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Medicare Must Be Reimbursed Despite Contrary State Order

Medicare claims for reimbursement can arise when Medicare pays for the medical treatment of an injured person, and another party is responsible for the cost of that treatment. Under the Medicare as a Secondary Payer Act (MSP), Medicare is the "secondary payer" when another party is responsible for a person's medical costs, and its payment is called a "conditional payment." The payment is conditional because Medicare will recover from the responsible party when a settlement, judgment, award, or other payment is made. Attorneys and Medicare beneficiaries have an obligation to notify Medicare when there is a potential recovery and have an obligation to reimburse Medicare during any settlement negotiations.

Dealing with a Medicare claim for reimbursement can be a difficult process. It is a large bureaucratic organization, so obtaining accurate payment information can be challenging. Without an itemization of payments, it can be difficult to negotiate with the responsible third party. More importantly, even when some payment information is provided by Medicare, if Medicare's Final Demand is not forthcoming (and it often is not), any settlement check could be held up for months.

Excluding Medicare Amounts in Settlement?

What happens when an attorney negotiates a settlement but opts to exclude any amount paid by Medicare as part of the settlement?

The 3rd Circuit case of Taransky v. Secretary of the US Department of Heath and Human Services serves as an excellent example. In that case, the tort plaintiff had obtained court approval of her personal injury settlement stating that her recovery did not include conditional payments made by Medicare under the New Jersey Collateral Source Statute (NJCSS), which prevents a tort plaintiff from recovering damages from both a collateral source of benefits (a health insurer) and a tortfeasor. The state court order was entered into upon a stipulation of the parties.

The 3rd Circuit Court of Appeals held that the plaintiff was obligated to reimburse Medicare, despite the state court order. Specifically, the Court found:

1. The settlement with the third party tortfeasor triggered the tortfeasor's responsibility for the plaintiff's medical damages, and Medicare's standing as a secondary payer.

2. The settlement did include the damages for the plaintiff's medical expenses paid by Medicare, because plaintiff's counsel had repeatedly demanded confirmation of the amount of Medicare's lien, and therefore had used it as a basis for the settlement.

3. Agreements entered into by the parties attempting to circumvent Medicare's recovery rights are not effective: "Medicare policy requires recovering payments from liability awards or settlements...without regard to how the settlement agreement stipulates disbursements should be made." Medicare Manual Ch. 7, section 50.4.4.

The Court's reliance on the Medicare Manual is significant. Although the policies and procedures in the Manual are not entitled to Chevron deference, the Court determined that it can provide guidance to courts and litigants.

4. The NJCSS did not apply in this case, because Medicare payments are reimburseable and conditional, and so they are not collateral benefits that that would be precluded from recovery under the New Jersey statute.

5. Medicare was not bound by the state court's allocation order. Because the state court order was entered into upon a stipulation of the parties, it was not on the merits of the case. Under the MSP Manual, "[t]he only situation in which Medicare recognizes allocations of liability payments to nonmedical losses is when payment is based on a court order on the merits of the case." MSP Manual, Ch. 7, section 50.4.4.

When Will A Settlement Excluding Medicare Amounts Be Upheld?

Several key factors mentioned by the Court serve as pitfalls to avoid:

1. A finding by a court that Medicare amounts are not included in the settlement must be "on the merits." A stipulation clearly will not suffice; an adverse hearing is required.

2. The plaintiff cited the government's failure to contest her motion, but the Court noted that she had failed to make the government a party to the case.

3. The Court distinguished a 2010 case, Bradley v. Sebelius, where the 11th Circuit found that a state court's post-settlement allocation order was a judgment on the merits. The Bradley case involved a challenge by the decedent's estate and the decedent's children to the government's right to recover medical costs from the wrongful death settlement. The probate court allocated a lump sum settlement amount between the estate and the decedent's children. The Eleventh Circuit held that Medicare could be reimbursed only from the amount of the settlement apportioned to the estate, as only the estate's claims included medical expenses. The 3rd Circuit concluded that the Bradley case involved an apportionment of a lump sum amount between separate suits brought by separate parties, and was therefore an adjudication of a substantive issue, unlike the instant case.


Attorneys have an obligation to reimburse Medicare out of their client's personal injury settlements, when those amounts are recovered. If they are in fact not recovered, avoid the pitfalls of the Taransky case. Otherwise, Medicare will eventually come calling, and you may end up with a very unhappy client.

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