SUBJECT: Illinois Department of Public Aid

DECISION

On behalf of the state of Illinois (Illinois), the Illinois Department of Public Aid (IDPA) ⁽¹⁾ appealed several disallowances of federal reimbursement issued by the Centers for Medicare & Medicaid Services (CMS). The disallowances concern school expenditures that Illinois claimed as costs of administering its Medicaid program.

Summary

Illinois public schools perform various activities that facilitate or support the delivery of medical care to students enrolled in Medicaid. CMS has determined that a state may, under certain conditions, receive federal financial participation (FFP) for the cost of these school-based activities. One reimbursable activity is Medicaid outreach. According to CMS, the function or purpose of Medicaid outreach is to inform persons who are or may be eligible for Medicaid about the program's availability and about how to enroll in and obtain benefits under the program.

Claims for FFP for school-based administrative activities are typically based on periodic time studies. In these studies school employees use activity codes to identify time spent on Medicaid and non-Medicaid activities. Of concern here are two [Page 2] activity codes created by Illinois -- codes C1 and C2 -- and used to develop the FFP claims under review in this appeal. Illinois' position is that these codes are written to capture time spent on reimbursable Medicaid outreach. CMS determined, however, the activities captured by codes C1 and C2 are performed, not to meet a specific Medicaid objective, but to comply with the "child-find" requirement of the Individuals with Disabilities Education Act (IDEA) and thus are not necessary to administer Illinois' Medicaid program. Based on that determination, CMS issued the challenged disallowances. ⁽²⁾

In this appeal, Illinois bears the burden of showing that the activities reported under activity codes C1 and C2 are "allowable" Medicaid administrative costs and therefore entitled to FFP. The costs are allowable if they are necessary for the proper and efficient administration of Illinois' Medicaid program and are reasonable in amount.

We find that Illinois has failed to demonstrate the allowability of the costs at issue in part because codes C1 and C2 are written to capture activities that cannot, under any accepted definition, be considered Medicaid outreach. By their own terms, the codes primarily cover school-based efforts to identify and refer children who need medical care, children who are, in the words of the codes, "medically at risk." These activities, which Illinois contends are part of a "targeted outreach" strategy, do not fit with the longstanding concept of outreach, which is to inform persons about Medicaid, enroll them in the program, and then assist them in accessing covered services. Furthermore, these activities are primarily directed to children without regard to their eligibility, or potential eligibility, for Medicaid.

Illinois has also failed to show that the activities claimed under codes C1 and C2 are a necessary and reasonable cost of administering its Medicaid program. The record persuades us that Illinois would not engage in these activities but for its IDEA-mandated obligation to identify children with disabilities who need special education and related services. To the extent that its so-called "targeted outreach" strategy encourages Medicaid enrollment of children who need Medicaid-covered health care, or access to Medicaid-covered services, the amount of costs claimed for this purpose under codes C1 and C2 is clearly excessive and unreasonable. Furthermore, schools already have several other [Page 3] methods of finding and enrolling Medicaid-eligible children that do not involve identifying the medical needs of the student population at large. Use of these other outreach methods may be claimed and reimbursed under activity codes other than codes C1 and C2. Finally, while some part of the costs reported under codes C1 and C2 may coincidentally benefit the Medicaid program, Illinois has made no credible attempt to identify and document those costs or to show that they were properly allocated to the Medicaid program as administrative costs. Moreover, regulations require, as a prerequisite for allocating these costs to Medicaid, that the allocation methodology be approved. Since Illinois did not have approval for allocating its C codes to Medicaid, either in whole or in part, it could not reasonably expect reimbursement.

For these and other reasons, we affirm the disallowances in full.

Background

1. Federal reimbursement of state Medicaid expenditures

Medicaid, a program jointly funded by the federal and state governments, provides health care to low-income persons and families. 42 U.S.C. �� 1396, 1396a. Each state operates its own Medicaid program in accordance with broad federal requirements and the terms of its Medicaid state plan. Id. Eligibility for Medicaid is based on financial need. 42 U.S.C. �� 1396a(a)(10), 1396d(a); 42 C.F.R. Part 435.

A state receives federal reimbursement, or FFP, for a share of its Medicaid program expenditures. 42 U.S.C. � 1396b(a). Most Medicaid program expenditures are for "medical assistance." The term medical assistance refers to the broad categories of medical services -- such as hospital inpatient, physician, or nursing facility services -- that a state is authorized to provide (and in some cases must provide) under its Medicaid state plan. 42 U.S.C. � 1396d(a).

In addition to medical assistance expenditures, a state incurs program-related administrative costs. The Social Security Act authorizes FFP for administrative expenditures "found necessary by the Secretary for the proper and efficient administration of the State plan." 42 U.S.C. �� 1396b(a)(2), 1396b(a)(7); see also 42 C.F.R. � 433.15(a)(7).

For most administrative costs, the FFP rate is 50 percent. 42 U.S.C. � 1396b(a). The statute authorizes a higher rate of reimbursement -- 75 percent -- for administrative activities[Page 4] performed by "skilled professional medical personnel." See 42 U.S.C. � 1396b(a)(2)(A); 42 C.F.R. � 432.50(b).

2. School involvement in health care

Like schools in many states, Illinois schools play a significant role in delivering or facilitating the delivery of health care to their students. See IDPA Ex. 8; CMS Ex. 6, at 6-7, 76. School involvement in health care is a consequence of (among things) public health mandates, state participation in various public assistance programs (including Medicaid), and federal requirements relating to the education of disabled children. CMS Ex. 4, at 15-16.

The Medicaid program recognizes that school-based health programs are often an effective and efficient means of promoting program participation, delivering essential medical care, and coordinating the response to children's medical problems. CMS Ex. 6, at 1, 16. Some school-based health care qualifies for Medicaid coverage as Early and Periodic Screening, Diagnostic and Treatment (EPSDT) services. Id. at 14-16. As its name suggests, the goal of EPSDT is to ensure that children's health problems are diagnosed and treated as early as possible before they become complex and more costly to treat. Id. at 14. To help achieve this goal, a state must provide Medicaid-eligible persons under 21 years old with periodic health "screening services" (among other services). 42 U.S.C. � 1396d(r). EPSDT screening services include the taking of a comprehensive health and developmental history, a comprehensive physical and mental health examination, immunizations, and health education. 42 U.S.C. � 1395d(r)(1).

In addition to meeting the medical needs of Medicaid-eligible students, school-based health care may fulfill requirements of the IDEA, 20 U.S.C. � 1400. CMS Ex. 4, at 14, 16. The IDEA requires states to ensure that all children with disabilities (regardless of Medicaid eligibility) "have available to them a free appropriate public education that emphasizes special education and related services designed to meet their unique needs[.]" 20 U.S.C. � 1400(d)(1)(A) (italics added). "Related services" are "developmental, corrective, or other supportive services," such as physical therapy and other medical care, "as are required to assist a child with a disability to benefit from special education." ⁽³⁾ 34 C.F.R. � 300.24(b). [Page 5] The IDEA authorizes federal financial assistance to states to help them carry out the law's requirements. 20 U.S.C. � 1411(a). As a condition of receiving federal IDEA funds, a state must engage in "child-find" activities. 20 U.S.C. � 1412(a)(3). The child-find requirement calls on a state to locate, identify, and evaluate all children with disabilities who are in need of special education and related services. Id.; see also 34 C.F.R. � 300.125. A child-find evaluation involves an assessment of "all areas related to the suspected disability," including the child's health, vision, hearing, social and emotional status, general intelligence, academic performance, communicative status, and motor abilities. 34 C.F.R. � 300.532(g).

For each child (three years and older) identified as disabled, a school must develop an "individualized education program" (IEP), which identifies the "special education and related services and supplementary aids and services to be provided to the child." 20 U.S.C. � 1414(d). A comparable plan, called an Individual Family Service Plan (IFSP), must be created for disabled infants and toddlers. 20 U.S.C. �� 1435(a)(4), 1432(1). Section 1903(c) of the Social Security Act, 42 U.S.C. � 1396b(c), precludes the Secretary of HHS from prohibiting or restricting FFP for medical services provided under the IEP or IFSP when the disabled child is Medicaid-eligible and the services are covered and included in the state's Medicaid plan.

