Federal Register / Vol. 72, No. 173 / Friday, September 7, 2007 / Proposed Rules 51397 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 431, 433, and 440 

[CMS–2287–P] 

RIN 0938–AP13 

Medicaid Program; Elimination of 

Reimbursement Under Medicaid for 

School Administration Expenditures 

and Costs Related to Transportation of 

School-Age Children Between Home 

and School 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: Under the Medicaid program, 

Federal payment is available for the 

costs of administrative activities ‘‘as 

found necessary by the Secretary for the 

proper and efficient administration of 

the State plan.’’ The proposed rule 

would eliminate reimbursement under 

the Medicaid program for the costs of 

certain activities based on a Secretarial 

finding that these activities are not 

necessary for the proper and efficient 

administration of the State plan, nor do 

they meet the definition of an optional 

transportation benefit. Based on these 

determinations, under the proposed 

rule, Federal Medicaid payments would 

no longer be available for administrative 

activities performed by school 

employees or contractors, or anyone 

under the control of a public or private 

educational institution, and 

transportation from home to school and 

back for school-aged children with an 

Individualized Education Program (IEP) 

or an Individualized Family Services 

Plan (IFSP) established pursuant to the 

Individuals with Disabilities Education 

Act (IDEA). 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on November 6, 2007. 

ADDRESSES: In commenting, please refer 

to file code CMS–2287–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (no duplicates, please): 

1. Electronically. You may submit 

electronic comments on specific issues 

in this regulation to http:// 

www.cms.hhs.gov/eRulemaking. Click 

on the link ‘‘Submit electronic 

comments on CMS regulations with an 

open comment period.’’ (Attachments 

should be in Microsoft Word, 

WordPerfect, or Excel; however, we 

prefer Microsoft Word.) 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–2287–

P, Mail Stop S3–14–22, 7500 Security 

Boulevard, Baltimore, MD 21244. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–2287–P, Mail Stop S3–14–22, 

7500 Security Boulevard, Baltimore, MD 

21244. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to one of the following 

addresses. If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786–

3256 or (410) 786–9215 in advance to 

schedule your arrival with one of our 

staff members. Room 445–G, Hubert H. 

Humphrey Building, 200 Independence 

Avenue, SW., Washington, DC 20201; or 

7500 Security Boulevard, Baltimore, MD 

21244–1850. 

(Because access to the interior of the 

HHH Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

FOR FURTHER INFORMATION CONTACT: 

Sharon J. Brown, (410) 786–0673, Judi 

Wallace, (410) 786–3197. 

Submitting Comments: We welcome 

comments from the public on all issues 

set forth in this proposed rule to assist 

us in fully considering issues and 

developing policies. You can assist us 

by referencing the file code CMS–2287–

P the specific ‘‘issue identifier’’ that 

precedes the section on which you 

choose to comment. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http://www.cms.hhs.gov/ 

eRulemaking. Click on the link 

‘‘Electronic Comments on CMS 

Regulations’’ on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

a.m. to 4 p.m. E.S.T. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Medicaid Program 

Title XIX of the Social Security Act 

(the Act) authorizes Federal grants to 

States for Medicaid programs, operated 

by the State under an approved State 

plan, that provide medical assistance to 

needy individuals including lowincome families, the elderly, and 

persons with disabilities. Federal 

payment is available to States for a 

proportion of expenditures for medical 

assistance under the approved State 

plan, and qualified expenditures for 

administration of the State plan. This 

joint Federal-state financing of 

expenditures is described in section 

1903(a) of the Act, which sets forth the 

rates of Federal financing for different 

types of expenditures. 

Under section 1903(a)(7), of the Act, 

Federal payment is currently available 

at a rate of 50 percent of amounts 

expended by a State ‘‘as found 

necessary by the Secretary for the 

proper and efficient administration of 

the State plan.’’ In addition, OMB 

Circular A–87, which contains the cost 

principles for State, local and Indian 

tribal governments for the 

administration of Federal awards, states 

that, ‘‘Governmental units are 

responsible for the efficient and 

effective administration of Federal 

awards.’’ Under these provisions, 

administrative expenditures must be 

reasonable and necessary for the 

operation of the governmental unit or 

the performance of the Federal award. 

