[Federal Register Volume 73, Number 13 (Friday, January 18, 2008)]
[Proposed Rules]
[Pages 3546-3566]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 08-115]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 441



Medicaid Program; Self-Directed Personal Assistance Services Program 
State Plan Option (Cash and Counseling); Proposed Rule

Federal Register / Vol. 73, No. 13 / Friday, January 18, 2008 / 
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 441

[CMS-2229-P]
RIN 0938-AO52


Medicaid Program; Self-Directed Personal Assistance Services 
Program State Plan Option (Cash and Counseling)

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule provides guidance to States that want to 
administer self-directed personal assistance services through their 
State plans.

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 February 19, 2008.

ADDRESSES: In commenting, please refer to file code CMS-2229-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click 
on the link ``Submit electronic comments on CMS regulations with an 
open comment period.'' (Attachments should be in Microsoft Word, 
WordPerfect, or Excel; however, we prefer Microsoft Word.)
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address only:
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-2229-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-2229-P, Mail Stop C4-26-05, 7500 
Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410)-786-7195 in advance to schedule your arrival 
with one of our staff members.
    Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, 
SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 
21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by mailing your 
comments to the addresses provided at the end of the ``Collection of 
Information Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Marguerite Schervish, (410) 786-7200.

SUPPLEMENTARY INFORMATION:
    Submitting Comments: We welcome comments from the public on all 
issues set forth in this rule to assist us in fully considering issues 
and developing policies. You can assist us by referencing the file code 
CMS-2229-IFC and the specific ``issue identifier'' that precedes the 
section on which you choose to comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable 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.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on 
CMS Regulations'' on that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

I. Background

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

A. Section 6087 of the Deficit Reduction Act of 2005

    The Deficit Reduction Act (DRA) of 2005 was enacted into law on 
February 8, 2006 (Pub. L. 109-171). Section 6087 of the DRA provided 
for a new State Plan option that is built on the experiences and 
lessons learned from the disability rights movement and States that 
pioneered self-direction programs. Self-direction is an important 
component of independence as it promotes quality, access, and choice.
    Specifically, section 6087 of the DRA amended section 1915 of the 
Social Security Act (the Act) to add new paragraph (j). Section 
1915(j)(1) of the Act would allow a State the option to provide, as 
``medical assistance,'' payment for part or all of the cost of self-
directed personal assistance services (PAS) provided pursuant to a 
written plan of care to individuals for whom there has been a 
determination that, but for the provision of such services, the 
individuals would require and receive State Plan personal care 
services, or section 1915(c) home and community-based waiver services. 
Section 1915(j)(1) of the Act also expressly excludes Medicaid payment 
for room and board. Finally, section 1915(j)(1) of the Act requires 
that self-directed PAS may not be provided to individuals who reside in 
a home or property that is owned, operated, or controlled by a provider 
of services, not related by blood or marriage.
    Section 1915(j)(2) of the Act sets forth five assurances that 
States must provide in order for the Secretary to approve self-directed 
PAS under this State Plan option. First, States must assure that 
necessary safeguards are in place to protect the health and welfare of 
individuals provided services under this State Plan option, and to 
assure the financial accountability for funds expended with respect to 
such services. Second, States must assure the provision of an 
evaluation of the need for State Plan personal care services, or

[[Page 3547]]

personal services under a section 1915(c) waiver. Third, States must 
assure that individuals who are likely to require State Plan personal 
care services, or section 1915(c) waiver services, are informed of the 
feasible alternatives to the self-directed PAS State Plan option (if 
available) such as personal care under the regular State plan option or 
personal assistance services under a section 1915(c) waiver program. 
Fourth, States must assure that they provide a support system that 
ensures that participants in the self-directed PAS program are 
appropriately assessed and counseled prior to enrollment and are able 
to manage their budgets.
    Fifth, States must assure that they will provide to the Secretary 
an annual report on the number of individuals served under the State 
Plan option and the total expenditures on their behalf in the 
aggregate. States must also provide an evaluation of the overall impact 
of this new option on the health and welfare of participating 
individuals compared to non-participants every 3 years.
    Section 1915(j)(3) of the Act indicates that States that offer 
self-directed PAS under this State Plan option are not subject to the 
statewideness and comparability requirements of the Act.
    Section 1915(j)(4)(A) of the Act defines self-directed PAS to mean 
personal care and related services under the State Plan, or home and 
community-based waiver services under a section 1915(c) waiver, 
provided to a participant eligible under this self-directed PAS State 
Plan option. Furthermore, the statute states that within an approved 
self-directed services plan and budget, individuals can purchase 
personal assistance and related services and hire, fire, supervise, and 
manage the individuals providing such services.
    Section 1915(j)(4)(B) of the Act gives States the option to permit 
participants to hire any individual capable of providing the assigned 
tasks, including legally liable relatives, as paid providers of the 
services. The statute also gives States the option to permit 
participants to purchase items that increase independence or substitute 
for human assistance to the extent that expenditures would otherwise be 
made for the human assistance.
    Section 1915(j)(5) of the Act sets forth the requirements for an 
``approved self-directed services plan and budget''. Section 
1915(j)(5)(A) of the Act authorizes the individual or a defined 
representative to exercise choice and control over the budget, 
planning, and purchase of self-directed PAS, including the amount, 
duration, scope, provider, and location of service provision. Section 
1915(j)(5)(B) of the Act requires an assessment of participants' needs, 
strengths, and preferences for PAS. Section 1915(j)(5)(C) of the Act 
requires States to develop a service plan based on the assessment of 
need using a person-centered planning process. Section 1915(j)(5)(D) of 
the Act requires States to develop and approve a budget for 
participants' services and supports based on the assessment of need and 
service plan and on a methodology that uses valid, reliable cost data, 
is open to public inspection, and includes a calculation of the 
expected cost of such services if those services were not self-
directed. The budget may not restrict access to other medically 
necessary care and services furnished under the State Plan and approved 
by the State but not included in the budget.
    Section 1915(j)(5)(E) of the Act requires that there are 
appropriate quality assurance and risk management techniques used in 
establishing and implementing the service plan and budget that 
recognize the roles and responsibilities in obtaining services in a 
self-directed manner and assure the appropriateness of such plan and 
budget based upon the participant's resources and capabilities.
    Section 1915(j)(6) of the Act indicates that States may employ a 
financial management entity to make payments to providers, track costs, 
and make reports. Payment for the activities of the financial 
management entity shall be at the administrative rate established in 
section 1903(a) of the Act.

B. History of Self-Direction

    The Independent Living movement in the 1960s was premised on the 
concept that people with disabilities should have the same civil 
rights, options, and control over choices in their own lives as do 
people without disabilities, and that individuals with cognitive 
impairments should not be prohibited from exercising control over their 
lives. One mechanism that allows individuals to exercise more 
involvement, control, and choice over their lives is self-directed 
care. Self-directed care is a service delivery mechanism that empowers 
individuals with the opportunity to select, direct, and manage their 
needed services and supports identified in an individualized service 
plan and budget. Self-direction is not a service, but rather an 
alternative to the traditional service delivery model whereby a worker 
hired by the Medicaid recipient will furnish the Medicaid service to 
the Medicaid recipient and the Medicaid recipient retains the control 
and authority over who provides the services, how the services are 
provided, the hours they work, and their rate of pay.
    Two national pilot projects demonstrated the success of self-
directed care. During the mid-1990s, the Robert Wood Johnson Foundation 
awarded grants to develop self-determination in 19 States. These 
projects primarily evolved into Medicaid-funded programs under the 
section 1915(c) home and community-based services waiver authority. In 
the late 1990s, the Robert Wood Johnson Foundation again awarded grants 
to develop the ``Cash and Counseling'' national demonstration and 
evaluation project in three States. These projects evolved into 
demonstration programs under the section 1115 authority of the Act.
    Evaluations were conducted in both of these national projects. 
Results in both projects were similar--persons directing their personal 
care experienced fewer unnecessary institutional placements, 
experienced higher levels of satisfaction, had fewer unmet needs, 
experienced higher continuity of care because of less worker turnover, 
and maximized the efficient use of community services and supports.
    On February 1, 2001, the President announced the New Freedom 
Initiative, which included the following three elements: Promoting full 
access to community life through efforts to implement the Supreme 
Court's decision in Olmstead vs. L.C., 527 U.S. 581 (1999) 
(``Olmstead''), integrating Americans with disabilities into the 
workforce with programs under the Ticket to Work and Work Incentives 
Improvement Act of 1999 (TWWIIA) (Pub. L. 106-170, enacted on December 
19, 1999), and creating the National Commission on Mental Health. The 
President subsequently expanded this initiative through Executive Order 
13217 (June 18, 2001) by directing Federal agencies to work together to 
``tear down the barriers'' to community living by developing a 
government-wide framework for providing elders and people with 
disabilities the supports necessary to learn and develop skills, engage 
in productive work, choose where to live, and fully participate in 
community life.
    On May 9, 2002, as part of its response to the New Freedom 
Initiative, the Department of Health and Human Services unveiled the 
Independence Plus templates and the initiative to help States broaden 
their ability to offer individuals the opportunity to maximize choice 
and control over

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services in their own homes and communities. The Department developed 
two templates that allowed States to choose different self-directed 
design features to satisfy their unique programs. The section 1115 
demonstration template was developed for States that wanted to permit 
individuals to receive a prospective cash allowance equivalent to the 
amount of their Medicaid personal care benefit. Under the section 1115 
authority, individuals could directly manage their cash allowance and 
direct the purchases of their personal care and related services and 
goods. For those States not wanting to offer the cash allowance, a 
section 1915(c) home and community-based services waiver template was 
developed. The section 1915(c) waiver template allowed Medicaid 
recipients to self-direct a wide array of services, so long as these 
services are required to keep a person from being institutionalized in 
a hospital, nursing facility or intermediate care facility for the 
mentally retarded (ICFMR).
    However, a program was only given the Independence Plus designation 
when a State demonstrated a strong commitment to self-direction by 
developing a comprehensive program that offered a person-centered 
planning process, individualized budgeting, self-directed supports 
including financial management services, and a quality assurance and 
improvement plan. The intended purposes of the Independence Plus 
Initiative were to:
    <bullet> Delay or avoid institutional or other high cost out-of-
home placement by strengthening supports to individuals or families.
    <bullet> Recognize the essential role of the individual or family 
in the planning and purchasing of health care supports and services by 
providing individual or family control over an agreed upon resource 
amount.
    <bullet> Encourage cost effective decision-making in the purchase 
of supports and services.
    <bullet> Increase individual or family satisfaction through the 
promotion of self-direction, control, and choice--a major theme 
expressed during the New Freedom Initiative-National Listening Session.
    <bullet> Promote solutions to the problem of worker availability.
    <bullet> Provide supports including financial management services 
to support and sustain individuals or families as they direct their own 
services.
    <bullet> Assist States with meeting their legal obligations under 
the Americans with Disabilities Act (ADA) and the U.S. Supreme Court's 
Olmstead decision.
    <bullet> Provide flexibility for States seeking to increase the 
opportunities afforded individuals and families in deciding how best to 
enlist or sustain home and community services.

A new section 1915(c) waiver application was also developed effective 
spring 2005 that incorporates our requirements for an Independence Plus 
program.
    In 2003 we awarded 12 systems change grants to States for the 
development of Independence Plus programs. On October 7, 2004, the 
Robert Wood Johnson Foundation awarded a second round of ``Cash and 
Counseling'' grants to 11 States to develop Independence Plus programs 
using either the Section 1915(c) waiver or section 1115 demonstration 
application. As of March 20, 2006, 15 States had 17 approved 
Independence Plus programs. In addition, there were 2 other States that 
included self-direction options in their section 1115 demonstrations 
and a multitude of States that offered self-directed program options in 
their section 1915(c) home and community-based services waiver 
programs.

