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It’s Time to Make Changes to Your State’s School-Based Medicaid Program

Jun 19, 2023

The informational bulletin issued by the Centers for Medicaid and Medicare Services (CMS) in August 2022 has already created a buzz among superintendents, special education directors, and anyone involved with school-based Medicaid. I attended the National Alliance for Medicaid in Education conference in October, and the bulletin was a primary topic of conversation. The bulletin signals a new opportunity to expand eligible services—thus providing more health services to students and contributing to improved outcomes.

Why is it important to amend your state school-based Medicaid plan now?

Each state school-based Medicaid plan outlines the broadest rules that school districts must follow for health services to qualify for reimbursement. Over the years, school-based plan administrators have sometimes been hesitant to amend their state plan for two common reasons:

  1. Once a state plan is created, the terms are guaranteed until the state opens the plan to amend it. If you have a plan that has worked well for years, renegotiation could result in changes to requirements or net reimbursement.
  2. CMS encourages the use of a cost-based program. Many states use a fee-for-service program, which is a familiar model used in most community or clinical settings. Cost-based reimbursement is more complex but more closely aligns the cost of providing services with the reimbursement.

However, the Bipartisan Safer Communities Act, which led to the August guidance, signaled a substantial shift in CMS and the federal government’s approach to school-based Medicaid services. The opinion of CMS has changed from narrowly allowing funding only for special education students to allowing a broader range of health services for all studentsIf you would ever consider changes to your school-based Medicaid program, now is the time.

According to the Individuals with Disabilities Act, children are to receive an education in the least restrictive environment possible. Providing as many health services as possible where children already spend much of their time reduces the potential barriers to that care. The bottom line is that health and educational outcomes can improve for the entire student population when health services are provided in the school setting.

Recent changes and the expansion of eligible health services create a huge opportunity.

How has school-based Medicaid changed?

The “free care” rule

In 1997, CMS released a guide to provide schools and districts with information on using Medicaid funding for school health services. For 18 years, Medicaid could only be billed for health services provided to Medicaid students if the service was included in an Individualized Education Plan (IEP) or if the service was billed through insurance for non-Medicaid students. This was known as the “free care” rule: if a service was provided for free to all students, Medicaid would not accept being billed for students enrolled in Medicaid.

This rule reduced funding and likely reduced access to screenings like vision, hearing, and scoliosis, even though such services were established as a Medicaid benefit in 1967 with the passage of Social Security Act Amendments. Such benefits are collectively known as Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) services.

Individuals with Disabilities Education Act

The Individuals with Disabilities Education Act (IDEA) required Medicaid to update guidance around billing. IDEA specifies that a “free, appropriate public education” must be available to children with disabilities in the U.S. and ensures special education and related services to those children. States are responsible for verifying that children are screened at appropriate intervals and receive medically necessary treatment services.

Under this rule, schools were allowed to bill Medicaid under three conditions:

  1. The student was already enrolled in Medicaid;
  2. The student had an IEP in place; and
  3. The healthcare services were related directly to the IEP.

While an improvement, this version of the “free care” rule limited funding for services provided to many Medicaid-eligible children.

“Free care” policy reversal

In 2014, CMS issued a letter to state Medicaid directors clarifying the services considered to be reimbursable by Medicaid in a school-based setting. This guidance allowed school districts to expand their school-based Medicaid programs to cover more students and potentially bring in additional, sustainable federal funding for states. The “free care” policy reversal letter clarified that schools could seek reimbursement for covered services provided to all students enrolled in Medicaid—not just those with IEPs. This began a monumental shift in the way CMS views school-based health services. It allowed screenings and other medical services to be reimbursable for all Medicaid-eligible students.

How does the Bipartisan Safer Communities Act provide new opportunities for states and school districts?

The Bipartisan Safer Communities Act of 2022 expands eligibility for assessment and evaluation services and screenings, especially regarding behavioral health services. However, states must report data about their EPSDT programs to CMS each year. A 2019 report from the U.S. Government Accountability Office (GAO) revealed that a significant number of Medicaid-covered children still did not receive recommended screening services. The Act, along with guidance from CMS in August 2022, reminded states of their obligations related to providing EPSTD, including mental health and behavioral screenings.

Further, the law requires CMS and the Department of Education to collaborate on creating a technical assistance center related to school-based Medicaid services. This center will focus solely on supporting those state Medicaid agencies, school-based entities, and local educational agencies seeking to establish or increase their capacity for providing school-based Medicaid services.

What’s next for your state school-based Medicaid plan?

The process of updating a school-based Medicaid plan can be difficult and time-consuming; however, there has never been a better time. These recent changes and the expansion of eligible health services create a huge opportunity for states, school districts, and students. CMS will be issuing $50 million in discretionary grant funding to support establishing, developing, and expanding school-based Medicaid services (SBMS).

Moving forward, CMS will issue additional resources and guidance to states for the purpose of supporting school-based Medicaid services. An updated SBMS guide will provide further details regarding Medicaid-covered services in schools, update two existing guidebooks, and address related issues with the CHIP program. The first set of new guidance is expected in the 2nd quarter of 2023

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A Guide to Updating Your State's School-based Medicaid Program

Updating your state school-based Medicaid plan can be a challenging and complex process involving coordination across many agencies and decision-makers.

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Jason Coker

Jason Coker is an Associate Director in the firm’s Assurance group and has over 15 years of experience. 

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