On April 22, 2024, the Centers for Medicare & Medicaid Services (CMS) issued Ensuring Access to Medicaid Services, a final rule designed to address a range of barriers that Medicaid beneficiaries face in accessing home- and community-based services (HCBS) (the “Access Rule”).

This Insight covers some of the significant changes in the Access Rule.

Introduction

The proposed rule drew significant public attention, and CMS received more than 2,000 public comments, with stakeholders particularly concerned with the proposed requirement that HCBS provider agencies use at least 80 percent of any Medicaid reimbursement on direct compensation for HCBS care workers (the requirement has been referred to colloquially as the “80/20 Rule”). Although CMS finalized the majority of the regulatory provisions as proposed, the Access Rule does include several material changes. The most significant changes are as follows:

1. Providing a general option for states to develop their own reasonable and objective criteria to exempt certain providers from meeting the requirements
2. Specifically allowing states to develop different standards for small providers and to develop reasonable criteria for defining what constitutes “small”
3. Exempting Indian Health Service and tribal health programs entirely
4. Pushing the implementation deadline out further, to six years from the effective date (our calculation of the enforcement date being July 9, 2030)
5. Excluding certain costs—limited to training costs, travel costs, and costs of PPE for workers—from the calculation, which providers can deduct before calculating the percentage that is compensation or administrative expenses

Based on the Access Rule, we think there will be opportunities to lobby Congress and future CMS leadership on the rule, especially with the long runway to implementation. In addition, the provision allowing states the flexibility to develop their own provider-exception criteria opens the door to state-level advocacy efforts. A key risk to look for in the short term is states taking the initiative to develop their own minimum criteria before the deadline in response to local advocacy efforts.

Ensuring Access Through Compensation

Noting that the high rate of turnover in the direct care workforce is among the greatest challenges to ensuring access to high-quality, cost-effective HCBS, CMS hopes the Access Rule will stabilize the workforce by ensuring consistent and adequate compensation for direct care workers.

To that end, the Access Rule requires that certain HCBS providers spend 80 percent of the Medicaid payments they receive on “compensation to direct care workers.”

The Access Rule applies to three types of HCBS providers: (i) those that perform homemaker services, (ii) home health aide services, and (iii) personal care services. CMS recognized that states have service definitions for these categories and do not use the terms consistently, but CMS declined to define the categories as they relate to the 80/20 Rule. The terminology is elsewhere in CMS guidance and state-specific benefit documents, and CMS noted that it would provide additional sub-regulatory guidance and technical assistance. The Access Rule does not apply to partial hospitalization or facilities-based services, such as rehabilitation services or clinical services for individuals with chronic mental illness or intellectual disabilities.

“Direct care workers” are defined as a broad swath of care providers when employed by or contracted with a Medicaid provider or state Medicaid agency, or when delivering services under some self-directed services delivery models. The providers include:

(A) A registered nurse, licensed practical nurse, nurse practitioner, or clinical nurse specialist who provides nursing services to Medicaid beneficiaries receiving home and community-based services available under this subpart;
(B) A licensed or certified nursing assistant who provides such services under the supervision of a registered nurse, licensed practical nurse, nurse practitioner, or clinical nurse specialist;
(C) A direct support professional;
(D) A personal care attendant;
(E) A home health aide; or
(F) Other individuals who are paid to provide services to address activities of daily living or instrumental activities of daily living, behavioral supports, employment supports, or other services to promote community integration directly to Medicaid beneficiaries receiving home and community-based services available under this subpart, including nurses and other staff providing clinical supervision.

The Access Rule does not apply to individuals in HCBS programs funded by state general funds or managed care organizations outside of Medicaid. CMS also noted that the requirement does not apply to self-directed models in which the beneficiary sets the direct care worker’s payment rate, such as individual budget authority models, section 1915(k) services, or self-directed services under section 1915(j). CMS expects that all or nearly all of the payment rates in such scenarios are already spent on direct care worker’s compensation. More individuals in self-directed care plans may opt into such models to avoid the requirement, but for plans that fall under the requirement, financial management services already in place may bear the burden of calculating compensation rates.

