Medicaid and Special Education: Coordination of Services for Children
With Disabilities Is Evolving (Letter Report, 12/10/1999,
GAO/HEHS-00-20).

Pursuant to a congressional request, GAO reviewed the mechanisms of
coordination between Medicaid and the Individuals With Disabilities
Education Act (IDEA), focusing on: (1) how Medicaid and IDEA interact to
meet the needs of low-income school-aged children with disabilities; and
(2) issues that have arisen in coordinating Medicaid and IDEA services
in schools.

GAO noted that: (1) Medicaid and IDEA interact differently at the
federal, state, and local levels, and the extent and nature of
coordination continue to evolve; (2) federal efforts focus on: (a)
helping states access funding sources such as Medicaid; and (b) working
to develop clear and consistent guidance to help educational entities
appropriately claim Medicaid funding for IDEA-related medical services;
(3) while charged with ensuring that Medicaid-eligible individuals have
access to and receive covered services, the Health Care Financing
Administration (HCFA) must also safeguard Medicaid against improper
claims; (4) in the states GAO contacted, interagency agreements and
agency liaisons are the primary mechanisms of state-level interaction
between Medicaid and IDEA; (5) as states and school districts have
worked to obtain Medicaid reimbursement for covered school-based
services, several concerns regarding coordination with IDEA have arisen;
(6) concerns generally revolve around determining which IDEA-related
services Medicaid will cover, identifying children who are eligible for
both programs, and managing the documentation required for submitting
Medicaid claims; (7) these efforts are complex for many reasons,
including the need to safeguard the privacy of children with
disabilities while ensuring appropriate documentation for claiming
Medicaid reimbursement; (8) efforts to coordinate Medicaid and IDEA have
also been affected by the lack of clear and consistent federal guidance;
(9) inconsistent guidance from HCFA appears to have heightened school
district concerns that Medicaid reimbursements will have to be returned
to the federal government later because of inappropriate documentation
or changes in documentation requirements; (10) recognizing the need for
better coordination, HCFA is developing additional guidance, which it
plans to issue in 2000; (11) additionally, HCFA has established a
position to advise its Administrator on disability policy and to
facilitate communication among the Administrator of HCFA, other federal
policymakers, including the Assistant Secretary for Special Education
and Rehabilitation Services, and the disability community; and (12)
while these actions will not solve the difficulties in coordinating
Medicaid and IDEA services, state and local efforts could be facilitated
by federal guidance in communicating Medicaid's coverage and
documentation requirements.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-00-20
     TITLE:  Medicaid and Special Education: Coordination of Services
	     for Children With Disabilities Is Evolving
      DATE:  12/10/1999
   SUBJECT:  Special education
	     Federal/state relations
	     Health insurance
	     Aid for education
	     Children with disabilities
	     State-administered programs
	     Interagency relations
	     Redundancy
	     Reporting requirements
IDENTIFIER:  HHS Individuals With Disabilities Education Act Program
	     Medicaid Program
	     Early and Periodic Screening, Diagnostic and Treatment
	     Program

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Cover
================================================================ COVER

Report to the Honorable Edolphus Towns, House of Representatives

December 1999

MEDICAID AND SPECIAL EDUCATION -
COORDINATION OF SERVICES FOR
CHILDREN WITH DISABILITIES IS
EVOLVING

GAO/HEHS-00-20

Coordination Between Medicaid and IDEA

(101873)

Abbreviations
=============================================================== ABBREV

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

Letter
=============================================================== LETTER

B-283771

December 10, 1999

The Honorable Edolphus Towns
House of Representatives

Dear Mr.  Towns: 

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

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

To accomplish this, we contacted selected federal and state
officials, as well as a small number of local school district
officials, regarding the coordination mechanisms employed by IDEA
that are relevant to Medicaid activities in schools.  To review
federal efforts at coordination, we contacted the Department of
Health and Human Services' (HHS) Health Care Financing Administration
(HCFA), which has oversight responsibility for the Medicaid program,
and Department of Education staff involved in coordinating IDEA with
Medicaid.\3

For the state perspective, we contacted 12 states:  9 that were among
the states with the highest number of school-aged children in special
education and 3 that had predominantly rural populations.\4 We
obtained and analyzed the content of interagency agreements and other
documentation from selected state directors of special education.  We
also contacted Education's northeast and southeast Regional Resource
Centers, which are funded by the Office of Special Education Programs
and provide technical assistance to state education agencies.  We
analyzed the coordination mechanisms reported by the federal
agencies; 12 states; and five urban school districts, which varied in
size from 3,000 to 156,000.  We conducted our work between September
and October 1999 in accordance with generally accepted government
auditing standards. 