Transportation to and from providers 

is not expressly mentioned in the 

Medicaid statute. Since the inception of 

the program, however, the Federal 


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51398 Federal Register / Vol. 72, No. 173 / Friday, September 7, 2007 / Proposed Rules 

government has recognized that 

transportation is essential to the 

administration of the State plan, to 

ensure that beneficiaries have access to 

covered services. 

Federal regulations at 42 Code of 

Federal Regulations (CFR) 431.53 

require that State plans ‘‘specify that the 

Medicaid agency will ensure necessary 

transportation for recipients to and from 

providers’’ and describe the methods for 

doing so. Alternatively, under 42 CFR 

440.170(a), the option of furnishing 

transportation as an optional covered 

service recognized under section 

1905(a)(28) of the Act is defined and 

specified. Whether transportation is 

furnished as an administrative activity 

or as a covered service could affect the 

Federal Medicaid matching rate and the 

flexibility available to the State, but 

these issues are not relevant for 

purposes of this proposed regulation. 

B. Medicaid and Schools 

1. Medical Assistance Furnished in 

Schools 

A wide range of medical services are 

furnished to students in school settings. 

In particular, pursuant to requirements 

under the Individuals with Disabilities 

Education Act (IDEA), schools deliver a 

broad range of educational and related 

services (e.g., educational, social, and 

medical services) to students with 

disabilities to address their diverse 

needs. 

Section 411(k)(13) of the Medicare 

Catastrophic Coverage Act of 1988 

(MCCA) amended section 1903(c) of the 

Act to clarify that Federal Medicaid 

payment is available for otherwise 

covered services furnished to children 

in fulfillment of requirements under 

IDEA. Specifically, section 1903(c) of 

the Act, as amended by the MCCA, 

prohibits the Secretary from denying or 

restricting Federal Medicaid payment to 

States for covered services furnished to 

a child with a disability on the basis 

that the services are included in the 

child’s Individualized Education 

Program (IEP) or Individualized Family 

Services Plan (IFSP) established 

pursuant to the IDEA. 

Some of the special education and 

related services required by the IDEA 

are within the scope of services 

provided under the Medicaid program. 

Medicaid covers direct medical services 

included in an IEP or IFSP under the 

following conditions: 

• The direct medical services are 

medically necessary and included in a 

Medicaid covered category (speech 

therapy, physical therapy, etc.); 

• All other Federal and State 

Medicaid regulations are followed, 

including those for provider 

qualifications, comparability of services 

and the amount, duration and scope 

provisions; and 

• The direct medical services are 

included in the State’s approved 

Medicaid plan and/or available under 

the Early and Periodic Screening, 

Diagnostic and Treatment (EPSDT) 

program. 

As discussed in more detail below, 

the proposed rule would not affect 

Federal reimbursement for direct 

medical service expenditures (other 

than certain transportation costs, 

discussed separately below). 

2. Administrative Activities Performed 

by School Employees or Contractors 

(School-Based Administrative 

Activities) 

CMS has previously recognized that 

schools and school districts may 

perform activities that provide support 

for the Medicaid State plan. In 1997, 

CMS issued a guidance document 

entitled, ‘‘MEDICAID AND SCHOOL 

HEALTH: A TECHNICAL ASSISTANCE 

GUIDE,’’ that interpreted existing law 

and regulations to permit States to claim 

Federal Medicaid matching funds for 

the costs of school-based administrative 

activities, specifically including 

Medicaid outreach, eligibility intake, 

information and referral, coordination 

and monitoring of health services, and 

interagency coordination. In that 

guidance, CMS emphasized that 

allowable activities must directly relate 

and support the Medicaid State plan or 

waiver services. 

In May 2003, CMS issued additional 

guidance on school-based claiming in 

the ‘‘Medicaid School-Based 

Administrative Claiming Guide’’ (the 

Guide). The Guide was intended to 

inform schools, State Medicaid 

agencies, and other interested parties on 

the appropriate methods for claiming 

Federal reimbursement for the costs of 

Medicaid administrative activities 

performed in the school setting. The 

Guide described allowable Medicaid 

school-based administrative activities as 

including the following: 

