Medicaid and Third Party Payments in the Schools

(reviewed October 2005)

This section is intended to:

  • facilitate an understanding of the Medicaid program in relation to reimbursement for audiology and speech-language pathology services provided in schools and
  • ease the administrative burden that is often associated with this process.

Although the federal requirements for the Medicaid program apply in all states, Medicaid is administered jointly by the federal and state governments and each state has its own unique rules. This results in coverage of speech-language pathology and audiology services that can vary considerably from state to state. States are given latitude in implementing federal Medicaid requirements so they can best meet their state's needs. Contact the Medicaid Office in your state or your State Association for details.

Currently, the audiology and speech-language pathology services covered by Medicaid may include those that are identified in the child's Individualized Education Program (IEP) or Individualized Family Service Plan (IFSP). The inclusion of services in an IEP or IFSP does not guarantee coverage by Medicaid. By the same token, if services are not included in the IEP or IFSP, it does not mean that Medicaid will deny coverage.

On this page:

Overview of Federal Policies

There are numerous federal policies which clarify that state departments of education and individual school districts are authorized to bill third-party payers to help defray the expenses of providing a free, appropriate education to children with disabilities.

The Individuals with Disabilities Education Act (IDEA)

(PL 94-142) or Part B requires all children with disabilities be provided a free, appropriate public education at no "cost" to the parents. The Part B regulations interpret "cost" as not only "out of pocket" expenses but also reduction in lifetime benefit.

The 1999 final regulations on 1997 IDEA (34 CFR 300.142) state:

  1. If a child is eligible for services through a non-educational public agency (i.e., State Medicaid Agency) and receives those services in an educational setting, the non-educational public agency (i.e., State Medicaid Agency) is financially responsible. For those children eligible for services under Part B and also eligible for services through a non educational public agency (e.g., State Medicaid Agency), the local education agency (LEA) or the State Education Agency (SEA)agency responsible for developing the child's IEP is the "payor of last resort."
  2. If a public agency other than an educational agency (e.g., State Medicaid agency), fails to provide or pay for the special education and related services, the LEA (or SEA responsible for developing the child's IEP) shall provide or pay for these services in a timely manner.

    The LEA or SEA may then claim reimbursement for the services from the non-educational public agency (e.g. State Medicaid Agency) that failed to provide or pay for these services and that agency shall reimburse the LEA or SEA in accordance with the terms of an interagency agreement.
  3. For children with disabilities who are covered by public insurance:
    • A public agency (LEA or SEA) may use the Medicaid or other public insurance benefits in which a child participates to provide or pay for services required under Part B.
    • With regard to services required to provide a free, appropriate education to an eligible child, the public agency (LEA or SEA):
      • May not require parents to sign up for or enroll in public insurance programs in order for their child to receive a free, appropriate education under IDEA, Part B;
      • May not require parents to incur an out-of-pocket expense such as the payment of a deductible or co-pay amount incurred in filing a claim for services provided; and
      • May not use a child's benefits under a public insurance program (e.g., Medicaid) if that use would:
        • decrease the available lifetime coverage,
        • result in the family paying for services that would otherwise be covered by the public insurance program,
        • increase premiums or lead to the discontinuation of insurance, or
        • risk loss of eligibility for home and community based waivers.
  4. For children with disabilities who are covered by private insurance:
    • With regard to services required to provide a free appropriate education to an eligible child, a public agency (LEA or SEA) may access a parent's private insurance proceeds only if the parent provides informed consent.
    • Informed consent must be obtained each time the public agency (LEA or SEA) proposes to access the parent's private insurance proceeds. The agency must also inform the parents that their refusal to permit the public agency to access their private insurance does not relieve the public agency of its responsibility to ensure that all required services are provided at not cost to the parents.
    • If the public agency (LEA or SEA) is unable to obtain parental consent to use the parent's private insurance, or public insurance when the parent would incur a cost for a specified service, to ensure free appropriate education, the public agency (LEA or SEA) may use its IDEA, Part B funds to pay for the service. The public agency may use its Part B funds to pay the costs the parents otherwise would have to pay to use the parent's insurance (e.g., the deductible or co-pay amounts).

Medicare Catastrophic Coverage Act (PL 100-360)

In 1988, as a result of the Medicare Catastrophic Coverage Act, Medicaid was authorized by Congress to reimburse for IDEA-related medically necessary services for eligible children before any IDEA funds are used. This amendment was enacted to ensure that Medicaid would cover the health-related services under IDEA. Although Medicaid must pay for services before (or primary to) the U.S. Department of Education (U.S.Ed.), it pays secondary to all other sources of payment. As such, Medicaid is referred to as the "payer of last resort."

