) of the Act. Small entities that meet 
provider qualifications and choose to provide HCBS under the State plan 
would have a business opportunity under this proposed rule. The 
Secretary certifies that this proposed rule would not have a 
significant economic impact on a substantial number of small entities.
    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 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 Core-Based 
Statistical Area and has fewer than 100 beds. We have determined that 
this proposed rule would not have a significant effect on the 
operations of a substantial number of small rural hospitals because 
there would be no change in the administration of the provisions 
related to small rural hospitals. Therefore, the Secretary has 
determined that this proposed rule would not have a significant impact 
on the operations of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act 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 $127 million. This proposed rule does 
not mandate any spending by State, local, or tribal governments or the 
private sector.
    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 regulation does not impose any costs on State 
or local governments, the requirements of E.O. 13132 are not 
applicable.

B. Anticipated Effects

1. Effects on Medicaid Beneficiaries
    The Medicaid beneficiaries who receive the State plan HCBS benefit 
will be substantial and beneficial. The State plan HCBS benefit will 
afford business opportunity for providers of the HCBS.
2. Effects on Other Providers
    We do not anticipate any effects on other providers. Section 
1915(i) of the Act delinks the HCBS from institutional level of care, 
and requires that eligibility criteria for the benefit include a 
threshold of need less than that for institutional level of care, so 
that it is unlikely that large numbers of participants in the State 
plan HCBS benefit will be discharged from the facilities of Medicaid 
institutional providers. There may be some redistribution of services 
among providers of existing non-institutional Medicaid services into 
State plan HCBS, but providers who meet qualifications for the State 
plan HCBS benefit have the option to enroll as providers of HCBS.
3. Effects on the Medicare and Medicaid Programs
    This rule has no effect on the Medicare program. State Medicaid 
programs will make use of the optional flexibility afforded by the 
State plan HCBS benefit to provide needed long-term care home and 
community based services to eligible elderly or disabled individuals 
the State has not had means to serve previously, or to provide services 
to these individuals more efficiently and effectively. The State plan 
HCBS benefit will afford States a new means to comply with requirements 
of the Olmstead decision, to serve individuals in the least restrictive 
setting.
    The cost of these services will be dependent upon the number of 
States electing to offer the benefit, the scope of the benefits States 
design, and the degree to which the benefits replace existing Medicaid 
services. States have more control over expenditures for this benefit 
than over other State plan services. For States that choose to offer 
these services, States may specify limits to the scope of HCBS, cap the 
number of recipients, and have the option to tighten eligibility 
requirements if costs escalate too rapidly.
    Use of the State plan HCBS benefit is unlikely to result in 
increased access to other Medicaid services, because eligibility for 
the benefit is limited to individuals who are already eligible for 
Medicaid, and whose income is less than 150 percent of the FPL. 
Moreover, costs of the State plan HCBS benefit may be offset by lowered 
potential Federal and State costs of more expensive institutional care. 
Additionally, the requirement for a written individualized plan of care 
may discourage inappropriate utilization of costly services such as 
emergency room care for routine procedures.
    After taking the above factors into account, the Federal and State 
cost estimates are shown in the table below.

                                             Medicaid Cost Estimate
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
                                                                                                         5-year
                                                   FY08       FY09       FY10       FY11       FY12      total
----------------------------------------------------------------------------------------------------------------
Federal Cost..................................        $68       $114       $169       $189       $210       $750
State Cost....................................         51         86        127        142        159        565
----------------------------------------------------------------------------------------------------------------

C. Alternatives Considered

    This proposed rule incorporates provisions of new section 1915(i) 
of the Act into Federal regulations, providing for Medicaid coverage of 
a new optional State plan benefit to furnish home and community-based 
State plan services. The statute provides States with an option under 
which to draw Federal matching funds; it does not impose any 
requirements or costs on existing State programs, on providers, or upon 
beneficiaries. States retain their existing authority to offer HCBS 
through the existing authority granted under section 1915(c) waivers 
and under section 1115 waivers. States can also continue to

