10 min read · Last updated September 11, 2026
- Under the Medicare Secondary Payer Act (42 U.S.C. § 1395y(b)), Medicare is legally the secondary payer whenever a liability, auto, or workers’ compensation insurer is responsible, but it can pay medical bills conditionally first and recover that money later.
- The Centers for Medicare and Medicaid Services (CMS), through its Benefits Coordination and Recovery Center (BCRC), issues a Conditional Payment Letter while a claim is pending and a formal Demand Letter once a settlement occurs, escalating to a Treasury referral if the debt sits unresolved 150 days after that demand.
- A federal regulation, the Code of Federal Regulations (CFR) at 42 CFR 411.37, reduces Medicare’s recovery to account for attorney’s fees and legal costs, but only if the beneficiary’s attorney documents those costs and submits them, otherwise Medicare recovers its full conditional payment amount with no reduction.
- Courts have held attorneys personally liable for disbursing a settlement before resolving Medicare’s conditional payment claim, and the same private right of action lets Medicare Advantage plans recover double damages from an insurer that fails to pay, confirmed by the 11th Circuit in 2016.
Medicare can pay a beneficiary’s medical bills conditionally while a liability or auto insurance claim is still pending, then has a federal right under the Medicare Secondary Payer Act to be reimbursed from the resulting settlement before that money is safely disbursed to anyone else.
In this article
- Medicare Pays First Only When Nothing Else Is Obligated To
- The Conditional Payment Letter, Then the Demand Letter
- How Attorneys Get Personally Liable for Someone Else’s Medicare Bill
- Two Ways to Resolve a Small Settlement Without a Fight
- Frequently asked questions
Medicare is legally the secondary payer whenever another insurer is responsible for an injury, but federal law lets it pay the medical bills anyway while everyone else argues about who is on the hook, and it keeps a direct right to be paid back once the argument is over.
That is what happened to Arthur Bianchi after a rear-end collision left him with a fractured hip and a $95,000 settlement his attorney’s trust account received and disbursed within the same week. A Medicare conditional payment claim for $17,200 was already attached to that money before it ever moved.
Medicare Pays First Only When Nothing Else Is Obligated To
The Medicare Secondary Payer Act sets a clear order of operations. Under 42 U.S.C. § 1395y(b)(2)(A), Medicare “may not” pay for treatment to the extent that payment “has been made, or can reasonably be expected to be made” under an auto or liability insurance policy. In practice, that ideal order rarely holds. Auto and liability insurers routinely take months to accept fault, while an injured person’s medical bills do not wait for that determination, so the same statute lets Medicare step in and pay conditionally, on the understanding it gets reimbursed once the liability claim resolves.
That right of recovery is not a courtesy. The statute states directly, at 42 U.S.C. § 1395y(b)(2)(B)(iv), that “the United States shall be subrogated (to the extent of payment made under this subchapter for such an item or service) to any right under this subsection of an individual or any other entity to payment with respect to such item or service under a primary plan.” Arthur’s medical treatment after the accident, roughly $17,200 worth, was paid by Medicare while his claim against the at-fault driver’s insurer was still pending. Once his attorney negotiated a $95,000 settlement, that $17,200 did not disappear. It followed the money.
The Conditional Payment Letter, Then the Demand Letter
CMS handles this process through the Benefits Coordination and Recovery Center, a contractor responsible for identifying and collecting conditional payments. While a liability claim is pending, the BCRC sends a Conditional Payment Letter listing the treatment Medicare has paid for that it believes is related to the injury, and CMS’s own guidance states plainly that “beneficiaries and their attorney(s) should recognize the obligation to reimburse Medicare during any settlement negotiations.” That letter also explains how to dispute any item the BCRC has wrongly bundled in as related to the claim, before the number becomes final.
Once a settlement, judgment, or award actually happens, the process shifts. The BCRC issues a formal Demand Letter, stating the total amount owed and the applicable appeal and waiver rights. If the debt is still unresolved 90 days later, CMS sends an Intent to Refer letter, and if it remains unresolved 60 days after that, 150 days after the original demand, the debt is referred to the U.S. Treasury for offset. Arthur’s attorney received the Conditional Payment Letter early in the negotiation, which is exactly when it is supposed to arrive, but his firm disbursed the $95,000 settlement to him the same week it landed, before the Demand Letter had been resolved.
That sequencing matters more than it looks like it should. In a 2009 case in the Northern District of West Virginia, United States v. Harris, a personal injury settlement was disbursed before its Medicare conditional payment obligation had been resolved, and a federal court held the settling attorney personally liable for reimbursing Medicare, not the client. The government’s recovery right under the Medicare Secondary Payer Act reaches whoever received the money, and an attorney who releases settlement funds without first resolving Medicare’s claim can end up owing that money personally.
