Medicaid and Special Education: Coordination of Services for Children With Disabilities Is Evolving

Published by the Government Accountability Office on 1999-12-10.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Honorable Edolphus
                 Towns, House of Representatives

December 1999
                 MEDICAID AND
                 SPECIAL EDUCATION
                 Coordination of
                 Services for Children
                 With Disabilities Is

      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division


      December 10, 1999

      The Honorable Edolphus Towns
      House of Representatives

      Dear Mr. Towns:

      The Individuals With Disabilities Education Act (IDEA) and Medicaid have
      the potential to offer children with disabilities a variety of services and
      equipment that can be critical to their educational development and
      physical well-being. Providing $4.3 billion in fiscal year 1999, part B of
      IDEA, the Assistance to States for the Education of Children With
      Disabilities program, assists school districts in meeting their obligation to
      make available to all students with disabilities special education and
      related services that are necessary for these students to benefit from
      special education. Some of the costs of related services provided to
      low-income children under IDEA may be covered by Medicaid, a
      federal/state program that spent about $177 billion in fiscal year 1998 to
      provide medical care for certain categories of low-income Americans,
      including approximately 17 million children.1 Although Medicaid
      traditionally is the payer of last resort for health care services, since 1988
      Medicaid has been required to reimburse for IDEA-related medically
      necessary services for eligible children before any IDEA funds are used.2

      IDEA’s authorizing legislation and regulations require that it coordinate
      with other federal programs, such as Medicaid, to finance and deliver
      services to children with disabilities. However, because the boundaries of
      operation for IDEA and Medicaid are somewhat unclear, concerns have
      arisen regarding the mechanisms of coordination between these two
      programs. Accordingly, you asked us to (1) describe how Medicaid and
      IDEA interact to meet the needs of low-income school-aged children with
      disabilities and (2) identify issues that have arisen in coordinating
      Medicaid and IDEA services in schools.

      To accomplish this, we contacted selected federal and state officials, as
      well as a small number of local school district officials, regarding the
      coordination mechanisms employed by IDEA that are relevant to Medicaid
      activities in schools. To review federal efforts at coordination, we

       Because 1998 statistics on children are not yet available, our figure for the number of children
      receiving medical care covered by Medicaid is based on fiscal year 1997 data.
       The Medicare Catastrophic Coverage Act of 1988 enacted this requirement, which is currently codified
      at 42 U.S.C. 1396b(c).

      Page 1                               GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

                   contacted the Department of Health and Human Services’ (HHS) Health
                   Care Financing Administration (HCFA), which has oversight responsibility
                   for the Medicaid program, and Department of Education staff involved in
                   coordinating IDEA with Medicaid.3 For the state perspective, we contacted
                   12 states: 9 that were among the states with the highest number of
                   school-aged children in special education and 3 that had predominantly
                   rural populations.4 We obtained and analyzed the content of interagency
                   agreements and other documentation from selected state directors of
                   special education. We also contacted Education’s northeast and southeast
                   Regional Resource Centers, which are funded by the Office of Special
                   Education Programs and provide technical assistance to state education
                   agencies. We analyzed the coordination mechanisms reported by the
                   federal agencies; 12 states; and five urban school districts, which varied in
                   size from 3,000 to 156,000. We conducted our work between September
                   and October 1999 in accordance with generally accepted government
                   auditing standards.

                   Medicaid and IDEA interact differently at the federal, state, and local levels,
Results in Brief   and the extent and nature of coordination continue to evolve. Federal
                   efforts focus on (1) helping states access funding sources such as
                   Medicaid and (2) working to develop clear and consistent guidance to help
                   educational entities appropriately claim Medicaid funding for IDEA-related
                   medical services. While charged with ensuring that Medicaid-eligible
                   individuals have access to and receive covered services, HCFA must also
                   safeguard Medicaid against improper claims. For the 12 states we
                   contacted, interagency agreements and agency liaisons are the primary
                   mechanisms of state-level interaction between Medicaid and IDEA.
                   Interagency agreements are generally used to assign roles and
                   responsibilities to participating agencies, while agency liaisons typically
                   serve as resources for school districts’ coordination efforts. Local
                   interactions between Medicaid and IDEA are affected by a variety of
                   factors, including the commitment of individual school districts to seek
                   Medicaid reimbursement, as well as specific characteristics and concerns
                   of local communities.

                   As states and school districts have worked to obtain Medicaid
                   reimbursement for covered school-based services, several concerns

                    Although IDEA also offers coverage for infants and toddlers (under part C of the statute), our review
                   focuses only on school-aged children receiving IDEA services under part B.
                    We contacted Florida, Illinois, Maine, Massachusetts, Michigan, New Jersey, New York, Ohio,
                   Pennsylvania, South Dakota, Texas, and Vermont. Collectively, these 12 states accounted for
                   43 percent of fiscal year 1996-97 Grants to States, IDEA part B, funds and 47 percent of federal
                   Medicaid funds in 1998.

                   Page 2                              GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

             regarding coordination with IDEA have arisen. In the 12 states we
             contacted, coordination concerns generally revolve around determining
             which IDEA-related services Medicaid will cover, identifying children who
             are eligible for both programs, and managing the documentation required
             for submitting Medicaid claims. These efforts are complex for many
             reasons, including the need to safeguard the privacy of children with
             disabilities while ensuring appropriate documentation for claiming
             Medicaid reimbursement. Efforts to coordinate Medicaid and IDEA have
             also been affected by the lack of clear and consistent federal guidance. Six
             of the 12 directors of special education and three of the five local school
             district representatives with whom we spoke reported concerns about
             Medicaid as a consistent source of funding. That is, inconsistent guidance
             from HCFA appears to have heightened school district concerns that
             Medicaid reimbursements will have to be returned to the federal
             government later because of inappropriate documentation or changes in
             documentation requirements. Recognizing the need for better
             coordination, HCFA is developing additional guidance, which it plans to
             issue in 2000. Additionally, HCFA has established a position to advise its
             Administrator on disability policy and to facilitate communication among
             the Administrator of HCFA; other federal policymakers, including the
             Assistant Secretary for Special Education and Rehabilitation Services; and
             the disability community. While these actions will not solve the difficulties
             in coordinating Medicaid and IDEA services, state and local efforts could be
             facilitated by federal guidance in communicating Medicaid’s coverage and
             documentation requirements.

