GAO

United States General Accounting Office

Report to the Chairman and Ranking

Minority Member, Committee on

Finance, U.S. Senate

April 2000 MEDICAID IN

SCHOOLS

Improper Payments

Demand

Improvements in

HCFA Oversight

GAO/HEHS/OSI-00-69

Page 1 GAO/HEHS/OSI-00-69 Medicaid in Schools

Contents

Letter 3

Appendixes Appendix I: Health Care Financing Administration Letter

Dated May 21, 1999 46

Appendix II: Comments From the Health Care Financing

Administration 50

Appendix III: GAO Contacts and Staff Acknowledgments 57

Tables Table 1: States’ Annual School-Based Claims, Ranked by Average

Claim per Medicaid-Eligible Child Aged 6 to 20 14

Table 2: Positions on Reimbursement for Medicaid School-Based

Administrative Activities of Those States That Do Not

Currently Pay Claims 19

Table 3: States’ Medicaid School-Based Administrative Claims as a

Percentage of Total Medicaid Administrative Expenditures 20

Table 4: Incentives Affecting Volume and Cost of Services, by

Payment Approach 23

Table 5: Approaches to School-Based Payments in Seven States

Using Bundled Rates 24

Table 6: Amount and Percentage of Federal Medicaid

Reimbursement for Health Services and Administrative

Activities Retained by States 32

Table 7: Variations in Schools’ Receipt of Medicaid Reimbursement

for Health Services 36

Figures Figure 1: States Reporting Medicaid Claims for School-Based

Services, December 1999 13

Figure 2: Medicaid School-Based Administrative Claims for 10

States, Fiscal Years 1995-98 18
Contents

Page 2 GAO/HEHS/OSI-00-69 Medicaid in Schools

Abbreviations

EPSDT Early and Periodic Screening, Diagnostic, and Treatment

HCFA Health Care Financing Administration

IDEA Individuals With Disabilities Education Act

OMB Office of Management and Budget

OSI Office of Special Investigations

SPMP skilled professional medical provider
Page 3 GAO/HEHS/OSI-00-69 Medicaid in Schools

United States General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-283378 Letr

April 5, 2000

The Honorable William V. Roth, Jr.

Chairman

The Honorable Daniel Patrick Moynihan

Ranking Minority Member

Committee on Finance

United States Senate

Schools can be appropriate locations in which to identify low-income

children who are eligible for Medicaid, assist them to enroll, and provide

them Medicaid-covered services. Under Medicaid, a joint federal-state

program that spent about $177 billion in fiscal year 1998, the federal

government pays a share of costs incurred by the states in providing health

care to 41 million low-income beneficiaries, including 13 million schoolaged children. States may use their Medicaid programs to pay for certain

health services provided to eligible children by schools, including

diagnostic screening and ongoing treatment, such as physical therapy.

States may also obtain reimbursement from the federal government for the

costs of administrative activities associated with providing Medicaid

services in schools, such as conducting outreach activities to assist with

enrolling children in Medicaid; providing eligibility determination

assistance, program information, and referrals; and coordinating and

monitoring Medicaid-covered health services.

In June 1999, we testified before your Committee about multimillion-dollar

increases in Medicaid reimbursements for administrative activities in

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

these growing expenditures.1 In particular, we found that weak and

inconsistent controls over the review and approval of claims for schoolbased administrative activities created an environment in which

inappropriate claims could generate excessive Medicaid reimbursements.

We also found that some school districts receive only $4 of every $10 that

the federal government pays to reimburse them for Medicaid-allowable

administrative costs, after the state takes a share of the federal payment

and private firms are paid. Private firms are often engaged by school

1

See Medicaid: Questionable Practices Boost Federal Payments for School-Based Services

(GAO/T-HEHS-99-148, June 17, 1999).
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districts to design the methods used to claim Medicaid reimbursement,

train school personnel to apply these methods, and submit the claims to

state Medicaid agencies to obtain federal reimbursement.

Since our initial review was limited to administrative cost claims, you

requested that we expand our analysis of state practices regarding

Medicaid reimbursement of school-based administrative activities and

address as well the use of “bundled” rates for school-based services.

Bundled 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. This report addresses (1) the extent to which school districts and

states claim Medicaid reimbursement for school-based health services and

administrative activities; (2) the appropriateness of methods states use to

establish bundled rates for school-based health services and to assess the

costs of administrative activities that their schools may claim as

reimbursable; (3) states’ retention of federal Medicaid reimbursement for

services provided by schools and schools’ practice of paying contingency

fees to private firms; and (4) the adequacy of the Health Care Financing

Administration’s (HCFA) oversight of state practices regarding schoolbased claims, including safeguards employed to ensure appropriate billing

for health services and administrative activities.

To examine these issues, we surveyed the 50 states and the District of

Columbia, focusing on their Medicaid policies and practices related to

school-based health services and administrative activities. We visited six

states in various regions of the country—Florida, Illinois, Massachusetts,

Michigan, New Jersey, and Vermont—that allow schools to bill Medicaid

for providing health services and carrying out administrative activities and

that represent a mixture of methodologies for submitting claims for

administrative activities, transportation to and from services, and bundled

rate payments.2 We also interviewed officials in 7 of HCFA’s 10 regional

offices, the 17 states that allow claims for Medicaid-related administrative

activities, and the 8 states and the District of Columbia that HCFA

identified as using bundled rate payments for health services. In addition,

our Office of Special Investigations (OSI) began ongoing investigative work

2

States can cover transportation services either as administrative activities or as direct

health services; thus, our selection of states covered both these methods of submitting

Medicaid claims.
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in July 1999 to determine whether fraudulent or abusive practices are

occurring. OSI conducts its investigations in accordance with the standards

of the President’s Council on Integrity and Efficiency. We performed our

work between July 1999 and March 2000 in accordance with generally

accepted government auditing standards.

Results in Brief Nearly all states reported Medicaid expenditures for school-based

activities, which totaled $2.3 billion for the latest year of available state

data.3 The majority of payments—about $1.6 billion—were for health

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

about $712 million was for administrative activities billed by schools in 17

states. Three states—Illinois, Michigan, and New York—accounted for over

60 percent of total school-based claims. New York accounted for 44 percent

of all health services payments, while Illinois and Michigan together

accounted for 74 percent of all administrative activity payments. Medicaid

payments to schools ranged from a high of nearly $820 per Medicaideligible child in Maryland to less than 5 cents per child in Mississippi,

reflecting in part variation in the proportion of states’ school districts that

submitted claims for Medicaid services and activities.

Some of the methods used by school districts and states to claim

reimbursement for school-based services do not ensure that health services

are provided, or that administrative activities are properly identified and

reimbursed. Bundled rate methods used by school districts to claim

Medicaid reimbursement for school-based 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. In

two states, monthly payments ranging from $141 to $636 per child were

made to schools solely on the basis of at least 1 day’s attendance in school,

rather than on documentation of any actual service delivery. With regard to

administrative activities, poor controls have resulted in improper payments

in at least two states, and there are indications that improprieties could be

occurring in several other states. Examples follow.

3

States were asked to provide 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.
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• The HCFA Chicago regional office questioned $30 million in

administrative claims submitted by the state of Michigan for the quarter

ending September 1998 for school activities that were not related to

Medicaid. Among other issues, school staff interviewed by HCFA

revealed that activities they performed that were related to general

health screenings, family communications, or staff-related training had

no Medicaid component or benefit, although a portion of their staff time

was claimed and reimbursed as such. The HCFA regional office deferred

Michigan’s claim for $33 million in federal payment for the quarter

ending September 1999, asking again that the state better document that

school-based claims for administrative activities were clearly linked to

Medicaid.

• Our investigation and HCFA scrutiny of claims have also found that

Michigan and Illinois claimed reimbursement for services such as health

evaluations performed for the benefit of non-Medicaid-eligible children.

The resulting improper payments for non-Medicaid-eligible children

accounted for $12.5 million of the $56 million in federal reimbursement

that was reviewed in Michigan for the quarter ending September 1998

and $7.7 million in Illinois for the quarter ending March 1999. Our

investigation in Michigan identified approximately $28 million in

improper federal reimbursement for 2 years.

