What Are Consumer Directed Services (CDS)?

What Are Consumer Directed Services (CDS)?

By Brevy Care Team · Last verified April 16, 2026

Consumer Directed Services (CDS) is a Medicaid long-term care option that lets a member (or their legally authorized representative) become the employer of their own caregivers. The member recruits, hires, trains, schedules, pays, and, if needed, fires the attendants and other workers who deliver their services. The state still pays for the services through Medicaid; the member just directs the arrangement.

CDS is the term Texas uses, but the model is national. Federal Medicaid rules refer to the same category as self-directed or participant-directed services, authorized under Section 1915(j) of the Social Security Act (added in 2007) and also permitted under 1915(c) waivers, 1915(i) state plan HCBS, 1915(k) Community First Choice, and Section 1115 demonstrations. Every U.S. state and the District of Columbia now offers at least one Medicaid program with self-direction.

Why It Matters

Traditional Medicaid long-term care is "agency-directed": the state contracts with a home care agency, the agency assigns a caregiver, and the member gets whoever shows up. Self-direction flips the arrangement. The member decides who the caregiver is, what hours they work, what tasks they do, and (within state-set budget limits) what they're paid.

For families, the practical stake is huge. Under CDS, an adult daughter already providing care for her mother can be hired and paid. The attendant's hours can flex around medical appointments. If a caregiver leaves, the family finds the replacement instead of waiting on an agency roster. For workers, CDS pays a higher hourly rate because the agency overhead is stripped out.

How CDS Differs from Agency-Directed Care

The tradeoff is simple: CDS gives the member more control and usually puts more money in the worker's pocket, in exchange for taking on employer responsibilities.

The Employer-Employee Model

Under federal rules, self-direction can be built around one of two authorities:

• Employer authority. The member is the common-law employer. They recruit, interview, hire, set wages (within state limits), schedule, train, evaluate, discipline, and fire. This is the authority Texas CDS uses.
• Budget authority. The member is given an individualized budget (in dollars) and decides how to spend it across services, supports, and goods in their care plan. Budget authority can sit on top of employer authority or stand alone.

A member typically takes on the following responsibilities:

• Writing job descriptions and posting openings
• Interviewing candidates
• Submitting the chosen worker's information to the Financial Management Services (FMS) entity for background checks
• Training the worker on specific tasks (personal care, transfers, medications, behavior supports)
• Scheduling hours within the authorized service plan
• Approving weekly timesheets
• Documenting electronic visit verification (EVV) check-in/check-out
• Firing workers who don't perform
• Recruiting replacements when workers leave

This isn't a small job. States usually require a brief training for new CDS employers and make a case manager or service coordinator available for ongoing support.

The FMS: Payroll and Compliance Partner

Every self-direction program requires a Financial Management Services (FMS) entity (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.

The FMS handles:

• Registering with the IRS and state workforce agency as the vendor fiscal/employer agent
• Running payroll and direct deposit
• Withholding and remitting federal and state payroll taxes
• Conducting required criminal background checks, registry checks, and credential verifications before a new worker can start
• Paying approved non-wage items in the budget (training, supplies)
• Filing quarterly payroll tax returns and year-end W-2s
• Sending the member a monthly or quarterly budget report showing what's been spent

Because the FMS is doing real work, its fee is deducted from the member's total CDS budget before the member can pay their workers. In most states, this deduction is already factored into the program's published rates.

Who Can and Can't Be Hired

CDS rules vary sharply by state on the question of paying family members.

Federal rules allow states to let participants hire "legally responsible relatives" (typically spouses of adults, and parents of minor children). Whether a specific state actually permits it is a state choice.

Common patterns across states:

• Adult children: Almost always eligible to be hired under CDS.
• Siblings, nieces, nephews, cousins, in-laws, grandchildren: Almost always eligible.
• Friends and neighbors: Almost always eligible.
• Spouses: Varies significantly. Some states allow it (California, Colorado, New Jersey's PPP program); others prohibit it (Texas, under STAR+PLUS, CAS, and CFC).
• Parents of minor children: Some states allow under specific waivers (e.g., during certain public health emergencies); most permanently restrict.
• The member's legally authorized representative (LAR): Usually cannot also be the paid worker. The roles have to be separated to prevent self-dealing.

