Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
M T -P
EDICAID  HIRD ARTY 
 
 
L S
IABILITY  AVINGS 
 
 
I , B
NCREASED   UT 
 
 
C R  
HALLENGES  EMAIN
 
Daniel R. Levinson  
Inspector General 
 
January 2013 
OEI-05-11-00130   
   
EXECUTIVE SUMMARY:  MEDICAID THIRD-PARTY LIABILITY SAVINGS 
INCREASED, BUT CHALLENGES REMAIN 
OEI-05-11-00130 
 
 
WHY WE DID THIS STUDY  
 
Millions of Medicaid beneficiaries have additional health insurance through third-party 
sources.  If beneficiaries have another source of payment, that source should pay before 
Medicaid does, up to the extent of its liability.  Prior studies from the Office of Inspector 
General and the Government Accountability Office reported that State Medicaid agencies 
(States) encountered challenges getting third parties to pay when they are responsible, 
leading to hundreds of millions of dollars in potential losses each year.  To address these 
challenges, the Deficit Reduction Act of 2005 contained provisions designed to enhance 
States ability to identify and recover payments from liable third parties. 
 
HOW WE DID THIS STUDY 
 
We determined trends in Medicaid third-party liability (TPL) savings from 2001 to 2011 
by analyzing data that States reported to the Centers for Medicare & Medicaid Services 
(CMS).  We also collected data from States on the amount of money at risk of not being 
recovered.  Finally, we surveyed States regarding factors that (1) helped them save 
money that third parties should pay and (2) made saving money challenging. 
 
WHAT WE FOUND 
 
Medicaid TPL savings increased; however, $4 billion remains at risk of not being 
recovered.  States reported savings from cost avoidance drove the growth in TPL 
savings, although savings from recoveries also contributed.  States reported that 
improvements to their processes facilitated savings.  Despite these improvements, States 
reported longstanding challenges with third parties when trying to identify insurance 
coverage and recover payments.  In addition, States reported challengescaused, they 
say, by laws and regulationsthat hinder the recovery of payments. 
 
WHAT WE RECOMMEND 
 
Since 2001, States have made sizable gains in TPL savings.  Improved State processes 
and congressional action seem to have had some effect.  However, a significant amount 
of money remains at risk of not being recovered.  On the basis of the amount of money 
that is at risk and the longstanding challenges that States continue to face, we recommend 
that CMS:  (1) work with States to address longstanding challenges related to 
identification of insurance coverage and recovery of payments, (2) address States 
challenges with 1-year timely filing limits for Medicare and TRICARE, and (3) work to 
strengthen enforcement mechanisms designed to deal with uncooperative third parties.  
CMS concurred with our recommendations.
   
   
TABLE OF CONTENTS 
 
Objectives .................................................................................................... 1 
Background ................................................................................................. 1 
Methodology ............................................................................................... 8 
Findings ..................................................................................................... 12 
Medicaid TPL savings increased, but 44 States reported 
$4 billion is at risk of not being recovered .................................... 12 
States reported that improvements to their processes facilitated 
TPL savings, but challenges remain .............................................. 16 
Conclusion and Recommendations ........................................................... 26 
Agency Comments and Office of Inspector General Response .... 28 
Appendixes ................................................................................................ 30 
A:  Challenges by State ................................................................. 30 
B:  Agency Comments ................................................................... 44 
Acknowledgments ..................................................................................... 50 
 
   
   
OBJECTIVES 
1.  To determine trends in State Medicaid agencies cost-avoided amounts 
and amounts recovered through pay and chase from 2001 to 2011.   
2.  To describe factors that influenced State Medicaid agencies ability to 
maximize cost avoidance. 
3.  To describe factors that influenced State Medicaid agencies ability to 
maximize payments recovered through pay and chase and to estimate 
the amount of money that remains at risk of not being recovered. 
BACKGROUND  
Millions of Medicaid beneficiaries have additional health insurance 
through third-party sources.  For example, from 2008 to 2010, an estimated 
15 percent (approximately 6.8 million) of Medicaid beneficiaries had 
employer-sponsored health insurance annually.1  During this same period, 
an estimated 14 percent (approximately 6.3 million) of beneficiaries had 
Medicare.2  Prior studies by OIG and the Government Accountability 
Office (GAO) reported that States encountered challenges to identifying 
and recovering payments from third parties, leading to hundreds of millions 
of dollars in potential losses each year.3, 4  To address these challenges, the 
Deficit Reduction Act of 2005 (DRA) contained provisions designed to 
enhance State Medicaid agencies (States) ability to identify and obtain 
payments from liable third parties.   
Medicaid Third-Party Liability 
Medicaid is intended to be the payer of last resort.5, 6  If Medicaid 
beneficiaries have another source of payment for health services or items 
covered by Medicaid, that source should pay before Medicaid does, up to 
 
1 Office of Inspector General (OIG) analysis of U.S. Census Bureau Current Population 
Survey (CPS) 2008, 2009, and 2010 data (collected in 2009, 2010, and 2011).  The CPS is 
a household survey on employment and unemployment.  It also collects data on health 
insurance coverage. 
2 Ibid. 
3 OIG, Medicaid Recovery of Pharmacy Payments From Liable Third Parties, 
OEI-03-00-00030, August 2001. 
4 GAO, Medicaid Third-Party Liability:  Federal Guidance Needed to Help States Address 
Continuing Problems, GAO-06-862, September 2006. 
5 Centers for Medicare & Medicaid Services (CMS), State Medicaid Manual, Pub. No. 45, 
ch. 3,  3900.1.   
6 In a few limited circumstances, Medicaid is not the payer of last resort.  For example, 
Ryan White programs are the payer of last resort, even with respect to Medicaid.  Ryan 
White Comprehensive AIDS Resources Emergency Act of 1990, P.L. 101-381,  2615; 42 
U.S.C. 300ff-25. 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  1 
   
   
the extent of its liability.  These other sources of payment are referred to as 
third parties.   
Third parties include health insurers; self-insured plans; group health plans; 
Government-sponsored health insurance, such as Medicare and TRICARE; 
service benefit plans; managed care organizations; pharmacy benefit 
managers; and other parties that are, by statute, contract, or agreement, 
legally responsible for payment of a claim for a health care item or 
service.7  CMS interprets other parties to include third-party administrators, 
fiscal intermediaries, and managed care contractors that administer benefits 
on behalf of the risk-bearing plan sponsor.8  Further, CMS includes medical 
support from absent parents, automobile insurance, workers compensation, 
and probate-estate recoveries as third parties.9 
To ensure that Medicaid does not pay for services for which third parties 
are liable, States conduct a number of coordination of benefits activities.  
They include identifying liable third parties, preventing payment on claims 
for which third parties are liable, and recovering reimbursements from 
liable third parties. 
Identifying Third Parties 
Identifying third parties is the first step to ensuring that they pay claims for 
which they are liable.  Federal law requires States to take reasonable 
measures to identify liable third parties that are responsible for payment of 
claims for health care items or services.10  Part of identifying potentially 
liable third parties is verifying coverage.  States must ask beneficiaries at 
the time of their initial applications for and redeterminations of Medicaid 
eligibility whether they have other sources of health coverage.  In addition, 
States must independently identify health coverage of Medicaid 
beneficiaries by matching States coverage files with those of third parties.  
States must also conduct diagnosis and trauma edits on Medicaid claims to 
identify potential casualty and liability coverage.11   
States identification systems require continual updates of beneficiary 
information and potential third-party liability (TPL) information to 
accurately identify liable third parties.  Regular updates allow States to 
make new matches, but also to update information from previous matches 
because beneficiary coverage status can change over time. 
 
7 Social Security Act  1902(a)(25), 42 U.S.C.  1396a(a)(25). 
8 CMS, State Medicaid Director Letter, December 15, 2006 (SMD #06-026), Questions 
and Answers.  Accessed at http://downloads.cms.gov/cmsgov/archived-
downloads/SMDL/downloads/SMD121506QandA.pdf on August 29, 2012. 
9 CMS, State Medicaid Manual, Pub. No. 45, ch. 3,  3901. 
10 Social Security Act  1902(a)(25), 42 U.S.C.  1396a(a)(25). 
11 42 CFR  433.138; CMS, State Medicaid Manual, Pub. No. 45,  3902 and 3903. 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  2 
   
   
Third-Party Payment 
When States identify probable TPL, they, or a contractor operating on their 
behalf, use two methods to ensure that Medicaid is the payer of last resort:  
cost avoidance and pay and chase.   
Cost Avoidance.  Cost avoidance is the method that States use to avoid 
payment when other insurance resources are available to the beneficiary.  
When States recognize claims as belonging to beneficiaries who have other 
insurance, they will deny payment and return the claims to providers, who 
are then required to bill and collect payment from any liable third parties.  
If States have electronic claims processing systems, they can automatically 
deny payment when claims enter their systems.  Federal regulations 
generally require States to use cost avoidance when probable TPL is 
established.12     
Cost avoidance is the most cost-effective way to ensure that Medicaid is the 
payer of last resort.  When States avoid costs, they do not pay money 
upfront or spend resources on recovery.  Once States deny payment and 
notify providers of a liable third party, providers should bill future claims to 
the third party first, rather than the States.     
Pay and chase.  In contrast, the pay-and-chase method occurs when States 
pay providers for submitted claims and then attempt to recover payments 
from liable third parties.  States may pay and chase claims for two primary 
reasons:  postpayment identification of TPL and Social Security Act 
exceptions to cost avoidance.  First, if States identify probable TPL after 
payment, Medicaid will have to pay and chase claims.  If a third party, such 
as Medicare, awards retroactive eligibility to a beneficiary, Medicaid will 
also have to pay and chase claims.13  Second, the Social Security Act 
requires that States pay and chase claims instead of using cost avoidance 
when (1) the service is prenatal care, (2) the service is preventive pediatric 
care, or (3) coverage is through a parent whose obligation to pay support is 
enforced by the States child enforcement agency.14  However, the 
 
