Lewin Group Mandated Report To Congress On Four Medicaid Regulations

Mandated Report to Congress:
Analysis of Impacts and Issues Relating to Four Medicaid Regulations
Prepared for: The United States Congress

Under contract to: U.S. Department of Health and Human Services, Centers for Medicare
and Medicaid Services, Contract No. HHSM-500-2005-00024I
Submitted by: The Lewin Group
Date: September 30, 2009

Table of Contents
ACKNOWLEDGEMENTS
I. EXECUTIVE SUMMARY .................................................................................................................. 1

Summary of Findings.............................................................................................................................. 1
Comparisons with Prior Estimates .......................................................................................................... 4
Methodology ........................................................................................................................................... 5
Available Alternatives for Addressing Concerns.................................................................................... 6
Conclusions............................................................................................................................................. 6
II. BACKGROUND AND PURPOSE OF THIS STUDY .................................................................. 8
III. METHODOLOGY............................................................................................................................... 11
A. Research Design.............................................................................................................................. 11
B. Analytical Approach to Determine Prevalence and Assess Impacts............................................... 12
C. Limitations and Barriers to Research Methodology........................................................................ 15
IV. COST LIMIT ........................................................................................................................................ 17

A. Overview and Background.............................................................................................................. 17
B. Prevalence of the Problems ............................................................................................................. 19
C. Strategies States Use to Address these Problems ............................................................................ 23
D. Impact of the Cost Limit Regulation............................................................................................... 24
E. Alternative Ways for CMS to Address the Problems...................................................................... 31
F. Future Considerations ..................................................................................................................... 34
V. GRADUATE MEDICAL EDUCATION (GME) ............................................................................ 35

D. Impact of the GME Regulation ....................................................................................................... 41
F. Future Considerations ..................................................................................................................... 49
VI. REHABILITATIVE SERVICES ........................................................................................................ 50

D. Impact of the Rehabilitative Services Regulation ........................................................................... 59
VII. SCHOOL-BASED SERVICES .......................................................................................................... 72

D. Impact of the School-based Services Regulation ............................................................................ 82
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VIII. PROCESSING MEDICAID CLAIMS THROUGH MMIS ................................................. 95
A. Claims Not Processed through MMIS............................................................................................. 95
B. Why Claims are Not Processed through MMIS .............................................................................. 97
C. Recommendations for Increasing the Percentage of Claims Processed through MMIS ................. 98
IX. CONCLUSION .................................................................................................................................... 99
APPENDICES
Appendix A: Interview Protocol and Data Request

Appendix B: Suggested Data Templates
Appendix C: Additional Details on Fiscal Impact Analysis
LIST OF ACRONYMS
REFERENCES
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Acknowledgements
I would like to thank the many state officials that contributed their time and expertise by
participating in interviews, collecting and submitting data, responding to a variety of follow-up
requests, and reviewing drafts of our analysis. In many instances, these contributions coincided
with particularly difficult and demanding state budget seasons, and our requests for
information often required the time of the same state officials who were busy responding to
these budget challenges. In some cases, state officials were also working under additional
constraints imposed by mandatory furloughs. I would also like to thank staff from the CMS
central and regional offices for their timeliness and responsiveness in responding to our
requests for materials and clarifications.
Finally, I would like to acknowledge the contributors to this report. From The Lewin Group,
Erika Ange, Roshni Arora, Adam Bloomfield, Kavita Choudhry, Tim Engelhardt, Moira Forbes,
Kathi Frese, Thais Gregg, Allison Haley, Amy Herr, Wes Joines, Kathy Kuhmerker, Jennifer
Leone, Karen Linkins, Joshua McFeeters, Lauren Moldawer, Evelyn Murphy, Chris Park, Mary
Pohl, Jim Teisl, Christine Tolleris, Pete Welch, and Terry West all contributed to the data
collection, analysis, and report development. Our project team also included a number of
subject matter experts including Tracy Brunner, Janet Corson, Trudy Fletcher, Peter Harbage,
and Ron Preston.
While our project team did rely upon the accuracy of the data received from the states, any
misinterpretations or errors in calculation in this report are our own. Furthermore, while we
sought information on the intent of the four regulations from CMS staff, we relied upon our
own judgment and interpretation in developing our methodology and estimates. This report
was reviewed for accuracy by individuals on our project team and was submitted to CMS for
their review. Minor technical and copyediting corrections have been made to this version of the
document, which replaces the previous version. Any remaining errors, as well as all
interpretations, subjective judgments, and conclusions, remain the responsibility of The Lewin
Group.
Terry Savela
Project Director
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I. Executive Summary
Beginning in early 2007, the Centers for Medicare and Medicaid Services (CMS) proposed
several regulations affecting Medicaid financing and coverage. Given the controversy
surrounding these rules, Congress took steps to prevent CMS from implementing the regulations
and requested additional analysis on the regulations and their potential impacts. In 2008,
Congress directed the Secretary of Health and Human Services to describe further the problems
that the regulations were intended to address and their impact. Secretary Michael O. Leavitt
submitted that report in December 2008. 1 Congress also directed the Secretary to commission an
independent study on the prevalence of these problems and the potential impacts of four of the
regulations: 2
 Cost Limit for Providers Operated by Units of Government and Provisions to Ensure the
Integrity of Federal-State Partnership (CMS-2258-P) – proposed rule published January 18,
2007
 Graduate Medical Education (CMS-2279-P) – proposed rule published May 23, 2007
 Coverage for Rehabilitative Services (CMS-2261-P) – proposed rule published August 13,
2007
 Elimination of Reimbursement Under Medicaid for School Administration Expenditures and
Costs Related to Transportation of School-Age Children Between Home and School (CMS-
2287-F) – final rule published December 28, 2007, final rule rescinded on June 30, 2009
Following a competitive bidding process, the Department of Health and Human Services
contracted with The Lewin Group to conduct this study. This report describes our findings.
Summary of Findings
Overall, we found that states do in fact have difficulty, in some instances, tracking where their
Medicaid dollars go and the precise purposes to which these dollars are applied, which, in turn,
creates oversight problems with CMS. There is no doubt that many of the issues raised by the
Secretary and addressed in the regulations are ones that require continued focus from CMS and
the states. On the other hand, we found little evidence within the states to substantiate some of
the specific problems expressed by the Secretary in his 2008 report. In addition, many of the
more significant concerns identified in the Secretary’s report arise from fundamental
disagreements about the appropriate scope of Title XIX. In many cases, while we find that a
problem raised by CMS exists in a state, we do not find any indication that the state has acted
inappropriately. Specific findings regarding each regulation are summarized below.
CMS 2258-P, Cost Limit for Providers Operated by Units of Government

The proposed regulation would: clarify that entities involved in financing the non-federal share
of Medicaid payments must be units of government; establish minimum documentation required
to support a certified public expenditure (CPE); limit reimbursement to governmentally-operated
1
Leavitt, Michael O., Secretary of Health and Human Services, “Report to Congress on Medicaid Regulations
under Section 7001(c)(1) of the Supplemental Appropriations Act, 2008.”
2
Section 7001(c)(2) of the Supplemental Appropriations Act, 2008 (SAA, P.L. 110-252)
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health care providers to an amount that does not exceed the provider’s Medicaid cost; and
require that governmentally operated providers retain the full amount of payment for services
covered by the Medicaid State Plan.
We identified a variety of practices used by states for certification of public expenditures and in
at least 17 states these practices do not appear to align with actual costs. We did not identify
states that clearly use tax revenue earmarked for other purposes as non-federal share, nor did we
identify states that used Medicaid funds returned by providers to draw down additional federal
funds or for non-Medicaid purposes. We did identify many states that make Medicaid payments
to governmental providers in excess of their reported Medicaid costs, sometimes to a significant
degree; however, payments to governmental providers above their costs was not a specific
problem cited by the HHS Secretary in the 2008 report and payments above costs are currently
allowed. States indicated that these payments were necessary to support their health care safety
nets.
We estimate that the proposed regulation would potentially cause a nearly $4 billion reduction in
federal financial participation (FFP) in FFY10 and amount to nearly $23 billion from FFY10-14.
We also found that the proposed regulation would have a significant administrative impact on
states as well as providers, primarily due to the requirement to collect cost reports and perform
cost reconciliations for all governmental providers, including non-institutional providers such as
schools, clinics, and transportation providers. Reduced reimbursement and additional
administrative requirements would also likely ultimately impact services to beneficiaries.
CMS-2279-P Graduate Medical Education

The proposed regulation would eliminate all federal payments for Medicaid GME and remove
the Medicare GME payment from the Medicaid upper payment limit (UPL) calculation.
We found 44 states that currently make GME payments through their Medicaid programs. We
assessed the three main problems from the Secretary’s 2008 report: lack of payment
transparency; payments not related to providing services, and lack of evidence of the benefit of
GME programs. We identified lack of payment transparency as the most prevalent problem,
present in more than half of the states. In the majority of states we found that GME payments
were clearly linked to currently active residency programs and those payments were intended to
support these programs. In eight states, we determined that GME payments were not clearly
related to improving Medicaid services.
We estimate a $2.5 billion potential reduction in FFP in FFY10 and more than $14.5 billion from
FFY10-14. While we do not expect a dramatic impact on state administration, the proposed
regulation would result in many states modifying rate setting formulas and UPL calculations as
well as submitting Medicaid State Plan amendments. The proposed regulation would be expected
to have a significant impact on providers due to reductions in payments, which in some cases
would be substantial. Also, because teaching hospitals are often important providers of care to
Medicaid populations, the reduction in funding would likely impact services to beneficiaries as
well.
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CMS-2261-P Coverage for Rehabilitative Services
The proposed regulation would establish regulatory parameters for Medicaid coverage of
rehabilitative services and enact requirements for written rehabilitation plans and other
documentation.
The problems identified by the Secretary’s 2008 report included: (1) covering services that do
not meet CMS’ definition of rehabilitation; (2) “bundling” payment in ways that provide
Medicaid funding for both allowable and non-allowable services; (3) covering services provided
by individuals without appropriate qualifications; (4) failure by providers to maintain proper
documentation for services rendered; and (5) covering services that are “intrinsic elements” of
other government programs. The most prevalent problem, identified in 31 states, is coverage of
services that do not meet CMS’ definition of rehabilitation. The other problems appear to be less
prevalent.
We estimate a reduction in FFP of $55 million for FFY 2010 and $1.2 billion from FFY10-14.
The fiscal impact is mitigated by the fact that we estimate that states would shift approximately
$350 million in FFP in FFY 2010 ($3 billion from FFY10-14) from the rehab option to continue
providing services under alternate Medicaid authority. Because of this potential shift in services,
we estimate that the proposed regulation would lead to major new administrative burdens for
state agencies. Administrative steps to protect FFP would include amending Medicaid State
Plans, developing and implementing new waiver programs, and complying with the ongoing
reporting and quality assurance requirements for other benefit categories.
Because we believe that states could shift many of the affected rehabilitative services to alternate
Medicaid authorities, the impacts on beneficiaries in most states would likely be minimal. In a
small number of states, however, Medicaid beneficiaries with chronic illnesses and disabilities
would lose access to Medicaid-funded services in their communities. Medicaid providers would
experience new administrative requirements in many states. In seven states, providers would lose
revenue ($2.4 billion over five years).
CMS-2287-F, Medicaid Reimbursement for School Administrative Expenditures and Costs

Related to Transportation between Home and School
The regulation would eliminate all federal payments for school-based Medicaid administrative
activities and transportation to and from home to school for children with an individualized
education program (IEP) or an individualized family service plan (IFSP) established under the
Individuals with Disabilities in Education Act (IDEA). CMS published a final rule to rescind
CMS-2287-F on June 30, 2009, to prevent implementation of the rule on July 1, 2009.
We assessed state reimbursement for two areas:
1. Elimination of FFP for school-based transportation between home and school. We

identified 31 states that use Medicaid to cover school-based transportation, of which 29
allow claiming for transportation between home and school. Based on our interviews and
research we only identified one state with billing practices that do not appear to comply
with prior CMS guidance.
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2. Elimination of FFP for administrative activities performed by school personnel or
contractors. We identified 32 states that allow Medicaid administrative claiming (MAC)
for activities performed by school employees or contractors. Of these states, all but five
have received prior approval from CMS for their MAC implementation plan; the five
awaiting CMS approval of their implementation plans, are currently operating their
programs based on the plans submitted to CMS for approval.
Total estimated reduction in FFP was $830 million in FFY 2010 and $4.9 billion from FFY10-
14. Our analysis of the regulation did not show any material impact of this regulation on state
Medicaid program administration among the states that allow claiming for transportation of
school-age children between home and school or the states that participate in administrative
claiming for activities performed by school personnel or contractors. While states may need to
modify their Medicaid State Plans and rules to comply with the regulation, we did not consider
these routine administrative issues as a direct impact. At the same time, many states argued that
eliminating FFP for administrative activities performed by school personnel would pose a
potential conflict with the Early Periodic Screening, Detection, and Treatment (EPSDT)
mandate, would severely restrict the ability of states to meet their responsibility under EPSDT,
and would hamper access to services for school-age children.
The regulation regarding school-based transportation would have no direct impact on

beneficiaries because states must provide children with special education and related services at
public expense, which includes transportation services, to comply with IDEA Free Appropriate
Public Education (FAPE) requirements. We recognized the potential for a direct impact in states
that claim FFP for administrative activities performed by school employees and contractors (e.g.,
reduced enrollment rates of children into Medicaid), but neither we nor states were able to
quantify the impact or the extent to which it is likely to occur. We also anticipate that the loss of
federal funding from MAC would cause some school districts to eliminate school-based
Medicaid administrative activities.
Comparisons with Prior Estimates
Our estimates of the fiscal impacts of the regulations differ from prior estimates including those
from the Office of Management and Budget (OMB), and the House Committee on Oversight and
Government Reform.
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Five-Year Estimates of Federal Savings (FFP) for the Studies Regulations, in Billions
Source Period Cost Limit GME Rehab SBS

3
OMB (2008) FFY09-13 $5.7 $1.8 $2.7 $3.6
House Committee on Oversight and FFY09-13 $21.1 $9.8 $5.2 $3.2
Government Reform (2008) 4
The Lewin Group (2009) FFY10-14 $23.0 $14.5 $1.2 $4.9
There are a variety of explanations for the variance among these projections, including: 5
 Each projection was made at a different point in time and often for different time periods
 We applied a standardized data collection and analysis process for each state
 Our projections assume full compliance with the regulation immediately upon the effective
date, unlike those that phase-in effectiveness
 States have modified their programs across the different measurement periods
 The regulations leave significant room for interpretation which likely resulted in variations
in approach and consistency between and among the estimates
As a result, there is no single “correct” estimate of the ultimate impact of these regulations.
Also, please note that the estimates for each regulation represent the impact of that regulatory
change alone, assuming no other changes. The estimates are not additive due to the interaction of
the four regulations, and adding the projections together would overstate the total expected
impact of the regulations.
Methodology
Our approach to conducting the study consisted primarily of the following steps:
 Reviewing primary source documents, including the proposed regulations, each state’s
Medicaid State Plan, Administrative Claiming Plans, and other related materials
 Interviewing state officials in all 50 states and the District of Columbia
 Collecting Medicaid expenditure and utilization data directly from the states, and
 Applying a consistent set of interpretations and assumptions to assess the prevalence of the
problems described in the Secretary’s 2008 report and the financial and programmatic
impacts on each state
3
Office of Management and Budget, Analytical Perspectives: Budget of the U.S. Government, Fiscal Year 2009,
Table 25-6 (February, 2008).
4
House Committee on Oversight and Government Reform. “The Administration’s Medicaid Regulations: State-
by-State Impacts.” (March, 2008).
5
Further explanations are discussed in each regulation-specific section.
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It is important to note that final interpretation of provisions of the regulation may differ from our
own or the states’ interpretations, and also that state decisions could mitigate the total impact in
many cases (for example, if a state decided to pursue a waiver to provide services otherwise
excluded by the regulation). We were not likely to uncover problems that were not disclosed by
state officials or readily apparent from publically available documentation. A more
comprehensive assessment of prevalence would require detailed on-site audits of each state’s
programs and financing arrangements, which were beyond the scope of this project.
Available Alternatives for Addressing Concerns
Throughout the report we offer a number of alternatives for CMS to consider as it continues to
confront the issues that led to the regulations under review. There are many alternatives,
although no single approach will “solve” every problem—Medicaid is too complex. We also
note that there are challenges associated with making any kind of change; if these regulations are
not implemented as proposed, other guidance may still be necessary, with corresponding
operational and administrative implications. Throughout this report, we try to present
information on the challenges and alternatives available to states and the federal government, to
help policymakers at all levels formulate approaches that are workable, minimize impacts on
providers and beneficiaries, and advance federal policy goals within the context of state program
administration. While CMS may continue to seek regulatory solutions, we offer the following
points to remember:
 The states need ample lead time to prepare for new requirements
 The states need guidance, procedures, and assistance to facilitate compliance
 The diversity among the states and the complexity of the policy considerations would make
incremental steps easier to implement
Conclusions
Based on our analysis, we believe that there is compelling evidence for CMS to move forward
with some of its policy objectives embodied in the four regulations, particularly those that would
support clearer and more consistent claiming across states.
This is an opportune moment to carefully consider the issues addressed by these regulations, as
the federal government contemplates major reforms to the health care system, and as states
struggle to meet growing obligations in the face of a major recession. Each of these four
regulations impacts important components of the health care system. However, some of the
regulatory strategies warrant reconsideration because their impacts would be broader than
articulated by the Secretary or by CMS. For example, physician and paraprofessional workforce
shortages are receiving attention nationally, with strategies and funding mechanisms to expand
medical education under debate. Should Medicaid funding of GME be eliminated (and almost all
states currently paying for GME indicated that the state share of this funding would likely
disappear as well), federal policymakers may be put into the position of finding new funding
mechanisms to replace both the federal and state share of the lost GME payments.
In addition to projecting their impacts, reviewing these four regulations is useful in illuminating
the range of financial, operational, and programmatic challenges faced by CMS and the states as
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they attempt to fund a complex set of services for needy beneficiaries while maintaining program
integrity. States will continue to face significant financial strains in making sure that the most
vulnerable populations are well served, and the arrangements affected by these four regulations
highlight the kinds of problems states are trying to solve.
This report will be followed by a comprehensive report that includes individual state summaries,
describing specific state impacts in more detail. This follow-up report will be delivered to CMS
in Spring 2010.
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II. Background and Purpose of this Study
The basic state-federal structure of the Medicaid program creates inherent tensions. The federal
administrative agency, the Centers for Medicare and Medicaid Services (CMS), is charged with
issuing and interpreting regulations that promote an equitable distribution of federal funds
through a strict interpretation of the federal medical assistance percentages (FMAP) formula and
reasonable interpretations of the intent of statutory language that governs Federal Financial
Participation (FFP) and defines the purposes and due processes of Medicaid. The federal
government favors maximum transparency and fully auditable expenditures, while recognizing
the need for states to structure and fund their programs in a way that best meets the needs of the
state within the parameters established by federal law. However, states have an incentive and an
obligation to state taxpayers to seek as much FFP as possible to support their Medicaid
programs. To further that goal, many states have sought to avail themselves of the flexibility
permitted under reimbursement financing and benefit design rules to maximize their access to
federal funds. States desire flexibility in the design and operation of their programs to meet their
local needs, and have frequently sought both State Plan amendments and waivers to achieve this.
Title XIX of the Social Security Act, the statutory basis for the Medicaid program, requires that
the federal share of Medicaid funds be allocated to states based on states’ expenditures and their
relative economic condition as measured through the FMAP formula. This approach encourages
states to invest in the Medicaid program and helps to ensure that when state expenditures
increase, the federal share increases accordingly. This match-based federal reimbursement
methodology encourages state investment, but also provides an incentive for states to develop
financing methods that maximize the federal match by, for example, moving wholly state-funded
services into Medicaid whenever doing so can arguably meet Medicaid requirements. The
requirements of the Medicaid provisions of the Social Security Act also constrain CMS’ and the
states’ ability to explore innovative provider reimbursement strategies.
Title XIX and its implementing federal regulations also define minimum eligibility and coverage
requirements and specify optional eligibility groups and services that states can choose to cover.
While these rules ensure a consistent minimum level of coverage for low-income beneficiaries
across states, the resulting trade-off is that states that seek to pursue alternate methods to
structure programs in ways that they deem most effective and efficient may be constrained in
their ability to do so, and CMS’ ability to approve alternate approaches is similarly limited by the
framework of the program.
CMS’ concern over several specific Medicaid financing and coverage strategies that appeared to
lead to inappropriate cost shifting from the states to the federal government resulted in CMS’
promulgation of a number of specific regulations in 2007. Following concerns raised by states
and other stakeholders about the potential impacts of these rules on states, Medicaid
beneficiaries, and safety-net providers, Congress imposed multiple moratoria on four of the new
regulations, three proposed and one final, to gather and review more specific information on the
potential impacts. This study was designed to systematically and thoroughly assess the potential
financial and operational impacts of these four regulations on states, evaluate the ability of states
to comply with the information requested, and provide recommendations for how claiming for
the affected items and services can be made more accurate and consistent with the Medicaid
statute. The four regulations addressed in this report are:
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 Cost Limit for Providers Operated by Units of Government and Provisions to Ensure the
Integrity of Federal-State Partnership (CMS-2258-P) – proposed rule published January 18,
2007. This regulation would:
o Clarify what constitutes a “unit of government” for the purposes of supplying the
non-federal share of Medicaid payments
o Establish minimum documentation required to support certified public expenditures
o Limit reimbursement to a governmentally-operated health care provider to an amount
that does not exceed the provider’s Medicaid cost
o Require that providers retain the full amount of Medicaid payment for services
o Make conforming changes to the CHIP regulations
 Graduate Medical Education (GME) (CMS-2279-P) – proposed rule published May 23,
o Eliminate all federal payments to state Medicaid programs for costs associated with
GME
o Remove Medicare direct GME payments from the calculation of the Medicaid
inpatient upper payment limit (UPL) for both teaching and non-teaching private, state
government operated, and non-state government operated facilities
 Coverage for Rehabilitative Services (CMS-2261-P) – proposed rule published August 13,
o Define key terms used to set parameters for coverage of rehabilitative services under
the Medicaid rehabilitation option
o Specify the scope of services, with a key focus on ensuring that all services are being
directed toward specific rehabilitation goals, in written rehabilitation plans
o Exclude Medicaid coverage under the rehabilitation option for services that are
“intrinsic elements” of programs other than Medicaid
o Exclude Medicaid coverage under the rehabilitation option for habilitative services,
including for those states providing day habilitation and related services for people
with mental retardation or with related conditions that were previously protected by
OBRA ’89
 Elimination of Reimbursement Under Medicaid for School Administration Expenditures and
Costs Related to Transportation of School-Age Children Between Home and School (CMS-
2287-F) – final rule published December 28, 2007, rule to rescind the final rule published
June 30, 2009 (CMS-2287-F2). This rule would have:
o Excluded Medicaid coverage for administrative activities (including outreach,
enrollment and support in gaining access to EPSDT services) performed by school
personnel and contractors
o Excluded Medicaid coverage for transportation between home and school for school-
age children receiving services under an Individualized Education Plan (IEP)
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Congress issued various moratoria to preclude CMS from implementing or enforcing any of
these regulations and in the 2009 American Recovery and Reinvestment Act stated that it is now
the “sense of Congress” that the HHS Secretary should not promulgate the regulations
concerning cost limits, GME, and rehabilitative services. 6 On June 30, 2009, HHS rescinded the
final rule regarding school-based services to prevent it from becoming effective on July 1, 2009.
In June 2008, The Supplemental Appropriations Act (PL 110-252) required the HHS Secretary to
produce a report on the problems addressed by the regulations and required CMS to contract for
an independent report to Congress on the prevalence of these problems and the impact of the
regulations. Following a competitive bidding process, HHS selected The Lewin Group to prepare
the report, which must include:
 A description of the prevalence of the problems outlined in the Secretary’s report

 A summary of strategies in existence to address these problems
 An assessment of the impact of each regulation on each state and the District of Columbia
 An assessment of which claims for items and services related to the regulations are not
processed through the states’ MMIS and the reasons for exclusion from MMIS
 Recommendations for actions by the federal government and the states that can make claims
for items and services not processed through MMIS more accurate and complete
This report is intended to fulfill the requirements of Section 7001(c)(2) of SAA, P.L. 110-252.
We will also produce a comprehensive report with additional state-level detail in Spring 2010.
6
The American Recovery and Reinvestment Act of 2009 (ARRA). Section 5003. H.R.1, 111th Congress (2009).
10
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III. Methodology
A. Research Design
Overview
We used several quantitative and qualitative sources to conduct our analysis and prepare this
report. Source materials included:
 The Supplemental Appropriations Act of 2008

 The proposed and (when available) final versions of the four regulations
 The 2008 HHS Secretary’s report to Congress on the four regulations
 Public comments on the regulations
 The U.S. House of Representatives Committee on Oversight and Government Reform’s
March 2008 report “The Administration’s Medicaid Regulations: State-by-State Impacts,”
and individual state responses to the Committee’s request for information
 Medicaid State Plans, 7 draft Medicaid State Plan amendments (when made available to us)
 State-specific provider, billing, and coverage manuals, and other documentation provided by
individual states
Additional research sources included state regulations, state legislation, state school-based
Medicaid administrative claiming methodologies and training materials, policy documentation,
and reports prepared by the U.S. Government Accountability Office (GAO) and HHS Office of
Inspector General (OIG).
Between April and August 2009 we conducted approximately 200 interviews with Medicaid
officials and their representatives, using a standard interview guide and data request for each
regulation under study. We also provided each state with a suggested data template to assist them
in understanding and responding to the data request. See Appendices A and B for the interview
guide and suggested data templates.
We analyzed primary documents, interviews with state officials, and data provided by the states.
We compared this information to the specific problems outlined in the 2008 Secretary’s report,
and determined whether any of the problems articulated by the Secretary, as we interpreted them,
were present. We also determined whether the regulation would result in changes to financing,
services, or program administration, and estimated the impact the regulation would have on each
state.
7
A Medicaid State Plan outlines the design of each state’s Medicaid program to CMS. It includes information
regarding who is eligible for Medicaid benefits, what services are to be covered and how they are to be
reimbursed, and how the administration of the Medicaid program is to be organized. When a state wants to
change any of the Medicaid benefits it offers, or change the way in which services are offered, it must submit a
State Plan amendment for CMS approval.
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The scope of this assessment is limited to that set by Congress: the prevalence of the problems
as outlined in the Secretary’s report. Other potential related “problems” may exist and in some
cases we discuss these without a full assessment of their prevalence.
We estimated the total amount of Medicaid funds and FFP impacted by the regulations, but note
that the net impact on many states will depend on state decisions. For example, a state may
decide to shift coverage of certain services to a waiver program if they are no longer allowed
under the rehabilitation option or a state may ultimately determine that a provider that does not
currently appear to be governmental is, in fact, a “unit of government.” Therefore, the impact
presented should be viewed only as a high-level estimate of potential impact.
Impact Assessments
We estimated the direct impacts of each of the regulations on federal and state Medicaid
expenditures as well as state Medicaid program administration, providers, and beneficiaries
using a consistent methodology for each of the four regulations. When certain aspects of the
regulations were ambiguous, we developed standard assumptions, discussed in the individual
regulation sections, and applied these across states as consistently as possible.
Our analysis focused primarily on the specific issues and potential impacts deriving from the
regulations as written. Secondary impacts, such as provider financial health or consumer access
to care, are discussed qualitatively. These secondary impacts are beyond the scope of the report
to Congress and difficult to objectively quantify; however, we discuss them where appropriate.
We also identified some minor impacts (e.g., the regulation will require minor modification of a
data collection form) that we characterized as routine or immaterial for purposes of this report,
although we recognize that state staff may be impacted.
For our impact assessment and throughout this report, we did not make any determinations about
the legality or validity of any of the regulations and assumed, for purposes of this analysis, that
the regulations would be implemented as proposed.
B. Analytical Approach to Determine Prevalence and Assess Impacts
Defining and identifying the problems
The Supplemental Appropriations Act (PL 110-252) required the HHS Secretary to produce a
report on the problems addressed by the regulations. This report was submitted on December 3,
2008. It must be noted that the problems, in many cases, describe situations permitted in the past
by CMS regional and/or central offices and are documented in CMS-approved Medicaid State
Plans. However, over time CMS became more concerned with certain practices. Critical reviews
by the GAO, OIG, and others led to increased scrutiny through Medicaid State Plan amendment
reviews and ultimately led to the proposed regulations. We highlight the problems cited in
Exhibit 1.
12
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Exhibit 1: Problems Cited by HHS Secretary in the December 2008 Report
Regulation Problems Cited

Cost Limit  State and local governments have used funds returned by health care
providers to help draw down additional federal dollars or for costs
outside the Medicaid program
 The different CPE practices used by states often make it difficult to
align expenditures with services, properly identify actual costs, and
audit and review claims
 Claims have been made based on tax revenues not actually available
for Medicaid purposes
GME  There is no clear statutory authority to pay for GME under Medicaid,
GME is not a health service included in the authorized list of Medicaid
covered services, and such payments are not recognized by Medicaid
statute as an authorized component of the costs of care
 Many state payment methodologies are not “transparent” in that GME
payment amounts often cannot be identified and therefore cannot be
audited to ensure accountability
 There is no indication that payments benefit Medicaid beneficiaries or
strengthen training programs
Rehabilitative  States have covered services that do not meet CMS’ definition of
Services rehabilitation (e.g., recreational and social activities that are not tied to
rehabilitation goals and habilitative, rather than rehabilitative, services)
 States have “bundled” payments in ways that provide Medicaid
funding for both allowable and non-allowable services, including non-
allowable room and board
 States have covered services provided by individuals who do not have
appropriate qualifications to provide the services
 Providers have failed to maintain proper documentation for services
rendered
 States have covered services that are “intrinsic elements” of other
government programs (services that are included in the normal
provision of other programs, such as juvenile justice or foster care)
School-Based  Medicaid payment for school administration shifts costs from
Administrative educational programs to the Medicaid program
Claiming and  Medicaid payment for transportation between home and school shifts
Transportation costs from educational programs to the Medicaid program
 Costs for Medicaid administration in schools have been improperly
billed
 Costs for transportation to and from schools have been improperly
billed
 Costs related to educational mandates have been improperly allocated
to Medicaid
We analyzed information from our primary source research, interviews with state officials, and
data provided by the states to assess whether any of the problems identified in the HHS
Secretary’s report were present within each state. We detail our findings within each regulation
section of the report.
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Methodology for assessing impacts
We assessed impacts of the regulations on state and federal funding, state administration,
Medicaid beneficiaries, and Medicaid providers using both qualitative and quantitative methods.
We developed fiscal impacts for one-year and five-year periods. This report was prepared in the
summer of 2009; therefore, we estimated the one-year impact for FFY10, and the five-year
impact for FFY10 through FFY14. Except in a few circumstances in which a phase-in was
allowed in the proposed regulation, we assumed full implementation of the regulations in
FFY10.
For the FFY10 and the FFY10 through FFY14 estimates of financial impact, we developed a
uniform projection methodology to apply a consistent trend across all states and regulations
based on trends derived from the National Health Expenditures (NHE) Accounts data for
Medicaid released by the CMS Office of the Actuary in 2009. We used the federal medical
assistance percentages (FMAP) published by CMS for all years for which we made estimates,
and did not adjust the FMAP to reflect enhancements resulting from the American Recovery and
Reinvestment Act of 2009 (ARRA). 8 Additional detail on our financial projection methodology
is included in Appendix C.
We used a qualitative approach to assess the administrative impacts for the majority of states.
While states would almost universally experience additional administrative workload as a result
of these regulations (e.g., modifying Medicaid State Plans, regulations, and MMIS), quantifying
the costs associated with these responsibilities is difficult, because many of the tasks would
become part of existing staff responsibilities (at the expense of other tasks and responsibilities, at
a time when many states are losing Medicaid staff). Also, because many of the administrative
processes and changes would be new, states could not provide estimates of what these would
cost. Using estimates from other states that already implemented similar changes (e.g., cost
settling for all governmental providers) would be inadequate because of the great variability of
programs, data collection and analysis tools, and reporting mechanisms among states.
For impacts on Medicaid beneficiaries and providers, we relied on a qualitative approach as well.
We determined which aspects of the regulations, if any, would directly impact beneficiaries and
providers and we identified related concerns expressed by states (e.g., the loss of FFP created by
these regulations might eventually result in reduced services for beneficiaries or the reduction in
provider rates coupled with the increase in administrative requirements might lead providers to
withdraw from the Medicaid program). In most cases, we did not attempt to quantify these
provider or beneficiary impacts.
8
Federal Financial Participation in State Assistance Expenditures; Federal Matching Shares for Medicaid, the
State Children’s Health Insurance Program, and Aid to Needy Aged, Blind, or Disabled Persons for October 1,
2009 Through September 30, 2010. Federal Register: November 26, 2008 (Volume 73, Number 229, Pages
72051-72052).
14
496659 (replaces 493701)

C. Limitations and Barriers to Research Methodology
Because each state operates its own Medicaid program within broad federal guidelines, it is
inherently difficult to assess impacts across states in a systematic fashion. There are several other
limits to our approach, including:
 Lack of clarity in the regulations: Each of the proposed rules contains a considerable
amount of uncertainty regarding the interpretation and applicability of certain provisions.
For example, the limited detail in the proposed GME rule leaves the impact on indirect
GME payments and other cost-based supplemental payments (e.g., disproportionate share
hospital payments, cost reconciliation payments) to providers with teaching programs
difficult to estimate. In the rehabilitative services rule, states had questions about how CMS
would ultimately define habilitation, and in the cost limit rule, there is uncertainty regarding
“unit of government” determinations, allowable costs, and documentation requirements. It
was difficult, therefore, to determine how the regulations would ultimately be interpreted
and implemented. Further, states have historically encountered variation across CMS
regional offices, and sometimes within the CMS central office, in the interpretation of
various regulations and policies.
 Differing baselines across states: For all but the GME proposed regulation, we found that
CMS has been sporadically enforcing aspects of the proposed regulations for several years,
and in some cases, longer. Consequently, states start from different baselines. Some states
have had CMS reviews that led to the states adopting changes that were promulgated in the
regulations. While we show no impact for these states, they have already incurred the
impact.
 Interaction of regulations would further affect impact measurement: The impacts of each of
the four regulations are multi-faceted and would affect individual states, beneficiaries, and
providers concurrently. Each of the regulations was reviewed and analyzed independently,
but summing the impacts across regulations is not appropriate. For example, implementing
either the cost limit or the GME regulation would result in reduced payments to state-
operated teaching hospitals, but summing the individual impacts might overstate the net
effect of the implementation of both regulations.
In addition, we faced several barriers to gathering the information needed to conduct our
analysis. These barriers and our mitigation strategies included:
 Inconsistent participation of state officials in our interviews: In our research design, we

aimed to be as consistent as possible with our interviews and data collection. We developed
interview protocols (approved by OMB) for interviewing state officials that we sent to the
states in advance of the calls. Across 50 states and the District of Columbia, state officials
participated in varying manners. Some reviewed the interview protocols and prepared
answers in advance and our interviews were targeted and productive; others did not have a
chance to review state policies or consider their responses in advance and more time was
spent explaining provisions of the regulations. In some states we were able to interview
experts on the topic; in others, the assigned staff were not able to provide complete
contextual information and had limited experience with relevant issues. We mitigated the
15
496659 (replaces 493701)

interview challenge by asking follow-up questions and seeking additional information from
the Medicaid State Plan and other documents, but responsiveness varied.
 Inconsistent data submissions: We asked states to report data on several specific items
related to each regulation. The data received from states were inconsistent for many reasons,
including whether some payments were in or out of the MMIS, the relative ease or difficulty
of creating custom reports from MMIS data, and staff availability to respond to the data
request. States reported data from varying time periods and some states were unable to
report on specific items (e.g., impacts on UPLs, Medicaid costs for non-institutional
providers). There was also limited information available on managed care organization
(MCO) payments.
We offered states the option to submit data using an Excel template that listed the specific
information we sought. We asked states to report on a calendar year or fiscal year basis and
to use the most recent complete 12-month period that was easiest for them to access. To
make the data more consistent once it was received, we trended data forward to a common
year before comparing it across states.
We describe our approach, data limitations, and mitigation strategies, along with our assessment
of the problems and impacts of the regulations in further detail for each of the four regulations in
the following sections.
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496659 (replaces 493701)

IV. Cost Limit
A. Overview and Background
In financing the non-federal portion of its Medicaid program, each state must provide at least 40
percent of the non-federal share, while up to 60 percent can be contributed by other units of
government within the state. Congress has protected the ability of these units of government,
including individual providers, to contribute non-federal share, as long as the funds contributed
are not otherwise prohibited from use as Medicaid funds. 9 One mechanism for contributing funds
is an intergovernmental transfer (IGT), a transfer of funds from one governmental entity to
another. Another mechanism is a certified public expenditure (CPE), by which a governmental
entity certifies that eligible funds were used to provide services legitimately covered by
Medicaid.
The federal government has long been concerned about states’ use of these financing
mechanisms to enhance federal Medicaid funding inappropriately, particularly by making large
overpayments to governmental providers that then return a significant portion of the payment to
the state. Since 2000, CMS has taken a number of steps to limit opportunities for states to draw
down excessive FMAP and to use Medicaid funding for non-Medicaid services. First, in 2001,
CMS (then the Health Care Financing Administration) issued a regulation that established
separate upper payment limits (UPLs) for private, state, and local government facilities. By
establishing separate UPLs, CMS greatly curtailed states’ ability to overpay governmentally-
operated providers.
In August 2003, CMS began to systematically review the manner in which individual states
financed their share of Medicaid funding. According to the GAO, 29 states ended 55 financing
arrangements involving supplemental payments to government providers between August 2003
and August 2006. 10 CMS has indicated that, through the review of more than 1,000 State Plan
amendments between 2003 and 2007, it identified several strategies to ensure that payment and
financing arrangements comply with statutory intent. This formed the basis for CMS to issue a
proposed rule, believing that such a rule “strengthens accountability to ensure that statutory
requirements within the Medicaid program are met…” 11 Specifically, CMS proposed rule 2258-
P, Cost Limit for Providers Operated by Units of Government and Provisions to Ensure the
Integrity of Federal-State Financial Partnership, which seeks to:
 Clarify what constitutes a “unit of government” for the purposes of supplying the non-
federal share of Medicaid payments
 Establish minimum documentation required to support a CPE
 Limit reimbursement to governmentally-operated health care providers to an amount that
does not exceed the provider’s Medicaid cost
 Require that providers retain the full amount of payment for services
9
42 USC 1396b (w)(6)(A).
10
U.S. Government Accountability Office. “Federal Medicaid Oversight Initiative is Consistent with Medicaid
Payment Principles but Need Greater Transparency.” Publication No. GAO-07-214 (March, 2007).
11
Leavitt, 2008.
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496659 (replaces 493701)

 Make conforming changes to the CHIP regulations 12
The proposed regulation would apply to all governmental providers: institutional providers, such
as hospitals and nursing facilities, and non-institutional providers, such as local health
departments, school districts, and municipal ambulance providers.
State officials, providers, and other stakeholders have been outspoken in their opposition to the
proposed regulation and Congress has acted on several occasions to prevent its implementation.
Particular points of contention that stakeholders have raised include:
 The cost limit for governmental providers is unreasonable

 The definition of a “unit of government” is overly restrictive and imposes on states’ ability
to make determinations regarding the identification of political subdivisions within their
bounds
 Sources of non-federal share from governmental entities should not be restricted to those
derived from tax revenue (examples of other sources might include bond issuances and
rental property)
 The retention of payments provision is unnecessary and unenforceable in practice 13
A U.S. District Court also prevented implementation on technical grounds. 14 In May 2007, a final
cost limit rule was published. However, the court determined that CMS had violated the
moratorium by working to finalize the rule. As a result, the final rule was vacated and returned to
CMS. Our task was to analyze the proposed rule, not the final rule that was vacated.
Key points:
 Up to 60 percent of the non-federal share of Medicaid can be contributed by
governmental units other than the state.
 Providers often contribute non-federal share through IGTs and CPEs.
 CMS has long been concerned about misuse of these financing mechanisms to
inappropriately enhance federal funding and has taken several actions, culminating
in the proposed regulation.
12
For a more detailed background, see Hearne, J. “Medicaid Regulation of Governmental Providers,” United States
Congressional Research Service. CRS Report RS22848 (July, 2008).
13
For examples and more detail, see “Joint comments of the States of Alaska, Connecticut, Illinois, Louisiana,
Maine, Maryland, Michigan, Missouri, New Hampshire, New Jersey, North Carolina, Oklahoma, Pennsylvania,
Tennessee, Utah, Washington, and Wisconsin” and “Comments by the National Association of Public Hospitals
and Health Systems on Proposed Rule: CMS-2258-P.”
14
U.S. District Court for the District of Columbia, Alameda County Medical Center, et al. v. Michael O. Leavitt,
Secretary, U.S. Department of Health and Human Services, et al., Civil Action No. 08-0422 (May, 2008).
18
496659 (replaces 493701)