• Medicaid Outreach 

• Facilitating Medicaid Eligibility 

Determinations 

• Transportation Related Activities in 

Support of Medicaid Covered Services 

• Translation Related to Medicaid 

Services 

• Program Planning, Policy 

Development, and Interagency 

Coordination Related to Medical 

Services 

• Medical/Medicaid Related Training 

• Referral, Coordination, and 

Monitoring of Medicaid Services 

As discussed further below, this 

proposed rule would supersede the 

prior guidance and would represent the 

Secretary’s determination that Medicaid 

expenditures for such school-based 

administrative activities do not meet the 

statutory test under section 1903(a)(7) of 

being ‘‘necessary * * * for the proper 

and efficient administration of the State 

plan.’’ However, the proposed rule does 

not bring into question the legitimacy of 

the types of Medicaid administrative 

activities provided in schools. Rather, it 

reflects the Secretary’s determination 

that such activities are only necessary 

for the proper and efficient 

administration of the State plan when 

conducted by employees of the State or 

local Medicaid agency. Due to 

inconsistent application of Medicaid 

requirements by schools to the types of 

administrative activities conducted in 

the school setting, the Secretary has 

determined that such activities can only 

be properly conducted, overseen and 

appropriately allocated to Medicaid 

when conducted by employees of the 

State or local Medicaid agency. 

CMS recognizes that schools are valid 

settings for the delivery of Medicaid 

services. Under the proposed rule, CMS 

would continue to reimburse States for 

the costs of school-based direct medical 

services under the IDEA that are 

covered in their approved State 

Medicaid plan, and for transportation of 

school-age children from school to a 

non-school-based provider that bills 

under the Medicaid program, among 

other types of expenditures that will 

remain eligible for Federal financial 

participation (FFP). 

3. Transportation From Home to School 

and Back 

Ensuring transportation to and from 

providers is a required administrative 

activity under CMS regulations at 42 

CFR 431.53 or, alternatively, 

transportation to and from providers can 

be furnished as a medical service 

recognized by the Secretary under 

section 1905(a)(28) of the Act, as 

indicated in 42 CFR 440.170(a). 

CMS previously addressed schoolbased transportation in the guidance 

document discussed in the prior 

section, and in guidance contained in a 

May 21, 1999, letter to State Medicaid 

Directors. In those documents, CMS 

expressed the policy that Medicaid 

payment for transporting Medicaideligible children to and from school was 

extremely limited, including only 

specialized transportation that is 

required under an IEP for children with 

disabilities, on a day when that child 

receives a covered medical service from 

a qualified provider at the school. In 


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this guidance, CMS indicated that the 

same interpretation was applicable to 

transportation claimed as a covered 

medical service. 

However, as discussed further below, 

the proposed rule would supersede the 

prior guidance and would represent the 

Secretary’s determination that 

transportation from home to school and 

back does not meet the definition of an 

optional medical transportation service 

nor is it necessary for the proper and 

efficient administration of the State 

plan. 

C. Medicaid Reimbursement 

In general, States submit claims for 

Federal funds with respect to 

expenditures under their Medicaid 

programs either as ‘‘medical assistance’’

or as ‘‘State/local administration.’’

i. Medical Assistance 

FFP for allowable medical assistance 

expenditures under the Medicaid 

program is determined by the applicable 

Federal medical assistance percentage 

(FMAP) rate for a given State. The 

FMAP rate is determined annually for 

each State by a formula based on the 

relationship of the State’s average per 

capita income level with the national 

per capita income level. 

The State Medicaid Agency (SMA) 

reimburses participating Medicaid 

providers, including school providers, 

for allowable direct medical service 

expenditures. These reimbursement 

rates are set by the SMA and, therefore, 

any discussions regarding the 

appropriateness of such rates on the part 

of providers must be conducted at the 

State level. The reimbursement 

methodology is contained in the CMS 

approved Medicaid State Plan. 

The proposed rule would not affect 

Federal reimbursement for the costs of 

allowable direct medical service 

expenditures. 

ii. Administration 

According to the Medicaid statute at 

section 1903(a)(7) of the Act and 

implementing regulations at 42 CFR 

430.1 and 42 CFR 431.15, 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’’ (referring to the Medicaid 

State plan). 

In addition, OMB Circular A–87, 

which contains the cost principles for 

State, local and Indian tribal 

governments for the administration of 

Federal awards, states that, 

‘‘Governmental units are responsible for 

the efficient and effective 

administration of Federal awards.’’

Under these provisions, administrative 

expenditures must be reasonable and 

necessary for the operation of the 

governmental unit or the performance of 

the Federal award. 