             Medicaid is a joint federal-state program that annually finances health care
Background   coverage for more than 40 million low-income individuals, one-half of
             whom are children. States operate their programs within broad federal
             requirements and can elect to cover a range of optional populations and
             services. As a result, Medicaid essentially operates as 56 separate
             programs: one in each of the 50 states, the District of Columbia, Puerto
             Rico, and the U.S. territories. Medicaid is an entitlement program; hence,
             states and the federal government are obligated to pay for all covered
             services provided to an eligible individual.

             Generally, the federal government shares in states’ Medicaid costs that fall
             under two categories: medical assistance and administrative activities. For
             medical assistance payments, each program’s federal and state funding
             shares are determined through a statutory matching formula. This formula
             results in federal shares that range from 50 to 83 percent, depending on

             Page 3                     GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

each state’s per capita income in relationship to the national average. For
administrative claims, the federal share varies by the type of costs
incurred. Most administrative expenditures are matched at a fixed rate of
50 percent, making the federal government’s contribution equal to that of a
state. However, certain administrative expenditures are matched at a rate
higher than 50 percent.5 Most Medicaid expenditures are for medical
assistance payments: over 95 percent of Medicaid’s $177 billion in total
expenditures in fiscal year 1998 was for health services.

Schools’ practices for filing claims for Medicaid reimbursement of covered
services for eligible children vary, depending on whether a school is
seeking reimbursement for health services, administrative activities, or
both. Schools that claim Medicaid for health services must meet the
Medicaid provider qualifications established by each state. In order to be
eligible for payment, all providers must meet the requirements established
by the state and have a provider agreement with the state Medicaid
agency. Schools may also receive reimbursement for administrative
activities that are found to be necessary for the proper and efficient
administration of a Medicaid state plan. Such activities may include
Medicaid outreach, application assistance, information dissemination,
referral for services, coordination and monitoring of health services, and
interagency coordination.

Schools can be an appropriate location from which to identify, enroll, and
provide Medicaid services to low-income children. In addition to services
offered in hospitals, clinics, or other health care locations, states are
authorized to use their Medicaid programs to help pay for certain health
care services delivered to Medicaid-eligible children in a school-based
setting. In some cases, states have identified schools as providers of
Medicaid services. The amount and type of services provided in
school-based settings vary by state, ranging from services provided by
contractors who visit the schools to services offered by fully equipped
school-based health clinics with permanent staff. Commonly provided
school-based services that qualify for federal funds include physical,
occupational, and speech therapy as well as diagnostic, preventive, and
rehabilitative services.

Finally, providing Early and Periodic Screening, Diagnostic and Treatment
(EPSDT) services to all Medicaid-enrolled children under 21 years of age
offers eligible children with or without disabilities a special entitlement to

 For example, the cost of developing automated systems is federally matched at a 90-percent rate, and
the cost of activities performed by skilled professional medical personnel can, under certain
conditions, be matched at a 75-percent rate.

Page 4                             GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

    health care. Under EPSDT, states are required to cover any service or item
    that is medically necessary to correct or ameliorate a condition detected
    through an EPSDT screening, regardless of whether the service or item is
    otherwise covered under a state Medicaid program. States must also
    conduct activities to inform Medicaid-eligible individuals about the EPSDT
    benefit and encourage their participation in the Medicaid program. For
    instance, states are required to provide Medicaid-eligible children and
    families with assistance in locating EPSDT health care providers, assistance
    in scheduling medical appointments, and transportation. Hence, under
    EPSDT, Medicaid-eligible children have a broad entitlement to medically
    necessary services.

    Federal assistance to states under IDEA is contingent on the states’
    obligation to make available to all children with disabilities a free,
    appropriate public education. School districts are obligated to provide a
    free, appropriate public education whether or not they receive federal
    funds. In fiscal year 1999, the IDEA Grants to States program provided $4.3
    billion in federal funds and served 6.1 million children.6 Funding is based
    on a child count formula that allocates aid to states on the basis of the
    number of children with disabilities receiving special education and
    related services. Although the formula authorizes a maximum federal
    allotment for each child with a disability who is served that is 40 percent
    of the national average per pupil expenditure for special education, the
    fiscal year 1999 figure of $4.3 billion actually represents 11.7 percent of
    this average expenditure.7 The act specifies several procedures that school
    districts must follow in providing educational services to children with

    Under IDEA, local school districts, through the schools, must determine
    whether a child has a disability and what the educational needs of the
    child are. For each child with a disability, the school must

•   develop, in conjunction with the child’s parents, teachers, and others, an
    individualized education program (IEP), which is a written statement that

     IDEA’s total federal appropriation for fiscal year 1999 was $5.3 billion, $4.1 billion of which was for
    Grants to States under part B; $0.2 billion was an advance from prior year funding for part B.
    Additional IDEA funding included $374 million for the Preschool Grants program; $370 million for the
    Grants for Infants and Families program; as well as resources for IDEA national programs, which fund,
    among other things, state program improvement grants and parent information centers.
     The IDEA Amendments of 1997 (P.L. 105-17) provide for the formula to change to one that is
    population-based once the appropriation for the program exceeds $4.9 billion.

