Medicaid: Millions of Dollars Not Recovered From Michigan Blue Cross/Blue Shield

Published by the Government Accountability Office on 1990-11-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                       United   States   General   Accounting   Office   I ,- ’

                       Report to the Chairman, Committee on
GAO                    Government Operations, House of

‘November   1990
                       Millions of Dollars Not
                       Recovered From
                       Michigan Blue Cross/
                   .   Blue Shield
                   United States
GA!0               General Accounting Office
                   Washington, D.C. 20548

                   Human Resources Division


                   November 30,199O

                   The Honorable John Conyers, Jr.
                   Chairman, Committee on Government Operations
                   House of Representatives

                   Dear Mr. Chairman:

                   This report responds to your request that we review Michigan’s efforts
                   to ensure that private insurers are paying claims for Medicaid recipients
                   who have health insurance. Federal law requires state agencies that
                   administer the Medicaid program to make reasonable efforts to identify
                   liable third parties, including health insurers, and seek recovery when
                   they are identified after Medicaid has paid for program services. GAO
                   and others have reported problems that states have encountered in
                   meeting these requirements. Because an estimated 14 percent of the
                   nation’s Medicaid recipients have health insurance, unrecovered pay-
                   ments can result in large losses to the Medicaid program.

                   The Committee had received allegations that the Michigan program was
                   not recovering payments from Blue Cross and Blue Shield of Michigan
                   (nc/ss), which has an estimated 60-65 percent of the state health insur-
                   ance market and insures about 7 percent of Michigan’s Medicaid recipi-
                   ents We sought to determine (1) the nature of any problems that might
                   exist and the amounts involved and (2) the adequacy of state Medicaid
                   agency recovery efforts and federal oversight of those efforts.

                   Over the past 18 years, the Michigan Medicaid agency has encountered
Results in Brief   serious problems in recovering payments made for Medicaid recipients
                   insured by Be/ES. Michigan has not fully used its authority or taken all
                   the actions that it could to enforce compliance by BC/BSwith Medicaid’s
                   third-party recovery provisions. Also, federal and state monitoring and
                   oversight of the Michigan Medicaid recovery program have been ineffec-
                   tive. Because Michigan and BCIBShave not implemented a system for
                   BC/BSto process and pay claims, BC/BShas avoided or forestalled pay-
                   ments to the state’s Medicaid program and, in effect, shifted consider-
                   able costs to the federal and state governments.

                    Since August 1988, Michigan has made recovery on none of the medical
                    claims it paid for Medicaid recipients with WJBS benefits. As of August
                    1990, agreements Michigan and BC/BSmade concerning the development

                    Page 1                     GAO/HRDSl-12   Medicaid   Recoveries From Michigan   BC/BS

              an automated file of all Medicaid recipients who have health insurance.
              MSAuses the file to either avoid payments or seek postpayment recov-
              eries of claims that should be paid by health insurers instead of Medi-
              caid. Payment avoidance occurs when MSAreturns incoming claims
              unpaid so that the insurer pays first. Postpayment recovery occurs
              when MSApays the provider of the medical services, then bills the
              insurer and receives payment that the insurer should have made

              HZ/ESis involved in providing health insurance to about 7 percent of
              Michigan’s Medicaid recipients. This includes BC/BSplans as well as cov-
              erage that it administers for self-insured, employer-sponsored health
              benefit plans. BC/uSis by far the largest health insurer in Michigan.

              We sought to determine the (1) nature of any problems the Michigan
Scope and     Medicaid agency may have in ensuring that BC/BSpays claims for Medi-
Methodology   caid recipients it insures and the amounts involved and (2) adequacy of
              the Michigan Medicaid program’s efforts to recover payments for such
              recipients having BUHS health insurance. To do so, we interviewed offi-
              cials from MSAand the Office of Internal Audit in Michigan’s Department
              of Social Services; the Michigan Department of Licensing and Regula-
              tion’s Insurance Bureau; the Michigan Department of Attorney General;
              the Michigan Office of the Auditor General; and BC/BS.In addition, we
              reviewed (1) Michigan’s lawsuit against BC/ES,’(2) state health insurance
              laws and regulations, and (3) documentation concerning the handling of
              postpayment claims with probable RUBS liability.