Health Related Services

The Medicaid program can pay for some of the health related services required by Part B of IDEA in an IEP, if they are among the services specified in Medicaid law. Examples of such services include physical therapy, speech-language pathology services, occupational therapy, psychological services, and medical screening and assessment services. Medicaid also covers many of the health-related services included in an IFSP. Additionally, the services must be included in the state's Medicaid Plan or available through the Early and Periodic Screening Diagnosis and Treatment (EPSDT) benefit. EPSDT is Medicaid's comprehensive and preventive children's health care program geared toward early assessment of children's health care needs through periodic examinations.

Health-related services covered under an IEP/IFSP are still subject to the Medicaid requirements for coverage of services including amount, duration, scope, comparability, medical necessity, prior authorization, and provider requirements. Often, the medical necessity-requirement and the prior authorization requirement place a cumbersome burden for schools in claiming reimbursement for health-related services in an IEP/IFSP. While some states deem prior authorization to be based on the IEP/IFSP and also use the IEP/IFSP to establish medical necessity, these services must meet all of the requirements for Medicaid coverage.

Medicaid Billing in the Schools

The Medicaid program recognizes the importance of school-based health services in the delivery of essential medical care to eligible children, and allows states to use their Medicaid programs to help pay for certain health services delivered to children in the schools. These services include speech-language pathology and audiology.

In 1997, the Centers for Medicare and Medicaid Services published a guide, Technical Assistance Guide on Medicaid and School Health, to provide information and technical assistance regarding specific Federal Medicaid requirements associated with implementing a school health services program and seeking Medicaid funding for school health services. Some states have developed additional guidance materials for their school based providers.

The issue of Medicaid billing is especially problematic because schools are not well acquainted with

  • operating as medical service providers or
  • the specific Medicaid requirements associated with seeking reimbursement for Medicaid-covered services.

Additionally, the requirements that Medicaid does not reimburse for free care and that payment must be sought from any liable third party are two separate principles for Medicaid billing that are distinct and often confused.

Free Care

Medicaid funds may not be used to pay for services that are available without charge to everyone in the community. For example, if all children in a school receive free hearing evaluations, Medicaid can not be billed for those hearing evaluations provided to Medicaid recipients.

For the purposes of provision of school-based health services, there are two exceptions to the Free Care rule:

  1. IDEA-Section 1903 (c) of the Social Security Act prohibits the Secretary of Education from refusing to pay or otherwise limiting payment for services provided to children with disabilities, which are funded through IDEA under an IEP or IFSP. Under these circumstances, Medicare is the primary payer to the U.S. Ed. As such, Medicaid-covered services provided under an IEP or IFSP are exempt from the free care rule. This means that providers may bill Medicaid for Medicaid-covered services provided to children under IDEA even though they may be provided to non-Medicaid eligible children for free. However, the requirements to bill all liable third parties for services still apply. Therefore, although the services would be exempt from the free care rule, the school would still have to pursue any liable third party insurers for reimbursement.
  2. Title V-Title V of the Social Security Act is the Maternal and Child Health Services Block Grant, which provides a lump sum of funds to states for the provision of health services and related activities to reduce infant mortality, preventable diseases, and access to necessary health services. Medicaid-covered services provided by Title V are exempt from both the free care rule and the policy of Medicaid as the payer of last resort in that Medicaid will pay before Title V for Medicaid-covered services. Again, the school would still have to pursue any other liable third party insurers for reimbursement before billing Medicaid.

Third Party Liability

Under Medicaid law and regulations, Medicaid is generally the health payer of last resort. The Congress intended that Medicaid, as a public assistance program, pay for health care only after a beneficiary's other health care resources have been exhausted.

Many third-party payers have specified in their policies, non-coverage of services available in schools through IDEA. As a result, reimbursement denials persist for services provided to children in the schools, despite federal policies authorizing state education departments and individual school districts to bill third-party payers to help defray the expenses of providing a free, appropriate education to children with disabilities.

Under IDEA, children are entitled to a free and appropriate public education. Therefore, schools' policies regarding health insurance billing and the potential for an associated cost to the family determine whether a school would actually choose to bill private insurers for services covered under an IEP or IFSP. U.S. Ed. cannot compel parents to file an insurance claim if filing the claim would pose a realistic threat that the parents of a child with a disability would suffer a financial loss not incurred by similarly situated parents of other children. The private insurance of parents cannot be billed for IDEA services unless the parents agree to such a cost. Because third party liability requires Medicaid to be the payer of last resort and pay only after private insurance, Medicaid can not be billed for the IDEA services either.

Are Services Medical or Educational?

Health Claims

State governments use Medicaid to fund speech-language pathology and audiology services provided to Medicaid-eligible children in schools, which implies that the services are medically necessary. Each state has the authority to develop its own criteria on what constitutes medical necessity. In addition, speech-language pathologists and audiologists may wish to reference ASHA's  medical necessity webpage. Medicaid regulations require that all medically necessary speech, language, and hearing services and related devices be covered under the Early and Periodic Screening, Diagnosis and Treatment Program (EPSDT).

