Third-party liability (TPL) is one of the strongest mechanisms we have to preserve public healthcare dollars and maintain the integrity of the Medicaid program. When an individual has access to multiple sources of coverage, TPL rules dictate that all third parties must pay for medical assistance primary to Medicaid. This helps to ensure funds are made available for the critical programs, services and benefits on which so many Americans rely — today, more than ever.
Although federal regulations exist to protect Medicaid as the payer of last resort, it has become increasingly evident that they are not without shortcomings. For instance, despite the Federal Deficit Reduction Act (DRA) requiring states to mandate that third-party insurers comply with Medicaid TPL efforts, billions of dollars remain uncaptured. With Medicaid enrollment soaring in light of COVID-19-related unemployment — and tax dollars stretched thinner than ever — these shortcomings are being brought sharply into focus.
It is therefore imperative to implement and adapt TPL policies in line with today’s health and economic challenges. The following are a number of TPL best practices for containing healthcare costs and maximizing resources amid the ongoing COVID-19 crisis.
- Increase the Quality and Frequency of Carrier Data Collection
In order to identify TPL, states and their designees must either rely on the enrollee to disclose all sources of health coverage or conduct data matches with commercial and other government insurers. Errors and omissions in member self-reporting make the latter a more viable and necessary option; however, this method is only as effective as the quality of the data that supports it.
Current data sharing laws between states and third-party carriers are often ambiguous and should be clarified to ensure states are receiving full and complete member eligibility files. Additionally, when establishing data use agreements, states should also set time frames around the execution of the agreement as well as the immediacy and frequency of data sharing. This ensures matching methodologies are drawing from a current and comprehensive data set and, therefore, capturing all coverage sources.
- Close the Out-of-State Carrier Loophole
Although TPL has historically been regarded as an intrastate matter, recent regulatory changes necessitate the expansion of these protocols beyond state lines. This is particularly relevant given the Federal Government’s expansion of telehealth coverage during the COVID-19 pandemic. To facilitate access to telehealth, the Centers for Medicare and Medicaid Services relaxed certain regulations, including the requirement that telehealth providers be licensed in the state in which they are providing services.
Under normal circumstances, carriers will often deny claims on the basis that services were rendered out of state or out of network; with the modified rules encouraging the use of out-of-state providers, states should modify TPL laws as necessary to ensure Medicaid remains the payer of last resort in situations where the liable party may be in another state.
- Prohibit Procedural Denials
A study from the Office of Inspector General (OIG) found the most widely cited barrier to TPL recoveries among states was “denial from third parties for procedural reasons or with no explanation.” This is despite DRA provisions requiring that states enact laws to prohibit procedural denials.
One of the most common grounds for procedural denials is prior authorization issues. As third-party carriers often leverage prior authorizations as a cost control mechanism, they may deny claims based on a provider’s failure to follow prior authorization procedures. In its report, OIG notes that such claim denials are not legitimate. Explicitly prohibiting procedural denials — and enacting measures to enforce these policies — will serve to both alleviate administrative burden for providers and avoid unnecessary costs at a time when resources are scarce.
- Establish a Prompt Payment Standard
Implementing and enforcing prompt payment policies can help states overcome another common TPL barrier — recovering improper payments. HMS data shows that a prompt payment standard of at least 90 days can increase recoveries for states by more than 10%. Although implementing these standards is important, enforcement is key to compliance. Adding penalties for non-adherence — such as fines or interest — encourages third-party payers to respond and act, while also accelerating the recovery process for financially strapped states. Additionally, establishing a statute of limitations on carrier and provider refunds can help to contain costs while cutting down on administrative work.
- Reevaluate and Consider Broadening the Definition of Third Party
TPL is widely understood in the context of coordinating Medicaid benefits with commercial health coverage; however, liable third parties may also include Medicare, TRICARE and a range of non-healthcare liable parties. For instance, if an individual with Medicaid coverage is injured in an auto accident, a property and casualty insurer may be liable to pay the claim. TPL programs must therefore be broad enough in scope to identify and coordinate benefits among all liable payers, preserving Medicaid dollars for those who need them most.
- Protect Recovery Rights for Managed Care Organizations (MCOs)
In a managed care environment, TPL must be a shared responsibility between the state and its designee or contracted MCOs. Nearly 70% of Medicaid members are enrolled in managed care, and the majority of states do not prohibit members with TPL from enrolling in an MCO. Trusting MCOs with primary TPL responsibilities, while maintaining the right to review claims after a specified period — generally, one year from the claim payment date — is a best practice. By creating this safety net, states are better able to ensure all instances of TPL are captured while maintaining transparency with their MCOs.
- Adopt Post-COVID-19 Best Practices
The TPL strategies outlined here are just a few among many to mitigate the health and economic impacts of COVID-19 while preparing for an uncertain future. In our series, Post-COVID-19 Cost Containment Strategies & Recommendations, HMS is exploring a number of policy, programmatic and operational solutions for containing healthcare costs and managing population health today and post-pandemic. Access our previous blog, 3 Ways COVID-19 Is Affecting Medicaid Third-Party Liability, here, and follow us at hms.com/blog to read more.