The New Final Rule for Home and Community-Based Services: What Home Care Providers Need to Know

Vol. 10 No. 5

AuthorAuthorOn January 16, 2014 the Centers for Medicare & Medicaid Services (“CMS”) issued a final rule (the “Rule”) simplifying the ability of states to administer their home and community-based services (“HCBS”) programs under Medicaid.1  The Rule was first published as a proposed rule in April 2008, and then published as a second proposed rule in May 2012.2  CMS had not previously finalized the Rule as it deemed it non-compliant with the Patient Protection and Affordable Care Act (“PPACA”). The following is an analysis of key provisions of the Rule.

Overview of HCBS: HCBS first became available in 1983, when it was created as a waiver alternative to institutional care under Medicaid through section 1915(c) of the Social Security Act (the “1915(c) option”).  In 2005, states were permitted to provide HCBS through the 1915(i) State Plan Option (the “1915(i) option”), which allows states to provide HCBS without a waiver or demonstration.  According to CMS, “several” states have adopted such state plans, while 47 states plus Washington, DC have at least one 1915(c) waiver.  Additional options for HCBS include 1915(j) Self-Directed Personal Assistance Services and 1915(k) Community First Choice.3

The State Plan HCBS Benefit:  The Rule provides a new Medicaid benefit under the 1915(i) option.4 The primary advantage of this new benefit is that the states can simply elect it as an additional state plan benefit and avoid the administrative complexities involved in HCBS programs, such as demonstrating cost-neutrality.5 The State Plan HCBS Benefit includes one or more of the following services: adult day health services, case management services, habilitation services, home health aide services, homemaker services, personal care services, respite care services, and “[o]ther services requested by the agency and approved by the Secretary as consistent with the purpose of the benefit.” 6  For those with chronic mental illness, the services also contain one or more of the following: clinic services, day treatment or other partial hospitalization services, and psychosocial rehabilitation services.7

Exclusion:  Room and board is excluded from the benefit.8 

Preservation of state flexibility: The Rule preserves flexibility for states to provide HCBS under the 1915(i) option.9   As shown above, CMS gives states flexibility in choosing “one or more” of several services.  CMS declined to define what “other services” a state could provide under the state plan option, as “states have the flexibility to propose and define other specific services.”10  However, CMS opted to provide examples of “other services” in future guidance.11  

A critical element of this benefit is that the eligibility standards direct the benefit to individuals who require less than an institutional level of care.12 This is in stark contrast to waiver HCBS where it must be established that the individual qualifies based on a need for a nursing facility level of care.13

There is also no “cost neutrality” requirement in this benefit, meaning the state does not need to establish that the individual or aggregate cost of care is less than or equal to an institutional level of care.

States are free to elect this option and to create or maintain HCBS waiver programs targeted to specific patient populations.14 However, it is very possible that states that elect this benefit will curtail or drop waiver programs. If that occurs, the Rule sets out a series of procedural requirements designed to protect existing beneficiaries who may face changes in care access as a result.15 

Waiver process streamlined: Before this Rule, states had to tailor each 1915(c) waiver to a separate target group, with those groups being: “[a]ged or disabled, or both; Individuals with intellectual or developmental disabilities, or both; and mentally ill.”16  Now a state can combine these target groups in its application for a 1915(c) waiver, as long as the state provides assurances that it can meet the “unique service needs” of all individuals encompassed in the waiver.17  States may find this change attractive as it should result in a reduction in paperwork and administrative workload. Some commenters on the proposed rule raised concern that states may end up favoring one population sector over another in filling waiver slots.18 CMS indicated in the Provisions of the Proposed Regulations and Analysis of and Responses to Public Comments section, as well as the Rule itself,  that states must take steps to ensure that such discrimination does not occur.19 

