[Federal Register Volume 72, Number 248 (Friday, December 28, 2007)]
[Rules and Regulations]
[Pages 73635-73651]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-6220]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 431, 433, and 440
[CMS-2287-F]
RIN 0938-AP13
Medicaid Program; Elimination of Reimbursement Under Medicaid for
School Administration Expenditures and Costs Related to Transportation
of School-Age Children Between Home and School
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: Under the Medicaid program, Federal payment is available for
the costs of administrative activities ``as found necessary by the
Secretary for the proper and efficient administration of the State
plan.'' This final rule eliminates Federal Medicaid payment for the
costs of certain school-based administrative and transportation
activities because the Secretary has found that these activities are
not necessary for the proper and efficient administration of the
Medicaid State plan and are not within the definition of the optional
transportation benefit. Based on these determinations, under this final
rule, Federal Medicaid payments will 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, and for transportation from home to school. In addition,
this final rule responds to public comments received on the September
7, 2007 proposed rule.
EFFECTIVE DATE: These regulations are effective on February 26, 2008.
FOR FURTHER INFORMATION CONTACT: Sharon J. Brown, (410) 786-0673, Judi
Wallace, (410) 786-3197.
SUPPLEMENTARY INFORMATION: We published a proposed rule in the Federal
Register on September 7, 2007, at 72 FR 51397 that would eliminate
Federal Medicaid payment for school-based administrative activities,
based on a Secretarial finding that such activities are not necessary
for the proper and efficient administration of the Medicaid State plan.
Moreover, the proposed rule would also eliminate Federal Medicaid
payment based on a finding that transportation from home to school and
back for school-age children is neither necessary for the proper and
efficient administration of the Medicaid State
[[Page 73636]]
plan, nor within the scope of the optional medical transportation
benefit. We received 1,240 timely public comments on the proposed rule.
After careful consideration of these comments, we are adopting the rule
as proposed without change. We discuss later in this preamble our
response to comments and our reasons for going forward with the
proposed rule. Below, we first summarize the background and provisions
of the proposed rule.
I. Background
A. Administrative Activities and Transportation Services Under the
Medicaid Program
Title XIX of the Social Security Act (the Act) authorizes Federal
grants to States for Medicaid programs, operated by each State under an
approved Medicaid State plan that provide medical assistance to needy
individuals including low-income families, the elderly, and persons
with disabilities. Federal payment is available to a State for a
proportion of expenditures for medical assistance under the approved
Medicaid State plan, and of expenditures necessary for administration
of the State plan. This joint Federal-state financing of expenditures
is described in section 1903(a) of the Act, which sets forth the rates
of Federal financing for different types of expenditures.
Under section 1903(a)(7) of the Act, Federal payment is currently
available at a rate of 50 percent of amounts expended by a State ``as
found necessary by the Secretary for the proper and efficient
administration of the State plan.'' In addition, OMB Circular A-87,
which contains the cost principles for State, local and Indian tribal
governments for the administration of Federal awards, states that,
``Governmental units are responsible for the efficient and effective
administration of Federal awards.'' Under either of these provisions,
administrative expenditures must be reasonable and necessary for the
performance of functions funded by the Federal award.
Transportation to and from providers is not expressly mentioned in
the Medicaid statute, but States can claim Federal matching dollars for
such transportation in one of two ways. Since the inception of the
program the Federal government has recognized that transportation is
essential to the administration of the Medicaid State plan, to ensure
that beneficiaries have access to covered services. Federal regulations
at 42 Code of Federal Regulations (CFR) 431.53 require that Medicaid
State plans ``specify that the Medicaid agency will ensure necessary
transportation for recipients to and from providers'' and describe the
methods for doing so. Under 42 CFR 440.170(a), States are afforded the
option of furnishing transportation as an optional covered medical
service recognized under section 1905(a)(28) of the Act as defined and
specified. Under this section, transportation is defined as ``expenses
for transportation and other related travel expenses determined
necessary by the agency to secure medical examination and treatment
(emphasis added) for a recipient.'' Travel expense is defined to
include the cost of the actual transportation necessary to the medical
service, meals and lodging en route to medical care and the cost of
attendees to the beneficiary if necessary.
Whether transportation is furnished as an administrative activity
under 42 CFR 431.53 or as an optional covered medical service could
affect the Federal Medicaid matching rate and the flexibility available
to the State, but these issues are not relevant for purposes of this
final regulation.
B. Medicaid and Schools
A wide range of medical services may be furnished to students in
school settings. In particular, pursuant to requirements under the
Individuals with Disabilities Education Act (IDEA), schools deliver a
broad range of educational and related services (e.g., educational,
social, and medical services) to students with disabilities to address
their diverse needs. Section 1903(c) of the Act prohibits the Secretary
from denying or restricting Federal Medicaid payment to States for
covered services furnished to a child with a disability on the basis
that the services are included in the child's Individualized Education
Program (IEP) or Individualized Family Services Plan (IFSP) established
pursuant to the IDEA.
Some of the special education and related services required by the
IDEA may be within the scope of medical assistance services covered
under the Medicaid program. Medicaid covers medically necessary direct
medical services included in an IEP or IFSP that are in a Medicaid
covered category under the approved State Medicaid plan (such as speech
therapy or physical therapy, but also including Early and Periodic
Screening Diagnosis and Treatment), and that meet all other Federal and
State Medicaid regulations (including provider qualifications and any
amount, duration and scope limitations).
Schools and school districts perform a myriad of administrative
activities that arise directly from the educational mission of the
schools. Though these activities may include coordinating the delivery
of Medicaid services with educational services, they are primarily
associated with educational program requirements including IDEA
requirements. Transportation to and from the school for most students
is also part of the schools' educational responsibility.
C. Prior Agency Experience With School-Based Administration and
Transportation
As detailed in the proposed rule, CMS had previously issued several
guidance documents on school-based administration and transportation.
In those interpretive guidance documents, CMS set forth a complex set
of principles permitting State claims for school-based administration
and transportation. The claims that resulted from this guidance were
the subject of several audits by the Office of the Inspector General
finding widespread fraud and abuse as well as improper claiming of
costs to the Medicaid program that were incurred to meet mandates under
educational programs.
II. Provisions of the Proposed Regulations
We published a proposed rule on September 7, 2007, at 72 FR 51397,
that would eliminate Federal Medicaid payment for school-based
administrative activities, based on a Secretarial finding that such
activities are not necessary for the proper and efficient
administration of the State plan. Moreover, the proposed rule would
also eliminate Federal Medicaid payment based on a Secretarial finding
that transportation from home to school and back for school-age
children is neither necessary for the proper and efficient
administration of the State plan, nor within the scope of the optional
medical transportation benefit. Based on these findings, the proposed
rule specified that Federal financial participation (FFP) under the
Medicaid program will not be available for school-based administrative
and certain transportation costs, with the exception of administrative
activities conducted by employees of the State or local Medicaid
agency.
Under the proposed rule, the following changes would apply to the
costs of the following activities or services:
FFP would no longer be available for the costs of school-
based administrative activities under
[[Page 73637]]
Medicaid. By administrative activities, we referred to activities that
are not properly included in the scope of a covered service. School-
based administrative expenditures are expenditures under the
administrative control of a public or private educational institution
and that are conducted by school employees or contractors, or anyone
under the control of a public or private educational agency.
FFP would no longer be available for the costs of
transportation from home to school and back for school-age children
with an IEP or IFSP established pursuant to the IDEA.
The proposed rule would supersede all previous guidance, including
guidance on school-based administrative claiming and school-based
transportation.
Under the proposed rule, CMS would continue to reimburse States for
school-based direct Medicaid services in their approved State plans.
That is, the proposed rule would not affect the treatment of
expenditures for direct medical services that are included in the
approved State Medicaid plan and provided in schools, nor did it affect
transportation of school-aged children from school or home to a non-
school-based direct medical service provider that bills under the
Medicaid program, or from the non-school-based provider to school or
home.
Furthermore, under the proposed rule, CMS would continue to
reimburse States for transportation costs related to children who are
not yet school-age and are being transported from home to another
location, including a school, and back to receive direct medical
services, as long as the visit does not include an educational
component or any activity unrelated to the covered direct medical
service.
Federal funding would also continue to be available for
administrative overhead costs that are integral to, or an extension of,
a direct medical service and, as such, are claimed as medical
assistance. These activities are properly reimbursed at the applicable
Federal medical assistance percentage (FMAP) rate for the related
direct medical service, and include patient follow-up, assessment,
counseling, education, parent consultations, and billing activities.
Furthermore, school-based administrative activities, such as Medicaid
outreach and eligibility intake, that are conducted by employees of the
State or local Medicaid agency would remain eligible for FFP under the
proposed rule.
The proposed rule was based on a determination that administrative
activities performed by schools, and transportation of school-age
children from home to school and back, are not necessary for proper and
efficient administration of the State Medicaid plan, and are not within
the scope of the transportation services recognized by the Secretary
under 42 CFR 440.170(a), for the following reasons:
(1) The activities or services support the educational program and
do not specifically benefit the Medicaid program;
(2) The activities or services are performed by school systems to
further their educational mission and/or to meet requirements under the
IDEA, even in the absence of any Medicaid payment;
(3) The types of school-based administrative activities for which
claims are submitted to Medicaid largely overlap with educational
activities that do not directly benefit the Medicaid program; and
(4) Transportation from home to school and back is not properly
characterized as transportation to or from a medical provider.
III. Analysis of and Responses to Public Comments
We received approximately 1,240 timely comments from State
officials, school districts and consortia, educational organizations,
child advocacy groups, health care organizations, school nurses,
parents, teachers, school officials, providers, and other interested
individuals. The largest group of comments came through a write-in
campaign initiated by an organization titled the Council for
Exceptional Children (CEC). The State with which the largest number of
commenters identified themselves was California. All comments were
reviewed and analyzed. After associating like comments, we placed them
in categories based on subject matter. Summaries of the public comments
received and our responses to those comments are set forth below.
General
Most commenters opposed the proposed regulation, for the reasons
specified below. Of the commenters supporting the proposed rule, they
either concurred that Medicaid funds should not be used to fulfill
educational requirements or appreciated the potential for savings in
Federal expenditures. The categorized comments and our responses are
listed below.
