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Health and Functional Criteria for Service Eligibility 49als must first meet a waiver’s targeting criteria,such as age and diagnosis or condition. For example,a state may have a number of waivers targetingdifferent groups: persons age 65 and older,persons ages 18 to 65 with physical disabilities,children who are technologically dependent, personswith mental retardation and other developmentaldisabilities, persons with AIDS, and personswith traumatic brain injury. (See Chapter 4for a full discussion of waiver programs.)Individuals who meet the targeting criteria mustthen meet service criteria, which for HCBS waiverprograms are the level-of-care criteria used todetermine eligibility for either a hospital, nursingfacility, or ICF/MR. Level-of-care criteria explicitlydescribe the type and level (or severity) of functionallimitations or needs an individual must havein order to be admitted to an institutional setting.These criteria usually include measures of needfor assistance with ADLs and for other services,including nursing and medically related services.A determination that a person meets the requiredlevel-of-care criteria is based on information gatheredthrough a formal assessment process carriedout when a person applies for services. In the caseof ICF/MR services, the person must have mentalretardation or a “related” condition and be foundto need various supports necessary to improve ormaintain functioning. In the case of nursing facilityservices, the need for skilled and unskillednursing care is generally assessed, as is the needfor assistance with ADLs and other aspects offunctioning.The requirement to use the same or equivalentservice criteria for HCB waiver services as forinstitutional placement stems from the waiverprogram’s primary purpose: to offer an alternativeto institutionalization. 17 This is a statutoryrequirement added by Congress in part to addressconcern about the cost of expanding HCB services:States must demonstrate that they are providingwaiver services only to people who are eligiblefor institutional placement. HHS cannot waivethis requirement or lessen its impact by regulation.Thus, states would only be able to use substantivelydifferent service criteria for waiver thanfor institutional services (i.e., criteria not based onthe need for institutional services) if Congressamended Medicaid law.When the waiver authority was enacted in 1981,home and community services could be providedunder a waiver program only to persons who metthe level-of-care criteria for either an SNF, an ICF,or an ICF/MR. In 1987, the Omnibus BudgetReconciliation Act eliminated the distinctionbetween SNFs and ICFs and mandated a newnursing facility benefit, which included ICF services,all of which were previously optional. Theformer ICF level of care is now the minimum institutionalstandard. The only Federal requirementfor persons to receive an ICF level of care is thatthe individuals need either health-related careand services that are above the level of room andboard or, due to their mental or physical condition,require supportive services that can be madeavailable only through institutional facilities.Within this broad definition, states are free to setwhatever service criteria they choose for nursingfacility care, which (or their equivalent) are thenused to determine eligibility for waiver services.MisperceptionsA common criticism of nursing facility level-ofcarecriteria is that they are “medically biased,”that is, (a) they do not adequately assess functionallimitations and their impact on the need forlong-term care, or (b) they give greater weight tonursing and medical needs than to functionalneeds. However, no Federal statute or regulationmandates that states adopt this medical approachwhen setting nursing facility service criteria.Medicaid law does require that institutional servicesbe medically necessary. But, as noted, there isno Federal definition of this term, and states arefree to define it broadly (e.g., medically necessaryservices are those that promote optimal healthand functioning). Thus, the requirement that servicesbe medically necessary does not mean a stateis required to use only medical—or even any medical—servicecriteria to determine eligibility fornursing facility services. 18 Nor must a state givegreater weight to medical and nursing needs thanto functional needs.No clear line separates medical from functional