The Future of Medicaid Secondary Payer Reporting Regimes (Part III) – Medicare Secondary Payer Reporting and Medicaid Liens

Let’s do a three-sentence recap of the first two posts on this subject.  Medicaid is a federal-state partnership that pays for health care for poor people with a combination of federal and state dollars.  The Affordable Care Act recently expanded the recipient population to any persons making 133 percent or less of the federal poverty line, and it changed the makeup of the federal-state funding for this group so that all of the dollars until 2016 – and at least 90 percent after that – are from the federal government.  Finally, to the extent that a third party caused an injury that requires medical care paid for by Medicaid, the state Medicaid agency will have a lien against any judgment or settlement against that third party – but it will have to pay the federal government back its share.

See the problem?  The state is the one that needs to spend the time and resources chasing judgments or settlements that it may have some claim against.  But if it has to repay all (or nearly all) of the federal portion of that amount, what incentive will it have to go after liens against the Medicaid expansion population?  It’s all pain and no gain!

If you can see that, and I can see that, you can be pretty sure CMS can see that as well.  That’s one of Mary Re Knack and David Farber’s main points – this dynamic whereby states have the obligation but not the incentive to recover Medicaid lien funds is unsustainable, and we should expect to see some efforts by the federal government to correct this flaw.

What might those be?

(1)  The federal government could take over the job of pursuing Medicaid lien funds.  I’m not going to talk about that, because it’s wildly unrealistic, but more importantly, because there’s just not much I can say about it.

(2) Remember how CMS pays state Medicaid agencies?  The state provides a quarterly estimate of how much it thinks it’s going to spend over the next three months, and the federal government fronts its share of that – but only after it adjusts for any overpayment (or underpayment) from the prior quarter.  CMS could just deduct an amount corresponding to the lien funds from the quarterly advance, and if the state wanted to make up that deficiency, it would have to take action itself.  But there are three problems with this.  First, it seems draconian for the federal government to deduct a lien amount up front, when the state Medicaid agency might be able to recover it at some undetermined point in the future.  Second, states currently forego pursuing reimbursement actions for the vast majority of settlements and judgments – they are just too small to make it worth the Medicaid agency’s time to pursue them.  That discretion would vanish if CMS started deducting all potential lien amounts from its quarterly payments.  Third, and perhaps most importantly, how would CMS even know about settlements or judgments potentially subject to a Medicaid lien?  More on this in a second.

(3) There is one final way that the federal government could incentivize states to pursue settlements and judgments.  It could reimburse state governments for any costs associated with an attempt to recover Medicaid liens, by paying directly for those costs or (more likely) by paying a percentage of the recovery.  This is more promising, but it begs an important question – would a reasonable fee in successful lien cases be adequate to reimburse the state for monitoring and enforcement costs, which typically are incurred in all cases?  In other words, a state must pay for some sort of monitoring system to flag settlements and judgments; this will (presumably) identify a subset of settlements or judgments potentially subject to a Medicaid lien; the state will go after some smaller percentage of those settlements and judgments that are sufficiently large (and have sufficiently high prospects of success) to justify the effort; and the state will succeed in some smaller percentage of those reimbursement actions.  Any contingency fee paid off of recoveries in that last, smallest group of cases must be large enough to pay for all monitoring and enforcement costs.

What should be apparent from the last couple of points is that monitoring costs are hugely important.  While the Section 111 program has been more or less successful, it’s probably impracticable for states – or at least many of them – to duplicate it.  But it’s not realistic to operate under a beneficiary self-reporting system, like most states (including Colorado) do today.  As I mentioned before, the incentive for plaintiffs to report settlements or judgments that they then would have to give back is just too great for that sort of system to function.

I have an idea of a different sort of reporting system.  I know I said three posts on this topic, but we’re going to have to make it four.