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Testimony on Medicaid Coverage of School-Based Services by Sally Richardson
Director, Center for Medicaid & State Operations
Health Care Financing Administration
U.S. Department of Health and Human Services

Before the Senate Finance Committee
June 17, 1999

Chairman Roth, Senator Moynihan, distinguished Committee members, thank you for inviting us to discuss Medicaid funding for school-based services. I want to emphasize the important role school-based services play in assuring that children receive needed health care. School-based programs can also play a powerful role in identifying and enrolling children who are eligible for Medicaid, as well as the new State Children's Health Insurance Programs. We strongly support Medicaid funding for school-based health services to children enrolled in Medicaid.

I have had the privilege of working closely with your Committee to understand the recent growth of Medicaid reimbursement in the schools. We recently sponsored a site visit for key Committee staff to see first hand the essential role school-based services play in ensuring that Medicaid-eligible children receive needed care while minimizing disruption to the education process.

However, your Committee, our staff, and now the General Accounting Office have identified serious concerns with Medicaid payments for school-based care in a handful of States. These include:

  • "bundled" payment for groups of services to disabled children without documentation of the actual delivery of services or their costs;
  • billing for transportation costs that Medicaid does not cover; and
  • billing for administrative activities that Medicaid does not cover.

We believe we must act now to clarify issues, eliminate any inappropriate practices that exist, and protect the integrity of Medicaid funding for school-based services. We, therefore, sent State Medicaid Directors a letter May 21, 1999 that modifies and clarifies policy in these areas. Specifically:

  • we will no longer approve federal Medicaid matching funds for bundled payments for school-based services;
  • we will only pay transportation costs for children with special transportation needs; and
  • we will issue guidance this Summer on Medicaid covered administrative costs.

We also will continue to work with Congress and the States to ensure that school-based services covered by Medicaid are billed appropriately and provided efficiently and effectively.


Many school-based health programs provide a broad range of services that are covered by Medicaid, affording access to care for children who otherwise might well go without needed services. And, as mentioned above, school-based programs also can play a powerful role in identifying and enrolling children who are eligible for Medicaid, as well as the new State Children's Health Insurance Programs. For Medicaid to cover school-based services, they must be primarily medical and not educational in nature. They must be provided by a qualified Medicaid provider to children in families that meet Medicaid income eligibility requirements. And they must be considered medically necessary for the child. The services can include:

  • routine and preventive screenings and examinations;
  • diagnosis and treatment of acute, uncomplicated problems;
  • monitoring and treatment of chronic medical conditions; and
  • provision of medical services to children with special needs under the Individuals with Disabilities Education Act.

Medicaid funding for school-based services was limited to coverage for routine screenings and treatment of acute, uncomplicated problems until 1988. Then Medicaid's role in supporting school-based health care was greatly expanded under the Medicare Catastrophic Coverage Act. It stipulates that Medicaid -- not the Department of Education -- pays for medical services provided to Medicaid-eligible children with special health care needs. Each child must have an Individualized Education Plan, in accordance with the Individuals with Disabilities Education Act, in order for Medicaid to pay for their school-based care.

There has been a surge of State interest in Medicaid reimbursement for school-based health services, mostly for Medicaid-eligible children with special needs under the Individuals with Disabilities Education Act. We have encouraged this because of the potential for school-based services to support "mainstreaming"children with disabilities into regular schools while continuing to ensure that they get the care they need.

As mentioned above, however, three major areas of concern have begun to emerge. We strongly believe we must address these issues now to make sure that taxpayer funds are spent appropriately, to protect the integrity of school-based health care programs, and to ensure that the potential of school-based services to maximize opportunities for children with disabilities is not compromised.


Bundled payment for school-based services creates a real potential for Medicaid to pay too much or to pay for care which has not been provided. We have, therefore, told States in a May 21, 1999 letter that we will stop providing federal Medicaid matching funds for bundled payments.

Several Medicaid programs have been paying for school-based services with a bundled rate. This means that States make weekly or monthly payments to schools based on a package of services that are needed by children within various categories of disabilities, rather than paying separately for each individual service. Many services may be included in the bundled rate, such as physical therapy, speech therapy, and vision services. The cost for the bundled rate is based on the average historical cost of services for children in each disability category. The payment is the same regardless of the number of services actually furnished or the specific costs of services involved.