[[Page 18695]]

offer, and individuals can choose to receive, some but not all 
components of HCBS allowable under section 1915(i) through existing 
State plan services such as personal care or targeted case management 
services. Therefore, this rule is entirely optional for States.
    Alternatives to this rule as proposed include:
1. Not Publishing a Rule
    Section 1915(i) of the Act is effective January 1, 2007. States may 
propose State plan amendments to establish the State plan HCBS benefit 
with or without this proposed rule. We considered whether this statute 
could be self-implementing and require no regulation. Section 1915(i) 
of the Act is complex; many States have contacted us for technical 
assistance in the absence of published guidance, and some have 
indicated they are waiting to submit an amendment until there is a 
rule. We further considered whether a State Medicaid Director letter 
would provide sufficient guidance regarding CMS review criteria for 
approval of a State plan amendment. We conclude that section 1915(i) of 
the Act establishes significant new features in the Medicaid program, 
and that States and the public should be afforded the published 
invitation for comment provided by this proposed rule. Finally, State 
legislation and judicial decisions are not alternatives to a Federal 
rule in this case since section 1915(i) of the Act provides Federal 
benefits.
2. Modification of Existing Rules
    We considered modifying existing regulations at 42 CFR 440.180, 
part 441 subpart G, Home And Community-Based Services: Waiver 
Requirements, which implement the section 1915(c) HCBS waivers, to 
include the authority to offer the State plan HCBS benefit. This would 
have the advantage of not duplicating definitions of HCBS and certain 
requirements common to both types of HCBS. However, we believe that any 
such efficiency would be outweighed by the substantial discussion that 
would be required of the differences between the Secretary's discretion 
to approve waivers under section 1915(c) of the Act, and authority to 
offer HCBS under the State plan at section 1915(i) of the Act. While 
Congress clearly considered the experience to date with HCBS under 
waivers when constructing section 1915(i) of the Act, it did not choose 
to modify section 1915(c) of the Act, but chose instead to create a new 
authority at section 1915(i) of the Act. We, therefore, chose to 
propose a separate rule.
3. Alternative Methods for Delivering HCBS
    CMS considered using existing operational methods for delivering 
State plan HCBS, but the unique and specific requirements in section 
1915(i) of the Act are substantially different from currently-existing 
authorities, and ultimately required stand-alone implementation 
tailored to the particular characteristics of the State plan HCBS 
option as described in statute. CMS considered whether section 1915(i) 
of the Act permits States to: (1) Disregard comparability, (2) define 
HCBS other than the services specifically listed in statute, as 
allowable under section 1915(c), (3) offer HCBS to Medicaid 
beneficiaries without a 150 percent of FPL income test unique to this 
benefit, or (4) provide State plan HCBS in place of mandatory 
institutional benefits for some individuals. However, CMS determined 
that none of these options is allowable under section 1915(i) of the 
Act.

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 
expenditures associated with the provisions of this proposed rule. This 
table provides our best estimate of the proposed increase in Federal 
Medicaid outlays resulting from offering States the option to provide 
the State plan HCBS benefit established in section 1915(i) of the Act 
and implemented by CMS-2249-P (Medicaid program; Home and Community-
Based State Plan Services).

 Table: Accounting Statement: Classification of Estimated Expenditures,
                         From FY 2008 to FY 2012
                              [In millions]
------------------------------------------------------------------------
               --                         --                  --
------------------------------------------------------------------------
            Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers..  3% Units Discount   7% Units Discount
                                               Rate                Rate
                                             $147.9              $145.1
------------------------------------------------------------------------
From Whom To Whom?..............      Federal Government to Providers
------------------------------------------------------------------------
Other Annualized Monetized        3% Units Discount   7% Units Discount
 Transfers......................               Rate                Rate
                                             $111.4              $109.3
------------------------------------------------------------------------
From Whom To Whom?..............      State Governments to Providers
------------------------------------------------------------------------

E. Conclusion

    We anticipate that States will make widely varying use of the 
section 1915(i) State plan HCBS benefit to provide needed long-term 
care services for Medicaid beneficiaries. These services will be 
provided in the home or alternative living arrangements in the 
community, which is of benefit to the beneficiary and is less costly 
than institutional care. Requirements for independent evaluation and 
assessment, individualized care planning, and requirements for a 
quality improvement program will assure efficient and effective use of 
Medicaid expenditures for these services.
    For the reasons stated above, we are not preparing analyses for 
either the RFA or section 1102(b) of the Act because we have 
determined, and the Secretary certifies, that this proposed rule will 
not have a significant

[[Page 18696]]

economic impact on a substantial number of small entities or a 
significant impact on the operations of a substantial number of small 
rural hospitals.
    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 431

    Grant programs--health, Health facilities, Medicaid, Privacy, 
Reporting and recordkeeping requirements.

