[Federal Register Volume 77, Number 86 (Thursday, May 3, 2012)]
[Proposed Rules]
[Pages 26361-26406]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-10385]



[[Page 26361]]

Vol. 77

Thursday,

No. 86

May 3, 2012

Part II





 Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 430, 431, 435, et al.





Medicaid Program; State Plan Home and Community-Based Services, 5-Year 
Period for Waivers, Provider Payment Reassignment, and Setting 
Requirements for Community First Choice; Proposed Rule

Federal Register / Vol. 77 , No. 86 / Thursday, May 3, 2012 / 
Proposed Rules

[[Page 26362]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 430, 431, 435, 436, 440, 441, and 447

[CMS-2249-P2]
RIN 0938-AO53


Medicaid Program; State Plan Home and Community-Based Services, 
5-Year Period for Waivers, Provider Payment Reassignment, and Setting 
Requirements for Community First Choice

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise Medicaid regulations to define 
and describe State plan home and community-based services (HCBS) under 
the Social Security Act (the Act) as added by the Deficit Reduction Act 
of 2005 and amended by the Patient Protection and Affordable Care Act 
of 2010 (Affordable Care Act \1\). This proposed rule offers States new 
flexibility in providing necessary and appropriate services to elderly 
and disabled populations and reflects CMS' commitment to the general 
principles of the President's Executive Order released January 18, 
2011, entitled ``Improving Regulation and Regulatory Review.'' In 
particular, this rule does not require the eligibility link between 
HCBS and institutional care that exists under the Medicaid HCBS waiver 
program. This regulation would describe Medicaid coverage of the 
optional State plan benefit to furnish home and community-based 
services and receive Federal matching funds. As a result, States will 
be better able to design and tailor Medicaid services to accommodate 
individual needs. This may result in improved patient outcomes and 
satisfaction, while enabling States to effectively manage their 
Medicaid resources.
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    \1\ Affordable Care Act: Patient Protection and Affordable Care 
Act of 2010, Public Law 111-148 as amended by the Health Care and 
Education Reconciliation Act of 2010, Public Law 111-152.
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    This proposed rule would also amend Medicaid regulations consistent 
with the requirements of the Affordable Care Act, which amended the Act 
to provide authority for a 5-year duration for certain demonstration 
projects or waivers under the Act, at the discretion of the Secretary, 
when they involve individuals dually eligible for Medicaid and Medicare 
benefits.
    In addition, this proposed rule would provide an additional limited 
exception to the general requirement that payment for services under a 
State plan must be made directly to the individual practitioner 
providing a service when the Medicaid program is the primary source of 
reimbursement for a class of individual practitioners. This exception 
would allow payments to be made to other parties to benefit the 
providers by ensuring health and welfare, and training. We are 
including the payment reassignment provisions in this HCBS proposed 
rule because State's Medicaid programs often operate as the primary or 
only payer for the class of practitioners that includes HCBS service 
providers.
    Finally, this proposed rule would also amend Medicaid regulations 
to provide home and community-based setting requirements of the 
Affordable Care Act for the Community First Choice State plan option.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m., e.d.t., on June 4, 
2012.

ADDRESSES: In commenting, please refer to file code CMS-2249-P2. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-2249-P2, 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 to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-2249-P2, 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 before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

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

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

[[Page 26363]]

Table of Contents

I. Executive Summary
II. Background
    A. Expanded Access to Home and Community-Based Services for the 
Elderly and Disabled Under Section 1915(i) of the Act: History of 
Section 1915(i) of the Act
    B. Overview of the State Plan Home and Community-Based Services 
(HCBS) Benefit To Provide HCBS for the Elderly and Individuals With 
Disabilities
    1. Services
    2. Eligibility
    3. Number Served
    4. Independent Evaluation
    5. Adjustment Authority
    6. Independent Assessment
    7. Person-Centered Service Plan
    8. Self-Direction
    9. Quality Assurance
    10. Conflict of Interest
    11. Eligibility Redeterminations; Appeals
    12. Option for Presumptive Eligibility for Assessment
    13. Individual's Representative
    14. Nonapplication
    15. No Effect on Waiver Authority
    16. Continuation of Federal Financial Participation (FFP) for 
Institutional Level of Care for Individuals Receiving Services as of 
the Effective Date of the State Plan HCBS Amendment
    17. State Option To Provide HCBS to Individuals Eligible for 
Services Under a Waiver
    18. Establishment of Optional Eligibility Group To Provide Full 
Medicaid Benefits to Individuals Receiving State Plan HCBS
    19. State Option To Offer HCBS to Specific, Targeted Populations
    20. Five-Year Approval for Targeted Section 1915(i) HCBS 
Benefits and Renewal Requirements
    21. Phase-In of Services and Eligibility
    C. Effective Date
    D. The State Plan HCBS Benefit in the Context of the Medicaid 
Program as a Whole
    E. Other Background
    F. Section 2601 of the Affordable Care Act: 5-Year Period for 
Demonstration Projects
    G. Prohibition Against Reassignment of Provider Claims
    H. Definition of Home and Community-Based Settings for the 
1915(k) Community First Choice State Plan Option
III. Provisions of the Proposed Rule
    A. State Organization and General Administration (Part 431)
    B. Eligibility in the States, District of Columbia, the Northern 
Mariana Islands, and American Samoa (Part 435) and Eligibility in 
Guam, Puerto Rico and the Virgin Islands (Part 436)
    C. Services: General Provisions (Part 440)
    D. Services: Requirements and Limits Applicable to Specific 
Services (Part 441)
    E. Basis and Purpose (Sec.  441.650)
    F. State Plan Requirements (Sec.  441.653)
    G. Eligibility for Home and Community-Based Services Under 
Section 1915(i)(1) of the Act (Sec.  441.656)
    H. Needs-Based Criteria and Evaluation (Sec.  441.659)
    I. Independent Assessment (Sec.  441.662)
    J. Service Plan (Sec.  441.665)
    K. Provider Qualifications (Sec.  441.668)
    L. Definition of Individual's Representative (Sec.  441.671)
    M. Self-Directed Services (Sec.  441.674)
    N. State Plan HCBS Administration: State Responsibilities and 
Quality Improvement (Sec.  441.677)
    P. Section 2601 of the Affordable Care Act: 5-Year Period for 
Demonstration Projects: Waiver Requirements (Sec.  430.25)
    Q. Prohibition Against Reassignment of Provider Claims (Sec.  
447.10)
    R. Section 2401 of the Affordable Care Act: Community First 
Choice State Plan Option: Home and Community-Based Setting 
Requirements (Sec.  441.530)
IV. Response to Comments
V. Collection of Information Requirements
VI. Regulatory Impact Analysis
VII. Regulatory Flexibility Act Analysis
VIII. Unfunded Mandates Reform Act Analysis
IX. Federalism Analysis

Regulation Text

Acronyms

    Because of the many terms to which we refer by acronym in this 
proposed rule, we are listing the acronyms used and their corresponding 
terms in alphabetical order below.

ADA Americans with Disabilities Act of 1990 (Pub. L. 110-325)
ADLs Activities of daily living
AHRQ Agency for Healthcare Research and Quality
ANPRM Advance Notice of Proposed Rulemaking
CFC Community First Choice (1915(k) State plan Option)
CHIPRA Children's Health Insurance Program Reauthorization of 2009 
(Pub. L. 111-3)
CMS Centers for Medicare & Medicaid Services
DRA Deficit Reduction Act of 2005 (Pub. L. 109-171)
EPSDT Early and Periodic Screening, Diagnosis and Treatment
FBR Federal benefit rate
FFP Federal financial participation
FPL Federal poverty line
FY Federal fiscal year
HCBS Home and Community-Based Services
HHS Department of Health and Human Services
IADLs Instrumental activities of daily living
ICF/MR Intermediate care facility for the mentally retarded
LOC Level of care
NF Nursing facility
OBRA'81 Omnibus Budget Reconciliation Act of 1981 (Pub. L. 97-35)
OT Occupational therapy
PT Physical therapy
RFA Regulatory Flexibility Act
SPA State Plan Amendments
SSI Supplemental Security Income
SSI/FBR Supplemental Security Income Federal Benefit Rate
UPL Upper payment limit

I. Executive Summary

A. Purpose

    This proposed rule would amend the Medicaid regulations to define 
and describe State plan home and community-based services (HCBS). This 
regulation outlines the optional State plan benefit to furnish home and 
community-based State plan services and draw Federal matching funds. As 
a result, States will be able to design and tailor Medicaid services to 
better accommodate individual needs. This may result in improved 
patient outcomes and satisfaction, while enabling States to effectively 
manage their Medicaid resources.
    This proposed rule would also amend Medicaid regulations consistent 
with the requirements of section 2601 of the Patient Protection and 
Affordable Care Act of 2010 (Affordable Care Act), which added section 
1915(h)(2) to the Act to provide authority for a 5-year duration for 
certain demonstration projects or waivers under sections 1115, 1915(b), 
(c), or (d) of the Act, at the discretion of the Secretary, when they 
involve individuals who are dually eligible for both Medicaid and 
Medicare benefits.
    In addition, this proposed rule would provide an additional limited 
exception to the general requirement that payment for services under a 
State plan must be made directly to the individual practitioner 
providing a service when the Medicaid program is the primary source of 
reimbursement for a class of individual practitioners. This exception 
would allow payments to be made to other parties to benefit the 
providers by ensuring workforce stability, health and welfare, and 
trainings, and provide added flexibility to the State. We are including 
the payment reassignment provision in the HCBS proposed rule because 
States' Medicaid programs often operate as the primary or only payer 
for the class of practitioners that includes HCBS service providers.
    This proposed rule would also amend Medicaid regulations to provide 
home and community-based setting requirements related to section 2401 
of the Affordable Care Act for the section 1915(k) Community First 
Choice State plan option.

B. Summary of the Major Provisions

1. Section 1915(i) State Plan Home Community-Based Services
    The Deficit Reduction Act (DRA) added a new provision to the 
Medicaid statute entitled ``Expanded Access to Home and Community-Based 
Services

[[Page 26364]]

for the Elderly and Disabled.'' This provision allows States to provide 
HCBS (as an optional program) under their State Medicaid plans. This 
option allows States to receive Federal financial participation for 
services that were previously eligible for Federal funds only under 
waiver or demonstration projects. This provision was further amended by 
the Affordable Care Act. The statute now provides additional options 
for States to design and implement HCBS under the Medicaid State Plan. 
In April 4, 2008, we published a proposed rule to amend Medicaid 
regulations to implement HCBS under the DRA. That proposed rule was not 
finalized, and with the passage of section 2402 of the Affordable Care 
Act, some previously proposed regulations would no longer be in 
compliance with the current law under section 1915(i) of the Act. In 
addition, several new provisions were added. Specifically, the 
Affordable Care Act amended the statute by adding a new optional 
categorical eligibility group for individuals to provide full Medicaid 
benefits to certain individuals who will be receiving HCBS. It also 
authorized States to elect not to comply with section 1902(a)(10)(B) of 
the Act pertaining to comparability of Medicaid services. After closely 
analyzing the Affordable Care Act provisions, we concluded that a new 
proposed rule was necessary. This proposed rule retains a large portion 
of the policies contained within the April 4, 2008 proposed rule, and 
updates some of our previous proposals to reflect comments that we 
received on the April 4, 2008 proposed rule as well as the statutory 
changes that were made by the Affordable Care Act.
2. Section 2601 of the Affordable Care Act: 5-Year Period for Certain 
Demonstration Projects and Waivers
    This proposed rule also provides for a 5-year approval or renewal 
period, subject to the discretion of the Secretary, for certain 
Medicaid waivers. Specifically, this time period would apply for 
demonstration and waiver programs through which a State serves 
individuals who are dually eligible for both Medicare and Medicaid 
benefits.
3. Provider Payment Reassignments
    Section 1902(a)(32) of the Act provides that State plans can allow 
payments to be made only to certain individuals or entities. 
Specifically, payment may only be made to an individual practitioner 
who provided the service. The statute provides several specific 
exceptions to the general principle of direct payment to the individual 
practitioner.
    Over the years, some States have requested that we consider 
adopting additional exceptions to the direct payment principle to 
permit withholding from the payment due to the individual practitioner 
for amounts paid by the State directly to third parties for health and 
welfare benefits, training costs and other benefits customary for 
employees. These amounts would not be retained by the State, but would 
be remitted to third parties on behalf of the practitioner for the 
stated purpose.
    While the statute does not expressly provide for additional 
exceptions to the direct payment principle, we believe the 
circumstances at issue were not contemplated under the statute. 
Therefore, we are proposing that the direct payment principle should 
not apply because we think its application would contravene the 
fundamental purpose of this provision. The apparent purpose of the 
direct payment principle was to prohibit factoring arrangements, and 
not to preclude a Medicaid program that is functioning as the 
practitioner's primary source of revenue from fulfilling the basic 
responsibilities that are associated with that role. Therefore, we are 
proposing an additional exception to describe payments that we do not 
see as within the intended scope of the statutory direct payment 
requirement, that would allow the State to claim as a provider payment 
amounts that are not directly paid to the provider, but are withheld 
and remitted to a third party on behalf of the provider for health and 
welfare benefit contributions, training costs, and other benefits 
customary for employees.
4. Section 2401 of the Affordable Care Act: Community First Choice 
State Plan Option: Home and Community-Based Setting Requirements
    Section 1915(k)(1)(A)(ii) of the Act provides that home and 
community-based attendant services and supports must be provided in a 
home and community-based setting. The statute specifies that home and 
community-based settings do not include a nursing facility, institution 
for mental diseases, or an intermediate care facility for the mentally 
retarded.\2\ We propose to adopt this statutory language in our 
regulations. Additionally, to provide greater clarity, we are proposing 
language to establish that home and community-based settings must 
exhibit specific qualities to be eligible sites for delivery of home 
and community-based services.
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    \2\ Although we recognize that the language used here is 
outdated, and that ``intellectual disability'' is the appropriate 
way to discuss this type of disability, the Social Security Act 
still refers to these types of facilities in this manner.
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    After consideration of comments received in response to the 
Community First Choice (CFC) proposed rule published on February 25, 
2011, we decided to revise the setting provision and publish our 
proposed definition as a new proposed rule to allow for additional 
public comment before finalizing. Since CFC and section 1915(i) both 
pertain to home and community-based services, we have aligned this CFC 
proposed language with the section 1915(i) proposed home and community-
based setting requirements also included in this rule. We find the 
public comment process to be valuable in our attempt to develop the 
best policy on this issue for Medicaid beneficiaries. Therefore, we 
plan to fully consider all comments received, and align decision making 
and language pertaining to home and community-based setting 
requirements across CFC, section 1915(i) State plan HCBS, as well as 
section 1915(c) HCBS waivers.

C. Summary of Costs and Benefits

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       Provision description                      Total costs                          Total benefits
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1915(i) State Plan Home Community-   We estimate that, adjusted for a       We anticipate that States will make
 Based Services.                      phase-in period during which States    varying use of the State plan HCBS
                                      gradually elect to offer the State     benefit provisions to provide
                                      plan HCBS benefit, in fiscal year      needed long-term care services for
                                      (FY) 2012 the estimated Federal cost   Medicaid beneficiaries. These
                                      would be $80 million, and the          services will be provided in the
                                      estimated State cost would be $60      home or alternative living
                                      million.                               arrangements in the community,
                                                                             which is of benefit to the
                                                                             beneficiary, and is less costly
                                                                             than institutional care.

[[Page 26365]]

 
Section 2601 of the Affordable Care  No impact on Federal or State          As this provision elongates the time
 Act: 5-Year Period for               Medicaid funding. This rule is         period under which States may
 Demonstration Projects (Waivers).    voluntary on the part of States.       operate certain waiver programs
                                                                             without renewal, it will help
                                                                             States to minimize administrative
                                                                             and renewal requirements in order
                                                                             to better focus on program
                                                                             implementation and quality
                                                                             oversight.
Provider Payment Reassignments.....  We do not anticipate any impact on     This rule proposes additional
                                      Federal Medicaid funding. This rule    operational flexibilities for
                                      is voluntary on the part of States.    States to ensure a strong provider
                                                                             workforce. There is also no impact
                                                                             on individual practitioners, even
                                                                             though the proposed rule would
                                                                             allow States to deduct or withhold
                                                                             portions of such payments under the
                                                                             specific circumstances described in
                                                                             the proposed rule. State budgets
                                                                             will not likely be significantly
                                                                             affected because the operational
                                                                             flexibilities in the proposed rule
                                                                             would only facilitate the transfer
                                                                             of funds between participating
                                                                             entities, rather than the addition
                                                                             or subtraction of new funds.
Section 2401 of the Affordable Care  We do not believe there is an impact   This rule will provide States with
 Act: Community First Choice State    on Federal or State Medicaid funding   necessary guidance to support
 Plan Option: Home and Community-     as the purpose of the rule is merely   compliance with the requirement
 Based Setting Requirements.          to define home and community-based     that CFC services are provided in a
                                      settings in which CFC services may     home or community based-setting.
                                      be provided.                           This rule also provides beneficiary
                                                                             protections to support an
                                                                             individual's choice to receive home
                                                                             and community-based services in a
                                                                             manner that allows for integration
                                                                             with the greater community.
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II. Background

A. Expanded Access to Home and Community-Based Services for the Elderly 
and Disabled Under Section 1915(i) of the Social Security Act: History 
of Section 1915(i) of the Act

    Section 6086 of the Deficit Reduction Act of 2005 (Pub. L. 109-171, 
enacted February 8, 2006) (DRA) entitled ``Expanded Access to Home and 
Community-Based Services for the Elderly and Disabled,'' added section 
1915(i) to the Social Security Act (the Act) to allow States, at their 
option, to provide home and community-based services (HCBS) under their 
State Medicaid plans. This option allows States to receive Federal 
financial participation (FFP) for services that were previously only 
eligible for FFP under waivers or demonstration projects, such as those 
authorized under sections 1915(c) and 1115 of the Act. Section 1915(i) 
of the Act was later amended by sections 2402(b) through (g) of the 
Patient Protection and Affordable Care Act of 2010 (Pub. L. 111-148, 
enacted March 23, 2010) (Affordable Care Act) to provide additional 
options for States to design and implement HCBS under the Medicaid 
State Plan.
    In the April 4, 2008 Federal Register (73 FR 18676), we published a 
proposed rule to amend Medicaid regulations to implement HCBS under 
section 1915(i) of the Act. This rule was never finalized, and with the 
passage of the Affordable Care Act some of the proposed regulations 
would no longer be in compliance with the statute, as several new 
provisions were added to the statute. Therefore, we concluded that a 
new proposed rule and a new period of public comment were necessary. 
This proposed rule retains a large portion of the policies contained 
within the April 4, 2008 proposed rule. However, we have updated some 
of our proposals to reflect the statutory changes that were made by the 
Affordable Care Act.

B. Overview of the State Plan Home and Community-Based Services (HCBS) 
Benefit To Provide HCBS for the Elderly and Individuals With 
Disabilities

    The following overview describes the provisions of section 1915(i) 
of the Act as established by the DRA and amended by the Affordable Care 
Act.
    In the following discussion and the proposed regulation, we refer 
to particular home and community-based service(s) offered under section 
1915(i) of the Act as ``State plan HCBS'' or simply ``HCBS''.\3\ We 
refer to the ``State plan HCBS benefit'' when describing the collective 
requirements of section 1915(i) of the Act that apply to States 
electing to provide one, or several, of the authorized HCBS. We choose 
to use the term ``benefit'' rather than ``program'' to describe section 
1915(i) of the Act to avoid possible confusion with section 1915(c) 
HCBS waiver programs. The State plan HCBS benefit shares many features 
with section 1915(c) waiver programs, but it is a State plan benefit, 
although one with very unique features not common to traditional State 
plan services.
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    \3\ Note that the abbreviation HCBS does not distinguish between 
singular and plural. Where this could be confusing, we spell out 
home and community-based service(s).
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    Under section 1915(i) of the Act, States can provide HCBS to 
individuals who require less than institutional level of care (LOC) and 
who would, therefore, not be eligible for HCBS under section 1915(c) 
waivers, in addition to serving individuals who have needs that would 
meet entry requirements for an institution. As it is a State plan 
benefit, section 1915(i) of the Act also does not require cost 
neutrality compared to institutional services. Section 1915(i) of the 
Act differs from section 1915(c) waivers in other ways. As with other 
State plan services, the benefits must be provided Statewide, and 
States must not limit the number of eligible people served.
1. Services
    Section 1915(i)(1) of the Act grants States the option to provide, 
under the State plan, the services and supports listed in section 
1915(c)(4)(B) of the Act governing HCBS waivers. The services 
specifically listed in section 1915(c)(4)(B) of the Act are as follows:
     Case management.
     Homemaker/home health aide.
     Personal care.
     Adult day health.
     Habilitation.
     Respite care.
     Other services requested by the State as the Secretary may 
approve.

[[Page 26366]]

    In addition, the following services may be provided for individuals 
with chronic mental illness:
     Day treatment.
     Other partial hospitalization services.
     Psychosocial rehabilitation services.
     Clinic services (whether or not furnished in a facility).
    The HCBS may not include payment for room and board (see additional 
discussion in section II.E.3. of this proposed rule).
    Section 1915(c)(4)(B) of the Act also permits States to request, 
and the Secretary to approve, coverage of other services not 
specifically designated in the list of specific services in the 
subparagraph. This authority was not included under section 1915(i) 
when it was created in the DRA. However, section 2402(c) of the 
Affordable Care Act amended section 1915(i)(1) of the Act to permit 
States to request, and the Secretary to approve, coverage for such 
other services in a 1915(i) benefit.
    We interpret the statute as authorizing States to cover in their 
1915(i) benefit both the services specifically identified in section 
1915(c)(4)(B) of the Act, and any other services States request to 
include and which the Secretary approves. Therefore, we would expect 
States to define State plan HCBS with sufficient specificity so that we 
can determine whether the nature and scope of the service clearly 
relates to those listed in section 1915(c)(4)(B) of the Act. These 
services are described in Sec.  440.180 of this proposed rule. However, 
we would not require the same standard for ``other services'' under 
section 1915(i) State plan HCBS that we would apply under section 
1915(c) of the Act. Since section 1915(i) of the Act does not require 
an individual to meet the criteria for institutional LOC, there is no 
authority to apply the standard that the ``other services'' defined and 
provided through State plan HCBS be necessary to prevent 
institutionalization. We note that for all services, including those in 
the ``other services'' category, States must include a specific and 
complete description of the scope of the service, and not include open-
ended statements.
    We propose to review and approve these ``other services'' not 
specifically listed in section 1915(c)(4)(A) of the Act based upon the 
applicability to and consistency with the support needs as indicated in 
the needs-based criteria that a State defines for the HCBS benefit, and 
with assurance that the service will not duplicate other services 
available to individuals through the State's Medicaid State plan. 
Additionally, these services must be offered in a manner that would 
comply with section 1902(a)(23) of the Act regarding free choice of 
providers, and that permits individuals to receive services in the most 
integrated setting possible and consistent with the best interests of 
the beneficiaries and the requirements of the Americans with 
Disabilities Act (ADA). Section 1915(i) does not incorporate waiver 
authority or other exceptions from these legal requirements. Therefore, 
the services offered cannot have the impact of limiting the pool of 
qualified providers from which individuals would receive services, or 
have the impact of requiring/only allowing individuals to receive 
services from the same entity from which they purchase or who provide 
their housing. For example, we would not allow States to establish 
residential HCBS in provider-owned and/or operated settings only, when 
they do not have comparable HCBS available to individuals residing in 
their own homes.
2. Eligibility
    Eligibility for this option is based upon several different factors 
that are either specified by the statute or that a State may define. 
These include financial eligibility, the establishment of needs-based 
criteria, and the State option to target the benefit and to offer 
benefits differing in type, amount, duration or scope to specific 
populations. Due to the complex interaction between these provisions, 
the following section is divided into subsections that address 
eligibility for the benefits. These include:
     Eligibility Overview.
     Income Eligibility.
     Needs-Based Criteria Overview.
     Option to Disregard Comparability.
     Establishing Needs-Based Criteria.
a. Section 1915(i) of the Act: Eligibility Overview
    Section 1915(i) of the Act explicitly provides that State plan HCBS 
may be provided without determining that, but for the provision of 
these services, individuals would require the LOC provided in a 
hospital, a nursing facility (NF), or an intermediate care facility for 
the mentally retarded \4\ (ICF/MR) as is required in section 1915(c) 
HCBS waivers. While HCBS services provided through section 1915(c) 
waivers must be ``cost-neutral'' as compared to institutional services, 
no cost neutrality requirement applies to the section 1915(i) State 
plan HCBS benefit. States are not required to produce comparative cost 
estimates of institutional care and the State plan HCBS benefit. This 
significant distinction allows States to offer HCBS to individuals 
whose needs are substantial, but not severe enough to qualify them for 
institutional or waiver services, and to individuals for whom there is 
not an offset for cost savings in NFs, ICFs/MR, or hospitals.
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    \4\ Although we recognize that the language used here is 
outdated, and that ``intellectual disability'' is the appropriate 
way to discuss this type of disability, the Social Security Act 
still refers to these types of facilities in this manner.
---------------------------------------------------------------------------

    One particular result of this distinction is that, through the 
section 1915(i) benefit, States have the ability to provide a full 
array of HCBS to adults with mental health and substance use disorders. 
The benefit also creates an opportunity to provide HCBS to other 
individuals with significant needs who do not qualify for an 
institutional LOC, such as some individuals with Autism Spectrum 
Disorder, diabetes, acquired immune deficiency syndrome, or Alzheimer's 
disease. In many cases, without the provision of HCBS, these conditions 
may deteriorate to the point where the individuals become eligible for 
more costly facility-based care.
    State plan HCBS are intended to enable individuals to receive 
needed services in their own homes, or in alternative living 
arrangements in what is collectively termed the ``community'' in this 
context. (See additional discussion in section II.E.2. of this proposed 
rule regarding institutions not considered to be in the community, and 
in which State plan HCBS will not be available.)
b. Income Eligibility
    Section 1915(i)(1) of the Act requires that in order to receive 
State plan HCBS, individuals must be eligible for Medicaid under an 
eligibility group covered under the State's Medicaid plan. In 
determining whether either of the relevant income requirements 
(discussed) is met, the regular rules for determining income 
eligibility for the individual's eligibility group apply, including any 
less restrictive income rules used by the State for that group under 
section 1902(r)(2) of the Act. Section 1915(i)(3) of the Act permits 
States to not apply the requirements of section 1902(a)(10)(C)(i)(III) 
of the Act relating to income and resource rules in the community for 
the medically needy. Under this authority States are permitted to use 
institutional eligibility rules in determining eligibility for the 
medically needy. The nonapplication requirements are described in 
section II.B.14 of the preamble. This eligibility criterion was not 
changed by the Affordable Care Act.

[[Page 26367]]

    Section 2402(b) of the Affordable Care Act added a new option at 
section 1915(i)(6) of the Act, to allow States to provide section 
1915(i) services to certain individuals who meet the needs-based 
criteria, who would be eligible for HCBS under section 1915(c), (d) or 
(e) waivers or a section 1115 waiver approved for the State, and who 
have income up to 300 percent of the Supplemental Security Income 
Federal Benefit Rate (SSI/FBR).
    Section 2402(d) of the Affordable Care Act also amended section 
1902(a)(10)(A)(ii) of the Act by adding a new optional categorically 
needy eligibility group specified at section 1902(a)(10)(A)(ii)(XXII) 
of the Act to provide full Medicaid benefits to certain individuals who 
will be receiving section 1915(i) services. This eligibility group has 
two parts, and States can cover individuals under either or both parts 
of the group. Under this group, States can elect to cover individuals 
who are not otherwise eligible for Medicaid who meet the needs-based 
criteria of the section 1915(i) benefit, have income up to 150 percent 
of the Federal poverty line (FPL) with no resource test and who will 
receive section 1915(i) services, or individuals with income up to 300 
percent of the SSI/FBR, who would be eligible under an existing section 
1915(c), (d) or (e) \5\ waiver or section 1115 waiver approved for the 
State and who will receive section 1915(i) services. These individuals 
do not have to be receiving services under an existing section 1915(c), 
(d) or (e) waiver or section 1115 waiver; the individual just has to be 
determined eligible for the waiver.
---------------------------------------------------------------------------

    \5\ 1915(d) and (e) waivers are State options to provide HCBS to 
the elderly and to individuals with disabilities, respectively. 
Currently, no State elects to provide services under either of these 
authorities.
---------------------------------------------------------------------------

c. Needs-Based Criteria Overview
    In contrast to the institutional LOC requirement for eligibility in 
HCBS waivers, section 1915(i)(1)(A) of the Act requires States to 
impose needs-based criteria for eligibility for the State plan HCBS 
benefit. Institutional level of care criteria must be more stringent 
than the needs-based criteria for the State plan HCBS benefit. 
Additionally, the State may establish needs-based criteria for each 
specific State plan home and community-based service that an individual 
would receive.
    Thus, under section 1915(i) of the Act, States determine 
eligibility for State plan HCBS based on the following:
     Individuals eligible for medical assistance under the 
State plan whose income is below 150 percent of FPL, as determined by 
the State under the methodology applicable to the group, including any 
less restrictive income rules in place through section 1902(r)(2) of 
the Act.
     At the State option, individuals eligible under the new 
optional categorical needy group 1902(a)(10)(A)(ii)(XXII) of the Act. 
This includes:
    ++ Individuals with income below 300 percent of the SSI/FBR who are 
eligible for HCBS through a waiver approved for the State under 
sections 1115, 1915(c), 1915(d), or 1915(e) of the Act and will receive 
section 1915(i) services.
    ++ Individuals who are not otherwise eligible for medical 
assistance who have income below 150 percent and who will receive 
section 1915(i) services. There will be no resource test for this 
group.
     The individual resides in the home or community.
     The individual meets the needs-based criteria established 
by the State.
     The individual meets any targeting criteria in accordance 
with CMS requirements that the State elects to establish.
    For more information about the optional eligibility category for 
individuals who receive services through the State plan HCBS benefit, 
please see section II.B.18. of this proposed rule.
    The needs-based criteria for coverage of individual services 
provided within a State's section 1915(i) benefit are subject to the 
same requirements as the needs-based eligibility criteria for the 
benefit, and may not limit or target any service based on age, nature 
or type of disability, disease, condition, or residential setting, but 
could include risk factors or take into account service history. 
However, section 1915(i)(7) of the Act provides States with the option 
to target eligibility for the benefit to specific populations.
d. Option To Disregard Comparability
    Effective October 1, 2010, section 2402(f) of the Affordable Care 
Act, amended section 1915(i)(3) of the Act to permit States to elect 
not to comply with the requirement of section 1902(a)(10)(B) of the Act 
relating to comparability of services. A waiver of comparability is a 
key feature of section 1915(c) HCBS waivers, permitting a State to 
target the HCBS benefit to certain populations by defining which groups 
will be eligible for waiver services, and by having separate waivers 
for different groups. With this change, States may exercise the 
authority to target the section 1915(i) benefit similarly, but are not 
required to do so. A State must establish needs-based criteria for 
eligibility for and receipt of State plan HCBS regardless of whether it 
elects the option to not comply with the comparability requirement. For 
additional information regarding the option for targeting in the 
benefit, please see the discussion at (section II.B.19 of the proposed 
rule).
e. Establishing Needs-Based Criteria
    The heading of section 1915(i) of the Act describes the State plan 
HCBS benefit as ``for Elderly and Disabled Individuals.'' However, 
section 1915(i) of the Act does not include definitions of the terms 
``elderly'' or ``disabled'' in setting forth eligibility criteria, and 
instead requires eligibility to be based on need and on eligibility for 
medical assistance under a State plan group. Thus, we believe that the 
use of these terms in the statute is descriptive. Individuals who are 
eligible for medical assistance under a group covered in the State's 
plan and who meet the needs-based eligibility criteria for State plan 
HCBS will be likely to have needs stemming either from a disability or 
from being elderly. We note that section 1902(b)(1) of the Act 
prohibits the Secretary from approving any plan for medical assistance 
that imposes an age requirement of more than 65 years as a condition of 
eligibility.
    The statute does not define ``needs-based.'' We are proposing to 
define the nature of needs-based criteria to distinguish them from 
targeting criteria, which are permitted under the statute as a State 
option and are distinct from the needs-based criteria. We propose to 
provide States with the flexibility to define the specific needs-based 
criteria they will establish.
    We believe that the statute distinguishes needs-based criteria from 
other possible descriptors of an individual's medical condition or 
diagnosis. We interpret needs-based criteria as describing the 
individual's particular need for support, regardless of the conditions 
and diagnoses that may cause the need. However, as discussed in section 
II.B.19. of this proposed rule, States may also disregard comparability 
requirements contained in section 1902(a)(10)(B) of the Act, and thus, 
target the section 1915(i) benefit (or multiple benefits) to 
individuals with specific diagnoses and conditions. We interpret the 
statute to mean that, when a State elects to disregard comparability in 
order to target the benefit to individuals with specific diagnoses, 
those individuals must meet both the targeting criteria, as well as the 
State's needs-based criteria.