II. Provisions of the Proposed Rule

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

Section CFR 441.450 Basis, Scope and Definitions

    This proposed rule would implement section 1915(j) of the Act, 
allowing States to provide a self-directed PAS through a State Plan 
option. We propose to implement this provision in 42 CFR part 441 
subpart J. This part would set forth the requirements of the self-
directed PAS delivery model administered through the Medicaid State 
plan and indicates how individuals may qualify to participate in a 
self-directed PAS State plan option. The overall purpose of section 
1915(j) of the Act is to allow States the option to amend their State 
Plans to offer individuals the opportunity to self-direct their PAS. 
This self-directed PAS State plan option is a service delivery model 
and is premised in the experience and lessons learned from the self-
direction and Independence Plus section 1115 demonstrations and section 
1915(c) waiver programs. Based on the demonstrated success of self-
directed services in these programs, we learned that individuals can 
successfully exercise decision-making authority over their PAS and 
supports identified in an individualized service plan and budget. 
Consequently, in 42 CFR 441.450(b), we propose that individuals be 
allowed to exercise decision-making authority in identifying, 
accessing, managing and purchasing their PAS. We propose a list of the 
minimum activities over which individuals may exercise authority, in 
order to implement the basic elements of self-direction, which convey 
control over both employer-related and budget-related activities. 
Individuals' decision-making authority includes, at a minimum, the 
purchase of PAS and supports for PAS, recruiting workers, hiring and 
discharging workers, specifying worker qualifications, determining 
worker duties, scheduling workers, supervising workers, evaluating 
worker performance, determining the amount paid for a service, support, 
or item, scheduling when services are provided, identifying service 
workers, and reviewing and approving invoices. This proposed list was 
determined through our review of States' experiences with existing 
self-directed programs and we believe it represents the minimum 
authority required by an individual to self-direct care. A State can 
include additional activities in its submitted State plan option 
request.
    Since we view self-directed care as a method of service delivery 
rather than cash assistance, we do not view the following Medicaid 
provisions as a barrier to use of the self-directed PAS option:
    <bullet> When States elect to offer a cash option to participants, 
funds made available to the individual solely for the purchase of 
medically necessary items and services (as outlined in the approved 
service plan) are not income or resources to the individual. Thus, they 
would not be counted for purposes of determining or redetermining 
eligibility (under 1902(a)(10)(A) or 1902(a)(10)(C) of the Act, or any 
demonstration project).
    <bullet> Medicaid requirements for direct payment to providers 
found at section 1902(a)(32) of the Act and prepayment review found at 
section 1902(a)(37)(B) of the Act may be satisfied by specific 
responsibilities individuals undertake as part of self-direction, such 
as activities to effectively manage their funds, review all payment 
requests, and make payments to providers, either directly or through a 
financial management entity. These responsibilities are further 
described in Sec.  441.470.
    <bullet> In the service delivery model of self-direction, the 
mechanisms that an

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individual undertakes to document delivery of services, such as having 
timesheets signed by the provider of services, should include the basic 
elements needed to satisfy the objective of the Medicaid requirements 
on provider agreements found at section 1902(a)(27) of the Act.


There are many terms specific to the self-directed PAS State plan 
option. Because of the need to be consistent with their usage within 
the context of section 1915(j), we are proposing to define the 
following terms for purposes of this section in Sec.  441.450(c):

Assessment of Need

    Section 1915(j)(5)(B) of the Act requires an assessment of a 
participant's needs, strengths, and preferences for PAS. Our proposed 
definition at Sec.  441.450(c) reflects this statutory language. An 
assessment of an individual's needs, strengths and preferences is 
crucial because it forms the basis for the identification of the needed 
services and supports that will be authorized in the individual's 
service plan and the subsequent service budget. It is also important to 
identify an individual's strengths and preferences that will enable 
self-direction of PAS. Therefore, we also propose in Sec.  441.450(c) 
that the assessment includes one or more processes to obtain 
information about an individual's health condition, personal goals and 
preferences for the provision of services, functional limitations, age, 
school, employment, household, and other factors that are relevant to 
the authorization and provision of services. We believe our proposed 
definition reflects the need for such an assessment to be a 
comprehensive assessment of all an individual's needs.

Individualized Backup Plan

    We propose to add a definition for an individualized backup plan 
because we think it is an important beneficiary protection and a 
necessary communication device to convey important information should a 
situation occur that would pose a risk of harm to an individual that 
would necessitate a plan to ensure alternative arrangements for service 
delivery. Accordingly, in Sec.  441.450(c), we would define an 
individualized backup plan to mean a written plan that addresses 
critical contingencies or incidents that would pose a risk of harm to 
the participant's health or welfare. We propose to require that the 
individualized backup plan be incorporated into the participant's 
service plan. For example, a typical critical contingency or incident 
could include the failure of a worker to appear when scheduled to 
provide necessary services and the individualized backup plan would 
include the steps necessary to continue to provide the necessary 
services in such a case. The individualized backup plan could include 
arranging for designated provider agencies to furnish staff support on 
an on-call basis, or use of other services and agencies in existence in 
the participant's community. We note each backup plan must necessarily 
be crafted to meet the unique needs and circumstances of each 
participant.

Legally Liable Relatives

    Section 1915(j)(4)(B)(i) of the Act permits, at the State's option, 
participants in the self-directed PAS option to hire legally liable 
relatives as paid providers of services. In 42 CFR 441.450(c), we 
propose to define legally liable relatives to mean persons who have a 
duty under the provisions of State law to care for another person. 
Legally liable relatives may include: (1) The parent (biological or 
adoptive) of a minor child or the guardian of a minor child who must 
provide care to the child, (2) legally-assigned caretaker relatives, or 
(3) a spouse. It has been our experience that these are the most 
commonly used relationships in providing care, but we solicit comments 
on other possible relationships that could be used.

Self-Directed Personal Assistance Services

    Section 1915(j)(4)(A) of the Act defines self-directed PAS to mean 
personal care and related services, or home and community-based 
services otherwise available under the State Plan or a 1915(c) waiver, 
that are provided to an individual determined to be eligible for the 
self-directed PAS program. We propose at Sec.  441.450(c) to adopt the 
statutory language in our definition. We further note that we believe 
it is clear that ``personal care and related services'' refers to those 
services that an individual receives that are within the State's 
defined personal care State Plan optional service (for example, 
activities of daily living, instrumental activities of daily living, 
supervision, and cueing). Notwithstanding an individual's eligibility 
to participate in the self-directed PAS option because of their 
eligibility for and receipt of services under a State Plan personal 
care services option or a section 1915(c) waiver program, we also 
propose that self-directed PAS include, at the State's option, items 
that increase an individual's independence or substitute for human 
assistance, according to section 1915(j)(4)(B)(ii) of the Act. We 
believe it is clear that the State has the option to allow the 
individual to acquire these items, and that these items can be 
considered as self-directed PAS.

Self-Direction

    Section 1915(j)(5)(A) of the Act defines self-direction to mean the 
opportunity for participants or their representatives to exercise 
choice and control over the budget, planning, and purchase of self-
directed PAS, including the amount, duration, scope, provider, and 
location of service provision. We propose to reflect this statutory 
definition in the rule at Sec.  441.450(c).

Service Budget

    Section 1915(j)(5)(D) of the Act sets out the requirement for a 
service budget as part of an ``approved self-directed services plan and 
budget.'' We propose, at Sec.  441.450(c), to define a service budget 
to mean an amount of funds that is under the control and direction of a 
participant when the State has selected the State Plan option for 
provision of self-directed PAS. We further propose that the budget be 
developed using a person-centered and directed process, and be 
individually tailored in accordance with the participant's needs and 
personal preferences as established in the service plan. We further 
note that the statutory requirements that the budget be based upon an 
assessment of need, approved by the State, developed using a valid 
methodology, is open to public inspection, and includes a calculation 
of the expected cost of the PAS if not self-directed are inherent in 
the process for approval of a self-directed PAS State plan option and 
we are not proposing these requirements as part of the proposed 
definition.

Service Plan

    The statute at section 1915(j)(5)(C) of the Act references the 
requirement for a service plan to be developed and approved by the 
State based on an assessment of need through a person-centered process. 
At Sec.  441.450(c), we propose to define a service plan to mean the 
written document that specifies the services and supports (regardless 
of funding source) that are to be furnished to meet the needs of a 
participant in the self-directed PAS option so the participant can 
successfully direct the PAS and live in the community. We believe that 
an assessment of an individual's needs, strengths and preferences is 
crucial because it forms the basis for the identification of the needed 
services and supports that will

[[Page 3550]]

be authorized in the individual's service plan and the subsequent 
service budget.
    We also propose to reflect the statutory requirement that the 
service plan be based on the assessment of need using a person-centered 
and directed planning process. We also propose to incorporate the 
principles of a person-centered planning process since we believe that 
the service plan must build upon the participant's capacity to actively 
engage in and lead the development of the plan, including identifying 
persons who will be involved in the process. We anticipate that States 
will provide individuals with information, assistance and training, as 
needed or desired, in advance of and during the service planning 
process in order to help them develop their service plans, thereby 
ensuring that the plan reflects their needs, strengths and preferences. 
Specifically, we propose to require that the process build upon the 
participant's capacity to engage in activities that promote community 
life and that respects the participant's preferences, choices, and 
abilities. We also propose to allow families, friends and 
professionals, as desired or required by the participant, to be 
involved in the service-planning process.

Support System

    Section 1915(j)(2)(D) of the Act requires that States provide a 
support system that ensures that participants are appropriately 
assessed and counseled prior to their decision to participate in the 
self-directed PAS State Plan option and are able to manage their 
budgets. The statute further requires that additional counseling and 
management support may be provided at the request of the individual. In 
Sec.  441.450(c), we propose to define support system to mean 
information, counseling, training, and assistance that support the 
participant (or the participant's family or representative, as 
appropriate) in identifying, accessing, managing, and directing their 
PAS and supports and in purchasing their PAS identified in the service 
plan and budget.
    The following proposed provisions of subpart J deal with General 
Administration.

Section 441.452 Self-Direction: General

    We note that the statute is written such that States must have in 
place, before electing the self-directed PAS option, personal care 
services through their State plan, or home and community-based services 
in a section 1915(c) waiver program. In this way, States that choose to 
amend their State plans to add self-directed PAS, will have both the 
traditional delivery system (that is, non-self-directed) and the self-
directed PAS service delivery option available in the event that 
individuals voluntary disenroll from or are involuntarily disenrolled 
from the self-directed PAS service delivery option. This also reflects 
the choice requirement for such individuals as set forth in section 
1915(j)(2)(C) of the Act. In the traditional delivery system, the 
provider of the PAS is an entity such as a home health agency. The 
entity, and not the Medicaid recipient, exercises authority over who 
will furnish the PAS and retains the control and authority over how the 
services are provided, the worker's hours, and the worker's rate of 
pay.
    We are also proposing to require that the State's assessment of an 
individual's needs should form the basis for the level of services for 
which the individual is eligible. This requirement will ensure that, 
regardless of service delivery system, individuals will receive the 
services identified in the assessment of need. The proposed regulation 
should not be construed as affecting an individual's Medicaid 
eligibility, including that of an individual whose Medicaid eligibility 
is attained through receipt of section 1915(c) waiver services. We are 
proposing in Sec.  441.452 to reflect the general concepts of section 
1915(j)(1) statutory requirements as noted above. We are available to 
all States to provide technical assistance in structuring this new 
self-directed PAS State Plan option.

Section 441.454 Use of Cash

    In the section 1115 self-direction demonstration programs, 
participants could receive a prospective cash allowance equivalent to 
the amount of Medicaid expenditures for the services included in the 
demonstration and could, if they chose this option, directly manage 
their cash allowance. We learned that participants who chose to 
directly manage their cash allowance were able to do so successfully 
and that they became more prudent purchasers of their needed supports 
and services. Some individuals also chose to perform all the employer 
tax-related responsibilities that are associated with being an employer 
of record, while others desired to use a fiscal/employer agent or 
financial management entity to help them with some or all of these 
responsibilities.
    We are aware that individuals who have been directly receiving and 
managing their cash allowance wish to continue to have this option. We 
are also aware that individuals in States where this option has not 
heretofore been available wish to be able to access this option. 
Accordingly, we are proposing in Sec.  441.454, that States can elect 
to disburse cash prospectively to participants who are self-directing 
their PAS and must ensure compliance with the IRS requirements if they 
adopt this option. Further, if the cash option is made available by the 
State, we would require States to permit individuals who select the 
cash option the choice of whether to use a financial management entity. 
Individuals must be given flexibility to determine whether to use a 
financial management entity, and the functions, if any, to be performed 
on their behalf by the financial management entity. For example, some 
individuals may want the financial management entity to perform all 
employer-related tax functions, while they retain responsibility for 
paying their providers of PAS. Individuals choosing not to use a 
financial management entity must comply with all employer-related tax 
functions of the IRS requirements. However, we are also proposing that 
if States choose to allow the cash option, that they make available a 
financial management entity to participants who have demonstrated, 
after additional counseling, information, training, or assistance, that 
they cannot effectively manage the cash option.

Section 441.456 Voluntary Disenrollment

    We understand that a self-directed service delivery model may not 
necessarily work for everyone. Individuals who initially elect to self-
direct their PAS may subsequently decide to move to a traditional 
service delivery system. At Sec.  441.456, we propose to specify that 
individuals may voluntarily disenroll from the self-directed PAS State 
plan option at any time and elect to receive their services through the 
traditional service delivery system. As required by statute, PAS will 
be offered to the individual so long as the individual still qualifies 
for State Plan personal care services or home and community based 
services provided through a 1915(c) waiver program.
    If individuals decide to leave the self-directed care option, we 
want to be assured that individuals continue to receive the services 
for which they are eligible and that their health and welfare are 
maintained. Accordingly, we propose to require that States specify in 
the State plan the safeguards that will be in place to ensure 
continuity of services during the transition from self-directed 
services. In order to effectuate a prompt and efficient transition, we 
would expect that any revisions to the service plan be made promptly 
and that

[[Page 3551]]

participants are quickly linked with alternate service providers to 
prevent a break in the delivery of services.

