Federal Regulations appear to allow workshop services.

5. Question: Do the regulations prohibit individuals from receiving pre-vocational services in a facility-based setting such as a sheltered workshop?

Answer: No. The federal regulations require that all HCB settings must support full access of individuals receiving Medicaid HCBS to the greater community, including facilitating opportunities to seek employment in competitive settings, engage in community life, control personal resources, and receive services in the community to the same degree of access as individuals not receiving Medicaid HCBS. Therefore, a state could allow pre-vocational services delivered in facility-based settings that encourage interaction with the general public (for example, through interaction with customers in a retail setting). We note, however, that pre-vocational services may be furnished in a variety of locations in the community and are not limited to facility-based or site-based settings, and that states have flexibility in determining whether and when to use facility-based settings. All settings must have the characteristics of HCB settings, not be institutional in nature and not have the effect of isolating individuals from the broader community. Please see the CMS Informational Bulletin on Employment Services found at: http://www.medicaid.gov/federal-policy-guidance/downloads/CIB-09-16- 2011.pdf

http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics...

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