              In assessing the adequacy of Michigan’s recovery efforts, we also tested
              the accuracy and effectiveness of a separate process used by the state to
              recover pharmacy claims for recipients with lC/BS pharmacy coverage.
              To test whether BC/I<Swas paying when it should under this process, we
              reviewed a random sample of pharmacy claims that the state believed
              had HC:BScoverage but that I~C~BS rejected. Using documentation pro-
              vided by RC/BSand the state, we evaluated the reasons why BC/EtSdid not
              pay the claims. The claims we reviewed covered the 12-month period
              ending ,July 3 1, 198X--the most recent 12-month period for which com-
              plete claims data were’available.

              ‘Kelly v. BlueCrossandBlueSEd of Michigan,
              (consent decree).

              Page3                        GAO/HRDsl-I2   Medicaid Recoveries From Michigan   BG’BS

    Figure 1: Significant   Events, MSA and SC/B                (1972-1990)
                                                                                                                                                         Claim processing system
                                                                                                                                                         not implemented. Claim
                                                                                                                                                         baddog since August
                                                                                                                                                         1986 totals $69 million.

                                                                                                                                                M S A and EtCiBS signed
                                                                                                                                                contract for claim
                                                                                                                                                processing system.

                                                                                                                                       M S A began negotiating
                                                                                                                                       with BCBS for a claim
                                                                                                                                       processing system and
                                                                                                                                       discontinued recovery
                                                                                                                                       efforts fmm providers.

                                                                                                        State and SCES
                                                                                                        negotiated a second
                                                                                                        agreement to settle 1976.
                                                                                                        1061 daims.

                                                                          M S A began new prca%3s
                                                                          to attempt recovedes from
                                                                          service providera rather
                                                                          than t3cjBs

                                                     State and SC/ES signed
                                                     agreement to reso,VB
                                                     1976 lawsuit


M S A unsuccessfully attempted to get BC/BS to process
Medicaid-paid cbims and provide reimbutzement for
recipients identified wlfh BC/SS insurance.

1                                  1_

1972                                                     1970                 1960               1962                           1985                             1988     1989   ,990

                                                                Page 5                                  GAO/HBD91-12        Medicaid Recoveries From Michigan BC/B!S

                           While workable, this was a slow, labor-intensive process whereby MSA
                           manually processed individual claims. As a result, throughout much of
                           the 1980s a large backlog of unprocessed claims existed, many of which
                           MSAnever processed. For example, in an October 1986 audit report, the
                           State Auditor General reported an MSAbacklog of unprocessed BC/BS
                           claims totaling over $8 million. MS4 was adding claims to this backlog
                           twice as fast as it was processing them.2

                           During the period the state used this approach, it recovered only about
                           $1.9 million for recipients that had BC/BS coverage. Although no infor-
                           mation on the precise amounts that should have been recovered is avail-
                           able,”we can put the amount recovered into perspective. The
                           $1.9 million (for 7 years of claims) is about 10 percent of what the state
                           recovered from BC/HSunder the 1980 and 1985 agreements (for 5 years
                           of claims).

No Recoveries of Medical   MSAdiscontinued its alternate recovery process (for claims paid since
Claims Since 1988          August 1988). It did so largely because of provider complaints stemming
                           from frequent errors and MSAconcerns that the providers may stop
                           serving Medicaid recipients. Since that time through April 1990, MSAhas
                           identified over $59 million in claims for which BC/&Smay have some lia-
                           bility.4 However, since 1988, although claims have been presented to
                           IX/K, no recoveries have been made.

                           In July 1988, before discontinuing the alternate recovery approach, MSA
                           officials told us, they began negotiating with BC/RSto develop a claim
                           processing system for direct BC/BSpayments to MSA.BC/BSofficials told
                           us that a cooperative working environment between EYJRSand MSAwas
                           the primary reason they felt a claim processing system could be devel-
                           oped at that time. Prior to 1988, neither side was willing to cooperate
                           with the other, BC/M~officials said. Consequently, the claim processing
                           system called for in the 1980 agreement was not developed.