How Attorneys Get Personally Liable for Someone Else’s Medicare Bill
A separate 2014 case widened who can even bring one of these claims. In Michigan Spine and Brain Surgeons, PLLC v. State Farm Mutual Automobile Insurance Co., a medical provider had billed roughly $26,000 for treatment after a car accident, State Farm denied the claim on the grounds that the injury was a preexisting condition, and Medicare made a conditional payment of about $5,000. The Sixth Circuit held that a health care provider, not just the federal government, can bring the Medicare Secondary Payer Act’s private cause of action against a non-group health plan like an auto insurer, even when that insurer denied the claim for a reason unrelated to Medicare eligibility. A missed or disputed Medicare-related payment can turn into a lawsuit from more than one direction.
Two Ways to Resolve a Small Settlement Without a Fight
Arthur’s case did not qualify for either of CMS’s simplified paths, since his settlement exceeded both dollar thresholds, so his attorney had to go through the full demand letter process. For a smaller settlement, the Fixed Percentage Option lets a beneficiary skip that review entirely by paying a flat 25 percent of the total settlement, no reduction for attorney fees allowed, in exchange for giving up the right to dispute the amount.
| Path | Who qualifies | Tradeoff |
|---|---|---|
| Standard demand letter process | Any settlement, no size limit | Full BCRC review; procurement cost reduction only if documented and requested |
| Fixed Percentage Option | Settlements of $10,000 or less, tied to a physical trauma injury, no demand letter issued yet | Pay a flat 25% of the total settlement; skips the full review process entirely |
| Self-Calculated Conditional Payment Amount | Settlements under $25,000, treatment complete for at least 90 days, incident at least 6 months old | Beneficiary calculates and pays the final number directly, but gives up the right to appeal the amount |
A federal regulation, 42 CFR 411.37, allows Medicare’s recovery to be reduced to account for the cost of getting the settlement in the first place, most often attorney’s fees, but only when “procurement costs are incurred because the claim is disputed” and the beneficiary documents them. His attorney’s fee and case costs came to $28,500 on the $95,000 settlement, a 30 percent share. Applying that same 30 percent ratio to Medicare’s $17,200 conditional payment reduces Medicare’s recoverable share of those procurement costs by $5,160, bringing the final Medicare recovery to $12,040 rather than the full $17,200. That reduction is not automatic. CMS’s own guidance is direct about what happens without it: if the documentation is not submitted, “a demand letter will automatically be issued requesting repayment on all conditional payments related to the case without a proportionate reduction for fees or costs.”
This right of recovery is not limited to traditional Medicare. In 2016, the 11th Circuit ruled in Humana Medical Plan, Inc. v. Western Heritage Insurance Co. that Medicare Advantage plans have the same private cause of action, after a liability insurer paid a $115,000 settlement without resolving a Medicare Advantage plan’s $19,155.41 conditional payment. The court ordered the insurer to pay double damages, $38,310.82, holding that the statute’s mandatory language applies to Medicare Advantage organizations the same way it applies to the federal government’s own recovery claims.
For anyone with a pending liability claim while on Medicare, the sequence to watch is simple: a Conditional Payment Letter should arrive well before any settlement closes, and the number on it, or a documented, disputed correction to it, needs to be resolved before the money moves, not after. A settlement check that clears before that step is finished does not make the underlying obligation disappear. It just moves the argument from a claims office to a courtroom.
This is one of several places where Medicare’s rules turn on which coverage was supposed to pay first. The same coordination question comes up when an employer plan is still in the picture at enrollment, when a hospital stay’s benefit period resets mid-treatment, and when a Medicare Advantage plan denies a service it was supposed to authorize in the first place. None of these are the same rule, but all of them turn on the same underlying question: which plan actually owed the payment, and when.
Frequently asked questions
What does it mean that Medicare is a “secondary payer”? It means Medicare is not supposed to be the first payer for a Medicare beneficiary’s medical bills when another insurer, such as an auto, liability, or workers’ compensation carrier, is responsible for the injury. Medicare can still pay conditionally while that other coverage is being sorted out, with a legal right to be repaid once it is.
What is a Medicare conditional payment? A conditional payment is money Medicare pays toward a beneficiary’s treatment while a liability claim is still pending, on the condition that Medicare gets reimbursed if the other insurer or a settlement later covers the same treatment. CMS tracks these through a Conditional Payment Letter sent while the claim is open.
Can I dispute how much Medicare says it’s owed? Yes. The Conditional Payment Letter explains how to dispute charges that are not actually related to the injury before the final demand issues, and a formal Demand Letter carries its own waiver and appeal rights. Two simplified options, the Fixed Percentage Option and the Self-Calculated Conditional Payment Amount, are also available for smaller, straightforward settlements.
Does Medicare Advantage have the same repayment rights as Original Medicare? Yes. Federal courts, including the 11th Circuit in a 2016 case, have confirmed that Medicare Advantage plans can use the same private right of action to recover double damages from an insurer that fails to pay what it owed, the same recovery mechanism available to traditional Medicare.
What happens if a settlement is disbursed without paying Medicare back? The obligation does not go away. Courts have held attorneys personally responsible for unresolved Medicare conditional payments when a settlement is disbursed before the claim is settled with CMS, and the government can pursue double damages against a primary insurer that fails to reimburse Medicare on its own.
Compare Medicare coverage options before your next enrollment window
See how Medicare Advantage and Medigap plans handle coordination with other coverage before you need to rely on it.
Compare Medicare Plans
