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Fulton, Marint & Andres, P.C.

What rights of recovery does a managed care organization have in a workers’ compensation claim?

Since the passage of the Affordable Care Act the Iowa Medicaid Enterprise has begun utilizing Managed Care Organizations (“MCOs”) to fulfill some of its obligations under the newly created Iowa Health and Wellness Program. MCOs will likely take on an increasingly prominent role in the provision of Medicaid services to Iowa residents over the next few years as Governor Branstad implements his plan to have MCOs administer nearly all Medicaid benefits in the state of Iowa. For workers’ compensation practitioners, this raises the question of what right, if any, MCOs have to recover when they pay medical expenses that are related to a workers’ compensation claim. The answer, surprisingly, is probably none.

Any time a third party asserts a right to be repaid for medical expenditures out of the proceeds of a workers’ compensation or liability claim, the third party must be able to point to either a statute or contract that provides such a right. Iowa Medicaid itself has always been able to rely on the robust lien provision contained in Iowa Code section 249A.54. MCOs have likewise been asserting a right to be repaid in connection with workers’ compensation claims, asserting that the MCO receives an assignment of Iowa Medicaid’s right of recovery as part of the contract. While there is some rhetorical appeal to such an argument, it is negated by a rule from first year contracts–a party can never assign greater rights than it holds.

The first step is to understand the nature of the relationship between Iowa Medicaid and an MCO. Medicaid enters into a contract with the MCO whereby the MCO will pay for medical services received by Medicaid beneficiaries. In return, Iowa Medicaid makes a “capitation payment” to the MCO each month that is based on the number of beneficiaries enrolled by the MCO, not on the cost of the medical services received by the enrolled beneficiaries. Iowa Admin. Code 441–88.12. The structure of the relationship matters to our present inquiry because medical providers are paid with funds belonging to the MCO, not Iowa Medicaid.

Turning to Iowa Code section 249A.54, we see that Iowa Medicaid can recover only to the extent of payments “made by the department for medical care or expenses.” In other words, Iowa Medicaid can only recover for money paid to medical providers by Iowa Medicaid. Even if this right has been assigned to the MCO, Medicaid has not paid any medical care or expenses, only the capitation payment. It is, instead, the MCO that has paid medical care or expenses with its own funds, not funds belonging to Iowa Medicaid. The assignment argument therefore fails because Medicaid cannot assign a right of recovery greater than what it holds.

In the future, MCOs may begin placing subrogation language in their member handbooks, but this argument should likewise fail. There is no contractual privity between the MCO and the Medicaid beneficiary, only between the MCO and Iowa Medicaid itself. It is therefore unlikely that such a provision could bind the Medicaid member to repay the MCO.

The intent of this article is not to encourage workers’ compensation practitioners to ignore the possible existence of recovery rights held by an MCO. Instead, the intent is to encourage practitioners to view such claims with skepticism, particularly in light of how frequent such claims will likely become over the next several years.

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