Medicaid Program; Elimination of Reimbursement Under Medicaid for School Administration Expenditures and Costs Related to Transportation of School-Age Children Between Home and School, 73635-73651 [07-6220]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 72, Number 248 (Friday, December 28, 2007)]
[Rules and Regulations]
[Pages 73635-73651]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-6220]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 431, 433, and 440

[CMS-2287-F]
RIN 0938-AP13


Medicaid Program; Elimination of Reimbursement Under Medicaid for 
School Administration Expenditures and Costs Related to Transportation 
of School-Age Children Between Home and School

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: Under the Medicaid program, Federal payment is available for 
the costs of administrative activities ``as found necessary by the 
Secretary for the proper and efficient administration of the State 
plan.'' This final rule eliminates Federal Medicaid payment for the 
costs of certain school-based administrative and transportation 
activities because the Secretary has found that these activities are 
not necessary for the proper and efficient administration of the 
Medicaid State plan and are not within the definition of the optional 
transportation benefit. Based on these determinations, under this final 
rule, Federal Medicaid payments will no longer be available for 
administrative activities performed by school employees or contractors, 
or anyone under the control of a public or private educational 
institution, and for transportation from home to school. In addition, 
this final rule responds to public comments received on the September 
7, 2007 proposed rule.

EFFECTIVE DATE: These regulations are effective on February 26, 2008.

FOR FURTHER INFORMATION CONTACT: Sharon J. Brown, (410) 786-0673, Judi 
Wallace, (410) 786-3197.

SUPPLEMENTARY INFORMATION: We published a proposed rule in the Federal 
Register on September 7, 2007, at 72 FR 51397 that would eliminate 
Federal Medicaid payment for school-based administrative activities, 
based on a Secretarial finding that such activities are not necessary 
for the proper and efficient administration of the Medicaid State plan. 
Moreover, the proposed rule would also eliminate Federal Medicaid 
payment based on a finding that transportation from home to school and 
back for school-age children is neither necessary for the proper and 
efficient administration of the Medicaid State

[[Page 73636]]

plan, nor within the scope of the optional medical transportation 
benefit. We received 1,240 timely public comments on the proposed rule. 
After careful consideration of these comments, we are adopting the rule 
as proposed without change. We discuss later in this preamble our 
response to comments and our reasons for going forward with the 
proposed rule. Below, we first summarize the background and provisions 
of the proposed rule.

I. Background

A. Administrative Activities and Transportation Services Under the 
Medicaid Program

    Title XIX of the Social Security Act (the Act) authorizes Federal 
grants to States for Medicaid programs, operated by each State under an 
approved Medicaid State plan that provide medical assistance to needy 
individuals including low-income families, the elderly, and persons 
with disabilities. Federal payment is available to a State for a 
proportion of expenditures for medical assistance under the approved 
Medicaid State plan, and of expenditures necessary for administration 
of the State plan. This joint Federal-state financing of expenditures 
is described in section 1903(a) of the Act, which sets forth the rates 
of Federal financing for different types of expenditures.
    Under section 1903(a)(7) of the Act, Federal payment is currently 
available at a rate of 50 percent of amounts expended by a State ``as 
found necessary by the Secretary for the proper and efficient 
administration of the State plan.'' In addition, OMB Circular A-87, 
which contains the cost principles for State, local and Indian tribal 
governments for the administration of Federal awards, states that, 
``Governmental units are responsible for the efficient and effective 
administration of Federal awards.'' Under either of these provisions, 
administrative expenditures must be reasonable and necessary for the 
performance of functions funded by the Federal award.
    Transportation to and from providers is not expressly mentioned in 
the Medicaid statute, but States can claim Federal matching dollars for 
such transportation in one of two ways. Since the inception of the 
program the Federal government has recognized that transportation is 
essential to the administration of the Medicaid State plan, to ensure 
that beneficiaries have access to covered services. Federal regulations 
at 42 Code of Federal Regulations (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 for doing so. Under 42 CFR 440.170(a), States are afforded the 
option of furnishing transportation as an optional covered medical 
service recognized under section 1905(a)(28) of the Act as defined and 
specified. Under this section, transportation is defined as ``expenses 
for transportation and other related travel expenses determined 
necessary by the agency to secure medical examination and treatment 
(emphasis added) for a recipient.'' Travel expense is defined to 
include the cost of the actual transportation necessary to the medical 
service, meals and lodging en route to medical care and the cost of 
attendees to the beneficiary if necessary.
    Whether transportation is furnished as an administrative activity 
under 42 CFR 431.53 or as an optional covered medical service could 
affect the Federal Medicaid matching rate and the flexibility available 
to the State, but these issues are not relevant for purposes of this 
final regulation.

B. Medicaid and Schools

    A wide range of medical services may be furnished to students in 
school settings. In particular, pursuant to requirements under the 
Individuals with Disabilities Education Act (IDEA), schools deliver a 
broad range of educational and related services (e.g., educational, 
social, and medical services) to students with disabilities to address 
their diverse needs. Section 1903(c) of the Act prohibits the Secretary 
from denying or restricting Federal Medicaid payment to States for 
covered services furnished to a child with a disability on the basis 
that the services are included in the child's Individualized Education 
Program (IEP) or Individualized Family Services Plan (IFSP) established 
pursuant to the IDEA.
    Some of the special education and related services required by the 
IDEA may be within the scope of medical assistance services covered 
under the Medicaid program. Medicaid covers medically necessary direct 
medical services included in an IEP or IFSP that are in a Medicaid 
covered category under the approved State Medicaid plan (such as speech 
therapy or physical therapy, but also including Early and Periodic 
Screening Diagnosis and Treatment), and that meet all other Federal and 
State Medicaid regulations (including provider qualifications and any 
amount, duration and scope limitations).
    Schools and school districts perform a myriad of administrative 
activities that arise directly from the educational mission of the 
schools. Though these activities may include coordinating the delivery 
of Medicaid services with educational services, they are primarily 
associated with educational program requirements including IDEA 
requirements. Transportation to and from the school for most students 
is also part of the schools' educational responsibility.