12 42 CFR  433.139(b). 
13 Because Medicaid beneficiaries assign to the States any rights they may have to support 
or payment from a liable third party, States are able to pay and chase claims if a third party 
awards retroactive coverage.  Instances in which Medicaid beneficiaries may obtain 
retroactive health coverage from a liable third party include court-ordered health coverage 
and Medicare retroactive eligibility. 
14 Social Security Act  1902(a)(25)(E) and (F), 42 U.S.C.  1396a(a)(25)(E) and (F).  
See also 42 CFR  433.139(b)(3). 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  3 
   
   
Presidents fiscal year (FY) 2013 budget contained a provision to remove 
these Social Security Act exceptions to cost avoidance to strengthen TPL.15  
In general, States obtain recoveries by billing third parties directly and 
receiving reimbursements from them.  For instance, States commonly use 
this process when trying to obtain recoveries from third-party health 
insurance.   
Some types of third parties require specialized pay-and-chase recovery 
processes.  Specifically, States engage in specialized recovery processes 
when seeking reimbursements from Medicare and settlements involving 
either casualty insurance or probated estates.   
When seeking reimbursements from Medicare, States may not bill 
Medicare directly.  Instead, they can direct providers to bill Medicare for 
claims for which States have already paid providers.  States must decide 
whether to take this step and, if so, how they should obtain reimbursement 
from providers.  Some States choose to immediately recover money from 
providers for Medicare-related claims and do not wait for providers to be 
reimbursed by Medicare.  Some States give providers a defined period 
(e.g., 60 days) to receive reimbursement from Medicare before they recover 
money or disallow future payments.  These States may not recover money 
during this period, or afterward, if providers can prove that they did not 
receive reimbursement from Medicare.  Other States do not attempt to 
recover payments for Medicare-related claims for which they have paid 
providers.  
In casualty insurance and probated estates, States may have to negotiate or 
wait for a settlement or court decision before they can recover money for 
billed claims.  Casualty recoveries will be limited to the amount of the 
settlement that is designated for reimbursement of medical costs.16  States 
ability to recover money from probated estates depends on the value of the 
estates and whether other creditors are also making claims against them.   
   
 
15 Office of Management and Budget, Fiscal Year 2013 Budget of the U.S. Government:  
Cuts, Consolidations, and Savings.  Accessed at 
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/ccs.pdf on 
August 29, 2012.  
16 Arkansas Dept. of Health and Human Services v. Ahlborn, 547 U.S. 268 (2006). 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  4 
   
   
To obtain pay-and-chase recoveries from absent parents, States enter into 
cooperative agreements with State-run child support enforcement 
agencies.17 
During the pay-and-chase process, States may not recover all amounts 
billed to third parties for several reasons.  States may bill third parties for 
claims for which they are not liable.  This may occur when a service for 
which Medicaid paid is not covered by the third party or the third party did 
not cover the beneficiary on the date of service.  Alternatively, third parties 
may be liable for a claim but be uncooperative, refusing to pay or to 
process a claim.  In these cases, the third party may refuse to pay the entire 
claim or try to pay a lesser amount.  States may contest the denial and 
resubmit the claim to the third party.  Finally, States may determine that it 
is no longer cost-effective to try to recover a reimbursement on a claim.  
Based on Federal regulations and State Medicaid plans, each State sets a 
dollar threshold or other guidelines for following up on claims owed to 
them by liable third parties.18  Using the threshold or guidelines amount, 
States determine whether it is cost-effective to devote resources to 
following up on an unpaid claim.19   
Hiring TPL Contractors  
States may choose to conduct all benefits coordination activities themselves 
or hire a contractor to conduct some or all of these activities.  The range of 
responsibilities that States delegate to contractors varies.  For instance, 
some States delegate all coordination of benefits to contractors.  Other 
States conduct most coordination of benefits activities themselves but have 
agreements with contractors to perform certain limited functions.  
TPL Reporting  
States submit a Quarterly Expense Report (CMS-64) to CMS.  The 
CMS-64 is a statement of expenditures for which States are entitled to 
Federal reimbursement.20  The CMS-64 also includes information on 
recoveries, including TPL-related recoveries.     
The CMS-64.9A, an attachment to the CMS-64, describes TPL activity.  On 
the CMS-64.9A, States must report the amounts they avoided paying to 
third parties and the amounts they recovered from third parties.  Some 
 
17 42 CFR  433.151.  Pursuant to 42 CFR  433.151, States must enter into written 
cooperative agreements for enforcement of rights to and collection of third-party benefits 
with at least one of the following entities:  State child support enforcement agency, any 
appropriate agency of any State, and appropriate courts and law enforcement officials.  
Collections through cooperative agreements are a specific line item on the CMS-64.9A. 
18 42 CFR  433.13 (f)(2). 
19 Ibid.  
20 42 CFR  430.30(c); CMS, State Medicaid Manual, Pub. No. 45,  2500(A)(1).  
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  5 
   
   
types of third parties, such as Medicare, are specific line items on this 
attachment.  However, not all types of third parties are listed separately.   
The CMS-64.9A does not include certain types of information.  First, 
regarding pay and chase, CMS does not require States to report the amount 
of money they attempted to recover or the amount denied by third parties.  
Second, regarding cost avoidance, States do not report how they calculated 
cost avoidance.  CMS does not have a standard formula for calculating cost 
avoidance, and States methods for calculating it vary.  For instance, some 
States calculate the amount Medicaid avoided paying as the difference 
between the amount that Medicaid would have paid and the amount that 
Medicaid actually paid.  By contrast, other States report the total amount of 
a claim as savings, regardless of what Medicaid would have covered.   
States submit the CMS-64 and its attachments through the Medicaid 
Budget and Expenditure System (MBES) and certify that the dollars 
reported are correct.   
CMS uses the reported recovery information, including TPL-related 
recoveries, to compute the Federal financial participation (FFP) amount for 
the States Medicaid program costs.  However, CMS does not factor 
reported cost avoidance into the FFP amount because it does not involve 
dollars returned to States by third parties.   
TPL Provisions of the DRA 
The DRA contained provisions that were designed to enhance States 
ability to identify and recover payment from liable third parties.  The law 
clarified the list of entities considered third parties by including specific 
entities that were previously not listed, such as pharmacy benefit 
managers.21  In addition, the DRA required that States have laws requiring 
specified health insurers and certain other third parties to (1) provide States 
with information on health insurance coverage, (2) accept the States right 
of recovery, (3) allow States 3 years after the date of service to submit 
claims, and (4) not deny or refuse to pay claims for procedural reasons.22  
These provisions took effect on January 1, 2006.23  According to CMS staff, 
as of April 2012, all States except Florida and the District of Columbia had 
the necessary laws in place. 
 
21 DRA, P.L. 109-171  6035(a), amending Social Security Act  1902(a)(25), 42 U.S.C. 
 1396a(a)(25). 
22 DRA, P.L. 109-171  6035(b)(3), amending Social Security Act  1902(a)(25), 42 
U.S.C.  1396a(a)(25).  See also CMS, State Medicaid Director Letter, December 15, 2006 
(SMD #06-026), Questions and Answers.  Accessed at 
http://downloads.cms.gov/cmsgov/archived-
downloads/SMDL/downloads/SMD121506QandA.pdf on August 29, 2012. 
23 DRA, P.L. 109-171,  6035(c), 42 U.S.C.  1396a note.     
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  6 
   
   
There are some exceptions to the 3-year timely filing rule under the DRA.  
For instance, when Medicare is the liable third-party payer, fee-for-service 
providers have only 1 year after the date of service to submit claims under 
provisions of the Patient Protection and Affordable Care Act (ACA).24  If 
Medicare awards a Medicaid beneficiary retroactive eligibility, the 1-year 
timely filing requirement may be waived.25  In addition, TRICARE claims 
filing regulations, issued before enactment of the DRA, also require that 
claims be submitted no later than 1 year after the date of service.26   
Related Work 
OIG has reported problems with TPL.  In 2001, OIG found that Medicaid 
was at risk of losing over 80 percent of the dollars it paid and chased for 
pharmacy claims in 32 States.27  It also found that almost three-quarters of 
States reported that third parties refused to process or pay pharmacy 
claims.28 
GAO has also reported problems with TPL.  A 2006 GAO report found that 
States encountered problems verifying which Medicaid beneficiaries had 
private insurance and recovering payments from third parties.29  Not all 
third parties were willing to provide access to their coverage files, and 
some third parties imposed barriers to coverage identification.  For 
example, some pharmacy benefit managers ignored or denied States 
requests for verification information, citing privacy provisions in the 
Health Insurance Portability and Accountability Act of 1996 (HIPAA) or 
claiming that they were not liable parties.  Other third parties and 
contractors would not participate in data-matching agreements.  
Fourteen States estimated their combined losses because of problems 
recovering payments from third parties to be between $184 million and 
$196 million per year.30 
 
24 ACA, P.L. 111-148  6404, amending Social Security Act  1814(a)(1), 1835(a)(1), 
and 1842(b)(3)(B), 42 U.S.C.  1395f(a)(1), 1395u(b)(3)(B), and 1395n(a).  The 
Secretary may specify exceptions to the 1 calendar year period under each provision.   
25 If the Medicare contractor determines that CMSs conditions for the exception are met, 
it may allow the provider a filing extension from the end of the sixth calendar month from 
the month in which States recovered their money.  See CMS, Medicare Claims Processing 
Manual, Pub. No. 100-04, ch.1,  70.7.3.   
26 32 CFR  199.7(d).  TRICARE was formerly known as the Civilian Health and Medical 
Program of the Uniformed Services and is still referred to as such in some regulations. 
27 OIG, Medicaid Recovery of Pharmacy Payments From Liable Third Parties. 
28 Ibid. 
29 GAO, Medicaid Third-Party Liability:  Federal Guidance Needed to Help States 
Address Continuing Problems.  The data in the report were collected prior to the DRAs 
effective date, although the report was published after the effective date. 
30 Ibid. 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  7 
   