Illinois indicates that the school-based activities at issue here are related to its "School-Based Health Services (SBHS) Program." IDPA Br. at 4. An August 7, 2000 IDPA "provider notice" states that the SBHS Program "has enabled schools throughout Illinois to generate needed funds to meet the health care needs of children who are in special education programs." IDPA Ex. 14.

3. Claiming of school-based Medicaid administrative costs

A state may receive FFP for Medicaid-covered health care -- i.e., medical assistance -- that a school provides directly to a student enrolled in Medicaid. In addition, CMS has determined that some school-based activities may be reimbursed as program-related administrative costs. CMS Ex. 6, at 54. In general, these reimbursable administrative activities are ones that directly support the delivery of Medicaid-covered health care (regardless of whether that care is provided by the school or some other Medicaid provider), facilitate Medicaid eligibility [Page 6] determinations, and inform persons who are eligible or may be eligible for Medicaid about the program and how to obtain Medicaid services. CMS Ex. 4, at 16, 54-69.

FFP claims for school-based administrative costs, like the ones in dispute here, are typically based on periodic time studies. CMS Ex. 4, at 15. A time study identifies and measures time spent by a sample of employees on particular activities. The results of the time study are used to allocate the costs of those activities to different programs or FFP rates. Time study participants record their time using activity codes. These codes typically have a title, a definition indicating when a code should (in general) be used to report an interval of work, and a list of examples of activities that the code is intended to capture.

To help schools develop appropriate and adequately documented FFP claims, and to ensure that FFP is paid only for school-based administrative activities that support the Medicaid program, CMS has developed extensive "administrative claiming" guidelines that inform schools about requirements for Medicaid reimbursement of administrative costs, how to perform a valid time study, and numerous other reimbursement-related issues. See CMS Exs. 4 and 6. In August 1997, CMS issued a publication entitled Medicaid and School Health: A Technical Assistance Guide (1997 Guide). ⁽⁴⁾ CMS Ex. 6. The 1997 Guide states that FFP is available for an administrative cost only if it is for an activity that "directly relate[s] [to] and support[s] the Medicaid state plan[.]" Id. at 56. The 1997 Guide predicted that most schools and school districts would "play a very small part in administrative claiming" because administrative costs are allowable only if directly related to the administration of the Medicaid program, and because a majority of services provided by schools constitute medical assistance (rather than program administration). Id. at 66.

In 1999 and 2000, the Government Accountability Office (GAO) issued reports that documented substantial growth -- from $82 million in 1995 to $469 million in 1998 -- in Medicaid reimbursement for school-based administrative costs nationwide. CMS Exs. 8 and 11. The reports suggested that the increase was due partly to questionable claiming practices, including the use [Page 7] of "loosely defined activity code categories" that did not adequately distinguish Medicaid from non-Medicaid activities, resulting in overstated FFP claims. CMS Ex. 11, at 29.

In response to the GAO findings, CMS undertook to clarify its policies and guidelines regarding Medicaid reimbursement of school-based administrative costs. IDPA Ex. 8. This effort produced the Medicaid School-Based Administrative Claiming Guide (CMS Claiming Guide), which CMS issued in May 2003. CMS Ex. 4. Among other things, the CMS Claiming Guide specifies, in a set of model activity codes, the types of administrative activities that CMS generally considers necessary for the proper and efficient administration of a Medicaid state plan. Id. at 19, 33-35. These activities include Medicaid outreach, the subject of the disallowances here.

4. Medicaid outreach

Medicaid outreach is defined in the CMS Claiming Guide as "activities that inform eligible or potentially eligible individuals about Medicaid and how to access the program." CMS Ex. 4, at 36. "Such activities include bringing potential eligibles into the Medicaid system for the purpose of the eligibility process." Id.

States are required by the Medicaid statute to engage in outreach regarding the EPSDT benefit. 42 U.S.C. � 1396a(a)(43)(A). In particular, the statute requires states to inform all persons under 21 years old who have been found eligible for Medicaid about the availability of EPSDT services and the need for age-appropriate immunizations. Id.

CMS has recognized that schools provide good opportunities for outreach to enroll uninsured children in the Medicaid program. CMS Ex. 6, at 13; IDPA Exs. 8, 9, 13. In addition, CMS has noted that schools "can be a catalyst for encouraging otherwise eligible Medicaid children to obtain primary and preventive services, as well as other necessary treatment services." CMS Ex. 6, at 13.

Outreach is also a key element of the State Children's Health Insurance Program (SCHIP), established under title XXI of the Social Security Act, which provides federal funds to states that institute a program to make available health coverage to uninsured children whose financial resources make them ineligible for Medicaid. 42 U.S.C. � 1397aa. States that participate in the SCHIP program are required to provide "[o]utreach to families of children likely to be eligible for child health assistance [Page 8] under the plan or under other public or private health coverage programs to inform these families of the availability of, and to assist them in enrolling their children in, such a program." 42 U.S.C. � 1397bb. Illinois participates in the SCHIP through a program called KidCare.

5. CMS Claiming Guide treatment of "child-find" activities

The CMS Claiming Guide informs states that child-find activities -- that is, activities to identify children with disabilities who need special education and related services under the IDEA -- are not a reimbursable Medicaid administrative cost because they serve to implement the mandates of the IDEA. CMS Ex. 4, at 30, 66. States are advised to ensure that their administrative claiming methods distinguish child-find activities from Medicaid outreach. Id. at 30.

6. Case background

Between 1999 and 2001, CMS and Illinois had a running discussion about what CMS thought were problems with Illinois' claiming practices regarding school-based administrative costs. CMS Exs. 16-18; IDPA Exs. 10-12, 14-16. One of CMS's concerns was Illinois' use of activity codes that appeared to capture child-find activities. CMS Ex. 16, at 4, 6; CMS Ex. 18, at 7, 12; CMS Ex. 20, at 1; CMS Ex. 23, at 2.

Illinois' position during these discussions was that child-find is a reimbursable Medicaid outreach cost to the extent it involves the identification of disabilities or medical needs in children who are eligible or potentially eligible for Medicaid. CMS Ex. 21, at 6-7. Illinois explained that child-find has both an "educational" component (which might, for example, involve the evaluation of a child's academic performance to determine his need for special education) and a medical component. The medical component -- which Illinois has variously referred to as "medical Child Find," "medical outreach," or "identification and referral" -- is the process of determining what medical services the child needs in order to benefit from special education. Id.

In August 2002, Illinois submitted to CMS for approval its own administrative claiming guide, the Illinois Guide for School Based Health Services Administrative Claiming (Illinois Claiming Guide). IDPA Ex. 17; CMS Ex. 32, at 1. The Illinois Claiming Guide describes how schools are expected to perform the time studies supporting their Medicaid administrative cost claims. The guide contains a set of activity codes that are grouped into four categories. IDPA Ex. 17, at 15. One of these categories is [Page 9] for "[o]utreach activities, performed to inform and identify those in need of medical services who would benefit from the Medicaid/KidCare program." Id.

There are nine codes in the outreach category. Two of these codes are C1 and C2, entitled "Identification and Referral to Access Medicaid/KidCare." ⁽⁵⁾ Both codes indicate that they capture efforts to identify "medically at risk" children "in order to" inform them and their families about Medicaid and about how to access the program. (The full texts of codes C1 and C2 are reproduced in an appendix to this decision.)