                           ‘Theclaimbacklogdid notincludeclaimstotalinglessthan$250perrecipient-thestatecost-effec-
                                       thresholdfor EC/18claims.TheAuditorGeneral estimatedthat suchclaimsamountto
                           “Staterecordsontheamounrof Medwidclaimspaidfor recipients
                                                                                         to havehadBC/E%S
                           41tLSunlikelythatBC/BS1sliabk.for thefull amountbecause
                                                                                 MSAdoesnotscreenfor E!C/E!S
                                                                 or copaymentprovisions.

                           Page 7                          GAO/HRI%Sl-12   Medicaid   Recoveries From Michigan   BC/BS

                       effect of making claim processing and payment contingent on develop-
                       ment by BC/BSof a claim processing system.

                       Further, the agreements may jeopardize MSA’Sability to collect on some
                       of the Medicaid-paid claims. BC/EISofficials told us that most of the
                       employer-sponsored health benefit plans administered by BC/BSrequire
                       that, to be reimbursed by BC/Bs, claims must be submitted within 12-18
                       months. The agreements explicitly limit BC/BS liability for the plans it
                       administers (over half of nc/ns’s business) to the amounts it collects
                       from the employers. Thus, BC/BSwill not be required to pay MSAif the
                       employers do not reimburse BC/BS.”Although BC/BSofficials told us that
                       it is likely that some of the employers will waive their time limits for
                       filing claims, none of them had agreed to do so at the time we completed
                       our review.7 Consequently, as time passes, more of the claims will fall
                       outside filing time limits. The amounts in question can be considerable,
                       as almost 30 percent of the claims by dollar value ($16.5 million) were
                       over 12 months old as of July 31, 1990.

Opportunity to Avoid   MSAdid not take full advantage of its opportunity to avoid paying claims
Payments Missed        unnecessarily. By completion of phase 1 of MSA’Scontract with RC/BS,the
                       number of recipients identified as having BC/BScoverage had signifi-
                       cantly increased. This gave MSAan opportunity to avoid the problems it
                       had in obtaining postpayment recoveries from BC/BS When recipients
                       are known to have insurance coverage at the time MSAreceives a claim,
                       MSAcan avoid costs by not paying the claim. Providers, when notified of
                       this, directly bill the insurer for payment.

                       In April of 1989, under phase 1 of its contract with MSA,BC/BSgave the
                       agency the names of an estimated 17,000 Medicaid recipients having
                       BC/BSinsurance. This increased the number of recipients MSAhad previ-
                       ously identified as having HC/BScoverage by more than 25 percent. The
                       state entered this information into its insurance file in August 1989 and
                       avoided paying claims for services provided before September 1, 1989.
                       However, MSAofficials told us that various processing and technical
                       problems precluded use of t,he data to avoid paying claims for program
                       services provided during the 4-month period, September l-December 3 1,

                       “lkanse theseplansareadmimstered by BC/BS-usuallyfor self-insured
                       obtamsreimbursement for thecknmsIt paysfromtheemployer-sponsor.
                       7Asdwussedin our report.Mtxhcaid:
                                                                 Needed to ImproveCollections
                       Insurers(GAO/HRD-91-E.Nov.1990)statesareexperiencing  problemsrecovering  fromemployer-
                       sponsoredhealthbenefitplansThatreportincludesrecommendationsfor resolvingtheseproblems.

                       Page9                          GAO/HRDSl-12MedicaidRecoveriesFromMichiganBC/BS

                 We estimate that MSAfollow-up could have resulted in additional recov-
                 eries of $.3 to $1.9 million.10 Also, MSAlacked controls to ensure that
                 recoveries of paid pharmacy claims are timely. For example, BC/BStook
                 an average of 6 months from the receipt of a claim from MSAto the time
                 it submitted a payment.”

                 After we brought the missed potential collections to the attention of
                 HCFAregional officials in October 1989, they asked MSAto investigate the
                 situation and explain state procedures to correct the problem. MSAsaid
                 that higher priorities limited its review of recovery rates for pharmacy
                 claims. However, MSA speculated that HC/BSmight not have incorporated
                 updated drug and provider codes into its claim processing system. MSA
                 told HCFAthat RC!ELS  had verbally agreed to reprocess all pharmacy
                 claims if a deficiency existed.‘”

                 Federal monitoring and oversight of Michigan’s Medicaid recovery pro-
Monitoring and   gram has been ineffective. HCFAperformed two different reviews of the
Oversight Weak   Michigan program in 1989, but neither detected that MSAwas not
                 promptly seeking recoveries from BC/BS.Moreover, until we brought it to
                 HCFA'Sattention, HCFAwas unaware that MSAhad discontinued its alter-
                 nate recovery process for Medicaid recipients with HC/BScoverage or
                 that the August 1989 three-phase contract with BC/BShad been finalized.

