Now Hear This: Medicaid Secondary Payer Recovery on the Rise

By Kate Riordan January 29, 2018

Up until now, Medicaid lacked the kind of mechanisms that Medicare has adopted for identifying and seeking payment recovery from responsible third parties. Yet, from a federal perspective, Medicaid is meant to be a payer of last resort. Medicaid enrollees must identify third-party sources of coverage and assign the state Medicaid agency the right to pursue third-party liability on their behalf. Each state has devised its own recovery rules, leading to a patchwork of different processes, time frames, and requirements.

Historically, state Medicaid agencies have been rather flat-footed in making efforts to identify and recoup erroneous payments from non-group health entities. In recent months, however, a number of state Medicaid agencies have more vigorously asserted their recovery rights. Those efforts have led to additional unknown liens surfacing—leaving third-party payers unclear on process and protocol for reviewing and addressing the charges.

Medicaid presents different challenges than Medicare for third-party payers

As the nation’s largest insurer, Medicaid covers more than 70 million Americans, including many with complex and costly needs for care. While Medicare availability hinges on age and certain disabilities and is administered at the federal level, Medicaid benefits are means-based: the benefits depend on income, and they’re administered at the state level. Because it’s based on income, Medicaid eligibility is subject to far more annual changes than Medicare. An example is an individual who transitions in and out of employment. Also, benefits, costs, drug formularies, and administration vary across state lines for Medicaid enrollees—as opposed to being consistent for Medicare beneficiaries. These distinctions lead to significant challenges for providers and liable third-party payers in assessing Medicaid-initiated recovery rights.

Evolution of Medicaid’s recovery rights and recent legislation

States are broadly empowered to administer and enforce Medicaid secondary payer rights, and Medicaid agencies often seek recovery against beneficiaries themselves rather than insurers or attorneys.

In 2006, a Supreme Court ruling limited a state’s recovery to a proportional amount of the medical damages that it spent in a particular case. Arkansas Dept. of Health and Human Svcs. v. Ahlborn (547 U.S. 268 – 2006) held that—unlike Medicare, which has a dollar-for-dollar recovery—federal Medicaid statutes limit state programs’ rights in their recovery to the portion of the underlying settlement attributable to medical damages. For example, if a claim had settled for $100,000 (including $80,000 related to damages for pain and suffering, lost wages, and other nonmedical damages, and $20,000 related to medical damages), then the Medicaid agency would have been entitled to a recovery only up to $20,000. 

The results of Ahlborn were affirmed by Wos v. E.M.A., a Supreme Court case from 2013. But the story doesn’t end there (133 S.Ct. 1391 2003).   

In response to Wos, Congress effectively overturned Alhborn and Wos through amendments to the Budget Act that allowed states to recover dollar-for-dollar, just like Medicare. With this, Section 202 of the Bipartisan Budget Act of 2013 authorized that states could recover from the entire amount of a plaintiff’s damages rather than the proportionate medical amount. Those provisions went into effect, rather quietly, on October 1, 2017, and efforts have been made to postpone their impact until October 1, 2019.

The 2017 House version of legislation to fund the Child Health Insurance Program (CHIP) included language addressing the further delay of expanding Medicaid third-party recovery rights. Designed as a short-term spending bill, CHIP expires March 31, creating pressure on Congress to pass a more permanent solution. The House bill uses Medicaid recovery dollars to offset CHIP costs. Meanwhile, a Senate version (which has not been taken up yet) does not include Medicaid provisions. It’s unclear at this time which bill will proceed; however, it’s anticipated that CHIP funding will be addressed early in the term, and the potential for Medicaid third-party recovery rights to be implicated does exist.

The interplay between federal and state roles in Medicaid benefits lends itself to confusion and discord. A prime example is the potential for an additional delay in implementation of Section 202 of the Bipartisan Budget Act of 2013 at the national level, while at the state level, Medicaid agencies are more aggressively asserting their recovery rights. The combination of Affordable Care Act (ACA) expansion and unsettled federal healthcare funding has led states to seek additional revenue, including avoiding erroneous payments and seeking recovery from those that are inappropriately made.