In some states, funding arrangements among schools, states, and private

firms can create adverse incentives for program oversight and cause

schools to receive a small portion—as little as $7.50 for every $100 in

Medicaid claims—of Medicaid reimbursement for school-based claims. We

found that 18 states retained a total of $324 million, or 34 percent, of federal

funds intended to reimburse schools for their Medicaid-related costs; for 7

of these states, this amounted to 50 to 85 percent of federal Medicaid

reimbursement for school-based claims. In addition, contingency fees,

which some school districts pay to private firms for their assistance in

preparing and submitting Medicaid claims, ranged from 3 to 25 percent of

the federal Medicaid reimbursement, further reducing the net amount that

schools receive. While school districts can—and do—pay private firms for

assistance with Medicaid claims, these fees are not allowable for federal

reimbursement. Yet, our investigation determined that in one state a school

district inappropriately included contingency fees on a Medicaid

administrative cost claim.

Finally, HCFA’s overall weak direction and oversight have contributed to

the problems we identified. Although at least one HCFA regional office has

identified cases of improper payments, to date no consistent attempt has
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been made to determine how pervasive these practices may be in other

regions and states or to halt them as quickly as possible. Moreover,

problems we identified in last June’s testimony—ambiguous policies and

inconsistent oversight—continue and, in fact, have been exacerbated. For

example, HCFA’s attempt to clarify transportation policies for school-based

services has been interpreted differently among regional offices, resulting

in inequitable treatment of school district claims for special transportation

needs. Recognizing that schools can be effective sites in which to identify

low-income children eligible for Medicaid, assist them to enroll, and

provide them Medicaid services, we are making recommendations to the

Administrator of HCFA that are aimed at improving the development and

consistent application of clear policies and appropriate oversight for

school-based Medicaid services. Additionally, we are referring evidence of

certain improprieties and other matters to the cognizant U.S. Attorney’s

Offices for appropriate action.

Background 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 are school-aged children. States operate

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

range of optional populations and benefits. As a result, Medicaid essentially

operates as 56 separate programs: 1 in each of the 50 states, the District of

Columbia, Puerto Rico, and the U.S. territories. Medicaid is an entitlement

program under which the states and the federal government are obligated

to pay for all covered services provided to an eligible individual.
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Medicaid costs shared by the federal government and the states fall under

one of the following two categories: medical assistance (called “health

services” in this report) and administrative activities. Each state program’s

federal and state funding shares of health services payments are

determined through a statutory matching formula. This formula results in

federal shares that range from 50 to 83 percent, depending on a state’s per

capita income in relationship to the national average. For administrative

activities claims, the federal share varies by the type of costs incurred.

Most administrative expenditures are shared equally between the federal

government and the individual state. However, certain administrative

expenditures are eligible for higher federal matching funds.4 Over 95

percent of Medicaid’s $177 billion in total expenditures in fiscal year 1998

was spent on health services.

Medicaid, IDEA, and

School-Based Health

Services

Schools can help identify eligible low-income children, assist them to

enroll, and provide them Medicaid-covered services, 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 children under the

Individuals With Disabilities Education Act (IDEA).5

Children who qualify for IDEA have access to a wide array of services, and

Medicaid may cover the costs of health-related services provided to eligible

children. In particular, IDEA obligates schools to provide the “related

services” that are required to help a child with a disability benefit from

special education, including transportation, speech-language pathology,

and physical and occupational therapy. Because many services required by

the individualized plan developed to address the specific needs of a child

with a disability are health-related, Medicaid is an attractive option for

funding many IDEA services. Children who qualify for IDEA are frequently

eligible for Medicaid services, and although Medicaid is generally the payer

of last resort for health care services, it is required to pay for IDEA-related

4

For example, federal matching funds pay 90 percent of costs for the development of

automated information systems and 75 percent of costs for some activities performed by

skilled professional medical personnel.

5

IDEA, 20 U.S.C. 1400, covers public school children with disabilities and emphasizes

special education; it also covers such related services as transportation, speech-language

pathology and audiology, psychological services, physical and occupational therapy, and

counseling.
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Page 9 GAO/HEHS/OSI-00-69 Medicaid in Schools

medically necessary services for Medicaid-eligible children before IDEA

funds are used.

IDEA requires that states have in effect policies and procedures to ensure

the identification, location, and evaluation of all children with disabilities

who are in need of special education and related services, a concept

termed “child find.” Some activities under Medicaid, such as outreach in

support of Medicaid’s Early and Periodic Screening, Diagnostic, and

Treatment (EPSDT) benefit, can be coordinated with IDEA activities.6

While related, these two programs still have distinguishing goals: IDEA’s

child-find activities are focused on identifying and meeting the educational

needs of children with disabilities, while EPSDT outreach is directed at

informing children who are potentially eligible for Medicaid about benefits

available under the EPSDT program and facilitating the Medicaid

application process.

Medicaid Claims for

School-Based Health

Services

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 their state and

must have a provider agreement with the state Medicaid agency.7

In addition, states must develop a methodology for determining payment

rates for school-based health services. Payment rates are established by the

state Medicaid agency, described in a state plan, and 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. Within these general payment principles,

however, considerable variation can exist. For example, states may set a

6

EPSDT is a benefit that provides certain comprehensive treatment and preventive health

care services for Medicaid-eligible children under age 21 if these services are medically

necessary, regardless of whether they are covered under a state’s Medicaid plan. Under the

EPSDT benefit, states are required to conduct activities to inform individuals about EPSDT

and to encourage their participation in the Medicaid program.

7

Schools providing Medicaid services employ a variety of service delivery models, including

directly employing health providers, making contractual arrangements with providers for

specific services, operating fully equipped and staffed school health clinics, or some

combination thereof.
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payment rate for each individual service provided or base Medicaid

reimbursement on the actual costs providers incur in supplying services.

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

payments for a specified group of services. However, in a May 21, 1999,

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

approach because HCFA had 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. HCFA directed

states with 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 some time this year,

states with previously approved bundled rates continue to use them.

Medicaid Claims for

School-Based

Administrative Activities

Schools may also receive reimbursement for the costs of performing

administrative activities related to Medicaid. Administrative activities

performed by school districts and schools may include 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 other parties and (2) an acceptable reimbursement methodology for

calculating payments for administrative activities.

Cost allocation plans are expected to be supported by a system that has the

capability to properly identify and isolate the costs that are directly related

to the support of the Medicaid program. States must also abide by the cost

allocation principles described in Office of Management and Budget (OMB)

Circular A-87, which requires, among other things, that costs be “necessary

and reasonable” and “allocable” to the Medicaid program.8

8

Other relevant provisions of the Medicaid statute and regulations include sec. 1903(a) of

the Social Security Act and implementing regulations at 42 C.F.R. 430.1 and 42 C.F.R. 431.15.

In order for the costs of any administrative activities to be allowable and reimbursable

under Medicaid, the activities must be “found necessary by the Secretary for the proper and

efficient administration of the plan.”
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HCFA Guidance on

Medicaid Reimbursement

for School-Based Health

Services

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

claims for school-based services.9 This guide provides general information

and guidelines regarding the specific Medicaid requirements associated

with federal reimbursement for the costs of school health services and

administrative activities. HCFA requires states to provide and maintain

appropriate documentation and assurances that claims for administrative

activities do not duplicate other claims or payments.

HCFA’s May 21, 1999, letter to state Medicaid directors, in addition to

prohibiting bundling payments, attempted to clarify HCFA’s policy on

transportation and stated that HCFA was in the process of updating its

guiding principles related to claims for school-based administrative

activities costs. (See app. I for the full text of the May 21, 1999, letter.) In

February 2000, HCFA released for public comment a draft of its revised

technical assistance guide on submitting school-based administrative

activity claims.10

Medicaid School-Based

Activities Involve a

Variety of State

Practices;

Expenditures Continue

to Grow

While nearly all the states had Medicaid expenditures for school-based

activities, the extent of participation varied widely, with the volume of

Medicaid administrative expenditures having grown significantly in recent

years. Total Medicaid claims for the most recent year of available state data

range from $8,000 in Mississippi to $682 million in New York; average

claims per Medicaid-eligible child range from less than 5 cents in

Mississippi to nearly $820 in Maryland. This variation can be partially

explained by the proportion of school districts within a state that choose to

file claims. Recent payments for school-based administrative activities

reflect the growing number of school districts making claims for Medicaid

reimbursement for these activities. Moreover, in addition to the 17 states

that currently allow their schools to bill Medicaid for school-based

administrative activities, 12 states have indicated that they may do so in the

future. As a percentage of total Medicaid administrative expenses,

payments for school-based administrative activities range from less than 1

percent in 1 of the 17 states allowing such claims to over 45 percent in

Michigan and Illinois.

