What is the Medicaid Rehabilitative Services Option?

The Rehabilitative Services Option under Medicaid allows federal Medicaid reimbursement for “other diagnostic, screening, preventative, and rehabilitative services, including any medication or remedial services (provided in a facility, home, or other setting) recommended by a physician or other licensed practitioner of the healing arts within the scope of their practice under State law, for the maximum reduction of physical or mental disability and restoration of an individual to the best possible functional level.” Social Security Act, Sec. 1905(a)(13).

Many of the services covered under the Medicaid rehabilitative services option allow individuals with disabilities, particularly those with development disabilities and mental illness, to live independently at home and in the community.  Examples of services provided under the rehabilitative services option include employment-related rehabilitation services, adult day programs, independent living skills training, and medication management.  Coverage of these services has been approved by the federal agency that administers the Medicaid program (CMS) for several decades.

What is CMS Proposing to Change?

In 2005, while Congress was drafting the Deficient Reduction Act of 2005 (DRA), the Bush Administration sent lawmakers a series of proposed legislative changes to the Medicaid program.  Included in those proposed changes was a modification of the current coverage standards for services provided under the rehabilitative services option.  Specifically, the proposal would have disallowed coverage if the service is considered an “intrinsic element” of another federal, state or local program.  In other words, if the rehabilitative service in question is allowable under another federal, state or local program, the federal matching rate will no longer be available to pay for the service.  Additionally, the proposal would have purged so-called “habilitation” services from coverage under the option.

Congress ultimately decided against the inclusion of this proposed language in the final DRA but the Administration subsequently indicated its intent to now modify this option via the regulatory process.   The President has included this change in his federal budget proposal for the last two fiscal years and this year attached a savings of $2.3 billion to the federal government over five years to the proposal.

On August 8th CMS issued a proposed regulation to restrict federal Medicaid coverage of services provided under the Medicaid rehabilitative services option.  This regulation closely resembles the legislative proposal offered by the Administration in 2005 during DRA negotiations.

Specifically, the rule would restrict coverage of rehabilitative services that are intrinsic elements of programs other than Medicaid, placing funding responsibilities for many rehabilitative services onto education, substance-abuse, mental health, vocational rehabilitation, foster care, juvenile delinquency, assistive living, and even free clinic programs.  However, if these programs refuse or are unable to shoulder the costs of these services, they will no longer be available to recipients, unless the state Medicaid program covers 100% of the cost. 

Additionally, the rule would restrict federal Medicaid reimbursement for habilitation services. (Even prior to the release of the final rule, reports indicate that CMS is already cutting back on habilitative services under this option through the audit process and, as a result, many individuals with disabilities are losing access to services that they depend on to live independently in the community.) 

The House recently passed the Children’s Health and Medicare Protection (“CHAMP”) Act of 2007 which includes a one-year moratorium on implementation of these harmful regulations, as well as continued access to habilitation services for individuals living in states were such services are currently being provided under the rehabilitative services option.

CPR applauds the House for taking action to delay implementation of these regulations and encourages the Senate to pass similar legislation.  

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