Rule reversal allows schools to bill Medicaid for services

(Reuters Health) - Due to an unexpected federal policy reversal sought by advocates for nearly 10 years, schools could start billing Medicaid for health services such as asthma screenings, vaccinations and care for chronic diseases provided to some low-income students.

“Clearing away the obstacle was a first step, but the next step is educating the public about it,” said Ed Walz, vice president of communications with the First Focus Campaign for Children, a nonprofit children’s advocacy organization.

According to a 1997 rule by the Centers for Medicare and Medicaid Services (CMS), known as the “free care rule,” if schools provided a service to the public for free, the schools couldn’t ask Medicaid to pay for that service when provided to a Medicaid-eligible student – even if Medicaid would pay for the service if provided in a medical setting. Exceptions were allowed for some children with disabilities.

For example, if a school provided free asthma screenings to all students, the school couldn’t ask Medicaid to reimburse for screening Medicaid-eligible students, even though screenings would be covered in a hospital, said Mary-Beth Malcarney, assistant research professor with George Washington University’s Department of Health Policy.

Districts could circumvent the rule by charging all children for the services. That approach, however, placed a burden on low-income families not enrolled in Medicaid who may not be able to afford even nominal fees.

“It does sound very wonky, but it certainly has a big impact on students and schools across the country,” Malcarney told Reuters Health. “Because of the rule, schools shied away from offering many services. It also impacted the ability of low-income schools to hire health care staff, because they could not receive funding from Medicaid.”

In 2004, the Department of Health and Human Services Departmental Appeals Board struck down the rule, concluding that it had no basis in federal law. In 2013, a California court also rejected the policy. But the issue remained cloudy.

Last December, CMS finally reversed the “free care rule” in a State Medicaid Directors Letter aiming to help remove “any ambiguity” about the policy. (The letter is available here:

CMS declined to comment despite repeated requests.

Malcarney said she believes it will take months or years for districts to begin providing more health services.

“I can see some in the education field saying, ‘That’s great that the rule changed and maybe we can now seek some Medicaid reimbursement, but we don’t have personnel or the administrative capacity to do all this,’” she added. “Districts may need some start-up resources. There is a long road ahead.”

Further complicating the changes are dozens of state laws addressing the “free care rule” that remain in effect. Some states prohibit schools from being reimbursed by Medicaid.

Craig Garthwaite, an assistant professor of management and strategy at Northwestern University’s Kellogg School of Management in Chicago, said he believes lower income districts will benefit from the policy reversal.

“This frees schools, particularly those in low-income communities, to offer more primary care and preventative service through their health centers,” he told Reuters Health. “Schools will have to look at their budget and see if they will get reimbursed for services. It’s not like this is a costless thing for districts, because Medicaid reimbursement rates are not particularly high. We shouldn’t expect all states and schools to react similarly.”