According to reports from the General Accounting Office, CMS failed to provide adequate direction to states on Medicaid reimbursement for school services. Services provided in the schools may be clinical in nature.

The United States Supreme Court [Bowen v. Massachusetts U.S., 108 S. CT 2722 (1988)] ruled that the inclusion of a service in a child's IEP does not automatically render the service as educational rather than medical. The Court's opinion upheld a 1995 Massachusetts district court opinion that the determination of whether a service is educational should rest on the nature of the service and not on the State's method of administering the service.

Administrative Claims

Under the Medicaid program, the State agency is reimbursed for the administrative costs of providing eligible services in the schools. Medicaid-reimbursable related activities performed by school districts and schools may include items such as Medicaid outreach, eligibility intake, information and referral, coordination and monitoring of health services, and interagency coordination. Detailed information on those services that may be claimed properly as administrative can be found in CMS's Administrative Claiming Guide [PDF].

Office of Inspector General Reports

In recent years, the states' administration of Medicaid school-based health services has fallen under the scrutiny of both the Centers for Medicare and Medicaid Services (CMS) and the Office of Inspector General (OIG). Since 1999, over 20 states' Medicaid school-based programs have been audited to ensure compliance with federal rules and regulations. While these reports did not look at speech-language pathology services specifically, the investigations did find in some cases that speech-language pathology services were not being provided in accordance with federal regulations and guidelines. Each of the audits concluded with a recommendation for refund of federal payment for uncovered services. The OIG has announced that it will continue its evaluation of Medicaid school-based services. ASHA has prepared an analysis of the reports [PDF] that specifically mention speech-language pathology services.

Qualified Provider

Both schools and individual practitioners within schools may be certified as Medicaid providers if they meet federal and state provider qualifications. School districts sign a provider agreement that enrolls it with the State's Medicaid program. The agreement establishes the rate of payment, the protocol for submission of bills, privacy issues, and other details.

In order for Medicaid to reimburse for speech-language pathology and audiology, federal regulations require that the services be provided by or under the direction of a qualified provider.

Medicaid regulations [42 CFR 440.110 (c)] define a qualified speech-language pathologist as:

  • A speech pathologist is an individual who:
    • Has a certificate of clinical competence from the American Speech and Hearing Association (sic);
    • Has completed he equivalent educational requirements and work experience necessary for the certificate; or
    • Has completed the academic program and is acquiring supervised work experience to qualify for the certificate.

Medicaid regulations define a qualified audiologist as an individual with a master's or doctoral degree in audiology that maintains documentation to demonstrate that he or she meets one of the following conditions:

  • The State in which the individual furnishes audiology services meets or exceeds State licensure requirements in paragraph (c)(3)(ii)(A) or (c)(3)(ii)(B) of this section, and the individual is licensed by the State as an audiologist to furnish audiology services.
  • In the case of an individual who furnishes audiology services in a State that does not license audiologists, or an individual exempted from State licensure based on practice in a specific institution or setting, the individual must meet one of the following conditions:
    • Have a Certificate of Clinical Competence in Audiology granted by the American Speech-Language-Hearing Association.
    • Have successfully completed a minimum of 350 clock-hours of supervised clinical practicum (or is in the process of accumulating that supervised clinical experience under the supervision of a qualified master or doctoral-level audiologist); performed at least 9 months of full-time audiology services under the supervision of a qualified master or doctoral-level audiologist after obtaining a master's or doctoral degree in audiology, or a related field; and successfully completed a national examination in audiology approved by the Secretary.

Some state Medicaid programs seek to significantly lower the standards for school-based speech-language pathologists and audiologists. CMS has not made a final decision on this issue, but may attempt to provide states with flexibility. ASHA supports provider standards for school-based Medicaid services that are equivalent to ASHA certification.

"Under the Direction of" an Audiologist or Speech-Language Pathologist (Supervision)

Medicaid speech-language pathology and audiology services can be provided by or under the direction of a qualified provider. CMS, in its final rule on audiology provider qualifications, outlined its expectations of how services should be provided under the direction of a qualified provider. Although the regulations pertain to audiology, CMS has made it clear that the directives also apply to speech language pathology services.