    Page 5                              GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

    details the education and supportive services a student with a disability
    will receive;8
•   provide services in accordance with the IEP;
•   review each child’s IEP at least annually and revise it as appropriate; and
•   reevaluate the child’s need for special education services as appropriate,
    but at least once every 3 years.9

    In addition to requiring special education services, IDEA also obligates a
    school district to provide the “related services” that are required to help a
    child with disabilities to benefit from special education, including
    transportation, speech-language pathology and audiology services,
    psychological services, physical and occupational therapy, social work
    services, counseling, and medical services.10 Similarly, assistive
    technology (such as special computer software or a device to assist in
    holding a pencil) may be needed to help the student participate in school.
    Furthermore, IDEA services are not limited to being delivered in a
    school-based setting but can also be provided in homes, hospitals,
    corrective facilities, or other locations if necessary in order for the child to
    receive a free, appropriate public education.

    Recognizing the breadth of services that can be provided—many of which
    may be covered by Medicaid or other programs—IDEA requires that
    educational entities perform several activities that are aimed at
    coordinating IDEA services with the services of other agencies. In
    particular, IDEA requires the following activities:

•   The state must have in effect policies and procedures to ensure the
    identification, location, and evaluation of all children with disabilities who
    are in need of special education and related services (“child find”).11 Each
    agency participating in child find must be identified and the nature and
    extent of its participation documented.

     The IDEA regulations specify that the IEP team must include (1) parent(s); (2) at least one of the
    child’s regular education teachers (if the child is, or may be, participating in the regular education
    environment); (3) one of the child’s special education teachers; (4) a representative of the public
    agency involved; (5) an individual to interpret the implications of evaluation results; (6) the child
    (when appropriate); and (7) other individuals with knowledge or special expertise regarding the child.
    See “Assistance to States for the Education of Children With Disabilities and the Early Intervention
    Program for Infants and Toddlers With Disabilities,” final regulations, 64 Fed. Reg. 12,405, 12,440
    (1999) (to be codified at 34 C.F.R. 300.344).
     See 42 U.S.C. 1414.
     In this context, related services that are defined as medical are limited to those for diagnostic or
    evaluation purposes.
     See “Assistance to States,” 64 Fed. Reg. 12,405, 12,427 (1999) (to be codified at 34 C.F.R.

    Page 6                               GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

•   The state must also establish responsibility for providing services, which
    involves developing an interagency agreement or other mechanism for
    coordination.12 The agreement or mechanism must address (1) agencies’
    financial responsibilities, (2) conditions and terms of reimbursement,
    (3) procedures for resolving interagency disputes, and (4) policies and
    procedures for coordinating services.

    Finally, for any fiscal year, IDEA allows school districts to use up to
    5 percent of the amount received under part B (Grants to States) in
    combination with other amounts to develop and implement a coordinated
    service system designed to improve results for children and families.13
    Funding is expected to include funds other than for education, and
    Medicaid is cited as one of several federal and state programs for which
    service coordination and case management activities would be

    Medicaid can be an important source of funding for schools, particularly
    because the costs of providing special education can greatly exceed the
    federal assistance provided under IDEA. Children who qualify for IDEA are
    frequently eligible for Medicaid services, and although Medicaid is
    traditionally the payer of last resort for health care services, it is required
    to reimburse for IDEA-related medically necessary services for eligible
    children before IDEA funds are used.14 Because many services required by a
    child’s IEP are health-related or medical in nature, the Medicaid entitlement
    is an attractive option for funding many IDEA services for low-income
    children with disabilities. Furthermore, some administrative activities
    under Medicaid, such as EPSDT outreach, can be relevant for such IDEA
    activities as child find. Hence, educational entities have both
    programmatic and financial incentives to ensure that coordination exists
    between Medicaid and IDEA.

    Additionally, concerns regarding the costs of implementing IDEA and the
    need to identify alternative sources of funding have heightened as a result
    of a recent Supreme Court case. In Cedar Rapids Community School
    District v. Garret F.,15 the Supreme Court held that under IDEA, the school
    district must provide the student with the nursing services he requires

      See “Assistance to States,” 64 Fed. Reg. 12,405, 12,429 (1999) (to be codified at 34 C.F.R. 300.142(a)).
      See “Assistance to States,” 64 Fed. Reg. 12,405, 12,435 (1999) (to be codified at 34 C.F.R. 300.244(a)).
      34 C.F.R. 300.442 (a)(1).
      Cedar Rapids Community School District v. Garret F., 526 U.S. 66 (1999).

    Page 7                                GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

                         during school hours.16 The superintendent of the Cedar Rapids Community
                         School District and the National School Board Association have expressed
                         concern about the financial obligations that may be associated with this
                         decision; others disagree, stating that the decision did not add financial
                         obligations or requirements beyond those already in effect. While not
                         adding new Medicaid requirements, the Court’s decision does have
                         relevance for Medicaid costs to the extent that states provide services
                         through IDEA that are eligible for Medicaid payment.

                         Medicaid and IDEA interact differently at the various levels of government:
Medicaid and IDEA        federal, state, and local. At the federal level, interactions center around
Interactions Vary        (1) assisting states with accessing funding sources such as Medicaid and
Across Levels of         (2) providing guidance so that educational entities can appropriately claim
                         Medicaid for IDEA-related medical services. While charged with ensuring
Government               that Medicaid-eligible individuals have access to and receive covered
                         services, HCFA must also safeguard the use of Medicaid funds to ensure
                         their appropriate use. For the 12 states we contacted, interagency
                         agreements and agency liaisons at the state and, occasionally, local levels
                         are the key mechanisms of interaction between Medicaid and IDEA. In
                         addition to the state-specific coverage criteria for state Medicaid
                         programs, local interactions between Medicaid and IDEA are affected by a
                         variety of factors, including the individual commitments of school districts
                         to seek Medicaid reimbursement and specific characteristics and concerns
                         that exist within a school district or local community.

