Federal officials are working to further clarify how they will determine if living arrangements for people with disabilities are considered community-based versus institutional.

Under a 2014 rule from the Centers for Medicare and Medicaid Services, settings must meet certain criteria in order to be paid for through Medicaid home- and community-based services waivers.

To qualify, settings must offer full access to the community, provide privacy, foster independence and allow individuals with disabilities to assert their own preferences about services and providers. The guidelines apply to homes, day and job-training programs and other non-residential offerings.

Medicaid officials issued guidance on the rule in 2016 and again earlier this year, but upon receiving additional questions from stakeholders, the agency is offering up further details in a bulletin issued this month.

The latest guidance focuses on what’s known as the “heightened scrutiny” process, through which states can submit evidence to federal officials showing that a setting which appears to have institutional qualities should in fact be deemed community based.

Initially in the 2016 guidance, CMS said that newly-constructed facilities would need to be operational and serve Medicaid beneficiaries before the agency could determine if it “overcame its institutional presumption.”

“We explained that our determination would consider factors beyond the physical structure of the setting itself to include considerations of how individuals residing or receiving services in the setting actually experience the setting in a manner that promotes independence and community integration,” wrote Calder Lynch, acting deputy administrator and director of CMS’ Center for Medicaid and CHIP Services, in the bulletin this month.

Now, however, Medicaid officials are softening that stance. Under the latest guidance, CMS said it can review a setting once people are receiving services there — even if the service recipients are private pay, not Medicaid beneficiaries.

“CMS believes that an accurate analysis of a setting’s adherence to the regulatory criteria can be performed at the state and federal levels based on the experiences of non-Medicaid beneficiaries,” the new guidance states.

Alison Barkoff, director of advocacy at the Center for Public Representation and a leader of the HCBS Advocacy Coalition, said the bulletin clarifies how and when certain newly-constructed facilities might be able to get paid through Medicaid waivers, but is largely consistent with what CMS had previously outlined.

“We continue to think and certainly agree with CMS that the focus of states absolutely needs to be on more integrated settings,” she said. “This was a question that came up and we don’t see this as a huge deviation from what the prior policy had been.”

Originally, states had until this year to comply with the settings rule. But in 2017, the Trump administration pushed the deadline back to March 2022.

Medicaid officials have said they were prompted to establish the rule after receiving reports of homes built on the sites of former institutions that were being described as community based.

The new standards are expected to affect more than a million people receiving home- and community-based services across the country.

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