The Medicaid program covers a range of mandatory and optional health care services for low-income populations, primarily individuals with disabilities, the elderly, members of families with dependent children, and some pregnant women and children. Rehabilitation is an optional Medicaid service, meaning that states are not required to include it in their Medicaid programs. What is included as a rehabilitation service can be particularly difficult to describe, because it may encompass many medical and social service activities. Some have said that the term rehabilitation is so broad that it has become almost meaningless and these services might better be described as a catchall Medicaid service, if an "all other" category did not already exist. This broad definition of rehabilitation, coupled with limited and contradictory regulations, have had the unintended consequence of creating confusion about what can and cannot be included as Medicaid rehabilitation. States have used the rehabilitation benefit to cover many services, therapies, and treatments, and to even cover services that might be considered benefits of other state and/or federal health and human services programs. There is at least a perception that states are covering an increasing number of services that could be considered habilitative or custodial rather than rehabilitative. To address the confusion surrounding the rehabilitation benefit, clarify definitions, create a more transparent process, and ensure that the services states claim as rehabilitation actually are rehabilitative in nature, CMS issued a proposed rule on August 13, 2007. Federal law describes Medicaid rehabilitation services as "any medical or remedial services recommended by a physician or other licensed practitioner of the healing arts, within the scope of his or her practice under State law, for maximum reduction of physical or mental disability and restoration of a recipient to his best possible functional level." Rehabilitation might once only have been considered physical rehabilitation used mostly for beneficiaries who had strokes or disabling accidents. However, rehabilitation now encompasses a broader range of therapies and treatments. State Medicaid programs followed the development of additional rehabilitation therapies by using Medicaid's flexibility and the broad definition of rehabilitation to extend services to Medicaid-eligible beneficiaries beyond physical rehabilitation. Medicaid rehabilitation, as defined by states, often includes mental health and substance abuse treatment, occupational and speech therapy, and other services and treatments. Under Medicaid, rehabilitation services are delivered in a variety of settings, by a range of practitioners, and through diverse treatment models. For example, rehabilitation services are furnished in freestanding outpatient clinics, the offices of qualified independent practitioners, mobile crisis vehicles, and appropriate community settings, as defined by state Medicaid plans. Under the rehabilitation benefit, Medicaid beneficiaries are treated for mental illness, certain disabilities, substance abuse, strokes, diseases (HIV/AIDS, cancer), and other conditions. Medicaid programs cover rehabilitation treatments provided by physicians, nurses, social workers, case managers, speech therapists, recreation therapists, aides, counselors, and other health professionals. In 2006, 48 states and the District of Columbia covered rehabilitation services. Nationally, estimated Medicaid rehabilitation expenditures have increased. As shown in Table 1 , total FY2005 federal and state Medicaid expenditures reported to CMS's Medicaid Statistical Information System (MSIS) as rehabilitation services were approximately $6.4 billion. In FY1999, total state and federal rehabilitation expenditures reported by states to MSIS were approximately $3.6 billion. Between FY1999 and FY2005, federal and state Medicaid rehabilitation expenditures increased by 76.7%. In FY1999, 1.2 million beneficiaries received rehabilitation services; in FY2005, the number of beneficiaries receiving rehabilitation had increased by 36.2% to 1.6 million. Per beneficiary rehabilitation expenditures, among those receiving such services, increased by approximately 30% between FY1999 ($3,020) and FY2005 ($3,916). In comparison, overall Medicaid expenditures increased at an even more rapid rate over the same time period, rising from approximately $147 billion in FY1999 to approximately $276 billion in FY2005, approximately an 86.9% increase. The number of Medicaid beneficiaries also increased during this time period, rising by 43.1% from FY1999 (40.3 million) to FY2005 (57.7 million). During the same time period, spending per Medicaid beneficiary increased by 30.7% from $3,657 in FY1999 to $4,781 in FY2005. Although most states cover rehabilitation services, some do not show rehabilitation expenditures in their MSIS data compiled by CMS from state-reported information. There have been several attempts to clarify in statute and regulation what activities states may cover as rehabilitation services. These administrative and legislative activities strived to define how rehabilitation service benefits should be used, as well as to control or reduce states' rehabilitation service expenditures. For example, in the 1970s and 1980s, the Secretary of Health and Human Services approved 17 state plans to cover habilitative services for mentally retarded (a statutory term) individuals under the rehabilitation option. Habilitative, in contrast to rehabilitative services, are intended to help individuals acquire, retain, and improve self-help and adaptive skills, but are not intended to remove or reduce individuals' disabilities. The Secretary later withdrew approval for habilitative