FFP for allowable administrative 

expenditures in schools is available at a 

matching rate of 50 percent. The 

proposed rule would eliminate 

reimbursement for administrative 

expenditures conducted by school 

employees or contractors, or anyone 

under the control of a public or private 

educational agency, and certain 

transportation costs, as specified below. 

However, under the proposed rule, 

Federal funding would continue to be 

available for administrative overhead 

costs which are integral to, or an 

extension of, a specified direct medical 

service to the extent those costs are 

factored into the rate paid for such 

services and reimbursed at the 

applicable FMAP rate. These overhead 

costs include patient follow-up, 

assessment, counseling, education, 

parent consultations, and billing 

activities. Furthermore, school-based 

administrative activities, such as 

Medicaid outreach and eligibility 

intake, that are conducted by employees 

of the State or local Medicaid agency, 

will remain eligible for FFP. 

D. Improper Billing 

CMS has had long-standing concerns 

about improper billing by school 

districts for administrative costs and 

transportation services. The U.S. 

Department of Health and Human 

Services’ Office of the Inspector General 

and the Government Accountability 

Office have identified these categories of 

expenses as susceptible to widespread 

fraud and abuse. In addition, costs 

related to education mandates have 

been improperly allocated to Medicaid. 

Congress has also expressed concern 

about the dramatic increase in Medicaid 

claims for school-based costs, which 

were the subject of two U.S. Senate 

Finance Committee hearings, held in 

June 1999 and April 2000. In fact, 

examining State-reported expenditure 

data related to schools reveals that, in 

certain years, a number of States’

reported school-based administrative 

expenditures approached or even 

exceeded their reported school-based 

direct medical service expenditures, 

which is clearly evidence of improper 

claiming in this area. There may be 

certain States that do not submit claims 

for the costs of direct services provided 

in schools, thereby accounting for 

instances in which a State’s schoolbased administrative expenditures 

exceed their direct service expenditures, 

but such instances are an exception to 

overall school-based expenditure 

reporting trends. 

II. Provisions of the Proposed 

Regulations 

The proposed rule would establish a 

Secretarial finding that school-based 

administrative activities are not 

necessary for the proper and efficient 

administration of the State plan. 

Moreover, this proposed rule would 

establish a finding that transportation 

from home to school and back for 

school-age children is neither necessary 

for the proper and efficient 

administration of the State plan, nor 

within the scope of the optional medical 

transportation benefit. Based on these 

findings, the proposed rule would 

specify that FFP under the Medicaid 

program will not be available for schoolbased administrative and certain 

transportation costs unless conducted 

by employees of the State or local 

Medicaid agency. 

Under the proposed rule, the 

following changes would apply for the 

costs of the following activities or 

services: 

• FFP would no longer be available 

for the costs of school-based 

administrative activities under 

Medicaid. As discussed below, by 

administrative activities we refer to 

activities that are not properly included 

in the scope of a covered service. 

School-based administrative 

expenditures are expenditures under the 

administrative control of a public or 

private educational institution and that 

are conducted by school employees or 

contractors, or anyone under the control 

of a public or private educational 

agency. 

• FFP would no longer be available 

for the costs of transportation from 

home to school and back for school-age 

children with an IEP or IFSP established 

pursuant to the IDEA. 

The rule would supersede all 

previous guidance, including guidance 

on school-based administrative claiming 

and school-based transportation. 

Under the proposed rule, CMS would 

continue to reimburse States for schoolbased direct Medicaid services in their 

approved State plans. That is, the 

proposed rule would not affect the 

treatment of expenditures for direct 

medical services that are included in the 

approved State Medicaid plan and 

provided in schools, nor would it affect 

transportation of school-aged children 

from school or home to a non-schoolbased direct medical service provider 

that bills under the Medicaid program, 

or from the non-school-based provider 

to school or home. 


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Furthermore, under the proposed 

rule, CMS would continue to reimburse 

States for transportation costs related to 

children who are not yet school-age and 

are being transported from home to 

another location, including school, and 

back to receive direct medical services, 

as long as the visit does not include an 

educational component or any activity 

unrelated to the covered direct medical 

service. 

