How the Medicare Secondary Payer Act Affects Personal Injury Settlements

Because personal injury lawsuits can take years to resolve, Medicare typically pays for an injured person’s immediate medical care so they aren’t left without treatment. These are legally defined as conditional payments.

These payments are “conditional” because they are made on the requirement that Medicare will be reimbursed if the beneficiary later receives a settlement, judgment, or award from a third party [2]. Once a settlement is reached, the Centers for Medicare & Medicaid Services (CMS) has a “super lien” on the proceeds. This means Medicare must be paid back before the injured party receives their portion of the funds.

There is no flat percentage that Medicare takes. Instead, the amount is tied directly to the itemized list of treatments Medicare covered that are specifically related to the accident.

1. The Rights of Recovery: Under 42 U.S.C. § 1395y(b)(2), the government has a statutory right to be reimbursed.
2. The Formula for Reduction: Medicare does not always demand 100% of its spend. It generally reduces its lien to account for its “share” of the costs the plaintiff paid to get the settlement. For instance, if an attorney took a 33% contingency fee, Medicare often reduces its demand proportionately to acknowledge that the plaintiff had to pay for legal representation to recover the government’s money [3].
3. The Risk of “Zero-Dollar” Settlements: In cases where the medical bills exceed the total insurance policy limits, a Medicare lien could theoretically consume the entire settlement. In these rare instances, attorneys must petition CMS for a hardship waiver or a compromise to ensure the plaintiff receives some recovery.

While a “lien” covers past medical bills, the MSP Act also concerns itself with future medical care. If a settlement includes funds for future medical treatment related to the injury, Medicare shouldn’t be expected to pick up the tab for those future costs until the settlement money is exhausted.

This is often handled through a Medicare Set-Aside (MSA). While MSAs are most common in workers’ compensation cases—as detailed in our Medicare Secondary Payer compliance guide for Workers’ Compensation—they are increasingly becoming a factor in liability settlements. If you fail to consider Medicare’s future interests, CMS may refuse to pay for any future medical care related to that specific injury until you can prove you spent an amount equal to the settlement on Medicare-covered services.

The MSP Act is one of the few areas of law where the federal government can pursue almost anyone involved in the transaction for repayment.

• Double Damages: If Medicare is not reimbursed, the government can sue for double the amount of the lien plus interest [3].

• Attorney Liability: Attorneys can be held personally liable for the lien if they distribute funds to the client without first ensuring Medicare has been paid.

• Insurer Liability: Even the defendant’s insurance company can be forced to pay the lien a second time if they pay a settlement to a plaintiff and Medicare is never reimbursed.

Community discussions on platforms like Reddit’s legal and insurance forums highlight that the biggest hurdle isn’t just the money, but the timing.

Users frequently report that obtaining a “Final Demand” letter from the Benefits Coordination & Recovery Center (BCRC) can take months. This often leaves settlement funds sitting in an escrow account while the plaintiff waits for the government to confirm the final amount owed. Navigating these delays requires proactive reporting to CMS as soon as a claim is filed, rather than waiting until the settlement is signed.

Checklist for Plaintiffs and Attorneys

• Identify Medicare Eligibility Early: Determine if the injured party is on Medicare, Social Security Disability (SSDI), or is within 30 months of becoming eligible.

• Notify CMS Promptly: Report the “Ongoing Responsibility for Medicals” (ORM) or the initial claim to the BCRC.

• Audit the Conditional Payment Letter: Carefully review the itemized list of payments. Medicare often includes charges for unrelated health issues (e.g., maintenance medication for blood pressure) in an accident-related lien. These must be disputed and removed.

• Calculate Future Interests: Determine if an MSA is necessary to protect the beneficiary’s future Medicare benefits. For more on how this interacts with clinical necessities, see our guide on how a Certificate of Medical Necessity affects coverage.

• Secure the Final Demand: Do not distribute settlement funds until you have the Final Demand letter in hand to avoid personal liability.

Action Plan

1. Request a “Rights and Responsibilities” packet from the BCRC.
2. Review the Conditional Payment Summary and highlight any charges not related to the accident.
3. Submit a “Final Settlement Detail” document to Medicare once the case is resolved to trigger the final lien calculation.
4. Pay the Final Demand within 60 days to avoid accruing high-interest penalties.

The Medicare Secondary Payer Act ensures that the federal government remains the “payer of last resort.” While it complicates the settlement process, rigorous compliance is the only way to protect a plaintiff’s net recovery and ensure they don’t lose their future healthcare benefits.