What Is Consumer Directed Services (CDS)? Medicaid Self-Direction

What Are Consumer Directed Services (CDS)?

Why It Matters

Traditional Medicaid long-term care is "agency-directed": services are delivered by provider agencies under contract with the state, and the agency, not the family, is the employer. Self-direction flips the arrangement. In Texas, the CDS employer decides who the caregiver is, sets their schedule, trains them, and sets their wages and benefits within a service budget.2

For families, the practical stake is real. Texas lets a CDS employer hire family, friends, or neighbors, so an adult daughter already caring for her mother may be able to be hired and paid, as long as she isn't also her mother's CDS employer or designated representative. HHSC adds that some programs limit which relatives can be hired.3 The employer sets the schedule, so the attendant's hours can flex around medical appointments, and if a caregiver leaves, the family recruits the replacement itself.2

How Consumer Directed Services Differ from Agency-Directed Care

The consumer-directed column describes Texas's CDS option; other states set their own program rules.2,4 The tradeoff is simple: CDS gives the member more control in exchange for taking on the employer's responsibilities, which is why HHSC pitches it to families who are able and willing to take on more coordination.2

The Employer-Employee Model

Self-direction is commonly described in terms of two kinds of control, each offered at a state's option:1

• Employer authority. The member (or their representative) manages the workers who furnish their services. Under the federal 1915(j) option, that includes recruiting, hiring and discharging, training, scheduling, and supervising them.1 In Texas, CDS is the only delivery option in which the member becomes the employer.2
• Budget authority. The member directs an individualized budget. Federal law spells that budget out for two State plan options: under 1915(j), the service budget is funds under the participant's control and direction, developed through a person-centered process and tailored to their service plan; under 1915(i), a self-directed plan may include an individualized budget. The 1915(j) definition applies only where a state has chosen that option, so it does not by itself give 1915(c) waiver participants budget authority.1

In Texas, a CDS employer takes on the following responsibilities:2,4,5

• Recruiting and hiring employees, plus backup employees
• Getting the FMSA's clearance on each new hire, since you cannot hire someone until your FMSA gives you permission
• Training each worker, including on the EVV clock-in and clock-out methods
• Setting the schedule and wages within the service budget
• Submitting or approving timesheets
• Supervising, and firing workers who don't perform

This isn't a small job. In Texas, the FMSA gives the employer orientation and ongoing training, and CDS employers must complete EVV policy and system training at the start and once a year after that.4,5

The FMS: Payroll and Compliance Partner

A self-directing member typically has a Financial Management Services (FMS) entity handle the payroll and administrative back end (called a Financial Management Services Agency, or FMSA, in Texas; a fiscal/employer agent or fiscal intermediary in other states). The FMS is the administrative counterpart to the participant-employer. It does not deliver care.6

Under 42 CFR 441.484, the rule that governs the optional self-directed personal assistance services (PAS) state plan option (the 1915(j) option), a state may provide financial management services through a financial management entity in either of two arrangements under Section 3504 of the IRS Code: a reporting or subagent through its fiscal intermediary, or a vendor organization. Two limits matter for families. A state that does not use a financial management entity has to perform these functions itself, so whether an outside entity is in the picture at all is a state design choice. And a participant who takes a cash option performs those functions directly instead of having an entity do them.6

The regulation's list of financial management functions is open-ended, phrased as "including, but not limited to." Between that federal list and Texas's list of FMSA duties, an FMS handles:6,4

• Registering with the IRS and state workforce agency as the employer's agent
• Collecting and processing workers' timesheets and running payroll
• Withholding, filing, and paying federal, state, and local employment taxes
• Conducting required criminal background checks, registry checks, and credential verifications before a new worker can start
• Processing invoices and receipts for approved budget expenses
• Sending the employer and the case manager or service coordinator a written budget summary at least quarterly

What the FMS is not is the employer. In Texas, the person receiving services (or their legally authorized representative) is the employer of record. The FMSA is only the employer's employer agent, the IRS term for an entity approved to carry out employer duties like payroll and tax withholding on the employer's behalf without becoming the workers' actual employer. The FMSA does not hire, supervise, schedule, or dismiss anyone, and it does not set what the attendant is paid. Those decisions stay with the CDS employer.4

Because the FMS is doing real work, it charges a fee. In Texas, the FMSA's monthly fee comes out of the CDS service rate first; the employer then allocates what remains between the attendant's wages and their benefits.4

Who Can and Can't Be Hired

CDS rules on paying family members are a state decision, so they differ from state to state.1

Under the federal 1915(j) option, a state may elect to let participants hire legally liable relatives as paid providers (under state law these may include spouses and parents of minor children). Whether a specific state actually permits it is a state choice, not a federal guarantee.1

Texas shows how one state draws the line. The CDS employer may hire family, friends, or neighbors, but HHSC's CDS FAQ lists who cannot be the employee:2,3

• The CDS employer: Can't also be the employee.
• Spouses: The spouse of the person receiving services, and the CDS employer's spouse, can't be hired under the CDS option in programs such as STAR+PLUS and Community Attendant Services (CAS). The named exception is Consumer Managed Personal Attendant Services (CMPAS), which carries its own eligibility gates: HHSC describes it as serving people with physical disabilities who can make their own decisions and can supervise their attendant (or have someone who can). It is not a general permission for a spouse to be paid.3
• The designated representative: Neither the member's designated representative nor that person's spouse can be the employee.
• Parents of minor children: The parent or legally authorized representative of a member under 18 can't be the employee.