Federal Interactions     Federal interactions between Medicaid and IDEA reflect the different roles
Between Medicaid and     of HCFA and the Department of Education. While acknowledging the
IDEA Reflect Differing   importance of covering the school-based service needs of
                         Medicaid-eligible children, HCFA officials we spoke with expressed
Agency Roles             concerns about the appropriateness of certain billing practices in schools.
                         In particular, school districts’ claims for administrative costs associated
                         with school-based health services have increased fivefold over the past 4
                         years, and federal oversight of school districts’ claims has been weak.
                         Thus, an environment conducive to opportunism has developed in which

                          Recognizing that the school district must fund “related services” to integrate such students into the
                         public schools, the Court looked to the “bright line” test established in Irving Independent School
                         District v. Tatro, 468 U.S. 883 (1984). Under this test, the services of a physician (other than for
                         diagnostic and evaluation purposes) are subject to the medical services exclusion, but services that
                         can be provided in the school setting by a nurse or qualified layperson are not. Therefore, while the
                         Court in Garret F. acknowledged the student’s need for more extensive services, it noted that such
                         services are no more “medical” than the care sought in Tatro and must be provided by the school
                         district as “related services.”

                         Page 8                              GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

                             inappropriate claims have the potential for generating excessive Medicaid
                             payments.17 Recognizing that states and schools have a strong incentive to
                             maximize federal dollars, HCFA has focused its recent efforts to maintain
                             the integrity of the Medicaid program on working to develop and
                             disseminate guidance for schools and states. To support these efforts, HCFA
                             has instituted work groups aimed at clarifying appropriate billing practices
                             for IDEA-related services in schools.

                             In contrast to Medicaid, which has no statutory requirements for
                             coordinating services and activities with educational entities, IDEA’s
                             statutory mandate requires that educational agencies bear the
                             responsibility for coordinating IDEA-related services with other agencies,
                             such as Medicaid. Moreover, limited funds and the broad array of services
                             that IDEA can cover make finding additional funding sources important.
                             Education’s chief coordination efforts have been aimed at helping states
                             obtain funding through such sources as Medicaid. Education’s
                             coordination with HCFA has slowly increased over time. Education officials
                             told us they were not involved initially in HCFA’s work groups or in
                             developing guidance disseminated by HCFA in the spring of 1999 regarding
                             Medicaid billing practices in schools.18 More recently, Education officials
                             indicated that they have participated in one work group and stressed that
                             coordination with HCFA is extremely important to fostering coordination
                             between Medicaid and IDEA at the state level.

State Interactions Between   State-level interactions between Medicaid and IDEA for the 12 states we
Medicaid and IDEA Take       contacted are primarily governed through two mechanisms: interagency
Place Primarily Through      agreements and agency liaisons. All states we contacted said that they had,
                             as required under IDEA, either an interagency agreement or other
Interagency Agreements       mechanisms for coordinating with Medicaid. Interagency agreements in 10
and Agency Liaisons          states serve as mechanisms for outlining the responsibilities of the
                             education and Medicaid agencies. Some states have included additional
                             provisions in their agreements aimed at simplifying coordination,
                             providing quality review, or both. All 12 states identified agency liaisons
                             that are responsible for coordinating Medicaid claims for school-based
                             services. While the responsibilities of these liaisons—and their location
                             within state government—vary across states, liaisons are generally

                              See Medicaid: Questionable Practices Boost Federal Payments for School-Based Services
                             (GAO/T-HEHS-99-148, June 17, 1999).
                               On May 21, 1999, HCFA sent a letter to state Medicaid directors regarding reimbursement for
                             school-based health services under Medicaid. This letter explained practices associated with
                             reimbursement for transportation and reported efforts under way to review state practices for
                             claiming reimbursement for school-based health-related administrative activities.

                             Page 9                             GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

                                 expected to serve as resources and to assist in resolving problems with
                                 coordinating the two programs.

Interagency Agreements           The language and terms of the interagency agreements we reviewed range
Outline Responsibilities of      from general to more specific descriptions of each agency’s role. While
Medicaid and Education           some aspects of the agreements vary, they focus primarily on assigning
Agencies                         roles to the Medicaid agency, the education department, and other key
                                 stakeholders. For example, the general responsibilities of the Medicaid
                                 agencies include performing fiscal duties, determining eligibility, and
                                 reviewing and processing claims. Similarly, the education agencies are
                                 responsible for screening children for Medicaid eligibility, facilitating the
                                 Medicaid application process, and maintaining student records.

                                 Some states have included additional provisions in their agreements to
                                 enhance coordination efforts. For example, Pennsylvania’s agreement
                                 includes both individual and mutual activities for the Medicaid and
                                 education agencies for outreach, education, care coordination, service site
                                 development, and monitoring and evaluation. In Texas, the agencies
                                 jointly agreed to coordinate products and activities for the school districts
                                 and to provide ongoing training and workshops within and between the
                                 two agencies. Vermont prepared a section on school health services for its
                                 Medicaid Practices and Procedures Manual, which details the guidelines
                                 for program management, reimbursement, and fiscal monitoring, including
                                 audit control and corrective action plans.

