CMS Eliminates Medicaid Reimbursement for School-Based Administrative and Transportation Services

Legal Brief: January 4, 2008

On December 28, 2007, the Centers for Medicare and Medicaid Services (CMS) published in the Federal Register its final rule 2287-F to eliminate Medicaid reimbursement for school-based administrative and transportation services.

Under its terms, the final rule will become effective on February 26, 2008. However, on December 29, 2007, President Bush signed Senate Bill 2499 which, among other things, provides a moratorium precluding CMS from taking any action, including the promulgation or implementation of rules, prior to June, 30, 2008 that would restrict Medicaid payments for school-based administrative and transportation services. The moratorium provides six months within which Congress may review CMS’s rulemaking with regard to final rule 2287-F.

Although Senate Bill 2499 delays implementation of CMS’s final rule 2287-P, the rule’s implementation timeline remains consistent with CMS’s expressed original intent to discontinue Medicaid reimbursement for school-based administrative and transportation services beginning with the first quarter (July through September) of the 2008-09 school year. CMS estimates that this rule will result in a reduction of $635 million in Medicaid payments to school districts during the first year.

In the absence of intervening Congressional or other legal action, CMS will begin to deny Medicaid payments for school-based administrative and transportation services provided on and after July 1, 2008. School districts and other parties interested in retaining Medicaid reimbursement for these services should immediately begin contacting their respective Congressional and other political advocates and legal counsels to develop strategies to continue reimbursement. For instance U.S. Senator Grassley has indicated that the Senate Finance Committee intends to review CMS’s action and interested parties have the opportunity to express
their views to Senator Grassley and the Committee as soon as possible, and interested school districts and others should urge, in person, if feasible, as many Congresspersons as possible to sponsor and pass legislation to protect Medicaid reimbursement by, at the very least, extending the moratorium provided by Senate Bill 2499 beyond June 30, 2008.

Final rule 2287-F was originally proposed by CMS on September 7, 2007 with a public comment period that was open through November 7, 2007. The overwhelming majority of the public comments submitted and posted on the CMS website, expressed strong opposition to the rule.

Some individuals and entities that submitted comments provided details of the extensive efforts and resources expended by school districts in providing Medicaid administrative activities and how these activities benefit students with disabilities, their low-income families and their communities. Some individuals and entities expressed concern that the rule is not consistent current federal Medicaid law as expressed by the U.S. Supreme Court and Congress. Some commenters were concerned that the reduction in Medicaid funding would result in a reduction in school staffing, such as nursing, which would limit the availability of some services
for students with disabilities. Despite such extensive opposition, CMS finalized the rule without modification.

In addition to aggressive coordination with Congressional representatives, school districts and other interested parties may also want to consult with their respective legal counsels to review CMS’s responses to public comments on rule 2287-F, as published in the Federal Register. Legal counsels may wish to assess whether CMS’s rulemaking process was consistent with federal administrative law requirements. For example, legal counsel may consider whether CMS fully reviewed public comments and adequately responded to expressed concerns, such as

• the elimination of Medicaid payments for administrative and transportation services solely because the services are provided by school districts is inconsistent with the U.S. Supreme Court Decision in Bowen v. Massachusetts and Section 1093(c) of the Social Security Act,
• the lack of data or information to support the Secretary’s finding that schoolbased Medicaid administration and transportation services are not necessary for the proper and efficient administration of the Medicaid program could be indicative that the rule is arbitrary and capricious,
• the denial of Medicaid reimbursement for school-based transportation services is discriminatory because such reimbursement is allowable for other transportation service providers, and
• the elimination of Medicaid reimbursement for administrative and transportation services provided by all school districts based on reported negative audit findings in two school-based administrative claiming programs and one school-based transportation billing program is unfair and unreasonable.

Upon review of issues pertinent to CMS’s rulemaking process, school districts and/or their respective legal counsels may wish to share their concerns and questions with Congressional representatives. School districts and other interested parties should also contact various national advocacy groups or entities to ascertain if meetings or strategy sessions are being scheduled to address implementation of final rule 2287-F. Such groups or entities include, but are not limited to:

• The Council of Great City Schools,
• LEAnet, and
• The National Alliance for Medicaid in Education

It is also advisable for a school district to be able to provide clear information about its compliance with current federal and state Medicaid rules for administrative claiming and transportation billing. This can be accomplished through an internal review of procedures, if necessary, including a review of staff training for the administrative time study. This type of compliance information may be useful in responding to CMS’s allegations of widespread Medicaid abuse by school districts.

PCG is in the process of assessing strategies that may, to some degree, mitigate the financial losses school districts will incur if CMS’s final rule 2287-F is implemented.

For further information please contact your local Public Consulting Group representative or:

Patsy Crawford,
Director of Legal Services
Education Services Practice Area
Phone: (312) 425-0550
Email: pcrawford@pcgus.com

* Note: This document is not intended as legal advice and is for informational purposes only.