9

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

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

10HCFA’s draft guidance can be located on the Internet at http://www.hcfa.gov/

medicaid/schools/machmpg.htm.
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The Extent of School-Based

Claims Varies

While nearly all states allow schools to submit claims to their state

Medicaid agencies for school-based health services, administrative

activities, or both, the extent to which school districts choose to do so

varies. Our survey of the 50 states and the District of Columbia found that

schools in 47 states and the District of Columbia obtain Medicaid payment

for school-based health services, administrative activities, or both. While 15

states allow claims for both health services and administrative activities, 30

states and the District of Columbia allow Medicaid payment for health

services only. Two states—Alaska and Arizona—limit their school-based

Medicaid payments to administrative activities, and schools in three

states—Hawaii, Tennessee, and Wyoming—do not claim Medicaid

reimbursement for either type of school-based service. (See fig. 1.)
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Figure 1: States Reporting Medicaid Claims for School-Based Services, December 1999

Source: GAO survey of states.

States also vary substantially in the amount of their Medicaid payments for

school-based activities. Medicaid payments to schools ranged from less

than 5 cents per Medicaid-eligible child in Mississippi to nearly $820 per

child in Maryland. Three states—Illinois, Michigan, and New York—

accounted for over 60 percent of total school-based claims. New York
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Page 14 GAO/HEHS/OSI-00-69 Medicaid in Schools

comprised 44 percent of all health services payments, while Illinois and

Michigan accounted for 74 percent of all administrative activity payments.

(See table 1.) Among the 45 states and the District of Columbia that provide

Medicaid reimbursement for school-based health services, such claims

have been allowed for periods ranging from 2 to 28 years. For the 17 states

that provide Medicaid reimbursement for school-based administrative

activities, such claims have been allowed for between 1 and 8 years.

Table 1: States’ Annual School-Based Claims, Ranked by Average Claim per

Medicaid-Eligible Child Aged 6 to 20

State

Average claim

per Medicaideligible child

School-based claims (in thousands)

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

Massachusettsb 284 65,250 45,750 19,500

Alaska 265 7,780 a 7,780

District of Columbia 265 12,100 12,100 a

Wisconsinc 249 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 a 25,795

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

Continued
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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. The average claim per Medicaid-eligible child was

calculated by dividing the total school-based claims by the number of school-aged Medicaid-eligible

children.

a

This state did not report school-based claims in this category.

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

North Carolina 2 722 722 a

Alabama 1 132 132 a

Indiana e 60 60 a

Mississippi e 8 8 a

Hawaii a aa a

Tennessee a aa a

Wyoming a aa a

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

State

Average claim

per Medicaideligible child

School-based claims (in thousands)

Total

claims

Health

claims

Administrative

claims

Continued from Previous Page
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Page 16 GAO/HEHS/OSI-00-69 Medicaid in Schools

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).

Some of the variation in Medicaid payments for school-based services and

cost per Medicaid-eligible child is explained by differences in the

proportion of school districts submitting Medicaid claims for school-based

activities. For some states, schools are part of the state Medicaid health

services delivery system, while in other states, schools may not generally

provide direct health services. For example, two states that spent relatively

little per Medicaid-eligible child—Indiana, at less than $1 per child, and

Alabama, at $1 per child—both indicated low percentages of school district

participation, with an Indiana official estimating approximately 3-percent

participation. A state official in California, which spent less per Medicaideligible child than 40 other states, estimated that in state fiscal year 1998

about 75 percent of the school districts in the state submitted claims for

health services, while only 2 school districts submitted claims for

administrative activities.

States also varied in whether they considered certain activities to be health

services or administrative activities, which could have affected federal

reimbursement because the federal match rate for health services is higher

than the rate for administrative activities in many states. According to

HCFA’s technical assistance guide, Medicaid currently allows states to

reimburse transportation and case management as health services,

administrative activities, or both. For example, schools in Maryland and

Nevada claim school-based transportation as a health service, while those

in Massachusetts classify transportation as an administrative activity.

Similarly, Illinois schools claim case management as an administrative

activity, while those in New York claim it as a health service.11 A Michigan

official reported that schools submit claims for case management as a

health service once the individualized plan for a child with a disability has

11In New York, schools actually claim targeted case management, which differs from case

management in that states are allowed to waive certain Medicaid requirements. In other

words, the state may target individuals by different criteria, such as age, degree of disability,

illness, or condition.
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been developed and written, while case management that takes place

before such a plan is developed is claimed as an administrative activity.

An Increasing Number of

States Pay—or Are

Considering Payment—for

School-Based

Administrative Activities

In June 1999, we testified that a growing number of states pay for

reimbursement of school-based administrative activities, and our recent

survey suggests that this growth will continue. From fiscal year 1995

through fiscal year 1998, Medicaid claims for administrative activities

increased fivefold, from $82 million to $469 million (see fig. 2).12 These

increased Medicaid expenditures for school-based administrative activities

reflect growth in the number of states participating, the number of schools

participating, and the size of claims submitted by individual school

districts. For example, from 1996 to 1997, Michigan’s Medicaid

administrative claims for schools increased almost threefold, from $79

million to $227 million, which state and school officials indicated was

primarily the result of an increase in the number of school districts

submitting claims.

12Ten of the 17 states that allow reimbursement for school-based administrative services

were readily able to provide trend data: Alaska, California, Florida, Illinois, Massachusetts,

Michigan, Minnesota, Missouri, Pennsylvania, and Texas.
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Figure 2: Medicaid School-Based Administrative Claims for 10 States, Fiscal Years

1995-98

Note: States that appear in bold lettering began claiming school-based administrative expenditures in

the year listed.

Source: State-reported claims.

500

0

1995

Expenditures in Millions

1996 1997 1998

100

200

300

400

California

Illinois

Minnesota

Missouri

Pennsylvania

Texas

Alaska

California

Illinois

Michigan

Minnesota

Missouri

Pennsylvania

Texas

Alaska

California

Illinois

Michigan

Minnesota

Missouri

Pennsylvania

Texas

Alaska

California

Florida

Illinois

Massachusetts

Michigan

Minnesota

Missouri

Pennsylvania

Texas
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Page 19 GAO/HEHS/OSI-00-69 Medicaid in Schools

Interest in submitting claims to Medicaid for administrative activities

performed in the schools was evident in our recent survey of the 50 states

and the District of Columbia. In addition to the 17 states that currently

allow Medicaid reimbursement for school-based administrative activities,

officials in 12 other states reported that they are considering allowing

school-based claims for these activities in the future. Seven other states

reported that they were “not sure” if they would allow schools to submit

Medicaid claims for administrative activities.13 (See table 2.) Of those states

considering Medicaid reimbursement for school-based administrative

costs, eight identified some possible activities for which they would pay,

including eligibility facilitation, outreach, transportation, program planning

and monitoring, case management, referral, and coordination.

Table 2: Positions on Reimbursement for Medicaid School-Based Administrative

Activities of Those States That Do Not Currently Pay Claims

Source: GAO survey of states.

13As part of our survey on school-based services, states were asked whether they were

considering submitting Medicaid claims for school-based administrative activities. States

had the option of selecting “yes,” “not sure,” or “no.”

Considering

reimbursement Uncertain

Not considering

reimbursement

Alabama

Arkansas

Georgia

Idaho

Kansas

Nebraska

Nevada

North Carolina

Ohio

Oklahoma

Oregon

Utah

(12)

District of Columbia

Hawaii

Indiana

Maryland

Mississippi

Montana

Virginia

(7)

Colorado

Connecticut

Delaware

Kentucky

Louisiana

Maine

New Hampshire

New York

North Dakota

Rhode Island

South Carolina

South Dakota

Tennessee

West Virginia

Wyoming

(15)
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Page 20 GAO/HEHS/OSI-00-69 Medicaid in Schools

School-Based

Administrative Claims

Represent a Significant

Share of a Few States’ Total

Medicaid Administrative

Costs

The school-based administrative claims of a few states constitute a

significant share of their total Medicaid administrative activity. For

example, these claims represented 47 percent and 46 percent, respectively,

of Michigan’s and Illinois’ total Medicaid administrative claims. Other

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

as 19 to 20 percent of their total Medicaid administrative expenditures.

(See table 3.) A significant portion of the growth in the administrative costs

of four states resulted from reimbursing for school-based activities: Alaska,

Illinois, Michigan, and Minnesota all showed average annual growth rates

for school-based administrative expenditures that were at least twice as

high as the growth rate of all their other Medicaid administrative

expenditures combined.14

Table 3: States’ Medicaid School-Based Administrative Claims as a Percentage of

Total Medicaid Administrative Expenditures

14Of the 17 states that claim Medicaid reimbursement for school-based administrative costs,

we examined administrative expenditures for the 8 states that could readily provide data for

multiple years and compared the growth rates for school-based administrative expenditures

against all of the 8 states’ other Medicaid administrative expenditures. The eight states were

Alaska, California, Illinois, Michigan, Minnesota, Missouri, Pennsylvania, and Texas. In

Michigan and Minnesota, the base year for this calculation is the year the states began

claiming school-based administrative activities and may not represent a full year of claims

activity.