[[Page 26368]]

    Section 1915(i)(1)(B) of the Act additionally requires that the 
needs-based criteria for determining whether an individual requires the 
LOC provided in a hospital, NF, or ICF/MR or under a waiver of the 
State plan be more stringent than the needs-based eligibility criteria 
for the State plan HCBS benefit. Institutional/waiver LOC criteria in 
some States do not include needs-based criteria. Since the two must be 
comparable, we interpret this to mean that States without a needs-based 
component to their institutional LOC evaluation must establish needs-
based criteria for those services, as well as for the State plan HCBS 
benefit. We also believe that States electing to implement a section 
1915(i) benefit must include a needs-based evaluation component of the 
institutional/waiver LOC determination process so that stringency of 
those criteria can be compared to stringency of eligibility criteria 
for the State plan HCBS benefit.
    ``Stringency'' is not defined in the statute. The requirement is 
simply that there be a differential between the threshold of need for 
the State plan HCBS benefit as compared to the threshold of need for 
institutional services. The required difference in criteria will be 
relative, specific to each State's unique institutional levels of care, 
and can be constructed in several ways. Because we have received many 
questions on the stringency requirements of the statute we will 
illustrate some of the possible options. We want to be clear, however, 
that the requirement of section 1915(i) of the Act is simply that the 
needs-based criteria for institutions and for the State plan HCBS 
benefit be set so that the latter are lower at the time the benefit is 
implemented. There is no requirement that institutional criteria be 
higher, lower, or unchanged from their level prior to implementing the 
State plan HCBS benefit. The only test is that the result of all the 
needs-based criteria must be that some individuals will be served under 
the State plan HCBS benefit who are not eligible to be served by 
Medicaid institutional services. If institutional LOC criteria are 
changed in implementing the benefit, States may provide protections for 
individuals who lose eligibility due to the application of those new 
criteria (see section II.B.16. of this proposed rule).
    There are issues for States to consider other than section 1915(i) 
of the Act that will influence decisions on levels of care and needs-
based criteria, that are far beyond the scope of this document, for 
example, statutory requirements for maintenance of effort (MOE) in 
effect at the time of this proposed rule, requirements of the Americans 
with Disabilities Act and the Olmstead decision, and funding 
constraints \6\. In this proposed rule, we focus on the choices a State 
may make in setting up a State plan HCBS benefit in ways that are 
consistent with requirements of section 1915(i) of the Act. As an 
illustration, this proposed regulation would permit a State to define 
the needs-based criteria for a new HCBS benefit at a lower level than 
the State's existing institutional levels of care, and leave the 
institutional criteria unchanged (if they already include needs-based 
criteria). This would satisfy the requirement that the institutional 
criteria be more stringent than the State plan HCBS benefit, meet a 
goal to service individuals who have not previously had access to HCBS 
because they have not yet reached the level of need for admission to an 
institution, without making any change to existing services. This 
proposed regulation would also permit States to take other approaches. 
A State could raise one or more institutional levels of care, and 
provide HCBS under the State plan benefit for some or all of the 
individuals who would have not yet reached the level of need for 
admission to an institution. The State could choose (or not) to also 
include in the benefit individuals below the former institutional level 
of care. This scenario would also satisfy the stringency requirement, 
but would be more complex and would require analysis of some of the 
other relevant issues mentioned above.
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    \6\ Under section 2001(b) of the Affordable Care Act, States are 
not permitted to establish eligibility standards, methodologies, or 
procedures that are more restrictive than those in place on the date 
of the Affordable Care Act's enactment (March 23, 2010). For adults, 
this requirement lasts until the Secretary determines that a health 
insurance exchange is fully operational in the State; for children 
under the age of 19, the requirement lasts until September 30, 2019.
    Because the application of LOC requirements for institutions and 
HCBS waivers may have an impact on Medicaid eligibility for some 
individuals, we encourage States interested in using the State plan 
HCBS to contact CMS for technical assistance in meeting these 
statutory requirements.
---------------------------------------------------------------------------

    We note that section 1915(i) of the Act does not modify the 
statutory coverage provisions governing institutional benefits. States 
must be cautious not to establish more stringent needs-based criteria 
for hospitals, NFs or ICFs/MR that would reduce access to services 
mandated elsewhere in title XIX, since those other provisions of the 
statute were not amended. For example, the NF benefit is defined in 
section 1919(a)(1) of the Act as an institution that is primarily 
engaged in providing to residents skilled nursing care, rehabilitation 
services, and ``[o]n a regular basis, health-related care and services 
to individuals who because of their mental or physical condition 
require care and services (above the level of room and board) which can 
be made available to them only through institutional facilities.'' To 
the extent an individual has a medical need for such health-related 
care and services which are only available in an institutional setting 
because that needed home or community-based health-related care and 
services are not available, the NF institutional benefit must remain 
available to all Medicaid eligible individuals described in section 
1919(a)(1)(C) of the Act.
    We interpret the reference to hospitals in section 1915(i)(1)(B) of 
the Act to mean facilities certified by Medicaid as hospitals that are 
providing long-term care services. General acute care Medicaid hospital 
services are not subject to LOC determinations by the State.
    We interpret the reference in section 1915(i)(1)(B) of the Act 
``under any waiver of such plan'' to apply to section 1915(c), 1915(d) 
and 1915(e) waivers, as well as those section 1115 waivers that include 
HCBS, as specified in section 1915(i)(6)(a) of the Act. Sections 
1915(c), (d) and (e) \7\ of the Act will have more stringent minimum 
criteria than the State plan HCBS benefit, as the waivers are required 
to use LOC assessments equivalent to one or more of the institutional 
levels of care. If a State has an approved section 1115 demonstration 
with multiple levels of care for institutional and/or HCBS, we 
interpret this requirement to apply to the least stringent 
institutional LOC criteria within that demonstration that would likely 
be the comparison for purposes of section 1915(i) of the Act.
---------------------------------------------------------------------------

    \7\ Although the statute references waivers under Section 
1915(d) and (e), no State currently operates a waiver under either 
authority. In the event that a State elects to include a (d) or (e) 
waiver, these requirements would apply.
---------------------------------------------------------------------------

    In summary, the needs-based eligibility criteria for the State plan 
HCBS benefit must have the effect of allowing some individuals who do 
not meet the needs-based criteria for institutionalized care to access 
HCBS through the section 1915(i) benefit, but may also allow access to 
individuals who meet the institutional needs-based eligibility 
criteria. States may also enroll individuals in both a section 1915(i) 
benefit, and a section 1915(c) waiver, as discussed earlier in this 
rule.
3. Number Served
    Section 1915(i)(1)(C) of the Act, as amended by section 2402(e) of 
the

[[Page 26369]]

Affordable Care Act, does not permit States to limit the number of 
eligible individuals receiving services and to establish waiting lists. 
Instead, the benefit requires a State to provide to the Secretary a 
projection of the number of individuals expected to receive services. 
If this projection is exceeded, section 1915(i)(1)(D)(ii) of the Act 
permits the State to constrict its needs-based eligibility thresholds 
for State plan HCBS (see the discussion on Adjustment Authority in 
I.B.5. of this proposed rule).
    Section 1915(i)(1)(C) of the Act requires that the State submit 
projections, in the form and manner, and upon the frequency as the 
Secretary specifies, of the number of individuals to be provided HCBS. 
We propose to follow the practice used in HCBS waivers to calculate the 
number served as unduplicated persons receiving services during a 12-
month period. We further propose to specify that, during the 
application process, States would project the total number of 
individuals to be served by the benefit during the initial year. We 
further propose to specify that States with an approved State plan HCBS 
benefit annually submit both the projected number of individuals to be 
served and the actual number of individuals served in the previous 
year. We refer to individuals served under the benefit and included in 
the annual number served as having been enrolled in the benefit. The 
statute refers to ``enrollment'' in section 1915(i)(1)(D)(ii) of the 
Act concerning ``Adjustment Authority.'' Because there are a number of 
steps involved in an individual initiating service under the State plan 
HCBS benefit, ``enrollment'' is a useful term to indicate individuals 
for whom those steps have been completed, services have been authorized 
or provided, and who will be accounted for in the annual number served 
under the benefit. If the State exceeds its enrollment estimate, the 
State would report the number of individuals actually served in the 
required annual report to the Secretary, and revise the estimate for 
succeeding years.
4. Independent Evaluation
    Section 1915(i)(1)(D) of the Act sets forth a requirement for an 
individual evaluation of need for each person seeking coverage of the 
State plan HCBS benefit. The statute here uses the term ``assessment,'' 
while sections 1915(i)(1)(E) and (H) of the Act refer to the initial 
eligibility determination as the ``independent evaluation.'' We would 
use the latter term for consistency. ``Independent evaluation,'' as 
understood in light of section 1915(i)(1)(H) of the Act, means free 
from conflict of interest on the part of the evaluator. The independent 
evaluation is separate from, but related to, the independent assessment 
(as discussed below).
    The independent evaluation applies the needs-based HCBS eligibility 
criteria (established by the State according to section 1915(i)(1)(A) 
of the Act), to an applicant for the State plan HCBS benefit. Section 
1915(i)(1)(D) of the Act establishes that determining whether an 
individual meets the needs-based eligibility criteria specified in 
sections 1915(i)(1)(A) and (B) of the Act requires an individualized 
and independent evaluation of each person's support needs and 
capabilities. We interpret ``needs and capabilities'' to mean a 
balanced approach that considers both needs and strengths. However, the 
words ``capability'' and ``ability'' are historically connected with a 
deficit-oriented approach to assessment, which is the opposite of the 
statute's person-centered approach. Therefore, we would refer to needs 
and strengths in this discussion and in the regulation.
    Section 1915(i)(1)(D) of the Act indicates that the independent 
evaluation ``may take into account'' the inability of the individual to 
perform two or more activities of daily living (ADLs), (which the 
statute defines by reference to section 7702B(c)(2)(B) of the Internal 
Revenue Code of 1986), or the need for significant assistance to 
perform these activities. The State may also assess other risk factors 
it determines to be appropriate in determining eligibility for, and 
receipt of, HCBS. The statute does not limit the factors a State may 
take into account in the evaluation. For example, difficulty with 
instrumental activities of daily living (IADLs) or the need for cueing 
in order to perform a task could be considered. A State could choose to 
use a person-centered functional assessment tool or strategy to fulfill 
this requirement.
5. Adjustment Authority
    Section 1915(i)(1)(D)(ii) of the Act permits the State to adjust 
the needs-based criteria described in section 1915(i)(1)(B) of the Act 
in the event that enrollment exceeds the annual maximum number of 
individuals that the State has projected it would serve within 
parameters as noted above. The purpose of an adjustment would be to 
revise the State's needs-based criteria to reduce the number of 
individuals who would be eligible for the HCBS benefit. To preserve the 
requirement of section 1915(i)(1)(B) of the Act that more stringent 
needs-based criteria be in place for institutionalized care, the 
adjusted eligibility criteria must still be less stringent than those 
applicable to institutional levels of care in the State plan 
institutional benefit, and thus, in any HCBS waivers that require 
participants to meet an institutional LOC. If the State chooses to make 
this adjustment, it must provide at least 60 days written notice to the 
Secretary and to the public, stating the revisions it proposes.
    While the adjustment authority is granted to States without having 
to obtain prior approval from the Secretary, we believe that the 
statute requires the State to amend the State plan to reflect the 
adjusted criteria. We believe that the State's adjustment authority 
does not prevent the Secretary from disapproving a State plan amendment 
(SPA) that fails to comply with the statute and regulations. This 
provision of the law must be interpreted in light of existing Medicaid 
requirements not waived by section 1915(i) of the Act. We have, 
therefore, incorporated within the proposed regulation those relevant 
requirements in addition to the statutory provisions within section 
1915(i)(1)(D)(ii) of the Act. Section 441.559(c) provides the greatest 
degree of authority for adjustment possible within the constraints of 
other requirements. The Secretary will evaluate the State's adjusted 
criteria for compliance with the provisions of this subparagraph and 
all requirements of subpart K. A State may implement the adjusted 
criteria as early as 60 days after notifying all required parties. 
Section 430.16 provides the Secretary 90 days to approve or disapprove 
a State plan amendment, or request additional information. If the State 
implements the modified criteria prior to the Secretary's final 
determination with respect to the State plan amendment, the State would 
be at risk for any actions it takes that are later disapproved.
    After needs-based criteria are adjusted under this authority, the 
statute requires that individuals served under the previous State plan 
HCBS needs-based criteria would continue to receive HCBS. As amended by 
section 2402(e) of the Affordable Care Act, section 
1915(i)(1)(D)(ii)(II) of the Act provides that an individual who is 
receiving HCBS before the effective date for modified needs-based 
criteria, (based on the most recent version of the criteria in effect 
before the modification), must be deemed by the State to continue to be 
eligible for State plan HCBS until the individual no longer meets the 
needs-based criteria, and targeting criteria if

[[Page 26370]]

applicable, under which they were originally provided the benefit. Any 
changes to the institutional LOC criteria under this section are 
subject to the same requirements as described in 1915(i)(5) (see 
section II.B.16. of this proposed rule).
    However, we would remind States of the maintenance of efforts 
requirements discussed in section II.B.2. of this proposed rule.
    We note that the required processes for individual notification and 
appeals, contained within part 431, subpart E, remain in effect 
whenever a State modifies its needs-based criteria. Furthermore, 
section 1915(i)(5) of the Act provides protections for individuals who 
are receiving services in waivers or institutional settings prior to 
the modification of the LOC requirements, as discussed below.
    It is important to note that the adjustment authority is a State 
option; there is nothing in the law that requires a State to constrict 
its needs-based criteria if enrollment exceeds projections.
6. Independent Assessment
    Section 1915(i)(1)(E) of the Act describes the relationship of 
several required functions. Section 1915(i)(1)(E)(i) of the Act refers 
to the independent evaluation of eligibility in section 1915(i)(1)(A) 
and (B) of the Act, emphasizing the independence requirement. Section 
1915(i)(1)(E)(ii) of the Act introduces the requirement of an 
independent assessment following the independent evaluation. Thus, 
there are two steps to the process: the eligibility determination, 
which requires the application of the needs-based criteria and any 
additional targeting criteria the State elects to require; and the 
assessment for individuals who were determined to be eligible under the 
first step, to determine specific needed services and supports. The 
assessment also applies the needs-based criteria for each service (if 
the State has adopted such criteria). Like the eligibility evaluation, 
the independent assessment is based on the individual's needs and 
strengths. The Act requires that both physical and mental needs and 
strengths are assessed. These requirements describe a person-centered 
assessment including behavioral health, which will take into account 
the individual's total support needs as well as the need for the HCBS 
to be offered. Section 1915(i)(1)(E)(ii) of the Act requires that 
States use the assessment to: Determine the necessary level of services 
and supports to be provided; prevent the provision of unnecessary or 
inappropriate care; and establish a written individualized service 
plan.
    To achieve the three purposes of the assessment listed above, the 
assessor must be independent; that is, free from conflict of interest 
with regard to providers, to the individual and related parties, and to 
budgetary concerns. Therefore, we are proposing specific requirements 
for independence of the assessor in accordance with section 
1915(i)(1)(H)(ii) of the Act, and we would apply these also to the 
evaluator and the person involved with developing the person-centered 
service plan, where the effects of conflict of interest would be 
equally deleterious. These considerations of independence inform the 
discussion below under section 1915(i)(1)(H)(ii) of the Act regarding 
conflict of interest standards.
    Section 1915(i)(1)(F) of the Act provides detailed requirements for 
the independent assessment:
     A face-to-face evaluation of the individual by an assessor 
trained in the assessment and evaluation of persons whose physical or 
behavioral health conditions trigger a potential need for HCBS. To 
fulfill this statutory requirement, we would propose that the State 
must develop standards and determine the qualifications necessary for 
agencies and individuals who will perform independent assessments and 
be involved with developing the plans of care. Additionally, we 
recognize that many States are developing infrastructure and policies 
to support the use of telemedicine and other ways to provide distance-
care to individuals in order to increase access to services in rural 
areas or other locations with a shortage of providers. To support these 
activities, we propose that the ``face-to-face'' assessment can include 
any session(s) performed through telemedicine or other information 
technology medium if the following conditions apply:
    ++ The health care professional(s) performing the assessment meet 
the provider qualifications defined by the State, including any 
additional qualifications or training requirements for the operation of 
required information technology;
    ++ The individual receives appropriate support during the 
assessment, including the use of any necessary on-site support-staff; 
and
    ++ The individual is provided the opportunity to request an in-
person assessment in lieu of one performed via telemedicine.
     An objective evaluation of the individual's inability to 
perform two or more ADLs, or the need for significant assistance to 
perform the activities is required. We do not interpret ``objective'' 
to refer to the independence required of the assessor as discussed 
above, but to refer to an additional requirement for reliance on some 
level of valid measurement appropriate to the ADLs in order to ensure 
that the assessments were applied uniformly across individuals in the 
section 1915(i) benefit. For example, an occupational therapy (OT) or 
physical therapy (PT) evaluation or a trauma screening could be 
required, the results of which would be utilized by the assessor. We 
note that the trained assessor is not necessarily responsible for 
performing the objective evaluation, but should make sure that the 
objective evaluation is performed by qualified individuals. We do not 
propose methods to achieve this requirement, as the nature of the HCBS 
to be provided and the needs-based criteria for the State plan HCBS 
benefit will determine the appropriate means of evaluating ADLs.
    Section 1915(i)(1)(F) of the Act defines ADLs in terms of section 
7702B(c)(2)(B) of the Internal Revenue Code of 1986, which includes the 
following: bathing, dressing, toileting, transferring, eating, and 
continence. This section of the Internal Revenue Code does not define 
the terms ``inability'' or ``significant assistance.'' While States 
have some flexibility to define these factors, we interpret 
``inability'' to mean need for total support to perform an ADL, and 
``significant assistance'' to mean assistance from another individual 
or from assistive technology necessary for the successful performance 
of the task.
    An objective evaluation of inability to perform two or more ADLs is 
a required element of the assessment but only a suggested element of 
the eligibility evaluation. We conclude that partial or complete 
inability to perform two or more ADLs is not a statutory prerequisite 
to receive State plan HCBS, but is a required element of the assessment 
in order to inform the development of the service plan required by 
section 1915(i)(1)(G) of the Act. Because States may define very 
diverse needs-based criteria and HCBS service definitions, we do not 
believe it is possible to be more specific in regulation about the 
criteria for assessment. However, we would note that a functional 
assessment tool could be used to measure objectively an individual's 
needs to establish eligibility as well as to develop an appropriate 
service plan.
    We note that we are currently engaged in an initiative to develop 
universal core elements to be included in an assessment, through work 
being done

[[Page 26371]]

under the Balancing Incentives Payment Program, created under section 
10202 of the Affordable Care Act. For consistency across Medicaid 
programs, we therefore, intend to move toward States including any 
finalized universal core elements developed from this work in carrying 
out independent assessments under 1915(i), as well as under 1915(k) 
Community First Choice, and in performing other HCBS assessments as 
determined by CMS.
     Consultation with any responsible persons appropriate to 
the individual and the needed supports, including family, spouse, 
guardian, or healthcare and support providers. We do not believe the 
examples listed in the statute to be prescriptive or limiting. The 
assessor must give the individual and, if applicable, the individual's 
authorized representative, the opportunity to identify appropriate 
persons who should be consulted during this process. The role of the 
assessor is to facilitate free communication from persons relevant to 
the support needs of the individual, while protecting privacy, and 
promoting the wishes and best interests of the individual. In necessary 
circumstances, the consultations are not required to be performed in 
person or at the same time and place as the face-to-face evaluation, so 
long as any ancillary contacts are with persons the individual has 
identified, are divulged and discussed with the individual/
representative, and documented. For example, telephone communications 
with parties not available for an in-person meeting would be permitted.
     An examination of the individual's relevant history, 
medical records, and care and support needs.
     Knowledge of best practices and research on effective 
strategies that result in improved health and quality of life outcomes, 
and knowledge of the adult and child public service systems. At section 
1915(i)(1)(F)(v) of the Act, the statute requires that the examination 
of the individual's history, medical records, and care and support 
needs be guided by this knowledge, and we would propose that this 
evidence-based approach should apply to the entire process for 
assessment and service plan development in a comprehensive, coordinated 
manner. Since the individualized service plan must be based upon the 
independent assessment, these requirements for the assessment should be 
used to inform and strengthen the service plan and, subsequently, the 
services provided to the individual.
     If the State offers the option of self-direction and the 
individual so elects, the assessment should include gathering the 
information required to establish self-direction of services. We do not 
propose to require States to conduct a separate or additional 
assessment process for self-direction.
    As long as States comply with all provisions related to conducting 
the independent eligibility evaluation, independent assessment, and 
developing the person-centered service plan, States have flexibility in 
determining whether they will require that the functions be performed 
as one activity by a single agency or individual, or whether they wish 
to separate those functions and have different entities involved.
7. Person-Centered Service Plan
    Section 1915(i)(1)(G) of the Act requires that the State plan HCBS 
benefit be furnished under an individualized care plan based on the 
assessment. The terms ``care plan'' and ``service plan'' are used 
interchangeably in practice. We will adopt the term ``service plan'' in 
this regulation for two reasons. First, to be consistent with the 
terminology in use with other HCBS, including Sec.  1915(c) HCBS 
waivers, we wish to avoid the misunderstanding that the plan is a 
different type of requirement in the State plan HCBS benefit than in 
other HCBS authorities. We note the reference to ``service plan'' for 
self-directed HCBS at 1915(i)(1)(G)(iii)(II)(bb). Second, some 
individuals and advocates have commented that ``care plan'' has a 
medical or dependent connotation, inconsistent with a person-centered 
approach. Since we see no technical difference between the two terms, 
we propose to adopt ``service plan''.
    Underpinning all aspects of successful HCBS is the importance of a 
complete and inclusive person-centered planning process that addresses 
health and long-term services and support needs in a manner that 
reflects individual preferences. The person-centered approach is a 
process, directed by the individual with long-term support needs, and 
may also include a representative whom the individual has freely 
chosen.
    To fully meet individual needs and ensure meaningful access to 
their surrounding community, systems that deliver HCBS must be based 
upon a strong foundation of person-centered planning and approaches to 
service delivery. Thus, we propose to require such a process be used in 
the development of the individualized service plan for all individuals 
to be served by section 1915(i) benefit. This can be achieved when 
States affirmatively and creatively support individuals in the planning 
process. We would propose certain requirements for developing the 
service plan, but note that the degree to which the process achieves 
the goal of person-centeredness can only be known with appropriate 
quality monitoring by the State, which should include substantial 
feedback provided by individuals who received or are receiving 
services.
    The person-centered service plan must identify the strengths, 
preferences, needs (clinical and support), and desired outcomes of the 
individual. The person-centered planning process is conducted in a 
manner that reflects what is important for the individual to meet 
identified clinical and support needs determined through a person-
centered functional needs assessment process and what is important to 
the individual to ensure delivery of services in a manner that reflects 
personal preferences and choices.
    In addition to being driven by the individual receiving services, 
the person-centered planning process would--
     Include people chosen by the individual;
     Provide necessary support to ensure that the individual 
has a meaningful role in directing the process to the maximum extent 
possible, and is enabled to make informed choices and decisions;
     Is timely and occurs at times and locations of convenience 
to the individual;
     Reflects cultural considerations of the individual;
     Include strategies for solving conflict or disagreement 
within the process, including clear conflict of interest guidelines for 
all planning participants;
     Offers choices to the individual regarding the services 
and supports they receive and from whom.
     Includes a method for the individual to request updates to 
the plan.
     Records the alternative home and community-based settings 
that were considered by the individual.
    The plan resulting from this process should reflect that the 
setting in which the individual resides is chosen by the individual. 
The plan should reflect the individual's strengths and preferences, as 
well as clinical and support needs (as identified through an assessment 
of functional need). The plan should include individually identified 
goals, which may include goals and preferences related to 
relationships, community participation, employment, income and savings, 
health care and

[[Page 26372]]

wellness, education, and others (we note that not all goals will have 
comparable services covered under Medicaid). The plan should reflect 
the services and supports (paid and unpaid) that will assist the 
individual to achieve identified goals, and who provides them. The plan 
should reflect risk factors and measures in place to minimize them, 
including individualized back-up plans. The plan must be signed by all 
individuals and providers responsible for its implementation, and 
should reflect the approach in place to ensure that it is implemented 
as intended. A copy of the plan must be provided to individuals and 
others involved in the plan.
    Consistent with these person-centered principles and the 
requirements for community integration under the Americans with 
Disabilities Act, we are proposing that the service plan should be 
constructed in a manner that promotes service delivery and independent 
living in the most integrated setting possible. Therefore, we propose 
that the plan must not only address medical and support needs, but 
should also reflect other individual goals related to community living 
to the extent that services covered under the State Medicaid plan would 
be available to support such goals. Although these goals may include 
activities that may not themselves be funded through medical 
assistance, the coordination of Medicaid services with other activities 
in which the individual would be engaged as part of community living is 
an essential part of ensuring community integration. These activities 
might include employment, education, recreation or social activities, 
and/or other activities that occur regularly for individuals living in 
the community.
    Subject to any additional needs-based criteria established for 
individual services, the State must make the services available to all 
eligible individuals who are assessed to need them. We conclude that 
the statute permits determining the level of services required by an 
individual only according to assessment of the individual's needs, not 
based on available funds. Just as significantly, individuals who 
qualify for HCBS may not be compelled to receive them. Individuals may 
also exercise their freedom to choose among qualified providers in the 
planning process.
    The State Medicaid agency may delegate other agents to develop the 
service plan, but remains responsible for ensuring compliance with all 
requirements for each service plan developed. While the agency may 
delegate the authority for plan development and approval, the Medicaid 
agency is ultimately responsible for ensuring that the plans are 
completed according to the requirements of this regulation. This can be 
done through the establishment of appropriate controls, including 
monitoring and a quality improvement process.
    Section 1915(i)(1)(G)(ii)(I)(aa) of the Act requires that the 
service plan is developed in consultation with the individual. The 
requirements for who is consulted in developing the service plan 
parallel those describing who may be consulted during the assessment 
process as determined by the State. As with the assessment, providers 
or others who may be responsible for providing services identified in 
the plan may be involved in the process. For example, providers may 
contribute to these processes by providing portions of an assessment 
and recommending a service plan, so long as the entity that retains 
final responsibility for the assessment or service plan meets all of 
the requirements of this final rule, including meeting the conflict of 
interest standards (See section II.B.10. for further discussion of 
conflict of interest).
    Section 1915(i)(1)(G)(ii)(I)(bb) of the Act requires that the 
development of the service plan take into account the extent of family 
or other supports, which we refer to as ``natural supports,'' for the 
individual, and section 1915(i)(1)(G)(ii)(II) of the Act requires that 
such plan identify needed services. We interpret these provisions to 
indicate that to the extent available, natural supports should be 
explicitly included in the service plan. This means that individuals 
with equivalent needs for support but differing levels of family or 
other natural supports may be authorized for different levels of HCBS. 
In the context of person-centered planning and consultation with 
natural supports, we conclude that the statute requires that the 
service plan should neither duplicate, nor compel, natural supports.
    Section 1915(i)(1)(G)(ii)(III) of the Act provides that plans of 
care will be reviewed at least annually and upon significant change in 
the individual's circumstances. We interpret this provision to indicate 
that diagnostic or functional changes are not required in order to 
adjust a service plan. Changes in external factors such as gain or loss 
of other supports may trigger a review. Additionally, an individual may 
request a review of the plan at any time. We would require revision of 
the service plan if the review indicates that revision is appropriate. 
By ``annually,'' we mean not less often than every 12 months. Finally, 
we would relate this requirement to the independent assessment, since 
the development or revision of the service plan is based on the 
assessment. Therefore, we would propose that the independent assessment 
(See section II.B.6.) is required at least annually, and when needed 
upon a change in circumstances, in order to comply with the requirement 
to review plans of care with that frequency.
8. Self-Direction
    Section 1915(i)(1)(G)(iii)(I) and (II) provides that States may 
offer enrolled individuals the option to self-direct some or all of the 
State Plan HCBS that they require. Many States have incorporated 
elements of self-direction into section 1915(c) waiver programs as well 
as section 1115 demonstration programs. Self-directed State plan HCBS 
allow States another avenue by which they may afford individuals 
maximum choice and control over the delivery of services, while 
comporting with all other applicable provisions of Medicaid law. We 
have urged all States to afford waiver participants the opportunity to 
direct some or all of their waiver services, without regard to their 
support needs. With the release of an updated, revised section 1915(c) 
waiver application in 2008, we refined the criteria and guidance to 
States surrounding self-direction (also referred to as participant-
direction), and established a process by which States are encouraged, 
to whatever degree feasible, to include self-direction as a component 
of their overall HCBS waiver programs. While section 1915(i) of the Act 
does not require that States follow the guidelines for section 1915(c) 
waivers in implementing self-direction in the HCBS State plan benefit, 
we anticipate that States will make use of their experience with 
section 1915(c) waivers to offer a similar pattern of self-directed 
opportunities with meaningful supports and effective protections. 
Individuals who choose to self-direct will be subject to the same 
requirements as other enrollees in the State plan HCBS benefit.
    Section 1915(i)(1)(G)(iii)(II) of the Act defines self-direction, 
and requires that there be an assessment and service plan. We do not 
interpret these requirements to indicate assessments and plans in 
addition to those generally required in sections 1915(i)(1)(F) and (G) 
of the Act. Accordingly, we would propose that the requirements for a 
self-directed service plan under section 1915(i)(1)(G)(iii)(III) of the 
Act be incorporated as components of the assessment and