C. Prior Agency Experience With School-Based Administration and 
Transportation

    As detailed in the proposed rule, CMS had previously issued several 
guidance documents on school-based administration and transportation. 
In those interpretive guidance documents, CMS set forth a complex set 
of principles permitting State claims for school-based administration 
and transportation. The claims that resulted from this guidance were 
the subject of several audits by the Office of the Inspector General 
finding widespread fraud and abuse as well as improper claiming of 
costs to the Medicaid program that were incurred to meet mandates under 
educational programs.

II. Provisions of the Proposed Regulations

    We published a proposed rule on September 7, 2007, at 72 FR 51397, 
that would eliminate Federal Medicaid payment for school-based 
administrative activities, based on a Secretarial finding that such 
activities are not necessary for the proper and efficient 
administration of the State plan. Moreover, the proposed rule would 
also eliminate Federal Medicaid payment based on a Secretarial finding 
that transportation from home to school and back for school-age 
children is neither necessary for the proper and efficient 
administration of the State plan, nor within the scope of the optional 
medical transportation benefit. Based on these findings, the proposed 
rule specified that Federal financial participation (FFP) under the 
Medicaid program will not be available for school-based administrative 
and certain transportation costs, with the exception of administrative 
activities conducted by employees of the State or local Medicaid 
agency.
    Under the proposed rule, the following changes would apply to the 
costs of the following activities or services:
     FFP would no longer be available for the costs of school-
based administrative activities under

[[Page 73637]]

Medicaid. By administrative activities, we referred to activities that 
are not properly included in the scope of a covered service. School-
based administrative expenditures are expenditures under the 
administrative control of a public or private educational institution 
and that are conducted by school employees or contractors, or anyone 
under the control of a public or private educational agency.
     FFP would no longer be available for the costs of 
transportation from home to school and back for school-age children 
with an IEP or IFSP established pursuant to the IDEA.
    The proposed rule would supersede all previous guidance, including 
guidance on school-based administrative claiming and school-based 
transportation.
    Under the proposed rule, CMS would continue to reimburse States for 
school-based direct Medicaid services in their approved State plans. 
That is, the proposed rule would not affect the treatment of 
expenditures for direct medical services that are included in the 
approved State Medicaid plan and provided in schools, nor did it affect 
transportation of school-aged children from school or home to a non-
school-based direct medical service provider that bills under the 
Medicaid program, or from the non-school-based provider to school or 
home.
    Furthermore, under the proposed rule, CMS would 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 visit does not include an educational 
component or any activity unrelated to the covered direct medical 
service.
    Federal funding would also 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. These activities are properly reimbursed at the applicable 
Federal medical assistance percentage (FMAP) rate for the related 
direct medical service, and include patient follow-up, assessment, 
counseling, education, parent consultations, and billing activities. 
Furthermore, school-based administrative activities, such as Medicaid 
outreach and eligibility intake, that are conducted by employees of the 
State or local Medicaid agency would remain eligible for FFP under the 
proposed rule.
    The proposed rule was based on a determination that administrative 
activities performed by schools, and transportation of school-age 
children from home to school and back, are not necessary for proper and 
efficient administration of the State Medicaid plan, and are not within 
the scope of the 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.

III. Analysis of and Responses to Public Comments

    We received approximately 1,240 timely comments from State 
officials, school districts and consortia, educational organizations, 
child advocacy groups, health care organizations, school nurses, 
parents, teachers, school officials, providers, and other interested 
individuals. The largest group of comments came through a write-in 
campaign initiated by an organization titled the Council for 
Exceptional Children (CEC). The State with which the largest number of 
commenters identified themselves was California. All comments were 
reviewed and analyzed. After associating like comments, we placed them 
in categories based on subject matter. Summaries of the public comments 
received and our responses to those comments are set forth below.

General

    Most commenters opposed the proposed regulation, for the reasons 
specified below. Of the commenters supporting the proposed rule, they 
either concurred that Medicaid funds should not be used to fulfill 
educational requirements or appreciated the potential for savings in 
Federal expenditures. The categorized comments and our responses are 
listed below.

Funding Issues

    Comment: The largest number of comments focused on funding issues, 
arguing that any loss of funding would potentially ``* * * reduce the 
funds available to our already strained special education budgets,'' 
according to one commenter. Another commenter argued that ``* * * if 
States cannot take up the slack, and most of them are struggling to 
provide non-medical transportation to get children to school, as well 
as to satisfy other Federal requirements, this funding cut will be yet 
another unfunded * * * mandate.'' Many commenters noted that in their 
districts, schools are already strapped with tight budgets, some even 
specifying the exact amount of revenue they believed would be lost 
under the proposed regulation. One commenter noted that ``Should 
administrative claiming be eliminated, we would have to shift funds 
from other areas in our budgets to cover the cost or raise taxes if 
this proposal should become a reality.'' And: ``Our school division 
struggles daily with dwindling local resources and increasing demand * 
* *. Loss of these funds * * * would unfairly exacerbate a dire 
situation.'' It is unrealistic, many commenters argued, to assume that 
any State or school would be able to replace the loss of Federal 
Medicaid reimbursement that would result from finalization of the 
proposed rule.
    Response: Such comments appear to support our view and concern that 
Title XIX funds are being used as a funding source without specific 
benefit to the Medicaid program. Constrained local and State funding 
for education is not the basis for determining whether a cost is 
properly claimed under Medicaid. Specifically, administrative 
expenditures must be deemed necessary for the proper and efficient 
administration of the Medicaid State plan in order for reimbursement to 
be available. The need for schools to obtain additional funding in 
itself does not justify continued Federal Medicaid reimbursement. 
Limitation of Medicaid claims to administrative and transportation 
activities that are directly related to the furtherance of the Medicaid 
State plan is necessary to maintain the financial integrity of the 
Medicaid program. None of these commenters provided any factual basis 
to conclude that the activities in question were, indeed, necessary for 
the proper and efficient administration of the Medicaid State plan (or 
transportation necessary to ensure that individuals obtain access to 
Medicaid providers).