Funding Issues
Comment: The largest number of comments focused on funding issues,
arguing that any loss of funding would potentially ``* * * reduce the
funds available to our already strained special education budgets,''
according to one commenter. Another commenter argued that ``* * * if
States cannot take up the slack, and most of them are struggling to
provide non-medical transportation to get children to school, as well
as to satisfy other Federal requirements, this funding cut will be yet
another unfunded * * * mandate.'' Many commenters noted that in their
districts, schools are already strapped with tight budgets, some even
specifying the exact amount of revenue they believed would be lost
under the proposed regulation. One commenter noted that ``Should
administrative claiming be eliminated, we would have to shift funds
from other areas in our budgets to cover the cost or raise taxes if
this proposal should become a reality.'' And: ``Our school division
struggles daily with dwindling local resources and increasing demand *
* *. Loss of these funds * * * would unfairly exacerbate a dire
situation.'' It is unrealistic, many commenters argued, to assume that
any State or school would be able to replace the loss of Federal
Medicaid reimbursement that would result from finalization of the
proposed rule.
Response: Such comments appear to support our view and concern that
Title XIX funds are being used as a funding source without specific
benefit to the Medicaid program. Constrained local and State funding
for education is not the basis for determining whether a cost is
properly claimed under Medicaid. Specifically, administrative
expenditures must be deemed necessary for the proper and efficient
administration of the Medicaid State plan in order for reimbursement to
be available. The need for schools to obtain additional funding in
itself does not justify continued Federal Medicaid reimbursement.
Limitation of Medicaid claims to administrative and transportation
activities that are directly related to the furtherance of the Medicaid
State plan is necessary to maintain the financial integrity of the
Medicaid program. None of these commenters provided any factual basis
to conclude that the activities in question were, indeed, necessary for
the proper and efficient administration of the Medicaid State plan (or
transportation necessary to ensure that individuals obtain access to
Medicaid providers).
[[Page 73638]]
Comment: Some commenters focused on the fact that Medicaid
reimbursement is used to meet other educational needs and augment
underfunded budgets. Commenters noted that reimbursement for school-
based administrative activities is used for a wide variety of
unrelated, but important, purposes, such as instructional materials and
equipment, or to fund staff positions, and that schools rely on this
funding for such purposes. According to one commenter, Medicaid
reimbursement is used to allow service staff to attend workshops and to
purchase ``* * * needed technology and materials to better educate our
children.'' Some asked how States and schools would make up for any
funding shortfalls that result from finalization of the proposed rule.
As one commenter noted: ``* * * this * * * action by the Federal
government would force us to make cuts in other essential educational
programs to ensure that federally required services can continue,
despite the lack of funding,'' such as electives, after-school
activities, or arts and music programs. The loss of Medicaid payments
could also result in schools having to lay off staff or curtail
referral services, according to some commenters.
Response: Federal matching funds under Medicaid are only available
for Medicaid services provided to Medicaid eligible individuals as
described in the Medicaid State plan. The commenters expressly
identified non-Medicaid costs that are clearly educational in nature.
Constrained local and State funding for education is not the basis for
determining whether a cost is properly claimed under Medicaid. We
believe the final rule is necessary to maintain the financial integrity
of the Medicaid program and there is nothing in this final rule which
would eliminate funding for necessary direct medical services eligible
for Medicaid funding.
Comment: Some commenters noted the fact that Congress has never
fully funded the IDEA, and in lieu of such funding, Medicaid
reimbursement must be used. One commenter stated the following: ``At a
time when the Federal government is funding barely 18 percent of the
national average per-pupil expenditures for each child in special
education instead of the 40 percent that Congress promised to pay when
IDEA was first enacted, major cutbacks in Medicaid reimbursements will
severely restrict the ability of State and local school districts to
provide much-needed health care services to disabled children.''
Without a commensurate increase in funding for IDEA-related
requirements to offset cuts resulting from the proposed rule, they
argue, critical services may be cut. The proposed rule makes no attempt
to explain how States and school districts might compensate for the
reduction in funding under Medicaid and the inadequate funding of IDEA-
related mandates, they noted.
Response: The desire for supplemental funds to augment IDEA funding
does not justify Medicaid payments that are not authorized by the
Medicaid statute, regulations and applicable cost accounting
principles. Under Office of Management and Budget Circular A-87,
``governmental units are responsible for the efficient and effective
administration of Federal awards.'' It is not consistent with efficient
and effective administration of the Medicaid program to pay for
administrative activities (including transportation from home to school
and back) that are performed as part of a school's educational mission,
do not specifically benefit the Medicaid program, are neither
controlled nor supervised by the Medicaid program, and would be
performed by the schools even in the absence of the Medicaid program.
As stated earlier, we believe the final rule is necessary to maintain
the financial integrity of the Medicaid program. Such comments appear
to support our view and concern that Title XIX funds are being used for
non-Medicaid purposes and that the request for additional funding for
educational activities should be more appropriately directed to other
Federal, State, and local funding sources.
Provision of Services
Comment: Some commenters worried that the proposed rule would
adversely impact the provision of needed services to school-age
children. One commenter noted that ``* * * schools are providing
necessary medical/psychological services and/or referrals that others
are able to be reimbursed for, so this should not be cut.'' Some argued
that any changes to the Medicaid program would have a detrimental
effect on the medical care provided to students.
Response: The provision of, and reimbursement for, school-based
medical services are not affected by the changes specified in the final
rule. CMS will continue to recognize schools as valid settings for the
delivery of direct medical services recognized in the Medicaid State
plan. Medicaid reimbursement would remain available for covered
services provided to children pursuant to an IEP or IFSP, whether they
are provided in school or in the community. That is, CMS will continue
to reimburse States for school-based Medicaid service costs authorized
in their approved Medicaid State plans, including transportation of
school-aged children from school or home to a non-school-based direct
medical service provider that bills under the Medicaid program, and
from the non-school-based provider to school or home. CMS will also
continue to reimburse States for transportation costs related to
children who are not yet school-age and are being transported from home
to another location, including a school, and back to receive direct
medical services, as long as the transportation is not primarily for
purposes other than gaining access to a Medicaid provider for covered
services (such as when it is regularly scheduled transportation to a
day care program).
We do not believe the final rule will impact children eligible for
Medicaid. IDEA mandates that services prescribed by a child's IEP or
IFSP be provided to children. Section 1903(c) of the Act provides
clearly that Medicaid reimbursement be made available for such
services, when provided to Medicaid-eligible children, covered under
the State plan, and provided by qualified providers that properly bill
the Medicaid program. These requirements will not change as a result of
the final rule. As a result, these services will continue to be
provided to children pursuant to their IEP or IFSP, and will continue
to be paid by Medicaid.
Comment: One commenter noted that ``* * * while the proposed
regulation does not directly affect reimbursement for these services, a
school district's inability to be reimbursed for administrative
services related to the provision of the medically necessary services
will in fact have a chilling effect on a school district's ability to
deliver these services.'' To deny Federal Medicaid matching for
administrative activities provided by school employees or its
contractors would, in the words of one commenter, ``* * * improperly
shift the cost of allowable Medicaid services entirely to State and
localities, without regard for the reduction in service that would
result.''
Response: Federal funding would continue to be available for
administrative overhead costs that are integral to, or an extension of,
a direct medical service and, as such, are claimed as medical
assistance. These activities are properly reimbursed at the applicable
FMAP rate for the related direct medical service, and can include
administrative activities under the direction of the medical service
provider, such as patient follow-up, parent consultations, and billing
activities, when included in the
[[Page 73639]]
negotiated rate paid for direct medical services.
Comment: In certain comments, it was noted that Medicaid funding
helps school pay for other types of services, such as mental health
services, which would not otherwise be available to students. One
commenter argued that if the proposed rule is promulgated, school-based
services will be less effective and more costly for CMS, State Medicaid
agencies, and schools. Another commenter noted that while the proposed
rule does not explicitly restrict access to services in schools, it
would make it less desirable for Medicaid programs to use school
settings to provide services, and could inadvertently make it more
difficult to meet Medicaid's original intent to fund necessary medical
assistance ``* * * to promote growth and development and prevent or
ameliorate disabilities and conditions.''
Response: Medicaid payment remains available for all covered
services furnished in a school setting and for children. These covered
services include the broadest possible range of services under the
mandatory Medicaid covered benefit for early and periodic screening,
diagnostic and treatment (EPSDT) services. As Medicaid will still
provide funding for such services that qualify under the Medicaid State
plan, this will likely mean that the availability of such services in a
school setting will not diminish as a result of this rule.
Comment: A few commenters pointed to past and ongoing litigation
over the failure to provide mandated services to children with
disabilities and suggested that the likely consequences of the proposed
rule would be a reduction in funding for necessary services they have
fought in court to secure for these children. Specifically, some
commenters cited the ruling in the Bowen v. Massachusetts case (487
U.S. 879 (1988) No. 87-712), in which an appellate court ruled that ``*
* * it is the nature of the services, not what the services are called
or who provided them'' that determines whether the services qualify for
Medicaid reimbursement. By eliminating Federal Medicaid reimbursement
for administrative activities engaged in by school employees, the
proposed rule goes against Federal court interpretations of the
Medicaid statute, they argue. Others interpret that ruling to mean that
any attempt to eliminate Medicaid reimbursement for transportation as a
covered service in a State plan based solely on the child's
participation in an educational program would be in violation of the
court's ruling in Bowen. The court ruling, they contend, nullifies
CMS's attempts to justify elimination of reimbursement for school-based
administrative and transportation service expenditures by labeling such
expenditures as ``educational'' in nature.
Response: The final rule clarifies that Federal Medicaid funding is
available for direct medical services provided by schools. To the
extent that a State elects to reimburse transportation as an optional
medical service, Federal reimbursement will still be available to the
extent that the primary purpose of that transportation is access to a
medical service. That is, CMS will continue to reimburse States for
transportation of school-aged children from school or home to a non-
school-based direct medical service provider that bills under the
Medicaid program, and from the non-school-based provider to school or
home. Furthermore, CMS will continue to reimburse States for
transportation costs related to children who are not yet school-age and
are being transported from home to another location, including a
school, and back to receive direct medical services, as long as the
transportation is not primarily for purposes other than gaining access
to a Medicaid provider (such as when it is regularly scheduled
transportation to a day care program). However, routine transportation
from home to school and back for school age children is primarily
educational in nature and will not be eligible for Medicaid
reimbursement as part of a medical service.