--------------------
\1 Because 1998 statistics on children are not yet available, our
figure for the number of children receiving medical care covered by
Medicaid is based on fiscal year 1997 data. 

\2 The Medicare Catastrophic Coverage Act of 1988 enacted this
requirement, which is currently codified at 42 U.S.C.  1396b(c). 

\3 Although IDEA also offers coverage for infants and toddlers (under
part C of the statute), our review focuses only on school-aged
children receiving IDEA services under part B. 

\4 We contacted Florida, Illinois, Maine, Massachusetts, Michigan,
New Jersey, New York, Ohio, Pennsylvania, South Dakota, Texas, and
Vermont.  Collectively, these 12 states accounted for 43 percent of
fiscal year 1996-97 Grants to States, IDEA part B, funds and 47
percent of federal Medicaid funds in 1998. 

   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

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

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

   BACKGROUND
------------------------------------------------------------ Letter :2

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

Generally, the federal government shares in states' Medicaid costs
that fall under two categories:  medical assistance and
administrative activities.  For medical assistance payments, each
program's federal and state funding shares are determined through a
statutory matching formula.  This formula results in federal shares
that range from 50 to 83 percent, depending on each state's per
capita income in relationship to the national average.  For
administrative claims, the federal share varies by the type of costs
incurred.  Most administrative expenditures are matched at a fixed
rate of 50 percent, making the federal government's contribution
equal to that of a state.  However, certain administrative
expenditures are matched at a rate higher than 50 percent.\5 Most
Medicaid expenditures are for medical assistance payments:  over 95
percent of Medicaid's $177 billion in total expenditures in fiscal
year 1998 was for health services. 

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

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

Finally, providing Early and Periodic Screening, Diagnostic and
Treatment (EPSDT) services to all Medicaid-enrolled children under 21
years of age offers eligible children with or without disabilities a
special entitlement to health care.  Under EPSDT, states are required
to cover any service or item that is medically necessary to correct
or ameliorate a condition detected through an EPSDT screening,
regardless of whether the service or item is otherwise covered under
a state Medicaid program.  States must also conduct activities to
inform Medicaid-eligible individuals about the EPSDT benefit and
encourage their participation in the Medicaid program.  For instance,
states are required to provide Medicaid-eligible children and
families with assistance in locating EPSDT health care providers,
assistance in scheduling medical appointments, and transportation. 
Hence, under EPSDT, Medicaid-eligible children have a broad
entitlement to medically necessary services. 

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

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

  -- develop, in conjunction with the child's parents, teachers, and
     others, an individualized education program (IEP), which is a
     written statement that details the education and supportive
     services a student with a disability will receive;\8

  -- provide services in accordance with the IEP;

  -- review each child's IEP at least annually and revise it as
     appropriate; and

  -- reevaluate the child's need for special education services as
     appropriate, but at least once every 3 years.\9

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

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

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

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

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

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

Additionally, concerns regarding the costs of implementing IDEA and
the need to identify alternative sources of funding have heightened
as a result of a recent Supreme Court case.  In Cedar Rapids
Community School District v.  Garret F.,\15 the Supreme Court held
that under IDEA, the school district must provide the student with
the nursing services he requires during school hours.\16 The
superintendent of the Cedar Rapids Community School District and the
National School Board Association have expressed concern about the
financial obligations that may be associated with this decision;
others disagree, stating that the decision did not add financial
obligations or requirements beyond those already in effect.  While
not adding new Medicaid requirements, the Court's decision does have
relevance for Medicaid costs to the extent that states provide
services through IDEA that are eligible for Medicaid payment. 

--------------------
\5 For example, the cost of developing automated systems is federally
matched at a 90-percent rate, and the cost of activities performed by
skilled professional medical personnel can, under certain conditions,
be matched at a 75-percent rate. 

\6 IDEA's total federal appropriation for fiscal year 1999 was $5.3
billion, $4.1 billion of which was for Grants to States under part B;
$0.2 billion was an advance from prior year funding for part B. 
Additional IDEA funding included $374 million for the Preschool
Grants program; $370 million for the Grants for Infants and Families
program; as well as resources for IDEA national programs, which fund,
among other things, state program improvement grants and parent
information centers. 

\7 The IDEA Amendments of 1997 (P.L.  105-17) provide for the formula
to change to one that is population-based once the appropriation for
the program exceeds $4.9 billion. 