Section 441.458 Involuntary Disenrollment

    We understand there may be circumstances, where in the interest of 
the participant's health and welfare, the State may wish to 
involuntarily disenroll the participant from the self-directed PAS 
option. For example, involuntary disenrollment may be necessary when 
the individual does not carry out the necessary responsibilities, 
thereby jeopardizing their health and welfare, or in other 
circumstances where action must be taken to ensure an individual's 
health and welfare. Accordingly, in Sec.  441.458, we propose to permit 
States to determine the conditions under which an individual may be 
involuntarily disenrolled from the self-directed PAS State plan option. 
We also note that we propose that we approve these conditions, and plan 
to do so as part of the review of the State plan amendment to provide 
self-directed PAS.
    Again, we want to be assured that individuals continue to receive 
the services for which they are eligible and that their health and 
welfare are maintained. Accordingly, we would also propose to require 
that States specify in the State plan the safeguards that will be in 
place to ensure continuity of services during the transition from self-
directed services. In order to effectuate a prompt and efficient 
transition, we would expect that any needed revisions to the service 
plan would be made promptly and that participants are quickly linked 
with alternate service providers for a seamless delivery of services.

Section 441.460 Participant Living Arrangements

    Section 1915(j)(1) of the Act states that self-directed PAS cannot 
be made available to individuals who reside in a home or property that 
is owned, operated, or controlled by a provider of services, who is not 
related to the individual by blood or marriage. We are proposing to 
reflect the statutory requirement in Sec.  441.460(a). We note programs 
that have successfully provided the self-directed care option have 
typically provided it to individuals who live in homes of their own or 
in the homes of their families. We believe successfully directing one's 
own care may become less feasible when individuals receive services and 
reside in large, provider-owned, operated or controlled residential 
living arrangements. For example, if the residential facility also 
provides and receives payment for the provision of personal care and 
related services, it may prohibit the self-directed service delivery 
option for fear of duplication of services. We are also proposing in 
Sec.  441.460(b) to allow States to specify additional restrictions on 
participant living arrangements, if they have been approved by CMS. We 
further note that we believe this limitation should be applied to 
individuals residing in assisted living facilities, as we anticipate 
that the provider would both control the housing and be expected to 
provide the PAS. However, we do not believe this limitation would apply 
to situations in which the individual resides in the home of someone 
whom they wish to employ under the self-directed PAS option. We invite 
comment on our proposal as well as on other situations to which this 
limitation should apply.

Section 441.462 Statewideness, Comparability, and Limitations on Number 
Served

    Section 1915(j)(3) of the Act permits a State to provide self-
directed PAS without regard to the requirements for statewideness 
(section 1902(a)(1) of the Act), comparability of services or the 
number of individuals served (section 1902(a)(10)(B) of the Act). In 
Sec.  441.462, we propose to reflect section 1915(j)(3) of the Act. 
However, we also wish to note below our understanding of the extent to 
which these provisions provide flexibilities in the State plan PAS 
option.
1. Geographic Limitations
    Under this new State plan option, States are not bound by the 
``statewideness'' requirement of section 1902(a)(1) of the Act. (The 
statewideness requirement of section 1902(a)(1) of the Act provides, in 
part, that the provisions of a State plan be in effect in all political 
subdivisions of the State.) Therefore, consistent with the statute, we 
propose in Sec.  441.462 to permit States to limit the provision of 
self-directed PAS to any defined location of the State (that is, city, 
county, community, etc.).
    We note that the exception to the statewideness requirement applies 
only to the provision of self-directed PAS under section 1915(j) of the 
Act. The statewideness requirement of section 1902(a)(1) of the Act 
continues to apply to all other Medicaid services for which an 
individual may be eligible, unless those services are subject to their 
own statewideness exception. In other words, the State cannot 
geographically limit other services. Receipt of State plan PAS does not 
in any way alter an individual's eligibility to receive any other 
service under the State plan.
2. Comparability
    Under this State plan option, the statute permits a State to 
provide self-directed PAS to individuals without regard to the 
``comparability'' provision in section 1902(a)(10)(B) of the Act. Thus, 
a State can limit the populations eligible to receive these services. 
(The ``comparability'' provision of section 1902(a)(10)(B) of the Act 
generally requires States to make Medicaid services available in the 
same amount, duration, and scope to one group of categorically needy 
individuals as it offers to another group of categorically needy 
individuals. The comparability provision also requires that the 
Medicaid services available to any individual in a categorically needy 
group are not less in amount, duration, and scope than those Medicaid 
services available to an individual in a medically needy group). 
Section 1915(j)(3) of the Act thus permits States to offer self-
directed PAS to certain populations, such as those with developmental 
disabilities, physical disabilities or aged.
    As with the statewideness exception, we note that the exception to 
the comparability requirement applies only to the provision of self-
directed PAS under section 1915(j) of the Act. For all other Medicaid 
services for which an individual may be eligible, the comparability 
requirements of section 1902(a)(10)(B) of the Act continue to apply, 
unless those services are subject to their own comparability exception. 
In other words, receipt of self-directed PAS State plan does not in any 
way alter an individual's eligibility to receive any other service 
under the State plan.
3. Limitations on Number of People Served
    The statute also permits a State to limit the number of persons 
served under this State plan option. This means that the State may 
limit the number of individuals receiving self-directed PAS. For 
example, States could offer self-directed PAS to only 150 individuals.

Section 441.464 State Assurances

    Section 1915(j)(2) of the Act requires States that elect this 
option to assure the appropriate protection of Medicaid recipients. The 
statute does not permit us to approve a program that does not provide 
certain specified assurances. Specifically, section 1915(j)(2) of the 
Act requires States to assure the Secretary of the following:

[[Page 3552]]

1. Necessary Safeguards
    States must assure that necessary safeguards have been taken to 
protect the health and welfare of individuals furnished services under 
this program and to assure the financial accountability for funds 
expended for self-directed services. In proposed Sec.  441.464(a), we 
reflect this general requirement. More specifically, in proposed Sec.  
441.464(a)(1), we would require that safeguards must prevent the 
premature depletion of the participant directed budget as well as 
identify potential service delivery problems that might be associated 
with budget underutilization. We believe it is important that States 
have a system to oversee the expenditures being made by participants. 
Premature depletion of the funds in a budget could signal a health 
crisis which would require the State to immediately determine the 
health status of a participant and conduct a new assessment of the 
participant's needs. It could also signal misuse of the funds, for 
which the State would need to take corrective action. The corrective 
action could be the provision of additional counseling and training on 
how to manage the budget, or recoupment of the misspent funds. In 
contrast, under-utilization of the funds could signal a problem with 
the provision of services, or the lack of understanding of how the 
funds may be used to purchase PAS and supports.
    We propose, in Sec.  441.464(a)(2), a minimum list of safeguards 
that must be provided, but States would have the ability to implement 
additional safeguards to protect health and welfare and to prevent 
premature depletion of the participant-directed budget. Our experience 
with self-direction indicated that, at a minimum, a certain level of 
oversight by the State is necessary to help flag potential issues, 
particularly as to budget issues. The proposed list is based, in part, 
on this experience. We believe that the proposed list represents 
reasonable activities that a State should have in place so that any 
health or other problems associated with use of the budgeted funds will 
be brought to the attention of a case manager, support broker, 
financial management entity, or other person with oversight 
responsibilities. In proposed Sec.  441.464(a)(3) we would require that 
safeguards must be designed so that budget problems are identified on a 
timely basis so that corrective action may be taken, if necessary, in 
order to protect health and welfare and ensure financial 
accountability.
2. Evaluation of Need
    States must assure the performance of an evaluation of the need for 
personal care under the State plan or personal services under a section 
1915(c) home and community-based services waiver program. In addition, 
section 1915(j)(2)(B) of the Act states that those subject to the 
evaluation of need are individuals who: (1) Are entitled to medical 
assistance for personal care services under the State plan, or receive 
home and community-based services under a section 1915(c) waiver; (2) 
may require self-directed PAS; and (3) may be eligible for self-
directed PAS. We would reflect these statutory requirements in proposed 
Sec.  441.464(b).
3. Notification of Feasible Alternatives
    Individuals likely to require personal care under the State plan, 
or home and community-based services under a section 1915(c) waiver 
program, are informed of feasible alternatives, if available under the 
State's self-directed PAS State plan option, at the choice of such 
individuals, to the provision of personal care services under the State 
plan, or personal assistance services under a section 1915(c) home and 
community-based services waiver program.
    With the implementation of this new State plan option, there could 
be multiple programs offering individuals opportunities to receive 
their services through different service delivery mechanisms. We 
believe it is important that individuals be made aware, before 
enrolling in a program, of feasible alternatives for which they may be 
eligible and the requirements of all self-directed and non-self-
directed programs operating within a State. We have historically 
required that participation in a self-directed program be voluntary and 
informed in order to ensure that participants'' choice of the self-
directed model of service delivery is meaningful. To reflect both the 
statutory requirement and our longstanding policy, we propose in Sec.  
441.464(c)(1), that individuals receive information about self-
direction opportunities that is sufficient to inform decision-making 
about the election of self-direction and provided on a timely basis to 
individuals or their representatives. The information given to 
individuals must minimally include the elements of self-direction 
compared to non-self-directed PAS, self-direction responsibilities and 
potential liabilities, their choice to receive PAS under a section 
1915(c) waiver program, if applicable, and the option, if available, to 
receive and manage the cash amount of their individual budget 
allocation. We also propose to require a State, at Sec.  441.464(c)(2), 
to inform individuals about when and how the information is provided.
4. Support System
    Section 1915(j)(2)(D) of the Act requires States to provide a 
support system to ensure that participants in the self-directed PAS 
State plan option are appropriately assessed and counseled before 
enrollment and are able to manage their budgets. Participants may also 
request additional counseling and management support during 
participation in the self-directed PAS option in an effort to address 
any difficulties they may experience.
    Based on our experience with self-direction programs, we are aware 
that individuals of different ages and with different abilities and 
disabilities, will desire to self-direct their PAS. In consideration of 
the potential differences in abilities to self-direct services, we have 
long required that States offer participants a support system that 
includes information about self-direction, as well as any counseling, 
training and assistance that may be needed or desired to effectively 
manage their services and budgets. We propose to reflect both the 
statutory requirement and our long-standing policy at Sec.  441.464(d). 
While we do not prescribe the way States are to design their support 
system in order to allow flexibility, based on our experience, we 
include in the proposed regulation a minimum list of activities for 
which individuals may need information, counseling, training and/or 
assistance, but States may offer supports for additional activities. 
Generally, the activities requiring support include participant rights 
information and how the self-directed model of service delivery 
operates. For example, the list includes providing important 
beneficiary rights and protections such as freedom of choice of 
providers, information about the grievance process and how participants 
would recognize and report critical incidents. In order to convey all 
the necessary information to individuals, we understand some States 
have developed a ``consumer training manual'' and/or an orientation and 
training program that includes necessary information about self-
direction, person-centered planning, the services that may be self-
directed, the roles and responsibilities of participants, providers, 
supports brokers/counselors and financial management service entities, 
as well as a host of other information about managing and directing the 
services and

[[Page 3553]]

supports identified in the service plan and budget. We encourage States 
to have such a manual or an orientation and training program in place 
because it will give clear guidance to the involved and interested 
parties in the self-directed PAS State plan option.
    We also realize that as self-direction assumes a level of 
independence and the ability of individuals to make decisions and 
choices, the extent to which individuals use the information and 
assistance may vary with their abilities and preferences. Individuals 
may elect whether and to what extent they will avail themselves of the 
support system, although States must require individuals not 
participating in the cash option to utilize financial management 
services. However, we do recognize that situations could arise in which 
individuals experience episodic difficulty in effectively managing and 
directing their PAS services and budgets. It has been our experience 
with self-direction waiver and demonstration programs that States have 
chosen to increase the level of support an individual may temporarily 
need and to offer additional information, counseling, training or 
assistance that may be needed and desired by individuals to overcome 
the difficulty. States have found that by flexibly providing ongoing 
support, success in self-directing services can usually be attained.
    Based on these States'' experiences, we would require at proposed 
Sec.  441.464(d)(3), that States would have information, counseling, 
training or assistance available, including financial management 
services, on an ongoing basis to participants at their request or when 
the State has determined that the participant is not effectively 
managing the services identified in the service plan or budget. 
However, to ensure that participants continue to receive needed 
services, we are also proposing in Sec.  441.464(d)(4), that if, after 
additional information, counseling, training or assistance is provided, 
the situation has not improved, States may mandate additional 
assistance or may initiate an involuntary disenrollment in accordance 
with Sec.  441.458.
5. Annual Report and Evaluation of Impact
    Section 1915(j)(2)(E) of the Act requires that the State provide to 
the Secretary an annual report reflecting the number of individuals 
served under the State plan option and total expenditures on their 
behalf. This section also requires that the State provide an evaluation 
of the overall impact of the self-directed PAS option on participants'' 
health and welfare, in comparison to that of non-participants, every 3 
years.
    We propose to include these requirements in the regulations at 
Sec.  441.464(e) and (f). We plan to issue further guidance on the 
requirements and structure of the annual report, and we invite comments 
on other information that we should consider in the development of this 
guidance. We also plan to issue further guidance regarding expected 
requirements and implementation of the evaluation component. We also 
invite comment on the structure of this evaluation. For purposes of 
this evaluation requirement, the comparison group of ``non-
participants'' should be individuals receiving PAS that are not self-
directed.

