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Medicaid's 80/20 Rule: New Restrictions on Funding for Home and Community Based Services

    Client Alerts
  • June 27, 2024

In spring 2024, the Centers for Medicare and Medicaid Services (CMS) finalized the Medicaid access rule, which includes a provision that requires that 80% of Medicaid payments for most Medicaid-funded home health aide, personal care, and homemaker services, be spent on compensation for direct care workers (including clinical supervisors) furnishing these services. This 80/20 rule leaves only 20% of Medicaid payments for administrative overhead or profit. The rule, which applies to home and community based services (HCBS) that provide Medicaid beneficiaries opportunities to receive services in their own home or community, is anticipated to be effective July 2030.

There are limited exceptions to the 80/20 rule. States administering Medicaid programs can establish a hardship exemption based on a transparent state process and objective criteria for providers facing extraordinary circumstances. States can also establish a separate performance level for small providers meeting state-defined criteria, allowing them to meet a lower minimum percentage of funds to compensate direct care workers. The 80/20 rule also does not apply to the Indian Health Service and tribal health programs.

Costs for eligible training expenses, travel costs, and personal protective equipment for direct care workers are excluded from minimum performance level calculation. This means that these costs can be deducted from total Medicaid payments received for these services before the direct care worker compensation percentage is determined.

Without an increase in rates, the 80/20 rule may have a significant negative effect on the financial feasibility of operating HCBS. Even without the additional restrictions of the 80/20 rule, the low Medicaid reimbursement rates for these services already make it challenging for many operators to make a profit. Requiring operators to spend 80% of these low rates on compensation may make it more likely that operators will choose not to participate in Medicaid, which will likely further reduce access to home-based service in rural and other underserved areas.

Leading up to the effective date in July 2030, operators should keep abreast of any announcements by state Medicaid offices on the anticipated criteria for hardship exemptions and separate performance levels for small providers to assess whether they may qualify. It remains to be seen whether states will reexamine their HCBS rates in response to the rule. More than ever, it will be crucial for HCBS providers to collaborate with counsel that is familiar with the intricacies of the Medicaid access rule and state Medicaid rules.

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