\8 The IDEA regulations specify that the IEP team must include (1)
parent(s); (2) at least one of the child's regular education teachers
(if the child is, or may be, participating in the regular education
environment); (3) one of the child's special education teachers; (4)
a representative of the public agency involved; (5) an individual to
interpret the implications of evaluation results; (6) the child (when
appropriate); and (7) other individuals with knowledge or special
expertise regarding the child.  See Assistance to States for the
Education of Children With Disabilities and the Early Intervention
Program for Infants and Toddlers With Disabilities, final
regulations, 64 Fed.  Reg.  12,405, 12,440 (1999) (to be codified at
34 C.F.R.  300.344). 

\9 See 42 U.S.C.  1414. 

\10 In this context, related services that are defined as medical are
limited to those for diagnostic or evaluation purposes. 

\11 See Assistance to States, 64 Fed.  Reg.  12,405, 12,427 (1999)
(to be codified at 34 C.F.R.  300.125(a)(i)). 

\12 See Assistance to States, 64 Fed.  Reg.  12,405, 12,429 (1999)
(to be codified at 34 C.F.R.  300.142(a)). 

\13 See Assistance to States, 64 Fed.  Reg.  12,405, 12,435 (1999)
(to be codified at 34 C.F.R.  300.244(a)). 

\14 34 C.F.R.  300.442 (a)(1). 

\15 Cedar Rapids Community School District v.  Garret F., 526 U.S. 
66 (1999). 

\16 Recognizing that the school district must fund related services
to integrate such students into the public schools, the Court looked
to the bright line test established in Irving Independent School
District v.  Tatro, 468 U.S.  883 (1984).  Under this test, the
services of a physician (other than for diagnostic and evaluation
purposes) are subject to the medical services exclusion, but services
that can be provided in the school setting by a nurse or qualified
layperson are not.  Therefore, while the Court in Garret F. 
acknowledged the student's need for more extensive services, it noted
that such services are no more medical than the care sought in
Tatro and must be provided by the school district as related
services.

   MEDICAID AND IDEA INTERACTIONS
   VARY ACROSS LEVELS OF
   GOVERNMENT
------------------------------------------------------------ Letter :3

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

      FEDERAL INTERACTIONS BETWEEN
      MEDICAID AND IDEA REFLECT
      DIFFERING AGENCY ROLES
---------------------------------------------------------- Letter :3.1

Federal interactions between Medicaid and IDEA reflect the different
roles of HCFA and the Department of Education.  While acknowledging
the importance of covering the school-based service needs of
Medicaid-eligible children, HCFA officials we spoke with expressed
concerns about the appropriateness of certain billing practices in
schools.  In particular, school districts' claims for administrative
costs associated with school-based health services have increased
fivefold over the past 4 years, and federal oversight of school
districts' claims has been weak.  Thus, an environment conducive to
opportunism has developed in which inappropriate claims have the
potential for generating excessive Medicaid payments.\17

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

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

--------------------
\17 See Medicaid:  Questionable Practices Boost Federal Payments for
School-Based Services (GAO/T-HEHS-99-148, June 17, 1999). 

\18 On May 21, 1999, HCFA sent a letter to state Medicaid directors
regarding reimbursement for school-based health services under
Medicaid.  This letter explained practices associated with
reimbursement for transportation and reported efforts under way to
review state practices for claiming reimbursement for school-based
health-related administrative activities. 

      STATE INTERACTIONS BETWEEN
      MEDICAID AND IDEA TAKE PLACE
      PRIMARILY THROUGH
      INTERAGENCY AGREEMENTS AND
      AGENCY LIAISONS
---------------------------------------------------------- Letter :3.2

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

         INTERAGENCY AGREEMENTS
         OUTLINE RESPONSIBILITIES
         OF MEDICAID AND EDUCATION
         AGENCIES
-------------------------------------------------------- Letter :3.2.1

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

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

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

         AGENCY LIAISONS SERVE AS
         RESOURCES FOR SCHOOL
         DISTRICTS
-------------------------------------------------------- Letter :3.2.2

The 12 states we contacted identified agency liaisons that are
responsible for coordinating Medicaid and school-based services. 
Over half of these states have designated liaisons in both education
and Medicaid agencies.  For example, while Florida has a liaison in
the Department of Education, the state also has 11 Medicaid program
specialists who act as school liaisons by assisting in coordination
efforts.  These specialists work for the Medicaid Area Program
offices that administer Florida's Medicaid program. 