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

Continued
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Page 21 GAO/HEHS/OSI-00-69 Medicaid in Schools

Note: States were asked to provide administrative claims data for school-based services from the most

recent fiscal year. Although most states provided data from the year ending June 30, 1999, 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 schoolbased administrative claims data.

b

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

31, 1999, total Medicaid administrative expenditures were provided for the closest year of data

available, 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.

Methods Used to Claim

Medicaid Do Not

Ensure That Services

Are Provided or

Administrative

Activities Are Properly

Identified and

Reimbursed

Some methods used to claim Medicaid reimbursement do not adequately

ensure that health services are provided or that administrative activities are

properly identified and reimbursed. Paying bundled rates for health

services can simplify requirements for schools that participate in the

Medicaid program; however, bundled rates can also create an incentive to

stint on services, or to change what services children receive or where they

receive them to increase payment. To counteract these incentives, bundled

rate methods should differentiate payments among children with varying

levels of need and provide assurances that necessary services are provided.

However, not all states using a bundled payment approach differentiate

levels of need among children or ensure that services paid for are provided.

In addition, poor controls over what constitutes an allowable

administrative activity cost claim have resulted in improper Medicaid

reimbursements. In some cases, Medicaid claims were inappropriately

reimbursed because they represented administrative activities that were

not Medicaid-related. In other cases, claims for administrative activities

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

State

School-based

Medicaid

administrative

claims (in

thousands)

Total Medicaid

administrative

expenditures

(in thousands)a

Percentage of total

administrative

expenditures

Continued from Previous Page
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Page 22 GAO/HEHS/OSI-00-69 Medicaid in Schools

performed by skilled medical professionals, which can be eligible for

reimbursement at a higher matching rate of 75 percent, were submitted and

paid without adequate documentation to justify the higher rate.

Bundled Rates Simplified

Claims and Were Expected

to Limit Adverse Incentives

HCFA began to allow states to develop bundled payment approaches in an

attempt to simplify schools’ reporting requirements under Medicaid. We

reviewed the payment approaches of seven states that currently use

bundled rates.15 Bundled payments are somewhat comparable to capitation

payments made to managed care organizations. 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.16 Bundled payments have the advantage of

simplifying schools’ submission of claims. One state official told us that the

less complicated paperwork involved with bundled rates has made it easier

for smaller schools to submit claims for Medicaid reimbursement.17

Bundled rates can also reduce the negative incentives that may exist under

other payment approaches. For example, reimbursing schools on the basis

of their actual costs may undermine interest in delivering services

efficiently. In addition, a fee-for-service approach, which is used by the

majority of states, does not provide schools with an incentive to control the

volume of services provided because schools in these states receive more

revenue for providing more services. (See table 4.) Counteracting the

adverse incentives that may exist under these other payment approaches is

challenging. Reviewing utilization or cost reports to establish that costs are

allowable or services are necessary is expensive. In contrast, bundled rates

can help limit the costs of delivering services by creating the incentive to

provide needed services more efficiently. Under a bundled approach,

15These states are Connecticut, Kansas, Maine, Massachusetts, New Jersey, Utah, and

Vermont. Although HCFA identified the District of Columbia and North Carolina as having

bundled rates, we did not include them in our analysis. We eliminated the District of

Columbia from our discussion because it applies a bundled rate to only two schools; all

other schools submit claims on a fee-for-service basis. We excluded North Carolina because

all of its schools currently submit claims on a fee-for-service basis, although a number of

schools had previously used a bundled approach.

16Services 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.

17See Medicaid and Special Education: Coordination of Services for Children With

Disabilities Is Evolving (GAO/HEHS-00-20, Dec. 10, 1999).
B-283378

Page 23 GAO/HEHS/OSI-00-69 Medicaid in Schools

however, costs can also be limited by neglecting to provide all needed

services or by compromising the quality of individual services provided.

These undesirable effects can be reduced by modifying how bundled rates

are paid and exercising additional oversight of the services delivered.

Table 4: Incentives Affecting Volume and Cost of Services, by Payment Approach

a

Under this payment approach, incentives to increase the unit cost do not exist, provided the unit costs

are based on reasonable and appropriate costs.

b

Bundled rate payments can, however, provide an incentive to inappropriately decrease the volume of

services provided.

Source: GAO analysis of payment incentives.

Some States’ Bundled

Payment Methods Lack

Sufficient Accountability

In order for bundled rate methods to result in appropriate payments, the

amount paid should be appropriately aligned with the expected cost of

services. For schools, bundled payments that take into account the

variation in service needs among children and ensure that services are

provided help ensure that Medicaid funds are appropriately spent and

children’s needs met. However, the methods currently employed by some

of the seven states using bundled rates do not satisfy these criteria (see

table 5).

Payment approach

Do incentives exist for providers to increase

Volume of services to an

individual? Unit cost?

Cost-based reimbursement Yes Yes

Fee-for-service rates Yes Noa

Bundling rates Nob Noa
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Page 24 GAO/HEHS/OSI-00-69 Medicaid in Schools

Table 5: Approaches to School-Based Payments in Seven States Using Bundled Rates

a

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

a child with a disability, EPSDT diagnosis and treatment, 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.

As table 5 indicates, states’ bundled rates vary in the extent to which they

adjust payments among children with different medical needs. For

example, the bundled rates of two states—Connecticut and Utah—do not

recognize that the costs for providing services to children with different

medical needs may vary considerably. Participating schools in Connecticut

receive a monthly payment of about $336 for each eligible child, regardless

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

and cognitive disabilities. This statewide 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 two other states, Massachusetts and New Jersey, the

payment level is based on the location of the child, and not necessarily on

the number or scope of services that he or she receives. Specifically,

Massachusetts’ schools are paid on the basis of the percentage of time an

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
B-283378

Page 25 GAO/HEHS/OSI-00-69 Medicaid in Schools

eligible child spends in a regular classroom, whereas New Jersey has four

statewide rates that vary depending on where the child attends school.18

Bundled payment rates in other states, such as Kansas, Maine, and

Vermont, are more aligned with the expected cost of services for specified

groups of children. For example, schools in Kansas and Maine receive the

same payment amount for all children with specified disabilities, such as

autism or mental retardation. While these rates do not recognize

differences in the number and intensity of services provided to children

within each disability category, they do recognize that schools can incur

significantly higher costs for children with certain disabilities. 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 in a given week, as well as on who

provides those services.19

In addition, states’ bundled approaches should ensure that services paid for

are actually provided. However, payments currently made in four of the

seven states—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 reimbursed the bundled rate for each eligible child, irrespective of

whether the child has received any services. For example, schools in

Kansas are reimbursed about $476 a month for each child whose primary

disability listed on the individualized plan is autism, as long as the child

attended school at least 1 day in a given month. In such an arrangement,

there is little accountability for providing needed services because

attendance—not the receipt of services—triggers reimbursement.

Varying levels of assurances exist in Connecticut, New Jersey, and Vermont

that services are actually provided to eligible children. For example,

schools in Connecticut must document on a monthly service information

form the number and type of services provided to each child. However,

18New Jersey pays schools according to four categories: in-district school, out-of-district

school, nonpublic school, and state facility.

19Thus, schools 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.
B-283378

Page 26 GAO/HEHS/OSI-00-69 Medicaid in Schools

schools have to provide a child with only one service during the month to

be eligible for the full payment. Similarly, New Jersey schools can claim the

per diem reimbursement for each day an eligible child receives at least one

service that is documented by the school. In Vermont, case managers

complete for each child a level-of-care form that categorizes the hours of

service, type of provider, and setting (one-on-one or group). Using these

data, a clerk computes the total units of service each child receives to

justify the payment for one of four levels of care.