   
METHODOLOGY 
To determine trends that influenced State savings from liable third parties, 
we analyzed data on savings from cost avoidance and pay and chase, and 
on money at risk of not being recovered.  We also surveyed States 
regarding factors that (1) helped them save money that third parties should 
pay and (2) made saving money more challenging.   
Scope 
This study covered all 50 States and the District of Columbia.   
The focus was on savings from fee-for-service claims and, to the extent that 
they are included in States reports to CMS, managed care claims.  
Approximately one-third of States included some information from 
managed care claims in their CMS-64 reports.   
We analyzed trends in State savings from 2001 to 2011, the period since the 
last OIG study.  Our assessment of factors that influenced State savings was 
focused on more recent periods.  We realized through extensive 
conversations with States that collecting data on the factors that influenced 
State savings for 11 years would be intensely burdensome to them.  We also 
realized that in some cases data were not available.  Instead, we collected 
data on these factors for as much of that time as was reasonable (e.g., point-
in-time, or FYs 2010 and 2011).  These periods are described in more detail 
below. 
Data Sources and Data Collection 
Annual TPL Data.  We obtained State-reported CMS-64 and CMS-64.9A 
data from MBES for each State for FYs 2001 through 2011.  We used these 
data to determine States total Medicaid expenditures and their savings 
from, and trends in, cost avoidance and pay-and-chase over the 11-year 
period.  The data collected are totals, reflecting the Federal and State 
shares.   
Data Collection From States.  In November 2011, we sent a data collection 
instrument to each States TPL coordinator.  The instrument had 
two sectionsa data request and a survey.  We obtained a 100-percent 
response rate to the data collection instrument, although some States could 
not provide portions of the requested data.  Where appropriate, item 
response rates are included below. 
We asked States to provide data on their recovery rate for pay-and-chase 
claims and on the amount of money they believed was owed to them by 
third parties.31  We collected these data separately for Medicare, health 
insurance, casualty insurance, and probated estates.  The response rate for 
 
31 All data collected directly from States also reflect both the Federal and State share. 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  8 
   
   
items in the data request section of the collection instrument ranged from 
88 to 98 percent. 
We collected data on States recovery rates in two ways.  First, for 
Medicare and health insurance, we asked States for the total amount that 
they billed for FYs 2010 and 2011 and, of that, the total amount collected 
for each year.  We requested these data for only 2 years to reduce the 
burden on States.  Second, for casualty insurance and probated estates, we 
asked States to report their rate of return for closed cases.  We did not 
specify a time period for the self-reported rates.  
We also asked States to provide data on the amount of money that they 
considered to be at risk of not being recovered.  To do so, we asked States 
to provide their best estimate of money that they believed was owed to 
them from third parties.  To reduce the likelihood that claims still in the 
process of being paid would be reported as dollars at risk of not being 
recovered, we instructed States to include only dollars they had considered 
to be at risk 6 months before the survey was due. 
The survey section of the collection instrument focused on factors that 
might influence States savings from third parties.  We asked States which 
activities were most useful for identification of third parties.  We also asked 
which factors had improved their ability to avoid costs or recover payments 
since 2006.  Similarly, we asked about challenges related to coordination of 
benefits activities.  Finally, we asked States about their CMS-64 reporting 
activities, about their use of TPL contractors, and for basic program 
information.  The response rate for items in the survey section ranged from 
96 to 100 percent. 
Data Analysis 
TPL Trends and Total Savings.  We analyzed the data that States reported to 
CMS to identify the percentage change in total savings from cost avoidance 
and pay and chase between 2001 and 2011, the percentage change in the 
total amount of money that States expended over these 11 years, and the 
cumulative amount that States saved over this period.32  We compared the 
percentage change in States savings to the percentage change in total 
Medicaid expenditures.  We then calculated the percentage change in 
savings related to cost avoidance, pay and chase, probated estates, and 
subgroups of these categories that States report to CMS.  To obtain the 
cumulative amount in total savings, we summed all States cost avoidance 
and pay-and-chase savings for all 11 years.   
 
32 To account for inflation, we used the Consumer Price Index conversion factor to convert 
to 2011 dollars.   
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  9 
   
   
We analyzed differences among States; however, this information is not 
included in this report.  While we found differences among States, we did 
not have contextual data on State demographics and other factors.  Without 
this contextual information, our analysis of State comparisons was largely 
inconclusive.    
Rates of Recovery.  We calculated recovery rates both for Medicare and for 
health insurance pay-and-chase claims.  To calculate the recovery rate for 
Medicare, we divided the amount of money each State collected from 
Medicare in 2011 by the total amount that State billed to Medicare for 
pay-and-chase claims.  We also performed this calculation for health 
insurance recoveries.   
Money at Risk of Not Being Collected.  To calculate the money at risk of 
not being collected, we added up the money that States reported for 
Medicare, health insurance, casualty insurance, and probated estates.  For 
Medicare and health insurance, we reported the dollars at risk exactly as 
States reported them.  For casualty insurance and probated estates, we 
adjusted the amounts that States reported to provide a more accurate 
account of the money that States are likely to recover.33 
Factors That Influence State Savings.  We analyzed States responses to 
survey questions about factors that influenced savings to determine those 
that were most influential.  We also reviewed States open-ended responses 
to provide context for factors that States identified as very challenging.   
Limitations 
All data are State reported.  We did not independently verify the accuracy 
of data that States reported to CMS or to OIG. 
Some portion of cost-avoided dollars cannot, by definition, be quantified.  
For example, States cannot identify savings from cost avoidance that 
occurs when a provider correctly submits a claim for reimbursement to a 
third party rather than to Medicaid.   
States calculations of cost avoidance may be affected by variations in 
tracking methods.  For example, some States track the entire amount that 
was billed for a cost-avoided claim as savings, while others track only the 
amount that Medicaid would have paid for that claim as savings.  However, 
these data are sufficient to represent broad trends in savings over time.  It is 
likely that States reported data in the same way in 2011 as in 2001.  
 
33 To calculate a reasonable estimate of the amount that States might be able to recover 
from casualty insurance and probated estates, we adjusted the raw numbers provided by 
States by the rates of return for closed cases (data also provided by States). 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  10 
   
   
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency.   
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  11 
   
   
FINDINGS 
Medicaid TPL savings increased, but 44 States 
reported $4 billion is at risk of not being recovered  
Overall, States reported increased savings from both cost avoidance and pay 
and chase between 2001 and 2011.  Specifically, savings increased from 
nearly $34 billion in 2001 to slightly more than $72 billion in 2011, 
representing a 114-percent increase.  However, because States generally were 
not able to recover all of the money they went after, a significant amount 
remains at risk of not being recovered.  Cumulatively, 44 States reported 
$4 billion is at risk.34 
States reported growth in cost-avoidance and pay-and-chase savings does 
not appear to be tied to growth in Medicaid expenditures or in the 
percentage of Medicaid beneficiaries with another source of insurance.  For 
example, reported expenditures increased 47 percent from 2001 to 2011, 
compared to TPLs 114-percent growth.  Such growth suggests that TPL 
savings outpaced growth in Medicaid expenditures.  Further, the percentage 
of beneficiaries with another source of health insurance generally remained 
stable between 2002 and 2010.35    
States reported savings from cost avoidance drove growth in 
TPL savings  
States reported cost-avoidance savings accounted for most TPL growth 
and total savings between 2001 and 2011.  States reported savings from 
cost avoidance grew 117 percent, from $33 billion to $70 billion, between 
2001 and 2011.  Cumulatively, States reported that they avoided paying 
$512 billion from 2001 to 2011.  Had States paid for these services, 
reported Medicaid expenditures could have been 13 percent greater.  See 
Chart 1 for TPL savings trends from 20012011 by cost avoidance, pay and 
chase, and probated estates.   
   
 
34 The remaining seven States did not provide this information. 
35 OIG analysis of U.S. Census Bureau CPS 2008, 2009, and 2010 data (collected in 2009, 
2010, and 2011).   
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  12 
   
   
Chart 1:  TPL Savings From 2001 to 2011 
$80,000,000,000
$70,000,000,000
$60,000,000,000
$50,000,000,000
$40,000,000,000
$30,000,000,000
$20,000,000,000
$10,000,000,000
$0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Cost avoidance Pay-and-chase recoveries Probate-estate recoveries
Source:  OIG analysis of CMS-64.9A reports, 2012. 
Although similar proportions of Medicaid beneficiaries have Medicare or 
health insurance as third-party payers nationally, Medicare makes up about 
80 percent of total costs avoided.  A variety of factors contributes to this, 
including that cost avoidance is generally easier for Medicare claims than 
for other types of third parties.  Because Medicare beneficiaries tend to 
keep Medicare after they become eligible, once States have third-party 
coverage information they can avoid payment for all future claims.  In 
contrast, other forms of third-party coverage, such as health insurance 
obtained through an employer, are more likely to fluctuate and result in 
multiple updates to State systems.   
Although Medicare traditionally has been the largest driver of cost 
avoidance since 2001, States reported some recent gains in cost avoidance 
from third-party health insurance.  For example, in 2001, health insurance 
made up 10 percent of total costs avoided; by 2011, it had grown to 
18 percent.  These gains suggest that the DRA had some effect on States 
ability to avoid costs, likely through improvements in States identification 
of third parties.  See Chart 2 for more detail.  
 
