For Release on Delivery

Expected at 10:00 a.m.

Wednesday, April 5, 2000

GAO/T-HEHS/OSI-00-87

MEDICAID IN SCHOOLS

Poor Oversight and

Improper Payments

Compromise Potential

Benefit

Statement of Kathryn G. Allen, Associate Director,

Health Financing and Public Health Issues, and

Robert H. Hast, Acting Comptroller General for Special

Investigations

Testimony

Before the Committee on Finance, U.S. Senate

United States General Accounting Office

GAO
Page 1 GAO/T-HEHS/OSI-00-87

Mr. Chairman and Members of the Committee:

We are pleased to be here today as you address the issue of Medicaid

expenditures for school-based health services and administrative costs.

Because Medicaid is a federal-state partnership, the federal government is

responsible for paying a share of costs incurred by the states to serve

Medicaid’s 41 million low-income beneficiaries, including 13 million

school-aged children. Medicaid helps finance certain health services that

eligible children, including those with disabilities, receive in schools, such

as diagnostic screening and physical therapy. Medicaid is also authorized

to reimburse schools’ costs for performing certain administrative

activities, such as conducting outreach to help enroll children in Medicaid

and providing referrals to qualified providers.

In June 1999, we testified before your Committee about multimilliondollar increases in Medicaid reimbursements for administrative activities

in 10 states and the need for more federal and state oversight of these

growing expenditures.1

At that time, we found that weak and inconsistent

control over the review and approval of claims for school-based

administrative activities created an environment in which inappropriate

claims could result in excessive Medicaid reimbursements. You

subsequently asked us to expand our analysis of Medicaid reimbursement

of school-based administrative activities and to examine states’ use of

“bundled” rates for school-based health services.2

Our remarks are based

on our report being issued today and will focus on (1) the magnitude of

states’ claims for school-based health services and administrative

activities, (2) the appropriateness of the methods used to determine how

much Medicaid pays for these services, (3) the extent to which school

districts directly benefit from federal Medicaid reimbursements, and (4)

the adequacy of the Health Care Financing Administration’s (HCFA)

oversight of school-based claims.3

Our findings are based on a survey of all 50 states and the District of

Columbia; work in 7 states that HCFA identified as paying for health

1See Medicaid: Questionable Practices Boost Federal Payments for School-Based Services (GAO/THEHS-99-148, June 17, 1999).

2Bundled rates are single payments for a package of various services that eligible special education

children may need over a specified period of time; a fixed amount is paid per child on the basis of the

services the child is expected to require, not on the basis of the services the child actually receives.

3See Medicaid in Schools: Improper Payments Demand Improvements in HCFA Oversight

(GAO/HEHS/OSI-00-69, Apr. 5, 2000).

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Improper Payments Compromise Potential

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Improper Payments Compromise Potential

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services using a bundled, rather than a fee-for-service, approach; and work

in 17 states we identified as submitting claims for administrative activities.

We also conducted investigative work in two states where we identified

abusive or potentially fraudulent practices associated with claims for

administrative activities or fee-for-service health payments.

In summary, despite growing expenditures for school-based Medicaid

services and activities, the potential benefits to schools and the children

they serve are being compromised by poor HCFA guidance and oversight

and by improper payments that divert public funding from its intended

purpose. In total, 47 states and the District of Columbia have reported $2.3

billion in Medicaid expenditures for school-based activities for the latest

year for which they have data. Although this spending level reflects a

small share of total Medicaid expenditures, more schools are expressing

interest in availing themselves of Medicaid as a source of funds, especially

to reimburse administrative activities, which creates the potential for

continuing expenditure growth.

Payment for covered services for Medicaid-eligible children is not at issue.

But methods used by some school districts and states to claim Medicaid

reimbursement for school-based services lack sufficient controls to

ensure that these are legitimate claims. For example:

• Bundled payment methods that seven states use to pay for health services

have failed in some cases to take into account variations in service needs

among children and have often lacked assurances that services paid for

were provided. HCFA last year banned the use of bundled rates because of

concerns about their development and use. However, we believe that it

would be better for HCFA to work with states and schools to build in

these missing assurances rather than to ban the use of bundled rates

altogether.

• Poor guidance and oversight have resulted in improper payments in at

least 2 of the 17 states that allowed schools to submit claims for

administrative activities costs. Our work in Michigan alone identified $28

million in federal reimbursement for improper payments for

administrative activity claims over 2 recent years. The lack of effective

controls in other states could allow comparable improprieties to occur

elsewhere.

