February 1995
Legal and Regulatory Affairs
Practice Directorate

Enacted in 1965 as Title XIX of the Social Security Act, Medicaid is a shared federal and state program that provides health care to the poor. Federal Medicaid laws set forth the minimum standards that state programs must meet in order to receive federal funds. Medicaid, however, was originally designed to allow states the flexibility to tailor the program to best serve their individual needs and, therefore, considerable diversity exists among the state plans. Reimbursement for psychological services is one area in which plans vary widely from state to state. For example, Minnesota allows psychologists to be reimbursed directly for psychological testing, diagnostic assessments, and all forms of psychotherapy in all settings. In contrast, Massachusetts only directly reimburses psychologists for psychological testing. See infra pp. 20-22.

Federal Medicaid laws specify that state Medicaid plans may cover "medical care, or any other type of remedial care recognized under State law[,]" if furnished by licensed practitioners, such as "podiatrists, optometrists, chiropractors, and other practitioners." 3 Medicare & Medicaid Guide (CCH) ¶ 14,561 (June 23, 1994) (citing 42 U.S.C. § 1396d(a); 42 C.F.R. § 440.60) (emphasis added). The category of "other practitioners" covers psychologists and, thus, states may decide whether and how best to provide psychological services at their own discretion.

The Medicaid state plans of 25 states permit psychologists to be reimbursed directly for some services to adults in some settings.¹ Nine states require a physician referral in order for psychologists to be reimbursed for their services.² States that do not allow direct reimbursement to psychologists or only allow reimbursement for services provided in a private office setting may, nevertheless, offer psychological services through community mental health clinics or hospitals as "bundled services." Bundled services are a specified group of services for which a facility receives a capitated rate from Medicaid. For example, diagnostic tests, laboratory and x-ray examinations, and psychological services might all be included in the daily reimbursement rate for an inpatient hospital visit by a Medicaid beneficiary. Whether the beneficiary receives one or five psychotherapy sessions has no effect on the overall reimbursement rate.

State Medicaid agencies consistently report that, with physician oversight, a psychologist may also provide services under the provider number of a psychiatrist or a physician. The definition of "physician oversight" varies from state to state, but usually requires a salaried or contractual relationship between the practitioners. Under this type of supervisory arrangement, Medicaid reimburses the physician directly, not the psychologist. Only Alabama and Florida specifically require that a physician perform mental health services.

The reader should note that the parameters of each state's program are detailed in a chart and state-by-state summary available from the APA Practice Directorate, and that even states which permit direct reimbursement to psychologists restrict psychological services in a variety of ways. Some states will allow direct reimbursement only for services performed in specific settings, such as the practitioner's private office. Some states restrict the types of services that may be provided or the number of sessions allowed per year.

Services for Medicaid beneficiaries under 21 years of age are governed by the federal Early and Periodic Screening, Diagnosis and Treatment Program (EPSDT). The purpose of EPSDT is to "ascertain physical and mental defects [in children] and to correct or ameliorate any defect or chronic condition discovered" 3 Medicare and Medicaid Guide (CCH) ¶ 15,551 (June 1992). To accomplish this mandate, federal law requires each state to provide periodic physical, mental, visual, hearing, and dental screening services to children. In addition, each state must provide any necessary treatment or services regardless whether the same services are available to the adult Medicaid beneficiaries of that state. 42 U.S.C. § 1396(d); 42 C.F.R. § 441.57 (emphasis added).

The state plans of 42 states allow psychologists to receive direct reimbursement for services to EPSDT beneficiaries.³ Every one of the states that permits reimbursement for services to adults also permits reimbursement for services to EPSDT beneficiaries. A state may attempt to impose limitations on the services that psychologists provide to EPSDT beneficiaries. However, it must waive these limits for any treatment that may be covered under the Medicaid laws and that a health care practitioner documents as medically necessary. Id.

All states with Medicaid programs that directly reimburse psychologists, except New Hampshire, require psychologists to be licensed. Psychologists in New Hampshire must be certified instead.

Some states have additional requirements beyond licensure, such as completion of a doctoral degree or listing in the National Register of Health Service Providers.⁴ The Medicaid programs of only two states, Maine and Minnesota, have special provider categories for non-doctoral level psychologists. These licensed psychological examiners and licensed psychological practitioners, respectively, also may receive direct reimbursement for their services.

Most states require licensed psychologists to personally deliver all services to beneficiaries. Only eleven states permit psychologists to be reimbursed for psychological services provided by other practitioners under the supervision of the licensed psychologist.⁵ In Maine and Minnesota, psychological examiners and psychological practitioners must personally deliver all services.

Driven by the increasing financial burden that Medicaid programs have placed upon state budgets, the vast majority of state health care reform initiatives have focused on the Medicaid population.⁶ Before, a state may implement a Medicaid managed care program, the Health Care Financing Administration (HCFA) must authorize a Medicaid waiver. This waiver releases the state from compliance with federal Medicaid requirements. The specific type of waiver that a state requests will determine the particular federal provisions from which HCFA may allow exemptions.

Forty-four states and the District of Columbia have implemented some form of Medicaid managed care, but the delivery of mental health services has not been included in most of these programs. Only Hawaii, Oregon, Pennsylvania, South Carolina, Rhode Island, and Tennessee have incorporated mental health benefits into their comprehensive Medicaid managed health care programs. Delaware, Minnesota and New Hampshire are awaiting approval from HCFA for inclusion of mental health benefits as part of their state-wide, integrated health care systems. At this time, nine states have received waivers from HCFA for the implementation of a separate Medicaid managed care program for mental health services, commonly known as a "carve out."⁷ California and New York are awaiting HCFA approval for similar waivers. Due to the rapidly changing nature of health care policy in the Medicaid managed care arena, the information reported in this area only reflects the data available at the time of the publication of this report.

Although Congress will once again address national health care reform, it is clear that the proposals will be modest as compared to those of the past session. Escalating health care costs combined with states' requirements for balanced budgets have driven many states to forge ahead of federal initiatives and to advance their own reforms. It is imperative that psychologists carefully monitor developments in the state Medicaid managed care arena. Nearly every state has implemented some form of Medicaid managed care. These programs are being used as test cases for state health care reform, and are capturing the attention and interest of public officials at the federal, state, and local levels.

This growing trend towards "privatization" of Medicaid through managed care contracts offers psychologists an opportunity to increase access to patients who were previously inaccessible. Not only are state Medicaid offices willing to relinquish management control of entire programs to private organizations, but they are also encouraging the participation of entire classes of providers who were previously excluded from Medicaid. For example, the Medicaid programs of Tennessee and Florida, which never before permitted direct reimbursement to psychologists, now encourage psychologists to become part of their Medicaid managed care provider networks. The active involvement of state psychological associations and practitioners in the development of state Medicaid managed care programs is crucial to the continued expansion of the role of psychologists, not only as Medicaid providers today, but also as participants in future state health care programs.

3These states are: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina. South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.

4Alabama and South Carolina will only enroll doctoral-level psychologists in their 'Medicaid programs. Wisconsin requires psychological service providers to be listed in the National Register of Health Service Providers, and Iowa requires listing in either the National or Iowa Register of Health Service Providers.