[[Page 73638]]

    Comment: Some commenters focused on the fact that Medicaid 
reimbursement is used to meet other educational needs and augment 
underfunded budgets. Commenters noted that reimbursement for school-
based administrative activities is used for a wide variety of 
unrelated, but important, purposes, such as instructional materials and 
equipment, or to fund staff positions, and that schools rely on this 
funding for such purposes. According to one commenter, Medicaid 
reimbursement is used to allow service staff to attend workshops and to 
purchase ``* * * needed technology and materials to better educate our 
children.'' Some asked how States and schools would make up for any 
funding shortfalls that result from finalization of the proposed rule. 
As one commenter noted: ``* * * this * * * action by the Federal 
government would force us to make cuts in other essential educational 
programs to ensure that federally required services can continue, 
despite the lack of funding,'' such as electives, after-school 
activities, or arts and music programs. The loss of Medicaid payments 
could also result in schools having to lay off staff or curtail 
referral services, according to some commenters.
    Response: Federal matching funds under Medicaid are only available 
for Medicaid services provided to Medicaid eligible individuals as 
described in the Medicaid State plan. The commenters expressly 
identified non-Medicaid costs that are clearly educational in nature. 
Constrained local and State funding for education is not the basis for 
determining whether a cost is properly claimed under Medicaid. We 
believe the final rule is necessary to maintain the financial integrity 
of the Medicaid program and there is nothing in this final rule which 
would eliminate funding for necessary direct medical services eligible 
for Medicaid funding.
    Comment: Some commenters noted the fact that Congress has never 
fully funded the IDEA, and in lieu of such funding, Medicaid 
reimbursement must be used. One commenter stated the following: ``At a 
time when the Federal government is funding barely 18 percent of the 
national average per-pupil expenditures for each child in special 
education instead of the 40 percent that Congress promised to pay when 
IDEA was first enacted, major cutbacks in Medicaid reimbursements will 
severely restrict the ability of State and local school districts to 
provide much-needed health care services to disabled children.'' 
Without a commensurate increase in funding for IDEA-related 
requirements to offset cuts resulting from the proposed rule, they 
argue, critical services may be cut. The proposed rule makes no attempt 
to explain how States and school districts might compensate for the 
reduction in funding under Medicaid and the inadequate funding of IDEA-
related mandates, they noted.
    Response: The desire for supplemental funds to augment IDEA funding 
does not justify Medicaid payments that are not authorized by the 
Medicaid statute, regulations and applicable cost accounting 
principles. Under Office of Management and Budget Circular A-87, 
``governmental units are responsible for the efficient and effective 
administration of Federal awards.'' It is not consistent with efficient 
and effective administration of the Medicaid program to pay for 
administrative activities (including transportation from home to school 
and back) that are performed as part of a school's educational mission, 
do not specifically benefit the Medicaid program, are neither 
controlled nor supervised by the Medicaid program, and would be 
performed by the schools even in the absence of the Medicaid program. 
As stated earlier, we believe the final rule is necessary to maintain 
the financial integrity of the Medicaid program. Such comments appear 
to support our view and concern that Title XIX funds are being used for 
non-Medicaid purposes and that the request for additional funding for 
educational activities should be more appropriately directed to other 
Federal, State, and local funding sources.

Provision of Services

    Comment: Some commenters worried that the proposed rule would 
adversely impact the provision of needed services to school-age 
children. One commenter noted that ``* * * schools are providing 
necessary medical/psychological services and/or referrals that others 
are able to be reimbursed for, so this should not be cut.'' Some argued 
that any changes to the Medicaid program would have a detrimental 
effect on the medical care provided to students.
    Response: The provision of, and reimbursement for, school-based 
medical services are not affected by the changes specified in the final 
rule. CMS will continue to recognize schools as valid settings for the 
delivery of direct medical services recognized in the Medicaid State 
plan. Medicaid reimbursement would remain available for covered 
services provided to children pursuant to an IEP or IFSP, whether they 
are provided in school or in the community. That is, 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).
    We do not believe the final rule will impact children eligible for 
Medicaid. IDEA mandates that services prescribed by a child's IEP or 
IFSP be provided to children. Section 1903(c) of the Act provides 
clearly that Medicaid reimbursement be made available for such 
services, when provided to Medicaid-eligible children, covered under 
the State plan, and provided by qualified providers that properly bill 
the Medicaid program. These requirements will not change as a result of 
the final rule. As a result, these services will continue to be 
provided to children pursuant to their IEP or IFSP, and will continue 
to be paid by Medicaid.
    Comment: One commenter noted that ``* * * while the proposed 
regulation does not directly affect reimbursement for these services, a 
school district's inability to be reimbursed for administrative 
services related to the provision of the medically necessary services 
will in fact have a chilling effect on a school district's ability to 
deliver these services.'' To deny Federal Medicaid matching for 
administrative activities provided by school employees or its 
contractors would, in the words of one commenter, ``* * * improperly 
shift the cost of allowable Medicaid services entirely to State and 
localities, without regard for the reduction in service that would 
result.''
    Response: Federal funding would 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. These activities are properly reimbursed at the applicable 
FMAP rate for the related direct medical service, and can include 
administrative activities under the direction of the medical service 
provider, such as patient follow-up, parent consultations, and billing 
activities, when included in the