In March 2003, CMS approved the Illinois Claiming Guide with two relevant exceptions. CMS Ex. 32. First, CMS denied approval of codes C1 and C2, finding that the "definitions" associated with these codes "generally overlap the Individuals with Disabilities Education Act's (IDEA) Child Find requirements to identify, locate and evaluate all children with disabilities." Id. at 1. Second, in accordance with a November 2002 State Medicaid Directors Letter, CMS informed Illinois that it would reimburse expenditures for school-based "skilled professional medical personnel" (SPMP) at the 50 percent matching rate, instead of at the 75 percent matching rate authorized by section 1903(a)(2)(A) of the Social Security Act. Id. at 2. The latter exception is the subject of a separate but related disallowance appeal, Board Docket No. A-04-10 (et al.), which we refer to as the SPMP appeal. Our decision in the SPMP appeal is being issued concurrently with this one. ⁽⁶⁾

On April 10, 2003, CMS informed Illinois that it was deferring payment of FFP for activities claimed under activity codes C1 and C2. CMS Ex. 34. In response to the deferral, Illinois asserted that the activities described in codes C1 and C2 simultaneously fulfill its responsibility under Medicaid to "maintain an effective program of outreach to identify children with medical [Page 10] needs" as well as its responsibility to conduct IDEA-mandated child-find efforts. CMS Ex. 35. Illinois asserted that both Medicaid and the IDEA require states to provide outreach activities to medically disabled children, and that these "[o]verlapping federal mandates do not negate the responsibilities of either funding source." Id. at 2. Illinois also noted that its claims reflected use of a "discounting" formula that, in its view, fairly apportioned the "medical outreach" activities reported under codes C1 and C2 between Medicaid and the IDEA. Id. This formula, which was never submitted to CMS for approval, discounts the costs reported under codes C1 and C2 by the percentage of students in the school who have IEPs or IFSPs (that is, the plans for providing disabled children with special education and related services). Id.

On December 29, 2003, CMS issued a notice of disallowance for the quarters ending December 31, 2002 and March 31, 2003, stating that "Medicaid is not responsible for covering or paying for 'Child Find' activities that fulfill educational mandates," and that "[p]ermissible activities of Medicaid outreach are allowable and are covered under other activity codes" (that is, codes other than C1 and C2). CMS Ex. 37. The amount of the disallowance was $17,856,112. Illinois appealed the disallowance to the Board, which assigned docket number A-04-58 to the appeal. CMS subsequently issued -- and Illinois appealed -- ten more disallowances of claims based on activity codes C1 and C2. ⁽⁷⁾ The nine additional appeals were consolidated with Illinois' initial appeal for decision.

[Page 11] On May 11, 2005, the Board held an oral argument that addressed issues in both this appeal and Illinois' SPMP appeal. A transcript ("Tr.") of that argument is included in the records of both appeals.

The parties' contentions

In urging reversal of the disallowances, Illinois contends that codes C1 and C2 are written to capture time spent on "targeted" outreach -- that is, outreach aimed at the population of school children with medical needs. Illinois asserts that targeted outreach, sometimes referred to as "medical outreach" in Illinois' briefs and other submissions, is an allowable Medicaid administrative activity and that CMS recognizes it to be an appropriate and effective way to identify children who, by virtue of their medical needs, would benefit most from the Medicaid program.

Illinois also contends that CMS's stated justification for the disallowances -- that Medicaid is not responsible for paying for activities mandated by the IDEA - is legally unsound. Illinois asserts that both the Medicaid statute and the IDEA require Medicaid to pay for activities, like targeted outreach, that support the provision of Medicaid services required by an IEP or IFSP.

Finally, Illinois contends that CMS acted improperly in issuing the disallowances without examining the nature of the activities captured by codes C1 and C2. Illinois asserts that codes C1 and C2 are carefully written to capture only allowable targeted or medical outreach activities, and that time study participants are directed to use other codes to report time spent on non-medical or "education-related" activities unrelated to the assessment of a child's health risk or need for Medicaid-covered services. Illinois also notes that it applies the discounting formula mentioned above to ensure that its FFP claims reflect only medical outreach costs.

In response, CMS contends that codes C1 and C2 capture primarily "medical screening" activities, not outreach, and that the codes operate to shift the cost of IDEA-mandated child-find to Medicaid. According to CMS, the history of the codes, their wording and structure, the manner in which time is allocated under them, and Illinois' own discounting formula support the conclusion that Medicaid is being charged for activities that go beyond what may properly be called Medicaid outreach. In addition, CMS contends that medical screening is not a necessary Medicaid administrative activity, and that the amount of costs [Page 12] claimed is unreasonable or excessive in any event. CMS indicates that its position should be accorded considerable weight given its "experience with skyrocketing school-based administrative costs," the GAO findings of "improper claims and abuse," and the high costs of Illinois' targeted outreach activities. CMS Response Br. at 63.

As indicated, a cost that is incurred ostensibly to administer the Medicaid program is entitled to FFP if it is "necessary" for the "proper and efficient" administration of the Medicaid state plan. 42 U.S.C. � 1396b(a)(7). The Social Security Act vests the Secretary of HHS with discretion to determine what costs meet this requirement. New York State Dept. of Social Services, DAB No. 1537 (1995).

The Board has said that an expenditure is a "necessary" administrative cost if it is --

integral to overall efficient program operation. Thus, "necessary" costs of administration are those that make the program run efficiently in accomplishing what it was intended to accomplish. They need not be indispensable or be the only possible way to reach the objectives, but costs that are tangential or unrelated to the specific goals of the program are not "necessary."

New York State Dept. of Health, DAB No. 1636, at 14-15 (1997).

Office of Management and Budget (OMB) Circular A-87, which establishes uniform federal cost principles and has been made applicable to Medicaid by regulation, ⁽⁸⁾ sets out additional requirements that must be met in order for a cost to be "allowable" (that is, entitled to FFP). A cost is allowable under the Circular if, among other things, it is "necessary and reasonable for proper and efficient performance and administration of Federal awards." OMB Circular A-87, Att. A, � C.1.a. A cost is reasonable "if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost." Id., Att. A, � C.2 (emphasis added).

[Page 13] In addition, a program cost is allowable only if it is "allocable" to that program. OMB Circular A-87, Att. A, � C.1.b. Thus, "when a State incurs administrative costs that benefit both its Medicaid program and other programs, such costs are eligible for federal reimbursement only to the extent that they are allocated to Medicaid pursuant to an approved CAP [cost allocation plan]." Maryland Dept. of Health & Mental Hygiene, DAB No. 1375, at 2 (1992); see also 45 C.F.R. � 433.34; Minnesota Dept. of Human Services, DAB No. 1869 (2003). A cost must be allocated among benefitting programs "in accordance with relative benefits received" by each program. OMB Circular A-87, Att. A, � C.3.a.; Minnesota Dept. of Human Services.

A state or other entity seeking FFP bears the burden of showing that its claimed costs are allowable. New York State Dept. of Health.

In contending that CMS denied FFP for allowable Medicaid outreach costs, Illinois relies principally on the integrity of its activity codes to carry its burden of proof. The Board has held that when a state uses a cost allocation methodology, such as the tools and procedures described in the Illinois Claiming Guide, to identify and assign costs to a federally funded program, that methodology must be structured to ensure that only allowable costs are claimed. New Mexico Dept. of Human Services, DAB No. 211, at 10 (1981) (indicating that a grantee had the "burden of showing that its method of allocation did not result in improper claims for FFP").

The Illinois Claiming Guide adopts what CMS refers to as a "parallel coding structure." CMS Ex. 4, at 21; IDPA Ex. 17, at 9 (indicating, in section 550, that each "claimable" code or group of codes has a "parallel non-claimable" code). In this structure, a time study participant must report a reimbursable Medicaid activity under a code designated for that activity, and report similar activities that are not Medicaid-reimbursable under a parallel non-Medicaid code. For example, referrals of Medicaid enrollees would be reported under a code for Medicaid referrals, while referrals of persons not enrolled in Medicaid would be reported under a parallel code for non-Medicaid referrals. Similarly, the Illinois Claiming Guide instructs time study participants to report Medicaid outreach under codes C1 and C2 (among others) and to report non-Medicaid outreach under other "non-claimable" codes. IDPA Ex. 17, at 8-9 (sections 520 and 550).

