Chairman Roth, Senator Moynihan, and Members of the Finance Committee:
Thank you for inviting our company, MAXIMUS, to testify this morning. We have been asked to comment on how you might ensure appropriate use of the Medicaid program as a source of funding for school health services. MAXIMUS has assisted over 25 states with the claiming of federal revenue. Our work for a number of states, including Maine, Kansas, Arkansas, and others has included implementing or expanding Medicaid billing by school districts and education agencies. So, we bring this experience to the discussion.
MAXIMUS is aware of the concerns raised about the way Medicaid funding is being drawn down by schools and about the participation of private vendors in the process. My comments today will focus on: 1) the most critical issues in determining appropriate federal action in this area; and 2) the most important measures for ensuring that Medicaid is used properly and that vendors participate properly in Medicaid school billing initiatives.
Before I begin my discussion of key issues and possible solutions, though, I would like to spend just a moment summarizing the basis for Medicaid billing of school services and what we believe should be the objectives of any Medicaid billing approach developed for schools.
MEDICAID IS AN APPROPRIATE SOURCE OF FUNDING
FOR SCHOOL-BASED HEALTH SERVICES
As I am sure many members of the Committee are aware, schools provide a broad range of medical and health-related services that are covered by the Medicaid program, and schools also are important providers of Medicaid outreach and enrollment support services in many states. Although historically Medicaid funding of school health-related costs was fairly limited, the Medicare Catastrophic Coverage Act of 1988 established the obligation of Medicaid -- rather than education agencies -- to pay for medical services needed as part of an individualized education plan for Medicaid-enrolled children in special education.
This expansion in the role of Medicaid led to a surge of interest among states and school districts in developing and implementing Medicaid billing programs. As we have heard from the GAO and others, virtually all states are involved to some degree in recovering Medicaid funding for health-related school expenditures and this funding has allowed many school districts to expand the services they provide to students.
TWO OVERALL OBJECTIVES SHOULD SHAPE
ANY MEDICAID BILLING APPROACH SET FORTH FOR SCHOOLS
Given the clear propriety of schools drawing on Medicaid funding and the clear interest of school districts in supporting the delivery of health and health-related services with federal Medicaid funds, the question becomes not whether school Medicaid billing is allowable and desirable, but how that billing is to be carried out. In our school billing work for states, we have kept two overall objectives in mind.
1. One is that only reasonable costs fairly attributed to the Medicaid program should be included in Medicaid reimbursement rates or administrative payments, and no costs should be counted twice.
2. The other is that Medicaid direct billing and administrative claiming requirements for schools should be reasonable and workable for school districts of all sizes and levels of relative affluence.
These goals reflect the tension that exists between safeguarding the use of Medicaid funds through stringent rules and oversight activities, and keeping Medicaid participation feasible for most school districts. In our experience, it is possible to structure and operate programs that reflect these goals and support the recovery of appropriate costs from the Medicaid program.
FOUR MAJOR CONCERNS REGARDING THE USE OF MEDICAID BY SCHOOLS
Our involvement in Medicaid school billing has made us aware of four major concerns that have been raised by the GAO or others regarding the use of Medicaid to fund school health costs:
1. the use of bundled rates for direct service billing, which may result in payment for services never delivered;
2. Medicaid administrative claims that have been inflated with inappropriate costs by school districts;
3. contingency fee arrangements with private vendors, which may create an incentive to improperly increase billing or claim levels; and shortcomings in HCFA guidance in the area of Medicaid school billing and claiming.
I have comments to offer regarding each of these concerns.
CONCERN THAT BUNDLED RATES RESULT
IN PAYMENT FOR SERVICES NOT DELIVERED
As you know, a "bundled rate" is a single payment rate that reflects the average cost of a group of services. The bundled rate might, for example, cover the cost of the physical therapy, nursing services, and rehabilitative aide services typically provided to a child with a certain type of disability. The average annual cost of the bundled services for such a child would be translated into a cost per contact or a cost per day. Concern has been expressed that bundled rates may result in payment being made for services that are not necessarily provided. We believe there is nothing inherently wrong with bundled rates, but that rate bundling approaches should have certain characteristics in order to ensure that the payment reflects the cost of services actually delivered.
Medicaid Programs Average Costs
In Setting Rates for Many Types of Services
State Medicaid agencies currently pay providers for services through a variety of methodologies. These range from prepaid, capitated payments for HMOs, to per diem payments for hospital care; to per month payments for case management; to per visit payments for clinic services; and to per unit payments for therapy services. All of these forms of payment reflect an averaging of costs to one degree or another in determining what the payment amount should be. This averaging of costs has developed because of the virtual impossibility of identifying and tracking the actual cost of each minute of service provided to a given patient by a given provider on an ongoing basis. The per contact bundled rate that New Jersey and several other states use in billing school services is similar to the per visit or per encounter rates widely used by Medicaid to reimburse health clinics.
