How Will the HCBS Settings Rule Impact New Construction of Assisted Living and Adult Day?

Members | January 22, 2018 | by

The Centers for Medicare & Medicaid Services (CMS) released additional Frequently Asked Questions and guidance on how CMS will review requests to build new settings in categories that are presumed to be institutional in nature according to home and community-based services settings final regulation.

The Centers for Medicare & Medicaid Services (CMS) released additional Frequently Asked Questions and guidance on how CMS will review requests to build new settings in categories that are presumed to be institutional in nature according to home and community-based services settings final regulation.

New Construction 

Can a state’s request for heightened scrutiny of a setting under development or new construction be approved before the setting is operational and occupied by beneficiaries receiving Medicaid funded home and community-based services (HCBS)? No, a setting presumed to have the qualities of an institution cannot be determined to be compliant with the home and community-based setting regulatory requirements until it is operational and occupied by beneficiaries receiving services there.

It was CMS’ expectation that after the publication of the final regulation, stakeholders would not invest in the construction of settings that are presumed to have institutional qualities, but would instead create options that promote full community integration, per the HCBS Settings regulatory requirements found in 42 CFR 441.301(c)(4)(i), 441.710(a)(1)(i), and 441.530(a)(1)(ii), respectively.  

As states, counties, developers and other stakeholders are considering the construction of new settings in which Medicaid funded HCBS would be provided, CMS notes that these regulatory provisions must be taken into account and adhered to. 

CMS recognizes that there may be some locations where the ability to construct additional settings in which Medicaid-funded HCBS would be provided may be significantly limited, such as heavily built-up urban areas, states may request a heightened scrutiny review of newly operational settings meeting any of the presumed institutional scenarios described in the regulation. However, CMS strongly encourages states to limit the growth of these settings. LeadingAge believes that there are many reasons why providers build Medicaid -funded Assisted Living and Adult Day programs co-located in a nursing home or hospital. For example, the low Medicaid reimbursement for these services require providers to share services with the nursing home and /or hospital. The savings achieved from this operational efficiency enables the Assisted Living and Adult Day provider to be financially stable. This scenario is especially true for HCBS in rural areas. Not for profit providers may have donated land that is on the campus of their nursing home that they could use for Assisted Living or an Adult Day Center. Also, many times an Assisted Living is co-located with a nursing home so a spouse requiring nursing home care can still be close to a spouse or adult child that is residing in the Assisted living. LeadingAge will discuss with CMS the negative ramifications of applying the HCBS settings rule based on the location of the HCBS services instead of focusing all their full attention to ensuring that the participants/residents have choices through the person-centered planning process. 

Person-centered planning regulatory requirements 

The guidance also identifies the components of person-centered planning regulatory requirements that are in effect now and those that are part of the home and community-based settings transition period in effect through March 2019. LeadingAge is pleased that CMS provided more details on the modification process that would be in place if components of the final rule could not be achieved due to safety concerns for the resident/participant.  

CMS emphasizes that it is essential that the modifications process be used with strict adherence to its very specific requirements. The modifications process must


  • Be highly individualized 
  • Document that positive interventions had been used prior to the modifications 
  • Document that less-intrusive methods did not successfully meet the individual’s assessed needs. 
  • Describe how the modification is directly proportionate to the specific assessed need 
  • Include regular data collection 
  • Have established time limits for periodic reviews 
  • Include informed consent
  • Be assured to not cause harm. 


Controls on personal freedoms and access to the community cannot be imposed on a class or group of individuals. Restrictions or modifications that would not be permitted under the HCBS settings regulations cannot be implemented as “house rules” in any setting, regardless of the population served and must not be used for the convenience of staff.

States can use a variety of strategies to assure the efficacy of the modifications process, such as:


  • Require providers to ensure that their own policy documents comply with the modifications provisions of federal Medicaid HCBS regulations 
  • Establish a frequency for providers’ periodic reviews of modifications to determine whether or not the modification continues to be necessary or whether it can be removed or an alternative modification that is less restrictive can be created 
  • Use the state’s quality assurance process (e.g. licensing reviews, case management visits, etc.) to sample individual person-centered service plans that include modifications and check them against the criteria in the federal rule 
  • Create a statewide training system for case managers and provider representatives who are involved in writing plans that include modifications (especially targeting providers who serve larger numbers of individuals with the kinds of behaviors that may require modifications) 
  • Set a policy of external human rights review of plans or samples of plans that contain modifications, and 
  • Establish data collection protocols to ensure ongoing monitoring and awareness related to modifications and periodic review of modifications.


CMS notes that further technical assistance is forthcoming to detail how the home and community based settings requirements can be implemented for individuals with dementia or Alzheimer’s disease. CMS intends to feature promising practices in use by providers or otherwise available for implementation that can facilitate compliance with the regulation as well as provide guidance on implications for new construction.