CMS defines Financial Management Services (FMS) as follows:
Service/function that assists the family or participant to (a) manage and direct the distribution of funds contained in the participant-directed budget; (b) facilitate the employment of staff by the family or participant by performing as the participants agent such employer responsibilities as processing payroll, withholding and filing Federal, state, and local taxes, and making tax payments to appropriate tax authorities; and (c) performing fiscal accounting and making expenditure reports to the participant and/or family and state authorities.67
The provision of financial management services is essential when implementing participant direction programs for several reasons.
Under the §1905(a) State Plan Personal Care benefit, the HCBS waiver authority, and the§1915(i) authority, payments for services can not be made directly to participants, either to reimburse them for expenses incurred or to enable them to directly pay a service provider. Rather, payments on the participants behalf must be made by an intermediary organization (i.e., either a qualified Medicaid provider or an entity under administrative contract with the state).68
Under the §1915(j) authority, CMS does not require states to mandate the use of financial management services for participants who elect the cash option. Instead, these participants may choose to retain responsibility for some or all of their fiscal and employer-related responsibilities. However, even if participants choose to receive some benefits in cash and distribute workers payroll checks directly, they may still choose to have an FMS organization manage the Federal and state tax filings and deposits and generate payroll checks for their workers.69
Some FMS organizations may act as a neutral bank for receiving and disbursing public funds (i.e., Fiscal/Employer Agents).70
Financial management services provide fiscal accountability for state and local government agencies, and safeguards for individuals enrolled in participant direction programs and their workers, by ensuring that payroll,71 workers compensation insurance policy management, and vendor payment tasks are performed accurately and in accordance with Federal, state, and local rules and regulations, and in a timely manner.
Some FMS organizations (i.e., Fiscal/Employer Agents) assist program staff and participants by providing a variety of financial reports related to the receipt of public funds, service use, and payments. These reports inform participants about their service use and related expenditures and also act as a fiscal and/or fraud monitoring tool for them and for program staff.
At the request of participants who are acting as their workers managing employer, an FMS provider who has a joint/co-employment arrangement with participants (as in the Agency with Choice or Public Authority/Workforce Council models) can also provide worker-related services (e.g., recruitment, training, and supervision, and the provision of emergency backup staff).72
States principally use two FMS models to implement Medicaid and state-funded participant direction programs: the Fiscal/Employer Agent (F/EA) model and the Agency with Choice model. The F/EA model includes two specific types: Government F/EA and Vendor F/EA. All of these models are described below.
1. Fiscal/Employer Agent Model
Fiscal/Employer Agents are most effective for implementing participant direction programs, particularly those that allow participants to have individual budgets, for several reasons. First, using an F/EA provides participants a high degree of choice and control over their workers as their common law employers, while reducing their employer-related burden by managing the payroll and bill payment tasks. Second, using an F/EA provides safeguards for participants by ensuring that all required taxes are paid and all Department of Labor and workers compensation insurance requirements are met. Third, using an F/EA can provide fiscal accountability for states. Both the Government and Vendor F/EA models operate under §3504 of the Internal Revenue Service (IRS) code.73
Government Fiscal/Employer Agents. When states implement participant direction programs using a Government F/EA, the costs associated with providing financial management services must be billed as an administrative expense for the purpose of claiming Federal Medicaid matching funds because participants freedom of choice of provider is limited.74 Thus, when evaluating the feasibility of implementing a Government F/EA, a states Medicaid agency and program staff should assess the economic impact of using this model on the receipt of Federal Medicaid matching funds and the administrative costs to the state associated with monitoring multiple F/EA providers.