                                 To ensure quality and maximize services, several states have included
                                 requirements for maintaining a system of checks and balances. In Illinois,
                                 the Medicaid agency reviews the data submitted from the local education
                                 agencies, including the eligibility status of the recipient, the certification of
                                 the provider, and the codes for covered services. Michigan’s process of
                                 quality assurance involves both its Education and Medicaid agencies.
                                 Although Michigan’s Education Department is responsible for performing
                                 compliance audits, it sometimes conducts joint audits with the state’s
                                 Medicaid agency. Education is responsible for submitting the results of the
                                 on-site review of records and other essential documents to the state
                                 Medicaid agency, while Medicaid verifies the methodology for payments.

Agency Liaisons Serve as         The 12 states we contacted identified agency liaisons that are responsible
Resources for School Districts   for coordinating Medicaid and school-based services. Over half of these
                                 states have designated liaisons in both education and Medicaid agencies.
                                 For example, while Florida has a liaison in the Department of Education,
                                 the state also has 11 Medicaid program specialists who act as school

                                 Page 10                     GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

                             liaisons by assisting in coordination efforts. These specialists work for the
                             Medicaid Area Program offices that administer Florida’s Medicaid

                             Agency liaisons also serve as general resources and problem solvers for
                             school districts. Officials in Ohio’s Department of Education consider
                             themselves a resource for local education agencies because they answer
                             questions about Medicaid and the billing certification procedure. Illinois
                             state agency officials reported that the state’s most important coordination
                             mechanism has been the identification of an agency liaison, which was
                             instrumental in solving a problem the state faced in reconciling medical
                             and education terminology. In some instances, the responsibilities of the
                             liaisons vary to meet the needs of a state’s unique Medicaid program and
                             school systems. For example, New York has 11 coordinators in regional
                             information centers who help school districts and counties use their
                             software to create billing systems, collect data from schools, and set up
                             training sessions. In addition, the state has other education liaisons who
                             focus on Medicaid claims processing.

Varying Characteristics of   Just as state Medicaid programs are unique in their design and
Localities Often Shape       implementation, the approximately 15,000 U.S. school districts also vary
Interactions                 greatly in size and scope. For example, in the 1995-96 school year, 23
                             districts had enrollments of over 100,000 students, while a much larger
                             number of districts reported serving fewer than 150 students. In our
                             previous work on school districts’ implementation of federal requirements,
                             we found that district officials often lacked accurate, timely, and detailed
                             information on federal programs and requirements, particularly for
                             complex programs such as IDEA and Medicaid.19 In addition, districts can
                             have different levels of experience and expertise in claiming federal funds
                             from programs such as Medicaid.

                             School districts also have different levels of commitment to claiming
                             Medicaid funds. For example, state agency officials in Michigan and
                             Florida informed us that they have been given a clear mandate to
                             encourage school districts’ use of Medicaid for school-based services and
                             to carry out whatever coordination tasks are necessary to ensure
                             participation. Michigan schools have been encouraged by the state
                             Education Department to become Medicaid providers. In Florida, the state
                             has passed legislation aimed at billing Medicaid for direct services in the

                              See Elementary and Secondary Education: Flexibility Initiatives Do Not Address Districts’ Key
                             Concerns About Federal Requirements (GAO/HEHS-98-232, Sept. 30, 1998).

                             Page 11                            GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

                          schools; before this legislation, interactions between Medicaid and
                          education at the state level were limited to case-by-case instances. Even
                          with a clear mandate to use Medicaid for school-based services, however,
                          individual school districts vary in their approach to claiming Medicaid. For
                          example, one school district in Florida started with a pilot program to bill
                          Medicaid and slowly expanded its efforts over time, an approach that
                          district officials characterized as very conservative, compared with that of
                          another school district in the state.

                          Finally, school districts may have specific concerns that are shaped by
                          local circumstances. While these circumstances may not be restricted
                          solely to coordination issues between Medicaid and IDEA, they nonetheless
                          affect the districts’ ability to provide and fund appropriate services to
                          children with disabilities.

                      •   Some providers and the services they offer are either unavailable or in
                          short supply in some communities.20 In particular, shortages of such
                          services as early intervention, transportation, and medical services are
                          more pronounced in rural than in other areas. Some rural districts may
                          also have difficulties locating providers of certain related services, such as
                          physical therapy and speech pathology, according to district and state
                      •   Officials from one school district in Vermont reported that the difficulty in
                          reading that some parents of children with disabilities have makes it
                          difficult for them to learn about Medicaid. When such concerns are
                          suspected, school personnel make personal contact with the parents,
                          informing them about Medicaid and assisting them in completing the
                          enrollment form.
                      •   Under IDEA, after the IEP is developed, the school district must provide the
                          agreed-upon services “within a reasonable period of time,” usually 60
                          days. District officials may not receive reimbursement—or know for sure
                          that reimbursement will be allowed—within this time period.

                          State and local efforts to seek Medicaid reimbursement for covered
Implementation            school-based services reveal several coordination issues between
Efforts Reflect           Medicaid and IDEA. In the 12 states we contacted, these issues generally
Attempts to Address       revolve around achieving clarity (and sometimes consensus) on what
                          services Medicaid will pay for, determining Medicaid eligibility for
Coordination Issues       children with IEPs, and establishing clear methods of documentation for

                           See SSI Children: Multiple Factors Affect Families’ Costs for Disability-Related Services
                          (GAO/HEHS-99-99, June 28, 1999).

                          Page 12                             GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

                            billing Medicaid. States’ approaches to addressing these issues vary.
                            Coordinating these activities between educational entities and Medicaid
                            programs has been hampered by the lack of clear and consistent federal
                            guidance regarding the proper billing procedures for Medicaid. Six of the
                            12 directors of special education and three of the five local school district
                            representatives with whom we spoke expressed concerns about Medicaid
                            as a consistent source of funding. Some state officials also specifically
                            mentioned waiting for HCFA to issue guidance on claiming Medicaid for
                            school-based services and administrative activities, which is expected to
                            occur sometime in the year 2000.

