CMS Direct Care Worker Compensation Reporting What California HCBS Providers Should Track for 2027
[!NOTE] Quick summary: CMS issued SMD 26-005 on October 9, 2026, defining how states must report the share of certain Medicaid HCBS payments spent on direct care worker compensation. State readiness reporting is due July 9, 2027, and the first federal reports will use 2027 provider payment and compensation data. California has not yet published its provider collection template, but affected providers should organize source data now.
What the federal guidance requires
States must report the percentage of Medicaid payments for homemaker, home health aide, personal care and habilitation services that is spent on direct care worker compensation. The requirement applies to covered services under sections 1915(c), 1915(i), 1915(j), 1915(k) and section 1115 demonstrations that include HCBS, across fee for service and managed care.
The requirement does not apply to section 1905(a) state-plan services such as state-plan personal care, home health and case management. California must determine which of its service definitions and authorities fall into each federal category.
The dates that matter
| Date | Verified requirement |
|---|---|
| January 1 to December 31 2027 | CMS's example measurement period for data states will report in 2028. |
| July 9 2027 | States must report readiness for FFS and managed care implementation. |
| July 9 2028 | FFS reporting requirement becomes applicable. |
| First managed care rating period on or after July 9 2028 | Managed care reporting applicability begins. |
| Beginning around September 2028 | CMS expects the annual state reporting window to open, subject to the final reporting form. |
What counts as direct care worker compensation
CMS includes compensation paid for direct-care work, including:
- Salary, wages, overtime and other remuneration covered by federal wage rules.
- Employee benefits such as health and dental benefits, life and disability insurance, paid leave, retirement and tuition reimbursement.
- The employer share of payroll taxes for workers delivering applicable section 1915(c) services.
- Paid time spent in required training or work-related travel when that time is compensated.
Clinical supervisors may be included when they are qualified to provide services, periodically interact with beneficiaries, and perform clinical oversight or care-related documentation. Pure business or administrative supervision is excluded. Providers will need a consistent method to separate direct-care and non-direct-care time for mixed roles.
Costs that must be tracked separately
CMS identifies required training costs, travel costs such as mileage or public transportation subsidies, and personal protective equipment as excluded costs. The distinction is important: the cost of training materials is excluded, while compensation paid to a worker for training time may count. Mileage reimbursement is excluded, while paid travel time may count.
Use collected revenue not billed charges
For fee for service, CMS says the payment denominator should use base and supplemental payments actually collected, not billed charges. Refunded or recouped payments, audit adjustments, chargebacks and bad debt are excluded. For managed care, the relevant payment is the amount the plan pays the provider, including applicable state-directed payments, rather than the capitation payment the state pays the plan.
Who and what may be excluded
- Self-directed services where the beneficiary sets the direct care worker's payment rate.
- Indian Health Service and Tribal health programs subject to the cited federal law.
- Section 1905(a) state-plan services that are outside the listed HCBS authorities.
Remote supports, assistive technology and telehealth do not make an otherwise covered service exempt. CMS also provides allocation options for bundled rates that contain multiple service components.
What California providers should build now
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A service crosswalk: California service code, subcode, funding authority, federal service category, delivery setting and whether it is self-directed.
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A payment ledger using amounts actually collected, with payer, program, service, period, supplemental payment, refund, recoupment and adjustment fields.
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A worker-role map that separates direct care, clinical supervision, administrative supervision and mixed-role time.
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A compensation file separating wages, overtime, benefits, employer payroll taxes, paid training time, paid travel time and excluded non-compensation costs.
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A repeatable reconciliation from service delivery to payment to payroll and benefits, with retained source evidence and correction history.
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A governance record showing definitions, allocation methods, responsible owners, approval dates and changes when California issues its final specifications.
The strongest caveat
This is a state reporting requirement, not a federal instruction for every provider to submit a report directly to CMS. CMS expects states to use providers and managed care plans as key data partners, but California has not yet published the provider form, California service-code mapping, submission deadline or collection method. Providers should prepare the source data without inventing a final calculation that California has not adopted.
Frequently asked questions
Does reporting begin in 2027 The federal state report is due in 2028, but CMS says it will use the prior calendar year's data. The example measurement period is January 1 through December 31, 2027.
Does the rule cover every Regional Center service No. Coverage depends on the federal authority and whether the service fits homemaker, home health aide, personal care or habilitation. California must publish its mapping.
Is this the 80 percent rule No. This article addresses compensation reporting. DDS separately identifies 2030 for the minimum 80 percent compensation requirement for certain services.
Do telehealth or remote supports avoid reporting No. CMS says these delivery methods do not exempt an otherwise covered service.
Should providers file directly with CMS Not under the current guidance. States are responsible for the federal submission and may collect source data from providers and managed care plans.
How CareAutomate fits
CareAutomate can organize service delivery, staff assignments, documentation, authorizations and billing-ready records that may support the service and payment side of a future reconciliation. Payroll, benefits and employer tax data ordinarily remain in payroll or accounting systems. The final reporting workflow should be configured only after California publishes its definitions and data requirements. Book a demo to review which operational records CareAutomate can supply and which must come from other systems.
Official sources
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