Order Code RL34432
Medicaid Rehabilitation Services
Updated June 27, 2008
Cliff Binder
Analyst in Health Care Financing
Domestic Social Policy Division

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Medicaid Rehabilitation Services
Summary
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 after
March 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 after March 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 after March 2009. The
President is expected to sign H.R. 2642.
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.

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Contents
Medicaid Rehabilitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Guidance to States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Rehabilitation Services Proposed Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Rehabilitation Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
State Plan Amendments and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . 6
Intrinsic Part/Excluded Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Settings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Rehabilitation versus Habilitation Services . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Financial Impact of Rehabilitation Proposed Rule . . . . . . . . . . . . . . . . . . . . . . . . 7
Various Perspectives on Interim Final Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Legislative and Other Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
List of Tables
Table 1. Estimated Medicaid and Rehabilitation Expenditures and
Beneficiaries, FY1999 and FY2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

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Medicaid Rehabilitation Services
Medicaid Rehabilitation
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 dependent children, and some pregnant women and
children.1 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 be
described as a catchall Medicaid service, if an “all other” category did not already
exist.2
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 rehabilitation actually are rehabilitative in nature, CMS issued
a proposed rule3 on August 13, 2007.4
Definition
Federal law describes Medicaid rehabilitation services as “any medical or
remedial services recommended by a physician or other licensed practitioner of the
1 For more information on optional and required benefits and CMS’s approval of state plans,
see CRS Report RL33202, Medicaid: A Primer, by Elicia J. Herz.
2 See Testimony of Dennis Smith, Director, Center for Medicaid and State Operations,
Centers for Medicare and Medicaid Services, Before the House Committee on Oversight and
Government Reform, on the Administration of Regulatory Actions on Medicaid: The Effects
on Patients, Doctors, Hospitals, and States, November 1, 2007, at
[http://oversight.house.gov/documents/20071101163813.pdf].
3 For a discussion of the federal regulations, see CRS Report RL32240, The Federal
Rulemaking Process: An Overview, by Curtis W. Copeland.
4 Medicaid Program; Coverage for Rehabilitative Services, Proposed Rule, Federal Register,
vol. 72, no. 232, August 13, 2007.

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healing arts, within the scope of his or her practice under State law, for maximum
reduction of physical or mental disability and restoration of a recipient to his best
possible functional level.”5 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 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.
Expenditures6
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
5 See Section 1905(a)(13) of the Social Security Act and Medicaid regulations at 42 CFR
440.130(d).
6 Rehabilitation expenditures are not reported separately in states’ financial reports to CMS,
but are included in other financial expenditure categories. Data on rehabilitation
expenditures in this report are estimates of overall rehabilitation expenditures based on
MSIS data reported by states to CMS. There is considerable variation between states
financial reports and MSIS data.
7 The Kaiser Commission on Medicaid and the Uninsured, Medicaid Benefits: Online
Database (October 2006), [http://www.kff.org/medicaid/benefits/service.jsp?gr=off&nt
=on&so=0&tg=0&yr=3& cat=12&sv=36], accessed March 31, 2008. According to Kaiser,
Georgia, Texas, and Pennsylvania did not cover mental health and substance abuse
rehabilitation services. In the notes to the online database, Kaiser explains that it counted
only mental health and substance abuse services as optional rehabilitation services.
Rehabilitation services also can be included in other benefit categories, such as clinic
services and physical rehabilitation. If all benefits that could be rehabilitation services are
considered, then virtually all states and the District of Columbia cover Medicaid
rehabilitation. Nonetheless, for the purpose of this discussion, only 48 states were counted
as providing Medicaid rehabilitation services.

