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Congressional Testimony
April 5, 2000, Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 9634 words
HEADLINE:
TESTIMONY April 05, 2000 KATHRYN G. ALLEN ASSOCIATE DIRECTOR HEALTH FINANCING
AND PUBLIC HEALTH ISSUES SENATE FINANCE MEDICAL PAYMENTS TO
SCHOOLS
BODY:
GAO Testimony United States General
Accounting Office Before the Committee on Finance, U.S. Senate April 5, 2000
Poor Oversight and Improper Payments Compromise Potential Benefit Statement of
Kathryn G. Allen, Associate Director Health Financing and Public Health Issues
and Robert H. Hast, Acting Assistant Comptroller General for Special
Investigations Mr. Chairman and Members of the Committee: We are pleased to be
here today as you address the issue of Medicaid expenditures for school-based
health services and administrative costs. Because Medicaid is a federal- state
partnership, the federal government is responsible for paying a share of costs
incurred by the states to serve Medicaid's 41 million low-income beneficiaries,
including 13 million school-aged children. Medicaid helps finance certain health
services that eligible children, including those with disabilities, receive in
schools, such as diagnostic screening and physical therapy. Medicaid is also
authorized to reimburse schools' costs for performing certain administrative
activities, such as conducting outreach to help enroll children in Medicaid and
providing referrals to qualified providers. In June 1999, we testified before
your Committee about multimillion-dollar increases in Medicaid reimbursements
for administrative activities in 10 states and the need for more federal and
state oversight of these growing expenditures! At that time, we found that weak
and inconsistent control over the review and approval of claims for school-based
administrative activities created an environment in which inappropriate claims
could result in excessive Medicaid reimbursements. You subsequently asked us to
expand our analysis of Medicaid reimbursement of school-based administrative
activities and to examine states' use of "bundled" rates for school-based health
services. 2 Our remarks are based on our report being issued today and will
focus on (1) the magnitude of states' claims for school-based health services
and administrative activities, (2) the appropriateness of the methods used to
determine how much Medicaid pays for these services, (3) the 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.' Our findings are based on a survey of all 50 states and
the District of Columbia; work in 7 states that HCFA identified as paying for
health services using a bundled, rather than a fee-for-service, approach; and
work in 17 state we identified as submitting claims for administrative
activities. We also conducted investigative work in two states where we
identified abusive or potentially fraudulent practices associated with claims
for administrative activities or fee-for-service health payments. In summary,
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. 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. 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. Payment for covered services for
Medicaid-eligible children is not at issue. But 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. For
example: - 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. HCFA last year banned the use of bundled rates because of
concerns about their development and use. However, we believe that it would be
better for HCFA to work with states and schools to build in these missing
assurances rather than to ban the use of bundled rates altogether. - 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. Our work in Michigan alone identified $28 million in federal
reimbursement for improper payments for administrative activity claims over 2
recent years. The lack of effective controls in other. states could allow
comparable improprieties to occur elsewhere. 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.
Seven states retain from 50 to 85 percent of federal reimbursement for Medicaid
school- based claims. In addition, some school districts may pay private firms
up to 25 percent of their federal Medicaid reimbursement. These firms often help
schools develop claiming methodologies, train school personnel to apply these
methods, and submit the claims for reimbursement. As a result of these
arrangements, schools may end up with as little as $7.50 for every $100 claimed.
These funding arrangements can create reduced incentives for appropriate program
oversight and an environment for opportunism that drains funds away from their
intended purposes. HCFA has historically provided little or inconsistent
direction and oversight of Medicaid reimbursements for school-based claims,
which has contributed to the problems we have identified. For example, some HCFA
regional offices allowed payments to be made without approving the methods
proposed by some states to claim reimbursement for administrative activities.