Potential Impact on EPSDT
Comment: Some commenters argued that the proposed rule will make it
difficult for States to fulfill requirements under the Early and
Periodic Screening, Diagnostic and Treatment (EPSDT) benefit specified
in section 1905(a) of the Act. This mandate, they note, requires States
to inform families about the availability of EPSDT services and assist
them in accessing services. Many school systems have contracted with
States so that school nurses and staff inform families about EPSDT. As
currently written, the proposed rule would limit reimbursement for
these activities to employees of the State Medicaid agency. This
potential conflict between the EPSDT mandate and the proposed rule,
they argue, would severely restrict the ability for States to meet
their responsibility under ESPDT and hamper access to necessary
services for children. Under EPSDT requirements, one commenter noted,
States are urged to make use of other public, health, mental health and
educational programs in order to ensure an effective child health
program. They cited the State Medicaid Manual as not only encouraging
State Medicaid agencies to coordinate EPSDT administrative activities
with ``school health programs of State and local health agencies,'' but
also offering FFP to cover the costs to public agencies of providing
direct support to the Medicaid agency in administering the EPSDT
program.
Response: Under the final rule, States will still be required to
meet EPSDT requirements and are afforded flexibility in meeting these
requirements. We do not believe it is consistent with proper and
efficient administration of the Medicaid State plan, however, to
commingle EPSDT outreach functions with other school administrative or
direct service activities. We continue to encourage States to
coordinate Medicaid EPSDT programs with school health programs and
State, local and other Federal health care or social welfare programs.
Schools employ health care providers and other educational staff as
information points for a variety of medical and social services far
beyond simply the Medicaid program. This function is specific to the
nature of a school-based provider and is not directly related to the
administration of the Medicaid State plan. Coordination and information
dissemination efforts that are not under the control and supervision of
the State agency and are performed by schools, however, are
fundamentally functions that further the mission of the schools to
ensure that students receive necessary services using available
Medicaid resources. Such activities are not directly for administration
of the State Medicaid plan.
Support for School-Based Administration
Comment: A substantial number of commenters urged CMS to continue
its support for school-based Medicaid administrative activities
because, they argued, it can be an effective way to reach children in
need of services and to ensure adequate medical care for disabled
students and their families, who are often low-income and uninsured.
One commenter noted that: ``Families are familiar and comfortable with
the people and the school, which makes schools a logical place to
families to access health care. The unique role played by schools as a
health service portal is irreplaceable.'' Some thought the proposed
regulation would decrease the opportunities for children and families
to learn about the availability of Medicaid, and the services provided
to those eligible for coverage. As a result,
[[Page 73640]]
the proposed rule could result in increased health care costs through
missed opportunities to enroll eligible children in Medicaid and
connect them to needed services before they become catastrophic. A
recurring theme was that the proposed rule fails to recognize that
certain administrative activities performed by school-based staff are
instrumental to ensuring access to covered Medicaid services for
eligible low-income children.
Response: We acknowledge the importance of outreach and referral
activities, and in no way preclude State or local Medicaid agencies
from engaging in such activities. Nor do we preclude school employees
from conducting activities that inform individuals of the availability
of Medicaid services. But we disagree that such school employee
activities are properly considered administration of the State plan.
Such activities are performed as part of the normal operation of the
school to ensure that students receive educational and related
services, and to coordinate with other payers for those services. These
activities are not performed for the purpose of State Medicaid plan
administration. Moreover, this rule protects the financial integrity of
the Medicaid program from the improper claiming and cost shifting found
in Inspector General audits.
Comment: Other commenters cited the success of their school-based
Medicaid programs and provided specific examples of such successes,
noting the number of children enrolled in Medicaid as a result of their
efforts and the ability to connect such children to needed services.
One commenter stated that ``* * * the proposed rule goes beyond
reducing waste and abuse among the few by eliminating for all schools
the positive benefits the program was designed to achieve.'' Another
noted that the proposed rule does not take into account the
appropriateness of schools providing administrative activities,
especially to students with disabilities.
Response: CMS applauds the numerous examples of successful school-
based Medicaid outreach and referral programs submitted by commenters.
The success of these programs, however, does not compel a finding that
school-based administration activities are a proper and efficient
method for administration of a Medicaid State plan. In determining that
these activities are not a proper and efficient method for
administration of a State Medicaid program, we considered the extent to
which such activities are conducted as a normal part of the operation
of school education programs. We further considered the costs of
improper Medicaid claiming because these activities are commingled with
other school administrative activities and cannot be accurately
allocated to Medicaid. Because these activities should occur in schools
regardless of the availability of Medicaid funding and because the
primary purpose of these activities is not the administration of the
Medicaid program, we believe Medicaid should not provide funding for
them.
Comment: Some commenters pointed to the May 2003 CMS Medicaid
School-Based Administrative Claiming Guide, which states that ``* * *
the school setting provides a unique opportunity to enroll * * * and to
assist'' Medicaid eligible children ``access the benefits available to
them'' as evidence that school-based Medicaid administrative claims
should remain eligible for FFP. Another quote cited by commenters can
be found in the 1997 CMS Medicaid and School Health: A Technical
Assistance Guide, which stated:
``Because of the proximity of schools to the target population,
HCFA (now CMS) has always encouraged the participation of schools in
the Medicaid program * * * [s]chool-based health services can
represent an effective tool which can be used to bring more
Medicaid-eligible children into preventive and appropriate follow-up
care. In addition, schools present a wonderful opportunity for
Medicaid outreach. That is, because schools are by definition ``in
the business of serving children,'' they can be a catalyst for
encouraging otherwise eligible Medicaid children to obtain primary
and preventive services as well as other necessary treatment
services * * * we encourage efforts to inform potential eligibles
about the Medicaid program and the EPSDT benefit.''
The proposed rule, they believe, will force many States to curtail
successful school-based initiatives to identify and enroll eligible
low-income children in Medicaid that were encouraged by CMS itself,
which is now promulgating a regulation to discontinue funding. Some
commenters argued the proposed rule is a misguided approach and that it
contradicts CMS' position that States should enroll eligible children.
Response: Schools remain a gateway for the delivery of health
services for many children. As our response to the prior comment
indicated, the issue is whether school-based administrative activities
are a proper and efficient methodology for administration of the
Medicaid State plan. We expect the central role of schools to continue,
and we expect that many of these school-based administrative activities
will continue as a normal part of the operation of a school program. We
also expect that State or local Medicaid agencies will continue
outreach efforts under their direction and control. This rule simply
sets forth a clear test for the administrative activities that are
appropriately claimed as necessary for the proper and efficient
administration of the Medicaid State plan, and distinguishes those
activities from the administration of a school program.
Better Guidance Needed
Comment: Some commenters argued that the solution to evidence of
improper claiming for costs related to school-based Medicaid
administration and transportation from home to school and back should
be increased oversight, enforcement, and/or additional guidance, rather
than elimination of reimbursement for such costs. They encouraged CMS
to review the program and identify strategies for eliminating improper
claiming practices without eliminating reimbursement for administrative
costs. One commenter stated that ``* * * Numerous alternative solutions
exist, the most obvious of which is to install safeguards and auditing
procedures that would eliminate the possibility of such fraudulent
activity taking place in the future, thereby solving the problem while
keeping the services intact.'' Many believe that clarifying guidance
and controls on claiming are better alternatives to promulgating the
proposed regulation, which was seen as draconian and dismissive of
medical necessity. They believe the proposed rule is ``* * * an
overreaction to perceived problems in the past.'' CMS should focus its
efforts on working with States to ensure proper claiming rather than
promulgating new regulations. One commenter stated the following: ``If
CMS eliminates funding for every type of service, activity, or delivery
system where it identifies inappropriate or even abusive claiming
practices by some providers, funds would no longer be available for any
benefits under the Medicaid program today.''
Response: As described in Section VII of the responses, titled
Alternatives Considered, we ultimately rejected the types of
alternatives suggested by many of the commenters because the
intervening years have proven that administrative activities cannot be
adequately regulated or overseen within the resource limits available
to CMS and the States. Plainly stated, we have concluded that it is not
an effective approach to administration of the Medicaid State plan to
rely on audits and monitoring to ensure that all claims are allowable.
Comment: One commenter recommended that ``* * * CMS use its
[[Page 73641]]
rulemaking authority in a more constructive manner by defining clear
guidance, criteria and limitations'' and suggested applying the results
of OIG's previous audits of States' school-based Medicaid claiming
programs to develop better guidance and more effective oversight. That,
they argue, would preserve the original intent of the program to
reimburse States for legitimate activities performed by schools in
support of Medicaid. As an alternative to the proposed rule, some
suggested that CMS revisit past guidance and improve reporting
requirements for school and States. One commenter suggested that ``* *
* Congress and the Administration * * * work together to achieve
consensus on the appropriate policies and procedures.'' According to
one commenter, CMS should work with representatives from State Medicaid
agencies, schools systems, and other interested parties to ``* *
*resolve questions and areas of confusion'' stemming from the 2003
Guide, develop clear claiming protocols, and reach consensus on related
issues. According to some commenters, many of the claiming problems,
stemmed from differing interpretations of Federal guidelines for
claiming administrative and transportation costs based on inconsistent
guidance from CMS Central and Regional Offices, and a lack of detailed
guidelines on how to implement the programs. Commenters also
recommended that CMS identify claiming issues in particular States and
work with the appropriate State agencies to improve those programs
rather than eliminating reimbursement for programs that are compliant
with Federal requirements.
Response: Schools repeatedly complained that CMS guidance and
oversight was burdensome and added substantially to the cost of
activities that the schools were undertaking to fulfill their
educational mission. More fundamentally, however, we disagree with the
commenters' assumption that the problem is related to Federal
oversight. Instead, we believe there is an inherent structural conflict
of interest in commingling school administrative activities with
Medicaid administrative activities.
Better Data Needed
Comment: Some commenters believe there needs to be clear set of
data demonstrating the need to eliminate such reimbursement before the
proposed regulation takes effect. They asked for data supporting the
Secretary's finding that school-based administrative activities are not
necessary for the proper and efficient administration of the State
plan. One commenter stated: ``[The proposed rule] does not provide
evidence * * * in the form of an estimated dollar amount of fraudulent
claims that have continued to occur after 2003.'' These commenters
requested specific examples of the noted fraud and abuse, and suggested
a clear, chronological accounting of improper billing is required
before promulgating new regulations. One commenter urged CMS to ``* * *
examine thoroughly and report on the current effects of policies
implementation through'' its 2003 Guide before promulgating new
regulations. There is no evidence, they note, to suggest that the 2003
Guide was inadequate.
