MEDICAID COST AVOIDANCE: STRENGTHENING PAYMENT ACCURACY THROUGH BETTER INSURANCE DISCOVERY

Cost avoidance is becoming an essential strategy for Medicaid health plans seeking to improve financial performance while managing rising healthcare expenses. A significant source of unnecessary spending occurs when claims are paid without identifying another insurer that may have primary financial responsibility. Recent findings and policy updates from Michigan, federal healthcare programs, and Florida demonstrate how more complete insurance information can support better payment decisions and reduce avoidable expenditures.

For Medicaid managed care organizations (MCOs) and state agencies, this issue is closely connected to coordination of benefits (COB) and Third Party Liability (TPL). These processes are intended to establish which insurer is responsible for paying a claim. When commercial coverage information is missing or delayed, Medicaid organizations may incur expenses that could have been avoided through earlier identification.

Michigan's TPL Guidance Illustrates the Need for Reliable Coverage Information

A recent third-party liability reporting reminder issued by the Michigan Department of Health and Human Services outlines how providers should communicate updates involving a Medicaid member's additional insurance coverage.

Michigan maintains insurance records using eligibility information supplied by commercial insurers, pharmacy benefit managers, and third-party administrators. When providers encounter incorrect coverage information from participating organizations, they are directed to contact the appropriate insurer for corrections. Changes involving insurers outside those reporting relationships must be submitted through Michigan's TPL reporting process before Medicaid claims are filed.

Although the reminder addresses established procedures, it underscores the difficulty of maintaining accurate coverage records across multiple insurance organizations and reporting systems.

Members may gain or lose commercial insurance through employment changes, family coverage arrangements, or transitions between insurance carriers. Because reporting and data updates do not always occur immediately, health plans can be left with incomplete information about a member's current insurance status.

This creates situations in which Medicaid eligibility is correctly recorded, but the existence of another active commercial policy remains unknown.

The financial implications are significant. Medicaid is the payer of last resort, requiring other liable insurers to meet their payment responsibilities before Medicaid pays, subject to applicable federal exceptions. When additional coverage is not identified, Medicaid may assume financial responsibility for claims that belong to another payer.

Federal Verification Findings Demonstrate the Cost of Coverage Discrepancies

The financial consequences of inaccurate healthcare coverage information extend beyond Medicaid claims.

On October 14, the Centers for Medicare & Medicaid Services announced that it had identified approximately 189,000 individuals associated with subsidized Affordable Care Act Marketplace coverage who also had Medicaid, Medicare, or CHIP coverage, or were listed as deceased.

Federal officials projected that correcting these records could prevent approximately $1.5 billion in improper Marketplace subsidy payments over the following year. This estimate relates specifically to potential subsidy savings and should not be interpreted as documented Medicaid TPL cost avoidance.

Nevertheless, the findings highlight a larger concern for healthcare payers: inaccurate or incomplete coverage records can lead to expenditures that might have been prevented through better verification.

For MCOs, identifying other active insurance is particularly important because commercial policies may exist without appearing in the data currently available to the plan.

When those policies are discovered after claims have been paid, health plans must determine whether recovery is possible. Earlier identification provides an opportunity to avoid the payment and direct the claim to the insurer with primary responsibility.

Medicaid Program Integrity Increasingly Emphasizes Payment Prevention

Improving payment integrity involves more than identifying improper expenditures after they occur. Medicaid programs are also investing in systems and procedures intended to detect potential payment issues before claims are finalized.

Florida's Medicaid Integrity Initiative illustrates this broader emphasis on preventive controls. In an October 6 announcement, the state described initiatives involving enhanced provider screening, claims oversight, and additional safeguards against inappropriate payments.

Florida reported that projected annual spending for applied behavior analysis services had declined from $3.86 billion to $2.88 billion following multiple program adjustments, including managed care implementation, utilization management, and program integrity measures.