 
 
 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  13 
   
   
Chart 2:  Cost-Avoidance Percentages Over Time, by Type of Third-Party Insurance 
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Medicare Health insurance Other
 
Source:  OIG analysis of CMS-64.9A reports, 2012.  
Increases in State recoveries also contributed to TPL savings  
Although State recoveries through pay and chase make up only about 
3 percent of total TPL savings, these recoveries are increasing.  States 
pay-and-chase recoveries from health insurance, Medicare, casualty 
settlements, and cooperative agreements increased by 61 percent, from 
$1 billion to $1.6 billion, between 2001 and 2011.  Cumulative 
pay-and-chase recoveries over this period resulted in $14.7 billion in 
savings for States.    
As with cost avoidance, the proportion of pay-and-chase recoveries varies 
by type of third-party.  Specifically, pay-and-chase recoveries from health 
insurance accounted for 50 percent of cumulative pay-and-chase recoveries 
between 2001 and 2011, while Medicare accounted for 18 percent of such 
recoveries.  See Chart 3 for more detail. 
   
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  14 
   
   
Chart 3:  Pay-and-Chase Percentages Over Time, by Type of Third-Party Insurance 
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Medicare Health insurance Casualty Cooperative agreements
 
Note:  Casualty insurance and cooperative agreements are other sources through which States may recover funds from third 
parties.  Casualty coverage may be a source of TPL if Medicaid paid for medical expenses resulting from accidental injury that 
should have been covered by casualty insurance.  Cooperative agreements assist States in pursuing a liable third party, for 
example, to identify parents who are obligated to pay for the health care of Medicaid recipients. 
Source:  OIG analysis of CMS-64.9A reports, 2012.  
 
Moreover, the percentage of recoveries from health insurance is growing.  
In 2001, health insurance accounted for 42 percent of recoveries from pay 
and chase, compared to 62 percent of total dollars recovered in 2011.  
Similar to cost avoidance, these gains suggest that the DRA had some 
effect on States ability to recover money, possibly because of an increased 
ability to identify claims that need to be recovered or to the DRAs 
expansion of the timely filing limit to 3 years.   
Despite increased savings, States reported potential recoveries 
at risk  
As of June 30, 2011, 44 States cumulatively reported $4.1 billion that they 
believe is owed by third parties and is at risk of not being recovered.36  This 
sum includes Federal and State dollars.  The term dollars at risk refers 
only to claims that States pay and chase; cost-avoided dollars are never at 
risk because they are never expended by States.  Table 1 shows the money 
that States report being owed by third parties. 
   
 
36 Each State determined what dollars were at risk of not being recovered using its own 
methodology.  As a result, this amount represents varying time periods. 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  15 
   
   
Table 1:  Dollars at Risk of Not Being Recovered 
Percentage of Dollars at 
Type  Dollars at Risk 
Risk 
Health insurance  $2,356,853,103  57% 
Probated estates*  $931,268,692  22% 
Casualty*  $744,684,814  18% 
Medicare   $110,868,962  3% 
     Total  $4,143,675,571  100% 
*The dollars for probated estates and casualty reflect the average amount States expect to recover and consider to 
be owed to them, not the entire amount of the probated estate or casualty claim.   
Source:  OIG analysis of data collection instrument responses, 2012. 
The disparity between the amount that States tried to recover from 
third-party health insurance and the amount actually collected may 
contribute to high amounts of dollars at risk.  On average, 45 States 
reported recovering 18 percent of what they billed to third-party health 
insurance in 2011.  These low recovery rates may be due in part to States 
challenges to reimbursement, which are discussed in more detail later in the 
report. 
States experience higher recovery rates from Medicare than from 
third-party health insurance, contributing to fewer dollars at risk.  The 
average recovery rate in 2011 for Medicare was 69 percent among the 
32 States that were able to provide data.  It is unclear why Medicare 
recovery rates are higher, but one explanation could be that some States 
automatically recover money from providers when Medicare is the third 
party.  By contrast, when a health insurance carrier is the third party, States 
generally submit bills directly to the carrier and must wait for its response.  
States reported that improvements to their processes 
facilitated TPL savings, but challenges remain 
States identified several factors that facilitated improvements in cost 
avoidance and pay and chase, despite also reporting some longstanding 
challenges.  In general, process improvements, such as information 
technology and use of contractors, facilitated these improvements, which 
led to greater savings.  At the same time, States reported continued 
challenges with third parties when trying to identify insurance coverage 
and recover payments similar to those identified by States in previous OIG 
and GAO studies.  In addition, States reported challengescaused, they 
say, by laws and regulationsthat hinder the recovery of payments. 
   
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  16 
   
   
States reported that their use of electronic systems and 
contractors facilitated improved savings 
Forty-Five States Reported That Their Electronic Systems Facilitated 
Improvements in Their Identification, Cost Avoidance, and Recovery 
Efforts.  States indicated that electronic systems improved the efficiency 
with which they were able to identify beneficiaries with third-party 
insurance.  This improved efficiency resulted from:  (1) conducting online 
verification of coverage and (2) having electronic data-matching 
agreements with third parties.  Forty-two States reported that at least one of 
these systems was very useful for identifying third parties.  See Table 2 
for a breakdown of the number of States that reported that each system was 
very useful for identifying third parties. 
Table 2:  Electronic Systems That States Reported as Very Useful for 
Identifying Third Parties 
Reported as  Percentage of 
Electronic System 
Very Useful  States  
Online verification  37  73% 
Via third-party Web site  36  71% 
Via TPL clearinghouse vendor  20  39% 
Having electronic data matching agreements with 
34  68% 
third parties 
  Source:  OIG analysis of State data collection instrument responses, 2012. 
Electronic systems helped States identify third parties more efficiently, 
which helped States save money.  For instance, verifying coverage online 
through a third-party Web site is quicker than phoning or faxing a third 
party.  In addition, States reported that using TPL clearinghousesvendors 
with electronic agreements with many insurance companieswas helpful.  
States pay clearinghouses to match coverage information for beneficiaries 
against a clearinghouses collection of data.  Lastly, data-matching 
agreements increase efficiency because they allow States to check for 
third-party insurance for many beneficiaries at one time.  In these cases, 
States share their Medicaid enrollment with third parties, which then 
compare States lists to their covered individuals and produce a report of all 
matches for States.   
Similarly, using electronic systems increased States efficiency in avoiding 
costs and recovering payments.  Thirty-six States reported that increases in 
electronic claims or electronic billing significantly improved their ability to 
save money.  Electronic claims occur when providers submit claims 
electronically for services provided to Medicaid beneficiaries to States for 
payment.  Electronic billing occurs when States send their invoices for 
reimbursement to third parties via electronic means.  Both of these systems 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  17 
   
   
may help States save money because automated processes replace manual 
processes.  For example, because electronic claims from providers are 
transmitted directly to States claim management processing systems, claim 
reviews, TPL checks, and cost-avoidance activities happen automatically, 
rather than manually. 
In addition, States ability to receive payments electronically from third 
parties appears to have had some positive effect on savings.  As of 
December 2011, 32 States reported accepting electronic payments.  These 
States demonstrated a 78-percent increase in recoveries between 2001 and 
2011.  On the other hand, the 18 States that did not accept electronic 
payments had an 18-percent increase in recoveries over the same period. 
States Reported That Assistance From Contractors Facilitated 
Improvements in Their Identification and Recovery Efforts.  Forty-seven 
States used a contractor for at least one TPL activity, and all but two of 
these States indicated that contractor assistance was either useful for 
identifying third parties or improved States ability to collect pay-and-chase 
claims.   
States reported that the most helpful functions contractors provide are 
identification and verification.  Overall, 29 States that have contractors 
indicated that such assistance was very useful in identifying third-party 
insurance.  States indicated that contractors data-matching agreements 
with out-of-state third parties helped them identify third-party insurance.  
Because contractors were more likely to have relationships with a wider 
array of third parties, they could more easily develop data-matching 
agreements than States could.     
States reported that the second-most helpful contractor-assisted function 
was conducting collections.  Overall, 27 States that used contractors 
indicated that such collection assistance with pay-and-chase claims from 
third parties significantly improved States ability to recover money.  For 
example, some States indicated that contractors may be useful in doing 
followup work on claims that are hard to recover.   
States reported longstanding challenges with third parties 
when trying to identify insurance coverage and recover 
payments  
Although States TPL savings improved, they continue to face challenges in 
maximizing savings from third parties.  States reported challenges in 
identifying third parties and recovering payments through pay and chase.  
In fact, 49 States identified at least one part of these activities as very 
challenging.  However, data are inconclusive as to whether States that 
identified more challenges than others have less in TPL savings. 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  18 
   
   
In passing the DRA, Congress attempted to mitigate challenges in 
identifying third parties and recovering payments.37  However, we found 
that many of the challenges that States reported are similar to those 
reported in 2001 and 2006.38, 39   
States Continue To Face Challenges Identifying Beneficiaries With 
Third-Party Insurance Because Third Parties Do Not Always Provide 
Complete Coverage Information.  All States reported that identifying third 
parties was challenging.  Identification of third-party insurance is the first, 
and key, step in saving money through TPL.  Without the appropriate 
information, States cannot avoid costs or recover payments.   
Although the details may have changed for certain challenges, 
identification has historically been challenging for States.  In 2001, States 
reported concerns about inaccurate or incomplete information in coverage 
files and difficulty identifying claims processing entities.40  In 2006, States 
noted problems with third parties ignoring their requests for coverage 
information and being unwilling to share data electronically.41  In 2011, 
States reported challenges with third parties submitting explanation of 
benefit (EOB) forms that were confusing or incomplete.  See Table 3 for a 
complete list of challenges related to identification of third parties that 
States identified in 2011.42 
Table 3:  Challenges That States Reported Related to Identification  
Percentage of States That 
Specific Challenge With Identification  
Reported the Challenge in 2011 
Third-party concerns about HIPAA and releasing insurance 
90% 
coverage information to States 
EOB forms from third parties that are confusing or 
86% 
incomplete 
Cooperation from pharmacy benefit managers  84% 
Obtaining data about beneficiaries third-party insurance 
78% 
from State or Federal entities  
Obtaining data from TRICARE on Medicaid beneficiaries 
74% 
with potential TRICARE coverage 
Source:  OIG analysis of State data collection instrument responses, 2012. 
The most frequently cited challenge to identification was third-party 
concern about HIPAA and whether third parties can release information to 
 