HHSC also warns that other restrictions may apply depending on the program, so confirm with the service coordinator, case manager, or FMSA. Note the boundary: this list governs who the member may employ under CDS, not who may be paid through the traditional agency-managed route.3

Always check state-specific rules before assuming a family member is eligible for pay.

How Pay Works

In Texas, the CDS budget comes out of the service rate: the FMSA's monthly fee comes off first, and the employer divides the rest between the worker's wage and payroll taxes and benefits (PTB).4,7

HHSC's CDS Employer Manual has the employer decide each worker's wage within the CDS budget, and gives as a rule of thumb that at least 90% of the total CDS rate must be spent on service-provider compensation. CDS employers must pay at least the federal minimum wage and, for certain services, the state's minimum attendant compensation rate. Effective September 1, 2025, Texas raised Medicaid attendant reimbursement rates to support an average attendant wage of $13.00 per hour, with PTB of 14% for community (non-residential) settings and 15% for residential (facility) settings. HHSC ties the $13.00 wage to the 2026-27 state budget, but neither HHSC's rate notice nor a contracted MCO's notice says how long that figure will stay in effect.7

Outside Texas, pay rules come from your own state's program, so always check the program documentation from your state Medicaid agency or MCO.

Electronic Visit Verification (EVV)

The federal 21st Century Cures Act (2016) requires states to use Electronic Visit Verification (EVV) for Medicaid personal care services that require an in-home visit, starting with services furnished in calendar quarters beginning on or after January 1, 2020, and covering personal care furnished under authorities that include 1915(j), the self-directed option; a state that does not comply faces an incremental reduction in its federal Medicaid match.8

Workers clock in and clock out at the start and end of each visit, logging the service type, the member's name, the date and times, the location, and the worker's name. In Texas, EVV has applied to all Medicaid personal care services (including CDS) since January 1, 2021, and CDS employees must use one of three Texas Health and Human Services (HHSC)-approved methods: a landline phone in the member's home, an alternative device, or the mobile method, meaning a downloadable app the EVV vendor supplies for a smartphone or other device with internet connectivity (the only approved method when a visit begins or ends out in the community).5

EVV is mandatory. Texas CDS employers must train their workers on the clock-in and clock-out methods, and they choose on HHSC Form 1722 who does the visit maintenance that repairs a visit the worker missed or logged wrong: the employer, or the FMSA. That repair runs on a clock: required visit maintenance, including manually entering a visit the employee failed to clock, must be completed within 95 calendar days from the date of service delivery, though HHSC may extend that time frame. Once the window closes, the EVV system locks the visit transaction, and it can be corrected only if the payer approves a Visit Maintenance Unlock Request. That request isn't a second chance for a forgotten clock-in: payers may not approve it when a worker simply failed to clock in and nothing prevented the fix inside the 95 days. So fix a bad visit the week it happens rather than at the end of the quarter.5

Common Questions About CDS

Related Terms

These related definitions all belong to the self-direction model: the two kinds of control it is commonly described in terms of (employer authority and budget authority) and the Financial Management Services entity behind them.1,6

• Self-direction / Participant direction: The federal umbrella term for CDS-style programs.
• Financial Management Services (FMS) / FMSA / Fiscal Intermediary: The administrative entity that handles payroll and tax compliance for self-directed programs.
• Employer authority: The kind of self-direction where the participant manages the workers who furnish their services.
• Budget authority: The kind of self-direction where the participant directs an individualized budget.
• Electronic Visit Verification (EVV): The check-in/check-out system federal law requires states to use for Medicaid personal care and home health services that involve an in-home visit.8
• Legally Authorized Representative (LAR) / designated representative: A person who acts for the CDS member. In Texas, the designated representative and their spouse can't also be the member's CDS employee.3
• HCBS waiver: The 1915(c) Medicaid authority, one of several that can include self-direction.1
• Managed Care Organization (MCO): A health plan that runs Medicaid benefits for its members. In Texas, STAR+PLUS is one of the programs that offers the CDS option.3

Learn More

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The information on Brevy.com is for educational purposes only and is not a substitute for professional legal, financial, or medical advice. Rules vary by state and program and change frequently. Always verify with the relevant agency or a qualified professional. Brevy is not a law firm, financial advisor, or healthcare provider.