State and Local Efforts     States and local school districts cited similar coordination concerns about
Reflect Similar Concerns;   coverage, or identifying Medicaid-reimbursable services; eligibility, or how
Approaches to Resolving     to identify children who are, or should be, enrolled in Medicaid; and
                            documentation, or compiling service data, submitting claims, and
Them Vary                   receiving reimbursement from Medicaid.

Coverage                    State and local officials we contacted often reported difficulties
                            distinguishing between medical and educational activities and, thus,
                            clearly identifying which IDEA-related services Medicaid can be expected to
                            cover. For example, state education officials in New York, Massachusetts,
                            and Florida reported that it is frequently unclear whether speech and
                            language therapy are medical (rehabilitative) or educational
                            (developmental) in nature. Occupational therapy, such as fine motor
                            coordination or handwriting therapy, was also offered as an example of a
                            service that may or may not qualify for Medicaid coverage.

                            The uncertainty over what Medicaid will cover is exacerbated by
                            differences in terminology for educational and medical services. For
                            example, what education officials term an “intervention” can be called
                            “suicide prevention” or “crisis services” by the medical world. A second
                            example is the nature and characterization of counseling services, which
                            schools are likely to call “behavioral programming or management” and
                            Medicaid may term “therapy.”

                            Additionally, coordinating the differing requirements of Medicaid and IDEA
                            can be challenging. For example, required qualifications for Medicaid
                            providers may be higher than the standards of local school districts, thus
                            limiting the reimbursement that can be obtained under Medicaid. For
                            instance, in Maine, Medicaid requires licensure for speech/language
                            pathologists, a higher standard than the certification that schools require.

                            Page 13                    GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

              One state education official told us that Maine is currently attempting to
              pursue licensure for all speech/language pathologists so that schools can
              receive Medicaid reimbursement for this service. A second issue involving
              differing program requirements that is echoed by state and local officials is
              the inherent conflict between Medicaid’s need for a diagnosis and a
              school’s preference to discuss a child’s needs and develop an IEP without
              specifically labeling the child. In one Florida school district, local officials
              told us they have resolved this issue by having the school therapist contact
              the child’s primary care physician, who then identifies the appropriate
              diagnostic code(s).

              These challenges at the state and local levels have not gone unrecognized
              by federal agencies. Staff from both HCFA’s regional offices and
              Education’s Regional Resource Centers acknowledge the difficulties in
              distinguishing between medical and educational services. For example,
              HCFA officials noted that the medical and educational components of
              certain activities, such as physical and occupational therapy, case
              management, and behavioral services, are difficult to separate. Moreover,
              the long-term nature of some school-based health services (such as
              occupational or physical therapy) runs counter to Medicaid’s more
              traditional service delivery, which often involves short-term rehabilitative
              services following surgery or an accident.

Eligibility   Identifying children who are Medicaid-eligible—whether enrolled or
              not—is a critical task for schools interested in claiming Medicaid funding
              for IDEA-related services. In addition to the difficulties faced in identifying
              children who are eligible but not enrolled in Medicaid,21 schools do not
              always have ready access to information regarding children already
              enrolled in Medicaid. A New York official reported that ensuring
              confidentiality—that is, identifying IDEA children who are also
              Medicaid-eligible without disclosing medical or educational
              information—was initially one of the biggest challenges to coordinating
              Medicaid and IDEA. Federal law prohibits issuing the names of individuals
              with disabilities to any noneducational agency without parental consent,
              thus making it difficult for schools to match names of children receiving
              IEP services with names of Medicaid enrollees.22 In light of this
              requirement, New York developed a system under which its Department of
              Health provides a list of Medicaid-eligible children to the Department of

               See Medicaid: Demographics of Nonenrolled Children Suggest State Outreach Strategies
              (GAO/HEHS-98-93, Mar. 1998).
                See 42 U.S.C. 1232g(b)(1).

              Page 14                           GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

    Education for the purpose of performing matches.23 Three other
    states—Illinois, Michigan, and Texas—also reported using a tape match to
    identify IDEA children who are Medicaid-eligible. A Pennsylvania official
    indicated that, while the state has been interested in a tape match, it is still
    working to establish a method that is acceptable to state and HCFA

    Another challenge faced by some states in determining Medicaid eligibility
    centers on the concept of third-party liability (TPL) 24 under the Medicaid
    statute.25 Medicaid rules generally require that Medicaid pay for services
    only after TPL sources have met their legal obligation to pay, while IDEA
    legislation requires that parents not be charged for services provided
    through an IEP.26 Reconciling these statutory requirements for purposes of
    determining Medicaid eligibility is a coordination challenge that states
    have addressed in different ways.27

•   In Pennsylvania, an official explained that students’ claims for
    reimbursement for services must first be rejected by their private
    insurance company before Medicaid can be billed, a requirement that
    delays the reimbursement process.
•   South Dakota state agency officials stated that the schools ask parents
    whether the child has third-party insurance. If the child’s parents have an
    outside source of insurance and refuse to authorize its use, Medicaid
    cannot be billed, leaving the school obligated to cover the cost.
•   In New York, the state Department of Health contacts insurance
    companies on behalf of the school districts and identifies the services that