37 DRA, P.L. 109-171  6035, Social Security Act  1902(a)(25), 42 U.S.C.  1396a. 
38 OIG, Medicaid Recovery of Pharmacy Payments From Liable Third Parties. 
39 GAO, Medicaid Third-Party Liability:  Federal Guidance Needed to Help States 
Address Continuing Problems. 
40 OIG, Medicaid Recovery of Pharmacy Payments From Liable Third Parties. 
41 GAO, Medicaid Third-Party Liability:  Federal Guidance Needed to Help States 
Address Continuing Problems. 
42 See Table A-1 in Appendix A for a list of these challenges by State. 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  19 
   
   
States.  States are exempt from HIPAA under the privacy rules exception 
for the use and disclosure of protected health information for treatment, 
payment, and health care operations.43  CMS has also issued guidance on 
this issue.44  However, States indicated that third parties continue to use 
HIPAA as an excuse to not provide information.  For example, one State 
reported: 
Many commercial carriers frequently quote HIPAA and then refuse 
to verify coverage when our State agency contacts them.  We 
frequently must go through their compliance office in an attempt to 
get clearance.  Once we obtain clearance it does not always help us 
the next time we need to verify coverage.  Carriers feel it is a 
violation of HIPAA to confirm the existence of coverage and the 
lives covered. 
The next most frequently cited challenge to identification was that EOB 
forms States receive from third parties are either difficult to interpret or 
incomplete.  Inaccurate and incomplete information on EOB forms hinders 
States attempts to determine whether they correctly identified the liable 
third party.  When a third party refuses liability, it denies the claim via an 
EOB form.  The EOB form should indicate the reason for denying a claim 
(i.e., that the third party refuses its coverage liability).  However, there is 
no standard format for the EOB form.  States indicated that, even across 
national plans, EOB forms are inconsistent and that data may not be easily 
identifiable or be in the same spot on the form.  This is problematic for 
States because it can be very difficult ... to understand them and key it 
correctly.  In addition, States reported that third parties did not always 
submit all information on the EOB form denying States requests for 
payment.  One State provided this example:  There are some companies 
that do not provide a complete EOB the first time around.  Claims are 
corrected and resubmitted based on the first EOB, only to receive a second 
EOB with new items that need to be resolved. 
Another challenge that States reported was lack of cooperation from 
pharmacy benefit managers.  States have reported this challenge since 
2001.  In fact, in 2001, OIG found that more States had problems with 
pharmacy benefit managers than with all other third parties combined.45  
The DRA attempted to increase cooperation from pharmacy benefit 
managers by clarifying that they are third parties, and as such must accept 
 
43 45 CFR  164.506. 
44 CMS, State Medicaid Director Letter, June 21, 2010 (SMDL #10-011), Questions and 
Answers.  Accessed at http://downloads.cms.gov/cmsgov/archived-
downloads/SMDL/downloads/SMD10011.pdf on August 29, 2012. 
45 OIG, Medicaid Recovery of Pharmacy Payments From Liable Third Parties. 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  20 
   
   
States right of recovery.  CMS has also issued guidance to this effect.46  Yet 
in 2011, States again reported that pharmacy benefit managers were 
uncooperative.  One State provided this example:  They make you guess a 
date [of coverage eligibility] and then will tell you yes or no.  States 
indicated that pharmacy benefit managers will not provide eligibility dates 
for covered beneficiaries, will not verify coverage unless a State has the 
policy number, and may be unwilling to speak to States representatives.   
Finally, States reported challenges obtaining data about third-party 
coverage from State and Federal entities.  Some States cited problems 
getting workers compensation or child support claims needed to identify 
additional sources of third-party insurance.  States also reported that some 
entities cite Internal Revenue Service or Social Security Administration 
security requirements that prevent them from disclosing Social Security 
numbers and other personal identifiers required for data matching.  In 
addition, States reported that TRICARE is challenging, mostly because it 
will conduct only one data match per year with each State.  
States Continue To Face Challenges Recovering Payments Because Third 
Parties Refuse To Process or Pay Claims.  All but one State reported 
continuing challenges with third parties refusing to process or pay claims, 
despite State laws requiring third-party cooperation that were enacted 
pursuant to the DRA.  Generally, States have reported these challenges 
since 2001.  In 2001, States reported that claims were not processed or 
were returned with vague denial codes, and that some pharmacy benefit 
managers would not process claims because their clients had not authorized 
them to do so.47  In 2006, States reported that third parties refused to 
respond to or cooperate on claims filed for payment by States.48  In 2011, 
States reported similar challenges, such as third parties issuing denials for 
procedural reasons.  See Table 4 for a complete list of the challenges 
related to third-party refusal to pay or process claims, whether States 
reported the challenges in the past, and whether the DRA sought to address 
them.49 
   
 
46 CMS, State Medicaid Director Letter, December 15, 2006 (SMD #06-026), Questions 
and Answers.  Accessed at http://downloads.cms.gov/cmsgov/archived-
downloads/SMDL/downloads/SMD121506QandA.pdf on August 29, 2012. 
47 OIG, Medicaid Recovery of Pharmacy Payments From Liable Third Parties. 
48 GAO, Medicaid Third-Party Liability:  Federal Guidance Needed to Help States 
Address Continuing Problems. 
49 See Table A-2 in Appendix A for a list of these challenges by State. 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  21 
   
   
Table 4:  Challenges States Reported About Third-Party Refusal To Process or Pay Claims 
Identified in  Identified in  DRA  Identified in  Percentage of States 
Challenge  2001 OIG  2006 GAO  Attempted To  2011 (This  That Reported Challenge 
Report  Report  Address  Study)  in 2011 
Denial by third parties  X        X  98% 
For procedural reasons  X   X  X  X  96% 
No explanation   X        X  88% 
Third parties not responding 
 X  X   X  X  92% 
when State submits bills 
Third parties not abiding by 
         X  88% 
3-year timely filing rules 
Third-party documentation 
submitted with 
reimbursement does not  X  88% 
     
indicate which claims are 
being reimbursed 
Third parties not accepting 
 X  X   X   X  82% 
States' right to collect 
Pharmacy benefit managers 
claim they do not have the 
X   X  X  X  82% 
authority to reimburse 
States directly 
 
 Source:  OIG analysis of State data collection instrument responses, 2012.
The most frequently cited longstanding challenge to recovering payments is denial 
from third parties for procedural reasons or with no explanation.  In 2011, 
42 States reported that $3.4 billion of the $7 billion that they billed to third-party 
health insurance was denied.  Although third parties may legitimately deny claims 
(e.g., if the insurer did not cover the Medicaid beneficiary), denials for procedural 
reasons or with no explanation are not considered legitimate.  In fact, the DRA 
specifically required States to pass laws prohibiting third parties from refusing to 
reimburse States for procedural reasons.  It is unclear what portion of the 
$3.4 billion in denied claims was inappropriately denied by third parties and still 
eligible for collection.  However, some portion of that money may contribute to the 
amount that States reported as at risk. 
An additional longstanding reported challenge is third parties failing to 
respond to States claims.  For instance, in 2011, 41 States reported that 
third parties did not respond to $2 billion of the $7 billion billed to 
third-party health insurance.  When this happens, States may lose money.   
Another challenge that States have reported since 2001 is that third parties 
do not accept States right to collect reimbursements.  One State indicated 
that this was a particular problem with out-of-State third-party insurers.  
Another State indicated that there still appeared to be some confusion about 
Medicaid being the payer of last resort. 
A final challenge States have reported since 2001 is that pharmacy benefit 
managers claim they do not have the authority to reimburse States directly.  
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  22 
   
   
Despite State laws requiring third-party cooperation that were enacted 
pursuant to the DRA, in 2011, half of States reported this issue as very 
challenging.  Several States reported that pharmacy benefit managers 
claim they can reimburse States only when beneficiaries employers have 
authorized them to do so.  In refusing to reimburse States, pharmacy 
benefit managers have contended that the Employee Retirement Income 
Security Act of 1974 (ERISA) prevents reimbursement to States by 
pharmacy benefit managers for employer-governed health benefit plans.50  
Pharmacy benefit managers have also argued that they must refuse 
reimbursement to States according to procedural restrictions chosen by plan 
sponsors.51  These arguments have proved unsuccessful for pharmacy 
benefit managers in recent litigation.52   
States reported that certain laws and regulations created 
challenges to recovering payments  
In addition to longstanding challenges from third parties, all States reported 
that particular laws and regulations, or the lack thereof, are challenging to 
recovery efforts.  Specifically, the Medicare and TRICARE 1-year timely 
filing limits were most frequently reported to be very challenging.  See 
Table 5 for a list of specific challenges related to current laws and 
regulations.53 
Table 5:  Challenges That States Reported With Current Laws and 
Regulations  
Percentage of States That 
Challenge 
Reported Challenge in 2011 
Medicare 1-year timely filing limit  98% 
TRICARE 1-year timely filing limit  92% 
Lack of enforceable penalties for third parties that 
90% 
refuse to reimburse States 
Inability to bill Medicare directly   88%  
Lack of rules requiring third parties to reimburse in a 
82% 
timely manner 
 
Source:  OIG analysis of State data collection instrument responses, 2012.
Medicare Timely Filing Limit Is Challenging.  States reported that the 
Medicare 1-year timely filing limit creates barriers to recovery.  Because 
States cannot bill Medicare directly, they must decide whether and how to 
recover money from providers.  Some States direct providers to first bill 
Medicare and then forward payment to States once it is received.  If States 
 