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

      VARYING CHARACTERISTICS OF
      LOCALITIES OFTEN SHAPE
      INTERACTIONS
---------------------------------------------------------- Letter :3.3

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

School districts also have different levels of commitment to claiming
Medicaid funds.  For example, state agency officials in Michigan and
Florida informed us that they have been given a clear mandate to
encourage school districts' use of Medicaid for school-based services
and to carry out whatever coordination tasks are necessary to ensure
participation.  Michigan schools have been encouraged by the state
Education Department to become Medicaid providers.  In Florida, the
state has passed legislation aimed at billing Medicaid for direct
services in the schools; before this legislation, interactions
between Medicaid and education at the state level were limited to
case-by-case instances.  Even with a clear mandate to use Medicaid
for school-based services, however, individual school districts vary
in their approach to claiming Medicaid.  For example, one school
district in Florida started with a pilot program to bill Medicaid and
slowly expanded its efforts over time, an approach that district
officials characterized as very conservative, compared with that of
another school district in the state. 

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

  -- Some providers and the services they offer are either
     unavailable or in short supply in some communities.\20 In
     particular, shortages of such services as early intervention,
     transportation, and medical services are more pronounced in
     rural than in other areas.  Some rural districts may also have
     difficulties locating providers of certain related services,
     such as physical therapy and speech pathology, according to
     district and state officials. 

  -- Officials from one school district in Vermont reported that the
     difficulty in reading that some parents of children with
     disabilities have makes it difficult for them to learn about
     Medicaid.  When such concerns are suspected, school personnel
     make personal contact with the parents, informing them about
     Medicaid and assisting them in completing the enrollment form. 

  -- Under IDEA, after the IEP is developed, the school district must
     provide the agreed-upon services within a reasonable period of
     time, usually 60 days.  District officials may not receive
     reimbursement--or know for sure that reimbursement will be
     allowed--within this time period. 

--------------------
\19 See Elementary and Secondary Education:  Flexibility Initiatives
Do Not Address Districts' Key Concerns About Federal Requirements
(GAO/HEHS-98-232, Sept.  30, 1998). 

\20 See SSI Children:  Multiple Factors Affect Families' Costs for
Disability-Related Services (GAO/HEHS-99-99, June 28, 1999). 

   IMPLEMENTATION EFFORTS REFLECT
   ATTEMPTS TO ADDRESS
   COORDINATION ISSUES
------------------------------------------------------------ Letter :4

State and local efforts to seek Medicaid reimbursement for covered
school-based services reveal several coordination issues between
Medicaid and IDEA.  In the 12 states we contacted, these issues
generally revolve around achieving clarity (and sometimes consensus)
on what services Medicaid will pay for, determining Medicaid
eligibility for children with IEPs, and establishing clear methods of
documentation for billing Medicaid.  States' approaches to addressing
these issues vary.  Coordinating these activities between educational
entities and Medicaid programs has been hampered by the lack of clear
and consistent federal guidance regarding the proper billing
procedures for Medicaid.  Six of the 12 directors of special
education and three of the five local school district representatives
with whom we spoke expressed concerns about Medicaid as a consistent
source of funding.  Some state officials also specifically mentioned
waiting for HCFA to issue guidance on claiming Medicaid for
school-based services and administrative activities, which is
expected to occur sometime in the year 2000. 

      STATE AND LOCAL EFFORTS
      REFLECT SIMILAR CONCERNS;
      APPROACHES TO RESOLVING THEM
      VARY
---------------------------------------------------------- Letter :4.1

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

         COVERAGE
-------------------------------------------------------- Letter :4.1.1

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

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

Additionally, coordinating the differing requirements of Medicaid and
IDEA can be challenging.  For example, required qualifications for
Medicaid providers may be higher than the standards of local school
districts, thus limiting the reimbursement that can be obtained under
Medicaid.  For instance, in Maine, Medicaid requires licensure for
speech/language pathologists, a higher standard than the
certification that schools require.  One state education official
told us that Maine is currently attempting to pursue licensure for
all speech/language pathologists so that schools can receive Medicaid
reimbursement for this service.  A second issue involving differing
program requirements that is echoed by state and local officials is
the inherent conflict between Medicaid's need for a diagnosis and a
school's preference to discuss a child's needs and develop an IEP
without specifically labeling the child.  In one Florida school
district, local officials told us they have resolved this issue by
having the school therapist contact the child's primary care
physician, who then identifies the appropriate diagnostic code(s). 