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. However states
are still awaiting further guidance on bundled rates and allowable
transportation costs for children with special needs. We are making
recommendations to the Administrator of HCFA aimed at improving the development
and consistent use of clear policies and appropriate oversight for school- based
Medicaid services. HCFA generally has agreed with our findings and is already
taking steps to respond to these recommendations. We are also making referrals
to the U.S. Attorney's Offices for those instances in which we have uncovered
evidence of inappropriate and potentially fraudulent claims. BACKGROUND Medicaid
is a joint federal-state program that in fiscal year 1998 spent about $177
billion to finance health coverage for 41 million low-income individuals, 13
million of whom were school-aged children. States operate their programs within
broad federal requirements and can elect to cover a range of optional
populations and benefits. Medicaid costs shared by the federal government and
the states fall under one of two categories: medical assistance (or "health
services") and administrative activities. Each state program's federal and state
funding shares of health services payments are determined through a statutory
matching formula. Under this formula, the federal share ranges from 50 to 83
percent, depending on a state's per capita income in relationship to the
national average. The federal share of costs for administrative activities
varies by the type of costs incurred, but most administrative costs are Shared
equally between the federal government and the individual state! Over 95 percent
of Medicaid's $177 billion in total expenditures in fiscal year 1998 was spent
on health services. Schools can help identify, enroll, and provide Medicaid
services to eligible low-income children, and states are authorized to use their
Medicaid programs to help pay for certain health care services delivered to
these children in schools. In addition, Medicaid is authorized to cover health
services provided to Medicaid-eligible children under the Individuals
With Disabilities Education Act (IDEA). in particular, IDEA obligates
schools to identify and provide the "related services" that are required to help
a child with a disability benefit from special education, including
transportation, speech therapy, and physical and occupational therapy. Because
some services required to address the specific needs of a child with a
disability are health-related, Medicaid is an attractive option for funding
health-related IDEA services for Medicaid- eligible children. Commonly provided
school-based health services that qualify for Medicaid reimbursement include
physical, occupational, and speech therapy as well as diagnostic, preventive,
and rehabilitative services. Schools that submit claim to their state Medicaid
agency for reimbursement for health services must meet Medicaid provider
qualifications established by the state and must have a provider agreement with
the state Medicaid agency. Payment rates are established by the state Medicaid
agency and described in a state plan that is approved by HCFA. Although states
have broad discretion in establishing payment rates, they must be reasonable and
sufficient to ensure the provision of quality services and access to care. Until
recently, states have been allowed to develop methods to create bundled payments
for a specified group of services, which in most instances means a fixed payment
for all services a child receives during a set period of time, such as a day or
month. However, in a May 21, 1999, letter to state Medicaid directors, HCFA
prohibited states' use of this approach, having concluded that bundled rate
methodologies do not produce sufficient documentation of accurate and reasonable
payments. HCFA informed states that it would not be considering further
proposals by states to use a bundled rate payment system and directed states
with bundled rates to develop and prospectively implement an alternate
reimbursement methodology. HCFA-expected states to come into compliance with its
May 21, 1999, letter within a reasonable time frame and stated it would consider
taking action if this did not occur. While HCFA expects to issue further
clarification on bundled rates, states with approved bundled rates continue to
use them. Schools may also receive reimbursement for the costs of performing
administrative activities related to Medicaid, such as Medicaid outreach,
application assistance, and coordination and monitoring of health services.
Unlike the requirements for health services claims, a school does not need to
become a qualified Medicaid provider to submit administrative activity claims.