[[Page 26373]]

service plan required for all enrollees in the State plan HCBS benefit.
    Section 1915(i)(1)(G)(iii)(III) of the Act contains specific 
requirements for the self-directed service plan, for which we describe 
proposed regulations in section III. The proposed regulations are 
consistent with our requirements for self-direction under section 
1915(c) HCBS waivers. Section 1915(i)(1)(G)(iii)(III)(dd) of the Act 
requires that the service plan be developed with a person-centered 
process, which, as noted above, we would propose to require of all 
service plans for the State plan HCBS benefit.
    Section 1915(i)(1)(G)(iii)(IV) of the Act describes certain aspects 
of a self-directed budget, which we have termed ``budget authority.'' 
Section 1915(i)(1) (G)(iii)(III)(bb) of the Act provides for self-
directed selecting, managing, and/or dismissing of providers of the 
State plan HCBS, which we term ``employer authority.'' We interpret 
selecting to include the authority to hire a provider, as well as to 
direct an agency to hire a specific provider. Currently, section 
1915(c) HCBS waivers include varying degrees of self-direction. The 
proposed rule explains both budget authority and employer authority in 
a manner consistent with section 1915(c) HCBS waiver policy.
    Individuals require information and assistance to support them in 
successfully directing their services. Therefore, we would require 
States to design and provide functions in support of self-direction 
that are individualized according to the support needs of each 
enrollee. These functions should include, at a minimum, information and 
assistance consistent with sound principles and practice of self-
direction, and financial management supports to serve as fiscal/
employer agents or co-employers. The availability of an independent 
advocate to assist the individual with the access to and oversight of 
their waiver services, including self-direction, is also an important 
component of a strong self-directed system. We note that the adequacy 
of supports for successful self-direction will be important elements of 
the State's quality assurance strategy, which is required by section 
1915(i)(1)(H) of the Act.
9. Quality Assurance
    Section 1915(i)(1)(H)(i) of the Act requires the State to ensure 
that the State plan HCBS benefit meets Federal and State guidelines for 
quality assurance, which we interpret as assurances of quality 
improvement. Consistent with current trends in health care, the 
language of quality assurance has evolved to mean quality improvement, 
a systems approach designed to continuously improve services and 
support and prevent or minimize problems prior to occurrences. 
Guidelines for quality improvement have been made available through CMS 
policies governing section 1915(c) HCBS waivers available at  
www.hcbswaivers.net and published manuscripts available at  
www.nationalqualityenterprise.com.
    Consistent with recent legislation with considerable focus on 
evidence-based quality and measurement, we would require States to have 
a quality improvement strategy, and to measure and maintain evidence of 
quality improvement including system performance, individual quality of 
care, and individual experience of care indicators approved and/or 
prescribed by the Secretary. These measures must take into account the 
relevant, targeted assurances, and include measures established through 
the DRA, CHIPRA, Affordable Care Act, and/or any other relevant health 
care indicators or quality measures developed by HHS, as applicable to 
the population(s) served by the section 1915(i) benefit. We would 
require States to make this information on their identified measures 
available to CMS upon request. In the event that a State elects to 
target the section 1915(i) benefit to specific populations, the State 
must submit evidence of quality improvement no later than 180 days 
before the end of each 5-year approval period. (See the discussion at 
I.B.19 of this proposed rule for more information regarding targeting 
and approval periods).
10. Conflict of Interest
    Section 1915(i)(1)(H)(ii) of the Act provides that the State will 
establish conflict of interest standards for the independent evaluation 
and independent assessment. For reasons described above under 
independent assessment, we believe that the same independence is 
necessary for those involved with developing the person-centered 
service plan. In this discussion, we will refer to persons or entities 
responsible for the independent evaluation, independent assessment, and 
the service plan as ``agents'' to distinguish them from ``providers'' 
of home and community-based services.
    Conflicts can arise from incentives for either over- or under-
utilization of services; subtle problems such as interest in retaining 
the individual as a client rather than promoting independence; or 
issues that focus on the convenience of the agent or service provider 
rather than being person-centered. Many of these conflicts of interest 
may not be conscious decisions on the part of individuals or entities 
responsible for the provisions of service.
    To mitigate any explicit or implicit conflicts of interest, the 
independent agent must not be influenced by variations in available 
funding, either locally or from the State. The service plan must offer 
each individual all of the HCBS that are covered by the State that the 
individual qualifies for, and that are demonstrated to be necessary 
through the evaluation and assessment process. The service plan must be 
based only on medical necessity (for example, needs-based criteria), 
not on available funding. When local entities directly expend funds or 
direct allocated resources for services, in accordance with section 
1902(a)(2) of the Act, the State must have a mechanism to ensure that 
availability of local funds does not affect access to services, such as 
using State resources to compensate for variability in local funding.
    In this proposed regulation, we would require States to define 
conflict of interest standards to include criteria that reflect State 
and Federal experience with the issue in administering HCBS waivers, 
and that reflect the principles of section 1877 of the Act. Section 
1877 of the Act prohibits certain types of referrals for services when 
there is a financial relationship between the referring entity and the 
provider of services.
    We are aware that in certain areas there may only be one provider 
available to serve as both the agent performing independent assessments 
and developing plans of care, and the provider of one or more of the 
HCBS. To address this potential problem we would propose to permit 
providers in some cases to serve as both agent and provider of 
services, but with guarantees of independence of function within the 
provider entity. In certain circumstances, we may require that States 
develop ``firewall'' policies, for example, separating staff that 
perform assessments and develop plans of care from those that provide 
any of the services in the plan; and meaningful and accessible 
procedures for individuals and representatives to appeal to the State. 
We would not permit States to circumvent these requirements by adopting 
State or local policies that suppress enrollment of any qualified and 
willing provider. We do not believe that under any circumstances 
determination of eligibility for the State plan HCBS benefit should be 
performed by parties with an interest in providers of HCBS.

[[Page 26374]]

    We understand that the development of appropriate plans of care 
often requires the inclusion of individuals with expertise in the 
provision of long-term services and supports or the delivery of acute 
care medical services. As discussed previously, this rule is not 
intended to prevent providers from participating in these functions, 
but to ensure that an independent agent retains the final 
responsibility for the evaluation, assessment, and service plan 
functions.
11. Eligibility Redeterminations; Appeals
    Section 1915(i)(1)(I) of the Act requires the State to conduct 
redeterminations of eligibility at least annually. We interpret 
``annually'' to mean not less than every 12 months. The State must 
conduct redeterminations and appeals in the same manner as required 
under the State plan. States must grant fair hearings consistent with 
the requirements of part 431, subpart E.
12. Option for Presumptive Eligibility for Assessment
    Section 1915(i)(1)(J) of the Act gives States the option of 
providing for a period of presumptive eligibility, not to exceed 60 
days, for individuals the State has reason to believe may be eligible 
for the State plan HCBS benefit.
    We interpret this provision as follows:
     ``Presumptive'' we interpret to indicate that FFP will be 
available for evaluation even when an individual is subsequently found 
not to be eligible for the State plan HCBS benefit.
     ``Eligibility'' does not connote eligibility for Medicaid 
generally, as this provision ``shall be limited to medical assistance 
for carrying out the independent evaluation and assessment'' under 
section 1915(i)(1)(E) of the Act. For clarity, we would refer to this 
limited option as ``presumptive payment''. Individuals not eligible for 
Medicaid may not receive State plan HCBS.
     ``Evaluation and assessment'' under section 1915(i)(1)(E) 
of the Act, is described as evaluation for eligibility for the benefit 
and assessment to determine necessary services. We believe the 
statutory phrase ``and if the individual is so eligible, the specific 
HCBS that the individual will receive'' is further describing the 
assessment under section 1915(i)(1)(E) of the Act for which presumptive 
payment is available, and that this phrase is not offering presumptive 
payment for the actual services. The phrase ``if the individual is so 
eligible'' indicates that payment is available once the individual is 
determined eligible, and not prior to that point.
     In section 1915(i)(1)(J) of the Act, we interpret the term 
``medical assistance for carrying out the independent evaluation and 
assessment under subparagraph E'' to mean expenditures for both costs 
of evaluative services that are described in section 1905(a), such as 
physician or other practitioner services, as well as administrative 
costs to determine eligibility for the State plan HCBS benefit. We 
interpret section 1915(i)(1)(J) of the Act to offer the State an option 
for a period of presumptive payment, not to exceed 60 days, for 
individuals the State has reason to believe may be eligible for the 
State plan HCBS benefit. FFP would be available for both medical 
services and administrative costs incurred for evaluation and 
assessment activities. During the period of presumptive payment, the 
individual would not receive State plan HCBS, and would not be 
considered to be enrolled in Medicaid or eligible for the HCBS benefit 
for purposes of computing the number of individuals being served under 
the benefit.
    We invite comments that offer other interpretations of this 
presumptive payment option and that comport with existing Federal 
requirements.
13. Individual's Representative
    When an individual is not capable of giving consent, or requires 
assistance in making decisions regarding his or her care, the 
individual may be assisted or represented by another person. Section 
1915(i)(2) of the Act defines the term ``individual's representative'' 
by listing certain examples, but also provides that ``* * * any other 
individual who is authorized to represent the individual'' may be 
included. We believe that ``authorized'' refers to State rules 
concerning guardians, legal representatives, power of attorney, or 
persons of other status recognized under State law or under the 
policies of the State Medicaid program.
    States should ensure that the representatives conform to good 
practice concerning free choice of the individual, and assess for abuse 
or excessive control. States should also ensure that the person-
centered planning process continues to be focused on the individual 
with HCBS support needs and his or her preferences and goals, and 
supports are provided so the individual can meaningfully participate 
and direct the process to the maximum extent possible. We are proposing 
to provide that the State may not refuse to recognize an authorized 
representative that the individual chooses, unless the State discovers 
and can document evidence that the representative is not acting in the 
best interest of the individual or cannot perform the required 
functions.
14. Nonapplication
    As amended by the Affordable Care Act, section 1915(i)(3) of the 
Act allows States to be exempted from the requirements of two sections 
of the Medicaid statute: section 1902(a)(10)(B) of the Act, regarding 
comparability; and section 1902(a)(10)(C)(i)(III) of the Act, regarding 
income and resource rules for the medically needy in the community. The 
statute uses the terms ``nonapplication'' and ``may chose not to comply 
with'' rather than ``waive''. We would use this terminology to maintain 
clarity between HCBS waiver programs under section 1915(c) of the Act 
and State plan HCBS under section 1915(i) of the Act. However, it is 
important to reiterate that the choice not to apply these requirements 
applies only with regard to the provision of State plan HCBS.
    Nonapplication of the requirement of comparability allows States to 
furnish the State plan HCBS benefit to specific targeted populations, 
similar to section 1915(c) waivers. Regardless of whether a State 
chooses to apply comparability requirements, it must define needs-based 
criteria to establish eligibility for the section 1915(i) benefit. If a 
State chooses not to apply comparability and to target the benefit, 
individuals must meet both the targeting criteria and the needs-based 
criteria in order to receive services through the section 1915(i) 
benefit. See the discussion in I.B.19 of this proposed rule for more 
detail regarding the option not to apply Medicaid comparability 
requirements and to target the benefit to a specific population or 
populations.
    The nonapplication of the requirements of section 
1902(a)(10)(C)(i)(III) of the Act enables States to provide medical 
assistance to medically needy individuals in the community by electing 
to treat the individuals as if they are living in an institution for 
purposes of determining income and resources. This would result in the 
State not deeming/counting income and resources from an ineligible 
spouse to an applicant or from a parent to a child with a disability. 
However, nonapplication of the income and resource rules applicable in 
the community applies only to the medically needy and only for the 
purposes of providing HCBS in accordance with the State plan amendment 
implementing section

[[Page 26375]]

1915(i) of the Act. Based on this language, we are interpreting the 
statute to mean that individuals made eligible on the basis of 
nonapplication of section 1902(a)(10)(C)(i)(III) of the Act may only be 
eligible for section 1915(i) services. In other words, for medically 
needy applicants, the State can elect not to deem income from an 
ineligible spouse, or from a parent to a child. If the State elects not 
to apply the requirements of section 1902(a)(10)(C)(i)(III) of the Act 
for the medically needy, it would determine Medicaid eligibility for 
section 1915(i) eligible medically needy individuals using 
institutional rules rather than community rules. Once the individual 
has been determined to be eligible as medically needy using 
institutional rules, and has been determined to meet the 150 percent of 
the FPL limit, the individual would only be eligible for State plan 
HCBS under section 1915(i) of the Act. The individual would not be 
eligible for any other Medicaid State plan services. However, 
individuals who are eligible for Medicaid as medically needy under 
income and resource rules applicable in the community, and whose income 
does not exceed the 150 percent of the FPL limit, would be eligible for 
State plan HCBS as well as all Medicaid State plan services.
15. No Effect on Waiver Authority
    Section 1915(i)(4) of the Act emphasizes that State election to 
provide the State plan HCBS benefit does not in any way affect the 
State's ability to offer programs through a section 1915(b) or (c) 
waiver, or under section 1115 of the Act. We further note that States 
may consider including 1915(i) services as a part of capitation under 
section 1915(b) waivers or other authorities for managed care 
arrangements. A State could use joint authority of 1915(b) and 1915(i) 
to provide HCBS to individuals eligible for the 1915(i) benefit.
16. Continuation of Federal Financial Participation (FFP) for 
Institutional Level of Care for Individuals Receiving Services as of 
the Effective Date of the State Plan HCBS Amendment
    If the State modifies institutional LOC requirements so that they 
will be more stringent than the needs-based criteria for the State plan 
HCBS benefit, section 1915(i)(5) of the Act permits States the option 
to continue receiving FFP for individuals who are receiving 
institutional services in NFs, ICFs/MR, and applicable hospitals or who 
are receiving services under a section 1915 waiver or through an 1115 
HCBS demonstration project that is in effect at the time of the 
modification. We interpret the reference to section 1915 waivers to 
include waivers under sections 1915(c), 1915(d) or 1915(e) of the Act, 
which are the section 1915 waivers explicitly identified in section 
1915(i)(6)(A) of the Act. Individuals receiving institutional care or 
HCBS under these authorities at the time that the institutional LOC is 
modified would not have to satisfy the more stringent criteria in order 
to continue receiving that care.
    FFP under the unmodified criteria would continue to be available 
until such time as the individual is discharged from the institution, 
waiver program, or demonstration, or no longer requires this LOC. 
Moving between a waiver and an institution at the same LOC, or vice 
versa, by definition is not a change in LOC. Therefore, individuals who 
transition between waivers and institutions (for example, transitioning 
from an institution to waiver through the Money Follows the person 
program) would retain eligibility for institutional care and HCBS until 
they no longer meet the less stringent LOC requirements or until they 
lose eligibility for Medicaid or for institutional or waiver services 
due to a reason other than the application of the modified LOC 
criteria. An example of this would be if the individual aged out of a 
waiver, or if an increase in income or resources caused the individual 
to lose Medicaid eligibility.
    In section 1915(i)(5) of the Act, the statute indicates that FFP 
remains available for individuals who meet the previous institutional 
criteria. We note that this does not create a requirement for States to 
continue to serve these individuals; rather, it creates an option for 
States to continue to receive FFP in order to provide care for 
individuals who would otherwise lose eligibility due to the 
implementation of the new criteria.
    Due to the current requirements on maintaining eligibility 
standards, methodologies and procedures, we encourage States to consult 
with CMS before instituting any changes to LOC requirements.
17. State Option To Provide HCBS to Individuals Eligible for Services 
Under a Waiver
    Section 2402(b) of the Affordable Care Act added section 1915(i)(6) 
to the Act, specifying that States may elect to provide HCBS to an 
individual who is eligible for an approved waiver under sections 
1915(c), (d), (e), or 1115 of the Act. Section 1915(i)(6)(A) specifies 
that individuals who are eligible for a waiver may receive State plan 
HCBS under the authority of section 1915(i) if they satisfy the needs-
based criteria under such section and if their income is less than 300 
percent of the supplemental security income (SSI) Federal benefit rate 
(FBR), as established by section 1611(b)(1) of the Act.
    We interpret this statute as creating an option for States to 
increase the income limit for the State plan HCBS benefit, but only for 
individuals who are eligible for HCBS through an approved waiver within 
the State. We interpret ``eligible'' to mean that the individual meets 
all of the criteria required for entrance into a HCBS waiver that is 
approved within the State, regardless of whether the individual is 
actually enrolled and receiving services through that waiver. As 
discussed below, if a State elects this option, the State must cover 
the new optional categorically needy eligibility group specified at 
section 1902(a)(10)(A)(ii)(XXII) of the Act, and individuals who are 
eligible for a waiver with income above 150 percent of the FPL, but 
below 300 percent of the SSI benefit rate, may receive State plan HCBS.
    When establishing whether an individual's income is below 300 
percent of SSI, under section 1915(i)(6)(B), the State should use the 
same rules that are applied for the special income level group 
specified at section 1902(a)(10)(A)(ii)(V) of the Act. Regardless of 
whether a State elects the option established by this section, the 
State could provide HCBS through both the section 1915(i) benefit, as 
well as through a HCBS waiver to any individual who meets the financial 
and needs-based criteria for both programs (that is, if an individual 
meets the waiver LOC criteria, and the needs-based criteria for the 
State plan HCBS benefit, and has income below 150 percent of the FPL, 
the individual could receive services under both authorities, provided 
that the services are not duplicative, whether or not the State elects 
to include the higher income level in their section 1915(i) benefit).
    When a State elects to include this option, section 1915(i)(6)(C) 
of the Act allows services to differ in type, amount, duration, or 
scope from services provided to individuals who are eligible for the 
section 1915(i) benefit without also being eligible for a waiver. A 
State may choose to provide additional 1915(i) State plan HCBS to 
individuals who are eligible for HCBS under an approved waiver. If a 
State does so, it may also elect to establish additional needs-based 
criteria for those services. The establishment of additional criteria 
would be under the State authority to establish needs-based

[[Page 26376]]

criteria for any service in the 1915(i) benefit (see the discussion in 
I.B.2 of this proposed rule for more discussion).
    Any additional service(s) provided through this subsection must be 
allowable under section 1915(c)(4)(B) and may not include room and 
board. A State may also include ``other'' services, as defined by the 
State and approved by the Secretary, within the package of section 
1915(i) services that are limited to individuals who are eligible for a 
waiver. However, because individuals eligible for a waiver must also 
satisfy the needs-based criteria established for the section 1915(i) 
benefit to receive State plan HCBS, a State may not restrict access to 
benefits that are available to other individuals who receive the State 
Plan HCBS, except through a targeting criteria, or through the 
establishment of a needs-based criteria that applies uniformly to all 
individuals.
18. Establishment of Optional Eligibility Group To Provide Full 
Medicaid Benefits to Individuals Receiving State Plan HCBS
    Section 2402(d) of the Affordable Care Act creates a new optional 
categorically needy eligibility group, specified at section 
1902(a)(10)(A)(ii)(XXII) of the Act, for individuals ``who are eligible 
for HCBS under the needs-based criteria established under (1)(A) of 
1915(i), or who are eligible for home and community-based services 
under paragraph (6) of such section, and who will receive home and 
community-based services pursuant to a State plan amendment under such 
subsection.''
    Under this group States can elect to cover individuals who are not 
otherwise eligible for Medicaid. For example, an individual age 65 or 
older, who has chronic needs but not at an institutional level of care 
and has too much income and/or resources to qualify for Medical 
Assistance under a State's Medicaid plan, could be eligible for section 
1915(i) services if he/she meets the needs-based criteria for the 
section 1915(i) benefit, has income up to 150 percent of the FPL and 
will receive section 1915(i) services. Under this group, States may 
also elect to cover individuals with income up to 300 percent of the 
SSI/FBR who would be eligible under an existing section 1915(c), (d), 
(e) waiver or section 1115 waiver and who will receive section 1915(i) 
services. These individuals do not have to be receiving services under 
an existing section 1915(c), (d), (e) waiver or section 1115 waiver; 
the individual only has to be eligible for the waiver. Individuals 
eligible for Medicaid under this group would be eligible for full 
Medicaid benefits. The State must also elect the option under section 
1915(i)(6) of the Act if the State intends to cover individuals with 
income up to 300 percent of the SSI/FBR.
19. State Option To Offer HCBS to Specific, Targeted Populations
    The Affordable Care Act added section 1915(i)(7) to the Act, which 
allows States to target the section 1915(i) benefit to specific 
populations. In addition, as of October 1, 2010, States may design 
section 1915(i) benefits without regard to the comparability 
requirements contained in section 1902(a)(10)(B) of the Act. As a 
result, the State may ``target'' services, that is, either provide the 
1915(i) benefit only to individuals in certain Medicaid eligibility 
groups, or provide different services within the 1915(i) benefit to 
different groups. Due to the ability to define targeted populations, a 
State may now propose more than one set of section 1915(i) benefits, 
with each benefit package targeted toward a specific population. A 
State may also propose one set of section 1915(i) benefits that targets 
multiple populations, and may offer different services to each of the 
defined target groups within the benefit. Additionally, a State may 
propose a section 1915(i) benefit that does not choose nonapplication 
of comparability and instead uses only the needs-based criteria to 
establish eligibility for the benefit. States may find this to be a 
less administratively burdensome approach, as there is no renewal 
requirement or limit to the approval period if the State does not 
target the HCBS benefit (see below for a discussion on limits to the 
approval period).
    We propose to require that a State that elects to target the 
benefit to specific groups of individuals must submit objective 
targeting criteria in the SPA implementing the HCBS benefit, subject to 
approval by CMS. These targeting criteria may define a target 
population or multiple target populations within parameters of 
diagnosis, disability, Medicaid eligibility groups, and/or age. Within 
these parameters, targeting criteria may be similar to those available 
through section 1915(c) waivers, as defined in Sec.  441.301, but we 
note that based on experience, these target groups may not aptly 
capture the universe of individuals who could benefit from section 
1915(i) of the Act. Therefore, a State may also establish broader 
criteria that encompass more than one of the three groups defined in 
Sec.  441.301, or that target enrollees based on separate criteria. 
However, we note that the section 1915(i) benefit is described in the 
statute as ``HCBS for Elderly and Disabled Individuals.'' Therefore, we 
would expect any targeting criteria to apply to eligibility groups 
serving those individuals. We would also expect targeting criteria to 
align with the needs-based criteria established for the benefit.
    For example, a State could target the benefit package to any 
children under the age of 21 with an intellectual disability, a 
developmental disability, autism, or a behavioral health condition. A 
State could also target the benefit using traditional section 1915(c) 
groups. An example of this would be to target the benefit to 
individuals age 65 and up. Further, this targeting option does not 
permit States to target the benefit in a manner that would not comply 
with section 1902(a)(23) of the Act regarding free choice of providers, 
or that forestalls the opportunity for individuals to receive services 
in the most integrated setting possible. Therefore, targeting criteria 
cannot have the impact of limiting the pool of qualified providers from 
which an individual would receive services, or have the impact of 
requiring an individual to receive services from the same entity from 
which they purchase their housing. For example, we would not allow 
States to establish targeting criteria that would restrict eligibility 
to only individuals who reside in provider-owned and/or operated 
settings.
    If a State elects to target the benefit to a specific population or 
populations, it must still establish needs-based criteria that 
individuals must meet in order to be eligible for section 1915(i) 
services and the State may also establish needs-based criteria for 
individual services within the benefit. The needs-based criteria may 
include specific needs that are applicable to the targeting criteria, 
but may also include general needs that apply across all of the 
populations included in the benefit.
20. Five-Year Approval for Targeted Section 1915(i) HCBS Benefits and 
Renewal Requirements
    Under sections 1915(i)(7)(B)(i) and (C) of the Act, if a State 
chooses to target State plan HCBS, the SPA approval will last for a 5-
year period with the option for 5-year renewal periods. There is no 
statutory limit on the number of renewal periods available under this 
section. At the end of the initial 5-year period, and any subsequent 
renewals, CMS will review the State's approved SPA and evaluate State 
performance based upon the requirements contained within that SPA and 
the State plan HCBS quality outcomes.

[[Page 26377]]

    We propose that a State must provide a written request for renewal 
at least 180 days prior to the end of the approval period. The request 
must be accompanied by a description of any proposed changes to the 
benefit, if applicable. Prior to renewal, CMS will request evidence of 
implementation of the State's quality improvement strategy in order to 
verify compliance with State plan HCBS requirements. Results of the 
quality monitoring process will be used to identify and make 
recommendations on areas of a State's section 1915(i) benefit that 
require modification prior to renewal. In accordance with section 
1915(i)(7)(C) of the Act, we will approve renewals based upon adherence 
to Federal requirements, including adherence to the State's phase-in 
plan, as approved by CMS.
21. Phase-In of Services and Eligibility
    Section 1915(i)(7)(B)(ii) allows States to phase-in the enrollment 
of individuals and/or the provision of services if the State elects to 
target the benefit to specific populations. The statute indicates that 
the State must enroll all eligible individuals and provide all of the 
services it has elected to include in the benefit by the end of the 
initial 5-year approval. Although the option to phase-in services and/
or eligibility may seem contradictory with the requirements that the 
benefit be statewide and not limit enrollment, we interpret this 
section to provide States with the flexibility to prioritize enrollment 
to individuals with the highest need and/or to develop adequate 
infrastructure to ensure quality of care, and the health and safety of 
participants, prior to the provision of services. We do not interpret 
this option as providing States the authority to limit statewideness or 
to set a numerical limit on enrollment.
    As an example, a State could elect to begin the provision of 
services to individuals with higher needs prior to the enrollment of 
all eligible individuals, based upon the assessment for eligibility to 
the benefit. In this instance, the needs-based criteria would allow 
States to identify individuals at greatest risk for health and safety, 
and to prioritize services to those individuals. Services would then be 
phased-in to individuals who qualify for the benefit but who have less 
assessed need.
    States are permitted to modify the available services in a section 
1915(i) benefit through a SPA at any time. Therefore, we do not believe 
that this option permits a State to include a service within the 
benefit without providing it to at least some enrolled individuals. 
However, at the option of a State, a phase-in plan might temporarily 
limit the provision of the entire benefit package, or of some specific 
services, based upon infrastructure considerations, such as the need to 
enroll an adequate number of qualified providers.
    We propose that a State that elects to target the State plan HCBS 
benefit and to phase-in enrollment and/or services must submit a phase-
in plan for approval by CMS that describes, at a minimum:
     The criteria used to phase-in enrollment or service 
delivery;
     The rationale for phasing-in services and/or eligibility; 
and
     Timelines and benchmarks to ensure that the benefit is 
available Statewide to all eligible individuals within the initial 5-
year approval.
    If a State elects and CMS approves a phase-in of services and/or 
eligibility in the section 1915(i) SPA, the statute indicates that the 
State must enroll all eligible individuals and provide all of the 
services it has elected to include in the benefit by the end of the 
initial 5-year approval. Therefore, if a State does not meet its phase-
in plan by the end of the initial 5-year approval of the section 
1915(i) benefit, the State will not be able to renew the benefit.
    States are also prohibited from having a phase-in period longer 
than 5 years, and from receiving approval for a new section 1915(i) 
submission of a similar design with a phase-in period when a similar 
benefit with phase-in is discontinued before full implementation.
    We are soliciting comments on alternative strategies and approaches 
for evaluating and approving the option to phase-in eligibility and 
enrollment.

C. Effective Date

    The effective date on which States may provide HCBS through the 
State plan, as set forth by the DRA, is January 1, 2007. The effective 
date of the amendments to the section 1915(i) benefit, as established 
by the Affordable Care Act, is October 1, 2010.

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

    The section 1915(i) State plan HCBS benefit is subject to 
provisions of the Medicaid program as a whole. Therefore, it is useful 
to note certain requirements of the Medicaid program that have an 
impact on the administration of the State plan HCBS benefit and that 
are not explicitly referenced in the regulation.
    To be eligible for the State plan HCBS benefit, an individual must 
be included in an eligibility group that is contained in the State 
plan, including if the State elects, the new eligibility group defined 
at section 1902(a)(10)(A)(ii)(XXII) of the Act. Each individual must 
meet all financial and non-financial criteria set forth in the plan for 
the applicable eligibility group.
    Children included in eligibility groups under the State plan may 
meet the needs-based criteria and qualify for benefits under the State 
plan HCBS benefit. States may also choose to target the benefit in a 
manner that either excludes children, or limits the benefit solely to 
children. HCBS benefits that are not otherwise available through 
1905(a) State plan services under the Medicaid Early and Periodic 
Screening, Diagnostic, and Treatment (EPSDT) benefit may be furnished 
to Medicaid eligible children who meet the State plan HCBS needs-based 
eligibility criteria, and who meet the State's medical necessity 
criteria for the receipt of services. In addition to meeting EPSDT 
requirements through the provision of 1905(a) services, a State may 
also meet a particular child's needs under EPSDT through services that 
are also available through the 1915(i) benefit. However, all Medicaid-
eligible children must have full access to services required under 
EPSDT, and the provision of 1915(i) State plan HCBS should in no way 
hinder their access to such services.
    We further note that the mandate under EPSDT applies only to 
services authorized by section 1905(a) of the Act. Therefore, HCBS 
under section 1915(i) of the Act are not required under the EPSDT 
program. Children who are eligible for the State plan HCBS benefit are 
eligible to receive medically necessary State plan HCBS, but the State 
is not required to provide 1915(i) State plan HCBS as part of its EPSDT 
program. Clinic services (whether or not furnished in a facility) for 
individuals with chronic mental illness are listed in section 
1915(c)(4)(B) of the Act and therefore may be covered in the State plan 
HCBS benefit. If a State chooses to offer these services, they will be 
subject to the clinic upper payment limit (UPL) at Sec.  447.321. We 
also note that these services are defined differently than other clinic 
services offered under the State Plan in that they include services 
whether or not they are offered in a facility.
    States may also elect to include 1915(i) benefits as part of a 
managed care contract. In the event that State plan HCBS are included 
in a managed care contract, they must meet all

[[Page 26378]]

applicable requirements contained in Sec.  438, including actuarial 
soundness of rates, cost effectiveness of services, and CMS contract 
review and approval.
    Additionally, since this benefit is established through a State 
plan amendment process, section 5006(e) of the American Recovery and 
Reinvestment Act of 2009 (Pub. L. 111-5, enacted on February 17, 2009) 
requires the State to seek advice from Indian health programs and Urban 
Indian Organizations on the establishment of or modification to any 
State plan HCBS benefits.
    FFP for the 1915(i) benefit is also subject to deferrals, 
withholding and disallowances in accordance with the requirements of 
subpart C of 42 CFR part 440. In the event that CMS determines a State 
to be out of compliance with the requirements of the HCBS benefit, 
standard Medicaid compliance actions will apply.

