Governor Ernie Fletcher’s Communication Office
CHFS Inspector General's Office Posts Record High Medicaid Recovery Funds

Press Release Date:  Thursday, February 16, 2006  
Contact Information:  Brett Hall
Jodi Whitaker
Troy Body

Vikki Franklin

FRANKFORT, Ky. – The Cabinet for Health and Family Services recovered over $42 million through Medicaid third party liability (TPL) in fiscal year 2005 with cost avoidance of over $755 million, Governor Fletcher announced today. Cash recoveries are expected to exceed $50 million during fiscal year 2006. Total cost avoidance is currently tracking at over $877 million for fiscal year 2006.  This would represent the fourth straight year of unprecedented recoveries and cost avoidance in TPL.

Over the past several years, CHFS has aggressively pursued enhancements to Medicaid TPL, as the Medicaid budget situation has tightened. Since 2004, the Medicaid TPL program has been operated by the Cabinet’s Office of the Inspector General (OIG), Division of Fraud, Waste and Abuse/Identification and Prevention which was formerly the Division of Program Integrity in the Department of Medicaid Services. OIG employees work closely with Medicaid systems and financial operations and with a highly specialized national TPL contractor, Public Consulting Group. 

As a result, fiscal year 2005 represented the fourth consecutive year that Medicaid has posted record high recoveries through pay and chase, and record amounts of cost avoidance. Fiscal year 2005 recoveries were over $42 million, and cost avoidance was over $755 million. In 2002, these amounts were less than $20 million and approximately $527 million respectively. 

“This is an excellent example of what can be accomplished when we work cooperatively and intelligently to improve state government business practices to maximize taxpayer dollars,” said Governor Fletcher.  “Good fiscal stewardship such as this is a primary goal of our administration.”

Medicaid Commissioner Shannon Turner pointed out that the large increase in Medicaid cash recoveries over the past couple of years is greatly welcomed and highly valued. “Without these enhanced efforts, the current budget situation would be far more difficult. The cash recoveries are utilized by Medicaid to fund current administrative work, and are critical to daily operations,” said Medicaid Commissioner Shannon Turner. “I am very appreciative of OIG’s efforts in this area.”

“So far in FY 2006, cash recoveries are tracking over $52 million and we are committed to continue enhancements to this vital area of Medicaid recovery and savings,” said Inspector General Robert J. Benvenuti, III.  “Third Party Liability is one of the many areas the OIG and Medicaid work together to prevent and detect waste, fraud and abuse.”

Third Party Liability refers to the legal obligation of third parties -- certain individuals, entities, or programs -- to pay all or part of the expenditures for medical assistance furnished under the Medicaid program. The Medicaid program by law is intended to be the payer of last resort. All other available third party resources must meet their legal obligation to pay claims before the Medicaid program pays for the care of an individual eligible for Medicaid services. 

Examples of third parties that may be liable to pay for services include employment-related health insurance, court-ordered health insurance derived by non-custodial parents, workers' compensation, long-term care insurance and other state and federal programs such as Medicare, unless specifically excluded by federal statute.

Individuals eligible for Medicaid assign their rights to third party payments to the state Medicaid agency. Currently, states are required to take all reasonable measures to determine the legal liability of third parties to pay for care and services available under the Medicaid state plan. Once a state confirms that a potentially liable third party exists, the state is required to either cost avoid or pay and chase claims.

Cost avoidance occurs when a provider of services bills and collects from liable third parties before sending the claim to Medicaid. Medicaid identifies the liable third party prior to receiving a claim, allowing Medicaid to systematically avoid primary liability for payment if presented with a claim. 

Pay and chase comes into play when the state Medicaid agency pays the provider claim prior to becoming aware of the liable third party and then attempts to recover from the liable third party. 

States are generally required to cost avoid claims, unless they have a waiver approved by the federal government which allows them to use the pay and chase method.