Section 441.466 Assessment of Need

    Section 1915(j)(5)(B) of the Act requires that States conduct an 
assessment of participants' needs, strengths, and preferences for self-
directed PAS. We propose to implement this requirement at Sec.  
441.466. An assessment of an individual's needs, strengths and 
preferences is crucial because it forms the basis for the 
identification of the needed services and supports that will be 
authorized in the individual's subsequent service plan and budget. It 
is also important to identify an individual's strengths and preferences 
that will enable self-direction of PAS. The assessment should include a 
determination of whether there are any persons available to support the 
individual, including family members. These persons may be able to 
provide unpaid personal assistance, or fulfill more formal roles such 
as acting in the capacity of a paid provider of PAS or as an 
individual's representative. We do not prescribe the assessment tool to 
be used by States, but we expect that the assessment will be 
sufficiently comprehensive to support the determination that an 
individual would require personal care services under the State plan or 
personal assistance services under a section 1915(c) waiver program and 
the development of the individual's subsequent service plan and budget. 
Accordingly, we reflect this understanding that while the format of the 
assessment is within the State's discretion, we expect the assessment 
to be comprehensive and minimally meet the statutory requirement. We 
propose that it include information about an individual's health 
condition, personal goals and preferences for the provision of 
services, functional limitations, age, school, employment, household, 
and other factors that are relevant to the authorization and provision 
of services, and support the finding for need of PAS and development of 
the service plan and budget.

Section 441.468 Service Plan Elements

    Section 1915(j)(5)(C) of the Act requires States to develop and 
approve a service plan for each participant that includes the services 
and supports for such services, based on the assessment of need through 
a person-centered process. Section 1915(j)(5)(C) of the Act also 
requires that the service-planning process build on the participant's 
capacity to engage in activities that promote community life and that 
respects the participant's preferences, choices, and abilities, and 
must involve families, friends, and professionals in the planning or 
delivery of services or supports as desired or required by the 
participant. We propose to reflect these requirements at Sec.  441.468. 
Specifically, at proposed Sec.  441.468(a), we list those service plan 
elements we have found to be minimally necessary in developing a 
service plan that adequately describes the services to be furnished. We 
also propose, as explained previously in our Definitions section, that 
we believe the service plan includes the individualized backup plan.
    Furthermore, based on our experience with States' self-direction 
waivers and demonstrations, we are aware that States implement the 
person-centered planning process differently. Some States interpret the 
process to be simply focused on the participant's needs, and do not 
allow participants to also direct the process. Others allow the process 
to be person-directed as well as person-centered. We propose to 
require, at Sec.  441.468(b), that the process must be both person-
centered and directed because we believe that a person-centered and 
directed service planning process will ensure that the resultant 
service plan actively engages a participant, accurately reflects a 
participant's abilities, preferences, and choices, and better meets the 
underlying purpose of the self-directed PAS option. Therefore, we would 
propose at Sec.  441.468(b)(1) that each participant's preferences, 
choices and abilities are identified and strategies to address those 
preferences, choices and abilities are included in the service plan. We 
would also propose at Sec.  441.468(b)(2) that the participant is 
permitted to exercise choice and control over services and supports 
discussed in the plan. Finally, we would propose at Sec.  441.468(b)(3) 
that risks that may pose harm to the participant are assessed and 
planned for. For example, we would expect that the assessment would 
identify potential risks to the

[[Page 3554]]

participant. The participant, or the participant's representative, if 
any, together with the persons designated by the State to develop the 
service plan, and others from whom the participant may seek guidance, 
would discuss a plan for how any potential risks may be mitigated or 
eliminated. The resultant plan is the individualized backup plan and 
would be included in the service plan.
    We would also propose at Sec.  441.468(c) that States have in place 
policies and procedures associated with service plan development. In 
Sec.  441.468(c)(1) through (c)(7), we propose a minimum list of 
policies and procedures that we believe are necessary to ensure the 
proper administration and development of the service plan. These 
include that the participant has the opportunity to engage in and 
direct the process to the extent desired, the participant has the 
opportunity to involve family, friends, and professionals as desired or 
required, the planning process is timely, the participant's needs are 
assessed and services meet the needs, the responsibilities for service 
plan development are identified, the qualifications of the individuals 
who are responsible for service plan development are reflective of the 
nature of the program's target population(s) and that service plans be 
reviewed annually, or whenever necessary due to a change in the 
participant's needs or health status.
    In this way, the service plan would continuously address all of the 
participant's assessed needs and goals, including health and safety 
factors, and would be updated to add or delete services or modify the 
amount and frequency of services.
    We also propose to require, at Sec.  441.468(d), that safeguards be 
established when an entity that provides other State Plan services is 
responsible for service plan development to ensure that the service 
provider's role in the planning process is fully disclosed to the 
participant and controls are in place to avoid any possible conflict of 
interest. Based on our review of the demonstrations and 1915(c) waiver 
programs, we are aware that States sometimes choose to delegate the 
service planning function to an entity that provides other State Plan 
services. In order to ensure free choice of providers, we propose to 
add this beneficiary protection to the regulation.
    We also propose to require that approval of the service plan 
conveys authority to the participant to perform, at a minimum, the 
tasks listed in Sec.  441.468(e), such as recruiting, hiring, firing, 
supervising and managing workers. It is the approval of the service 
plan by the State that authorizes the individual to undertake these 
activities as part of self-directed service delivery. The service plan 
must encompass both the general decision-making authority that a 
participant has and outline the individualized services and supports to 
address the participant's needs, abilities, preferences and choices.

Section 441.470 Service Budget Elements

    Section 1915(j)(5)(D) of the Act requires the establishment of a 
budget for the provision of PAS and sets forth certain requirements for 
the service budget. Specifically, this includes that the budget is 
developed and approved by the State based on the assessment of need and 
service plan. We propose to reflect this requirement in Sec.  441.470 
and also propose to require that States inform participants of the 
specific dollar amount that may be used for their services and supports 
so they can properly develop a budget for how they will purchase their 
services and supports. Similarly, we propose to require that the 
specific dollar amount that may be used is indicated in the budget so 
there is no question about the amount available to the participant. We 
believe these requirements are necessary because it is important for 
participants to have sufficient and clear information to allow them to 
adequately plan for how they will use the funds to secure their needed 
services and supports.
    Section 1915(j)(5)(D) of the Act also requires that the budget not 
restrict access to other medically necessary care and services 
furnished under the State plan and approved by the State but not 
included in the budget and sets forth the requirements for determining 
the budget. We address these statutory requirements at proposed Sec.  
441.472. Based on our experience with the self-direction waivers and 
demonstrations, we learned that participants benefited from the 
flexibility to be able to shift funds among authorized services within 
the total amount of the budget without prior review and approval. To 
require the State's review and approval of each budget modification 
would be administratively untenable and would run counter to the 
philosophy of self-direction. Therefore, we propose to require at Sec.  
441.470(c) that the State have procedures in place that govern how 
participants may flexibly adjust their budgets. The procedures must 
minimally include how the participant may freely make changes to the 
budget; the circumstances that may require prior approval before a 
budget adjustment is made, for example, purchases above a certain 
dollar amount; and the circumstances that may also require a 
modification to the participant's service plan.
    Section 1915(j)(4)(B)(ii) of the Act allows States, at their 
option, to permit individuals to use their budget to acquire items that 
increase independence or substitute for human assistance, to the extent 
that expenditures would otherwise be made for the human assistance. 
Based on our experience, we learned that participants benefited from 
this option and were able to purchase items that allowed them greater 
independence, such as an accessibility ramp, or that substituted for 
human assistance, such as a microwave oven. The States that offered 
this option required that the items to be purchased related to a need 
identified in the service plan.
    Some of these states also limited participants' purchases to a list 
of allowable items for which no prior approval was necessary. Still 
other States required prior approval for all items, while some others 
provided a list of allowable items and required prior approval for 
other items not on the list. In addition, each State developed 
procedures that governed how participants could save an amount of their 
monthly budget to purchase these items and how and at what intervals 
the State would recoup funds that were not spent according to the 
purchase plan.
    Accordingly, if a State has elected this option, we propose to 
require at Sec.  441.470(d), that the State have procedures that govern 
how a person may put aside or reserve funds to purchase items that 
increase independence or substitute for human assistance. These items 
could include additional supports, goods, equipment, or supplies, and 
the State should indicate if prior approval is required. As stated 
above, participants benefited from this option and the ability to 
reserve funds to purchase these items likewise proved beneficial to the 
participants. Accordingly, we believe it is worthwhile to continue this 
option under this State plan option.
    We also recognize that some of the ``Cash and Counseling'' programs 
allowed participants to use a small amount of their budget to purchase 
items not otherwise delineated in the budget or earmarked for savings. 
For example, participants used this discretionary amount to purchase or 
supplement needed items or services not otherwise covered by Medicaid, 
such as non-Medicaid covered prescription drugs or transportation to a 
doctor's appointment. States typically set a dollar limit on the amount 
of the

[[Page 3555]]

discretionary funds and participants were required to account for the 
expenditures, but not necessarily retain receipts for the discretionary 
purchases. Based on the success of this practice, we propose, at Sec.  
441.470(e), to permit participants to use a small amount of their 
budget to purchase items not otherwise delineated in the budget or 
earmarked for savings. We anticipate that any budget methodology 
employed by the State and the participant would take this option into 
consideration.
    Lastly, just as persons who receive traditional services have the 
ability to grieve a denial or reduction of benefits, we think it is 
important to ensure that participants in the self-directed PAS State 
plan option have an opportunity to request a fair hearing if their 
request for a budget adjustment is denied or the amount of the budget 
is reduced. Accordingly, we propose to add the opportunity for a fair 
hearing, as provided in Sec.  441.300, in the regulation at Sec.  
441.470(f).

Section 441.472 Budget Methodology

    Section 1915(j)(5)(D) of the Act also sets forth certain 
requirements concerning the budget methodology. Underlying the 
requirements are the concepts that the methodology used to develop the 
service budget must be reasonable and fairly applied to all 
participants. Specifically, the statute requires that the methodology 
use valid, reliable cost data, is open to public inspection, and 
includes a calculation of the expected cost of such services if those 
services were not self-directed.
    We are not proposing to prescribe the methodology States should use 
to develop a service budget. We recognize that some States may wish to 
use a prospective method, a retrospective method, or a combination of 
methods. However, we propose to require in the regulation at Sec.  
441.472, that whatever methodology is used, it is objective and 
evidence-based, using valid, reliable cost data, that is, the method is 
based on an analysis of historical costs and utilization and other 
factors that are likely to affect costs. We would also propose to 
require that it is applied consistently to participants and that the 
methodology is open to public inspection. We also propose to require 
that the State's method includes a calculation of the expected cost of 
the self-directed PAS and supports, if these services and supports were 
not self-directed. This service budget amount is the cap on the amount 
of funds available to an individual with which to purchase self-
directed PAS and supports.
    We recognize in Sec.  441.472(a)(5) that States may place monetary 
or budgetary limits on self-directed services and supports. Therefore, 
if a State does so, we would require that the State have a process in 
place that describes the limits and the basis for the limits, and any 
adjustments that will be allowed and the basis for the adjustments, 
such as participant health and welfare.
    Additionally, we propose to require certain beneficiary safeguards 
in light of these possible limitations. First, we propose that States 
have procedures to safeguard participants when the budgeted service 
amount is insufficient to meet a participant's needs. Second, we 
propose that States have a method of notifying participants of the 
amount of any limit that applies to a participant's self-directed PAS 
and supports. Third, we propose that the budget not restrict access to 
other medically necessary care and services furnished under the plan 
and approved by the State but not included in the budget. We note this 
proposal not only reflects the statutory requirement at section 
1915(j)(5)(D) of the Act, but makes clear that the only limitation 
would be for self-directed PAS.

Section 441.474 Quality Assurance and Improvement Plan

    Section 1915(j)(5)(E) of the Act requires States to provide 
appropriate quality assurance techniques to establish and implement the 
PAS service plan and budget. Such techniques must recognize the roles 
and responsibilities in obtaining services in a self-directed manner 
and assure the appropriateness of such plan and budget based upon the 
participant's resources and capabilities. For approximately 30 years, 
we have witnessed an increasing number of Medicaid recipients who want 
to move into or remain in the community in order to receive community-
based care and services. Simultaneously, we have seen the growth in the 
number of individuals who want to self-direct their community-based 
care and services. States face the challenge of how to ensure each 
participant's health and welfare while also respecting individual 
autonomy and choice. We believe that this challenge can be met with an 
effective quality assurance and improvement plan that incorporates 
performance of discovery, remediation, and quality improvement 
activities and includes system performance measures, outcome measures, 
and satisfaction measures. We propose to reflect such measures and 
quality assurance and improvement plan components in the regulation at 
Sec.  441.474(a) and (b) and expect the State to monitor and evaluate 
these measures.
    We will be reviewing the State's description of the quality 
assurance and improvement plan when we review the State's request to 
use the self-directed PAS option. The State Medicaid agency must be 
involved in planning the quality assurance activities and measures, and 
the discovery, remediation, and improvement activities, but does not 
have to execute every activity. However, the State Medicaid Agency must 
retain the overall oversight and responsibility for the quality 
assurance plan.