E. Other Background

1. Serving All Eligible Individuals While Targeting Limited Resources
    As noted above, section 1915(i) of the Act applies the general 
Medicaid requirements regarding statewideness and, like other State 
plan options, does not allow States to limit enrollment. Nevertheless, 
the law offers significant discretion for defining the population 
served. Specifically, States may limit utilization of the State plan 
HCBS benefit through application of the following provisions of section 
1915(i) of the Act:
     The requirement to set eligibility standards built on 
needs-based criteria. States choose the needs-based criteria used to 
establish the thresholds of program eligibility. States must set a 
lower threshold of need, but may also optionally define an upper 
threshold of need beyond which individuals may not be served under this 
provision.
     The option to target the benefit to specific populations. 
States may combine needs-based criteria with targeting criteria in 
order to create a very specific benefit that applies to defined groups 
of individuals.
     The option to establish needs-based criteria to determine 
eligibility for each State plan HCBS. These criteria may vary from 
service to service, and should assist States in identifying the 
individuals who could benefit from receipt of a particular State plan 
HCBS.
     The choice to offer a limited number of services under the 
State plan HCBS benefit. The scope of services that the State chooses 
to offer may include any, but need not include all, of the services 
permitted under section 1915(c)(4)(B) of the Act.
     The option to limit the amount or duration of each 
service, in accordance with all Medicaid rules and requirements.
    Since all State plan HCBS must be provided under a written service 
plan, States have the opportunity to review an individual's service 
plan to ensure that HCBS continue to be responsive to the needs of the 
individual.
    Additionally, as a reminder, general Medicaid requirements also 
apply to the State plan HCBS benefit. All Medicaid services are to be 
provided only to those who need them according to medical necessity and 
needs-based criteria, as defined by the State. Prior authorization is 
available to the State.
2. HCBS Provided in the Community, Not in Institutions
    Section 1915(i) provides States the option to provide home and 
community-based services, but does not define ``home and community-
based.'' Along with our overarching interest in making improvements to 
Medicaid HCBS, we seek to ensure that Medicaid is supporting needed 
strategies for States in their efforts to meet their obligations under 
the ADA and the Supreme Court decision in Olmstead v. L.C., 527 U.S. 
581 (1999). In the Olmstead decision, the Court affirmed a State's 
obligations to serve individuals in the most integrated setting 
appropriate to their needs. A State's obligations under the ADA and 
section 504 of the Rehabilitation Act are not defined by, or limited 
to, the scope of requirements of the Medicaid program. However, the 
Medicaid program can provide an opportunity to obtain partial Federal 
funding that supports compliance with the ADA, section 504 of the 
Rehabilitation Act, and Olmstead through the provision of Medicaid 
services to Medicaid-eligible individuals.
    In the April 4, 2008 Federal Register (73 FR 18676), we proposed to 
define home and community settings for this new benefit. Then in the 
June 22, 2009 Federal Register (74 FR 29453), we published an advance 
notice of proposed rulemaking (ANPRM) that solicited comments on 
potential rulemaking for a number of areas within the section 1915(c) 
HCBS waiver program. Specifically, we requested public input on 
strategies to define home and community-based settings where waiver 
participants may receive services. Although the ANPRM is specific to 
section 1915(c) waivers, the services delivered and the settings they 
are available in are parallel to the section 1915(i) benefit. We 
recognize a need for a consistent definition of this term across 
Medicaid HCBS.
    In response to the 1915(c) ANPRM, we received comments that 
supported the underlying goals to promote independence, community 
inclusion, and the goals of the Olmstead decision. However, many 
commenters also expressed concern about definitions of home and 
community-based settings that limited participant choice, and that 
excluded settings that may, in fact, promote independence and 
integration. Since that time, we have facilitated and participated in 
multiple stakeholder discussions related to this issue, and we also 
included proposed language for settings in which HCBS could be provided 
to elicit further comments on this issue in the section 1915(k) 
proposed rule published on February 25, 2011 and in the 1915(c) 
proposed rule published on April 15, 2011. We find the public comment 
process to be valuable in our attempt to develop the best policy on 
this issue for Medicaid beneficiaries. Therefore, with this rule, we 
again invite public comments on proposed language to establish the 
qualities for home and community-based settings under both sections 
1915(i) State plan HCBS and the 1915(k) Community First Choice State 
plan option. It is our goal to align the final language pertaining to 
this topic across the sections 1915(k), 1915(i), and 1915(c) Medicaid 
HCBS authorities.
    We have included proposed language for settings in which section 
1915(i) services and supports could be provided to elicit additional 
comments on this issue. While it is not practical to create one 
singular definition that encompasses all settings that are home and 
community-based, with this rule we propose quality principles essential 
in determining whether a setting is community-based. We expect States 
electing to provide HCBS benefits under section 1915(i) to include a 
definition of home and community-based setting that incorporates these 
principles and will review all SPAs to determine whether they propose 
settings that are home or community-based. We will permit States with 
approved section 1915(i) SPAs a reasonable transition period, a minimum 
of one year, to come into compliance with the HCBS setting requirements 
as promulgated in our final rule.
    Recognizing the imperative to provide clear guidance to States and 
in consideration of recent proposals from States that have clearly 
exceeded reasonable standards for HCBS, we are proposing to clarify now 
that home and community-based settings must exhibit

[[Page 26379]]

the following qualities, and such other qualities as the Secretary 
determines to be appropriate, based on the needs of the individual as 
indicated in their person-centered service plan, in order to be 
eligible sites for delivery of home and community-based services:
     The setting is integrated in, and facilitates the 
individual's full access to, the greater community, including 
opportunities to seek employment and work in competitive integrated 
settings, engage in community life, control personal resources, and 
receive services in the community, like individuals without 
disabilities;
     The setting is selected by the individual among all 
available alternatives and identified in the person-centered service 
plan;
     An individual's essential personal rights of privacy, 
dignity and respect, and freedom from coercion and restraint are 
protected;
     Individual initiative, autonomy, and independence in 
making major life choices, including but not limited to, daily 
activities, physical environment, and with whom to interact are 
optimized and not regimented; and
     Individual choice regarding services and supports, and who 
provides them, is facilitated.
    In a provider-owned or controlled residential setting, the 
following additional conditions must be met. Any modifications of the 
conditions (for example to address the safety needs of an individual 
with dementia) must be supported by a specific assessed need and 
documented in the person-centered service plan:
    ++ The unit or room is a specific physical place that can be owned, 
rented, or occupied under a legally enforceable agreement by the 
individual receiving services, and the individual has, at a minimum, 
the same responsibilities and protections from eviction that the 
tenants have under the landlord/tenant laws of the State, county, city, 
or other designated entity. We are soliciting comments as to whether 
there are other protections, not addressed by landlord tenant law, that 
should be included;
    ++ Each individual has privacy in their sleeping or living unit:

--Units have lockable entrance doors, with appropriate staff having 
keys to doors;
--Individuals share units only at the individual's choice; and
--Individuals have the freedom to furnish and decorate their sleeping 
or living units;

    ++ Individuals have the freedom and support to control their own 
schedules and activities, and have access to food at any time;
    ++ Individuals are able to have visitors of their choosing at any 
time; and
    ++ The setting is physically accessible to the individual.
    In addition to the aforementioned criteria there are two criteria 
that we have not included in the proposed regulation, but wish to 
solicit comment regarding whether they should be added. The first is 
related to the proposed requirement that in a provider-owned or 
controlled residential setting, any modification of the conditions must 
be supported by specific assessed needs and documented in the person 
centered service plan. This requirement is meant to address two issues:
     Individuals receiving HCBS must not have their 
independence or freedoms abridged by providers for convenience, or 
well-meaning but unnecessarily restrictive methods for providing 
person-centered services and supports; and
     Individuals with cognitive disabilities and other 
impairments may require modifications of the aforementioned conditions 
for their safety and welfare.
    This provision is meant to establish that service planning is the 
process in which these decisions are made, rather than ad hoc on a 
daily basis. While the proposed text establishes the requirement that 
any modification to the conditions are supported by a specific assessed 
need and documented in the person-centered service plan, we are also 
considering including language to explicitly set forth these 
activities. We are considering requiring the following points to be 
identified: identify a specific and individualized assessed safety 
need; document less intrusive methods that have been tried but did not 
work; include a clear description of the condition that is directly 
proportionate to the specific assessed safety need; include regular 
collection and review of data to measure the ongoing effectiveness of 
the modification; and establishing time limits for periodic reviews to 
determine if the modification can be lifted. We solicit comment on 
these points and any other potential requirements regarding 
modifications of the conditions set forth in this proposed rule. We 
also wish to solicit comment on a second criterion that would include a 
requirement that receipt of any particular service or support cannot be 
a condition for living in the unit. In discussing this specific 
criterion, we discovered that it could be read one of two ways. One 
interpretation is that this language does not require an individual 
residing in a provider owned or operated setting to receive HCBS from 
the setting provider. Rather the individual could choose another 
qualified individual to provide HCBS. The other interpretation is that 
this language would prevent the owner of the setting from evicting an 
individual because the individual refused to accept a particular 
service. This interpretation could have an effect on residential 
settings, such as housing programs to address homelessness. Some of 
these settings include a structure in which individuals are required to 
participate in treatment (substance use, for example) as a condition of 
residing there. We acknowledge the complexities that arise, when trying 
to support an individual's right to choose while recognizing that there 
are programs and services that have been developed as a result of 
identified service needs. As indicated earlier, we are specifically 
soliciting comments on whether these two criteria should be included as 
regulatory requirements.
    We note that home and community-based settings do not include 
nursing facilities, institutions for mental diseases, intermediate care 
facilities for mentally retarded, hospitals, or any other locations 
that have the qualities of an institutional setting as determined by 
the Secretary. In considering whether a setting has the qualities of an 
institutional setting, we will exercise a rebuttable presumption that a 
setting is not a home and community-based setting, and will engage in 
heightened scrutiny, for any setting that is located in a building that 
is also a publicly or privately operated facility that provides 
inpatient institutional treatment, or in a building on the grounds of, 
or immediately adjacent to, a public institution, or disability-
specific housing complex. We expect to issue further guidance regarding 
such settings. Other characteristics that could cause CMS to consider a 
setting as ``institutional'' or having the qualities of an institution 
would include, but not be limited to, settings which are isolated from 
the larger community, do not allow individuals to choose whether or 
with whom they share a room, limit individuals' freedom of choice on 
daily living experiences such as meals, visitors, and activities, or 
limit individuals' opportunities to pursue community activities.
    We have included these provisions to move toward a stronger 
articulation of the qualities that make a setting a home or truly 
integrated in the greater community for individuals living with

[[Page 26380]]

disabilities. We believe that these principles of home and community-
based settings will support the use of the Medicaid program to maximize 
the opportunities for individuals to access the benefits of home and 
community living.
    We specifically invite comments on whether there are settings in 
addition to those currently enumerated in statute, that are, by their 
nature, location or administration inherently non-community based, and 
therefore, should be expressly excluded from HCBS. We also invite 
comments on the community-based qualities we have proposed in this rule 
to ascertain whether additional or different characteristics should be 
included.
    In considering comments received pertaining to this provision of 
the rule, we will also include consideration of all comments received 
pertaining to the aligned home and community-based setting requirements 
being proposed in this rule for the section 1915(k) Community First 
Choice State Plan Option. In recognizing the need for a consistent 
definition of this term across Medicaid HCBS, it is our goal to align 
the final language pertaining to this topic across the regulations for 
sections 1915(i), 1915(k), and 1915(c) Medicaid HCBS authorities.
    We note that this proposal in no way preempts broad Medicaid 
requirements, such as an individual's right to obtain services from any 
willing and qualified provider of a service.
    We further note that States are not prohibited from funding 
institutional care under Medicaid. The exclusion of these settings from 
HCBS waivers and from the State plan HCBS benefit does not limit the 
availability of institutional and facility-based care for those 
individuals who require long-term services and supports, and who freely 
choose to receive services in those settings. However, we believe that 
these types of services should not be funded through authorities that 
are intended to promote community-based alternatives to institutional 
care. Furthermore, we believe that the fundamental requirement that the 
needs-based criteria for section 1915(i) be less stringent than that 
for institutional care creates a mandate to ensure that services are 
provided in settings that are not institutional in nature.
    While HCBS are not available while an individual resides in an 
institution, HCBS should be available to assist individuals to leave an 
institution. Recognizing that individuals leaving institutions require 
assistance to establish themselves in the community, we would allow 
States to include in a section 1915(i) benefit, as an ``other'' 
service, certain transition services to be offered to individuals to 
assist them in their return to the community. We propose that community 
transition services could be commenced prior to discharge and could be 
used to assist individuals during the period of transition from an 
institutional residence. Additionally, services could be provided to 
assist individuals transitioning to independent living in the 
community, as described in a letter to the State Medicaid Directors on 
May 9, 2002 (SMDL 02-008). We further recognize that, for 
short hospital stays, an individual may benefit from ongoing support 
through the HCBS State Plan for physical needs over and above such 
services available in a hospital, to ensure smooth transition from 
clinical setting to home, and to preserve a sense of continuity and 
normalcy (a notion particularly important for individuals with 
intellectual disabilities, cognitive disabilities associated with 
aging, and behavioral health support needs). Importantly, these 
services must be exclusively for the benefit of the individual, not the 
hospital, and must not substitute for services that the hospital is 
obligated to provide through its conditions of participation or through 
its obligations under the ADA.
3. Home and Community-Based Services Do Not Include Room and Board
    Payments for room and board are expressly prohibited by section 
1915(i)(1) of the Act. Except for respite care furnished in a setting 
approved by the State that is not the individual's residence, no 
service or combination of services may be used to furnish room and 
board through the State plan HCBS benefit.
    When an individual must be absent from his or her residence in 
order to receive a service authorized by the individualized service 
plan, it may be impractical to obtain a meal outside the venue in which 
the service is provided. Therefore, in some instances and when it does 
not constitute a full nutritional regimen, the provision of food may be 
included as an incidental part of service delivery. When meals are 
furnished as an integral component of the service, we are proposing to 
permit the State to consider the cost of food in the rate it pays for 
the State plan HCBS, as the cost is then considered part of the service 
itself. We would not consider the meal to be an integral part of the 
State plan HCBS when two rates are charged to the public, one that 
includes a meal and one that does not include a meal.
4. Timing of Amendments
    We seek to clarify expectations regarding timing of amendments when 
States propose modifications to the 1915(i) benefit. For the purposes 
of the 1915(i) benefit, we propose that amendments which result in a 
reduction of eligibility or services to 1915(i) participants must be 
submitted with a prospective, rather than retroactive, effective date.

F. Section 2601 of the Affordable Care Act: 5-Year Period for 
Demonstration Projects

    This proposed rule includes changes to Sec.  430.25 to implement 
section 2601 of the Affordable Care Act.
    Section 2601 of the Affordable Care Act adds a new paragraph (2) to 
section 1915(h) to permit the Secretary, at her discretion, to approve 
a waiver that provides medical assistance for individuals dually 
eligible for Medicare and Medicaid (``dual eligibles'') for an initial 
period of up to 5 years and renewed for up to 5 years, at the State's 
request. The statute defines a dual eligible as: ``An individual who is 
entitled to, or enrolled for, benefits under part A of title XVIII, or 
enrolled for benefits under part B of title XVIII, and is eligible for 
medical assistance under the State plan under this title or under a 
waiver of such plan.'' This new authority enhances existing tools 
available to improve and coordinate care and services for this 
particularly vulnerable group of beneficiaries. This change provides an 
important tool for States to design programs to better coordinate 
services for dual eligible individuals.
    While section 2601 of the Affordable Care Act does not provide a 
new type of waiver, it does provide an important opportunity for States 
to simplify the operation of existing waivers that serve dually 
eligible individuals, especially important when States combine waiver 
authorities that have different approval periods.
    A growing number of States provide care to dual eligible 
individuals in a managed care service system. To be successful, these 
systems often include community and institutional long-term services 
and supports, utilize or partner with Medicare managed care plans or 
fee-for-service providers to improve care continuity and individual 
outcomes, and minimize disincentives to community-based or preventive 
care.
    The Medicaid tools available to establish such an arrangement vary, 
but many States seek to use a 1915(b) Managed Care waiver concurrently 
with a 1915(c) Home and Community-Based

[[Page 26381]]

Services waiver. Some States interested in offering home and community-
based supports to dual eligibles in a managed care delivery system 
raised concerns with the 2-year approval period for the 1915(b) managed 
care waivers and the 3- and 5-year approval periods for the 1915(c) 
HCBS waiver program. These different approval periods present 
administrative challenges for States that pose hurdles to operational 
success.
    Section 2601 of the Affordable Care Act provides a solution for 
these situations, and others where States may wish to minimize 
administrative and renewal requirements in order to better focus on 
program implementation and quality oversight. Section 2601 of the 
Affordable Care Act includes an opportunity for extended approval 
periods for sections 1915(b), 1915(c), 1915(d) and 1115 of the Act.
    For a State to apply for the extended approval periods, the 
demonstration or waiver program must provide services for individuals 
who are dually-eligible for Medicare and Medicaid. The approval of such 
periods is at the Secretary's discretion, and determinations will be 
made regarding applications for 5-year waivers in a manner consistent 
with the interests of beneficiaries and the objectives of the Medicaid 
program.
    We are proposing that if a demonstration or waiver program does not 
serve or excludes dually eligible individuals, the 5-year approval 
period will not be available, and existing approval period requirements 
will apply. In addition, we are proposing to that in order for 
coverage-related waivers to be approved for 5 years periods, they must 
meet all necessary programmatic, financial, and quality requirements.
    The statute provides that the State's request for extension of the 
waiver for additional 5-year periods will be approved unless the 
Secretary determines that one or more conditions of the waiver have not 
been met, that the waiver would no longer be cost neutral (for 1915(c) 
waivers), cost-effective (for 1915(b) waivers) or budget neutral (for 
1115 demonstrations), that it would not be efficient to extend the 
waiver, or that it would no longer be consistent with the purposes of 
the Medicaid program. We are proposing to require that quality 
oversight mechanisms must be in place and that the State must 
demonstrate compliance with applicable program requirements, as well as 
the terms and conditions of the waiver as specified by the Secretary.

G. Prohibition Against Reassignment of Provider Claims

1. Prohibition on Payment Reassignment
    Section 1902(a)(32) of the Act provides generally that ``no payment 
under the plan for care and services provided to an individual shall be 
made to anyone other than such individual or the person or institution 
providing such care or service, under an assignment or power of 
attorney or otherwise.''
    The legislative history for this provision indicates that a primary 
purpose of the provision was to curb perceived abuses that stemmed from 
``factoring'' of accounts receivable by physicians and individual 
practitioners. Factoring is when an individual or an organization, such 
as a collection agency or service bureau, purchases accounts receivable 
from a practitioner for a percentage of their face value.
    Section 1902(a)(32) of the Act contains several specific exceptions 
to the general principle of direct payment to individual practitioners. 
There are exceptions for payments for practitioner services where 
payment is made to the employer of the practitioner, and the 
practitioner is required as a condition of employment to turn over fees 
to the employer; payments for practitioner services furnished in a 
facility when there is a contractual arrangement under which the 
facility bills on behalf of the practitioner; reassignments to a 
governmental agency, through a court order, or to a billing agent; 
payments to a practitioner whose patients were temporarily served by 
another identified practitioner; or payments for a childhood vaccine 
administered before October 1, 1994.
    Similar provisions were enacted in title XVIII of the Act governing 
the Medicare program, at sections 1815(c) and 1842(b)(6) of the Act. 
Medicare payment assignment regulations are codified at 42 CFR part 
424, subpart F (Limitations on Assignment and Reassignment of Claims). 
Because CMS is not proposing to amend or revise the regulations 
governing assignment of Medicare payments in this notice, we do not 
further discuss the Medicare rules. However, we are specifically 
soliciting public comment on the issue of consistency with Medicare 
payment policies, as discussed below.
2. Current Medicaid Payment Assignment Regulations
    Medicaid regulations at Sec.  447.10 implement the requirements of 
section 1902(a)(32) of the Act by providing that State plans can allow 
payments to be made only to certain individuals or entities. 
Specifically, payment may only be made to the individual practitioner 
that provided the service or the recipient, if he or she is a non-cash 
recipient eligible to receive payment under Sec.  447.25, or under one 
of the limited exemptions. In addition, the regulations specifically 
state that ``[P]ayment for any service furnished to a recipient by a 
provider may not be made to or through a factor, either directly or by 
power of attorney.''
3. Medicaid Payment Reassignment
    The regulations at Sec.  447.10 contain several enumerated 
exceptions to the general direct payment principle that implement and 
interpret the statutory exceptions. There is an exception for payment 
in accordance with a reassignment to a government agency, or by a court 
order. There is another exception for payment to a business agent, such 
as a billing service or accounting firm, that furnishes statements and 
receives payments in the name of the individual practitioner, if the 
business agent's compensation for this service is related to the cost 
of processing the billing, and not dependent on the collection of the 
payment.
    There are also three exceptions for payments to individual 
practitioners that reflect statutory exceptions discussed above.
4. Individual Practitioner Workforce Stability and Development Concerns
    Since the direct payment principle was originally enacted in 1972 
and expanded in 1977, the definition of medical assistance under 
section 1905(a) of the Act has been changed to permit States to offer 
coverage of categories of practitioner services, such as personal care 
services, that may be viewed as unique to the Medicaid program. For 
these practitioners, the Medicaid program may be the primary, or only, 
source of payment. Some States have sought methods to improve and 
stabilize the workforce by offering health and welfare benefits to such 
practitioners, and by requiring that such practitioners pursue periodic 
training.
    Several States have requested that we consider adopting additional 
exceptions to the direct payment principle to permit withholding from 
the payment due to the individual practitioner for amounts paid by the 
State directly to third parties for health and welfare benefits, 
training costs, and other benefits customary for employees. These 
amounts would not be retained by the State, but would be paid to third 
parties on behalf of the practitioner for the stated purpose.

[[Page 26382]]

    While section 1902(a)(32) of the Act does not expressly provide for 
additional exceptions to the direct payment principle, we believe the 
circumstances at issue were not contemplated under section 1902(a)(32) 
of the Act and, therefore, that the direct payment principle should not 
apply. In light of the statutory silence in addressing this 
circumstance, we are proposing that the direct payment principle should 
not apply because we think its application would contravene the 
fundamental purpose of the provision. As noted above, the apparent 
purpose of the direct payment principle was to prohibit factoring 
arrangements. Therefore, we are proposing an additional exception to 
describe payments that we do not see as within the intended scope of 
the statutory direct payment requirement. Under this exception, a State 
could claim as a provider payment amounts that are not directly paid to 
the provider, but are withheld and paid on behalf of the provider, such 
as health and welfare benefit contributions, training costs, or other 
benefits customary for employees.

H. Definition of Home and Community-Based Settings for the 1915(k) 
Community First Choice State Plan Option

    Section 1915(k)(1)(A)(ii) of the Act provides that home and 
community-based attendant services and supports must be provided in a 
home and community-based setting. The statute specifies that home and 
community-based settings do not include a nursing facility, institution 
for mental diseases, or an intermediate care facility for the mentally 
retarded. Through the application process of sections 1915(c) waivers, 
1915(i) HCBS State plan amendments and section 1905(a) State plan 
amendments, we are aware of settings other than those specified in 
section 1915(k)(1)(A)(ii) of the Act that exhibit qualities of an 
institutional setting.
    Over the past several years, we have sought input on how to define 
the characteristics of what makes a setting ``home and community-
based.'' In the section 1915(i) proposed rule published on April 4, 
2008 (73 FR 18676), we proposed to define home and community settings 
for this benefit. In the advanced notice of proposed rulemaking 
published on June 22, 2009 (74 FR 29453), we solicited comments on 
potential rulemaking for a number of areas within the section 1915(c) 
waiver program. Specifically, we sought public input on strategies to 
define home and community-based settings where waiver participants may 
receive services. Since that time, we have facilitated and participated 
in multiple stakeholder discussions related to this issue. In the 
proposed rule for section 1915(k) Community First Choice (CFC) State 
plan option published on February 25, 2011 (76 FR 10736), we included 
the proposed language for settings in which CFC services and supports 
could be provided to elicit additional comments on this issue. In an 
effort to maintain consistency with this policy we also proposed 
similar language in the section 1915(c) proposed rule that published on 
April 15, 2011. We received many thoughtful comments on the proposed 
setting provisions published in the CFC proposed rule published on 
February 25, 2011. The comments received indicated to us that the 
proposed setting provisions caused more confusion and disagreement than 
clarity. In consideration of these comments, we decided to revise the 
setting provision and publish as a new proposed rule to allow for 
additional public comment before finalizing. We find the public comment 
process to be valuable in our attempt to develop the best policy on 
this issue for Medicaid beneficiaries.
    Our policy regarding appropriate settings for the delivery of HCBS, 
as evidenced by our review of section 1915(c) waiver requests, has 
included a general prohibition on allowing HCBS in settings that are 
located on or adjacent to the campus of a public institution. We 
included this prohibition in the CFC proposed rule published on 
February 25, 2011. In response to the proposed rule, many commenters 
indicated strong support for this policy being incorporated into the 
final regulation, along with the proposal that buildings that included 
the delivery of inpatient services would not constitute acceptable 
settings for delivery of HCBS. Another commenter indicated that CMS 
should go a step further and in addition to excluding settings that are 
co-located with current institutions, also exclude settings on the 
grounds of former institutions to be clear that reorganizing and 
reclassifying an institution would not meet the criteria of a 
community-based setting. Many commenters believe that it is not 
possible for such a setting to ever be home and community-based. Others 
stated that all the characteristics of the setting should be given 
weight, and that we should not establish requirements based solely on 
the setting locations or types (for example, size or the presence of 
institutional services offered within the same building), which would 
automatically disqualify a setting from being appropriate for delivery 
of HCBS.
    In particular, we heard concerns that a general prohibition on 
setting locations or types could significantly restrict access to 
services in settings that promote aging in place for elderly 
individuals, disrupt effective treatment and support opportunities for 
individuals with significant brain injury, and potentially restrict 
access to services in rural areas. Commenters also expressed concerns 
that by focusing our policy on setting locations or physical 
characteristics, we were inappropriately implying that smaller or more 
scattered settings were automatically appropriate, regardless of the 
quality of care or degree to which individuals receiving services in 
those settings were actually able to participate in community life, be 
assured of health and safety, or able to control their own daily 
activities. Many commenters stated that listing the excluded settings 
created unintended consequences, and could exclude living arrangements 
for individuals receiving attendant services and supports that we did 
not intend to prohibit, as well as permit others that are not 
integrated and person-centered.
    In response to public comment, we have developed proposed 
regulatory language to focus primarily on those qualities we deem 
essential in determining whether a setting of care is community-based. 
We believe the most effective and consistent way to assure that 
individuals with disabilities, regardless of age or type of disability, 
are offered home and community-based services in the most integrated 
setting appropriate to their needs and preferences, is to focus on the 
quality and characteristics of ``home'' and ``community'' that assure 
independence and integration from the individuals' perspective. We 
agree with the many commenters who suggested this type of approach is 
most consistent with a person-centered system for delivering care and 
services.
    Some commenters stated that if an individual or his or her family 
``chooses'' a residence, it is therefore a ``home and community-based'' 
setting. We disagree, as individuals can and do choose to receive 
services in institutional settings. In addition, this reasoning is 
especially suspect in situations where an individual may not be given 
the option of receiving services in a variety of settings outside of an 
institution (for example, in their own home or apartment or, depending 
on the service, in a competitive employment situation), but rather is 
offered services only in a provider-owned or operated congregate 
setting.
    We received a range of responses as to whether disability-specific 
congregate

[[Page 26383]]

settings are appropriate settings for delivery of HCBS. Some 
individuals and organizations are articulate about their right to live 
with anyone of their choosing, including those with disabilities. 
Others maintain that the only way to end unwanted segregation and 
forced ``choices'' is to forbid all segregation by disability, and that 
integration by definition means interaction with non-disabled 
individuals. All agree that unwilling segregation is a violation of 
civil rights. The Department of Justice has initiated a number of 
actions finding that States are violating the ADA by failing to provide 
more integrated alternatives to individuals in congregate settings 
whose residents are primarily or exclusively individuals with 
disabilities. States' obligations under the ADA and Section 504 of the 
Rehabilitation Act are independent of, and are not limited by, their 
obligations under Medicaid, including the requirements of CFC, section 
1915(c) of the Act, or section 1915(i) of the Act. States should 
carefully evaluate their strategies for offering services in community-
based settings and consider whether individuals have meaningful options 
beyond a segregated option.
    In addition, some commenters stated that community can be defined 
in many ways, and therefore that home and community-based care could 
include integration into a community of peers; that is, in a 
disability-specific congregate or campus setting that includes a rich 
array of supports and activities within the setting of care. We 
acknowledge the importance of peer relationships but we do not agree 
that a community of one's peers is the same as ``community based'' in 
terms of settings in which HCBS is delivered. An important purpose of 
home and community-based services is to assist individuals to be able 
to live fully integrated in the greater, non-disabled community.
    To provide greater clarity, we are proposing language to establish 
that home and community-based settings must exhibit specific qualities 
to be eligible sites for delivery of home and community-based services. 
We have included these provisions to move toward a stronger 
articulation of the qualities that make a setting a home or truly 
integrated in the broader community for individuals living with 
disabilities. These are the qualities most often articulated by persons 
with disabilities as key determinants of independence and community 
integration. We believe that these principles of home and community-
based settings will support the use of the Medicaid program to maximize 
the opportunities for individuals to access the benefits of home and 
community living. We expect States electing to provide benefits under 
section 1915(k) to include a definition of home and community-based 
setting that incorporates these principles and will review all SPAs to 
determine whether they propose settings that are home or community-
based. We will permit States with approved section 1915(k) SPAs a 
reasonable transition period, a minimum of one year, to come into 
compliance with the HCBS setting requirements as promulgated in our 
final rule. Under the regulation, settings must exhibit the following 
qualities, and such other qualities as the Secretary determines to be 
appropriate, based on the needs of the individual as indicated in their 
person-centered service plan, in order to be eligible sites for 
delivery of home and community-based services:
     The setting is integrated in, and facilitates the 
individual's full access to, the greater community including 
opportunities to seek employment and work in competitive integrated 
settings, engage in community life, control personal resources, and 
receive services in the community, like individuals without 
disabilities;
     The setting is selected by the individual among all 
available alternatives and is identified in the person-centered service 
plan;
     An individual's essential personal rights of privacy, 
dignity and respect, and freedom from coercion and restraint are 
protected;
     Individual initiative, autonomy, and independence in 
making life choices, including but not limited to, daily activities, 
physical environment, and with whom to interact are optimized and not 
regimented; and
     Individual choice regarding services and supports, and who 
provides them, is facilitated.
    In a provider-owned or controlled residential setting, the 
following additional conditions must be met. Any modification of the 
conditions, for example to address the safety needs of an individual 
with dementia, must be supported by specific assessed needs and 
documented in the person centered service plan:
     The unit or room is a specific physical place that can be 
owned, rented or occupied under another legally enforceable agreement 
by the individual receiving services, and the individual has, at a 
minimum, the same responsibilities and protections from eviction that 
the tenants have under the landlord tenant laws of the State, county, 
city, or other designated entity. We are soliciting comments as to 
whether there are other protections, not addressed by landlord tenant 
laws that should be included.
    ++ Each individual has privacy in their sleeping or living unit:
    - - Units have lockable entrance doors, with appropriate staff 
having keys to doors;
    - - Individuals share units only at the individual's choice; and
    - - Individuals have the freedom to furnish and decorate their 
sleeping or living units;
    ++ Individuals have the freedom and support to control their own 
schedules and activities, and have access to food at any time;
    ++ Individuals are able to have visitors of their choosing at any 
time; and
    ++ The setting is physically accessible to the individual.
    In addition to the aforementioned criteria there are two criteria 
that we have not included in the proposed regulation, but wish to 
solicit comment regarding whether they should be added. The first is 
related to the proposed requirement that in a provider-owned or 
controlled residential setting, any modification of the conditions must 
be supported by specific assessed needs and documented in the person 
centered service plan. This requirement is meant to address two issues:
    (1) Individuals receiving HCBS must not have their independence or 
freedoms abridged by providers for convenience, or well-meaning but 
unnecessarily restrictive methods for providing services and supports; 
and
    (2) Individuals with cognitive disabilities and other impairments 
may require modifications of the aforementioned conditions for their 
safety and welfare.
    This provision is meant to establish that service planning is the 
process in which these decisions are made, rather than ad hoc on a 
daily basis. While the proposed text establishes the requirement that 
any modification to the conditions are supported by a specific assessed 
need and documented in the person-centered service plan, we are also 
considering including language to explicitly set forth these 
activities. We are considering requiring the following points to be 
identified: Identify a specific and individualized assessed safety 
need; document less intrusive methods of meeting that have been tried 
but did not work; include a clear description of the condition that is 
directly proportionate to the specific assessed safety need; include 
regular collection and review of data to measure