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

How Pay Works

In most CDS programs, the state or MCO sets a total hourly rate for each service. The FMS fee comes out first, then the member has a budget to split between the worker's wage and the legally required employer taxes and benefits (often called PTB — payroll taxes and benefits).

In Texas, at least 90% of the total CDS rate must go to the worker's compensation (wage + benefits), with the FMS fee and a small administrative margin taking the rest. Worker hourly pay under Texas STAR+PLUS typically ranges from $10.25 to $17.00 per hour depending on the MCO and geography, with the state's September 2025 rate change targeting an average attendant wage of $13.00 per hour.

Pay rates are not standardized across states. Members in California's In-Home Supportive Services (IHSS) program, Oregon's Independent Choices Program, and Minnesota's Consumer-Directed Community Supports often see different rate structures. Always check the program documentation from your state Medicaid agency or MCO.

Electronic Visit Verification (EVV)

Since 2020, federal law (the 21st Century Cures Act) has required every state to use Electronic Visit Verification (EVV) for all Medicaid personal care services and home health services, including CDS. Workers clock in and clock out on a phone app, web portal, or fixed device at the member's home. The system logs the start time, end time, location, service type, and member ID.

EVV is mandatory. Missed or manually corrected check-ins above a state-set threshold can trigger claim denials, worker retraining, or removal from the program. CDS employers are responsible for teaching their workers to use the EVV system correctly.

Common Misconceptions

"CDS workers aren't real employees." They are. The member is the common-law employer, and CDS workers are W-2 employees subject to federal and state payroll taxes, unemployment insurance, and workers' compensation rules. Some states have pushed to treat certain home care workers as independent contractors, but under CDS the employer-employee relationship is explicit by design.

"I have to run all the payroll myself." You don't. That's the whole point of the FMS. You tell the FMS how many hours each worker put in, the FMS pays them, withholds taxes, and reports everything. You approve the timesheet; the FMS does the mechanics.

"My mother can't hire me because I'm family." Depends on the state and the relationship. Adult children can almost always be hired. Spouses often can't. See the "Who Can and Can't Be Hired" section above for the pattern.

"CDS pays more than agency work." Typically yes for the worker (because the agency markup is removed), but the member also takes on employer responsibilities. If the member or their representative doesn't have capacity to manage scheduling and timesheets, agency-directed care may be the better fit.

Related Terms

• Self-direction / Participant direction: The federal umbrella term for CDS-style programs. Most federal documents use this language.
• Financial Management Services (FMS) / FMSA / Fiscal Intermediary: The administrative entity that handles payroll and tax compliance for self-directed programs.
• Employer authority: The self-direction model where the participant is the common-law employer.
• Budget authority: The self-direction model where the participant controls an individual spending budget.
• Electronic Visit Verification (EVV): The federally required check-in/check-out system for all Medicaid personal care and home health visits.
• Legally Authorized Representative (LAR): A person legally empowered to make decisions for the CDS member; cannot usually also be the paid worker.
• HCBS waiver: The Medicaid authority under which most CDS programs operate.
• Managed Care Organization (MCO): In states like Texas, CDS services are delivered through MCOs under STAR+PLUS.

Learn More

• Texas Caregiver Programs
• How to Get Paid as a Family Caregiver in Texas
• STAR+PLUS Waiver Program
• Texas Medicaid HCBS Waivers

The information on Brevy.com is for educational purposes only and is not a substitute for professional legal, financial, or medical advice. Self-direction rules vary significantly by state and program. Always verify eligibility, family-member-hiring rules, and pay rates with your state Medicaid agency, your MCO, or the Financial Management Services entity in your state. Brevy is not a law firm, financial advisor, or healthcare provider.