Maximize Third-Party Reimbursements Under the Medicaid Program

The state should maximize third-party reimbursements in the Medicaid program to ensure that Texas receives all of the funds to which it is entitled.

The State of Texas pays about 36 percent of the cost of the Medicaid program. If Texas could identify other third-party payors for Medicaid services, some of this expense to the state could be avoided. Third-party payors include health insurers, automobile insurers, liability insurers, state workers compensation programs and other federal programs, like Medicare and Champus (for the military), that could absorb some of the health costs of eligible clients in place of Medicaid.

Under applicabl e federal policy, states are required to provide Medicaid reimbursement only as a last resort. Federal regulations require states to avoid payments for medical care and services when the probability of a third-party liability source is known at the time th e claim is filed, as opposed to paying the claim and seeking recovery after the fact.

State agencies already employ many ways to ensure third-party reimbursements and have implemented many of the successful practices recommended by the U.S. Department of Health and Human Services. These include procedures to collect insurance information during the initial eligibility determination process, exchanging information with other agencies and insurers to identify Medicaid claimants covered by other health care i nsurers and efforts to detect potential reimbursement for victims in casualty- and liability-related accidents.

The first Texas Performance Review (TPR) developed a range of recommendations to recover more third-party reimbursements to reduce Medicaid cos ts. Four major areas where improvement was needed were identified: (1) assuring access to insurance benefits for children of absent parents; (2) improving automation in the third-party reimbursement system managed by the Department of Human Services; (3) i ncreasing third-party payments at other state agencies that provide or purchase medical services for elderly, disabled, mentally ill, mentally retarded or low-income clients; and (4) making sure that all potential insurers who can pay for medical services other than the state are identified during the eligibility determination process.

Since the earlier TPR recommendations were issued, the state has made progress toward assuring access to insurance benefits for children of absent parents. However, more remains to be done. Recommendations concerning third-party reimbursements relating to child support are located in the section of this report devoted to child support issues.

In contrast, little improvement has been made in other third-party reimbursement ar eas since the first TPR recommendations were issued. This report includes recommendations that suggest more direct and aggressive ways to maximize third-party reimbursements to avoid Medicaid costs.

Because of the technical nature of third-party reimbursements, some states have hired expert consultants on a no-risk, contingency basis to identify savings opportunities. These consultants employ various techniques, seldom used by state agencies, that are successful in recovering third-party reimbursements.

The Legislature should direct, in the General Appropriations Act, the Health and Human Services Commission (HHSC) to immediately contract on a no-risk, contingency basis with a consulting firm experienced in third-party reimbursements to help the sta te increase its reimbursements. Any non-appropriated revenue resulting from the contract should be retained by HHSC, except for the portion necessary to fulfill the contract that should be appropriated to the HHSC for payment to the contractor. To achieve the savings indicated in the table below, the Legislature should reduce the general revenue appropriated for HHSC by the amount indicated in the table below and increase federal funds by the same amount.

Other states have had far more succes s with this technique than relying solely on state agencies to identify additional methods for third-party cost recovery for the Medicaid program. The highly technical nature of the third-party reimbursement process shows that using consultants with expert ise in this area would benefit the state.

The contingency basis of such a contract would mean no risk to the state if no savings were found.

Fiscal Impact
Based on results from other states, Texas could generate an additional $4 million from third-party recovery for the Medicaid program in fiscal 1994 and $20 million for the five-year period. Assuming a contingency fee of 20 percent of additional revenue generated over a two-year period, administrative costs would amount to $800,000 of the $4 million.

The state would realize a portion of the $4 million based on the Medicaid match rate of about 36 percent, which varies slightly each year. Since the federal government pays 50 percent of administrative costs, the state would pay for only half of the admini strative costs associated with the reimbursements.

Total Savings State Share Net Savings
Fiscal to the General Administrative to the General Reduced Cost Change
Year Revenue Fund 001 Costs Revenue Fund 001 to Federal Funds in FTEs

1994 $1,449,000 $400,000 $1,049,000 $2,551,000 0
1995 1,490,000 400,000 1,090,000 2,510,000 0
1996 1,490,000 400,000 1,090,000 2,510,000 0
1997 1,490,000 400,000 1,090,000 2,510,000 0
1998 1,490,000 400,000 1,090,000 2,510,000 0