Medicaid Rehabilitation Services

^Pr^ep^ar^{ed f}^o^r^M^e^m^b^ers^an^d^Com^mⁱ^t^t^ees^of^C^ong^r^e^ss

Medicaid rehabilitation includes a full range of treatments that licensed health practitioners may
recommend to reduce physical or mental disability or restore eligible beneficiaries to their best
possible functional levels. Over the last seven years of available data (1999-2005), reported
Medicaid expenditures for rehabilitation increased from $3.6 billion to $6.4 billion, an increase of
77%. In comparison, over the same period, total Medicaid spending increased from
approximately $147.4 billion (FY1999) to $275.6 billion (FY2005), an 87% increase.
Both the executive and legislative branches have addressed Medicaid rehabilitation services. For
instance, in recent annual budget submissions, the Bush Administration proposed administrative
changes to reduce Medicaid rehabilitation expenditures. Congressional and executive branch
oversight organizations have documented inconsistent policy guidance and states’ practices for
claiming federal matching funds that failed to comply with Medicaid rules. The Centers for
Medicare and Medicaid Services (CMS) issued a proposed rule on August 13, 2007, for Medicaid
rehabilitation services. The proposed rule was intended to more clearly define for states the scope
of the rehabilitation benefit and identify services that can be claimed as rehabilitation under
Medicaid. CMS estimated that the proposed changes would reduce federal Medicaid expenditures
by approximately $180 million in FY2008 and $2.2 billion between FY2008 and FY2012.
The Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA, P.L. 110-173) imposed a
moratorium until June 30, 2008, on implementation of the rehabilitation proposed rule. On May
22, 2008, the Senate passed the Supplemental Appropriations Act of 2008 (H.R. 2642), which
contained a moratorium until April 1, 2009, on implementation of the rehabilitation regulations.
H.R. 2642 was amended by the House and passed on June 19, 2008. The House amendments
included moratoria until April 1, 2009, for six Medicaid regulations, including rehabilitation
services. On June 26, 2008, the Senate passed H.R. 2642 without changes to the House
legislation, so that implementation of six Medicaid regulations, including rehabilitation services,
would be delayed until April 1, 2009. The President signed P.L. 110-252 into law on June 30,

2008.

Earlier, on June 4 and 5, 2008, the Senate and House, respectively, adopted the final version of
the budget resolution (H.Rept. 110-659 accompanying S.Con.Res. 70). The conference agreement
established budget-neutral reserve funds that could be used to impose moratoria on Medicaid
rules and administrative actions and also includes a sense of the Senate provision on delaying
Medicaid administrative regulations including rehabilitation services.
This report describes Medicaid rehabilitation services, discusses major provisions of the Medicaid
rehabilitation regulation, and provides various perspectives on the rehabilitation proposed rule.
This report will be updated with legislative and regulatory activity.

Medicaid Rehabilitation..................................................................................................................1
Defini ti on ..................................................................................................................... ............. 1
Expenditures .............................................................................................................................. 2
Guidance to States.....................................................................................................................3
Rehabilitation Services Proposed Rule...........................................................................................5
Rehabilitation Plans..................................................................................................................5
State Plan Amendments and Reimbursement............................................................................5
Intrinsic Part/Excluded Services...............................................................................................5
Settings ...................................................................................................................................... 6
Rehabilitation versus Habilitation Services..............................................................................6
Financial Impact of Rehabilitation Proposed Rule..........................................................................6
Various Perspectives on Interim Final Rule....................................................................................7
Legislative and Other Proposals......................................................................................................9
Table 1. Estimated Medicaid and Rehabilitation Expenditures and Beneficiaries, FY1999
and FY2005..................................................................................................................................3
Author Contact Information..........................................................................................................10

The Medicaid program covers a range of mandatory and optional health care services for low-
income populations, primarily individuals with disabilities, the elderly, members of families with ¹
dependent children, and some pregnant women and children. Rehabilitation is an optional
Medicaid service, meaning that states are not required to include it in their Medicaid programs.
What is included as a rehabilitation service can be particularly difficult to describe, because it
may encompass many medical and social service activities. Some have said that the term
rehabilitation is so broad that it has become almost meaningless and these services might better ²
be described as a catchall Medicaid service, if an “all other” category did not already exist.
This broad definition of rehabilitation, coupled with limited and contradictory regulations, have
had the unintended consequence of creating confusion about what can and cannot be included as
Medicaid rehabilitation. States have used the rehabilitation benefit to cover many services,
therapies, and treatments, and to even cover services that might be considered benefits of other
state and/or federal health and human services programs. There is at least a perception that states
are covering an increasing number of services that could be considered habilitative or custodial
rather than rehabilitative. To address the confusion surrounding the rehabilitation benefit, clarify
definitions, create a more transparent process, and ensure that the services states claim as ³
rehabilitation actually are rehabilitative in nature, CMS issued a proposed rule on August 13, ⁴

2007.

