Attempted Compliance Gone Wrong: Overprotection of Medicare Conditional Payment Liens

Insurance carriers and self-insured entities entering into liability or workers’ compensations settlements with Medicare beneficiaries are understandably sensitive to the importance of resolving Medicare conditional payment liens. After all, if a Medicare conditional payment lien is left unaddressed, the insurance carrier or self-insured entity (“primary payer”) may face double-damages litigation exposure under the federal government’s cause of action—42 U.S.C. § 1395y(b)(2)(B)(iii)—and/or the private cause of action—42 USC §1395(y)(b)(3)(A)—even if the settlement agreement confirms that the Medicare beneficiary or their attorney is responsible for resolving all Medicare liens. In other words, there is “absolute liability” under the Medicare Secondary Payer (“MSP”) Act regardless of the terms of the settlement agreement.

As a result, primary payers often directly reimburse traditional Medicare and private Medicare plans for outstanding conditional payment liens to ensure that a double-damages cause of action does not accrue against them.  But what happens when an overprotective primary payer decides to reimburse a Medicare conditional payment lien even though the executed settlement agreement confirms that the plaintiff / Medicare beneficiary is responsible for reimbursing Medicare liens?

Factual Overview

In Walter Cabezas as Adm'r of the Est. of v. Penske Truck Leasing Co., LP, No. A-0562-24, 2025 N.J. Super. Unpub. LEXIS 2034 (Super. Ct. App. Div. Oct. 28, 2025), a plaintiff filed a wrongful death action against Penske Truck Leasing Co., L.P. (“Penske Truck Leasing”) due to a fatal vehicle accident. The claim was properly reported to the Centers for Medicare & Medicaid Services (“CMS”), and CMS generated a $62,100.82 interim conditional payment lien.

The parties agreed to settle the claim for $500,000.00, and the settlement agreement included the following provision:

“The plaintiff agrees to fully satisfy, indemnify, and hold [Penske Truck Leasing] harmless from any and all penalties, liens, conditional payments, fines, demands, and actions in law or equity, or other payments that may be required . . .”

Plaintiff signed the release on May 22, 2024 expecting Penske Truck Leasing to immediately issue payment of $500,000.00. However, after CMS issued a $39,365.09 conditional payment final demand letter on June 3, 2024, Penske Truck Leasing instead paid Medicare’s conditional payment amount in full and remitted the remaining $460,634.91 balance to plaintiff. Plaintiff objected to Penske Truck Leasing’s handling of the conditional payment lien and filed suit for recovery of the full $500,000.00 settlement amount.

The Superior Court of New Jersey ultimately ruled in favor of plaintiff, finding that Penske Truck Leasing breached the plain and unambiguous terms of the settlement agreement.

Sanderson Firm Commentary

This case serves as simple yet important reminder for insurance carriers and self-insured entities: if you are concerned that the Medicare beneficiary and/or their attorney will not reimburse Medicare conditional payment liens, you must ensure that the settlement agreement itself confirms that your organization is solely responsible for reimbursing such liens. Reimbursing Medicare liens are important due to double-damages litigation exposure, but not at the expense of breaching a settlement agreement.

Aside of the clear settlement agreement breach, the Court astutely recognized that plaintiff could have received more than the initial $460,634.91 payout if plaintiff (or even Penske Truck Leasing) challenged some or all of CMS’ $39,365.09 conditional payment final demand amount. The facts suggest that Penske Truck Leasing paid CMS’ final demand without any objection (and did not allow plaintiff the opportunity to object to CMS’ amount), so it is possible that CMS would have reduced its conditional payment lien amount had a proper appeal been made. Penske Truck Leasing may have thought it was doing the Medicare beneficiary a favor by paying the Medicare lien off quickly, but instead it potentially (and arguably, unknowingly) reduced plaintiff’s total recovery.

Had this been a situation where CMS’ lien was left unresolved for several months, plaintiff remained unresponsive or uncooperative in resolving CMS’ lien, and Penske Truck Leasing made payment to CMS in a legitimate effort to avoid a double-damages lawsuit by CMS for non-payment of the lien, the Court may have reached a different conclusion. Regardless, even this hypothetical Catch-22 scenario can simply be avoided by the insurance carrier or self-insured entity ensuring that the settlement agreement confirms that it is solely responsible for reimbursing Medicare liens.

If your organization has a question regarding this case or would like more information about Sanderson Firm’s Medicare conditional payment lien resolution or settlement agreement services, please contact us.