Order Code RS22397 Updated July 7, 2008 Medicaid and Schools Elicia J. Herz Specialist in Social Legislation Domestic Social Policy Division Summary As a condition of accepting funds under the Individuals with Disabilities Education Act (IDEA), public schools must provide special education and related services necessary for children with disabilities to benefit from a public education. Generally, states can finance only a portion of these costs with federal IDEA funds. Medicaid, the federal-state program that finances medical and health services for the poor, can cover IDEA required health-related services for enrolled children as well as related administrative activities (e.g., outreach for Medicaid enrollment purposes, medical care coordination). Despite written federal guidance, schools have difficulty meeting the complex reimbursement rules under Medicaid. According to federal investigations and congressional hearings, Medicaid payments to schools have sometimes been improper. P.L. 110-173 included a moratorium on any administrative action restricting Medicaid coverage or payments for school-based administration and transportation services until June 30, 2008. P.L. 110-252 extends this moratorium until April 1, 2009. 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 CRS-2 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.1 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.2 Three main concerns were identified by GAO: ! ! ! 1 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.3 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 Personal communication with CMS officials, November 14, 2002. 2 See Medicaid Questionable Practices Boost Federal Payments for School-Based Services. Testimony by William J. Scanlon before the Senate Finance Committee on June 17, 1999 (GAO/T-HEHS-99-148), and Medicaid in Schools: Poor Oversight and Improper Payments Compromise Potential Benefit. Testimony by Kathryn Allen before the Senate Finance Committee on April 5, 2000 (GAO/T-HEHS/OSI-00-87). 3 Bundled payments typically means a fixed rate is paid for a package of specific services made available to children with a specific condition during a set period of time (e.g., a month). In a May 21, 1999 memorandum to state Medicaid directors, HCFA prohibited additional states from applying to use the bundled rate methodology. CRS-3 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.4 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.5 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 schoolbased 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 schoolbased 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.6 4 See Sec. 321, H.Rept. 106-577 for the Concurrent Resolution on the Budget for Fiscal Year 2001, and page 153 of H.Rept. 106-1033 for the Omnibus Consolidated and Emergency Supplemental Appropriations for Fiscal Year 2001. 5 See, for example, Travis Hicks: “Special Ed advocates oppose new Medicaid guidance. (Cuts in Medicaid funding for health services professional for special education students).” Education Daily, February 6, 2003. 6 See, for example, HHS OIG, Review of Medicaid Transportation Claims Made by the New York City Department of Education, A-02-03-01023, September 2005; HHS OIG, Audit of LaPorte Consortium’s Administrative Costs Claimed for Medicaid School-Based Services, A-06-0200051, January 2006; GAO, Medicaid in Schools: Improper Payments Demand Improvements in HCFA Oversight, GAO/HES/OSI-00-69, April 2000, and Medicaid: States’ Efforts to (continued...) CRS-4 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 educationrelated 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 rule7 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 is estimated to reduce federal Medicaid outlays by $635 million in FY2009 and by $3.6 billion over the period FY2009-FY2013. The Congressional Budget Office (CBO) estimates that this final rule will reduce federal Medicaid outlays by $4.2 billion over 5 years and by $10.2 billion over 10 years.8 A recent congressional report indicates that this rule would result in the loss of roughly $3.2 billion over the next five years in 34 states affected by the rule that could provide such estimates.9 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 6 (...continued) Maximize Federal Reimbursements Highlight Need for Improved Federal Oversight. Testimony by Kathryn Allen before the Senate Finance Committee, June 28, 2005 (GAO-05-836T). 