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Special Education

An Open Door to Increased Medicaid Revenue in Schools: School-Based Medicaid Expansion through Free Care

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If you feel like you’ve just gotten a handle on the complexities of billing for Medicaid in schools, there’s good news and there’s bad news.

The bad news:

There’s a change coming for Medicaid billing in schools, and you may need to learn a new set of processes and requirements.

The good news:

This change opens the door for expanded Medicaid revenue and better mental health care for students (worth the hassle!).

School-based Medicaid expansion through Free Care: what is it?

As you know, it has long been the standard that only students with an Individualized Education Plan (IEP) or Individualized Family Service Plan (IFSP) are eligible for Medicaid billing in schools. But in 2014, the Centers for Medicare & Medicaid Services (CMS) issued a letter to Medicaid directors that implemented a modification to the Free Care Rule known as the free care policy reversal. Per this letter, School-Based Medicaid programs can cover any student with a plan of care, not just students with IEPs and IFSPs specifically.

If this happened in 2014, why are you just now hearing about it? After several years of very slow adoption, the expansion of Free Care is finally gathering steam and possibly coming to your state – if it hasn’t already – so now is the time to prepare for it.

What difference could it make for your schools?

Because this guidance allows School-Based Medicaid programs to cover more students, it carries the potential for collecting more federal funding for school districts.

For instance, there may be Medicaid-enrolled students in your schools already receiving services for mental health, substance use, oral health, occupational therapy, physical therapy, speech therapy, and more.1 Whereas these services have historically only been eligible for Medicaid billing if tied to an IEP, in many states they are now eligible for Medicaid billing as long as there is an established Plan of Care – no IEP necessary! Without increasing the services provided to students, your schools have an opportunity for increased Medicaid revenue.

Schools may also have an opportunity for increasing services offered, especially in the area of mental and behavioral health. Because these services are more likely to be offered in crisis situations apart from the formalized documentation of special education, they could easily fall through the cracks of the Medicaid billing process. But districts who take this chance to standardize a Plan of Care for all services provided to Medicaid-enrolled students can now bill Medicaid for those services and use the funding to offer expanded support to students in need – no small matter, given the rising mental health needs of school-aged children in recent years.

It’s a win-win situation: more services offered to students and increased federal funding for schools. So how do you make it happen for your school? What do you need to do?


Confirm your state’s status

First, you’ll need to confirm where your state is in the process of rolling out the Free Care Expansion.

If your state does not yet have free care, these definitions may be helpful to you:

  • State Medicaid Plain (SMA): A comprehensive written state plan for Medicaid administration to be approved by CMS; serves as an agreement for how states will run their Medicaid programs.
  • State Plan Amendments (SPA): To implement changes to the existing SMA, states can submit a SPA to CMS for approval.
  • Managed Care Contract Policies (MCCPs): Contracts between the state agency and managed care entity, or requests for proposals for contracts; issues by state agencies. With the purpose of managed care organizations for contracts to provide Medicaid services.

Status of Free Care Expansion by State-Frontline Education

Master eligibility requirements for your state

While eligibility requirements will vary from state to state, as with other aspects of Medicaid, students need to meet the following minimum qualifications in order to be covered by expanded school-based Medicaid:

  • Students who are enrolled in Medicaid
  • Service providers are covered in the state plan
  • Services are provided by a provider who meets the state plan qualifications2
  • Billing procedures comply with the state requirements
  • Services are provided under a formal Plan of Care which establishes medical necessity for treatment

The Plan of Care requirements will also vary by state, but common Plan of Care requirements include:

  • Start date and end date
  • Goals and/or objectives
  • Duration and frequency of service
  • Diagnostic/treatment code
  • Medical grade signature



Examine district processes

Successfully implementing expanded Medicaid billing may ultimately come down to one thing: consistent, audit-proof practices that are implemented district wide. As you prepare for the implementation of expanded Free Care, these are areas to consider.

Plans of Care: Develop a district-wide, consistent process for both creating a Plan of Care and validating the existence of Plans of Care for any given service. As you do, consider:

  • A standard Plan of Care should meet common requirements for all therapy and health services.
  • All 504, RTI, and other service plans should include Plan of Care requirements.
  • Staff should be trained in Plan of Care writing.
  • Billing should include a system to record Plan of Care validations.
  • Your method of signature (e.g., electronic signature) must comply with your state’s requirements.

Session Notes: Your standard processes for session notes will need to be expanded to include students who do not have IEPs:

  • Update your policy and procedures to make documentation universal for all students, not just those with IEPs and/or IFSPs.
  • Train staff to ensure that newly eligible service providers understand the rules and regulations, including Medicaid-level supervision requirements.
  • Start the process of logging transportation for a smooth transition if/when this service area becomes billable.

Parental Consent: As with session notes, your policy and procedures for collecting parental consent have possibly been limited to IEPs. Ensure that they are modified as needed:

  • Ensure your parental consent form includes all school-based health services and you have a process for validating for IEP parental consent and universal parental consent.
  • Consider when in your special education process parental consent is obtained. If it is collected at the IEP Meeting, consider moving it to an earlier stage in the process in order to bill for evaluations and for additional programs, such as 504.
  • Develop a procedure for collecting parental consent for students not in the special education process.
  • Work with your vendor to establish parental consent in multiple types of programs, not just special education.


Hand-picked content for you:

Navigating Parental Consent for Medicaid


Records and Documentation: While a system for documenting and recording student information goes beyond the area of Medicaid, it is essential to a functional Medicaid program. In the case of an audit, your schools must be able to produce compliant documentation – which means it needs to exist and be accessible.

  • Ask yourself…Does your district have a universal documentation system? What is the process to ensure documentation is timely and complete? Where are paper records stored? Is there a process to digitize paper records that can be associated to specific students? How long does your vendor retain records? What is the process to obtain data if you switch vendors?
  • Ensure newly eligible providers understand what is required of them, from new NPI requirements to supervision logs to additional licensure records.
  • Is your system or vendor up to date with rules and regulations per the expansion? Does your Medicaid program properly validate for all plans of care? Does it distinguish between parental consent for IEP and parental consent for all services?


Hand-picked content for you:

Best Practices for Service Documentation



Schools who do the up-front work required to establish efficient Medicaid processes will find that the expansion of the Free Care Rule opens the door to new sources of revenue in a time when education budgets are tight and student need is on the rise.


Looking for even more help to dive into the expansion of Free Care? Check out these additional resources:

State Efforts to Implement the Free Care Policy Reversal are helpfully tracked in this ongoing brief from the Healthy School Campaign.

Advocates’ Guide to the Change in the Medicaid Free Care Rule: Community Catalyst shares the background and history of the Free Care Rule and outlines advocacy tips for bringing its expansion to your state.

A Guide to Medicaid Claiming for Schools: Everything you need to know about enhancing Medicaid claiming.


1 Mays A. (2020). Advancing Student Health and Achievement Through Medicaid: Lessons Learned from State Efforts to Expand Medicaid-Funded School Health Services. The Journal of school health, 90(12), 918–922.

2 Wilkinson, A., Gabriel, A., Stratford, B., Carter, M., Rodriguez, Y., Okogbue, O., Somers, S., Young, D., & Harper, K. (2020, December 14). Early Evidence of Medicaid’s Important Role in School-based Health Services Child Trends. Retrieved September 1, 2021.