Texas is slashing $607 million in Medicaid funding from program for students with disabilities

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Texas is clawing back more than $607 million per year in federal funding for special education services, a move local school district officials say will likely worsen already strained budgets for students with disabilities.

The School Health and Related Services (SHARS) program provides hundreds of school districts critical funding for special education services, reimbursing them for counseling, nursing, therapy and transportation services provided to Medicaid-eligible children.

More than 775,000 students receive special education services in Texas, according to the Texas Education Agency. It is not as clear how many of them are eligible for Medicaid, though school district officials say many of the kids who directly benefit from SHARS come from low-income families.

But in the last year, the Texas Health and Human Services Commission, which manages the program at the state level, began imposing strict limitations on the types of services for which school districts are able to request federal reimbursement. The changes have accumulated into a $607 million slashing to the money school districts typically expect to receive under SHARS per year, according to health agency estimates.

Bewildered by the sudden changes, school district officials and special education advocates say little has been communicated about why these drastic changes are happening.

“We're seeing an increased number of students that need more and more individualized care,” said Katie Abbott, special education director for a coalition of six East Texas school districts. “And yet, what are we doing?”

In response to their concerns, Texas has blamed the feds.

A 2017 federal audit report found that Texas was improperly billing for services not allowable under the SHARS program. The report concluded the state would need to return almost $19 million, a fraction of the $607 million currently being left behind. It also required that the Texas health commission work to ensure it was complying with federal guidelines.

Afterwards, the commission submitted “every possible denial and request for the opinion to be overturned” but was unsuccessful, the agency told The Texas Tribune. The recent changes reflected an attempt to bring the state back into compliance, according to the commission.

But federal appeals officers, in a ruling last year, said Texas produced “nothing at all” to dispute investigators’ findings that the state billed for unallowable services. The ruling also condemns the state for attempting to submit evidence after the deadline to do so had already passed.

Further, federal officials dispute the notion that Texas is being required to make certain changes to the SHARS program. In a statement to the Tribune, the Centers for Medicare & Medicaid Services made clear that as long as states work within “broad federal parameters,” they have autonomy to make decisions about their programs.

School district officials say Texas has resorted to overcorrecting problems identified by the audit, flouting expectations from the federal government that the state administers the program using the least restrictive means possible.

Many school districts are formally appealing the funding cuts with the state, while other rural districts have decided to exit the SHARS program altogether because of the administrative burden recent changes have created. Those that remain are holding out hope that lawmakers will decide in next year’s legislative session to help fill the financial gaps left in special education services — a lofty expectation for a state with a poor track record in both administering Medicaid and serving students with disabilities.

“We're talking about our most vulnerable kids,” said Karlyn Keller, division director of Student Solutions and School Medicaid Services for the Texas Association of School Boards. “We can't afford to continue to make these huge clawbacks in funding when we've got kids that need the service.”

‘Faces of kids’

With the slashing to SHARS funding, the Texas Education Agency estimates the deficit between school districts’ special education expenses and revenue from federal and state money will grow to roughly $1.7 billion per year.

Students with disabilities make up a little less than 10% of the Shiner school district’s 700 student population. Factoring in the recent changes to the SHARS program, the rural school district located east of San Antonio can expect to lose more than $79,000, according to state health agency data.

Superintendent Alex Remschel says the loss will eventually hurt the Shiner school district’s ability to recruit and retain personnel who work to administer the one-on-one, small group special education services their students need. The district currently has three special education teachers and about a half-dozen aides who support them in the classroom. The district shares special education resources with eight other districts as part of a cooperative, which Remschel said had to dip into its fund balance this year to fill the gaps left by the SHARS reductions.

“When I look at the dollars that we have, I see faces of kids,” Remschel said. “And I don't think that the people that are making these decisions see the faces of kids and how kids are impacted, and that's what tears at my heart the most.”

Jason Appelt, executive director of the special education cooperative the Shiner school district is a member of, questions Texas’ decision not to take full advantage of the money being provided by the federal government. In total, the special education cooperative’s nine rural districts work with about 900 students.

In previous years, the group received about $1 million in SHARS funding, Appelt said, a number that has since been cut in half. SHARS revenue makes up nearly a fifth of the cooperative’s budget.

“We didn't have any way to plan for this,” Appelt said. “Our districts are very fiscally conservatively minded. So if something doesn't change with this, it's gonna be really tough on all these districts, because there's not too many other places to cut from.”

Larger and wealthier school districts also say they are feeling the effects of changes to the SHARS program. Of the Katy school district’s approximately 96,000 student population, nearly 18% receive special education services, said Gwen Coffey, the assistant superintendent for special education. The district will experience a cut of almost $8 million, according to the state.

Coffey also said the health commission has made participation in the program more difficult in recent years with constant “changing and shifting and adjusting,” resulting in more documentation and paperwork for staff whose workloads are already full. She said the agency does not seem to understand exactly what it’s asking of school districts.