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 431--STATE ORGANIZATION AND GENERAL ADMINISTRATION

    1. The authority citation for part 431 continues to read as 
follows:

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

Subpart B--General Administrative Requirements

    2. Section 431.40 is amended by revising paragraph (a)(7) to read 
as follows:


Sec.  431.40  Basis and scope.

    (a) * * *
    (7) Exceptions to, and waiver of, State plan requirements--sections 
1915(a) through (e), and (i) of the Act, and section 1916(a)(3) and 
(b)(3) of the Act.
* * * * *
    3. Section 431.50 is amended by--
    A. Redesignating paragraph (c)(2) as paragraph (c)(3).
    B. Adding a new paragraph (c)(2).
    The revisions read as follows:


Sec.  431.50  Statewide operation.

* * * * *
    (c) * * *
    (2) Home and community-based services for the elderly and disabled 
under sections 1915(c), (d), and (i) of the Act; and
* * * * *

PART 440--SERVICES: GENERAL PROVISIONS

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

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

    5. Amend Sec.  440.1 by adding the new statutory basis in numerical 
order.
    The addition reads as follows:


Sec.  440.1  Basis and purpose.

* * * * *
    1915(i) Home and community-based services furnished under a State 
plan to elderly and disabled individuals under the provisions of part 
441, subpart K.
    6. Section 440.180 is amended by revising the heading to read as 
follows:


Sec.  440.180  Home and community-based waiver services.

* * * * *
    7. A new Sec.  440.182 is added to read as follows:


Sec.  440.182  State plan home and community-based services.

    (a) Definition. State plan home and community-based services 
benefit means the services listed in paragraph (b) of this section when 
provided under an amendment to the State's Medicaid plan under the 
provisions of part 441, subpart K of this chapter.
    (b) Services. The State plan home and community-based services 
(HCBS) benefit provided by the State may consist of any or all of the 
following services as they are described by the State and included in 
the State's plan for medical assistance approved by the Secretary:
    (1) Case management services.
    (2) Homemaker services.
    (3) Home health aide services.
    (4) Personal care services.
    (5) Adult day health services.
    (6) Habilitation services, which include expanded habilitation 
services as specified in Sec.  440.180(c).
    (7) Respite care services.
    (8) Subject to the conditions in Sec.  440.180, 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.
    (c) Exclusions. State plan HCBS do not include either of the 
following:
    (1) Other services. The other services that the Secretary has the 
authority to approve under Sec.  440.180 for a home and community-based 
services (HCBS) waiver;
    (2) Room and board. For purposes of this provision, ``board'' means 
3 meals a day or any other full nutritional regimen. ``Room'' means 
expenses for shelter, including all property-related costs, 
furnishings, maintenance, utilities, and related administrative 
services. FFP is not available for the cost of room and board in State 
plan HCBS. The following service costs are not considered room or 
board:
    (i) The cost of food and housing in respite care services provided 
in a facility approved by the State that is not a private residence.
    (ii) Meals provided as part of a program of adult day health 
services as long as the meals provided do not constitute a ``full'' 
nutritional regimen.
    (iii) A portion of the housing expense and food that may be 
reasonably attributed to an unrelated caregiver providing State plan 
HCBS who is residing in the same household with the recipient, but not 
if the recipient is living in the home of the caregiver or in a 
residence that is owned or leased by the caregiver.

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

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

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

    9. A new subpart K, consisting of Sec.  441.550 through Sec.  
441.577, is added to part 441 to read as follows:
Subpart--K State Plan Home and Community-Based Services for Elderly and 
Disabled Individuals
Sec.
441.550 Basis and purpose.
441.553 State plan requirements.
441.556 Eligibility for home and community-based services under 
section 1915(i)(1) of the Act.
441.559 Needs-based criteria and evaluation.
441.562 Independent assessment.
441.565 Plan of care.
441.568 Provider qualifications.
441.571 Definition of individual's representative.
441.574 Self-directed services.
441.577 State plan HCBS administration: State responsibilities and 
quality improvement.

Subpart K--State Plan Home and Community-Based Services for Elderly 
and Disabled Individuals


Sec.  441.550  Basis and purpose.

