Medicaid and Schools
Released: 2009-03-04T00:00:00

Under IDEA, public schools are required to provide children with disabilities with a free appropriate public education (FAPE), including special education and related services according to each child's individualized education plan (IEP) or individualized family service plan (IFSP). States receive some federal aid under IDEA, but are otherwise responsible for the expense of special education and related services. One approach Congress has taken to ease the burden on states and school districts of fulfilling these IDEA requirements is to allow Medicaid to finance covered health services (e.g., physical, occupational and speech therapy, and diagnostic, preventive and rehabilitation services) delivered to low-income, Medicaid-eligible special education students.

Recent History

Prior to 1988, Medicaid did not pay for coverable services that were listed in a child's IEP/IFSP since special education funds were available to pay for these services, and because generally (with a few explicit exceptions), Medicaid is always the payer of last resort. Congress changed the financing relationship between IDEA and Medicaid in the Medicare Catastrophic Coverage Act of 1988 ( P.L. 100 - 360 ). However, there is some controversy about the exact nature of this legislative change. IDEA requires states to establish interagency agreements to ensure that IDEA-eligible students receive the services to which they are entitled. These agreements must include an identification of the financial responsibility of all relevant agencies. IDEA regulations further stipulate that the financial responsibility of Medicaid and other public insurers must precede the financial responsibility of the local education agency (LEA) or the state agency responsible for developing the child's IEP. In other words, Medicaid is deemed to be the first payer. In contrast, according to officials with the Centers for Medicare and Medicaid Services (CMS)—the federal agency that administers the Medicaid program—the 1988 law allows , but does not require, state Medicaid agencies to pay for services included in an IEP/IFSP. Thus, given CMS' interpretation of this law, the IDEA requirement that Medicaid be the first payer applies only to those states that have elected to pay for services listed in IEPs/IFSPs. According to CMS, most states do pay for these services.

Since 1988, other complicated issues surrounding the relationship between IDEA, schools and Medicaid have arisen. While Congress made it clear that Medicaid funds can be used to pay for reimbursable school-based services rendered to IDEA children enrolled in Medicaid, at various points in time some Members have expressed concern that some of these Medicaid payments may be made improperly. In 1999 and 2000, the Senate Finance Committee asked the U.S. General Accounting Office (GAO; later renamed the Government Accountability Office) to examine Medicaid school-based services and held two hearings on this subject. Three main concerns were identified by GAO:

Billing practices for school-based administrative services, coupled with uneven oversight of these practices by the Health Care Financing Administration (HCFA; now CMS), resulted in at least 2 of 17 states receiving improper payments. "Bundled" billing methods for school-based services used by seven states failed to account for variations in service needs among children and often lacked adequate documentation demonstrating that the benefits paid for were actually delivered in every case. However, both GAO and HCFA believed that bundled rates, if proper assurances can be built into the approach, are the preferred method for LEAs to bill Medicaid. In some states, school districts received little of the reimbursements claimed for school-based services because state agencies and private contractors, hired by schools to assist in billing Medicaid, retained significant portions of federal payments. For example, seven states retained from 50% to 85% of total federal reimbursements for both health services and administrative activities. Some school districts paid private contractors contingency fees as high as 25% of federal payments for school-based administrative activities. In the worse case reported, schools received as little as $7.50 for every $100 claimed for services and activities performed in support of Medicaid-eligible children.

In order for LEAs providing IDEA-related services to qualify for reimbursement under Medicaid, four conditions must be met: (1) the child receiving the service must be enrolled in Medicaid, (2) the service must be covered in the state Medicaid plan or authorized in federal Medicaid statute, (3) the service must be listed in the child's IEP, and (4) the LEA (or school district) must be authorized by the state as a qualified Medicaid provider. To help schools obtain Medicaid reimbursement for health care services, and also related administrative activities, HCFA and later CMS issued two manuals, Medicaid and School Health: A Technical Assistance Guide (August 1997) and Medicaid School-Based Administrative Claiming Guide (May 2003). Prior to the release of the 2003 guide, on two occasions, Congress urged the Administration to revise early drafts. The 2003 guide represents a consolidation of existing requirements for administrative claiming, and drew on the input from education community on the two earlier draft versions released in 2000 and 2002. Some in the education field have questioned the usefulness of these guides.

Current Issues

Nationwide, estimated Medicaid expenditures for school-based services were $2.7 billion in FY2006 (see Table 1 ). Roughly $1.9 billion or 69% of total expenditures was for Medicaid benefits provided in schools and about $849 million or 31% was for school-based administration/training activities. There was wide variation in spending patterns across states with respect to the proportion of expenditures for benefits versus administration and training. Among the 45 states reporting any school-based spending, 14 had expenditures for benefits only. At the other extreme, six states reported school-based spending for administration and training only.

In the President's FY2008 budget proposal, the Bush Administration noted that Medicaid claims for services provided in school settings have been prone to abuse and overpayments, especially with respect to transportation and administrative activities. As of November 2007, the HHS Office of Inspector General (OIG) has published reviews of school-based claims in 22 states. Based on this and other research, both the HHS OIG and GAO have reached similar conclusions.

