Liability for Medicare Conditional Payments

Medicare is a secondary payor. That is, it does not have primary payment responsibility for its beneficiaries when another entity is responsible for paying for medical care before Medicare. Workers' compensation is a primary payor for work-related illnesses or injuries. Medicare will not pay for a beneficiary's medical expenses when payment has been made or can reasonably be expected to be made by a workers' compensation insurer.

Medicare, however, may pay for medical services when the primary payor has not made or cannot reasonably be expected to make payment for them promptly. Those Medicare payments are referred to as “conditional payments,” because Medicare pays under the condition that it is reimbursed when the beneficiary gets a workers' compensation settlement, judgment, award or other payment. Medicare is required by statute to seek reimbursement for conditional payments related to the settlement.

The Centers for Medicare & Medicaid Services (CMS) has authority to look after Medicare's interests, and it has a direct right of action to recover from any primary payor^[1]. Under the Medicare Secondary Payer Act, the CMS also may seek recovery “from any entity that has received payment from a primary plan or from the proceeds of a primary plan's payment to any entity”^[2]. Moreover, the regulations state, "CMS has a right of action to recover its payments from any entity, including a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment"^[3]. So, the CMS may may seek reimbursement for conditional payments directly from the beneficiary.

The recent case of Cazares v. Associated Feed Supply Co.^[4] highlights the potential problems for an injured worker when liability for Medicare conditional payments isn't clearly defined in a settlement. In that case, a defendant accepted an applicant's claim for injury to the lumbar spine arising out of and in the course of employment. The applicant sought treatment with three physicians, and their bills were paid by Medicare. The parties settled the claim by way of a compromise and release (C&R) in which the applicant received $82,120, of which $42,184.65 was to fund a self-administered Medicare set-aside (MSA). The C&R directed that the total unpaid medical expenses would be paid by the defendant through the order approving. The parties also agreed that the C&R settled any claims for self-procured medical treatment.

After the C&R was approved, the CMS made a claim against the applicant for reimbursement in the amount of $8,928.21. After Maximus upheld CMS' decision, it reaffirmed its demand. Following an appeal by the applicant, the federal Office of Medicare Hearings and Appeals issued a revised decision finding that the applicant owed $810.59 to Medicare. He then sought reimbursement from the defendant for the money it was required to pay Medicare, and asserted that the defendant had an obligation to defend the applicant with respect to Medicare's demand for payment and in the Medicare proceedings. The WCAB concluded that the defendant was liable for neither.

The WCAB found that when the parties entered into the C&R settlement, the defendant was released from liability. It found that as part of the applicant's self-administration of the MSA, it was his responsibility to proceed with Medicare if questions or issues arose. So, it concluded that the defendant had no duty to defend the applicant at the Medicare proceedings. Although the C&R deemed the defendant responsible for "unpaid" medical expenses through the date of approval, the WCAB found that the bills had been paid by Medicare, so there were no "unpaid" bills at the time of the order approving the C&R. The WCAB concluded that the parties were presumed to have based their agreement on the information known at the time of contracting, and did not believe that any grounds existed to set aside or modify the C&R.

In this case, the applicant believed that, as in most cases, the defendant would be responsible for any medical bills that were incurred prior to approval of the C&R. But the C&R did not specifically address which party was liable for the Medicare conditional payments. Based on the language of the C&R, Medicare, and ultimately the WCAB, believed that the applicant was responsible for them. If the settlement language were different, it's possible that the defendant would have been liable for the Medicare conditional payments. Again, Medicare has the right to recover from a primary payor or any entity, including the injured worker, who has received a payment.

So parties must be vigilant about Medicare's rights as a secondary payor and should ensure that all potential Medicare interests are resolved to ensure compliance and avoid costly disputes. Parties might want to clarify who is responsible for Medicare conditional payments in order to avoid surprises moving forward.

For further discussion, please see "Sullivan on Comp" Section 3.55 Medicare Conditional Payment.

1. 42 CFR 411.24(e)
2. 42 U.S.C. § 1395y(b)(2)(B)(iii)
3. 42 CFR 411.24(g)
4. 2024 Cal. Wrk. Comp. P.D. LEXIS 264