    Section 1915(i) of the Act permits States to offer one or more home 
and community-based services (HCBS) to qualified elderly and disabled 
individuals under their State Medicaid plans. Those services are listed 
in Sec.  440.182 of this chapter, and are described by the State, 
including any limitations of the services. This optional benefit is 
known as the State plan HCBS

[[Page 18697]]

benefit. This subpart describes what a State Medicaid plan must 
provide, and defines State responsibilities.


Sec.  441.553  State plan requirements.

    A State plan that includes home and community-based services for 
elderly and disabled individuals must meet the requirements of this 
subpart.


Sec.  441.556  Eligibility for home and community-based services under 
section 1915(i)(1) of the Act.

    (a) Eligibility. To be eligible for State plan HCBS under section 
1915(i) of the Act, an individual must meet the following requirements:
    (1) Be eligible for Medicaid under an eligibility group covered 
under the State's Medicaid plan.
    (2) Have income that does not exceed 150 percent of the Federal 
Poverty Level (FPL). In determining whether the 150 percent of FPL 
requirement is met, the rules for determining income eligibility for 
the individual's eligibility group under the State's Medicaid plan, 
including any more liberal income disregards used by the State for that 
group under section 1902(r)(2) of the Act, apply.
    (3) Reside in the home or community, not in an institution, in 
accordance with the following:
    (i) According to standards for community living facilities, as 
prescribed by the Secretary.
    (ii) If the individual living in a residence with four or more 
persons unrelated to the proprietor, which furnishes one or more 
treatments or services, the independent assessment must include 
documentation that the individual is living in a community setting, and 
not in an institution.
    (4) Meet needs-based criteria for eligibility for the State plan 
HCBS benefit, as required in Sec.  441.554(d).
    (5) Be assessed to require at least one home and community-based 
service, as required in Sec.  441.562(a)(vi).
    (b) State options. The State may elect in the State plan amendment 
approved under this subpart not to apply the following requirements:
    (i) Section 1902(a)(10)(C)(i)(III) of the Act, pertaining to income 
and resource eligibility rules for the medically needy living in the 
community, but only for the purposes of providing State plan HCBS.
    (ii) Section 1902(a)(1) of the Act, pertaining to statewide 
application of Medicaid, but only for the purposes of providing State 
plan HCBS.


Sec.  441.559  Needs-based criteria and evaluation.

    (a) Needs-based criteria. The State must establish needs-based 
criteria for determining an individual's eligibility under the State 
plan for the HCBS benefit, and may establish needs-based criteria for 
each specific service.
    (1) Needs-based criteria are factors used to determine an 
individual's requirements for support. The criteria are not 
characteristics that describe the individual or the individual's 
condition. A diagnosis is not a sufficient factor on which to base a 
determination of need. A criterion can be considered needs-based if it 
is a factor that can only be ascertained for a given person through an 
individualized evaluation of need.
    (2) Needs-based criteria defined by the State may include:
    (i) Need for total support to perform two or more activities of 
daily living (ADLs) (as defined in section 7702B(c)(2)(B) of the 
Internal Revenue Code of 1986).
    (ii) Need for significant assistance to perform ADLs.
    (iii) Other risk factors as the State determines to be appropriate 
and describes in the State Medicaid plan.
    (b) More stringent institutional and waiver needs-based criteria. 
The State plan HCBS benefit is available only if the State has in 
effect needs-based criteria (as defined in paragraph (a)(1) of this 
section), for receipt of services in nursing facilities as defined in 
section 1919(a) of the Act, intermediate care facilities for the 
mentally retarded as defined in Sec.  440.150 of this chapter, and 
hospitals as defined in Sec.  440.10 of this chapter under the State 
plan and for which the State has established long-term level of care 
criteria, or waivers offering HCBS, and these needs-based criteria are 
more stringent than the needs-based criteria for the State plan HCBS 
benefit. If the State defines needs-based criteria for individual State 
plan home and community-based services, the needs-based institutional 
eligibility criteria must be more stringent than the combined effect of 
needs-based State plan HCBS benefit eligibility criteria and individual 
service criteria.
    (1) These more stringent criteria must meet the following 
requirements:
    (i) Be included in the level of care determination process for each 
institutional service and waiver.
    (ii) Be submitted for inspection by CMS with the State plan 
amendment that establishes the State Plan HCBS benefit.
    (iii) Be in effect on or before the effective date of the State 
plan HCBS benefit.
    (2) In the event that the State modifies institutional level of 
care criteria to meet the requirements under paragraph (b) of this 
section that such criteria be more stringent than the State plan HCBS 
needs-based eligibility criteria, individuals receiving Medicaid in an 
institution or waiver HCBS, as of the effective date of the State plan 
amendment, will continue to be eligible for the institutional services 
or waiver HCBS under the level of care criteria previously in effect. 
Such individuals will not be subject to the more stringent modified 
institutional criteria, until such time as the individual is discharged 
from the institution or waiver, or no longer requires that level of 
care.
    (c) Adjustment authority. The State may modify the needs-based 
criteria established under paragraph (a) of this section, without prior 
approval from the Secretary, if the number of individuals enrolled in 
the State plan HCBS benefit exceeds the projected number submitted 
annually to CMS. The Secretary will approve a retroactive effective 
date for the State plan amendment modifying the criteria, as early as 
the day following the notification period required under paragraph 
(c)(1) of this section, if all of the following conditions are met:
    (1) The State provides at least 60 days notice of the proposed 
modification to the Secretary, the public, and each individual enrolled 
in the State plan HCBS benefit.
    (2) The State notice to the Secretary is submitted as an amendment 
to the State plan.
    (3) The adjusted needs-based eligibility criteria (in combination 
with service-specific needs-based criteria, if any) for the State plan 
HCBS benefit are less stringent than all needs-based institutional and 
waiver level of care criteria in effect after the adjustment.
    (4) Individuals who were found eligible for the State plan HCBS 
benefit before modification of the needs-based criteria under this 
adjustment authority must remain eligible for the HCBS benefit and 
specific services on the basis of the unmodified criteria, for at least 
12 months, beginning on the date the individual first received medical 
assistance for such services.
    (5) Individuals continue to receive HCBS under the unmodified 
criteria during the not less than 60-day notification period, 
irrespective of the date the individual first received medical 
assistance for such services.
    (6) Any changes in service due to the modification of needs-based 
criteria under this adjustment authority are treated as actions as 
defined in Sec.  431.201 and are subject to the requirements of part 
431 subpart E of this chapter.
    (7) In the event that the State modifies institutional level of 
care criteria to meet the requirements under paragraph