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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 $4,781 in FY2005. Although most states cover rehabilitation services,
some do not show rehabilitation expenditures in their MSIS data compiled by CMS
from state-reported information.
Table 1. Estimated Medicaid and Rehabilitation Expenditures
and Beneficiaries, FY1999 and FY2005
FY1999-2005
Expenditures/Beneficiaries
FY1999
FY2005
% Change
Medicaid Expenditures (federal & state)
for Rehabilitation ($ billions)
$3.64
$6.44
76.7%
Beneficiaries Receiving Rehabilitation
Services
1,207,543
1,645,095
36.2%
Medicaid Expenditures per beneficiary for
Rehabilitation
$3,020
$3,916
29.7%
Total Medicaid (federal & state)
Expenditures for all Services ($ billions)
$147.37
$275.57
86.9%
Total Medicaid Beneficiaries
40,300,394
57,652,988
43.1%
Medicaid Expenditures (federal & state) per
Beneficiary for all states
$3,657
$4,781
30.7%
Sources: Congressional Research Service, based on Medicaid Statistical Information System (MSIS)
data from CMS (downloaded January 24, 2008). FY2004 data were used for Maine as an estimate of
FY2005 data.
Notes: Medicaid expenditures include both federal and state shares as well as Medicaid-expansions
spending under the State Children’s Health Insurance Program (M-SCHIP). Spending for the territories
and amounts not directly tied to service use by individuals (e.g., administrative costs) are excluded.
Rehabilitation service expenditures are not reported separately in financial reports submitted by states
to CMS. Data on rehabilitation expenditures in this report are estimates of overall rehabilitation
expenditures based on MSIS data reported by states to CMS. There is considerable variation in
rehabilitation services data across states, because states use different expenditure categories to report
these data.

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Guidance to States
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 and Human Services
approved 17 state plans8 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 Budget Reconciliation Act of 1989
(OBRA 1989, P.L. 101-239),9 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.
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
8 Based on a conversation with CMS staff, the 17 states approved to provide habilitative
services under the rehabilitation benefit were Arkansas, California, Colorado, Delaware,
Idaho, Iowa, Maine, Maryland, Massachusetts, Michigan, Missouri, Montana, New York,
Ohio, Oregon, Rhode Island, and Wyoming.
9 See Section 6411(g) of the Omnibus Budget Reconciliation Act of 1989 (OBRA, P.L. 101-
239).
10 CMS issues periodic policy guidance and clarification through correspondence with
states’ Medicaid directors — state Medicaid director letters, or SMDLs. These letters
generally are available on CMS website at [http://www.cms.hhs.gov/SMDL]. However, this
letter is unavailable on CMS’s SMDL website.

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payments for rehabilitation and other Medicaid expenses.11 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 as
rehabilitation.12 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 Medicaid rules.13
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.
Rehabilitation Services Proposed Rule
In August 2007, CMS issued a proposed rehabilitation services rule to more
clearly define the scope of the rehabilitation benefit for states.14 CMS officials
testified that the changes embodied in the proposed new rule were intended to clearly
11 Dennis Smith, Director, Center for Medicaid and State Operations, Centers for Medicare
and Medicaid Services, testimony to Senate Committee on Finance hearing on Medicaid
Fraud and Abuse, June 28, 2005, at [http://finance.senate.gov/hearings/testimony/2005test/
DStest062805.pdf].
12 See Medicaid Financing, States Use of Contingency-Fee Consultants to Maximize Federal
Reimbursements Highlights Need for Improved Federal Oversight, Report to the Chairman,
Committee on Finance, U.S. Senate, U.S. Government Accountability Office, June 2005,
at [http://www.gao.gov/new.items/d05748.pdf].
13 See Department of Health and Human Services, Office of Inspector General, Audit of
Iowa’s Adult Rehabilitation Services Program, (A-07-03-03041), March 23, 2005, and
Review of Medicaid Community Mental Health Center Provider Services in Indiana, (A-05-
05-00057), April 5, 2007, at [http://oig.hhs.gov/oas/oas/cms.html].
14 Medicaid Program; Coverage for Rehabilitative Services, Proposed Rule, Federal
Register, vol. 72, no. 232, August 13, 2007.