Federal funding would also continue 

to be available for administrative 

overhead costs that are integral to, or an 

extension of, a direct medical service 

and, as such, are claimed as medical 

assistance. These activities are properly 

reimbursed at the applicable FMAP rate 

for the related direct medical service, 

and include patient follow-up, 

assessment, counseling, education, 

parent consultations, and billing 

activities. Furthermore, school-based 

administrative activities, such as 

Medicaid outreach and eligibility 

intake, that are conducted by employees 

of the State or local Medicaid agency 

will remain eligible for FFP under the 

proposed rule. 

CMS has determined that 

administrative activities performed by 

schools, and transportation of schoolage children from home to school and 

back, are not necessary for proper and 

efficient administration of the State 

Medicaid plan, and are not within the 

scope of the transportation services 

recognized by the Secretary under 42 

CFR 440.170(a), for the following 

reasons: 

(1) The activities or services support 

the educational program and do not 

specifically benefit the Medicaid 

program; 

(2) The activities or services are 

performed by school systems to further 

their educational mission and/or to 

meet requirements under the IDEA, 

even in the absence of any Medicaid 

payment; 

(3) The types of school-based 

administrative activities for which 

claims are submitted to Medicaid 

largely overlap with educational 

activities that do not directly benefit the 

Medicaid program; and 

(4) Transportation from home to 

school and back is not properly 

characterized as transportation to or 

from a medical provider. 

School-based administrative activities 

and transportation from home to school 

and back are performed primarily to 

support educational programs rather 

than administration of the State 

Medicaid Plan. One of the essential 

functions of schools is to ensure that 

students receive all required services 

necessary to obtain a free appropriate 

public education. 

Students receive transportation from 

home to school and back regardless of 

whether or not they are determined 

eligible for special education services. 

Transportation from home to school and 

back is an essential school function and 

is furnished by the school regardless of 

whether medical services are received at 

the school. School-age children, 

including children with an IEP or IFSP, 

are transported from home to school 

primarily to receive an education, not to 

receive direct medical services. Because 

transportation coincides with the school 

schedule and is not directly related to 

a visit to a medical provider, 

characterization of the transportation as 

medically necessary to gain access to 

providers is inaccurate. 

With respect to school-based 

administrative activities, section 1903(c) 

of the Act provides specific authority 

under the Medicaid program only for 

reimbursement of medical assistance for 

specified covered services in schools; it 

contains no provision authorizing 

claiming for the costs of school-based 

Medicaid administration. CMS has 

determined that the costs of schoolbased administrative activities only 

meet the requirement of being proper 

and efficient for the administration of 

the State plan to the extent they are 

conducted by employees of the State or 

local Medicaid agency, rather than 

school employees or contractors, or 

anyone under the control of a public or 

private educational institution. In 

addition, the types of school-based 

administrative activities for which 

claims are submitted to Medicaid 

largely overlap with educational 

activities that do not directly benefit the 

Medicaid program. Furthermore, there 

is unclear and inconsistent application 

of Medicaid requirements by schools to 

the types of administrative activities 

conducted in the school setting. 

Therefore, under the proposed rule, the 

costs of school-based administrative 

activities would only be allocable to 

Medicaid when provided by employees 

of the State or local Medicaid agency. 

States receive Federal aid under IDEA 

to assist public schools in delivering 

mandated services in pursuit of a free 

appropriate public education. Section 

1903(c) of the Act was intended to 

provide States with access to Medicaid 

funding for services provided under 

IDEA in addition to Federal funding 

provided through IDEA grants to States. 

Therefore, CMS has determined that the 

proper and efficient operation of the 

State Medicaid plan does not require 

payment for the cost of administration 

unrelated to the provision of a covered 

direct medical service or for 

transportation from home to school and 

back. Schools must perform these 

activities pursuant to education 

requirements, even in the absence of 

Medicaid payment. Activities performed 

by school employees are therefore not 

specifically authorized by the 

responsible State Medicaid agency. 

The proposed rule would eliminate 

FFP for State claims related to 

transporting school-age children from 

home to school and back. However, if a 

Medicaid eligible student is transported 

from school to an appointment for a 

covered service with a non-school-based 

direct medical service provider that bills 

under the Medicaid program, the costs 

of such transportation would remain 

eligible for FFP. 

Furthermore, under the proposed rule 

CMS would continue to reimburse 

States for transportation costs related to 

children who are not yet school-age and 

are being transported from home to 

another location, including school, and 

back to receive direct medical services 

as long as the visit does not include an 

educational component or any activity 

unrelated to the covered direct medical 

service. 

