Medicaid case management consists of services to assist eligible beneficiaries in obtaining medical and other services necessary for their treatment. Case management is not the direct provision of medical and related services, but rather is assistance to help beneficiaries receive care by identifying needed services, finding providers, and monitoring and evaluating the services delivered. Targeted case management (TCM) refers to case management that is restricted to specific beneficiary groups. Targeted beneficiary groups can be defined by disease or medical condition, or by geographic regions, such as a county or a city within a state. Targeted populations, for example, may include individuals with HIV/AIDS, tuberculosis, chronic physical or mental illness, developmental disabilities, children receiving foster care, or other groups identified by a state and approved by the Centers for Medicare and Medicaid (CMS). TCM and case management are optional services that states may elect to cover, but which must be approved by CMS through state plan amendment (SPAs). The Medicaid statute covering case management has been amended a number of times, most recently by the Deficit Reduction Act of 2005 (DRA, P.L. 109-171 ). Section 6052 of DRA added new language that further defined case management services (including TCM) and directed the Secretary of Health and Human Services to develop rules for states to follow in claiming reimbursement for case management expenditures under Medicaid. To this end, CMS issued an interim final rule governing the use and claiming of Medicaid case management services. As stipulated in DRA, the Secretary's case management interim final rule was open for public comment for 60 days, until February 4, 2008. It became effective March 3, 2008. Almost all states cover TCM benefits. Medicaid expenditures for TCM have increased rapidly. As shown in Table 1 , total federal and state Medicaid TCM expenditures more than doubled between FY1999 ($1.4 billion) and FY2005 ($2.9 billion). Nationally, during the same period, the number of beneficiaries receiving TCM increased 62.6%, from approximately 1.7 million in FY1999 to approximately 2.7 million in FY2005. Average TCM expenditures per beneficiary also increased from FY1999 to FY2005, rising by 26.9%. In comparison, overall Medicaid expenditures also increased rapidly over the same period, rising from approximately $147 billion in FY1999 to $276 billion in FY2005, an approximate 87% increase. The number of Medicaid beneficiaries also increased during this period, rising by 43.1%, from FY1999 (40.3 million) to FY2005 (57.7 million). During the same time period, average spending per Medicaid beneficiary increased by approximately 30.7%, from $3,657 in FY1999 to $4,781 in FY2005. Based on CMS reported data, total federal and state expenditures for TCM services in FY2005 ranged from approximately $535 million in California to approximately $872,000 in Hawaii (see Table 2 ). During the same period, the number of beneficiaries receiving TCM services ranged from 820,000 individuals in Illinois to 1,463 in Hawaii. National per beneficiary TCM expenditures were $1,058 in FY2005, but per beneficiary expenditures for TCM expenditures varied considerably by state, ranging from $5,778 in Massachusetts to $116 per beneficiary in Ohio. In Figure 1 , for comparison, states' per beneficiary expenditures for TCM are displayed in six expenditure level groupings. The majority of states that reported TCM expenditures in FY2005 spent between $500 to $1,500 per beneficiary on TCM. Although most states cover TCM, some do not show TCM expenditures in the Medicaid Statistical Information System (MSIS) database compiled by CMS from state-reported information. As shown in Table 2 , six states and the District of Columbia reported no TCM expenditures in FY2005. Of these seven, Delaware is the only state that indicates it does not cover TCM. In the last days of the Clinton Administration (January 19, 2001), the CMS Director of Medicaid and State Operations issued a letter to state Medicaid and Child Welfare directors. Although the state Medicaid director letter (SMDL) addresses TCM claiming for children in foster care, it is often cited as guidance for states on how to claim TCM expenditures under Medicaid more generally. The SMDL reiterated statutory language that broadly defined TCM and left states substantial flexibility on whether to cover and how to structure TCM services. In addition, the 2001 SMDL described examples that would be considered appropriate claiming of TCM expenditures. Subsequently, in the early years of the Bush Administration, states received indirect guidance on TCM expenditure claiming from GAO and Health and Human Services Office of Inspector General (HHS/OIG) reports that were critical of state and CMS practices on TCM, as well congressional testimony presented by CMS officials. Moreover, in 2004, Maryland's state plan amendment to provide TCM services to children in the state's foster care program was denied, and an administrative appeal upheld that decision. The denial of Maryland's SPA for foster care TCM provided states additional unofficial information but, as found by GAO, contributed to ambiguity on TCM because other states were allowed to continue similar practices. For example, GAO reviewed a sample of Massachusetts and Georgia TCM claims and found a number of claims