[[Page 18698]]

(b) of this section that such criteria be more stringent than the State 
plan HCBS needs-based eligibility criteria, the State may adjust the 
modified institutional level of care criteria under this adjustment 
authority. The adjusted institutional level of care 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.
    (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 Sec.  441.556(a)(1) through (4). The independent 
evaluation complies with the following requirements:
    (1) Is performed by an agent that is independent and qualified as 
defined in Sec.  441.568 of this section.
    (2) Applies the needs-based eligibility criteria that the State has 
established under paragraph (a) of this section, and the general 
eligibility requirements under Sec.  441.556(a)(1) through (3).
    (3) If applicable, includes the individual's authorized 
representative.
    (4) Assesses the individual's strengths as well as support needs.
    (5) Uses only current and accurate information from existing 
records, and obtains any additional information necessary to draw valid 
conclusions about the individual's support needs.
    (6) Evaluations finding that an individual is not eligible for the 
State plan HCBS benefit are treated as actions defined in Sec.  431.201 
and are subject to the requirements of part 431 subpart E of this 
chapter.
    (e) Periodic redetermination. Independent reevaluations of each 
individual receiving the State plan HCBS benefit must be performed at 
least every 12 months, to determine whether the individual continues to 
meet eligibility requirements. Redeterminations must meet the 
requirements of paragraph (d) of this section.


Sec.  441.562  Independent assessment.