                 We discussed MSA'Srecovery problems with ACFAregional officials in
                 October 1989. As a result, HCE'Acorresponded with the state to follow up
                 on some of the issues we raised. Also, in light of the deficiencies that we
                 noted, IICE'Aregional officials said that they may need to update their
                 audit plans and approac+lcs.

                 State monitoring and oversight of Michigan’s Medicaid recovery pro-
                 gram also has been ineffective. Between 1985 and 1988, audits by the
                 Michigan Office of the Auditor General and a certified public accounting

                 ‘“Weuseda 95.percent  confidtmwlevelfor ourprojection.Thismeansthat chances
                                                                                           are95outof 100
                 that thetrue recoveryvaluefor thv pharmacyclaimslieswithintheestimatedrecoveryrange.
                 “As discussed onp. 8, statelawgenerallyrequiresBC/BSLopayclamswithin 60daysor incur
                 “ML%andX/BS suspended     pnxe.w~gpharmacyclaimsaroundAugust1989,thinkingtheycould
                 quicklycorrectthecodingproblem+MSAofficialstoldus.Theyindicatedthat BC/BSresumed
                          in July 1990,eventhoughthecodingproblemshadnotbeencorrected.

                 page11                          GAO/HRDSl-12MedicaidRecoveriesFromMichiganBC/BS

              the state-could sue an insurer for double damages if the insurer failed
              to comply with requirements for the payment of health services pro-
              vided to insured Medicaid recipients.

              To the extent that insurers can establish legal or administrative barriers
Conclusions   to delay or postpone payments to the state, it is in their financial inter-
              ests to do so. Our past work has shown that insurers act on these inter-
              ests, and this appears to be true in Michigan as well. Ineffective state
              management, coupled with lack of HCFAleadership, has allowed millions
              in Medicaid payments to go unrecovered from BC/BS.Until corrective
              actions are taken, Michigan and the federal government will continue to
              pay Medicaid claims for which BC/BSis liable.

              Currently, we are evaluating HHS’s options to deny federal Medicaid
              funding for claims for which a state like Michigan has not met its
              responsibilities to recover Medicaid costs. That evaluation of HCFAover-
              sight and sanction authority involves issues that are beyond the scope
              of t,his review. The results of that evaluation, together with any recom-
              mendations, will be included in a subsequent report. In the meantime,
              we continue to believe that our recommendation to amend Medicaid law
              to provide federal penalties for delinquent insurers, if implemented,
              could help resolve Michigan’s Medicaid recovery problems.

              Page 13                     GAO/HRBSl-12   Medicaid   Recoveries   From Michigan   BC/BS
Page 16   GAO/HRDSEl2   Medicaid   Recoveries From Michigan   BC/B!3
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Appendix I

Major Contributors to This Report

Human Resources           Edwin P. Stropko, Assistant Director
Division,                 Donald J. Walthall. Assignment Manager
Washington, D.C.

                          Philip J. Andres, Evaluator-in-Charge
Detroit Regional Office   Jean T. Shanahan, Evaluator
                          Javier J. Garza. Evaluator

                          Craig H. Winslow, Attorney-Adviser
Office of the General
Washington, D.C.

(101153)                  Page 16                    GAO/HRLSBl-12   Medicaid Rccoverie.s From Michigan   BC/BS

    As you requested, we did not obtain written comments on this report,
    but we did discuss its contents with MSA, IX/ES, and HCFA officials. We
    have incorporated their comments where appropriate.

    As arranged with your office, unless you publicly announce its contents
    earlier, we plan no further distribution of this report until 30 days after
    its issue date. At that time, we will send copies to the Secretary of
    Health and Human Services and other interested parties and make it
    available to others on request. Please call me on (202) 275-5451 if you or
    your staff have any questions about this report. Other major contribu-
    tors are listed in appendix I.

    Sincerely yours.

