Background
Oregon provides Community Living Supports (CLS) through Medicaid to enable adults with developmental disabilities to live in their community rather than in institutional settings. The Department of Human Services (ODHS) adopted rules making individuals ineligible for CLS benefits if they reside in a dwelling owned or rented by the service provider (unless the provider is a family member). Specialty Family Homes, a provider of services to unrelated individuals with developmental disabilities, challenged the rules as exceeding ODHS’s statutory authority and violating constitutional anti-discrimination provisions. Petitioners argued that Oregon and federal law require ODHS to fund community services in any setting chosen by the individual, from any provider of their choice.
The petitioners contended that the rules violated their clients’ statutory right to choose their community living setting and provider, citing Oregon Revised Statutes sections 427.007, 430.662, and 427.121, as well as federal Medicaid law and the Fair Housing Act. They argued the rules discriminated against individuals with developmental disabilities based on where they chose to live and whom they chose to hire as their provider.
The Court’s Holding
The Oregon Court of Appeals upheld all challenged rules as valid. The court held that ODHS did not exceed its statutory authority in adopting the rules. Reading the relevant statutes in context, the court concluded that ORS 427.007(1)(a) and ORS 430.662(1)(a) require ODHS to provide services in “the most integrated setting appropriate to the individual’s needs” and “consistent with the choice of the individuals,” not in any setting regardless of state regulations. The statutes do not mandate funding for every setting or provider preferred by the individual.
The court emphasized that ODHS has explicit statutory authority and obligation to license and regulate settings providing services, including adult foster homes. The legislature established a differentiation between related and unrelated providers controlling living settings. Provider-owned or provider-rented dwellings constitute adult foster homes under Oregon law and must be licensed for health and safety purposes. The rules do not violate federal Medicaid requirements, which similarly require states to provide choice “among setting options”—not approval of any option regardless of state licensing requirements. The court also rejected claims that the rules violate the Fair Housing Act, finding they regulate eligibility for specific Medicaid benefits based on licensing and conflict-of-interest concerns, not disability status itself.
Key Takeaways
- States may condition Medicaid benefits for community living supports on compliance with licensing and regulatory requirements, even when this limits an individual’s preferred living arrangement.
- Statutory mandates for “choice” and “community integration” require providing appropriate options meeting regulatory standards—not funding any setting an individual prefers regardless of licensing requirements.
- Distinguishing between related and unrelated service providers who control housing is within an agency’s statutory authority and does not violate anti-discrimination laws when grounded in health and safety regulation.
- Individuals living in provider-controlled settings retain access to developmental disability services if the setting obtains appropriate licensure as an adult foster home.
Why It Matters
This decision clarifies the scope of statutory obligations to provide community-based services and choice for individuals with disabilities. While federal and state law emphasize integration and self-determination, courts will not interpret these mandates to prohibit regulatory requirements designed to protect health and safety. Providers cannot claim that licensing rules violate statutory authority or constitutional protections merely because they limit eligibility for specific benefit programs. The holding establishes that states retain broad authority to regulate care settings and impose conditions on payment, even for community-based alternatives to institutional care.
For disability service agencies, the decision affirms that they can maintain distinct regulatory schemes for related versus unrelated providers without violating statutory choice mandates. For individual beneficiaries and providers, the practical effect is that those wishing to maintain a provider-controlled living arrangement must secure appropriate licensure (adult foster home licensing in this context) to continue receiving state-funded benefits, rather than receiving unrestricted Medicaid funding in unlicensed settings.
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