Medicare Conditional Payment Priority
Last updated: August 28, 2026
When Medicare paid medical bills and a third-party recovery later arrives, Medicare may seek repayment of conditional payments. On a small pot, the open questions include whether a procurement-cost reduction applies and how Medicare’s claim sits next to other claimants.
42 C.F.R. § 411.37 — Conditions
Cornell LII lists the conditions for reducing Medicare’s recovery for procurement costs:
Medicare reduces its recovery to take account of the cost of procuring the judgment or settlement, as provided in this section, if— (i) Procurement costs are incurred because the claim is disputed; and (ii) Those costs are borne by the party against which CMS seeks to recover.
Source: 42 C.F.R. § 411.37 (Cornell LII) — fetched 2026-08-28.
42 C.F.R. § 411.37 — Ratio Steps
When Medicare payments are less than the judgment or settlement amount, Cornell LII lists the following computation:
If Medicare payments are less than the judgment or settlement amount, the recovery is computed as follows: (1) Determine the ratio of the procurement costs to the total judgment or settlement payment. (2) Apply the ratio to the Medicare payment. The product is the Medicare share of procurement costs. (3) Subtract the Medicare share of procurement costs from the Medicare payments. The remainder is the Medicare recovery amount.
Source: 42 C.F.R. § 411.37 (Cornell LII) — fetched 2026-08-28.
Small-Pot Context
Medicare’s claim is one of several that can exceed a small settlement.
When does Medicare reduce its recovery for procurement costs?
Under 42 C.F.R. § 411.37, Medicare reduces its recovery to take account of the cost of procuring the judgment or settlement if procurement costs are incurred because the claim is disputed and those costs are borne by the party against which CMS seeks to recover. When Medicare payments are less than the judgment or settlement amount, the regulation lists a ratio formula for the recovery amount.
What conditions does 42 C.F.R. § 411.37 list for procurement-cost reduction?
Cornell LII states that Medicare reduces its recovery to take account of the cost of procuring the judgment or settlement if procurement costs are incurred because the claim is disputed and those costs are borne by the party against which CMS seeks to recover. Procurement-cost reduction applies when those published conditions are met, not as an always-on courtesy.
How is the recovery amount computed when Medicare payments are less than the settlement?
If Medicare payments are less than the judgment or settlement amount, Cornell LII lists these steps: determine the ratio of the procurement costs to the total judgment or settlement payment; apply the ratio to the Medicare payment, and that product is the Medicare share of procurement costs; subtract the Medicare share of procurement costs from the Medicare payments, and the remainder is the Medicare recovery amount. Medicare's claim is one of several that can exceed a small settlement.