Time to Get PAID

Medicaid TPL needs some fixes, and the Provide Accurate Information Directly Act can deliver

June 15, 2018 Photo

In 1965, President Johnson signed into law the Medicaid program, establishing the state-based health care safety net system in place today. While Congress has undertaken dozens of efforts since then to streamline and improve Medicaid, there has not been considerable focus on improving states’ Medicaid third-party liability (TPL) programs. Additionally, primary plans responsible for reimbursement to a state Medicaid agency frequently are not aware that Medicaid may hold a lien for treatment that it paid for as a secondary payer.

Fortunately, Congress has the chance to correct this issue and provide visibility to primary plans of claimants enrolled in Medicaid by enacting the Provide Accurate Information Directly (PAID) Act. The act would provide Medicaid (as well as Medicare Advantage and Medicare Part D) enrollment information to primary plans responsible for such reimbursement so that third-party liens can be timely resolved. But what is the Medicaid TPL issue, and how can the PAID Act begin to address it?

Simple in Theory, Complex in Practice

The principle of Medicaid TPL is quite simple: State Medicaid programs should not pay beneficiary claims that ought to be covered by others. As an example, imagine a Medicaid beneficiary—we’ll call her Ms. Smith—was injured in a car crash in which her car was totaled. She breaks her leg, incurs $10,000 in medical costs paid by Medicaid, and loses her minimum-wage job. If Ms. Smith later sues and settles with the other driver, Medicaid is entitled to repayment from the settlement proceeds for some of the medical costs. Aside from settlement recovery, alternative “primary” funding may also come from Medicare (for dual-eligible individuals) or private health insurance. Medicaid is the payer of last resort.

Unfortunately, implementation has not gone smoothly. In 2013, the Office of Inspector General (OIG) studied the gaps in Medicaid TPL programs, documenting over $4.1 billion “left on the table” by states in their failure to collect available funds from existing coverage (such as group health and Medicare). The Government Accountability Office (GAO) has also documented problems with the TPL system, focusing on how health insurers and pharmacy benefit managers obstructed states from identifying which Medicaid beneficiaries had alternative primary health insurance.

Who holds the missing money that Medicaid is not collecting? The OIG reported that the vast majority (82 percent) of the estimated $4.1 billion in missing Medicaid dollars should have been paid by health insurers, Medicare, or beneficiary probate estates.

The report also looked at missed state recoveries from insurers and defendants in liability and no-fault cases, indicating that these payments were less than one fifth (under $750 million) of the uncollected total, representing a relatively small pool of missed recoveries. The OIG did not consider the costs to Medicaid for collection efforts, which in liability cases would be higher than from group health insurers, probate estates, or Medicare.

The Supreme Court Weighs In

Going back to our hypothetical, what if Ms. Smith had no health insurance, was found to be at fault for causing her car crash, and her settlement only recovered a fraction of her claim for medicals, her car, and her lost wages? Historically, states took the view that no matter how the parties resolved the comparative fault issue, the state was entitled to recovery. Only after the state was repaid in full from the settlement proceeds could Ms. Smith receive her recovery (if any funds remained). Beneficiaries viewed settlements differently, arguing that Medicaid should only be allowed to recover funds associated with the health care portion of the settlement and that states had no claim on settlement proceeds attributable to property damage, such as the wrecked car and lost wages.

This question went before the U.S. Supreme Court not once but twice, and in each decision, the court sided with beneficiaries. The court ruled that, in undifferentiated settlement cases, the states would need to undertake an “allocation” dividing the settlement between health care and other damages, and, most importantly, recover only from the health care component.

Even when states complained that doing allocations would be difficult, the court disagreed, finding that the language of the Medicaid law limited Medicaid recoveries to the medical portion of a claim. Of course, there is an inherent fairness to the Supreme Court’s decisions: If the states had prevailed, it effectively would have meant that health care costs would not be able to be settled at all, which, in turn, would eliminate settlements (and any subsequent TPL recoveries) altogether.