Given this parallel coding structure and the Illinois Claiming Guide's representation that codes C1 and C2 are designated only [Page 14] for Medicaid outreach, CMS would be justified in rejecting these codes -- and FFP claims based on them -- if they are written to capture activities that do not constitute Medicaid outreach and if there is no other evidence to establish the allowability of the claimed costs. The parties agree that the core issue in this appeal is whether the codes are written to capture non-outreach or non-Medicaid outreach activity. Tr. at 8, 15-16, 24, 96.

A. Codes C1 and C2 describe activities that do not constitute Medicaid outreach.

The Medicaid statute and regulations do not use or define the term "outreach." Throughout the years, however, CMS has provided consistent definitions of the term in policy statements and guidelines. For example, CMS Regional State Letter No. 29-94, which offered guidance to Illinois and other states about the availability of FFP for school-based administrative activities, states:

Informing all program eligibles about the [EPSDT] benefit, commonly referred to as "outreach," generally includes efforts to convey information to individuals to help them better utilize resources available through Medicaid if they are already Medicaid eligible, or to encourage their application to the program if they are potentially eligible.

IDPA Ex. 2 (italics added).

CMS's 1997 Technical Assistance Guide states that Medicaid outreach includes: "(1) activities to inform or persuade beneficiaries to enter into care through the Medicaid system; and (2) activities to inform or persuade potential beneficiaries to apply for Medicaid." CMS Ex. 6, at 57 (italics added). The recently issued CMS Claiming Guide defines Medicaid outreach as "activities that inform eligible or potentially eligible individuals about Medicaid and how to access the program," including "bringing potential eligibles into the Medicaid system [Page 15] for the purpose of the eligibility process." ⁽⁹⁾ CMS Ex. 4, at 36 (italics added).

In New York State Dept. of Health, the Board examined a State Medicaid Directors Letter that described allowable outreach as an effort "to inform or persuade beneficiaries or potential beneficiaries to enter into care through the Medicaid system." DAB No. 1636, at 10 (italics added). The Board noted that "Medicaid outreach as commonly understood involves seeking out persons or groups who may be eligible for Medicaid to inform them of that possibility in order that they may come in for eligibility determination or may be made aware of Medicaid services available to them." Id. at 6 (italics added). The Board also noted that CMS's consistent position has been that "allowable outreach costs must be for the purpose of promoting services provided by Medicaid to persons who may be eligible for them." Id. at 9. In addition, while discussing a particular CMS-approved outreach campaign aimed at persons who were not then yet enrolled in Medicaid, the Board noted that the term "potentially eligible" generally referred to those who would "likely" be found eligible once their financial status is assessed. Id. at 8 (indicating that the term "'[p]otentially eligible' . . . does not refer to middle-class women who might be eligible someday, if they suffered reverses, but to high-risk [Page 16] groups likely to include many women who would prove presently eligible once screened").

What the foregoing shows is that outreach at its core involves the dissemination of program information -- information about eligibility requirements, enrollment procedures, covered services, and how to obtain those services -- to persons who are enrolled in the Medicaid program or who are likely to be eligible for enrollment. As CMS policy statements make clear, the aim or purpose of outreach is to inform or educate potentially eligible persons about Medicaid for the purpose of promoting, encouraging, or facilitating their participation in the program, or to inform persons already enrolled about covered services and encourage them to make timely and effective use of program services.

At oral argument, Illinois asserted that title XXI of the Social Security Act, which established the SCHIP, provides by analogy a "very sound description of the legitimate outreach activities covered by Medicaid." Tr. at 25-26. Title XXI calls on participating states to perform "[o]utreach to families of children likely to be eligible for child health assistance under the plan or under other public or private health coverage programs to inform these families of the availability of, and to assist them in enrolling their children in, such a program." 42 U.S.C. � 1397bb(c) (italics added). This definition, which indicates that outreach's purpose is to "inform" families about SCHIP's availability and help them to enroll in the program, is entirely consistent with CMS's description or definition of Medicaid outreach.

During its pre-disallowance negotiations with CMS, Illinois explained that its schools use "broad" or "expansive" methods -- such as bulletin boards, brochures, newsletters, and health fairs - to inform the parents of students about the existence of Medicaid, the services available under the program, general eligibility requirements, and how to get help applying for Medicaid. CMS Ex. 29, at 3. But, said Illinois, many families require more intensive or focused outreach services to convince them that their children need Medicaid. Id. Illinois asserted that its experience showed that it is "efficient and effective" for the Medicaid program to focus intensive outreach efforts on "children whose medical needs appear to warrant medical attention and could benefit from enrollment in the Medicaid program." ⁽¹⁰⁾ [Page 17] Id. Illinois explained that this focused outreach strategy -- called "targeted outreach" in the Illinois Claiming Guide - involves two types of activities: (1) observing "behaviors and symptoms" for the purpose of identifying children who need medical attention and therefore might benefit from Medicaid enrollment; and (2) intensive efforts to inform families of those medically needy children about Medicaid and how to obtain needed medical care under the program." ⁽¹¹⁾ Id.

Activity codes C1 and C2, both entitled "Identification and Referral," purport to capture both elements of Illinois' "targeted outreach" strategy. The first element is the identification of children who are, in the code's words, "medically at risk." Code C1 states that it covers time spent "actively identifying potentially at risk children." IDPA Ex. 17, at 18. According to the code, this identification process involves "[o]bserving children who appear to be medically at risk and potentially Medicaid/KidCare-eligible by using the SPMP-designed medical protocol to recognize" their need for physical, occupational, or speech language therapy. Id.

Code C2 also covers identification activities -- specifically the activities of SPMP who:

� "utiliz[e] their medical expertise to identify medically at risk children";

� design strategies or "protocols" to help persons who lack professional medical training identify children "who have specific health care needs, or are potentially at high risk of poor health outcomes"; or

[Page 18] � provide "training" to non-medical personnel "to impart medical expertise necessary to identify medically at-risk children."

Id. at 19.

Although codes C1 and C2 refer to children who are "potentially" eligible for Medicaid, Illinois admitted at oral argument that these activities are directed to children without regard to their Medicaid eligibility or the likelihood that their families meet program eligibility criteria. Illinois stated, in particular, that the identification process is "not confined just to students in, for example the free or reduced lunch program" (whose eligibility criteria are similar to Medicaid's) but covers "any child who exhibits a symptom or a condition that suggests the need for medical care." ⁽¹²⁾ Tr. at 26-27.

The second element of targeted outreach -- informing the families of children whom the school has identified as needing medical care -- is captured by code C1. IDPA Ex. 17, at 18. School employees are instructed to use code C1 "when specifically targeting outreach efforts to inform and enroll children with medical needs." Id. (emphasis added). "Efforts to inform and enroll" include informing children and parents of the benefits of preventive health care, helping children and families use health resources, and assuring that health problems are referred for early treatment. Id.

In particular, code C1 indicates that it should be used to report efforts to inform "targeted" persons - i.e., families of children who have been identified as medically-at-risk -- about the availability of Medicaid, help those children enroll in the program, and inform families who do enroll about the program's [Page 19] services (including EPSDT). IDPA Ex. 17, at 18. It is worth noting here that these informational activities are also captured bby other, CMS-approved outreach codes in the CMS Claiming Guide. For example, code A1, like code C1, covers time spent informing children and families about the Medicaid program and developing and disseminating written program information. See IDPA Ex. 17, at 18 (Code C1, examples 1, 3, and 4); id. at 15-16 (code A1, examples 2, 5-7). In addition, code B1 captures time spent helping families initiate and complete the eligibility determination and enrollment process. Id. at 17.