On Oct. 1, for example, the state health agency overhauled the way school districts can bill for personal care services provided to students in a group setting — like bathing, dressing and feeding — which districts interpret as requiring second-by-second documentation of how and when they’re assisting students. Districts say the change is not feasible considering instructors typically are busy with helping multiple children at once.

“I think the bigger question that we all have is, why? Why is it being changed? What's the purpose?” Coffey said. “Because if the purpose of the Health and Human Services Commission is to ensure that funding and services are being delivered to those students who require them right in a timely and efficient manner, then how does this accomplish that?”

Succumbing to fear

Kami Finger, who serves as assistant superintendent for school support and special services at the Lubbock school district, said ongoing cuts and changes to the SHARS program indicate a “cultural issue” in Texas where instead of maximizing reimbursement dollars available to the state, the state health agency is succumbing to fear because of the federal audit.

“We're too fearful that we're not going to do it the right way to begin with,” said Finger, whose district is losing more than $5.4 million from the funding cuts, according to state estimates. “All of that's coming together at the same time, creating this very precarious situation for district administrators to make decisions about what least effective programs and services we may have to strategically abandon as a result of that.”

The federal audit was conducted from October 2010 through September 2011 and zeroed in on the Austin and Dallas school districts. It concluded that overbilling occurred because Texas “did not always follow its policies and procedures to ensure that the costs claimed for direct medical services were accurate and supported.”

In an appeal decision issued last October, federal officials further concluded that Texas had “multiple opportunities” during the process to present evidence disputing investigators’ earlier findings but failed to do so — until after the time to submit evidence had expired.

“The Board therefore will not reconsider its decision to address an issue that could have been but was not raised earlier,” one part of the ruling states.

MSB School Services is a vendor that provides consulting and support to roughly half of participating school districts in the Texas SHARS program and has also worked with schools in other states administering the program.

While acknowledging there were problems with the program as identified in the audit, Tabbatha Callaway, CEO of MSB School Services, said she has yet to see any documentation from the state suggesting that Texas was required to make funding cuts as drastic as it has. Instead, she said, the health commission has done “a phenomenal job of, at this point, making this seem hard and complicated.”

She also said Texas school districts possess the documentation that likely would have helped the state in its response to the audit. But she said the commission has not taken steps to work with school districts.

“We've tried really hard to get them to meet with us, have conversations, figure out what's going on, and we haven't been able to gain the traction necessary to understand the issues,” Callaway said. “What I can say is that there are solutions to recover these dollars, and they need to be looked at.”

The state health agency said in a statement it is working with state education officials to ensure school districts are up to date on SHARS and conducts annual meetings and training to ensure awareness. In working to identify “a greater need” for transparency and support, the agency said it recently created a Medicaid resource and training team for participating SHARS districts.

However, with drastic changes having already gone into effect, many school district officials are reconsidering whether participating in the program is worth it, while some rural school districts that didn’t receive significant funding from SHARS are dropping out, said Keller of the Texas Association of School Boards.

“If you're counting on these kinds of programs to help you fund and then they go away after the fact, then you're left in very dire straits,” Keller said. “They're just making the decision that they're not going to participate. They'd rather have to figure it out and know that they have the funding than guess and then be caught short.”

Legislative intervention

School districts and special education advocates are still holding out hope the Legislature will step up by increasing funding for special education services and transitioning to a special education funding model based on the individual needs of a student rather than how much time a child spends in a special education setting. This could help school districts cover some of the personal care services students need, advocates say.

But increases to public school funding have been difficult to come by in the last year as those dollars have been wrapped up in Gov. Greg Abbott’s failed push for a school voucher program, which would allow parents to use taxpayer dollars to fund their children’s private school tuition.

Texas also has a poor track record in administering federally mandated special education services. The state was previously fined $33 million for slashing funding for students with disabilities in a way that violated the Individual with Disabilities Education Act. Later, federal officials found that Texas failed to prove it did enough to overhaul its special education system.

Neither the political terrain nor the state’s recent history with special education has stopped advocates from trying to be optimistic, however.

“I feel like special education funding is one of the very few, if not the only thing in education policy that all of the legislators agree on,” said Andrea Chevalier, director of Governmental Relations for the Texas Council of Administrators of Special Education.

Rep. Mary González, the Democrat vice chair of the House budget committee, said after a recent legislative hearing where state health officials explained their rationale for changes to the program, she is working with other legislators to determine whether the state is “over-course correcting” in a way that further harms school district funding.

She is also advocating for more communication and transparency, as well as making sure school districts aren’t losing out on dollars while they’re appealing the state health agency's decision to cut funding.

Katie Abbott, special education director for the coalition of six rural East Texas school districts that share special education resources, said more funding “would be very much appreciated,” but the services that SHARS has helped schools fund are still required — with or without the additional help.

“We’re passionate about what we do for kids, so I don’t see services stopping,” Abbott said. “It's just squeezing blood out of a turnip to figure out how to make that happen.”

Disclosure: Texas Association of School Boards has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.