Despite the significant level of Medicaid payments for school-based

services in some states, school districts may receive little in direct

reimbursements because of certain funding arrangements among schools,

states, and private firms contracting with them. Seven states retain from
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Improper Payments Compromise Potential

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50 to 85 percent of federal reimbursement for Medicaid school-based

claims. In addition, some school districts may pay private firms up to 25

percent of their federal Medicaid reimbursement. These firms often help

schools develop claiming methodologies, train school personnel to apply

these methods, and submit the claims for reimbursement. As a result of

these arrangements, schools may end up with as little as $7.50 for every

$100 claimed. These funding arrangements can create reduced incentives

for appropriate program oversight and an environment for opportunism

that drains funds away from their intended purposes.

HCFA has historically provided little or inconsistent direction and

oversight of Medicaid reimbursements for school-based claims, which has

contributed to the problems we have identified. For example, some HCFA

regional offices allowed payments to be made without approving the

methods proposed by some states to claim reimbursement for

administrative activities. HCFA has recently focused more attention on

these issues by reviewing the claims for school-based administrative

activities by at least one regional office and developing a draft schoolbased administrative claiming guide. However, states are still awaiting

further guidance on bundled rates and allowable transportation costs for

children with special needs.

We are making recommendations to the Administrator of HCFA aimed at

improving the development and consistent use of clear policies and

appropriate oversight for school-based Medicaid services. HCFA generally

has agreed with our findings and is already taking steps to respond to

these recommendations. We are also making referrals to the U.S.

Attorney’s Offices for those instances in which we have uncovered

evidence of inappropriate and potentially fraudulent claims.

Medicaid is a joint federal-state program that in fiscal year 1998 spent

about $177 billion to finance health coverage for 41 million low-income

individuals, 13 million of whom were school-aged children. States operate

their programs within broad federal requirements and can elect to cover a

range of optional populations and benefits. Medicaid costs shared by the

federal government and the states fall under one of two categories:

medical assistance (or “health services”) and administrative activities.

Each state program’s federal and state funding shares of health services

payments are determined through a statutory matching formula. Under

this formula, the federal share ranges from 50 to 83 percent, depending on

a state’s per capita income in relationship to the national average. The

federal share of costs for administrative activities varies by the type of

costs incurred, but most administrative costs are shared equally between

Background
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Improper Payments Compromise Potential

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the federal government and the individual state.4Over 95 percent of

Medicaid’s $177 billion in total expenditures in fiscal year 1998 was spent

on health services.

Schools can help identify, enroll, and provide Medicaid services to eligible

low-income children, and states are authorized to use their Medicaid

programs to help pay for certain health care services delivered to these

children in schools. In addition, Medicaid is authorized to cover health

services provided to Medicaid-eligible children under the Individuals With

Disabilities Education Act (IDEA). In particular, IDEA obligates schools to

identify and provide the “related services” that are required to help a child

with a disability benefit from special education, including transportation,

speech therapy, and physical and occupational therapy. Because some

services required to address the specific needs of a child with a disability

are health-related, Medicaid is an attractive option for funding healthrelated IDEA services for Medicaid-eligible children.

Commonly provided school-based health services that qualify for

Medicaid reimbursement include physical, occupational, and speech

therapy as well as diagnostic, preventive, and rehabilitative services.

Schools that submit claims to their state Medicaid agency for

reimbursement for health services must meet Medicaid provider

qualifications established by the state and must have a provider agreement

with the state Medicaid agency. Payment rates are established by the state

Medicaid agency and described in a state plan that is approved by HCFA.

Although states have broad discretion in establishing payment rates, they

must be reasonable and sufficient to ensure the provision of quality

services and access to care.

Until recently, states have been allowed to develop methods to create

bundled payments for a specified group of services, which in most

instances means a fixed payment for all services a child receives during a

set period of time, such as a day or month. However, in a May 21, 1999,

letter to state Medicaid directors, HCFA prohibited states’ use of this

approach, having concluded that bundled rate methodologies do not

produce sufficient documentation of accurate and reasonable payments.

HCFA informed states that it would not be considering further proposals

by states to use a bundled rate payment system and directed states with

4Certain administrative expenditures are eligible for higher federal matching funds. For example,

federal matching funds pay 90 percent of costs for the development of automated information systems

and 75 percent of costs for some administrative activities performed by skilled professional medical

personnel.
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Improper Payments Compromise Potential

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bundled rates to develop and prospectively implement an alternate

reimbursement methodology. HCFA expected states to come into

compliance with its May 21, 1999, letter within a reasonable time frame

and stated it would consider taking action if this did not occur. While

HCFA expects to issue further clarification on bundled rates, states with

approved bundled rates continue to use them.

Schools may also receive reimbursement for the costs of performing

administrative activities related to Medicaid, such as Medicaid outreach,

application assistance, and coordination and monitoring of health

services. Unlike the requirements for health services claims, a school does

not need to become a qualified Medicaid provider to submit administrative

activity claims. However, there must be (1) either an interagency

agreement, or a contract, that defines the relationship between the state

Medicaid agency and the school district and (2) an acceptable

reimbursement methodology for calculating allowable costs of

administrative activities. States must abide by the cost allocation

principles described in Office of Management and Budget Circular A-87,

which requires, among other things, that costs be “necessary and

reasonable” and “allocable” to the Medicaid program.

