Medicaid Administrative Claiming

Title XIX of the Social Security Act (the Act) authorizes federal grants to states for a proportion of expenditures for medical assistance under the approved Medicaid state plan, and for expenditures necessary for administration of the state plan. This joint federal-state financing of expenditures is described in section 1903(a) of the Act, which sets forth the rates of federal financing for different types of expenditures.

Under section 1903(a)(7) of the Act, federal payment is available at a rate of 50 percent for amounts expended by a state “as found necessary by the Secretary for the proper and efficient administration of the state plan,” per 42 Code of Federal Regulations (CFR) 433.15(b)(7). The Secretary is the final arbiter of which administrative activities are eligible for funding. Certain administrative costs may be matched at higher federal financial participation (FFP) rates. (See 42 CFR 433.15(b)(1)-(6) for higher matching rates.)

In addition, Office of Management and Budget (OMB) Circular A-87, which contains the cost principles for the administration of federal awards to state, local and Indian tribal governments, states that “Governmental units are responsible for the efficient and effective administration of Federal awards.” Under either of these provisions, administrative expenditures must be reasonable and necessary for the performance of functions funded by the Federal award.

Claims for FFP must come directly from the single state Medicaid agency. In addition, the state must ensure that permissible, non-federal funding sources are used to match federal dollars. States sometimes contract with outside entities to conduct certain Medicaid administrative activities on their behalf. In order for these costs to be claimable, the state Medicaid agency is required to have an interagency or other contractual agreement in place with any entity which performs Medicaid administrative activities on its behalf. These contractual agreements are designed to define and describe the relationship between the state Medicaid agency and the entities with which it partners to perform Medicaid administrative activities.

In order for Medicaid administrative expenditures to be claimed for federal matching funds, the following requirements must be met:

  • Costs must be “proper and efficient” for the state’s administration of its Medicaid state plan (Section 1903(a)(7) of the Act).
  • Costs related to multiple programs must be allocated in accordance with the benefits received by each participating program (OMB A-87). This is accomplished by developing a method to assign costs based on the relative benefit to the Medicaid program and the other government or non-government programs.
  • Costs must be supported by an allocation methodology that appears in the state’s approved Public Assistance Cost Allocation Plan (42 CFR 433.34).
  • Costs must not include funding for a portion of general public health initiatives that are made available to all persons, such as public health education campaigns.
  • Costs must not include the overhead costs of operating a provider facility.
  • Costs must not duplicate payment for activities that are already being offered or should be provided by other entities, or paid through other programs.
  • Costs may not supplant funding obligations from other federal sources.
  • Costs must be supported by adequate source documentation.

For guidance on specific Medicaid administrative funding and claiming topics, please refer to the list below.

Medicaid Administrative Claiming for Activities Performed by State Long-Term Care Ombudsman (LTCO) Programs

  • Each state’s LTCO Office conducts activities such as identifying, investigating, and resolving complaints made by, or on behalf of, residents of LTC facilities, providing services to assist such residents in protecting their health, safety, welfare and rights, and representing the interests of such residents before governmental agencies, as well as seeking administrative, legal, and other remedies to protect residents

School-Based Services

  • The school setting provides a unique opportunity to enroll eligible children in the Medicaid program, and to assist children who are already enrolled in Medicaid to access the benefits available to them


  • The Public Assistance Cost Allocation Plan must reference methodologies, claiming mechanisms, interagency agreements, and other relevant issues that will be used when claiming and appropriately allocating costs.  

Cost Allocation

  • Costs must be supported by an allocation methodology that includes a description of the procedures that the state agency will use in identifying and measuring costs.