[[Page 73639]]

negotiated rate paid for direct medical services.
    Comment: In certain comments, it was noted that Medicaid funding 
helps school pay for other types of services, such as mental health 
services, which would not otherwise be available to students. One 
commenter argued that if the proposed rule is promulgated, school-based 
services will be less effective and more costly for CMS, State Medicaid 
agencies, and schools. Another commenter noted that while the proposed 
rule does not explicitly restrict access to services in schools, it 
would make it less desirable for Medicaid programs to use school 
settings to provide services, and could inadvertently make it more 
difficult to meet Medicaid's original intent to fund necessary medical 
assistance ``* * * to promote growth and development and prevent or 
ameliorate disabilities and conditions.''
    Response: Medicaid payment remains available for all covered 
services furnished in a school setting and for children. These covered 
services include the broadest possible range of services under the 
mandatory Medicaid covered benefit for early and periodic screening, 
diagnostic and treatment (EPSDT) services. As Medicaid will still 
provide funding for such services that qualify under the Medicaid State 
plan, this will likely mean that the availability of such services in a 
school setting will not diminish as a result of this rule.
    Comment: A few commenters pointed to past and ongoing litigation 
over the failure to provide mandated services to children with 
disabilities and suggested that the likely consequences of the proposed 
rule would be a reduction in funding for necessary services they have 
fought in court to secure for these children. Specifically, some 
commenters cited the ruling in the Bowen v. Massachusetts case (487 
U.S. 879 (1988) No. 87-712), in which an appellate court ruled that ``* 
* * it is the nature of the services, not what the services are called 
or who provided them'' that determines whether the services qualify for 
Medicaid reimbursement. By eliminating Federal Medicaid reimbursement 
for administrative activities engaged in by school employees, the 
proposed rule goes against Federal court interpretations of the 
Medicaid statute, they argue. Others interpret that ruling to mean that 
any attempt to eliminate Medicaid reimbursement for transportation as a 
covered service in a State plan based solely on the child's 
participation in an educational program would be in violation of the 
court's ruling in Bowen. The court ruling, they contend, nullifies 
CMS's attempts to justify elimination of reimbursement for school-based 
administrative and transportation service expenditures by labeling such 
expenditures as ``educational'' in nature.
    Response: The final rule clarifies that Federal Medicaid funding is 
available for direct medical services provided by schools. To the 
extent that a State elects to reimburse transportation as an optional 
medical service, Federal reimbursement will still be available to the 
extent that the primary purpose of that transportation is access to a 
medical service. That is, CMS will continue to reimburse States for 
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. Furthermore, CMS will 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 (such as when it is regularly scheduled 
transportation to a day care program). However, routine transportation 
from home to school and back for school age children is primarily 
educational in nature and will not be eligible for Medicaid 
reimbursement as part of a medical service.

Potential Impact on EPSDT

    Comment: Some commenters argued that the proposed rule will make it 
difficult for States to fulfill requirements under the Early and 
Periodic Screening, Diagnostic and Treatment (EPSDT) benefit specified 
in section 1905(a) of the Act. This mandate, they note, requires States 
to inform families about the availability of EPSDT services and assist 
them in accessing services. Many school systems have contracted with 
States so that school nurses and staff inform families about EPSDT. As 
currently written, the proposed rule would limit reimbursement for 
these activities to employees of the State Medicaid agency. This 
potential conflict between the EPSDT mandate and the proposed rule, 
they argue, would severely restrict the ability for States to meet 
their responsibility under ESPDT and hamper access to necessary 
services for children. Under EPSDT requirements, one commenter noted, 
States are urged to make use of other public, health, mental health and 
educational programs in order to ensure an effective child health 
program. They cited the State Medicaid Manual as not only encouraging 
State Medicaid agencies to coordinate EPSDT 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.
    Response: Under the final rule, States will still be required to 
meet EPSDT requirements and are afforded flexibility in meeting these 
requirements. We do not believe it is consistent with proper and 
efficient administration of the Medicaid State plan, however, to 
commingle EPSDT outreach functions with other school administrative or 
direct service activities. We continue to encourage States to 
coordinate Medicaid EPSDT programs with school health programs and 
State, local and other Federal health care or social welfare programs. 
Schools employ health care providers and other educational staff as 
information points for a variety of medical and social services far 
beyond simply the Medicaid program. This function is specific to the 
nature of a school-based provider and is not directly related to the 
administration of the Medicaid State plan. Coordination and information 
dissemination efforts that are not under the control and supervision of 
the State agency and are performed by schools, however, are 
fundamentally functions that further the mission of the schools to 
ensure that students receive necessary services using available 
Medicaid resources. Such activities are not directly for administration 
of the State Medicaid plan.

Support for School-Based Administration

    Comment: A substantial number of commenters urged CMS to continue 
its support for school-based Medicaid administrative activities 
because, they argued, it can be an effective way to reach children in 
need of services and to ensure adequate medical care for disabled 
students and their families, who are often low-income and uninsured. 
One commenter noted that: ``Families are familiar and comfortable with 
the people and the school, which makes schools a logical place to 
families to access health care. The unique role played by schools as a 
health service portal is irreplaceable.'' Some thought the proposed 
regulation would decrease the opportunities for children and families 
to learn about the availability of Medicaid, and the services provided 
to those eligible for coverage. As a result,

[[Page 73640]]

the proposed rule could result in increased health care costs through 
missed opportunities to enroll eligible children in Medicaid and 
connect them to needed services before they become catastrophic. A 
recurring theme was that the proposed rule fails to recognize that 
certain administrative activities performed by school-based staff are 
instrumental to ensuring access to covered Medicaid services for 
eligible low-income children.
    Response: We acknowledge the importance of outreach and referral 
activities, and in no way preclude State or local Medicaid agencies 
from engaging in such activities. Nor do we preclude school employees 
from conducting activities that inform individuals of the availability 
of Medicaid services. But we disagree that such school employee 
activities are properly considered administration of the State plan. 
Such activities are performed as part of the normal operation of the 
school to ensure that students receive educational and related 
services, and to coordinate with other payers for those services. These 
activities are not performed for the purpose of State Medicaid plan 
administration. Moreover, this rule protects the financial integrity of 
the Medicaid program from the improper claiming and cost shifting found 
in Inspector General audits.
    Comment: Other commenters cited the success of their school-based 
Medicaid programs and provided specific examples of such successes, 
noting the number of children enrolled in Medicaid as a result of their 
efforts and the ability to connect such children to needed services. 
One commenter stated that ``* * * the proposed rule goes beyond 
reducing waste and abuse among the few by eliminating for all schools 
the positive benefits the program was designed to achieve.'' Another 
noted that the proposed rule does not take into account the 
appropriateness of schools providing administrative activities, 
especially to students with disabilities.
    Response: CMS applauds the numerous examples of successful school-
based Medicaid outreach and referral programs submitted by commenters. 
The success of these programs, however, does not compel a finding that 
school-based administration activities are a proper and efficient 
method for administration of a Medicaid State plan. In determining that 
these activities are not a proper and efficient method for 
administration of a State Medicaid program, we considered the extent to 
which such activities are conducted as a normal part of the operation 
of school education programs. We further considered the costs of 
improper Medicaid claiming because these activities are commingled with 
other school administrative activities and cannot be accurately 
allocated to Medicaid. Because these activities should occur in schools 
regardless of the availability of Medicaid funding and because the 
primary purpose of these activities is not the administration of the 
Medicaid program, we believe Medicaid should not provide funding for 
them.
    Comment: Some commenters pointed to the May 2003 CMS Medicaid 
School-Based Administrative Claiming Guide, which states that ``* * * 
the school setting provides a unique opportunity to enroll * * * and to 
assist'' Medicaid eligible children ``access the benefits available to 
them'' as evidence that school-based Medicaid administrative claims 
should remain eligible for FFP. Another quote cited by commenters can 
be found in the 1997 CMS Medicaid and School Health: A Technical 
Assistance Guide, which stated:

