80% Medicaid Payments Lost Due to Poor Recovery Methods

28 Oct 80% Medicaid Payments Lost Due to Poor Recovery Methods

A September 2001 report entitled “Medicaid Recovery of Pharmacy Payments by Liable Third Parties” by the U.S. Department of Health and Human Services’ (HHS) Office of Inspector General (OIG), who is charged with protecting healthcare cost containment and the integrity of HHS programs, found that in 32 states, $367 million of a total $440 million, or over 80 percent, of payments attempted to be recovered from entities known as third parties, were in danger of never getting recovered by those states. They also said that nearly 75 percent of third parties refused to pay or process Medicaid pharmacy claims and that pharmacy benefit management companies (PBMs) gave states the most problems.

The OIG recommended that the following actions be taken by the HHS’ Centers for Medicare and Medicaid Services (CMS) to reduce the risk of lost Medicaid payments by the states:

  • Since paying for expenditures and then chasing the payment from third parties is not cost effective for states, the CMS should ensure that states are performing cost-avoidance practices.
  • CMS should tell states the best ways of avoiding and recovering third-party liability (TPL) pharmacy payments.
  • Force states to track dollar amounts for pay-and-chase pharmacy claims to help determine the effectiveness of such action.
  • Help states by standardizing TPL pharmacy claims, nationwide.
  • Nationally educate third parties about Medicaid pharmacy issues.
  • Determine if legislation is needed to name PBMs as third parties, require third parties to match eligibility files with states and allow Medicaid up to three years to recover TPL payments.

Fixing TPL Involves Big Money

In 1999, over 32 million people were handled under the pharmacy benefit of Medicaid that equaled $16.4 billion in cost and $12 billion of this money involved TPL compensation, which by law is required to pay, prior to Medicaid. Of $440 million identified in the OIG report as possible for recovery, a total of $73 million, or 17 percent, was recovered. And, procedures followed by states to avoid a pay-and-chase approach averted $185 million from entering the “at risk” stage.

Problems existed with entities that declined to pay or process Medicaid pharmacy claims for reasons such as the failure to recognize the liable payer or claims processing entity, ambiguous rejections that don’t offer the state information on how to correct the claims form, claims not processed containing a lack of explanation, unfair filing time limits, and rejections because claims were on incorrect paperwork. PBMs were found by the OIG to provide the biggest obstacles in paying TPL payments and these entities often claim that they can’t process Medicaid claims because their clients didn’t authorized them to do so. The OIG discovered this to be true and by investigating 600 companies that contracted one of the largest PBMs, 75 percent did not authorize the PBM to process Medicaid claims. The problem is that PBMs handle 70 percent of prescription orders dispensed by ambulatory care. Nationwide, 10 PBMs handle most of the TPL beneficiaries.

On the positive side, when data is shared with third parties, when good billing practices are employed, or when states take legal action against uncooperative PBMs, they witness success. Legal action included the threat of placing a lien on property, laws defining PBMs as third parties that must match eligibility files compounded by penalties for not providing data matches, and action by the state’s attorney general that bypassed the PBM and allowed the state to directly bill the insurance carrier.

Several states recommend solutions for solving recovery problems to include laws requiring PBMs to be identified as TPL payers, a requirement that states can make data matches, and a nationwide universal claim format.

CMS Agreed with the OIG’s Solutions

After the OIG made the recommendations (see bullet points after the second paragraph listed above), the CMS agreed and indicated that they were devoted to solving issues that states have in recovering Medicaid TPL dollars. The CMS said it was on track to review cost avoidance issues and to perform some education with state agencies on its importance.

The CMS was also working with all of the states and third parties in developing a claim form that Medicaid agencies could universally use for submitting electronic claims to third parties. Moreover, CMS was working to educate insurance companies who use PBMs about Medicaid reimbursement issues. Finally the CMS was reviewing problems for determining if legislation is needed.

The CMS said OIG’s recommendation of requiring the tracking of dollar amounts paid and chased and dollar amounts recovered on pharmacy claims, but they thought that tracking all pharmacy claims was not be the only method to substantiate the cost-effectiveness of the pay-and-chase technique. The CMS countered that tracking dollar amounts might not be the sole factor in determining the cost-effectiveness, but it still should be required by states as an accountable method of knowing whether the practice is worthy of using.