In August 1997, HCFA issued a technical assistance guide for Medicaid

claims for school-based services that provides general guidelines

regarding Medicaid reimbursement for the costs of school health services

and administrative activities.5

More recently, HCFA’s May 21, 1999, letter

to state Medicaid directors, in addition to addressing bundled rates, also

attempted to clarify several policies, including payments for

transportation for children with disabilities. The letter stated that HCFA

was in the process of updating its guiding principles related to claims for

school-based administrative activities costs. In February 2000, HCFA

issued for comment a new draft technical assistance guide aimed at

clarifying guidance for submitting school-based administrative claims. 6

5See HCFA, Center for Medicaid and State Operations, Medicaid and School Health: A Technical

Assistance Guide (Washington, D.C.: HCFA, Aug. 1997).

6See HCFA, Medicaid School-based Administrative Claiming Guide (Draft) (Washington, D.C.: HCFA,

Feb. 2000). The guide can be accessed at http://www.hcfa.gov/medicaid/schools/machmpg.htm.
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Schools in 47 states and the District of Columbia obtain Medicaid payment

to some degree for school-based health services, administrative activities,

or both. These payments totaled $2.3 billion for the latest year for which

data were available.7

Medicaid payments to schools ranged from a high of

$820 per Medicaid-eligible child in Maryland to about 5 cents per

Medicaid-eligible child in Mississippi. Figure 1 shows the 19 states, and the

District of Columbia, with the highest average expenditures per Medicaideligible child for school-based services. (App. I provides more detail on

school-based claims for all states.)

7States were asked to provide school-based claims data for the most recent fiscal year for which they

were available, which for approximately half of the states was state fiscal year 1999. Most of the

remaining states provided data for state fiscal year 1998, federal fiscal year 1998, or calendar year

1998; three states provided data for periods before July 1997.

Medicaid SchoolBased Activities

Involve a Variety of

Practices Across

States
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Improper Payments Compromise Potential

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Figure 1: Highest Average Claims Per Medicaid-Eligible Child (19 States and the District of Columbia)

Source: GAO analysis of state-reported claims data and HCFA’s fiscal year 1997 eligibility

data (2082 report).

The majority of Medicaid payments—about $1.6 billion—were for health

services provided by schools in 45 states and the District of Columbia, and

about $712 million were for administrative activities billed by schools in

17 states. Although schools in 17 states submit claims for reimbursement

of Medicaid-related administrative activities, 2 states—Michigan and

Illinois—accounted for 74 percent of all school-based administrative

activity payments. (See fig. 2.)

0

Dollars

100 200 300 400 500 600 700 800 900

Minnesota

Utah

Arizona

Pennsylvania

Connecticut

New Jersey

Wisconsin

District of Columbia

Alaska

Massachusetts

Kansas

Vermont

Maine

Delaware

Rhode Island

New Hampshire

Illinois

Michigan

New York

Maryland

State

Health Services Claims Per Child

Administrative Activities Claims Per Child
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Figure 2: $2.3 Billion Claimed for School-Based Medicaid Reimbursement

Source: GAO survey of states.

The school-based administrative claims of a few states have grown rapidly

and now constitute a significant share of these states’ total administrative

costs for all Medicaid program activities. For example, school-based

claims represented 47 percent and 46 percent of total Medicaid

administrative claims for Michigan and Illinois, respectively. Other

states—Alaska, Arizona, and Washington—had school-based claims

representing about 20 percent of their total Medicaid administrative

expenditures. (See table 1.) Alaska, Illinois, Michigan, and Minnesota each

showed average annual growth rates for school-based administrative

expenditures that were at least twice as high as the growth rate of other

Medicaid administrative expenditures .

Illinois and Michigan

Health Services

74% of Administrative

Activities

45 States and D.C.

$1.6 billion

Administrative Activities

17 States

$712 million
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Table 1: States’ Medicaid School-Based Administrative Claims as a

Percentage of Total Medicaid Administrative Expenditures

State School-based

Medicaid

administrative

claims (in

thousands)