Section 441.476 Risk Management

    Section 1915(j)(5)(E) of the Act also requires States to provide 
appropriate risk management techniques to establish and implement the 
PAS service plans and budgets. As with quality assurance, these 
techniques must recognize the roles and responsibilities in obtaining 
services in a self-directed manner and assure the appropriateness of 
such plan and budget based upon the participant's resources and 
capabilities. We have learned that self-directed care has empowered 
individuals to assert their choices and to want to exercise more 
control over their care and services. As individuals experience greater 
choice and control, they may also desire to assume more of the 
responsibilities and risks associated with the provision of their PAS. 
How much risk an individual is willing and able to assume is a matter 
of discussion and negotiation among the persons designated by the State 
to develop the service plan, the participant, the participant's 
representative, if any, and others from whom the participant may seek 
guidance. In order to facilitate appropriate risk management, we 
propose to include certain requirements at Sec.  441.476.
    First, at Sec.  441.476(a), we propose to require that the State 
specify the risk assessment methods it uses to identify potential risks 
to the participant. We do not prescribe an assessment method States 
must use but note that a proper assessment of the potential risks 
should include several perspectives, including any relevant clinical 
perspective, and involve those responsible for development of the 
service plan, the participant, the participant's representative, if 
any, and others from whom the participant may seek guidance.
    Second, we also propose, at Sec.  441.476(b), that the State 
specify any tools or instruments it uses to mitigate identified risks. 
Again, we do not propose to prescribe the tools or

[[Page 3556]]

instruments that States must use because States should have the 
flexibility necessary to use the instruments or tools they have found 
best meet the needs of the participants. Examples of risk management 
tools or instruments might include criminal and worker background 
checks; job descriptions that clearly set forth the roles and 
responsibilities of participants, workers, representatives, and all 
others involved with supporting the participant; and the use of 
individual risk agreements that permit the participant to acknowledge 
and accept the responsibility for addressing certain types of risks. 
Currently, States have the option, at their own expense, to provide 
criminal background checks for individuals who are self-directing their 
services. We invite comment on whether the provision of criminal 
background checks should be mandatory under this self-directed PAS 
State plan option.
    Third, at Sec.  441.476(c), we propose to require that the State 
ensure that each participant's service plan includes the risks that the 
participant is willing and able to assume, and the plan for how the 
identified risks will be mitigated. In this manner, the service plan 
adequately includes and documents how these identified risks are to be 
handled. Finally, at Sec.  441.476(d), we would require that the State 
ensure that the risk management plan is the result of discussion and 
negotiation among the persons designated by the State to develop the 
service plan, the participant, the participant's representative, if 
any, and others from whom the participant may seek guidance. The input 
of all the parties interested in the participant's PAS service plan 
would thus be included and ensure that the service plan and budget 
reflect the participant's resources and capabilities.

Section 441.478 Qualifications of Providers of Personal Assistance

    Section 1915(j)(4)(B) of the Act permits States to elect to allow 
participants to choose any individual capable of providing the assigned 
tasks, including legally liable relatives, as paid providers of 
services. We reflect these requirements in the proposed regulation at 
Sec.  441.478(a). We are not proposing to set a minimum age requirement 
in the regulation and invite comment on whether an age requirement 
should be added, and if so, under what circumstances. At this point, we 
believe that an age requirement would not allow States the flexibility 
in setting their own standards should they choose this option. For 
example, hiring a 16-year-old to perform some homemaker tasks may be 
appropriate, whereas an adult may be better suited to provide more 
technically difficult or intimate personal care services. We expect the 
State to consider these issues prior to making a decision to elect this 
option.
    However, we propose, at Sec.  441.478(b), that participants retain 
the right to train their workers in the specific areas of personal 
assistance needed by the participant and to perform the needed 
assistance in a manner that comports with the participant's personal, 
cultural, and/or religious preferences. We have learned, through our 
experience with the self-direction waiver and demonstration programs, 
that the training for workers furnishing self-directed PAS must be 
tailored to each individual's preferences, as well as their needs. In 
this way, workers benefit from clear instructions about how to 
effectively and appropriately deliver the self-directed PAS, and any 
potential dissatisfaction with the way services are being delivered can 
be averted. We further propose, at Sec.  441.478(c), that participants 
retain the right to establish additional staff qualifications based on 
their needs and preferences. Again, we believe that the participant is 
in the best position to set forth the particular staff qualifications 
needed to meet the particular preferences of the participant. For 
example, if the participant communicates best using American Sign 
Language (ASL), the participant may require the worker to be able to 
communicate using ASL.

Section 441.480 Use of a Representative

    Section 1915(j)(5)(A) of the Act indicates the types of participant 
representatives in the self-directed PAS option. Specifically, the 
statute includes as representatives a parent or guardian if the 
participant is a minor child, or an individual recognized by State law 
to act on behalf of a participant who is an incapacitated adult. We 
propose to include these requirements at Sec.  441.480(a)(1) and 
(a)(2).
    In addition to the statutory listings, we believe that other 
representatives should be permitted by the State. The role of the 
representative is to assist individuals in making decisions with 
respect to the planning, development, management and direction of their 
service plans and budgets. We encourage States to recognize and permit 
other representative relationships, so that participants can exercise 
greater flexibility in their choice of who will assist them with their 
decisions.
    Furthermore, based on the experience of States with self-direction 
programs, we believe it is appropriate for States to have the option to 
mandate the use of a representative if the participant has 
demonstrated, after additional counseling, information, training, or 
assistance, the inability to self-direct PAS. We specify this 
requirement in the proposed regulation at Sec.  441.480(a)(5), and also 
propose to require that CMS approve in the State plan amendment a 
State's criteria for situations that would result in the State 
mandating the use of a representative. Examples of these criteria could 
include a participant not being able to carry out the responsibilities 
for self-direction after the provision of additional counseling, 
information, training, or assistance, or because an individual's health 
or welfare requires the assistance of a representative.
    Finally, to protect against conflict of interest, we propose, at 
Sec.  441.480(b), to prohibit a participant's representative from also 
serving as a paid provider of services to the participant. Based upon 
the experiences of the States participating in the original ``Cash and 
Counseling'' demonstration, we learned that it is important to include 
this limitation in the self-directed PAS option in order to avoid the 
situation of a representative overseeing or making decisions that 
directly impact them, for example, ``approving'' their own rate of pay, 
their own timesheets, and the like. Accordingly, in order to promote 
participant health and welfare and program integrity, and to ensure 
that participants actually receive their authorized PAS, we propose to 
include this necessary protection in the proposed regulation.

Section 441.482 Permissible Purchases

    Section 1915(j)(4)(B)(ii) of the Act permits individuals, at the 
State's option, to use the funds allocated in their budgets to acquire 
items that increase their independence or substitute for human 
assistance, to the extent that expenditures would otherwise be made for 
that human assistance. We propose to implement this provision in the 
proposed regulation at Sec.  441.482(a). The statute specifically gives 
the examples of a microwave oven and accessibility ramp because these 
two items could conceivably increase independence or substitute for 
human assistance.
    Moreover, experience under the section 1115 and section 1915 (c) of 
the Act self-direction and Independence Plus programs indicated that 
when recipients are given the ability to purchase items that increased 
their

[[Page 3557]]

independence or substituted for human assistance, they do so prudently 
and effectively. However, we propose, at Sec.  441.482(b), that these 
purchases must address an assessed participant need included in the 
service plan, in order to ensure that the item, and insofar as that 
expenditure would have otherwise been made using human assistance, is 
medically necessary and to promote program integrity. We also note that 
we have previously proposed in Sec.  441.470(d) that the State set 
forth a procedure that governs how such items are to be included in the 
service budget.

Section 441.484 Financial Management Services

    Under section 1915(j)(6) of the Act, States may employ a financial 
management entity to make payments to providers, track costs, and make 
reports under the self-directed PAS State plan option. The financial 
management provisions are noted in the proposed regulation at Sec.  
441.484. The statute lists very broad responsibilities for a financial 
management entity to perform. In the context of the self-directed PAS 
option, these broad statutory categories must be considered and linked 
to specific duties. For example, financial management services are used 
for two purposes: (a) To address Federal, State, and local employment 
tax, labor and workers'' compensation insurance rules, and other 
requirements that apply when the participant functions as the employer 
of workers, and (b) to make financial transactions on behalf of the 
participant, such as preparing paychecks for workers and paying 
invoices for goods and services identified in the participant's service 
plan. These responsibilities can be generally noted as making payments 
and tracking costs.
    We first note there are different Internal Revenue Service (IRS) 
requirements that must be adhered to, depending on how financial 
management services are provided. For instance, financial management 
services provided directly by the State, or by a State's reporting or 
subagent through its fiscal intermediary, must follow section 3504 of 
the IRS Code and Revenue Procedure 80-4 and Notice 2003-70. Financial 
management services provided through vendor organizations must follow 
Section 3504 of the IRS Code and Revenue Procedure 70-6. When private 
entities furnish financial management services, the procurement method 
must meet requirements set forth in 45 CFR 74.40 through section 74.48. 
Accordingly, we propose, at Sec.  441.484(a)(1) and (a)(2), the 
arrangement options available to States for offering financial 
management services, and specify proposed requirements that must be 
followed for each option (barring participants who perform these 
functions themselves).
    Furthermore, to ensure appropriate safeguards and recipient 
protections, we propose to require States to provide oversight of 
financial management services. Without this oversight there is a risk 
of inadequate delivery of financial management such as system 
deficiencies, failure to pay workers timely, and errors in complying 
with IRS requirements. When utilized, the financial management service 
is critical to the success of the self-directed PAS State plan option. 
Specifically, at Sec.  441.484(b), we are proposing that States must 
perform the following oversight activities, regardless of how financial 
management services are provided: Monitoring and assessing the 
performance of the financial management entity, including assuring the 
integrity of financial transactions they perform; designating a State 
entity or entities responsible for this monitoring; and determining how 
frequently financial management entity performance will be assessed. 
While we are not requiring specific oversight activities, examples of 
State performance monitoring and assessment may include conducting 
periodic audits of financial management entities, conducting 
participant satisfaction surveys or other methods or procedures.
    Also, as a further beneficiary safeguard, we propose, at Sec.  
441.484(c), a list of the specific minimum functions that must be 
provided by financial management entities as noted under the broad 
statutory requirement (or by States directly, if no financial 
management entities are utilized).
    This list includes, but is not limited to, collecting and 
processing timesheets of the participant's workers; processing payroll, 
withholding, filing and payment of applicable Federal, State and local 
employment-related taxes and insurance; maintaining a separate account 
for each participant's budget; tracking and reporting disbursements and 
balances of participant funds; processing and paying invoices for goods 
and services approved in the service plan; and providing to 
participants periodic reports of expenditures and the status of the 
approved service budget. We believe these proposed functions represent, 
at a minimum, the standard duties and responsibilities that a financial 
management entity (or a State) would need to assume in assisting a 
beneficiary in the self-directed State plan option.
    Inherent in the statute is the ability of the State to retain the 
responsibility of providing financial management entity functions. We 
are aware that many States with self-direction programs do in fact 
retain this responsibility. We expect a State to perform the same 
functions as a financial management entity. We are proposing to 
explicitly require the State to do such in the absence of utilizing a 
financial management entity. The purpose of noting this expectation of 
the States is to clarify to a participant that these services are 
provided by the State. Accordingly, we propose at Sec.  441.482(d) that 
States not employing a financial management entity must perform all 
functions that would have been provided by the financial management 
entity on behalf of all participants self-directing their PAS under 
this new State plan option, except for participants taking advantage of 
the cash option, as they directly perform those functions for 
themselves.
    Based on our review of self-directed programs, we are aware that 
States may choose to allow participants to self-direct services under 
the ``agency with choice'' model, which utilizes a co-employment 
relationship between the participant and an agency. This agency could 
be a traditional service provider or a financial management entity, and 
acts as the employer of record of the PAS worker. If a State allows 
this option, the financial management services must be separately 
delineated from other services that the agency may provide in order 
that the financial management services (FMS) are claimed appropriately.
    Section 1915(j)(6) of the Act further states activities of the 
financial management entity be matched by CMS at ``the administrative 
rate established in Section 1903(a)'' of the Act. We are interpreting 
this reference to apply specifically to section 1903(a)(7) of the Act, 
which provides for a Federal Medical Assistance Percentage (FMAP) rate 
of 50 percent for the ``amounts expended * * * found necessary by the 
Secretary for the proper and efficient administration of the State 
plan.'' We believe the DRA Conference Report language supports this 
reading as it notes that payment for the activities of the financial 
management entity will be reimbursed at the ``same rate as other 
Medicaid administrative activities generally * * * percent.'' H.R. 
Conf. Rep. No.362, (109th Cong. 301). We will also consider the State's 
financial management activities to be general administrative activities 
and likewise matched at 50 percent. Therefore, financial management 
services, whether

[[Page 3558]]

provided by a financial management entity, the State, or by another 
entity under ``agency with choice'' will be reimbursed under the 50 
percent administrative rate under this new State plan option.

