Medicare Secondary Payer Recovery
Last updated: August 27, 2026
Medicare Secondary Payer Act
The Medicare Secondary Payer Act makes Medicare a secondary payer when another payer is primary. When a Medicare beneficiary is injured by a third party, liability insurance is the primary payer. If Medicare pays medical bills before the liability insurer pays, those payments are conditional. Medicare expects repayment from any third-party settlement, judgment, or award.
| Feature | Rule | Impact |
|---|---|---|
| Conditional Payments | Medicare pays when primary payer has not yet paid | Medicare must be repaid from third-party recovery |
| Priority | Federal law gives Medicare priority | Medicare paid before hospital liens and private plans |
| Made Whole Doctrine | Does not apply | Medicare expects repayment even if beneficiary not made whole |
| Procurement Costs | Medicare may reduce for attorney fees and costs | Reduces Medicare's claim in some cases |
Reporting Requirements
Settlement parties must report third-party settlements to Medicare within required timeframes. The beneficiary or their attorney must notify Medicare's Benefits Coordination & Recovery Center (BCRC) of the settlement and request a conditional payment letter. The letter shows the amount Medicare claims. 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.
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 vs. Medicare | Reasoning |
|---|---|---|
| Hospital Statutory Lien | Medicare has priority | Federal law (Medicare Secondary Payer Act) preempts state lien statute |
| Self-Funded ERISA Plan | Medicare has priority | Federal MSP law takes priority over ERISA plan claims |
| Fully Insured Plan | Medicare has priority | Federal law preempts state insurance law |
| Medicaid Lien | Depends on coordination rules | Federal and state law determine which program paid first |
Procurement Cost Reductions Under 42 CFR 411.37
Under 42 CFR 411.37, Medicare reduces its conditional payment recovery to account for procurement costs—the attorney fees and litigation expenses incurred to obtain the settlement. The formula is: (procurement costs / settlement) × Medicare payments = Medicare's share of procurement costs. This reduction is formula-driven, not discretionary. Medicare subtracts its cost share from its claim.
Medicare Set-Aside Arrangements
In some cases, particularly when the settlement includes future medical expenses, parties may establish a Medicare Set-Aside Arrangement (MSA). The MSA sets aside funds to pay for future Medicare-covered expenses related to the injury, protecting Medicare from future claims. MSAs are common in workers' compensation settlements but may also be used in liability settlements when future medical expenses are significant.
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 must be submitted to the Medicare Secondary Payer Recovery Contractor and are evaluated on a case-by-case basis. Medicare rarely waives its claims entirely but may reduce them when justified.
Penalties for Non-Compliance
Failure to report a settlement to Medicare, failure to repay Medicare conditional payments, or failure to protect Medicare's interests can result in penalties and liability. The Medicare Secondary Payer Act imposes double damages for failure to repay Medicare. Attorneys and liability insurers can be held liable for Medicare's conditional payments if they fail to ensure that Medicare is repaid from settlement proceeds.
What are Medicare conditional payments?
Medicare conditional payments are payments Medicare makes for medical services when another payer (such as liability insurance) is expected to be primary but has not yet paid. Medicare makes the payments conditionally on the understanding that it will be repaid when the primary payer pays or when the beneficiary recovers from a third party.
How do I report a settlement to Medicare?
Report the settlement to Medicare's Benefits Coordination & Recovery Center (BCRC) by submitting a settlement notification form. Request a conditional payment letter showing the amount Medicare claims. Medicare must be notified within required timeframes; failure to report can result in penalties and liability for Medicare's conditional payments.