Total Medicaid

administrative

expenditures (in

thousands)a

Percentage of total

administrative

expenditures

Michigan $224,167 $477,138 47

Illinois 302,687 661,188 46

Arizona 25,795 131,577 20

Washingtonb 18,394 91,745 20

Alaska 7,780 40,662 19

New Mexico 4,909 32,078 15

Florida 38,451 289,625 13

Minnesota 23,495 209,412 11

Massachusettsc 19,500 190,669 10

Missouri 11,104 131,024 8

Vermont 1,757 35,659 5

Pennsylvania 13,952 387,262 4

New Jersey 5,657 253,991 2

Texas 11,662 576,952 2

Iowa 1,084 70,125 2

Wisconsin 1,591 138,555 1

California 288 1,227,657 Less than .02

Note: States provided administrative claims data for school-based services from the most

recent fiscal year for which data were available. Most states provided data from the year

ending June 30, 1999, while two states provided data from calendar year 1998, two states

provided federal fiscal year 1998 data, and three states provided data from state fiscal

year 1998 (July 1, 1997–June 30, 1998).

a

States provided total Medicaid administrative expenditures for the same period as for the

school-based administrative claims data.

b

Washington provided school-based administrative claims data for the year ending August

31, 1999, and total Medicaid administrative expenditures for federal fiscal year 1999

(October 1, 1998–September 30, 1999).

c

Massachusetts provided 6 months of school-based administrative claims data, which we

extrapolated to reflect a full year of claims.

Source: State-reported claims data.
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Some methods used to claim Medicaid reimbursement do not adequately

ensure that health services are provided or that administrative activity

costs are properly identified and reimbursed. Bundled payment methods

used to claim Medicaid reimbursement may lack sufficient controls to

ensure that health services paid for are actually provided and may not

differentiate levels of need among children. In addition, our investigation

of fee-for-service payments for health services in one state also identified

inappropriate practices that resulted in improper payments by Medicaid.

Similarly, poor controls over what constitutes an allowable administrative

activity have resulted in millions of dollars of improper Medicaid

reimbursements.

Bundled payments are somewhat comparable to capitation payments in a

managed care setting, in that a school district receives a single payment

for all the covered services a child needs during a specified period, such

as a day or month.8

HCFA began to allow states to develop bundled

payment approaches in an attempt to simplify schools’ reporting

requirements under Medicaid. When appropriately used, bundled rates can

help limit Medicaid costs by creating the incentive to provide needed

services more efficiently. Under a bundled approach, however, costs can

also be limited by neglecting to provide all needed services or by

compromising the quality of individual services provided. In some cases,

such a payment approach can also create an incentive for schools to

change what services children receive or where they receive them to

increase schools’ reimbursement. The seven states that used bundled rate

payments for health services account for 12 percent of total health

services claims in schools. These states’ rates vary in the extent to which

they differentiate levels of need among children, ensure that services paid

for are provided, or both. (See table 2.)

8Services included in the bundled rates are relatively similar among the seven states and typically

include audiology; counseling; and physical, speech, and occupational therapy. One notable exception

is transportation, the cost of which only four of the seven states include in their bundled rates.

Certain Methods Used

to Claim Medicaid

Reimbursement Lack

Sufficient Controls

Some States’ Bundled

Payment Methods for

Health Services Lack

Sufficient Accountability
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Table 2: Approaches to School-Based Payments in Seven States Using Bundled Rates

State Does the bundled rate vary

depending on the needs of the

child?a

What is the unit of payment for

services?b

What event triggers submitting

a claim to Medicaid for

reimbursement?

Connecticut No—one statewide rate Monthly rate—$336 per child Receipt of one service

Kansas Yes—14 statewide rates; vary

by primary disability

Monthly rate—$151–$636 per

child

School attendance 1 day a month

Maine Yes—13 statewide rates; vary

by primary disability

Monthly rate—$141–$442 per

child

School attendance 1 day a month

Massachusetts Yes—seven statewide rates;

vary by time spent in a regular

classroom

Six daily rates—$11–$48 per child;

one weekly rate—$106 per child

School attendance

New Jersey Yes—four statewide rates; vary

by type of school

Daily rate—$33–$172 per child Receipt of one service

Utah No—school-specific rates Daily rate—$21–$60 per child School attendance

Vermont Yes—four statewide rates; vary

by number of services actually

provided

Monthly rate—$162–$1,598 per

child

Receipt of a specified number of

services

a

States may exclude certain services, such as development and evaluation of the

individualized plan of a child with a disability; the receipt of Early and Periodic Screening,

Diagnostic, and Treatment services; and provision of medical equipment, from their

bundled rates and separately claim Medicaid reimbursement for these services.

b

For all but one state, the rates are current and are rounded to the nearest dollar. The

rates listed for Vermont are from the 1998—99 school year. Vermont’s rates have

historically been adjusted annually for salary increases.

Source: State Medicaid agencies.