B. Prevalence of the Problems
Statement of the problem by the HHS Secretary
The first problem cited in the former HHS Secretary’s 2008 report to Congress as justification
for the proposed regulation is that state and local governments have used portions of Medicaid
payments made to “public” providers that are returned by these providers to the state (directly or
indirectly), as a source of state match to draw down additional federal dollars, or in some cases
to fund non-Medicaid expenses. When states redirect and “recycle” these payments, the federal
government pays an increased share of a state’s Medicaid costs, unintended by Congress. The
Secretary’s report stated that the “lack of transparency and accountability undermines public
confidence in the integrity of the Medicaid program,” as these financing arrangements are often
very difficult to decipher and unravel. 15
The report also indicated that additional federal guidance is needed on how to properly document
the use of CPEs to finance the non-federal share of Medicaid expenditures, as CPEs have not
always been clearly related to actual expenditures for Medicaid-covered services for Medicaid
beneficiaries. Specifically, the second problem that the report noted is that the different CPE
practices used by states often make it difficult to align expenditures with services, properly
identify actual costs, and audit and review claims.
A third problem cited by the report is that, in some cases, tax revenues that are designated for
non-Medicaid purposes have been used as non-federal share to draw down FFP. The regulation
clarifies that, to qualify as non-federal share, tax revenue cannot be earmarked for other
purposes, such as indigent care. Additionally, providers cannot choose to forgo payments legally
earmarked for non-Medicaid purposes so that this money can be used by the state or local
government as the non-federal Medicaid share.
It is important to note that when no portion of these payments were returned to the state,
Medicaid payments to governmental providers in excess of their Medicaid costs were not
specifically identified as a problem in the 2008 Secretary’s report. However due to the potential
for these “overpayments” to be used for non-Medicaid purposes, we also discuss this issue
below.
Approach to determine prevalence
To assess the prevalence of the problems identified in the 2008 report associated with this
proposed rule, we relied heavily on structured interviews with state officials. In some cases, we
also reviewed Medicaid State Plans or other policy documentation. A significant limitation of
this approach is that we were unlikely to uncover problems that were either not disclosed by
officials or were not readily apparent from publically available documentation. In addition, there
was a wide range in the level of relevant program understanding among officials we interviewed
in different states. A more comprehensive assessment of prevalence would require detailed on-
site audits of each state’s Medicaid financing arrangements, which were beyond the scope of this
project.
15
Leavitt, 2008.
19
496659 (replaces 493701)

Many states questioned whether the problems described in the 2008 report are substantial or even
exist. For example, CPE processes that may not clearly align certified amounts with actual costs
have been used for years. Therefore, we emphasize that the identification of a “problem” in a
particular state is not necessarily an indication that the state has acted inappropriately and, in
fact, the state is likely to have acted in accordance with its CMS-approved Medicaid State Plan.
Assessment of prevalence
Exhibit 2 below identifies those states in which we found evidence of the problems identified in
the 2008 Secretary’s report. 16
Exhibit 2: States with Evidence of Problems Identified in the Secretary’s Report
Funds Returned by
Providers Draw Down CPEs Do not Clearly Align Claims Made Based on
Additional Federal Dollars with Providers’ Actual Tax Revenues that are
or are Used for Costs Cost for Provision of State not Available for
Outside the Medicaid Plan Service Medicaid
Program
17 states – AK, AZ, DC, DE,
States Where
None identified HI, KS, ME, MN, MT, NH, None identified
Problem Identified 17
NJ, NM, RI, SC, SD, VT, WV
 Funds returned by providers: Based on interviews with state officials, the problem that state
or local governments use Medicaid payments returned by Medicaid providers to draw down
additional FFP or use Medicaid payments for non-Medicaid purposes appears to have
become very rare. These processes have been largely phased out over the past decade as a
consequence of CMS oversight under its interpretations of existing regulations. However,
this study did not include a detailed accounting of the flow of funding within each state and
instead relied upon interviews with state officials.
State officials frequently indicated that funds were not returned to the state, but also noted
that they do not monitor arrangements at the county or local level. In these cases, while we
were not able to identify a problem, we cannot assert with certainty that a problem does not
exist at any level. There is the possibility that certain “schemes” were not uncovered. One
challenge stems from the fact that money is fungible and hard to track in the complex
interactions between public providers and various state and municipal agencies. It is difficult
to identify whether a payment by a public provider is legitimately for services or facilities
provided by the state or local government or whether the payment is for another purpose
which CMS might find objectionable.
16
The problems listed here are based on Lewin’s review of Leavitt, Michael O., Secretary of Health and Human
Services, “Report to Congress on Medicaid Regulations under Section 7001(c)(1) of the Supplemental
Appropriations Act, 2008.” Problems were identified based on interviews with state officials and review of
publically available documentation. There is no feasible way to perform an accurate assessment without full-
scale financial audits such as those performed by the OIG.
17
Alabama officials did not respond to requests for information. In addition to Alabama, there were 11 states for
which it is uncertain whether current CPE documentation will satisfy requirements as implemented. There were
two states for which it is uncertain if tax revenue would be deemed unavailable for Medicaid.
20
496659 (replaces 493701)

In some instances, we raised questions regarding the return of payments, but were not able
to identify any clear instances of the “problem” as described in the 2008 report. For
example, potential problems were discussed involving state accounting procedures requiring
Medicaid payments, along with revenue received from other payers, to be repaid to a
governmental entity that had appropriated the full amount of funds in advance. In other
cases, FFP for state-owned providers that are fully funded through annual appropriations
may be paid to the state general fund. State officials did not indicate that any of these
business arrangements were Medicaid-specific, and we did not identify the problem as
described by the Secretary. In one case, some Medicaid payments to providers were used to
pay counties that performed administrative functions on behalf of the providers.18 In
response to comments on these issues CMS stated that, “The retention of payments
provision was not designed to interfere with the normal operating expenses of conducting
business, such as payments related to taxes (including health-care provider-related taxes),
fees, business relationships with governments unrelated to Medicaid in which there is no
connection to Medicaid payment.” 19 Therefore, we did not identify these arrangements as
problems.
A number of states also indicated that some or all of the FFP associated with provider CPEs
is retained by the state. For example, a certain percentage may be retained as an
administrative fee. Many of these states were concerned that the proposed regulation would
require that all FFP be paid to the certifying providers. Our interpretation is that a CPE, by
definition, represents an expenditure that has already been made. As a result, there is no
required payment to the provider for services rendered and therefore no amount that must be
retained. FFP received by the state is, instead, repayment of federal share that has already
been spent at the governmental provider level. This is consistent with CMS’ statement that
“Federal matching funds are effectively repayment of the Federal share of the total
computable expenditure initially satisfied at a State or local government level.” 20
 Alignment of CPEs with actual cost: Of the problems cited in the 2008 report, the most
prevalent is a lack of clear alignment between the amount cited as a CPE and actual
expenditures for providing Medicaid services or administration. States use a variety of
certification processes that do not necessarily align to actual costs, including requiring
providers to:
o Certify the amount of payment due based on a Medicaid State Plan rate for services
o Certify that sufficient non-federal share “was available” to draw down matching
federal funds
18
According to state officials, this particular arrangement was reviewed and permitted by CMS.
19
Medicaid Program; Cost Limit for Providers Operated by Units of Government and Provisions To Ensure the
Integrity of Federal-State Financial Partnership; Final Rule. Federal Register: May 29, 2007 (Volume 72,
Number 102, Page 29799).
20
Medicaid Program; Cost Limit for Providers. Federal Register: May 29, 2007 (Volume 72, Number 102, Page
29799).
21
496659 (replaces 493701)

o Submit claims for services provided that are not paid, but are used to draw down
federal matching funds 21
In assessing the prevalence of this problem regarding CPEs, we assumed that any CPEs that
were not directly based on cost documentation that clearly align the certified amount with
the actual cost of services would be considered problematic by CMS. In 11 cases, state
officials indicated that cost documentation was available, but they were uncertain whether
the CPEs aligned with expenditures in the manner that CMS would ultimately require under
the proposed regulation. In these cases, above and beyond the 17 states identified in the
above table, we did not identify a clear instance of the problem as described in the report.
However, these programs may still be impacted if a final regulation requires states to clearly
align CPEs to amounts spent in a manner that is different from current practice.
Over the past decade a number of states have modified their CPE processes through close
collaboration with CMS. These modified CPE processes typically require the submission of
cost reports and final reconciliations to ensure that the amount certified matches the actual
amount spent. These features are largely consistent with the terms of the proposed
regulation, but have been gradually implemented through existing Medicaid State Plan
amendment review and approval processes. In at least one case, a state abandoned its plan to
utilize CPEs after the state could not come to agreement with CMS regarding the reporting
of costs.
 Tax revenue earmarked for other purposes: The problem cited by the Secretary of using tax
revenue that is earmarked for non-Medicaid purposes was also challenging to assess. CMS
officials agreed that this would be difficult to identify directly, but that if the problem
existed we would likely uncover it through discussions of providers’ governmental status.
We identified only two instances where claims may be made based on tax revenue that has
been earmarked for other purposes. Even in these cases, however, we were unable to
conclusively determine that there was a problem as described in the 2008 report, and instead
we consider these cases “uncertain.” For both of these cases, funds that are used for
Medicaid were originally appropriated for purposes including providing care to the indigent,
though it is not clear if indigent care was the only intended purpose. Based on our interviews
with state officials, we do not believe that this is a prevalent problem.
 Payments above cost to government providers: We identified 24 states that make Medicaid
payments to governmental providers in excess of the providers’ Medicaid costs. Many of
these states have pointed out that payments in excess of cost help subsidize other operating
shortfalls and allow for operational improvements, and are permitted to occur for both
private and governmental providers. It should be noted that, in response to comments on the
proposed regulation, CMS indicated that “We do not find it appropriate that units of State or
local government would ‘profit’ from Federal taxpayer dollars that are intended to match a
percentage of the cost of providing services to Medicaid individuals.” 22
21
This is not technically a certification, but a similar arrangement by which a state claims FFP based on the
standard Medicaid rate for services provided by a governmental provider.
22
29810).
22
496659 (replaces 493701)

Key points:
 The most prevalent problem is that states use CPE processes that do not align certifications
with actual costs.
 The use of tax revenue earmarked for other purposes is not prevalent.
 Some states have already modified CPE processes in collaboration with CMS and are
largely consistent with the proposed regulation.
 The return of Medicaid payments to the state is not prevalent; however, Medicaid payment
above cost to Medicaid providers is relatively common.
C. Strategies States Use to Address these Problems
States have already engaged in a number of activities to address the identified issues, some of
which have been initiated independently, others at the direction of CMS.
 Compliance with existing expectations: Throughout the state interview process, a recurring
theme was that states were already taking steps to be in compliance because CMS has
essentially implemented some provisions of the proposed regulation through the Medicaid
State Plan approval process. A number of states referred to CMS’ “Five Funding Questions”
that, beginning in 2003, have been required to be submitted along with a Medicaid State
Plan amendment. Under these questions, states must explain whether providers retain all
Medicaid payments, how non-federal share is provided, and whether public providers
receive payment in excess of their costs. Through the review process, CMS is essentially
requiring states to comply with some provisions of the proposed regulation. In addition to
the Medicaid State Plan amendment process, some provisions of the regulation were also
implemented as a condition of approval of demonstration waivers, or through the fiscal audit
process.
 Enactment of legislation: We spoke with officials in a few states that have enacted
legislation intended to make providers more clearly “units of government.” For example,
one bill granted direct taxing authority to “public” hospitals (although this authority could
only be exercised through a public referendum). Clearly, many states were concerned about
the loss of federal share associated with providers not clearly meeting the “unit of
government” criteria.
 Affirmation of retention: A small number of states indicated that they require providers to
affirm that they do not return IGT funds, typically as part of an “IGT contract.”
 Annual audit of public providers: In one case, the state’s chief auditor conducts an annual
audit of governmental providers to verify retention of payments as part of an approved
Medicaid waiver program.
Overall, we did not identify many current strategies designed to prevent providers from returning
any portion of their Medicaid reimbursement to state or local government. To the contrary, the
majority of states expressed concern that any unintended recycling would be impossible to track
and that once payments were made to providers, prohibitively expensive audit practices would be
required to track how the funding is used.
23
496659 (replaces 493701)

Key points:
 CMS has been essentially enforcing provisions of the proposed regulation through
existing oversight authority.
 Generally, states have not taken steps to address the problems other than discontinuing
practices that were deemed objectionable by CMS.
D. Impact of the Cost Limit Regulation
We estimated the impacts of the proposed regulation primarily through review and analysis of
state data submissions and interviews with state officials. While there are data limitations,
discussed below, we found that there is a high likelihood that the regulation will impose a
signification burden on:
 State funding: As the table below demonstrates, the regulation would have a dramatic impact
on Medicaid funding in many states.
 State administration: Most states would be impacted administratively primarily due to the
requirement to determine governmental status and to cost settle all government providers.
 Medicaid beneficiaries: The reduction in reimbursement and increased administrative
requirements are likely to have an indirect negative impact on services.
 Medicaid providers: Reduced reimbursement and increased cost reporting requirements for
non-institutional government providers will have a significant impact on providers.
Fiscal impacts
To assess the fiscal impacts of the proposed regulation, we asked states to provide Medicaid cost
and reimbursement data for each of their public providers, as well as the amount of IGTs or
CPEs contributed by each provider. We also asked states to determine whether each provider met
the “unit of government” criteria in the proposed regulation. As we discuss later, the ability of
states to provide this information varied considerably. The impacts summarized below are based
on our review and analysis of the data that we were able to obtain from states and are reflective
of the loss of federal funds or of non-federal share, as discussed below:
 The “units of government” impact (Sections 433.50 and 433.51) is based on the amount of
non-federal share that is contributed by providers that may not meet the “unit of
government” criteria (or, in one case, funds from counties that may no longer be eligible as
non-federal share).
 The cost limit for units of government impact (Section 447.206) is based on the amount of
Medicaid reimbursement above Medicaid cost for governmental providers. It is important to
note that Medicaid cost data for non-institutional providers is rarely available and thus it was
not possible to measure the full impact of the proposed regulation on these providers.
Estimates include the total amount of funds “jeopardized” by the regulation and do not account
for state decisions to preserve federal funding through revised financing arrangements or
increased payments to other providers. Exhibit 3 shows state-specific fiscal impacts of the
proposed cost limit regulation.
24
496659 (replaces 493701)

Exhibit 3: State-specific Fiscal Impacts of the Proposed Cost Limit Regulation, Reduction in
Federal Financial Participation, FFY10-14, in Millions 23
Units of Government –
Section 433.50 Cost Limit for Units
State 24 Funds from Units of of Government – Total
Government as State-share – Section 447.206
Section 433.51
Alabama Uncertain Uncertain Uncertain
Alaska $0.0 $7.7 $7.7
Arizona $0.0 $0.0 $0.0
Arkansas $0.0 $56.8 $56.8
California $0.0 $0.0 $0.0
Colorado $1,040.9 $0.0 $1,040.9
Connecticut Uncertain $0.0 Uncertain
Delaware $0.0 $0.0 $0.0
District of $0.0 $0.0 $0.0
Columbia
Florida $0.0 $0.0 $0.0
Georgia $802.3 $532.7 $1,335.0
Hawaii $0.0 $0.0 $0.0
Idaho $0.0 Uncertain Uncertain
Illinois $0.0 $0.0 $0.0
Indiana $485.7 $214.1 $699.8
Iowa $0.0 $0.0 $0.0
Kansas $2.2 $81.1 $83.3
Kentucky $0.0 Uncertain Uncertain
Louisiana $0.0 $177.3 $177.3
Maine Uncertain $2.8 $2.8
Maryland $0.0 $0.0 $0.0
Massachusetts Uncertain $13.5 $13.5
Michigan $0.0 $0.0 $0.0
Minnesota $0.0 $46.9 $46.9
Mississippi Uncertain $586.6 $586.6
Missouri $360.3 $62.8 $423.1
Montana $0.0 $3.3 $3.3
Nebraska $0.0 $0.2 $0.2
Nevada $0.0 $0.0 $0.0
New Hampshire $0.0 $0.0 $0.0
New Jersey $0.0 Uncertain Uncertain
New Mexico $1,079.1 $0.0 $1,079.1
23
Federal share only based on FY2010 FMAP prior to application of enhancements implemented under ARRA.
24
For North Dakota and South Dakota, we project no material impact. State officials acknowledged that, due to
prospective payments, some providers may be paid slightly above cost, but were not able to provide data
regarding reimbursement above cost.
25
496659 (replaces 493701)

Section 433.50 Cost Limit for Units
State 24 Funds from Units of of Government – Total
Government as State-share – Section 447.206
Section 433.51
New York $0.0 $9,774.4 $9,774.4
North Carolina $3,446.4 $0.0 $3,446.4
North Dakota $0.0 $0.0 $0.0
Ohio $0.0 $32.6 $32.6
Oklahoma $275.7 $0.0 $275.7
Oregon $0.0 $0.0 $0.0
Pennsylvania $23.3 $46.7 $70.0
Rhode Island $0.0 $0.0 $0.0
South Carolina Uncertain $67.9 $67.9
South Dakota $0.0 $0.0 $0.0
Tennessee Uncertain $0.0 Uncertain
Texas $0.0 $3,183.5 $3,183.5
Utah $249.9 $41.2 $291.1
Vermont $136.8 $0.0 $136.8
Virginia $4.7 $117.7 $122.4
Washington $0.0 $0.0 $0.0
West Virginia $0.0 $0.1 $0.1
Wisconsin $0.0 $0.0 $0.0
Wyoming $8.9 $0.4 $9.3
Total $7,916 $15,050 $22,967
Exhibit 4 shows the total estimated reduction in Medicaid expenditures, including both state and
federal funds, for FFY10 and for FFY10 through FFY14. The table also includes rows that show
the total estimated reduction in federal funds only.
Exhibit 4: Total Estimates of Federal Savings and Reduction in Total State Medicaid Expenditures
for the Proposed Cost Limit Regulation, in Millions
Section 433.50 Cost Limit for Units of
Funds from Units of Government – Section Total
Government as State-share 447.206
– Section 433.51
Federal Fiscal Year 2010
Estimated Reduction in
$2,130 $4,895 $7,025
Medicaid Expenditures
Estimated Reduction in FFP $1,349 $2,615 $3,965
Federal Fiscal Years 2010 - 2014
$12,496 $28,132 $40,628
Estimated Reduction in FFP $7,916 $15,050 $22,967
26
496659 (replaces 493701)

Potential for increased expenditures: Several states indicated that they believe that there is a
substantial likelihood that implementation of this regulation would increase Medicaid
expenditures for non-institutional providers. Officials are in general agreement that
reimbursement for these providers is well below their actual costs. However, should these
providers be required to document their costs annually, several officials expressed their concern
that states will be pressured to reimburse these providers the full amount of their costs, possibly
increasing both state and federal expenditures. Along these same lines, several states indicated
that if non-institutional providers were required to report their full Medicaid costs, states would
likely implement CPE programs to certify the difference between current payment levels and
actual costs. The net result would be increased federal expenditures without a corresponding
increase in non-federal outlays. Instead, states would essentially begin claiming match for
eligible non-federal share that is already being spent. Because cost data for non-institutional
providers is rarely available, it is not possible to quantify the potential increase in state or federal
expenditures that could result from this reimbursement modification.
Comparing different projections
There has been wide variability in the projected federal savings of the regulations. Exhibit 5
shows various estimates for federal savings under the proposed cost limit regulation. The House
Committee on Oversight and Government Reform arrived at its estimate through written survey
responses from state Medicaid programs.
Exhibit 5: Five-Year Estimates of Federal Savings (FFP) for the Proposed Cost Limit Regulation
Source Five-Year Time Federal Savings (in

Period Billions)
OMB (2008) 25 FFY09-FFY13 $5.7
House Committee on Oversight FFY09-FFY13 $21.1
and Government Reform (2008)
26
The Lewin Group (2009) FFY10-FFY14 $23.0
There are a variety of explanations for the variance among these projections, including:
 The regulation leaves considerable room for interpretation and impacts a number of complex
components within state Medicaid financing systems. As such, there is no single “correct”
fiscal projection, because it is subject to too many unknown variables about how CMS
would enforce the regulations and how states would react.
 Several projections were made for different periods of time. Our estimates rely on data from
different time periods, inflated to a common time period.
25
26
27
496659 (replaces 493701)

 Our projections assume full compliance with the proposed regulation immediately upon the
effective date. CMS actuaries, for example, adjusted for phase-in of effectiveness, with full
effectiveness achieved in the fourth year.
 Compared to the Committee projection, which was compiled from survey responses from
the states, we attempted to calculate impacts independently using state-submitted data, and
to apply a consistent interpretation and methodology to develop estimates. The Committee
included estimated impacts for 32 Medicaid programs while our estimate includes 45
programs. Our estimated impact for the states that submitted estimates to the Committee is
about $21.4 billion, very similar to the total Committee estimate. However, in some cases,
states that had reported estimates of large impacts to the Committee were estimated by us to
have no impact and vice versa. There was no consistent pattern to differences between our
estimates and those obtained by the Committee. Based on our discussions with state
officials, there was wide variation in understanding of the regulation and its applicability in
each state at the time that estimates were provided to the Committee.
Impacts on state administration
States will almost universally incur additional administrative requirements as a result of the
proposed regulation. By far the most significant impact is the requirement that all governmental
providers, both institutional and non-institutional, be cost settled annually. Only two states
indicated that they already conformed to the requirements of the proposed regulation, while the
vast majority were extremely concerned about the anticipated level of effort that this would
require. Concerns were magnified by the fact that many state Medicaid programs have lost staff
in recent years and officials were not certain that they would be able to comply with the
requirements of the proposed regulation given the level of effort required.
It appears that the administrative impact of collecting, auditing, and settling based on cost reports
for non-institutional providers would be significant. In a few cases where this approach has
already been implemented, states reported years of effort, a steep learning curve for providers,
and dramatically increased workload. Non-institutional providers nationwide are commonly
reimbursed based on a fee schedule that does not distinguish providers based on governmental
status. This is often true regardless of the source of non-federal share, including many cases
where providers certify their “expenditures” equal to the standard fee. Non-institutional
providers are typically unaccustomed to cost reporting procedures which are often quite
complicated and may require new staff or the assistance of an accountant or other contractor.
Increased documentation and oversight of CPE processes will also impact state Medicaid
agencies and sister agencies. Another impact will be the potential number of Medicaid State Plan
amendments to be approved to implement the new CPE programs and the resources required by
CMS. In many cases, CMS has taken years to process CPE program approvals. An influx of
proposed amendments could, therefore, result in a tremendous backlog.
Impacts on beneficiaries
The proposed regulation does not directly impact beneficiaries. However, we anticipate that
reduced reimbursement and increased administrative requirements will ultimately impact
services to beneficiaries in many states. This will occur as states reduce overall program
28
496659 (replaces 493701)

spending to reflect reduced federal participation or redirect funding to support increased state
costs to comply with administrative requirements. While this impact is not easily quantifiable,
state officials routinely indicated that the biggest impact on services would be in more rural areas
and among lower volume non-institutional providers.
For the unit of government provisions of the proposed regulation, we anticipate an impact on
beneficiaries in cases where non-federal share would be lost to the state Medicaid program. In a
few cases where state officials either indicated some uncertainty regarding governmental status,
or did not provide sufficient information, we reflected the impact as uncertain. Similarly, in cases
where reimbursement would be reduced by the cost limit provisions, we anticipate some impact
on services to beneficiaries. In cases without an anticipated fiscal cost limit impact where state
officials indicated that increased administrative requirements could cause providers to withdraw
from the program, we were unable to reach a conclusion regarding the anticipated impact on
beneficiaries.
Impacts on providers
The financial and administrative impacts of the proposed regulation on providers are likely to be
widespread, reducing reimbursement or increasing costs and thereby straining the ability of
providers to continue to operate and provide services and to meet their missions of serving those
in need, whether or not they are covered by Medicaid. The cost limit provision would impact
nearly every state, particularly because cost reporting is so infrequently required for non-
institutional providers. Modifications to CPE processes would also impact providers in a
significant number of states.
The primary administrative impact on providers is the requirement for all governmental
providers to submit cost reports annually. Cost reporting is often a complex process, requiring
the services of an accountant; non-institutional providers may not have the Medicaid volume to
make the investment worthwhile. Institutional providers would be less impacted by the cost
reporting requirements, as they are typically familiar with cost reporting and it is a routine part of
their operations, with assigned staff and contractors. State officials often indicated that requiring
non-institutional government providers to submit cost reports may cause these providers with
low Medicaid volume to withdraw from the program. While the extent to which this would occur
is not easily quantifiable, it is possible that some providers would withdraw—although they may
continue to provide some care to Medicaid beneficiaries without reimbursement, but it is
reasonable to assume such practices would be quite limited. While state and local governments
could require governmental providers to participate, the net result would be an increase in
administrative expense and a potential commensurate decrease in time spent providing care.
The provisions regarding non-federal share are also expected to impact providers using CPEs in
many states. Increased documentation requirements to support CPEs will increase the
administrative effort required and the loss of non-federal share from providers that are not “units
of government” will likely reduce reimbursement. Many states reported that the additional
reporting requirements are likely to cause some providers to withdraw from the program,
especially those that serve a small proportion of Medicaid patients. In some states officials
expect the withdrawal of providers and commensurate reduction in access to be significant.
29
496659 (replaces 493701)

Methodology and data limitations
The analysis of the impact of this rule has several data limitations.
 Availability of Medicaid cost and reimbursement data: We experienced wide variability in

states’ ability to provide data to allow us to estimate the impact of the proposed regulation.
As previously indicated, most states do not collect cost reports from non-institutional
providers and are unable to estimate these providers’ Medicaid costs. Estimates of the cost
limit impact, therefore, rarely include non-institutional providers. Even for those providers
that do routinely submit cost reports, the ability of states to provide data varied widely and,
in a number of cases, states either did not or were unable to provide any data. Many others,
however, were able to provide data including costs and reimbursement clearly broken out
for different types of services.
States also found it difficult to provide data regarding managed care organization (MCO)
payments to governmental providers. 27 In most cases, states contract with MCOs for a
capitated fee and MCOs negotiate rates directly with providers. In all but a few cases, states
obtain encounter data from MCOs regarding services provided, but do not obtain data
regarding payments made by the MCOs to providers. Several states commented that the
effort to begin collecting this data would be considerable, and that they were concerned that
MCOs might be unwilling to disclose information regarding privately negotiated rates.
While the federal government could require the submission of data necessary for the
efficient operation of the program, this could cause some MCOs to leave the Medicaid
program or, if possible, to avoid contracting with governmental providers.
 Unit of government determinations: The initial impact of the regulation will ultimately be
based on the interpretation of the regulation and the assessment of its impact by the state
agencies that administer Medicaid, particularly the single state agencies, as well as state
determinations of which providers are “units of government.” A particular challenge in
estimating the impact is the fact that states have not made unit of government determinations
at this point and are (understandably) unwilling to guess on the eventual determination.
In its response to comments on the proposed regulation, CMS stated that, “…we have
determined in response to comments to provide states with the primary role in identifying
units of government using the criteria set forth under this regulation, as long as the
identification is consistently applied.” 28 CMS retains the right to overturn state
determinations; however, any resulting impact would be prospective.
As long as the regulation is not finalized, many states are unwilling to make even
preliminary determinations regarding government status. Some took this position based on
the assertion that the regulation was unclear. Others pointed to reasons why, from the state’s
perspective, the providers were governmental regardless of the proposed provisions. These
states are concerned that such preliminary determination could be “used against them” at
27
CMS noted in its response to comments on the draft regulations that total Medicaid costs were to be inclusive of
payments made by MCOs for Medicaid patients.
28
29753).
30
496659 (replaces 493701)

some point in the future, either by regulators or providers that were unhappy with the
determination. Despite assurances that this study would not identify individual
determinations, many states remained unwilling to make a determination without a final
regulation and a thorough legal and financial review.
In an effort to overcome these concerns, we developed a broad estimate of the regulatory

impact based on comments made during interviews and, in some cases, public information
regarding ownership. For the purposes of this study, in cases where states identified some
providers as governmental and others as “uncertain,” “unknown,” “undetermined,” etc., we
evaluated the “unknowns” as if they would not meet the unit of government criteria to assess
potential impact. In cases where states declined to identify predicted governmental status for
any providers, we relied on publically available information that characterized the
ownership type of these providers to identify providers that might not qualify as units of
government. A conclusive determination of whether a provider qualifies as a “unit of
government” may be difficult in many cases, requiring extensive financial and legal research
beyond the scope of this study. Determinations may be especially difficult for states that
have established hospital authorities and/or hospital districts that are “governmental” to
varying degrees.
 The net impact of the regulation is multi-faceted: The proposed regulation would impact
individual states, providers, and units of government in a number of ways, including
changes in rate setting parameters, peer groups, and UPL classifications. Our task was to
quantify the impact of the regulation on each state, which, for fiscal purposes, is the amount
of FFP received by the state, as well as non-federal share that the state would have to
identify to remain “whole.”
Impacts other than direct FFP and non-federal share are discussed qualitatively, as we did
not attempt to quantify them. In addition, some states were able to provide estimates of their
administrative impact of the proposed regulation; however, we have not included these
amounts in our estimates of fiscal impact, and we did not attempt to independently calculate
or validate administrative costs.
Key points:
 We estimated a significant fiscal impact based on payments above cost to
governmental providers in 24 states and, in 13 states, contribution of non-federal
share that may not be permitted under the proposed regulation.
 Fiscal impact estimates are limited by the unavailability of data in many states.
 The administrative impact of requiring cost reporting and cost settlement for non-
institutional governmental providers would be significant.
 Reduced reimbursement and increased administrative requirements are likely to
negatively impact services to beneficiaries.
E. Alternative Ways for CMS to Address the Problems
States’ reaction to the proposed regulation was overwhelmingly negative. While several states
indicated general support for the goal of the regulation, most contended that the regulation goes
31
496659 (replaces 493701)

far beyond its stated intent. Moreover, many state officials noted that CMS has effectively
already curbed many abuses through its State Plan amendment approval process.
As part of the Lewin interview process, we asked states for alternative approaches that would
achieve the stated federal goals while promoting the state-federal partnership. While most
indicated that the proposed rule should simply be withdrawn, the following suggestions for
alternatives are those that were discussed most frequently.
 Exempt non-institutional providers or providers that represent a small proportion of overall

Medicaid spending from the cost limit provision: This suggestion was commonly made by
states that were concerned that additional reporting requirements and cost settlement
processes would lead providers to withdraw from the Medicaid program. In most cases these
providers, including local clinics, case managers, and non-emergency transportation
providers, among others, are reimbursed based on a fee schedule that does not distinguish
between private and government-operated providers and which, often, reimburses providers
at rates less than their costs. These providers are not accustomed to cost reporting and would
likely need to hire staff or contractors to assist with the process. Further, states are
concerned that, while they believe payments to these providers fall well short of costs,
documentation affirming this would create pressure to increase rates at a time when states
are struggling to contain Medicaid expenditures.
 Require that public and private providers be reimbursed under the same methodology:
Many states suggested that the problem of “overpayments” to public providers could be
solved by simply requiring that all providers be reimbursed using a methodology that does
not account for ownership. These states assert that, logically, a state would not utilize a
reimbursement system that overpays private providers and that government providers should
be treated no differently. In many cases, these states use prospective payment methodologies
designed to promote efficiency. Some also provide quality incentive payments to reward
high-quality care and these states argue that these incentives are no less important for
government providers than they are for non-governmental providers. Requiring that
government providers cannot return any portion of their payments as part of a “recycling”
arrangement helps to ensure that these “profits” are used appropriately. One consideration,
however, is that in some states certain Medicaid services may be highly, or solely, reliant on
government providers. Therefore, requiring public and private providers to be reimbursed in
the same manner would have limited ability to constrain public provider reimbursement.
 Allow prospective payments without cost settlement for all providers: Prospective payment
systems are designed to encourage providers to operate efficiently by establishing rates in
advance and allowing providers to retain reimbursement received above their actual costs.
Under the proposed regulation, prospective payment systems would still be permitted for
government providers. However, the retrospective cost settlement requirement would
eliminate virtually any incentive for government providers to limit spending. This issue was
frequently cited by states who indicated that cost settled reimbursement was a return to an
outdated and ineffective reimbursement policy that would ultimately cost more than it would
save. Officials nationwide associate cost based reimbursement systems with the highest rates
of cost escalation. Under the terms of the proposed regulation, high-cost governmental
providers may even be eligible for reimbursements that exceed the existing UPL, further
incentivizing cost escalation among providers.
32
496659 (replaces 493701)

 Continue to use existing authority under Medicaid State Plan amendment review, audits, et
cetera: In many states CMS has already enforced several of the provisions of the proposed
regulation through the Medicaid State Plan amendment review process and fiscal audits and
has been doing so for the past several years. However, several states indicate that there is
variability in guidance and expectations among different regional offices. As opposed to
changes to the regulation such as those in the other alternatives, CMS could continue to use
existing authority in the absence of a regulation, but would need to ensure that policies were
clearly defined and consistently applied nationwide. A problem with this approach is that it
limits CMS’ ability to point to codified language in consistently applying policies and
invites “back and forth” between CMS and states that may disagree with policies.
Another frequent comment is that, currently, approvals from CMS for new CPE programs
have taken years to secure, with a great deal of discussion and debate about what costs
would be allowable and what cost reports must include. While a standardized cost report
would alleviate some of this, approvals still might take a considerable amount of time,
especially if many plans are submitted for approval in a short period of time.
 Exempt payments from Medicaid MCOs to government providers: A number of states

indicated that payments from Medicaid MCOs to providers are independently negotiated,
and that the amounts are proprietary. Further, these states often do not have access to data
that allows them to calculate total Medicaid MCO payments to a particular government
provider. Since the capitated rates paid by states to MCOs must be actuarially sound, they
are already consistent with the principles of the proposed regulation as CMS has indicated.
Payments from these MCOs to providers, therefore, are very unlikely to result in
“excessive” profits for the providers relative to their actual costs.
In addition, one state commented that there may be government providers (e.g., municipal
ambulances) that contract with a Medicaid MCO without the Medicaid agency knowing. In
states with widespread Medicaid managed care, it would be very difficult for the state to
enforce the cost limit for these providers.
 Clearly identify providers that must be “assessed” for governmental status: States appear to
be uncertain of the requirements for determining the government status of providers. In
some cases, state officials indicated that determinations would have to be made for all
enrolled providers, which can number in the tens of thousands. They arrived at this
conclusion based on the fact that reimbursement to all government providers must be cost
limited and, therefore, every provider would have to be assessed to document that they are
reimbursed correctly. These states expected to incur significant administrative costs
including the need for additional staff, legal and financial research, and IT system changes.
In other cases (typically less populous states) officials indicated that they were confident that
they knew which providers were governmental, and that they would only assess these
providers, requiring little effort and having little administrative impact.
Should CMS choose to move forward with this requirement, the regulation should clearly
indicate the expected scope for determinations. This will, of course, depend on the other
potential provisions of the regulations. For example, without the cost limit provision, only
providers that contribute non-federal share would need to be determined “governmental.”
33
496659 (replaces 493701)

F. Future Considerations
As Congress, CMS, and others continue to struggle with appropriately funding the nation’s
health care safety net while maintaining the fiscal integrity of the Medicaid program, we offer
the following key considerations based on this study:
 Guidance regarding the proper use and documentation of CPEs is warranted: We identified
a variety of procedures for certifying Medicaid expenditures, a number of which did not
clearly align CPEs with costs. While routine cost reporting and settlement is the only way to
ensure 100 percent alignment with costs, CMS should consider less burdensome alternatives
for non-institutional providers, such as allowing certifications based on standard fees, which
are typically less than actual costs.
 Medicaid reimbursement in excess of cost for governmental providers is relatively common,
but not clearly linked to returning funds: As indicated earlier, Medicaid reimbursement to
governmental providers in excess of their allowable Medicaid cost was not a problem
identified by the 2008 Secretary’s report per se, yet CMS suggested in the preamble to the
proposed regulation that it is not appropriate. If CMS intends for the cost limit to eliminate
the possibility that governmental providers could return funds to the state for other uses, the
fact that the return of funds appears to have been nearly if not entirely eliminated suggests
that the cost limit may be unnecessary. However, if the cost limit is intended to prevent
governmental providers from using Medicaid reimbursements to subsidize other aspects of
their operations, then some further limitations may be necessary.
Many of the cases where we identified payments above Medicaid cost involved prospective
payment systems or incentive payments to reward efficiency and quality, and such
incentives apply to governmental as well as private providers. In a few states, significant
payments above cost were observed. While officials in these states were clear that these
payments were used to support the health care safety net, policy makers may wish to
consider whether this support should come from the Medicaid program, in addition to the
support provided by disproportionate share hospital (DSH) payments. However, removing
this support without an alternative may have major consequences for vulnerable populations
in these states.
 Administrative impacts merit careful consideration: In recent years fiscal constraints have
forced state Medicaid programs to minimize administrative costs by laying off and
furloughing staff and not replacing staff who have left. At least one state indicated that 25
percent of its Medicaid staff had been eliminated, and in others the amount may be even
higher. The collection and auditing of cost reports and cost settlement procedures are time
consuming and resource intensive. While many states perform these tasks for institutional
providers, very few do so for non-institutional providers primarily because the return is not
worth the significant investment. Determining governmental status for thousands of
providers would present a significant challenge. While states with smaller programs may be
able to apply criteria to determine governmental providers fairly quickly, larger states may
need to add staff (or hire contractors) and modify their provider enrollment processes to
include extensive financial and legal documentation when a provider wants to challenge its
determination. However policy makers choose to proceed, administrative impacts on states
and CMS must be carefully considered.
34
496659 (replaces 493701)

V. Graduate Medical Education (GME)
GME is the clinical training and education in an approved residency program for medicine,
osteopathy, dentistry, and podiatry that follows graduation from school-based clinical education.
GME typically takes place in teaching hospitals, but can also occur in outpatient settings. The
historical rationale for GME payments, both by Medicare and Medicaid, has been that graduate
clinical training is expensive and that public subsidies are needed to ensure a sufficient supply of
physicians, especially in geographic areas where patients lack insurance or where population
densities are too low to attract physicians. There are two types of costs associated with GME:
 Direct GME costs: Includes costs directly related to the training of residents such as
residents’ stipends, salaries and benefits of supervising faculty, direct program
administration costs, and overhead
 Indirect GME costs: Includes the increased costs of care provided in a teaching environment
such as higher numbers of diagnostic tests, sicker or more complex patients that tend to
receive care in teaching hospitals, and longer patient stays 29
Both Medicare and Medicaid have historically made payments to help cover both direct and
indirect GME costs in teaching hospitals and other training programs. Payment for GME costs is
statutorily mandated under the Medicare program, and payments are included within Medicare
reimbursement formulas. In contrast, CMS emphasizes that Medicaid statute does not explicitly
authorize GME payments and that GME is not listed as a type of “medical assistance” under
Section 1905(a) of the Social Security Act. Nevertheless, according to a 2003 survey by the
Association of American Medical Colleges cited by CMS in CMS-2279-P, 47 states and the
District of Columbia provided GME payments under their Medicaid programs as part of their
CMS-approved Medicaid State Plans, either as a component of reimbursement rates or as a
periodic lump sum distribution. (Since this AAMC survey, several states have dropped GME
from their program, in some cases as a result of the proposed regulation.) A few states also
explicitly include GME in their payments to Medicaid MCOs, while other states implicitly
include it through incorporation of payment rates that include GME in the development of
capitation rates. More often, states make GME payments directly to providers on behalf of MCO
enrollees through lump sum payments based on encounter data reported by the MCOs or the
providers themselves.
On May 23, 2007, CMS proposed a new regulation governing Medicaid payments to qualified
providers for the costs associated with GME programs. The proposed rule would:
 State that costs and payments associated with GME are not authorized medical assistance
expenditures, thereby eliminating all federal payments to state Medicaid programs for the
costs of direct and indirect GME
29
References to GME in this report include both direct and indirect GME unless otherwise specified.
35
496659 (replaces 493701)