    (a) For each individual determined to be eligible for the State 
plan HCBS benefit, the State must provide for an independent assessment 
of need in order to establish a plan of care. The independent 
assessment must include the following:
    (1) An objective evaluation of the individual's inability to 
perform two or more activities of daily living (ADLs) (as defined in 
section 7702(c)(2)(B) of the Internal Revenue Code of 1986) or need for 
significant assistance to perform ADLs.
    (2) A face-to-face assessment of the individual. The face-to-face 
assessment must meet the following requirements:
    (i) The assessment must be performed by an agent that is 
independent and qualified as defined in Sec.  441.568 of this section.
    (ii) If applicable, the assessment must include the individual's 
authorized representative.
    (iii) The assessment must be conducted in consultation with the 
individual, the individual's spouse, family, guardian, appropriate 
treating and consulting health and support professionals caring for the 
individual, support staff, and other responsible parties.
    (iv) The assessment must include an examination of the individual's 
relevant history, medical records (including the independent evaluation 
of eligibility), physical and mental health care and support needs and 
all information needed to develop the plan of care as required in Sec.  
441.565.
    (v) The assessment must be guided by best practice and research on 
effective strategies that result in improved health and quality of life 
outcomes.
    (vi) The assessment must apply the State's needs-based criteria for 
each service (if any) that the individual may require. Individuals are 
considered enrolled in the State plan HCBS benefit only if they meet 
the eligibility and needs-based criteria for the benefit, and are also 
assessed to require at least one home and community-based service 
offered under the State plan for medical assistance.
    (vii) If the State offers individuals (including, if applicable, 
the individual's authorized representative) the option to self-direct 
the purchase of, or control the receipt of, a home and community-based 
State plan service or services, the assessment must include an 
evaluation of the support needs of the individual and the ability of 
the individual (with and without supports) to self-direct the purchase 
of, or control the receipt of, these services if the individual so 
elects.
    (viii) For individuals living in a residence with four or more 
persons unrelated to the proprietor, that furnishes one or more 
treatments or services, the assessment must include documentation of 
whether the individual resides in the community, according to Sec.  
441.556(a)(3).
    (ix) For individuals receiving habilitation services, documentation 
that no Medicaid services are provided which would otherwise be 
available to the individual, specifically including but not limited to 
services available to the individual through a program funded under 
section 110 of the Rehabilitation Act of 1973, or the Individuals with 
Disabilities Improvement Act of 2004.
    (b) The independent assessment of need must be conducted at least 
every 12 months and as needed when the individual's support needs or 
circumstances change significantly, in order to revise the plan of 
care.


Sec.  1.565  Plan of care.

    (a) Plan of care. Based on the independent assessment required in 
Sec.  441.562, the State must develop (or approve, if the plan is 
developed by others) a written plan of care jointly with the individual 
(including, for purposes of this paragraph, the individual and the 
individual's authorized representative if applicable). The person-
centered planning process must identify the individual's physical and 
mental health support needs, strengths and preferences, and desired 
outcomes. The plan must be developed in consultation with the 
individual's health care or support professionals, or other appropriate 
persons, as determined by the State, and where appropriate, with the 
individual's family, spouse, caregiver, guardian, or representative. 
When the plan of care is finalized between the parties, a written copy 
is provided to the individual. At a minimum, the plan must determine 
HCBS to be provided that meet the following requirements:
    (1) Take into account the extent of, and need for, any family or 
other supports for the individual.
    (2) Be consistent with the individual's strengths and support needs 
arising from the individual's physical, sensory, or intellectual 
disability.
    (3) Prevent the provision of unnecessary or inappropriate care, and 
provide the HCBS that the individual is assessed to require.
    (4) Include those services, the purchase or control of which the 
individual elects to self-direct, meeting the requirements of Sec.  
441.574(b) through (d).
    (b) Reassessment. The plan of care must be reviewed and revised 
upon independent reassessment, as required in Sec.  441.562, at least 
every 12 months and when the individual's circumstances or needs change 
significantly.
    (c) Shared authority. The plan of care must afford the individual 
the opportunity, with information and supports, for active 
participation and shared authority in developing the plan of care.

[[Page 18699]]

Sec.  441.568  Provider qualifications.

    (a) The State must provide assurances that necessary safeguards 
have been taken to protect the health and welfare of enrollees in State 
plan HCBS, and must define in writing adequate standards for providers 
(both agencies and individuals) of HCBS services and for agents 
conducting independent evaluation, independent assessment, and plan of 
care development.
    (b) The State must define conflict of interest standards that 
ensure the independence of individual and agency agents who conduct 
(whether as a service or an administrative activity) independent 
evaluation of eligibility for State plan HCBS, independent assessment 
of need, or are involved in developing the plan of care. The conflict 
of interest standards apply to all individuals and entities, public or 
private. At a minimum, these agents must not be any of the following:
    (1) Related by blood or marriage to the individual, or to any paid 
caregiver of the individual.
    (2) Financially responsible for the individual.
    (3) Empowered to make financial or health-related decisions on 
behalf of the individual.
    (4) 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 only willing and qualified agent to 
perform independent assessments and develop plans of care in a 
geographic area also provides HCBS, and the State devises conflict of 
interest protections including separation of agent and provider 
functions within provider entities, which are described in the State 
plan for medical assistance and approved by the Secretary.
    (c) Qualifications for agents performing independent assessments 
and plans of care must include training in assessment of individuals 
whose physical or mental conditions trigger a potential need for home 
and community-based services and supports, and current knowledge of 
best practices to improve health and quality of life outcomes.