[[Page 26384]]

the ongoing effectiveness of the modification; and establishing time 
limits for periodic reviews to determine if the modification can be 
lifted. We solicit comment on these points and any other potential 
requirements regarding modifications of the conditions set forth in 
this proposed rule. We also wish to solicit comment on a second 
criterion that would include a requirement that receipt of any 
particular service or support cannot be a condition for living in the 
unit. In discussing this specific criterion, we discovered that it 
could be read one of two ways. One interpretation is that this language 
does not require an individual residing in a provider owned or operated 
setting to receive HCBS from the setting provider. Rather the 
individual could choose another qualified individual to provide HCBS. 
The other interpretation is that this language would prevent the owner 
of the setting from evicting an individual because the individual 
refused to accept a particular service. This interpretation could have 
an effect on residential settings, such as housing programs to address 
homelessness. Some of these settings include a structure in which 
individuals are required to participate in treatment (substance use, 
for example) as a condition of residing there. We acknowledge the 
complexities that arise, when trying to support an individual's right 
to choose while recognizing that there are programs and services that 
have been developed as a result of identified service needs. As 
indicated earlier, we are specifically soliciting comments on whether 
these two criteria should be included as regulatory requirements.
    Additionally, in an effort to be consistent with other authorities 
providing home and community-based services, we propose to exclude 
hospitals as a community setting for the provision of Community First 
Choice Option. We believe this exclusion aligns with section 
1915(k)(1)(A)(ii) of the Act requiring that services are provided in a 
home and community-based setting and section 1915(k)(3)(B) of the Act 
requiring services are provided in the most integrated setting 
appropriate to the individual's needs. We would like to clarify that 
the hospital prohibition applies to hospitals certified for the 
provision of long-term care services. We recognize that individuals 
with disabilities utilize personal attendant services and supports for 
various activities of daily living and instrumental activities of daily 
living. As a result, we understand that individuals will likely have a 
continued need for assistance while experiencing a short-term stay in 
general acute hospital settings. Therefore, while services provided in 
a general acute care hospital are not CFC services, individuals who 
have an assessed need for assistance with IADLs may continue to receive 
such services while an inpatient in an acute hospital setting. We would 
like to invite comment on this approach.
    Lastly, we are proposing to include the list of the three 
prohibited institutional settings specified in statute, as settings in 
which CFC services and supports may not be provided, along with a 
general prohibition on any other locations that have qualities of an 
institutional setting, as determined by the Secretary.
    In considering whether a setting has the qualities of an 
institutional setting for implementation of CFC, we will exercise a 
rebuttable presumption, as we will for the 1915(i) State plan HCBS 
benefit, that a setting is not a home and community-based setting, and 
will engage in heightened scrutiny, for any setting that is located in 
a building that is also a publicly or privately operated facility that 
provides inpatient institutional treatment, or in a building on the 
grounds of, or immediately adjacent to, a public institution, or 
disability-specific housing complex. We expect to issue further 
guidance regarding such settings. Other characteristics that could 
cause us to consider a setting as ``institutional'' or having the 
qualities of an institution would include, but not be limited to, 
settings which are isolated from the broader community, do not allow 
individuals to choose whether or with whom they share a room, limit 
individuals' freedom of choice on daily living experiences such as 
meals, visitors, and activities, or limit individuals' opportunities to 
pursue community activities.
    Specifically, as with the 1915(i) proposed rule, we would invite 
comments on the specific qualities we have proposed. In addition, we 
are soliciting comments as to whether there are settings in addition to 
those currently enumerated in statute, that are, by their nature, 
location or administration inherently non-community based, regardless 
of the nature of an individual's disability or age, and therefore, 
should be expressly excluded from HCBS. Issuing the revised setting 
provisions as a proposed notice will allow us to consider additional 
perspectives from the public on the modifications. In considering 
comments received pertaining to the setting provision of the section 
1915(k) rule, we will also include full consideration of all comments 
received regarding the aligned home and community-based setting 
requirements being proposed in this rule and section 1915(i). In 
recognizing the need for a consistent definition of this term across 
Medicaid HCBS, it is our goal to align the final language pertaining to 
this topic across the regulations pertaining to sections 1915(i), 
1915(k), and 1915(c) Medicaid HCBS authorities.
    Along with our overarching interest in making improvements to 
Medicaid HCBS, we seek to ensure that Medicaid is supporting needed 
strategies for States in their efforts to meet their obligations under 
the ADA and the Supreme Court decision in Olmstead v. L.C., 527 U.S. 
581 (1999). In the Olmstead decision, the Court affirmed a State's 
obligations to serve individuals in the most integrated setting 
appropriate to their needs. A State's obligations under the ADA and 
section 504 of the Rehabilitation Act are not defined by, or limited 
to, the scope or requirements of the Medicaid program. However, the 
Medicaid program can provide an important opportunity to obtain Federal 
funding that supports compliance with the ADA, section 504 of the 
Rehabilitation Act, and Olmstead through the provision of Medicaid 
services to Medicaid-eligible individuals. Additionally, we expect 
States through the requirement at Sec.  441.677(b) to have a 
comprehensive quality assurance system, to develop individual outcome 
measures that would support the State's compliance with providing CFC 
services in accordance with the individual's person-centered plan and 
in a setting that meets the home and community-based setting criteria 
set forth in this regulation.

III. Provisions of the Proposed Rule

    To incorporate the policies and implement the statutory provisions 
described above, we are proposing the following revisions:

A. State Organization and General Administration (Part 431)

    In Sec.  431.54, we are proposing to add paragraphs (a)(3) and (h) 
to include State plan HCBS as exceptions to comparability and community 
income and resource rules.

B. Eligibility in the States, District of Columbia, the Northern 
Mariana Islands, and American Samoa (Part 435) and Eligibility in Guam, 
Puerto Rico and the Virgin Islands (Part 436)

    In Sec.  435.219 and Sec.  436.219, we are proposing to add a 
provision to implement the optional categorical

[[Page 26385]]

eligibility group created by section 1902(a)(10)(A)(ii)(XXII) of the 
Act for individuals, ``who are eligible for home and community-based 
services under the needs-based criteria established under (1)(A) of 
1915(i), or who are eligible for home and community-based services 
under paragraph (6) of such section, and who will receive home and 
community-based services pursuant to a State plan amendment under such 
subsection.'' By using the word ``or'' we interpret that the statute 
creates two distinct eligibility groups under section 
1902(a)(10)(A)(ii)(XXII) of the Act with two sets of requirements, as 
follows:
    (1) Those who are eligible for HCBS under the needs-based criteria 
established under section 1915(i)(1)(A) of the Act; or
    (2) Those who are eligible for HCBS under paragraph (6) of such 
section, and who will receive HCBS pursuant to a State plan amendment 
under such subsection.
    We believe that we have the following flexibility in defining 
eligibility for the first subset of this group of individuals:
     The first subset is made up of individuals who are not 
otherwise eligible for Medicaid. We believe that this interpretation is 
consistent with Congressional intent because this policy allows 
individuals who would not otherwise be eligible for Medicaid because 
they are not in a category (for example, certain adults prior to 
January 1, 2014) to become Medicaid eligible and receive section 
1915(i) services. The early option established by section 1902(k)(2) of 
the Act covers individuals who are not otherwise categorically eligible 
for Medicaid. The new group defined in section 1902(a)(10)(A)(i)(VIII) 
of the Act, which goes into effect in 2014, also will cover individuals 
not eligible under the existing categorical groups listed in section 
1902(a)(10) of the Act.
     Even though the description of the eligibility group in 
the statute at section 1902(a)(10)(A)(ii)(XXII) of the Act does not 
explicitly include an income cap we believe that a standard of 150 
percent of the FPL, which is the same as the current income cap for 
individuals eligible under the State plan receiving section 1915(i) 
services, is reasonable. The needs-based criteria are described in 
section 1915(i)(1)(A) of the Act, which provides additional conditions 
for the provision of State plan HCBS under section 1915(i)(1) to 
individuals who are eligible under the State Medicaid plan and whose 
income does not exceed 150 percent of the FPL. In addition, the 
amendments to section 1915(i) of the Act in section 2402(b) of the 
Affordable Care Act which establish a new option to cover individuals 
eligible for HCBS under a waiver, gives States this option ``in 
addition to continuing to provide such services'' to individuals 
satisfying the needs-based criteria. Prior to the effective date of the 
new eligibility group under section 1902(a)(10)(A)(ii)(XXII) of the 
Act, States could only provide HCBS under section 1915(i) to those 
eligible under an existing State plan group whose income did not exceed 
150 percent of the FPL and who met the needs-based criteria.
     Section 1902 of the Act requires States to use methods of 
determining income that are reasonable, consistent with the objectives 
of the Medicaid program, simple to administer, and in the best 
interests of the beneficiary. For purposes of determining income for 
this group, we believe the SSI program's rules (which are currently 
used in Medicaid for determining income eligibility for individuals 
aged 65 or older and people with disabilities) meet these criteria. 
Like the individuals covered under the SSI-related Medicaid eligibility 
category, many individuals eligible under this group will have 
disabilities or chronic illnesses. The SSI program provides for a 
number of income disregards specifically applicable to persons with 
disabilities that are not available under other program methodologies. 
States may also elect to use less restrictive income methodologies than 
are used under SSI. Any less restrictive methodology should apply to 
all members of the group.
     While the rules of the SSI program are an example of a 
methodology that we believe meets the requirements for determining 
income eligibility for this group, this does not preclude States from 
describing other methodologies in their SPAs that they believe also 
meet those requirements. We encourage States considering the use of 
other methodologies to discuss them with CMS before actually submitting 
a SPA.
     The statute does not refer to any resource test for this 
group and we are proposing that States may not apply a resource test in 
determining eligibility for this subset of the new group. We believe 
that not applying a resource test for this subset would be consistent 
with the absence of a resource test for the eligibility group described 
under section 1902(a)(10)(A)(i)(VIII) of the Act and the option for 
States to cover such individuals prior to January 1, 2014.
     The section 1915(i) statute does require that these 
individuals must receive section 1915(i) services in order to be 
eligible for Medicaid.
     Once eligible for Medicaid in this group, the individual 
will be eligible for all Medicaid services, not just section 1915(i) 
services.
    The second subset of this group consists of individuals eligible 
for home and community-based services under an existing State waiver or 
demonstration. In determining eligibility for individuals with income 
that does not exceed 300 percent of the SSI/FBR, individuals must be 
eligible for an existing section 1915(c), (d), or (e) waiver or a 
waiver under section 1115, even though they do not have to receive 
services under these authorities. For individuals with income that does 
not exceed 300 percent of the SSI/FBR, we believe that there is little 
flexibility under the statue in determining eligibility for this 
subset, therefore--
     The individual must be eligible for a section 1915(c) 
waiver;
     The State must follow eligibility and post eligibility 
rules of an approved section 1915(c) waiver. More information regarding 
HCBS waiver eligibility and post eligibility rules is available in the 
HCBS waiver Technical Guide, online at www.hcbswaivers.net;
     Income and resource rules of the special income level 
group apply;
     Section 1902(r)(2) of the Act income disregards do not 
apply because income eligibility under the special income level group 
is determined using a gross income test that caps income at 300 percent 
of the SSI/FBR;
     Section 1902(r)(2) of the Act resource disregards apply;
     The individual must receive section 1915(i) services as a 
condition of Medicaid eligibility;
     If the State elects to cover individuals with income up to 
300 percent of the SSI/FBR, it must elect the option under section 
1915(i)(6) under the State plan; and
     The individual will be eligible for all Medicaid services, 
not just section 1915(i) services.
    Additionally, when electing this new eligibility group States will 
have multiple options. States can cover--
    (1) Individuals who meet the needs-based criteria established under 
section 1915(i)(1)(A) of the Act with income up to 150 percent of the 
FPL and individuals who meet the needs-based criteria established under 
1915(i)(1)(A) eligible for HCBS under a waiver with income up to 300 
percent of the SSI/FBR; or
    (2) The subset of individuals who meet the needs-based criteria 
established under section 1915(i)(1)(A) of the Act with income up to 
150 percent of the FPL; or
    (3) The subset of individuals who meet the needs-based criteria 
established under section 1915(i)(1)(A)

[[Page 26386]]

of the Act eligible for HCBS under a waiver with income up to 300 
percent of the SSI/FBR.
    In order for States to elect any of the options listed above with 
respect to the new eligibility group, they must continue to cover 
individuals described in 1915(i)(1).
    This is not the first time that an eligibility group has been 
treated in this manner; the aged or disabled poverty level group 
described at section 1902(m)(1) of the Act permits States to cover aged 
and disabled individuals, the aged only, or disabled only individuals.
    We invite comment on the eligibility provisions of Sec.  435.219 
and Sec.  436.219 of the regulation.

C. Services: General Provisions (Part 440)

    In Sec.  440.1, we are proposing to add a reference to a new 
statutory basis to read ``1915(i) HCBS furnished under a State plan to 
elderly and disabled individuals under the provisions of part 441, 
subpart L.''
    In Sec.  440.180, we are proposing to revise the heading ``Home or 
community-based services'' to read ``Home and community-based waiver 
services'' to standardize the term ``home and community-based 
services'' and clarify that this section concerns only HCBS provided 
through 1915(c) waivers.
    In part 440 subpart A, we are proposing to add Sec.  440.182, 
``State plan home and community-based services'', which would define a 
new optional Medicaid service for which FFP is available to States, as 
specified in part 441, subpart K.
    In Sec.  440.182(a), we propose that the services authorized in 
section 1915(i) of the Act, and meeting the requirements outlined in 
proposed subpart K, be known as ``State plan home and community-based 
services.'' When referring to the specific service(s) offered under the 
State plan HCBS benefit listed in Sec.  440.180(b), we use the term 
``State plan HCBS.'' When referring to overall State activities under 
section 1915(i) of the Act as described in subpart K, we use the term 
``benefit'', or ``State plan HCBS benefit''.
    In Sec.  440.182(b) and Sec.  440.182(c)(1), we propose that the 
optional State plan HCBS benefit may consist of any or all of the HCBS 
listed in section 1915(c)(4) for waiver programs, as specified in 
regulation at Sec.  440.180. Because section 1915(i) of the Act defines 
services by reference to section 1915(c) of the Act, we believe that 
the regulatory requirements should be parallel, except for the 
``other'' services which the Secretary has the authority to approve for 
an HCBS waiver. In HCBS waivers, other services must be cost-effective 
and must be necessary to prevent institutionalization. However, the 
State plan HCBS does not require cost-neutrality and some individuals 
will be eligible for section 1915(i) of the Act without meeting an 
institutional LOC. Therefore, we list the permitted services for the 
State plan HCBS benefit in Sec.  440.182 identically to the services 
specified in Sec.  440.180 for HCBS waivers, except for ``other'' 
services. We require ``other'' services to be appropriate for 
individuals who meet the needs-based criteria that the State defines 
for the benefit. We further specify that the conditions set forth in 
Sec.  440.180(b) for services to individuals with chronic mental 
illness, and in Sec.  440.180(c) for expanded habilitation services, 
apply to State plan HCBS services.
    In particular, due to concern over duplication of habilitation 
services and the State-defined ``other services,'' we propose to 
require at Sec.  441.662(a)(7) and Sec.  441.662(a)(8) (regarding 
requirements for independent assessment), explanations of the manner in 
which non-duplication of services will be documented in the assessment 
of each individual receiving habilitation services or Secretary 
approved other services. Additionally, since some individuals may be 
simultaneously receiving services through a HCBS waiver and the section 
1915(i) benefit, we require in Sec.  441.662(a)(9) documentation that 
the services provided through 1915(c) and 1915(i) authorities may not 
be duplicative for the same individual. This would also include 
coordination of assessments, service plan development, and case-
management to ensure that individuals receiving services under both 
authorities are not subject to multiple assessments and service plans.
    Section 1915(i) of the Act prohibits reimbursement for room and 
board. At Sec.  440.182(c), we propose to state that, except for 
respite care furnished in a setting approved by the State that is not 
the individual's residence, no service or combination of services may 
be used to furnish room and board through the State plan HCBS benefit. 
When meals are furnished as an integral component of the service, we 
are proposing to permit the State to consider the cost of food in the 
rate it pays for the State plan HCBS, as the cost is then considered 
part of the service itself. We would not consider the meal to be an 
integral part of the State plan HCBS when two rates are charged to the 
public, one that includes a meal and one that does not include a meal.
    Finally, we propose that a State may claim FFP for a portion of the 
rent and food expenses that may be reasonably attributed as a service 
cost to compensate an unrelated caregiver providing State plan HCBS, 
who is residing in the same household with the recipient. We propose, 
as is permitted in HCBS waivers under section 1915(c)(1) and Sec.  
441.310(a)(2)(ii), that FFP is available only for the reasonable 
additional rent and food costs of the caregiver residing in the 
recipient's home, not to support the cost of a caregiver's household in 
which the recipient resides. We would therefore provide that FFP not be 
available for caregiver rent and food costs when the residence is owned 
or leased by the caregiver.

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

    In April 4, 2008, we issued a proposed rule in the Federal Register 
titled ``Medicaid Program; Home and Community-Based State Plan 
Services.'' In that proposed ruled, we specified that we would set 
forth our proposals in 42 CFR part 441 initially proposed in new 
subpart K titled ``State Plan Home and Community-Based Services for 
Elderly and Disabled Individuals,'' consisting of Sec.  441.650 through 
Sec.  441.677, which describes requirements for providing the State 
plan HCBS benefit. This construction parallels that for HCBS waivers, 
which are the subject of subpart G of part 441. Subsequently, we 
published a proposed rule (76 FR 10736) on February 25, 2011 in the 
Federal Register titled ``Medicaid Program; Community First Choice 
Option,'' which also proposed the addition of subpart K to part 441. 
Therefore, we are proposing to specify that the proposed provisions for 
the ``State Plan Home and Community-Based Services for Elderly and 
Disabled Individuals'' in subpart K under Sec.  441.550 through Sec.  
441.577 be redesignated as subpart L (Sec.  441.650 through Sec.  
441.677).
    In this new subpart, it is necessary in several paragraphs to 
indicate that certain provisions apply to an individual or an 
individual's representative. To reduce redundancy, we indicate in those 
paragraphs that ``individual'' means the eligible individual and, if 
applicable, the individual's representative, to the extent of the 
representative's authority recognized by the State. ``Individual and 
representative'' more accurately convey the person-centered process 
than ``individual or representative''. This provision clarifies that 
there is no

[[Page 26387]]

implication that individuals will or will not have representatives.

E. Basis and Purpose (Sec.  441.650)

    We set forth in Sec.  441.650 language to implement the provisions 
of section 1915(i) of the Act permitting States to offer HCBS to 
qualified elderly and disabled individuals under the State plan. Those 
services are listed in Sec.  440.182, and are described by the State, 
including any limitations of the services. This optional benefit is 
known as the State plan HCBS benefit. This subpart describes what a 
State Medicaid plan must provide, and defines State responsibilities.

F. State Plan Requirements (Sec.  441.653)

    In Sec.  441.653, we propose that a State plan that includes HCBS 
for elderly and disabled individuals must meet the requirements of this 
subpart. We would require that the State plan amendment in which the 
State establishes the State plan HCBS benefit satisfy the requirements 
set forth in this proposed regulation.

G. Eligibility for Home and Community-Based Services Under Section 
1915(i)(1) of the Act (Sec.  441.656)

    We propose in Sec.  441.656(a)(1) to require that if the State 
Medicaid agency elects to provide the 1915(i) HCBS benefit, it must 
provide services to categorically needy individuals who are eligible 
for Medicaid under an eligibility group that is covered under its State 
Medicaid plan and who have income that does not exceed 150 percent of 
the FPL. The State may also elect to provide the section 1915(i) HCBS 
benefit to medically needy individuals.
    To implement the intent of the Congress that the benefit be ``home 
and community-based,'' we would require in Sec.  441.656(a) that the 
individual reside in the home or community, not in an institution, 
according to quality principles for community-based settings prescribed 
by the Secretary. As discussed in section II.E.2. of this proposed 
rule, there are a variety of living arrangements that promote 
independence and community integration, as well as arrangements that do 
not.
    We would require in Sec.  441.656(b) that the individual must meet 
the needs-based eligibility criteria as set forth in Sec.  441.659. We 
propose in Sec.  441.656(c) that individuals are not eligible for the 
State plan HCBS benefit until they have met all eligibility 
requirements, including the need for at least one service provided 
under the State plan as part of the HCBS benefit at a frequency 
identified by the State. Finally, we require that, in the event that a 
State elects not to apply comparability requirements to the benefit, an 
individual must meet the State-defined and CMS approved targeting 
criteria in order to establish eligibility.
    We propose in Sec.  435.219(b) and Sec.  436.219(b) that States may 
elect under section 1915(i)(6) of the Act the option to provide home 
and community-based State plan services to individuals eligible under a 
section 1915(c), (d), (e) or section 1115 waiver who have income up to 
300 percent of the SSI/FBR.
    We also propose in Sec.  441.656(e)(1) that States may elect to 
follow institutional income and resource eligibility rules for the 
medically needy living in the community. Nonapplication of the 
requirements of section 1902(a)(10)(C)(i)(III) of the Act allows States 
to treat medically needy individuals as if they are living in an 
institution by not deeming income and resources from an ineligible 
family member. We use the term ``not to apply'' instead of ``waive'' 
since this is an election made by the State and does not require a 
waiver by the Secretary. We further propose that States may elect not 
to apply section 1902(a)(10)(B) of the Act, concerning comparability of 
services in Medicaid, which permits the State plan HCBS benefit to be 
targeted towards specific populations. In this section, we indicate 
that a State may elect to establish targeting criteria for the section 
1915(i) benefit and for any specific services within that benefit, 
subject to CMS approval, based on factors such as age, diagnosis, and/
or disability. These criteria provide States with the option to provide 
State plan HCBS services to specific populations, including specific 
Medicaid eligibility groups, but allows flexibility to combine multiple 
target groups within one benefit and to provide different services to 
each group. Targeting criteria cannot have the impact of limiting the 
pool of qualified providers from which an individual would receive 
services, or have the impact of requiring an individual to receive 
services from the same entity from which they purchase their housing.

H. Needs-Based Criteria and Evaluation (Sec.  441.659)

    The statute uses a number of terms at times interchangeably. In 
general, in Sec.  441.659 we adopt the wording used most frequently in 
the law, and specify a term for each requirement. For example, 
regarding the terms ``assessment'' and ``evaluation,'' we would adopt 
the language in section 1915(i)(1)(H)(ii) of the Act, which refers to 
the ``independent evaluation'' and the ``independent assessment.''
1. Needs-Based Eligibility Criteria
    In Sec.  441.659(a), we propose that States establish needs-based 
criteria for determining an individual's eligibility under the State 
plan for HCBS, and may establish needs-based criteria for each specific 
service. We do not define support needs, as we believe that States 
should have the flexibility to match eligibility criteria to the nature 
of the services they would provide under the HCBS benefit. By statute, 
the needs-based criteria would consist of needs for specified types of 
support, such as assistance with ADLs, IADLs, or other risk factors 
defined by the State. We propose to require that State-defined risk 
factors affecting eligibility may be included as needs-based 
eligibility criteria in the State plan amendment. While we do not 
propose requirements for State-defined risk factors, we believe that as 
needs-based criteria, risk factors should be related to support needs, 
such as lack of availability of family members or other unpaid 
caregivers willing and able to provide necessary care.
    We distinguish support needs from other types of characteristics. 
We propose that a distinguishing characteristic of needs-based criteria 
is that they can only be ascertained for a given person through an 
individual evaluation. This differentiates a targeting criterion such 
as a diagnosis, which many individuals may identically share, from a 
support need, which will vary widely among those individuals with the 
same diagnosis.
    We note that the regulation requires only that the needs-based 
criteria for the State plan HCBS benefit establish the lowest threshold 
of need to enroll in the benefit. There is an upper limit of need to be 
eligible for the HCBS benefit only if the State so specifies in the 
needs-based eligibility criteria. The more stringent institutional 
criteria required in Sec.  441.559(b) of this section do not constitute 
an upper limit of need to be eligible for the State plan HCBS benefit. 
The institutional criteria are only a lowest threshold of need to 
receive institutional services. We also note that section 1915(i)(1) of 
the Act clarifies that State plan HCBS are not required to be direct 
alternatives to institutional care. The statute specifically provides 
that the State plan HCBS benefit does not need to meet the section 
1915(c) requirement that, but for the services provided under the HCBS 
waiver, the individual would require institutional care.

[[Page 26388]]

2. More Stringent Institutional and Waiver Needs-Based Criteria
    In Sec.  441.659(b), we propose that the State plan HCBS benefit is 
available to a State only if individuals may demonstrate a lower level 
of need to obtain State plan HCBS than is required to obtain 
institutional or waiver services. States that have functional LOC 
criteria for institutions (that meet the requirements in Sec.  
441.659(a)(1)), may have no need to modify their existing institutional 
criteria so long as the needs-based eligibility criteria established 
for State plan HCBS are less stringent. States without need-based 
institutional LOC criteria must add need-based requirements to their 
LOC assessments in order to establish the State plan HCBS benefit.
    We propose in Sec.  441.659(b) to define by reference to statute 
and regulation the institutions for which section 1915(i) of the Act 
requires more stringent eligibility criteria. NF and ICF/MR are so 
cited. We interpret the reference in section 1915(i)(1)(B) of the Act 
to hospitals to mean facilities certified by Medicaid as hospitals that 
are providing long-term care services or services related to the HCBS 
to be provided under the benefit. The proposed regulation requires that 
States have or establish for such hospitals (if any), needs-based 
criteria for admission that are more stringent than those for 
eligibility in the State plan HCBS benefit. We further propose, when 
the State covers more than one service in the State plan HCBS benefit, 
to require that any needs-based criteria for individual HCBS may not 
have the effect of limiting who can benefit from the State plan HCBS in 
an unreasonable way, as determined by the Secretary.
    In Sec.  441.659(b), we further propose to require that the more 
stringent needs-based criteria for institutions and waivers be part of 
the State's LOC processes, to ensure that the criteria are uniformly 
utilized. We would require that these more-stringent needs-based 
criteria be submitted for comparison with the State plan amendment that 
establishes the State plan HCBS benefit. We note that needs-based 
criteria, as defined in Sec.  441.659(a) require an evaluation to 
determine the individual's support needs. Therefore, the assessment 
process for institutional levels of care that include needs-based 
criteria must include an individual evaluation of support needs. We 
also propose to require that the State's more stringent institutional 
and waiver needs-based criteria be in effect by the effective date of 
the State plan HCBS benefit.\8\
---------------------------------------------------------------------------

    \8\ Although not included in the regulation, we would caution 
states against raising the LOC due to the maintenance of eligibility 
requirements included in the Affordable Care Act.
---------------------------------------------------------------------------

    Finally, in Sec.  441.659(b)(2), we propose that if a State 
modifies its institutional level of criteria in order to satisfy the 
requirement that the levels of care be more stringent than the needs-
based eligibility criteria for the State plan HCBS benefit, the States 
may continue to receive FFP when serving individuals who were eligible 
under the previous criteria. Exemption from the more stringent criteria 
is indefinite, but ends when the individual is discharged from the 
facility or waiver, the individual becomes ineligible for Medicaid due 
to factors unrelated to the LOC determination, or the individual no 
longer meets the criteria for the applicable LOC. We note that in long-
term care facilities a transfer is not a discharge and would not cause 
the individual to lose this exemption. Similarly, if an individual 
transitions from an institution to a waiver it would not result in a 
separate LOC, and would not cause the individual to lose this 
exemption. States would determine the effect of any subsequent changes 
to general LOC requirements (unrelated to the more stringent criteria) 
upon individuals with this exemption. Additionally, nothing in this 
subsection would prevent the State from determining whether the person 
remains eligible for Medicaid based on other factors, such as income or 
residency.
3. Adjustment Authority
    In Sec.  441.659(c), we propose to permit States under certain 
conditions to adjust, without prior approval from the Secretary, the 
needs-based eligibility criteria and service criteria (if any) 
established under Sec.  441.659(a), in the event that the State 
experiences enrollment in excess of the number projected to be served 
by the HCBS benefit. We propose a retroactive effective date, as 
approved by the Secretary, for the State plan amendment modifying the 
needs-based criteria under Sec.  441.659(c)(1). We set forth the 
following conditions required by the statute.
    The State must provide for at least 60 days notice to the 
Secretary, the public, and we would propose to require, each enrollee. 
Since the effect of adjusted criteria would be to reduce the scope of 
services, eligibility for services, or eligibility for the entire State 
plan HCBS benefit, the adjusted criteria established under this 
subsection would not apply to individuals already enrolled in the State 
plan HCBS. If the State also adjusts institutional levels of care, the 
adjusted institutional levels of care may not be less stringent than 
the institutional LOC prior to the effective date of the State plan 
HCBS benefit.
    Additionally, in Sec.  441.659(b), we indicate that any changes to 
the institutional LOC criteria under the State adjustment authority 
contained in Sec.  441.659(c) are subject to the same requirements as 
an adjustment to the institutional LOC criteria under Sec.  441.659(b).
    In Sec.  441.659(c), we further propose to explicitly require that 
the adjusted needs-based eligibility criteria for the State plan HCBS 
benefit must be less stringent than needs-based institutional LOC 
criteria in effect at the time of the adjustment.
    We propose that the notice to the Secretary be submitted as a State 
plan amendment. In order to implement the adjustment authority without 
prior approval of the Secretary, the Secretary would approve a State 
plan amendment adjusting the needs-based HCBS benefit eligibility 
criteria with a retroactive effective date, as early as 60 days after 
the State notified each enrollee, the Secretary, and the public, (or 
whichever is later). Under the provision of section 1915(i)(1)(D)(ii) 
of the Act, the Secretary will evaluate the State's adjusted criteria 
for compliance with the provisions of this paragraph and subpart L. We 
also note that while the State may under this provision implement the 
adjusted criteria as early as 60 days after notification and before the 
State plan amendment is retroactively approved, the State is at risk 
for any actions it takes that are later disapproved.
    Finally, we would require that the State notify affected 
individuals of their right to a fair hearing in accordance with 42 CFR 
part 431, subpart E.
4. Independent Evaluation and Determination of Eligibility
    In Sec.  441.659(d), we propose that eligibility for the State plan 
HCBS benefit be determined by an independent evaluation of each 
individual, applying the general eligibility requirements in Sec.  
441.656 of this subpart, and the needs-based criteria that the State 
has established under Sec.  441.659(a). Independence of the review 
requires meeting the conflict of interest standards set forth in Sec.  
441.568, where provider qualifications for evaluators are specified.
    The evaluation must assess an individual's support needs and 
strengths. We interpret this provision of

[[Page 26389]]

the statute to indicate that the evaluation process draws conclusions 
about supports that the individual requires because of age or 
disability, and supports that the individual does not require because 
of abilities to perform those functions independently. The evaluation 
compares those conclusions with the needs-based eligibility criteria 
for the State plan HCBS benefit to determine eligibility for the 
benefit. Section 1915(i)(1)(D)(i) of the Act provides that the State 
may take into account the need for significant assistance to perform 
ADLs, indicating that the statute does not require that eligibility be 
dependent upon assistance for ADLs.
    We note that appraisal of whether an individual has need for, and 
meets additional needs-based criteria (if any) for specific HCBS 
offered under the benefit, is part of the independent assessment and 
service plan development process. However, this assessment affects 
eligibility for the benefit in that we propose at Sec.  
441.656(a)(ii)(5) that individuals are considered enrolled in the State 
plan HCBS benefit only if they are assessed to require at least one 
home and community-based service offered under the State plan benefit 
in addition to meeting the eligibility and needs-based criteria for the 
benefit.
    The evaluation process designed by the State would reflect the 
nature of the State plan HCBS benefit designed by the State. However, 
in order to meet the forgoing requirements, all independent evaluations 
require specific information about each individual's support needs, 
sufficient to draw the appropriate conclusions. In some cases this 
information may be well documented and current in the individual's 
existing records. In other cases, we would require that the evaluator 
obtain this information by whatever means are appropriate to secure a 
valid appraisal of the individual's current needs. This requirement 
could include professional assessment of certain functional abilities. 
State evaluation procedures that rely solely on review of medical 
records would not meet these requirements.
5. Periodic Redetermination
    In Sec.  441.659(e), we propose that individuals receiving the 
State plan HCBS benefit must be reevaluated at a frequency defined by 
the State, but not less than every 12 months, to determine whether the 
individuals continue to meet eligibility requirements. The independent 
reevaluations must meet the requirements for initial independent 
evaluations specified in Sec.  441.659(d).

