DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland   21244-1850 
 
 
SMD# 14-006 
Re:  Medicaid Payment for Services 
Provided without Charge (Free Care) 
December 15, 2014 
Dear State Medicaid Director: 
This letter addresses Medicaid payment for services covered under a states Medicaid plan to an 
eligible Medicaid beneficiary that are available without charge to the beneficiary (including 
services that are available without charge to the community at large, or free care).  We are 
issuing this guidance to ensure that Medicaid payment is allowed for any covered services for 
Medicaid-eligible beneficiaries when delivered by Medicaid-qualified providers.  In particular, 
we intend to remove any ambiguity about the application of a free care policy. 
Historically, the Centers for Medicare & Medicaid Services (CMS) guidance on free care was 
that Medicaid payment was generally not allowable for services that were available without 
charge to the beneficiary, with some statutory and some policy exceptions.1  This policy was 
expressed in a number of guidance documents, including the prior CMS guidance 1997 
Medicaid and School Health:  A Technical Assistance Guide, and the 2003 Medicaid School-
Based Administrative Claiming Guide (School-Based Administrative Claiming Guide).  The 
free care policy was challenged and the Departmental Appeals Board (DAB), in Decision No. 
1924 (2004), reconsidered in Ruling 2005-1 (2005), concluded that this policy was not an 
interpretation of either the Medicaid statute or existing regulations.   
In light of the DAB ruling, CMS is withdrawing its prior guidance on the free care policy as 
expressed in the School-Based Administrative Claiming Guide and other CMS guidance.   As 
indicated by the DAB, the free care policy as previously applied effectively prevented the use of 
Medicaid funds to pay for covered services furnished to Medicaid eligible beneficiaries when the 
provider did not bill the beneficiary or any other individuals for the services. The goal of this 
new guidance is to facilitate and improve access to quality healthcare services and improve the 
health of communities. 
 
                                                           
1 Exceptions included services provided under the Maternal and Child Health Services Block Grant program under 
Title V of the Social Security Act, covered under the Special Supplemental Nutrition Program for Women, Infants 
and Children, and provided as part of an Individualized Education Program  or Individualized Family Service Plan 
under the Individuals with Disabilities Education Act.  Under this  guidance, Medicaid reimbursement is available for covered services under the 
approved state plan that are provided to Medicaid beneficiaries, regardless of whether there is 
any charge for the service to the beneficiary or the community at large. As a result, Federal 
Financial Participation (FFP) is available for Medicaid payments for care provided through 
providers that do not charge individuals for the service, as long as all other Medicaid 
requirements are met.   
As is the case more generally, FFP for Medicaid payments is available only when all of the 
following elements are satisfied: 
  The individual is a Medicaid beneficiary.  
  The service is a covered Medicaid service, provided in accordance with the approved 
state plan methodologies, including coverage under the Early and Periodic Screening 
Diagnostic and Treatment (EPSDT) benefit provided to children. 
  The provider is a Medicaid-participating provider and meets all federal and/or state 
provider qualification requirements. 
  The state plan contains a payment methodology for determining rates that are consistent 
with efficiency, economy and quality of care. 
  Third party liability (TPL) requirements are met.  
  Medicaid payment does not duplicate other specific payments for the same service. 
  The state and provider maintain auditable documentation to support claims for FFP.  
  The state conducts appropriate financial oversight of provider billing practices. 
  All other program requirements (statutory, regulatory, policy) for the service, payment, 
and associated claiming are met. 
Third Party Liability (TPL) Provisions 
The Medicaid statute at section 1902(a)(25) of the Social Security Act (the Act) requires that 
states take all reasonable measures to ascertain and pursue claims for payment of health care 
items and services against legally liable third parties.  Regulations at 42 Code of Federal 
Regulations (CFR) 433 subpart D describe the TPL provisions for the Medicaid program.  In 
general, Medicaid beneficiaries are required to cooperate with the state Medicaid program in 
identifying available third party resources and assigning their rights to third party payments to 
the Medicaid program.  Providers, in turn, are generally required to bill legally liable third parties 
prior to billing Medicaid, and bill Medicaid only the difference between the third partys 
payment liability and Medicaids payment rate established in the Medicaid state plan (although 
there are some regulatory exceptions permitting Medicaid to pay providers in full and separately 
pursue TPL).    
  