For transportation services, examples of inappropriate Medicaid billing include (1) no verification that transportation was in fact provided, (2) a Medicaid-covered school health service other than transportation was not provided on the day that transportation was billed, and (3) child/family plans did not include a recommendation for transportation services, or there was no IEP or IFSP.

School districts may perform administrative functions for Medicaid purposes, such as outreach, eligibility intake, information and referrals, health service monitoring, and interagency coordination. Examples of inappropriate Medicaid billing include (1) payments based on inaccurate time studies used to allocate the cost of these administrative activities across funding sources including Medicaid; (2) expenditures for school employees who do not perform Medicaid administrative activities; (3) expenditures for operating costs such as nursing supplies, non-Medicaid outreach supplies, and education-related expenditures; (4) expenditures for personnel funded by other federal programs; and (5) payments for personnel who render only direct medical services.

On December 28, 2007, the Bush Administration published a final rule regarding Medicaid payments for school-based administration and transportation. First, the rule would restrict federal payments for school-based administrative activities (e.g., outreach, service coordination, referrals) that may be conducted on behalf of children dually eligible for Medicaid and IDEA, as well as those eligible for Medicaid only. Second, the rule would restrict federal payments for certain transportation services provided to children dually eligible for Medicaid and IDEA. This rule supercedes prior guidance from CMS on these issues, and was estimated to reduce federal Medicaid outlays by $635 million in FY2009 and by $3.6 billion over the period FY2009-FY2013. In early 2008, the Congressional Budget Office (CBO) estimated that this final rule would reduce federal Medicaid outlays by $4.2 billion over 5 years and by $10.2 billion over 10 years. A 2008 congressional report indicated that this rule would result in the loss of roughly $3.2 billion over five years in 34 states affected by the rule that could provide such estimates. CMS indicated that school budgets for the 2007-2008 school year would not be affected by the rule.

According to CMS, federal Medicaid reimbursement would no longer be available for (1) administrative activities performed by school employees or contractors, or anyone under the control of a public or private educational institution, because of inconsistent application of Medicaid requirements by schools, or (2) transportation from home to school and back for school-aged children with an IEP or IFSP, because such transportation does not meet the definition of an optional medical transportation service, nor is it necessary for the proper and efficient administration of the Medicaid state plan.

Many in the education and state Medicaid communities are opposed to these cuts. Opponents argue that the rule (1) will reduce the availability of, and access to, needed health care for children; (2) is inconsistent with decades of approved state plan amendments allowing federal funding of these administrative and transportation services; and (3) falsely assumes that health care administrative activities performed by school personnel are inconsistent with the proper and efficient administration of the state Medicaid plan because such activities improve children's health, reduce inappropriate medical care utilization, and thus ultimately save money. Moreover, additional federal funding for existing programs like IDEA or other new appropriations to offset these Medicaid cuts are unlikely to be on the horizon.

While the final rule eliminates federal matching funds for certain school-based spending under Medicaid, other types of school-based expenditures remain reimbursable. States may still claim federal matching dollars when school-based administrative activities are conducted by employees of the state or local Medicaid agency for which proper oversight and allocation of costs to Medicaid is more reliable according to CMS. In addition, federal funding would still be available for administrative overhead costs (e.g., patient follow-up, assessment, counseling, education, parent consultations, and billing activities) that are integral to, or an extension of, a specified direct medical service to the extent that those costs are represented in the rate paid for such services and reimbursed at the applicable federal matching rate. Medicaid outreach and eligibility intake, conducted by local or state Medicaid employees, would also remain reimbursable. CMS would continue to reimburse states for the costs of school-based direct medical services under IDEA that are covered in approved state Medicaid plans, and for transportation of school-age children from school or home to a non-school-based direct medical service provider that participates in Medicaid, or from the non-school-based provider to school or home. CMS would also continue to reimburse states for transportation of children who are not yet school age from home to another setting (including school) and back to receive a direct medical service, as long as the visit does not include an educational component or activity unrelated to the direct medical service.

P.L. 110 - 173 prohibited the Secretary of HHS from restricting coverage or payments for school-based administration and transportation under Medicaid, relative to policies in place on July 1, 2007. This moratorium was effective until June 30, 2008. On June 19, the House passed an amendment to the Senate-passed version of H.R. 2642 that would extend this moratorium to April 1, 2009. On June 26, the Senate passed this same bill. On June 30, this bill became P.L. 110 - 252 . (See CRS Report RS22849, Medicaid Financing , by [author name scrubbed], for more information on this legislation). This moratorium was further extended to July 1, 2009, via the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ). The Congressional Budget Office and the Joint Committee on Taxation estimate that the moratorium on the school-based rule (and two other final rules regarding case management services and provider taxes), along with a new moratorium on a final rule for outpatient hospital services, and a Sense of the Congress that the Secretary should not promulgate final rules regarding cost limits for public providers, graduate medical education, and rehabilitative services will cost $105 million in FY2009. Separate cost estimates for the provisions affecting each individual regulation were not provided.