Other commenters pointed to the fact that the Senate Finance
Committee hearings cited in the preamble were held more than five years
ago, and preceded the issuance of new guidance by CMS in 2003, which
was intended to improve compliance with claiming requirements. CMS
should carefully scrutinize current claims for school-based
administrative expenditures, they argue, which would put the agency in
a better position to establish regulations to ensure proper claiming.
Response: Detailed data on school-based Medicaid claiming is not
available to CMS, due to limitations with respect to reporting
requirements. Reporting for school-based Medicaid expenditures is
voluntary; therefore, the data CMS used in calculating the projected
cost savings may not match actual current spending. The proposed rule
specifically requested public comment on potential fiscal impact.
Commenters did not provide any clear data that were at variance with
CMS assumptions. The limited data of which CMS is aware support the
findings underlying the final rule.
Comment: Many commenters found it disingenuous for CMS to use as
the rationale for the proposed rule OIG and GAO reports regarding
alleged abuses that occurred in the early 1990s, prior to the issuance
of any directives or guidelines on school-based Medicaid claiming.
Furthermore, some commenters argued, these audits only took into
account an insignificant number of schools, and the findings should not
be extrapolated to all schools and claiming programs nationwide. Some
commenters were troubled by ``* * * dubious enforcement actions and
audits'' that have appeared ``* * * more focused on limiting Federal
expenditures than improving the appropriateness or effective
administration'' of the Medicaid State plan. Moreover, one commenter
contended, the instances of inappropriate billing fall within the low
to moderate range of similar billing problems elsewhere in overall
Medicaid claiming. Another commenter noted that the proposed rule does
not highlight the fact that their have been OIG audits of school-based
Medicaid administrative claiming programs that did not identify any
significant claiming errors.
Commenters highlighted the fact that the proposed rule refers to
negative audit findings from a few States without indicating the
prevalence CMS has found such practices among all States. Nor does the
proposed rule describe the efforts CMS and the offending States have
taken since those audit to remediate noncompliance. One commenter
suggested that CMS conduct compliance audits on school-based
administrative activities that have been conducted pursuant to the 2003
Guide before promulgating new regulations. As one commenter stated:
``CMS has not yet fulfilled its own responsibility to conduct
appropriate, consistent, and complete oversight and to provide reliable
localized guidance.'' Overall, these commenters believe the negative
audit findings referred to in the proposed rule do not establish an
appropriate basis to eliminate a nationwide program.
Some focused on references in the proposed rule to OIG and GAO
findings and Congressional concern over the dramatic increase in
Medicaid claims for school-based costs. They argued that Congress
expressed more concern for how CMS was administering the program,
rather than how they were being operated, with the overall conclusion
from the Senate Finance Committee hearings held in June 1999 and April
2000 being that there was a need for greater Federal oversight.
Response: The final rule is not based on any particular audit
findings; but rather, the overall claiming trends and improper billing
practices. We disagree with the premise that more Federal oversight
could address the basic structural conflict of interest in commingling
school administration with Medicaid administration; there is a strong
incentive to shift costs to Medicaid for activities that would have
been performed by schools in the normal course of their operation. As
important, the activities are not under the supervision or control of
the State or local Medicaid agency, and are not undertaken for the
purpose of administration of the Medicaid State plan.
Comment: One commenter suggested that as an alternative to the
proposed
[[Page 73642]]
regulation, CMS should consider investing resources from the Medicaid
Integrity Program (MIP), established in the Deficit Reduction Act of
2005 (Pub. L. 109-432), to address school-based policy and
reimbursement concerns and strengthen the integrity of the Medicaid
program rather than impose a general prohibition on such reimbursement.
They believe MIP resources could assist State agencies in determining
when it is reasonable to bill Medicaid and develop cost-effectiveness
guidelines related to school-based administration and transportation
services.
Response: CMS may in the future utilize MIP funding to address
school-based Medicaid issues. But this approach alone would not be
sufficient to address the underlying problems with school-based
administrative claiming and transportation. There is an inherent
structural conflict of interest in commingling school administrative
activities with Medicaid administrative activities and, as a result, we
do not believe an audit approach would be adequate or the most
efficient use of limited Federal resources in addressing these issues.
Statutory Intent
Comment: Some commenters argued that the proposed rule contradicts
the intent of the Medicaid statute and other Federal regulations by
reversing a policy that made Federal matching funds available for
transportation provided to children with special health care needs who
receive health care services while they are at school. Others argue
that the policy determination underlying the provisions of the proposed
rule contradicts the Medicaid statute insofar as it allows States
flexibility in administering their Medicaid plans and collaborating
with other State agencies. One commenter stated that ``* * * singling
out children and school districts is an arbitrary application of the
``efficiency and economy'' tenets central to Medicaid law and the
administration of the State plan within it.'' Another commenter
suggested the proposed rule would contradict existing law and
circumvent Congressional intent were CMS to promulgate the regulations
without specific legislative guidance.
A number of commenters focused on the intent of the Medicare
Catastrophic Coverage Act of 1988 (Pub. L. 100-360), which amended the
Medicaid statute to allow States to begin receiving Medicaid
reimbursement for services delivered to Medicaid-eligible children in
schools pursuant to the IDEA. Therefore, they argue, Congressional
intent is clear that Medicaid reimbursement should not be refused for
activities performed in school settings. According to one commenter,
the proposed rule ``* * * obstruct[s] the Congressional directive
establishing Medicaid funds to share in the cost of providing health
care services to children in conjunction with their educational
program.'' These commenters believe there to be firm legal standing for
the allowable use of Medicaid claiming for the costs of transportation
and administration, and that the proposed rule contradicts current law,
citing section 1903(c) of the Act, which prohibits payment for covered
services provided pursuant to the IDEA. Historically, they note,
Congress and the Federal government have encouraged Medicaid to share
in schools'' costs for meeting the medical needs of students with
disabilities.
Some commenters argued that the proposed rule would arbitrarily and
capriciously reverse legal and historical precedents. They note that
the underlying statutory basis for such activities has not changed in
any way, and, as a result, CMS should not seek to reinterpret statutory
basis to enforce new definitions for necessity and proper and efficient
administration of the Medicaid State plan.
Response: Section 1903(c) of the Social Security Act authorized
Medicaid funding for covered medical services included in an
individualized education program (IEP) under the IDEA and covered in
the Medicaid State plan, it does not, however authorize Medicaid
funding for administrative activities that schools conduct in
implementing their IDEA responsibilities. As a result, the final rule
does not contradict the Medicaid statute.
Nor does the Medicaid statute specifically authorize payment for
transportation to and from school. Transportation from home to school
and back is central to the operation of a school program and, as such,
Federal Medicaid payment will not be available for the transportation
services to and from school. However, Medicaid payment will remain
available for direct medical services that might be required under an
IEP or IFSP in the course of such transportation. For example, if a
student with a disability needs to be accompanied by a personal care
attendant or a home health aide during transportation from home to
school and back, Federal Medicaid payment would be available to the
extent that the service was covered under the approved Medicaid State
plan.
Comment: Some commenters suggested that with the proposed rule, CMS
is attempting to base policy determination on how a State subdivides
its functions, which is contrary to the Medicaid statute. The
distinction in the proposed rule between education and Medicaid
personnel is in conflict with the Medicaid statute because funding
cannot be denied based on what arm of the State conducts the Medicaid
activity, they argue.
Response: This rule is not based on the way the State subdivides
its functions, but on the inherent structural problems in commingling
administrative functions of the Medicaid program with school
administration.
Secretarial Authority
Comment: Some commenters believe the Secretary is without authority
under section 1903(a)(7) of the Act to find that amounts expended for
administrative activities are not necessary for the proper and
efficient administration of the Medicaid State plan solely because they
are carried out by school personnel or staff under the control of a
school rather by State or local Medicaid agency staff. One commenter
argued that States are accorded the administrative flexibility in
operating their Medicaid programs to have reimbursable activities
performed by school personnel and that the Secretary may not limit that
flexibility with an unsupported findings that conditions FFP by finding
certain activities necessary only when carried out by certain
employees. Furthermore, they argue, CMS cites no authority for
eliminating FFP completely for all providers in response to adverse
audit findings related to a few States. The Secretarial finding that
school-based administrative and transportation are not necessary for
the proper and efficient administration of the Medicaid State plan ``*
* * fails to include any analysis of fixed criteria or standards for
which the Secretary would typically apply to reach that ``not
necessary'' conclusion,'' according to one commenter.
Response: Under section 1903(a)(7), of the Act, it is the
Secretary, not the State, that determines whether amounts expended are
necessary for the proper and efficient administration of the Medicaid
State plan. Therefore, it is within the Secretary's discretion to make
a determination that certain administrative activities (including
transportation from home to school and back) are not eligible for
reimbursement. Specifically, section 1903(a)(7) states that Federal
Medicaid funding is available for administrative expenditures ``as
found necessary by the Secretary for the proper and efficient
administration of the State plan.'' In this
[[Page 73643]]
section, the statute explicitly imbues the Secretary with the ultimate
authority and ability to make such determinations. As a result, we do
not believe the provisions of the final rule exceed Secretarial
authority.
Comment: Some commenters suggested that the activities targeted by
the proposed rule are specifically authorized by the approved Medicaid
State plan and that it is the State that should determine whether
activities are proper and efficient within the approved plan. The
proposed rule, they argue, would needlessly hinder the ability of
States to provide essential services in a manner in which it deems most
effective.
Response: As a matter of practice, States generally do not include
reimbursement for administrative services as part of their approved
Medicaid State plan. The relevant portions of the Medicaid State plan
as mentioned in the comment describes covered services eligible for
Medicaid payments and the reimbursement methodologies for those
services. The rule will not affect medical services as defined in the
Medicaid State plan nor the States'' ability to offer those services in
schools.
Comment: Some commenters questioned CMS' assertion that section
1903(c) of the Act contains no provision authorizing claiming for the
costs of school-based Medicaid administration. They argue that because
section 1903(c) does not specifically prohibit administrative claiming,
the general practice is (and should be) to allow it to continue under
current practice unless explicitly forbidden. Because the Medicaid
statute specifically provides that the Secretary cannot prohibit or
restrict coverage of Medicaid services simply because those services
are included in an IEP or IFSP, the Secretary should not be allowed to
impinge on States' abilities to claim for related costs.