Poor Controls Have

Resulted in Improper

Reimbursement for

Administrative Claims

Poor controls on the part of states and school districts have resulted in

improper reimbursements for Medicaid administrative claims. The

methods states allow school districts to use to determine administrative

costs strongly influence the amount of Medicaid reimbursement school

districts receive. Determining allowable Medicaid-related administrative

costs involves identifying direct costs, such as for personnel and supplies,

and allocating them between Medicaid and non-Medicaid activities, as well

as allocating an appropriate share of indirect (overhead) costs to

Medicaid.20 In most cases, school personnel involved in special education

can serve both Medicaid and educational functions; thus, the costs of

administrative activities must be allocated to each function.21 Two aspects

of the methods for determining administrative cost allocations are

vulnerable to contributing to overstated Medicaid costs: (1) time study

methodologies, which are used to identify the portion of staff time spent on

Medicaid-related activities, and (2) activity codes, which are used to

identify functions performed by school staff in these time studies. In

addition, some school districts have received reimbursement for

administrative activities at the enhanced 75-percent federal matching rate

for skilled professional medical providers, such as physical therapists,

without providing adequate documentation that their professional

capabilities were needed for such activities, as required by Medicaid

regulations.

20Of the 17 states that reimburse for administrative costs in schools, school districts in 4—

Alaska, California, Vermont, and Wisconsin—do not include indirect costs in their claims.

21In a few instances, school personnel may be completely allocated to Medicaid

administrative activities. For example, schools may employ “Medicaid clerks,” whose

primary function is to provide the administrative support necessary for schools to submit

Medicaid claims to the state.
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Page 27 GAO/HEHS/OSI-00-69 Medicaid in Schools

Different Time Study Methods

Have Led to Considerable

Variation in Reimbursement

Some time study methods that states allow schools and school districts to

use in determining Medicaid-related school-based administrative costs are

questionable and could be used to inappropriately increase Medicaid

payments. Differences in time study methodologies can—and do—affect

the level of states’ reimbursements. States vary in the extent to which they

instruct school districts on the type of time study methodology permitted.

We identified three basic methods used to allocate the time of school

personnel to Medicaid-related administrative activities: the representative

period, random moment, and continuous log methods.22 The representative

period method is the one most vulnerable to manipulation. In contrast to

the random moment time study, for example, which always randomly

selects a period of time to be studied, representative periods may not

always be randomly selected. This method is also the one most frequently

used. Of the 17 states with schools that file administrative cost claims, 15

allow the use of representative period time studies for determining cost

allocations.23 Moreover, 9 of the 15 states that specify the use of a

representative period study either specify the use of a nonrandom

representative period or allow the school districts or private firms involved

in the time studies to make this decision.24

How the selection of the sample period can affect study results is

illustrated by an example from Florida. When a private firm representing

nine Florida school districts changed the time study method they used from

a sampling period of 1 week per quarter to a random sample of moments

throughout the quarter, the amount of federal reimbursement claimed

decreased by 50 percent.

22For representative period time studies, participants record all their activities in 15-minute

increments for a given period of time, typically 1 week. For random moment time studies,

participants record their activities for randomly selected moments in a specified period of

time, such as a federal fiscal quarter. In contrast, the continuous log approach requires

specified service providers to track how their time is spent on an ongoing basis.

23Five states—Florida, Illinois, Iowa, Missouri, and Washington—allow more than one type

of time study methodology.

24The remaining six states that use a representative period time study specify that the time

period must be randomly selected. Minnesota and Vermont, the two states that do not allow

representative period time studies, use random moment and continuous log studies,

respectively.
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Loosely Defined Activity Code

Categories Have Overstated

Costs Related to Medicaid

Loosely defined activity code categories used by time study participants to

record time spent on administrative activities have resulted in overstated

Medicaid costs.25 While typical activity code categories may include

outreach related to the Medicaid program, coordinating and monitoring of

health services, and facilitating Medicaid eligibility determinations, these

categories and their codes vary among and within states, particularly when

multiple private firms contract with school districts within a state to submit

administrative cost claims.

While staff from HCFA’s central office and several regional offices

emphasized the importance of developing clearly defined activity codes,

some states’ methods allow certain activities to be inappropriately claimed

as Medicaid administrative costs. For example, HCFA’s Chicago regional

office questioned activities for which $30 million in federal reimbursement

had been claimed and paid for one quarter for participating schools in

Michigan. The activity codes in question included general health

screenings, communication with families, and staff training as Medicaid

administrative activities. However, HCFA regional office interviews with a

sample of staff who allocated their time to these activity codes revealed no

direct connection between staff activities and Medicaid; these staff did not

know what Medicaid covers, where or how to apply for Medicaid, or who

might qualify for coverage. Moreover, the only Medicaid-related training

activity identified in HCFA’s review was for purposes of completing the

time study; interviewed school staff indicated that Medicaid was not

mentioned during other identified training sessions. The activity codes in

question constituted 53 percent of the $56 million in federal reimbursement

claimed for administrative activities by Michigan’s school districts for the

quarter ending September 1998. HCFA recommended that Michigan revise

its time study’s activity code definitions to more accurately identify

activities related to the Medicaid program or recipients. The HCFA regional

office deferred Michigan’s claim for $33 million in federal reimbursements

for the quarter ending September 1999, asking again that the state better

document that school-based claims for administrative activities were

clearly linked to Medicaid.

25School personnel completing an administrative claim time study allocate their time to

different categories, or activity codes, depending on the activities performed in a given

period of time. Activity codes are generally not limited to Medicaid-reimbursable activities

and may include codes for educational activities and general administration.
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Page 29 GAO/HEHS/OSI-00-69 Medicaid in Schools

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

disclosed federal reimbursements for health reviews and evaluations

performed for the benefit of non-Medicaid-eligible children. These

improper claims for non-Medicaid-eligible children in schools accounted

for $12.5 million of the $56 million in federal reimbursement that was

reviewed in Michigan for the quarter ending September 1998 and a $7.7

million reimbursement to Illinois—$2.4 million for one school district

consortium for the quarter ending December 1998 and $5.3 million for the

quarter ending March 1999 for the remaining school districts that claim

reimbursement. Our investigation in Michigan identified approximately $28

million in improper federal reimbursement for 2 years.

Our review of the 17 states that allow schools to file administrative claims

showed that some of the questionable activity code definitions used in

Illinois and Michigan are also being used for activity codes in 9 other states.

Of these nine states, four do not specifically mention Medicaid in

descriptions of relevant activities.26 In contrast, at least one state preferred

to develop its own activity codes, rather than adopt those already in use in

other states, because the other state codes were “too loose to be

appropriate” and did not differentiate Medicaid-related activities from

those relating to non-Medicaid-eligible children.

Claims Based on Professional

Credentials Have Resulted in

Questionable Payments

Claims for administrative activities performed by skilled professional

medical providers (SPMP) at the 75-percent enhanced matching rate have

also resulted in questionable payments. Of the 17 states submitting claims

for administrative costs, 11 states allow the use of the SPMP enhanced rate

for school-based administrative claims. In general, the SPMP rate 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 medical

knowledge and skills. For example, a nurse who meets with a child and

notices a condition that needs medical attention could submit a claim for

this activity at the SPMP enhanced matching rate of 75 percent. However, a

nurse who only arranges a medical appointment for a child would not need

26For example, Medicaid-related activities might be one component of a code that is widely

used in education, such as staff training. Under these circumstances, non-Medicaid

activities could constitute a disproportionate share of the total costs in one activity code,

even if the code was subsequently allocated between Medicaid and non-Medicaid costs. A

more appropriate approach for assigning costs would be to establish two activity codes for

training—one that identified all Medicaid-related training and one that identified all other

training.
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Page 30 GAO/HEHS/OSI-00-69 Medicaid in Schools

his or her credentials to make an appointment and thus would not be

eligible for the 75-percent enhanced matching rate. The enhanced matching

rate of 75 percent for SPMP administrative activities can be a strong

incentive for those preparing and submitting claims, as it increases by 50

percent the amount of federal reimbursement that can be received.

In two states—Illinois and Michigan—we found that, on the advice of

private firms, school districts have submitted claims that inadequately

document the need for professional credentials for purposes of submitting

an SPMP claim. For example, we found that one private firm told the

SPMPs in its client school districts to claim the enhanced rate for every

administrative activity they perform, rather than document in each case

whether their skill was required. Another private firm told SPMPs that,

when tracking their time, they had only to check a box to indicate that their

medical credential was necessary for a particular activity, and that no

further documentation or proof was needed for the enhanced Medicaid

reimbursement.27 Recent SPMP claims in Illinois totaled $16.6 million, or 37

percent of its total claims, for one quarter for participating school

districts.28 In Michigan, SPMP claims totaled $14 million, or 25 percent of

the state’s total administrative activity for all participating school districts

for the quarter ending September 1998.29

27HCFA regulations state that federal reimbursement rates in excess of 50 percent should

apply only to those portions of the individual’s work time that are spent carrying out duties

in the specified areas for which the higher rate is authorized. The regulations further state

that the allocation of personnel and staff costs must be based on either the actual

percentages of time spent carrying out duties in the specified areas or another methodology

approved by HCFA. See 42 C.F.R. 432.50(c)(2), (3).

