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Published in Print: April 12, 2000, as Millions for Poor, Disabled Children Misspent, GAO Says

Millions for Poor, Disabled Children Misspent, GAO Says

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A federal report on Medicaid in schools accuses states, districts, and private companies of improperly charging the federal government for hundreds of millions of dollars in payments earmarked for poor, disabled children.

In some cases, the report by the U.S. General Accounting Office concludes, states are keeping up to 85 percent of federal payments intended as reimbursements to school districts for the medically related services they provide. In others, says the report released last week, funds are diverted by private consultants who improperly charge contingency fees equal to as much as one-fourth of the Medicaid money they get for schools.

Such practices are rampant, investigators for the congressional watchdog agency say, because of weak oversight and mixed signals from the federal government.

"No one benefits when Medicaid dollars are used irresponsibly," said U.S. Sen. William V. Roth, the Delaware Republican who chairs the Senate Finance Committee, which called for the report last year. "Children with complicated medical needs depend on the health-care services Medicaid provides."

No 'Rip-Off'?

In all, 47 states and the District of Columbia billed Medicaid for $2.3 billion in school-based expenditures either last year or the year before—a sum that makes up only a small share of total spending on the federal health-care program for the needy.

But federal officials say that amount is growing, as more and more states look to the program as a way to pay for the expensive medical services that federal law requires them to provide so that children with medical problems can attend school. Some districts, such as Houston, also identify children who are eligible and help them enroll.

"States are trying to do the best they can to provide services to a group of children that really need services badly, and for which there is not adequate funding," said Bill East, the executive director of the National Association of State Directors of Special Education, an Alexandria, Va.-based group. "But I would be surprised if states and local school districts were trying to rip off the program.''

For his part, however, Timothy M. Westmoreland, the director of the federal Health Care Financing Administration's center for Medicaid and state operations, said he agreed with the GAO's criticisms of his agency. "We are taking action to address these concerns and prevent improper claims," he told the Senate committee last week. Such steps include clearer guidance and training for states on what acceptable Medicaid costs are.

The job won't be easy. Each state has devised its own Medicaid plan, and the plans vary dramatically. What's more, regional HCFA offices sometimes offer conflicting advice to educators.

"Many states and local districts have resorted to using private billing companies to do the work for them, because the process is so cumbersome and confusing," Mr. East said.

While schools may legally recoup some of the administrative costs they incur for medically related services through Medicaid, contingency fees based on a percentage of total Medicaid payments are not allowed. Those fees typically range from 9 percent to 12 percent, but some firms charge as much as 25 percent.

Meager Reimbursement

In their report, the GAO investigators also criticize the common practice among states of allowing "bundled" payments to schools for a range of services to a single child. They said the practice, intended to give schools flexibility, often results in overcharging or billing for services never provided.

The investigators also contend that unclear guidance from federal Medicaid officials has led to widespread variation among states in billing for transportation costs.

One consequence of the system's problems, the GAO says, is that schools sometimes see very little of the reimbursements for which they apply. For every $100 in services spent on Medicaid-eligible children, the size of the federal payment school districts actually receive ranges from a high of $100 in Minnesota to as little as $7.50 in New Jersey. States keep the rest to cover their own share of Medicaid costs for services provided in schools.

"These funding arrangements can create reduced incentives for appropriate program oversight and an environment for opportunism that drains funds away from intended purposes," the investigative agency concludes.

Vol. 19, Issue 31, Page 11

Web Resources
  • GAO reports are usually available online a few weeks after their release.
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