Response: The rule does not prohibit States from claiming Federal
matching funds for covered medical services pursuant to a child's IEP
or IFSP. States may also claim for administrative costs directly
related to the provision of a medical service, such as billing costs as
part of the medical service reimbursement. Section 1903(c) specifically
discusses medical services and does not address claiming for the
administrative costs associated with the administration of the State's
Medicaid program. The statute provides the Secretary with considerable
discretion to determine allowable administrative activities. Under
section 1903(a)(7), of the Act, it is the Secretary, not the State,
that determines whether amounts expended are necessary for the proper
and efficient administration of the Medicaid State plan. Therefore, it
is within the Secretary's discretion to make a determination that
certain administrative activities (including transportation from home
to school and back) are not eligible for Federal Medicaid
reimbursement.
Reversal of Policy
Comment: Some commenters argued that the proposed rule represents a
significant reversal of long-standing policy and a revision of long-
standing Medicaid regulations, policies, and guidance, noting that CMS
first developed detailed guidance in 1997 regarding school-based
Medicaid program. Three years later, a report issued by HHS in
collaboration with the U.S. Department of Agriculture and the U.S.
Department of Education and cited by many commenters stated that
schools are a ``natural setting'' for conducting children's health
insurance program outreach, and that ``State Medicaid and SCHIP
agencies seeking the best return on outreach investments often find
that working with schools simplifies targeting audiences, distributing
information, reaching families, and enrolling children.'' (Report to
the President on School-Based Outreach for Children's Health Insurance,
July 2000).
The proposed rule, they argue, would directly contradict this July
2000 report, which sought to encourage agreements between States
Medicaid agencies and schools so that the latter could receive
financial assistance for administrative activities to enroll eligible
children. The proposed rule, they argue, would be ``* * * regressive
and a departure from acknowledged best practices in identifying and
serving Medicaid beneficiaries.''
Several commenters cited the 1999 and 2000 Senate Finance Committee
hearings on school-based Medicaid claiming as a evidence of CMS'
recognition that schools play an important role in ensuring that
children receive needed health care services.
Response: The statute provides the Secretary with considerable
discretion to determine allowable administrative activities and the
scope of covered transportation services. Consistent with the
Administrative Procedure Act, this final rule supersedes prior
statements and issuances to establish a new policy concerning school
based administration activities and covered transportation services.
This final rule reflects careful consideration of years of experience,
and of the public input provided in the rulemaking process. CMS
believes this final rule is necessary to maintain the financial
integrity of the Medicaid program.
Differential Treatment of Schools
Comment: Many commenters opposed the rule in its entirety because,
they argued, it reflects a differential, more restrictive treatment of
schools in comparison to other settings in which the same Medicaid-
related activities are provided and for which funding would continue.
There is no way to justify the inference in the proposed rule that
school employees are deemed capable and necessary for the delivery of
covered services, but are somehow incapable and unnecessary to conduct
associated administrative activities, according to one commenter. If
the proposed rule is promulgated, they argue, schools alone would be
designated as ineligible for reimbursement as a provider of Medicaid
administrative functions while other entities would remain eligible to
receive reimbursement as the State Medicaid agency's designee. School
employees would still be eligible for reimbursement for covered medical
services, so it is inconsistent to deem them ineligible to conduct
Medicaid administrative activities, they argue.
Certain commenters argued that allowable activities should be
deemed necessary for the proper and efficient administration of the
Medicaid State plan regardless of who employs the individuals
performing the activities. The proposed rule, they argue, unfairly and
incorrectly suggested that a State agency employee public health nurse
can conduct Medicaid administrative activities, but a school nurse, who
has the same qualifications, cannot. The proposed rule, they note,
contains no recognition of the comparable professional qualifications
of both school and employees and State Medicaid agency employees
conducting these activities. One commenter noted that it is unfair to
infer, as the proposed rule does, that only the school-based claiming
methodology is invalid, while CMS will continue to permit similar
claiming procedures in various other contexts.
Response: Under the rule, CMS will continue to recognize schools as
valid settings for the delivery of Medicaid services. As a result, CMS
will continue to reimburse States for covered school-based Medicaid
service costs pursuant to a child's IEP or IFSP. The final rule
reflects a determination that schools are unique settings, and that
there is an inherent structural conflict when school administrative
responsibilities and Medicaid administrative activities are
[[Page 73644]]
commingled that precludes accurate claims. As a result, the final rule
reflects a conclusion that school-based administrative activities are
only necessary for the proper and efficient administration of the
Medicaid State plan when conducted by employees of the State or local
Medicaid agency.
Due to inconsistent application of Medicaid requirements by schools
to the types of administrative activities conducted in the school
setting, the Secretary has determined that such activities can only be
properly conducted, overseen and appropriately claimed under Medicaid
when conducted by employees of the State or local Medicaid agency.
School staff may continue to perform these types of administrative
activities. The final rule will merely limit the availability of
Federal matching funds based on the finding that it is not necessary
for the proper and efficient administration of the Medicaid State plan
for school staff to do so. We believe the final rule is necessary to
maintain the financial integrity of the Medicaid program. The final
rule does not question the importance of these types of administrative
activities when performed by employees of the State Medicaid agency and
still recognizes schools as valid settings for the delivery of Medicaid
services.
Comment: One commenter argued that Office of Management and Budget
Circular A-87 (OMB A-87) contradicts the proposed rule by including
school districts in its definition of local governments eligible to
participate in Federal awards. Insofar as school districts are defined
as units of government, they should not be excluded from Medicaid
participation in any way. Furthermore, it represents a reversal of
recent Federal guidance on school participation in Medicaid claiming
and contradictions of Federal definitions of ``governmental units'' and
``local governments'' that may participate in Medicaid claiming.
Response: This rule in no way addresses the status of schools and
school districts as units of government. OMB Circular A-87 describes
cost allocation requirements for units of government that receive
Federal grants and must account for costs associated with those grants.
OMB Circular A-87 does not, however, supplant the determination of the
program agency as to the administrative activities necessary for the
proper and efficient administration of the Medicaid program.
Comment: Some commenters pointed to Section 5230 of the State
Medicaid Manual, which requires Medicaid agencies to coordinate
services with local education agencies, title VI grantees, providers,
and other public and private agencies, as support for the role of
schools in helping the State administer the Medicaid program. The
statute is replete with examples of the extent to which State agencies
are expected to rely on other public agency staff to carry out Medicaid
State plan obligations, one commenter noted. As another stated:
``Collaboration with other public agencies is a consistent statutory
theme; indeed, the statute both contemplates the involvement of other
public agencies and give[s] States broad discretion over plan
administration.'' The proposed rule would, in the words of one
commenter, ``* * * establish an operational barrier to using schools as
a venue for performing administrative activities that support the
Medicaid program.'' Singling out schools, school contractors, and
school districts and eliminating their ability to receive reimbursement
for Medicaid administrative activities will result in a less effective,
less efficient Medicaid outreach and referral system.
A number of commenters took issue with the statement in the
proposed rule that administrative activities provided in schools ``* *
* largely overlap with educational activities that do not directly
benefit the Medicaid program.'' In reality, they argue, such activities
do directly benefit the Medicaid program insofar as they help Medicaid
eligible children to access covered services. One commenter stated the
following: ``The Secretary is * * * remiss in failing to consider that
compulsory school attendance laws provide schools with a captive
audience of underserved Medicaid eligible school-based children, thus
providing an optimal setting for addressing their * * * needs.'' From a
public policy perspective, they note, providing Medicaid activities in
schools should be encouraged, rather than restricted, yet the proposed
rule singles out schools settings for disparate restrictions and
prohibitions that are not imposed on other eligible providers.
Response: The final rule clarifies that Medicaid is not the
appropriate funding source for school-based administrative activities
or for transportation from home to school and back. These activities or
services are fundamentally undertaken for the educational mission of
the school, rather than for administration of the Medicaid State plan.
Based on our experience, we do not believe it is possible to develop
and implement claiming methodologies that accurately allocate costs to
Medicaid. The costs of such accounting exceed any incremental benefits
to the Medicaid program from these activities and services, and we have
concluded that it would be more efficient for States not to commingle
Medicaid and school administration and transportation.
Potential for Outstationed State Medicaid Agency Employees
Comment: Some commenters argued that State Medicaid agencies are
unlikely to send their own employees into schools to conduct
administrative activities, and that to do so would be inefficient.
These commenters believe that school-based outreach and enrollment
efforts are successful precisely because of the involvement of school
staff who are trusted by families and already in contact with children
and their families. These commenters believe State and local Medicaid
agencies can more efficiently carry out Medicaid administrative
activities through relationships with other public entities, including
schools. One commenter believes that States would have to hire
thousands of eligibility workers to do the work currently carried out
by school employees, at a far greater cost. To the extent State agency
employees were outstationed in schools, they argue, this would
establish a duplicative bureaucracy at State and Federal levels for
activities that are more efficiently performed by school staff. They
argue that this scenario would be financially and operationally
inefficient compared to the current system.
Response: CMS cannot direct State or local Medicaid agencies to
utilize their own staff to provide Medicaid administrative activities
in schools, as each State Medicaid program differs, and States have
flexibility in administering their programs. However, there is
precedent to use agency outstation workers in alternative service
delivery venues to administer the Medicaid State plan. Furthermore,
outstationing eligibility workers is likely to result in enrolling
eligible children more rapidly as they can make the actual eligibility
determination, while school employees cannot.
While we agree that school employees often enjoy a special trust
relationship with the families of students, this special relationship
is more likely based on an employees'' broad knowledge of a variety of
health, education and social service programs. Because of the
difficulty in determining specific administrative activities that are
for the purpose of administration of the Medicaid State plan, we have
determined that it is not proper and efficient to use school
employees'' for the administration of the State Medicaid program.
[[Page 73645]]
Comment: One commenter cited the Family Educational Rights and
Privacy Act (FERPA), 20 U.S.C. Section 1232(g), under which schools
must keep student records confidential, as a serious impediment to
having non-school employees (i.e., State Medicaid agency employees)
engage in Medicaid outreach, enrollment, and other administrative
functions.