Five-year duals demonstrations: The Rule creates a five-year period for approval or renewal of demonstrations and waivers for states to administer medical assistance to individuals dually eligible for Medicare and Medicaid (“dual eligibles”).20   Duals demonstrations exploded onto the Medicaid scene; as of this writing twenty (20) states are moving in that direction.21 These demonstrations are federally sanctioned and customized for each state, mostly under the Medicare-Medicaid Alignment Initiative.22 The five-year authorization is an indication that CMS not only recognizes the heavy investment that states need to make if they wish to initiate such a demo program, it also shows that CMS anticipates that dual demos are here to stay for the long term. Criticisms of the dual demos have included that they do not look like demos when they involve full state populations over a long term.23 However, a five-year authorization would create stability for all stakeholders including demo enrollees and contracting providers. 

Provider payment reassignment: The Rule establishes an exception to a longstanding rule that prohibits reassignment of provider payments.24  The reassignment provision was originally intended to block providers from assigning their rights to Medicaid payment for services rendered to a third party. For example, the restriction prevents a home care company from assigning claims payments to a bank that had extended a line of credit to the provider.

The new exception permits states to make payments to a third party on behalf of the provider “for benefits such as health insurance, skills training and other benefits customary for employees.”25

One reason for the new exception is to address new home care delivery models, specifically consumer-directed care through public authority models or where the individual caregivers are unionized. In such circumstances, the state could decide to directly fund health insurance for the whole pool of workers rather than provide a payment rate that the individual may or may not use for purchasing health insurance. For example, currently Illinois pays a union an amount to fund health insurance for unionized home care aides in a consumer directed model.

While it appears that this exception may be intended to benefit certain home care unions and the individual workers in that bargaining unit, it also presents the opportunity for states to address the emerging problems with the PPACA employer mandate. According to an unpublished survey conducted by the National Association for Home Care & Hospice, a sizeable majority of Medicaid-focused home care providers do not offer health insurance to nonprofessional caregivers due to low payment rates. This change in the rules would permit state Medicaid programs to secure health insurance for the workers directly and avoid the risk that increased provider payment rates do not go to the purchase of health insurance. That approach still raises Medicaid costs, but it may do so at a lower level because of the volume purchase power of the state.

HCBS qualified care settings

Settings that Are HCB: The Rule specifies which “qualities” settings must have to be considered home and community based (“HCB”) under both waiver (1915(c)) and state plan HCBS (1915(i)) options.26  First, the setting must be integrated into the greater community, including providing access to employment and community life.27 In addition, the setting must allow the beneficiary to control her own personal resources, must give the beneficiary an option for living in a private unit in a residential setting, must ensure “privacy, dignity and respect, and freedom from coercion and restraint,” and also promote “individual initiative, autonomy, and independence.”28  Provider owned or controlled residential settings have additional requirements.29  The Rule also further defines what constitutes privacy in the sleeping or living unit.30

Settings that Are Not HCB: The Rule, in addition to defining qualities that make a setting HCB, also lists several settings that are not HCB under both 1915(c) and 1915(i) options.31  These settings include a hospital, a nursing facility, an institution for mental diseases, an intermediate care facility for individuals with intellectual disabilities, or “any other locations that have qualities of an institutional setting.”32

Presumed Non HCB Settings: Additionally, the Rule creates a class of settings that are presumed to not be HCB settings under both 1915(c) and 1915(i) options.33  These settings include those in buildings that provide inpatient institutional treatment, those in or near public institutions, “or any other setting that has the effect of isolating individuals receiving Medicaid HCBS from the broader community.”34 The state or other parties can rebut this presumption by demonstrating otherwise through a heightened scrutiny standard.35

This Rule development is an important advancement in Medicaid home care policy. Many Medicaid beneficiaries live in nontraditional settings such as congregate living arrangements, group homes, assisted living facilities, and continuing care retirement communities. These nontraditional residential settings have posed a problem for Medicaid in terms of providing home care within federal authority. 

