What counts as an excluded cost under the 80/20 Rule.

Why the exclusions matter

The 80/20 Rule requires that at least 80 percent of Medicaid payments for homemaker, home health aide, and personal care services flow to direct caregiver compensation. The denominator of that ratio is "total Medicaid payments received." The numerator is "direct caregiver compensation." The exclusions change neither the numerator nor the denominator: they reduce the obligation by carving certain costs out of the calculation entirely.

A provider who books required training, mileage reimbursement, and PPE under the same "operations" line as administration will look worse than a provider who segregates those line items, even if the two providers spend the same dollar on direct care. The accounting decision matters as much as the operational one.

CMS made the exclusions explicit because public comments to the proposed rule argued that holding agencies responsible for those three categories would either suppress training (a safety concern), suppress travel reimbursement (a workforce concern), or suppress PPE provisioning (a public-health concern). The carve-outs are CMS's compromise.

The three excluded categories

The Polsinelli analysis of the final rule lists the three excluded categories as narrowly limited to:

1. Costs of required training for direct care workers. This includes initial training mandated by federal or state regulation (HIPAA, infection control, abuse and neglect reporting, behavior supports, medication administration where applicable), plus recurring renewals required by the same authorities.
2. Travel costs for direct care workers. This covers mileage reimbursement, transit allowances, and any direct travel expenses the agency pays when a caregiver moves between client sites.
3. Costs of personal protective equipment (PPE) for direct care workers. Gloves, masks, gowns, face shields, and other equipment the agency provides to keep workers and participants safe.

The wording "narrowly limited to" matters. CMS explicitly declined to extend the exclusion to administrative training, supervisor travel, or PPE provisioned for non-direct-care staff. The exclusion attaches to the direct care worker, not to the cost category.

A worked example, before and after

Consider a hypothetical mid-sized HCBS agency in a typical quarter:

Raw ratio: 78.1 percent. Below the 80 percent threshold. A provider looking at this number assumes they are out of compliance and starts planning rate-increase requests or payroll restructuring.

Now apply the three exclusions correctly. Of the $1,050,000 in Medicaid revenue, suppose the agency spent $35,000 on required DSP training (CPR renewals, state-mandated abuse-and-neglect training, medication-administration certifications), $24,000 on mileage reimbursement for caregivers moving between client homes, and $11,000 on PPE for direct care delivery. Those $70,000 in excluded costs come out of the denominator before the calculation runs:

Adjusted ratio: 83.7 percent. Comfortably above the 80 percent threshold. The agency was always in compliance; they just had not run the math with the exclusions applied.

The shape of this misunderstanding is common. The ACL blog and the National Domestic Workers Alliance both noted that early provider concerns about the 80/20 Rule frequently assumed the calculation ran on gross Medicaid revenue with no carve-outs. The final rule is more forgiving than the proposed rule.

What is not excluded

CMS resisted broader carve-outs in the final rule. The following remain inside the 80 percent obligation:

• Administrative payroll. Supervisor and manager wages, even for staff who occasionally provide direct care, count against the 20 percent administration budget unless their direct-care hours are separately tracked.
• Scheduling and dispatch costs. The software, the people, and the systems that match caregivers to shifts stay in administration.
• Billing and revenue-cycle costs. Medicaid claim filing, denials management, and AR collection stay in administration.
• Office and overhead. Rent, utilities, insurance, professional fees, and office supplies are unambiguously inside the 20 percent.
• Caregiver recruiting. Job board fees, background checks, and recruiting agency costs are inside the 20 percent. Some operators have argued for a recruiting carve-out; the final rule did not grant one.

Documentation an auditor expects

The exclusions are valuable only when the agency can demonstrate them at audit time. Build the records in three places:

1. Payroll ledger. Set up dedicated payroll codes for required-training time so the hours roll up cleanly. The total dollars charged to required training (at the caregiver's standard wage plus the employer's share of payroll taxes) become the exclusion claim for training.
2. Expense ledger. Code travel reimbursement against a single line item ("Direct care worker travel reimbursement"). The same for PPE provisioned to caregivers. Resist the temptation to bundle travel with administrative mileage; the auditor will ask.
3. Training records. For each training event, keep the curriculum (showing the federal or state mandate it satisfies), the attendees, the duration, and the certificate of completion. The exclusion attaches to required training. Optional or elective training does not qualify.

Continuous recording beats reconstruction. The agencies that continuously log training hours, travel reimbursements, and PPE expenditures arrive at the audit with the exclusion math already done.

Where states have discretion

CMS preserved several areas of state discretion in the final rule that affect how the exclusions land in practice:

• Definition of "required" training. States define which trainings their providers must complete to stay in good standing under the state Medicaid plan. The list varies. An agency in Utah and an agency in Texas may run different required-training totals even with identical staffing.
• Documentation format. States are responsible for the reporting structure providers submit against. A state that adopts a granular line-item reporting structure makes the exclusions easier to claim; a state that adopts a simpler structure may require providers to attest to exclusion totals.
• Hardship variances. States may grant hardship variances to providers who face extraordinary compliance burden. The exclusions are a starting point; a small provider in a rural area can still petition for additional relief if the math does not work after exclusions are applied.

Common questions

Are payroll taxes on training time excluded too?

The cost of required training includes the wages the agency paid the caregiver during the training plus the employer's share of required payroll taxes on those wages. The CMS final rule treats the training cost as the fully-burdened direct cost. Document the wage rate and the employer-paid taxes together for each training event.

Does state-mandated continuing education qualify?

Yes, when the state Medicaid plan or the state HCBS waiver rules require it. Continuing education that the agency offers for retention or professional development purposes (but is not state-required) does not qualify for the exclusion.

What about training conducted by the supervisor?

The exclusion covers the direct-care worker's wages during required training. The supervisor's time training those workers is supervisor compensation and remains inside the 20 percent administrative budget unless the supervisor is also a designated direct-care worker for separately-tracked direct-care hours.

Are PPE costs excluded retroactively?

The exclusions take effect with the reporting structure each state implements. Operators should expect to apply the exclusions starting with the first reporting period covered by their state's implementation, typically beginning July 9, 2028. Historical periods are not retroactively recalculated.

Can I claim the exclusions if my pay-through is already above 80 percent?

Yes. The exclusions are not contingent on hitting the threshold. They reduce the denominator regardless of the ratio. Most agencies above the threshold use the exclusions to widen their margin of safety against rate changes or quarter-to-quarter variability.

Where can I read the final rule directly?

The CMS fact sheet for the Ensuring Access to Medicaid Services Final Rule (CMS-2442-F) is the authoritative public source. For implementation questions, CMS asks providers to contact HCBSAccessRule@cms.hhs.gov.