Medicaid Payment: CMS Has Not Overseen States' Implementation of Changes to Third-Party Liability

GAO-19-601 Published: Aug 09, 2019. Publicly Released: Aug 09, 2019.
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Fast Facts

Some people who get Medicaid benefits may also have coverage from a third party, like insurance from an employer. Generally, the third party should pay its part for services before Medicaid pays.

For some claims where a third party might pay—including prenatal care and preventive care for children—state Medicaid agencies are now required to use new payment procedures, which could help ensure Medicaid doesn’t pay more than it should.

The Centers for Medicare & Medicaid Services (CMS), which oversees states’ Medicaid plans, doesn’t know if states are using the new procedures. We recommended CMS determine states’ compliance.

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What GAO Found

Medicaid officials in the nine selected states GAO reviewed described being in various stages of implementing third-party liability changes as required by law. These changes affect whether health care providers must seek payment from a liable third party, such as private insurance, before the state Medicaid agency pays for services. The changes apply to prenatal care services, pediatric preventive services, and services for children subject to child support enforcement (CSE beneficiaries). At the time of GAO's review,

Officials from four of the nine selected states reported having fully implemented the changes for prenatal care services, which were required to be implemented starting in February 2018. Officials from the remaining five states were discussing the changes internally, researching how to implement the changes in their Medicaid payment systems, or waiting for additional guidance from the Centers for Medicare & Medicaid Services (CMS), the federal agency responsible for overseeing states' Medicaid programs.

None of the nine states had implemented the changes to pediatric preventive services and services for CSE beneficiaries, which must be implemented starting in October 2019. Officials from six states told GAO that they were in the early stages of exploring how they would make the changes, while the remaining three states had not developed such plans.

GAO found that guidance issued by CMS in June 2018 to assist states in implementing the third-party liability changes contains information inconsistent with the law. For example, CMS's guidance incorrectly informs states that providers do not need to seek third-party payments before the state pays for some prenatal services. In addition, CMS has not determined the extent to which states are meeting third-party liability requirements. CMS officials stated that they expect states to comply with current law for Medicaid third-party liability and that they do not verify whether states have implemented the required third-party liability changes unless the agency is made aware of non-compliance. However, this approach is inconsistent with CMS's Medicaid oversight responsibilities, including its responsibility to ensure federal funds are appropriately spent.

Medicaid experts and other stakeholders told GAO that the third-party liability changes could affect some health care providers in ways that could result in decreased beneficiary access to care, because some providers might be less willing to see Medicaid patients. According to stakeholders, this could occur for two primary reasons.

1. The changes may increase administrative requirements for providers by requiring them to identify sources of coverage, obtain insurance information, and submit claims to third-party insurers before submitting them to Medicaid.

2. The changes may result in providers waiting longer to receive Medicaid payment for certain services to the extent that states require providers to seek third-party payments before paying the providers' claims.

Why GAO Did This Study

The Medicaid program is typically the payer of last resort. The Bipartisan Budget Act of 2018 changed the Medicaid third-party liability payment requirements for prenatal care services, pediatric preventive services, and services provided to CSE beneficiaries. Before the act, in the case of these three services, states were generally required to pay providers for services delivered to Medicaid beneficiaries and then obtain any payments from liable third parties.

The Bipartisan Budget Act of 2018 also included a provision for GAO to study the potential effects of these changes. In this report, GAO (1) describes the status of selected states' implementation of Medicaid third-party liability changes; (2) evaluates CMS's implementation and oversight of the Medicaid third-party liability changes; and (3) describes stakeholders' views of the possible effects of these changes on providers and beneficiaries. GAO conducted interviews with state Medicaid agencies and provider associations in nine selected states, which were selected by taking into consideration Medicaid spending and stakeholder recommendations, among other factors. GAO also conducted interviews with national experts in Medicaid, national organizations representing beneficiaries and providers, and officials from CMS.

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GAO is recommending that CMS (1) ensure that its guidance to states on third-party liability requirements reflects current law, and (2) determine the extent to which state Medicaid programs are meeting federal third-party liability requirements. The Department of Health and Human Services concurred with these recommendations.

Recommendations for Executive Action

Agency Affected Recommendation Status
Centers for Medicare & Medicaid Services The Administrator of CMS should ensure the agency's Medicaid third-party liability guidance is consistent with federal law related to
  • the requirement for states to apply cost avoidance procedures to claims for labor, delivery, and postpartum care services,
  • the requirement for states to make payments without regard to potential third-party liability for pediatric preventive services unless the state has made a determination related to cost-effectiveness and access to care that warrants cost avoidance for 90 days, and
  • state flexibility to make payments without regard to potential third-party liability for pediatric services provided to child support enforcement beneficiaries. (Recommendation 1)
On December 31, 2020, CMS issued a final rule amending the regulation on Medicaid third party liability (42 C.F.R. ? 433.139). The regulatory changes addressed one of the three issues we identified in our 2019 report. On the first issue, the regulation was updated to reflect the change noted in the November 14, 2019 informational bulletin, which noted that states must use standard coordination of benefits cost avoidance when processing claims for prenatal services, labor, delivery, and postpartum care claims. With regard to the second and third issues, the updated regulation does not address them, although CMS has indicated it has plans to do so. On the second issue, CMS told us on August 20, 2021 that the agency will work to correct the omission in the regulation at the earliest opportunity, but has not yet done so as of May 11, 2022. On the third issue, CMS told us on April 28, 2022 that the agency is in the process of updating the regulation to add language to align with statute, with an expected implementation date of January 31, 2023, but has not yet done so as of May 11, 2022.
Centers for Medicare & Medicaid Services The Administrator of CMS should determine the extent to which state Medicaid programs are meeting federal third-party liability requirements and take actions to ensure compliance as appropriate. Such actions can include ensuring that state plans reflect the law. (Recommendation 2)
Closed – Implemented
In an August 27, 2021 Informational Bulletin, CMS stated that it had completed the third-party liability reviews of state plans for the 50 states, District of Columbia, and U.S. Territories, and determined that many states are not compliant. CMS directed states to update and submit state plans reflecting the statutory third-party liability changes to come into compliance by Dec. 31, 2021. Although, as of March, 2022, not all states had revised their plans, CMS has determined states' compliance and taken actions toward bringing states into compliance.

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