I. Independent Assessment (Sec.  441.662)

    In Sec.  441.662, we propose requirements for independent 
assessment of need of each individual who has been determined by the 
independent evaluation to be eligible for the State plan HCBS benefit. 
The purpose of the assessment is to obtain, in combination with the 
findings of the independent eligibility evaluation, all the information 
necessary to establish a service plan. The assessment is based on the 
needs of the individual, which we believe precludes assessment 
protocols that primarily determine diagnoses, or only assess function. 
Assessment protocols must not assign supports automatically by 
functional limitation. The independent assessment must determine the 
specific supports needed to address the individual's unique 
circumstances and needs, including other services available through 
Medicaid and other State and Federal programs.
    The assessment also applies the State's needs-based criteria (if 
any) for each service. We propose that an individual be considered 
enrolled in the State plan HCBS benefit only if the assessment finds 
that the individual needs and meets the needs-based criteria (if any) 
for at least one State plan HCBS. This proposed requirement is to 
provide States with a mechanism to prevent the situation of an 
individual being eligible for the State plan HCBS benefit but not able 
to receive any of the services it offers; or for establishing Medicaid 
eligibility through the benefit without actually receiving State plan 
HCBS services. Such a circumstance could, among other problems, be of 
no utility to the individual, and may make it difficult for the State 
to meet an assessed need. Furthermore, the eligibility group defined in 
section 1902(a)(10)(a)(ii)(XXII) of the Act requires an individual to 
receive State plan HCBS in order to establish Medicaid eligibility 
through that category.
    We propose to require in Sec.  441.662(a)(1) that the assessment 
include a face-to-face meeting with the individual (``individual'' 
meaning in this context, if applicable, the individual and the 
individual's authorized representative). We further propose that a 
``face-to-face'' meeting could be performed through telemedicine or 
other information technology medium, if the health care professional 
performing the assessment meets provider qualifications that includes 
additional training requirements for the operation of the information 
technology, the individual receives support during the assessment 
including the use of any necessary on-site staff, and the individual 
provides informed consent. In Sec.  441.662(a)(1)(i), we propose to 
require that the assessment is performed by an agent that is 
independent and qualified as defined in Sec.  441.668. The assessment 
is to be guided by best practice and research on effective strategies 
that result in improved health and quality of life outcomes. We further 
propose that the assessment includes consultation, as appropriate, with 
other responsible parties. The assessment must include an examination 
of the individual's relevant history, medical records, and care and 
support needs, including the findings from the independent eligibility 
evaluation.
    If self-direction of services is offered by the State and elected 
by the individual, the independent assessment must include a self-
direction appraisal as described in Sec.  441.674.
    For individuals receiving habilitation services, we propose to 
require documentation that no services are provided under Medicaid that 
would otherwise be available to the individual, specifically including 
but not limited to services available to the individual through a 
program funded under section 110 of the Rehabilitation Act of 1973. We 
believe that these documentation requirements would provide a clear 
method for States to comply with Federal requirements, focus only on 
the individuals for whom these circumstances could apply, and would not 
add significantly to the burden of the assessment. We further propose 
that the assessment must ensure that services received through 
Secretary-approved ``other'' services are not duplicative of any other 
services provided through the Medicaid State-plan or through another 
State or Federal program. We note that extended State plan services 
would not be considered duplicative, since those services are not 
available to individuals through the State plan. We further note that 
payments must also be in accordance with section1903(c) of the Act. 
Finally, we require that the assessment must ensure that any individual 
simultaneously enrolled in State plan HCBS and receiving HCBS through a 
waiver does not receive duplicative services. We would include case 
management, assessment, and service plan development in the services 
that may not be duplicative. This does not necessarily mean that an 
individual cannot have more than one case manager, but instead is meant 
to ensure

[[Page 26390]]

that services are coordinated across multiple programs, and that 
individuals are not required to develop multiple service plans.
    Finally, in Sec.  441.662(b), we propose to require that the 
independent assessment of need is conducted at least every 12 months 
and as needed when the individual's needs and circumstances change 
significantly, in order to revise the service plan.

J. Service Plan (Sec.  441.665)

    In Sec.  441.665 we propose to require that based on the 
independent assessment specified in Sec.  441.662, the State develops 
(or approves, if the plan is developed by others) a service plan 
through a person-centered planning process.
    We propose that the service plan must be developed jointly with the 
individual. While we propose several specific requirements for the 
process of developing a service plan, we note that the intent of these 
requirements is to ensure a process with shared authority between the 
individual and the agency or agent. To achieve this intent, States must 
affirmatively and creatively work to establish such shared authority.
    The assessment must include consultation with appropriate persons. 
While we include examples, we do not propose any required or excluded 
category of persons to consult. When the service plan is finalized 
between the parties, a written copy is provided to the individual.
    Also, in Sec.  441.665(a), we propose certain content to be 
required in the service plan. The person-centered service plan must 
identify the specific State plan HCBS to be provided to the individual, 
that take into account the individual's strengths, preferences, needs 
(clinical and support), and desired outcomes. We are proposing that the 
service plan should be constructed in a manner that promotes service 
delivery and independent living in the most integrated setting 
possible. Therefore, we propose that the plan must not only address 
medical and support needs, but should also reflect other individual 
goals related to community living to the extent that services covered 
under the State Medicaid plan would be available to support such goals. 
In the planning process, the degree of assistance with ADLs available 
to the individual outside of the State plan HCBS benefit may be taken 
into account in planning the scope and frequency of HCBS to be 
provided. Thus, the service plan provides for all needed services to 
the individual while preventing provision of duplicative or unnecessary 
services.
    We propose a single service plan for both self-directed and non 
self-directed services. When individuals self-direct some or all of 
their HCBS, the service plan includes the information required in Sec.  
441.674.
    We further propose to require that the service plan be reviewed and 
revised at least every 12 months, and as needed when the individual's 
circumstances or needs change significantly.
    Finally, we propose that the individual must share the authority 
for developing and implementing the service plan. This shared authority 
increases the individual's self-efficacy and involvement in the 
activities and outcomes contained within the service plan.

K. Provider Qualifications (Sec.  441.668)

    In Sec.  441.668, we propose to require that the State provide 
assurance that necessary safeguards have been taken to protect the 
health and welfare of the enrollees in State plan HCBS by provision of 
adequate standards for all types of providers of HCBS. States must 
define qualifications for providers of HCBS services, and for those 
persons who conduct independent evaluation of eligibility for State 
plan HCBS, independent assessment of need, and are involved with 
developing the service plan.
    We propose at Sec.  441.668(b) and (c) to require minimum 
qualifications for individuals and agencies who conduct independent 
evaluation of eligibility for State plan HCBS, independent assessment 
of need, and are involved with developing the service plan. We will 
refer to these individuals and entities involved with determining 
access to care as ``agents'' to distinguish this role from providers of 
services. We believe that these qualifications are important safeguards 
for individuals enrolled in the State plan HCBS benefit and propose 
that they be required whether activities of the agents are provided as 
an administrative activity or whether some of the activities are 
provided as a Medicaid service. At a minimum, these qualifications 
include conflict of interest standards, and for providers of assessment 
and service plan development, these qualifications must include 
training in assessment of individuals whose physical or mental 
condition may trigger a need for HCBS and supports, and an ongoing 
knowledge of current best practices to improve health and quality of 
life outcomes.
    The minimum conflict of interest standards we propose to require 
ensure that the agent is not a relative of the individual or 
responsible for the individual's finances or health-related decisions. 
The standards also require that the agent must not hold financial 
interest in any of the entities that provide care. Relatives and 
decision makers are required to be permitted in the assessment and 
planning process, as appropriate, but we do not see any necessity or 
value in family members being responsible for evaluation, assessment, 
or planning. Our experience with HCBS in waivers indicates that 
assessment and service plan development should not be performed by 
providers of the services prescribed. However, we recognize that in 
some circumstances there are acceptable reasons for a single provider 
of service that performs all of those functions. In this case, the 
Secretary would require the State Plan to include provisions assuring 
separation of functions within the provider entity.

L. Definition of Individual's Representative (Sec.  441.671)

    In Sec.  441.671, we propose to define the term ``individual's 
representative'' to encompass any party that is authorized to represent 
the individual for the purpose of making personal or health care 
decisions, either under State law or under the policies of the State 
Medicaid agency. We do not propose to regulate the relationship between 
an individual enrolled in the State plan HCBS benefit and his or her 
authorized representative, but note that States should have policies to 
assess for abuse or excessive control and ensure that representatives 
conform to applicable State requirements. We note that States must not 
refuse to allow a freely-chosen person to serve as a representative 
unless the State has tangible evidence that the representative is not 
acting in the best interest of the individual, or that the 
representative is incapable of performing the required functions.

M. Self-Directed Services (Sec.  441.674)

    We propose in Sec.  441.674 to permit States to offer an election 
for self-directing HCBS. We propose regulations containing the specific 
requirements for self-direction found in section 1915(i)(1)(G)(iii) of 
the Act. In Sec.  441.674(a), we define ``self-direction.'' Provisions 
related to self-direction apply to an individual or an individual's 
representative. In Sec.  441.674(b), we propose that when an individual 
chooses self-direction, the independent assessment and person-centered 
planning required under Sec.  441.662 and Sec.  441.665 would include 
examination of the support needs of the individual to self-direct the 
purchase of, or control the receipt of, such services.

[[Page 26391]]

The evaluation should not reject election to self-direct based solely 
on the individual's disability or a manifestation of his or her 
disability. We therefore propose to require that the evaluation for 
self-direction result in a determination of ability to self-direct both 
with and without specified supports.
    These regulations are consistent with our policy for self-direction 
under section 1915(c) HCBS waivers. We propose to require in Sec.  
441.674(b) that the service plan indicate the HCBS to be self-directed 
and the methods by which the individual will plan, direct, or control 
the services; the role of family or others who will participate in the 
HCBS; and risk management techniques. Our experience with HCBS waivers 
indicates that contingency plans are an important protection for the 
individual, in the absence of an agency that would otherwise be 
responsible for absent workers or other common problems. Contingency 
plans are most effective when designed for the unique circumstances of 
each self-directing individual. We propose that the service plan 
describe the process for facilitating voluntary and involuntary 
transition from self-direction. When the service plan is finalized 
between the parties, a written copy is provided to the individual, as 
required in the proposed plan on care requirements at Sec.  441.665(a).
    In Sec.  441.674(c) and (d), we define self-direction of services 
in terms of employer authority and budget authority, as we have with 
self-directed HCBS in Medicaid section 1915(c) waivers. In Sec.  
441.674(c), employer authority is defined as the ability to select, 
manage, or dismiss providers of the State plan HCBS. We propose that 
the service plan must specify the authority to be assumed by the 
individual and the individual's representative, any parties responsible 
for functions outside the assumed authority, and the financial 
management supports to be provided as required in Sec.  441.674(e).
    In Sec.  441.674(d), we propose to define budget authority as an 
individualized budget which identifies the dollar value of the services 
and supports under the control and direction of the individual. We 
propose that the service plan must specify the method for calculating 
the dollar values in the budget, a process for adjusting the budget to 
reflect changes in assessment and service plan, a procedure to evaluate 
expenditures under the budget, and the financial management supports, 
as required in Sec.  441.674(e), to be provided. We clarify here that 
while budget authority grants control of expenditures to the 
individual, it does not include performing the transactions or 
conveying cash to the individual or representative.
    In Sec.  441.674(e), we propose to define functions in support of 
self-direction that the State must offer, based on our experience with 
self-directed HCBS in section 1915(c) waivers and section 1115 
demonstrations. These provisions are required in order to equip 
individuals for success in managing their services, and to comply with 
Federal, State, and local requirements, particularly the many tax, 
labor, and insurance issues that arise when the self-directing 
individual is the employer of record. Supports for self-direction 
should provide the technical expertise and business functions that will 
free individuals to exercise choice and control over their experience 
of the HCBS provided to them.

N. State Plan HCBS Administration: State Responsibilities and Quality 
Improvement (Sec.  441.677)

1. State Responsibilities
    We would require in Sec.  441.677(a)(1)(i) that the State annually 
provide CMS with the projected number of individuals to be enrolled in 
the benefit, and the actual number of unduplicated individuals enrolled 
in the State plan HCBS benefit in the previous year.
    Section 1915(i) of the Act authorizes a State to elect not to apply 
comparability requirements, thus permitting States to target the entire 
1915(i) benefit, specific services within the benefit, or both. We 
clarify in Sec.  441.677(a)(1)(ii) that the State may not limit 
enrollee access to services in the benefit for any reason other than 
assessed need or targeting criteria. This includes the requirement that 
services be provided to all individuals who are assessed to meet the 
targeting criteria and needs-based criteria, regardless of income. This 
is an important distinction between the limits States place on the 
services to be offered when they design the benefit, as opposed to 
limiting access to the services that are in the benefit for particular 
enrolled individuals. As discussed in section II.E.1 of this proposed 
rule, States have a number of permitted methods to control utilization. 
We propose that once an individual is found eligible and enrolled in 
the benefit, access to offered services can only be limited by medical 
necessity. Medical necessity in the State plan HCBS benefit is 
determined by the needs-based criteria, as evaluated by the independent 
assessment and person centered service plan. By not limiting access, we 
mean that an enrollee must receive any or all of the HCBS offered by 
the benefit, in scope and frequency up to any limits on those services 
defined in the State plan, to the degree the enrollee is determined to 
need them. Enrollees should receive no more, and no fewer, HCBS than 
they are determined to require. We note that one function of the 
service plan as proposed at Sec.  441.665(a)(3) is to prevent the 
provision of unnecessary, duplicative, or inappropriate care.
2. Administration
    We propose in Sec.  441.677(a)(2)(i) an option for presumptive 
payment. In accordance with section 1915(i) of the Act, the State may 
provide for a period of presumptive payment, not to exceed 60 days, for 
evaluation of eligibility for the State plan HCBS benefit and 
assessment of need for HCBS. This period of presumptive payment would 
be available for individuals who have been determined to be Medicaid 
eligible, and whom the State has reason to believe may be eligible for 
the State plan HCBS benefit. We propose that FFP would be available for 
evaluation and assessment as administration of the approved State plan 
prior to an individual's determination of eligibility for and receipt 
of other 1915(i) services. If the individual is found not eligible for 
the State plan HCBS benefit, the State may claim the evaluation and 
assessment as administration, even though the individual would not be 
considered to have participated in the benefit for purposes of 
determining the annual number of individuals served by the benefit. FFP 
would not be available during this presumptive period for receipt of 
State plan HCBS.
    In Sec.  441.677(a)(2)(ii), we indicate that a State may elect to 
phase-in the provision of services or the enrollment of individuals if 
the State also elects not to apply comparability requirements and to 
target the benefit to specific populations. However, there is no 
authority to limit the numerical enrollment in the benefit or to create 
waiting lists. Therefore, we propose that any phase-in of services may 
not be based on a numerical cap on enrollees. Instead, a State may 
choose to phase-in the benefit or the provision of specific services 
based on the assessed need of individuals, the availability of 
infrastructure to provide services, or both. Infrastructure is defined 
as the availability of qualified providers or of physical structures 
and information technology necessary to provide any service or set of 
services.
    A State that elects to phase-in the benefit must submit a plan, 
subject to

[[Page 26392]]

CMS approval, that details the criteria used for phasing in the 
benefit. In the event that a State elects to phase-in the benefit based 
on needs, all individuals who meet the criteria described in the phase-
in plan must receive services. If a State elects to phase-in services 
based upon infrastructure, the plan must describe the capacity limits, 
strategies to increase capacity, and must assure that services will be 
provided to all individuals who are able to acquire a willing and 
qualified provider. Any phase-in plan must provide assurance that the 
benefit, and all included services, will be available statewide to all 
eligible individuals within the first 5-year approval period.
    In Sec.  441.677(a)(2)(iii), we propose that a State plan amendment 
submitted to establish the State plan HCBS benefit must include a 
reimbursement methodology for each covered service. In some States, 
reimbursement methods for self-directed services may differ from the 
same service provided without self-direction. In such cases, the 
reimbursement methodology for the self-directed services must also be 
described.
    In Sec.  441.677(a)(2)(iv), we propose that the State Medicaid 
agency describe the line of authority for operating the State plan HCBS 
benefit. The State plan HCBS benefit requires several functions to be 
performed in addition to the service(s) provided, such as eligibility 
evaluation, assessment, and developing a service plan. To the extent 
that the State Medicaid agency delegates these functions to other 
entities, we propose that the agency describe the methods by which it 
will retain oversight and responsibility for those activities, and for 
the operation and quality improvement of the benefit as a whole.
    In Sec.  441.677(a)(2)(v), we include a provision regarding the 
effective dates of amendments with substantive changes. Substantive 
changes may include, but are not limited to changes in eligible 
populations, constriction of service amount, duration or scope, or 
other modifications as determined by the Secretary. We would add 
regulatory language reflective of our guidance that 1915(i) amendments 
with changes that CMS determines to be substantive may only take effect 
on or after the date when the amendment is approved by CMS, and must be 
accompanied by information on how the State has assured smooth 
transitions and minimal adverse impact on individuals impacted by the 
change.
    In Sec.  441.677(a)(2)(vi), we indicate that State plan amendments 
including targeting criteria are subject to a 5-year approval period 
and that successive approval periods are subject to CMS approval, 
contingent upon State adherence to Federal requirements. In order to 
renew State plan HCBS for an additional 5-year period, the State must 
provide a written request for renewal to CMS at least 180 days prior to 
the end of each approval period.
3. Quality Improvement Strategy
    We propose in Sec.  441.677(b) the guidelines for quality assurance 
required in the statute at section 1915(i)(1)(H)(i) of the Act. We 
propose to require a State, for quality assurance purposes, to maintain 
a quality improvement strategy for its State plan HCBS benefit. The 
State's quality improvement strategy should reflect the nature and 
scope of the benefit the State will provide.
    We propose that the State plan HCBS benefit include a quality 
improvement strategy consisting of a continuous quality improvement 
process, and outcome measures for program performance, quality of care, 
and individual experience, as approved and prescribed by the Secretary, 
and applicable to the nature of the benefit.
    In Sec.  441.677(b), we propose to require States to have program 
performance measures, appropriate to the scope of the benefit, designed 
to evaluate the State's overall system for providing HCBS. ``Program 
performance'' measures can be described as process and infrastructure 
measures, such as whether plans of care are developed in a timely and 
appropriate manner, or whether all providers meet the required 
qualifications to provide services under the benefit. In Sec.  
441.677(b)(1), we also propose to require States to have quality of 
care measures as approved or prescribed by the Secretary. Quality of 
care measures may focus on program standards, systems performance, and 
individual outcomes.

P. Section 2601 of the Affordable Care Act: 5-Year Period for 
Demonstration Projects: Waiver Requirements (Sec.  430.25)

    Section 2601 of the Affordable Care Act provides the opportunity 
for the Secretary to approve certain waivers for periods of up to 5 
years. The proposed regulation includes an addition at Sec.  
430.25(h)(2)(i) and Sec.  430.25(h)(2)(ii) to indicate the availability 
of extended approval periods for initial section 1915(c) waivers which 
are currently approved for 3-year periods (the renewals are already 5-
year intervals), and for initial and renewal section 1915(b) waivers, 
which are currently approved for 2-year periods. In all cases, the 
extended approval period is only available for waivers that provide 
medical assistance to dual eligible individuals, and that meet all 
applicable statutory, regulatory, quality and programmatic 
requirements. The current Sec.  430.25(h)(2)(ii) also includes 
reference to section 1916 of the Act, which remains unchanged by the 
Affordable Care Act. As such, we have created a new Sec.  
430.25(h)(2)(iii) to retain the original regulatory text specific to 
section 1916 of the Act.

Q. Prohibition Against Reassignment of Provider Claims (Sec.  447.10)

    Under title XIX of the Act, State Medicaid programs generally can 
only pay for Medicaid-covered practitioner services through direct 
payments to the treating practitioners. States can develop payment 
rates that include considerations for costs related to health and 
welfare benefits, training, and other costs. Consistent with the 
statutory provision at section 1902(a)(32) of the Act, and reflected in 
current regulations at Sec.  447.10, the entire rate must be paid to 
the individual practitioner who provided the service, unless certain 
statutory exceptions apply.
    With respect to classes of practitioners for whom the State's 
Medicaid program is the only or primary payer, the ability of the State 
to ensure a stable and qualified workforce may be adversely affected by 
the inability to withhold funds and make payments on behalf of the 
individual practitioner for health and welfare benefit contributions, 
training costs, and other benefits customary for employees. Withholding 
funds for these purposes is an efficient and effective method for 
ensuring that the workforce has provision for basic needs and is 
adequately trained for their functions. Direct payment of funds to 
third parties on behalf of the practitioner may simplify program 
operations for the State and be viewed as advantageous by the 
practitioner. In addition, direct payment of funds to third parties on 
behalf of the practitioners may ensure that beneficiaries have greater 
access to such practitioners and higher quality services.
    The statutory direct payment provision was intended to address the 
issue of factoring, and there is no indication that its purpose was to 
restrict State flexibility in investing in its workforce or quality 
improvement programs. In particular, we do not believe that the 
statutory direct payment provision addresses the unique circumstances 
that arise when the Medicaid program is the primary source of 
reimbursement for a class of practitioners.

[[Page 26393]]

    We propose to interpret the scope of the direct payment provision 
to not include the circumstance when the Medicaid program operates as a 
primary payer for a class of practitioners, and assumes the ordinary 
responsibilities required in that circumstance to assure workforce 
stability and quality. This exception from the scope of the direct 
payment provision would be limited to situations in which payment is 
made under a State law that authorizes payments on behalf of an 
individual practitioner to a third party for health and welfare benefit 
costs, training costs, or other benefits customary for employees. The 
legislative history of section 1902(a)(32) of the Act indicates that 
such a situation is not within the scope of ``assignments'' or ``powers 
of attorney'' that were considered at the time, or even of the same 
nature. Instead, such payments are more of an ordinary arrangement to 
further workforce stability and quality.
    The proposed change would permit each State the option to elect 
such payment arrangements to the extent that the State determines that 
they would further State objectives; however, States would not be 
required to elect the payment arrangements. States will need to review 
their individual circumstances and workforce needs to determine if the 
measures would help ensure a stable, high-performing workforce for the 
benefit of the entire Medicaid population seeking the services.
    Within broad Federal Medicaid law and regulation, CMS has long 
sought to ensure maximum State flexibility to design State-specific 
payment methodologies that help ensure a strong, committed, and well-
trained work force. Currently, certain categories of Medicaid covered 
services, for which Medicaid is a primary payer, such as home health 
and personal care services, suffer from especially high rates of 
turnover and low levels of participation. This proposed rule would 
provide to States additional tools to help foster a stable and high-
performing workforce. Medicaid programs would be able, as authorized 
under State law, to deduct from the practitioner's reimbursement and 
remit to third parties amounts for health and welfare benefit 
contributions, training costs, and other benefits customary for 
employees.
    We believe that permitting such payment arrangements would enhance 
the ability of the practitioners to perform their functions as health 
care professionals. The Medicaid program, at both the State and Federal 
levels, has a strong interest in ensuring the development and 
maintenance of a committed, well-trained workforce.
    We propose to provide States this flexibility by enumerating an 
additional exception to the payment limitations for individual 
practitioners at Sec.  447.10(g). Specifically, the proposed rule would 
add a new provision at Sec.  447.10(g)(4) to define permissible 
payments in the case of individual practitioners for whom the Medicaid 
program is the primary source of revenue to include payment authorized 
by State law to be made to a third party on behalf of the individual 
practitioner for health and welfare benefit contributions, training 
costs, and other benefits customary for employees.
    To the extent that State laws require practitioners to participate 
in such a payment arrangement, a State could elect in its Medicaid 
State plan that the payment arrangement would be automatic. If, 
however, State law does not require participation by individual 
practitioners in such payment arrangements, but authorizes voluntary 
participation, the State would only be allowed to deduct amounts from 
the payment rate and forward them to a third party with the express 
permission of each individual practitioner. In that instance, the 
individual practitioner would need to authorize the payment arrangement 
on a voluntary basis, prior to any deduction from the provider payment. 
In either case, the amounts remitted to a third party would be on 
behalf of the individual practitioner.
    As proposed, a State would not be able to claim as a separate 
expenditure under its approved Medicaid State plan amounts that are 
withheld from payments to individual practitioners for these cost 
categories (health and welfare benefit contributions, training, and 
similar benefits customary for employees). Under the proposed rule, 
should a State wish to recognize such costs, they would need to be 
included as part of the rate paid for the service in order to eligible 
for Federal matching funds. No Federal matching funds would available 
for such amounts apart from the Federal match available for rate paid 
by the State for the medical assistance service. These costs could not 
be claimed by the Medicaid agency separately as an administrative 
expense. As a result, the proposed rule would have little to no impact 
on Federal Medicaid funding levels.
    We are specifically soliciting public comments on the extent to 
which the proposed payment arrangements would benefit States and 
practitioners, as well as any adverse impacts it may have that have not 
been anticipated. Additionally, we are seeking comments on other 
exceptions to the general prohibition on assignment of practitioner 
claims that might similarly simplify and streamline States' operations 
of their Medicaid plans and payment processes. Finally, we are 
specifically requesting comments on the intersection between Medicaid 
and Medicare regulations governing assignment of payments and any 
potential contradictions therein.

R. Section 2401 of the Affordable Care Act: Community First Choice 
State Plan Option: Home and Community-Based Setting Requirements (Sec.  
441.530)

    Section 1915(k)(1)(A)(ii) of the Act provides that a home and 
community-based setting does not include a nursing facility, 
institution for mental diseases, or an intermediate care facility for 
the mentally retarded. We propose at Sec.  441.530 to adopt this 
statutory language in our regulations. Additionally, to provide greater 
clarity, we are proposing language to establish that home and 
community-based settings must exhibit specific qualities to be eligible 
sites for delivery of home and community-based services.

IV. Response to Comments

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

V. Collection of Information Requirements

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

[[Page 26394]]

sections of this document that contain information collection 
requirements:

A. ICRs Regarding Individuals Receiving State Plan Home and Community-
Based Services (Sec.  435.219(b) and Sec.  436.219(b))

    To cover the categorically needy eligibility group, the State would 
be required to submit a SPA and may elect to cover individuals who meet 
certain requirements in Sec.  435.219(a) or Sec.  436.219(a). The 
burden associated with this requirement is the time and effort put 
forth by the State to complete, review, process and transmit/submit the 
pre-print which describes the eligibility criteria for the group. We 
estimate it would take each State 30 hours to meet this one-time 
requirement. We estimate that on an annual basis, 3 States will submit 
a SPA to meet these requirements; therefore, the total annual burden 
hours for this requirement is 90 hours. We believe that a State 
employee, with pay equivalent to GS-13 step one ($34.34 per hour) would 
be responsible for this requirement. Thus, the cost for each State is 
anticipated to be $1,030; this equates to an annual cost of $3,091.

B. ICRs Regarding Eligibility for State Plan HCBS (Sec.  441.656)

    If a State elects to target the benefit to specific populations, 
Sec.  441.656(b)(2) requires submission of targeting criteria to CMS. 
The burden associated with this requirement is the time and effort put 
forth by the State to establish such criteria. We estimate it would 
take 1 State 10 hours to meet this one-time requirement. We estimate 
that on an annual basis, 3 States will submit a SPA to offer the State 
plan HCBS benefit that targets specific populations, and be affected by 
this requirement; therefore, the total annual burden hours for this 
requirement is 30 hours. We believe that a State employee, with pay 
equivalent to GS-13 step one ($34.34 per hour) would be responsible for 
this requirement. Thus, the cost for each State is anticipated to be 
$343; this equates to an annual cost of $1,030.

