The Centers for Medicare & Medicaid Services issued guidance on October 9 explaining how states must report the share of certain Medicaid home and community-based services payments spent on direct-care worker compensation.
The guidance, issued through State Medicaid Director Letter 26-005, explains a reporting requirement established in the 2024 Medicaid Access Final Rule. It addresses covered services, compensation calculations and implementation expectations for fee-for-service and managed care. Read the CMS guidance.
For states, health plans and providers, the immediate priority is preparing the information needed to support reporting. Waiting until 2028 could leave organizations reconstructing a year of payment and workforce records.
Which services are covered?
The reporting requirement covers four service categories: homemaker, home health aide, personal care and habilitation.
It applies to covered services delivered through specified Medicaid HCBS authorities, including sections 1915(c), 1915(i), 1915(j), 1915(k) and applicable section 1115 demonstrations. Both fee-for-service and managed care arrangements are included.
A service’s name alone does not establish whether it belongs in the report. CMS distinguishes these HCBS authorities from services furnished under section 1905(a), which are outside this requirement’s scope.
Organizations should therefore map services to their Medicaid authority before designing a reporting template. A broad request for every home health or personal care payment could produce an inaccurate reporting population.
The dates states and plans should track
The reporting schedule contains several milestones with different purposes.
| Milestone | What it means |
|---|---|
| July 9, 2027 | States must submit readiness information describing how they will meet the reporting requirements. CMS addresses both fee-for-service and managed care readiness. |
| July 9, 2028 | The fee-for-service reporting requirement becomes applicable. |
| First contract rating period beginning on or after July 9, 2028 | The reporting requirement becomes applicable for managed care. The operational start can therefore vary by contract cycle. |
These are readiness and applicability milestones, rather than one universal annual submission date.
The technical specifications use the previous calendar year as the measurement period. Reporting due in 2028 therefore draws on January–December 2027 data.
CMS anticipates an annual submission window around September 1–December 31, starting in 2028. Treat this as an expected schedule, subject to the reporting form’s approval process.
The practical implication is that organizations should settle their data definitions and collection responsibilities before the first measurement year begins.
How the compensation percentage works
The reporting calculation compares eligible direct-care compensation with covered Medicaid payments after specified costs are excluded:
Compensation percentage = eligible direct-care compensation ÷ (covered Medicaid payments − excluded costs) × 100
For illustration, assume a reporting category has $1 million in covered payments, $50,000 in excluded costs and $665,000 in eligible compensation. The resulting percentage is 70%.
This example explains the arithmetic; it does not establish a compliance threshold. CMS lists no minimum performance level for this reporting metric. The specifications also require service-level aggregates and distinctions for certain self-directed and facility-cost-inclusive services. Sampling is not permitted.
What counts as compensation?
The regulatory definition includes wages and salaries, qualifying benefits and applicable employer payroll taxes. Direct-care roles extend beyond personal care attendants and can include nurses, direct support professionals and workers providing clinical supervision.
Excluded costs cover specified training, travel and personal protective equipment expenses. The regulation also excludes certain beneficiary-directed arrangements in which the beneficiary sets worker payment rates, alongside specified Indian Health Service and Tribal providers.
CMS distinguishes training and travel expenses from paid worker time. Qualifying training materials or mileage expenses may be excluded, while compensation for workers’ training or travel time can count when it forms part of their employment duties.
That distinction makes payroll and accounting classifications an important implementation issue.
Five preparation priorities for states and health plans
The following recommendations are editorial analysis based on the reporting framework.
1. Establish a shared inventory of covered services.
States and plans should document which programs, service codes, providers and payment arrangements fall within scope. Assign someone to resolve ambiguous classifications, including bundled services.
A written inventory gives providers a consistent starting point and reduces the risk that different plans request different information for the same service.
2. Agree on definitions before collecting spreadsheets.
Create a common data dictionary covering payments, compensation, excluded costs and adjustments. Include worked examples for employees whose responsibilities span direct care and other duties.
Well-defined healthcare data models can help organizations maintain consistent definitions across payment, payroll and reporting systems. This is an implementation recommendation, not a CMS requirement to adopt a particular technology or data standard.
3. Connect payment records with provider workforce information.
Claims and encounter records are unlikely to answer every workforce compensation question on their own. Plans should identify which information they already hold and which information providers must supply.
A practical collection process should assign responsibility for each field, identify supporting records and explain how errors will be corrected. Smaller providers may benefit from examples and simple templates.
4. Test reconciliation before the measurement year ends.
Run an early operational test using representative provider arrangements. Check for duplicate payments, missing compensation categories, inconsistent service assignments and expenses counted twice.
Use the exercise to improve the collection process. An implementation pilot should not be confused with permission to submit a sampled federal report.
Organizations should also keep a record of assumptions and corrections so the final figures can be reproduced.
5. Coordinate state oversight and managed care responsibilities.
States retain responsibility for meeting the federal HCBS reporting requirements, including when applicable services are delivered through managed care.
Operationally, state agencies and plans should agree on collection schedules, provider communications, quality checks and escalation procedures. Contract review may help determine whether existing provisions support the information exchange needed.
A shared calendar can prevent provider requests from arriving too late for validation and correction.
What leaders should do next
The most useful near-term deliverable is a reporting readiness plan: a defined service population, agreed data definitions, named owners and a tested collection process.
For health plans, an early conversation with the state Medicaid agency can establish how plan and provider information will support the state’s submission. For providers, reviewing payroll categories and payment records now can reduce reconstruction work later.
![Medicaid Asset Protection Trust [MAPT] Rules, Cost & Risks](https://ushealthinsights.com/wp-content/uploads/2026/07/Medicaid-Asset-Protection-Trust-MAPT-Rules-Cost-Risks.png){kind=small}