The final rule states: services provided "under the direction of'' an audiologist means that the federally qualified audiologist is directing audiology services, and must supervise each beneficiary's care. To meet this requirement

  • the qualified audiologist must see the beneficiary at the beginning of and periodically during treatment, be familiar with the treatment plan, have continued involvement in the care provided, and review the need for continued services throughout treatment.
  • The supervising audiologist must assume professional responsibility for the services provided under his or her direction and monitor the need for continued services. The concept of professional responsibility implicitly supports face-to-face contact by the qualified audiologist at least at the beginning of treatment and periodically thereafter. Thus, audiologists must spend as much time as necessary directly supervising services to ensure beneficiaries are receiving services in a safe and efficient manner in accordance with accepted standards of practice.
  • To ensure the availability of adequate supervisory direction, the Supervising audiologists must ensure that individuals working under their direction have contact information to permit them direct contact with the supervising audiologist as necessary during the course of treatment.
  • The terms of the audiologist's employment must ensure that the audiologist is adequately supervising any individual providing audiology services.
  • In addition to the supervisory requirements described above, employment terms should provide for supervisory ratios that are reasonable and ethical and in keeping with professional practice acts in order to permit the supervising audiologist to adequately fulfill his or her supervisory obligations and ensure quality care.
  • In all cases, documentation must be kept supporting the qualified audiologist's supervision of services and ongoing involvement in the treatment services. Because Medicaid law requires that documentation be kept supporting the provision and proper claiming of services, appropriate documentation of services provided by supervising audiologists, as well as services performed by individuals working under the direction of a qualified audiologist, are necessary. Absent appropriate service documentation, Medicaid payment for services may be denied providers.

ASHA recently published a technical report and position statement to assist members in understanding their supervisory responsibilities when individuals are working under their direction.

Augmentative or Alternative Communication (AAC) Devices

An evaluation for the selection and fitting of an AAC device as well as training in the use of the device is covered for all Medicaid-eligible children under EPSDT. Medicaid coverage of these services for adults varies from state-to-state. AAC devices are covered as durable medical equipment (DME) as are device repairs after the warranty expires.

The speech-language pathologist's report as well as a physician's referral is required to submit a claim to Medicaid for payment of an AAC device. The claim, which is submitted by the manufacturer, must be filed for "prior approval" before the device is delivered to the client.

In most states, there are no co-payments required of beneficiaries under Medicaid. For those states that do require a co-payment by the beneficiary, it is minimal.

Hearing Aids and Assistive Devices


In addition to being eligible for the Medicaid services offered under a state Medicaid program, children under the age of 21 are entitled to services under the mandatory Federal Medicaid Benefit, EPSDT ( see Health Related Services). One of the required EPSDT services is hearing services, which is defined as "...diagnosis and treatment for defects in hearing, including hearing aids."

If a state does not cover an optional service under its state plan, such as occupational therapy, the State would have to make medical assistance available for the service when furnished to a child eligible for EPSDT, if the occupational therapy is medically necessary.

To determine whether or not a state Medicaid plan includes optional coverage for hearing aids and assistive devices, it is recommended that you contact your state Medicaid office.


Under Part B and Part C (formerly known as Part H): Assistive Technology (34 CFR300.4-6; 34CFR303.12), if assistive technology devices and services are necessary for a child with a disability in order to receive a free and appropriate education; the public agency must ensure that they are made available.

An assistive technology device is defined as "any item, piece of equipment, or product system, whether acquired commercially off the shelf, modified, or customized, that is used to increase, maintain, or improve the functional capabilities of children with disabilities."

Assistive technology services are defined as "any service that directly assists a child with a disability in the selection, acquisition, or use of an assistive technology device.


In 1994, the ASHA Council on Professional Ethics (now known as the Board of Ethics) published a statement, Misrepresentation of Services for Insurance Reimbursement, Funding, or Private Payment to focus attention on the importance of presenting information accurately and honestly to the person served, the person's family, third-party payers, and funding sources. Although the statement only addresses the ethical aspects of this issue, various state and federal programs, both civil and criminal, also regulate insurance fraud and misrepresentation.

Health Insurance Portability and Accountability Act (HIPAA)

Audiologists and speech-language pathologists must become familiar with the requirements of the Health Insurance Portability and Accountability Act (HIPAA). Specifically, the privacy rule and the electronic data interchange (EDI) standard as they apply to all health care providers bill electronically or use a clearing house for billing.

In October 2001, ASHA met with the Office of Health and Human Services, Office of Civil Rights to discuss HIPAA's privacy rule and EDI standard and how the regulations effect school-based providers.

The highlights of the discussion were:

  • HIPAA defers to the Family and Educational Rights Privacy Act's (FERPA's) definition of educational record. A primary or secondary student's medical record created by the school system is part of their educational record. Any information contained in this record is covered under FERPA. It is not protected health care information under the HIPAA privacy rule. In addition, the providers are not covered entities under HIPAA's privacy rule.
  • An independent provider contracting with the school system who maintains an electronic record of services is a covered entity and must maintain records in compliance with HIPAA's privacy rule.

ASHA has additional information on HIPAA.

For additional information on federal or state Medicaid program(s), visit the CMS website. You may also contact

ASHA Corporate Partners