DEPARTMENT OF HEALTH & HUMAN SERVICES 
Health Care Financing Administration  
 Center for Medicaid and State Operations 
7500 Security Boulevard 
Baltimore, MD 21244-1850 
May 21, 1999  
Dear State Medicaid Director:  
This letter addresses reimbursement for school-based health services under Medicaid. School-based services play an important role in 
assuring that Medicaid-eligible adolescents and children receive needed health care. In particular, Medicaid is the payer of first resort 
for medical services provided to children with disabilities pursuant to the Individuals with Disabilities Education Act (IDEA). 
Although HCFA strongly supports the provision of school-based health services, it is important that these services meet applicable 
Federal Medicaid requirements. This letter clarifies HCFA policy in three areas: (1) use of a bundled rate to pay for medical services 
provided to Medicaid-eligible children in schools; (2) State claiming for school health-related transportation services for children with 
Individual Education Plans (IEPs) under the IDEA; and (3) State claiming for school health-related administrative activities.  
Bundled Rates for School-Based Services 
We and key Congressional Committees have identified a concern related to the "bundling" of school-based health services. We believe 
you share our interest in maintaining the fiscal integrity of the Medicaid program and, because of the risks discussed below, we are 
changing our policy in this regard.  
A number of States have been paying for school-based services using a "bundled rate" methodology. This permits schools to minimize 
paperwork by billing for a package of medical services, rather than for each individual service provided to each child. A bundled 
payment rate exists when a State pays a single rate for one or more of a group of different services furnished to an eligible individual 
during a fixed period of time. The payment is the same regardless of the number of services furnished or the specific costs, or 
otherwise available rates, of those services. The bundle may include two or more components usually provided by different providers, 
each with their own unique provider qualifications, even if the components fall within the same 1905(a) service category. For 
example, bundling exists when two or more component services are provided under the rehabilitative services benefit even if all of the 
school-based services are identified in the State plan as being contained within that one 1905(a) service category.  
Our concerns are related to the fact that bundled rates for school-based providers are not related to a specific type of procedure and are 
generally not available to all qualified providers in the community who might wish to be similarly reimbursed. Furthermore, schools 
do not maintain the types of medical documentation that establish the reasonableness or accuracy of a rate. Because of these factors, 
HCFA has concluded that these bundled rate methodologies do not produce sufficient documentation of accurate and reasonable 
payments, and may result in higher payments than would be reasonable on a fee-for-service basis for each individual service and thus 
do not meet the statutory intent of the law. Section 1902(a)(30)(A) of the Social Security Act requires that States have methods and 
procedures to assure that payments are consistent with efficiency, economy, and quality of care. We believe that a bundled rate for 
school-based services is inconsistent with economy, since the rate is not designed to accurately reflect true costs or reasonable fee-for-
service rates, and with efficiency, since it requires substantially more Federal oversight resources to establish the accuracy and 
reasonableness of State expenditures. There is therefore no reliable basis for determining that the rate is related to the actual cost to the 
State and other public entities, absent documentation of the individual services provided.  
Effective immediately, HCFA will no longer recognize bundled school-based health services rates as acceptable for purposes of 
claiming Federal financial participation (FFP). States that are currently paying bundled rates for school-based health services pursuant 
to an approved State plan amendment must develop and prospectively implement an alternative reimbursement methodology. We will 
be convening a meeting with a group from the States and the Department of Education to discuss options that are available. Also, 
States will be given time to work with the HCFA regional offices which will assist in the development and implementation of a non-
bundled reimbursement methodology.  
HCFA would like to work with states to implement a strategy so that States can come into compliance prospectively. At this time, no 
retroactive disallowances of FFP are planned nor are prospective deferrals. However, we expect states to work to come into 
compliance with this policy expeditiously. We recognize that some may require authorization or action by the State Legislature to 
implement a new reimbursement methodology. In the event that States do not come into compliance within a reasonable time, HCFA 
will consider taking a compliance action, including deferrals and retrospective disallowances to the date of this letter.  
HCFA will not approve any additional amendments to State plans that seek to reimburse for school-based health services using a 
bundled rate. States with pending bundling plan amendments may either withdraw those amendments or revise them to conform to the 
requirements described in this letter. If the State wishes to retain the effective date of the amendment, HCFA will assist the State to 
develop an approvable amendment. An approvable amendment must include requirements for maintaining documentation of the 
individual services provided to support claims for FFP. It should be noted that the IEP is not sufficient for purposes of documenting 
services provided since it identifies only those services that a child should receive, and not those services that the child actually 
receives.   Transportation 
HCFA's policy concerning Medicaid payment for transporting Medicaid-eligible IDEA children to and from schools is described in 
the Medicaid and School Health Technical Assistance Guide. The Guide indicates that transportation to and from school may be 
claimed as a Medicaid service when the child receives a medical service in school on a particular day and when transportation is 
specifically listed in the IEP as a required service.  
It is our understanding that an IEP should include only specialized services that a child would not otherwise receive in the course of 
attending school. Therefore, HCFA would like to clarify that a child with special education needs under IDEA who rides the regular 
school bus to school with the other non-disabled children in his/her neighborhood should not have transportation listed in his IEP and 
the cost of that bus ride should not be billed to Medicaid.  
If a child requires transportation in a vehicle adapted to serve the needs of the disabled, including a specially adapted school bus, that 
transportation may be billed to Medicaid if the need for that specialized transportation is identified in the IEP. In addition, if a child 
resides in an area that does not have school bus transportation (such as those areas in close proximity to a school) but has a medical 
need for transportation that is noted in the IEP, that transportation may also be billed to Medicaid. As always, transportation from the 
school to a provider in the community also may be billed to Medicaid. These policies apply whether the State is claiming FFP for 
transportation under Medicaid as medical assistance or administration.  
When a State claims FFP under the Medicaid program for transportation services as medical assistance under an approved 
reimbursement rate, the requirements for documentation of each service must be maintained for purposes of an audit trail. This usually 
takes the form of a trip log maintained by the provider of the specialized transportation service. The methodology used to establish the 
transportation rate should also be described in the State plan.  
When FFP for the costs of transportation services is claimed as administration, the requirements of the Office of Management and 
Budget Circular A-87 for determining allowable costs, as well as any other applicable requirements for claiming administration under 
Medicaid, must be met. This includes the development of a cost allocation methodology to ensure that Medicaid only pays for that 
portion of the specialized mode of transportation allocable to Medicaid beneficiaries.  
Effective July 1, 1999, FFP will only be available for Medicaid school-based transportation cost as administrative activities in 
accordance with the policies described above. Similarly, FFP for IEP related transportation services will only be available for services 
provided on or after July 1, 1999 as specified in this letter. HCFA's regional offices will provide technical assistance to States to assist 
them in properly claiming FFP for school-related transportation.  
Administrative Claiming for School-Based Services 
HCFA is currently reviewing practices related to State claiming for school-based administrative activities. A guide is expected to be 
published this Summer which clarifies the requirements for claims for Medicaid expenditures for administrative activities performed 
in schools.  
HCFA regional and central office staff will provide every assistance to States in their efforts to conform to these policies.  
Sincerely,  
/ s /  
Sally K. Richardson   
Director  
cc:  
All HCFA Regional Administrators  All HCFA Associate Regional Administrators for Medicaid and State Operations  Lee Partridge - 
American Public Human Services Association  Joy Wilson - National Council of State Legislatures  Matt Salo - National Governors' 
Association