Sec.  441.571  Definition of individual's representative.

    In this subpart, the term individual's representative means, with 
respect to an individual being evaluated for, assessed regarding, or 
receiving State plan HCBS, the following:
    (a) The individual's legal guardian or other person who is 
authorized under State law to represent the individual for the purpose 
of making decisions related to the person's care or well-being.
    (b) Any other person who is authorized by policy of the State 
Medicaid Agency to represent the individual including but not limited 
to a parent, a family member, or an advocate for the individual. When 
the State authorizes representatives pursuant to this paragraph, the 
State must have policies describing the process for appointment; the 
extent of decision-making authorized; and safeguards to ensure that the 
representative functions in the best interests of the participant.


Sec.  441.574  Self-directed services.

    (a) State option. The State may choose to offer an election for 
self-directing HCBS. The term ``self-directed'' means, with respect to 
State plan HCBS listed in Sec.  440.182 of this chapter, services that 
are planned and purchased under the direction and control of the 
individual, including the amount, duration, scope, provider, and 
location of the HCBS. For purposes of this paragraph, individual means 
the individual and, if applicable, the individual's representative as 
defined in Sec.  441.571.
    (b) Plan of care requirement. Based on the independent assessment 
required in Sec.  441.562, the State develops (or approves, if the plan 
is developed by others) a plan of care jointly with the individual as 
required in Sec.  441.565. If the individual chooses to direct some or 
all HCBS, the plan of care must meet the following requirements:
    (1) Be developed through a person-centered process that is directed 
by the individual, builds upon the individual's ability (with and 
without support) to engage in activities that promote community life, 
respects individual preferences, choices, strengths, and involves 
families, friends, and professionals as desired or required by the 
individual.
    (2) Specify the State plan HCBS that the individual will be 
responsible for directing.
    (3) Identify the methods by which the individual will plan, direct 
or control services, including whether the individual will exercise 
authority over the employment of service providers or authority over 
expenditures from the individualized budget.
    (4) Specify the role of family members and others whose 
participation is sought by the individual with respect to the State 
plan HCBS.
    (5) Include appropriate risk management techniques, including 
contingency plans, that recognize the roles and sharing of 
responsibilities in obtaining services in a self-directed manner and 
assure the appropriateness of this plan based upon the resources and 
support needs of the individual.
    (6) Describe the process for facilitating transition from self-
direction and any circumstances under which transition out of self-
direction is involuntary.
    (c) Employer authority. If the plan of care includes authority to 
select, manage, or dismiss providers of the State plan HCBS, the plan 
must meet the following requirements:
    (1) Specify the authority to be assumed by the individual, any 
limits to the authority, and specify parties responsible for functions 
outside the authority to be assumed.
    (2) Specify the financial management supports, as required in 
paragraph (e) of this section, to be provided.
    (d) Budget authority. If the plan of care includes an 
individualized budget (which identifies the dollar value of the 
services and supports under the control and direction of the 
individual), the plan must meet the following requirements:
    (1) Describe the method for calculating the dollar values in the 
budget, based on reliable costs and service utilization.
    (2) Define a process for making adjustments in dollar values to 
reflect changes in an individual's assessment and plan of care.
    (3) Provide a procedure to evaluate expenditures under the budget.
    (4) Specify the financial management supports, as required in 
paragraph (e) of this section, to be provided.
    (5) Not result in payment for medical assistance to the individual.
    (e) Functions in support of self-direction. When the State elects 
to offer self-directed State plan HCBS, it must also offer the 
following supports to individuals receiving the services and their 
representatives:
    (1) Information and assistance consistent with sound principles and 
practice of self-direction.
    (2) Financial management supports to meet the following 
requirements:
    (i) Manage Federal, State, and local employment tax, labor, 
worker's compensation, insurance, and other requirements that apply 
when the individual functions as the employer of service providers.
    (ii) Function as employer of record when the individual elects to 
exercise supervisory responsibility without employment responsibility.
    (iii) Make financial transactions on behalf of the individual when 
the individual has personal budget authority.
    (iv) Maintain separate accounts for each individual's budget and 
provide

[[Page 18700]]

periodic reports of expenditures against budget in a manner 
understandable to the individual.