Response: CMS does not believe the final rule will, in any way,
impact education mandates under FERPA, with which schools must continue
to comply. Furthermore, we believe non-school employees can conduct
effective Medicaid outreach and enrollment for students without access
to individual student school records.
Transportation-Specific Issues
Comment: Some commenters focused on the impact of the proposed rule
on Medicaid reimbursement for costs related to transportation from home
to school and back. These commenters asserted that specialized
transportation to school is necessary for a special needs student and
is necessary for the proper and efficient administration of the
Medicaid State plan, as required by 1903(a)(7) of the Act. One
commenter argued that CMS should preserve authority for States to
submit claims in limited situations, specifically for transporting
Medicaid eligible children from home to school and back if the child's
health status requires monitoring or medical related services during
transport.
These commenters argued that the proposed rule ignores the needs of
many students with disabilities who require specialized transportation
between home and school to facilitate frequent contact with school-
based Medicaid services providers to treat chronic health conditions
that are most cost-effectively treated during the course of the school
day.
Response: Medical services provided in schools or as part of
transportation to school are eligible for Medicaid reimbursement.
However, Medicaid will not reimburse the school for actual
transportation to school. Some comments seem to suggest that children
with disabilities are in school systems primarily to receive medical
services rather than to receive an education. Schools are educational
institutions, and children are transported to schools to receive an
education. Schools are required to provide access to medical care to
allow children with medical needs to participate as fully in the
educational system as children without special medical needs. Children
are already in the school for the purpose of receiving their education
when medical services are received and no additional transportation is
medically necessary. Characterizing transportation from home to school
as being for the purpose of obtaining medical services overlooks the
fundamental purpose of the transportation.
Comment: Some commenters pointed to CMS' assertion that schools are
required to provide transportation from home to school and back. On the
contrary, they argue that there is no State or Federal requirement for
schools to provide transportation from home to school and back for all
in students in every State. For example, one commenter noted, some
schools do not provide bus transportation for students who live within
walking distance. Some commenters argue that the proposed rule
incorrectly compares specialized transportation services for children
with significant health problems and traditional school bus
transportation. They argue that States set forth conditions that must
be met in order for a student to qualify for the transportation
benefit. For these reasons, they note, schools throughout the country
have utilized Federal funding through Medicaid to transport children to
school for medical appointments and provide bus aides when deemed
necessary. The proposed rule, however, would prohibit Medicaid funding
for these expenditures.
Response: Schools are educational institutions that may be
required, under an Individualized Education Program to provide
transportation to and from school for any individual child that may
require transport to participate in the public education system even if
that school does not provide transportation to other children in the
community. Medicaid will not reimburse school districts for
transportation requirements to and from school that the school must
meet as part of the IEP. Once at the school, a student may obtain
medical services but no additional transportation is required at that
point.
With respect to transportation to and from school, however,
Medicaid payment will remain available for direct medical services that
might be required under an IEP or IFSP in the course of such
transportation. For example, if a disabled individual needs to be
accompanied by a personal care attendant or a home health aide, Federal
Medicaid payment would be available to the extent that the service was
covered under the approved Medicaid State plan.
Comment: Others argued that there was no basis to change previous
CMS guidance, such as a May 2003 Guide and a 1997 technical assistance
guide, that supported and offered guidelines for claiming costs related
to transportation. These commenters pointed to section 1903(c) of the
Social Security Act, which requires Medicaid to be primary to the U.S.
Department of Education for payment of covered health-related services
that are included in an IEP or IFSP, as support for reimbursing costs
related to transportation from home to school and back. They noted that
transportation is often prescribed in a child's IEP or IFSP.
Response: This regulation is not inconsistent with section 1903(c)
of the Social Security Act because it addresses whether transportation
between home and school is a covered Medicaid service, and does not
affect the general obligation of the Medicaid program to pay for
covered Medicaid services that are prescribed in an IEP or IFSP primary
to education programs. This regulation departs from previous guidance
because it properly acknowledges that the purpose of the transportation
between home and school is for education rather than medical services.
Such transportation is for the purpose of securing attendance at the
school for educational reasons, and not for the purpose of obtaining
access to medical providers. As such, we do not believe that such
transportation is within the scope of covered Medicaid transportation,
either as an administrative activity or as a covered medical assistance
benefit in the approved Medicaid State plan.
Comment: Some commenters asserted that, in exempting from the
proposed rule the costs of transportation from home to school and back
for children who are not yet school age, that CMS is acknowledging the
potential for schools to provide Medicaid services and perform Medicaid
activities not solely to serve an educational purpose, which undercuts
this provision of the proposed rule. Additionally, some commenters
noted, Federal Medicaid funding remains available for the
transportation of all other groups of Medicaid-covered individuals to
medical services providers; it is only school-age children receiving
medical services at school whose transportation will not be
reimbursable. They argue that this funding exception violates Federal
regulations that require comparability in the amount, duration, and
scope of services for all those who qualify for Medicaid services 42
CFR Section 440.240. As one commenter noted, Medicaid policy regarding
medical transportation does not restrict the beneficiary from
participating in any other activity before returning home
[[Page 73646]]
from the place of treatment, as is the case in schools. And still
another commenter argued that the proposed regulatory text is
contradictory by continuing to make Federal Medicaid reimbursement
available ``for recipients to and from providers,'' while ignoring the
fact that a school district can be a qualified Medicaid provider.
Response: For school-aged children, transportation between home and
school is for the purpose of attending an educational institution, and
not for the purpose of obtaining access to medical providers. This
reasoning does not apply for individuals who are not yet school-aged,
and thus we did not include this population in the rule's prohibition.
The commenters err in assuming that transportation obtained for
purposes other than to obtain access to medical providers is within the
scope of covered Medicaid transportation. For instance, when an
individual needs transportation for the purpose of attending a medical
appointment in a nearby city, transportation to that provider would be
covered even if the individual also shopped or engaged in other
incidental activities on the trip. But when an individual is employed
in that nearby city and commutes on a daily basis for the purpose of
engaging in employment, the daily commute would not become covered
Medicaid transportation when the individual attends a medical
appointment at work. While this distinction is not always clear, it is
clear in the instance of transportation between home and school for
school-aged children.
Comment: Some commenters suggested that the proposed regulation may
create new, unanticipated transportation costs if children begin to
receive more services with a community-based provider, rather than in
school, because many school districts will not be able to absorb
transportation costs that were once matched with Medicaid funds. Other
commenters asserted that the cost of providing specialized
transportation is significantly more expensive than transportation
provided to regular students, and should be reimbursable for that
reason.
Response: This final rule will not interfere in any way with the
ability of States to determine school transportation policy, but simply
recognizes that routine school transportation from home to school and
back and related administrative activities are not authorized under the
Medicaid statute as necessary for the proper and efficient
administration of the Medicaid State plan, nor do they meet the
definition of an optional transportation benefit under Medicaid.
Children are transported to school primarily to receive an education,
not to receive medical services. The final rule will merely eliminate
Medicaid as a funding source; it will not affect the provision of such
transportation. Moreover, this rule will not affect the status of
covered medical services furnished in the course of transportation such
as services of a personal care attendant or a home health aide.
Comment: One commenter suggested that CMS may have overlooked the
fact that, in some cases, a child's disability is so severe that he or
she is unable to attend a mainstream district school, or even a special
day class within the district. In those cases, the child must attend an
out-of-district public school, a non-public school placement, or a
residential facility, to-and-from which districts are not automatically
providing transportation. In cases where children would receive covered
medical services at one of these sites, and the district must send the
child to these placements because of their particular medical needs,
the proposed regulations would preclude billing for the costs of such
transportation, they note.
Response: We do not believe a school district's election to educate
students in one location or another affects the basic purpose of the
transportation to ensure attendance at an educational institution. Even
in these circumstances, the transportation to and from school is for
educational purposes.
We agree, however, that when an individual is transported for the
provision of medical services to a location that is not a school, such
as a community provider, the transportation would be covered because
that transportation was necessary to access a medical service that is
not available at the school.
Comment: Another commenter pointed to Executive Order 13330, issued
February 24, 2004, which directs the Secretary of the U.S. Department
of Health and Human Services to promote interagency cooperation in the
provision of transportation services and argued that the proposed rule
contradicts this Executive Order. The commenter stated: ``To determine
that transportation is only necessary when performed by employees of
the State or local Medicaid agency fails to recognize the efficiencies
available when transportation is a coordinated effort.''
Response: The quoted language reflects confusion about this rule.
This rule reflects a determination that transportation to and from
school is not for the purpose of administration of the Medicaid State
plan, nor is such transportation necessary to ensure beneficiary access
to medical providers. We encourage the coordination of covered Medicaid
transportation with other programs, but Medicaid reimbursement of
transportation services is limited to ensuring beneficiary access to
medical providers in the community. It does not include transportation
routinely provided for other purposes.
Comment: Some commenters noted that school districts often rely on
Medicaid reimbursements for the costs of outfitting buses with
specialized equipment. These commenters urged that such funding remain
available.
Response: Medicaid payment will continue to be available to pay for
medical equipment, appliances and supplies that are covered under the
home health benefit, to the extent medically necessary for a particular
individual and, when furnished by schools, included in an IEP or IFSP.
Medical necessity is determined under State-established medical
necessity criteria. Nothing in the final rule will affect claiming
under Medicaid for these types of expenditures. Medicaid reimbursement
will not be available, however, for costs of permanently outfitting
buses with equipment for general use in accommodating individuals with
disabilities or other medical issues. Such costs are not within the
scope of a covered Medicaid benefit. Instead such costs are integral to
the uncovered transportation between home and school.
Impact Analysis
Comment: Some commenters argued that the estimated savings
represents a cost shifting, rather than a cost savings, from the
Federal government to State and local school districts that are
obligated to provide these services. As a result, they believe the
projected cost savings specified in the proposed rule are misleading.
Another commenter argued that it is disingenuous to state that the
proposed rule would not have a ``significant economic impact on local
school districts.'' Schools may lose up to $600 million in the first
year of the proposed rule's implementation, one commenter noted in
referencing the projected cost savings. While this may be a very small
component of the overall Medicaid budget, they contend, it is not
insignificant to the school districts and States that rely on this
funding to maintain the quality of services provided to students with
disabilities.