where TCM services billed to Medicaid were integral parts of other programs, such as foster care. Nevertheless, TCM expenditures continued to increase, raising questions about whether some states were delivering direct medical and social services to beneficiaries through other social services programs (e.g., child welfare, foster care, juvenile justice, special education) and classifying those expenditures as Medicaid TCM. Subsequent HHS/OIG audits found state practices for TCM claiming inconsistent with current CMS policy, federal, or state laws, and/or Medicaid rules. Moreover, Bush administration officials testified that state practices for claiming TCM and other Medicaid services were abusive and violated the federal-state Medicaid partnership by inappropriately shifting costs for other federal programs to Medicaid and claiming services directly delivered by other federal programs as TCM. In 2005, Congress passed DRA, which contained Section 6052, "Reforms of the Case Management and Targeted Case Management." Sec. 6052 refined the case management definition by adding new language that narrowed what services could be considered case management. The DRA case management provision identified case management services, such as assessment, development of care plans, referral and related activities, and monitoring and follow up of beneficiaries, and elaborated on the overall content of these services. The DRA also reiterated that case management, including TCM, excluded the direct delivery of underlying medical, educational, social, and other services. The DRA also specifically explained that federal matching payments would not be permitted to assist non-eligible individuals, including those individuals ineligible for a TCM target group. The DRA also reiterated that Medicaid third-party rules applied to case management, so payments for TCM would be permitted only if no other third parties are available to pay. DRA Section 6052 also specifically noted that states should cost-allocate when costs for case management services were shared between another federally funded program in accordance with OMB circular A-87. The DRA also instructed the Secretary of HHS to promulgate interim final regulations to implement the case management changes. The TCM interim final rule was published on December 4, 2007. The case management interim final rule elaborates on changes to the TCM definition authorized and initiated in DRA by providing specific guidance on how states may claim federal financial participation (FFP) for TCM expenditures. It also directly addresses case management issues that previously might have been considered open to interpretation. CMS stipulated that the case management interim final rule applies to all Medicaid authorities, so that all case management, including TCM and services delivered through waivers, would be covered under the rule. CMS estimated that the case management regulation will reduce federal Medicaid expenditures by approximately $1.28 billion between FY2008 and FY2012. CMS also estimated that federal foster care expenditures would increase by $369 million between FY2008-FY2012. Some of the changes addressed in the proposed rule are outlined below. Federal financial participation (FFP) would be paid for case management provided to individuals who reside in community settings or who want to transition from institutions to community settings. In general, states may not receive FFP for beneficiaries residing in inpatient acute care facilities, although there is an exception for individuals with complex or chronic medical needs (as defined by states). The interim final rule permits states to receive FFP to assist individuals who are able to transition from an institution to a community setting. This provision would enable states to claim FFP to assist individuals in transitioning to community settings during either the last 14 days (for beneficiaries institutionalized for short-term stays) or the last 60 days (for beneficiaries who were institutionalized for long-term stays). However, for states to receive FFP for beneficiaries transitioning to the community, the beneficiary must receive the TCM services for terms that span their inpatient and community placement. In addition, under the new regulations, FFP would be payable only after the date on which beneficiaries' community residence begins. States may use TCM to help coordinate other services, such as housing and transportation, for individuals transitioning to community settings. States that now cover case management services and want to continue to do so after March 2009 would need to amend their Medicaid state plans, specifying, among other things, whether services are or are not targeted (and what beneficiary group is targeted, if applicable), the geographic area served, the kinds of case management services offered, frequency of assessments and monitoring by case managers, the qualifications of service providers, and the payment methodology. States also must prepare separate SPAs for each case management target group and subgroup. States need to establish qualifications for providers who will deliver case management services. In addition, the rule specifies the services case managers can provide, such as assessments to determine beneficiaries' needs, development of specific care plans, referral and related activities, and monitoring and follow-up activities.