Medicare Medicaid Third Party Recovery
Last updated: August 27, 2026
Medicare Secondary Payer Act
The Medicare Secondary Payer Act gives Medicare the right to recover conditional payments it made when another payer is primary. Medicare does not accept the made whole doctrine and expects repayment from any third-party recovery. However, Medicare may reduce its claim based on procurement costs, including attorney fees and litigation expenses.
| Program | Priority Basis | Reduction for Costs |
|---|---|---|
| Medicare | Medicare Secondary Payer Act (federal) | Yes – may reduce for procurement costs |
| Medicaid | Federal and state Medicaid law | Yes – varies by state; some states apply procurement cost formula |
Medicaid Lien and State Law
Medicaid is a joint federal-state program, and Medicaid lien law varies by state. Federal law requires states to seek recovery from third-party settlements, but states have discretion in how they calculate and enforce liens. Some states apply a procurement cost formula that reduces the Medicaid lien by a proportional share of attorney fees and costs. Other states assert the full amount of medical expenses paid by Medicaid.
Priority Between Medicare and Medicaid
When both Medicare and Medicaid have made payments, priority depends on which program paid first and the type of services covered. Medicare is the primary payer for individuals who are dually eligible if the service is covered by Medicare. Medicaid acts as a secondary payer in those cases. If Medicaid paid first because the service was not covered by Medicare, Medicaid may assert its lien before Medicare.
| Scenario | Priority | Notes |
|---|---|---|
| Medicare paid for covered services | Medicare first | Medicare Secondary Payer rules apply |
| Medicaid paid for non-Medicare-covered services | Medicaid first | State Medicaid lien law governs |
| Both programs paid for same services | Coordination required | Federal and state rules determine allocation |
| Small settlement, insufficient to cover both | Negotiation or pro-rata | Parties may negotiate reduction or court may allocate |
Procurement Cost Reductions
Both Medicare and Medicaid may reduce their recovery claims to account for the cost of obtaining the settlement. Medicare uses a procurement cost formula based on the ratio of attorney fees and costs to the total recovery. Medicaid procurement cost rules vary by state; some states apply a statutory percentage, while others calculate costs on a case-by-case basis.
Reporting and Compliance
Settlement parties must report third-party recoveries to Medicare within required timeframes. Failure to report can result in penalties and liability for Medicare's conditional payments. Medicaid reporting requirements vary by state, but most states require notice of settlement and an opportunity for Medicaid to assert its lien.
Does Medicare have priority over Medicaid in a third-party recovery?
Priority depends on which program paid first and applicable federal and state law. Medicare conditional payments take priority under the Medicare Secondary Payer Act when Medicare is secondary to other coverage. Medicaid also has a statutory lien, but in cases where both programs paid, coordination rules determine which has priority.
Can Medicare or Medicaid reduce their lien if the settlement is small?
Yes, both programs may reduce their recovery claims. Medicare considers procurement costs (attorney fees and expenses) and may compromise claims under certain circumstances. Medicaid liens are subject to state law and may be reduced based on procurement costs, settlement allocation, or statutory limits.