However, there must be (1) either an interagency agreement, or a contract, that
defines the relationship between the state Medicaid agency and the school
district and (2) an acceptable reimbursement methodology for calculating
allowable costs of administrative activities. States must abide by the cost
allocation principles described in Office of Management and Budget Circular
A-87, which requires, among other things, that costs be "necessary and
reasonable" and "allocable' to the Medicaid program. In August 1997, HCFA issued
a technical assistance guide for Medicaid claims for school based services that
provides general guidelines regarding Medicaid reimbursement for the costs of
school health services and administrative activities.' More recently, HCFA s May
21, 1999, letter to state Medicaid directors, in addition to addressing bundled
rates, also attempted to clarify several policies, including payments for
transportation for children with disabilities. The letter stated that HCFA was
in the process of updating its guiding principles related to claims for
school-based administrative activities costs. In February 2000, HCFA issued for
comment a new draft technical assistance guide aimed at clarifying guidance for
submitting school-based administrative claims. MEDICAID SCHOOL-BASED ACTIVITIES
INVOLVE A VARIETY OF PRACTICES ACROSS STATES Schools in 47 states and the
District of Columbia obtain Medicaid payment to some degree for school-based
health services, administrative activities, or both. These payments totaled $2.3
billion for the latest year for which data were available.' Medicaid payments to
schools ranged from a high of $820 per Medicaid- eligible child in Maryland to
about 5 cents per Medicaid-eligible child in Mississippi. Figure 1 shows the 19
states, and the District of Columbia, with the highest average expenditures per
Medicaid-eligible child for school-based services. (App. I provides more detail
on school-based claims for all states.) Figure 1: Highest Average Claims Per
Medicaid-Eligible Child (19 States and the District of Columbia) The majority of
Medicaid payments,-about $1.6 billion-were for health services provided by
schools in 45 states and the District of Columbia, and about $712 million were
for administrative activities billed by schools in 17 states. Although schools
in 17 states submit claims for reimbursement of Medicaid-related administrative
activities, 2 states-Michigan and Illinois-accounted for 74 percent of all -
school-based administrative activity payments. (See fig. 2.) Figure 2: $2.3
Billion Claimed for School-Based Medicaid Reimbursement The school-based
administrative claims of a few states have grown rapidly and now constitute a
significant share of these states' total administrative costs for all Medicaid
program activities. For example, school-based claims represented 47 percent and
46 percent of total Medicaid administrative claims for Michigan and Illinois,
respectively. Other states-Alaska, Arizona, and Washington-had school-based
claims representing about 20 percent of their total Medicaid administrative
expenditures. (See table 1.) Alaska, Illinois, Michigan, and Minnesota each
showed average annual growth rates for school-based administrative expenditures
that were at least twice as high as the growth rate of other Medicaid
administrative expenditures. Table 1: States Medicaid School-Based
Administrative Claims as a Percentage of Total Medicaid Medicaid Administrative
Expenditures. Table 1 found on hardcopy Note: States provided administrative
claims data for school-based services from the most recent. fiscal year for
which data were available. Most states provided data from the year ending June
30, 1999, while two states provided data from calendar year 1998, two states
provided federal fiscal year 1998 data, and three states provided data from
state fiscal year 1998 (July 1, 1997-June 30, 1998). States provided total
Medicaid administrative expenditures for the same period as for the school-based
administrative claims data- b. Washington provided school-based administrative
claims data for the year ending August 31, 1999, and total Medicaid
administrative expenditures for federal fiscal year 1999 (October 1,
1998-September 30, 1999). c. Massachusetts provided 6 months of school-based
administrative claims data, which we extrapolated to reflect a full year of
claims. Source: State-reported claims data. CERTAIN METHODS USED TO CLAIM
MEDICAID REIMBURSEMENT LACK SUFFICIENT CONTROLS Some methods used to claim
Medicaid reimbursement do not adequately ensure that health services are
provided or that administrative activity costs are properly identified and
reimbursed. Bundled payment methods used to claim Medicaid reimbursement may
lack sufficient controls to ensure that health services paid for are actually
provided and may not differentiate levels of need among children. In addition,
our investigation of fee- for-service payments for health services in one state
also identified inappropriate practices that resulted in improper payments by
Medicaid. Similarly, poor controls over what constitutes an allowable
administrative activity have resulted in millions of dollars of improper
Medicaid reimbursements. Some States Bundled Payment Methods for Health Services
Lack Sufficient Accountability Bundled payments are somewhat comparable to
capitation payments in a managed care setting, in that a school district
receives a single payment for all the covered services a child needs during a
specified period, such as a day or month." HCFA began to allow states to develop
bundled payment approaches in an attempt to simplify schools' reporting
requirements under Medicaid. When appropriately used, bundled rates can help
limit Medicaid costs by creating the incentive to provide needed services more