     ``Because of the proximity of schools to the target population, 
HCFA (now CMS) has always encouraged the participation of schools in 
the Medicaid program * * * [s]chool-based health services can 
represent an effective tool which can be used to bring more 
Medicaid-eligible children into preventive and appropriate follow-up 
care. In addition, schools present a wonderful opportunity for 
Medicaid outreach. That is, because schools are by definition ``in 
the business of serving children,'' they can be a catalyst for 
encouraging otherwise eligible Medicaid children to obtain primary 
and preventive services as well as other necessary treatment 
services * * * we encourage efforts to inform potential eligibles 
about the Medicaid program and the EPSDT benefit.''

The proposed rule, they believe, will force many States to curtail 
successful school-based initiatives to identify and enroll eligible 
low-income children in Medicaid that were encouraged by CMS itself, 
which is now promulgating a regulation to discontinue funding. Some 
commenters argued the proposed rule is a misguided approach and that it 
contradicts CMS' position that States should enroll eligible children.
    Response: Schools remain a gateway for the delivery of health 
services for many children. As our response to the prior comment 
indicated, the issue is whether school-based administrative activities 
are a proper and efficient methodology for administration of the 
Medicaid State plan. We expect the central role of schools to continue, 
and we expect that many of these school-based administrative activities 
will continue as a normal part of the operation of a school program. We 
also expect that State or local Medicaid agencies will continue 
outreach efforts under their direction and control. This rule simply 
sets forth a clear test for the administrative activities that are 
appropriately claimed as necessary for the proper and efficient 
administration of the Medicaid State plan, and distinguishes those 
activities from the administration of a school program.

Better Guidance Needed

    Comment: Some commenters argued that the solution to evidence of 
improper claiming for costs related to school-based Medicaid 
administration and transportation from home to school and back should 
be increased oversight, enforcement, and/or additional guidance, rather 
than elimination of reimbursement for such costs. They encouraged CMS 
to review the program and identify strategies for eliminating improper 
claiming practices without eliminating reimbursement for administrative 
costs. One commenter stated that ``* * * Numerous alternative solutions 
exist, the most obvious of which is to install safeguards and auditing 
procedures that would eliminate the possibility of such fraudulent 
activity taking place in the future, thereby solving the problem while 
keeping the services intact.'' Many believe that clarifying guidance 
and controls on claiming are better alternatives to promulgating the 
proposed regulation, which was seen as draconian and dismissive of 
medical necessity. They believe the proposed rule is ``* * * an 
overreaction to perceived problems in the past.'' CMS should focus its 
efforts on working with States to ensure proper claiming rather than 
promulgating new regulations. One commenter stated the following: ``If 
CMS eliminates funding for every type of service, activity, or delivery 
system where it identifies inappropriate or even abusive claiming 
practices by some providers, funds would no longer be available for any 
benefits under the Medicaid program today.''
    Response: As described in Section VII of the responses, titled 
Alternatives Considered, we ultimately rejected the types of 
alternatives suggested by many of the commenters because the 
intervening years have proven that administrative activities cannot be 
adequately regulated or overseen within the resource limits available 
to CMS and the States. Plainly stated, we have concluded that it is not 
an effective approach to administration of the Medicaid State plan to 
rely on audits and monitoring to ensure that all claims are allowable.
    Comment: One commenter recommended that ``* * * CMS use its

[[Page 73641]]

rulemaking authority in a more constructive manner by defining clear 
guidance, criteria and limitations'' and suggested applying the results 
of OIG's previous audits of States' school-based Medicaid claiming 
programs to develop better guidance and more effective oversight. That, 
they argue, would preserve the original intent of the program to 
reimburse States for legitimate activities performed by schools in 
support of Medicaid. As an alternative to the proposed rule, some 
suggested that CMS revisit past guidance and improve reporting 
requirements for school and States. One commenter suggested that ``* * 
* Congress and the Administration * * * work together to achieve 
consensus on the appropriate policies and procedures.'' According to 
one commenter, CMS should work with representatives from State Medicaid 
agencies, schools systems, and other interested parties to ``* * 
*resolve questions and areas of confusion'' stemming from the 2003 
Guide, develop clear claiming protocols, and reach consensus on related 
issues. According to some commenters, many of the claiming problems, 
stemmed from differing interpretations of Federal guidelines for 
claiming administrative and transportation costs based on inconsistent 
guidance from CMS Central and Regional Offices, and a lack of detailed 
guidelines on how to implement the programs. Commenters also 
recommended that CMS identify claiming issues in particular States and 
work with the appropriate State agencies to improve those programs 
rather than eliminating reimbursement for programs that are compliant 
with Federal requirements.
    Response: Schools repeatedly complained that CMS guidance and 
oversight was burdensome and added substantially to the cost of 
activities that the schools were undertaking to fulfill their 
educational mission. More fundamentally, however, we disagree with the 
commenters' assumption that the problem is related to Federal 
oversight. Instead, we believe there is an inherent structural conflict 
of interest in commingling school administrative activities with 
Medicaid administrative activities.