States do not always adjust bundled rate payments for children with

different medical needs. For example, Connecticut pays the same bundled

rate to all participating schools for each eligible child, regardless of

whether that child has a mild learning disability or multiple physical and

cognitive disabilities. The single rate may not cover the full costs incurred

by schools that have a disproportionate number of children whose

services cost more, which may affect schools’ ability to provide necessary

services. Conversely, other schools may be paid an amount higher than

their actual costs. In Massachusetts and New Jersey, the payment levels

vary depending on the location of the child, such as the classroom type or

school in which a child is enrolled, and not necessarily on the number or

scope of services provided. To a greater extent, the bundled rates in

Kansas, Maine, and Vermont vary among children with different levels of

need and are thus aligned more closely to the expected costs of services

for specified groups of children. For example, schools in Kansas and
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Maine receive the same payment amount for all children with specified

disabilities, such as autism or mental retardation. Vermont does not

distinguish among types of disabilities but does have four different levels

of reimbursement, which vary depending on the number of services a

child actually receives.9

In addition, states’ bundled approaches may not provide adequate

assurance that services paid for are actually provided. Payments in

Kansas, Massachusetts, Maine, and Utah are not specifically linked to the

receipt of services because reimbursement is triggered simply by school

attendance. Participating schools in these states are paid the bundled rate

for each eligible child, irrespective of whether the child has received any

services. Better assurances that services are actually provided to eligible

children exist in Connecticut, New Jersey, and Vermont. Schools in

Connecticut and New Jersey must document services provided to each

child to obtain the full bundled payment. In Vermont, case managers

complete for each child a level-of-care form that describes the amount and

scope of services provided, which determines which one of four payment

levels the school receives.

Our investigation into fee-for-service school-based health services

identified certain examples of inappropriate health services claims. Our

investigation of practices in one fee-for-service state revealed that schools

were submitting and the state was paying transportation claims for all

Medicaid children who had received a Medicaid health service at school,

without verifying that the child had used school bus transportation. Our

investigation further identified instances in which the transportation

services for which the state submitted claims were not provided, resulting

in improper Medicaid reimbursements. Medicaid was also inappropriately

billed for health services in two states, where some group therapy

sessions were billed as individual therapy sessions, resulting in a higher

payment for the schools.

9Schools are reimbursed a lower amount for children in level one, who receive fewer than 6 units of

service a week, than for those in level three, who receive from 12 to 24 units of service a week.

Vermont’s approach also recognizes differences in the costs of services provided by aides and

professionals. For example, 1 hour of individual therapy provided by a certified physical therapist is

equal to three units of service, while an hour of therapy provided by an aide equals one unit.

Investigation Identified

Improper Fee-for-Service

Health Claims
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With regard to administrative activities, poor controls have resulted in

improper payments in at least 2 of the 17 states that allowed schools to

claim such costs, and the similar lack of effective controls in other states

could allow comparable improprieties to occur.

• In Michigan, the HCFA Chicago regional office questioned $30 million in

administrative claims for activities not clearly related to Medicaid, for the

quarter ending September 1998. School staff interviewed by HCFA

revealed that activities they performed, related to general health

screenings, family communications, or training, had no Medicaid

component or benefit, although a portion of staff time was claimed and

reimbursed as such. The HCFA regional office subsequently deferred a $33

million claim made for the quarter ending September 1999, again asking

the state to better document that the activities were clearly linked to

Medicaid. We identified similar practices for submitting administrative

claims in as many as seven other states.

• Our investigation and HCFA scrutiny of claims in Michigan and Illinois

identified administrative cost claims, submitted and paid, for activities

performed for the benefit of non-Medicaid-eligible children, including

administrative costs related to health reviews and evaluations that

specifically excluded Medicaid-eligible children for whom separate claims

were submitted as direct services. Our work in Michigan alone identified

$28 million in federal reimbursement for improper payments for

administrative activity claims over 2 recent years.

• In Illinois and Michigan, on the advice of private firms, school districts

have submitted claims that inadequately document the need to have

skilled medical personnel involved in certain administrative activities.

When such personnel are involved, the federal government reimburses

schools 75 percent rather than 50 percent for the administrative activities

they perform.10For recent school-based administrative activity claims in

Illinois, activities performed by skilled medical personnel totaled $16.6

million, or 37 percent of the state’s total claims, for one quarter for

participating school districts.11In Michigan, this type of claim totaled $14

10In general, administrative activity claims based on professional credentials can be legitimately used

only when the person (1) has the appropriate credential, such as a nurse, occupational therapist, or

physical therapist, and (2) performs an administrative activity that requires professional knowledge

and skills.

11For one school district, the claims were from the quarter ending December 1998; for all other school

districts, the claims were from the quarter ending March 1999.

For Administrative Activity

Claims, Poor Controls

Have Resulted in Improper

Reimbursement
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million, or 25 percent of its total administrative activity for all

participating school districts, for the quarter ending September 1998.12

Funding arrangements among schools, states, and private firms can

significantly reduce the amount of federal dollars that schools receive for

Medicaid-related services and activities. As a result of these arrangements,

a school can receive as little as $7.50 for every $100 it spends to pay for

services and activities for Medicaid-eligible children. In addition, these

arrangements may create adverse incentives for program oversight.