The figures reflect a reduction in anticipated spending rather than independently verified fraud-prevention savings.

While these initiatives primarily address provider activity and utilization practices, they reinforce the importance of making more accurate payment decisions before healthcare dollars are distributed.

TPL cost avoidance offers Medicaid health plans a related opportunity by focusing on claims for which another insurer may be financially responsible.

Traditional retrospective recovery remains an important part of payment integrity, particularly when other insurance is identified after a claim has been paid. However, recovery efforts often require substantial administrative resources, insurer coordination, and extended reconciliation periods. Even successful investigations do not guarantee that the full amount of an improper payment will be recovered.

Identifying commercial coverage before payment can reduce the volume of claims requiring these efforts while allowing recovery operations to remain in place for situations where prospective identification is not possible.

Improving COB/TPL Through More Complete Insurance Discovery

Effective TPL operations depend on having access to accurate information about members' other active insurance coverage.

Existing eligibility systems, periodic commercial insurer files, and standard coverage reporting procedures provide a foundation for determining payer responsibility. However, those sources may not capture every commercial policy or reflect recent changes quickly enough to prevent unnecessary payments.

Additional insurance discovery capabilities can strengthen these processes by locating commercial pharmacy and medical coverage that might otherwise remain unidentified.

Syrtis Solutions' ProTPL cost avoidance technology employs automated algorithmic analysis and insurance discovery engines (AAAIDE) to help healthcare payers identify other active commercial insurance and improve COB/TPL accuracy.

Integrating these capabilities into existing operations supports a payment integrity model that prioritizes prospective cost avoidance while continuing to utilize retrospective recovery when needed.

For Medicaid health plans, the objective is to prevent unnecessary expenditures without reducing covered benefits, limiting member access, or lowering provider reimbursement. Instead, savings are generated by improving the accuracy of payer identification and ensuring that claims are directed to the appropriate insurer.

Cost avoidance provides Medicaid organizations with a practical opportunity to strengthen financial oversight and reduce claims payments that should be the responsibility of other insurers. Developments involving Michigan's TPL reporting procedures, federal coverage verification, and Florida's Medicaid program integrity efforts demonstrate the value of timely and accurate insurance information. By improving commercial coverage discovery and strengthening COB/TPL operations, health plans can reduce unnecessary spending, limit dependence on retrospective recovery, and better fulfill their payer-of-last-resort obligations.

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MEDICAID POLICY AND PROGRAM INTEGRITY UPDATE – SEPTEMBER 2026

 

Syrtis Solutions delivers a monthly Medicaid news summary focused on issues that matter to Medicaid programs and health plans. The roundup covers developments in program integrity, cost avoidance, coordination of benefits, improper payments, fraud, waste, and abuse, along with relevant research and legislation. Below is a look at last month’s news.

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MEDICAID COST AVOIDANCE: UNLOCKING SAVINGS THROUGH BETTER COVERAGE IDENTIFICATION

Cost avoidance is receiving greater attention as Medicaid health plans search for ways to reduce unnecessary spending and make limited healthcare dollars go further. With budgets under pressure and federal oversight evolving, plans need savings strategies that improve financial performance without reducing benefits or creating additional barriers to care.

Some of those savings may already exist within an established Medicaid responsibility: making sure another insurer pays when it is responsible for a member's healthcare costs.

This issue has become increasingly relevant as federal policymakers examine how Medicare and Medicaid address improper spending. A September 2026 majority staff report from the House Committee on Energy and Commerce called attention to the shortcomings of relying heavily on "pay and chase" practices. The report also discussed greater use of data, analytics, and technology to identify potential payment issues earlier.

Although the congressional review is primarily focused on fraud and program integrity, its emphasis on using better information to protect healthcare dollars has clear relevance to coordination of benefits (COB) and third-party liability (TPL).

An Existing Responsibility With Greater Financial Potential

Medicaid is generally the payer of last resort. When other insurance is responsible for a member's healthcare expenses, identifying that coverage helps ensure the claim is directed to the appropriate payer.