Better Data Needed

    Comment: Some commenters believe there needs to be clear set of 
data demonstrating the need to eliminate such reimbursement before the 
proposed regulation takes effect. They asked for data supporting the 
Secretary's finding that school-based administrative activities are not 
necessary for the proper and efficient administration of the State 
plan. One commenter stated: ``[The proposed rule] does not provide 
evidence * * * in the form of an estimated dollar amount of fraudulent 
claims that have continued to occur after 2003.'' These commenters 
requested specific examples of the noted fraud and abuse, and suggested 
a clear, chronological accounting of improper billing is required 
before promulgating new regulations. One commenter urged CMS to ``* * * 
examine thoroughly and report on the current effects of policies 
implementation through'' its 2003 Guide before promulgating new 
regulations. There is no evidence, they note, to suggest that the 2003 
Guide was inadequate.
    Other commenters pointed to the fact that the Senate Finance 
Committee hearings cited in the preamble were held more than five years 
ago, and preceded the issuance of new guidance by CMS in 2003, which 
was intended to improve compliance with claiming requirements. CMS 
should carefully scrutinize current claims for school-based 
administrative expenditures, they argue, which would put the agency in 
a better position to establish regulations to ensure proper claiming.
    Response: Detailed data on school-based Medicaid claiming is not 
available to CMS, due to limitations with respect to reporting 
requirements. Reporting for school-based Medicaid expenditures is 
voluntary; therefore, the data CMS used in calculating the projected 
cost savings may not match actual current spending. The proposed rule 
specifically requested public comment on potential fiscal impact. 
Commenters did not provide any clear data that were at variance with 
CMS assumptions. The limited data of which CMS is aware support the 
findings underlying the final rule.
    Comment: Many commenters found it disingenuous for CMS to use as 
the rationale for the proposed rule OIG and GAO reports regarding 
alleged abuses that occurred in the early 1990s, prior to the issuance 
of any directives or guidelines on school-based Medicaid claiming. 
Furthermore, some commenters argued, these audits only took into 
account an insignificant number of schools, and the findings should not 
be extrapolated to all schools and claiming programs nationwide. Some 
commenters were troubled by ``* * * dubious enforcement actions and 
audits'' that have appeared ``* * * more focused on limiting Federal 
expenditures than improving the appropriateness or effective 
administration'' of the Medicaid State plan. Moreover, one commenter 
contended, the instances of inappropriate billing fall within the low 
to moderate range of similar billing problems elsewhere in overall 
Medicaid claiming. Another commenter noted that the proposed rule does 
not highlight the fact that their have been OIG audits of school-based 
Medicaid administrative claiming programs that did not identify any 
significant claiming errors.
    Commenters highlighted the fact that the proposed rule refers to 
negative audit findings from a few States without indicating the 
prevalence CMS has found such practices among all States. Nor does the 
proposed rule describe the efforts CMS and the offending States have 
taken since those audit to remediate noncompliance. One commenter 
suggested that CMS conduct compliance audits on school-based 
administrative activities that have been conducted pursuant to the 2003 
Guide before promulgating new regulations. As one commenter stated: 
``CMS has not yet fulfilled its own responsibility to conduct 
appropriate, consistent, and complete oversight and to provide reliable 
localized guidance.'' Overall, these commenters believe the negative 
audit findings referred to in the proposed rule do not establish an 
appropriate basis to eliminate a nationwide program.
    Some focused on references in the proposed rule to OIG and GAO 
findings and Congressional concern over the dramatic increase in 
Medicaid claims for school-based costs. They argued that Congress 
expressed more concern for how CMS was administering the program, 
rather than how they were being operated, with the overall conclusion 
from the Senate Finance Committee hearings held in June 1999 and April 
2000 being that there was a need for greater Federal oversight.
    Response: The final rule is not based on any particular audit 
findings; but rather, the overall claiming trends and improper billing 
practices. We disagree with the premise that more Federal oversight 
could address the basic structural conflict of interest in commingling 
school administration with Medicaid administration; there is a strong 
incentive to shift costs to Medicaid for activities that would have 
been performed by schools in the normal course of their operation. As 
important, the activities are not under the supervision or control of 
the State or local Medicaid agency, and are not undertaken for the 
purpose of administration of the Medicaid State plan.
    Comment: One commenter suggested that as an alternative to the 
proposed

[[Page 73642]]

regulation, CMS should consider investing resources from the Medicaid 
Integrity Program (MIP), established in the Deficit Reduction Act of 
2005 (Pub. L. 109-432), to address school-based policy and 
reimbursement concerns and strengthen the integrity of the Medicaid 
program rather than impose a general prohibition on such reimbursement. 
They believe MIP resources could assist State agencies in determining 
when it is reasonable to bill Medicaid and develop cost-effectiveness 
guidelines related to school-based administration and transportation 
services.
    Response: CMS may in the future utilize MIP funding to address 
school-based Medicaid issues. But this approach alone would not be 
sufficient to address the underlying problems with school-based 
administrative claiming and transportation. There is an inherent 
structural conflict of interest in commingling school administrative 
activities with Medicaid administrative activities and, as a result, we 
do not believe an audit approach would be adequate or the most 
efficient use of limited Federal resources in addressing these issues.

