An Illinois federal court upheld CMS' disallowance of claims by the Illinois Medicaid agency for federal matching funds for administrative activities in public schools. The court agreed with the Departmental Appeals Board that the state's claims for enhanced federal financial participation (FFP) included both unallowable expenditures, those that are related to other state programs, and administrative expenditures that did not qualify for the enhanced rate.
School-based administrative services
Two types of Medicaid-related administrative activities performed in public schools may be reimbursed at an enhanced rate: outreach to potential Medicaid beneficiaries and certain administrative tasks performed by skilled professional medical personnel (SPMP) based in the schools. The Individuals with Disabilities Education Act (IDEA) requires states to "child find", to identify and evaluate children with disabilities who may be entitled to services in order to receive a free, appropriate public education. Illinois had claimed Medicaid reimbursement for outreach services performed to identify children with special medical needs. CMS disallowed the outreach expenditures on the ground that the activities were "child find" rather than Medicaid outreach.
The coding dispute
The dispute between CMS and the Illinois Medicaid agency began several years before these disallowances. A 1999 report by the General Accounting Office identified Illinois and Michigan as the two states that accounted for 74 percent of claims for school-based administrative services, which had increased from $82 million to $469 million in four years. CMS issued a claiming guide outlining the school-based activities eligible for Medicaid reimbursement. It also issued a Letter to State Medicaid Directors informing states that enhanced reimbursement was no longer available for administrative activities performed by SPMP in schools because the administrative activities most suited for schools would not require medical expertise, and SPMP were likely to be either providing medical services or implementing programs unrelated to Medicaid.
Illinois submitted its own codes and created its own claiming guide for Medicaid outreach activities. The state defined Medicaid outreach as identifying children with special medical needs; early versions actually used the term "child find," which is associated with IDEA but not Medicaid. CMS disapproved the codes because they captured activities related to IDEA but did not require any consideration of children's financial eligibility for Medicaid. Children's eligibility for Medicaid depends on household income and resources but not on medical condition; child-find activities focus solely on medical conditions, and not at all on household finances. Illinois continued to use the codes and a cost allocation plan that divided responsibility for the activities between IDEA and Medicaid.
With respect to the administrative activities of school-based SPMP, CMS approved claims for services through the end of 2002, but disapproved them for services thereafter in accordance with its letter to state medical directors mentioned above. The DAB accepted position on the outreach activities but rejected CMS' argument that all administrative activities by SPMP could be excluded. Rather, the DAB adopted CMS' fall-back position that the activities were reimbursable to the extent that the individual's medical expertise was necessary to perform the activity effectively.
Excessive costs
The DAB affirmed the disallowance of enhanced FFP for the work of SPMPs on the basis that the state's claims were excessive and not reasonable and necessary for the administration of Medicaid. It found, and the court noted, that expensive testing for medical conditions was performed before the school districts obtained any information about financial eligibility. Because the testing would be available to eligible children under the mandatory early and periodic screening, diagnosis and treatment (EPSDT) benefit, providing it as an administrative activity before eligibility had been determined was not cost-effective, the DAB reasoned and to which the court agreed.
The court also noted that the evidence showed that nationwide, administrative costs, including outreach, hovered around 5 percent of the Medicaid budget. The claims for the disallowed activities made up 11 percent of all services to school-aged children, while the claims for allowable activities accounted for 5.4 percent.
A federal court may overturn DAB's rulings only if it finds them arbitrary, capricious or unsupported by substantial evidence. The state did not met that burden, according to the court.
Source: Illinois Department of Healthcare and Family Services v. Leavitt, N.D. Ill, March 25, 2008.
For more information on this and related topics, consult the CCH® Medicare and Medicaid Guide.
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