III. Collection of Information 

Requirements 

This document does not impose 

information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 35). 

IV. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

V. Regulatory Impact Statement 

A. Overall Impact 

We have examined the impact of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Flexibility Act (RFA) (September 19, 

1980, Pub. L. 96–534), section 1102(b) of 

the Social Security Act, the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), and Executive Order 13132. 

Executive Order 12866 (as amended by 

Executive Order 13258 and Executive 


pwalker on PROD1PC71 with PROPOSALS
Federal Register / Vol. 72, No. 173 / Friday, September 7, 2007 / Proposed Rules 51401 

Order 13422) directs agencies to assess 

all costs and benefits of all available 

regulatory alternatives and, if regulation 

is necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any 1 year). 

The proposed rule’s savings would 

exceed this economic threshold and it is 

therefore considered a major rule. The 

proposed rule is estimated to reduce 

Federal Medicaid outlays by $635 

million in FY 2009 and by $3.6 billion 

over the first five years (FY 2009–2013). 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities if proposed rules have a 

‘‘significant economic impact on a 

substantial number of small entities.’’

For purposes of the RFA, small entities 

include small businesses, nonprofit 

organizations, and small governmental 

jurisdictions, including school districts. 

‘‘Small’’ governmental jurisdictions are 

defined as having a population of less 

than fifty thousand. Individuals and 

States are not included in the definition 

of a small entity. Although some school 

districts have populations below this 

threshold and are therefore considered 

small entities for purposes of the RFA, 

CMS has determined the impact on 

local school districts as a result of the 

proposed rule would not exceed the 

threshold of ‘‘significant’’ economic 

impact under the RFA, as discussed 

below. However, we are specifically 

soliciting comments from the public 

regarding the potential impact on local 

schools. 

States have the option under the 

proposed rule to continue funding 

school-based administrative activities 

using State-only funds; this rule simply 

eliminates the availability of Federal 

Medicaid matching funds for these 

expenditures when they are performed 

by employees of the school or 

contractors, or anyone under the control 

of a public or private educational 

institution, rather than employees of the 

Medicaid agency. However, with respect 

to transportation specifically, States 

and/or schools will be required under 

the proposed rule to continue funding 

transportation of school-age children 

from home to school and back to the 

extent it is required by education 

statute(s). That is because schools 

provide transportation to and from 

school for all students, not just (or even 

primarily) special education or 

Medicaid eligible students. 

The Individuals with Disabilities 

Education Act (IDEA) requires public 

schools to provide a free appropriate 

public education to children with 

disabilities. The IDEA authorizes 

funding through the U.S. Department of 

Education (not Medicaid) for special 

education and related services for 

children with disabilities. While section 

1903(c) of the Social Security Act 

authorized Medicaid funding for 

covered services included in an 

individualized education plan under the 

IDEA, section 1903(c) does not 

expressly authorize Medicaid funding 

for administrative activities that schools 

conduct in implementing their IDEA 

responsibilities. 

Medicaid matching funds provided as 

reimbursement for administrative 

activities are supplemental to the State 

and local funding localities already 

received. Furthermore, the estimated 

annual Federal savings under this 

proposed rule is only about one eighth 

of one percent of total annual spending 

on elementary and secondary schools 

(in 2004 total elementary and secondary 

spending was $453 billion according to 

the Statistical Abstract of the United 

States, Table 245, at http:// 

www.census.gov/compendia/statab/ 

education). According to the ‘‘Guidance 

on Proper Consideration of Small 

Entities in Rulemakings of the U.S. 

Department of Health and Human 

Services (May 2003),’’ if the average 

annual impact on small entities is 3 to 

5 percent or more, it is to be considered 

significant. Because we use a threshold 

of 3 to 5 percent of annual revenues or 

costs in determining whether a 

proposed or final rule has a 

‘‘significant’’ economic impact on small 

entities, we have determined that this 

proposed rule will not have a significant 

economic impact on a substantial 

number of small entities. However, we 

welcome comments on both the stated 

threshold for determining what is or is 

not a significant economic impact and 

the conclusion we reached as a result of 

the chosen threshold. We are 

additionally requesting comments 

specific to the potential impact of the 

proposed rule on other programs, both 

Federal and State programs. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 603 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a Metropolitan Statistical Area and has 

fewer than 100 beds. We are not 

preparing an analysis for section 1102(b) 

of the Act because we have determined, 

and the Secretary certifies, that this rule 

would not have a direct impact on the 

operations of a substantial number of 

small rural hospitals. Section 202 of the 

Unfunded Mandates Reform Act of 1995 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year of $100 

million in 1995 dollars, updated 

annually for inflation. That threshold 

level is currently approximately $130 

million. This rule contains no mandates. 