By using a “qualities” approach, CMS has not provided the bright-line standard that some wished for, but it has given states a big degree of flexibility in setting up home care programs that meet the needs of a very diverse Medicaid population. It recognizes that some Medicaid patients live in settings that provide the freedom and control equivalent to a single family residence justifying inclusion as a community setting eligible for HCBS benefits. At the same time, the standards ensure that institutional settings do not qualify.

Person-Centered HCBS

Planning Process: Under the waiver, Community First Choice and state plan HCBS options, the Rule makes clear that the care planning process should be driven by the individual, with her legal representative assisting as necessary.36 That does not mean that the individual flies solo on care planning, as CMS also makes clear that the individual should be supported by an appropriate team that would include health professionals, family, and friends. The key elements of the process are providing enough information so that the individual can make informed decisions, and having the process occur timely and at a place and time convenient to the individual.37

Person-Centered Service Plan: The person-centered planning process generates a person-centered service plan, or plan of care, for the individual.38 Among other things, the plan must reflect the individual’s preferences, reflect clinical and support needs, include goals and outcomes identified by the individual, and include the services and supports to assist in achieving those goals.39

Independent Assessment:  Under waiver HCBS, an independent assessment is also required to generate a service plan.  The Rule stipulates requirements for this independent assessment, including that the assessment be conducted face-to-face, or telephonically if certain conditions are met.40  The independent assessment cannot be done by the care provider because of conflict of interest concerns.41 However, an exception to this restriction is available in the event there are no separate assessment and care providers.42 This limitation will force some changes in existing programs where the assessment and care comes from a single source.

Needs-based criteria: To determine an individual’s eligibility for State Plan HCBS benefits, the state must establish needs-based criteria.  The needs-based criteria “are factors used to determine an individual’s requirements for support.”43  An individual is eligible for such HCBS benefits only if he meets needs-based criteria for services in nursing facilities, intermediate care facilities for individuals with intellectual disabilities, and hospitals (long-term level of care criteria) under HCBS waivers.44 This is an important element under the new Rule in that it may result in care service decisions that are based on needs rather than a budget.

Miscellaneous Changes

Quality Improvement: The Rule requires states to “develop and implement an HCBS quality improvement strategy,” which includes a “continuous quality improvement process,” having an evidence-based nature, and measurements of individual outcomes.45

Self-directed services option: As part of state Plan HCBS option, a state can elect to offer “self-directing HCBS,” meaning “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.”46 The Rule stipulates the requirements necessary for the service plan for and functions in support of self-direction.47  This self-directed services option appears to have similar self-direction elements as other already existing Medicaid programs including: Cash and Counseling, Cash and Counseling for Veterans (also known as the Veteran-Directed Home and Community-Based Services Program (“VD-HCBS”)), and 1915(j) Self-Directed Personal Assistance Services.48 The assessment process must include elements related to an individual’s self-direction capabilities and needs to permit successful self-direction when that is the delivery mode chosen by the individual.49

Provider qualifications:  Under the state Plan HCBS option, the Rule stipulates that states “must define in writing standards for providers (both agencies and individuals) of HCBS and for agents conducting individualized evaluation, independent assessment, and service plan development.”50  The Rule mandates that states must also devise conflict of interest standards for providers, and sets minimum standards for the states.51  Further, providers “performing independent assessments and plans of care” must be adequately trained.52  As devised, this rule gives great flexibility to the states in determining provider qualifications. There are benefits and risks to such discretionary authority in that care consistency may be impeded while local conditions may be better met.

