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Special Educators' Use of Medicaid Is Under Attack

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The Reagan Administration is fighting a landmark federal appeals-court decision that allows education agencies to bill the Medicaid system for some of the "medically related'' services provided to handicapped students.

Lawyers for the Justice Department filed a petition on May 14 asking the U.S. Court of Appeals for the First Circuit to reconsider its decision in Commonwealth of Massachusetts v. Secretary of Health and Human Services.

Though the decision specifically addressed Medicaid charges for services to mentally retarded students in Massachusetts institutions, special-education advocates said last week that millions of dollars nationwide are ultimately at stake in the prolonged court battle.

"This is one of the biggest issues we will face all year,'' said Sharon Walsh, a spokesman for the National Association of State Directors of Special Education.

The closely watched case is especially timely, according to those in the field, because it follows the passage last fall of the Education of the Handicapped Amendments Act of 1986, P.L. 99-457, which has been viewed by many as a vehicle for settling long-brewing disputes over who pays for what services.

Language included in the new law specifies that a state's duty to educate handicapped children "shall not be construed to permit a state to reduce medical assistance available or to alter eligibility'' under Medicaid.

The law also calls for states to develop "interagency agreements'' for sharing the cost of educating handicapped children.

Special educators contend that the intent of the Congress, in including such language, was to correct a historic imbalance between the federal and state contributions toward providing such educational services. According to the association of special-education directors, the federal government contributed an average of only 9 percent of the states' per-pupil costs for educating the handicapped in 1986.

Federal special-education law, however, authorizes the federal government to pay up to 40 percent. And some have seen the "interagency agreements'' stipulation of P.L. 99-457 as crucial to achieving the larger share, by enabling state education departments to draw on federal payments dispensed through other state agencies.

"Education [in the states] was bearing all of the costs of providing services to these kids,'' said David Rostetter, vice president of the Fund For Equal Access. "If education could tap into Health and Human Services money, it could draw down the costs for health-related support services considerably.''

Growth in the population of "medically fragile'' children who require such services lends added significance to the case, according to experts in the field.

Advances in medical technology, they point out, are enabling children who would not have survived accidents, illnesses, or premature births 25 years ago to lead relatively normal lives and attend school. (See Education Week, March 11, 1987.)

Who Pays

U.S. Secretary of Health and Human Services Otis R. Bowen has consistently maintained that, if medically related services can be provided by someone other than a doctor, and are listed on a child's individualized-education plan, education agencies should bear the cost.

One service at issue in the Massachusetts case, for example, was teaching a mentally retarded child how to eat without breathing in his food--a task that a teacher could undertake.

Several states, including Pennsylvania, Oklahoma, and Utah, have challenged Mr. Bowen's reasoning in "disallowing'' Medicaid payments for such services. But, according to Justice Department officials, the Massachusetts case is the first to reach a federal appellate court.

'A Reagan Nightmare

In that case, which stemmed from a federal audit of the state's Medicaid billings between 1978 and 1982, the court decided in Massachusetts' favor on March 31.

"The Secretary must make an inquiry into the nature of the services,'' the three-judge panel said, "not just into what they are called or who provides them.''

But the judges, claiming that they had no jurisdiction to do so, did not award the state the $11.3 million in disputed Medicaid charges.

Thomas Barnico, the assistant state's attorney, estimated that, if the Reagan Administration continues to challenge the decision, several years could pass before the state is able to collect the contested payments.

"I know the money is important to us,'' he said, "and I think the Secretary also considers it very important.''

"I think it's been identified as a way to contract the federal Medicaid budget, and it's not at all an abstract agreement,'' he said.

Spokesmen on both sides of the case said that federal officials fear the decision will encourage more states to follow Massachusetts' example. Said Mr. Rostetter of the Fund For Equal Access: "This could be a Reagan Administration nightmare.''

In the Administration's petition for a rehearing on the matter, federal officials not only take issue with the court's interpretation of federal special-education law, but claim that it erred by failing "to accord the Secretary the deference to which he was entitled in this important question of statutory interpretation.''

They contend that federal law specifies that the Medicaid system should be the "payor of last resort,'' meaning that other available funding sources--possibly including special-education funds--must be exhausted before Medicaid begins payment.

The appeals court has not yet decided whether to reconsider its decision in light of the Administration's request.

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