C. ICRs Regarding Needs-Based Criteria and Evaluation (Sec.  441.659)

    Section 441.659(a) requires a State to establish needs-based 
criteria for determining an individual's eligibility under the State 
plan for the HCBS benefit, and may establish needs-based criteria for 
each specific service. The burden associated with this requirement is 
the time and effort put forth by the State to establish such criteria. 
We estimate it would take 1 State 24 hours to meet this requirement. We 
estimate that on an annual basis, 3 States will submit a SPA to offer 
the State plan HCBS benefit, and be affected by this one-time 
requirement; therefore, the total annual burden hours for this 
requirement is 72 hours. We believe that a State employee, with pay 
equivalent to GS-13 step one ($34.34 per hour) would be responsible for 
this requirement. Thus, the cost for each responding State is 
anticipated to be $824; this equates to an annual cost of $2,472.
    Section 441.659(b) reads that if a State defines needs-based 
criteria for individual State plan home and community-based services, 
the needs-based institutional eligibility criteria must be more 
stringent than the combined effect of needs-based State plan HCBS 
benefit eligibility criteria and individual service criteria. Section 
441.659(b)(1)(ii) requires the State to submit the more stringent 
criteria to CMS for inspection with the State plan amendment that 
establishes the State Plan HCBS benefit.
    The burden associated with this requirement is the time and effort 
for the State to define the more stringent criteria and submit it to 
CMS along with the State plan amendment that establishes the HCBS 
benefit. We anticipate 3 States would be affected by this requirement 
on an annual basis and it would require 1 hour to prepare and submit 
this information. The one-time burden associated with this requirement 
is 3 hours. We believe that a State employee, with pay equivalent to 
GS-13 step one ($34.34 per hour) would be responsible for this 
requirement. Thus, the cost for each State is anticipated to be $34; 
this equates to an annual cost of $102. This would be a one time burden 
for each responding State.
    Section 441.659(c) reads that a State may modify the needs-based 
criteria established under paragraph (a) of this section, without prior 
approval from the Secretary, if the number of individuals enrolled in 
the State plan HCBS benefit exceeds the projected number submitted 
annually to CMS.
    Section 441.659(c)(1) requires the State to provide at least 60 
days notice of the proposed modification to the Secretary, the public, 
and each individual enrolled in the State plan HCBS benefit. The State 
notice to the Secretary will be considered an amendment to the State 
plan.
    Section 441.659(c)(2) requires the State notice to the Secretary be 
submitted as an amendment to the State plan.
    The burden associated with the requirements found under Sec.  
441.659(c) is the time and effort put forth by the State to modify the 
needs-based criteria and provide notification of the proposed 
modification to the Secretary. We estimate it would take 1 State 24 
hours to make the modifications and provide notification. This would be 
a one-time burden.
    The total annual burden of these requirements (Sec.  441.659(c), 
Sec.  441.659(c)(1), and Sec.  441.659(c)(2)) would vary according to 
the number of States who choose to modify their needs-based criteria. 
We do not expect any States to make this modification in the next 3 
years, thus there is no anticipated burden.
    Section 441.659(d) states that eligibility for the State plan HCBS 
benefit is determined, for individuals who meet the requirements of 
Sec.  441.656(a)(1) through (5), through an independent evaluation of 
each individual that meets the specified requirements. Section 
441.659(d)(5) requires the evaluator to obtain information from 
existing records, and when documentation is not current and accurate, 
obtain any additional information necessary to draw a valid conclusion 
about the individual's support needs. Section 441.659(e) requires at 
least annual reevaluations.
    The burden associated with this requirement is the time and effort 
put forth by the evaluator to obtain information to support their 
conclusion. We estimate it would take one evaluator 2 hours per 
participant to obtain information as necessary. The total annual burden 
of this requirement would vary according to the number of participants 
in each State who may require and be eligible for home and community-
based services under the State plan. The individuals performing this 
assessment would vary based upon State benefit design, but will likely 
include individuals such as registered nurses, qualified mental 
retardation professionals, qualified mental health professionals, case 
managers, or other professional staff with experience providing 
services to individuals with disabilities or the elderly. While there 
is burden associated with this requirement, we believe the burden is 
exempt as defined in 5 CFR 1320.3(b)(2) because the time, effort, and 
financial resources necessary to comply with this requirement would be 
incurred by persons in the normal course of their activities.

D. ICRs Regarding Independent Assessments (Sec.  441.662)

    Section 441.662 requires the State to provide for an independent 
assessment of need in order to establish a service plan. At a minimum, 
the plan must meet the requirements as discussed under Sec.  441.665.

[[Page 26395]]

    While the burden associated with the requirements under Sec.  
441.662 is subject to the PRA, we believe the burden is exempt as 
defined in 5 CFR 1320.3(b)(2) because the time, effort, and financial 
resources necessary to comply with this requirement would be incurred 
by persons in the normal course of their activities.

E. ICRs Regarding State Plan HCBS Administration: State 
Responsibilities and Quality Improvement (Sec.  441.677)

    Section 441.677(a)(1)(i) reads that a State will annually provide 
CMS with the projected number of individuals to be enrolled in the 
benefit, and the actual number of unduplicated individuals enrolled in 
State plan HCBS in the previous year.
    The burden associated with this requirement is the time and effort 
put forth by the State to annually project the number of individuals 
who will enroll in State plan HCBS. We estimate it will take one State 
2 hours to meet this requirement. The total annual burden of these 
requirements would vary according to the number of States offering the 
State plan HCBS benefit. The maximum total annual burden is 112 hours 
(56 States x 2 hours = 112 hours). We believe that a State employee, 
with pay equivalent to GS-13 step one ($34.34 per hour) would be 
responsible for this requirement. Thus, the anticipated for each State 
is anticipated to be $69; this equates to a maximum annual cost of 
$3,864 if all 56 States elect to provide this benefit. There are 
currently six States with approved State plan HCBS benefits. Thus, we 
anticipate based on current benefits that the total annual aggregated 
burden will be $414.
    Section 441.677(a)(2)(iii) reads that the SPA to provide State plan 
HCBS must contain a description of the reimbursement methodology for 
each covered service.
    The burden associated with this requirement is the time and effort 
put forth by the State to describe the reimbursement methodology for 
each State plan HCBS. We estimate that it will take one State an 
average of 2 hours to determine the reimbursement methodology for one 
covered HCBS. This would be a one-time burden. The total annual burden 
for this requirement would vary according to the number of services 
that the State chooses to include in the State plan HCBS benefit. We 
believe that a State employee, with pay equivalent to GS-13 step one 
($34.34 per hour) would be responsible for this requirement. Thus, the 
cost to each State for each covered service is anticipated to be $69; 
this would vary based upon the number of services covered. This would 
be an annual burden for each responding State. Since we have estimated 
that 3 States will annually describe the reimbursement methodology, the 
total annual aggregated burden associated with this requirement is 
estimated to be $207.
    Section 441.677(a)(2)(iv) reads that the SPA to provide State plan 
HCBS must contain a description of the State Medicaid agency line of 
authority for operating the State plan HCBS benefit, including 
distribution of functions to other entities.
    The burden associated with this requirement is the time and effort 
put forth by the State to describe the State Medicaid agency line of 
authority. We estimate it will take one State 2 hours to meet this 
requirement. Since we have estimated that 3 States will annually 
request State plan HCBS, the total annual burden associated with this 
requirement is estimated to be 6 hours. This would be a one-time burden 
for each responding State. We believe that a State employee, with pay 
equivalent to GS-13 step one ($34.34 per hour) would be responsible for 
this requirement. Thus, the cost for each State is anticipated to be 
$69.
    Section 441.677(a)(2)(vi) limits the approval period for States 
that target the benefit to specific populations. If a State elects to 
target the benefit, this section requires a renewal application every 5 
years in order to continue operation of the benefit. Actual time to 
meet this requirement will vary depending on the scope of the program 
and any changes the State includes. However, we estimate that it will 
take one State an average of 40 hours to meet this requirement. This 
includes reviewing the previous submission, making any necessary 
changes to the State plan document(s), and communicating with CMS 
regarding the renewal. This burden would occur once every five years 
and would be recurring. We estimate that, beginning in 2016, 3 States 
will annually request renewal and the total burden will be 120 hours. 
We believe that a State employee, with pay equivalent to GS-13 step one 
($34.34 per hour) would be responsible for this requirement. Thus, the 
cost for each State is anticipated to be $1,374; this equates to an 
annual cost of $4,122. This would be a burden for each State that 
targets its benefit once every 5 years; however, this burden will not 
take effect until 2016.
    Section 441.677(b) requires States to develop and implement a 
quality improvement strategy that includes methods for ongoing 
measurement of program performance, quality of care, and mechanisms for 
remediation and improvement proportionate to the scope of services in 
the State plan HCBS benefit and the number of individuals to be served, 
and make this information available to CMS upon the frequency 
determined by the Secretary or upon request.
    The burden associated with this requirement is the time and effort 
put forth by the State to develop and implement a quality improvement 
strategy, and to make this information available to CMS upon the 
frequency determined by the Secretary or upon request. We estimate it 
will take one State 45 hours for the development of the strategy, and 
for making information available to CMS. The total annual burden of 
these requirements would vary according to the number of States 
offering the State plan HCBS benefit. The maximum total annual burden 
is estimated to be 2,520 hours (56 States x 45 hours = 2,520 hours). We 
estimate that the burden associated with implementation of the quality 
improvement strategy will greatly vary, as the necessary time and 
effort to perform these activities is dependent upon the scope of the 
benefit and the number of persons receiving State plan HCBS. We believe 
that a State employee, with pay equivalent to GS-13 step one ($34.34 
per hour) would be responsible for this requirement. Thus, the cost for 
each State is anticipated to be $1,545; this equates to a maximum 
annual cost of $86,537. Currently, there are six States with approved 
benefits, thus we anticipate an annual burden based on current States 
of $9,270.

                                                Table 1--Annual Recordkeeping and Reporting Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Hourly
                                                                             Burden per     Total      labor cost  Total labor     Total
       Regulation section(s)             OMB      Respondents   Responses     response      annual         of        cost of      capital/    Total cost
                                     Control No.                              (hours)       burden     reporting    reporting   maintenance      ($)
                                                                                           (hours)        ($)          ($)       costs ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
435.219(b) and 436.219(b)..........    0938-1148            3            3           30           90        34.34        1,030            0        1,030

[[Page 26396]]

 
441.656(b)(2)......................    0938-1148            3            3           10           30        34.34        1,030            0        1,030
441.659(a).........................    0938-1148            3            3           24           72        34.34        2,472            0        2,472
441.659(b).........................    0938-1148            3            3            1            3        34.34          103            0          103
441.677(a)(1)(i)...................    0938-1148            6            6            2           12        34.34          414            0          414
441.677(a)(2)(iii).................    0938-1148            3            3            2            6        34.34          207            0          207
441.677(a)(2)(iv)..................    0938-1148            3            3            2            6        34.34          207            0          207
441.677(b).........................    0938-1148            6            6           45          270        34.34        9,270            0        9,270
                                    --------------------------------------------------------------------------------------------------------------------
    Total..........................  ...........  ...........  ...........  ...........          489  ...........       14,733            0       14,733
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We have submitted a copy of this proposed rule to OMB for its 
review of the information collection requirements described above. 
These requirements are not effective until they have been approved by 
OMB.
    If you have comments on these information collection and record 
keeping requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: CMS Desk Officer, 
CMS-2249-P2. Fax: (202) 395-5806; or Email: OIRA 
submission@omb.eop.gov.

VI. Regulatory Impact Analysis

A. Introduction

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993) and 
Executive 13563 on Improving Regulation and Regulatory Review (January 
18, 2011). Executive Orders 12866 and 13563 direct 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). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. A regulatory impact analysis (RIA) must be prepared for 
major rules with economically significant effects ($100 million or more 
in any one year). This proposed rule has been designated an 
``economically significant'' rule under section 3(f)(1) of Executive 
Order 12866. Accordingly, the rule has been reviewed by the Office of 
Management and Budget.

B. Statement of Need

    The State plan HCBS benefit is authorized under section 1915(i) of 
the Act. Section 1915(i) was created by the Deficit Reduction Act of 
2005 and was amended by the Affordable Care Act of 2010. The resulting 
statute provides States with authority to establish State plan HCBS 
benefits in their Medicaid program.
    These regulations are necessary in order to include the State plan 
HCBS within the Code of Federal Regulations. Additionally, these 
regulations provide States with direction and clarity regarding the 
framework under which the programs can be established.

C. Overall Impacts

    We estimate that, as a result of this proposed rule, the Medicaid 
cost impact for fiscal year (FY) 2012 would be $80 million for the 
Federal share and $60 million for the State share. The estimates are 
adjusted for a phase-in period during which States gradually elect to 
offer the State plan HCBS benefit.

D. Detailed Impacts

1. State Plan HCBS
    State Medicaid programs will make use of the optional flexibility 
afforded by the State plan HCBS benefit to provide needed long-term 
care HCBS to eligible individuals the State has not had means to serve 
previously, or to provide services to these individuals more 
efficiently and effectively. The State plan HCBS benefit will afford 
States a new means to comply with requirements of the Olmstead 
decision, to serve individuals in the most integrated setting.
    The cost of these services will be dependent upon the number of 
States electing to offer the benefit, the scope of the benefits States 
design, and the degree to which the benefits replace existing Medicaid 
services. States have more control over expenditures for this benefit 
than over other State plan services. For States that choose to offer 
these services, States may specify limits to the scope of HCBS, target 
the benefit to specific populations, and have the option to tighten 
needs-based criteria requirements if costs escalate too rapidly.
    If States elect to include the new optional group, eligibility 
could be expanded because the group may include individuals who would 
not otherwise be eligible for Medicaid. However, costs of the State 
plan HCBS benefit may be offset by lowered potential Federal and State 
costs of more expensive institutional care. Additionally, the 
requirement for a written individualized service plan, and the 
provision of needed HCBS in accordance with the individualized service 
plan, may discourage inappropriate utilization of costly services such 
as emergency room care for routine procedures, which may be beneficial 
to Medicare and Medicaid when individuals are eligible for both 
programs. If a State targets this benefit, only individuals who meet 
the targeting criteria would receive 1915(i) services and be eligible 
for the group, thus limiting Medicaid expansion.
    After considering these factors, we assumed that, if all States 
adopted this measure, program expenditures would increase by 1 percent 
of current HCBS expenditure projections. We further assumed that 
ultimately, States representing 50 percent of the eligible population 
would elect to offer this benefit, and that this ultimate level would 
be reached in FY 2014, with a phase-in period until then. Based on 
these assumptions, the Federal and State cost estimates are shown in 
Table 2.

[[Page 26397]]



  Table 2--Medicaid Cost Estimates Resulting From Changes to the State
                                  Plan
               [HCBS Benefit (FYs 2012-2016, in $millions]
------------------------------------------------------------------------
                                   FY12    FY13    FY14    FY15    FY16
------------------------------------------------------------------------
Federal Share...................     $80    $120    $170    $190    $215
State Share.....................      60      90     125     145     160
------------------------------------------------------------------------

    The effect on Medicaid beneficiaries who receive the State plan 
HCBS benefit will be substantial and beneficial in States where 
optional 1915(i) State plan HCBS are included, as it will provide 
eligible individuals with the opportunity to receive needed long-term 
care services and supports in their homes and communities.
    The State plan HCBS benefit will afford business opportunities for 
providers of the HCBS. We do not anticipate any effects on other 
providers. Section 1915(i) of the Act delinks the HCBS from 
institutional LOC, and requires that eligibility criteria for the 
benefit include a threshold of need less than that for institutional 
LOC, so that it is unlikely that large numbers of participants in the 
State plan HCBS benefit will be discharged from the facilities of 
Medicaid institutional providers. There may be some redistribution of 
services among providers of existing non-institutional Medicaid 
services into State plan HCBS, but providers who meet qualifications 
for the State plan HCBS benefit have the option to enroll as providers 
of HCBS.
    This rule has no direct effect on the Medicare program; however, an 
indirect and beneficial effect may occur if individuals eligible for 
both Medicare and Medicaid are enrolled in a State plan HCBS program.

E. Alternatives Considered

    This proposed rule incorporates provisions of new section 1915(i) 
of the Act into Federal regulations, providing for Medicaid coverage of 
a new optional State plan benefit to furnish home and community-based 
State plan services. The statute provides States with an option under 
which to draw Federal matching funds; it does not impose any 
requirements or costs on existing State programs, on providers, or upon 
beneficiaries. States retain their existing authority to offer HCBS 
through the existing authority granted under section 1915(c) waivers 
and under section 1115 waivers. States can also continue to offer, and 
individuals can choose to receive, some but not all components of HCBS 
allowable under section 1915(i) through existing State plan services 
such as personal care or targeted case management services. Therefore, 
this rule is entirely optional for States. We solicit comment on the 
analysis within the ``Alternatives Considered'' section.
    Alternatives to this proposed rule include:
    (1) Not Publishing a Rule: Section 1915(i) of the Act was effective 
January 1, 2007. States may propose SPAs to establish the State plan 
HCBS benefit with or without this proposed rule. We considered whether 
this statute could be self-implementing and require no regulation. 
Section 1915(i) of the Act is complex; many States have contacted us 
for technical assistance in the absence of published guidance, and some 
have indicated they are waiting to submit a State plan amendment until 
there is a rule. We further considered whether a State Medicaid 
Director letter would provide sufficient guidance regarding CMS review 
criteria for approval of an SPA. We conclude that section 1915(i) of 
the Act establishes significant new features in the Medicaid program, 
and that it was important to provide States and the public the 
published invitation for comment provided by this proposed rule. 
Finally, State legislation and judicial decisions are not alternatives 
to a Federal rule in this case since section 1915(i) of the Act 
provides Federal benefits.
    (2) Modification of Existing Rules: We considered modifying 
existing regulations at 42 CFR part 440.180, part 441 subpart G, Home 
and Community-Based Services: Waiver Requirements, which implement the 
section 1915(c) HCBS waivers, to include the authority to offer the 
State plan HCBS benefit. This would have the advantage of not 
duplicating certain requirements common to both types of HCBS. However, 
we believe that any such efficiency would be outweighed by the 
substantial discussion that would be required of the differences 
between the Secretary's discretion to approve waivers under section 
1915(c) of the Act, and authority to offer HCBS under the State plan at 
section 1915(i) of the Act. While Congress clearly considered the 
experience to date with HCBS under waivers when constructing section 
1915(i) of the Act, it did not choose to modify section 1915(c) of the 
Act, but chose instead to create a new authority at section 1915(i) of 
the Act.

F. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars_a004_a-4), in the Table 3, we have 
prepared an accounting statement showing the classification of the 
transfers associated with the provisions of this proposed rule. This 
table provides our best estimate of the proposed increase in aggregate 
Medicaid outlays resulting from offering States the option to provide 
the State plan HCBS benefit established in section 1915(i) of the Act 
and proposed by CMS-2249-P (Medicaid program; Home and Community-Based 
State Plan Services).

           Table 3--Accounting Statement: Classification of Estimated Transfers, From FYs 2012 to 2016
                                                 [In $millions]
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
          Category                                                 TRANSFERS
----------------------------------------------------------------------------------------------------------------
Annualized Monetized          3% Units Discount Rate..................  7% Units Discount Rate.
 Transfers.                   $153.0..................................  $150.4.
----------------------------------------------------------------------------------------------------------------
From Whom To Whom?..........                            Federal Government to Providers
----------------------------------------------------------------------------------------------------------------

[[Page 26398]]

 
          Category                                                 TRANSFERS
----------------------------------------------------------------------------------------------------------------
Other Annualized Monetized    3% Units Discount Rate..................  7% Units Discount Rate.
 Transfers.                   $114.5..................................  $112.5.
----------------------------------------------------------------------------------------------------------------
From Whom To Whom?..........                            State Governments to Providers
----------------------------------------------------------------------------------------------------------------

G. Conclusion

    We anticipate that States will make widely varying use of the 
section 1915(i) State plan HCBS benefit to provide needed long-term 
care services for Medicaid beneficiaries. These services will be 
provided in the home or alternative living arrangements in the 
community, which is of benefit to the beneficiary and is less costly 
than institutional care. Requirements for independent evaluation and 
assessment, individualized care planning, and requirements for a 
quality improvement program will promote efficient and effective use of 
Medicaid expenditures for these services.

VII. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 
96-354), as modified by the Small Business Regulatory Enforcement 
Fairness Act of 1996 (SBREFA) (Pub. L. 104-121), requires agencies to 
determine whether proposed or final rules would have a significant 
economic impact on a substantial number of small entities and, if so, 
to prepare a Regulatory Flexibility Analysis and to identify in the 
notice of proposed rulemaking or final rulemaking any regulatory 
options that could mitigate the impact of the proposed regulation on 
small businesses. For purposes of the RFA, small entities include 
businesses that are small as determined by size standards issued by the 
Small Business Administration, nonprofit organizations, and small 
governmental jurisdictions). Individuals and States are not included in 
the definition of a small business entity.
    For purposes of the RFA, we assume that approximately 75 percent of 
Medicaid providers are considered small businesses according to the 
Small Business Administration's size standards (with total revenues of 
$35 million or less in any one year), and 80 percent are nonprofit 
organizations. Medicaid providers are required, as a matter of course, 
to follow the guidelines and procedures as specified in State and 
Federal laws and regulations. Furthermore, this rule imposes no 
requirements or costs on providers or suppliers for their existing 
activities. The rule implements a new optional State plan benefit 
established in section 1915(i) of the Act. Small entities that meet 
provider qualifications and choose to provide HCBS under the State plan 
will have a business opportunity under this proposed rule. The 
Secretary has determined that this proposed rule will not have a 
significant economic impact on a substantial number of small entities.
    In addition, section 1102(b) of the Social Security 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 metropolitan statistical area and has fewer than 100 beds. This 
proposed rule does not offer a change in the administration of the 
provisions related to small rural hospitals. Therefore, the Secretary 
has determined that this proposed rule will not have a significant 
impact on the operations of a substantial number of small rural 
hospitals.

VIII. Unfunded Mandates Reform Act Analysis

    Section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 
1995, Pub. L. 104-4) requires that agencies assess anticipated costs 
and benefits before issuing any rule whose mandates require spending in 
any one year of $100 million in 1995 dollars, updated annually for 
inflation. In 2012, that threshold is approximately $139 million. This 
proposed rule does not mandate any spending by State, local, or tribal 
governments, in the aggregate, or by the private sector, of $139 
million.

IX. Federalism Analysis

    Executive Order 13132 on Federalism (August 4, 1999) establishes 
certain requirements that an agency must meet when it promulgates a 
proposed rule (and subsequent final rule) that imposes substantial 
direct requirement costs on State and local governments, preempts State 
law, or otherwise has Federalism implications. Since this regulation 
does not impose any costs on State or local governments, the 
requirements of E.O. 13132 are not applicable.

List of Subjects

42 CFR Part 430

    Administrative practice and procedure, Grant programs--health, 
Medicaid, Reporting and recordkeeping requirements.

42 CFR Part 431

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

42 CFR Part 435

    Aid to Families with Dependent Children, Grant programs--health, 
Medicaid, Reporting and recordkeeping requirements, Supplemental 
Security Income, Wages.

42 CFR Part 436

    Aid to Families with Dependent Children, Grant programs--health, 
Guam, Medicaid Puerto Rico, Supplemental Security Income (SSI), Virgin 
Islands.

42 CFR Part 440

    Grant programs--health, Medicaid.

42 CFR Part 441

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

42 CFR Part 447

    Accounting, Administrative practice and procedure, Drugs, Grant 
programs--health, Health facilities, Health professions, Medicaid, 
Reporting and recordkeeping requirements, Rural areas.

    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 430--GRANTS TO STATES FOR MEDICAL ASSISTANCE PROGRAMS

    1. The authority citation for part 430 continues to read as 
follows:

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

[[Page 26399]]

Subpart B--State Plans

    2. Section 430.25 is amended by--
    A. Revising paragraphs (h)(2)(i) and (ii).
    B. Adding paragraph (h)(2)(iii).
    The revisions and addition read as follows:


Sec.  430.25  Waivers of State plan requirements.

* * * * *
    (h) * * *
    (2) Duration of waivers. (i) Home and community-based services 
under section 1915(c) of the Act. The initial waiver is for a period of 
3 years and may be renewed thereafter for periods of 5 years. For 
waivers that include individuals who are dually eligible for Medicare 
and Medicaid, 5-year initial approval periods may be granted at the 
discretion of the Secretary for waivers meeting all necessary 
programmatic, financial and quality requirements.
    (ii) Waivers under section 1915(b) of the Act. The initial waiver 
is for a period of 2 years and may be renewed for additional periods of 
up to 2 years as determined by the Administrator. For waivers that 
include individuals who are dually eligible for Medicare and Medicaid, 
5-year initial and renewal approval periods may be granted at the 
discretion of the Secretary for waivers meeting all necessary 
programmatic, financial and quality requirements.
    (iii) Waivers under section 1916 of the Act. The initial waiver is 
for a period of 2 years and may be renewed for additional periods of up 
to 2 years as determined by the Administrator.
* * * * *

PART 431--STATE ORGANIZATION AND GENERAL ADMINISTRATION

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

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

Subpart B--General Administrative Requirements

    4. Section 431.54 is amended by adding paragraphs (a)(3) and (h) to 
read as follows:


Sec.  431.54  Exceptions to certain State plan requirements.

    (a) * * *
    (3) Section 1915(i) of the Act provides that a State may provide, 
as medical assistance, home and community-based services under an 
approved State plan amendment that meets certain requirements, without 
regard to the requirements of sections 1902(a)(10)(B) and 
1902(a)(10)(C)(i)(III) of the Act, with respect to such services.
* * * * *
    (h) State plan home and community-based services. The requirements 
of Sec.  440.240 of this chapter related to comparability of services 
do not apply with respect to State plan home and community-based 
services defined in Sec.  440.182 of this chapter.

PART 435--ELIGIBILITY IN THE STATES, DISTRICT OF COLUMBIA, THE 
NORTHERN MARIANA ISLANDS, AND AMERICAN SAMOA

    5. The authority citation for part 435 continues to read as 
follows:

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

Subpart C--Options for Coverage

    6. Section 435.219 is added to subpart C to read as follows:


Sec.  435.219  Individuals receiving State plan home and community-
based services.

    If the agency provides home and community-based services to 
individuals described in section 1915(i)(1), the agency, under its 
State plan, may, in addition, provide Medicaid to any group or groups 
of individuals in the community who are described in one or both of the 
paragraphs under paragraphs (a) or (b) of this section.
    (a) Individuals who--
    (1) Are not otherwise eligible for Medicaid;
    (2) Have income that does not exceed 150 percent of the Federal 
poverty line (FPL);
    (3) Meet the needs-based criteria under Sec.  441.659 of this 
chapter; and
    (4) Will receive State plan home and community-based services as 
defined in Sec.  440.182 of this chapter.
    (b) Individuals who--
    (1) Would be determined eligible by the agency under an existing 
waiver or demonstration project under sections 1915(c), 1915(d), 
1915(e) or 1115 of the Act, but are not required to receive services 
under such waivers or demonstration projects;
    (2) Have income that does not exceed 300 percent of the 
Supplemental Security Income Federal Benefit Rate (SSI/FBR); and
    (3) Will receive State plan home and community-based services as 
defined in Sec.  440.182 of this chapter.
    (c) For purposes of determining eligibility under paragraph (a) of 
this section, the agency may not take into account an individual's 
resources and must use income standards that are reasonable, consistent 
with the objectives of the Medicaid program, simple to administer, and 
in the best interests of the beneficiary. Income methodologies may 
include use of existing income methodologies, such as the SSI program 
rules. However, subject to the Secretary's approval, the agency may use 
other income methodologies that meet the requirements of this paragraph 
(c).

PART 436--ELIGIBILITY IN GUAM, PUERTO RICO AND THE VIRGIN ISLANDS

    7. The authority citation for part 436 continues to read as 
follows:

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

Subpart C--Options for Coverage

    8. Section 436.219 is added to subpart C to read as follows:


Sec.  436.219  Individuals receiving State plan home and community-
based services.

    If the agency provides home and community-based services to 
individuals described in section 1915(i)(1) of the Act, the agency, 
under its State plan, may, in addition, provide Medicaid to any group 
or groups of individuals in the community who are described in one or 
both of paragraphs (a) or (b) of this section.
    (a) Individuals who--
    (1) Are not otherwise eligible for Medicaid;
    (2) Have income that does not exceed 150 percent of the Federal 
poverty line (FPL);
    (3) Meet the needs-based criteria under Sec.  441.659 of this 
chapter; and
    (4) Will receive State plan home and community-based services as 
defined in Sec.  440.182 of this chapter.
    (b) Individuals who--
    (1)Would be determined eligible by the agency under an existing 
waiver or demonstration project under sections 1915(c), 1915(d), 
1915(e) or 1115 of the Act, but are not required to receive services 
under such waivers or demonstration projects;
    (2) Have income that does not exceed 300 percent of the 
Supplemental Security Income Federal Benefit Rate (SSI/FBR); and
    (3) Will receive State plan home and community-based services as 
defined in Sec.  440.182 of this chapter.
    (c) For purposes of determining eligibility under paragraph (a) of 
this section, the agency may not take into account an individual's 
resources and must use income standards that are reasonable, consistent 
with the objectives of the Medicaid program, simple to administer, and 
in the best

[[Page 26400]]

interests of the beneficiary. Income methodologies may include use of 
existing income methodologies, such as the rules of the OAA, AB, APTD 
or AABD programs. However, subject to the Secretary's approval, the 
agency may use other income methodologies that meet the requirements of 
this paragraph (c).

PART 440--SERVICES: GENERAL PROVISIONS

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

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

Subpart A--Definitions

    10. Section 440.1 is amended by adding the new statutory basis in 
alphanumerical order to read as follows:


Sec.  440.1  Basis and purpose.

* * * * *
    1915(i) Home and community-based services furnished under a State 
plan to elderly and disabled individuals.
    11. Section 440.180 is amended by revising the heading to read as 
follows:


Sec.  440.180  Home and community-based waiver services.

* * * * *
    12. Section 440.182 is added to subpart A to read as follows:


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

    (a) Definition. State plan home and community-based services (HCBS) 
benefit means the services listed in paragraph (c) of this section when 
provided under the State's plan (rather than through an HCBS waiver 
program) for individuals described in paragraph (b) of this section.
    (b) State plan HCBS coverage. State plan HCBS can be made available 
to individuals who--
    (1) Are eligible under the State plan and have income, calculated 
using the otherwise applicable rules, including any less restrictive 
income disregards used by the State for that group under section 
1902(r)(2) of the Act, that does not exceed 150 percent of the Federal 
Poverty Line (FPL); and
    (2) In addition to the individuals described in paragraph (b)(1) of 
this section, to individuals based on the State's election of the 
eligibility groups described in Sec.  435.219(b) or Sec.  436.219(b) of 
this chapter.
    (c) Services. The State plan HCBS benefit consists of one or more 
of the following services:
    (1) Case management services.
    (2) Homemaker services.
    (3) Home health aide services.
    (4) Personal care services.
    (5) Adult day health services.
    (6) Habilitation services, which include expanded habilitation 
services as specified in Sec.  440.180(c) of this subpart.
    (7) Respite care services.
    (8) Subject to the conditions in Sec.  440.180 of this subpart, for 
individuals with chronic mental illness:
    (i) Day treatment or other partial hospitalization services;
    (ii) Psychosocial rehabilitation services;
    (iii) Clinic services (whether or not furnished in a facility).
    (9) Other services requested by the agency and approved by the 
Secretary as consistent with the purpose of the benefit.
    (d) Exclusion. FFP is not available for the cost of room and board 
in State plan HCBS. The following HCBS costs are not considered room or 
board for purposes of this exclusion:
    (1) The cost of temporary food and shelter provided as an integral 
part of respite care services in a facility approved by the State.
    (2) Meals provided as an integral component of a program of adult 
day health services or another service and consistent with standard 
procedures in the State for such a program.
    (3) A portion of the rent and food costs that may be reasonably 
attributed to an unrelated caregiver providing State plan HCBS who is 
residing in the same household with the recipient, but not if the 
recipient is living in the home of the caregiver or in a residence that 
is owned or leased by the caregiver.

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

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

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

    14. Section 441.530 is added to read as follows:


Sec.  441.530  Home and Community-Based Setting.

