Tackle Medicaid’s Improper Claims Payments With Data, Not ‘Pay and Chase’

15 Aug Tackle Medicaid’s Improper Claims Payments With Data, Not ‘Pay and Chase’

The federal government must quickly move away from the “Pay and Chase” model where Medicaid routinely makes improper claims payments (those that were the liability of primary insurance plans), then retrospectively identifies the claims with third party liability. To make this change, the government must review and remedy the current, antiquated processes that are in place.

Medicaid is the payer of last resort; in other words, by law, all other sources of insurance coverage must pay for claims before Medicaid will pay for the care of an enrollee. This federal requirement is called third party liability (TPL). This means claims payments are the obligation of a third party other than the enrollee or Medicaid. To employ the Medicaid third party liability requirements, federal regulations mandate that states have processes in place to identify other health insurance (OHI) and process claims accordingly.

As much as 13 percent of Medicaid enrollees across the nation hold additional insurance other than Medicaid. Types of TPL include employee insurance, Workers’ Compensation, Medicare, COBRA health insurance from former employment, casualty insurance, dental insurance, eye insurance and insurance to cover pharmaceutical costs. Given the large numbers of Medicaid enrollees with “other health insurance,” the timely identification of TPL and mitigating improper claims payments equates to massive savings for the program.

In a recent GAO report, Medicaid accounted for 25% of government-wide improper payments amounting to $36 billion. The GAO noted that while states have improved TPL efforts in recent years, the increasing proportion of Medicaid enrollees with private health insurance creates additional opportunities to avoid and recover Medicaid funds (GAO 2015).


Two Ways to Avoid Costs Associated With Improper Claims Payments

Pay and chase. If primary insurance is discovered after a claim had been paid improperly, the Medicaid plan must pay the claim and then attempt to recover the money from the primary insurer. This has been the primary model for most TPL efforts; unfortunately, this approach is burdened with hefty administrative costs. When “Pay and Chase” is used to recover improper claims payments, an average of only 17% of the funds ever gets recovered. This is precisely why Medicaid programs must hasten their move away from the “Pay and Chase” model.

Cost avoidance. If the Medicaid plan is aware that an enrollee has primary insurance coverage when the claim is filed, the plan can reject the claim and instruct the provider to submit it to the potential primary payer. The GAO has noted that this type of cost avoidance accounts for most of the savings to Medicaid associated with TPL (GAO 2015).

The Centers for Medicare & Medicaid Services’ stated that methods for identifying and preventing improper payments “not reassuring.” House Ways and Means Oversight Subcommittee Chairman Peter Roskam (R-IL) rebuked CMS for utilizing “pay and chase” methods of investigating improper payments.

“Despite the fact that Congress has given the agency expanded authority to stop payments before they are made, it continues to rely on pay-and-chase, or making the payment and only checking after the fact to see if it was proper,” Roskam said in his hearing remarks.

In order to address these problems, CMS issued guidance that requires states to uphold the cost avoidance standard for pharmacy claims and eliminate waivers that permit “pay and chase” methodologies.

Based on this guidance, states have responded by developing coordination of benefits (COB) programs that rely on self-reported recipient eligibility data and/or on stagnant data collected by TPL vendors for pay and chase purposes. This data is incomplete, latent and not sufficient for true cost avoidance. In order to successfully meet CMS’ cost avoidance guidelines, an effective real time, point of sale solution would be required to cost avoid claims and mitigate the need for “Pay and Chase.”