A 2025 rate study for Virginia's Medicaid agency set a benchmark wage of $22.20 an hour for direct support professionals and built its proposed waiver rates up from that figure. The study, delivered to the Virginia Department of Medical Assistance Services on Oct. 10, 2025, by the consulting firm Guidehouse, covers 11 services in the state's developmental disabilities waivers and shows, step by step, how a wage assumption becomes a Medicaid rate.
Medicaid is often the only payer for home and community-based services, the study notes, so rates like these largely set what agencies can pay DSPs. This brief explains what a rate study is, how a rate is built, how the wage inside a rate relates to actual paychecks and which federal rate rules apply as of September 2026.
What a Medicaid rate is
A Medicaid rate is what the state pays a provider agency for one unit of service, such as 15 minutes of in-home support or a day of residential support. Under fee-for-service, the rates are listed in the state's fee schedule, and each waiver describes its rate method in its application to CMS.
States set the rates, within a federal standard. Section 1902(a)(30)(A) of the Social Security Act requires payments that are "consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers" so that services are available at least to the extent they are for the general population in the area. A rate study is how many states test whether their rates meet that bar and what they should be.
How a rate study builds a rate
The Virginia study used what it calls an independent rate build-up. It starts with the wage of the staff person who delivers the service, then adds other costs as separate blocks:
| Component | What it covers | Virginia study example |
|---|---|---|
| Staff wage | Hourly pay for the direct care worker | DSP benchmark of $22.20 an hour for state fiscal 2027 |
| Employee-related expenses | Payroll taxes, health and other benefits, paid time off | Averaged 30.35% of wages for DSPs |
| Productivity | Paid time that can't be billed, such as travel and recordkeeping | Community coaching: 31.2 billable hours in a 40-hour week |
| Supervision | Cost of supervisors' direct oversight of care | A separate add-on to the staff wage, based on provider data |
| Administration | Running the agency: administrative staff, insurance, office costs | 15.33% of direct care and supervisor compensation |
| Program support | Non-billable program costs, such as supplies, activities and buildings | 16.21% overall |
| Geographic adjustment | Higher costs in some regions | 16.8% overall difference between Northern Virginia and the rest of the state |
Worked example: the wage
The study started with a weighted average wage of $20.36 for DSPs, taken from a survey of providers for early 2025. It applied a 5.4% inflation factor to bring that to July 1, 2026, then added a 3.4% supplemental-pay adjustment, worth $0.73, for overtime and shift differentials. The result was the $22.20 benchmark.
Worked example: non-billable time
Agencies can bill only for time spent delivering the service, but staff are paid for the whole shift. Providers told the study that community coaching staff bill 31.2 hours of a 40-hour week, or 78%. Dividing 40 by 31.2 gives a productivity factor of 1.28, which raises the rate so the agency can cover the full paid week.
Where the data comes from
The study used 109 provider surveys, representing 19% of spending on the services studied, along with federal Bureau of Labor Statistics wage data, other public cost indexes and comparisons with peer states. A rate advisory workgroup of providers, advocates and state staff reviewed the survey design and key assumptions.
The study's proposed rates were on average 20.7% higher than Virginia's rates for state fiscal 2026. It cautioned that actual rates would be set by the state based on the money appropriated.
The wage in the rate vs. the wage on the paycheck
The wage in a rate model is an assumption about what it costs to hire and keep staff. On its own, it does not require an agency to pay that wage. Agencies spread their revenue across wages, benefits, overtime, supervision and overhead, and actual pay can land above or below the model.
States that want to make sure a raise reaches workers add rules on top. A wage pass-through requires providers to spend some or all of a rate increase on worker pay, and a wage floor sets a minimum hourly wage. See Wage pass-through: how Medicaid raises reach DSPs.
Rate-model wages also show up in public notices. Illinois's September 2026 waiver amendment would raise the DSP hourly wage in its rates from $21.30 to $21.90 statewide, and from $24.50 to $25.19 in Chicago, Cook and the collar counties, effective Jan. 1, 2027, or on CMS approval. See our coverage of the Illinois proposal.
For a national comparison, a 2026 analysis of National Core Indicators data put the average DSP wage at $17.86 an hour in 2024; see our NCI coverage.
Federal rules on rates as of September 2026
Several requirements from the 2024 federal Access Rule now apply or are scheduled:
- Rates must be public. States had to post all fee-for-service rates on a public website by July 1, 2026, organized so the public can find what Medicaid pays for a given service, and must update them within a month of a change (42 CFR 447.203(b)(1)).
- Average hourly rates must be disclosed. For personal care, home health aide, homemaker and habilitation services, states had to publish average hourly rates by July 1, 2026, separately for individual providers and agencies where rates differ, and must update them at least every two years (447.203(b)(2)-(4)).
- Workers get a seat on a rate advisory group. States must have an interested parties advisory group that includes direct care workers, people who receive services and their representatives. It must meet at least every two years and recommend whether rates for those services are sufficient, and the state must publish its recommendations within a month (447.203(b)(6)).
- Spending on workers will be reported. Starting July 9, 2028, states must report each year the share of payments for homemaker, home health aide, personal care and habilitation services that goes to direct care worker compensation (42 CFR 441.311(e)).
- The 80% rule is scheduled for 2030. From July 9, 2030, states must ensure providers spend at least 80% of payments for homemaker, home health aide and personal care services on compensation for the workers who deliver them. Compensation includes wages, benefits and the employer's share of payroll taxes. Costs of required training, travel and protective equipment are excluded from the calculation. States may set a different percentage for small providers and grant hardship exemptions (42 CFR 441.302(k)). Habilitation is covered by the reporting rule but not by the 80% rule.
A CMS proposed rule now under federal review could revise parts of the 2024 rule.
Why this matters for providers and DSPs
- Your wage starts as a line in a model. The hourly figure in a rate study is often the number advocates and legislators argue over. Knowing your state's rate-model wage shows how far actual pay is from what the state says the work costs.
- Productivity and overhead matter too. A rate that assumes too little non-billable time, supervision or benefits squeezes the money left for pay, even if the headline wage looks fair.
- Provider surveys shape rates. Rate studies depend on agencies reporting real wage, benefit and cost data. Low participation, like the 19% of spending covered in Virginia's survey, leaves more to assumptions.
- There are new places to be heard. Posted rates, hourly rate disclosures and advisory groups that include direct care workers give DSPs and frontline supervisors a way to see and weigh in on the numbers.
- Rates move with budgets. A study can recommend a rate, but the legislature decides whether to fund it. Watch your state's rate study schedule, budget and waiver amendment notices.