Medicaid in Schools:

Poor Oversight and Improper Payments Compromise Potential Benefit

T-HEHS/OSI-00-87: Published: Apr 5, 2000. Publicly Released: Apr 5, 2000.

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William J. Scanlon
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Pursuant to a congressional request, GAO discussed the issue of Medicaid expenditures for school-based health services and administrative costs, focusing on the: (1) magnitude of states' claims for school-based health services and administrative activities; (2) appropriateness of the methods used to determine how much Medicaid pays for these services; (3) extent to which school districts directly benefit from federal Medicaid reimbursements; and (4) the adequacy of the Health Care Financing Administration's (HCFA) oversight of school-based claims.

GAO noted that: (1) despite growing expenditures for school-based Medicaid services and activities, the potential benefits to schools and the children they serve are being compromised by poor HCFA guidance and oversight and by improper payments that divert public funding from its intended purpose; (2) in total, 47 states and the District of Columbia have reported $2.3 billion in Medicaid expenditures for school-based activities for the latest year for which they have data; (3) although this spending level reflects a small share of total Medicaid expenditures, more schools are expressing interest in availing themselves of Medicaid as a source of funds, especially to reimburse administrative activities, which creates the potential for continuing expenditure growth; (4) methods used by some school districts and states to claim Medicaid reimbursement for school-based services lack sufficient controls to ensure that these are legitimate claims; (5) bundled payment methods that seven states use to pay for health services have failed in some cases to take into account variations in service needs among children and have often lacked assurances that services paid for were provided; (6) poor guidance and oversight have resulted in improper payments in at least 2 of the 17 states that allowed schools to submit claims for administrative activities costs; (7) despite the significant level of Medicaid payments for school-based services in some states, school districts may receive little in direct reimbursements because of certain funding arrangements among schools, states, and private firms contracting with them; (8) some school districts may pay private firms up to 25 percent of their federal Medicaid reimbursement; (9) private firms often help schools develop claiming methodologies, train school personnel to apply these methods, and submit the claims for reimbursement; (10) as a result of these arrangements, schools may end up with as little as $7.50 for every $100 claimed; (11) these funding arrangements can create reduced incentives for appropriate program oversight and an environment for opportunism that drains funds away from their intended purposes; (12) HCFA has historically provided little or inconsistent direction and oversight of Medicaid reimbursements for school-based claims, which has contributed to the problems GAO identified; and (13) HCFA has recently focused more attention on these issues by reviewing the claims for school-based administrative activities by at least one regional office and developing a draft school-based administrative claiming guide.

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