Public Notice and Opportunity for Input: The Rule sets out standards for process requirements for public input on changes to HCBS waiver programs and payment rates.53 Given the extent of changes that could be triggered by these new rules along with the instabilities in state Medicaid funding, these process requirements are key protections for both beneficiaries and providers. These protections include limitations on retroactive state plan approvals by CMS, advance notice of changes in the scope of benefits and payment rate changes, and relief from losses of benefits triggered by a state transitioning from one HCBS model to another.54


This Rule will help states expand their HCBS services by simplifying the process needed for approval as well as establishing new options for care. There is still much to know about the implementation of the standards in the Rule. Providers should engage in an active dialogue with CMS as it develops implementing guidelines.  Providers should also continue advocating for mechanisms to improve access to HCBS services through their state associations, as well as through state and federal governments. Additionally, home care providers are encouraged to keep abreast of HCBS developments in their states as well as nationally.


*The National Council on Medicaid Home Care is an affiliate of the National Association for Home Care & Hospice.  Opinions expressed herein are attributable to the authors only and are not those of the National Council on Medicaid Home Care or the National Association for Home Care & Hospice.


1For the full text of the Rule, see
2In November 2013, The Office of Management and Budget (“OMB”) received the then-pending final rule for review from CMS. 
3For details on these programs, click on the “History and Authorities” tab at
479 Fed. Reg. 11 (January 16, 2014), at 3029.
5Cost-neutrality, mentioned again later in this article, refers to states demonstrating that average per-capita expenditures for waivers does not exceed average per-capita expenditures for institutional settings.  For details, see Id., at 3015.
6Id., at 3029. 
7Id., at 3029. 
8Id., at 3029.
9Id., at 2949.
10Id., at 2954.
11Id., at 2954.
12Id., at 2951.
13Id., at 3003.
14Id., at 2980-2981.
15Id., at 3038.
16Id., at 3015.
17Id., at 3029, 3032.
18Id., at 3017.
19Id., at 3017, 3022.  On the other hand, limited “targeting” of the benefit to certain populations is allowed under the 1915(i) option.  See Id. at 2980-2981.
20Id., at 2948-2949.
21As of this writing, nine states have signed memoranda of understanding (see footnote below), and eleven states have active proposals.  See
22As of this writing, ten memoranda of understanding have been signed with CMS for duals demonstrations (California, Illinois, Massachusetts, Minnesota, New York, Ohio, South Carolina, Virginia, and Washington State (twice). Eight of these MOUs (California, Illinois, Massachusetts, New York, Ohio, South Carolina, Virginia, and Washington State) were signed as part of the Medicare-Medicaid Alignment Initiative (“MMAI”). The MMAI is a joint federal and state project which seeks to improve care and reduce costs associated with the dual eligibles. These eight states have adopted a capitated model, where CMS, the states, and health plans enter into three-way contracts in which each plan receives a prospective blended Medicare/Medicaid payment to provide coordinated and comprehensive care. A capitated model is a payment model where the payor (in this case the state and CMS, jointly) pays providers a lump sum payment per enrollee for a fixed period of time.  In addition to the above, the State of Washington had previously signed another MMAI MOU with CMS regarding fee-for-service (“FFS”) health homes. Minnesota has signed a dual eligibles demonstration independent of the MMAI.  For more information, see
23See, page 4 of the PDF.
2479 Fed. Reg. 11 (January 16, 2014), at 3039.
25Id., at 3039.
26Id., at 3030, 3032.
27Id., at 3030, 3032.
28Id., at 3030, 3032.
29Id., at 3031, 3033.
30Id., at 3031.
31Id., at 3031.
32Id., at 3031.
33Id., at 3031.
34Id., at 3031.
35Id., at 3031.
36Id., at 3029-3030.
37Id., at 3029-3030.
38Id., at 3036-3037.
39Id., at 3036-3037.
40Id., at 3036.
41Id., at 3037.
42Id., at 3037.
43Id., at 3035.
44Id., at 3035.
45Id., at 3039.
46Id., at 3038.
47Id., at 3038.
48For details on these programs, see:;; and
4979 Fed. Reg. 11 (January 16, 2014), at 3038.
50Id., at 3037.
51Id., at 3037.
52Id., at 3037.
53Id., at 3032.
54Id., at 3032.


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