A recent U.S. Government Accounting Office report on Medicaid and Special Education found that schools have difficulty not only determining which services provided under the Individuals with Disabilities Education Act (IDEA) Medicaid will cover, but also identifying children who are eligible for both programs and managing the documentation required for submitting Medicaid claims. Nearly 6 million of the 48 million students in grades K-12 are in special education programs today.

"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," the GAO report said. "Without clear and consistent federal guidance, state and local entities run a greater risk of misunderstanding and misusing Medicaid as a funding source for school-based services."

Currently, the federal government funds only about 10 percent of the total cost of IDEA, although when the disabilities education legislation was passed in 1975, lawmakers promised that figure would rise to 40 percent. The U.S. Department of Education estimates that federal, state and local governments spent as much as $35 billion on special education programs in the 1995-96 school year, the last year for which figures are available.

In addition to requiring educational services, IDEA also obligates a school district to provide the "related services" that are required to help a child with disabilities benefit from schooling, including transportation, speech-language pathology and audiology services, psychological services, physical and occupational therapy, and social and medical services. A recent U.S. Supreme Court decision in an Iowa case heightened concerns about the cost of implementing IDEA. The court held that under IDEA, the Cedar Rapids school district had to provide a student with nursing services he required during school hours.

Since 1988, Medicaid, a federal-state program that provides medical care for low-income Americans, has been required to reimburse for IDEA-related medically necessary services for eligible children before any IDEA funds are used. In 1997, the U.S. Health Care Financing Administration, which oversees Medicaid, issued its Technical Assistance Guide to assist states in implementing IDEA.

"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," the report said. Many state officials reported it is frequently unclear, for example, whether such services as speech and language therapy are medical or educational.

In addition, the GAO report found that 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."

The report found, for example, that required qualifications for Medicaid providers may be higher than the standards of local school districts, thus limiting the reimbursement that can be obtained from Medicaid.

"We welcome any additional guidelines," said James Murphy, executive director of the New Jersey Association of School Administrators. "Obviously, as superintendents, we like guidelines. We run on codes. We don’t like to guess."

HCFA, in turn, is concerned about rising claims from school districts for administrative costs associated with school-based health services. The GAO report said administrative costs have increased fivefold during the past four years.

George Woons, superintendent of the Kent Intermediate School District in Michigan, said part of the reason is the increase in third-party billings. Michigan schools have contracted their Medicaid processing to the international accounting firm of Deloitte & Touche for several years. "They have a good system of finding the kids and getting the reimbursements," he said. As a result, Michigan received the nation’s highest total in Medicaid reimbursements last fiscal year—$130 million. The billing company took an 11 percent cut, he said. School districts do not have the time, resources, manpower or expertise to develop such a processing system themselves, he added. The federal government, however, "didn’t like the cut Deloitte & Touche were getting. I think that’s what’s behind this whole GAO investigation."

HCFA said it expects to issue the new guidelines sometime this year. Still, HCFA Administrator Nancy-Ann Min DeParle said the agency is "unable to provide strict guidelines to all of the states due to variations among state programs." It is the view of HCFA, she said, that "coordination issues need to be resolved at the state and local levels, rather than federal-state levels."

The report also highlighted procedures a few states have adopted 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. Officials said the less intensive paper work involved has made it easier for smaller schools to seek Medicaid reimbursement.

• One school district in Florida consolidated information on education-related forms that the schools already were using and was able to show the state Medicaid agency that the consolidated forms provided adequate documentation for claiming Medicaid.

• A school district in Vermont currently is operating a pilot program for processing its Medicaid claims and submitting them directly to the state agency’s billing contractor. Previously, the report said, a school would submit claims to the state Department of Education, often waiting up to a year to receive reimbursement.