    Janet L. Shikles
    Director, Health Financing
      and Policy Issues

    Page14                       GAO/HRD91-12

                              firm identified deficiencies similar to those we found and made recom-
                              mendations to improve recovery efforts. MSAdid not implement the rec-
                              ommendations, and the Auditor General has no authority to require MSA
                              compliance with its recommendations for correction.

                               States have the principal responsibility-both    as regulators of insurers
Authority Available to         and as administrators of Medicaid-for taking actions to ensure that
Enforce Insurer                insurers comply with Medicaid requirements. In our view, MSAhas not
Compliance Not Used            taken all the actions that it should, allowing BC/ESfor nearly 18 years to
                               avoid paying claims for many of the Medicaid recipients it insured. For
                               example, MSAhas not

                         .     asked the state Insurance Bureau to assist it in obtaining BC/BScompli-
                               ance. The Insurance Bureau has considerable leverage over insurers
                               because it enforces the requirements they must meet to do business in
                               Michigan. Insurance Bureau officials told us that BC/EShas the same
                               obligation to pay Medicaid claims as other insurers. They said MSAcould
                               have sought the Bureau’s assistance to administratively resolve the
                               problem or return to court if necessary.
                         l     monitored BC/EScompliance with the 1980 agreement. Though there
                               have been some interpretation problems and uncertainty about MSA's
                               and BC/BS'Sresponsibilities under the agreement, MSAhas not sought
                               legal clarification or enforcement of the agreement. MSAtold us that this
                               may have been due to staff turnover during the past decade.
                             . in effect, required in its agreements that BC/BSpromptly pay claims for
                               which it is liable and thus preserve the state’s right to recover on older

                               Unlike the Medicare program, Medicaid does not provide federal penal-
Medicaid Needs                 ties for insurers who do not comply with federal requirements to pay
Delinquent Insurer             the claims of insured program recipients. In our view, this gives insurers
Penalties                      an incentive to avoid or delay paying the claims of Medicaid recipients
                               because doing so saves them money. That is, if and when the insurers
                               pay, they usually pay only what they originally owed. Medicare law has
                               been amended to countervail this incentive by providing for “double
                               damages” (double the amount originally owed) in situations where
                               insurers do not pay when they should. We have recommended amending
                               the Medicaid statute to incorporate provisions similar to those of the
                               Medicare program.‘:’ If such legislation was enacted, anyone-including


                               Page12                      GAO/HRLbBl-12

                       1989. Consequently, MSAestimates that during the 4 months, it paid over
                       $1.1 million in Medicaid claims for people with BC/RSinsurance.

                       MSAofficials told us that they will seek recovery of these payments
                       when BC/BSimplements its system for processing Medicaid claims. As
                       discussed above, however, it is uncertain when this will occur. The
                       longer it takes to implement the system, the lower the likelihood of MSA’S
                       recovering its payments.

                       Although the provision in the 1980 agreement calling for a BC/BSsystem
Weak Internal          to process Medicaid medical claims has not yet been implemented, BC/BS
Controls Also Reduce   began using such a system for processing pharmacy claims in 1980.8 To
Recoveries             ascertain whether MSAwas recovering the amounts it should on phar-
                       macy claims, we tested the recovery process for the 12-month period
                       ended July 1988. Pharmacy recoveries from BC/BSwere a matter of con-
                       cern because they had declined over the years from 9.0 percent of the
                       amount claimed in 1982 to 3.5 percent in 1989.

                       During the 12-month period we tested, BC/BSrejected most of the claims
                       that MSAsubmitted for recovery, paying only $.5 million of the
                       $11.7 million in claims. In rejecting most of the claims, BC/BSindicated
                       that either recipients did not have BC/BScoverage or their coverage
                       excluded pharmacy benefits.