28The time period of the claims for one group of school districts was the quarter ending

December 1998, and the time period for the remaining school districts’ claims was the

quarter ending March 1999.

29In these two states, overall SPMP claims for administrative expenditures have increased

four- and fivefold since the states began paying for school-based administrative costs. With

the exception of Iowa, whose claims for SPMP activities increased twelvefold from 1994 to

1998, other states that submitted administrative claims prior to 1998 had much lower

increases. We excluded California from our analysis because it reported significantly less

than $1 million in school-based administrative claims ($288,000).
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States’ Retention of

Federal

Reimbursement—and

Contingency Fees Paid

to Private Firms—

Reduce the Federal

Dollars Schools

Receive

Funding arrangements among states, schools, and private firms create

adverse incentives for program oversight and significantly reduce the

amount of federal dollars that schools receive for Medicaid-related services

and activities. Of the 47 states and the District of Columbia that submit

claims on behalf of schools for health services, administrative activities, or

both, 18 retain some portion of federal Medicaid reimbursements rather

than fully reimbursing schools for their Medicaid-related costs. Because

states can benefit directly in this way from higher federal payments, states’

incentives to exercise strong oversight over the propriety of school-based

claims can be diminished. In addition, many school districts have

contingency arrangements with private firms that pay them a share of

Medicaid reimbursement, in some cases, a percentage of the federal share

of reimbursement received from a claim. 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.

Moreover, the result of these actions is that, in some states, schools could

receive as little as $7.50 in federal Medicaid reimbursements for every $100

spent to pay for services and activities performed in support of Medicaideligible children.

States’ Ability to Retain

Federal Medicaid Funds

May Weaken Oversight

Eighteen states retain a portion of the federal Medicaid reimbursement

resulting from school districts’ claims. According to several state officials,

because state budgets fund a portion of school activities, Medicaid services

provided by schools are partially funded by the state. According to 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 for which states provide funds.

Moreover, we believe that such a practice severs the direct link between

Medicaid payment and the services delivered and increases the potential

for the diversion of Medicaid funds to purposes other than those intended.

We found that seven states retain from 50 percent to 85 percent of the

federal Medicaid reimbursement for health services, while another nine

states retain between 1 and 40 percent of federal payments. Among the

states that claim Medicaid reimbursement for administrative activities,

three retain 50 percent or more of the federal reimbursement, while

another seven keep between 1 and 40 percent. (See table 6.)
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Table 6: Amount and Percentage of Federal Medicaid Reimbursement for Health

Services and Administrative Activities Retained by States

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.

When a state benefits directly from federal reimbursements for schools,

questions arise concerning its incentives to exercise appropriate oversight

State

Percentage of federal

reimbursement for

health services

retained

Percentage of federal

reimbursement for

administrative

activities retained

Amount

retained by

state (in

thousands)a

New Jersey 85 85 $25,815

Iowa 75 0 1,984

Delaware 70 b 4,865

Vermont 60 15 4,266

Alaska b 52 2,023

New York 50 b 170,500

Pennsylvania 50 50 18,079

Washingtonc 50 0 3,122

Connecticut 40 b 4,443

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 b 105

Colorado 2 b 50

Massachusetts 1 1 326

Minnesota 0 5 587

Total $323,516
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Page 33 GAO/HEHS/OSI-00-69 Medicaid in Schools

of Medicaid program operations for school-based claims. The improper

activities cited in this report—particularly those for administrative cost

claims—are symptomatic of the lack of sufficient oversight, such as statelevel reviews of school-based claims for their appropriateness. For

example, one auditor from the Department of Health and Human Services’

Office of Inspector General told us that Medicaid program oversight in one

state is geared toward ensuring adequate documentation of claims and not

toward examining claims for appropriateness. Our contacts with the

auditors’ offices of six states revealed that these states conducted no statelevel reviews of Medicaid school-based claims.

Moreover, we identified similar concerns about states’ oversight in our

investigation of improper practices in making school-based fee-for-service

claims for health services. For example, our investigation of fee-for-service

payments for health services in one 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. In another investigation, we

uncovered practices under which Medicaid was inappropriately billed for

health services in one state, and other investigators identified similar

practices in another state. Specifically, in both states, some group therapy

sessions were billed as individual therapy sessions, which resulted in a

higher payment for the school.

Contingency Fees Paid to

Private Firms May

Encourage Questionable

Claims

Some school districts paid private firms fees ranging from 3 percent to 25

percent of the federal reimbursement amount claimed; fees most

commonly ranged 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

methods, and submitting administrative claims to state Medicaid agencies

to obtain the federal reimbursement that provides the basis for their fees.30

By receiving a percentage of reimbursement rather than a fixed fee, these

30Of the six states we visited, only Vermont did not reimburse a private firm on a

contingency basis. Instead, to develop its bundled approach, Vermont used a firm that had

been under contract with the state for several years and was paid on a fixed-fee basis.
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firms have an incentive to maximize the amount of reimbursements

claimed.

Private sector interest in working with states and school districts to seek

Medicaid reimbursement for administrative activities is high. In addition to

the 17 states that currently submit administrative claims, officials from at

least 7 other states told us that private firms interested in developing

administrative claims methodologies had recently contacted them or

schools in their state.

Marketing materials from two private firms explain one of the reasons

concerns have been expressed that school districts’ administrative claims

may exceed reasonable or allowable costs. In these materials, the firms

assert that their objectives are to maximize Medicaid revenues for schools

and that they can maximize a school’s claim potential by training school

personnel to follow their methods for claiming costs. One firm emphasized

that, on average, its clients annually receive over 30 percent more per

student than schools contracting with a competitor.

While schools can—and do—pay private firms on a contingency basis for

Medicaid-related services, these contingency fees do not qualify for federal

Medicaid reimbursement.31 OMB Circular A-87, which establishes the

principles and standards for determining “reasonable” and “allocable” costs

for federal programs such as Medicaid, states that the costs of professional

and consultant services rendered are allowable when reasonable and when

not contingent upon the recovery of costs from the federal government.32 In

one state, our investigation determined that contingency fees were

improperly included in one school district’s Medicaid administrative cost

claim. We estimate that the resulting unallowable costs claimed for

reimbursement may approximate $1 million for a 5-year period.

31See 45 C.F.R. secs. 74.1(3), 74.27, 92.22.

32See attachment B to OMB Circular A-87, Cost Principles for State, Local, and Indian Tribal

Governments (Washington, D.C.: OMB, revised 5/4/95, as further amended 8/29/97).
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Page 35 GAO/HEHS/OSI-00-69 Medicaid in Schools

In Some States, Schools

Receive a Small Portion of

Medicaid Reimbursement

In some states, schools can receive a small portion of Medicaid

reimbursement for performing covered health services and administrative

activities on behalf of eligible children. In addition to states’ policies to

retain a portion of federal Medicaid reimbursement and school districts’

contractual arrangements to pay private firms a share of their federal

reimbursements, the school districts’ budgets often serve as the local funds

that are used to supply the state’s share of Medicaid funding for schoolbased claims. When school funds provide the state share of Medicaid

reimbursement, the maximum additional funding that a school district can

receive for delivering services or performing administrative activities is

what the federal government contributes. This is substantially less than

what a private sector Medicaid provider would receive for delivering and

submitting a claim for similar services.33 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.34 In contrast, when a school district

submits a claim for $100, and the school district pays the state’s share of

this claim, the maximum the school district can receive is the $50 federal

share. Of the 47 states that allow Medicaid claims for school-based

activities, 38 use local funds for the state match to federal dollars.35 Table 7

shows the variation in the amounts different schools might receive in

Medicaid reimbursement for the claims they submit, given the source of the

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

reimbursement, and contingency fee arrangements with private firms.

33Local 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 in

the delivery of Medicaid health services or administrative activities. 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.

34This example assumes a 50-percent matching rate and that the claim submitted is a

legitimate statement of health services or administrative activities performed in support of

the Medicaid program.

