Medicare Conditional Payment Priority
Last updated: August 27, 2026
Medicare Secondary Payer Act
The Medicare Secondary Payer Act makes Medicare a secondary payer when another payer (such as liability insurance or workers' compensation) is primary. When Medicare makes conditional payments because the primary payer has not yet paid, Medicare has a statutory right to recover those payments from any third-party settlement, judgment, or award.
| Feature | Rule | Notes |
|---|---|---|
| Repayment Obligation | Mandatory | Beneficiary and attorney must repay Medicare conditional payments |
| Made Whole Doctrine | Does not apply | Medicare expects repayment even if beneficiary not made whole |
| Procurement Cost Reduction | May apply | Medicare may reduce claim for attorney fees and costs |
| Priority vs. Private Plans | High | Federal law generally takes priority over ERISA and state lien law |
Priority Over Other Claimants
Medicare's priority is based on federal law, which generally preempts state lien statutes and takes priority over private health plan subrogation claims. Even self-funded ERISA plans, which preempt state law, do not preempt Medicare's federal priority under the Medicare Secondary Payer Act.
| Competing Claimant | Priority | Reasoning |
|---|---|---|
| Hospital Statutory Lien | Medicare first | Federal law preempts state lien statute |
| Self-Funded ERISA Plan | Medicare first | Medicare Secondary Payer Act takes priority over ERISA plan claims |
| Fully Insured Plan | Medicare first | Federal law preempts state insurance law |
| Medicaid Lien | Depends on coordination rules | Federal and state law determine which program paid first |
Procurement Cost Reductions
Medicare reduces its conditional payment recovery to account for procurement costs—the attorney fees and litigation expenses incurred to obtain the settlement. Under 42 CFR 411.37, the reduction is calculated using a mandatory formula: (1) determine the ratio of procurement costs to the total settlement, (2) apply that ratio to the Medicare payment to calculate Medicare's share of procurement costs, (3) subtract Medicare's share of procurement costs from the Medicare payment. This is a required calculation, not a discretionary reduction.
Reporting and Compliance
Settlement parties must report third-party settlements to Medicare within required timeframes. The beneficiary or their attorney must notify Medicare of the settlement and request a demand letter showing the conditional payment amount. Failure to report can result in penalties, and failure to repay Medicare can result in liability for the beneficiary, their attorney, and the liability insurer.
Compromise and Waiver
Medicare has authority to compromise or waive its recovery claim in certain circumstances, such as when the recovery cost would exceed the amount collected, or when repayment would cause financial hardship. Compromise requests are evaluated on a case-by-case basis and must be submitted to the Medicare Secondary Payer Recovery Contractor.
Does Medicare have to be repaid from a personal injury settlement?
Yes, when Medicare makes conditional payments as a secondary payer. The Medicare Secondary Payer Act requires repayment from any third-party recovery. Medicare does not recognize the made whole doctrine, but may reduce its claim based on procurement costs such as attorney fees and litigation expenses.
Can Medicare take priority over an ERISA health plan's subrogation claim?
Yes. Medicare's priority is based on federal law (Medicare Secondary Payer Act), which generally takes priority over private plan claims. Even self-funded ERISA plans, which preempt state law, do not preempt Medicare's federal priority.