New York State and New York City’s School Medicaid Settlement: The State Was Supposed to Check the Claims

In the New York school Medicaid $540 million settlement, New York State and New York City agreed to resolve allegations of false school-based health care claims, primarily for speech therapy and transportation. The government alleged that the state passed claims to Washington for services it knew were not covered or properly documented. For a school clinician or billing employee, the case reaches beyond the treatment room to the people who decided what Medicaid would be told.

The Justice Department announced the settlement on July 21, 2009. It covered alleged conduct from 1990 through 2001. The state and city had different roles in the claims, different payment obligations, and a shared federal payer. A speech therapist’s qui tam cases triggered statewide audits.

How School Medicaid Claims Reached the Federal Government

Medicaid’s federal matching money put the United States at the end of a chain running through schools, counties and New York State. New York’s education and health departments jointly developed the School Supportive Health Services Program and Preschool Supportive Health Services Program to help districts, counties and other schools obtain reimbursement for covered diagnostic and health support services for students with disabilities. The state received the federal government’s share of those healthcare costs.

The gap between a service and the claim for it could open at more than one point in that chain. A clinician may know what happened with a child. District billing staff may know how the service was described for reimbursement. State staff may know what instructions districts received and which claims moved forward. We connect those accounts to the same payment, including the decisions made after the service left the clinician’s hands.

New York State’s Guidance and the City’s Speech Claims

The government alleged that New York State knowingly failed to explain Medicaid’s coverage requirements to districts and counties, failed to monitor their compliance, and passed unsupported or uncovered claims to the federal government. Its stated purpose, according to the government’s allegation, was to make the United States pay a larger share of New York’s Medicaid costs.

We expect the state running a Medicaid program to check the claims it sends. Here, the government alleged that the state knew the claims failed the requirements and passed them on anyway. Federal taxpayers received the bill. Someone inside the state program could therefore hold a different part of the story from someone working inside a school.

New York City’s alleged role began with the speech-service claims it sent to the state. The government said the city submitted claims for false speech services and that the state passed those claims on for federal Medicaid reimbursement.

Speech Therapy and Transportation Needed Different Support

Speech therapy and transportation were the principal service categories in the settlement. The surrounding audits show why those categories needed different records.

Speech Referrals and Qualifications

In its February 2004 review of New York school and preschool speech claims, HHS’s Office of Inspector General found services lacking referrals from appropriate medical professionals or the required provision or direction by a qualified speech-language pathologist. The review covered September 1993 through June 2001.

The referral, the person providing or directing the work, and the service record each answer a different question about the claim. For a speech clinician, who supervised the service can be as important as the number of sessions recorded.

Transportation and the Service Record

The Office of Inspector General’s August 2004 review found that 97 of 110 sampled New York school transportation claims did not comply with requirements. It also distinguished unallowable funding from a separate amount set aside over documentation questions. The audit observed that federal law required documentation without specifying how services should be documented.

That is why we examine the particular records behind a Medicaid transportation claim with someone who knows the service. The ride, its supporting record and the representation sent for payment are separate pieces of the account.

Cash, Withheld Payments, and Future Compliance

New York State agreed to a $440 million obligation, payable over time through a combination of cash and releasing its claims to payments that had been withheld. New York City agreed to pay $100 million over time.

New York State also entered a three-year Program Compliance Agreement with the Centers for Medicare & Medicaid Services. Its stated purpose was to ensure that services would be properly delivered and billed in the future.

A Later Audit Followed Costs Back to the School

A separate July 2021 Office of Inspector General audit examined New York’s school-based claims for services provided from October 2011 through June 2016. It shows how public spending, sampled staff activities and allocation ratios could all become part of a federal reimbursement request.

A certified public expenditure begins with a governmental provider certifying that it has already spent its own money on qualifying services. That certification supplies the non-federal share for federal matching. The underlying expenditure and the information used to allocate it to Medicaid therefore matter to the payment.

New York’s contractor conducted quarterly random-moment time studies and used ratios to calculate cost settlements. Auditors found that the state could not support treating all the moments coded as health care as Medicaid-eligible health services. They also questioned the ratios used to allocate costs to Medicaid.

The audit’s own explanation is unusually direct:

We expect a reimbursement method to explain a claim. Here, the auditors said the method itself could defeat that explanation.

The largest questioned amount was $309 million claimed using unsupported ratios. OIG recommended supporting or refunding that amount, identifying unverifiable IEP ratios as the problem. New York acknowledged that documentation supporting the ratios was unavailable.

These audit findings and refund recommendations reach back to the work a school employee actually did. We connect what activity was sampled, how it was coded and what cost the code helped allocate to the federal claim.

Why the Speech Therapist’s Knowledge Mattered

The original state-and-city allegations arose from two False Claims Act whistleblower cases brought by a speech therapist serving preschool children in upstate New York. The therapist alleged that the state and its school districts sought reimbursement for speech services that did not qualify. The cases triggered statewide audits by HHS’s Office of Inspector General and the Centers for Medicare & Medicaid Services. The Justice Department’s Civil Division handled the case with those agencies.

A 1999 Harvard Kennedy School report, Controlling Fraud and Abuse in Medicaid: Innovations and Obstacles, helps explain the value of that service knowledge. Drawing on seminars sponsored by the Health Care Financing Administration, it described officials’ difficulty interrogating claims databases and the need for searches built around knowledge of particular fraud practices. Access to the data alone could not supply that knowledge.

A person who understands a therapy session, a referral or a billing instruction can explain something the final payment entry leaves out. We work with that person to connect the service, the administrative decisions and the federal claim.

The Justice Department announced a $10 million whistleblower reward for the speech therapist. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know How the School Claim Was Built

If you know how a therapy record, district instruction or cost calculation became a Medicaid claim, speak to one of our Whistleblower Experts about how those claims were built. We develop the case with you and bring in Medicaid whistleblower lawyers who understand school billing and public-entity claims. We stay beside you as your knowledge of the services and decisions becomes the foundation of your strongest Medicaid whistleblower case.