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

         ELIGIBILITY
-------------------------------------------------------- Letter :4.1.2

Identifying children who are Medicaid-eligible--whether enrolled or
not--is a critical task for schools interested in claiming Medicaid
funding for IDEA-related services.  In addition to the difficulties
faced in identifying children who are eligible but not enrolled in
Medicaid,\21

schools do not always have ready access to information regarding
children already enrolled in Medicaid.  A New York official reported
that ensuring confidentiality--that is, identifying IDEA children who
are also Medicaid-eligible without disclosing medical or educational
information--was initially one of the biggest challenges to
coordinating Medicaid and IDEA.  Federal law prohibits issuing the
names of individuals with disabilities to any noneducational agency
without parental consent, thus making it difficult for schools to
match names of children receiving IEP services with names of Medicaid
enrollees.\22 In light of this requirement, New York developed a
system under which its Department of Health provides a list of
Medicaid-eligible children to the Department of Education for the
purpose of performing matches.\23 Three other states--Illinois,
Michigan, and Texas--also reported using a tape match to identify
IDEA children who are Medicaid-eligible.  A Pennsylvania official
indicated that, while the state has been interested in a tape match,
it is still working to establish a method that is acceptable to state
and HCFA officials. 

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

  -- In Pennsylvania, an official explained that students' claims for
     reimbursement for services must first be rejected by their
     private insurance company before Medicaid can be billed, a
     requirement that delays the reimbursement process. 

  -- South Dakota state agency officials stated that the schools ask
     parents whether the child has third-party insurance.  If the
     child's parents have an outside source of insurance and refuse
     to authorize its use, Medicaid cannot be billed, leaving the
     school obligated to cover the cost. 

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

--------------------
\21 See Medicaid:  Demographics of Nonenrolled Children Suggest State
Outreach Strategies (GAO/HEHS-98-93, Mar.  1998). 

\22 See 42 U.S.C.  1232g(b)(1). 

\23 In this process, New York's Department of Health provides only
the names, dates of birth,and sex of the children eligible for
Medicaid to comply with the privacy laws applicable to the Medicaid
program. 

\24 TPL refers to the legal obligation of certain health care payers
(including private health insurance, Medicare, employment-related
health insurance, and noncustodial parents providing medical support)
to pay the medical claims of Medicaid beneficiaries before Medicaid
pays these claims. 

\25 See 42 U.S.C.  1396a(a)(25). 

\26 IDEA part B funds may be used to pay deductible or copayment
amounts that would be incurred under private or public insurance. 
See Assistance to States, 64 Fed.  Reg.  12,405, 12,430 (1999) (to
be codified at 34 C.F.R.  300.142(e)(2)(ii) and 34 C.F.R. 
300.142(g)(2)).  In the event that state Medicaid programs have
cost-sharing requirements, such as copayments, IDEA-related services
must be provided free of charge to children.  Since traditional
Medicaid does not allow cost sharing for services provided to most
children, such cases are likely to be limited to states with Medicaid
demonstration waivers under which innovative approaches to Medicaid,
such as cost sharing, are tested. 

\27 Medicaid regulations at 42 C.F.R.  433.139 specify that, in
general, if probable TPL is established at the time a claim is filed,
the state Medicaid agency must reject the claim and return it to the
provider for a determination of the amount of liability.  However, if
probable liability is not established or benefits are not available
at the time the claim is filed, the Medicaid agency must pay the full
amount allowed under the payment schedule.  The Medicaid agency must
then seek reimbursement from the liable party unless it determines
the recovery would not be cost-effective. 

         DOCUMENTATION
-------------------------------------------------------- Letter :4.1.3

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

  -- Two states, Vermont and Massachusetts, identified bundled rates
     as a convenient means of reducing documentation.  Bundling rates
     for purposes of billing Medicaid is an approach that combines
     rates for several Medicaid-covered school-based services into a
     single statewide rate.  Hence, rather than submitting claims for
     each service provided to a child--for example, three claims for
     a child who receives physical therapy, occupational therapy, and
     psychological services--a school may file one claim to receive
     compensation for all three services.  Vermont state and local
     school district officials contend that although bundling reduces
     the overall amount of paperwork, documentation requirements
     established by Medicaid are still satisfied.  One Massachusetts
     education agency official reported that the less intensive
     paperwork involved in bundling rates has made it easier for
     smaller schools to participate in claiming Medicaid
     reimbursement.\28

  -- One school district in Florida consolidated information on
     education-related forms that the schools were already using and
     was able to show the state Medicaid agency that the consolidated
     forms provided adequate documentation for claiming Medicaid.  As
     a result, the district has achieved the required accountability
     along with some level of flexibility in how the information
     needed for Medicaid claims is presented. 

