Issue Analysis

For over a decade, a federal payment practice known as the free care rule had prevented schools from billing Medicaid for otherwise eligible health services if those same services were provided to non-Medicaid beneficiaries at no cost. This policy was the primary reason school-based Medicaid billing had essentially been limited to health services provided to special education students under the Individuals with Disabilities Education Act (IDEA).

In December 2014, this issue was resolved at the federal level when the Centers for Medicare and Medicaid Services (CMS) issued a State Medicaid Director letter rescinding the free care rule and stating, “Medicaid reimbursement is available for covered services under the approved state plan that are provided to Medicaid beneficiaries, regardless of whether there is any charge for the service to the beneficiary or the community at large.”

While the reversal of this policy paves the way for states to begin receiving Medicaid reimbursement for health assessments and treatments provided to the general education student population, the details and roll-out of this process will be highly dependent on each individual state. We anticipate these efforts to be ongoing over the next several years, and will track California’s implementation of non-IDEA school health service billing separately.


History

  • August 1997 – Free care becomes federal policy. CMS publishes the ‘Medicaid and School Health: A Technical Assistance Guide’ for billing health services provided in a school-based setting. The guide includes a policy limitation called free care and states, “free care, or services provided without charge, are services for which there is no beneficiary liability and for which there is no Medicaid liability. (p.42)” IDEA services are listed as an exception to the free care rule, allowing schools to bill for health services included in a Medicaid student’s Individualized Education Plan (IEP). CMS outlines specific steps that a school can take to ensure services are not considered ‘free’, allowing them to bill, but these are so administratively burdensome that almost no one bills for non-IEP services.
  • 2000 – CMS disallows $2 million in Medicaid reimbursements to the state of Oklahoma for failing to adapt to the new free care rule. The state appeals this disallowance to the federal Department Appeals Board in 2002 and 2004 and is successful on both accounts.
  • June 2004 – the Appellate Division of the Department of Health and Human Services Appeals Board issues Decision 1924 in the Oklahoma appeal case, stating that “there is no express requirement in the [Social Security] Act that . . . the provider seek reimbursement from potentially liable third parties for the cost of the same services provided to non-Medicaid eligibles.”
  • May-October 2009 – San Francisco Unified School District files suit against the state of California for a disallowance of $305,000 based on the free care rule. SFUSD is successful in their suit and, as a result, the state of California challenges CMS on the legitimacy of the free care rule.
  • 2012 – California successfully negotiates federal reimbursement for SFUSD’s non-IEP school health services moving forward.
  • July 2012 – Healthy Schools Campaign and Trust for America’s Health highlight a reversal of the free care rule as a top priority in their national policy recommendations for improving school nursing services. As part of their ‘Health in Mind’ campaign, these groups bring together stakeholders from all levels to work together with CMS to find a solution to restrictions caused by the free care rule.
  • February 2013 – the San Francisco Superior Court issues a final judgment in favor of SFUSD in their suit against the state of California, stipulating that the district is entitled to reimbursement for certain medical services provided to Medi-Cal eligible regular education students as allowed under California law (W&IC Section 14132.06). See our complete and annotated California Free Care Challenge Timeline and Policy Brief.
  • December 2014 – CMS issues State Medicaid Director letter, SMD 14-006, rescinding the free care rule and stating, “Medicaid reimbursement is available for covered services under the approved state plan that are provided to Medicaid beneficiaries, regardless of whether there is any charge for the service to the beneficiary or the community at large.”
  • June 2015 – Healthy Schools Campaign and Trust for America’s Health host a convening to gather stakeholders and develop strategies to support a full, nationwide, implementation of the free care policy reversal. Information about their work on the free care issue can be found here, on the Healthy Schools Campaign website.
  • September 2015 – California submits a Medicaid State Plan Amendment (SPA) 15-021 which would remove an existing barrier to billing for non-IEP school health services, an annual cap of 24 services per student, and make medical necessity the only requirement for service eligibility.

Resources