Real Issue is the Need for Rigorous Rate Development and Reconciliation Methodologies
We agree that there may be some basis for concern about bundled Medicaid payments for schools as they have been structured in some states, but believe that the problems can be addressed and states still be allowed to use bundled rate methodologies. We have developed four requirements that can be applied to bundled rate methodologies to ensure that payments made reflect proper costs for services actually delivered.
1. The costs included in the service rates and any statistical sampling or other methodology used to establish rates must have been rigorously reviewed and validated.
2. The method for identifying Medicaid-enrolled service recipients must have been reviewed and determined to yield accurate results.
3. Steps must have been taken to ensure that schools maintain adequate documentation regarding the cost of services and the delivery of services over time.
4. The methodology must provide for some type of cost reconciliation to be carried out in order to validate the projections that were made about service cost and service delivery at the time rates were set, and for any appropriate adjustments to payments that may be indicated as a result.
With respect to the fourth criteria, the periodic reconciliation of projected costs and utilization to actual costs and utilization, I would urge that the reconciliation be allowed to be carried out at the school district level, as opposed to the individual child level. If you require reconciliation at the level of the individual student, you will impose a significant administrative burden on each school and the staff of that school. Moreover, there is no precedent of which I am aware for Medicaid to require any other health provider to document the precise, actual cost of delivering each individual service to each individual patient.
CONCERN THAT MEDICAID ADMINISTRATIVE CLAIMS BY SCHOOLS
HAVE BEEN INFLATED WITH INAPPROPRIATE COSTS
We understand that the GAO and others have found instances of school districts submitting administrative claims with inappropriate costs. The types of problems identified include:
1. the same staff being counted twice -- once in setting direct service reimbursement rates and again in calculating administrative service claims;
2. including the costs of staff for whom Medicaid reimbursability is questionable;
3. including costs already covered by other types of federal funding, and
4. using time sampling methods that may not be generating fair results as to the proportion of staff time being spent on Medicaid administrative activities.
We would add to this list our suspicion that the training of school staff members who provide the information used to develop the administrative claim is inadequate in many instances and not well-maintained over time. Nevertheless, we believe each of these problems can be addressed with reasonable measures.
Best Federal Response is to Address the Individual Problems Rather Than End Administrative Claiming by Schools
There are four specific actions that can be taken to remedy the various shortcomings that have been found in school administrative claiming programs and to ensure that only appropriate claims are paid by Medicaid.
1. First, develop and mandate the use of a rigorous review protocol by state and federal Medicaid staff who evaluate the design and structure of school administrative claiming programs. It should be quite possible to provide for careful assessment of the areas most likely to be structured incorrectly, without dictating the use of one particular program design that may not work well for many states or school districts.
2. Second, enforce federal Office of Management and Budget Circular A-87 standards for time sampling of staff, as a way to ensure fair and accurate results as to the amount of time school staff spend on Medicaid reimbursable activities. HCFA already has proposed that this be done in the draft manual it prepared on school administrative claiming.
3. Third, state Medicaid agencies should require comprehensive and ongoing training for school district personnel who must provide information that drives the amount of the administrative claim. These would include not only school financial officers but all staff who participate in time sampling activities.
4. Fourth, encourage ongoing monitoring by state Medicaid agencies of continued use of contingency fee contracts to help such school districts.
Banning Contingency Fee Contracts Will Not Prevent Firms From
Obtaining High Profits and Will Harm Smaller or Poorer School Districts
We believe that banning contingency fee contracts will not eliminate the potential for vendors to profit from Medicaid billing work. Fixed fee contracts can be set at inappropriate amounts relative to the vendor’s cost of doing the work, just as contingency fee contracts can be set at inappropriate rates relative to a vendor’s cost and risks.
Banning contingency fee arrangements, though, will unquestionably harm smaller or poorer school districts that do not have the up-front resources to devote to fixed fee contracts. By eliminating the need for such school districts to invest their limited funds in efforts to establish Medicaid billing -- which may or may not ultimately be successful -- contingency fee contracts provide a way for the schools that most need the additional revenue to participate in the Medicaid program.
Safeguards Can Be Put Into Place to Protect
School Districts and Taxpayers from Unscrupulous Vendors
Several steps can be taken to achieve the goal of fair and appropriate vendor payment without banning contingency fee contracting and creating a further disadvantage for small or poor school districts.