Federal law describes Medicaid rehabilitation services as “any medical or remedial services
recommended by a physician or other licensed practitioner of the healing arts, within the scope of
his or her practice under State law, for maximum reduction of physical or mental disability and ⁵
restoration of a recipient to his best possible functional level.” Rehabilitation might once only
have been considered physical rehabilitation used mostly for beneficiaries who had strokes or
disabling accidents. However, rehabilitation now encompasses a broader range of therapies and
treatments.
State Medicaid programs followed the development of additional rehabilitation therapies by using
Medicaid’s flexibility and the broad definition of rehabilitation to extend services to Medicaid-
eligible beneficiaries beyond physical rehabilitation. Medicaid rehabilitation, as defined by states,
often includes mental health and substance abuse treatment, occupational and speech therapy, and

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other services and treatments. Under Medicaid, rehabilitation services are delivered in a variety of
settings, by a range of practitioners, and through diverse treatment models. For example,
rehabilitation services are furnished in freestanding outpatient clinics, the offices of qualified
independent practitioners, mobile crisis vehicles, and appropriate community settings, as defined
by state Medicaid plans. Under the rehabilitation benefit, Medicaid beneficiaries are treated for
mental illness, certain disabilities, substance abuse, strokes, diseases (HIV/AIDS, cancer), and
other conditions. Medicaid programs cover rehabilitation treatments provided by physicians,
nurses, social workers, case managers, speech therapists, recreation therapists, aides, counselors,
and other health professionals.

In 2006, 48 states and the District of Columbia covered rehabilitation services.⁷ Nationally,
estimated Medicaid rehabilitation expenditures have increased. As shown in Table 1, total
FY2005 federal and state Medicaid expenditures reported to CMS’s Medicaid Statistical
Information System (MSIS) as rehabilitation services were approximately $6.4 billion. In
FY1999, total state and federal rehabilitation expenditures reported by states to MSIS were
approximately $3.6 billion. Between FY1999 and FY2005, federal and state Medicaid
rehabilitation expenditures increased by 76.7%. In FY1999, 1.2 million beneficiaries received
rehabilitation services; in FY2005, the number of beneficiaries receiving rehabilitation had
increased by 36.2% to 1.6 million. Per beneficiary rehabilitation expenditures, among those
receiving such services, increased by approximately 30% between FY1999 ($3,020) and FY2005
($3,916).
In comparison, overall Medicaid expenditures increased at an even more rapid rate over the same
time period, rising from approximately $147 billion in FY1999 to approximately $276 billion in
FY2005, approximately an 86.9% increase. The number of Medicaid beneficiaries also increased
during this time period, rising by 43.1% from FY1999 (40.3 million) to FY2005 (57.7 million).
During the same time period, spending per Medicaid beneficiary increased by 30.7% from $3,657
in FY1999 to $4,781 in FY2005. Although most states cover rehabilitation services, some do not
show rehabilitation expenditures in their MSIS data compiled by CMS from state-reported
information.

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Table 1. Estimated Medicaid and Rehabilitation Expenditures and Beneficiaries,
FY1999 and FY2005
^FY19^99-2⁰⁰⁵
^{Expenditures/Beneficiaries FY19}⁹⁹^FY20⁰⁵^{% Change}
^{Medicaid Expe}^{nditures (federal &}^{state) for Rehabilitation ($}
^billi^{ons) $3.64}^$6.44^76.7%
^{Beneficiaries Receiving Rehabilita}^{tion Services}^1,20^7,54³^1,64^5,09⁵^36.2%
^{Medicaid Expe}^nditures^per^benefi^{ciary for Rehabilitation}^$3,02⁰^$3,91⁶^29.7%
^{Total Medicai}^{d (federal & state) Expe}^{nditures for all Services}
^{($ billions)}^$14^7.37^$27^5.57^86.9%
^{Total Medicai}^{d Beneficiaries}^40,3^00,3⁹⁴^57,6^52,9⁸⁸^43.1%
^{Medicaid Expe}^{nditures (federal &}^{state) per Be}^{neficiary for all}
^{states $3,65}⁷^$4,78¹^30.7%
^Sources:^{Congressional Researc}^{h Service, based on}^{Medicaid Stat}^{istical Information System (MSIS) data from CMS}
^(downloade^{d January}^24,²⁰^{08). FY200}^{4 data were}^{used for}^Maine^{as an estimate of FY2}⁰⁰^{5 data.}
^Notes:^Medicai^{d expenditure}^{s in}^{clude both federal a}^{nd state s}^har^{es as well as Medicaid-expansions}^spending^under
^{the State Children’s Health}^Ins^ur^{ance Program (M-SCHIP). Spending for th}^{e territories and amo}^unt^{s not directly tied}
^{to service use}^{by individuals (e.g.,}^{administrative costs) are exclude}^{d. Rehabilitat}^{ion service expe}^{nditures ar}^{e not}
^{reported se}^{parately in fina}^{ncial re}^{ports su}^{bmitted by}^{states to CM}^{S. Data on rehabilitation expenditures in t}^{his re}^port
^{are estimates of overall reha}^bilita^{tion expenditu}^{res ba}^{sed on MSIS}^{data reported by}^{states to CMS.}^{There is}
^{considerable variation in reha}^bilit^{ation services data across states,}^because^states^{use differe}^{nt e}^xpe^{nditure categories}
^{to report thes}^{e data.}
There have been several attempts to clarify in statute and regulation what activities states may
cover as rehabilitation services. These administrative and legislative activities strived to define
how rehabilitation service benefits should be used, as well as to control or reduce states’
rehabilitation service expenditures. For example, in the 1970s and 1980s, the Secretary of Health ⁸
and Human Services approved 17 state plans to cover habilitative services for mentally retarded
(a statutory term) individuals under the rehabilitation option. Habilitative, in contrast to
rehabilitative services, are intended to help individuals acquire, retain, and improve self-help and
adaptive skills, but are not intended to remove or reduce individuals’ disabilities. The Secretary
later withdrew approval for habilitative services, because the services were determined to not
meet conditions to qualify for the rehabilitation benefit. In 1989, with passage of the Omnibus ⁹
Budget Reconciliation Act of 1989 (OBRA 1989, P.L. 101-239), Congress intervened and
permitted states that had received the Secretary’s approval to continue to cover these services.
Congress prohibited other states from gaining approval to cover habilitative services for mentally
retarded individuals.