Rather than fully reimbursing schools for their Medicaid-related costs,

eighteen states retain from 1 to 85 percent of federal Medicaid

reimbursements (see table 3). According to several state officials, because

states fund a portion of local education activities, Medicaid services

provided by schools are partially funded by the state. Under this

reasoning, some states believe they should receive a share of the federal

reimbursements claimed by school districts. However, it is not clear that

state, rather than local, funds support the Medicaid-reimbursable services

as opposed to other educational activities that the states fund. Moreover,

we believe that such a practice severs the direct link between Medicaid

payment and services delivered, increases the potential for the diversion

of Medicaid funds to purposes other than those intended, and is

inconsistent with the program’s fundamental tenet that federal dollars are

provided to match state or local dollars to provide services to eligible

individuals.

12In these two states, overall skilled professional medical personnel claims for administrative

expenditures have increased four- and fivefold since the states began paying for school-based

administrative costs.

In Some States,

Schools Receive a

Small Portion of

Medicaid

Reimbursement
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Table 3: Federal Medicaid Reimbursement Retained by States

Percentage of federal

reimbursement retained

State Health services Administrative

activities

Amount retained by

state (in thousands) a

New Jersey 85 85 $25,815

Iowa 75 0 1,984

Delaware 70 b4,865

Vermont 60 15 4,266

Alaska b 52 2,023

New York 50 b170,500

Pennsylvania 50 50 18,079

Washingtonc 50 0 3,122

Connecticut 40 b4,443

Michigan 40 40 69,156

Wisconsin 40 40 10,749

Illinoisd 10 10 6,391

New Mexico 5 5 314

Ohio 4 b 741

Utah 2 b105

Colorado 2 b50

Massachusetts 1 1 326

Minnesota 0 5 587

Total $323,516

a

States provided school-based claims data for the most recent fiscal year for which they

were available, which for approximately half the states was state fiscal year 1999. Most of

the remaining states provided data for state fiscal year 1998, federal fiscal year 1998, or

calendar year 1998; three states provided data from before July 1, 1997.

b

This state does not claim reimbursement for this type of school-based activity.

c

Washington retains at least 50 percent of federally reimbursed funds but can retain a

higher percentage depending on whether the school district is “fully participating” in billing

Medicaid for school-based services.

d

When total Medicaid payments to an Illinois school district exceed $1 million in a year, 10

percent of the portion exceeding $1 million is retained for the state’s general revenue

fund. According to the state, 22 of its 900 school districts received more than $1 million.

Source: State-reported data.

In addition, some school districts pay private firms fees ranging from 3 to

25 percent of the federal reimbursement amount claimed, with fees most

commonly ranging from 9 to 12 percent. These firms are usually hired to

assist with administrative cost claims, generally designing the methods

used to make these claims, training school personnel to apply these
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methods, and submitting administrative claims to state Medicaid agencies

to obtain the federal reimbursement that provides the basis for their fees.

Finally, school districts’ funds often are used to supply the state’s share of

Medicaid funding for school-based claims. 13

In these cases, the maximum

additional funding that a school district can receive is what the federal

government contributes. This is substantially less than what a private

sector Medicaid provider would receive for delivering similar services. For

example, a physician who submits a claim with an allowable amount of

$100 will receive $100: $50 in state funds and $50 in federal funds in those

states with equal matching between federal and state sources. Given the

source of the states’ share of funding, states’ policies to retain portions of

the federal reimbursement, and schools’ contingency fee arrangements

with private firms, the net amount of federal funds returned to a school

district varies considerably. As shown in figure 3, a school district may

receive as much as $100 in Minnesota to as little as $7.50 in New Jersey in

federal Medicaid reimbursement for every $100 spent to pay for services

and activities performed in support of Medicaid-eligible children.

13Local funding as the source of a state’s share of Medicaid reimbursement is not

unique to schools; it is most likely to exist when there are multiple governmental

entities involved. For example, local funds are being used as a source of the state

share of the cost of publicly funded hospitals and mental health services.
Medicaid in Schools: Poor Oversight and

Improper Payments Compromise Potential

Benefit

Page 17 GAO/T-HEHS/OSI-00-87

Figure 3: Some School Districts Receive Little Federal Medicaid

Reimbursement

Note: For Illinois, when total payments to a school district exceed $1 million in a year, 10

percent of the portion exceeding $1 million is retained for the state’s general revenue

fund.In Florida, effective February 14, 2000, contingency fee reimbursement contracts are

prohibited for school districts.

Source: GAO analysis of state data.

