DHCS Addresses Pay & Chase Recovery for Students with Both Medi-Cal and Other Health Coverage

For the past several months, a handful of California LEAs have been contacted by parents who have received explanation of benefits (EOBs) from their private health insurance regarding claims that were billed to Medi-Cal by the LEA through the LEA Medi-Cal Billing Option program. EOBs are not a claim or bill, but rather a statement of activity on the policyholder’s account (for example, DHCS attempting to bill the insurer).

DHCS announced by email that they have begun utilizing what is known as the pay and chase method of recovery for claims billed for students that have both Medi-Cal and other health coverage (OHC) – claims for students that only have Medi-Cal are not impacted.

Under the pay and chase recovery method, if the state reimburses a district for a service to a student who also has OHC, they may attempt to bill the OHC to cover either part or all of what Medi-Cal has paid on the claim. This is to comply with federal statute that dictates Medicaid as the payer of last resort when liable third parties exist.

On March 25, DHCS emailed the LEA list-serv:

Explanation of Benefits Update

Federal statutes and regulations require the Department of Healthcare Services (DHCS) to take all reasonable measures to ascertain and to pursue liable third parties for Medicaid paid claims.  And in general, Medi-Cal beneficiaries are required to cooperate with DHCS to identify available third party resources and assign their rights to third party payments to DHCS.  (See 42 USC 1396a(25); 42 CFR 433; and SMD 14-006) The guidance issued by the Centers for Medicare & Medicaid Services (CMS) in SMD 14-006 regarding the application of a “free care” policy, did not create any exception to the requirements to pursue third party liability, which includes claims in which Medi-Cal paid for services to students who are Medi-Cal eligible and have third-party commercial insurance, also known as Other Health Coverage (OHC).

For many years, DHCS has contracted with a Safety Net Recovery vendor in order to bill liable third parties, including commercial insurance carriers to recoup Medi-Cal funds paid to LEA providers.  All Provider Type 55 (LEA) paid claims will be reviewed by the Safety Net Recovery vendor.  If the Safety Net Recovery vendor identifies a Medi-Cal beneficiary with OHC who has received services for which Medi-Cal has paid, the Safety Net Recovery vendor will request that the OHC carrier submit payment to DHCS.  The OHC carrier will then either provide DHCS with a reason for denial of its coverage or issue payment to DHCS.

If the OHC carrier issues payment to DHCS, the OHC carrier should produce an Explanation of Benefits (EOB) to the parent/guardian of the Medi-Cal beneficiary. EOBs are generated as part of the OHC’s obligation to inform its policy holders of claims processed on their behalf.  The EOB is not a DHCS claim or bill, and parents typically will not be billed by DHCS or its contracted recovery vendor.  In addition, services and payments to LEAs will not be impacted by the OHC carrier’s EOB process. 

Note that as part of the recovery process the LEA provider should not receive payment from the OHC.  If this happens, such payment was done in error. Please return checks to the issuing insurance carrier if the check is payable to the LEA provider, along with any supporting documents that were received with the check. If the check is payable to DHCS or to Health Management Systems (HMS) please forward to:

P.O. Box 742635, Los Angeles, CA 90074-2635


DHCS will provide additional information on the pay and chase recovery method at the upcoming April 6th LEA Ad-Hoc Workgroup and we will report on any new developments.