 Remove Medicare direct GME payments from the calculation of the inpatient UPL 30 for both
teaching and non-teaching private, state government-operated, and non-state government-
operated facilities
In the preamble to the proposed regulatory change, CMS offers the following justifications:
 GME payments are not explicitly authorized in the Social Security Act (the Act) under Title
XIX (Medicaid) as they are under Title XVIII (Medicare) in sections 1886(d)(5), (h) and (k).
 GME is not included in the list of services explicitly set forth in section 1905(a) of Title XIX
as eligible for FFP, and is not a health service.
 The Act requires that Title XIX reimbursement rates “be consistent with economy,
efficiency, and quality of care.” The implementing regulation at 42 CFR 447.272 allows for
flexibility in inpatient hospital reimbursement by requiring that payments not exceed a
reasonable estimate of what Medicare would have paid for the same services using Medicare
payment principles, which CMS asserts reflect hospital operating costs exclusive of medical
educational activity costs.
 GME payments cannot be easily quantified or monitored given the states’ methods for
incorporating these costs into provider reimbursement rates, and there is no assurance that
GME payments effectively support GME programs or benefit Medicaid beneficiaries.
States and providers have been outspoken in their opposition to the proposed rule largely on the
grounds that it reverses long-standing CMS policy and would jeopardize teaching hospitals and
resident training programs nationwide. They also contend that statute, regulations, and prior
Medicaid State Plan approvals do, in fact, authorize Medicaid GME payments. 31
Key points:
 GME includes both direct GME, the actual costs of training, and indirect GME, the
increased costs of care provided in a teaching environment.
 Medicaid programs have historically made payments to help cover the costs of
GME, but CMS indicates that Medicaid statute does not explicitly authorize GME
payments.
 The proposed regulation eliminates FFP for Medicaid GME payments and
prohibits the inclusion of Medicare direct GME costs in the calculation of UPL.
30
States must demonstrate that aggregate payments within three provider classes (state government, non-state
government, and private) do not exceed an upper payment limit, defined at 42 CFR 447.272 and 447.321, as
equal to a reasonable estimate of the amount that Medicare would have paid for the same services using
Medicare payment principles.
31
For a more detailed background, see Herz, E., Tilson, S. “Medicaid and Graduate Medical Education.” United
States Congressional Research Service. CRS Report RS22842 (February, 2009).
36
496659 (replaces 493701)

The Secretary’s 2008 report to Congress presents the specific problems addressed by the
regulation with an emphasis on the lack of accountability and ability to track GME payments due
to states’ incorporation of these payments into hospital reimbursement rate structures. By
incorporating GME into hospital reimbursement rate structures for medical services, the
Secretary asserts that states have obtained federal matching funds but have lost the ability to
measure GME payments or monitor their effectiveness. The Secretary concludes that “as a result,
there is generally no assurance that supplemental Medicaid payments for GME are actually
effective in supporting these programs, or in furnishing any benefit to Medicaid program
beneficiaries.” 32
The report also indicates that the federal government only has the statutory authority to evaluate
and monitor the efficiency of Medicaid spending for rates of payments for medical services, and
not GME, under current law. Because of this lack of oversight and the report’s assertion that
payments are typically built into hospital or MCO rates, the report contends that “it is difficult to
monitor and measure the effect of Medicaid payments on GME programs.”
In characterizing the problems addressed and discussing the provisions of the proposed rule, the
report appears to contradict the proposed regulation by limiting the elimination of FFP to direct
GME costs. However, it is our interpretation of the regulation, with CMS concurrence, that the
rule would also eliminate indirect GME payments from inclusion in payment rates eligible for
FFP. Our analysis of the prevalence of the problem and the fiscal impact is based on this
understanding.
The primary justification for the proposed regulation is that, according to CMS, the Medicaid
statute does not authorize payments for GME. Therefore, in assessing the problems described
above, we began by determining which states currently make payments for GME under the
Medicaid program. We determined that all states except Hawaii, Illinois, Montana, North
Dakota, Rhode Island, Vermont, and Wyoming currently make GME payments through their
Medicaid programs. Massachusetts will eliminate most GME payments in November 2009 and
will eliminate the remainder in April 2010. In at least two cases, state officials indicated that they
recently discontinued their GME program as a direct result of the proposed regulation.
In addition to identifying the states that make GME payments, we assessed the prevalence of the
specific problems identified in the 2008 report. For this assessment we relied on structured
interviews with state officials as well as reviews of Medicaid State Plans and in some cases, state
statute and other state policy documentation. A limitation of this approach is that we were unable
to verify that approved or intended payment policies aligned with actual practice. A more
comprehensive assessment of prevalence would require detailed on-site audits of each state’s
provider reimbursement rates and GME supplemental payment calculations as well as the
32
Leavitt, 2008.
37
496659 (replaces 493701)

teaching hospitals, medical schools, and other providers that are being reimbursed for GME, all
of which was beyond the scope of this project.
States and providers generally disagree that the problems described in the 2008 report are truly
problematic and note that GME programs have generally been approved by CMS in Medicaid
State Plans. Therefore, we emphasize that the identification of a “problem” in a particular state is
not an indication that the state has acted improperly, but rather that the state’s GME program
exhibits one or more characteristics that we have defined as an example of a characteristic
identified as problematic in the Secretary’s 2008 report to Congress.
For states with current GME programs, we assessed the prevalence of the problems as follows:
 Lack of payment transparency: To determine the prevalence of this problem, we first

determined the following for each state:
1. Are GME payments clearly identifiable, either in the MMIS or an alternate financial
transaction database?
2. Is the methodology for calculating and distributing GME payment amounts clearly
documented?
3. Are GME payments tied to recent GME cost reports?
If the answer to all three of these questions was “yes,” we did not identify the problem as
present in a state. If, however, the answer to any of these questions was “no” then we
concluded that GME payments were not completely transparent and could not be easily
monitored and reported.
 Payments not related to improving services or access to services: If payment for GME must
reflect payment for Medicaid medical services to qualify for FFP, as expressed by CMS in
its interpretation of Title XIX of the Social Security Act, GME payments must be correlated
with provision of direct care services. For this problem we attempted to determine whether
GME allocations prioritize high volume Medicaid providers. For example, some GME
formulas assign GME costs per resident based on a provider’s Medicaid service volume or
include GME payment as part of reimbursement rates for Medicaid discharges. In other
cases, GME payments are made as a lump sum to teaching hospitals, without regard to the
provider’s recent Medicaid volume. If the GME program does, in fact, tie payments to
recent Medicaid volume, we did not identify this problem as present. This is generally
consistent with the Medicare GME reimbursement methodology that ties payments to actual
services for Medicare beneficiaries.
As we reviewed states’ policies, we also noted those states that prioritized GME payments
through their allocation methodology to address specific Medicaid provider shortages by
provider type or by geographic area. We interpreted such policies as enhancing the
effectiveness of GME payments in terms of improving beneficiary access to services.
 Lack of evidence of benefit to GME programs: In assessing the prevalence of this problem,
we determined whether GME payments are based on current information, such as current
costs for currently operating training programs. We also determined that identification in a
state’s GME payment methodology of a verification of incurred costs for resident training,
38
496659 (replaces 493701)

in an amount at or above the prorated share of GME costs attributable to Medicaid, was an
indication that Medicaid GME payments benefitted training programs.
If cost information used to determine GME payments was more than several years old, we
identified an incidence of the problem. 33 We also identified a problem if GME payments did
not reflect the current supply of training programs or recent counts of filled resident slots. It
is important to note that our methodology did not allow us to establish the extent to which
GME payments directly and specifically benefit GME programs. Such a review would
require a detailed examination of each individual program to determine how the program
utilized the funds for training purposes and whether those funds actually improved the
quality of the program. For the purposes of this study we assumed that, as long as funds are
clearly directed toward providers with active training programs based on current data, there
was a likely benefit to the training programs.
Exhibit 6 shows the number of states in which we found evidence of the problems identified in
the 2008 Secretary’s report. 34
Lack of Payment Transparency Payments Not Related to

Lack of Evidence that
(i.e., Ability to Identify and Improving
Medicaid GME Payments
Track all Medicaid GME Services/Access for
Benefit Training Programs
Payments) Medicaid Beneficiaries
States Where 26 states – AK, AR, CA, CO, CT, 8 states – CA, CO, KY, 15 states – CA, DC, DE, GA, KY,
Problem Identified 35 DC, DE, FL, GA, KS, KY, LA, NM, OK, PA, TN, VA LA, MD, MO, MS, NE, NH, NY,
MD, ME, MN, MO, MS, NY, OH, OH, OR, PA
OR, PA, SC, TN, WA, WI, WV
 Lack of payment transparency: The most prevalent problem that we identified is a lack of
transparency for GME payments. This problem was identified in more than half of the states
with Medicaid GME payment programs. In most cases the problem exists because GME
payment is one component of the rates paid to providers or MCOs and cannot be easily
extracted and reported. However, state officials often indicated that the GME component
could be determined by reviewing cost reports and deconstructing the rates. In a few cases
33
We note, however, that Medicare direct GME payments are based on a hospital’s 1984 cost per resident, indexed
for changes in consumer prices, as described by the Congressional Budget Office in “Budget Option Volume I:
Health Care” (December, 2008).
34
The problems listed here are based on Lewin’s review of Leavitt, Michael O., Secretary of Health and Human
Appropriations Act, 2008.” Problems were identified based on interviews with state officials and review of
publically available documentation. There is no feasible way to perform an accurate assessment without full-
scale audits such as those performed by the HHS Office of Inspector General.
35
Alabama did not participate in an interview but sent a written response that “GME is not reimbursed by Alabama
Medicaid.” However, section 4.19-A of the Alabama State Plan provided by CMS does assert that GME is
included in hospital reimbursement rates, according to an amendment effective November 1, 1995 and approved
by CMS on March 26, 1997. Given the limited and seemingly contradictory information, we did not attempt to
evaluate Alabama.
39
496659 (replaces 493701)

GME payments were built into rates many years earlier and such a deconstruction would not
be possible.
 Payments not related to improving services: In eight cases, we determined that GME
payments were not clearly related to improving Medicaid services or access to services
based on the criteria described above. Other payments were related to improving access to
services while approximately ten states’ GME programs also target payments toward
residency programs for specialties such as family practice or pediatrics. We also examined
whether there are specific retention policies tied to GME programs intended to keep
residents in the state after completing their training and discovered this to be the case in one
state, although officials indicated that it was difficult to retain residents in rural areas even
with incentives.
 Lack of evidence of benefit to GME programs: In the majority of states we found that GME
payments were clearly linked to current active residency programs and those payments were
intended to support these programs. In one state, GME payments are made to medical
schools rather than to teaching hospitals, and state officials indicated that CMS agreed to
this methodology after lengthy discussions. Officials indicated that providing funds directly
to the schools ensured that funds would be used for medical education rather than to
subsidize costs unrelated to training.
In the few cases where we identified a problem, GME payments are based on costs and other
variables that are more than a few years old and may reflect training programs that are no longer
active. They also may not reflect new training programs or programs that have changed in size.
In these few cases it was not possible to establish a link between GME payments and benefit to
training programs in the state, particularly since payments may go to providers that no longer
have training programs.
We encountered some challenges in determining the prevalence of the problems described in the
2008 report. For example, as previously mentioned, our approach relied on interviews with state
officials, review of Medicaid State Plan documents and other state documents, and financial data
submitted by the states. At times it was very difficult to reconcile information between these
sources, either because Medicaid State Plan sections were out-of-date or state officials had
limited familiarity with the details of the GME program. Also, we were not able to conclusively
determine whether individual GME programs directly and specifically lead to improved
Medicaid services or higher quality training programs. Rather, we sought to identify objective
evidence that suggested that such benefits are likely by virtue of tying payments to volume of
Medicaid services delivered and the presence of an active, staffed training program.
40
496659 (replaces 493701)

Key points:
 The 2008 Secretary’s report emphasizes a lack of accountability and ability to track
GME payments, and a lack of assurance that GME payments are effective in
supporting programs or furnishing any benefit to Medicaid beneficiaries.
 We identified 26 states that build GME costs into payment rates resulting in an
inability to separately identify them.
 In eight states GME payments did not appear to be clearly related to improving
Medicaid services or access to services.
 In 15 states GME payments are based on costs and other variables that are more
than a few years old and may reflect training programs that are no longer active.
We identified 13 states with GME programs that appear to have transparent payments, clearly
target Medicaid beneficiaries, and benefit active training programs. Common characteristics
among these states, which are good indicators of strategies that states could use to address the
Secretary’s problems, included the following:
 Use of current cost reports: States with programs that appear to clearly benefit GME
training programs regularly update their GME payments based on current costs of providing
training, Medicaid utilization, and other information available in Medicare and, in some
cases, Medicaid cost reports.
 Payments correlate with Medicaid utilization: Programs that include GME payment within
payment rates or that make lump sum payments that include a Medicaid utilization factor are
the most likely to actually benefit Medicaid beneficiaries.
 Recent training program information: By regularly tracking the status of training programs
and limiting GME payments to providers that have current programs, states are able to
ensure that GME payments actually benefit programs.
 Targeting payments to areas of unmet need: States using GME payment methodologies that
are limited to (or pay a higher percentage of the Medicaid-apportioned cost of) medical
education costs for certain specialty areas or geographic areas most in need of services can
more easily demonstrate the effectiveness of their GME program. Some states paid GME
only for certain types of training programs (e.g., primary care) or for programs with
residency rotations in underserved rural areas, for example.
D. Impact of the GME Regulation
We estimated the impacts of the proposed regulation primarily through state data submissions
and interviews with state officials. While there are data limitations, discussed below, we found
there is a high likelihood that the regulation will impose a significant burden on:
 State funding: The majority of states make GME payments through the Medicaid program
and many would experience significant cuts in FFP if CMS implements the proposed
regulation.
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496659 (replaces 493701)

 State administration: States would need to recalculate fee-for-service rates to exclude GME,
recalculate MCO rates, revise MCO contracts, and update regulations and State Plans.
 Medicaid beneficiaries and providers: The impact on Medicaid beneficiaries and providers
is more speculative. Should GME payments not be replaced with other funding, providers
may be unable to continue portions of their training programs, which could have
repercussions for future workforce levels and access to care for Medicaid beneficiaries.
Universe of total expenditures
Based on the data we collected during this review, in fiscal year 2010 states will collectively
spend over $4.3 billion in total Medicaid expenditures on GME. As Exhibit 7 demonstrates, the
majority of these payments are either built into rates or paid in lump sums.
Exhibit 7: Estimated GME Spending, FFY10 in Millions
Direct GME and/or IME Lump Sum Direct GME Total Computable
Other Supplemental
Payments in Medicaid and/or Indirect GME Medicaid GME
GME Payments
Reimbursement Rates Provider Payments Payments
$2,190 $1,854 $319 $4,362
By comparison, AAMC estimated that Medicare GME payments for FFY08 amounted to
approximately $8.4 billion. 36 This demonstrates that Medicaid GME payments account for a
significant amount of GME funding in addition to the amount provided through Medicare.
Fiscal impacts
To estimate the fiscal impact of the proposed rule, we asked states to furnish data that would
allow us to estimate the fiscal impact of eliminating FFP for GME as well as the impact of
removing Medicare direct GME payments from the inpatient hospital UPL calculations. Based
on the data provided, we calculated the following impacts, as shown in Exhibit 8.
36
Harris, S. “Overview: Graduate Medicaid Education and Health Care Reform” AAMC Reporter (July 2009),
available at http://www.aamc.org/newsroom/reporter/july09/gradmed.htm, accessed on September 14, 2009.
42
496659 (replaces 493701)

Exhibit 8: State-specific Fiscal Impacts of the Proposed GME Regulation, Reduction in Federal
Financial Participation, FFY10-14, in Millions
Eliminate Federal Share of Eliminate Medicare Direct

State Medicaid GME Payments from GME from Inpatient Hospital
Reimbursement Medicaid UPLs
Alabama Uncertain Uncertain
Alaska $5.1 $0.0
Arizona $319.6 $0.0
Arkansas $79.1 Uncertain
California $831.7 $0.0
Colorado $22.0 $11.4
Connecticut $57.9 $3.4
Delaware $12.5 Uncertain
District of Columbia $227.0 $0.0
Florida $477.6 Uncertain
Georgia $374.1 Uncertain
Hawaii $0.0 $0.0
Idaho $5.9 $0.0
Illinois $0.0 $0.0
Indiana $106.0 $5.4
Iowa $110.3 $0.0
Kansas $78.4 $0.0
Kentucky Uncertain $0.0
Louisiana $827.1 $0.0
Maine $17.7 $0.0
Maryland $626.0 $0.0
Massachusetts $3.1 Uncertain
Michigan $561.2 $0.0
Minnesota $283.2 $15.6
Mississippi $115.9 Uncertain
Missouri $608.0 Uncertain
Montana $0.0 $0.0
Nebraska $69.5 $0.0
Nevada $7.5 $0.0
New Hampshire $5.0 $0.0
New Jersey $150.0 $0.0
New Mexico $200.3 $0.0
New York $4,148.9 $0.0
North Carolina $670.3 Uncertain
North Dakota $0.0 $0.0
Ohio $539.3 Uncertain
Oklahoma $353.0 $0.0
Oregon $42.1 $0.0
Pennsylvania $224.4 $0.0
43
496659 (replaces 493701)

Eliminate Federal Share of Eliminate Medicare Direct
State Medicaid GME Payments from GME from Inpatient Hospital
Reimbursement Medicaid UPLs
Rhode Island $0.0 Uncertain
South Carolina $717.4 $0.0
South Dakota $10.0 $0.0
Tennessee $163.6 $0.0
Texas $97.2 $289.2
Utah $298.0 $0.0
Vermont $0.0 $0.0
Virginia $446.2 $0.0
Washington $234.1 $0.0
West Virginia $65.8 $0.0
Wisconsin Uncertain Uncertain
Wyoming $0.0 $0.0
Total $14,192 $325
The impacts presented above do not include the total amount that could be lost from other
payment sources that may include GME as part of the allowable costs used in the payment
formula. In particular, while our data collection effort did request the GME portion of
disproportionate share hospital (DSH) and other supplemental payments, we found that the
burden placed upon states to deconstruct DSH payments into GME and non-GME, combined
with the time constraints of this study and the resource constraints of state agency staff, made it
impractical to include this impact. Only three states provided data for DSH GME payments,
accounting for $665 million (4.7 percent) of the $14 billion above. Consequently, the financial
impacts estimated above, which focus exclusively on payment for medical education, likely
understate the full impact of the proposed rule. For example, one state with direct and indirect
GME payments amounting to approximately $100 million indicated that their FFP would be
reduced by an additional $49 million with the removal of GME costs from DSH payments. This
proportion of GME costs reimbursed through DSH funding was high relative to the other two
states that provided data, however. Furthermore, since most states utilize their full DSH
allotments before covering all of their providers’ eligible DSH costs, it is possible that some of
the “lost” DSH funding resulting from the exclusion of medical education costs might still be
paid out, albeit with a different distribution among eligible providers.
Exhibit 9 shows the total estimated reduction in Medicaid expenditures, including both state and
federal funds, for FFY10 and for FFY10 through FFY14. The table also includes rows that show
the total estimated reduction in federal funds only.
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496659 (replaces 493701)

Exhibit 9: Total Estimates of Federal Savings and Reduction in Total State Medicaid Expenditures
for the Proposed GME Regulation, in Millions
Eliminate Medicaid Eliminate Medicare Direct

GME Payments from GME from Inpatient Total
Reimbursement Hospital Medicaid UPLs
$4,362 $96 $4,457
Estimated Reduction in FFP $2,478 $55 $2,534
$25,001 $561 $25,562
There has been wide variability with estimates of the projected federal savings of the regulations.
The following table shows various estimates for federal savings under the proposed GME
regulation. It must be noted that prior estimates of the regulation’s impact appear to have limited
the analysis to the elimination of direct and indirect GME payments from provider
reimbursement, without accounting for the UPL modification and the impact on other cost-based
supplemental payments. Consequently, we have not included the additional UPL-related impact
in Exhibit 10.
Exhibit 10: Five-year Estimates of Federal Savings for the Proposed GME Regulation
Federal Savings (in

Source Time Period
Billions)
OMB (2008) 37 FFY09-FFY13 $1.8
House Committee on Oversight FFY09-FFY13 $9.8
and Government Reform (2008) 38
 There is widespread uncertainty regarding the applicability of the regulation to indirect

GME payments. Many states interpret the regulation as continuing to allow payment for
indirect GME. Given the certainty with which some states expressed that indirect GME was
37
38
45
496659 (replaces 493701)

not affected by this regulation, we suspect responses to the Committee did not uniformly
include indirect GME.
 Projections were made for different periods of time. Our estimates rely on data from
different time periods inflated to a common time period.
 Our projections assume full compliance with the proposed regulation immediately upon the
effective date. In contrast, CMS actuaries, for example, adjusted for phase-in of
effectiveness, with full effectiveness achieved in the third year.
the states, we attempted to calculate impacts independently using state-submitted data. We
also achieved higher response rates from state-submitted financial data compared to the state
survey responses (38 states) included by the Committee. Our total for the same states
included by the Committee is about $12.9 billion.
In general we do not expect the proposed regulation to have a significant impact on state
administration of the Medicaid program. Removing GME from payment methodologies will
require administrative rule making and Medicaid State Plan amendments, and reimbursement
rates and UPLs will have to be recalculated. For the most part, these are routine administrative
responsibilities. However, states that have GME built into payment rates that have been trended
forward for many years may encounter difficulty in recalculating rates, particularly if removing
GME requires rates to be rebased to a more current year. Some state officials also indicated that
contractors would be required to carry out these functions.
It is difficult to estimate the secondary impacts of reduced funding such as impacts on

beneficiaries. However, state officials that we interviewed often cited two potential impacts.
First, many indicated that the loss of GME funding would result in fewer trained physicians to
serve Medicaid beneficiaries. Others noted that their teaching hospitals provide care to the
highest percentage of Medicaid beneficiaries and that services to these individuals would be
negatively impacted.
Many providers nationwide receive significant reimbursement through Medicaid GME

programs. In areas of the country with very narrow operating margins (e.g., inner city and rural
areas), elimination of this revenue source could result in providers operating at a loss.
It is not well understood what these cuts will mean to medical education. While some providers
may be able to maintain the size and quality of their training programs, the loss would have to be
absorbed elsewhere in the organization, possibly impacting less profitable services. At the same
time, it is difficult to believe that cuts of this significance could be made without reducing the
size of training programs. Such cuts would come at a time when, as state officials indicate, there
are already provider shortages.
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496659 (replaces 493701)

The analysis of the impacts of this rule has several data limitations.
 Lack of clarity in the regulation: There is a considerable amount of uncertainty regarding

the applicability of the proposed rule to indirect GME payments. Our interpretation of the
rule is that it prohibits FFP for all GME payments including both direct and indirect GME.
However, in the preamble to the proposed rule, CMS states that “States may not make any
educational payments under the Medicaid State Plan but are able to recognize, as part of the
inpatient hospital rate structure, the additional Medicaid covered service costs that teaching
hospitals incur when delivering Medicaid covered services.” 39 A number of states interpret
this to mean that payments for indirect GME would still be permitted. We also encountered
a widespread lack of understanding regarding the UPL provision of the proposed rule (i.e.,
that UPLs would need to be adjusted by removing direct GME costs from the UPL
calculation) and the impact that it would have on reimbursement in individual states.
 Effect on 1115 waiver programs: The application of the rule to programs operating under
1115 waivers is uncertain. We assumed the regulation would apply and for consistency
purposes, treated 1115 waiver states as being subject to the fully-implemented regulation at
the start of the projection period (as we did for other states). However, we encountered some
state officials in our interviews who indicated that CMS had assured their state that their
1115 program would not be required to conform to the GME regulation.
 Other sources of GME funds: Our analysis focuses on traditional sources of GME payments
including rates for services provided and lump sum payments made explicitly for GME
purposes. However, there are other payments that may include elements of GME that might
also be impacted if the proposed rule were implemented. For example, some states make
supplemental payments to providers under the UPL to partially cover the gap between
Medicaid payments and the cost of services provided. In calculating these payments, states
are likely to include GME as an allowable cost just as they do now for rate setting purposes.
Disproportionate share hospital payments also compensate hospitals for their Medicaid
shortfall as well as the costs of indigent care. These payments are also likely calculated
including GME as an allowable cost. Disallowing GME, therefore, may result in additional
payment reductions to those estimated here. Analyses of these implications were beyond the
scope of this engagement. Moreover, due to the complexity of these calculations, caused in
part by the wide variability of the rate-setting mechanisms in each state, analyses of the
implications of these types of changes could not be undertaken.
 Availability of UPL data: We experienced wide variability in states’ ability to provide data
to estimate the impact of removing direct GME costs from the calculation of the inpatient
hospital UPLs. In 2004, GAO reported that additional oversight and guidance was needed to
ensure that states properly calculate their UPLs. 40 Our experience was that understanding of
the UPL among state officials varies considerably and many states were simply unable to
39
Medicaid Program; Graduate Medical Education; Proposed Rule. Federal Register: May 23, 2007 (Volume 72,
40
U.S. Government Accountability Office. “Medicaid: Improved Federal Oversight of State Financing Schemes Is
Needed.” Publication No. GAO-04-228 (February, 2004).
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496659 (replaces 493701)

provide data demonstrating their UPLs, either with or without Medicare direct GME costs
included. On several occasions officials reported that they did not calculate UPLs because
they were not applicable in their state or because they received approval by CMS to
establish a UPL methodology based on Medicaid costs.
 Ability to identify GME amounts built into payment rates: As we indicated previously, GME
payments are often built into payment rates for hospital services. In some cases these rates
were developed many years earlier and inflated periodically. As a result, the data the state
used to develop the base rates are no longer readily available and some states are, therefore,
unable to identify the GME component of their rates.
Key points:
 In FFY10 states will collectively spend over $4.3 billion in total Medicaid
expenditures on GME.
 The majority of states make GME payments through the Medicaid program and
many will experience significant cuts in FFP if CMS implements the proposed
regulation.
 Should GME payments not be replaced with other funding, providers may be unable
to continue portions of their training programs, which could have repercussions for
future workforce levels as well as access to care for Medicaid beneficiaries.
Through our analysis we identified strategies that CMS could consider to address the problems
described in the Secretary’s 2008 report to Congress, should they decide against eliminating
GME payments entirely.
 Require payments to be separately identifiable: One strategy is to require that GME

payments be separately identifiable and easily reportable. For example, CMS could require
that states report GME as a distinct Medicaid service on their quarterly CMS-64 Medicaid
expenditure report.
 Specify training programs that are eligible for Medicaid funding: To help ensure that
Medicaid funds are used to benefit Medicaid beneficiaries, CMS could require that states
target GME funds toward training programs most likely to benefit Medicaid patients such as
pediatrics, family medicine, and OB/GYN.
 Develop clear guidelines for Medicaid GME payments: Develop guidelines regarding data
sources and timeliness of data, permissible methodologies, and required payment
documentation.
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496659 (replaces 493701)

 Increase reporting requirements for GME: Require teaching hospitals and other eligible
recipients of Medicaid GME payments to submit annual reports to CMS describing such
information as:
o Types of residency training programs provided and any recent changes to training
programs
o Number of training positions for residents and number of residents who completed
their residency training in the past year
o Benefits of GME payments for training programs and Medicaid beneficiaries
In 2006, Congress required hospitals receiving funding through the Children’s Hospitals
Graduate Medical Education (CHGME) Payment Program to file annual reports with
HRSA, beginning in FFY08, that include similar data and information.
F. Future Considerations
As Congress, CMS, and others continue to struggle with appropriately funding the nation’s
health care safety net while maintaining funding for critical programs such as GME, we offer the
following additional considerations:
 Ongoing need to support training programs: In the preamble to the proposed regulation,
CMS indicated that the original impetus for GME payments was a national physician
shortage but that “By the 1980s, the U.S. had a surplus of physicians…” 41 During the course
of our study several states commented that, in fact, a shortage of physicians continues to
exist in their states. These states were typically rural and struggle to maintain a trained
physician workforce to meet the needs of their Medicaid population.
 Use of current information: As described earlier, we identified numerous states that base
GME payments on outdated information. Therefore, a requirement that states regularly
update information on training programs, including the numbers of residents, training
programs, and the current cost to provide training may be reasonable.
 States’ use of vehicles to steer payments to particular providers: It appears that states use
payment vehicles such as GME to steer increased reimbursement toward particular providers
to further state policy goals. In the case of GME specifically, teaching hospitals often
provide care to a disproportionate percentage of a state’s under- and uninsured population as
well as Medicaid beneficiaries. These hospitals may have a legitimate need for increased
funding and GME payments are one mechanism by which states can target increased
payments to individual providers. It is important to recognize, therefore, that elimination of
GME as an allowable Medicaid expense may require states to take dramatic measures to
reorganize their payment policies.
41
Medicaid Program; Graduate Medical Education; Proposed Rule. Federal Register: May 23, 2007 (Volume 72,
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496659 (replaces 493701)

VI. Rehabilitative Services
In this section we review the optional Medicaid rehabilitative services benefit and present new
data on the costs associated with the benefit.
Medicaid’s rehabilitative services option
The Social Security Act defines a broad set of benefits that may be covered under state Medicaid
programs. Those benefits include:
other diagnostic, screening, preventive, and rehabilitative services, including any medical or
remedial services (provided in a facility, a home, or other setting) recommended by a physician or
other licensed practitioner of the healing arts within the scope of their practice under State law, for
the maximum reduction of physical or mental disability and restoration of an individual to the best
possible functional level 42 [emphasis added]
Many Medicaid benefits are mandatory for states; that is, any state with a Medicaid program
must cover inpatient hospital services, physician services, and several other itemized services.
Other benefits defined in the Social Security Act are optional, and states may choose whether or
not to offer them within the state’s Medicaid benefits package. The “other diagnostic, screening,
preventive, and rehabilitative services” are optional although all states offer some form of the
rehabilitative services referred to in this benefit category. 43
From a regulatory perspective, CMS separates the diagnostic, screening, preventive, and
rehabilitative services. Current federal regulations at 42 CFR 440.130(d) define rehabilitative
services by echoing the language above from the Social Security Act. Each state is required to
describe its coverage of rehabilitative services in a state-specific document called the Medicaid
State Plan.
It is important to note that the rehabilitative services addressed in this report do not include all
Medicaid services that are rehabilitative in nature. Inpatient services, home health, and other
services can be rehabilitative, but they are not covered through the specific optional benefit
category described above. Throughout this report, we refer to the optional Medicaid
rehabilitative services benefit as the “rehab option” to prevent confusion on this issue.
How states use the rehab option
States use the rehab option to fund a broad range of services. We categorize the common types of
services and the number of states offering those services through the rehab option in Exhibit 11.
42
Section 1905(a)(13) of the Social Security Act.
43
Tennessee, which has long maintained a Medicaid 1115 demonstration program, does not technically consider
itself as covering services under the authority of the rehab option. However, it does offer services that would
likely be categorized as rehab option services were the demonstration not in place. We do not factor Tennessee
into any of the subsequent analysis in this section.
50
496659 (replaces 493701)

Exhibit 11: Common Types of Services and Number of States Offering Them
Common Types of Rehab Option Services Number of States

Mental health services 50
Substance abuse services 33
School-based services 18
Physical therapy 15
Therapeutic foster care 13
Early intervention programs* 13
Adult day health services** 9
* These only include programs for young children with developmental delay or conditions likely to result in
developmental delay
** These focus on older adults and people with disabilities. They do not include mental health or
developmental disability-specific day programs. States may use different terminology.
Even within these categories, states vary widely in the types of services offered, target
populations, and delivery models. With CMS approval of their Medicaid State Plans, some states
have used the rehab option to cover services that do not fall into the categories above, including
environmental investigations to determine the sources of lead poisoning, directly observed
therapy for people with tuberculosis, maternal and child health services, and diabetes patient
education.
Based on the data we collected during this review, the total computable (combined state and
federal) Medicaid expenditures for rehab option services exceeded $10 billion in 2008. 44 With a
few exceptions, this amount does not include rehab option services covered through capitated
managed care, and therefore understates the full amount.
This estimate is significantly higher than what we see from the data in CMS’ Medicaid Statistical
Information System (MSIS), which has been the primary data source for other analysEs on the
rehab option. 45 There are some technical differences between what we collected and what is
included in MSIS that explain some of this variance, but it is also possible that the MSIS coding
for rehabilitative services is not reliable at this level of specificity. We believe that our data from
the states is a more reliable measure of rehab option spending than MSIS. 46 We show the
expenditures in Exhibit 12.
44
This includes Medicaid expansion CHIPs, which account for a small percentage of the total. Colorado, North
Dakota, and Washington did not report data.
45
See, for example, Crowley, J. S., O’Malley, M. “Medicaid’s Rehabilitation Services Option: Overview and
Current Policy Issues.” Kaiser Commission on Medicaid and the Uninsured (August, 2007).
46
For a discussion of MSIS limitations, see U.S. Department of Health and Human Services Office of Inspector
General. “MSIS Usefulness for Detecting Fraud, Waste, and Abuse.” Publication No. OEI-04-07-00240 (August,
2009).
51
496659 (replaces 493701)

Exhibit 12: Total Rehab Option Expenditures in this Study vs. MSIS
Source Total Expenditures

MSIS, 2007 $7.0 billion
47
MSIS, 2008 (projected) $7.5 billion
State-produced data for this study, 2008 $10.1 billion
Spending across states
States vary in the extent to which they rely on the rehab option to fund Medicaid services. The
differences in size among states make it difficult to draw interstate comparisons focusing solely
on the raw expenditures for the rehab option, so we converted total rehab option expenditures to
a percent of each state’s total Medicaid expenditures. By this measure, the rehab option
nationally accounts for about three percent of total Medicaid costs. Exhibit 13 shows the 10
states with the highest reliance on the rehab option.
Exhibit 13: States with the Highest Reliance on the Rehab Option, 2008 Total Funds, in Millions 48
Rehab Option as Percent

Rehab Option
State of Each State’s Total
Expenditures
1. Maine $438 20.6%
2. Idaho $150 12.9%
3. Rhode Island $207 11.2%
4. New $126 10.1%
Hampshire 49
5. Vermont $92 9.5%
6. Arkansas $261 7.9%
7. Virginia $393 7.4%
8. Nevada $98 7.4%
9. Oregon $207 6.7%
10. Montana $48 6.2%
U.S. total $10,141 3.1%
47
FFY08 MSIS data are not yet available. We trended FFY07 data forward using trends derived from the National
Health Expenditure Accounts data for Medicaid released by the CMS Office of the Actuary in 2009.
48
We derived total Medicaid expenditures for each state from Urban Institute and Kaiser Commission on Medicaid
and the Uninsured estimates based on data from CMS-64 reports, March 2009 (available at
www.statehealthfacts.org). Since 2008 data were not yet available, we trended 2007 data forward using a trend
factor derived from National Health Expenditure Accounts data. We excluded three states for which we do not
have rehab option data (CO, ND, WA). Because the total expenditures include capitation payments and our data
from the states often does not, percentages may be understated in some states.
49
New Hampshire’s data submission did not include all rehab option services; therefore, this table understates the
State’s actual percentage.
52
496659 (replaces 493701)

Proposed regulation
On August 13, 2007, CMS proposed new rules governing the Medicaid rehabilitative services
benefit. The proposed rules would:
 Define key terms used to set parameters for coverage of services under the rehab option
 Specify the allowable scope of rehab option services, with a focus on ensuring that all
services are being directed toward specific rehabilitation goals articulated in written
rehabilitation plans
 Exclude Medicaid coverage under the rehab option for:
o Services that are “intrinsic elements” of programs other than Medicaid
o Habilitative services, including for those states providing day habilitation and related
services for people with mental retardation or with related conditions that were
previously protected by OBRA ’89
o Transportation, personal care, vocational, and other types of services
 Specify other requirements and limitations
The proposed regulations would create a higher level of specificity on the federal rules for
services under the rehab option, but leave wide latitude for administrative interpretation.
Key points:
 States cover an extraordinarily broad range of services under the rehab option.
 States vary in the extent to which they fund services through the rehab option;
four of the five states most reliant on the rehab option are in New England.
 Total computable rehab option expenditures in 2008 exceeded $10 billion.
CMS has expressed numerous concerns about state use of the rehab option. 50 The Secretary’s
2008 report to Congress presents potential problems with state use of the benefit, emphasizing
the following five primary areas:
 Covering services that do not meet CMS’ definition of rehabilitation, including concerns
that some states include recreational and social activities that are not tied to rehabilitation
goals and that some states are providing habilitation rather than rehabilitation services 51
50
See, for example, testimony from Dennis Smith, Director, Center for Medicaid and State Operations, Centers for
Medicare and Medicaid Services, before the House Committee on Oversight and Government Reform, on the
Administration of Regulatory Actions on Medicaid: The Effects on Patients, Doctors, Hospitals, and States,
November 1, 2007, available at http://oversight.house.gov/documents/20071101163813.pdf.
53
496659 (replaces 493701)

 “Bundling” payments in ways that provide Medicaid funding for both allowable and non-
allowable services, including non-allowable room and board
 Covering services provided by individuals without appropriate qualifications
 Failure by providers to maintain proper documentation for services rendered
 Covering services that are “intrinsic elements” of other government programs (i.e., using
Medicaid to fund services that are included in the normal provision of other programs, such
as juvenile justice or foster care)
We assessed the prevalence of the problems cited in the Secretary’s report primarily through
structured interviews with state officials, review of Medicaid State Plans, and review of other
policy documentation. We did not review any medical records or other clinical data as it relates
to the stated concern about maintaining proper documentation. We present our findings below
and discuss some of the methodological challenges.
Exhibit 14 shows the number of states in which we found evidence of the problems identified by
the Secretary. 52
51
Coverage of habilitation services under the rehabilitation services option was protected in 17 states by the
Omnibus Budget Reconciliation Act of 1989. However, CMS maintains that these proposed regulations meet the
legislative conditions to end such protection.
52
The problems listed here are based on Lewin review of Leavitt, Michael O., Secretary of Health and Human
Appropriations Act, 2008.” However, we do not assess the potential for documentation-related problems in this
section. There is no feasible way to perform an accurate assessment without full-scale audits such as those
performed by the HHS Office of Inspector General.
54
496659 (replaces 493701)

Problem Defined by the Secretary States Where Problem Identified

31 states – AL, AR, CA, CT, DE, FL, ID,
IL, IN, MA, MD, ME, MI, MN, MO, MS, NC,
Service does not meet CMS definition of rehabilitation
NH, NJ, NY, OH, OR, PA, RI, SC, SD, TX,
UT, VA, VT, WV
Bundling payment in a way that includes non- 17 states – CA, CO, CT, DE, FL, MA, ME,
rehabilitation services MO, NC, NH, NJ, NM, PA, TX, UT, VA, VT
Providers do not meet appropriate qualifications None identified
Failure to maintain proper documentation Beyond scope of study
Service is an ‘intrinsic element’ of another program 2 states – FL, NM
The most prevalent problem identified by the Secretary was coverage of services that do not
meet CMS’ definition of rehabilitation. 53 Within that category, we further break down the
prevalence of specific types of examples below.
 Habilitation: The Secretary’s report does not formally define habilitation but notes that it
“typically refers to services that are for the purpose of helping persons acquire new
functional abilities” as opposed to restoring abilities that were lost due to illness or injury.
Habilitative services are coverable through Medicaid’s ICF/MR benefit, 1915(c) waivers, or
the new 1915(i) option. 54
 Maintenance-oriented services: Services that help individuals maintain – as opposed to
restore – functional levels appear not to fit CMS’ definition of rehabilitation unless they are
“necessary to help an individual achieve a rehabilitation goal as defined in the rehabilitation
plan.” States providing maintenance-oriented services often do so in the context of services
for people with chronic mental illnesses.
 Transportation: States can use Medicaid funding to cover transportation to and from
appointments for medically necessary services. Transportation can be covered as an
administrative cost or as an optional Medicaid service separate from the rehab option.
 Personal care: Personal care is an optional Medicaid service separate from the rehab option
that 36 states already choose to offer through their Medicaid State Plans. When covered
under the rehab option, personal care is usually linked in some way to other types of
services. For example, some states cover a set of school-based services under the rehab
option, with personal care as one component of those services. We show this breakdown in
Exhibit 15.
53
We used the Secretary’s report and the proposed rehab option regulations as the guide for determining which
types of services do not meet CMS’ definition of rehabilitation.
54
The 1915(i) home and community-based services (HCBS) benefit was created by the Deficit Reduction Act of
2005. It allows states to cover a limited set of HCBS services through the Medicaid State Plan. Previously, these
types of services were generally only available through time-limited Medicaid waiver programs.
55
496659 (replaces 493701)

Exhibit 15: Number of States and Types of Rehab Option Services not Meeting
CMS’ Definition of Rehabilitation
Types of Services under Rehab