efficiently. Under a bundled approach, however, costs can also be limited by
neglecting to provide all needed services or by compromising the quality of
individual services provided. In some cases, such a payment approach can also
create an incentive for schools to change what services children receive or
where they receive them to increase schools' reimbursement. The seven states
that used bundled rate payments for health services account for 12 percent of
total health services claims in schools. These states' rates vary in the extent
to which they differentiate levels of need among children, ensure that services
paid for are provided, or both. (See table 2.) Table 2: Approaches to
School-Based Payments in Seven States Using Bundled Rates a. States may exclude
certain services, such as development and evaluation of the individualized plan
of a child with a disability; the receipt of Early and Periodic Screening,
Diagnostic, and Treatment services; and provision of medical equipment, from
their bundled rates and separately claim Medicaid reimbursement for these
services. b. For all but one state, the rates are -current and are rounded to
the nearest dollar. The rates listed for Vermont are from the 1998-99 school
year. Vermont's rates have historically been adjusted annually for salary
increases. Source: State Medicaid agencies. States do not always adjust bundled
rate payments for children with different medical needs. For example,
Connecticut pays the same bundled rate to all participating schools for each
eligible child, regardless of whether that child has a mild learning disability
or multiple physical and cognitive disabilities. The single rate may not cover
the full costs incurred by schools that have a disproportionate number of
children whose services cost more, which may affect schools' ability to provide
necessary services. Conversely, other schools may be paid an amount higher than
their actual costs. In Massachusetts and New Jersey, the payment levels vary
depending on the location of the child, such as the classroom type or school in
which a child is enrolled, and not necessarily on the number or scope of
services provided. To a greater extent, the bundled rates in Kansas, Maine, and
Vermont vary among children with different levels of need and are thus aligned
more closely to the expected costs of services for specified groups of children.
For example, schools in Kansas and Maine receive the same payment amount for all
children with specified disabilities, such as autism or mental retardation.
Vermont does not distinguish among types of disabilities but does have four
different levels of reimbursement, which vary depending on the number of
services a child actually receives! In addition, states bundled approaches may
not provide adequate assurance that services paid for are actually provided.
Payments in Kansas, Massachusetts, Maine, and Utah are not specifically linked
to the receipt of services because reimbursement is triggered simply by school
attendance. Participating schools in these states are paid the bundled rate for
each eligible child, irrespective of whether the child has received any
services. Better assurances that services are actually provided to eligible
children exist in Connecticut, New Jersey, and Vermont. Schools in Connecticut
and New Jersey must document services provided to each child to obtain the full
bundled payment. In Vermont, case managers complete for each child a
level-of-care form that describes the amount and scope of services provided,
which determines which one of four payment levels the school receives.
Investigation Identified Improper Fee-for-Service Health Claims Our
investigation into fee-for-service school-based health services identified
certain examples of inappropriate health services claims. Our investigation of
practices in one fee-for-service state revealed that schools were submitting and
the state was paying transportation claims for all Medicaid children who had
received a Medicaid health service at school, without verifying that the child
had used school bus transportation. Our investigation further identified
instances in which the transportation services for which the state submitted
claims were not provided, resulting in improper Medicaid reimbursements.
Medicaid was also inappropriately billed for health services in two states,
where some group therapy sessions were billed as individual therapy sessions,
resulting in a higher payment for the schools. "Schools are reimbursed a lower
amount for children in level one, who receive fewer than 6 units of service a
week, than for those in level three, who receive from 12 to 24 units of service
a week Vermont' s approach also recognizes differences in the costs of services
provided by aides and professionals. For example, 1 hour of individual therapy
provided by a certified physical therapist is equal to three units of service,
while an hour of therapy provided by an aide equals one unit. For Administrative
Activity Claims, Poor Controls Have Resulted in Improper Reimbursement With
regard to administrative activities, poor controls have resulted in improper
payments in at least 2 of the 17 states that allowed. schools to claim such
costs, and the similar lack of effective controls in other states could allow
comparable improprieties to occur. - In Michigan, the HCFA Chicago regional
office questioned $30 moon in administrative claims for activities not clearly
related to Medicaid, for the quarter ending September 1998. School staff
interviewed by HCFA revealed that activities they performed, related to- general
health screenings, family communications, or training, had no Medicaid component
or benefit, although a portion of staff time was claimed and reimbursed as such.