35Because the District of Columbia does not distinguish between state and local funds, we

excluded it from this analysis.
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Table 7: Variations in Schools’ Receipt of Medicaid Reimbursement for Health Services

a

This amount reflects the state’s share of Medicaid funding for health services for fiscal year 1999. For

administrative activities, states’ shares would generally be 50 percent.

b

The amount retained by the state is deducted from the federal reimbursement.

c

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.

d

The percentage retained by Vermont varies from year to year. The amount noted reflects the

percentage retained for Vermont’s 1999 school year.

e

Private firms’ contingency fees vary across school districts and states; thus, the dollars reported in

this table are estimates of typical contingency fees paid by school districts.

f

Effective February 14, 2000, contingency fee reimbursement contracts are prohibited for school

districts in Florida.

g

The state of New Jersey pays the firm $2.55 from the $42.50 it retains.

h

Minnesota state officials were not aware of any contingency fee arrangements being used by school

districts; thus, we did not report dollars in this example.

Source: GAO analysis of state data.

State

Florida Illinois Vermont Michigan New Jersey Minnesota

Amount claimed $100.00 $100.00 $100.00 $100.00 $100.00 $100.00

Local funds useda (44.18) (50.00) (38.03) (47.28) (50.00) 0

Amount retained by stateb 0 (5.00)c (37.18)d (21.09) (42.50) 0

Total Medicaid funds

received by school district 55.82 45.00 24.79 31.63 7.50 100.00

Amount paid to private firm

by school districte (10.05)f (8.25) 0 (10.54) g h

Net amount to school

district $45.77 $36.75 $24.79 $21.09 $7.50 $100.00
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Page 37 GAO/HEHS/OSI-00-69 Medicaid in Schools

HCFA Oversight Does

Not Ensure the

Appropriateness of

School-Based Claims

HCFA oversight practices—past and present—have not ensured the

appropriateness of school-based practices for claiming Medicaid

reimbursement. As we testified in June 1999, HCFA’s guidance in the past

has generally left much to regional office discretion, resulting in

inconsistencies in the oversight and review of claims. Written guidance has

consisted primarily of a technical assistance guide and a direction for

states to follow the federal requirements for administrative cost allocations

found in OMB Circular A-87. Despite HCFA’s May 21, 1999, letter, which was

partially intended to provide clarification in areas concerning bundling and

submitting claims for administrative activities and special transportation

services, HCFA regional offices continue to interpret policies

inconsistently.36 This lack of adequate direction and oversight has

permitted the development of an environment of opportunism and has led

to improper Medicaid claims for administrative activities and limited

assurances that children are receiving appropriate services.

Without Additional

Direction From HCFA,

Alternatives to Bundled

Rate Methods Have Not

Been Developed

In its May 21, 1999, letter, 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.37 To assist states in this effort,

the agency also announced that it would create a work group of officials

from states using bundled approaches, the Department of Education, and

other federal agencies to discuss alternative arrangements.

However, since HCFA issued this letter, the seven states that were using a

bundled approach continue to do so. In fact, officials in some of these

states told us that they intend to continue to use their bundled approaches

36See app. I for the full text of the HCFA letter issued on May 21, 1999. The letter addressed

three areas. First, HCFA directed that bundled rates for school-based health services that

were previously evaluated and approved by HCFA would no longer be acceptable for

purposes of submitting a Medicaid claim. Second, HCFA stated that it was conducting a

review of practices to develop administrative cost claims and that it expected to publish a

guide in the summer of 1999 to clarify the requirements for submitting claims for Medicaid

administrative activities in schools. Finally, HCFA informed states that children with special

education needs who ride the regular school bus to school with children without disabilities

should not have transportation listed as part of their individualized plan and that the cost of

that bus ride should not be billed to Medicaid.

37HCFA raised concerns that bundled rates could not be connected to a specific type of

procedure and were not available to other community providers. Also, the agency said that

schools did not maintain sufficient documentation to establish the reasonableness of the

bundled rates, and, thus, Medicaid could be overpaying for certain services.
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Page 38 GAO/HEHS/OSI-00-69 Medicaid in Schools

until HCFA clarifies its position or issues additional guidance.

Furthermore, the work group that was established as a result of the HCFA

letter is currently inactive. While the group initially met weekly via

telephone, its members neither made any formal decisions about the future

of bundling nor developed alternative payment approaches. In October

1999, HCFA officials announced that the group would not reconvene until

sometime in 2000, because it needed time to discuss issues concerning

bundling. As of March 1, 2000, the work group had not yet reconvened.

Inconsistencies in HCFA

Oversight of Administrative

Claims Continue

HCFA has made some efforts to improve oversight of school-based

administrative claims. It has conducted individual reviews of practices

identified in this report in a few states and is working with a few states to

revise their activity codes to more accurately capture the costs associated

with Medicaid-related activities in schools. Finally, the additional guidance

that HCFA testified in June 1999 would be forthcoming was released for

public comment in February 2000.

Despite these efforts, the lack of clear guidance on how to develop

methods for submitting administrative claims continues to result in

significant inconsistencies among regions. For example, while some HCFA

regional offices have scrutinized the details of states’ methodologies for

developing administrative claims, other regional offices have had little or

no involvement in the development of their states’ methodologies. The area

of enhanced rates for skilled providers is a specific example of the

contradictory policies of regional offices. The Chicago regional office

allows Illinois and Michigan school districts to claim administrative

activities provided by SPMPs at a 75-percent match rate as opposed to the

general administrative match rate of 50 percent. In contrast, the school

districts in Massachusetts are not allowed to claim this enhanced rate

because HCFA’s Boston regional office does not allow the higher rate.

According to officials in the Boston office, “there was no way in the world”

to document that certain activities required a skilled level of performance.

Still other HCFA regional offices, such as San Francisco, have adopted a

different approach, allowing the use of the enhanced rate under certain

circumstances.
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HCFA’s Attempt to Clarify

Its Special Transportation

Policy Raises More

Questions Than It Answers

HCFA’s attempt to clarify its policy on school districts’ practices in claiming

Medicaid reimbursement for special transportation related to school-based

services has added to the uncertainty surrounding this issue rather than

clarifying the matter. The HCFA letter indicated that school districts should

not bill to Medicaid the transportation costs of a child who qualifies for

special education under IDEA and who rides the regular school bus with

children without disabilities. According to HCFA central office officials, the

general intention was to discontinue the practice of allowing Medicaid

reimbursement for children who needed no additional assistance and could

ride the regular school bus by themselves without any special equipment or

the assistance of an aide.

However, regional offices and states have conflicting interpretations of

what an appropriate special transportation claim is, with the likely result

that Medicaid reimbursement will continue to be inconsistent across

states.

• Officials in one of the seven regional offices that we spoke with

correctly believed that Medicaid would cover transportation costs if a

child was able to ride on a regular school bus but required the assistance

of an aide; two other regional offices incorrectly asserted that

transportation costs could not be reimbursed because the child would

not be riding a specially adapted vehicle; and officials in the remaining

four regional offices did not know whether reimbursement would be

allowed.

• Officials in two of the states we visited told us they will now allow

school districts to claim Medicaid reimbursement only for the use of

vehicles that have a wheelchair lift or some adaptation that would meet

the needs of children with physical disabilities—a policy that is

inconsistent with the intent that HCFA officials described to us.

• At least two states are awaiting further clarification from HCFA and

continue to have school districts that claim transportation costs for

children with special education needs who receive a Medicaid service at

school—including costs for those riding regular school buses with an

aide.
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The inconsistent interpretations cited above raise concerns of unequal

consideration of children with different types of disabilities. In particular,

state and school districts are unclear regarding HCFA’s policy for

submitting claims for children who have behavioral needs or

developmental disabilities, but no physical disability. In many cases, these

children have the physical capability to ride the regular school bus but may

need the assistance of an aide to ride the bus because of cognitive

impairments or behavioral concerns. Further, some contend that requiring

a physically adapted bus in order to receive reimbursement—as is

currently interpreted by some states and HCFA regional offices—may

conflict with the concept of “least restrictive environment”; thus, children

may be unnecessarily segregated into specialized transportation.38

Conclusions Almost one-third of Medicaid-eligible individuals are school-aged children,

which makes schools an important service delivery and outreach point for

Medicaid. Even when schools do not directly provide Medicaid-covered

health services, schools can undertake administrative activities that help

identify, refer, screen, and assist in the enrollment of Medicaid-eligible

children. Outreach and identification activities help ensure that the most

vulnerable children receive routine preventive health care and ongoing

primary care and treatment. Most states are seeking Medicaid funds to

assist them in providing medically related services to children with

disabilities and to link children to appropriate health services.