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^Mⁱ^chⁱ^g^an^,^Mi^sso^u^rⁱ^,^Moⁿ^t^an^a,^New^Yo^rk,^Ohⁱ^o^,^Oregoⁿ^,^R^h^od^{e Isl}^aⁿ^d^,^and^W^y^o^mⁱⁿ^g.
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CMS issued a state Medicaid director letter (SMDL)¹⁰ in June 1992 (FME-42) that provided
guidance to states on using the rehabilitation option as a vehicle for providing services to
mentally ill beneficiaries. This letter reiterated regulatory guidance that rehabilitation services
were intended to be “medical and remedial in nature for the maximum reduction of physical or
mental disability and restoration of a recipient to his best possible functional level.” The letter
offered examples of services that states could cover under the rehabilitation option, including
basic living skills, social skills, counseling, and therapy. The SMDL also described examples of
services CMS believed to fall outside of the definition of rehabilitation, including vocational
training, direct personal care services, and case management (case management is covered under
a separate Medicaid benefit option).
In 2005, the Government Accountability Office (GAO) and Health and Human Services Office of
Inspector General (HHS/OIG) issued reports that were critical of states’ and CMS’s practices on
rehabilitation. Congressional testimony presented by CMS officials also was critical of state
practices to maximize federal matching payments for rehabilitation and other Medicaid ¹¹
expenses. GAO’s reports were critical of CMS for not issuing guidance that would clarify rules
for states to follow in claiming federal financial participation (FFP) for Medicaid services, such ¹²
as rehabilitation. These same GAO reports and testimony found that states increased federal
matching payments for rehabilitation and other services by increasing Medicaid payments to
other state government agencies—non-Medicaid human services agencies that serve Medicaid
beneficiaries. In addition, HHS/OIG audits showed that states did not meet federal and state
reimbursement requirements for rehabilitation services or comply with state and/or federal ¹³
Medicaid rules.
Even though statutory and regulatory guidance for states on claiming Medicaid rehabilitation
expenditures have been inconsistent, states often receive explicit guidance on specific services
that can be covered under the rehabilitation benefit when preparing and submitting state plan
amendments (SPAs) to CMS’s Regional and Central Offices. These CMS staff must review and
approve all SPAs before a state may add or change services. Through the SPA approval process,
states can receive considerable direction. SPA approvals, however, are dependent on states
making changes to their Medicaid service offerings, and as long as the programs remain static, it
is not necessary to seek CMS’s approval. Further, CMS contends that new rehabilitation rules are
needed to guide states in making changes to their rehabilitation benefit offerings; to provide states
with clear, transparent, and consistent guidance; and to clarify definitions. Moreover, CMS states,
a new rule is necessary to protect beneficiaries and to maintain the fiscal integrity of the Medicaid
program.