Illinois asserts that both elements of its "targeted outreach" strategy -- identifying children who are medically at risk, and informing families of those children about Medicaid -- can be considered a Medicaid outreach cost. Tr. at 27. We do not agree. Although the informational activities in code C1 appear to fall within the definition of outreach, the effort to identify children's medical needs clearly does not. ⁽¹³⁾ The latter activity does not involve the dissemination of information about Medicaid or make persons aware of the program. It does not help persons initiate or navigate the enrollment process. Although the process of identifying medical needs may provide certain families with an incentive to enroll in the program and obtain covered services, those activities do not, in themselves, help those persons learn about or access the program. Finally, the medical identification activities do not help Illinois find uninsured children who are likely to be eligible for Medicaid because Medicaid eligibility is, for the most, dependent on financial condition, not health status. 42 U.S.C. � 1396a(a)(10); Schweiker v. Gray Panthers, 453 U.S. 34, 36-38 (1981).

B. Illinois has not shown that the costs captured by codes C1 and C2 are necessary for the proper and efficient administration of its Medicaid program.

Whether the activities described under codes C1 and C2 qualify for FFP ultimately depends on whether they are "necessary" for the "proper and efficient" administration of the Medicaid program. Illinois has not shown that the disputed costs were [Page 20] necessary Medicaid administrative costs. Some of the time captured by codes C1 and C2 is time spent "actively identifying" children who are "medically at risk" without regard to their Medicaid eligibility. Illinois offered no evidence that this activity is integral to the implementation of its Medicaid plan, facilitates or improves plan administration, or is consistent with overall program goals. Although the codes state that the medical identification activities are performed "in order to inform and assist" children and their families get access to Medicaid, Illinois has not shown that such activities are a necessary or effective way to identify eligible children, increase program enrollment, or encourage the use of program services by students already enrolled. The goal of Medicaid is not to identify medical problems in the student population at large, but to provide financially needy children with necessary medical care. New York State Dept. of Social Services, DAB No. 1040 (1989).

Moreover, it appears, on this record, that Illinois' actual purpose in using the C codes is not to implement a Medicaid outreach strategy, but to secure Medicaid financing of IDEA-mandated child-find activities. Child-find requires a state to identify, locate, and evaluate children who, by virtue of their health "impairments" or disabilities, need "special education" and "related services." 42 U.S.C. � 1412(a)(3); 42 U.S.C. � 1401(3) (defining "child with a disability" for purposes of the IDEA). Related services include speech language pathology and audiology services, physical and occupational therapy, psychological services, or other medical care. 34 C.F.R. � 300.24(b). During the child-find process, a state must identify and evaluate all aspects of a child's "suspected disability," including the child's medical condition. 34 C.F.R. � 300.532(g). Codes C1 and C2 capture a significant element of that process by instructing employees to report time spent identifying (or designing medical protocols for identifying) children who need the very kind of services included within the IDEA's definition of "related services" -- including physical, occupational, and speech therapy (all of which are specifically mentioned in code C1). Although code C1 on its face covers some outreach activities -- for example, telling the families of medically at risk children about Medicaid and helping them enroll in Medicaid -- those activities are covered by other CMS-approved outreach codes, an indication that legitimate outreach activities are a secondary or incidental element of code C1.

Additional clues about the codes' actual purpose can be discerned from earlier versions of Illinois' "identification and referral" codes. These earlier versions were more explicit about their [Page 21] coverage of child-find activities and connection with the IDEA. For example, as of October 2000, code C1 and C2 stated that they covered "[a]ctively looking for children with special needs" or children who might be "at risk. CMS Ex. 20, at 9-10 (italics added). Illustrative examples under code C1 included "[c]onducting Medicaid outreach campaigns and activities by assisting in early identification of children with special needs through 'childfind' activities." Id. The examples under code C2 included observations by physical or occupational therapists to identify "disease and disability" not yet identified by other medical professionals. Id. (emphasis added). The current versions of codes C1 and C2 do not use the words "disability" or "disabled," referring only to children who are "medically at risk." But the latter term, which the Illinois Claiming Guide does not define, is broad or vague enough to include children with medical impairments serious enough to warrant special education and related services.

Notwithstanding any lack of clarity, Illinois has made it plain elsewhere that its identification and referral codes are written to capture child-find activity. In a document submitted to CMS in 2001, Illinois indicated that it considers child-find to be a Medicaid outreach cost when it involves the identification of medical needs in children who might be found eligible for Medicaid. CMS Ex. 21, at 5-7. On the other hand, said Illinois, child-find is not a reimbursable Medicaid outreach cost when its purpose is to identify purely "educational" needs. ⁽¹⁴⁾ Id. Illinois' current outreach codes reflect this distinction. Codes [Page 22] C1 and C2 direct the employee to report "education-related activities for child-find" under code C3. Code C3 in turn indicates that it should be used when "identifying and referring children to nonmedical educational, social, or other programs." The implication here is that any "medical-related" child-find activities should be reported under codes C1 and C2.

Illinois reaffirmed this outlook in its response to CMS's deferrals, stating that its child-find and Medicaid outreach were overlapping obligations. CMS Ex. 35, at 1. However, while observation of a child to determine whether the child needs medical services may be a child-find activity, it is not, for the reasons discussed, a Medicaid outreach activity under any accepted definition of that term. Moreover, the fact that an activity is medical in nature, and not educational, does not necessarily make it a Medicaid activity.

If the goal or purpose of Illinois' so-called targeted outreach strategy is to get uninsured children enrolled in Medicaid, Illinois has other readily available means of finding and enrolling Medicaid-eligible children. Several are described in activity codes A1 and B1. IDPA Ex. 17, at 15-17. Others are noted in an October 18, 1999 CMS letter to state Medicaid and SCHIP agencies, and in a July 2000 HHS report entitled School Based Outreach for Children's Health Insurance. IDPA Exs. 9 and 13. None of these other outreach methods require school employees to identify medical needs in the student population at large. The July 2000 HHS report acknowledges the value of targeting outreach efforts to students who need medical care, but indicates that this can be done by, for example, educating all students and identifying uninsured students when they seek medical services or when they interact with the school's medical staff for other reasons. IDPA Ex. 13 (pg. 39-40 of report) (emphasis added). In that approach, outreach occurs not when the child's medical condition is evaluated, as Illinois would argue, but when the school's medical staff capitalizes on its contact with the child to determine the child's insurance status and to inform the parents about Medicaid. ⁽¹⁵⁾

[Page 23] Relying on the declaration of Gretchen Greiser, Illinois asserts that its targeted outreach costs are justified by its unsuccessful experience with other, unsuccessful outreach strategies. IDPA Reply Br. at 14. Greiser, an IDPA Senior Public Service Administrator who oversees Medicaid and SCHIP outreach in Illinois, stated that Illinois tried various forms of what she called "non-targeted" school-based outreach between April 1998 and June 2003. ⁽¹⁶⁾ IDPA Ex. 29. None resulted in significant increases in Medicaid enrollment. Id., �� 3-7. For example, in July 2001, IDPA entered into agreements with 148 school districts to acquire information from student applications for the National School Lunch Program, another financial needs-based program. IDPA received information on 14,381 students and mailed Medicaid program information to 8,000 of them. As a result of this effort, IDPA received only 88 completed Medicaid applications, according to Greiser. Id., � 6.

Greiser stated that "[m]ore applications submitted to the Department are the result of information provided by medical providers [other than schools] than any other source." IDPA Ex. 29, � 9. She also noted that applicants for enrollment in Illinois' medical programs are asked on their applications to indicate where they learned about the programs. Id. According to Greiser, from May 2004 to August 2004, 36% of applicants who answered that question indicated that they learned about the programs from medical providers; 20% of applicants reported learning of the programs from other agencies that administer public assistance programs; 15.6% indicated that family members were their source of information; and 9% reported learning about [Page 24] the programs from the media. Id. Only 7.5% of applicants indicated that they learned of the programs from what Greiser called "general school outreach." Id.

Greiser's testimony does not persuade us that Illinois' targeted outreach strategy, as described in codes C1 and C2, is an effective or efficient way to identify Medicaid-eligible children and enroll them in the program. Although Greiser showed that some of Illinois' outreach campaigns have not generated substantial numbers of new Medicaid enrollees, she did not say that targeted outreach, as described in the C codes, has been any more successful, or that its superior results are worth the additional cost. That additional cost is substantial. For calendar year 2003, Illinois reported expenditures of approximately $47 million under outreach codes A1, B1, and D1. CMS Ex. 2, at 12. Illinois reported twice that amount -- or $95.5 million -- under the two targeted outreach codes, C1 and C2.