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define allowable services that may be claimed as rehabilitative services under
Medicaid.15 The major changes addressed in the proposed rule are outlined below.
Rehabilitation Plans
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.
State Plan Amendments and Reimbursement
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.
Intrinsic Part/Excluded Services
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, therapeutic foster care (TFC)16
is cited in the proposed rule as an example of a non-covered 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
15 See Testimony of Dennis Smith, Director, Center for Medicaid and State Operations,
Centers for Medicare and Medicaid Services, Before the House Committee on Oversight and
Government Reform, on the Administration of Regulatory Actions on Medicaid: The Effects
on Patients, Doctors, Hospitals, and States, November 1, 2007, at
[http://oversight.house.gov/documents/20071101163813.pdf].
16 Therapeutic foster care (TFC) programs place troubled youth (serious emotional and
behavioral issues) with trained foster families. Although TFC programs vary,
children/adolescents are placed for six to seven months in a structured environment where
they are rewarded for positive social behavior and penalized for disruptive and aggressive
behavior. TFC also separates repeat juvenile offenders from their delinquent peers and
provides close supervision at school, as well as at home.

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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.
Settings
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.
Rehabilitation versus Habilitation Services
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.
Financial Impact of Rehabilitation Proposed Rule
Estimates of the financial impact of the proposed rule vary. Some claim that
CMS underestimated the impact of the rehabilitation proposed rule and other

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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-FY2013.18
Various Perspectives on Interim Final Rule
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 approaches, while well-intentioned, may be problematic with
rehabilitation beneficiaries.19 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
17 See The Administration’s Medicaid Regulations: State-by-State Impacts, United States
House of Representatives, Committee on Oversight and Government Reform, Majority
Staff, March 2008, at [http://oversight.house.gov/features/medicaid08].
18 Ibid.
19 See, for example, The National Alliance on Mental Illness (NAMI), Comments on
Proposed Regulations on Coverage for Medicaid Rehabilitative Services, October 10, 2007
(p. 2), [http://www.nami.org/Content/ContentGroups/Policy/Issues_Spotlights/Medicaid/
comments_on_rehab_regs_for_consumersfamilies10.10.doc].

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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 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, known as the EPSDT benefits,21 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 whether children were born with
the conditions or developed them later.22
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, which would
include most children in foster care.23
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, and incentives to treat MR/DD
individuals in institutional settings.24 If MR/DD individuals and their families were
20 Special-needs children are defined by their health care needs or diminished health status,
not by family income. See First Focus, CMS’ Medicaid Regulations: Implications for
Children with Special Health Care Needs, Sara Rosenbaum, J.D., March 2008, [http://first
focus.net/Download/CMS.pdf].
21 Under the Early and Periodic, Screening, Diagnostic andTreatment (EPSDT) benefit,
Medicaid children under age 21 in CN groups receive comprehensive screening services and
preventive care, and are guaranteed access to all federally coverable services necessary to
treat a problem or condition. EPSDT may be offered to MN children.
22 See First Focus, CMS’ Medicaid Regulations: Implications for Children with Special
Health Care Needs, Sara Rosenbaum, J.D., March 2008 (pp. 15-17), [http://firstfocus.net/
Download/CMS.pdf].
23 See Child Welfare League of America (CWLA) Comments to CMS on Proposed Rule
CMS-2261-P: Coverage for Rehabilitative Services, October 12, 2007, [http://www.cwla.
org/advocacy/medicaid071012.htm].
24 See, for example, Consortium for Citizens with Disabilities, comment letter on Proposed
Medicaid Rehabilitation Rule, October 10, 2007 (p. 3), [http://www.c-c-d.org/task_forces/
(continued...)

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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 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 providers.26
Legislative and Other Proposals
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.
24 (...continued)
health/CCD%20Comments%20final%20final.pdf].
25 See New York Times, Governors of Both Parties Oppose Medicaid Rules, Robert Pear,
February 24, 2008.
26 See, for example, Arizona Health Care Cost Containment System (AHCCCS) Comments
on Medicaid Rehabilitation proposed rule, October 12, 2007, at [http://www.ahcccs.state.az.
us/Regulations/LawsRegulations/CMSRulesSummary/0938-AL81_Comments.pdf].

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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 one-year moratorium 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 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 after March 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 is expected to sign H.R. 2642.
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.

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