Department of Health and Human Services

OFFICE OF

INSPECTOR GENERAL

MEDICAID THIRD-PARTY 

LIABILITY SAVINGS 

INCREASED, BUT 

CHALLENGES REMAIN

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 challenges—caused, they 

say, by laws and regulations—that 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
Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130) 1

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) 2

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/archiveddownloads/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) 3

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) 4

President’s 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) 5

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) 6

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 State’s 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/archiveddownloads/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) 7

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 CMS’s 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 DRA’s 

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) 8

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., pointin-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 State’s TPL coordinator. The instrument had 

two sections—a 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) 9

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) 10

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) 11

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) 12

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 TPL’s 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 2001–2011 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) 13

Chart 1: TPL Savings From 2001 to 2011

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.

$0

$10,000,000,000

$20,000,000,000

$30,000,000,000

$40,000,000,000

$50,000,000,000

$60,000,000,000

$70,000,000,000

$80,000,000,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Cost avoidance Pay-and-chase recoveries Probate-estate recoveries
 

Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130) 14

Chart 2: Cost-Avoidance Percentages Over Time, by Type of Third-Party Insurance

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. 

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Medicare Health insurance Other
 

Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130) 15

Chart 3: Pay-and-Chase Percentages Over Time, by Type of Third-Party Insurance

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 DRA’s

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.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Medicare Health insurance Casualty Cooperative agreements
 

Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130) 16

Table 1: Dollars at Risk of Not Being Recovered

Type Dollars at Risk Percentage of Dollars at 

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 challenges—caused, they 

say, by laws and regulations—that hinder the recovery of payments.
 

Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130) 17

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

Electronic System Reported as 

Very Useful

Percentage of 

States 

Online verification 37 73%

Via third-party Web site 36 71%

Via TPL clearinghouse vendor 20 39%

Having electronic data matching agreements with 

third parties 34 68%

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 clearinghouses—vendors 

with electronic agreements with many insurance companies—was helpful. 

States pay clearinghouses to match coverage information for beneficiaries 

against a clearinghouse’s 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) 18

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) 19

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 

Specific Challenge With Identification Percentage of States That 

Reported the Challenge in 2011

Third-party concerns about HIPAA and releasing insurance 

coverage information to States 90%

EOB forms from third parties that are confusing or 

incomplete 86%

Cooperation from pharmacy benefit managers 84%

Obtaining data about beneficiaries’ third-party insurance 

from State or Federal entities 78%

Obtaining data from TRICARE on Medicaid beneficiaries 

with potential TRICARE coverage 74%

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) 20

States. States are exempt from HIPAA under the privacy rule’s 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/archiveddownloads/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) 21

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/archiveddownloads/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) 22

Table 4: Challenges States Reported About Third-Party Refusal To Process or Pay Claims

Challenge

Identified in 

2001 OIG 

Report

Identified in 

2006 GAO 

Report

DRA 

Attempted To 

Address

Identified in 

2011 (This 

Study)

Percentage of States 

That Reported Challenge

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 

when State submits bills X X X X 92%

Third parties not abiding by 

3-year timely filing rules X 88%

Third-party documentation 

submitted with 

reimbursement does not 

indicate which claims are 

being reimbursed

X 88%

Third parties not accepting 

States' right to collect X X X X 82%

Pharmacy benefit managers

claim they do not have the 

authority to reimburse 

States directly

X X X X 82%

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) 23

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 

Challenge Percentage of States That 

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 

refuse to reimburse States 90%

Inability to bill Medicare directly 88% 

Lack of rules requiring third parties to reimburse in a 

timely manner 82%

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) 24

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

TRICARE’s 1-Year Timely Filing Limit Is Challenging. States reported that 

TRICARE’s 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-andGuidance/Guidance/Transmittals/downloads/R2477CP.pdf on August 29, 2012.
 

Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130) 25

The high percentage of States reporting that TRICARE’s 1-year timely 

filing limit is challenging may be due to lack of clarity about TRICARE’s 

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) 26

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. 

CMS’s actions to address State challenges should pay particular attention to 

pharmacy benefit managers. Since OIG’s 2001 study, States have 
 

Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130) 27

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

Medicare’s and TRICARE’s 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 Manual’s 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) 28

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 Medicare’s 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) 29

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 CMS’s comments. 

For the full text of CMS’s comments, see Appendix B.
 

Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130) 30

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 

Portability and 

Accountability Act of 1996 

and releasing insurance 

coverage information to 

States 

Confusing or incomplete 

Explanation of Benefit forms 

from third parties 

Cooperation from pharmacy 

benefit managers

Obtaining data from State or 

Federal entities that may 

have data about 

beneficiaries' third-party 

insurance

Obtaining data from 

TRICARE on Medicaid 

beneficiaries with potential 

TRICARE coverage

State

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

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 

Columbia X 

Florida 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 

Portability and 

Accountability Act of 1996 

and releasing insurance 

coverage information to 

States 

Confusing or incomplete 

Explanation of Benefit forms

from third parties

Cooperation from pharmacy 

benefit managers

Obtaining data from State or 

Federal entities that may 

have data about 

beneficiaries' third-party 

insurance

Obtaining data from 

TRICARE on Medicaid 

beneficiaries with potential 

TRICARE coverage

State

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

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) 32

Table A-1: Challenges That States Reported to Identification and Verification, by State (Continued)

Third-party concerns about 

the Health Insurance 

Portability and 

Accountability Act of 1996 

and releasing insurance 

coverage information to 

States 

Confusing or incomplete 

Explanation of Benefit forms

from third parties

Cooperation from pharmacy 

benefit managers

Obtaining data from State or 

Federal entities that may 

have data about 

beneficiaries' third-party 

insurance

Obtaining data from 

TRICARE on Medicaid 

beneficiaries with potential 

TRICARE coverage

State

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

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

Hampshire X X X 

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) 33

Table A-1: Challenges That States Reported to Identification and Verification, by State (Continued)

Third-party concerns about 

the Health Insurance 

Portability and 

Accountability Act of 1996 

and releasing insurance 

coverage information to 

States 

Confusing or incomplete 

Explanation of Benefit forms

from third parties

Cooperation from pharmacy 

benefit managers

Obtaining data from State or 

Federal entities that may 

have data about 

beneficiaries' third-party 

insurance

Obtaining data from 

TRICARE on Medicaid 

beneficiaries with potential 

TRICARE coverage

State

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

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) 34

Table A-1: Challenges That States Reported to Identification and Verification, by State (Continued)

Third-party concerns about 

the Health Insurance 

Portability and 

Accountability Act of 1996 

and releasing insurance 

coverage information to 

States 

Confusing or incomplete 

Explanation of Benefit forms

from third parties

Cooperation from pharmacy 

benefit managers

Obtaining data from State or 

Federal entities that may 

have data about 

beneficiaries' third-party 

insurance

Obtaining data from 

TRICARE on Medicaid 

beneficiaries with potential 

TRICARE coverage

State

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

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) 35

Table A-2: Challenges That States Reported With Third-Party Refusal To Process or Pay Claims, by State

 

Denials from third 

parties for procedural 

reasons

Denials from third 

parties with no 

explanation

Third parties not 

responding when State 

submits bills

Third parties not 

abiding by 3-year 

timely filing rules

Third-party 

documentation 

submitted with 

reimbursement does 

not indicate which 

claims are being 

reimbursed

Third parties not 

accepting States' right 

to collect

Pharmacy benefit 

managers claim they 

do not have the 

authority to reimburse 

States directly

State

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

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 

Columbia X X X X X X 

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) 36

Table A-2: Challenges That States Reported With Third-Party Refusal To Process or Pay Claims, by State (Continued)

 

Denials from third 

parties for procedural 

reasons

Denials from third 

parties with no 

explanation

Third parties not 

responding when 

State submits bills

Third parties not 

abiding by 3-year 

timely filing rules

Third-party 

documentation 

submitted with 

reimbursement does 

not indicate which 

claims are being 

reimbursed

Third parties not 

accepting States' 

right to collect

Pharmacy benefit 

managers claim they 

do not have the 

authority to reimburse 

States directly

State

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

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) 37

Table A-2: Challenges That States Reported With Third-Party Refusal To Process or Pay Claims, by State (Continued)

 

Denials from third 

parties for procedural 

reasons

Denials from third 

parties with no 

explanation

Third parties not 

responding when 

State submits bills

Third parties not 

abiding by 3-year 

timely filing rules

Third-party 

documentation 

submitted with 

reimbursement does 

not indicate which 

claims are being 

reimbursed

Third parties not 

accepting States' 

right to collect

Pharmacy benefit 

managers claim they 

do not have the 

authority to reimburse 

States directly

State

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

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) 38

Table A-2: Challenges That States Reported With Third-Party Refusal To Process or Pay Claims, by State (Continued)

 