Not only is evidence lacking concerning the efficiency of targeted outreach in increasing enrollment, data submitted by CMS strongly suggest that the amount claimed by Illinois for this activity is unreasonable or excessive. In calendar year 2003, the amount claimed under codes C1 and C2 was approximately 5.9 percent of all medical assistance payments made on behalf of school-age children for that year. ⁽¹⁷⁾ If amounts reported under other claimable outreach codes (codes A1 and D1) are included in the computation, this figure jumps from 5.9 to 8.3 percent. ⁽¹⁸⁾ These percentages equal or exceed those for total administrative costs (both outreach and non-outreach) in the Medicaid program [Page 25] nationwide. Historically, administrative costs for the Medicaid program have hovered around five percent of total program costs. See Tr. at 20.

Illinois asserts that a recent federal court decision ⁽¹⁹⁾ indicates that its outreach efforts have been insufficient rather than too extensive. Reply Br. at 15. Even if it is true that Illinois has not committed sufficient resources to Medicaid outreach, that fact does not prove that the costs claimed under codes C1 and C2 were necessary and reasonable for administration of the state Medicaid plan.

Illinois also asserts that CMS and the Board have recognized or admitted that outreach targeted at segments of the population at heightened risk for needing medical care is an effective strategy. IDPA Reply Br. at 13-14. Illinois cites two examples. First, it points to the Board's discussion of a CMS program memorandum that approved FFP for a mass media campaign promoting prenatal care to pregnant women:

The [CMS] memorandum confirmed that FFP was available in outreach programs promoting prenatal care because such campaigns (particularly when targeted to high-risk groups) are "more effective than a Medicaid-only campaign," so long as they provide a hotline "or other means to identify the potentially Medicaid eligible women, and assist them in navigating the Medicaid prenatal care system." The context indicates that such a campaign is more effective in expanding prenatal care to poor pregnant women by bringing them into the Medicaid system, as opposed to a campaign targeting only women already receiving Medicaid.

New York State Dept. of Health, DAB No. 1636, at 8 (citations omitted). Illinois also points to an assertion in CMS's brief that "[t]argeted Medicaid outreach may include, for example, stationing State agency personnel in hospitals so that individuals who present themselves with immediate medical needs may be referred to the agency personnel for information about the Medicaid program and Medicaid eligibility screening." IDPA Reply Br. at 13-14 (quoting CMS Response Br. at 56).

These two examples of targeted Medicaid outreach are, in a key respect, dissimilar to what Illinois is claiming FFP for. In [Page 26] both examples, the reimbursable outreach activity is the provision of program information or eligibility screening to persons who need or may soon need medical care. In the first example, FFP is available for the cost of a media campaign directed at persons who are both likely to need prenatal care and "potentially eligible" -- that is, likely to be eligible -- for Medicaid. In the second example, Medicaid reimburses personnel costs and other costs of providing program information to hospital patients referred by hospital staff. In contrast, under the disputed C codes, Illinois is claiming FFP not only for costs of providing program information to families of children needing medical care, but for the costs of identifying which children in the school population need such care. There is no indication that CMS has ever considered these kinds of identification activities to be allowable Medicaid outreach costs.

Illinois of course is properly concerned with seeing that Medicaid-children who are at risk for medical problems have their conditions evaluated as soon as possible, before those problems become more serious and costly to treat. That is the aim of EPSDT, which covers medical "screening" and other services for Medicaid-eligible school-age children. EPSDT screening services include periodic examinations and other services that aim to evaluate and diagnose medical conditions in children at the earliest possible stage. Given that Medicaid provides these screening services to eligible students, and that states must (by law) inform the families of children who have been found eligible for Medicaid about the availability of EPSDT services, an effort to identify medical needs of children in the student population at large -- that is, without regard to Medicaid eligibility -- does not appear to be a necessary or efficient way to ensure that children with medical problems are evaluated and treated as soon as possible.

Relying on section 1903(c) of the Social Security Act and provisions of the IDEA, ⁽²⁰⁾ Illinois argues that the disallowances [Page 27] must be overturned because they are based on a mistaken assumption that a state may not look to Medicaid to pay for activities, such as child-find, mandated by the IDEA. IDPA Br. at 14-19; IDPA Reply at 3. Although we agree that Medicaid is obligated to pay for certain services mandated by the IDEA, none of the provisions cited by Illinois require Medicaid to provide FFP for administrative costs that fail to meet Medicaid's own reimbursement criteria, as the disputed costs here fail to do. See, e.g., 20 U.S.C. � 1412(a)(12)(B)(i) (requiring public agencies, other than the education agency, to provide "related services" when such agencies are "otherwise obligated under Federal or State law" to do so).

We emphasize that we are making no finding here about the efficacy or allowability of legitimate Medicaid outreach efforts directed at children with medical problems. We find only that codes C1 and C2 capture activities that cannot be considered outreach, and that Illinois has failed to show that the costs claimed under those codes met the requirements for federal Medicaid reimbursement. The history of codes C1 and C2, the fact that activities that fall within CMS's longstanding definition of outreach are covered by other, approved activity codes, and the absence of any data confirming the efficiency or effectiveness of Illinois' targeted outreach strategy in achieving Medicaid program goals -- these and other circumstances persuade us that the disallowed costs have, at best, a marginal benefit to the Medicaid program and that Illinois would not have incurred them but for Illinois' child-find obligations.

To summarize, we conclude that Illinois has failed to establish that the disallowed C code costs are necessary for the proper and efficient administration of Medicaid. Although it is possible that some code C1 costs may be attributable to reimbursable Medicaid outreach activities (i.e., dissemination of Medicaid program information to children who are enrolled in Medicaid or are likely to be eligible), Illinois has made no attempt to identify those costs. We are therefore compelled to uphold the disallowances in their entirety.

[Page 28] C. Illinois did not show that the costs charged to the C codes were properly allocated to Medicaid.

Illinois does not deny that the cost allocation methodology at issue here was not approved by the HHS Division of Cost Allocation (DCA). Regulations in 45 C.F.R. Part 95, subpart E, require DCA approval of public assistance cost allocation plans.

Allocating costs pursuant to an allocation methodology that is not approved constitutes a basis for disallowance. 45 C.F.R. � 95.519. Illinois was asked to address this issue in the oral argument, but gave no convincing reason why DCA approval was not required. Illinois points to the definition of "cost allocation plan" as including only the "State agency costs," but the latter term includes costs "allocated to" the State agency, even if not incurred by that agency. Moreover, the regulations specifically require that a state agency's cost allocation plan include a plan for any local government agency that administers a public assistance program (including Medicaid) under the supervision of the state agency. 45 C.F.R. � 95.507(b)(7); see also OMB Circular A-87, at Att. A., � B.17. and Att. D, � B.2; Tr. at 130-132. If local agencies perform administrative services for a Medicaid agency, they must do so under the supervision of the Medicaid agency. 42 C.F.R. � 431.10; see also CMS Ex. 1, at 31. In any event, Medicaid regulations provide that the "allocation of personnel and staff costs must be based on either the actual percentages of time spent carrying out duties in the specified areas or another methodology approved by CMS." 42 C.F.R. � 432.50(c)(3). Yet, Illinois did not appeal CMS's disapproval of the Illinois plan to charge costs associated with the C codes to Medicaid. See 45 C.F.R. Part 16, App. at D.

The posture in which this case comes to us - as a disallowance, rather than as a cost allocation plan issue - has consequences for our analysis. A cost allocation case could include issues such as what programs benefit from certain activities, whether the proposed methodology equitably allocates the costs, and whether the activity descriptions for costs to be allocated to federal programs are sufficient to ensure that the costs are allowable types of costs under those programs and under the rate category to which they will be allocated.

