Practical guide · Rules and compliance
The HCBS settings rule, explained for providers.
Published 2026-10-28 · Updated 2026-10-28
The HCBS settings rule is the federal Medicaid rule that says what a home or community-based setting must be like for Medicaid to pay for services there. It applies to group homes and other residential settings and to non-residential settings such as day programs. This guide explains the requirements in plain language. Your state's transition plan and licensing rules say how it is applied and checked where you operate.
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Key points
The short version.
- The rule applies to residential and non-residential HCBS settings.
- Every setting needs community access, choice, rights and autonomy.
- Group homes also need leases, lockable doors, food and visitor access.
- Restrictions are individual, documented in the plan with eight conditions.
- Settings presumed institutional need heightened scrutiny.
- The state transition period ended March 17, 2023.
01 · Rules and compliance
What the rule is and when it took effect.
CMS published the rule in January 2014, and it took effect on March 17, 2014. For waiver services, the requirements are at 42 CFR 441.301(c)(4)-(5), with matching sections for other HCBS authorities.
States had a transition period to bring existing settings into compliance. CMS ended it on March 17, 2023 and said it would not extend it; some states received time-limited corrective action plans for specific requirements or for settings still under review.
02 · Rules and compliance
Settings that are not home and community-based.
Nursing facilities, institutions for mental diseases, intermediate care facilities for individuals with intellectual disabilities (ICF/IID) and hospitals are not HCBS settings. Medicaid HCBS cannot be delivered in them as home and community-based services.
03 · Rules and compliance
Five qualities every setting must have.
Every HCBS setting, residential or not, must have these qualities.
- Integrated in the community, with full access to work, community life, control of personal money and community services, to the same degree as people who do not receive Medicaid HCBS.
- Chosen by the person from options that include settings not specific to disability and, for housing, a private unit; the options are documented in the person's plan.
- Protecting privacy, dignity and respect, and freedom from coercion and restraint.
- Supporting the person's own initiative, autonomy and independence in life choices, without regimenting daily activities, the environment or who they spend time with.
- Supporting the person's choice of services and supports and who provides them.
04 · Rules and compliance
Extra conditions for group homes and other provider-controlled housing.
When the provider owns or controls the home, five more conditions apply.
- A legally enforceable agreement, such as a lease, giving the same responsibilities and eviction protections tenants have under landlord-tenant law, or comparable protections where that law does not apply.
- Privacy in the person's bedroom or unit, with an entrance door the person can lock and only appropriate staff holding keys; choice of roommates; and freedom to furnish and decorate within the agreement.
- Freedom and support to control their own schedule and activities, and access to food at any time.
- Visitors of their choosing at any time.
- A home that is physically accessible to the person.
05 · Rules and compliance
Changing a condition for one person.
The provider-controlled conditions can be modified only for an individual and only through their person-centered plan, never as a rule for the whole house. The plan must document a specific assessed need, the positive supports tried first, less intrusive methods that did not work, a condition proportionate to the need, ongoing data collection, time limits for review, the person's informed consent and an assurance of no harm.
A locked pantry because one resident has a health need, applied to everyone in the home, is a common example of a house-wide restriction that does not meet the rule.
06 · Rules and compliance
Heightened scrutiny.
Some settings are presumed to have the qualities of an institution: settings in a building that also houses an inpatient institutional facility, settings on the grounds of or next to a public institution, and settings that have the effect of isolating people from the wider community.
Such a setting can still be HCBS only if the state shows, and CMS agrees through a heightened scrutiny review, that it does not have institutional qualities and does have home and community-based qualities.
07 · Rules and compliance
What reviewers notice in practice.
Reviews of settings tend to find the same patterns. Most come from routines built for staff convenience rather than for each person.
- House rules that limit food, visitors, phones or bedtimes for everyone.
- Bedroom doors without locks, or residents without keys.
- No lease or residency agreement, or one without eviction protections.
- Outings only as a group, on the staff's schedule.
- Staff holding people's money without the person's involvement or a plan.
- Restrictions in practice that are not documented in anyone's plan.
08 · Rules and compliance
A quick self-check for your homes.
Walk through each home and program as if you were a reviewer, and ask each person, not just staff.
- Does each resident have a signed lease or residency agreement?
- Can each person lock their bedroom door, and who has keys?
- Can people eat, have visitors and set their schedule when they choose?
- Is every restriction documented in that person's plan with all eight conditions?
- Do people go into the community individually, for things they chose?
- Do people choose their services and who provides them?
09 · Rules and compliance
Keeping the record of choices and supports.
Much of the rule is shown through records: the options a person considered, their plan, any modification and the data reviewed for it, and daily notes showing community access and choice.
LunahUP keeps the person's plan context and documents within reach of the staff who support them. Your team, your state and CMS decide whether a setting meets the rule.
Questions people ask
Short answers.
Does the HCBS settings rule apply to day programs?
Yes. Non-residential HCBS settings, such as day programs, must meet the qualities required of all settings, including community integration, choice, rights and autonomy.
Can a group home have house rules?
Rules that limit rights for everyone, such as set visiting hours or a locked kitchen, conflict with the rule. A limit for one person must be justified and documented in that person's plan.
Do group home residents need a lease?
In provider-owned or controlled housing, each person needs a legally enforceable agreement with the protections tenants have under landlord-tenant law, or comparable protections where that law does not apply.
What is heightened scrutiny?
A review for settings presumed to be institutional, such as those in or next to an institution or that isolate people. The setting stays HCBS only if CMS agrees it has home and community-based qualities.
Is the settings rule transition period over?
Yes. It ended March 17, 2023. Some states received time-limited corrective action plans for specific requirements; check your state's current status.
Sources
Check the official source.
Requirements change and differ by state. Confirm current rules with your state agencies and payers.
Keep the work connected
Related LunahUP workflows.
Keep choices and supports on the record
Bring the settings question your reviewer asked last time.
Inspect a fictional person record with plan context, and the notes that show the support provided.
Book a 30-minute compliance demoUse sample data. No patient or employee records needed for the demo. Booking does not create an account or start billing.