Prompt Payment Policies Could Protect Medicaid and Ensure Recovery Efforts

By Health Ideas Staff
Nov. 19, 2019

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As Medicaid continues to serve as our nation’s primary healthcare safety net, it is critical that the program safeguards itself against fraud, waste and abuse. We work to achieve this for our healthcare system everyday- driving cost-containment solutions and improving health outcomes.

However, Medicaid is facing staggering issues in its financing. According to The Government Accountability Office’s 2015 report, Medicaid had an estimated $17.5 billion in improper payments for fiscal year 2014 alone. This amount of wasted taxpayer money is unacceptable. With the right public policy, we can effectively reduce improper payments made by Medicaid and sustain this vital program for our most vulnerable citizens.

Protecting Medicaid as Payer of Last Resort

According to law, if a Medicaid member has other insurance coverage, that liable party must pay to the extent of its liability before Medicaid pays the claim/s. And, on average, more than 10% of all Medicaid members have other insurance coverage.

Ensuring that Medicaid is the payer of last resort is known as Medicaid Third Party Liability (TPL) or Medicaid Coordination of Benefits (COB).  However, according to this 2013 Office of Inspector General Report, 45 states reported that they on average only recover 18% of what they billed to third party insurance. Prompt pay policies would dramatically improve Medicaid TPL claims payment rates.

Prompt payment policies can help – States taking action

Commercial insurers, who are often liable third parties for Medicaid TPL, are already accustomed to state insurance laws that govern the processing of physician’s claims, including the prompt payment requirements. While there is no national standard for the processing and payment of Medicaid TPL claims, some states have adopted prompt payment laws specifically for their Medicaid TPL claims to help improve the 18% pay rate cited in the OIG report.

When a prompt payment standard of at least 90 days is applied, states with that prompt payment standard see 10% more recoveries in that timeframe than states that don’t have a prompt payment standard. A prompt payment standard adds no further liability to third parties; it simply stipulates a response. This policy clears up confusion surrounding appropriate payment timelines, and ensures that Medicaid retains its position as our nation’s healthcare safety net.

Two states that recently implemented a prompt payment standard saw a 14% and 34% increase respectively in actual recoveries one year following the effective date of a prompt pay standard. A third state saw a 50% improvement in the overall pay rate one year following prompt pay as compared to the one year preceding prompt pay.

Penalties for non-adherence drive further results

Adding a penalty to the prompt pay standard further drives up recoveries. For example, Tennessee and Florida require third parties to honor prompt pay standards by instituting an uncontestable obligation policy to claims. This means that if the third party does not adhere to the prompt pay standard in a timely fashion, that third party is unable to contest the claim. This standard puts third parties on notice and allows for quicker adjudication of claims, further driving up recoveries.

States can’t do it alone – A federal standard is the answer

These successful state examples only proves that instituting a federal standard for prompt payment of claims would allow Medicaid to dramatically reduce the amount of improper payment made on behalf of the program.

This would effectively increase recoveries on behalf of Medicaid, and ensure Medicaid truly stays the payer of last resort. Keeping Medicaid intact is critical for the fiscal and physical health of the country and a national prompt pay standard puts us in a better position of ensuring program integrity overall.

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