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

IV. Collection of Information Requirements

    [If you choose to comment on issues in this section, please include 
the caption ``COLLECTION OF INFORMATION REQUIREMENTS'' at the beginning 
of your comments.]
     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 (ICRs):

Section 441.454 Use of Cash

    Section 441.454(d) requires States to make available a financial 
management entity to a participant who has demonstrated, after 
additional counseling, information, training, or assistance, that the 
participant cannot effectively manage the cash option described in 
paragraph (a) of this section.
    The burden associated with this requirement is the time and effort 
put forth by the State to counsel and to provide information, training, 
and or assistance to participants. We believe that it would take a 
State 1 hour per participant to provide this guidance. The total annual 
burden of this requirement would vary according to the number of 
participants in each State who are self-directing their PAS under this 
State Plan option.

Section 441.456 Voluntary Disenrollment

    Section 441.456(b) requires States to specify in the State plan the 
safeguards that are in place to ensure continuity of services during 
the transition from self-directed PAS.
    The burden associated with this requirement is the time and effort 
put forth by the State to revise its State plan to include the 
safeguards. While the burden associated with this requirement is 
subject to the PRA, the burden associated with the State plan amendment 
is currently approved under OMB <greek-i>0938-0933.

Section 441.458 Involuntary Disenrollment

    Section 441.458(c) requires States to specify in the State plan the 
safeguards that are in place to ensure continuity of services during 
the transition from self-directed PAS.
    The burden associated with this requirement is the time and effort 
put forth by the State to revise its State plan to include the 
safeguards. While the burden associated with this requirement is 
subject to the PRA, the burden associated with the State plan amendment 
is currently approved under OMB <greek-i>0938-0933.

Section 441.464 State Assurances

    Section 441.464(a) requires States to provide an assurance that 
necessary safeguards have been taken to protect the health and welfare 
of individuals furnished services under the program and to assure the 
financial accountability for funds expended for self-directed services.
    The burden associated with this requirement is the time and effort 
it would take for each State to meet these conditions. To meet the 
requirements in Sec.  441.464(a), we estimate it would take each State 
80 hours to develop a system of safeguards that protects participants' 
health and welfare and ensures financial accountability for funds 
expended, and no further burden would be associated with this 
requirement. We estimate the total maximum one-time burden for this 
requirement to be 4,480 hours. (56 States x 80 hours = 4,480 hours)
    Section 441.464(b) requires States to provide an assurance that 
they will perform an evaluation of the need for personal care under the 
State plan or personal services under a section 1915(c) home and 
community-based services waiver program. The burden associated with 
this requirement is the time and effort it would take for each State to 
meet this condition. To meet the requirement in Sec.  441.464(b), we 
estimate it would take a State 2 hours per participant to perform this 
evaluation of need. The total annual burden of this requirement would 
vary according to the number of participants in each State who are (1) 
entitled to medical assistance for personal care services under the 
State plan, or receive home and community-based services under a 
section 1915(c) waiver program; (2) may require self-directed PAS; and 
(3) may be eligible for self-directed PAS.
    Section 441.464(c) requires States to provide an assurance that 
individuals likely to require personal care under the State plan, or 
home and community-based services under a section 1915(c) waiver 
program, are informed of the feasible alternatives, if available, under 
the State's self-directed PAS State plan option, at the choice of these 
individuals, to the provision of personal care services under the State 
plan or PAS under a section 1915(c) home and community-based services 
waiver program. The burden associated with this requirement is the time 
and effort it would take for each State to meet this condition. To meet 
the requirement in Sec.  441.464(c), we estimate it would take a State 
15 minutes per participant to inform individuals of feasible 
alternatives. The total annual burden of this requirement would vary 
according to the number of participants in each State who are likely to 
require personal care under the State plan, or home and community-based 
services under a section 1915(c) waiver program.
    Section 441.464(d) requires States to provide a support system that 
meets the following conditions:
    (1) Appropriately assesses and counsels an individual before 
enrollment.
    (2) Provides appropriate information, counseling, training, and 
assistance to ensure that a participant is able to manage the services 
and budgets. The support activities must include at least the 
following:
    (i) Person-centered planning and how it is applied.
    (ii) Information about the services available for self-direction.
    (iii) Range and scope of individual choices and options.
    (iv) Process for changing the service plan and service budget.
    (v) Grievance process.

[[Page 3559]]

    (vi) Risks and responsibilities of self-direction.
    (vii) Freedom of choice of providers.
    (viii) Individual rights.
    (ix) Reassessment and review schedules.
    (x) Defining goals, needs, and preferences.
    (xi) Identifying and accessing services, supports, and resources.
    (xii) Development of risk management agreements.
     (xiii) Development of an individualized backup plan.
     (xiv) Recognizing and reporting critical events.
    (3) Offers additional information, counseling, training, or 
assistance, including financial management services under either of the 
following conditions:
    (i) At the request of the participant for any reason.
    (ii) When the State has determined the participant is not 
effectively managing the services identified in the service plan or 
budget.
    The burden associated with this requirement is the time and effort 
it would take for each State to meet these conditions. To meet the 
requirements in Sec.  441.464(d)(1), we estimate it would take each 
State 2 hours per participant. To meet the requirements in Sec.  
441.464(d)(2), we estimate it would take each State 1 hour per 
participant. To meet the requirements in Sec.  441.464(d)(3), we 
estimate it would take each State 1 hour per participant. The total 
annual burden of these requirements would vary according to the number 
of participants in each State who are self-directing their PAS under 
this State Plan option.
    Section 441.464(e) requires the State to provide to CMS an annual 
report on the number of individuals served and the total expenditures 
on their behalf in the aggregate.
    The annual burden associated with this requirement is the time and 
effort it would take for each State to gather the necessary data and 
provide an annual report to CMS. We estimate that it would take one 
State no more than 25 hours to meet this requirement; therefore, the 
total maximum annual burden is 1,400 hours. (56 States x 25 hours = 
1,400 hours)
    Section 441.464(f) requires the State to provide to CMS an 
evaluation of the overall impact on the health and welfare of 
participating individuals compared to non-participants every 3 years, 
as determined by CMS.
    The burden associated with this requirement is the time and effort 
it would take for each State to provide such an evaluation to CMS. We 
estimate that it would take one State 200 hours to prepare and submit 
the evaluation to CMS every 3rd year; therefore, the total maximum 
burden on that 3rd year would be 11,200 hours. (56 States x 200 hours = 
11,200)

Section 441.468 Service Plan Elements

    Section 441.468(b) requires a State to develop a service plan for 
each program participant using a person-centered and directed planning 
process to ensure the following:
    (1) The identification of each program participant's preferences, 
choices, and abilities, and strategies to address those preferences, 
choices, and abilities.
    (2) The option for the program participant to exercise choice and 
control over services and supports discussed in the plan.
    (3) Assessment of, and planning for avoiding, risks that may pose 
harm to a participant.
    The burden associated with this requirement is the time and effort 
it would take for each State to meet these conditions. We estimate it 
would take each State 3 hours per participant to meet this requirement. 
The total annual burden of this requirement would vary according to the 
number of participants in each State who are self-directing their PAS 
under this State Plan option.
    Section 441.468(d) states that when an entity that is permitted to 
provide other State plan services is responsible for service plan 
development, the State must describe the safeguards that are in place 
to ensure that the service provider's role in the planning process is 
fully disclosed to the participant and controls are in place to avoid 
any possible conflict of interest.
    The burden associated with this requirement is the time and effort 
it would take for the State to fully disclose the required information. 
We estimate that it would take one State 15 minutes per participant to 
meet this requirement. The total annual burden of this requirement 
would vary according to the number of participants in each State who 
are self-directing their PAS under this State Plan option.
    Section 441.468(e) requires that an approved self-directed service 
plan conveys authority to the participant to perform, at a minimum, the 
following tasks: Recruit and hire workers to provide self-directed 
services, including specifying worker qualifications; fire workers; 
supervise workers in the provision of self-directed services; manage 
workers in the provision of self-directed services (determining worker 
duties, scheduling workers, training workers in assigned tasks, and 
evaluating workers' performance); determine the amount paid for a 
service, support, or item; and review and approve provider invoices.
    While this information collection is subject to the PRA, we believe 
this requirement meets the requirements of 5 CFR 1320.3(b)(2), and as 
such, the burden associated with this requirement is exempt from the 
PRA.

Section 441.470 Service Budget Elements

    Section 441.470 states that a service budget must be developed and 
approved by the State based on the assessment of need and service plan 
and must include the following:
    (a) The specific dollar amount a participant may utilize for 
services and supports.
    (b) How the participant is informed of the amount of the service 
budget before the service plan is finalized;
    (c) The procedures for how the participant may adjust the budget, 
including the following:
    (1) How the participant may freely make changes to the budget.
    (2) The circumstances, if any, that may require prior approval 
before a budget adjustment is made.
    (3) The circumstances, if any, that may require a change in the 
service plan.
    (d) The procedure(s) that governs how a person, at the election of 
the State, may reserve funds to purchase items that increase 
independence or substitute for human assistance including additional 
goods, supports, services or supplies.
    (e) The procedure(s) that governs how a person may use a 
discretionary amount, if applicable, to purchase items not otherwise 
delineated in the budget.
    (f) How participants are afforded the opportunity to request a fair 
hearing under Sec.  441.300 if a participant's request for a budget 
adjustment is denied or the amount of the budget is reduced.
    The burden associated with this requirement is the time and effort 
put forth by the State to develop a service budget. We estimate it 
would take a State 3 hours per participant to meet this requirement. 
The total annual burden of this requirement would vary according to the 
number of participants in each State who are self-directing their PAS 
under this State Plan option.

Section 441.472 Budget Methodology

    Section 441.472(b) requires a State to have procedures in place to 
safeguard participants when the budgeted service amount is insufficient 
to meet a participant's needs.
    The burden associated with this requirement is the time and effort 
it

[[Page 3560]]

would take for a State to develop its procedures on how to handle this. 
We estimate that it would take one State 16 hours to develop these 
procedures and no further burden would be associated with this 
requirement. The one-time maximum burden associated with this 
requirement is 896 hours. (56 States x 16 hours = 896 hours)
    Section 441.472(c) requires a State to have a method of notifying 
participants of the amount of any limit that applies to a participant's 
self-directed PAS and supports.
    The burden associated with this requirement is the time and effort 
it would take for the State to provide this notification. We estimate 
it would take one State 15 minutes per participant to meet this 
requirement. The total annual burden of this requirement would vary 
according to the number of participants in each State who are self-
directing their PAS under this State Plan option.

Section 441.474 Quality Assurance and Improvement Plan

    Section 441.474(a) requires States to provide a quality assurance 
and improvement plan that describes the State's system of how it would 
conduct activities of discovery, remediation, and quality improvement 
in order to learn of critical incidents or events that affect 
participants, correct shortcomings, and pursue opportunities for 
improvement; and
    (b) The quality assurance and improvement plan shall also describe 
the system performance measures, outcome measures, and satisfaction 
measures that the State would use to monitor and evaluate the self-
directed State plan option.
    The burden associated with this requirement is the time and effort 
it would take for the State to customize its quality assurance and 
improvement plan to the self-directed service delivery model. We 
estimate that it would take one State 100 hours to customize its 
quality assurance and improvement plan and no further burden would be 
associated with this requirement. The one-time maximum burden 
associated with this requirement is 5,600 hours. (56 States x 100 hours 
= 5,600 hours)

Section 441.484 Financial Management Services

    Section 441.484(a) proposes that States may choose to provide 
financial management services to participants self-directing PAS, with 
the exception of those participants utilizing the cash option who 
directly perform those functions. Section 441.484(c) proposes to 
require that the financial management entity provide functions 
including, but not limited to, the following:
    (1) Collect and process timesheets of the participant's workers.
    (2) Process payroll, withholding, filing and payment of applicable 
Federal, State and local employment-related taxes and insurance.
    (3) Maintain a separate account for each participant's budget.
    (4) Track and report disbursements and balances of participant 
funds.
    (5) Process and pay invoices for goods and services approved in the 
service plan.
    (6) Provide to participants periodic reports of expenditures and 
the status of the approved service budget. Section 441.484(d) requires 
States not utilizing a financial management entity must perform the 
functions listed in paragraph (c) of this section on behalf of 
participants self-directing PAS, with the exception of those 
participants utilizing the cash option who directly perform those 
functions.
    The burden associated with this requirement is the time and effort 
it would take for the financial management entity or State to develop 
and perform the listed functions. We estimate it would take a financial 
management entity or the State 320 hours to develop the financial 
management system. Once the system was in place, the annual burden 
associated with these functions would vary according to the number of 
participants in each State who are self-directing their PAS under this 
State Plan option. We estimate the maximum one-time burden on the 
States to develop the financial management system to be 17,920 hours 
during the first year. (56 States x 320 hours = 17,920)

    Note: Annual burden in the following years will vary. We have no 
data on how many financial management entities would be affected by 
this requirement; therefore, we are unable to provide total annual 
burden associated with financial management entities.

    The total aggregate burden for the requirements in this proposed 
rule that affect States annually is estimated to be 1,400 hours. The 
total aggregate burden associated with one-time requirements on States 
is estimated to be 28,896. The total aggregate burden associated with 
the burden placed on States every 3rd year is estimated to be 11,200 
hours.