                       Although BC/BSdocumented the reasons for rejecting each claim, MSA
                       neither reviewed the documentation nor pursued claims that, in our
                       view, still had potential for recoveries. Many rejections appeared to be
                       the result of

                        1. correctable MS4 errors (for example, the claims MSAsubmitted to Bc/ns
                        had an incorrect or missing provider code) or

                        2. possible BC/BSerrors (for example, no/us records available at MSA
                        showed that some recipients actually had pharmacy coverage for the
                        service dates for which K/AS had rejected the claims on the basis of no
                        pharmacy coverageLn

                                     about8 percentof total stateMedicaid
                                                               to theE?C/Bs
                                                                         enrollmentfiles,whichit usesto
                        verify EK/BScoverage

                        Page10                         GAO/HRDSl-12MedicaidRecoveriesFromMichiganBC/BS

      In August 1989, the state contracted to pay BC/ESabout $400,000,
      mainly to develop and implement a claim processing system for Medi-
      caid payments. The contract and subsequent modifications involved a
      three-phase approach, as follows:

l     Phase 1. BC/BSwas to match its enrollment files with the state Medicaid
      file to identify recipients with BC/ESinsurance. When the contract was
      signed, BC/BShad already completed phase 1 and had delivered the
      names of additional Medicaid recipients with BC/BScoverage to MSA on
      April 28, 1989.
    . Phase 2. BCIBSwas to develop and implement a system to process MSA
      claims (exclusive of inpatient hospital claims) for recipients having
      BC/BScoverage. Phase 2 was originally targeted for implementation in
      December 1989. At that time, however, it was expanded to include inpa-
      tient hospital claims. As part of the expansion agreement, BC/ES
      advanced MSA $5.0 million on its potential liability on inpatient claims.
      According to MSA, it initiated this expansion when it identified inpatient
      claims as low-volume, high-dollar claims that merited expeditious
      recovery. As of August 31, 1990, none of the phase 2 system had been
    . Phase 3. BC/BSwas to develop and implement a system to process a claim
      form that a provider can submit for BCIBS,Medicare, and/or Medicaid
      payment and implement a system capable of directly accepting claims.
      As of August 3 1, 1990, BCIBShad not begun work on this phase.

      Excepting the $5 million advance payment, these agreements5 had the
      practical effect of indefinitely postponing recoveries from HC/IB.The
      state, however, is obligated under Medicaid regulations (42CFR
      433,139(d)(2)) to seek recoveries within 60 days after the end of the
      month in which it identifies insurance for a Medicaid-paid claim. MSA
      was not prompt in submitting claims to RC/BSfor payments that Medi-
      caid made between August 1988 and September 1989. MSA did not for-
      ward the claims until November 1989, after we questioned MSA'S
      authority to indefinitely postpone seeking recoveries from RC/BS.MSA
      forwarded additional claims to         in December 1989 and has con-

      tinued to do so sporadically since that time. BCIBSis generally obligated
      under state law to pay claims to beneficiaries within 60 days or incur
      interest penalties, and Medicaid recipients must assign their rights to
      such payments to the states. MSA’s contract with BC/BS,however, has the

      "The agreementsconsistof I heAugust1989contractandthe December
                                                                             to include

      Page8                         GAO/HRDSl-lZMedieaidRecoveriesFromMichiganBC/BS

Recovery Problems Begin       In November 1978, after 6 years of unsuccessful negotiation to have
                              Bc/Bsprocess state-paid claims for insured Medicaid recipients, the state
in Early 1970s                filed a lawsuit against W/B% The state sought to (1) establish BC/BSlia-
                              bility for 1973-78 claims totaling $47 million and (2) require BC/ESto
                              implement a system for processing and paying past, present. and future

                              In December 1980, Michigan and BC/BSreached a legal agreement to
                              settle the dispute As part of the agreement, BC/BSwas to

                          l verify state information on Medicaid recipients with BC/FEcoverage by
                            performing a monthly match of its enrollment files against the state
                            Medicaid insurance file,
                          . reimburse the state for the claims of insured recipients who received
                            services after October 1, 1976 (no provision was made for claims for the
                            3 earlier years), and
                          l arrange for the development of a Medicaid claim-processing system and
                            use it to pay future postpayment claims promptly.

                              The state agreed to submit claims that included data elements necessary
                              for IF/ES to (1) assure its liability and claim accuracy and (2) process
                              claims on its system

                              MSAofficials told LISthat the 1980 agreement did not fully resolve the
                              claim-processing stalemate between the state and K/ES because they
                              could not give B( ’13sall the data elements requested without substantial
                              changes to the state‘s computer system. In December 1985, after BC/E.S
                              had paid $9.1 million as a result of processing a portion of the post-
                              October 1976 claimh, Michigan negotiated a second agreement with
                              BCC/BS.llnder the 1985 agreement, rather than process the remaining
                              claims, BC/BSagrchedt,o pay an additional $9.4 million. In total, BC/BSpaid
                              about $18.5 million on claims of $90.7 million accumulated from October
                              1976 through August 1981.

