The purpose of service criteria is to define medical necessity and to manage overall utilization. Controlling utilization is typically understood to mean placing limits on either the number of times a service may be provided, or the period over which it can be provided, for a given condition.2 For a Federally mandated service, such as Home Health, states are required to define the service in the State Plan and may specify reasonable limitations to the defined service. States also develop the process by which they determine an individuals medical necessity for a service, a process which is not contained in the State Plan and about which the Centers for Medicare & Medicaid Services (CMS) has historically issued little guidance. Some states have included medical necessity criteria in their State Plan, but these are considered by CMS to be part of the definition of reasonable limitations.
These Federal requirements allow states considerable flexibility, because reasonable limitations and medical necessityare not defined further in Federal law or regulation (although limitations must be approved by CMS in the State Plan). States often interpret the medical necessity criterion to mean that pre-authorization by a medical professional is needed. But medically necessary services do not have to be medicalservices, that is, services provided by licensed medical personnel; they may be services and supports provided by personal assistants or home health aides to address functional needs. (See discussion of medical necessity under the heading Misperceptions, later in this chapter.)
Service criteria generally include some measures of functioning, such as the ability to perform activities of daily living (ADLs) and instrumental activities of daily living (IADLs) without assistance. ADLs include eating, bathing, dressing, toileting, transferring (e.g., from a bed to a chair), and maintaining continence. IADLs include medication management, money management, light housework, laundry, meal preparation, transportation, grocery shopping, and using the telephone.3 While IADL performance requires higher cognitive functioning than does ADL performance, assistants who provide help with IADLS, other than medication and money management, generally need less training than those who provide help with ADLs. This is particularly true when ADL assistance requires tasks covered by a Nurse Practice Act, such as tube feeding.4
Optional benefits provided under the State Plan, such as personal care services, carry no Federal statutory or regulatory provisions regarding the type or level of impairment a person must have to receive benefits. The only Federal rule for optional benefits is that the state must make the service equally available to all beneficiaries who satisfy the service criteria that the state sets as defined and limited in the State Plan.
States are permitted to choose the measures they use to assess the particular level and/or combination of needs a person must have to be eligible. A state may require a person to have 2 out of 5 ADL impairments or 4 out of 12 ADL and IADL impairments. This flexibility has resulted in considerable variation in the service criteria for states Personal Care programs.
Determining Medical Necessity
Examples of questions that could be relevant in determining medical necessity include
SOURCE: CMS Office of General Counsel.
Designing Medicaid service criteria can be a major challenge for states, because competing policy objectives are involved. On the one hand, states want to ensure that service criteria identify all individuals who have a legitimate need for assistance. On the other hand, states must operate their Medicaid programs in accord with their budgets. Because the number of people served is a major determinant of program costs, setting service criteria is a key financial decision.
Setting service criteria based on a trade-off between coverage and costs can have unintended effects on other parts of the long-term care system. For example, because nursing homes are expensive, a state may establish stringent level-of-care criteria for Medicaid coverage. Although, the provision of home and community services through an HCBS waiver program can be considerably less expensive, Federal law requires that states use the same level-of-care criteria for nursing homes and HCBS waiver programs. Thus, stringent institutional criteria can be an obstacle to serving people through HCBS waivers, because some people who meet the criteria may be too impaired to be cared for safely and cost-effectively in the community unless they have extensive informal help. Very stringent service criteria may also result in premature institutionalization, if informal care networks burn out because paid assistance is not available until a person becomes severely impaired.
Alternatively, states may decide they would rather serve more people and control utilization (and therefore costs) by limiting the amount of services provided and reimbursement rates. The problem here is that the more restrictions the state imposes on the amount, scope, and duration of services, the more likely it is that people with significant needs will be inadequately served in the community and end up in an institution at a greater cost to the state.
Such trade-offs suggest that there is no correct decision regarding service criteria. An approach that is appropriate in one state may not work in another. This underscores the need to make decisions about service criteria within the broader context of a states long-term care system--which includes both institutional and home and community services and, with respect to the latter, several alternative funding streams.
States use various approaches to ensure that a programs service criteria not only match the policy goals for that program but also fit with and meet the goals of the larger long-term care system. Several states do so by using an assessment process that starts with an eligibility determination for the highest level of need--nursing facility/waiver services. If applicants do not meet the nursing facility level-of-care criteria, they are then considered for other long-term care programs that have progressively lower need requirements. The waiver program may require three ADL limitations, for example, but the Medicaid Personal Care program may require only two, and a state-funded program for those not eligible for Medicaid may require only one ADL plus one IADL impairment.
The remainder of this chapter provides information about Federal provisions related to the selection of service criteria for four Medicaid benefits: Home Health, Personal Care, HCBS waivers, and State Plan HCBS. The first three benefits account for the vast majority of Medicaid spending on home and community services; State Plan HCBS became an option in 2007. (See Chapter 4 for a more detailed description of these service options.) While the same or similar services may be covered by all three benefits (e.g., assistance with ADLs), states have more flexibility when defining service criteria for optional than for mandatory benefits.