HHS OIG Report Finds States’ Medicaid Program Are Paying $350 Million Annually in Private Companies’ Rx Bills

The "pay and chase" system -- under which Medicaid pays prescription drug bills for beneficiaries that private insurance companies are actually responsible for and then tries to collect the money from the insurers -- "isn't working," a new report from the HHS Office of Inspector General says. Many Medicaid beneficiaries have some form of private insurance as well as their Medicaid benefits. By law, doctors and pharmacies can only collect reimbursement from Medicaid if "there is no one else that can pay" (Meckler, AP/Orlando Sentinel, 8/8). Sometimes, however, providers send claims to Medicaid that are actually owed by third parties, such as private insurers or pharmacy benefits managers. If a third party is liable for the claim, state Medicaid agencies can use a "cost-avoidance system" and return the bill to the pharmacy to bill the private insurer (OIG, "Medicaid Recovery of Pharmacy Payments from Liable Third Parties," August 2001). Many states, however, have applied for and received waivers from HHS to use the "pay and chase" system to recover payment from third parties, on the assumption that the system is "a more efficient way of collecting the money" (AP/Orlando Sentinel, 8/8). Between December 1999 and March 2001, 32 states using the pay and chase system had recovered $73 million out of $440 million in payments they were owed. Eighteen other states were unable to identify the amount they "paid and chased," the report adds. States using the cost-avoidance method were able to collect $185 million in owed payments. The report says that states trying to recover payments have several problems: denied payments because of incompatible claim formats, "unreasonable" filing time limits, unprocessed claims, vague denials and an inability to identify the responsible third party insurer or claims processing entity. In addition, 32 states said they experienced "problems" with collecting from PBMs. Based on the findings, the report recommends that the Centers for Medicare and Medicaid Services (formerly HCFA) review states that are using the pay and chase system "to determine if they are meeting the cost-effectiveness criterion" and ascertain whether some states are using the system without permission. States using the pay and chase system should be required to track how much they pay and chase, the report states. Further, CMS should determine whether legislation is necessary to include PBMs in Medicaid's definition of a "third party," to require third parties to match eligibility files with Medicaid's eligibility files and to allow Medicaid up to three years to recover payments (OIG, "Medicaid Recovery of Pharmacy Payments from Liable Third Parties," August 2001). The report is available online. Note: you will need Adobe Acrobat Reader to view the study.