United States: Robbing Peter To Pay Paul: Problems In Enforcing The Medicaid Secondary Payer Requirements

Last Updated: June 11 2019
Article by Thomas Barker

One of the things that gets drummed into your head working with Medicaid is this: Medicaid is a payer of last resort. Medicaid can only pay for a health care service when there is no other payer available. If a Medicaid beneficiary has virtually any other source of health insurance coverage, that coverage pays first.

This requirement is set forth in the basic rules of the Medicaid program; according to section 1902(a)(25)(A) of the Medicaid law, a state plan for medical assistance must require that the state Medicaid agency administering the program take "all reasonable measures to ascertain the legal liability of third parties ... to pay for care and services available under the plan." Not only that: "in any case where such a legal liability is found to exist after medical assistance has been made available ... the State ... will seek reimbursement for such assistance to the extent of such legal liability."

There's only one problem with that sentence: from whom is the state supposed to seek reimbursement? And what if the third party with the legal liability happens to be the Medicare program, run by the same agency that administers the Medicaid program? Can Medicaid bill Medicare?

Believe it or not, the Massachusetts state courts have been wrestling with this question for nearly 20 years. The latest decision in the saga was handed down last week by the Massachusetts Superior Court, the trial court level in the Massachusetts judicial system. The judge dealt yet another blow to the state Medicaid plan, or MassHealth. It's a matter of no small consequence to MassHealth: the state estimates that it pays over $5 million a year in payments to providers that are not properly payable by Medicaid.

But before looking at this latest decision, Atlanticare Medical Center v. Reynolds, Mass. Superior Court 2000CV1451 (May 2019), let's take a look at the history of the Medicaid secondary payer law. Then we'll dive into the history of the Massachusetts court system's attempts to make sense of an admittedly vague federal law.

History of Medicaid Secondary Payer Law

Since at least 1980, the understanding of CMS (which was then called HCFA, but we'll continue to call the agency CMS in this post) was that states would focus their third-party recovery efforts on insurers. True, in a regulation published that year, CMS defined a liable "third party" as "any individual, entity, or program that is or may be liable to pay all or part of the expenditures for medical assistance furnished under a State plan."1 In theory, one could read that definition to include a health care provider as a "third party" because, of course, a provider is an "entity." But subsequent Federal Register notices suggested that CMS really intended the term to primarily encompass insurers or other payers.2

It's worth noting that in the Medicare program – which also has a secondary payer requirement – Congress has expressly allowed a recovery from a provider. Speaking of a party from whom Medicare can recover improperly paid funds when another party had a superseding legal obligation to pay (a worker's compensation carrier, for example), Congress wrote "the United States may recover under this clause from any entity that has received payment from a primary plan."3 But for whatever reason, Congress was not as clear in the Medicaid statute.

MSP in Massachusets

The Massachusetts Medicaid program uses a provider recovery approach – or at least it wants to. Its regulations permit the state to recover from a hospital that has received a payment from Medicaid that should have been made by another payer.4 And that is true even when the other payer is Medicare.

It is this policy that has generated 20 years of litigation in the Massachusetts judicial system. In a Supreme Judicial Court (SJC) decision from 2003, in a case called Atlanticare Medical Center v. Commissioner of the Division of Medical Assistance, 439 Mass. 1 (2003), the Court rejected the argument that providers could be the recovery source under the secondary payer statute and affirmed that "third parties are the ones responsible for making the reimbursement." Id. at 6 – 7.

But rather than settling the matter, it began nearly 20 additional years of additional litigation. Shortly after the SJC decision, the state solicited a letter from CMS that seemed to support its position that providers were an appropriate source of recovery and that the federal Medicare program was not an appropriate source of recovery; after all, a state Medicaid plan cannot bill Medicare because MassHealth is not a provider. But the Massachusetts courts refused to re-open the judgment and consider that letter.

The state then sued CMS in federal court, arguing that CMS was incorrect to not permit Massachusetts Medicaid to bill Medicare with respect to four specific dual-eligible beneficiaries. But in Massachusetts v. Sebelius, 638 F.3d 24 (1st Cir. 2011), the 1st Circuit rejected the Massachusetts argument. The court suggested that Massachusetts did have an available mechanism to recover improper payments: namely, by requiring a provider to file a "demand bill" to Medicare when there is dual coverage. Although Massachusetts argued that going through such a process is less efficient than allowing it to bill Medicare directly, the court said that it was not in a position to evaluate this "policy concern." Id. at 36.

It is now eight years later and MassHealth is back before the Massachusetts court system again. What's changed?

First, a brief sentence or two about the procedure by which the state got back into court in the first place.5 Massachusetts filed what is called a "Motion to Alter the Judgment" to try to overturn or at least modify the 2003 Atlanticare decision. Under Rule 60(b)(5) of the Massachusetts Rules of Civil Procedure, in order to succeed under such a motion, a party must be able to persuade the court that there has been a significant change in circumstances such that continued application of the earlier decision is no longer equitable. Second, the party must convince the court that the new judgment is "suitably tailored" to the changed circumstances.

Massachusetts argued that a CMS change in Medicare regulations was a significant change in circumstances that justified amending the 2003 Atlanticare decision. In 2010, CMS promulgated an amendment to its Medicare timely billing regulations. In general, a provider has one year to bill Medicare after providing a service. But under the revision to the regulation at 42 C.F.R. § 424.44(b)(3), CMS allows a provider to bill even after one year where: (1) at the time the service was furnished, the beneficiary was not entitled to Medicare but the provider later received notification of retroactive entitlement dating back to or before the date of the furnished service and (2) the state Medicaid agency recovered the Medicaid payment for the service from a provider.

"Ah-HAH!" you can hear the MassHealth attorneys saying when this regulation was published. That second prong seems to prove that a state can recover from a provider. But the Massachusetts Superior Court was not persuaded. First, the court asked, if this revised regulation was promulgated in 2010, why did Massachusetts wait eight years to bring its new claim? And second, the court noted that the regulation does not specify how the funds could have been recovered from a provider – it could have been done by using the demand billing model that CMS expressly countenanced that led to the federal court litigation in 2011.6

So Massachusetts is again out of luck. Of course, the state could appeal this decision again. It is likely that hospitals in the state are anxiously awaiting the state's decision.


1. 42 C.F.R. 433.136.

2. See, e.g., 50 Fed. Reg. 46651, 46657 (Nov. 12, 1985).

3. Social Security Act § 1862(b)(2)(A)(iii). Emphasis added.

4. 130 Code of Massachusetts Regulations § 450.316(F).

5. Brief sentences that are likely only of interest to those who, like one of the Medicaid and the Law bloggers, were Civil Procedure nerds in law school.

6. On this point, the Court's analysis seems lacking. A close review of the Federal Register notice that accompanied the revised regulation makes clear that a state could recover improper Medicaid payments from a provider absent a demand billing situation and can do so without notice to the provider until after the recovery of the overpayment. See 75 Fed. Reg. 73170, 73452 (Nov. 29, 2010).

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