Statutory Intent

    Comment: Some commenters argued that the proposed rule contradicts 
the intent of the Medicaid statute and other Federal regulations by 
reversing a policy that made Federal matching funds available for 
transportation provided to children with special health care needs who 
receive health care services while they are at school. Others argue 
that the policy determination underlying the provisions of the proposed 
rule contradicts the Medicaid statute insofar as it allows States 
flexibility in administering their Medicaid plans and collaborating 
with other State agencies. One commenter stated that ``* * * singling 
out children and school districts is an arbitrary application of the 
``efficiency and economy'' tenets central to Medicaid law and the 
administration of the State plan within it.'' Another commenter 
suggested the proposed rule would contradict existing law and 
circumvent Congressional intent were CMS to promulgate the regulations 
without specific legislative guidance.
    A number of commenters focused on the intent of the Medicare 
Catastrophic Coverage Act of 1988 (Pub. L. 100-360), which amended the 
Medicaid statute to allow States to begin receiving Medicaid 
reimbursement for services delivered to Medicaid-eligible children in 
schools pursuant to the IDEA. Therefore, they argue, Congressional 
intent is clear that Medicaid reimbursement should not be refused for 
activities performed in school settings. According to one commenter, 
the proposed rule ``* * * obstruct[s] the Congressional directive 
establishing Medicaid funds to share in the cost of providing health 
care services to children in conjunction with their educational 
program.'' These commenters believe there to be firm legal standing for 
the allowable use of Medicaid claiming for the costs of transportation 
and administration, and that the proposed rule contradicts current law, 
citing section 1903(c) of the Act, which prohibits payment for covered 
services provided pursuant to the IDEA. Historically, they note, 
Congress and the Federal government have encouraged Medicaid to share 
in schools'' costs for meeting the medical needs of students with 
disabilities.
    Some commenters argued that the proposed rule would arbitrarily and 
capriciously reverse legal and historical precedents. They note that 
the underlying statutory basis for such activities has not changed in 
any way, and, as a result, CMS should not seek to reinterpret statutory 
basis to enforce new definitions for necessity and proper and efficient 
administration of the Medicaid State plan.
    Response: Section 1903(c) of the Social Security Act authorized 
Medicaid funding for covered medical services included in an 
individualized education program (IEP) under the IDEA and covered in 
the Medicaid State plan, it does not, however authorize Medicaid 
funding for administrative activities that schools conduct in 
implementing their IDEA responsibilities. As a result, the final rule 
does not contradict the Medicaid statute.
    Nor does the Medicaid statute specifically authorize payment for 
transportation to and from school. Transportation from home to school 
and back is central to the operation of a school program and, as such, 
Federal Medicaid payment will not be available for the transportation 
services to and from school. However, Medicaid payment will remain 
available for direct medical services that might be required under an 
IEP or IFSP in the course of such transportation. For example, if a 
student with a disability needs to be accompanied by a personal care 
attendant or a home health aide during transportation from home to 
school and back, Federal Medicaid payment would be available to the 
extent that the service was covered under the approved Medicaid State 
plan.
    Comment: Some commenters suggested that with the proposed rule, CMS 
is attempting to base policy determination on how a State subdivides 
its functions, which is contrary to the Medicaid statute. The 
distinction in the proposed rule between education and Medicaid 
personnel is in conflict with the Medicaid statute because funding 
cannot be denied based on what arm of the State conducts the Medicaid 
activity, they argue.
    Response: This rule is not based on the way the State subdivides 
its functions, but on the inherent structural problems in commingling 
administrative functions of the Medicaid program with school 
administration.

Secretarial Authority

    Comment: Some commenters believe the Secretary is without authority 
under section 1903(a)(7) of the Act to find that amounts expended for 
administrative activities are not necessary for the proper and 
efficient administration of the Medicaid State plan solely because they 
are carried out by school personnel or staff under the control of a 
school rather by State or local Medicaid agency staff. One commenter 
argued that States are accorded the administrative flexibility in 
operating their Medicaid programs to have reimbursable activities 
performed by school personnel and that the Secretary may not limit that 
flexibility with an unsupported findings that conditions FFP by finding 
certain activities necessary only when carried out by certain 
employees. Furthermore, they argue, CMS cites no authority for 
eliminating FFP completely for all providers in response to adverse 
audit findings related to a few States. The Secretarial finding that 
school-based administrative and transportation are not necessary for 
the proper and efficient administration of the Medicaid State plan ``* 
* * fails to include any analysis of fixed criteria or standards for 
which the Secretary would typically apply to reach that ``not 
necessary'' conclusion,'' according to one commenter.
    Response: Under section 1903(a)(7), of the Act, it is the 
Secretary, not the State, that determines whether amounts expended are 
necessary for the proper and efficient administration of the Medicaid 
State plan. Therefore, it is within the Secretary's discretion to make 
a determination that certain administrative activities (including 
transportation from home to school and back) are not eligible for 
reimbursement. Specifically, section 1903(a)(7) states that Federal 
Medicaid funding is available for administrative expenditures ``as 
found necessary by the Secretary for the proper and efficient 
administration of the State plan.'' In this

[[Page 73643]]

section, the statute explicitly imbues the Secretary with the ultimate 
authority and ability to make such determinations. As a result, we do 
not believe the provisions of the final rule exceed Secretarial 
authority.
    Comment: Some commenters suggested that the activities targeted by 
the proposed rule are specifically authorized by the approved Medicaid 
State plan and that it is the State that should determine whether 
activities are proper and efficient within the approved plan. The 
proposed rule, they argue, would needlessly hinder the ability of 
States to provide essential services in a manner in which it deems most 
effective.
    Response: As a matter of practice, States generally do not include 
reimbursement for administrative services as part of their approved 
Medicaid State plan. The relevant portions of the Medicaid State plan 
as mentioned in the comment describes covered services eligible for 
Medicaid payments and the reimbursement methodologies for those 
services. The rule will not affect medical services as defined in the 
Medicaid State plan nor the States'' ability to offer those services in 
schools.
    Comment: Some commenters questioned CMS' assertion that section 
1903(c) of the Act contains no provision authorizing claiming for the 
costs of school-based Medicaid administration. They argue that because 
section 1903(c) does not specifically prohibit administrative claiming, 
the general practice is (and should be) to allow it to continue under 
current practice unless explicitly forbidden. Because the Medicaid 
statute specifically provides that the Secretary cannot prohibit or 
restrict coverage of Medicaid services simply because those services 
are included in an IEP or IFSP, the Secretary should not be allowed to 
impinge on States' abilities to claim for related costs.
    Response: The rule does not prohibit States from claiming Federal 
matching funds for covered medical services pursuant to a child's IEP 
or IFSP. States may also claim for administrative costs directly 
related to the provision of a medical service, such as billing costs as 
part of the medical service reimbursement. Section 1903(c) specifically 
discusses medical services and does not address claiming for the 
administrative costs associated with the administration of the State's 
Medicaid program. The statute provides the Secretary with considerable 
discretion to determine allowable administrative activities. Under 
section 1903(a)(7), of the Act, it is the Secretary, not the State, 
that determines whether amounts expended are necessary for the proper 
and efficient administration of the Medicaid State plan. Therefore, it 
is within the Secretary's discretion to make a determination that 
certain administrative activities (including transportation from home 
to school and back) are not eligible for Federal Medicaid 
reimbursement.