50 See, e.g., Caremark, Inc. v. Goetz, 480 F.3d 779 (6th Cir. 2007). 
51 Ibid. 
52 Ibid. 
53 See Table A-3 in Appendix A for a list of these challenges by State. 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  23 
   
   
do not discover the third-party insurance in time for providers to meet the 
1-year timely filing deadline, States lose that money.  Some States may not 
attempt to recover Medicare claims because it is not cost effective.  
States may remedy the problem by recovering money from providers, 
regardless of whether providers are paid by Medicare.  In this case, States 
recover their payments, but providers may not complete their recovery 
from Medicare in time to get paid.  However, States expressed concern 
about the consequences of taking money back from providers when they do 
not expect the providers to recover the money from Medicare.  Multiple 
States indicated that providers may choose not to participate in Medicaid 
because of this challenge and are concerned that this may limit beneficiary 
access.  Some States are so concerned that they do not attempt to recover 
money from providers for Medicare claims. 
Medicare regulations allow providers an exception to the 1-year timely 
filing limit, but States expressed concern that the exception is of limited use 
to providers in getting their money back.54  If CMS, or one of its 
contractors, determines that beneficiaries were retroactively awarded 
Medicare coverage and States have recovered their money from providers, 
providers will be granted additional time to file claims with Medicare.  
However, States reported that the requirements for meeting the conditions 
for exception to the timely filing limit are challenging.  At the time of our 
data collection, providers had to produce the letter notifying the beneficiary 
of retroactive Medicare entitlement to qualify for the exception.  States 
reported that providers often do not have, and cannot get, this letter.  CMS 
changed this requirement after we completed our data collection.  As of 
August 27, 2012, if providers do not have access to this letter, Medicare 
contractors can use Medicare databases to verify retroactive eligibility.55  
TRICAREs 1-Year Timely Filing Limit Is Challenging.  States reported that 
TRICAREs 1-year timely filing limit is also challenging, primarily 
because TRICARE allows each State one data match per year.  States may 
find claims that were already paid and potentially should have been paid by 
TRICARE, but are for dates of service more than 1 year previous and are 
past the 1-year window.   
 
54 42 CFR 424.44(b)(2). 
55 CMS, Modifying Timely Filing Exceptions on Retroactive Medicare Entitlement and 
Retroactive Medicare Entitlement Involving State Medicaid Agencies, Medicare Claims 
Processing Manual (CMS Pub. 100-04), Transmittal 2477, Change Request 7834 
(May 25, 2012; effective August 27, 2012).  Accessed at 
http://www.cms.gov/Regulations-and-
Guidance/Guidance/Transmittals/downloads/R2477CP.pdf on August 29, 2012. 
 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  24 
   
   
The high percentage of States reporting that TRICAREs 1-year timely 
filing limit is challenging may be due to lack of clarity about TRICAREs 
policy.  Specifically, States may have a different interpretation of the start 
date of the 1-year window, depending on which source of TRICARE 
guidance they consult.  TRICARE regulations indicate that States have 
1 year from the date of service to file a claim.56  The TRICARE 
Reimbursement Manual extends that window by allowing States 1 year 
from the date of the annual data match.   According to the TRICARE 
Reimbursement Manual, States may file claims no later than 1 year after 
the:  (1) date of service, (2) date the prescription was filled, (3) date of 
discharge if the services were rendered during an inpatient admission, or 
(4) the date a State received the results of the annual data match.57  
However, the sample billing agreement that States sign to claim 
reimbursement from TRICARE does not mention the four options and 
indicates only that claims must be filed no later than one year following 
the date of service or the date of discharge for inpatient services.58  
Although the billing agreement indicates that TRICARE contractors can 
grant waivers to the claims filing deadline, the requirements for obtaining a 
waiver are not listed.  
Some States and CMS staff have indicated that they were not aware of 
alternatives to using the date of service for the start of the 1-year timely 
filing deadline.   
States Lack an Enforcement Mechanism for Uncooperative Third Parties.  
States indicated that the lack of penalties for refusal to reimburse and lack 
of rules for timely reimbursement were challenges to achieving TPL 
savings.  Without a mechanism to enforce penalties, States have no 
influence over third parties and few resources to compel payment.  
Although States Attorneys General may seek legal action against third 
parties, States indicated that these efforts are resource intensive and the 
outcomes are uncertain and may not be cost effective.  In addition, there are 
no rules for how long third parties have to reimburse States once States 
have submitted a bill.  Lacking rules requiring third parties to reimburse 
States in a timely manner, States bill third parties multiple times and have 
outstanding balances in their fiscal systems for indefinite periods.  
 
56 32 CFR  199.7(d).   
57 TRICARE, TRICARE Reimbursement Manual 6010.58-M, ch. 1,  20, para. 2.1.2 
(Feb. 1, 2008). 
58 TRICARE, TRICARE Reimbursement Manual 6010.58-M, ch. 1, add. A (Feb. 1, 2008). 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  25 
   
   
CONCLUSION AND RECOMMENDATIONS 
Since 2001, States have made sizable gains in TPL savings.  Improvements 
in States processes and changes enacted by the DRA appear to have had a 
positive effect.  However, States reported that $4 billion remains at risk of 
not being recovered, so further efforts to improve TPL savings are 
warranted.   
Longstanding challenges persist in recovering payments from third parties.  
In particular, States reported challenges in getting third parties to provide 
complete insurance coverage information and to process or pay claims.  
States have been reporting these challenges since 2001.  States also 
indicated that challenges involving current laws and regulations limited 
their ability to recover payments.   
Based on the amount of money at risk of not being recovered and the 
longstanding challenges that States continue to face, we make 
three recommendations to CMS to strengthen Medicaid TPL outcomes.   
CMS should: 
Work With States To Address Longstanding Challenges 
Working With Third Parties To Identify Insurance Coverage and 
Recover Payments 
CMS should work with States, and potentially with third parties, to address 
challenges related to identification and recovery of payments.  Because 
States face similar TPL challenges, CMS could help coordinate their 
efforts.  In addition, many of the third parties have coverage across the 
country, so a broad plan, rather than individual State negotiations, would be 
appropriate. 
At a minimum, CMS should address the challenges with identifying third 
parties and recovering payments that were identified in this report.  This 
could include collecting and disseminating examples of State best practices 
for working with third parties or methods to educate third parties on 
particular topics (e.g., HIPAA, obligation to respond to States, or not 
denying claims with no explanation).   
CMS could also explore ways to take an active role in facilitating States 
coordination of benefits activities.  This could include (1) acting as a 
liaison for data-sharing agreements, (2) coordinating with TRICARE, and 
(3) working with States to determine whether CMS has a role to play in 
working with third parties that are consistently uncooperative across a 
number of States. 
CMSs actions to address State challenges should pay particular attention to 
pharmacy benefit managers.  Since OIGs 2001 study, States have 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  26 
   
   
consistently reported that pharmacy benefit managers are uncooperative.  
CMS could facilitate efforts to better understand and mitigate pharmacy 
benefit managers concerns.   
CMS could use the TPL Technical Assistance Group (TAG) to develop 
solutions to address States challenges.  Or, it could create a task force that 
includes States and third parties, including key pharmacy benefit managers, 
to work toward feasible solutions. 
Address States Challenges With 1-Year Timely Filing Limits for 
Medicare and TRICARE 
Medicares and TRICAREs filing limits were the two items that had the 
most very challenging responses from States.  States may be unable to 
bill for and recover claims within the 1-year limit, resulting in losses for the 
States.   
To address the Medicare concerns, CMS should ensure that States and 
providers are aware of and understand the August 2012 change to the 
policy for requesting an exception to the 1-year timely filing limit for 
retroactive Medicare eligibility.  CMS could issue a State Medicaid 
Director Letter explaining this change. 
To address the TRICARE concerns, CMS could engage in conversations 
with TRICARE to clarify the policies for the 1-year timely filing limit.  
CMS could clarify the start date of the timely filing limit.  CMS could also 
ask TRICARE to clarify how its claims processing contractors apply the 
TRICARE Reimbursement Manuals start date policies when reviewing 
claims submitted by State Medicaid agencies.  They could also discuss the 
procedures and circumstances, if any, under which States should request 
waivers.  CMS and TRICARE could also discuss whether any changes 
should be made to the State Agency Billing Agreement to further 
incorporate the Reimbursement Manual guidelines.  CMS could then issue 
guidance to States on TRICARE policies and procedures.   
Work To Strengthen Enforcement Mechanisms Designed To 
Deal With Uncooperative Third Parties 
The DRA enacted solutions for many of the challenges that OIG and GAO 
found related to working with third parties to identify insurance coverage 
and recover payments, but States reported that working with third parties 
remains challenging.  The law does not include any enforcement authority 
to penalize third parties for violations.  Enforcement mechanisms would 
allow States and the Federal Government to send a strong message that 
third parties must comply with the law, and ultimately help States and the 
Federal Government recover some of the $4 billion that States report as 
being at risk.   
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  27 
   