    (a) States must make available attendant services and supports in a 
home and community-based setting consistent with both paragraphs (a)(1) 
and (2) of this section.
    (1) Home and community-based settings shall have all of the 
following qualities, and such other qualities as the Secretary 
determines to be appropriate, based on the needs of the individual as 
indicated in their person-centered service plan:
    (i) The setting is integrated in, and facilitates the individual's 
full access to, the greater community, including opportunities to seek 
employment and work in competitive integrated settings, engage in 
community life, control personal resources, and receive services in the 
community, in the same manner as individuals without disabilities.
    (ii) The setting is selected by the individual from among all 
available alternatives and is identified in the person-centered service 
plan.
    (iii) An individual's essential personal rights of privacy, dignity 
and respect, and freedom from coercion and restraint are protected.
    (iv) Individual initiative, autonomy, and independence in making 
life choices, including but not limited to, daily activities, physical 
environment, and with whom to interact are optimized and not 
regimented.
    (v) Individual choice regarding services and supports, and who 
provides them, is facilitated.
    (vi) In a provider-owned or controlled residential setting, the 
following additional conditions must be met. Any modification of the 
conditions, for example, to address the safety needs of an individual 
with dementia, must be supported by a specific assessed need and 
documented in the person-centered service plan:
    (A) The unit or room is a specific physical place that can be 
owned, rented or occupied under another legally enforceable agreement 
by the individual receiving services, and the individual has, at a 
minimum, the same responsibilities and protections from eviction that 
tenants have under the landlord tenant law of the State, county, city 
or other designated entity;
    (B) Each individual has privacy in their sleeping or living unit:
    (1) Units have lockable entrance doors, with appropriate staff 
having keys to doors;
    (2) Individuals share units only at the individual's choice; and
    (3) Individuals have the freedom to furnish and decorate their 
sleeping or living units.
    (C) Individuals have the freedom and support to control their own 
schedules and activities, and have access to food at any time;
    (D) Individuals are able to have visitors of their choosing at any 
time; and
    (E) The setting is physically accessible to the individual.
    (2) Home and community-based settings do not include the following:
    (i) A nursing facility;
    (ii) An institution for mental diseases;
    (iii) An intermediate care facility for the mentally retarded;

[[Page 26401]]

    (iv) A hospital providing long-term care services; or
    (v) Any other locations that have qualities of an institutional 
setting, as determined by the Secretary. The Secretary will apply a 
rebuttable presumption that a setting is not a home and community-based 
setting, and engage in heightened scrutiny, for any setting that is 
located in a building that is also a publicly or privately operated 
facility that provides inpatient institutional treatment, or in a 
building on the grounds of, or immediately adjacent to, a public 
institution, or disability-specific housing complex.
    15. A new subpart L, consisting of Sec. Sec.  441.650 through 
441.677, is added to read as follows:

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

Sec.
441.650 Basis and purpose.
441.653 State plan requirements.
441.656 State plan home and community-based services under the Act.
441.659 Needs-based criteria and evaluation.
441.662 Independent assessment.
441.665 Person-centered service plan.
441.668 Provider qualifications.
441.671 Definition of individual's representative.
441.674 Self-directed services.
441.677 State plan HCBS administration: State responsibilities and 
quality improvement.

Subpart L State Plan Home and Community-Based Services for the 
Elderly and Individuals With Disabilities


Sec.  441.650  Basis and purpose.

    Section 1915(i) of the Act permits States to offer one or more home 
and community-based services (HCBS) under their State Medicaid plans to 
qualified individuals with disabilities or individuals who are elderly. 
Those services are listed in Sec.  440.182 of this chapter, and are 
described by the State, including any limitations of the services. This 
optional benefit is known as the State plan HCBS benefit. This subpart 
describes what a State Medicaid plan must provide when the State elects 
to include the optional benefit, and defines State responsibilities.


Sec.  441.653  State plan requirements.

    A State plan that provides 1915(i) State plan home and community-
based services must meet the requirements of this subpart.


Sec.  441.656  State plan home and community-based services under the 
Act.

    (a) Home and Community-Based Setting. Under section 1915(i)(1) of 
the Act, States must make State plan HCBS available in a home and 
community-based setting consistent with both paragraphs (a)(1) and (2) 
of this section.
    (1) Home and community-based settings shall have all of the 
following qualities, and such other qualities as the Secretary 
determines to be appropriate, based on the needs of the individual as 
indicated in their person-centered service plan:
    (i) The setting is integrated in, and facilitates the individual's 
full access to, the greater community including opportunities to seek 
employment and work in competitive integrated settings, engage in 
community life, control personal resources, and receive services in the 
community, in the same manner as individuals without disabilities.
    (ii) The setting is selected by the individual from among all 
available alternatives and is identified in the person-centered service 
plan.
    (iii) An individual's essential personal rights of privacy, dignity 
and respect, and freedom from coercion and restraint are protected.
    (iv) Individual initiative, autonomy, and independence in making 
life choices, including but not limited to, daily activities, physical 
environment, and with whom to interact are optimized and not 
regimented.
    (v) Individual choice regarding services and supports, and who 
provides them, is facilitated.
    (vi) In a provider-owned or controlled residential setting, the 
following additional conditions must be met. Any modification of the 
conditions, for example, to address the safety needs of an individual 
with dementia, must be supported by a specific assessed need and 
documented in the person-centered service plan:
    (A) The unit or room is a specific physical place that can be 
owned, rented, or occupied under a legally enforceable agreement by the 
individual receiving services, and the individual has, at a minimum, 
the same responsibilities and protections from eviction that tenants 
have under the landlord/tenant law of the State, county, city, or other 
designated entity;
    (B) Each individual has privacy in their sleeping or living unit:
    (1) Units have lockable entrance doors, with appropriate staff 
having keys to doors;
    (2) Individuals share units only at the individual's choice; and
    (3) Individuals have the freedom to furnish and decorate their 
sleeping or living units.
    (C) Individuals have the freedom and support to control their own 
schedules and activities, and have access to food at any time;
    (D) Individuals are able to have visitors of their choosing at any 
time; and
    (E) The setting is physically accessible to the individual.
    (2) Home and community-based settings do not include the following:
    (i) A nursing facility;
    (ii) An institution for mental diseases;
    (iii) An intermediate care facility for the mentally retarded;
    (iv) A hospital; or
    (v) Any other locations that have qualities of an institutional 
setting, as determined by the Secretary. The Secretary will apply a 
rebuttable presumption that a setting is not a home and community-based 
setting, and engage in heightened scrutiny, for any setting that is 
located in a building that is also a publicly or privately operated 
facility that provides inpatient institutional treatment, or in a 
building on the grounds of, or immediately adjacent to, a public 
institution, or disability-specific housing complex.
    (b) Needs-Based Eligibility Requirement. Meet needs-based criteria 
for eligibility for the State plan HCBS benefit, as required in Sec.  
441.659(a).
    (c) Minimum State plan HCBS Requirement. Be assessed to require at 
least one section 1915(i) home and community-based service at a 
frequency determined by the State, as required in Sec.  441.662(a)(5).
    (d) Target Population. Meet any applicable targeting criteria 
defined by the State under the authority of paragraph (b)(2) of this 
section.
    (e) Nonapplication. The State may elect in the State plan amendment 
approved under this subpart not to apply the following requirements 
when determining eligibility:
    (1) Section 1902(a)(10)(C)(i)(III) of the Act, pertaining to income 
and resource eligibility rules for the medically needy living in the 
community, but only for the purposes of providing State plan HCBS.
    (2) Section 1902(a)(10)(B) of the Act, pertaining to comparability 
of Medicaid services, but only for the purposes of providing section 
1915(i) State plan HCBS. In the event that a State elects not to apply 
comparability requirements:
    (i) The State must describe the group(s) receiving State plan HCBS, 
subject to the Secretary's approval. Targeting criteria cannot have the

[[Page 26402]]

impact of limiting the pool of qualified providers from which an 
individual would receive services, or have the impact of requiring an 
individual to receive services from the same entity from which they 
purchase their housing. These groups must be defined on the basis of 
any combination of--
    (A) Age;
    (B) Diagnosis;
    (C) Disability; or
    (D) Medicaid Eligibility Group.
    (ii)The State may elect in the State plan amendment to limit the 
availability of specific services defined under the authority of Sec.  
440.182(b) or to vary the amount, duration, or scope of those services, 
to one or more of the group(s) described in this paragraph.


Sec.  441.659  Needs-based criteria and evaluation.

    (a) Needs-based criteria. The State must establish needs-based 
criteria for determining an individual's eligibility under the State 
plan for the HCBS benefit, and may establish needs-based criteria for 
each specific service. Needs-based criteria are factors used to 
determine an individual's requirements for support, and may include 
risk factors. The criteria are not characteristics that describe the 
individual or the individual's condition. A diagnosis is not a 
sufficient factor on which to base a determination of need. A criterion 
can be considered needs-based if it is a factor that can only be 
ascertained for a given person through an individualized evaluation of 
need.
    (b) More stringent institutional and waiver needs-based criteria. 
The State plan HCBS benefit is available only if the State has in 
effect needs-based criteria (as defined in paragraph (a) of this 
section), for receipt of services in nursing facilities as defined in 
section 1919(a) of the Act, intermediate care facilities for the 
mentally retarded as defined in Sec.  440.150 of this chapter, and 
hospitals as defined in Sec.  440.10 of this chapter for which the 
State has established long-term level of care (LOC) criteria, or 
waivers offering HCBS, and these needs-based criteria are more 
stringent than the needs-based criteria for the State plan HCBS 
benefit. If the State defines needs-based criteria for individual State 
plan home and community-based services, it may not have the effect of 
limiting who can benefit from the State plan HCBS in an unreasonable 
way, as determined by the Secretary.
    (1) These more stringent criteria must meet the following 
requirements:
    (i) Be included in the LOC determination process for each 
institutional service and waiver.
    (ii) Be submitted for inspection by CMS with the State plan 
amendment that establishes the State Plan HCBS benefit.
    (iii) Be in effect on or before the effective date of the State 
plan HCBS benefit.
    (2) In the event that the State modifies institutional LOC criteria 
to meet the requirements under paragraph (b) or (c)(7) of this section 
that such criteria be more stringent than the State plan HCBS needs-
based eligibility criteria, States may continue to receive FFP for 
individuals receiving institutional services or waiver HCBS under the 
LOC criteria previously in effect.
    (c) Adjustment authority. The State may modify the needs-based 
criteria established under paragraph (a) of this section, without prior 
approval from the Secretary, if the number of individuals enrolled in 
the State plan HCBS benefit exceeds the projected number submitted 
annually to CMS. The Secretary will approve a retroactive effective 
date for the State plan amendment modifying the criteria, as early as 
the day following the notification period required under paragraph 
(c)(1) of this section, if all of the following conditions are met:
    (1) The State provides at least 60 days notice of the proposed 
modification to the Secretary, the public, and each individual enrolled 
in the State plan HCBS benefit.
    (2) The State notice to the Secretary is submitted as an amendment 
to the State plan.
    (3) The adjusted needs-based eligibility criteria for the State 
plan HCBS benefit are less stringent than needs-based institutional and 
waiver LOC criteria in effect after the adjustment.
    (4) Individuals who were found eligible for the State plan HCBS 
benefit before modification of the needs-based criteria under this 
adjustment authority must remain eligible for the HCBS benefit until 
such time as:
    (i) The individual no longer meets the needs-based criteria used 
for the initial determination of eligibility; or
    (ii) The individual is no longer eligible for or enrolled in 
Medicaid or the HCBS benefit.
    (5) Any changes in service due to the modification of needs-based 
criteria under this adjustment authority are treated as actions as 
defined in Sec.  431.201 and are subject to the requirements of Part 
431 Subpart E of this chapter.
    (6) In the event that the State also needs to modify institutional 
LOC criteria to meet the requirements under paragraph (b) of this 
section that such criteria be more stringent than the State plan HCBS 
needs-based eligibility criteria, the State may adjust the modified 
institutional LOC criteria under this adjustment authority. The 
adjusted institutional LOC criteria must be at least as stringent as 
those in effect before they were modified to meet the requirements in 
paragraph (b) of this section.
    (d) Independent evaluation and determination of eligibility. 
Eligibility for the State plan HCBS benefit must be determined through 
an independent evaluation of each individual according to the 
requirements of Sec.  441.656(a)(1) through (5) of this subpart. The 
independent evaluation complies with the following requirements:
    (1) Is performed by an agent that is independent and qualified as 
defined in Sec.  441.668 of this subpart.
    (2) Applies the needs-based eligibility criteria that the State has 
established under paragraph (a) of this section, and the general 
eligibility requirements under Sec.  441.656(a)(1) through (3) and 
(b)(2) of this subpart.
    (3) Includes consultation with the individual, and if applicable, 
the individual's authorized representative.
    (4) Assesses the individual's support needs.
    (5) Uses only current and accurate information from existing 
records, and obtains any additional information necessary to draw valid 
conclusions about the individual's support needs.
    (6) Evaluations finding that an individual is not eligible for the 
State plan HCBS benefit are treated as actions defined in Sec.  431.201 
of this chapter and are subject to the requirements of part 431 subpart 
E of this chapter.
    (e) Periodic redetermination. Independent reevaluations of each 
individual receiving the State plan HCBS benefit must be performed at 
least every 12 months, to determine whether the individual continues to 
meet eligibility requirements. Redeterminations must meet the 
requirements of paragraph (d) of this section.


Sec.  441.662  Independent assessment.

    (a) Requirements. For each individual determined to be eligible for 
the State plan HCBS benefit, the State must provide for an independent 
assessment of needs, which may include the results of a standardized 
functional needs assessment, in order to establish a service plan. In 
applying the requirements of section 1915(i)(1)(F) of the Act, the 
State must:
    (1) Perform a face-to-face assessment of the individual by an agent 
that is independent and qualified as defined in Sec.  441.668 of this 
subpart and with a

[[Page 26403]]

person-centered process guided by best practice and research on 
effective strategies that result in improved health and quality of life 
outcomes.
    (i) For the purposes of this section, a face-to-face assessment may 
include assessments performed by telemedicine, or other information 
technology medium, if the following conditions are met:
    (A) The health care professional(s) performing the assessment meets 
the provider qualifications defined by the State, including any 
additional qualifications or training requirements for the operation of 
required information technology.
    (B) The individual receives appropriate support during the 
assessment, including the use of any necessary on-site support-staff.
    (C) The individual provides informed consent for this type of 
assessment.
    (ii) [Reserved]
    (2) Conduct the assessment in consultation with the individual, and 
if applicable, the individual's authorized representative, and include 
the opportunity for the individual to identify other persons to be 
consulted, such as, but not limited to, the individual's spouse, 
family, guardian, and treating and consulting health and support 
professionals responsible for the individual's care.
    (3) Examine the individual's relevant history including the 
findings from the independent evaluation of eligibility, medical 
records, an objective evaluation of functional ability, and any other 
records or information needed to develop the service plan as required 
in Sec.  441.665 of this subpart.
    (4) Include in the assessment the individual's physical and 
behavioral health care and support needs, strengths and preferences, 
available service and housing options, and when unpaid caregivers will 
be relied upon to implement the service plan, a caregiver assessment.
    (5) Apply the State's needs-based criteria for each service (if 
any) that the individual may require. Individuals are considered 
enrolled in the State plan HCBS benefit only if they meet the 
eligibility and needs-based criteria for the benefit, and are also 
assessed to require and receive at least one home and community-based 
service offered under the State plan for medical assistance.
    (6) Include in the assessment, if the State offers individuals the 
option to self-direct a State plan home and community-based service or 
services, any information needed for the self-directed portion of the 
service plan, as required in Sec.  441.674(b) of this subpart, 
including the ability of the individual (with and without supports) to 
exercise budget or employer authority.
    (7) Include in the assessment, for individuals receiving 
habilitation services, documentation that no Medicaid services are 
provided which would otherwise be available to the individual, 
specifically including but not limited to services available to the 
individual through a program funded under section 110 of the 
Rehabilitation Act of 1973, or the Individuals with Disabilities 
Education Improvement Act of 2004.
    (8) Include in the assessment and subsequent service plan, for 
individuals receiving Secretary approved services under the authority 
of Sec.  440.182 of this chapter, documentation that no State plan HCBS 
services are provided which would otherwise be available to the 
individual through other Medicaid services or other Federally funded 
programs.
    (9) Include in the assessment and subsequent service plan, for 
individuals receiving HCBS through a waiver approved under Sec.  
441.300 of this subpart, documentation that HCBS provided through the 
State plan and waiver are not duplicative.
    (10) Coordinate the assessment and subsequent service plan with any 
other assessment or service plan required for services through a waiver 
authorized under section 1115 or section 1915 of the Social Security 
Act.
    (b) Reassessments. The independent assessment of need must be 
conducted at least every 12 months and as needed when the individual's 
support needs or circumstances change significantly, in order to revise 
the service plan.


Sec.  441.665  Person-centered service plan.

    (a) Person-centered planning process. Based on the independent 
assessment required in Sec.  441.662 of this subpart, the State must 
develop (or approve, if the plan is developed by others) a written 
service plan jointly with the individual (including, for purposes of 
this paragraph, the individual and the individual's authorized 
representative if applicable). The person-centered planning process is 
driven by the individual. The process:
    (1) Includes people chosen by the individual.
    (2) Provides necessary information and support to ensure that the 
individual directs the process to the maximum extent possible, and is 
enabled to make informed choices and decisions.
    (3) Is timely and occurs at times and locations of convenience to 
the individual.
    (4) Reflects cultural considerations of the individual.
    (5) Includes strategies for solving conflict or disagreement within 
the process, including clear conflict-of-interest guidelines for all 
planning participants.
    (6) Offers choices to the individual regarding the services and 
supports they receive and from whom.
    (7) Includes a method for the individual to request updates to the 
plan.
    (8) Records the alternative home and community-based settings that 
were considered by the individual.
    (b) The person-centered service plan. The person-centered service 
plan must reflect the services and supports that are important for the 
individual to meet the needs identified through an assessment of 
functional need, as well as what is important to the individual with 
regard to preferences for the delivery of such services and supports. 
Commensurate with the level of need of the individual, and the scope of 
services and supports available under the State plan HCBS benefit, the 
plan must:
    (1) Reflect that the setting in which the individual resides is 
chosen by the individual.
    (2) Reflect the individual's strengths and preferences.
    (3) Reflect clinical and support needs as identified through an 
assessment of functional need.
    (4) Include individually identified goals and desired outcomes.
    (5) Reflect the services and supports (paid and unpaid) that will 
assist the individual to achieve identified goals, and the providers of 
those services and supports, including natural supports. Natural 
supports cannot supplant needed paid services unless the natural 
supports are unpaid supports that are provided voluntarily to the 
individual in lieu of State plan HCBS.
    (6) Reflect risk factors and measures in place to minimize them, 
including Individualized backup plans.
    (7) Be understandable to the individual receiving services and 
supports, and the individuals important in supporting him or her.
    (8) Identify the individual and/or entity responsible for 
monitoring the plan.
    (9) Be finalized and agreed to in writing by the individual and 
signed by all individuals and providers responsible for its 
implementation.
    (10) Be distributed to the individual and other people involved in 
the plan.
    (11) Include those services, the purchase or control of which the 
individual elects to self-direct, meeting the requirements of Sec.  
441.574(b) through (d) of this subpart.

[[Page 26404]]

    (12) Prevent the provision of unnecessary or inappropriate care.
    (13) Other requirements as determined by the Secretary.
    (c) Reviewing the person-centered service plan. The person-centered 
service plan must be reviewed, and revised upon reassessment of 
functional need as required in Sec.  441.662 of this subpart, at least 
every 12 months, when the individual's circumstances or needs change 
significantly, and at the request of the individual.


Sec.  441.668  Provider qualifications.

    (a) Requirements. The State must provide assurances that necessary 
safeguards have been taken to protect the health and welfare of 
enrollees in State plan HCBS, and must define in writing standards for 
providers (both agencies and individuals) of HCBS services and for 
agents conducting individualized independent evaluation, independent 
assessment, and service plan development.
    (b) Conflict of interest standards. The State must define conflict 
of interest standards that ensure the independence of individual and 
agency agents who conduct (whether as a service or an administrative 
activity) the independent evaluation of eligibility for State plan 
HCBS, who are responsible for the independent assessment of need for 
HCBS, or who are responsible for the development of the service plan. 
The conflict of interest standards apply to all individuals and 
entities, public or private. At a minimum, these agents must not be any 
of the following:
    (1) Related by blood or marriage to the individual, or to any paid 
caregiver of the individual.
    (2) Financially responsible for the individual.
    (3) Empowered to make financial or health-related decisions on 
behalf of the individual.
    (4) Holding financial interest, as defined in Sec.  411.354 of this 
chapter, in any entity that is paid to provide care for the individual.
    (5) Providers of State plan HCBS for the individual, or those who 
have an interest in or are employed by a provider of State plan HCBS 
for the individual, except when the State demonstrates that the only 
willing and qualified agent to perform independent assessments and 
develop plans of care in a geographic area also provides HCBS, and the 
State devises conflict of interest protections including separation of 
agent and provider functions within provider entities, which are 
described in the State plan for medical assistance and approved by the 
Secretary, and individuals are provided with a clear and accessible 
alternative dispute resolution process.
    (c) Training. Qualifications for agents performing independent 
assessments and plans of care must include training in assessment of 
individuals whose physical or mental conditions trigger a potential 
need for home and community-based services and supports, and current 
knowledge of best practices to improve health and quality of life 
outcomes.


Sec.  441.671  Definition of individual's representative.

    In this subpart, the term individual's representative means, with 
respect to an individual being evaluated for, assessed regarding, or 
receiving State plan HCBS, the following:
    (a) The individual's legal guardian or other person who is 
authorized under State law to represent the individual for the purpose 
of making decisions related to the person's care or well-being.
    (b) Any other person who is authorized by policy of the State 
Medicaid Agency to represent the individual including but not limited 
to a parent, a family member, or an advocate for the individual.
    (c) When the State authorizes representatives in accordance with 
paragraph (b) of this section, the State must have policies describing 
the process for authorization; the extent of decision-making 
authorized; and safeguards to ensure that the representative functions 
in the best interests of the participant. States may not refuse the 
authorized representative that the individual chooses, unless in the 
process of applying the requirements for authorization, the State 
discovers and can document evidence that the representative is not 
acting in the best interest of the individual or cannot perform the 
required functions.


Sec.  441.674  Self-directed services.

    (a) State option. The State may choose to offer an election for 
self-directing HCBS. The term ``self-directed'' means, with respect to 
State plan HCBS listed in Sec.  440.182 of this chapter, services that 
are planned and purchased under the direction and control of the 
individual, including the amount, duration, scope, provider, and 
location of the HCBS. For purposes of this paragraph, individual means 
the individual and, if applicable, the individual's representative as 
defined in Sec.  441.671 of this subpart.
    (b) Service plan requirement. Based on the independent assessment 
required in Sec.  441.662 of this subpart, the State develops a service 
plan jointly with the individual as required in Sec.  441.665 of this 
subpart. If the individual chooses to direct some or all HCBS, the 
service plan must meet the following additional requirements:
    (1) Specify the State plan HCBS that the individual will be 
responsible for directing.
    (2) Identify the methods by which the individual will plan, direct 
or control services, including whether the individual will exercise 
authority over the employment of service providers and/or authority 
over expenditures from the individualized budget.
    (3) Include appropriate risk management techniques that explicitly 
recognize the roles and sharing of responsibilities in obtaining 
services in a self-directed manner and assure the appropriateness of 
this plan based upon the resources and support needs of the individual.
    (4) Describe the process for facilitating voluntary and involuntary 
transition from self-direction including any circumstances under which 
transition out of self-direction is involuntary.
    (c) Employer authority. If the service plan includes authority to 
select, manage, or dismiss providers of the State plan HCBS, the plan 
must meet the following requirements:
    (1) Specify the authority to be assumed by the individual, any 
limits to the authority, and specify parties responsible for functions 
outside the authority to be assumed.
    (2) Specify the financial management supports, as required in 
paragraph (e) of this section, to be provided.
    (d) Budget authority. If the service plan includes an 
individualized budget (which identifies the dollar value of the 
services and supports under the control and direction of the 
individual), the plan must meet the following requirements:
    (1) Describe the method for calculating the dollar values in the 
budget, based on reliable costs and service utilization.
    (2) Define a process for making adjustments in dollar values to 
reflect changes in an individual's assessment and service plan.
    (3) Provide a procedure to evaluate expenditures under the budget.
    (4) Specify the financial management supports, as required in 
paragraph (e) of this section, to be provided.
    (5) Not result in payment for medical assistance to the individual.
    (e) Functions in support of self-direction. When the State elects 
to offer self-directed State plan HCBS, it must offer the following 
individualized supports to individuals receiving the services and their 
representatives:

[[Page 26405]]

    (1) Information and assistance consistent with sound principles and 
practice of self-direction.
    (2) Financial management supports to meet the following 
requirements:
    (i) Manage Federal, State, and local employment tax, labor, 
worker's compensation, insurance, and other requirements that apply 
when the individual functions as the employer of service providers.
    (ii) Function as employer of record when the individual elects to 
exercise supervisory responsibility without employment responsibility.
    (iii) Make financial transactions on behalf of the individual when 
the individual has personal budget authority.
    (iv) Maintain separate accounts for each individual's budget and 
provide periodic reports of expenditures against budget in a manner 
understandable to the individual.


Sec.  441.677  State plan HCBS administration: State responsibilities 
and quality improvement.

    (a) State plan HCBS administration. (1) State responsibilities. The 
State must carry out the following responsibilities in administration 
of its State plan HCBS:
    (i) Number served. The State will annually provide CMS with the 
projected number of individuals to be enrolled in the benefit and the 
actual number of unduplicated individuals enrolled in State plan HCBS 
in the previous year.
    (ii) Access to services. The State must grant access to all State 
plan HCBS assessed to be needed in accordance with a service plan 
consistent with Sec.  441.665 of this subpart, to individuals who have 
been determined to be eligible for the State plan HCBS benefit, subject 
to the following requirements:
    (A) A State must determine that provided services meet medical 
necessity criteria;
    (B) A State may limit access to services through targeting criteria 
established by Sec.  441.656(b)(2) of this subpart; and
    (C) A State may not limit access to services based upon the income 
of individuals, the cost of services, or the individual's location in 
the State.
    (iii) Appeals. A State must provide individuals with the right to 
appeal terminations, suspensions, or reductions of Medicaid eligibility 
or covered services as described in part 431, subpart E.
    (2) Administration. (i) Option for presumptive payment. (A) The 
State may provide for a period of presumptive payment, not to exceed 60 
days, for Medicaid eligible individuals the State has reason to believe 
may be eligible for the State plan HCBS benefit. FFP is available for 
both services that meet the definition of medical assistance and 
necessary administrative expenditures for evaluation of eligibility for 
the State plan HCBS benefit under Sec.  441.659(d) of this subpart and 
assessment of need for specific HCBS under Sec.  441.662(a) of this 
subpart, prior to an individual's receipt of State plan HCBS services 
or determination of ineligibility for the benefit.
    (B) If an individual the State has reason to believe may be 
eligible for the State plan HCBS benefit and is evaluated and assessed 
under the presumptive payment option and found not to be eligible for 
the benefit, FFP is available for services that meet the definition of 
medical assistance and necessary administrative expenditures. The 
individual so determined will not be considered to have enrolled in the 
State plan HCBS benefit for purposes of determining the annual number 
of participants in the benefit.
    (ii) Option for Phase-in of Services and Eligibility. (A) In the 
event that a State elects to establish targeting criteria through Sec.  
441.656(b)(2) of this subpart, the State may limit the enrollment of 
individuals or the provision services to enrolled individuals based 
upon criteria described in a phase-in plan, subject to CMS approval. A 
State which elects to target the State plan HCBS benefit and to phase-
in enrollment and/or services must submit a phase-in plan for approval 
by CMS that describes, at a minimum:
    (1) The criteria used to limit enrollment or service delivery;
    (2) The rationale for phasing-in services and/or eligibility; and
    (3) Timelines and benchmarks to ensure that the benefit is 
available statewide to all eligible individuals within the initial 5-
year approval.
    (B) If a State elects to phase-in the enrollment of individuals 
based on highest need, the phase-in plan must use the needs-based 
criteria described in Sec.  441.659(a) of this subpart to establish 
priority for enrollment. Such criteria must be based upon the assessed 
need of individuals, with higher-need individuals receiving services 
prior to individuals with lower assessed need.
    (C) If a State elects to phase-in the provision of any services, 
the phase-in plan must include a description of the services that will 
not be available to all eligible individuals, the rationale for 
limiting the provision of services, and assurance that all individuals 
with access to a willing and qualified provider may receive services.
    (D) The plan may not include a cap on the number of enrollees.
    (E) The plan must include a timeline to assure that all eligible 
individuals receive all included services prior to the end of the first 
5-year approval period, described in paragraph (a)(2)(vi) of this 
section.
    (iii) Reimbursement methodology. The State plan amendment to 
provide State plan HCBS must contain a description of the reimbursement 
methodology for each covered service. To the extent that the 
reimbursement methodologies for any self-directed services differ from 
those descriptions, the method for setting reimbursement methodology 
for the self-directed services must also be described.
    (iv) Operation. The State plan amendment to provide State plan HCBS 
must contain a description of the State Medicaid agency line of 
authority for operating the State plan HCBS benefit, including 
distribution of functions to other entities.
    (v) Modifications. The agency may request that modifications to the 
benefit be made effective retroactive to the first day of a fiscal year 
quarter, or another date after the first day of a fiscal year quarter, 
in which the amendment is submitted, unless the amendment involves 
substantive change. Substantive changes may include, but are not 
limited to, the following:
    (A) Revisions to services available under the benefit including 
elimination or reduction in services, and changes in the scope, amount 
and duration of the services.
    (B) Changes in the qualifications of service providers, rate 
methodology, or the eligible population.
    (1) Request for Amendments. A request for an amendment that 
involves a substantive change as determined by CMS--
    (i) May only take effect on or after the date when the amendment is 
approved by CMS; and
    (ii) Must be accompanied by information on how the State will 
ensure for transitions with minimal adverse impact on individuals 
impacted by the change.
    (2) [Reserved]
    (vi) Periods of approval. (A) If a State elects to establish 
targeting criteria through Sec.  441.656(b)(2) of this subpart, the 
approval of the State Plan Amendment will be in effect for a period of 
5 years from the effective date of the amendment. To renew State plan 
HCBS for an additional 5-year period, the State must provide a written 
request for renewal to CMS at least 180 days prior to the end of the 
approval period. CMS approval of a renewal request is

[[Page 26406]]

contingent upon State adherence to Federal requirements.
    (B) If a State does not elect to establish targeting criteria 
through Sec.  441.656(b)(2) of this subpart, the limitations on length 
of approval does not apply.
    (b) Quality improvement strategy: Program performance and quality 
of care. States must develop and implement an HCBS quality improvement 
strategy that includes a continuous improvement process and measures of 
program performance and experience of care. The strategy must be 
proportionate to the scope of services in the State plan HCBS benefit 
and the number of individuals to be served. The State will make this 
information available to CMS at a frequency determined by the Secretary 
or upon request.
    (1) Quality Improvement Strategy. The quality improvement strategy 
must include all of the following:
    (i) Incorporate a continuous quality improvement process that 
includes monitoring, remediation, and quality improvement.
    (ii) Be evidence-based, and include measures as determined by the 
Secretary.
    (iii) Provide evidence of program performance and the establishment 
of sufficient infrastructure to effectively implement the program.
    (iv) Measure individual outcomes associated with the receipt of 
HCBS, related to the implementation of goals included in the individual 
service plan.
    (2) [Reserved]

PART 447--PAYMENTS FOR SERVICES

    16. The authority citation for part 447 continues to read as 
follows:

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

    17. Section 447.10 is amended by adding paragraph (g)(4) to read as 
follows:


Sec.  447.10  Prohibition Against Reassignment of Provider Claims

    (g) * * *
    (4) In the case of a class of practitioners for which the Medicaid 
program is the primary source of revenue, payment may be made to a 
third party on behalf of the individual practitioner for benefits such 
as health insurance, skills training and other benefits customary for 
employees.
* * * * *

Authority

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

    Dated: April 24, 2012.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: April 24, 2012.
Kathleen Sebelius,
Secretary.
[FR Doc. 2012-10385 Filed 4-26-12; 4:15 pm]
BILLING CODE 4120-01-P