However, in most States that make bundled payments to schools, school-based providers are not maintaining adequate documentation for bundled payments. In fact, most do not have the administrative structure for maintaining such documentation. Also, State Medicaid agencies are not conducting periodic reviews to reconcile claims to services delivered and plan approved costs. Without proper documentation of services included in bundled rates, there is no reliable basis for determining whether the needed service was delivered at a reasonable rate. This creates the potential for States to obtain Federal matching funds for care which has not been provided.

That is why our May 21, 1999 letter to State Medicaid Directors made clear that we will no longer recognize bundled rates for school-based health services. States that currently pay bundled rates for school-based services must develop and prospectively implement an alternative reimbursement methodology. We will meet with a workgroup of States, the Department of Education, and other interested parties to discuss ways to pay for school-based services that provide full accountability and administrative efficiency. In the meantime, our regional offices also will actively work with States to assist in the development and implementation of non-bundled rates.

We recognize that changing payment methods may require authorization or action by the legislature in some States, and that the work may have to compete with State efforts to make information systems Year 2000 compliant. We will not ask States that have been using bundled rates to give back federal matching funds for school-based payments made before our May 21 letter. However, we expect States to make necessary changes within a reasonable time frame. If they do not, we will take appropriate enforcement actions allowed under the law.


Some school-based health care programs have inappropriately billed Medicaid for transportation costs that are not related to medical care. Medicaid covers the cost of transportation to and from school for children with specialized transportation needs identified in their Individualized Education Plan on days when they receive a medical service in school. In addition, if a child with special health care needs requires specialized transportation to and from school for a medical service but lives in an area that does not have routine school bus service, that transportation also may be billed to Medicaid.

In all situations, Medicaid funding is reserved for specialized transportation to school on a day when a child is receiving a medical service. However, several States have been claiming federal Medicaid matching funds for transportation costs not covered by this policy.

Therefore, our May 21 letter to State Medicaid Directors says explicitly that children who ride the regular school bus to school with other non-disabled children in the neighborhood should not have transportation listed in their Individualized Education Plan, and the cost of that bus ride should not be billed to Medicaid.

The letter also makes clear that:

  • States must describe the methodology used to establish the transportation rate in the State's Medicaid plan;
  • States must require documentation of each transportation service, usually in the form of a trip log maintained by the provider of the specialized transportation service, when claiming these costs as a direct service; and
  • States must develop a cost allocation methodology to ensure that Medicaid only pays for transportation-related administrative costs attributable to Medicaid beneficiaries when claiming these costs as an administrative service.

Our regional offices also will provide technical assistance to help States in properly claiming Federal matching dollars for Medicaid-covered school-related transportation costs.

Administrative Claiming

Some school-based health programs may have billed Medicaid for administrative expenses that Medicaid does not cover. Medicaid covers administrative expenses incurred by schools in providing Medicaid services, such as outreach and case management. However, we again have identified important concerns about how these expenses are being accounted for and claimed. Specifically:

  • some school-based providers are not adequately documenting Medicaid administrative claims;
  • some school-based providers are including administrative activities related to services that Medicaid does not cover or for services to children who are not eligible for Medicaid; and
  • some school-based providers may have claimed the same administrative costs twice by including activities that have already been paid for as part of the Medicaid service itself or by the State or local school district under the Individuals with Disabilities Education Act.

We are working diligently with States to foster a better understanding of when school-based administrative activities are eligible for Medicaid coverage. We plan to issue a written guide related to the requirements for school-based administrative activities this Summer.


We are committed to supporting school-based health care services and promoting their potential to afford access to children who otherwise might go without needed care. We must, however, make sure that Medicaid payments for school-based services are appropriate.

Thanks to the support and cooperation we have received from this Committee, we have identified and are addressing the concerns that have emerged. Our joint work on this issue is an example of how the Administration and Congress can work together to identify a potential problem, develop an understanding of the practice, and establish sound policy to protect the long-term interests of both taxpayers and beneficiaries.

We will, of course, continue to closely monitor the situation. However, the actions we are taking should halt inappropriate billing and protect the integrity Medicaid funding for school-based health care. I thank you for holding this hearing, and I am happy to answer your questions.

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