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

--------------------
\28 In its May 21, 1999, letter to state Medicaid directors, HCFA
stated that soon it would no longer recognize bundled school-based
health services as acceptable for purposes of claiming Medicaid
federal funds.  Subsequently, a work group was established to review
bundling practices, and HCFA officials told us they plan to report on
the results of this group's work in 2000.  In the meantime, states
with approved bundled rates have been allowed to continue this
approach; however, the letter stated that states are expected to
develop and implement a nonbundled reimbursement methodology within a
reasonable amount of time. 

         ADDITIONAL FEDERAL
         GUIDANCE COULD ASSIST
         COORDINATION EFFORTS
-------------------------------------------------------- Letter :4.1.4

Confusion over proper billing procedures, coupled with a lack of
clear and consistent guidance from the federal government, has been a
challenge to coordination in some states.  Currently, HCFA's main
guidance for claiming Medicaid reimbursement for school-based
services is a technical assistance guide.  The guide provides
information regarding the specific Medicaid requirements associated
with implementing a school health services program and seeking
Medicaid funding for school health services and administrative
activities.\29 However, officials of four states and two HCFA
regional offices with whom we spoke believe that additional guidance
is needed, including the need to identify (1) which services should
be covered by Medicaid and which are educational in nature and (2)
appropriate administrative cost claiming practices.  Discussions with
two Department of Education Regional Resource Center representatives
reiterated states' interest in additional guidance.\30 Additionally,
some Education officials we contacted believed that additional
guidance from HCFA and Education would enhance coordination of
Medicaid and IDEA.\31

HCFA has recognized the need for additional guidance, which it
expects to issue sometime in 2000.  Additionally, HCFA has
established a position to advise the Administrator on disability
policy and to perform other functions, such as facilitating
communication among the Administrator of HCFA; other federal
policymakers, including the Assistant Secretary for Special Education
and Rehabilitation Services; and the disability community.  The
potential for changes in guidance on billing practices and procedures
will heighten the continuing need for additional efforts to
coordinate the Medicaid and IDEA programs.  For example, a state
education official in New York told us that, after the May 21, 1999,
policy changes from HCFA, it took a great deal of work to inform
school districts, claims processors, and providers of the changes
instituted and to train these entities to implement the changes. 
According to some of the state and local officials we contacted, such
changes in reimbursement policies and procedures may also add to
districts' concerns about relying on Medicaid funding.  In fact,
Florida education officials linked their concern to some Florida
districts' decisions not to participate in Medicaid school-based
billing.  Additionally, one New York education official told us that
schools that have been diligent in their Medicaid reimbursement
efforts are particularly afraid of losing Medicaid revenue that has
been built into their budgets.  A Pennsylvania official revealed
related worries, such as the fear of hiring new staff and initiating
programs that are funded by a potentially uncertain financial source. 
Such perceptions, even if of limited validity, may further complicate
and limit coordination between the two programs. 

--------------------
\29 See HCFA, Center for Medicaid and State Operations, Medicaid and
School Health:  A Technical Assistance Guide (Washington, D.C.:  HHS,
Aug.  1997). 

\30 The Regional Resource Centers are funded by the Office of Special
Education Programs and provide technical assistance services to state
education agencies in the 50 states and in seven U.S.  jurisdictions. 
The centers are funded specifically to help states improve programs
and services for children and youth with disabilities, their
families, and the professionals who serve them. 

\31 Absent further federal guidance, one Regional Resource Center has
developed a Medicaid work group aimed at providing the 10 states in
its region with a network of shared information regarding Medicaid
billing in schools.  While only one meeting has been held to date,
center representatives believe that this group will be a valuable
forum for sharing information about claiming Medicaid funding for
school-based and administrative services. 

   CONCLUSIONS
------------------------------------------------------------ Letter :5

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

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

   AGENCY AND OTHER COMMENTS
------------------------------------------------------------ Letter :6

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

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

---------------------------------------------------------- Letter :6.1

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

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

Sincerely yours,

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

(See figure in printed edition.)Appendix
COMMENTS FROM THE HEALTH CARE
FINANCING ADMINISTRATION
============================================================== Letter 

(See figure in printed edition.)

*** End of document. ***