School-Based Services Direct Health Care Contractor Time Study Exemption

Determining when a contractor may be excluded from the Random Moment Time Study

As a rule, every employee or contractor for whom a local education agency (LEA) claims federal reimbursement must participate in the Random Moment Time Study (RMTS). North Carolina’s State Plan provides one narrow exception, described below. 

What is the Exemption?

North Carolina’s State Plan (Time Study Implementation Plan (TSIP) and Attachment 4.19-B) provides one narrow exception to RMTS participation: a contractor who spends 100% of their time delivering Medicaid-covered direct medical services to students for whom medical necessity has been established is excluded from the time study. This is based on The Centers for Medicare and Medicaid Services (CMS) 2023 School-Based Services Guide PDF (pp. 65 and 111), which states that contractors hired solely to perform direct medical services and do not perform any other administrative activities do not need to participate in the time study. Direct services are any allowable service covered in NC Medicaid Clinical Coverage Policy (CCP) 10C or classified as a direct service in the TSIP.

Why the Exemption Matters:

Because an exempt contractor provides only direct service, 100% of their costs flow straight into the direct-service cost report without being discounted by a time-study percentage. In exchange, none of their costs may appear on the Medicaid Administrative Claiming (MAC) claim.

What "Direct Service" Includes and Where it Stops

Key Principle

If the contract or expected duties include anything beyond covered direct medical services to  students with a plan of care deemed medically necessary, the exemption is disallowed and that contractor must be included in the time study. The signed contract documenting only Medicaid-reimbursable direct services  must be retained and made available for verification upon the request of the Division of Health Benefits (DHB).

Examples that Qualify (100% Direct Service)

• Contract occupational therapist (OT) — fixed fee per session: An OT contracted solely to deliver individual education program (IEP)-based medical OT, travels between three schools, writes  the treatment notes, and contributes the OT goals to each student’s plan of care;  provider performs no other duties.
• Contract audiologist — per-test rate: Paid a set amount per hearing test performed on referred students with established medical necessity; performs no other school activities. 
• Teletherapy speech-language pathology (SLP) agency: Provides only medically-necessary speech therapy to students with a plan of care and documents each session; the agency’s contract is limited to direct service delivery.

Examples that Do Not Qualify, Watch the “One or Two Small Extras

This is where LEAs most often make mistakes. The provider is mostly doing direct service, but a small added duty disqualifies them. Each example below would require the contractor to participate in the time study.

• The physical therapist (PT) who runs the Medicaid consent table: Delivers  PT services, but also helps the front office staff collect parental consent / Medicaid eligibility paperwork a few days a year; that is a MAC activity, not direct service.
• The school psychologist who also does a Friday social-emotional learning (SEL) block: Provides medically-necessary counseling all week, then teaches a whole-class SEL lesson on Fridays. SEL is non-direct service work. 
• The Board Certified Behavior Analyst (BCBA) who attends “child find” / screening events: Otherwise  provides direct service, but is also paid to help identify and screen students who may need services (no plan of care yet). Screening/outreach is an administrative activity. 
• The contract nurse with required non-specific availablity: Delivers all nursing services under students’ plans of care, but the contract also asks them to be available if students need help with other issues.
• The speech-language pathologist (SLP) who supervises and bills for an assistant: Provides direct SLP therapy, but is also paid to coordinate scheduling and handle Medicaid billing follow-up for the team. Billing/coordination is administrative.
• The therapist seeing some “general wellness” students: Mostly serves students with a plan of care, but also runs a few drop-in sessions for students with no established medical necessity. Those sessions are not covered direct services.

Two Additional Cautions from CMS

1. Anyone the LEA issues a W-2 to is an employee, not a contractor, and cannot use this exemption.
2. Contractor pay must never be set on a contingency / percentage-of-Medicaid-recovery basis (45 C.F.R. § 75.459; CMS Guide). If in doubt, include the contractor in the time study — it is the safe default.

Exemption Joint Attestation Form

Visit the following link to the School-based Services Direct Health Care Contractor Time Study Exemption Joint Attestation form for local education agencies (LEAs) and contractors