Option that do not Meet CMS Number of States
Definition of Rehabilitation
Habilitation 23
Maintenance-oriented services 15
Transportation 7
Personal care 6
It bears noting that many states question whether providing these services under the rehab option
is truly a ‘problem’ in the way that the Secretary’s other concerns may be. For example,
transportation services may not meet CMS’ definition of rehabilitation, but CMS would still
allow state Medicaid programs to cover transportation under other already-existing Medicaid
rules. And in almost all cases, CMS had approved the individual state’s inclusion of these
services under the rehab option. Therefore, our findings that a state has a particular problem
above do not indicate any malfeasance or negligence on the part of the state.
The other problems identified by the Secretary – related to bundling, provider qualifications, and
intrinsic elements – appear less frequently. We make two observations:
 Bundling payment in a way that includes non-rehabilitation services: “Bundling” refers to

payment for more than one service under one consolidated payment rate. In our analysis, we
only counted problems where states use bundled payment methodologies that include
elements that CMS does not consider to be rehabilitative, including transportation and
personal care. Therefore, our finding that 17 states exhibit this problem is generally
derivative of the more prevalent problem that states are covering services that do not meet
CMS’ definition of rehabilitation.
Based on the Secretary’s report, we did not consider it to be a problem where payment
methodologies only bundle together different types of rehabilitative services, although
numerous states reported that CMS has not allowed this type of bundling in recent Medicaid
State Plan amendments.
 Service is an “intrinsic element” of another program: We identified very few states where
the rehab option is paying for services that we believe CMS would consider intrinsic
responsibilities of another non-medical program. Even for the two states where we felt that
CMS would identify a problem, we believed it would only have been applicable to an
immaterial dollar amount. This finding belies the level of state concern about these
provisions of the proposed regulations. In many states, rehab option services – especially
mental health services – are highly integrated with education, child welfare, juvenile justice,
and other non-medical systems. Some states believe that CMS would take a more stringent
interpretation of the intrinsic element issue and therefore find the prevalence of the problem
to be much greater.
56
496659 (replaces 493701)

Key points:
 Based on the way the Secretary defined the problem, three out of every five states
are covering at least some services under the rehab option that do not meet CMS’
definition of rehabilitation.
 We found little evidence of the other types of problems (although we did not assess
documentation problems).
There are a number of strategies that states have pursued to avoid the problems identified by the
Secretary and mitigate concerns from CMS. We describe several below, organized by the
problems identified by the Secretary. It bears noting that several states only pursued these
measures at the direction of CMS.
Service does not meet CMS’ definition of rehabilitation
Many states cover services under the rehab option that could be covered under other Medicaid
benefit categories, including physical, occupational, and speech therapies, inpatient and
outpatient hospital services, and the new 1915(i) home and community-based services benefit. In
recent years, several states have moved services from the rehab option authority to other
categories. This does not necessarily change the nature of the service, but it helps avoid CMS
concerns related to the rehab option. As examples:
 Texas is working to move day activity health services to a new 1915(i) program
 Idaho is planning to restructure its coverage of community services for people with
developmental disabilities, including moving services out of the rehab option to 1915(c) or
1915(i) coverage
 Florida is planning to move its prescribed pediatric rehabilitative services to the optional
Medicaid personal care benefit
Administrative costs associated with these changes are significant, as we discuss later in this
report.
Bundling payment in a way that includes non-rehabilitation services
As we have noted elsewhere in this report, we focused on the wording in the Secretary’s report
that limited the definition of this problem to instances where payment includes rehabilitative and
non-rehabilitative components. We did not consider bundling payment to be a problem where
payment methodologies only bundle together different types of rehabilitative services. However,
the experiences in some states suggest that CMS has been enforcing a more stringent standard on
bundling.
 Unbundling payment: By our count, CMS has already required at least eight states to
unbundle payment for services under the rehab option. For example, Illinois previously
covered a mental health service package called “comprehensive rehabilitation services” for
children in state-approved living arrangements, including foster care placements. After CMS
57
496659 (replaces 493701)

objected to its per diem rate, Illinois eliminated the packaged service in June 2008 and
began requiring providers to bill for each of the services separately.
 Detailed cost reporting: Part of CMS’ concern with bundled payment is that auditors
cannot clearly relate payment to the amount and types of services delivered. CMS appears to
be offering states an option to pay bundled rates on the condition that providers submit
detailed cost reports. One state indicated that it was trying to proactively address this
concern by creating its own “enhanced cost report” that would provide a greater level of
detail about costs and service delivery.
Providers do not meet appropriate qualifications
With the breadth of services covered under the rehab option, there are no standard professional
qualifications tied to the rehab option, per se, as there are for some other benefit categories (e.g.,
physical therapy). Therefore, assessing the appropriateness of provider qualifications requires
consideration of the nature of the specific rehab option services in each state. We found very
little evidence that states allow unqualified providers to deliver rehab option services, although
there is wide variation in the level of detail included in Medicaid State Plans on provider
qualification requirements. Most states that have recently amended the rehab option section of
the Medicaid State Plan have, at CMS’ direction, included a table that shows each rehab option
service and the levels of provider training or licensure type necessary to deliver the service.
Documentation problems
We did not assess the prevalence of documentation problems for rehab option services, but we
identified two types of strategies states have used to address those problems.
 Close collaboration between state agencies: In each state, a single state Medicaid agency is
officially responsible for the integrity of all Medicaid expenditures. However, states
frequently partner with sister agencies to administer certain Medicaid services to special
populations, such as people with mental illness or developmental disabilities, especially
under the rehab option. In our analysis, we found that two out of every three states have at
least one sister agency directly involved in administering rehab option services.
It is a common belief among state Medicaid agencies that sister agencies are less in tune
with the rules and requirements of the Medicaid program. We did not conduct any scientific
assessment of this premise, but several states reported to us that they have improved
program integrity by maintaining close relationships between the state Medicaid agency and
sister agencies involved in rehab option administration. North Carolina, for example, has
created joint audit teams between the Division of Medical Assistance (Medicaid) and the
Division of Mental Health, Developmental Disabilities, and Substance Abuse Services to
monitor provider performance and compliance with state and federal rules.
 Provider training: Some states have invested in training for providers on documentation
requirements and billing rules.
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496659 (replaces 493701)

Service is an ‘intrinsic element’ of another program
The same strategies discussed above – inter-agency collaboration and provider training – are
important strategies for ensuring that Medicaid funds are not paying for services that are
intrinsically part of education, child welfare, juvenile justice, or other non-Medicaid systems.
However, without any clarity on where to draw the line between Medicaid and non-Medicaid
responsibilities, it is difficult to articulate state strategies other than doing careful research on the
federal laws and regulations that govern other social service programs.
State reluctance to amend Medicaid State Plans
The state strategies for addressing the problems identified in the Secretary’s report are limited by
an important factor: many states are reluctant to amend the rehab option sections of their
Medicaid State Plans out of concern that CMS will use the amendment process as an opportunity
to require other changes. When a state requests a Medicaid State Plan amendment, CMS may use
the opportunity to review other elements included in the same part of the Medicaid State Plan,
even elements not directly related to the nature of the amendment. With CMS taking what states
perceive as an increasingly stringent view of what is acceptable under the rehab option, states
have to weigh the benefit of making technical changes to the Medicaid State Plan against the risk
that CMS might determine during the amendment process that other elements of the rehab option
are no longer allowable.
D. Impact of the Rehabilitative Services Regulation
Estimating impacts
In this section, we estimate the potential impacts that finalizing the proposed rehab option
regulation would have on the 50 states and the District of Columbia. We identified three major
factors in our assessment of impacts across the states, discussed below. These were among the
most common factors (but certainly not the only ones) that would lead to state impacts.
 Habilitation: The proposed regulation makes clear that habilitative services are not
allowable under the rehab option. CMS only vaguely defines habilitation as typically
referring “to services that are for the purpose of helping persons acquire new functional
abilities” as opposed to restoring abilities that were lost due to illness or injury. We believe
that CMS would generally interpret services oriented toward mental retardation and related
conditions as habilitation. 55 (“Related conditions” is a term that CMS defines to include
autism, cerebral palsy, and other conditions.) In the preamble, CMS also notes that the
proposed regulations would effectively end the protection that Congress granted in OBRA
’89 to 17 states that were covering day habilitation and related services for people with
55
The distinction between habilitation and rehabilitation seems to be largely considered along diagnostic lines. For
example, proposed 441.45(b)(2) says: “Habilitation services include ‘services provided to individuals’ with
mental retardation or related conditions. (Most physical impairments, and mental health and/or substance related
disorders, are not included in the scope of related conditions, so rehabilitation services may be appropriately
provided).”
59
496659 (replaces 493701)

mental retardation or with related conditions through either the rehab option or the Medicaid
clinic services benefit. 56
In our analysis, we found that states are using the rehab option to deliver what we believe
CMS would consider habilitative services for several classes of rehab option recipients,
including:
o Children with autism who are currently receiving services through a state’s mental
health system
o Adults and children with mental retardation and related conditions receiving day
habilitation or residential services
o Nursing facility residents who need specialized services related to developmental
disabilities, as indicated during federally-required screening processes
o Young children (usually birth to 36 months) who are in early intervention programs
because they have developmental delays or conditions likely to result in
developmental delays
 Maintenance-oriented services: The proposed regulation defines the term ‘restorative
services’ in a way that would restrict the ability of states to fund services under the rehab
option that help individuals maintain – as opposed to restore – functional levels. The
application of this provision for services to people with chronic mental illnesses may be
problematic. For this population, terminating services after people reach their maximum
level of recovery may lead to regression in functioning that could lead to poor health
outcomes, institutionalization, or incarceration. This issue presented methodological
challenges that we discuss later in this report.
Rather than lose FFP for maintenance-oriented services, we assume that states would
aggressively seek 1915(i) coverage to deliver services to people with chronic mental
illnesses. The 1915(i) benefit, created by the Deficit Reduction Act of 2005, is still in its
infancy, and its ultimate utility for the states is still uncertain.
 Therapeutic foster care: The proposed regulation and its preamble give special focus to
Medicaid payment for services in the therapeutic foster care (TFC) setting. Based on our
analyses, 13 states cover TFC as a packaged service where Medicaid pays a TFC provider
for providing an array of behavioral health services to children in foster care. The proposed
regulations address TFC in two ways.
First, the proposed regulations make clear that Medicaid payments for TFC cannot include
services that are intrinsic to the child welfare system, such as adoption or family
reunification services. No state reported to us that its TFC payments included anything other
than the treatment component of TFC that is above and beyond the responsibility of the
child welfare system. In our own review of state regulations and provider manuals, we
identified two limited instances where a state included the components that CMS called out
56
The Congressional Research Service reports the 17 states as AR, CA, CO, DE, ID, IA, ME, MD, MA, MI, MO,
MT, NY, OH, OR, RI, and WY. See Binder, C. “Medicaid Rehabilitation Services.” Congressional Research
Service: The Library of Congress (June, 2008).
60
496659 (replaces 493701)

as examples of intrinsic elements. When we discussed those instances with state officials,
we determined that those issues were more definitional in nature and would not materially
impact the program. However, virtually every state raised concerns about how these
provisions would ultimately be enforced.
Second, they require that services in the foster care setting must be “clearly distinct” from
the underlying foster care and that “states must specifically define all of the services that are
to be provided.” 57 To satisfy these requirements, we projected that several states would need
to unbundle payment, only allowing providers to bill for discrete rehab option services that
are available to all children (not just children in TFC placements). However, we never found
that TFC payments included any substantial amount that could be attributed to the types of
services that are called out in the regulations as intrinsic elements of the child welfare
system. Some states believe that unbundling TFC payments would fundamentally threaten
the viability of the service model, but this belief was not universal.
States have options for mitigating many of the potential negative impacts from the proposed
regulations by shifting Medicaid services away from the authority of the rehab option and into
other Medicaid benefit categories (e.g., the optional personal care benefit, 1915(c) waiver
programs, etc.). CMS clearly envisions this and even suggests some of these coverage
alternatives in the preamble. However, those coverage alternatives often raise complicated
administrative and policy considerations.
Throughout our work, we assumed that states would aggressively seek coverage alternatives to
protect access to FFP for services currently under the rehab option that may no longer be
allowable under the proposed regulation. We made this assumption even where it was not clear
how the state could obtain the administrative resources necessary to implement new coverage
options. Indeed, under the assumptions we made, it is not clear where CMS would find the
administrative resources to rearrange this coverage. For example, only three states currently have
approved 1915(i) programs, and CMS reviews 15 or so new 1915(c) waiver applications each
year. Under our assumptions, 19 states would be simultaneously seeking CMS approval of new
1915(i) programs, and 15 would be seeking 1915(c) waivers, not counting requests from states
like Texas and Idaho that were planning to seek new waivers whether or not the regulation was
finalized.
Fiscal impacts
Exhibit 16 shows our projected fiscal impacts in two categories. The first shows the projected net
loss in FFP for each state. This amount is equivalent to the savings to the federal government.
The second category shows the FFP that would shift from the rehab option to other coverage
authority, based on our assumptions for each state. The shifts in funding would not result in any
net savings to the federal government.
57
See proposed 441.45(b)(1)(i) and Medicaid Program; Coverage for Rehabilitation Services; Proposed Rule.
Federal Register: August 13, 2007 (Volume 72, Number 155, Page 45205).
61
496659 (replaces 493701)

We project a loss of FFP in seven states where we believe that rehab option services could not
meet the requirements of the proposed regulation and that coverage alternatives are not feasible
or available. In these states, our projections of lost FFP are attributable to:
 Habilitation services that would not shift to other coverage authority (Mississippi) or could
only shift to other authority for a fraction of the people currently receiving services
(Massachusetts, New York)
 Services provided to residents of community residential treatment facilities with more than
16 beds (Connecticut) 58
 Residential long term care services that would not fully shift to 1915(i) authority (Maine)
 Adult day health services that could not fully shift to 1915(c) or 1915(i) authority
(California, Maine, New Hampshire)
Exhibit 16: State-specific Fiscal Impacts of the Proposed Rehab Option Regulation, Reductions
and Shifts in Federal Financial Participation, FFY10-14, in Millions
Loss of FFP Shift in FFP to Other Coverage Authority

State
(Federal Savings) (No Net Savings)
Alabama $0.0 $55.5
Alaska $0.0 $0.0
Arizona $0.0 $0.0
Arkansas $0.0 $138.1
Colorado $0.0 Uncertain
Connecticut $54.1 $80.7
Delaware $0.0 $43.2
District of Columbia $0.0 $0.0
Florida $0.0 $4.3
Georgia $0.0 $0.0
Hawaii $0.0 $0.0
Idaho $0.0 $0.0
Illinois $0.0 $73.9
Indiana $0.0 $112.5
Iowa $0.0 $0.0
Kansas $0.0 $0.0
Kentucky $0.0 $0.0
Louisiana $0.0 $0.0
Maine $71.4 $663.8
Maryland $0.0 $33.4
Massachusetts $12.8 $280.0
58
Proposed 42 CFR 441.45(b)(5) prohibits FFP for rehab option services “provided to residents of an institution for
mental disease (IMD) who are under the age of 65, including residents of community residential treatment
facilities with more than 16 beds that do not meet the requirements at § 440.160 of this chapter.”
62
496659 (replaces 493701)

Loss of FFP Shift in FFP to Other Coverage Authority
State
(Federal Savings) (No Net Savings)
Michigan $0.0 $23.8
Mississippi $6.7 $0.0
Missouri $0.0 $64.6
Montana $0.0 $0.0
Nebraska $0.0 $0.0
Nevada $0.0 $0.0
New Hampshire $0.3 $6.8
New York $327.3 $112.6
North Carolina $0.0 $0.0
North Dakota $0.0 $0.0
Ohio $0.0 $0.0
Oklahoma $0.0 $0.0
Oregon $0.0 $3.9
Rhode Island $0.0 $6.0
South Dakota $0.0 $2.8
Tennessee N/A N/A
Texas $0.0 $0.0
Utah $0.0 $54.5
Vermont $0.0 $132.5
Virginia $0.0 $134.5
Washington $0.0 $0.0
West Virginia 59 $0.0 $5.9
Wisconsin $0.0 $0.0
Wyoming $0.0 $0.0
Total $1,172 $3,172
Exhibit 17 shows the estimated net reduction in Medicaid expenditures and the estimated shift in
expenditures from the rehab option to other Medicaid coverage authority, including both state
and federal funds, for FFY10 and for FFY10 through FFY14. The table also includes rows that
show the total estimated reduction in federal funds only.
59
For West Virginia, we project an increase in FFP and state expenditures.
63
496659 (replaces 493701)

Exhibit 17: Estimates of Net Reductions in Total Medicaid Expenditures and Shifts to Other
Coverage Authority for the Proposed Rehab Regulation, in Millions
Net Reduction in Shift to Other Coverage

Medicaid Expenditures Authority
Total Medicaid Expenditures $110 $624
FFP $55 $348
Total Medicaid Expenditures $2,308 $5,659
FFP $1,172 $3,172
Nationally, our projections would lead to a realignment of expenditures under the Medicaid
program, as depicted in Exhibit 18.
Exhibit 18: Projected Reallocation of Rehab Option Expenditures, FFY10-FFY14
Percent of Projected
Federal Funds
Federal Rehab Option
(in Millions)
Expenditures
Federal savings $1,172 3%
Shift to other benefit categories $3,172 8%
Remain under rehab option $35,393 89%
The national numbers mask a high degree of interstate variation. States like California, Maine,
Massachusetts, and Minnesota all have more than 20 percent of their rehab option expenditures
either shifting to other authority or completely disallowed under our projections. The map below
shows states by the percentage of their rehab option expenditures that would no longer be
allowable under the proposed regulation. The percentages combine the amounts that we project
would be disallowed completely with those that states would shift to other coverage authority. 60
60
Neither Idaho nor Texas shows an impact on the map because they had major changes in the rehab option
already set in motion. In these cases, we did not attribute impacts to the finalization of the proposed regulations,
but both states would have close to half of their current rehab option expenditures shifting into other coverage.
Colorado would need to shift some expenditures to other authority but did not submit data for this analysis.
64
496659 (replaces 493701)

Exhibit 19: Percent of Rehab Option Expenditures No Longer Allowable under Proposed Rehab
Option Regulation, FFY10-FFY14
No fiscal impact Less than 10% 10% to 19.9% 20% to 29.9% 30% or more
Exhibit 20 shows various estimates for federal savings under the proposed rehab option
regulations.
Exhibit 20: Five-year Estimates of Federal Savings for the Rehab Option Regulations
Federal
Source Time Period Savings
(in Billions)
Congressional Budget Office (2008) 61 FFY08-FFY12 $1.4
62
OMB (2008) FFY09-FFY13 $2.7
House Committee on Oversight and FFY09-FFY13 $5.2
61
Congressional Budget Office. “Medicare, Medicaid and SCHIP Administrative Actions Reflected in CBO’s
Baseline.” (February 2008) available at: http://www.cbo.gov/budget/factsheets/2008b/medicaremedicaid.pdf,
accessed September 14, 2009.
62
63
65
496659 (replaces 493701)

 Each projection was made at a different point in time. Our estimates may be lower in part
because some states took action between 2007 and the present to reduce their exposure to
the proposed regulations.
the states, we made much more aggressive assumptions about how states would utilize other
coverage alternatives to protect FFP for services currently under the rehab option.
 The regulations leave significant room for interpretation, as we discuss later in this report,
and the rehab option is part of a dynamic system. As such, there is no single “correct” fiscal
projection because it is subject to too many unknown variables about how CMS would
enforce the regulations and how the states would react.
We estimate that the proposed rehab option regulations would lead to massive new
administrative burdens for state agencies.
Throughout our analyses, we assumed that state agencies would make the administrative
investments necessary to preserve FFP for the services affected by the proposed regulations. We
made this same basic assumption in our analysis for all states, even as virtually all states are
reducing staff and cutting costs. As just one example, California is furloughing state staff three
days per month throughout fiscal year 2010. This effectively reduces the manpower in the state
Medicaid agency by 15 percent. Although the budgetary circumstances in California are unique
in their magnitude, many other states are facing similar administrative constraints, including
furloughs, layoffs, and hiring freezes.
Amending Medicaid State Plans, creating new 1915(i) or 1915(c) options, unbundling payment
methodologies, and the countless other administrative steps associated with our assumptions
would require significant and concurrent administrative focus. For many states, it is difficult to
imagine how they could enact all of these changes without additional administrative resources.
However, we stand by the logic of our assumptions that the administrative costs of technical
changes in Medicaid would be cost effective relative to the potential loss of FFP at stake.
Two other important notes add context on administrative impacts:
 The proposed regulations would not only impact state Medicaid agencies but also the sister
agencies that are often involved in administration of the rehab option, including mental
health, substance abuse, developmental disability, and education agencies.
 Not all new administrative burdens are inherently bad. For example, we assume that many
rehab option services would need to shift into new 1915(c) or 1915(i) programs, where
states would be required to have quality assurance mechanisms in place. This would be a
new challenge for states, but not necessarily a negative development for the people receiving
services.
66
496659 (replaces 493701)

The types of beneficiaries who receive rehab option services are as varied as the ways in which
states have used the benefit; they include young children with developmental delay, older adults
with chronic illnesses, and people of all ages with traumatic brain injury, substance abuse
disorders, mental illnesses, and a range of other conditions. In most cases, they are vulnerable
populations for whom services are critical to health, wellbeing, and independence in the
community. It is easy to envision scenarios in which the loss of services currently covered
through the rehab option could lead to huge new burdens for family caregivers,
institutionalization, or incarceration.
We find that, in most states, the direct impacts on beneficiaries from the proposed regulations
would be minimal, contingent on the ability of states to shift services from the rehab option to
other coverage authority in a timely manner. In these states, shifts in services may cause some
technical disruptions and create some new obligations for beneficiaries (e.g., shifts in coverage to
1915(c) waivers would require new application processes). Of course, to the extent that states
actually could not shift coverage consistent with our assumptions, the consequences to
beneficiaries in those states could be catastrophic.
In a small number of states, we anticipate that FFP would no longer be available for certain
services through the rehab option or any other immediate coverage alternative. Given the fiscal
condition of most states, it is likely that they would not be fully able to cover the loss of FFP
with additional state dollars. Based on that scenario, impacts would include:
 In California, loss of adult day health care services for 50,000 people with chronic illnesses
 In New York, loss of community services for 6,000 people with developmental disabilities
 In Maine, loss of residential support services for 1,000 older adults 64
We note that states could react to the loss of FFP in other ways. For example, rather than
terminate services for certain people, a state could reduce the services available to a broader
population and use the savings to backfill the loss of FFP. This would still affect beneficiaries,
but they may be different beneficiaries than the ones who were receiving the rehab option
services affected by the proposed regulations.
We project that the financial impact on providers would be minimal in most states, contingent on
shifting services to other coverage authority. In the seven states where we projected a fiscal
impact on providers, we projected a total loss of $2.4 billion in revenue over the next five years.
64
In each of these examples, the types of services affected can be covered under other non-rehabilitative benefit
categories. These beneficiary impacts, however, are after we assumed that the states would maximize other
coverage alternatives (e.g., 1915(c) waivers). In these examples, technical limitations and eligibility restrictions
would prevent California, Maine, and New York from being able to use other benefit categories to protect FFP
for services for all current rehab option beneficiaries.
67
496659 (replaces 493701)

New administrative impacts for providers, however, would be common under the proposed
regulations. We anticipate four types of administrative impacts on providers:
 New documentation challenges, necessitated by the proposed requirements for written

rehabilitation plans
 New billing requirements, necessitated by unbundling of services, especially for providers of
services in the therapeutic foster care setting
 New quality assurance requirements and potential changes in provider enrollment and
billing practices in states where we project that services would shift into 1915(c) waivers or
1915(i) programs
 Participation in provider trainings related to the issues above
As states frequently highlighted for us, rehab option providers often are not large,
administratively sophisticated organizations. Many are individual providers or small agencies. In
these instances, new billing or documentation requirements that would seem minor to a hospital
or physician practice could prove to be major challenges. In some cases, new administrative
requirements could motivate providers to stop participating in Medicaid altogether, which would
create major disruptions and access challenges for beneficiaries.
Our analysis was complicated by several factors:
 Interpretive latitude: While the Code of Federal Regulations currently dedicates 55 words to
the rehab option, the proposed regulation has over 2,000. By this measure alone, the
proposed regulation would create a higher level of specificity on the federal rules for
services under the rehab option. 65
Nonetheless, the proposed regulations leave wide latitude for administrative interpretation.
Throughout our analysis, we adhered to a core set of assumptions on how CMS would
interpret and enforce the proposed regulations. However – considering the remaining
ambiguity in the regulatory language, variation across CMS regional offices, and recent
changes in CMS leadership – our ability to project how CMS would interpret the proposed
regulations is less than perfect.
 Impure baseline: CMS has been enforcing aspects of the proposed regulation for several
years. Indeed, the language that CMS uses in the preamble emphasizes that the proposed
regulation “clarifies the broad general language of the current regulation,” suggesting that
the proposed regulation is not necessarily new policy.
If the proposed regulation is simply an official articulation of that which is already being
enforced, we could argue that the impact from finalizing the regulations is nothing, since (in
theory) CMS would have enforced the rules even in the absence of the regulations.
Conversely, we could argue that the impact from the policies articulated in the regulation
65
For a discussion of other CMS guidance to states on the rehab option, see page 4 et seq. in Binder, C. “Medicaid
Rehabilitation Services.” Congressional Research Service: The Library of Congress (June, 2008).
68
496659 (replaces 493701)

should stretch retrospectively to those states that were adversely affected before the
regulation was even published.
In the end, we focused strictly on the impacts that we could reasonably attribute to the issues
addressed in the regulation after a theoretical implementation date of October 1, 2009.66
Thus, we did not include impacts incurred before this date, even if they were motivated by
the real or perceived threat of adverse actions from CMS.
For example, Texas currently covers day activity and health services (DAHS) under the
rehab option. CMS has already concluded that DAHS is habilitative in nature and should be
moved to other coverage authority. As a result, Texas officials are actively working to create
new options that would preserve access to DAHS services by creating a new 1915(i)
Medicaid State Plan option and amending seven different 1915(c) waivers to add DAHS-
like services.
Even if CMS approves all of these changes and Texas can maintain access to FFP for DAHS
services, this effort will result in significant administrative effort and a reallocation of
hundreds of millions of dollars away from the rehab option. For the purposes of this
analysis, we determined that these actions were already set in motion and unlikely to change
whether or not the proposed regulation is finalized. Therefore, we did not attribute any of
these DAHS-related impacts to the finalization of the proposed regulation. But we recognize
that the policies inherent in this proposed regulation have a broader impact than the
proposed regulation itself would have.
 Maintenance-oriented services. As described earlier, the proposed regulation would restrict

the ability of states to fund services under the rehab option to maintain – as opposed to
restore – functional levels. There is no clear way to determine from claims data the amount
of services that are maintenance-oriented versus restorative, and we are unaware of a strong
empirical basis for estimating the percent of services that are maintenance-oriented. For our
analysis, in states where we identified a potential maintenance problem, we assumed that 10
percent of the mental health services would no longer qualify for FFP under the rehab
option. 67 The 10 percent assumption is our attempt to assign some quantitative value to the
issue, but it is an estimate only. In addition to the lack of empirical data, there are other
variables (e.g., how tightly CMS would enforce those provisions or how providers might
change care plans to make them more goal-oriented) that make it impossible to make an
estimate with any great level of certainty.
We only estimated impacts from the maintenance issue where state officials communicated
to us that the issue would be relevant. It is not clear how accurately this represents true
differences in service delivery among the states or simply differences in interpretation
among our interviewees.
66
The regulations were originally proposed in August 2007 and the accounting statement assumed that savings
would be achieved during fiscal year 2008.
67
In some instances, we excluded specific mental health services where the assumption was not applicable, such as
assessments or crisis intervention services.
69
496659 (replaces 493701)

 Intrinsic elements: Nationally, we rarely attributed any impact to the proposed intrinsic
element provisions, despite the fact that nearly all states expressed serious concerns on each
of these provisions. Some states believe that CMS would take a more stringent view of the
intrinsic element provisions than we applied in this analysis. As elsewhere in this report,
states varied in the level of information and documentation that they made available on this
point.
Key points:
 We project less federal savings than CMS projected in the Federal Register ($1.2
billion versus $2.2 billion over five years). Approximately 88 percent of the savings
would accrue as a result of declines in federal funding for California and New York.
 In addition to the savings, an additional $3.2 billion in federal funds (and about $5.7
billion including state funding) would no longer be allowable under the rehab option.
States would need to shift services to other Medicaid benefit categories to preserve
access to FFP.
 The administrative work necessary to come into compliance with the proposed
regulations and shift coverage for services into other benefit categories would be
staggering, particularly in light of state furloughs and layoffs.
 Direct impacts on beneficiaries and providers would be concentrated in California,
Maine, and New York.
CMS has several alternatives/strategies to accomplish many of their goals without going forward
with the regulations. Those alternatives/strategies include:
 Continue to enforce the principles in the proposed regulations on an ad hoc basis as states
request Medicaid State Plan amendments. CMS has already required some states to make
major changes to their Medicaid programs even without the regulations taking any official
effect. Policy clarifications through State Medicaid Director letters or other vehicles might
also allow CMS to announce or clarify policy issues without pursuing regulations.
 Offer technical assistance to states that are willing to realign Medicaid coverage to better
reflect the principles in the proposed regulations. Some states may be willing to proactively
undertake program changes if CMS offered a greater degree of technical assistance. This
technical assistance could include national events on specific issues (e.g., open conference
calls on allowable and unallowable ways of bundling reimbursement, highlighting best
practices among the states) or hands-on assistance (e.g., help drafting 1915(i) or 1915(c)
applications necessary to shift services out of the rehab option). A technical assistance
strategy could help states and CMS develop collaborative solutions and approaches.
 Collaborate with the Substance Abuse and Mental Health Services Administration
(SAMHSA), Department of Education, and other federal agencies to clarify policies and
promote best practices. Numerous states expressed concern that CMS’ perspectives on
reimbursement policies and allowable services were at odds with the direction from other
federal agencies. Most commonly, states felt that SAMHSA is promoting evidence-based
70
496659 (replaces 493701)

practices in behavioral health while CMS is taking an adversarial position on payment
mechanisms that facilitate the adoption of those practices.
 Import new quality assurance requirements to the rehab option. As we have shown in this
report, finalization of the proposed rehab option regulations would incentivize states to shift
billions of dollars of services into other coverage options, including 1915(c) and 1915(i).
Earlier, we noted that this shift would require enormous new administrative effort from the
states and CMS. One potential justification for such a cost shift is it may better align the
existing oversight mechanisms with the services funded through Medicaid.
For example, day habilitation services covered through the rehab option are subject to
minimal federal oversight. However, those same services under 1915(c) or 1915(i) coverage
would include federal quality assurance requirements. Although it is not clear whether those
quality assurance mechanisms would lead to better outcomes relative to state-specific
oversight mechanisms already in place, the federal administration of Medicaid would be
more rational if similar services were subject to similar quality assurance requirements.
Rather than force a shift of services into 1915(c) or 1915(i), CMS could potentially import
the quality assurance requirements from those programs into the rehab option for certain
types of services.
71
496659 (replaces 493701)

VII. School-based Services
Federal financial participation (FFP) is available to states for the “proper and efficient
administration of the Medicaid State Plan.” 68 States assert that school-based administrative
activities, such as Medicaid outreach and enrollment assistance, are necessary for the proper and
efficient administration of the Medicaid State Plan and CMS has permitted states to claim FFP
for Medicaid administrative activities preformed in schools. This is commonly referred to as
Medicaid administrative claiming or “MAC.”
States may also claim FFP for transportation services as optional medical services for “expenses
for transportation and other related travel expenses determined necessary by the agency to secure
medical examination and treatment.” 69 Some states claim FFP for transportation services
provided to students between home and school when the school includes the need for the
transportation service as part of the student’s Individualized Education Program (IEP) or
Individualized Family Service Plan (IFSP) and the student receives a Medicaid-covered, IEP-
authorized service that day.
As states’ policies have broadened with respect to allowable Medicaid costs and activities in
schools, the GAO and Department of Health and Human Services OIG have responded with
multiple state audits, resulting in significant financial recoupment from states. Attempting to
clarify appropriate methods for school-based administrative claiming and help rein in
expenditures for what were deemed inappropriate billings, CMS issued guidance on claiming for
school-based services, including transportation and administrative claiming in 1997 and again for
school-based MAC in 2003. 70 , 71 In addition, CMS issued guidance under a State Medicaid
Director letter on May 21, 1999 specifically addressing school-based services, including
transportation and administrative claiming.
Citing schools’ inconsistent application of Medicaid requirements, long-standing concerns about

school districts’ improper billing for administrative costs and transportation, and a determination
that the provision of these administrative activities is only necessary and efficient when
conducted by employees of state or local Medicaid agencies, in 2007 CMS issued Rule 2287-F
to:
 Exclude Medicaid coverage for administrative activities (including outreach, enrollment and
support in gaining access to EPSDT services) performed by school personnel and
contractors
 Exclude Medicaid coverage for transportation between home and school for school-age
children receiving services under an Individualized Education Program (IEP)
68
Section 1903(a)(7), Title XIX of the Social Security Act
69
42 CFR Section 440.170(a)(1)
70
Health Care Financing Administration. “Medicaid and School Health Services: A Technical Assistance Guide.”
(August, 1997).
71
Centers for Medicare and Medicaid Services. “Medicaid School based Administrative Claiming Guide.” (May,
2003).
72
496659 (replaces 493701)

All but eight states, as shown in Exhibit 21, are participating in either school-based
transportation services or school-based administrative claiming, or both, and stakeholders have
been outspoken in their opposition to the rule. Following several Congressional moratoria and
the requirement for CMS to arrange for an independent study of this and the other three
regulations, CMS published a final rule on June 30, 2009 rescinding CMS-2287-F, to prevent
implementation of the rule on July 1, 2009.
Exhibit 21. States Participating in School-based MAC and School-based Transportation, FFY 2009
School-based MAC only (12)

School-based transportation only (11)
Both school-based MAC and transportation (20)
None (8)
Exhibit 22: Number of States Participating in School-based MAC and School-based Transportation
Number of States
School-based Activity or Service Covering this Activity
or Service
Medicaid administration performed by school employees (MAC) 72 32
School-based transportation
Transportation from home to school and school to home 29
Transportation only from home/school to non-school provider 2
Based on the data we collected during this review, we estimate that total expenditures (federal
and state dollars) for school-based MAC will exceed $1.4 billion in FFY 2010 and expenditures
72
We do not include Indiana in our count of states currently participating in MAC. At the time of our interview, its
program was in suspension and the State had not made any decision as to the future of the program.
73
496659 (replaces 493701)

for school-based transportation will exceed $180 million. 73 Exhibit 23 shows the 10 states with
the highest combined expenditures for school-based MAC and transportation.
Exhibit 23: Top 10 Combined Expenditures for School-based MAC and School-based
Transportation in FFY 2010, in Millions 74
FFY 2010 Universe

State
MAC Transportation
Alabama $33.9 N/A
Florida $131.9 $1.9
Illinois $130.9 $9.4
Kentucky $137.2 $0.0
Massachusetts $121.0 Unknown 75
Michigan $38.6 $9.9
Missouri $54.9 $1.1
Virginia $31.4 $0.5
Statement of the problem by the Secretary
In his 2008 report to Congress, the HHS Secretary cited the following problems as justification
for the regulation:
 School administration and transportation to and from schools was not resulting in improved
services for Medicaid beneficiaries, but operated only to shift costs from educational
programs to the Medicaid program
 CMS has had long-standing concerns about improper billing by school districts for
administrative costs and transportation services
 Costs related to education mandates have been improperly allocated to Medicaid 76
73
Total for transportation includes Georgia and Rhode Island expenditures for transport to non-school providers
that would not be impacted by the regulation.
74
Lewin estimates based on most recently available 12-month period of data from the state.
75
Estimated expenditures for transportation is included in MAC. Massachusetts is unable to provide 2008
expenditures separately.
76
Medicaid Program; Elimination of Reimbursement Under Medicaid for School Administration Expenditures and
Costs Related to Transportation of School-Age Children Between Home and School; Final Rule; Federal
Register: December 28, 2007 (Volume 72, No. 248, Pages 73636-73637).
74
496659 (replaces 493701)

To assess the prevalence of the problems, we relied heavily on structured interviews with state
officials and our review of Medicaid State Plans and other policy documentation such as MAC
plans. Similar to the limitations discussed under the other three regulations, our approach was
unlikely to uncover problems that were neither disclosed by officials nor readily apparent from
publicly available documentation.
The regulations were based in part on the rationale that the excluded services and activities are
integral to education and thus do not further the “proper and efficient” administration of the
Medicaid program. Therefore, to assess prevalence, we looked no further than whether a state
did or did not claim FFP for the school-based services and activities addressed in the regulation.
As noted by commenters and by state officials during our interviews, the rationale cited in the
Secretary’s report was a departure from CMS’ previous guidance; for example, CMS has
approved MAC plans for most states that claim federal match for these activities. Therefore, we
emphasize that the identification of a “problem” in a particular state is an indication of the
presence of claiming for school-based Medicaid administration or transportation between home
and school (which the Secretary’s report asserts is inherently problematic), not an indication that
the state has acted inappropriately.
 Activities shift costs from education to Medicaid: The Secretary determined that the types of
school-based administrative activities and transportation services at issue were integral to
education and, therefore, would continue absent Medicaid funding. The Secretary asserted
that allowing FFP for these activities and services merely shifts costs inappropriately from
education to Medicaid. Based on this broad assertion, our assessment of the prevalence of
“cost shifting” is also inherently broad in that it identifies “cost shifting” in all cases where
states claim FFP for these specific activities or services. Therefore, based on the policy
rationale for the regulation as defined by CMS, we assessed prevalence as follows:
o School-based MAC: The number of states currently claiming FFP for Medicaid
administrative activities performed by school personnel or contractors
o School-based transportation: The number of states that currently pay for
transportation of school age children between home and school 77
 Problems with improper billing: CMS issued guidance in a May 21, 1999 letter to State
Medicaid Directors defining the requirements for billing and documenting school-based
transportation services, as well as the May 2003 MAC Guide describing appropriate
methods for claiming FFP for the cost of administrative activities performed by school
personnel or contractors in the school setting.
77
Two states, Georgia and Rhode Island, cover school-based transportation (where the school is the provider) only
between school or home to a non-school provider, and therefore would not be affected by the school-based
services regulation. Other states may cover transportation for a child with special education needs between
school and a non-school provider through the optional Medicaid non-emergency medical transportation (NEMT)
benefit; however, the NEMT benefit is not addressed by the regulation and was not the subject of our review.
75
496659 (replaces 493701)

Using these documents as guidance, we assessed the prevalence of improper billing as
follows:
o School-based MAC: The number of states that do not appear to operate a MAC
program in accordance with a CMS-approved administrative claiming plan or a plan
that has been submitted to CMS for approval
o School-based transportation: The number of states whose policies, regulations, and
practices (as described in interviews) do not appear to be in compliance with the CMS
May 21, 1999 State Medicaid Director letter with respect to documentation of
services to demonstrate that school districts’ claims for transportation services are
limited to specialized transportation services on the day the child receives a Medicaid
covered service, authorized in the IEP, at school
 Costs related to education have been improperly allocated: The Secretary’s report to
Congress cited historical OIG and GAO audits identifying a wide variety of expenses
“susceptible to waste and abuse” such as:
o Inclusion of costs unrelated to Medicaid in MAC
o Inappropriate inclusion of adults in Medicaid eligibility rate calculation for school-
based MAC purposes
o Inadequate documentation of Medicaid administrative activities by school personnel
o Inclusion of transportation claims for out-of-state children, and
o Lack of appropriate administrative or prepayment controls for transportation
Assessment of problems related to cost allocation would require state-specific comparisons with
OMB cost-allocation methodologies (OMB Circular A-87). We did not review states’
methodologies against the requirements of OMB Circular A-87, nor did we review states’
practices in applying these methodologies, as this was beyond the scope of our analysis.
This is The Lewin Group’s overall assessment of the problems described in the 2008 Secretary’s
report. Our assessment was conducted at the state level and, therefore, does not take into account
isolated problems at the school-specific level. The number of states where we identified
problems, as described in the Secretary’s report, are shown in Exhibit 24.
76
496659 (replaces 493701)