      In this process, New York’s Department of Health provides only the names, dates of birth,and sex of
    the children eligible for Medicaid to comply with the privacy laws applicable to the Medicaid program.
      TPL refers to the legal obligation of certain health care payers (including private health insurance,
    Medicare, employment-related health insurance, and noncustodial parents providing medical support)
    to pay the medical claims of Medicaid beneficiaries before Medicaid pays these claims.
      See 42 U.S.C. 1396a(a)(25).
     IDEA part B funds may be used to pay deductible or copayment amounts that would be incurred
    under private or public insurance. See “Assistance to States,” 64 Fed. Reg. 12,405, 12,430 (1999) (to be
    codified at 34 C.F.R. 300.142(e)(2)(ii) and 34 C.F.R. 300.142(g)(2)). In the event that state Medicaid
    programs have cost-sharing requirements, such as copayments, IDEA-related services must be
    provided free of charge to children. Since traditional Medicaid does not allow cost sharing for services
    provided to most children, such cases are likely to be limited to states with Medicaid demonstration
    waivers under which innovative approaches to Medicaid, such as cost sharing, are tested.
      Medicaid regulations at 42 C.F.R. 433.139 specify that, in general, if probable TPL is established at the
    time a claim is filed, the state Medicaid agency must reject the claim and return it to the provider for a
    determination of the amount of liability. However, if probable liability is not established or benefits are
    not available at the time the claim is filed, the Medicaid agency must pay the full amount allowed
    under the payment schedule. The Medicaid agency must then seek reimbursement from the liable
    party unless it determines the recovery would not be cost-effective.

    Page 15                              GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

                    schools provide. The insurance companies are then asked to identify
                    services they will cover in a letter to the New York Department of Health.
                    These letters are used to document that TPL recovery does not apply to the
                    children covered under these policies. While the New York official who
                    described this process indicated that it works, he mentioned that it is very
                    cumbersome and requires considerable staff resources.

Documentation       Medicaid documentation requirements are more burdensome than those
                    of IDEA, leading states to cite this as an area of concern in coordinating
                    Medicaid and IDEA services. State agency officials from Florida, New York,
                    Ohio, Pennsylvania, and Texas cited documentation as a challenge that, in
                    some instances, discourages school districts from filing claims for
                    Medicaid reimbursement. In light of documentation concerns, a few states
                    have adopted procedures to ease the process for school districts while still
                    meeting the documentation requirements of Medicaid.

                •   Two states, Vermont and Massachusetts, identified bundled rates as a
                    convenient means of reducing documentation. Bundling rates for purposes
                    of billing Medicaid is an approach that combines rates for several
                    Medicaid-covered school-based services into a single statewide rate.
                    Hence, rather than submitting claims for each service provided to a
                    child—for example, three claims for a child who receives physical therapy,
                    occupational therapy, and psychological services—a school may file one
                    claim to receive compensation for all three services. Vermont state and
                    local school district officials contend that although bundling reduces the
                    overall amount of paperwork, documentation requirements established by
                    Medicaid are still satisfied. One Massachusetts education agency official
                    reported that the less intensive paperwork involved in bundling rates has
                    made it easier for smaller schools to participate in claiming Medicaid
                •   One school district in Florida consolidated information on
                    education-related forms that the schools were already using and was able
                    to show the state Medicaid agency that the consolidated forms provided
                    adequate documentation for claiming Medicaid. As a result, the district has
                    achieved the required accountability along with some level of flexibility in
                    how the information needed for Medicaid claims is presented.

                      In its May 21, 1999, letter to state Medicaid directors, HCFA stated that soon it would no longer
                    recognize bundled school-based health services as acceptable for purposes of claiming Medicaid
                    federal funds. Subsequently, a work group was established to review bundling practices, and HCFA
                    officials told us they plan to report on the results of this group’s work in 2000. In the meantime, states
                    with approved bundled rates have been allowed to continue this approach; however, the letter stated
                    that states are expected to develop and implement a nonbundled reimbursement methodology within a
                    “reasonable” amount of time.

                    Page 16                              GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

                              •   One school district in Vermont is currently operating a pilot program for
                                  processing its Medicaid claims and submitting them directly to the state
                                  agency’s billing contractor. Officials told us that in the past, a school
                                  would submit claims to the state Department of Education, often waiting
                                  up to a year to receive reimbursement. Under the new pilot system, the
                                  Department of Education has agreed to reimburse schools within 1 month.
                                  In commenting on a draft of this report, a Vermont official told us that the
                                  state is adjusting its payment processes with the goal of making payments
                                  to all school districts within the month following the submission of claims.

Additional Federal Guidance       Confusion over proper billing procedures, coupled with a lack of clear and
Could Assist Coordination         consistent guidance from the federal government, has been a challenge to
Efforts                           coordination in some states. Currently, HCFA’s main guidance for claiming
                                  Medicaid reimbursement for school-based services is a technical
                                  assistance guide. The guide provides information regarding the specific
                                  Medicaid requirements associated with implementing a school health
                                  services program and seeking Medicaid funding for school health services
                                  and administrative activities.29 However, officials of four states and two
                                  HCFA regional offices with whom we spoke believe that additional
                                  guidance is needed, including the need to identify (1) which services
                                  should be covered by Medicaid and which are educational in nature and
                                  (2) appropriate administrative cost claiming practices. Discussions with
                                  two Department of Education Regional Resource Center representatives
                                  reiterated states’ interest in additional guidance.30 Additionally, some
                                  Education officials we contacted believed that additional guidance from
                                  HCFA and Education would enhance coordination of Medicaid and IDEA.31
                                  HCFA has recognized the need for additional guidance, which it expects to
                                  issue sometime in 2000. Additionally, HCFA has established a position to
                                  advise the Administrator on disability policy and to perform other
                                  functions, such as facilitating communication among the Administrator of
                                  HCFA; other federal policymakers, including the Assistant Secretary for
                                  Special Education and Rehabilitation Services; and the disability
                                  community. The potential for changes in guidance on billing practices and

                                   See HCFA, Center for Medicaid and State Operations, Medicaid and School Health: A Technical
                                  Assistance Guide (Washington, D.C.: HHS, Aug. 1997).
                                    The Regional Resource Centers are funded by the Office of Special Education Programs and provide
                                  technical assistance services to state education agencies in the 50 states and in seven U.S.
                                  jurisdictions. The centers are funded specifically to help states improve programs and services for
                                  children and youth with disabilities, their families, and the professionals who serve them.
                                    Absent further federal guidance, one Regional Resource Center has developed a Medicaid work
                                  group aimed at providing the 10 states in its region with a network of shared information regarding
                                  Medicaid billing in schools. While only one meeting has been held to date, center representatives
                                  believe that this group will be a valuable forum for sharing information about claiming Medicaid
                                  funding for school-based and administrative services.