Recent action in California

In recent months, California’s Department of Health Care Services (DHCS) has sought to increase recovery for the value of any covered services involving casualty insurance, tort, or workers’ compensation pursuant to its rights. In the state’s Welfare and Institutions Code section 14124.70, a Medi-Cal beneficiary or personal representative is required by law to report the existence of a claim within 30 days of filing to DHCS. Additionally, for workers’ compensation claims, DHCS receives information from the Department of Industrial Relations identifying Medi-Cal members that assert claims. Upon receipt of notice, DHCS will send a Notice of Potential Lien letter stating its right to recovery. This letter may take up to 120 days to be delivered. Parties to a claim are then requested to alert DHCS of settlement or if treatment is completed, at which time DHCS will order and review payment records to establish its lien. If settlement is reached and payment is made to the Medi-Cal member without reimbursement to DHCS, it may seek payment directly from the member. Unlike Medicare liens, DHCS liens may be included in the settlement documents, and a joint check to the member and DHCS will relieve the insurer of the responsibility to directly reimburse Medi-Cal.

Texas ramping up recovery

Similar to California, Texas Health and Human Services has recently been ramping up its recovery efforts from third parties responsible for a medical claim for services rendered to a Texas Medicaid client. The Texas Medicaid Provider Procedures Manual clearly details the steps that providers must undergo to ensure that Medicaid is not inappropriately billed. Providers must inquire and notify Texas Medicaid & Health Partnership (TMHP) of any other insurance available to the Medicaid member. If providers anticipate liable third parties, they can submit informational claims to the TMHP tort department delaying the time frame in which the provider must bill Medicaid. At the same time, the provider should investigate the potential third-party liability for payment for medical services.

Rhode Island Medicaid’s identification of third parties

Rhode Island instituted an electronic mechanism to identify potential third-party recovery claims available to Medicaid beneficiaries. This program, known as Rhode Island’s Medical Assistance Intercept System (MAIS), matches state Medicaid recipients with liability claims and initiates recovery efforts on behalf of the Medicaid agency. MAIS is designed to intercept payments of $500 or more for reimbursement. As of October 2016, the program had recouped $3.2 million for Rhode Island’s Medicaid program.

Medicaid recovery in 2018

As states ramp up their recovery programs, it seems apparent that this will increase. With large states such as Texas and California publishing significant savings from identifying and recouping payments from responsible third-party payers, it’s likely that additional state Medicaid agencies will want to follow suite. It’s also likely that, at a national level, the Centers for Medicare and Medicaid Services (CMS) will take notice and look to implement similar protocols.

As the shift toward increased Medicaid third-party recovery continues across state Medicaid agencies, it’s recommended that insurers consider best practices for addressing this kind of recovery.

Prime considerations around developing a Medicaid recovery program should include:

  • determining Medicaid enrollment
  • securing recovery information from applicable state health and Medicaid departments
  • developing dispute and resolution strategies
  • standardizing forms and authorizations
  • providing internal training and education
  • staying abreast of changes in applicable state and federal laws and regulations

The potential is high for ongoing enhancements to increase third-party liability recovery both at the federal and state levels. Insurers must stay vigilant about policy changes directly affecting their claims. ISO Claims Partners is closely monitoring legal developments and will continue to report updates and changes to Medicaid secondary payer compliance.


Kate Riordan

Kate Riordan is the director of Medicare Secondary Payer (MSP) initiatives at ISO Claims Partners. She has well over five years of experience in completing Medicare Set-Asides and obtaining CMS approvals, with a concentration in California claims. Kate graduated Bowdoin College and Suffolk University Law School and is a Medicare Set-Aside Certified Consultant.