Reinvesting Medicaid Payments in California


To support provision of school health services, Local Education Agencies (LEAs) often reinvest their Medicaid reimbursements in additional health treatments and administration costs. The state of California recently amended reinvestment rules that had negatively affected Medicaid reimbursements.

Issue Analysis

California’s Department of Health Care Services (DHCS) has changed internal rules that restricted funding on reinvested Medicaid payments for school health services. These rules disallowed school claiming for Medicaid (Medi-Cal) services and administration that were funded with reinvested reimbursements; this issue is often referred to as ‘5640’ after the Standardized Account Code Structure (SACS) Resource Code used to identify LEA Billing reimbursements.

In July 2011, after reviewing current federal and state regulations and the state Medicaid plan, California DHCS confirmed that federal revenue received from the Local Education Agency Billing Option Program (through SPA 03-024) meets matching requirements for receiving additional Medicaid reimbursement dollars. This policy change, codified in Policy and Procedure Letter 11-013 (PPL 11-013), allows LEAs to reclaim eligible health service expenses incurred using Direct Service program reimbursements, including staff salaries supporting Medicaid Administrative Claiming (MAC) activities. Paradigm’s Fiscal Division estimates that this policy change, which will allow LEAs to reclaim expenditures made with Direct Service billing reimbursements, has the potential to positively impact school Medicaid reimbursements for LEAs by up to 20%.

This additional revenue is now possible due primarily to the efforts of California’s LEA Ad Hoc Committee, which collected supporting documentation from other entities, including Paradigm, and worked in partnership with DHCS to update the state’s guidelines regarding Medicaid reimbursements.

In 2006, the state of California implemented a cost-reconciliation program for LEA Direct Service billing. This process, which required considerable work and resources, established that LEA Direct Service payments are reimbursement on actual cost and therefore qualify as a certified public expenditure (CPE) that can be used for supplemental reinvestment in eligible services and activities for reimbursement.

CPE is defined at the Federal level in the Office of Management and Budget (OMB) Circulars A-87 and A-133, as well as Title 45, § 433.51 of the Code of Federal Regulations published by the Centers for Medicare and Medicaid Services (CMS). California’s regulations regarding CPE refer to these federal guidelines and are reiterated in state manuals and in contracts between California’s Department of Health Care Services (DHCS) and CMS as well as those between DHCS and California localities.

Although California has responded to the oversight that prevented LEAs from using CPE Direct Service reimbursement as matching funds to reinvest in eligible health services, this situation remains an issue for states using a similar Direct Services cost-reconciliation process in which reimbursements are incorrectly classified as ”federal” funds and therefore are restricted from reinvestment in school Medicaid programs.

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