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^te^s^tim^on^y^{to Se}^na^te^C^o^m^m^itte^e^{on Fi}^na^nc^e^he^a^r^ing^oⁿ^Me^dic^aⁱ^{d Fr}^a^{ud a}ⁿ^{d A}^bus^e^,^J^u^ne²⁸^{, 2}⁰⁰⁵^{, a}^t
^http:^//f^inaⁿ^c^e^.^se^na^te^.g^ov^/he^a^r^ing^s^/te^stim^on^y^/²⁰⁰⁵^te^st/DSte^s^t06²⁸⁰⁵^.p^df^.
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^G^o^v^e^rn^m^e^{nt A}^c^c^ounta^b^ility^O^f^fⁱ^ce^{, J}^une²⁰⁰⁵^{, a}^t^htt^p^://w^w^w^.ga^o^.g^ov^/ne^w^.item^s^/^d⁰⁵⁷^48.^pdf^.
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In August 2007, CMS issued a proposed rehabilitation services rule to more clearly define the ¹⁴
scope of the rehabilitation benefit for states. CMS officials testified that the changes embodied
in the proposed new rule were intended to clearly define allowable services that may be claimed ¹⁵
as rehabilitative services under Medicaid. The major changes addressed in the proposed rule are
outlined below.
States would need to require written treatment plans from providers that describe therapeutic
goals (and identify specific outcome objectives for each patient), treatments to achieve those
goals, a specific time-line for treatment, and the health care provider responsible for developing
the plan. Rehabilitation plans would need to provide for a process to engage the beneficiary as
well as families and other responsible parties in the management of rehabilitation care. This
“person-centered” approach is intended to improve transparency, help to speed recovery, and
facilitate coordination with other non-Medicaid, human services programs. Rehabilitation
services would need to be delivered under the direction of qualified providers who assume
professional responsibility for ensuring all services are provided and are medically necessary.
States that intend to continue to provide rehabilitation services would need to amend their state
Medicaid plans. States also would need to include in their Medicaid plans, a description of the
services offered as rehabilitation, providers delivering rehabilitation services and their
qualifications (education, training, and credentials), and the reimbursement methodologies states
would use to pay providers. States would need to specifically describe services that are
reimbursable and their individual payment methodologies.
The rule proposes to exclude FFP for services that are intrinsic elements of programs other than
Medicaid. However, the rule stipulates that beneficiaries of other non-Medicaid programs may
still be covered for Medicaid rehabilitation services if all Medicaid program requirements are met
and the services are not the responsibility of the other, non-Medicaid, programs. For example, ¹⁶
therapeutic foster care (TFC) is cited in the proposed rule as an example of a non-covered

¹⁴^Me^dic^aⁱ^d^Prog^ra^m^;^Cov^e^ra^g^e^f^o^{r Re}^ha^bilita^tiv^e^Se^rv^ic^e^s^{, P}^r^op^ose^d^Rule^,^Fe^de^{ral Re}^giste^r^,^vo^l^.⁷²^{, n}^o^.²³²^,^A^u^gu^st
^{13, 20}⁰⁷^.
¹⁵^S^{ee T}^e^stⁱ^m^oⁿ^y^o^f^Denⁿⁱ^{s S}^mⁱ^t^h^,^Di^rect^o^r^,^Cen^t^{er f}^o^{r M}^e^dⁱ^cai^{d an}^{d S}^t^at^{e Op}^eratⁱ^oⁿ^s^,^Cen^t^{ers f}^o^{r M}^e^dⁱ^{care an}^d
^Me^dic^aⁱ^{d Se}^r^v^ic^e^s^{, B}^e^f^o^r^e^the^H^o^us^e^C^o^m^m^itte^e^{on O}^v^e^r^sⁱ^g^h^{t a}^nd^G^o^v^e^rⁿ^m^e^{nt R}^e^f^o^r^m^{, on t}^h^e^A^d^mⁱ^nis^t^r^a^tioⁿ^of
^R^e^g^u^la^tor^y^A^c^tions^{on Me}^dic^aⁱ^d:^T^h^e^Ef^f^e^c^t^s^on^P^a^tie^nts^,^D^o^c^t^or^s^,^H^o^s^p^ita^ls^{, a}ⁿ^{d S}^t^a^t^e^s^{, N}^o^v^e^m^b^e^r^{1, 2}⁰⁰⁷^{, a}^t
^h^t^t^p^:/^/^o^ver^sⁱ^g^h^t^.^h^o^u^s^e.^go^v/d^o^c^u^m^en^t^s^/²⁰⁰⁷¹¹⁰¹¹⁶³⁸¹^3.^pd^f^.
¹⁶^T^h^erap^eu^tⁱ^c^f^o^st^{er care (}^T^F^C^{) p}^r^o^g^ra^m^s^p^l^{ace t}^r^ouble^d^y^{outh (}^s^e^rⁱ^ous^e^m^otiona^{l a}^nd^be^ha^vⁱ^or^a^l^is^s^u^e^s⁾^w^{ith tr}^aⁱ^ne^d
^f^o^s^t^e^r^f^a^m^ilie^s^.^A^lthoug^{h T}^F^{C pr}^og^ram^s^v^a^r^y^{, c}^h^ildre^n/a^d^ole^s^c^eⁿ^ts^a^r^e^pl^aced^f^o^{r si}^{x t}^o^seven^m^oⁿ^t^{hs i}ⁿ^{a st}^ru^ct^u^r^ed
^eⁿ^vⁱ^ronm^eⁿ^{t w}^h^e^r^e^the^y^a^r^e^re^wa^rde^d^f^o^{r p}^o^sitiv^e^socⁱ^a^l^be^ha^vⁱ^{or a}^nd^pe^na^liz^e^d^f^o^{r d}ⁱ^srup^tiv^e^a^{nd a}^g^g^r^e^ssive^be^ha^vⁱ^or.
^T^F^C^a^l^s^o^s^e^pa^r^a^te^s^r^e^pe^a^t^juv^e^nile^of^f^e^nde^r^s^f^r^o^m^theⁱ^r^de^lin^queⁿ^t^pe^e^r^s^a^{nd pr}^ov^ide^s^c^l^os^e^s^u^pe^r^v^is^{ion a}^t^s^c^ho^{ol, a}^s
^w^e^l^l^{as at}^h^o^m^e.