1. Require that any contingency fee contract for Medicaid recovery assistance be competitively procured.
2. Require that bidding firms disclose the contingency fees they have charged other school clients for comparable work.
3. Limit the duration of contingency fee contracts to two years, plus a single option year at the same terms and conditions as the original contract.
4. Require that contingency fee vendors commit to providing the necessary software and training to school districts that want to assume responsibility for billing activities at the end of the vendor’s contract.
5. Require that all vendors – whether paid by a contingency fee or a fixed fee -- provide their school billing clients with full documentation of the billings or claims submitted for Medicaid payment.
6. Require that all vendors -- whether paid by a contingency fee or fixed fee -- commit to supporting the school billing client in any audit or disallowance action by state or federal Medicaid officials related to the work they performed.
An additional measure to consider would be establishing an upper limit on contingency fee rates. This could harm smaller school districts, though, and should not be necessary if competitive bidding and disclosure of contingency fee rates charged elsewhere are required in procuring school Medicaid billing services.
CONCERN THAT HCFA HAS NOT MET ITS OBLIGATIONS
IN THE AREA OF SCHOOL MEDICAID BILLING WELL
There has been some criticism by GAO and others of how HCFA has responded to state and school district interest in Medicaid billing of school health costs. We have a few observations to offer on this issue, based on our efforts over the last several years to help states establish Medicaid billing for school services.
HCFA’s Responses in the Area of School Billing Suggest a Lack of
Internal Consensus and Have Resulted in Inequitable Treatment of States
We have experienced two types of problems dealing with HCFA in our efforts to help states establish or revise their school billing programs, both of which suggest that HCFA has not developed an internal consensus on appropriate policies and requirements for school programs.
1. The first problem is where one HCFA regional office has applied Medicaid policies related to service coverage, ratesetting, or other parts of the program differently than those policies have been applied by other HCFA regional offices.
2. The second problem, which has been even more frustrating, is where a HCFA regional office has effectively refused to make a decision at all regarding the acceptability of proposed state practices. Moreover, these regional offices generally have not been able to tell our state clients the steps that could be taken to obtain approval. Our impression is that some regional office staff have not felt empowered to have an opinion, and so have elected to do nothing and leave the states in limbo.
The net effect of these problems is that some states have been able to put comprehensive Medicaid billing programs into place and obtain substantial amounts of federal funding, while others have been stymied in their efforts by an either the inability or unwillingness of a HCFA regional office to respond. This inequitable treatment of states should not be allowed to continue.
There Are Reasonable Ways to Improve Both HCFA’s
Treatment of States and Its Oversight of Federal Medicaid Funds
We have several suggestions regarding how HCFA can better meet its obligations to states -- and strengthen its oversight role, if that is determined to be necessary.
1. HCFA could renew and revamp its efforts to provide comprehensive, workable guidelines for developing and operating Medicaid service billing and administrative claiming programs for schools. To ensure that the resulting guidelines are both fair and reasonable for school districts to live by, it seems critical that HCFA involve school financial officers; consultants who have worked at the detailed level to develop such programs for states; and others with an in-depth understanding of the various ways in which school administration, financing, and service delivery is structured across the country.
2. HCFA should be consistent in its interpretation and application of Medicaid policy across the country. Perhaps requiring that regional offices consult with HCFA Central Office on certain topics for which policy is still evolving would help ensure more consistency from region to region.
3. All HCFA regional offices could be required to grant state requests for informal, "working feedback" as they develop new or expanded school billing programs rather than declining to comment prior to formal submission of a Medicaid state plan amendment. This would save both state and federal time and also help identify areas in which federal policy development may be needed early in the process.
4. HCFA could be required to make decisions on proposed state Medicaid plan amendments in a timely manner, without resorting to denials of amendments simply because it is not sure what the policy in a particular area should be.
5. HCFA could develop specialized audit protocols for state and federal Medicaid staff to use in reviewing service billing and administrative claims for school services.
6. HCFA could conduct a study of school services costs and reimbursement rates across the country with the goal of identifying appropriate upper limits for various types of rates.
SUMMARY REMARKS
In closing, Mr. Chairman, I encourage the Committee to carefully consider the effect of any federal action in this area on school districts’ ability to draw down much-needed Medicaid funding. Reasonable measures can be taken to address the various concerns that have been raised about school Medicaid billing and claiming. But it will be important not to impose more restrictions or requirements than are actually necessary, because those requirements could make it impossible for many school districts to participate in Medicaid school billing.
Thank you for your time today. I am happy to respond to any questions that Committee members may have at this time.