The HCFA regional office subsequently deferred a $33 million claim made for the
quarter ending September 1999, again asking the state to better document that
the activities were clearly linked to Medicaid. We identified similar practices
for submitting administrative claims in as many as seven other states. - Our
investigation and HCFA scrutiny of claims in Michigan and Illinois identified
administrative cost claims, submitted and paid, for activities performed for the
benefit of non-Medicaid-eligible children, including administrative costs
related to health reviews and evaluations that specifically excluded
Medicaid-eligible children for whom separate claims were submitted as direct
services. Our work in Michigan alone identified $28 million in federal
reimbursement for improper payments for administrative activity claims over 2
recent years. - In Illinois and Michigan, on the advice of private firms, school
districts have submitted claims that inadequately document the need to have
skilled medical personnel involved in certain administrative activities. When
such personnel are involved, the federal government reimburses schools 75
percent rather than 50 percent for the administrative activities they perform.'
For recent school-based administrative activity claims in Illinois, activities
performed by skilled medical personnel totaled $16.6 million, or 37 percent of
the state's total claims, for one quarter for participating school districts."
In Michigan, this type of claim totaled $14 million, or 25 percent of its total
administrative activity for all participating school districts, for the quarter
ending September 1998. IN SOME STATES, SCHOOLS RECEIVE A SMALL PORTION OF
MEDICAID REIMBURSEMENT Funding arrangements among schools, states, and private
firms can significantly reduce. the amount of federal dollars that schools
receive for Medicaid- related services and activities. As a result of these
arrangements, a school can receive as little as $7.50 for every $100 it spends
to pay for services and activities for Medicaid-eligible children. In addition,
these arrangements may create adverse incentives for program oversight Rather
than fully reimbursing schools for their Medicaid-related costs, eighteen states
retain from 1 to 85 percent of federal Medicaid reimbursements (see table 3).
According to several state officials, because states fund a portion of local
education activities, Medicaid services provided by schools are partially funded
by the state. Under this reasoning, some states believe they should receive a
share of the federal reimbursements claimed by school districts. However, it is
not clear that state, rather than local, finds support the Medicaid-reimbursable
services as opposed to other educational activities that the states fund.
Moreover, we believe that such a practice severs the direct link between
Medicaid payment and services delivered, increases the potential for the
diversion of Medicaid funds to purposes other than those intended, and is
inconsistent with the program's fundamental tenet that federal dollars are
provided to match state or local dollars to provide services to eligible
individuals. Table 3: Federal Medicaid Reimbursement Retained by States a.
States provided school-based claims data for the most recent fiscal year for
which they were available, which for approximately half the states was state
fiscal year 1999. Most of the remaining states provided data for state fiscal
year 1998, federal fiscal year 1998, or calendar year 1998; three states
provided data from before July 1, 1997. b. This state does not claim
reimbursement for this type of school-based activity. c. Washington retains at
least 50 percent of federally reimbursed funds but can retain a higher
percentage depending on whether the school district is "fully participating" in
billing Medicaid for school-based services. d. When total Medicaid payments to
an Illinois school district exceed $1 million in a year, 10 percent of the
portion exceeding $1 million is retained for the state's general revenue fund.
According to the state, 22 of its 900 school districts received more than $1
million. Source: State-reported data. In addition, some school districts pay
private firms fees ranging from 3 to 25 percent of the federal reimbursement
amount claimed, with fees most commonly ranging from 9 to. 12 percent. These
firms are usually hired to assist with administrative cost claims, generally
designing the methods used to make these claims, training school personnel to
ply these methods, and submitting administrative claims to state Medicaid
agencies to obtain the federal reimbursement that provides the basis for their
fees. Finally, school districts' funds often are used to supply the state's
share of Medicaid funding for school-based claims." In these cases, the maximum
additional funding that a school district can receive is what the federal
government contributes. This is substantially less than what a private sector
Medicaid provider would receive for delivering similar services. For example, a
physician who submits a claim with an allowable amount of $ 100 will receive
LOAD-DATE: April 10, 2000, Monday