Still other commenters question the projected savings resulting to
the proposed rule, suggesting that these savings could be primarily
attributable
[[Page 73647]]
to one of the two issues addressed in the proposed rule; specifically,
transportation for school-age children. As a result, they argue the two
parts of the proposed rule should be considered separately and their
potential impact separately calculated. There is also no estimate in
the impact analysis of the number of children who would not be
identified and enrolled in Medicaid if States cannot maintain school-
based outreach programs without Federal support, one commenter was
disappointed to find.
Response: The final rule anticipates Federal savings of
approximately $635 million in the first year following implementation,
but does not require States to replace that Federal funding with State
funding or take any other particular steps. Any mandates regarding
school transportation spending arise under State constitutions, or
other Federal or State laws. School-based Medicaid administrative
activities and transportation from home to school and back are not
required activities under the Medicaid statute.
As stated in the proposed and final versions of the rule, there is
admitted uncertainty in the projected cost savings to the extent that
State-reported expenditures related to school-based administration and
transportation may not match actual current spending, and to the extent
that the impact of the proposed rule is greater than or less than
assumed. The cost savings are based upon State voluntary reporting of
quarterly expenditures to CMS. Since this reporting for school-based
activities is voluntary, these estimates may not match actual current
spending. Furthermore, claims related to the costs of transportation
from home to school and back as a direct service are included in the
total amount claimed for all medical assistance. Therefore, it is
difficult, if not impossible, to determine the impact of the final rule
on the types of transportation costs that would be affected.
Comment: One commenter believed the rationale for the estimated
cost savings is flawed because not all school districts currently claim
or receive FFP for administrative and transportation services, and that
Federal funding is spread unevenly among States, districts, and
schools. Therefore, they suggest, comparing the costs of the proposed
rule to overall nationwide spending for elementary and secondary
education minimizes its financial impact. Instead, one commenter argued
that a more realistic financial analysis is necessary, one which would:
1. Examine the financial impact of the proposed cuts only on
districts that actually claim for reimbursements;
2. Take into consideration the unique aspects (such as fixed costs)
of school district budgets; and
3. Include the likely loss of State Medicaid funding that would
result from schools no longer being able to sustain these programs.
Response: The proposed and final rules reference total elementary
and secondary spending in 2004, as defined by the Bureau of the Census,
in determining the projected impact on expenditures. It is difficult,
if not impossible, to reach consensus on a single expenditure total to
be used as the basis for calculating the potential impact of the
proposed rule. We determined the Census data to be the most reliable
and accurate data available. As stated in Section VI., the estimated
annual Federal savings under this final rule is only about one eighth
of one percent of total annual spending on elementary and secondary
schools (in 2004 total elementary and secondary spending was $453
billion according to the Statistical Abstract of the United States,
Table 245, at http://www.census.gov/compendia/statab/education).
Comment: Other commenters disagreed with the assessment in the
proposed rule that it would not have a significant impact on a
substantial number of small entities, either disagreeing with the
threshold definition of significant impact or that of small
governmental jurisdictions. This was an issue for which CMS
specifically solicited public comment. Under the definition of small
governmental jurisdiction used by CMS, that is, those with a population
of less than fifty thousand, nearly every school district in certain
States would qualify as small entities, according to one commenter.
This commenter went on to note that these smaller districts are often
rural with a high percentage of students receiving free or reduced
priced lunches. As a result, schools that are poor, rural, isolated and
small will be disproportionately impacted due to existing budget
constraints and extremely limited resources.
Certain commenters believe the cost benefit analysis to be flawed.
One commenter stated that the analysis presumes that most school
districts are uniform in size, which is not the case. Another argued
that the proposed rule aggregates all Federal spending on elementary
and secondary education ``* * * as a means to minimize the rule's
financial impact on school districts.'' Some stated that the proposed
rule inaccurately minimizes the fiscal impact the proposed rulemaking
would have on school districts, stating that it is ``* * * misleading
and inaccurate for CMS to compare the cost of school-based health care
to the entire budgets for K-12 education.'' Rather than ``one eighth of
one percent of total annual spending, the proposed rule, they argue,
would impose a 50 percent impact insofar as the matching rate for
allowable administrative expenditures is 50 percent FFP.
Response: As noted in Section VI., for purposes of the Regulatory
Flexibility Act, small entities include small businesses, nonprofit
organizations, and small governmental jurisdictions, including school
districts. ``Small'' governmental jurisdictions are defined as having a
population of less than fifty thousand. Admittedly, there is
uncertainty in this estimate to the extent that State-reported
expenditures related to school-based administration and transportation
may not match actual current spending and to the extent that the impact
of the proposed rule is greater than or less than assumed. We
nevertheless believe, as indicated in our calculations and in the
absence of reliable data to the contrary, that the impact of this rule
will be only a small percentage of administrative and transportation
expenditures by such entities. Furthermore, the input we received in
response to the solicitation for public comments on the potential
impact on small entities offered only speculation and did not provide
sufficient quantitative data to argue for a reassessment of the
potential impact.
Comment: One commenter believes the discussion in the Impact
Analysis of Executive Order 13132 is flawed by a failure to accurately
assess the impact on State and local governments and by the factual
error inherent in characterizing as ``routine'' the transportation
needs of school-based children receiving Medicaid services in a school
setting pursuant to an IEP.
Response: As stated in Section VI., with respect to transportation
specifically, States and/or schools will be required under the final
rule to continue funding transportation of school-age children from
home to school and back to the extent it is required by education
statute(s). That is because schools provide transportation to and from
school for all students, not just (or even primarily) special education
or Medicaid eligible students.
Regulatory Text
Comment: One commenter asked for clarification of what is meant in
the
[[Page 73648]]
proposed Section 433.20 by ``under the control of'' a public or private
educational institution. This commenter also asked for clarification in
the regulatory text that activities required to support the provision
of medical services are eligible for FFP if they are included in the
rate paid for direct medical services, and requested a definition for
``administrative overhead costs'' to appear in the regulatory text.
Response: The reference in Section 433.20 to anyone ``under the
control of'' a public or private educational institution is meant to
incorporate any and all subcontracting arrangements that schools or
other educational institutions may enter into for the provision of
services or administrative activities in schools. The definition of
administrative overhead costs cannot be specified in the regulatory
text because it is dependent upon the types of costs that are included
in the rate paid for direct medical services, which is negotiated by
each State and specified in the approved Medicaid State plan. These
reimbursement rates are set by the State Medicaid agency and,
therefore, any discussions regarding the appropriateness of such rates
on the part of providers must be conducted at the State level.
Furthermore, CMS does not believe it is necessary to specify in the
regulatory text that administrative activities that are integral to, or
an extension of, a direct medical service remain eligible for FFP
insofar as they are reimbursed through the rate paid for the service.
This is because the regulatory text only limits the availability of FFP
for Medicaid administration, not services (except insofar as
transportation from home to school and back is defined as a service).
That is, the final rule does not affect Federal reimbursement for the
costs of allowable direct medical service expenditures.
Comment: One commenter requested that the regulatory text
explicitly note the continued availability of FFP for the costs of
transporting school-age children from school or home to a non-school
based direct medical service provider that bills under the Medicaid
program or from the non-school based provider to school or home.
Another commenter asked for language to be included in the regulatory
text specifying that FFP is available for transportation services
provided to children who are ``not yet school-age'' to and from
providers, even if the site of service is a school.
Response: CMS does not believe it is necessary to specify in the
regulatory text that Federal Medicaid reimbursement remains available
for transportation provided to children who are not yet school-age to
and from providers, even if the site of service is a school, because
the regulatory text lists only those costs for which reimbursement will
not be available. Similarly, it is not necessary to note in the
regulatory text the continued availability of FFP for the costs of
transporting school-age children from school or home to a non-school
based direct medical service provider that bills under the Medicaid
program or from the non-school based provider to school or home. Any
such costs not included in the regulatory text are thereby exempt from
the general prohibition on reimbursement.
Comment: One commenter requested a definition of ``school-age'' and
``not yet school-age.''
Response: The regulatory text purposely does not provide a
definition for ``school-age'' and ``not yet school-age'' because such
definitions may differ by State and no such distinction exists in the
Medicaid statute; rather, such determinations are based on education
requirements. We do intend the term ``school-age children'' to be
defined by age. It is specifically worded as such to differentiate
between children who are of the age to attend school for education and
children who are not yet school-age.
Comment: One commenter asked for clarification in proposed Section
431.53 of whether transportation is only available to and from services
that are included in a child's IEP or whether transportation is also
available to and from other Medicaid services that are not included in
a child's IEP.
Response: Federal Medicaid reimbursement for school-based services
is generally available only for covered services provided pursuant to
an IEP or IFSP, because non-IEP services are typically subject to
Medicaid third party liability rules and ``free care'' policies, which
limit the ability of schools to bill Medicaid for some of these health
services and associated administrative costs. Third party liability
requirements preclude Medicaid from paying for Medicaid coverable
services provided to Medicaid beneficiaries if another third party
(e.g., other third party health insurer or other Federal or state
program) is legally liable and responsible for providing and paying for
the services. The ``free care'' principle precludes Medicaid programs
from recognizing as a cost of Medicaid-coverable services and
activities any amount for services and activities which are available
without charge or liability, and for which no other sources for
reimbursement are pursued.
IV. Provisions of the Final Regulations
This final rule incorporates the provisions of the proposed rule in
its entirety and does not in any way differ from the proposed rule.
V. Collection of Information Requirements
This document does not impose information collection and
recordkeeping requirements. Consequently, it need not be reviewed by
the Office of Management and Budget under the authority of the
Paperwork Reduction Act of 1995 (44 U.S.C. 35).
VI. Regulatory Impact Statement
A. Overall Impact
We have examined the impact of this rule as required by Executive
Order 12866 (September 1993, Regulatory Flexibility Act (RFA)
(September 19, 1980, Pub. L. 96-534), section 1102(b) of the Social
Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4),
and Executive Order 13132. Executive Order 12866 (as amended by
Executive Order 13258 and Executive Order 13422) directs agencies to
assess all costs and benefits of all available regulatory alternatives
and, if regulation is necessary, to select regulatory approaches that
maximize net benefits (including potential economic, environmental,
public health and safety effects, distributive impacts, and equity). A
regulatory impact analysis (RIA) must be prepared for major rules with
economically significant effects ($100 million or more in any 1 year).