School-based Activity or Service States Impacted by the Regulations

Medicaid administration performed by 32 states – AK, AL, AR, AZ, CA, FL,
school employees (MAC) 78 IL, KS, KY, LA, MA, MI, MN, MO, MS,
MT, NC, NE, NJ, NM, OH, OR, PA,
RI, SC, SD, TX, UT, VA, VT, WA, WI
Transportation from home to school and 29 states – AZ, CA, CO, CT, DC, DE,
school to home FL, IA, IL, KY, LA, MA, MD, ME, MI,
MN, MO, MT, NH, NJ, NM, NY, OR,
PA, SC, TX, VA, WI, WV
 Activities merely shift costs from education to Medicaid: As noted above, to assess the
prevalence of this problem as described by the Secretary, we determined whether a state did
or did not claim FFP for the school-based services and activities addressed in the regulation.
o We identified 32 states that allow Medicaid administrative claiming for activities
performed by school employees or contractors
o We identified 31 states that participate in school-based transportation overall, but
only 29 that allow claiming for transportation between home and school
Georgia and Rhode Island allow claiming for school-based transportation, but
only if provided to access covered services in the non-school setting; therefore,
we did not identify this as problematic
Most of the 29 states also permit claiming for school-based transportation

provided to students between home/school and a covered non-school service;
however, such transportation is infrequent or non-existent
 Problem with improper billing: Of the 32 states participating in school-based MAC, all but
five (Arizona, Nebraska, South Carolina, Utah, and Vermont) received prior approval from
CMS of their MAC implementation plans. The five are awaiting CMS approval of their
implementation plans, and currently operate their program based on the plan submitted to
CMS for approval. Based on our discussions with state officials, research and review of
publicly available documents, 28 states that allow claiming for school-based transportation:
o Comply with the specialized transportation provisions in the State Medicaid Director
letter
o Require documentation using a trip log or similar documentation to verify that
transportation claims are only submitted for Medicaid eligible children on the day the
child receives another covered service as required by the IEP
We identified two states that included bus route modifications as part of claimable
“specialized” transportation, and 10 states that included coverage for transportation with a
bus aide. One state does not require schools to maintain trip logs and therefore does not
77
496659 (replaces 493701)

appear to be in compliance with the CMS May 21, 1999 State Medicaid Director letter with
respect to documentation of services, which we have noted above is our criterion for
determining prevalence of the problem.
 Costs related to education have been improperly allocated: Based on our discussions with
state officials, research and review of publicly available documents, we did not identify any
states that improperly allocate costs related to education, but we did not review each state’s
methodology against the requirements of OMB Circular A-87, nor did we review states’
practices in applying these methodologies.
Through our research, we also determined that the prevalence of the problems may be smaller
than initially presumed by CMS, for two reasons. First, the CMS OIG has conducted many state
audits related to Medicaid claiming for school-based services (although appeals are still being
resolved and settlements are still being negotiated by some states). Thus, while the regulation is
an attempt to address problems identified through this audit activity, many states have already
addressed or are in the process of remedying the identified problems. In addition, many states
reported a decline in participation in school-based administrative claiming, due to the complexity
of the program requirements and, in some cases, lack of clarity and consistency in those
requirements.
Key points:
 All but eight states participate in either school-based transportation services or school-
based administrative claiming.
 In the past decade, CMS has issued considerable guidance for these activities and
services, including a Technical Assistance guide for Medicaid and School Health
Services in 1997, a State Medicaid Director letter in 1999, and a MAC Guide in 2003.
 Of the 32 states participating in school-based MAC, all either received approval prior to
operating their programs or submitted a plan to CMS for approval.
 All but one state participating in school-based transportation use a trip log or similar
documentation to verify that transportation claims are only submitted for eligible
children on the day the child receives another covered service as required by the IEP.
School-based Medicaid claiming practices have come under increased scrutiny over the past
decade. Thus, many states have implemented strategies to improve accountability and strengthen
the integrity of their programs. These strategies are frequently the direct result of OIG audits or
CMS reviews of states’ programs. These audits and reviews have provided guidance and have
prompted states to take action to identify and correct commonly noted problems. States have also
developed strategies to improve programs based on lessons from internal program reviews or
from neighboring states’ experiences. We describe various strategies employed by states to
address problems related to MAC and school-based transportation.
Activities merely shift costs from education to Medicaid
As noted above, most states, in comments on the proposed regulation or in interviews conducted
for this study, have stated that they disagree with the fundamental rationale that these services
78
496659 (replaces 493701)

and activities are integral to education and do not further the “proper and efficient”
administration of the Medicaid program. Thus, states did not identify any strategies to address
the problems cited by the Secretary in his report. Instead, several states referenced the statutory
and regulatory basis for their operation of these programs:
 U.S. Department of Education regulations governing IDEA require that states and local
agencies that receive IDEA funding provide children a “Free Appropriate Public Education”
(FAPE). FAPE includes “special education” and “related services” provided at public
expense. 79 The definition of “related services” includes transportation services. 80 FAPE
requires that “each state may use whatever state, local, federal, and private sources of
support are available in the state to meet the requirements of this part.” 81 FAPE encourages
the use of joint agreements between agencies responsible for meeting the child’s needs for
sharing of costs of services.
 Medicaid laws governing payments to states provide that the Secretary cannot restrict or
prohibit payments under the Medicaid program for covered services provided to a child with
disabilities simply because the service is part of the child’s IEP or IFSP. 82 It is worth noting
that there is disagreement between states and CMS about whether this particular provision
extends to Medicaid administrative activities performed by school personnel.
Problem with improper billing
Specialized Transportation: States received CMS guidance on proper billing for transportation
services in a May 21, 1999 CMS SMD letter. The guidance generally prohibits claiming for the
cost of transportation for a child with special education needs under IDEA who rides the regular
school bus to school with other non-disabled children in his/her neighborhood. In addition, the
CMS guidance allows claiming for specialized transportation between home and school, when
included in the child’s IEP and the child receives a school-based medical service on that day,
under the following conditions:
 Transportation is provided in a vehicle adapted to serve the needs of children with

disabilities, including a specially adapted bus
 A child resides in an area that does not have school bus transportation (such as those areas in
close proximity to a school) but has a medical need for transportation that is noted in the IEP
 Transportation to a provider in a community
State strategies in this area are as follows:
 States have made efforts to reflect these requirements in Medicaid State Plans, policies and
provider manuals, state statutes, and rules.
 States consistently limit billing for transportation of a child with special education needs on
a regular bus unless the conditions defining “specialized transportation” are met. States have
79
34 CFR §300.17.
80
34 CFR §300.34.
81
34 CFR §300.103.
82
42 USC 1396b(c).
79
496659 (replaces 493701)

defined “specialized transportation” to include a specialized vehicle or “regular school bus”
that has been altered to meet an eligible child’s need as specified in an IEP, such as adding a
seat belt, or for which the bus route has been specially altered to meet the need. (Ten states
also allow claiming for transportation when an aide is required; in such cases, the
transportation may be provided on a regular school bus).
 All states that allow claiming for school-based transportation service require that the
transportation and medical service be specified in the child’s IEP, and claiming is permitted
only on the day the child also receives direct medical services. Some states have established
MMIS edits and audits to assure compliance. For example, Virginia’s MMIS checks claims
for specialized transportation from school districts against claims for other school-based
covered services, from the same school district, on the same date of service, and requires
additional documentation for any claims for specialized transportation in excess of two units
(i.e., one round trip).
We summarize the various ways states implement specialized transportation in Exhibit 25.
Exhibit 25: Strategies for Implementing “Specialized” Transportation
Type of “Specialized” Transportation States

Vehicle adapted to serve the needs of children with 29 states – MA, NH, ME, DE, KY, OR, MD,
disabilities, including a specially adapted bus WV, FL, CT, NY, VA, SC, LA, IA, MO, CO,
MT, AZ, PA, DC, IL, MI, TX, WI, NJ, CA,
GA, MN
Area does not have school bus transportation (such as 2 states – OR, MT
those areas in close proximity to a school) but has a
medical need for transportation
Transportation to a provider in a community Covered in most states, although the need
for service outside the school setting is rare
and cannot be parsed separately in claims
(e.g., OR provides transportation services
to children with behavioral health needs to
day treatment centers outside the school
setting).
RI and GA only allow claiming exclusively
to access services from a non-school
provider.
Other – Transportation with an aide/bus monitor (in 10 states – MA, ME, DE, WV, FL, NY, CO,
either a regular or specialized bus) IL, MN, OR
Other – Bus route modifications/special route as 2 states – MD, IL
“specialized transportation”
In its May 1999 State Medicaid Director letter, CMS clarified the claiming methodology for
school-based transportation as a medical service or as an administrative service.
 If claimed as a medical service, documentation of each service must be maintained for

purposes of an audit trail. This usually takes the form of a trip log.
80
496659 (replaces 493701)

 If claimed as administration, the state must comply with OMB Circular A-87, including
development of a cost-allocation methodology to ensure that Medicaid only pays for the
portion of the specialized mode of transportation allocable to Medicaid beneficiaries.
State strategies in existence are:
 Even though the State Medicaid Director letter requires the use of trip logs as documentation
only in cases where transportation is billed as a medical service, all but one state that claim
for this service require schools to maintain “trip logs” or similar service documentation,
regardless of the claiming methodology. While the documentation is not required to be
submitted to the state along with each claim for services, school districts are required to
maintain the documentation for audit purposes.
 States are moving toward cost reporting for transportation, regardless of whether the service
is claimed as a medical assistance or administrative cost.
Administrative activities: CMS issued guidance on claiming for administration for school-based
services and transportation in 1997 and again in 2003. Most states that cover administration for
school-based services and transportation operate their programs in accordance with this
guidance, and some have developed specific strategies to ensure compliance with state and
federal rules regarding claiming for Medicaid administrative services performed by school
employees or contractors. 83
 In some states (e.g., AZ and KS) the MAC program uses a centralized coding methodology,
typically a third party vendor, to code administrative activities captured through time
studies. School personnel respond to a series of questions, and an automated logic model is
used to assign appropriate codes to each activity thereby reducing subjectivity. This assures
that:
o Activities that are not attributable to Medicaid (i.e., purely educational in nature) are
coded properly and consistently, and not eligible for FFP
o Certain activities are only reimbursed at the Medicaid eligibility rate
o There is consistency and reduced errors in coding of activities from school personnel
to school personnel and district to district, thereby reducing the likelihood of cost
shifting
 Some states have defined parameters to select particular school districts for additional
claims review, including requests for additional documentation, interviews with school
personnel, and site visits. Rhode Island and Washington have instituted outlier monitoring
protocols to review claims on a quarterly basis. Examples of parameters include:
o Percent change in school district claims from quarter to quarter
o “Significant” changes in personnel participating in time study from quarter to quarter
(either in type or number of personnel included in the sample pool)
83
We learned in our interviews that some states have been permitted to deviate from certain provisions in the
guidance (e.g., use of different codes or combinations thereof, or sampling methods) as agreed upon by CMS
during the MAC plan review.
81
496659 (replaces 493701)

o “Significant” changes in labor costs
o Proportion of MAC claims to direct school-based service claims
o States’ experience with particular school districts or vendors (e.g., school districts or
vendors with higher claim error rates will likely be reviewed more frequently)
 Various states have other MAC monitoring mechanisms, including:
o New Mexico conducts on-site visits to schools or regional cooperatives once every
four years
o Washington reviews narrative descriptions of activities and interviews randomly
chosen school district staff to verify accuracy under its Medicaid Administrative
Match Monitoring Protocol
o Mississippi conducts a review of time study pool participants against MAC training
attendance and conducts a quality review against program requirements of a 10
percent sample of claims on a quarterly basis
D. Impact of the School-based Services Regulation
Estimating impacts
We assessed the financial impact as well as the qualitative impacts of the regulations on each
state’s Medicaid program administration, beneficiaries, and providers. We conducted this
assessment based on our primary source research, data, and interviews with state officials. To
assure consistency across our analysis we made assumptions regarding some of the information
gathered, especially given the fact that much of it was qualitative in nature. For example, we
attempted to gather information on the extent to which elimination of FFP would result in
schools’ discontinuation of special transportation services between home and school when such
services are included in a child’s IEP. Similarly, as part of our impact assessment we attempted
to gather information on the extent to which schools would continue some level of Medicaid
outreach, enrollment assistance, and service referral/coordination absent FFP in the related costs.
We limited our impact analyses only to primary impacts and did not consider secondary impacts
of the regulations (such as whether schools would choose to discontinue providing certain health
services in response to reductions in federal funding for school-based transportation).
Assumptions in our assessment of impacts
We made several standard assumptions in our assessment of impacts across the states. These
were based on our assumption of how CMS and states would interpret and respond to the
regulation as written.
 Regulation applies to all school-based transportation. We assume that states’ coverage of

school-based transportation as an optional medical benefit under any Medicaid State Plan
category of service (e.g., EPSDT or Other Rehabilitation Option services) falls within the
scope of CMS 2287-F.
We assume CMS’ rationale for this regulation is equally applicable, whether transportation
is covered under the EPSDT, rehabilitation, or any other Medicaid State Plan section. That
82
496659 (replaces 493701)

is, transportation of school-age children between home and school would no longer be
eligible for FFP under any optional service category based on CMS’ determination that
transportation from home to school and back is not properly characterized as transportation
to or from a medical provider. 84 Thus, our impact analysis includes transportation of school-
age children between home and school regardless of the category of service under which the
state opts to cover the service in its Medicaid State Plan.
 Treatment of administrative costs for arranging transportation. We assume that states

would not restructure their reimbursement rates for allowable transportation of school-aged
children (under 42 CFR 440.170) to include some of the transportation-related
administrative costs for which they could no longer claim Medicaid administrative match
(under 42 CFR 431.53).
In the background section of the regulations, CMS explains that “states can claim matching
dollars for such transportation [to and from providers] in one of two ways.”
o As an administrative expense: “Federal regulations at 42 CFR 431.53 require that
Medicaid State Plans ‘specify that the Medicaid agency will ensure necessary
transportation for recipients to and from providers’; and describe the methods that the
agency will use to meet this requirement.”
o As an optional medical service: “Under 42 CFR 440.170(a) states are afforded the
option of furnishing transportation as an optional covered medical service.”
The regulation asserts that when claimed as an optional medical benefit, “Federal funding
will continue to be available for administrative overhead costs that are integral to, or an
extension of, a direct medical service and, as such, are claimed as medical assistance.” 85
Most states include, as part of their school-based MAC claim, only the administrative costs
of transportation. We assume that the state would be unable to shift any portion of the
administrative component of school-based MAC transportation costs to the optional medical
service rate calculation because the regulation prohibits transportation between home and
school, which constitutes the majority of school-based transportation claims. Our estimates
do not consider any offsets to lost FFP for administrative activities related to transportation.
Fiscal impacts
School districts would likely continue to provide transportation services to children with special
needs. However, due to the significant loss of funding, the extent to which each school district
would limit availability of transportation services that are currently funded (e.g., reducing
specialized bus routes) is difficult to determine with certainty for individual states and school
districts. We estimate that over the five-year period of FFY 2010-2014, the total impact on the 50
84
Costs Related to Transportation Between Home and School; Final Rule; Federal Register: December 28, 2007
(Volume 72, No. 248, Page 73637).
85
(Volume 72, No. 248, Page 73638).
83
496659 (replaces 493701)

states and the District of Columbia due to the elimination of federal funding for school-based
transportation between home and school would be approximately $612 million in federal funds.
Similar to transportation, school districts across the U.S. would likely continue to provide some
assistance to students and their families to enroll in Medicaid as well as coordinate services.
However, the federal funding available through the school-based MAC program, has allowed
school districts to target such efforts in a more organized and coordinated fashion. We estimate
that over the five-year period of FFY 2010-2014, the total impact on the 50 states and the District
of Columbia due to elimination of federal funding for administrative activities performed by
school personnel would be close to $4.3 billion in federal funds (Exhibit 26).
Exhibit 26: State-specific Fiscal Impacts of the School-Based Regulation, Reduction in Federal
Financial Participation, FFY10-14, in Millions
School- School-based
State
based MAC Transportation
Alabama $99.3 N/A
Alaska $55.5 N/A
Arizona $25.8 $40.6
Arkansas $59.3 N/A
California $1,302.1 $26.2
Colorado N/A $11.0
Connecticut N/A $27.3
Delaware N/A $7.6
District of Columbia N/A $19.2
Florida $386.6 $6.1
Georgia N/A $0 86
Hawaii N/A N/A
Idaho N/A N/A
Illinois $383.7 $27.6
Indiana N/A N/A
Iowa N/A $12.6
Kansas $25.8 N/A
Kentucky $402.3 $0.1
Louisiana $11.4 $2.6
Maine N/A $60.4
Maryland N/A $5.9
Massachusetts $354.7 Unknown 87
Michigan $113.1 $36.6
Mississippi $28.3 N/A
86
Georgia provides coverage for school-based transportation only when it is provided between school or home and
a non-school provider to access IEP-listed, Medicaid covered school-based services.
87
Understates the total impact as school-based transportation costs for MA are included in MAC and cannot be
disaggregated.
84
496659 (replaces 493701)

School- School-based
State
based MAC Transportation
Missouri $160.9 $3.3
Montana $4.7 $0.2
Nebraska $79.7 N/A
Nevada N/A N/A
New Hampshire N/A $25.3
New York N/A $29.9
North Carolina $72.8 N/A
North Dakota N/A N/A
Ohio $3.3 N/A
Oklahoma N/A N/A
Oregon $39.6 $2.0
Rhode Island $15.7 $0 88
South Dakota $44.5 N/A
Tennessee N/A N/A
Texas $55.7 $30.4
Utah $17.3 N/A
Vermont $19.5 N/A
Virginia $91.9 $1.4
Washington $79.2 N/A
West Virginia N/A $62.6
Wisconsin $22.9 $67.6
Wyoming N/A N/A
Total $4,258 $612
Exhibit 27 shows the total estimated reduction in Medicaid expenditures, including both state
and federal funds, for FFY10 and for FFY10 through FFY14. The table also includes rows that
show the total estimated reduction in federal funds only.
88
Rhode Island provides coverage for school-based transportation only when provided between school or home
and a non-school provider to access IEP-listed, Medicaid covered school-based services.
85
496659 (replaces 493701)

Exhibit 27: Total Estimates of Federal Savings and Reduction in Total State Medicaid
Expenditures for the School-based Services Regulation, in Millions
School-based
School-based MAC Total
Transportation
Estimated Reduction in $1,453 $179 $1,632
Estimated Reduction in FFP $726 $104 $831
Estimated Reduction in $8,517 $1,030 $9,547
Exhibit 28 shows various estimates for federal savings under the proposed school-based
transportation and administrative claiming regulations.
Exhibit 28: Five-year Estimates of Federal Savings for the School-based Regulations
Federal Savings
Source Time Period
(in Billions)
CMS (2007) 89 FY09-FY13 $4.3
90
Congressional Budget Office (2008) FY08-FY12 $2.5
House Committee on Oversight and FY09-FY13 $3.3
The Lewin Group (2009) FY10-FY14 $4.9
89
(Volume 72, No. 248, Page 73637).
90
Congressional Budget Office Cost Estimate of H.R. 5613: Protecting the Medicaid Safety Net Act of 2008 (April
2008). CBO estimates moratorium on school based regulations would increase spending by $0.5 billion in FY08
and FY09.
91
86
496659 (replaces 493701)

We estimate that the regulation would result in reduced FFP of $4.9 billion from FY10-FY14.
CMS estimated savings of $4.3 billion from FY09-FY13. Some of the reasons these estimates
differ include:
 Differences in time periods: Our estimates are based on a later time period (FY 2010-2014)
compared to the FY 2009-2013 period used in the Secretary’s report.
 Differences in methodology for estimating impacts: There is likely variability among states
in the methodology used to arrive at the impact estimates provided to the Committee in
2008. In comparison, we devised a uniform methodology and standard set of assumptions to
estimate impacts.
 Variations in states responding to data requests: Some states that did not respond to the
House Committee request (e.g., Arkansas, Mississippi, and Alabama) provided data which
we were able to use for our estimates.
Our analysis of the regulation did not show any material impact of this regulation on state
Medicaid program administration among the 29 states that allow claiming for transportation of
school-age children between home and school.
While states that reimburse school-based transportation as a service (rather than an

administrative activity) may need to modify their Medicaid State Plans, regulations, and MMIS
to prevent the payment of inappropriately billed claims, we did not consider such routine
administrative action to constitute a direct material impact. Medicaid agencies are in a continual
process of program updates through, for example, provider manual and MMIS updates, and we
assumed the changes necessary that are attributable to the regulations would be subsumed along
with other programmatic changes.
While CMS has required most states to unbundle rates for school-based health services
(including transportation), two states, Maine and Connecticut, currently include school-based
transportation in bundled rates for school-based health services. These states would be required
to recalculate their rates for school-based health services to exclude transportation, were the
regulation to go into effect as written. We do not consider this to be a material impact on state
administration.
School-based MAC
Our analysis of the regulation did not yield any impact on state administration of the Medicaid
program in any of the 32 states that participate in administrative claiming for activities
performed by school personnel or contractors.
While states may need to modify their Medicaid State Plans and rules to comply with the
regulation, we did not consider these routine administrative issues as a direct impact. As noted
above, Medicaid agencies continually update their programs and we assumed the changes
necessary that are attributable to the regulations would be subsumed along with other
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496659 (replaces 493701)

programmatic changes. We recognize that some states may have retained a portion of the FFP
from the MAC program for purposes of performing their state administrative oversight
responsibilities. With elimination of MAC FFP, these functions would cease and, therefore, the
FFP would no longer be necessary to support these state administrative oversight activities.
We do note that many states argued that eliminating FFP for administrative activities performed
by school personnel would pose a potential conflict with the EPSDT mandate, severely restrict
the ability of states to meet their responsibility under EPSDT, and hamper access to services for
school-age children. Furthermore, commenters cited “the state Medicaid Manual as not only
encouraging state Medicaid agencies to coordinate administrative activities with ‘school health
programs of state and local health agencies’ but also offering FFP to cover the costs to public
agencies of providing direct support to the Medicaid agency in administering the EPSDT
program.” 92 Section 5230 of the State Medicaid Manual provides in part that:
 Regulations require Medicaid agencies to coordinate services with Title V Maternal and
Child Health programs, and enter into arrangements with state agencies responsible for
administering health services and vocational rehabilitation services, and with Title V
grantees
 Coordination includes child health initiatives with other related programs, such as Head
Start; the Special Supplemental Food Program for Women, Infants and Children (WIC);
school health programs of state and local education agencies (including the Education for all
Handicapped Children Act of l975); and social services programs under Title XX
 FFP is available to cover the costs to public agencies of providing direct support to the
Medicaid agency in administering the EPSDT program
While states may have strong policy arguments regarding the EPSDT mandate (e.g., declining
Medicaid enrollments, increased numbers of uninsured children, increased churning, and
decreased use of EPSDT services, including lead screening and immunizations for school-age
children), we only include these arguments as part of our qualitative impact analyses. We do not
attempt to quantify them as states were unable to provide any data to allow us to estimate
EPSDT-related impacts of the regulation.
The regulation will have no direct impact on beneficiaries in any of the 29 states that cover
school-based transportation services between home and school for children in special education
programs if (1) their IEP specifies transportation and covered medical services and (2)
transportation is provided the day they receive the covered medical service in school.
92
(Volume 72, No. 248, page 73639).
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496659 (replaces 493701)

As noted above, under IDEA states must provide children with special education and related
services at public expense, which include transportation services, to comply with IDEA FAPE
requirements. 93 , 94 Based on our reading of the IDEA and interviews with states, we understand
that children with disabilities will continue to receive specialized transportation as necessary to
access free and appropriate public education.
However, in our interviews with state officials, we heard that Medicaid funding is a necessary
resource in a chronically underfunded educational system. As a result, any reduction in funding
for school-based transportation would likely result in program, staffing or other cuts that would
ultimately impact children in school (i.e., program beneficiaries). We consider these impacts to
be secondary and therefore did not include them as impacts in our analysis.
School-based MAC
We recognized the potential for a direct impact in all 32 states that claim FFP for administrative
activities performed by school employees and contractors. Impacts may include, for example:
 Reduced enrollment rates of children into Medicaid

 Barriers to accessing services due to discontinuation of referral, coordination, and
monitoring of services funded by MAC
 Lack of services due to lack of enrollment of potentially eligible children.
However, neither we nor states were able to quantify the impact or the extent to which it is likely
to occur.
CMS identified as a recurring theme in comments to the regulations that “the proposed rule fails
to recognize that certain administrative activities performed by school-based staff are
instrumental in ensuring access to covered Medicaid services for eligible low-income children.”
CMS cited specific comments, including that the regulations would:
 “Severely restrict the ability for states to meet their responsibility under EPSDT and hamper
access to necessary services for children
 Decrease opportunities for children and families to learn about the availability of Medicaid,
and the services provided to those eligible for coverage
 Adversely impact the provision of needed services to school age children” 95
We sought specific information and data from all states regarding the impact of MAC on
enrollment into Medicaid and access to services. However, states do not track these direct
impacts. In spite of this, we contend that it is unlikely that all school districts in a state would
discontinue all activities leading to enrollment of children into Medicaid, partly based on our
93
34 CFR §300.17.
94
34 CFR §300.34.
95
(Volume 72, No. 248, Page 73638).
89
496659 (replaces 493701)

assumption that school districts have an incentive to assist students in enrolling in Medicaid so
that school providers (e.g., physical, occupation, and speech therapists) can receive direct service
payment from Medicaid. Furthermore, other state enrollment efforts through CHIP (e.g., at
hospitals, primary care sites, etc.) may result in enrollment of school-age children, thus making it
difficult to quantify the impact of the regulation on beneficiaries.
A clear and direct impact of the regulation would be that participating school districts in all 29
states that permit claiming for transporting school-age children between home and school on the
day they receive IEP-required Medicaid covered services will experience a reduction in federal
Medicaid funding.
School-based MAC
The impact of eliminating FFP for Medicaid administrative activities performed by school
personnel would vary, not only from state to state, but also from school district to school district
within each state. States have historically identified and used schools as appropriate venues to
reach potentially eligible children who are not yet enrolled in Medicaid/CHIP. In addition,
school districts have had an incentive to assist potentially eligible children with program
enrollment for reasons which include improving health status, thereby increasing school
attendance and instructional time, and claiming reimbursement for covered services provided
pursuant to the IEPs of eligible students.
Federal financial participation for Medicaid administrative activities performed in schools has
allowed for more targeted efforts and the addition of resources at the local level to perform these
functions. Thus, the loss of federal funding from MAC would cause some school districts to
eliminate school-based Medicaid administrative activities. Other school districts may continue
the same level of Medicaid related administrative activities regardless of whether FFP is
available. We conclude that providers in all 32 participating states will be impacted by the loss of
FFP for school-based MAC programs.
The analysis of the impact of this rule has a few data limitations.
 Ability to isolate expenditures for trips between home and school: The majority of states
with school-based transportation could not separately identify expenditures for school-based
transportation for trips between home and school and trips between home or school and a
non-school provider. As most of these states indicated that the majority of trips were
between home and school, we assumed that 100 percent of the school-based transportation
expenditures would lose FFP; however, this methodology slightly overstates the fiscal
impact of the regulation.
Additionally, two states cover transportation services through an overall school-based
services bundled rate. These states could not easily separate the cost of transportation
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496659 (replaces 493701)

services from the bundled rate and were only able to provide high-level estimates of
reimbursement for school-based transportation.
 Impure baseline: During our interviews, some states had noted that some schools have
decreased their participation in MAC due to the complexity of the program requirements
and, in some cases, in anticipation of the finalized regulation. Additionally, the CMS Office
of the Inspector General has conducted many state audits related to Medicaid claiming for
school-based services (although appeals are still being resolved and settlements are still
being negotiated by some states). In response to these audits, many states have already
addressed or are in the process of remedying the identified problems. As our data request
was only for a single, recent year of data, some of the MAC expenditure data submitted by
the states may already reflect actions taken in response to the regulation.
Key points:
 We project more federal savings than CMS projected in the Federal Register ($4.9
billion vs. $4.3 billion over five years), due to more in-depth data collected from states to
conduct our estimates. We also applied a more consistent methodology to calculate
estimates.
 School districts are likely to continue to provide assistance to students; however, the
services are likely to be provided at the expense of other educational programs and
services.
 Fiscal impacts would be concentrated in California, Florida, Illinois, Kentucky, and
Massachusetts.
 This regulation would discourage collaboration between the Medicaid agency and other
agencies, relationships which have been encouraged in the past.
In this section, we offer alternatives for CMS and states to consider in addressing the problems
identified in the Secretary’s report. More importantly we offer tools to strengthen program
integrity and overall accountability related to school-based transportation and Medicaid
administrative activities. We offer these alternatives as additions to existing oversight and
monitoring tools already at CMS’ disposal as evidenced by the multi-state audits of these
programs that resulted in corrective action and repayment.
Claims for administrative activities performed by school personnel
A key component of school-based MAC methodologies is a randomized quarterly time study

conducted among designated participants. While this methodology is intended to allow
appropriate cost allocation, states shared that they and schools have encountered problems and
challenges related to using these codes. We suggest the following alternatives to reduce the
burden by simplifying coding to reduce the likelihood of error and lapses in maintaining
adequate documentation:
 Reduce or combine codes: States reported that some MAC Guide code titles and
descriptions lack the specificity to assure definitive code assignment of certain similar
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496659 (replaces 493701)

activities. Reducing the number of codes by eliminating some and combining others would
help minimize confusion, coding errors, and inconsistencies.
 Require centralized coding: States that use this method find more consistency in coding
activities. School personnel are asked to complete a series of questions to elicit sufficiently
detailed information to facilitate appropriate coding. States that use centralized coding
typically contract with a vendor to develop a system for coding staff activities recorded in
the time study. Either the state or its vendor does the coding, usually via an automated tool.
This method reduces the amount of training required for staff, promotes cost efficiencies
from economies of scale, and potentially reduces the number of disallowances and/or
lengthy negotiations/rebuttals of audit findings.
 Fund dedicated staff to conduct Medicaid administrative activities in schools: States can
eliminate MAC and use FFP matched with non-federal dollars contributed by schools to
fund local eligibility staff or school administrative staff positions for outreach, enrollment
facilitation, etc. In some states, enrollment, outreach, and service coordination staff are not
Medicaid staff—they may be employed by county or other local governmental entities.
These staff positions could be established at appropriate FTE levels and shared among
school districts.
 Establish standards for quality assurance monitoring of school-based MAC programs:
CMS could establish quality assurance and monitoring standards and conduct periodic
reviews based on these standards. Some states have developed detailed monitoring protocols
which they could continue to use if they met CMS standards. Based on 2008 data provided
by a handful of states as part of our study, a majority of the claimable activities fall under
“referral, coordination, and monitoring of Medicaid services” and Medicaid eligibility and
enrollment assistance codes. States could use these data to trigger documentation review in
schools in which claims appear to be outliers.
Claims for transportation between home and school
Over time, the General Accounting Office and the Office of the Inspector General (OIG) through
multi-state audits expressed concerns with respect to improper billing for transportation between
home and school. 96 , 97 In our interviews, states also expressed concern regarding the potential for
improper billing, historically, resulting from lack of clear and consistent guidance from CMS.
Alternatives to strengthen billing processes and accountability include developing MMIS
systems edits and audits to prevent inappropriate billing and payment for services. Possible
alternatives include:
 Build MMIS edits and audits. States should implement MMIS claim edits and audits to
compare the dates of service for school-based transportation claims with dates of service for
other covered school-based services provided to the student on the same day. If no other
school-based Medicaid service claims have been submitted for the date of transportation
96
United States General Accounting Office, Report to the Chairman and Ranking Minority Member, Committee on
Finance, U.S. Senate. “Medicaid In Schools Improper Payments Demand Improvements in HCFA Oversight.”
Publication No. GAO/HEHS/OSI-00-69 (April 2000).
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OIG reports are available at http://oig.hhs.gov/oas/
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service, deny payment for claims if the provider cannot provide required supporting
documentation.
 Establish procedure code modifiers for transportation destination. States should establish
procedure code modifiers (similar to place of service modifiers) to describe the trip
destination for IEP-required school-based transportation services. Examples of modifiers to
identify trip destinations could include: (1) from the student’s home to school; (2) from the
student’s school to the student’s home; (3) from the student’s home to a non-school
Medicaid provider location; and (4) from a non-school Medicaid provider location to the
student’s school.
 Establish procedure code modifiers for transportation type. States should establish
procedure code modifiers to describe the type of vehicle in which the IEP-required
transportation to a covered service is provided, for example: (1) transportation in a specially
adapted vehicle; (2) transportation in a standard (non-specialized) vehicle; and (3)
transportation with an accompanying attendant.
 Base reimbursement for school-based transportation should be on a fee schedule: States
should be required to pay for school-based transportation services using the same fee
schedule used to reimburse other Medicaid transportation providers. This would eliminate
the need for school cost reports and year-end cost settlements.
 Streamline documentation standards: States should provide better guidance regarding the
content of documentation. While we found that all states required trip logs or similar
documentation, the content of the documentation is frequently left to each school district’s
discretion. This may result in significant variations in the level of documentation detail and
may lead to insufficient documentation (as has been identified in the OIG multi-state audits).
Allocation of costs between Medicaid and education
Alternatives to improve consistency and integrity of claims for services provided in schools
include:
 Eliminate cost reporting: States could replace cost reporting requirements with fee-for-
service payments to school providers for a standardized set of procedure codes (or subset
with modifiers), as discussed above.
 Provide Medicaid block grants for school-based services: Providing states with a block
grant for school-based services (as discussed under MAC alternatives) would eliminate
inconsistencies regarding what costs may be allowed and reduce potential delays in
reimbursement.
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Key points:
 Simplify Medicaid administrative claiming or payment methodologies to avoid the
potential for error or duplicate claiming.
 Provide consistent guidance regarding claiming for school-based services and
administrative claiming by school personnel and contractors, in collaboration with
U.S. Department of Education.
 Continue to monitor states’ programs on an ongoing basis using currently available
tools, to assure accountability.
 Provide a mechanism (e.g., list serve) for sharing effective practices and issues.
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VIII. Processing Medicaid Claims through MMIS
Section 1903(r) of the Social Security Act requires the use of an automated data system to
receive payments for claims. For Medicaid purposes, the mechanized claims processing,
expenditure reporting, and information retrieval system that every state is required to have,
unless this requirement is waived by the Secretary, is the Medicaid Management Information
System (MMIS). Although there are a limited number of fiscal agents serving state Medicaid
agencies, every state’s MMIS is different and designed to meet the specific requirements of that
state’s Medicaid program based on its administrative organization and processes. Until relatively
recently, MMIS did not extend beyond the operations of state Medicaid agencies. Now, every
state has numerous services for which FMAP is received but which are managed through
financial processes and payment systems other than the MMIS, and for which individual or even
aggregate claims are not included in the MMIS. Further, in some states, programs eligible for
FMAP are administered at the county level with disparate levels of documentation maintained.
The MMIS, as originally conceived, was intended to support claims processing, program control,
and reporting. Over time, as various non-traditional medical programs and additional
administrative functions have been added to the scope of services coordinated by state Medicaid
programs (e.g., managed care, clinical support, data analysis, fraud management, non-emergency
transportation coordination, prior authorization), many states have found that the MMIS is
incapable of supporting all of these functions and therefore administer these activities in separate
systems. This system fragmentation makes it difficult for Medicaid administrators to obtain a
consolidated overview of all provider and beneficiary activity, as the systems often have limited
interconnectivity and use different data standards. In addition, over the years the administration
of many state Medicaid programs has increasingly involved multiple state and local agencies,
some of which do not interface with the MMIS.
States and CMS have supported efforts to improve the integration of data into a single system
that can be used to improve real-time reporting, broaden analysis of program needs, and more
accurately measure health outcomes. States have used a variety of strategies to improve their
data systems, including development of advanced systems that have greater adaptability and
flexibility to respond to program changes; use of data warehouses capable of integrating and
organizing program-wide information; and creation of information technology frameworks that
use common data standards to support virtual data aggregation. For financial and contractual
reasons, some states have found it easier to implement program changes outside of MMIS, rather
than amend complex fiscal agent agreements and undertake potentially disruptive changes to
their MMIS. As a result, more and more services are being reimbursed through alternative
systems outside of the MMIS between recompetes of MMIS contracts. This limits the ability to
fully identify program costs and the fiscal impact of regulations through MMIS data analysis
alone.
A. Claims Not Processed through MMIS
Cost limit
Payments associated with this regulation potentially include payments for any services that are
provided by governmental providers. These can include reimbursement for Medicaid services;
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supplemental, incentive, and outlier payments; disproportionate share hospital (DSH) payments;
and certain administrative payments.
In one-third of the states, all routine payments to public providers are processed through the
MMIS. In the remaining states, most payments to public providers are processed through the
MMIS, with the exception of certain lump-sum or periodic payments. 98 The most common types
of payments not made through the MMIS are DSH payments (18 states) and supplemental,
incentive, and outlier payments (13 states). A small number of states make aggregate payments
such as cost settlement, IME, and UPL payments outside the MMIS. A few make school-based
administration and other administrative payments to public providers outside of the MMIS. A
small number of states pay particular public provider types (e.g., public ambulance providers,
state institutions for mental disease) outside of the MMIS. Almost every state indicated that
while these payments may not be processed through the MMIS, they are separately identifiable
and reportable.
GME
States have a wide variety of methodologies for calculating and making payments for both direct
and indirect GME. However, the majority of payments are either included as a component of
rates paid to providers or paid periodically in lump sums. Only 11 states indicated that all GME
payments were included in the MMIS and were separately identifiable. Payments made as a
component of a rate paid to a provider will be included within the MMIS. Rarely can these
payments be separately identified within the system and often identifying the amount of GME
paid requires calculation outside of the system.
As mentioned previously, lump sum payments are often processed outside of the MMIS due to
the inability of the system to handle them. However, lump sum GME payments are also the most
readily identifiable and easily reported. As a result, the majority of states that include separately
identifiable GME payments in their MMIS are those that make lump sum payments and have
systems that can process these types of payments.
Rehabilitation services
Payments associated with this regulation are for services provided by states under the optional
rehabilitation services benefit. These services may include mental health and substance abuse
services, school-based services, physical therapy, therapeutic foster care, early intervention
programs, and adult day health services.
In most states, all claims under the rehabilitation services option are covered on a fee-for-service
basis and processed through the MMIS with procedure codes specific to each rehab option
service. Fifteen states cover services provided under the rehab option to some beneficiaries
through capitated managed care plans. Most states capture managed care encounter data that
generally mirrors the information included on a fee-for-service claim. In a few instances,
separate government agencies process claims associated with the rehabilitation services option or
98
Alabama did not provide information for this portion of the report. Michigan staff were unable to specify which
claims or payments might be processed outside of the MMIS.
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specific services under this option (e.g., mental health and substance abuse services). State
collection of data for claims processed by other agencies varies by state: specific claims details
may be maintained in that separate system, reflected as a per diem or other aggregate payment in
the MMIS, or stored in the MMIS.
School-based activities and services
Payments associated with this regulation include payments for transportation services provided
to children between home and school, and payments for Medicaid administrative activities
performed by school personnel.
Payments for school-based transportation services provided to children between home and
school
In all 31 states where school-based transportation services are covered, all claims for these
services are processed through the state MMIS. This includes states that cover these services as
optional medical services and those that treat them as administrative expenses. Some states
require cost reporting for school-based transportation, but process claims through the MMIS with
an interim rate, then conduct a separate cost settlement process.
Louisiana processes claims for Medicaid reimbursement for transportation provided to children
between home and school in the MMIS but requires submission of paper claims with additional
detail not captured by the MMIS, which is used for annual cost settlements with each school
district (billing provider). Missouri reimburses school districts for transportation on an
administrative basis rather than as a medical service, and does not process these payments
through the MMIS.
Payments for Medicaid administrative activities performed by school personnel
Unlike school-based transportation claims, Medicaid administrative claims are not considered
claims for medical services and, as such, are not processed through state MMIS systems.
B. Why Claims are Not Processed through MMIS
There are several reasons why claims associated with these regulations are not processed through
the MMIS. In most cases, the payments are not beneficiary-specific claims payments, but rather
are manual payments made to settle costs, reimburse for administrative services, or provide
supplemental funding. Some are intergovernmental transfers where funds are allocated through
the budget process. In the case of certified public expenditures, some are only partially captured
in the MMIS. Some are paid through invoices received by sister agencies. In cases where sister
agencies administer payments the actual documentation and calculation of payments is often
handled outside of the Medicaid agency. Payment information recorded in the MMIS for
information purposes may then be of little benefit without the accompanying detail. As noted
above, most MMIS were originally designed to process claims and most do not have the capacity
to process non-claims-based payments, although some can process and/or store the payment,
once calculated.
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C. Recommendations for Increasing the Percentage of Claims Processed through MMIS
As described above, most of the payments we identified as being outside MMIS are
administrative or manual payments that cannot be system adjudicated, particularly by legacy
MMIS that are designed to support only individual medical claims processing and eligibility
storage. Many states, as they update their MMIS, are adding functionality that allows processing
and storage of additional payment transactions within the MMIS. In addition, states that make
manual or administrative payments can create records and coding structures that allow for the
retention of payment information within the MMIS, where it can be retrieved for analytical
purposes.
If desired, CMS can update the certification requirements outlined in the State Medicaid Manual
to require states to make or track aggregate and administrative payments through MMIS. These
standards would be adopted by states as they modify or update their MMIS and seek certification
of the new systems. CMS should also promote “virtual” aggregation of this data through the
Medicaid IT Architecture (MITA) framework. For GME payments, CMS could develop
reimbursement guidelines that require periodic lump sum payments to allow “traceability” in the
MMIS. This would complicate payments that are calculated on the basis of rate add-ons to
individual claims, since these add-ons would not automatically be adjusted in the event the
original payment for service is adjusted or voided.
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IX. Conclusion
As the Medicaid program has evolved and grown over the past 40 years, it has become more
complex, and assessing compliance with the spirit and letter of Medicaid law and regulations is
complicated by the technical complexity and the uniqueness of each state’s Medicaid program.
States vary significantly in the administrative resources they devote to designing and managing
their Medicaid programs. Medicaid’s complexity demands a skilled and substantial staff. A small
state with a correspondingly small Medicaid budget still must observe the many rules and
requirements that regulate the state’s own policies and procedures. Many state agencies are
experiencing “brain drain,” as many baby boomer era senior and technical staff with knowledge
of complex financial and regulatory systems are retiring (a trend that has accelerated as states
have used early retirement buyouts and layoffs to help solve state budget problems). While all
states are required to have a centralized management information system, many states still rely
on legacy mainframe systems with limited ability to support audit trails and complex reporting.
Assessing the potential financial and operational impacts of these regulations on all 51 state
Medicaid programs is further complicated by the nature of the state-federal partnership. States
have taken different approaches to how the programs are structured, the extent to which program
administration remains centralized in the Single State Agency or has been further delegated to
other state agencies, the level of sophistication and integration of management information
systems, and the degree to which Medicaid is used as the platform for health reform and
innovation. The net result is that while Medicaid is a single program at the federal level, at the
state level it is 51 different internally-complex programs that are each affected differently by the
four regulations.
The strength of the federal-state partnership lies in the counterbalancing objectives of the federal
regulators, the interpreters and enforcers of federal statute, and the state administrators,
responsible for designing and implementing a program responsive to the needs and resources
within their jurisdictions. These objectives and responsibilities sometimes result in areas of
disagreement between states and CMS over statutory and regulatory interpretation and
appropriate administration. In the case of the four regulations reviewed, issues regarding fiscal
integrity have been raised in reviews undertaken by the General Accountability Office and the
Office of the Inspector General.
Congress’ direction to CMS for this study required an independent contractor to assess the
prevalence of the problems identified by Secretary Leavitt and estimate the impacts of the
regulations in each state. We describe our findings in the regulation-specific areas above, and
provide a more general summary below.
 Prevalence of the problems: Overall, we found that states do in fact have difficulty, in some
instances, tracking where their Medicaid dollars go and the precise purposes to which these
dollars are applied, which, in turn, creates oversight problems with CMS. There is no doubt
that many of the issues raised by the Secretary and addressed in the regulations are ones that
require continued focus from CMS and the states. On the other hand, we found little
evidence within the states to substantiate some of the specific problems expressed by the
Secretary. In addition, many of the more significant concerns identified in the Secretary’s
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report arise from fundamental disagreements about the appropriate scope of Title XIX. In
many cases, while we find that a problem raised by CMS exists in a state, we do not find any
indication that the state has acted inappropriately.
 Impacts of the regulations: We project the fiscal impacts from each of the four regulations,
estimating less federal savings than CMS (and less fiscal impact on the states) for the
rehabilitative services regulation but higher savings and greater impacts for GME and the
cost limit regulations. Our impact estimate for the school-based services regulation was very
similar to CMS’ estimate. Perhaps most strikingly, we concluded that complying with the
proposed regulations would require tremendous administrative effort from the states (and
from CMS) at a time when states are short of administrative resources and contemplating the
administrative challenges of national health care reform. All of the regulations would impact
Medicaid beneficiaries, although sometimes indirectly and inconsistently across states.
We encountered two types of challenges in developing our financial impact analyses:
 Lack of clarity in parts of the proposed regulations (combined with possible alternatives for
CMS’ method of implementing the rules), and
 Lack of accessible data at the state level to support the analyses and shortcomings in states’
ability to identify programs and providers likely to be impacted.
Despite these challenges, we believe our analysis is supported by much more information than
was available for prior analyses, and provides a clearer and more accurate assessment of likely
impacts. For example, there are particular aspects of the regulations that are obscure or possibly
contradictory to CMS discussion in the preamble of the 2008 Secretary’s report. For example,
the GME rule appears to prohibit FFP for all GME payments including both direct and indirect
GME; however, the preamble states that “States …. are able to recognize, as part of the inpatient
hospital rate structure, the additional Medicaid covered service costs that teaching hospitals incur
when delivering Medicaid covered services,” which some states have interpreted to mean that
payments for indirect GME would still be permitted. Additional information on CMS’
expectations for implementation and compliance documentation would add further certainty to
states’ interpretation. Regarding the data shortcomings and lack of clarity on state policies and
methodologies, there are aspects of state-specific impact analyses that would benefit from more
robust information, and these shortcomings may lead to some underestimates for particular states
and particular regulations.
Based on our analysis, we believe that there is compelling evidence for CMS to move forward
with some of its policy objectives embodied in the four regulations, particularly those that would
support clearer and more consistent claiming across states. However, some of the regulatory
strategies warrant reconsideration because their impacts would be broader than articulated by the
Secretary or by CMS. For example, physician and paraprofessional workforce shortages are
receiving attention nationally, with strategies and funding mechanisms to expand medical
education under debate. Should Medicaid funding of GME be eliminated (and almost all states
currently paying for GME indicated that the state share of this funding would likely disappear as
well), federal policymakers may be put into the position of finding new funding mechanisms to
replace both the federal and state share of the lost GME payments.
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Next steps for CMS could include revised regulations, but CMS could also achieve many of its
goals through technical assistance and administrative guidance. Regardless of how CMS moves
forward, the agency needs to consider several factors:
 The states need ample lead time to prepare for new requirements. It is unreasonable to
expect that states could adjust to some of these rules without a long lead time. States may
need their own enabling legislation at the state level; may need to wait until the next budget
cycle to accomplish aspects of program changes; may need staff time to accomplish the
myriad administrative tasks required; and, in some cases, may have to hire more staff
(almost impossible in current budget environment).
 CMS will need to take steps to ensure consistent application of new rules across states. In
the absence of these regulations, CMS has sought to address many of its concerns on a state-
by-state basis, but states have often perceived variable rigor across CMS regional offices
and changing or inconsistent interpretation of federal policy. Both CMS and the states would
ultimately be better served by clear and consistent guidance that supports program integrity
and transparency while allowing reasonable state flexibility. As noted above, sufficient lead
time would be needed to allow both state and federal staff to develop, review, and approve
state plan amendments, particularly if new rules requiring extensive SPA submissions from
50 states and DC were simultaneously promulgated.
 The states need guidance, procedures, and assistance to facilitate compliance. During our
work, we were fortunate to have the participation of many state officials who are talented,
sophisticated, and deeply committed to their work. But even with greater lead time to
prepare for future regulation, some states simply are not equipped to make the policy
changes necessary to come into full compliance without intensive assistance from CMS.
 The diversity among the states and the complexity of the policy considerations would make
incremental steps easier to implement. Some aspects of the proposed regulations appear to
take a “lowest common denominator” approach to regulation. There are ways that CMS
could achieve policy goals with softer steps. For example, the Secretary notes that GME
payments lack transparency and do not clearly benefit services and access for beneficiaries
or the training programs themselves. Rather than terminate FFP for Medicaid GME
expenditures, CMS could establish parameters – with input from the states – for
documenting total GME expenditures and details regarding the services and programs that
benefit from the payments.
The role of Medicaid in the American health care system is large and will likely become even
more substantial under upcoming health care reforms. CMS and the states must work together to
meet the challenges of maintaining program integrity while serving the health care needs of
millions of Americans who are frail, have disabilities, and/or are economically disadvantaged.
We hope that this report helps to inform that collaboration.
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APPENDIX A
Appendix A: Interview Protocol and Data Request Document
Mandated Report to Congress
Independent Study and Report
Contract no: HHSM-500-2005-00024I
Proposed Interview Questions for Regulations Under Review
According to the Paperwork Reduction Act of 1995, no persons are required to respond to a
collection of information unless it displays a valid OMB control number. The valid OMB control
number for this information collection is 0938-1061. The time required to complete this
information collection is estimated to average 60 hours per response, including the time to
review instructions, search existing data resources, gather the data needed, and complete and
review the information collection. If you have comments concerning the accuracy of the time
estimate(s) or suggestions for improving this form, please write to: CMS, 7500 Security
Boulevard, Attn: PRA Reports Clearance Officer, Mail Stop C4-26-05, Baltimore, Maryland
21244-1850.
Cost Limit for Providers Operated by Units of Government and Provisions to Ensure the
Integrity of Federal-State Partnership
Interview and Data Questions
I. Background
The rule seeks to:
 Clarify that entities involved in financing the non-federal share of Medicaid payment must
be Units of Government
 Limit reimbursement to governmentally-operated health care providers to an amount that