Given the broad range of school and state practices, to date there have

been poor controls on the varied approaches to submitting claims for

Medicaid reimbursement for school-based health services and

administrative activities. Such controls must achieve an appropriate

balance between the states’ needs for flexible, administratively simple

systems and the assurance that federal funds are being used for their

intended purposes. HCFA’s current oversight practices have failed to

provide that assurance, resulting in confusing and inconsistent guidance

across the regions and failure to prevent improper practices and claims in

38IDEA requires that, to the maximum extent possible, children with disabilities be educated

with children without disabilities and that special classes, separate schooling, or other

removal of children with disabilities from the regular educational environment occur only

when the nature or severity of the disability of a child is such that education in regular

classes with the use of supplementary aides and services cannot be achieved satisfactorily.

See 20 U.S.C. 1412(a)(5)(A).
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Page 41 GAO/HEHS/OSI-00-69 Medicaid in Schools

some states. Without adequate controls and consistent oversight, Medicaid

is vulnerable to paying for unneeded activities and services or for activities

and services that have not been provided. Examples of such concerns

follow.

• Bundled payment systems have the potential to reduce adverse

incentives that are created by other payment systems, such as fee-forservice and cost-based reimbursement. Although additional safeguards

can strengthen the benefits associated with bundled rates, we believe

that prohibiting the use of bundled rates altogether, as HCFA recently

did, is not warranted. Bundling rates can be an acceptable payment

mechanism, provided that (1) rates account for children’s different

levels of need and (2) rates are developed in such a way as to provide

assurances that they are not vulnerable to manipulation or resulting in

inadequate services.

• With regard to administrative cost claims, poor controls have resulted in

improper payments for Medicaid reimbursement in several states. As a

result, Medicaid has reimbursed either for activities that were not

covered or for children who were not eligible for Medicaid.

Furthermore, claims submitted for administrative activities performed

by skilled professionals have been reimbursed at a higher matching rate

than available documentation could support.

• Specialized transportation, for which HCFA provided policy clarification

in May 1999, continues to be overseen and approved haphazardly,

resulting in potentially inequitable practices for children with different

types of disabilities across different regions.

Finally, inadequate HCFA oversight has created an environment ripe for

opportunism and vulnerable to fraud.

• Contingency fees paid to private firms by school districts have created

the incentive to inappropriately maximize claims for Medicaid

reimbursement. Improprieties in claims identified by our investigations

and those of HCFA demonstrate how weaknesses in federal and state

efforts to curtail this incentive can result in improper costs.

• When states stand to benefit financially by retaining a substantial share

of schools’ federal Medicaid reimbursements, the potential exists for a

conflict of interest in ensuring that adequate oversight and controls are

in place to ensure the appropriate use of Medicaid funds.
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Page 42 GAO/HEHS/OSI-00-69 Medicaid in Schools

Recommendations to

the Administrator of

HCFA

In order to improve the development and application of policies for

Medicaid reimbursement of claims for allowable school-based health

services and administrative activities, we recommend that the

Administrator of HCFA

• allow the use of bundled rates as one of several alternative payment

approaches, provided that HCFA establishes consistent principles for

bundling that effectively address (1) provisions for rates that reflect or

recognize varying levels of services to accommodate children and (2)

assurances that children receive appropriate and needed services;

• develop a methodology to approve and monitor state practices

regarding allowable costs for administrative activities in schools that

establishes consistent federal requirements for methods of allocating

costs to Medicaid and accounting for professionals’ time; and

• clarify the agency’s policy on specialized transportation, with the goal of

establishing policies that offer equitable treatment for children with

different types of disabilities.

Agency and State

Comments

We provided HCFA and the state Medicaid agencies we visited an

opportunity to comment on a draft of this report. With respect to bundled

rates for health services, HCFA commented that its May 1999 position

emanated from its concern that the existing methodologies did not meet

statutory requirements for payments consistent with efficiency, economy,

and quality care. In considering future requests for bundled rate payments,

HCFA indicated it would address such issues as reasonable payment levels,

adequate documentation that covered services are provided only to

Medicaid-eligible children, and sampling methodologies to verify the

accuracy of documentation. This approach should provide better

assurances that payment rates reflect children’s varying needs and that

services paid for were provided, but we would caution that new

requirements not create a de facto fee-for-service environment and thus

undermine the intended benefits associated with a bundled payment

approach.

HCFA concurred with our recommendations on administrative cost claims

and specialized transportation. With respect to administrative claiming,

HCFA listed a number of steps it said it would take to address our

recommendations. Among other things, this list included revising and

finalizing a Medicaid school-based administrative claiming guide that it

released for public comment in February 2000, providing training and
B-283378

Page 43 GAO/HEHS/OSI-00-69 Medicaid in Schools

technical assistance to states and school districts to facilitate their efforts,

and developing processes for monitoring existing school-based claiming

activities and approving states’ changes in this activity. HCFA expressed its

commitment to working with its various partners—including the

Department of Education, states, and schools—to better ensure the proper

and efficient operation of Medicaid school-based programs. (See app. II for

HCFA’s comments.)

Most of the states that responded commented that our analysis of Medicaid

reimbursement received by schools, as shown in table 7, did not reflect the

portion of local school funding provided by the states. In addition, some

states continue to assert that their retention of a share of federal Medicaid

reimbursement is justified as reimbursement for their own level of funding

support to schools. We continue to believe that it is not clear that state,

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

opposed to other educational activities for which states provide funds.

Moreover, we believe that such practices sever the direct link between

Medicaid payment and services delivered, increase the potential for federal

funds to be diverted to purposes other than those intended, and are

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

provided to match state or local dollars for Medicaid services delivered to

eligible individuals. Finally, a few of the states said that additional guidance

is needed for how states should claim federal reimbursement for

administrative costs and specialized transportation.

HCFA and the state Medicaid agencies also provided technical comments,

which we incorporated as appropriate.

We are providing copies of this report to the Honorable Donna E. Shalala,

Secretary of Health and Human Services; the Honorable Nancy-Ann Min

DeParle, Administrator of HCFA; appropriate congressional committees;

and other interested parties.
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Page 44 GAO/HEHS/OSI-00-69 Medicaid in Schools

If you or your staff have any questions about this report, please call

Kathryn G. Allen at (202) 512-7118. For questions regarding our

investigation, contact Robert H. Hast at (202) 512-7455. Other staff who

made major contributions to this report are listed in appendix III.

Kathryn G. Allen

Associate Director, Health Financing and

Public Health Issues

Robert H. Hast

Acting Assistant Comptroller General

Office of Special Investigations
Page 45 GAO/HEHS/OSI-00-69 Medicaid in Schools
Page 46 GAO/HEHS/OSI-00-69 Medicaid in Schools

Appendix I

Health Care Financing Administration Letter Apendxies

Dated May 21, 1999 ApendxiI
Appendix I

Health Care Financing Administration Letter

Dated May 21, 1999

Page 47 GAO/HEHS/OSI-00-69 Medicaid in Schools
Appendix I

Health Care Financing Administration Letter

Dated May 21, 1999

Page 48 GAO/HEHS/OSI-00-69 Medicaid in Schools
Appendix I

Health Care Financing Administration Letter

Dated May 21, 1999

Page 49 GAO/HEHS/OSI-00-69 Medicaid in Schools
Page 50 GAO/HEHS/OSI-00-69 Medicaid in Schools

Appendix II

Comments From the Health Care Financing

Administration ApendxiI
Appendix II

Comments From the Health Care Financing

Administration

Page 51 GAO/HEHS/OSI-00-69 Medicaid in Schools
Appendix II

Comments From the Health Care Financing

Administration

Page 52 GAO/HEHS/OSI-00-69 Medicaid in Schools
Appendix II

Comments From the Health Care Financing

Administration

Page 53 GAO/HEHS/OSI-00-69 Medicaid in Schools
Appendix II

Comments From the Health Care Financing

Administration

Page 54 GAO/HEHS/OSI-00-69 Medicaid in Schools
Appendix II

Comments From the Health Care Financing

Administration

Page 55 GAO/HEHS/OSI-00-69 Medicaid in Schools
Appendix II

Comments From the Health Care Financing

Administration

Page 56 GAO/HEHS/OSI-00-69 Medicaid in Schools
Page 57 GAO/HEHS/OSI-00-69 Medicaid in Schools

Appendix III

GAO Contacts and Staff Acknowledgments ApendxiI

GAO Contacts Carolyn Yocom, HEHS (202) 512-4931

William Hamel, OSI (202) 512-7433

Staff

Acknowledgments

Health, Education, and

Human Services Division

Susan Anthony (Chicago)

Connie Peebles Barrow

Laura Sutton Elsberg

Office of Special

Investigations

Andrew A. O’Connell

Atlanta Field Office Ray Bush

Paul D. Shoemaker

Office of the General

Counsel

Daniel Schwimer

Richard Burkard

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