    Note: We are unable to provide aggregate burden totals for those 
requirements affecting participants because burden will vary 
according to the number of participants in each State who are self-
directing their PAS under this State Plan option. We are also unable 
to provide aggregate burden for financial management entities 
affected by Sec.  441.484(a).

    If you comment on these information collection and record keeping 
requirements, please mail copies directly to the following:
    Centers for Medicare & Medicaid Services, Office of Strategic 
Operations and Regulatory Affairs, Division of Regulations Development, 
Attn.: Melissa Musotto, CMS-2229-P, Room C5-14-03, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    Office of Information and Regulatory Affairs, Office of Management 
and Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Attn: Katherine Astrich, CMS Desk Officer, CMS-2229-P, 
<a href="/cdn-cgi/l/email-protection#f69d97829e93849f9893a9978582849f959eb6999b94d8939986d8919980"><span class="__cf_email__" data-cfemail="d7bcb6a3bfb2a5beb9b288b6a4a3a5beb4bf97b8bab5f9b2b8a7f9b0b8a1">[email protected]</span></a>. Fax (202) 395-6974.
V. Regulatory Impact Statement
    [If you choose to comment on issues in this section, please include 
the caption ``REGULATORY IMPACT STATEMENT'' at the beginning of your 
comments.]

A. Overall Impact

    We have examined the impact of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132. 
Executive Order 12866 directs agencies to assess all costs and benefits 
of available regulatory alternatives and, if regulation is necessary, 
to select regulatory approaches that maximize net benefits (including 
potential economic, environmental, public health and safety effects, 
distributive impacts, and equity). A regulatory impact analysis (RIA) 
must be prepared for major rules with economically significant effects 
($100 million or more in any 1 year). This rule does not reach the 
economic threshold and thus is not considered a major rule.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$6.5 million to $31.5 million in any 1 year. Individuals and States are 
not included in the definition of a small entity. We are not preparing 
an analysis for the RFA because we have determined, and the Secretary 
certifies,

[[Page 3561]]

that this 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 are not preparing an 
analysis for section 1102(b) of the Act because we have determined, and 
the Secretary certifies, that this 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 $120 million. This rule would have no 
consequential effect on State, local, or tribal governments or on 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 would not impose any costs on State 
or local governments, the requirements of E.O. 13132 are not 
applicable.

B. Anticipated Effects

    FFP will be available for self-directed PAS if the State elects to 
offer this opportunity through the approved State plan. Since self-
direction is an alternative service delivery model, it is expected that 
the impact on Medicaid spending would not be very large. The use of 
self-directed PAS is estimated to cost a total of $225 million in FY 
2008 to FY 2012, of which $127 million is Federal share.
    In making this estimate, we considered that costs might increase 
due to new covered expenses (such as microwave ovens or accessibility 
ramps) as well as new applicants being attracted to the Medicaid 
program, because of the permissibility of payments to relatives. Costs 
could decrease because beneficiaries might require less help and less 
expensive help. We also noted that some States have already implemented 
self-directed programs under other Medicaid authorities and thus, in 
those States, there would be little cost effect to the statute or this 
new regulation. We first estimated that the projected impact of all our 
proposals would amount to an overall 0.5 percent increase in personal 
care service expenditures, if all States and Territories implemented 
this self-direction PAS State plan option. We then accounted for a 
partial starting year, a phase-in period and the fact that this is a 
State plan option. Our final estimate is as noted in the table below.

             Section 1915(j) Self-Directed Personal Assistance Services Program (Cash & Counseling)
                                              [Dollars in millions]
----------------------------------------------------------------------------------------------------------------
                                                        FY 2008     FY 2009     FY 2010     FY 2011     FY 2012
----------------------------------------------------------------------------------------------------------------
Federal Cost........................................          12          20          29          32          34
State Cost..........................................           9          15          22          24          26
                                                     -----------------------------------------------------------
    Total*..........................................          22          35          51          56         61
----------------------------------------------------------------------------------------------------------------
* Amounts may not equal total due to rounding.

C. Alternatives Considered

    In considering alternatives to the proposals presented in this 
proposed rule, we considered the current practices under section 1115 
demonstrations and section 1915(c) waiver programs that implemented 
self-direction. In particular, we considered whether to allow States 
the flexibility to offer the option of disbursing cash prospectively to 
participants. We learned from the experience of the section 1115 
demonstrations that participants were able to successfully manage the 
funds in their budget and maintain financial accountability, with some 
general guidance and oversight. In light of our desire to provide 
flexibility to the beneficiaries and to better reflect the intent of 
the PAS State plan option, we proposed this option.
    We also considered the extent to which to include prescriptive 
support activities that States must include in their support system. We 
propose a minimum list of support activities to ensure that 
participants have the necessary tools to successfully manage their 
services and budgets. We were concerned that if States were not 
required to include such activities as part of the support system 
within the PAS State plan option, the likelihood of successfully self-
directing PAS would diminish. As we learned from our experience with 
the section 1115 demonstrations and section 1915(c) waiver programs, 
support activities have a crucial role in leading to the success of any 
self-directed PAS program.

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 increase in Medicaid payment as 
a result of the changes presented in this proposed rule.

[[Page 3562]]



 Table--Accounting Statement: Classification of Estimated Expenditures,
                         from FY 2008 to FY 2012
                              [In millions]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
          Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized          3% Units Discount     7% Units Discount
 Transfers.                    Rate..                Rate.
                              $25.2...............  $24.8.
------------------------------------------------------------------------
From Whom To Whom?..........       Federal Government to Providers.
------------------------------------------------------------------------
Annualized Monetized          3% Units Discount     7% Units Discount
 Transfers.                    Rate..                Rate.
                              $19.0...............  $18.7.
------------------------------------------------------------------------
From Whom To Whom?..........        State Governments to Providers.
------------------------------------------------------------------------

E. Conclusion

    As indicated in the estimated expenditures table above, we project 
the Federal Medicaid program cost of this proposed rule to be $127 
million over the period from FY 2008 to FY 2012.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in CFR Part 441

    Aged, Family planning, Grant programs-health, Infants and children, 
Medicaid, Penalties, and 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 441--SERVICES: REQUIREMENTS AND LIMITS APPLICABLE TO SEPCIFIC 
SERVICES

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

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

    2. Amend part 441 by adding new subpart J, consisting of Sec.  
441.450 through Sec.  441.486, to read as follows:
Subpart J--Optional Self-Directed Personal Assistance Services Program
Sec.
441.450 Basis, scope, and definitions.
441.452 Self-direction: General.
441.454 Use of cash.
441.456 Voluntary disenrollment.
441.458 Involuntary disenrollment.
441.460 Participant living arrangement.
441.462 Statewideness, comparability, and limitations on number 
served.
441.464 State assurances.
441.466 Assessment of need.
441.468 Service plan elements.
441.470 Service budget elements.
441.472 Budget methodology.
441.474 Quality assurance and improvement plan.
441.476 Risk management.
441.478 Qualifications of providers of personal assistance.
441.480 Use of a representative.
441.482 Permissible purchases.
441.484 Financial management services.

Subpart--J Optional Self-Directed Personal Assistance Services 
Program


Sec.  441.450  Basis, scope, and definitions.

    (a) Basis. This subpart implements section 1915(j) of the Act 
concerning the self-directed personal assistance services (PAS) option 
through a State Plan.
    (b) Scope. A self-directed PAS option is designed to allow 
individuals to exercise decision-making authority in identifying, 
accessing, managing and purchasing their PAS. This authority includes, 
at a minimum, all of the following:
    (1) The purchase of PAS and supports for PAS.
    (2) Recruiting workers.
    (3) Hiring and discharging workers.
    (4) Specifying worker qualifications.
    (5) Determining worker duties.
    (6) Scheduling workers.
    (7) Supervising workers.
    (8) Evaluating worker performance.
    (9) Determining the amount paid for a service, support or item.
    (10) Scheduling when services are provided.
    (11) Identifying service workers.
    (12) Reviewing and approving invoices.
    (c) Definitions. 
    Assessment of need means an evaluation of the needs, strengths, and 
preferences of participants for services.
    This includes one or more processes to obtain information about an 
individual, including health condition, personal goals and preferences, 
functional limitation, age, school, employment, household, and other 
factors that are relevant to the authorization and provision of 
services. Assessment information supports the development of the 
service plan and the subsequent service budget.
    Individualized backup plan means a written plan that addresses 
critical contingencies or incidents that would pose a risk of harm to 
the participant's health or welfare and is incorporated into the 
participant's service plan.
    Legally liable relatives means persons who have a duty under the 
provisions of State law to care for another person. Legally liable 
relatives may include any of the following:
    (1) The parent (biological or adoptive) of a minor child or the 
guardian of a minor child who must provide care to the child.
    (2) Legally-assigned caretaker relatives.
    (3) A spouse.
    Self-directed personal assistance services (PAS) means personal 
care and related services, or home and community-based services 
otherwise available under the State plan or a 1915(c) waiver program 
that are provided to an individual who has been determined eligible for 
the PAS option. Self-directed PAS also includes, at the State's option, 
items that increase the individual's independence or substitutes (such 
as a microwave oven or an accessibility ramp) for human assistance, to 
the extent the expenditures would otherwise be made for the human 
assistance.
    Self-direction means the opportunity for participants or their 
representatives to exercise choice and control over the budget, 
planning, and purchase of self-directed PAS, including the amount, 
duration, scope, provider, and location of service provision.
    Service budget means an amount of funds that is under the control 
and direction of a participant when the State has selected the State 
plan option for provision of self-directed PAS. It is developed using a 
person-centered and directed process and is individually tailored in 
accordance with the participant's needs and personal preferences as 
established in the service plan.
    Service plan means the written document that specifies the services 
and supports (regardless of funding source) that are to be furnished to 
meet the needs of a participant in the self-

[[Page 3563]]

directed PAS option and to assist the participant to direct the PAS and 
to remain in the community. The service plan is developed based on the 
assessment of need using a person-centered and directed process. The 
service plan builds upon the participant's capacity to engage in 
activities that promote community life and respects the participant's 
preferences, choices, and abilities. Families, friends and 
professionals, as desired or required by the participant, will be 
involved in the service-planning process.
    Support system means information, counseling, training, and 
assistance that support the participant (or the participant's family or 
representative, as appropriate) in identifying, accessing, managing, 
and directing their PAS and supports and in purchasing their PAS 
identified in the service plan and budget.


Sec.  441.452  Self-direction: General.

    (a) States must have in place, before electing the self-directed 
PAS option, personal care services through the State plan, or home and 
community-based services under a section 1915(c) waiver.
    (b) The State must have both traditional service delivery and the 
self-directed PAS service delivery option available in the event that 
an individual voluntarily disenrolls or is involuntarily disenrolled, 
from the self-directed PAS service delivery option.
    (c) The State's assessment of an individual's needs must form the 
basis of the level of services for which the individual is eligible.
    (d) Nothing in this subpart will be construed as affecting an 
individual's Medicaid eligibility, including that of an individual 
whose Medicaid eligibility is attained through receipt of section 
1915(c) waiver services.


Sec.  441.454  Use of cash.

    (a) States have the option of disbursing cash prospectively to 
participants self-directing their PAS.
    (b) States that choose to offer the cash option must ensure 
compliance with all applicable requirements of the Internal Revenue 
Service.
    (c) States must permit participants using the cash option to choose 
to use the financial management entity for some or all of the functions 
described in Sec.  441.484(c).
    (d) States must make available a financial management entity to a 
participant who has demonstrated, after additional counseling, 
information, training, or assistance, that the participant cannot 
effectively manage the cash option described in paragraph (a) of this 
section.


Sec.  441.456  Voluntary disenrollment.

    (a) States must permit a participant to voluntarily disenroll from 
the self-directed PAS option at any time and return to a traditional 
service delivery system.
    (b) The State must specify in the State plan the safeguards that 
are in place to ensure continuity of services during the transition 
from self-directed PAS.


Sec.  441.458  Involuntary disenrollment.

    (a) States must specify the conditions under which a participant 
may be involuntarily disenrolled from the self-directed PAS option.
    (b) CMS must approve the State's conditions under which a 
participant may be involuntarily disenrolled.
    (c) The State must specify in the State plan the safeguards that 
are in place to ensure continuity of services during the transition 
from self-directed PAS.


Sec.  441.460  Participant living arrangements.

    (a) Self-directed PAS are not available to an individual who 
resides in a home or property that is owned, operated, or controlled by 
a provider of services who is not related to the individual by blood or 
marriage.
    (b) States may specify additional restrictions on a participant's 
living arrangements if they have been approved by CMS.


Sec.  441.462  Statewideness, comparability and limitations on number 
served.

    A State may do the following:
    (a) Provide self-directed PAS without regard to the requirements of 
statewideness.
    (b) Limit the population eligible to receive these services without 
regard to comparability of amount, duration, and scope of services.
    (c) Limit the number of persons served without regard to 
comparability of amount, duration, and scope of services.


Sec.  441.464  State assurances.