The proposed rule anticipates Federal 

savings of approximately $635 million 

in the first year following 

implementation, but does not require 

States to replace that Federal funding 

with State funding or take any other 

particular steps. Any mandates 

regarding school transportation 

spending arise under State 

constitutions, or other Federal or State 

laws. School-based Medicaid 

administrative activities and 

transportation from home to school and 

back are not required activities under 

the Medicaid statute. 

Executive Order 13132 on Federalism 

establishes certain requirements that an 

agency must meet when it promulgates 

a proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirements on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

EO 13132 focuses on the roles and 

responsibilities of different levels of 

government, and requires Federal 

deference to State policy making 

discretion when States make decisions 

about the uses of their own funds or 

otherwise make State-level decisions. 

We find that this rule would not have 

a substantial effect on State or local 

government policy discretion. While the 

proposed rule would eliminate the 

ability of States to claim Federal 

Medicaid funding for school-based 

administrative and certain 

transportation costs, notably routine 

home-to-school and back bus 

transportation, it would not impose any 

requirement as to how States or 

localities administer or pay for such 

activities, or interfere in any way with 

the ability of States to determine school 

transportation policy. The rule would 

simply recognize that routine school 

transportation from home to school and 

back and related administrative 

activities are not authorized under the 

Medicaid statute as necessary for the 

proper and efficient administration of 

the State plan, nor do they meet the 


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51402 Federal Register / Vol. 72, No. 173 / Friday, September 7, 2007 / Proposed Rules 

definition of an optional transportation 

benefit under Medicaid. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

B. Anticipated Effects 

The proposed rule is a major rule 

because it is estimated to result in $635 

million in savings during the first year 

and $3.6 billion in savings over the first 

five years. The following chart 

summarizes our estimate of the 

anticipated effects of this proposed rule. 

TABLE I.—ESTIMATED REDUCTION IN FEDERAL MEDICAID OUTLAYS RESULTING FROM THE ELIMINATION OF

REIMBURSEMENT FOR SCHOOL-BASED ADMINISTRATION AND CERTAIN TRANSPORTATION COSTS IN PROPOSED RULE

[Amounts in millions] 

2009 2010 2011 2012 2013 2009–

2013 

School-Based Costs: Eliminate Reimbursement for Administration/ 

Transportation ...................................................................................... ¥635 ¥675 ¥720 ¥770 ¥820 ¥3620 

These estimates assume 

implementation beginning in the 2008–

09 school year and are based on recent 

reviews of State reported school-based 

administrative and direct medical 

service expenditures reported on the 

quarterly CMS expenditure forms 

(MBES/CBES Form 64.10I and Form 

64.10PI Information Forms for SchoolBased ADM and MAP claims). From 

these voluntary State claiming reports, 

an estimate of the total amount of claims 

under the Medicaid program that would 

be affected by the proposed rule was 

developed and then projected forward 

using assumptions consistent with the 

most recent President’s Budget 

projections. There is uncertainty in this 

estimate to the extent that State-reported 

expenditures related to school-based 

administration and transportation may 

not match actual current spending and 

to the extent that the impact of the 

proposed rule is greater than or less 

than assumed. Furthermore, claims 

related to the costs of transportation 

from home to school and back as a 

direct service are included in the total 

amount claimed for all medical 

assistance. Therefore, it is difficult, if 

not impossible, to determine the impact 

of the proposed rule on the types of 

transportation costs that would be 

affected. 