This final rule's savings will exceed this economic threshold and it is
therefore considered a major rule. The final rule is estimated to
reduce Federal Medicaid outlays by $635 million in FY 2009 and by a
total of $3.6 billion over the first five years (FY 2009-2013).
The RFA requires agencies to analyze options for regulatory relief
of small entities if final rules have a ``significant economic impact
on a substantial number of small entities.'' For purposes of the RFA,
small entities include small businesses, nonprofit organizations, and
small governmental jurisdictions, including school districts. ``Small''
governmental jurisdictions are defined as having a population of less
than fifty thousand. Individuals and States are not included in the
definition of a small entity. Although many school districts have
populations below this threshold and are therefore considered small
entities for purposes of the RFA, we have determined the impact on
local school districts as a result of the final rule will not exceed
the threshold of
[[Page 73649]]
``significant'' economic impact under the RFA, as discussed below.
States have the option under the final rule to continue funding
school-based administrative activities using State-only funds; this
rule simply eliminates the availability of Federal Medicaid matching
funds for these expenditures when they are performed by employees of
the school or contractors, or anyone under the control of a public or
private educational institution, rather than employees of the Medicaid
agency. However, with respect to transportation specifically, States
and/or schools will continue transporting school-age children from home
to school and back to the extent it is required by education
statute(s). That is because schools provide transportation to and from
school for all students, not just (or even primarily) special education
or Medicaid eligible students.
The Individuals with Disabilities Education Act (IDEA) requires
public schools to provide a free appropriate public education to
children with disabilities. The IDEA authorizes funding through the
U.S. Department of Education (not Medicaid) for special education and
related services for children with disabilities. While section 1903(c)
of the Social Security Act authorized Medicaid funding for covered
services included in an Individualized Education Program (IEP) under
the IDEA, section 1903(c) does not expressly authorize Medicaid funding
for administrative activities that schools conduct in implementing
their IDEA responsibilities.
The estimated annual Federal savings under this final rule are only
about one eighth of one percent of total annual spending on elementary
and secondary schools (in 2004 total elementary and secondary spending
was $453 billion according to the Statistical Abstract of the United
States, Table 245, at http://www.census.gov/compendia/statab/
education). According to the ``Guidance on Proper Consideration of
Small Entities in Rulemakings of the U.S. Department of Health and
Human Services (May 2003),'' if the average annual impact on small
entities is 3 to 5 percent or more, it is to be considered significant.
Because we used a threshold of 3 to 5 percent of annual revenues or
costs in determining whether a proposed or final rule has a
``significant'' economic impact on small entities, we have determined
that this final rule will not have a significant economic impact on a
substantial number of small entities.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area and has fewer than 100 beds. We are not preparing an
analysis for section 1102(b) of the Act because we have determined, and
the Secretary certifies, that this rule would not have a direct impact
on the operations of a substantial number of small rural hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation. That threshold
level is currently approximately $127 million. This final rule contains
no mandates that will impose spending costs on State, local, or tribal
governments in the aggregate, or by the private sector, of $127
million. The final rule anticipates Federal savings of approximately
$635 million in the first year following implementation, but does not
require States to replace that Federal funding with State funding or
take any other particular steps. Any mandates regarding school
transportation spending arise under State constitutions, or other
Federal or State laws. School-based Medicaid administrative activities
and transportation from home to school and back are not required
activities under the Medicaid statute.
Executive Order 13132 on Federalism establishes certain
requirements that an agency must meet when it promulgates a proposed
rule (and subsequent final rule) that imposes substantial direct
requirements on State and local governments, preempts State law, or
otherwise has Federalism implications. EO 13132 focuses on the roles
and responsibilities of different levels of government, and requires
Federal deference to State policy making discretion when States make
decisions about the uses of their own funds or otherwise make State-
level decisions. We find that this rule will not have a substantial
effect on State or local government policy discretion. While this final
rule would eliminate the ability of States to claim Federal Medicaid
funding for school-based administrative and certain transportation
costs, notably routine home-to-school and back bus transportation, it
will not impose any requirement as to how States or localities
administer or pay for such activities, or interfere in any way with the
ability of States to determine school transportation policy. The rule
will simply recognize that routine school transportation from home to
school and back and related administrative activities are not
authorized under the Medicaid statute as necessary for the proper and
efficient administration of the Medicaid State plan, nor do they meet
the definition of an optional transportation benefit under Medicaid.
B. Anticipated Effects
The final rule is a major rule because it is estimated to result in
$635 million in savings during the first year and $3.6 billion in
savings over the first five years. The following chart summarizes our
estimate of the anticipated effects of this final rule.
Table I.--Estimated Reduction in Federal Medicaid Outlays Resulting From the Elimination of Reimbursement for
School-Based Administration and Certain Transportation Costs in Proposed Rule
[Amounts in millions per Federal fiscal year]
----------------------------------------------------------------------------------------------------------------
2009 2010 2011 2012 2013 2009-2013
----------------------------------------------------------------------------------------------------------------
School-Based Costs: -$635 -$675 -$720 -$770 -$820 -$3620
Eliminate Reimbursement for
Administration/
Transportation.............
----------------------------------------------------------------------------------------------------------------
Conclusion
These estimates assume implementation beginning in the 2008-09
school year and are based on recent reviews of State reported school-
based administrative and direct medical service expenditures reported
on the quarterly CMS expenditure forms (MBES/CBES Form 64.10I and Form
64.10PI Information Forms for School-Based ADM and MAP claims). From
[[Page 73650]]
these voluntary State claiming reports, an estimate of the total amount
of claims under the Medicaid program that would be affected by the
final rule was developed and then projected forward using the most
recent assumptions available. There is uncertainty in this estimate to
the extent that State-reported expenditures related to school-based
administration and transportation may not match actual current spending
and to the extent that the impact of the proposed rule is greater than
or less than assumed. Furthermore, claims related to the costs of
transportation from home to school and back as a direct service are
included in the total amount claimed for all medical assistance.
Therefore, it is difficult, if not impossible, to determine the impact
of the final rule on the types of transportation costs that would be
affected.
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.
VII. Alternatives Considered
In developing this regulation, various alternatives were
considered. We considered the possibility of conducting stronger review
of reimbursement methodologies for the costs of Medicaid administrative
activities provided in schools and transportation from home to school
and back. We also considered seeking to implement policies requiring
greater accountability and oversight responsibility for school-based
administrative and transportation expenditures, and clarification of
Federal requirements without any new regulation (using existing
statutory and regulatory authority). In addition, we considered
developing standard parameters applicable to claiming for all school-
based Medicaid administration and transportation costs. However, we
attempted, by issuing the May 2003 Medicaid School-Based Administrative
Claiming Guide, to provide specific guidance on the requirements for
claming costs related to school-based activities. In the end, we
ultimately rejected these alternatives because the intervening years
have proven that such activities cannot be adequately regulated or
overseen.
We determined that the rulemaking process was the most effective
method of implementing these policies because the rulemaking process
was the best way to inform affected parties, allow for public input,
and make clear that the requirements set forth are uniform, fair and
consistent with the underlying statutory intent.
A. Accounting Statement
As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in the table below, we
have prepared an accounting statement showing the classification of the
expenditures associated with the provisions of this final rule. This
table provides our best estimate of the decrease in Federal Medicaid
outlays resulting from the elimination of reimbursement for school-
based administration and certain transportation costs that will be
implemented by this final rule. The sum total of these expenditures is
classified as savings in Federal Medicaid spending.
Table II.--Accounting Statement
------------------------------------------------------------------------
Category Transfers
---------------------------------------------------
Accounting Statement: Classification of Estimated Expenditures, From
Fiscal Year 2009 to Fiscal Year 2013 (in millions)
------------------------------------------------------------------------
Negative Transfer-Estimated decrease in
expenditures:
------------------------------------------------------------------------
Annualized Monetized 3% Units Discount 7% Units Discount
Transfers. Rate. Rate
$721................ $718
From Whom To Whom?.......... Federal Government to States
------------------------------------------------------------------------
List of Subjects
42 CFR Part 431
Grant programs--health, Health facilities, Medicaid Privacy
Reporting and recordkeeping requirements.
42 CFR Part 433
Administrative practice and procedure, Child support Claims, Grant
programs--health, Medicaid Reporting and recordkeeping requirements.
42 CFR Part 440
Grant programs--health, Medicaid.
0
For the reasons set forth in the preamble, the Centers for Medicare &
Medicaid Services amends 42 CFR Chapter IV as set forth below:
PART 431--STATE ORGANIZATION AND GENERAL ADMINISTRATION
0
1. The authority citation for part 431 continues to read as follows:
Authority: Sec. 1102 of the Social Security Act (42 U.S.C.
1302).
0
2. Section 431.53 is revised to read as follows:
Sec. 431.53 Assurance of Transportation.
(a) A State plan must--
(1) Specify that the Medicaid agency will ensure necessary
transportation for recipients to and from providers; and
(2) Describe the methods that the agency will use to meet this
requirement.
(b) For purposes of this assurance, necessary transportation does
not include transportation of school-age children between home and
school.
PART 433--STATE FISCAL ADMINISTRATION
0
3. The authority citation for part 433 continues to read as follows:
Authority: Sec. 1102 of the Social Security Act (42 U.S.C.
1302).
0
4. Part 433 is amended by adding a new Sec. 433.20 to read as follows:
Sec. 433.20 Rates of FFP for Administration: Reimbursement for
School-Based Administrative Expenditures.
Federal financial participation under Medicaid is not available for
expenditures for administrative activities by school employees, school
contractors, or anyone under the control of a public or private
educational institution.
[[Page 73651]]
PART 440--SERVICES: GENERAL PROVISIONS
0
5. The authority citation for part 440 continues to read as follows:
Authority: Sec. 1102 of the Social Security Act (42 U.S.C.
1302).
0
6. Section 440.170(a)(1) is revised to read as follows:
Sec. 440.170 Any other medical care or remedial care recognized under
State law and specified by the Secretary.
(a) Transportation. (1) ``Transportation'' includes expenses for
transportation and other related travel expenses determined to be
necessary by the agency to secure medical examinations and treatment
for a recipient. Such transportation does not include transportation of
school-age children from home to school and back.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.778, Medical
Assistance Program)
Dated: December 13, 2007.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
Approved: December 14, 2007.
Michael O. Leavitt,
Secretary.
[FR Doc. 07-6220 Filed 12-21-07; 10:00 am]
BILLING CODE 4120-01-P