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New Proposed Regulations on Rehabilitative Services

August 10, 2007

The Centers for Medicare and Medicaid Services (CMS) has just released the long-awaited proposed rule for rehabilitative services.  Rehabilitative services is an optional service under Medicaid, but currently almost all states use the option to provide a wide variety of services in their mental health systems and in other systems that serve adults and children with mental illness, such as the child welfare and education systems.  Services typically provided under this option include Assertive Community Treatment, social skills training, basic living skills, day treatment, psychosocial rehabilitation programs, family education, education and management of mental illnesses, and other services. 

Medicaid has increasingly funded mental health services, and its share of the mental health spending by states has increased substantially over the years to become the largest source of public mental health spending.  In addition, the Urban Institute analyzed 2004 Medicaid data and concluded that 73% of Medicaid beneficiaries receiving rehabilitative services had mental health treatment needs, and these beneficiaries are responsible for 79% of rehabilitative services spending.  For these reason, these regulations will have a critical effect on individuals with serious mental illness.

Like all Medicaid documents, these proposed rules and the introductory guidance given by the agency are very complicated.   Over the coming weeks, NAMI National will be meeting and speaking with consumers, families, providers and administrators at all levels and in different agencies to determine the impact of the regulations.  When we have more definitive information, we will share it.  In the meantime, we are offering this summary of the regulations in the areas that merit further investigation. 

A New Requirement for Treatment Planning

The proposed regulations have some positive aspects, including an emphasis on a detailed treatment plan to achieve recovery and periodic review of a treatment plan at least every year.  The agency also recommends “person centered planning.”  The process specifically includes the individual, their family and others and requires that if the current services are not producing the desired results, then they should be changed.  NAMI appreciates the emphasis on good outcomes and recovery and will have further conversations with providers and others about the impact of these new requirements.

The regulations also make clear that core rehabilitative services can be provided, including assistance with cooking and socialization and recreational activities that are therapeutic.  And they encourage states to provide rehabilitation services for mental health and addiction disorders, consistent with the New Freedom Commission recommendations.

The Proposed Rules Distinguish Rehabilitative Services from Services Provide by Other Systems, and Exclude Certain Services 

The proposed rules also have some provisions that are cause for deep concern.  For example, the rules attempt to draw a line between services that should be reimbursed by Medicaid, and services that should be funded by other programs. The regulations specify that Medicaid reimbursement is not available if:

The services are furnished through a non-medical program as either a benefit or administrative activity, including services that are intrinsic elements of programs other than Medicaid, such as foster care, child welfare, education, child care, vocational and prevocational training, housing, parole and probation, juvenile justice, or public guardianship.

While the agency states in its guidance that participation in these other programs does not preclude a person from receiving rehabilitative services, they note that these services may only be reimbursed if they are not the responsibility of the other program.  Also, the guidance to the regulations states that rehabilitation does not include “services furnished by other programs that are focused on social or educational development goals and are available as part of other services and programs.”

The regulations further specify that routine supervision by “teacher’s aides” or “recess aides” is not reimbursable and also specifically disallow payment for therapeutic foster care services, except for rehabilitative services that are “distinct from packaged foster care services.”

Over the coming weeks, we will be carefully examining these sections to determine the impact on children with serious mental illnesses who are served by other systems and who receive therapeutic foster care and educational aide services.  We are particularly concerned about therapeutic foster care services because this is a service with a very strong evidence base for effectiveness in helping children recover and avoid institutional settings.

The Proposed Rules Require That Rehabilitation Services Must Be Directed at Measurable Reductions in the Mental or Physical Disability and Restoring Functioning

Another area of potential concern is the section defining the goal of services. CMS specifies in these regulations that all services must be directed at measurable reductions in the diagnosed disability, and restoring functional abilities.  The guidance to the rules specifies that “this benefit is not a custodial care benefit for individuals with chronic conditions, but should result in a change of status.”  However, the agency also notes that when rehabilitation goals are contingent on the individual maintaining a current level of functioning, then they can be paid for if they are necessary to achieving the rehabilitation goal.  How this language will be interpreted is one of the many open questions under this rule.  Depending on how this is interpreted, people with chronic, serious mental illness who need services to maintain community living or other goals could be affected.

The regulation also clearly prohibits states from billing habilitation services under the rehabilitation option.  Under a previous law, the Omnibus Reconciliation Act of 1989, a number of states could continue to offer habilitation services, but this proposed rule would no longer allow them to do so.  This is of particular concern to people with developmental disabilities.

We Need Your Help in Determining the Consequences of these Proposed Rules 

This analysis is very preliminary and more details will emerge as the regulations get further review.  As noted, these rules are extremely complex and raise many questions about how they will be interpreted by CMS, mental health and other systems in states, and providers.  Depending on the interpretations, access to critically needed mental health treatment could be affected.

We ask that advocates talk locally with consumers and families, providers, administrators at the state, county and local levels and others to determine the possible effects of these rules on their communities.   We at NAMI National would appreciate hearing your views and the views of your community.  Please send any thoughts and comments to Mary Giliberti, Director of Public Policy and Advocacy at

Also, the public has 60 days to comment on the regulations and it will be important for grassroots advocates to send their comments directly to the Center for Medicare and Medicaid Services.  Instructions for doing so are included in the introduction to the proposed regulation.  In the coming weeks, NAMI National will be sending state and affiliate leaders and members suggested comments on the proposed rules as guidance.  It is important for CMS to hear from many of us about how the proposed rules will impact consumers and families.   There is real value in including personal stories about the potential impact of the proposed rule changes.