The difficulty is that insurance coverage does not remain static.

Members regularly gain, lose, or change commercial coverage. Employment changes, dependent coverage, marriage, and transitions between insurers can all affect payer responsibility. Health plans may not receive information about those changes immediately, leaving active coverage missing from the data used to coordinate benefits.

That delay has a direct financial consequence.

If another insurer is identified only after Medicaid has paid the claim, the plan may need to recover the money retrospectively. When that coverage is identified sooner, the plan has an opportunity to avoid an expense that should have been another payer's responsibility.

For plans under pressure to find savings, improving that timing can make an existing COB/TPL function more financially valuable.

Turning Coverage Intelligence Into Savings

Retrospective recovery will continue to be necessary. Not every coverage change can be known immediately, and some third-party liability will inevitably be identified after claims have been paid.

The opportunity is to reduce the number of cases that reach that point.

A health plan's existing eligibility and coverage information may not capture every active commercial policy. Supplementing those sources with automated insurance discovery can provide a broader view of a member's coverage and identify additional opportunities to coordinate benefits correctly.

The financial impact can extend beyond recovered dollars.

Consider two claims involving members with other commercial insurance. In the first, Medicaid pays and later recovers the expenditure after discovering the other payer. In the second, the commercial coverage is identified in time for the appropriate insurer to assume responsibility.

Both represent successful COB/TPL outcomes. Only one produces a recovery.

The other produces savings by eliminating an unnecessary Medicaid expenditure.

That difference is increasingly important when plans evaluate the effectiveness of their payment-integrity programs. A September 2026 KFF analysis makes a related point in the broader program-integrity context: recovery totals do not fully account for the financial value of prevention and payments that never occur.

For Medicaid health plans, measuring avoided expenditures alongside retrospective recoveries can provide a more complete picture of the financial contribution of COB/TPL.

Expanding the Value of COB/TPL

The objective is not to choose between recovery and cost avoidance. Plans need both.

Recovery addresses claims when other insurance becomes known after payment. Cost avoidance captures savings when better coverage information is available soon enough to establish another payer's responsibility.

ProTPL from Syrtis Solutions is designed to strengthen that process. Using automated algorithmic analysis and insurance discovery engines (AAAIDE), Syrtis identifies other active commercial pharmacy and medical coverage that can supplement the information available to existing COB/TPL operations.

For health plans, the opportunity is straightforward: improve visibility into other insurance, identify more instances in which another payer is responsible, and reduce unnecessary Medicaid expenditures.

That is particularly valuable in today's financial environment because it does not depend on cutting services or reducing access. The savings come from improving the accuracy of payer responsibility and directing healthcare costs where they belong.

Cost avoidance can turn better coverage identification into measurable savings for Medicaid health plans while strengthening an obligation they already have as payer of last resort. As plans look for sustainable ways to manage constrained budgets, expanding visibility into other commercial insurance can help COB/TPL deliver greater financial value without compromising member care.

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KEY MEDICAID NEWS AND UPDATES – AUGUST 2026

 

Stay informed on the latest developments affecting Medicaid with the Syrtis Solutions monthly Medicaid news roundup. Each edition highlights relevant research, legislation, and industry updates involving program integrity, cost avoidance, coordination of benefits, improper payments, and fraud, waste, and abuse. Below is a recap of last month’s Medicaid news.

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COB AND TPL CAN PLAY A GREATER ROLE IN MEDICAID PAYMENT INTEGRITY

Medicaid payment integrity remains a priority as federal oversight identifies continued challenges in reducing improper payments. An August 2026 HHS OIG audit found that HHS did not fully satisfy federal payment integrity requirements for FY2025, while Medicaid's reported improper payment rate increased.

