CMS Guidance Addresses Payment Options Under New FLSA Obligations

The Centers for Medicare and Medicaid Services (CMS) has released an informational bulletin intended to assist states in understanding Medicaid reimbursement options that will enable them to account for the cost of overtime and travel time that may be compensable as the result of the changes to the Department of Labor’s (DOL’s) regulations regarding domestic service employment under the Fair Labor Standards Act (FLSA). The DOL Final Rule modified the “third party employment” regulation to prohibit employers other than the individuals receiving services or their families or households from claiming the companionship services exemption from minimum wage and overtime or the live-in domestic service employee exemption from overtime. Based on the law described in new DOL guidance CMS anticipates that many states will determine that, for purposes of the FLSA, home care workers in self-direction programs have joint third party employers in addition to being employed by the beneficiary.

After states and other entities evaluate their status as potential third-party employers, CMS points out, states will need to evaluate their self-directed (and other) program structures and policies to ensure compliance with FLSA requirements. CMS expects that many states will incorporate the new provisions for overtime and travel in order to ensure that individuals are able to remain in their homes with their preferred workers, but also anticipates “that some states, due to budgetary constraints, may determine the need to implement policies to limit the use of overtime or to minimize the need for compensable travel time between beneficiaries.” When states impose such limitations on overtime or the use of compensable travel time, CMS says, “they will need to develop strategies that continue to protect individuals’ access to the services and supports authorized in his/her person-centered plan.” CMS emphasizes that “states should not only consider Medicaid requirements, but also those under the Americans with Disabilities Act and the Supreme Court’s decision in Olmstead v. L.C.”

CMS points out that states that establish an individual budget for each person in self-direction will need to consider “how their programs address situations when a worker employed by the third party employer provides services to more than one beneficiary in a given week,” including making “adjustments to the reimbursement made to the Financial Management Services (FMS) or other third parties to account for the FLSA requirements.” The agency identifies two major issues for states to consider:

  1. Situations in which the cumulative hours worked for all beneficiaries result in overtime costs that are not attributable to any one person’s use of services, but must be paid by the third party employer, and
  2. Compensable worker time associated with travel between beneficiaries (e.g., from one person’s home to another) that is owed to the worker by the third party employer, but which is not a direct Medicaid service attributable to any one beneficiary.  

CMS indicates that while “overtime costs and compensable travel time costs that are incurred by a direct care worker cannot be considered administrative costs in the Medicaid program,” such costs are reimbursable under Medicaid if allocated as “reasonable costs of delivering a covered Medicaid service.” The agency “strongly urges” that, since the costs that result from a provider working for multiple beneficiaries are beyond the control of the individual service recipient, they be “distributed across all the individuals served by a joint employer without being deducted from the individually controlled self-direction budget.”

The Informational Bulletin offers “Potential Reimbursement Options When Self Direction Programs Involve Direct Service Workers who Provide Services to More than one Individual per Week.” These include:

  1. “A new reimbursement option under which a financial management services agency would submit claims for each self-directed consumer to the Medicaid agency that includes: 1) the actual service costs incurred from each individual (to be deducted from his/her authorized self-directed budget, which could include, if authorized, overtime costs incurred just for that individual beneficiary); and 2) a per member/per month service fee negotiated with the state to cover expected overtime and travel costs across the FMS’ book of business;
  2. “allocating the actual compensable overtime and travel costs that workers accrue across all of the beneficiaries that received Medicaid reimbursable services from the third party employer. Medicaid would reimburse actual overtime and travel costs as a cost of providing service, divided amongst beneficiaries, but the costs would not be deducted from individual self-directed budgets.” Payments for shared overtime and travel “would be factored into service cost across all beneficiaries,” and the overtime and travel time funding “becomes a FFS reimbursement from Medicaid to the operating agency.”

The guidance also offers examples of “reimbursement approaches a state Medicaid program could use when the state sets the rates and authorizes the number of hours or other units of service a beneficiary can receive.” These are based on use of an hourly or other unit reimbursement rate rather than an overall service budget controlled by the beneficiary.

FMI: The Informational Bulletin can be read at