rehabilitation service. TFC, the rule contends, is a “model of care,” not a medically necessary
service. The proposed rule states that TFC is an intrinsic part of states’ foster care service
offerings and should be reimbursed through foster care, not Medicaid. States could receive FFP,
the rule acknowledges, for other rehabilitation services delivered to Medicaid-eligible
beneficiaries placed in TFC as long as the services were deemed medically necessary and
described in a rehabilitation treatment plan supervised by a qualified provider. In addition, the
proposed rule describes services that would not be considered rehabilitative. Services furnished
through non-medical programs as benefits or administrative activities would not be considered
rehabilitation under the proposed rule. The rule identifies non-Medicaid programs such as foster
care, child welfare, education, child care, vocational and pre-vocational training, housing, parole
and probation, juvenile justice, and public guardianship. Also, Medicaid rehabilitation would
exclude room and board coverage for residents of community, home, or institutional settings,
including beneficiaries residing in institutions for mental disease, such as community residential
treatment facilities.
Although rehabilitative services may be provided in a facility, home, or other setting, the
proposed rule specifies that such care does not include room and board in an institution,
community, or home setting, and thus is not an inpatient benefit. When rehabilitative services are
provided in a residential setting and delivered by qualified providers, only the costs of the specific
rehabilitative services would be covered under the rehabilitation benefit.
The proposed rule seeks to clarify distinctions between rehabilitative and habilitative services,
where rehabilitation focuses on restoration of functional level and habilitation services help
people to acquire new functional abilities. Habilitation services, particularly in states approved
prior to OBRA 1989, are associated with day treatment services for mentally retarded individuals
(or individuals with related conditions). The proposed rule would prohibit habilitative services for
states grandfathered under OBRA 1989. These states that were approved for habilitative services
coverage under the clinic or rehabilitation benefits would need to transition those programs to
other Medicaid authorities, such as (1) home and community-based service (HCBS) 1915(c)
waiver programs or (2) the HCBS state plan option, 1915(i), established under the Deficit
Reduction Act of 2005 (DRA; P.L. 109-171). CMS was forbidden from taking adverse action
against the 19 states that were approved to cover habilitation services until such time as the
agency issued regulations that specify types of day habilitation services states may cover. CMS
stipulates that with the proposed rehabilitation rule the agency has met OBRA 1989 conditions so
that states that were permitted to cover habilitation under rehabilitation benefits would need to
phase out those services.

Estimates of the financial impact of the proposed rule vary. Some claim that CMS underestimated
the impact of the rehabilitation proposed rule and other Medicaid regulations and that CMS is

attempting to shift Medicaid costs to states.¹⁷ CMS estimated that the proposed rule would reduce
federal Medicaid spending by approximately $180 million in FY2008 and $2.24 billion for the
period FY2008-FY2012. In a recent estimate for the period FY2008-FY2012, the Congressional
Budget Office (CBO) forecasted that federal Medicaid outlays would decrease by $1.4 billion for
the five-year period. A survey of state Medicaid directors by the Majority Staff of the House
Committee on Oversight and Government Reform estimated the financial impact of the
rehabilitation proposed rule to be approximately $5.2 billion over five years from FY2009-¹⁸
FY2013.

