When Medicaid is the Secondary Payor

Medicaid is typically referred to as the “the payor of last resort” because all options must be exhausted through a patient’s primary plan before submitting the full claim to Medicaid. Unfortunately, this isn’t as simple as identifying a primary claim that has rejected the prescription billed and then submitting the full claim to Medicaid so it will process. Pharmacies must first identify if this rejection can be resolved through the patient’s primary insurance (i.e., how would the pharmacy handle the claim if there was no secondary?). For example, if the primary payor is requiring prior authorization, that process must be sought either by receiving an approved prior authorization or a denied one (or changing the therapy to a covered drug product). Only then would it be appropriate to bill the patient’s Medicaid.

Be sure to utilize the Other Coverage Codes (OCC) appropriately. An OCC should be used when billing claims with multiple payors. This ensures the secondary payor reimburses the correct amount. Incorrect or inappropriate use of an OCC can lead to recoupments or even network termination if these errors are intentional. The codes below are typically recognized by third-party payors and used in NCPDP field 308-C8:

It is important to note that if a primary payor rejects a claim, the rejection codes are sent to the secondary payor. As previously mentioned, the first step when facing this predicament would be to resolve the coverage issue with the primary payor, whenever possible. Backing out of the claim and billing the secondary payor as primary may result in audit recoupment due to the secondary payor covering a cost that the primary payor might have paid. But what if OCC 3 is billed? The claim could still be at risk, as this depends on why exactly the primary insurance rejected the claim. Pharmacies should resolve primary payor rejections first by working through rejects like quantity limits, step therapy, formulary selections, or prior authorizations before billing the secondary payor.

PAAS Tips:

• One exception to the rule is a multi-payor claim with conflicting coverage and reject code 606 indicating the payor prefers the brand/reference product.
  • Sometimes Medicaid will accept Brand DAW 9 billed to primary but rejected with reject code 22 – M/I Dispense as Written (DAW)/Product Selection Code, then pushed through to secondary (Medicaid) with DAW 9. Refer to the PAAS Tool Conflicting Coverage: When One Payor Covers Brand the Other Prefers Generic
• Be sure to save denied prior authorization claims and document those denials on the prescriptions
• Do not bill discount cards in place of primary insurance (in lieu of resolving primary insurance rejections).
• Some copay cards and manufacturer coupons may accept reject codes due to formulary issues, but you must use the correct OCC.
• Do not use a coupon or copay cards with a federal health benefits program, including Medicare, Medicaid, and TRICARE.
• For more information regarding coupons, please see the July 2025 Newsline article: Manufacturer Coupons: Why It’s Important to Read the Fine Print