does not exceed the provider’s Medicaid cost
 Establish minimum documentation required to support a certified public expenditure (CPE)
 Require that governmentally operated providers retain the full amount of payment for
services covered by the State Plan
 Make conforming changes to SCHIP except for cost limit (i.e., apply changes relating to
Unit of Government, CPE and Intergovernmental Transfer (IGT) use, and retention)
II. Interview Questions – Please note that questions will be asked for both Medicaid and
SCHIP, if separate programs. For this interview, please identify and include staff that are
knowledgeable about public providers, their costs, cost reports, and related financing
arrangements, as well as specific aspects of financing such as CPEs, IGTs, and upper payment
limits, both within the Medicaid agency as well as other program-specific agencies.
Units of Government – Section 433.50 of the proposed regulation includes the following:
A unit of government is a State, a city, a county, a special purpose district, or other governmental unit
in the State (including Indian tribes) that has generally applicable taxing authority. A health care
provider may be considered a unit of government only when it is operated by a unit of government as
demonstrated by a showing of the following:
(A) The health care provider has generally applicable taxing authority; or
(B) The health care provider is able to access funding as an integral part of a unit of government with
taxing authority which is legally obligated to fund the health care provider’s expenses, liabilities, and
deficits, so that a contractual arrangement with the State or local government is not the primary or sole
basis for the health care provider to receive tax revenues.
1. Which “public providers” currently provide services under your Medicaid program? (e.g.,
inpatient hospital, outpatient hospital, clinic, ICF/MR). What categories of service do they
provide? (also, see data request in Section III)
2. Which providers will not be considered “Units of Government” under the proposed
regulation? (also, see data request in Section III)
CMS-10281 (11/30/2009) A.1

a. What criteria in the proposed regulation disqualify them?
b. Are there specific providers or types of providers that have been considered
public for which it is unclear if they will qualify as “Units of Government”?
c. Are there specific providers or types of providers that have not been considered
public that will now qualify as “Units of Government”?
3. What changes in current Medicaid operational processes will be required to comply with
determination of government status (e.g. completion of Unit of Government form,
process for state determination of status, IT system changes)?
4. To what extent do you anticipate that the loss of public status for some providers will
impact the rates, fees, and/or UPLs for Units of Government and non-Units of
Government?
a. Please describe and share any estimates that have been previously been
determined regarding, for example, rate changes, increases or decreases in the
availability of care, opening or closing of facilities, etc.
Funds from units of government as state-share – Section 433.51 addresses funds from units of
government that can used to claim Federal Financial Participation. Specifically these funds must meet
the following requirements:
 The funds from units of government are appropriated directly to the State or local Medicaid
agency, or are transferred from other units of government (including Indian tribes) to the State or
local agency and are under its administrative control, or are certified by the contributing unit of
government as representing expenditures eligible for FFP under this section. Certified public
expenditures must be expenditures within the meaning of 45 CFR 95.13 that are supported by
auditable documentation in a form approved by the Secretary that, at a minimum —
(1) Identifies the relevant category of expenditures under the State plan;
(2) Explains whether the contributing unit of government is within the scope of the exception to
limitations on provider-related taxes and donations;
(3) Demonstrates the actual expenditures incurred by the contributing unit of government in
providing services to eligible individuals receiving medical assistance or in administration of the
State plan; and
(4) Is subject to periodic State audit and review.
 The funds from units of government are not Federal funds, or are Federal funds authorized by
Federal law to be used to match other Federal funds.
5. Which providers, if any, certify Medicaid spending using CPEs? (also, see data request
in Section III)
6. Which providers, if any, contribute Medicaid funds through IGTs? (also, see data request
in Section III)
CMS-10281 (11/30/2009) A.2

7. Does the current CPE methodology meet the requirements laid out by CMS in its
proposed regulation? If so, please describe. If not, how is the current methodology
different from the methodology in the proposed regulation?
8. If the current CPE methodology does not meet the requirements in the regulation, what
is the estimated reimbursement impact for Units of Government?
9. What additional State share, grant funds, or other funding, if any, would the State need
to provide to support providers that do not qualify as Units of Government at the same
level as they would have received had they been allowed to continue to use CPEs?
10. What is the anticipated administrative impact for states and providers of complying with
the proposed CPE requirements (e.g. documentation, record keeping, systems
changes)?
11. Is the State considering implementing new or additional CPEs based on the proposed
regulation? If so, for what providers, and what is the anticipated impact?
Cost Limit for Units of Government – Section 447.206 applies to payments made to providers that are
determined to be units of government and includes the following:
(1) All health care providers that are operated by units of government are limited to reimbursement not
in excess of the individual provider’s cost of providing covered Medicaid services to eligible Medicaid
recipients.
(2) Reasonable methods of identifying and allocating costs to Medicaid will be determined by the
Secretary in accordance with sections 1902, 1903, and 1905 of the Act, as well as 45 CFR 92.22 and
Medicare cost principles when applicable.
(3) For hospital and nursing facility services, Medicaid costs must be supported using information
based on the Medicare cost report for hospitals or nursing homes, as applicable.
(4) For non-hospital and non-nursing facility services, Medicaid costs must be supported by auditable
documentation in a form approved by the Secretary that is consistent with § 433.51(b)(1) through
(b)(4) of this chapter.
12. Which provider types submit Medicaid cost reports and how often? Which provider types
do not currently submit cost reports? What other types of cost documentation and/or
verification are available? (also, see data request in Section III, items 3-4)
13. For those that do not submit cost reports, what other types of cost documentation,
verification, and/or benchmarks are available? (also, see data request in Section III,
items 3-4)
14. Based on your understanding of the proposed regulation, what is the anticipated
administrative impact/cost for states and providers of complying with the cost reporting
requirements (e.g. developing reports, completing reports, reviewing and reconciling,
systems changes)?
CMS-10281 (11/30/2009) A.3

15. What is the estimated reimbursement impact of the cost-limit? If possible, please share
methodology, calculations, etc.
16. If you currently reimburse some “public” providers above cost, what is the rationale of
doing so?
Retention of Payments – Section 447.207 of the proposed regulation requires that providers that are
units of government retain payments for Medicaid services, specifically:
All providers are required to receive and retain the full amount of the total computable payment
provided to them for services furnished under the approved State plan (or the approved provisions of a
waiver or demonstration, if applicable). The Secretary will determine compliance with this provision by
examining any associated transactions that are related to the provider’s total computable payment to
ensure that the State’s claimed expenditure, which serves as the basis for Federal Financial
Participation, is equal to the State’s net expenditure, and that the full amount of the non-Federal share
of the payment has been satisfied.
17. What providers currently considered public do not retain all the funds they receive from
Medicaid/SCHIP? (note that ALL providers are required to retain the full amount of
funds, not just public providers)
a. How much is not retained?
b. How do you know if the funds are retained?
c. If funds are not retained, what are they used for?
18. What methods are (or could be) used to track that Medicaid reimbursements are fully
retained by providers?
19. What changes in current Medicaid operational processes will be required to comply with
verifying retention of Medicaid reimbursements?
Additional information to be collected – The following questions will help with the determination of the
overall impact of the proposed regulation, including potential data sources, as well as alternative
methods of addressing the problems that the proposed regulation seeks to address.
20. What data sources, analytic methods, and impact assumptions were used to develop
previous estimates of the impact of this regulation, including your State’s response to the
Waxman request?
21. Can the State assess the overall impact of the proposed regulation on the State’s safety
net and other programs including potential financial, public health, and other impacts
(e.g. change in availability of programs to various populations, change in the number of
providers, changes in charges to the uninsured, etc.)?
22. Which programs (if any) in your State were previously cited as problematic by CMS,
GAO, OIG, etc.? What modifications were made to bring them into compliance?
CMS-10281 (11/30/2009) A.4

23. What other approaches could be taken to accomplish the goals of the proposed
regulation?
24. Of the funding streams involved (e.g. rates, fees, and other Medicaid payments), which
are currently handled outside of the MMIS and are they “total computable payments”?
III. Data Requests
1. List of governmentally-operated providers including provider ID number (NPI) and

provider type
2. List of services provided by the previously identified providers
3. Total Medicaid/SCHIP reimbursement to governmentally operated providers, by provider

ID (NPI) and type of service. Indicate whether reimbursement is “total computable” or
federal-share only
4. Total cost of care provided to Medicaid eligibles by governmentally operated providers,

by provider ID (NPI) and type of service
5. List of providers that would (or possibly would) no longer be considered public including
provider ID (NPI), type, and reason for exclusion
6. Total CPE expenditures by provider, by provider ID (NPI) and type of service
7. Total funds transferred via IGTs, by provider, by provider ID (NPI) and type of service
CMS-10281 (11/30/2009) A.5

Graduate Medical Education

I. Background
The proposed rule asserts that costs and payments associated with GME programs are not
authorized medical assistance expenditures, thereby eliminating all federal payments for Direct
Graduate Medical Education (DME) and Indirect Graduate Medical Education (IME). In
addition, the Medicare Direct GME payments would be removed from the Medicaid Upper
Payment Limit (UPL) calculations.
II. Interview Questions
Questions 1 through 8 request information about State program administration, payment

methods, and policy issues pertaining to Medicaid GME. Responses to these questions will
provide a foundation for understanding the current structure of the State’s GME program and
how it is financed to better assess the impact that implementation of this regulation could have
on the State in this area.
1. Which agencies and departments are responsible for administering the Medicaid GME
program in your State? What are their respective roles and responsibilities?
2. Which types of providers and/or other organizations are eligible to receive GME
payments in your State and what specific criteria are used to determine eligibility for
Medicaid GME payments?
3. Are payments specifically designated as Medicaid GME identified within the States
Medicaid reimbursement methodology?
4. How are Medicaid GME payments determined in your State, and on what basis (per-
diem, per-case, other) are they distributed? To what extent are methods similar to
Medicare used?
5. Does your State place explicit limits on Medicaid GME payments to eligible providers? If
yes, how is the maximum limit for GME payments determined?
6. Does your State currently link Medicaid GME payments to State work force or other
policy goals (such as addressing shortages of primary care physicians, or shortages of
health care providers in medically underserved communities)? If yes, please elaborate.
7. Has your states Medicaid GME program ever been cited as problematic by CMS, GAO,
OIG or other federal organizations? If yes, what modifications to the program were made
to bring it into compliance?
8. Has your State considered or implemented any strategies designed to address CMS
issues of concern regarding Medicaid GME payments? If yes, please elaborate on
strategies and their anticipated impacts.
CMS-10281 (11/30/2009) A.6

Additional information to be collected – Questions 9 through 14 will help with the determination
of the overall impact of the proposed regulation, including potential data sources, as well as
identifying possible alternative methods of addressing the problems that the proposed regulation
seeks to address.
Currently the general instructions regarding Medicaid State Plan requirements for payment methods
for all Medicaid services are provided at § 447.201. We propose to add a new § 447.201(c) to indicate
that GME cannot be included as part of any payment methodology in the Medicaid State Plan.
We propose also to modify §§ 447.257 and 447.304 to address that FFP is no longer available for any
reimbursement that includes or specifically pays for GME.
We propose to modify § 447.272(b)(1) and 447.321(b)(1) to indicate that the term ‘‘Medicare payment
principles’’ must exclude any Medicare payments associated with direct GME when calculating the
Medicaid UPL.
We propose to modify § 438.6(c)(5) by removing paragraph (v) that addresses the coordination of
GME payments under the State plan with capitated rates paid to a Medicaid MCO.
We propose to modify § 438.60 to provide that the limit on payment to other providers would not
include an exception related to GME payments made to providers outside the capitation rate and
under the Medicaid State Plan.
9. What are the current methods of allocating Medicaid GME payments to eligible
providers in your State?
a. Fee-for-service ( per case, per resident, other)
b. Managed Care ( bundled payment, separate payment, other)
c. Both fee-for-service and Managed Care
d. Other-please specify
10. To what extent is your State able to clearly identify all Medicaid GME payments to
eligible providers under FFS and managed care payment systems?
11. Do you anticipate that any new and significant administrative costs will be incurred by
your State Medicaid agency and/or other State entities in complying with federal
requirements as a result of this proposed rule? If yes, please describe the nature of
these costs and estimate their key impacts on State agencies.
12. Has your State performed an independent analysis of the financial impact of the
proposed Medicaid GME rule, including any analyses conducted at Representative
Waxman’s request? If yes, please share with us:
a. Data sources used to perform the financial impact analysis
CMS-10281 (11/30/2009) A.7

b. Analytic methods, time periods, and impact assumptions used to develop the
analysis
c. Any analysis results, including those shared with any federal agencies or other
interested organizations
13. As you know, the proposed CMS rule would eliminate the federal share of State
Medicaid GME payments.
a. How much Medicaid GME funding has your State received through federal
matching payments during the most recent State Fiscal Year for which this
information is available?
b. Do you believe that your State would consider addressing lost federal matching
payments from other State revenue sources? If yes, to what extent and from
which State sources of revenue?
c. How would your State’s likely response impact State Medicaid GME payments to
eligible providers and other organizations?
14. The proposed CMS rule would also remove federal Medicare DME payments from the
calculation of your State’s Medicaid UPLs.
a. Would this component of the proposed rule, if enacted, have a significant

financial impact on your State Medicaid program? If so, in what ways?
b. Would it likely have a significant impact on hospital Medicaid payment rates? If

yes, which provider types would likely be most impacted (State, city/county, or
private providers)?
Questions 15 and 16 focus on data sources and the transparency, completeness, and accuracy
of data for capturing State Medicaid GME payments.
15. Are all Medicaid GME payments currently captured in your State’s MMIS?
a. Yes, both total DME and IME payments are captured
b. DME only
c. IME only
d. Other
16. Are there any Medicaid GME payments to eligible providers that are currently processed
outside of the MMIS in your State? If yes:
a. What provider types are involved and what is the magnitude of these payments
for the most recently available fiscal year?
CMS-10281 (11/30/2009) A.8

b. What method, if any, is used for claiming federal matching dollars for Medicaid
GME payments processed outside of the MMIS?
c. What strategies are in place to ensure the fiscal integrity of the Medicaid GME
payments that are processed outside of the MMIS in your State?
III. Data Requests
1. List of eligible providers and Medicaid GME payments by provider type
2. Aggregated and hospital-specific payments under fee-for-service and managed care
3. Aggregated and total Medicaid GME payments, by component, to non-teaching hospital

providers
4. Aggregated and facility group specific Medicaid UPLs
5. Medicare DME payments to teaching hospitals in total and by facility group for the most
recent State Fiscal Year
CMS-10281 (11/30/2009) A.9

Elimination of Reimbursement Under Medicaid for School Administration Expenditures

and Costs Related to Transportation of School-Age Children Between Home and School
I. Background
The rule clarifies that Federal Financial Participation (FFP) is no longer available for: (1) all
Medicaid administrative activities performed by school employees, school contractors, and
anyone under the control of a public or private educational institution, and (2) transporting
school-age children between school and home.
Final Rule:
“Federal financial participation under Medicaid is not available for expenditures for administrative
activities by school personnel, school contractors, or anyone under the control of a public or private
educational institution.” (42 CFR §433.20)
“Necessary transportation does not include transportation of school-age children between home and
school.” (42 CFR §431.53)
“Transportation includes expenses for transportation and other related travel expenses determined to be
necessary by the agency to secure medical examinations and treatment for a recipient. Such
transportation does not include transportation of school-age children from home to school and back.” (42
CFR 440.170)
CMS Rationale:
“Administrative activities performed by schools, and transportation of school-age children from home to
school and back, are not necessary for the proper and efficient administration of the State Medicaid plan,
and are not within the scope of transportation services recognized by the Secretary under 42 CFR
440.170(a) for the following reasons:
(1) The activities or services support the educational program and do not specifically benefit the Medicaid
program;
(2) The activities or services are performed by school systems to further their educational mission and/or
to meet requirements under the IDEA, even in the absence of any Medicaid payment;
(3) The types of school-based administrative activities for which claims are submitted to Medicaid largely
overlap with educational activities that do not directly benefit the Medicaid program; and
(4) Transportation from home to school and back is not properly characterized as transportation to or
from a medical provider.”
(Federal Register, Vol. 72, No. 248, pages 73635-73651 (See II. Provisions of the Proposed Regulation.)
1. Does your State Medicaid agency participate in school-based Medicaid administrative

claiming for activities performed by any/all of the following:
a. School employees (yes/no)?

b. School contractors (yes/no)?
CMS-10281 (11/30/2009) A.10

c. Other individuals under the control of a public or private educational institution

(yes/no and, if yes, please specify)?
For a-c, describe their roles and responsibilities with respect to school-based Medicaid
administrative activities performed.
2. While states are not required to submit school-based administrative claiming plans to
CMS for approval prior to claiming school-based Medicaid administration, some states
have opted to do so. In addition to assessing the impact of the rule, Lewin is required to
recommend actions by federal agencies and states to make claims more accurate,
complete, and consistent with statute. We are requesting the information below to gain
a better understanding of approval processes for school-based Medicaid administrative
claiming plans and to recommend actions for CMS or states.
a. Did your State submit a Medicaid school-based administrative claiming plan to

CMS for approval? If so, when was the plan approved?
b. If your State submitted a Medicaid school-based administrative claiming plan and
received approval before May 2003 from CMS, did your State revise its approved
plan following issuance of the May 2003 CMS Medicaid School-Based
Administrative Claiming Guide to be in compliance by October 1, 2003? If so
when was the revision submitted and approved?
3. How does your State report school-based administrative claiming expenditures?
a. Does the State report them on the CMS-64? If not, what is the rationale and how
is school-based administrative claiming expenditure data otherwise reported?
b. How does the State report Medicaid school-based administrative claiming
expenditure data?
4. Which (and to what extent) do entities other than the State Medicaid agency [e.g., State
Department of Education, Local Education Agencies, (LEAs)] perform school-based
Medicaid administrative activities to school age children?
a. Please list each claiming agency/entity and describe its roles/responsibilities

related to school-based Medicaid administrative claiming (e.g., education, local
health departments, MR/DD, etc.).
b. How do the various agencies/entities involved assure no duplicative claiming?
c. Describe how these agencies’/entities’ roles/responsibilities to perform school-
based administration will change as a result of this rule.
5. To what extent does your State Medicaid agency, Education department, or LEA use the
services of independent consultants and/or private contractors/entities for purposes of
administering the school-based Medicaid administrative claiming program or developing
the claims?
CMS-10281 (11/30/2009) A.11

a. Please describe their roles and responsibilities for administrative claiming in

schools.
b. Describe how their roles/responsibilities may change if the rule goes into effect.
c. Will your State continue to provide administrative claiming in the school setting if
the rule goes into effect?
6. What is the total Medicaid school-based administrative expenditure (total computable

amount) in the most recently completed State Fiscal Year that would be
disallowed/eliminated under the regulation?
a. How would the State otherwise finance these services?

b. Please identify whether the non-Medicaid funding source(s) would be State,
local, or Federal funding, and in what proportions, if known.
7. How are federal funds for school-based Medicaid administrative activities distributed?
a. To which entities (e.g., State education departments, schools/LEAs, billing

agents/independent contractors, Medicaid agency) and in what proportion(s)?
b. Does your State dictate how funds claimed for school-based Medicaid
administrative activities must be used? If so, what are the requirements for the
use of funds and how is compliance assured (e.g., do LEAs report on how they
use funds and to whom)?
8. Which State or local agencies provide the required State matching funds for school-
based Medicaid administrative claiming?
a. What is the funding mechanism for the non-federal share [e.g., Certified Public
Expenditures (CPEs), IGTs, other]?
b. What is the source of funds for the non-federal match (e.g., State general fund
appropriations, local taxes, other)?
9. Under the regulation, FFP will remain available for school-based Medicaid administrative
activities if performed by a Medicaid State agency or local health department staff.
a. Does the State intend to transition school-based Medicaid administrative

activities to Medicaid State agency or other local health department personnel?
b. If so, how will this occur [e.g., by placing Medicaid State agency staff in schools,
(as outstationed employees), or some other arrangement]?
CMS-10281 (11/30/2009) A.12

10. Based on the regulation, which school-based Medicaid administrative activities

performed by school employees, school contractors, or anyone under the control of a
public or private institution (for which you currently claim FFP) may no longer be
provided? Which will continue to be performed by schools as a result of IDEA or other
educational missions/mandates (e.g., “child find”)?
11. The rule would prohibit Medicaid administrative claiming for activities performed by
school employees, school contractors, or anyone under the control of a public or private
educational institution. To help identify how elimination of funding for these activities will
impact services for school-age children, we wish to identify if the State already has a
mechanism in place to assess the status of programs and funding for children’s services.
Does your State prepare a “state children’s budget” or otherwise conduct an overall
assessment of spending on children’s programs? If so, to what extent does that budget
address whether/how elimination of funding for school-based Medicaid administrative
activities could affect (directly or indirectly):
a. Medicaid enrollment rates among school-age children?
b. Provision of Medicaid-covered direct medical services for school-age children

(e.g., EPSDT services)?
Related questions if the State claims for school-based transportation as an optional medical
service
Final Rule:
“Necessary transportation does not include transportation of school-age children between home and
school.” (42 CFR §431.53)
CMS’ response to proposed rule comments states:
“CMS will continue to reimburse States for school-based Medicaid service costs authorized in their
approved Medicaid State plans, including transportation of school-aged children from school or home to a
non school-based direct medical service provider that bills under the Medicaid program, and from the
non-school-based provider to school or home. CMS will also continue to reimburse States for
transportation costs related to children who are not yet school-age and are being transported from home
to another location, including a school, and back to receive direct medical services, as long as the
transportation is not primarily for purposes other than gaining access to a Medicaid provider for covered
services (such as when it is regularly scheduled transportation to a day care program).”
Federal Register, Vol.72., No. 248, page 73638.
CMS-10281 (11/30/2009) A.13

12. Does the State Medicaid agency claim FFP for school-based transportation services?
States are generally required to provide transportation to and from Medicaid covered
medical services for certain eligible individuals. States may provide such
transportation under the Medicaid State plan as either a required administrative
activity (42 CFR 431.53) or as an optional medical service (recognized by the
Secretary under section 1905(a)(28) of the Act and implemented at 42 CFR
440.170(a)). Which of these two options does the state use to provide transportation to
school-age children? (administrative activity/optional medical services)
a. If your State claims for school-based transportation for Medicaid students with an
IEP/IFSP as an optional medical service, are these claims submitted through the
MMIS? 1
- If not, what is the rational for not submitting claims through MMIS?
- How are they submitted (e.g., paper claims, other electronic system)?
- Does the claiming system interface with MMIS and if so how?
- Which provider type/entity is responsible for submitting the claim (e.g.,

LEA, State education agency, transportation provider, etc.?)
b. If your State uses the administrative claiming option for transportation for covered
services for Medicaid, describe the following:
- Does the state claim for the administrative activities related to

transportation (e.g., arranging for/scheduling transportation)?
- Does the state claim for the actual transportation services and under
what circumstances?
- How does the State track these claims that roll up into the CMS-64 or
other reporting mechanism?
13. Does your State maintain trip logs, attendance records, or other documentation to
determine what proportion is for
a. Transportation between home and school? and
b. Transportation between school and a covered medical service location?
1 It is our understanding that if a state claims school-based transportation as an administrative service, it

is not captured in the state’s MMIS.
CMS-10281 (11/30/2009) A.14

14. What changes will the State have to make to come into compliance, should the
regulations be implemented? Please respond separately for each agency affected (e.g.,
Medicaid State agency, education department, LEAs, school districts, etc.).
a. Changes in State administrative rules or statutes.
b. Changes in CMS-64, MBES/CBES, and other claiming mechanism.
c. Development or changes to reimbursement policy or fee schedule (e.g.,

restructure rates to include school-based administrative costs in the payment for
school-based optional medical services).
d. Staffing changes or organizational restructuring (to provide Medicaid

administrative activities permitted only if performed by Medicaid agency or other
local health department personnel).
15. Whether or not this regulation is implemented, what recommendations does your State
have for CMS to better monitor the program and provide improved guidance to States
and schools?
16. Has your state school-based administrative claiming program or school based optional
medical transportation services been subject to review or audit by CMS, GAO or OIG?
a. If so what (if any) activities, practices or policies in your State were previously
cited as problematic by CMS, GAO, OIG?
b. What modifications were made to bring them into compliance?
III. Data Requests
A. School-Based Administrative Claims
1. The total amount claimed as school-based Medicaid administrative expenditures, for the
most recent completed year for which data is available.
a. What proportion of this total amount is attributable to transportation-related

activities?
b. If your State’s administrative claim includes both administrative activities (e.g.,

arranging/scheduling transportation) and actual transportation services, please
provide the proportion claimed for each of these two components.
2. Total and source of non-federal expenditures in support of claims for Medicaid school-
based administrative activities, broken down by:
a. Total amount provided through an IGT
b. Total amount provided through certification of public expenditures.
CMS-10281 (11/30/2009) A.15

B. School-Based Transportation
1. Total number of Medicaid school-age children with IEPs/IFSPs for whom school-based
transportation was claimed for the most recently completed State Fiscal Year, and if
possible, break down the total by:
a. Transportation between school and home
b. Transportation between school/home to a covered medical examination or treatment
2. For the students identified, the average number of trips per month for which school-
based transportation was claimed during the most recent State Fiscal Year. If possible,
break down the average monthly trips by:
a. Trips between school and home
b. Trips between school/home to a covered medical examination or treatment
3. The Medicaid reimbursement rate(s) for Medicaid covered transportation services.
C. Impact Analyses Conducted to Date
Has your State conducted any impact analyses on this regulation to date (e.g., at the request of
Senator Waxman)? If so, please describe the methodology and the data your State used to
estimate the impact of this regulation.
CMS-10281 (11/30/2009) A.16

Coverage for Rehabilitative Services

I. Background
The proposed rule would restrict the scope of rehabilitation services that are eligible for federal
Medicaid matching payments. The rule:
 Defines key terms used to set parameters for coverage of rehabilitation services under
the Medicaid Rehabilitation Option
 Specifies State Plan requirements
 Specifies the scope of services, with a key focus on all services being directed toward a
specific rehabilitation goal in a written rehabilitation plan
 Defines rehabilitation services, excluding habilitative services and those that are
“intrinsic elements” of programs other than Medicaid
 Requires maintenance of case records for rehabilitation services
A. Background
1. Do you cover the optional Medicaid rehabilitation services benefit under Section
1905(a)(13) of the Social Security Act (i.e., the rehabilitation option) through your
Medicaid State Plan?
2. Which agencies are responsible for administering services covered through the Medicaid
rehabilitation option?
a. Who pays the State share of the Medicaid expenditures?
b. What formal arrangements outline roles and responsibilities (e.g., interagency

agreements, contracts)?
3. Please describe the types of services covered through the rehabilitation option.
a. What are the target populations for those rehabilitation services? (e.g., people
with mental illness, people with substance abuse problems, people with MR/DD,
children with special needs, etc.)
b. Are there different distinct models of care covered through the rehabilitation
option (e.g., assertive community treatment), other than those already described
above? If yes, please describe.
CMS-10281 (11/30/2009) A.17

4. Does the State have any documents that are useful for understanding the rehabilitation
option services other than those described in the State Plan? (if so, please share)
5. Are the rehabilitation option services also available to children enrolled in CHIP?
6. Are the services covered through the rehabilitation option also covered under an 1115
demonstration or any other waiver authority? Are the target populations the same as
described above? If not, please describe.
7. Are the services covered through the rehabilitation option primarily covered on a fee-for-
service basis? Are any covered through capitation payments to managed care plans? If
yes, please describe.
8. Have any of your services under the rehabilitation option been previously cited as
problematic by CMS, GAO, OIG, etc.? If so, which ones? What modifications (if any)
have you made to bring them into compliance?
9. Have you made any significant changes in recent years (or are you planning to make
any changes) to services covered through the rehabilitation option? If so, what was the
nature of those changes? Have you taken any actions to address the types of issues
CMS is attempting to address through the proposed regulations? If so, please describe
the changes and the expected outcomes.
10. How much Medicaid funding is dedicated to services covered under the rehabilitation
option (see the data request in section III below)? In the absence of the proposed
regulations, are you expecting any major changes in rehabilitation-related expenditures
in the near future?
B. Impacts
11. Has the State estimated the impacts of complying with the proposed rule? If yes, please
provide a listing/description of the data sources, analytic methods, and impact
assumptions used to develop these estimates:
a. General impact
b. Administrative impacts on the Medicaid agency and other agencies
c. Financial impacts
d. Impacts on Medicaid beneficiaries; Access to care
e. Impacts on providers. Please describe which types of providers would be

affected.
f. Impact by key provision (see questions below)
CMS-10281 (11/30/2009) A.18

Intrinsic Elements – Section 441.45 (b)(1) of the proposed regulation includes the following:
“Rehabilitation does not include, and FFP is not available in expenditures for, services defined in
§440.130(d) of this chapter if the following conditions exist:
(1) The services are furnished through a non-medical program as either a benefit or administrative
activity, including services that are intrinsic elements of programs other than Medicaid, such as foster
care, child welfare, education, child care, vocational and prevocational training, housing, parole and
probation, juvenile justice, or public guardianship.”
12. The regulations would preclude the rehabilitation option from covering services that are
an “intrinsic element” of programs outside of Medicaid (441.45(b)(1-8)), such as foster
care, child welfare, education, child care, vocational and pre-vocational training, housing,
parole and probation, juvenile justice, or public guardianship.
a. Do you believe that CMS would consider any of your current rehabilitation option
services to be “intrinsic elements” of other non-Medicaid programs?
b. If so, which ones?
c. What impacts?
d. What steps would your agency need to take to come into compliance?
e. Would you be able to shift coverage to other types of Medicaid programs?
Habilitation Services – In describing Section 441.45 (b)(2) of the proposed regulation, CMS
proposes to exclude FFP for expenditures for habilitation services including those provided to
individuals with mental retardation or “related conditions” as defined in the State Medicaid Manual
§4398.
“As a matter of general usage in the medical community, there is a distinction between the terms
“habilitation” and “rehabilitation”. Rehabilitation refers to the measures used to restore individuals to
their best functional levels. The emphasis in covering rehabilitation services is the restoration of a
functional ability.”
“Habilitation typically refers to services that are for the purpose of helping persons acquire new
functional abilities.”
13. The regulations clarify that the rehabilitation option would not include habilitation services
(441.45(b)(2)).
services to be habilitation services?
b. If so, how does the State anticipate that the elimination of habilitative services
from the Medicaid rehabilitation option would impact service delivery and
access?
c. What steps would you need to take to come into compliance?
d. Would you be able to shift coverage to other types of Medicaid programs (e.g.,
transitioning habilitative services to HCB waiver services).
CMS-10281 (11/30/2009) A.19

e. What ancillary issues would this raise (e.g., impact on waiting lists for waivers)?
Restorative Services – Section 440.130 (d)(1)(vi) of the proposed regulation includes the following:
“Restorative services means services that are provided to an individual who has had a functional loss
and has a specific rehabilitative goal toward regaining that function. The emphasis in covering
rehabilitation services is on the ability to perform a function rather than to actually have performed the
function in the past.”
“Rehabilitation goals are often contingent on the individual’s maintenance of a current level of
functioning. In these instances, services that provide assistance in maintaining functioning may be
considered rehabilitative only when necessary to help an individual achieve a rehabilitation goal
defined in the rehabilitation plan. Services provided primarily in order to maintain a level of functioning
in the absence of a rehabilitation goal are not within the scope of rehabilitation services.”
14. The regulations clarify that the definition of restorative services would not include those
that provide assistance in maintaining functioning, unless when helping an individual
achieve a rehabilitation goal defined in the rehabilitation plan(440.130(d)(1)(vi)).
services to be inconsistent with this provision?
b. If so, how does the State anticipate that the elimination of maintenance services
from the Medicaid rehabilitation option would impact service delivery and
access?
d. Would you be able to shift coverage to other types of Medicaid programs?
Provider Qualification Requirements – Section 440.130 (d)(1)(iii) of the proposed regulation includes
the following: “Qualified providers of rehabilitative services means individuals who meet any
applicable provider qualifications under Federal law that would be applicable to the same service when
it is furnished under other benefit categories, qualifications under applicable State scope of practice
laws, and any additional qualifications set forth in the Medicaid State plan. These qualifications may
include minimum age requirements, education, work experience, training, credentialing, supervision,
and licensing requirements that are applied uniformly.”
15. The regulations would require providers of rehabilitative services to meet the qualification
requirements applicable to the same service when it is furnished under another benefit
category (440.130(d)(1)(iii)). This may include education, work experience, training,
credentialing, supervision, and licensing. Furthermore, the regulations would require
uniform application of these qualifications.
a. What qualification requirements does your State currently apply to providers of
rehabilitative services?
b. What steps would you need to take to adopt the provider qualification
requirements applicable to each service covered under the rehabilitation option?
CMS-10281 (11/30/2009) A.20