VendorFiscal/Employer Agents. When states implement participant direction programs using a Vendor F/EA, states may engage vendor entities--either under contract or as qualified Medicaid service providers, or both--who have the knowledge, experience, resources, and the infrastructure necessary to provide effective fiscal services. This model enables states to negotiate cost-effective fees for F/EA services rendered, rather than providing these services in-house. States also have the option to (1) select a discrete number of Vendor F/EAs, using a competitive solicitation process, and bill F/EA costs as an administrative expense (at a uniform Federal matching funds rate of 50 percent); or (2) develop Medicaid F/EA provider standards and provide freedom of choice of provider to participants, and bill F/EA costs as a service expense for the purpose of claiming Federal matching funds (at a Federal matching funds rate that ranges from 50 to 83 percent).75
For Vendor F/EA services to be reimbursed as a waiver service, states must meet a number of Federal requirements. States must develop a service definition that includes a set of provider qualifications and the tasks that will be performed by the Vendor F/EA and any reporting agent. States must verify a providers qualifications before services are initiated, and must provide a detailed description of the frequency and methods by which provider qualifications will be re-verified and ongoing performance will be monitored.
States must treat Vendor F/EAs as they would any Medicaid service provider. States may not arbitrarily limit the number of Vendor F/EAs available to participants as this would restrict their freedom of choice of provider and disqualify the state from claiming Vendor F/EA expenses as a waiver service for Federal matching funds purposes. Finally, states must monitor Vendor F/EAs and any reporting agents performance on an ongoing basis.
A significant number of states limit the number of Vendor F/EA providers and forgo the receipt of Federal service matching funds, called Federal Medical Assistance Percentage (FMAP), in order to obtain the cost efficiencies from working with and monitoring fewer F/EA providers.76 The majority use some type of competitive solicitation process to select one or more Vendor F/EA providers.
However, some states report challenges related to this strategy, such as (1) the need to write an effective solicitation document that accurately and completely reflects F/EA requirements; (2) the need to evaluate F/EA knowledge and experience for proposal review and vendor selection purposes; (3) interruptions in the continuity of F/EA providers because a satisfactory F/EA provider must rebid at the end of each contract period and may not be reselected (e.g., if they are not the lowest bidder, which may be a priority for a states purchase and property department responsible for managing the solicitation process); (4) the resources and time required to complete a solicitation, including addressing any bidder challenges; and (5) developing and executing effective performance-based contracts.
Other states provide freedom of choice of F/EA service providers for participants in order to receive Federal service matching funds.77 Again, some of these states have experienced challenges, such as (1) having sufficient knowledge of Federal and state F/EA requirements and operations to prepare Medicaid standards and execute Medicaid provider agreements effectively; (2) preparing effective protocols for certifying F/EA providers as Medicaid providers and monitoring their performance through periodic re-certification; (3) having the staff and financial resources necessary to conduct F/EA certifications and recertification/performance monitoring in a timely and effective manner; and (4) having the cost of monitoring F/EA performance exceed the additional amount a state may receive in Medicaid service match versus administrative match. Given this last challenge, states should determine how much it will cost them to monitor the performance of significant numbers of F/EAs, as this amount may well exceed the funds they would receive through FMAP.
Establishing Reimbursement for F/EA Services. States need to establish reasonable and adequate reimbursement for Vendor F/EA services (and Government F/EA services that are subcontracted to a subagent or reporting agent) that reflect the costs of providing these services. CMS has approved a variety of methods for determining reimbursement for financial management services, including the basic transaction-based reimbursement method and the modified transaction-based (per member per month or per member per day) reimbursement method. A method that is not approved by CMS is the percent of budget reimbursement method, which reimburses on the basis of a percentage of the total dollar volume of services that an FMS entity processes. This approach is not approved because it does not reflect the actual cost of providing the F/EA service.78
For a detailed description of the various F/EA models and their advantages and challenges, see the Resources section of this chapter for a link to the chapter on Fiscal/Employer Agent Services in the Self-Direction Handbook.
2. Agency with Choice Model
In contrast to the F/EA models described above, the Agency with Choice FMS model operates under a co-employment arrangement whereby employer status is shared by the participant and an agency. For IRS purposes and other considerations, the agency is the primaryor legal employer and officially hires the worker(s), processes human resource forms, and manages the payroll tasks. They also monitor the participants health and welfare, ensure that intended services are provided, and may provide guidance on recruiting, training, managing, and discharging workers. The participant or his/her representative is the secondary or managing employer. In this role, the participant or representative recruits, interviews, and selects workers, and then refers them to an agency for the completion of employment/payroll paperwork. In addition, the participant or representative trains, manages, and discharges workers (to the extent they wish to).
