The Obama administration is threatening legal action after an investigation found a state unnecessarily relying on nursing homes to provide disability services in violation of the Americans with Disabilities Act.

In a 35-page letter to South Dakota Gov. Dennis Daugaard on Monday, the U.S. Department of Justice said that sweeping changes are needed to the state’s disability service system.

“We conclude that South Dakota fails to provide services to individuals with disabilities in the most integrated setting appropriate to their needs, in violation of Title II of the ADA,” wrote Vanita Gupta, head of the Justice Department’s Civil Rights Division. “South Dakota’s system of care requires thousands of people with disabilities to live in segregated nursing facilities to receive the services they need and for which they are eligible under Medicaid, despite their preference to remain in their own homes and communities.”

The agency’s nearly-two-year investigation found that South Dakota has one of the highest nursing home utilization rates in the nation.

In many cases, people with physical or cognitive disabilities seeking services found that nursing care was their only option, Gupta said, because the state “does not sufficiently provide community-based services.” What’s more, the state has not appropriately worked to identify and help transition individuals who could return home.

“While some individuals may choose to live in nursing facilities, individuals in South Dakota do not have a meaningful option to receive services in the most integrated setting appropriate to their needs, because the state fails to offer sufficient services and has failed to develop systems that allow individuals to identify and select from among these services and settings,” the letter states.

Where community-based services are available, they are often capped or offered insufficiently to allow people to live in their own homes, the Justice Department found. People with disabilities living in rural areas and those who are Native American are at particularly high risk of institutionalization because of limited offerings.

“Regardless of their age, people with disabilities deserve privacy, autonomy and dignity in their everyday lives,” Gupta said. “Our findings reveal how South Dakota’s current system of long-term care violates federal law and fails to give people with disabilities the choice to live in their own homes and their own communities.”

The Justice Department is calling for South Dakota to expand its community-based services offerings, take steps to prevent unnecessary nursing home placements and offer transition services to those who can and wish to move to other settings.

If corrective action is not taken, the federal agency may proceed with litigation, the letter indicated.

South Dakota Gov. Daugaard said in a statement that the state is evaluating its options.

“Though I recognize we still have areas to improve upon, South Dakota has been making headway,” Daugaard said. “Ideally, we want elderly residents and people with disabilities to be able to stay in their communities and receive the services they need without going to a nursing home. That can be a challenge for a state like ours which is made up of rural communities.”