VI. Alternatives Considered 

In developing this regulation, various 

alternatives were considered. We 

considered the possibility of conducting 

stronger review of reimbursement 

methodologies for the costs of Medicaid 

administrative activities provided in 

schools and transportation from home to 

school and back. We also considered 

seeking to implement policies requiring 

greater accountability and oversight 

responsibility for school-based 

administrative and transportation 

expenditures, and clarification of 

Federal requirements without any new 

regulation (using existing statutory and 

regulatory authority). In addition, we 

considered developing standard 

parameters applicable to claiming for all 

school-based Medicaid administration 

and transportation costs. However, CMS 

attempted, by issuing the May 2003 

Medicaid School-Based Administrative 

Claiming Guide, to provide specific 

guidance on the requirements for 

claming costs related to school-based 

activities. In the end, we ultimately 

rejected these alternatives because the 

intervening years have proven that such 

activities cannot be adequately 

regulated or overseen. 

CMS has determined that the 

rulemaking process would be the most 

effective method of implementing these 

policies because the rulemaking process 

would better inform affected parties, 

allow for public input, and make clear 

that the requirements set forth are 

uniform, fair and consistent with the 

underlying statutory intent. We 

welcome comments on this regulatory 

impact analysis and any additional 

information that would be useful in 

assessing the potential impact of the 

proposed rule. 

A. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/

a004/a-4.pdf), in the table below, we 

have prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this proposed rule. This 

table provides our best estimate of the 

decrease in Federal Medicaid outlays 

resulting from the elimination of 

reimbursement for school-based 

administration and certain 

transportation costs that would be 

implemented by this proposed rule. The 

sum total of these expenditures is 

classified as savings in Federal 

Medicaid spending. 

TABLE II.—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM FISCAL YEAR 2009 TO

FISCAL YEAR 2013 

[In millions] 

Category TRANSFERS 

Negative Transfer-estimated decrease in 

expenditures: 

Annualized Monetized Transfers 3% Units Discount Rate 7% Units Discount Rate 

$721 $718 

From Whom To Whom? Federal Government to States 


pwalker on PROD1PC71 with PROPOSALS
Federal Register / Vol. 72, No. 173 / Friday, September 7, 2007 / Proposed Rules 51403 

List of Subjects 

42 CFR Part 431 

Grant programs—health, Health 

facilities, Medicaid, Privacy, Reporting 

and recordkeeping requirements. 

42 CFR Part 433 

Administrative practice and 

procedure, Child support, Claims, Grant 

programs—health, Medicaid, Reporting 

and recordkeeping requirements. 

42 CFR Part 440 

Grant programs—health, Medicaid. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services would amend 42 CFR 

chapter IV as set forth below: 

PART 431—STATE ORGANIZATION 

AND GENERAL ADMINISTRATION 

1. The authority citation for part 431 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

Act (42 U.S.C. 1302). 

2. Section 431.53 is revised to read as 

follows: 

§ 431.53 Assurance of Transportation. 

(a) A State plan must—

(1) Specify that the Medicaid agency 

will ensure necessary transportation for 

recipients to and from providers; and 

(2) Describe the methods that the 

agency will use to meet this 

requirement. 

(b) For purposes of this assurance, 

necessary transportation does not 

include transportation of school-age 

children between home and school. 

PART 433—STATE FISCAL 

ADMINISTRATION 

3. The authority citation for part 433 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

Act (42 U.S.C. 1302). 

4. Part 433 is amended by adding new 

section 433.20 as follows: 

§ 433.20 Rates of FFP for Administration: 

Reimbursement for School-Based 

Administrative Expenditures. 

Federal financial participation under 

Medicaid is not available for 

expenditures for administrative 

activities by school employees, school 

contractors, or anyone under the control 

of a public or private educational 

institution. 

PART 440—SERVICES: GENERAL 

PROVISIONS 

5. The authority citation for part 440 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

Act (42 U.S.C. 1302). 

6. Section 440.170(a)(1) is revised to 

read as follows: 

§ 440.170 Any other medical care or 

remedial care recognized under State law 

and specified by the Secretary. 

(a) Transportation. (1) 

‘‘Transportation’’ includes expenses for 

transportation and other related travel 

expenses determined to be necessary by 

the agency to secure medical 

examinations and treatment for a 

recipient. Such transportation does not 

include transportation of school-age 

children from home to school and back. 

* * * * * 

(Authority: Catalog of Federal Domestic 

Assistance Program No. 93.778, Medical 

Assistance Program) 

Dated: July 20, 2007. 

Leslie V. Norwalk, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: August 10, 2007. 

Michael O. Leavitt, 

Secretary. 

[FR Doc. 07–4356 Filed 8–31–07; 3:00 pm] 

BILLING CODE 4120–01–P 


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