In response to many of the public comments on the Access Rule, CMS also allows states to exempt small providers and providers facing extraordinary hardship in compliance. States are permitted to determine a “reasonable number” of small-provider exemptions; a lower percentage of compensation rate; reasonable, objective criteria to determine the scope of the exemption; and reasonable, objective criteria to determine when a hardship exemption may apply. CMS says that technical assistance and further guidance on these topics are forthcoming.

Increased Compensation and Confusion

Many in the HCBS industry have noted that low rates themselves are driving the workforce turnover, not the percentage spent on compensation. CMS responded that regulating rates would be difficult across states, as different costs of care and living around the country make regulating rates difficult.

Starting with the proposed rule, CMS supported its use of the direct compensation pass-through floor by referencing several states that have already implemented “wage pass-through” provisions for extra Medicaid payments, such as COVID-19-related increases in federal medical assistance percentage for HCBS Medicaid payments. For example, Minnesota allocated 72 percent of such funding, while Massachusetts apportioned 90 percent. The sample set is arguably skewed, as such payments were for additional funding provided by the American Rescue Plan Act of 2021 to secure HCBS activities during the pandemic, not for all HCBS activities.

CMS defines “compensation” as any of the following: “[(i)] salary, wages, and other remuneration as defined by the Fair Labor Standards Act and implementing regulations (29 U.S.C. 201 et seq., 29 CFR parts 531 and 778); [(ii)] benefits (such as health and dental benefits, life and disability insurance, paid leave, retirement, and tuition reimbursement); and [(iii)] the employer share of payroll taxes for direct care workers delivering services authorized under section 1915(c) of the Act.”

However, CMS added a provision for “excluded costs,” which are costs that are not included in the calculation of the percentage of Medicaid payments to providers spent on compensation for direct care workers. Such costs are narrowly limited to:

(A) costs of required trainings for direct care workers (such as costs for qualified trainers and training materials),

(B) travel costs for direct care workers (such as mileage reimbursement or public transportation subsidies), and

(C) costs of personal protective equipment for direct care workers.

Many HCBS providers see the 80/20 Rule as untenable. Providers are subject to a slew of state and federal requirements that ensure quality and prevent fraud and abuse. Commenters warned that if HCBS providers were required to spend 80 percent of a Medicaid payment on compensation, the remaining 20 percent would not cover business fees, administrative needs, supplies, or utilities.

CMS said that such administrative activities would likely not be considered “excluded costs” but instead be “administrative expenses” and thus covered in the 20 percent. CMS also noted that it will provide technical assistance to states in calculating compensation and what could be considered excluded costs.

Implementing the Rule

States have six years—until 2030—to implement the 80/20 Rule but must begin reporting on Medicaid payments for covered care within four years. Starting in four years, states are required to report on the percentage of Medicaid payments for homemaker, home health aide, and personal care services spent on compensation as opposed to administrative overhead or profit, as well as waiting lists and service times for such services.

To ease what will be sure to be a complex rollout, CMS will clarify key requirements and provide technical assistance to states during that time. CMS notes that it will use its “standard enforcement tools and discretion” once the Access Rule is implemented, up to and including denying waiver applications or terminating existing HCBS waivers.

All Eyes on the States

With the official publication only days away, the focus now shifts from CMS to the states to fill the gaps in the Access Rule and determine how the 80/20 Rule will affect HCBS providers.

The Access Rule sets the percentage that must be spent by providers across the country, but states retain the ability to set rates for HCBS. States may even petition CMS for more funding to keep providers from leaving the industry and may create exemptions for the Access Rule, though it remains to be seen how large CMS will permit exemptions to be. Rollouts will likely be drastically different from state to state, with some wading in and others only changing existing requirements.

The Access Rule has already drawn sharp criticism, including a bill in the House of Representatives to prevent the Department of Health and Human Services from finalizing the 80/20 Rule. More legal challenges may lie ahead, although the Access Rule’s commentary includes a significant amount of statutory and legal authority justifying the Access Rule.

As CMS rolls out guidance and technical assistance and the states begin implementing the provisions, the Access Rule may face further legal or practical challenges. We will continue to monitor and report on developments here, and we are ready to assist our clients in navigating the impact of the Access Rule’s provisions on their businesses.