Background

CMS is proposing changes to Medicaid reimbursement for school-based services that are expected to save taxpayers approximately $635 million in federal funds during the first year and $3.6 billion in federal funds over five years by eliminating fraud, waste and abuse in the program.

Improper billing by school districts for administrative costs and transportation services under the shared Federal/State Medicaid program is a long-standing concern of the Department of Health and Human Services (HHS).  Both HHS’ Office of the Inspector General (OIG) and the Government Accountability Office (GAO) have identified these categories of expenses as susceptible to waste and abuse. 

For example, in certain states, school-based administrative claims represent upwards of 50 percent of total Medicaid administrative claiming in a given year.  There have been documented cases where money was paid to school districts for luxury suites, theatre tickets, and tickets to professional sporting events; transportation of children to school and back despite the fact the child received no medical services; instances where school officials salaries and fringe benefits were double counted; and, examples where services billed to Medicaid overlapped with the services that were predominately educational activities.

Under the Individuals with Disabilities Education Act (IDEA), schools deliver a broad range of educational and related services (e.g., educational, social and medical) to students with disabilities that address their diverse needs.  The Social Security Act specifies that states can receive federal Medicaid funding for certain services provided to children under the IDEA.

The proposal seeks to eliminate fraud, waste and abuse in the Medicaid program and also ensures that school-based administrative expenditures are recognized and claimed properly, consistent with Federal law.

• NEW YORK:  The OIG estimated that $96,110,877 in Federal Medicaid funding was unallowable for transportation services claimed by the New York City Department of Education.  The OIG found that virtually none of the sampled transportation claims met all Federal and State requirements. 

• MICHIGAN:  The GAO reported that Michigan claimed $30 million in questionable administrative expenditures for school-based administrative activities that were not related to Medicaid.  Among other issues, school staff revealed that activities were performed pertaining to family communications and staff training that had no Medicaid component or benefit. 

• TEXAS:  The OIG found that Houston's system of calculating its school-based administrative claims was not reliable and that unallowable costs were included in the calculations.  The supporting cost documentation, the allocation methodologies, and the time studies used by Houston did not support Federal reimbursement of $2,792,575.

The Notice of Proposed Rulemaking (NPRM)

To ensure that the Medicaid program meets its intended goal of assuring coverage and access to care for children and other identified populations, CMS issued a proposed rule for public comment.  The proposed rule was put on display at the Office of the Federal Register on Friday, August 31, 2007, and is open for public comment until November 6, 2007.  CMS will review the comments and prepare a final rule.  To review the proposed rule, visit cms.hhs.gov http://www.cms.hhs.gov/MedicaidGenInfo/Downloads/CMS2287P.pdf.

The rule proposes that:

• Federal financial participation (FFP) would remain available for:
  • Costs of allowable Medicaid administrative activities conducted by employees of the State Medicaid agency, as well as administrative overhead costs which are integral to the provision of a covered service; and
  • Covered services in a child’s IEP and for transportation from school to a health care provider in the community for a covered service. 

• 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; or

• States would continue to be reimbursed for costs related to transportation to and from a school for children who are not yet school aged but are receiving covered direct medical services at the school.  This includes transportation to school and back to receive direct medical services.  The visit must not include an educational component or any activity unrelated to the direct medical service.  In addition, if an eligible child is transported from school to an appointment for a Medicaid covered service with a provider that bills Medicaid, the costs of the transportation remain eligible.   

Projected Savings

The proposed rule is estimated to result in $635 million in savings during the first year and $3.6 billion in savings over the first five years.  These estimates are based on recent reviews of voluntary State reported school-based administrative and direct medical service expenditures.  There is uncertainty in this estimate to the extent that State-reported expenditures related to school-based administration and transportation may not match current spending.

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