Denials from third 

parties for procedural 

reasons

Denials from third 

parties with no 

explanation

Third parties not 

responding when 

State submits bills

Third parties not 

abiding by 3-year 

timely filing rules

Third-party 

documentation 

submitted with 

reimbursement does 

not indicate which 

claims are being 

reimbursed

Third parties not 

accepting States' 

right to collect

Pharmacy benefit 

managers claim they 

do not have the 

authority to reimburse 

States directly

State

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

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) 39

Table A-2: Challenges That States Reported With Third-Party Refusal To Process or Pay Claims, by State (Continued)

 

Denials from third 

parties for procedural 

reasons

Denials from third 

parties with no 

explanation

Third parties not 

responding when 

State submits bills

Third parties not 

abiding by 3-year 

timely filing rules

Third-party 

documentation 

submitted with 

reimbursement does 

not indicate which 

claims are being 

reimbursed

Third parties not 

accepting States' 

right to collect

Pharmacy benefit 

managers claim they 

do not have the 

authority to reimburse 

States directly

State

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

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) 40

Table A-3: Challenges States Reported With Current Laws and Regulations, by State

 Medicare 1-year timely filing 

limit

TRICARE 1-year timely filing 

limit

Lack of enforceable 

penalties for third parties 

that refuse to reimburse 

States 

Inability to bill Medicare 

directly

Lack of rules requiring third 

parties to reimburse in a 

timely manner

State

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

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 

Columbia X X X X X 

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) 41

Table A-3: Challenges States Reported With Current Laws and Regulations, by State (Continued) 

 Medicare 1-year timely filing 

limit

TRICARE 1-year timely filing 

limit

Lack of enforceable 

penalties for third parties 

that refuse to reimburse 

States 

Inability to bill Medicare 

directly

Lack of rules requiring third 

parties to reimburse in a 

timely manner

State

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

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) 42

Table A-3: Challenges States Reported With Current Laws and Regulations, by State (Continued) 

 Medicare 1-year timely filing 

limit

TRICARE 1-year timely filing 

limit

Lack of enforceable 

penalties for third parties 

that refuse to reimburse 

States 

Inability to bill Medicare 

directly

Lack of rules requiring third 

parties to reimburse in a 

timely manner

State

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Montana X X X 

Nebraska X X X X 

Nevada X X X X X 

New 

Hampshire X X X X 

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) 43

Table A-3: Challenges States Reported With Current Laws and Regulations, by State (Continued) 

 Medicare 1-year timely filing 

limit

TRICARE 1-year timely filing 

limit

Lack of enforceable 

penalties for third parties 

that refuse to reimburse 

States 

Inability to bill Medicare 

directly

Lack of rules requiring third 

parties to reimburse in a 

timely manner

State

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

Very 

Challenging

Somewhat 

Challenging

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.
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 

HATE: 	 OCT 1 8 2D11 

TO: 	 Daniel R. Levinson 

Inspector General 

FROM: 	 Ml!lilyu Tl<V~ 

Acting l.i:lm'ioi str~to r 

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 tat~::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 

li able 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 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. 

Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130) 44 
 

Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130) 45
 

Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130) 46
 

Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130) 47
 

Medicaid Third-Party Liability Savings Increased, But Challenges Remain (OEI-05-11-00130) 48
 

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 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components:

Office of Audit Services

The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting 

audits with its own audit resources or by overseeing audit work done by others. Audits 

examine the performance of HHS programs and/or its grantees and contractors in carrying 

out their respective responsibilities and are intended to provide independent assessments of 

HHS programs and operations. These assessments help reduce waste, abuse, and 

mismanagement and promote economy and efficiency throughout HHS.

Office of Evaluation and Inspections

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

HHS, Congress, and the public with timely, useful, and reliable information on significant 

issues. These evaluations focus on preventing fraud, waste, or abuse and promoting 

economy, efficiency, and effectiveness of departmental programs. To promote impact, OEI 

reports also present practical recommendations for improving program operations. 

Office of Investigations

The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 

of fraud and misconduct related to HHS programs, operations, and beneficiaries. With 

investigators working in all 50 States and the District of Columbia, OI utilizes its resources 

by actively coordinating with the Department of Justice and other Federal, State, and local 

law enforcement authorities. The investigative efforts of OI often lead to criminal 

convictions, administrative sanctions, and/or civil monetary penalties.

Office of Counsel to the Inspector General

The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support for OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

guidance to the health care industry concerning the anti-kickback statute and other OIG 

enforcement authorities.