To be considered a bona fide participant direction model, agencies operating under this model must give participants meaningful choice and control over their workers--the authority to select, train, manage, and dismiss, as well as directing the tasks they perform. Key elements of an effective Agency with Choice program include (1) a strong commitment to the philosophy of participant direction; (2) a high level of choice and control afforded participants and their representatives; and (3) comprehensive support services, such as employer-related skills training that covers worker recruitment, selection, management, evaluation, and discharge; assistance with recruiting, hiring, and discharging workers when requested; and guidance on conducting criminal background checks, if not required by a participant-directed services program.
Each of the five Medicaid participant direction authorities acknowledge the Agency with Choice model as an option for participant direction programs and it may be used to fulfill FMS responsibilities for participants exercising employer authority, budget authority, or both. CMS provides some basic information on Agency with Choice models in the Waiver Application Instructions and Technical Guidance.79 Some states have established specific requirements for this model (e.g., New Hampshire and Pennsylvania).
In 2003, New Hampshire implemented regulations for Other Qualified Agencies that outline the requirements for entities to be certified as such in the State.80 This is the name the State uses for Agency with Choice FMS providers that furnish financial management services to participants in the States Choices for Independence HCBS waiver who are directing their personal care services. Effective July 1, 2008, Pennsylvania published an Office of Developmental Programs Administrative Bulletin entitled, Agency with Choice Financial Management Services. Among other things, the Bulletin outlines the requirements for agencies to operate as Agency with Choice FMS providers for individuals enrolled in the States Medicaid Consolidated and Person/Family-Directed Supports waivers.
Consumer Choice and Provider Qualifications
Section 1902(a)(23) of the Social Security Act requires that Medicaid enrollees must be free to choose among all willing and qualified providers. This statutory requirement applies to all Medicaid-funded services, including services furnished through HCBS waiver programs. The Act allows the Secretary of HHS to grant states a waiver of freedom of choice only in certain circumstances, and then only when other safeguards are in effect that preserve consumer choice.
Free choice of providers is absolutely necessary for individuals to direct their own services and supports (with the exception of FMS providers and counselors).81 However, the Medicaid freedom of choice statutory requirement extends only to qualified providers, and therein lies the source of limitations and/or complications when seeking to implement participant direction programs. Federal Medicaid law (whether under the Medicaid State Plan or through an HCBS waiver program) requires that a state establish required provider qualifications and agree to enroll all willing providers who meet such qualifications.
These qualifications must be reasonable (i.e., they must relate to provision of the service), and they also must comport with state law. Within these stipulations, states have considerable latitude in establishing the qualifications required of providers of home and community services. The broader these requirements, the greater will be the number of people who will qualify to provide services. Some states, however, limit provision of personal care services to entities that are licensed as home care or home health agencies or have been licensed to furnish community developmental disability services. This means, in turn, that individuals who provide home and community services and supports must be employees of such provider organizations. When provider qualifications are expressed in this fashion, they can pose barriers to promoting participant-directed services.
Some of these barriers arise from state Nurse Practice Acts provisions, which sometimes dictate that even non-health care related personal assistance be provided under the supervision of a nurse (and, not atypically, nurses who themselves must be employees of a licensed home care or home health agency). Thus, a central task for states interested in promoting participant-directed services is a thorough assessment of their provider qualifications to determine whether they need to broaden the types of organizations and individuals who may qualify as providers.
It is not necessary to limit providers to traditional service agencies. Provider qualifications may be expressed solely with respect to the competencies and skills individual workers must possess. Many types of Medicaid home and community services may be furnished by friends, neighbors, and family members--including spouses and parents of minor children under some authorities, at the states option. In various states, families are encouraged to seek out individuals in their communities who can provide some types of services and supports for people with developmental disabilities.
Revising provider qualifications can be vital not only in promoting participant-directed services but also in expanding the potential sources of services and supports for people with disabilities more generally. However, no providers on the Office of the Inspector General excluded provider lists may furnish Medicaid services, whether directed by participants or provided by agencies.