                                  Page 17                             GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

              procedures will heighten the continuing need for additional efforts to
              coordinate the Medicaid and IDEA programs. For example, a state
              education official in New York told us that, after the May 21, 1999, policy
              changes from HCFA, it took a great deal of work to inform school districts,
              claims processors, and providers of the changes instituted and to train
              these entities to implement the changes. According to some of the state
              and local officials we contacted, such changes in reimbursement policies
              and procedures may also add to districts’ concerns about relying on
              Medicaid funding. In fact, Florida education officials linked their concern
              to some Florida districts’ decisions not to participate in Medicaid
              school-based billing. Additionally, one New York education official told us
              that schools that have been diligent in their Medicaid reimbursement
              efforts are particularly afraid of losing Medicaid revenue that has been
              built into their budgets. A Pennsylvania official revealed related worries,
              such as the fear of hiring new staff and initiating programs that are funded
              by a potentially uncertain financial source. Such perceptions, even if of
              limited validity, may further complicate and limit coordination between
              the two programs.

              Coordination efforts between Medicaid and IDEA, particularly at the state
Conclusions   and local levels, are complex and evolving. The varied nature of the states’
              Medicaid programs, coupled with the wide range of diversity among state
              and local education programs, requires that coordination efforts address
              broad federal requirements under what are often unique local and state
              circumstances. Interactions between IDEA and Medicaid also raise the
              challenge of balancing the need to provide children with the educational
              services necessary for their development and physical well-being against
              concerns that claims for Medicaid are inappropriate and excessive.
              Moreover, coordination efforts are currently being conducted in an
              environment in which federal guidance on Medicaid coverage for
              school-based services is unclear and inconsistent.

              Both Medicaid and IDEA have an obligation to children with disabilities to
              ensure that they receive services that will best address their
              developmental needs, and coordination is essential to meeting this
              obligation. State and local efforts, however, require federal guidance to
              communicate Medicaid’s coverage and documentation requirements.
              Without clear and consistent federal guidance, state and local entities run
              a greater risk of misunderstanding or misusing Medicaid as a funding
              source for school-based services. Recognizing this need, HCFA is
              developing additional guidance, which it expects to issue in the year 2000.

              Page 18                    GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

                   We provided officials from Education, HCFA, and the states and local
Agency and Other   school districts in our sample an opportunity to review a draft of this
Comments           report. HCFA agreed that coordination efforts at the federal level could be
                   improved. Education did not provide formal comments, but program
                   officials offered several clarifications regarding coordination efforts with
                   HCFA and discussions relevant to IDEA. HCFA expressed concern that our
                   overall findings seemed to indicate that its guidance to states has been
                   insufficient. HCFA also commented that it was unable to provide strict
                   guidance given the variations in states’ programs, and that coordination
                   issues need to be resolved at the state and local levels, rather than at the
                   federal/state level. While this report acknowledges the variety that exists
                   in states’ Medicaid and education programs, we agree that strict guidance
                   is not an appropriate course. Nevertheless, state and HCFA officials both
                   identified concerns that would benefit from additional federal direction.
                   We further recognize that HCFA plans to provide additional guidance to
                   states and school districts in an effort to provide additional direction in
                   navigating this complex area. HCFA’s written comments are provided in the

                   Education, HCFA, and responding state and local officials provided
                   technical comments, which we incorporated as appropriate.

                   As agreed with your office, unless you publicly announce its contents
                   earlier, we plan no further distribution of this report until 30 days from the
                   date of this letter. At that time, we will send copies to the Honorable
                   Donna Shalala, Secretary of Health and Human Services; the Honorable
                   Nancy-Ann Min DeParle, HCFA Administrator; the Honorable Richard W.
                   Riley, Secretary of Education; the Honorable Judith E. Heumann, Assistant
                   Secretary, Office of Special Education and Rehabilitative Services,
                   Department of Education; special education officials in the 12 states we
                   contacted; and interested congressional committees. Copies will also be
                   made available to others upon request.

                   Page 19                    GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

If you or your staff have any questions about this report please call me at
(202) 512-7118 or Carolyn Yocom at (202) 512-4931. Other staff who made
contributions to this report were Laura Sutton Elsberg, JoAnn Martinez,
Catina Bradley, and Behn Miller.

Sincerely yours,

Kathryn G. Allen
Associate Director, Health Financing
  and Public Health Issues

Page 20                   GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
Page 21   GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

Letter                                                                                             1

Appendix                                                                                          24

Comments From the
Health Care Financing


                        EPSDT     Early and Periodic Screening, Diagnostic and Treatment
                        HCFA      Health Care Financing Administration
                        HHS       Department of Health and Human Services
                        IDEA      Individuals With Disabilities Education Act
                        IEP       individual education program
                        TPL       third-party liability

                        Page 22                 GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
Page 23   GAO/HEHS-00-20 Coordination Between Medicaid and IDEA

Comments From the Health Care Financing

              Page 24   GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
           Comments From the Health Care Financing

(101873)   Page 25                      GAO/HEHS-00-20 Coordination Between Medicaid and IDEA
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