Revisions made to OMB Circular A-87 in 1995 were intended to clarify cost allocation principles in the situation where an administrative cost benefits more than one cost objective and to distinguish "fund-shifting" (which may be permissible) from "cost-shifting" (which is not). ASMB C-10, the DCA Guide, explains the provisions on allocation of costs according to the [Page 29] relative benefits received and the concept of fund-shifting. �� 2-11 to 2-16. Thus, the mere fact that costs meet a mandate of another program is not enough to establish that they should be allocated to that program in their entirety. In discussing difficulties in determining where one program ends and another begins, the Guide gives some considerations, including: "Would the activity still exist, and thereby result in the same costs being incurred, if one program were terminated?" � 2-14.

In considering the allocability questions raised by this appeal, we agree with Illinois that there may be some activities that a state could engage in that would benefit both Medicaid and IDEA's child-find component. Moreover, as Illinois points out, some of the arguments CMS made here appear to be inconsistent in certain respects with CMS policy statements, particularly with respect to the EPDST program. Also, we do not agree with CMS's characterization of all of the C code activities as pre-IEP services - some medical conditions might be treatable, and not necessarily give rise to a need for special education and related services, for purposes of IDEA. Ultimately, however, Illinois did not develop a record based on which we could determine that some discrete part of the disallowed amount benefitted Medicaid.

CMS is correct that no widespread search for medically-at-risk children would reasonably be undertaken solely for purposes of Medicaid. Although Illinois characterizes the C code activities as "targeted outreach," the problem here from an allocability standpoint is that most of the activities were not in fact targeted, either to Medicaid-eligible or to potentially Medicaid-eligible children.

While some of the specific activity descriptions under codes C1 and C2 refer to "medically at risk children who are potentially Medicaid/Kid Care eligible" or who are "medically needy and possibly eligible for Medicaid/Kid Care enrollment," this is not sufficient to ensure that all of the activities described under the codes were allocable to Medicaid. Some of the activity descriptions refer only to "medically at risk" children. Illinois admits that it did not limit use of the codes to children in a category (such as children eligible for the school lunch program) that would have made it likely they would be Medicaid eligible. Tr. at 26-27. Also, while there are other codes for outreach for educational, social, and other non-medical services, there is no code other than C1 and C2 for costs associated with identifying "medically-at-risk" children. This increases the likelihood that school-based personnel would use these C codes when observing for medical risks children who were [Page 30] not even potentially eligible for Medicaid. Illinois provided no explanation of how such costs would benefit Medicaid.

This raises the question of whether applying an allocation ratio would solve the problem. The ratio Illinois proposed clearly would not, since it would allocate away from Medicaid only those costs associated with children who ultimately are determined to need an IEP under IDEA. This allocation leaves Medicaid paying for observations of some children who are neither eligible (or potentially eligible) for Medicaid - activities that clearly do not benefit Medicaid.

For some types of activities, the ratio of Medicaid-eligible to non-Medicaid eligible children could be used to ensure proper allocation to Medicaid. This not an appropriate option in this case, however. First, as discussed above, Illinois did not show that incurring substantial costs for the activity of identifying medically needy children in order to inform them or their families about Medicaid is allowable as outreach or otherwise. Second, CMS has a legitimate concern about whether merely informing participants in the time study that "education-related" activities should be charged to another code is sufficient, given that the term "education-related" is not defined. Some child-find activities that would be allocable only to IDEA might not be captured by the term "education-related." Third, CMS points out that the time-study included personnel whose specialty is special education or who are support staff for special education pupils. Tr. at 114, citing CMS Ex. 1 and 13. This raises a question about whether observing a child's need for "special education" should be viewed as "education-related." Indeed, drawing a line between what activities relate to medical, as opposed to educational, needs is hardest for children with developmental disabilities. As CMS points out, Illinois understood the need to define activity categories that are clear cut, but did not do so. CMS Br. at 66, n. 25.

In sum, Illinois did not have the required approval for allocating its C codes to Medicaid and has not met its burden to show that either all, or some discrete part, of the costs charged to the C codes were in fact allocable to Medicaid.

[Page 31] Conclusion

For the reasons discussed above, we sustain the disallowances at issue in Board Docket Nos. A-04-58, A-04-87, A-04-91, A-04-124, A-04-138, A-05-5, A-05-39, A-05-104, A-05-114, A-06-14, and A-06-46.

Judith A. Ballard

Cecilia Sparks Ford

Donald F. Garrett
Presiding Board Member

1. Effective July 1, 2005, the Illinois Department of Public Aid changed its name to the Illinois Department of Healthcare and Family Services. Because the initial appeal was filed before July 1, 2005, we refer the appellant by its former name.

2. As specified below, the disallowances relate to expenditures claimed for the quarters between October 1, 2002 and September 30, 2005.

3. "Special education" means "specially designed instruction, at no cost to parents, to meet the unique needs of a child with a disability[.]" 20 U.S.C. � 1401(25).

4. The 1997 guide states that it was "intended to be a general reference summarizing current applicable law and policy and not intended to supplant the Medicaid statute, regulations, manuals or other official policy guidance." CMS Ex. 6, at 8.

5. The other codes are A1, A3, B1, B3, C3, D1, and D3. IDPA Ex. 17, at 15-21.

6. The disallowances in the SPMP appeal implicate three activity codes. One is the outreach code C2; the other two codes - E2 and F2 -- are "case management" codes. The FFP amount in dispute in the SPMP appeal is the difference between reimbursement of Illinois' claims at the 50 and 75 percent matching rates. As explained below, the result of our decision here is to uphold CMS's decision to deny all FFP for claims based on codes C1 and C2.

7. The additional disallowances were for: (1) $7,246,950, reported in Illinois' Quarterly Statement of Expenditures (QSE) for the quarter ending June 30, 2003 (Board Dkt. No. A-04-87); (2) $6,231,690, reported in the QSE for the quarter ending December 31, 2003 (Board Dkt. No. A-04-91); (3) $6,645,743, reported in the QSE for the quarter ending September 30, 2003 (Board Dkt. No. A-04-124); (4) $8,741,411, reported in the QSE for the quarter ending March 31, 2004 (Board Dkt. No. A-04-138); (5) $8,714,038, reported in the QSE for the quarter ending June 30, 2004 (Board Dkt. No. A-05-5); (6) $9,718,235, reported in the QSE for the quarter ending September 30, 2004 (Board Dkt. No. A-05-39); (7) $7,176,315, reported in the QSE for the quarter ending December 31, 2004 (Board Docket No. A-05-104); (8) $10,165,602, reported in the QSE for the quarter ending March 31, 2005 (Board Docket No. A-05-114); (9) $8,127,354, reported in the QSE for the quarter ending June 30, 2005 (Board Docket No. A-06-14); and (10) $7,962,075, reported in the QSE for the quarter ending September 30, 2005 (Board Docket No. A-06-46).

8. See 42 C.F.R. � 430.30(e), 45 C.F.R. � 74.27(a), and 45 C.F.R. �� 92.4(a), 92.20(b)(5), and 92.22(b).

9. Other examples of outreach mentioned in the CMS Claiming Guide include: (1) "Informing Medicaid eligible and potential Medicaid eligible children and families about the benefits and availability of services provided by Medicaid (including preventive treatment, and screening) including services provided through the EPSDT program"; (2) "Developing and/or compiling materials to inform individuals about the Medicaid program (including EPSDT) and how and where to obtain those benefits"; (3) "Distributing literature about the benefits, eligibility requirements, and availability of the Medicaid program, including EPSDT"; (4) "Assisting the Medicaid agency to fulfill the outreach objectives of the Medicaid program by informing individuals, students and their families about health resources available through the Medicaid program"; (5) "Providing information about Medicaid EPSDT screening (e.g., dental, vision) in schools that will help identify medical conditions that can be corrected or improved by services offered through the Medicaid program"; (6) "Contacting pregnant and parenting teenagers about the availability of Medicaid prenatal, and well baby care programs and services"; and (7) "Encouraging families to access medical/dental/mental health services provided by the Medicaid program." CMS Ex. 4, at 36-37.