Written Rehabilitation Plan – Section 440.130 (d)(3) of the proposed regulation includes the following:
“The written rehabilitation plan shall be reasonable and based on the individual’s condition(s) and on the
standards of practice for provision of rehabilitative services to an individual with the individual’s
condition(s). In addition, the written rehabilitation plan must meet the following requirements:
(i) Be based on a comprehensive assessment of an individual’s rehabilitation needs including diagnoses
and presence of a functional impairment in daily living.
(ii) Be developed by a qualified provider(s) working within the State scope of practice act with input from
the individual, individual’s family, the individual’s authorized health care decision maker and/or persons of
the individual’s choosing.
(iii) Follow guidance obtained through the active participation of the individual, and/or persons of the
individual’s choosing (which may include the individual’s family and the individual’s authorized health care
decision maker), in the development, review, and modification of plan goals and services.
(iv) Specify the individual’s rehabilitation goals to be achieved, including recovery goals for persons with
mental health and/or substance related disorders.
(v) Specify the physical impairment, mental health and/or substance related disorder that is being
addressed.
(vi) Identify the medical and remedial services intended to reduce identified physical impairment, mental
health and/or substance related disorder.
(vii) Identify the methods that will be used to deliver services.
(viii) Specify the anticipated outcomes.
(ix) Indicate the frequency, amount and duration of the services.
(x) Be signed by the individual responsible for developing the rehabilitation plan.
(xi) Indicate the anticipated provider(s) of the service(s) and the extent to which the services may be
available from alternate provider(s) of the same service.
(xii) Specify a timeline for reevaluation of the plan, based on the individual’s assessed needs and
anticipated progress, but not longer than one year.
(xiii) Be reevaluated with the involvement of the individual, family or other responsible individuals.
(xiv) Be reevaluated including a review of whether the goals set forth in the plan are being met and
whether each of the services described in the plan has contributed to meeting the stated goals. If it is
determined that there has been no measurable reduction of disability and restoration of functional level,
any new plan would need to pursue a different rehabilitation strategy including revision of the
rehabilitative goals, services and/or methods.
(xv) Document that the individual or representative participated in the development of the plan, signed the
plan, and received a copy of the rehabilitation plan.
(xvi) Document that the services have been determined to be rehabilitative services consistent with the
regulatory definition.
(xvii) Include the individual’s relevant history, current medical findings, contraindications and identify the
individual’s care coordination needs, if any, as needed to achieve the rehabilitation goals.”
CMS-10281 (11/30/2009) A.21

16. The regulations would require covered rehabilitative services for each individual to be
identified under a written rehabilitation plan (440.130(d)(3)). The rehabilitation plan
would be based on a qualified provider’s assessment of an individual’s rehabilitation
needs and would require the active participation of the individual.
a. Does your State currently require written rehabilitation plans for each recipient of
rehabilitative services?
b. If so, do you believe that your current requirements are compliant with those
outlined in the regulations?
17. The regulations would explicitly exclude expenditures for room and board from payment
under the rehabilitation option (441.45(b)(6)). Do your payment methodologies for
residential rehabilitation services clearly exclude costs related to room and board? If not,
do you anticipate that this provision would impact service delivery?
18. CMS has expressed concern about states bundling reimbursement for services to
include both rehabilitation and non-rehabilitation services. Does your State “bundle”
these? What steps would you need to take to “unbundle” the reimbursement of services?
19. Are there any other aspects of the proposed regulations that you feel would have an
impact on the rehabilitation option in your State?
20. What would be the overall administrative impact of the proposed regulations?
a. Short term vs. long term
b. Level of effort – e.g., significant reduction in administrative work, no significant

change, significant increase
c. Have you estimated administrative costs?
21. What impact might this regulation have on the number of providers who serve Medicaid
beneficiaries in the State?
C. MMIS
22. To what extent are services under the rehabilitation option processed through the
claims/financial and provider subsystems of MMIS? If applicable, please provide a list of
services, codes, and descriptions used for billing rehabilitation services and identify
whether these services are captured in the State’s MMIS. For codes and/or services
that are not captured in the MMIS:
a. Describe how the claims are processed
b. Explain why they are captured outside of the MMIS
CMS-10281 (11/30/2009) A.22

c. Describe which types of providers use the billing codes that are not processed
through MMIS
d. Explain whether the State has intends to capture such claims in the MMIS and
the timeframe
23. Are care plans developed electronically, and to what extent are they linked to the State’s
MMIS system to assure that only services authorized in care plans are reimbursed? How
does the State assure that claims are only paid for items and services identified in an
individual’s care plan?
D. Implementation
24. Are there any other thoughts you have about different ways these proposals could be
implemented?
III. Data Requests
1. Please provide the following data on expenditures, by types of rehabilitation option services:
a. The total Medicaid expenditures for services covered through the rehabilitation option in
the most recent Fiscal Year for which data are complete. How many individuals received
rehabilitation option services during that time period?
b. The total CHIP expenditures for services covered through the rehabilitation option in the
most recent Fiscal Year for which data are complete. How many individuals received
rehabilitation option services during that time period?
c. If any of the data is unknown or unavailable, please indicate it and describe the reasons
(e.g., data may not be available for some services covered through capitation payments to
managed care plans)
Please use a format similar to the sample table below:
Type/model of rehabilitation TFC TFC ACT

service
Target population Children in foster Children in foster Children and adults
care care with SPMI
Admin agency Department of Department of Mental Hygiene
Human Resources Human Administration
Resources
Available to CHIP enrollees? X X X
Covered under the State Plan? X X X
Covered through an 1115 demo? X
Covered through other authority?
Paid on a fee-for-service basis? X X
Paid through capitation to MCO? X
Billing codes code #1 code #2 code #1
CMS-10281 (11/30/2009) A.23

Type/model of rehabilitation TFC TFC ACT

service
Description of billing code Basic service Intensive service ACT
Medicaid expenditures, most $1,000,000 $500,000 $20,000,000
recent complete fiscal year, total
funds (state and federal)
Medicaid expenditures claimed $0 $0 $20,000,000
through MMIS
Unduplicated Medicaid recipients 200 57 1,800
of the service
Applicable Medicaid FMAP rate 50% 50% 50%
CHIP expenditures, most recent $100,000 $20,000 $5,000,000
complete fiscal year, total funds
(state and federal)
CHIP expenditures claimed $0 $0 $5,000,000
through MMIS
Unduplicated CHIP recipients of 45 12 4,051
the service
Applicable federal CHIP matching 65% 65% 65%
rate
Fiscal Year for data above FY 2006 FY 2006 FY 2006
2. Data supporting estimated impacts conducted to date (e.g., listing/description of the data
sources, analytic methods, and impact assumptions used to develop these estimates)
CMS-10281 (11/30/2009) A.24

APPENDIX B
Appendix B: Suggested Data Templates
Appendices B-1 through B-4 are data templates for each regulation under study. These templates were
provided to states as a supplemental tool to the interview protocol and data request document published in
the Federal Register. States could voluntarily use these templates but were not required to do so. If some
aspect of the format did not work for the state’s data collection efforts, Lewin worked with the individual
state to develop an alternative format. Each template contains samples prepopulated with dummy data to
provide an example of the data being requested.
The appendices are ordered as follows:
Appendix B-1: Data Collection Template for Cost Limit Regulation
Appendix B-2: Data Collection Template for GME Regulation
Appendix B-3: Data Collection Template for Rehab Regulation
Appendix B-4: Data Collection Template for School-Based Services Regulation

Appendix B-1
Data Collection Template for Cost Limit Regulation
The Lewin Group
Introduction:
This template is an adjunct tool to the interview protocol and data request document published in the
Federal Register. If some aspect of the format does not work for the state's data collection efforts, Lewin
can work with the state to develop an alternative format that meet both the state's and Lewin's needs. We
have provided samples (green tabs) prepopulated with dummy data to provide an example of the data
being requested. If you use this template to submit your data, please use the blank Cost Limit and Non
Federal Financing Templates.
1) The following tables provide general guidance and descriptions of the data requested in the templates.
2) Please provide the source and time period for each of the expenditure and cost data elements. Ensure
that the time period for the data provided is sufficient to make an accurate assumption of average
annual impact. In general we would like data for the most recent complete 12 month period for which
data are available. In some case, two years may be necessary (e.g. CPEs are completed every two
years).
Template 1: Cost Limit Template
Column Description Source(s) Time Period

Provider number (NPI) or Medicaid ID number for all
providers currently considered public for purposes of
A reimbursement or contribution of non-federal share
B Provider name corresponding to provider number
C State specific description of type of provider
Is the provider, in the state's estimation, a Unit of
Government according to the provisions of the proposed
D regulation? Enter "1" if yes and "0" if no.
If the state believes that a provider does not meet the Unit
of Government criteria in the proposed regulation, please
E provide a reason why.
Total amount of Medicaid reimbursement from all sources
including the state Medicaid agency, sister agencies, local
governments, managed care organizations. This amount
should also include the total amount of public expenditures
certified by the provider. This amount does not include
CHIP reimbursement for states with stand-alone CHIP
F programs or Medicaid DSH payments.
Please indicate whether the reimbursement total in column
F includes the total computable amount of Medicaid
reimbursement or if only the federal share (FFP) is
G included.
Total Medicaid cost should represent costs associated with
the total Medicaid reimbursement in column F. For those
states with stand-alone CHIP programs, the total costs
should reflect Medicaid costs only. We recognize that the
proposed regulation indicates that "methods of identifying
and allocating cost to Medicaid will be developed." For the
purposes of this project, please estimate costs to the best
H of your ability using resources currently available.
B-1.1
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Template 2: Non Federal Financing Template

Provider number (NPI) or Medicaid ID number for all
providers contributing non-federal share through CPEs or
IGTs. These providers should also be included on the cost
A limit sheet as they are currently considered "public"
B Provider name corresponding to provider number
Total amount of Medicaid public expenditures certified by
the provider as eligible for federal match (FFP). Include
C CHIP in expansion programs.
For states with stand alone CHIP programs, total amount of
CHIP public expenditures certified by the provider as
D eligible for federal match (FFP)
Total amount of Medicaid funds transferred as non-Federal
share eligible for federal match (FFP). Include CHIP in
E expansion programs.
For states with stand alone CHIP programs, total amount of
CHIP funds transferred as non-Federal share eligible for
F federal match (FFP)
B-1.2
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STATE:____________________________
Meets Unit of Total Provider

Provider ID (for Govt criteria in Reason Provider Cost of
providers currently proposed reg? is not a Unit of Total Medicaid Reimbursement Medicaid
considered "public") Provider Name Provider Type (1=Yes) Govt Reimbursement Type Services
B-1.3
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STATE:____________________________
Provider ID (for providers

currently considered
"public") Provider Name Medicaid CPE CHIP CPE Medicaid IGT CHIP IGT
B-1.4
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STATE:____________________________
Provider ID (for Meets Unit of Total Provider

providers currently Govt criteria in Reason Provider Cost of
considered proposed reg? is not a Unit of Total Medicaid Reimbursement Medicaid
"public") Provider Name Provider Type (1=Yes) Govt Reimbursement Type Services
11111111111 Nursing Facility A NF 1 $ 1,274,603.68 Total Computable $ 2,123,486.00
22222222222 Hospital 1 Acute Hospital 1 $ 6,741,378.54 Total Computable $ 5,464,231.00
Contract required to
33333333333 Clinic X Outpatient Clinic 0 receive tax revenue $ 72,829.67 Total Computable $ 58,999.00
Non-profit, no
access to tax
44444444444 Hospital 2 Acute Hospital 0 revenue $ 954,805.74 Total Computable $ 654,233.00
Non-profit, no
access to tax
66666666666 Hospital 4 Acute Hospital 0 revenue $ 1,038,772.42 Total Computable $ 1,223,646.00
Elementary School
77777777777 X School 1 $ 26,010.52 FFP Only $ 84,212.00
Elementary School
88888888888 Y School 1 $ 34,341.22 Total Computable $ 55,468.00
Community
Mental Health
99999999999 CMHC 1 Center 1 $ 222,691.90 Total Computable $ 988,452.00
12121212121 Hospital 4 Acute Hospital 1 $ 719,578.79 Total Computable $ 545,411.00
23232323232 Elementary School Z School 1 $ 62,078.62 Total Computable $ 65,879.00
Non-profit, no
access to tax
34343434343 Hospital 5 Acute Hospital 0 revenue $ 6,060,537.30 Total Computable $ 4,865,411.00
Contract required to
78787878787 Clinic Y Outpatient Clinic 0 receive tax revenue $ 59,280.11 Total Computable $ 45,489.00
89898989898 ICF 1 ICF-MR 1 $ 1,417,859.19 Total Computable $ 1,115,478.00
B-1.5
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STATE:____________________________
Provider ID (for
providers currently
considered
"public") Provider Name Medicaid CPE CHIP CPE Medicaid IGT CHIP IGT
33333333333 Clinic X $ 58,999.00 $ -
44444444444 Hospital 2 $ 350,224.00 $ -
66666666666 Hospital 4 $ - $ 226,559.00
23232323232 Elementary School Z $ 45,006.00 $ - $ 32,056.00
B-1.6
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Appendix B-2
Data Collection Template for GME Regulation
The Lewin Group
Introduction
This template is an adjunct tool to the interview protocol and data request document published in the
Federal Register. If some aspect of the format does not work for your state's data collection efforts,
Lewin will work with you to develop an alternative format that meets both your and our needs.
The following tables provide general guidance and descriptions of the data requested in the templates.
On this sheet, please provide the source (e.g., MMIS) and time period for each data element. In
general, we would appreciate data for the most recent, complete 12-month period for which data are
available. The time period selected should be the same for both templates. Should you have difficulty
providing any of the requested data, we will work with you to identify alternative methods of obtaining the
information.
GME Data Template (for Medicaid hospitals receiving GME payments)

1) There are four tables breaking out the requested data into different classes of providers:
a) UPL hospital provider class: Privately operated facilities
b) UPL hospital provider class: State government operated facilities
c) UPL hospital provider class: Non-State government operated facilities
d) Other facilities/organizations eligible for GME payments (e.g., outpatient facilities)
2) Please add rows to the template as needed.

Name of provider for all providers currently receiving
A Medicaid GME payments
B Provider ID
C Total computable DME payments for FFS enrollees.
Total computable IME payments for FFS enrollees.
(If IME cannot be separated from DME, please report
D the total in Column C.)
Total computable GME payment from other sources
(e.g., DSH) for FFS enrollees not reported in
E Columns C or D.
Total computable GME payments made on behalf of
managed care organization (MCO) enrollees. (If
GME payments to MCO enrollees cannot be
identified specifically, these payments may be
F included as part of Columns C, D, or E.)
UPL Template (for all Medicaid hospitals within UPL hospital provider class)

A UPL hospital provider class
B Total Medicaid UPL
Estimated Medicaid UPL, excluding Medicare DME
C payments
Total computable Medicaid payments, excluding
D DSH payments
B-2.1
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STATE:_______________________________
a) UPL Hospital Provider Class: Privately operated facilities
Medicaid GME for FFS Enrollees

Other Sources Medicaid GME For
Provider Name Provider ID DME IME (e.g., DSH) MCO Enrollees
Subtotal for privately operated facilities
b) UPL Hospital Provider Class: State government operated facilities

Subtotal for State govt operated facilities

B-2.2
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STATE:_______________________________
c) UPL Hospital Provider Class: Non-State government operated facilities

Subtotal for non-State govt operated facilities
d) Other facilities/organizations eligible for GME payments (e.g., outpatient facilities)

Other Sources Medicaid GME for
Subtotal for other facilities/organizations
B-2.3
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STATE:_______________________________
Current Law Medicaid UPL w/o Current Medicaid

UPL Hospital Provider Class Medicaid UPL Medicare DME Payments
Privately operated facilities
State government operated facilities
Non-State government operated facilities
Total
B-2.4
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Appendix B-3
Data Collection Template for Rehab Regulation
The Lewin Group
Introduction
This template is an adjunct tool to the interview protocol and data request document published in the Federal
Register. If some aspect of the format does not work for your state's data collection efforts, Lewin will work
with you to develop an alternative format that meets both your and our needs. We have provided a sample
(green tab) prepopulated with dummy data to provide an example of the data being requested. If you use
this template to submit your data, please use the Rehab Data Template.
On this sheet, please provide the source (e.g., MMIS) and time period for each data element. In general, we
would like data for the most recent, complete 12-month period for which data are available. Should you have
difficulty providing any of the requested data, we will work with you to identify alternative methods of
obtaining the information.
Rehab Template

Code used to billed rehabilitation services (CPT,
A HCPCS, local code, revenue code)
B Definition of billing code
Type of rehabilition service (e.g., crisis
intervention). These should generally conform to
C the names for services listed in the state plan.
Total computable Medicaid expenditures (Federal
& State share). This should include expenditures
D for populations paid with Title XIX funds.
Amount of Medicaid expenditure in Column D
E claimed through MMIS
Number of unduplicated Medicaid recipients
F receiving the service paid for in Column D
Total computable CHIP expenditures (Federal &
State share). This should include expenditures for
G populations paid with Title XXI funds.
Amount of CHIP Expenditure in Column G
H claimed through MMIS
Number of unduplicated CHIP recipients receiving
I the service paid for in Column G
B-3.1
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STATE:__________________
CHIP
Medicaid Number of Expenditures Number of
Total Expenditures Unduplicated claimed Unduplicated
Billing Code Type of Medicaid claimed Medicaid Total CHIP through CHIP
Code Definition Service Expenditures through MMIS Recipients Expenditures MMIS Recipients
B-3.2
492719
STATE:__________________
CHIP
Total Medicaid Number of Expenditures Number of
Medicaid Expenditures Unduplicated Total CHIP claimed Unduplicate
Billing Code Type of Expenditure claimed Medicaid Expenditure through d CHIP
Code Definition Service s through MMIS Recipients s MMIS Recipients
XXXXX basic service TFC $1,000,000 $0 200 $100,000 $0 45
intensive
YYYYY service TFC $500,000 $0 57 $20,000 $0 12
ZZZZZ ACT ACT $20,000,000 $20,000,000 1,800 $5,000,000 $4,000,000 4,051
B-3.3
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Appendix B-4
Data Collection Template for School-Based Services (SBS) Regulation
The Lewin Group
Introduction:
This template is an adjunct tool to the interview protocol and data request document published in the Federal
Register. If some aspect of the format does not work for your state's data collection efforts, Lewin will work
with you to develop an alternative format that meets both your and our needs.
On this sheet, please provide the source (e.g., MMIS) and time period for each data element. In general, we
would like data for the most recent, complete 12-month period for which data are available. Should you have
difficulty providing any of the requested data, we will work with you to identify alternative methods of
obtaining the information.
Template 1. School Based MAC Data Request
1) Complete blank cells only. You do not need to provide any information for activities that are not
claimable/allowable pursuant to the May 2003 CMS MAC Guide (represented by shaded cells).
2) If you cannot break down expenditures by specific MAC code, you can fill in the subtotal lines only.

MAC Administrative Activity outlined in CMS MAC Guide,
May 2003. If different in your state, please provide a
A crosswalk (see MAC Crosswalk Template).
MAC Activity Code(s) outlined in CMS MAC Guide, May
2003. If different in your state, please provide a cross-walk
B (see MAC Crosswalk worksheet).
Total computable Medicaid expenditures related to school
personnel, contractors or other personnel under the control1
of a public or private educational institution. Include all
personnel for whom MAC is claimed regardless of whether
they participate in time study or claimed directly in your MAC
C methodology.
Federal share for Medicaid expenditures reported in Column
D C
Non-Federal share used to support the claim for FFP under
E school-based MAC (e.g., CPE, IGT, etc)
1
"Under the control of" a public or private educational institution includes any and all subcontracting
arrangements that schools or other educational insitutions may enter into for the provision of services or
administrative activities in school.
B-4.4
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Template 2. School Based MAC Crosswalk
1) Complete this table only if your school based MAC Activities and Codes differ from those specified in the
CMS MAC Guide, May 2003.
2) You do not need to provide any information for activities that are not claimable/allowable pursuant to the
May 2003 CMS MAC Guide (represented by shaded cells).

MAC Administrative Activity outlined in CMS MAC
A Guide, May 2003.
MAC Activity Code(s) outlined in CMS MAC Guide,
B May 2003.
Name of State administrative activity corresponding to
C the CMS MAC administrative activity.
State activity code corresponding to the administrative
D activity
Template 3. Optional Medical Transportation Data Request
If tracked separately, complete row 7 related to transportation of Medicaid-eligible children with an IEP/IFSP
between home and school and row 8 related to transportation of Medicaid-eligible children with an IEP/IFSP
between home/school or other location to a Medicaid covered medical exam or treatment.

A Type of transportation
Total computable Medicaid reimbursement paid to
School-based Medicaid-enrolled provider for
tranportation services provided to school-age children
B who have an IEP/IFSP.
Federal share for Medicaid expenditures reported in
C Column B
Non-Federal share (e.g., CPE, IGT, etc) for Medicaid
D expenditures reported in Column B
Number of unique recipients for transportation.
Subcategory a. and b. may not sum to total as the
same child may receive transportation between home
and school on a given day and transportation between
home/school to a covered medical service
E appointment.
F Number of trips provided
Medicaid reimbursement amount per trip. May be the
G same for all rows.
B-4.5
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Template 1. School Based MAC Data Request
STATE:______________________________
MAC Total Non-

Activity Medicaid Federal Federal
MAC Administrative Activity Code(s) Expenditure Share Expenditure
Transportation
Transportation for Non-Medicaid Services 5a
Transportation Related Activities in Support of Medicaid
Covered Services 5b
Subtotal for Transportation
All Other Activities

Non-Medicaid Outreach 1a
Medicaid Outreach 1b
Facilitating Application for Non-Medicaid Programs 2a
Facilitating Medicaid Eligibility Determination 2b
School-related Educational Activities 3
Direct Medical Services 4
Non-Medicaid Translation 6a
Translation Related to Medicaid Services 6b
Program Planning, Policy Development, and
Interagency Coordination Related to Non-Medical
Services 7a
Program Planning, Policy Development, and
Interagency Coordination Related to Medical Services 7b
Non-Medical/Non-Medicaid Related Training 8a
Medical/Medicaid Related Training 8b
Referral, Coordination, and Monitoring of Non-Medicaid
Services 9a
Referral, Coordination, and Monitoring of Medicaid
Services 9b
General Administration 10
Subtotal for All Other Activities
B-4.6
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Template 2. School Based MAC Crosswalk
STATE:____________________________
CMS May 2003 Guide Activity and Code State MAC Activity & Code
MAC State MAC
Activity Activity
Administrative Activity Code(s) State Administrative Activity Code(s)
Non-Medicaid Outreach 1a
Medicaid Outreach 1b
Facilitating Application for Non-Medicaid Programs 2a
Facilitating Medicaid Eligibility Determination 2b
School-related Educational Activities 3
Direct Medical Services 4
Transportation for Non-Medicaid Services 5a
Transportation Related Activities in Support of Medicaid
Covered Services 5b
Non-Medicaid Translation 6a
Translation Related to Medicaid Services 6b
Program Planning, Policy Development, and Interagency
Coordination Related to Non-Medical Services 7a
Program Planning, Policy Development, and Interagency
Coordination Related to Medical Services 7b
Non-Medical/Non-Medicaid Related Training 8a
Medical/Medicaid Related Training 8b
Referral, Coordination, and Monitoring of Non-Medicaid
Services 9a
Referral, Coordination, and Monitoring of Medicaid
Services 9b
General Administration 10
B-4.7
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Template 3. Optional Medical Transportation Data Request
STATE:______________________________
Total Non- Number of Medicaid

Medicaid Federal Federal Unique Number Payment
Type of Transportation Expenditure Share Expenditure Recipients of Trips Rate/Trip
Total Medicaid reimbursement for transportation for
Medicaid-eligible school-age children with IEP/IFSPs
a. Between home and school
b. Between school/home or other location to a

Medicaid covered medical exam or treatment
Total number of Medicaid-eligible school-age
children with IEP/IFSPs n/a n/a n/a n/a n/a
B-4.8
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APPENDIX C
Appendix C: Additional Detail on Fiscal Impact Analysis
We assessed the fiscal impacts of the regulations on each state’s expenditures for one-year and
five-year periods. This report was prepared in the summer of 2009, and therefore we estimated
the one-year impact for FFY 2010, and the five-year impact for FFY10 through FFY14. Except in
a few circumstances in which a phase-in was allowed in the proposed regulation, we assumed
full implementation of the regulations in the first year of our projection period – FFY10. For the
FFY10 and FFY10-14 estimates of financial impact, we developed a uniform projection
methodology to apply a consistent trend across all states and regulations.
Projection Methodology
We requested a recent year of applicable Medicaid and CHIP cost and expenditure data from
each state. We trended the cost and expenditures from the midpoint of the base period
provided by the state forward to the midpoint of FFY10 and subsequent years based on trends
derived from the National Health Expenditures (NHE) Accounts data for Medicaid released by
the CMS Office of the Actuary in 2009. The 2009 NHE data includes historical data from 1965 to
2007 and projections for 2008 to 2018. For medical services, we used the health services trend
excluding pharmacy as the shift of the dual eligible pharmacy expenditures into Medicare Part
D in 2006 created significant distortion in the annual trend from 2005 to 2006. For administrative
services, we used the NHE administration projections for Medicaid.
NHE Medicaid Year over Year Trends
Medicaid Health Services Medicaid

Year
(excluding Pharmacy) Administration
2004
2005 7.9% 10.3%
2006 5.8% 6.1%
2007 7.0% 5.7%
2008 6.7% 7.0%
2009 9.5% 9.7%
2010 8.5% 8.6%
2011 7.8% 7.8%
2012 7.9% 7.8%
2013 8.2% 8.2%
2014 8.5% 8.4%
To estimate the impact on the federal share, we used each state’s respective FFY10 FMAP
published by CMS and did not adjust the FMAP to reflect enhancements resulting from the
American Recovery and Reinvestment Act of 2009 (ARRA). We used the FFY10 rates as a proxy
for each state’s FMAP during the FFY11-14 period. For administrative services, we used the
administrative matching rate of 50 percent for all states.
C.1
We took into account extenuating circumstances (e.g., cost containment activities, elimination of
program) that would apply during the projection period but were not reflected in the base
period data submitted by the state. In addition, we made exceptions to our general trend
methodology for circumstances where Medicaid expenditures were not directly tied to changes
in unit price, utilization, or enrollment (e.g., reimbursement pool set by legislation/state’s
budget).
Cost Limit
We obtained readily available Medicaid cost and reimbursement data for governmental
providers. The state classified each provider as to whether they met the “unit of government”
definition under the proposed regulation. For our analysis, we compared the reimbursement
and cost of services for each provider identified as a unit of government; the amount of
reimbursement above cost was considered to be impacted by the cost limit rule. If a provider
was not considered a unit of government, then no impact was anticipated even if
reimbursement was above cost. We projected the base period data from each state to FFY10 and
subsequent years using our health services trend. For certain special circumstances in which a
state identified some portion of the reimbursement over cost (e.g., UPL payment) was linked to
payments that had not increased for several years, we created an average weighted trend to
account for a flat trend for these particular payments. To estimate the federal share, we used
each state’s respective FFY10 FMAP without any ARRA enhancements.
We obtained data for those providers that utilize certified public expenditures (CPEs) and inter-
governmental transfers (IGTs) as part of the financing of the non-federal share. For the majority
of the IGT data and a couple of instances with the CPE data, the states provided the amount of
the state share; we grossed up the state share to total computable using each state’s average-
weighted FMAP for the base period of data provided. For our analysis, any CPEs and/or IGTs
contributed by a provider who does not qualify as a unit of government under the proposed
regulation were considered to be impacted by the proposed regulation; the non-federal share
contributed by these providers would no longer be eligible as non-federal share. We projected
the base period data from each state to FFY10 and subsequent years using our health services
trend. To estimate the federal share, we used each state’s respective FFY10 FMAP without any
ARRA enhancements.
C.2
Graduate Medical Education
We obtained Medicaid Graduate Medical Education expenditures broken out into direct GME,
indirect GME, and other sources of GME (e.g., teaching-related DSH) when available. Some
states acknowledged that they do reimburse for indirect GME but could not readily produce
estimates, so our estimate of indirect GME payments is likely understated. For our analysis, we
considered FFP to be eliminated for all reimbursement to providers for GME under the
proposed regulation. For the majority of GME reimbursement, we projected the base period
data from each state to FFY10 and subsequent years using our health services trend. For states
that have some portion of GME reimbursement set through the legislative budget process or
State Plan (e.g., a fixed-amount GME pool), we used the most recent year of data provided and
held that amount constant through the projection period. To estimate the federal share, we used
each state’s respective FFY10 FMAP without any ARRA enhancements.
Additionally, we obtained Medicaid UPL and reimbursement data by hospital provider class
for the UPL cap under the current law and the estimated UPL cap under the proposed
regulation with Medicare direct GME removed from the UPL calculation. For our analysis, we
compared the estimated UPL cap without Medicare direct GME to total Medicaid
reimbursement after removing all GME (includes direct, indirect, and other sources of GME). If
a state indicated that a particular provider class was paid significantly below the UPL so that
current payments would still be below the new UPL without Medicare DME, then we assumed
no UPL impact. If a provider class is paid up to the UPL and the amount removed from the UPL
due to the removal of Medicare direct GME was greater than the amount removed from
Medicaid reimbursement due to the loss of GME, we considered there to be a UPL impact in
addition to the lost GME reimbursement. We projected the base period UPL impact for each
state to FFY10 and subsequent years using our health services trend. To estimate the federal
share, we used each state’s respective FFY10 FMAP without any ARRA enhancements. If a
provider class is paid up to the UPL but the Medicare direct GME amount removed from the
UPL was less than the Medicaid GME amount removed from reimbursement, we assumed no
additional UPL impact and attributed the net reduction in provider reimbursement to the loss
in GME to avoid double-counting. For many states, the reduction in the UPL cap was less than
the amount removed from reimbursement which would increase the gap between the UPL
ceiling and reimbursement. Since the state’s potential response in these cases was uncertain, we
assumed no increase to the UPL payments in response to the increased gap under the new UPL.
However, we acknowledge that these states could potentially make up some portion of the loss
in GME reimbursement by increasing the amount paid through UPL supplemental payments
and thus our projections of federal savings could be overstated.
Our fiscal impacts were limited due to the complication of estimating the amount that could be
lost from other payment sources that could include GME as part of the allowable costs used in
the payment formula. Consequently, the financial impacts estimated, which focus almost
exclusively on payment for medical education, may understate the full impact of the proposed
rule.
In particular, collection of disproportionate share hospital (DSH) payment breakdowns from

states was determined to be infeasible within the time constraints of this study and the resource
constraints of state agency staff. In order to calculate the potential loss of DSH reimbursement,
C.3
a state would need to review hospital cost reports to identify and remove GME costs from each
hospital’s allowable Medicaid shortfall and uncompensated care costs used in the calculation
for DSH reimbursement. The hospital’s new amount of uncompensated care and Medicaid
shortfall without GME costs would then totaled, limiting individual hospital DSH payments to
the lesser of the new calculated shortfall and uncompensated care amount and the individual
hospital and statewide DSH allotments. The new level of DSH payments would then be
compared to prior payments under the previous DSH calculation that included GME to
determine if there would be a net decrease in payments.
However, since almost all states utilize their full DSH allotments, it is possible that much of the
“lost” DSH due to the exclusion of medical education costs might still be paid out through
reallocation among eligible providers. Also, states have two kinds of DSH caps: an overall cap
for the state, and individual caps for each hospital. It is possible that some hospitals are not
being paid their full uncompensated care costs now either because the state cap has been
reached, or their individual institutional DSH caps have been reached. If that the amount of a
teaching hospital’s uncompensated care costs and Medicaid shortfall exceed either of these
caps, the loss of GME in the calculation may well make no difference in the amount of federal
money this teaching hospital can receive under a state’s DSH program because the hospital
would still be over either of the caps under the new calculation.
It should be noted that three states did provide us with estimates of DSH payments that would
be impacted by the proposed GME regulation. These impacts are included in the overall GME
impacts for these states.
Rehabilitation
We obtained Medicaid and CHIP expenditure data for rehabilitative services at the procedure
code and/or type of service level when available. We classified each procedure code and/or
type of service into three broad categories based on our projected impact from the proposed
regulation: coverable under the rehab option, coverable under other authority, and not
coverable. For certain services, we estimated a percentage of the dollars in that service category
that would remain in the rehab option and a percentage of dollars that would either not be
coverable and impacted by lost FFP or would be coverable but would have to shift to another
Medicaid benefit category (e.g., 1915(c), 1915(i), optional personal care benefit). We projected
the base period data from each state to FFY10 and subsequent years using our health services
trend. To estimate the federal share, we used each state’s respective FFY10 Medicaid and CHIP
FMAP without any ARRA enhancements. For a few states, Medicaid and CHIP expenditures
were not separately identifiable; as Medicaid expenditures made up the majority of the
expenditures, we used the Medicaid FMAP to estimate the federal share.
The finalization of the regulations would prohibit habilitative services under the rehab option.
It would also end protection granted by Congress in OBRA 1989 for states with habilitative
services under the rehab option or the clinic services benefit. For these states, the preamble to
the proposed regulations (at pg 45206) describes a “delayed compliance date so that states will
have a transition period of the lesser of two years or one year after the close of the first regular
session of the state legislature that begins after this regulation becomes final before [CMS] will
take enforcement action.” We assume that the states with habilitative services would take
advantage of this phase-out period during all of FFY 2010 and thus we project no impact on
C.4
habilitative services reimbursement in FFY10. For states where we identified a potential
maintenance problem, we assumed that 10 percent of the mental health services would no
longer qualify for FFP under the rehab option as we had no empirical basis for estimating the
percent of services that are maintenance-oriented. Additionally, we adjusted our estimates for
certain states to account for planned cost containment activities or other phase-downs of
specific rehabilitative services that would occur during the projection period.
School-Based Services
We obtained expenditures for school-based Medicaid administrative claiming (MAC) related to

school personnel, contractors or other personnel under the control of a public or private
educational institution. For our analysis, we considered FFP to be eliminated for all MAC
activity performed by school personnel under the proposed regulation. We projected the base
period data from each state to FFY10 and subsequent years using our administrative services
trend. To estimate the federal share, we used the Medicaid administrative FMAP of 50 percent
for every state.
We obtained Medicaid expenditures for transportation services provided to school-aged

children between home and school when included as part of the student’s Individualized
Education Program (IEP) or Individualized Family Service Plan (IFSP). When identifiable,
transportation expenditures were separated into trips between home and school and trips
between home/school and a covered medical service. For our analysis, we considered FFP to be
eliminated only for transportation between home and school. If a state indicated that the
majority of transportation occurred between home and school but could not separately identify
these trips between home and school, we assumed 100 percent of the transportation dollars
provided by the state would be impacted by the proposed regulation. We projected the base
period data from each state to FFY10 and subsequent years using our health services trend. To
estimate the federal share, we used each state’s respective FFY10 FMAP without any ARRA
enhancements.
C.5
State-specific Fiscal Impacts of the Proposed Cost Limit Regulation,
Reduction in Federal Financial Participation, in Millions
FFP, FFY 2010 FFP, FFY10 - 14
Funds for Units Cost Limit Total Funds for Units Cost Limit Total
State of Gov’t as for Units of of Gov’t as for Units of
State Share Gov’t State Share Gov’t
Alabama Uncertain Uncertain Uncertain Uncertain Uncertain Uncertain

Alaska $0.0 $1.3 $1.3 $0.0 $7.7 $7.7
Arizona $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Arkansas $0.0 $9.7 $9.7 $0.0 $56.8 $56.8
California $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Colorado $177.4 $0.0 $177.4 $1,040.9 $0.0 $1,040.9
Connecticut Uncertain $0.0 Uncertain Uncertain $0.0 Uncertain
Delaware $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
District of Columbia $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Florida $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Georgia $136.7 $90.8 $227.5 $802.3 $532.7 $1,335.0
Hawaii $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Idaho $0.0 Uncertain Uncertain $0.0 Uncertain Uncertain
Illinois $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Indiana $82.8 $36.5 $119.3 $485.7 $214.1 $699.8
Iowa $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Kansas $0.4 $13.8 $14.2 $2.2 $81.1 $83.3
Kentucky $0.0 Uncertain Uncertain $0.0 Uncertain Uncertain
Louisiana $0.0 $30.2 $30.2 $0.0 $177.3 $177.3
Maine Uncertain $0.5 $0.5 Uncertain $2.8 $2.8
Maryland $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Massachusetts Uncertain $2.3 $2.3 Uncertain $13.5 $13.5
Michigan $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Minnesota $0.0 $8.0 $8.0 $0.0 $46.9 $46.9
Mississippi Uncertain $100.0 $100.0 Uncertain $586.6 $586.6
Missouri $61.4 $10.7 $72.1 $360.3 $62.8 $423.1
Montana $0.0 $0.6 $0.6 $0.0 $3.3 $3.3
Nebraska $0.0 $0.0 $0.0 $0.0 $0.2 $0.2
Nevada $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
New Hampshire $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
New Jersey $0.0 Uncertain Uncertain $0.0 Uncertain Uncertain
New Mexico $183.9 $0.0 $183.9 $1,079.1 $0.0 $1,079.1
New York $0.0 $1,716.1 $1,716.1 $0.0 $9,774.4 $9,774.4
North Carolina $587.4 $0.0 $587.4 $3,446.4 $0.0 $3,446.4
North Dakota* $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Ohio $0.0 $5.5 $5.5 $0.0 $32.6 $32.6
Oklahoma $47.0 $0.0 $47.0 $275.7 $0.0 $275.7
C.6
Oregon $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Pennsylvania $4.0 $8.0 $11.9 $23.3 $46.7 $70.0
Rhode Island $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
South Carolina Uncertain $11.6 $11.6 Uncertain $67.9 $67.9
South Dakota* $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Tennessee Uncertain $0.0 Uncertain Uncertain $0.0 Uncertain
Texas $0.0 $542.6 $542.6 $0.0 $3,183.5 $3,183.5
Utah $42.6 $7.0 $49.6 $249.9 $41.2 $291.1
Vermont $23.3 $0.0 $23.3 $136.8 $0.0 $136.8
Virginia $0.8 $20.1 $20.9 $4.7 $117.7 $122.4
Washington $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
West Virginia $0.0 $0.0 $0.0 $0.0 $0.1 $0.1
Wisconsin $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Wyoming $1.5 $0.1 $1.6 $8.9 $0.4 $9.3
Total $1,349 $2,615 $3,965 $7,916 $15,050 $22,967
* For North Dakota, and South Dakota, we project no material impact. State officials acknowledged that, due to
prospective payments, some providers may paid slightly above cost, but were not able to provide data regarding
reimbursement above cost.
C.7
State-specific Fiscal Impacts of the Proposed Cost Limit Regulation,
Reduction in Total Computable Expenditures, in Millions
Total Computable, FFY 2010 Total Computable, FFY10 - 14

