On March 22, 2019 CMS issued new guidance to State Medicaid Directors on implementation of the 2014 Home and Community Based Services (HCBS) rule. The 2014 HCBS rule required states to scrutinize facilities, including an assisted living facilities or group homes, receiving HCBS funding to make sure they met certain standards. The 2014 rule aimed to define the characteristic of “community based” to move these settings and facilities away from the qualities of an “institution.” In May of 2017, CMS delayed implementation of the rule and in response to concerns regarding the transition process, a three year extension was granted. The transition period for states to ensure provider compliance with the criteria for settings in which a transition period applies has now been extended to March 17, 2022 during which states may work with all existing HCBS providers to complete their remediation and be validated as fully complying with the settings criteria. Not meeting these standards could mean loss of Medicaid funding.

The new CMS guidance, issued as an FAQ, defines a setting that is isolating individuals as a facility that limits any opportunities for patients and residents to interact with the broader community. Certain settings are presumed under the regulations to have the qualities of an institution:

  • Settings that are located in a building that is also a publicly or privately operated facility that provides inpatient institutional treatment;
  • Settings that are in a building located on the grounds of, or immediately adjacent to, a public institution; and
  • Any other settings that have the effect of isolating individuals receiving Medicaid home and community-based services (HCBS) from the broader community of individuals not receiving Medicaid HCBS.

In this FAQ, CMS removed specific examples of settings that would automatically be identified as institutional due to isolation, and will now take the following factors into account when determining whether a setting isolates HCBS beneficiaries from the broader community:

  • Due to the design or model of service provision in the setting, individuals have limited, if any, opportunities for interaction in and with the broader community, including with individuals not receiving Medicaid-funded HCBS;
  • The setting restricts beneficiary choice to receive services or to engage in activities outside of the setting; or
  • The setting is physically located separate and apart from the broader community and does not facilitate beneficiary opportunity to access the broader community and participate in community services, consistent with a beneficiary’s person-centered service plan.

States are free to identify additional factors other than those provided by CMS. When a setting is presumed to have institutional qualities, the setting may be approved to continue providing Medicaid HCBS through a process called “heightened scrutiny.” The new guidance also clarifies this process for “heightened scrutiny” allowing a state provides evidence to CMS to demonstrate that a facility or setting meets the HCBS criteria and allow them to continue receiving Medicaid funding. Other changes included in the guidance are flexibility to allow states to minimize additional review by CMS (including the ability for CMS to conduct sampling), clarifying requirements for state comment with regard to presumptively institutional settings, and explaining that private residences where individuals receive Medicaid funded services are assumed to comply, and those settings which do not receive HCBS funding are exempt from these regulatory requirements entirely.