In addition to affecting the payment a school ultimately receives, these

funding arrangements may create adverse incentives for program

oversight. Because states can benefit directly from higher federal

payments, states’ incentives to exercise strong oversight over the

propriety of school-based claims can be diminished. Similar questions are

raised about the incentives of private firms that are paid a share of

schools’ Medicaid reimbursement. Embedded in both of these practices

are incentives for states and private firms to experiment with “creative”

billing practices, some of which we have found to be improper.

Minnesota

State

0

20

40

60

80

100

Dollars

Florida Michigan Vermont New Jersey

Paid to Private Firm by School District

Retained by State

Local Funds Used

Net to School District
Medicaid in Schools: Poor Oversight and

Improper Payments Compromise Potential

Benefit

Page 18 GAO/T-HEHS/OSI-00-87

While HCFA has made some recent efforts to improve oversight of

Medicaid school-based claims, efforts to date have not consistently

ensured the appropriateness of these claims. For example, HCFA

instructed states with bundled rates to develop and implement an

alternative reimbursement methodology but did not provide a time frame

in which to do so. The work group that HCFA created to explore

alternatives to bundled rates included representatives from the

Department of Education and some states; this group is currently inactive,

and all seven states that were using a bundled approach before HCFA’s

May 1999 letter continue to do so while they await further guidance.

With regard to administrative activity claims, some HCFA regional offices

have had little or no involvement in the development of states’

methodologies for developing administrative claims, while other regional

offices have worked in concert with states to develop these

methodologies. Moreover, contradictory policies exist across the regional

offices regarding when states may obtain the 75-percent enhanced

matching rate for skilled medical providers performing administrative

services. We found that different regional offices (1) allow an enhanced

match, (2) completely disallow the practice, or (3) specifically review the

use of the enhanced match to ensure its appropriateness. Finally, HCFA’s

attempt to clarify its policy on specialized transportation has resulted in

inconsistency and confusion. Only one of the seven regional offices that

we spoke with correctly understood that Medicaid will cover

transportation costs if a child is able to ride on a regular school bus but

requires the assistance of an aide. Two regional offices incorrectly

believed that such costs would not be reimbursed, while four did not

know whether reimbursement would be allowed.

HCFA has taken some steps to improve oversight of school-based claims.

One regional office recently conducted a review of one state’s practices,

identified cases of improper payments, issued deferrals of claims, and is

now working with a few states to revise their practices to more accurately

capture the costs associated with Medicaid administrative activities in

schools. Guidance that HCFA testified in June 1999 would be forthcoming

was released for public comment in February 2000.

Schools are a logical place to reach Medicaid-eligible children and their

families—to inform them about and encourage their enrollment in the

program and to provide assistance in accessing health services. But

schools’ primary mission is education, not health care delivery; thus, many

schools may face difficulties in understanding and navigating the Medicaid

program and obtaining reimbursement for services provided. Given the

HCFA Oversight Does

Not Consistently

Ensure the

Appropriateness of

School-Based Claims

Conclusions and

Recommendations
Medicaid in Schools: Poor Oversight and

Improper Payments Compromise Potential

Benefit

Page 19 GAO/T-HEHS/OSI-00-87

potential benefits of Medicaid-financed school-based services—which

ultimately support the children who need the care and services—it is

important that schools not be dissuaded from pursuing this path because

of unfamiliarity with Medicaid program requirements or uncertainty about

what is permissible. Approaches to obtaining federal financing for covered

services and activities must therefore appropriately balance schools’

needs for administrative simplicity with providing an acceptable level of

assurance that services and activities paid for were actually provided.

HCFA has a critical role in this process. It must set the proper course by

providing consistent policy guidance and then facilitating its

interpretation and implementation across the many states and school

districts that are already participating in the Medicaid program or will in

the future. HCFA generally agreed with our findings and is already taking

steps to respond to the recommendations set forth in our report, which

address the need to

• better ensure that bundled rates for health services provide for children’s

varying levels of need and that services paid for were provided,

• provide consistent guidance for and monitoring of allowable

administrative activities, and

• clarify policy on allowable specialized transportation costs for children

with disabilities.

HCFA also expressed its commitment to work with its partners in the

education community and states to address these issues in a consistent

yet flexible fashion to ensure that Medicaid dollars are used only on behalf

of Medicaid-eligible children for Medicaid-covered services. At the same

time, the states also have an important role in this program. They share

with HCFA the fiduciary responsibility to administer the Medicaid

program efficiently and effectively and must also be held accountable for

safeguarding public dollars while providing services to which

beneficiaries are entitled.