According to the HHS OIG report, Medicaid's improper payment rate rose from 5.09% in FY2024 to 6.12% in FY2025. OIG also concluded that HHS had not demonstrated sufficient improvement in Medicaid payment integrity.

While improper payments have numerous causes, the findings reinforce the importance of strengthening controls throughout the payment process.

COB/TPL Is One Piece of the Payment Integrity Strategy

For Medicaid, identifying other liable coverage is an important part of making accurate payment decisions.

CMS Medicaid COB/TPL guidance states that Medicaid is generally the payer of last resort and requires states to take reasonable measures to identify third parties legally responsible for beneficiaries' healthcare costs.

The effectiveness of that process depends heavily on data.

Third-party insurance information can become outdated as beneficiaries gain or lose employer-sponsored coverage or move between health plans. Without current information, another payer's responsibility may not be apparent when Medicaid adjudicates a claim.

Cost Avoidance Addresses Liability Before Payment

When coverage is known before payment, Medicaid has an opportunity to cost avoid the claim.

CMS guidance on third-party liability distinguishes this process from pay and chase. Cost avoidance addresses known third-party responsibility before Medicaid payment, while pay and chase seeks reimbursement after Medicaid has already paid.

Recovery remains an important safeguard, but it begins after Medicaid dollars have left the program.

The challenges surrounding improper payments and traditional pay-and-chase recovery support a broader approach in which Medicaid payers use both prospective and retrospective controls.

Improve Coverage Visibility Before Adjudication

Real-time insurance discovery provides an opportunity to strengthen the prospective side of TPL.

Syrtis Solutions' real-time prospective cost avoidance technology helps Medicaid payers identify active third-party coverage before claims are paid. Better coverage visibility can improve COB/TPL accuracy, support payer-of-last-resort requirements, and reduce avoidable Medicaid expenditures.

Medicaid payment integrity requires controls that operate throughout the claims lifecycle. Strengthening COB/TPL information before payment, while maintaining effective recovery capabilities after payment, gives Medicaid programs a more comprehensive approach to identifying liability and protecting program funds.

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KEY MEDICAID NEWS AND UPDATES – JULY 2026

 

Each month, Syrtis Solutions reviews key developments across the Medicaid news landscape. Our monthly roundup highlights research, legislation, and industry news related to program integrity, cost avoidance, coordination of benefits, improper payments, and fraud, waste, and abuse. Below is a recap of last month’s news.

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H.R. 1 UNDERSCORES THE SHIFT TO PAYMENT PREVENTION ACROSS MEDICAID

 

Payment Prevention is emerging as the cornerstone of modern Medicaid program integrity. While fraud enforcement remains an essential responsibility, federal policymakers are increasingly emphasizing payment accuracy before claims are paid. That direction is reflected in both the March 2026 announcement of the federal Task Force to Eliminate Fraud and the enactment of the One Big Beautiful Bill Act (H.R. 1), which heightens financial accountability for erroneous Medicaid payments. Although H.R. 1 never uses the phrase "payment prevention," its provisions create stronger incentives for states to reduce payment errors before they occur instead of relying primarily on post-payment recovery.

Improper Payments Are Primarily a Data and Administrative Challenge

Fraud continues to receive significant attention, but it accounts for only a portion of Medicaid's improper payment problem.

The Centers for Medicare & Medicaid Services (CMS) has consistently reported through its Payment Error Rate Measurement (PERM) Program that most Medicaid improper payments result from insufficient documentation, eligibility issues, or administrative deficiencies rather than confirmed fraud or abuse. CMS has repeatedly explained that the improper payment rate should not be interpreted as a fraud rate.

That distinction has important policy implications.

For more than twenty years, the Government Accountability Office has identified Medicaid as a High-Risk program because of persistent improper payment concerns. During that period, oversight activities have expanded considerably, yet payment errors continue because many originate during eligibility verification, coverage validation, and claims processing—not during fraudulent schemes.

