Frequently Asked Questions

According to page 105 of the 2023 Comprehensive Guide to Medicaid Services and Administrative Claiming for the pay and chase method: 

“If the probable existence of a third party cannot be established or third-party benefits are not available to pay the beneficiary’s medical expenses at the time the claim was filed, the State Medicaid agency will pay the full amount allowed under their payment schedule. If the existence of a third party is determined after the claim is paid, or benefits become available from a third party after the claim is paid, recovery for reimbursement is sought to the limit of legal liability within 60 days from the end of the month in which the existence of the third party is determined.”

Additionally, States may exempt certain items or services from third-party liability (TPL) requirements when submission of claims for those items or services would always result in denial because the general insurance industry does not cover them. CMS requires the State to have clear and convincing documentation of non-coverage by insurers (this documentation must be updated at least annually). If a State has documentation, there is no need to further verify by submitting claims because there would be no liable third party and Medicaid TPL rules would not come into play. The controlling regulation is found at 42 CFR 433.139(b)(1), which states, “The establishment of third party liability takes place when the agency receives confirmation from a provider or a third party resource indicating the extent of third-party liability.” 

When non-coverage has been documented, the State may permit providers to use a specific code on the claim denoting non-coverage by the third party. This code could allow the Medicaid Management Information System (MMIS) to override the cost avoidance edit and pay the claim. The State would have to require providers to maintain documentation to substantiate non-coverage when using override codes and could conduct provider audits to ensure that the provider has appropriate documentation of non-coverage.

Section 1903(c) of the Act permits an exception to the TPL requirements for Medicaid-covered services included in a Medicaid eligible student’s IEP. This means that Medicaid will pay primary, or prior to federal IDEA funds for Medicaid-covered services listed in a student’s IEP. Although the Medicaid program pays first for covered IDEA services, these services are still subject to the TPL requirements applicable to any other services furnished under the State Medicaid program. The State Medicaid agency must still pursue payment for TPL as Medicaid is secondary to all other sources of payment. While this outlines the exception to Federal TPL requirements, States are required to pay and chase when it is cost-effective to do so.

Yes, under Medicaid law and regulations, Medicaid is generally the payer of last resort for school-based services for enrolled students who might also have commercial insurance coverage, a tort settlement, or other third-party resource. Congress intended that Medicaid, as a public assistance program, pay for health care only after a beneficiary’s other health care resources have been exhausted. However, there may be exceptions to the requirement to pursue TPL reimbursement (see Social Security Act § 1902(a)(25), Social Security Act § 1902(a)(25)(a), and 42 C.F.R. § 433.136).

No, States generally are not required to submit an updated SPA for third-party liability adjustments, because this policy is a clarification, rather than a change. However, if the State plan includes specific language on TPL, there may need to be an updated SPA. If recovery would not be cost-effective pursuant to 42 C.F.R. § 433.139(f), States may suspend efforts to seek reimbursement from a liable third party, including for IDEA or plan services under section 504 of the Rehabilitation Act. This could ease the administrative burden for schools.

Services not included in a student’s IEP are not considered the same as IDEA services under section 1903(c) of the Act. CMS does not consider LEAs to be legally liable third parties to the extent they are acting to ensure that students receive needed medical services to access a “free appropriate public education” (FAPE) consistent with section 504 of the Rehabilitation Act. Therefore, LEAs may bill Medicaid for non-IEP services students receive only after they bill any outside legally liable third parties (pursuant to Social Security Act § 1902(a)(25)).  States, however, may exempt certain items or services from TPL requirements when submission of claims for those items or services would always result in denial because the general insurance industry does not cover them. CMS requires the State to have clear and convincing annual documentation of non-coverage by insurers. If a State has documentation, there is no need to further verify by submitting claims, because there would be no liable third party and Medicaid TPL rules would not come into play. The controlling regulation is found at 42 C.F.R. § 433.139(b)(1), which states that “the establishment of third-party liability takes place when the agency receives confirmation from a provider or a third-party resource indicating the extent of third-party liability.” For more information on third-party liability, please refer to pages 103-107 of the 2023 Comprehensive Guide to Medicaid Services and Administrative Claiming.  

According to page 105 of the 2023 Comprehensive Guide to Medicaid Services and Administrative Claiming: 

“If TPL exists but does not cover the specific Medicaid services provided, the provider would have to furnish documentation to the State Medicaid agency that, although TPL generally exists for the beneficiary, there is no coverage for the services provided. After the documentation is given, the provider does not have to continually pursue TPL for the services provided which are not covered by the third party. At this point, the claim could be submitted to, and paid by, the State Medicaid agency. The provider would need to establish annually thereafter that coverage for those non-covered services has not changed. Many services covered by State Medicaid agencies under their Medicaid programs are not covered by otherwise liable third parties of Medicaid beneficiaries. As such, the provider would not need to pursue TPL every time the service was furnished as long as it was demonstrated such coverage is not available by otherwise liable third parties.” 

“If the probable existence of TPL cannot be established or third-party benefits are not available to pay the recipient's medical expenses at the time the claim is filed, the agency must pay the full amount allowed under the agency's payment schedule.”

“Reimbursement must be sought unless it is determined that recovery of reimbursement would not be cost effective in accordance with threshold amounts that have been established by the State Medicaid agency.” 

There are some circumstances, however, under which a state Medicaid agency may pay a claim even if a third party is likely liable and then seek to recoup that payment from the liable third party. This is referred to as “pay and chase.” Specifically, pay and chase is required or permitted in the following circumstances:

Medical Support Enforcement:  State Medicaid agencies must pay and chase if the claim is for a service provided to an individual on whose behalf child support enforcement is being carried out if (1) the third party coverage is through an absent parent and (2) the provider certifies that, if the provider has billed a third party, the provider has waited up to 100 days from the date of service without receiving payment before billing Medicaid (42 CFR § 433.139(b)(3)(ii)). This requirement is intended to protect the custodial parent and the dependent children from having to pursue the non-custodial parent, his/her employer, or insurer for third party liability.

Preventive Pediatric Services:  State Medicaid agencies must pay and chase for claims for preventive pediatric services (including EPSDT) (42 CFR § 433.139(b)(3)), unless the state has made a determination related to cost-effectiveness and access to care that warrants cost avoidance for up to 90 days.

After a state Medicaid agency pays a claim using the pay and chase method, it must then seek to recover from the liable third party, unless the recovery of reimbursement would not be cost-effective or documentation exists that there is no coverage for the services by the liable third party.