There are at least three distinct perspectives on rehabilitation policy issues: (1) the viewpoint of
the federal regulatory agency, CMS, responsible for monitoring and enforcing states’ compliance
with federal Medicaid statutes; (2) the perspective of advocates representing children and adults
who could receive Medicaid rehabilitation services; and (3) the stance of state governments and
state Medicaid agencies.
CMS believes there is evidence that additional guidance is needed to clarify what can and can not
be claimed as rehabilitation services. CMS cites criticism from GAO and HHS/OIG. The agency
also notes that through the SPA process it has discerned confusion among states about what is
rehabilitation and habilitation and other issues related to rehabilitation. Further CMS claims, and
as GAO also has recommended, without clarifying guidance, states could inappropriately claim
excess FFP by paying for services and administrative components of other non-Medicaid state
agencies that service Medicaid beneficiaries.
Organizations representing individuals living with mental illness and their families, as well as
child welfare and disability groups, have expressed concerns that “person-centered” care ¹⁹
approaches, while well-intentioned, may be problematic with rehabilitation beneficiaries. These
groups argue that rehabilitation therapy is often provided to individuals with serious mental
health issues and these populations may be unable to be actively involved in their therapy
decisions. These groups state that requirements for “person-centered” rehabilitation plans need to
be more flexible when dealing with non-compliant beneficiaries, as opposed to a one-size-fits-all
requirement for “person-centered” rehabilitation plans. Similarly, child welfare groups contend
that requirements to engage parents in decisions about therapy for children in foster care may
compound, delay, or undo therapy by returning an abused or neglected child to influences that are
detrimental to the child’s treatment.
Organizations representing children, particularly special-needs children, are concerned that the
rehabilitation proposed rule would make it more difficult for children to receive rehabilitation and
related services by creating administrative barriers and restricting access by tightening the

¹⁷^S^ee^The^A^d^mⁱ^nis^t^r^a^tio^n’^s^M^e^dic^a^id^Re^gul^ati^ons^:^St^ate^-^by^-^S^t^a^te^I^m^pac^ts^,^Unⁱ^t^ed^S^t^at^{es Ho}^u^s^{e o}^f^R^e^p^r^esen^t^a^tⁱ^v^es,
^Com^m^itte^e^{on Ov}^e^r^sig^h^{t a}^{nd G}^ove^rnm^e^{nt Re}^f^o^r^m^{, Ma}^jority^St^a^f^f^,^Ma^rc^{h 20}⁰⁸^{, a}^t^http^://ov^e^rsig^ht.h^ouse^.^g^o^v^/^f^e^a^t^ure^s^/
^m^e^dic^aⁱ^d08/^.
¹⁸^Ibid^.
¹⁹^Se^e^,^f^o^{r e}^x^a^m^ple^,^T^h^e^Na^tiona^{l A}^llia^nc^e^{on Me}^nta^l^Il^lne^{ss (NA}^M^I),^C^o^m^m^e^nts^{on Pr}^op^os^e^d^Re^g^u^l^a^tio^ns^oⁿ
^Cov^e^r^age^{for M}^e^dic^a^id^Re^ha^bilit^ativ^e^Se^rv^ic^e^s^{, O}^c^tobe^r¹⁰^,²⁰⁰⁷⁽^p^{. 2}⁾^,^http:^//w^w^w^.nam^i.or^g^/^C^onteⁿ^t/^C^onteⁿ^tG^r^o^u^p^s^/
^Polic^y^/^Is^s^u^e^s^_Sp^o^tlig^h^t^s^/^Me^dic^aⁱ^d/^c^o^m^m^e^nts^_on_r^e^h^a^b_re^g^s^_^f^o^r_^c^ons^um^e^r^s^f^am^ilie^s^10.10.^doc^.

definition of rehabilitation. Advocates for special-needs children²⁰ argue that the distinction
between rehabilitation and habilitation is not a relevant factor in addressing children’s needs for
health services. Advocates say that because of early and periodic screening diagnostic and
treatment (EPSDT) provisions in Medicaid, children should receive rehabilitation treatment
whether it can be considered habilitation or rehabilitation. Medicaid’s children’s health benefits, ²¹
known as the EPSDT benefits, ensure that children receive comprehensive coverage for at least
categorically needy beneficiaries. According to special-needs children advocates, EPSDT
coverage ensures that children receive treatment to ameliorate physical or mental conditions ²²
whether children were born with the conditions or developed them later.
Similarly, other child welfare advocates indicate that it can be a much more complex judgment
with children to determine when a beneficiary has lost functioning or when the child may not yet
have developed certain skills or abilities in the first place. Children acquire and master skills at
different times and may not be at age appropriate levels because of physical, emotional, social, or
many other problems. These judgments are further compounded among special-needs children, ²³
which would include most children in foster care.
Advocates for mentally retarded and developmentally disabled (MR/DD) individuals are
concerned that the proposed rehabilitation regulations could reduce a key funding stream for
community-based mental health services resulting in reductions in services for needy individuals, ²⁴
and incentives to treat MR/DD individuals in institutional settings. If MR/DD individuals and
their families were unable to find suitable community-based care, the result might be increased
Medicaid expenditures where the costs for institutional care might exceed community-based
services. They argue that if the goal is to save money, the proposed rule could be counter-
productive. Further, mental health advocates are concerned that the proposed Medicaid
rehabilitation regulations requiring treatment plans to document skill recovery and lost
functionality will diminish Medicaid-reimbursed services for individuals who are developing
skills to cope with mental and emotional disabilities, but are not considered to have lost
previously acquired skills.
States are concerned that CMS’s proposed rehabilitation service regulations would entail
substantial new administrative and procedural burdens on states in bringing their Medicaid state
plans into compliance. In addition, states claim that reductions in rehabilitation expenditures
might be more costly in the long run as individuals, particularly children, would benefit from
earlier interventions that might avert future, more costly care. Further, states note that Medicaid
expenditures run counter to business cycles, so that when states’ economic conditions deteriorate,
Medicaid expenditures rise. Thus, state governors argue, as the economy contracts, federal

