Justice Dept. questions Medicaid reimbursements

New York districts worry they'll have to repay funds

5/7/02 – Already struggling with state education funding cuts, school officials in New York are watching with concern a U.S. Department of Justice probe into improper school claims for Medicaid funds.

Depending on the investigation's outcome, some officials fear, the state's cash-strapped school systems could be ordered to repay hundreds of millions of dollars to the federal government–and millions more in fines and penalties.

"New York state schools are struggling enough as it is," says U.S. Sen. Charles Schumer (D-N.Y). "Imagine now, in the face of extremely tough times, if our schools had to find a way to repay the federal government millions of dollars."

The Justice Department probe was sparked by the findings of an audit of three New York school systems–Elmira, Ithaca, and Ogdensburg–by the U.S. Department of Health and Human Services, reports Schumer's office.

According to Schumer, school systems possibly committed technical errors when filing reimbursement claims with a Medicaid program that provides services like speech and physical therapy to special education students.

The state Department of Education interpreted the federal reimbursement rules for local school systems. But Justice Department officials argue the interpretation is wrong and, despite no evidence of intentional wrongdoing, the schools are responsible for paying back the funds.

That hard-nosed attitude has been criticized by state and local education officials, who argue that their students shouldn't be penalized for unintentional mistakes, particularly as they followed state guidelines in good faith. Schumer points out that the federal rules are "extremely difficult to follow" and have been criticized as vague in three separate General Accounting Office reports.

Officials at the Justice Department declined to comment on the investigation, but Schumer has publicly called on department officials to stop threatening to sue school systems.

In a letter to Attorney General John Ashcroft, Schumer also called for a more conciliatory approach to solving the dispute: "Given the fact that problems appear to be endemic to the [Medicaid program] and not to a specific school district, a policy solution in this situation seems to make more sense than litigation."

For now, the issue is unresolved, with ongoing discussions under way among local, state, and federal officials, says Alan Ray, spokesperson for the state Department of Education.

"No school district is in imminent danger of being asked to pay back any money," he says.

That's good news for school systems such as the Ogdensburg City School District, which over several years filed for $800,000 in now-disputed reimbursements, says Superintendent William Flynn. Having to pay that money back out of a $25 million budget would be severely detrimental to the school district's educational program.

The issue in Ogdensburg also is relatively minor, he says. The main bone of contention, it appears, is that the school system hired an outside speech pathologist to supervise its speech therapy program, instead of putting the program under the direction of a school employee.

What alarms some officials is the possibility that the Justice Department will expand its investigation statewide. In January, the state Department of Education issued instructions to all New York school districts to preserve their records for federal review.

That raises the prospect that as much as $2.2 billion in reimbursements statewide could be called into question. That's a huge amount at any time but is particularly disturbing this year when the state is facing a $1.2 billion deficit–and school systems rely heavily on state funding, says Jay Worona, general counsel for the New York State School Boards Association.

Worona says he hopes Schumer's intervention will prompt a sensible resolution to the dispute. If not, he questions whether other states could soon have cause to worry about the Justice Department's actions.

"There's no reason to suspect, given the attitude our three school districts have encountered from the federal government," that the probe will stop at New York's boundaries, he says. "It could be scary for all school districts in the country."