    A State must assure that the following requirements are met:
    (a) Necessary safeguards. Necessary safeguards have been taken to 
protect the health and welfare of individuals furnished services under 
the program and to assure the financial accountability for funds 
expended for self-directed services.
    (1) Safeguards must prevent the premature depletion of the 
participant directed budget as well as identify potential service 
delivery problems that might be associated with budget 
underutilization.
    (2) These safeguards may include the following:
    (i) Requiring a case manager, support broker or other person to 
monitor the participant's expenditures.
    (ii) Requiring the financial management entity to flag significant 
budget variances (over and under expenditures) and bring them to the 
attention of the participant, case manager, or support broker.
    (iii) Allocating the budget on a monthly or quarterly basis.
    (iv) Other appropriate safeguards as determined by the State.
    (3) Safeguards must be designed so that budget problems are 
identified on a timely basis so that corrective action may be taken, if 
necessary.
    (b) Evaluation of need. The State must perform an evaluation of the 
need for personal care under the State Plan or services under a section 
1915(c) waiver program for individuals who meet the following 
requirements:
    (1) Are entitled to medical assistance for personal care services 
under the State plan or receiving home and community based services 
under a section 1915(c) waiver program.
    (2) May require self-directed PAS.
    (3) May be eligible for self-directed PAS.
    (c) Notification of feasible alternatives. Individuals who are 
likely to require personal care under the State plan, or home and 
community-based services under a section 1915(c) waiver program are 
informed of the feasible alternatives, if available, under the State's 
self-directed PAS State plan option, at the choice of these 
individuals, to the provision of personal care services under the State 
plan, or PAS under a section 1915(c) home and community-based services 
waiver program, including, but not limited to the following:
    (1) Information about self-direction opportunities that is 
sufficient to inform decision-making about the election of self-
direction and provided on a timely basis to an individual or the 
representative which minimally includes the following:
    (i) Elements of self-direction compared to non-self-directed PAS.
    (ii) Individual responsibilities and potential liabilities under 
the self-direction service delivery model.
    (iii) The choice to receive PAS through a waiver program 
administered under section 1915(c) of the Act, regardless of delivery 
system, if applicable.
    (iv) The option, if available, to receive and manage the cash 
amount of their individual budget allocation.
    (2) When and how this information is provided.

[[Page 3564]]

    (d) Support system. States must provide a support system that meets 
the following conditions:
    (1) Appropriately assesses and counsels an individual before 
enrollment.
    (2) Provides appropriate information, counseling, training, and 
assistance to ensure that a participant is able to manage the services 
and budgets. The support activities must include at least the 
following:
    (i) Person-centered planning and how it is applied.
    (ii) Information about the services available for self-direction.
    (iii) Range and scope of individual choices and options.
    (iv) Process for changing the service plan and service budget.
    (v) Grievance process.
    (vi) Risks and responsibilities of self-direction.
    (vii) Freedom of choice of providers.
    (viii) Individual rights.
    (ix) Reassessment and review schedules.
    (x) Defining goals, needs, and preferences.
    (xi) Identifying and accessing services, supports, and resources.
    (xii) Development of risk management agreements.
    (xiii) Development of an individualized backup plan.
    (xiv) Recognizing and reporting critical events.
    (3) Offers additional information, counseling, training, or 
assistance, including financial management services under either of the 
following conditions:
    (i) At the request of the participant for any reason.
    (ii) When the State has determined the participant is not 
effectively managing the services identified in the service plan or 
budget.
    (4) The State may mandate the use of additional assistance, 
including the use of a financial management entity, or may initiate an 
involuntary disenrollment in accordance with Sec.  441.458, if, after 
additional information, counseling, training or assistance is provided 
to a participant, the participant has continued to demonstrate an 
inability to effectively manage the services and budget.
    (e) Annual report. The State must provide to CMS an annual report 
on the number of individuals served and the total expenditures on their 
behalf in the aggregate.
    (f) Three-year evaluation. The State must provide to CMS an 
evaluation of the overall impact of the self-directed PAS option on the 
health and welfare of participating individuals compared to non-
participants every 3 years.


Sec.  441.466  Assessment of need.

    States must conduct an assessment of the participant's needs, 
strengths, and preferences in accordance with the following:
    (a) States may use one or more processes and techniques to obtain 
information about an individual, including health condition, personal 
goals and preferences for the provision of services, functional 
limitations, age, school, employment, household, and other factors that 
are relevant to the need for and authorization and provision of 
services.
    (b) Assessment information supports the determination that an 
individual requires PAS and also supports the development of the 
service plan and budget.


Sec.  441.468  Service plan elements.

    (a) The service plan must include at least the following:
    (1) The scope, amount, frequency, and duration of each service.
    (2) The type of provider to furnish each service.
    (3) Location of the service provision.
    (4) The identification of risks that may pose harm to the 
participant along with a written individualized backup plan for 
mitigating those risks.
    (b) A State must develop a service plan for each program 
participant using a person-centered and directed planning process to 
ensure the following:
    (1) The identification of each program participant's preferences, 
choices, and abilities, and strategies to address those preferences, 
choices, and abilities.
    (2) The option for the program participant to exercise choice and 
control over services and supports discussed in the plan.
    (3) Assessment of, and planning for avoiding, risks that may pose 
harm to a participant.
    (c) All of the State's applicable policies and procedures 
associated with service plan development must be carried out and 
include, but are not limited to, the following:
    (1) Allow the participant the opportunity to engage in, and direct, 
the process to the extent desired.
    (2) The participant the opportunity to involve family, friends, and 
professionals (as desired or required) in the development and 
implementation of the service plan.
    (3) Ensure the planning process is timely.
    (4) Ensure the participant's needs are assessed and that the 
services meet the participant's needs.
    (5) Ensure the responsibilities for service plan development are 
identified.
    (6) Ensure the qualifications of the individuals who are 
responsible for service plan development reflect the nature of the 
program's target population(s).
    (7) Ensure the State reviews the service plan annually or whenever 
necessary due to a change in the participant's needs or health status.
    (d) When an entity that is permitted to provide other State plan 
services is responsible for service plan development, the State must 
describe the safeguards that are in place to ensure that the service 
provider's role in the planning process is fully disclosed to the 
participant and controls are in place to avoid any possible conflict of 
interest.
    (e) An approved self-directed service plan conveys authority to the 
participant to perform, at a minimum, the following tasks:
    (1) Recruit and hire workers to provide self-directed services, 
including specifying worker qualifications.
    (2) Fire workers.
    (3) Supervise workers in the provision of self-directed services.
    (4) Manage workers in the provision of self-directed services, 
which includes the following functions:
    (i) Determining worker duties.
    (ii) Scheduling workers.
    (iii) Training workers in assigned tasks.
    (iv) Evaluating workers performance.
    (5) Determine the amount paid for a service, support, or item.
    (6) Review and approve provider invoices.


Sec.  441.470  Service budget elements.

    A service budget must be developed and approved by the State based 
on the assessment of need and service plan and must include the 
following:
    (a) The specific dollar amount a participant may utilize for 
services and supports.
    (b) How the participant is informed of the amount of the service 
budget before the service plan is finalized.
    (c) The procedures for how the participant may adjust the budget, 
including the following:
    (1) How the participant may freely make changes to the budget.
    (2) The circumstances, if any, that may require prior approval 
before a budget adjustment is made.
    (3) The circumstances, if any, that may require a change in the 
service plan.
    (d) The procedure(s) that governs how a person, at the election of 
the State, may reserve funds to purchase items that increase 
independence or substitute for human assistance including additional 
goods, supports, services or supplies.

[[Page 3565]]

    (e) The procedure(s) that governs how a person may use a 
discretionary amount, if applicable, to purchase items not otherwise 
delineated in the budget.
    (f) How participants are afforded the opportunity to request a fair 
hearing under Sec.  441.300 if a participant's request for a budget 
adjustment is denied or the amount of the budget is reduced.


Sec.  441.472  Budget methodology.

    (a) The budget methodology set forth by the State to determine a 
participant's service budget amount, must meet the following criteria:
    (1) The State's method of determining the budget allocation is 
objective and evidence based utilizing valid, reliable cost data.
    (2) The State's method is applied consistently to participants.
    (3) The State's method is open for public inspection.
    (4) The State's method includes a calculation of the expected cost 
of the self-directed PAS and supports, if those services and supports 
were not self-directed.
    (5) The State has a process in place that describes the following:
    (i) Any limits it places on self-directed services and supports, 
and the basis for the limits.
    (ii) Any adjustments that will be allowed and the basis for the 
adjustments.
    (b) The State must have procedures to safeguard participants when 
the budgeted service amount is insufficient to meet a participant's 
needs.
    (c) The State must have a method of notifying participants of the 
amount of any limit that applies to a participant's self-directed PAS 
and supports.
    (d) The budget may not restrict access to other medically necessary 
care and services furnished under the plan and approved by the State 
but not included in the budget.


Sec.  441.474  Quality assurance and improvement plan.

    (a) The State must provide a quality assurance and improvement plan 
that describes the State's system of how it will perform activities of 
discovery, remediation and quality improvement in order to learn of 
critical incidents or events that affect participants, correct 
shortcomings, and pursue opportunities for system improvement.
    (b) The quality assurance and improvement plan shall also describe 
the system performance measures, outcome measures, and satisfaction 
measures that the State must use to monitor and evaluate the self-
directed State plan option.


Sec.  441.476  Risk management.

    (a) The State must specify the risk assessment methods it uses to 
identify potential risks to the participant.
    (b) The State must specify any tools or instruments it uses to 
mitigate identified risks.
    (c) The State must ensure that each service plan includes the risks 
that an individual is willing and able to assume, and the plan for how 
identified risks will be mitigated.
    (d) The State must ensure that the risk management plan is the 
result of discussion and negotiation among the persons designated by 
the State to develop the service plan, the participant, the 
participant's representative, if any, and others from whom the 
participant may seek guidance.


Sec.  441.478  Qualifications of providers of personal assistance.

    (a) States have the option to permit participants to hire any 
individual capable of providing the assigned tasks, including legally 
liable relatives, as paid providers of the PAS identified in the 
service plan and budget.
    (b) Participants retain the right to train their workers in the 
specific areas of personal assistance needed by the participant and to 
perform the needed assistance in a manner that comports with the 
participant's personal, cultural, and/or religious preferences.
    (c) Participants retain the right to establish additional staff 
qualifications based on participants' needs and preferences.


Sec.  441.480  Use of a representative.

    (a) States may permit participants to appoint a representative to 
direct the provision of self-directed PAS on their behalf. The 
following types of representatives are permissible:
    (1) A minor child's parent or guardian.
    (2) An individual recognized under State law to act on behalf of an 
incapacitated adult.
    (3) A State-mandated representative, after approval by CMS of the 
State criteria, if the participant has demonstrated, after additional 
counseling, information, training or assistance, the inability to self-
direct PAS.
    (b) A person acting as a representative for a participant receiving 
self-directed PAS is prohibited from acting as a provider of self-
directed PAS to the participant.


Sec.  441.482  Permissible purchases.

    (a) Participants may, at the State's option, use their service 
budgets to pay for items that increase a participant's independence or 
substitute (such as a microwave oven or an accessibility ramp) for 
human assistance, to the extent that expenditures would otherwise be 
made for the human assistance.
    (b) The services, supports and items that are purchased with a 
service budget must be linked to an assessed participant need 
established in the service plan.


Sec.  441.484  Financial management services.

    (a) States may choose to provide financial management services to 
participants self-directing PAS, with the exception of those 
participants utilizing the cash option who directly perform those 
functions, utilizing a financial management entity, through the 
following arrangements:
    (1) States may use a reporting or subagent through its fiscal 
intermediary in accordance with section 3504 of the IRS Code and 
Revenue Procedure 80-4 and Notice 2003-70; or
    (2) States may use a vendor organization that has the capabilities 
to perform the required tasks in accordance with Section 3504 of the 
IRS Code and Revenue Procedure 70-6. When private entities furnish 
financial management services, the procurement method must meet the 
requirements set forth in 45 CFR 74.40 through 74.48.
    (b) States must provide oversight of financial management services 
by performing the following functions:
    (1) Monitoring and assessing the performance of financial 
management entity, including assuring the integrity of financial 
transactions they perform.
    (2) Designating a State entity or entities responsible for this 
monitoring.
    (3) Determining how frequently financial management entity 
performance will be assessed.
    (c) A financial management entity must provide functions including, 
but not limited to, the following:
    (1) Collect and process timesheets of the participant's workers.
    (2) Process payroll, withholding, filing and payment of applicable 
Federal, State and local employment-related taxes and insurance.
    (3) Maintain a separate account for each participant's budget.
    (4) Track and report disbursements and balances of participant 
funds.
    (5) Process and pay invoices for goods and services approved in the 
service plan.
    (6) Provide to participants periodic reports of expenditures and 
the status of the approved service budget.
    (d) States not utilizing a financial management entity must perform 
the

[[Page 3566]]

functions listed in paragraph (c) of this section on behalf of 
participants self-directing PAS, with the exception of those 
participants utilizing the cash option who directly perform those 
functions.
    (e) States will be reimbursed for the cost of financial management 
services, either provided directly or through a financial management 
entity, at the administrative rate of 50 percent.

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

    Dated: May 24, 2007.
Leslie V. Norwalk,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: October 4, 2007.
Michael O. Leavitt,
Secretary.
[FR Doc. 08-115 Filed 1-14-08; 10:00 am]
BILLING CODE 4120-01-P


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