²⁰^S^p^eci^al^-n^eed^{s ch}ⁱ^l^d^r^en^are^d^e^fⁱⁿ^e^d^b^y^t^h^ei^{r h}^eal^t^h^{care n}^eed^{s o}^r^dⁱ^mⁱⁿⁱ^sh^ed^h^eal^t^h^st^at^u^s^,^no^t^b^y^fa^mⁱ^l^yⁱⁿ^co^m^e^.^S^ee
^Firs^{t Foc}^u^s^,^C^M^S’^M^e^dic^aⁱ^d^Re^gu^latio^ns^:^I^m^p^lic^ati^ons^f^o^r^C^h^ildr^eⁿ^w^ith^Spe^cⁱ^a^l^H^e^alt^h^C^a^r^e^N^e^e^d^s^{, Sa}^r^a^R^o^s^e^nba^um^,
^{J.D., Ma}^rc^h²⁰^08,^htt^p^://f^irstf^o^c^u^s.ne^t/^Dowⁿ^loa^d^/CMS.^pdf^.
²¹^Un^d^e^{r t}^h^{e E}^a^rl^y^an^d^P^e^ri^odⁱ^c^,^S^c^reenⁱⁿ^g,^Di^agn^o^s^tⁱ^c^and^T^r^eat^m^eⁿ^t^(E^P^S^DT^{) b}^eⁿ^e^fⁱ^t^,^M^e^dⁱ^cai^{d ch}ⁱ^l^d^r^en^un^d^e^{r age}
²¹ⁱⁿ^{CN grou}^p^s^recei^{ve co}^m^p^reh^eⁿ^sⁱ^v^{e screen}ⁱⁿ^{g servi}^{ces an}^d^p^r^even^tⁱ^v^{e care,}^an^d^{are gu}^aran^t^eed^{access t}^o^al^l
^f^e^d^e^rall^y^co^v^e^rab^l^{e serv}ⁱ^{ces n}^eces^sar^y^to^{treat a p}^r^o^b^le^m^o^r^coⁿ^d^itioⁿ^.^E^PSDT^ma^y^b^e^o^f^f^e^red^to^M^N^ch^ild^ren^.
²²^S^{ee F}ⁱ^rst^F^o^cu^s,^C^M^S’^M^e^dic^a^id^Re^gul^atio^ns^:^I^m^pl^ic^ati^ons^f^o^r^C^hⁱ^l^dr^eⁿ^wⁱ^t^h^S^p^e^cⁱ^{al H}^e^a^lth^C^a^r^e^N^e^e^d^s^{, Sa}^ra
^Rose^nba^um^{, J.D., Ma}^rc^h²⁰⁰⁸^(p^{p. 1}⁵^-^17),^htt^p^://f^irstf^o^c^u^s.ne^t/^Dowⁿ^loa^d^/CMS.^pdf^.
²³^S^{ee Ch}ⁱ^l^d^W^e^l^f^ar^{e L}^eagu^e^o^f^Ameri^{ca (C}^W^L^{A) Co}^mmen^t^{s t}^o^C^M^S^on^P^r^o^p^o^s^ed^R^u^l^e^CM^S^-²²⁶¹^-P^:^Co^{verage f}^o^r
^Re^ha^bilita^tiv^e^Se^rv^ic^e^s^{, O}^c^tobe^r^12,²⁰⁰⁷^{, h}^ttp:^//w^w^w^.cw^l^a^.^org^/^a^d^v^o^c^a^c^y^/^m^e^dic^aⁱ^d071⁰¹^2.^htm^.
²⁴^Se^e^,^f^o^{r e}^x^a^m^ple^,^Consorti^um^f^o^r^Citiz^eⁿ^{s w}^{ith Disa}^bilitie^{s, c}^o^m^m^e^{nt le}^tte^{r o}ⁿ^P^r^op^ose^d^Me^dic^aⁱ^d^Re^ha^bilita^ti^on
^Rule^{, Oc}^to^be^{r 1}⁰^,²⁰⁰^{7 (}^p^.^3),^htt^p^://w^ww^.^c^-c^-d.org^/ta^sk^_f^orc^e^s^/^h^e^a^lth/^CCD%^20Com^m^e^nts%^20f^ina^l^%^20f^ina^l^.pdf^.