Why H.R. 1 Matters

H.R. 1 increases the financial importance of making accurate payment decisions the first time.

Beginning in federal fiscal year 2030, the legislation limits the Department of Health and Human Services' authority to waive repayments for certain excessive erroneous Medicaid payments while broadening the circumstances under which some payments may be classified as erroneous. Those changes increase the financial consequences for states with elevated payment error rates and reinforce the value of preventing mistakes before claims are adjudicated.

The Bipartisan Policy Center provides a useful overview of how these provisions affect PERM accountability.

Because Medicaid is the payer of last resort, agencies and managed care organizations must determine whether another insurer is legally responsible before Medicaid pays a claim. Commercial insurance, Medicare, employer-sponsored coverage, TRICARE, and other liable third-party coverage all must be considered when adjudicating claims.

When that information is incomplete or outdated, Medicaid may incorrectly pay claims that should have been submitted to another payer. Even if those payments are later recovered, PERM evaluates whether the original payment decision was accurate at the time of adjudication. Recovery generally does not eliminate the improper payment finding.

For that reason, accurate third-party liability (TPL) information, effective coordination of benefits (COB), and high-quality eligibility data have become increasingly important components of Medicaid payment integrity.

Prevention Complements Recovery

Recovery efforts remain indispensable to protecting Medicaid resources.

Medicaid Fraud Control Units continue to investigate fraud, prosecute wrongdoing, and recover billions of taxpayer dollars each year. Those efforts remain an essential part of maintaining public trust in the Medicaid program.

At the same time, recovery is fundamentally retrospective. By the time an investigation begins, an improper payment has already occurred.

Preventing payment errors before claims are paid offers a more efficient approach. Every avoided improper payment reduces administrative costs, limits recovery efforts, improves audit performance, and allows agencies to devote more resources to program administration instead of correcting preventable mistakes.

Technology Is Advancing Payment Accuracy

Modern Medicaid programs increasingly recognize that better payment decisions require better information.

Many traditional third-party liability programs rely on monthly or quarterly eligibility files to identify other insurance coverage. While those processes continue to provide value, they may not capture coverage changes that occur between reporting cycles. As a result, Medicaid may unknowingly pay claims that should have been billed to another insurer.

To improve payment accuracy, agencies and managed care organizations are adopting technologies that continuously verify eligibility and identify liable third-party coverage before claims are processed.

Automated Algorithmic Analysis and Insurance Discovery Engines (AAAIDE), including solutions developed by Syrtis Solutions, continuously analyze eligibility and coverage data to identify active commercial insurance, Medicare, TRICARE, and other liable third-party coverage that may not appear in traditional eligibility files. Providing more complete and timely coverage information before adjudication helps strengthen payer-of-last-resort compliance while reducing avoidable improper payments.

Additional modernization initiatives include:

• Automated verification using trusted federal, state, and commercial data sources.
• Continuous TPL and COB validation throughout the claims lifecycle.
• Real-time identification of newly discovered, updated, or previously unknown insurance coverage before payment.
• Expanded interoperability among Medicaid, Medicare, commercial insurers, and other authoritative data sources.

Together, these capabilities enable organizations to improve payment accuracy while shifting from traditional pay-and-chase recovery toward proactive cost avoidance.

The Future of Medicaid Program Integrity

Medicaid program integrity is evolving beyond a recovery-focused model. Audits, investigations, and enforcement will continue to play an important role, but they are increasingly being complemented by technologies and processes that improve payment accuracy before claims are paid. 

Payment Prevention is no longer simply an emerging concept—it is becoming the foundation of modern Medicaid payment integrity. As H.R. 1 increases accountability for erroneous payments, organizations that emphasize accurate data, proactive verification, and continuous identification of liable third-party coverage will be better positioned to reduce improper payments, strengthen compliance with Medicaid's payer-of-last-resort requirements, improve audit performance, protect taxpayer resources, and support the long-term sustainability of the Medicaid program.

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