42 CFR §435.225

1. (a)The agency may provide Medicaid to children 18 years of age or younger who qualify under section 1614(a) of the Act, who would be eligible for Medicaid if they were in a medical institution, and who are receiving, while living at home, medical care that would be provided in a medical institution.
2. (b)If the agency elects the option provided by paragraph (a) of this section, it must determine, in each case, that the following conditions are met:
   1. (1)The child requires the level of care provided in a hospital, SNF, or ICF.
   2. (2)It is appropriate to provide that level of care outside such an institution.
   3. (3)The estimated Medicaid cost of care outside an institution is no higher than the estimated Medicaid cost of appropriate institutional care.
3. (c)The agency must specify in its State plan the method by which it determines the cost-effectiveness of caring for disabled children at home.