Medicaid expenditures should not be reduced.²⁵ Moreover, some states already report shortages of
qualified mental health care professionals willing to participate in Medicaid. Additional
administrative burdens, as well as requirements that mental health and other professionals assume
responsibility for rehabilitation plans, might further reduce the supply of rehabilitation service ²⁶
providers.

The Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA, P.L. 110-173) imposed a
moratorium until June 30, 2008, on implementation of the rehabilitation proposed rule and other
Medicaid program changes. In March 2008, the Protecting the Medicaid Safety Net Act of 2008
(H.R. 5613) was introduced, which would extend until April 1, 2009, moratoria on regulations
affecting Medicaid, including rehabilitation services. The House Energy and Commerce
Committee sent H.R. 5613 to the full House on April 16, 2008. H.R. 5613 would require the
Secretary to submit a report by July 1, 2008, to the House Energy and Commerce and the Senate
Finance Committees. The Secretary’s report would be required to cover three topics: (1) an
outline of specific problems the rehabilitation and other Medicaid regulations were intended to
correct, (2) an explanation of how the regulations would address these problems, and (3) the legal
authority for the regulations.
In addition, H.R. 5613 would require the Secretary to retain an independent contractor to prepare
a comprehensive report by March 1, 2009, which also would be submitted to the House Energy
and Commerce and the Senate Finance Committees. The independent contractor’s report would
describe the prevalence of the specific problems identified in the Secretary’s report, identify
existing strategies to address these problems, and assess the impact of the regulations on each
state and the District of Columbia. In the Senate, a similar measure to H.R. 5613, the Economic
Recovery in Health Care Act of 2008 (S. 2819), was introduced in April. Like H.R. 5613, S. 2819
would impose a one-year moratorium on rehabilitation and other Medicaid regulations until April

1, 2009.

On May 22, 2008, the Senate passed the Supplemental Appropriations Act of 2008 (H.R. 2642),
which contained a moratorium until April 1, 2009, on implementation of the rehabilitation
regulation. H.R. 2642 was amended by the House and passed on June 19, 2008. The House
amendments included moratoria for six Medicaid regulations, including rehabilitation services. In
addition, H.R. 2642 retained requirements from H.R. 5613 for the Secretary to report to the
House Energy and Commerce and Senate Finance Committees, and to hire an independent
contractor to report on Medicaid regulation issues. On June 26, 2008, the Senate passed H.R.
2642 without changes to the House legislation, so that implementation of six Medicaid
regulations, including rehabilitation services, would be delayed until April 1, 2009. H.R. 2642
also retains the requirements for the Secretary and an independent contractor to submit reports on
the Medicaid regulations to the House Energy and Commerce and Senate Finance Committees.
The President signed P.L. 110-252 into law on June 30, 2008.

²⁵^S^{ee New}^Yo^rk^Tⁱ^m^e^s,^G^o^v^e^r^nor^s^{of B}^o^th^Par^tie^s^O^p^pos^e^M^e^dic^aⁱ^d^Ru^le^s^{, R}^o^be^r^t^P^e^a^r^{, Fe}^br^ua^r^y^{24, 20}⁰⁸^.
²⁶^{See, f}^o^{r ex}^a^m^p^l^{e, A}^rⁱ^z^oⁿ^a^Health^{Care Co}^{st Co}ⁿ^t^aiⁿ^m^en^{t Sy}^ste^m⁽^A^{HCCCS) Co}^m^m^en^{ts o}ⁿ^Medⁱ^ca^id^Reh^a^bⁱ^litatioⁿ
^p^r^o^p^o^s^ed^r^u^{le, Octo}^b^e^{r 1}²^,²⁰⁰⁷^,^{at h}^ttp^://w^ww^.^a^h^cccs.sta^te.a^z.u^s^/Reg^u^l^atioⁿ^s^/^L^a^w^sReg^u^l^atioⁿ^s^/CM^S^Ru^lesS^u^m^m^a^r^y^/
⁰⁹³^8-^A^L^81_C^om^m^e^nts^.^pdf^.

Earlier, on June 4 and 5, 2008, the Senate and House, respectively, adopted the final version of
the budget resolution (H.Rept. 110-659 accompanying S.Con.Res. 70). Among other provisions,
the conference agreement establishes a number of deficit-neutral reserve funds and a sense of the
Senate provision that would delay Medicaid administrative regulations, including Medicaid
rehabilitation services.
^Clⁱ^{ff B}ⁱ^nd^e^r
^Aⁿ^a^l^ystⁱⁿ^H^e^a^l^t^h^Ca^r^e^Fi^na^ncⁱ^ng
^cbiⁿ^der@^crs^.^l^o^c.g^o^v^,^7-⁷⁹⁶⁵