A program of the magnitude and diversity of Medicaid—with its broad

range of program goals, policymakers, providers, and beneficiaries at the

federal, state, and local levels—will always present demanding challenges

in terms of finding the appropriate balance between state flexibility and

public accountability. The emergence of these issues associated with

school-based services is just the latest example of the need for constant

vigilance to guard against potential exploitation that would divert limited

resources from their intended purposes. We are committed to continuing
Medicaid in Schools: Poor Oversight and

Improper Payments Compromise Potential

Benefit

Page 20 GAO/T-HEHS/OSI-00-87

to work with this Committee and HCFA to help address these important

issues.

Mr. Chairman, this concludes our prepared statement. We would be happy

to answer any questions that you or Members of the Committee may have.

For future contacts regarding this testimony, call Kathryn G. Allen at (202)

512-7118; for questions regarding our investigation, call Robert H. Hast at

(202) 512-7455. Staff who made key contributions to this testimony

include Carolyn L. Yocom, Susan T. Anthony, Connie Peebles Barrow,

Laura Sutton Elsberg (Health, Education, and Human Services Division);

William Hamel and Andrew A. O’Connell (Office of Special Investigations);

Ray Bush and Paul D. Shoemaker (Atlanta Field Office); and Daniel

Schwimer and Richard Burkard (Office of the General Counsel).

GAO Contacts and

Acknowledgments
School-based claims (in thousands)

State Average

claim per

Medicaideligible child

Total

claims

Health

claims

Administrative

claims

Maryland $818 $93,824 $93,824 a

New York 703 682,000 682,000 a

Illinois 674 385,633 82,946 $302,687

Michigan 674 317,701 93,534 224,167

New Hampshire 658 24,894 24,894 a

Rhode Island 600 27,482 27,482 a

Delaware 394 13,900 13,900 a

Maine 350 22,000 22,000 a

Vermont 309 12,798 11,041 1,757

Kansas 291 25,741 25,741 a

Massachusettsb284 65,250 45,750 19,500

Alaska 265 7,780 a 7,780

District of

Columbia

265 12,100 12,100 a

Wisconsinc249 45,904 44,312 1,591

New Jersey 248 66,328 60,671 5,657

Connecticut 174 22,216 22,216 a

Pennsylvania 121 68,507 54,555 13,952

Arizona 115 25,795 a25,795

Utah 114 7,279 7,279 a

Minnesota 105 23,766 271 23,495

Texas 88 78,030 66,368 11,662

Washington 87 30,367 11,973 18,394

Oregon 85 12,441 12,441 a

South Carolina 79 14,247 14,247 a

New Mexico 72 10,348 5,439 4,909

Ohio 66 31,953 31,953 a

Florida 59 41,518 3,067 38,451

Nebraska 58 3,916 3,916 a

Missouri 55 15,381 4,277 11,104

Iowa 52 5,255 4,171 1,084

Nevada 48 1,900 1,900 a

Arkansas 45 5,428 5,428 a

Coloradod 44 4,885 4,885 a

North Dakota 41 826 826 a

South Dakota 31 906 906 a

Montana 29 892 892 a

Louisiana 26 6,269 6,269 a

West Virginia 24 3,044 3,044 a

Georgia 21 9,167 9,167 a

Idahod 20 781 781 a

California 19 42,308 42,020 288

Oklahoma 10 1,311 1,311 a

Kentucky 6 1,228 1,228 a

Virginia 5 1,201 1,201 a

Appendix: States’ Annual School-Based

Claims, Ranked by Average Claim Per

Medicaid-Eligible Child Aged 6 to 20
Appendix: States’ Annual School-Based

Claims, Ranked by Average Claim Per

Medicaid-Eligible Child Aged 6 to 20

Page 22 GAO/T-HEHS/OSI-00-87

School-based claims (in thousands)

State Average

claim per

Medicaideligible child

Total

claims

Health

claims

Administrative

claims

North Carolina 2 722 722 a

Alabama 1 132 132 a

Indiana e60 60 a

Mississippi e8 8 a

Hawaii a aa a

Tennessee a aa a

Wyoming a aa a

Total $2,275,423 $1,563,150 $712,273

Note: States provided school-based claims data for the most recent fiscal year for which

they were available, which for approximately half the states was state fiscal year 1999.

Most of the remaining states provided data for state fiscal year 1998, federal fiscal year

1998, or calendar year 1998; three states provided data for periods before July 1997.

a

This state did not report school-based claims.

b

Massachusetts provided 6 months of administrative claims data, which we extrapolated to

reflect a full year of claims.

c

Wisconsin’s school-based health claims and administrative claims do not equal its total

school-based claims because of rounding.

d

Colorado and Idaho provided 11 months of health services claims data, which we

extrapolated to reflect a full year of claims.

e

The average claim per Medicaid-eligible child was less than $1.

Source: GAO analysis of state-reported claims data and HCFA’s fiscal year 1997

eligibility data (2082 report).

(201051)
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