services, because the services were determined to not meet conditions to qualify for the rehabilitation benefit. In 1989, with passage of the Omnibus Budget Reconciliation Act of 1989 (OBRA 1989, P.L. 101-239 ), Congress intervened and permitted states that had received the Secretary's approval to continue to cover these services. Congress prohibited other states from gaining approval to cover habilitative services for mentally retarded individuals. CMS issued a state Medicaid director letter (SMDL) in June 1992 (FME-42) that provided guidance to states on using the rehabilitation option as a vehicle for providing services to mentally ill beneficiaries. This letter reiterated regulatory guidance that rehabilitation services were intended to be "medical and remedial in nature for the maximum reduction of physical or mental disability and restoration of a recipient to his best possible functional level." The letter offered examples of services that states could cover under the rehabilitation option, including basic living skills, social skills, counseling, and therapy. The SMDL also described examples of services CMS believed to fall outside of the definition of rehabilitation, including vocational training, direct personal care services, and case management (case management is covered under a separate Medicaid benefit option). In 2005, the Government Accountability Office (GAO) and Health and Human Services Office of Inspector General (HHS/OIG) issued reports that were critical of states' and CMS's practices on rehabilitation. Congressional testimony presented by CMS officials also was critical of state practices to maximize federal matching payments for rehabilitation and other Medicaid expenses. GAO's reports were critical of CMS for not issuing guidance that would clarify rules for states to follow in claiming federal financial participation (FFP) for Medicaid services, such as rehabilitation. These same GAO reports and testimony found that states increased federal matching payments for rehabilitation and other services by increasing Medicaid payments to other state government agencies—non-Medicaid human services agencies that serve Medicaid beneficiaries. In addition, HHS/OIG audits showed that states did not meet federal and state reimbursement requirements for rehabilitation services or comply with state and/or federal Medicaid rules. Even though statutory and regulatory guidance for states on claiming Medicaid rehabilitation expenditures have been inconsistent, states often receive explicit guidance on specific services that can be covered under the rehabilitation benefit when preparing and submitting state plan amendments (SPAs) to CMS's Regional and Central Offices. These CMS staff must review and approve all SPAs before a state may add or change services. Through the SPA approval process, states can receive considerable direction. SPA approvals, however, are dependent on states making changes to their Medicaid service offerings, and as long as the programs remain static, it is not necessary to seek CMS's approval. Further, CMS contends that new rehabilitation rules are needed to guide states in making changes to their rehabilitation benefit offerings; to provide states with clear, transparent, and consistent guidance; and to clarify definitions. Moreover, CMS states, a new rule is necessary to protect beneficiaries and to maintain the fiscal integrity of the Medicaid program. In August 2007, CMS issued a proposed rehabilitation services rule to more clearly define the scope of the rehabilitation benefit for states. CMS officials testified that the changes embodied in the proposed new rule were intended to clearly define allowable services that may be claimed as rehabilitative services under Medicaid. The major changes addressed in the proposed rule are outlined below. States would need to require written treatment plans from providers that describe therapeutic goals (and identify specific outcome objectives for each patient), treatments to achieve those goals, a specific time-line for treatment, and the health care provider responsible for developing the plan. Rehabilitation plans would need to provide for a process to engage the beneficiary as well as families and other responsible parties in the management of rehabilitation care. This "person-centered" approach is intended to improve transparency, help to speed recovery, and facilitate coordination with other non-Medicaid, human services programs. Rehabilitation services would need to be delivered under the direction of qualified providers who assume professional responsibility for ensuring all services are provided and are medically necessary. States that intend to continue to provide rehabilitation services would need to amend their state Medicaid plans. States also would need to include in their Medicaid plans, a description of the services offered as rehabilitation, providers delivering rehabilitation services and their qualifications (education, training, and credentials), and the reimbursement methodologies states would use to pay providers. States would need to specifically describe services that are reimbursable and their individual payment methodologies. The rule proposes to exclude FFP for services that are intrinsic elements of programs other than Medicaid. However, the rule stipulates that beneficiaries of other non-Medicaid programs may still be covered for Medicaid rehabilitation services if all Medicaid program requirements are met and the services are not the responsibility of the other, non-Medicaid, programs. For example, therapeutic foster care (TFC) is cited in the proposed rule as an example of a non-covered rehabilitation service. TFC, the rule contends, is a "model of care," not a medically necessary service.