Reversal of Policy

    Comment: Some commenters argued that the proposed rule represents a 
significant reversal of long-standing policy and a revision of long-
standing Medicaid regulations, policies, and guidance, noting that CMS 
first developed detailed guidance in 1997 regarding school-based 
Medicaid program. Three years later, a report issued by HHS in 
collaboration with the U.S. Department of Agriculture and the U.S. 
Department of Education and cited by many commenters stated that 
schools are a ``natural setting'' for conducting children's health 
insurance program outreach, and that ``State Medicaid and SCHIP 
agencies seeking the best return on outreach investments often find 
that working with schools simplifies targeting audiences, distributing 
information, reaching families, and enrolling children.'' (Report to 
the President on School-Based Outreach for Children's Health Insurance, 
July 2000).
    The proposed rule, they argue, would directly contradict this July 
2000 report, which sought to encourage agreements between States 
Medicaid agencies and schools so that the latter could receive 
financial assistance for administrative activities to enroll eligible 
children. The proposed rule, they argue, would be ``* * * regressive 
and a departure from acknowledged best practices in identifying and 
serving Medicaid beneficiaries.''
    Several commenters cited the 1999 and 2000 Senate Finance Committee 
hearings on school-based Medicaid claiming as a evidence of CMS' 
recognition that schools play an important role in ensuring that 
children receive needed health care services.
    Response: The statute provides the Secretary with considerable 
discretion to determine allowable administrative activities and the 
scope of covered transportation services. Consistent with the 
Administrative Procedure Act, this final rule supersedes prior 
statements and issuances to establish a new policy concerning school 
based administration activities and covered transportation services. 
This final rule reflects careful consideration of years of experience, 
and of the public input provided in the rulemaking process. CMS 
believes this final rule is necessary to maintain the financial 
integrity of the Medicaid program.

Differential Treatment of Schools

    Comment: Many commenters opposed the rule in its entirety because, 
they argued, it reflects a differential, more restrictive treatment of 
schools in comparison to other settings in which the same Medicaid-
related activities are provided and for which funding would continue. 
There is no way to justify the inference in the proposed rule that 
school employees are deemed capable and necessary for the delivery of 
covered services, but are somehow incapable and unnecessary to conduct 
associated administrative activities, according to one commenter. If 
the proposed rule is promulgated, they argue, schools alone would be 
designated as ineligible for reimbursement as a provider of Medicaid 
administrative functions while other entities would remain eligible to 
receive reimbursement as the State Medicaid agency's designee. School 
employees would still be eligible for reimbursement for covered medical 
services, so it is inconsistent to deem them ineligible to conduct 
Medicaid administrative activities, they argue.
    Certain commenters argued that allowable activities should be 
deemed necessary for the proper and efficient administration of the 
Medicaid State plan regardless of who employs the individuals 
performing the activities. The proposed rule, they argue, unfairly and 
incorrectly suggested that a State agency employee public health nurse 
can conduct Medicaid administrative activities, but a school nurse, who 
has the same qualifications, cannot. The proposed rule, they note, 
contains no recognition of the comparable professional qualifications 
of both school and employees and State Medicaid agency employees 
conducting these activities. One commenter noted that it is unfair to 
infer, as the proposed rule does, that only the school-based claiming 
methodology is invalid, while CMS will continue to permit similar 
claiming procedures in various other contexts.
    Response: Under the rule, CMS will continue to recognize schools as 
valid settings for the delivery of Medicaid services. As a result, CMS 
will continue to reimburse States for covered school-based Medicaid 
service costs pursuant to a child's IEP or IFSP. The final rule 
reflects a determination that schools are unique settings, and that 
there is an inherent structural conflict when school administrative 
responsibilities and Medicaid administrative activities are

[[Page 73644]]

commingled that precludes accurate claims. As a result, the final rule 
reflects a conclusion that school-based administrative activities are 
only necessary for the proper and efficient administration of the 
Medicaid State plan when conducted by employees of the State or local 
Medicaid agency.
    Due to inconsistent application of Medicaid requirements by schools 
to the types of administrative activities conducted in the school 
setting, the Secretary has determined that such activities can only be 
properly conducted, overseen and appropriately claimed under Medicaid 
when conducted by employees of the State or local Medicaid agency. 
School staff may continue to perform these types of administrative 
activities. The final rule will merely limit the availability of 
Federal matching funds based on the finding that it is not necessary 
for the proper and efficient administration of the Medicaid State plan 
for school staff to do so. We believe the final rule is necessary to 
maintain the financial integrity of the Medicaid program. The final 
rule does not question the importance of these types of administrative 
activities when performed by employees of the State Medicaid agency and 
still recognizes schools as valid settings for the delivery of Medicaid 
services.
    Comment: One commenter argued that Office of Management and Budget 
Circular A-87 (OMB A-87) contradicts the proposed rule by including 
school districts in its definition of local governments eligible to 
participate in Federal awards. Insofar as school districts are defined 
as units of government, they should not be excluded from Medicaid 
participation in any way. Furthermore, it represents a reversal of 
recent Federal guidance on school participation in Medicaid claiming 
and contradictions of Federal definitions of ``governmental units'' and 
``local governments'' that may participate in Medicaid claiming.
    Response: This rule in no way addresses the status of schools and 
school districts as units of government. OMB Circular A-87 describes 
cost allocation requirements for units of government that receive 
Federal grants and must account for costs associated with those grants. 
OMB Circular A-87 does not, however, supplant the determination of the 
program agency as to the administrative activities necessary for the 
proper and efficient administration of the Medicaid program.
    Comment: Some commenters pointed to Section 5230 of the State 
Medicaid Manual, which requires Medicaid agencies to coor