10. Illinois asserted that "[p]arents are more motivated to enroll their children in Medicaid and obtain needed care if they have a reason to believe the care is particularly necessary for a specific condition," and that many conditions "generally have better outcomes if diagnosed and treated earlier." CMS Ex. 29, at 3.

11. Illinois explained: "[It] is important that schools carry out programs of observing behaviors and symptoms, so that they may identify those children for whom Medicaid enrollment is most critical. Once such children are identified, outreach activities may include personal letters to families (in contrast to form letters), individual telephone calls, including reminder calls about the application process, face-to-face visits, or other methods that will help ensure that children have this available public payment resource that will enable them to access necessary medical care." CMS Ex. 29, at 3 (italics added).

12. Illinois noted later that "most of the schools participating in the program are those that have a substantial number of low- or moderate-income family children. So that there is at least a likelihood or a strong possibility of Medicaid qualification." Tr. at 28. But Illinois presented no data showing that the identification activities described in codes C1 and C2 are aimed mostly at students who are likely to be Medicaid-eligible, or even that there was a strong possibility of Medicaid eligibility among the student population of schools that participate in the SBHS program.

13. In New York State Dept. of Health, DAB No. 1636, the Board indicated that CMS's definitions of outreach reflect a reasonable exercise of CMS's authority under the Social Security Act to determine what costs are necessary for the proper and efficient administration of the Medicaid program. Illinois has given us no reason to question the scope or legitimacy of those definitions.

14. Illinois wrote:

Based on the statutory and supporting administrative rules under both the SSA [Social Security Act] and the IDEA, both the direct provision of necessary medical services and related outreach activities are required under both programs. LEAs must establish broad outreach efforts that encompass many of the same types of activities required of Medicaid agencies under EPSDT. While the Child Find activities under IDEA include activities that may be purely educational in nature, they also include activities that are purely medical and still others that have both medical and educational aspects. It is these medical outreach aspects of Child Find that may be included in an administrative claim under Title XIX.

CMS Ex. 21, at 6.

15. The HHS report encourages schools to take advantage of "teachable moments" to educate families, such as the following:

When a sick child is picked up from the school nurse or other school health care provider or when a child is screened and a referral for a health problem is sent home, the parent is focused on the health of that child and the need for medical care. Information on the importance of health insurance to a child's health and academic performance and the availability of free or low-cost health insurance is more likely to be read and favorably received during such times.

IDPA Ex. 13 (pg. 38-39 of report).

16. These approaches included sending Medicaid information (including information about the enrollment process) home with every student, distributing program information with report cards, and using information from Free and Reduced Lunch program applications to identify children presumptively eligible for Medicaid and providing the families of these children with information packets and a Medicaid application. IDPA Ex. 29, �� 3-7.

17. Illinois introduced evidence that the federal share of its medical assistance payments for school-aged children (ages 5-18) in calendar year 2003 totaled approximately $868.6 million. IDPA Ex. 28, � 3. That same year, the federal share claimed by Illinois for expenditures under code C1 was $33,032,993. CMS Ex. 2, at 12. For code C2, the total federal share claimed for 2003 was $18,319,154. Id. The total for both codes was $51,352,147, which amounts to 5.9 percent of the $868.6 million in federal medical assistance payments made on behalf of school-age children in 2003.

18. Other claimable outreach costs are captured by activity codes A1 and D1. See IDPA Ex. 17, at 15, 20. The total federal share of Illinois' expenditures under codes A1, C1, C2, and D1 for 2003 was $72,307,259, which is 8.3 percent of the federal share of Illinois' medical assistance payments for school-age children in that year. See CMS Ex. 2, at 12.

19. Memisovski v. Maram, No. 92 C 1982, 2004 WL 1878332 (N.D. Ill. Aug. 23, 2004).

20. IDPA cited sections 612(e) and 612(a)(12)(A)(i) of the IDEA. Section 612(a)(12)(A)(i) provides that "to ensure a free public education to children with disabilities, . . . the financial responsibility of each public agency . . . including the State Medicaid agency and other public insurers of children with disabilities, shall precede the financial responsibility of the local education agency (or the State agency responsible for developing the child's IEP)." 20 U.S.C. � 1412(a)(12)(A)(i). Section 612(e) provides, "[n]othing in this chapter permits a State to reduce medical and other assistance available . . . under titles V and XIX of the Social Security Act . . . with respect to the provision of a free appropriate public education for children with disabilities." 20 U.S.C. � 1412(e).

C1. Identification and Referral to Access Medicaid/KidCare (non-SPMP)

All staff should use this activity code when actively identifying potentially at risk children in order to inform and assist the child and their family to access Medicaid/KidCare. This code should be used when specifically targeting outreach efforts to inform and enroll children with medical needs. Education-related activities required for Child Find or for the development of an Individualized Education Program (IEP) are to be reported in Code C3.

Examples include, but are not limited to:

A. Informing targeted children and their families about the availability of Medicaid/KidCare services.

B. Observing children who appear to be medically at risk and potentially Medicaid/KidCare-eligible by using the SPMP-designed medical protocol to recognize:

a. A potential need for physical therapy based on an apparent deficiency in mobility, gait, muscle strength, or posture;

b. A potential need for occupational therapy based on an apparent deficiency in perceptual, sensory, visual-motor, fine-motor, or self-care skills;

c. A potential need for speech/language therapy based on an apparent deficiency in fluency, pronunciation and clarity, or strength of speech muscles.

3. Developing and presenting materials to explain Medicaid/KidCare services that are available to Medicaid/KidCare eligible children when such activities are a part of a Medicaid/KidCare targeted outreach effort.

4. Assisting the Medicaid/KidCare agency to target Medicaid/KidCare outreach efforts by fulfilling objectives of the EPSDT program. Such efforts may include:

a. Informing children/parents of the benefits of preventative health care;

b. Helping children and families use health resources;

c. Assuring that health problems are referred for early treatment, before they become more serious and treatment more costly.

d. Performing clerical duties, paperwork, training, and travel required for Code C1 activities.

C2. Identification and Referral to Access Medicaid/KidCare (SPMP)

SPMPs should use this activity code when utilizing their medical expertise to identify medically at risk children, in order to direct outreach efforts to those who are most in need of medical services. This code should be used when specifically targeting outreach efforts to inform and enroll those children with medical needs.

Education-related activities required for Child Find or for the development of an Individualized Education Program (IEP) are to be reported in Code C3.

An SPMP may only use this code when she is utilizing her medical expertise and use of such expertise is clearly necessary and documented. Activities that reasonably could be delegated to a non-SPMP must be recorded as Code C1, even if those activities were performed by a SPMP. Activities that are integral functions of a direct service, such as preparation of service case notes, consultation with parents, and preparation of routine records, forms and reports, must be reported as Code H3.

Examples include, but are not limited to:

1. Designing strategies to identify children who have specific health care needs, or are potentially at high risk of poor health outcomes. A physical therapist may develop a medical protocol based on a checklist of symptoms and behaviors (deficiency in mobility, gait, muscle strength, or posture), which would be indicative of a child in need of physical therapy. The medical protocol would be used to identify students who are medically needy and possibly eligible for Medicaid/KidCare enrollment. Designing strategies to determine the need for educational services should be recorded as Code C3.

2. As part of a targeted Medicaid/KidCare outreach effort, when no relevant protocol exists, detecting and identifying medically at risk children who are potentially Medicaid/KidCare-eligible.

3. Assisting Medicaid/KidCare targeted outreach efforts by fulfilling objectives of the EPSDT program, including assuring that health problems are diagnosed and treated before they become more serious and treatment more costly. Such activities may only include time when identifying potentially chronic or severe medical conditions.

4. Training provided by skilled medical professionals to non-medical professionals to impart medical expertise necessary to identify medically at-risk children, or training of medical professionals new to the school district.

5. Travel related to this code is reported as Code C1.