Sec.  441.577  State plan HCBS administration: State responsibilities 
and quality improvement.

    (a) State plan HCBS administration--(1) State responsibilities. The 
State must carry out the following responsibilities in administration 
of its State plan HCBS:
    (i) Number served. The State will annually provide CMS with the 
projected number of individuals to be enrolled in the benefit and the 
actual number of unduplicated individuals enrolled in State plan HCBS 
in the previous year. If the State chooses to limit the number to be 
served at any point in time, as provided in Sec.  441.577(a)(1)(ii), 
the State will annually provide to CMS the maximum number enrolled at 
one time.
    (ii) Optional limit to number served. If the State chooses to set a 
limit for the maximum number of individuals to be enrolled in the State 
plan HCBS benefit (either annually or at any point in time), the 
following conditions must be met:
    (A) The maximum number of individuals to be enrolled in the benefit 
is established and adjusted by a State plan amendment.
    (B) If the State elects to maintain a waiting list for State plan 
HCBS, the State establishes and adheres to policies and procedures for 
formation and maintenance of a waiting list that complies with all 
applicable Federal and State requirements. Waiting list criteria and a 
formally established schedule and procedure for reevaluation and 
revision must be made public.
    (iii) Access to services. The State must grant access to all State 
plan HCBS assessed to be needed, to individuals who have been 
determined to be eligible for the State plan HCBS benefit. The State 
may not limit access to one or more State plan HCBS according to type 
of disability or other characteristic, or limit the number of persons 
served by particular services. The State must not restrict the number 
of State plan HCBS that enrolled individuals may receive, or the scope 
and frequency of the HCBS (up to the approved service limitations, if 
any,) for reasons other than medical necessity as determined by the 
plan of care according to Sec.  441.565.
    (2) Administration--(i) Option for presumptive payment. (A) The 
State may provide for a period of presumptive payment, not to exceed 60 
days, for Medicaid eligible individuals the State has reason to believe 
may be eligible for the State plan HCBS benefit. FFP is available as 
administration of the approved State plan for evaluation of eligibility 
for the State plan HCBS benefit under Sec.  441.559(d) and assessment 
of need for specific HCBS under Sec.  441.562(a), prior to an 
individual's receipt of State plan HCBS services or determination of 
ineligibility for the benefit.
    (B) If an individual the State has reason to believe may be 
eligible for the State plan HCBS benefit is evaluated and assessed 
under the presumptive payment option and found not to be eligible for 
the benefit, FFP as administration of the approved State plan will be 
available for the evaluation and assessment. The individual so 
determined will not be considered to have enrolled in the State plan 
HCBS benefit for purposes of determining the annual number of 
participants in the benefit.
    (ii) Reimbursement methodology. The State plan amendment to provide 
State plan HCBS must contain a description of the reimbursement 
methodology for each covered service. To the extent that the 
reimbursement methodologies for any self-directed services differ from 
those descriptions, the method for setting reimbursement methodology 
for the self-directed services must also be described.
    (iii) Operation. The State plan amendment to provide State plan 
HCBS must contain a description of the State Medicaid agency line of 
authority for operating the State plan HCBS benefit, including 
distribution of functions to other entities.
    (b) Quality improvement strategy: Program performance and quality 
of care--(1) Quality improvement strategy. States will maintain an HCBS 
quality improvement strategy that includes methods for ongoing 
measurement of program performance, quality of care, and mechanisms for 
remediation and improvement proportionate to the scope of services in 
the State plan HCBS benefit and the number of individuals to be served.
    (2) Program performance measures. The States' quality improvement 
strategy must be designed to measure and provide evidence of program 
performance. Program performance measures must be made available to CMS 
upon request and include indicators approved or prescribed by the 
Secretary.
    (3) Quality of care measures. The State's quality improvement 
strategy must be designed to measure outcomes associated with the 
receipt of home and community-based services, particularly with respect 
to the health and welfare of the recipients of these services. Quality 
of care measures must be made available to CMS upon request and include 
indicators approved or prescribed by the Secretary.

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

    Dated: October 31, 2007.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: December 20, 2007.
Michael O. Leavitt,
Secretary.

Editorial Note: This document was received at the Office of the 
Federal Register on March 27, 2008.

[FR Doc. 08-1084 Filed 3-28-08; 11:11 am]
BILLING CODE 4121-01-P


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