Alaska $0.0 $2.6 $2.6 $0.0 $15.0 $15.0
Arizona $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Arkansas $0.0 $13.3 $13.3 $0.0 $78.0 $78.0
California $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Colorado $354.8 $0.0 $354.8 $2,081.9 $0.0 $2,081.9
Connecticut Uncertain $0.0 Uncertain Uncertain $0.0 Uncertain
Delaware $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Florida $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Georgia $210.0 $139.5 $349.5 $1,232.4 $818.3 $2,050.7
Hawaii $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Idaho $0.0 Uncertain Uncertain $0.0 Uncertain Uncertain
Illinois $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Indiana $125.6 $55.4 $180.9 $736.7 $324.8 $1,061.5
Iowa $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Kansas $0.6 $22.9 $23.5 $3.6 $134.3 $138.0
Kentucky $0.0 Uncertain Uncertain $0.0 Uncertain Uncertain
Louisiana $0.0 $44.7 $44.7 $0.0 $262.3 $262.3
Maine Uncertain $0.7 $0.7 Uncertain $4.4 $4.4
Maryland $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Massachusetts Uncertain $4.6 $4.6 Uncertain $27.0 $27.0
Michigan $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Minnesota $0.0 $16.0 $16.0 $0.0 $93.8 $93.8
Mississippi Uncertain $132.1 $132.1 Uncertain $775.2 $775.2
Missouri $95.2 $16.6 $111.8 $558.5 $97.3 $655.8
Montana $0.0 $0.8 $0.8 $0.0 $5.0 $5.0
Nebraska $0.0 $0.1 $0.1 $0.0 $0.4 $0.4
Nevada $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
New Hampshire $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
New Jersey $0.0 Uncertain Uncertain $0.0 Uncertain Uncertain
New Mexico $257.8 $0.0 $257.8 $1,512.3 $0.0 $1,512.3
New York $0.0 $3,432.2 $3,432.2 $0.0 $19,548.7 $19,548.7
North Carolina $901.9 $0.0 $901.9 $5,291.6 $0.0 $5,291.6
North Dakota* $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Ohio $0.0 $8.7 $8.7 $0.0 $51.3 $51.3
Oklahoma $72.9 $0.0 $72.9 $428.0 $0.0 $428.0
C.8
Oregon $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Pennsylvania $7.2 $14.5 $21.8 $42.5 $85.3 $127.8
Rhode Island $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
South Carolina Uncertain $16.4 $16.4 Uncertain $96.5 $96.5
South Dakota* $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Tennessee Uncertain $0.0 Uncertain Uncertain $0.0 Uncertain
Texas $0.0 $923.9 $923.9 $0.0 $5,420.6 $5,420.6
Utah $59.4 $9.8 $69.2 $348.6 $57.5 $406.1
Vermont $39.7 $0.0 $39.7 $232.9 $0.0 $232.9
Virginia $1.6 $40.1 $41.7 $9.3 $235.4 $244.7
Washington $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
West Virginia $0.0 $0.0 $0.0 $0.0 $0.1 $0.1
Wisconsin $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Wyoming $3.0 $0.1 $3.2 $17.8 $0.7 $18.6
Total $2,130 $4,895 $7,025 $12,496 $28,132 $40,628
* For North Dakota, and South Dakota, we project no material impact. State officials acknowledged that, due to
prospective payments, some providers may paid slightly above cost, but were not able to provide data regarding
reimbursement above cost.
C.9
State-specific Fiscal Impacts of the Proposed GME Regulation,
Eliminate Eliminate Total Eliminate Eliminate Total

State Medicaid Medicare DGME Medicaid Medicare DGME
GME from UPL GME from UPL

Alaska $0.9 $0.0 $0.9 $5.1 $0.0 $5.1
Arizona $54.5 $0.0 $54.5 $319.6 $0.0 $319.6
Arkansas $13.5 Uncertain $13.5 $79.1 Uncertain $79.1
California $141.7 $0.0 $141.7 $831.7 $0.0 $831.7
Colorado $3.7 $1.9 $5.7 $22.0 $11.4 $33.3
Connecticut $9.9 $0.6 $10.5 $57.9 $3.4 $61.3
Delaware $2.1 Uncertain $2.1 $12.5 Uncertain $12.5
Florida $86.3 Uncertain $86.3 $477.6 Uncertain $477.6
Georgia $63.8 Uncertain $63.8 $374.1 Uncertain $374.1
Hawaii $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Idaho $1.0 $0.0 $1.0 $5.9 $0.0 $5.9
Illinois $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Indiana $18.1 $0.9 $19.0 $106.0 $5.4 $111.4
Iowa $18.8 $0.0 $18.8 $110.3 $0.0 $110.3
Kansas $13.4 $0.0 $13.4 $78.4 $0.0 $78.4
Kentucky Uncertain $0.0 Uncertain Uncertain $0.0 Uncertain
Louisiana $141.5 $0.0 $141.5 $827.1 $0.0 $827.1
Maine $3.0 $0.0 $3.0 $17.7 $0.0 $17.7
Maryland $106.7 $0.0 $106.7 $626.0 $0.0 $626.0
Massachusetts $3.1 Uncertain $3.1 $3.1 Uncertain $3.1
Michigan $112.2 $0.0 $112.2 $561.2 $0.0 $561.2
Minnesota $51.7 $2.7 $54.4 $283.2 $15.6 $298.8
Mississippi $19.8 Uncertain $19.8 $115.9 Uncertain $115.9
Missouri $107.2 Uncertain $107.2 $608.0 Uncertain $608.0
Montana $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Nebraska $11.8 $0.0 $11.8 $69.5 $0.0 $69.5
Nevada $1.5 $0.0 $1.5 $7.5 $0.0 $7.5
New Hampshire $1.0 $0.0 $1.0 $5.0 $0.0 $5.0
New Jersey $30.0 $0.0 $30.0 $150.0 $0.0 $150.0
New Mexico $34.1 $0.0 $34.1 $200.3 $0.0 $200.3
New York $707.1 $0.0 $707.1 $4,148.9 $0.0 $4,148.9
North Carolina $114.2 Uncertain $114.2 $670.3 Uncertain $670.3
North Dakota $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Ohio $91.9 Uncertain $91.9 $539.3 Uncertain $539.3
Oklahoma $67.2 $0.0 $67.2 $353.0 $0.0 $353.0
C.10

Oregon $8.4 $0.0 $8.4 $42.1 $0.0 $42.1

Pennsylvania $44.9 $0.0 $44.9 $224.4 $0.0 $224.4
Rhode Island $0.0 Uncertain Uncertain $0.0 Uncertain Uncertain
South Carolina $122.3 $0.0 $122.3 $717.4 $0.0 $717.4
South Dakota $2.0 $0.0 $2.0 $10.0 $0.0 $10.0
Tennessee $32.7 $0.0 $32.7 $163.6 $0.0 $163.6
Texas $16.6 $49.3 $65.9 $97.2 $289.2 $386.4
Utah $50.8 $0.0 $50.8 $298.0 $0.0 $298.0
Vermont $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Virginia $76.2 $0.0 $76.2 $446.2 $0.0 $446.2
Washington $39.9 $0.0 $39.9 $234.1 $0.0 $234.1
West Virginia $11.2 $0.0 $11.2 $65.8 $0.0 $65.8
Wisconsin Uncertain Uncertain Uncertain Uncertain Uncertain Uncertain
Wyoming $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Total $2,478 $55 $2,534 $14,192 $325 $14,517
C.11
State-specific Fiscal Impacts of the Proposed GME Regulation,


Alaska $1.7 $0.0 $1.7 $9.9 $0.0 $9.9
Arizona $82.8 $0.0 $82.8 $486.0 $0.0 $486.0
Arkansas $18.5 Uncertain $18.5 $108.6 Uncertain $108.6
California $283.5 $0.0 $283.5 $1,663.4 $0.0 $1,663.4
Colorado $7.5 $3.9 $11.4 $43.9 $22.8 $66.7
Connecticut $19.7 $1.2 $20.9 $115.8 $6.9 $122.7
Delaware $4.2 Uncertain $4.2 $24.9 Uncertain $24.9
Florida $156.9 Uncertain $156.9 $868.8 Uncertain $868.8
Georgia $97.9 Uncertain $97.9 $574.6 Uncertain $574.6
Hawaii $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Idaho $1.4 $0.0 $1.4 $8.5 $0.0 $8.5
Illinois $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Indiana $27.4 $1.4 $28.8 $160.8 $8.1 $169.0
Iowa $29.6 $0.0 $29.6 $173.7 $0.0 $173.7
Kansas $22.1 $0.0 $22.1 $129.9 $0.0 $129.9
Kentucky Uncertain $0.0 Uncertain $0.0 $0.0 $0.0
Louisiana $209.2 $0.0 $209.2 $1,223.3 $0.0 $1,223.3
Maine $4.6 $0.0 $4.6 $27.2 $0.0 $27.2
Maryland $213.4 $0.0 $213.4 $1,251.9 $0.0 $1,251.9
Massachusetts $6.3 Uncertain $6.3 $6.3 Uncertain $6.3
Michigan $179.9 $0.0 $179.9 $899.5 $0.0 $899.5
Minnesota $103.5 $5.3 $108.8 $566.4 $31.2 $597.6
Mississippi $26.1 Uncertain $26.1 $153.2 Uncertain $153.2
Missouri $166.2 Uncertain $166.2 $942.5 Uncertain $942.5
Montana $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Nebraska $19.5 $0.0 $19.5 $114.7 $0.0 $114.7
Nevada $3.0 $0.0 $3.0 $15.0 $0.0 $15.0
New Hampshire $2.0 $0.0 $2.0 $10.0 $0.0 $10.0
New Jersey $60.0 $0.0 $60.0 $300.0 $0.0 $300.0
New Mexico $47.9 $0.0 $47.9 $280.8 $0.0 $280.8
New York $1,414.2 $0.0 $1,414.2 $8,297.7 $0.0 $8,297.7
North Carolina $175.4 Uncertain $175.4 $1,029.1 Uncertain $1,029.1
North Dakota $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Ohio $144.9 Uncertain $144.9 $850.4 Uncertain $850.4
Oklahoma $104.2 $0.0 $104.2 $547.9 $0.0 $547.9
C.12

Oregon $13.4 $0.0 $13.4 $67.1 $0.0 $67.1

Pennsylvania $81.9 $0.0 $81.9 $409.4 $0.0 $409.4
Rhode Island $0.0 Uncertain Uncertain $0.0 Uncertain Uncertain
South Carolina $173.9 $0.0 $173.9 $1,020.1 $0.0 $1,020.1
South Dakota $3.2 $0.0 $3.2 $15.9 $0.0 $15.9
Tennessee $49.9 $0.0 $49.9 $249.5 $0.0 $249.5
Texas $28.2 $83.9 $112.1 $165.6 $492.3 $657.9
Utah $70.9 $0.0 $70.9 $415.7 $0.0 $415.7
Vermont $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Virginia $152.4 $0.0 $152.4 $892.3 $0.0 $892.3
Washington $79.6 $0.0 $79.6 $467.0 $0.0 $467.0
West Virginia $15.1 $0.0 $15.1 $88.9 $0.0 $88.9
Wisconsin Uncertain Uncertain Uncertain $0.0 Uncertain Uncertain
Wyoming $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Total $4,362 $96 $4,457 $25,001 $561 $25,562
C.13
State-specific Fiscal Impacts of the Proposed Rehabilitation Regulation,
Shift to Other Total Shift to Other Total

State Loss in FFP Loss in FFP
Authority Authority
Alabama $0.0 $9.5 $9.5 $0.0 $55.5 $55.5

Alaska $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Arizona $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Arkansas $0.0 $23.5 $23.5 $0.0 $138.1 $138.1
California $0.0 $100.0 $100.0 $700.0 $870.0 $1,570.0
Colorado $0.0 Uncertain Uncertain $0.0 Uncertain Uncertain
Connecticut $9.2 $13.7 $23.0 $54.1 $80.7 $134.8
Delaware $0.0 $7.4 $7.4 $0.0 $43.2 $43.2
Florida $0.0 $0.7 $0.7 $0.0 $4.3 $4.3
Georgia $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Hawaii $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Idaho $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Illinois $0.0 $12.6 $12.6 $0.0 $73.9 $73.9
Indiana $0.0 $19.2 $19.2 $0.0 $112.5 $112.5
Iowa $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Kansas $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Kentucky $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Louisiana $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Maine $0.0 $32.3 $32.3 $71.4 $663.8 $735.2
Maryland $0.0 $5.7 $5.7 $0.0 $33.4 $33.4
Massachusetts $0.0 $0.0 $0.0 $12.8 $280.0 $292.8
Michigan $0.0 $4.1 $4.1 $0.0 $23.8 $23.8
Minnesota $0.0 $21.1 $21.1 $0.0 $123.7 $123.7
Mississippi $1.1 $0.0 $1.1 $6.7 $0.0 $6.7
Missouri $0.0 $11.0 $11.0 $0.0 $64.6 $64.6
Montana $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Nebraska $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Nevada $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
New Hampshire $0.1 $1.2 $1.2 $0.3 $6.8 $7.1
New Jersey $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
New Mexico $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
New York $45.0 $5.1 $50.1 $327.3 $112.6 $439.9
North Carolina $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
North Dakota $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Ohio $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Oklahoma $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Oregon $0.0 $0.0 $0.0 $0.0 $3.9 $3.9
C.14
Shift to Other Total Shift to Other Total

State Loss in FFP Loss in FFP
Authority Authority
Pennsylvania $0.0 $19.0 $19.0 $0.0 $111.7 $111.7

Rhode Island $0.0 $0.0 $0.0 $0.0 $6.0 $6.0
South Carolina $0.0 $5.7 $5.7 $0.0 $33.3 $33.3
South Dakota $0.0 $0.5 $0.5 $0.0 $2.8 $2.8
Tennessee N/A N/A N/A N/A N/A N/A
Texas $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Utah $0.0 $9.3 $9.3 $0.0 $54.5 $54.5
Vermont $0.0 $22.6 $22.6 $0.0 $132.5 $132.5
Virginia $0.0 $22.9 $22.9 $0.0 $134.5 $134.5
Washington $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
West Virginia* $0.0 $1.0 $1.0 $0.0 $5.9 $5.9
Wisconsin $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Wyoming $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Total $55 $348 $403 $1,173 $3,172 $4,345
* For West Virginia, we project a slight increase in FFP and state expenditures.
C.15
State-specific Fiscal Impacts of the Proposed Rehabilitation Regulation,
Decline in Total Shift to Total Decline in Total Shift to Total

State Medicaid Other Medicaid Other
Expenditures Authority Expenditures Authority
Alabama $0.0 $13.9 $13.9 $0.0 $81.7 $81.7

Alaska $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Arizona $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Arkansas $0.0 $32.1 $32.1 $0.0 $188.5 $188.5
California $0.0 $200.0 $200.0 $1,400.0 $1,700.0 $3,100.0
Colorado $0.0 Uncertain Uncertain $0.0 Uncertain Uncertain
Connecticut $18.5 $27.5 $46.0 $108.3 $161.3 $269.6
Delaware $0.0 $14.6 $14.6 $0.0 $85.9 $85.9
Florida $0.0 $1.3 $1.3 $0.0 $7.9 $7.9
Georgia $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Hawaii $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Idaho $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Illinois $0.0 $24.8 $24.8 $0.0 $145.6 $145.6
Indiana $0.0 $29.1 $29.1 $0.0 $170.6 $170.6
Iowa $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Kansas $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Kentucky $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Louisiana $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Maine $0.0 $49.7 $49.7 $109.9 $1,020.4 $1,130.2
Maryland $0.0 $11.4 $11.4 $0.0 $66.8 $66.8
Massachusetts $0.0 $0.0 $0.0 $25.7 $558.9 $584.6
Michigan $0.0 $6.4 $6.4 $0.0 $37.6 $37.6
Minnesota $0.0 $42.2 $42.2 $0.0 $247.3 $247.3
Mississippi $1.5 $0.0 $1.5 $8.9 $0.0 $8.9
Missouri $0.0 $17.1 $17.1 $0.0 $100.1 $100.1
Montana $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Nebraska $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Nevada $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
New Hampshire $0.1 $2.3 $2.4 $0.6 $13.6 $14.3
New Jersey $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
New Mexico $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
New York $90.0 $10.2 $100.2 $654.6 $225.3 $879.9
North Carolina $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
North Dakota $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Ohio $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Oklahoma $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
C.16
Decline in Total Shift to Total Decline in Total Shift to Total

State Medicaid Other Medicaid Other
Expenditures Authority Expenditures Authority
Oregon $0.0 $0.0 $0.0 $0.0 $6.2 $6.2

Pennsylvania $0.0 $34.7 $34.7 $0.0 $203.8 $203.8
Rhode Island $0.0 $0.0 $0.0 $0.0 $9.5 $9.5
South Carolina $0.0 $8.0 $8.0 $0.0 $47.1 $47.1
South Dakota $0.0 $0.8 $0.8 $0.0 $4.5 $4.5
Tennessee N/A N/A N/A N/A N/A N/A
Texas $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Utah $0.0 $13.0 $13.0 $0.0 $76.0 $76.0
Vermont $0.0 $38.4 $38.4 $0.0 $225.4 $225.4
Virginia $0.0 $45.4 $45.4 $0.0 $266.6 $266.6
Washington $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
West Virginia* $0.0 $1.4 $1.4 $0.0 $8.0 $8.0
Wisconsin $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Wyoming $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Total $110 $624 $734 $2,308 $5,659 $7,967
* For West Virginia, we project a slight increase in FFP and state expenditures.
C.17
State-specific Fiscal Impacts of the Proposed School-based Services Regulation,
State MAC Transportation Total MAC Transportation Total
Alabama $16.9 N/A $16.9 $99.3 N/A $99.3

Alaska $9.5 N/A $9.5 $55.5 N/A $55.5
Arizona $4.4 $6.9 $11.3 $25.8 $40.6 $66.4
Arkansas $10.1 N/A $10.1 $59.3 N/A $59.3
California $222.1 $4.5 $226.6 $1,302.1 $26.2 $1,328.3
Colorado N/A $1.9 $1.9 N/A $11.0 $11.0
Connecticut N/A $4.7 $4.7 N/A $27.3 $27.3
Delaware N/A $1.3 $1.3 N/A $7.6 $7.6
District of Columbia N/A $3.3 $3.3 N/A $19.2 $19.2
Florida $65.9 $1.0 $67.0 $386.6 $6.1 $392.6
Georgia N/A N/A $0.0 N/A $0.0 $0.0
Hawaii N/A N/A $0.0 N/A N/A $0.0
Idaho N/A N/A $0.0 N/A N/A $0.0
Illinois $65.5 $4.7 $70.2 $383.7 $27.6 $411.3
Indiana N/A N/A $0.0 N/A N/A $0.0
Iowa N/A $2.1 $2.1 N/A $12.6 $12.6
Kansas $4.4 N/A $4.4 $25.8 N/A $25.8
Kentucky $68.6 $0.0 $68.6 $402.3 $0.1 $402.4
Louisiana $1.9 $0.4 $2.4 $11.4 $2.6 $14.0
Maine N/A $10.3 $10.3 N/A $60.4 $60.4
Maryland N/A $1.0 $1.0 N/A $5.9 $5.9
Massachusetts* $60.5 N/A $60.5 $354.7 Unknown $354.7
Michigan $19.3 $6.2 $25.5 $113.1 $36.6 $149.8
Minnesota $8.4 $2.0 $10.4 $49.4 $11.8 $61.2
Mississippi $4.8 N/A $4.8 $28.3 N/A $28.3
Missouri $27.4 $0.6 $28.0 $160.9 $3.3 $164.2
Montana $0.8 $0.0 $0.8 $4.7 $0.2 $4.8
Nebraska $13.6 N/A $13.6 $79.7 N/A $79.7
Nevada N/A N/A $0.0 N/A N/A $0.0
New Hampshire N/A $4.3 $4.3 N/A $25.3 $25.3
New Jersey $4.1 $0.4 $4.4 $23.9 $2.1 $26.0
New Mexico $2.2 $0.4 $2.6 $12.7 $2.3 $15.1
New York N/A $5.1 $5.1 N/A $29.9 $29.9
North Carolina $12.4 N/A $12.4 $72.8 N/A $72.8
North Dakota N/A N/A $0.0 N/A N/A $0.0
Ohio $0.6 N/A $0.6 $3.3 N/A $3.3
Oklahoma N/A N/A $0.0 N/A N/A $0.0
Oregon $6.8 $0.3 $7.1 $39.6 $2.0 $41.6
C.18
Pennsylvania $32.3 $14.4 $46.7 $189.3 $84.6 $273.9

Rhode Island $2.7 N/A $2.7 $15.7 $0.0 $15.7
South Carolina $4.7 $0.9 $5.6 $27.6 $5.0 $32.6
South Dakota $7.6 N/A $7.6 $44.5 N/A $44.5
Tennessee N/A N/A $0.0 N/A N/A $0.0
Texas $9.5 $5.2 $14.7 $55.7 $30.4 $86.2
Utah $2.9 N/A $2.9 $17.3 N/A $17.3
Vermont $3.3 N/A $3.3 $19.5 N/A $19.5
Virginia $15.7 $0.2 $15.9 $91.9 $1.4 $93.3
Washington $13.5 N/A $13.5 $79.2 N/A $79.2
West Virginia N/A $10.7 $10.7 N/A $62.6 $62.6
Wisconsin $3.9 $11.5 $15.4 $22.9 $67.6 $90.4
Wyoming N/A N/A $0.0 N/A N/A $0.0
Total $726 $104 $831 $4,258 $612 $4,871
* Understates total as school based transportation costs for MA are included in MAC and cannot be disaggregated.
C.19
State-specific Fiscal Impacts of the Proposed School-based Services Regulation,
Alabama $33.9 N/A $33.9 $198.6 N/A $198.6

Alaska $18.9 N/A $18.9 $110.9 N/A $110.9
Arizona $8.8 $10.5 $19.3 $51.6 $61.7 $113.4
Arkansas $20.2 N/A $20.2 $118.7 N/A $118.7
California $444.2 $8.9 $453.1 $2,604.2 $52.3 $2,656.5
Colorado N/A $3.7 $3.7 N/A $21.9 $21.9
Connecticut N/A $9.3 $9.3 N/A $54.6 $54.6
Delaware N/A $2.6 $2.6 N/A $15.2 $15.2
District of Columbia N/A $4.7 $4.7 N/A $27.5 $27.5
Florida $131.9 $1.9 $133.8 $773.1 $11.1 $784.2
Georgia N/A N/A $0.0 N/A N/A $0.0
Hawaii N/A N/A $0.0 N/A N/A $0.0
Idaho N/A N/A $0.0 N/A N/A $0.0
Illinois $130.9 $9.4 $140.3 $767.4 $55.0 $822.4
Indiana N/A N/A $0.0 N/A N/A $0.0
Iowa N/A $3.4 $3.4 N/A $19.8 $19.8
Kansas $8.8 N/A $8.8 $51.7 N/A $51.7
Kentucky $137.2 $0.0 $137.3 $804.6 $0.1 $804.7
Louisiana $3.9 $0.7 $4.5 $22.7 $3.8 $26.6
Maine N/A $15.8 $15.8 N/A $92.9 $92.9
Maryland N/A $2.0 $2.0 N/A $11.7 $11.7
Massachusetts* $121.0 N/A $121.0 $709.4 N/A $709.4
Michigan $38.6 $9.9 $48.5 $226.3 $57.9 $284.2
Minnesota $16.8 $4.0 $20.9 $98.7 $23.7 $122.4
Mississippi $9.6 N/A $9.6 $56.5 N/A $56.5
Missouri $54.9 $1.1 $56.0 $321.8 $6.6 $328.5
Montana $1.6 $0.0 $1.6 $9.3 $0.3 $9.6
Nebraska $27.2 N/A $27.2 $159.4 N/A $159.4
Nevada N/A N/A $0.0 N/A N/A $0.0
New Hampshire N/A $8.6 $8.6 N/A $30.4 $30.4
New Jersey $8.1 $0.7 $8.9 $47.7 $4.3 $52.0
New Mexico $4.3 $0.6 $4.9 $25.5 $3.3 $28.8
New York N/A $10.2 $10.2 N/A $59.7 $59.7
North Carolina $24.8 N/A $24.8 $145.6 N/A $145.6
North Dakota N/A N/A $0.0 N/A N/A $0.0
Ohio $1.1 N/A $1.1 $6.6 N/A $6.6
Oklahoma N/A N/A $0.0 N/A N/A $0.0
Oregon $13.5 $0.5 $14.1 $79.3 $3.1 $82.4
C.20
Pennsylvania $64.6 $26.3 $90.9 $378.7 $154.3 $533.0

Rhode Island $5.3 N/A $5.3 $31.3 N/A $31.3
South Carolina $9.4 $1.2 $10.6 $55.3 $7.1 $62.4
South Dakota $15.2 N/A $15.2 $88.9 N/A $88.9
Tennessee N/A N/A $0.0 N/A N/A $0.0
Texas $19.0 $8.8 $27.8 $111.4 $51.8 $163.3
Utah $5.9 N/A $5.9 $34.6 N/A $34.6
Vermont $6.6 N/A $6.6 $39.0 N/A $39.0
Virginia $31.4 $0.5 $31.8 $183.8 $2.7 $186.6
Washington $27.0 N/A $27.0 $158.5 N/A $158.5
West Virginia N/A $14.4 $14.4 N/A $84.5 $84.5
Wisconsin $7.8 $19.1 $26.9 $45.7 $112.2 $158.0
Wyoming N/A N/A $0.0 N/A N/A $0.0
Total $1,453 $179 $1,632 $8,517 $1,030 $9,547
* Understates total as school based transportation costs for MA are included in MAC and cannot be disaggregated.
C.21
ACRONYM LIST
The following acronyms are used in this report.
- AAMC – American Association of Medical Colleges
- ARRA – American Recovery and Reinvestment Act of 2009
- CFR – Code of Federal Regulations
- CHGME – Children’s Hospitals Graduate Medical Education (In 2006, Congress required
hospitals receiving funding through the CHGME Payment Program to file annual reports
with HRSA, beginning in FFY2008)
- CHIP – Children’s Health Insurance Program
- CMS – Centers for Medicare and Medicaid Services
- CPE – Certified public expenditure
- CRS – Congressional Research Service
- DGME – Direct Graduate Medical Education
- DOE – Department of Education
- DSH – Disproportionate Share Hospital
- EPSDT – Early and Periodic Screening, Diagnosis, and Treatment
- FAPE – Free and Appropriate Education (U.S. Department of Education regulations
governing IDEA require that states and local agencies that receive IDEA funding provide
children a “Free and Appropriate Public Education” (FAPE). FAPE includes “special
education” and “related services” provided at public expense)
- FFP – Federal financial participation
- FFY – Federal Fiscal Year
- FMAP – Federal Medical Assistance Percentage
- IME – Indirect Graduate Medical Education
- GAO – Government Accountability Office
- GME – Graduate Medical Education
- HCBS – Home and community based services
- HHS – Health and Human Services
- HRSA – Health Resources and Services Administration
- IDEA – Individuals with Disabilities Education Act
- IEP – Individualized Education Program
- IFSP – Individualized Family Service Plan
- IGT – Intergovernmental transfer
- IMD – Institutions for the Mentally Disabled
- IT – Information Technology
1
- LEA – Local Education Agency
- MAC – Medicaid Administrative Claiming
- MCO – Managed Care Organization
- MITA – Medicaid Information Technology Architecture
- MMIS – Medicaid Management Information System
- MSIS – Medicaid Statistical Information System
- NHE – National Health Expenditures
- OIG – Office of Inspector General
- OMB – Office of Management and Budget
- SAMHSA – Substance Abuse and Mental Health Services Administration
- SFY – State Fiscal Year
- SMD – State Medicaid Director
- TFC – Therapeutic Foster Care
- UPL – Upper payment limit
- WIC – Women, Infants, and Children
2
REFERENCES
Resources provided by CMS and the States
The Lewin Group has reviewed a variety of documents during the course of this project,
including the Supplemental Appropriations Act of 2008 (which mandates the study), the
proposed and (if applicable) final versions of the regulations, and the December 2008 HHS
Secretary’s Report to Congress on the four regulations. We also reviewed available public
comments on the regulations. Additionally, we reviewed the U.S. House of Representatives
Committee on Oversight and Government Reform’s March 2008 report “The Administration’s
Medicaid Regulations: State-By-State Impacts,” as well as individual state responses to the
Committee’s request for information.
To understand state context and prepare for state interviews and impact analyses, we reviewed
Medicaid State Plans, draft State Plan Amendments (when made available to us), state-specific
provider, billing, and coverage manuals, and other documentation provided by individual
states. Due to the volume of state-specific documents reviewed, we have not listed these here.
Below is a bibliography of additional materials collected and reviewed during the course of this
project, including both general and cross-regulation background materials and a variety of
regulation-specific analyses and related documents.
List of Additional Resources Reviewed
Background Materials
1. Conaway, H. Testimony to Chairman Pallone and Distinguished Members of the Subcommittee

on Behalf of the National Conference of State Legislatures.
2. Department of Health and Human Services. Office of Inspector General. Semiannual
Report to Congress. Oct 2005 – Mar 2006; Oct 2006 – Mar 2007; Apr 2007 – Sep 2007; Oct
2007 – Mar 2008; Apr 2008 – Sep 2008.
3. Grady, A. Medicaid Financing. Congressional Research Service: The Library of Congress.
Jul 2008.
4. Herz, E. J., Burrows, V. K. Medicaid Regulatory Issues. Congressional Research Service:
The Library of Congress. Nov 2008.
5. Kaiser Commission on Medicaid and the Uninsured. Medicaid: Overview and Impact of
New Regulations. Jan 2008.
6. National Association of Public Hospitals and Health Systems. The Impact of the Medicaid
Regulations: Communities and Patients at Risk. Apr 2008.
7. United States General Accounting Office. Medicaid Financial Management; Better Oversight
of State Claims for Federal Reimbursement Needed. GAO-02-300. Feb 2002.
Documents Related to the Cost Limit Regulation
1. CCH Health Care. Proposed Rule Limits Payments to Public Providers. Feb 2007.
1
2. Center for Medicaid and State Operations. State Medicaid Director Letter. SMDL #06-014.
Jun 2006.
3. Department of Health and Human Services. Office of Inspector General. Audit of Selected
States’ Medicaid Disproportionate Share Hospital Programs. A-06-03-00031. Mar 2006.
4. Department of Health and Human Services. Office of Inspector General. Review of
Medicaid Enhanced Payments to Local Public Providers and the Use of Intergovernmental
Transfers. A-03-00-00216. Sept 2001.
5. Eyman B., Luband C. Safety Net Financing 101. Powell Goldstein LLP. Nov 2006.
6. Folkemer, J. Testimony on H.R. 5613, “Protecting the Medicaid Safety Net Act of 2008”.
Before the Subcommittee on Health of the Committee on Energy and Commerce. Apr
2008.
7. Hearne, J. Medicaid Regulation of Governmental Providers. Congressional Research Service:
The Library of Congress. May 2008.
8. Ku, L., Park, E. Administration’s Regulation to Reduce Medicaid “Upper Payment Limit”
Would Further Worsen State Budget Crisis. Center on Budget and Policy Priorities. Dec
2001.
9. Mechanic, R. E. Medicaid’s Disproportionate Share Hospital Program: Complex Structure,
Critical Payments. NHPF Background Paper. National Health Policy Forum. Sep 2004.
10. National Association of Public Hospitals and Health Systems. Intergovernmental
Transfers: Their Use and Impact in Public Hospitals and Health Systems. NAPH Issue Brief.
Jun 2005.
11. National Association of Public Hospitals and Health Systems. Legal Structure and
Governance of Public Hospitals and Health Systems. 2006.
12. National Association of State Medicaid Directors. NPRM on Cost Limits for
Governmentally Operated Providers.
13. Rosenbaum S. An Analysis of Proposed Rules Restricting Federal Medicaid Payments for
Publicly Supported Healthcare Services. American Health Lawyers Association. Mar 2007.
Issue 10: 2-8.
14. Rousseau, D., Schneider, A. Current Issues in Medicaid Financing – An Overview of IGTs,
UPLs, and DSH. Kaiser Commission on Medicaid and the Uninsured. Apr 2004.
15. Schwartz S., Gehshan S., Weil A., Lam A. Moving Beyond the Tug of War: Improving
Medicaid Fiscal Integrity. National Academy of State Health Policy. Aug 2006.
16. Secretary Leavitt, M. O. Report to Congress on the Medicaid Integrity Program for Fiscal Year
2007. Dec 2008.
17. United States General Accounting Office. Medicaid Intergovernmental Transfers Have
Facilitated State Financing Schemes. Testimony of Kathryn G. Allen before the
Subcommittee on Health, Committee on Energy and Commerce, House of
Representatives. GAO-04-574T. Mar 2004.
2
Documents Related to the GME Regulation
1. Center for Medicaid and State Operations. Dear State Medicaid Director Letter. SMDL #02-
010. May 2002.
2. Council on Graduate Medical Education. Nineteenth Report: Enhancing Flexibility in
Graduate Medical Education. Sep 2007.
3. Council on Graduate Medical Education. Resource Paper: State and Managed Care Support
for Graduate Medical Education: Innovations and Implications for Federal Policy. Jul 2004.
4. Henderson, T. M. Direct and Indirect Graduate Medical Education Payments Made By State
Medicaid Programs. Nov 2006.
5. Henderson, T. M. Medicaid’s Role in Financing Graduate Medical Education. Health Affairs.
Jan/Feb 2000. 19(1): 221-229.
6. Herz, E. J., Tilson, S. Medicaid and Graduate Medical Education. Congressional Research
Service: The Library of Congress. May 2008.
Documents Related to the Rehabilitative Services Regulation
1. Binder, C. Medicaid Rehabilitation Services. Congressional Research Service: The Library of

Congress. Jun 2008.
2. Center for Medicaid and State Operations. State Medicaid Director Letter. SMDL #08-001.
3. Crowley, J. S., O’Malley, M. Medicaid’s Rehabilitation Services Option: Overview and Current
Policy Issues. Kaiser Commission on Medicaid and the Uninsured. Aug 2007.
4. Koyanagi, C. Following the Rules – A Report on Federal Rules and State Actions to Cover
Community Mental Health Services under Medicaid. Judge, David L. Bazelon Center for
Mental Health Law. 2008.
5. O’Brien, J. Community Living Brief: The Medicaid Rehabilitative Services (“Rehab”) Option.
ILRU Community Living Partnership: National State-to-State Technical Assistance
Center. Mar 2005. 3(2).
6. Orris, A., Solomon J. Administration’s Medicaid Regulations Will Weaken Coverage, Harm
States, and Strain Health Care System. Center on Budget and Policy Priorities. Mar 2008.
7. Pear, R. Governors of Both Parties Oppose Medicaid Rules. The New York Times. Feb 2008.
8. Smith, G., Kennedy, C., Knipper, S., O’Brien, J. Using Medicaid to Support Working Age
Adults With Serious Mental Illness in the Community: A Handbook. Department of Health
and Human Services. Office of the Assistant Secretary for Planning and Evaluation. Jan
2005.
9. Solomon, J. Administration Moves to Withdraw Key Health Services from Children from
Children and Adults with Mental Illness and Other Disabilities. Center on Budget and Policy
Priorities. Mar 2008.
10. Spigel, S. Medicaid Rehabilitation Option Services. OLR Research Report. 2005-R-0687. Sep
2005.
3
11. Verdier J., Barrett A. Davis S. Administration of Mental Health Services by Medicaid
Agencies. DHHS Pub No. (SMA) 07-4301. Center for Mental Health Services, Substance
Abuse and Mental Health Services Administration. 2007.
Documents Related to the School-Based Services Regulation
1. American Association of School Administrators. Federal Legislative Update; The Stimulus,

ESEA, E-Rate and How it Will Impact You. The National Conference on Education. Feb
2009.
2. Centers for Medicare and Medicaid Services. Medicaid School-Based Administrative
Claiming Guide. May 2003.
3. Delaney, T., Hill K., Rogers, C. M., Sharpe, M. N., A National Survey of 2005 Special
Education Medicaid Billing Practices and Policies. North Central Regional Resource Center.
National Alliance for Medicaid in Education. 2005.
4. Fox Health Policy Consultants, Lewin and Associates, Inc. Medicaid Coverage of Health-
Related Services for Children Receiving Special Education: An Examination of Federal Policies.
ED347753. Nov 1991.
5. George Washington University. Department of Health Policy and Health Management
Associates. Improving Medicaid: Assessment of District of Columbia Agencies’ Claims
Processes and Recommendations for Improvements in Efficiency and Customer Service. Nov
2008.
6. Hanlon, C., May, J., Kaye, N. A Multi-Agency Approach to Using Medicaid to Meet the Needs
of Juvenile Justice-Involved Youth. National Academy for State Health Policy. Dec. 2008.
7. Herz, E. J. Medicaid and Schools. Congressional Research Service: The Library of
Congress. May 2008.
8. Herz, E. J. The Link Between Medicaid and the Individuals with Disabilities Education Act
(IDEA): Recent History and Current Issues. Congressional Research Service: The Library of
Congress. Mar 2006.
9. McCord, R. S., Ellerson, N. M., Looking Back, Looking Forward: How the Economic Downturn
Continues to Impact School Districts. American Association of School Administrators. Mar
2009.
10. National Alliance for Medicaid in Education. 2007 Biennial Survey Report; Summarized
Results of a National Survey Conducted by the National Alliance for Medicaid in Education.
Mar 2009.
11. National Alliance for Medicaid in Education Conference. Medicaid in Schools Coverage,
Reimbursement, and Time Studies Current Issues and Hot Topics. Sep 2008.
12. Noel, D. H., Shreve D. Special Ed Squeeze. State Legislatures. Dec 2006.
13. Smith, V K. Testimony before the Senate Finance Committee. Jun 1999.
14. Sopko, K. M. School-based Medicaid for Children with Disabilities. The National Association
of State Directors of Special Education – Project Forum Report. Sep 2006.
4
15. The Washington Office of the Superintendent of Public Instruction. 2003 Medicaid
Billing/Revenue Survey Results.
16. Wachino, V., Weiss, A. M. Maximizing Kids’ Enrollment in Medicaid and SCHIP: What
Works in Reaching, Enrolling, and Retaining Eligible Children. National Academy for State
Health Policy. Robert Wood Johnson Foundation. Feb 2009.
17. Westmoreland, T. Testimony on Medicaid Payments for School-Based Services before the
Senate Finance Committee. Center for Medicaid and State Operations. April 2000.
18. United States General Accounting Office. Medicaid In Schools, Improper Payments Demand
Improvements in HCFA Oversight. HEHS/OSI-00-69. Apr 2000.
19. United States General Accounting Office. Medicaid In Schools Poor Oversight and Improper
Payments Compromise Potential Benefits. Testimony by Kathryn G. Allen before the Senate
Finance Committee. GAO/T-HEHS/OSI-00-87. Apr 2000.
20. United States General Accounting Office. Medicaid Questionable Practices Boost Federal
Payments for School-Based Services. Testimony by William J Scanlon before the Senate
Finance Committee. GAO/T-HEHS-99-148. Jun 1999.
Association and Stakeholder Group Conference Calls
1. American Association of School Administrators

2. Association of American Medical Colleges
3. LA United Unified School District
4. National Association for Medicaid in Education
5. National Association of Public Hospitals and Health Systems
6. National Association of State Directors of Developmental Disabilities Services
7. National Association of State Mental Health Program Directors
8. National Association of State Medicaid Directors

Lewin Group Mandated Report To Congress On Four Medicaid Regulations

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Lewin Group Mandated Report To Congress On Four Medicaid Regulations

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Mandated Report to Congress:

Analysis of Impacts and Issues Relating to Four Medicaid Regulations

Prepared for: The United States Congress

Submitted by: The Lewin Group

Date: September 30, 2009

I. EXECUTIVE SUMMARY .................................................................................................................. 1

II. BACKGROUND AND PURPOSE OF THIS STUDY .................................................................. 8

IV. COST LIMIT ........................................................................................................................................ 17

V. GRADUATE MEDICAL EDUCATION (GME) ............................................................................ 35

VI. REHABILITATIVE SERVICES ........................................................................................................ 50

VII. SCHOOL-BASED SERVICES .......................................................................................................... 72

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IX. CONCLUSION .................................................................................................................................... 99

Appendix A: Interview Protocol and Data Request

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CMS 2258-P, Cost Limit for Providers Operated by Units of Government

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CMS-2279-P Graduate Medical Education

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CMS-2287-F, Medicaid Reimbursement for School Administrative Expenditures and Costs

We assessed state reimbursement for two areas:

1. Elimination of FFP for school-based transportation between home and school. We

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The regulation regarding school-based transportation would have no direct impact on

Comparisons with Prior Estimates

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Source Period Cost Limit GME Rehab SBS

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Available Alternatives for Addressing Concerns

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 A description of the prevalence of the problems outlined in the Secretary’s report

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 The Supplemental Appropriations Act of 2008

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B. Analytical Approach to Determine Prevalence and Assess Impacts

Defining and identifying the problems

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Regulation Problems Cited

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 Inconsistent participation of state officials in our interviews: In our research design, we

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 The cost limit for governmental providers is unreasonable

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Statement of the problem by the HHS Secretary

Approach to determine prevalence

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Exhibit 2: States with Evidence of Problems Identified in the Secretary’s Report

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C. Strategies States Use to Address these Problems

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D. Impact of the Cost Limit Regulation

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