States Risk Getting Nothing

In response to the Supreme Court’s decisions, state Medicaid directors ran to Congress for help. On Dec. 10, 2013—without any debate, stakeholder input, or public hearings—Congress slipped Section 202(b) into the Bipartisan Budget Act of 2013, gutting the statutory language upon which the Supreme Court had relied on and replacing it with explicit language granting states the right to recover the first dollars of any settlement.

The effect of the legislation was to not only eliminate most of the incentive for beneficiaries to pursue third-party settlements in the first place, but also to effectively eliminate the ability of the parties to settle at all. In other words, by wanting everything, the states risked getting nothing. If there was no claim and no settlement, Medicaid would remain the primary payer.

Congress did not anticipate this outcome in 2013, and when the implications eventually became clear, the Medicare Advocacy Recovery Coalition (MARC) engaged legislators, who quickly reversed course and immediately delayed the implementation date of the provision from 2014 to 2015, and then delayed it again (in the Medicare Access and CHIP Reauthorization Act of 2015) from 2015 to 2017.

Through further advocacy over 2017, MARC was able to persuade Congress that the policy should not just be delayed but repealed outright. In February 2018, Congress did exactly that. As a result, going forward, states will only be able to recover an allocable share of any TPL settlement. Now, Medicaid beneficiaries and settling parties win, but so do state Medicaid programs, which will have more settlements to recover a fairer amount from.

Essentially, state Medicaid agencies are back to only being able to recover their liens from the past medical portion of the settlement, as required by the prior Supreme Court rulings. It is important to note that this repeal does not eliminate state Medicaid agencies’ abilities to recover their liens, and this does not mean that primary payers should become complacent and unconcerned about Medicaid liens.

Stakeholders, however, are not done with the issue. California (through the MediCal program) has recently begun ramping up Medicaid lien recovery efforts, and Rhode Island is enacting requirements for primary payer electronic reporting of claims involving Medicaid beneficiaries. Each state has its own Medicaid TPL requirements, and some states even have penalties for failing to notify Medicaid of a claim with a Medicaid beneficiary. It is expected that these individual state Medicaid TPL requirements will continue to evolve, so it is important to stay abreast of these individual state TPL laws.

The PAID Act

Unfortunately, “one-off” state reporting is not going to solve the problem, and it threatens to make the regulatory scheme so complex that parties will simply walk away from settlements, again defeating the goals of the TPL laws. The good news is that Congress has the opportunity to get Medicaid TPL right.

First, Congress should focus on the data and follow the money by working to streamline TPL recoveries from Medicare and group health policies.

Second, Congress should enact the PAID Act—recently introduced legislation that would require CMS to respond to a “Section 111 query” with enrollment and eligibility information about the beneficiary’s Medicare Advantage, Part D, and Medicaid status. Such information is already provided by CMS as part of the query response file for group health plans reporting under MSP requirements. This law is asking CMS to do the same for non-group health plans.

Primary plans deserve to know who is a Medicare Advantage, Part D, or Medicaid beneficiary before any settlement, judgment, or award is determined. This will make it easier for the settling parties to contact those entities, identify any liens, and pay them at the time of settlement.

Medicaid deserves recovery for its payments related to Ms. Smith’s car crash. And Ms. Smith deserves to recover something for her wrecked car and lost wages. If she has health insurance, then Medicaid should never pay, period. And more needs to be done to ensure that states are aware of group health insurance, Medicare insurance, or available probate recoveries. But even if Ms. Smith doesn’t have health insurance, the incentives should be aligned so that settling parties can identify the relevant Medicaid program and resolve any liens at the time of settlement. Congress has the chance to get this right with the PAID Act.

About The Authors
Multiple Contributors
Heather Sanderson

Heather Sanderson, Esq., is president of Sanderson Firm PLLC.heather@sandersoncomp.com

David Farber

David Farber is partner at King & Spalding. He can be reached at  dfarber@kslaw.com

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