7 “Medicaid Program; Elimination of Reimbursement under Medicaid for School Administration Expenditures and Costs Related to Transportation of School-Age Children Between Home and School,” 72 Federal Register 73635, December 28, 2007. This rule is identical to a proposed rule issued on September 7, 2007 (72 Federal Register 51397). 8 See Congressional Budget Office, Medicare, Medicaid and SCHIP Administrative Actions Reflected in CBO’s Baseline, February 29, 2008. 9 See The Administration’s Medicaid Regulations: State-by-State Impacts, prepared for Chairman Henry Waxman by the Majority Staff, U.S. House of Representatives, Committee on Oversight and Government Reform, March 2008. CRS-5 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.10 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 April Grady, for more information on this legislation). 10 See, for example, Joint Association Letter to Secretary Michael O. Levitt, from a consortia of school organizations, August 23, 2007; Testimony by David Parrella, Director of Medical Care Administration, Connecticut Department of Social Services, and Denise Herrmann, National Association of School Nurses at a hearing held by the House Committee on Oversight and Government Reform entitled The Administration’s Regulatory Actions on Medicaid: The Effects on Patients, Doctors, Hospitals and States, November 1, 2007. CRS-6 Table 1. Medicaid School-Based Expenditures by States for FY2006 (in thousands of dollars) Benefits Admin/Training Dollars % of Total Dollars % of Total Alabama 5,974 0 0.0 5,974 100.0 Alaska 15,235 38 0.2 15,197 99.8 Arizona 91,126 75,550 82.9 15,576 17.1 Arkansas 4,081 3,136 76.8 945 23.2 California 309,932 130,407 42.1 179,525 57.9 Colorado 27,883 27,883 100.0 0 0.0 Connecticut 44,157 33,585 76.1 10,572 23.9 Delaware 24,950 24,950 100.0 0 0.0 District of Columbia 26,414 26,414 100.0 0 0.0 Florida 110,797 16,091 14.5 94,706 85.5 Georgia 41,760 10,131 24.3 31,629 75.7 Hawaii 0 0 — 0 — Idaho 15,468 15,468 100.0 0 0.0 Illinois 245,346 82,572 33.7 162,774 66.3 Indiana 2,695 2,695 100.0 0 0.0 Iowa 25,190 24,883 98.8 307 1.2 Kansas 65,855 61,402 93.2 4,453 6.8 Kentucky 7,514 850 11.3 6,664 88.7 Louisiana 0 0 — 0 — Maine 15,794 15,794 100.0 0 0.0 Maryland 180,328 180,328 100.0 0 0.0 Massachusetts 117,034 113,535 97.0 3,499 3.0 Michigan 0 0 — 0 — Minnesota 54,906 42,702 77.8 12,204 22.2 Mississippi 3,408 0 0.0 3,408 100.0 Missouri 76,934 68 0.1 76,866 99.9 Montana 17,036 14,966 87.8 2,070 12.2 Nebraska 67,995 6,626 9.7 61,369 90.3 Nevada 1,387 1,387 100.0 0 0.0 New Hampshire 35,759 35,759 100.0 0 0.0 New Jersey 0 0 — 0 — New Mexico 16,921 13,002 76.8 3,919 23.2 New York 469,653 469,653 100.0 0 0.0 North Carolina 37,313 15,403 41.3 21,910 58.7 North Dakota 1,547 1,547 100.0 0 0.0 Ohio 11,532 11,532 100.0 0 0.0 Oklahoma 5,780 5,780 100.0 0 0.0 Oregon 23,938 6,190 25.9 17,748 74.1 Pennsylvania 240,328 193,378 80.5 46,950 19.5 Rhode Island 5,526 0 0.0 5,526 100.0 South Carolina 56,193 45,258 80.5 10,935 19.5 South Dakota 5,543 0 0.0 5,543 100.0 Tennessee (see note) 504 (216) -42.9 720 142.9 Texas 301 0 0.0 301 100.0 Utah 16,429 15,060 91.7 1,369 8.3 Vermont 0 0 — 0 — Virginia 36,178 3,900 10.8 32,278 89.2 Washington 34,364 23,632 68.8 10,732 31.2 West Virginia 52,400 52,400 100.0 0 0.0 Wisconsin 72,697 69,480 95.6 3,217 4.4 Wyoming 0 0 — 0 — National 2,722,105 1,873,219 68.8 848,886 31.2 Note: In FY2006, Tennessee had a negative adjustment made to its spending on benefits, thus, all net school-based spending was for administration and training. Source: CMS, Form-64 Information Forms. As submitted quarterly by states on a voluntary basis. States may forego completing Information Forms if it delays reporting of overall Medicaid expenditures. Data may be incomplete for some quarters and may contain amounts for prior periods. Unadjusted by CMS or CRS. Some services can be claimed as either administrative expenses or as a benefit (e.g., case management, transportation). crsphpgw State Total