   
Enforcement could take many forms.  For example, penalties could be 
assessed if third parties are uncooperative when States attempt to identify 
or verify coverage.  On the recovery end, enforcement could include 
interest, or a fine, for claims that are not responded to in a given period.   
Because different organizations govern different aspects of health 
insurance, CMS should work with the appropriate Federal and State entities 
to determine whether these suggestions are feasible enforcement options or 
whether others exist.  For example, to explore possibilities for enforcement 
related to employer-sponsored health plans subject to ERISA, CMS could 
work with the Department of Labor.  The appropriate divisions within CMS 
could explore enforcement options for pharmacy benefit managers that 
contract to provide Medicare services.  CMS should also work with States 
to explore options to strengthen State enforcement mechanisms under State 
laws and regulations governing insurance.  Finally, CMS could consider 
whether additional congressional action would be helpful.  
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred with our recommendations.  For the first recommendation, 
CMS stated that it will work with States and third parties to address the 
problems with identifying insurance coverage and recovering payments 
that are identified in this report.  CMS will consult with its TPL TAG to 
identify what guidance is needed from CMS and will work with States to 
identify best practices.  For the second recommendation, CMS indicated 
that it would inform States and Medicare providers about the recent change 
in Medicares requirements for an exception to the Medicare 1-year timely 
filing limit.  CMS also stated that it would talk with the Department of 
Defense and States to understand and to clarify policies for the TRICARE 
1-year timely filing limit.  For the third recommendation, CMS indicated 
that it would work with States to explore options to strengthen enforcement 
mechanisms under State laws.  CMS also stated that it would review its 
own existing enforcement authorities.  OIG encourages CMS to think 
broadly about this third recommendation, as we believe that CMS can play 
a role in facilitating the conversation about additional enforcement 
authority. 
CMS noted that OIG did not adjust States estimates of dollars at risk for 
Medicare or health insurance and therefore the overall dollars at risk may 
be less than reported.  CMS asserted that States usually submit claims to 
health insurance carriers for more than the amount that the carrier is legally 
liable to pay.  OIG acknowledges that actual health insurance liability may 
reduce the dollars at risk that States are legally entitled to recover from 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  28 
   
   
health insurers.  However, no reliable estimate of how often States bill 
above the health insurers liability cap or the rate of liability reduction is 
available.  Further, OIG does not think it is instructive to look to the 
average rate of return of 18 percent on health insurance as a proxy measure 
for reduced liability.  The average rate of return reflects reduced liability 
along with a variety of other factors, chiefly the challenges identified in this 
report, including payment denials for procedural reasons and nonresponsive 
third parties.   
We did not make any changes to the report based on CMSs comments.  
For the full text of CMSs comments, see Appendix B.
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  29 
   
   
APPENDIX A 
Challenges by State 
Table A-1:  Challenges That States Reported to Identification and Verification, by State 
 
Third-party concerns about 
the Health Insurance  Obtaining data from State or 
Obtaining data from 
Portability and  Confusing or incomplete  Federal entities that may   
Cooperation from pharmacy  TRICARE on Medicaid 
Accountability Act of 1996  Explanation of Benefit forms  have data about 
benefit managers  beneficiaries with potential 
and releasing insurance  from third parties   beneficiaries' third-party 
TRICARE coverage   
coverage information to  insurance 
States 
    
State  ery enging  ewhat enging  ery enging  ewhat enging  ery enging  ewhat enging  ery enging  ewhat enging  ery enging  ewhat enging   
VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall  
 
Alabama  X  X  X  X  X 
         
 
Alaska  X  X 
               
 
Arizona  X  X  X  X 
           
 
Arkansas  X  X  X  X  X 
         
 
California  X 
                 
 
Colorado  X  X  X  X  X 
         
 
Connecticut  X  X  X 
             
Delaware  X  X  X  X   
           
District of  X   
Columbia                   
 
Florida  X  X  X  X 
           
continued on next page   
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  30 
   
   
Table A-1:  Challenges That States Reported to Identification and Verification, by State (Continued) 
Third-party concerns about 
the Health Insurance  Obtaining data from State or 
Obtaining data from 
Portability and  Confusing or incomplete  Federal entities that may 
Cooperation from pharmacy  TRICARE on Medicaid 
Accountability Act of 1996  Explanation of Benefit forms  have data about 
benefit managers  beneficiaries with potential 
and releasing insurance  from third parties  beneficiaries' third-party 
TRICARE coverage 
coverage information to  insurance 
States 
  
ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng 
State  ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi
VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall
Georgia     X     X     X  X      X 
 
Hawaii     X     X     X     X     X 
Idaho     X     X     X  X        X 
Illinois     X     X     X             
Indiana           X        X        X 
Iowa           X     X  X          
Kansas  X        X     X     X     X 
Kentucky     X     X     X  X        X 
Louisiana     X  X           X        X 
Maine     X     X     X     X     X 
Maryland     X  X                    X 
Massachusetts     X  X        X     X     X 
Michigan  X     X     X     X        X 
continued on next page 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  31 
   
   
 
Table A-1:  Challenges That States Reported to Identification and Verification, by State (Continued) 
Third-party concerns about 
the Health Insurance  Obtaining data from State or 
Obtaining data from 
Portability and  Confusing or incomplete  Federal entities that may 
Cooperation from pharmacy  TRICARE on Medicaid 
Accountability Act of 1996  Explanation of Benefit forms  have data about 
benefit managers  beneficiaries with potential 
and releasing insurance  from third parties  beneficiaries' third-party 
TRICARE coverage 
coverage information to  insurance 
States 
  
ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng 
State  ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi
VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall
Minnesota  X     X   X        X       
 
Mississippi     X  X      X     X     X 
 
Missouri     X  X        X     X     X 
Montana     X  X        X           X 
Nebraska     X     X     X     X     X 
Nevada     X     X     X  X        X 
New     X  X        X             
Hampshire 
New Jersey     X     X     X  X        X 
New Mexico     X           X           X 
New York     X     X     X  X         X 
North Carolina     X     X     X  X        X 
North Dakota     X     X     X  X     X    
continued on next page 
 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  32 
   
   
Table A-1:  Challenges That States Reported to Identification and Verification, by State (Continued) 
Third-party concerns about 
the Health Insurance  Obtaining data from State or 
Obtaining data from 
Portability and  Confusing or incomplete  Federal entities that may 
Cooperation from pharmacy  TRICARE on Medicaid 
Accountability Act of 1996  Explanation of Benefit forms  have data about 
benefit managers  beneficiaries with potential 
and releasing insurance  from third parties  beneficiaries' third-party 
TRICARE coverage 
coverage information to  insurance 
States 
  
ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng 
State  ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi
VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall
Ohio  X        X                   
Oklahoma  X        X  X     X     X    
Oregon  X        X  X        X     X 
Pennsylvania  X     X              X       
Rhode Island     X     X           X     X 
South Carolina     X        X     X          
South Dakota  X     X     X     X          
Tennessee     X     X     X  X          
Texas  X        X     X     X  X    
Utah     X     X     X     X     X 
Vermont     X     X     X     X       
Virginia     X     X     X  X        X 
Washington     X     X  X                
continued on next page 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  33 
   
   
Table A-1:  Challenges That States Reported to Identification and Verification, by State (Continued) 
Third-party concerns about 
the Health Insurance  Obtaining data from State or 
Obtaining data from 
Portability and  Confusing or incomplete  Federal entities that may 
Cooperation from pharmacy  TRICARE on Medicaid 
Accountability Act of 1996  Explanation of Benefit forms  have data about 
benefit managers  beneficiaries with potential 
and releasing insurance  from third parties  beneficiaries' third-party 
TRICARE coverage 
coverage information to  insurance 
States 
  
ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng 
State  ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi
VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall
West Virginia  X        X     X     X     X 
Wisconsin        X        X     X     X 
Wyoming  X     X     X        X     X 
Source:  Office of Inspector General (OIG) analysis of State data collection instrument responses, 2012.  
 
 
 
 
 
 
 
 
 
 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  34 
   
   
Table A-2:  Challenges That States Reported With Third-Party Refusal To Process or Pay Claims, by State 
Third-party 
documentation  Pharmacy benefit 
Denials from third  Denials from third  Third parties not  Third parties not  submitted with  Third parties not  managers claim they 
   parties for procedural  parties with no  responding when State  abiding by 3-year  reimbursement does  accepting States' right  do not have the 
reasons  explanation  submits bills  timely filing rules  not indicate which  to collect  authority to reimburse 
claims are being  States directly 
reimbursed 
ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng 
State  ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi
VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall
Alabama  X  X  X  X  X  X  X 
             
Alaska  X  X  X  X  X  X 
               
Arizona  X  X  X  X 
                   
Arkansas  X  X  X  X  X  X  X 
             
California  X  X  X  X  X  X 
               
Colorado  X  X  X  X  X  X  X 
             
Connecticut  X  X  X  X  X  X  X 
             
Delaware  X  X  X  X  X  X  X 
             
District of  X  X  X  X  X  X 
Columbia                 
Florida  X  X  X  X  X  X  X 
             
Georgia  X  X  X  X  X  X  X 
             
Hawaii  X  X  X  X  X  X  X 
             
continued on next page 
 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  35 
   
   
Table A-2:  Challenges That States Reported With Third-Party Refusal To Process or Pay Claims, by State (Continued) 
Third-party 
documentation  Pharmacy benefit 
Denials from third  Denials from third  Third parties not  Third parties not  submitted with  Third parties not  managers claim they 
   parties for procedural  parties with no  responding when  abiding by 3-year  reimbursement does  accepting States'  do not have the 
reasons  explanation  State submits bills  timely filing rules  not indicate which  right to collect  authority to reimburse 
claims are being  States directly 
reimbursed 
ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng 
State  ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi
VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall
Idaho     X     X     X     X     X     X  X    
Illinois     X           X     X     X           X 
Indiana     X     X     X     X     X        X    
Iowa     X     X     X     X     X     X  X    
Kansas     X     X     X     X     X     X  X    
Kentucky     X     X     X     X     X     X  X    
Louisiana     X     X     X     X     X     X     X 
Maine     X     X     X     X     X     X  X    
Maryland                             X             
Massachusetts           X     X     X           X     X 
Michigan     X      X     X     X     X     X       
Minnesota     X     X     X     X     X     X     X 
continued on next page 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  36 
   
   
Table A-2:  Challenges That States Reported With Third-Party Refusal To Process or Pay Claims, by State (Continued) 
Third-party 
documentation  Pharmacy benefit 
Denials from third  Denials from third  Third parties not  Third parties not  submitted with  Third parties not  managers claim they 
   parties for procedural  parties with no  responding when  abiding by 3-year  reimbursement does  accepting States'  do not have the 
reasons  explanation  State submits bills  timely filing rules  not indicate which  right to collect  authority to reimburse 
claims are being  States directly 
reimbursed 
ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng 
State  ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi
VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall
Mississippi  X     X     X     X     X     X     X    
Missouri     X     X     X     X     X     X  X    
Montana     X     X  X        X     X     X       
Nebraska     X     X     X        X        X       
Nevada     X     X     X     X     X     X  X    
New Hampshire  X              X     X     X     X  X    
New Jersey     X     X     X     X     X     X  X    
New Mexico     X     X           X     X          X  
New York     X     X     X     X     X     X   X   
North Carolina     X     X     X     X     X     X  X    
North Dakota     X     X     X     X     X     X     X 
Ohio     X                                     
Oklahoma     X     X     X     X     X     X     X 
continued on next page 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  37 
   