Fewer Recoveries Than         MSAused an alternate approach to obtain recoveries for claims paid from
Expected Between              September 1981 through August 1988. IJnder that approach, when MSA
                              identified a paid claim for a recipient identified as having BC/BSinsur-
1982-1988                     ance, it did not forbvdrd the claim to BC/I%Sfor reimbursement. Instead, it
                              returned the claim to the provider (physician, hospital, etc.) to collect
                              from BQBS.To rclcover payments, MSAadjusted the provider’s account to
                              reduce its futurrs Mtbdicaid payments.

                              Page6                      GAO/HRLbSl-12

                       To evaluate the federal oversight of MSA'Srecovery efforts, we reviewed
                       HCFA'Spolicies, procedures, and practices for monitoring MSA.These
                       included specific oversight efforts to ensure the identification of liability
                       and the accuracy of BC/BSpayments to MsA. Additionally, we obtained
                       and reviewed evaluations of the MSAhealth insurance recovery program
                       by HCFA,the Michigan Office of the Auditor General, and certified public
                       accounting firms.

                       We conducted our review between July 1989 and August 1990 in accor-
                       dance with generally accepted government auditing standards.

                       Since 1972, for a variety of reasons MSAhas experienced difficulty
Longstanding           recovering from X/ES, although other insurers in the state have rou-
Problems in            tinely processed postpayment claims as submitted to them by MSA(see
Recovering Medicaid-   fig. I for chronology of events). One major reason is that BC/BShas main-
                       tained that its computer system is incapable of processing Medicaid
Paid Claims Persist    claims as submitted by MSA,and that it needs additional information,
                       preferably submitted on BC/Bsclaim forms. Because of the administra-
                       tive difficulties involved in meeting EC/W specifications for payment, the
                       state has been precluded from obtaining significant recoveries.

                       Page4                        GAO/HBDSl-12MedicaidRecoveries

             of a claim processing system have not been implemented. With recov-
             eries from BC/Bs indefinitely postponed, the state has accumulated a
             $59 million backlog of BCVBSclaims. Michigan’s likelihood of recovering
             the full amount owed on the backlogged claims from BC/BShas been seri-
             ously jeopardized because many of the policies under which the claims
             are payable include time limits for filing claims that have been

             We have recommended that the Medicaid statute be changed to allow
             assessment of double damages on insurers that do not pay when they
             should. This provision is currently applicable in certain circumstances
             under the Medicare program. In addition, as a part of another study, we
             are evaluating more broadly the options available to the federal govern-
             ment when a state, such as Michigan, has not met its responsibilities to
             recover Medicaid costs. Accordingly, this particular report contains no

             Medicaid is a federally aided, state-administered medical assistance pro-
Background   gram that serves low-income people. Within broad federal guidelines
             administered by the Department of Health and Human Services’ Health
             Care Financing Administration (HCFA), each state designs and manages
             its own Medicaid program. Under federal regulations, states are
             required to develop and implement systems to identify recipients with
             health insurance and assure that insurance benefits are used before
             Medicaid. When the state learns after it has paid a Medicaid claim that
             other health insurance exists, federal regulations require it to promptly
             seek recovery of benefits. Recovery of paid claims from liable insurers
             reduces federal and state Medicaid costs.

             Normally, Medicaid recipients with health insurance obtain it through
             their or their parent’s employer. Children in single-parent families
             receiving public assistance, for example, qualify for Medicaid coverage
             and also may be covered under insurance policies of their employed
             absent parents. In fact, federal child support regulations call for states
             to request that court orders for child support require absent parents to
             obtain health insurance coverage for their children when it is available
             at a reasonable cost.

             In Michigan, the Medical Services Administration (MSA) administers the
             state’s $2 billion Medicaid program. The federal government funds
             about 57 percent of Michigan’s Medicaid program. Using information it
             receives from recipients, providers, and health insurers, MSAmaintains

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