 
  We clarify here that CMS does not view public agencies or programs that are carrying out 
general responsibilities to ensure access to needed health care, such as schools, public health 
agencies, and child protective services agencies, as legally liable third parties at the federal level 
for purposes of Medicaid reimbursement, except to the extent of liability that is more specific in 
nature, such as a tort claim or employer responsibility for employee health benefits, or when 
legal liability is specified by state law.  A third party is defined in CMS regulations at 42 CFR 
433.136 as any individual, entity or program that is or may be liable to pay all or part of the 
expenditures for medical assistance furnished under a state plan.  While the term entities or 
programs includes schools and similar agencies, typically these entities have general 
responsibilities to ensure that their students or clients obtain necessary services.   This general 
responsibility to ensure access to needed care does not necessarily mean that these entities or 
programs have legal liability for payment for services when there are other available payers, such 
as Medicaid (even though their general responsibility may be supported by authority to make 
payment for such services). This clarification is consistent with how CMS has historically 
viewed the role of public agencies and the flexibility of states to use a variety of state and local 
agencies to ensure that individuals receive needed services, including Medicaid services. Since 
state laws may vary on this subject, we suggest that states review their own legal framework to 
determine whether such agencies or programs are required by state law to pay for services when 
there are other available payers.  
Under this guidance, we also would not consider schools to be legally liable third parties to the 
extent that they are acting to ensure that students receive needed medical services to access a free 
appropriate public education consistent with section 504 of the Rehabilitation Act of 1973, 29 
U.S.C. 794.  
This guidance does not create any exception to requirements to pursue TPL from legally liable 
third parties, such as private insurance plans or negligent tort-feasors, but it allows states to 
determine that public agencies with general responsibilities to ensure health and welfare are not 
considered legally liable third parties.  Nor does this guidance create an exception to legal 
liability arising from public agency responsibilities under state or federal laws other than general 
responsibilities for the health and welfare of the population served.  For example, a public 
agency or program would still be legally liable for costs resulting from improper or negligent 
actions by employees during the performance of assigned duties.  
We also note that, even if a state determines that schools or providers of Individuals with 
Disabilities Education Act (IDEA) services generally are legally liable third parties, the 
Medicaid statute contains an exception at section 1903(c) of the Act, which requires that 
Medicaid serve as the primary payer to schools and providers of services in an Individualized 
Education Program (IEP) or Individualized Family Service Plan (IFSP) under the IDEA.  
Likewise, IDEA sections 612(e) and 640(c), codified in 20 U.S.C. 1412(e) and 1440(c), provide 
that nothing in the IDEA permits a state to reduce medical or other assistance available, or to 
alter eligibility, under Titles V (relating to maternal and child health) and XIX of the Social 
 
  Security Act (relating to Medicaid for infants and toddlers with disabilities and to the provision 
of a free appropriate public education to children with disabilities) in the state.  
If you have any questions regarding the information in this letter, please contact Ms. Barbara 
Coulter Edwards, Director of the Disabled and Elderly Health Programs Group, at 410-786-
0325.  
 
            Sincerely, 
               /s/   
Cindy Mann 
Director 
 
 
 
 
cc: 
CMS Regional Administrators 
CMS Associate Regional Administrators 
Division of Medicaid and Childrens Health 
Matt Salo 
Executive Director 
National Association of Medicaid Directors 
Trish Riley 
Executive Director 
National Academy for State Health Policy 
William Garner 
Legislative Director 
National Governors Association 
Ron Smith 
Director 
Legislative Affairs 
American Public Human Services Association 
 
  Christopher Gould 
Director, Government Relations 
Association of State and Territorial Health Officials 
Debra Miller 
Director for Health Policy 
Council of State Governments 
Michael Yudin, 
Acting Assistant Secretary, 
Office of Special Education and Rehabilitative Services,  
U.S. Department of Education