   
Table A-2:  Challenges That States Reported With Third-Party Refusal To Process or Pay Claims, by State (Continued) 
Third-party 
documentation  Pharmacy benefit 
Denials from third  Denials from third  Third parties not  Third parties not  submitted with  Third parties not  managers claim they 
   parties for procedural  parties with no  responding when  abiding by 3-year  reimbursement does  accepting States'  do not have the 
reasons  explanation  State submits bills  timely filing rules  not indicate which  right to collect  authority to reimburse 
claims are being  States directly 
reimbursed 
ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng 
State  ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi
VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall
Oregon  X     X     X     X     X     X        X 
Pennsylvania  X        X     X  X           X     X    
Rhode Island     X     X     X     X     X     X     X 
South Carolina     X     X  X     X           X     X    
South Dakota     X  X     X     X     X     X          
Tennessee     X     X     X     X     X     X  X    
Texas     X     X     X  X        X     X  X    
Utah  X        X   X       X     X     X  X    
Vermont  X              X        X        X     X 
Virginia     X     X     X     X     X     X  X    
Washington     X           X           X             
West Virginia     X     X     X     X     X     X  X    
Wisconsin     X     X     X     X           X       
continued on next page 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  38 
   
   
Table A-2:  Challenges That States Reported With Third-Party Refusal To Process or Pay Claims, by State (Continued) 
Third-party 
documentation  Pharmacy benefit 
Denials from third  Denials from third  Third parties not  Third parties not  submitted with  Third parties not  managers claim they 
   parties for procedural  parties with no  responding when  abiding by 3-year  reimbursement does  accepting States'  do not have the 
reasons  explanation  State submits bills  timely filing rules  not indicate which  right to collect  authority to reimburse 
claims are being  States directly 
reimbursed 
ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng 
State  ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi
VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall
Wyoming     X  X     X     X     X     X     X    
Source:  OIG analysis of State data collection instrument responses, 2012. 
 
   
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  39 
   
   
Table A-3:  Challenges States Reported With Current Laws and Regulations, by State 
Lack of enforceable 
Lack of rules requiring third 
Medicare 1-year timely filing  TRICARE 1-year timely filing  penalties for third parties  Inability to bill Medicare 
   parties to reimburse in a 
limit  limit  that refuse to reimburse  directly 
timely manner 
States 
ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng 
State  ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi
VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall
Alabama  X     X        X  X      X 
 
Alaska  X        X  X     X        X 
Arizona  X     X        X    X      X 
Arkansas     X     X  X        X     X 
California  X     X     X     X          
Colorado  X     X     X       X      X 
Connecticut  X        X     X  X        X 
Delaware  X     X        X  X        X 
District of     X     X     X     X     X 
Columbia 
Florida  X     X        X  X        X 
Georgia     X     X     X   X       X 
Hawaii     X     X  X        X     X 
Idaho  X     X        X    X      X 
continued on next page 
 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  40 
   
   
Table A-3:  Challenges States Reported With Current Laws and Regulations, by State (Continued)  
Lack of enforceable 
Lack of rules requiring third 
Medicare 1-year timely filing  TRICARE 1-year timely filing  penalties for third parties  Inability to bill Medicare 
   parties to reimburse in a 
limit  limit  that refuse to reimburse  directly 
timely manner 
States 
ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng 
State  ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi
VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall
Illinois  X        X        X      X 
 
Indiana  X     X        X  X        X 
Iowa  X     X        X    X      X 
Kansas  X     X        X    X      X 
Kentucky  X     X        X    X      X 
Louisiana     X  X            X         
Maine  X     X        X    X      X 
Maryland     X                        
Massachusetts  X     X        X  X        X 
Michigan     X     X  X        X  X    
Minnesota     X     X  X             X 
Mississippi  X     X     X       X   X    
Missouri  X     X        X    X      X 
continued on next page 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  41 
   
   
Table A-3:  Challenges States Reported With Current Laws and Regulations, by State (Continued)  
Lack of enforceable 
Lack of rules requiring third 
Medicare 1-year timely filing  TRICARE 1-year timely filing  penalties for third parties  Inability to bill Medicare 
   parties to reimburse in a 
limit  limit  that refuse to reimburse  directly 
timely manner 
States 
ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng 
State  ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi
VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall
Montana     X  X        X            
Nebraska     X           X     X     X 
Nevada  X     X        X    X      X 
New  X     X     X     X          
Hampshire 
New Jersey  X     X        X    X      X 
New Mexico     X    X      X          X 
New York  X     X        X    X      X 
North Carolina  X     X             X      X 
North Dakota     X     X     X    X      X 
Ohio     X               X       X 
Oklahoma     X     X     X     X     X  
Oregon  X     X     X     X        X 
Pennsylvania  X     X        X  X        X 
continued on next page 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  42 
   
   
Table A-3:  Challenges States Reported With Current Laws and Regulations, by State (Continued)  
Lack of enforceable 
Lack of rules requiring third 
Medicare 1-year timely filing  TRICARE 1-year timely filing  penalties for third parties  Inability to bill Medicare 
   parties to reimburse in a 
limit  limit  that refuse to reimburse  directly 
timely manner 
States 
ng  at ng  ng  at ng  ng  at ng  ng  at ng  ng  at ng 
State  ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi ery engi ewhengi
VChall SomChall VChall SomChall VChall SomChall VChall SomChall VChall SomChall
Rhode Island     X     X     X     X     X 
South Carolina  X     X     X                
South Dakota  X     X     X     X     X    
Tennessee  X     X        X    X      X 
Texas  X     X        X  X          
Utah     X     X  X             X 
Vermont  X     X           X          
Virginia  X     X        X    X      X 
Washington     X        X        X       
West Virginia  X     X        X    X      X 
Wisconsin              X      X        X 
Wyoming  X     X     X     X     X    
Source:  OIG analysis of State data collection instrument responses, 2012. 
 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  43 
  APPENDIX 8 
Agency Comments 
-- - ---- --
DEPARTMENT OF HEALTH & HUMAN SERVICES  Centers for Medu::ere &Medtcald &91'\'ir.:P.a 
---------- ..--4-------- --------------- 
------- ~--------
Admiui'i!.JattYr 
Wasflington, OC 2020 '1 
OCT  1 8 2D11 
HATE: 	
TO: 	 Daniel R. Levinson 
Inspector General 
FROM: 	 Ml!lilyu Tl<V~ 
Acting /l.i:lm'ioistr~tor 
SUBJECl': 	 Office ofinspector General (OlG) Draft Report: "Medicaid Third-Party Liability 
Savings lncrc<L~ed But Chalkngcs Remain'' (OEI-05-11-00130) 
Thank you for the opportunity to review and comment on the OIG draft report entitled 
"Medicaid Third-Party liability Savings Increased But Challenges Remain" (OEI-05-.ll-00130). 
The purpose of this repmt was tn determine trends in state Medicaid agencies' cost-avoided and 
recovered <Jmounts from 2001 through 2011, t.o describe !actors that influenced the stat~::s' ability 
to cost avoid or recover funds. and to estimate the amount of money that remains at risk of nor 
hei ng recovered. 
Th.: Deficit Reduction Act of 2005 (I)RA), enacted in the middle of the review period for this 
report, contnincd provisions to enhance the states' ability to identify and recover p<l)lmenr trom 
liable third parties of Medicaid hcneficiaries. The Jaw clarified the existing list of liable third 
parties ro incluJe entities such as pharmacy hendit managers. The DRA :tlso re.quired states to 
have laws requiring health insurers to provide c:overage information to state McdiC<iid programs, 
accept the stllte Medicaid programs' right of recovery, not dt~ny <>r refuse to pay claims for 
procl:dural reasons, and tillow states to submit claims for a minimum of three years from the dale 
of service. Since the passage of the DRA, the Cemers for Medicare & Medicaid Services (CMS) 
has takt~n many stcph to assist states and health insurers to meet these requirements. 
The OI.G found that Medicaid third party liability (TPL) savings totaled $529 billion from 2001 
W 20 11. Savings grew 114 percent during the period, while Medicaid expenditures increased by 
47 percent.  For the majority of the period (2002-2010), there was no significant change in the 
numh~::r of Medicaid beneficiaries with third party resources. 
Most of the growth in Tl'l. savings came from cost avoidance: $512 billion for the review 
period. with Medicare accounring for 80 pt~rcent of these savings. Cost avoidance from third 
party health insurers increased from .10 percent in :!O()'J to 18 percent in 2011, which can rno~t 
likely be attributed ro the DRA's eiTect on states' ability to identity third party coverage. 
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Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  49 
   
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of Ann Maxwell, Regional 
Inspector General for Evaluation and Inspections in the Chicago regional 
office; Thomas F. Komaniecki, Deputy Regional Inspector General; and 
Laura Kordish, Deputy Regional Inspector General.   
Nicole Hrycyk served as the team leader for this study, and Mara Werner 
served as the lead analyst.  Other principal Office of Evaluation and 
Inspections staff from the Chicago regional office who contributed to the 
report include Jonathan Jones and Margarita Rodriguez.  Central office 
staff who provided support include Heather Barton, Kevin Farber, and 
Debra Roush. 
 
 
 
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130)  50 
   
Office of Inspector General 
http://oig.hhs.gov 
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 
amended, is to protect the integrity of the Department of Health and Human Services 
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